The specific percent cap depends on the contract type named in the source page, according to Acquisition.gov.
Key takeaways for checking fee caps before adding design profit
- The federal Acquisition.gov page lists three specific percentage limits for named contract types.
- The first is a 15 percent cap for experimental, developmental, or research work performed under a cost-plus-fixed-fee contract, on the contract’s estimated cost, excluding fee, according to Acquisition.gov.
- The second is a 6 percent cap for architect-engineer services for public works or utilities, of the estimated cost of construction, excluding fees, according to Acquisition.gov.
- The third is a 10 percent cap for other cost-plus-fixed-fee contracts, of the contract’s estimated cost, excluding fee, according to Acquisition.gov.
- The Washington State Legislature requires agencies to negotiate a price that is fair and reasonable to the agency, according to Washington State Legislature. Ohio Laws require compensation determined in writing to be fair and reasonable to the public authority, according to Ohio Laws.
Which fee cap can apply, answered in one paragraph
The three federal percent caps apply to specific contract types named in the Acquisition.gov page, not to every public construction job. For experimental, developmental, or research work performed under a cost-plus-fixed-fee contract, the fee shall not exceed 15 percent of the contract’s estimated cost, excluding fee, according to Acquisition.gov. For architect-engineer services for public works or utilities, the contract price or the estimated cost and fee for production and delivery of designs, plans, drawings, and specifications shall not exceed 6 percent of the estimated cost of construction of the public work or utility, excluding fees, according to Acquisition.gov. For other cost-plus-fixed-fee contracts, the fee shall not exceed 10 percent of the contract’s estimated cost, excluding fee, according to Acquisition.gov. These limits are tied to the specific contract types described on the page. When the price negotiation is not based on cost analysis, contracting officers are not required to analyze profit, according to Acquisition.gov. Profit or fee prenegotiation objectives do not necessarily represent net income to contractors, according to Acquisition.gov. Before applying profit or fee factors, the contracting officer shall exclude any facilities capital cost of money included in the cost objective amounts, according to Acquisition.gov. State pages that use qualitative language like "fair and reasonable" do not print these specific federal percents. Do not treat one government's rule as the rule for every job, and do not treat a software field as a legal test.
The 15 percent, 6 percent, and 10 percent federal lines
Three distinct percentage limits appear in the federal text, each tied to a specific type of work. The first limit applies to experimental, developmental, or research work. According to Acquisition.gov, for this category, the fee shall not exceed 15 percent of the contract’s estimated cost, excluding fee. The Legal Information Institute publishes the same rule for this contract type, stating the fee shall not exceed 15 percent of the contract's estimated cost, excluding fee, according to Legal Information Institute. This 15 percent line is for experimental, developmental, or research work performed under a cost-plus-fixed-fee contract.
The second limit addresses architect-engineer services for public works or utilities. The text specifies that the contract price or the estimated cost and fee for production and delivery of designs, plans, drawings, and specifications shall not exceed 6 percent of the estimated cost of construction of the public work or utility, excluding fees, according to Acquisition.gov. This 6 percent cap is tied directly to the estimated cost of the construction itself, not just the design contract value. The Legal Information Institute mirrors this provision, noting the same 6 percent limit for architect-engineer services for public works or utilities, according to Legal Information Institute. Estimators pricing design work for public infrastructure must identify this specific clause to apply the correct baseline.
The third limit covers other cost-plus-fixed-fee contracts that do not fall under the research or architect-engineer categories. The rule states that for other cost-plus-fixed-fee contracts, the fee shall not exceed 10 percent of the contract’s estimated cost, excluding fee, according to Acquisition.gov. This 10 percent line serves as the general cap for remaining cost-plus-fixed-fee arrangements. The Legal Information Institute confirms this 10 percent limit for other cost-plus-fixed-fee contracts, according to Legal Information Institute.
