T&M
A time and materials contract bills for hours actually worked rather than for a fixed scope at a fixed price.
You agree an hourly or daily rate and a cadence of reporting, then pay for what is delivered. Because scope is not frozen, priorities can change between sprints without renegotiating a contract. The trade-off is that the total is not known in advance, which is why caps and milestone reviews matter.
When it fits
When it does not
What it costs
Usually cheaper overall than fixed price, because fixed-price quotes include a risk premium for the unknowns.
A monthly cap, a weekly demo, and a written change log. Those three controls remove most of the risk people associate with T&M.
Fixed price transfers risk to the vendor and you pay for that transfer. T&M is cheaper when both sides are honest and reviewed regularly.
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