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M any engineering firms prepare aproject proposal describing theservices they will provide, a

schedule for their activities, and a cost fortheir services along with other promotionalmaterial. It has been the author'sexperience as an owner's project controlengineer that once the engineeringcontract is signed, there is no schedule orcost control practiced by the engineeringfirm. Requests for payment are based onthe number of hours expended during thetime period covered by the request, not onprogress. When the engineering firmrealizes that the contract balance isinsufficient to cover the cost of theremaining work, a request to be reimbursedfor "difficulties" encountered during thedesign phase or for "additional work"performed earlier in the project issubmitted to the owner. Attention isdiverted from the project to analyze theclaim and negotiate a contractmodification that does not completelysatisfy either the owner or engineering firm.

Setting expectations andadministering the engineering contractrequires as much attention as the project'stechnical aspects. The ability to havecontrol over the cost and schedule for

engineering work begins with the effortexpended in preparing the request forproposal and cost and schedulerequirements. Better definition of theservices and deliverables expected from theengineering firm results in a greaterunderstanding of the project, a morerealistic engineering schedule, and a moreaccurate cost estimate. This articleaddresses the cost and schedule relateditems that should be included in a requestfor proposal and covered in the contract,examples of documents comprising theengineering plan, methods of determiningengineering progress, and managingchange to minimize schedule slippage andcontrol cost.

BackgroundA successful engineering contract

requires thoughtful and thoroughpreparation by the owner before initiatingthe contracting process. Failure to follow

quality front-end planning in preparing thecontract requirements is common andoften leads to poor contractingarrangements. If both parties have anunderstanding of the contractrequirements and expectations, the resultsfrom the design process are greatlyimproved.

An accurate assessment of the designstatus at all times is essential to contractingsuccess. The key to managing theengineering cost and schedule isdocumentation through all stages of thecontracting process: the projectrequirements document, the request forproposal, the contract and engineeringplan, and contract administration, seeFigure 1. The project requirementsdocument, which addresses the owner'sobjectives and technical performancegoals, is outside the scope of this article.Cost and schedule control for engineeringcontracts begins with the request forproposal.

Request for ProposalNo matter what phase the project is in

when you need to retain the services of anengineering firm, preparing a request forproposal is the first step. The request forproposal needs to itemize all services anddeliverables expected from the design firm.If you cannot describe the project anditemize the services and deliverablesrequired, you are not ready to solicitproposals. To proceed without defining thecontract requirements results in an iterativedesign process that wastes time andresources. The technical requirements fordesign services are outside the scope of thisdocument but the deliverables are coveredto the degree that they figure into the costand schedule development and control.

The following are the request forproposal provisions that impact scheduleand cost control.

General ProvisionsProject Phases—Specify the project

phase(s) for which engineering services areto be provided: the conceptual phase,design development phase (preliminary

16 Cost Engineering Vol. 46/No. 9 SEPTEMBER 2004

CERTIFICATION PAPER

Cost and Schedule Control forEngineering Contracts

ABSTRACT: You have the project requirements and you may have some idea of what the endproduct should look like, but to transform the requirements and ideas into a form that can beexecuted requires an engineering design. An engineering firm is hired and the focus shifts tothe design activities. The design work takes a little longer than estimated but progress is beingmade. Eventually the design is completed and construction starts. One day you receive arequest for payment to cover difficulties encountered during the design process and additionalservices performed earlier in the project. Does this sound familiar? Inattention to the engi-neering contract can result in schedule delays and additional project cost. What is the status ofthe engineering effort? Has the scope of services been changed inadvertently? Who has theresponsibility to flag changes to the engineering contract? Are payments based on the engi-neering progress? Better upfront work is essential for engineering contract control. This articlewill cover the cost and schedule requirements and the administrative tools to better manage theengineering portion of the project. Effective cost and schedule control requires a good con-tractual agreement; an acceptable scheduling system; an engineering resource plan relatingpersonnel, time, and cost; effective progress measurement, cost trending and forecasting sys-tems, and a change management system. Using a disciplined approach to contract manage-ment will provide better project control and minimize the "surprises" having a negative impacton your project.

