Cutting Fees To Get Work

February 5, 2009 at 3:35 pm 3 comments


By Carol Metzner
President, The Metzner Group, LLC and
Managing Partner, A/E/P Central, LLC, home of CivilEngineeringCentral.com

“We have to keep the staff working” is the phrase I hear from many in the  engineering community. The statement lends itself to questions of exactly how to do that.  Larry Courtney wrote an insightful newsletter for us this month discussing the importance of good company leaders to guide firms through these times.  If you haven’t read it…it is a MUST read!  

Along these lines of “feeding” staff and how to do that,  I  read an article that brought this and our LinkedIn discussion on firms lowering their fees back to debate:

The Pennsylvania Turnpike Authority received bids to replace two 51 year old bridges on their Northwest Extension (I-476) in the Pocono mountains.  About “3.2km (2 miles) of new approach road work is needed plus removal of the the 1957 spans.”  It is reported that the work was costed at $127M in 2007.

Fast forward to this past week, 2009…the top 4 bids ranged from $102M to $113M, with the winning bidder coming in at under $110M.  Tollroads News did an interesting article on this notable reduction in fees.  It was suggested that there are several explanations for the $17M reduction in cost.  Drop in material cost and utilization of pre-stressed concrete beams for steel could contribute to the lower bid.  BUT it could be due in part to the increased competition for work. Firms are willing to cut fees, seemingly significantly, to win work.

Here is the debated topic of reducing professional fees to bring work in the door and keep existing staff billable. While the majority of comments from our discussion board are slanted toward civil engineering firms NOT reducing fees, there are some firm owners who have other ideas.  One owner tells us:  “As an owner who wishes to keep his best assets, his staff,  I am using my negotiating skills to get the price I can in a tough market, while making sure I get the appointment. Sometimes the profit element will suffer. The customers who you have a long term relationship with will remember this later.”

This is a tough discussion. When the market picks back up, and it will…do you think you or your engineering firm will be able to get your fees raised?  But do you have a choice not to lower your fees with staff to “feed?”  With the Turnpike example, we now see that small privately held firms, as well as the large public firms, are all struggling to keep profitability up while maintaining the staff workload. Are clients going to choose their consultants based on fee and not expertise or excellence? Do you really believe that all engineering firms are basically the same, provide the same quality and should be selected on whom is the cheapest?  This is the same argued topic that recruiters – headhunters- search firms have had in regards to their fees for decades!  Ready for discussion #2!  Let us know!

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Entry filed under: Civil Engineering Companies, Employee Retention, The U.S. Economy & Civil Engineering, The Workplace.

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3 Comments Add your own

  • 1. Tom Pickering  |  February 9, 2009 at 10:41 pm

    I’ve heard this discussion for many years and lower rates sends the wrong message for future work. But, at the same time it is a balance of total price of base work and scope of services. A task a year ago still requires the same base effort to accomplish today.

    Even with all that said and a contract is in place, “In this current environment, is the Client financially stable and funded to pay for work performed?” If not, as you deeper into the project, you are worst off having incurred expenses, salaries, and fee just to keep staff busy; now you are spending more good money to chase bad to collect.

    Many right now are chasing the next project at a reduced rate or base fee and even tasks for free regardless of weighing the risks and rewards just to keep staff busy. As an Owner, the balance of risk and reward are always a part of the decision process in good times and bad. At times, you have to say no rather than take that next project on.

    Reply
  • 2. Mark Shearon  |  February 6, 2009 at 3:01 pm

    This debate will forever rage on, I think. It is an interesting quandry that engineering companies have to deal with more than most other professional types, primarily because so many people employed in the industry have little to no financial training and understanding of pricing vs. profit. So we think of “lowering our rates”, In $/hr terms, to reduce the price. This is fine for a limited number of jobs/clients, but if it begins to make the majority of your business, then margins fall and profits disappear. My instruction to all project managers and seller-doers is “lower the total price, not the rates”. The resut is the same for the base work, but any changes come at your standard fees. Good luck out there!

    Reply
  • 3. Jeffrey Mills  |  February 5, 2009 at 9:52 pm

    Timely article on cutting fees. No reduced fees yet from my doctor or lawyer. For that matter, even my mechanic has not lowered his fees. Is is a question of industry value in the eyes of civil engineers and/or clients.

    Reply

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