The project is quite a bit over-due and over-budget (the original estimate was 1 year and $1.2 million)
It seems a bit backwards to how I would have expected a contractor to be remunerated.
1. I give you a project brief
2. You give me a quote
3. We agree on a price
4. I pay a portion upfront
5a. You deliver it on time
5b. You deliver it late
6. I pay you the remainder on delivery.
In either scenario they get paid the same - for doing the work that was agreed. Giving someone such a lucrative incentive
to do work slower not to deliver seems a recipe for disaster.
If you want to see what happens if you give devs a too strick deadline look at videogame releases. Its common that projects (any really, not only software) take longer and require more money. The question is whether you want what you asked for or a set price. If you want exactly what you asked for or something as close as possible you will have to grand more time and/or money. You cant know all problems the developers will run into in advance. I am under the impression that theymos rather wants something solid than something thats done on time or done with a given amount of money. This has certainly limits, but as long as there are funds for the development I dont see an issue.