T&M (Time and Materials)

What is a Time and Materials (T&M) contract?

A Time and Materials contract pays the contractor at fixed hourly labor rates for the hours actually worked, plus the cost of materials used. It is designed for situations where the government cannot estimate the extent or duration of the work with enough confidence to set a fixed price, such as certain repairs, emergent support, or open-ended technical services.

How it works and its risks

The labor rates are negotiated up front and applied to hours as they are incurred, while materials are reimbursed at cost. Because the contractor is paid for time regardless of efficiency, a T&M contract gives the contractor little incentive to control hours, which makes it the government's least preferred arrangement. For that reason, agencies are expected to use it only when no other contract type is suitable, and to keep it under tight surveillance.

Why it matters to contractors

T&M work almost always comes with a not-to-exceed ceiling, and the government watches hours closely, so disciplined timekeeping and clear reporting are essential. The flexibility cuts both ways: you are protected from underbidding an uncertain scope, but you carry the burden of justifying every hour. It is closely related to level-of-effort work.