Contracting for Design and Construction Services in the Public Sector 1032233761, 9781032233765

Table of contents :
Cover
Half Title
Title Page
Copyright Page
Table of Contents
Acknowledgments
List of Abbreviations
1 Introduction
Introduction
How Is Public Design and Construction Procurement Different?
Aligned Principles: The ABA Model Procurement Code
Aligned Principles: The NIGP Code of Ethics
Construction Definition
The Design and Construction Process
Responsibility for Design and Construction Contract Management
Procurement Laws and Regulations
Titles Used in This Text
Findings and Determinations
Subject Matter Experts
Procurement Resources
What Else Makes Procurement of Construction and Design Different?
Overview of This Book
2 Design and Construction Contract Risks
Introduction
Risk Assessment
Responsibilities of the Owner and Designer
Contract Authority
Contract Type
Contract Ambiguities
Contract Payments
Bid, Performance, and Payment Bonds
Health, Safety, and Security
Quality Assurance and Quality Control
Insurance
Indemnity
Time and Delays
Unforeseeable Conditions
Warranty
Compliance with Federal Laws
Claims and Disputes
Summary
3 Planning and Budgeting
Introduction
Urban and Community Planning
Capital Improvement Plan
Capital Budget
Capital Financing Strategy
Environmental and Technical Clearances
Building Codes and Permits
Site Selection and Acquisition
Project Management Plan
Procurement Plan
Summary
4 Construction Project Delivery Methods
Introduction
DBB Project Delivery Method
Design-Build Project Delivery Method
CMAR Project Delivery Method
Job Order Contracting (JOC) Project Delivery Method
Choosing the Right Project Delivery Method
Summary
5 Qualification-Based Selection of Professional Services
Introduction
Application of Qualifications-Based Selection
Role of the Architect and Engineer
Qualifications-Based Selection Process
Technical Evaluation Committee
Preparing the Request for Qualifications
Issuing the Request for Qualifications
Evaluating Responses
Negotiation of the Design Fee
Design Contract Administration
Task Order Contracts
Summary
6 Construction Contract Procurement
Introduction
General Contractor, Subcontractors, and Suppliers
Plans and Specifications
Bids and Proposals
Construction Solicitation Documents
Sourcing Process
Pre-offer Conference and Site Visit
Evaluating Offers—Offeror Responsibility
Evaluating Competitive Bids
Evaluating Competitive Proposals
Procuring Design-Build and P3 Contractors
Procuring Construction Manager at Risk Contractors
Procuring Job Order Contract Contractors
Protests
Summary
7 Construction Contract Administration
Introduction
Contract Administration Team
Contract Administration Plan
Role of the Contracting Officer in Contract Administration
Contract Administration Process
Partnering
Quality Assurance and Control
Value Engineering
Invoicing and Payments
Prevailing Wage Rates
Contract Changes
Delays
Liquidated Damages
Disagreements and Disputes
Contract Suspension and Termination
Close-out and Commissioning
Warranty
Summary
8 Construction Procurement Environmental and Social Responsibility
Introduction
Environmental Sustainability
Social and Economic Sustainability
A Matter of Responsibility
Sustainable Procurement of Public Construction
Other Federal, State, and Local Requirements
Ethics and Integrity
Summary
Index

Citation preview

“John Adler brings to construction his unique ability to promote innovative procurement practices. He describes advanced delivery methods like design-build, construction management at-risk, and P3 while offering insight into how they are implemented contractually. Adler demystifies the design contracting process, adds an important chapter on construction contract administration, and nicely incorporates relevant practices from federal contracting that are widely adopted in state and local construction contracting. His integration of risk management is excellent. This book belongs on the bookshelf of every public procurement professional.” Richard Pennington, co-author of Legal Aspects of Public Procurement, Third Edition (2020) and former Colorado State Purchasing Director, USA

CONTRACTING FOR DESIGN AND CONSTRUCTION SERVICES IN THE PUBLIC SECTOR What makes the procurement of design and construction services different from the procurement of goods and services? Construction projects tend to be bigger, more expensive, more complex, and often more challenging than other procurements. In this timely new book, author John Adler outlines the design and construction procurement process step by step. He captures the procurement approaches for design and construction that have dominated the industry during the past two decades, including Design-Build, Construction Manager/General Contractor, and Public-Private Partnerships. John explores these and other approaches from practical and public procurement best practice perspectives, examining the inherent advantages and disadvantages of each approach and capturing recommended policies and procedures. Topics covered include: • • • • • • •

The most common project risks and how responsibility for those risks is allocated through design and construction contracts Steps in the project planning process, including capital planning, project management, budgeting processes, and financing tools for construction projects Construction project delivery methods, including the traditional Design-Bid-Build, Design-Build, Construction Manager at Risk, Job Order Contracting, and Public-Private Partnerships Qualifications-based selection for design and architectural services and the administration of design contracts How to select a construction contractor Contract administration for construction projects An overview of social, environmental, and economic issues in design and construction

Contracting for Design and Construction Services in the Public Sector is an easy and entertaining read for public procurement practitioners, ranging from entry-level practitioners to seasoned professionals and managers. It’s an

important book for public sector project management, construction, and design professionals, as well as businesses wishing to market construction and design services to state and local governments. The text may also serve as a supplemental resource for undergraduate public procurement and supply chain students. John O. Adler, CPPO, is a seasoned procurement professional with more than 40 years of experience, culminating in his role as Arizona’s State Procurement Director. When he was given responsibility for managing a construction program for a wildlife conservation agency, John developed his own research and training program that later became a specialized NIGP (Institute for Public Procurement) construction and design procurement workshop delivered throughout the US and Canada. John has been a member and officer of many professional associations, including NIGP, National Contract Management Association (NCMA), and Institute for Supply Management (ISM). He is the Past President and a Life Member of the National Association of State Procurement Officers (NASPO), former chair of the Procurement and Materials Management Committee and director for the American Public Transit Association (APTA), and he is a trainer for NIGP, NASPO, and the National Transit Institute (NTI) at Rutgers University. John recently retired as vice president of procurement for Dallas Area Rapid Transit, where he was responsible for more than $3B in public works construction.

