Introduction
To guarantee that Federal government initiatives are executed to the highest quality standards without budget overruns, Federal contracting is a lengthy task that needs to consider a range of significant elements. Consequently, the government has had to deal with escalating financial issues, mainly growing external debt and the need for accountability and impartiality in public finance management (Carpenter & Murrill, 2021). As a result, much focus has been placed on how the Federal government spends public money financing development projects to spur economic growth and development. To this, the Federal government ensures that before it awards a contract for the development of a public project, the interested companies are meticulously evaluated to secure and guarantee the effectiveness and successful completion of the project. More importantly, Federal Contracting focuses on ensuring public projects’ quality and cost control (Leland et al.,2021). In this regard and in line with the Federal government department of Energy’sEnergy’s plans to spend $ 1 million on solar system projects, this paper critically evaluates the Federal government contracting process with a focus on two competing companies that have tendered interest in implementing the project. The Solar system providers analyzed in this paper are SolarCal and Superstar Inc. The analysis delves into the operational data of these companies to get an insight into their suitability to be awarded the contract. This paper will also assess the various types of Federal Contracting to advise on the best types of arrangements that will help achieve the project’s government plans.
Overview of the Competing Companies for the Federal Contract
SuperStar Solar Inc.
Solar EnergyEnergy and the production of solar energy systems are two business segments in which Superstar Solar Inc. operates. The founding mission of Superstar Solar Inc. was to offer customers high-quality and low-cost solar products. Besides, applications for controlling and maintaining solar systems, solar panels, installation equipment, inverters, and solar batteries are some of the products that Superstar Solar has created, produced, and commercialized. However, the company has concentrated on producing batteries for electric vehicles to boost the global shift to electric cars and environmental sustainability.
By focusing on the solar system Superstar, Solar Inc. is committed to achieving its mission of improving society’s lives by providing environmentally friendly sources of Energy. This company’s mission comes against sustained environmental conservation campaigns and the mounting need for cost-effective and safe energy solutions. As such, the entry of Superstar Solar Inc. into the alternative energy market responded to the wishes of the USA energy market. The company’s goal is to dominate the industry by providing solar solutions. This is accomplished by ensuring that the general public knows the firm’s distinctive products and services. The company strives to set the standard for both competitiveness and the caliber of its solar products and services. It encourages market participants to follow in its footprints and make a better world. Superstar Solar Inc. serves a diverse market that involves both public and private as one way of widening its influence in the solar energy market.
Overview of SolarCal Company
SolarCal is a solar energy solution provider formed to fill the gap in the renewable energy market and support the shift from fossil fuel to an eco-friendly alternative energy source. SolarCal has ensured that the general public can access effective solar energy alternatives by implementing reasonable and affordable solar energy systems. Since its establishment, SolarCal Inc. has effectively helped governments and their communities take advantage of the numerous benefits of bulk photovoltaics. When it comes to providing solar energy solutions, SolarCal’s primary focus is on various governmental departments and agencies, including tourism and agriculture. According to research, when solar EnergyEnergy is used extensively, several sectors of a nation’s economy may considerably benefit. Such economic sectors benefit from adopting dependable and environmentally friendly energy sources.
SolarCal dominance in the solar energy market has been fueled by a pool of competent employees led by its production manager Dominic. The production manager is focused on ensuring that the firm’s products are dependable and in line with its growth strategy. Besides the production manager, the company’s chief accountant, Jake, has been instrumental in ensuring financial accountability and transparency to support the company’s growth. SolarCal follows a range of rules and regulations while sticking to those that support healthy competition in the marketplace. All employees are subjected to a rigorous background check by the organization. It also undertakes security checks to ensure that competing corporations do not send employees to steal its research and technological innovation, which have been the precursor of its growth and dominance.
Cost Reimbursement and Fixed Cost Contracts
A cost reimbursement contract involves both parties agreeing to settle all project costs. These contracts are built on the assumption that projects are often affected by risks such as inflation which impacts the project’s initial budget. Therefore, the contractor may need compensation to cover the high cost of project inputs due to inflationary effects (Thakkar, 2022). Contractors are paid for operational expenditures whenever essential milestones and deliverables are accomplished as stipulated in a contract. A cost-reimbursable contract often reduces the risk elements that the contractors might experience during the project implementation. As a result, contractors may purchase labor and material charges required to accomplish tasks without the requirement to define and predetermine specific cost pricing.
Fixed-Cost Contract
A fixed-price contract offers services to a company, the government, major corporations, and people for a predetermined charge that cannot be altered. A fixed-price agreement specifies a project’s parameters and fixes the cost of the project deliverables (Cahuc et al.,2022). It spells down clearly what the contractors must perform and their responsibilities in exchange for a fixed fee. Fixed-price agreements are beneficial when the scope of a project can be easily specified from the start. These contracts eliminate the need for conditional contract terms by giving each party confidence regarding what will happen. In fixed-cost contracts, the target and maximum prices may only be modified if specific requirements and terms contained inside the contract agreement are satisfied. The parties to a contract must discuss a price adjustment to arrive at a new price if conditions and circumstances are met within the contract.
