In the procurement world, having a supplier provide a fixed price offers buyers a crucial advantage – certainty. With a predetermined cost for the entire project, buyers can confidently plan their budgets and make informed decisions. However, it's essential to recognise the risks that suppliers face when asked to fix a price for an extended period.
Suppliers operate in a dynamic business environment where unforeseen circumstances can impact costs. To safeguard themselves from unexpected events, suppliers often add a risk premium. The magnitude of this premium varies, typically and could be ranging from 5% to 10% or even more. Consequently, it is crucial to weigh the benefits and drawbacks of fixed pricing.