What Are Price Agreements

For private construction companies and service providers, a fixed-price contractual approach can attract more private and professional customers. Customers generally prefer to know labor costs in advance rather than accept the uncertainty of an hourly and material cost accounting structure. Companies sometimes limit fixed-price contracts to certain dollar thresholds because the agreement on certain prices and conditions is higher for projects with higher monetary value. The American Boeing KC-46 Pegasus contract was a fixed-price contract. Because of its history of cost overruns, this is an example of how fixed-price contracts transfer risk to the seller, in this case Boeing. Total cost overruns for this aircraft amounted to approximately $1.9 billion.

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