The most common contract models available are the time and materials contract and the fixed price contract. These names have been carried over from other business areas, like construction. This outsourcing pricing model is traditionally used with Waterfall project management methodology, which is not an iterative approach. Your development team will break down the work into predefined chunks and deliver them according to the SOW. You have a long term project or a series of projects for 1+ year.
The bigger the project, the more financial risk if anything goes off track. Clients rarely want to discuss requirements and functionality with developers. Communication goes much smoother and from the moment of dealing, he is responsible for transmitting all the information to the development team.

This is typical in construction projects but may also apply to software companies and many other product creation businesses. If the risks are too high for a fixed-price contract, a time and materials contract is a fair way to ensure you are compensated for your actual work. ‍At the end of the day, most stakeholders will want to choose an option that ensures an optimal product-market fit at a fair price. For small projects with fixed scopes, a fixed price might ensure money is better spent. That’s why most software houses (including ours) favor the time and material pricing model these days, although the fixed price model still has its applications. There is no absolute answer, but there are some markers that can help you make the right decision.

Chance that the final price would be higher than estimated

Like we’ve pointed out before, a client follows the app development process and becomes an active member of the team. On the flip side, T&M allows you to control the entire process. All actions are consulted beforehand – there’s no risk that all of a sudden, you’ll need to pay more than expected. Rest assured, the development team won’t implement any solutions without your approval. You’re always kept in the loop and can have a real impact on the project.

The timelines for the development of the entire software are predefined and the development firm should adhere to it as it is contractually bound. The Requirements are frozen at the start of the project and estimates are made based on those requirements. It’s important that you (or someone from your company) are a part of the project. It included taking part in meetings, giving feedback, and participating in the process of choosing priorities for the next iteration. By being engaged, you can be sure that the final outcome won’t surprise you and you’ll be able to test and comment on each feature taking care of its quality. Clients might wonder if they’re getting their money’s worth without a fixed price tag.

Time and Materials Contract vs. Cost-Reimbursable Contract

Now that we’ve learned what a time and materials contract is, let’s go over the key elements that should be part of any time and materials contract. T&M is especially advantageous in long-term projects when it’s almost impossible to plan every action before the development starts. Let’s say the competition added a new feature, and you need a similar solution if you want the app to succeed. Or maybe it turns out that you can’t provide the data needed to build some functions, so the development team must come up with another way to achieve the goal. It’s important to emphasize that risk is on the variability of the work in question.

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Belitsoft’s services to anyone wanting to get the right IT products in the right place at

the right time. We also applied change requests when the client wanted to change or add new deliverables. It took some time and money, but the client received the product that perfectly met the requirements and became competitive on the market. We know that a skilled Project Manager and Business Analyst are a key to a thorough yet quick discovery phase and detailed specifications. Belitsoft has well-versed specialists with years of experience in fixed price projects who will take on this stage. Thanks to our years-long expertise in building dedicated teams for Cost+ contracts, we know how to create a team that will be on the same page with your in-house employees and managers.

Creating trailblazing software by definition must be open to changes as new technologies and solutions are emerging on a monthly basis. In addition to that, the model allows to deliver early-stage versions to users much faster and gather valuable feedback to perfect the final idea. fixed price vs time and materials This model takes a much more granular approach to managing a project. It requires thorough tracking and a detailed invoice breakdown of costs. Every time the contractor bills the owner, they need to show exactly what hours were spent, who spent them, and what work was accomplished.

• Modern software lets you easily modify template agreements that fit your needs but save you valuable time.
• All the decisions have been made, so the rest in the team’s hands.
• There’s great value in a supplier that can adapt to the customer’s needs, too, as we do.
• Since clients pay only for the hours and accompanying expenses spent on the project, they must be provided with a convenient and accessible way to track and control this time, expenses, and material.
• Software houses have their ways to hide costs in fixed price estimates, plus are not prepared to handle extra costs that most likely WILL come up.

A standard waterfall development model gives a Fixed Price Contract the predictability it needs. In a few cases, iterations are introduced to improve software quality. Time and Material Contract is compatible with all development models, yet the rapid development model or agile development model is perfect for a Time and Material agreement. Standard development models like waterfall, iterative or spiral are apt for getting into a Fixed Price Contract, as they provide the predictability that the pricing model needs. A Fixed Price Contract and Time and Material Contract are generically used agreements throughout the market.

Time & Material is a contract where the total cost isn’t defined when the development starts. A software development company, which you hire, assigns specialists to your project at a fixed hourly or monthly rate. The final project cost is calculated de facto upon the number of hours spent by the assigned staff. Representing an offshore software development company Belitsoft, I’ve spent over 15 years building and managing high-performing teams for clients across the globe. A time and materials contract is a legally binding document that is commonly used in the construction industry.