Contracts · Project management
Fixed price vs. time and materials: which contract fits your software project
By the noneF team · · 5 min read
When you hire a team to build software, the contract model decides who carries the risk when things change. And things always change. The two most common models are fixed price and time and materials. Neither is better in general; each fits a different kind of project.
Fixed price
You agree on a scope and a price up front. The vendor delivers that scope for that price, whatever it costs them.
Works well when:
- The scope is small and well understood, such as a marketing site or a single integration
- Requirements are unlikely to change during the build
- You need a firm number for budget approval
Where it goes wrong:
- Every change becomes a negotiation, because anything outside the original scope costs extra
- Vendors add a risk buffer to the price, so you often pay for uncertainty that never happens
- When the budget runs tight, quality is the first thing to quietly give way
Time and materials
You pay for the time the team actually spends, usually at a daily or monthly rate per person, and you steer what they work on as you go.
Works well when:
- You are building a new product and will learn what users need along the way
- Priorities may shift as the business changes
- You want to be closely involved in decisions
Where it goes wrong:
- Without clear priorities and regular check-ins, the budget can drift
- It needs more of your time to review progress and make decisions
A practical middle ground
Many projects work best as a mix:
- Fixed-price discovery. A short, fixed-price phase to agree on scope, design and architecture. See what happens in a discovery phase.
- Time and materials for the build, with an agreed budget ceiling and a review every one or two weeks.
- Fixed monthly support after launch, with written response times.
This gives you a firm number to start, flexibility where the unknowns are, and predictable costs once the product is live.
How to choose
| Question | If yes, lean towards |
|---|---|
| Can you write down the full scope today, and will it hold? | Fixed price |
| Is this a new product you'll shape as you learn? | Time and materials |
| Do you need one number for approval before anything starts? | Fixed price, or fixed-price discovery first |
| Can someone on your side review progress every week or two? | Time and materials |
Whichever model you pick, insist on two things: working software you can see every week or two, and a written process for changes. Those protect you more than any pricing model.
Not sure which model fits your project? Get in touch and we'll suggest one, with the reasoning.