Legal Definitions - fixed price

A fixed price refers to an agreed-upon cost for goods, services, or a project that remains constant and does not change, regardless of the actual expenses incurred by the seller or service provider.

This type of pricing provides certainty for the buyer, as they know the exact amount they will pay upfront. Conversely, it places the risk of cost overruns or unexpected expenses on the seller, who must complete the work or deliver the goods within the agreed-upon price.

Here are some examples to illustrate the concept of a fixed price:

• Home Renovation Project: Imagine a homeowner wants to remodel their bathroom. They receive a proposal from a contractor stating that the total cost for all labor, materials (tiles, fixtures, paint), and project management will be $12,000. This is a fixed price. The homeowner knows precisely what they will pay for the completed bathroom, even if the contractor later finds that the cost of tiles increased slightly or that the demolition took more hours than initially estimated. The contractor bears the risk of any such unexpected increases in their own costs.

• Software Development Contract: A startup company hires a web development agency to build a new mobile application. The agency provides a contract specifying a flat fee of $50,000 for the entire project, covering design, coding, testing, and deployment. This constitutes a fixed price. The startup has the assurance that the final bill for the application will be $50,000. If the development team encounters unforeseen technical challenges that require them to work many more hours than anticipated, they cannot charge the startup more than the agreed-upon $50,000. The agency absorbs the additional costs associated with the unexpected work.