Give a brief overview of the history and background of the company. General Electric, also referred to as GE, is a global infrastructure, media, and finance company established over 130 years ago and it now employs about 304,000 people (GE). Its headquarters are in Fairfield Connecticut and General Electric can be found in over 160 countries. General Electric traces its beginnings to Thomas A. Edison, who established Edison Electric Light Company in 1878 (GE). In 1892 Edison’s General Electric Company and Thomson-Houston’s Electric Company merged together and created General Electric Company (GE).
The first General Electric appliances were produced at the Fort Wayne electric works as early as the 1890’s with a full line of heating and cooking devices developed in 1907 (GE). Through the years General Electric has built a diverse portfolio of leading businesses, powerful company –wide initiatives that drives growth, financial strength and controllership that allows it to capitalize on opportunities through numerous business cycles, and a set of values and beliefs that allow for it to face any environment.
Through the years General Electric’s global research has brought about many new technologies and scientist have amassed thousands of patents bringing innovation to the marketplace. Today, General Electric has approximately 36,000 technologists working across their business and global research centers at the intersection of technology and industry to solve some of the world’s toughest problems (GE).
General Electric is involved in many different things such as developing healthcare innovations to make healthcare cheaper for people, investing money in educational programs, and many other things that are looking to be beneficial to the world in the future. General Electric is also an American multinational conglomerate corporation and in 2011 General Electric ranked among the Fortune 500 as the 6th largest firm in the U. S. by gross revenue as well as the 14th most profitable. Give an account of at least one (1) of the recent major contracts that was awarded to the company.
On February 1, 2010 GE Oil & Gas was awarded a contract worth well over two hundred million dollars by Hyundai Engineering & Construction Company to supply eight gas turbines, and related services for the Abu Dhabi Gas industries integrated gas development project at Habshan in Abu Dhabi (GE Oil & Gas). Abdul Aziz Al Ameri, senior vice president and GASCO Major Projects Group said, “Selection of GE by HDEC was approved by us considering its technology leadership and proven track record as a long-term partner (GE Oil & Gas).
” To meet the rising demand for energy within Emirate, the Habshan 5IGD project represents one of the largest gas processing complexes in the entire world. Together the eight General Electric Frame 6B gas turbine units will provide more than 250 megawatts of power for the Habshan 5 plant, which will include four gas processing trains and will add a total processing capacity of 2,000 million cubic feet of gas per day (GE Newsroom). The plan to increase overall gas processing capacity to meet growing natural gas demand was critical to the long term success of the project.
General Electric’s reputation for being technologically advanced, leaders in technology research, and for being good long term partners to carry out business operations with were very beneficial to them in this case. Mohammad Ayoub, operations leader and regional general manager of Middle East General Electric Oil & Gas said: “We are delighted to be supporting the IGD project which builds upon our already strong presence in Abu Dhabi, where we have supplied more than 70% of the gas turbines in GASCO’s installed fleet (GE Oil & Gas).
” The eight GE Oil & Gas turbines being supplied for the Habshan 5 project are Frame 6B models, each with a power capacity of 32 megawatts at design site conditions. In addition, all eight units will be equipped with advanced dry low NOx (DLN) combustors for emissions control, lube oil systems and other auxiliary equipment (GE Newsroom). The gas turbines were scheduled for shipment during the first half of this year, with commercial operation of the Habshan 5 facility expected by the end of 2012.
Describe the type of contract that they were awarded (fixed-price, cost reimbursement, etc. ) and explain why that particular type of contract was chosen over others. The type of contract awarded for the GASCO IGB project was a fixed price contract (GE Newsroom). A fixed-price contract is a contract where the amount of payment does not depend on the amount of resources or time expended, as opposed to a cost-plus contract which is intended to cover the costs plus some amount of profit.
The reason this type of contract was chosen over the others was because with the fixed price contracts on a commercial product the manufacturer and supplier General Electric already has lots of experience in making and selling this particular product on the open market. With the request for a price delivery past experience for the project gives a very close estimate to the cost of supplying the order. Also in being awarded with a fixed price contract the cost of performance can be predicted with great accuracy, even though material and labor cost may change or an unexpected problem may arise.
