Old article but still very relevant.
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Stagnant Engineering Fee
- Thread starter strucguy
- Start date
I read the whole thing and it looked like he was mixing apples with bicycles. The first graph that comes up labor rates. Yep, Civil Engineers have lagged behind inflation.
But the point was that CE firms were charging the same percentage of total job that they charged in 1970 and that that fact is causing the lag. If "inflation" is "the change in cost of all goods and services" then if the "goods and services" that go into building construction increase in cost by 10% then the whole job increases by 10% and the cost of Engineering goes up the same. For example
[ul]
[li]1970 cost $100k, Engineer percentage 5%, Engineer payment $5k[/li]
[li]1993 cost $110k, Engineer percentage 5%, Engineer payment $5.5k--a 10% increase[/li]
[li]2013 cost $121k, Engineer percentage 5%, Engineer payment $6.05k--yet another 10% increase[/li]
[/ul]
Looks to me like a constant percentage of project budget exactly follows inflation.
David Simpson, PE
MuleShoe Engineering
"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.
But the point was that CE firms were charging the same percentage of total job that they charged in 1970 and that that fact is causing the lag. If "inflation" is "the change in cost of all goods and services" then if the "goods and services" that go into building construction increase in cost by 10% then the whole job increases by 10% and the cost of Engineering goes up the same. For example
[ul]
[li]1970 cost $100k, Engineer percentage 5%, Engineer payment $5k[/li]
[li]1993 cost $110k, Engineer percentage 5%, Engineer payment $5.5k--a 10% increase[/li]
[li]2013 cost $121k, Engineer percentage 5%, Engineer payment $6.05k--yet another 10% increase[/li]
[/ul]
Looks to me like a constant percentage of project budget exactly follows inflation.
David Simpson, PE
MuleShoe Engineering
"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.
The author did make the comment that the percentages were reduced as the cost of the job increased. If this isn't adjusted for inflation as well, then yes, the engineers could end up losing out as inflation would increase the job cost and therefore lower the percentage. It sure doesn't feel like it when it comes time to pay some of our consultants though...
i can say we have never based our fees on a percentage of anything. we estimate the job and negotiate scope with the client and try to maintain our budgeted profit margin. if a client wants to reduce the fee, than we also reduce the scope of work. this is not negotiable, our stockholders expect a return on investment
cvg,
That is kind of where I was coming from. Any other approach and you are seeing yourself as a victim and that is always the road to ruin. I set my hourly rate based on my required return. If a client doesn't want to pay my rates I give them the phone number for the local Vo-Tech and suggest that for what they want to pay that might be a better place to look.
If a client says "I'm sure you are worth your rate, but our policy is to cap Engineering charge rates at $95/hour, and you can't buck policy", I say "it is my policy not to work for people not willing or able to pay my non-negotiable hourly rate. You might try Fluor, their bottom rate is around that number, but you'll also have to pay for a $150/hour supervisor and a $250/hour manager and a $400/hour VP to make sure that the $95/hour Engineer does work that reflects well on Fluor. Oh yeah, you will be billed for the guy's commuting time, time in the bathroom, lunches, cell phone, $1/copy, a $75/hour secretary, and if he calls another company Engineer to talk about Fantasy Football you'll get billed for a consultation. The net result is about twice my hourly rate and total job cost 5-6 times what my total job costs are, but your policy will be upheld". That tack doesn't work very often, but it works sometimes, and occasionally they hire Fluor (or Jacobs, or KBR, or Bectel) and about half way through the job and (when they reach double the budget with zero deliverables in hand) they call be back to post appraise what went wrong. That always makes me smile.
David Simpson, PE
MuleShoe Engineering
"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.
That is kind of where I was coming from. Any other approach and you are seeing yourself as a victim and that is always the road to ruin. I set my hourly rate based on my required return. If a client doesn't want to pay my rates I give them the phone number for the local Vo-Tech and suggest that for what they want to pay that might be a better place to look.
If a client says "I'm sure you are worth your rate, but our policy is to cap Engineering charge rates at $95/hour, and you can't buck policy", I say "it is my policy not to work for people not willing or able to pay my non-negotiable hourly rate. You might try Fluor, their bottom rate is around that number, but you'll also have to pay for a $150/hour supervisor and a $250/hour manager and a $400/hour VP to make sure that the $95/hour Engineer does work that reflects well on Fluor. Oh yeah, you will be billed for the guy's commuting time, time in the bathroom, lunches, cell phone, $1/copy, a $75/hour secretary, and if he calls another company Engineer to talk about Fantasy Football you'll get billed for a consultation. The net result is about twice my hourly rate and total job cost 5-6 times what my total job costs are, but your policy will be upheld". That tack doesn't work very often, but it works sometimes, and occasionally they hire Fluor (or Jacobs, or KBR, or Bectel) and about half way through the job and (when they reach double the budget with zero deliverables in hand) they call be back to post appraise what went wrong. That always makes me smile.
David Simpson, PE
MuleShoe Engineering
"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.
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