FAQS - The Advantages of Time and Materials Billing
Time and material agreements based on labor and material or project costs incurred can be beneficial to the owner. The owner pays only the labor rate and material costs incurred for the project work, plus the contractors markup.
The owner does not need to pay for the contractors contingency or padding which is sometimes factored into a lump sum bid to compensate the contractor for the inherent risks of the project.
In addition, if the contractor or the owner is able to reduce the anticipated costs of certain phases of the work through his ingenuity, these savings will be passed on to the owner rather than being retained by the contractor as they might with a fixed-price contract.
When time and material agreements are executed well, the owner pays no more or less than the actual time and material to build his project, plus a markup. This seems inherently fair to both parties as long as both live up to their promises, and have a high level of integrity and competence.