What is a Fixed-Price Contract?
In a fixed-price (lump sum) contract, the seller commits to deliver defined scope for a set price — and eats any overrun. Cost risk sits with the seller, which is why FP demands well-defined scope: vague scope plus fixed price equals a claims war.
Variants: FFP (firm fixed price, the pure form), FPIF (fixed price incentive fee — bonus for beating targets), FP-EPA (economic price adjustment for long-duration inflation exposure). Exam cue: buyer wants price certainty and scope is clear → fixed price.
Worked example
A city hires a contractor to build a bus depot for a firm $12M against complete, stamped drawings. Steel prices jump 20% mid-build — the contractor's problem, not the city's. That protection is exactly what the contractor priced into the bid, and why FP bids run higher than cost-plus.