T&M Billing: When to Use It and How to Document It#

Executive Summary#

Time and materials (T&M) billing invoices customers for actual labor hours and materials used, plus markup, rather than for a fixed contract price. T&M is appropriate when scope is uncertain, for service work, and for change orders on fixed-price contracts. Effective T&M billing requires clear rate structures and thorough documentation. This guide explains when to use T&M billing and how to document it properly.

The Context for ICI Subcontractors#

Most ICI subcontractor project work is priced on a lump-sum or unit-price basis—the contractor commits to a price before work begins. However, T&M billing has important applications:

Service and maintenance work where scope varies
Change orders where scope was not in original contract
Work where scope cannot be determined until work begins
Emergency work requiring immediate response

T&M shifts pricing risk from contractor to customer. The contractor is paid for actual work performed regardless of how long it takes.

When T&M Is Appropriate#

Service and Maintenance Work#

Routine service calls often suit T&M:

Scope is uncertain until technician evaluates the situation
Work duration varies widely based on conditions
Fixed pricing would require significant contingency

A service call to repair insulation damage might take one hour or four hours depending on what the technician finds. T&M allows billing for actual work required.

Change Orders#

When additional work is identified on fixed-price projects:

Original scope did not include this work
Conditions differ from contract documents
Owner requests modifications

T&M change orders document actual hours and materials rather than requiring negotiation of a fixed change order price.

Unknown Conditions#

Work where scope cannot be determined before starting:

Exploratory work to assess conditions
Repairs where damage extent is unknown
Modifications to existing systems

T&M acknowledges that neither party knows what work will be required.

Emergency Work#

Urgent work that cannot wait for pricing negotiation:

Equipment failures requiring immediate response
Damage requiring urgent repair
Safety issues requiring immediate correction

T&M enables work to proceed while documenting costs for billing.

When T&M Is Not Appropriate#

Defined Scope Work#

When scope is clear and can be quantified, fixed-price or unit-price contracts typically work better for customers:

New construction with complete drawings
Standard installation work
Clearly defined project scope

Customers generally prefer knowing the price before work begins.

Competitive Bidding#

Most competitive bids require fixed pricing. T&M proposals in competitive situations are often non-responsive to bid requirements.

Customer Preference#

Some customers have policies against T&M work due to cost control concerns. Understanding customer preferences before proposing T&M avoids wasted effort.

T&M Rate Structures#

Labor Rates#

T&M labor rates should cover:

Base wage: The worker's hourly wage

Burden: Employer taxes, workers' compensation, benefits

Overhead allocation: Portion of overhead costs

Profit: Contractor's profit margin

The billable rate is typically 1.5x to 2.5x the worker's base wage, depending on burden costs, overhead allocation, and desired margin.

Rate Variations#

Different rates may apply for different circumstances:

Classification rates: Different rates for journeypersons, apprentices, forepersons

Overtime rates: Premium rates for overtime hours (often 1.5x standard rate)

Premium time rates: Rates for weekend, holiday, or shift work

Minimum charges: Minimum charge per service call regardless of duration

Material Markup#

Materials are typically billed at cost plus markup:

Cost basis: Actual purchase price including tax and freight

Markup percentage: Often 10-25% over cost

Transparent pricing: Some customers require cost-plus-fixed-markup rather than marked-up pricing

Equipment Rates#

Equipment used on T&M work:

Rental rates: If equipment is rented, pass through rental cost plus markup

Owned equipment rates: Internal rates for owned equipment usage

Rate references: May reference published equipment rates or contracted rates

Contract Provisions#

T&M Terms#

Clear contract language should address:

Rate schedules: What rates apply for labor by classification

Material markup: How materials are priced

Equipment rates: How equipment is charged

Documentation requirements: What backup is required

Billing frequency: How often T&M work is billed

Not-to-exceed limits: Any caps on T&M charges

Pre-Authorization#

Many T&M arrangements require authorization before work:

Work authorization forms: Signed authorization to proceed

Scope limits: Authorization for specific scope or dollar limits

Change authorization: Process for authorizing additional scope

Not-to-Exceed Provisions#

Some T&M work includes cost caps:

