Federal Contracting Activities and Contract Types - Case Study Example

History and Background of Each Company Vying for the Government Contract

Apparently, the Department of Defense issued out government contracts worth close to $400,000 to organizations that focused on designing and producing navigation systems. Seemingly, both Vector Cal and Ocean Limited Company seek to win some of the government contracts issued out by the Department of Defense. Vector Cal represents one of the conventional navigation systems companies in the United States of America. As a matter of fact, analysts view Vector Cal as an institution with a mastery of cutting-edge drone technology that appears ahead of other competitors in the same industry. The therefore-casting techniques employed by the organization include long-term forecasting, medium forecasting, and short-term forecasting. Preparation time, period, accuracy, and cost stand as the main area of focus as portrayed by the institution’s routine activities.

Moreover, as one of its strengths, the company hires some of the most qualified personnel in the region by paying them better remunerations and allowances. During the recruitment process, the managers of the company scrutinize new employees with an intention of selecting the most qualified individuals for particular duties within the organization. So, to develop new navigation systems, the institution spends a lot in buying new machinery and utilizing emerging technologies. Besides, to maintain its leading position in the industry, the company prefers using long-lasting materials designed by the newest technological techniques. However, such requirements make the organization spend more resources because technology keeps on changing from time to time. Despite the high costs of operations, the company has maintained its edge and market niche with a strong willingness to spend on recent technologies.

On the other hand, Ocean Limited Company focuses on designing hardware and software applications that will make flying drones easier to operate. In an unusual posture, other than the remote-controlled aircraft, the company invests in developing operating systems that help to guide commercial drones. The company targets both utility and constructions workers who have a desire to add drones to their toolkits. Additionally, the business entity applies cost accounting procedures to give a price or value to the production costs. The management team of Ocean Limited Company relies on findings from financial reports as a means to balance the costs at every stage of manufacturing process. As opposed to Vector Cal, Ocean Limited Company produces navigations systems equipped with a state-of-the-art user interface that trains people on how to use such systems.

Recent Major Contract Awarded to Both Companies and Reasons Behind the Award

In the current events, Vector Cal received a government contract worth more than $235 million issued by Department of Defense. Again, stamped as a cost-plus-fixed-fee contract, the deal incorporates advisory and assistance operations. As part of the deal, Vector Cal will have the responsibility of providing technical, engineering, management, and advisory support to Missile Defense Agency of the United States of America. Besides, the contract provides additional support for the establishment, execution, maintenance, and examination of test procedures, plans, and policies that support Ballistic Missile Defense System (BMDS). Such a framework of operation depends on the principles of test life cycle. The company will fulfill the requirements outlined in the contract at Colorado Springs and Albuquerque in Colorado and Mexico New Mexico respectively. Notably, at the time of award, the contract will obligate Fiscal 2016 RDT&E funds worth close to $6 million.

Also, Ocean Limited Company received a contractual award worth approximately $110 million. The deal viewed as a firm-fixed-price foreign military sales contract involves support of the Apache defense drone project office and fire control radar designs. The management of Ocean Limited Company seeks to carry out its duties at Linthicum and Orlando in Maryland and Florida respectively. As per the organization’s schedule, Ocean Limited Company wants to complete the projects within a span of ten years. In a similar scenario, at the time of award, the contract obligated some procurement funds worth $58 million. The contracting activities incorporate the Army Contracting Command based in Redstone Arsenal.

Furthermore, one of the reasons why Vector Cal won the contracts lies in the company’s ability to understand the operations of military agencies (Prager, 2014). Also, Vector Cal knows the context in which the U.S Navy could utilize its navigation systems. The institution has well-organized staff with reliable experience and skilled personnel. In some considerable measures, the management of Vector Cal knows that selling to the federal agencies resembles dealing with the private sector. As such, the company tends to use similar marketing techniques to win the government contracts. Conversely, Ocean Limited Company, as opposed to its principal competitor, has credible information on the previous awards by the Department of Defense in the U.S. Hence, the management of Ocean Limited Company knows the required quantities to deliver, the costs it will incur, and their prospective clients. In another condition, the principles of Ocean Limited Company align with government requirements hence making the organization an easy target to win the government contracts. Some of the conditions observed by Ocean Limited Company include the possession of business licenses and a dependable pool of capital.

Types of Contract for which Both Companies Might Be Eligible

In the case of Vector Cal, the institution deserves a cost-plus-fixed-fee contract from the Department of Defense. The fixed fee, especially after the negotiations, does not vary with the actual operational costs. Vector Cal finds itself suitable for such a contract because it has it has skilled personnel who can work around the costs to ensure that the company’s operations proceed within the set budget. Notably, due to the extensive experience acquired by its personnel Vector Cal can fulfill its mandate regardless of any changes in the various phases of project management. The operations team of Vector Cal has a tendency of taking up high investment risks that may either result in high returns or significant loss. So, regardless of the outcome, the company has a culture of taking high risks as a measure of its leadership position in the industry of navigation systems. Therefore, considering all the stated factors, Vector Cal seems a better candidate for the cost-plus-fixed-fee contract that will help to manage a project associated with hardships of estimating operational costs.

