Published here November, 2005.

Introduction | Book Structure | What We Liked
Some Gems Worthy of Note | Downside | Advice From an Expert | Summary

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.

Regards, Al"

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.

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