It is a mutually agreed arrangement, where a contractor is paid on the basis of factors like –
• Actual cost of direct labor at hourly rates
• Actual cost of equipment and material usage
• A fixed add-on to include profits and overheads

In project management, a time and material (T&M) contract is a type of agreement between a client and a contractor where the client pays for the contractor’s time and materials based on actual costs incurred during the project, plus a predetermined markup or hourly rate for profit and overhead.

Here are some key characteristics of time and material contracts:

Flexibility: Time and material contracts offer flexibility in terms of project scope and requirements. Changes can be accommodated more easily compared to fixed-price contracts since the client pays for the actual time spent and materials used.
Transparency: These contracts provide transparency as the client can track the progress of the project and see the actual costs incurred for labor and materials.
Risk Sharing: The risk is shared between the client and the contractor. The client bears the risk of project delays or changes in scope, while the contractor is compensated for the actual work done.
Control: Clients have more control over the project since they can directly influence the direction and scope based on ongoing feedback and requirements.
Cost Management: Since costs are based on actual hours worked and materials used, it’s essential for both parties to manage costs effectively to avoid budget overruns.

When answering this question in an interview, it’s important to highlight these key points and emphasize the benefits and challenges associated with time and material contracts, demonstrating an understanding of their role in project management and their suitability for different project scenarios. Additionally, you could provide examples or anecdotes from past projects to illustrate your experience with managing or working under time and material contracts.