Evaluating contracts

Q1

Evaluating a contract means that checking whether the essential terms are included, there is no conflict with the law and there is a solid Boilerplate. A fixed price contract means that a certain price has been set for all the goods and services that are going to be offered and there is going to be no bargaining as the price is fixed regardless of the production cost. As a seller, the company will be able to charge a high cost under the fixed model (Chong & Miguel, 2013). This means that when the price is agreed upon the buyer benefit as well due to the elimination of contest amount and the sticker shock. There are disadvantages of this contract due to the fact that this contract is less flexible as it gives no chance of making changes. It will also be a costly affair for the firm in terms of creativity, quality, and timelines. This may damage the company’s image because the value for work is made less important than the cost (Kim, Roberts, & Brown, 2016).

Most of the government contracts use cost reimbursement contracts which mean that prices are based on the actual cost. It is beneficial to the company due to the ease of calculation. In this case, the business owner is given a chance of knowing the profitability of the project. This contract can also be used to justify any price increase when it is on the rise (Chong & Miguel, 2013). It also protects the firm against the occurrence of unexpected cost. The company will also have the flexibility of increasing the prices at the expense of the Homeland Security that will be used to cover any extra cost. It also has its drawbacks because when the Department of security places a higher value on the contract than the price set then the company will lose on profits (Kim, Roberts, & Brown, 2016). Cost pricing is also a critical component and the company may have little incentives to control or reduce the prices because when the prices increase, profits rise.

Q2

As a result of the seeking the contract there are opportunities that the small business will have in comparison to the large businesses. One there will be a change of technology and the markets. This is because the company will change from a small company that uses the remote control technique to a more technological advanced aircraft's that can be sustained for longer than the initial ones. This means that if the company wins the contract it will be required to increase its level of competition in order to have a competitive advantage over the other firms (Longenecker, 2009). Secondly, by manufacturing the aircraft to the department of defense there will be local and global events presenting themselves to the company. This means that the company has to rise up to the occasion because its local image will be enhanced making it to the global market as well. Thirdly there shall be social factors as well. This means that the company will employ many people from the community thus changing their lifestyles. The company will also make arrangement for the corporate social responsibility due to its increased operation (Longenecker, 2009).

Q3

A cost reimbursement contract can be considered as an alternative to the fixed price contract. This type of contract is used where is used where there are a significant number of materials that need to be purchased. This means that the company will be compensated for the actual cost incurred which are mostly uncertain at the time when the contract is written (Chong & Miguel, 2013). The company being a small business is likely to suffer if the cost material is uncertain at the time the project of making the aircraft's starts and when both the Department of security and my firm enter into a contract. This means that there shall a big surprise for the party paying the bills as there is a likelihood of spending more than the anticipated on the required materials. It is true to say that there can be diverse consequences to the paying party which mean that the small business will incur huge costs that at times which can jeopardize the contract and the whole business operation may be affected (Kim, Roberts, & Brown, 2016).

Q4

A cost reimbursement contract will be the most beneficial contract for the company. The pricing strategy of the contract plays a major role that ensures the seller in this case my company is protected and it can rip maximum benefits from the engagement. The value of the contract is 100% cost plus a markup to the cost of the price set. It can also be an alternative of value based pricing. Problems such as the value of work becoming less important than the cost are eliminated (Chong & Miguel, 2013). The contract is more flexible as it creates more time for adjustment that can be used to address any unanticipated increase without comprising the value for the project. This type of contract creates room to incorporate any changes hence the avoidance of surprises which is common to the other contracts as it is able to differentiate the different margins assigned by the use of the pricing model (Needham, 2009).

 In support of this contract the company will reap numerous benefits by settling for this type of contract. More profits will be realized due to the enhancement of creativity, quality, and timelines. The department of security is also assured of quality hence trust is built between the two parties. The project is focused into which also enhances the image of the company (Chong & Miguel, 2013). The competition will also be eliminated which will give the company to perfect on producing the required quality of the aircraft. The contract is also beneficial as it is able to reduce to pressure the company may face in which it would have a negative impact on the firm. The company is able to utilize all its utility and resources that will enhance the company’s operation to a whole new level. The approach of this type of contract is reasonable due to its dynamic nature (Needham, 2009). The contract can be considered as a more valuable tool due to the minimization of risk.

