What “Time and Materials” Means in Construction Contracts

What “Time and Materials” Means in Construction Contracts

by the team at https://bidaible.com

Construction contracts come in a few standard flavors, and one of the most common—especially when the scope is unclear—is a Time and Materials (T&M) contract.

A T&M contract means the owner pays the contractor for:

• Labor hours actually worked (usually at agreed hourly rates), and

• Materials actually used (typically reimbursed at cost, often with a markup to cover handling, overhead, and risk)

Instead of committing to a single lump-sum price upfront, T&M pricing adjusts as the work evolves. That flexibility is the main reason owners and contractors use it.

Why T&M contracts are used

T&M is often a good fit when it’s hard to define the full scope at the start. Common examples include:

• Renovations and remodels where hidden conditions are likely (opened walls, unknown structural issues, outdated wiring, etc.)

• Repair work

• Early-stage projects where design decisions are still being finalized

• Projects where the owner expects changes during construction

In these cases, a fixed price can force contractors to pad estimates to protect themselves—or it can trigger constant change orders once reality hits. T&M avoids some of that friction by paying for what actually happens.

The tradeoff: flexibility vs. cost control

The risk with T&M is simple: the final price isn’t guaranteed unless the contract includes additional controls. That’s why strong documentation and guardrails matter.

Most T&M contracts define:

• Hourly labor rates (sometimes different rates by role)

• How materials are priced and what markup applies (if any)

• What counts as reimbursable costs (equipment, rentals, permits, subcontractors, mileage, etc.)

• Reporting requirements (daily logs, receipts, timecards, jobsite photos)

• Billing frequency and review/approval process

Many owners also negotiate a Not-to-Exceed (NTE) cap, which limits total spending and prevents runaway costs—while still allowing the contractor to work without constant renegotiation.

Bottom line

A Time and Materials contract is basically “pay for what you actually use.” It can reduce drama on projects where scope is uncertain, but it demands good tracking and clear billing rules. The more ambiguous the scope, the more valuable the flexibility—and the more important the controls.