Defense Management Challenge - Case Study Example

? TECHNICAL AND COST OR PRICE EVALUATION AND REASONABLENESS School A Tower with a radar system is defined as a composite of the equipment employed as an entity to accomplish a military mission (such as identifying hostile aircraft, locating the advancing infantry or surveying territory) (Ergas & Menezes, 2004). Surveillance tower plays an important role in helping the defense authorities to search the enemy or prevent any unintended person to enter the security zone. Consequently, the surveillance tower helps to provide a position from which the activities of the personnel at night can be monitored with ease in order to safeguard the sovereignty of the country. Complex weapon system such as those associated with fighter aircraft, frigates, and armored air craft, account for a heavy share of the defense outlay in the more advanced economies. The acquisition process is simply a form of regulations through which the government determines the cost and to ensure that the contractor / company maintain an appropriate level that is acceptable for all the stake holders, and it is a process that encompasses conception, development, and production. More importantly it must be considered that deploying such a system is lawful, and for handling legal complications, every federal agency has a legal department or offices that employ a dedicated team of legal professionals, which acts on the following grounds (Compton, 2010). Firstly, there must be a greater liability or risk in the transaction. Secondly, the transaction is highly technical and involves sovereign guarantees. Thirdly, the transaction involves huge investment, and finally, the transaction must be carried out regardless of all the complexities. Purpose of the Technical Evaluation For the chairmen of the source selection team, the foremost responsibility is to evaluate the proposal of such a mega project of $ 2,000,000,000 (US$ 2 Billion). This should be done from all the technical aspects in order to ensure fairness and make sure that this will make the sovereignty of the region stronger and ensure that all 52 towers are installed at the best locations which will enable us to locate any unlawful activity across the border not only during the day, but with the same intensity and capability at night to the distance which is acceptable for maintaining high security at the border. The basic purpose of the technical evaluation is to define the approach of evaluating the proposal solicited from vendors. As specified in chapter 12 of Technical and Cost or Price Evaluation “The Government shall exercise discretion, sound business judgment and comply with applicable laws and regulation in dealing with contractors and prospective contractors. All contractors and prospective contractors shall be treated fairly and impartially but need not be treated same” (Conrow, 2003). As a Chairman of the team I have a responsibility to remain unbiased, and more importantly my every action regarding the proposal reflects the integrity and fairness throughout the selection phase without any present or future interest with the vendor or any other associated companies (Baron, 1993). By using technical evaluation, we can not only gather the desired information, but also develop our own criteria of evaluation on the grounds of non-price factors like: 1: What technical approach will be used by the vendor? This query will direct to the definition of the management plan of the vendor; how he will proceed with the project to make it successful. 2: What is the past performance of the vendor? This question is among the most important ones to be asked for any project, and this is not a simple project. This project requires special care and attention with all the success because national security is underlying the project. Therefore, it is imperative to be acquainted with the number of projects of the similar nature that have been completed by the vendor, and what type of problem may occur after the completion so that the pro-active approach can be taken. Several studies like (Fox, 1988; Peck & Sherer, 1962) reported that the US department of Defense has been reluctant to terminate even very poorly performing contractors because of the high cost associated with the acquisition of the new equipment or allocating the contract to some other vendor. Rating will be allotted to the vendor so that we have a clear picture at what position the vendor is standing so that the list can be shortened for the sake of efficiency. In this context, efficiency involves organizing the process of acquiring a system which likely to maximize the security of the area. Nonetheless, price and cost will also be a factor of including and excluding the proposal. When proposal is evaluated and properly rated then as a chairman of the team, I will establish a competitive range which requires two stages. The first stage is to identify the top rated proposals and the competitive range must be established solely on the criteria specified in FAR.15.306© with the intent that the internal policies and procedures are not harmed (Murphy, 2009). Outline of the Final Evaluation Report FAR 15.305(a) states that the proposal must be evaluated by the criteria: Strengths of the proposal. Deficiencies. Weakness of the proposal. Risk associated with the proposal. Past performance. Cost of the project. There are three major problems which must be dealt before evaluating the project. Firstly, bringing each system into operation requires other associated sub system to be operative. Secondly, the difficulties in solving each problem are generally complicated due to the interdependence of the system. Finally, constraints remain on the system design and implementation for reliability under a high challenging situation. Factors to Consider when Evaluating Price