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CHAPTER 1

Introduction

Nine percent of Federal procurement funds in fiscal 1972 was used for construction of various civil and public works and military facilities. Our review of construction procurement was initiated through study groups on Architect-Engineer Services and Construction. These groups recommended numerous changes in agency practices. We suggest that the agencies consider the detailed matters covered by the study groups and reflected in their reports.

In addition to direct procurement of construction, the Government also supports construction through grants to State and local governments, educational institutions, and other grantees. Construction accomplished through grant programs usually requires the addition of grantee funds. The individual grantees procure and administer these construction programs under their own procedures. under procedures promulgated by the grantor agency, or under a mixture of Federal and individual procedures. We did not study the procurement of construction by grantees. The general topic of grants is covered in Part F.

The seasonally adjusted annual rate of total new construction put in place in the first quarter of 1972 was $121.8 billion,1 11 percent of the estimated 1972 Gross National Product.2 Of the estimated 870,000 construction contractors in the United States, only 1,200 (about one-tenth of 1 percent) employ 100 or more people. From this data it is apparent that the industry requires the integrated input of many separate participants.

3

1 U.S. Department of Commerce, Report C30-72-7, Value of New Construction Put in Place, Sept. 1972, p. 1 (July 1972 index).

2 Calculated by the Commission by comparing the $121.8 billion with the Gross National Product shown in Special Analyses of the United States Government, Fiscal Year 1973, table C-1, p. 34.

Statement of Roger Blough, Chairman, Construction Users AntiInflation Roundtable, before the Joint Economic Committee on Jan. 29, 1971, Hearings, 92d Cong., 1st sess., pt. 2, p. 347.

The Construction Contractor

In 1967, there were approximately 129,000 general building and heavy construction contractors in the United States. In addition there were nearly 240,000 specialty trade contractors, who only handle that portion of work for which they are specially suited, such as plumbing, heating and air conditioning, painting and decorating, masonry, roofing, carpentry, excavating and earthmoving, and iron and steel erection.

The Architect-Engineer

Although the architect-engineer (A-E) furnishes many types of services, the principal one for which the Government contracts with A-E firms is the preparation of the architectural and engineering designs, the final construction plans, and the detailed technical specifications on which construction contractors can bid accurately and competitively.

The procurement of A-E services by the Federal agencies is a very small part of overall Federal procurement. Federal procurement of these services in fiscal 1970 was about $140 million, about 0.3 percent of the total direct Federal procurement reported by agencies. The dollar value of A-E services procured by the

6

"Selected Construction Industries-Summary by Industry: 1967," Statistical Abstract of the United States, 1971, table 1089, p. 661. Ibid.

Survey of Government agencies by Study Group 13-B (ArchitectEngineer Services). Military prime contract awards for A-E services in fiscal 1972 amounted to over $200 million. DOD Military Prime Contract Awards by Service Category and Federal Supply Classification, fiscal years 1969, 1970, 1971, and 1972, Office of the Assistant Secretary of Defense (Comptroller), Sept. 12, 1972, p. 4.

Federal agencies is also a relatively small part of the market for A-E services. In 1967, there were 48,809 firms providing architectural, engineering, and land surveying services; annual receipts for firms with a payroll totaled $4.2 billion. However, the Government is the largest single user of engineering and A-E services.8 The Department of Defense awarded slightly more than half of the 3,400 Federal A-E contracts in 1970. In calendar 1969, approximately 80 percent of these DOD contracts were for $25,000 or less."

different times and in varying numbers on the same construction project. Although the wage scales for skilled crafts provide some of the highest hourly wage rates among union workers, the median annual earnings of a full-time construction worker were $7,650 per year for 1969.12 Some construction work is seasonal, hazardous, and subject to extensive downtime due to adverse weather, interruptions due to labor disputes and other causes, and difficulty in integrating and scheduling the work of various crafts.

