First of all, I would advise caution. Given your statements, you may be drawing conclusions without full benefit of all the facts. It's not always possible from those in the studio to fully know where, and when, principals spend time working on a specific project. And, sometimes projects of the nature you describe can gestate quite a long time (involving numerous consultations between client and principal outside the office) before they such projects even show up in the studio.

I applaud your seemingly high ethical standards. However, you might want to give your principal, and your firm, the benefit of the doubt until you are in a position to know all of the facts. To start throwing around accusations -- especially when you don't have specific project management responsibility -- easily could lead you somewhere you don't really want to be.

First, don't jump to conclusions. Principals often spend many hours that are completely LOST or unbillable catering to clients. Further, employers commonly keep certain information private - such as billing rates. They do it for good reason.

I would highly recommend that you don't address it, unless you have some solid claim and know what you're talking about.  Don't just randomly accuse a professional (your boss) of being unethical! Aside from that, penny-pinching clients are the norm. They beat-down fees on the front end, then try to stiff you on the back end. I respect the fact that you're looking out for the client's interests, but you better know the full story before you go screw yourself.

My recommendation would be to get some billing software that allows PM's and average employees the ability to track a project.

I'm confused - how do the principal's hours affect you and your team's projected hours?

In order to avoid funding a legitimate 'add service' on a specific project that might have a budget problem, it's a fairly common thing in commercial work for a client to tell a design firm that "we'll just make it up to you on our next project together."  

What you describe easily could fall into that category and could be happening with the full knowledge and agreement of the client.

Thanks for the responses.  Perhaps a little bit more background is in order.  The client is a personal acquaintance of mine and has come into the office because our prior working relationship.  I am the primary contact and project manager, responsible for the project comming in under the maximum hourly fee.  We have had 2 meetings and have only produced a sketch diagram.  Our billing software indicates that the principal has put approximately 25% of the effort into the 2 meetings (principal was out of the office both times) and the single skecth provided to the client (drawn by myself).  The problem is that the client will be questioning the invoice.  I can understand a few hours at the principal rate, but 25% at this point, when we have basically produced very little?  The project was not brought in by said principal, client does not need catered too, the project is capped at a maximum fee (so principal time really destroys the available hours).  "We'll just make it up to you" is not part of the bargin, and now the project is over budget and the partner principal is questioning my "allocation of available resources."  So it sounds like I am screwed three ways: by destroying relationship with client, by principal placing unworked hours on project, and my managing principal/partner who is questioning the work produced on the project.

You have responsibility to the client and the firm. First thing to do is go to the principal and lay out your concerns.

If played properly, you are concerned about the firm's future with the client / project.

The feedback you get will give you a better understanding of the situation. It is useless to speculate as to what that will be, but based up the result, options for your next course of action will become clear.

now the project is over budget and the partner principal is questioning my "allocation of available resources."

is your office top-heavy?  and can't the managing partner see that this principal just billed out 1/4 the project's budget?  something's fishy here...

I would bring it up with the principal, but in a way that sounds like you are trying to keep your eyes on the end goal, not in a way that sounds like you're accusing him of fraud. Something like, "hey, I just wanted to talk about the billings on this project because I'm trying to make sure we stay on/under budget on it. Is there a way that I could see weekly reports on the hours being billed to it, so that I can better allocate resources, or know in advance when it's time to put the pencils down? I was just surprised to see that you were putting so many hours into it and don't want to be surprised that we've gone overbudget because I wasn't on top of the hours." That way it's about you learning and growing as a project manager, not about you jumping to conclusions.

Thanks for all the great insights, I will report on how things develop.  My intentions are that we are producing value to the client with the best interest of the (top-heavy) firm in mind.  At this point it is up to the client, and in with the big picture in mind, they might not even care (but that still dosen't make it right).  Much appreciation to all! 

After looking into the hours available it appears that the principal has billed time that they have not spent on the project.  This seems really unethical. 

General office duties can easily make up that time. Even waiting for someone to approve an invoice is billable. If the client has a big issue with it, get a administrative assistant, marketing rep or even a CAD technician to start managing the project. Technically, reading on the job is classified as work as long as it pertains to your work (Archinect time is, actually, billable!).

And, if your company wrote up a contract or has policies posted online, it's not uncommon for some companies to "round up" to the next hour. One of the companies I do bookkeeping for "rounds up" and has informed all of their clients that they do, in fact, round up.

Only 2 out of about 25 regular clients actually cares about the rounding up and 3 have a set-by-corporate price structure based on scope of work. But what this person does for a living is not necessarily cheap with a billing rate at $150 an hour. And this person really, really hates non-even numbers, i.e., $124.38 versus $125.00.