Government Contracting and Payment Options

Compare and contrast three (3) payments options and discuss the pros and cons of each. Examine the three (3) elements of the Prompt Payment Act, and provide one (1) example of each.

Software purchase is quite different from purchase of hard goods. The US government can use various options to pay for its supplies. The method used can be determined by various factors including the type of commodity supplied, frequency of purchase and the codes/acts limiting the purchase.

In purchasing of software for processing of Tax Returns, the government will follow the procurement procedure as stipulated in the Federal Acquisition Regulations (FAR). I would recommend the following payment options for this transaction:

  1. Purchasing Cards
  2. Trade ins
  3. Cash payment

Purchasing Cards

Use of purchasing cards is gaining popularity due to its lack of complexity and efficiency. A purchasing card is a charge/credit card that can be used to facilitate the procurement process of goods and services.  The card removes the need to establish a purchase order. In addition it automatically pays the supplier without the requirement for an invoice. The difference between the traditional credit card and purchase card is that a purchase card account must be settled in full by the due date indicated on the card (usually within 30 days) while a credit card allows regular monthly payments. This lack of flexibility in the payment duration can be viewed as a disadvantage in procuring of services.

Trade Ins – This method is applicable mainly in the payment of non-goods supplies. In the case of software procurement, the government acquires software from a supplier in exchange for some tax reliefs/holidays. Another exchange for the software would be operating licence extensions in exchange for software upgrades and maintenance services. This method can be disadvantageous to one or both parties due to unforeseen changes inflation and technology.

Cash payment – This is probably the oldest payment method in US government procurement history. The common practice is issuance of cheques (or RTGS) against the invoice. This is usually done within 30 days of receipt of a valid invoice or on the specific date stipulated on the contract. The payment method is straight forward and preferred by most suppliers. In cases where the government has cash flow problems, this method can be difficult to effect.

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