Time and materials (T&M)
Also called T&M, hourly billing.
A contract where you pay for the hours actually worked, at agreed rates.
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What it is.
Under time and materials the buyer pays for the effort spent, usually as hours multiplied by an agreed rate per role, plus any agreed costs such as licences. Scope can change as you learn, without renegotiating the contract each time.
It is the mirror of a fixed-price contract contract. With T&M the risk of overruns sits mostly with the buyer, so it works best with a budget cap, regular reporting and a working demo at the end of each sprint.
Why it matters
Software requirements often change once people see the product. T&M lets the plan change without a change request for every adjustment, and you only pay for work that was done. It also suits ongoing work such as maintenance, where there is no fixed end scope.
Common mistakes.
- 01
No cap and no reporting. Without them T&M can drift for months.
- 02
Comparing hourly rates alone. A lower rate with more hours can cost more in total.
- 03
Not owning the backlog. On T&M the buyer steers, so someone on the buyer side must decide priorities.
Work it out with a tool.
Related terms.
- Fixed-price contractA contract where the price for an agreed scope is set up front.
- Total cost of ownership (TCO)Everything a piece of software costs over its life, not just the price to build or buy it.
- Technical debtThe future cost of shortcuts taken in code today.
- Clickable prototypeA set of linked screens you can click through, built to test a design before the real software exists.
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