When it is not possible or feasible to calculate the basis of payment as a fixed price that must be specified in the contract, payment may be calculated, using one of the following methods:
1. Per diem. A fixed daily rate, including payroll and overhead costs and profit, based on the level of experience and expertise required and the length of the normal working day as defined in the contract. Generally used for short term, intermittent or other assignments when the scope of the work cannot be accurately determined.
2. Payroll cost multiplied by a factor. The multiplying factor compensates the consultant or professional for overhead costs, interest on invested capital, responsibility and profit. It varies with the type of service performed, the geographic location and the length of the assignment. This method, based on the direct costs to the consultant or professional, is suitable when the scope of the work and the services required are extensive; when it is not possible to determine accurately the scope of the services to be provided; or when a percentage fee does not adequately reflect the cost to the firm. It may be desirable to place a limit or ceiling price on the total payable under this method. The consultant or professional must maintain detailed time records and accounting procedures to substantiate all costs, and all records must be available for audit by the contracting authority.
3. Payroll and overhead costs plus a fixed fee. This is a variant of (b) above. The consultant or professional is paid actual payroll and overhead costs, together with a fixed fee, negotiated to cover interest on invested capital, responsibility, and profit. It is used for the same type of work as the preceding method and also for the management of construction projects. The fixed fee portion is calculated as a percentage of the estimated capital cost for construction projects and as a percentage of the estimated cost of payroll plus overhead for other types of work.
4. Percentage of the cost of construction. This method has two main shortcomings: the fee does not adequately reflect the cost of performing the service and it penalizes the consultant or professional for economical design. Care should be taken to stipulate a budget ceiling and to verify that the estimated fee will be in line with the estimated cost to the consultant or professional. This method has been used when the principal responsibility is design, preparing of contract documents and the providing of non-resident supervision during construction. It is expressed as a percentage of the cost of the project and the fee is translated into a fixed amount, which is calculated on:
o the construction contract award price, or
o the pre-tender estimate approved by the contracting authority,
o whichever is less.
5. Percentage of approved estimate. Sometimes, fees based on the construction contract award price may result in inequities to either the consultant/professional or the Crown, usually because the construction market or tendering situation is not predictable enough to be used as a basis for the fee of the consultant or professional. In this event, a fixed fee may be negotiated for the design portion of the work based on a depart-mentally-approved estimate made before working drawings are begun. The fee applicable to the construction supervision phase should be based on the construction contract price.
6. Retainer. A stipulated amount is paid at regular intervals. This method is used when the services will be required at intervals over a period of time, such as during prolonged litigation and other special advisory services. The retainer is merely to ensure that the services will be available on demand. The fee for the actual services is based on one of the methods described above.