Entering into a partnership, business owners and software development agencies aim for a beneficial contractual model, be it Time & Material, Fixed Price, or Team Extension. All contract types have their pros and cons but mainly differ in the nature of services a customer acquires. Let’s investigate them closely to determine which cooperation setup will suit you best.

Time & Material

Time & Material (T&M) at Ralabs
Pros and cons of Time and Material contracts
 Time & Material (T&M) implies compensation for actual efforts put into project execution. The payment is based on the pre-agreed rate per position per hour. T&M agreement does not fix the exact project cost, scope, or timeline, albeit it may include the guaranteed project maximum price if the latter can be estimated. 

When to Use

 
  • Building Complex Solutions 
A sophisticated project faces tech challenges that impact its roadmap, so the team must be flexible enough to reflect necessary changes. 
  • Early-Stage Startups
Changeable market conditions require constant scope re-prioritization so that the software can address end-users' needs at the very moment.
  • Rebuilding Legacy Systems 
Work with legacy code and obsolete systems hides many pitfalls that cannot be assessed earlier.

Pros

 
  • Rapid Project Launch
There is no need to define a full project scope beforehand. The team works on an iteration basis, investigating further requirements along with the development.
  • Quick Tangible Results 
Following Agile methodologies, the team provides a shippable deliverable each iteration (in 1 to 2 weeks), so you can assess results and adjust project scope if needed.
  • Lower Cost
The customer pays for the development hours only. The project price does not include compensation for risks that were not triggered.

Cons

 
  • Higher Risks
A customer may need to pay for extra development efforts if an unexpected project risk is triggered. However, this issue can be addressed with a proper risk management plan.
  • More Involvement Needed
The customer has to participate in the team’s sync up meetings and planning sessions to monitor project progress and make principal decisions.
  • Budget and Deadlines Indeterminacy
Scope flexibility contradicts precise estimates, as any change request impacts the final project budget and length.

Case in Ralabs: building award-winning complex solution

While building a financial platform for Capitalise, the T&M model lets the Ralabs team adjust the project scope addressing the particular client’s needs for each exact iteration. As a result, Capitalize won the Accounting Excellence award and was recognized as a "Software Pioneer of 2019" in the UK. Explore more details about rewarding cooperation with Capitalise.

Fixed-Price

Fixed-Price projects at Ralabs
Pros and cons of Fixed-Price contracts
 The Fixed-price agreement contains an exact project budget, timeline, and detailed scope description. The acceptance criteria is a must to ensure the project's adherence to initial customer requirements. Depending on the scope type, a project may be executed in one iteration or divided into milestones. Even though the Fixed-price model allows some changes in the project scope, they may highly impact the development budget and timeline.  Fixed-price projects begin with a Discovery Phase to align customer vision with tech implementation, possible constraints, and provide a precise project roadmap.  Find out about the Discovery Phase process in Ralabs. 

When to Use

 
  • Short Projects with Well-Defined Scope
A-few-month-long projects with detailed requirements have fewer hidden pitfalls so that all development risks can be assessed sooner.
  • Limited Budget 
The professional vendor can make a cost-to-benefit comparison of the customer's inquiry to define a project scope that will fit the budget.
  • MVP (Minimum Viable Product)
MVP development is a short-term project with a pre-defined feature-set and a minimum amount of risks.

Pros

 
  • Time & Cost Predictability
Operating with an exact project budget and timeline helps to calculate precise business ROI.
  • Less Involvement Needed
The customer mostly checks product adherence to acceptance criteria defined in the agreement. 
  • Minimal Risks
A software development company is responsible for all project-related risks and runs them all at its expense.

Cons

 
  • Higher Price
The customer’s calmness is assured by a higher cost, as the latter covers all project-related risks.
  • Long Planning Phase
For the Fixed price projects to end up successfully, a meticulous Discovery phase must have a place to prevent any possible scope creeps.
  • The complexity of change requests
If some changes need to be made - the change requests flow is more complex and time-consuming than for the T&M model.

Case in Ralabs: building a platform for the biggest Ukrainian media

Developing a high-load media platform for the biggest independent media in Ukraine, Hromadske, Ralabs team faced strict budget limits. Nevertheless, the conducted research and defined project scope resulted in successful project completion and a beneficial long-term partnership.  Explore more about the successful completion of the fixed-price project for Hromadske.

Team Extension

Team Extension at Ralabs
Pros and Cons of Team Extension Projects
 Using a Team Extension model can speed up your project execution or provide you with a resource of unique competence. It’s like getting services from a software development professional employer organization (PEO). The vendor handles all recruitment and HR questions, providing you with experienced engineers, designers, or other requested positions, including sales and marketing specialists.  

When to Use

 
  • Need in Helping Hand 
Adding external engineers to the team will boost its productivity and accelerate the whole development process.
  • Cover Specific Competency
The customer does not need to hire a permanent employee if the unique competence is needed just for some time.
  • Outsource Some Project Parts
If a developing solution consists of separate modules that do not or partially depend on each other, some can be outsourced to the external team.

Here are some more details on how to set up cooperation with a remote team.

Pros

 
  • Worldwide Pool of Candidates
Engage team-members from all over the world without diving into legal matters of each specific country. 
  • No Recruitment and HR Needed
The software development partner handles all recruitment and HR questions, including medical insurance, payroll, office facilities, and many more.
  • Direct Administration
The customer communicates directly with a team, setting up the development methodology, and controlling project execution.

Cons

 
  • Inefficient for Short-term Projects
The onboarding and knowledge transfer takes some time, so a few weeks of involvement may not benefit the project. 
  • Time Difference
Even though software development companies adjust their working schedule, an overlap of a few working hours is something you will need to get used to.
  • Security Concerns
Special attention must be brought to cooperation tools for the project to adhere to legal and security policies.

Case in Ralabs: A Platform For Dental-Refferals

In Ralabs, we are proud to extend the Dental Referrals team, developing a referral system for thousands of NHS patients in the UK. Having security and performance concerns, Dental Referrals acquired Ralabs engineers of specific competence. Cooperation already lasts for more than two years.  Explore how Ralabs boosted the performance of the federal referral system in the UK.

To Wrap Up

Each contractual model suits its specific type of projects: short and simple - Fixed Price; long-term and complex - Time & Material; need in additional resources - Team Extension. When choosing a contract type for your business, consider the time and budget you can allocate for software development, as well as the pros and cons of each model.  Need a consultancy?Set up a call with a Ralabs Tech specialist to define a contract type that will suit you best.