...Reimbursable Costs and Contract Disputes Cost-Reimbursement contract is a contract where a contractor is paid for all of its allowed expenses to a set limit, plus additional payment to allow for a profit. Cost-reimbursement contracts contrast with a fixed-price contract, in which the contractor is paid a negotiated amount regardless of incurred expenses. Federal agencies choose among three contract types to procure goods and services: Fixed-Price, Time-and-Materials and Cost-Reimbursement. Each contract type has a different level of cost or performance risk to the government. They can be used to motivate contractor’s efforts and discourage contractor inefficiency and waste. The cost-reimbursement contract is considered high risk for the government because of the potential for cost escalation and because the government pays a contractor’s costs of performance regardless of whether the work is completed. The government uses the cost-reimbursement method only when it’s suitable when the cost of the work to be done cannot be estimated with sufficient accuracy to use any type of fixed-price contract. It appears cost-reimbursement has issues that can be for or against the contractor such as the case with Boeing. Boeing Co is the US Air Forces biggest client. Boeing is suing the US Air Force for $385 million it says the US owes them for the Delta IV Rocket Launch services. Boeing, United Launch Alliance and Lockheed Martin Corp filed a joint compliant in June 2012. They...
Words: 712 - Pages: 3
...Contract Types Contract types are tools in planning purchases and acquisitions that are important for the examination as well as for professional management. There will be several questions on the exam about the different types. One of the important facts to know is the degree of risk for the seller and the buyer that each type of contract contains. This graphic shows the risk levels for each of these types of contract. Figure 16-1. Risk levels for contract types. Each of the contract types has risk attached to it. As we go through these contract types, you need to learn who assumes the most risk, the buyer or the seller. Fixed price/lump-sum contracts In this type of contract, the seller assumes the greatest risk because the price is set. This means that the seller must comply with the contract and provide the service/product for a specific price. If the time it takes to deliver the service/product expands, the seller cannot charge for the extra time. The same would be true if extra materials were needed to deliver the service/product. If this occurs, the seller cannot charge for the extra materials because the price for the contract is already fixed. Incentives can be used with a fixed price contract based on meeting project deliverables or exceeding them. These deliverables could include schedules and costs as two of the measurements for incentives. In addition, some economic adjustment such as cost-of-living increases could be written into a fixed...
Words: 1888 - Pages: 8
...ongoing project for the next couple of years. Which contract structure (fixed price, unit price, reimbursable) do you think that you would use to proceed with your project? Explain your choice. What are the four basic contract pricing options? What are five options of cost reimbursable contracts? In what situation a company is best to use a unit price contract? In what situation, a company is best to use cost-plus-percentage-fee contract? What are the differences among a fixed price contract, a time and materials contract, and a reimbursable contract in terms of how well defined a BPO contract needs to be relative to price, scope and schedule prior to the commencement of any work/services? Class, do you feel the length of the contract also has some influence on the contract type you choose? Why or why not? What are the challenges for an owner in tracking a reimbursable contract? When does a contract manager prefer a fixed fee contract over a reimbursable contract (or vice versa)? How many companies do you think go through outlining their business objectives, and then use these to guide the selection of a contract structure, rather than letting financial objectives and risk factors alone determine the decision? If your company decided to make you a manager for your division, but began outsourcing all the personnel that work beneath you, which contract type would you recommend they implement? What are the key contract issues? Pick one of them and elaborate on it. For...
Words: 320 - Pages: 2
...Evaluation (Techniques) 1. Technical Analysis 2. Cost or price analysis 3. Past Performance Proposal Evaluation an assessment of the proposal and the offeror's ability to perform the prospective contract successfully. Price cost plus any fee or profit applicable to the contract type Who Performs technical analysis subject matter experts (SME) or DCMA: says anyone who has specialized knowledge of product or service. Why Proposal Analysis to ensure that the final agreed-to price is fair and reasonable Fair and Reasonable Price Price a prudent and competent buyer would pay in a similar business situation Price Analysis the process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit. WHEN CERTIFIED COST IS NOT REQUIRED. Cost analysis review and evaluation of any of the separate cost elements and profit or fee in an offeror's or contractor's proposal as needed to determine a fair and reasonable price or to determine cost realism.USED WHEN CERTIFED COST IS REQUIRED. Cost Realism Analysis the process of independently reviewing and evaluating SPECIFIC ELEMENTS of each offeror's proposed cost estimate to determine whether the estimated proposed cost elements are realistic for the work to be performed; SHALL be performed on COST REIMBURSEMENT MAY be performed FIXED PRICE INCENTIVE CONTRACTS. or Fixed Price contracts when contracts with new requirements may not be fully understood...
