In which contract type does the owner pay for material and labor, plus a percentage of the costs as profit, potentially leading to delays?

In which contract type does the owner pay for material and labor, plus a percentage of the costs as profit, potentially leading to delays?

• A. Guaranteed Maximum Price
• B. Fixed Cost Plus Percentage Fee
• C. Fixed Cost Plus Fixed Fee
• D. Time and Materials

Answer: (B)

The contract type where the owner pays for material and labor along with a percentage of the costs as profit is known as Fixed Cost Plus Percentage Fee. In this arrangement, the contractor is reimbursed for all costs incurred during the project, and then an additional percentage is added as profit. This structure can lead to potential delays for several reasons. First, since the contractor's profit increases with the total costs, there may be less incentive for the contractor to control costs, potentially resulting in inefficient management of time and resources. The contractor could be more inclined to opt for longer durations or more expensive materials since higher costs yield a larger fee. Moreover, when costs rise, it does not fall upon the contractor to bear those excess expenses; instead, these are passed on to the owner. If the project experiences delays, the contractor may not have sufficient motivation to expedite the work as their profit margins would still be positively impacted by the extended timeframe, leading to a lack of urgency. This contrasts with other types of contracts. For instance, in a Guaranteed Maximum Price contract, the contractor has an incentive to control costs as their profit is capped, which can promote efficiency. Fixed Cost Plus Fixed Fee features a predetermined fee regardless of costs, further incentivizing the contractor to complete the

The contract type where the owner pays for material and labor along with a percentage of the costs as profit is known as Fixed Cost Plus Percentage Fee. In this arrangement, the contractor is reimbursed for all costs incurred during the project, and then an additional percentage is added as profit. This structure can lead to potential delays for several reasons.

First, since the contractor's profit increases with the total costs, there may be less incentive for the contractor to control costs, potentially resulting in inefficient management of time and resources. The contractor could be more inclined to opt for longer durations or more expensive materials since higher costs yield a larger fee.

Moreover, when costs rise, it does not fall upon the contractor to bear those excess expenses; instead, these are passed on to the owner. If the project experiences delays, the contractor may not have sufficient motivation to expedite the work as their profit margins would still be positively impacted by the extended timeframe, leading to a lack of urgency.

This contrasts with other types of contracts. For instance, in a Guaranteed Maximum Price contract, the contractor has an incentive to control costs as their profit is capped, which can promote efficiency. Fixed Cost Plus Fixed Fee features a predetermined fee regardless of costs, further incentivizing the contractor to complete the