Compensation for Consulting Engineering Service

There are a number of commonly-accepted methods of compensation available to clients. In many instances, the method may be dictated by the type of service or the type of project. A combination of methods may be necessary for some projects.

Lump Sum
This method holds many advantages to clients, and is commonly used when the scope of service is well-defined. The lump sum method is often applied to studies, reports, and basic design services. The scope of services, as well as the payment for those services, should be clearly defined in the agreement to avoid misunderstanding.

Percentage of Construction Cost
This method is particularly applicable for determining basic design service charges on projects where the character of the anticipated facility has been established, but the scope of services has not.

Hourly Rate Charges Plus Expenses
On those projects for which an accurate determination of scope of services cannot be made in advance, the accepted method of compensation is based upon established hourly rates. Travel, food, lodging, printing, and similar out-of-pocket, non-labor expenses are added to the hourly rates.

Cost Plus Fixed Fee
This method is often used on projects involving research, studies, investigations, experimental work, estimates for alternative types of construction and other similar services. With this method, the client agrees to reimburse the engineer for all costs, including payroll and non-payroll (overhead) costs. The "fixed fee" is a lump sum amount, agreed upon during negotiation, that covers other non-reimbursable costs and the engineer’s profit. The "fixed fee" does not change regardless of the amount of costs.

Combination of Methods
On some projects, no single method of compensation is applicable. In these instances, a combination of methods is an accepted practice. The initial phase of a project may involve preliminary studies and evaluations of alternate solutions that cannot be pre-determined in scope. Compensation for these services may be made on the basis of hourly rate plus expenses. The second phase, that of basic design services, may be either lump sum or a percentage of construction cost. Similar combinations of all methods may be appropriate on specific projects.