Now that we’ve dispelled some common construction contract myths and looked at the lump sum contract, it’s time to look at the second of three common types of contracts you can use for your remodel.
Before doing so, remember each of the three contract types we will analyze have both benefits and drawbacks. I’ll help you decide which contract is right for you.
The Spirit of the Contract
In great contrast to the lump sum contract, the time & materials (T&M) contract is like that favorite Aunt we all had that gave us awesome gifts every holiday. She wasn’t about rules and regulations, boundaries and “no’s,” she was about having a good time, getting the job done, and loving life.
Unfortunately, she probably also taught you a few bad habits, caused you to over indulge, and perhaps even let you watch every Arnold Schwarzenegger movie made between 1983 and 1995 in one testosterone-laden evening.
Similarly, the T&M contract relies on great trust between Owner and Contractor. Basically the contract says this: “do the job to the best of your abilities, bill me for the time and materials it takes, and we’ll all be happy in the end and maybe oven go out for an ice cream cone, maybe even one of the chocolate covered waffle cones that cracks before you are half-way done with it, leaving a sticky pool of ice cream on your jeans that really looks like something other than a sticky pool of ice cream on your jeans.”
How a T&M Contract Addresses Money
The T&M contract addresses money in perameters, not in actual dollar amount.
A good T&M contract establishes two things related to money:
- the labor rate for various workers on the project
- the mark-up on materials and the method for providing “proof of purchase”
The T&M contract rarely implements a “maximum price” or a “not to exceed” price, because then you are really using our next type of contract, the cost plus contract. (My personal favorite! I bet you can’t wait to learn about it.)
For example: Contractor agrees to remodel your bathroom for $50/hour for him and $25/hour for his young helper. He also agrees to make 15% on all materials he purchases, and for which he must provide a receipt of purchase.
See, pretty simple and easy.
How a T&M Contract Addresses Schedule
The T& M contract, like the lump sum Contract, may or may not have a defined completion date. Usually not, though, because it’s used mostly when the scope and duration of the project are hard to define.
When to Use a T&M Contract
A T&M contract is most applicable if:
- You have a great idea for your project, but not much else (and you’re not about to hire an architect!)
- You are very vague with your project specifications, and have little or no finishes chosen.
- You know who you want to work with on the project and don’t care to use anyone else.
- You really trust your Contractor.
- You tend to be a straight-up hippy and like free love and freedom for everyone and all that stuff…
When Not to Use a T&M Contract
One of the other contract types might be best if:
- You want to get multiple bids on your project.
- You do not trust your contractor.
- You are risk adverse.
In our next part of the construction contracts series, we’ll take a look at the rockstar of remodel contracts: the cost plus contract.
PS: After reading this post, be sure to watch all of Arnold’s movies from 1983 to 1995. Then I recommend downloading my free e-book Remodel with Confidence. It’ll guide you through the remodel process step by step.
