Time and materials contract

A pricing structure where the client is billed for actual hours worked at an agreed rate, plus materials/expenses, rather than a fixed total price — the counterpart to a fixed-fee contract.

Example

A software project is billed time-and-materials at $175/hour; the client's invoice each month reflects the actual hours logged rather than a predetermined flat fee.

Why it matters for agencies

Time-and-materials billing largely protects an agency's margin from scope creep automatically, since more hours worked simply means more billed — the tradeoff is that clients often want a not-to-exceed clause to cap their own exposure, which reintroduces the need for change-order discipline once that cap is approached.