Time and Materials (T&M) Projects

Sometimes I think this is the “holy grail” for consultants: Permission to work forever, predictable profits and all the risks carried by the customer. It also seems to be popular with large government contractors. Good work, if you can get it.

Desired Benefit: Achieve a goal when the problem is highly complex, not easily specifiable. Create a relationship to work together rather than merely deliver a particular result.

Structure: Work for a month, then send the customer an invoice. Suppliers like it, because the customer carries the risk of changing his mind.

Scope: Not a-priori fixed. Sooner or later, the customer doesn’t want to pay any more, so the project comes to an end.

Risks: The financial and delivery risks are carried 100% by the client. Supplier has little incentive to keep costs down. Effort to ensure that only legitimate effort and expenses are invoiced can be substantial. Innovation in this context can be challenging because competitive innovations are likely to be disruptive and may lead to the end of the relationship.

Relationship: Indifferent. The supplier is happy when more work comes, because more work means more money.

Tip: Recommended for projects where the customer can better manage the risk than the supplier. This is often combined with a cost ceiling. How well it works can depend on how the scope is handled.