Comparing Time and Material vs Fixed-price Contracts in Mobile App Development
There are a lot of moving parts to consider when commissioning a mobile app development project, and as a product owner, manager, or CEO, you may find yourself in the midst of a big decision when it comes to building a mobile app for your business. Selecting which contract type makes the most sense can be a bit of a headache, especially if you’re leading a budget-conscious startup.
Not only do you need to map out what features and functionality you want your app to have, but you also need to select which type of contract will work best for your company. Two of the most popular contract types are time and material (T&M) and fixed-price. Which one is better? Both have their pros and cons, so it depends on your project’s specific needs.
In this blog post, we’ll take a closer look at each contract type, to see which would be the best fit for your next mobile app development project.
Time and Material contracts
With a T&M contract, the price is agreed upon upfront, but the scope of work is not. This means that the project can take longer (and cost more) than initially anticipated – but it also means that you have some flexibility to add or change features as the project progresses.
With T&M contracts, you’re essentially paying for the time that your development team spends working on your project, as well as the technology and skill involved (since we can’t really speak of material in the traditional sense of the word when it comes to building software). This type of contract gives you more flexibility because you can make changes to your project scope along the way without incurring any additional charges. For example, if you want to add a new feature or make changes to an existing one, your development team can accommodate those changes without issue.
One drawback of Time and Material contracts is that since the budget is not fixed, they can be more expensive by the end of the project than what you’ve initially bargained for, however this also guarantees the highest value of the deliverables. Generally speaking, if you have a strictly limited budget or need your app completed by a specific date, it’s a good idea to do some extra prep work before you sign a T&M contract.
“Over the years, we have worked with our partners using both types of contracts and we do understand both the pros and cons of each one. Based on our experience we prefer working the T&M way, as it shows better results and it’s a truly great companion for the agile methodology we use in our projects – with proper communication and good process management, it enables product success within time, budget and scope.”
Dan Mocan, Business Development Manager – X2 Mobile
Time and Material pros and cons at a glance
Pros:
Flexibility - With T&M, you're free to increase or reduce work volume, change your mind about the designs, rethink the priorities. The pricing will follow these changes no matter what.
Timing - Work can start much faster than in the case of a fixed-price model, as you can cut a big corner by avoiding the bidding process. You can also see and control how much time your devs spend on each sprint.
Dynamic work scope - This is the essence of the entire agile methodology. The general goal is set from the beginning, but how you get there remains flexible. This allows tweaking the strategy while making tangible progress with implementation.
Cons:
Limited control over the budget - While you’re the one calling the shots, just as with a fixed-price contract, this gives clients an often false sense of being able to get groundbreaking results fast and on a shoestring budget. You can avoid this by coming prepared, having spent time calculating and prioritizing at least the first major milestones beforehand.
Deep involvement - We normally talk about this as one of the major advantages of T&M, but it can quickly turn into a setback if you don’t have the right attitude for this kind of collaboration. You not only can, but must be hands-on, and work constantly with your development team if you opt for a Time and Material contract.
When to choose a T&M contract
T&M contracts are generally best for long-term projects where the requirements are dynamic, or the project scope has yet to be fully defined. Only choose Time and Material for shorter projects if the requirements and priorities are already very well-defined. We can help with this.
If you want the flexibility to modify the scope or vary the workloads, you should definitely negotiate a T&M contract.
Fixed-price contracts
In contrast to Time and Material, fixed-price contracts come with a set price tag and a set scope of work. This means that you know exactly how much the project will cost upfront, but it also means that any changes to the scope of work will incur additional costs.
With fixed-price contracts, you pay a set price for the entire project up front. This type of contract is ideal if you have a well-defined scope of work and detailed requirements because it ensures that your project will be completed within a certain timeframe and for a predetermined price. Once the price is agreed upon, it won’t change unless the scope of work does.
However, the main drawback of fixed-price contracts is that they don’t allow for much flexibility. If you decide that you want to make changes to your project scope along the way, you may have to pay additional fees. Another downside is that if unexpected problems arise during development, you may end up paying more than what was originally agreed upon.
You need to put effort into laying out precise wireframes, as for the most part you’ll be paying for execution rather than consultancy. If your requirements aren’t clear enough from the start, that’s a recipe for changes on the go, therefore additional costs, and a disappointing experience overall for everyone involved.
“Fixed-price contracts work in certain cases, but the downside is that they make the change management process consume a lot of time and energy.”
Dan Mocan, Business Development Manager – X2 Mobile
When to choose a Fixed-price contract
Fixed-price contracts are generally best for short-term projects with less flexibility and limited, or fixed budget. If you’re only interested in an MVP and you’re uncertain about how you want your app to grow in the future, fixed-price may be a good option
However, even for small projects with a limited scope we recommend investing time and energy into laying out the requirement as clearly as possible, and determining the deadlines accurately before signing a fixed-price contract.
Fixed-price pros and cons at a glance
Pros:
Transparency - The clear requirements and deadlines may work in your company’s favor as long as you check in with your contractor on a regular basis. Payments are based on the percentage of work performed, so there’s little room for error in accounting too.
Predictability - Being able to plan ahead with exact figures is never a bad thing. But there’s only so far ahead you can look – if development is projected to last several months, the fixed-price model may end up costing your business more than if you went T&M from the get-go.
Cons:
Rigidity - A new idea or a sudden change in scope after signing the contract are not a problem with T&M. If you go fixed-price, these might never go in production.
Less accountability - Most contractors won’t give you regular reports on a fixed-price contract. You just tell them what you want and by when, and the rest is up to the developers. This is not to say you won’t have a high-level view of the workflow, but if you want to be really hands-on, a fixed-price contract will not give you the level of involvement you want.
T&M vs. fixed-price – side-by-side comparison
At X2 Mobile, our preference is definitely to go with T&M contracts most of the time, as requirements can change so often in the world of tech products that it’s very difficult to consider a fixed scope from the beginning. The less we know about how the project is likely to unfold, the more difficult it is to estimate the effort and budget required.
We consider that the effort of doing change management for a fixed-price contract is much better invested towards building a great product and listening to the customer needs.
Additionally, fixed-price collaborations require a longer planning period that’s usually not in the benefit of any of the parties involved.
Key takeaways
When deciding which contract type is right for your mobile app development project, it’s important to weigh the pros and cons of each option carefully. In any case, the type of contract you choose should be based on the specific needs of your project.
If you need more flexibility and are willing to pay more for it, then a time and material contract may be the right choice for you. However, if you have a clar scope and priority of the requirements, and a fixed budget, then a fixed-price contract may be a better option. Ultimately, it all comes down to what your specific needs are.
If you're not sure which type of contract is right for you, reach out to us for guidance. Our experienced project managers will be able to recommend the best course of action based on your specific project requirements.
At X2 Mobile we have developed applications working with both contract types over the last 10 years, and for a wide range of industries. We cover all stages of mobile app development, never compromise on quality, and efficiency is paramount in all of our collaborations.
Check out our portfolio on x2mobile.net, and say hello @+40745627529 or contact@x2mobile.net.