Construction Craft Labor

Historically, construction workers have tended to join together by craft, and there are at least 17 national unions, 10,000 local unions, and 535 building trade councils. 10 The prominent unions include bricklayers, carpenters, laborers, electricians, operating engineers, cement masons, iron workers, plumbers, pipefitters, and sheetmetal workers.

While there are separate unions for almost every trade in the industry, the trades are formed into a single organization—the Building and Construction Trade Department, AFLCIO. The Department of Labor reports somewhat more than three-fifths of the construction workers in this industry were employed by firms in which a majority were covered by union-management agreements.11 We estimate that about half of all construction workers are nonunion.

Construction requires labor in different combinations of occupational skills. Operating engineers, for example, are employed in great numbers on large earthmoving projects and road construction, while comparatively few operating engineers are required in building construction. Different crafts are needed at

"Architectural, Engineering and Land Surveying Firms-Summary by States; 1967," Statistical Abstract of the United States, 1971, table 1093, p. 663.

8 Letter from Richard D. Harza to the Comptroller General of the United States, July 27, 1967. included in Appendix C of the U.S. Congress, House, Hearings on H.R. 16443, 91st Cong., 2d sess., June 4, 1970, p. 94.

• Commission Studies Program.

10 Note 3, supra, pp. 346-347.

11 U.S. Department of Labor, News Release USDL-71-312, "Results of BLS Survey of Compensation of Workers Employed by Construction Special Trade Contractors." p. 2.

Federal Construction Procurement

For fiscal 1972, the amount of direct Federal outlays for public works was estimated to be $5.4 billion, 13 most of it in the United States, representing over 4 percent of all new construction.14

The Federal agencies that procure a significant amount of construction are shown in table 1, along with the estimated dollar outlays and percentages of the total direct construction for fiscal 1972.

For civilian agencies, the General Services Administration-Public Buildings Service (GSA-PBS) is the central procurement authority for the construction of all general-purpose public buildings. This includes site acquisition, A-E services, and the overseeing of design, construction, extension, and remodeling of public buildings. During fiscal 1971, GSA-PBS processed $290,881,000 for procurement of construction.15

The civilian agencies utilize the services of GSA-PBS for general purpose building construction but may procure their own construction for special purposes related to their basic missions. For example, in the Federal Aviation Administration of the Department of Transportation, construction procurement is generally related to airport construction and

12 "Median Earnings of Civilians by Sex and by Occupation of Longest Job: 1958 to 1969," Statistical Abstract of the United States, 1971, table 360, p. 229.

13 Special Analyses of the United States Government, Fiscal Year 1978, p. 256.

14 Ibid. Grants and net lending for public works are estimated at $7.3 billion. (Percentage calculated by the Commission.)

15 Letter from the General Services Administration to the Commission, subject: GSA Procurement for fiscal 1971, Dec. 7, 1971.

TABLE 1. DIRECT CONSTRUCTION

Agency

Department of Defense: civil works Corps of Engineers-flood control, navigation, and multiple purpose projects with power

Tennessee Valley Authority: power, water resources, and chemical facilities'

Army: military

Navy: military

Air Force: military'

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Department of the Interior: Bureau of Reclamation

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Department of Agriculture: Forest Service: roads, research, recreational,

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1 Special Analyses of the United States Government, Fiscal Year 1978, Executive Office of the President, Office of Management and Budget, pp. 260, 277, and 278.

* Calculated by the Commission.

TVA does most of its construction with its own personnel.

• Construction performed by the Corps of Engineers and Naval Facilities Engineering Command.

• Construction performed by Corps of Engineers.

modification. In the Atomic Energy Commission, construction procurement is generally related to complex industrial-type facilities (for example, the National Accelerator Laboratory).

In the Department of Defense, the Assistant Secretary of Defense (Installations and Logistics) has responsibility for overall policy in the areas of:

Military construction, including

Reserve forces facilities

Military family housing

Real estate and real property,

including general purpose space.16

There are two primary design and construction agents, the Army Corps of Engineers and the Naval Facilities Engineering Command

U.S. Department of Defense, DOD Directive 5126.22, Assistant Secretary of Defense (Installations and Logistics), May 28, 1969.