Budget limits: Maximum amount that can be billed

Notice requirements: Contractor must notify customer when approaching limit

Authorization for exceeding: Process for authorizing work beyond cap

Documentation Requirements#

Time Documentation#

T&M billing requires detailed time records:

Who worked: Names and classifications of workers

When they worked: Date, start time, end time, total hours

Where they worked: Job location and specific work area

What they did: Description of work performed

Premium time justification: Why overtime or premium rates apply

Time documentation should be contemporaneous—recorded on the day work occurs, not reconstructed later.

Material Documentation#

Document materials used:

What was used: Description, specification, quantity

Purchase documentation: Invoices, receipts, delivery tickets

Job allocation: Which project received the materials

Pricing: Cost and markup applied

Photo Documentation#

Photos support T&M billing:

Before conditions: What existed before work started

Work in progress: Documentation of work being performed

Completed work: What was accomplished

Materials: Materials used on the work

Daily Summaries#

For multi-day T&M work:

Daily totals: Hours and materials used each day

Work descriptions: What was accomplished

Issues or changes: Anything affecting scope or duration

Next steps: What remains to be done

Billing Practices#

Billing Frequency#

T&M work should be billed promptly:

Weekly billing: For ongoing T&M work

Upon completion: For shorter-duration work

Progress billing: For larger T&M projects

Delayed billing makes documentation harder and delays cash flow.

Invoice Format#

T&M invoices should clearly present:

Labor detail: Hours by worker, classification, date, description

Rate application: Rate applied and calculation

Material detail: What materials, quantities, pricing

Supporting documentation: Timesheets, receipts, photos as backup

Backup Documentation#

Provide backup with invoices:

Timesheets: Signed timesheets supporting hours billed

Receipts: Material purchase documentation

Photos: Visual documentation of work performed

Daily reports: Summaries of work activities

Thorough backup reduces billing disputes and accelerates payment.

Common T&M Issues#

Disputed Hours#

Customers may dispute hours claimed:

Prevention: Detailed time records with supervisor acknowledgment

Resolution: Review documentation, discuss with customer

Going forward: Daily sign-offs on hours to prevent accumulation of disputes

Scope Creep#

T&M can enable scope expansion without price negotiation:

Customer concern: Costs grow without clear scope definition

Prevention: Clear scope boundaries, not-to-exceed limits, regular reporting

Communication: Keep customer informed of accumulating costs

Documentation Gaps#

Insufficient documentation undermines billing:

Problem: Hours claimed but no supporting detail

Solution: Document as work occurs, not retroactively

Systems: Use timesheets, forms, or apps that capture required detail

Rate Disputes#

Disagreement about applicable rates:

Prevention: Clear rate schedules in contract

Resolution: Reference contract terms

Future: Ensure rate clarity before work begins

Best Practices#

Pre-Work#

Before starting T&M work:

Confirm rate schedules and documentation requirements
Obtain written authorization for the work
Understand any not-to-exceed limits
Clarify billing and payment terms

During Work#

While performing T&M work:

Document time daily with required detail
Track materials used
Take photos of conditions and work
Communicate with customer about progress and accumulating costs

Post-Work#

After completing T&M work:

Bill promptly with complete documentation
Provide backup supporting the invoice
Follow up on any questions or disputes
Collect payment per agreed terms

How Appello Supports T&M Documentation#

Appello's Timesheets & Workforce Admin module captures the detailed time records T&M billing requires—who worked, where, when, doing what. This information flows through to billing preparation, providing the backup documentation needed for T&M invoices.

The system enables capture of photos and notes alongside time entries, creating comprehensive documentation that supports billing and reduces disputes.

Conclusion#

T&M billing is appropriate when scope is uncertain or work requires immediate response. Success with T&M requires clear rate structures, thorough documentation, and prompt billing with complete backup.

Customers accept T&M when they understand why it is appropriate and trust that documentation accurately reflects work performed. That trust is built through professional documentation practices and transparent communication.

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