Hourly Rates

Happy Friday,

“You have a lot of expensive people on this job…”

“Yeah, so?”

Hourly rates only tell you one thing – how much you’ll pay for one hour of someones time. They say nothing about the total engineering cost (that’s rate x time), nothing about the expected quality and completeness of a design and its impact on construction cost, on the number and size of change-orders, on claims and lawsuits, on the lifecycle cost of O&M, or on the cost to finance it all. Selecting your engineer is the one thing you’d better get right because engineering doesn’t just add to the project cost, it multiplies it. Focusing on hourly rates is the wrong approach.

Experience has outsize value

A top notch, highly experienced $300/hour engineer will recognize your project in the context of many others. They’ve seen what works and what doesn’t. They’ve seen the pitfalls and know to avoid them. They’ve seen enough projects built and argued with enough contractors and O&M crews to know how to optimize both. Their design will be more thoughtful and complete, which means easier to construct and operate, tighter and lower contractor bids, fewer construction issues, low change orders, no claims, less to finance, and cost-efficient O&M. Hourly rate earned many times over.

“Well, your rates are high compared to some other firms.”

“Are they?”

Hourly Rate Schedules list the rates for each classification of staff, e.g., Associate Engineer, Engineer, Senior Engineer, Principal Engineer. Sounds like it’s standardized but it’s not.  Every firm decides for itself who lands in each category. If a firm wants to appear less costly, their Senior Engineers might have just five years of experience while other firms require fifteen. Same titles, but experience and value that are worlds apart. Hourly rate comparisons don't hold water.

Know this about engineering costs:

Every firm competes for talent in the same pool. Market forces dictate that all firms offer similar pay and benefits to attract and keep talent. Sure, big firms have more overhead costs, but they also benefit from economies of scale. So as it relates to project cost, the economic playing field for consultants is essentially level. No firm has a lopsided cost or value advantage.

When consultants are compelled to bid to be the cheapest under the guise of 'getting the best deal' (CYA), there are really only two ways to do it: 1) load the job with inexperienced staff, and 2) do less. Both introduce project risk and inflate all the really big downstream costs. A disservice to the public and the long term health of the community, no?

Punchline: The hourly rate for an engineer with 20 years of experience is only 2-3X the rate of a graduate engineer with none, but the value of that experience in the context of an entire project its at least 10-100X the cost difference. Experience with appropriately high hourly rates delivers the greatest project value.

Have a great weekend,

Dave

Feedback and blowback are welcome: dave@goodnewsfriday.com

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