What Is a Time and Materials Contract? A GC's Guide to T&M Done Right

Some jobs can’t be priced up front. The scope is still moving, the walls haven’t been opened yet, or a storm just tore the roof off and the client needs you on site tomorrow.

You can’t control what’s behind the drywall. You can control whether every hour, every receipt, and every equipment charge is documented, signed, and billable.

So, what is a time and materials contract? A time and materials (T&M) contract pays the GC for the actual labor, materials, and equipment used on a job, at agreed rates plus an agreed markup for overhead and profit. Many T&M contracts also include a not-to-exceed (NTE) limit that caps the total cost. For GCs, a T&M contract trades price certainty for flexibility. Getting paid on one comes down to documentation.

Understanding the time and materials contract

How T&M pricing works

A T&M contract sets the rules for billing, not the final price:

• Labor rates: hourly rates by trade or classification, like foreman, carpenter, or laborer.
• Material costs: billed at actual cost, backed by receipts and delivery tickets.
• Equipment rates: hourly or daily rates for owned or rented equipment.
• Markup: an agreed percentage for overhead and profit. It’s often set separately for labor, materials, equipment, and subcontracted work.
• Not-to-exceed limit: an optional cap on total cost, with rules for what happens when you get close to it.

Time and materials vs. fixed price vs. cost plus

T&M and cost plus are close cousins. The difference is usually in the details: T&M bills preset rates for labor and equipment, while cost plus reimburses your actual costs and adds a fee.

When a T&M contract makes sense

• The scope isn’t fully defined. The client is still finalizing design, funding, or approvals, but needs work to start.
• Emergency or rush work. Storm damage, water intrusion, or urgent repairs leave no time for a detailed estimate.
• Renovation with unknown existing conditions. You won’t know what’s behind the walls until demo starts.
• Extra work and change orders. Many GCs see T&M most often on change work, when the client asks you to proceed before a price is agreed.

The need: where T&M contracts go wrong

A T&M contract moves cost risk off your plate. It doesn’t move billing risk. On a lump-sum job, you get paid for the scope. On a T&M job, you only get paid for what you can prove.

That matters when disputes happen. Arcadis’ 2025 Global Construction Disputes Report found the average U.S. construction dispute is worth $60.1 million and takes about 12.5 months to resolve in North America. Arcadis also named failing to understand or follow contract obligations as one of the most common causes.

Here’s how that plays out on T&M work:

Unsigned T&M tickets
The foreman fills out a ticket, but nobody from the client signs it. Three weeks later, the client disputes the hours.

Missing receipts and delivery tickets
A material charge without backup is a charge the client can reject.

Blowing through the not-to-exceed limit
If nobody tracks billed-to-date against the NTE, you find out you’ve gone over after the work is done. Depending on your contract, that work may be at your risk unless the client approved the increase first.

Markup disputes
If the contract doesn’t spell out markups for subcontracted work or equipment, expect an argument when the first invoice goes out.

Scope that quietly grows
T&M work that isn’t tied back to a defined request invites the question: “Who asked for this?” Here’s how submittals lead to change orders when scope moves.

Here’s the math on how fast documentation gaps add up. On a $250,000 T&M job, if one in ten days of work ends up with an unsigned ticket or missing receipts, about $25,000 is at risk:

$250,000 × 10% = $25,000 at risk

That’s a worked example, but the problem is common. Every dollar you can’t back up is a dollar you’re negotiating to get back.

The solution: how to manage a time and materials contract

A worked T&M billing example

Here’s how one day of T&M work gets billed. The contract sets markups at 15% on labor, 10% on materials, and 10% on equipment:

Now check it against the not-to-exceed limit. If the NTE is $50,000 and you’ve billed $42,000 to date, this ticket brings you to $46,627. That leaves $3,373 before you hit the cap. At about $4,600 a day, tomorrow’s work would put you over, so it’s time to talk to the client about an increase before you keep going.

6 ways to protect your margin on T&M work

1. Nail down rates and markups in the contract.
   Spell out labor rates by classification, equipment rates, and markups for labor, materials, equipment, and subcontracted work. Also define what counts as a billable cost and what’s overhead.
2. Get T&M tickets signed daily.
   Every ticket should list the date, workers and hours, materials, equipment, and a description of the work. Get the client’s signature the same day, when everyone still remembers the details.
3. Back up every material and equipment charge.
   Attach receipts, delivery tickets, and rental agreements to the ticket they support. Construction photo documentation shows the work was done.
4. Track billed-to-date against the NTE.
   Review it at least weekly, and flag the client in writing before you get close to the cap.
5. Tie T&M work to a documented request.
   Every T&M ticket should trace back to a client directive, an RFI, or a change order request, so no one asks later who authorized it.
6. Keep job costs current.
   T&M billing and job costing should use the same numbers. If your billing and your costs don’t match, you’re leaving money on the table or overbilling.

Doing all of that on paper is where T&M jobs fall apart. Tickets live in the foreman’s truck, receipts live in someone’s email, and billing happens in a spreadsheet at month-end. Every handoff is a chance for an hour or a receipt to go missing. Construction field reporting and construction management software close those gaps by capturing T&M data in the field and carrying it straight to billing.

Why GCs manage T&M work in RedTeam

RedTeam is construction management software built for general contractors, by people who came from the jobsite. For over 20 years, small to mid-sized GCs have used RedTeam to simplify, automate, and standardize their work from precon through closeout, including the T&M work that’s hardest to bill.

With RedTeam, your team can:

• Set negotiated T&M markups with each client, for profit, labor, materials, and subcontracted work.
• Create T&M sheets and submit them to the client for approval, so work is documented and approved while it’s fresh.
• Handle T&M on change orders or full contracts, including work the client asks you to proceed with before a price is agreed.
• Keep the field and office on the same page, with daily logs, jobsite photos, and documents in the same platform.
• Connect T&M billing to budgets and change orders, so every approved ticket shows up in your job costs.

Unlike enterprise construction software, every RedTeam customer gets full software functionality and a dedicated implementation and customer success team. You’re not buying a login. You’re getting a team that helps you set up your rates, markups, and approval workflow the way your company runs.

T&M work should be the most transparent work you do, not the hardest to get paid for. Compare your options in our guide to the best construction management software.

That’s total project control. That’s RedTeam.

See how RedTeam gets your T&M work approved and paid

Find out how your team can document, approve, and bill T&M work without chasing tickets and receipts.