CHARGING FOR CIVIL

ENGINEERING SERVICES

Group Members:

Barredo, Kareylou

Blancaver, Karl Bryan

Buhat, Ellomar Christian

Cruz, Frenzy Mae

Fano, Xynith Mitch

Fernando, Justin

Mendez, Rheign Julianne

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 reimbursables.
3. Per diem.
4. Cost plus fixed fee ("CPFF').
5. Fixed price.
6. Percentage of construction cost (“Percentage”).

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.

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 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)

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 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 the 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. The Multiplier applied to salary cost is a factor that compensates the Civil Engineer for:

●​ Overhead (as defined below)

●​ A reasonable margin for contingencies
●​ Interest or invested capital readiness to serve
●​ Profit

The size of the multiplier varies based on:

●​ Type of service
●​ Nature and experience of the engineering firm
●​ Geographic location of the firm’s office

Average Multiplier

The standard multiplier typically ranges between 2.5 and 3.0 times the average salary cost.
However, for specialized services, a higher multiplier is often applied, particularly when:

●​ The service requires extensive experience and specialized knowledge

●​ The service involves expert testimony in legal proceedings
●​ The firm possesses special capabilities

3. Expenses directly incurred in engineering projects include:

a.​ Travel & Living Expenses

●​ Costs for principals and employees when traveling for project-related work

b.​ Communication Expenses

●​ Long-distance telephone, facsimile, telegraph costs
●​ Shipping and special postage charges beyond routine correspondence

c.​ Project-Specific Services & Equipment

●​ Specialized technical equipment
●​ Legal and accounting services
●​ Computer rental, programming, CADD charges
●​ Subconsultants and subcontractors
 ●​ Commercial printing and binding

d.​ Office Supplies & Reproduction Costs

●​ Drafting and stenographic supplies
●​ Blueprinting, photocopying, and printing costs specifically for a project

e.​ Specialized Insurance & Safety Expenses

●​ Unusual insurance for high-risk projects
●​ Protective clothing for hazardous environments
●​ Reimbursed at actual cost plus an administration charge

4. A major portion of compensation, derived from the multiplier on salary costs, covers:

a.​ General Office Expenses

●​ Rent, utilities, telephone, drafting equipment, engineering instruments
●​ Transportation and office supplies not assigned to specific projects

b.​ Taxes & Insurance

●​ Excludes those already included in salary cost

c.​ Continuing Education & Professional Development

●​ Technical publications, library subscriptions
●​ Attendance at professional meetings & training courses

d.​ Administrative & Executive Salaries

●​ Salaries of executives, accountants, legal staff, clerks
●​ Time spent on general business functions, project planning, and financing

e.​ Business Development Costs

●​ Salaries of principals and employees involved in securing projects

f.​ Productivity Management

●​ Compensation for non-billable time between assignments
●​ Time allocated for public service engagements

g.​ IT & Software Costs

●​ Computers, software development, and staff training (if not billed as direct costs)

h.​ Accounting & Record-Keeping

●​ Segregation and recording of expenditures for cost-based agreements
●​ Detailed hourly time records for engineers, principals, and employees
●​ Payroll records and receipts available for client audit if required by contract
HOURLY BILLING RATE

The hourly billing rate is a compensation structure where clients are charged based on the
number of hours worked by personnel, supplemented by other costs incurred during the project.
This method is comprehensive, as it takes into account not only the wages of the employees but
also overhead and profit margins.

THE COMPONENTS OF HOURLY BILLING RATE

●​ Direct personnel Expenses This includes the salaries and wages paid to the personnel
directly involved in the project. It also accounts for benefits like health insurance and
retirement contributions.

●​ Overhead This is the indirect cost of doing business that is not allocated directly to a
specific project, such as office rent, utilities, administrative staff salary, and equipment
depreciation. The overhead is typically allocated to projects based on a pre-determined
formula or percentage.

●​ Profit This is the additional amount charged above the costs incurred. The profit margin
takes into account market conditions, competition, and the firm's strategic objectives.

The hourly billing rate method is similar to the salary cost times multiplier method, wherein a
multiplier is applied to the direct salary costs to encompass the overhead and profit. This
comparison is crucial because it underscores a standard practice in the engineering industry
where both methods aim to provide a fair compensation structure that reflects incurred costs and
profit margins.

