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$FEES, Capitalism, etc.

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Here are two previous postings that I find interesting:

Jeff Smith: <<An architect friend of mine just got two proposals for a 
$250,000 residential job. Both enginneers work primarily in this type of
work. 
One bid was $2,400 the other $6,000. (excluding construction phase) I do 
not feel percentages are not [sic] applicable to small jobs and they should 
be bid on a case by case basis.>>

Bill Allen:  <<I believe this is where we are today. It is a competitive 
market. If we have a small backlog, we write tight proposals. If we have 
a large backlog, we write fat proposals. Someone out there tell me this is
not standard practice. I don't have a problem with this since I am a
capitalist at heart (soul and mind for that matter). The only thing that
bothers me is that 
we have to go too low to get the work and I believe this is because the
regulations permit just about anyone to do structural engineering 
work.>>

I thank these two gentlemen for their input, and add my own 
philosophical discourse on price:

Capitalism is too broad a topic for me to get into, but the part of 
capitalism that is relevant to us is the part that states unequivocally that 
the price of something is what the market will bear.  (This is 
incidentally why real estate appraisal is an absurd endeavor.)  Thus, the 
"intrinsic" worth of something is just one of many considerations in the 
price calculus.

I feel that too many engineers fall back on the idea that they are only 
"worth" a certain hourly rate.  These tend to argue that they calculate 
the hours it will take and then "bill accordingly."  But my question is, 
why isn't the hourly rate $225, as it is for my lawyer, instead of the 
$80.00 I bill at?  I literally had an hour-long, three-way discussion with 
a client and her lawyer the other day that went unbilled from my end 
(hate to hit them with those pesky overs) yet cost $200 from the 
lawyer's end.  And I swear the lawyer said three words the whole time 
while I summarized the problem and the solution.

So hourly or percentage is a false dichotomy in the sense that they still 
amount to a flat fee in the client's mind.  They are both capped by the 
market.  The main reason I prefer percentages over hourly is that it's 
easier to put a percentage into a context of overall cost: on a million 
dollar project, ten thousand dollars is _only_ one percent of overall 
cost.  We leverage much higher costs with the stroke of a pencil.  On an 
hourly basis, ten thousand dollars is one hundred billable hours, and it 
tends to stand alone.  It's ten thousand in a vacuum, that could be 
shaved by putting price pressure on the engineer.

Now the interesting question is, why are they capped?  I tend to agree 
that competition (esp. with non-structural civils, contractor-designers, 
etc.) is one main reason our fees are low, but I do think there's another 
important factor we're missing.  For example, the legal profession is 
bursting at the seams with too many lawyers, yet lawyers still earn an 
average salary three times that of an engineer.  They are highly 
competitive.  Yet Daniel Webster's aphorism still rings true.  When told 
that there were too many lawyers already, he replied, "There's always 
room at the top."

The difference seems to be this:  when you hire a lawyer, your rear end 
is generally on the line.  That is, you are very directly, intimately 
involved, and you want to win.  And you are generally competing 
against another side.  Whether you are suing someone over a house 
falling down or defending yourself against drug smuggling charges.  
The fact that a defense is on the other side means you've got a totally 
different dynamic.  Being "good" takes on new meaning.  E.g., good 
basketball teams can have a poor shooting percentage against good 
defenses.  The same goes for doctors -- you want the best possible 
chance against the cancer, regardless of cost, and cancer bests even the 
best doctors.

In many cases, people choose a better, more expensive lawyer because 
they want to win.

But with engineering, there is no client recognition of "better" 
engineering.  There is no "rear-on-the-line" urgency, and no uncapped 
"win" mentality.  From the uninformed client's perspective, engineers 
are all equal, all a commodity, almost like a material cost -- X gallons 
of white paint, buy the cheapest paint that serves the purpose.  Yes, 
there's deluxe paint and crappy paint, but it's still just paint.

Some have suggested a niche, or specialty.  And this works in small, 
isolated outposts of engineering, e.g., computer chip-fab plant design is 
very stiff, dynamically isolated, etc., and therefore commands higher 
design fees.  But I'd like to point out that if the average goes up, so 
would the niche market.  So we really should worry about the little guy.

And I suggest that if we are to have these fees creep up, they will do so 
faster and more reliably from a percentage basis than from an hourly 
basis.  This will help to tie fees to overall market project value, not 
intrinsic engineer hourly worth.

I would really like solutions to this conundrum:  How do we keep fees 
competitive, but increase them overall?  To get started, here's my idea: 
tie engineering fees to cost savings.  Bid the cost of the constructed 
project, including the design fees, but don't bid the engineering itself per
se.  This tends toward design-build I guess.  If I save two-hundred thousand
in 
steel costs, doesn't it stand to reason I should get some percentage of 
this, as with a lawyer's contingency fee?  Right now we're not directly 
rewarded for this -- our reward seems to be that we get repeat clients.  
(We get rewarded by getting to keep our minimum wage jobs....)

The best definition I ever heard for engineering is "do with one what 
any idiot could do with two."

Let's get rewarded for it!