When under a fixed-price contract, who typically assumes the risk of cost overruns?

In a fixed-price contract, the contractor assumes the risk of cost overruns. This is a fundamental characteristic of fixed-price arrangements, wherein the contractor agrees to complete the project for a set price. If the actual costs exceed the estimated costs, the contractor is obligated to cover those additional expenses to complete the work without any additional charges to the owner. This arrangement incentivizes the contractor to efficiently manage resources and control costs throughout the project's duration, as they are financially responsible for any overruns beyond the agreed-upon price.

Conversely, under this type of contract, the owner benefits from the price certainty. They know what the maximum cost will be regardless of the actual expenses incurred during construction, thus transferring the financial risk associated with potential cost increases from the owner to the contractor.