Oregon Construction Contractors (CCB) Practice Test

What type of contract specifies a predetermined price for a project?

1. Time and materials contract

2. Lump-sum contract

3. Cost-plus contract

4. Unit price contract

The correct answer is: Lump-sum contract

A lump-sum contract specifies a predetermined price for a project, which means that the contractor agrees to complete the project for a fixed total price. This type of contract provides clarity and certainty for both the client and the contractor regarding the project costs, as the price is established before the work begins. In a lump-sum contract, regardless of the actual time and materials expended on the project, the contractor is obligated to complete the work for the agreed-upon price. This arrangement often encourages efficiency since the contractor's profit margin depends on completing the project within the stipulated budget. Other types of contracts, such as time and materials contracts, involve payment based on the hours worked and the cost of materials, leading to variable costs for the client. A cost-plus contract, on the other hand, allows the contractor to be reimbursed for all costs incurred plus an additional fee, which can lead to unpredictable total costs. Lastly, a unit price contract establishes a price per unit of work but does not commit to a total price until the units needed are quantified. Thus, a lump-sum contract stands out specifically for its predetermined, fixed pricing structure.