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RE: Fees

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Conrad,

Your lecturers must have hated marking your assignments!

The problem is that the client in many cases does not realise that he is getting something different. He has asked several people for a price to do Design Review on a project. Then he is getting design review of the project, not a partial design review. He expects a design review and assumes that is what he is getting, no matter who he selects finally, because all engineers are professionals and will do it properly according to the rules in forces in that area. If he asks for a price for the full detailed design for a multi-storey building, then he is expecting the fully detailed design of the building.

He doesn't understand there are different levels of "design" or "design review" and there should not be.

If everyone refused to enter into competitive fee quoting and everyone provided a full service, we would not have the problem. Everyone could charge what they think is reasonable.

Unfortunately, there is always someone trying to "steal" projects from other consultants and they talk the client into competition, and, yes, they often provide a lower quality service or design to justify the price. And the client ends up paying in the overall construction cost.

Unfortunately, many unknowing clients think that Engineering is a science and that there is only one "design" for a particular project so it does not matter which consultant they end up with, 2 + 2 = 4, not 3 or 5.

Stan does not deal with those clients and if everyone followed his example and refused to compete, then the problem would be much reduced. Then we would be back to the 50's - 70's where clients always used the same consultants. But then new consultants cannot get started, so they start competing and you get the same problem we have now.


At 04:28 PM 19/08/2009, you wrote:
<quote>
Huh?
<end quote>

Don't complain that others are supplying for less. Design your business to
match the needs of the market. Understand the difference between cost and
value.

For example GMC vehicles are priced higher than the perceived value of the
vehicles. People therefore purchase lower priced vehicles. The potential
customers have to see the value which is there, they have to noticeably
benefit from such value. Therefore costs cannot be higher than perceived
value.

There is no point jumping up and down declaring how much value engineers are
to the community, when the community cannot see why, and does not notice the
benefit.

If $500 wins the job, then that is the market value of the service at that
point in time. What is supplied may be rubbish. Buying rubbish in the first
place may not be sensible in the long term, but it may meet short term
objectives. I can buy a cheap socket set which won't make it past the first
bolt I fasten, or an expensive socket set which will last a lifetime. For
many the cheap socket set is more than adequate.

It is stupid to set an absolute standard of quality. Quality is relative to
the buyer at a given point in time.

If the service provided by $500, does not meet the buyers requirements, then
at some future point, they will have to hand over more money. In other words
may cost $500 + $3500 to get the job done properly. However the buyer will
have learnt, the hard way, what service to expect. But if $500 does get the
job done, then the buyer will have saved $3000 compared to accepting the
higher fee. Now you may not consider that what the owner paid for to be of
high value or to be extremely low quality, but your opinion doesn't count in
the matter, the buyers view is what counts. If you cannot supply the market
with quality and value at the price it wants, then will not stay in
business.

You do not have value because you provide safe buildings. All producers are
expected to provide goods and services fit for purpose. Such service is thus
not unique, it is a requirement. Only that over and above represents value
for which people will pay high fees.

If the buyer has the resources to ultimately spend $4000 to get the job done
correctly, then potential exists to charge $4000 for the job in the first
place. But the customer has to perceive the benefit. So split the job into
two stages: first stage costs $500 and the second stage costs $3500. You
therefore have to determine what you can do for the initial $500: other than
simply open the project files.

You have to engineer the design process so that you are supplying a service
that meets the needs of the market. Low fees are bait.

Check local stores. Near the centre of the store, are the chocolates and
kids toys. The mother gets dragged past expensive perfumes, clothes, lounge
suites and the likes to get something for the kids. The $2 toy turns into
sale of $2000 piece of furniture. The toy does not diminish the value of the
furniture.

If you don't put the hook and bait out then won't catch anything. You really
need to know what exactly it is you are supplying, and what more can be
supplied: and the price for these different products.

Not all work can be charged at hourly rates, for work completed, some
projects have fixed fees and the client expects a fixed fee. Those fixed
fees are based on a balance at the end of the year, sometimes the job is
trivial and costs much less than the fee, other times much more: but on
balance the costs are covered and profits made.

Most clients have no idea what architects and engineers do: and mostly they
see their work as a collection of drawings. In consequence they go employ a
drafter for much lower fee. Or go direct to a builder, to get something
built. Design is not always perceived as necessary.

Therefore rather than work as tacked on after thought to drafter or builder,
or intended sub-consultant to architect: take Stan's advice and operate as
principal consultant.

But for those smaller/medium jobs, need to displace the drafters and
builders. To do that have to attract the owners directly, and that requires
offering a low fee for the service the owner perceives as being required. It
is necessary to map out the expected costs, the owner is likely to incur, if
the simple service not adequate. The product (service) has to have the right
price for the right combination of features.

The ploy used by the drafters is that the local authority is the cause of
the delay: they keep changing the rules. The client then gets hit with
additional engineering fees, required to get approval, to meet the
authorities request for further information.

As for technical review. Then the fees and time taken is dependent on how
much experience have, how conservative a design proposal is, and how risky
it is to make judgement call versus detailed number by number check of
design engineers calculations. Which in turn may be dependent on what
legislation imposes. Once again a matter of knowing exactly what is
required, and/or needed. Rather than imposing an overly idealistic view of
the job in hand.

You are not a government authority protecting the interests of the public,
you are in business. And all businesses have to supply product suitable for
purpose.

The right goods in the right place at the right time in the right condition
at the right price.

If market price less than your costs. Then not supplying the right goods, in
the right condition. No one wants to drop their quality, therefore provide
different products with similar quality. Clearly define those products.

If you take on the role of principal designer or project manager, then you
beat the prices of suppliers down, and keep the lions share of the fee to
cover structural engineering. But got to win the projects first. And until
you have seen something which defines the project cannot do that. Therefore
first stage of the job, clearly defining the project, and the level of
service required.

And also typically go to designers first because do not know how much the
project will cost. So want something defining so that can determine ball
park costs. After which project may not go any further. You do not do
detailed calculations for such task. The simplest approach to determining
costs is to buy something off the shelf: but such may not be suitable for
purpose. Therefore customer seeks custom design, but price is uncertain, and
so is what they are going to get for the fees paid.

If engineers better defined the exact product (service) they supply, then
fees can be better compared by the prospective client. If tendering for jobs
then already in trouble since clients not coming to you: you have to
convince client of your worth. Value of previous projects not relevant to
client, how smoothly those projects went is more relevant. After all may be
that $2 million project could have been done for $1 million, if you weren't
on the job. So it doesn't really promote how good you are.

So short response. Want a market based economy, got a market based economy.
Better get some insight into the market actually dealing with, rather than
the ideal market would like to deal with.



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





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