What type of contract establishes a relationship where compensation is based on financial gains experienced by the government?

The correct choice describes benefit-based contracting, which focuses on a structure where compensation is tied to actual financial gains or benefits realized by the government entity. In this contractual arrangement, the contractor's payment is directly related to the outcomes generated from their work, encouraging them to deliver results that align with the government's financial objectives.

This type of contract incentivizes efficiency and effectiveness, as the contractor stands to gain financially from the success of their work, motivating them to optimize their performance. Benefit-based contracts are particularly useful in situations where measurable outcomes can be clearly defined and directly linked to financial gains, allowing for a shared interest in achieving positive results.

Other forms of contracting, such as performance-based contracting, often link compensation to the achievement of specific performance metrics rather than direct financial outcomes. Fixed-price contracting stipulates a set amount that the contractor will receive regardless of the performance or results delivered. Cost-reimbursement contracting involves compensating the contractor for incurred costs plus an additional fee, which does not inherently connect to financial gains realized by the government. These distinctions clarify why benefit-based contracting is the most appropriate choice in this context.