What is a "fixed price" contract?

A "fixed price" contract is defined as an agreement where the price for goods or services is established and not subject to change once the contract is signed. This type of contract provides certainty for both the buyer and the seller regarding the budget and financial planning, as the seller agrees to complete the specified work for a predetermined total price. This arrangement eliminates the risk of price fluctuations affecting the agreed-upon cost, which is beneficial for parties who want to manage their costs effectively.

In the context of contract management, fixed price contracts often incentivize efficiency and performance, as the seller bears the risk of any cost overruns or inefficiencies. If they incur additional costs while completing the work, it does not change the amount the buyer is obligated to pay.

Other types mentioned in the question—a negotiable price, variable pricing based on performance, and market price fluctuations—do not represent the characteristics of a fixed price contract, as they all involve some degree of price variability or negotiation, contrary to the stability provided by a fixed price arrangement.