Source: Manual of Professional Practice for Civil Engineers by Philippine Institute of Civil Engineers, Inc.

Charging for Civil Engineering Services

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")

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
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 the 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.

“Whatever you do, work at it with all your heart, as working for the Lord, not for human masters, since you know that
you will receive an inheritance from the Lord as a reward. It is the Lord Christ you are serving.” - Colossians 3:23-24
Source: Manual of Professional Practice for Civil Engineers by Philippine Institute of Civil Engineers, Inc.

Determination of charges for services such as 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 may be based on "value pricing, which reflects a premium rate not
tied directly to the Civil Engineering's cost, but based on the Civil Engineer unique qualifications or
the extenuating circumstances. One of the more common value pricing tasks is providing expert
witness services.

1. 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).

The direct salary times 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 costs, i.e., direct salaries without employee benefits. The single
multiplier includes costs 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 version 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 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 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

“Whatever you do, work at it with all your heart, as working for the Lord, not for human masters, since you know that
you will receive an inheritance from the Lord as a reward. It is the Lord Christ you are serving.” - Colossians 3:23-24
Source: Manual of Professional Practice for Civil Engineers by Philippine Institute of Civil Engineers, Inc.

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 expenses usually incurred in engineering engagements may include the
following:
a. Living and traveling 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 runtime 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
(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 billed as
a direct cost to the project. Such expenses are normally reimbursed by the client at
“Whatever you do, work at it with all your heart, as working for the Lord, not for human masters, since you know that
you will receive an inheritance from the Lord as a reward. It is the Lord Christ you are serving.” - Colossians 3:23-24
Source: Manual of Professional Practice for Civil Engineers by Philippine Institute of Civil Engineers, Inc.

actual invoice cost plus an administration charge to compensate 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 includes the following indirect costs:
a. Provision 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 and
expenses (other than identifiable 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 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 computer, 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-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.

2. 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
non-salary expenses (as defined under the salary cost times 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 simplify
accounting and record keeping.

“Whatever you do, work at it with all your heart, as working for the Lord, not for human masters, since you know that
you will receive an inheritance from the Lord as a reward. It is the Lord Christ you are serving.” - Colossians 3:23-24
Source: Manual of Professional Practice for Civil Engineers by Philippine Institute of Civil Engineers, Inc.

3. PER DIEM

The term per diem normally refers to an eight-hour 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 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 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 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 call, may, finish testifying in only a part of the day.

On occasion the urgency of the engagement required 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.

4. 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 an equitable fixed fee amount. The scope of services, cost estimate, and fixed fee
should be incorporated into the client-engineer agreement.

“Whatever you do, work at it with all your heart, as working for the Lord, not for human masters, since you know that
you will receive an inheritance from the Lord as a reward. It is the Lord Christ you are serving.” - Colossians 3:23-24
Source: Manual of Professional Practice for Civil Engineers by Philippine Institute of Civil Engineers, Inc.

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; 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 types 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 costs 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 fee 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.

5. 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 nonsalary 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; 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.

“Whatever you do, work at it with all your heart, as working for the Lord, not for human masters, since you know that
you will receive an inheritance from the Lord as a reward. It is the Lord Christ you are serving.” - Colossians 3:23-24
Source: Manual of Professional Practice for Civil Engineers by Philippine Institute of Civil Engineers, Inc.

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.

6. 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
constructions 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 constructions 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 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%); 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, the outputs of which are ends by
themselves.

“Whatever you do, work at it with all your heart, as working for the Lord, not for human masters, since you know that
you will receive an inheritance from the Lord as a reward. It is the Lord Christ you are serving.” - Colossians 3:23-24
Source: Manual of Professional Practice for Civil Engineers by Philippine Institute of Civil Engineers, Inc.

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 mentions 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 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.

ADDITIONAL PRINCIPLES ON FEES

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 (refer to 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 Commissions.

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.

“Whatever you do, work at it with all your heart, as working for the Lord, not for human masters, since you know that
you will receive an inheritance from the Lord as a reward. It is the Lord Christ you are serving.” - Colossians 3:23-24