Project Managers sometimes work on projects that require them to negotiate contract rates with different suppliers and vendors before an agreement is reached to acquire their services on a project. A Time and Materials (T&M) contract is one that is typically used by many vendors – which is why Project Managers need to be familiar with this type of contract and how it works.
What is a Time and Materials Contract?
A T&M contract is a type of contract whereby a client pays for the time spent by a vendor on a given project, plus any materials used during the project. The vendor outlines the hourly rate for each of the resources that will be involved in the project along with the unit costs for all the materials that are expected to be used during the project.
T&M contracts are normally used when a lot of the work required to successfully complete a project is relatively unknown, and a precise estimate of the time and materials required cannot be entirely determined. The vendor tracks all their time and materials used on the project then submits a bill to the client at agreed upon intervals over the duration of the project.
Considerations for a T&M Contract
A Project Manager working with vendors on a T&M contract needs to keep in mind the following considerations:
- Both the vendor and client should sign off on the SOW before work on the project begins – this is to avoid legal hurdles or any disagreements on the project scope and cost
- Validate and ensure all deliverables are met as stipulated on the statement of work tied to the T&M contract
- Adequate cost management oversight to ensure vendors are not racking up time without producing results
- Vendors ordinarily add a markup of between 10% and 25% to the cost of the project – Project Managers should always watch the variance to ensure funds are not in jeopardy of running out prior to project completion
How Project Managers Can Ensure Project Success while using a T&M Contract
- A Project Manager can set a not-to-exceed value and time limits so that vendors understand the upper threshold set for their costs on the project
- Project Managers and vendors should agree on the maximum number of vendor resources that can be allowed to work on the project
- A target date can be specified by the Project Manager to ensure that the open-ended work by the vendors has a tentative cut-off date – at the very minimum, it provides a target for when the vendors need to have their work completed
- Project Managers should track all the time spent on the project by the vendor resources on a weekly basis and immediately flag any discrepancies that are identified
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