The times and material contract model and the fixed cost model are the most popular models when it comes to mobile app projects.
Although they are not the only available contract options, we have seen in our experience at Sprinthub Mobile that they are the most popular contract models among our clients and our prospects.
As a client signing up with a software development company, you will find that these are the two major options when it comes to getting billed for your software development projects.
In this article, we will compare and contrast both contract models, while guiding you on the advantages and disadvantages that abound therein.
Also, we try to answer the question which model is better between a Times and Material contract and a fixed price contract as well as try to give you guidance on which one is most suitable for your project.
But first, let us define both contract models for a clearer understanding:
What is the Times and Material Contract?
A Times and Material project is one that is cost based on the time spent on the software development process plus the cost of the materials used. The contractors are reimbursed for the material used and paid for the time they spend working on the project.
In other words, it describes when a client pays for a software development agency’s cumulative time and the equipment/tools that they used to bring the project to completion.
Explained even more simply, the times and material model is when a client and an agency agree on a payment fee for the time and tools that a software agency uses to complete the software project. It is commonly agreed that the agency will charge the client per hour.
The Business Dictionary defines Times and Material contracts as “an arrangement under which a contractor is paid on the basis of the actual cost of direct labour, usually at specified hourly rates, the actual cost of materials and equipment usage, and ( agreed-upon fixed add-on to cover the contractor’s overheads and profit.”
Wikipedia in its definition, explains times and material contracts as a “contract for construction, product development or any other piece of work in which the employer agrees to pay the contractor based upon the time spent by the contractor’s employees and subcontractors employees to perform the work, and for materials used in the construction (plus the contractor’s mark upon the materials used), no matter how much work is required to complete construction.”
The Fixed Cost Contract: What is it?
A fixed cost contract in software development is a single amount of money charged for the total software development process.
It is a contract that is usually favoured when the labour and processes used in a software project are quite predictable.
In simpler terms, it is a type of contract in which the customer pays a fixed sum for a specified scope of services to be rendered.
If you opt for the fixed cost contract, you and your software development outsource partner have to agree on the cost of the project before the process even starts. While in times and material contracts, the cost of your app development might change as the project goes on.
Times and Material Model: Why Should You Choose it?
The time and material and the fixed cost models both have their advantages. Here, we will talk about the specific advantages of opting for a Times and Material contract, how it will affect the development process and indeed your budget. You should choose the times and material model if you are looking for the following advantages for your mobile development project:
Flexibility
With times and material contracts, you can fine-tune your software development project’s scope and requirements in response to your changing needs as the software development process go on.
If you want to change anything after you have signed a times and materials contract, you do not need to renegotiate the software development contract nor do you need to have a painful sit-down with your outsourcing partner about a change in the scope of work you had already agreed upon.
With this type of contract, you can make changes to the scope of the work when necessary or needed.
If you are embarking on a software development project where you do not understand the full scope of work needed to complete the project, a Times and Material contract might be the best option for you.
It spurs you to prioritise important things
With the time and materials contract in software development, you as the client are required to pay for every second that the software developer spends on your project.
Given that reality, the times and material contract sort of forces you to consider what is important for you to focus on.
In fact, when you prioritise the important things, it is almost always guaranteed that you will end up with a great product because you will think in terms of Return on Investments (ROI) more than anything else.
It limits the risks
Risk is quite relative when it comes to software development. Although the times and materials model has its fair share of risk factors, overall, the model still helps you keep your cards close to your chest.
With the fixed cost model, for example, once you sign off to start a project, you are committed to your software project partner until the end of the contract.
However, with the times and material model, you only pay for what is done at various points, and you also have the option of either terminating the relationship or renegotiating at any time.
It saves you money in the long run
With a time and material contract, you are required to only pay when work is done, unlike the fixed cost model where you pay cumulatively.
What this means is that you save yourself from “wasting” on anything that does not guarantee a return on investments.
