What do the terms 'fixed-price contract' and 'cost-plus contract' signify in construction?

The terms 'fixed-price contract' and 'cost-plus contract' are fundamental concepts in construction that specifically define how a contractor is compensated for their work. A fixed-price contract is an agreement where the contractor receives a predetermined amount for the entire project, regardless of the actual costs incurred. This type of contract provides a clear budget and minimizes financial risk for the client.

On the other hand, a cost-plus contract involves the contractor being reimbursed for all project costs, including materials and labor, with an additional fee that serves as profit. This arrangement allows for flexibility in project scope but can lead to higher final costs if not carefully managed. Understanding these distinctions is crucial for both contractors and clients as they affect budgeting, risk management, and project planning in the construction process.

Other choices, such as the style of construction workers or the types of materials used, do not pertain to the financial arrangements governing the compensation for work performed. Similarly, the timeline of construction completion is related to project scheduling rather than payment structure. Thus, the essence of the question revolves around the compensation framework established by these contract types.