Navigating Time and Materials (T&M) Contracts for Mitigation Work

T&M contracts can be helpful to restoration contractors, particularly for mitigation projects involving water, fire, and mold damage. However, while these types of contracts offer certain advantages, they also come with some challenges that require careful navigation. Read on to find out how you can apply these types of contracts effectively.

Definition of a T&M Contract

A T&M contract is a formal agreement that accounts for the actual labor time spent and materials used during a project. Unlike more common fixed-price contracts, which provide a set cost upfront, a T&M contract will allow for flexibility as the project scope evolves. 

When to Use One

These types of agreements are ideal for projects where the scope is difficult to define or is likely to experience significant complications or changes — such as emergency mitigation jobs that take place after disasters occur. For instance: Water damage restoration may uncover hidden mold growth. Fire damage cleanup could reveal structural issues requiring additional repairs. And mold remediation might expand as testing identifies previously unknown contamination.

For uncertain scenarios like these, fixed pricing is often impractical. 

Pros & Cons of T&M Contracts

Pros:

• Flexibility: Adjustments can be made as new challenges arise.
• Transparency: Clients see detailed breakdowns of labor and material costs.
• Reduced risk for contractors: Compensation aligns with actual work performed.

Cons:

• Budget uncertainty: Clients and adjusters perceive a lack of control and increased risk if costs escalate due to scope changes.
• Potential disputes: Insurance adjusters may scrutinize and question charges to ensure that costs are reasonable and necessary.
• Administrative burden: Meticulous tracking of time and materials is essential to prevent adjuster pushback. Any missteps can lead to reduced claims or delays in payment.

Strategies to Overcome the Cons: How to Improve Efficiency, Profitability, and Payment Timeliness

Educate Clients and Adjusters Early in the Process

Explain the benefits of T&M contracts upfront. Highlight flexibility in addressing unforeseen issues. Emphasize how you will offer transparency through detailed cost breakdowns.

Help Alleviate Budget Uncertainty by Explaining How You Will Handle Scope Changes

Clear, upfront communication is essential for managing expectations and preventing conflicts.

Leverage Technology to Document Damage

When you’re first assessing a new mitigation job site, use a floor plan app, such as magicplan, to map a real-time, accurate and detailed sketch of the affected area within just a few minutes. Then modify your sketch by inserting notations about your findings, comprehensive photos of site conditions, and a 360° panorama for added clarity. This is the best way to document damage that requires mitigation. And it will produce sound justification for all work that is about to be performed.

Then you can repeat that sketch-development process at different stages of the project to visually document workers and materials on site. This is a great way to collect additional evidence that will support your time and material billing charges.Leverage Technology in Other Ways, Too

Here are a couple additional things you can do with a versatile floor plan app like magicplan:

Create custom forms for logging labor hours and materials used. This is important, because accurate records are critical in justifying costs.

Create and submit a rough mitigation estimate before work begins. This allows you to balance the flexibility of a T&M contract with the client's need for some level of cost projection. Ideally, your app should allow you to: 

• Incorporate your specific T&M rates in each insurance claim estimate
• Calculate labor, material and equipment costs directly from detailed site data you collect in the app
• Integrate your data seamlessly with Xactimate estimate software to create an Xactimate estimate (or integrate with Symbility insurance estimating software, if you prefer)
• Make rapid updates to estimates whenever the project scope changes

Keep Tight Control Over Labor and Material Costs

Know your labor-cost numbers for different mitigation tasks and different levels of technician expertise. And minimize costs as much as possible. You can do this by assigning tasks based on employee skill level (e.g., use experienced technicians for complex tasks like structural drying, and delegate simpler tasks like debris removal to less costly labor). You can also try to negotiate bulk discounts on materials from suppliers.

Maintain Open Communication

Submit regular progress reports to clients and adjusters to keep them in the loop. If you have a good floor plan app with reporting capabilities, you can use it to quickly generate and share progress-report documents. Also, be sure to address concerns promptly to build trust and prevent disputes.

Implement Clear Change-Order Processes

Establish a formal process for documenting scope changes. Use written change orders and get those signed before additional work begins.

Maintain Project Records

Accumulate meticulous, organized records of all communications, approvals and change orders. This ensures you can reference past decisions if disputes arise.

Be Prepared for Negotiations

Anticipate pushback from insurers by having backup documentation ready – e.g., comparable market rates for labor or materials, and justifications for scope changes based on industry standards or safety requirements.

What a T&M Contract May Specify

 Labor Costs:

• Hourly rates for different labor categories (e.g., technicians, project managers)
• Rates include wages, overhead, general and administrative expenses, and profit margin
• Separate rates may be specified for regular hours and overtime

Material Costs

• Pricing for materials and supplies used in the restoration work
• Usually includes a markup percentage to cover procurement efforts
• May include costs for equipment usage

Scope of Work

• General description of the mitigation project goals and desired outcomes

Documentation Requirements

• Procedures for time and material tracking
• Requirements for daily work logs or progress reports

Change Order Process

• Procedure for handling scope changes or unexpected issues
• May require written approval from the client before additional work begins

Payment Terms

• Schedule for submitting invoices
• Payment due dates and any late payment penalties
• Milestones or progress payments, if applicable

Not-to-Exceed Clause

• Optional maximum price limit to protect the client from cost overruns

Communication Protocol

• Frequency of project updates or meetings
• Primary points of contact for both parties

Termination Conditions

• Circumstances under which either party can end the contract
• Notice requirements and procedures for termination 

Overall, a well-drafted T&M contract provides flexibility to address unforeseen issues, assures transparency,  and protects both the contractor and the client. (Note: Consult with your business attorney when drafting the wording.)

Summary 

By understanding the nuances of T&M contracts, using these agreements selectively, and implementing effective project-management strategies, you can complete unpredictable mitigation projects with greater confidence.

READ MORE:

Common Pitfalls in Restoration Scope Creation: How to Avoid Costly Errors and Omissions