For modern IT companies, choosing the right collaboration format with developers has become a matter of paramount importance. After all, the effectiveness of projects, cost optimization, and overall business success depend on this choice.


In this article, we will explore various types of collaboration such as outsourcing, outstaffing, Retainer contracts, T&M, and FFF model, explaining their meanings and differences.

If you are interested in developer services and want to understand what suits your company best, keep reading. Find out which collaboration format will help you achieve your goals, solve tasks, and ensure the prosperity of your business.

IT Outsourcing

Outsourcing is a collaboration format where a company entrusts the execution of certain tasks or projects to an external service provider, sometimes in another country or region. This approach allows companies to focus on their core tasks and resources, delegating a part of the work to an external executor.

Advantages and disadvantages of IT outsourcing

Outsourcing has several advantages. Firstly, it helps reduce operational costs since hiring and maintaining an in-house professional IT staff can be expensive. Instead, a company can choose experienced specialists from other regions where labor costs are lower.

Secondly, outsourcing provides access to a wide range of talented specialists who can effectively perform various tasks. This is especially beneficial if the company lacks the necessary skills and resources internally.

However, outsourcing also has some disadvantages. One of them is the loss of control over the task execution process. As the work is carried out remotely, the company may face difficulties in coordinating and managing projects.

When should you choose outsourcing?

There are several situations where this collaboration format can be beneficial.

Firstly, when a company lacks the necessary knowledge and skills in a specific area, it can find experts in the external market.

Secondly, if a company faces resource or time limitations, outsourcing can help cope with peak or additional workload.

Finally, outsourcing can be useful for scaling the business. When a company grows and needs to increase the volume of work, outsourcing allows for quickly expanding the team of developers without the need to hire and support in-house staff.

So, outsourcing is an effective way to optimize costs and access expertise in different areas. However, the decision to choose outsourcing should be made based on the specific needs and tasks of the company.

Outstaffing in IT

Outstaffing is a collaboration model where a company leases staff from an external provider who becomes the official employer of these employees but effectively works on the client company’s projects.

The key aspect of working with “leased” employees is that they are full-fledged members of the client company’s team, performing tasks, participating in projects, and following internal rules and procedures. However, formally they are considered employees of the service provider who handles personnel management tasks, salary payments, taxation, and other administrative matters.

Advantages and disadvantages of outstaffing

Outstaffing has several advantages.

Firstly, it offers flexibility in personnel management. The client company can expand or reduce the team of outsourced employees based on project requirements.

Secondly, outstaffing helps reduce the costs of hiring employees. The client pays only for the services provided by the provider, without additional expenses for training, social benefits, and other payments, which can be financially advantageous.

However, outstaffing also has some disadvantages.

One of them is the remote location of the “leased” employees. Communication and synchronization between teams can present certain challenges, particularly if the client company is located in another country.

Additionally, the formal attachment of staff to the service provider may introduce some uncertainty regarding long-term work stability, especially if there are risks in the relationship with the provider.

The benefits of outstaffing include flexibility, cost-effectiveness, and the ability to leverage the experience and qualifications of specialists. However, the decision to choose outstaffing should be based on the specific needs and goals of the client company.

Retainer Agreements

Retainer agreements are agreements between a service provider company and its clients, which involve the client prepaying for services on a regular or ongoing basis under specific terms.

The essence of a retainer agreement is that the client commits to paying a fixed amount for specific services they will receive from the provider over a defined period of time. In return, the client gains guaranteed access to the services and provides predictability for the development service provider.

Who are retainer agreements suitable for?

Retainer agreements are suitable for companies in the following cases:

1. When a company requires regular services and consultations from a specific provider. Retainer agreements ensure a consistent presence of specialists and experts familiar with the company’s specific needs.

2. When a company wants to secure priority access to the provider’s services. Retainer agreements can include conditions that offer quicker response times, dedicated personnel, or other advantages.

3. When a company plans a long-term project or collaboration with a service provider. Retainer agreements provide stability and reliability within a long-term partnership and can be financially beneficial with a long-term perspective.

Using Retainer Agreements in IT

A company can enter into a retainer agreement with an IT company to ensure ongoing support and consultations regarding information technology matters.

It’s important to remember that the terms and obligations in retainer agreements should be clearly outlined in the contract to ensure both parties have a clear understanding of their rights and responsibilities.

Time & Material (T&M) Contracts

Time & Material (T&M) contracts are a format of agreements where the client pays the service provider for the time and materials utilized in completing a project or task. Unlike fixed-price or fixed-scope contracts, T&M contracts offer greater flexibility and transparency for both parties involved.

Advantages of T&M Contracts:

1. Flexibility: T&M contracts allow clients to modify and adjust requirements and priorities throughout the project’s execution. If requirements change, the cost and time can be reevaluated and adjusted accordingly.

2. Transparency: In T&M contracts, the client has transparent access to information about time spent on tasks and expenses on materials. They can see every stage of work and accurately assess the cost.

3. Cost-effectiveness: T&M contracts are particularly beneficial in projects that require expert opinions or development and where initial requirements may change. Applying T&M contracts helps avoid overpaying for unnecessary resources or work, as well as mitigates risks of uncertainty.

When to choose T&M Contracts?

1. When project requirements are not clearly defined or may change. 

T&M contracts offer flexibility to adapt to changing requirements without the need for reevaluation and redefinition of the entire project.

2. When developing new products or services where the process and the final outcome may be uncertain. 

T&M contracts allow for research, testing, and development considering that the areas of further work may change.

3. When the project requires specialized knowledge and expertise. 

In such cases, it is difficult to define an exact estimate or scope of work upfront, so T&M contracts allow better management of these variables and payment for actual costs.

It is important to note that T&M contracts require more careful control and agreement on time and expenses to avoid potential conflicts regarding the cost and quality of work.

FFF (Fixed-Fee-for-Functionality) Model

The FFF (Fixed-Fee-for-Functionality) model is a flexible pricing model where the client pays a fixed amount for specific functionality or scope of work. Unlike traditional time and material (T&M) contracts, where payment is based on time spent and materials used, the FFF model is based on specific goals and achieved results.

Advantages of a Flexible Pricing Model

1. Cost Predictability: The FFF model allows the client to know the exact amount they will pay in advance for specific functionality or results. This provides greater transparency and helps control the budget.

2. Enhanced Resource Management: With the FFF model, the service provider takes responsibility for achieving specific results. This stimulates the efficient use of resources and increases the provider’s accountability to the client.

3. Risk Mitigation: The FFF model allows clients to reduce risks as they only pay for delivered results. If the functionality is not implemented or does not meet expectations, the client can demand mandatory fixes or compensation.

When does FFF Solve the problem:

The FFF pricing model is particularly useful in the following cases:

1. When the task or project has well-defined goals or functionality. 

This allows for determining a fixed cost and reasonable timelines for achieving them.

2. When working on projects with budget limitations. 

The FFF model allows the client to have a clear understanding of expenses in advance, which helps eliminate unexpected costs.

3. When it is necessary to define the end results of the work. 

The FFF model incentivizes the service provider to work more precisely toward achieving these results, which can improve the quality and productivity of the work. It is important to note that the FFF model requires more detailed goal setting, functionality definition, and client expectations to avoid misunderstandings and conflicts during the work process.

The Most Important

Let’s summarize the advantages and disadvantages of each type of collaboration:

1. Outsourcing:

Advantages:

•     Reduced costs on personnel, equipment, and infrastructure.
•     Access to expertise and skills of external specialists.
•     Focus on core business activities.

   Disadvantages:

•     Risk of losing control over processes and quality of work.
•     Potential communication issues and distance-related challenges.

2. Outstaffing:

   Advantages:

• Flexible hiring of temporary employees.
• Risk management and the ability to quickly replace staff.
• Fewer administrative problems.

   Disadvantages:

• Limited control and less team harmony.
• High costs for training and integrating temporary staff.

3. Retainer Agreements:

  Advantages:

•    Guaranteed access to a specific volume of services and expertise.
•    Priority service and dedicated resources from the service provider.
•    Flexibility in planning and allocating work.

  Disadvantages:

• High fixed costs regardless of actual service utilization.
• Risk of underutilization of the retainer agreement.

4. T&M (Time & Material) Model:

Advantages:

• Flexibility in changing requirements and functionality during the project.
• Payment based on actual time and materials used.

Disadvantages:

• Limited cost transparency and predictability.
• Risk of unforeseen expenses and delays.

5. FFF (Fixed-Fee-for-Functionality) Model:

Advantages:

• Cost predictability.
• Enhanced resource management.
•  Risk reduction for the client.

Disadvantages:

• Requires detailed goal and functionality definition.
• Less flexibility in changing requirements.

Recommendations for choosing the most suitable collaboration format with developers

Outsourcing, outstaffing with different arrangements, retainer agreements, T&M, and FFF models represent different approaches to collaboration and have their own advantages and disadvantages. We recommend conducting an analysis of requirements, resources, budget, and strategic goals of the company, as well as consulting with a development service provider to choose the most suitable format.

Regarding the general format of collaboration with developers:

• If your company wants to reduce costs on personnel and equipment, as well as access the expertise and resources of external specialists, outsourcing may be the optimal choice.

• If the company needs flexibility in hiring temporary staff and quick replacement of personnel, outstaffing may be the most suitable option.

And now, about agreements and pricing models:

• If the company requires guaranteed access to a specific volume of services and expertise, as well as flexibility in planning and allocating work, retainer agreements may be preferred.

• If the project has a high degree of uncertainty and requires flexibility in changing requirements, the T&M model can be the most optimal choice.

• If the company has clearly defined goals and functionality and requires cost predictability, the FFF model may be a good option.

It is important to consider the specifics of the business, project, and the specific needs of the company in order to make the right decision about the collaboration format and its arrangement.