Estimating Practice Exam

Why do most general contractors and subtrades generally avoid cost-plus contracts?

1. They prefer fixed-price contracts

2. It simplifies the bidding process

3. They provide more flexibility in pricing

4. They often lead to financial loss

The correct answer is: They prefer fixed-price contracts

General contractors and subtrades often prefer fixed-price contracts over cost-plus contracts primarily due to the predictability and risk management they offer. Fixed-price contracts establish a set price for the entirety of the project, allowing contractors to have a clear understanding of their financial obligations. This arrangement not only allows for easier budgeting but also incentivizes contractors to manage costs efficiently and complete the project within the agreed price. In contrast, cost-plus contracts can lead to uncertainties in overall project costs. While they might provide flexibility in adjusting expenses as the project progresses, they can also result in higher costs due to less incentive to minimize expenditures. This lack of cost certainty can complicate project financing and risk management, making fixed-price contracts more attractive for many contractors in the construction industry.