section 4 -Charging for Civil Engineering Services ~ GENERAL Jhargjes for engineering services are usually computed using one six methods: Salary cost times multiplier plus direct non-salary expense (‘Reimbursable’). Hourly billing rates plus ipinbuipebles: Per diem. Cost plus fixed fee (“CPFF’). Fixed price. Percentage of construction cost (“Percentage’). ‘mbinations of methods of payment for different phases of the tract may be used. The method or combination of methods used - flopends upon the nature, scope, and complexity of services : quired by the client. The first four methods are based upon the Jivil Engineers costs to perform services. They are particularly ipplicable to assignments where the scope of services is not self Wwlined, The fixed price and percentage of construction cost thods are based upon a specific deliverable and do require that () project scope be well defined. The cost plus fixed fee method jovides more flexibility to accommodate both scope and fee Nanges than do ‘either the fixed price or percentage or construction epost methods. The potential risks and problems faced by both the client and the ivil Engineer, when the scope of services is not well defined, hould be recognized and discussed during early negotiations. ften, initial estimates of maximum engineering costs for projects 43 Scanned with CamScannerof ungertain, scope ar requested by. the elient for budgeting purposes, Such budget estimates should state that they do not: constitute an agreed-upon maximum and that they are to be ravined asthe scope of services becomes better defined, i Wheti a ‘reimbursement method such as salary cost times” ‘multiplier, hourly billing rate, per diem, or cost plus fixed fee is” chosen because of uncertainty of the scope of services. It is logical © propose that an upper limit (maximum amount) for these services he included in the agreement. The inconsistency of such a proposal ‘ie proportional to the uncertainty of the scope. However, these “thethods are used with a “not-to-exceed" amount. In pis case, it is ‘important for the client and the engineer to agree beforehand on a Mothod for adjusting the "not to-exceed" amount when adjustment |} -warranted. One reasonable approach to compensation for uncertain assignments is to require the Civil Engineer to inform the wllant when, engineering costs are approaching 75 percent of a ~ Mlaled budget figure and to forecast the probable total cost. This — provision gives the client and the engineer an opportunity to” x~mine progress at that point and, if appropriate, to revise either the original budget or not-to-exceed amount or the scope of femaining services. he charge for engineering services using the fixed price or the rcentage of construction cost methods is based entirely on the cope of services. These methods may be appropriate where the Ope of services is well defined and the Civil Engineer's costs are ithin his/her control, Certain types of investigations and designs 1@ well suited to these methods of determining charges. l@termination of charges for services such as resident project fepresentation during construction, where the Civil Engineer's costs may be affected significantly by the contractors performance can be accomplished more equitably by one of the methods based on the actual cost of service. 44 Scanned with CamScanner— Opoasionally, a Civil Engineer has unique qualifications, and/or expertise that is not readily available, and/or computer programs. that materially decrease the time required for project execution. In Me Instances, the Civil Engineer may demonstrate that his/her Poposal will make the project easier, faster: safer, or less ®xpensive to achieve the clients objective. ‘Aimilarly, the client may wish the Civil Engineer to undertake a joject characterized by an accelerated schedule, non-routine _ Bervices, and/or high risk activities, Under these circumstances Hharges for engineering services may be based on "value pricing hich reflects a premium rate not tied directly to the Civil ngineer’s cost, but based on the: Civil Engineers unique ualifications or t the extenuating circumstances, One of the more fommon value pricing tasks is providing expert witness services. 2 ° SALARY COST TIMES MULTIPLIER PLUS DIRECT NON- SALARY EXPENSE ultiplier is a frequently used method of determining charges for ngineering ser services, With this method, charges for engineering Advisable that the Civil Engineer reach an agreement with the client “on salary ranges for each classification of service applicable, as ‘well as on the time period over which they can be guaranteed. This ‘May help avoid future surprises, misunderstandings, and disputes. ‘The salary cost times multiplier method may be utilized as either a i ‘Multiplier | times salary cost (two multiplier version) or a multiplier I es direct salary cc cost (single multiplier version) om he. direct salary times multiplier: or as it is frequently called the” t labor times multiplier version is very similar to the salary cost s multiplier with the exception that it applies a single multiplier unburdened direct labor costs, i.e., direct salaries without 45 Scanned with CamScanneremployee benefits, The single multiplier includea costa associated: with employee