Construction Time and Material Billing Guide for Contractors | Projul

Every contractor has been there. A homeowner calls with water damage behind a shower wall. A commercial client needs tenant improvements but the architect is still figuring out the plans. A property manager wants you to start demo on a gut renovation before the full scope is nailed down.

In all of these situations, quoting a fixed price is a gamble. You either pad the number so high you lose the job, or you bid low and eat the difference when things go sideways. That is exactly where time and material billing earns its place in your toolbox.

T&M contracts are not a lazy way to avoid estimating. Done right, they protect your margins on uncertain work while giving clients transparency into what they are actually paying for. Done wrong, they create billing disputes, erode trust, and leave money on the table.

This guide walks through the nuts and bolts of T&M billing for construction companies, from knowing when to use it, to setting up your tracking, to handling the awkward money conversations with clients.

When to Use T&M Contracts (and When Not To)

T&M billing shines in situations where nobody can define the full scope before work starts. Here are the most common scenarios:

Remodels with hidden conditions. You are tearing into a 1970s bathroom and have no idea what is behind the tile. Mold, rotted framing, outdated plumbing, asbestos, or maybe everything is fine. A fixed price on this work is a coin flip.

Insurance restoration. The adjuster’s scope is a starting point, not a final answer. Supplements will come. Additional damage will be found. T&M lets you bill for what you actually encounter.

Emergency and service work. When a pipe bursts at 2 AM, nobody is sitting down to negotiate a lump-sum contract. You show up, fix it, and bill for your time and materials.

Early-phase discovery. Sometimes the smartest move is to bill demo and investigation on T&M, then provide a fixed price for the rebuild once you can actually see what you are working with.

Owner-directed changes on active projects. When a client keeps changing their mind mid-project, a change order process is ideal. But when the changes are constant and small, a T&M arrangement for those portions keeps things cleaner than writing 30 separate change orders.

When NOT to use T&M: If the scope is clear, the plans are done, and you can confidently estimate the work, go fixed price. Clients prefer cost certainty, and you can build your profit into the bid. T&M should be a tool you reach for intentionally, not a crutch because you did not want to spend time estimating. If you need to sharpen your estimating process, check out our guide on construction estimating accuracy.

Setting Up T&M Tracking That Actually Works

The difference between profitable T&M work and unprofitable T&M work almost always comes down to tracking. If your crew is not logging hours and materials in real time, you are leaving money on the table every single day.

Here is what a solid T&M tracking system looks like:

Labor Tracking

Every person on the job needs to log their hours daily, broken down by task or cost code. “Jake worked 8 hours” is not enough. You need “Jake: 3 hours demo, 2 hours framing, 3 hours drywall.” This level of detail does two things: it gives your client a clear breakdown of where their money went, and it gives you data to improve your estimating on future projects.

Your job costing system should capture the following for every labor entry:

• Worker name and trade classification (apprentice, journeyman, foreman)
• Hours worked with start and end times
• Task or cost code tied to the work performed
• Equipment hours if the worker operated machinery with a separate billing rate

Material Tracking

Every material purchase needs a receipt, and every receipt needs to be tied to the specific job. This sounds basic, but it falls apart constantly. Your guys grab a box of screws at the supply house and forget to note the job number. A delivery shows up and nobody scans the packing slip. Materials from Job A end up on Job B’s truck.

Set up a simple process: photograph every receipt, tag it to the job and cost code, and reconcile weekly. If you are tracking construction budgets properly, your material costs should flow straight into your billing.

Equipment Tracking

If you bill for equipment separately (which you should on larger T&M jobs), track the hours each piece of equipment is on site. Excavators, lifts, generators, and compressors all have a daily or hourly rate. Even small tools like concrete saws and plate compactors deserve a line item if they cost you real money to own and maintain.

The Technology Question

Pen-and-paper T&M tracking works on small jobs, but it does not scale. By the time your foreman drives back to the office, hands over a crumpled time sheet, and your office manager enters everything into a spreadsheet, three days have passed and half the details are fuzzy. Construction management software that lets your crew log time and materials from the field, on their phones, in real time, is the single biggest improvement you can make to your T&M billing accuracy.

