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Accounting Industry Insight

How to Create a Time & Materials Billing for Construction Projects

In our final article series covering the main types of billing methods in the construction industry, we’ll be discussing time & materials billing and its key benefits.

Some general contractors prefer time and materials billing, as it shifts most of the risks onto their customers. Any costs incurred come out of the customer’s pocket, not the contractor’s. This format allows them to focus on their profits and concern themselves less with the unpredictable nature of contracting. 

While the time and materials agreements are straightforward, the act of putting together a bill can be daunting. Contractors have to collect all the receipts for all of the materials they purchased throughout the course of the project (possibly with mark-up), account for manpower, and add any support documentation that the customer requests. Factor in time for manual data entry (and the mistakes that tend to come along with it), and the process gets even more convoluted. 

Thankfully, Premier Construction Software provides a time and material billing solution that quickly and easily generates accurate, professional invoices.  

What is time and materials billing?

A time and materials billing format involves the contractor charging the customer for, quite literally, time and materials. The contractor bills for every man-hour spent on the project, as well as for any materials purchased for that job. Labor rates are typically outlined in a simple format in the contract, though these rates can vary depending on the tradesperson working on the project.

On top of the labor rates and materials costs, some time and materials contracts allow the contractor to mark the cost of the materials up a bit. Again, this is something the contract will clearly outline, but it does help the contractor maintain a healthier profit margin. Should the customer decide to use high-end materials, the contractor’s profit will grow accordingly. 

To calculate a time and materials invoice, a contract needs to multiply the man-hours by the agreed-upon rate for each trade, and then add it to the materials costs (plus the markup, if contractually allowed). This is a very transparent billing format where the customer is aware of everything other than the hourly rate you’re paying your crew.  

Time and materials contracts are most suitable for projects where the scope isn’t crystal clear. If the customer is undecided on materials, direction, or the project is ripe for unforeseen costs, time and materials contracts help keep the contractor and customer on the same page. It also does away with pinpoint estimating, allowing contractors to get to work right away.

This billing format does hold a few disadvantages for the customer. Contractors have to be meticulous with record-keeping, from receipts to man-hours. One missed expense and the profit margin shrinks. Also, the costs to get the project off the ground are on the contractor’s shoulders, making timely accurate documentation and timely billing a sink-or-swim proposition.

How to calculate a time and materials billing

The first step for a contractor to be successful under a time and materials contract is meticulously detailed record keeping. This includes documenting labor, equipment rentals or purchases, and materials. 

Contractors need to log each of those costs into Premier Construction Software’s accounting system to ensure the contractor can charge for them when it’s time to bill. They also need to consolidate any separate ledgers, time logs, or job cost entries with the job. Any cost accidentally left out or forgotten comes directly out of the contractor’s profit. 

Creating your bill is easy. While you’re in the time and materials billing module, simply select the costs and labor hours to add. You can set each cost to bill with the current invoice, save them for later, or mark them as never bill. 

Once you select all of the costs and their billing designations, Premier Construction Software will automatically calculate the invoice. The system will automatically determine the appropriate rate for each man-hour by the labor code. And, if the contract allows, you can set the time and materials billing module to add set percentages for materials markups.

Once you review the invoice, Premier Construction Software will send the bill automatically via email to your customer. Your customer will be able to open the invoice from any internet-enabled device, drastically reducing the amount of time it takes to get paid.

What documents should be included with a time and materials billing?

Top view of general contractor working on aia application for time and materials billing

Each project has different billing requirements, including what supporting documents the customer wants included with the invoice. Luckily, Premier Construction Software’s document management system makes it easy.

Most time and material billings will include the following backup:

Invoice – The invoice should provide a summary of the amount. It should include the number of man-hours, and the labor rate, material expenses, and the overall markup.

Transaction list – Include a detailed report of the labor hours and costs for which you’re billing. The customer will want to review this list for accuracy and use it for their own reporting purposes.

Copies of invoices and receipts – Most customers will want copies of your accounts payable invoices that are being used to determine the invoice amount. They’ll also likely want to see any store receipts for smaller purchases. 

You can spend hours tracking these down and making copies, or you can use Premier Construction Software’s document management tool to automatically add copies of pertinent invoices to the email that goes to your customer.

Copies of timesheets or certified payroll reports – Customers may also want to review copies of your employee timesheets showing the hours worked on their project. 

If the project is prevailing wage, you may also have to provide certified payroll reports. These reports list all the employees on the project, the hours they worked each week, and certify that they were paid the correct wages and benefits.

Lien releases or waivers – Some customers may require copies of lien releases or waivers from your vendors and subcontractors as proof that they have been paid.

Time and material billing doesn’t have to be a waste of time

Preparing a time and materials bill for construction projects requires a keen eye for detail. Being able to put your finger, or mouse, on every receipt and timesheet that applies to a project will ensure you aren’t leaving money on the table. And, the faster and more accurate this process is, the better. 

Using Premier Construction Software’s document management system with the time and materials billing module will streamline your time and materials billing process. You’ll be able to create accurate invoices instantly, free from missed line items or forgotten costs. And, with electronic signatures, you’ll even reduce the amount of time it takes to get paid.

If your team struggles with assembling time and material billings, let us show you a simpler, easier way. Book a call with one of our representatives today to see it live.