KEY WORDS: Contracts, costs, design, forecasting, project management, and schedules

Kenneth R. Davey, CCE

Figure 1—Major Stages of Contracting

Cost Engineering Vol. 46/No. 9 SEPTEMBER 2004 17

design phase), construction documentsphase (final design phase), constructionphase, and close-out. The deliverables anddegree of completion for the deliverablesare tied to the project phase. For controlpurposes, it is strongly recommended thateach phase be completed, the deliverablesbe reviewed, and a formal approval berequired before any work may begin in thenext phase.

Project Sequence—The engineeringcontract may cover one or more phases ofthe project. Indicate the contract strategyto be used for engineering. Note anypredetermined sequencing of events thatmight affect the engineering schedule—reviews, technical approvals, projectfunding approvals, etc. List the event,when the event will occur, and the eventduration.

Type of Contract—Note the type ofcontract that will be used for engineeringcompensation: cost reimbursable, costreimbursable with guaranteed maximumprice, cost plus fee multiplier, or cost plusfixed fee. The level of project definition atthe start of design is not suited to a fixed-price contract. A reimbursable contractrequires less definition than a fixed-pricecontract and it is more flexible in dealingwith changes as the project develops but itneeds to be drawn in a way that allowsexpenditures to be properly controlled.The owner is at a disadvantage with thistype of contract because it is more difficultto predict the final design cost. Poorperformance by the engineering firm canresult in increased costs.

The scope of the design servicesbecomes clearer during the design process.An engineering firm can start work under areimbursable cost basis. When sufficientdesign is complete, a more definitivecontract can be used. The contract thatcovers the construction document phasemay also include incentives based onoverall project performance

Personnel—Staffing is an importantconsideration when using a reimbursablecontract. Request that an engineeringfirm's proposal identify the primarypersonnel that will be assigned to theproject and include a summary of theperson's experience. Limit personnelchanges during the project.

Meetings—List the various types ofmeetings for each project phase and thefrequency at which the meetings will beconducted. A weekly trend meeting is used

for project control and to insure thatinformational needs of both the owner andengineering firm are being satisfied.Specify what representation from theengineering firm is required at the variousmeetings.

Engineering Services and TechnicalDeliverables

Identify the technical services anddocuments to be delivered by theengineering firm. The documents andpresentations will depend on the projectphase and type of project. Referring to a

checklist from the owner's project processor standard documents such as the Scopeof Designated Services published by theAmerican Institute of Architects isbeneficial in preparing a comprehensivelist of services and deliverables. Sometypical deliverables are shown in Figure 2.

Engineering ScheduleThe request for proposal should

include the requirements that theengineering firm is responsible forpreparing and maintaining theengineering schedule. Scheduling

Figure 2—Engineering Deliverables by Project Phase


software is to be used to produce a networkdiagram in sufficient detail to fully describethe engineering activities, deliverables, andreviews. The layout of the schedule shouldreflect the project phases, the designprocess and the execution strategy, ifknown. The schedule is to showrelationships between activities, indicatethe critical path, and calculate float.Owner input to the engineering schedulemay be required to properly reflect theimpact of technical reviews andmanagement approvals.

Discipline drawings could be groupedunder one or several schedule activitiesrather than being shown individually onthe engineering schedule. When such isthe case, a drawing list identifying eachdrawing for that activity is prepared. Ifthere are a series of work packages to beissued, a milestone on the schedule shouldindicate when the work package would bereleased.

Once the schedule is approved, abaseline schedule is to be set from whichprogress can be measured. Updating thestatus of the engineering work is to be doneweekly. Actual start and finish dates foractivities are to be recorded. The networkdiagram is to graphically depict the currentstatus of work.