Markup Structures That Protect Your Margins

Your T&M rate sheet is where your profit lives. Get it wrong and you will stay busy while going broke. Get it right and T&M work can actually be more profitable than fixed-price jobs.

Labor Markup

Start with your burdened labor cost, not the hourly wage you pay the worker. Burdened cost includes:

• Base wage
• Payroll taxes (FICA, FUTA, SUTA)
• Workers’ compensation insurance
• Health insurance and benefits
• Paid time off (vacation, sick days, holidays)
• Training and certifications

For most trades, burdened cost runs 25% to 40% above the base wage. A carpenter you pay $30/hour probably costs you $38 to $42/hour fully burdened.

Then add your markup for overhead and profit. Common T&M labor markups range from 30% to 60% above burdened cost. If your burdened cost is $40/hour and you mark up 50%, your billing rate is $60/hour. That $20 spread covers your truck, your office, your insurance, your estimator, and your profit.

If you are not sure whether your markups are right, our breakdown of markup vs. margin will help you understand the math.

Material Markup

Standard material markup runs 15% to 30%. The percentage often varies by material type:

Lower-markup items tend to be high-dollar purchases where the client can easily price-check you. Higher-markup items tend to be small purchases where your handling, pickup, and delivery time justify the premium.

Tiered Rate Sheets

Smart contractors use tiered rate sheets that reflect different labor classifications:

• Laborer: $45 to $55/hour
• Journeyman carpenter: $65 to $80/hour
• Foreman/lead: $75 to $95/hour
• Project superintendent: $85 to $110/hour

These rates should be spelled out in your contract before work begins. No surprises.

The “Not to Exceed” Option

Some clients want T&M flexibility but need a ceiling for their budget. A not-to-exceed (NTE) clause caps the total T&M billing at an agreed maximum. You bill actual time and materials up to that cap, and if you come in under, the client only pays for what was used. If you hit the cap, work stops until you renegotiate.

NTE clauses protect the client and force you to be efficient. They work well when you have a rough idea of scope but not enough detail for a hard bid.

Daily T&M Tickets: Your Most Important Habit

If you take one thing from this article, let it be this: daily T&M tickets, signed by the client or their representative, are non-negotiable.

A daily T&M ticket is a simple document that records everything that happened on the job that day. It includes:

• Date and job name/number
• Names of every worker on site and their hours
• Description of work performed
• Materials used (with quantities and unit costs)
• Equipment used (with hours)
• Any notable conditions, delays, or client-directed changes
• Client signature

Why Daily Signatures Matter

When a client signs your daily T&M ticket, they are acknowledging the work that was done and the resources that were used. This is your armor against billing disputes.

Without daily sign-offs, here is what happens: you send a $47,000 invoice at the end of the month and the client says, “There is no way it was that much.” Now you are in a he-said-she-said situation, and you have zero documentation to back your numbers. You negotiate, give a discount, and eat $8,000 in profit.

With daily sign-offs, the conversation goes differently. “Here are 22 signed daily tickets showing exactly what we did each day, what materials we used, and your signature confirming each one.” Dispute over.

Making It Practical

Your crew will push back on daily paperwork. That is normal. Make it as painless as possible:

1. Use a template. Pre-fill the job name, cost codes, and worker names so the foreman only has to enter hours and materials.
2. Go digital. A photo of the signed ticket uploaded from the field is better than a paper copy that sits in the truck for two weeks.
3. Make it the last task of the day. The foreman spends 10 minutes at the end of each day filling out the ticket and getting it signed. Build it into the routine.
4. Review weekly. Someone in the office should review every ticket within a week for accuracy and completeness before it becomes an invoice line item.

This documentation habit also feeds your job costing data, giving you real numbers to estimate future work against.

Client Communication on T&M Projects

T&M contracts live or die based on communication. The number-one reason clients hate T&M is the feeling that costs are out of control and they have no visibility into where their money is going. Fix that feeling, and you will have clients who actually prefer T&M for the right projects.

Set Expectations Before Work Starts

Before the first day on site, have a frank conversation (and put it in writing) about:

• Billing rates for every labor classification
• Material markup percentages
• Billing frequency (weekly is best for T&M)
• Estimated range for the total project cost
• What triggers a stop-work conversation (hitting a budget threshold)
• How changes in scope are handled

That estimated range is important. Even though T&M means you are billing actuals, clients need a ballpark. “Based on what we know today, I expect this to land between $35,000 and $50,000. If we start trending above that range, I will call you before we keep going.”

