• Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Jobsite

  • Business
  • Real Estate
  • Safety
  • Technology
  • World
    • Australia
    • Canada
    • United States
  • More
    • Cover Stories
    • Slideshows
    • Weekly Grind

Time and Materials Contracts in Construction: Three Useful Tips and Templates

June 16, 2020 by Procore Editorial Staff

According to the American Institute of Architects, the purpose of a construction contract is threefold:

  • Define the responsibilities of all stakeholders
  • Assign legal and financial liability to each stakeholder
  • Establish project goals that serve as a foundational document for all preconstruction, construction, and post construction  planning and collaboration. 

Time and materials (T&M) contracts are used in construction when the project’s scope isn’t predetermined, making it difficult to agree on a fixed price and timeline for the contract. Instead, time and materials contracts allow for the flexibility of an “as-we-go” agreement. 

Like all other contracts, there are positives and negatives. Let’s dive in.

Parts of a Time and Materials Contract

Unlike fixed-rate construction contracts where contractors get paid in predetermined installments based on the percentage of work completed, working on a time and materials basis allows for contractors to get paid for actual labor hours and materials or equipment used.

Tip #1: To maintain control over profits, contractors should negotiate the following terms before signing a T&M contract. 

Rate of Labor

Rate of labor refers to an agreed-upon fixed hourly billing rate for the work of project, field, and office administrative staff. On fixed-rate contracts this is often built into the project overhead or general conditions costs, however, the time and materials basis typically dictates sticking to “list price.”

Maximum Labor Hours

To incentivize efficient construction, maximum labor hours are established in the T&M contract before work begins. This allows the contractor to estimate the hours needed to complete the project based on past productivity data and build efficiently on that schedule. If the subcontractor exceeds that number of hours, the owner or prime contract holder does not have to pay for the excess amount of labor.

Predetermined Mark-up on Materials

The industry-standard markup for time and materials contracts ranges between 15% and 35%. That means, if a subcontractor paid $1,000 to their vendor for lumber, the price for materials billed to the project budget could range between $1,150 and $1,350. Negotiate with your contractor and owner to agree upon a rate that best reflects the scope of work completed. 

Not-to-exceed Cap

In lieu of a fixed-price contract, T&M tickets often come with the caveat of a not-to-exceed amount. This is similar to the maximum labor hours rule, where the contractor agrees to bill for labor and materials only up to a certain maximum. Once that maximum is reached, the contractor resumes responsibility for those costs which further incentivizes efficient work that sticks to the schedule and budget.

Why a Time and Materials Contract is Advantageous

On projects with moving goal posts like increased scope, lengthened timelines,  and design revisions—unit-based contracts provide flexibility for both the owner and contractor. Especially in environments where change management is processed manually and can take several days to complete, time and materials contracts can keep projects moving without forcing subcontractors to proceed at the risk of not getting paid for work performed. 

Disadvantages of Billing On a Time and Materials Basis

Time and materials contracts are born out of an inability to predict future needs, and thus, are more difficult to plan for. This can create a working environment where contractors have little control over job costs and scheduling availability. 

Tip #2: There are plenty of jobsite horror stories where paper-based time and materials contracts are agreed-upon in the moment while on site in order to keep work moving. If lost or unsigned, there is no paper trail for contractors to support invoiced amounts. Digital change management solutions can help avoid the risk of paperwork falling through the cracks.

If you’re looking for a reliable time and materials solution, Procore’s Time and Materials Tickets tool allows self-performing contractors to consolidate this fragmented process into a seamless, field-to-office workflow—providing insight into any change from the field.

Time and Materials Contract Example Templates

Tip #3: Time and materials contract example templates can be a good starting point. However, no two projects are the same and your contracts should reflect that. 

To protect yourself from the risk of payment disputes, always consult your estimators and legal team before signing a time and materials agreement. 

If you’re looking for reliable time and materials contract templates to start with, Procore’s lien waivers and notices integration partner, Levelset, offers a template. Alternatively, the AIA has contract document families to choose from. 

Billing On a T&M Basis

There is a tough balancing act between the flexibility that time and materials contracts provide and the lack of foresight inherent in the process. However, if managed properly with digital construction project management software, any time and materials contract can be adapted to fit the needs of the construction project and protect all stakeholders involved.

If you want to learn more about Procore’s T&M Tickets tool, check out this page:

Time & Materials Tickets

Categories: Business, Featured, United States, World Tags: Business Plan

Procore Editorial Staff

Procore Technologies is a leading construction management software built to help you finish quality projects—safely, on time, and within budget.

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Featured

Owners: Answer These 3 Key Questions to Maximize the ROI from your Construction Platform

Construction Safety is More than Just Checklists, Companies Need a Strong Safety Culture

Information Delays Between You And The Field Could Be Hurting Your Projects

Beat Communication Chaos by Empowering the Field with the Right Information at the Right Time

How to Manage Change and Keep Your Projects Moving

Subscribe to Jobsite

Footer

Jobsite Favicon

Jobsite News

  • Business
  • Real Estate
  • Safety
  • Technology

World

  • Australia
  • Canada
  • United States

Resources

  • eBooks
  • Partners
  • Webinars

Education

  • Building Inclusion
  • Certification
  • Continuing Education
  • Safety Qualified

Procore

  • Procore Platform
  • Groundbreak
  • Procore Blog
  • Procore.org

© 2022 Procore Technologies, Inc. Privacy Notice Terms of Service