Time and Materials
A billing structure where the contractor is paid hourly labor billing rates plus material cost with markup, with no fixed total.
Definition
Time and materials (T&M) is a billing structure where the contractor charges the owner an hourly labor billing rate for every hour worked plus the cost of materials with a markup. There is no lump-sum total — the bill grows with the actual hours and materials consumed.
T&M is the simplest of all pricing models and the riskiest for the owner if used on large or open-ended scopes. It is most appropriate for small jobs, emergency work, and changes that cannot be priced upfront.
How time and materials is used in estimating
Estimators rarely build a full bid on T&M. Instead, T&M is the fallback pricing for change orders, repairs, service work, and small renovations where the cost of producing a detailed takeoff would exceed the value of the work. The estimator establishes the labor billing rates (which include burden, overhead, and profit) and the material markup percentage, and the contractor invoices weekly or biweekly against time sheets and material receipts.
On larger T&M jobs, the contractor is expected to provide a not-to-exceed (NTE) cap or rolling cost reports so the owner can manage budget. Without those controls, T&M scope can quickly run over what the same work would have cost on a lump-sum or cost-plus basis. Time tracking discipline and clean material documentation are essential to avoid invoicing disputes.
When to use time and materials
Use T&M for emergency repairs, service calls, small change orders inside a larger contract, and exploratory demolition where the scope cannot be predicted. Avoid T&M on whole projects unless paired with a not-to-exceed cap. The owner has limited cost control on pure T&M, and the contractor has limited incentive to be productive once the meter is running.
Frequently asked questions
Q.What is included in a T&M billing rate?
A loaded labor billing rate includes the worker’s wage, payroll burden (taxes, insurance, fringe benefits), small tools, supervision, overhead, and profit. A field laborer with a $32/hr wage might bill at $75/hr fully loaded.
Q.What markup is typical on T&M materials?
Material markup on T&M work commonly runs 10 to 25 percent, depending on the trade and the contract. Specialty materials with handling complexity may carry higher markup.
Q.Do T&M contracts have a not-to-exceed cap?
They often do. A T&M not-to-exceed (NTE) clause caps the total cost the owner will pay regardless of hours and materials. Beyond the NTE, the contractor needs written authorization to continue.
Q.How is T&M different from cost plus?
T&M uses a fixed billing rate per labor hour and a fixed material markup. Cost plus reimburses actual cost (with documented invoices and time sheets) and adds a separate fee. Cost plus is typically more transparent on large jobs.
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