What is T&M - How the Cost is Calculated
Biz & Co

What is T&M - How the Cost is Calculated

What is T&M?

You may have come across this question at one point or another when handling projects and contracts. T&M stands for Time and Material, a type of contract that involves two or more parties to agree on fixed unit rates for materials and labor without a preset price for the whole project. This contract is used when both parties are not able to get the accurate estimates of the total cost of the entire project, the total time needed to complete the project or even the changes likely to be made during development or construction.

Components of a Time and Material Contract:

Labor Rate

The Time and Material contract has a fixed rate for all the laborers, including experienced and casual personnel. When using a Time and Material contract on large projects, most contractors offer reduced labor rates to cut down the total project cost.

Material Markups

Time and Material contracts usually include a markup of 16 to 36 percent on the cost of wholesale materials.

Not-to-Exceed

A Time and Material contract includes a limit that represents the highest amount a contractor can charge you. This type of contract clause also helps to increase the efficiency of your contractor since the price is limited, and it won’t be affected by the length of the project and the costs of the materials.

Maximum Labor Hours

Just like the not-to-exceed condition, Time and Material contracts have a maximum number of hours laborers can work. If the contractor decides to exceed the stated amount of hours, all the additional hour’s won’t be covered by the client. This helps in preventing low-efficiency contractors who want more money for working overtime, an issue that had started being common with Time and Material contracts.

Benefits of a T&M Contract

Flexibility

This is the number one benefit of using a Time and Material contract for development. This type of contract allows a client to postpone some features that he feels are avoidable. In most cases, the final product ends up looking better than the initial design.

Engagement

With a T&M contract, both parties are focused on the result. This type of contract will not only keep the budget tight but also allow you to adjust it based on your specifications. You can frequently discuss the changes with your contractor whenever you feel it’s necessary. This will help you in determining development priorities in your project based on the cost estimates.

Transparency

Your contractor won't bill you for the time he’s not working on your project. You’ll have full access and control over your expenses, and you’ll also have the freedom to decide where to focus. With a fixed price contract, you won’t know the amount of time taken to complete a particular project.

Urgency

If you need to start on a project right away and you don’t have the required amount of money to complete the project, then the Time and Material contract would best work for you. You develop your project bit by bit instead of taking huge loans to service a full contract.

To Summarize

You should now be aware of what is T&M, and how you can use this type of contract. Before using this contract, you should weigh the costs of using it and your requirements. T&M contracts work well if you plan to be making changes throughout the project, as you are charged based on materials, and the project time frame.