What contract types are common when working with a software company?

Oscar Bout · 07 Oct 2026

When working with a software company, the most common contract types are: fixed price, time & material, dedicated team, and retainer. Which type fits best depends on the scope of your project, the level of flexibility you need, and how well you have already mapped out the requirements. In this article, we answer the most frequently asked questions about contract types in software development, so you can make an informed decision.

What is the difference between fixed price and time & material?

With a fixed-price contract, you agree on a total price upfront for a clearly defined project. With a time & material contract, you pay based on the actual number of hours worked and resources used. The biggest difference lies in flexibility: fixed price gives you certainty about costs, while time & material allows room to adjust the project along the way.

A fixed price works well when you know what you want. Think of a website with a clear set of features or an application with fully developed specifications. The risk lies with the vendor: if the project takes more time than expected, that is their problem. You pay the agreed amount.

Time & material is better suited for projects where the requirements are not yet fully defined or where you expect the scope to change as you go. You only pay for what is actually delivered. This does require careful tracking of hours and regular communication with your software development partner. The risk of budget overruns lies more with you as the client.

Fixed price: clear budget, little flexibility, suitable for well-defined projects
Time & material: flexible, transparent, suitable for iterative or agile trajectories

What does a dedicated team contract entail?

A dedicated team contract means that you hire one or more developers exclusively for your project for an agreed period. The team works full-time or part-time on your assignments, but remains formally employed by the software company. You pay a fixed monthly rate per developer, regardless of the exact number of features delivered.

This model is popular with companies that structurally need capacity but do not want to build their own IT department. You have direct control over the team, can set priorities yourself, and build a long-term relationship with the developers. At the same time, you do not bear employer risks such as sick leave or severance pay.

A dedicated team is also interesting if you want to scale up or down based on workload. You can adjust the number of developers without major contract changes. This makes it one of the most flexible forms of collaboration in software development.

When do you choose a retainer contract for software development?

A retainer contract is the right choice when you have an ongoing need for smaller tasks, bug fixes, maintenance, or further development of existing software. You reserve a fixed number of hours per month with a software company and pay a fixed fee for this, regardless of whether you use all the hours.

This model works well for companies that keep an existing application running and regularly need small adjustments. Think of adding new features, resolving issues, or updating integrations with other systems. A retainer gives you certainty: you know that capacity is always available without having to request a new quote each time.

The downside is that you pay for hours you may not fully use. Therefore, make sure you have a realistic picture of your monthly needs before signing a retainer.

Which contract type suits a startup or scale-up?

For startups and scale-ups, a time & material or dedicated team contract fits best. Startups rarely have a fully developed product vision and need to be able to pivot quickly. A fixed price forces you to specify everything upfront, which is nearly impossible in early product development.

With a time & material contract, you pay per sprint or per month for what has been built. This aligns well with agile working methods where you can decide after each iteration what the next step is. For scale-ups that already have a working product and want to continue developing it structurally, a dedicated team is often the more logical choice.

Also consider your cash flow. A dedicated team gives you predictable monthly costs, which is convenient for financial planning. Time & material can vary significantly from month to month, depending on the workload.

What should a software development contract contain at a minimum?

A good software development contract contains at minimum agreements about the scope of work, the timeline, the rate or total price, the payment terms, and the intellectual property rights. Without these elements, you as a client face significant risks.

Make sure the following points are always documented in writing:

Project description: what exactly is being built and what falls outside the scope
Milestones and deadlines: when and which components will be delivered
Rate structure: fixed price, hourly rate, or monthly rate
Payment schedule: when and how invoices will be issued
Ownership rights: who owns the code after delivery
Confidentiality obligation: how confidential information will be handled
Notice periods: how and when the collaboration can be terminated

For agile projects, it is also useful to make agreements about how changes in scope are processed and who has the authority to approve new tasks.

How are intellectual property rights arranged for outsourced software?

With outsourced software development, intellectual property rights do not automatically transfer to the client. Unless this is explicitly stated in the contract, the rights remain with the developer or the software company. Always ensure that the contract contains a clear transfer of ownership rights.

In practice, there are two commonly used arrangements:

Full transfer: all rights to the code, documentation, and designs transfer to the client upon full payment
License model: the software company retains the rights but grants the client a usage license

For most companies, full transfer is preferred, especially if the software forms a core part of the business process. Also pay attention to the reuse of standard components or open source libraries: these are not covered by the transfer and have their own license terms.

How 3Bird helps you choose the right contract type

At 3Bird, we understand that the choice of contract type directly affects your budget, your flexibility, and the success of your project. That is why we help you from the very first conversation to choose the right structure that fits your situation.

What we offer:

Flexible dedicated developer contracts from €25 to €30 per hour, managed by Dutch fractional CTOs
The ability to easily scale up or down based on your workload
Transparent agreements on ownership rights, payment schedules, and scope
Support in Dutch, with a team that understands your language and way of working
Access to more than 30 developers with expertise in a wide range of technologies such as React, Flutter, Java, .NET, and more

Whether you are a startup looking to move fast or a scale-up that wants to continue developing structurally, 3Bird thinks along with you about the contract type that best suits your goals. Get in touch via contact@3bird.nl or call +(31)75-7993038 for a no-obligation conversation about the possibilities.