4 Free Time and Materials Contract Templates

A Time-and-Materials (T&M) contract is a written agreement between two or more parties that creates legally binding obligations. Because it governs rights, responsibilities, compensation, and termination, it should be drafted carefully to reduce the risk of disputes and litigation. A well-drafted contract typically addresses:

• The parties and their roles and responsibilities
• Contract duration and termination provisions
• Allowed working hours and expectations for time tracking
• Deliverables, milestones, and acceptance criteria
• Compensation, reimbursement of materials, billing rates, and payment terms
• Reporting, progress review, and change-management procedures
• Any additional obligations, warranties, or indemnities

Under a Time-and-Materials (T&M) contract, the client pays for actual labor time plus reimbursable costs such as materials and subcontractor expenses. This model is useful when the full scope is uncertain: it lets the provider bill for work as it proceeds rather than fixing a total price up front. Both fixed-price and time-and-materials contracts are valid approaches in project management; each has distinct advantages depending on project risk, scope clarity, and stakeholder preferences.

• Illustrative Example: A company engages a graphic designer on a two-year T&M engagement with an annual salary of $50,000. The contract specifies working hours, paid time off (for example, two weeks’ vacation per year), payment schedule (annual or periodic disbursements), and termination notice requirements. Termination may be permitted by either party upon written notice, subject to any notice period and final accounting obligations.

In practice, T&M pricing is the sum of all incurred costs—direct materials, labor at agreed hourly rates, and overhead—plus any agreed fees or markups. Choosing between a fixed-price and a T&M contract depends on factors such as scope definition, risk allocation, client involvement, and administrative capacity to track and audit costs.

Types of Contracts

Time and Materials vs Fixed Fee Price Contract

A fixed-price contract would be the most traditional type of contract. It is an agreement between two parties in which the work is estimated to cost a certain amount, and you receive it upon completion. The most common trade-off in a fixed-price project is time, and there is usually a risk that one party will use less time than estimated, giving the other party no opportunity to complete their work. This would be due to unforeseen constraints, such as natural disasters, workforce conflicts, and financial limitations.

Cost-Plus Contract

Contracts are based on the idea that you have a contract with a price and must consider time. The price is fixed, but there is a multiplier applied to it. There are two types of Cost Plus Contracts: single cost plus and double cost plus. In single cost plus, the total contract price is determined by multiplying the list prices by a multiplier or commission (usually 1% to 5%).

Time and Materials Engagement model

The time and material (T&M) engagement model is a contractually agreed-upon cost-plus basis for the project. A client pays a fixed price for the time and materials required to complete the deliverables. The T&M model is mainly applicable when a client has a limited understanding of the scope of work. This model helps manage risk by setting a fixed price covering all related expenses.

When to Use a Time and Materials Contract?

A time-and-materials (T&M) contract is best when project scope or requirements are uncertain, when specialized expertise is required, or when flexibility and speed matter more than a guaranteed fixed price. Use a T&M contract when you want to align payment with actual work performed and keep the engagement adaptable as needs evolve.

• Ongoing Maintenance and Support: When work will be continuous, intermittent, or unpredictable (support, bug fixes, small enhancements), T&M is practical because it bills for actual effort as issues arise.
• Undefined or Evolving Scope: When the full scope of work is unclear or expected to change, T&M lets you bill for actual hours and materials as requirements are discovered or revised.
• Specialized Skills or Expertise Needed: When the client lacks the necessary skills and must rely on specialist contractors, T&M supports engagement by compensating actual effort and materials used.
• Consulting or Advisory Engagements: For advisory, research, or discovery phases where deliverables and time cannot be predicted precisely, T&M ensures the provider is paid for the real work done.
• Short Timelines and Rapid Delivery: When a project must start quickly or deliverables are needed on an accelerated schedule, T&M removes the delays of lengthy scoping and fixed-price negotiation.
• Limited or Flexible Budgeting Needs: If the client has constrained funds but prefers to proceed incrementally, T&M allows work to continue until budget limits are reached and makes it easier to prioritize tasks.
• When Risk Is Acceptable to the Provider or Client: If one party is willing to accept uncertainty about final cost in exchange for flexibility (the provider may charge higher rates; the client gains adaptability), a T&M arrangement fits well.
• Pilot Projects and Prototypes: For proof-of-concept work, pilots, or prototypes where outcomes are experimental, T&M avoids overcommitting to a fixed deliverable or price.

