Which statement about procurement contract types is accurate?

Which statement about procurement contract types is accurate?

• A. Each contract type has identical risk distribution.
• B. Time and materials contracts guarantee a fixed total cost for the project.
• C. Fixed-price contracts provide price certainty for the buyer, shifting most risk to the seller.
• D. Cost-reimbursable contracts place most risk on the seller, with reimbursed costs plus fees.

Answer: (C)

Risk allocation across procurement contract types varies, and that’s what this item emphasizes. In a fixed-price contract, a defined scope is paired with a fixed total price. The buyer gains price certainty because the cost is set upfront, which helps with budgeting. The seller, however, assumes most of the financial risk: if costs to complete the work run over the fixed price due to underestimation, delays, or unforeseen issues, the seller must absorb those extra costs unless there are approved changes to the scope. Time and materials contracts, by contrast, bill for actual labor hours and materials, so the total cost can rise as work continues, meaning there’s no guaranteed fixed total cost for the project. Cost-reimbursable contracts reimburse the seller’s allowable costs plus a fee, so the buyer bears more of the cost risk while the seller’s exposure is reduced. Among these, the statement that fixed-price contracts provide price certainty for the buyer while shifting most risk to the seller is the accurate one.

Risk allocation across procurement contract types varies, and that’s what this item emphasizes. In a fixed-price contract, a defined scope is paired with a fixed total price. The buyer gains price certainty because the cost is set upfront, which helps with budgeting. The seller, however, assumes most of the financial risk: if costs to complete the work run over the fixed price due to underestimation, delays, or unforeseen issues, the seller must absorb those extra costs unless there are approved changes to the scope. Time and materials contracts, by contrast, bill for actual labor hours and materials, so the total cost can rise as work continues, meaning there’s no guaranteed fixed total cost for the project. Cost-reimbursable contracts reimburse the seller’s allowable costs plus a fee, so the buyer bears more of the cost risk while the seller’s exposure is reduced. Among these, the statement that fixed-price contracts provide price certainty for the buyer while shifting most risk to the seller is the accurate one.