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Last edited 28 Oct 2020
Time and material contract (T&M)
In the United States, a time and material contract (T&M) is a type of construction contract that commits the client to pay the contractor based upon the time spent on the works, the materials used, as well as a mark-up for profit. In the UK, this type of contract is known as a cost reimbursable contract or cost plus.
This differs from a fixed price contract which commits the client to pay the contractor a lump sum fee for fulfilling the contract regardless of the amount on labour, materials, and so on used. A T&M contract is typically used on projects where it is difficult to describe the extent of the works required accurately, or where specifications and requirements are likely to change as the project progresses.
The main items that can be included in a T&M contract are:
- Labour rates: The amount that will be charged for the workforce, which may also include insurance, taxes, and so on.
- Material mark-up: It is usual for the client to be charged the retail price for materials and for a mark-up to be added by the contractor if they have a pre-agreed wholesale price with the supplier.
- Not-to-exceed: A guaranteed maximum price which places an upper limit on what the client can be charged by the contractor.
The advantages of using a T&M contract include:
- It provides the client with cost transparency and allows them to verify invoices and timesheets to ensure the costs are correct.
- It allows for greater flexibility in the extent of the works required.
- It allows works to progress even when there is no definitive plan for how it will be completed.
- It saves time in the initial estimating process which otherwise has to be done to a much higher level of detail and accuracy.
- Although there is generally a limit on their profit, the contractor can proceed knowing they are going to recover expenses with some profit, and so they can avoiding cost-cutting.
The disadvantages of using a T&M contract include:
- It can prove more risky for the client to proceed without a clear understanding of the final cost.
- It can increase the likelihood of disputes arising.
- Errors or inaccurate estimates can leave them with a low profit that may not be deemed worthwhile.
- It can necessitate more involvement from the client to ensure the contractor is motivated to progressing the works on time and within budget.
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