The type of contract is based upon which of the following?

• A. Delivery schedule
• B. Allocation of cost risk between the parties
• C. Quality assurance
• D. Payment terms

Answer: (B)

The question hinges on how a contract is classified. The key factor that defines contract type is how cost risk is allocated between the buyer and the seller. This risk allocation drives whether the price is fixed and the seller bears most of the cost risk (fixed-price), or costs are reimbursed with a fee and the buyer bears more risk (cost-reimbursement). Time-and-materials sits between these, with cost and risk shared and determined by rate structures.

Delivery schedule, quality assurance, and payment terms are important performance or administrative details, but they do not determine the contract’s type. You could pair any contract type with various delivery timelines, QA requirements, or payment arrangements, but the underlying contract type remains defined by who bears the cost risk.