Overview of the Two Contracting Companies
Dronetech and VectorCal are manufacturers of drone navigation systems. The US government has made efforts to invest more on defense. As such, there is need to purchase more aerial unmanned vehicles. Currently, the machines are commonly referred to as drones. They share the US air space with commercial and other aircrafts. There is need to develop navigation technologies that will enable the unmanned drones to avoid other crafts in the air (Austin, 2010).
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The aim is to reduce cases of loss of drones following aerial accidents. The Department of Defense is in the process of advertising a $400000 government contract to achieve this objective. The money has been set aside to purchase drone navigation technologies for the government. A government auditor has been contacted with the aim of examining the operational data of the companies that will express their interest to participate in the contract.
In the US, contract auditors are employees of the federal government. Their role is to assess the suitability of each of all companies and entities vying for the contract in question (Sol, 2014). They pay more attention to the price and cost analysis of the operations carried out by each of the companies. Following the analysis, they make recommendations to the federal government regarding the company that is best suited for the contract.
The contract in question involves the purchase of drone navigation systems. The undertaking has attracted the attention of Dronetech and VectorCal. VectorCal is one of the leading players in the sector. It was established in the 1990s. Being one of the oldest players in the industry, its reputation has attracted both local and international clients (Austin, 2010). Dronetech, on the other hand, is a new company. Having operated for less than a decade, there are concerns on the capability of the company to fulfill huge defense contracts.
Dronetech and VectorCal: Major Contracts Offered
Both VectorCal and Dronetech have won key contracts in the US and in the international market. For example, in 2014, VectorCal was awarded a $48,600,000 contract by the federal government (Rifkin, 2014). In the contract, the company was required to offer flight operations support to industries operating in the country. Some of the programs that the company was expected to support during the 2014 fiscal year included On Orbit Assets, Highly Elliptical Orbit (HEO), and Geosynchronous Elliptical Orbit (GEO).
The company was also required to offer flight operations support to Space Based Infrared Systems (SBIRS). As such, the entity played a major role in assisting the US further its space surveillance. With the help of the organization, the government has been able to improve its defense systems, especially in the areas of missile warning and characterization of battleships.
The project was offered by the US Department of Defense. The company was most suited for the job as a result of its high processing capacity. It is a well established entity. As such, it had the capability to fulfill the contract (Rifkin, 2014). The company’s engagement in extensive research on drone technologies made it the most appropriate candidate for the contract.
Dronetech, on the other hand, has also been involved in a number of contracts. The most notable engagements that the company has been involved in took place in 2014. When a passenger plane from Malaysian Airlines disappeared, Dronetech was one of the organizations contracted to assist in the search. Approximately $110,000,000 was spent in the undertaking. The company was awarded $ 3,000,000 for its part in the search mission. In the contract, a total of 1,800,000 square miles of open seas were to be searched using unmanned crafts.
The company was most suited for the job as a result of the high endurance of its crafts (Rifkin, 2014). The firm’s drones can fly for over 20 hours without refueling. The unmanned crafts operated by the company are also not prone to pilot fatigue often experienced after 6 flight hours.
Types of Contracts the Companies are Eligible for
VectorCal is eligible for fixed price contracts. With regards to these types of contracts, it is noted that the amount of money paid to the contractor is not affected in any way by the cost of resources to be used and the time to be spent by the company in fulfilling its obligations as per the agreement. The type of contracts is common in the military and the government (Rifkin, 2014). Such agreements are aimed at putting all risks on the contractor.
VectorCal is eligible for this type of contract since it is a large company capable of completing the job in question effectively without compromising on quality. In most cases, the government awards such contracts to big companies that are well established. In addition, such organizations have a vast experience in the sector and have a proven capability of fulfilling the contract without fail in spite of the costs and risks associated with it. In the process, the Department of Defense will be in a position to bring down the cost of the contract.
