Federal Contracting Activities and Contract Types

Introduction

To contest favorably for a government contract, companies often need a competitive advantage over their opponents. The navigation systems industry in this context does not have too many competitors and, thus VectorCal has to rival mainly with DynaTech for the government contract. However, in order to determine which company is preferable, it is important to analyze the capabilities of each enterprise focusing on their direct and indirect costs, performance history with respect to similar contracts, and the kind of agreement that the companies qualify for.

Company History

The DynaTech Company is focused in the drone navigation systems industry with the capability of creating a custom standard operating process throughout the organization. This enables the company to work effectively across its numerous departments producing the desired materials, especially with regards to the acquisition, transfer and identification of the knowledge. This enterprise also has a history of finding solutions in complex situations under the effective leadership of the management team. The company is built on the vision of creating an improved form of expertise for its consumers without neglecting the security needs associated with the systems. Thus, it focuses on providing impeccable navigation systems that are not only well-designed to meet the specifications of the customers but also serviceable and easy to maintain. The company has also created a business model that enables it to maintain reasonable prices for products that could easily be very expensive if the production costs are not kept under control.

Comparatively, DynaTech is able to provide navigation systems at the lowest possible market price without compromising on its’ quality. This makes DynaTech’s navigation systems the most affordable in the market. This company is also built on the policy of transformational leadership as a way of developing the employees and ensuring that they are all effectively motivated to serve in an appropriate way to the organization. As such, DynaTech is well-structured to guarantee high-quality products and services at all times.

VectorCal is, on the other hand, an older company in the navigation systems industry with a number of successful contracts so far. The organization is built on the concept of efficiency with a supply chain component that is meant to lower operational costs and ensure high level of profitability. As such, VectorCal can be considered as one of the most successful companies in the industry being based on its organizational structure and performance efficiency. The enterprise has an impressive history in terms of serving customers and meeting their deadlines as agreed upon in the contracts.

Recent Major Contracts

VectorCal signed a contract worth $48.6 million for supporting flight operations. The company is currently responsible for providing supportive services to the Geosynchronous Elliptical Orbit and the Highly Elliptical Orbit as well as others on-orbit assets. This contract also provides VectorCal with being in charge of creating and monitoring the flight database and software so as to monitor the performance of the SBIRS. The contract further mandates VectorCal to work with the Space and Missiles Systems Center as well as the Infrared Space Systems Contracts Division. It can be appreciated that this is a very large contract that has placed the organization in charge of a lot of activities within the SBIRS. Designing the navigation systems while also maintaining and monitoring them implies a long-term business relationship with the clients. A main reason as to why this company was awarded the contract is that VectorCal was able to undertake all the required activities, thus providing the organization with needed products and services (Zullo, 2006). VectorCal appeared convenient because it was a sole source and the contract would be more reasonable for the client.

DynaTech is a new company with minimal exposure and, consequently, it cannot be considered to have handled any major contracts as yet. The organization is still focusing on the administrative components of their operations while handling smaller agreements for the supply of the navigation systems and the required raw materials to other contractors such as VectorCal. A recent contract, however, was signed with the Border Patrol where DynaTech is responsible for designing drone navigation systems to be used for patrolling the American borders.

Contracts that VectorCal and DynaTech Qualify For

The most suitable contract that both VectorCal and DynaTech would qualify for without a problem is the cost plus fixed fees. The cost plus fixed fees is a type of contract where the contractor is reimbursed the total cost of executing the contract along with a fixed fee that is negotiated at the beginning of the agreement. This kind of contract allows the contractor to bill the customer for the production costs as related to the document. In that case, the customer is totally responsible for the entire production process in terms of the financial needs to be reimbursed as agreed upon. Other than this, the customer will also have to pay a fixed fee that can be considered as the service fee. This sum is paid on top of the production costs for the given contract (Adair, 2011). Thus, the contractor ends up with profits after they have covered the incurred production costs. The fixed fee is usually the profit obtained from the contract in question.

