Redline
Try Redline
Contractor glossary

Time and materials

Updated

Definition

Time and materials (T&M) is a way of pricing work where the customer pays for the actual labor hours at an agreed hourly rate plus the materials used, at an agreed price. It fits work whose size you can't know until you start.

Also called: T&M, Time and material, Hourly billing

How it works

Instead of a fixed price for the task, the customer agrees to two rates before you start:

  • Labor: an hourly rate per tech, and how you count time (in quarter hours, half hours or full hours, and whether drive time and supply runs count).
  • Materials: what you charge for parts and supplies, usually your cost plus a stated markup or your price-list rates.

The invoice then shows hours worked and materials used. The customer carries the risk that the job runs long; you carry the risk that your rate doesn't cover your costs.

When it fits

T&M works for jobs that nobody can size at the door:

  • intermittent electrical faults, leak searches and other troubleshooting
  • opening a wall or a ceiling to find out what's behind it
  • old systems where one repair tends to reveal the next
  • added work discovered mid-job, written up as a change order

For tasks you do often and can time reliably, a fixed price is usually easier to sell. That's flat-rate pricing. Many shops use both: T&M to find the problem, then a flat price for the repair once they know what it is.

Put a cap on it

Customers worry most about an open meter. A not-to-exceed amount fixes that. You agree in writing on a cap, stop when you reach it, explain what you've found and get approval before going further.

Example: A plumber is hunting a slab leak. The agreement is $130 an hour, materials at cost plus 50%, not to exceed $700 without new written approval. The work takes 3.5 hours and $120 of materials: 3.5 × $130 = $455, plus $180 for materials, is $635, under the cap. If it had reached $700, the plumber would have stopped and called. The numbers are made up for illustration.

Rules for home improvement contracts, including what must be in writing, vary by state. Check with your state's contractor licensing board or consumer protection office before you rely on a verbal T&M agreement.

Common mistakes

  • Billing at the wage rate. Your hourly rate has to cover payroll costs, overhead and profit, not just what you pay the tech. How to set your labor rate shows the math.
  • Passing materials through at cost. Ordering, picking up, returning and warrantying parts all take time. Charge for it through a materials markup.
  • Vague time records. Log start and stop times and what was done in each block. Detailed records settle disputes before they start.
  • Rewarding slow work. On T&M, a slower tech bills more hours. Use job costing to compare hours on similar jobs, and move repeat tasks to flat rates once you know their times.

How it connects

T&M is one of three common ways to price work, alongside fixed bids and flat rates. An estimate for T&M work states the rates and the cap rather than a total. Pricing guides for electrical, HVAC and plumbing show where each method fits in those trades.

Go deeper

GuideHow to Handle Change OrdersA contractor's process for change orders: the contract clause, what to say on site, what the form must include, how to price changes and how to bill them.Electrical guideHow to Price Electrical JobsHow to price electrical work: per-device books, service-call fees, capped troubleshooting, panel upgrades, EV chargers and quotes that survive copper swings.HVAC guideHow to Price HVAC JobsHow to price HVAC service calls, replacements and maintenance agreements: flat-rate books, diagnostic fees, Manual J sizing, SEER2 tiers and refrigerant.Plumbing guideHow to Price Plumbing JobsA practical way to price plumbing work: flat-rate books vs hourly, service-call and after-hours fees, parts markup, water heaters and drains.
Flat-rate pricingFlat-rate pricing charges a fixed price for a defined task, no matter how long it takes on the day. The price is built ahead of time from your average time for the task, your cost per billable hour, parts and profit, and kept in a price book.Change orderA change order is a written amendment to your contract that changes the scope of work, the price or the schedule, approved by the customer before the changed work starts. It records what changed, the added cost or credit, the new contract total and any new completion date.MarkupMarkup is the amount you add on top of a cost to arrive at a selling price, expressed as a percentage of that cost. A $100 part sold for $150 carries a 50% markup.EstimateAn estimate is a contractor's expected price for a job, based on the scope as it's understood before work starts. It tells the customer the price could change if the work turns out different, but whether it binds you depends on its wording, the customer's acceptance and your state's law.Job costingJob costing is recording what each job actually cost (materials, labor at its full hourly cost, subcontractors, permits, disposal and return trips) and comparing it with the estimate and the price, so you can see which jobs made money, which didn't and why.OverheadOverhead is the cost of running your business that isn't tied to a specific job: office and dispatch wages, rent, insurance, marketing, software, phones, accounting and similar costs you pay whether or not today's jobs happen. Your prices have to recover it.

See every term in the glossary