A Government Contract Award

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Introduction

The industry of manufacturing drone navigation systems is rapidly growing nowadays. More and more companies are getting involved in it and striving to win government contracts. Collaborating with the federal government has many advantages: substantial revenue, more excellent stability, maximum security, and a good reputation. On the other hand, it has its disadvantages, including numerous regulations, slow payments, and a lack of benefits. Nevertheless, the former considerably outweigh the latter; thus, the fact that the Department of Defense issued a one million dollar contract to a company specializing in the manufacture of drone navigation systems is likely to attract much attention. VectorCal and Universal Drones Inc. are the main competitors for this government contract, and it is vital to determine the most worthy winner.

The history of VectorCal and Universal Drones Inc. (300 words)

Both VectorCal and Universal Drones Inc. have proved to have their strengths and weaknesses, which are crucial for the auditor, who has to choose the most suitable company for the contract. They are high-tech firms that do their best to stick to the demands of the modern world. Their visions and missions reveal their values and ideas about the present and the future of the drone industry. The companies’ executives and employees endeavor to follow their visions and missions regardless of severe problems they may face.

First, Universal Drones Inc. was one of the first in its industry, and it brilliantly succeeded in providing customers with high-quality products. It was formed to make drones more accessible for both ordinary people and different institutions. The firm’s vision communicates the idea of encouraging individuals from diverse backgrounds to look at things from various perspectives through modern technology. Universal Inc. focuses on people who intend to interact with the environment to create something new and useful. Besides, the best engineers from all over the world assemble its products. However, the company’s pricing policy was regarded as unreasonable in the past, since it was one of the monopolists of the drone market because of poor competition. Even though the situation has changed over the last few years, the auditor should pay more attention to the firm’s expenses.

Second, VectorCal is a strong and worthy opponent of Universal Drones Inc. The company’s employees are occupied with important developments in the industry of manufacturing drone navigation systems. They work diligently to create products, which are worth full attention and genuine appreciation. VectorCal’s vision implies the significance of technology accessibility for the broad audience in the modern world. Furthermore, its mission presents the firm’s overwhelming desire to create products, which are essential parts of people’s daily lives. VectorCal also focuses on supplying its customers with high-quality products within short periods due to the automated drone assembly technology.

Contract Types

The auditor must determine the most effective type of contract for both a winner and the Department of Defense at first. There are many types of contract agreements, which differ in market conditions, price competition, contracts’ length, technical complexity, and motivations of all stakeholders (Cox, 2020). The most widely used contract types are fixed-price contracts and reimbursement contracts. It may be challenging to choose the right one, though it is evident that the federal government usually prefers the first option.

Firm-Fixed Price Contracts

Firm-fixed price contracts are widely used nowadays because of their numerous benefits. The main differences with reimbursement cost contracts include the amount of profit incentive offered by clients for achieving the main goals and the amount of responsibility placed on each stakeholder (Cox, 2020). Firm-fixed price contracts lay more burden on contractors, as prices of products and services are fixed initially and cannot be changed later. Even if some additional costs come out in the process of production or service provision, it is the contractors’ responsibility to deal with them independently. Hence, the federal government prefers this type of contract in most cases. Furthermore, profit incentive is undoubtedly a critical issue for numerous sellers. A fixed price can encourage them to work more diligently, save resources, and meet deadlines. In general, firm-fixed-price contracts motivate executives and employees to work steadily and efficiently to spend less money on direct and indirect expenses to raise more substantial revenue.

Reimbursement Contracts

The federal government practices reimbursement cost contracts less often because they involve more negotiations and responsibilities than fixed price ones. According to Cox (2020), “These contracts establish an estimate of the total cost for the purpose of obligating funds and establishing a ceiling that the contractor may not exceed without the approval of the contracting officer.” Therefore, it is impossible to determine the final price for provided products or services, as it is recognized at the end. Even though some limits are established, customers do not know the exact sum of money they should pay. These contracts are only used when it is possible to count expenses adequately. Besides, Cox (2020) noted that reimbursement contracts are suitable if agreements are goal-directed (research and development projects) or cost and scope are difficult to estimate.

A Contract Type for Each Company

Universal Drones Inc. is a company, which has already won numerous contracts and successfully collaborated with the government. Hence, its executives are familiar with firm-fixed-price contracts and are aware of proposing a reasonable price for its products. The company uses qualitative forecasting; thus, reimbursement cost contracts are not a good option. The reason for it is that expert judgment is inefficient in predicting market changes.