benefits, overhead, and a margin for contingencies, tiak, and profit, The direct salary times multiplier version of thig Method Is being utilized more frequently due to the simplistic nature pi utilizing a single multiplier, Of the two versions of this method, the galary cost times multiplier is the more easily accountable du@ to the basic premise of providing two arate multi multiplier is based upon definitive costs. i.e, employee benefits end the other multiplier based upon costs which may vaty from project to project. . Regardless of the method utilized as a basis of compensation, a provision in the agreement should state that payments will be made to the Civil Engineer during progress of the servics, based on monthly invoices, and within a reasonable time after billing. Direct nonsalary expenses are a separate item for reimbursement usually with a service charge. The following factors are pertinent to the salary cost times multiplier version of this method (they may also ‘apply for other methods of charging for civil engineering services) 1, Salary cost is defined as “direct salaries plus employee benefits" and includes salaries for partners or principals and for technical, professional, administrative and clerical staff directly". Chargeable to the project: sick leave, vacation, holiday and incentive pay; unemployment and other payroll taxes; and he contributions for social security, workers' compensation insurance retirement, medical, and other group: benefits. Note that salaries or imputed salaries of partners or principals, to the extent that they perform technical or advisory services directly chargeable to the project, are to be reimbursed in the same way as are other direct salary costs. 2, Multiplier which is applied to salary cost is a factor that compensates the Civil ‘Engineer for overhead (as defined hereinafter) plus a reasonable margin for contingencies, interest | : 46 Scanned with CamScannerOF Invested. capital readiness to serve, and profit, The size of the Multiplier will vary with the type of service, the nature and experience of the civil engineering firm, and the geographic area in which its office is located. The average multiplier should be between 2.5 and 3.0 times the fverage salary cost. For some services, however, a higher Multiplier is usually applicablé for services requiring "_ f@Gommendations based on extensive experience and special knowledge, or for services involving expert testimony in legal proceedings. The Multiplier may also increase with the experience and special capabilities of the Civil Engineer's firm. 4. Direct non-salary-expenses usually incurred in engineering engagements may include the following: a. Living and traveling expenses of principals and employee's when away from the home office on business connected with the project. E b. Identifiable communications expenses, such as long- _ distance telephone, facsimile, telegraph, shipping charges, and special postage charges (for other than general correspondence). c. Expenses for services and equipment directly applicable to the project, such as for specialized technical equipment, special legal and accounting services, special computer rental and programming services, computer run time and file storage, CADD charges, sub consultants and subcontractors commercial printing and binding, and similar services that are not applicable for inclusion in general overhead. d. Identifiable drafting supplies, stenographic supplies, and reproduction work (blueprinting, photocopying, and printing) charged to the client's project) as distinguished from such 47 Scanned with CamScannersupplios and expenses applicable to several projects ®. Lxpenses for unusual insurance and specialized health and safety programs and for special clothing for projects with extraordinary risks such as_ toxic and’ hazardous waste conditions. Such projects may require special insurance, which is also normally billed as a direct cost to the project. Such expenses are normally reimbursed by the client at actual invoice cost plus an administration charge to.— compensate for associated accounting, purchasing, contract — administration, risk of liability, etc. ; 4, The Civil Engineers overhead which comprises a major portion of the compensation generated by the multiplier on asalary 5 cost, includes the following indirect costs: h ne. ay Provisions — for “office | | a light, heat, telephone depreciation, rental. farniture, rent, drafting equipment and engineering instruments, transportation expenses, and office : and drafting supplies not identifiable to a specific project. ee mee b. Taxes and ‘insurance other than those included as salary cost. c. Library and periodical expenses and other costs of keeping abreast of advances in engineering, such as attendance at technical and professional meetings and continuing education courses. d, Executive, administrative, accounting, legal, stenographic, and clerical salaries and expenses (other than identifiable salaries included in salary costs and expenses) plus salaries or imputed salaries of partners and principals to the extent that they perform general executive and administrative services as distinguished from technical or advisory services directly applicable to particular