Engineering Fees for Construction Projects 3

[dougantholz]

Last night we had a distiguished speaker in who is a professor at a midwest U.S. engineering university who is originally from the Mideast. We had a number of design professionals around the table talking about different aspects in engineering, and the subject of fees came up. The question the professor threw out there is this,

"Engineers are a licenced professional, which require a bachelor's degree and 4 years apprenticeship before being allowed to practice by themselves. This is equivilant to what doctors or lawyers go through. Yet engineer's fees, and salaries, are typically 1/2 to 1/3 of what a lawyer or doctor gets with a similar education/experience. The question is how do you raise the fees an engineer can charge?"

I want to hear what you all have to say to this. I think we all agree that engineer's fees are usually very low when compared to the total cost of a construction project. Typically the engineer's fees in our office (in the Midwest US)are 2-5% of the total construction cost, depending on what the type of construction is.

I would love to hear from everyone, including engineers who practice outside the US as to what percent of construction they charge and any ideas as to raising the engineer's piece of the pie.
Thanks

 

[sc]

In Australia the fees can vary quite widely our company has charged from 1.5% - 8% for design services. The fee is based on an estimated cost of construction (or initial contract fee). We also base some fees on time estimates.

We have discussed this issue in the past and generally feel that whilst doctors, lawyers, accountants, etc earn more, we the engineers are providing a valuable service at a realistic cost. I know that not many people will bag an engineers income whereas doctors and lawyers, etc seem cop a fair bit. Our firms are still in business our staff remain up to date, so why would we consider raising fees to match other professions.

sc

 

[Ingenuity]

I think it is a bit sad when a Real Estate agents get 5-6% for a home sale - and in my area (Hawaii) there are lots of US$1M sales...not often a US$1M home requires engineering services of $50,000, and not too much risk with real estate selling!

 

[Zeke]

I agree with Ingenuity. A realtor recently asked me to design some additions and a replacement of a roof on her house. My fee was 5 % of the estimated construction cost. The realtor immediately went into sticker shock. She couldn't believe it would cost so much. I explained to her all I would do for this fee, but she kindly said no thanks. Although I didn't point it out, she charges 6% to list a house, show it, and close the deal, yet she takes no risk.

I perform a variety of civil engineering services and have a difficult time figuring out how much to charge for each. I do not want to come off as a cheap engineer, and I want repeat business, so some fine line has to be achieved. If there were a general rule for calculating fees, engineering fees would be consistent and make proposals easier.

If there are publications or web sites listing typical services and typical fees, I would find it very useful.

 

[RDK]

My home association (

http://www.apegm.mb.ca

) publishes, in conjunction with the consulting engineer association, a Guide to the Selection of a Consulting Engineer. It is slanted mostly towards the construction part of the business (as opposed to machine design.)

In this guide there are two recommended fee structures. The first is a per cent of construction cost. The recommended costs vary by complexity and size. They range, if memory serves me, from around 5% to 15%.

The guides also give a recommended hourly rate for time plus disbursement fee structure. The recommended rates vary from 2 to 2.5 times salary costs depending on length of assignment. Salary cost is bare salary plus an allowance for unemployment insurance, annual leave, pension etc.

Using both approaches the costs come into the same ball park range.

The trouble is that neither approach satisfies the owner’s or the consultant’s needs. In a percent fee arrangement there is actually a disincentive to try new and innovative approaches to completing the work. Simply staying with the tied and true (less costly to design) results in higher profits for the consultant and perhaps higher construction costs for the owner.

I have a friend who has worked for school divisions where they always use a percent fee arrangement. The consultants routinely recommend all extra claims from the contractors, their fee increases as a percentage of the construction cost. He quit over this issue.

Under the hourly basis, the owner never knows what his final consulting costs will be until the work is completed. This is a source of friction between the consultant and the owner.

A blended arrangement, cost plus to an upset maximum, is the worst of both worlds. The owner will change the scope or delay the project in some way and increase the consultants costs. If the total fee is under the limit the consultant loses as he cannot make up the difference if under the consultant loses and he must eat the increased fee,

I like either a fixed fee or a monthly fee approach. This works for my practice since I typically only have one client at a time and know how long the job should take. I also typically work away from home (the closest big project was 200 kms away) and don’t really care how many hours a day I work. I also am a one person firm so extra time is not a monetary cost for me. I realize that it will not work for a larger practice with extensive payroll and overhead costs.

Part of the problem that fees are too low is that there are too many engineers out there. Market forces simply drive the cost of engineering down. In Manitoba there are some 3,500 engineers out of a population of 1,000,000. Saskatchewan has similar numbers. I have often argued that the associations should increase the fees, lower the number of practicing engineers (only those requiring registration would be registered) and increase act enforcement. This would result in better engineering services since the incompetent fringe would be eliminated, the part time engineers would be eliminated, the moon lighters would be eliminated. It would also result in higher fees available to the rest of us.

The graduating class in Manitoba is typically around 200 engineers, In medicine its about 70 and in law less than 100. The intake into pharmacy is 54 per year. New graduates in pharmacy have multiple job offers starting at twice a civil graduates only offer. Everyone needs the services of a pharmacy, a doctor or a lawyer sometime. Very few need the services of an engineer directly.

