Certified Governance Risk and Compliance (CGRC) Practice Exam 2025 - Free CGRC Practice Questions and Study Guide

The choice of cost plus percentage of costs is considered the most risky for the buyer due to its inherent structure. In this contract type, the contractor is reimbursed for the actual costs incurred plus a percentage of those costs as profit. This setup can lead to increased costs for the buyer because there is less incentive for the contractor to control expenses. Since the contractor’s profit increases with the total costs, they may not be motivated to be efficient or to minimize expenses.

This set-up creates a scenario where costs can spiral, and the buyer has limited control over financial outcomes once the contract is underway. In contrast, other contract types like fixed fee provide more certainty in pricing, and while time and materials contracts can have their own set of risks, they usually feature more direct negotiation on component pricing and labor. The cost plus incentive fee also introduces performance incentives that can encourage cost management, unlike the cost plus percentage model.

Thus, this structure significantly elevates the financial risk for the buyer, making it important to carefully evaluate its use in contracts.