Lesson 6:

CHARGING
SECTION 4FOR CIVIL
ENGINEERING
SERVICES
● 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.
Charges for engineering services are usually computed
using one of the six methods:
 
● Salary cost times multiplier plus direct non-salary
expense (“Reimbursable”)
● Hourly billing rates plus reimbursables
● Per diem
● Cost plus fixed fee (“CPFF”)
● Fixed Price
● Percentage of construction cost (“Percentage”)
01
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.
• 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 version of
this method is being utilized more frequently
due to the simplistic nature of using a single
multiplier
• The salary cost times multiplier is the more
easily accountable due to the basic premise of
providing two separate multipliers.
The following factors are pertinent to the salary cost times
multiplier:
1. Salary Cost
• 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.
2. 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 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 2.5-3

times the average salary cost.
3. Direct Non-Salary Expenses
Usually incurred in engineering engagements
may include the following:

a) Living and traveling 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
the general correspondence).
c) Expenses for services and equipment directly
applicable to the project

d) Identifiable drafting supplies, stenographic supplies,

and reproduction work (blueprinting, photocopying
and printing)

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. Overhead
comprises a major portion of the compensation generated by the
multiplier on salary cost includes the following indirect cost:
a) Provisions for office expenses
b) Taxes and Insurance other than those included as salary cost
c) Library and Periodical Expenses of keeping abreast of advances
in engineering
d) 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).
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 employee on public service assignments.
g) Cost of acquiring and maintaining computers, development
of software, and training staff when not billed as 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
expenditure.
• 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.
02 HOURLY BILLING
RATES PLUS
REIMBURSABLES
• The hourly billing rate method is very similar
to the salary cost times multiplier method in
that the hourly billing rate includes all direct
personnel, overhead and profit.

• Direct non-salary expenses are a separate

item for reimbursement, usually with a
service charge.
03 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
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
04 COST PLUS FIXED
FEE (“CPFF”)
 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
05 FIXED PRICE
 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.

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.
 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.

 Partial payments should be made to the Civil Engineer at stated intervals

usually once a month during the performance of the services.
06 PERCENTAGE OF
CONSTRUCTION
COST
 PERCENTAGE OF
CONSTRUCTION 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 following 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
SCHEDULE
OF MINIMUM
BASIC FEES