Fixed Price vs Hourly Projects
The choice is really a question about how well you can describe the work. Answer that honestly and the pricing structure picks itself.
The short answer
- Fixed price puts the risk of overrun on the contractor. They price that risk in, so a fixed price is rarely the cheapest possible number, but it is a knowable one.
- Hourly puts the risk on you. It is cheaper when the work goes well and open-ended when it does not, which is why it needs a cap and regular check-ins.
- The deciding question is whether you can write a scope specific enough to say what is not included. If you cannot, a fixed price is a dispute waiting to happen.
- Large fixed-price work should be split into milestones so neither side is carrying the whole engagement on trust.
Fixed price
One agreed number for an agreed deliverable. You know the cost before the work starts, and the contractor absorbs the difference if it takes longer than they expected.
That risk transfer is the entire value of the structure, and it is also its cost. A contractor pricing a fixed job adds a margin for the unknown. The vaguer your brief, the larger that margin, which is why the same work can be quoted at wildly different numbers by people who are all being honest.
It works when the deliverable is specific, the requirements are stable, and you would recognise completion when you saw it.
It fails when the scope moves. Every change becomes a negotiation, because every change is money the contractor did not price for. Projects that start friendly and end acrimonious are almost always fixed-price projects with a scope nobody pinned down.
Hourly
Paid for time worked. The scope can move without renegotiating the commercial terms, which suits exploratory or open-ended work.
The trade is that you carry the overrun. Nothing in the structure limits the total, so an hourly engagement without a cap is an open commitment, and the person best placed to notice it running long is the person being paid by the hour.
It works when the goal is clear but the path is not, when the work will need direction as it goes, or when you need someone available rather than delivering one fixed thing.
It fails when nobody is watching. Hourly needs a cap, a regular check-in and a visible burn against that cap. With those, it is the most flexible structure available. Without them, it is a blank cheque.
Side by side
| Feature | Fixed price | Hourly |
|---|---|---|
| Who carries overrun risk | Contractor | You |
| Cost known up front | Yes | No |
| Handles changing scope | No | Yes |
| Needs a tight scope of work | Yes | Helpful, not essential |
| Needs a spend cap | No | Yes |
| Suits exploratory work | No | Yes |
| Suits a specified build | Yes | Workable but less common |
| Common failure | Scope disputes | Open-ended spend |
How to choose in practice
Try to write the scope. Not the full document, just the list of what is included and, more importantly, the list of what is not. If you can write the second list, take a fixed price. If you cannot, you do not yet know the work well enough to buy it as a fixed number, and pretending otherwise transfers a risk the contractor cannot price either.
A common middle path: buy a short hourly discovery engagement, come out of it with a scope both sides believe, then let the build itself be fixed price against that scope. You pay for the uncertainty once, at a small size, instead of embedding it in a large number.
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