A Time and Materials Construction Contract is an alternative to a Fixed Price Construction Contract. In a Fixed Price Construction Contract, the contractor provides specifications for a job that will be done and includes the price of completing the work. In a Time and Materials Contract, the contractor specifies an hourly wage for work to be performed. The buyer/investor commissioning the construction project will pay the hourly wage for the work as well as the actual cost of materials.
Time and Materials Construction Contracts are used only in very limited situations and carry many risks for contractors and for buyers/investors. Before entering into a Time And Materials Construction Contract, it is essential to speak with a qualified and experienced legal professional for advice on the risks. Lotzar Law Firm, P.C. can advise you on whether a Time And Materials Construction Contract in Scottsdale is appropriate and can assist in drafting a contract that is sufficiently protective of your interests.
Understanding a Time and Materials Construction Contract in Scottsdale
When a contractor and a buyer/investor enter into a Time and Materials Construction Contract in Scottsdale, the contractor includes an hourly rate that should cover his profits, his expenditures and his overhead. The contractor will not take a markup on materials, so the cost of doing business should be entirely accounted for when the contractor specifies the hourly wage.
Time and Materials Contracts are generally utilized only when conditions make it impossible to determine the duration of the work to be performed or the cost of necessary materials. A Time And Materials Contract may also be appropriate in circumstances where there is limited time before a project must begin and a contractor is unable to put together a comprehensive pricing estimate by securing bids from subcontractors or estimates on material to be used.
Time and Materials Contracts are used only in such limited circumstances because there is significant risk associated with this type of agreement. A buyer is unable to arrive at an estimate of the final cost of the project, which can create uncertainty. Because of this uncertainty, lenders may refuse to provide a Loan for a project using a Time And Materials Contract unless there is a “not-to-exceed” clause specifying a maximum cost.
A “not-to-exceed” clause will shift the risk of overruns and excess expenditures to contractors performing work. When the limit has been reached that is specified in the contract, written authorization for additional work will need to be provided or a contractor may be unpaid for work performed.
Time and Materials Contracts frequently lead to litigation because of the uncertainty associated with the project’s scope and cost. Lotzar Law Firm, P.C. can advise clients in Scottsdale, Phoenix and throughout Arizona about the risks, negotiate a contract that protects clients interests, and represent them when disputes arise over a Time and Materials Agreement. Call today to speak with a member of our legal team and learn more.
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