VectorCal is one of the major drone navigation systems companies in the US. Their forecasting methods are efficient enough to ensure maximum utilization of resources. It is a well-established organization in the IT industry that has been in operation for over ten years of service. VectorCal has had tremendous growth and ended up being among the leading organizations. For that case, this company has successfully partnered with other great companies extensively in the industry using the right connections and strategically positioned itself in the market. It has also contributed to the quest to conserve the environment thus building a strong reputation within the state. Therefore, due to its unquestionable experience in drone technology amongst other technologies, it is clear that it may fully qualify for the proposed government contract.
On the other hand, Dronnet is another great company in the Information Technology industry. This company uses its advanced technology to resolve some of the most crucial issues in society today. Dronnet has been in operation for a period of fewer than five years, hence can be classified as a startup company. However, the company has really experienced positive growth since its establishment enabling it to win at least one major contracts issued by the federal government. The company’s human resource is estimated to have about twenty-five workers, most of them being technologists. The organization has contributed to the country’s economic development and provided employment opportunities thus has really been praised for that. Good management that emphasizes important aspects such as transparency at work, as well as accountability in their services, has contributed to the success of this organization.
Contracts awarded
Dronnet was awarded a tanker contract by the federal government on which it was able to execute it efficiently. The company was able to win the deal because of significantly improving job creation from the small entrepreneurial businesses in the state. This contract was really crucial as it helped the company create jobs for the youths locally and also increase its operational scale. The organization was awarded the contract as a result of its high technological advancement in the computer industry. Just like a swarm of bees, this organization can dispatch a number of drones to do whatever mission they have been assigned to. This company is thus very legible to the $400000 contract as it has displayed a high level of expertise.
On the other hand, VectorCal was awarded a contract worth 48.6 million dollars in order to support flight operations support and the factories for the year 2014. For this matter, this company was given the responsibility to provide support to various elliptical orbits and their assets. They will be sustained by the flight operations support in the main support centres. This contract provides a tremendous support to the software's and flight Databases as well as monitoring the performance that will take place in Calif. The main reason as to why the organization was awarded the contract was its vast experience in the delivery of these services as well as its ability to deliver the services efficiently.
Types of contracts and cost analysis
Both of the above mention organizations may qualify for different forms of contracts that shall be issued by the Department of Defense worth $400000. This shall depend on the results of this cost analysis on the usage of its resources within the organization. A fixed-price contract provides a price that cannot be adjusted even based on the experience of the contractors' performance. This type of contract places the contractor upon a lot of risks and also is fully responsible for the resulting profits or losses (Shi and Xiao, 2008). This gives them a maximum incentive to effectively perform to avoid too many administrative burdens. If the performance is not as agreed upon, then the firm is not paid. But if it is performed well, then the agreed price is paid. This technique is most preferably used during delivery of commercial goods. Vectorcal has extensive experience in projecting profits and losses hence can quickly determine the costs that would be incurred as well as expected profits. Since they were able to contract with the federal government over a 48.6 million dollar project, it means it is able to deliver. This is then the best approach to make a contract with them.
A cost-reimbursement contract is a contract where the contractor is paid for all of its expenses to a certain set limit with some additional payments to allow for profits. These additional payments may include Cost reimbursement may contrast with a fixed-price contract, because the contractor is paid regardless of the expenses, a negotiated amount. The contractor also makes measurable efforts to meet government’s needs within the estimated cost. Higher risks are imposed on the Federal government (Bernardi & Hennessy, 2016). From the fiscal years between 2003-2008, federal contracts made under cost-reimbursement contracts have been reported to increase from $120 billion to $136 billion. This approach is better used by the Dronnet as they will be paid allowable costs incurred, to the extent prescribed by the contract and a fee related to the performance. Over the past years, the government has used the fixed cost approach but the cost reimbursement method has had a positive percentage growth. In this particular contract type, the government is not guaranteed the agreed services, but since the Dronnet has an impeccable history of providing efficient services to its customers, then it is legible to be of service.
The time and materials is a contract where labour rates are fixed per hour including, indirect costs, wages, general costs of administration and the profits are paid for. The government might also offer the contractor other direct costs, like the travel and also materials costs. These contracts include a certain ceiling price that is fixed and if the contractor exceeds it, they pay for it without question. Government is at high risk because it is as well not guaranteed a completed project or service within that ceiling price. This method is rarely employed as compared to fixed price and cost reimbursement.
