Question

which is true of lump-sum contracts?they incur a high degree of risk for the buyer.they involve a fixed total price for a well-defined product or service.they consist of a fee based on the satisfaction of subjective performance criteria.they are also known as cost-reimbursable contracts.

Answer 1

A lump-sum contract involves a fixed total price for a well-defined product or service and puts higher financial risk on the contractor instead of the buyer.

Step-by-step explanation:

Lump-sum contracts are common in various business and construction scenarios. Among the options provided, the true statement about lump-sum contracts is that they involve a fixed total price for a well-defined product or service. This type of contract includes a total fixed price for the work to be performed, which benefits the buyer as it provides a clear budget and the seller as it guarantees a set payment for the specified scope of work.

Lump-sum contracts incur a higher degree of risk for the contractor, not the buyer, because any cost overruns are typically the responsibility of the contractor, not the buyer. Lump-sum contracts are distinct from cost-reimbursable contracts, which involve payment of actual costs plus an additional fee, thus increasing the financial risk for the buyer.