T&M: Not a license to steal
Mention a T&M contract to most buyers and you’ll see their face frozen in dismay. You can just hear the words “blank check” and “license to steal” going through their minds. Time and material contracts are a complex method of contracting with potential for abuse. You are paying for direct labor at a fixed hourly rate (which includes direct and indirect labor, overhead and profit) and materials at cost or at a previously agreed-upon material cost markup. The most common types of T&M contracts are repair or service contracts. Each one has special needs and requirements, and the buyer, contract administrator and vendor each have important roles to play if the contract is to be successful.
It’s up to the buyer to research the particular pricing structure and labor rates of the categories that will be performing on their contract. I have previously written here about repair contracts (Government Procurement, June 2008) and how one can structure estimated hours to effect a repair. A journeyman mechanic is priced at a different rate than a trades helper. Labor rates differ in each specialized trade depending on experience, time in grade, training, certification and abilities. Check information on the contractor’s personnel; ask for copies of their certifications and the standing of those certifications in a particular industry. Anyone can print a certificate. You should be looking for certifications that can be verified by training and education and have transparency.
The contract administrator has a difficult job in that he or she is responsible to verify not only that the work is done correctly, but also the time each category of labor spends on a specific project task. In the case of a large number of employees, such as a painting contract, verification of the vendor’s personnel should be done by sign-in sheets, proof of identity using government-issued ID, and a random taking of attendance. You may be better served by using a database to keep track of the vendor’s personnel. Your buyer, client and contract administrator should work as a team to set down the rules on how the contract will be administered, and I would also include those rules in the contract documents. Remember the “no surprises” rule. Neither party wants them!
One of the biggest complaints about a T&M contract from Bill Lindsey of Gloucester County, Va., is that there is no incentive for the vendor to control costs or to have an end in sight. I would like to think that most vendors are responsible businesses and want to provide enough detailed information to a buyer so their costs are covered in the schedule of unit prices and other pricing information revealed by the buyer’s research.
To that end, it’s the responsibility of the buyer to ensure that a detailed account of what needs to be accomplished is provided and approved prior to the commencement of any work. Verification of the vendor’s claims for additional work is difficult unless you have an expert on staff who can help you. Just remember, you can rent help. Look around and see what an independent consultant will charge to verify claims. Contact a testing lab; ask a colleague in another public body if they will “loan” you an expert (it’s how we work together as a profession).
Some buyers put in a “not to exceed” clause which may work for your particular needs. Some use estimated hours, and others rely on a quote prior to the start of work. Whatever you use, verify, verify and verify. There are instances of additional work to be performed after agreed-upon work starts. Write a decent and liberal extra work clause and make it dependent on the vendor’s complete explanation of what needs to be performed. The agreement of the client and contract administrator will complete your audit trail.
Frederick Marks, CPPO, VCO, is a retired purchasing officer who has held positions as a supervising buyer for the Port Authority of New York and New Jersey as well as director of material management for Northern Virginia Community College. Contact Marks at [email protected].