There are several merits and limitations associated with these types of contract payment methods. For cost reimbursements, a cost-plus contractor has little to no incentive to avoid expenses unlike in fixed cost, the other advantage is that the final cost may be less than that for fixed price contract since contractors do not have the need to inflate the price to cover their risk and also the long-term quality is of more importance than the cost in the US thus it is suitable for the Dronnet. Limitations include uncertainty in the total final cost and also it requires administration oversight to ensure payment of permissible costs. Monitoring of the proper use of the resources provided for by the government is among the main demerits of cost reimbursement method of contracting.
Direct costs
Direct costs are prices attributed to the payment of the provision of certain goods and services. They do not need to be fixed in nature as they may vary depending on the amount that is to be utilized (Barthelemy and Quelin, 2006). In the production process in the navigation system, direct costs related to the cost of materials that are used to manufacture these systems. They may include instrument upgrade costs, fueling and more as shall be mentioned. Vectorcal incurs direct costs in their daily running company ranging from payment of its labour, materials and expenses. The labour costs include welders, the supervisors involved in the production and the operators in the equipment. To the production industry where it is supposed to cater to the materials to be used and also acquire highly trained personnel in order to complete a specific project. Vectorcal has incurred very high direct costs in its operations as it uses the latest information technologies and drones. This also includes hiring highly advanced drones with the latest technological advancement in order to perform certain projects.
Direct costs are also the expenses that are directly related to a particular object that is a cost object, like in the case of a product, the raw materials used to manufacture the product, or the labour put with the work to produce that product.
Dronnet, on the other hand, incurs labour and material costs. It incurs direct costs to workers such as food allowances, temporary housing as well as other expenditures during the production period. This is then the major breakthrough compared to the Vectorcal as its costs are directly related to production. This means the company can utilize few resources in production thus attain the goals of the project, unlike Vectorcal which may utilize most resources in paying non-profitable commissions to the employees.
Indirect costs
Indirect costs refer to costs that are not accountable directly to a cost product. They may include security, personnel and administration costs (Bajari and Tadelis, 2001). These are the expenses incurred on secretaries, drivers and managers. They do not in any way relate to production. Both companies incur indirect costs such as payment of utilities such as water, electricity and network connection and also repairmen of machinery as well the premise rent. Both companies reside in very big premises thus incur very high charges on rent and utility bills. There are two types of indirect costs, one is the fixed indirect costs like the activities or costs that are fixed for a particular project like transportation of labour to the site and building the temporary roads to facilitate the transportation of the materials to be used from the company location to the site of the project. The other indirect cost is the recurring indirect costs which include activities that are repetitive for a particular company such as paying salaries and maintaining records. Both companies employ workers for the purpose of their production. The salaries as always are paid from the highest ranked employee to the lowest paid social workers. Their salaries vary in both companies which must be considered for this matter. This variation is as a result of the cost of production of services between the two organizations. Vectorcal spends a lot in these indirect costs since it has very many employees as compared to Dronnet which only has 25. Vectorcal also deals in very big projects which makes them incur very high fixed indirect costs of transportation. Over time, the indirect costs have increased depending on each companies' utilities and economic growth. However, any of the companies may be awarded the contracts in regard to its indirect costs.
Recommendation
From the comparison between the two companies above, it is clear that the recommended company is Dronnet. This is due to its performance ratio turnout compared to Vectorcal. This means that the organization can be able to utilize the $400000 that shall be issued by the Defense Forces effectively by proper distribution of the resources. This organization has been able to secure government contracts previously including the Tanker contract which was major for the federal government. This organization should also be considered as it has been able to experience vast growth regardless of how soon it started. This company can also promote economic growth as seen in its ability to provide job opportunities for the youths in the state hence a major improvement in the states’ job markets. With the allocation of direct and indirect costs, it is clear that Dronnet can deal with it appropriately. This is because it has better forecasting techniques than Vectorcal.
References
Bajari, P., & Tadelis, S. (2001). Incentives versus transaction costs: A theory of procurement contracts. Rand journal of Economics, 387-407.
Bernardi, G., & Hennessy, M. (2016). Modelling session types using contracts. Mathematical Structures in Computer Science, 26(3), 510-560.
Barthélemy, J., & Quélin, B. V. (2006). Complexity of outsourcing contracts and ex post transaction costs: an empirical investigation. Journal of Management Studies, 43(8), 1775-1797.
Shi, K., & Xiao, T. (2008). Coordination of a supply chain with a loss-averse retailer under two types of contracts. International Journal of Information and Decision Sciences, 1(1), 5-25.
