Introduction

IBM is one of the world's largest industrial corporations that specialize in producing computers and office equipment. Its specialization is based on the production of large computers. IBM is a bright representative of the family of transnational corporations; about half of its operations account for foreign affiliates located mainly in Western Europe and in Japan that is countries which economies are ready to take its products located on the cutting edge of scientific and technological revolution. Among many advantages of the company, there is the fact that IBM has attracted the attention of the business community and the general public; its leaders and a number of researchers particularly mark it with an unusual control system believing that it is the system corporation is required, and its position as a technology leader and his financial strength.

In the past years, such large transnational companies as IBM, Boeing Co., Dell Computer Corporation and others sign contracts with the country. This paper is aimed at outlining the advantages of such types of contract. The paper will consist of three parts: the first part will contain a brief outline about the history of the company; the second part will contain information about the types of the contracts; the third part will contain the analysis of one of the last contracts that were signed by IBM.

Company

The beginning of the IBM's history dates back to the late 19th century when a German immigrant Herman Hollerith who worked at the U.S. Census Bureau proposed to automate statistics on immigrants by perforated cards. They invented the electric machine to process the data which showed that it was worth developing, and in 1896, Hollerith founded a company called Tabulating Machine Co.

In June 15, 1911, the company merged with two other companies specializing in automation of statistical data: International Time Recording, Tabulating Machine and Computing Scale, which manufactured timepieces, perforating machines, typewriters and adding machines. The newly formed company has been logged under the name Computing-Tabulating-Recording Company in 1924. Lately, it was renamed into International Business Machines Corp. (IBM). Since 1952, the Enterprise companies have begun to produce the first generation of computers - a tube-type computer 701 intended for scientific calculations. In 1959, the company launched the second generation of computers and semiconductors; since 1965, they had been producing the third-generation computers (IBM 360 series) integrated circuit. Since the mid-60s until the end of the 70s, IBM had led the fierce competition with such companies as Control Data, RCA, General Electric and others. However, these companies could not survive in this fight. IBM was able to capture a strong position in the market of electronic computing. In the period from 1964 to 1974, its annual turnover had increased from 3.2 to 12.7 billion dollars with the average annual growth rates of 14.8%; from 1974 to 1984, it had increased from 12.7 to 27.4 billion (8.0%); from 1984 to 1988 - from 27.4 to 59.7 billion dollars (28.5%). In 1988, IBM ranked fourth in terms of volume of sales (in excess of $ 60 billion) among the largest U.S. companies. At the beginning of 1987, the representatives of IBM were working in 134 countries worldwide.

Despite the great importance in the PC market, IBM interests extend far wider. Traditionally, the strong position of the corporation was in the manufacture of mainframes. In 1995, IBM received the prestigious order of the U.S. government to create the world's most powerful supercomputer for Lawrence Livermore National Laboratory, which is the Center for Nuclear Research in the United States of America. In 1996-1997, the brainchild of IBM - a chess computer Deep Blue won the battle against world chess champion Garry Kasparov. IBM released their own microprocessors, as well, and its operating system OS / 2 was applied in every third U.S. bank.

In 1986, IBM employees G. Binnig and H. Rohrer were awarded the Nobel Prize in Physics for the creation of raster tunnel microscope, and in 1987, the Nobel Prize winners in physics were employees of IBM, as well. J.G. Bednorz and K.A. Muller were awarded for the discovery of new superconducting materials. IBM ranked first among U.S. companies by the number of patents granted for inventions. In 1996, IBM has patented 1,867 inventions. The corporation spends about five billion dollars per year for researches. In 2004, the market value of the Corporation constitutes 152.76 billion U.S. dollars; the profit for the year amounted to 8.43 billion dollars.

Types of Contract

Federal contract is the contract for the supply of products or the execution of works for public use, under which the supplier agrees to transfer its production to the state customer, and the customer agrees to provide appropriate payment. Federal contract is based on government orders received by the supplier. For the contracting, federal contract is always a must, and for the company, it is a must only in cases prescribed by law and provided that the customer will refund any losses that may be caused to the supplier in connection with the performance of the federal contract. There are several types of such contract.

