Fixed-price contract
Also called fixed-bid, fixed-scope contract.
A contract where the price for an agreed scope is set up front.
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What it is.
In a fixed-price contract the buyer and the supplier agree a scope, a price and usually a timeline before work starts. If the work takes longer than planned, the supplier carries the extra cost. If the buyer wants something new, it goes through a change request.
It is the opposite of time and materials, where you pay for the hours actually worked. Many software contracts mix the two: a fixed price for a well-defined phase, then hourly or milestone billing for what follows.
Why it matters
A fixed price makes budgeting simple and moves overrun risk to the supplier. The trade-off is that the supplier prices that risk in, and every change has to be negotiated. It works when the scope can be written down clearly, which is why teams often fix the price only after a discovery phase or a clickable prototype.
Common mistakes.
- 01
Fixing the price on a vague scope. Both sides end up arguing about what was included.
- 02
Leaving out acceptance criteria. Without them nobody can say when a feature is done.
- 03
Assuming fixed price means fixed outcome. It fixes what was written, not what you meant.
Work it out with a tool.
Related terms.
- Time and materials (T&M)A contract where you pay for the hours actually worked, at agreed rates.
- Clickable prototypeA set of linked screens you can click through, built to test a design before the real software exists.
- MVP (minimum viable product)The smallest version of a product that real users can use, built to test whether the core idea works.
- Total cost of ownership (TCO)Everything a piece of software costs over its life, not just the price to build or buy it.
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