Cost Analysis in Commercial Method

The assignment content discusses various concepts related to cost analysis in the context of government contracting. It highlights the importance of comparing value and price of a product against its substitutes to determine its fair cost. The article also touches upon the concept of cost realism, which is particularly relevant for government agencies validating prices before making purchases. Additionally, it provides insight into the commercial method used by the Department of Defense (DOD) to regularly audit air carriers providing medical transportation services and discusses the shortcomings of other methods such as FCCOM and WGL. The article also emphasizes the importance of debriefing unsuccessful offerors to identify areas for improvement.

Contract Pricing and Negotiations
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Answer 1- The three seller pricing strategies are Cost-Plus (Penetration) Pricing, Demand
(Skimming) Pricing, and Buy-In strategy pricing respectively.
The Cost-Plus (Penetration) Pricing discusses the most rational way which needs to be adopted
in determining a minimum acceptable price of a product. Cost-Plus (Penetration) Pricing strategy
is applicable under apparently low-profit margins market conditions. The strategy strongly
discourages would-be competitors from making entry into the market under low-profit margins
condition (Li et al., 2015).
The Demand (Skimming) Pricing focuses on economic theory, which describes the concept of
the industry and Finn’s demand curves. Demand (Skimming) Pricing approach assists firms who
are interested in introducing new technology or innovation in the marketplace. Demand
(Skimming) Pricing strategy let such firms analyze the obvious risks in the prevailing
competitive market conditions (Spann et al., 2014).
The Buy-In strategy approach is primarily based on profit motives. The firm's resources and
market conditions play a major part in ascertaining to which options can be considered to be the
most appropriate one. In an attempt to assist low profiteers in determining the price of their
product, buy-in strategy enables to guide them about the prevalent market condition by providing
a platform which allows low profiteers to beat the competition under fairly enough low price
(Aceves-Bueno et al., 2015).

Answer 2- The three types of contract types are cost reimbursement contracts, fixed-price
contracts and unit price contracts.
The cost reimbursement contract guides the buyer who is unaware of current market workflow
and is thus beneficial for them in analyzing the market. The drawback of cost reimbursement
contract is that it is a one-way channel, and since there is no limitation or boundary marked to
check the activity of sellers, buyers are encountered to pay unreasonable rice of the product with
their consent or awareness (Roberts et al., 2014).
A fixed-price contract is beneficial for buyers as they are more likely to make a profit here. The
scenario explains that in the fixed-price contract both buyers and sellers decide a certain fixed
price for any products or services and once the negotiation and price fixation are done, sellers
have to abide by it. The drawback of a fixed-price contract is that situation might be unfavorable
for buyers if sellers start lowering the price when the project is delayed, or quality of delivered
work is not met up to expectancy (Chen, 2016).
Unit price contract is beneficial for sellers as they make a profit out the business based on an
hourly basis, especially freelancers. The major disadvantage of unit price contract is that if
project managers do not utilize their analytical skill to make contact with a right service provider,
the likeness of business downfall increases (Mandell et al., 2014).
Answer 3– The substantial small business program launched by the federal government is
beneficial for meeting federal contract requirements. The program enables sponsors of the
federal government to compete with other organization. Sponsors of the federal government
perform the task with a goal of expanding business while competing with large business
industries. Thus, in an attempt to make a profit, the program is highly potential to achieve the

