Most software and app agencies will offer you one of two ways to pay: a fixed price for an agreed scope, or time and materials, where you pay for the hours the team actually works. Neither is “better” on its own. The right one depends on how well you can describe what you want before work starts, and how much of the risk you are prepared to carry.
This guide explains how each model works, where each one goes wrong, the hybrid options most agencies now offer, and the clauses to check before you sign. It is general guidance for buyers, not legal advice.
What a time and materials contract is
A time and materials (T&M) contract pays the supplier for the hours worked at agreed hourly or daily rates, plus the actual cost of anything they buy on your behalf (licenses, hosting, test devices and so on).
The clearest public definition is in the US Federal Acquisition Regulation, which the US government uses for its own IT buying. FAR 16.601 describes a T&M contract as buying services on the basis of “direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit”, plus the actual cost of materials. It says this type of contract may be used only when it is not possible to estimate the extent or duration of the work, or the costs, “with any reasonable degree of confidence”.
That is a good test for private buyers too. If you genuinely can’t say what the finished product will look like, T&M is usually the honest way to price it.
The FAR is also blunt about the downside: a T&M contract “provides no positive profit incentive to the contractor for cost control or labor efficiency”, which is why the government requires its own staff to watch performance closely and puts a ceiling price on every T&M contract that the contractor exceeds at its own risk. You don’t have to copy government procurement, but the two safeguards (someone on your side watching the work, and a cap) are worth copying.
What a fixed-price contract is
A fixed price contract sets one price for an agreed scope. The FAR’s description of a firm-fixed-price contract (FAR 16.202-1) is a price “not subject to any adjustment on the basis of the contractor’s cost experience”, which “places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss”.
In plain terms: if the agency (the contractor, in contract language) underestimates, that’s their problem, not yours. In return, they will price that risk in, and they will hold you tightly to the scope you signed. Anything outside it becomes a change request with its own price.
Some agencies listed on TechBonna sell this way as their main offer. Build Me App in Toronto promises a fixed-price proposal within one business day, Foresight Mobile publishes prices for its defined services, and AI firms such as Architech and Lemay.ai sell fixed-fee AI work: Architech’s AI Foundations Blueprint, for example, is a fixed fee from $9,900.
Key differences between fixed-price and time and materials contracts
| Fixed price | Time and materials | |
|---|---|---|
| You pay for | An agreed scope and deliverables | Hours worked at agreed rates, plus costs |
| Who carries the estimating risk | The agency | You |
| Works best when | Scope is small, clear and unlikely to change | Scope is uncertain, or you expect to learn and change course |
| Changing your mind | Change requests, each priced separately | Simply re-prioritize the backlog |
| Typical uses | MVPs with a tight brief, website builds, fixed audits | Product development, ongoing improvement, integration work |
| Main way it goes wrong | Arguments over what was “in scope”; padded quotes | Budget drift with no clear end point |
| What protects you | A detailed scope and acceptance criteria | A cap, regular reporting and the right to stop |
When a fixed-price contract makes sense
Fixed price works when you can write down, in detail, what “done” means. A marketing website with an agreed sitemap and design, a defined integration between two systems, or a security audit with a clear method are all good candidates.
It also suits buyers who need a number for a budget approval and can’t go back for more. Just be realistic about what the number buys you. A fixed price quote for vague requirements is not a promise, it’s a guess with a buffer added, and the buffer is your money.
Watch for these signs that a fixed price won’t hold:
- You can’t yet describe the main user journeys or the data the system needs.
- The project depends on a third-party system or API that nobody has tested yet.
- Several people on your side will want a say in the design once they see it.
When a time and materials contract makes sense
T&M fits work where learning is part of the job: a new product, an AI feature where you don’t yet know how well the model will perform, or ongoing development on a live platform. It gives you flexibility to change priorities every sprint without renegotiating the contract, and payment follows the work actually done.
It is also how most dedicated team or staff augmentation arrangements are priced. EB Pearls in Sydney, for example, publishes that its Team as a Service starts from AUD 22,000 a month for a small squad, and Ailoitte in Bengaluru publishes dedicated developers from $23 an hour. Those are monthly or hourly commitments, not project prices.
The risk with a T&M contract is simple: there is no natural end. Make sure you have a cap, a regular report of hours against progress, and the right to stop at short notice.
Hybrid pricing options agencies offer
In practice a lot of contracts sit in between. These are the common ones:
- Paid discovery, then fixed price. A short fixed-fee discovery phase produces the scope, designs and estimate, and the build is then quoted as a fixed price. This is probably the safest route for a first project with a new agency.
- T&M with a cap (not-to-exceed). You pay for hours as on T&M, but the agency can’t bill beyond an agreed ceiling without your written approval. This is the private-sector version of the FAR ceiling price.
- Fixed price per sprint or milestone. Each sprint or milestone has its own fixed price, and you decide after each one whether to continue.
- Retainer. A fixed monthly fee for an agreed number of hours or a team, common for support, optimization and automation work.
Contract clauses that protect your scope and payments
Whichever model you choose, check these before you sign:
- Project scope and acceptance criteria. On a fixed-price contract this is everything. Write down how each feature will be tested and accepted. On T&M, agree what the first milestone should deliver.
- Change control. How changes are requested, priced and approved, and who on your side can approve them.
- Rates and rate changes. The labor rates by role, and when (if ever) they can rise during the contract.
- Reporting and payment. Weekly hours, progress against the backlog, a forecast to completion, and when invoices are due.
- Ownership of code and IP. You should own what you pay for, including source code, designs and any trained models. Check the treatment of the agency’s own reusable components.
- Warranty. A bug-fix period after launch at no extra cost. Build Me App, for example, states a 30-day warranty.
- Termination and handover. Your right to stop, the notice period, and what the agency must hand over (code repository, credentials, documentation) when you do.
- Minimums. Some agencies have minimum project sizes and some don’t. Adaca and BabelQuest, for example, state that they have no minimum. Ask before you spend time on a brief.
How to compare quotes on different pricing models
Comparing a fixed-price quote with an estimate under a time and materials contract is hard because each contract type puts the risk on a different side. A rough way to do it:
- Ask the T&M agency for its estimate as a range (low and high) and the assumptions behind it.
- Ask the fixed price agency what contingency is built into its price and what is explicitly excluded.
- Compare the fixed price against the high end of the T&M range, not the low end, and then look hard at the exclusions list.
If the two agencies have understood the job in very different ways, that tells you more than the prices do.
Finding a firm
You can browse software development companies, custom software developers, MVP developers for startups and app development companies on TechBonna. Where a firm publishes its pricing model, minimum project size or rates on its own website, we show it on the listing with the source page and the date we checked it. We don’t estimate rates for firms that don’t publish them.
Sources
- US Federal Acquisition Regulation 16.601, Time-and-materials contracts: https://www.acquisition.gov/far/16.601 (FAC 2026-01, read 29 Oct 2026)
- US Federal Acquisition Regulation 16.202-1, Firm-fixed-price contracts, description: https://www.acquisition.gov/far/16.202-1 (read 29 Oct 2026)
- Pricing statements quoted from the firms’ own websites, as recorded in TechBonna listings (checked 29 Oct 2026): Build Me App (buildmeapp.io), Foresight Mobile (foresightmobile.com), Architech (architech.ca), Lemay.ai (lemay.ai), EB Pearls (ebpearls.com.au/staff-augmentation), Ailoitte (ailoitte.com/hire-developers), Adaca (adaca.com/technology/how-we-charge), BabelQuest (babelquest.co.uk/services-pricing-guide)