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Take for example a (software development) project that has been estimated by the freelancer as N hours on a pay-per-hour contract.

From the perspective of the commissioner, how much buffer should be allocated to the estimate and What happens when this buffer is exceeded?

Similarly, how should the freelancer handle a situation where he/she expects to be far over the estimate. Should the freelancer take the hit and complete the excess for free, or should this be re-budgeted with the commissioner?

So to summarize: When the freelancer has exceeded the estimated effort, who funds the rest of the project, freelancer, commissioner, or both?

Additional notes:
@jmort253 posted a strong answer to this very similar question. I'm looking for responses covering the perspective of both the provider and the client. What should the freelancer do to reduce costs on underestimations? What should the commissioner do to reduce costs on underestimations? How can this end with both parties happy (and each getting best value out of the other)?

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Paul Fleming
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    Hey Flem, can you take a look at the answers to When is it ok to ask a client for more money? It may already answer this question, making it a duplicate. If those answers don't answer your question, would you mind editing this one to help differentiate it from the other and clarify how that one doesn't give you what you're looking for? – jmort253 May 25 '13 at 20:50
  • @jmort253 You provided a very good answer to this question but it is focused mostly on the worker. I'm looking for the full picture from both sides. What should the service provider expect? What should the client expect? – Paul Fleming May 25 '13 at 21:13
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    Thanks for responding so fast! Can you edit your post to make that more clear so others don't miss this information. Also, I'm not sure what you're looking for from the other side, so I'd suggest making that clear in the post body, where you have more room to expand. This is a good question, but differentiating it from the other will help avoid people thinking it's a dup. Hope this helps! :) – jmort253 May 25 '13 at 21:19

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Per hour, my rule is, I bill only for time spent, and for all of time spent. Build in a buffer to your estimate, but if it is an estimate, be prepared to invoice above or below. In general when I produce an hourly estimate I put in a buffer of 50-100% depending on unknowns because if I can bill under estimate customers are happy.

Some times, customers want an "up to x hours" bid, which is ok from my end if the work is well scoped, an understanding is that I will deliver what I can in those x hours, and that then we come together and decide what to do next. For example, evaluating a problem for up to x hours is a good approach. Delivering a web site in up to x hours would mean essentially no free fixes after x hours of work, and so forth. At that point when x hours is exhausted I am expected to have delivered what I can, and preparing for any next stage negotiations with the customer.

Fixed bids are entirely different, of course.

Chris Travers
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  • @chris. Thanks for the answer. I don't have as much success when overestimating. I tend to build in buffer of 10-20% (my estimates tend to be pretty good though), but the client is always wanting it for less. I'll often remove the buffer and accept the if my estimate was wrong, it's at my expense. I guess this is about the same as reducing my hourly rate to keep costs within reason for the client. – Paul Fleming May 26 '13 at 19:44
  • @flem, in those cases I am happy to do an up to x hours bid with a minimum deliverables. Also my situation may be different in that I have become relatively specialized and there aren't a lot of others in my space. – Chris Travers May 27 '13 at 03:57
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    @ChrisTravers Isn't 50-100% too much? I am not saying that you are wrong, but how do you make them understand this? How do you make yourself competitive? If I put the buffer of 50%, then I would not be competitive any more. – Peter MV Jul 16 '13 at 08:59