SkyVap is a fast-growing business specializing in the manufacture of surveillance devices in the IT market. The group has emerged as a highly dynamic power in providing direct solutions to security and other related problems. The company has been in the market for seven years and continues to pursue a number of large acquisitions and mergers, and can therefore be defined as increasingly expanding from the start-up level. It began as a national IT consulting and logistics business, which then became a production company. The company has grown in leaps and bound and has managed to secure its first major contract with the government. The government project ‘Street Surv’ that aimed at improved CCTV coverage and surveillance of the streets across the major towns was awarded to the company of which it executed with efficiency.
The company has a skilled workforce that goes through further training once enrolled with the company to ensure that it has the most competitive workforce in the industry. All the employees are CISCO approved and registered with the International Board of Information Technology, and they are selected on merit. The company also ensures that it broadens the employment clusters. Where there are departments that need less competitive skills, and more of manual input, it employs people on a contractual basis to ensure they provide the opportunity to a bigger number of people. The company has enjoyed great success because of its effective management that ensures the company’s objectives revolve around accountability, responsibility and cost effectiveness. The company accords the required environmental measures in its production techniques ensuring that they are all eco-friendly and environmentally sensitive.
VectorCal is among the biggest competitive giants in the IT industry with over ten partnerships and mergers. It has been in operation for over 15 years and one of the pioneers in drone prototype testing. It is led by a highly competitive team and a broad capital base considering their highly diversified product portfolio. The company is strategically positioned in the market with a strong reputation and one of the most decorated CSR programs. The company has managed to use their influence to secure lucrative deals from the government, non-governmental organizations, and other major companies. Considering their strong brand name, VectorCal has enjoyed a persistent profitability over the years thus has managed to structure a high profile management with the sufficient resources to drive towards their objectives.
SkyVap managed to secure a government contract for the development of the Army defense systems against undetectable danger from the new lethal threat on the battlefield which is the small off-the-shelf low-flying drones. The company was assigned the responsibility of developing 20 sets of devices for countering drone systems. The Pentagon had approved the project as urgent and critical after the increase in the recent cases of soldiers being caught off-guard. The military has discovered that the small and the off-the-counter quadcopters are the most complex and cannot be detected by the radar (Seddon, 2009). SkyVap completed the project successfully and was awarded for the effectiveness in the execution and management in the short time span needed. The Director of Defense rated the company among the future top prospects for upcoming projects.
VectorCal handled one of the recent and most lucrative drone system-upgrade contracts. The Ministry of Defense was in need of enhancing combat by the soldiers on the ground by providing them with a fellow ‘drone soldier’. The government approved the project of developing a voice command drone for assisting the soldiers in executing remote and high-risk target operations. The drones are supposed to be provided with voice commands for navigation and launching an attack on the enemy (Rendon, 2010). This is as the soldier moves and positions themselves with ease in case of a secondary attack. The project was successful and rated as one of the recent revolutionary developments in the combat world.
Types of Contracts
The two companies are IT based companies and therefore depend on trials and prototype development in the industry. This means that in most of the IT projects the companies need to develop two or more working prototypes, test them and once approved then manufacturing can start for industrially approved products. The most effective mode of contract for the two companies is cost reimbursement which is the most commonly used in the government contracts where the price is determined by actual production costs and the agreed rates of profits. The computation of the price is easy, and the companies shield themselves from unforeseen costs and expenses. Furthermore, projects like these require multiple stages of development with the continued emergence of costs which need constant reimbursement. The projects are highly sensitive and therefore require constant reimbursement due to the multiple stages of development.
Direct Costs and Indirect Costs
Direct costs are described as the expenses that the company incurs on direct production of goods. The direct costs can be attributed directly to the goods in their final stages, they mostly add value to one object, and thus the consideration of costs as either indirect or direct is done through consideration of the perception of the good. This includes items in the process of production such as equipment, software, raw materials, and labor. The IT industry is one that needs various inputs such as pre-generated software, purchased frameworks and the development of applications that serve as the direct costs. Direct materials and labor input are used in the creation and the production of the commodities where they constitute the direct costs. When it comes to other costs such as salaries, they are direct costs but keep on varying therefore referred to as the variable costs (Horngren, 2009).
