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Engineering Fee Question

Engineering Fee Question

Engineering Fee Question

(OP)
In my industry all engineering firms fee's are based off of a fee schedule which is based on total construction cost.  Also, on all statement of qualifications, engineering firms never list anything about engineering fees, they are typically negociated after a firm is selected.  My question is:  Is it ethical to charge 50% to 75% of what other firms are charging and is it ethical to list fees in a statement of qualifications?

RE: Engineering Fee Question

Fees are ethical.  Period.  I started out charging twice the going rate.  Customers look at my company, my capabilities, and experience and then they decide if my hourly rate is "reasonalbe" or not.  No cooercion.  No obligations.  My rate is my rate and people that think it is too high don't hire me.

Hiding a very high or very low fee inside of a bid is perfectly reasonable since the client is evaluating the total costs from one company vs. the others.

Listing engineering charges in the qualifications is a company-by-company decision.  Ethics really don't come into it.  Many people don't include a rate schedule in a qualification package because those packages get pretty broad distribution and there may be people who see that document who don't have a need-to-know your rates.  I've reached the point where I don't really care who knows my hourly rate, but when I was first starting out I was a little nervous that companies would look at the hourly rate and exclude me without knowing what they were passing up.  I've since decided that people who would dismiss me are people who I probably don't want to work for.

David

David

RE: Engineering Fee Question

You aren't in Canada, at least in western Canada where I work, where the buildings engineering consulting industry is based on providing fixed fees up front with the proposal.  Even when all the qualifications are requested and the engineering proposal is to be based on a points system with fees only making up anywhere from 25% to 50% of the weighting, funny how everyone has almost equal points till the fee points are added.  I often question our industry- why do we submit fixed fees for an unknown amount of work?  Well, that's "industry standard" I'm told.  We like to rationalize that we have a fixed scope as outlined in our fee letters (fixed fee = fixed scope of work clearly indicated in the fee proposal), but in this industry, scope creep is the norm.  Try scaring up additional fees when you find time expended is more than the fee.....

RE: Engineering Fee Question

I would caution against charging 50% of the going rate.  When starting out, under most circumstances it does make sense to charge a rate that is below the regional standard.  However, if you go too low (like your 50%) people may start to question your credentials and your competence.

RE: Engineering Fee Question

You just need to make sure you have all of your costs covered and add in a reasonable mark up.  If others are overcharging (not saying that is the case) that's not your problem.

The key is, as alluded to by PatBethea, as long as your work is top notch with regards to quality and schedule and you are getting repeat business, making whatever profit you want to make, then who could have an issue with it?

Greg Lamberson
Consultant - Upstream Energy
Website: www.oil-gas-consulting.com

RE: Engineering Fee Question

Fees are an important part of your business.  Got to keep the cash flowing.  Better ask yourself some questions and try to view things from your customers point of view.

Why do you want lower fees?  Are you trying to grab market share?  Or, are you not worth the going rate?

Are your customers price sensitive when making decisions, or are they really looking for something else?

Generally speaking (in my experience), value equals 1) price, 2) speed, 3) quality.  Pick 2 of the three.  If your price is low, chances are good you are compromising on either speed or quality.

Often, a customer says they want a low price and good quality, but what they really want is good quality and on-time delivery.  They will pay to get that, and then they will hire you again.

If you are able to keep costs low by skimping on resources, office space, equipment, or support staff, speed becomes much more difficult to achieve.

Think about your business plan.  Are you attempting to gain customers with low fees, but you plan to raise them later?  Price increases can be hard to implement, and customers may desert you.  It may be easier to start with high fees, say 110% or 120% of the going rate and give a discount to capture customers.

RE: Engineering Fee Question

I would not buy the cheapest anything.  It's always trouble.
I learned a long time ago "Nothing cost as much as cheap help"

RE: Engineering Fee Question

I set my fees at the low end of the going rates for someone of my qualifications and experience. I justify this based on my lower overhead by having a home based business.

People value something based in part on how much they pay for it.

I have a friend who tried to set up a computer consulting and repair business. He charged about 30% of the going rate,. He went bankrupt not because he was charging too little but because no one was hiring him. He then went to work for an established firm and was charged out at the going rate to clients that would not hire him direct. Some of this is due to the additional support from an established form but most of it is due to the clients perception of value.

If he only valued his time at the low rate what was the client to think of the value of his services.

Competing on fees is ethical but it is not ethical (at least in Manitoba) to cut your fee to undercut another engineer. A fine line but if your fees are set then you should not have a lot of trouble defending the fee structure.

Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion
www.kitsonengineering.com

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