PK0-005 Project Life Cycle Practice Question
In a fixed-price contract, which party bears the risk of cost overruns?
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
✓
Seller
In a fixed-price contract, the seller bears the risk of cost overruns because the price is fixed.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
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Both equally
Why it's wrong here
A fixed-price contract fixes the price, so the seller alone absorbs overrun costs; sharing equally describes a cost-plus-incentive arrangement with a share ratio. Equal risk allocation is tempting because shared-risk models exist, but they require explicit incentive clauses, absent here.
- ✓
Seller
Why this is correct
In a fixed-price contract the seller agrees to deliver the defined scope for a set price, so any cost overruns from underestimated effort, resources or duration are absorbed by the seller. The buyer pays the agreed amount regardless, placing cost risk squarely on the seller.
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Buyer
Why it's wrong here
The buyer pays the fixed price only, so overruns do not increase their cost; the seller bears them. Buyer-bears-risk is tempting because buyers carry scope and requirement risk, but cost overruns under fixed price fall on the seller.
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Neither
Why it's wrong here
Risk cannot sit with neither party; the seller must deliver at the agreed price regardless of actual costs. This is tempting as a neutral-sounding answer, but a fixed-price contract transfers cost risk to the seller, who profits from underruns and loses on overruns.
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