Indirect costs are the costs that precede the costs associated with the production of a good. These are the costs that remain pending after the fixed costs are computed and can be described to as real costs in conducting the business operations. The materials that are needed for the organization for the purpose of conducting the daily activities are perfect illustrations of indirect costs. Examples include utilities, supplies for cleaning, desktop computers, office utility, equipment, and mobile devices. These components contribute to the progress and the functionality of the company, but they are not attributed or assigned to the creation of a given product or service. The indirect labor expenses constitute the production and manufacture of cost objects; however they cannot be assigned to a given product. For instance, the support staffs in clerical services assist in the maintenance of the office and the company. Therefore, labor serves as the indirect cost. The other most common indirect expenses include marketing, advertising as well as communication, accounting and the payroll compilations.
The direct costs for SkyVap and VectorCal are similar in most aspects however for the purpose of the difference in operations then each of the company accounts for their direct costs differently. SkyVap incurs much of the direct costs in raw material purchases, labor, and equipment in that order. SkyVap purchases most of the materials from Japan and China where some of the parts needed for the project come at a low price and in bulk. The company does not have the capability of processing the parts from the basic nature to usable segments thus has to bear with the raw material cost. Labor is an inevitable direct cost since the company’s staff has to work extra hours for the completion of the project in the time span provided. This means that there shall be an increase in the number of staff from other departments as well as a review in the working hours where they shall be increased. Equipment is another direct cost since SkyVap is still seeking to secure a partnership deal with a major assembly company; this means that they have to hire equipment for the final assembly of the products from another company. On the other hand, SkyVap experiences indirect costs in the form of electricity, rental costs, remunerations and salaries for the staff. These are common for the two companies since they have to undergo the normal production expenses.
VectorCal incurs direct costs in the form of labor, raw materials, equipment and relevant software. The company incurs the direct costs respectively as stated because they have a high profile labor force and a large number of employees. This means that the company undergoes intensive costs in achieving the end products through labor input. The company needs to purchase part of the raw materials considering that they are in partnership with a company that deals with the rare earth elements for electronic devices such as Coltan. However, they have to ship some other raw materials from Japan and China. They have also not managed to secure a prominent partnership deal with an assembly line, and therefore they need to hire equipment for the assembly of the final products. Finally, the company lost a lawsuit against another major company on the software used. This means that the company has to pay rights for the application of their current software program. VectorCal incurs indirect costs that are not very different from those of SkyVap. The indirect costs for VectorCal include transportation, rental charges, electricity, salaries, and compensations. However, the labor structure of the company contributes to a higher proportion of indirect costs in compensation and salaries despite the fact that they have the fastest and most effective workforce.
Company that should receive the contract
SkyVap is the most prime company that should be given this contract over VectorCal. The first reason is the fact that the company that has handled a recent project similar to the current project is SkyVap. The company was developing a system that could detect the drones avoid unseen attacks from the low-flying quadcopters. This means the project is similar to the present drone navigation system underway. On the other hand, VectorCal engaged a more sophisticated drone upgrade system based on voice command for the military with specific roles based on remote attacks. Secondly, navigation systems shall rely more on space simulation programs such as those that SkyVap engaged in the radar development for small drones. Thirdly, SkyVap has lesser direct costs associated with production meaning that the company can require lesser funding than VectorCal. SkyVap has only three major direct costs whereas VectorCal has an additional direct cost on the required software for production. This means that the government shall need to provide more reimbursements. Finally, SkyVap has lesser indirect costs where it has a lesser number of staff working on the project and also has a lower rate of remuneration for the employees than VectorCal.
Seddon, N. (2009). Government Contracts: Federal, State and Local. Federation Press.
Rendon, R. G. (2010). Assessment of Army Contracting Command’s contract management processes (No. NPS-CM-10-154). NAVAL POSTGRADUATE SCHOOL MONTEREY CA GRADUATE SCHOOL OF BUSINESS AND PUBLIC POLICY.
Horngren, C. T. (2009). Cost accounting: A managerial emphasis, 13/e. Pearson Education India.