I have generally done my work on a fixed-price contract basis, with disclaimers. That means I define the project as best I can, document it, and present it as the understanding of what is to be developed. Anything that the customer wants to add to that after the fact is no problem--but it will be billed at the hourly rate above and beyond the agreed-upon price of the contract.

That is to say, I do quite a bit of research up-front to find out exactly what the customer wants. I ask as many questions as I possibly can, thinking out the development process in my head and trying to come up with the contingency questions that will come up later--and which may have a significant effect on the amount of time required to do the job.

I come up with a very detailed understanding of what the customer wants and spell that out in a document. I then make an *honest* estimate of how long it will take to complete each section and, based on my hourly rate, come up with a fixed cost. That is the price that I propose to the customer.

At the same time I propose a list of observable milestones, as others here have mentioned. When I get to each milestone a certain amount of the total contract amount is due. If they don't pay me, that's the last deliverable they'll get from me; so my risk is limited.

I find that working on a fixed-price basis is much more comfortable than working on an hourly basis. Both you and the customer can focus on the actual project rather than counting hours, etc. The customer knows up-front how much they're going to pay and you (the consultant) have an incentive to finish as quickly as possible. And as long as you were honest about the quote and the customer doesn't add requirements since he is constrained by the spec document, no-one gets burned.

Of course, this approach *only* works if you spell out very clearly what is included so that the customer doesn't start "adding" requirements to the project. I've found that if your spec and milestone document is quite specific the customer won't even try to "add" to the project after-the-fact; they know it's extra and that any extras will be billed at the hourly rate.

That said, there are some projects that just have to be billed on an hourly basis. If I'm contracted to reverse engineer something there is no way to know up-front how long that will take. All you can do is offer to bill them hourly with the understanding that it's open-ended.

Craig Steiner