Time & Material
You pay for hours worked, not outcomes delivered. The vendor takes no delivery risk; you take all of it.
Time & Material is the default engagement model for staffing agencies and most freelance contracts. You pay an hourly or daily rate; the vendor logs hours; the bill arrives monthly. There is no contractual deliverable, only contractual effort. In Austrian and German law this maps to a Dienstvertrag: the vendor owes effort and diligence, not a finished work product. That legal distinction is the whole game, and it is why a Statement of Work (a Werkvertrag) is a fundamentally different instrument, not just a different invoicing style.
The model is honest in the sense that nobody pretends the vendor owns the outcome. It is also the worst-aligned of the common engagement models: the vendor’s incentive is to bill more hours, not to finish faster. Smart customers cap T&M engagements with a budget ceiling and a clear scope, which is essentially reinventing a fixed-price engagement without the legal teeth.
Worked example of how T&M goes wrong: a founder signs a “T&M to keep things flexible” contract for a feature everyone already agreed on. Three months and 40k later it is 70% done, the agency proposes another six weeks, and the founder has no contractual lever to pull because they never named a deliverable. Had the same work been scoped as a Werkvertrag, the 70%-done problem would have been the vendor’s to solve at the vendor’s cost.
Wavect uses T&M for exploratory engagements where the scope genuinely cannot be defined upfront. We do not use it as a default. The honest trade-off is real: T&M is genuinely the right model for open-ended research or unpredictable maintenance, where forcing a fixed scope would just make us pad the estimate or argue about “done”. The rule of thumb: use T&M when nobody can yet describe the deliverable, and switch to a retainer or an SoW the moment they can. If a vendor pushes you toward T&M for work that has a clear deliverable, they are pushing the risk onto you.
When this matters in a software project. Whenever a vendor proposes hourly billing for work everyone has already agreed on. That is the point where delivery risk silently transfers from the vendor to you, and most founders do not notice until the bill outruns the output.
What founders usually get wrong. They pick T&M “to stay flexible” on a feature that was never actually uncertain. Three months and a five-figure invoice later it is 70 percent done and they have no contractual lever, because they never named a deliverable.
How Wavect handles it. We use T&M only for genuinely open-ended work, and we cap it with a budget ceiling and weekly burn-down. The fixed price vs time and materials guide lays out exactly when each model is the honest choice.