What factor can negatively impact profitability in a fixed price contract?

Cost overruns can negatively impact profitability in a fixed price contract because, in such contracts, the price is predetermined and does not change regardless of actual expenses incurred during the project. If a contractor faces unexpected costs, such as rising material prices or unforeseen labor needs, these overruns will reduce the profit margin since the contractor is obligated to deliver the project for the agreed-upon price. Essentially, the contractor bears the risk of these additional costs, which can lead to a significant decrease in overall profitability if not properly managed.

In comparison, fixed start dates, market price fluctuations, and increased demand could affect the project timelines and strategies but do not directly influence the profit margins already established in a fixed price contract. Market price fluctuations might impact cost structure; however, in a fixed price scenario, the contractor has already committed to the price offered. Increased demand could potentially lead to more projects and revenue opportunities but doesn't inherently affect the profitability of a single fixed-price contract unless it causes significant operational or resourcing strain.