How can you manage costs with a time and materials vendor contract?

In my experiences, this process seems to favor the site work contractor more than other trades. Also, with their equipment, their rates for T& M are much higher. You must agree to rates charged while in the contract phase as opposed to at the time of the work. If the site work has other bidders, the rates will never be cheaper. Dependent on equipment and manpower, rates could be as low as $500 to many thousands of dollars per hour. Determine who will monitor the work. If the superintendent can’t spare the time,a 3rd party geotechnical inspector is advised. If so, give him decision making responsibilities if unforeseens are encountered, and hire a firm that has the resources and experience needed, and that you are comfortable with.

Managing time and material vendors has taught me valuable lessons. While a trusted vendor might not need detailed invoice verification, it's crucial. Enforcing timely invoices is a game-changer. I delve into every resource (people or otherwise) on invoices—not just for errors but to catch unforeseen ones. This diligence prevents surprises and boosts audit confidence. Don't shy away from flagging errors; tracking them as KPIs ensures a smoother vendor journey.

A very important aspect of management of vendors comes from feedback loops and policy interventions. It is imperative for organisations to consider and reconsider processes in place and make them more inclusive and rounded towards the feedback and impact of earlier policies. There needs to be mechanisms in place and upgradation of tool utilised and a continuous improvement process embedded into the framework.

When dealing with a time and materials vendor contract, you can manage costs effectively by setting clear expectations upfront. Define the scope of work, establish hourly rates, and outline any maximum limits or budgets. Regularly monitor the project progress, keep an eye on the time spent and materials used, and communicate openly to ensure costs align with the budget. Additionally, negotiating fixed rates for specific tasks or setting milestones can help control expenses while maintaining flexibility within the contract.

One area that is often overlooked is a well defined change management process. Having this done as apart of the contracting process allows the vendor to document and communicate anticipated changes proactively, secure the necessary approvals, and critically assess the impact on the budget BEFORE the green light is given to mobilize work.

Additionally, BCP should also be encapsulated and given weightage in evaluating vendor capability to meets KPIs in odd times. Periodic reviews plays critical roles in long run.

This type of pricing model has imbalanced price and schedule risk with maximum exposure for employer/client. One of the main reason to consider this arrangement is when the scope is not explicitly defined and schedule is at risk. Employer need very strict vigilance and track of day to day resources as well as close monitoring of resource utilization. It’s strongly advised to agree on a productivity factor so that the resources are tracked having regards to available work fronts. Employer must make sure that resources are only mobilized/ramped up when there is adequate work fronts available to alleviate resource idling.

You are missing the single most expensive part of a T&M contract. The hiring clients own staff. There is NEVER a project that does not include the Customer’s own employees as part of a project. In my vast experience, the customer often has poor project managers, politics around said project and a lack of actual requirements. Add to that the fact that you refer to the partner as a “vendor” throws us back at least a decade. This is a weak and outdated “guide” to T&M contract handling. Oh, and one sided in case that needs to be called out.