Time and Materials contracts for software development – pros and cons

September 29, 2022
Time & Materials Pricing Model

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There are two different ways that project development can be settled. Recently, on our blog, we discussed the fixed-price approach for the project. This time we want to focus on the time and materials pricing model which gives you more control and much more flexibility over the project. Let’s dive into the world of time and materials contracts and its pros and cons for your development process.

What is a Time and Materials type of contract?

Time and materials (T&M) contracts 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

What is important, signing a time and materials contract will not leave you with question marks on the final cost of the development. Each project is estimated carefully in this scenario as well but due to more flexibility over the project and more open approach, it is much easier to manage any changes within the project.

 

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 approach

Time & 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 T&M 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&Materials basis you can also expect a higher quality outcome than using Fixed-price contracts. 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 approach

Time & 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 T&M 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 projects).

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 T&M 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 approach will be suitable when we can not predict the changes within the project over time or once we are aware of the fact that they will happen. It is ideal for big projects without clear or accurate estimations.

What is more, this approach will be advisable once the project duration is unknown, when you need to deal with unpredictable scenarios or when there is a need for flexibility in the project – when you haven’t determined all parts of the software, want to adjust them in the meantime or want to stay flexible with any changes. Also, it should be considered seriously once you have a need to answer changing market needs.

Time and Materials pricing model summary

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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