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Re: Fees

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Huh?
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-----Original Message-----
From: "Conrad Harrison" <sch.tectonic(--nospam--at)bigpond.com>

Date: Wed, 19 Aug 2009 13:14:32 
To: <seaint(--nospam--at)seaint.org>
Subject: Re: Fees


Jordan said

<quote>
My favorite was a local property owner who was trying to upfit for a
national, and took (the same!) lower bidder twice to review and recommend
repairs on  his old building. The second time he had the gall to tell me
that the engineer he hired to do the job the first time had offered 1/2 my
proposal to do it the second time. It took everything I had to politely tell
him that it was a very good price for the work, however I also said I'd be
available in the future if he needed help.  Two years went by with the
building vacant; the national walked away because they couldn't get it
renovated Now, with a new owner/partner, I'm just now finishing up the
design of the new space. For twice my original quote.
<end quote>

This illustrates one of my earlier posts. The money is clearly there in the
industry, if people are willing to pay 2 to 3 times before they actually get
the job done properly.

Other strange things can happen. Like work really don't want to do because
too troublesome, offer what you believe to be an excessively high fee. But
no one else wants to do the work either, so everyone is offering high fees
to push the work away. You find out not high enough, left either giving
unacceptable time frame or simply rejecting the job. Alternatively accept
the work, and specialise in area: since work now worth more than any of the
other stuff.

Here fees for assessment and certification (approval) are set by the
regulations. But such fees are for the local authority building surveyors,
who otherwise have to seek the services of an engineer for independent
technical certification. Usually they employ the engineer for some
proportion of the regulated fees. Though I don't believe this is the intent
of the regulations, since the need for an independent technical expert may
or may not be necessary. And there is inference, that the building applicant
may have to pay additional fees.

Typically what happens is the local authority considers the proposal too
complex to assess internally or via its external consultants and issues a
request for further information requiring a certificate from an independent
technical expert, forcing the applicant to find other suitably qualified
persons to assess their proposal. In which case the fees for the
certification can vary, but typically wouldn't be less than an estimated
proportion of the regulated approval fees. Given the approval fees for some
structures are low, the independent technical certification fees can be
significantly higher. Design fees also expect to be higher still.

But will however still have the situation where the design fees are
significantly less than the development approval fees, the client paying the
approval fees directly to the local authority rather than through the design
consultant.

As I said previously the issue is the value of the engineers contribution to
the project: not the cost of the service. If 40 hours of hand written
calculations are collapsed into 5 minutes using Excel, that doesn't mean the
fee for the job should be reduced to 5 minutes times an hourly rate. But if
you enter the market with the new technology, then the market rate based on
manual calculations can seem extortionate. Hourly rates are something of an
hindrance.

The 40 hours spent revising new codes, reviewing literature may only be
worth $1 an hour. The documentation worth say $5 an hour, from the customers
view. But the infinitesimal instance of time in which the design-solution
was perceived is worth $1 million dollars. Client definitely not going to be
happy charged $1 million / second for every hour credited against the job.

New technology is collapsing some of the design time, and the attitude that
engineers sell time is not beneficial even if practical. Some means of
assessing the market value of the work has to be determined. Also effort
does need putting into operating more efficiently.

And whilst design teams involving architects, mechanical engineers,
electrical engineers, civil engineers and structural engineers may be a
modern approach. It is for many projects grossly inefficient, and one person
provides greater level of efficiency, possibly better coordination and fewer
errors. If also builder then even greater efficiency. But many projects are
too large for one person to complete in a reasonable time frame.

As for review. What exactly is reviewed: the proposal as shown in the
specifications, or the calculations? I ask because here, it is not the
independent technical experts task to teach the designers engineering. They
can toss the design engineers calculations in the bin, their job is to
assess the proposal for compliance with the code. Potentially a much easier
task than trying to decipher some engineers calculations. The design
calculations can be in error, or over simplistic, but the proposal can be
code compliant. If have the right tools and the appropriate experience then
such review of a proposal can be relatively simple and quick.

But once again it is not the time spent on the task of review that matters
but the value of the task that matters. The cost of insurance is typically
proportional to the value of work done, if work on smaller projects than
value of work is lower and therefore insurance lower. Cost of insurance is
also related to risk, smaller projects also tend to be more routine, and
have less risk of failure, therefore insurance also lower. Consequently
larger consultants working on large projects are at a disadvantage picking
up smaller projects when the economy declines. On the other hand the smaller
consultants may take on larger projects for which their current years
insurance is inadequate. Though not that easy to assess since value of work
covered by insurance seems constant, fees paid for it vary significantly:
largely dependent on risk.

