Time & Material Bid

bwat

EE
Location
Western PA
Occupation
EE
How often do you guys get requests for formal competitive bid where the customer wants it to be T&M not-to-exceed?

Gets under my skin a little. Either make it a competitive bid and firm fixed or make it T&M. If my company is taking on risk by making a bid lower in order to win it, we should be the ones to benefit if we’re able pull it off for less. Risk = compensation.

Very rarely does this competitive T&M NTE bid type ever happen, but it’s happened a couple times semi-recently. We do a lot of firm fixed and also T&M. No problem with either. Usually the T&Ms are not to exceed anyway, but they usually aren’t in a bid process where we could have lost it by someone beating us by 5-10K. We’re on the engineering design-build side. We do all sizes but let’s say this is around $100k bids. Interested to hear how much others come across this in all electrical fields. Maybe everybody deals with this a lot more and I’ve just been fortunate to be spared from it.
 

don_resqcapt19

Moderator
Staff member
Location
Illinois
I will bid a job as a hard money bid or give an estimate for a T&M project, but will not give a T&M not to exceed price. You have it exactly correct the risk = compensation, and you don't have than in a T&M not to exceed.
 

paulengr

Senior Member
There is no risk in a T&M. The customer accepts all risk including performance. If you hit the not to exceed value that’s it.

Realistically in a T&M you are bidding three things. Your reputation, your hourly rate, and your materials markup. No risk contingency at all.

There are three reasons to use T&M. The first is when the job scope is so poorly defined that your risk contingency explodes. For instance troubleshooting...you can’t possibly know how much time or materials are involved. This is typically T&M work.

Second is when simply loaning our employees or selling materials. You are basically a recruiter or a distributor. You are charging your markup and that’s it. Only risk
Is nonpayment and/or law suits.

Third is when it’s a legitimate bid but someone else is eating risk contingency. So say I’m doing a $50 million project. I get buds from my contractors who all put risk contingency on their bids. Then I add them up and add additional project risk contingency (10-20%). The thing is I’m double dipping...contingency on contingency. So if the project budget is tight some project managers want T&M bids do they manage risk all in one big pot of money, which can trim 10% off a project.

The downside from a project management point of view is there is no incentive for the contractor to control costs. Contractors profit is locked in. If the T&M budget blows up its not the contractors issue. On fixed bid normally the contingency budget IS the profit on the job. Contractor eats every hiccup that isn’t unforeseen. So they do anything to keep costs down and get done as fast as possible.

On a particular large project one contractor did a cost sharing scheme. They had prenegotiated change order rates bid at a cost plus rate, and a bonus for early completion so instead of giving away profit as in a pure T&M not to exceed they received a bonus for early completion or going under budget on materials where they split the money 50/50 with the customer. These schemes attempt to maintain the incentive of fixed bid while still moving most of the risk contingency into the project budget.
 

bwat

EE
Location
Western PA
Occupation
EE
Thank you all for the responses. It sounds like this isn't very common in general, which is a good thing. I didn't know if I was being unreasonable about it.

Not To Exceed does not mean there are no change orders
Yes, but a change order can't have the reason of "I estimated low" if I was bidding against others to win it.


There is no risk in a T&M. The customer accepts all risk including performance. If you hit the not to exceed value that’s it.
This is the way it SHOULD be, and is more like the standard T&M that we do every day, but not in the situation I'm describing where there is a competitive bid but the billing terms are T&M NTE. If you hit your budget but didn't complete the bid-upon spec, you're expected to remedy it without additional funds. Unless there were changes of course. And exaggerated change orders never make a client feel good about working with your company.



@paulengr I appreciate the rest of your post and the cost/profit sharing is a good middle ground. I'm all about being reasonable. I may keep that one in mind just in general. Even if it's not a bid job that might make everyone happy.
 

bwat

EE
Location
Western PA
Occupation
EE
I have worked for some people for years they tell me what they want i do it and send a bill. Its all about trust
Yes, we do that all the time as well. That's the typical T&M model, and is great, but not what I was describing here with a bid process.

It's higher than years past, but I would actually say the last 2 years at least 90% of my work has been T&M in the same way you describe with key repeat clients. No problems there.
 

bwat

EE
Location
Western PA
Occupation
EE
T&M not to exceed is an oxymoron. :)
Haha in a way I agree. Around here, T&M NTE typically means T&M with a nice contingency on it to make sure you'll get the whole job done and the final billed number is lower than (or equal to) your proposal. It's a ceiling. In other words you have to make a really good case for a supplement/change order to go over that number that conditions called out before contract award were different than actual.

We see T&M NTE when the spec isn't all that clear, the client wants to come only to you on a T&M basis (no bid), but wants a maximum. Usually we make all kind of assumptions and clarifications in our proposal for something like this. Usually the job is yours unless you give them a ridiculous number that they don't like and then go elsewhere.

T&M estimate is usually just an estimate. Of course it's good to still come in under this number, but it's usually a best guess with little contingency and usually not bid against others, but can be. Some wiggle room to ask for a supplement if you go over.

This is at least what we see.
 
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