-price contracts are agreements in which the value of the work or service is pre-determined between the contracting party and the contracted party. This means that, regardless of market fluctuations, the contractor is obligated to deliver the contract's objective at the established price.
This model is widely used in large infrastructure and public works projects, precisely because it offers the contractor cost predictability and budget security. However, for the contractor, this type of contract represents a significant transfer of risk, as variations in inputs, labor, or logistics can jeopardize the entire project.
In practice, this model requires contract , strategic vision, and ongoing negotiation skills. The lack of protective mechanisms can lead to irreparable losses, litigation, or even the financial unfeasibility of the project.
The context of civil construction and the pressure on fixed contracts
In recent years, the construction sector has experienced significant instability. During the COVID-19 pandemic, input prices such as steel, concrete, and cement saw increases of over 50% in short periods, rendering contracts that had been signed on previous terms unviable.
Even after price stabilization in 2023, costs remained high, and critical inputs such as diesel and labor continue to fluctuate. This directly impacts long-term contracts, where contractual adjustments often fail to reflect market realities.
This mismatch between the contract and reality generates negative cash flow, delays in execution, and pressure to renegotiate. In some cases, the lack of rebalancing measures leads to contractual breach and legal action.
Main risks of fixed-price contracts
Adopting this model involves a series of risks that need to be anticipated and managed. The most common include:
Variation in input prices
Materials such as steel, cement, and bitumen are subject to sharp fluctuations linked to exchange rates, global demand, and supplier availability. Diesel, for example, can represent more than 60% of the cost of earthmoving services, and any increase directly impacts the contractual schedule.
Compromised cash flow
When the adjustment rates applied in the contract don't reflect the actual inflation of inputs, the contractor faces negative financial projections. The accumulation of debt and the unviability of the final result make the contract unsustainable.
Technical complexity and litigation
Sectors such as transmission lines illustrate the challenge well: flaws in basic projects, land delays, and extraordinary price fluctuations often end in arbitration or legal disputes.
Extended liability of the contractor
Fixed pricing transfers almost all the risk to the contractor. Small variations in productivity, design errors, or external interference can compromise the projected margin. The lack of protective clauses exacerbates this situation.
Ways to protect contract viability
Despite the risks, there are tools and strategies capable of reducing negative impacts and preserving the financial health of the project.
Economic-financial rebalancing
Brazilian law provides protection mechanisms. Law 8.666/93, in its Article 65, guarantees the possibility of contractual adjustments to reestablish the relationship between charges and remuneration. In other words, when there is an extraordinary and unforeseeable increase in costs, the contractor may request a rebalancing of the contract.
Decision flowcharts
Contract management requires constant monitoring. Exxata recommends analyzing three main points:
- The physical-financial status of the work;
- The cash flow projection;
- The negotiation environment between the parties.
If the outlook is positive, it's possible to proceed with specific adjustments and continue the contract. If it's negative, the recommendation is to present a rebalancing study and, if necessary, seek an amicable solution.
Document and preventive management
Recording all occurrences, interferences, and changes is essential. Well-structured documentation serves as evidence in rebalancing requests and prevents the contractor from being placed in a vulnerable position in arbitration and litigation.
The role of technology in risk reduction
Technological advancements have brought tools capable of transforming the management of fixed-price contracts. Emerging solutions applicable to the construction industry include:
- BIM (Building Information Modeling): creates integrated 3D models, reducing design errors and improving coordination between disciplines;
- Blockchain: ensures transparency in contracts, automating payments based on proven deliveries;
- Artificial Intelligence: analyzes risks, predicts costs and optimizes the use of labor;
- Drones and IoT: monitor construction progress and material usage in real time;
- 3D printing: reduces waste and speeds up construction steps.
The use of these technologies does not eliminate risks, but it increases the ability to anticipate problems, reduce waste, and provide transparency to contractual relationships.
Practical strategies for contracted companies
To operate sustainably with fixed-price contracts, companies must adopt practices that combine predictability and flexibility:
- Clear adjustment clauses: always linked to reliable indexes (SINAPI, SICRO);
- Advance supply planning: purchasing strategic inputs in times of stability;
- Strict cash management: constant projections to identify risks of imbalance;
- Permanent negotiation: cultivate dialogue with the contractor for amicable adjustments;
- Market monitoring: monitor input and labor price trends, adjusting strategies;
- Dedicated contract management team: specialized in identifying risks, preparing reports and formalizing claims.
Balance between predictability and risk
Fixed-price contracts pose a constant challenge for companies in the infrastructure sector. While they offer security and predictability to contractors, they also impose significant risks on contractors.
The key to success lies in anticipating risks, structuring legal defenses, leveraging technology to support management, and adopting preventative contract administration practices. This way, even in volatile environments, it's possible to ensure sustainable margins and protect the project's financial viability.
More than a contractual model, fixed pricing requires a strategic approach: long-term vision, adaptability, and firmness in defending economic and financial balance.
