Commercial
Fixed price vs time and materials
Two ways to price work, suited to different certainty.
Definition
Fixed price agrees a total for a defined scope, putting delivery risk on the provider. Time and materials bills for effort actually spent, putting scope risk on the buyer. Most engagements are one or the other, and some are fixed price per phase.
Why it matters
Fixed price is not automatically safer. It requires a scope tight enough to price, and it makes every change adversarial. If your requirements will genuinely move, time and materials with a capped budget and frequent checkpoints usually costs less and produces a better result.
Related
Read next
Statement of work (SOW)
The document that defines what is being delivered.
Read the definition ›Change request
The formal route for altering an agreed scope.
Read the definition ›Rate card
The provider's published prices by role and seniority.
Read the definition ›Managed delivery
The provider owns the outcome, not just the people.
Read the definition ›Next step
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