Firm-Fixed Price Contract
A firm fixed-price contract (FFP) is a type of contract in which the buyer and seller agree on a fixed price for the product or service being provided. The price is set in advance and does not change, regardless of any cost overruns or changes to the scope of work.
Under a firm fixed-price contract, the seller takes on the risk of cost overruns, while the buyer is protected from any price increases. This type of contract is commonly used in government contracting, construction, and other industries where there is a well-defined scope of work and the cost of the work can be accurately estimated in advance.
In a firm fixed-price contract, the seller is responsible for delivering the product or service according to the specifications outlined in the contract, and the buyer is responsible for paying the agreed-upon price. This type of contract provides a high degree of certainty for both parties, as the price and scope of work are clearly defined and agreed upon in advance.
However, there are also some risks associated with firm fixed-price contracts. If the scope of work changes or unforeseen circumstances arise that increase the cost of the work, the seller may end up losing money on the contract. Additionally, if the seller underestimates the cost of the work, they may not be able to deliver the product or service according to the agreed-upon price, which could damage their reputation and potentially result in legal action.
Overall, firm-fixed-price contracts can be an effective way to manage risk and ensure that both parties are clear on the scope of work and the price of the product or service being provided. However, it is important to carefully consider the risks and benefits of this type of contract before entering into it.
Usage
It is used in procurement management
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