Q5

For large entities like Boeing, the most significant type of contract is cost reimbursement contract. This is because these types of business entities do not have a finance problem as they are able to carry multi-billions projects on their own (Kim, Roberts, & Brown, 2016). Such companies have also able to maintain a presentable image and it is known by many due to its success that has traversed all over. The reason why this contract fits best such entity is due to their capability.as the company can spend so much on any given project it is best suited for them by putting a maximum amount it may spend. This is limiting the company on the financial levels to ensure that the company does not overspend. The maximum limit is put as a measure of protecting the contract not to be blown out of proportion (Needham, 2009).

            The provisions in this type of contract ensure that the seller is protected. There is a proper process of reimbursement put in place that ensures the whole process is effective. The contractor's accounting system is also made to be sufficient in order to facilitate the process of paying leaving no room for exaggeration (Chong & Miguel, 2013). This type of contract also ensures that there are sufficient protective measures of interest and legal rights that avoid the happening of unexpected and the very expensive surprises.

Q6

Winning the government to award my small business with a contract that supports large companies such as cost reimbursement contract will require a detailed plan. To begin with, the company should familiarize with the small business association and the government office contracting web pages (Amtower, 2011). This will assist in identification of the contracting experts who can be a valuable resource by providing the most relevant information and the training of prospective that are required in federal tenders. The firm will also need to qualify for the small business association certificate so that it can boost the contract opportunities. It is also important for my business a Data Universal Numbering System (DUNS) (Amtower, 2011). This number plays an important role as it is considered as an identifier which is used by the government in the contracting arena. This will be beneficial to the company as it will be able to have all the requirements that the federal government requires in order to reward a contract.

Identification of product and services will be helpful to the federal government as it can be able to reference the capability of the product. It is also upon my small business to identify the current federal opportunities that arise as a result of procurement (Amtower, 2011). Learning about the procedure of the Federal contraction is substantial due to the complex rules that govern such institution. It is also important to consider Federal supply schedule as this type of contact will be a long term one. My business should also take up the benefits of the procurement resources in the federal government as it will provide the additional assistance needed in this field (Amtower, 2011). Seeking teaming and subcontracting opportunities regardless of the product will be useful in pursuit of the contract. Investigating of other federal programs and accepting credits cards will be beneficial considering not many small businesses do so. Lastly marketing on all social media platforms will create awareness of existence and participation in promotional events and expos will be of great assistance. By having such a detailed plan the Federal government will be able to gain trust in my small business as it has been able to make it through and has obtained proper training and the relevant information (Amtower, 2011). This also creates a sense of security to the government as the company has been able to identify itself by what it can do and for it being a small firm should not be a hindrance for awarding the company with the cost reimbursement contract as there will be many financial institutions willing to fund the projects as they can see the objectivity and the determination of the company.

 

 

 

 

 

 

 

 

 

 

 

 

Reference

Amtower, M. (2011). Selling to the government: What it takes to compete and win in the world's largest market. Hoboken, N.J: Wiley.

Chong, W., & Miguel, J. S. (2013). Are Cost-Plus Defense Contracts (Justifiably) Out of Favor?. Journal Of Governmental & Non Profit Accounting, 2(1), 1-15. doi:10.2308/ogna-50558

Kim, Y. W., Roberts, A., & Brown, T. (2016). Impact of Product Characteristics and Market Conditions on Contract Type: Use of Fixed-Price Versus Cost-Reimbursement Contracts in the U.S. Department of Defense. Public Performance & Management Review, 39(4), 783-813. doi:10.1080/15309576.2015.1137765

Longenecker, J. G. (2009). Small business management: Launching and growing new ventures. Toronto: Nelson Education.

Needham, J. K. (2009). Extent of Federal Spending under Cost-Reimbursement Contracts Unclear and Key Controls Not Always Used. GAO Reports, 1-47.