How an Engineering Firm Charges for Its Services

 

Defining the Scope of Services

Establishing a clear definition of the scope of engineering services required for a particular project is often difficult, but nonetheless, it is the single most important step in contracting for engineering services. Developing a good scope of work description clarifies for the Owner just what the real extent of the project is and what type and level of services are appropriate to complete it. It allows the engineer to understand what services he or she is expected to provide and establishes fair guidelines for comparing one firm’s services to another. The Scope of Services will form the basis of the contractual relationship between engineer and owner throughout the project and will likely be referred to by both parties frequently as the project proceeds. If it is clear and concise, it will engender confident, constructive actions by both parties as they move forward with the project. However, if it is vague, poorly worded, or too general it can be a continual source of confusion, misunderstandings and possible ill will. Investing time “up front” in a well thought out, well written scope of services description will pay off many times over. The scope of services is best developed jointly by the owner and the engineer when reviewing the unique needs of the project.

The first step in defining the scope of services is for the owner to clearly identify what his or her needs are, and how the project is expected to meet those needs. Establishing a realistic project budget and timetable are also essential. These early, “big picture” aspects of the project warrant careful attention by the owner’s most senior management. If the owner does not have sufficient expertise or resources to perform these tasks properly, he should retain the necessary consultants to assist in the process. In some cases it will be necessary to establish a study and report phase as this initial step in to analyze the owners needs and establish parameters for the “real” project that will follow.

While the owner is the only one who can identify what he really needs or wants out of a project, defining the specific steps to achieve those goals may be beyond his expertise. Fortunately, there are several excellent guides available from ACEC to assist in setting a detailed scope of services for specific portions of a project. These include the:

National Practice Guidelines for the Geotechnical Engineer of Record: prepared by ASFE, the Georprfessional Business Association.

National Practice Guidelines for the Structural Engineer of Record: prepared by the Coalition of American Structural Engineers (CASE), a coalition of the American Council of Engineering Companies.

Mechanical / Electrical Contract Documents: prepared by the ACEC Coalition of Mechanical Electrical Engineers.

Use these guidelines as a starting point. The final scope of services description that appears in the contract between owner and engineer should be the result of negotiation and discussion between both parties, resulting in a document that both fully understand and endorse.

Compensation for Services

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

  • Salary cost (direct labor) times multiplier (fringe benefits, overhead plus profit) plus direct non-salary expense (subconsultants, travel, etc.)
  • Per diem or hourly rates
  • Cost plus fixed fee
  • Lump sum
  • Method related to construction cost (frequently a percentage of construction)

The first two of these methods are based upon the consulting engineer’s costs to perform services and, therefore, a precise definition of project scope is not required. The cost plus fixed fee method requires that the project be defined, but provides more flexibility to accommodate changes than the lump sum or construction cost methods. The last two methods are based upon a specific work product and require that the project scope be well defined. Technical, owner controlled, and external factors impact the cost of providing services and the value of these services to the owner. These factors should be taken into consideration when negotiating any of the methods of determining fee.

The method or combination of methods used depends upon the nature, scope, duration, complexity, and quality of services required by the owner. Each of the methods is described in the “Standard Form of Agreement Between Owner and Engineer for Professional Services” published by the Engineers Joint Contract Documents Committee. This document can be purchased from the American Council of Engineering Companies (ACEC).