Short answer
Use a fixed price when the scope is small, written down and unlikely to change, such as a well-defined MVP or a migration with a known end state. Use time and materials when you expect to learn and change direction as you build. For most products, a fixed-price discovery phase followed by time and materials with a budget cap works best.
How each model works
In a fixed-price contract the vendor commits to deliver an agreed scope for an agreed amount, usually paid in milestones. The vendor carries the risk of underestimating; you carry the risk that the agreed scope was not what you needed.
In a time-and-materials (T&M) contract you pay for the time the team spends, at agreed rates. You can change priorities at any time. You carry the risk of the work taking longer; the vendor carries very little delivery risk.
The change-request trap
A fixed price is only fixed for the scope in the contract. Every change becomes a change request with its own price, and the vendor has every reason to price changes generously because the original quote was competitive. Projects that start with a low fixed price and a vague specification often end up costing more than T&M would have, after weeks of arguing about what was in scope.
The fix is not to avoid fixed prices but to fix only what you can actually specify: screens, user flows, integrations and acceptance tests written down before signing.
When a fixed price works
A fixed price protects your budget when the uncertainty is low.
- The scope fits on a few pages and you can write acceptance tests for each item.
- The project has a clear end: an MVP for a fundraising round, a migration, a compliance deadline.
- Your finance or procurement process needs a single number approved in advance.
- You are testing a new vendor and want a bounded first project.
When time and materials works
T&M is cheaper overall when you expect the plan to change.
- You are building a product with users whose feedback will reshape the roadmap.
- The work is ongoing: maintenance, a platform team, continuous delivery.
- Technical unknowns are large, for example integrating legacy systems or AI features.
- You want to direct the work closely and change priorities each sprint.
Hybrid contracts
Most mature buyers combine the two to get budget control without paying for false certainty.
- Fixed-price discovery, then T&M: a short paid phase produces the specification, architecture and estimate, and the build runs on T&M.
- T&M with a cap: you pay for time, up to an agreed ceiling per phase, with a review before the cap is reached.
- Fixed price per milestone: each milestone is fixed once its scope is clear, and the next one is priced when you get there.
What to write into either contract
Whatever the model, insist on the same basics: IP assignment before work starts, code in your repositories from day one, a written definition of done, notice periods you can live with, and the right to see time records. A vendor that resists any of these is a risk at any price.
At elitics, fixed-price MVPs start from €15,000 with payments tied to accepted milestones, and time-and-materials team extension runs from €45–65 per engineer-hour on month-to-month terms.
| Fixed price | Time and materials | |
|---|---|---|
| You pay for | An agreed scope | Time spent, at agreed rates |
| Risk of underestimating | Vendor | You |
| Risk of the wrong scope | You, through change requests | Shared, scope can change |
| Flexibility | Low | High |
| Budget certainty | High, if scope holds | Medium, use a cap |
| Best for | MVPs, migrations, deadlines | Products, platforms, ongoing work |