Depending on the contents of contracts are subdivided into:

-         Contracts for the supply of goods and services;

-         Contracts for works and services.

The content of the first type of contracts, as well as their execution, is rather standardized and involves the supply of goods and services in mass demand.

The content of the contracts of the second type involves the execution of works or the supplier of services for the project.

Depending on the risk of the customer and the supplier, the contract falls into one of three categories:

-     Fixed price contracts, which have predetermined price for the product supplied and should be described in details in the contract. A detailed description of the content and results are necessary to calculate the exact cost of the contract, as well as to avoid differences while acceptance and delivery operations. The customer’s risks are minimal; the company’s risks are maximum because there is always a risk to underestimate the price of the work that will be done by the company.

-    Cost-reimbursable contracts, in which the payment (reimbursement) is unknown and calculated depending on the actual costs that will have been incurred by the supplier adding the profit of a provider. It is necessary to note that the profit of the supplier is not fixed in advance in such type of contracts. The profit of the provider consists of direct costs of the project and indirect costs. Indirect costs (or overhead) is the cost of managing the work under the contract and are generally calculated as a percentage of direct costs. Cost-reimbursable contract is signed when the customer fails to describe the work, product, service in details. The customer bears the greatest risk as the cost of the contract is unknown;

-     Contracts with the price per unit, the so-called time and materials contracts. While signing such type of contracts, the parts negotiate the unit price of works, goods, and the total number of units not known in advance. For example, $ 45 per hour analyst, $ 45 per hour programmer or $ 10 per square meter of treated surface. The contract amount is calculated at the end of works as the product price per unit *Number of units. It is seen that this type of working elements comprises two first types of contracts.

Analysis

For the analysis, the project called “IBM’s Private Cloud Contract” was chosen.

The goal is to provide for the Enterprise cloud computing services in support of the U.S. Army Program Executive Office Enterprise Information Systems, Area Processing Centers Army Private Cloud (APC2). (IBM’s Army Private Cloud Contract)

The contract was signed in 2011, and it will last until 2016. According to this contract, IBM will develop special software for the US Army that will allow access to all parts of the network system (computers, servers, services, storage etc.) and will be highly protected from intervention from the outside. The contract features eleven service areas, such as network connectivity, service support, private cloud operations and maintenance and others.

The contract is a fixed-price one because there is already a pricing scheme for every year of cooperation between the US Army and IBM. The parts chose this type of contract because it allows them to plan their budget for several next years; besides, all the participants of the contract will feel safe knowing that the work will be done, and money will be paid.

This contract, as every contract of selling either a product or a service, has both direct and indirect costs. Direct costs are the costs that depend on the process of creating a product. In this contract, to the direct costs belong materials (IBM company needs special hardware to test the product the US Army will receive); salary of the programmers who will develop the software, as well as the salary of those who will test it; costs of testing the product before sending it to the customer. Indirect costs are such costs that do not influence the process of developing a product; however, they are also significant and should be included into a contract. In this case, indirect costs are cost for renewing offices; costs for renewing software of programmers who develop the Cloud system; costs for training new programmers, or those who already work for IBM but cannot operate with new coding programs; costs for future installation and maintenance of the software. All the costs mentioned above are significant that is why they were discussed and included into the contract.

Conclusion

This paper was devoted to the issue of contracts between private companies and federal establishments. It is well known that such large companies as IBM develop software for the need of the government of the United States of America. This paper consisted of three parts, each dealing with a particular issue. The first part contained the brief overview of the company: when and where IBM was created, what the main goals of the company were back in the time of its creating and what they are nowadays. The government of the United States of America does not work with IBM for a long time; however, there have already been several successful contracts. The second part was devoted to the issue of types of contracts. It has been discussed what types of contracts exist nowadays, and what their peculiarities are. The third part dealt with the issue of the contract that IBM signed with the US Army in 2011. The contract was aimed at creating special software for the US Army usage that will be protected from the outside influence; on the other hand, the employees of the US Army will have easy access to networks, servers, services and other options mentioned in the contract. The contract is a fixed-price one because it has fixed price list for all five years of cooperation. As every contract, this has both direct and indirect costs that were discussed in the third part, as well.