Fixed price or time and materials, this is one of the most consequential decisions in a software engagement, and it is often made too quickly. Each model allocates risk differently between client and vendor, and each is the right answer in specific circumstances. Getting it wrong costs more than the price difference.
The fixed price model
In a fixed-price engagement, the scope, timeline, and cost are defined upfront and agreed before work begins. The vendor absorbs the risk of underestimation; the client has cost certainty. This model works well when the scope is genuinely fixed, a defined feature set, a contained integration, or a discovery with named deliverables.
When fixed price is the right choice
- Projects with a well-defined, stable scope and clear acceptance criteria
- Engagements with a fixed budget that cannot flex, MVP builds, compliance features, defined integrations
- Short-duration projects where scope creep risk is low
- Discovery phases with named deliverables and a capped timebox
The time and materials model
In a time and materials engagement, clients pay for the time and resources actually used. The scope can evolve as the project progresses, and both parties share the risk of scope uncertainty. This model works best for ongoing product work, complex systems where requirements will emerge during build, and long-running platform engagements.
When T&M is the honest answer
- Open-ended product development where requirements will evolve with user feedback
- Multi-phase platform builds where each phase informs the next
- Agentic or AI system builds where the definition of 'done' depends on eval results
- Long-running engagements where the team needs autonomy to make the right engineering decisions
A vendor offering fixed price on an unscoped agentic build has priced in the risk, and will protect that price by saying no to the changes you need.
The hybrid we recommend
For most serious product builds, we recommend a hybrid: fixed-price discovery to lock the scope and architecture, fixed-price MVP keyed to defined acceptance criteria, then time and materials with a monthly cap for the iteration phase. This aligns incentives at the points that matter and keeps flexibility where the work is genuinely uncertain.