Construction Management Practice Exam 2025 – Complete Study Guide

In a fixed-price contract, the contractor assumes a high level of risk because they are responsible for delivering the project at the agreed-upon price, regardless of any unforeseen circumstances or cost increases that may arise during the project. This means that if the costs to complete the project exceed the contract price due to unexpected challenges—such as material price increases, labor shortages, or design changes—the contractor must absorb these additional expenses.

This structure is beneficial for project owners, as it allows them to have a clear understanding of project costs upfront without the possibility of exceeding the budget. However, it places significant pressure on contractors to manage their resources effectively and accurately estimate costs, as their profit margins depend on their ability to stay within the set price. Thus, the nature of fixed-price contracts inherently involves high risk for contractors, making it crucial for them to conduct thorough pre-construction planning and cost estimation.