Quick answer
A fixed-price contract agrees scope and cost up front, so the budget is known. Time and materials bills for effort as it happens, which is flexible but open-ended. Fixed scope suits most business systems; time and materials suits genuinely exploratory work.
How each model works
With fixed price, you and the supplier agree a defined scope, deliverables and a price. Changes are handled through an agreed change process. With time and materials (T&M), you pay for the hours worked at an agreed rate, and the total depends on how long the work takes.
Fixed price: the advantages
The main benefit is certainty. You know what you will pay and what you will receive, which makes budgeting and sign-off simple, and it shifts delivery risk towards the supplier. It also forces the discovery work that clarifies scope before building starts.
- Predictable budget
- Clear deliverables and acceptance criteria
- Supplier carries estimation risk
- No surprise invoices
Fixed price: the watch-outs
Fixed price only works when scope is well understood. If requirements are fuzzy, suppliers either pad the price or dispute every change. Make sure the contract states exactly what is in and out of scope and how changes are priced.
Time and materials: where it fits
T&M works when you genuinely do not know the answer yet: research projects, early product exploration, or ongoing improvement work where priorities shift week to week. The risk is cost drift. Mitigate it with weekly budgets, regular demos and a cap that triggers a conversation.
How LOLCorp prices
We price by agreed scope with no open-ended hourly billing and no surprise invoices. After a short discovery conversation we confirm a fixed price in writing. For a rough range first, our instant quote generator works from your project description, users, timeline and features. A typical engagement starts with a 30% upfront payment, with the balance across agreed milestones. For the factors behind the number, read how much custom software costs.
A worked example
Imagine a client portal with three user types and document uploads. With fixed price, the supplier lists the screens, roles and integrations, prices them and agrees acceptance tests. If you later add a reporting module, it is scoped and priced as a change. With time and materials, work starts sooner, but each new idea simply adds hours, so the final cost depends on discipline on both sides.
For well-understood business systems, the first path usually gives better cost control. For an unproven product idea, you might begin with a short fixed-price discovery, then decide how to proceed.
Contract clauses worth looking for
- Defined deliverables and acceptance criteria
- A change-control process with prices agreed before work starts
- Milestones and a clear payment schedule
- A post-launch support or bug-fix period
- Ownership of code and IP assigned to you (see the ownership guide)
Choosing between them
Use fixed scope when the outcome is clear, as with most internal tools and defined custom software projects. Use T&M for exploration, then switch to fixed scope once you know what you are building. Strong teams offer both. Our checklist for choosing a partner covers how to compare the two in proposals.
For website projects, this cost guide gives indicative ranges.
Frequently asked questions
What happens if scope changes on a fixed-price project?
Changes are priced through an agreed change process. Good contracts make that process explicit before work starts.
Is fixed price always more expensive than T&M?
Not necessarily. Fixed price includes the supplier’s allowance for risk, but T&M can end up costing more if scope grows. Compare the total outcome rather than the rate.
Can I mix the models?
Yes. Many projects use a fixed-price discovery phase, then fixed scope per release, with T&M for ongoing support.
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Get an instant quoteWritten by the LOLCorp engineering team from our experience delivering custom software for UK businesses. This is general guidance, not legal or financial advice.