Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 244

An organization finalized a contract in which a vendor is expected to design, procure, and construct a power substation for $3,000,000. In this scenario, the organization agreed to which of the following types of contracts?

Answer options

• A. A cost-reimbursable contract.
• B. A lump-sum contract.
• C. A time and material contract.
• D. A bilateral contract.

Correct answer: B

Explanation

The correct answer is B, a lump-sum contract, because it specifies a fixed price for the entire project. The other options are incorrect as a cost-reimbursable contract involves variable costs, a time and material contract charges based on time spent and materials used, and a bilateral contract refers to an agreement between two parties but does not specify pricing structure.