Time and Materials

Monday, August 13th, 2012

Why is contracts placed on a time and materials (T&M)  basis? There is no profit incentive for a contractor to effectively manage  either the time expended or the amount of materials used.  Overwhelming risk is with the buying  organisation. The risk can be somewhat mitigated if stringent measures are  taken throughout the procurement process to manage the contractor. What have  Brian Farrington Limited found on audit of T&M contracts?

  1. That the estimated contract sum has been
    exceeded, sometimes in excess of 300%.
  2. Invoices have been paid, unsupported by signed
    time sheets and/or independent accountability through the client’s time
    recording system.
  3. Despite the contract setting out agreed hourly
    rates for specific labour skills, work being done by less qualified staff.
  4. No control over time expended off-site,
    including no knowledge of actual work being carried out.
  5. Inadequate contract management/surveillance.
  6. Absence of robust statements of work and
    specific deliveries.
  7. Overtime being paid for when the specific
    ‘working day’ is not defined in the contract.
  8. Work outputs accepted by not subjected to a
    formal quality acceptance regime.
  9. Absence of a procurement strategy to document
    the reasoning for a T&M contract.
  10. Absence of a documented process to review
    contractor’s progress and, in some instances, no contract review meetings being
  11. Contract managers appointed who have not
    received any training.
  12. Travel costs being claimed, hotel costs being
    claimed without a policy being in place or receipts being provided.
  13. Work being sub-contracted without the buying
    organisation’s knowledge or agreement (40% of the work in one instance)
  14. Despite a contractor bidding for work against
    specific labour categories and rates they later said,  “That as they build their team to perform the
    contract it became apparent almost immediately that the labour categories and
    rates were not adequate”.

We could provide many other  examples! In the table below is an extract from an invoice relating to a USA
military contract:

Cost Category Amount $
Travel 68,067.43
Other Direct Costs 238,053.60
Heavy Equipment 4,462.00
Consultants 166,799.78
Subcontractors 1,108,200.69
Inter-Company Transfers 25,912.08
Total Other Direct Costs 1,611,495.58



What would you check before authorising payment? Then guess  whether it was done in reality? No prizes for a correct answer!

Risk abounds. That is a fact – the question is ‘Where is it  in your organisation and who knows?’

Procurisk®   is a robust tool to identify the issues – contact Brian Farrington Limited for  more information on +44 (0)1744 20698