After deciding to outsource a part of the project, your sponsor tells you that he wants a contract with the least amount of risk. What type of contract will you be seeking?
A. Fixed price
B. Time and materials
C. Cost plus fixed fee
D. Cost plus percentage of cost
Answer: A. Fixed price
Of the contract types listed, fixed price (aka firm fixed price or lump sum) is the safest bet for the buyer. In a fixed price contract for $100,000, the buyer knows exactly what she is getting (assuming the scope is clearly defined) and how much she is paying. If the work actually takes more than $100,000 to deliver, then it rests on the supplier.
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