Project costs & risks
Fixed Price or Time and Material: What Really Pays Off for Your Project
5 min read
Fixed price sounds like safety, time and material like flexibility. In practice both are only half true — and the choice of model determines the conflict potential of the entire project.
Fixed price: Safety at a price
With a fixed price the vendor carries the effort risk — and prices in buffers of 20 to 40 percent. On top, every deviation from the agreed scope becomes a change request. Fixed price only works when the scope is precisely defined.
Time and material: Flexibility with risk
With effort-based billing you carry the risk. The model suits exploratory phases — requirements workshops or prototyping — where scope is not yet fixed. Without caps and weekly reports, however, it becomes a cost trap.
The pragmatic path: Phase-based models
In practice a hybrid has proven itself: the concept phase is billed by effort, the implementation afterwards at a fixed price — based on the requirements refined during the concept. That way you pay no buffers for uncertainties that no longer exist.
What matters in the contract
Regardless of the model: day rates and their validity, travel costs, acceptance criteria, payment plan tied to milestones, rules for additional effort. These points deserve review before signature — ideally by someone who sees such contracts regularly.
Bottom line
There is no universally right model — only a fitting one per phase. What matters is that you know which risk you are carrying and which one the vendor carries.
Unsure where your project stands?
The free CORBU Project Check shows in twelve questions where your software project stands and which next step is worthwhile.