What is a time and materials 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?

Time and materials (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.

When you should use a time and materials 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 increase, 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.

How to write a time and materials contract.

A well-written T&M contract 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 milestones and expected completion date
Total price limit (if applicable)

Sign contracts 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 digital PDF contracts with e-signatures makes the signing process faster and cheaper.

A good e-signature software, like Adobe Acrobat Sign, 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.