CE LAW REVIEWER FINALS
project characterized by an accelerated schedule, non-routine
CHARGING FOR CIVIL ENGINEERING SERVICES
Charges for engineering services are usually computed using
one of six (6) methods:
1. Salary cost times multiplier plus direct nonsalary
expense. (Reimbursable)
2. Hourly billing rates plus reimbursables.
3. Per diem
4. Cost Plus Fixed Fee (“CPFF”)
5. Fixed Price
6. Percentage of construction cost (Percentage)
* Combinations of methods of payment for different phases of
the contract may be used.
. The methods or combination of methods used depends upon
the nature, scope, and complexity of services required by the
client
- The fixed price and percentage of construction cost methods
are based upon a specific deliverable and do require that the
project scope be well defined.
- The cost plus fixed fee method provides more flexibility to
accommodate both scope ad fee changes than do either the
fixed price or percentage or construction cost method.
- The potential risk and problems faced by both the client and
the Civil Engineer, when the scope of services is not well
defined, should be recognize and discussed during early
negotiations.
- Initial estimates of maximum engineering costs for projects of
uncertain scope are requested by the client for budgeting
purposes.
*When a reimbursement method such as salary costtimes
multiplier, hourly billing rate, per diem or cost plusfixed fee
is chosen because of uncertainty of the scope of services:
- It is logical to propose that an upper limit (Maximum amount)
for the services be included in the agreement.
- The inconsistency of such proposal is proportional to
the uncertainty of the scope. However, these methods are used
with the “not-to-exceed” amount.
- In this case, it is important for the client and the
engineer to agree beforehand on a method for adjusting the “not
to-exceed” amount when adjustment is warranted.
- One reasonable approach to compensation for uncertain
assignments is to require the Civil Engineer to inform the client
when engineering costs are approaching 75 percent of a stated
budget figure to forecast the probable total cost
- Similarly, the client may wish the Civil Engineer to undertake a
services, and/or high risk activities.
- Under these circumstances charges for engineering services
may be based on “value pricing” which reflects a premium rate
not tied directly to the Civil Engineer’s cost, but based on the
Civil Engineer’s unique qualifications or the extenuating
circumstances.
Salary Cost Times Multiplier Plus Direct Non-salary
Expense
- Compensation on the basis of the salary cost times an agreed
multiplier is a frequently used method of determining charges
for engineering services
- With this method, charges for engineering services
are based mainly on direct salaries. This may help avoid future
surprises, misunderstandings, and disputes.
- The salary cost times multiplier method may be utilized as
either a multiplier times salary cost (two multiplier version) or a
multiplier times direct cost (single multiplier version)
- The direct salary times multiplier: or as it is frequently called
the direct labor times multiplier version is very similar to the
salary cost times multiplier with the expectation that it applies a
single multiplier times multiplier with the exception that it applies
a single multiplier to unburdened direct labor costs, i.e., direct
salaries without employee benefits.
The direct salary times the multiplier version of this method is
being utilized more frequently due to the simplistic nature of
utilizing a single multiplier.
- Of the two versions of this method, the salary cost
times multiplier is the more easily accountable due to the basic
premise of providing two separate multipliers.
1. Salary Cost is defined as “direct salaries plus
employee benefits” includes salaries for partners and
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 the
contributions for social security, worker’s
compensation insurance retirement, medical andother
group: benefits.
2. Multiplier which is applied to salary cost is a factor that
compensates the civil engineer for overhead plus a
reasonable margin for contingencies, interest or
invested capital readiness to serve, and profit. The size
of the multiplier will vary with the type of services.
* The average multiplier should be between 2.5 and 3.0 times
the average salary cost
3. Direct non-salary expenses usually incurred in engineering
engagement may include the following:
a) Living and traveling expenses of the principals and
employee’s when away from the home office on
business connected with the project.
b) Identifiable communication 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 supplies and expenses
applicable to several projects.
e) Expenses 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.
4. The Civil Engineer overhead which comprises a major portion
of the compensation generated by the multiplier on salary cost,
includes in the following indirect costs:
f. 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.
5. Accounting Records
- The Civil Engineer who performs services under a salary cost
times multiplier agreement or other cost-based agreementmust
provide the accounting necessary to segregate and record the
appropriate expenditures.
Hourly Billing Rate
- The hourly billing rate method of compensation is very similar
to the salary cost times multiplier method in that the hourly billing
rate includes all direct personnel expense, overhead and profit.
Direct non-salary expenses (as defined under the salary cost
times multiplier section) are a separate item for reimbursement,
usually with a service charge.
Per Diem
 The term per diem normally refers to an eight-hour day.
This basis is particularly suited to expert witness or
other legaltype services and to other short-termed
engagement involving intermittent personal services.
 The per diem charge should be based on the
complexity, risk and important of the services and on
the Civil Engineer’s professional standing, expertise
and breadth of experience.