Direct non-salary expenses, include costs that are incurred for the project but do not fall under
salaries. This could include materials, travel expenses, and subcontractor services. These costs
are often billed separately to the client, along with a service charge to account for administrative
costs related to processing these expenses.

APPLICATION OF HOURLY BILLING RATE

●​ Undefined scope In projects where the scope of services is not well-defined or is likely to
change (e.g., exploratory projects), hourly billing provides flexibility to adjust to changes
in scope and ensure that all work performed is accounted for.

●​ Simplified accounting This method can streamline bookkeeping and administrative tasks
since it allows for straightforward recording of hours worked, as opposed to fixed-price
contracts, which require more detailed tracking of deliverables and resources.​
PER DIEM OR PER DAY

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

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.

COST PLUS FIXED FEE

WHAT IS COST PLUS FIXED FEE (CPFF)

A CPFF contract is a type of cost-reimbursement contract where the buyer reimburses the
seller for all allowable costs incurred during the contract's performance. Additionally, the seller
receives a predetermined fixed fee that remains constant regardless of the actual costs.

Application of CPFF in Civil Engineering

CPFF contracts are frequently employed in CE projects involving:

●​ Research and Development: Where the nature and extent of work are unpredictable.
●​ Complex Infrastructure Projects: When unforeseen ground conditions or design changes
are likely.
●​ Projects with High Technological Uncertainty: Where new or innovative techniques are
being used.

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:
 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.

Ethical and Legal Considerations

●​ Transparency and Accountability:

○​ CPFF contracts necessitate meticulous record-keeping of all costs. Ethical conduct
demands complete transparency in cost reporting to prevent fraud or
misrepresentation.
○​ Civil engineers have a professional obligation to ensure that all expenditures are
justified and aligned with project objectives.
●​ Potential for Conflicts of Interest:
○​ Because the contractor is reimbursed for costs, there's a potential for conflicts of
interest. Engineers must prioritize the client's best interests over potential financial
gains.
○​ Ethical codes emphasize the importance of avoiding situations where personal
interests could compromise professional judgment.
●​ Professional Responsibility:
○​ Civil engineers are bound by codes of ethics that emphasize public safety, welfare,
and environmental protection.
○​ Even in CPFF contracts, where cost control might be less stringent, engineers must
uphold these fundamental principles.
●​ Legal Compliance:
○​ CPFF contracts must comply with all applicable laws and regulations. This includes:
■​ Contract law.
■​ Procurement regulations.
■​ Environmental regulations.
○​ Failure to comply can result in legal penalties and damage to professional reputation.

Key Issues Related to CPFF

●​ Cost Control:
○​ A primary concern with CPFF contracts is the potential for cost overruns.
○​ Effective project management and cost control measures are essential to mitigate this
risk.
●​ Incentives:
○​ Because the fee is fixed, there may be less incentive for the contractor to minimize
costs.
 ○​ Carefully drafted contracts and rigorous oversight are necessary to address this
issue.
●​ Auditing:
○​ It is very important that thorough audits are performed on CPFF contracts. This
helps to ensure that costs are being properly accounted for.

Standards and Best Practices:

●​ Accurate Cost Tracking: Implementing robust cost accounting systems is essential.

●​ Regular Audits: Periodic audits can help ensure cost transparency and prevent fraud.
●​ Clear Communication: Maintaining open and honest communication between the client
and contractor is crucial.
●​ Change Management: Establishing clear procedures for handling change orders is vital to
prevent disputes.

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. 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.

COMPONENTS OF FIXED PRICE

●​ DIRECT COSTS - refer to expenses that can be directly attributed to a specific project or
task.

●​ OVERHEAD COSTS - refer to the indirect expenses that are not directly tied to a
specific project but are essential for running the business.

●​ ALLOWANCE FOR CONTINGENCIES - refers to a predetermined amount set aside

to cover unexpected costs or changes that may arise during a project.

●​ INTEREST ON INVESTED CAPITAL - refers to the cost associated with the funds
that the engineering firm has committed to the project.
 ●​ PROFIT - refers to the amount earned above the total costs incurred in delivering the
services, including both direct and indirect costs.

PERCENTAGE OF CONSTRUCTION COST

The percentage of construction cost methods 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
proposals 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 of the
PICE manual, the outputs of which are finished 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 of
a particular project will depend on the factors mentioned above, the type, complexity, location
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 acts within a lower range of
construction cost. The above limits percentages shall be reduced to the extent that some of the
activities undertaken by the client.