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Fixed-price contracts, where the contractor bids a fixed price to complete a system development, may be used to move project risk from client to contractor. If anything goes wrong, the contractor has to pay. Suggest how the use of such contracts may increase the likelihood that product risks will arise.

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Fixed price contracts increase the chances of product risks because they remove options from the development process. Because the contract is fixed-price, the contractor is naturally reluctant to increase the effort or time expended on the project as this will reduce their profits on the work. Therefore, if problems arise they will look for ways to reduce the scope of the product or to reduce the costs of product development (e.g. by reducing the effort devoted to testing). Both of these factors can lead to products that are not as expected by the customer.

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