Fixed Price - Fixed-price Contract

Fixed-price Contract

A fixed-price contract is a contract where the contract payment does not depend on the amount of resources or time expended by the contractor, as opposed to cost-plus contracts. These contracts are often used in military and government contractors to put the risk on the side of the vendor, and control costs.

Historically, when fixed-price contracts are used for new projects with untested or developmental technologies, the programs may fail if unforseen costs exceed the ability of the contractor to absorb the overruns. In spite of this, such contracts continue to be popular. Fixed-price contracts tend to work when costs are well known in advance.