Utah General Contractors - Business and Law Practice Exam

Which type of contract would best suit a project where the scope is clearly defined and a fixed price is desired?

1. Cost-plus

2. Lump sum

3. Design/Build

4. Time and materials

The correct answer is: Lump sum

A lump sum contract is best suited for a project where the scope is clearly defined and a fixed price is desired. This type of contract establishes a total price for all work completed, which means the contractor agrees to complete the project for a specified amount regardless of the actual costs incurred. When the project's scope is well-defined, a lump sum contract allows for better budget management as both parties understand the financial commitments upfront. It minimizes the risk of unexpected expenses for the project owner, since the contractor absorbs any cost overruns beyond the agreed-upon price. In contrast, a cost-plus contract involves the owner paying for the actual costs incurred plus a fee, which can lead to uncertainty regarding the total project cost. A design/build contract combines the design and construction phases, but may not guarantee a fixed price since it often depends on negotiating costs and scope as the project progresses. A time and materials contract is based on the actual hours worked and materials used, which does not align with the desire for a fixed price and can lead to variable total costs.