Contract engineering firms: What is a fair price of business. 6

[EngineerDave]

I am not sure if there are alot of contract engineering firms out there nowadays. By that I mean firms that hire engineers and then supply them to a company that might need someone for a few years, but aren't sure if they are in a position to hire fulltime direct.

In the 90's I worked for such a company, the pay was low, the benefits not so great, the envy to become a "real" employee of the company I worked at was pretty big. There were several of us who were working at this big company and as time went by various people would get hired on by the client company. It was a natural progression.

I finally got hired on as well, by much the same method as one of my colleagues who basically lined up another job and the company decided rather than let him go, they hired him on direct.

Now in a totally different industry, I work as a consultant. It is different in that I don't work at any of them full time, but I do work 5 days a week. Two days at one, two at another, one at another.

There are problems with my company now, we are losing work because we are too expensive relative to the competition. Already one of my clients contract is over and replaced with another. I will have to drive much further to the new client, which bothers me as the company doesn't pay for gas etc.

Yesterday I learned that another one of my clients is unhappy with the contract pricing. They like my work and want to hire me directly, or contract with me. I signed a noncompete clause, and can't really live on just two days a week work anyways. If I were to do this, I'd need more work as well. Either way though I am definitely tired of my companies pricing on contracts as it jeapordizes my work.

I don't know what a fair markup on employee costs is or should be, but renting myself and others out for the prices they do, doesn't seem to be working well.

Let's say X is my salary (Not including benefits), They seem to be billing out about 2X. The worst case scenario with high priced benefits would mean that they company is billing out 1.5 X I am not sure what is reasonable for contract engineering firms.

 

[lacajun]

EngineerDave, I am so sorry for the direction your thread has taken. I'll take full responsibility.

ScottyUK, I agree that personality is important and the more encouraging it can be the better. To management, I was trained early on to strip all emotion and personality out of presenting my solutions. They didn't care about my passion nor personality. Their sole interest was how I would best manage their investment. About 99% of what I've done had an ROI attached to it. Part of our grade came from how close we came to that target. Older engineers coached me on how to approach management with just facts, at the beginning of my career. I've worked in two companies that were very, very similar in that regard.

For the people doing the work on my projects or working under me, I most definitely have personality and tried to make things as good for them as I could. They had all the flexibility they wanted and knew I was there to support them and help them stand out. It was about them and how I could serve them.

David, I wasn't offended. Statements of facts didn't imply my mental status. I don't have permission to fail and am doing everything possible to not fail. Some people are encouraging me to hang in there because they believe I have some good things happening. I'm strong but even strong people need an encouraging word now and then. When one door closes, I find another door or one opens.

I'll admit this week was hard for me mentally. One factor may have been heat, since my a/c failed. I'd have to pay a tech $80-90/hr. My doctor bills at $100/visit. They allow for about a 15 minute visit. My dermatologist charges $400/visit. Thankfully, last year, she didn't charge me for surgical removal of a site of a nasty non-MRSA staph infection. They allow about 15 minutes per visit.

With the education we get to be engineers and experience we get as engineers, it seems we should be able to charge more. We don't get the education of doctors and lawyers but engineering is a profession and should be recognized as such. Or, am I all mixed up about the topic?

To me, this is a fundamental part of EngineerDave's pricing-pressure situation.

Pamela K. Quillin, P.E.
Quillin Engineering, LLC

 

[McLJ]

Pamela,

I agree. We should be able to charge more, but no one likes to spend money on the stuff they can't see, but it seems (for structural engineers) that everyone who has ever held a hammer thinks they know as much about framing a house as I do. I once quipped on my Facebook page, "Oh, absolutely, I would love to cut my fees in half for your $1,500,000 house on your $500,000 view lot, because everyone knows foundations just aren't very attractive."

I used to work for a large firm and worked on some pretty high profile local structures, but am content working for myself and working for home owners and small commercial developers. These people don't have the deep pockets to pay for 20 - 30 hours of work at my former boss's rate of $150/hr.

I think comparing a doctor's rates to our is not an apt comparison. Doctor's have a great deal more overhead than probably any other profession. Shelling out money for yearly software updates, overpriced professional development courses, new code books every 3 years and a new computer and associated accessories every 3 to 5 years is not my favorite thing to do. I can't begin to imagine the cost up maintaining all the medical equipment in an average doctor's office in addition to all the support staff. Lawyers are a different story, but people will pay $200-$300/hour for 5 hours work - not 30.

I guess I would say to Dave, in addition to my previous comment, that he should find out, if possible, what the firm he wants to contract for pays for a position similar to what he is considering and figure his rates accordingly.

As we all realize, charging $80-$100/hr does not mean we earn that much. A large part of our work day includes time we can not bill for, but the firm hiring him will be paying for him to work on those non-billable administrative tasks, so a lower hourly rate as a contract employee would - in my opinion - be appropriate.

regards, Lila

LJ

 

[EngineerDave]

I am enjoying this thread. I am in a specialty and wish I could post exactly what I do, but it's too much of a small world, and I often post things that are critical of the situations I am in.

I am not sure that I truly want to start my own company or that I will not violate my noncompete, but I am very concerned that I am on a sinking ship due to my companies billing rates which are higher than our competitors.

 

[TomDOT]

Noncompetes are often largely or even completely unenforceable. How about hiring a professional to look at your noncompete so that you actually have a firm foundation before making decisions?

I'm guessing an hour of lawyer time to get an opinion.

Or you can keep asking engineers about a legal matter. They've all signed a contract before, so they must know this legal stuff at least as well as that guy who has swung a hammer a couple times knows about framing.

Remember that lawyers have specialties too.

