Many disputes between client’s and their structural engineers arises from frustration between both parties over the service fees and precisely, what the structural engineer has been appointed to do or not appointed to do.
This writer has often found himself in spaces where engineers are expressing their dissatisfaction about an ill-defined scope of work and the fee that has been attached to the service. Sometimes, this complains come from engineers who are frustrated from non-payment of their fees and at other times it comes from engineers who are completely green on how and what to charge for a required service. The experienced engineer knows too well that there is more than meets the eye in Nigeria’s AEC industry. It’s an industry where the average client is penny wise, however, pound foolish. Hence, it isn’t just necessary to have a very clear fee proposal setting up what is to be done at the outset of any appointment, but for the fees to be well and clearly defined and the responsibilities between each party to each other, also well defined.
When dealing with new clients, a fee proposal is often the first formal communication, and it is important that it is clear, logical and professional. A fee proposal must show to the client exactly what will be done, how much it costs, and why it costs what it costs. A fee proposal can be made either in a letter or an email. It is good practice to accompany a fee proposal with a copy of the company’s or engineer’s terms of business or a reference to them if they are displayed on say the company’s website.
There are six areas that need to be addressed in a design or consultancy appointment, some of which might be covered by the company’s terms of business, in which case might not be necessary to include in the fee proposal.
Requirements of a Fee Proposal
A fee proposal is an engineer’s ‘offer’ to undertake a predefined work for a defined fee and it is usually for the client to either accept or reject this offer. To give legal certainty to the offer, the following six items need to be defined in the proposal or an attached document:
- The parties
- The project
- The duties
- The assumptions (exclusions)
- The payment terms
- The Contract terms
These afore-listed items can form the sections of the fee proposal in a letter or mail.
In a fee proposal, the parties involved includes the client and the engineer. The engineer is the one offering the engineering service. He is the one who is duty bound to ensure that the service he’s required to render is well defined and the fee which is to be paid for the service is also well defined. The client on the flip side is the ‘Paymaster,’ one who pays for the service and one whom the engineer can decide to sue should there be a breach or an issue arising from non-payment of the agreed fee.
It isn’t just inappropriate but considered tactless in jurisprudence to write or submit a fee proposal to a third party, for example an architect or a project manager, unless the third party is working as their sub-consultant and has agreed or would be willing to sue them in a case of non-payment.
Cautionary Tale 1
An engineer was contacted to conduct a geotechnical survey on a proposed commercial development. The engineer prepared a fee proposal, addressing the letter to the architect. The architect received it and proceeded to forward same to the client on a complimentary slip. Sometimes in the future, the client would deny that he never received anything from the engineer, claiming that the understanding was that the engineer’s fee was part of the architect’s fee. All ends in tears for the design team.
Engineers are warned to resist the over-controlling architect or project managers or any other professional of the built who specifically ask that the letter be addressed to them. It is often the case that such arrangement lacks the certainty that a client will get to see the proposal let alone accept the fee and any preconditions that may be attached. Always ask for an agreement in writing/email from the client.
Where the architect/project manager is insistent on the letter being addressed to them, tell the architect/project manager that the contract requires certainty of appointment with acknowledgement from the client himself. Request for the address of the client and ensure that a copy of the proposal gets to them.
This section of the proposal should be concise but well defined. It holds the address of the project, the duration, a description of the work to be done including how the work is going to be phased in order to clearly define the boundaries of the instruction including anticipated cost at each stage. Key question the proposal must strive to answer are:
- Is the project, for instance, structural engineering services for a building, if so, would the scope of work include infrastructural works such as roads and drainages?
- Does the work include submittal of engineering reports as part of planning application?
- What is the cost and duration of the project?
Of the three variables outlined above, cost and duration can pose to be the most significant marker for what is anticipated at the start of a project. Because, with variations and prolongation during the course of any project, the engineer might have justifiable cause to request for a review in the fee.
The duties should set out what the engineer will be doing and will normally contain some items from commencement to completion of the project. These need to be precise, tangible activities and not generalities. Duties can be used to define any limits in the service, such as the number of site visits.
