Forms of Legal Contracts for Large and Small Scale Businesses - Assignment Example

Evaluating Contracts School: Qn Compare and contrast fixed-price contracts and cost-reimbursement contracts in terms of the benefits and drawbacks of each for the business A fixed-price contract is one, where the business will enter into an agreement to complete the work contracted by the government agencies, at a fee agreed upon during the beginning of the contract (during the start of the contractual work). The budget requested from the agency will be the sum of estimated costs for materials, labor expenses, and profit mark-up for the business. On the other hand, a cost-reimbursement contract is one where the business will enter into an agreement with the agency, under terms covering the costs of materials; the business will be able to request for reimbursement for the costs of the work. Apart from the costs of the materials, the business will then have its markup, and the arrangement accommodates changes in the prices of materials (Gido & Clements, 2014, p. 87). The advantages of entering into a fixed-price contract for the business include that it will allow the business to secure and plan the execution of the contract fully, right from the beginning of the contract. The case for a cost-reimbursement contractual agreement is different, because the agreement limits the profits that the business could make from the execution, irrespective of the duration taken and the efficiency of executing the work. Secondly, this type of contracting will simplify the process of sales forecasting, because the profits to be drawn from the contract can be determined before starting the project, and that allows for more sales prospecting. The case is different in the case of entering into a cost-reimbursement contract, because disputes over the costs of materials and labor can affect the process of reimbursement and the profitability of the business – as a result (Gido & Clements, 2014, p. 87). The major risk arising from entering into this type of contract is that, it is likely that the business will agree on a price which is too low, to the extent that it may not meet the costs of labor and materials adequately. Further, there is the risk that the increment of the prices (costs) of the materials needed for the execution of the contract may limit the business’ ability to make a profit from the contract, especially in the event that prices increase. The case is different in the case the business enters into a cost-reimbursement contractual arrangement, because it will allow the business the advantage of determining the profits to be made before starting the contract. This advantage is highly significant, where there is a risk of change (increment) in the costs of labor and materials. Arising from the risk of changes in labor and material costs, it is also unlikely for many government agencies to accept cost-reimbursement contracts; therefore the business is likely to be limited in the area of the options available to it (Gido & Clements, 2014, p. 87). 2. Three (3) opportunities your small business will have, compared to large businesses in general. The first opportunities available to the small business, which may not be available to large businesses include the contractual and business deals that are set aside for small businesses. Set-asides are in some cases open to all small business offering the services in questions, but will not be accessible to large businesses. The second opportunity available to the small business, which is not available to large businesses, is the availability of tax credits for a variety of areas. The areas covered by tax credits, for small businesses include the credits extended when offering health insurance and during the initiation of a retirement plan contractual agreement. Other business practices and processes that allow the business to benefit from tax credits include the cases where the business is expanding its service portfolio to offer better access for disabled people and when offering child-care (Straus, 2008). The small business is also likely to advantage from these tax credits during the initiation of the services dedicated towards the provision of work opportunities for disabled people. The third opportunity available to small businesses is the ability to benefit from subcontracting programs. These opportunities arise from the contractual agreements where the contractor receiving the contract agrees to a contract attached to subcontracting for small businesses, veteran-owned or women-owned small businesses (Straus, 2008). 3. The element(s) of cost-reimbursement contracts that tend to produce the biggest troubles for your small business. The elements of cost-reimbursement, which may cause the biggest areas of trouble for the business, during contracting with government agencies, include the element of cost uncertainty during the beginning, towards the completion of the contract. This element is a major source of problems for the business, because the agencies that have contracted the business may anticipate lower costs of execution, but then receive a final cost that exceeds the set budget. In such a case, the business will need to engage in a tussle for the increment of the funds allocated to the project, and this can be a major problem, especially due to the bureaucracy needed to make changes in government contracts (Gido & Clements, 2014). The second element of these contrasts, which is a major source of problems for the business, will include the imposition of an unrealistic contractual cost limit, which is not enough to complete the contract. In such a case, the business will need to go back to the contracting government agency, so as to collect official permission to exceed the limit of the costs set. Apart from the need to seek permission to exceed costs, the contractual arrangement requires providers to provide highly informative accounting updates showing the areas where the costs made available to the provider have been spent. This increases the workload needed in managing and reporting the progress of the contract, and in some cases the business may need to hire a worker for that role (Gido & Clements, 2014). 