Certified Research Administrator Practice Exam

Are time-and-materials contracts and labor-hour contracts fixed-price contracts?

1. No. Except when the hourly wages are fixed

2. No

3. Yes. But only when there are over 40 labor hours in the contract

4. Yes

The correct answer is: No

Time-and-materials contracts and labor-hour contracts are categorized as cost-reimbursement contracts rather than fixed-price contracts. In these types of contracts, the contractor is paid based on the actual costs incurred for materials and labor, usually with a predetermined hourly rate for labor and an estimate for materials. This means that the total cost can vary based on the actual amount of work performed and materials used, which differs fundamentally from fixed-price contracts, where the price is set in advance and does not change regardless of actual costs incurred. In this context, the distinction is crucial. Fixed-price contracts offer more predictability for the buyer because the costs are known upfront, and they shift the risk of cost overruns onto the contractor. Conversely, time-and-materials and labor-hour contracts allow for flexibility and adaptability in situations where the exact scope of work cannot be clearly defined at the outset, but they do not provide the same level of cost certainty as fixed-price arrangements. As such, the assertion that time-and-materials contracts and labor-hour contracts are fixed-price contracts is inaccurate.