Time and material

What it means

Time and material is a billing method common in IT and consulting in which the client pays for hours actually worked and materials used at agreed rates. The supplier records time and costs and bills them regularly, usually monthly or when milestones are reached.

Compared with a fixed price, this model is more flexible. It suits situations where the scope is unclear at the start, where requirements change during the project or where ongoing services are involved, such as support, maintenance or advice, whose volume cannot be estimated in advance.

The risk of going over budget, however, lies with the client. If the work takes longer than expected, the client pays more. The model is therefore often combined with a cap, regular reporting and advance approval of larger pieces of work so that the client keeps costs under control.

How it works in practice

The contract should set hourly rates for each role, the method of recording time, rules for travel and materials, invoicing frequency and the procedure for disputes over hours. For long-term cooperation it is also wise to agree rate indexation and the conditions for changing rates.

The model fits well with agile project management, where the scope is refined as work proceeds. For a clearly defined task with a fixed outcome, a contract for work at a fixed price is more suitable, and for regular services of predictable volume, a retainer.

For VAT purposes the date of supply must be set correctly. For continuous services the date of supply is often the last day of the period for which payment was agreed, so billing periods are best defined clearly in the contract.

What to watch out for

The client should have access to a detailed timesheet with descriptions of the work. Vague items such as unspecified consultations make checking difficult and increase the risk of disputes. Regular approval of timesheets prevents unpleasant surprises when the invoice arrives.

In long-term cooperation with an individual who works only for one client at an hourly rate, on the client's instructions and with the client's tools, there is a risk of the arrangement being reclassified as dependent employment. With external contractors it is therefore worth keeping the signs of their independence clear.