What each one actually does
A fixed-price change order puts a number on defined work. You carry the risk of your estimate; the owner gets certainty. If it takes longer than you priced, that's yours.
Time and materials bills actual labor, equipment and material plus an agreed markup. The owner carries the risk of the unknown; you carry the burden of proving every hour.
Neither is better. They allocate risk differently, and the right choice follows from one question: can the scope be defined well enough to price it?
When T&M is the right call
- Unknown conditions. You opened the wall and found something nobody could have priced. Estimating blind means padding heavily, which the owner will reject, or guessing low, which you'll eat.
- Emergency or protective work. A water line breaks. Stopping to price it costs more than the work.
- The owner wants it started now. Common on fast-track jobs. T&M lets work proceed while the change gets priced properly.
- Investigative work. Opening things up to find out what's there is, by definition, unpriceable.
When fixed price is the right call
- The scope is definable. If you can describe it and count it, price it. Owners prefer it and it's faster to approve.
- The work is repetitive. You've done this twenty times and know your production rates.
- The owner is price-sensitive or institutional. Public owners and large institutions often have policies against open-ended T&M and will make it painful.
- The change is small. Below some threshold, the administrative cost of tracking T&M exceeds the risk you're hedging.
The hidden cost of T&M
T&M looks like the safe choice because you can't lose money on the estimate. The exposure moves rather than disappearing.
| Where it bites | What happens |
|---|---|
| Daily tickets not signed | Most T&M provisions require the owner's rep to sign tickets daily. Unsigned tickets get challenged, and "he was never on site to sign" is not usually accepted as an answer. |
| Line-by-line scrutiny | Every hour is visible and therefore contestable. Fixed-price work is never audited this way. |
| Markup disputes | If the markup wasn't agreed in writing before the work, expect an argument about what's allowable. |
| Idle or inefficient time | Hours spent waiting are real costs that are hard to bill and easy to challenge. |
| No cap, no approval | Many owners will not authorize open-ended T&M at all. A not-to-exceed number is often what makes it acceptable. |
The hybrid that usually works
The practical answer on most jobs is neither pure option: T&M with a not-to-exceed cap, converting to fixed price once scope is known.
The owner gets a ceiling. You get to start. And there's a defined moment where the unknown becomes known and the pricing method changes. Write into the authorization what triggers the conversion — typically "upon completion of demolition and exposure of existing conditions."
What decides it either way: the paper
For T&M: daily tickets signed by the owner's rep, labor by name and classification and hours, material with backup, equipment with rates, and the agreed markup stated in the authorization rather than assumed. Get tickets signed daily. Tickets signed in a batch at the end of the month are worth a fraction.
For fixed price: a scope description specific enough that both parties would describe the same work, the price, the schedule impact, and a signature. If the schedule impact isn't stated, you've agreed the change is free of delay whether or not you meant to.
For both: whatever was said on the call where this got decided. The pricing method, the cap, the markup and the trigger for conversion all get agreed verbally, hours or days before anything is signed. If that conversation isn't captured, the written document that eventually appears may not match what was actually agreed — and by then the work is underway. See documenting verbal change orders for the same-day method.
Common questions
When should a contractor use time and materials instead of a change order?
When the scope genuinely can't be defined well enough to price: unknown existing conditions, emergency or protective work, investigative work, or when the owner wants work started before it can be estimated. If the scope is definable, a fixed-price change order is usually better for both parties.
Is time and materials riskier for the contractor or the owner?
T&M shifts cost risk to the owner, which is why owners resist it. But it shifts documentation risk to the contractor — every hour is visible and contestable, and unsigned daily tickets are among the most common reasons T&M billings get challenged.
What is a not-to-exceed T&M change order?
Time and materials billing with an agreed ceiling. The owner gets a cap on exposure, the contractor can start immediately, and many owners will authorize T&M only in this form. It's often paired with a trigger that converts the work to fixed price once the scope becomes known.
What documentation does T&M work require?
Daily tickets signed by the owner's representative, labor recorded by name, classification and hours, material costs with backup, equipment with agreed rates, and the markup stated in the written authorization. Tickets should be signed daily — batched signatures at month end are significantly weaker.
Should a change order state the schedule impact?
Always. A change order that states price but is silent on time can be read as an agreement that the change caused no delay. If the work affects the schedule, say so in the change order, even if the impact is still being evaluated.
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See how it worksThis article is general information for contractors, not legal advice. Construction law and contract terms vary by state and by agreement. Talk to a construction attorney about your specific situation.