In comparison to the other types of contracts commercial type products are best suited for fixed price contracts. List and discuss at least three (3) direct costs and three (3) indirect costs that the contractor incurred. Direct costs refer to materials, labor and expenses related to the production of a product. Other costs, such as depreciation or administrative expenses, are more difficult to assign to a specific product, and therefore are considered indirect costs (Investopedia). The direct cost associated with this contract includes first, the parts that are used to construct each gas turbine.
In regards to production, the cost of the materials required to make a product will be lower than the finished product compiled of all of the materials. The components needed to build the turbines have to be purchased from different manufactures which leads to GE incurring a cost to be able to have the necessary components readily available for construction. Secondly labor readily identifiable with this particular contract such as the people assigned to build the gas turbines throughout the duration of construction would have to be paid. Labor costs are almost always included in direct costs and they vary greatly.
Labor costs are typically high, but they depend on the amount of people working, the amount of time those people are working, and where those people are working. Some countries have cheap labor costs, mainly the less developed countries, which are places that are attractive to businesses in regards to carrying out their operations, which is why a lot of businesses export to less developed countries. Businesses try to cut down on costs as much as they can and labor costs take up a huge percentage of their overall expenses, so by going to less developed
countries for the purpose of attaining cheaper labor costs they are doing what is best for their business financially. If the companies are conducting their operations and labor in a less developed country they most likely have lower labor costs, but if they are conducting their business and operations in a more developed country their labor costs will most likely be higher. Lastly the packaging and preparation of the turbines for shipment to the actual location for use would incur additional cost directly related to the contract.
There are various types of shipping methods that vary in time (in regards to speed of delivery), and cost. Shipping methods include by air (helicopter or plane), truck, boat, or train. Shipping by air covers more land quicker, but it is very expensive. Shipping by boat is a fairly safe method, but it is quite a slow process and it is expensive. Trains and trucks are commonly used shipping methods because they are two of the cheapest methods, but large items are not ideal for these two methods, but in certain cases large items can be shipped properly using these two methods.
Indirect costs associated with this contract would include the cost of supervisors and inspectors, not charged directly to contract the work of building the turbines, but overseeing completion of the work and inspectors insuring proper guidelines of construction were met before shipment. This is a very important aspect of this business and operation because this insures that the companies are conducting their operations in an organized, safe, and proper way.
Without the inspectors and supervisors keeping a close eye on the project and what is going on with its development the companies could cut corners that may be hazardous in the long-run. Also, without proper supervision by the proper officials companies could even conduct their business illegally by not documenting paperwork correctly to benefit them financially, or by even using sweatshops to get labor done quickly. Secondly the cost associated with labor such as GE’s contribution to FICA, unemployment taxes, overtime premiums and group insurance for the laborers associated with the completion of the contract.
Finally, the cost of indirect supplies such as small tools, drill bits, and solder used for putting the gas turbines together would be considered indirect cost and allocated to GE’s overhead cost for the contract. General Electric is a company that has done quality work in its years of operation and it will continue to do so. The reputation that General Electric has built over the years will benefit the company in regards to getting more partnerships and attaining more major contracts in the future because of various reasons, especially because of their work with technology and technological research.
General Electric is a Fortune 500 company that will continue to strive and stay on top because of its dedicated owners and employees that continue to work hard for the sake of the company. General Electric’s involvement in the world in regards to conducting research to make the world a healthier place, and education programs that helps educate and train people so that they too can have a successful future will also help General Electric get more big-time contracts in the future.
Works Cited "GE Newsroom. " General Electric Media Information for Journalists and the Press. N. p. , n. d. Web. 16 Dec. 2012. "GE Oil & Gas Awarded Contract Worth Over $200M for GASCO's IGD Project, Abu Dhabi. " General Electric Media Information for Journalists and the Press. N. p. , n. d. Web. 16 Dec. 2012. "GE. " Works. General Electric, n. d. Web. 16 Dec. 2012. "Ivestopedia. " Definition. N. p. , n. d. Web. 17 Dec. 2012.