Time and material projects are the ones in which the buyer pays contractor based on the work the contractor team does and based on the material resources used. The work is normally not fixed or rigid in scope as its the spirit in time and materials model. Although not a preferred mode of execution for customer as it's normally considered expensive, organization chooses it when the clear scope baseline is difficult to be established due to reasons like lack of expertise on similar projects or technology etc.
We negotiated a model where the T&M had been capped. This implies that our profitability will be impacted if not managed well. However this had more negative impacts on our execution as we discovered.
Our onshore management team, who were incharge of customer communication, always succumbed to unreasonable demands and ended up committing something which was a huge burden on project team. In T&M, you have certain agreed capacity and if a work has so much estimates, it will be executed with constraints in capacity. Having said this, project team will have to communicate the risks and dependencies appropriately and can facilitate things to certain extent. However, the risk of not planning the release date inline with available capacity owned by outsourcing organization.
There were certain agreed assumptions and dependencies based on which the estimates were arrived at. However, if these assumptions and dependencies fail, capacity constraints should be addressed during execution. This extra cost should be validated and risk owned by parent organization. Some how our communication team was very reluctant to ask for additional budget and this hit the project profitability hard.
T&M is about constant interactions, expectation setting and negotiation. Its a pity that its taken for granted by all parties at times. More pathetic is the scenario if you end up executing it like fixed price project and end up screwing your profitability and peace of mind.