T&M Verses Bid

[rev1]

We do a lot of T&M work. Someone on this site once said "T&M will keep you eating....but some prefer steak to hot dogs". Can someone help break this down? I was given a 500k ish job at T&M, Is this a mistake? Should I bid it? I am a company that wants to grow. Help!!!!

 

[infinity]

T & M in this economy is a contractors dream. No more worrying about bidding against a low baller who's starving for work.

Welcome to the forum.

 

[chris kennedy]

I have had a crew or two working T&M now for a couple months. I don't mind eating hot dogs, but I don't own the company. Lets just say the owner of my company is not up my rear, he is happy I can keep guys working.

Welcome to the Forum.

 

[celtic]

Someone on this site once said "T&M will keep you eating....but some prefer steak to hot dogs".
Can someone help break this down?

I wonder who said that?



In any given year there are appx. 2000 working hours....multiply that by your rate and that is the max. you can make in a year.
There is very little risk, and very little reward.

Conversely, by bidding the job - and taking on the additional risk of your hours being low ~ but charging a higher rate for this guaranteed price...the reward is increased.

 

[Dolfan]

I wonder who said that?



In any given year there are appx. 2000 working hours....multiply that by your rate and that is the max. you can make in a year.
There is very little risk, and very little reward.

Conversely, by bidding the job - and taking on the additional risk of your hours being low ~ but charging a higher rate for this guaranteed price...the reward is increased.

Man, I would give up......the spanking that my Canes gave to the Noles just to see your face....to compare to your profile picture of course!

 

[12345rsmith]

T&M is a great turn on money provided you can get paid on your time quickly. If you keep turning your money every month, that 5% profit can really add up.

1.05x1.05x1.05x1.05x1.05x1.05x1.05x1.05x1.05x1.05x1.05x1.05= 1.8 would be one way to look at it. Even if you don't compound 5%x12 is 60%. A 60% annual return on investment for a relatively low risk contract is not bad at all.

In bid jobs with long durations where the owner payments start making the project self funded after a couple of months the return (with the embedded leverage) can be enormous. But the risk is correspondingly large. If the owner is slow to pay, or you made a mistake in estimation/project management you will get creamed.

 

[emahler]

it really depends...i've found that few contractors actually charge an hourly T&M rate that covers all their costs and generates a profit on labor...unless, they are billing for every min they are paying the jw...including any travel time...

T&M vs Bid, can be compared to an employee working hourly or piece rate...same difference...

some guys make a living at T&M, but would lose their shirts on bid work...some employees make a great living on piecework, but would earn 1/2 as much on hourly...

make your choice...

a $500k T&M project is great, unless you are losing a dollar an hour cause your T&M rates are too low...

 

[bradleyelectric]

T&M is a great turn on money provided you can get paid on your time quickly. If you keep turning your money every month, that 5% profit can really add up.

1.05x1.05x1.05x1.05x1.05x1.05x1.05x1.05x1.05x1.05x1.05x1.05= 1.8 would be one way to look at it. Even if you don't compound 5%x12 is 60%. A 60% annual return on investment for a relatively low risk contract is not bad at all.

In bid jobs with long durations where the owner payments start making the project self funded after a couple of months the return (with the embedded leverage) can be enormous. But the risk is correspondingly large. If the owner is slow to pay, or you made a mistake in estimation/project management you will get creamed.

If you make 5% a month for 12 months, you've made 5% not 60%. There is no problem with working T&M on long term projects. The problem with working T&M is for the most part doing short term service work.

If you figure your true costs of doing business and add profit to it and get that there is nothing wrong with it. The problem with T&M is trying to double that amount and getting the client to accept that. On most short term service 50% is average billable. Therefore it is easier to get $250/hr (a figure for discussion sake) if you don't present it as an hourly rate, but as a flat rate based on how long it would take to do the job.

Long term T&M all time is billable. Therefore your T&M rate seems more reasonable. Hopefully you can get 10% or better after costs.

This is all based on whether you actually are using good numbers instead of "what the market will bear" or "the going rate"

 

[emahler]

that all sounds familiar

 

[12345rsmith]

Sigh, It is math. No you do not make 5% for 12 months, and then at the end of the year you only only have a 5% profit on your net.

You start with $100 dollars and your T&M project that allows 5% proffit.

You spend $100 dollars in June. You bill $105 and get it in July. In one month you have $5 dollars more. You now spend the same $100 dollars in July (because your client reimbused you for the original $100), and you get another $5 profit the next month. You started with $100 and now you have $110 dollars only two months later. If you spend the same amount on this client every month, by the end of the year you will have $160 dollars.

