Contract Pricing Finance Guide, Research Paper Example

Introduction

In today’s society, there are many factors that contribute to the development of new contracts that cover a wide variety of services. When creating these documents, it is important to identify the basic criteria that will be necessary for the contract to be valid and to be acceptable to all parties. This is a process that supports the development of different outcomes that will promote a mutually beneficial arrangement between these individuals or groups. When working in a federal capacity, it is very important to distinguish between the different factors that will be useful in supporting the desired contractual outcomes. These elements must be conducive in promoting a positive relationship between vendor and buyer. However, within the federal system of contracts and pricing, it is necessary for a contracting officer assigned to develop a specific contract that will achieve the stated purpose. The following discussion will address the roles and responsibilities of a federal contracting officer in acquiring a new proprietary database program for use across a given agency. This process requires an expert understanding of contracting process, the terms and conditions that must be included in the contract, and the expectations that are set forth when a system is selected, a price is provided, and a contract is drawn up. This process necessitates an approach that will satisfy the needs of an organization and its people.

Analysis

The bureaucratic nature of the federal system requires contracts and other documents to be evaluated and approved at many levels, which supports the overall mission and direction of this large government entity. In the development phase of a contract from the ground up, a number of alternatives are often proposed that will be useful in conveying the importance of selecting the appropriate contract pricing strategy. Therefore, a contracting officer must be knowledgeable in the areas of contract development and pricing in order to achieve success in these objectives.  Contract pricing is generally managed in one of two ways: “Sealed bidding is characterized by a rigid adherence to formal procedures. Those procedures aim to provide all bidders an opportunity to compete for the contract on an equal footing. In a sealed bidding acquisition, the agency must award to the responsible bidder who submits the lowest responsive bid (price). In contrast, competitive negotiation is a more flexible process that enables the agency to conduct discussions, evaluate offers, and award the contract using price and other factors” (Vacketta, 2010). In the context of the proprietary database acquisition, the most feasible approach is the competitive negotiation, because this enables many different vendors to provide the government with the specifications of their systems, as well as the cost of doing business with these organizations. This will ensure that the government agency makes the most optimal choice, depending upon the specifications that are required. However, additional information is required in order to ensure that the best possible contract opportunity is being considered, given the underlying resources that are available and the circumstances of the department.

Based upon Federal Acquisition Regulations, Subpart 16.104, there are a number of contract alternatives that are available for federal agencies to choose from in establishing new agreements with outside vendors. The basic requirements of any contract are the following: “A wide selection of contract types is available to the Government and contractors in order to provide needed flexibility in acquiring the large variety and volume of supplies and services required by agencies. Contract types vary according to— (1) The degree and timing of the responsibility assumed by the contractor for the costs of performance; and (2) The amount and nature of the profit incentive offered to the contractor for achieving or exceeding specified standards or goals” (Acquisition.gov). From this perspective of contract development and selection, it is necessary for a department or agency to consider all possible needs before the contract is established in order to avoid any type of serious problem in executing the terms of the agreement (Acquisition.gov). Therefore, the contracting officer possesses a particularly important role in identifying the type of contract that will be most appropriate for this type of transaction, as well as the terms and conditions that must be incorporated into the agreement before it is executed by both parties.

There are a number of important factors that also contribute to the selection of a contract by a federal agency, and these requirements are necessary to support the success of the contractual arrangement throughout its life. These efforts also demonstrate that the contracting officer in charge of the selection and negotiation must obtain input from a number of different sources prior to making any final decisions that may impact the organization in different ways. Therefore, both types of contracts, fixed and cost reimbursement, must be explored in greater detail so that the appropriate decision is made that will provide the broadest impact for the organization (Acquisition.gov). In general, “Selecting the contract type is generally a matter for negotiation and requires the exercise of sound judgment. Negotiating the contract type and negotiating prices are closely related and should be considered together. The objective is to negotiate a contract type and price (or estimated cost and fee) that will result in reasonable contractor risk and provide the contractor with the greatest incentive for efficient and economical performance” (Acquisition.gov). From this perspective, it may be argued that a federal contracting officer possesses a significant responsibility to ensure that the selected contract type is appropriate for the database under consideration.

For the purposes of this acquisition, it is likely that a fixed price agreement is the most optimal choice, because it offers the parties the most structure in terms of purchasing power, which is the government’s primary preference (Acquisition.gov). These elements are also critical to the selection process because they enable the contracting officer and the prospective vendor to discuss any required terms and conditions as early on in the process as possible. Some criteria to consider in the early stages of contract negotiation are as follows: “a) Price competition. Normally, effective price competition results in realistic pricing, and a fixed-price contract is ordinarily in the Government’s interest. (b) Price analysis. Price analysis, with or without competition, may provide a basis for selecting the contract type. The degree to which price analysis can provide a realistic pricing standard should be carefully considered” (Acquisition.gov). This is a unique process that requires individuals involved in the negotiations of these agreements to determine which pricing structure will be most feasible for implementation and execution through the terms of the agreement (Acquisition.gov). These factors are also important because they preserve the funding that is set aside specifically for projects of this nature (Acquisition.gov). These elements also provide a greater understanding of the primary concerns that are involved in this process from the bottom up.