Depending on the project size andcomplexity, the detailed engineeringschedule may or may not be part of

proposal. The time period allotted toprepare the proposal may not be sufficientto prepare a detailed engineering schedule.It is also unrealistic to expect engineeringfirms to make the additional expenditure inpreparing a detailed schedule for largerprojects when they may not be awarded thejob. At minimum, a summary engineeringschedule should be part of the proposal.The detailed engineering schedule can bedeveloped prior to signing the contract.

Engineering Resource PlanThe resource plan identifies the

engineering and design disciplines and therespective work hours required toaccomplish each schedule activity. Theengineering firm usually prepares aresource plan to arrive at an estimate fortheir work, but that resource plan may notbe adequate for control. In order todetermine progress, the discipline workhours must be integrated with theschedule. Require that a time-basedresource plan for each discipline beprepared. For smaller, less complexprojects, the resource plan can besubmitted as part of the proposal. Forlarger more complex projects, a summaryof the discipline hours estimated tocomplete the work can be submitted withthe proposal. The time-based resourceplan would be developed in conjunction

with the schedule as part of theengineering plan.

For each activity identify whichresources are required and how manyhours are estimated for the work (Figure 3).The work hours can be are distributed overthe activity duration or assigned atincremental milestones. Once theresources and work hours have beenassigned to all schedule activities, eachresource's work hours per month can besummed to form a discipline resource plan(Figure 4). The discipline resource planshould be reviewed to confirm the workhour allocations and distributions arereasonable. The discipline resource planwill become the basis for determining theengineering progress required in order tostay on schedule. The engineeringresource plan is the summation of all thediscipline resource plans.

Resource planning can beaccomplished using schedule software or acomputer spreadsheet. Using the softwaremakes resource plan development andmaintenance much easier. The softwarecan usually print the resource plan invarious formats.

Engineering EstimateThe total engineering estimate is

composed of the labor cost and thereimbursable cost, not to be confused witha reimbursable contract. The labor cost is

Figure 3—Resource Usage by Schedule Activity

Figure 4—Discipline Resource Plan


the direct labor (the charge rate times thenumber of work hours where the chargerate includes a portion of the officeoverhead cost). Reimbursable costs areexpenditures by the engineering firm in theinterest of the project and defined in theowner-engineer contract. Such itemsconcern transportation and living expensesfor out-of-town travel, long distancecommunication, the expense ofreproducing and handling drawings andspecifications for use outside theengineering firm's office, renderings andmodels, value engineering exercises, andlife cycle cost analysis.

Request that the project proposalindicates the charge rates to be used foreach discipline, the estimated labor cost bydiscipline and phase, and the reimbursablecost estimate by phase. Labor cost andreimbursable cost are always to be reportedseparately.

Request for PaymentPayment provisions should be covered

in the contract and only summarized herefor the engineering firm's information.Note that payments will be based onprogress. Specify the invoice frequencyand the invoice format to be used. Theminimum information to appear on theinvoice is the original contract amount, thetotal for approved changes, the currentcontract amount, the total of previouspayments, the contract balance, and theamount being invoiced. Overtime is only

to be paid upon prior approval by theowner.

Change ManagementChange management should be

covered in the contract. An overview of thechange management process can beincluded in the request for proposal.

All deviations from the engineeringscope, cost, or schedule constitute changesthat require approval by the owner beforeproceeding. Any change to theengineering contract must be madethrough the change management process.A change order is to identify the cause ofthe change, the scope of the proposedchange, the impact on the engineeringschedule, and the engineering estimate(hours and dollars by discipline) toimplement the change. The change orderis to have all signatures before precedingthe change.

Design reviews and design approvalsdo not constitute approval of any scopechanges that may appear on the drawings.Changes to scope can only be approvedthrough the change management process.

