Assignment 5: Federal Contracting Activities and Contract Types
David Moore
Strayer University
Cost and Analysis
BUS 315
Michael Raponi
March 15, 2016

Assignment 5: Federal Contracting Activities and Contract Types

History and Background of Companies Competing for the Contract

Dronnet is an empowering company within the Information Technology industry. The company specializes in using technology to resolve some of the most pertinent issues in the society today. The company has been in operation for less than five years, hence, the classification as a startup company. Regardless, the company has been experiencing positive growth since its establishment and has been able to win at least one major contract from the government. The first contract for the company was the Tanker Contract that has been able to execute with efficiency. The company's workforce or human resource is estimated to be about 25 people, with most of them being technologists. The organization has been praise within its state for contributing to economic development as one of the emerging business employing many people. The success of Dronnet in recent years has been attributed to its good management that places more emphasis on issues such as transparency and accountability. The organization also works on an efficient business model that enables it to manage its costs effectively. As such, most of its products are produced through cost-efficient and environmentally friendly methods.
On the other hand, VectorCal is a well-established organization in the IT industry having been in existence for more than ten years. VectorCal has grown to be one of the industry’s leading organizations. As such, the business has partnered with many other companies throughout its extensive networks in the industry to position itself strategically in the market. The company has built a strong reputation in its location for its contribution ensuring the sustainability of the environment. Besides, VectorCal has been influential in using its position to get lucrative contract deals, with which it has executed with efficiency over the years. The organization has also been experiencing sustained profitability since its inception ten years ago. This points to the fact that it has a strong management as well as a good business model that helps it to promote its core agenda (Lancaster, 2014, p. 1).

Recent Major Contracts Awarded to Both Companies

Dronnet was recently awarded a tanker contract by the federal government. The company heralded the deal at the backdrop of significant improvements in the state concerning job creation from small businesses. This contract was very crucial in helping the company create more jobs for the local youths as well as increasing the scale of its operations. The deal to award Dronnet the contract was announced by the Deputy Secretary of Defense in conjunction with the Acquisition Chief of the Pentagon and senior executives from the Air Force earlier on in the year. Upon unveiling the deal, the government officials indicated that several factors had come into consideration before awarding the firm the lucrative contract. However, the most fundamental aspect of consideration was the costs associated with acquiring the tankers for the military base at the Pentagon. The other crucial factor that came into consideration was the life cycle of the tankers as well as the return on investment for the government from the project.
Dronnet was able to win the contract after much lobbying and advertising to beat off competition from various businesses and companies in the industry (West & Lewis Jr, 2009, p. 1). It had taken about ten years for the company to win a contract of such magnitude from the government. This represented a new beginning for the business ad laying a foundation for further engagements with the government in the future. As a matter of fact, Dronnet was able to beat off competition from other business to win the contract because its NextGen Tanker proved to be more efficient, cost effective, and fuel efficient. The tanker burns fuel at a rate of 20% less in comparison to the EADS B333 Plane.
A previous attempt by the government to award the contract to another firm had resulted in a public scandal that culminated in some officials being relieved of their duties, while those found to be culpable were sentenced to terms in prison. Therefore, there was much caution when applying for this contract given the significant amount of public interest that existed around the contract.
The most recent contract that VectorCal was awarded by the government came about six months ago. When the company won a government contract to install intelligent CCTV cameras in the main cities such as New York. This was aimed at helping the local authorities manage the escalating criminal activities in the identified cities. There was a very competitive process for winning the contract as there were many different companies interested in the whole deal. However, VectorCal was the most preferred company due to its extensive experience in handling surveillance technologies. The organization had previously worked on many other projects of a similar nature and was perceived to be more reliable for executing the major contract from the government.

