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fixed-price contract

Also called: fixed price, fixed-fee contract

A contract that pays an agreed sum for an agreed result, so the contractor carries the risk of extra effort. It works when the scope and the acceptance criteria are clear before work starts; with a vague scope every change becomes a renegotiation.

In a fixed-price contract the client pays an agreed sum for an agreed result. If the work takes more effort than expected, that is the contractor's problem; if it takes less, the contractor keeps the difference. The alternative is time and materials: the client pays for hours (or days) at an agreed rate, and the risk of the work growing stays with the client.

Which one fits depends on how clear the scope is before work starts. A fixed price works when both sides can describe the result and check it: a defined list of items, a style, a format and acceptance criteria that say what "done" means. When the scope is still unclear, a fixed price backfires: a sensible contractor adds a large margin for the unknown, and every discovery becomes a renegotiation. Unclear work fits time and materials better, with a cap on the total and a weekly check of what was actually delivered.

In both cases, pay for accepted deliverables rather than for promises. Split the work into batches, tie each payment to a batch that passed the agreed checks, and name who signs the acceptance. A small advance can be fair for a freelancer; the rest follows accepted work.

When choosing among bidders, write down the criteria, their weights and the direction of each score (for price, 5 means the lowest), and treat hard requirements as gates rather than weights: a bid that fails a must is out, however cheap.

Example

Klasna's physics launch hired a freelance illustrator on a fixed price: 120 diagrams at 450 UAH, 120 × 450 = 54,000 UAH, in three batches of 40 (40 × 450 = 18,000 UAH each). The scope was clear up front: a fixed list of problems, an agreed style, editable vector files with Ukrainian labels. Batch two had six diagrams with wrong arrows; it was paid once they were fixed.

The checkout work was the opposite. In November nobody knew how large booking by subject really was, so the platform contractor worked on time and materials with a cap and a weekly demo. When he later offered a second developer, the price was per day too: 6,000 UAH × a minimum of 8 days = 48,000 UAH.

For 40 more diagrams for the April mock exams, the scope is clear again, so a fixed price fits, paid in two batches of 20 after Vira's check. Three bids are scored 1–5 with weights quality 40 %, price 30 % (5 = lowest), date 20 % (5 = earliest), revisions 10 %, and a gate of quality at least 4:

  • A (5, 2, 3, 4): 2.0 + 0.6 + 0.6 + 0.4 = 3.6
  • B (3, 5, 5, 2): 1.2 + 1.5 + 1.0 + 0.2 = 3.9, but quality 3 fails the gate
  • C (4, 4, 3, 3): 1.6 + 1.2 + 0.6 + 0.3 = 3.7, the winner

Common mistakes

  • Fixing the price of a vague scope. You pay a large margin for the unknown or renegotiate every change.
  • No acceptance criteria in the contract. Then "done" is an argument, not a check.
  • Paying for hours or promises instead of accepted batches. Tie each payment to work that passed the checks and name who signs.
  • Time and materials without a cap. Unclear work still needs a ceiling and a weekly look at what was delivered.
  • Scoring price without a direction, or a must as a weight. Write which end is best, and make hard requirements a gate.

Learn it in the course