slide #1 basics about billing rates for personal services contracts basics about billing rates for...

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Basics about Billing Rates for Personal Services Contracts

Basics about Billing Rates for Personal Services Contracts

Presented by ODOT Procurement OfficeUpdated January 28, 2010

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Tutorial Outline

This tutorial covers basic information about two types of billing rates that ODOT uses for personal services contracts, especially contracts for Architectural, Engineering, Land Surveying (A&E) and Related Services.

The target audience for this tutorial is ODOT staff who work with personal services contracts.

This tutorial covers the following topics:

Reasons for changes to methodology

Types of billing rates

Escalated Billing Rates

Negotiated Billing Rates

What are billing rates used for

Where to find approved billing rates

Where to obtain more information

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Why the ODOT Procurement Office changed the billing rate structure

Problem OPO’s Response

Billing rates used for cost estimating were generally not reflective of consultants’ actual costs.

Approved average and maximum billing rates are derived from actual salary rates submitted by consultant.

Time consuming process for reviewing and approving annual requests for billing rate increases.

New rate schedules include two or three years of rates with escalation to reduce number of requests and amendments for rate increases.

Consultants with several contracts have different billing rate schedules in each of their contracts.

The billing rate schedules are more consistent from contract to contract. This is helpful when reviewing consultant billing invoices.

Over the past several years, ODOT Procurement Office (OPO) has been evaluating and making adjustments to the billing rate structure for personal services contracts. The current methodology was developed to address several problems that were not in ODOT’s best interest.

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Types of Billing Rates

Under ODOT’s current billing rate methodology for personal services contracts, a consultant will either have escalated billing rates which consist of four different components, or a fully burdened negotiated billing rate.

Escalated Billing Rates Negotiated Billing Rates

Direct Salary Rate

Overhead and

FCCM

Rate Escalation Profit

Negotiated Billing Rate

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Typically, consultants have “escalated billing rates”. These consultants track their actual business costs and have an annual audit of their overhead expenses.

Escalated Billing Rates

Direct Salary Rate

Overhead and

FCCM

Rate Escalation Profit

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Small firms, such as sole proprietors, often do not track their business expenses in detail, do not have an overhead rate, and typically charge their customers a flat hourly billing rate to cover their business expenses and profit. These firms use “negotiated billing rates”.



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Components of Escalated Billing Rates

Direct Salary Rate

Overhead and

FCCM

Rate Escalation

Profit

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Direct Salary Rate

The consultant submits a Direct Salary Rate Schedule (DSR) to the ODOT Procurement Office (OPO) to report name, job classification and actual salary rate for each member of their staff.

The OPO Billing Rate Action Team (BRAT) uses this confidential information to calculate average and maximum salary rates for each job classification.

Average and maximum rates for each job classification are documented on the consultant’s Escalated Salary Rate Schedule (ESR).

Approved ESR forms are included in Standard Contracts, Project Specific Contracts, Price Agreements, and Work Order Contracts.

Click link to view the DSR form that consultants complete.

Click link to view a sample ESR form that OPO uses to document approved rates.

Components of Escalated Salary Rates

http://www.oregon.gov/ODOT/CS/OPO/docs/aepage/DirectRateSched.xls

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Overhead and FCCM

Consultant submits an annual Overhead Schedule to report their breakdown of overhead costs. A cognizant or independent audit of their overhead is preferred or may be required.

Consultant is required to complete a Cost Disclosure Questionnaire (CDQ) to provide additional financial information about their firm.

Facilities Capital Cost of Money (FCCM) is a component of overhead costs that is separated from the overhead rate because ODOT calculates profit on overhead, but not on FCCM.

The OPO Billing Rate Action Team works with ODOT’s External Audits section to review and approve consultant’s overhead and FCCM rates.

Current approved overhead and FCCM rates can be obtained from the ODOT Procurement Office.

Click link to view a sample Overhead Schedule.

Click link to view the Cost Disclosure Questionnaire.

Click link to view a sample list of approved Overhead and FCCM Rates


http://www.oregon.gov/ODOT/CS/EXTERNALAUDITS/docs/Cost_Disclosure_Questionnaire.pdf

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Rate Escalation

To reduce the number of amendments for consultant rate increases, ODOT currently adds 4.5 percent annual escalation to consultant billing rates. This applies to escalated billing rates only; not to negotiated billing rates.

