Contract Pricing and Negotiations: Strategies, Types, and Analysis

This assignment delves into various aspects of contract pricing and negotiation, covering seller pricing strategies like Cost-Plus, Demand, and Buy-In. It also examines different contract types, including cost reimbursement, fixed-price, and unit price contracts, along with their respective advantages and disadvantages. The assignment further explores the benefits of small business programs managed by the federal government, emphasizing their role in meeting government contract requirements and supporting small businesses. It also discusses the circumstances under which price factors are prioritized over non-price factors in government procurement, as well as the importance of price analysis, cost analysis, and cost realism analysis. The assignment touches upon the success of commercial methods in government contracts, the procedures for debriefing unsuccessful offerors, and the roles and challenges faced by Contracting Officer's Representatives (CORs). Finally, it addresses the use of taxpayer money for financing government contractors and the need for fair policies.

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 managed by the federal government for its
contracts is highly beneficial for meeting the government’s contract requirements. To support the
facts, we have taken the help of newly launched small business administration (SBA) final rule
and its small business program managed by the federal government, that came to be effective on
June 30, 2016, with an aim to impact both small businesses and large businesses that work in
collaboration with small businesses, in an attempt to perform work on behalf of federal
government’s contracts. The final rule and its program came into existence to increase

opportunities for small businesses to work on federal contracts and to administer certain
provisions of the National Defense Authorization Act of 2013 related to small businesses. The
rule guides and assesses the opportunities which small businesses can avail of themselves, while
doing business as a subcontractor for a prime contractor with the government. SBA and its small
business set-aside contracts are considered to be a good thing as they offer a great way for a
small or new company to break into an industry dominated by big players and has proven its
frontier for pretty much every kind of private sector work the government needs, from
construction to catering. SBA and its small business set-aside contracts refer to that portion of
federal contracts that must be granted to small businesses. Recent reports have suggested that
annually, the federal government secures approximately $500 billion in private sector contracts,
meaning there’s a lot of work out there for enterprising small business owners (Porter and
Hoffman, 2016).
The recent concepts of small business set-asides put forward by federal governments are
considered to be an impactful and powerful tool for aiding small businesses compete for and win
federal contracts. Findings have shown that every year, the federal government involves itself in
making purchase of approximately $400 billion in goods and services from the private sector.
Market research comes up to the conclusion that small businesses are available and able to
perform the work or provide the products being procured by the government, those opportunities
are “set-aside” exclusively for small business concerns. Thus, in an attempt to meet federal
contract requirements, the program is highly potential and beneficial too for the federal
government for meeting the government’s contract requirements (Harris et al., 2015).
Answer 4 – The circumstances under which price factors are considered to be more important
than non-price factors are when the government wants to indulge itself into the procedure of

procurement of goods and services with few potential suppliers such as competing contractors,
suppliers, or vendors. In an attempt to do so the government seeks to evaluate a competitive bid
or proposal to find out the most efficient potential suppliers. Price factors are considered to be
more crucial than the non-price factors when a source selection has to be done because a
reasonable and fair cost selection and proper procurement by the government could uplift an
economic activity of the state in general and in agriculture in particular. From an efficiency point
of view, the price factors are considered to be critical in the long-run in case the government
wants to ensure social maintenance and rehabilitation of the state.
In an attempt to perform evaluations of proposals in a negotiated procurement, the non-price
factors are considered to be more important the price factors. Also when the government wants
to analyze the price of products to produce the product and price of related goods; further, seeks
to provide taxes and subsidies, and evaluates firms, in such cases, the non-price factors come into
foreplay. Keeping in view both price factors and non-price factors during the source selection;
the government has to keep an eye on the status or performance of the potential suppliers and
contractors and make sure they are meeting the expected level of quality to do a healthy business
in a market economy (Williams, 2014).
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 demand 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 unsuccessful
offeror needs to be interrogated by the agency to address the reason they were marked failed in
marking competency. The unsuccessful offeror is bound to know its significant strengths and
weaknesses in his proposal; must possess information about how his past performance was
evaluated; the overall ranking of all offerors; and must know its position with respect to
reasonable responses to questions about whether the evaluation scheme and applicable
regulations were followed by them (Barry, 2014).
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 – Yes, the taxpayer money should be definitely used for financing government
contractors since this helps them in determining Federal program priorities for budget request,
aiding small business administration group, providing direction and control of Federal
employees, or in making selection or non-selection of individuals for Federal Government
employment, including the interviewing of individuals for employment, and so on.
In a report, published in 2007, federal contractors such as DOD contractors, civilian agency
contractors, and GSA contractors were accused of unpaying federal taxes. Although there have
been instances that government contractors were accused of holding higher amount of tax payer
money. Forbes published the news, claiming that the government contractors were found accused
of holding higher percentage of tax payer money and not abiding with tax laws. Reports have
been furnished by Salon Media Group 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 for government contractors so that the flow of taxpayer money
is properly financed before bidding contracts.

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