It makes the software development project faster
A fixed cost contract usually requires that your software development partner provides you with a well-rounded plan detailing the expected scope of work before you embark on the project. Executing these plans takes time even after you sign off. Most times, you don’t touch on everything you were charged for, and set out to do.
With the times and material model, you can just start the project, and flesh out the details as the project goes on. That saves you a lot of time and helps you execute faster.
Fixed Cost Model: Why Should You Choose it?
Just like the times and materials model of pricing, the fixed cost model has its fair share of both advantages and disadvantages. Below are some of the more popular reasons why you should consider this model of costing:
Clear Budget
With the fixed cost model, you know ahead of time what you are paying for, and how much you are paying for it. Unlike the times and material model, nobody can send you an invoice with additional costs for payments that were not documented at the beginning of the project.
The fixed cost pricing model allows you to know the cost implication of your project right from the jump.
Clear-cut goals
The fixed cost model of pricing guarantees you a view of clear-cut goals from the beginning of the project.
You have a sense of what to expect from the beginning and can hold your software development partner to accountability at every stage of the development process.
Plain Performance Measurables
You set KPIs and already have a developed timeline that shows you when specific projects will be completed when you opt for the fixed cost model
Besides, in the beginning, you would have set stringent performance goals that are measurable every step of the way as the development process progresses. That’s a strong advantage of this contract method.
The Administrative load on you as the client is minimal
Having the knowledge of specifics that need to be covered in the software development process, you don’t need to spend time interacting back and forth with the software development company.
That removes the administrative overhead and allows you to focus on your core business competencies.
This is in sharp contrast to the times and material model for example, where you have to spend a lot of time interacting and communicating back and forth with the software development company in order to keep the project going.
Fixed timeline
Both the software development company and the client who owns the software development project usually have a full understanding of the project’s timeline before embarking on the process, therefore there is no back and forth with the timeline.
Times and Material vs Fixed Cost – a comparative analysis.
| Times and Material Model | Fixed Cost Model | Verdict | |
| Flexibility | Very flexible and easy to apply a change | It is a bit rigid and requires high-cost implications to effect change. | If you want flexibility for your mobile app project, it is better to opt for T & M. |
| Budget Control | You do not know how much the project will cost you from the beginning. You can estimate, but nothing is cast in stone. | Here, you agree with your mobile app development partner on the cost implication before you start. Although a few things might change as you go on, you generally have an idea of what you are paying. | If you want to know and have control over your total expenditure during a mobile app development process, then you should opt for the fixed cost contract as it allows you to plan your budget upfront. |
| Control over the development process | You actively participate in and exercise control over the development process. | You are not required to actively participate in the development process, so you can focus on important aspects of your business. | If you want to be hands-on with your mobile app development project, then maybe you should consider the times and material contract. But if you want the freedom to focus on your core business, then maybe fixed cost it is! |
| Quality Control | With the times and material contract, you have a say in making sure that your mobile app is developed with the utmost quality assurance because you are involved all the way. | Here, you will not be involved all the way through, and might only have to assess the final mobile app after the development process is done. | The times and material model guarantees you a bigger share of quality control. |
If you consider all factors, you will have noted by now that there’s no superiority battle among the two models.
Rather, they both have different attributes that will benefit an individual or organisation that can harness each model’s potentials while trying to keep the disadvantages at a minimum.
Many people assume that the times and material versus fixed costs argument is all about trying to see which model costs more, but it is a little more complex than that.
When considering which of these contract models to opt for, it is advisable that you consider salient factors like; the amount of control you need to make your project a success, if you want to plan your budget ahead of time, whether you need to focus on other things, and the flexibility you want for your mobile app project.
These factors will help you decide if the times and material contract is the best for you, or if you need a fixed price contract.
Either of these two pricing models will work for you if you partner with a good software development agency, but it is better for you to focus on your project’s specific needs when trying to decide on a model.