According to statistics in the field of SQA services, the majority of clients who apply to QA consulting companies are interested in what type of the contract is better to choose: Time & Material (T&M) or Fixed Price (FP) contact. Let’s turn to the theory and find out the peculiarities of their difference.
Fixed Price Contract
FP contracts is an agreement that defines a price for a known amount of work, regardless of the actual value of their execution. This contract type can foresee the financial incentives for some successful achievements. FP contract has its subtypes, which are the following:
- Fixed-Price-Incentive-Fee (FPIF) – contract that defines the cost of works for a known amount of work, regardless of the actual value of their execution. In addition, when reaching certain performance criteria works, the client must pay the agreed premium.
- Firm-Fixed-Price (FFP) contract – the cost and scope of works are defined before the work will start and remains unchanged.
- Fixed Price Contract with a Proviso to Price Adjustment – this subtype of FP contract is convenient if work execution will be extended for a prolonged period, during which the requirements may change.
Time & Materials Contract
This type of the contract is a mixed one, on the basis of which the customer reimburses all actual costs stipulated in the contract. With regard to the IT testing services sphere, the customer pays all spent time on developing for a fixed time rate.
Advantages & Disadvantages
Payment Risks. FP contracts includes the risks that may or may not occur during the project execution, but the customer always pays for them. Within T&M contract, the customer pays the price for a project implementation.
Provision of Work Content. When working on T&M contract, the customer pays for actually spent performance time, that’s why he can provide the content of works gradually, in the process of work performance. At the same time, he bears the responsibility for the end result. Within the execution of FP project, the volume of performed works is provided and assessed before signing the contract and in a consequence can’t change.
From all the variety of contracts, most often works are performed on FP (FFP) or TM. They are completely different and each of them has its own advantages and disadvantages.
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