Original Post Date: Wednesday, September 25, 2013

In Government contracting all contracts are made up of a network of suppliers. The Prime contractor who won the overall bid usually has a supply chain of vendors from whom they receive their products and services. In addition they have Subcontractors who provide services under a contracted agreement of work. These vendors and subcontractors most likely have their own network of suppliers which allows for a cost-effective supply chain that extends across America and to other nations.

Vendors sell identical or similar products to different customers as part of their regular operations. These vendors operate in a competitive environment in which customers typically compare product characteristics before making a purchase decision. These characteristics include appropriateness, performance, and price. Subcontractors usually work for the prime contractors of major projects when the prime does not have the expertise in-house, and they need the services or expertise of another company. Subcontractors may have their own vendors and subcontractors.

Due to this intricate supply chain companies usually set vendor performance goals such as quality and Just in Time Delivery. Sometimes inspections are performed at the vendor’s facilities to ensure that audit and security specifications are meeting program requirements.  Subcontractors usually are on a legal agreement and handle their own inspections per program requirements. However, the prime should meet regularly with the team of vendors and subcontractors to ensure program success.

Completing these tasks come at a cost to manage all these aspects. So where can TP help!

TP estimates this cost of the following areas to address these issues under our System Cost object:

  • Evaluating process to choose vendors:
    • The Evaluation and Selection activity represents the effort and cost associated with any tasks required to perform evaluations and make purchasing decisions when goods are being purchased.
  • Once Vendors/Subcontracting Team has been selected the cost of overhead for management to manage the team:
    • The Vendor management (Development/Production/Operation and Support) activity helps organizations account for the tasks that are associated with the management and oversight of activities and deliverables accomplished by subcontractors/Vendors and the interfaces between the subcontractor teams and the rest of the project team.
  • The Costs of your subcontracted work:
    • Subcontractor Activity (Development/Production/Operation and Support) activity represents any subcontractor involvement associated with the development/Production/Operation and Support phase of the project
  • Material purchased by Vendors:
    • Estimated material dollar amount is determined by inputs on the components. TP planning calculates the amount for material dollars and includes it in your total cost estimate.
    • Purchased good Component purchase price and system integration efforts for items purchased through an outside vendor.  At the cost object level this cost object provides throughput costs for Prototypes, Production Units and Years of Operation and Support.  Purchased Goods can be either purchased or leased
    • The Purchased Service Cost object models the effort, price and system integration effort for services purchased through an outside vendor. 

As stated before it’s imperative to ensure that programs are estimating these costs to successfully meet the total budget. TruePlanning through its activity based costing methodogly and its customized input sheets for its parametric data models ensures these costs are captured and implemented in your estimate.