That is the 60% margin. Now if you took the $5 and are able to plow it back into the businees and use it on other 5% T&M projects you would get the $180 amount.

Obvioulsy how quickly you turn around your billing and how quickly your client pays you are critical. The slow paying jobs/clinets are far more expensive to you then even your typical cash flow analysis would allow for.

 

[macmikeman]

I could do well with a 500k T+M job cause I would staff it with a third rate crew, cut every corner known to man, and pad the bills with hours not worked to make up for any losses incurred by lost calculations of overhead.
Now before you all blow a fuse, that is pretty much the same as what the standard T+M outfits that do 1000 or so $500 dollar T+M projects a year do, instead of just one 500k job.

 

[petersonra]

it really depends...i've found that few contractors actually charge an hourly T&M rate that covers all their costs and generates a profit on labor...unless, they are billing for every min they are paying the jw...including any travel time...

Some business people do not have a good idea what their real costs are.

Labor cost is a funny thing to calculate. There is a lot of overhead that has to be included in the labor rate, but there is really no good way to figure out up front how much total overhead there will be nor how many billable hours.

Its one of the reasons you sometimes see job foremen doing paperwork you might expect would otherwise be done by a clerk somewhere.

 

[jimmyglen]

at our shop we try to bid everything - we dont like T and M


with that being said

FORGET THAT

TAKE THE JOB!!!!!

 

[satcom]

T&M has it's place, and at times may be the best choice for some accounts.

I think the main reason, many shy away from Bid work is they don't have the estimating skills needed to make profitable bids. The guys in this situation should not remain afraid to bid, all most need is some estimating trainning and a mentor to help them put those first few bids together.

 

[CopperTone]

nothing wrong with T & M - the problem guys have is they are not charging enough hourly and not billing for every hour.
We do a lot of work T&M - from time we pull in to time we pull out - charge for stock runs, breaks, etc. We will bill for 8 hrs at the proper hourly rate - you should make plenty of money.

When I do bid jobs I try to keep the hours on the job low and do as much prep work prior to the job - with T&M - I do all planning and prep work on the job site including stock runs.

GC's like t&m because they get the EC to lower their hourly rate and stay on them to get it done. they are not dummies.

 

[macmikeman]

nothing wrong with T & M - the problem guys have is they are not charging enough hourly and not billing for every hour.



GC's like t&m because they get the EC to lower their hourly rate and stay on them to get it done. they are not dummies.

These two statements just about cover the whole problem with T+M without having to say more. Anybody who doesn't understand why for some of us its such a loser option should just meditate on CopperTones two sentences for about three days with no food or water. Did you ever have any T+M customers say its ok to add 100% to the bill once its all done? Well I make it a habbit to figure out what a job will cost me, hours, labor, overhead, downtime, tools, etc, and then I routinely double that number and submit. I work lots of jobs every year using that very method. Could never get anywhere close to that doing T+M.

 

[petersonra]

nothing wrong with T & M - the problem guys have is they are not charging enough hourly and not billing for every hour.
We do a lot of work T&M - from time we pull in to time we pull out - charge for stock runs, breaks, etc. We will bill for 8 hrs at the proper hourly rate - you should make plenty of money.

When I do bid jobs I try to keep the hours on the job low and do as much prep work prior to the job - with T&M - I do all planning and prep work on the job site including stock runs.

GC's like t&m because they get the EC to lower their hourly rate and stay on them to get it done. they are not dummies.

Why would you not bill for all the hours on a T&M project?

When we do change orders, we even add the time into the change order it takes for us to process the C.O.

 

[Sierrasparky]

you bill for every hour. unless you know your guys are playing around not working and the super sees this.
In any case you have to bill for everything.

 

[Chamuit]

When I do bid jobs I try to keep the hours on the job low and do as much prep work prior to the job - with T&M - I do all planning and prep work on the job site including stock runs.

I always include this time when doing T&M at the full hourly rate (Electrician + Helper.)

All time is money. I even charge for lunch breaks on T&M. (Somebody's has to pay for lunch. )

I intend to make money at the end of the day not lose it or break even.

I've learned a lot from lurking here. There is a lot of billable time that gets missed, if you aren't paying attention.

 

[Sierrasparky]

I always include this time when doing T&M at the full hourly rate (Electrician + Helper.)

All time is money. I even charge for lunch breaks on T&M. (Somebody's has to pay for lunch. )

I intend to make money at the end of the day not lose it or break even.

I've learned a lot from lurking here. There is a lot of billable time that gets missed, if you aren't paying attention.

I don't think it's right to charge for lunch. you don't pay your workers while at lunch do you?