Suppliers often prefer cost-plus contracts when there is uncertainty about the final cost or project success, as it allows them to share the risk of cost overruns with the customer.

Question

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Cost-plus contracts allow for the supplier to be reimbursed for actual costs incurred plus an additional fee or profit margin. This means that if there are cost overruns, the supplier is not solely responsible for bearing the financial burden, as the customer is obliged to pay for the additional costs under the terms of the contract. Therefore, cost-plus contracts are favorable for suppliers when there is uncertainty about the final cost or project success, as it allows them to share the risk of cost overruns with the customer.

Suppliers Often Prefer Cost-Plus Contracts When There Is Uncertainty About