The central purpose of the time and materials contract is to get contingent workers on the project. Yet it’s all too easy for the labor costs of a T&M contract to expand out of control. That is why it is essential to understand the factors that drive cost, and to control those factors to protect the project sponsor from unnecessary risk.
The T&M Contract, Explained
Dave Gordon, writing for the Practicing IT Manager describes the typical T&M contract:
Time and materials contracts are frequently used for staff augmentation, when an organization needs labor types that they don’t have on staff, in order to complete some project or task. Generally, these contracts are based on an imprecise statement of work, with relatively few specific deliverables. Cost is calculated from an estimated number of hours at the specified price per hour for each labor type, with some estimate for expenses, to be passed along without markup.
The schedule for a T&M contract is usually not detailed, with no “end” date specified. That is why, to manage the contract, the PM needs to consider the three essential factors of scope, cost, and schedule. Knowing which element of the project is the least flexible should give you the best idea about which skills to prioritize for the project.
Additionally, for a T&M contract it may be difficult to define quality, since it’s not the tangible ‘brick and mortar’ you’re dealing with, but rather labor hours. Gordon recommends specifying quality at the task level. For instance, by asking for a draft plan for training employees on a new process, you can avoid paying for specialized labor where a single commodity editor would suffice. He similarly warns against automating every condition to avoid inefficient and redundant activities.
Also, in a contract that involves staff augmentation, travel costs can be considered as materials and can eat up the allotted budget. Why bring the new staff on site when the work could potentially be conducted abroad? Not only is travel a waste of valuable time that could be better spent creating product, it’s also largely unnecessary in light of document sharing tools and conference calls.
To read the full article, visit: http://blog.practicingitpm.com/2014/08/26/managing-time-materials-contracts/