Time and Materials(T&M)
A contract type where the government pays for labor at fixed hourly rates and materials at cost, with a ceiling on total obligation.
Overview
A Time and Materials (T&M) contract compensates the contractor based on actual labor hours at specified hourly rates plus the cost of materials. A ceiling price limits the government's total obligation. T&M contracts transfer cost risk to the government because the final price depends on actual hours and materials used. They are used when scope cannot be defined sufficiently for a fixed-price contract.
Why It Matters in GovCon
T&M contracts offer flexibility when requirements are uncertain but carry oversight burden for the government. FAR restricts T&M use — it is appropriate only when no other contract type is suitable. Proposals must include labor categories, hourly rates, and material handling. Contractors must maintain timekeeping and documentation to support billing.
Key Details
- Labor Rates: Each labor category has a fixed hourly rate including burden; no separate fee on labor.
- Materials: Reimbursed at cost; may include a materials handling fee (typically a few percent).
- Ceiling: The contract specifies a ceiling price that cannot be exceeded without modification.
- FAR 16.601: T&M contracts require a ceiling and adequate government surveillance.
- Restrictions: Cannot be used when work can be defined for fixed price; inappropriate for long-term or large acquisitions.
- Audit: Timekeeping and materials documentation are subject to audit.
Related Terms
- Labor Hour (LH) Contract
- Firm Fixed Price (FFP)
- Cost Plus Fixed Fee (CPFF)
- Contract Line Item Number (CLIN)
More Contracts Terms
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