A Time and Materials (T&M) Contract is a type of contract that is a hybrid contractual arrangement containing aspects of both cost-reimbursable and fixed-price contracts.
It is used when the scope of work is not fully defined, and it allows payment based on the time spent and materials used. This model offers flexibility in execution while requiring careful oversight to manage cost exposure.
Key Characteristics
- Hybrid Structure – Combines elements of fixed hourly/daily rates with reimbursable materials
- Scope Flexibility – Suitable when full requirements are not known at contract start
- Requires Oversight – Needs tracking of time, cost, and deliverables to avoid overruns
- Used for Short-Term or Unclear Work – Common in exploratory, rapid development, or support services
Example Scenarios
- Hiring external consultants at an hourly rate for discovery work
- Engaging vendors for ongoing system maintenance with uncertain effort
- Using subcontractors for incremental design activities during iterative development
Role in Procurement and Cost Management
- Supports Agile or Evolving Work – Accommodates change and uncertainty
- Balances Risk – Buyer assumes cost risk; seller guarantees rates
- Requires Cost Controls – May need caps, thresholds, or frequent reporting
- Enables Rapid Onboarding – Reduces delays in contracting for undefined scope
See also: Fixed-Price Contract, Cost-Reimbursable Contract, Procurement Management Plan, Seller, Procurement Statement of Work.