What type of contract is characterized by payments based on material price and labor per hour, suitable for projects with indeterminate scope?

• A. Fixed Cost Plus Percentage Fee
• B. Guaranteed Maximum Price
• C. Fixed Cost Plus Fixed Fee
• D. Time and Materials

Answer: (D)

The type of contract that is characterized by payments based on material prices and labor costs per hour is known as a Time and Materials contract. This contract structure is particularly suitable for projects where the scope is not fully defined or may change over time, allowing the contractor to be compensated for actual costs incurred.

In a Time and Materials agreement, the owner pays the contractor for both the time spent on the project (usually billed at an hourly rate for labor) and the cost of any materials used. This approach provides flexibility, enabling work to commence without a finalized scope and adjusts to any changes that may arise during the construction process.

Such contracts are beneficial in scenarios where the extent of work cannot be accurately predicted at the outset, thus allowing both parties to work collaboratively and adapt to evolving requirements without the need for constant contract renegotiation.