Cornerstones of Public Procurement NIGP—The Institute for Public Procurement, USA

Recently Published Books The Legal Aspects of Public Procurement, Third Edition Michael Flynn, Kirk W. Buffington and Richard Pennington Developing and Managing Requests for Proposals in the Public Sector, Third Edition Ronald King, Theresa Bauccio-Teschlog, Dennis Carney, Joyce Foster and Christine Webber Managing Logistics and Transportation in the Public Sector, Second Edition Darin Matthews and Linda L. Stanley Strategic Sourcing in the Public Sector Barbara A. Grilli and Theresa G. Webb Contracting for Design and Construction Services in the Public Sector John O. Adler

CONTRACTING FOR DESIGN AND CONSTRUCTION SERVICES IN THE PUBLIC SECTOR JOHN O. ADLER

Cover image: © Getty Images First published 2024 by Routledge 605 Third Avenue, New York, NY 10158 and by Routledge 4 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Routledge is an imprint of the Taylor & Francis Group, an informa business © 2024 Taylor & Francis and NIGP: The Institute for Public Procurement The right of John O. Adler to be identified as author of this work has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Library of Congress Cataloging-in-Publication Data Names: Adler, John O., author. Title: Contracting for design and construction services in the public sector / John O. Adler. Description: New York, NY: Routledge, 2024. | Series: Cornerstones of public procurement (NIGP) | Includes bibliographical references and index. Identifiers: LCCN 2022061727 (print) | LCCN 2022061728 (ebook) | ISBN 9781032233765 (hardback) | ISBN 9781003276975 (ebook) Subjects: LCSH: Public works—United States—Planning. | Government purchasing—United States. | Construction projects—United States—Planning. | Construction industry—United States. Classification: LCC HC79.C3 A345 2023 (print) | LCC HC79.C3 (ebook) | DDC 363.60973—dc23/eng/20230417 LC record available at https://lccn.loc.gov/2022061727 LC ebook record available at https://lccn.loc.gov/2022061728 ISBN: 978-1-032-23376-5 (hbk) ISBN: 978-1-003-27697-5 (ebk) DOI: 10.4324/9781003276975 Typeset in Adobe Garamond Pro by codeMantra

Contents Acknowledgments .............................................................................. xiii List of Abbreviations ........................................................................... xiv 1

Introduction .................................................................................. 1 Introduction .......................................................................................1 How Is Public Design and Construction Procurement Different? .......2 Aligned Principles: The ABA Model Procurement Code .....................6 Aligned Principles: The NIGP Code of Ethics ....................................6 Construction Definition .....................................................................7 The Design and Construction Process ................................................8 Responsibility for Design and Construction Contract Management .....................................................................................10 Procurement Laws and Regulations ..................................................11 Titles Used in This Text ....................................................................12 Findings and Determinations ...........................................................13 Subject Matter Experts .....................................................................15 Procurement Resources .....................................................................15 What Else Makes Procurement of Construction and Design Different? ..........................................................................................16 Overview of This Book .....................................................................18

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Design and Construction Contract Risks ................................... 21 Introduction .....................................................................................21 Risk Assessment ................................................................................23 Responsibilities of the Owner and Designer .....................................27 Contract Authority ...........................................................................29 Contract Type ...................................................................................31 Contract Ambiguities .......................................................................32 Contract Payments............................................................................35

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Bid, Performance, and Payment Bonds .............................................36 Health, Safety, and Security..............................................................39 Quality Assurance and Quality Control ...........................................40 Insurance ..........................................................................................41 Indemnity .........................................................................................42 Time and Delays ...............................................................................43 Unforeseeable Conditions ................................................................ 44 Warranty ..........................................................................................46 Compliance with Federal Laws .........................................................50 Claims and Disputes .........................................................................51 Summary ..........................................................................................55 3

Planning and Budgeting ............................................................. 57 Introduction .....................................................................................57 Urban and Community Planning .....................................................59 Capital Improvement Plan ................................................................61 Capital Budget ..................................................................................62 Capital Financing Strategy................................................................65 Environmental and Technical Clearances .........................................76 Building Codes and Permits .............................................................79 Site Selection and Acquisition ...........................................................79 Project Management Plan .................................................................81 Procurement Plan .............................................................................84 Summary ..........................................................................................88

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Construction Project Delivery Methods ..................................... 91 Introduction .....................................................................................91 DBB Project Delivery Method ..........................................................94 Design-Build Project Delivery Method .............................................97 CMAR Project Delivery Method .................................................... 101 Job Order Contracting (JOC) Project Delivery Method .................104 Choosing the Right Project Delivery Method .................................106 Summary ........................................................................................109

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Qualification-Based Selection of Professional Services ............. 113 Introduction ................................................................................... 113 Application of Qualifications-Based Selection ................................ 115 Role of the Architect and Engineer ................................................. 117 Qualifications-Based Selection Process ...........................................120 Technical Evaluation Committee....................................................123 Preparing the Request for Qualifications ........................................125 Issuing the Request for Qualifications ............................................134 Evaluating Responses ......................................................................134

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Negotiation of the Design Fee ........................................................138 Design Contract Administration ....................................................144 Task Order Contracts .....................................................................146 Summary ........................................................................................148 6

