NEW YORK STATE DEPARTMENT OF TRANSPORTATION



NEW YORK STATE DEPARTMENT OF TRANSPORTATION

CONSULTANT INSTRUCTION

SUBJECT: BOTTOM LINE PROCESS FOR SPECIFIC HOURLY RATES

DATE: November 2, 2005 CODE: 05-02 SUPPLEMENTS:

APPROVED: RICHARD ALBERTIN, ACTING DIR. CONTRACT MANAGEMENT BUREAU

CONTACT PERSON: Mark Moody TELEPHONE: (518) 457-2600

Effective immediately the Contract Management Bureau will begin the phasing-in the “Bottom Line” process explained below. This process is designed to determine the reasonableness of Specific Hourly Rates (SHR) established in consultant engineering contracts. The “Bottom Line” evaluation process will begin with all new original Specific Hourly Rate agreements designated on or before October 5, 2005. As they arise supplemental agreements for original Specific Hourly Agreements designated on or after that date will also be evaluated in a “Bottom Line” process. The “Bottom Line” process will be applied to supplemental agreements only when the original agreement has been subjected to a “Bottom Line” evaluation.

The analysis will compare the SHR proposed for an entire team against the appropriate industry aggregate NICET/ASCE salary rates and overhead rate. In addition to basing the analysis on an aggregate of all the team member’s proposed SHR it may exclude an analysis of titles that will have an insignificant number of work hours or lack industry aggregate data for valid comparison.

Note, the below example assumes moderately complex work priced at the 65th percentile for overhead and salaries. All values presented below have been created only for the purpose of constructing this example and don’t reflect actual salaries, overhead rates of projection factors to be used in our analysis. Analyses of routine and complex work will be based upon the appropriate industry 50th and 75th percentiles respectively at the time an analysis is performed.

Bottom Line Process for All Specific Hourly Rate Agreements

A. Formula

A = Present Salary = 10

B = Annualized Projection Rate (assume 5%) = .05

C = Projected Salary A * B = 10.5

D = Firms Overhead = 140% = 1.40

E = Industry 65th percentile OH Rate (1.11%, Downstate, Mod. Complex, Field) = 1.11

F = Fee Multiplier = 15% = .15

B. Specific Hourly Calculation

Straight Time Rate = Labor Component + OH Component + Fee Component

= C + (C * D) + C * ((1+1.11)) * F)

= 10.5 + (10.5*1.40) + 10.5* ((1 + 1.11)*.15)

= 10.5 + 14.7 + 3.32

= 28.52

Explanation of the Fee Calculation C((1*1.11)*.15) . The 65th percentile Overhead Rate of 1.11 (current downstate Field 65th percentile rate) is specifically designed to hold the overhead factor in the fee calculation constant and thus make fee constant for all firms regardless of any individual firm’s actual overhead.

C. Proposed Bottom Line Analysis Methodology

Firm Proposes a Salary Schedule indicating:

1. Average salary consistent with the submitted annual salary roster and overhead rates equal to but not exceeding a firm’s actual overhead rate.

2. A Salary Growth Rate equal to its annualized projected increases in salary.

3. A fee percentage between 10 and 15 percent.

Department Bottom Line Analysis

For each firm in a consultant team we:

1. Remove the Principal, Trainees and Technical Typist titles from consideration in the analysis.

2. Review proposed salary rates to verify they are consistent with salary rates reported on the most recent annual salary roster.

3. Review proposed titles to insure only titles existing on the most recent annual salary roster appear.

4. Replaces proposed salaries rates with the median salary rates from industry data for the type, ASCE/NICET level and location of the work to be performed.

5. Replaces proposed overhead rate with the 65th percentile overhead rate from industry data for the type and location of the work to be performed.

6. Revises fee calculation to be based upon 65th percentile overhead for the type and location of work performed times a fee percentage between 10 and 15 percent and related to the value of the work anticipated.

7. Calculates revised fully loaded rates for all proposed titles including the Principal, Trainees and Technical Typist using revisions stated in 2 throug 6 above.

8. Calculates a single Average Loaded Rate (ALR) by adding the loaded salary rates for each of the proposed titles that were calculated in no. 7, excluding Principal Trainees and Technical Typist rates and dividing that sum by the number of proposed titles (less Principal and Technical Typist).

D. Negotiation Process

Bottom Line Analysis will be performed on each team member’s proposed Salary Schedule by the Contract Management Bureau (CMB). After establishing each team member’s ALR we will proportionally combined the several ARL’s to form a Team Bottom Line ALR (TALR). For example, for a two firm team where the prime is apportioned 82% of the work and a sub will perform the remaining 18% of the work and their individual ALRs are $34 and $32 respectively the resultant TALR will be: [($34*.82 = $27.88) + ($32*.18 = 5.76)] = $33.64.

If the proposed TALR is equal to or less than the TALR derived by the CMB from industry median salary and the 65th percentile overhead data for the location and type of work; the team’s proposed Salary Schedules will be accepted.

If the proposed TALR is greater than the TALR derived from industry median data, the prime shall propose adjustments to any or all of the team’s salary proposals so that the team’s proposed TALR is equal to or less than the TALR derived from our industry data. In order to meet the TALR derived from industry data all or any of the following factors may be adjusted: Present Salary, Annualized Projection, Overhead, and/or Fee. The only restriction regarding the adjustment of any factor(s) is that the proposed adjustment must apply equally to every one of that firm’s proposed titles. In order to meet the Bottom Line TALR adjustments may be proposed for one, several, or every team member’s salary schedule.

The number of titles proposed by each team member must be limited to those titles reasonably anticipated to provide the services required for the type of work advertised. The establishment of excessive titles will result in additional negotiation effort and may produce a TALR that is inappropriate and potentially detrimental to arriving at an effective agreement for one or both parties.

E. Fee Calculation

The Fee for each team member shall be calculated based upon the proportional share of each member’s participation relative to the amount for work that can reasonably be expected during the original term of the agreement. For example, in a Back Drop agreement with a Maximum Amount Payable of $4M it may be reasonable to anticipate only receiving $2 million dollars of actual work. The fee components for a two firm team where the prime is apportioned 82% of the work and a sub will perform the remaining 18% of work will be based on $2M*.82 = $1.64 and $2M*.18 = $360K respectively. If work extends beyond the initial 3 year duration of the rates established in the original agreement the fee calculation may be adjusted when rates are produced for the remainder of the agreement.

F. Salary & Overhead Rate Projection

In order to establish agreements that can effectively be used almost immediately as work is identified Specific Hourly Rates (SHR) need to be established in the original agreement for a minimum of three (3) years and whatever the escalation process is it must be kept as simple as possible.

1. Escalate fully loaded SHR’s for each firm based upon current an Escalation Factor (EF) determine by the Contract Management Bureau and revise annually.

1+EF X SHR = 1st year escalation (1es)

1+EF X 1es = 2nd year escalation (1es)

1+EF X 2es = 3rd year escalation (1es)

etc….

10/26/05

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