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Fixed price vs time and materials: who carries the risk

Fixed price transfers risk to the supplier — who prices it in. Time and materials keeps it with you and rewards discovery. Neither is honest without a clear scope.

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Outcomes

Fixed price needs a documented specification to be meaningful
Time and materials needs a trusted supplier and an engaged product owner
Capped time and materials is a workable middle ground
Change control matters more than the model chosen
Discovery is best paid separately under either model

Problems this solves

Fixed price needs fixed scope

Without detailed scope, the risk premium in a fixed price exceeds what the flexibility is worth.

Time and materials needs trust and visibility

Sprint demos, burn reporting and a change log make it controllable rather than open-ended.

Change requests become adversarial

Fixed price pushes both sides into arguing about interpretation instead of building.

How delivery runs

01
Fixed-price discovery
Discovery itself is fixed price — it is well understood and produces the scope.
02
Fixed-price first phase
Where scope is clear after discovery, phase one is quoted fixed.
03
Time and materials afterwards
Later phases run on measured velocity with a capped monthly spend.
04
Written change control
Every addition estimated and scheduled explicitly, in both models.

Build or buy

Buy something existing when

Fixed price for well-defined, self-contained deliverables

Build custom when

Time and materials with a cap for evolving products

What moves the price

Scope certainty

The less certain the scope, the larger the risk premium in any fixed price.

Integration unknowns

Third-party systems you do not control are difficult to fix-price honestly.

Change appetite

If you expect to learn and adjust, fixed price works against you.

Where projects go wrong

Fixed price built on a thin brief

Expect quality to absorb the difference; insist on discovery first.

Uncapped time and materials

Always agree a monthly cap and a stop-or-continue review point.

FAQ

Questions buyers ask

Which do you recommend?+

Fixed price when scope is knowable, capacity-based when it is genuinely exploratory. We say which before quoting.

How are changes handled?+

A written change with impact on cost and date, approved before work starts.

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