A time and materials (T&M) contract pays the contractor for the actual hours worked, at an agreed labour rate, plus the cost of materials used, rather than a fixed price agreed in advance. It suits work where the scope cannot be nailed down before the job starts, such as emergency repairs, refurbishment behind existing walls, or work that depends on what is found once it begins. The trade-off is that the Client carries more cost risk than on a fixed-price contract, since the final bill depends on how long the work actually takes.
Worked example
A client needs emergency repairs to a damaged roof and the scope of hidden damage is not clear until the roof is opened up. The contractor bills three electricians and two roofers at agreed hourly rates, totalling £8,400 in labour over two weeks, plus £3,200 in materials bought as the job progressed. The final cost of £11,600 is only known once the work is done, unlike a Lump Sum Contract where the price is fixed from day one.
T&M in the cost report
On a cost report, a T&M job is tracked differently from a fixed-price one: instead of comparing actual cost to a single contract sum, the Project Manager tracks labour hours and material purchases against an estimated range or a not-to-exceed limit, updating the forecast as the work proceeds. Because there is no fixed contract sum to measure against, cost control depends on accurate timesheets and purchase records rather than a budget-to-actual comparison on one number. Many T&M contracts also add a fixed Markup, commonly a percentage on top of material cost, to cover the contractor's handling and ordering time, and that markup needs tracking separately from the raw material spend.
Related terms
Cost-Plus Contract, Lump Sum Contract, Unit Price Contract, Billable Rates.
FAQs
What are the advantages of a time and materials contract?
T&M contracts give the contractor a faster start, since little time is spent on detailed estimating before work begins, and they suit projects where the scope is genuinely uncertain at the outset.
How can clients avoid cost overruns on a T&M contract?
Many contracts set a not-to-exceed limit, capping the total payable regardless of hours worked, and ask for regular reporting of hours and materials so costs can be reviewed as the job progresses.
Because T&M billing depends on accurate labour hours and material costs, Planyard's Job Costing tracks both against the budget as the work progresses, rather than waiting for month-end reconciliation.