Big companies offer an added advantage to the government in terms of providing various contractual agreements due to their financial resources, expertise, and reduced risks. Further, such firms are in a better position to engage in further cooperation and investments as compared to other firms that have less developmental, financial, and expertise experience. In this case, small businesses are often at a disadvantage when competing with big companies for government contracts. Hence, only affirmative action and policies can allow small businesses to have a fair share of government contracts.
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The Small Business Association (SBA) is an organization, which draws membership from small businesses in the United States. It proposes different approaches through which undersized businesses can access projects towards their development (Levenson, 2014). One of the primary achievements of the SBA is its Historically Underutilized Business Zone (HUBZone) Program, which was turned into a policy by the government.
The primary aim of the program is to help small businesses, both in the urban and rural setting, to have a fair consideration in government tenders. Further, the key aim of the HUBZone is to increase employment opportunities, economic development, and investments in areas that are categorized under the HUBZone (Kahler, 2013). Under this program, various factors are taken into account for a commercial activity to be classified as a small business (Levenson, 2014).
Firstly, such a business should have ownership of a minimum of 51% for US Citizens, an Agricultural Cooperative, a Community Development Corporation, or an Indian tribe. Secondly, it must be a small business as categorized under the SBA. Further, it must be located within a traditionally underutilized commercial sector. Lastly, 35% of the workforce of the firm must reside in the HUBZone (Cullen, 2012).
Under the government budgeting system, all government agencies and programs are required to have ‘small business set-asides’, which refer to the process of setting aside certain acquisitions, which are exclusively meant for small businesses (Abegg, 2013). In other words, the program of small business set-asides allows miniature businesses to get a chance to work with the government as a way of giving them access to business opportunities that would have otherwise gone to bigger organizations (Maser & Thompson, 2013).
For instance in the Department of Navy, when considering a small business that focuses on ceramic tiles and marble floors, the section is obliged to ensure that all the firms that bid for the job are qualified as guided by the HUBZone requirements (Lusby, 2013). This paper examines the process of acquiring a contract with the Navy for Angeleana Torres Inc.
HUBZone Qualification for Angeleana Torres Inc
It is crucial to appreciate the existence of well-established set criteria that qualify a firm to a ‘Small Business Categorization’. As a firm that focuses on providing ceramic and marble tiles and related services, Angeleana Torres Inc. is qualified in many dimensions to provide the protective floor coating for the US Navy as specified in the Request for Proposal (RFP) #987654321 dated August 2, 2015.
In this case, the company is qualified as guided by the Size and Standards classification by SAB based on the North American Industry Classification System (NAICS), which refers to the official standard framework. The US-based Federal Statistical Agencies use the framework to classify businesses based on the statistical data on the US business economy. Under the HUBZone Act, FAR 19.5 provides the set-aside measures for small businesses.
For instance, FAR 19.502-3(3) calls for one or more small businesses to have technical competence and productive capacity (Levenson, 2014). In this case, Angeleana Torres Inc. has the capacity and technical competency to undertake the requirements of the given contract. The company, which has a workforce of 53 workers, has the experience of close to 10 years in not only the provision of marble and ceramic tiles but also their installations and furnishing as part of the focus of the US Navy contract (Bernstein, 2013).
As indicated by the HUBZone Act, the second most central factor for consideration is pointed out in FAR 19.103 (b) (1). The Act specifies that the size standards for small businesses are clarified in terms of the product or service that a firm offers. Secondly, such standards can also be specified in clause (2) by identifying the size of the typical SBA for the industry. In this case, Angeleana Torres Inc. is qualified to bid the offer and/or avail of the required services because it meets the set criteria as identified by the NAICS Code and the SBA definition for small businesses (Maser & Thompson, 2013). For instance, the company has a total number of 53 workers.
Further, the yearly turnover of the company is approximately USD 10 million, which is in the range of the NAICS Code classification that requires a company to have a maximum of USD 15 million to be classified as a small business for the provision of Flooring contracting (Cullen, 2012). Angeleana Torres Inc. lies in this category. Consequently, from the above discussion, it is evident that the company is qualified in terms of expertise and experience in the given area that the Department of Navy seeks ‘Requests for Proposal’. Secondly, the company meets the NAICS Code classification in terms of the revenues that it gets annually. The code is the foremost criterion for classifying business as either small or large.
A Multiyear (MY) contract refers to an agreement that indicates the purchase of supplies or services by an agency of the government for more than 12 months (Cullen, 2012). In this case, the contracting agency hires an organization to supply specific supplies that are worth several years, although only a single contract is signed in the initial year of the contract (Holmes, 2012). Multiyear contracts have various advantages that are accrued by both the contractor and the contracting agency (Bernstein, 2013). For instance, in the case of Angeleana Torres Inc. and the Department of Navy, a multi-year contract is very advantageous to both parties.
Firstly, a multiyear contract offers a long-term commitment, which allows the two parties to engage in the long-term (Lusby, 2013). For instance, in the contract between Angeleana Torres Inc. and the Department of Navy, a multiyear contract will require the Department of Navy to purchase several years’ worth of service from Angeleana Torres Inc. for delivery across the specified number of years. Such an approach may give Angeleana Torres Inc. the required finances to expand in other areas of the business while at the same time ensuring long-term fruitful cooperation with the government.
