Which of the following contract types is generally considered to have the most risk for the contractor?

A lump sum contract is generally considered to carry the most risk for the contractor because the contractor agrees to complete the project for a fixed total price. This arrangement places the burden on the contractor to accurately estimate all costs associated with the project, including materials, labor, and overhead, before work begins. If the actual costs exceed the initial estimate, the contractor must absorb those additional expenses without any increase in the contract price. This risk is particularly significant in projects where unexpected conditions or changes in scope can occur.

In contrast, other contract types distribute risk differently. A unit price contract allows for payment based on the actual quantity of work completed, minimizing risk for the contractor as they can adjust their pricing based on the work performed. Cost plus contracts provide reimbursement for the contractor's actual costs plus a fee, transferring much of the risk away from the contractor since they are not held to a fixed price. Lastly, a cost plus with a Guaranteed Maximum Price (GMP) offers a cap on costs, providing more security to the contractor while limiting their risk compared to a lump sum arrangement.