Each percentage is attached to a named contract type in the source text. The 15 percent figure belongs to experimental, developmental, or research work performed under a cost-plus-fixed-fee contract. The 6 percent figure belongs to architect-engineer services for public works or utilities. The 10 percent figure belongs to other cost-plus-fixed-fee contracts. Do not treat these numbers as a normal private-job markup or a benchmark margin. Read Markup and margin rates in 4 estimating tools before you copy a rate from a tool. They are specific limits for the named federal contract types. When pricing a public construction job, check which contract type your work matches before applying a percentage. If your contract is for federal architect-engineer services for public works or utilities, the 6 percent line is the relevant reference. If it is experimental, developmental, or research work performed under a cost-plus-fixed-fee contract, the 15 percent line applies. For other cost-plus-fixed-fee work, the 10 percent line is the cap. Keep the claim tied to the named source and its stated scope. Verify the contract type against the printed line before adding profit.
What Washington and Ohio print instead of a percent
The Washington State Legislature’s page for RCW 39.80.050 does not print a percentage for the design fee. Instead, it directs the agency to negotiate a contract with the most qualified firm for architectural and engineering services at a price which the agency determines is fair and reasonable to the agency, according to Washington State Legislature. The same page outlines the next step if that negotiation fails. If the agency is unable to negotiate a satisfactory contract with the firm selected at a price the agency determines to be fair and reasonable, negotiations with that firm shall be formally terminated and the agency shall select other firms in accordance with RCW 39.80.040 and continue in accordance with this section until an agreement is reached or the process is terminated, according to Washington State Legislature. The standard remains a qualitative determination by the agency, not a fixed number printed in the statute.
Ohio’s Section 153.69 - Ohio Revised Code | Ohio Laws page also avoids a specific percentage. It requires the public authority to negotiate a contract with the firm ranked most qualified to perform the required services at a compensation determined in writing to be fair and reasonable to the public authority, according to Ohio Laws. Like the Washington text, this language sets a standard for the negotiation process rather than a cap. If negotiations again fail, the same procedure may be followed with each next most qualified firm selected and ranked pursuant to division (A) of this section, in order of ranking, until a contract is negotiated, according to Ohio Laws. The Ohio text does not adopt the federal caps discussed in other sections; it provides its own procedural path for selecting the next firm when the initial negotiation does not result in an agreement.
Check the specific contract documents for the public authority involved. The statute sets the framework, but the agency’s internal guidelines or the specific request for qualifications may add context to how they interpret "fair and reasonable." Do not assume that a low fee wins the job; the statute prioritizes the most qualified firm and a price the agency determines is fair. The goal is to present a fee that aligns with the scope of services and the qualifications of the firm. If you are using estimating tools to build the fee, use Configure 8 profit settings in your estimating tools and ensure the numbers are defensible and documented. The qualitative standard means there is no single correct number.
A filled reference table of fee rules by publisher
The following table lists the specific fee caps printed by Acquisition.gov and the Legal Information Institute. Each row identifies the contract type and the exact percentage limit stated in the source text.
The Legal Information Institute mirrors these limits in its text of 48 CFR § 15.404-4. It specifies that for experimental, developmental, or research work under a cost-plus-fixed-fee contract, the fee shall not exceed 15 percent of the contract's estimated cost, excluding fee, according to Legal Information Institute. The text further notes that for other cost-plus-fixed-fee contracts, the fee shall not exceed 10 percent of the contract's estimated cost, excluding fee, according to Legal Information Institute.
How to match one contract to one printed line
Identify the specific contract type you are pricing before looking for a percentage. No single universal rate applies to every public construction job. The sources distinguish between federal regulations that set specific limits and state standards that use qualitative language. Your first step is to determine which source governs your specific project. If you are working on a federal contract, look for the specific percentage caps associated with that contract type. If you are working on a state project, check if the state statute prints a number or uses words like "fair and reasonable."
Do not apply a stock profit percent to your estimate without verifying the source. According to Legal Information Institute, negotiation of extremely low profits, use of historical averages, or automatic application of predetermined percentages to total estimated costs do not provide proper motivation for optimum contract performance. Therefore, matching your contract to a printed line requires more than just copying a number from a previous job. You must verify that the source explicitly names the contract type you are currently pricing.