Words: 1778 - Pages: 8
...The Orion Shield Project Robert E. King University of Maryland, University College DMBA 620 - Effective Financial and Operational Decision Making Professor Daniel Sersland 29 March, 2015 Orion Shield Project Robert King 2 Executive Summary Inside the Orion Shield project case study, varying degrees of issues are seen during every aspect of its existence. These include technical, ethical, contractual, as well as legal issues which ultimately limited the success of this project from the beginning. Gary Allison was the incorrect choice as a project manager for this project. His inexperience in this type of management jeopardized the contract, and has placed SEC under possible litigation by his actions throughout the project. Gary wasted valuable time and resources during his tenure as a project manager, and failed to provide himself with enough time to properly manage the technical design and development of the components for STI. As such, Gary was even blindsided when it was discovered that Henry Larson was testing new materials with Paula Arnold without Gary having approved or even known about the changes. This led to more scheduling, resting, and development issues down the road, and ultimately was the catalyst for going over budget on this product. Ethical issues persisted throughout this project, from Gary’s selection as an engineer which Henry could manipulate in order to allow Henry to run the project as his “Baby”, while leaving all liability...
Words: 1729 - Pages: 7
...assigned to research the appropriate accounting for revenue treatment of construction contracts for a client, LabCo. In specific, I was assigned to oversee LabCos’ contract involving a six-axis laser-cutting machine with Halibut Co. After researching and developing a theory based on the Financial Accounting Standards Boards’ Codification, I have concluded that LabCos’ treatment of revenue was reasonable; however, they should have changed revenue recognition principles sooner. In this situation, there are three possible ways they can handle changing their accounting method: Retrospective Application, Change in Accounting Estimate Method, or Change in Estimate Affected by Accounting Principle. The revenue treatment principle for a construction type principle states, “In accounting for contracts, the basic accounting policy decision is the choice between two generally accepted methods: the percentage-of-completion method including units of delivery and the completed-contract method. The determination of which of the two methods is preferable is based on a careful evaluation of circumstances because the two methods should not be acceptable alternatives for the same circumstances (ASC 605-35-25-1).” LabCo agreed to build a six-axis laser-cutting machine for Halibut. The contract entered into was a fixed price contract. A fixed price contract is, “An agreement to perform all acts under the contract for a stated price” (ASC 605-35-15-4). LabCo decided to use the percentage of completion...
Words: 1442 - Pages: 6
...Federal Contracting Activities and Contract Types Strayer University, BUS-315 Cost and Price Analysis Professor Mark O’Connell May 25, 2012 For my research paper, I selected a top 100 federal contractor company from the Washington Technology list. In it I will address the history and background of the company, identify a recently awarded contract, describe the type of contract that was awarded along with explain why that particular type of contract was chosen over others. In addition, I will identify and discuss three (3) indirect costs that the contractor incurred. The company I chose to wrote about is listed number 37 on the Washington Technology list, happens to be my employer, VSE Corporation, headquartered in Alexandria, VA. VSE is Federal Services Company known for solving issues of global significance with agility, integrity and value. VSE marked its 50th year as a government contractor in January 2009 and is dedicated to making our clients successful by delivering talented people and innovative solutions for program management, logistics, engineering, IT services, construction program management and consulting. VSE Corporation was established in 1959 with a mission to provide engineering, and technical support services to reduce the cost, plus improve the reliability of DoD systems and equipment. VSE has five wholly-owned subsidiaries: Energetic Incorporated, Integrated Concepts and Research Corporation (ICRC), G&B Solutions, Inc., Akimeka LLC,...
