A contract is a written or oral agreement between two or more parties that creates mutual legal obligations. Some contracts must be in writing in order to be enforceable, including those that involve a monetary amount over $500.

In order for a contract to be valid and enforceable, it must include the following:

  • An offer;
  • An acceptance of the offer presented;
  • A promise to perform;
  • A valuable consideration;
  • A time or an event when the performance must be made;
  • Terms and conditions for the performance; and
  • Actual performance.

A court will not enforce contracts which fall under the Statute of Frauds unless they are in writing. These include:

  • Marriage contracts;
  • Contracts that will not to be performed within one year;
  • Contracts for an interest in land;
  • Contracts involving paying a decedent’s debt guarantees; and

Most contracts are governed by statutes of the state in which they are entered into. Therefore, it is important to ensure a contract complies with local laws. An attorney will be able to assist in ensuring the contract is valid and enforceable.

What is a Fixed-Price Contract?

A fixed-price contract is a contract in which the price of the exchange is not subject to an adjustment. In this type of contract, the seller and buyer agree to a set price. This price is set even if the parties may be able to obtain the same goods or services at a lower price in the market.

Fixed-price contracts are also known as firm-fixed-price contracts or firm price contracts. These titles reference the fact that the price is usually not subject to change. It may be possible, however, for a future price change to be accomplished, but only if specifically referenced in a clause of the contract. Unless the contract is a special form of contract, such as a guaranteed maximum contract, most contracts are considered to be fixed-price.

In construction, a fixed-price contract may also be known as a lump-sum contract. These types of contracts allow the contractor to be paid a lump sum for completing an entire project. In these cases, instead of being paid for each unit, the purchaser and the contractor agree on a price for the entire project. In many cases, the contractor is not required to provide a breakdown of their expenses.

A lump sum contract may also be appropriate for projects or services that involve the repetitive performance of the same or similar tasks. Instead of detailing each aspect of a project, the contract is paid based on completion of all of the work. Examples of projects where a lump sum contract may be used can include:

  • The installation of computers in a business;
  • The construction of multiple buildings or structures; or
  • Consultations that are ongoing or involve multiple assessments.

Why are Fixed-Price Contracts Used?

Fixed-price contracts are often beneficial in cases where the contract costs can be estimated with a reasonable degree of accuracy or certainty. These types of contracts also help the parties establish a basis of trust and security in one another since they will not be engaging in any further price negotiations.

A firm fixed price contract may help establish what is known as normal business dealings between parties. Normal or prior business dealings refer to the fact that each party expects a certain price or agreement from one another.

What is Usually Addressed in a Fixed-Price Contract?

As previously mentioned, a fixed-price contract is generally used in situations where the price of a transaction can be determined easily beforehand. In most cases, a fixed-price contract is entered into for either the provision of services, known as a fixed-price service contract, or the provision of supplies, known as a fixed-price supply contract.

For example, a business may only require one type of supply that can be provided by one company over a period of years. In this case, the business may opt to enter into a fixed-price supply contract with the supplier in order to secure a favorable price that will not fluctuate over time.

Fixed-price contracts shift the risk to the supplier, since they are required to agree on a price that will not change even if market values shift. The supplier will have a greater incentive to be diligent with cost estimates so that any risks or losses can be anticipated.

What if the Terms of a Fixed-Price Contract are Violated?

If a party attempts to alter the price and charge the other party a higher amount than what is stated in the contract, it may lead to a breach of contract claim. In addition, if a party seeks to continue negotiations after a contract is signed, it may undermine the parties’ sense of trust in one another.

What is a Breach of Contract?

If a party to a contract fails to fulfill their legal obligations under the contract, that party has breached the contract. If a party breaches the contract, another party will suffer economic losses.

There are two main types of breaches, a minor breach and a material breach. A minor, or partial breach, occurs when one party substantially performs, or, in other words, meets the essential obligations of the contract, but does not satisfy a minor condition of the contract. A minor breach does not significantly affect the contract terms. The parties may still be able to fulfill any remaining contractual obligations in spite of the breach.

A material breach, also called a total breach, is a major violation of the terms of the contract. In most cases, it only harms one party to the contract. However, it may harm all parties because it makes fulfilling the terms extremely difficult or impossible. If a material breach of contract occurs, the non-breaching party is not required to satisfy their obligation under the contract. They may also seek legal remedies to recover from the harm they suffered.

What Legal Remedies are Available for Breach of Contract?

There are several different legal remedies available to compensate a party for losses as a result of a breach of contract. A party may:

  • Sue the other party for damages;
  • Demand specific performance of the contract terms; or
  • Terminate the contract entirely.

The type of remedy permitted and the amount of damages awarded will be decided by the court.

The most common remedy in a breach of contract case is compensatory damages. This remedy is used to compensate the non-breaching party for any losses suffered as a result of the breach of contract.

If a material breach occurs that makes it extremely difficult or impossible for the parties to fulfill their duties under the contract, a court may award an equitable remedy instead of a monetary remedy. This type of remedy may be awarded in order to assist the non-breaching party, or, in some instances, both parties, in recovering from the damage caused by the incomplete fulfillment of their contract.

Types of equitable remedies that may be available include:

It is important to note that equitable remedies are granted every time they are requested. Generally, equitable remedies are only awarded by a court when it determines that a monetary award would be inadequate compensation for the material breach of contract.

Do I Need a Lawyer for Help with a Fixed-Price Contract?

Yes, it is essential to have the assistance of an experienced contract lawyer with any fixed-contract issues. Fixed-price contracts are specific to each situation. They require an in-depth analysis of many factors, including the terms of the contract.

Additionally, contract laws may vary by state. For this reason, an attorney is invaluable. An attorney can help draft or review a contract and ensure it is valid and enforceable. In the event of any disputes arising from the contract, an attorney can provide representation during a lawsuit.