What Is Time and Materials Pricing?

By BRIX Editorial Team · Updated October 12, 2026

Time and materials (T&M) pricing bills the customer for the actual hours worked at an agreed hourly rate, plus the materials used, usually with a markup. The final price isn't known until the job is done. An electrician who works 6.5 hours at $125 and installs $340 of parts marked up 25% bills $1,237.50.

Key takeaways

T&M price = (Hours worked × Hourly billing rate) + (Materials cost × (1 + Materials markup)).
The customer carries the risk of the job taking longer; the contractor carries the risk of losing the customer's trust if hours aren't documented.
A not-to-exceed (NTE) cap limits the customer's exposure. Work beyond the cap needs written approval.
The hourly billing rate must include overhead and profit, not just the tech's wage.
T&M fits work with an unknown scope: troubleshooting, repairs behind walls, small commercial jobs and emergency work.

How does time and materials pricing work?

Time and materials pricing works like a meter. You agree on an hourly billing rate and how materials will be charged before you start, track every hour and every part on the job, and bill the total when the work is done. Nothing is fixed except the rates, so the customer's cost rises or falls with how the job actually goes.

Federal contracting rules describe the same structure. Under the Federal Acquisition Regulation, a time-and-materials contract pays for labor hours at fixed hourly rates that include wages, overhead, general and administrative expenses and profit, with materials billed at cost. The FAR also requires a ceiling price that the contractor exceeds at its own risk. Residential and light commercial jobs borrow that idea as the not-to-exceed cap.

Time and materials price

T&M price = (Hours worked × Hourly billing rate) + (Materials cost × (1 + Materials markup)) + Other direct costs

Hours worked: actual hours on the job, tracked per person; say in writing whether drive time counts
Hourly billing rate: the agreed rate per worker hour, covering wages, labor burden, overhead and profit
Materials markup: the agreed markup on parts and materials, as a decimal (25% = 0.25), or 0 if the contract says at cost
Other direct costs: equipment rental, permits, dumpsters and disposal, if billed separately

How do you set a T&M hourly rate?

Set your T&M hourly rate the same way you'd set any billable rate: start from the worker's burdened labor cost, divide by the share of paid hours that are billable, add overhead per billable hour, then add profit. Many shops publish separate rates for an apprentice, a journeyman and a master or lead, because their costs are different.

Write down the rules that change the bill: a minimum charge or trip fee, whether drive time and supply-house runs are billable, overtime and after-hours rates, and how materials are marked up. Disputes on T&M jobs almost always come from a rule nobody wrote down. The contractor hourly rate calculator works out the base rate from your costs.

What is a not-to-exceed price?

A not-to-exceed (NTE) price is a cap on what the customer will pay for T&M work unless they approve more in writing. It gives the customer a worst-case number while you still bill actual hours below it. When the job approaches the cap, you stop, explain what you found and get a signed change order to continue. Work done past the cap without approval is usually work you don't get paid for.

Time and materials vs. flat rate vs. cost plus

The main difference between pricing methods is who carries the risk when a job takes longer or costs more than planned. T&M puts that risk on the customer, flat rate pricing and fixed bids put it on the contractor, and cost plus pricing shares it through an open-book fee.

Four ways to price a job
	Time and materials	Flat rate	Cost plus	Fixed-price bid
How the price is set	Actual hours × rate + materials	Fixed price per task from a pricebook	Actual cost + a fee (fixed or %)	One price for a defined scope
Known before work starts?	Rates only (plus a cap if agreed)	Yes	Fee only, plus a cap if agreed	Yes
Who carries overrun risk	Customer	Contractor	Mostly customer	Contractor
Paperwork needed	Timesheets and material receipts	Pricebook and approved quote	Every receipt and cost, open book	Estimate, contract, change orders
Best for	Unknown scope, troubleshooting, small commercial work	Repeatable residential service and repair	Custom builds and remodels with evolving design	Well-defined projects: roofs, installs, new construction
Main risk to the contractor	Disputes over hours	Jobs that run long	Thin fee if costs are disallowed	Underbidding

