Time and Materials (T&M) Contract

A Time and Materials (T&M) contract is a type of government contract where the contractor is paid for actual labor hours worked at specified hourly rates, plus the cost of materials. This contract type is often used when the scope of work cannot be clearly defined at the time of award.

What is a Time and Materials Contract

The definition of a time and materials contract is straightforward: the government agrees to pay for the contractor’s time (labor hours at set rates) and for materials (at cost, sometimes with an added fee). T&M contracts balance flexibility with oversight, making them suitable for projects with uncertain requirements.

A time and material contract differs from fixed-price arrangements because payment is tied to hours worked and materials used, not a predetermined total price.

Time and Materials Contract Example

A typical time and materials contract example might involve IT support services. The contractor provides technicians at agreed hourly rates and bills the government for hardware or software purchased to complete the job. If the project requires more hours than expected, the government pays for the additional time and materials.

This flexibility makes T&M contracts useful for unpredictable or evolving projects, but it also increases cost risk for the government.

Time and Materials Contract Template and Sample

A time and materials contract template usually includes:

• Labor categories and fully burdened hourly rates

• Provisions for material costs, including allowable markups

• Billing and invoicing requirements

• A ceiling price (the maximum amount the government will pay without modification)
  
  

A sample time and materials contract will also include terms required by the Federal Acquisition Regulation (FAR), such as clauses on payment, records retention, and government oversight.

Time and Materials vs Fixed Price Contracts

In a fixed-price contract, the contractor is paid a set amount regardless of actual time and material costs. This shifts performance risk to the contractor.

In a T&M contract, the risk shifts to the government, since it must pay for all actual hours and materials. Contractors benefit from flexibility, while agencies gain adaptability for uncertain or evolving requirements.

Fixed Price Contract vs Time and Material comparison:

• Fixed Price: Predictable costs, higher contractor risk, less flexibility

• Time and Materials: Flexible scope, higher government risk, useful when requirements are unclear
  
  

Time and Materials vs Cost Plus

T&M contracts are sometimes compared to cost-plus contracts. The difference is that cost-plus contracts reimburse actual costs plus a fee or incentive, while T&M contracts use pre-negotiated hourly labor rates and direct material costs. T&M offers more cost predictability than cost-plus but less than fixed-price.

Advantages and Disadvantages of Time and Materials Contracts

Advantages:

• Flexibility when scope is unclear

• Faster to award than more complex contract types

• Easy to adjust as requirements evolve
  
  

Disadvantages:

• Greater cost risk for the government

• Requires close monitoring of labor hours and material use

• Can lead to inefficiency if not managed properly
  
  

Final Thoughts

Understanding key government contracting terms is critical for success in the federal marketplace. From contract types like Time and Materials (T&M) and Cost-Plus-Incentive-Fee (CPIF), to roles such as Contracting Officers, Proposal Managers, and Subject Matter Experts, each definition shapes how contractors engage with agencies and compete for opportunities.