Contract and Engineering PlanIt is advisable to hold a pre-award

meeting with the selected engineering firmto confirm that the project requirementsand expectations are understood. Anyquestions or concerns about the proposalcan be addressed at that time. If notincluded in the proposal, the detailedengineering schedule and resource plan

should be developed, reviewed, and agreedupon prior to signing the contract. Set thetime to review the documents. Theschedule and resource plan become thebasis from which engineering progress willbe measured. Engineering progress will beused in determining payment for servicesrendered.

Legal counsel should be consulted inpreparing the contract. Cost and schedulerequirements from the request for proposal,engineering plan, and contractadministration need to be incorporated inthe contract directly or through reference.While the contract is being finalized, thedocuments comprising the engineeringplan can be completed if not alreadyincluded in the proposal.

Contract AdministrationConstantly monitor and evaluate

performance so the status and forecast ofscope, progress, cost, changes, andpotential claims will always be known.

CommunicationCommunication between the project

team members must remain open toprovide an accurate assessment of thework. Any conversations involvingdecisions, resolution of action items, scope,schedule, or cost need to be documentedthrough meeting notes, confirming lettersor e-mail, memoranda, or telephone log.An incorrect statement in a writtendocument requires a written response andcorrection.

Figure 5—Example of Engineering Estimate


Developing and maintaining aneffective filing system can be demanding,particularly in an environment where morework is to be performed with less people.Meeting notes, transmittals, letters and e-mails, faxes, logs, diaries, and reportsshould be collated and filed for easy accessand retrieval.

Weekly Trend MeetingTrending is the process of identifying

potential risks and vulnerabilities inadvance of their occurrence, evaluatingand minimizing the impact to the project,and constant surveillance of projectconditions to eliminate "surprises." Atrending program is essential to detectingchanges that could result in claims.

The trend meeting, conducted weekly,is not a decision-making meeting. It's ameeting where information is gathered andshared by key technical and servicespecialists. All current and potentialinfluences are reviewed: status of previousaction items, current status of the work,critical activities, current problems andconcerns, critical activities, schedulestatus, cost status, and corrective actiontaken or recovery plan proposed. Specialnotice and attention must be given tochanges, actual and anticipated delays,extra work, and all matters that appear to beout of the ordinary.

Trend meeting notes are important fordocumenting the present status of theproject and also as historical documentsshould major disagreements arise later inthe project. The owner's representativeshould be responsible for recording andpublishing the meeting notes.

Action LogMaintain an action log to keep track of

open issues. Unless questions and requests

for information are recorded and reviewedregularly they stand a chance of becominga source of delay and the basis for a claim.The action log needs to be a singledocument accessible to all project teammembers. Multiple lists are cumbersometo manage and confusing to teammembers.

Each action item should be assigned asequential number for quick reference infurther discussions. Note the date that theitem was raised, a short description of theitem, and a person identified to beresponsible for providing the response.Establish a date when a response isrequired in order for the design work tocontinue without delay and record the dateof the response. Every response should bein writing to document the response andavoid any misunderstanding in a verbalcommunication.

An example of an action log is shownin Figure 6. Using an action log cannegate or reduce claims requestingcompensation for unproductive time andrework necessitated by a late response.

Potential Items of CostAny deviation in the scope of

engineering services or in engineeringdeliverables could result in a request foradditional compensation. What the owner

might consider as work within the designcontract could be viewed as additionalwork by the engineering firm. It isimportant to surface any potential items ofcost as soon as possible for evaluation and adecision on whether or not to proceed withthat item.

The onus should be placed on theengineering firm to highlight any itemsconsidered as additional work prior toperforming the work. The concept anddesign development phases of design arenot as defined as the constructiondocument phase. As the party responsibleto provide the design, the engineering firmis in a better position to identify deviations.

Engineering ProgressThere is no clear partial completion

indication on engineering work as there iswith construction work, but there areseveral methods of progressing that can beused: incremental milestones, start/finish,and opinion.

