Small Business Government Contracts - Case Study Example

Small Business Government Contracts Affiliation Introduction Contracting for businesses with the federal government is considered a basic requirement in the U.S. Small and larger businesses alike face the same prospects in relation to agreeing with the government. The United States federal administration established a Small Business Act in July 1953 that noted the major purpose of Small Business. The Act denotes that Small Businesses function to “support, advice, assist, and guard, insofar as is achievable, the concerns of small business”. According to the U.S government, a small business is considered independent in its operations. In most cases, either the income generated or number of employees employed within the company determines the size of companies depending on the type of business the company is in; for instance, a service or production business respectively (Knerly, 2007). Small businesses tend to have privileged access to government contracts. A number of government bodies have been established to help the small businesses to manage contracts and enhance their networking. For example, the National Contract Management Association, Procurement Technical Assistance Centers, as well as the National Center for Small Business Information. To access government contracts, a small business is usually required to meet a number of conditions. There should be popular possession by people disadvantaged communally as well as economically (Knerly, 2007). The federal contracts target people with difficulties in relation to their race, ethnicity, as well as cultural bigotry, groups such as; Hispanic Americans, black Americans, and the Americans with Asian-Pacific descendent are some of the groups that can easily access government contracts. Prior to contracting with the government, establishing a small business requires registration with the federal government. Considering that individuals operating these types of business are mostly disadvantaged in one way or another, it is vital to acquire legal permission from the government before seeking federal contracts. The Central Contractor Registration organization provides these measures. It also enables the government to spot the small business that is capable of executing a contract action. Subsequently, the registered business now seeks financial opportunities that will enable it to operate effectively. The federal government provides a number of opportunities for this. For instance, there are opportunities for sub-contracting, federal grants, as well as partnering with other businesses (Knerly, 2007). Differences between the Cost Estimating Relationship (CER) method and the Engineered Cost Estimate Method Knerly (2007) acknowledges that contract pricing is a vital area for small businesses. In most cases, the government first verifies the overall cost of the business before issuing the contracts. This process usually tends to take a long time and thus, it is vital for the business to ensure that it can manage its daily operations. Small businesses can use various techniques to determine the cost of a contract. Among them is Cost Estimating Relationship (CER) technique and the Engineered Cost Estimate technique. The CER method denotes the use of set up relationships between independent variables to approximate a cost or price; for instance, using CER to identify the overall cost of production. The technique of approximating the rapport between independent variables and contract cost follows varied processes. First, the business or individual should clearly distinguish the dependent and independent variables they seek to determine. Second is seeking expert advice on the type of business one seeks to start. In this case, assessing the way other businesses have utilized robots in their production. By doing so using CER, a business is able to generate relevant information. Next is to establish the potency between the variables. In estimating the cost of production using CER, the connection linking the dependent to independent variables helps in predicting the business performance. The Engineered Cost Estimate method on the other hand denotes a comprehensive cost approximate for a project. This method of approximating cost is normally achieved by a rough estimation of the cost of all activities in the organization of the business and an addition of them. Unlike the CER, this method of estimating cost has no distinctive steps to be followed. It presents a simple sum of cost of the business activities. In a way, this method saves the small business time in evaluating its activities. It does not compare variables but provides an overall estimate of the business cost. In starting up a business that would use robots in production using this method, a business is able to quantify the cost of production. The business can easily estimate its cost of production (Knerly, 2007). CER can be applied in cutting analysis efforts and enhancing accuracy at the same time. This is because the method of cost approximation considers two variables in determining the overall cost. This is contrary to the Engineered Cost Estimate where there is no comparison of costs but only an approximate of the total cost. There are other relative situations where using the Engineered Cost Estimate method can prove to be more effective than the CER. For instance, trying to approximate the cost of residential houses whereas the CER can provide an approximate value of the house by comparing varied variables, this price estimate cannot be validated to be applicable in other area. This is because the CER estimation method relies on other costs of independent variables. However, the Engineered Cost Estimate can provide a conclusive value for the cost estimates because it is a summation of all the costs. Approach to Life-Cycle Costing (LCC) Technique suitable for the Business LCC approaches are relevant for small businesses in that, it enables the business to approximate investment and operational costs. It overly denotes the general cost to the government for a business during its life cycle. The LCC is normally denoted as an environmental aspect of a business. In starting a new business, the best Life-Cycle Costing approach to use will be the perceived benefits. According to Gluch and Baumann (2003), business decision making is a key aspect. Businesses need to consider the gain they stand to obtain from using the various cost estimates. This consideration is mostly vital at the level