Time and Materials contracts for software development – pros and cons

July 31, 2023
Time & Materials Pricing Model

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In the dynamic world of software development, where innovation and rapid advancements are the norm, selecting the appropriate project contract type can significantly influence the outcome of a venture. One such contract type that has gained prominence for its adaptability and flexibility is the “Time and Materials contract. In this article, we delve into the intricacies of time and materials contracts within the context of software development, shedding light on their advantages and disadvantages.

It’s important to recognize that there is no one-size-fits-all solution when it comes to selecting a contract type for software projects. Different projects, industries, and clients may require different approaches. The key is informed decision-making – a thorough understanding of the nature of the project and the potential risks and benefits of each contract type.

Join us as we navigate the realm of time and materials contracts in software development, equipping you with insights that will aid in making sound contractual choices, ensuring successful and collaborative project outcomes.

What is a Time and Materials type of contract?

Time and materials contracts (T&M) are those where the final price is based on the amount of time and work the service provider requires to deliver the project. The T&M approach simply indicates, the provider bills for the amount of time they take the task or a milestone to be delivered.

Time & Materials Model

In a time and materials contract, the client compensates the development team for the hours worked by the team members, as well as the materials, tools, and other resources utilized in the project. This approach allows for greater flexibility in accommodating changes, adapting to evolving requirements, and incorporating unforeseen challenges as they arise. Time and Materals contracts are particularly suitable for projects where the scope may evolve over time or where the client’s requirements are not fully defined at the project’s outset.

Differences from Fixed-Price Contracts and Other Contract Types

Compared to fixed-price contract, where the costs are predefined and change requests often incur additional charges, Time and Materials contracts offer a distinct advantage. Fixed-price contracts might be more suitable for projects with well-defined requirements and limited potential for scope changes. However, in the world of software development, where innovation and client feedback drive constant evolution, the rigid nature of fixed-price contracts can sometimes hinder progress.

Time and Materials contracts stand apart from other contract types due to their inherent adaptability. While fixed-price and even cost-plus contracts have their merits, Time and Materials contracts excel in their responsiveness to change. These contracts allow for adjustments to project scope and requirements, catering to the ever-shifting landscape of software development. They create an environment where iterative development, frequent client collaboration, and continuous improvements are not just accommodated, but embraced.


What should be covered in a Time and Materials contract?

To avoid unnecessary problems with this development pricing approach it is good to care about a couple of items with the contract – it will help you to better understand the cost on your invoices:

  1. The fixed hourly or daily cost of each specialist hired for the project.
  2. The way your service provider will log labor hours.
  3. The way your service provider will log the delivered tasks.

Once you know who works on the project, what tasks are assigned to the person and how much time it takes to deliver each part of the software, you can easily foresee your invoice total and if you stick to the established timeline.

The pros of the Time and Materials contracts

Time and Materials contracts are the preferred ones at Appstronauts. We appreciate them for multiple reasons and so should you. Let us explain all the pros worth considering this pricing model for your software development.

High flexibility to changes & better control over the project

Having a long-term project with changing requirements, the Time and Materials contract will give you more flexibility overy it. Usually, with this approach and the Scrum project management, the sprint is planned for the next two weeks. This means that each two weeks you can introduce changes to the project and adapt them to the project.

That’s why if the timeline is going to change or you need to adjust the project to your current needs, only this pricing approach will give you the freedom to do it.

Easier project start

Starting your project with the Time and Materials approach, lets you not have every detail of the project set. To begin the project you may rely on the expertise of the development company. It does not mean that you should not spend any time at the outset to estimate the risk level of the project or its timeline but the start itself is much quicker and not all decisions need to be made beforehand.

What is more, instead of planning all features and design parts at one time, you can go through each iteration until the MVP of the product. Once you validate the product itself and the market, you can continue the work on more advanced parts of the software. What is important, with each iteration you can give feedback to the development team and adjust their next activities towards your current needs.

Higher quality

Going with your software development company on a Time and Materials basis you can also expect a higher quality outcome than using Fixed-price contract. With this pricing model, your provider has more time and possibilities to look for the best approach and the outcome for the problem. It also directly translates into better UX of the solution or more effective process which overall, reduces the costs of maintenance and further optimization.

The cons of the Time and Materials contract

Time and Materials contracts are not cons free. Below, we are presenting all the cons you should consider with this pricing approach:

Lower control over the budget & uncertain timelines

Some people think that with the Time and Materials approach it is much harder to control your budget and schedule which lead to the final price. It is only partially true. With a project where you have a lot of changes and you add different features in the meantime, you are not able to know the final cost in the beginning of the development but you still have a set of tools to keep track of the project. Simply, before the beginning of the project, agree with your service provider who is in charge of tracking the progress of the work and budget.

What is most important, if you have everything in place, T&M approach can be much cheaper than fixed-price projects (see cons of fixed-price contract).

Involvement needed

In the Time and Materials approach, depending on your contract terms, you will get daily reports and will be involved in planning meetings. For some, it may be a plus but for some it requires much more involvement than in a fixed-price project.

Remember, that with a Time and Materials approach, the service provider may provide a Project Manager for the project the same way as with fixed-time projects. It’s true that it takes more of your time to manage the project than in the fixed-time contract but the project management itself is still on the contractor side.

Time and Materials contracts pros & cons

When should you use Time and Materials contracts?

Time and materials contracts offer a strategic approach to software development projects, particularly in scenarios where adaptability, collaboration, and responsiveness are paramount. Here are guidelines for determining when such contracts are most suitable:

Complex and Evolving Projects

When dealing with intricate projects that involve numerous variables, uncertainties, and evolving requirements, time and materials contracts shine. Complex projects often demand the ability to adjust the scope and direction as insights are gained and challenges emerge. The flexibility inherent in T&M contracts provides a safety net against the potential pitfalls of rigidly defined scopes.

Research and Development Initiatives

Projects centered on innovation and research are inherently exploratory. The nature of these initiatives necessitates frequent adjustments and learning from trial and error. Time and materials contracts are an ideal choice for such endeavors, enabling development teams to pivot and embrace unexpected breakthroughs, all while ensuring the project remains aligned with its original objectives.

Rapidly Changing Requirements

In the fast-paced world of software development, requirements can transform quickly due to market shifts, emerging technologies, or client feedback. Time and materials contracts offer a responsive framework that accommodates these fluctuations without derailing progress. Instead of forcing project teams into rigid deliverables, T&M contracts encourage iterative development and the flexibility to pivot based on real-time insights.

By selecting a time and materials contract in these scenarios, clients and development teams create an environment that encourages collaboration, innovation, and the pursuit of excellence. The inherent adaptability of T&M contracts empowers both parties to navigate the unpredictable terrain of software development while delivering solutions that meet evolving needs.


Time and Materials pricing model summary

In the realm of software development, where innovation and adaptability reign supreme, the choice of a contract type can significantly shape the trajectory of a project. Time and materials contracts emerge as a powerful tool that embraces change, encourages collaboration, and fosters an environment conducive to continuous improvement. 

Time and Materials contracts are used at Appstronauts for all our projects as this approach allows our and your team to deliver a valuable piece of software with the end-user in mind. Working in a T&M you can introduce all the changes much more easily, react to market changes and apply new ideas to your product. Most of our clients became our long-term partners where we are focused on product development and customers’ satisfaction and only with this approach we can fulfill them completely.

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