SECTION 4

CHARGING FOR CIVIL ENGINEERING SERVICES

1.1 GENERAL

Charges for engineering services are usually computed using one of six methods:

1. Salary cost time 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 of
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
cope of services is not well defined, should be recognized and discussed during early
negotiations. Often, initial estimates of maximum engineering cost 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 agreed 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 cost 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 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 are resident project representation during
construction, where the Civil Engineer’s costs may be affected significantly by the
contractors 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 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 nay 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.

1.2 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 cost (single multiplier version).

The direct salary times multiplier: or as it is frequently called the direct labor times multiplier
to unburdened direct labor costs, i.e., direct salaries without employee benefits. The single
multiplier included costs associated with employee benefits, overhead, and a margin or
contingencies, risk, and profit. The direct salary times multiplier version of this method 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 t 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 the 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. 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 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 expense 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 (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 biding,
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 projects with extraordinary risk 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
compensation 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, included 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
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 the conduct of the business, include
preliminary arrangements for new projects or assignments and interest on barrowed
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 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.
1.3 HOURLY BILLING RATE

The hourly billing rate method of 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 (as defined under the salary cost time 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 simply accounting and record keeping.

1.4 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 the 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 cost 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 f 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 and 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.

1.5 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 to the 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 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 and 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 ca be determined. In such cases, the
following considerations apply:

1. The general scale and intent of the project should be clearly 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 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 cost 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 is a fixed amount. Because the entire fixed 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.

1.6 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 estimated
engineering costs for salaries, overhead and non salary expenses, and 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; this method and its limitations are
discussed in the following section. Results using the 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 a 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.

1.7 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 determined the compensation of the engineer for services where the
principal responsibility is the detailed design or construction supervision of facilities to be
constructed.

sConstruction 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 rest upon the assumption that detailed
design and construction supervision cost 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%);
d. Construction supervision-ten percent (10%)

These percentages include 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, location
and magnitude of construction cost. As a general rule, projects within a higher range of
construction cost will have a lower percentages of fees that 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.

1.8 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 basic monthly salary.

SECTION 5

TOTAL PROJECT COST

5.1 GENERAL

Probable total cost is a major concern of the client throughout the planning design, and
construction phases of a project. The probable total capital cost, often used to established budgets
for a typical project, is made up of:

1. Professional engineering costs.

2. Construction cost.
3. Legal and land costs.
4. Owner’s costs, including project administration, staffing, financing, and other overhead.
5. Contingency allowance for unknowns.

5.2 PROFESSIONAL ENGINEERING COSTS

A Civil Engineer is often engaged to make a study and to render a planning report on the
contemplated project, including alternative solutions, layouts, and locations along with initial
estimates of the probable project cost. The involve alternative or phased implementation schemes
which add flexibility to the project.

The study and report phase may include the cost for field or traffic surveys, planning analyses,
geotechnical explorations and analyses, in addition, to the direct engineering costs.

The cost of coordination, evaluation, implementation and compliance have increased

correspondingly. The extent of these concerns may not be identified during the study and report
phase, and sometimes not even after final plans and specifications have been prepared. As a
result, the estimated probable total cost of the project based on the study and report phase must be
understood to be preliminary in nature.

Because projects vary widely in nature and scope, the stud and report phase is important because
its implementation determines the scope and development of the entire project and its ultimate
capital and lifecycle cost. At times, preliminary investigations become extensive and lengthy that
the study and report phase costs as much or more than the final design phase.

During the final design and construction phase, additional surveying and geotechnical engineering
services may be needed. Also, special or additional engineering services not originally identified
may be required by the client or recommended by the Civil Engineer.

5.3 CONSTRUCTION COST

The study and report phase of the project usually includes a preliminary estimate of the
construction cost for the contemplated project and for alternative project configurations. Such cost
estimates are approximate, since the final design drawings and specifications have not yet been
prepared. In addition, the timing of the construction work must be considered because inflation
will affect the construction cost.

Construction Cost is 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 administrative expenses of the agency. The
estimated construction cost must be approved by the client before the invitation to submit
technical proposal is issued.

5.4 LEGAL LAND, ADMINISTRATION, STAFFING AND FINANCIAL COSTS

These costs, which include audits, the costs of issuing bonds, land costs, and interest for borrowed
money during construction, are part of the probable total project cost and can best be estimated in
cooperation with the client because they are usually outside the knowledge and control of the
Civil Engineer.

5.5 CONTINGENCY ALLOWANCE

As the project moves forward from the study and report phase through the final design phase and
finally construction award more becomes known about project details and costs, until at the
completion of the project, the final project cost becomes a known quantity.

To provide for intangible costs, contingencies should routinely be added to the basic cost
estimate. It is common practice to add 20% or more to the estimated probable total project cost at
the completion of the study end report phase, reducing this to perhaps 10% at the completion of
final design and perhaps to 5% when the construction bids become known. Larger or more
complex projects may require higher contingencies.

5.6 SUMMARY

Estimate of probable total project cost should be periodically revised by the engineers as the
design moves forward and more information becomes known. The client is normally responsible
for providing estimates of those costs which may lie outside the Civil Engineer’s knowledge or
expertise, such as those in the legal, land, administrative and financial areas.