Time & Materials contracts are often justified as “flexible” or “agile-friendly,” but without explicit guardrails, they are structurally one-sided. When effort is uncapped and oversight is weak, cost control disappears—and the client becomes the shock absorber for inefficiency.
The core problem is incentive alignment. In an unguarded T&M model, the vendor is paid more when work takes longer. If the contract lacks burn-rate visibility, milestone checkpoints, or not-to-exceed thresholds, there is no economic pressure to resolve ambiguity quickly or optimize delivery. Progress becomes narrative-driven instead of evidence-based.
Many SOWs fail to require detailed time reporting tied to outcomes. Hours are logged, but value is unclear. Clients see invoices growing without a corresponding increase in usable functionality. When questions are raised, the response is usually technical complexity or evolving requirements—both difficult to challenge without contractual controls.
The absence of caps is especially dangerous. Without phase-level ceilings or rolling estimates, cost overruns are discovered late, when sunk-cost bias is already in play. The client is forced to choose between throwing good money after bad or terminating a half-built system—neither of which is a real option.
Unguarded T&M also weakens governance. If there are no defined checkpoints where scope, spend, and risk are reviewed together, problems compound silently. By the time leadership is involved, the budget is already blown and timelines are no longer credible.
Well-structured T&M contracts can work, but only with constraints: burn-rate transparency, regular forecasting, milestone-based reviews, and economic limits that force prioritization. Without these, T&M is not a partnership model. It is an open-ended financial commitment with asymmetric risk.
In software development, flexibility without guardrails is not agility—it is exposure.
