How to write a time-and-materials agreement

A time-and-materials (T&M) agreement bills actual labor and materials using agreed rates instead of a fixed total. Put the scope, rates, billing method and any spending cap in writing, obtain approval before starting, and keep daily records. Check whether your residential contract rules allow this pricing method.

When time and materials fits the job

T&M fits when finding the problem is the work. Demolition that has not happened yet, a diagnostic call, a leak inside a wall, emergency response, restoration behind a mitigation crew, maintenance for a property manager who buys hours by the month.

Name what you cannot yet inspect, such as how much subfloor is damaged beneath existing tile. Explain why that uncertainty affects the quantity of work. Where you can define and price part of the job, consider a fixed price for that portion and a separately described T&M scope, if your contract rules allow it.

Obtain approval of both the defined work and the method for charging the uncertain portion before starting.

Put the scope and billing terms in writing

When the final total depends on actual work, state how you will calculate it. These illustrative rates and terms explain the structure; use your own lawful terms and confirm the scope separately.

Choose a markup method that covers your handling costs and can be applied consistently. If different materials use different percentages, list that schedule and keep the receipts used to calculate each charge.

Explain rounding, travel and other billable time

The labor rate alone does not explain which activities you will bill.

State the billing increment and rounding method before work starts. For example, nearest-quarter-hour billing rounds 3 hours 50 minutes to 3.75 hours and 4 hours 5 minutes to 4.0 hours. Record actual time too. Customer billing terms are separate from the payroll rules for paying employees.

Then name the hours a customer does not expect to see:

• Travel. Billed, unbilled, or a flat trip charge — pick one and print it. "Portal-to-portal" means shop to site and back, and a customer who has never heard the phrase reads it on an invoice as padding.
• Supply runs. A mid-job parts run is real time on your clock. Say up front whether it is billable, and if it is, that one run bills to one job and not three.
• Crew size. Two workers for six hours is twelve billable hours. Write "per worker on site" or expect that conversation.
• Standby. Waiting on the owner's tile delivery is a cost. Agree in advance whether waiting time is billable and at what rate.

Set a spending cap and an approval process

A spending cap gives the customer a limit on authorized charges and tells you when to request further approval.

A not-to-exceed clause says you bill actual hours and actual materials, but stop at a stated figure and come back for written approval before passing it. Plan to pause safely before reaching the cap; the customer may decline further work. Write the remaining scope, added amount and schedule impact in any request to increase the cap, and record approval before doing that work.

Set a cap that includes a reasonable allowance for the uncertainty you identified. Monitor it against actual charges so you can discuss further work before reaching it.

Residential contract rules may require a total price. California §7159, for example, requires a dollar-and-cent contract price for covered home-improvement contracts. A cap alone does not establish compliance; check the permissible contract structure with your licensing board or a local construction attorney.

Example: a three-day leak repair

This fictional example uses a $95 lead rate, $55 helper rate, materials at cost plus 15%, and a $3,800 cap. The approved scope is to diagnose the upstairs bathroom leak, repair the supply line, replace up to 34 sq ft of damaged subfloor, patch the opened ceiling and wall, prepare for tile, and haul away debris. Tile installation is excluded. The homeowner receives the running total daily.

Labor $2,595.00, materials $474.73, haul-off at cost plus 10% $85.00. Final invoice $3,154.73 against a $3,800 cap, including the $85 haul-off charge on Thursday. This example rounds each day’s marked-up materials to cents, rounding a half cent up.

Log work the same day: date, hours per worker, work completed and materials used with their cost. Photograph hidden conditions before covering them. Send the running total at the agreed interval, and obtain written approval for changes in scope, price or schedule before doing additional work. Follow any daily field-ticket requirements in your contract.

An agreed billing schedule lets the customer check charges while the work is recent. It does not guarantee payment.

Keep quote terms and actual work records

In DoneQuote, save labor rates in your catalog and show additional rates in the quote’s Rates section without adding them to its total. Put the markup method, spending cap and approval conditions in Agreements. You can enter hour quantities and material lines on a quote, but keep actual time logs and invoices in your work-record and accounting tools. Transfer the approved terms there and check the bill against actual work.

The agreement should explain how the bill will be calculated even when the final quantity of work is uncertain.