Florida General Contractor Practice Exam

What term is used when submitting a contract that adds a higher percentage of estimating costs in the early phases and a lower percentage as the project nears completion?

1. Progressive estimation

2. Cost loading

3. Cost-plus contract

4. Sliding scale

The correct answer is: Cost loading

The term "cost loading" refers to the practice of distributing project costs in a structured manner over the life of a construction project. In this method, higher percentages of estimating costs are assigned during the initial phases of the project when uncertainties and risks are typically greater. As the project progresses and more information becomes available, including resolved uncertainties and a clearer understanding of project requirements, the percentage of costs attributed to the final phases decreases. This approach is particularly beneficial in construction management as it allows for a more realistic distribution of financial resources, reflecting the evolving nature of project conditions. As initial phases may carry more risks and therefore warrant higher cost allowances, transitioning to lower percentages as project completion approaches reflects more confidence in cost accuracy and project execution. This helps contractors better manage cash flow and budget allocations throughout the project lifecycle. In contrast, other terms, such as "progressive estimation," would imply a different method of assessing project costs continuously rather than stratifying costs by phases. "Cost-plus contracts" involve billing clients for all construction-related expenses plus a fee, without necessarily addressing the timeline of cost allocation. "Sliding scale" could suggest variations based on changing project needs but does not specifically indicate the breakdown of costs over time in the way cost loading does.