Incremental milestones can be usedon activities with subtasks that must behandled in sequence. Each subtask isassigned a percentage of the activity.Completing a subtask represents amilestone achieved and a percentage of thework completed. On smaller projects theincremental milestone method can be

Figure 6—Action Log Format

Figure 7—Incremental Milestones for Individual Drawing Progress


used on early design phases with the phasebeing the activity and the individualactivities being the subtasks. Theincremental milestone method can also beused on drawing preparation (Figure 7).

The start/finish method can be usedon activities that do not have definableintermediate milestones or where progressmeasurement would take too much time oreffort. With the start/finish method, anarbitrary percentage is assigned when theactivity starts and 100 percent is assignedwhen the activity is completed. Thismethod can be used with any of theengineering activities or drawingpreparation.

The opinion method is the leastdefinitive and should only be used onminor tasks that are difficult to measure.The person responsible for the activitymakes an opinion of the progress achieved.This method is very subjective. A problemwith the opinion method is that theresponsible person tends to be optimisticwith the progress achieved.

The earned value for an activity is theactivity's budget multiplied by the percentcomplete. The budget is the originalestimate plus any approved changes. Thebudget can be expressed in work hours ordollars. When an activity is assessed atbeing 50 percent complete, 50 percent ofthe budget for that activity has been earnedregardless of the actual work hours ordollars expended to accomplish thatamount of work. Payments to theengineering firm should be based on theearned value, not on the actual work hoursor dollars spent.

For the owner, paying the earnedvalue insures that the project is paying forthe work accomplished and not paying forcorrecting mistakes or unproductive time.For the engineering firm, when the actualcost exceeds the earned value, the dollarsbeing expended are greater than theexpected revenue. The engineeringmanager needs to take some action toimprove performance on the trouble areasand possibly other activities to reduce thedeficit.

Discipline drawings could be groupedunder one or several schedule activitiesrather than being shown individually onthe engineering schedule. When such isthe case, a drawing list identifying eachdrawing for that group is prepared.Progress is assessed for each drawing basedon reaching a milestone. Progress for thedrawing group is the sum of the progress forindividual drawings. Remember to assignincremental values based on the drawingmilestones to be encountered within aparticular project phase.

Performance IndicatorsPerformance indicators depict how

progress is affecting the engineeringschedule and cost. A graph showingseparate curves for the cumulative hours ofthe resource plan (the budgeted cost ofwork scheduled, BCWS), the earned workhours (budgeted cost of work performed,BCWP), and the actual work hours (Actualcost of work performed, ACWP) quicklyshows the engineering status. Anothergraph can show the dollar expenditure forthe plan, earned value, and actual cost.

Any deviation of one curve from any of theothers is an indication that the cost andschedule are deviating, for better or worse,from the expected performance.

In Figure 8, as of February 11, theengineering work is running behindschedule by 100 work hours (BCWP-BCWS) and the actual cost is exceedingthe earned value by 60 work hours(BCWP-ACWP). A recovery plan isneeded to improve the scheduleperformance and bring the project back onschedule. The earned value is the basis forpayment. When the actual work hoursexceed the earned work hours, there is apossibility of future claims for additionalpayment. The reason for the variance inwork hours needs to be identified.

The schedule performance index(SPI) is a comparison of what was plannedversus what was done. The costperformance index (CPI) is a comparisonof what was done versus what was paid.The indices are calculated by the followingformulas:

SPI = (cumulative earned workhours) /(cumulative planned workhours)

CPI = (cumulative earned workhours) /(cumulative actual workhours)

An index equal to 1.0 indicates theschedule or cost is on plan. An indexgreater than 1.0 indicates the schedule orcost performance is better than planned.An index less than 1.0 indicates theschedule or cost performance is behindplan. In the Figure 8 example, the SPI is

Figure 8—Performance Graph


0.81 and the CPI is 0.88. Both areunfavorable.

Using dollars in place of work hoursfor the CPI calculations produces a moreaccurate CPI value since the reimbursablecost would be included in the calculation.The dollar value of the reimbursable costcompared to the labor cost is normallysmall, so the difference in the CPI indexusing either work hours and dollars isnegligible.

