Federal Contracting Activities and Contract Types

Federal Contracting Activities and Contract Types
Federal Contracting Activities and Contract Types

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Federal Contracting Activities and Contract Types

Overview of the history and background of each company vying for the government contract

VectorCal: This is a big corporation which was established in the year 1976 and has a workforce of roughly 722 employees. It has its head offices in Providence, Rhode Island. The yearly revenue of VectorCal is about $317 million. It specializes in the production of navigation systems for drone as well as stealth drone aircrafts. VectorCal Company sells its products directly to the United States federal government.

It is notable this corporation is one of the few firms in the United States with the ability of producing drone navigation systems in mass for the federal government’s stealth drones. For this reason, VectorCal is a major contender for the government contract. This firm serves many clients including the federal and state governments and various businesses in the United States as well as foreign governments and companies.

Drone Systems Limited: this is the company which is also vying for the federal government contract and the only competitor of VectorCal for this contract. Drone Systems Limited is my firm and was established roughly 2 years ago. It is a small business with the head offices located in Albuquerque, New Mexico. This region is classified as a historically underutilized business zone.

This firm largely specializes in the production and retailing of drone navigation systems to private clients. Being a start-up and a small business, Drone Systems Limited has a workforce of only 29 full time staff members including myself, who is the company’s founder and owner. This firm has been in existence for just 2 years and in the past year, the firm achieved revenues of $210,000.

The vision of this small business is to become a $100 million dollar company over the next decade. Its mission is to be the best drone navigation systems company in the world that offers highly technologically advanced navigation systems for individuals, businesses and governments throughout the globe.  

Federal Contracting Activities and Contract Types

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Recent major contract awarded to both firms

One recent major contract which was awarded to VectorCal Company was the repair and maintenance works of Department of Defense’s drone navigation technologies. This contract was awarded by the Department of Defense, which is an agency of the federal government. The company won this contract because requirements stated that the eligible company should be an established firm, not a small business.

The contract was worth $623,000 hence only large businesses were eligible. The Public Law 95-507, which made amendments to the Small Business Act 1978, made official the Small Business Subcontracting Plan requirement in contracts of more than $500,000 to big, established companies. Government contracts worth over $500,000 can be awarded only to large businesses (Handley, 2015). As such, the small business Drone Systems Limited could not vie for it.    

One recent major contract that was awarded to Drone Systems Limited was the supply of 5 navigation systems to the federal government in September 2014. This small business won this contract because the contract was worth $98,000 and this small business was eligible to vie. The Federal Acquisition Streamlining Act which was enacted in the year 1994 was passed for the purpose of simplifying government purchasing procedures.

It got rid of most competition limits on federal government buys of less than $100,000 (Kearns, 2015). New procurement reform laws require that all purchases by the federal agencies that are worth more than $3,000 and less than $100,000 must be awarded to small businesses, except if the contracting officer is not able get offers from at least 2 small firms which are competitive on delivery, quality and price (US Small Business Administration, 2015a).

Furthermore, under the Small Business Set Aside Program, with the exception of acquisitions reserved for businesses that are very small, every acquisition of supplies services with a dollar value of more than $2,500 and not in excess of $100,000 is set aside only for small businesses such as Drone Systems Limited. According to the simplified acquisition procedures, procurements of more than $3,000 but less than $350,000 are also set aside or reserved for small firms exclusively (US Small Business Administration, 2015a). As such, large businesses such as VectorCal were barred from vying for this contract.

Federal Contracting Activities and Contract Types

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Contracts for which both firms qualify

The main types of federal government contracts for which both Drone Systems Limited and VectorCal Company both qualify include the following:

Fixed-price contracts: these are completion contracts and often provide a firm price. At times, an adjustable price level might be utilized for a target price, a ceiling price, or both (Deltek, 2014). Under fixed-price contracts, payment is dependent on the delivery of the required service or product.

Given that the price is fixed, the contractor will take full responsibility for all the cost as well as the resultant loss or profit. Federal agencies particularly favour fixed-price with economic price adjustment and firm-fixed price whenever they procure commercial products. Unless clearly described in the contract, the target price or ceiling price could be adjusted only through clauses of the contract that provide for fair and reasonable adjustment (Deltek, 2014).

The contractor, under a fixed-price contract, will agree to deliver the items or services at a price that does not surpass the agreed-to maximum. These types of contracts must be utilized whenever the contract risk is comparatively low or the government and the contractor could reasonably agree on the maximum price (Handley, 2015).

Federal Contracting Activities and Contract Types

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Cost-plus or cost-reimbursement contracts: these are types of contracts in which the contractor is paid by the government for all of its allowed expenditures up to a preset limit, in addition to extra payment in order to allow the contractor to make some profit. These types of contracts are different from fixed-price contracts in that in a fixed-price contract, the government pays the company a negotiated amount of money no matter the expenditures incurred (Deltek, 2014).