In the same way, reflecting on the case of Ocean Limited Company, the company makes a good candidate for a firm-fixed-price contract. Since it seeks to acquire commercial drones that will support the navigation systems of the U.S government agencies, the company will opt for a firm-fixed-price contract. As a matter of fact, most experts agree that the selected type of contract will work well for Ocean Limited Company because of a high probability of price adjustments for its clients. Again, basing on the fact that Ocean Limited Company has detailed information about the industry; the management can estimate reasonable prices at the onset of each project, especially when the market provides some reasonable competitive prices. Also, the great possession of capital provides Ocean Limited Company with an advantage of mitigating any costs that may escalate during the several stages of project execution. So, by examining all the aspects as mentioned earlier, Ocean Limited Company can stand at a better position to win firm-fixed-price contracts issued by the Department of Defense.

Indirect Costs Incurred during the Production of Navigation System and Eligibility of Companies

As mentioned in the previous class materials, Vector Cal has faced several indirect costs throughout its production of navigation systems. In this case, the indirect costs may exist as either variable or fixed costs. The findings of Vector Cal show that it faced some fixed indirect costs such as administration and personnel costs. Notably, regarding the administration costs, the company spends a lot of resources to maintain its routine operations (Ang, Chua and McConnel, 2016). Some of the elements that attribute to the administration costs include the staff salaries, executive remunerations, building and property rent, insurance policy, depreciation of office furniture, and legal counsel charges among others. Again, to operate its production plants, the organization has to pay for both water and electricity bills. The company will still incur such costs regardless of whether they produce the required units or not.

In a similar way, Ocean Limited Company incurs various costs regardless of the quantity of units produced within a given period of operation. For instance, Ocean Limited Company must employ the services of an external auditor to check and audit its financial records and footnotes on within a given time frame. In most case, the institution does not link the auditing process with it production activities. However, the company will still incur such cost regardless of whether it produces the needed units on a regular basis or not. Audit expenses, together with other costs such as rent and electricity bills, appear in the general and administration expense accounts of Ocean Limited Company. Moreover, due to their indirect correlation with production quantities and sales, there exists a strong incentive on the side of the management team to minimize the general and administration costs experienced by the institution (Reichelstein, 2012). In another approach, the company faces a limited approach to minimize such costs because they always occur regardless of the company’s routine production activities. Institutions that have a centralized management structure such as Vector Cal and Ocean tend to record higher indirect costs as compared to their counterparts with different management systems.

The Company to Receive the Awards of Government Contracts with Reasons

The two companies have what it takes to win the mentioned government contracts. As noted earlier on, Vector Cal seeks to get a cost-plus-fixed-fee contract worth more than $235 million from the Department of Defense. Also, regarding the previous discussion, the company has the latest versions of technology that support its operations. It may seem easy and efficient for the management team of Vector Cal to deliver their intended services and products due to their advanced technology. Indeed, the organizations that invest in technology have an advantage over other competitors regarding the quality of produced units. Unfortunately, due to the nature of the industry, Vector al may have to incur a considerable measure of costs because of the expensive technologies used in the drone navigation systems. Such costs may easily make the organization turn bankrupt and fail to deliver its intended objectives within deadlines.

In the case of Ocean Limited Company, the company has reliable sources of information concerning the industry of navigation systems. In fact, the management team understands the requirements set by the Department of Defense regarding the delivery of services and products for the government agencies. Therefore, through such information channels, Ocean Limited Company can determine some of the opportunities in the industry and take risks to accomplish their mandates. Any government would trust an institution that understands the nature and elements within a given industry (Prager, 2014). Such a stance has enabled Ocean Limited Company to appear superior over its competitors hence attaining a higher chance of winning government contracts. As opposed to Vector Cal, Ocean Limited Company can use the available information to weight some of the expensive raw materials and avert them hence incurring less operational and production costs. According to the opinion of Pofeldt (2014), especially when it comes to winning contracts, an organization has to tailor its services and understands how the industry operates. All in all, Ocean Limited Company stands a better chance to win the government contracts due to its dependable reputation in the industry.

Reference

Ang, J., Chua, J. & McConnel, J. (2016). The Administrative Costs of Corporate Bankruptcy: A Note. The Journal of Finance, 37(1), pp.219-222.

Pofeldt, E. (2014). The Secret to Winning Government Contracts isn't what You Think. 12th June 2016. Retrieved from http://www.forbes.com/sites/elainepofeldt/2014/06/30/the-secret-to-winning-government-contracts-isnt-what-you-think/#55beb94525d6.

Prager, J. (2014). Contracting out Government Services: Lessons from the Private Sector. Public Administration Review, 54(2), pp.176-184.

Reichelstein, S. (2012). Constructing Incentive Schemes for Government Contracts: An Application of Agency Theory. The Accounting Review, 67(4), PP.712-731.