Finance and Sourcing · tool 6 of 7
Contract Types
Contract Types: matches the contract to how well the scope is known.
Best for: Before going to market · Time: 1 hour
Domain: Finance · Focus area: Planning
How it works
Fixed price suits clear scope and puts cost risk on the seller. Cost-reimbursable suits uncertain scope and leaves risk with the buyer. Time and materials suits small or undefined work. Target-cost contracts share savings or overruns.
- Clear scope leans fixed price.
- Uncertain scope leans reimbursable or time and materials.
- Incentives shape behaviour, for better or worse.
How to apply it
- Rate how clear the scope is.
- Decide who should carry which risk.
- Pick the type and set controls.
- Have legal review it.
Fixed price for the fit-out with a clear design; time and materials with a cap for the discovery phase before it.
A fixed price on vague scope doesn’t remove risk. It converts it into change requests and disputes.
General information, not legal advice. Check with a qualified adviser.
Use it
- Playbook: A vendor is failing
Quick check
The scope is very uncertain. Which contract usually fits best?
Sources
- PMBOK® Guide, 8th edition, and The Standard for Project Management (PMI, 2025)
Last reviewed 2026-11-02 against the PMBOK® Guide, 8th edition · Practitioner review pending · How this guide is made