Question

in a fixed price contract, the seller assumes most of the risk. However, the buyer also assumes some risk.

What issues might arise if the seller cannot meet the requirements with the agreed payment?

Answer 1

A change in the price of raw materials is one of the issues faced by the seller at a fixed price contract. In this context, when the seller cannot meet the requirements with the payment agreed in the fixed price contract, negotiations occur. The seller negotiates with the buyer stating the change in the price of the raw materials. Issues arise between buyer and seller in this price negotiation.
The market forces also create issues to the seller in the fixed price contract. New government norms and regulations including approval, norms about building equipment etc. put the sellers at a disadvantage with increasing prices. In some cases, government norms could benefit the seller also.
In Project management under the fixed price contract, there is always contention and arguments over the agreement made in one time or the other during the phase of project completion. Sometimes the issues become fierce that the entire construction activity or project gets suspended.
In a fixed price contract, the seller faces issues when the buyer wants to change the project requirements in the middle of the project. Ultimately the seller has to satisfy the buyer at the end of the project and such design changes raise issues in the project as the seller cannot meet the new changing requirements with the budget agreed in the initial fixed price contract. Hence negotiation in price between buyer and seller is done to resolve the issues arising as a result of a change in modifications in the design of the project.
In a fixed price contract, issues arise when the labour or staff working in the project changes. Initially, when the project began, the staffs were trained and the requirements were made clear about the project. During the course of the project, when the staff change or quit from their jobs, the seller faces issues in hiring and training new staff on the project requirements and schedule. This could affect the timely completion of the project. The seller will face the anger of the buyer when the project is not completed by the deadline as agreed in the fixed price contract.
In most of the fixed price contracts, negotiations occur and the expectations of the buyer are not met. The buyer will come to a position that the project has to be completed either according to the agreed contract or through negotiation as huge investments were made on the project. The issues with the seller make the buyer annoying further slowing down things and the project getting further delayed. Despite several issues in a fixed price contract, the project will be completed successfully.