Which type of contract is characterized by less risk for the contractor concerning cost performance?

The type of contract that is characterized by less risk for the contractor concerning cost performance is the Cost-Plus-Fixed-Fee contract. In this arrangement, the contractor is reimbursed for all allowable costs incurred during the project plus a fixed fee that is agreed upon in advance. This fixed fee provides a guaranteed profit margin to the contractor, irrespective of the actual costs incurred, which minimizes the risk of financial loss. Since the contractor knows they will be compensated for the full cost plus the predetermined fee, they are less exposed to uncertainties related to cost overruns or unexpected expenses.

In contrast, Firm-Fixed-Price contracts impose a greater risk on the contractor, as they must complete the work for the agreed-upon price regardless of any cost increases that may arise during the execution of the project. Similarly, Time-and-Materials contracts could lead to varying costs, which requires careful monitoring and can increase financial risk for the contractor. Cost-Plus-A-Percentage-of-a-Cost brings additional risk because the contractor's profit fluctuates with costs, potentially leading to a focus on increasing costs rather than controlling them. Therefore, the contractor's risk profile is notably lower with a Cost-Plus-Fixed-Fee contract.