Change ManagementMaintain an engineering change log

to record any changes in the engineeringcontract schedule or cost. The log can beincorporated into a contract summary tablethat starts with the initial contract amountand calculates a current contract amountas changes are entered.

Lessons LearnedRecord lessons learned during the

contracting process that could improve costand schedule control on the next project.

M onitoring and controlling theengineering contract starts withthe upfront effort to define the

scope of the engineering work andpreparing the request for proposal. Settingexpectations and administering theengineering contract requires as muchattention as the project's technical aspects.Better definition of the services anddeliverables expected from the engineeringfirm results in a greater understanding ofthe project, a more realistic engineeringschedule, and a more accurate costestimate.

An accurate assessment of the designstatus at all times is essential to contractingsuccess. The engineering schedule,resource plan, and estimate become thebaseline from which to measure progress.With the baseline in place, trendingbecomes key to keeping the engineeringactivities under control and minimizingthe adverse impact on the project throughearly detection of schedule slippage andpotential cost increases. Cost and schedulecontrol requires an effective progressmeasurement, a cost trending andforecasting system, and a changemanagement system.

Control of the engineering scheduleand cost will not be absolute. The designphase of the project is part of the projectdefinition process and as such has some

variability in the engineering services to beperformed. Using a disciplined approachto contract management will provide betterproject control and minimize the"surprises" having a negative impact onyour project. ◆

REFERENCES1. Horwitz, Michael E., Progress

Measurement in Engineering andConstruction, Cost Engineers'Handbook.

2. Vogel, E.M., Defining Project Scopefor Cost Control, Cost Engineers'Handbook.

3. Young III, James A., Design Phase CostControl, Cost Engineers' Handbook.

4. Samad, Sarwar A., Managing ChangeOrders, Cost Engineering, October2002, page 13.

5. AACE International: CertificationStudy Guide, Cost Control andForecasting, Chapter 12.

6. AACE International: CertificationStudy Guide, Project Measurement:Contracting, Chapter 29.

7. American Institute of Architects,Architect's Handbook of ProfessionalPractice, Volume 2, Scope ofDesignated Services (DocumentB162), 1973.

ABOUT THE AUTHORKenneth R. Davey, CCE, is a projectcontrols engineer with the EastmanKodak Company of Rochester, NY. Hebecame a Certified Cost Engineer in2003. He can be contacted by sendinge-mail to: [email protected].

Certification Papers - Each candidateseeking certification as a Certified CostConsultant/ Certified Cost Engineer(CCC/CCE) is expected to write aprofessional paper of a minimum of 2,500words on a cost engineering-related subjectand it must be submitted before or at the timeof the examination. Each month some of thetop scoring entries are published as anexample of what constitutes a good entry.Other members and readers will also gaininsights on current industry trends andprojects with the publication of these papersin the Cost Engineering journal.

Available for Review -The following book is available forreview. The first reader to request thebook will get to write a review about itfor the Cost Engineering journal. Ifyou are interested, send an e-mail [email protected].

The Lean Design Guidebook -Everything Your Product DevelopmentTeam Needs to Slash ManufacturingCost, by Ronald MascitelliPart of The Lean GuidebookTM Series

This 312 page, spiral-bound book isin its first edition. It was copyrighted in2004 by Technology Perspectives. ISBN0-9662697-2-1. It’s listed as a busi-ness/management book and is $44.95in the US and $59.95 in Canada. Thebook’s promo states, “There’s waste inyour product designs, and it’s costingyou a fortune! The Lean DesignGuidebook describes 18 powerful andpractical tools for manufacturing costreduction, spanning the full spectrumfrom Six-Sigma design and value engi-neering, to Toyota’s ProductionPreparation Process (3P). An integratedand immediately deployable approachto slashing costs and maximizing prof-its.”

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