GROUP 3

TOPICS
4.1 GENERAL
4.2 SALARY COST TIME MULTIPLIER PLUS
DIRECT NON-SALARY EXPENSE
4.3 HOURLY BILLING RATE
4.4 PER DIEM
4.5 COST PLUS FIXED FEE
4.6 FIXED PRICE
4.7 PERCENTAGE OF CONSTRUCTION COST
4.8 SCHEDULE OF MINIMUM BASIC FEES
4.1 GENERAL

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3
4.1 GENERAL
Charges for engineering services are usually computed using one of
six methods:
1. Salary cost times multiplier plus direct non-salary expense (Reimbursable)
2. Hourly billing rates plus Reimbursable
3. Per diem
4. Cost Plus Fixed Fee (CPFF)
5. Fixed price
6. percentage of construction cost (percentage)

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4
 6. PERCENTAGE OF
CONSTRUCTION COST
(PERCENTAGE)
o Combination of method of payment for different
phases of contract may be used. The method or
combination of methods used depend upon the:
o Nature
o Scope
o Complexity of service required by the client.
o The first four method are based upon the civil
engineers cost to perform service. They are
particularly applicable to assignment where the

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scope of service is not self-defined.
o The last two method are based upon specific
deliverable and do require that the project scope
be well defined.

5
4.2 SALARY COST TIME
MULTIPLIER PLUS DIRECT
NON-SALARY EXPENSE

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6
4.2 SALARY COST TIME 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.

It is therefore advisable that the Civil Engineer reach an agreement

with the client on salary ranges for each classification of service

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applicable, as well as on the time period over which they can be
guaranteed,

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4.2 SALARY COST TIME MULTIPLIER PLUS DIRECT NON-
SALARY EXPENSE
1. SALARY COST

Defined as the "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.

2. MULTIPLIER is applied to salary cost it is the factor that compensates the Civil
Engineer for overhead plus a reasonable margin for contingencies, interest or
invested capital readiness to serve and profit.

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The size of the multiplier will vary with type of service, nature and experience
of the civil engineering firm, and geographic area in which its office is located.

Average multiplier should be between 2.5 and 3.0 times the average salary
cost.

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4.2 SALARY COST TIME MULTIPLIER PLUS DIRECT NON-
SALARY EXPENSE
3. DIRECT NON-SALARY EXPENSES usually incurred in engineering engagements may
include the following

a. Living and traveling expenses of principals and employees when away from
the home office on business connected with the project.

b. Identifiable communications expenses, such as long-distance telephone,

telegraph, shipping charges, and special postage charges (for other than general
correspondence).

c. Expenses for services and equipment directly applicable to the project, as

such for specialized technical equipment, special legal and accounting services,

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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.

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4.2 SALARY COST TIME MULTIPLIER PLUS DIRECT NON-
SALARY EXPENSE

d. Identifiable drafting supplies, stenographic supplies, and

reproduction work (Blueprinting, photocopy, 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.

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4.2 SALARY COST TIME MULTIPLIER PLUS DIRECT NON-SALARY
EXPENSE
4. Civil Engineers overhead includes indirect costs.
a. Office expenses include light, heat, telephone depreciation, rental
furniture, rent, drafting equipment and engineering instruments, transportation.
b. Taxes and insurance are not included in salary cost.
c. Attendance at technical and professional meetings and continuing
education courses.
d. Executive, administrative, accounting, legal, stenographic, and clerical
salaries and expenses, plus salaries or imputed salaries of partners and
principals, are essential to the conduct of the business.

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Salaries and expenses include executive, administrative, accounting, legal,
stenographic, and clerical services, preliminary arrangements, and interest on
borrowed capital

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 4. CIVIL ENGINEERS OVERHEAD INCLUDES
INDIRECT COSTS.
e. Business development expenses, including salaries of
principals and employees, are essential for engaged employees.

f. Provide for loss of productive time between assignments and

public service assignments.

g. Costs of acquiring and maintaining computers, software, and

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training staff.

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4.3 HOURLY BILLING
RATE

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4.3 HOURLY The hourly billing rate method of
compensation is similar to the
BILLING RATE salary cost times multiplier
method in that it includes all
direct personnel expense,
overhead and profit. Direct non-
salary expenses are a separate
item for reimbursement, usually
with a service charge. Civil
engineering firms may use this
method on projects where the

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scope of service is not well
defined or to simplify accounting
and record keeping.

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4.4PER DIEM

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 4.4PER DIEM
o The term per diem normally refers to an eight-hour day. Per diem is used for direct
personal services, such as expert witness or legal-type services, and short-term
engagements involving intermittent personal services.
o The Civil Engineer should be compensated for all time spent providing per diem
services, based on complexity, risk, and experience, and reimbursed for travel and
subsistence costs.
o For engagements in which the Civil Engineer is to appear as an expert, a per diem
charge is considered to be earned for each day of such appearance. On occasion
the urgency of the engagement requires the Civil Engineers time regularly for periods
longer than the normal eight-hour day. In such cases an understanding should be
reached with the client, and the per diem rate increased accordingly.

