(Newswire.net — November 25, 2019) — Cost plus vs. time and materials contracts… What are their benefits? You might have surely heard about these types of contracts whenever you prepare the labour management in your construction project, and that’s because these are two of the many different types of construction contracts through which how can employers control labor costs. The T&M contracts come with plenty of benefits, as long as the client knows how to use a series of construction management tips and tricks that will allow him to fully enjoy the perks of these contracts. What is a T&M contract exactly, though? If you’re unfamiliar with the specific characteristics of this type of contract, don’t worry – we’ve got you covered.
Cost Plus vs. Time and Materials Contracts
This article will explain what is a T&M contract and what is a Cost-Plus contract, and the benefits of each. Hopefully, understanding the differences between Cost Plus vs. Time and Materials Contracts and how they can benefit you will help you decide which is best for learning how to manage your project.
What Is a T&M Contract and a Cost-Plus Contract?
What’s T&M? A T&M construction contract commits the client to pay the contractor according to the time, materials and mark-up for profit they spend on the actual project. Unlike fixed contracts, in which the client has to pay the whole sum in advance, T&M contracts are preferred in projects where it’s hard to determine how long and how much material will be spent on the labor, so nothing is paid until the project is completely done.
A Cost-Plus contract, on the other hand, is a fixed contract where the client agrees to cover the project’s total expenses, including labor, materials, and other additional costs. Basically, if a service provider will be completely accountable for completing the project within the agreed sum set in advance (it’s called “plus” because of the fixed fee agreed at the beginning), these contracts are a great option, especially when the rates are highly predictable.
Benefits of T&M Contracts
T&M provides cost transparency that allows clients to monitor budget closely, and flexibility and a smoother workflow during the construction process for the contractor. These are a few of the advantages of time and material contracts.
One thing that sets these contracts apart from Cost-Plus contracts is that they cut time to the estimation processes, as clients don’t have to put extra attention to detail and accuracy on the costs, and get things going if you wholly trust your contractor.
Benefits of Cost-Plus Contracts
Cost-Plus contracts are really budget friendly for a contractor, as most of the budget decisions will be taken by the client, and thus, from his or her wallet.
Cost-Plus contracts are ideal for those who can’t put up together a budget estimation for a specific project, especially because costs are reimbursed as the job progresses; that means that a contractor won’t have to worry about an inaccurate estimation, as it is already built-in. Finally, the major benefit of every fixed contract is that they can be used to put a limit on the amount of money that a contractor can/will spend on a given project. This is particularly helpful for those clients who have a keen eye in maintaining a tight budget.
Summary
What are time and material contracts?
A Time and Materials (T&M) contract is an arrangement under which a contractor is paid on the basis of the final expenses used on a specific project. Nothing concrete is paid until the end, although contractors will receive profits and support along the way.
What are the types of contract?
Aside of the T&M and Cost-Plus contracts, other different types of construction contracts you need to know of the Unit Pricing Contracts, Bilateral Contracts, Unilateral Contract, Implied Contracts, Express Contracts, etcetera.
Bottom Line
As you can see, more than a Cost Plus vs. Time and Materials Contracts fight, it’s about which contract type suits best your project’s needs. Now that you know what is T&M and Cost-Plus, you can see that there are different types of construction contracts to handle the budget and labour management in construction work. But, how can employers control labor costs through contracts? Simply by reaching a firm agreement with the contractor and weighing the pros (and cons) of each contract in the project’s development, alongside other construction management tips and tricks to be an effective construction project manager. This is why the first thing you have to do before signing anything is finding a reliable contractor – only then you’ll rest assured that your money is going where it should go to.