A Time-and-Materials (T&M) Contract is a flexible type of government contract in which the contractor is paid based on the actual labor hours worked and the materials used to perform the work. Under this model, the government agrees to pay for:
- Direct labor at pre-negotiated hourly rates, including wages, overhead, general and administrative (G&A) costs, and profit
- Actual cost of materials, sometimes with an additional handling fee or markup
T&M contracts are used when it is not possible to estimate accurately the extent or duration of the work, making fixed-price arrangements impractical. This contract type balances contractor flexibility with government oversight and is commonly applied in IT services, consulting, maintenance, and emergency response projects.
Characteristics of a T&M Contract
Time-and-Materials contracts have the following key characteristics:
- Labor is billed by the hour at established rates
- Materials are reimbursed at cost or cost-plus
- There is no predetermined total cost ceiling, although the contract may include a Not-to-Exceed (NTE) limit
- The contractor does not guarantee final price or delivery outcome — only the performance of effort
- Government oversight is typically more active, due to the open-ended nature of cost accumulation
T&M contracts offer greater flexibility than fixed-price models but carry higher risk for the government if not closely managed.
Use of T&M Contracts in Federal Procurement
Federal agencies use T&M contracts under specific circumstances, guided by the Federal Acquisition Regulation (FAR). According to FAR 16.601, a T&M contract is appropriate when:
- The government is unable to define the scope or duration of the work precisely
- It is not feasible to use fixed-price due to uncertainty
- The need is urgent or exploratory in nature
- The agency requires interim support until a more defined contract vehicle is awarded
Examples of appropriate T&M use cases include:
- Short-term IT system troubleshooting or emergency fixes
- Professional consulting during early project planning
- Repairs where the full scope of the damage is unknown
- Research and development work with variable input
However, because T&M contracts shift cost risk to the government, they are considered a “contract type of last resort” and must be justified with proper documentation and approvals.
T&M Contracts Under GSA MAS
Within the GSA Multiple Award Schedule (MAS) program, T&M contracts are frequently used, especially for services procured under SINs like:
- 54151S – IT Professional Services
- 541611 – Management and Financial Consulting
- 561210FAC – Facilities Support Services
In the MAS environment:
- T&M task orders are issued against pre-negotiated labor categories and rates listed in the contractor’s GSA pricelist
- Contractors may only charge labor rates that are approved and awarded under their MAS contract
- Materials and ODCs (Other Direct Costs) must be handled according to specific GSA guidance and are often reimbursed with no profit
- Agencies must document the rationale for using T&M, and include appropriate contract clauses, such as FAR 52.232-7
MAS contractors must be familiar with T&M compliance rules and billing procedures to avoid mischarges or audit findings.
Advantages of T&M Contracts
T&M contracts offer several advantages, particularly in situations of uncertainty:
- Flexibility – Ideal for undefined or changing scopes
- Speed – Can be awarded and executed more quickly than fully negotiated fixed-price contracts
- Incremental funding and performance – Supports agile or phased delivery
- Access to specialized expertise – Agencies can quickly acquire support without long planning cycles
T&M is also attractive for contractors, as it allows:
- Direct compensation for actual hours worked
- Coverage of indirect costs through loaded hourly rates
- The ability to scale up or down based on agency needs
Risks and Challenges of T&M Contracts
Despite their flexibility, T&M contracts present challenges for both agencies and contractors:
For Government Agencies:
- Higher cost risk due to open-ended structure
- Requires active oversight and validation of hours/materials
- Susceptible to inefficient performance if not monitored
- May face scrutiny from auditors or IGs if misused
For Contractors:
- Need for accurate and timely labor reporting
- Must track materials and receipts meticulously
- Risk of reimbursement delays if supporting documentation is missing
- Potential for disputes if performance expectations aren’t clear
Due to these risks, FAR mandates a determination and findings (D&F) document before a T&M contract is awarded, outlining why no other contract type is suitable.
T&M vs. Other Contract Types
| Contract Type | Pricing Basis | Risk to Government | Flexibility | Use Case Example |
|---|---|---|---|---|
| Fixed-Price | Total price agreed in advance | Low | Low | Clearly defined service deliverable |
| Cost-Reimbursement | Actual cost plus fee | Medium | Medium | R&D or uncertain development |
| Time-and-Materials | Labor hours × rates + materials | High | High | Undefined repair or consulting work |
| Labor-Hour (LH) | Labor only (no materials) | High | Medium | Advisory services without products |
T&M and Labor-Hour contracts are similar but differ in that T&M includes materials, while LH does not.
Compliance Considerations
Contractors working under T&M task orders must ensure:
- Accurate timekeeping for labor categories used
- Materials billed are allowable, allocable, and reasonable
- They follow GSA’s guidance for materials handling, including when profit is not permitted on materials
- Maintain supporting documentation for labor hours, timesheets, and receipts
- Understand invoicing procedures, especially if using GSA’s 8(a) STARS, Alliant, or MAS vehicles
Failure to comply can lead to:
- Rejection of invoices
- Audits and repayment demands
- Termination of task orders
- Legal liability under the False Claims Act
Best Practices for Managing T&M Contracts
To successfully manage a Time-and-Materials contract, contractors should:
- Establish clear work authorization procedures with the agency
- Implement robust project tracking and timekeeping systems
- Regularly review burn rates and funding ceilings
- Communicate scope changes immediately to avoid overruns
- Use experienced project managers to balance flexibility and control
Agencies, in turn, should assign contracting officer’s representatives (CORs) or technical monitors to oversee performance and validate charges.
Conclusion
A Time-and-Materials (T&M) Contract provides essential flexibility in federal contracting when the scope or duration of work cannot be precisely defined in advance. It is especially relevant in dynamic environments such as IT services, consulting, and urgent support tasks.
While T&M contracts offer speed and adaptability, they require strong oversight, disciplined time tracking, and adherence to FAR and GSA-specific regulations. For contractors under GSA MAS, understanding how to properly price, manage, and report under T&M task orders is critical to both compliance and profitability.
Done right, T&M contracts can serve as a powerful tool for delivering value in uncertain and evolving federal missions.
