It is important for organizations to make specific considerations in government contracting due to the federal regulations involved in this process. Government contracts are very competitive due to the opportunities provided by these contracts (Bean, 2015). Organizations are able to access increased resources, which include financial and other opportunities for organizations to grow and expand. This is because the government is the largest consumer of products and services in the United States, which may benefit small businesses through the provision of different opportunities (Bean, 2015). The government reviews and evaluates past contracts to determine the performance of different contractors. This also provides important information to the procuring officers to ask during the procurement process. Evaluating contracts is important in enabling the federal government in determining whether to close or renew a contract for future projects (Bean, 2015).
Comparing and Contrasting Fixed-Price Contracts and Cost-Reimbursement Contracts In Terms Of the Benefits and Drawbacks of Each to a Small Business
Fixed-price contracts involve both parties agreeing on a fixed price at the beginning of the contracting process, which remains constant all through the contracting process. This type of contracting process is beneficial to a small business as the contractor may make future plans based on expected financial gains (Jefcoat, 2015). This is because the costs and fees involved are fixed which makes it easy for the contractor to plan his/her resources effectively. These estimations are important as they impact the organization’s financial resources in different aspects which include labor expenses, the costs of materials, and other administrative costs (Jefcoat, 2015). Knowing the price of the contract upfront is an advantage to small businesses in forecasting on the expected sales.
This avoids challenges, which may be attributed to inadequate funds. The main drawback of this type of contract is setting a fixed low price, which may lead to limited financial gains as well as losses to the firm, which may be attributed to increased costs (Jefcoat, 2015). Cost-reimbursement contracts are contracts, which involve an agreement between the contractor and the procuring office to allow a contractor to recover some of the costs of supplied products, and materials, which are incurred as a result of implementing the project (Jefcoat, 2015). This type of contract is more detailed in specifics by stating the agreed recovery costs, which the contractor is able to recover from the procuring office in the implementation of the project.
This type of contract is beneficial to small business as some of the expenses are covered by the procuring office, which provides the organization with an opportunity to save some of its limited financial resources (Segel, 2016). Small organizations may have challenges in having adequate financial resources to successfully carry out a federal project due to the large amount of resources required to effectively implement the project (Segel, 2016). This contracting process is beneficial to a small business in that the business can take advantage of large opportunities, as the costs of implementing these projects are realized during the implementation process. This minimizes the risks of having insufficient funds which small business experience (Segel, 2016).
With the agreement determining the acceptable amount of costs, the small business can effectively manage the materials and supplies used in carrying out the project. The main drawback of using this type of contract is a limitation to the expected earnings due to limited accepted recovery cost (Segel, 2016). This may also be contributed by the risks, which are involved in purchasing certain types of materials, which may also lead to a conflict between the procuring office and the contractor (Segel, 2016).
Opportunities a Small Business Will Have Compared To a Large Business
Small businesses have more opportunities compared to large businesses due to the opportunities, which have been provided by the federal government to help small businesses in accessing federal contracts (Auletta, 2012). This is also meant to allow an equal distribution of financial resources among all business in the country. In sustaining job creation in the country, the government has implemented different strategies meant to encourage the development of small businesses to address the issue of unemployment (Auletta, 2012). Providing small businesses with the opportunities to access federal contracts will enable the businesses to grow and expand which had been previously affected by government regulations.
This led to the government to set up special preference for small businesses, which include Service-disabled veterans businesses, which is the case for this small business (Auletta, 2012). Since the small business are unable to access federal contracts due to competition from large firms, the government has provided specific contracts to small businesses to reduce these business disparities (Auletta, 2012). This will enable small businesses to enroll to these programs, which will promote contract awards to these types of businesses. These contracts may not be open for large-scale businesses that have to competitively compete for federal contracts with other large firms (Auletta, 2012).
