Engineering firms price most work on one of two bases: a fixed fee or time and materials. The choice decides who carries the risk if the work takes longer than planned, and it changes how the proposal should be written.
Fixed fee
Under a fixed fee, also called a lump sum, the firm agrees to deliver a defined scope for a set price. If the work takes more effort than expected, the firm absorbs the difference. If it takes less, the firm keeps the margin.
A fixed fee works best when the scope is well defined and the firm has done similar work before, such as a design phase with known deliverables.
Time and materials
Under time and materials, the client pays for the hours worked at agreed rates, plus expenses. The proposal gives an estimate, but the final fee depends on the actual effort. The client carries more of the risk and gets flexibility in return.
Time and materials fits work that is hard to scope in advance: studies and investigations, construction phase services that depend on the contractor's schedule, or on call support.
Not to exceed
A common middle ground is time and materials with a not to exceed amount. The client pays for actual hours up to a cap, and the firm needs the client's agreement to go beyond it. See what is a not to exceed fee.
How the risk is shared
| Question | Fixed fee | Time and materials |
|---|---|---|
| Does the client know the price up front? | Yes | An estimate, or a cap if not to exceed applies |
| Who carries the risk of overrun? | The firm | Mostly the client |
| Where does it fit best? | Defined scope, familiar work | Uncertain scope, work driven by others' schedules |
| What must the proposal make clear? | Exactly what is included and how changes are priced | Rates, the estimate and how hours are reported |
| How is it usually invoiced? | By milestone or percent complete | By hours worked, usually monthly |
Using both in one proposal
Many engineering proposals combine the two. Defined design phases are priced as fixed fees, and work that is harder to predict, such as construction phase services, is priced on a time and materials basis. Show each line's basis in the fee table so the client can see which amounts are fixed and which are estimates.
Writing a fixed fee proposal
- Define the scope precisely, including the number of submittals, meetings and revisions included.
- List assumptions and exclusions.
- State how additional services are requested and priced.
Writing a time and materials proposal
- Include the rates by role or a rate schedule.
- Give an estimate of hours and fees, and a not to exceed amount if one applies.
- Explain how and how often hours are reported and invoiced.
Additional services and changes
Whichever basis you use, the proposal should explain what happens when the client asks for work outside the scope. A short additional services clause, with the rates that apply, avoids disputes later.
Feebeaver: Feebeaver holds fixed fees, hourly rates with ranges and not to exceed caps as fee structures, so one fee table can mix all three with the basis stated on each row.