Time and materials: Overview, definition and example
What is time and materials?
Time and materials is a pricing method often used in business contracts, where a client pays for the actual time spent working on a project (typically billed hourly) and the cost of materials used. This approach is common in industries like construction, consulting, and software development, where the exact scope of work might not be fully defined upfront.
For example, a web development agency might charge a company based on the hours spent building the website plus the cost of any tools, software, or resources needed to complete the project.
Why is time and materials important?
Time and materials is important because it offers flexibility for projects where the scope or requirements might change over time. Unlike fixed-price contracts, this method ensures that service providers are compensated for the actual effort and resources involved, while clients only pay for what’s delivered.
For businesses, it’s especially useful for projects that are complex, evolving, or hard to estimate. However, it requires trust and transparency, as clients need to be confident that the time and resources billed are fair and necessary.
Understanding time and materials through an example
Imagine a company hires an IT consulting firm to upgrade its network infrastructure. The exact work needed isn’t clear until the project begins, so the contract uses a time and materials approach. The IT firm bills the company for the hours worked by its technicians and the cost of any hardware or software used in the upgrade.
In another case, a marketing agency creates a campaign for a retailer. Since the campaign’s details evolve over time, the agency charges based on the hours spent developing the strategy and executing the work, as well as the cost of media placements and design tools.
An example of a time and materials clause
Here’s how a time and materials clause might look in a contract:
“The Client agrees to compensate the Service Provider based on the time spent on the project, at an hourly rate of $[rate], and the cost of materials incurred, as detailed in the accompanying invoices. Estimates provided are non-binding and subject to change based on project requirements.”
Conclusion
Time and materials is a flexible pricing model where clients pay for actual work hours and resources used. It’s ideal for projects with uncertain or changing scopes, ensuring fairness for both service providers and clients.
By using a clear time and materials agreement, businesses can manage evolving projects effectively while maintaining transparency and trust. It’s a practical approach for handling complex or unpredictable work.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.