Contractor cost estimation involves processes for forecasting the total cost of providing materials, labor, or service based on market prices at the time of estimation. Numerous factors influence the final cost estimate, among them, being government policies’ involvement in the process. The purpose of this paper is to summarize and discuss the article, Contracting, and Accountability under Leaner Government.
The article introduces the current situation of increased privatization of procurement and construction, a function that was mostly carried out by the federal government of the United States of America four decades ago. This change comes at a time when the federal government is downsizing in resources; hence the requirement improved efficiency in handing out contracts. To achieve this, the use of a guideline to analyze transaction costs has been proposed. In the analysis planning costs, research on market price, tendering cost, bargaining, monitoring, and the finalization of the contract are done (Berrios& Mckinney, 2017). Notably, the past few decades have considerably increased in a bid to ensure that the government’s involvement reduces the costs, as well as enhanced efficiency, is throughout the procurement system.
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Comparative analyses of in-house against outsourcing costs are done. If the in-house cost is higher than outsourcing costs, then the contract is outsourced. This affects the private sector cost estimation, in that, its costs have to be less than the federal government’s. The transaction cost analysis is critically done because it clearly outlines the different levels of federal government responsibility in analyzing contractor costs. According to the author, contracting-out is normally viewed as a way of seizing opportunities that market inefficiencies create. However, studies have revealed that it is a profound practice that is marred with unethical behavior and extra costs. Such behaviors include charging the government for goods that have been purchased to benefit the contractor or cases where the contractors collude so that they increase the costs of their goods, rather than lowering them.
Solicitation involves making the public aware of the presence of a contract allowing interested parties to be assessed competitively in terms of cost, performance, and risk. According to the Government Accountability Office (GAO) for the solicitation processes to effectively work, there needs to be clearly measurable goals for the contract and coupled with skilled labor to properly estimate the cost of the contract rather than defer to the profit-oriented private contractors. This allows for improved government analysis of contractor costs. As a crucial step, solicitation ensures that plans are developed, with all the quality- assurance requirements in mind and evaluation of the contracting officers, administrators, and assessment of when the required performance can be achieved. The contract is then awarded to the contractor, who portrays to have the best value to the government. The person should also depict strict adherence to the applicable laws, common interests, and regulations. According to the article, this calls for a common understanding between the contracting officers and the government agencies to tell which bid is advantageous to the government. Certainly, such an understanding minimizes deficiencies that may arise during the award and negotiation process.
The government has further responsibility in analyzing contractor costs during the negotiation phase. The main role of the contracting officer under the federal government is to be obtaining the most favorable terms of contract cost and output that is in line with the objectives of solicitation. If done right, numerous opportunity costs of wastage are avoided. In addition to this, the government can monitor previous outputs of private contractors to reflect the costs that may be incurred in the future pertaining to contract failure. This can be done by assessing measurable outputs and having them as a requirement for obtaining government contracts. The article provides that the ingredients of effective contracting include the proper comprehension of what role transaction comes to play and the making of a consequent decision on the best-suited decision between contracting-out and contracting-in. In a nutshell, the decision on which contracting methods are suited best is informed by carrying out a cost-benefit analysis. Nonetheless, unethical behavior finds its way when contracting parties are not able to tell their specific costs, because such instances prompt them to behave opportunistically, taking advantage of the situations. Such behavior is equivalent to the hidden cost that is ethics related. Indeed, it is the goal of every business to seek maximum profits. Conversely, some are business are far-reaching, whereby they take advantage of all economic situations, without having the benefits of the company cease to become the common good.
According to the article, the federal government has been revealed to lack an oversight system with the ability to work in the current system, which is key in analyzing contractor costs before they are awarded. The paper cites a lack of skilled labor, and no continuous sharing of information between the contractor and the government up until the project is completed. They compare the required standards of the Performance-Based Assessment in the navy with their recent scandals citing that it did not have recent information on pricing and quality standards for the competitive tender process.
In conclusion, the government has a myriad of responsibilities in analyzing the contractor’s cost in order to serve the public interest best. According to the paper, the Federal Government can achieve analysis by increasing the skilled workforce to measure objective targets and encourage ethical and transparent monitoring of the entire process.
References
Berrios, R., & McKinney, J. B. (2017). Contracting and accountability under leaner
government. Public Integrity , 19 (6), 559-575.
