(Newswire.net — September 28, 2018) — Fixed price contracts have been in use for a long time. Time-and-material contracts were later introduced, giving companies options to choose from. Both types of contracts are good hence companies need to select the type that suits their needs. In this article, we will discuss both fixed price contracts and time-and-material contracts.
1. Fixed Price Contracts
This is a contract where a specific amount is set out in the bond and agreed upon by the service provider and the client.
This type of contract is suitable where:
– The client has a fixed or limited budget
– There is a fixed deadline
– The client has set out clear requirements
– The projects are small and have a limited scope
Advantages of Time and Material Contracts
2. Time-and-Material Contracts
This type of contract bills clients for the amount of work done during a specific period of time. In most cases, the billing is done per hour. The cost of materials during that period of time is also considered when making payments.
This type of contract is suitable where:
– Flexibility is required when it comes to the scope of work
– The scope of the project is not known
– The project is long term and the requirements are dynamic
Pros
– There is flexibility which allows companies to make changes easily when required in order for the project to be successful.
– There is no wastage of funds because only the work done is priced.
– Work is easily monitored as reports are presented on what has been accomplished within a certain period of time.
Cons
– Budget control is a problem since the budget can change drastically due to changes in market prices or other reasons.
– There are no deadlines which may lead to a lengthy extension of the work being done.
– Supervision is required to ensure contractors are delivering what they are supposed to within a given period of time.
Conclusion
Both fixed price and time and material contracts are beneficial. Since they are suitable in specific areas, it is good to know the needs of your business so that you can choose the right pricing model. For small projects where factors remain constant, a fixed price model is suitable. For projects which are dynamic and unpredictable, the advantages of time and material contracts make it a more suitable option.