 Per diem rates can vary widely, depending on
employee classification, regional location and periodof
services.
Cost Plus Fixed Fee
- Under a cost plus fixed fee agreement, the Civil Engineer is
reimbursed for the actual costs of all services and supplies
related in the project, including: involving intermittent personal
services
 Salary cost, as previous defined
 Overhead, as previously defined (The Civil Engineer
should be prepared to support the basis for overhead
charges.)
 Direct non-salary expenses, as previously defined
 Fixed fee, an amount to compensate the Civil Engineer
for contingencies, interest on invested capital,
readiness to serve and profit.
- The cost plus fixed fee method can also be used when the Civil
Engineer is required to start providing services can be
determined. In such cases, the following considerations apply:
 The general scale and intent of the project should be
fairly well defined, even if the full scope in
indeterminate; for example, the number, size and
character of buildings or other facilities, the type of
utilities, and other such essential information shouldbe
available.
 The type of service to be performed by the Civil
Engineer 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 of completion, or
level of effort and services required are materially
changed over those contemplated during the
negotiation.
Fixed Price
- The Fixed price method of compensation is frequently used for
investigations and studies and for the basic services on design
type projects where the scope and complexity of the assignment
are clearly and fully defined
- The fixed price amount can be calculated as the sum total of
estimated engineering costs for salaries, overhead and non-
salary expenses, an allowance for contingencies, interest on
invested capital, readiness to serve, and a reasonable amount
for profit.
Percentage of Construction Cost
 The percentage of construction cost method is seldom used
raw. Because of increasing complexity and large variation
in tasks for projects, the percentage of construction cost fee
curves no longer have a direct correlation to the required
engineering fees for specific projects.
 This method may be used to determine the compensation
of the engineer for the services where the principal
responsibility is the detailed design or the construction
supervision of facilities to be constructed.
 Construction Cost is defined as the estimated total cost of
constructing the facility to be covered by the proposed
detailed design or construction supervision services,
excluding the fees and legal and administrative expenses
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:
Schedule of Minimum Basic Fees
- Rates of compensation for Civil Engineer engaged in various
capacities are given in Annex B. The PICE shall regularly update
the schedule of fees stipulated in the Annex. Certain principles
should however be observed as follows:
 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 and approximates
the international standard rates. (see Section 6.1.1 of
the NEDA Guidelines)
 Civil Engineers regularly employed in private sector
shall have a minimum compensation corresponding
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.
 A Civil Engineer employed in the private sector who
signs and seals the Civil Engineering plans,
specification and other related documents of a certain
project for and in behalf of his employers shall be
compensated with a minimum of 10% of the
professional fee for the project, over and above the
basic monthly salary.
TOTAL PROJECT COST
Probable Cost - Defined as: a forecast of construction cost; may
be a preliminary estimate of construction cost or a detailed
estimate of construction cost.
 PROFESSIONAL ENGINEERING COST
 CONSTRUCTION COST
 LEGAL AND LAND COST
 OWNER'S COST (including project
administration, staffing, financing and other
overhead)
 CONTIGENCY ALLOWANCE FOR UNKNOWNS
Professional Engineering Cost
- A Civil Engineer is often engaged to make a study and to
render a planning report on the contemplated project.
 Including alternative solutions , layouts and
locations along with initial estimates of the
probable project cost.
 These may involve alternative or phased
implementation schemes which add flexibility to
the project
Study & Report Phase
 May include the cost for field or traffic surveys,
planing analyses,geotechnical explorations and
analyses, in addition, to the direct engineering
costs.
 Is important because its implementation
determines the scope and deelopment of the
entire project and its ultimate capital and lifecycle
cost.
 at time, preliminary investigations become
extensive and lengthy that the study and report
 phase costs as much or more than the final design
phase.
Final design and construction phase
 During the final design and construction phase,
additional surveying and geotechnical engineering
services may be needed.
 Special or additional engineering services not
originally identified may be required by the client
or recommended by the Civil Engineer
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 the other costs of such services,
the cost of land and right-way, and legal administrative
expenses of the agency .
- The estimated construction cost must be approved by the
client before the invitation to submit technical proposal is
issued.
- 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 wo rk
must be considered.
Cost Estimates
- This method used to estimate actual cost will vary with the
increase in the amount of detail available.
1. Initial cost appraisal might simply be a breakdown of the
overall project budget based on client input, comparable project
analysis and cost consultant experience.
2. Elemental costs plans might simply be the total construction
cost for the project divided into major components of the work in
percent.
3. The contract sum is the price paid to the contractor for the
scope of work to be completed.
4. Approximate quantities is a first attempt to measure quantities
based on drawings. It provides a clearer picture of the
distribution cost.
5. Pre- tender estimates (pte) is a final estimate of the likely cost