Some of the government regulations concerning federal contracts may prevent small businesses from accessing federal contracts giving large businesses a competitive advantage over small businesses (Auletta, 2012). However, the government has also minimized these requirements for small business, which gives them more opportunities in accessing federal government contracts. Under the Small Business Act, the government has defined small business and provided certain federal contracting opportunities to these businesses (Auletta, 2012). The government also provides other resources to small businesses to enable them in accessing federal contracts. These may include financial resources and other exceptions to federal regulations in accessing federal contracts (Auletta, 2012).
Elements of Cost-Reimbursement Contracts Which Tend To Produce the Biggest Troubles for a Small Business
The cost-reimbursement contracts may sometimes produce challenges to small businesses in different perspectives. This type of contract is the best in closing federal contracts, however, there are negative effects associated with this type of contract, which may include cost variance, which is the difference between the actual cost and the budgeted amount (Segel, 2016). This may lead to increased costs, which may not be covered by the procuring office, which may lead to a conflict between the small business and the procuring firm (Segel, 2016). This may also affect the financial gains expectations, which may negatively affect the operations of the business in successfully implementing the project. Having uncertain costs at the time of the contracting process may be a risk to small businesses that may not have adequate resources to cover any excess resources required to cater for excess costs (Segel, 2016).
It is important for businesses to have actual cost estimates, which is used in effectively planning for the implementation process of a project. Without having an exact cost of a project, a business may operate on a high uncertainty in most of its budgeting process (Segel, 2016). This may negatively impact a small business which works with a fixed budget due to its limitations on financial resources (Segel, 2016). With this type of contract, small businesses may be ineffective in their performance and regulation of costs since they know that they will be compensated for any costs incurred. This may also be a problem if the business reaches the maximum accepted level of costs, which may affect the performance of the business in fulfilling its obligations to the procuring office (Segel, 2016).
Best Form of Contracting That Would Benefit a Small Business The Most
The most effective form of contracting that would benefit a small business is a cost reimbursement contract, which enables contractors to recover costs incurred within a determined level by the procuring office (Opelt et al., 2013). This form of contracting is the most effective in that it does not require other administrative costs like other forms of contracts. Due to the limited amount of resources in small businesses, this type of contracting will prevent the business in using its limited resources to cover some of the incurred costs (Opelt et al., 2013). This is beneficial to small businesses, as they are only required to perform the contract using the least efforts and resources.
Due to the uncertainties in fulfilling federal contracts, this type of contract will be most effective in addressing variances in cost, which may be challenging to small businesses because of their limited resources (Opelt et al., 2013). This form of contracting shifts the expenses from the contractor to the procuring office, which enables the contractor to concentrate on other important aspects of the business, which are important in effectively implementing the project (Opelt et al., 2013). This may lead to a successful evaluation in the performance of the business, which may lead to the renewal of the contract or awarding of other contracts in the future.
Since the procuring office caters for the incurred costs, the small business will have more profits compared to a fixed-cost contract where the contractor carries the burden of all the incurred expenses (Opelt et al., 2013). With the procuring office playing a major role in addressing the incurred costs, the business can implement the project at a cheaper price, which may lead to increased revenues, which are important in expanding the business (Opelt et al., 2013). Due to the uncertainties involved in successfully implanting specific contracts, this type of contract allows businesses to successfully complete a project regardless of some of the difficult situations, which may arise during the implementation process (Opelt et al., 2013).
Best Form of Contracting That Would Benefit a Large Business The Most
The most effective form of contracting that would benefit a large business is the fixed-price contracting which requires contractors to cover all costs incurred in implementing the project (Kim, Roberts, & Brown, 2016). The contractor is also required to successfully deliver the expected results regardless of any adjustments. This type of contracting is beneficial to a large organization since it may focus on minimizing any expenses incurred increasing the organization’s profit margins (Kim, Roberts, & Brown, 2016). Large organizations have excess and adequate resources, which may be useful in addressing some of the challenges incurred during the contracting process. These large companies are also well equipped in managing some of the administrative costs, which may rise in implementing these contracts (Kim, Roberts, & Brown, 2016). This is because the business and the procuring office agree upon a balanced agreement for each party.