Construction Contract Procurement ........................................ 151 Introduction ................................................................................... 151 General Contractor, Subcontractors, and Suppliers ......................... 152 Plans and Specifications .................................................................. 153 Bids and Proposals .......................................................................... 157 Construction Solicitation Documents............................................. 158 Sourcing Process .............................................................................172 Pre-offer Conference and Site Visit ................................................. 176 Evaluating Offers—Offeror Responsibility .....................................178 Evaluating Competitive Bids...........................................................182 Evaluating Competitive Proposals...................................................188 Procuring Design-Build and P3 Contractors ..................................196 Procuring Construction Manager at Risk Contractors....................199 Procuring Job Order Contract Contractors .................................... 200 Protests .......................................................................................... 200 Summary ........................................................................................201

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Construction Contract Administration .................................... 203 Introduction ...................................................................................203 Contract Administration Team.......................................................205 Contract Administration Plan ........................................................207 Role of the Contracting Officer in Contract Administration ..........208 Contract Administration Process ....................................................209 Partnering .......................................................................................212 Quality Assurance and Control ......................................................213 Value Engineering........................................................................... 216 Invoicing and Payments .................................................................. 217 Prevailing Wage Rates .................................................................... 219 Contract Changes ...........................................................................221 Delays .............................................................................................224 Liquidated Damages .......................................................................227 Disagreements and Disputes ...........................................................229 Contract Suspension and Termination ............................................230 Close-out and Commissioning........................................................233 Warranty ........................................................................................234 Summary ........................................................................................237

xii  n Contents

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Construction Procurement Environmental and Social Responsibility ............................................................................ 239 Introduction ...................................................................................239 Environmental Sustainability..........................................................241 Social and Economic Sustainability ................................................255 A Matter of Responsibility ..............................................................267 Sustainable Procurement of Public Construction ............................268 Other Federal, State, and Local Requirements ................................271 Ethics and Integrity ........................................................................272 Summary ........................................................................................275

Index ..................................................................................................281

Acknowledgments In more than 40 years in public procurement, I have had the pleasure of learning from many wonderful people in the public procurement and legal professions. They set very high standards for public service, professional development, ethics, and integrity. Thank you to NIGP, NASPO, ISM, and NCMA for giving us a forum to learn and develop together and to my public procurement colleagues for their mentoring, support, and friendship. A special thanks goes to the friends and colleagues who helped shape my public procurement career. They include mentors and former Arizona State Procurement Administrators Maggie McConnell, Wayne Casper, and Jean Clark; ASU Materials Management professor and author Dr. Harold Fearon; Arizona State Engineer John Holmes, who shared many of my construction contracting adventures; procurement colleagues Gecola Ward and Bill Ptacek, who introduced me to the FAR; attorneys Graham Alex Turner, Mark Wilson, and Chuck Grube, who kept me on the straight and narrow path; my many teammates from the State of Arizona and DART; and NIGP CEO Rick Grim, who encouraged me to teach and write. This book is a team effort. University of Central Florida professor Wendell Lawther, Ph.D., and I collaborated as authors for the NIGP textbook, Contracting for Construction Services in 2008. Our collaboration provided the inspiration for this book. Lisa Frank was with NIGP when I started writing this book and provided guidance and motivation from the start. NASPO colleague Richard Pennington did the first read and provided many excellent suggestions. NIGP Program Content and Curation Manager Barbara Gabriel provided guidance, encouragement, countless edits, and many suggestions that served to improve the clarity and readability of this book. Thanks also to Routledge and Editorial Assistant Elizabeth Hart for this opportunity and her guidance. Most of all, thanks to my wife and soulmate Beverly Adler for her encouragement, patience, editing, and assistance with helping me navigate the mysteries of Microsoft Word. xiii

List of Abbreviations ABA A/E CM CMGC CMR CO COR CS DBB DB FAR GC JOC MPC NIGP P3 PM RFP

xiv

American Bar Association Architect or Engineer Construction Manager Construction Manager General Contractor Construction Manager at Risk Contracting Officer Contracting Officer Representative Contracting Specialist Design-Bid-Build Contracting Design-Build Contracting Federal Acquisition Regulation General Contractor Job Order Contracting 2000 Model Procurement Code for State and Local Governments The Institute for Public Procurement Public-Private Partnership Project Manager Request for Proposals

Chapter 1

Introduction

Introduction From 1983 to 1995, I was the supply branch chief for the Arizona Game and Fish Department. Best job ever. In 1992, we embarked on a renovation program for our six fish hatcheries. The Tonto Creek Hatchery was my first attempt at procuring design and construction services, and my first million-dollar contract. Our department engineer was also new to public design and construction procurement, and we learned together. The Tonto Creek Hatchery was built in 1937 on US Forest Service Land along Tonto Creek, about 20 miles east of Payson, Arizona. At 6,500 feet elevation on the Mogollon Rim, the 50-acre hatchery produces an average of 50,000 pounds of rainbow, brown, and native Apache trout each year. We procured an engineering firm that specialized in fish hatcheries. Over the next few months, they designed a state-of-the-art facility, with 12 covered raceways, an oxygenation system, and an incubation room for hatching fish eggs. We used the plans and specifications to obtain construction bids and awarded the contract to a very competent contractor. The contractor considered the project a “vacation” and provided travel trailers for his entire crew. They worked construction on weekdays and fished Tonto Creek DOI: 10.4324/9781003276975-1

