September 7, 2026 · 7 min read
TL;DR: Contract-type questions look like risk-appetite questions and are usually scope-definition questions. In this bank, fixed-price appears as an option 16 times and is keyed 4 times; cost-reimbursable 12 times, keyed 3. The stem tells you how well the work is defined, and the contract type follows from that. It can also change mid-project when the definition improves, which is a scenario candidates rarely expect.
Most candidates learn the risk table and stop there. Fixed-price puts risk on the seller, cost-reimbursable puts it on the buyer, time-and-materials sits between. All true, all memorisable, and it will not get you through most of the scenario questions, because the stem rarely asks who should carry the risk. It describes how well anyone understands the work, and the contract type is the consequence.
We measured the option-level split across the bank. Fixed-price shows up in 16 records as an answer option and is keyed 4 times. Cost-reimbursable shows up in 10 records, keyed 3. Time-and-materials is the only near-balanced one at 3 keyed against 4 distractors, which makes sense once you see what it is actually for.
One sentence in the stem, almost always about scope definition. Here is the mapping the bank's keyed answers follow.
| What the stem says about scope | Keyed contract type | Bank example |
|---|---|---|
| Well defined, priceable, seller legally bound | Fixed-price | Courthouse build where the agency wants risk shifted to the vendor |
| Cannot be pinned down until the site is opened up | Cost-reimbursable | Substation decommissioning nobody will bid on |
| Not yet clear, expert personnel and spare parts | Time-and-materials | Oil and gas support agreement |
| High-level only, wide cost spread on estimates | Cost plus fixed fee | $6M subcontract with a standard deviation of $750k |
| Now stable after six months of discovery | Convert to fixed-price | Data migration whose mapping is complete |
Read the middle column on its own and it looks like a risk-preference gradient. Read the left column and it is a knowledge gradient. That is the actual test.
The substation question is the clearest of them. A utility needs a specialist contractor to decommission an ageing substation, the scope cannot be pinned down until the site is opened up, the work carries significant risk, and the company is struggling to find anyone willing to take it. The keyed answer is cost-reimbursable, and the explanation reads the scenario from the contractor's side: nobody will bid because the scope is unknown and the cost risk sits with whoever signs. Cost-reimbursable answers that directly. Fixed-price is not merely a worse deal here, it is unbuyable, because no seller will quote a firm price on work nobody can describe.
Yes, and this is the question shape most candidates have never considered.
A time-and-materials engagement for a data migration began without a defined scope. Six months in, the mapping between the legacy and target systems is stable and complete, and the remaining work is well understood. The options are to continue T&M since the type was already chosen, negotiate the remaining work to fixed-price, ask the vendor to cut its hourly rate, or add a not-to-exceed ceiling without changing the structure.
The keyed answer converts the remainder to fixed-price. The reasoning is exactly the scope-definition logic above, applied in reverse: time-and-materials suits emerging scope, which is why it was right at the start, and once the mapping is stable that justification is gone. The distractors are instructive too. Cutting the rate and adding a ceiling both try to fix a structural mismatch with a commercial tweak.
The same idea appears from the other direction. An eco-resort contract is ready for signature when the client asks to hold off developing one parcel until a consumer study says what should go there. The keyed answer takes that parcel out of the quoted price and plans it as agile iterations paid on a time-and-materials basis. One contract, two scope conditions, two treatments.
Common trap: "Fixed-price is the safest choice for the buyer, so pick it when the question is about controlling cost." Safe is not the same as available. A fixed price requires a scope a seller can price, and in the bank's cost-reimbursable and T&M scenarios the stem has already told you that scope does not exist yet. This bank offers fixed-price as a distractor 16 times against 4 keys, and in several of those the explanation says plainly that fixed-price arrangements need a well-defined scope to set the price against.
Often, which is the second trap. Several questions put contract types in the options when the actual question is about sequence or authority.
