T&M BILLINGTIME AND MATERIALSLABOR RATEMATERIAL MARKUPCOMMERCIAL SUBS $1M–$12MT&M BILLINGTIME AND MATERIALSLABOR RATEMATERIAL MARKUPCOMMERCIAL SUBS $1M–$12M
BILLING SYSTEMS · T&M CONTRACTS
WHAT IS T&M BILLING IN CONSTRUCTION?
QUICK ANSWER
T&M billing — time and materials — means you invoice for your actual labor hours at a defined fully-burdened rate plus actual material costs plus a markup, instead of a fixed lump sum price. It protects you from scope growth on uncertain work but creates cash flow risk if billing isn't structured and submitted frequently. On commercial construction, T&M is most common for service work, change orders, emergency repairs, and projects where scope can't be fully defined upfront.
T&M sounds simple — bill for what you spend plus a markup. In practice, it has more cash flow risk than lump sum work if you're not disciplined about billing frequency, rate structure, and documentation. This page covers how T&M billing works, how to structure your labor rate to actually cover overhead and profit, how often to bill, and the documentation that keeps T&M from turning into a dispute.
BY JOSH LUEBKERPublished: May 2026Updated: May 2026
HOW T&M WORKS
THE MECHANICS OF TIME AND MATERIALS BILLING.
A T&M contract has three components:
1. LABOR — HOURLY RATE — You invoice for actual hours worked at a defined hourly rate per crew member or labor category. The rate must be fully burdened — it needs to cover base wage, payroll taxes, workers comp, benefits, and overhead. A T&M rate that only covers wage is a money-losing rate.
2. MATERIAL — COST PLUS MARKUP — You invoice for actual material cost plus a defined markup percentage — typically 15–25% depending on trade and contract. The markup covers your purchasing overhead, storage, delivery, and profit on material. Material invoiced at cost with no markup is a subsidy to the owner.
3. EQUIPMENT — DAILY OR HOURLY RATE — Owned equipment is billed at your cost basis rate (daily or hourly). Rented equipment is billed at actual rental cost plus a handling markup. Equipment coded at your real cost basis ensures you recover the true cost of deploying that machine on T&M work.
THE RATE STRUCTURE
HOW TO BUILD A T&M RATE THAT ACTUALLY COVERS YOUR COST.
The most common T&M mistake: pricing the labor rate on base wage alone. Here is what a correctly structured fully-burdened T&M labor rate looks like for a commercial electrical journeyman:
Base wage$38.00/hr
Payroll taxes (FICA, FUTA, SUTA — ~12%)$4.56/hr
Workers comp (~8% for electrical)$3.04/hr
Health insurance + benefits (~$4/hr)$4.00/hr
Fully burdened labor cost$49.60/hr
Overhead allocation (12% of revenue equivalent)$6.77/hr
Profit target (10%)$6.26/hr
MINIMUM T&M BILLING RATE$62.63/hr
A $45/hr T&M rate for a journeyman with a $38 base wage doesn't cover burden, overhead, or profit. It doesn't even cover burden. This is why T&M work that looks profitable on the invoice can still lose money.
The utilization problem: A fiber splicing contractor we worked with was pricing T&M rates based on fully-utilized busy months. In slower months when technicians had downtime between jobs, the same rate was underwater — because overhead doesn't stop between T&M calls. Your T&M rate needs to be built on full-year utilization, not best-case utilization.
BILLING FREQUENCY
HOW OFTEN TO BILL T&M WORK — AND WHY IT MATTERS.
On lump sum work, you bill on a pay app schedule — typically monthly. On T&M work, you have more control over billing frequency — and that control is your cash flow lever.
T&M service work and repairs: bill weekly or at job completion — not monthly. Small T&M jobs completed Monday should be invoiced by Thursday.
T&M phases within a larger project: bill at the end of each T&M work event — don't bundle multiple T&M periods into a monthly invoice.
T&M change orders: bill as a separate SOV line on the next pay app after approval — don't wait for the job to close.
Documentation required for each billing: daily time sheets signed by the GC or owner rep, material delivery tickets, equipment deployment records.
NTE (not-to-exceed) caps: if your T&M contract has an NTE, track running total against the cap weekly — don't get to 90% of NTE without authorization to proceed.
COMMON QUESTIONS
FREQUENTLY ASKED.
Lump sum billing is based on a fixed price agreed upfront — you bear the risk of cost overruns. T&M billing shifts cost risk to the owner — you invoice actual costs plus markup. T&M protects you on uncertain scope but requires disciplined documentation and frequent billing. Lump sum protects you on well-defined scope where your estimate is accurate. Most commercial subcontractors use both — lump sum for base contract work, T&M for change orders and service calls.
T&M disputes almost always come down to documentation. The GC says the work took 6 hours; you say 9. If you have daily time sheets signed by the GC's site superintendent at the end of each day, you win. If you only have your own records, it becomes a he-said-she-said negotiation. Require daily sign-off on all T&M work as a contract condition — before you start the job, not after a dispute arises.
Yes — a blended crew rate simplifies billing and reduces disputes about individual crew member classification. The rate should be calculated as the weighted average fully-burdened rate for your typical crew mix. The risk: if you send a more expensive crew than the blended rate assumes, you lose margin. If you send a less expensive crew, you make more. Most contractors prefer individual rates for large T&M jobs and blended rates for service and repair work.
Josh Luebker
Fractional CFO · The Construction CFO
Former commercial construction project manager and master electrician. Managed 150+ projects totaling $300M+ including Google data centers, military bases, hospitals, and high-rises. Now fractional CFO for commercial subcontractors doing $1M–$12M. About Josh → | LinkedIn →