The assumptions (exclusions)
Next on the list of things that should be well defined are the boundaries of duties and this is where the frustrations and misunderstanding, and most of the claims made against engineers, as alluded to earlier, often arises. We can write a separate article on this topic and perhaps a future article will look at this in a greater detail. But for now, we can discuss this by identifying six boundaries of duties which the engineer must ensure is defined in a fee proposal. These are:
- Quality of briefing documents
- Appointment of specialists
- Peripheral activities that may likely have been ignored
- Third party costs
- Cap & unknowns
Cautionary Tale 2
BAECOM, a structural engineering consultancy firm was appointed as the structural engineering consultant for a proposed high-rise building. Upon submitting a fee proposal, sometimes during the later stages of work, it became apparent, the need to hire a wind specialist and the need to conduct a special wind tunnel test on the model in order to conclude the final design. Arguments and counterarguments would ensue as to who is to bear the brunt of appointing the specialist and the acquired third-party costs. This would ultimately lead to litigation with the client arguing that the fee was all encompassing and there was no specific mention of the need to employ an independent wind specialist in the proposal. The court rules in favour of the client, stating that BAECOM had an obligation to define the boundaries of duties. Again, all ends in tears for the design team.
The Payment Terms
The payment terms should outline how the engineer is to be paid for the service. As part of the requirements of a fee proposal, it must unequivocally state the following:
- The overall fees
- Stage payments and any lien on the issue of deliverables
- Timeliness of payment and suspension of service for non-payment
- Disbursements and expenses.
The Contract Terms
The last, however not the least is the contract term. A contract term sets out the responsibilities of each party towards each other, it’s a two-way street. A fee proposal should and must contain the contract terms well defined within it. The amount of detail it contains will usually depend on the size and complexity of the project. It should contain statements such as:
- ‘We confirm that we shall exercise reasonable skill and care in the performance of our duties’, this ‘gives away’ a legal requirement, but balances some of the restrictions that you will want to include.
- Decide whether you are going to accept collateral warranties or not.
- Decided whether to limit your liability or not
- If the contract can be terminated, should the project be frustrated or should there be a fundamental falling out of the parties.
Acceptance of Fee Proposal
Having formed a fee proposal, one that correctly cognizes the six elements discussed in the preceding section, an acceptance of the proposal, explicitly stating a confirmation of the appointment is required. Without evidence of confirmation of appointment, the foregoing amounts to an exercise in futility. Acceptance of the proposal must be encouraged, and this should be documented for reference purposes.
In hard documents such as letters, this can be in words like: “I enclose a second copy of this fee proposal that I would ask you to countersign, date and return in confirmation of our appointment.’ This gives certainty since a countersignature will appear on the duplicate copy of the fee proposal.
In an email this can also be with the words: ‘Please can you confirm our appointment by a reply to this email.’ This also gives certainty, provided that the reply and fee proposal mails are nested together. A problem that may arise here is where no reference whatsoever is made to the proposal. For instance, where an acceptance message is received instead via mobile phone. Thus, the question that may arise where there is a breach or issue of non-payment is “what was actually accepted?” In this scenario, a further step that can be taken is a second mail confirming to the client that you would be proceeding in accordance with your fee proposal, in the absence of any contradiction or rebuttal, in say 48hours or 5 days as may be considered appropriate.
In any case, whether an engineer decide to use hard documents or mail as a mode of acceptance, what is worth noting is that there must be verifiable evidence of a ‘confirmation of appointment’ for the fee proposal to become binding on the client.
Sources & Citations
Health and Safety Executive (HSE) (2015) A short guide for clients on the Construction (Design and Management) Regulations 2015 [Online] Available at: www.hse.gov.uk/pubns/indg411.pdf (Accessed: January 2023).
Train N., (2016) Clarity in Fee Proposal. Business Practice Notes: – Note 1. The Institution of Structural Engineers [Online] Available at: www.istructe.org(Accessed: January 2023).