A time and materials contract pays a contractor for the hours its people work and the materials it uses, at rates agreed in advance. Owners choose it when scope is hard to define before work starts, which is common on capital projects and plant turnarounds. The structure is practical, but it moves cost control from the agreed terms to each invoice. Every bill becomes a set of inputs: hours, labor categories, rates, materials, and markups. Owners who run a capital project management program treat those inputs as the place where cost is controlled, not as a formality before signature.
How time and materials contracts work
Under a time and materials contract, the owner pays for each hour worked at a set labor rate and reimburses materials at cost or with an agreed markup. The contractor is not bound to a fixed amount for the finished work. A not-to-exceed ceiling limits total billing, but it does not confirm that any single invoice is accurate.
The contract usually defines labor categories, and each category carries its own rate. A foreman, a journeyman, and an apprentice may bill at different hourly rates, and each person should be billed in the category that matches the work actually performed. The rate schedule often also sets how overtime, travel, standby, and equipment are billed. Those terms are the reference point for every invoice, so they deserve a close read before the first bill arrives.
The structure suits projects whose scope is still changing. Engineering may finish a design in stages, a turnaround may uncover conditions nobody expected, and a crew may need to add tasks on short notice. Time and materials billing lets work continue under those conditions without forcing a contractor to guess at a total before the work can be measured.
Where billing drifts
Billing drift on time and materials work tends to appear in a few predictable places: hours, labor categories, materials, markups, and the timesheets that support them. None of these is wrong by default. Each one needs a check against the contract and the source records before the invoice is approved for payment.
- Hours. Billed hours can run ahead of signed timesheets. Common causes include rounding partial hours up, billing crews that overlapped on the same task, and charging standby time the contract does not allow.
- Labor categories. A worker may be billed at a higher classification than the role performed. A senior rate applied to junior work is a pattern worth checking on every invoice.
- Materials. Lines may appear without receipts, costs may not match the supplier invoice, or handling charges may appear that the contract never mentions.
- Markups. A markup may be applied to a base the contract does not allow, or stacked on top of another markup. Subcontract work deserves particular attention because the layers are harder to see.
- Timesheets. Sheets signed after the work was billed, or approved by the person who supervised the work, give weaker support than daily records signed as the work happened.
Turnaround work adds pressure because crews are large, schedules are tight, and conditions change overnight. For a closer look at that setting, see billing risk during a plant turnaround.
How owners review invoices before payment
A pre-payment review compares each time and materials invoice with the contract, the rate schedule, and the source records behind it. The reviewer approves what is supported, questions what is not, and records the reason for each decision. The result is a documented invoice file that the owner can defend internally and that supports a clear, specific conversation with the contractor.
The review usually follows a consistent sequence:
- Match each labor line to the rate schedule and the approved labor category.
- Reconcile billed hours to signed timesheets and daily logs.
- Confirm materials against receipts and the cost basis in the contract.
- Check each markup against the base and the percentage or amount the contract allows.
- Test cumulative billing against the not-to-exceed ceiling.
- Confirm that a written authorization exists for any work outside the original scope.
Separation of duties matters. The person who approves an invoice should not be the person who supervised the work it describes, and that approver should have access to the signed records. Review notes belong in the invoice file so the record tells the same story later, even if staff change.
Why review before payment works better
Review before payment gives the owner more room to act. A question raised before an invoice is paid is a routine conversation about a bill. A question raised afterward can become a request for money back, which is harder to resolve and can strain a working relationship the owner needs for the rest of the project.
Many agreements let the owner withhold disputed amounts while a question is open. Check your own contract for that right and for the notice it requires. When review happens before payment, using that right is simple, and the conversation with the contractor stays practical and specific.
Real-time review fits this model well. Reviewers check invoices as they arrive, while timesheets and receipts are current and the supervisor can still confirm what happened. Teams that want that rhythm can look at Real-Time Reviews for pre-payment invoice validation.
Contract language that makes review easier
Clear contract language reduces disputes before they start. Terms that define each labor category, set a rounding rule, list allowable materials, and state the markup basis give the reviewer a standard to test every invoice against. Vague terms leave each line open to interpretation, and each disputed line becomes a negotiation.
Owners reviewing a new agreement can ask for a few specific terms: a defined list of labor categories, a rounding rule for partial hours, a closed list of allowable materials, a written markup basis, and a timesheet format signed by a supervisor. Reimbursable structures raise similar questions, and the guide on how cost plus contracts define reimbursable costs explains how those definitions work.
Next step
If your team approves time and materials invoices on capital or turnaround work, we can show what a pre-payment review would look like on your own billing. We start with the contract language, the rate schedule, and a recent set of invoices, so the first conversation stays specific to your records and terms.
Revenew brings 27+ years of audit results and experience to this work.
Request a No-Risk Review to start that conversation. There is no upfront fee.