Overview of Each Company
Skynet is a new player in the technology industry. The company specializes in the creation of technology products to address key issues in the society, including the latest models of drones. The company has been in operation for only four years, but it has achieved a lot within those four years. It has won a major government contract in the past, and it executed the contract with efficiency. The company has 12 workers; most of them are engineers and IT specialists who spent most of their days coming up with innovative technological products.
Skynet is a startup company; it is motivated by the desire to prove itself as an important player in the technology industry. Unlike other big companies, Skynet is not currently involved in other tasking contracts, and it will focus its attention on providing the best service if it secures the contract. Skynet has an effective business model; the chain of command has been minimized to improve communication and collaboration in the company. With only 12 employees, Skynet does not incur a lot of costs. Its operational model has enabled the company to minimize costs, and maintain profitability.
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Alternatively, VectorCal is a well-established technology company. VectorCal has existed for more than a decade, and it is one of the most respected companies in the technology industry. VectorCal has over 100 employees, and it has various departments that support its operations. VectorCal has received big government and private sector contracts in the past, hence its impressive track record. VectorCal has also partnered with other players in the industry, and has established a powerful network that enables it to secure lucrative deals. VectorCal’s profits have increased drastically in the past decade, and it is now one of the most profitable technology companies in the region. To remain on top, VectorCal uses the latest material and technology to come up with innovative products. VectorCal’s financial superiority also enables it to remain on top. VectorCal’s experience makes it a suitable partner for sensitive technological contracts.
Recent Contracts Awarded to Both Companies
Skynet was recently awarded the tanker contract by the federal government. Skynet won the contract because it was the only small business that had the capability to deliver (Schooner, 2010). The contract was crucial to the company; it elevated the company and differentiated it from any other technology companies. Through the tanker contract, the business created more job opportunities. The $3.8 million tanker contract was the biggest contract for Skynet, and the company dedicated all its resources to replacing old tankers for the local military planes. Skynet performed well, and the tanker contract renewed the government’s interest in awarding contracts to small businesses.
The decision to award the tanker contract to Skynet was announced by deputy defense secretary Mr. Allen, among other senior officers in the Air Force and the federal government. According to the deputy defense secretary Skynet won the contract because of various factors, apart from being the only qualified small business. Skynet’s had demonstrated the ability to keep costs low while maintaining high quality unlike other competitors. Skynet’s tender was below the specified amount from the federal government, while most large scale technology companies had overpriced their services.
On the other hand, VectorCal was recently awarded a $24 million contract to develop flight operations support for the federal government in 2015. This was a yearlong contract that made VectorCal responsible for the military flight operations. VectorCal was responsible for providing all kinds of technological support for military planes such as flight database and software and monitoring performance. VectorCal won the contract because it has a long track record of providing flight operation support of private businesses in the aviation sector. However, the main reason it won the contract is because of the sole source acquisition. The federal government gave the contract solely to VectorCal because it felt that the company’s expertise on the issue made it the best choice for the job.
Determine the type of contracts for which both companies might be eligible
According to Schooner (2010) there are different types of contract types used in federal contracting. The government uses different contracts due to the unique nature of government projects and the preference of the vendors. Different companies prefer different contract types based on the available resources and the type of work. With the fixed price contract, the federal government will agree on a fixed price at the start of the project that will not change in the course of the project. On the other hand, a cost reimbursement contract allows the vendor to recover for the costs of materials and labor used during the project, and the federal government will pay the total amount accrued at the end of the project.
The suitable contract type for Skynet is a cost reimbursement contract. Skynet is a small business in the technology industry, it is yet to undertake many projects like other companies, and hence a cost reimbursement contract is a safer option (Manuel, 2011). In a cost reimbursement contract, the fees will remain constant, but the cost of the contract is derived from the actual costs incurred during the implementation of the contract. A cost reimbursement contract takes into account the costs of labor, material, overhead costs, administrative costs and contingencies. The costs are calculated using the market value. This contract is suitable for Skynet because the company will invest a lot of resources in developing the perfect drone navigation system. A lot of technical work will be involved in the process, and Skynet might have to seek advice from other developers.