This type of contracting does not subject an organization to administrative burden, as the contractor is responsible for managing the costs incurred in implementing the contract successfully (Kim, Roberts, & Brown, 2016). This type of contracting also gives the contractor an opportunity to make financial predictions, which may offer more stability to the business. This is important in enabling the business to implement the project successfully (Kim, Roberts, & Brown, 2016). Due to the risk of having conflicts with other types of contracting, the fixed-price contracting eliminates such circumstances, as both parties fully understand the details of the contract and their different responsibilities in successfully fulfilling the contract (Kim, Roberts, & Brown, 2016). The contractor does not have to worry about variable elements of the contract, which may result in a conflict with the procuring office. This gives him/her the opportunity to manage these variables effectively (Kim, Roberts, & Brown, 2016).
A Plan on How a Small Company Would Justify the Government to Award the Company the Contract When the Form of This Contracting Supports Larger Companies
Although this form of contracting supports larger companies, the federal government has set aside preference awards to small business for different reasons. This is one of the opportunities that small business can justify to the government to grant them the contracts (Stanberry, 2013). If the small businesses fulfill the stated requirements, the government may consider awarding the contracts to these businesses. The most important aspect for small businesses is to qualify for these contracts regardless of their size (Stanberry, 2013). Qualifying as a small business involves adhering to the strict guidelines provided by the government, which may be determined by its available resources as well as the number of employees in the company (Stanberry, 2013).
This will minimize some of the implemented restrictions, which may prevent organizations from accessing government contracts. Another advantage to small businesses is that the government favors small businesses with a 23 percent of their contracts set aside for small businesses (Stanberry, 2013). This is meant to help small businesses in expanding by accessing different opportunities in federal contracting which will help the businesses to access financial and other important resources (Stanberry, 2013). Since this business is among those companies with preferential treatment by the government, this can be used to justify to the government to award the contract to the business. Since this company has already acquired one contract with the Department of Defense, this can also give the business an advantage over other firms (Stanberry, 2013).
It is important for small businesses to perform federal contracts effectively as this may determine their next process in getting federal awards, which are of a higher value (Bean, 2015). Small businesses can take advantage of the programs and opportunities provided by the federal government to help the businesses in accessing federal contracts. This will enable the businesses to compete with other large businesses for federal contracts (Bean, 2015). It is also important for the small businesses to select the most effective form of contracting which give the businesses more benefits and minimal expenses. This will provide the businesses with opportunities to grow and expand which will also enable the businesses to have adequate resources to effectively compete with other firms as well as successfully carry out government contracts (Bean, 2015).
Auletta, L. (2012). Federal Acquisition Regulation; Proper Use and Management of Cost- Reimbursement Contracts. Federal Register (National Archives & Records Service, Office of the Federal Register), 77(42), 1292512927.
Bean, J. J. (2015). Big government and affirmative action: The scandalous history of the Small Business Administration. Lexington: The University Press of Kentucky.
Jefcoat, K. R. (2015). The Federal Circuits 2014 Government Contract Decisions. American University Law Review, 64(4), 807.
Kim, Y. W., Roberts, A., & Brown, T. (2016). Impact of Product Characteristics and Market Conditions on Contract Type: Use of Fixed-Price versus Cost-Reimbursement Contracts in the U.S. Department of Defense. Public Performance & Management Review, 39(4), 783813.
Opelt, A., Gloger, B., Pfarl, W., & Mittermayr, R. (2013). Agile contracts: Creating and managing successful projects with Scrum. Hoboken, New Jersey: John Wiley & Sons Inc.
Segel, K. R. (2016). The complete guide to government contract types. Tysons Corner, VA: Management Concepts Press.
Stanberry, S. A. (2013). Federal Contracting Made Easy. Oakland: Berrett-Koehler Publishers, Incorporated.