TetraTech Corporation(TIC) is professional services company providing software development and
implementation solutions to customers. They are concerned that their current pricing methodology
which focuses on loading direct costs with an industry average single indirect rate (172.5% of direct
labor) and a fee factor is not allowing them to be competitive and thus they may be losing projects. At
the same time however, they are concerned about recovering total costs and a fee commensurate with
the risk associated with the project. Their current contract mix is 50% fixed price award, and 50% cost
plus award. They do not have any time and material awards. TIC has engaged you as a consultant and
provided the attached 2020 estimated Trial Balance and associated financial metrics.
The scope of your engagement is to present them with options and to discuss the pro’s and con’s of
these options.
2020 Estimated Costs: i l
Direct Labor (Fringe Package A) $12,000,000
Direct Labor (Fringe Package B) $ 1,500,000
Total Direct Labor $13,500,000
Other Direct Costs $ 2,000,000
Points to consider in your analysis:
- Would TIC recover all costs and a fee of 10% based on the 2020 budgeted costs provided using
their current pricing methodology? - What other options exist that TIC can consider and what ari~ some of the implications of these
alternatives? - What would you propose as a solution for TIC and why?
r
TETRA TECH CORPORATION
2020 ESTIMATED COSTS
General Ledger
“ccount Number Account Description Estimated ’20 Bal
500000 OUTSIDE PROFESSIONAL SERVICES 3,000,000.00
510011 OTHER DIRECT EXPENSE-AUTO EXPENSES 15,000.00
510031 OTHER DIRECT EXPENSE-ROOMS 120,000.00
510041 OTHER DIRECT EXPENSE-PARK,TOLLS,TAXI 5,000.00
510051 OTHER DIRECT EXPENSE-PRINTS 4,000.00
510061 OTHER DIRECT EXPENSE-SUPPLIES 2,500.00
510071 OTHER DIRECT EXPENSE-MISCELLANEOUS 3,000.00
510081 OTHER DIRECT EXPENSE-TELEPHONE 2,000.00
510091 OTHER DIRECT EXPENSE-CAR RENTAL 52,000.00
510121 OTHER DIRECT EXPENSE-AIRFARE 65,000.00
510121 OTHER DIRECT EXPENSE-COMPUTER 25,000.00
510191 OTHER DIRECT EXPENSE-SHIPPING AND POSTAGE 8,000.00
510301 OTHER DIRECT EXPENSE-MEALS 15,000.00
501511 OTHER DIRECT EXPENSE-EQUIPMENT 30,000.00
510531 OTHER DIRECT EXPENSE-FREIGHT 1,200.00
540000 DIRECT PROJECT SALARIES (FRINGE A) 12,000,000.00
541000 DIRECT PROJECT SALARIES (FRINGE B) 1,500,000.00
600000 INDIRECT SALARIES – SICK (FRINGE A) 20,000.00
600000 INDIRECT SALARIES – SICK (FRINGE B) 2,500.00
600005 INDIRECT SALARIES – HOLIDAY (FRINGE A) 800,000.00
600005 INDIRECT SALARIES – HOLIDAY (FRINGE B) 100,000.00
600006 INDIRECT SALARIES – COMMITIEES & SOCIETY (FRINGE A) 85,000.00
600007 INDIRECT SALARIES – MARKETING 1,000,000.00
600009 INDIRECT SALARIES – PURSUITS 750,000.00
600014 INDIRECT SALARIES – CAR DEV – SEMINARS (FRINGE A) 100,000.00
600014 INDIRECT SALARIES – CAR DEV- SEMINARS (FRINGE B) 20,000.00
600015 INDIRECT SALARIES – CAR DEV- INTRNL TRN (FRINGE A) 150,000.00
600015 INDIRECT SALARIES – CAR DEV- INTRNL TRN (FRINGE B) 25,000.00
600024 INDIRECT SALARIES -ADMINISTRATION 1,500,000.00
600032 INDIRECT SALARIES – SEVERANCE 20,000.00
600042 INDIRECT SALARIES – HS DEVELOPMENT 25,000.00
610000 SOCIAL SECURITY TAXES (FRINGE A) 900,000.00
610000 SOCIAL SECURITY TAXES (FRINGE B) 115,000.00
I 610001 STATE UNEMPLOYMENT TAXES (FRINGE A) 10,000.00
610001 STATE UNEMPLOYMENT TAXES (FRINGE B) 5,000.00
610002 FEDERAL UNEMPLOYMENT TAXES (FRINGE A) 15,000.00
610002 FEDERAL UNEMPLOYMENT TAXES (FRINGE B) 8,000.00
610003 GROUP INS-MEDICAL AND DENTAL (FRINGE A) 1,500,000.00
610003 GROUP INS-MEDICAL AND DENTAL (FRINGE B) 150,000.00
610004 OTHER EMPLOYEE BENEFITS (FRINGE A) 75,000.00
I 610004 OTHER EMPLOYEE BENEFITS (FRINGE B) 6,000.00
610020 GROUP INSURANCE – LIFE (FRINGE A) 45,000.00
610020 GROUP INSURANCE – LIFE (FRINGE B) 4,000.00
610030 GROUP INSURANCE – LONG TERM DISABILITY (FRINGE A) 55,000.00
610030 GROUP INSURANCE – LONG TERM DISABILITY (FRINGE B) 60,000.00
610040 WORKERS COMPENSATION INSURANCE (FRINGE A) 12,000.00
610040 WORKERS COMPENSATION INSURANCE (FRINGE B) 1,200.00
700000 RENT & UTILITIES-OFFICE 1,100,000.00
702000 OFFICE TELEPHONE EXPENSE 300,000.00
710000 SUPPLIES 100,000.00
734100 DEPRECIATION-COMPUTER PROGRAMS 350,000.00
735000 EQUIPMENT RENTAL 200,000.00
740100 LOCAL COMPUTER-SUPPLIES 120,000.00
740200 LEASED PC HARDWARE 425,000.00
750000 TECHNICAL SOFTWARE 250,000.00
831000 ADVERTISING 85,000.00
840000 MANAGEMENT CONSULTANTS 75,000.00
860000 RELOCATION EXPENSE-CURRENT STAFF 12,000.00
861007 RECRUITING-MISCELLANEOUS 12,000.00
862000 SEVERANCE EXPENSE 25,000.00
863000 MISCELLANEOUS 50,000.00
868002 RECOGNITION AWARD PROGRAM 50,000.00
870037 REPAIRS & MAINTENANCE 35,000.00
870042 DEPN – FURNITURE & FIXTURES 25,000.00
871000 AUDIT EXPENSE 500,000.00
873000 PROFESSIONAL LIABILITY INSURANCE 1,250,000.00
874000 GENERAL LIABILITY INSURANCE 1,000,000.00
940001 INCENTIVE COMPENSATION EXPENSE 1,000,000.00
Total 31,370,400.00
Grading Guidelines
Activity Comments Percentage
Narrative Format All case study submissions should follow 20%
APA format including reference formats.
Remember to reference your syllabus for
title page requirements.
Analysis Analysis should reflect application of 55%
course concepts with supported
assumptions where necessary.
Presenting the quantitative analysis
alone is not adequate for full credit.
Students are expected to provide their
interpretation of what the quantitative
analysis suggests.
Grammar and Analysis should follow proper English 10%
Punctuation and punctuation
Case consideration Each case includes points for students to 10%
points consider in their analysis. Sound and
thoughtful analysis will address these
points.
Originality Don’t be afraid to introduce original 5%
approaches, perspectives, or other
elements to your analysis
Sample Solution