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o Per diem rates can vary widely, depending on employee classification, regional
location, and period of service. Rates for consultation in connection with litigation
and appearances before commissions and courts are normally higher than the
standard rates.

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4.5 COST PLUS
FIXED FEE

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4.5 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 to the project, including:

1. Salary costs, as previously defined

2. Overhead, as previously defined (The Civil Engineer should be prepared to support the
basis for overhead charges.)
3. Direct non-salary expenses, as previously defined
4. Fixed fee, an amount to compensate the Civil Engineer for contingencies, interest on
invested capital, readiness to serve, and profit.
5. The cost plus fixed fee basis requires, as a prerequisite to equitable negotiations, that
the client and the Civil Engineer define and agree upon the scope of services. This is

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essential to enable the Civil Engineer to estimate costs and propose an equitable fixed
fee amount. The scope of services, cost estimate, and fixed fee should be incorporated
into the client-engineer agreement.

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4.5 COST PLUS FIXED FEE
The cost plus fixed fee method can also be used when the Civil Engineer is
required to start providing service before the detailed scope of services can be
determined. In such cases, the following considerations apply:

1. The general scale and intent of the project should be fairly well defined, even if
the full scope is indeterminate; for example, the number, size, and character of
buildings or other facilities, the type of utilities, and other such essential
information should be available.
2. The types of service to be performed by the Civil Engineer should be agreed
upon and fully set forth. The agreements should also provide for appropriate
adjustments in the fixed fee, in the event that the physical scope of the

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project, time of completion, or level of effort and services required are
materially changed over those contemplated during the negotiations.

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4.5 COST PLUS FIXED FEE
1. The fixed fee amount varies with the complexity and scope of the engineering
services required. It is frequently calculated as a percentage of the salary
costs, overhead, and direct non-salary expenses.
2. Agreements for cost-based methods should provide for reimbursement of all
costs to be incurred directly or indirectly in connection with the project,
including but not limited to those foreseen when the agreement is negotiated.
The list of reimbursable items should be as complete and detailed as possible.
One advantage of the cost plus fixed fee method is that it eliminates any
suspicion that the costs have been allowed to grow in order to increase the
Civil Engineer's fee, which by definition is a fixed amount. Because the entire
fixed fee amount is due the Civil Engineer, whether or not the estimated

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project costs have been reached the Civil Engineer has an incentive to
complete the service promptly.

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4.6 FIXED
PRICE

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4.6 FIXED PRICE
o The fixed price method of compensation is
frequently used for investigations and studies and for
basic services on design type projects where the
scope and complexity of the assignment are clearly
and fully defined.
o The fixed price amount can be calculated as the
sum total of estimated engineering costs of salaries,
overhead and nonsalary expenses, an allowance
for contingencies, interest on invested capital to
serve, and reasonable amount for profit.
o Fixed price compensation for basic services on
certain design-type projects can also be computed

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as an appropriate percentage of estimated
construction cost; this method and its limitations are
discussed in the following section.

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4.6 FIXED PRICE
o A fixed 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
beyond the Civil Engineer’s control.
o Partial payments should be made to the Civil
Engineer at stated intervals usually once a month
during the performance of the services. These
payments are usually based on the Civil Engineer’s
statement of percentage completion date.

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4.7 PERCENTAGE OF
CONSTRUCTION COST

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4.7 PERCENTAGE OF CONSTRUCTION
COST CONSTRUCTION COST is defined
as the estimated total cost of
constructing the facility.
BASIS OF PERCENTAGE VALIDITY
a. EASABILITY STUDIES - 3%
b. DETAILED ENGINEERING DESIGN
– 6%
c. DETAILED ARCHITECTURAL AND

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ENGINEERING DESIGN – 8%
d. CONSTRUCTION SUPERVISION -
10%

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4.8 SCHEDULE OF
MINIMUM BASIC FEES

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4.8 SCHEDULE OF MINIMUM BASIC FEES

Rates of compensation for Civil

Engineers engaged in various
capabilities are given in Annex
B. The PICE shall regularly
updated the schedule of fees
stipulated in the Annex. Certain
principle should however be

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observed as follows;

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4.8 SCHEDULE OF MINIMUM BASIC FEES
1. 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 fees
(see Section 6.1.1 of the NEDA Guidelines).
2. Civil Engineers regularly employed in the private sector shall have a minimum
wage compensation corresponding to 10% more than the minimum wage
prevailing in the region as basic monthly salary. Civil Engineer employed in the
government sector shall have a minimum basic monthly salary corresponding to
appropriate entry positions provided by the Civil Service Commission.
3. A Civil Engineer employed in the private sector who signs and seals the Civil
Engineer plans, specifications and other related documents of a certain project

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for and in behalf of his employers shall be compensated with minimum of 10% of
the professional fee for the project, over and above the basic monthly salary.

4. Civil Engineer has an incentive to complete the service promptly.

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 YOU
THANK

29 CHAPTER 4