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Federal Contracting Activities and Contract Types

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Free «Federal Contracting Activities and Contract Types» Essay Sample

There are plans by the Department of Defense to issue a $400,000 government contract to a company that specializes in drone navigation technologies. As a result, a government auditor has been contracted to examine the operational data of two companies in order to decide which of these companies should be awarded the contract. In this case, the contracted auditor will analyze and evaluate the history, background and major contracts awarded to each company as well as their eligibility to win the current contract. In addition to this, the auditor has been contracted to examine the operational data Vector Cal. However, the auditor should also examine the corresponding data of another competing firm, which in this case is identified as The Boeing Company. During the World War II, Boeing produced hundreds of B-17 that were used as the main bombers by the United States. The letters of Boeing’s airplanes series usually begin with a seven, for instance, Boeing 707 and 777.

The Overview History and Background for VectorCal and the Boeing Company

On the one hand, VectorCal Company produces the navigation systems for drones. The company mass produces the navigation systems that are sold directly to the government thus enabling it to enjoy monopoly in this field (Cibinic, Nash, & Nagle, 2006). VectorCal was formed five years ago. The company is a major competitor for companies that are planning to enter the drone navigation system. On the other hand, The Boeing Company, founded by William Boeing, is the world’s largest corporation in the production of commercial airplanes and military aircraft. In particular, Boeing Company makes military aircraft such as fighters, helicopters, and missiles for defense purposes (Yenne, 2010).

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The company is also involved in commercial space projects like satellite networks. In 1993, Boeing faced stiff competition from Airbus Industries, pushing it to dismiss 25% of its staff. However, despite the competition and the 1995 strike, the company introduced the Boeing 777 model to the market. The model had numerous new orders that yielded billion of dollars of profits (Yenne, 2010). The success of Boeing 777 model contributed to Boeing becoming the largest supplier of the National Aeronautics and Space Administration (NASA). In 1997, Boeing spent more than 16 billion dollars to merge with McDonnell Douglas Corporation, and as a result, the company was able to obtain a unique position in military spending contracts. In 2010, Boeing announced its intentions to acquire Argon ST as part of the strategy to expand its capabilities in cyber and intelligence markets (Yenne, 2010).

Major Contracts Awarded to VectorCal and Boeing Company

In 2014, the Boeing Company and Space X were awarded a pair of contracts worth up to $6.8 billion. The contracts were awarded in deal to transport astronauts to the International Space Station. In other words, the deal would allow the U.S to deliver its astronauts to the ISS and for other possible missions. During this contract, the NASA would rent space on ships provided by both companies (Yenne, 2010).  Although, the contracts had the same requirements, Boeing was given one that was worth up to $4.2 billion while the Space X’s was valued at $2.6 billion. The Boeing Company was awarded the contract because it has decades of experience in the navigation systems industry. Secondly, by awarding the contract to Boeing, the U.S would end its dependency on Russia to fly astronauts to the International Space Station (Yenne, 2010).  On the other hand, VectorCal has a history of being awarded major contracts by the Department of Defense. For instance, in the recent years the company has won a contract to supply major and spare parts for drones, especially those used for military purposes. Vector Cal was awarded the contract because it has gained a reputation of a reliable company in the supply of drone navigation technologies (Cibinic, Nash, & Nagle, 2006).

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Types of Contracts

There are several types of federal procurement contracts. The two primary types are the fixed-price and cost-reimbursement contracts. In brief, with a fixed-price contract, the contractor agrees to terms and conditions of providing the required supplies or services for the price that has been specified at the time of signing the contract (Cibinic, Nash, & Nagle, 2006). In this case, if the cost of performance exceeds the specified price, the contractor cannot terminate the service or supplies that are causing the additional costs during the period of the contract. Therefore, in a fixed- price contract, the detailed analysis of direct labor costs is extremely important. These costs make up a significant portion of the total contract costs (Pedell, 2006). For one, the finally agreed upon direct labor costs are one hundred percent allocated to the contract. Secondly, the indirect costs are likely to be overstated if direct labor costs are too high. On the contrary, with a cost-reimbursement contract, the risks of exceeding costs are taken by the government which agrees to reimburse the contractor the total costs of implementing the contract (Pedell,2006). Both VectorCal and Boeing Company are eligible for both of the contract types. However, the cost-reimbursement contract would be more beneficial because in some cases, the companies may earn some extra profit in the form of fixed or award fees (Cibinic, Nash, & Nagle, 2006).

