Charging for Civil Engineering Services

A. Salary Cost Times Multiplier Plus Direct Non-Salary Expense

Compensation on the basis salary cost times an agreed multiplier is a frequently used

method of determining charges for the civil engineering services. With this method, charges

for civil 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, misunderstanding, 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 invoice, 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 partner and principal 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, interests, or invested capital

readiness to serve and profit. The size multiplier will vary 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 Travelling 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 the 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.

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 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 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

multipliers agreement or other cost-based agreement must provide the accounting

necessary to segregate and record the appropriate expenditures.

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 B. Hourly Billing Rate

The hourly billing rate method of compensation is very similar to the cost salary times

multiplier in that the hourly billing

rate 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 elect to utilize this method of compensation on projects when the scope of service

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

C. Per Diem

The term per diem normally refers to an eight-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 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

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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 iem 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, reginal 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.

D. 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.

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 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 estimates, 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

a providing service before the detailed scope 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 indetermined, 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 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. 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.

E. Fixed Price

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 The fixed price method of

compensation is frequently used for

investigation 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 of 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 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 to 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 date.

F. Percentage of Construction Cost

The percentage of construction cost method is seldom used raw. Because of increasing

complexity and large variation in tasks for the projects, the percentage of construction cost fee

curves no longer have a direct correlation to the required engineering fees for spe cific projects.

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Owners should either use

experienced “in-house” staff or

retain consultants to develop detailed

program budget 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, 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 less standardized. These correlations

have a 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 the design services. Its acceptance over many years also affords a valuable guide

for judging the reasonableness of the proposal for consulting services.

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 The percentage fee shall consider type, complexity, location, and magnitude of construction

cost of the project and shall not exceed the following percentages of estimated construction

cost:

- Feasibility Studies- 3%

- Detailed Engineering Design- 6%

- Detailed Architectural and Engineering Design- 8%

- Construction Supervision- 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.

G. 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.

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 2. Civil engineer 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 employees shall be compensated with a minimum of 10% of the

professional fee for the project, over and above the basic monthly salary.

TARRIELA, AJ ATIENZA

November 7, 2024

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