SECTION 2

FEE BASIS OPTIONS

2.0 INTRODUCTION

The cost of professional services in geotechnical and materials engineering is typically a small percentage of the total cost of engineering for a project. Care should be taken not only to select a qualified Consultant but also to select a basis of compensation that complements the services required to meet the needs and quality of the project.

There are three concepts on which fees for professional services in geotechnical and materials engineering are commonly based:

1. Time Basis

2. Fixed Fee Basis

3. Combination of Time Basis and Fixed Fee Basis

Each has distinct applications and frequently combinations of the concepts are applied to different stages of a project.

In negotiating a Prime Consultant and/or Subconsultant fee on a specific project, care should be taken to establish the categories of service required to properly represent the needs of the Client. When the categories of service have been established, the appropriate basis of fee for each category should be determined. Projects which require a full scope of professional services commonly use a combination of Time Basis and Fixed Fee Basis.


2.1 TIME BASIS

This fee basis is particularly applicable in circumstances where the scope of assignment is not well defined or where the Consultant may not have control over manhours and disbursements required on specific stages of a project. It should normally be used for Categories of Service 1,2,5 and 6 described in Section 1:

1. Consultative and Advisory Services

2. Predesign Services

5. Resident Services During Construction

6. Special Services

It is also appropriate for Categories of Service 3 and 4 when the scope of services is not definitively established:

3. Design Services

4. Contract Administration and Review During Construction

All Categories of Service can be supplemented with a target or upset fee when circumstances warrant. Such an arrangement should not, however, be allowed to negatively influence the quality of services.

The Total Cost of Professional Services when the Consultant fee is on a Time Basis is determined by multiplying the number of hours each member of the Consultant's staff expends on the project by their respective hourly billing rates and adding disbursements marked up by an appropriate disbursement factor.

The formula for the Total Cost of Professional Services using the Time Basis is:

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

Note: See Appendix A for explanatory details.

2.2 FIXED FEE BASIS

This fee basis is applicable only to projects or components of projects where the scope of the work is clearly defined. The Fixed Fee for such assignments should be negotiated following preparation of a comprehensive estimate of the manhours and overhead costs. The key assumptions made in developing the estimate must be identified and agreed to in the negotiation process.

Some of the laboratory and field tests conducted for quality control during construction are relatively routine and the cost of performing them is quite predictable. The suggested rates listed in Appendix B are typical for a single laboratory test based on the use of prescribed equipment under average working conditions, all of which satisfies appropriate test designations and are intended to serve as a basis of negotiation for assignments in which larger numbers of tests are contemplated.

An agreement, describing in detail the services to be provided and all categories of cost included in the Fixed Fee, is essential. The agreement should cover schedule, personnel classification, overtime, time limits, inflation and other identifiable items that influence costs. Changes in the scope of work, after the Fixed Fee has been established, should be compensated for a Time Basis or by a negotiated Fixed Fee adjustment for each change.

The formula for Total Cost of Professional Services using a Fixed Fee Basis is:

TOTAL COST OF PROFESSIONAL SERVICES= CONSULTANT FEE (NEGOTIATED FIXED FEE) + DISBURSEMENTS (DISBURSEMENTS FACTOR)

Note: See Appendix A for explanatory details.

2.3 COMBINATION TIME BASIS AND FIXED FEE BASIS

Projects frequently require several Categories of Services; some can be accurately quantified at the commencement of the project and others vary with schedule and conditions that cannot be predicted. In these circumstances, the services that can be accurately described and quantified can be appropriately covered by a Fix Fee and those that are unpredictable should be on a Time Basis.

A judicious combination of the Time Basis and Fixed Fee Basis for different phases of a project permit a variety of innovative fee concepts that encourage execution efficiency without sacrificing quality of service. These concepts include targets, bonuses, cost plus fixed fee and other variations.

 

 


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[ Appendix A | Appendix B | Appendix C | Appendix D ]