What are Time and Materials Contracts?
Time and materials contracts (T&M contracts) are a standard method for billing a project according to the actual time contractors and subcontractors spend working and the cost of materials required to execute the project as defined in the scope of the contractual agreement.
Time and materials contracts are a flexible and scalable method of billing a construction project and provide contractors the assurance to know they are being paid accurately for the actual work their project teams are completing. By ensuring that construction projects are billed more accurately, contractors are much more likely to secure higher profit margins and revenues for the jobs they complete.
Time and material contracts may be contrasted with a fixed rate or fixed-price contract in which an owner agrees at the onset of a project to pay a single lump sum for all the construction-related activities tied to the completion of the project.
When negotiating a T&M contract, a construction service provider will provide an employer with a rough project scope for the work according to an hourly wage, daily cost, or weekly fee for the labor and materials needed to execute the project.
Once the work begins, both the owner and contractor will then be incentivized to complete due diligence to ensure the work is proceeding as planned and costs are not escalating out of control for reasons not accurately defined in the initial project scope and grounds outlined in the contractual agreement.
Adopting a time and materials contract for a construction project is a popular choice for construction contractors and service providers seeking to complete projects that will take months or years and which are likely to feature an evolving scope of work.
A time and materials contract ensures work is completed at a fixed hourly rate not to exceed conditions at a set ceiling price as defined by the project requirements. Additionally, it ensures that all materials purchased by a contractor costs are reimbursed in the final price paid.