Project Contract Types in D365: Fixed Price vs Time & Material vs Milestone

When you run a project-based business-like in construction, IT, consulting, or engineering-how you charge your customers matters just as much as what you deliver.

If you’re using Dynamics 365 Project Operations, you’ll need to decide how to bill your projects. Microsoft gives you three main contract types:

• a. Fixed Price
• b. Time & Material (T&M)
• c. Milestone Based

Let’s break down what each of these means, when to use them, and how Dynamics 365 helps manage them.

1. Fixed Price – One Total Amount

What is it?

The customer pays a fixed amount for the full project or part of it, no matter how many hours or resources you actually use.

When to use:

• a. The scope of work is clear
• b. Not expecting big changes during the project
• c. Client wants a clear budget from the start

What Dynamics 365 helps you do:

• a. Track budgets and compare with actuals
• b. Recognize revenue as work progresses
• c. Set up scheduled billing

Be careful:

• a. If the project scope changes, you may lose money
• b. You may need to track progress carefully to recognize revenue on time

 Think of this like constructing a house for a fixed price. You get paid in stages, not by the number of hours worked.

2. Time & Material – Pay as You Go

What is it?

The customer pays based on the hours your team works and the cost of materials used.

When to use:

• a. The project scope may change
• b. Work is ongoing or flexible
• c. The client wants to see detailed bills

What Dynamics 365 helps you do:

• a. Log time and expenses easily
• b. Bill based on actual time and materials
• c. Track profitability as the project moves

Be careful:

• a. Revenue depends on actual work done
• b. Clients may question time or cost entries if not clearly explained

This is like a taxi ride-you pay based on how far you go and how long it takes.

3. Milestone Billing – Pay for Key Deliverables

What is it?

You agree on certain key points (milestones) in the project. When those are completed, the customer is billed.

When to use:

• a. Projects with clear deliverables
• b. Long or multi-phase projects
• c. Clients want to pay based on results

What Dynamics 365 helps you do:

• a. Set up milestones in your project plan
• b. Automatically create invoices when milestones are completed
• c. Tie billing to project progress

Be careful:

• a. If a milestone is late, the payment is also delayed.
• b. Milestones need to be clearly defined

 It’s like paying an architect after each part of a building design is done—not for every hour they work.

To conclude, choosing the right contract type helps you:

• a. Manage your cash flow better
• b. Avoid misunderstandings with clients
• c. Recognize revenue correctly
• d. Control project risk

When your billing matches your work style, profits become more predictable—and projects run smoother.

Need Help Deciding?

If you’re not sure which billing model is best for your business-or how to set it up in Dynamics 365 Project Operations-we’re here to help.

Feel free to reach out. You can reach out to us at transform@cloudfronts.com. 

Let’s find the right setup for your success.