What is an example of a fixed price contract?

A fixed price contract is a type of agreement where the payment amount is set in advance and does not change regardless of the actual costs incurred during the project. This contract structure inherently involves transferring risk from the buyer to the seller. In this arrangement, the seller assumes the risk associated with potential cost overruns or unexpected expenses because they must complete the project within the agreed-upon price. This means that if the costs to complete the work are higher than expected, the seller must absorb those expenses without increasing the contract price.

The other options describe different approaches to managing risk. Accepting risk involves acknowledging the risk and deciding to proceed without taking further action, while avoiding risk seeks to eliminate the risk completely. Mitigating risk entails implementing strategies to reduce the likelihood or impact of a risk. However, in the context of fixed price contracts, it is primarily about the transfer of risk to the seller, making transferring risk the most appropriate answer.