Fixed-Price Software Development

It is ok to fix the price, but there are many inherent risks with agreeing a "precise" scope and schedule at the beginning of a project:

• reduced flexibility of both the customer and the IT provider
• estimations for IT projects are hardly ever realised
• software estimation techniques vary dramatically and are unreliable
• the skills of those involved vary significantly for different projects and organisations
• it is difficult to rely upon historical data when technologies are changing all the time
• up-front estimation motivates Big Requirements Up Front (BRUF)
  
• a strict scope restricts changes to requirements which may hinder getting what the customer actually needs
• time and effort is wasted on overly precise up-front estimating

Traditionally we've wanted to believe in the concept that "software engineering" is 80 percent science and 20 percent art, but in practice development has proven to be closer to 20 percent science and 80 percent art. Or perhaps the 20 percent of software engineering that is art is simply 16 times harder than the 80 percent that is science.

Source: Is Fixed-Price Software Development Unethical?