What type of contract is used when costs or work duration cannot be accurately estimated?

The choice of a time-and-materials contract is particularly suitable when it's difficult to predict costs or the duration of work accurately. This type of contract allows for flexibility and a closer approximation of the actual expenses involved in a project. It enables the contractor to charge for the actual time spent on the project (the labor) and the materials used, rather than committing to a fixed price upfront.

In contexts where project requirements may evolve or where uncertainties exist regarding scope, a time-and-materials arrangement can be beneficial. It ensures that the contractor is paid for all the resources deployed, enabling more adaptive project management without the pressure to meet a predetermined price or schedule that could lead to compromises in quality or performance.

The other contract types mentioned typically involve predetermined costs or fixed prices, which wouldn't provide the necessary flexibility under uncertain circumstances. For instance, firm-fixed-price contracts require a set price regardless of actual costs. Cost-plus-fixed-fee contracts offer reimbursement for costs plus an agreed fee but are generally used when costs are known to some extent. Fixed-price incentive contracts involve a fixed price but include incentives for the contractor, making them less suitable in situations where costs or effort cannot be estimated accurately.