Assessing risk, and market value of work, is not something that smaller
consultants have the resources to review: and besides it can be highly
subjective and no code of practice with someone else's subjective view to
provide guidance.

In any case structural engineering services are little different, than any
other product in the market place: the product has to be designed to
properly meet the needs of the market the end-users.
 
It is thus not simply a matter of designing structures but also a matter of
designing the businesses that provide such service also have to be designed.
Possibly a boring task relative to design of structures, but if business and
its product are to survive in the market place then someone in the business
has to take an interest in such. And don't want a bean counter doing such
task, want someone who will add value, add quality and not cut costs.

Also note lower fees, doesn't mean lower quality. Toyota are lower priced
vehicles, because higher quality production processes produce much less
waste, thus customer paying for value not waste. Lower fees do attract more
clients, and more contacts provides greater opportunity for future work and
more challenging projects.

CAD Jockeys constitute waste. I hazard a guess that approximately 3 to 5 CAD
jockeys could be replaced by one competent and experienced structural
technician. Here is SA, structural do seem to be stuck with CAD jockeys:
only qualification basic use of ACAD. Whilst mechanical, electrical and
civil employ engineering associates (Technicians), who basically document
and design most of the project with minimum supervision from the engineer.
Thus freeing the engineer to deal with those issues which actually do
require the higher level education and experience: like on the spot decision
making whilst in coordination meetings with the architect.

Need to review what tasks actually do require the licensed engineer, and
what doesn't. Make better use of available resources in the enterprise.
Don't lower prices, but make the added value provided more perceivable to
the prospective client.

But also note some suppliers, just do the work, because they like the work,
and can sustain an acceptable lifestyle by charging relatively low fees.
They do not mind working all day everyday on their projects, and higher fees
have little value to them, because well they don't have time to spend it
anyway, too busy enjoying working on their projects. Now if engineering is
just a source of income to finance a greater interest elsewhere, then going
to have trouble competing. Because if it is money desire to pursue other
activities, then need to find a business more appropriate to generating such
income.

However, if people have the resources to pay 2 to 3 times to get the job
done properly, then that suggests there is division of labour in the market
place. It suggests there is opportunity to get all 3 fees, by offering to
complete the project in 3 stages: each stage has its own unique value and
unique purpose.

Part of the problem is speed. People want the building (say hospital) last
year, so every minute spent on design is one minute too long. They therefore
try to get the job done fast based on an assumption similar to what has been
before. They may get development approval fast but ultimately experience
many problems during fabrication and construction. Then have to revise the
design, and seek development approval again. Also the fast approach, often
gets tied up in development approval because of inadequate documentation,
fixing such deficiency however still doesn't produce something which is
buildable.

Concurrent engineering can get the building designed and constructed faster,
but the approval process may be found to be an obstacle. Concurrent
engineering is also only really feasible if have a design and construct
contract. Also so far concurrent engineering is more established in
manufacturing than construction.

The point is however is that need to identify the value of the work you are
supplying not just its cost. If value of the work is less than the cost of
supply, then your business is not suitable for that area of work. If want to
pursue such line of work then need to work on your business. You have to be
clear about exactly what work your business is best suited for. If a Pareto
principle applies then will find that 80% of profits come from some 20% of
projects. Those other 80% of projects are useful for contacts, but not
necessarily the area where resources should be invested. The accountants
view would be to drop the work, but often that results in the other 20% of
projects disappearing also. Those low profit jobs attract the high profit
jobs.

No doubts business is an experiment and very risky. You therefore have to be
quick to adapt and respond to the market.

Rather than saying cannot supply for the market rate. Consider what would be
required to design and implement an enterprise which is capable of supplying
at the market rate. Setting up an alternative enterprise may then allow, you
to keep reputation, whilst gaining the contacts for the work on larger
projects. That is have remote outposts, in the outlands which feed work into
the big office. The outposts are self-sufficient so do not need the bigger
organisation to support them. But are under obligation to direct bigger
projects to the bigger organisation: that is they are deprived of the local
resources to tackle bigger projects to the company standards.

Just food for thought. A business owner always has to make decisions based
on incomplete information in the face of uncertainty. Any one who thinks
they have complete information is wrong.



Regards
Conrad Harrison
B.Tech (mfg & mech), MIIE, gradTIEAust
mailto:sch.tectonic(--nospam--at)bigpond.com
Adelaide
South Australia





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