Words: 1829 - Pages: 8
...in-house. Hardware and software expenses are on the rise. It is becoming quite expensive to keep our mainframes and servers cooled. As our data grows we are looking at expenses of adding new servers which will in turn cost us more money in cooling the rooms. It takes us a considerable amount of electricity just to run all of our hardware, servers, mainframes, and all other devices inside out data center. We have an extensive number of employees needed to run and maintain the data center. The overall cost of running a 24/7 data center is simply just getting out of control. The key questions here is do we have enough critical mass and are we planning on continuing a 24/7 operation in our data center. We need to look at several pros and cons to outsourcing; Access to state-of-the-art technology, cost saving and quality, flexibility, job security for or employees, media effects on us outsourcing, how easy is it actually going to be to outsource our work, security and safety of our data, how expensive is it going to be to switch over, are we losing control of our data center, will it save us money in the long run, and if we outsource could we be held hostage of the vendor (once we hand over our data and let them control it are they going to remain loyal to the contract or decide, that now that the ball is in their court, to play ball....
Words: 746 - Pages: 3
...18/04/2013 Individual assessment declaration: This assessment item is my own work, except where acknowledged, and is not the result of collaboration with others. Signature / Student ID Date Group assessment declaration: * This work is the result of collaboration amongst all members of the group listed below and no others. All members of the group have contributed to the assessment. Family name Given name Signature/Student ID NB: If the assessment is submitted electronically please type name/s into the signature field. 3392418 3451117 3407374 3405350 Livio Greg Grant Brett Barbagallo Marshall Kaczorowski Daley Gavin 3379593 Jennings Please complete either the individual OR group assessment declaration below. * I declare that I have read, understood and followed the University Rules in respect of student academic misconduct outlined in the Student Code of Conduct and Annexure 1 of the Student Misconduct Procedures. * I declare that this assessment item is my own work, except where acknowledged, and has not been submitted for academic credit previously in whole or in part. * I declare that appropriate citation methodology has been used throughout the assignment in accordance with the UNSW policy on Academic Misconduct. I have read the policy on plagiarism in the AGSM Student Handbook. * I acknowledge that the assessor of this item may, for assessment purposes: ...
Words: 2704 - Pages: 11
...Types of Contracts [pic] Choosing type appropriate contract type is essential to successful performance under a contract. The type of contract determines the cost and performance risks which are placed on the contractor. There are two broad contract groups--fixed price and cost reimbursement. Within each of these groups, there are various types of contracts which can be used individually or in combination. [pic] Firm Fixed Price Contracts [pic] This type of contract requires the contractor to successfully perform the contract and deliver conforming supplies or services for a price agreed to up front. This type of contract places the most performance and cost risk paid. It if costs them more than they expected, they still get the amount originally agreed upon. If it costs them less, they make more profit. A firm-fixed price contract is suitable for supplies and services that can be described in sufficient detail to ensure complete understanding of the requirements by both parties and assessment of the inherent risks of performance. [pic] Other Fixed Fixed Price Contracts [pic] Within the fixed price contract group you can award contracts with: • economic price adjustment factors to allow for industries where costs fluctuate frequently either up or down • various incentive types which can be used to reward good performance or to impose provisions to deduct for poor performance • price redetermination provisions which permit issuing an order on a fixed...
Words: 710 - Pages: 3
...Atlantic Bundle: Tronn&PESA Alternatives and Pros&Cons: Alternatives: | Pros: | Cons: | Result: | Status quo pricing | * Keep the tradition, which will offer the PESA for free * Two Tronn will be priced at $4,000 | * Lose the $2 million R&D cost on PESA * PESA will be viewed invaluable to the customers * Customers will then view no substantial difference between the Tronn and Zink servers | Not a good decision | Competition based pricing | * Two Tronn will be $6,800 since one Zink server is $1,700 and two Tronn is equivalent to four Zinks * Most Profit per unit | * Customers would view as getting less hardware with the same prices * Does not make the bundle a unique product | Not a good decision | Cost plus pricing | * Make the PESA valuable * Two Tronn will be priced at $4,492 in compare to $6,800 of Zinks' (See Exhibit One) | * Some customers may view it $1,092 more expensive than getting 2 Zink servers * Further justification from customers will be necessary * Less profit in compare to value-in-use pricing | Not- so-good decision | Value in use pricing | * Make the PESA valuable * Two Tronn at $6,400 (See Exhibit Two), which has more profit than cost-plus pricing * Customer will be able to...