In essence, under cost-reimbursement contracts, the company will agree to make its best effort in completing the contract. The contract provides for payment of acceptable incurred expenses to the level that is specified within the contract.  

Time and Materials contracts: whenever possible, the government usually avoids these types of contracts given that they transfer risk from the company to the contracting organization. These contracts are essentially a hybrid of cost-reimbursement and fixed-price contracts (Deltek, 2014). They present the lowest risk to the contractor and greatest risk to the government agency, and are therefore not desirable at all for the federal government.

Direct and indirect costs

Direct costs: these are costs that could be easily traced to individual products made by the company. The direct costs for each company include the following: cost of direct labour such as wages of the factory labourers, cost of direct materials such as electronic components, cost of batteries, and fuel cells, cost of manufacturing supplies, and cost of internal combustion engines. On the whole, these direct costs are directly linked to the production of particular units of finished products/items.

Indirect costs: these are costs that cannot be easily traced to individual products made by the company. For each of the two companies, the main indirect costs include the following: power/electricity, factory insurance, salary of factory manager, quality control costs, and cost of factory depreciation. Indirect costs are also referred to as overhead and they are the production support costs that cannot be easily related to a particular product.

Federal Contracting Activities and Contract Types

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In essence, understanding the cost contributions of indirect and direct costs is of major importance, particular in planning and budgeting exercises. Nonetheless, these costs could also be vital cost concepts in the setting of price, in performing cost/benefit analysis, assessing fiscal accounting reports such as the Income Statement, as well as business case analysis such as return on investment, total cost of ownership, and financial justification analysis (Gormley, 2014).

Since Drone Systems Limited is a small business with relatively fewer employees and comparatively less direct and indirect costs associated with the production of the drone navigation systems than VectorCal, Drone Systems Limited would sell the products to the government agency at a relatively lower cost than how VectorCal would sell the products to the government agency.

In other words, the government agency would buy those products from Drone Systems Limited relatively cheaply than it would pay for them if it purchases from VectorCal, which would sell them at a higher price since it incurred higher indirect and direct costs in producing them. As such, Drone Systems Limited is more eligible to get the contract that VectorCal.   

Federal Contracting Activities and Contract Types

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Company to be awarded the contract

My small company Drone Systems Limited deserves this government contract more than the established VectorCal Company. The reasons are as follows. First, Drone Systems Limited should be given the federal government contract because it is a small business. Federal organizations are lawfully mandated to establish contracting goals such that 23 percent of all purchases made by the government are procured from small businesses (Gormley, 2014). On the whole, government organizations have a statutory obligation of reaching-out and considering small businesses such as Drone Systems Limited for procurement opportunities.

In essence, it is up to the small business to match and market its business products to the government agencies’ purchasing needs. The mission of the federal government’s Small Business Administration is to promote and stimulate economic development through assisting new companies to get started and established companies grow. Even as small firms usually come across significant barriers when they try to win contracts from federal agencies, the Small Business Administration could help them to overcome these hurdles (US Small Business Administration, 2015b).    

Secondly, Drone Systems Limited should be given the federal government contract because it would supply the products to the government agency at a comparatively lower cost or cheaper than VectorCal. Put simply, the government would save taxpayers’ money if it purchases from Drone Systems Limited than if it buys from VectorCal. This is primarily because the cost that Drone Systems Limited incurs in producing one drone navigation system is 40% less than the cost that VectorCal incurs in producing a single drone navigation of the same quality and specifications.

Federal Contracting Activities and Contract Types

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For this reason, Drone Systems Limited will price its products less costly than how VectorCal will price its products. Thirdly, Drone Systems Limited should be given the federal government contract because of its location: it is situated in a place considered as a historically underutilized business zone.

The Historically Underutilized Business Zone (HUBZone) program offers government contracting opportunities for particular small companies which are situated in eligible HUBZones (US Small Business Administration, 2015b). This is helpful in promoting private-sector investments as well as job opportunities in rural and urban communities. 


Deltek. (2014). Types of government contracts. Retrieved from http://iq.govwin.com/corp/downloads/GW-Types-Govt-Contracts-2012.pdf

Gormley, B. (2014). Government Contracting: Explaining the process in 5 steps. US Small Business Administration.

Handley, J. C. (2015). Small business contracting opportunities in the federal procurement arena. US General Services Administration.

Kearns, S. (2015). How to get government contracts for your small business. Business Development, 5(8): 12-18

US Small Business Administration. (2015a). Government contracting. Retrieved from https://www.sba.gov/blogs/government-contracting-learn-how-federal-government-buys-small-businesses

US Small Business Administration. (2015b). Small business size standard. Retrieved from https://www.sba.gov/content/summary-size-standards-industry-sector

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