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?
i write to add to this “contractor, power: letter .david wrote.
i have a good friend, in the same deal , he did the job, supply all the tools, back hoe, bulldozer etc,plus work force. time to pay up.
” i dont think were going to pay that invoice, its too high”
he didnt have a contract , he tells me he didnt need one, it was all done over the phone, “go ahead. do what you have to .send me the bill”
then nothing , he filed a lien, but this guy is step stepping him,
his lawer said it could be a while before it even comes to court !!
my way of thinking, is can we afford to do,buiness, with some people, that behave like this ? i think , i know the answer to that question,
here my train of thought, perhaps, like a pernup, they can sign o n the dotted line, that they cant , pay a cash bond,and get away with stuff like this ? if you dont intent to play by our rules, then dont play at all…
We only work as a sub-contractor on a T & M basis when work is to be performed where the conditions are unknown. Such as; the condition of a structural slab and/or waterproofing membrane under tile in a busy commercial kitchen.
Otherwise, we only use T & M contracts with our longstanding customers who have a history of prompt pay.
I enjoyed taking a class from Michael in 2003 and totally agreed with the NO TIME & MATERIAL philosophy. At the same time I also feel that sometimes it is hard to pass up certain projects knowing that yourself or crew will be making a good profit.I wanted to shed light to a different approach on new or existing customers. First if someone is comfortable from buying service from you and you are ready to move forward payment can still be taking upfront for time and material work. It is important that you state this from the beginning that this is an ESTIMATED cost and not a hard number. You will take draws on your work just as if this was a regular contract depending on the project it could be daily or weekly or whatever duration maybe. If it is labor surely you have some idea how long the project may take you so you use that to your advantage and come close to a figure and base your draws from there and if there be a credit at the end and return funds WOW what customer would not appreciate that.If the client/customer wants to work with you and it is written from the beginning that the payment will be expected at this point with a downpayment upon signature time and material can be great!!! Sometimes we have to be the smarter one and walk away but not from all of them…..never wait until the end to get paid for anything in this world…
John – Mike – Gabriel
Good points, all. Thank you.
For all our readers, remember this. The big problem with virtually all Cost Plus jobs and most of the T & M jobs that I see is that the home or building owner runs out of money somewhere between 70% and 90% of the way to job completion and finally figure out they don’t have the money to finish the job. Guess who’s fault that becomes?
Customers have this uncanny ability to rationalize their lack of planning into the contractor “Overcharging” for the job being done. I see this weekly if not daily. Same song, different verse.
Michael