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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 construction site activity

• Inspection and quality assurance

• Administration and enforcement of contract 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 accepted. Onsite work, materials, and equipment 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

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.1

1 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.

the structure. The best opportunity for increasing efficiency and effectiveness of a facility and for minimizing life-cycle costs clearly occurs during the initial planning and design phases.

A-E services are usually purchased on the basis of a negotiated, fixed, lump-sum fee. The A-E's fee or total compensation consists of salaries, payroll costs, general and administrative costs, overhead, other direct costs, and profit. The A-E fee thus differs from the concept of fee as used in cost-plus-fee contracts, in which the fee paid is primarily profit. This type of contract is not normally used for A-E services.

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In 1965, the General Accounting Office (GAO) reported to the Congress that the A-E fee paid by the National Aeronautics and Space Administration (NASA) for the design of a facility in Nevada exceeded the applicable six-percent limit. Thereafter, NASA proposed that the National Aeronautics and Space Act of 1958 be amended to permit NASA, in certain circumstances, to pay higher A-E fees. As a result of this proposal, the conference committee, in its report on the fiscal 1967 NASA authorization bill, requested GAO to undertake a Government-wide analysis of the interpretation and application of the statutory fee limitation and submit a report to Congress as a basis for legislative action.

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The resulting GAO report, submitted in April 1967, concluded that the six-percent limit was impractical and unsound and should be repealed. The report noted, however, that reasonable A-E fees could be assured through use of competitive negotiation and the submission and certification of cost or pricing data under Public Law 87-653, the Truth in Negotiations Act. The most controversial issue in the GAO

2 U.S. Comptroller General, B-164031 (3), Study of Health Facilities Construction Costs, Report to Congress, Nov. 20, 1972.

U.S. Comptroller General, B-152306, Non-Compliance with Statutory Limitation on Amount Allowable for ArchitecturalEngineering Services for the Design of a Facility at the Nuclear Rocket Development Station, Nevada, June 16, 1965.

NASA procurement of A-E services is subject to the Armed Services Procurement Act, 10 U.S.C. 2306(b).

H. Rept. 1748, 89th Cong., 2d sess.

U.S. Comptroller General, B-152306, Government-wide Review of the Administration of Certain Statutory and Regulatory Requirements Relating to Architect-Engineer Fees, Report to the Congress, Apr. 20, 1967, p. 16.

See Part J for a discussion of this law. Althrough it applies to only the military agencies, NASA, and the Coast Guard, its provisions have been largely adopted for the civilian agencies in the Federal Procurement Regulations.

report centered on its interpretation that the competitive negotiation requirements of the act, codified as subsection 2304(g) of the Armed Services Procurement Act, were applicable to A-E contracts. This subsection provides that in negotiated procurements over $2,500, discussions shall be held with all responsible offerors who submit proposals within a competitive range, price and other factors considered. Under this interpretation, the GAO report concluded that an A-E award should be made to the offeror whose total proposal was most advantageous to the Government, price and other factors considered.

The GAO report recommended, in view of past agency practice in the selection of A-Es, (1) that Congress clarify its intent as to whether the competitive pricing negotiation requirements of the law apply to procurement of A-E services or, in the absence of clarification of congressional intent, (2) that applicable Government regulations be modified to comply with the GAO interpretation of Public Law 87-653.

Congress responded to this GAO recommendation by enacting Public Law 92-582 8 in October 1972. The statute, which amends the Federal Property and Administrative Services Act, requires:

• Public announcement of all requirements for A-E services

• Discussion with three or more firms "regarding anticipated concepts and the relative utility of alternate methods of approach" • Establishment and publication of criteria for ranking the firms

• Ranking of three firms in order of pref

erence

• Negotiations, with the A-E firm considered to be most qualified, of a satisfactory contract at a compensation which is fair and reasonable to the Government.

Congress was aware at the time it enacted Public Law 92-582 that this Commission was studying and expected to make recommendations concerning the requirements and pro

Signed into law by the President on Oct. 27, 1972. This statute, which adds a new Title to the Federal Property and Administrative Services Act, is discussed below and set forth in Appendix A to this part.

cedures for the selection of A-E firms for Government work. The reports on Public Law 92-582 and the floor debates are clear that passage of this act was not intended to foreclose modification of this action in the light of recommendations expected to be forthcoming in our report to the Congress."

SELECTION OF THE ARCHITECTENGINEER*

Recommendation 1. Base procurement of architect-engineer services, so far as practicable, on competitive negotiations, taking into account the technical competence of the proposers, the proposed concept of the end product, and the estimated cost of the project, including fee. The Commission's support of competitive negotiations is based on the premise that the fee to be charged will not be the dominant factor in contracting for professional services. The primary factor should be the relative merits of proposals for the end product, including cost, sought by the Government, with fee becoming important only when technical proposals are equal. The practice of initially selecting one firm for negotiation should be discouraged, except in those rare instances when a single firm is uniquely qualified to fill an unusual need for professional services.

Recommendation 2. Provide policy guidance, through the Office of Federal Procurement Policy, specifying that on projects with estimated costs in excess of $500,000 proposals for A-E contracts should include estimates of the total economic (life-cycle) cost of the project to the Government where it appears that realistic estimates are feasible. Exceptions to this policy should be provided by the agency head or his designee. Recommendation 3. Consider reimbursing A-Es for the costs incurred in submitting proposals in those instances where unusual design and engineering problems are involved and substantial work effort is necessary for A-Es to submit proposals.

See, for example, H. Rept. 92-1188, p. 7; S. Rept. 92-1219, p. 5; Congressional Record, Oct. 14, 1972, p. S18182.

See Dissenting Position, infra.

Current Agency Procedures 1o

Each Federal agency selects A-E firms on the basis of an agency evaluation of the technical competence of firms under consideration. The procedures for making this selection differ among agencies. They are alike in that no agency requests an estimate of the proposed A-E fee until one firm has been selected. Nor do the agencies normally solicit from possible contractors proposals with information as to concepts of the end product, the general approach to the design effort, estimated construction costs, or estimated total economic (life-cycle) costs. In short, with limited exceptions, A-E firms are not subjected to competition of the type generally used in selecting other contractors.

A-E firms interested in Federal projects file a Standard Form 251 (U.S. Government Architect-Engineer Questionnaire) with agencies for which they would like to work. The form includes information about the type of firm, locations, key personnel, number of professionals, projects in process or completed, and estimated construction cost of projects on which the firm was the architect or engineer of record. Firms are advised to update the forms periodically and to submit photographs of recent work and other descriptive material that may reflect their qualifications.

Generally, several A-Es are considered for a particular job on the basis of factors such as prior experience and performance, professional reputation, and proximity to the construction site. The A-Es are then rated and negotiations are held with the highest ranking firm. Solicitation of a price proposal and negotiations on price are not undertaken until after one firm has been selected for negotiation. If agreement is not reached with that firm, negotiations are terminated and new negotiations are commenced with a second firm.

Over a recent two-year period, in GSA, it was necessary to go beyond the first firm selected for negotiation in only 17 instances out of 227 procurements. Table 2 shows the reasons for the failure to reach agreement.

10 The agencies subject to Public Law 92-582 have not had time to implement this new law. The following discussion of agency procedures reflects practices in use prior to implementation of the new statute.

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