What distinguishes a fixed-price contract from a cost-plus contract?

A fixed-price contract is defined by its predetermined and unchanging total price for the entirety of the work specified in the contract. This structure means that the contractor agrees to complete the project for that fixed amount, regardless of the actual costs incurred during the project. This type of contract is advantageous for clients who want to control costs and have a clear understanding of their budget from the outset.

In contrast, a cost-plus contract allows the contractor to be reimbursed for all allowable expenses incurred during the project, in addition to a fee that typically represents the contractor's profit. This arrangement provides more flexibility for changes in scope and unforeseen costs but can lead to unpredictability in the total project cost as it can vary based on the expenses incurred.

Understanding these fundamental differences helps in selecting the appropriate contract type based on project needs, risk management, and cost control considerations.