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Direct and Indirect Costs Incurred by VectorCal and Boeing Company during the Production of Their Navigation Systems

In 2003, Boeing’s strategy focused on creating additional value for its airlines by developing innovative aircrafts. However, as Boeing increased its outsourcing efforts, the concerns of job security among the workers increased as well. These concerns led to a strike of more than 25,000 employees in September 2008 (Yenne, 2010).  As a result, the effects of the strike were extended to strategic partners. For instance, the Spirit Aero systems anticipated that the strike would trigger a cancellation of orders and delays in deliveries. Therefore, even though it was Boeing’s key supplier of, it reduced its work for employees who developed and manufactured various Boeing aircrafts (Yenne, 2010).  Secondly, as series of delays at Boeing became prevalent, some customers lost their confidence in the company. Moreover, there were concerns that the initial models of 787 were different from what was presented. In response, some customers began cancelling orders for the model or opting for leasing contracts instead of purchasing the aircraft. For instance, in 2009 the orders have been reduced from 895 to 850 (Yenne, 2010). Thirdly, Boeing incurred additional processing tasks. The anticipated design of the 787 supply chain was likely to be delayed because its efficiency depended on just-in-time deliveries from all strategic partners. Therefore, Boeing had to incur extra costs to keeping a safety stock for all sections to reduce the effects of late deliveries (Yenne, 2010).

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On a similar note, VectorCal has experienced costs that are based on the process of procuring government contracts. Fundamentally, it had to ensure that the orders did not exceed the preceding volume in order to avoid problems with labor and materials supply. In addition, there are overhead costs that may result from penalties or government claims for price reduction (Cibinic, Nash, & Nagle, 2006). Other direct costs are incurred in the purchase of new equipment. On the other hand, both VectorCal and Boeing incur indirect costs such as marketing, advertising, and establishing solid public relations. These costs are necessary to facilitate brand building.

When it comes to indirect labor, there are indirect costs too that cannot be specifically identified by a given job or contract (Pedell, 2006). For instance, a supervisor may spend more time on one contract than on the other, and thus it would be difficult to apportion their time and cost to individual contracts. Moreover, there are other variable costs that each of the company incurred. These include electricity, water and telephone bills (Pedell, 2006). Additionally, the reasonable costs for both companies might include travels expenses to the warehouses that deal with the production of navigation systems.

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Considering the costs for both companies, The Boeing Company would be more eligible to win the contract. For one, even though VectorCal has a vast experience in producing drone navigation systems, Boeing has the capacity to make mass production and better models (Cibinic, Nash, & Nagle, 2006).

On a further note, the Boeing Company should be awarded this contract from the Department of Defense. First, although VectorCal has gained a good reputation in the drone navigation system, it has enjoyed a monopoly of making direct sales to the government. Such monopoly does not contribute to self-development and critical analysis. Moreover, competition from more experienced companies might cause bigger uncertainties for the market and cause fluctuations on VectorCal’s overall acquisition price (Pedell, 2006). Secondly, the forecasting nature of VectorCal has been criticized in that it lacks the capacity to predict variables that are connected to additional labor. This could be factored by the fact that the government acts as the constant buyer because VectorCal makes direct sales to it.

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Thirdly, when comparing the market share and models, Boeing outweighs VectorCal; this means that Boeding has more capacity to cater for additional and unexpected costs (Yenne, 2010). For instance, producing components for navigation systems may require more technology and specialized assets. Therefore, a company that will be awarded the contract must demonstrate its capacity to handle all the production requirements. Secondly, the US government is likely to demand a market-based pricing instead of a cost-based analysis before awarding the contract to a firm (Cibinic, Nash, & Nagle, 2006). This means that in a market-based pricing analysis, the prices of the products will be determined by such factors as competitors and market forces rather than the monopoly of the company. And, in this case, The Boeing Company fits to be the company that the Department of Defense should give the tender for drone navigation technologies. With its long history in the navigation industry, The Boeing Company is likely to offer more competitive technologies in the drone navigation systems market (Yenne, 2010).

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In conclusion, the Department of Defense hires a government contractor to audit and analyze operational data for companies that eligible for its contracts. In this case, there is a need for the contractor to analyze the Boeing Company as a major competitor for VectorCal in the production and supply of drone navigation technologies. As a result, the winning company will be able to choose the type of a contract that fits its competitive strategy, and these contracts could either be fixed-price of cost-reimbursement contracts. On the other hand, there are both direct and indirect costs that both the VectorCal and Boeing companies incur during the production process. The direct costs are easily identified and are fully covered during the contract.

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