August 25, 2026 · 6 min read
TL;DR: Fixed-price puts cost-overrun risk on the seller. Cost-reimbursable puts it on the buyer. Time-and-materials sits in between and depends on how well the scope is defined. The exam tests whether you can match the contract type to the scope certainty — and whether you'll convert one type to another as certainty changes.
Every contract type answers one question differently: if the actual cost of the work comes in higher than expected, who absorbs it? That single variable is what separates the three families the exam tests.
| Contract type | Who absorbs cost overrun | Best fit |
|---|---|---|
| Fixed-price | Seller | Scope is precisely defined, low uncertainty |
| Cost-reimbursable | Buyer | Scope is uncertain, work may need to evolve |
| Time-and-materials | Shared, shifts as work proceeds | Scope is loosely defined or duration unknown, typically short-term |
This is 72 questions in the bank, and most of the wrong answers lean on the same mistake: treating the contract type as a fixed policy choice instead of a decision that should track how well the scope is actually known — the same instinct-versus-evidence gap that shows up in risk probability and impact questions, just applied to a different decision.
Two conditions: the scope is only loosely defined, or the duration of the work isn't yet known. Neither is about which contract type is "safer."
The bank asks this almost exactly this directly. A fixed-price contract against undefined scope doesn't eliminate risk — it just pushes the seller to price in the uncertainty as padding, which the buyer pays for either way.
Common trap: candidates read "fixed-price" as the responsible, cost-controlled choice and pick it as a default. The bank's wrong answers exploit exactly this — offering fixed-price as an option even when the scenario describes undefined scope, where a fixed price can't actually be priced accurately. Precisely defined scope is the precondition, not cost control on its own.
Yes. The contract type should track the state of scope certainty, not lock in permanently at signing — and that's more interesting than "memorize which type is which."
One bank scenario runs a data-migration engagement as time-and-materials because the scope wasn't defined at the start. Six months in, the mapping between legacy and target systems is stable and the remaining work is well understood. The correct move isn't to keep billing time-and-materials because that's the contract already in place. It's negotiating a conversion to fixed-price, now that the condition that justified T&M — undefined scope — no longer applies. A good PM renegotiates when the state of scope certainty changes.
Procurement questions in this bank explain why a contract-type answer fits the scope certainty in the scenario, not just which term matches which definition — the same standard applied across all 2,141 questions, re-certified against PMBOK 8 and the July 2026 ECO. Start the free 20-question sample — no card, no signup required to try it.
Which contract type puts the most risk on the buyer?
Cost-reimbursable. The buyer pays the seller's actual costs plus a fee, so cost overruns land on the buyer's budget. Fixed-price puts the overrun risk on the seller instead, and time-and-materials sits in between.
When should a project manager choose time-and-materials over fixed-price?
When the scope is only loosely defined or the duration of the work isn't yet known. Fixed-price needs a precise scope to price accurately — asking a seller to commit to a fixed price against an undefined scope just pushes the seller to price in the uncertainty as padding.
Can a contract change type partway through the work?
Yes, and the exam tests this directly. If a time-and-materials engagement starts with undefined scope and the scope becomes clear partway through, the correct move is negotiating a conversion to fixed-price for the remaining work — not continuing to bill T&M by default.