A cost plus fixed fee contract mainly protects the contractor from a situation in which they could invest too much money in the production process and not get enough returns after being paid. Generally, this type of contract works is the best for companies that are likely to incur steep costs in the production process. The cost plus fixed fee is the most suitable agreement type in this case because the navigation systems industry is a very costly one. The companies have to indulge in a lot of research and development as they aim to follow the changing technologies in the industry. The intended contracts would require a lot of technical work with the need for very costly materials and high-quality labor. The companies in this case cannot risk spending all the money required to execute the contract if they are not guaranteed to get back as returns on their investment.

Direct and Indirect Costs and Their Relevance to the Contract Decision

The direct costs incurred by both VectorCal and DynaTech include direct labor, direct materials, and manufacturing supplies. It can be appreciated in this case that VectorCal mainly employs indirect labor for most of its productions as related to the drone navigation systems. The company often acquires processed components for assembling in order to create the final product. Consequently, they incur direct labor costs at a technical level in composing the final drone navigation systems. DynaTech, on the other hand, incurs direct labor costs from the start to the end of the production process. Comparatively, the company (DynaTech) has more control over the costs that they have to spend for a given contract with respect to the required labor.

As for the materials, it can be appreciated that while DynaTech purchases the basic components of their drone navigation technology, VectorCal acquires the processed components. Uniquely, in this scenario it means that DynaTech also has more control over the amount of money they spend on raw materials. VectorCal’s expenses on this front are incredibly higher because the company has to buy them from a third party rather than from the source.

Manufacturing supplies include aspects that are needed within the company during the process of making the drone navigation systems (Moseley & Charnley, 2014). Considering that VectorCal does not go through the entire process of building the product from scratch, it can be expected that their costs for manufacturing supplies would be lower than that of DynaTech.

As for indirect costs, it is important to note that factors like rent, utilities, and supervisors’ salaries are the most significant ones. Here, it must be noted that DynaTech is a smaller company than VectorCal, with fewer projects at hand. As such, it means DynaTech is able to operate a small location in a convenient part of the country where the cost of living is low and the rent required is also relatively affordable. With its large size and need for wide space, as well as the fact that it is a huge company located in a big city, VectorCal has higher rent expenses as part of their indirect costs (Adair, 2011).

In terms of utilities, the large space, and a high number of projects undertaken within VectorCal implies that the company is likely to get very high utility bills especially with respect to power consumption. DynaTech is relatively smaller, with not big projects compared to VectorCal, and the limitation of working on one project at a time since the company barely has the space or staff to handle a lot of large contracts simultaneously. The fact that the enterprise is more indulged in the manufacturing process of their drone navigation systems may imply somewhat higher power consumption level but this would still not be as high as the utilities at VectorCal.

Regarding the supervisors’ salaries, at VectorCal they often have to work on many projects, thus requiring high salaries as part of the performance-based compensation. The supervisors at DynaTech, on the other hand, have to focus on one draft at time, so they do not need to be overpaid (Moseley & Charnley, 2014). It can also be appreciated that the larger company has more supervisors than the smaller one that makes VectorCal’s costs on supervisors’ salaries higher than that of DynaTech.

All of these costs are significant in the decision for awarding contracts because they give the customer a picture of which company would be more expensive to work with (Adair, 2011). Considering that the cost plus fixed fees is the most practical contract type, the government would have to look for the company whose costs are within a reasonable price range. At this point, it can be noted that understanding the direct and indirect costs enables an accurate comparison on both organizations to establish the cheaper option.

Recommendation and Conclusion

In this case, DynaTech should be awarded the government contract. First, the company is able to focus on one project at time considering that it is a small company with no other large contracts at hand. Consequently, DynaTech will be able to devote all its time and efforts towards the contract and execute it within reasonable time. The second thing is that DynaTech has a reasonable price range based on their direct and indirect costs. As such, the amount of money to be paid for the contract will be lower for DynaTech compared to that for VectorCal. The third reason for supporting DynaTech in competition for this contract is that this small company is in charge of the entire manufacturing process for the drone navigation systems. This makes it easier for them to reassure the quality and security of the systems compared to VectorCal who buy manufactured parts for an assembling and distribution.

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