Time and materials is the oldest way to price trade work: you show up, you work, and the bill reflects what it took. It has fallen out of favor in residential service, where customers want a price first, but it is still the honest choice for work nobody can scope until the wall is open.
Time and materials in plain English
An electrician is called to a restaurant where breakers trip at random (example numbers). No one knows whether it's a loose neutral, a failing appliance or a damaged feeder. The contractor quotes T&M: $150 an hour, materials at cost plus 50%, not to exceed $1,200 without a call.
The tech spends 3.5 hours tracing and repairing a loose connection and uses $220 of materials. The bill: 3.5 × $150 = $525 labor, plus $220 × 1.5 = $330 materials, total $855. Under the cap, no surprise.
How do you calculate a T&M price?
Time and materials bill
The hourly rate is not the wage. It needs to cover the tech's loaded labor cost, overhead and profit, the same way a flat-rate hourly rate does. U.S. federal rules describe a T&M contract the same way: fixed hourly rates that include wages, overhead, general and administrative expenses and profit, plus materials.1
Worked example: three ways the same job bills
| Scenario (example) | Hours | Labor at $150 | Materials at cost +50% | T&M total |
|---|---|---|---|---|
| Found fast | 1.5 | $225 | $45 | $270 |
| Typical | 3.5 | $525 | $330 | $855 |
| Hard to find | 7.0 | $1,050 | $330 | $1,380, over a $1,200 cap |
In the third row the contractor must stop and get approval before passing $1,200, or absorb the difference. That's what a cap is for.
Common mistakes in T&M billing
- No minimum charge. A 20-minute fix billed at a quarter hour doesn't pay for the drive.
- Fuzzy time. Hours written from memory at the end of the day invite disputes. Clock in and out on the job from the phone.
- Undisclosed markup. If you mark up materials, say so in the agreement; a surprise markup reads like padding.
- Drifting into extra scope. When the job grows beyond what was described, write a change order even on T&M.
When is time and materials the right choice?
Federal acquisition rules allow a T&M contract only when it isn't possible, at the start, to estimate the extent or duration of the work or to anticipate costs with reasonable confidence, and they require a ceiling price that the contractor exceeds at its own risk.1 Those two rules make a good test for any contractor:
Use T&M when
- The cause isn't known yet (intermittent faults, hidden leaks, unknown wiring)
- The scope depends on what you find behind walls, floors or ceilings
- The customer is commercial and expects hourly billing under a service agreement
- The job is a one-off that matches no price book task
- You can give a not-to-exceed amount and a minimum charge in writing
If you can describe the task and you've done it fifty times, it belongs in the price book at a flat rate.
What should a T&M agreement say?
A one-page agreement prevents most T&M disputes. Put these in writing before work starts, on the estimate or work order the customer signs:
T&M agreement terms
- Hourly rate, and whether it differs for helpers, overtime or after-hours
- Minimum charge, such as the first hour
- How travel time is billed, if at all
- How materials are priced: cost plus a stated markup, or price book prices
- A not-to-exceed amount, and that work stops for approval before passing it
- How time is recorded (clock in and out on site)
- That added scope needs a signed change order
Once the problem is found and the remaining work is known, offer a fixed price for the rest. Customers like knowing where the bill will end.
Time and materials vs flat rate
| Time and materials | Flat rate | |
|---|---|---|
| When the price is known | After the work | Before the work |
| Who carries time risk | The customer | The contractor |
| Fast technicians | Earn the shop less | Earn the shop more |
| Records needed | Accurate time and material logs per job | A current price book |
| Customer reaction | Often wary of an open-ended bill | Usually prefers a known price |
| Best fit | Unknown scope, commercial | Repeatable residential repairs |
Under a fixed price, federal rules describe the seller as taking maximum risk and full responsibility for costs and profit or loss.2 Under T&M, most of that risk moves to the buyer, which is why the ceiling price exists. Our flat rate vs time and materials decision tree sorts common jobs by trade into the model that fits.
How T&M shows up in TradesWork
T&M billing depends on accurate time. In TradesWork, technicians clock in and out from the phone, including with no signal, and timesheets show each tech's regular and overtime hours with exceptions flagged for review before payroll export. Materials used on a job come off the truck's stock when the tech invoices them and are costed at what inventory carried for them, so job costing shows labor and materials against the revenue on each job.
Footnotes
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FAR 16.601, Time-and-materials contracts, Federal Acquisition Regulation, Acquisition.gov, accessed October 15, 2026. ↩ ↩2
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FAR 16.202-1, Firm-fixed-price contracts, Federal Acquisition Regulation, Acquisition.gov, accessed October 15, 2026. ↩
