Which type of contract is characterized by unpredictable costs?

The type of contract characterized by unpredictable costs is the time and material contract. This contract structure is typically utilized in scenarios where the scope of work is not clearly defined at the outset, which can lead to fluctuations in project costs.

In a time and material contract, the customer agrees to pay the contractor based on the actual time spent on the project and the materials used. As a result, the final cost can vary significantly depending on the number of hours worked and the prices of materials, making budgeting and expenses quite unpredictable. This flexibility is beneficial for projects that require adjustments and changes along the way, but it does introduce a level of uncertainty in overall project costs.

Other types of contracts, such as material agreements and pool contracts, are generally more fixed in nature, focusing on specific materials or resources rather than variable labor and material costs. A close loop contract typically involves more structured parameters, thus offering better cost predictability. Therefore, comparing those aspects highlights why a time and material contract stands out for its unpredictable cost characteristics.