In field service work, the acronym NTE means “not to exceed” and is used to set a maximum limit on the cost of a project.
Clients may request an NTE clause in a service contract to ensure the project doesn’t cost more than a specific amount. But it’s often challenging for contractors to set the right NTE limit — if it’s too low, they could lose money, and if it’s too high, their clients may turn down the proposal.
In this guide we’ll explain when to use NTE in contracts, how to communicate NTE parameters to your team, and how field service software provides strategies to successfully manage NTE agreements with your clients.
What Is NTE and Where Is It Used?
NTE means “not to exceed” and sets the maximum price for a project. This price agreement between a contractor and client is documented as a clause in a contract for installation, service, or repair. For example, an NTE clause in a contract may state, “The total cost of the project may not exceed $2,000.”
A field service business may also set an NTE if any work above a certain amount requires client approval. For instance, in commercial service agreements, a client may want to approve any services that exceed $500. A business needs to document this agreement so technicians know they need prior client approval before starting a job.
HVAC, plumbing, and electrical contractors use NTE in estimates, contracts, and service work to ensure costs stay within their client’s budget.
Why Is NTE Important for Contractors?
Setting an NTE provides benefits for both the contractor and client. When a client knows a project or services will not reach above a certain limit, they’re more likely to accept the proposal. It also establishes client trust, improves client relationship, and retains your client base.
On the financial side, an NTE agreement provides the following benefits:
Establishes budget control: an NTE sets an upper limit on project cost, which prevents overspending and ensures contractors provide services within the stated budget.
Provides risk mitigation: Setting an NTE requires advance planning and budgeting. This reduces potential negative impacts, such as material and labor overruns, or failure to meet project timelines.
Improves quoting accuracy: Accurate estimating is key when it comes to NTE agreements. Contractors must gather detailed data to precisely estimate materials and labor.
Shows financial transparency: NTE agreements provide clarity for both the contractor and client. It also assures clients a project will stay within budget and they won’t be hit with excessive, additional costs.
How Does NTE Relate to Time and Materials (T&M)?
NTE and time and materials pricing are two different contract pricing methods. A contract with an NTE clause sets a maximum limit for the project cost. A T&M contract is based on the cost of the time and materials it took to complete the project, along with an overhead and profit markup, but does not establish a cap for the cost of the project.
Despite these differences, contractors must use precise time and material calculations to determine a profitable NTE amount. If you’re not sure whether you should use NTE or T&M, we’ll break down the pros and cons of each method.
NTE pros and cons
Pros
A maximum budget limit provides clients peace of mind
Encourages accurate budgeting and planning
Good for client service agreements where services require advance client approval
Helps field service businesses close more proposals
Cons
Project unknowns could skew budget
Potential for minimized profit
T&M pros and cons
Pros
Provides flexibility for open-ended projects or unspecified timeframes
Ensures businesses recoup costs and gain profit
Good for multi-phase construction projects
Cons
Clients may stall approval of a proposal without clear upfront costs
T&M contracts may be restricted or illegal for certain projects in specific states
Whether you use NTE or T&M depends on local regulations, business processes, the project, and client requests. Either way, contractors need to implement a precise system for calculating and tracking project costs.
Common Reasons for Exceeding NTE
Since a service contract defines the NTE limit, a contractor loses money if the work costs more than the stated maximum amount. Staying below the NTE means a contractor properly accounted for project variables and results in a positive client experience.
Common reasons for exceeding NTE include:
Poor budgeting and planning: A contractor must have a clear understanding of a project’s labor and materials costs. In order to stay below an NTE amount, they must accurately calculate the cost of all materials and how many hours a particular job will take.
Material price changes: A hike in the prices can wreck a budget. Research current market prices to determine a maximum amount for the cost of materials. Estimate an amount that will cover costs even if it increases in the near future.
Project delays: Unplanned issues and delays may result in extra expenses. For instance, a project delay could occur when HVAC techs encounter difficulty installing ductwork in a particular space. A thorough site visit and estimating process should account for potential difficulties and unforeseen costs.
