Contractors may use different terms to refer to the work done outside of the original fixed-price contract, but they all have one thing in common. Whether they call it “time and materials”, “cost plus”, “force account” or something else, tracking and accounting for this work presents challenges.
For most heavy construction projects, the estimate covers the majority of the work that will be completed. Contractors assume a financial risk. They earn a profit if they can manage labor, equipment, materials and production according to the estimate, and they risk losing money if they cannot.
Additional work not covered within the estimate, however, is extremely common and expected on highway, infrastructure, energy, site work and other heavy construction projects. While owners try to envision every aspect of the construction process and the outcome when they put projects out to bid, oversights are inevitable on large projects. Owners may also need to change the scope or specifications slightly once they see the results of actual work in the field. Unforeseen developments on the job site can also drive changes and additional work. Crews, for example, might discover ledge underground where they expected sand, or run into challenges with environmental issues or existing infrastructure that could not be foreseen when the original estimate was submitted.
This work done outside of the original contract is often taken on with little notice. The scope can sometimes be agreed to informally on the job site in order to expedite completion before a more formal agreement is reached. Since the work was unanticipated and the scope may be somewhat fluid, contractors and owners agree that the work will be billed according to the cost of the materials and labor plus a markup percentage for the contractor’s margin. Often that agreement will include periodic reporting and approvals as well as “not-to-exceed” parameters.
The main challenge for contractors stems from the fact that time and materials work must be tracked and accounted for separately, even though it is very often performed in parallel with and by the same crews as the contracted work. The fact that different time and materials labor rates, equipment rates and materials prices can apply per business unit, per customer and per job further complicates tracking.
Many contractors rely on separate and sometimes manual, handwritten processes to supplement their primary field log and reporting process for tracking labor, productivity and equipment and materials. An effective software solution for estimating and field tracking and analysis can provide a more effective, automated way to track this work and ensure that it is accounted for and billed correctly.
The rates a contractor charges for time and materials work will likely vary from the rates that contractor charges in a fixed-price contract. The right software solution will allow contractors to establish separate, reusable time and materials pricing data for labor, equipment, materials, trucking and miscellaneous billable items and to set mark-ups per job. This data can be default prices or it can vary per job or per customer. Keeping this cost and resource utilization data separate ensures that quantities, hours, costs and productivity for the fixed-price work is not impacted by activity reported for time and materials work.
For the growing number of contractors that have switched from paper field logs, the software that runs their electronic field logs should allow them to log, track and differentiate all work performed by a crew on a single field log. This eliminates the added work and the opportunity for errors associated with creating and maintaining two separate logs for fixed-price and time and materials work.
Software can also set a price limit for time and materials work and track against it, letting contractors and owners see the costs to date and expected costs remaining in real time in relation to that pre-set limit. Finally, a specialized software program makes it easy to produce time and material work summary reports for customer review and to get timely sign-offs on a printed hard copy or electronically on a tablet.
Adding time and materials work to a fixed-price job to handle additions to the original work scope and being able to track and account for both work types accurately are every-day challenges in heavy construction. Software that brings automation to the process, maintains a separation between the two types of work and allows both to be captured on a single field log can deliver clear advantages.