 

[IRstuff]

As partly discussed in a similar thread, price differentials are often a comparison factor for shopping: price, quality, longevity, functionality all factor into whether you are shopping for a stereo or a engineer. The fact that your company's billing rates are high is not necessarily a negative, particularly if they are successful; they may offer sufficient excess in quality and functionality to make up the deficit in cost.

Our company charges out at over $200/hr, and we do reasonably well. Of course, we have to charge that much to cover the overhead, which includes maintaining our certs, etc. When we compete, we do often competitively price bid a job, but more often than not, it's the fact that we are excellent at systems engineering, and we have gobs of experience in developing products that swings the decision.

Therefore, if you have a high quality product, with strong functionality, you should charge accordingly. The bottom line is that if your company is billing at a high wrap rate, and is successful, then their customers perceive a decent ROI for their dollars.

TTFN
faq731-376

 

[patprimmer]

For the same job, $200/hour for 4 hours is less than say $100/hour for 10 hours.

It is not only the rate, but also the way you count the hours.

Regards
Pat
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[ScottyUK]

Hi Pamela,

Sounds like your previous employers wanted drones to operate as managers rather allow than any spark of leadership. Leadership and management are two very different skill sets, although many places seem to confuse the two or even equate the two. In doing that I think those organisations sow the seeds for failure.

 

[lacajun]

Hello ScottyUK, your understanding of the situations is correct.

McLJ, my doctor's office charged something like $50-60 a few years ago. They almost doubled it because they were required by federal regulations to digitize their office. They didn't want to do it because of the cost but... Engineers have overhead, too. I don't think we can charge what doctors do in the US for a variety of differences. Yet, I don't think we should bill significantly below their rates.

Pamela K. Quillin, P.E.
Quillin Engineering, LLC

 

[jgailla]

If the price doubles from $60 to $120 as the direct result of "digitizing", someone is doing something wrong.

 

[patprimmer]

For most of my career, I earned more than my local GP, but no where near what a specialist earned, but we are still not as crazy as the USA re law suits every time we don't get exactly what we want out of life.

I agree, doubling the price to cover equipment upgrades for a GP seems absurd. Now if they had to install MRI machines or the like, but then again, you should not pay that overhead unless your complaint requires that testing.

Regards
Pat
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[KENAT]

Flipping comparisons with doctors.

The rates you see for doctors are often inclusive of significant overhead such as:

Liability insurance (I've heard figures of $100k per year or so but I'm not sure if that's typical).
Office rent (not many doctors working out of their spare room or garage).
Support staff (most doctors seem to have at least one receptionist/medical assistant/billing clerk... - many more than one).
Costs related to their accreditation.
I'm sure I've missed some other significant ones.

Then there's the extra years of study - both the cost and the lost earning time. Plus the hours spent early in their career working their way up the ranks.

I'm not saying Engineers have none of the above costs but I'm inclined to think they're typically a bit lower.

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[IRstuff]

The cost did increase because of EHR, but only as a consequence of reduced productivity. What EHR allows the doctors to do is to more thoroughly itemize the visit, hence the price, so EHR increases revenue per visit because the doctor is forced by the software to be more careful about documentation, and documenting only billable actions.


TTFN
faq731-376

 

[Longinthetooth]

I heard a representitive of the Alberta Obstetrician's association interviewed in the early 90s. He was asked why their malpractice insurance was $100,000 per year. I dont know if I remember all the numbers but they went something like this:

There were 15,000 births per year in Alberta. 1% of these would have complications with some sort of residual efect on the baby- i.e. 150 per year. Of these about 5% (say 7) would be laid at the door of the obstetrician. The average payout was $1.5M per case (including costs)- total $10.5 per year. There were about 100 obstetricians in Alberta at that time, so they need to "contribute" about $100,000 each to the insurance fund.

Food for thought.

 

[lacajun]

EngineerDave, if you saw this thread, forgive me for pointing it out. If not, it may be of interest to you.

Why do engineers cut each others throats

Pamela K. Quillin, P.E.
Quillin Engineering, LLC

 

[lacajun]

As we all realize, charging $80-$100/hr does not mean we earn that much. A large part of our work day includes time we can not bill for, but the firm hiring him will be paying for him to work on those non-billable administrative tasks, so a lower hourly rate as a contract employee would - in my opinion - be appropriate.

You looked at your situation and applied what you deemed appropriate. I should not question that. Forgive my ignorance.

I still question whether we should charge more. Having looked at what other, larger companies charge for their engineers, techs, etc., it seems we charge too little and others try to get us working for free. Techs are billed at $155/hr. Engineers are billed at $200-400+/hr range.

I'll admit to learning about business as I go but we sure seem to not market ourselves very good at all. I had that same thought as an employee.

we are still not as crazy as the USA re law suits every time we don't get exactly what we want out of life.

There are some of us that don't fit that trend, thankfully. I'm glad you had such a successful career, too. From reading your posts here, you have a lot to be thankful for from family to career.

Pamela K. Quillin, P.E.
Quillin Engineering, LLC

 

[CalvinMortley]

I heard a representitive of the Alberta Obstetrician's association interviewed in the early 90s. He was asked why their malpractice insurance was $100,000 per year. I dont know if I remember all the numbers but they went something like this:

There were 15,000 births per year in Alberta. 1% of these would have complications with some sort of residual efect on the baby- i.e. 150 per year. Of these about 5% (say 7) would be laid at the door of the obstetrician. The average payout was $1.5M per case (including costs)- total $10.5 per year. There were about 100 obstetricians in Alberta at that time, so they need to "contribute" about $100,000 each to the insurance fund.

Food for thought.

Wow - thanks for info