PK0-005 Project Life Cycle Practice Question

A vendor is hired to provide a service with a fixed price of $100,000, regardless of actual costs incurred. Which contract type is this?

Answer choices

Why each option matters

Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.

Correct answer & explanation

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Fixed-price

A fixed-price contract has a predetermined price that does not change based on the seller's cost performance.

Answer analysis

For each option: why learners choose it and why it is or isn't the right answer here.

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Fixed-price
Why this is correct
A fixed-price contract sets a total price of $100,000 agreed upfront, so the vendor bears cost overruns and the buyer pays that sum regardless of actual costs incurred. This matches the stem's fixed price independent of real expenditure.
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Time and Materials (T&M)
Why it's wrong here
Time and Materials bills the actual labour hours plus materials consumed, so the vendor bears no cost risk and the final price varies. It is tempting because T&M is common for uncertain scope, but a fixed price regardless of costs incurred is a firm fixed-price contract.
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Cost-reimbursable
Why it's wrong here
Cost-reimbursable pays the vendor's actual allowable costs plus a fee, so the final price varies with expenditure rather than being fixed at $100,000. It is tempting because it suits uncertain, long-running research work where scope cannot be defined, but here the buyer bears cost risk, contradicting the fixed-price requirement.
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Cost-plus
Why it's wrong here
Cost-plus reimburses actual costs plus an agreed profit margin, so the vendor's payment rises with costs instead of staying at $100,000. It is tempting for high-uncertainty development where the buyer accepts cost risk, but here the requirement is a price independent of actual costs incurred.

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