of making investments. Before venturing into a new area of business, investors need to evaluate the cost of investment as well as that of operation. Prior to obtaining the federal contracts, businesses are required to provide their estimate costs. By utilizing this Life-Cycle Costing approach, the business is able to meet these requirements. Additionally, the perceived benefits approach of Life-Cycle Costing approach will enable the business to transform its ideas to income. Design-to-cost (DTC) Changes that have occurred In the Government’s Approach and Their Impact on the Ability to Compete Design to cost (DTC) denotes a managerial procedure utilized to manage cost. This is achieved through the formulation of definite goals. For instance, in starting a new business, government contracts are issued to businesses that have fully met the requirements of the contract. These contracts are normally issued under the DTC. The DTC constitutes two basic elements; design to unit production, which involves the employment of incentives to attain particular production costs in the clarified in the contracts by use of resourceful engineering. Second is cost management techniques and design to operating and support cost, which utilizes incentives to build up a design, which will attain operating and support goals highlighted in the contract (Gille and Kolkmeier, 1990). DTC has been established to target the inspiration of creativity in businesses. This creativity is designed to focus on the cost of production and operation. In most cases, the government inspires creativity in business ventures by providing incentives for the businesses. Using robots for manufacturing products is a creative idea that seeks to minimize human labor as well as enhance production of the business. DTC acts as a vital factor in enabling businesses to compete. For instance, considering that most government contracts are issued to the businesses owned by the economically and socially challenged groups in the U.S; this DTC provides them with an opportunity to compete with other businesses in the market. Role of Cost as a Key Independent Variable in the Production of Unique Products Cost is considered a fundamental aspect in every business venture. This is because it identifies the ability of the business to produce effectively as well as operate efficiently. Cost is an independent variable in production as it is used as the measuring basis for a number of aspects of the business; for instance, the cost of production, cost of operation, and cost of labor among others. In producing unique products, it is essential for the business managers to consider the overall costs involved. In most instances, this can be achieved through the CER or Engineered Cost Estimates. The CER provides a basis for comparison between the cost, which is considered independent against other factors like operation, labor, and production. Similarly, the Engineered Cost Estimate provides the general cost of production (Gluch and Baumann, 2003). Cost of producing a unique product involves various basic considerations. For instance, the environmental cost, this refers to the life cycle of the product in the market. Considering that it is unique, what will be the cost of creating its awareness to the target market as well as familiarizing people with its operations, for example, producing new robots that would assist in production companies. Issues relating to cost like are basic, this is because, and the business considers the competition of the market. Producing a unique product can be considered as a lucrative business venture. However, one needs to consider how this will affect the cost of the business in relation to the competition in the market. There is no need of producing an expensive product that would give the competitors an opportunity to face off the business. Additionally, cost can be considered in terms of obtaining the necessary materials for production. For instance, the machinery to use as well as labor force required. If materials are hard to access, this will mean that the operational and production costs are going to be high. Thus, the business can weigh the odds and make an appropriate decision (Gluch & Baumann, 2003). Element(s) of Cost-Reimbursement Contracts That Tend To Produce the Biggest Troubles for a Specific Company Cost reimbursement contracts constitute cost plus incentive fee contracts and cost plus awards fee contracts. The former has been denoted as a cost reimbursement contract offering the prior negotiated fee, which is subject to change by utilizing a formula derived from the association of the overall permissible costs to the overall target costs (Acquisition, 2013). In the cost contract, there are distinct specifications on the costs. For instance, in the U.S government contracting for small businesses, the business individuals are always required to provide an estimate cost for their business, which is then subjected to modification in relation to the contract agreement. This element of cost reimbursement on average provides incentives for contractor by setting cost targets for them. For example, a contractor stands to receive the overall allowable cost inclusive of the additional fee if his allowable fee is above or below the array of cost in which the fee adjustment formula functions. On the other hand, the cost plus award fee contract stands for a cost reimbursement contract offering a fee, which constitutes a fundamental fee that is specified at the commencement of the contract at the caution of the contracting official as well as a reward fee which the contractor possibly will receive during the act of the contract. This perceived reward is considered an incentive to the contractor, which will stimulate the business towards effecting its production (Acquisition, 2013). References Acquisition. (2013). Incentive contracts. Retrieved from https://www.acquisition.gov/far/html/Subpart%2016_4.html Gille, W., & Kolkmeier, R. (1990). Design to cost handbook. Retrieved from http://www.dtic.mil/dtic/tr/fulltext/u2/a232651.pdf Gluch, P., & Baumann, H. (2003). The life cycle costing (LCC) approach: a conceptual discussion of its usefulness for environmental decision making. Retrieved from http://publications.lib.chalmers.se/records/fulltext/local_2423.pdf Knerly, V. (2007). Contracting with the U.S. government: A small business perspective. Journal of contract management. Retrieved from http://www.ago.noaa.gov/docs/small_business_contracting_with_the_government.pdf Read More