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Business
Mar 07.2017

Fixed price contract for software development

The fixed pricing model is common for small and medium-sized projects with a clear set of requirements, specifications and deadlines. It is usually applied to projects that take on average up to 3 months, and works best for MVP’s development, simple software or prototype solutions with a limited set of features.

Moreover, project requirements have to be well-documented; they aren’t changeable over the project implementation. This model is often used for short software development tasks, with no need for supervision from a client.

Pros

  • From the client’s side, Fixed Pricing signifies that a fixed amount of money is set for a specific, previously considered scope of requirements and tasks;
  • As for the contractor, a Fixed Price model is a short term perspective of simple project performance, with no additional and changeable requirements;
  • And for everyone involved, knowing the exact cost of building a software solution or an application upfront creates honest expectations and clarity.

Cons

  • Project performance inflexibility – changes during the software development’s implementation are not acceptable;
  • Detailed information about project requirements is not often a guaranty for accurate software building estimations;
  • Any additions and/or changes will be overpaid by the client.

Fixed or agile

Fixed-pricing still makes sense in the case of a small project, precise requirements, and when the outline of the solution is known before the start.

Moreover, in Agile software development approaches, the Time and Materials model is more acceptable for both clients and contractors. Changeable market conditions and frequent communication with a development team with flexible and fast adjustments to project specifications are all taken into account with the T&M model. You still need to plan timelines and a budget, but in a more flexible way.

The Time and Materials approach enables one to split the project into a number of related tasks and backlogs for easier estimations, prioritizing, building and delivery.

However, when the client is fully aware of the required solution and invested time and resources for market analysis, and knows the exact budget to invest and deadlines to receive the solution – the Fixed Price contract for cooperation is a good start for an outsourcing software development provider.

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