North Carolina Building Contractor License Practice Exam

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Most public contracts are __________ contracts.

Fixed price
Lump sum
Hourly rate
Cost-plus

The correct answer is: Lump sum

Most public contracts are often classified as lump sum contracts. This type of contract is characterized by a single fixed price for the entire scope of work agreed upon between the contractor and the public agency. It provides clarity and predictability regarding costs, as the contractor commits to completing the project for the agreed-upon amount. This arrangement is particularly suited for public sector projects because it simplifies budget management and helps protect the interests of tax payers by establishing a clear cap on expenses. Lump sum contracts also incentivize contractors to complete the work efficiently and within the agreed timeline, since any cost overruns would be absorbed by the contractor rather than the public entity. While other types of contracts, such as fixed price, hourly rate, and cost-plus, serve specific purposes, the lump sum format is predominant in public contracts due to its benefits in cost control and ease of administration.