Generally, the Escalated Salary Rate Schedule includes escalated rates for two or three years.

Consult with an OPO Procurement Specialist about using rate escalation on older contracts and price agreements.

Click link to view a sample ESR form.


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Profit

The ODOT project manager or designee negotiates a mutually agreeable profit rate with the prime consultant for their specific contract.

The final negotiated profit rate applies to the prime consultant and all subconsultants assigned to the contract, except for those with Negotiated Billing Rates (Negotiated Billing Rates already include profit).

Project Managers should use the Profit (Fee) Worksheet (designed primarily for A&E and Related Services contracts) to determine an initial profit rate that is reasonable for the specific contract.

ODOT staff completes a worksheet to determine ODOT’s starting point for negotiating fair and reasonable profit for the contract.

Consultant may also complete a worksheet on their behalf.

Click link to view the Profit (Fee) Worksheet


http://www.oregon.gov/ODOT/CS/OPO/docs/aepage/ProfitFee.xls

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Firm NameData as of date: 4/13/2009

Overhead textProfit textFCCM text

Escalation Rate 1.045 1.045

Classification* 2009 Rate 2010 Rate2009 Rate 2010 Rate

Administrative/Contract Mgmt Average $ 21.36 $ 22.32 #VALUE! #VALUE!Administrative/Contract Mgmt Max $ 32.55 $ 34.01 #VALUE! #VALUE!

Level 2 Engineer Average $ 27.44 $ 28.67 #VALUE! #VALUE!Level 2 Engineer Max $ 27.44 $ 28.67 #VALUE! #VALUE!



Project Manager Average $ 49.04 $ 51.25 #VALUE! #VALUE!Project Manager Max $ 49.04 $ 51.25 #VALUE! #VALUE!

Escalated Salary Rate Schedule

WOC Multipliers

Loaded Rates


The Escalated Salary Rate Schedule is prepared by the ODOT Billing Rate Action Team to document a consultant’s approved Escalated Salary Rates.


Overhead 153.25%Profit 8.50%FCCM 0.00%



Administrative/Contract Mgmt Average $ 21.36 $ 22.32 58.68$ 61.32$ Administrative/Contract Mgmt Max $ 32.55 $ 34.01 89.44$ 93.46$

Level 2 Engineer Average $ 27.44 $ 28.67 75.40$ 78.79$ Level 2 Engineer Max $ 27.44 $ 28.67 75.40$ 78.79$



Project Manager Average $ 49.04 $ 51.25 134.75$ 140.81$ Project Manager Max $ 49.04 $ 51.25 134.75$ 140.81$


WOC Multipliers

Loaded Rates

Direct Salary Rate

Rate Escalation Overhead and

FCCM

Profit

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Overhead textProfit textFCCM text



Administrative/Contract Mgmt Average $ 21.36 $ 22.32 #VALUE! #VALUE!Administrative/Contract Mgmt Max $ 32.55 $ 34.01 #VALUE! #VALUE!




Project Manager Average $ 49.04 $ 51.25 #VALUE! #VALUE!Project Manager Max $ 49.04 $ 51.25 #VALUE! #VALUE!


WOC Multipliers

Loaded Rates


Average and maximum rates for each job classification

Job classifications

The Escalated Salary Rate Schedule includes:

Escalated direct salary rates for two or three years

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Project Manager Average $ 49.04 $ 51.25 134.75$ 140.81$ Project Manager Max $ 49.04 $ 51.25 134.75$ 140.81$


WOC Multipliers

Loaded Rates


Average and maximum rates for each job classification

Average and maximum escalated direct salary rates for two or three years

Enter applicable overhead, FCCM and profit rates here…

Job classifications

The Escalated Salary Rate Schedule includes:

Formulas calculate the escalated burdened rates here

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When preparing a contract cost estimate:

Use the same job classifications as listed on the ESR.









WOC Multipliers

Loaded Rates

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Use the escalated salary rates listed for the current year.









WOC Multipliers

Loaded Rates

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Use the escalated salary rates listed on the ESR for the current year.

