What is an Fixed-Price (FP) Contract?

In project management, a Fixed Price (FP) contract is analogous to buying something with a defined price tag, similar to purchasing a goods from a store at a fixed price. It is an agreement in which the buyer and seller agree on a fixed price for the project that does not vary regardless of how much labor or resources the seller expends. Consider purchasing a phone for $500; regardless of how much it costs the manufacturer to produce it or how long it takes, you’ve committed to pay that fixed price. In an FP contract, the risk is borne mostly by the seller, who must successfully manage their expenses in order to earn a profit within the agreed-upon price.