Question 1

What's the difference between fixed-price and cost-plus contracts?

Accepted Answer

In a fixed-price contract, you pay one set amount no matter what. In a cost-plus contract, you pay the actual costs plus a markup or fee. Fixed-price gives you budget certainty but often costs more upfront because the contractor builds in a risk buffer.

Question 2

Can a fixed-price contract be changed after signing?

Accepted Answer

Only through a formal change order that both parties agree to. If the client requests work outside the original scope, the contractor should issue a change order with the additional cost. Without a change order process, fixed-price contracts become battlegrounds.

Question 3

Who takes the risk in a fixed-price contract?

Accepted Answer

The contractor. If the job takes longer or costs more than expected, they eat the difference. That's why contractors often price fixed-price work 15–30% higher than they would a time-and-materials deal — the premium is their risk insurance.

Question 4

When should I use a fixed-price contract?

Accepted Answer

When the scope is clear, the deliverables are well-defined, and you want budget certainty. Bad candidates for fixed price: ongoing maintenance, R&D projects, or anything where requirements will evolve. Those are better suited for time-and-materials or retainer arrangements.

Question 5

What happens if the contractor goes over budget on a fixed-price contract?

Accepted Answer

That's the contractor's problem. They can't charge you more unless the contract includes an adjustment mechanism or you agreed to a change order. If they refuse to finish the work, they're in breach of contract.

Fixed-Price Contract

Definition

In Practice

Common in these contract types

Related terms

Frequently asked questions about fixed-price contract

Create a contract with proper fixed-price contract clauses