What is a contract called if the design and scope are undefined and the Owner pays for all Direct Labor and Materials?

The correct answer is "Cost Plus." This type of contract is characterized by the fact that the owner agrees to reimburse the contractor for all direct labor costs and material expenses, along with an additional payment that covers overhead and profit, typically expressed as a percentage of the costs incurred. The design and scope may be indefinite, allowing for more flexibility and accommodating changes that can occur throughout the project. In such arrangements, the contractor is incentivized to maintain quality and efficiency since profit is typically tied to actual expenses incurred.

In contrast, the other contract types mentioned focus on more defined parameters. For example, in a "Unit Price" contract, pricing is based on specific units of work defined in the contract, which allows both parties to have a clearer understanding of costs tied to particular tasks. A "Lump Sum" contract features a predetermined total price for the project, necessitating clear design and scope from the outset, which is not the case in a Cost Plus contract. Similarly, a "Fixed Fee" contract also establishes a specific fee for delivery regardless of the actual costs incurred, making it distinct from the reimbursable nature of the Cost Plus contract.