Words: 752 - Pages: 4
...Assignment 5: Federal Contracting Activities and Contract Types Angelina Brooks Professor: Larry Murphy Bus 315 December 15, 2013 My company’s mission is to offer stylish, great, affordable clothing to young men and women entering the world of business. I will offer customer’s a classy, stylish and a professional look for the business world. Clothes will be altered to fit customer’s shape and size in a variety of colors and options to solve fashion problems. My company’s vision is to help the younger generation realize that they can dress professional and still look good while in the business world. I will start out offering my product online and then eventually land a store within the mall where I can be exposed to different people of all ages, shapes and sizes. Starting out as a small business owner I will need as much support as I can to get started, which is my main reason for competing for a government contract. The government offers about 23% of their business to small business owners and as long as I can meet the government’s requirements at a fair and reasonable price, the government will limit competition to only small business owners as long as two or more small businesses are prepared to compete for contract which will provide a better business opportunity for my business. Also, having business with the government opens windows and doors for better opportunities. Government contracts save my company money, improve my performance and will promote my business...
Words: 1362 - Pages: 6
...defense contracts. On one of these contracts with a contractor named ATI, an issue has arisen concerning the allowability of certain ATI incurred and invoiced costs. ATI's contract is a cost plus award fee contract. The specific costs in question involve some $50,000 in costs running the ATI fitness center at the ATI main business campus. Additionally, ATI paid $500,000 to a political action committee (PAC) which supports legislative initiatives for defense contractors. Finally, ATI incurred and invoiced the Government $1.5 million for its legal fees associated with a proceeding brought against it by the local U.S. Attorney's Office for an alleged violation of the False Claims Act under 31 U.S.C. 3730. This False Claims act matter was ultimately resolved and settled through a consent decree between the parties. Before he visits the local DCAA auditor for guidance on what actions to take, your boss want you to prepare an essay advising him on whether any of these three sums are allowable under the FAR. According to Subpart 31.603 Requirements, contracts that refer to this Subpart 31.6 for determining allowable costs under contracts with State, local and Indian tribal governments shall be deemed to refer to, and shall have the allowability of costs determined by the contracting officer in accordance with, the revision of OMB Circular A-87 which is in effect on the date of the contract. (b) Agencies are not expected to place additional restrictions on individual items of cost. However...
Words: 2438 - Pages: 10
...Pharmaceutical Company had fixed contracts created for the refurbishment of their call center. Going back on the contract do to different events happening will cause a delay in progress. Several problems within the contract arose with the old project manager John that have been ignored and now Shawna has to be the project manager and make sure the project comes to an end. The dilemma that Shawna is having is that the signed contracts have issues and contradicting sections for the contractors. The PMBOK defines fixed contracts as “fixed total price for a defined product, service, or result to be provided. Fixed-price contracts may also incorporate financial incentives for achieving or exceeding selected project objectives, such as schedule delivery dates, cost and technical performance, or anything that can be quantified and subsequently measured.” The PMBOK states that sellers have a legal obligation to complete the contract even if they face a financial loss. The PMBOK also states that buyers need to precisely determine what product or services are to be produced by the end of the contract. There are several different types of fixed contracts . Firm Fixed Price Contracts, fixed price incentive fee contract, and fixed price with economic adjustment contract the fixed price contract is used more than the other fixed price contracts. . It is favored by most buying organizations because the price Buyers favor the fixed price contract due to the basis of the contract that keeps the price for...
Words: 879 - Pages: 4
...Hiegel PM 595 A contract is defined as: "an agreement made between two or more parties which is enforceable by law to provide something in return for something else from a second party". I never thought I will have to understand the different types of contract that exist but, after getting married my husband and I decide to buy an old house since this one was situated where we wanted. We did not know that buying an old house will bring us so many problems. Finding a contractor that agrees to do and add as the project runs what we want, how we wanted and in a reasonable time frame were very difficult. Building a house is not just draw and buy the materials, building a house is more than that, decide what we want inside?, how we wanted?, the colors?, what we need to change?, what need an updated?, do we need more rooms?, less rooms? They were so many questions and doubts that we knew that we need a contract where we can change and plan as we see the results of the initial project. In the construction industry, it is not a question of whether or not to have a written contract: one of the real issues is how many contracts can or will be involved in the project. We did not want to be writing diverse contract for the project, for the different steps and changes we may have to do in the scope and plans. We integrated our search for different s contractor and companies, and all of them use different type of contract. Most of the contractor wanted to do a contract based on provide...
Words: 1301 - Pages: 6