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2  ◾  Introduction

on the weekends. Construction was completed on schedule, and we held the ribbon-cutting ceremony with several prominent public officials. That’s when the problems began. When the water started flowing, the raceways overflowed, and we were standing in muck. The engineer blamed the contractor, claiming the pipes were clogged with debris. The contractor ran a camera through the pipes and found them clear of obstructions. After considerable head scratching, the engineer suggested adding an additional pipe. Another 12-inch-diameter pipe for each raceway for another $200,000 “might” work. “Engineering is an art, not a science,” the engineer explained as he proposed his fee for a revised design. We quickly contracted with another engineer for a second opinion. According to his calculations, the raceway piping diameter should have been at least 20 inches, pushing capacity to more than double the original 12inch pipes. Calculating water flow is science, not art. We fired the original engineer, excavated, replaced the pipe, and the hatchery was finally ready to raise fish. That’s when the real trouble started. We filed a claim against the engineering firm for the additional construction and design cost, and the engineering firm filed a claim against us for terminating the contract and defaming its stellar reputation. “Engineering is an art, not a science, and we designed the facility within the normal standard of care of the engineering profession,” claimed the chief engineer. The chief engineer even blamed us, complaining that we should have checked his calculations. The dispute lasted for several months and was often heated. We eventually negotiated a settlement, but the engineer went bankrupt. Our engineer and I learned many important lessons in our first experience with procuring public design and construction services. The first lesson: Procuring design and construction is different from procuring commodities and services.

How Is Public Design and Construction Procurement Different? What makes public design and construction procurement different from procuring goods and services? The procurement principles and many procurement laws and practices for procuring design and construction are the same as for buying goods and services. The need for ethics and integrity are equally important. We cast a wide net to pursue maximum competition and achieve a fair and reasonable price. We ensure that the procurement process is fair,

Introduction ◾  3

equitable, and transparent, and the selection of the winning contractor is based on sound logic and carefully documented. However, there are many differences, and some may seem confusing and even counterintuitive. In most jurisdictions, and when using federal funds, price cannot be a factor in the selection of an architect or engineer. Like the fish hatchery, there is no guarantee that the design will work. We may need to verify that wages paid to construction workers comply with federal or local prevailing rates. Failing to obtain a payment bond could result in claims from suppliers and subcontractors, and special insurance is required for the designer and contractor. Most purchased goods are mass-produced in controlled environments. Construction is performed in the field with unknown conditions and constraints that may delay performance or add to costs. Construction designs are untested, providing for some uncertainty as to the outcome. Because of this uncertainty, changes are common. Construction projects may take months or even years to complete, presenting many opportunities for delay, cost increases, and disagreement.

A Building Boom Construction projects may also be massive in scale, scope, and cost. Government agencies invested $355 billion in construction projects in 2022,1 ranging from small office remodels to airport expansions and commuter rail projects. El Paso, Milwaukee, Oklahoma City, and St. Louis were building streetcar projects in 2018. The Dallas Area Rapid Transit (DART) started constructing a $1.2 billion 26-mile “Silver Line” commuter rail system in 2019 that, combined with the Fort Worth Trinity Metro “Tex Rail,” will connect Dallas to Fort Worth and DFW Airport.2 Along with many other projects, DART is planning for the Design-Build construction of a $1.94 billion subway.3 The New York City MTA is seeking $54 billion in local and federal funding to renovate and upgrade its subway system.4 North American Rail, a seven-state “mega-region,” is planning a $105 billion high-speed commuter rail system that will speed passengers at 200 mph between Boston and New York City.5 Other proposed high-speed rail projects include the $24–42 billion Cascadia linking Vancouver, Portland, and Seattle,6 and a $105 billion, 500-mile bullet train between Los Angeles and San Francisco.7 Public construction projects can be incredibly complex. The 1.9 million square foot LEED Platinum Mercedes-Benz Stadium signature roof opens and closes like a camera aperture and features retractable seating, floorto-ceiling windows that overlook Atlanta, and a 360-degree “halo” video

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display.8 The proposed North American Rail project includes a 16-mile-long tunnel and another tunnel under Boston’s “Big Dig.”9 Construction projects can require multiple years to complete. It will take 20 years before passengers ride the North American Rail from New York City to Boston.10 DART began planning its second downtown subway in 2007, with revenue service planned for 2025.11 Construction complexity can range from simple task order or job order contract projects to complex systems, requiring multiple contracts for design, construction, and equipment. The DART Silver Line rail project includes the procurement of Design-Build construction of 26 miles of heavy rail, a hike and bike trail, an expansion to an equipment maintenance facility, program management services, and the purchase of commuter rail vehicles and associated maintenance—all totaling more than $1.2 billion.12 Additional contracts for real estate acquisitions, a federally mandated positive train control system, and environmental services are also required for this massive project.

Multiple Moving Parts Design and construction contracts are more complex and difficult to administer. There may be multiple contracts for design and construction and other requirements that must be administered in harmony. Construction contracts are more challenging from a legal perspective, with federal and state Davis Bacon laws requiring the payment of prevailing wages to workers, Buy America compliance for materials and equipment, subcontracting and supplier disadvantaged business and employment goals, and other complexities. Construction project delivery methods—including Design-Build and Construction Manager at Risk—add additional levels of complexity and risk to procurement. Non-traditional financing of public construction projects can contribute to their complexity. The Texas high-speed rail project is planned as a public-private partnership (P3), blending private sector investment with federal funds.13 Construction of the $1.5 billion Mercedes-Benz Stadium14 and $622 million Atlanta Braves SunTrust Park15 was funded through various sources, including private investment through P3s. The Atlanta Braves and their SunTrust Park funding partners are also investing $700 million in mixed-use development in the Battery Park community near the ballpark.16 Virginia is spending $1 billion on four I-495 and I-95 highway projects through a P3.17 Other highways and rail improvements are funded partially through lowinterest Federal Transportation, Infrastructure, Finance, and Innovation Act (TIFIA) loans, private investment, and toll revenue. These funding sources bring more complexity, risks, and legal requirements.

