Advice From an Expert
Since we live in Canada, we sought the advice of a Canadian expert on the distinction between T&M and CPPCF contracts. We turned to Al Morgan of Revay Associates, a company that specializes in contracts and construction claims analysis. We asked him what's the difference, to which he replied:
Good to hear from you.
Getting to your question. First, it depends on the understanding of the contract wording and the importance of recognizing that there is a lot of negotiating that takes place between the owner and contractor that blurs the differences somewhat. From my years on various construction jobs this is a bit of what I've picked up working as a contractor.
Time and materials does not necessarily include the cost of supervision because this is most often considered as part of the contractor's markup. Over the years as a contractor, I have often engaged in differences with the owner on T&M contracts for the cost of a superintendent. With a small crew a superintendent will perform some of the direct work but owners seem prone to seeing this, as an opportunity to exploit the contractor by refusing to pay for a superintendent doing work because he is considered overhead and therefore his cost is to be included in the markup. If I called the superintendent a foreman there would not seem to be a problem. It is the person's job title that causes the problem and this would seem to stem from the fact that most contracts stipulate that a superintendent is to be designated.
During the planned course of the contract term, the contractor should have allowed for the cost of a superintendent but if the contract time limit is extended, then the cost of the superintendent gets lumped into the fixed markup allowed on time and material. For a small amount of extra work this is a loss to a contractor. In one case I had to become a foreman because if we hired another boilermaker welder I would then have to hire a non-working boilermaker welding foreman. At that time the collective agreement required that we must hire a welding foreman after the fifth or sixth welder was hired. The additional welder was only required because we had to undertake extra work on T&M and in this case, the owner refused to pay for the welding foreman.
With cost reimbursable contracts there is usually one major factor that distinguishes reimbursable costs from T&M. This basic factor arises from within the contract where the actual costs that are reimbursable are all stipulated in the contract document. This is important because site overheads can cover a lot of items that would not necessarily be considered as part of the markup on a T&M contract. One such major difference can arise on the payment for the cost of equipment. With a reimbursable contract it would cover the invoice cost of equipment but with T&M it would only cover the working time and rate as agreed to and signed by the owner.
Cost reimbursable is like a hybrid between Construction Management and T&M with some differences in risk arising from limits on the fee and markup.
Another difference I have noticed is one of an attitude difference. On reimbursable contracts the owner seems to give more consideration in requesting staff for planning, scheduling and purchasing. With T&M, the owner seems to manage (and I use the word loosely) more by whim and by golly and expects the contractor to carry out all construction functions instantaneously as part of its indenture into T&M slavery.
I'm not sure I've given you any further insight into what might be considered as some of the differences. I think some of the differences are picked up by experience where you learn what the owner expects from the contractor rather than what the contract actually says.
Well, there's a nice bit of experience for you! For the record, it is T&M that is used regularly to pay for "on-site" changes in construction work, especially if they are of an urgent nature.