T&M Estimates vs. Quotes – how to avoid projects where change orders are larger than the original contract value.

Anyone reading this newsletter is likely no stranger to the need to get quotes for work that is needed. Whether for a home remodel or a multi-million dollar turnaround, a quote ensures the project fits into the confines of the budget.

When it’s time to discuss that estimate with your vendor(s), it’s important to consider whether you should push for a firm/hard dollar quote or stick with an estimate and a Time & Material (T&M) arrangement with an agreed-upon rate sheet.

The most enticing aspect of a firm quote is cost control. If there is a rock-solid scope with little chance for additional/surprise work cropping up, a firm quote can be the best way to budget and execute a major project. T&M may seem to give the vendor a commercial advantage, but in the right situation with the right controls, it can easily work to both parties’ benefit.

To provide a firm quote in most “repair” situations, it is crucial to determine a solid scope of work based on what is known. Sometimes, it is clear what is wrong and therefore what the prescription must be to arrive at the solution. In those cases, a firm quote can be the best way to a solid budget.

On the other hand, if the issue isn’t obvious, it can be beneficial to operate under a T&M arrangement based on a rate sheet. Typically, an estimate based on a certain number of shifts goes along with this type project so there is at least a rough understanding based on some intelligence how long the repair might take (or a range of how long…).

A T&M project can also be started more quickly and is more flexible than a firm quoted project.

The most important aspect of entering into a Time & Materials contract is trust between both parties. Without trust, the project can deteriorate quickly. If all parties come to the table, leading with transparency, ready to trust and be trusted, T&M can make for a much smoother commercial situation.

Choose the right project type early and everyone will benefit.