Research Paper on "Federal Contracting Activities"

Research Paper 5 pages (1689 words) Sources: 5

[EXCERPT] . . . .

Federal Contracting

Give a brief overview of the history and background of the company. No more than one (1) page.

IBM is arguably one of the most historic and storied companies in America. For over 100 years, the company has been an industry leader in technology and technology related products (Conway, 2004). It has navigates success the tech stock bubble of the 2000's while also continuing to prosper in the midst of a global recession. Much of this success can be attributed to an intense focus of customer demand. IBM, even after 100 years, still maintains its focus on recording, processing, retrieving, and storing information (History of IBM).

IBM was first incorporated on June 11th, 1911 as the Computing Tabulating and Recording Company. As such, it was one of the first time recording companies in the nation. In the years following World War I, C-T-R's engineering and research staff developed new and improved mechanisms to meet the broadening needs of its customers. In 1920, the company introduced the lock autograph recorder, the first complete school time control system, and launched the Electric Accounting Machine. In 1921, the company acquired the business of the Ticket graph Company of Chicago, and certain patents and other property of the Peirce Accounting Machine Company (History of IBM). In 1924, the company as a result of its expansion overseas renamed the company to IBM. This was a result of the constricting name of CTR (Walter, 2001). The name change reflected the company's new focus on international customers after the conclusion of World War I. The 1950's marked the rise of IBM as the worlds leading companies in regards to computing. This period was marked with the start of the cold war. As such, the government, in part due to national defense issues, collaborated extensively with IBM. In fact, it was during this period that IBM helped the government create the SAGE interceptor early defense system. This system was designed primarily to protect the national security issues of America (Conway, 2004). The 1960s provided IBM with a means of becoming one of the worlds most admired companies. Its cutting edge technology and sophistication provided ample admiration on the part of employees and citizens. It was also during this period that the company cemented its positions as one of the worlds leading technological companies. The 1980's marked IBM's prominence within the consumer marketplace. This decade marked the introduction of the IBM PC in 1981 (Walters, 2001). A very important mistake on the part of IBM was not continuing its vertical integration of both hardware and software components. Instead, the company contracted outside vendors such as Microsoft and Intel to do such work. This ultimately destroyed the company's natural monopoly in the hardware and software marketplace. This critical mistake cost IBM nearly $16 Billion over the course of 1991-1993 (Pugh, 1996). The low margin hardware business was now causing extensive losses for the entire company. The late 90's marked a turnaround for the company. IBM began shedding non-core operations in order to provide itself with much needed cash. It divested low margin operations to focus primarily on software and higher margin businesses. Today the company continues to focus on integration, and software to provide technology solutions to its customers (Conway, 2004).

2. Give an account of at least one (1) of the recent major contracts that was awarded to the company.

One contract awarded to IBM was the Army Private Cloud Contract. This contract provides the government with much needed cloud infrastructure and computer prowess. The contract specifies that IBM should provide the government with data service centers to perform army enterprise cloud computing operations. The government defines such services as having access to "…convenient, on-demand network to a shared pool of configured computing resources." These resources according to the contract should be deployed and provisioned with minimal effort on the part of management. Under the contract, IBM is to provide services consisting of the following to the government:

a) Clouding computing consulting services

b) Network connectivity

c) Info assurance support

d) Cert & accreditation support

e) Application migration

f) Private cloud O&M

g) Supply chain risk mgmt.

h) Service support

I) service delivery

j) Provision of fixed data enters (suite 1 only)

k) Provision of mobile data center

3. Describe the type of contract that they were awarded (fixed-price, cost reimbursement, etc.) and explain why that particular type of contract was chosen over others.

The contract is a fixed price contract with options for additional earnings if certain criteria are met. IBM will receive $19,850,313.60 with the base form of compensation. Each subsequent option then allows the company to generate over $100 million with the contract. Below are the various compensation levels of the contract:

Option 1: $37,715,596.11

Option 2: $49,265,997.41

Option 3: $59,567,069.60

Option 4: $68,714,869.47

Each option or "suite" corresponds to separate and more technical specifications. For example, option 1 would include provisions for network connectivity, consulting services, info assurance support, supply chain risk management and more. This particular contract was chosen over the others due to

4. List and discuss at least three (3) direct costs and three (3) indirect costs that the contractor incurred.

The first direct cost incurred by IBM is research and development costs. R&D expenses can easily spiral out of control in an undefined environment with little to no precedent to follow. This is particularly true for technology companies whose business model is predicated on innovation. R&D costs therefore can easily fall well above intended targets. Luckily, with many government contracts, the expense isn't entirely bourn by the corporation. In fact, as is the case with the Army Private Cloud, much of the expense is incurred by the IBM which is then reimbursed by the government up to a certain amount. These costs in the interim period however, due present challenges as no profits are being generated. Furthermore, there is no guarantee that the R&D will even be successful, which results in further losses.

The company also incurred opportunity costs in the form of foregone profits. Opportunity cost is often overlooked when undertaking certain aspects of business because it is money that management doesn't see. However, opportunity cost has a very profound aspect on the results of a business. For each dollar invest in the Army Private Cloud, there was another dollar that was not invested into the project. This non-invested dollar could have potentially earned a higher rate of return that the actual investment in the Army Private Cloud, resulting in better operating performance. For instance, instead of investing in the cloud at a 3% rate of return, IBM could have potentially invested in Chinese software integration that has a rate of return of 10%. This "Opportunity Cost" would a resulting in a 7% disparity of what IBM earned on the cloud and what it could have earned in a comparable risk project. This 7% different may not seem like a very large figure, but when computed using $30 million contracts, the figure can become quite large. This opportunity cost therefore, can cost the company millions of dollars.

Another direct cost incurred by IBM is that of labor. Labor, in a capital intensive business is often times the company's largest expense. This is particularly true when the capital intensive business relies heavily on intellectual capital. Intellectual property in regards to ideas, patents, trademarks and processes are very difficult to accumulate. Therefore, due to simply economics of supply and demand, companies must pay more for individuals who can create such processes. IBM is no different in this regard. In fact, it is more burdened by labor costs. During its hiring height, the company had over 400,000 employees working (DeLamarter, 1986). Many of whom undoubtedly contributed to the costs of the company. This is also very true in regards to the… READ MORE

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