4. The form of contracting that would benefit the business the most, among the forms of contracting Ordinarily, small business will access government and agency contracts through active bidding, after which they are assigned the given contract. Normally, small business like the current one will take contracts requiring fewer expenses. Due to the nature of these businesses and the elements identified above, apart from the directives of government contracting regulations, simplified acquisition contracting is the form which is most beneficial to these businesses (Programs, 2013). Other reasons that demonstrate that this form of contracting is most effective for small businesses include the fact that this form of contracting is usually dedicated to small business where the contracts are of a federal purchase nature. In particular, this form is most applicable for the business, because its contracts are within the contract cost range of below USD 5 million; for example, the contract for DOD is worth about USD 600,000. Secondly, this form of contracting is most beneficial for these businesses, because the burden of administrative costs is usually reduced, and many are dedicated for small businesses, and the form allows access to competitive contracts that are advertised (Programs, 2013). 5. The most significant form of contracting for large companies like Boeing The most significant contracting form for companies like Boeing is firm fixed-price contracting, and this is because the company securing the contract assumes all the cost-related risks that come with the government contracts. This form of contracting is specifically useful for these companies, because the requirements of the contractual agreement are usually well-defined and clearly stipulated (Erickson, 2012). One example of contract that meets this standard is the contractual agreement for the supply of military aircrafts, which is offered to Boeing by the US government. This form of contracting is the most applicable, because it is only applied with companies that are highly experienced and knowledgeable in the delivery of the demands of the contract. Thirdly, many of the contracts offered to these companies are those that are mostly executed under stable market conditions, or those not likely to experience the effects of market instability (Erickson, 2012). This method of contracting is used by the government with these kinds of companies, because it renders the financial risks that are likely to affect the contractual relationship is insignificant. The government is often compelled to use this contracting form with these companies, because the supplies in question are those that need to be supplied under the conditions of a specified place, time, and price (Erickson, 2012). 6. Plan for justifying to the government for award of contract for a form of contracting available for larger companies The firstly part of the plan is that of identifying the small businesses cluster which is supported by the allocation of contracts to small businesses. For example, by emphasizing the fact that the business is woman-owned, located in a HUBZone or disadvantaged in a given area will offer the business a lead in securing the contract. In emphasizing this aspect of the contractual search strategy, I would highlight clearly, the area where the company meets the threshold for consideration under the different areas that warrant its consideration for the contract (Programs, 2013). Secondly, I would emphasize the fact that the company has matched and marketed the products supplied by government, towards meeting the buying demands (thresholds) of the products and services demanded by government in the case of the particular contract. Thirdly, I will emphasize the areas of the government agency where the products supplied by the company can be used, and that makes the work of allocating a contractual assignment which is particular to the product or service offering of the company easier. Fourthly, I would give and emphasize the company’s knowledge of past contractual awards, costs, amounts sourced and the offices responsible for the awarding of the given contract. However, more importantly, I will ensure that I offer a justification as to meeting the thresholds needed in order to secure the contract, including staff abilities, financial well-being, and the reputation of the company, which can limit or enhance its qualification (Programs, 2013). References Erickson, M. (2012). So you want to become a government contractor. London: Michael Eriksson Publishing. Gido, J., & Clements, J. (2014). Successful Project Management (6th edition). New York: Cengage Learning. 87. Straus, S. (2008). The Small Business Bible: Everything You Need to Know to Succeed in Your Small Business (second Edition). Hoboken, NJ: John Wiley & Sons, Inc. Programs, D. O. (2013). Government Contracting: the Basics. U.S. Department of Defence Office of Small Business Programs Retrieved from www.acq.osd.mil/osbp Read More