The Most Preferred Type of Contract Chosen by the Government
The Federal government has decided to employ the firmly fixed cost contract approach in awarding a $ 1 million solar panel system project to one of the two potential contractors, SolarCal and Superstar Solar Inc. Therefore, various cost elements of the two companies must be understood to form the basis of awarding the contract to one of the competing companies. Both companies will undoubtedly select a firm-fixed-cost contract when governments decide to award the contract. The proposed project budget of $ 1 million does not offer any allowances over or below the budgeted amount. Therefore, if a contractor company accepts a cost-reimbursement contract approach, it cannot demand the Federal government to pay more than the specified amount.
Cost-reimbursement agreements operate better when main contractors are willing to assume project risks, complete responsibilities, and have substantial administrative control during the project’s implementation. Because the two businesses have a considerable footprint in the solar energy industry, they will prefer firm-fixed-price deals. As a result, they can carry out massive production projects while drastically cutting their operating costs. The two companies will leverage their market competitiveness and expertise to monitor and keep the project operating and labor costs within the initial budget estimates. As such, both direct and indirect project costs will have to be meticulously monitored by the company that will be awarded the contract to meet the demands of the fixed-price contract decided by the government.
Cost elements in Fixed-Price Contracts
The project costs include indirect and direct, which must be closely monitored to avoid budget overruns and guarantee the project’s success. Because of the fixed price contract of $ 1 million offered by the government, the two potential companies’ control of the labor and another operating cost will help meet the government’s expectations (Di Ludovico et al.,2022). The type of costs that an organization incurs may vary depending on the firm and the extent of the projects. However, since the federal government is the project’s client, both Superstar Solar Inc. and SolarCal would cover labor expenses for the project team and the operating expenses, which will cover the cost of inputs and other project requirements. Depending upon the type of assignments that one of the two companies will manage, direct and indirect costs, hardware and non-module software, set-up fees would all be inverters. Companies will surely incur these expenditures when finishing the solar panel system project.
Direct expenses can be traced back to the project’s execution. These prices may differ from one job to the next. They do, though, include charges for labor, equipment and supplies, and raw supplies. Direct costs for this project to be undertaken by either Superstar Solar Inc. or SolarCal include wages paid to employees, benefits provided to them, expenditures associated with purchasing raw materials, equipment leasing, travel expenses related to project duties, and labor costs. Indirect costs are not assigned to one project operation but instead to a series of project operations during a project’s implementation. To complete the project, the company awarded the contract would need to invest money in a complete mounting system that includes base, ramming design, and component assembly. The cost of non-module hardware includes the safety of the solar EnergyEnergy manufacturing project that the federal government has contracted. The project’s scope would include installation costs for various installations, including electrical and mechanical systems.
The company awarded the contract would be required to meet other project costs, such as maintenance and operational costs. Since the commencement of the project’s activities, such expenses have included all spending categories. Monitoring, onsite inspection, and module cleaning are some of the indirect operating expenses of the project.
The Suitable Company is to be awarded the project by the government.
Direct project costs are often the major drivers of the project’s cost. Therefore a company that succeeds in effectively controlling these costs is suitable for the award of the project by the government. Based on the information provided, SolarCal Inc. has slightly greater direct expenses than Superstar Solar. These greater prices result from administrative expenditures for the company, which entails commission sales, research, development cost, and the creation of solar energy systems. On the other hand, Superstar Solar Inc. has managed to avoid large direct costs by implementing several measures that gradually reduced the cost of administrative duties.
Besides, indirect costs are costs incurred during multiple project activities that are not tied to any one activity and are experienced by both companies. These costs may arise at any time, from the beginning to the end, of the project.
Overhead expenses that were not taken into account but were expected during the project risk management process are considered indirect costs. Other services offered by the two businesses include after-sale support and maintenance fees for software and monitoring systems. The indirect cost may change based on the firm’s distribution path, the geographic area of its headquarters or retail locations, and the project’s intended location. In light of this analysis, Superstar Solar Inc. is expected to incur significant indirect costs related to its distribution network and the need to continue providing technical solutions after the project is finished. Since SolarCal is in a good position to execute the program without racking up considerable administrative expenditures, it is anticipated that it will experience fewer indirect costs.
Additionally, since Superstar Solar Inc. incurs lower direct costs, major cost drivers, the company should be awarded the project. With low direct cost than SolarCal, Superstar would meet the government’s objectives of offering firm-fixed-price costs. Superstar Solar Inc. has also proved from its mission of providing eco-friendly and an economically friendly solar system that it can reduce costs to maintain this objective and provide the project at cost-effective means. Therefore, the Federal government should award Superstar Solar Company the contract.
Conclusion
When providing contracts for the public project development, the government can use the fixed-price contract or cash reimbursement. The Federal government plans to set up a solar energy system to boost its energy capacity and reduce environmental pollution. Since two companies have shown interest in this project and have solid financial and market standing, Superstar Solar Inc. stands a a high chance of getting the contract because it has a lower direct cost.
References
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