Utah Contractor Practice Exam

What type of contract allows a contractor to be compensated for expenses in addition to operating costs?

1. Lump Sum

2. Cost Plus

3. Design/Build

4. Liability

The correct answer is: Cost Plus

The correct choice is Cost Plus. This type of contract allows a contractor to be compensated for the actual costs incurred in the project, which includes both direct expenses and indirect costs, along with an additional amount for profit. In a Cost Plus contract, the contractor has the ability to recover various costs, such as materials, labor, overhead, and other expenses, while also being compensated with a designated fee or percentage of the total costs as profit. This structure provides flexibility for projects where the scope is not entirely defined at the outset, which can lead to varying costs as work progresses. It motivates the contractor to spend appropriately on materials and labor because they are reimbursed for the actual costs incurred. This contrasts with fixed-price contracts, like Lump Sum, where the contractor must complete the work for a set price, potentially regardless of varying costs encountered during execution. Hence, the Cost Plus arrangement can be particularly beneficial for projects that allow for changes and uncertainties.