Introduction ◾  5

Public construction can produce challenges for communities, leading to opposition from some stakeholders. Construction of highways and interchanges can literally divide communities with concrete barriers. Like the construction of railroads in the 19th century, highways connect some communities, while diverting traffic and commerce from others. Extending highways to suburbs may reduce congestion but may also promote suburban sprawl, leading to even greater congestion. New development improves older neighborhoods but can cause gentrification, displacing established residents and businesses.

The Ugly Bus Barn After receiving a notice of award, a contractor started clearing a site for the new Marshall Independent School District (MISD) bus maintenance facility. The district had outgrown its old bus barn, and the new facility would include parking for 120 buses and a 24,000 square foot maintenance facility. Funding would come from a capital reserve fund and the sale of bonds. During an MISD Board meeting, several members of the Oak Ridge Neighborhood Association delivered a petition and lined up to speak in opposition to the project. The association brought a lawyer, and speakers threatened to seek a restraining order to stop construction, citing the following reasons: ◾ Bus traffic would cause congestion and pose a safety hazard in the neighborhood. ◾ Noise, dust, and traffic during construction would be disruptive and endanger children. ◾ The unsightly facility would reduce property values. ◾ The neighborhood was not consulted on the facility and learned about construction through a news article. What impact might this community opposition have on the project? What can the district do to address the concerns of the neighborhood association? Community meetings early in the planning process would have provided some transparency and allowed the school district to address citizen concerns. It may not be too late for public meetings. There may be several things the district can do to alleviate the community complaints. The district could work with the city to design better access to route bus traffic away from the

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neighborhood. The district also might consider designing an attractive facility and include a community center or green space. Finally, the district should emphasize the value the facility may add, including new jobs and increased business for local stores and restaurants.

Aligned Principles: The ABA Model Procurement Code Fortunately, the procurement of public design and construction services is based on the same public procurement principles as for commodities and services, as stated in Section 1–101 of the 2000 American Bar Association (ABA) Model Procurement Code for state and local governments: ◾ To provide for increased public confidence in the procedures followed in public procurement ◾ To ensure the fair and equitable treatment of all persons who deal with the procurement system ◾ To provide increased economy in procurement activities and to maximize to the fullest extent practicable the purchasing value of public funds ◾ To foster effective broad-based competition within the free enterprise system ◾ To provide safeguards for the maintenance of a procurement system of quality and integrity ◾ To obtain in a cost-effective and responsive manner the materials, services, and construction required by agencies in order for those agencies to better serve businesses and residents

Aligned Principles: The NIGP Code of Ethics Likewise, the NIGP (Institute for Public Procurement) Code of Ethics applies to procurement of public design and construction services, as it does to the procurement of commodities and services: The Institute believes, and it is a condition of membership, that the following ethical principles should govern the conduct of every person employed by a public sector procurement or materials management organization: ◾ Seeks or accepts a position as head (or employee) only when fully in accord with the professional principles applicable thereto and when

Introduction ◾  7

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confident of possessing the qualifications to serve under those principles to the advantage of the employing organization Believes in the dignity and worth of the service rendered by the organization and the societal responsibilities assumed as a trusted public servant Is governed by the highest ideals of honor and integrity in all public and personal relationships in order to merit the respect and inspire the confidence of the organization and the public being served Believes that personal aggrandizement or personal profit obtained through misuse of public or personal relationships is dishonest and not tolerable Identifies and eliminates participation of any individual in operational situations where a conflict of interest may be involved Believes that members of the Institute and its staff should at no time, or under any circumstances, accept directly or indirectly, gifts, gratuities, or other things of value from suppliers, which might influence or appear to influence purchasing decisions Keeps the governmental organization informed, through appropriate channels, on problems and progress of applicable operations by emphasizing the importance of the facts Resists encroachment on control of personnel in order to preserve integrity as a professional manager Handles all personnel matters on a merit basis, and in compliance with applicable laws prohibiting discrimination in employment on the basis of politics, religion, color, national origin, disability, gender, age, pregnancy, and other protected characteristics Seeks or dispenses no personal favors; handles each administrative problem objectively and empathetically, without discrimination Subscribes to and supports the professional aims and objectives of NIGP: The Institute for Public Procurement

Construction Definition Because different laws, regulations, and practices apply to procurement of public design and construction that may not apply to other procurements, it is essential to understand the legal definition of public construction. Construction is the process of building infrastructure. The ABA 2000 Model Procurement Code for State and Local Governments defines “construction” as: The process of building, altering, repairing, improving, or demolishing any public infrastructure facility, including public

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structures, public buildings, or other public improvements of any kind to real property. It does not include the routine operation, routine repair, or routine maintenance of any existing public infrastructures, buildings, or real property. The NIGP Dictionary of Procurement Terms defines construction as: The process of using labor to build, alter, repair, improve, or demolish any structure, building, or public improvement; generally does not apply to routine maintenance, repair, or operation (MRO) of existing real property. The definition for construction, often also called public works, may vary by state and community, and the difference may be significant. It is important for the procurement professional to know and understand the legal definition for construction that applies to the specific jurisdiction and funding source.

The Design and Construction Process On any given day, governments are seeking bids or proposals for the design and construction of: ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾

Disaster and environmental clean-up projects Power production and transmission facilities Wastewater treatment plants Schools and universities Sports facilities and playgrounds Roads and bridges Transit facilities Dams and reservoirs Levees and pump stations Computer facilities Fire and police stations Airports Equipment maintenance facilities Prisons Office buildings Facility repairs, renovations, and upgrades

Design and construction projects involve a planned sequence of many concurrent and consecutive activities intended to achieve a defined outcome.

