Time and materials

In a time and materials engagement, the client agrees to pay the firm's negotiated billing rates for every hour the team books, plus any approved direct expenses. Scope can shift during the work without renegotiating the contract, since the meter simply runs longer. The structure is common when the problem is not fully scoped at the start, such as on early-stage research, ongoing support or staff augmentation.

The trade-off is that the client carries the risk of cost overruns while the firm carries the risk of utilization gaps. Most time and materials contracts include a not-to-exceed cap, weekly or monthly status reporting and a process for change orders. Resource planners treat them like any other allocation, but with closer attention to actual hours booked since revenue moves with the timesheet.

Related: fixed-fee project, billing rate, project margin.