Secondly, as indicated by the HUBZone Act FAR 17.105-1(b) (1), such a contract is highly preferred if it is likely to result in saving for the contracting organization by eliminating yearly contractual costs if the contract is to be carried afresh annually. In this case, the use of the multi-year contract will result in saving for the Department of Navy since it will effectively eliminate the costs that would have otherwise been used if the contract were to be awarded yearly.
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Thirdly, through a multilayer contract, the contracting party can be assured of standardized services since the services are offered by a single entity (Maser & Thompson, 2013). In many cases, each organization has a way of doing its activities, which cover even the delivery of the contractual agreements (Kahler, 2013). In this case, by ensuring that only Angeleana Torres Inc. gets the contract, the Department of Navy will be assured of standardized services for the duration of the engagement.
Lastly, it allows the contracting party, in this case, the Department of Navy, to focus on other activities and programs without the need to establish quality standards for the contract each year. In other words, a multi-year contract allows the contracting party and the contractor to come up with quality standards at the beginning of the contract, which is expected to run for the entire duration of the agreement. In this way, the Department of Navy will avoid the tedious process of setting new quality standards for contractors, as it would be the case if the contractor would not be a multi-year contract.
Pros and Cons of Firm Fixed Price Contract
The Department of Navy has already indicated that the contract proposals will be based on Firm Fixed Price Contracts with Economic Adjustments. In this section, the focus will be on analyzing the advantages and disadvantages of a Firm Fixed Price Contract with Economic Adjustments. A Firm Fixed Price Contract is defined as a type of treaty where the particular price, which is predetermined at the time of contract award, is not modifiable during the life of the indenture (Hawkins & Muir, 2014).
In this case, the cost estimates are usually based on the contractor’s experience and expertise in handling such work. One advantage of a Firm Fixed Price Contract with Economic Adjustment is that it allows prices to be accustomed according to economic changes such as price augmentation, consumer price index, and/or other commodity price indicators that may adversely affect the cost of delivering the contract (Bernstein, 2013). In this case, the price may be adjusted upwards or downwards depending on the economic changes that have an impact on the pricing of goods and services that are guaranteed under the contract.
With a Firm Fixed Price, another advantage is that the contractor is aware of the costs that are to be incurred and ultimately the earnings that will be made at the end of delivering the obligations that have been set under the contract (Abegg, 2013). Such a situation allows the firm to plan on how to capitalize on its earnings from the project since it is aware of the gains that are expected from the contract.
On the disadvantage side, the Firm Fixed Price is not adjustable, unless via the areas that are specified under the economic adjustments or a misquoting of the price, especially under-quoting. This rigidity may result in losses to the contractor since it is an obligation to complete the work under the price that was awarded at the start (Adams, 2014). This situation is a significant disadvantage to the firm since it requires much experience and careful thinking to ensure that the quoted prices will result in returns, rather than losses to the contractor.
The advantage of the Firm Fixed Price Agreement to the contracting firm is that it eliminates unnecessary re-negotiations and price adjustments, which can easily lead to high prices for the contracting agent beyond what had been anticipated (Holmes, 2012). On the disadvantage side, the economic adjustments, volatility in the market, and other changes in price indices may drastically increase the price of the contract. This cost falls on the contractor.
Technical and Cost Proposal
Angeleana Torres Inc. is pleased to offer our bid to provide specialty coating for ceramic tile and marble floors for your Department of Navy as clearly specified in the Request for Proposal (RFP), #987654321 dated August 3, 2015. Angeleana Torres Inc. has been providing ceramic and marble tiles for the last 8 years. Hence, it has the prerequisite experience and know-how to provide the needed coating services.
Carrying out the Project
Angeleana Torres Inc. seeks to enter into a contract with the Department of Navy in a three-year firm-fixed-price contract with economic adjustment, which will ensure a continuous provision of coating services for ceramic and marble floors. The areas to be covered under the contract will be Building A, Room 300, Cafeteria Room Size 50 X 40, Building B, Room 500, Admiral’s Conference Room Room Size 15 X 20 and Building C, Gymnasium Room Size 100 X 60, as clearly identified in the RFP.
|Joss Marble & Ceramic Ltd For Specialty Coating for Ceramic Tile and Marble Floors (Department of Navy)|
|Material Costs||Labor Costs|
|Building A||Room 300||50 X 40||$60,000||$5000|
|Building B||Room 500||15 X 20||$40,000||$ 4000|
|Building C||Gymnasium Room||100 X 60||$120,000||$15000|
|Maintenance (Lump sum)||$50,0000|
|Economic Adjustment: Adjustments will be made on a need basis. Such adjustments will be based on drastic changes in the consumer price index and inflations of more than 5% |
The maintenance fee costs have been adjusted to cater for direct and indirect costs that are involved in providing maintenance during the period of the contract
Potential Risks for the Company upon being Awarded the Contract
In conclusion, it is crucial to appreciate that any business transaction or contract has its potential risks. This case is not an exception for Joss Marble & Ceramics Tile Ltd. Several risks will be expected if the company is awarded the cost.
Firstly, underestimating the costs of the contract is a significant risk that any company may face. In this case, the contract has been awarded on a Firm Fixed Price, which means that the company may incur losses if it underestimates the cost of the contract. As a small business, the second risk is that the company does not have adequate resources for financially draining projects. In this case, if the Department of Navy does not make payments on time, the contract may slow down other projects that the company is undertaking. Lastly, if the company does not satisfy the requirements and expectations of the Department of Navy, it may greatly affect its ability to secure future contracts with the department or any other government agency.
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