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RE: Overhead Costs

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From: "Sherman, William" <ShermanWC(--nospam--at)>
Date: Fri, 10 Dec 2004 16:33:17 -0500

Thus, it would seem that they could afford such items if they would
just increase their billing rates to build in some capital costs?

That works as long as the client does not assert the right to audit what's in your overhead. If such an audit is done after the job is done, i. e. a post-audit, you may find yourself getting a bill instead of a payment. (While I'm not sure if they have the legal right to do a post audit, it may be a client's contractural right, so check your contract and with your attorney.)

I've always worked for larger engineering firms - but I know that their
costs for computers, software, etc are very high, since almost every
employee requires a computer and access to various software.

A lot of large engineer firms will only work on allowance. Some synonyms for allowance are cost-plus, time and materials, not to exceed, etc. Consequently, they don't have a budget to defend, and they try to put as much of their indirect costs into overhead, whether it belongs there or not. If they had to work on a lump sum basis, they would find more economical ways to do things as they now have to defend a budget.

Now you mention that computers and software are needed. 50 years ago, such devices weren't needed (or available), yet the work got done. The real question is whether the combination of engineers and their toys result in less overall cost to the client than engineers using only pencil, paper and perhaps a slide rule. (I've never heard of anyone listing the cost of a slide rule as part of overhead, and I'm sure when that was invented someone did try to do that because it was a better toy than an abacus. But a slide rule in its day was a time saver and thus a cost saver.)

(While not part of this discussion, another category is "Unit Price", which is better described as "mini-lump sum".)

My employer also pays my costs for attending ACI conventions
so that I may participate on ACI committees, and it pays for
some amount of "continuing education" for many employees.

That cost is probably coming out of your employer's "profits", not their overhead. Also, what IRS and similiar tax authorities allow for overhead cost when you complete your tax forms is not the same as what a client will allow. Congress probably did not want to tax profit monies spent on "continuing education" and such.

Perhaps the real complaint is that clients are not willing to pay an
adequate fee to cover the real cost of professional engineering work?

The disagreement is what is the "real cost", which in the long run is what it will cost to have someone else do the work. (Does the word "competition" ring a bell?) And if that someone else doesn't have to pay for "junkets" to ACI conventions (their attitude, not yours) or other such perks, they will be able to ask for a lesser price to do the work.

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