What Does a Good Time and Materials Contract Template Look Like?
When the details of a construction project aren’t predetermined, it can be difficult to agree on a fixed price and the contract’s timeline. Whether you’re the employer or the contractor, you should rely on a type of agreement that provides more flexibility and avoids limitations.
This article will take you through the basics, present pros and cons, and show you what a time and materials contract template needs to contain.
What Is a Time and Materials Contract?
When a client and contractor sign a time and materials contract, they agree upon preset rates for labor and materials without determining the rate for construction. Under the time and materials contract, the client has to reimburse the constructors for the total cost of materials they used and the time they spent working on the project—hourly rates and the type of materials for reimbursement should be defined beforehand.
Using a time and materials contract—instead of other types of construction contracts—is recommended when:
- The total cost of the project is impossible to estimate
- The schedule and timeline can’t be predetermined
- The changes are expected during the construction
While a time and materials contract is usually the riskiest option for the client, it serves as the best option for the contractor because there are no imposed limits on the cost or duration of the project.
Pros and Cons of Having a Time and Materials Contract as a Contractor
Having a time and materials contract is usually super beneficial for the contractors. Even so, you should familiarize yourself with both the advantages and downsides before you sign it. In the following table, you can find the pros and cons of this construction contract:
Other Types of Construction Contracts
There are several types of construction agreements—besides the time and materials contract—that the client and constructor should explore before deciding on one. Depending on their needs and preferences, they can choose between:
- Unit price contracts—This type of construction contracts is optimal for projects that need to be divided into small units because they are too long and material-dependent
- Cost-plus contracts—They are the most flexible option, but the employer has to cover all the costs
- Fixed price (lump sum) contracts—The compensation for the entire project is determined beforehand, leaving space for little to no risk
- Guaranteed maximum price contracts—They are the most practical option for when the owner can easily predict the outcome of the project and estimate the costs
Provisions That Every Time and Materials Contract Template Should Cover
Negotiating important terms is easier in writing. Before signing a time and materials contract, make sure that it includes the following provisions:
- Labor rate—You should define the hourly billing rates for all employees on the project, from field workers to office administrative staff. For larger projects, contractors often offer discounted rates of labor
- Maximum labor hours—If the contractor exceeds the defined number of maximum labor hours, they cannot require the employer to compensate them
- Material markup—Typical markup for this type of construction contract can vary from 15% to 35% on wholesale material costs. Material markup should reflect the scope of work
- Not-to-exceed cap—This clause refers to the maximum amount that the contractor is allowed to charge. One of the goals of the cap is to increase the efficiency of the contractor
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