Section-4 - .

Civil Engineer

Civil Engeneering (Pangasinan State University)

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SECTION 4 CHARGING FOR CIVIL ENGINEERING SERVICES
4.1 GENERAL
Charges for engineering services are usually computed using one six methods:
1. Salary cost times multiplier plus direct non-salary 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 method or
combination of methods used depends upon the nature, scope and complexity of services required by the client.
The first four methods are based upon the Civil Engineers costs to perform services. They are particularly
applicable to assignments where the scope if services is not self defined. 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 and fee changes
than do either the fixed price or percentage or construction cost methods.
The potential risks and problems faced by both the client and the Civil Engineer, when the scope of services is
not well defined, should be recognized and discussed during early negotiations. Often, initial estimates of
maximum engineering costs for projects of uncertain scope are requested by the client for budgeting purposes.
Such budget estimates should state that they do not constitute an agreed-upon maximum and that they are to be
revised as the scope of services becomes better defined.

When 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 to propose that an upper limit
(maximum amount) for these services be included in the agreement. The inconsistency of such a proposal is
proportional to the uncertainty of the scope. However, these methods are used with a “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%bof a stated budget figure and to forecast the probable total cost. This provision gives the client and the
engineer an opportunity to examine progress at that point and, if appropriate, to revise either the original budget
or not-to-exceed amount or the scope of remaining services.

The charge for engineering services using the fixed price or the percentage of construction cost methods is
based entirely on the scope of services. These methods may be appropriate where the scope of services is well
defined and the Civil Engineer’s costs are within his/her control. Certain types of investigations and designs are
well suited to these methods of determining charges.

Determination of charges for services such as resident project representation during construction, where the
Civil Engineer’s costs may be affected significantly by the contractor’s performance can be accomplished more
equitably by one of the methods based on the actual cost of service.

Occasionally, 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 the project execution. In some instances, the
Civil Engineer may demonstrate that his/her proposal will make the project easier, faster: safer, or less
expensive to achieve the clients objective.

Similarly, the client may wish the Civil Engineer to undertake a project characterized by an accelerated
schedule, non-routine 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 Engineers unique qualifications or the extenuating circumstances. One of the more
common value pricing tasks is providing expert witness services.

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4.2 SALARY COST TIMES MULTIPLIER PLUS DIRECT NONSALARY 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 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 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 multiplier times salary cost (two multiplier
version) or a multiplier times direct salary cost (single multiplier version).

The salary cost times multiplier: or as it is frequently called the direct labor times multiplier version is very
similar to the salary cost time multiplier with exception that it applies a single multiplier to unburdened direct
labor costs, i.e, direct salaries without employee benefit. The single multiplier includes costs associated with
employee benefits, overhead, and a margin for contingencies, risk and profit. The direct salary times 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. One multiplier is based upon definitive costs,
i.e., employee benefits end the other multiplier based upon costs which may vary 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 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 time 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, worker’ compensation insurances retirement, medical, and other group
benefits.

Note that salaries or imputed salaries of partners or principals, to extent that they perform technical or
advisory services directly chargeable to the project, are to be imbursed 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 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 inj which its office is located.

The average multiplier should be between 2.5 and 3.0 times the average salary cost. For some ser4vices,
however, a higher multiplier is usually applicable for services requiring recommendations based on
extensive experience and special knowledge, of for services involving expert testimony in legal
proceedings. The Multiplier may also increase with the experience and special capabilities of the Civil
Engineers’ firm.

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.

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 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 (blueprint,

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. Such projects
may require special insurance, which is also normally billed as a direct cost to the project. Such
expenses are normally imbursed 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 salary cost, includes the following indirect costs:
a. Provisions for office expenses-light, heat, telephone depreciation, rental furniture, rent, drafting
equipment and engineering instruments, transportation expenses, and office and drafting supplies not
identifiable to a specific project.

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 expenses, essential to conduct of the business, include preliminary arrangements for
new projects or assignments and interest on borrowed capital.

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. Adequately detailed hourly time records must be maintained for principals,
engineers and other employees who devote; time to the project.

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 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.

4.3 HOURLY BILLING RATE

The hourly billing rate method of the compensation is very similar to the salary cost times multiplier method in
that the hourly billing rate includes all direct personnel expenses, 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.

4.4 PER DIEM

The term per diem normally refers to an eight-hour day. Direct personal services of the type described in
Section 2 which 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 complexity, risk,
and important 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 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.

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.

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 project. including:
 Salary costs, as previously 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 basis requires, as a prerequisite to equitable negotiations, that the client and the Civil
Engineer defined 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:

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

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.

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 id a fixed amount. Because the entire fixed fee amount
is due the Civil Engineer, whether or not the estimated project costs have been reached the Civil Engineer has
an incentive to complete the service promptly.

4.6 FIXED PRICE

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. The
fixed price amount can be calculated as the sum total of the 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. Fired price compensation for basic services on certain design-type projects can
also be computed as an appropriate percentage of estimated construction costs; this method and its limitations
are discussed in the following section. Results using percentage method and the direct calculation method are
frequently used to check each other.
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 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.

4.7 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.

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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 indicated under Section 2.5 hereof, the outputs of which are ends by
themselves.

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 above, i.e., the type, complexity, Iccation and magnitude of construction cost.
As a general rule, projects within a higher range of construction cost will have lower percentages of fees than
those projects within a lower range of construction cost. The above limits of percentages shall be reduced to the
extent that some of the activities undertaken by the client.

4.8 SCHEDULE OF MINIMUM BASIC FEES

Rates of compensation for Civil Engineers 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:

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 (see Section 6.1.1 of the NEDA Guidelines).

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 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 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.

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