Working on Time and Material (T&M) means that the contractor is going to be billing you directly for every hour spent on the job and every dollar spent on material.
What are the pros of hiring a contractor on T&M?
The biggest benefit of hiring a contractor to work on T&M is that you are potentially paying the lowest possible price for the project. Why? Unlike a bid, when a contractor is working on T&M they have virtually no risk. No matter what, they are going to bill for every hour they spend on the job and all the materials they purchase. This works well when there is a high level of trust between the customer and the contractor. Let me explain.
When a contractor is working on T&M they generally provide an estimate of how much the project is going to cost. It could be more, it could be less. The contractor has to trust that the customer is going to be able to pay the bill if the project ends up costing more the estimate. The customer has to trust that the contractor is honest and that they aren't going to be milking the clock or buying unnecessary material.
What are the drawbacks of hiring a contractor on T&M?
As I alluded to earlier, the biggest drawback to hiring a contractor on T&M is that there is no set price. While an estimate is generally provided, an estimate is just that - an estimate. The biggest risk to you, as the customer, is that the contractor could give an inaccurate estimate. This could easily happen when hiring a less experienced contractor who isn’t able to accurately predict how long or how much material a project will take. Worse yet, it could happen when an underhanded contractor really wants the job so they give you a much lower estimate in order to get hired. What happens when they have billed up to the estimated price and the project isn't complete? This is the biggest risk of hiring a contractor without getting a bid.
Another drawback to hiring a contractor on T&M is that it makes it hard to compare prices between contractors. Let's say contractor A is $40/hr and Contractor B is $60/hr. Which one is going to cost more to complete the project? Thats anyone's guess. Contractor A might dink around for a month while contractor B completes the same project in a week. If the project was bid, you would easily be able to look at the total cost of the project from Contractor A vs B.
When does it make sense to hire a contractor on T&M?
First of all, the contractor has to be in agreement to it. Some contractors only give bids. Some only work on T&M. There are others that do a combination. That's just a conversation you need to have with your contractor.
We generally give bids because we want the customer to know exactly how much the project is going to cost. One of the worst things is having a project run over and having to bill the customer for more than they were expecting. However, on certain projects we are open to working T&M. We usually prefer working on T&M when taking on very custom projects. We don't want to over charge the customer, but there are many unknowns on some of these custom projects. If we gave a bid, we would have to build those unknowns into our price. If we are working on T&M, we can be assured that we are going to be paid for the hours that we have spent on the project.
If you'd like to read more about bids click here.
What should we discuss next when it comes to Hiring a Contractor?
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