Definition
Time and materials (T&M) is a pricing arrangement in which the client pays for the actual hours worked at agreed rates plus the actual cost of materials, often with a markup. It suits work whose scope is hard to define upfront, such as repairs, renovations, and evolving software projects. The final price depends on the work actually done.
Also called: T&M, Time and materials contract, Time and material billing
Time and materials in practice
T&M invoices list labor and materials separately: hours by person or role at the agreed rate, and materials at cost or with the agreed markup. Attach timesheets and receipts when the contract calls for them.
T&M shifts the risk of the work taking longer to the client. Clients often ask for an estimate and a not-to-exceed cap so the total cannot grow without their approval.
Bill T&M work frequently, weekly or every two weeks on longer jobs, so the client sees costs as they build and you are not carrying a large unbilled balance.
Example
A contractor repairs water damage on a T&M basis: 22 hours at $75 ($1,650) plus $940 of materials with a 15 percent markup ($1,081), for an invoice total of $2,731.
Frequently Asked Questions
Is time and materials better than a fixed price?
For uncertain scope, T&M is fairer to the contractor. For well-defined work, a fixed price gives the client cost certainty. Many projects mix both: fixed price for defined parts, T&M for extras.
Can I mark up materials on a T&M invoice?
Yes, if your contract says so. State the markup percentage in the agreement and apply it consistently. Some clients require materials at cost with receipts.
Related terms
- Fixed-price contract A fixed-price contract sets one total price for a defined scope of work, regardless of how many hours or how much material it actually takes.
- Not-to-exceed A not-to-exceed (NTE) amount is a maximum price written into a time and materials or hourly agreement.
- Markup Markup is the amount added to the cost of materials, subcontractors, or expenses when they are billed to a client, expressed as a percentage of cost.
- Timesheet A timesheet is a record of the hours a person worked, broken down by date, client, project, or task.
- Cost-plus pricing Cost-plus pricing is an arrangement in which the client pays the provider's actual costs for a project plus an agreed fee, either a percentage of costs or a fixed amount, to cover overhead and profit.
This page is for general information only and is not legal, tax, or financial advice. Rules change and vary by location, so consult a qualified lawyer or accountant about your situation.