projects. These services and 48 Scanned with CamScanner, include ignments expenses, essential to the conduct of the business preliminary arrangements for new projects or ass and interest on borrowed capital. @. Business . development expenses, including salaries of principals and employees so engaged. {. Provision for loss ‘of productive time of technical employees between assignments, and for time of principals and employees on public service assignments. g. Costs of acquiring and “maintaining computers, development of software, and training staff when not billed as a direct cost. 6. Accounting records. The Civil Engineer who performs services under a salary cost times multiplier agreement or other cost-based agreement must provide the accounting necessary -to segregate and record the appropriate expenditures. Adequately detailed hourly time records must be maintained for principals, engineers and other employees who devote; time to the project. Applicable payroll records, together with receipts or other _ documents to substantiate chargeable expenditures, must be available for inspection audit by the client if required by contract. 3 HOURLY BILLING RATE he hourly billing rate method of compensation is very similar to the walary cost times multiplier method in that the hourly billing rate igludes all direct’ personnel expense, overhead and profit. Direct on-salary expenses (as defined under the salary cost times ultiplier section) are a separate item for reimbursement, usually ‘With a service charge. Civil engineering firms may elect to utilize this method of compensation on projects where the scope of 49 Scanned with CamScannersetvica is not well defined of to simplity foedlinting And recor keeping j 44 PER DIEM h, : personal s ervices he type described in Section 2 which al frequently Shara per diem basis. This basis is particular| wuited to pace Re or other legal-type services and to oth senor: HeTRARERRSTI ES involving intermittent personal services. The term per sie rally stata to an eight-hour day. Dired Where bet eae services are furnished, the Civil Engineer shou time” devoted to providing thet “per diem charge should be ‘portant of the gprvices and of ‘Ynd breadth subsistence baste when away from th For engagements in which the Civil Engineer is to appear as al expert, a per diem charge is considered to be earned for each da of such appearance, éven though the Civil Engineer is not called t testify or, if called, may, finish testifying in only a part of the day. On occasion the urgency of the engagement requires the Civi Engineers time regularly for periods longer than the normal eight: hour day. In such cases an understanding should be reached wit the client, and the per diem rate increased accordingly. Per diem rates can vary widely, depending on employe _ Glassification, regional location, and period of service. Rates foi consultation in connection with litigation: and appearances befo! commissions and courts are normally higher than the standar fates. 50 : a Scanned with CamScannerGOST PLUS FIXED FEB ‘der 4 cost plus fixed fee agreement, the Civil Engineer is Mburaed for the actual costs of all services and supplies related fhe project, including: alary costs, as previously defined Werhead, as previously defined (The Civil Engineer should be "pared to support the basis for overhead charges.) irect non-salary expenses, as previously defined ixed fee, an amount to compensate the Civil Engineer for ‘ntingencies, interest on invested capital, readiness to serve, profit. i bout plus fixed fee basis requires, as a prerequisite to equitable ations, that the client and the Civil Engineer define and agree i the scope of services the Civil Engineer is to perform. Such ihition of the scope of service is essential to enable the Civil Winger to estimate costs and propose an equitable fixed fee nt. The scope of services, cost estimate, and fixed fee should § hGorporated into the client-engineer agreement. J dost plus fixed fee method can also be used when the Civil in is required to start providing service before the detailed if services can be determined. In such cases, the following rations apply: 7he\general scale and intent of the project should be fairly well Mined, even if the full scope is indeterminate; for example, the imber, size, and character of buildings or other facilities, the of utilities, and other such essential information should be 51 Scanned with CamScanner2 The types of service to be performed by the Civil Enginea! should be agreed upon and fully set forth The agreement should also provide for appropriate adjustments in the fixed fee in the event that the physical scope of the project, time completion, or level of effort and services required are materiall changed over those contemplated during the negotiations. i The fixed fee amount varies with the complexity and scope of th @ngineering services required. It is frequently calculated as percentage of the salary costs, overhead, and direct non-sala expenses. . \ Agreements for cost-based methods should provide f ‘ tulmbursement of all costs to be incurred directly or indirectly i , gonnection with the project, including but not limited to thos \ foreseen when the agreement is. negotiated. The list \ {imbursable items should be as complete and detailed a \ possible. One advantage of the cost plus fixed fee method is that ‘ @liminates any suspicion that the costs have been allowed to gro in order to increase the Civil Engineer's fee, which by definition is fixed amount. Because the entire fixed fee amount is due the Civ Engineer, whether or not the estimated project costs have been teached the Civil Engineer has an incentive to complete the servi promptly. 