Time-and-Materials Contract
A time-and-materials (T&M) contract bills the client based on actual hours worked and materials used, at agreed rates, rather than a single fixed price for the whole scope.
In short
- Client pays for actual effort and materials, at pre-agreed rates -- not a flat sum for the whole job.
- Shifts the risk of scope uncertainty onto the client rather than the vendor.
- Usually paired with a not-to-exceed cap or periodic budget check-ins to control cost.
- Suits work where requirements are expected to evolve, like ongoing development or discovery-phase engagements.
How it differs from fixed price
Where a fixed-price contract locks in one number regardless of actual effort, T&M bills for whatever hours and materials the work actually consumes, at a rate card agreed in advance. That flexibility is the point for work whose scope can't be fully known upfront -- but it also means the client's total cost isn't capped unless the contract adds one.
What to check for
A T&M SOW without a not-to-exceed cap, budget-tracking cadence, or periodic client sign-off on hours can run well past what either side expected, with no contractual point where the client can push back. The rate card itself -- who bills at what rate, and whether it escalates -- also needs to be explicit, not left to a vague "standard rates" reference.
How ScopeWise checks this
ScopeWise's Commercial agent identifies time-and-materials pricing from the pricing model extraction and checks whether an escalation clause or cost-overrun control (like a not-to-exceed cap) is defined, flagging its absence as a commercial risk since uncapped T&M is the clearest path to a runaway bill.