Selecting the Form of Contracting, Research Paper Example

Introduction

The presence of so many parties involved in providing their products and services to the government warranted the need for a uniform platform to cater for the same. Hence, in an attempt to address this issue, rules have to exist that would not unduly limit anyone interested in the same. Several task forces were entrusted with the responsibility of creating needed common grounds. After much deliberation, the Federal Acquisition Regulation provisions came into play. The Federal Acquisition Regulation (FAR) guidelines clearly stipulate the procedures to be followed in procuring supplies intended for use by the federal office.

FAR guidelines were all enacted in an effort to promote accountability and transparency of government officials entrusted with procurement responsibilities. There exists a myriad of legal statutes and regulative procedures that need to be fulfilled so as to solicit a contract. Additionally, these rules clearly spell out the legal ramifications and implications should they be flouted.  In the same spirit, all contracting agents and suppliers need to, strictly, adhere to these laid out processes to avert suspicion of corruption. Sealed bidding and negotiated contracts form the basic contracting vehicles that are employed by procurement officers within the federal government to date. In the years after the great depression of the fifties, Hoover founded Federal Home Loan Bank (FHLB) and later Roosevelt founded Federal National Mortgage Association (Fannie Mae). FHLB gave loans to savings and loans banks to improve their liquidity that was in dire straits due to mortgage defaults and bank runs.

However, in the past, sealed bidding has been a preferred form of contracting to the negotiated contracts practice. Much as sealed bidding has been favored, for some time now, the negotiated contracts procedure is becoming popular primarily because of the time consuming nature of the former. Before the negotiated contracts method of contracting was initiated, federal government arms and factions used sealed bidding as their contracting agent to procure all supplies and services for their respective offices. This culminated in the popularity of sealed bidding as a form of contracting. Sealed bidding, as a method of contracting, is purely based on pricing and affiliated factors. Conversely, negotiated contracts are awarded on the basis of competitiveness, price and several other factors dependant upon the nature of the bid. The competitive, negotiated contracts process has always been deemed successful in terms of time and ‘getting a value for money’. In essence, the main distinction is that while sealed bidding strictly considers price and related factors, negotiated contracts involved considering several other factors such as suitability, competitiveness et cetera. So that one can fully grasp the extent to which either of the aforementioned contracting methods can be employed, there is a need for a clear-cut distinction of the two.

The FDIC arranged mergers to combine failing with more robust banks. The Federal Reserve provided cash to improve liquidity in the market by adjusting the federal funds rate. They also managed to brink institutions that were hitherto not under their control to their control by coming up with new policies, this helped them to have a wider reach to assist the ailing economy. Legislation that had been earlier lobbied for before the recession began by key officials at treasury and large financial firms in attempts to preempt and solve the situation was adopted with the aim of reducing recessionary pressures. The Keynesian stimulus plan for tax rebates was adopted on 13^th February 2008.

Sealed Bidding

Contractors often seek the employ of sealed bidding in cases where it is particularly clear what they want, and looking for the cheapest competitive bidder in terms of price. In a nutshell, the essence of sealed bidding is to find a committed bidder who is at the same time cheaper as compared to the other bidders. Additionally, only firm fixed price contracts can be used when sealed bidding is the method of contracting (FAR 14.105). The procedure for initiating a sealed bid begins with preparation of an ‘Invitation for Bid’ (IFB) which is then published in the press or electronically available for downloading purposes and send to contractors listed in the agency’s respective solicitor’s mailing list (FAR 14.204 & 14.205). Prior to the issuance of an IFB, several other factors need to be addressed. On a lighter consideration, if the Federal Reserve didn’t buy the preferential shares portfolio then the institutions would have been bound by law to pay existing preferred share holders their standard annual rates. This would have eaten into their operating capital and would also deny them much needed operating capital leading to their collapse. The fall of local industry would have led to an influx of non-American multinational business on the American market to try and benefit from the opportunities that would have opened up, foreign takeovers would be a common phenomenon. Weight has to be given to facts such as the likelihood of receiving more than one bid, no need for discussions with prospective bidders, time permitting this mode of solicitation and that the contract will be awarded solely on the basis of price. This IFB has a detailed account of the products and services that the contracting agent seeks to acquire (FAR 14.101).

Furthermore, the IFB also contains all the clauses that dictate what is required of an offeror, terms of the purchase and the bids opening date. Interested parties then respond to the IFB by submitting their bids in sealed envelopes, which would, consequently, be stored in a secure place awaiting the opening date. A more pronounced attribute of sealed bidding is that the awarding process is conducted publicly. Once the opening date falls due, the bids appear to be opened, and contents read out in public. The bid is then awarded to the cheapest contractor who best fulfills the government’s needs.  Bidders then become legally bound and obligated to honor their bids once it is awarded to them.

Two-Step Sealed Bidding

Sealed bidding can at times assume a two-tiered structure (FAR 14.5). When the contracting officer wants to benefit from the seal bidding process as much as possible, then this two-tiered sealed bidding would be the best option. The only demerit is that it is the longest process of all. Its difference with the former only manifests itself when the contracting agent cannot sufficiently and adequately describe the agency’s need. Two-step sealed bidding provides for a future detailed description of the need to be satisfied. The first step involves obtaining proposals from interested parties. These acquired proposals only contain technical information without necessarily addressing price and cost issues. Subsequently, discussions are held between the contractor and the offerors concerning the technical issues involved. It is here where the contractor the most viable ones in terms of responsiveness and responsibility (FAR 14.503-1). Risks associated with mortgage -backed securities were underestimated and under priced. This caused undermining of the balance sheets of many financial firms threatening then with bankruptcy and reduced credit flows from their non banking channels. The problems were a result of mismanagement of quasi-governmental institutions and policies that tried to house poor and middle-class citizens in a poorly thought out expansive scheme.

