A time and materials tag, or T&M tag, is an industry-standard document used by contractors to authorize and document work spent on a particular task, typically performed outside the current contract scope. An everyday use case is where the general contractor (GC) enables their subcontractor to work by documenting their labor, material, and equipment on a particular task using a paper time and materials tag.
The GC’s construction manager or superintendent approves the submitted work, verifying the work description and quantities are accurate. Unlike change order requests, time & materials tags keep track of quantities while leaving price adjustments made by the GC’s project manager.
Generally, the project manager will oversee the project contract and track costs. On the jobsite, field crews cannot approve or submit costs. This means Time and Material Tags are necessary for documenting work performed and including quantities without attaching associated expenses.
The Time & Materials Tag process is designed to both support and protect GCs and Subcontractors:
While time & materials tag is the most common term, various other names by contractors can represent this form of out-of-scope construction documentation. Here is a typical list of names that subcontractors use for T&M Tags:
Regardless of what your construction company calls these documents, the goal is always the same: document out-of-contract work performed onsite.
The AIA asserts the purpose of a construction contract is to:
Time & Materials (T&M) contracts are used in construction when the project’s scope isn’t predetermined, making it difficult to agree on a fixed price and timeline for the contract. Instead, Time & materials contracts allow for the flexibility of an “as-we-go” agreement.
Time & materials construction contracts bring a high risk for subcontractors. As with many other construction contracts, the pros and cons may depend on your needs and operational workflow.
Time & Materials Construction Contracts
In many cases, a time & materials construction contract appeals to the project owner because it offers complete transparency into the project’s costs. The owner can verify the accuracy of timesheets and invoices. Disputes into the costs, such as how much items cost, are mitigated. Contractors also benefit from the immediacy of their work and thus revenue recognition. Although the contractor is guaranteed to recover any expenses, there is a limit to the project’s profit.
Time & materials contracts seem reasonable enough: the owner pays for costs. However, disputes do arise if the owner is unfamiliar with construction and where specific tasks or particular items are not approved. For example, owners may question contractors’ nice to haves vs. necessities for safety, and so forth.
Contractors can also be placed at a disadvantage with time & material contracts over profit. As agreed by the project owner, the profit is fixed and predetermined on a time & materials contract. The “plus” in a “cost-plus” contract is designed to cover fixed costs in the contract adequately. Any errors in that calculation can mean reduced profit margins and losses. Fixed profits on projects with time & materials contracts also stunt strong financial growth, which may not be ideal for ambitious contractors looking to scale their firms.
Accurately documented correspondence is required to reduce any questions on payment. The contractor must account for all operating expenses, including costs for overhead.
It’s critical that contractors independently track time & materials even though the project owner is making the payments on invoices. Tracking labor hours and material usage on specific tasks and projects will provide the contractor with reliable historical information. This can provide insightful data to deliver more robust project estimates and set more reasonable expectations on costs for future time & materials contracts. When your accuracy improves, it may be time to move into the world of fixed contracts.
Time & material tags are crucial tools to keep construction projects moving and on schedule. When there is any uncertainty on whether work is out-of-contract or in-contract, T&M tags help eliminate the back-and-forth arguments that could take days or weeks to resolve. This means project crews can continue working rather than holding up project schedules during the negotiation. The jobsite teams will document quantities of labor, material, and equipment, and the back office team determines the status of the work performed.
Additionally, joint agreements help define work to be tracked on a T&M basis ahead of time. In that case, it can save substantial upfront administrative time and impact delays in creating, submitting, awaiting approvals from Change Orders before work begins.
Time & materials tags can be used for many things. While they are often unique to individual contractors and each construction project, some of the more common use cases include:
These situations are routine changes on nearly every construction contract, but there is a tendency to dislike Time & Materials Tags. To learn more about effectively navigating construction Time & Materials Tracking, check out How Time & Materials Tracking Can Make or Break Your Project.