Final answer:
A fixed-price contract is where a customer and contractor agree on a specified price for a project, with potential adjustments for factors like inflation. This provides financial certainty for both parties and is commonly used when the scope of work is clear.
Step-by-step explanation:
The type of contract where the customer and the contractor agree on a price for the proposed work is a fixed-price contract. This kind of agreement allows both parties to understand the financial commitment from the outset, making budgeting more straightforward. In a fixed-price contract, variables like inflation might be considered, with provisions that allow the price to adjust according to changes in economic factors to ensure that the real value of the contract remains consistent.
Contractors and customers often prefer fixed-price contracts in scenarios where the scope of work is well-defined and unlikely to change. Sellers may secure a higher initial price to cover unforeseen costs, while buyers are protected from price inflation during the course of the project. Some contracts might include a change order clause that allows for price adjustment if the project's scope changes significantly.