Time and materials (T&M) is a type of contract used in project management and purchasing that pays for labour and materials based on the real time and materials used to finish a project or job. T&M contracts are often used when the scope of the work isn’t clear or when it’s hard to guess how much the whole project will cost.
Under a T&M contract, the buyer pays the seller for the real time and materials used, plus an agreed-upon rate for labour and a markup on materials. This means that the supplier gets paid for their real prices plus a little extra to make a profit. Most T&M contracts have a cap on how much time and materials can be paid to the buyer. This is done to avoid cost overruns.
T&M contracts are often used for projects that involve research and development, software development, or other work that is hard to predict or measure in advance. They can give both the customer and the seller more freedom because the scope of work can be changed as needed during a project.
T&M contracts can be dangerous for the buyer, though, because they can lead to extra costs if the job takes longer than expected or if the materials cost more than expected. Because of this, T&M contracts often have strict reporting and control standards to make sure that the costs are fair and necessary.
T&M contracts can be a helpful way to manage complicated projects and tasks, but they need to be carefully planned, monitored, and communicated in order to work.
Key Points
– Time and materials refers to the cost of anything depending on the time it takes to manufacture it and the resources required.
– It’s akin to employing someone to construct a house and paying for the hours worked as well as the materials used.
– In project management, it involves paying for workers’ time and resources used on the project.
– It’s ideal for projects where the scope or requirements may vary because you only pay for the job done and resources consumed.
– However, it might be less cost-predictable than fixed-price contracts because the total cost is unknown until the job is completed.
