The verdict in three sentences
A fixed price locks in the cost but includes a 15 to 25 % risk margin, while time and materials at a EUR 600 to 850 day rate puts every overrun on the client. Usual late delivery penalties in 2026 range from 0.5 to 1 % of the amount per week, capped at 10 %, which limits their deterrent effect. For an application of EUR 80,000 excl. VAT, a phased fixed price with controlled change orders remains the safest compromise.
Fixed price, time and materials, phased fixed price: who carries the risk
| Criterion | Global fixed price | Time and materials | Phased fixed price |
|---|---|---|---|
| Price | Fixed, 15 to 25 % risk margin | Variable, actual days × EUR 600 to 850 day rate | Fixed per phase, 10 to 15 % margin |
| Who carries estimation risk | The agency | The client | The agency, phase by phase |
| Scope flexibility | Low, every change needs a change order | Full | Medium, reprioritisation between phases |
| Budget visibility | Excellent at the start | Low | Good, committed phase is known |
| Late penalties | Applicable, on milestones | Rarely applicable | Applicable per phase |
| Best suited to | Stable, well-specified scope | Exploratory product, embedded team | Business application of EUR 50,000 to 300,000 |
The global fixed price reassures finance but creates tension: as soon as the agency exceeds its estimate, it has an incentive to cut quality or dispute every request as out of scope. Time and materials removes that tension but demands tight steering by the client, with weekly tracking of days consumed.
Overrun simulation on an EUR 80,000 application
Assumption: initial estimate of 100 days at a EUR 670 day rate, i.e. EUR 67,000 base cost. The global fixed price is signed at EUR 80,000 (risk margin of about 19 %), the phased fixed price at EUR 75,000 in three phases (12 % margin).
| Overrun scenario | Actual days | Global fixed price | T&M at EUR 670 | Phased fixed price |
|---|---|---|---|---|
| No overrun | 100 days | EUR 80,000 | EUR 67,000 | EUR 75,000 |
| 15 % overrun | 115 days | EUR 80,000 | EUR 77,050 | EUR 75,000 |
| 30 % overrun | 130 days | EUR 80,000, dispute risk | EUR 87,100 | EUR 75,000 to 78,000, phase 3 re-priced |
| 50 % overrun | 150 days | EUR 80,000, abandonment risk | EUR 100,500 | EUR 78,000 to 81,000 |
| 10-day scope change | +10 days | +EUR 6,700 via change order | +EUR 6,700 | +EUR 6,700 via change order |
Time and materials only wins if the project holds its estimate. From 20 % overrun, it exceeds the fixed price. The phased fixed price offers protection close to the global fixed price, with one more safeguard: at the end of each phase, the client can stop, redirect or switch provider.
Late penalties: what they are really worth
| Delay | Penalty at 0.5 % per week | Penalty at 1 % per week | With 10 % cap |
|---|---|---|---|
| 1 week | EUR 400 | EUR 800 | Not reached |
| 2 weeks | EUR 800 | EUR 1,600 | Not reached |
| 4 weeks | EUR 1,600 | EUR 3,200 | Not reached |
| 8 weeks | EUR 3,200 | EUR 6,400 | Not reached |
| 12 weeks | EUR 4,800 | EUR 8,000 | Reached at 1 % |
| 20 weeks | EUR 8,000 | EUR 8,000 | Reached in both cases |
Under French law, a late penalty is a penalty clause (article 1231-5 of the Civil Code) that a judge can reduce if it is manifestly excessive. Three rules make it effective: apply it to dated milestones rather than final delivery, suspend it when the delay comes from the client (approvals returned after 5 working days, access not provided), and provide a termination right beyond the cap.
Change orders must follow a written procedure: client request, estimate in days within 5 working days, schedule impact, signed approval before any development. Without that procedure, the fixed price turns into disguised time and materials.
Mini case study
Marc, administrative director of a 600-employee food-processing mid-cap near Rennes, launches a quality complaint management application. He signs a fixed price in three phases: scoping and MVP at EUR 28,000, supplier portal at EUR 24,000, reporting at EUR 23,000, i.e. EUR 75,000 excl. VAT, with a 1 % weekly penalty per phase.
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- A 6-day change order for an ERP connector: 6 × 670 = EUR 4,020.
- A 3-week delay on phase 2: 3 × 1 % × 24,000 = EUR 720 deducted.
- Final cost: 75,000 + 4,020 − 720 = EUR 78,300 excl. VAT.
Under time and materials, with the 30 % overrun seen on phase 2 extended to the whole project, the bill would have reached about EUR 91,100. Marc saves nearly EUR 12,800 and keeps a predictable budget.
FAQ
What is a phased fixed price?
The project is split into 2 to 4 phases of 4 to 10 weeks, each with its own fixed price, deliverables and acceptance. The risk margin drops to 10 to 15 % because each phase is estimated more accurately.
What late penalty rate is reasonable?
Between 0.5 and 1 % of the phase amount per week, capped at 10 %. Beyond that, the agency prices the risk in, often 5 to 10 % more expensive.
Can time and materials be capped?
Yes, capped T&M sets a maximum number of days, for example 110, beyond which the agency works at its own cost or at a day rate reduced by 30 to 50 %.
What if the delay comes from our own approvals?
The contract must suspend penalties when the client exceeds its approval deadline, often 5 working days. Without that clause, the penalty can be challenged.
Should a global fixed price be avoided?
No, it suits projects under EUR 40,000 excl. VAT with stable specifications. Above that, phasing sharply reduces the risk of dispute.
Let's scope your project. Send us your specifications or feature list: we will propose a phase breakdown, a firm price per phase and a schedule with milestones and penalties. Detailed quote within 48 h. WhatsApp +221 77 596 93 33.
Mohamed Bah
Fondateur, Kolonell
Passionate about digital and entrepreneurship in Africa, Mohamed has been helping Sénégalese businesses with their digital transformation since 2020. Founder of Kolonell, he believes every SME deserves a professional and accessible online présence.
