The short answer
The proposal should separate development work, prototypes, tooling and test fixtures from the unit price. The scope and payment stages are agreed before the work starts.
In more detail
Depending on the project, one-time engineering costs may cover mechanical design, circuit and firmware work, prototype materials, molds and production test equipment.
If the specification changes, we review the effect on cost and schedule before proceeding. Any tooling rebate or other commercial arrangement belongs in the signed terms.