How does a fixed price compare with time and materials in a simple example?
In a simple example, the same job can cost the same, less or more under either model depending on how much effort it really needs. Take a job where the expected effort is E hours and the hourly rate is R. Under time and materials you pay about E multiplied by R, plus materials. Under a fixed price the provider quotes a figure, F, that reflects E, the risk of surprises and the provider's margin.
If the job takes exactly E hours, time and materials and fixed price land close together, with F likely a little higher because of the risk allowance. If the job takes much longer than E, because of a hidden fault or blocked access, time and materials costs you more and the fixed price holds. If the job finishes faster than E, time and materials costs you less and the fixed price stays the same.
So a fixed price buys certainty by paying a risk premium, and time and materials avoids the premium by accepting the risk. This illustration uses letters only. Real figures depend on the scope, the sites and the agreement.
What are the risks of each model?
Each model has a typical failure, and both are manageable with the right terms. The risk in a fixed price is a scope dispute: the price assumes certain conditions, and anything outside them becomes a change request. The risk in time and materials is runaway effort: with no cap, hours can grow beyond what you expected.
US federal acquisition rules illustrate the trade-off. They describe a firm-fixed-price contract as one where the price does not change with the contractor's actual costs, so the contractor carries the cost risk. They describe a time-and-materials contract as one paid on hours at fixed rates plus materials, with a ceiling price that the contractor exceeds at its own risk, and they note it gives the contractor no profit incentive to control costs. Private IT work is not a government contract, but the logic transfers.
- Fixed price risk: unclear scope, exclusions that surprise you, and disputes over what counts as a change.
- Fixed price control: write precise tasks, access assumptions, exclusions and acceptance criteria.
- Time and materials risk: hours growing without limit, and slow work that earns more.
- Time and materials control: set a ceiling, require approval before exceeding it, and sign off timesheets.
Can I combine fixed price and time and materials?
Yes, and many field engagements do. A common pattern is a fixed price for the known, repeatable tasks, such as installing a device or running a survey, and time and materials for troubleshooting or extra work that appears on site.
Whatever the mix, put it in the written scope: which tasks are fixed, which are time and materials, what rates and increments apply, what the ceiling is, and who approves extra work. Deploris agrees these items in writing before work starts. The buying guide covers how to word them.
The verdict
Fixed price wins when the work is well defined and you want budget certainty, as long as the scope is precise and you accept paying a risk allowance. Time and materials wins when the work is uncertain or may change, as long as you set a ceiling and review time. For mixed jobs, use fixed price for the known parts and time and materials for the rest.