10/18/2021—When entering into a new construction contract, there are many variables to account for. At the time of contract execution, forecasting the number of resources necessary to complete the job can seem daunting. While both client and contractor can visualize the finished project, discerning the exact steps necessary to get there can prove challenging. This is where time and materials contracts come into play. These contracts include an overview of project scope, list quotes for the cost of materials, applicable markup rates, freight and taxes, and a fixed hourly wage for employees and subcontractors.
According to the Federal Acquisition Regulation, a time and materials contract may be used, only when it is not possible at the time of placing the contract, to estimate accurately the extent or duration of the work, or to anticipate costs with any reasonable degree of confidence. Time and material contracts help account for unpredictable factors and ensure contractors can earn profit, by eliminating the need to quote out the entirety of the project at one price, such as with fixed price contracts.
By eliminating the need to quote out the entirety of the project at a predetermined price, the time and materials contract helps account for unpredictable factors, and ensures contractors may earn a profit on their work. There are many advantages involved in utilizing the time and materials contract, one being the simplicity and flexibility it allows. If the contractor’s costs change over the course of the project, due to increased regulations or fluctuations in cost of materials, adjustments can easily be made to remedy these issues. Renegotiation can be avoided all together in situations where job specifications evolve, since the only costs involved are time and materials. Time and material contracts can be low risk for contractors.
While these contracts may be incredibly helpful for more open-ended projects, there are a few pitfalls that need to be mitigated to provide maximum benefit to all involved. With no fixed price involved, there is the risk that the client could extend themselves beyond their budget by the time of project completion. Time and material contracts generally secure the contractor’s ability to turn a profit and, keeping in mind external factors like rising labor prices, are crucial to maintaining this advantage. When these increases happen, they can quickly eat into that nearly guaranteed gain. Labor issues can also cause extensive overruns, if workers feel they do not need to work as productively as possible, due to the ongoing nature of the contract.
Perhaps the most significant issue to overcome is the administrative work involved in tracking the factors involved with a time and materials contract. To accurately execute these contracts, reliable information on not only the quantities and costs of materials required, but also on the hours and rates for each resource involved, are a necessity. Documenting and maintaining records can add countless man hours for clerical staff and may be prone to human error.
Avoiding these risks is possible through various methods, such as by adding a “not-to-exceed” clause to contracts to ensure productivity amongst employees, and protect clients from unending financial investment. Including milestones at which contractors will be paid is another possible assurance of ongoing and effective work, with contracts stipulating when billing will occur. In addition to these options, productivity can be quantitatively measured when utilizing a resource management solution, such as CoRe Connected Resources. CoRe uses real-time analytics to improve efficiency, safety, and eliminate unnecessary cost, giving stakeholders the visibility needed to manage each project most accurately.
Eliminating the excessive admin time involved in tracking the various aspects of each contract, CoRe gives contractors a specific cost breakdown of all labor, material, costs, and equipment rental costs. CoRe enables accurate timekeeping, as workers are automatically clocked in and out upon entering and exiting the worksite. With the ability to forecast the amount of time and materials needed for future projects based on past performance, CoRe provides the precise data needed to make the best decisions for executing each contract. On-site tracking of equipment rentals can ensure underutilized equipment isn’t a drain on profit, enabling timely demobilization. Thanks to the ability to track worker productivity, motivating and incentivizing employees helps keep morale high and timelines manageable too.
As the possible drawbacks for time and material contracts can be eliminated through the real-time insight provided by CoRe, contractors can maximize the benefits of the security and flexibility such contracts can provide. Learn more about how CoRe can optimize resource allocation and boost efficiency by contacting us today.
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Far. Acquisition.gov. (n.d.). Retrieved October 18, 2021, from https://www.acquisition.gov/far/16.601.
