Time and Material Contracts

As most Government contractors know, a Time-and-Material ("T&M") contract1 allows a contractor to perform and submit invoices for, fully burdened labor hours plus materials, including travel, and a material handling rate. The hourly rate should include salary, fringe benefits, overhead, G&A and profit. The result is a fixed unit price for labor. Materials and other direct costs are variable and are reimbursable costs. Many contractors enter into T&M contracts but fail to fully understand a T&M contract and its significance.

The Government deems T&M contracts a "high risk" because there is little incentive for the contractor to control costs. A ceiling price is included in the contract in order to “cap” the costs.

A good discussion of T&M contracts was provided by the General Services Board of Contract Appeals in CACI, INC-Federal v. General Services Administration, GSBCA 15588, decided December 13, 2002. CACI received a T&M Task Order, under their GSA Schedule to provide information technology services to the U.S. Virgin Islands (USVI). The order required CACI to analyze and implement software, developed elsewhere, for the Women, Infants & Children (WIC) Program. CACI performed some work but the USVI did not pay the invoices from CACI because CACI failed to deliver the required services and for failure to deliver a usable product.

The GSBCA stated that a "time-and-materials order falls within the broad genre of cost-reimbursement type contracts. This type of contract places relatively little cost or performance risk on the contractor." A T&M "contract requires only that the contractor use its best efforts to provide the goods or services at the stated prices. The contractor is entitled to be paid for its cost of performance, up to the contract ceiling, whether it succeeds in fully performing the contract requirements or not."

"If the contractor performs work pursuant to the contract it is entitled to be reimbursed for labor at the agreed upon rates and for materials purchased at cost." In an earlier case2, the Court of Federal Claims observed that "the focus of a cost-reimbursement contract is contractor input, not output."

CACI cited, and the Board agreed, an earlier case of E.I.L.-Instruments in which the contractor, under a T&M contract, failed to perform the work to the satisfaction of the Government, the Board required payment. In that case, the Board referred to an earlier case at the GSBCA which ruled that "under a time-and-materials contract, the contracting officer may not reduce payments for hours actually worked when, in his opinion, the work was performed inefficiently."

The Board agreed that CACI "was not required to deliver a usable program, and that it is entitled to be paid for services performed and goods purchased and delivered under the contract even if the contract requirements were not met by CACI." The Board continued by stating that the facts disputed by the Government "are not material to [CACI's] entitlement to recover payments."

If you have a T&M contract, you are entitled to payment regardless of how well you perform. Do not be misled into thinking you are not due a payment if something goes wrong. Remember, the Government is paying for the input, not the output.

Tom Petruska, Owner
Contracts Unlimited, Incorporated

Footnotes:

1. FAR 16.601

2. General Dynamics Corp v. United States, 671 F.2d 474, (Ct. Cl. 1982)

The foregoing is not legal advice nor is it a legal opinion. Please contact your attorney for legal advice.

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