Contracts Over the Last Several

¶ … Contracts

Over the last several years, the total number of federal contracts has increased exponentially. Evidence of this can be seen by looking no further than the amount of contracts that were awarded between 2000 and 2008. As, this number increased by: $3.2 trillion dollars, with the total numbers of agreements coming in at $208 billion in 2000. However, by 2008 this amount rose to $527 billion. ("Federal Contract Awards," 2009) This is significant, because it is highlighting how the overall size of federal contracts has increased exponentially.

To understand the benefits as well as drawbacks of these kinds of agreements requires conducting an analysis from: the perspective of the contractor and the federal government. This will be accomplished by: analyzing the merits / demerits of fixed price contracts, the benefits / drawbacks of cost reimbursement contracts, the areas of cost reimbursement agreements that are most challenging for contractors and looking at another kind of contract. Together, these different elements will provide the greatest insights as to the underlying advantages and disadvantages of these kinds of accords.

Analyze the benefits and drawbacks of fixed-price contracts from the perspective of a contractor.

A fixed priced contract is when there is sealed bidding that is taking place. This is when all of the various businesses will enter their bids on: the total costs and estimated time frame for providing the products / services. The basic idea with this approach is to have each contractor, not receive any kind of information on the bids of their competitors. Once this takes place, it means the federal government will receive a range of prices. This will help them to identify which bid meets their requirements and the timelines for completion. ("Environmental Management," 2005)

The biggest benefit of using these kinds of agreements (from the perspective of the contractor) is that this will allow them to independently decide if they can realize a profit off of the project. As this is forcing, businesses to examine their costs and what is the lowest bid that they can enter. While at the same time, still being able realize a profit. This is important, because it helps contractors to bid on those projects that will support their overall bottom line. ("Environmental Management," 2005)

The disadvantages of this system are: it allows for increased amounts of wasteful spending, there can be inevitable cost overruns, financing options may be limited and there are larger amounts of risk that are placed on the contract. These different elements are important, because they are showing how these kinds of agreements can provide contractors with a number of disadvantages. ("Environmental Management," 2005)

Analyze the benefits and drawbacks of cost-reimbursement contracts from the perspective of the federal government.

A cost reimbursement contract is when the project could involve a certain amount of different variables that could have an impact on the costs. In general, these kinds of agreements are issued in lieu fixed price contracts. This is significant, because it is showing how these kinds of accords are often utilized to provide both parties with: increased amounts of flexibility when the costs are unknown. (Carr, 2004)

The benefits of using this system (from the perspective of the federal government) is that it gives them increased amounts of flexibility to make adjustments to possible cost overruns. This helps them to be able to effectively budget for long-term projects such as: airports. While allowing them to: account for uncertainties (i.e. rising commodity prices). During times when the federal government is facing severe budgetary challenges, this will help to reduce waste and control costs. (Carr, 2004)

The different drawbacks of these kinds of agreements include: there must be clearly defined specifications of the kinds of services / products that are being provided, the federal government must have greater controls in place and these agreements can be used only if they are providing some kind of cost benefit. These different elements are important, because they make it difficult for the federal government to adjustment to large scale projects. This is problematic, because it means that inevitable cost overruns and delays will occur (despite using these agreements to deal with these issues). (Carr, 2004)

Discuss which element(s) of cost-reimbursement contracts tend to produce the biggest troubles for contractors and why.

The biggest elements that are giving contractors the largest challenges with reimbursement agreements are the lack of flexibility they have. Like with the federal government, contractors have to work within the overall scope of the accord. During the course of various projects, this can often lead to cost overruns. The reason why, is because the contractor must issue new agreements to: cover additional costs or changes to the underlying work. Once this occurs, it means that it is only a matter of time until there will be delays and costs will begin to soar. (Carr, 2004)

Select one other contract type (neither fixed-price nor cost-reimbursement) and explain its pros and cons from the perspective of the federal government.

Another type of agreement that could be utilized is: the fixed price with economic price adjustment contract. This is when the federal government will allow for sealed bidding to take place. However, there are provisions inside the agreement that will compensate for increases based upon changes in economic conditions (such as: rising costs for raw materials). This is important, because it shows how this type of agreement is designed to provide increased amounts of flexibility during the process. (Manuel, 2010, pp. 3 -- 6)

The advantage of using these kinds of contracts (from the viewpoint of the federal government) is that it is providing increased amounts of flexibility. This is significant, because it will allow federal officials to use this as way to: find the lowest costs possible with the greatest benefits. While at the same time, they are able to adjust to changes that are taking place from various economic events. This will help the project to be completed in timeline of the estimate and within the costs of contract. (Manuel, 2010, pp. 3 -- 6)