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TABLE 1. DIRECT CONSTRUCTION

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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 fa-

cilities >
Army: military
Navy: military
Air Force: military *
Department of the Interior: Bureau of Reclamation
Postal Service: post office improvements and alterations
Department of Transportation: Federal Aviation Administration
Atomic Energy Commission: facilities
General Services Administration
Department of Agriculture: Forest Service: roads, research, recreational,

and protective facilities
Department of Defense: family housing
Veterans Administration: medical care facilities
Department of the Interior:

Bonneville Power Administration
Bureau of Indian Affairs

National Park Service
Department of Health, Education, and Welfare: Health

Services and Mental Health Administration
Department of Transportation: Coast Guard
National Aeronautics and Space Administration
Department of Defense: interservice activities—construction, defense

agencies Miscellaneous

Total civilian and defense public works direct construction

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* 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 Logis-
tics) 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 construc-
tiön agents, the Army Corps of Engineers and
the Naval Facilities Engineering Command

(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

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

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.17

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

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

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

18 Ibid., p. 49.

bidder, financial capability, performance on previous work, and compliance with other requirements.

Immediately after award of the contract, the contractor normally submits performance and payment bonds in the amounts of 100 percent and 50 percent, respectively, of the contract award price. Since the mechanics’ lien laws are not applicable to real property owned by the United States, and in order to provide some financial protection to subcontractors, materialmen, suppliers, and laborers, the Government requires that a payment bond be posted by the contractor for the protection of such persons. In addition, it requires that a bond to guarantee performance in a proper manner be posted for protection of the Government to insure completion of the work. Preconstruction conferences usually are held to coordinate early requirements such as shop drawings submittals, concrete-mix designs, proposed construction schedule, and other data which the contracting officer requires to supervise, administer, and inspect the work.

Post-award activity falls in the following general categories:

• Scheduling and coordination of construc-
tion site activity
• Inspection and quality assurance
• Administration and enforcement of con-
tract provisions
• Business decisions and negotiation of
changes.

In all but the smallest contracts, monthly progress payments are made based on work actually completed and, in some cases, for material delivered to the site. The Government retains 10 percent of each progress payment until satisfactory performance of one-half of the work; retention may be continued if the contractor's performance is unsatisfactory. Factory inspection of manufactured equipment to be incorporated into the project is carried out

or certificates of compliance from the factory y accepted. Onsite work, materials, and equip

ment delivered to the site are also inspected for compliance. Decisions on changed conditions or conflicts in the specifications are made by the contracting officer. The agency makes a prefinal inspection and develops “punch lists”

which identify the items of work left to be done or which require correction. At this point, the facility may be accepted conditionally and beneficially occupied by the user. The amount of retained funds is normally reduced to about three times the value of the outstanding work.

Federal agencies follow one of two basic sets of regulations in carrying out design and construction work by contract. The military services follow the Armed Services Procurement Regulation (ASPR), and most other Federal agencies follow the Federal Procurement Regulations (FPR). The individual agencies implement these basic regulations with their own instructions and regulations. Sometimes there are differences in implementation. Most agencies use similar construction contract forms such as Form 22, Instructions to Bidders, and Form 23-A, General Provisions (Construction Contract), and generally follow the same basic procedures and philosophy of contract administration. There are some differences, however. For example, warranties may vary from agency to agency with the most stringent calling for consequential damages in the event of failure. The warranty period is for one year, but in some cases extends to one year beyond either completion or correction of the last deficiency, whichever occurs last.

There are certain circumstances and situations in which it may be more economical to use different methods from the one outlined above. Time does not always permit design and construction to be accomplished in a sequential and orderly manner.

Private industry in general makes wider use of alternative techniques than does the Government. There are several reasons for this. There is often a need in the private sector to exploit a market or a situation quickly, which requires the construction of a plant, office building, or retail store on an expedited basis. In this situation the cost of the particular facility may be relatively unimportant compared to achieving an operating date which will permit the planned use of the facility and the associated profits. Private industry rarely uses formal advertising procedures and is not required to offer all contractors an equal opportunity to participate in its work. Accordingly, private industry enjoys much greater flexibility than Government in procuring construction ser

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CHAPTER 2

Architect-Engineer Services

In Part A, Chapter 9, we discuss the general topic of procurement of professional services by the Government. Most Federal construction is based on design effort by architect-engineer (A-E) firms under contract with the Government. The policies for selection and reimbursement of A-E firms have been matters of contention for many years and are the subject of recent legislation. Our conclusions and recommendations related to A-E services, and a dissenting position, are set forth in this chapter.

BACKGROUND

The design and engineering function is a major phase of the construction procurement cycle. In general, “architect-engineer services" may include all professional services associated with the research, design engineering, and construction of facilities, such as feasibility studies; planning; preparation of designs, drawings, specifications, and cost estimates for facilities; preliminary and master planning studies; consultation; investigations; and surveys.

The principal service for which the Federal Government has a demand is the preparation of final construction plans and detailed technical specifications on which construction contractors can bid accurately and competitively. In most Government A-E contracts the term "architect-engineer services” has been interpreted by the contracting agencies to mean only the preparation of plans, drawings, designs, and specifications."

Services other than preliminary and final efforts of these kinds made up a small portion of the $140 million in A-E services contracted for by the Government in fiscal 1970. Our studies concen

The Government made little use of private A-E firms prior to 1939, when Congress enacted the first of several statutes authorizing the procurement of A-E services from outside sources. These statutes limited the total compensation—or "fee”—payable to A-Es under Government contracts to six percent of construction costs.

Today the procurement of A-E services is exempt from the requirements of formal advertising for sealed bids, and Federal A-E contracts are, without exception, arrived at through negotiation. The practice has been to obtain price or fee proposals only from the A-E firm selected for negotiation of a contract.

The A-E has been characterized as a member of the Government team assigned the task of procuring a completed, functioning facility within specified budgetary and time limitations. The A-E is a part of the acquisition process and his services are not an end in themselves; rather, A-E services are a means used by the Government for obtaining a needed facility.

The A-E's overall objective should be an optimal design that will provide a facility within the construction funds available, and which satisfies aesthetic and functional requirements for the least total cost, including both the initial construction cost and operations and maintenance cost over the life expectancy of the facility. Although the cost of A-E services represents only a small part of the total cost of a project, professional design services have a profound effect on total cost of

trated on facility design effort. Federal procedures in contracting for other A-E services should follow the procurement philosophies discussed in this chapter and Chapter 9 of Part A to the fullest extent feasible.

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