Secondly, sealed bids are then submitted clearly outlining the price of the acquisition being addressed. At this stage, the main concern here is the price and associated costs. Essentially, these sealed bids are only from the predetermined viable bidders. Upon receipt of these sealed bids, the contractor then evaluates them and decides on which bidder suitably satisfies the agency’s need with the interests of the government at heart. The evaluation at this point is at the discretion of the contractor (FAR 14.503-2).

Negotiated Contracts

Federal officials experienced quite a tedious ordeal especially upon employing sealed bidding in procuring small purchases, and thus warranted the need to streamline the entire process. Consequently, the process was streamlined, and it gave birth to negotiated contracts; an alternative to sealed bidding. Negotiated contracts resulted from the entrenchment of the Federal Acquisition Streamlining Act (FASA) of 1994. Negotiated contracts, on the other hand, are merely based on flexibility. They are characterized by discussions amongst the concerned entities, evaluations, price considerations and other non-price related factors (FAR 15.201). These policies so prescribed are a close relation to those of the commercial market. Associated costs are always minimized, and it grants opportunities to small and upcoming businesses. Increased competition and HUD policy made F&F purchase mortgage from less credit-worthy and middle-income groups.  What most didn’t know was that F&F were under pricing risks for MBSs and it was later revealed they were operating in direct contradiction of Generally Acceptable Accounting Procedures (GAAP) by fixing their results associated with originating and getting loans, accounting for non-refundable fees and lease cost. Fannie acknowledged increased risks in their MBS portfolio.

‘Request for Proposals’ (RFP) usually denotes the commencement of the negotiation process. This RFP outlines all the terms and conditions of the contract, the agency’s need and all the factors that will be considered while evaluating the proposals and granting the contracts. Once the offerors have submitted their proposals, they are subjected to an evaluation process (FAR 15.202). Loans traded by F&F had maximum size and met the ordinary standards but they were later advised by their oversight authority, The US Department of Housing and Urban Development (HUD) and the government to purchase loans that didn’t meet credit-worthiness requirements.

The evaluation entails assessment of the bidders’ prices, technical capabilities, past performance on contracts and any other factors that had been hitherto outlined in the RFP (FAR 15.305).  The contracting agent has the option of seeking further clarification from the bidders whenever they deemed necessary. The selecting team is then charged with the task of picking RFP’s of candidates that fall under their ‘competitive range’ (FAR 15.306c). These picked candidates are then invited for further discussions. The issue being which candidate adequately satisfies the agency’s need without a compromise on the value for money. At this juncture, the contracting agent points out the demerits and inefficiencies of the proposals that need redress to facilitate their consideration. Again, another assessment is done once the offerors have revised their proposals, and a new list of highly ranked bidders is made which is subjected to an eventual comparative analysis. The contracting agent is then bound to pick from this list the bidder who best serves the interests of the government (FAR 15.305).

Summary

The acquisition scenario stated presents a classical case where negotiated contracts are deemed effective. Portable commodes, portable sinks and related supplies are to be sourced and be utilized in a federal function. A contracting officer has to put into consideration several factors. The most noteworthy being how urgently these supplements need to be obtained. Another notable factor is the pricing and associated costs issue. Also, the prospect of receiving more than one bid has to be considered; so as to be in tune with the FAR provisions. Several other contractual factors also come into but at a much further stage of the acquisition process. In general, the entire economy and the government would have ground to a halt if (in the extreme side) no action was taken. Given the dominance of the American economy, such an occurrence would have had a domino effect on other world economies that are in one way or the other tied to the American economy.

Firstly, consider the monetary value of items to be purchased which is the sole distinguishing criterion. Federal regulations prescribe that negotiated contracts be the mode of procurement for small purchases, especially if they fall under the same category. In this case, all items to be acquired are portable and thus fall under the same category. Though some laudable, innovative schemes were used to address this crisis more still needs to be done to close the loopholes that enabled its occurrence. This is especially so in the operations of the mortgage financing institutions and specifically GSEs. Their books and terms of operation should not be any different from those of private mortgage operators; this will ensure efficiency and pragmatic operation.

The negotiated contracts process is considered to be more efficient, flexible and time-conserving, which are the qualities that make it specifically suitable for this acquisition problem. Items in question are to be used in a soon-to-occur function thus time is of the essence. Furthermore, every single item falls way below the $100 purchase price. We cannot employ sealed bidding because it needs ample time; say at least a month before the actual acquisition is made. The process is also quite long and cumbersome for it to be considered in this simple case. Clearly, the two step sealed bidding process is not an option due to its time consuming feature (FAR 14.202). It is quite lengthy and involves a multifaceted procedure. Therefore, the only suitable procedure is the negotiated contracts practice.

References

“Federal Acquisition Regulation (FAR).” Re-issue, vol 2., subpart 14 & 15. Retrieved on 07^th Nov, 2010 from https://www.acquisition.gov/far/loadmainre.html