There are two basic types of contracts when it comes to the exchange of goods and services: fixed contracts and cost reimbursement contracts. This article will discuss the various types of fixed contracts and their benefits.
Firm Fixed Contract: This is the most basic type of fixed contract, and it simply means that a firm fee is agreed upon before the service even begins. This is best used when both parties know exactly what will go into a service: the equipment, manpower, approximate amount of time, and costs. It is also good if the buyer has a firm budget that they need to stick to. If the contractor ends up finishing the project under the budget, he or she makes more of a profit; otherwise, he or she still gets the agreed-upon sum.
Reimbursement Fixed Contract: This type of contract still involves a flat fee that the buyer will pay the contractor, but it allows for more leeway when it comes to the cost of equipment or manpower. If the total cost of materials is relatively unknown or exceeds a certain amount, the buyer might offer to reimburse the contractor for some or part of the expense.
Price Adjustment/Redetermination Fixed Contract: This is a basic fixed contract with a slight addendum that the contractor and buyer may renegotiate the contract to adjust for inflation, economic changes, or new ceiling prices based on incentive and performance. This is best used with a contract that changes locations or takes a long time to complete.
Fixed Contract with Incentives: A fixed contract is great for a budget, but sometimes it might lead to slow or unsatisfactory result. Therefore, some buyers add incentives to their fixed contracts, where a contractor might be rewarded or dinged for exemplary or shoddy service, respectively.
Index of Printable Contract Examples
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