Time and Materials (T&M)

What is Time and Materials?

Time and materials (T&M) is a pricing method where clients pay based on the actual time spent on a project (at predetermined hourly or daily rates) plus the cost of materials used. It's one of the most flexible contract types in construction.

T&M contracts are ideal when the scope of work is difficult to define upfront or when projects require ongoing flexibility.

How T&M Pricing Works

The Basic Formula

Total Price = (Labor Hours × Hourly Rate) + (Materials + Markup)

Example Breakdown

• Carpenter: 16 hours × $75/hour = $1,200
• Helper: 16 hours × $45/hour = $720
• Materials: $800 + 20% markup = $960
• Total: $2,880

T&M vs. Fixed Price vs. Cost-Plus

Time and Materials

• Client pays hourly rates plus materials
• Rates typically include overhead and profit
• Most flexible for undefined scope
• Risk shared between contractor and client

Fixed Price

• Client pays set amount regardless of actual costs
• Contractor bears all cost overrun risk
• Best for well-defined scope
• Less flexibility for changes

Cost-Plus

• Client pays actual costs plus percentage or fee
• Contractor's profit tied to total costs
• Maximum transparency required
• Often used for large or complex projects

When to Use T&M

Ideal Situations

Service and Repair Work: Diagnosing problems, emergency repairs, troubleshooting.

Small Projects: Jobs too small for detailed estimating.

Undefined Scope: When you can't know the full scope until you start.

Change-Heavy Projects: Where requirements frequently evolve.

Maintenance Contracts: Ongoing work with variable monthly needs.

Consultation: Design assistance, project planning, inspections.

Less Suitable For

• Large projects with defined scope
• Competitive bid situations
• Budget-constrained clients
• New client relationships without trust

Setting Your Hourly Rates

What to Include in Your Rate

Your hourly rate should cover:

• Base Wages: What you pay the worker
• Burden: Payroll taxes, workers' comp, benefits (typically 25-40% of wages)
• Overhead: Truck, tools, insurance, office costs
• Profit: Your business earnings

Rate Calculation Example

• Technician wage: $30/hour
• Burden (35%): $10.50/hour
• Overhead allocation: $12/hour
• Profit (15%): $7.88/hour
• Billable Rate: $60/hour (rounded)

Common Contractor Rates (2025)

• General Labor: $40-60/hour
• Skilled Trades: $65-95/hour
• Master/Specialist: $95-150/hour
• Owner/Principal: $100-175/hour

Rates vary significantly by region, trade, and market conditions.

Material Markup on T&M Jobs

Standard Practice

Most contractors add 15-30% markup on materials for T&M work to cover:

• Time spent purchasing and hauling
• Storage and handling
• Waste and damage
• Warranty administration

Markup Transparency

Decide whether you'll:

• Disclose markup: "Materials at cost plus 20%"
• Include in rate: Roll material handling into higher hourly rate
• Charge separately: Add material handling fee per trip

T&M Contract Essentials

Every T&M agreement should specify:

Labor Terms

• Hourly rates by worker type/skill level
• Minimum charge (e.g., 2-hour minimum)
• Overtime rates (typically 1.5×)
• Travel time billing policy

Material Terms

• Markup percentage or handling fee
• Who approves material purchases
• Return policy for unused materials

Billing Terms

• How often you'll invoice (weekly is common)
• Payment terms
• Required documentation (time logs, receipts)

Scope Limits

• Maximum hours or dollars without additional approval
• Not-to-exceed ceiling (if applicable)
• What's included and excluded

Tracking Time and Materials

Time Tracking Best Practices

• Log daily: Record hours each day, not from memory later
• Be specific: Note what work was performed each hour
• Use technology: Apps and software beat paper timesheets
• Include travel: Track portal-to-portal if billing for it
• Document delays: Note any client-caused delays

Material Tracking

• Keep all receipts organized by job
• Photograph materials delivered to site
• Document material usage in daily logs
• Return unused materials promptly

Common T&M Mistakes

Not setting minimums: Always have a minimum charge to cover mobilization costs.

Vague time records: "8 hours on-site" doesn't cut it. Detail tasks performed.

Forgetting overhead: Your rate must cover more than just wages.

Scope creep: Even T&M jobs need boundaries. Set maximum hours or dollars.

Poor communication: Update clients on hours and costs regularly.

Converting T&M to Fixed Price

As you build history, you can:

1. Track actual T&M costs on similar jobs
2. Analyze average hours and materials
3. Build estimates based on real data
4. Offer fixed-price options for repeat work types

The Bottom Line

Time and materials contracts offer flexibility and fair compensation for work that's hard to estimate. The keys to success are transparent rates, meticulous time tracking, and regular client communication about costs.

For service contractors and those handling variable scope work, mastering T&M pricing is essential to maintaining profitability while keeping clients satisfied.