What is a key characteristic of the fixed price payment method?

In a fixed price payment method, the vendor is paid a predetermined amount for the project regardless of the actual costs incurred. This means that the vendor assumes the majority of the risk associated with project costs. If the project ends up costing more than anticipated, it is the vendor's responsibility to cover those additional expenses. This structure incentivizes the vendor to manage costs effectively, as they are not compensated for overruns beyond the agreed fixed price.

The essence of the fixed price model is the predictable financial exposure for the buyer, who can budget accordingly without worrying about escalating costs, while the vendor must ensure that they complete the project within the parameters of the agreed price. This characteristic stands in contrast to other payment methods where adjustments can be made based on actual costs or performance metrics, which generally shifts more risk back to the customer.