Time-and-Materials (T&M)

Definition

Time-and-Materials (T&M) is a hybrid contract type under FAR 16.601 in which the government pays a fixed hourly rate for each labor category (incorporating wages, overhead, G&A, and profit) plus reimbursement for materials at cost. T&M is used when it is impossible to estimate the extent or duration of work with sufficient accuracy at award. The contract has a not-to-exceed ceiling. Labor-Hour (LH) is a variant without materials. DCAA-compliant timekeeping is typically required.

Why It Matters

T&M offers a middle ground between FFP (contractor takes all cost risk) and cost-reimbursement (government takes all cost risk). But T&M is the contract type most commonly disputed in audits, because billable-hour definitions, labor-category mapping, and material-cost documentation all require discipline. Contractors must ensure their billing system aligns with the labor categories and rates defined in the contract, since missing this costs money and damages CPARS.

Example

A services firm wins a $4M T&M contract with 12 labor categories and a 2-year period. Its billing system is configured to enforce that each employee's time can only be billed to a labor category they are qualified for, preventing the cross-charging errors that have created audit exceptions on prior contracts.

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