CHARGING FOR CIVIL ENGINEERING SERVICES

Charges for Civil Engineering Services are usually computed using one of the six methods:

1. Salary cost times multiplier plus direct non-salary expense (“Reimbursable”)

2. Hourly Billing Rates plus Reimbursable
3. Per Diem
4. Cost plus fixed fee (“CPFF”)
5. Fixed price.
6. Percentage of Construction Cost (“Percentage”)

1. SALARY COST TIMES MULTIPLIER PLUS DIRECT NON-SALARY EXPENSE

(“REIMBURSABLE”)

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 available, as well as on the time period over which they can be guaranteed. This may
help avid 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 multiplier; or as it is frequently called the direct labor times multiplier
version is very similar to the salary cost times multiplier with the exception that it applies a
single multiplier to unburdened direct labor cost, i.e, direct salaries without employee
benefits. The single multiplier includes cost 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.

The following factors are pertinent to the salary cost times multiplier:

a. Salary cost is defined as the “direct salaries plus the employee benefits”. 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.

b. 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 average of multiplier should be between 2.5 and 3.0
times the average of salary cost.
c. Direct Non-salary expense usually incurred in engineering engagements may include the
following:

✔ Living and traveling expenses of principals and employees when away from the
home office on business connected with the project.
 ✔ Identifiable communications expenses such as long distance telephone,
facsimile, telegraph, shipping charges, and special postage charges (for other
than the general correspondence).

✔ 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, subconsultants and subcontractor commercial painting
and binding, and similar services that are not applicable for inclusion in general
overhead.

✔ Identifiable drafting supplies, stenographic supplies, and reproduction work

(blueprinting, photocopying and printing) as distinguished from such supplies
and expenses applicable to several projects.

✔ 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.

d. The Civil Engineers overhead which comprises a major portion of the compensation
generated by the multiplier on salary cost includes the following indirect cost:

✔ Provision for office expenses

✔ Tax and insurance other than those included as salary cost

✔ 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.

✔ Executive, administrative, accounting, legal, stenographic, and clerical salaries

and expenses (Other than 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.

✔ Business development expenses including salaries of principals and

employees so engaged.

✔ Provision for loss of productive time of technical employees between

assignments, and for time of principals and employee on public service
assignments.

✔ Cost of acquiring and maintaining computers, development of software, and

training staff when not billed as direct cost.

e. Accounting Records
 The Civil Engineers who perform 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.

2. HOURLY BILLING RATES PLUS REIMBURSABLES

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 non-salary expenses are a separate item for reimbursement,
usually with a service charge.

3. PER DIEM
 The term ‘per diem’ normally refers to an eight-hour day.
 Direct personnel services are frequently charged on a per diem basis
 Is particularly suited to expert witness or other type legal-type services and to other
short-term engagements involving intermittent personal services
 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. COST PLUS FIXED FEE

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. 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.
2. The type 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 is frequently calculated as a percentage of the salary cost,
overhead, and direct non salary expenses.
 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 is a fixed amount.

5. FIXED PRICE
Fixed Price Method – 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.

o The fixed price amount can be calculated as the sum total of estimated
engineering costs for salaries as the sum total of estimated engineering costs for
salaries, overhead and non salary expense, an allowance for contingencies,
interest on invested capital, readiness to serve, and a reasonable amount for
profit.
o 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.
o Partial payments should be made to the Civil Engineer at stated intervals usually
once a month during the performance of the services.

6. PERCENTAGE OF CONSTUCTION COST

 The percentage of construction cost method is seldom used raw.

 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 – the estimated total cost of constructing the facility to be covered by the
proposal 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.

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.

The percentage fee shall consider the type, complexity, location, and magnitude of
construction cost of the project and shall not exceed the ff percentage of estimated
construction cost:

1. Feasibility studies----------------------------------------------three percent (3%)

2. Detailed engineering design----------------------------------six percent (6%)
3. Detailed architectural and engineering design-------------eight percent (8%)
4. Construction supervision--------------------------------------ten percent (10%)

 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.

 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.

SCHEDULE OF MINIMUM BASIC FEES

Certain principles to be observed in the rates of compensation for Civil Engineers:

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 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.