Fixed price or by the day
One model moves the risk to your supplier and charges you for carrying it. The other leaves the risk with you and gives you the savings.
Fixed price is right when the thing being built is genuinely known before anybody starts, which is rarer than either side admits in the first meeting. Everything else should be bought by the month with a stop point you control, because that is the only structure where changing your mind is cheap.
What you are buying in each case
A fixed price is an insurance product. The supplier takes the risk that the work runs long, and prices that risk into the number. You are paying a premium for certainty, and the premium is real money.
Time and materials is the opposite trade. You carry the risk of overrun, you keep the benefit when the work goes faster than expected, and you get the right to change direction without renegotiating a contract.
A fixed price is priced for the bad version
No supplier prices a fixed scope for the week where everything goes well. They price for the week where an integration turns out to be undocumented, because they will be held to the number either way.
That padding is not dishonest. It is the only rational response to being asked for a firm price on work that has not been specified in enough detail to price firmly. The problem is that you pay the padding whether or not the bad week arrives.
Where fixed price genuinely wins
There is a real class of work where the scope is known: a defined set of pages, a form that has to reach a defined system, a report with a defined output. When the finish line can be described in a sentence that both sides read the same way, a fixed price removes an argument you do not need.
It also wins when your own governance requires one number for one approval. That is a legitimate constraint and it is worth paying the premium for rather than fighting.
- Scope describable in one sentence both sides read identically: fixed price
- One budget approval, no appetite for variations: fixed price, and expect the premium
- Anything discovered as you go, anything integrating with a system you cannot inspect first: by the month
- Work you may want to stop halfway: by the month, always
Time and materials fails on trust, not on price
The objection to buying by the day is always the same: what stops it running forever. Nothing in the model does. What stops it is a monthly cap you set, a demonstration at the end of every month, and the right to end the arrangement with thirty days notice.
Those three together give you a harder stop than a fixed price does. A fixed-price project you want out of in month four is a negotiation. A monthly arrangement you want out of in month four is a calendar entry.
The one question that tests any quote
Ask what happens if, in week six, you decide a planned feature is not worth building. Under a fixed price the answer is usually that you have already bought it. Under a monthly arrangement the answer is that the money goes somewhere else.
Most disagreements about pricing models are actually disagreements about how much is known. If neither side can answer that question comfortably, the scope is not fixed and the fixed price is a guess with a signature on it.
What to take from this
- 01A fixed price is insurance, and you pay the premium whether or not you need it
- 02Fixed price fits scope you can describe in one unambiguous sentence
- 03By the month plus a cap, a monthly demonstration and thirty days notice is a harder stop than a fixed contract
- 04Ask what a change of mind in week six costs under each model
Ask the question directly
- Is a fixed price safer for a first project with a new supplier?
- It feels safer and it is not. A first project is where you know least about each other, which is exactly where the premium is highest and the scope least reliable. A small monthly arrangement with a defined stop point tells you more about a supplier than a signed fixed price does.
- What about a fixed price with a change request process?
- That is time and materials with extra paperwork and worse incentives. Every change becomes a commercial negotiation, so the honest conversations about what should change get delayed until they are expensive.
- Can we cap a monthly arrangement?
- Yes, and you should. A monthly ceiling in the agreement gives you the budget certainty that people reach for fixed price to get, without buying the whole scope in advance.
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