One reason why I think hourly works better than fixed price: might help getting priorities right. For example, suppose the budget is 20000$, and you have 2000$ left to spend on the almost finished software. With hourly, the money could be spent on useful enhancements, or on the most useful features still missing. With fixed price, you probably agreed up front on some stupid things like "all source code has to be documented", so you probably spend the remaining hours on writing crappy documentation everybody will hate to read anyway. Since you agreed on features x,y and z up front, you might end up doing a hush job on features x, y and z, rather than doing a good job on x and negotiating that y, z will better be scoped.