« Lean Project Management | Main | What Constitutes a "Real Scheduler"? »

Time and Material (T & M) Contracts

February 20, 2008  |  from Markup and Profit Blog

I have read several posts on forums lately from contractors asking for help on how to write a T & M (time and materials) contract.

If you know anything about me, you know what I think about T&M contracts. Just say no.

The first reason on my “Don’t Do Them” list is that there isn’t any agreement on their definition. Think about it. If you need help writing the contract, doesn’t that mean you don’t know how to define it? I am not being mean and nasty, this is a reality check.

There is a direct correlation between your knowledge of the legal documents and language needed to conduct business and the amount of problems that show up on your jobs. If you don’t know the whys and why nots of a contract, how will you know if you are protected against shenanigans that owners try to pull on contractors during the course of a job? Ever hear this one: “There will be no more money until . . . “?

Here is a basic guideline to follow on T&M contracts: Limit any T&M contract to service work, not to exceed roughly $2,500. There are a few exceptions to that rule, but not many.

If I were to be blunt, I would say that writing a T&M contract is indicative of either a lazy estimator or someone that doesn’t know how to do an estimate. Part of learning this business is learning how to develop a solid firm price quotation. If you don’t know how to do one, it is time to start learning. No more stories about being too busy.

Never assume that your good looks, charm, and gift for BS will get you through any given job. 40 years ago, you could do that and probably hold your own. Those days are gone. We spend time every day helping contractors fix the problems they create by writing T & M or Cost Plus contracts. It’s good for our business - but lousy for yours.

If you need another reason, take a look at this article posted by Contractor Power. While this case is being fought in the courts, the sub-contractor is still trying to collect money for a job they did 4-5 years ago. Could your company survive that kind of hit to your cash flow?

Filed: Project-Delivery