What is a Time-and-Materials (T&M)?
Also known as: T&M contract, Labor-hour contract
A time-and-materials (T&M) contract pays the contractor at fixed hourly labor rates plus the cost of materials. It is used when the scope or duration of work cannot be estimated accurately at award, so neither a fixed price nor a cost estimate is practical.
How T&M works
Labor is billed at pre-negotiated fully-loaded hourly rates; materials are reimbursed at cost (sometimes with handling). Because the government pays for hours worked, T&M is considered higher-risk for the buyer and requires surveillance.
A ceiling price caps total spending, and the contractor must monitor hours against that ceiling.
Frequently asked questions
Why is T&M considered risky for the government?
Because payment is tied to hours rather than outcomes, there is less incentive for efficiency. The FAR requires a determination that no other contract type is suitable before using T&M, plus active government oversight.
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