Appendix A

COST OF PROFESSIONAL SERVICES

 

1. FORMULA

TOTAL COST OF PROFESSIONAL SERVICES = CONSULTANT FEE (HOURLY BILLING RATES H HOURS EXPENDED OR NEGOTIATED FIXED FEE) +DISBURSEMENTS (DISBURSEMENTS H FACTOR)

where:

— Hourly Billing Rates — * hourly payroll cost H ** payroll factor

(The hourly payroll cost may be calculated for each individual employee engaged on a project or rates may be established for each of the various employee classifications.)

— Hours Expended — the actual number of hours that each member of the project staff expends on the project.
— Disbursements — reimbursable expenses incurred on the project. (See Section 4.)
— Disbursement Factor — typically 1.1 but subject to negotiation for special circumstances and conditions.
* Hourly Payroll Cost = Annual Salary + Fringe Benefits
Annual Working Hours (52 regular working hours/week
*Payroll Factor — covers Overhead Costs and Profit and typically ranges from 2.0 to 2.5 depending on the number of manhours and the continuity of the manhour commitment to the project. (The Payroll Factor should be based on an estimate of total manhours for all services and agreed to at the commencement of the project.)

2. HOURLY BILLING RATES

Hourly billing rates are comprised of three basic elements in a Professional Practice; direct payroll costs, overhead costs and profit. For purpose of uniformity and practical use, they are based on actual hourly payroll costs with a payroll factor multiplier to cover overhead and profit.

2.1 Direct Costs

This category of cost relates to the payroll and disbursements incurred by staff while engaged on an assignment, which are chargeable directly to the project.

1. Hourly Payroll Costs

Hourly payroll costs are typically expressed as an hourly rate based on a 372 hour work week using the following formula:

HOURLY PAYROLL COST = ANNUAL SALARY + FRINGE BENEFITS 1950 HOURS (52 372)

  in which fringe benefits including annual vacation and statutory holidays are typically 20% to 30% of salary. They include the employer's share of:

— UIC charges

— Workers' Compensation levies

— Medical and Hospitalization insurance

— Life, Dental and other insurance premiums

— Statutory holiday provisions

— Sick leave provisions

— Vacation pay

— Canada Pension and Company Pension

Note: It is intended that the actual cost of fringe benefits and the actual annual working hours be used to calculate the hourly payroll cost. Annual working hours are defined as the regular working hours per week multiplied by 52.

2. Disbursements

These costs are those incurred by staff engaged on the assignment and chargeable directly to the project.

2.2 Overhead Costs

This category of cost related to the general operation and maintenance of a Professional Practice which is not chargeable directly to the project. It includes:

1. Physical Plant

— office rental and operating costs

— furnishings

— usual tools and equipment (excluding specialized equipment covered by negotiated rates)

— switchboard, telephones, telex, fax, etc.

— typewriter, word processing equipment, copiers, etc.

2. Operating Costs

— financing including interest on shareholder loans but not dividends on equity

— business and professional licenses

— professional and general liability insurance

— stationery and office supplies

— technical library and periodicals

— staff recruitment, training and severance

— audit and legal fees

— bad debts

— administrative salaries

  • accountants and clerks

  • receptionists

  • librarians

— secretaries whose time is not directly chargeable to client projects

— non-chargeable time by professional and technical staff in updating procedures, attending technical seminars and other activities which are not chargeable to projects

— business development

Overhead costs vary according to the size of operation, location of office and the nature of services provided. They vary also with the efficiency of the Consultant's organization, but are typically approximately equal to the payroll costs (salary + fringe benefits) incurred by staff engaged on the assignment.

2.3 Profit

The balance after direct costs and overhead costs are deducted from total revenue represents the before-tax, before dividend and before-bonus profit. The level of profit on a specific project should reflect the Consultant's exposure to risk on the project. The Client should expect competent and efficient services at a fee that provides an appropriate profit to the Consultant.


3. PAYROLL FACTOR

The payroll factor multiplier to cover overhead costs and profit will vary according to conditions which affect the efficiency of the organization or which affect overhead costs directly. Following are general guidelines for selecting an appropriate Payroll Factor:

projects regardless of size, which have distinctly intermittent manhour demands

Payroll Factor — 2.5

projects in which all services (exception Category 5) involves less than approximately 2,000 manhours

Payroll Factor — 2.5

projects in which all services (excepting Category 5) involves between 2,000 and 10,000 manhours

Payroll Factor — 2.3

projects in which all services (excepting Category 5) involves more than 10,000 manhours

Payroll Factor — 2.0

services in Category 5 (Resident Services During Construction) normally attract a factor of 2.0 regardless of size when these services are a continuation of other Categories of Service provided by the same Consultant. A large factor is however appropriate for very small projects or when manhour demands are intermittent.

The above Payroll Factors are based on cost records for projects with varying manhour requirements and represent what APEGGA believes are required to sustain a mature and competent consulting practice capable of providing a high standard of professional services on an on-going continuous basis. They are based on normal conditions where the overhead cost items described elsewhere in this appendix are borne by the Consultant. In circumstances where some of the overhead items are provided by the Client, or where contract employees are used instead of regular full time employees, this should be taken into account in negotiating the Payroll Factor.

 

4. TYPICAL HOURLY BILLING RATES BASED ON APEGGA SALARY SURVEY, JUNE 1998.

POSITION

Hourly Billing Rate using Payroll Factors of 2.0 to 2.5

*Responsibility
Level

Typical
Title

Typical
Experience

 

 

B

Junior

Engineer

2 - 5 yrs.

62 to 78

C

Intermediate

Engineer

4 - 10 yrs.

76 to 96

D

Senior

Engineer

10 + yrs.

92 to 115

E

Senior

Engineer

15 + yrs.

112 to 141

 

 

**Principal

Hourly billing rates vary according to individual qualifications and level of experience. They should reflect the additional authority and responsibility associated with this position.

* Abstracted from APEGGA publication titled "Value of Professional Services".

** Principal is defined as a professional engineer who undertakes to provide responsible direction, both technically and organizationally, to the professional practice performed by a Consultant and who represents that professional practice to Clients.

 

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