Which statement best describes profit in a firm-fixed-price contract?

Which statement best describes profit in a firm-fixed-price contract?

• A. The contractor's profit is paid after project completion
• B. The contractor's profit is included in the bid
• C. The contractor's profit depends on owner approval
• D. The contract is automatically extended if costs exceed estimates

Answer: (B)

In a firm-fixed-price contract, the price you bid is the price the owner pays for the defined work. That bid includes all costs plus the contractor’s expected profit, so the profit is built into the amount agreed up front. The owner isn’t paying a separate profit later; the profit is part of the fixed price you commit to deliver the project for. This setup also means you bear the risk of actual costs vs. your bid: if costs run under the bid, your profit margin effectively increases; if costs exceed the bid, your profit can shrink unless the scope is changed by a contract modification. Changes in scope or price are handled through formal change orders, not automatic extensions.

In a firm-fixed-price contract, the price you bid is the price the owner pays for the defined work. That bid includes all costs plus the contractor’s expected profit, so the profit is built into the amount agreed up front. The owner isn’t paying a separate profit later; the profit is part of the fixed price you commit to deliver the project for. This setup also means you bear the risk of actual costs vs. your bid: if costs run under the bid, your profit margin effectively increases; if costs exceed the bid, your profit can shrink unless the scope is changed by a contract modification. Changes in scope or price are handled through formal change orders, not automatic extensions.