When you hire an external team, the contract model shapes everything: what you pay, who carries the risk, and how much flexibility you keep. Fixed price and time and materials are the two main options, and picking the wrong one is a common, expensive mistake.
Two ways to buy software, two very different risk profiles
The contract model you choose decides how much you pay, who carries the risk of things going wrong, and how much control you keep over the work. The two dominant models are fixed price and time and materials. They suit very different situations, and using one where the other fits is where budgets and timelines fall apart.
Fixed price: agreed scope, agreed budget
In a fixed-price contract you agree a defined scope, a fixed budget and a delivery date up front. The vendor carries the risk of delivering within that budget.
When it works
- The scope is small and genuinely well defined: a clear spec, a migration, a one-off integration.
- Requirements are stable and unlikely to change mid-project.
- You need budget certainty above all else.
The hidden costs
Fixed price sounds safe, but the risk does not disappear, it gets priced in. Vendors pad the estimate to cover the unknowns, so you often pay more for the certainty. Any change to scope then becomes a change request, which means renegotiation, delay and friction. And because the vendor is incentivised to deliver the minimum that meets the spec, quality can suffer at the edges.
Time and materials: pay for what you use
In a time and materials contract you pay for the actual hours worked, usually at an agreed rate. You carry more of the budget risk, but you gain flexibility.
When it works
- The product is evolving and requirements will change, which is true of most real product development.
- You work in an agile way, reprioritising sprint by sprint.
- You want to scale the team up or down as the roadmap shifts.
The trade-off
Budget is less certain up front, so time and materials only works with a partner you trust and with real visibility into the work: regular demos, clear reporting, and a tech lead who owns delivery. With a good partner you pay only for productive time and keep full control of priorities. With a bad one, costs drift.
Fixed price vs time and materials at a glance
| Dimension | Fixed price | Time and materials |
|---|---|---|
| Best for | Small, well-defined, stable scope | Evolving product, agile delivery |
| Budget certainty | High, but padded | Variable, you pay for actual time |
| Flexibility to change | Low, every change is renegotiated | High, reprioritise any time |
| Who carries the risk | The vendor, priced into the quote | You, managed through visibility |
| Requires | A complete spec up front | Trust and regular oversight |
| Typical fit | MVP with a fixed spec, migration | Ongoing dev, staff augmentation, dedicated team |
So which should you choose?
A simple rule: fixed price for a small, frozen scope, time and materials for anything that will evolve. Most software work falls into the second category. A common and effective pattern is to combine them: a short fixed-price discovery or MVP phase to define the product, then time and materials for ongoing development once the direction is clear.
How Soroc works
Our core models, staff augmentation and dedicated teams, are time and materials by design: you engage senior engineers at 25 to 45 euros per hour, keep full control of the roadmap, and scale up or down as you go. For a defined, fixed-scope build we can also work fixed price. Either way, every engagement includes a GDPR-compliant data processing agreement, an NDA and full IP assignment from day one, so the contract model never puts your ownership at risk. For more, see our guide to choosing a software development partner.
The model matters, but it is a means, not the goal. The real question is whether your partner gives you the visibility and quality to make either model work.