A fixed-price contract is one agreed price for a clearly defined scope of software work. Time and materials is the alternative: the client pays for the time and resources actually used, with the scope free to evolve. The two models split project risk differently between buyer and supplier.
Two ways to buy custom software
When you commission bespoke software, one of the first commercial decisions is how you pay for it. Almost every arrangement is a version of two contract models: fixed-price, or time and materials. The choice shapes your budget, your flexibility and who carries the risk if the work proves harder than expected.
These are standard, recognised models in project procurement, not anything unusual to software. Professional bodies such as the Association for Project Management and the Project Management Institute describe the same fixed-price and time-and-materials types across all kinds of project.
Neither model is better in the abstract. The right one depends on how clearly the work can be defined before it starts.
What a fixed-price contract is
A fixed-price contract agrees a single price for a defined piece of work, settled before development begins. The supplier estimates the effort, adds a margin for the risk they are taking on, and quotes one figure. If the work turns out to be harder than expected, that is the supplier's problem, not yours.
The trade-off is that the scope has to be locked down first. A fixed price can only be quoted against a clear specification, so it relies on a thorough discovery phase and a detailed statement of work. Anything you want beyond that scope is a separate, priced change.
Fixed-price suits small, well-understood projects: the requirements are stable, the outcome is clear and budget certainty matters more than flexibility.
What time and materials is
Under a time and materials contract you pay for the time and resources actually used, charged at agreed rates, usually billed by the day or by the sprint. There is no single fixed figure. If a feature takes longer, you pay for the extra time; if it takes less, you pay less.
The advantage is flexibility. Scope is free to evolve as the project progresses and as you learn what works, which makes time and materials a natural fit for agile delivery and for ongoing development after launch. The trade-off is that the final cost is not capped, so it depends on trust, good reporting and active involvement from you.
Time and materials suits larger or evolving projects, where pinning down every requirement in advance is neither realistic nor wise.
Fixed-price vs time and materials: side by side
The two models differ on the things a buyer cares about most:
| Fixed-price | Time and materials | |
|---|---|---|
| What you pay for | One agreed price for a defined scope | The time and resources actually used, at agreed rates |
| Budget certainty | High: the total is known up front | Lower: the total depends on the work done |
| Flexibility of scope | Low: changes are priced separately | High: scope can evolve as the project runs |
| Who carries the risk | The supplier, who prices a margin for it | The buyer, who pays for whatever the work takes |
| Best suited to | Small, well-defined projects with stable requirements | Larger or evolving projects, and ongoing development |
The pattern behind the table is risk. Fixed-price moves the risk to the supplier, who charges for carrying it. Time and materials keeps the risk with the buyer, in exchange for flexibility and no built-in margin. Choosing a model is really a decision about which risk you would rather hold.
A third option: the dedicated team
Between the two sits a third model worth knowing: the dedicated team. Instead of buying a project or buying hours, you pay a monthly fee for a named team that works only on your software, with you setting the priorities.
It is closest to time and materials, but with a stable team and a predictable monthly cost. It suits long-running development where continuity and direct control matter, and it overlaps with staff augmentation, where you add skilled people to your own team. For a single, well-bounded build, a fixed-price or time and materials contract is usually simpler.
This entry compares the contract models rather than the cost of the work itself. For what bespoke software actually costs in the UK, see our guide to bespoke software costs.
Not sure which model fits your project? The right contract model follows from how clearly the work can be defined, and that becomes clear during discovery. Red Eagle Tech will talk through fixed-price, time and materials or a dedicated team honestly as part of any bespoke software development engagement, and recommend the one that genuinely suits your project. The form below is the place to start.