Reasonableness For the chairman of the committee, the primary reason for the contract checking has two sides. From the contractor’s point of view, the price reasonableness describes whether the amount is fair enough for the project or not. On the other hand, the committee responsible for allotment of the contract has given the contract to whom who bids the lower with all other requirements (like time frame, technology usage, technical evaluation) are fulfilled. According to FAR, Fair and Reasonable is defined as: “A reasonable cost is determined, based on its nature and amount, when it does not go beyond the expenses that can be incurred by a sensible person in the performance of a competitive trade” (Compton, 2010). Cost encompasses many factors, which as a chairman of the committee I will look through: Direct Cost: It includes material cost, transportation cost, legal consultancy, installation charges and scraps. Indirect Cost: It includes all the administrative expenses, all the general expenses incurred during the project. Equipment Cost: The equipment like the radar system is included in the equipment cost along with all the sub systems associated directly and indirectly with the radar system. Miscellaneous Expenses: All the other expenses like, electricity bills, telephone bills, equipment rent is included in this category. The following factors must be kept in my mind during the evaluation of cost: Price competition: It includes price quoted by the other vendors. Catalog or Established Price List: It highlights what rate is given to the project and the difference with the normal rate. Market Prices: If the same radar is purchased with some other party what the price is. Historical Prices: It gives all the historical details of the cost incurred during the completion of the same project to some other border or some other country. Own Estimate: This will benefits me not only to create an idea about the fair and reasonableness in cost, but also enable me to negotiate with the vendor. And ensure that all costs are in compliance with FAR part 31(Contract cost principle and procedure). Methods of Price Analysis There are five methods provided in FAR 15.404-1(b) (2) which can be used to determine the price (Federal Acquisition). Parametric estimation method. Comparison of vendor price with published price. Comparison of vendor price with the government own estimation. Comparison of vendor price with the price established through market research. Analyzing the price. Parametric Estimation Method In the parametric estimation method, the main focus is on the price / cost of the material which can lead to the confusion as the price is never being consistent and more importantly it is used in the initial phase of the project which cannot highlight / estimate the probable price of the material. Comparison between the vendor and published price This method is used when the equipment is of the normal use and not sensitive in nature. This method clearly portrays the difference between the quoted and the price mentioned in the catalog or in other printed material. Comparison of vendor price with Government own estimation In the huge project where the price does matter for the government while making the feasibility report the government estimates its own cost for the project which can be used while analyzing the estimates given by different vendors. This can only be used when the evaluating person has several project proposals and lots of variable costs are involved in the project. Comparison of Vendor Price with the Price Established through Market Research This method is used when the analyst have the complete information about the project which is established through a thorough market research. This method is time consuming and requires the complete market information so that one can believe that the found price is reliable enough to compare with the vendor’s price (Murphy, 2009). Analysis of Vendor Price This method is simply used to analyze the price quoted by the vendor so that the decision can be made. This method does not lead to the different direction, but guides the analyst to the quotation and finding out on what grounds the price is quoted. Own Selection (is this the conclusion) In this scenario where I am a chairman of this mega project, I use the last method which is “VENDOR PRICE ANALYSIS” because the project is purely based on the scientific equipment which is rare to be installed across the globe, and the vendor cannot hide the actual facts about the cost occurring on the project, and more importantly the cost of these equipment is consistent for a longer period of time so it requires less research and more faith in the vendor, so that the project of 52 towers can be installed across the border to make the security more reliable (Murphy, 2009). REFERENCES Baron, D. (1993). Defense procurement: Politics, management, and incentives. In J. Lietzel and J. Tirole (Eds.). Recent advances in procurement economics (7-22). Boulder: Westview Press. Compton, P. B. (2010). Federal acquisition: Key issues and guidance. Vienna, VA: Management Concepts. Conrow, E. H. (2003). Effective risk management: Some keys to success. Reston, Va: American Institute of Aeronautics and Astronautics. Ergas, H. & Menezes, F. (2004). “The Economics of Buying Weapon.” Agenda, 11(3), 247-264. Federal Acquisition. Technical and Cost Evaluation. “12”, 142. (need information on where this information came from) Fox, J. R. (1988). The Defense management challenge: Weapons Acquisition. Cambridge: Harvard Business School Press. Murphy, J. E. (2009). Guide to contract pricing: Cost and price analysis for contractors, subcontractors, and government agencies. Vienna, VA: Management Concepts. Peck, M. & F. Scherer (1962). The weapons acquisition process: An economic analysis. Boston: Harvard University. Read More