What are the two broad categories of contract types?

The two broad categories of contract types are classified as fixed-price and cost reimbursement.

Fixed-price contracts are agreements where the price is established at the outset and remains unchanged regardless of the contractor's actual costs. This type provides certainty for both the buyer and seller as expenses do not fluctuate, making it beneficial for budgeting and financial planning. It's particularly advantageous when the scope of work is clearly defined and risks are manageable.

Cost reimbursement contracts, on the other hand, allow for the payment of allowable costs incurred by the contractor, providing compensation beyond just the contracted price. These types of contracts are useful in projects where uncertainty regarding costs exists or when the scope cannot be precisely defined ahead of time. This approach often incentivizes contractors to perform in the best interest of the project since they are reimbursed for their legitimate expenses, protecting them against unforeseen costs.

This classification into fixed-price and cost reimbursement encompasses the primary ways contracts are structured, allowing parties to choose the best approach for their specific situation depending on the nature of the work, associated risks, and project requirements.

The other options represent specific contract types that fall within these broader categories but do not fully identify the overarching divisions of contract arrangements as established in contract management principles.