What is a Time & Materials contract? #
Among the many types of construction contracts, Time & Materials (T&M) stands as one of the most commonly used in the construction industry. Under a Time & Materials contract, a subcontractor will be paid for the hours worked and materials used to complete a project. The main differentiator of this type of contract is that it does not specify a fixed price; instead, a rate will be negotiated for hourly labor costs and the cost of direct materials. Since there is no fixed hourly rate, time & materials contracts are commonly used for construction projects with a high degree of uncertainty, such as an unknown project scope or timelines that are impossible to specify.
Typically these contracts will specify an hourly rate (or rates) for the time, plus a standard markup for the cost of materials. A contractor may also provide an estimate of the time and materials the job will require. If you’re the client, just be aware that you will be billed based on the actual time/materials, and the estimate is (in this case) just that: an estimate!
Also known as: Time and Materials, T&M, T+M, Cost plus
How T&M contracts work? #
Awesome Carpentry offers to install a new set of cabinets for Mr. and Mrs. Smith on a time and materials basis. They will charge $50/hr for their foreman’s hourly wage, $40/hr for their tradesman’s time, and a 10% markup on any purchases made to account for materials markups.
They estimate that the total cost of the job will be $3,200.
Awesome Carpentry ends up using 8 hours of foreman time, 8 hours of tradesman time, and spent $2,000 on materials. Their final bill comes out to $400 + $320 + $2,200 = $2,920.
Note that their earlier estimate of $3,200 has no bearing on the invoice; for Time and Materials jobs you only bill for time actually spent and materials actually purchased.
Note also that many clients prefer fixed-price contract to Time & Materials, since there is always a risk with Time & Materials contracts that the final cost of the project could significantly exceed the original estimate! From a project management perspective, this is crucial to understand as it relates to how you approach the scope of the project, milestones, and workflow of the entire project.
Pros and cons of T&M contracts #
Pros:
- Great for an undefined scope of work
- Benefits jobs with fluctuating material prices
- Doesn’t require extensive estimating upfront
- Invoicing can be done quickly
- Can account for fluctuating material prices
Cons:
- Cost can significantly exceed the original estimate
- Lower control of job profitability
- Requires extensive tracking
- No incentive to finish the project early
- No incentive to keep actual costs under a strict budget
Time & Materials in Knowify #
Knowify offers comprehensive Time & Materials contract management, and can help to automate monthly billing by automatically pulling labor rates and labor hours, and materials purchased into the invoice at their specified rates and markups. If you do a lot of Time & Materials work, Knowify can save you hours of time on your billing each and every month.
See how it works:
