Time and materials (T&M)

What is time and materials (T&M)?

Time and materials (T&M) is a contract model where the client pays for the actual time spent working on the project usually at an hourly or daily rate plus any material or third-party costs.
Unlike fixed-price contracts, the final cost is flexible and depends on the real effort required.

How time and materials works

Simple formula:

Total cost = (hours worked × hourly rate) + materials or expenses

Example:

• hourly rate: $100
• 120 hours worked in one month
• third-party API cost: $500
  → total = (120 × $100) + $500 = $12,500

When to use time and materials

T&M works best when:

• requirements are unclear - scope still evolving
• project is ongoing - long-term maintenance or support
• discovery phase - early planning and research work
• agile development - priorities change with each sprint
• complex projects - innovative or uncertain technical scope
• support contracts - regular updates and improvements

Advantages of time and materials

For clients

• flexibility - adapt scope as project evolves
• transparency - see exactly what time is spent on
• quality focus - avoid cutting corners to fit a fixed price
• collaboration - continuous feedback and improvement

For vendors

• fair compensation - paid for all work delivered
• reduced risk - no underestimation losses
• scope freedom - easier to handle client changes
• better quality - no rush to meet arbitrary budget limits

Disadvantages of time and materials

For clients

• budget uncertainty - final total unknown upfront
• oversight needed - requires regular monitoring
• potential overruns - if not tracked carefully
• trust required - relies on vendor honesty

For vendors

• administrative load - time tracking and reporting
• client pressure - concerns about efficiency or cost
• payment disputes - hours or tasks questioned
• budget tension - “we’re already paying, can you just…” scenarios

Best practices for T&M projects

1. Set budget caps

Use a “not-to-exceed” clause for clarity:

“T&M up to $50,000 maximum.”

2. Report regularly

• weekly or bi-weekly progress updates
• monthly budget summaries
• clear timesheets and task tracking

3. Define rates clearly

Include a rate card, for example:

Senior developer - $120/hour
Designer - $100/hour
Project manager - $110/hour

4. Estimate ranges

Even with T&M, provide initial expectations:

“We estimate 200-250 hours ($20,000-$25,000).“

5. Add approval thresholds

Under $5,000 - proceed automatically
$5,000-$15,000 - notify client
Over $15,000 - require written approval

T&M vs. fixed price

Aspect	Time and materials	Fixed price
Cost	Variable, based on effort	Fixed upfront
Scope	Flexible	Locked at start
Risk	Client bears risk	Vendor bears risk
Transparency	High	Lower
Admin effort	More reporting	Less overhead
Best for	Changing requirements	Defined scope
Payment	Monthly, hourly	Milestone-based

Hybrid models

1. T&M with cap

“We’ll work T&M up to $75,000 maximum.”

2. Phased approach

Phase 1 - Fixed price discovery ($10,000)
Phase 2 - T&M development ($50,000-70,000)
Phase 3 - Fixed price launch ($15,000)

3. Monthly retainer

“40 hours/month at $100/hour = $4,000/month.”

4. Value-based + T&M minimum

“5% of revenue generated, minimum $10,000/month T&M.”

Tracking and reporting

Use time tracking tools (e.g., Toggl, Harvest, Clockify) integrated with project management.
Track details like:

Date: 2025-10-30
Task: Implement authentication
Hours: 4.5
Rate: $100/hour
Cost: $450
Notes: OAuth integration with Google and GitHub

What to include in a T&M contract

1. defined hourly rates
2. invoicing schedule (weekly or monthly)
3. payment terms (e.g., Net 15 or Net 30)
4. time tracking and reporting method
5. expense policy (what’s billable)
6. budget caps or checkpoints
7. rate adjustment clause (annual increases)
8. termination notice terms
9. IP ownership and deliverable rights
10. overtime or holiday rate policy

Common client concerns

“How do I know you’re working efficiently?”

• share daily or weekly updates
• maintain transparent task tracking (e.g., Jira, Asana)
• hold regular demos

“What if the cost goes too high?”

• set budget caps
• report burn rate weekly
• re-estimate frequently

“Isn’t fixed price safer?”

Explain that fixed price often includes:

• 20-30% built-in risk buffer
• less flexibility for changes
• more formal change requests
• potential drop in quality near deadlines

When not to use time and materials

Avoid T&M when:

• client has a strict, limited budget
• scope is fully defined and stable
• project is small and predictable
• trust with the client is low
• deadlines are fixed and non-negotiable

FAQ

What is a time and materials contract?
It’s a pricing model where the client pays for actual time spent plus materials or third-party costs.

When should T&M be used?
When project scope is unclear, evolving, or long-term, and flexibility is needed.

How is T&M different from fixed price?
T&M charges for effort and time, while fixed price commits to a set cost for defined deliverables.

How do you control budget in T&M projects?
Set caps, use frequent reporting, and require client approval for major changes.

Is T&M more expensive than fixed price?
Not necessarily. While costs can vary, it often results in better outcomes and less rework for complex or changing projects.