2-18.7 Time-and-Materials Contracts

2-18.7.1 General

The following applies to time-and-materials contracts:

1. In a time-and-materials (T&M) contract, the Postal Service, and supplier agree on an hourly fixed rate for each labor category which includes overhead and profit. Material and material handling are supplied at cost (see 2-18.7.2 for definitions of material and material handling). A T&M contract is most commonly used when the exact work to be done cannot be predicted in advance. Because a T&M contract does not encourage effective cost control or labor efficiency by the supplier, this contract type should only be used when provision is made for adequate monitoring by the Postal Service to ensure that inefficient or wasteful methods are not being used. Examples of situations where a T&M contract may be appropriate include:
1. Repair, maintenance, and overhaul work,
2. Work required in an emergency and
3. Engineering and design services in connection with the production of supplies.
2. T&M contracts may be used only if no other type of contract will do. The contract must establish a ceiling price that the supplier exceeds at its own risk. The contracting officer must document the contract file to show the basis for any change in the ceiling.
3. A labor-hour contract is a variant of the T&M contract, differing only in that materials are not supplied by the supplier.
4. All time-and-materials and labor-hour contracts must include
   Clause 2-38: Payment (Time-and-Materials and Labor-Hour Contracts).

2-18.7.2 Material and Material Handling Costs in T&M Contracts

Material costs are the following:

1. Costs for items such as raw materials, parts, subassemblies, components, and manufacturing supplies, whether purchased or manufactured by the contractor, and may include such collateral items as inbound transportation and in-transit insurance.
2. Subcontracts costs for supplies and incidental services for which there is not a labor category specified in the contract.
3. Other direct costs (e.g., incidental services for which there is not a labor category specified in the contract, travel, computer usage charges).

Applicable indirect costs, such as material handling costs, which, when included as part of the material costs, may only include costs clearly excluded from the labor-hour rate. Material handling costs may include all appropriate indirect costs allocated to direct materials in accordance with the supplier’s usual accounting procedures.

As stated in Clause 2-38: Payment (Time-and-Materials and Labor-Hour Contracts), profit or fees will not be paid on the cost of material or material handling.