CIPS Level 4 Diploma in Procurement and Supply L4M5 Question # 208 Topic 21 Discussion

Fixed-price agreements give buyers financial certainty, reducing exposure to supplier inefficiencies, cost increases, or inflation. The supplier bears the risk of cost overruns. While it doesn’t automatically improve quality or payment terms, it allows buyers to forecast budgets and manage risk effectively. This makes fixed-price contracts especially useful for projects with defined scopes, where costs are predictable. In contrast, cost-plus contracts keep the risk with the buyer and require constant monitoring of supplier costs, making them less attractive in terms of risk management.