A time and materials contract is a method of compensation where the client pays an agreed hourly or daily rate for input provided by the consultant. In addition, any related expenses, or by exception, supplies, are charged to the client at cost.
When to use a time and material contract
A time and materials contract can be used in a number of circumstances. The most typical situation in which time and materials would be used would be where there is some uncertainty either on the part of the consultant, the client or both parties, as to what is actually involved in the proposed consulting assignment.
In this situation, to move things forward, working on a time and material basis the consultant can start to scope and plan the assignment and be paid on a 'pay as you go' basis.
The advantage is that during the initial period of uncertainty the consultant is able to start work and be compensated at a reasonably representative and commercial rate, plus, the client has a degree of flexibility in that after an initial period of working on this basis, a checkpoint meeting can take place at which preliminary progress and findings can be reviewed and discussed.
This discussion often enables both the consultant and client to refine their thinking on the nature and scale of the proposed consulting work and agree an appropriate consulting fee and billing approach.
Client's perspective on a time and materials contract
From the client's perspective a time and material contract does introduce a number of risks. In simple terms, a time the material contract can be open-ended and there is no direct link between the work the consultant is doing, the benefits derived for the organization and the fee paid to the consultant.
To reduce the risk to the client it is good practice for the consultant, when negotiating a time and material contract, to agree a limit to the period for which a time and material contract will be used. For example, the consultant might agree to work for no longer than twenty days on this basis and for the daily rate to be capped at an agreed figure. This has the effect of establishing a maximum total cost figure and therefore gives the client certainty.
Alternative Consulting Fee Models
Time and materials is only one of a number of different bases on which consulting fees can be calculated and charged to clients. For more ideas check out Consulting Fee Models
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