Transportation Logistics Management 313

Please respond to both students separately with a minimum of 100 words each.

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Review the Presidential Directive on Government Contracting found in the lessons area.

Why does the President want to reduce Cost-reimbursement contracts?
Why is it preferred to use a Firm Fixed type contract?
Who accepts the greatest risk under each type of contract?
Why is competition favored over sole source?

Student responses

Aaron

A cost-reimbursement contract, in its nature, allows for excessive funds to be paid to a contractor (Philpott & Cook, 2018). There are funds that are disbursed for the expenses of the contractor and then additional funds are paid to the contractor to allow for a profit (Philpott & Cook, 2018). This places all the risk on the government as they will pay a significant amount of extra without the contractor going out of their way to reduce costs. Therefore, former President Obama wished to see these contracts reduced and hopefully removed altogether, barring extraordinary circumstances. They were costing the government too much money each fiscal year and there had to be reductions somewhere. To me, this decision makes perfect sense and was a smart move. In contrast, a firm-fixed-price contract is based on an agreed amount for services rendered (Philpott & Cook, 2018). Regardless of how much materials, services, or wages cost the contractor, they are given a specific budget to work with in order to complete the services that they have been contracted for. This places just about all the risk on the contractor as they need to ensure they get the agreed task done in a timely manner and find ways to reduce material costs while still upholding the quality of the work.
Encouraging competition over a single or set of contracts all for the “lowest bidder” to win the contract which again reduces costs for the government. Unfortunately, this results in lower quality workmanship of the jobs that are needed to be done and sometimes result in rework needing to be done, which cost the government more. I have seen contractors do the work required of them and six months later we would see another group of contractors there to redo the work because it was already failing. It was a running joke during our ships last yard period when we seen so much rework being done throughout that time and then even more rework being done after we had already left and returned to our homeport. To me, this is not cost effective and the government should place more stock in hiring contractors that may cost more in the beginning, but save money in the long run due to a reduction in rework requirements. As stated in the article by Carolyn Gray, there should be audits done on this work to ensure that it is done up to industry standards (Gray, n.d.). this would help to reduce these rework costs, but these audits would have to be done by those who know they are looking for, but are unfortunately conducted by military personnel who are not professionals in that particular field of work.
Aaron

Kurt
Why does the President want to reduce Cost-reimbursement contracts?
As I am understanding the contract meanings, cost-reimbursement contracts are wasting taxpayer dollars because they are not susceptible to the bidding processes put in place to ensure that the government chooses the best contract for the intended purpose it needs. When a cost-reimbursement contract is put into place, the contractor is basically getting all of their money that is spent throughout the contract reimbursed. There really is no check and balance to this process in my opinion. The contractor could basically spend what they like if it falls in the gray area for reimbursement from the government. I can see why the President wanted to reduce the use of these contracts because there is no way to budget for the total costs to be paid.    
Why is it preferred to use a Firm Fixed type contract?
A fixed-price type contract is preferred because the government can throw out a price it wants to spend on a project and the contract bidding begins. I like the idea of how the President did not let companies bid on contracts if they did not pay their taxes. Anyway, a fixed-price type contract is a better way to account for costs that will be incurred when looking at a quarterly or annual budget. There is now guessing involved on what the final cost will be.
Who accepts the greatest risk under each type of contract?
Let’s start off with the cost-reimbursement contract. The risk is all on the customer. This is because whatever the contractor decides if what the customer is stuck with. Would you let a landscaper show up to your house and tell them money is no object? A dramatic scenario yes, but the that is how I see it. As for the fixed-price type contract. The power stays with the customer. The customer picks a price and the contracts bid for the contract. If the contractor goes over in price then they eat the bill.
Why is competition favored over sole source?
Competition is better over sole source because it can mitigate illegal activities within the government. When somebody owns stock in a company, they cannot ensure that their company gets the contract so they get the profits. It is better when the public can openly bid for an open government contract.

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