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Module 6. Charging for Civil Engineering Services

Overview
This module is intended to provide the students the knowledge on how a civil
engineer being paid for his/her engineering services being rendered based on the
classification of the nature of the work.

Learning Objectives
Students are expected to be aware on how they should be paid as a civil
engineer and be able to assert on their economic right on how they should be paid
depending on the engineering services they offered.

Topics
This module will discuss the following:
 Cost times Multiplier plus Direct Non-Salary Expense
 Hourly Billing Rate. Per Diem
 Cost Plus Fixed Fee
 Fixed Price
 Percentage of Construction Cost
 Schedule of Minimum Fees.

Introduction
Note: The discussion below is based on what has been presented in the PICE
Manual.
Charges for engineering services are usually computed using one of six
methods:
1. Salary cost times multiplier plus direct non-salary expense (“Reimbursables”)
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,
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scope, and complexity of services required by the client. The first four methods are
based upon the Civil Engineer’s cost to perform services. They are particularly
applicable to assignments where the scope of services is not well 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 price or percentage or construction cost methods.
The potential risks and problems faced 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 percent of 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 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

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the contractor’s performance can be accomplished more equitably by one of the
methods based on the actual cost of services.
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 project execution. In some instances, the Civil Engineering may
demonstrate that his/her proposal will make the projects easier, faster, safer, or less
expensive to achieve the client’s objective.
Similarly, the client may wish the Civil Engineering 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 Engineer’s unique qualifications or the
extenuating circumstances. One of the more common value pricing tasks is providing
expert witness services.

Discussion

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 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 direct salary times multiplier, or as it is frequently called the direct labor
times multiplier version is very similar to the salary cost time multiplier with the
exception that it applies a single multiplier to unburdened direct labor costs, ie.,
direct salaries without employee benefits. The single multiplier includes costs
associated with employee benefits, overhead, and a margin for contingencies, risks,
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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 is the more
easily accountable due to the basic premise of providing two separate multipliers.
One multiplier is based upon definitive costs, ie, employee benefits and 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 Engineering
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 (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 leaves,
vacation, holiday and incentive pay; unemployment and other payroll taxes;
and the contributions for social security, worker’s 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. 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 the type of services, the nature and
experience of the civil engineering firm, and the geographic area in which its
office is located.
The average multiplier should 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.
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 3. Direct non-salary expenses usually incurred in engineering engagements
may include the following:
a. Living and travelling 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, facsimile, telegraph, shipping charges, and special postage
charges (for other than general correspondence)
c. Expenses for services and equipment directly applicable to the
projects, 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,
subsconsultants 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. Such projects may
require special insurance which is also normally reimbursed 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 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-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.
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 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 cost 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 the 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.
2. 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.

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.

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 mom-salary expenses (as defined under the
salary cost times multiplier section) are a separate item for reimbursement, usually
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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.

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 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.
The 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 Engineering is not called to testify or, if called, may finish testifying in
only a part of the day.
On the occasions 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 services. Rates for consultation in connection with
litigation and appearance before commissions and courts are normally higher than
the standard rates.

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, as previously defined

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  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 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 services before the detailed scope of services can be
determined. In such cases, the following considerations apply:
1. The general scale and intent of the projects 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 type of services 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
projects, time of completion, or to level of effort and services required are
materially change 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,
overheard, 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 projects, including but
not limited to those foreseen when the agreement is negotiated. The list of
reimbursement items should be as complete and detailed as possible. One
advantage of the costs has been allowed to grow in order to increase the Civil
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Engineer’s fee, which by definition is a fixed amount. Because the entire fixed fee
amount 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.

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 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 be also be
computed as an appropriate percentage of estimated construction costs; this method
and its limitations are discussed in the following section. Results using the
percentage 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
of the projects 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.

Percentage of Construction Cost

The percentage of construction cost method is seldom used now. 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.
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 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 procedure 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
considerations 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 efforts 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 costs of the project and shall not exceed the following
percentage of estimate construction cost:
a. Feasibility studies – three percent
b. Detailed engineering design – six percent
c. Detailed architecture and engineering design – eight percent; and
d. Construction supervision – ten percent

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 percentage are only ceilings and it
does not necessarily mean that the said percentage for a particular project will
depend on the factors mentioned above, ie, the type, complexity, location and
magnitude of construction cost. As a general rule, projects within a higher range of
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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 MINUMUM BASIC FEES

Rates of compensation for Civil Engineers engaged in various capacities are

given in Appendix A. The PICE shall regularly update the schedule of fees stipulated
in the Appendix. 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 105 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
projects 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.

Student Activity # 6. Make an interview with a civil engineer employed in a private

company and ask her/him how she/he being paid for her/his services rendered.
Make a report on this.
Surname_StudentActivity6 send to FB Msger Account Celeste A. De Asis

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Feedback
This activity will help the student on the acceptance of the reality that not all
the guidelines on how a civil engineer should be paid are actually being followed by
the clients.

Summary
Because of the economic status of the client and the fact there is a number of
available licensed civil engineers in the locality what has been earlier discussed on
how the charging of the services rendered is not being experienced by the said
professionals.

Reference
Philippine Institute of Civil Engineers, Inc. 2003. Manual of Professional
Practice for Civil Engineers, 2nd Edition. Manila: Philippine Institute of Civil
Engineers, Inc.

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