Arizona Contractors License Practice Exam

A fixed-price contract is characterized by having a set amount for all contracted work, meaning the contractor agrees to complete the project for a specific price determined at the outset. This type of contract provides budget certainty for the client, as they know the total amount they will need to pay, regardless of the actual costs incurred by the contractor to complete the work.

This arrangement incentivizes the contractor to manage costs effectively, as any overruns in expense must be absorbed by them. Fixed-price contracts are often preferred for projects where the scope is well-defined, allowing for accurate pricing without the need for adjustments or additional invoicing based on hours worked or materials used.

In contrast, other types of contracts that reference billing for labor as incurred or flexible amounts based on project changes introduce variability that fixed-price contracts purposefully avoid, making option B the only accurate characterization in this context.