APPENDIX A CONTRACT NOY-3550 This contract affords an example of a negotiated cost-plus-fixed-fee contract for work under difficult conditions and on a large scale. The work involved construction of naval air bases on Oahu in the Hawaiian Islands, at Kaneohe Bay and Pearl Harbor, and on Johnston, Palmyra and Midway Islands in the Western Pacific. An important part of this contract was dredging, piers, and waterfront work required on the smaller islands to permit vessels to be brought alongside the sites and to allow ample space for seaplane operations. In addition, there was the usual building construction involving concrete foundations, paving, structural steel framework for hangars and shops, wooden buildings for housing, etc. Power plant facilities, water supply, and sewerage were required at all sites. For this diverse work a combination of three firms was selected. The logical choice for the dredging work was the Hawaiian Dredging Co., who had in the islands adequate equipment for the work. The Raymond Concrete Pile Co. were added for their experienced organization in waterfront and foundation work, and the Turner Construction Co. for general building construction. These three companies each assigned a key man to an operating committee to meet with the naval officer in charge of construction, who is himself a qualified civil engineer, to direct the progress of the work. At the time of negotiating this contract no detailed surveys of the more remote sites were available, but the extent of the work was described in the contract by items with the approximate estimated cost of each as an indication of the magnitude of the work. The work thus described at the 5 sites amounted to a total of $15,505,500. was estimated that 30 months would be required to perform this work, representing a volume of work amounting to $6,202,200 a year for the three combined companies. The fee finally determined was fixed at $898,000, or about 6.15 percent of the estimated cost of the work less the fee. The appropriation act permitted a fee of 10 percent to be paid. The contract was signed August 5, 1939, and this work has progressed much more rapidly than scheduled. In May 1, 1941, in less than 21 months many parts of the work were completed and in use and the entire project was 91 percent completed. Final completion, including items amounting to $3,544,400 in estimated cost and not added to the original work until much later, will be by November 1941. It is of particular interest that this work which was begun in August 1939 will be completed at a cost not over 30 percent in excess of the original cost. The increase has to some extent been due to underestimating the expense of performing work so remote from sources of labor and material, but more because of advanced cost of labor, material and transportation. Vessel charters and ocean freight rates. have increased greatly in the past year. Had it been necessary to send out survey parties, secure plans and specifications in advance of making contracts, as would have been necessary if bid contracts had been used, the entire work would have been delayed at least 6 months. The delay would have been of major 25 importance from a military standpoint, and the increase in cost due to rise in all items entering into construction work which would have been experienced would have definitely reduced the amount of work that could have been performed. Since this contract is not yet completed final cost data are not available. A copy of this contract, which was the first of the negotiated fee contracts is given in appendix B. It is interesting to note that since the duration of this contract is approximately 2 years and as there are three contractors involved, the annual return of each contractor will be one-sixth of the total fee or $150,000 per annum. This is a modest return for organizations of the magnitude of those engaged on the work. Subsequent fees. allowed this combination have been much lower; the last fee for work by eight contractors being 4.6 percent. CONTRACT NOy-4154-HOSPITAL BUILDING-NAVAL HOSPITAL, NORFOLK, VA. This is a small negotiated contract entered into with funds provided in the Appropriation Act of June 11, 1940. The contractor was selected from three Norfolk and one Charlotte, N. C., applicants who were invited to submit replies to a questionnaire outlining their qualifications. The public works officer at the navy yard, Norfolk received these questionnaires and interviewed the contractors personally on June 20, 1940. A transcript of the hearings and copies of the questionnaires were forwarded to the Bureau with the recommendations of the public works officer that E. E. Weddle & Co., of Norfolk, be awarded the work. The Board on Negotiated Contracts at the Bureau reviewed these data and concurred with the recommendation of the public works officer. The contract involved construction of four H-type hospital ward buildings estimated to cost $175,000 including a fee of $6,750, that is, 4 percent of the estimated cost less the fee. The contract was dated June 29, 1940, work was begun July 10 and completed on the four buildings including certain changes on November 29, 1940. During the progress of the contract a fifth building was added-September 23-and this was completed December 18. The added work amounted to $56,000—including a fee of $2,160bringing the estimated cost of the complete project to $231,000. The actual cost was $240,134.69, or 4 percent in excess of the estimate. The advantage of the negotiated contract in this instance was the speed with which the hospital facilities were provided. Work was begun in less than 30 days from the enactment of legislation for the construction and the buildings were completed in practically 6 months from the date of appropriation. By expediting the work, construction in the winter months was avoided. Had this work been handled in the usual manner with bid contracts it is improbable that work could have been begun before September in view of the enormous volume of work thrown on the Bureau by the acts of June 11 and June 26, 1940. While the fee paid for this work was $8,910 (about 4 percent) the work was only of 6 months' duration, so that the annual rate of return was in excess of 8 percent. When consideration is given to the fact that this is a small contractor and that he divided the fee with no one, it will be seen that this is a generous profit, probably more so than for many of the large contracts. APPENDIX B NAVY DEPARTMENT BUREAU OF YARDS AND DOCKS Some Commentaries on "Cost-Plus-a-Fixed-Fee" Contracts With Particular Reference to United States Navy Contracts Under the Bureau of Yards and Docks By Wm. M. SMITH Special Assistant to the Chief of the Bureau of Yards and Docks MAY 20, 1940 27 Foreword Mr. Wm. M. Smith, author of these commentaries, writes with the judgment and knowledge derived from an experience of 48 years of service in the Navy Department. For many years Mr. Smith was in charge of the Maintenance and Operating Division of the bureau of Yards and Docks. Since September 1, 1938, he has been Special Assistant to the Chief of the Bureau. Mr. Smith is especially qualified to write on this subject. He is a member of the Bar, has had intimate contact with a great number and variety of governmental legal and administrative problems, and has the gift of thorough and dispassionate analysis, which is readily apparent in these commentaries. Mr. Smith is responsible for the preparation of the fee contracts which, to date, have proven to be so successful in operation and which he describes hereinafter. The Chief of Bureau commends the reading of these commentaries to all those who have to do with the administration or execution of construction work under the "cost-plus-a-fixed-fee" form of contract. B. MOREELL, Rear Admiral (C. E. C.), U. S. N., Chief of Bureau. MAY 20, 1940. |