A contract type where the scope of work and price are agreed upon beforehand is called?

A contract type where the scope of work and price are agreed upon beforehand is called?

• A. Lump Sum
• B. Time and Material
• C. Unit Price
• D. Cost Plus

Answer: (A)

The correct choice is defined as a contract type where both the scope of work and the price are agreed upon in advance. This structure is commonly known as a Lump Sum contract. In this type of agreement, the contractor agrees to complete the entire project for a predetermined price, allowing for a clear budget for both parties involved. Lump Sum contracts are particularly favored in projects where the scope can be well-defined at the outset, as they provide predictability in costs and product delivery. In contrast, other types of contracts such as Time and Material, Unit Price, and Cost Plus do not establish a fixed price for the entire project at the beginning. Time and Material contracts involve billing based on the actual time spent and materials used, leading to potential budget variability. Unit Price contracts set a price per unit of work, which may result in different total costs depending on the actual quantity of units completed. Cost Plus contracts reimburse the contractor for their allowable expenses plus a fee, making the total cost uncertain until project completion. Thus, while these contract types offer flexibility in varying circumstances, they do not provide the same level of cost certainty that Lump Sum contracts deliver.

The correct choice is defined as a contract type where both the scope of work and the price are agreed upon in advance. This structure is commonly known as a Lump Sum contract. In this type of agreement, the contractor agrees to complete the entire project for a predetermined price, allowing for a clear budget for both parties involved. Lump Sum contracts are particularly favored in projects where the scope can be well-defined at the outset, as they provide predictability in costs and product delivery.

In contrast, other types of contracts such as Time and Material, Unit Price, and Cost Plus do not establish a fixed price for the entire project at the beginning. Time and Material contracts involve billing based on the actual time spent and materials used, leading to potential budget variability. Unit Price contracts set a price per unit of work, which may result in different total costs depending on the actual quantity of units completed. Cost Plus contracts reimburse the contractor for their allowable expenses plus a fee, making the total cost uncertain until project completion. Thus, while these contract types offer flexibility in varying circumstances, they do not provide the same level of cost certainty that Lump Sum contracts deliver.