(NAVFAC). With the exception of family housing, for which the Air Force serves as both the design and construction agent, most of the design and construction of Air Force facilities is handled by either the Corps or NAVFAC.

Although the military agencies have limited internal capabilities to perform actual design and construction, virtually all the design functions are performed by professional A-E firms under contracts.

The Corps of Engineers is the principal construction agent for the Government in civil works, river and harbor improvements, flood control, hydroelectric power, and related projects. The Corps has responsibility for construction of military facilities for the Army and, in many areas, performs the same service for the Navy and Air Force. It contracts for design, construction, maintenance, and repair

of buildings, structures, utilities, and public and civil works on a worldwide basis and supervises the performance of such work. The Corps of Engineers has 50 division and district offices engaged in the procurement and administration of civil engineering requirements."

NAVFAC is responsible for facilities design, construction, maintenance, and repair; utilities; material support for public works; floating cranes, pontoon equipment, and fleet moorings; fixed surface and subsurface ocean structures; and construction, transportation, and other heavy equipment.18

The Construction Procurement Process

Most Federal construction contracts are awarded through formal advertising on the basis of sealed, competitive bids and "lumpsum" or "fixed-price" contracts.

Under this system, the general contractor agrees to do the work for a fixed price. He assumes most of the risks, such as cost increases, and any cost savings accrue to his account. The general contractor usually contracts with subcontractors for portions of the work, and in many large or complex construction projects, there are numerous subcontractors and subsubcontractors.

Development of specific construction programs for procurement by individual agencies is a rather long, detailed, and complex process. Functions and tasks developed from the basic mission and responsibilities assigned to the agency determine facility requirements. Facilities are not all authorized and funded as they are identified by the agencies; therefore, individual facility projects must compete with one another within an agency for priority and funding.

An agency construction program is far from static. It is subject to constant change during both executive and legislative reviews. The leadtime from facility requirement identification until completion of construction for a large Federal project is five years or more. The first two years are required for reviews by

17 National Security Management-Procurement, Washington, Industrial College of the Armed Forces, 1968, p. 42.

18 Ibid., p. 49.

the agency and by the Office of Management and Budget for inclusion in the President's budget, and for congressional authorization and appropriation. The remaining three years are required for design, construction, and acceptance by the user. Some agencies shorten this period by about one year by initiating design prior to congressional authorization and appropriation for a construction project.

The design of the project is accomplished by in-house personnel of the agency, by architectengineer contractor personnel, or frequently by the A-E with participation by agency personnel through reviews and preliminary efforts required prior to selection of the A-E. Detailed plans and specifications permit advance calculation of the bill of materials, items of equipment, labor, and methods of construction required, in order to develop the final estimate of construction cost.

It is essential that the anticipated costs of operation and maintenance of the facility be closely scrutinized during this phase of the procurement as well as during the construction phase. The cost of operating and maintaining facilities is normally the major cost over their life cycle, so cost adjustment in any of the preliminary phases may significantly affect the overall costs. For example, severe limitations in funds for design of a facility may restrict the number of concepts considered and preclude exploration of alternatives which might result in lower costs for construction, operation, and maintenance. Unduly limiting construction costs may cause substitution of marginal materials or systems, or possible elimination by the agency of certain design features which will increase future maintenance and operating costs many times over the actual "savings" in construction costs.

Upon completion of design and preparation of the final cost estimate, the agency formally advertises the project for construction bids. Wide competition and bidder interest are generally sought. Thirty to 60 days are normally allowed for bidding and bids are publicly opened and announced. Bids generally must be accompanied by a bid bond or cash deposit amounting to 20 percent of the bid. Award is made to the low, responsible, qualified bidder following such pre-award surveys as may be required to determine present workload of

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