A time-and-materials contract is often used on small projects, perhaps a maintenance effort, a small building or a series of small projects. It has elements of both the unit-price and cost-plus approach. The owner pays the contractor based on effort expended, but there is no ‘fee’ as such. Materials are paid at their actual cost, while labour and equipment inputs are reimbursed at preagreed rates. An important element of this method is that these labour and equipment rates must include all indirect and overhead expenses, profit and contingency, in lieu of the payment of any extra ‘fee’.
The contract includes a list of hourly payment rates – for carpenters, millwrights, labourers, 10 m3 dump trucks, front loaders and the like. If carpenters are paid US$ 17.50 per hour, the hourly rate billed for their services might be US$ 42.00 to include all indirect payroll expenses and a portion of the many other overheads, plus profit and contingency. Then, as the basis for a payment request for a given period, the contractor presents material invoices, payroll records with hours by category and similar records for equipment. Subcontract payments would normally be reimbursed at actual cost. If the request is approved, the contractor receives payment based on ‘time and materials’ – the time for each labour and equipment category multiplied by its respective rate, plus materials and subcontracts at cost.
This method is often used for design services, for which it is usually difficult to determine the total expected effort in advance, thus making a fixed-price design contract impractical. Having reviewed two important decisions the owner must make during the pre-project phase, we now turn to the planning and design phase, where we describe the several parties and their activities and then explain the development of construction contract documents.