In gaining larger economies scales, have larger market dominance, expand territories or reduce costs, the idea of the business acquisition comes to mind. The acquisition is a corporate action which results in one company buying all or more than 50% of the assets or operations of another business. It means that the buying company gains the power to control the operations or make decisions of the newly acquired business without interference (Report to the Congress, 1972). Some of the known business acquisitions ever witnessed included AOL and Time Warner, Vodafone and Mannesmann, as well as various acquisitions of small businesses by the US Department of Defense (DoD).
The DoD has for many years done business with small companies in their attempt to maintain a supply of their weapons. The whole process has to undergo a rigorous cost estimating process empirically and analytically. If the deal is not feasible, then it is called off immediately. The first method of estimating value is the planning estimate, which is a conceptual stage or the foundation. This phase determines the decision to go ahead with the acquisition process. The second phase is the development estimate, which is the polished version of the planning phase (Report to the Congress, 1972). Preliminary designs and plans get verification, and contract talks begin. The current estimate phase is the ultimate stage where the cost of total acquisition is approved and any changes, which occur from here onwards, are adjusted. To summarize this process, the whole report is done on Selected Acquisition Reports (SARs) by the military services.
The evaluation of cost estimating process has well-defined criteria which include clear identification of task, broad participation in preparing estimates, the standardized structure of the estimates, preparation for risks, cushioning inflation, review of estimates independently, and revision of estimates with adjustments due to changes, if any, might have occurred.
Despite the well-defined procedures discussed above, there have been numerous challenges that have crippled the DoDs acquisition of some small business to maintain continuous relationships. DoD is described as a difficult buyer in the 1972 report that deters bidders of government contracts since it takes a more controlling approach to the whole process. Research conducted by Government Accountability Office (GAO) reports, Case studies, opinionated articles as well as quantitative survey have found out that government approvals and reviews take too long, insufficient feedback on bids or proposals and small profits score too high as obstacles. Other minor but significant obstacles include difficulty in obtaining surety bonds, limited time to submit proposals, and export control regulations.
Report to the Congress. (1972, July 24). Theory and practice of cost estimating for major acquisitions. Washington DC: US government accountability office. Retrieved from: http://www.gao.gov/products/044047.pdf
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