What is a fixed price contract and what are its advantages and disadvantages?
A fixed price contract is one where the price for the project is set at the contract signing and is based on the items described and represented in the plans and specifications. The price can be changed throughout the construction process by written change orders or allowance reconciliations. The advantage of this form of contract is that generally all risk of cost increases, damage or loss is absorbed by the builder. The disadvantage is that the builder may increase his fee and/or include a contingency line item to carry this risk. Many builders are reluctant to use fixed cost contracts as they require much more precision and up front effort on plans, selections, specifications and bidding to ensure an accurate budget. Generally, in a fixed price contract the client will not have the opportunity to review individual bills, bids, estimates, etc. as the builders is absorbing any cost overruns or savings. This can be a bonus or a detriment, depending on your desired level of involvement.
