In
Construction Time and Materials is one way of billing for work done and provided. Traditionally the contractor bills for hours worked at his standard labor rate and all materials plus 10%
profit. T&M is most commonly used in two instances: first
service work is usually T&M although the profit is included in an elevated standard
labor rate. The second instance in construction is when additional work is required due to a
change order or an
addition.
With few exceptions commercial buildings are custom designs. When an architect draws out a 100,000 square foot building he or she will always forget something or make some type of error. The place is simply too big to perfect. Problems occur like putting HVAC ducting and sprinkler risers in the same space, or forgetting power for some critical appliance.
Much of the time if the issues are small and discovered early they will be worked out among the contractors. This is one reason skilled labor is so valuable in construction, because it is adaptable. However creative adaptation is not always possible. Usually, mistakes/omissions will be caught by one of the journeymen and a Request for Information written. Those lead to change orders. If additions are required they will be funded by T&M, although a fixed price may be requested for very large changes. If work that has been done must be redone and the contractor can demonstrate they had no real means of foreseeing this problem, additional work is also funded by T&M.
On many jobs, these change orders generate much profits. Competitive bidding is just that and I have worked on million dollar contracts decided by less than $100US. Heavy competition leads to very narrow, even nonexistent, profit margins. The larger the job the more changes to be expected. However, if a design is for several projects, something common in some corporate and government work, the prints are upgraded with each new product. Like a new model car working out the bugs, by the third building all the problems will be included in upgraded blueprints. Little, if any, T&M work will be done, so extra money will not be forthcoming.