A fixed-price-contract is also termed as firm price contract. Fixed-Price Contract is a contract in which the buyer agrees to pay the seller a definite and predetermined price. The buyer agrees to pay the seller such a price irrespective of the increases in the seller's cost or the buyer's ability to obtain the same goods at a lower price in the market.
Fixed-price-contracts are negotiated usually where reasonably definite specifications are available, and costs can be estimated with reasonable accuracy. A fixed price contract does not place much administrative burden on the contracting parties. However, this contract subjects the contractor to the maximum risk arising from full responsibility for all cost escalations.