Software development agreement – Fixed price

The article is a part of Code Inspiration’s software development outsourcing Knowledge Base.

In one of our recent article we explained basic aspects of any software development contract. Moving forward with our detailed review of the scope of 3 mostly used in IT outsourcing types of contracts: dedicated team software development contract, time and material and fixed price, today, we will review what does the fixed price contract consist of.

In time and material contracts it is important to reflect the rate and the way to track hours, together with time tracking tools, max number of hours to be spent and so on. The main goal of a dedicated team agreement is to document the team composition, participation  (part-time or full-time) from month to month, and to indicate budget and term.

What is the main idea of a fixed price software development agreement?

Integral aspects of a Fixed Price software development contract

Talking about integral points we should mention:

  • SCOPE: describe in very details what exactly should be delivered, what software should be developed
  • TERM: when it should be released
  • BUDGET: how much it will cost

If in time and material as well as in dedicated team contracts the final scope of work might be changed as many times as the client wants, in the fixed price model the specification guide which describes every detail of the expected software is a must. Prior to signing the contract both parties should pay special attention to check this document as according to this model of work the scope is not supposed to be changed after the contract is signed.

Fixed Price software development contract term

The term of the contract is very important as well. It is clear that if the scope will start to change on the way it will be impossible to finish the work on time. The final scope is usually divided into iterations, also there is beta and release versions planned. Whether to mention or not intermediary terms is up to you, but the final date of delivery is an integral part of each fixed price software development agreement.

Fixed Price software development contract cost

How much? Fixed cost is the most attractive part of this type of contract for every customer. The budget should be mentioned in such a contract. It is possible to ask for the prepayment or to get half of total price when 50% of works will be done together with total sum indicated in the agreement.

Fixed Price software development contract – other aspects

Other than 3 points mentioned above you can mention such aspects as:

  • team composition,
  • details of maintenance and support after the release version is complete,
  • possibility to prolong the contract,
  • penalties for not providing information on time, or for payments delayed.

In IT outsourcing the fixed price model is very frequently used when it comes to MVP development. If a company or an early-stage startup has a limited amount to check whether the idea worth trying, it is a great option to know when your software would be released, how much it will cost you and what features will be included.

In this type of deals it is extremely important to get a good BA/PM who will help you with the specification guide development.

Specification guide of a Fixed Price software development contract

Basically, the screen-by-screen description with low-fi mock-ups and overall explanation of the logic is usually enough. If you are planning to use external APIs – it will be important to get documentation for them as well and description of the functionality where the API endpoints would be used.

The final important point is the source code. In most cases, the source code is provided only after the final payment was done. There is usually a point indicating the procedure of code transfer, so before signing the contract make sure you are aware about the procedure of transferring of the source code. Also make sure there is a point indicating your ownership of the source code.

The article is a part of Code Inspiration’s software development outsourcing Knowledge Base.