of the work described in the tender documents and provides a
basis for evaluating and comparing offers upon return
Construction price and indices
- T he complexity of construction projects, the differences in
circumstances, duration and level of specification between one
project and another, and the continually changing state of the
market due to fluctuations in supply and demand, inflation and
so on mean that it is impossible to give rule of thumb figures
(such as a cost per sq. M) for the likely cost of construction
works. However, a wide range of construction price and cost
indices are continuously updated and published to help estimate
the likely cost of construction works.
Capital Cost VS. Operational Cost
Capital cost are associated with one – off expenditure on the
acquisitions, construction or enhancement of the built assets
and might include:
 Land or property acquisition
 Commissions
 Statutory fees
 Consultant fees directly associated with the
development
 Materials, plant and equipment
 Labor
 Fixture and fittings
 Project insurance, inflation, taxation and
financing
 Internal costs directly associated with the
developments
Operational cost incurred in day – to – day operations might
include:
 WAGES
 UTILITIES
 MAINTANCE AND REPAIRS
 RENT SALES
 GENERAL AND ADMINISTRATIVE EXPENSES
Whole Life Cost
- Whole-life costs consider all costs associated with the life of a
building, from inception to construction, occupation and
operation and even ultimate disposal. This is considered a
better way of assessing value for money than construction
costs, which can result in lower short-term costs but higher
ongoing costs through the life of the building. This can alsoapply
to things such as design fees, where saving money on fees at
the beginning of a poject can be outweighed by very much
higher ongoing costs through construction and occupation.
Cycling Cost
- Life cycle costing (LCC) provides a methodology for the
evaluation of combined capital, operating and end-of-life costs
of a range of the construction project alternatives, to ensure long
term value is delivered.
Hard Cost VS. Soft Cost
- Often referred to as brick-and-mortar costs, hard cost refer to
the cost of physical construction. While soft construction refer to
those costs that, unlike hard costs, are not instantly visible or
tangible, and are not directly related to labor or building
materials.
HARD COST MIGHT INCLUDE:
 . LABOUR, EQUIPMENT AND MATERIALS
REQUIRED TO COMPLETE THE BUILT
STRUCTURE.
 SITE COSTS, SUCH AS UTILITIES, DRAINAGE,
AND SO ON.
 LANDSCAPE COSTS
SOFT COST MIGHT INCLUDE:
 FEES
 LAND COSTS
 OFFSITES COSTS
 LOANS ACCOUNTING FEES AND INTEREST
 INSURANCE AND TAXES
 PUBLIC RELATIONS AND ADVERTISING
COSTS
Contingency Allowance
 As the project moves forward from the study and report
phase through the final design phase and finally to
construction award, more becomes known about
project details and costs, until at the completion of the
project, the final project cost becomes a known
quantity.
 To provide for tangible costs, contingencies should
routinely be added to the basic cost estimate. it is
common practice to add 20% or more to the estimated
probable total project cost at the completion of the
study end report phase, reducing this to perhaps 10%
at the completion of the final design and perhaps to 5%
when the construction bids become known. Larger or
more complex projects may require higher
contingencies
Construction Contingency
- A construction contingency is an amount of money set aside
to cover any unexpected costs that can arise throughout a
construction project. This money is on reserve and is not
allocated to any specific area of work. Essentially, the
contingency acts as insurance against other, unforeseen costs.
Creating a Construction Contingency Budget
- When encountering a construction contingency clause in your
contract, it is essential to keep an eye out for a few things. First,
it should detail both the owner’s contingency and the
contractor’s contingency. They should list any and all
predetermined costs that the contingency should beused
for.
- The list could include anything from incomplete designs,
construction project delays, substitute subcontractors,
price increases, and any other number of unexpected
costs. This is generally referred to as the contingency
budget.
- The contingency budget should also include a well-drafted
process of how to access contingency funds. It’s best to
have a detailed procedure concerning notices, paperwork, and
approvals.

- The contingency budget should also prepare for unspent

portions of the contingency fund. Are the remaining funds
shared among the contractor or subs as an incentive? Or does
the money revert to the one funding the contingency?
Is Contingency the Same as Retainage?

- A construction contingency fund is not the same as

retainage, but the concepts are similar. Both retainageand
contingency provide what are essentially “emergency”
funds. When something on the project goes awry and costs
some extra money, paying to fix the issue may come from the
contingency fund, or it may come from the retainage being
withheld from the contractor or subcontractor who created the
issue. Plus, retainage and contingency both represent about 5-
10% of the construction price.

- However, retainage represents an amount of the contract price

that has been earned but remains withheld. It serves a purpose,
but at the end of the day, it’s payment owed that’s being
withheld. Construction contingency, on the other hand, is actual
inflation of the contract price to plan for the unexpected. That,
or it’s funding set aside by the owner for the unexpected issues.
Summary

- Estimate of probable total cost should be periodically raised by

the engineers as the design moves forward and more
information becomes known, the client is normally responsible
for providing estimated of those costs which may lie outside the
Civil Engineer's knowledge or expertise, such as those in the
legal, land, administrative and financial areas.

Good Luck sa Final Exams!