Profit serves a specific function in these agreements. According to Acquisition.gov, both the Government and contractors should be concerned with profit as a motivator of efficient and effective contract performance. This statement defines the role of profit as a motivator rather than a fixed mathematical constant. When you match your contract to a printed line, you are aligning with this concept of profit as a motivator.
Before you apply any profit or fee factors to your cost objective, you must adjust your base numbers. According to Acquisition.gov, before applying profit or fee factors, the contracting officer shall exclude any facilities capital cost of money included in the cost objective amounts. This exclusion happens before the application of profit or fee factors. If your cost estimate includes facilities capital cost of money, you must remove it from the total before calculating the fee. The source specifies that this exclusion is a requirement for the contracting officer, and it applies to the cost objective amounts.
When you identify the contract type, match it to the specific subsection.
These same limits appear in the Electronic Code of Federal Regulations. For experimental, developmental, or research work performed under a cost-plus-fixed-fee contract, the fee shall not exceed 15 percent of the contract's estimated cost, excluding fee, according to Legal Information Institute. For architect-engineer services for public works or utilities, the contract price or the estimated cost and fee for production and delivery of designs, plans, drawings, and specifications shall not exceed 6 percent of the estimated cost of construction of the public work or utility, excluding fees, according to Legal Information Institute. For other cost-plus-fixed-fee contracts, the fee shall not exceed 10 percent of the contract's estimated cost, excluding fee, according to Legal Information Institute.
If your price negotiation is not based on cost analysis, contracting officers are not required to analyze profit, according to Acquisition.gov. Keep this distinction in mind when interpreting the caps. The 15 and 10 percent rules limit the fee, and the 6 percent rule limits the contract price or the estimated cost and fee for the designs, measured against construction cost.
Illustrative example of one contract and one line
Take federal architect-engineer services for a public utility. Set the estimated cost of construction at 450 and the price for designs, plans, drawings, and specifications at 25. The 6 percent line is measured against that estimated construction cost, excluding fees. Next, take experimental, developmental, or research work under a cost-plus-fixed-fee contract with an estimated cost of 210. That line is 15 percent of the estimated cost, excluding fee. Then take another cost-plus-fixed-fee contract, not in those groups, with an estimated cost of 80. That line is 10 percent of the estimated cost, excluding fee.
Write the contract type you are pricing and the one percent, if any, that the matching page prints, then stop.
FAQ about design fees and contract profit
What are the three federal caps?
The three federal caps are 15 percent, 6 percent, and 10 percent, as printed on the page titled "15.404-4 Profit. | Acquisition.GOV" according to Acquisition.gov. These figures represent the maximum fee limits for specific contract types rather than a single universal rate. The page distinguishes each percentage based on the nature of the work being performed.
Which contract does each cap name?
The 15 percent cap applies to experimental, developmental, or research work under a cost-plus-fixed-fee contract according to Acquisition.gov. The 6 percent cap applies to architect-engineer services for public works or utilities according to Acquisition.gov. The 10 percent cap applies to other cost-plus-fixed-fee contracts according to Acquisition.gov. Each percentage is tied to a distinct contract description on the same page.
What does fair and reasonable mean here?
The phrase "fair and reasonable" is a qualitative standard that does not include a printed percent. It appears in state contexts where a specific number is not provided. This language serves as a description of the fee's nature rather than a numerical limit. Estimators should note that this term does not specify a rate to calculate.
Why is a stock percent discouraged?
Using predetermined percentages to total estimated costs does not provide proper motivation for optimum contract performance according to Legal Information Institute. The page states that negotiation of extremely low profits or use of historical averages also fails to provide proper motivation.
What should not be treated as a markup?
The 15, 6, and 10 percent lines are caps for named contract types, not a normal private-job markup. Each line belongs to the contract type named on the source page.