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Time and Material Contract (T&M)

A hybrid agreement that mixes cost-reimbursable and fixed-price elements: the buyer pays for actual labor time at agreed rates and for materials used, often with a not-to-exceed cap.

Key Points

  • Combines actual hours and materials with preset rates or unit prices.
  • Well-suited when scope is not fully defined but work must begin.
  • Buyer carries variable cost risk; ceilings and rate schedules help control it.
  • Requires strict timekeeping, material receipts, and clear change controls.

Example

An IT project brings in a cybersecurity specialist on T&M at $150/hour, materials at cost plus 5%, with a not-to-exceed limit of $80,000. The vendor bills for actual hours and materials until the tasks are complete or the cap is reached.

PMP Example Question

Your team needs specialized resources for evolving requirements. The sponsor wants to start immediately but limit financial exposure. Which contract type is most appropriate?

  1. Time and Material contract with agreed rates and a cost ceiling
  2. Firm-Fixed-Price contract with a fully detailed scope
  3. Cost-Plus-Fixed-Fee contract with no cap
  4. Fixed-Price Incentive Fee contract tied to performance targets

Correct Answer: A — Time and Material (T&M) contract

Explanation: T&M fits uncertain scope while enabling quick start; preset rates and a not-to-exceed limit help manage the buyer's cost risk.

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