Which characteristic is true of fixed-price contracts?

Which characteristic is true of fixed-price contracts?

• A. They set a price upfront and are best when scope is well-defined
• B. They require monthly price adjustments
• C. They pay costs plus a fee
• D. They allow unlimited scope changes without adjustment

Answer: (A)

Fixed-price contracts set a price upfront and are best when the scope, requirements, and schedule are well defined and stable. Because the price is fixed, the buyer gains cost certainty, while the seller assumes the risk of cost overruns and must deliver the work within the agreed amount. Any changes to scope typically require a formal change or amendment that adjusts price and/or schedule, so unlimited scope changes without adjustment would undermine the fixed price. Options that involve paying costs plus a fee describe different contract types, and monthly price adjustments imply a variable or escalator clause not characteristic of a true fixed-price arrangement.

Fixed-price contracts set a price upfront and are best when the scope, requirements, and schedule are well defined and stable. Because the price is fixed, the buyer gains cost certainty, while the seller assumes the risk of cost overruns and must deliver the work within the agreed amount. Any changes to scope typically require a formal change or amendment that adjusts price and/or schedule, so unlimited scope changes without adjustment would undermine the fixed price. Options that involve paying costs plus a fee describe different contract types, and monthly price adjustments imply a variable or escalator clause not characteristic of a true fixed-price arrangement.