On the other hand, VectorCal can use a fixed-cost contract. In a fixed contract, the company determines a fixed price that will be incurred. Fixed price contracts hardly have the possibility of accommodating future changes. VectorCal has over a decade of experience with high risk contracts; hence it has the skills of making the right cost estimates that will leave the company with a good profit margin. Additionally, with a fixed budget VectorCal will be aware of the total cost and revenue even before the project can begin, hence, the company can make the necessary adjustments as early as possible to reduce costs involved.
Discuss at least three direct and indirect costs that each company incurred during the production of the navigation system.
The production of a navigation system involves both direct and indirect costs. Skynet is a relatively small company in comparison with VectorCal; hence it must maintain its costs very low. Fortunately, in its few years of operation, Skynet has established good partnerships with suppliers that will enable the company to access the necessary materials at low costs. Skynet will opt for cheaper materials such as low cost sensors to reduce the costs of production. VectorCal is bound to incur more direct and indirect costs during the production of the navigation system in comparison to Skynet (Schooner, 2010). VectorCal has a lot of resources, and it will dedicate the resources to acquiring the best components for the navigation system. Additionally, due to the large scale nature of activities at VectorCal, the company will also incur increased indirect costs.
The direct costs involved in the production of the navigation system include: costs of the base, costs of other hardware and training expenses. The navigation systems require a lot of expensive raw materials and skilled manpower to create. Another form of direct cost is the salaries and wages paid to the engineers, architects, software personnel and other personnel.
The indirect costs include: depreciation, rent, electricity, repairs and maintenance, and fringe benefits. Salaries and wages to the clerical and administrative staff can be considered indirect costs because such staff members are not directly related to the production of the navigation system, and yet they are necessary.
The direct and indirect costs incurred at Skynet are similar to the costs incurred at VectorCal because of the similarities in raw materials used to make a navigation system. However, there are notable differences because both companies source their raw materials from different vendors. Skynet focuses on low-cost quality materials, while VectorCal focuses on high end raw materials.
It is worth noting that the company with the best cost management strategy is more likely to utilize the $400,000 well in delivering the right product. Given then fixed price of $400,000 the federal government will feel confident in giving the contract to a company that manages its direct and indirect costs judiciously (Wallstein, 2000).
Suggest which of the company should be awarded the contract
Skynet should be awarded the contract for the production of drone navigation technology. From the analysis above, Skynet is the best choice due to various reasons. First, Skynet has demonstrated its ability to maintain costs as low as possible. Skynet had lower direct and indirect costs because it used a frugal approach for sourcing the necessary resources for building a navigation system. Skynet is more efficient in managing costs; hence it poses fewer risks of experiencing financial difficulties in implementing the project. Skynet’s proposal is centered on cost effectiveness, and functionality of the project. Skynet does not waste its resources on buying expensive raw materials, when it can access cheaper and functional alternatives.
Skynet is also a better choice for the drone navigation technology contract because it will focus primarily on the contract. Being a small business, Skynet does not secure many contracts, even the ones it qualifies for. Skynet will dedicate all its resources in developing the best drone navigation technology. Big technology firms attract more lucrative contracts; hence, a $400,000 contract will not be given the seriousness it deserves because it does not bring much revenue. The last contract for VectorCal was worth $24 million. Skynet will take contract seriously because it wants to build a better rapport with the federal government so that it can secure bigger and lucrative contracts in future.
Lastly, Skynet should be awarded the contract because it is qualified. From its proposal, Skynet has experience in drone navigation technology just like any other competitor. However, the small scale nature of the company makes it a better choice. Skynet will offer personalize service, and it will focus on creating a product that meets all the needs of the client.
References
Manuel, K. M. (2011). Contract types: An overview of the legal requirements and issues . DIANE Publishing
Schooner, S. (2010). Federal contracting and Acquisition: Progress, Challenges, and the Road Ahead . IBM Center for the Business of government.
Wallsten, S. J. (2000). The effects of government-industry R&D programs on private R&D: the case of the Small Business Innovation Research program. The RAND Journal of Economics , 82-100.
