What describes the risk a contractor undertakes based on the type of contract and cost estimation?

The term that best describes the risk a contractor undertakes based on the type of contract and cost estimation is contract cost risk. This risk is inherent in the fluctuations of project costs and the method of cost estimation chosen for the contract. For instance, in a fixed-price contract, the contractor agrees to a set price for the work regardless of the actual costs incurred. This can create significant risk if unforeseen expenses arise, as the contractor must absorb those costs. Conversely, in a cost-plus contract, the risk is somewhat mitigated since the contractor is reimbursed for actual costs incurred plus a fee. Therefore, understanding contract cost risk is essential for contractors to manage potential financial exposure related to cost estimation and the terms of the contract they enter into.