Use either the “average” escalated direct salary rates or actual salary rates; whichever is in ODOT’s best interest. (Obtain actual salary rates from the consultant. Averages are on the ESR.)









WOC Multipliers

Loaded Rates

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Use the escalated salary rates listed on the ESR for the current year.

Use either the “average” escalated direct salary rates or actual salary rates; whichever is in ODOT’s best interest.

Avoid using “maximum” escalated direct salary rates when estimating costs.









WOC Multipliers

Loaded Rates

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When submitting invoices, consultants are required to:

Invoice labor costs at their employees’ actual salary rates which must not exceed the “maximum” rate listed on the ESR for their job classification.









WOC Multipliers

Loaded Rates

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When submitting invoices, consultants are required to:

Invoice labor costs at their employees’ actual salary rates which must not exceed the “maximum” rate listed on the ESR for their job classification.

Invoice at their approved overhead, FCCM and profit rates that were in effect during the billing period.









WOC Multipliers

Loaded Rates

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Negotiated billing rates are typically used by small firms.

Negotiated billing rates are fully burdened hourly rates which include direct labor, indirect costs (overhead) and profit.

The consultant submits a Direct Salary Rate Schedule (DSR), a Negotiated Billing Rate Schedule (NBR), and a Financial Questionnaire to the ODOT Procurement Office. They may be required to provide additional information to substantiate their rates.

The OPO Billing Rate Action Team reviews the DSR, NBR, Financial Questionnaire and additional information to determine reasonability of the rates. Adjustments are negotiated as needed, and the NBR is approved for use in ODOT contracts.

When preparing cost estimates, do not add overhead, FCCM, escalation or profit to Negotiated Billing Rates.

If a consultant wants a rate increase, they must submit their request to the ODOT Procurement Office.

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Negotiated Billing Rate Schedule

NEGOTIATED BILLING RATES

Consultant XYZ

Effective February 2009

DIRECT LABOR COSTS

Project Role Billing Rate/hr

Project Manager $125.00

Landscape Architect $110.00

CADD Technician $90.00

The Negotiated Billing Rate Schedule is prepared by the ODOT Billing Rate Action Team to document a consultant’s approved Negotiated Billing Rates.

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NEGOTIATED BILLING RATES

Consultant XYZ

Effective February 2009

DIRECT LABOR COSTS

Project Role Billing Rate/hr

Project Manager $125.00

Landscape Architect $110.00

CADD Technician $90.00

Job Classifications Fully burdened hourly rates

Do not add escalation, overhead, FCCM, or profit to Negotiated Billing Rates

The Negotiated Billing Rate Schedule includes:

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What are ESR and NBR billing rate schedules used for?

Use ESR and NBR when preparing ODOT’s internal cost estimate:

For consultants with approved ESR:

Use the job classifications that are listed on the consultant’s ESR.

Use either “average” escalated direct salary rates or actual salary rates; whichever is in ODOT’s best interest.

If using actual escalated direct salary rates, they must not exceed the maximum escalated direct salary rate approved on the ESR for that year and for the job classification.

Use the currently approved overhead and FCCM rates for the consultant.

Use the initial profit rate derived from completing the Profit (Fee) Worksheet for the project.

For consultants with approved NBR:

Use the job classifications that are listed on the consultant’s NBR.

Use the billing rate per hour on the NBR for that job classification.

Do not add escalation, overhead, FCCM or profit to the billing rate.

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Use ESR and NBR when evaluating and negotiating consultant’s cost estimate:


Job classifications should match those listed on the consultant’s ESR.

Negotiate for use of either “average” escalated direct salary rates or actual salary rates; whichever is in ODOT’s best interest.

Actual escalated direct salary rates must not exceed the maximum escalated direct salary rate approved on the ESR for that year and for the job classification.

Check to make sure proposed overhead, FCCM and profit are the currently approved or agreed-to rates.


Job classifications should match those listed on the consultant’s NBR.

Billing rate must be the billing rate per hour on the NBR for that job classification.


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Use ESR and NBR when reviewing consultant invoices on cost reimbursement contracts:


Labor costs on the invoice must be based on the employees’ actual direct salary rates at the time the services were performed.

