Fixed price sounds safe. There may be a catch.

In custom software, fixed price and time-and-materials (T&M) contracts both have value. The wrong contract creates friction, delays, and surprise costs.

A contract is not just about money. It shapes behavior, scope, and decision-making.

Fixed Price vs Time and Materials

Fixed Price

Fixed price means a set scope for a set cost.

Strengths:

Budget certainty upfront
Clear scope boundaries

Risks:

Changes trigger change orders and delays
Vendors may pad estimates to cover risk
Teams may optimize for contract, not outcome

Time and Materials (T&M)

T&M means paying for the real hours and effort used.

Strengths:

Flexibility to change priorities
Better fit when requirements evolve

Risks:

Cost can rise if scope grows
Requires strong transparency and management

The P.A.C.T. Framework

Use P.A.C.T. to pick the right contract model:

P . Project clarity: Are requirements stable and clear?
A . Adaptability: Will priorities change during development?
C . Cost certainty: Is a fixed budget more important than flexibility?
T . Trust: Is there enough transparency to run T&M well?

Mini Case Study. Agriculture Compliance Change

Problem: An agricultural supplier needed a custom inventory and traceability system.

Mistake: The project used a fixed-price contract with a tight scope. Midway through, new compliance rules required added traceability fields and reporting. The contract treated this as out-of-scope, triggering a change order and a timeline shift.

Fix: The supplier moved to a phased delivery model using T&M for the next stage, with a clear weekly plan, budget guardrails, and a change tradeoff rule.

Result: The team adjusted quickly to regulatory changes without stopping delivery. The system launched in smaller pieces, and the business stayed compliant.

Quick Takeaways

Fixed price buys cost certainty, but reduces flexibility.
T&M buys flexibility, but needs active budget control.
Contract choice depends on clarity, change, and trust.
Good project management matters more than contract type.

Score your project using P.A.C.T., then choose the contract that matches your real level of uncertainty.