(Newswire.net — November 29, 2018) — Will you be working on an upcoming construction project, and need to know what is T&M? Time and Material (T&M) is a type of contract used by contractors. As opposed to fixed contracts, this type of contract pays the contractor or contracting company for the materials used and the time spent on the job. Time and material contract is convenient when there are uncertainties of the price of the materials and the time that the contract will take in some cases. It can be tricky for the customer as it is not usually certain how much money will be spent on the project and there can be no prior financial planning.
What the Contract Includes
The contract includes an hourly rate charged by the contractor and the material markups although not every contractor will charge material markups. Markups essentially cover the costs like transport for the purchase of the materials, although a customer can come into agreement with the contractor not to include this when charging for the materials. You are likely to encounter markups when dealing with mechanics where they might charge you some extra dollars for buying the materials for you.
What is T&M?
Customers and contractors can add terms to their contracts to prevent the contractors from taking advantage of this type of contract. The “not to exceed” term will prevent the contractor from spending past a particular amount and also dictate the time that the contractor should take to complete the project. The customer, therefore, has some amount of control depending on the agreement that they come on with the contractor. Also, the contractor and the customer can negotiate on the labor rate, and the contractor does not wholly make this decision. The labor rate will be a fixed rate for all labor including personnel and administrative duties. When working on large or long-term projects, contractors may decide to offer discounts.
Maximum labor hours are another consideration when selecting this type of contract. The contractor and the customer can also negotiate on the maximum number of hours that should be utilized in a day when working. Once this type of agreement is in place, then the contracting company goes beyond the agreed hour — this essential aids in preventing lower efficiency which in turn equals to more money which is common when it comes to this type of contract.
Drawbacks
There are a couple drawbacks in case you settle on this type of contract as opposed to the fixed contract. The drawbacks include:
- There is great uncertainty on the amount to be spent, and this could mean more money from the client.
- The projects may take longer since the working hours are limited, and this implies that the contractors will get less pay as there is reduced business.
Bottom line
So, what is T&M? Time and material contracts are gaining a lot of attention nowadays, and they can be preferred over fixed contracts for certain projects. However, when settling on this type of contract, whether a contracting company or as a customer, then you have to ensure that you employ exemplary negotiation skills and none of the parties enters into it half-heartedly.