What is a T&M contract?
Learn how time and materials contracts — combined with e-signatures — can help manage uncertainty in complex projects.
Many things can go wrong during a complex work project, such as constructing a building or developing software. Material costs can suddenly skyrocket, regulations can change, workers may quit, or projects could face unexpected delays. A time and materials contract can help both clients and contractors deal with uncertain situations.
Read on to learn what a time and materials contract is, when you should use one, and how you can sign them quickly with e-signatures.
What are time and materials contracts?
So, what are time and materials contracts? Time and materials or T&M contracts are one of the two main types of project agreements, along with fixed-price contracts. A fixed-price contract specifies what the project cost will be before work begins. They’re more commonly used because the client knows exactly what they’ll pay.
T&M contracts don’t spell out the final price. Instead, they define a rough outline for the project and set fixed hourly wages and the cost of materials. But they can also include a cap on the maximum project price.
Time and materials contract vs. fixed price.
When considering project contracts, you need to understand the difference between time and materials contracts and fixed-price contracts. T&M contracts bill clients based on actual hours worked and materials used. This offers more flexibility for adapting to changing project scopes.
Fixed-price contracts come with predetermined, unchanging costs and are less accommodating of scope changes. In terms of risk, T&M contracts shift more responsibility to clients, while fixed-price contracts place more responsibility on contractors.
There are many benefits to opting for time and material contracts. Here are a few:
- Cost transparency. T&M contracts provide clients with transparency in project costs. They can see the breakdown of hours worked and material costs, making it easier to track expenses.
- Adaptability. They allow for changes and adaptations to the overall project scope. They’re especially suitable for projects where requirements may change or are not well-defined initially.
- Quick start. They can speed up project initiation since they don’t require the extensive upfront planning and scope definition that fixed-price contracts do.
- Risk sharing. T&M contracts share some of the project risks with the client, which can be helpful when uncertainties exist regarding project requirements or timelines.
- Quality control. Clients can have more direct control over the quality of work and materials used in a T&M contract since they can monitor and approve each element of the project.
Time and materials contract example.
T&M contracts provide transparency and adaptability, ensuring both clients and contractors can effectively manage projects with changing requirements. Here are some examples:
- Software development. T&M contracts work well for software projects with evolving features and iterative development cycles.
- Construction and renovation. Unforeseen issues and scope changes in construction projects make T&M contracts a practical choice.
- Consulting services. Consulting engagements often involve evolving client needs and benefit from the flexibility of T&M contracts.
- Maintenance and repairs. For ongoing maintenance and repair work, T&M contracts allow for accurate billing based on actual time and materials.
- Creative projects. Creative endeavors such as graphic design and marketing campaigns can be subjective and require multiple revisions, making T&M contracts valuable.
Examples of when to use a time and material contract.
T&M contracts are ideal for projects with a lot of uncertainty. For example, it can be challenging to estimate the cost of renovating old buildings since the contractor might discover unexpected issues that need additional work. With software projects, the client may not know exactly how they want certain features to work.
In these situations, a T&M contract provides the contractor with the flexibility they need to complete the project. Even if costs or the scope of work increases, the contractor can keep working without unfeasible budget caps limiting the project.
But T&M contracts aren’t without their downsides. Clients often prefer fixed-price contracts since they make estimating budgets easier. T&M contracts also increase the workload on the contractor, who has to keep track of work hours and material costs. Some unscrupulous contractors might also artificially extend the project to make more money.
What to include in a T&M contract.
Learning how to write a contract for T&M that covers all your bases can mitigate a lot of the potential downsides. When agreeing on a T&M contract, clearly define these key details:
- Hourly labor rates and maximum work hours
- Material cost and markup
- Payment method and schedule
- Project scope and description
- Project milestones and expected completion date
- Total price limit (if applicable)
How to write a time and materials contract.
To draft a T&M contract, initiate the process with a detailed discussion with the client to understand what the project needs are. Next, work collaboratively to define the project scope, deliverables, and materials required. You can either select a pre-existing time and materials contract template or create a customized one that includes all key elements.
Review the contract with the client and seek legal counsel, if necessary. Once both parties agree, sign and start the contract. Throughout the project, maintain open communication, document scope changes, and project progress. Once the project is complete, issue a final invoice in accordance with the contract terms.
Sign a T&M contract digitally with e-signatures.
When uncertainty factors into an already time-sensitive project, clients and contractors both benefit from signing a T&M contract as quickly as possible. Starting the project on time can help further mitigate potential issues. Using a digital PDF when you sign contracts with e-signatures makes the signing process faster and cheaper.
A good e-signature software, like Adobe Acrobat, lets you prepare and share contract documents with the click of a button. You can track the signature process and send reminders if you don’t get a timely response. Your partners can easily sign the document on a computer or any mobile device. In addition to saving time, you’ll save money on printing and mailing.
Discover more ways Acrobat can streamline signing any type of contract.
