Time-and-Materials Billing in Construction: Rates, Markups, and the Documentation That Actually Gets Paid

Time-and-materials billing — commonly called T&M — is how contractors get paid when the scope of work can't be fixed-priced cleanly. Emergency repairs, unforeseen conditions on excavation, small change orders where pricing the work is disproportionate to doing the work, cost-plus elements embedded in an otherwise lump-sum contract — all typically use T&M billing.

The T&M invoice format is straightforward on the surface: hours worked × a labor rate, plus materials at cost times a markup, plus equipment at hourly or daily rates. The reality is that each of those components has layers, and the auditability of a T&M invoice depends on how the layers are documented and disclosed. A T&M invoice that shows only aggregate totals is much easier to challenge than one that shows the underlying data.

The Anatomy of a Labor Rate

A T&M labor rate is not the worker's take-home hourly rate. It's a fully-burdened rate that includes base wage, payroll taxes, workers' comp insurance, health insurance, retirement contributions, liability insurance allocation, and an overhead and profit component. Depending on the contract and the trade, a union journeyman whose base wage is $45/hour might bill out at $85-$110/hour on T&M.

The composition typically looks like this:

On union work, the base wage and fringes are set by the collective bargaining agreement and published in wage decisions. On non-union work, they reflect the contractor's actual cost. On prevailing-wage projects, the rate has to meet or exceed the wage determination for the classification. The T&M labor rate needs to be consistent with the method the contract specifies — a contract that requires rates per the Davis-Bacon determination disciplines the rate structure differently than a contract that simply specifies the contractor's standard T&M rate.

Proving Hours

Hours claimed on a T&M invoice need to be supported by timesheets or daily tickets signed by a field representative — typically the superintendent, the owner's rep, or the architect's field rep. The signed ticket is the primary evidence. Without it, the hours are the contractor's unilateral claim and get heavy scrutiny at audit.

Modern practice uses daily tickets that capture: date, worker name, hours worked, task description, equipment used, materials received on site that day. The signed ticket is then submitted with the T&M invoice as backup. Some contracts specify who has signing authority; others accept any site-based representative of the owner or GC as sufficient. Ambiguous signoff authority is worth clarifying in the contract before work starts.

Materials Markup

Materials on a T&M bill are typically charged at cost plus a markup. The markup covers the contractor's procurement cost, handling, warehousing (if applicable), and profit margin on the materials. Typical markups range from 10% to 25%, depending on the trade, the contract language, and the nature of the materials.

"Cost" for materials purposes is the contractor's actual invoiced cost from the supplier, after trade discounts and rebates. The contractor should submit the supplier's invoice as backup — not just a number on a spreadsheet. Some contracts require that material markup also absorb small-tools consumption (drill bits, blades, consumables), while others treat small tools as a separate line with its own markup.

Stored materials — items purchased for the project but not yet installed — are usually billable on T&M the same way installed materials are, with the same markup, as long as the storage is insured and documented. A simple statement on the invoice indicating that specific stored materials are on the project with the receipt attached is usually enough.

Equipment and Rental Rates

Equipment rates on T&M work come in two forms. Rented equipment is typically billed at the actual rental cost plus a markup (usually 10% to 15%). Owned equipment is billed at an agreed hourly or daily rate — sometimes the rate from the Rental Rate Blue Book, sometimes the contractor's published internal rate, sometimes a rate negotiated into the contract.

Owned-equipment rates are where disputes often arise. A $300K excavator billed at $150/hour over 1,000 hours generates $150,000 of revenue against an asset worth $300K. Owners push back, arguing the rate is rich. Contractors argue the rate has to cover depreciation, interest, maintenance, insurance, operator wages (if separate from the equipment rate), fuel, and a reasonable return. The Blue Book rates are the industry-standard reference, and contracts that tie owned-equipment rates to Blue Book eliminate most arguments.

Operator cost is usually separate from the equipment rate when the rate is "bare equipment" — just the machine. Some contracts use operated rates that bundle the operator, in which case no separate labor line for the operator appears on the T&M invoice. Clarifying which method applies early prevents double-billing disputes.

Subcontractor T&M Work

When a sub's work flows through the GC on a T&M basis, the GC typically adds an additional markup to the sub's T&M cost. A sub's invoice of $10,000 labor and materials becomes, on the GC's pay application to the owner, $11,500 after a 15% GC markup. This is typical for cost-plus and T&M general conditions and is usually disclosed in the contract.

The markup stacking matters at audit. If the sub already applied their own 15% markup on their underlying labor cost, and the GC adds another 15%, the effective markup to the owner is close to 32% over the base cost. Some contracts cap the stacked markup or require pass-through at cost for specific types of work. Reading the contract to understand what stacking is allowed is essential.

Not-to-Exceed Provisions

Many T&M arrangements include a not-to-exceed (NTE) ceiling. The contractor bills on T&M, but the total cannot exceed a specified amount without a further change order. The NTE is a cost-control mechanism: it lets the owner authorize T&M work (because the scope isn't knowable) but caps the total exposure.

When T&M work is trending toward the NTE, the contractor should notify the owner early and either propose a higher NTE or a fixed price for the remainder. Silently passing the NTE and then billing past it is a guaranteed dispute. An early warning gives the owner a chance to make a cost-control decision before the money is spent.

T&M Invoice Format

Common Audit Findings on T&M Invoices

Owners' auditors review T&M invoices against contract terms for specific categories of finding. Knowing what they look for helps contractors submit cleaner invoices the first time.

Bottom Line

T&M billing works when the contract clearly defines the rates and markups, the contractor maintains the underlying field-ticket and supplier-invoice documentation, and both sides agree on the auditability standard in advance. When those three conditions are met, T&M invoices close out smoothly and the method serves its purpose of handling scope that can't be fixed-priced. When they're not, T&M invoices become the disputes that eat closeout time. The operational work — daily signed tickets, rate schedules in the contract, supplier invoice attachments, NTE tracking — is what separates clean T&M from contested T&M.