The Real Cost of Low Engineering Charge Rates
The Race to the Bottom
When putting together a budget proposal for a prospective Client, consultants typically work from a schedule of rates e.g. a cost per hour for the people involved in delivering the project. Naturally the Client aims to get the best ‘value for money’ from their selected consultant – that’s fair enough, but how to understand what the perceived best value is, can often be poorly understood.
The market for engineering services has been dominated in the past 20 years by a simple comparison of rates with (often) little to no consideration given to the value or experience of each consultant.
Instead, the cost for one hour of time becomes the quantifiable variable in the decision to hire one consultant over their competitor. Too expensive (or too cheap) and your chances of securing the project will be dampened.
However, in an effort to keep a steady flow of projects in the pipeline, some consultants are willing to lower their rates to secure the work and, to avoid missing out - other consultants adopt the same approach and the ‘race to the bottom’ ensues.
Perceived ‘Value for Money’
The deliverables generated by engineering consultants are a product (reports, drawings etc.) and like any tangible product, the old adage governs ‘you get what you pay for’ As an example:
Engineer A - £70/hr
Is able to produce a safe design quickly, but in order to do so takes a conservative and generalist approach. 40 hours (or one week later) and you have a structure that comprises (say) 50 tonnes of steel and 10m3 of Concrete. An estimated cost to the project could be:
(40 Hours x £70/hr) + (50 tonnes x £5,000/mT) + (10m3 x £1,500/m3) = £268K
Engineer B - £95/hr
The same design brief is applied, but Engineer B takes a holistic approach to the project and spends time to fully understand all of the Clients requirements and provide value engineering and a safe design. Engineer B takes 60 hours (20 more than Engineer A!) However with this additional time, can optimise the design for the structure down to (say) 45 tonnes of steel and 8m3 of Concrete. The estimated cost to the project would now be:
(60 Hours x £95) + (45 tonnes x £5,000/mT) + (8m3 x £1,500/m3) = £243K
Engineer B has achieved a saving of £25,000 for the project (and reduced the embodied C02 by 13 mTC02e).
The end result is great for the Client but they knew from the start of the project that Engineer B had an hourly rate 36% higher than Engineer A, and by the end of the project, spent 50% more time designing the best solution…
Of course, this is a simplistic argument and I wholly acknowledge that in some instances, the argument to commission services from Engineer A or B is so close that either would be equally valuable.
The difficulty is that often those making these decisions, may not identify the opportunities where this added value can be leveraged and instead focus purely on the hourly rates provided.
My final thought – instead of a race to the bottom, how about a race to the top? In some upcoming projects, why not take a few moments to recognise that good design, communication, innovation, and sustainability can be used to focus on the ‘value for money’ instead of just ‘fee cost’.
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