How a Time and Materials Contract Works

Under a Time and Materials (T&M) contract, you are billed for the actual time spent and materials used to complete the agreed project deliverables. Costs are added as the work progresses, and there is no fixed deadline dictating when the work must be completed. This model is best suited for projects where the scope may evolve or cannot be fully defined at the outset.

At the start of the project, a fixed T&M budget estimate is usually established. This estimate outlines the expected total cost and serves as a financial guideline, but it can be adjusted if the scope changes. Payment typically follows a two-step process:

• Advance Payment: The client pays an upfront deposit, usually 50–60% of the estimated total cost, to confirm commitment and allow work to begin. The remaining 40–50% of this estimated amount is settled once the detailed scope of work is finalized and agreed upon by both parties.
• Final Payment: Any remaining balance is paid at the end of the project after the deliverables have been completed and approved by the client.

This structure provides flexibility for both parties while maintaining transparency and control over costs.

Pros and Cons of Time and Materials Contracts

Pros

• Clear, Fixed Rates: You are paid based on agreed hourly rates and material costs, ensuring transparency and fairness in compensation.
• Greater Flexibility in Execution: Work progresses according to your expertise and professional judgment, giving you freedom to manage tasks, priorities, and workflows as conditions change.
• Improved Cost Control Through Tracking: All time and expenses are monitored throughout the project, helping manage risks, reduce stress, and keep spending aligned with available budgets.
• Well-Suited for Expert-Led Projects: T&M contracts work best when both the project manager and client have comparable levels of technical knowledge, enabling informed decisions and smoother collaboration.
• Easier Resource Management: With no rigid deadlines or fixed schedules, allocating people and materials becomes simpler and more adaptable.
• Lower Pressure and Higher Predictability: By managing risks incrementally, T&M contracts often create a more stable, less stressful environment for all stakeholders compared to rigid fixed-price models.

Cons

• Potentially Longer Timelines: T&M contracts can take longer to complete since there is no strict deadline enforcing rapid delivery.
• Risk of Cost Overruns: If not managed properly, this model can lead to unnecessary expenses and budget overruns for the client.
• Limited Control Over Certain Costs: Some expenses are difficult to predict or regulate, making it harder to optimize resource allocation and avoid unexpected costs.
• Reduced Client Engagement: Clients may be less involved during execution, which can affect decision-making speed and overall project performance.
• Scope Changes Can Delay Completion: Frequent client-requested changes, combined with limited oversight, can make it difficult to complete the project efficiently.

Conclusion

Time-and-materials contracts offer flexibility and transparency when the project scope is uncertain or evolving. By billing actual labor and materials, they let teams adapt quickly, prioritize work, and manage risk incrementally. Clear hourly rates, defined responsibilities, and regular reporting reduce disputes and help both client and provider maintain trust. Effective time tracking, change-control procedures, and periodic budget reviews are essential to keep costs reasonable and predictable.

Choosing T&M makes sense for maintenance, specialized consulting, pilots, or fast-start projects where speed and adaptability matter more than a fixed price. To succeed, combine T&M with strong governance: set estimates, require documented approvals for scope changes, monitor progress closely, and communicate frequently so the partnership stays productive and aligned.

Time & Materials FAQs

What are the different types of contracts?

Contracts can be either a Time and Materials Contract (T&M), Cost-plus, or Fixed Price. The T&M contract is the most common type in sales, particularly sales to small and medium-sized companies.

What does a time and materials contract mean?

A time and material contract is a type of contract used in project management. It allows the customer to pay based on actual costs when they occur. The payment is at an agreed-upon fixed rate.

What is the difference between the T&M and fixed-price contracts?

The Fixed Price Contract and the Time and Materials Contract (T&M) both provide you with a rate (commonly referred to as a “fee”) for services, but the T&M contract is more flexible in that it allows you to bill based on actual hours worked.

What is the difference between the T&M and Cost Plus contracts?

Cost-reimbursement contracts reward businesses based on authorized expenditures as opposed to the completion and delivery of a good or service. Time-and-materials contracts allow for the purchase of commodities or services based on a certain number of direct labor hours.

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