Fixed Price or Time and Materials?

What each model actually moves

Contract models are not pricing preferences; they are risk allocations. Fixed price moves the risk of being wrong about effort onto the supplier, and the supplier charges you for carrying it. Time and materials leaves that risk with you, and you pay less when nothing goes wrong.

Neither is more honest than the other. What is dishonest is a fixed price quoted against a scope too vague to hold, which is how most fixed-price disputes actually start.

When fixed price is the right answer

Fixed price works when the work is understood well enough that the remaining unknowns are small. A booking system with a defined set of screens, a known payment provider and a clean data source can be fixed-priced with real confidence.

It is also the right answer whenever the budget is genuinely hard — a grant, a board-approved capital figure, a number that cannot move. Certainty is worth paying a premium for when overrunning is not merely annoying but fatal to the project.

• The scope has been written down and both sides have read the same document
• Integrations are with systems that have real documentation
• The data you will migrate has been looked at, not just described
• Nobody expects the requirements to change materially mid-build

When time and materials is the right answer

T&M suits work where the destination is genuinely unknown: research-heavy AI features, a product still finding its users, an integration with a system nobody has documentation for. Fixed-pricing that work means one of two things — a padded quote, or a supplier who will fight every change request to protect a margin.

It is also the natural model for ongoing work after launch, where the whole point is to respond to what real users do rather than execute a plan written before they existed.

The premium, quantified

On our own numbers, a fixed price for the same work runs about 15–25% above what the T&M equivalent typically costs. That gap is the price of the risk we absorb, and it is real work: we spend longer on the estimate, we build in contingency, and occasionally we eat an overrun.

The hybrid we recommend most often

Most SpiderHunts engagements run fixed price for the defined build and shift to a monthly retainer once it is live. You get budget certainty during the phase where certainty matters most, and flexibility during the phase where responsiveness matters more than predictability.

Where a project has one genuinely unknown component, we carve that out: a fixed-price spike to investigate it, then a fixed price for the rest once we know what we are dealing with.

The worst of both worlds is a fixed price on a scope nobody wrote down. That is not a contract model, it is a future argument with a date on it.

Questions to ask any supplier before signing

1. What specifically is excluded from this price?
2. What happens to the price if my requirements change in week six?
3. Which assumptions is this estimate resting on, and how were they verified?
4. If this overruns, who pays — and is that written down anywhere?
5. On T&M: what does your weekly report contain, and can I see a sample?

Frequently asked questions