Contract Type Versus Risk

The amount of profit on a contract is most frequently based upon how the risks are to be shared between the contractor and the customer. For example, on a firm-fixed-price contract, the contractor absorbs 100 percent of the risks (especially financial) and expects to receive a larger profit than on other types of contracts. On cost, cost-plus, and cost-sharing contracts, the customer absorbs up to 100 percent of the risks and expects the contractor to work for a lower than expected profit margin or perhaps no profit at all.

All other types of contracts may have a risk sharing formula between the customer and the contractor. Figure 21-3 shows the relative degree of risk between the customer and the contractor for a variety of contracts.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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