Changes to project scope: Often clients want to modify or add on to the project once a contractor begins work. Unplanned expansion can cause a project to quickly exceed NTE. If the NTE covers a specific project scope and may be amended if the project changes based on mutual agreement, make sure this is in writing and your clients understand this up front.
It’s highly advisable to consult a legal professional to ensure all of your business contracts follow local laws, and that your contracts adequately protect your client and your business.
How to Set and Communicate NTE to Your Team
Proper planning and communicating ensures contractors stay at or below NTE. Implement a system where everyone on your team has access to job data, including specific guidelines to maintain NTE.
This includes communicating job details to techs ahead of time, so they arrive at the job site ready to work with the proper tools and materials. Project managers and techs should know how long the job should take, document completed work, and record any issues.
Field service software like ServiceTitan streamlines this process and empowers businesses to implement best-practice procedures in the office and the field. It captures real-time job data and removes the guesswork, ensuring contractors set realistic NTE limits based on actual work performed.
Risks of Setting NTE Too Low
Contractors who set NTE too low just to get the job may end up losing money, clients, or both. It’s critical to accurately calculate costs so you determine the right NTE amount.
Risk factors of a too-low NTE include:
Poor work quality: If your techs know they must complete a job within a certain amount of time but have to rush to get it done, the quality of work suffers. It also contributes to employee burnout, because your team works at a breakneck pace to stay on schedule. Delivering high quality work and customer service must be top priorities to sustain and grow business.
Cost misalignment: Inaccurate calculations misrepresent the actual cost of the project and result in cost overruns. Contractors must use realistic data to accurately estimate every aspect of the project.
Damage client relationships: If a contractor delivers shoddy work or uses low-quality materials, it reflects poorly on the business. Take the time to set the right NTE and communicate with the client so everyone remains on the same page regarding project budget and timeline.
Strategies to Avoid Exceeding Your NTE
Contractors who implement strategies to avoid exceeding NTE improve client satisfaction and profit.
To avoid exceeding NTE, contractors must plan and set accurate budget constraints. To account for project unknowns, contractors may add a percentage as a buffer to ensure labor and materials costs stay within the stated amount.
One of the best NTE strategies is precise project tracking. Field service software that measures every project cost and tracks change orders in real time ensures contractors know exactly where they are in the project and if they’re on track to meet budget and timeline goals.
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How Field Service Software Helps Manage NTEs
Properly managing NTE clauses is an important aspect of profitable proposals, but it doesn’t stop there. Contractors must maintain full control over every facet of operations to work efficiently, close more proposals, sell more agreements, and grow revenue.
ServiceTitan commercial service software provides cloud-based, comprehensive tools to manage your entire business from anywhere. Industry-specific features enable contractors to streamline business and see a complete financial picture to improve operations and profit.
Create profitable proposals with precision
ServiceTitan proposal software simplifies estimating with a cloud-based estimating tool that quickly calculates costs for time, materials, and profit margins. The software auto-generates professional service proposals for HVAC, plumbing, electrical, and more.
A mobile app enables techs to build professional estimates with built-in profit margins on site. The ability to offer options at multiple price points and instant customer financing encourages clients to move forward and helps your techs close more sales.
Seamlessly maintain client service agreements
ServiceTitan service and membership agreement software enables contractors to maintain cost effective service and membership agreements. When creating service agreements, a not-to-exceed limit tool automatically notes the NTE on every job summary for every visit performed. This ensures everyone on the team stays in the loop and performs the right services under the agreement.
The software streamlines services and enhances customer communication with auto reminders and follow-ups about upcoming appointments or agreement renewal. It seamlessly connects to other business operations, like scheduling and dispatching, so your techs perform timely services and maintain a high level of customer satisfaction.
Improve performance and grow business
With ServiceTitan project tracking software, field service contractors know exactly where they stand on every project. The software tracks real-time budgeted vs. actual costs, ensuring projects stay on budget, follow NTE limits, and get completed on time.
Live dashboards show a custom view of the metrics that matter to your business, with the ability to drill down and view details for departments, teams, and techs. This visibility empowers contractors to make better, faster, and more profitable decisions to improve business operations, boost revenue, and grow.
Ready to find out how ServiceTitan improves business profitability? Schedule a demo today.