Weekly Cost Updates

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Send your client a weekly cost summary showing:

• Total labor hours and cost for the week
• Total materials purchased and cost for the week
• Running project total to date
• Comparison to the estimated range
• What is planned for the coming week

This takes 20 minutes to put together and prevents 90% of T&M billing conflicts. Clients do not get upset about costs when they see them coming. They get upset about surprises.

If you are already dealing with invoice disputes, it is probably because weekly updates were not happening.

The Budget Threshold Conversation

Agree on a dollar amount or percentage that triggers a mandatory conversation. For example: “If the running total reaches 80% of our high-end estimate, I will stop and we will talk about next steps before continuing.”

This gives the client a safety net and gives you permission to keep working confidently up to that point. It also protects you from the accusation that you “just kept billing” without checking in.

Document Everything in Writing

Verbal approvals are worthless when money is on the line. If the client tells you on a Tuesday morning to go ahead and add a second bathroom to the scope, send a follow-up text or email that says: “Confirming our conversation this morning. You have approved adding the second bathroom on T&M at our agreed rates. We will start that work tomorrow.”

It takes 30 seconds and saves you thousands.

Converting T&M to Fixed Price: When and How

One of the smartest things you can do with T&M billing is use it as a bridge to a fixed-price contract. Here is why and how.

Why Convert?

• Clients want certainty. Once the unknowns are resolved, most clients would rather know the final number. That peace of mind is worth something.
• You can lock in profit. After the discovery phase on T&M, you have real data on conditions, productivity, and materials. Your fixed-price number will be based on facts, not guesses.
• It reduces admin. Fixed-price billing is simpler than tracking every hour and receipt. Less paperwork for your team and less scrutiny from the client.
• It shows professionalism. Transitioning from “we are figuring it out” to “here is the price for the rest” builds confidence.

How to Structure the Conversion

Build the conversion into your original T&M agreement. Include language like:

“Phase 1 (demo and investigation) will be performed on a time-and-material basis at the rates listed in Exhibit A. Upon completion of Phase 1, Contractor will provide a fixed-price proposal for the remaining scope of work. Client may accept the fixed-price proposal or elect to continue on T&M terms.”

This sets the expectation from day one that T&M is temporary, not permanent.

Pricing the Fixed-Price Phase

Use your T&M data from Phase 1 to build the fixed-price number. You now know:

• What is actually behind the walls
• How productive your crew is on this particular job
• What the material requirements look like
• What the client’s decision-making pace is (slow client approvals = more overhead)

Apply your standard construction pricing strategies to build a number that accounts for the remaining scope, your overhead, your profit target, and a reasonable contingency.

The Transition Meeting

Sit down with the client (in person if possible) and walk them through:

1. What you found during the T&M phase. Photos help. “Here is the rotted rim joist we found behind the siding. Here is the undersized beam in the crawl space.”
2. What the remaining work includes. Give them a scope document, not just a number.
3. The fixed-price number and what it covers. Be specific about inclusions and exclusions.
4. What would trigger a change order. Set boundaries so you do not end up eating scope creep.
5. Timeline for the remaining work.

When you present it this way, the client feels like they went through a thorough process rather than just getting a number thrown at them. And because they have already seen your T&M work quality and communication, they trust the fixed price you are presenting.

T&M billing is not complicated, but it demands discipline. Track every hour. Document every material. Get daily signatures. Communicate costs weekly. And when the scope becomes clear, have the confidence to convert to fixed price and lock in your profit.

The contractors who do T&M well are the ones who treat it like a system, not a guessing game. Set up your rate sheets, train your foremen on daily tickets, and use software that makes field tracking painless. Your clients will appreciate the transparency, your margins will hold up, and you will stop leaving money on the table.

Want to see this in action? Get a live demo of Projul and find out how it fits your workflow.

If you are still tracking T&M with spreadsheets and paper tickets, it might be time to look at how construction billing software can take the friction out of the process. Your future self (and your accountant) will thank you.