The actual direct salary rate must not exceed the maximum escalated direct salary rate approved on the ESR for that year and for the job classification.

Overhead and FCCM must be at the approved rates in effect when the services were performed.

Profit must be at the negotiated rate in effect for the services performed. (Often a different profit rates is negotiated for the construction engineering phase of a contract.)


Labor costs on the invoice must be at the billing rate per hour on the NBR for that job classification.


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What billing rates schedules to use for Project Specific Contracts

For a new Project Specific Contract

Use the most currently approved rate schedules, which are located at \\Scdata2\OPOBillingRateData\AcceptedRates\Firm ESR-NBR

or contact the ODOT Procurement Office for assistance.

For new amendments to existing Project Specific Contracts

Use the billing rate schedules in the Contract and previous amendments, or

contact the ODOT Procurement Office about amending the currently approved rates into the Contract.

Overhead and FCCM rates

Use the currently accepted rates, which are located at: \\Scdata2\OPOBillingRateData\AcceptedRates\Accepted Overhead Rates\OHRates.xls, or

contact the ODOT Procurement Office for assistance.

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What billing rates schedules to use for Work Order Contracts

For a new Work Order Contract

Use the billing rate schedules in the Price Agreement and amendments, or

contact the ODOT Procurement Office about amending the currently approved rates into the Price Agreement to use them in the new Work Order Contract.

For amendments to an existing Work Order Contract

Use the billing rate schedules in the Work Order Contract, or the Price Agreement and amendments, or

contact the ODOT Procurement Office about amending the currently approved rates into the Work Order Contract or Price Agreement.

Overhead and FCCM rates

Use the currently accepted rates at: \\Scdata2\OPOBillingRateData\AcceptedRates\Accepted Overhead Rates\OHRates.xls, or

contact the ODOT Procurement Office for assistance.

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Where to find billing rate forms on the ODOT Intranet

Direct Salary Rate Schedule


Profit (Fee) Worksheet

The following slides will take you through the ODOT Intranet to find these forms:

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Start at ODOT’s Intranet

home page


home page

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home page


home page

Select “Topics A-I”


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home page


home page



Then select “Contracts”Then select “Contracts”

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On the Procurement Office web site, click on “Forms & Documents”

On the Procurement Office web site, click on “Forms & Documents”

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On the Forms & Documents page, click on

the View button for “Personal/Professional

Services (PSK)”

On the Forms & Documents page, click on

the View button for “Personal/Professional

Services (PSK)”

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Then click on the View button for “PSK Compensation

Related Forms”

Then click on the View button for “PSK Compensation

Related Forms”

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Scroll down the page to find the DSR and NBR forms.

Scroll down the page to find the DSR and NBR forms.

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Click on the View button for “PSK Negotiations

Related Forms”...

Click on the View button for “PSK Negotiations

Related Forms”...

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…to find the Profit (Fee) Worksheet.

…to find the Profit (Fee) Worksheet.

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For additional information and assistance:

Contact the OPO Procurement Specialist assigned to your contract

Contact the Procurement Team Lead for your area:

Highway Division, Region 1 - Bob McKibben 503.731.8462

Highway Division, Region 2 and Tech Services Branch - Doug Peetz 503.986.2980

Highway Division, Regions 3, 4 and 5 - Kevin Cassidy 541.963.1326

All other business sections within ODOT - Tara Anderson 503.986.2921

Contact the OPO Billing Rate Action Team (BRAT):

BRAT Email address: [email protected]

Chaye Bookey 503.986.2833 or [email protected]

Refer to ODOT Negotiations Guide in the ODOT Procurement Manual, Section N located on OPO’s Intranet site at the following link: http://intranet.odot.state.or.us/opo/manual.htm#SN

Refer to List of related forms and guidelines

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Questions?

If you have questions or comments related to this tutorial, please contact:

Mary Wandell

Procurement Training Coordinator

503.986.2617

[email protected]

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Acknowledgements

I would like to thank the following people for their assistance in developing this tutorial:

Chaye Bookey, ODOT Procurement Office

Mike Jenkins, ODOT Procurement Office

Kim Leeker, ODOT Procurement Office

Jai Maddox, ODOT Procurement Office

Debra-Jean Murdock, ODOT Procurement Office