Most companies know, in theory, that time-and-materials contracts are risky. What they don't know is the number. Not "there's probably some leakage" - the actual dollar figure walking out the door every year.
World Commerce & Contracting (WorldCC) research with Deloitte puts the average value erosion from weak contracting at 8.6% of contract value. For a company with $5M in contractor spend, that's $430,000 gone annually. Not fraud. Not intentional. Just the natural result of contracts that aren't being actively managed.
In oil and gas and construction, where T&M contracts are the norm for field services, maintenance, turnarounds, and project work, this isn't a theoretical risk. It's the baseline cost of not having a procurement process.
What "leakage" actually means
Contract leakage is not a single problem. It's five or six separate problems that compound on each other, all running simultaneously, all invisible unless someone is actively looking for them.
Invoices that don't get checked against contracted rates
Your PM is managing a site. Your AP team is processing hundreds of invoices. Nobody has time to pull up the contract and verify that the $145/hour billed for a scaffolding crew matches the $125/hour agreed in the MSA. That $20/hour discrepancy, across a 12-week turnaround with 40 workers, adds up to $57,600 on a single job.
Unreviewed change orders sitting open
A change order that sits unapproved for 30 days costs you in three directions: your cash flow gets squeezed when the contractor starts padding estimates to account for the risk; your project schedule slips while everyone waits for sign-off; and the paper trail quietly deteriorates until nobody agrees on what was authorized. A PCO is not a paper problem. It's a budget problem.
Contracts that auto-renew without a rate review
You signed an agreement in 2023 at market rates. It's now 2026. Nobody has renegotiated. The market has moved - labour rates have shifted, material costs have changed, and competing contractors are quoting differently. You're paying 2023 prices under a 2023 contract because nobody set a calendar reminder. This is the most common source of leakage I find on the first review.
Blanket POs that nobody is reconciling
You issued a blanket PO for $500,000 in field services. The contractor has drawn it down to $480,000. You have no idea how. Neither does your AP team. When the PO closes out, there will be a reconciliation exercise that nobody has time for, and some of those charges will just get approved because disputing them at that point takes more effort than paying them.
Scope creep that nobody caught in the SOW
Your maintenance contractor did $40,000 of work that wasn't in the original scope. They didn't hide it - they added it to the invoice under a vague line item. You paid it because nobody read the SOW closely enough to know it wasn't authorized. A tight scope of work is the cheapest procurement tool you have. Most companies don't have one.
Why this keeps happening
T&M contracts are designed for situations where scope is hard to define up front - field services, maintenance, operational support, project work with variable conditions. That's legitimate. The problem is that the flexibility built into a T&M contract also makes it easy to overbill, and the administrative overhead of managing T&M properly is significant.
Most companies are not set up to handle it. Your project team is focused on execution. Your finance team is focused on month-end. Nobody is sitting down every week to reconcile invoices against rate sheets, review change order logs, and check that the blanket PO is being drawn down correctly. It's not that they're not doing their jobs - they're doing their jobs. Procurement oversight is a separate function that requires a separate process.
The leakage isn't the result of bad contractors. It's the result of no process. When nobody's checking, everybody bills what they can.
What it looks like in the first 30 days
When I do a contract review for a new client, these are the findings that show up most consistently in the first 30 days:
- Rate mismatches on active invoices. Billed rates that don't match what's in the contract. Usually not intentional - the contractor's billing team doesn't always have access to the original agreement. But the overcharges are real.
- Open change orders with no approval timeline. PCOs logged months ago with no decision date, no cost estimate, and no authorization chain. The contractor is waiting. The budget is unclear. Nobody's in charge of the clock.
- Contracts running on expired terms. MSAs from two or three years ago, technically expired, but work is still proceeding under the old rates and insurance requirements. If something goes wrong, your legal protection is ambiguous.
- Missing field tickets. Invoices with no backup. Work that was billed but never documented on site. If you can't prove it was delivered, you're paying on faith.
- Vendor concentrations nobody planned. Most of the contractor spend going to two or three vendors who've never been competitively bid since the original contract was signed.
None of this is unusual. This is what T&M contract management looks like without a dedicated process - and I see versions of it at almost every company I work with.
The fix isn't complicated
You don't need new software. You need a process and someone accountable for running it.
Invoice matching. Every invoice against the contracted rate sheet before it goes to AP. Not a spot-check - every invoice. The discrepancies you find in the first month will more than cover the cost of the process.
A change order log with a clock on it. Every PCO gets logged the day it comes in. It gets an expected decision date. Someone owns it. If a change order sits for more than two weeks without a decision, it gets escalated.
Scheduled contract renewals. Every agreement gets a renewal date. Thirty days before that date, you're either renegotiating rates or issuing a competitive RFQ. Not after it expires. Before.
A reconciliation protocol for blanket POs. Monthly drawdown reports against each blanket PO. What was the scope? What was authorized? What was billed? Any discrepancy gets a written explanation before the next invoice is approved.
These aren't complicated to implement. What they require is consistency - and consistency requires someone whose job it is to be consistent.
Find out where your contracts are leaking.
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