What contract type should be avoided in favor of better-managed alternatives?

The most effective choice to avoid in favor of better-managed alternatives is the Cost-Plus-A-Percentage-of-a-Cost contract type. This type of contract can create significant pitfalls in project management and budgeting. The reason for this is that it allows the contractor to receive a percentage of the costs as their profit, which can lead to a lack of incentive to control costs effectively.

With this contract structure, as costs rise, the contractor’s profit does as well, which can sometimes lead to inefficient practices or overspending. There is a diminished accountability for cost management, as the contractor's profit increases proportionally with the costs incurred.

In contrast, alternatives like Firm-Fixed-Price or Cost-Plus-Fixed-Fee contracts promote clearer cost structures and aligned incentives between contracting parties, enabling better financial management and accountability throughout the project. Time-and-Materials contracts, while they can also lead to cost escalations, provide more flexibility and can be managed more effectively than Cost-Plus-A-Percentage-of-a-Cost contracts. Hence, the recommendation is to steer away from the latter in favor of those that offer a more structured approach to cost management.