Utah Contractor Practice Exam

Which contract type is used when project costs cannot be accurately determined in advance?

1. Unit Price

2. Lump Sum

3. Cost Plus

4. Fixed Bid

The correct answer is: Unit Price

The contract type that is utilized when project costs cannot be accurately determined in advance is known as a Cost Plus contract. This type of agreement allows the contractor to be reimbursed for their actual costs incurred during the project, along with an additional fee that represents their profit. This arrangement is particularly useful in scenarios where the scope of work is uncertain or still evolving, which makes it challenging to estimate precise costs. The flexibility of a Cost Plus contract means that as the project develops, the contractor can accommodate changes and unforeseen conditions without the need to renegotiate the entire price. In contrast to a Fixed Bid or Lump Sum contract, which require a set price determined upfront, a Cost Plus contract mitigates the risk for the contractor since they are assured of being paid for their expenses, regardless of the final cost outcomes. This makes it an ideal choice for projects that involve significant uncertainty in costs. The Unit Price contract, while it does involve pricing based on measurable units of work, still operates under predefined rates that may not address the full uncertainty in costs that a Cost Plus contract would allow.