Which contract type is appropriate when it is possible to accurately predict the costs and when it is reasonable to ask the supplier to assume responsibility for all costs?

Which contract type is appropriate when it is possible to accurately predict the costs and when it is reasonable to ask the supplier to assume responsibility for all costs?

• A. Fixed price
• B. Open Market Procurement
• C. Blanket Contract
• D. Firm fixed price

Answer: (A)

Fixed-price contracts are used when you can predict the total cost of the work with reasonable accuracy and you want to transfer the risk of cost overruns to the supplier. By locking in a set price for the agreed scope, you gain price certainty and simplify budgeting, while the supplier bears the responsibility for any costs that exceed that price. This arrangement works best when the scope is well defined and the work can be estimated reliably, so the buyer isn’t exposed to cost fluctuations. The other options don’t fit as well. An open market arrangement lacks a defined contract price structure, so it doesn’t provide the same price certainty. A blanket contract is about establishing a long-term framework for repetitive purchases rather than fixing a price for a specific, well-defined task. The firm fixed price is a specific form of fixed-price contract with no price adjustments; while closely related, the broader fixed-price category is the appropriate choice when the emphasis is on predictable costs and transferring cost risk to the supplier.

Fixed-price contracts are used when you can predict the total cost of the work with reasonable accuracy and you want to transfer the risk of cost overruns to the supplier. By locking in a set price for the agreed scope, you gain price certainty and simplify budgeting, while the supplier bears the responsibility for any costs that exceed that price. This arrangement works best when the scope is well defined and the work can be estimated reliably, so the buyer isn’t exposed to cost fluctuations.

The other options don’t fit as well. An open market arrangement lacks a defined contract price structure, so it doesn’t provide the same price certainty. A blanket contract is about establishing a long-term framework for repetitive purchases rather than fixing a price for a specific, well-defined task. The firm fixed price is a specific form of fixed-price contract with no price adjustments; while closely related, the broader fixed-price category is the appropriate choice when the emphasis is on predictable costs and transferring cost risk to the supplier.