4.6 FIXED PRICE ‘The fixed price method of compensation is frequently used f investigations and studies and for basic services on design typ’ projects where the scope and complexity of the assignment a clearly and fully defined. The fixed price amount can be calculate! as the sum total of estimated engineering costs for salaries, overhead and nonsalary expenses, an allowance for contingencies, interest on invested capital, readiness to serve, and a reasonabl Amount for profit. Fixed price compensation for basic services o certain design-type projects can also. be computed as al Scanned with CamScannerAppropriate percentage of estirinted construction costs, this method and its limitations are discussed in the following — section. — ftesulls using the percentage method and the direct calculation _ iethod are frequently used to check each other. A (ixed price agreement should contain a clearly stated time period “during which the services will be performed and a provision for Adjustment of compensation if the project is delayed for reasons ‘heyond the Civil Engineer's control. For design services, there ‘Bhould be a provision for changes required after approval of the preliminary design, with a clear understanding as to where the final Approval authority lies. : i iurtial payments should be made to the Civil Engineer at stated tervals usually once a month during the performance of the vices. These payments are usually based on the Civil Engineer's tatement of percent completion to date. 7 PERCENTAGE OF CONSTRUCTION COST The percentage of construction cost method is seldom used raw. lecause of increasing complexity and large variation in tasks for rojects, the percentage of construction cost fee curves no longer wave a direct correlation to the required engineering fees for pecific projects. Owners should either use experienced “in-house" lnff or retain consultants to develop detailed program budgets for onstruction costs, right of way, legal, administrative, engineering tvices and permits. his Method may be used to determined the compensation of the gineer for services where the principal responsibility is the ailed design or construction supervision of facilities to be 53 Scanned with CamScannerdesign of construction supervision services, éxeluding the fees and other conte of such services, the cost of land and right-of-way, and legal and administrative expenses. Over the years, engineering experience has established some appropriate correlations between engineering costs and: oonstruction costs for certain types of engineering design, wher@ design procedures and materials of construction are more or les standardized. These correlations have resulted in various curves and schedules which have been widely used. 4" The validity of the percentage-of-construction-cost njgthod restd} upon the assumption that detailed design and Construction: supervision costs vary in proportion to the cost of construction.| When judiciously applied, and with due consideration of the ranges within which engineering scope may vary, this method is valuable #6 a tool for general comparison with line-based fees for design services. Its acceptance over many years also affords a valuable guide for judging the reasonableness of proposal for consulting pervices. The percentage fee shall consider the type, complexity, location, and magnitude of construction cost of the project and shall not exceed the following percentages of estimated construction cost: _a, Feasibility studiesthree percent (3%); b, Detailed engineering design-six percent (6%); ¢, Detailed architectural and engineering design-eight percent (8%); and d, Construction supervision-ten percent (10%) ‘These percentages include only those works normally undertaken in arriving at the expected outputs and do not include special 54 Scanned with CamScanner“sludion or investigations Indicated under Section 2.5 hereof, the Hulputs of which are ends by themselves. Tt ig further emphasized that the above percentages are only ailiige and it does not necessarily mean that the said percentages IL always be adopted for each project. The actual percentage n A particular project will depend on the factors mentioned above, ®, the type, complexity, Iccation and magnitude of construction As a general rule, projects within a higher range of ruction cost will have lower percentages of fees than those blects within a lower range of construction cost. The above limits rcentages shall be reduced to the extent that some of the ities undertaken by the client. SCHEDULE OF MINIMUM BASIC FEES ates of compensation for Civil Engineers engaged in various Apacities are given in Annex B. The PICE shall regularly update ¥@ schedule of fees stipulated in the Annex. Certain principles uld however be observed as follows. 