Time And Materials Contract in Software Development

The selection of the appropriate contract is critical whenever we want to begin any project as the contract is the foundation of the entire endeavor. Before selecting the contract (Time and materials contract or fixed price) just take some time and think about what type of software development project you want,

  • Is the scope of the project known?
  • Do you have clear or defined project requirements?
  • Are all the aspects affecting the project considered?
  •  Are you sure about the time required for the completion of the project?
  •  Do you want to have direct control over the project?

The selection of the contract is based on the answers to all the above questions related to the project. So, in this article, we shall know which contract is best depending upon the nature of the project.

What is Time and Materials Contract

Time and contract are one of the most usable contracts these days as it considers all of the variables that go into software development, such as changing needs, updates, and potential dangers. The very particular character of software development projects, as well as the rapidly changing technological environment, inspired this approach.

The (T&M) Time and Materials contract involve how much time and materials are spent on your project. It involves recognizing the value of open, regular, and face-to-face communication between client and technical workers, supporting flexible project design and timelines, providing working prototypes at important phases of development, monitoring client performance and outcomes on a regular basis, and making improvements to procedures and methodologies as appropriate. It not only provides transparency but also provides flexibility in budget and requirements.

How T&M Is Different From A Fixed Price Contract?

  • In Fixed Price contract you and your software development business agree on a set price for the whole project
  • The T&M (Time and Material) contract involves how much time and materials are spent on your project.
  • A time and material contract charges the client for the time spent and resources used, whereas a fixed-price contract has very specific requirements and establishes a single price for the project with time. 

Fixed price project is ideal when clients have crystal clear requirements and there will be little to no change in requirements. In addition, the criteria are obvious, and determining a project budget is simple. Clients, on the other hand, frequently require modification, which may result in spending more than the appropriate price. If the scope of work expands, the client is charged separately for each incurred change in the project in a fixed price contract so in these situations, a time and materials contract is a better option as the actual work scope pricing is provided by time and material, which is based on the developers’ hourly rates. Clients are charged for the number of hours worked plus resource costs.

All requirements (scope) of work and business decisions are made firsthand at a fixed price, and the budget is set up front. But in the case of time & material, the work can proceed if you have only a few details about the projects.


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When It’s Preferable To Use A T&M Contract?

Time and materials contract is used when your project is long-term, you want to avoid risk and also you are conscious about your budget and you want to control your project. Also, your project has uncertainties.

Long-Term Project:

The Time and Materials contract model is ideal for long-term projects where the end product cannot be predicted at the outset. Why? Simply put, even if the end product delivery takes an infinite amount of time, the model remains rational.

Low-Risk and Budget-Friendly:

Another advantage of the T&M model is that it is budget-friendly and low-risk for both the client and the service provider. There is no need to formulate final criteria, therefore development can begin sooner. It is necessary to have limited or imprecise requirements with a specific purpose in mind.

Control Over the Project:

The client has a greater degree of control over the project. He can add any tasks, provide approvals and disapprovals, and have them implemented whenever he wants. At any point during the project, specifications and enhancements can be debated and negotiated.


If there is no clear whole vision for the final result, the time and material model is applied. Furthermore, the specifics of implementation are unknown. Clients are frequently perplexed by the project’s separation into multiple milestones/stages.

The Time and Material model is perfect in this situation since it is totally negotiable, and the client can utilize hourly, daily, weekly, or monthly prices for the amount of work, tasks, resources, and other expenses.

How Do I Know If My Project Is Suitable For The Time And Materials Contract?

The Time and materials contract model are for you if you can’t establish your project specifications/requirements. There may also be a circumstance that we are unable to define at this time.

Most of the time, clients are unable to define the specific needs for their software project, owing to the fact that project requirements are dependent on rapidly changing external circumstances. It provides flexibility while staying within a realistic budget.

Final Verdict

It can be concluded that time and materials contracts are the best options when the scope and duration of a project are unknown before work begins. The simplicity of a time and materials contract ensures a profit for the contractor, but it adds to the administrative burden of tracking time and expenditures.

You must, however, maintain track of both the costs and the project’s progress because there is no specific final price or timeframe. T&M also relies on frequent contact between you and the project’s working team or contractor to keep you informed as the project progresses. It offers a lot of advantages and can deal with a lot of different situations. But if it is not selected for the right project then it can result in failure. So time and materials (T&M) contracts prove themselves the best option when selected for the right project.

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