Three Types of IT Contracts for Custom Software Development

This guide outlines three primary models for financing outsourced custom software development: Fixed-price contracts, Time and Materials (T&M), and Quoted Time and Materials (QT&M). The Fixed-price contract establishes a predetermined payment for a specific IT service, including additional costs for unforeseen situations. It is characterized by predictability but lacks flexibility for scope changes. The T&M model allows payment based on the actual work time of developers, offering flexibility but carrying a risk of budget overruns. QT&M involves paying for functionalities delivered in predefined stages, allowing for better cost control while requiring experienced IT service providers. The guide analyzes advantages and risks associated with these models through two case studies involving a manufacturing company. The first case focuses on expanding an existing ordering system, while the second involves building an e-commerce store and implementing a Product Information Management system. The document aims to assist decision-makers in selecting the appropriate contract type for their projects.