In short
- A fixed price fits a well-described, stable scope - but every change means an amendment and an extra charge.
- Time and materials gives flexibility when the scope will evolve with the project.
- With a fixed price the vendor adds a risk buffer, so the price can exceed the real cost.
- With time and materials, control comes from an estimate, regular demos and time reports.
- A mixed model often works best: a fixed price for the analysis, then hours in stages.
Fixed price
The vendor commits to delivering a defined scope for a defined amount. For the client this means a predictable budget - provided the scope is well described and does not change along the way.
- Advantage: a known cost and clear acceptance criteria.
- Drawback: every scope change needs an amendment and an extra charge; the vendor prices in a risk buffer.
- Risk: disputes over what "was in scope" when the specification is vague.
Time and materials
You pay for the hours actually worked at an agreed rate. The scope can change along the way without renegotiating the whole contract.
- Advantage: flexibility, and you pay for what was built with no risk buffer.
- Drawback: the final cost is not known up front.
- How to limit the risk: an estimate, a budget per stage, regular demos and time reports.
Comparison
| Fixed price | Time and materials | |
|---|---|---|
| Best when | The scope is stable and well described | The scope will change along the way |
| Who carries the risk of change | The vendor (and prices it in) | The client (who controls the scope) |
| Changes along the way | Amendment and extra charge | No contract renegotiation |
| Cost control | The amount in the contract | Estimate, budget per stage, reports |
A mixed model
In practice a combination works well: a short analysis at a fixed price, which produces an estimate and a plan of stages, then time and materials with a budget for each stage. The client knows roughly what they will pay, and the project can respond to what users teach it.
How 2Simple bills
After analysing the process you get an estimate, and before signing the contract - the exact scope. We bill the hours actually worked, so you pay for what was built, and every 2-3 weeks you see progress and can adjust the direction.