Time and materials by trade

Where T&M shows up in each trade
Trade	Common T&M work	What to spell out up front
Electrical	Troubleshooting, small commercial tenant work, service calls with unknown causes	Rates by worker level, whether locating the fault counts as billable time
Plumbing	Leak detection, sewer and drain work with unknown pipe condition, commercial maintenance	Equipment charges for cameras and jetters, after-hours rates
HVAC	Commercial service agreements, intermittent faults, older equipment with obsolete parts	Diagnostic minimum, travel time, parts lead times
General contracting and remodeling	Repairs behind walls, punch-list and handyman work, insurance repairs before scope is known	Markup on subs and materials, cleanup and disposal billing
Landscaping	Cleanups, storm damage, hourly enhancement work	Crew size, equipment hourly rates, dump fees
Roofing	Leak investigation and small repairs	Minimum charge, whether ladder and safety setup are billable

Patterns, not measured shares. Large, well-defined jobs in every trade are usually priced as fixed bids.

When should you use time and materials?

Use time and materials when you can't see the whole job before you start and a fixed price would mean either padding the quote heavily or gambling on it. Switch to a fixed price or flat rate as soon as the scope becomes clear; customers generally prefer knowing the total, and fixed prices let efficient crews earn more.

Good fit: troubleshooting, hidden conditions, emergency work, ongoing commercial maintenance, and customers who keep adding small tasks.
Poor fit: routine residential repairs, installs with a known scope, and customers who are price-shopping several quotes. See estimate vs. quote vs. bid.

Common time and materials mistakes

Billing the wage instead of a full rate. The hourly rate has to carry overhead and profit. A $35 wage billed at $55 an hour probably loses money.
Vague time tracking. "About 6 hours" invites a dispute. Log start and stop times per worker, ideally on the job record.
No cap or no stop point. Without an NTE, a long job feels like a blank check to the customer, and the invoice gets challenged.
Forgetting to bill materials. Small parts from truck stock add up. Record them at the time, not from memory at invoice time.
Leaving rules unwritten. Drive time, minimum charges, overtime and markup should all be on the signed work order.
Never comparing to a fixed price. If T&M jobs routinely run long, your customers may be paying more than a flat quote would have cost them, and they'll notice.

Frequently asked questions

What is a time and materials contract?

It's an agreement where the customer pays for actual labor hours at agreed hourly rates plus the cost of materials, often with a markup. The total isn't fixed in advance. Most T&M contracts also include a not-to-exceed amount that can only be raised with the customer's written approval.

What does not to exceed mean on an estimate?

It means the customer won't be billed more than that amount without agreeing to it first. You bill actual time and materials up to the cap. If the job will cost more, you stop, explain why and get written approval, usually as a change order.

Is time and materials better than a fixed price?

It depends on how well you can see the job. T&M is fairer when the scope is unknown, because neither side has to guess. A fixed price is better when the scope is clear, because the customer knows the total and an efficient crew keeps the savings.

Can you mark up materials on a time and materials job?

Usually yes, if the agreement says so. Many T&M agreements bill materials at cost plus a stated percentage to cover buying, handling and warranty. Some commercial and government contracts bill materials at cost, so check the contract terms before invoicing.

Should HVAC companies use flat rate or time and materials pricing?

Many HVAC companies use flat rate for routine residential service and repairs, and T&M for open-ended work like intermittent faults and commercial service contracts. Pick by job type: if you can see the whole job before quoting, a fixed price usually serves the customer better.

Is drive time billable on a T&M job?

Only if your agreement says so. Some contractors bill travel at the hourly rate, some charge a flat trip fee, and some build travel into the rate. Put the rule on the work order before starting so it's not a surprise on the invoice.

How do you avoid disputes on T&M invoices?

Agree on rates, markup, drive-time rules and a not-to-exceed cap in writing before starting. Log each worker's start and stop times and every part used on the job record. Show the customer that detail on the invoice.

Sources

Federal Acquisition Regulation 16.601, Time-and-materials contracts (checked October 12, 2026)