A high-profile project needs automation technology the company has never used, the team has no resources for it, and the steering committee has approved outsourcing. One option goes to procurement for a suitable contract such as cost plus incentive fee. The keyed answer creates the procurement statement of work and the source selection criteria, because the make-or-buy decision has already been made by the body entitled to make it and the next step is defining what you are buying. Choosing a contract type before writing the statement of work is choosing a price for something nobody has described.
Another describes a complex, high-value network replacement where an RFQ went out with source selection criteria and a statement of work, and a seller has been selected. One option drafts a fixed price incentive fee contract. The keyed answer seeks senior management approval to award, because selecting a seller is a recommendation and awarding commits company money beyond the project manager's delegated authority. The contract type is not wrong in itself; it answers a question that comes later.
And a mid-sprint request to add unplanned features under a signed fixed-price contract produces two tempting agile answers, adding them to the backlog or reworking the sprint. It keys routing the request through the change process so the contractual and cost impact is assessed, because the request crosses a signed scope boundary rather than just an iteration's capacity. Working through a run of these, with each wrong option explained rather than just marked wrong, is what makes it obvious when a contract question has quietly become a change-control question.
They exist and they are free marks if the synonyms are solid. One bank question asks which other term refers to a fixed-price contract, offering cost-plus-fixed-fee, time-and-materials, lump sum, and cost-plus-fee. It keys lump sum, since that is the long-standing commercial name for a single total price against a well-defined product.
Worth knowing alongside it: firm fixed price and fixed price incentive fee are both fixed-price family members, and both need a defined scope, which is why the $6M high-level-scope question rejects them together and keys cost plus fixed fee instead. When a stem gives you an estimate with a wide standard deviation, it is telling you the scope is ambiguous in the only language a cost figure has.
How do I choose a contract type on the PMP exam? Read the stem for how well the scope is defined, not for who wants to carry risk. A well-defined scope points to fixed-price. A scope that cannot be pinned down until work starts points to cost-reimbursable. A scope still emerging, where the buyer wants to pay for effort actually spent, points to time-and-materials.
Can a contract type change partway through a project? Yes, and the bank keys it. One question describes a time-and-materials data migration where the mapping between systems is now stable and complete after six months. It keys negotiating the remaining work to fixed-price, because the uncertainty that justified T&M is gone. Continuing T&M because the type was already chosen is a distractor.
Which contract type carries the least risk for the buyer? Fixed-price. The seller is legally obligated to deliver at the agreed price, so cost overruns land on them. That is only available when the scope is well enough defined for a seller to price it, which is why the exam usually tests the scope condition rather than the risk fact.
Does selecting a seller mean I can award the contract? Not necessarily. Selecting a seller is a recommendation; awarding a contract commits company money. One bank question describes a complex, high-value network replacement and keys seeking senior management approval to award, because the commitment exceeds a project manager's delegated authority.
PMP Practice's 2,141 questions are re-certified against PMBOK 8 and the July 2026 ECO, with every wrong answer explained, not just marked wrong, so a contract question you missed tells you which sentence in the stem you skipped. Start the free 20-question sample, no card and no signup required to try it.
How do I choose a contract type on the PMP exam?
Read the stem for how well the scope is defined, not for who wants to carry risk. A well-defined scope points to fixed-price. A scope that cannot be pinned down until work starts points to cost-reimbursable. A scope still emerging, where the buyer wants to pay for effort actually spent, points to time-and-materials.
Can a contract type change partway through a project?
Yes, and the bank keys it. One question describes a time-and-materials data migration where the mapping between systems is now stable and complete after six months. It keys negotiating the remaining work to fixed-price, because the uncertainty that justified T&M is gone. Continuing T&M because the type was already chosen is a distractor.
Which contract type carries the least risk for the buyer?
Fixed-price. The seller is legally obligated to deliver at the agreed price, so cost overruns land on them. That is only available when the scope is well enough defined for a seller to price it, which is why the exam usually tests the scope condition rather than the risk fact.
Does selecting a seller mean I can award the contract?
Not necessarily. Selecting a seller is a recommendation; awarding a contract commits company money. One bank question describes a complex, high-value network replacement and keys seeking senior management approval to award, because the commitment exceeds a project manager's delegated authority.