Introduction ◾  9

The construction process begins with a vision and plan. New neighborhoods require schools, parks, fire stations, roads, and public transportation. As communities grow, wastewater plants require upgrades and expansion. Public buildings require repair and renovation as they age. Highways and bridges need repair, replacement, or expansion for public safety and to relieve congestion. Planners project growth patterns and develop long-term community plans. Engineers and project managers estimate the cost of various alternatives. Finance and budget staff determine project funding requirements and revenue and financing sources. Once the funding authority appropriates or budgets the funds, a project management team assembles to plan the project. Planners evaluate potential sites for public facilities or corridors for roads or utilities to determine the best location or route. Planning conducts community meetings and public hearings for transparency and citizen involvement. If necessary, real estate is acquired from businesses and citizens or provided by developers. Engineers evaluate the site for hazardous materials, impact on drainage, and other state and federal requirements. Preservationists and environmentalists examine the site for historic significance and potential disturbance of endangered habitat and species. Civil engineers locate and map water, sewer, and other utilities so they can be avoided or moved during construction. The project management team, along with the contracting officer, determines the project delivery method. The equal opportunity manager sets goals for disadvantaged or minority- and woman-owned business participation. Procurement prepares and issues the solicitation for design services. After proposals are received in response to the solicitation, a technical evaluation committee recommends selection of the architect or engineer, and the contracting officer negotiates the design contract. If the delivery method is Design-Bid-Build or Construction Manager at Risk, the architect or engineer will design the entire project in detailed drawings and specifications. If the delivery method is Design-Build, the project management team will prepare preliminary specifications and drawings that the design-builder will complete. The project management team meets with the architect or engineer for each phase of design to ensure that the design meets the government’s requirements and that the estimated cost does not exceed available funds. The design documents become the scope of work for seeking bids or proposals from contractors. After procurement awards the construction contract, the contractor assembles its team of subcontractors, sets up temporary office and storage facilities, brings equipment to the site, sources construction materials and supplies, and begins construction. The contract administration team carefully observes construction and tests materials to ensure compliance with the design specifications. Each

10  ◾  Introduction

month, the contractor submits an invoice for work completed, which is reviewed by the contract administration team before authorizing payment. When the contractor completes construction and the facility is ready for occupancy or use, the contract administration team inspects the work and prepares a punch-list of deficiencies for the contractor to resolve. When the punch-list is cleared, the facility is accepted by the contract administration team, and all required documents are submitted by the contractor, the project is complete, and the warranty period begins. A public works project requires a team that represents nearly every part of the organization: ◾ Planning is responsible for developing plans for community infrastructure. ◾ Project managers and engineers develop the project scope and cost estimates. ◾ Budget and finance officials determine revenue and financing requirements and sources, assign budget codes, and plan cashflow. ◾ The contracting officer procures design and construction and other materials and services needed to build the project. Procurement also administers the design and construction contracts. ◾ Project or construction managers review the plans and specifications and inspect the construction.

Responsibility for Design and Construction Contract Management The role of the procurement official for design and construction services varies by organization. Ideally, a contracting officer leads the team responsible for design and construction procurement and contract administration. The contracting officer administers the contract, delegating authority to the project manager for testing, inspection, change orders, and other activities, while retaining responsibility for contract actions, including modifications and settling disputes. In some governments, project managers or others in the public works or engineering department procure construction and design services, and the procurement department may not be involved. In others, the role of public procurement may differ, depending on the type of construction used. For example, procurement may be responsible for procuring the construction of vertical structures, while horizontal construction procurement like bridges and roads are the responsibility of engineering or public works.

Introduction ◾  11

The 2000 ABA Model Procurement Code for State and Local Governments provides a recommended statutory or regulatory template for state and local governments. It has been adopted in some form by many state and local governments. The Model Procurement Code supports a single central procurement authority for the entity, with “relevant and recent experience in public procurement” and responsibility for “procurement of all supplies, services, and construction.” NIGP endorsed a similar centralized procurement policy in a 1989 resolution that was ratified in 1995. Despite this clear guidance, many governments continue to either exempt construction and design services from public procurement laws and regulations or assign procurement responsibility to the public works, engineering, or other non-procurement business division. NIGP reported in its 2017 Public Procurement Benchmark Survey Report that 19% of public procurement units were not responsible for construction, while another 18% were responsible for some construction procurement but not for all public works. With advances in technology, the evolution of alternate project delivery methods and private financing, increased focus on security and sustainability, and the public need for transparent and responsible procurement, a central procurement authority that includes responsibility for construction and related services is essential. Regardless of where the procurement authority resides, the same public procurement principles that apply to procurement of commodities and services must apply to public design and construction.

Procurement Laws and Regulations The laws and regulations that apply to the procurement of professional services and construction vary considerably among government organizations. It is important for procurement professionals to be familiar with and frequently review the applicable laws and regulations that apply to each procurement and to consult with legal counsel for guidance and clarification. Both the ABA 2000 Model Procurement Code for State and Local Governments and the Federal Acquisition Regulation (FAR) are frequently referenced in this text. The ABA Model Procurement Code is the standard for more than half of the states and is based on public procurement best practices. In addition to the ABA, the National Institute of Governmental Procurement and the National Association of State Procurement Officials (NASPO) recommends the adoption of the Model Procurement Code. One might say the FAR is the grandfather of all government procurement law. Although the FAR may not apply directly to state and local government

12  ◾  Introduction

procurement, it does provide good guidance for procurement officials, and portions of it apply when state and local governments spend federal funds. The FAR also provides considerably more detail on procurement methods than most state and local laws and regulations. The NIGP Dictionary of Procurement Terms is also referenced frequently in this book. This dictionary is universally accepted as a common language for public procurement professionals.