goal and can be marked as very subtle move taken by the government to meet end federal
contract requirements (Harris et al., 2015).
Answer 4 – The circumstance under which price factors is to be considered more crucial than the
non-price factors is when a reasonable and fair cost selection has to be done while making
negotiation in the contract. Price factors are further contemplated when the government has to
take into consideration other costs which can arise at the latter stages of the project, such as re-
training costs, software conversion costs, energy consumption, and transportation costs.
The circumstance under which non-price factors is highly operable is when an out-check needs
to be done by the government to keep an eye on the status or performance of the project. The
government makes sure that the project is meeting the expected level of quality in an attempt to
do sound business (Ashton et al., 2016).
Answer 5 – These approaches are needful in making sound and reasonable price decision on the
commodity before purchase. There exist fine differences between the price analysis, cost
analysis, and cost realism analysis (Dunn, 2015).
Price analysis is the preferred approach to assessing value of products or services if any purchase
has to be done. The approach works under circumstances which demands knowledge of actual
price of the product before making any purchase. The buyer needs to compare value and price of
the product against its competing substitutes to get a fair idea of the product’s cost.
Cost analysis works under circumstances when the buyer is unable to analyze the fair price of the
product. The situation arises when the buyer is unable to find alternate competitor of the same
product.

Cost realism is the approach adopted particularly by a government agency. The approach guides
under circumstance when the government agency needs to validate the price of goods and
services before purchasing it from any other party. This approach guides government to do a
better product survey.
Answer 6 – The success of the commercial method came into power-play when its approach
helped the Department of Defense (DOD) to regularly audit the functioning of the commercial
air carrier which involves supporting air medical and personnel transport at several military
bases throughout the country (Sheng et al., 2016).
In contrary FCCOM and WGL methods have shortcomings because they simply address the
allowability/reimbursement of facilities capital cost of money without taking into the
consideration the other areas which also need to be overviewed by board members of the
Department of Defense. The other areas which need to overview are survey and analysis of the
company by DOD offering air-medical transportation facilities. Since commercial methods take
all this approach into considerations so, it has marked hit in successfully running DOD (Curry,
2016).
Answer 7 – The defense of department should contact the unsuccessful offerors first, as this
particular act of the department may explain the unsuccessful offeror's scenario why they missed
the opportunities to mark an achievement. This approach will help the unsuccessful offerors in
analyzing the present market scenario and current market competitiveness as well. The areas
where unsuccessful offerors failed to meet the requirements must be addressed to them so that
they can mark their achievement in upcoming time (Mayer, 2016). Such approach of the DOD
will also enable the unsuccessful offerors to mark their feat towards the goals and achievement in
coming time.

Answer 8 – The reasons for debriefing the unsuccessful offerors are many. The offeror needs to
be interrogated by the agency to address the reason they were marked failed in marking
competency. The offeror also needs to be interrogated as to know the reason behind their late
delivery of project.
Answer 9 – The contracting officer’s representative (COR) is appointed by a contracting officer
to work in collaboration with other members of the department of defense. The primary function
of the contracting officer’s representative is to make sure that the contractors are meeting the
commitment and deadline of their contracts. They make sure that there is no sort of
communication gap between him and the contractors, and moreover they check if the necessity
to formulate proper requirement in managing contracts is met or not. The other roles of the
COR’s include checking the progress of contractor’s performance and progressiveness in work
while performing other duties as mentioned in the appointment letter. The challenges faced by
COR’s are that sometimes they have to perform additional duties gone unmentioned in their
appointment letter. The additional duties arise due to complexity in the contract plotted. In such
cases CORs are requested to perform full time duties as per the scenario demands by carefully
providing the most suitable oversight on contract (Warren, 2014).
Answer 10 – The taxpayer money should not be used for financing government contractors
since there have been instances in year 2007 that government contractors were accused of
holding higher amount of unpaid tax. Things didn’t go right and consequently in the year ranging
from 2005 to 2010, saw a higher percent of suspension of government contractors who were
found guilty of not abiding with tax laws. Reports have been furnished by Salon Media Group in
2013 that many of the contracted workers were paid low wages and there were no monetary
benefits for them in case of overtime (Rose-Ackerman et al., 2016).

The tax violation by financing government contractors lead the federal government come up to a
conclusion that a rational approach must be adopted to withdraw all the tensions. A fair policy
needs to be adopted so that the flow of taxpayer money is properly financed before bidding
contracts.

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