KZ Controls is dedicated to helping you determine the best solution for your application
Time And Materials (T&M) Contracts
PROS:
If you do not know exactly what you need, this is the cheapest method for moving forward. This method is most like a temporary hire than an outsourced project. You will pay the vendor an agreed upon hourly rate at an agreed upon schedule. You will order materials as needed, which guarantees that the vender is not marking up prices for purchased items. If the expected scope of work changes, then there are no additional charges (see the definition of “PCN” in the description of fixed bid contracts on the ‘Fixed Bid’ page) , which translates to lower costs for you.
CONS:
A T&M contract puts the risk on you; meaning, if the vender's estimates are off, then you are responsible for the time or cost differences.
If you do not know exactly what you need, this is the cheapest method for moving forward. This method is most like a temporary hire than an outsourced project. You will pay the vendor an agreed upon hourly rate at an agreed upon schedule. You will order materials as needed, which guarantees that the vender is not marking up prices for purchased items. If the expected scope of work changes, then there are no additional charges (see the definition of “PCN” in the description of fixed bid contracts on the ‘Fixed Bid’ page) , which translates to lower costs for you.
CONS:
A T&M contract puts the risk on you; meaning, if the vender's estimates are off, then you are responsible for the time or cost differences.
What to expect:
1. Initial preparation
- It is always good to know what your requirements are up front, but with a T&M project, the vender can gather requirements for you.
2. Initial vender meetings
- Explain your project goals, what requirements and concerns that you do know.
- The vender(s) will most likely ask as many technical questions as possible to provide you with as accurate estimates as possible, but the estimates will not determine the final costs.
- Clearly defined scope of work is not necessary for T&M contracts.
3. Negotiations
- The vender will present you with a proposal (rate quote with expectations and legal stipulations) that may include their estimated timeframe or costs.
- The vender prices might be flexible (depends on the vender).
- The easiest way to reduce costs is to make sure that the contract allows you to stop the contract at your discretion (some venders will only do a set schedule, while others allow T&M contracts to be as flexible as possible to make them more intriguing to their customers).
4. Sign contracts
- If you do not have a legal department, be careful when accepting all stipulations within the vender proposals.
- Your company may require that the vender be added to their “approved vender list.”
- Your company may require a nondisclosure agreement.
- Your company may require a master service agreement, or master purchase agreement.
5. Execution
- Typically, a vender will work from their office until onsite assembly, installation, and/or testing is required (if you prefer that the vender work more onsite at your facility, be sure to include this in the scope of work and/or negotiations).
-
If progress reporting is
desired, be sure to include your desired form of updates (meetings, emails,
documents, etc…) and the frequency of the updates in the scope of work and/or
negotiations.
6. Delivery
- Delivery may include official or unofficial acceptance testing.
- T&M allows you to make last minute decisions such as if you decide after delivery that you want the vender to provide your company some kind of training post-delivery.
- T&M
allows you to make last minute decisions such as if you decide after delivery
that you want the vender to provide official or unofficial documentation
post-delivery (drawings, diagrams, operation, preventive
maintenance/calibration, etc…).
Recommended use:
- When you do not totally understand what needs done for a project.
- When details for defining requirements are not complete or clearly defined.
- When your deadline is flexible or a long ways away.
- When you desire/require flexibility for the project schedule, scope of work, or design.
- When you want direct control over resources.