Benefits of T&M Contracts

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Services for Real Estate Pros with Pro Services

Time and material contracts (T&M) are typically used in construction projects. This is a form of contract wherein the contractor is paid for all their construction-related expenses (time and labor) as well as a specific amount of profit that’s agreed-upon beforehand. Initial construction and outsourcing projects were traditionally built upon fixed price models, but the T&M model is growing in popularity owing to its numerous benefits. Here are some of the benefits of T&M contracts.


Benefits of T&M Contracts - What to Know


In this article, we will review some of the benefits of T&M contracts and their practical use for construction projects.


Time and Materials Vs Fixed Price: The Basics


A fixed-price contract is one where a client commits to pay the contractor a one-off fee for fulfilling a contract regardless of the amount of materials, labor and so on. A T&M contract, on the other hand, presupposes clients to be billed for actual scope of work based on predetermined rates of labor plus the costs of materials.


Benefits Of T&M Contracts


Flexibility


The T&M model allows you to adjust a project’s requirements, the volume of work, revise materials or designs, change features, shift the focus and shape to ever-changing business circumstances. This eliminates the need to renegotiate contracts or conduct painful discussions to determine whether certain items were in the scope of work. As such, the scope of work can be adjusted ad hoc.


Dynamic Work Scope


If putting together an estimate for a job proves to be a challenge, a T&M contract can help. A contractor doesn’t have to worry about a flawed or inaccurate estimate ruining their margin on the job because they’re reimbursed as the job comes along. This model works well for larger projects where there can be a general goal but knowing how it will be reached is not a top priority beforehand.


Save Time and Money


Adopting the T&M model helps to save time and start immediately. Getting a highly detailed analysis that gives the scope of work before the project starts can be time-consuming, not to mention, nailing everything beforehand is almost impossible. The time & material model allows you to start the project first and proceed at an accelerated pace while working on the details along the way.


Time and Material Limits Risk


The time and material model requires significant transparency from the contractor. This allows clients to track progress and verify timesheets and invoices to ensure costs are accurate. Although there’s a general limit on the profit, the contractor can proceed with the project without the fear of going ‘underwater’ as they’re going to recover their expenses with some profit. This helps to avoid cost-cutting and assures the client of a high-quality end product.


Bottom Line


While there are numerous benefits of T&M contracts, the main advantage is flexibility and the opportunity to replace features, shift directions, adjust requirements and involve the client to get the very product. To reduce inefficiency and overspending, you need to clearly define the expenses you will reimburse in the contract.

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Rainmaker
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Evelina Tsigelnitskaya
SIB Realty - Sunny Isles Beach, FL
www.SIBRealty.org 305-931-6931

Interesting, thank you for an update, I bookmarked your post and read comments later, and follow your blog. 

Sep 03, 2019 06:28 PM #1
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