Fixed Price Quote for Engineering - Thoughts and Comments

A message from a listmember who prefers to remain anonymous:

I was recently berated for being unwilling to provide a fixed price quote for engineering.

these are my thoughts which i would like commentary from the group on.... could you post this for discussion... I beleive it is a subject of great concern

i'd prefer if it was posted without my email/name since there are clients and others reading this forum that shouldnt know the author/source.

• to do bid fixed price jobs the scope has to be clear and concise; otherwise the problem is that there is virtually unlimited potential for never-ending scope.
• it is cited that some firms have to give fixed price bid. The difference is if one is building and applying standard hardware and materials essentially unchanged for 50years. In engineering analysis the extent and nature of the work can be complex, changes constantly and is widely varied. Analysis and design is vastly more superior (and more complex) now to even a few years ago. The appearance is the opposite due to push button software. This appearance is deceiving. (refer to Machine design 1986 - "don't trust the pretty pictures" and Mechanical Engineering." the elements of design" to name a few.)
• the variability and risk is far larger than the value of the work..
• purchasers of services generally do not want to spend the time and money developing clear concise and detailed scopes and packages. This was traditionally the case .it no longer is. Often now they do not have the specialized detailed knowledge to do this properly (and no longer can really be expected to have). What is desired is a "performance contract".
• design creep. Because the cost of a detailed bid process (except on large jobs) is not warranted the opportunity (and occurance) of abuse is far greater. This is one reason engineering forms do not want small jobs and invariably target larger jobs. Other reasons include reward/effort/risk ratio.
• engineering analysis is variable and the same product from all sources cannot be specified and contractually detailed. To do this would cost more that the value of the job and nobody would accept the work. In fact you seek to be satisfied it is properly performed and meets standards and requirements. This is a nebulous criteria unlike fabrication.
• many details that may or may not affect the outcome are often not detailed. There is a substantial time factor in even determining IF these have an impact or consequence, let alone accounting for them or having sufficient knowledge and information to determine the impact and consequence. They can be inconsequential, but often peripheral or "swept under the carpet" issues are the ones that fall between the cracks and blow up to bite you later. A competent engineer will address those issues , usually to pecuniary disadvantage against those who do not and are not obliged to.

-Much of the work is done by other than professional engineers. there is no
obligation on them to solve or account for all safety and engineering issues, and no accountablility if they do not. Yet they are equally able to bid , seek and undertake such work . The outcome is "apples and oranges". 90% of our WORK is fixing screw ups after the fact. Usually when the time and money has run out.

• the size of the job has to be sufficiently large in order that the variable or risk content is in reasonable proportion to the total value of the work. This rarely happens in engineering, and is grossly imbalanced in risk.
• on fabrication and construction jobs the risk content and uncertain elements are either a). excluded form scope b). separeately priced c). have high bonus and risk cost adders to cover downside Even item a) cannot be excluded from engineering as once the work is accepted the ENGINEER cannot waive any relevant or potential issue off. Other non-professional engineering parties can ignore any non-contractually obligated issue they choose.

The minimum as mandated by Fixed price bid, is contrary to the interests of the client , and has far greater downside for all parties ( as opposed to construction to a specified scope)
- prior to bid , engineered packages already have the downside (and many
scenarios evaluated).

Largely the whole purpose of the engineering step is to assess downside or compliance risk. This is not an essential requirement of construction/fabrication having been determined by the Customer prior to order.

• when bidding you add reasonable and expected profit and where necessary upset adder, so there is an upside. If engineers added expected profit with upset adder they would get no work.
• at the same time as being expected to worked for (or close to) specified/agreed manhours there is unlimited downside , but no upside. You can lose (manhours) but you cannot get more compensation than hours worked or controlled by budget at fixed/expected rates. It is all controlled by a ceiling of rates. On bulk quotes (bid jobs) there is no ceiling on payment for hours in conjunction with rates other than being competitive and efficient. In this there is upside as well as downside. IN engineering getting done faster usually means something (or many things ) were not done that should have been. No company will reward suppliers for NOT doing work.

-IN fixed bid Forced rates are sometimes quoted but have little bearing on
awards. Bid price (total cost) is the criteria . The only variable is scope of work and that is where the disputes arise although the minumum specified is all that is provided and legally required. This is the opposite to engineering done by Engineering professionals.

• IN quoted fixed price jobs , unspecified items, upsets , changes or additional items which might have either been anticipated or not are argued for extra's. In engineering , these variations apply to all the work (most of the time) and leave little opportunity for additional ("extras") compensation. Essentially this leaves the supplier at the mercy of the purchaser for payment not only for the base work , but the adders.
• in fixed price jobs there are progress payments . This is not possible in engineering other than on very large jobs because the cost of administration is too great. This leaves the supplier "financially exposed" for all (or much of) the work.
• payment risk is far greater. Once the work is turned over there is little chance of recovery. If payments lag on construction or fabrication it can be withheld , liened or seized.. 100 x $1000 jobs do not add up to a $100,000 job. The former is a formula for business failure.
• in engineering the cost of litigation or risk is far higher (by multiples of hundreds of thousands) than the work value. Any sort of "involvement" is unrecoverable (because of fixed/ceiling engineering rates) whereas in fabrication this "overhead" cost is built in and has some potential for recovery in other work.. The risk / reward ratio is nowhere near as extreme. (usually multiples of 10-100). This ratio is more characteristic of most business protocols except medicine.
• quality of product is a huge issue. On the surface two drawings can look the same. Lines on a page. One drawing can have engineered background, to an optimized level, containing resources and content that are cost effective to buy, everything fits, there is a database with intelligent data. The other drawing (which may outwardly appear adequate or the same has none of the above) , the lines are not even to scale, no dimensions can be picked off the drawing because it is "dumb content", it is incompatible, it is incomplete , costly to build and full of errors. Both meet the requirement of supplying "drawings or design". How do you price / safeguard the differential.