Contract types and vehicles
What is a time-and-materials contract?
Time-and-Materials contract (T&M)
A time-and-materials contract buys labour at fixed hourly rates that include overhead and profit, plus materials at cost, and the FAR treats it as the least preferred type because it gives the contractor no incentive to control hours.
Also written as: T&M contract, labor hour contract, time and materials meaning.
FAR 16.601 defines it and is unusually blunt about the risk: a T&M contract provides no positive profit incentive to the contractor for cost control or labour efficiency, so appropriate government surveillance of contractor performance is required to give reasonable assurance that efficient methods and effective cost controls are being used.
Because of that, FAR 16.601(d) allows a T&M contract only after the contracting officer executes a determination and findings that no other contract type is suitable, and the contract must include a ceiling price that the contractor exceeds at its own risk.
You will meet T&M most often on repair and maintenance work where the scope genuinely cannot be known until something is opened up. Read the ceiling carefully — work performed above it is unpaid unless the government raises it first.
What this means when you bid
The ceiling price on a T&M contract is a hard stop. Track burn against it and ask for a modification before you cross it, not after.
Time-and-materials compared with the terms it gets confused with
Time-and-materials vs Firm-fixed-price
T&M pays for hours actually worked up to a ceiling; FFP pays a fixed total for the delivered result whatever the hours.
What Firm-fixed-pricemeans →Where this definition comes from
Federal contracting is one of the few fields where the authoritative answer is free, public and one click away. These are the sources this page is built from — go and read them.
- FAR 16.601→
Time-and-materials contracts.
This page explains a term in plain English and cites the authority it comes from. It is not legal advice, and the regulation governs where this page and the regulation differ.
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Time-and-materials— common questions
- What is a time-and-materials contract?
- A time-and-materials contract buys labour at fixed hourly rates that include overhead and profit, plus materials at cost, and the FAR treats it as the least preferred type because it gives the contractor no incentive to control hours.
- What is the difference between Time-and-materials and Firm-fixed-price?
- T&M pays for hours actually worked up to a ceiling; FFP pays a fixed total for the delivered result whatever the hours.
- Why does a time-and-materials contract matter when you are bidding?
- The ceiling price on a T&M contract is a hard stop. Track burn against it and ask for a modification before you cross it, not after.
Related terms
- Firm-fixed-price — Firm-Fixed-Price contract (FFP)
- CPFF — Cost-Plus-Fixed-Fee contract
- Service Contract Act — Service Contract Labor Standards