A contract is a written or oral agreement between two or more parties that creates legally enforceable obligations to one another. In order for a contract to be valid and enforceable, at a minimum, it must include the following:
- An offer (e.g., “John will pay Mary $50 to cut his grass”)
- An acceptance of the offer presented (“Mary agrees to cut the grass for $50”)
- Some valuable considerations. This means each party agrees to give something up to the other person. Here, Mary person is giving up time and effort, and John is giving up money
- Typically, a contract will also contain the following:
- A time or an event when the performance must be made (“On Saturday the 15th of September”)
- Terms and conditions for the performance (“John will provide Mary with a lawn mower”)
- Actual performance
A court will not enforce contracts that fall under the Statute of Fraud unless they are in writing. These include:
- Marriage contracts
- Contracts that will not be performed within one year
- Contracts for an interest in land
- Contracts involving paying a decedent’s debts
- Contracts for something valued at more than $500
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 can 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 exchange price 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 learn that they may be able to obtain the same goods or services at a lower price.
Fixed-price contracts are also known as firm-fixed-price contracts or firm-price contracts. These titles reference the fact that the price is not subject to change. It may be possible for a future price change to be accomplished, but only if that possibility is 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.
Fixed-price contracts are common In construction, which may also be known as a lump-sum contract. In these contracts, the contractor is paid a single lump sum for completing a project. Instead of being paid for each unit or portion of the work plus expenses, the purchaser and the contractor agree on a price for the entire project. Often, the contractor is not required to provide a breakdown of their expenses since the purchaser will not pay for those separately but rather as part of the lump sum.
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 the completion of the work. Examples of projects where a lump sum contract may make sense to use include:
- The installation of several new computers at a business’ headquarters
- The construction of multiple buildings or structures
- Consultations that are ongoing or involve multiple assessments
Why are Fixed-Price Contracts Used?
Fixed-price contracts are beneficial when contract costs can be estimated with a reasonable degree of accuracy or certainty. When the contract is completed, the parties will not have to engage in further price negotiations, such as determining how many hours the contractor worked or what their out-of-pocket expenses were. This helps the parties establish a basis of trust and security in one another and greatly lessens the amount of work they have to do once the contract is completed.
A fixed-price contract may help establish what is known as normal business dealings between parties. Normal or prior business dealings may mean that each party expects a typical project to cost a certain amount.
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 company may require a particular type of supply repeatedly. The business may want to enter into a fixed-price supply contract with the supplier to secure a favorable price that will not fluctuate over time.
The fixed-price scenario shifts the risk to the supplier since they must supply the stated amount of money even if market values change or the cost to produce the supply goes up. The supplier has a great incentive to be careful with estimates of its own production cost so that any risks or losses are anticipated.
What is a Breach of Contract?
If a party to a contract fails to fulfill its legal obligations, that party has breached the contract. A breach of contract typically causes the non-breaching party to suffer economic losses.
There are two types of breaches: a minor breach and a material breach. A minor breach occurs when one party substantially performs the contract, 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, and the parties may well be able to fulfill any remaining contractual obligations despite the breach.
On the other hand, a material breach is a major violation of the terms of the contract. 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 any harm or financial loss that 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 monetary damages
- Seek specific performance of the contract terms
- Terminate the contract entirely
The type of remedy permitted and the court will decide the amount of damages awarded.
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. This could be damages such as loss of sales if the non-breaching party could not make its product without the breaching party’s supply.
A court may award an equitable remedy instead of a monetary remedy. Types of equitable remedies that may be available include:
- Specific performance (i.e., force the breaching party to fulfill their obligations)
- Contract rescission (canceling the entire contract so that the non-breaching party has no more obligations to the breaching party)
- An injunction (an order obligating someone to do or not to do something)
- Contract reformation (canceling not the whole contract but just a part of it)
It is important to note that equitable remedies are not granted whenever 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 local contract lawyer with any fixed-contract issues. Fixed-price contracts are specific to each situation. They require an in-depth analysis of many factors, especially including the contract terms.
Contract laws vary by state. For this reason, having a local attorney is invaluable. An attorney can help draft or review a contract and ensure it is valid and enforceable in your jurisdiction. In the event of any disputes arising from the contract, an attorney can begin a lawsuit or defend against one, can handle negotiations with the other party, and can represent you in court if that becomes necessary.
