Definition:
A contract where the owner agrees to pay the contractor based on the time spent and materials used, plus a markup for overhead and profit.
Key Components:
- Labor Costs: Hourly rates for workers, including wages and benefits.
- Material Costs: Reimbursement for materials at cost or with a specified markup.
- Overhead and Profit: Agreed-upon percentage added to cover indirect costs and profit.
Use Cases/Industries:
- Research and Development: Projects with uncertain scopes and durations.
- Maintenance Services: Ongoing repair work where exact requirements are unpredictable.
Advantages:
- Flexibility: Easily accommodates changes in project scope.
- Transparency: Detailed tracking of time and materials provides clear cost visibility.
Challenges:
- Cost Uncertainty: Total project cost is not known until completion.
- Requires Oversight: Owners must monitor expenditures to prevent cost overruns.
Related Terms:
Cost-Reimbursable Contract, Open-Book Contract
Example:
An IT firm hires a contractor to develop custom software, agreeing to pay for the developer’s hours worked and materials used, plus a 15% markup.
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Synonyms:
T&M Contract, Cost-Plus Contract