In selecting a fixed price contract for negotiation, there are a number of strategies that are important in determining how to proceed with the terms: “For most contract actions, the contracting officer or the contract specialist is the pricing analyst — the expert who analyzes material prices, labor rates, and indirect cost rates” (Acq.osd.mil). This is an important approach in order to determine how to manage the contract effectively from the very beginning (Acq.osd.mil). In any situation involving a contract at the federal level, it is best to approach these circumstances with a clearer understanding of the limitations of each party in facilitating the terms and conditions of the contract in the appropriate manner (Acq.osd.mil). Therefore, additional measures must be considered that will be useful in supporting these approaches and their outcomes over the long term (Acq.osd.mil). A federal contracting officer must demonstrate an approach that is based upon the options that are available in supporting the terms and conditions of the contract, and in satisfying all required obligations from start to finish.

The contract pricing process must also incorporate the different challenges that are required to ensure that the federal agency is receiving a fair and equitable price for the product it is considering for purchase. To be specific, “The contracting officer should use every means available to ascertain whether a fair and reasonable price can be determined before requesting cost or pricing data. Contracting officers must not require unnecessarily the submission of cost or pricing data, because it leads to increased proposal preparation costs, generally extends acquisition lead time, and consumes additional contractor and Government resources.  (b) Price each contract separately and independently and not—  (1) Use proposed price reductions under other contracts as an evaluation factor; or  (2) Consider losses or profits realized or anticipated under other contracts.  (c) Not include in a contract price any amount for a specified contingency to the extent that the contract provides for a price adjustment based upon the occurrence of that contingency” (Acquisition.gov 15.4). These basic criteria play a role in determining how to move forward in order to ensure that the federal agency and the representing contracting officer are provided with the tools that are necessary to support the desired outcomes and expectations of the vendor and the acquisition (Acquisition.gov 15.4). These elements are also critical in shaping the overall expectations of the agreement and its potential outcomes (Acquistion.gov 15.4).

In determining which pricing structure will be most feasible for the government agency, the government contracting officer must also demonstrate that he or she is knowledgeable and experienced in the world of contract negotiations, while also considering how the terms of the contract will be effective in achieving the desired purpose. Federal contracting officers possess a difficult role, and they are required to ensure that the federal government and its agencies are protected at all costs from unnecessary risks. As a result, these officers must be apprised of any and all updates to Federal Acquisition Regulations so that they make the appropriate choices on behalf of the government. This is an ongoing process that requires an effective level of support, and it demonstrates that although federal contracting offers are the representatives in negotiating pricing and other strategies, they depend upon other employees in order to protect the best interests of the government under these circumstances.

Prior to selecting a vendor and negotiating a contract, it is the responsibility of the federal contracting officer to ensure that all bids are reviewed thoroughly and consistently. In accordance with FAR, “Evaluation of the proposals includes an assessment of the proposals’ relative qualities, based upon the factors and subfactors specified in the solicitation. Typically, the CO will evaluate (a) the offeror’s cost or price proposal; (b) the offeror’s past performance on government and commercial contracts; (c) the offeror’s technical approach; and (d) any other identified factors for award. FAR 15.305. During the evaluation period, the CO and source selection team may communicate with the offerors to clarify ambiguous proposed terms. FAR 15.306” (Vacketta, 2010). It is important under these circumstances for the federal contracting officer to work collaboratively with the proposed vendors in order to select the system that will be most feasible for the department and its needs.

Conclusion

The role of the federal contracting officer is to ensure that the appropriate contractual mechanism is selected, accompanied by the most feasible pricing structure. This process requires an expert level of knowledge and understanding of a basic contract and its possible terms and conditions. This process then leads to an exhaustive review of all bids and proposals in order to make the decision that will have the best possible impact on the organization as a whole, and that protects the best interests of the federal government at all times. Therefore, it is necessary for the contract officer to take the steps that are necessary to support the best possible contractual arrangement. Therefore, it is essential for the officer to determine how to move forward in order to protect the interests of the federal government in supporting the purchase of the desired database. There are a number of important challenges that also represent a means of supporting the needs and expectations of the federal government under these circumstances, and also support the development of contracts that will be successful in managing the needs of the agency in question. Therefore, the contracting officer’s role in selecting a fixed price contract for this set of circumstances is very relevant and essential to the success of the contractual arrangement.

References

Acquisition.gov. Subpart 15.4 – contract pricing. Retrieved from https://www.acquisition.gov/far/html/Subpart%2015_4.html

Acquisition.gov . Subpart 16.1 – selecting contract types. Retrieved from https://www.acquisition.gov/far/html/Subpart%2016_1.html

Acq.osd.mil. Contract pricing finance guide. Retrieved from http://www.acq.osd.mil/dpap/cpf/docs/contract_pricing_finance_guide/vol5.pdf

Vacketta, C.L. (2010). Federal government contract overview. Retrieved from http://library.findlaw.com/1999/Jan/1/241470.html