Department of Defense Small Business Contract Essay

Department of Defense Small Business Contract - Essay Example (2009). Advantages 1. The requirement for this contract is only the delivery of the agreed merchandise, for which the contract was agreed. 2. Can also be used to test unknown contractors 3. It provides for a situation in which there is competitive bidding on the entire scope 4. Management by the owner is least required 5. It provides an incentive for the contractor to equip best resources Disadvantages 1) It bears a heavy risk to the contractor as s/he assumes the cost risk 2) Both the schedule and quality of risk is heightened 3) A very complete and in-depth definition will be needed upfront 4) There will be more costs attached when changes occur than in cost-reimbursement 5) The total schedule of the bidding process is lengthened in this case Cost-reimbursement contract This is that contract whereby a given contractor is compensated for every of its acceptable costs or rather expenses to a given limit, plus an additional imbursement to thrive to some profit (Project Management Inst itute. (1987). It is a contract with a fixed price contract, whereby the contractor is issued with a negotiated sum f money irrespective of the expenses that may be incurred thereof. There are various contracts namely the time and materials contract, the cost-reimbursement and the fixed price contracts. Each contract comes with its own performance risk and/or cost for the various agencies especially the governments but the different kinds of the cost-reimbursement contracts could be employed be it in form of the award fees, incentives etc that are put in place to motivate the contractor and subsequently dispel waste and inefficiency by the given contactor (Heldman, et al, 2007). Cost-reimbursement contract pay s the said contractor’s acceptable costs that are incurred to such extent set by the contract but may also pay an additional fee related to the performance. Such contracts do include an estimated sum intended to obligate the funds and a ceiling to that said contractor w hich exceeds at its own risk, unless agreed on and approved by the contracting personnel. This type of contract may be used in situations in which the accounting system used by the contractor for determination of costs is easily applicable to the contract and where appropriate surveillance at the time that the performance is underway (Schwalbe, K. (2009). Advantages 1) It’s also used in a situation where there is a concern in the long term quality is quite high. 2) In this case, final cost might be lower than some fixed price contract due to the fact that the contractors never inflate their prices to cover risk. 3) It has some small incentive to negotiate corners as opposed to the fixed-price contracting (Project Management Institute. (1987). Disadvantages 1. Oversight and administration is also needed in the designation of an award to be offered or any such appropriate incentive. 2. Additional administration and oversight is needed to ensure that it’s only the permiss ible costs are paid and that adequate general controls to costs are instituted. 3. Certainty is limited to the exact final cost (Project Management Institute. (1987). 4. The incentive provided to be efficient in itself is smaller as compared to the fixed-price contract. Advantage of the small over big companies in contracting There are a number of mechanisms that the government has set