Which type of contract allows a contractor to assume the least cost risk?

The correct answer is Cost Plus Fixed Fee Contracts, as this type of contract structure allows a contractor to receive reimbursement for their allowable costs incurred during the contract performance, plus an additional fixed fee for their profit. This arrangement minimizes the contractor's financial risk in terms of cost overruns, as they are compensated for the actual costs incurred regardless of the total amount.

In a Cost Plus Fixed Fee Contract, since the contractor is covered for their expenses, they are less exposed to the uncertainties that can arise from unforeseen costs. This structure incentivizes the contractor to focus on the quality and performance of work rather than solely on controlling costs, as they do not bear the risk of overruns impacting their profit margin.

In contrast, other types of contracts, such as Firm-Fixed Price Contracts and Fixed Price Contracts, place greater financial risk on the contractor, as they must complete the project within a predetermined price. If costs exceed that amount, the contractor absorbs those additional costs, which increases their risk exposure. Furthermore, Cost Plus Incentive Fee Contracts involve incentives that may encourage cost efficiency but still require the contractor to manage costs effectively, which can introduce more risk compared to a fixed fee scenario.

Thus, the Cost Plus Fixed Fee Contract uniquely positions the contractor to assume