Time and material

In a time and material contract the client pays for the hours actually worked and the materials or external costs actually incurred, at rates agreed in advance. The scope can move during delivery, because the price follows the effort rather than the other way round.

How is a time and material project billed?

Recorded hours are multiplied by the agreed rate for the person or the role, external costs are passed on, and the result is invoiced for the period. Because the invoice follows the record, incomplete time recording translates directly into lost revenue.

When does time and material make sense?

When the scope cannot be described precisely in advance: discovery work, open-ended development, support and advisory work. It moves the risk of a wrong scope from the supplier to the client, which is also why clients resist it. The scope can then move during delivery, because the price follows the effort.

What is the difference between time and material and a fixed price?

Under time and material the supplier is paid for what the work took. Under a fixed price the supplier is paid what was agreed, whatever it took. The first carries less risk and usually a lower rate, the second carries more risk and should carry a premium for it.

What has to be controlled in a time and material project?

Two things: that every hour is recorded, and that the client is not surprised. A budget cap or a regular statement of consumption keeps the second from becoming a dispute, even when the contract does not require it. Because the invoice follows the record, every hour that is not recorded is revenue lost.

Related terms

• Fixed price project
• Retainer model
• Billability

troi records every hour against its rate as it is entered. See time tracking.