Fixed-time contract vs Time & material contract

When outsourcing projects or insourcing tasks, organizations face a very crucial question about billing. Working with outsourced development team means that there are a few elementals that need to be sorted out from the beginning. It is because each project is different in its regard and comes up with its own set of requirements.

When a customer signs a deal with a software development company, they sign a billing agreement. The pricing model used depends mainly on project requirements. Two popular billing models are — Fixed-price Contract and Time and Material Contract. Selecting the right contract agreement is a vital step when outsourcing software development. Consequences of a wrong choice may yield unexpected outcomes.

Each type of contract has its pros and cons; hence, choosing any one of them may be a complicated task. The option that is well suited for one project may not be the ideal for another one. This article emphasizes on the advantages and disadvantages of these pricing models and explains which is better in what condition.

Fixed Price Contract

The fixed-price agreement is a type of contract where the service provider is accountable for completion of the project within the agreed sum in the contract.

In a Fixed Price model, the total budget on the project is set before development starts and remains unchanged. Plus, the exact deadline must be approved before the development starts. The contractor will bear the risks for late execution of works.

It is a practical choice in those cases, where requirements, specifications, and rates are highly predictable. The client should be able to lay down his clear vision of the project with the contractor to ensure appropriate final results.

When to use a fixed price contract:

  • Clear requirements and deadlines
  • Limited or fixed budget
  • Limited project scope
Fixed Price advantages
  • Usually requires clear deadlines and figures to be set to the budget. Planning expenses 1 to 3 months provide accurate statistics.
  • Regular project management communication with the contractor ensures scope compliance and eliminates the possibility of surprises.
  • Payments to the service provider count on the percentage of work performed. There is little involvement in such workflows since expectations are transparent and preset.
Time and Material Contract

Time and material (T&M) contract is the type of contract where the contractor is charged for the number of hours spent on a specific project, plus costs of materials.

Time and material contracts are much different from Fixed-Price because they involve billing clients for what they get. A time and material contract charges clients based on an hourly rate for all labor, along with the costs of materials. This type of arrangement might present some risk to the budget, but factors such as flexibility and opportunity to adjust requirements, shift directions and replace features prove to be very beneficial nonetheless.

In this model, the customer has a more significant role in the development of the software solution and bears all risks related to the project. The length of responsibilities that the client carries through the whole development process with time & materials is much higher than with fixed-price projects.

When to use T&M price contract:

  • Long-term projects
  • Full project scope not established
  • Flexibility to modify the range with varying requirements
Time and Material advantages
  • T&M contracts allow businesses to modify the scope of work, revise materials or designs, shift the focus or change features according to project requirements.
  • There can be an established general goal that can be achieved, however knowing how it’ll be achieved is not so important beforehand.
  • Opting for T&M contract process helps to save time and start projects immediately.



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What is a Patent?

Before you get an answer to that question, take a moment to ask yourself - what are the advantages of having a real estate property to your name?

  • You can rent it
  • You can use it for your own business venture
  • You can prevent others from using your property without your permission
  • If things are not working, you can simply sell it

 On similar terms, patent is an intellectual property that has all the advantages stated above and one needs to claim it on his/her name.

 A patent is the granting of property right to an inventor, by a sovereign authority.

 This grant provides the inventor exclusive rights to the design, or invention for a designated period (usually 20 years), in exchange for a comprehensive disclosure of the invention. Patent process is generally invoked when the product/process Iprovides a new way of doing something, or offers a new technical solution to an existing problem.

Filling for a patent comes with many advantages. Understanding the pros can enable an inventor to make an informed decision.

Advantages of Patents

  • When an inventor or startup is seeking capital for an idea, they may disclose their invention to potential investors and licensees. It is important to patent an idea to prevent someone else from stealing it, by filing a patent application first.
  • Invoking a patent gives the inventor a legal monopoly on selling, using, distributing, importing, or exporting their creation for a specified time period. This keeps others out of the market for the invention, which can be extremely profitable and beneficial.
  • An inventor may seek a patent to prevent another competitor from improving a product, if the inventor has an idea that infringes on the competitor’s patent.
  • A patent holder can typically charge a premium for an invention because of the restricted competition.
  • Patenting an idea can also help to restrict the competition. A properly filed patent can limit the competition's ability to produce the product and even allow the inventor to demand that they cease production if they are producing the item as well and have never patented it.
  • Patents are extremely valuable for small businesses as they may be able to find investors willing to invest merely for rights to a patent.
  • A patent can provide increased credibility to an inventor and their company.
  • A patent holder can exclude the competition from recreating their product or service.
  • An inventor can profit from selling licenses or selling the patent outright. Though royalties can be a better option for many inventors who may be unable to foot the expense of bringing the idea to market.


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