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What is Time and Material Contract in Project Management

October 22, 2020

When it comes to construction, it’s important to have a labor manager to help you organize the project. Managing all the labor can be very challenging.

One of the most common such instruments is the time and material contract. So, what is time and material contract in project management?

What is Time and Material Contract in Project Management

For those that are managing a construction project you may have come across T&M contracts. In this article, we’ll discuss time and material contracts and how they operate. We’ll also highlight some benefits of this type of contract.

A Time and Material Contract is a type of contract where the client agrees to pay the contractor based on the materials used, time spent on the project as well as a profit or markup. It’s also often referred to as a cost-plus contract.

This differs from the fixed price contract where the client commits to pay the contractor a fixed sum for completing the contract regardless of the amount of materials, labor and so on used. Time and Material contracts are primarily used where it’s difficult to accurately describe the extent of works required, or where requirements and specifications are likely to change over the project’s lifetime.

Items Included in a Time and Material Contract

Labor rates: this refers to the amount to be charged for the workforce. It may also include taxes, insurance and so on.

Material mark-up: it’s unusual for the contractor to charge the client the retail price for materials and then add a markup if they already have a pre-agreed wholesale price with the supplier.

Not-to-exceed: this is a maximum guaranteed price which places an upper limit on what the contractor can charge the client.

Advantages of a Time and Material Contract

There are several benefits to having time and material contracts. Read below for some advantages: 

What is Time and Material Contract in Project Management
What is Time and Material Contract in Project Management
  • It provides the client with transparency, which gives them the freedom to verify timesheets and invoices to ensure costs are correct.
  • It allows for greater flexibility 
  • Although there is a general limit on the profit, a contractor can proceed with a project with the confidence that they’re going to recover their expenses with some profit. This helps to avoid cost-cutting.
  • It saves time in the initial budgeting and estimation process which can be done later on in the project albeit with a much higher level of accuracy and detail
  • It allows for work to progress even if there’s no concrete plan on how the project will be completed

T&M Management

With the tips mentioned, you can now answer the question: what is Time and Material Contract in project management. These types of contracts make the most sense for jobs where it might be difficult to predict how much time and material will be required to complete the whole project or where the scope of work might change. Time and materials contracts can help to simplify the paperwork on the front end, but they also require much more work on the back end. For information about what T&M is and how it can benefit you, contact our experts at DataStreet for follow-up info.

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