On the other hand, VectorCal has less experience in collaborating with the government and uses quantitative forecasting. Undoubtedly, conducting numerical analysis is a more robust method than gathering experts’ opinions in manufacturing drone navigation systems because it can produce more accurate results. However, reimbursement contracts are more preferred by VectorCal, as it has worked before with such type in the commercial market.

Expenses

It is critical to analyze the expenses of both companies before choosing the winner of the government contract. Every company covers direct and indirect costs and the auditor needs to pay full attention to the former and the latter. Without any doubt, VectorCal and Universal Drones Inc. incur considerable expenses due to numerous factors, as the manufacture of drone navigation systems involves an enormous amount of money.

Indirect Costs

Indirect costs involve money that companies spend to keep operating. Office of Acquisition Management and Policy (2017) reported that they “include charges which are frequently referred to as overhead expenses (for example, rent and utilities) and general and administrative fees (for example, officers’ salaries, accounting department costs, and personnel department costs).” Both VectorCal and Universal Drones Inc. consume much electricity and heating, as the companies’ facilities occupy a large area. Besides, the process of producing drone navigation systems takes a tremendous amount of energy. factorial is likely to have higher indirect expenses, as the company will need to hire more employees to complete the Department of Defense’s project. Without any doubt, recruitment is costly, especially when a company needs highly skilled workers. Consequently, both VectorCal and Universal Drones Inc. incur vast indirect expenses. However, it is evident that the former’s ones are higher because it is smaller and needs to hire qualified engineers to meet the government contract’s goals successfully.

Direct costs

What is more, indirect costs involve money spent on manufacturing products and providing services. They include labor and materials, which are critical to reaching companies’ goals. Direct costs significantly outweigh indirect costs in most industries. Undoubtedly, the manufacture of drone navigation systems requires various high-quality materials and skillful and responsible employees. Quality is a critical principle in producing drones, as even minor mistakes of workers or some faulty materials are likely to lead to adverse consequences. Therefore, it is essential to pay a high price for good quality for VectorCal and Universal Drones Inc. The labor market substantially benefits from the drone industry, as it creates higher-quality jobs paying premium salaries (Ministry of Transport, & Ministry of Business, Innovation, and Employment. (2019).) In addition, money invested in research and development is referred to as direct expenses. Universal Drones Inc. is famous for its extensive and ground-breaking research and remarkable results. It hired and collaborated with prominent experts in numerous fields. Even though VectorCal’s employees are occupied with significant developments, the company is just beginning its in-depth drone research.

The Company to Win the Contact

After analyzing all the advantages and disadvantages of VectorCal and Universal Drones Inc., the auditor has to make a final decision and determine the best company. Without any doubt, it should be Universal Drones Inc. due to numerous reasons. First, the federal government has decided to offer a firm-fixed-price contract, and Universal Drones Inc. prefers it. The firm has already signed many different firm-fixed-price contracts with the government, and its executives possess much knowledge on how to deal with them effectively.

Second, it is evident that the expenses on this project of Universal Drones Inc. are likely to be considerably lower compared with VectorCal. The former was one of the first companies in the industry of manufacturing drone navigation systems and succeeded in satisfying most of its clients. The number of skillful employees the firm has is considered to be the largest not only in the country but also in the world. Universal Drones Inc. does not need to hire new workers for this project. The firm’s research database is vibrant; thus, it will not invest numerous financial and human resources in it, as there is no need to do it.

Finally, Universal Drones Inc. is the best choice if the federal government desire to get high-quality navigation systems. Many satisfied customers claim that its products are among the finest, though prices may be comparatively high. Moreover, thousands of highly skilled employees work diligently to create the best drones, as they receive premium salaries and many other benefits. It is also vital to emphasize the significant role of the company’s research and development in manufacturing excellent goods. Without any doubt, the quality of drone navigation systems is one of the essential factors the Department of Defense will pay attention to.

References

Cox, P. (2020). Contract types part 1 – firm fixed price and cost reimbursement. Montana PTAC. Web.

Ministry of Transport, & Ministry of Business, Innovation and Employment. (2019). Drones: Benefits study. New Zealand: Lawrence Mcllrath.

Office of Acquisition Management and Policy. (2017). Indirect cost: definition and example. Web.

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