A time and materials (T&M) contract pays the contractor for actual hours worked at agreed billing rates, plus materials and equipment at cost plus a markup. The hourly rates are usually fully loaded: they include wages, labor burden, overhead and profit. Materials might carry a 10% to 20% markup, depending on the agreement.
T&M fits work that can’t be scoped up front: emergency repairs, service work, small tenant changes, investigative demolition. Owners usually limit their risk with a not-to-exceed (NTE) cap. Once costs approach the NTE, the contractor has to stop or get written authorization to continue. On larger jobs, T&M often shows up inside another contract as the pricing method for change work, documented on signed T&M tickets.
Why it matters
The owner carries the cost risk, so T&M lives or dies on documentation. Daily signed tickets, crew lists, material receipts and equipment hours are what get paid. Contractors who bill T&M from memory at month-end get disputes.
Worked example
Illustrative: a 3-day emergency repair uses 48 journeyman hours at a $98/hour billing rate, so $4,704, plus $2,600 of materials marked up 15%, so $2,990, plus $750 of equipment. Total billing is $8,444 against a $10,000 NTE.
Common mistakes
- No signed daily tickets, so the owner disputes hours.
- Running past the NTE without written authorization.
- Billing rates that don’t cover actual burden, so T&M work loses money.
- Mixing T&M work with base contract cost codes.
How os.construction handles it
We’re building T&M tickets captured in the field, signed on site and linked to change events and cost codes, so billing comes from the same record the crew filled out. It’s in development.