A consulting firm would normally charge $250 an hour with an estimated time of 150 hours...

A consulting firm would normally charge $250 an hour with an estimated time of 150 hours for an engagement. It pays its consultants about $55 per hour including benefits, which is a fixed cost as they are on salary. The client has asked the firm to bid on the engagement at an hourly rate of $150 with the balance of the payment contingent upon reaching identifiable milestones. The consulting firm would like to charge a "premium" for added risk due to non-attainment of milestones due to factors outside its control. It considers this premium to be 25% of deferred or contingent billing. What should be the total quoted fee for the engagement, including the contingent payment?

Expert Solution

CALCULATION OF BID
FIXED RATE
	TOTAL HOURS	RATE	TOTAL BILLING
	150	$ 150	$ 22,500
CONTINGENT PAYMENT FOR BALANCE PAYMENT
	TOTAL HOURS	RATE
	150	$ 100	$ 15,000
PREMIUM ON CONTINGENT PAYMENT		=25%OF$15000	$ 3,750
BID PRICE INCLUDING PREMIUM			$ 41,250



FIXED HOURLY RATE CHARGED BY CONSULTING FIRM		A	$ 250
FIXED HOURLY RATE ASKED BY CLIENT		B	$ 150
CONTINGENT BILLING FOR BALANCE		=A-B	$ 100

ekkarill92 answered 3 years ago

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