On its part, Dronetech is eligible for cost reimbursement contracts. The deals are also commonly referred to as cost-plus contracts. In this case, the contractor is paid for all the expenses incurred up to a particular set limit. On top of that, the contractor is paid an extra amount, often negotiated by the parties, in order to allow for profits. Dronetech is eligible for this contract since it is an upcoming company (Austin, 2010).
The type of agreement will ensure that the organization effectively develops drone navigation systems without having to worry much about the costs to be incurred. Quality will be upheld in the process. Being a start-up, Dronetech will also be shielded from overrun costs. As such, the government will have achieved one of its goals, which is to support entrepreneurship.
The profit margin made possible by the government will guarantee the continuity of the firm. Since a limit is set on expenditure, the company will try to cut costs to avoid having to shoulder the overruns.
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Dronetech and VectorCal: Expenses Associated with Navigation Systems
There are a number of costs that the two companies incur when manufacturing their navigation systems. The costs can be clustered into two. They are direct and indirect. The former cluster is linked to the actual production of navigation systems. Indirect costs, on the other hand, are those that result from activities unrelated to the production of the systems.
In the case of VectorCal, direct costs that will be incurred in the manufacture of drone navigation systems include those associated with material expenses, software and app development, and contract management (Austin, 2010). Material cost will range from designing the drones to actual construction. However, the company deals with large scale production. As such, it is expected to enjoy economies of scale. The firm will also incur costs in app and software development.
The apps and software are needed to increase maneuverability of the drones. Contract management will also be a major direct cost. A contract manager has to be appointed and a number of employees selected to complete the undertaking. Indirect costs associated with VectorCal include employees’ salaries, expenses, and rent (Austin, 2010).
Since the company is large and has a lot of operations, employees are mainly hired on a permanent basis. Extra space will also have to be rented to allow the company to fulfill the contract. Expenses incurred by employees, such as food and allowances, will also be taken into consideration.
In the case of Dronetech, direct costs include those associated with labor, materials, and tests (Austin, 2010). Since it is a start-up, Dronetech must hire additional labor to fulfill the contract. Material costs in this case will also range from design to construction. The company must also conduct tests to ensure that their systems are working properly. Given that it is a start-up, the firm could experience problems with its navigation systems.
Indirect costs to be incurred range from those linked to administrative tasks, rent, and energy (Austin, 2010). The company is small and handles fewer contracts compared to VectorCal. As such, it concentrates all its resources on the fulfillment of ongoing contracts. Administrative costs will be incurred given that the contract will be supervised by top management.
The cost of the contract will also include the rent to be paid for the space to be used for manufacturing. In addition, energy will be a significant expense in the fulfillment of the contract considering that the company may not be having any other production activities going on in its plants.
Data concerning the costs associated with the two companies is important in determining which would be more eligible for the contract (Sol, 2014). The reason behind this is that contractors tend to factor in all these costs when determining the pricing of the contract. Pricing is the total amount that the contractor charges to fulfill the obligations indicated in the agreement. In both fixed price and reimbursement contracts, costs are a major factor when it comes to pricing. As such, the company with the least costs is the most eligible.
Company Most Eligible for the Contract
VectorCal is the most eligible company for the contract. The reason behind this is that the firm has successfully engaged in similar contracts with the government in the past. In 2014, the company worked in collaboration with the federal government in a $48,600,000 contract. As such, there is no doubt that it has the capability to fulfill a $400000 engagement.
VectorCal is also known to produce high quality systems, especially in the defense sector. Considering that this is a sensitive government department, the reputation of the company comes into play. VectorCal is also a large organization (Austin, 2010). As such, it enjoys economies of scale (Sol, 2014). Consequently, marginal costs, such as labor and energy consumption, are low. As such, its pricing of the contract will be lower compared to the one made by Dronetech.
Austin, R. (2010). Unmanned air systems: UAV designs, development and deployment. New York: Wiley.
Rifkin, J. (2014). Zero margin cost society. London, UK: Palgrave Macmillan.
Sol, J. (2014). The reckoning: Financial accountability and the rise and fall of nations. New York: Basic Books.