Estimating Practice Exam

Which type of contract is typically favored by owners seeking budget certainty?

1. Cost-plus contracts

2. Fixed-price contracts

3. Design-build contracts

4. Unit-price contracts

The correct answer is: Fixed-price contracts

Fixed-price contracts are typically favored by owners seeking budget certainty because they establish a set price for the entire scope of work before the project begins. This means that the owner knows exactly what the project will cost upfront, allowing for better financial planning and risk management. In these contracts, the contractor agrees to complete the work for this predetermined price, which protects the owner from potential cost overruns that could arise due to labor or material price fluctuations. This type of contract also encourages contractors to manage costs effectively and complete the project efficiently, as they absorb any additional expenses that exceed the fixed price. Owners appreciate this predictability, particularly in projects where budgeting is critical, as it minimizes the uncertainty often associated with construction costs. As a result, fixed-price contracts are a common choice for projects where budget adherence is a primary concern.