Fixed price or time and materials?

Buyers almost always prefer fixed price, for an understandable reason: it looks like certainty. What it actually does is move risk to the supplier, who prices that risk into the number and then has to protect it.

What fixed price really buys

A supplier quoting a fixed price must estimate the worst realistic case and add a margin for being wrong. You pay that margin whether or not the risk materialises.

It also changes behaviour on both sides in ways nobody enjoys:

• Every change becomes a negotiation, because the supplier's margin depends on scope not moving.
• The supplier is incentivised to deliver the letter of the specification rather than the useful thing.
• Discovering a better approach mid-build becomes a commercial problem rather than a welcome one.

When fixed price is right

When the scope genuinely is knowable in advance. A marketing site with signed-off designs and content, a defined integration against a documented API, a migration with a known data shape — these are specifiable, and a fixed price is fair to both sides.

The test: could two competent suppliers read the specification and build the same thing? If yes, fix the price.

When time and materials is right

When you are discovering what to build as you build it, which is most product work.

You keep the flexibility to change direction when you learn something, and you pay for what is actually done. The trade is that you carry the risk, which means you need visibility rather than trust alone.

Making time and materials safe

The objection to T&M is open-ended cost. That is manageable:

1. Set a budget cap that cannot be exceeded without an explicit decision from you.
2. Work in short cycles with something demonstrable at the end of each.
3. Require a running burn figure, not a surprise at the end of the month.
4. Keep the right to stop. If the first six weeks are not working, you should be able to walk with the code.

With those in place, T&M is usually cheaper than fixed price for the same outcome, because you are not paying a risk premium on work that went smoothly.

The hybrid that usually works

Fixed-price discovery, then time and materials for the build, with a budget cap.

Discovery is specifiable — it has a defined output and a defined duration — so fixing it is fair. The build is not, so pricing it as though it were means paying for a certainty that does not exist.

Our cost estimator gives a range rather than a single figure for exactly this reason, and our brief builder produces the document that makes a fixed price possible where it is appropriate.

Is fixed price cheaper than time and materials?

Usually not, for the same outcome. A supplier quoting a fixed price must estimate the worst realistic case and add margin for being wrong, and you pay that margin whether or not the risk materialises. Fixed price buys predictability rather than value, which is worth paying for when the scope is genuinely knowable and wasteful when it is not.

How do we cap the cost of a time and materials contract?

Set a budget ceiling that cannot be crossed without an explicit decision from you, work in short cycles that each end in something demonstrable, require a running burn figure rather than a month-end surprise, and keep the right to stop and take the code. With those four in place the open-ended risk largely disappears.