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  • Writer's pictureJoel White

When T&Ms Make Sense

Situations where I recommend hourly based time and materials contracts (all criteria must be met)…


The buyer understands:

  • billings will be highly variable and unpredictable

  • service provider is incentivized to maximize hours, scope, and duration of the project

  • staff turnover at service provider can result in buyer paying for replacement training

  • hours worked are often estimated after the fact and somewhat discretionary

  • rework hours will slip through

  • once the “cap” is hit, the cap needs to go up or work stops


The service provider:

  • has >99.5% timesheet compliance every month (entry and approval)

  • has automated tools to flag upcoming budget overages

  • can invoice immediately after the month is over

  • is willing to only take a portion of contract value into backlog

  • applies a higher bad debt provision for such contracts

  • understands revenue and earnings will be heavily impacted by staff turnover

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