What distinguishes a time and material contract from a fixed-price contract?

A time and material contract is characterized by its flexibility in pricing, which is based on the actual costs incurred during the project. This means that the owner pays for the actual labor hours worked and the materials used, rather than agreeing to a predetermined fixed price for the entire project at the outset. This type of contract is particularly beneficial in situations where the scope of work may not be clearly defined and can change, allowing for adjustments in cost as the work progresses.

In contrast, a fixed-price contract establishes a definitive price for the project before work begins, which does not change regardless of the actual costs of labor or materials. This can lead to risk for contractors if costs exceed the anticipated amounts, as they would not be able to recoup those additional expenses.

The other options do not accurately capture the essence of a time and material contract. A strict timeline for completion can be a component of many contracts but is not a defining characteristic of time and material agreements. Such contracts typically account for all costs, not just labor. Additionally, requiring full payment upfront is not common in time and material contracts, as payments are usually made based on completed work and incurred expenses.