What type of contract places most of the risk on the vendor?

A fixed-price contract places most of the risk on the vendor because it establishes a predetermined amount that the vendor will be paid for delivering a specified scope of work. This means that the vendor must carefully estimate the costs and resources required to complete the project within the agreed-upon price. If the vendor underestimates these costs, they must absorb any losses, making it a high-risk situation for them. Conversely, if they manage to complete the project for less than the fixed price, they benefit from the remaining funds, but the financial risk is predominantly theirs.

In contrast, other contract types distribute risk differently. For instance, a cost-plus contract compensates the vendor for their costs plus a fee, reducing their risk as they are reimbursed for expenses. Time and materials contracts involve billing based on the time worked and materials used, which means the client assumes more risk regarding costs. Unit price contracts provide payment based on a predetermined price for each unit of work, leading to variable costs for the client, which also shifts some risk from the vendor.