CHAPTER 5.

CHARGING FOR CIVIL ENGINEERING SERVICES

5.1 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. It is therefore advisable that the civil engineer reach
an agreement with the client on salary ranges for each classification of services applicable, as well
as on the time period over which they can be guaranteed. This may help avoid future surprises,
misunderstandings, and disputes.
A provision in the agreement should state that payments will be made to the civil engineer during
progress of the services, based on monthly invoices, and within a reasonable time after billing.
Direct non-salary 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.
1. Salary cost is defined as “direct salaries plus employee benefits” and 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 contributions for social security, workers’
compensation insurance for retirement, medical, and other 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 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 average salary cost. For
some services, however, a higher multiplier is usually applicable for services requiring
recommendations 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.
3. 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
b. Identifiable communications expenses, such as long-distance telephone, facsimile,
telegraph, shipping charges, and special postage charges
c. Expenses for services and equipment directly applicable to the project, such as for
special 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
 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’s overhead which comprises a major portion of the compensation
generated by the multiplier on salary cost, includes the following indirect costs:
a. Provisions for office expenses – electricity, rent, drafting equipment and engineering
instruments, transportation expenses, and office supplies.
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
e. Business development expenses, including salaries of principals and employees so
engaged
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 agreement must provide the accounting necessary
to segregate and record the appropriate expenditures.
5.2 HOURLY BILLING RATE
The hourly billing rate method of compensation is very similar to the salary cost times multiplier
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. Civil engineering firms may elect to utilize this
method of compensation on projects where the scope of service is not well defined or to simplify
accounting and record keeping.
5.3 PER DIEM
The term per diem normally refers to an eight-hour day. Direct personal services are frequently
charged on a per diem basis. This basis is particularly suited to expert witness or other legal type
services and to other short-term engagements involving intermittent personal services.
Where per diem services are furnished, the civil engineer should be compensated for all of the time
devoted to providing them, including travel and standby time. The per diem charge should be based
on the complexity, risk, and importance of the services and on the civil engineer’s professional
standing, expertise, and breadth of experience. The civil engineer is also reimbursed for travel and
subsistence costs and for other out-of-pocket expenses incurred when away from the home office.
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, even though the civil engineer is not
called to testify or, if called, may finish testifying in only a part of the day.
On occasion the urgency of the engagement requires the civil engineer’s 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.
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.
5.4 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
• Salary costs
• Overhead
• Direct non-salary expenses
• 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 basis requires that the client and the civil engineer define and agree upon
the scope of services the civil engineer is to perform. Such definition of the scope of service is
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.
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 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.
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.
5.5 FIXED PRICE
The fixed price method of compensation is frequently used for investigations and studies for 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. Fixed price compensation
for basic services on certain design-type projects can also be computed as an appropriate
percentage of estimated construction costs.
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. For design services, there should be a provision for changes
required after approval of the preliminary design, with a clear understanding as to where the final
approval authority lies.
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 percent completion to date.
5.6 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. Owners should either
use experienced “in-house” staff or retain consultants to develop detailed program budgets for
construction costs, right of way, legal, administrative, engineering services, and permits.
This method may be used to determine the compensation of the engineer for services where the
principal responsibility is the detailed design or 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 other
costs 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 construction costs for certain types of engineering design, where design
procedures and materials of construction are more or less standardized. These correlations have
resulted in various curves and schedules which have been widely used.
The validity of the percentage of construction cost method rests 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 as 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 services.
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 studies – three percent (3%);
b. Detailed engineering design – six percent (6%);
 c. 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 studies or investigations.
It is further emphasized that the above percentages are only ceilings and it does not necessarily
mean that the said percentages shall always be adopted for each project. The actual percentage for
a particular project will depend on the factors mentioned.
5.7 SCHEDULE OF MINIMUM BASIC FEES
Rates of compensation for civil engineers engaged in various capacities are given*. The PICE shall
regularly update the schedule of fees stipulate. Certain principles should however be observed as
follows
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 rates.
2. 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 shall have a minimum
basic 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 engineering
plans, specifications, 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.
*For the basic minimum fee, read Manual of Professional Practice for Civil Engineers –
Appendix A.