A fixed price is a promise about an outcome. Time and materials is a promise about a rate. Everything else about the two follows from that sentence, including which one leaves you out of pocket when a job goes sideways.
Where the risk sits
Under a fixed price, the contractor owns the estimate. If the job runs two days long, those days come out of the contractor's margin. If it runs a day short, that day is theirs to keep. The customer knows the number before anyone starts and knows it will not move.
Under time and materials, the customer owns the estimate. The contractor is paid for the hours worked and the parts used, so an overrun is billed rather than absorbed. The customer gets the benefit if the job is quick and pays if it is not.
Neither is generous or exploitative. They are two ways of allocating the same uncertainty, and the right one depends on who can actually judge it.
What each does to behavior
Incentives follow risk, and pretending otherwise is how people get surprised.
A fixed price rewards efficiency, which is good, and rewards cutting scope, which is not. A contractor losing money on a fixed-price job has a reason to finish rather than to finish well, and the customer's protection is the specification rather than the relationship.
Time and materials removes the pressure to rush and removes the pressure to hurry. There is no incentive to cut corners and no incentive against a slow afternoon. The customer's protection here is a rate they trust and a running total they can see.
Which jobs suit which
| Fixed price fits | Time and materials fits |
|---|---|
| Work you have done many times | Work with unknown conditions behind a wall |
| A defined, unchanging scope | Diagnosis, troubleshooting, repairs |
| New construction and replacements | Old buildings and previous bad work |
| Customers who need a budget number | Customers who want the job done properly |
The clearest rule is about information. Whoever can better estimate the work should carry the risk of the estimate. A contractor who has installed two hundred of these can price one; a contractor opening a wall in a house built in 1928 cannot, and a fixed price there is either padded heavily or a coin flip.
What each agreement has to say
The paperwork is different in each case and neither is long.
A fixed price needs a scope precise enough that both parties can tell whether something is inside it. It needs a list of exclusions. It needs allowances for anything the customer is choosing later, tile or fixtures, stated as a dollar figure so that an upgrade is visibly an upgrade. And it needs a sentence saying that concealed conditions are priced separately in writing before the work proceeds.
Time and materials needs the rate, stated for each category of worker, and whether travel and material pickup are billed. It needs the markup on materials, said out loud rather than buried, because a customer who finds it on an invoice feels differently than one who agreed to it. It needs a not-to-exceed figure, which is the single line that makes this arrangement acceptable to a nervous customer. And it needs a rhythm for reporting: hours to date, sent weekly, so nobody is surprised at the end.
The hybrid most people end up with
Plenty of work is genuinely both. The known part is fixed, the unknown part is billed as it is found.
Written properly this is the best of the two. Fixed price for the replacement, and an hourly rate named in advance for anything discovered behind it, with a limit above which you call before proceeding. The customer gets a firm number for the part that can have one and a known rate for the part that cannot.
Written casually, it is the worst of both, because the boundary is unclear and every discovery becomes a negotiation on the day. The difference is a paragraph.
Deciding on a given job
Ask yourself one question before quoting: on a job like this, how often has my estimate been wrong by more than fifteen percent, and in which direction. If you have the answer, price it fixed. If you do not, either find out from your own past invoices or quote it hourly with a cap and be plain about why.
Customers rarely object to that explanation. What they object to is a firm number that turns out not to be firm, which is the outcome of pricing an unknown job as though it were a known one. Being told at the start which kind of job this is lets them plan, and it is the part of the conversation they remember when they call you again.