Doesn’t take an economist to see the supply and demand effects here.
Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

http://www.kitsonengineering.com

 

[dougantholz]

Rik, and others;
Thanks for your response. I don't know if it is a problem or not. No we do not recieve a fee equal to that of a doctor or lawyer, even though our training is compareable to them. I also know that accounting; a discipline very similar to our own, makes a similar salary.
Supply and demand are often very powerful forces, locally. Currently in the Midwest US there is a construction boom happening where the backlog of work can be up to a year long. This would tell me that there is a shortage of good quality engineers available to do the work. Yet I have seen little increase in salary or fees for jobs. Engineers move up in paygrade, but young ones come in a fill the ranks below.
I don't know if there is a long term solution. I know it has been pointed out by others, but it bears repeating here: Engineers lack one very important thing that doctors and lawyers have, a centralized organization to represent the ALL.
Thanks for the discussion.

 

[waterexpert]

The difference between engineers, doctors and lawyers is that anyone can call themselves an engineer. Fitters, electricians, all refer to themselves as engineers.

Until the practice of the profession is limited to graduates, as long as tradesmen share the title, expect to get tradesmen's wages.

 

[RDK]

Waterexpert

I disagree.

In Canada the use of the term engineer is restricted, with some limited exceptions to the use of professional engineers. The exceptions are railway, power and military engineers.

While enforcement of these laws is somewhat lax, the general usage of the term engineer is usually a reference to a professional engineer.

We have the same problem with obtaining parity in salary to doctors, lawyers and other traditional professions.

In my area there is an informal limit on hourly fees of $100 (CDN=about $63 US) per hour. To charge more than that one has to be a PhD or other highly qualified individual.

Your standard run of the mill working engineer seldom charges out over $100. While this ceiling is sometimes being broken for senior people, the working level engineer is seldom charged out for more than that.

That’s one of the reasons why I like to charge on a lump sum or monthly basis for my services with office trailer and other site costs included.)

If one uses the 2.5 salary cost rule suggested by our associations this puts a limit on salary of around CDN$ 40 (US$ 25) per hour for total salary costs (wages plus benefits). Some union trades make this amount.

I believe that the real reason for the disparity is that , at least locally, the medical and legal schools have restricted enrolment while the engineering schools have allowed easy entry to all who are capable of completing the program. They have not restricted the supply of engineers but have allowed market forces to govern.

I think that letting market forces govern is a good thing. It takes away the artificial restrictions on the supply of engineers and generates a more efficient market.

I do think that the enforcement of the legal restrictions on the use of the term engineer as well as restricting the right to practice to professional engineers would be a good thing. This would ensure that only engineers were dong engineering work and market forces would then work in our favour.

In my home association the total budget is around $CDN 1.5 million. Act enforcement is less than 3% of that. More money is spent on meetings (whatever that includes, coffee etc.???).

Its easy to see where the problem is.
Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

http://www.kitsonengineering.com

 

[waterexpert]

That's interesting. I referred to the UK situation. I see however on these pages people based in North America with zero qualifications offering people completely wrongheaded "solutions", and boasting elsewhere that they have experience without qualifications, many important clients,and that qualifications are therefore unneccessary.

Just to compare with the UK situation, the use of the term Engineer is entirely unrestricted here. Anyone can practice as an engineer here. Engineering and Law courses here are both unrestricted entry, and whilst they can't fill the Engineering course, they cannot find enough places for all of the people who want to do Law. The law profession restricts entry by number of training contracts. We have very many unemployed "lawyers" with degrees but no practical training, who therefore cannot practice.

The Engineering Institutions here are controlled by employers organisations, and are constantly trying to include new and ever lower classes of greasemonkeys and assorted tradesmen as engineers. They recognise as full engineers even people with no formal training or qualifications at all, even as craftsmen.

Only the Chemical Engineers here are all graduate disciplines, with no "technician" or "incorporated" grades, and consequently the average chemical engineer here earns twice or three times what a mechanical or civil engineer does. Admittedly even we don't get much more than the rates you quote.

 

[ggsands]

There are engineers and engineers, lawyers and lawyers, doctors and doctors, with the difference that lawyers and doctors practice fee is auto-regulated by their associations, while enginners not. The problem before fees is the practice, many "professionals" out there are limited to a copy-and-paste practice, no design, no creativity, NO SOLUTIONS, even universities are full of enciclopedic people who only repeat whatever come out from the books, hello? anything new? zzzzzzzzz.
On the other side, the economy in general (around the world, including USA) is crying help for the people who actually can make a difference: people who manage from an engine perspective, from a very small machine conversion project to a multi-billon project, forget MBA's trained to produce proffits (whatever it takes), doctors who kill, lawyers who limit their practice to absolutely collect money for themselves, accountants limited to follow the rules (wherever it comes from), consultants (?) who collect lots of money and do not even know for what, why and how.
Sure there are lots of very good professional people out there, and probably today is not their best time, but want to make a difference? please bring the facts, the analysis, the evaluations and come out with solutions!

Guillermo