What is a Time & Materials Project?

A Time & Materials (T&M) Project bills clients based on actual hours worked and materials used, rather than a fixed price. This model offers flexibility for evolving project scopes and is ideal when precise estimates are difficult to define upfront.

Understanding T&M projects helps teams manage budgets more transparently and adapt to changes without renegotiating terms. With this model, clients pay for what’s actually used; making it easier to adjust priorities, timelines, or scope mid-project. For teams, it reduces the pressure to overestimate costs and supports more honest, real-time reporting. Tools like Harvest make this even easier by tracking time and expenses accurately, helping you stay aligned with clients and avoid billing surprises.

Learn more about how Harvest supports Time & Materials projects. 

Understanding Time & Materials Projects

A T&M project is a pricing model in which a client is billed for the actual time spent and materials used to complete a project. Unlike fixed-price models, where costs are set upfront, T&M contracts provide flexibility by charging based on hourly labor rates and reimbursable expenses. This model is especially useful when the full scope of work is uncertain or likely to evolve, such as in software development, design, or consulting.

How Do Time & Materials Projects Work?

Key Principles of Time & Materials Projects

1. Billing Based on Actuals
   T&M contracts charge clients for the real hours worked and any direct expenses (e.g. software, tools, or subcontractor fees). Rates are usually agreed upon upfront; such as an hourly rate per team member or per role.
2. Flexibility in Scope
   Unlike fixed-price projects, the scope in a T&M project can evolve. This allows both the client and the team to adjust priorities, features, and timelines as the work progresses, without renegotiating the contract.
3. Transparent Time Tracking
   Accurate and consistent time tracking is essential. Tools like Harvest allow teams to record time spent per task or project phase, helping ensure billing is both fair and accountable.
4. Cost Visibility and Reporting
   T&M projects often involve regular reporting. Clients receive updates on hours logged and costs incurred, which keeps them informed and supports better decision-making during the project.

Benefits of Time & Materials Projects

• Greater Flexibility
  T&M supports evolving project needs, ideal for work that’s exploratory or iterative, such as product development or consulting.
• Accurate Billing
  Clients only pay for what is actually used. This encourages responsible time and cost management while building trust between teams and clients.
• Lower Risk for Both Parties
  For clients, there’s no risk of overpaying for padded estimates. For teams, there's no pressure to underbid and then deliver under tight margins.
• Encourages Collaboration
  The model naturally supports more communication and joint decision-making, as both parties stay involved throughout the project.

Common Use Cases

1. Software Development
   In agile workflows, where needs often shift based on user feedback or new priorities, T&M supports continuous iteration and fast pivots.
2. Design & Creative Work
   When outcomes evolve through discovery, such as branding, UX design, or content development, T&M ensures that effort is paid for fairly, even if deliverables change.
3. Consulting & Strategy
   For engagements where deliverables are shaped over time by collaboration and research, T&M offers clarity without limiting the scope prematurely.
4. Maintenance & Support Services
   When support work is reactive or based on unpredictable demand, T&M makes it easier to bill accurately for ad-hoc tasks.

Challenges & Misconceptions of Time & Materials Projects

Myth: Time & Materials Means “Unlimited Budget”
A common misconception is that T&M projects lack financial control. In reality, responsible teams use time-tracking tools and budget caps to monitor and report progress frequently. Clients can set not-to-exceed thresholds, request estimates, or implement phased approvals to keep spending in check.

Challenge: Requires Strong Time Tracking Discipline
Without accurate time tracking, T&M projects can quickly lose transparency. Success hinges on consistent logging, categorization, and reporting; something that tools like Harvest streamline through reminders, integrations, and real-time dashboards.

Myth: It’s Riskier for Clients
While fixed-price contracts appear more predictable, they often include buffers for unknowns. T&M models remove hidden margins and make costs visible as work progresses. Clients can pause or redirect efforts anytime, offering more control; not less.

Challenge: Communication is Key
T&M projects demand ongoing communication and trust between teams and clients. Without clear updates or shared expectations, misunderstandings can arise. Regular check-ins, shared dashboards, and milestone-based reviews help avoid surprises.

Myth: Not Professional Enough for Larger Projects
T&M is sometimes viewed as informal or best suited to small jobs. However, many large-scale and enterprise-level projects adopt T&M contracts, particularly when using agile or phased approaches that require adaptability over strict scope definitions.

Industry Examples & Statistics

• Software Development: Agile and T&M Go Hand-in-Hand
  According to the 14th Annual State of Agile Report, 95% of organizations report using Agile development practices. Agile emphasizes flexibility, continuous feedback, and iterative delivery—values that align directly with Time & Materials billing. Many tech firms, including startups and Fortune 500 companies, rely on T&M to support adaptive project scopes and evolving user needs.
• Design and Creative Agencies: Flexibility Drives Results
  A study by the Bureau of Labor Statistics found that over 60% of creative agencies work on projects where scope changes post-kickoff. T&M contracts provide the flexibility to pivot without re-scoping formal contracts, enabling creative teams to adjust as brand goals or stakeholder feedback evolves.

Frequently Asked Questions (FAQs) About Time & Materials Projects

What is a Time & Materials project?

A Time & Materials (T&M) project charges clients based on the actual hours worked and materials used, rather than a fixed cost. This model allows flexibility when the full scope isn’t clear at the outset.

When should I use a Time & Materials contract?

Use a T&M contract when project requirements may evolve, or when it’s difficult to accurately estimate the total cost or time needed in advance; common in agile development, design, or consulting work.

How does billing work in a T&M project?

Clients are invoiced for actual time logged (usually at an hourly rate) and for reimbursable materials or expenses. Invoices are typically issued on a recurring schedule, such as biweekly or monthly.

Is a T&M project more expensive than fixed-price?

Not necessarily. T&M billing ensures clients only pay for work performed, whereas fixed-price projects often include built-in buffers for risk and uncertainty. With proper oversight, T&M can be more cost-efficient.

How can I track hours and expenses accurately?

Tools like Harvest simplify tracking by allowing team members to log time, categorize tasks, track project budgets, and generate reports. This helps ensure transparent billing and project accountability.

Can I set a budget cap in a T&M project?

Yes. Many T&M projects include not-to-exceed budgets or phased checkpoints to manage costs. These safeguards help balance flexibility with financial oversight.

Are Time & Materials contracts suitable for large projects?

Yes. T&M contracts are widely used in large-scale and enterprise environments; especially when using agile or iterative approaches that benefit from adaptable scoping.

Conclusion & Next Steps

Time & Materials projects offer the flexibility, transparency, and real-time control today’s teams need; especially when navigating evolving project scopes or complex client needs. With accurate time tracking and clear reporting, you can build trust, stay agile, and deliver value without guesswork.

Explore how Harvest simplifies Time & Materials billing—start your free trial today.