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PLAGIARISM
Avoiding accidental and intentional plagiarism
Week 7 Lesson:
Michael Porter’s Five Forces model is illustrated in government contracting. Porter explains either buyers or sellers have leverage. Buyers have leverage when multiple suppliers are capable of meeting specification requirements. Competitive bidding allows price justification as a result of market forces. However, when there are few suppliers with capability, leverage shifts to the seller. These points influence decisions on contract selection. Cost-plus reimbursement and fixed price are the two most often selected contract types in government procurement. Cost reimbursement contracts are favored when sellers have leverage, and fixed price contracts are preferred when buyers have leverage.Transaction economics is the branch of economics dealing with product and market characteristics. Product characteristics of companies where there are few providers or a monopoly, for instance, allow sellers to be less than efficient in providing high-quality, low-cost products. In these cases, buyers can expect to spend resources on monitoring supplier performance and checking on costs incurred by sellers. Product characteristics receiving attention in the literature include the degree specification details are provided, and the degree specialized investments are necessary to produce products. Market characteristics deal with pricing. Buyers seek prices meeting their target expectations. Sellers look for buyers willing to pay premiums for added value.Advanced weapons systems are not easy to specify. Sellers have difficulty determining the costs associated with products that are difficult to specify. The way systems are designed and produced change as more information is acquired. As a result, sellers are less likely to accept risks associated with accepting contracts. Buyers will opt for fixed cost type contracts, and sellers will opt for cost reimbursement type contracts. Therefore, a major hurdle in contracting decisions is the determination of contract types.Federal Acquisitions Regulations (FAR) refer to fixed-price contracts as favorable over other forms, such as cost reimbursement.Kim, Roberts, and Brown (2016) addressed the issues mentioned above to determine the extent the probability of selecting cost-reimbursement contracts is greater for specialized products where contractors cannot accurately determine the costs of achieving success.Using statistical analysis similar to the information in this week’s discussion forum, the authors confirmed the idea.

Statistical regression techniques were applied to test the hypothesis. Regression statistics were applied after correlation of independent and dependent variables were determined. Data for the study was from the Federal Procurement Data System (FPDS). Focusing on DoD information allowed for viewing the largest agency procuring goods and services within the US government.Questionnaires were developed and administered to members of the National Contract Management Association (NCMA). The authors presented demographic data, showing the frequency and standard deviations for several categories, such as position title, level of education, and private, or public sector employment. Logistic regression was administered to determine beta, standard errors, and odds ratios.The report is significant in that it confirms opinions of procurement personnel opinions regarding contract type as determined by product requirement complexity. Opinions of personnel were based on sampling techniques consistent with regression techniques and allowed the authors to provide association ratings and establish the R² results.The authors determined there are several issues to consider in complex weapons procurement contract selection. Early-stage activities for complex weapon systems are most likely to be with cost-reimbursement contracts, but as the program advances to later stages of development and enters full production, contractors gain sufficient information to justify the use of fixed costs contracts. Proper information is an important aspect of contract selection. Using data from this study helps contracting officers determine the type of contract to issue based on project complexity, stage of development, and degree of knowledge existing at the time contract selection occurs.

References:
Kim, Y. W., Roberts, A., & Brown, T. (2016). Impact of product characteristics and market conditions on contract type: Use of fixed-price versus cost-reimbursement contracts in the U.S. Department of Defense. Public Performance & Management Review, 39(4), 783-813.doi:10.1080/15309576.2015.1137765