Firm Price: Definition, Examples, and Contract Drafting Tips

Introduction

A firm price is a set price stated in an agreement that does not change. You’ll see it in securities offerings (for example, a fixed per-share IPO price) and in commercial contracts for goods and services (for example, $50 per unit for six months). The goal is clear terms, predictable costs, and fewer disputes about what someone must pay.

In US practice, “firm price” can also appear as “fixed price.” In federal procurement, the government uses a specific contract type called Firm-Fixed-Price (FFP). And in sales of goods, the Uniform Commercial Code (UCC) governs how price terms work. One common point of confusion: a “firm price” is not the same thing as a UCC “firm offer” (an irrevocable offer by a merchant). This guide explains the differences and shows how to use firm price terms well.

What You'll Learn

• What a firm price is and where it shows up in US deals
• How firm prices differ from price caps, ranges, and index-based pricing
• How US contract law (including the UCC) treats firm price terms
• Examples from offerings and supply contracts
• How to draft, negotiate, and manage risk with firm prices
• When to avoid a firm price and use a flexible price mechanism instead

Core Concepts

Definition and Common Contexts

A firm price is a fixed, non-variable price specified in a written agreement. It is commonly used in:

• Securities offerings: A company may sell shares at a single per-share amount in an IPO or private placement.
• Goods and services: A supplier agrees to sell a defined product or service for a set price per unit or per period.
• Government contracts: The federal government often buys using FFP contracts, where the contractor delivers at a set price regardless of actual cost.

Why parties use it:

• Budgeting and planning: Buyers can forecast costs; sellers can project revenue.
• Simplicity: One figure lowers the chance of math errors and billing disputes.
• Competitive bids: A firm price can make offers easier to compare.

Trade-offs:

• Market movement risk: If input costs spike, the seller bears that risk. If prices fall, the buyer may feel stuck with a higher-than-market price.
• Term sensitivity: The longer the term, the greater the chance that a firm price becomes painful for one side.

Tip: If you need cost protection over a long term, consider limited price adjustments (indexing or caps) instead of a flat figure for the entire period.

Firm Price vs Related Terms

It helps to separate “firm price” from other pricing tools:

• Price cap: Sets a maximum price but allows lower prices.
• Price range: Common in book-built offerings; the final price lands within that range.
• Index-based pricing: Adjusts the price based on an agreed index (for example, a commodity index or CPI).
• Cost-plus: Buyer pays actual cost plus a fee or margin; not a firm price.
• Time and materials: Buyer pays hourly rates and materials; not a firm price.
• UCC firm offer (not price): A merchant’s signed promise to keep an offer open for a limited time (UCC §2-205). This is about offer enforceability, not a fixed price term in a contract.
• Open price term: The contract is formed even if the price is left open, and a “reasonable price” may apply (UCC §2-305). This is the opposite of a firm price.

Enforceability and Modifications (US Focus)

Firm price terms are generally enforced as written when:

• The agreement is clear on the price, units, and scope.
• Any required formalities are met. Under the UCC Statute of Frauds (UCC §2-201), a contract for the sale of goods for $500 or more must be in writing and signed by the party to be charged.
• No contractual escape clause applies (for example, a defined price-adjustment clause or a material change provision).

Changing a firm price:

• Modifications for goods (UCC §2-209): No consideration is needed, but modifications must be made in good faith and may need to be in writing if the modified contract is within the Statute of Frauds. Many contracts include a “no oral modification” clause.
• Force majeure and impracticability: These doctrines focus on performance, not price. Under UCC §2-615, impracticability is narrow and does not usually excuse performance just because costs rose. If you want price relief for major cost swings, include a clause that addresses it.
• Government contracts: FFP contracts shift cost risk to the contractor. Price changes typically require a formal modification by the contracting officer.

Tip: Spell out exactly what the firm price covers (freight, taxes, fuel surcharges, installation) to avoid backdoor price increases.

Key Examples or Case Studies

Example 1: Fixed-Price IPO

• Scenario: A company sets a firm price of $10 per share for its IPO. Every investor who buys during the offering pays $10.
• Why use it: Simple, transparent pricing can build market confidence during the offering period.
• Practical note: Underwriters may still include overallotment options and other protections, but the per-share price to the public is fixed during the sale window.

