Time-and-materials contract: hourly vehicle and driver billing, and where ride work uses it
Overview
A time-and-materials contract pays fixed hourly rates for labor, plus the actual cost of any materials, up to a ceiling price, instead of a price per trip. Federal rules allow it only when the work cannot be sized in advance. Ride work paid by the hour is often priced differently, such as firm-fixed calls at an hourly rate per vehicle.
On this page
What a time-and-materials contract is
Under federal rules, a time-and-materials contract pays direct labor hours at specified fixed hourly rates, which include wages, overhead, general and administrative expenses and profit, plus the actual cost of materials (FAR 16.601). The buyer pays for hours rather than results, so the contract must include a ceiling price that the contractor exceeds at its own risk. A labor-hour contract is the same arrangement without materials (FAR 16.602). Ride work rarely has a materials line, since the van, fuel and overhead sit inside the hourly rate, which makes labor-hour the closer fit. A ride company comparing an hourly rate with a price per trip will find the build-up in dedicated vehicle contracts. The wider process of winning public ride work is in government NEMT contracts.
When can a buyer use one?
Buyers can use it only in narrow cases.
- The work cannot be sized. Federal rules allow it only when it is not possible at the time of award to estimate accurately the extent or duration of the work or to anticipate costs with reasonable confidence.
- Written justification. The contracting officer must write a determination that no other contract type is suitable. When the base and option periods run past three years, the head of the contracting activity must approve it.
- Commercial services. FAR 12.207(b) requires competition and a plan to move later buys toward fixed prices. The overhaul text allows it for commercial services procured competitively, if those services are commonly sold to the general public under this kind of contract.
- Local buyers with federal money. 2 CFR 200.318(j) lets a recipient use it only after a determination that no other contract is suitable and with a ceiling price, and it calls for a high degree of oversight.
What the ceiling means for you
Hours past the ceiling are your risk. Before a federal contracting officer raises it, the officer must analyze pricing and document the decision (FAR 16.601(e)), so ask for any increase in writing before you reach the limit. Track hours against the ceiling every week.
Where ride work is billed by the hour
Hourly billing shows up in short-notice, shuttle and transit-style ride work, though few contracts are time-and-materials in the federal sense.
- Air Force, Guam, 2026. A shuttle BPA covers regular service plus short-notice deployments, exercises and contingency operations. The price list sets an hourly rate for each vehicle type, and bidders must fully burden each rate with direct costs, indirect costs and profit. Every call is firm-fixed-price. See blanket purchase agreement.
- Maple Grove, Minnesota, 2025 to 2027. The monthly payment is a fixed monthly cost plus an hourly rate times revenue hours, plus fuel invoiced, less fares collected. The hourly rate is $51.25 in 2025, $52.79 in 2026 and $54.37 in 2027. The operator cannot bill hours outside the service span without prior approval, and its invoices carry a payroll report showing the hourly pay of each driver and a profit and loss statement supporting the billed rate.
- Raleigh and Wake County, 2022. A joint RFP bills per vehicle revenue hour. Billable time runs from the first passenger boarding to the last drop-off, or to the van’s return to secured parking, and deadhead time is not billed.
None of these is open-ended hours plus actual materials. Each one turns on the same question: which hours count.
What a time sheet and vehicle log must show
A time-and-materials contract gives the contractor no incentive to control cost, so the buyer reviews the hours (FAR 16.601(c)). Expect these items:
- The contract’s rule for counting hours. Match its definition, such as Raleigh’s first boarding to last drop-off.
- Who, what and when. The driver, the vehicle, the date and the labor category if the contract lists categories with separate rates.
- Miles and waiting. Daily miles and the time spent waiting at each stop, taken from GPS where the buyer asks for it. The quality assurance surveillance plan page shows what VA expects.
- Supporting reports. The Raleigh and Wake County RFP asks for a monthly report that lists total vehicle miles, vehicle hours, revenue miles, revenue hours and days of service.
The driver timesheet and mileage log templates give you a format. If a county says federal disaster or transit money will pay for the work, ask which procurement rules apply. County evacuation work is covered in evacuation transportation contracts.
Time-and-materials or a price per trip
With a firm price per trip, you carry the risk that a trip runs longer than planned, and the buyer pays only for trips. With time-and-materials, the buyer pays for hours and carries the cost-control risk up to the ceiling, which is why it audits time. Federal rules prefer firm-fixed-price contracts for commercial services (FAR 12.207(a)).
Where software helps
HealthRide keeps GPS-recorded miles and timestamps on every trip and exports the trip log as a CSV or PDF, which gives a buyer the miles and times behind an invoice. See reports.
Frequently asked questions
- Under a time-and-materials contract, how is the contractor paid?
- It is a contract that pays for the hours worked at fixed hourly rates and for the actual cost of materials. In federal rules the hourly rates include wages, overhead, general and administrative expenses and profit. Because the total is open-ended, the contract must carry a ceiling price, and the buyer is expected to watch the hours closely.
- What is a not-to-exceed ceiling?
- It is the most the buyer has agreed to pay under the contract. A time-and-materials contract must include a ceiling price that the contractor exceeds at its own risk. Before a federal contracting officer raises the ceiling, the officer must analyze pricing and other factors and document the decision, so ask for an increase before you reach the limit.
- How is time-and-materials different from labor-hour?
- A labor-hour contract is the same arrangement without materials. The contractor does not supply them. Ride work usually has no separate materials line, because fuel, the vehicle and overhead are folded into an hourly rate, so a labor-hour or hourly rate structure is the closer match when a buyer pays by the hour.
- Do public ride contracts use time-and-materials?
- Mostly they set firm prices per trip, per mile or per vehicle hour. The Air Force's 2026 Guam shuttle agreement, for example, prices hourly rates by vehicle type but makes every call firm-fixed-price. Federal rules allow time-and-materials only when the extent or duration of the work cannot be estimated, so it is the exception.
- What happens if I work more hours than the ceiling?
- The extra hours are at your risk unless the buyer raises the ceiling first. Federal rules require the contracting officer to analyze pricing and document the decision before an increase, and an increase that changes the general scope of the contract follows additional procedures. Track hours against the ceiling every week.
