ARE Project Management (PjM) Practice Exam 2026 – Comprehensive All-In-One Guide for Exam Success

A fixed-price contract places the majority of the risk on the contractor because it establishes a set price for the project regardless of the actual costs incurred. This means that if the contractor underestimates the time and resources needed to complete the work, they will not be able to charge the client more than the agreed-upon price. Consequently, the contractor must manage costs and avoid overruns to protect their profit margin. This type of contract incentivizes efficiency and effective project management since any cost overruns directly affect the contractor's bottom line.

In contrast, time and materials and cost-plus contracts typically distribute the risk differently, with the client bearing a larger portion of the risk. Time and materials contracts charge the client based on the actual time spent and materials used, which can lead to uncertainty regarding final project costs. Cost-plus contracts reimburse the contractor for their actual costs plus an additional fee or percentage, making it less risky for the contractor since they are guaranteed to cover their expenses. Unit price contracts set a price per unit but carry a different risk profile, as the contractor is paid based on the quantity of work done, which can vary throughout the project.