Construction contractors working

Answer choices

1. A

   Deepens Paradox4% picked this

   Clients are much less likely to agree to a fixed- profit type of cost-plus contract when it is understood that under certain conditions the

   The idea of "certain conditions under which a project will be scuttled" is saying, "If X occurs, we'll just call the whole thing off". Let's say someone wants to rebuild their closets, but they tell the contractor, "I have a $2000 budget for this. If the job starts to cost more than that, then I will just cancel the whole project." That would prevent cost overruns from occurring, because the job just gets scuttled rather than completed at the higher cost. For our purposes, we would want to know that this trait that would prevent cost overruns from occurring is more often associated with the fixed-percentage method, since that is the method that less often has cost overruns. But this answer is saying it's more often associated with the fixed-profit method. So this goes the opposite way of what we want.

   4%
2. B

   No Distinction7% picked this

   On long-term contracts, cost projections take future inflation into account, but since the figures used are provided by the

   This emphasizes long-term (vs. short-term) contracts, but we have no reason to think that long-term contracts are more often associated with one payment method vs. the other. Thus, this answer will provide us with no distinction between fixed-% and fixed-profit methods of payment. If it doesn't provide us with a distinction, then it can't do the work of explaining the difference in why one method is more likely than the other to have cost overruns.

   7%
3. C

   No Distinction7% picked this

   On any sizable construction project, the contractor bills the client monthly or quarterly, so any tendency for original cost estimates to be

   This emphasizes sizable projects (vs. smaller projects), but we have no reason to think that sizable projects are more often associated with one payment method vs. the other. Thus, this answer will provide us with no distinction between fixed-% and fixed-profit methods of payment. If it doesn't provide us with a distinction, then it can't do the work of explaining the difference in why one method is more likely than the other to have cost overruns.

   7%
4. D

   Correct43% picked this

   Clients billed under a cost-plus contract are free to review individual billings in order to uncover wasteful expenditures, but they do so only when

   Why this is right

   This provides a clear distinction between the two methods. With fixed-% (where profit varies with cost), clients can review individual billings to uncover wasteful expenditures. With fixed-profit (profit does not vary with cost), clients do not get to review individual billings to uncover wasteful expenditures. We would think that if clients can review individual billings to uncover wasteful expenditures, they will have more power to notice and thwart cost overruns. So we would think that with fixed-% contracts, they will have more power to notice and thwart cost overruns. Thus, cost overruns would be more likely with fixed-profit contracts.

   Skill tested: Paradox · how this choice captures the argument's function is the move to repeat next time.

   43%
5. E

   Deepens Paradox38% picked this

   The practice of submitting deliberately exaggerated cost estimates is most common in the case of fixed-profit contracts, because it makes the profit, as a

   This goes the opposite direction of what we want. With fixed-profit, the contractor deliberately exaggerates the cost estimate (they say it will cost more than it will actually end up costing). That means that the final costs are actually lower than the estimated costs, so there are not going to be cost overruns. Thus, this is showing why fixed-profit would be associated with fewer cost-overruns, but the paradox is that fixed-profit is associated with more cost-overruns.

   38%