Fixed price, time and materials, or a dedicated team: which engagement model fits your project

Every IT services contract is one of three shapes, and buyers who pick the wrong one spend the whole project fighting it. The shape should follow how well you can describe the work on day one, not how your procurement team prefers to pay.

Fixed price: you buy an outcome

The vendor commits to a scope for a sum. The risk of estimating wrong sits with them, and they price that risk in: expect a premium of 15 to 30 percent over the same work on time and materials, more if the scope is fuzzy. Change requests are where fixed-price projects get their reputation. Every change is a negotiation, because every change moves the vendor's margin.

• Fits: a migration with a known source and target, a defined integration, a rebuild of something that exists.
• Doesn't fit: anything where you'll learn what you want by seeing versions of it.
• Watch for: a long assumptions list. Every assumption is a future change request.

Time and materials: you buy effort

You pay for the hours worked at agreed rates, usually against an estimate you can stop at any point. The estimating risk is yours, which is fair when you're the one who'll change the requirements. The discipline you need is a weekly view of hours burned against progress made, and the willingness to stop a project that isn't converging.

• Fits: product development, anything exploratory, projects where your own team is a dependency.
• Doesn't fit: a buyer with no one to review the work every week.
• Watch for: rate cards without seniority mix. A blended rate means nothing until you know who's on the blend.

Dedicated team: you buy capacity

A fixed group of named people works for you for a period, managed day to day by you or by a lead on their side. You pay monthly per person. This is the model behind most long offshore relationships, and it works when the team outlives any single project. It fails when a buyer treats it as a project model and expects a fixed outcome from a capacity contract.

• Fits: a product roadmap with more than a year of work, a platform team, a support and enhancement backlog.
• Doesn't fit: a single project with an end date.
• Watch for: replacement terms. The contract should say how a departing engineer is replaced and how long the overlap is.

Three questions that decide it

1. 1Can you write the acceptance criteria today? If yes, fixed price is possible. If not, it isn't, whatever the vendor says.
2. 2Will the work outlast the project? If yes, a dedicated team costs less than a sequence of projects.
3. 3Who reviews the work each week? If nobody, don't buy time and materials; you'll pay for hours without owning the outcome.

Read more

The Knowledge hub has longer guides on each model: project-based work, dedicated teams and staff augmentation, with typical durations and what to ask a vendor. When you post a project on Scopelyst you say which model you want, and vendors respond to that.