A Time-and-Materials (FAR Subpart 16.6) contract provides for acquiring supplies or services on the basis of: 
- Direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit; and
- Actual cost for materials (except as provided for in 31.205-26(e) and (f)).
Time accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence. See FAR 12.207(b) for the use of time-and-material contracts for certain commercial services.
A Time-and-Materials contract may be used only if:
- The contracting officer prepares a determination and findings that no other contract type is suitable. The determination and finding shall be:
- Signed by the contracting officer prior to the execution of the base period or any option periods of the contracts; and
- Approved by the head of the contracting activity prior to the execution of the base period when the base period plus any option periods exceeds three years; and
- The contract includes a ceiling price that the contractor exceeds at its own risk. The contracting officer shall document the contract file to justify the reasons for and amount of any subsequent change in the ceiling price. Also see 12.207(b) for further limitations on use of Time-and-Materials or Labor Hour contracts for acquisition of commercial items.
“Direct materials” means those materials that enter directly into the end product, or that are used or consumed directly in connection with the furnishing of the end product or service.
“Hourly rate” means the rate(s) prescribed in the contract for payment for labor that meets the labor category qualifications of a labor category specified in the contract that are:
- Performed by the contractor;
- Performed by the subcontractors; or
- Transferred between divisions, subsidiaries, or affiliates of the contractor under a common control.
AcqLinks and References:
-  Website: Subpart 16.6 – Time-and-Materials, Labor-Hour, and Letter Contracts
- OSD Time-and-Materials and Labor-Hour Contracts The New Policies
- Guidance: Audit on Time-and-Materials (T&M) and Labor Hour (LH) Contracts
- Template: Boeing Time and Material Contract Template
- Guidelines: Preparation of a General Services Time and Materials Contract
- Website: FAR Subpart 16.2 – Contract Types