Engineering consulting fees are commonly expressed as a function of the Consultant's operating costs. This Appendix describes the three components of cost that comprise the Consultant's hourly billing rates; direct costs, overhead costs and profit.
Following is a summary of the cost details to supplement the information included in Section 2 — Fee Basis Options.
1. DIRECT COSTS
This category of cost represent payroll costs and disbursements incurred by staff while engaged on the assignment.
(a) Payroll Costs
This cost is typically expressed as an hourly rate based on a 37½ hour work week using the following formula:
in which fringe benefits are typically 20% to 30% of salary to cover 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.
These costs are those incurred by staff engaged on the assignment and chargeable directly to the project.
2. OVERHEAD COSTS
This category of cost relates to the general operations and maintenance of a business and include:
a) Physical Plant
b) Operating Costs
— business and professional licenses
— professional and general liability insurance
— stationery and office supplies
— technical library and periodicals
— staff recruitment and training
— audit and legal fees
— bad debts
— administrative salaries
— accountants and clerks
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 direct payroll costs.
The balance after direct costs and overhead costs are deducted from total revenue represents the before tax profit. The level of profit should reflect the Consultant's management skills, efficiency and exposure to risk. In the long term, appropriate profit levels are a essential pre-requisite to proper Client/Consultant relations and the achievement of accepted standards of professional service.
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