How Change Requests Are Priced — Time & Material vs. Fixed Fee
A comparison of the two main pricing models (time-based and feature-based) for change requests (CRs) during outsourced software development, including the pros and cons of each and when to use them.
- •Change requests (CRs) are the most frequent source of disputes in outsourcing projects; handling rules must be agreed upon in advance.
- •Time & Material pricing is flexible but unpredictable, while Fixed pricing is predictable but requires scope agreement.
- •Including CR procedures in the contract and setting a minimum billable threshold per request prevents most disputes.
Why Change Requests Happen
Change requests are inevitable in any development project. You might think "Can't we just plan everything perfectly upfront?" — but reality says otherwise.
Primary reasons change requests arise:
1. Using it reveals different needs: Only after seeing the screens do you realize "This button should be over there, not here."
2. Business environment changes: Market conditions shift during development, altering feature priorities.
3. New stakeholder demands: The CEO, a team lead, the marketing team — each adds new requirements.
4. Planning oversights: Edge cases that no one anticipated are discovered during development.
5. User feedback: Beta testers provide feedback that needs to be incorporated.
The point is not to prevent CRs altogether but to agree on a cost and schedule procedure for handling CRs before they happen. When CRs accumulate without a process, both budget and timeline spiral out of control.
Typically, 15–30% of the total project cost ends up being CR-related additions. It is realistic to factor this into your budget from the start.
Time & Material vs. Fixed Price Comparison
| Comparison | Time & Material (T&M) | Fixed Price |
|---|---|---|
| Cost calculation | Hours spent x hourly rate | Fixed amount per feature |
| Hourly rate | 50,000–150,000 KRW/hour | — |
| Cost certainty | Low (finalized after work) | High (agreed upfront) |
| Flexibility | High (scope changes freely) | Low (renegotiation needed) |
| Best for | Fluid scope, small CRs | Clear scope, large CRs |
| Risk bearer | Client (potential cost overrun) | Vendor (potential effort overrun) |
| Transparency | Requires timesheet verification | Judged by deliverable |
Recommended approach: Use T&M for small CRs (1–3 days of effort) and Fixed Price for large CRs (1 week or more). This hybrid model is the most effective.
T&M tip: Have the vendor log tasks and hours daily (timesheet) for transparency.
Fixed Price tip: Document and agree on the CR scope in writing before work begins.
CR Handling Procedure Template
Include the following procedure in your contract.
Step 1: CR Submission
The client submits the change details in writing (email or issue tracker).
Step 2: Impact Analysis (1–3 business days)
The vendor analyzes the scope of impact, additional effort, and schedule implications, then responds.
Step 3: Approval / Rejection
The client reviews the additional cost and schedule impact, then decides whether to proceed.
Step 4: Development and Acceptance
The approved CR is developed and tested to ensure existing functionality is not affected.
Contract Clauses That Prevent CR Disputes
Make sure the following are included in your contract.
Free-of-charge scope: Bug fixes attributable to the vendor, and corrections within the scope defined in the requirements specification, are free of charge.
Billable scope: New features not in the original scope, major design changes, and business-logic modifications are billable.
Gray-area handling: Add a clause stating "Any item not explicitly stated in the requirements specification will be treated as a billable CR."
Urgent CR surcharge: Emergency CRs requiring same-day deployment are billed at 1.5–2x the standard rate.
Additionally, a safety-net clause such as "If total CR costs exceed 30% of the initial contract value, the project scope will be renegotiated" can prevent cost blowouts.
As a practical tip, sharing CR status updates in weekly meetings makes it much easier to manage cumulative costs.
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