Fee and billing practices

By Tyler Thompson

Zweig Group recently released its 2018 Fee & Billing Survey of AEC Firms, which offers clarity on the fee structures and billing practices of architecture, engineering, and environmental consulting firms. In an increasingly competitive environment, firms need to be proactive in analyzing their billing rates and adjusting them with the changing times. Keeping in tune with their fees, amounts charged to employee time, reimbursable expenses, and equipment usage is vital to managing project profitability.

Whether using fixed fee contracts or a combination of hourly billing (not to exceed or unlimited) contracts, figuring out how much to charge to a project is a constant battle. Who has authority to set and/or negotiate the fees? What is standard practice for charging tasks to a project? Is it good practice to show clients a fee breakdown for a project? How are change orders or scope changes handled with a client? The survey analyzes these questions and many more.

Managing a firm’s cash flow can be achieved through a solid understanding of the firm’s billing cycles. From preparing invoices and collecting payments to projecting hours spent throughout a project, firm management has lots of levers to use to improve cash flow issues. Shorter collection cycles are necessary for the survival of any business because it not only creates a more predictable schedule for managing debt, but it also lowers the risk of those payments getting written off as bad debt. Once a firm writes off a bad invoice it cannot reclaim that lost revenue. One positive sign this year is that the average percentage of invoices being written off as bad debt decreased from 3.5 percent to 2.9 percent. Across the AEC industry, the invoicing process has improved, but there are always ways to be more efficient with collections.

• Not all firms are accepting electronic ACH payments (71 percent), which is troubling considering the current landscape of technology. This could be affecting a client’s willingness or ability to pay on time.
• Fewer firms (5 percent) are offering discounts on early payments, while more firms (43 percent) are charging interest on late payments. This is one way to incentivize clients to make their payments on time.
• More firms (18 percent) are improving collections by taking some of this responsibility off of the project manager’s plate and having accounting manage the process from follow-up phone calls to showing aged accounts receivable on invoices.

This year, more than 300 job titles were reviewed and the overall trend shows that rates are creeping up. Ninety-nine percent of all respondents increased their fees this last year, with an average increase of 9 percent. It is a good sign that AEC firms are recognizing the value of their employees and that the market is able to absorbscar these increased costs. Additionally, the gap between actual and projected chargeability for staff has decreased to less than 5 percent. This shows that firms are actively managing and correctly budgeting for their projects. Firms want to get the most out of their employees and pay them accordingly. Using Zweig Group’s 2018 Fee & Billing Survey of AEC Firms as a benchmark will allow them to do just that.

The 2018 Fee & Billing Survey of AEC Firms — available for purchase (print or digital) at https://zweiggroup.com — provides insights needed to keep bids competitive while balancing fixed wage-related costs with profitability. Fifteen market sectors along with more than 300 job titles are analyzed to get the most useful information to AEC firms across multiple regions and client bases.

Tyler Thompson, is Zweig Group research manager. He can be contacted at research@zweiggroup.com.