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Contracting and Payment Options

Types of Payment

There are several options of payment that those working in the internal revenue service can adopt paying their suppliers. One such method is the commercial advance payment. This refers to a form of payment extended to suppliers when the supplier has executed a part of the contract. There are several advantages associated with this kind of remuneration. The supplier is able to receive some money before completion, and hence the suppliers gain sufficient capital to execute the project. The second merit of this form of payment is that it offers the government office an opportunity to see whether the supplier has the capability to deliver the services. If suppliers lack competence in the delivery of the services, it is evident that the government office such as the internal revenue service office would halt the project on the basis of non-performance. There are some merits associated with this method. No payment is issued until a certain degree of performance has been guaranteed. This implies that suppliers must have ready cash to finance the services. It may also be a discretionary method, where the government office can release payment even if the executed task is insignificant in comparison with the entire contract that needs to be completed (Cibinic, Nash, & Nagle, 2006).

The second method of payment is the commercial interim method. Under this method, these are contracts that are not bound by prompt payment policies and hence payment for the services is not immediate. The internal revenue service is expected to make payment at the end of 30 days after the service has been delivered. This ensures that there is a guarantee on the part of the government that the suppliers have given the service. It also allows room for any corrections on the project before the payment is made. The demerits of this process are that it holds the money belonging to suppliers for too long; it may incapacitate them from engaging in other contracts. It may also result in a scenario where providers opt for contracts in the private sector, where payment is prompt, reducing access to services by the government offices (Acquisition Central, n.d).

The third contract payment method is the performance-based approach. This is mainly the mode of payment preferred by the government offices. They are payments not based on accepted items that are delivered to the government offices, but rather made at the level of service delivered even if the entire contract is not complete. These fees can be recovered should the given part of the contract be found defective. This method has some merits as it motivates the contractor to speed up service delivery as payments are made for service delivered promptly. It also ensures that the government does not pay for undelivered services.

From the three methods mentioned above, it is evident that while commercial interim method does not offer a payment to suppliers to facilitate operations, the other two provide the cash before the project is complete. Despite this, it is clearly evident that performance-based payment is the most reliable method as it ensures that the government pays only for services that have actually been rendered (Acquisition Central, n.d).

Prompt Payment Act

Prompt Payment Act refers to a federal legislation that requires that agencies of the United States government ought to pay for services and goods delivered to them by supliers on time. This is important to ensure that government bureaucratic processes do not result in hindrance to remuneration of the suppliers. For instance, a person required to issue software for processing returns would be issued with payment after service delivery.

The second element of prompt payment act is that interest penalties of goods and services are late. The penalty plays an important role in increasing the desire of government agencies to make payments to suppliers on time. For instance, if the internal revenue service is issued with the software and it does not make payment within the period indicated by the act, they would be liable to such penalties (Acquisition Central, n.d).

The third element of the act is that of taking discounts that vendors issue to the government office if they are justified. This ensures that discounts are not meant for corruption purposes. For instance, a person selling software to the internal revenue service may opt to issue the government body with discount if it purchases the software in bulk, thus giving the seller and the buyer economies of scale. It is necessary for the government to require prompt payment after service delivery, and not after seven days to enhance late payment. Penalties should also be increased to compel government agencies to pay on time, while discounts should be limited, to avoid being used to balance off penalties (Jacobs, 2012).

Limitation of Costs

The government limits the costs incurred as per the provisions of Truth in Negotiations Act (TINA). The Act was passed in 1962, although several amendments have been carried out since then. Its aims are to protect the government whenever the contract cost is a key element in contract negotiation. The government requires that such government agencies take a meaningful disclosure. Contractors must provide the government with data that the government can cross check to ensure that the payment amounts to the actual market price of goods and services. Such data must be available within the company.

Other than contractors disclosing information, the government demands that the government office procuring such goods or services asks specific information from suppliers to ensure that the pricing data is accurate. The contracting officer would thus be required to use such information in arriving at fair value prices especially when the suppliers lack sufficient information on the actual price of services to be rendered. In this case, such a measure would prevent the internal revenue service from overpaying for the service that is delivered to it by software sellers.

In an effort to prevent overcharging of government agencies by contractors, FAR 52.215-20 grants the government to audit the accounts belonging to such suppliers. This plays an important role in ensuring that the government is not overly overcharged and that the government ensures that the money charged on its offices is in line with the fair value of these services in the market. The government cost limitation such as a requirement for approval of contracts above $700,000 could be enhanced through audit ensuring that the cost of service rendered does not actually exceed the threshold (Kurtz, 2013).

TINA

As indicated earlier, TINA was established with the aim of ensuring that the contract providers do not overcharge the government. The act’s principal gooal was to ensure that such government resources are allocated in an optimal manner. There are provisions of this act that lessens the need for the government to procure technical data as well as computer software. It is necessary to amend the legislation so that the government only provides fair value prices to contractors rather than asks them to present price data. Today, almost all goods delivered to the government by the private sector have market prices. There is a need for the legislation to be set in place where the procurement department notes and records prices from leading suppliers in the industry and offers the contract to the player with the lowest bid, while documenting the prices at the same time. This will help avoid the process of going through a large number of documents in order to determine prices.

In order to ease the process of procurement, there is a need for the law to demand that the government should have access to computer systems that presents market data at all times. This data would comprise the price of commodities and services in all sectors of the economy. This would be maintained by the government intelligence unit. This ensures that the procurement officer can easily ask for goods and services market level prices without documentation as the information is public and documented online by the government business intelligence unit. This has the potential of reducing the need for too many audits as well as the need for correct discretionary information from suppliers (Lymer, Oats, & Hancock, 2010).

Exceptions to Buy American Act

The Buy American Act has a number of exceptions. One such exception regards the provision that construction materials that are 100% manufactured in the US, and which bear 50% of the US content, must be employed in construction materials contracts that are else than $10,335, unless such costs are unreasonable or the agency head determines the same. To determine whether such material prices are unreasonable, the contracting officers are expected to add 6% of the foreign cost of the same materials when sourced from foreign countries.

The act also indicates that construction materials that are 100% produced in the United States of America, and which contain 50% of the American content must be given priority over other materials unless the agency officer determines that this would be against the public interest.

The two above-mentioned exceptions play an important role in ensuring that the Buy American Act is not implemented blindly and for corrupt means. For instance, it would be against public interest if the government keeps procuring materials from a firm that is known to be owned by corrupt government officials, as it would be tailored to exploit public resources. At the same time, politically connected firms may overcharge the government to serve the interest of the company owners to the detriment of social well being. Nevertheless, while limitation of price focuses on fair value of goods and competitive advantage of the country, the limitation of public interest ensures that local resources are not exploited in a corrupt way to benefit a few in the society. For instance, buying products that are cheap locally but whose production is not sustainable and depletes local resources while displacing local communities is against the public interest. As a result, the government should not support them by purchasing the company’s products (Twomey & Jennings, 2013).

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  1. International Trade and Investment
  2. Rights and Obligations of Auditors
  3. Preferences
  4. Finance
  5. Economic Globalization
  6. Latin American Economy (Brazil and Argentina)

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