4. When doing work on foreign assisted projects, or in projects where international consultants participate, the Civil Engineer performing similar or equivalent work, should ‘accept compensation that approximates the international standard rates (see Section 6.1.1 of the NEDA Guidelines). ' . Civil Engineers regularly employed in the private sector shall have a minimum compensation corresponding to 10% more than the minimum wage prevailing in the region as basic monthly salary. Civil Engineers employed in the government sector shall have a minimum basic monthly salary corresponding to appropriate entry positions provided by the Civil Service Commission. 55 Scanned with CamScannerpercentages include only those works normally undertaken ing at the expected outputs and do not include special 34 A Ch Enger aria in the private seetor who aig the Civil Engineering plans, specifications af telated documents of a certain project for and in b h of his, employers shall be compensated with a minimum 10% of i the project, over and abé Scanned with CamScannersection 5 Total Project Cost | GENERAL buble total cost is a major concern of the client throughout the fining design, and construction phases of a project. The bable, total capital cost, often used’ to establish budgets for a pal project, is made up of: 4) rofessional engineering costs. onstruction cost. ct administration, — staffing, ‘ontingency allowance fc , PROFESSIONAL ENGINEERING COSTS ow Engineer is often engaged to make a study and to render a ning report on the contemplated project, including alternative tions, layouts, and locations along with initial estimates of the phable project cost. These may involve alternative or phased plementation schemes which add flexibility to the project. i study, and report phase may include the cost for field or traffic itveys, planning analyses, geotechnical explorations and nalyses, in addition, to the direct engineering costs. 57 Scanned with CamScannerThe coats of coordination, evaluation iiiplementation — ant compliance have increased correspondingly The extent of thes concerns may not be identified during the study and report phast and sometimes not even after final plans and specifications hai been prepared. As a result, the estimated probable total cost of th project on the study and report phase must be understood te he preliminary in nature, Hecause projects vary widely in nature and scope, the study ani feport phase is important because its implementation determine: the scope and development of the entire project and its ultimate apital and lifecycle cost. At times, preliminary investigation pbome extensive and lengthy that the study and report phas ©osts as much or more than the final design phase. During the final design and construction phase, additional surveyini and geotechnical engineering services may be needed. Als special or additional engineering services not origin Ry identifie may be required by the client or recommended by the Civil Engineer. ‘ 6.3 CONSTRUCTION COST The study and report phase of the project usually includes a preliminary estimate of the construction cost for the contemplated project’ and for alternative project configurations. Such cost estimates are approximate, since the final design drawings and Specifications have not yet been prepared. In addition, the timing of the construction work must be considered because inflation will affect the construction cost. Construction Cost is the estimated total cost of constructing the’ facility to be covered by the proposed detailed design or Construction supervision services, excluding the fees and other Gosts of such services, the cost of land and right-of-way, and legal _ Administrative expenses of the agency. The estimated construction i a 58 Scanned with CamScanner| must be approved by the client before the invitation to submit hinical proposal is issued, LEGAL, LAND, ADMINISTRATION, STAFFING AND FINANGIAL COSTS 48e costs, which include audits, the cost of issuing bonds, land gets, and interest for borrowed money during construction, are ft of the probable total project cost and can best be estimated in operation with the client because they are usually outside the ledge and control of the Civil Engineer. CONTINGENCY ALLOWANCE the project moves forward from the study and report phase ough the final design phase and finally to construction award, 11 becomes known about project details and costs, until at the pletion of the project, the final proj {cost becomes a known provide for intangible coats, cont ig) is should routinely be ded to the basic cost estimate. It is common practice to add 20% H more to the estimated probable total project cost at the @Mpletion of the study end report phase, reducing this to perhaps 10% at the completion of final design and perhaps to 5% when the struction bids become known, Larger or more complex projects Way require higher contingencies. SUMMARY imate of probable total project cost should be periodically ised by the engineers as the design moves forward and more (rmation becomes known. The client is normally responsible for viding estimates of those costs which may lie outside the Civil nwineer's knowledge or expertise, such as those in the legal, land, inistrative, and financial areas. 59 Scanned with CamScanner