What are the benefits of fixed price contracts?

Employer: Fully pre planned project cost achievable for better project fund allocation, full control on project completion cost and project management from his side is required less effort on entire life cycle of project. Contractor: Pre fixed profit at the contractING stage which will set a clear strategy to achieve that and easily monitored by the contractor regularly with the single set profit.

Fixed priced contracts or Lump sum contracts are desirable in the fact that they cut the cost of the project, so companies usually try to get a lump sum contract for specific jobs.

you have to be careful with these type of contracts, as they are put in place for a specific job, and do not include any field changes, so your construction packages needs to be well defined, and straight forward, if you have a job that include a lot of execution, and changes, I would not advise to have such contracts. the contractor wants to make money, and he will try to finish the work as soon as possible to gain as much profit as he can, but if they are faced with field changes, they will charge you an arm and a leg.

It is beneficial to the contractor and the client as they save time for technical staff to verify and evaluate the cost at every phase of the project therefore it will give them more time to work on other technical issues that comes up during the execution of the project.

In a purchase, the greatest benefit would be price certainty. This allow the company to perform advance forecast and divert any contingency funds (which are reserved for price fluctuations) for better purposes such as investments.

 

However it can work both ways. When the general market price falls, you have already locked in at a fixed rate. You cannot expect savings.

 

Hence it is prudent to do an accurate long term market sensing before committing to any fixed price.

Know your budget at start

You know what You spent to receive the product/service but if you don't set the quality standard you will face a bad moment.

No risk sharing, all risk has been transferred to the subcontractor.