Types of Contracts for which the companies might be Eligible

Federal procurement contracts are often classified based on three major categories namely fixed price contracts, cost reimbursement contracts, and time material contracts. Fixed price contracts have the same price throughout the duration of the contract. The government department pays the agreed amount regardless of the fluctuations or changes in the costs of executing the contract. Therefore, it is the responsibility of the contracted firm to ensure that it stays within the agreed budget to avoid running into losses at the end of the contract.
On the other hand, cost reimbursement contracts create more room for taking into account different factors such as the actual costs involved in executing the contract. As such, the government will not only pay the price that was agreed upon earlier, but will also reimburse the firm for any other costs that may be incurred during the contract period. There are various schemes that allow for the government to pay feed or profits to the contractor. For instance, there is a Cost Plus Incentive Fee (CPIF) contracts where the contractor is reimbursed for all the costs incurred while executing the contract as well as any additional fees based on an agreed upon formula. The amounts paid as fees often vary, and the number is aimed at motivating the contractor to keep the costs of the contract lower. There is also the Cost Plus Award Fee (CPAF) type of contract where the contractor will be compensated for the costs of implementing the contract as well as an additional fee in the form of a reward. The rewards may be offered on the basis of performing the contract with efficiency or exceeding expectations.
The other major category of contracts is the time and material contracts. These are contacts that have agreed to specific rates of material costs and labor, which do not change for the entire duration or period of the agreement of the contract (F., V., & G., 2014, p. 1). As such, labor and materials are often billed as they are incurred. However, in some instances, the time and material contracts can incorporate adjustments such as annual escalation rates to keep in mind the increasing costs.
Based on the three major types of federal contracts described above, it is evident that both Dronnet and VectorCal qualify for fixed price contracts. This is because prior to receiving the contracts, the organizations often go through a detailed examination and analysis phase where their proposals are examined on the basis of the costs associated with the contract. Therefore, it is expected that the companies have done due diligence to determine the right prices for the contracts to avoid running into problems in the future. Also, the federal government has specified the value of the contract beforehand. Therefore, any company that is likely to exceed the value stated in the invitation to submit tenders will have to take care of its additional cost. It is also critical to take into consideration that government budgeting for such projects is fixed. Hence, the two organizations qualify for fixed price contracts from the government.
Direct and Indirect Costs the Companies Incurred
Direct costs can be described as those costs that can be traced accurately to a specified cost object. The cost object may be any project or product (Manuele, 2011, p. 1). In most cases, direct costs are considered to be variable costs. Examples of direct costs include costs of raw materials and labor. On the other hand, indirect costs are those that cannot be traced accurately to the cost object in question. The indirect costs can be further classified as either fixed on variable costs. Examples of indirect costs include administration fees, security costs, and personnel management.
Given the nature of the federal contract at hand, it is fundamental to consider the different costs that the two companies incurred in order to determine the most suitable organization to award the contract (Manuele, 2011). For example, in the case of Dronnet, there were several direct costs associated with its proposal. Among the four top direct costs the company incurred is labor, raw materials, equipment, and relevant software (Lancaster, 2014). On the other hand, Dronnet incurred other additional indirect costs related to the project. These include factors such as operational expenses related to the project, rental cost, Salaries and Remunerations, and electricity costs.
Conversely, VectorCal also incurred its set of direct and indirect costs that can be associated with its project proposal. The company’s direct costs include direct materials, labor, time, and equipment. On the other hand, the company’s indirect costs comprise of various factors including rent, electricity, compensation and salaries, and transportation.
There are some prominent similarities as well as some areas of notable differences in the two aspects of direct and indirect companies for the two companies. Nevertheless, it is crucial for one to analyze the components of each set of costs incurred by an organization in order to weigh up its management abilities, its strategic approach to cost management, and relating all these issues to the nature of the contract. Therefore, it is very crucial that the company awarded the deal is very efficient at managing its costs (Norfleet, 2007). This is a requirement for contracts of this nature because, as a fixed price contract, there will be no compensation for other additional costs incurred over and beyond the agreed upon contract price. Should the contract be inefficient, the cost is likely to escalate, making it difficult to see the contract as expected.
The Company that should be awarded the Contract
From the analysis of the information described in the previous sections about the two companies, the contract for drone navigation technologies should be awarded to Dronnet. The firs reason for granting the contract to Dronnet is the fact that it has a product that meets the requirements of the government in term of cost and efficiency (Myers & Ha, 2009). Dronnet has proven to be efficient in cost management, given that its cost effectiveness was one of the key issues which led to the company receiving its most recent government contract. In this case, analyzing the direct and indirect costs from the two companies based on the details provides, it is clear that Dronnet is more efficient at managing the direct costs associated with the project. As such, the risk of experiencing difficulties in running the project due to cost constraints is highly minimized. Dronnet has been able to present its project proposal in a manner that reflects the values such as transparency, accountability, and cost-effectiveness, hence the decision to award the company the contract for the project (Hastak & Mazis, 2014, p. 1).

Secondly, Dronnet is the most preferred company for this contract because of its investment in technology. Dronnet has invested considerably in this technology to help resolve current and emerging problems especially within the aspect of security management and general defense. Nonetheless, more significantly, Dronnet has been able to execute the previous government contract with efficiency, creating more jobs and contributing to enormous economic growth at various levels of the government (Kosmopoulou & Zhou, 2014, p. 1).
Thirdly, the company has been able to build a strong reputation in the industry as one of the most reliable companies. By examining the way in which the organization handled the first contract, it is clear that the organization has the capability of handling even bigger contracts.
Dronnet is classified as one of the leading startups that have seen immense growth. The government regulations stipulate that about 23% of government contracts be set aside for small and emerging businesses (Kosmopoulou & Zhou, 2014). The fact that Dronnet is only an emerging powerhouse in the industry is enough to win the company the contract.
Furthermore, through the company’s dealings with the government from the past contract, the organization was able to build strong ties and relationships with government officials. The company is in compliance with all the legal requirements related to this contract, hence the decision to award it for the contract from the department of defense.

References
F., S. K., V., K. M., & G., R. R. (2014). Federal Contracting for Minority Small Business Owners. Public Administration Quarterly.
Hastak, M., & Mazis, M. B. (2014). Three Decades of Marketing Academic Input at The Federal Trade Commission: Contributions to Research, Policy Marketing, and Litigation. Journal of Public Policy and Marketing.
Kosmopoulou, H., & Zhou, R. (2014). Price Adjustment Policies in Procurement Contracting: An analysis of Bidding Behavior. The Editorial Board of Industrial Economics.
Lancaster, L. (2014). changes in federal and state unemployment insurance legislation in 2013. Monthly labor review, 1-46.
Manuele, F. A. (2011). Accident cost Rethinking ratios of indirect to direct cost. Professional Safety.
West, W. G., & Lewis Jr, G. (2009). Contracting to Avoid Extra Liability. Business Lawyer.