Definition and Fundamentals of the Fixed Price
A fixed price, in legal terms, refers to a price set in a contract that remains unchanged for a specific service or product. Unlike variable pricing models, such as sliding or negotiable prices, by agreeing to a fixed price, the provider commits to complete and proper performance of the agreed service for a precisely determined amount of money. The fixed price is particularly important in contract law for works, construction contracts, and sales contracts, serving to avoid cost risks and disputes over claims for remuneration after the contract is concluded.
Legal Nature and Function of the Fixed Price
Fixed Price as a Contractual Component
Under German civil law, the fixed price is a key contractual clause. The parties to a contract for work or sale mutually agree, within the scope of their private autonomy, on the amount of compensation. The fixed price agreement is regularly framed as a primary contractual obligation and is therefore binding for contract performance.
Distinction from Other Pricing Models
The fixed price is fundamentally different from the following pricing models:
- Cost Reimbursement Price: The remuneration is calculated based on actual expenses.
- Sliding Price: The remuneration adjusts to changes, such as in material prices or wages, according to certain rules.
- Approximate Price Indication: The final price is not fixed at the time of contract conclusion and may vary within certain limits.
The fixed price reduces the risk of unforeseeable additional demands and is a tool for budget control, especially for clients.
Legal Regulations on Fixed Price
Fixed Price in Contract Law for Works (§§ 631 ff. BGB)
Under contract law for works, a fixed price agreement is expressly allowed. According to § 631 BGB (German Civil Code), the contractor owes the customer the production of the promised work in exchange for payment of the agreed remuneration. A fixed price is either expressly agreed upon or results from the interpretation of the contract.
Subsequent Agreements and Adjustment Possibilities
Even with an originally agreed fixed price, changes (subsequent agreements) or unforeseen circumstances can arise in the course of contract performance. As a basic rule: Changes or additional services require a separate agreement, also with regard to remuneration. Without an express subsequent agreement, the original fixed price remains binding. An adjustment is only possible if the prerequisites for a disturbance of the basis of the transaction according to § 313 BGB or an order right under § 650b BGB (specifically in construction contracts) are met.
Fixed Price in Construction Contract Law
With the entry into force of the “Law for the Reform of Construction Contract Law” on January 1, 2018, specific regulations for construction contract law were included in the German Civil Code. § 650c BGB provides for a freely negotiated remuneration agreement. If a fixed price is agreed upon, it generally remains in place even in the event of changes, unless the client requests a change in execution according to § 650b BGB, which may result in a price adjustment.
Public Contracts and Procurement Law
In procurement law for public clients, fixed prices regularly apply as per the Procurement and Contract Procedures for Construction Works (VOB/B). Changes to the contract volume or construction execution can result in subsequent agreements that must be billed separately, provided they are ordered by the client and contractually covered.
Fixed Price in Sales Law (§§ 433 ff. BGB)
In sales law, the fixed price also represents the individually agreed consideration for the purchased item. If no price is specified, § 433 (2) BGB applies: the prevailing market price must be paid. If there is a specific determination in the contract, that price is binding. Price adjustments are generally excluded unless the contracting parties make a corresponding agreement (e.g. price escalation clause).
Consumer Protection and Distance Selling
In consumer protection law, for example under § 312j BGB concerning contracts in electronic commerce, the indication of the total price is mandatory. Once a fixed price has been indicated, it may not be unilaterally increased after contract conclusion.
Legal Consequences of Fixed Price Agreements
Binding Effect and Deviations
A fixed price agreement is generally binding. Neither the contractor nor the client can subsequently request a change of the fixed price unless there are statutory options for adjustment, such as due to disturbance of the basis of the transaction (§ 313 BGB) or a contractual price adjustment clause.
Claims for Excess or Deficient Services
If the parties become aware during performance of the contract of the need for additional services, an adjustment of the fixed price must be expressly agreed upon. If there is no such agreement, the agreed remuneration remains, unless the law provides adjustment mechanisms (e.g. § 650b BGB).
Liability and Risk Allocation
The allocation of risk in favor of the client is a key characteristic of the fixed price. The contractor bears the calculation risk and, in principle, cannot assert additional costs as long as they can deliver the contractual performance as agreed.
Fixed Price Agreements in Standard Terms and Their Validity
Control of General Terms and Conditions
When fixed price agreements are part of General Terms and Conditions (GTC), they are subject to content control according to §§ 305 ff. BGB. Clauses providing for unilateral price changes or automatic price increases at the expense of the contracting partner are generally invalid. Different arrangements are only permissible with express contractual agreement, transparency, and clear allocation of risk.
Limits of Invalid Clauses
A clause that unilaterally grants the provider the right to increase the price for an agreed fixed price regularly violates § 307 BGB (unreasonable disadvantage) and is thus void.