Titles Used in This Text Titles used in public procurement can be confusing. Many different titles denote procurement professionals, clients, designers, and contractors. For simplicity and clarity, the following titles will be used to identify roles and responsibilities in this text: ◾ Government Agency—The government agency or government owner may be any form of government, including a federal agency, state, department, city, county, board, bureau, institution, government corporation, special district, or other government entity. ◾ Architect and Engineer—The architect or engineer is the person responsible for designing and preparing the plans and specifications for the project. According to the NIGP Dictionary of Procurement Terms, “architecture and engineering service” is defined as: Professional service within the scope of the practice of architecture and professional engineering, as defined by the jurisdiction, usually involving research, design, development, construction, alteration, or repair of real property. The architect or engineer is licensed by the state and is required to sign and seal all technical work, including plans and specifications. The architect or engineer may be a government staff member or contracted by the government to prepare construction plans and specifications. The architect or engineer may be one single individual or may lead a team of design professionals. For Design-Build projects, the architect or engineer is a member of the Design-Build team. ◾ General Contractor—The general contractor is responsible for the construction of the project. The NIGP Dictionary of Procurement Terms defines a general contractor as: A contractor delegated with the entire responsibility and risk for the day-to-day management and contract performance of a construction project designed by a third party.

Introduction ◾  13

The general contractor is often called the prime contractor, as they lead a team of subcontractors to perform the work. ◾ Contracting Officer—The contracting officer is the person responsible for procuring and administering design and construction contracts. The NIGP Dictionary of Procurement Terms defines a “contracting officer” as “A person with the authority to enter into, administer, or terminate contracts, and make related determinations and findings.” According to FAR Part 1.602-1, “Contracting officers have authority to enter into, administer, or terminate contracts and make related determinations and findings. Contracting officers may bind the government only to the extent of the authority delegated to them.” There are many different titles for the person designated as the contracting officer, including “buyer,” “purchasing agent,” “procurement officer,” and “purchasing manager.” In smaller agencies, the contracting officer may also be responsible for other duties, including grants, finance, or engineering. For this text, the titles “contracting officer” and “procurement officer” have the same meaning and may be used interchangeably. ◾ Contracting Officer Representative (COR)—According to Part 1.604 of the FAR, the COR “assists in the technical monitoring or administration of a contract” under the delegated authority of the contracting officer. For construction projects, the COR is most often the project manager. ◾ Project Manager—The project manager is the person responsible for planning, organizing, and directing a project. The NIGP Dictionary of Procurement Terms defines a “project manager” as the “the individual in charge of planning and executing a particular project.” As used in this book, the project manager is the client, that is, the person representing the public works department, construction department, or other business unit responsible for a design and construction project.

Findings and Determinations The contracting officer is responsible for many decisions over the course of a procurement. Each contracting action requires a decision, and each decision involves some discretion. Discretion is the ability or freedom to act or decide in each situation. The NIGP Dictionary of Procurement Terms defines discretion as: The power or right to act officially in certain circumstances as granted in code or rule to exercise one’s freedom of choice or professional judgment.

14  ◾  Introduction

We apply discretion when we choose a construction project delivery method, determine which offer provides the best value, authorize a contract change, or determine that an offeror is not responsible. These decisions come down to making a rational and logical decision within the parameters of the law. Of course, each decision can be subject to second-guessing and challenges. One of our greatest fears as contracting officers is to have a decision overturned because it is contrary to the law, an abuse of discretion, or is arbitrary or capricious. As contracting officers, our best protection against second-guessing is documentation. Documenting the decision, including the situation and background, applicable laws and regulations, alternatives considered, and basis for the decision, will help ensure that the decision is based on sound logic and reason. FAR Part 1.701 defines determination and findings as: Determinations and findings mean a special form of written approval that is required by statute or regulation as a prerequisite to taking certain contract actions. The “determination” is a conclusion supported by the “findings.” The findings are statements of fact or rationale essential to support the determination and must cover each requirement of the statute or regulation. A professional colleague once told me that the term “determinations and findings” should be reversed, as the finding should come before the determination. In this text we will follow his good guidance and use the term “findings and determination” or “F&D.” Section 1–201 of the ABA Model Procurement Code also prescribes the use of written determinations to explain discretionary decisions. Every major procurement decision, such as choosing competitive negotiations rather than competitive bids, selecting the project delivery method, or awarding the contract, should be supported by an F&D. At a minimum, the F&D should include the following information: ◾ Description of the action or decision being considered ◾ Citation of the applicable statute or regulation ◾ Findings that detail the specific circumstances, facts, or reasoning to support the determination ◾ Determination based on the findings ◾ Signature of the contracting officer authorized to make the determination The F&D is prepared by the contracting officer, reviewed and acknowledged by the next higher authority, and retained in the procurement file.

Introduction ◾  15

Subject Matter Experts Design and construction procurement can be challenging and complicated. There are many risks and opportunities for disputes and there are often large dollar amounts at stake. The contracting officer should be prepared to call on subject matter experts when negotiating or administering design and construction contracts. For example, negotiating a contract may require a competent cost and price analyst to examine complex construction working papers. Understanding a P3 proposal may require analysis by a finance or accounting expert. A forensic accountant may be necessary to analyze a construction claim, and most procurement decisions will require support from legal counsel. These resources may be available from inside the organization or from sources outside the organization. Project budgets should include some contingency or allowance for procuring outside resources, and the organization should be prepared to use them. Disputes do not always turn out as expected, even when the law and facts seem to favor the government owner. It is important to consult early and often with legal counsel whenever there is a potential dispute. It is also important to document every procurement decision in a finding and determination. Usually, the party with the most accurate documentation has the advantage in any dispute. Remember, procurement is a team effort, and the general counsel is your best friend.

