Florida Contractor Practice Exam

Which type of contract compensates contractors based on direct labor hours at fixed hourly rates?

1. Unit price

2. Fixed price

3. Time and material

4. Cost plus

The correct answer is: Time and material

The type of contract that compensates contractors based on direct labor hours at fixed hourly rates is the time and material contract. In this arrangement, the contractor is paid for the actual labor performed at an agreed-upon hourly rate, as well as for the materials used on the project. This means that the total cost can vary depending on the number of hours worked and the amount of materials consumed, making it suitable for projects where the scope may not be clearly defined or is subject to change. Time and material contracts provide flexibility for both the contractor and the client, as they allow for adjustments based on the actual work and resources required. This is particularly useful in situations where it is difficult to estimate the total costs in advance, such as in renovation or repair work. The other types of contracts, like fixed price or unit price, typically establish a set amount for the entire project or based on specific quantities, which does not align with the compensation method described in the question. Cost plus contracts involve paying for all incurred expenses plus an additional fee, but they do not specifically limit the compensation to hourly labor rates in the way that time and material contracts do.