What characterizes fixed price contracts?

Fixed price contracts are characterized by a guarantee of a set price for the goods or services provided, regardless of any changes in costs incurred during the project. This structure provides predictability for both parties involved—the buyer knows the total cost upfront, while the seller carries the risk of any cost overruns. By defining the price at the outset, fixed price contracts can incentivize efficiency and cost control, as the contractor is motivated to complete the work for less than the agreed price to realize profit.

In contrast, other types of contracts, such as cost-reimbursement contracts, would typically allow for adjustments based on actual costs, which is not the case here. While fixed price contracts may involve documentation of costs for various reasons, extensive cost documentation is not a defining characteristic of these contracts. Additionally, fixed price contracts can be used in both government and private sector agreements, making them a versatile option beyond just government contexts.