Example 2: Supply Contract for Goods

• Scenario: A manufacturer signs a one-year contract for resin at $50 per unit, firm price, with monthly delivery minimums.
• Buyer benefit: Easier budgeting and stable cost of goods.
• Seller risk: If resin spot prices jump to $60, the seller still must deliver at $50 unless the contract allows adjustments.

Case Study A: Private Placement Price Change Dispute

• Facts: An issuer and an investor signed a subscription agreement stating a firm price of $8 per share. After a market dip, the issuer tried to increase the price to $8.75 before closing.
• Outcome: The original price held. The agreement clearly stated the firm price, both parties signed, and there was no clause allowing a pre-closing change. The investor recovered the price difference plus fees.
• Lesson: If you want the ability to re-price, put that right into the term sheet and the final agreement.

Case Study B: Supplier’s Attempted Increase

• Facts: A supplier agreed to sell components at $42 per unit for six months. In month three, raw materials spiked, and the supplier sent a “new price” notice of $49.
• Outcome: The buyer rejected the increase based on the firm price clause and a “no oral modification” term. The supplier delivered at the original price to avoid breach.
• Lesson: A written, signed contract with a clear firm price and a tight change-control clause is hard to override.

Services Variant: Multi-Year SaaS Subscription

• Scenario: A customer signs a 36‑month software subscription at $120,000 per year, firm price, with annual true-ups based on user counts.
• What’s firm: The price per committed user. What can change: The total bill based on actual user counts at the agreed rate.
• Tip: Define the unit of measure (per seat, per transaction, per site) and how you’ll track it.

Practical Applications

When to choose a firm price

• Short to medium term deals where costs are predictable
• Competitive bids where simple comparisons matter
• Public offerings where transparency is important
• Government buys using FFP when the scope is well defined

When to think twice

• Long-term contracts in volatile markets (for example, energy, metals)
• Projects with uncertain scope or frequent change orders
• Early-stage builds where design is still shifting

Drafting checklist for a clean firm price

• Price and units: State the exact amount and the unit (per unit, per hour, per month, per user).
• Covered costs: Spell out freight, duties, taxes, fuel, surcharges, and installation.
• Duration: State how long the firm price lasts and any renewal terms.
• Volume: Include minimums/maximums and how shortfalls or overages are handled.
• Delivery and acceptance: Tie milestones to payment without creating hidden price changes.
• Adjustments: If any adjustments are allowed, define the trigger (for example, a named index move), the formula, and the cap.
• Change control: Require written, signed modifications; ban unilateral price changes.
• Remedies: State what happens if deliveries stop after a price dispute (cover purchases, liquidated damages).
• Termination: Set exit rights and costs to avoid a price fight becoming a shutdown.

Negotiation pointers

• Ask for shorter firm-price periods with scheduled re-openers in volatile sectors.
• Trade certainty for concessions: a firm price in exchange for a volume commitment or faster payment terms.
• Use caps or collars when a flat number for years would be too risky.
• If you are the seller, price in the risk or add a narrow adjustment clause tied to specific cost drivers.

Securities offerings

• Coordinate with counsel and underwriters on how the price is set and communicated.
• Keep offering documents consistent about the per-share price.
• If there’s any chance of a price change before closing, document that right clearly and align all investor communications.

Government contracts (FFP)

• Confirm scope and specifications up front; scope creep will eat margin.
• Build a buffer for cost shocks you cannot pass through.
• Know the rules for modifications and document change orders promptly.

Risk management add-ons

• Hedging key inputs if you take on firm-price risk
• Dual-sourcing to protect supply
• Inventory strategies to smooth short-term spikes
• Early-warning metrics so you can re-open talks before a crisis

Summary Checklist

• A firm price is a fixed, non-variable amount stated in the contract or offering documents.
• It’s common in IPOs, private placements, supply agreements, services deals, and FFP government contracts.
• Do not confuse a firm price with a UCC “firm offer”; they address different things.
• Under the UCC, large goods contracts must be in writing; modifications may require a writing and must be in good faith.
• Force majeure or impracticability rarely changes price; use a clear adjustment clause if you need one.
• Define what the firm price includes (freight, taxes, surcharges) and the duration it applies.
• Use change-control clauses and “no oral modification” language to prevent surprise increases.
• Consider caps, indexing, or shorter terms if volatility makes a flat number risky.
• Align offering documents and communications to avoid price disputes with investors.
• For government FFP deals, expect to carry cost risk and plan margins accordingly.

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