International and Tax Law Aspects
Fixed Prices in International Business Transactions
In international trade, fixed price agreements are particularly common for minimizing currency risks and price fluctuations. The applicable clauses are those found in international supply contracts—especially the Incoterms® clauses and relevant UN sales law provisions (CISG). Price fixations require clear contractual regulation to avoid misunderstandings or ambiguities.
Tax Treatment
For VAT purposes, with a fixed price, it must be noted that the specified fixed price is generally understood as a gross price, i.e., including VAT, unless there is an express net price agreement. There are no specific tax law regulations on fixed prices, but they influence the assessment basis for determining VAT.
Summary: Importance and Function of Fixed Prices in Law
The fixed price agreement provides contractual parties with planning security, cost transparency, and reduces contractual disputes over remuneration. Legally, the fixed price is strictly binding, unless the law or an express agreement between the parties provides for adjustment possibilities. For subsequent changes in the contractual basis, the opportunity for a differing compensation arrangement must be examined. In business and daily life, the fixed price is a fundamental component of legally secure contracts.
Frequently Asked Questions
What legal requirements must be met to agree on a fixed price?
In the legal context, the principle of contractual freedom generally applies to the agreement of a fixed price in contracts: the parties may—subject to statutory restrictions—freely determine the price and the way it is set. However, a fixed price must be clearly and unambiguously stated in the contract. In particular, in contract law for works (§ 631 ff. BGB) or construction contract law (§ 650a ff. BGB), it must be clear that a fixed, not a variable, price is intended for the contractual service owed. It is advisable to explicitly state that it is a “Festpreis” (fixed price). Vague wording or subsequent additions often lead to disputes of interpretation. Any adjustment mechanisms (e.g. in the case of service changes) should also be clearly regulated—otherwise there is a risk that courts may assume a variable price.
Are subsequent price changes permitted despite a fixed price?
A fixed price once agreed upon is generally binding and protects both contractual parties from subsequent price changes. Exceptions exist, however, if the contract includes adjustment clauses (e.g. price adjustment or indexation clauses) which allow adjustments under certain conditions. In the absence of such a clause, price changes may only be enforceable under very limited circumstances, for example, by application of § 313 BGB (disturbance of the basis of the contract) in the event of unforeseeable, serious changes in circumstances. A subsequent mutual amendment of the fixed price is, of course, possible; a unilateral change, however, is not permitted without a contractual or legal basis.
What risks exist for contractors and clients in fixed price agreements?
For the contractor, the risk is that unforeseen cost increases (for example, due to materials price rises or additional effort) must be borne by themselves, as the fixed price is owed regardless of changes in effort or cost. For the client, there is a risk that inadequate service descriptions or subsequent requests for changes may trigger additional compensation claims by the contractor—since supplementary remuneration can be requested for additional services (§ 632 BGB). If the contract does not precisely define the services, disputes may arise over whether specific services are covered by the fixed price.
What happens if the actual effort deviates from the calculation?
Under a fixed price, the contractor generally bears what is known as the calculation risk. This means: If the actual effort (for example, due to higher costs, additional effort, or longer completion times) deviates from the original assumption, the agreed price remains. Exceptions only apply if contractually provided (e.g., through adjustment or supplementary compensation clauses) or if there is a fundamental disturbance of the basis of the transaction (§ 313 BGB). The latter, however, is interpreted very restrictively by courts and requires exceptional circumstances that could not have been foreseen even with careful contract drafting.
What special features apply to the fixed price in a construction contract?
In construction contract law, the fixed price under § 650a BGB must either be expressly agreed upon or can result from interpretation of the contract. The fixed price generally includes all services listed in the contract and the construction description. However, for additions resulting from client-requested planning or performance changes, supplementary compensation may be requested (§ 650c BGB). For VOB contracts, the rules of VOB/B must be observed; these may provide for different remuneration adjustment arrangements. In the public sector, fixed price agreements are also influenced by procurement law requirements (e.g., VOL/A, VOB/A) that impose certain clarification and documentation requirements.
How does a fixed price affect invoicing and proof?
A fixed price contract generally simplifies invoicing, as the agreed fixed price for the entire service must be paid, regardless of individual costs or time spent. The contractor does not have to provide detailed cost receipts or accounts of actual expenses incurred, unless additional services are provided, which must be substantiated. For the client, there is the assurance that they should not expect unforeseen additional claims—except for supplementary services that need to be agreed separately.
Does the fixed price apply to all services, or are there exceptions?
The fixed price always only applies to the specifically agreed and contractually described services. Services that go beyond this or deviate from the original contract (e.g., through subsequent instructions from the client) are not covered by the fixed price and regularly give rise to additional compensation claims (§ 650b BGB). It is, therefore, essential to describe the scope of service as precisely as possible and to clearly regulate how to handle requests for changes or additional services. Incidental and secondary services must also be taken into account if they typically belong to the primary service. Unclear contract wording often leads to disputes over the scope of the fixed price.