Procurement Resources When we started down the fish hatchery renovation path, there were few resources available for design and construction procurement and contract administration. There was no internet to surf. I studied the Construction Contracting textbook published by George Washington University and the FAR. I networked with many procurement colleagues, lawyers, and others in the construction and design industries. Some things I learned the hard way. Today, there are many good information and training resources specializing in design and construction services available for procurement professionals. The NIGP provides public procurement professionals with a wide variety of core and specialty learning opportunities through its Pathways professional development and credentialing program. Pathways workshops relevant to design and construction procurement include: ◾ Contract Management and Performance ◾ Cost, Price, and Value Analysis

16  ◾  Introduction

◾ ◾ ◾ ◾ ◾ ◾ ◾

Negotiations Risk Analysis Social Responsibility Specification Development Protests and Appeals Construction Procurement (Specialty Certificate) Job Order Contracting (Specialty Certificate)

These are but a few of the many coursed offered by NIGP. Other NIGP resources include many global best practices relevant to construction and design procurement, including: Sustainable Procurement Practice Establishing an Effective Supplier Diversity Program Negotiation Public-Private Partnership (P3): Facilities and Infrastructure Qualification-Based Selection for Architectural and Engineering Services ◾ Selecting the Appropriate Construction Project Delivery Method ◾ Specifications ◾ Contract Administration ◾ ◾ ◾ ◾ ◾

The NASPO offers training to members through its Procurement U, including procurement of construction and design, negotiations, terms and conditions, and contract administration. NASPO also has a content library available for members. The National Contract Management Association (NCMA) provides a federal focus on procurement, and the Institute of Supply Management (ISM) provides a business sector supply chain focus. Both offer an extensive library of courses and publications. Other resources for design and construction procurement are available through the Design-Build Institute of America (DBIA), Construction Owners Association of America (COAA), American Institute of Architects (AIA), National Society of Professional Engineers (NSPE), and American Society of Civil Engineers (ASCE).

What Else Makes Procurement of Construction and Design Different? Public construction improves communities in many ways far beyond the impact of the project investment. Construction creates business opportunities

Introduction ◾  17

for contractors and subcontractors and jobs for employees. Associated Builders and Contractors estimated in 2018 that $1 billion in construction creates 6,400 jobs.18 This spending also has a multiplier effect, indirectly creating jobs in support industries throughout the supply chain and within the community. DART estimates that its public transit system resulted in 43,000 jobs, increased property values by $10.8 billion, and contributed $7.1 billion to the local economy.19 Public construction advances communities and increases revenues. More than $700 million in new real estate development sprouted around the home of the Atlanta Braves, Sun Trust Park. A mixed-use development near the stadium, Battery Atlanta, includes retail, office space, restaurants, and 531 residences. Cobb County local governments receive an average of $4 million per year, and Cobb County schools receive almost $15 million each year in tax revenue from the stadium and adjacent development.20 Public construction projects create opportunities for small and disadvantaged businesses. Many projects have goals that promote social equity by including small, traditionally under-utilized, and minority- and women-owned businesses, as well as requirements to hire and train disadvantaged and unemployed workers. These projects also create jobs for economically and socially disadvantaged people. Public construction makes for safer communities. More than $20 billion has been invested in construction and repairs to 350 miles of levees, floodwalls, and pumps surrounding New Orleans since Hurricane Katrina, which flooded 80% of the city. Another $10 billion was invested in 24,000 New Orleans reconstruction projects through 2015.21 Public infrastructure renovation and improvements preserve our historic buildings for future generations. There are more than 94,000 sites listed on the National Register of Historic Places (National Park Service). The State of Minnesota completed a massive renovation of the State Capitol Building in 2017. This four-year project, costing $310 million, included 20,000 exterior repairs and the restoration of 57 historic murals.22 Kansas completed a $325 million state capitol renovation in 2014, and Wyoming completed its $322 million state capitol building renovation in 2019.23 There are always plenty of construction projects on the drawing board to keep public procurement officers busy. In 2018, CNN reported that more than 54,000 bridges in the US are structurally deficient.24 In its 2017 Infrastructure Report Card, the ASCE estimated that a $271 billion investment in improvements and upgrades to nearly 15,000 wastewater treatments plants is needed to meet demand in the next 25 years.25 Communities will always need new, expanded, and upgraded schools, fire stations, roads, and stadiums. Most public construction contracts will not have the complexity of a 16mile tunnel, $1 billion plus price tag, complicated P3 funding, or take 20

18  ◾  Introduction

years to complete, but they all share the same procurement principles and practices. This book will help readers understand those principles and practices that are unique to procuring design and construction services.

Overview of This Book This book will address specific policies, procedures, and best practices for procuring design and construction services in the public sector: ◾ Chapter 2 addresses the most common project risks and how responsibility for those risks is allocated through design and construction contracts. ◾ Chapter 3 addresses the steps in the project planning process, including capital planning, project management, budgeting processes, and financing tools for construction projects. ◾ Chapter 4 covers the construction project delivery methods, including the traditional Design-Bid-Build, Design-Build, Construction Manager at Risk, Job Order Contracting, and Public-Private Partnerships. ◾ Chapter 5 discusses qualifications-based selection for design and architectural services and the administration of design contracts. ◾ Chapter 6 focuses on selecting a construction contractor. ◾ Chapter 7 provides guidance on contract administration for construction projects. ◾ Chapter 8 provides an overview of social, environmental, and economic issues.

Notes 1 U.S. Census Bureau, Construction Spending, August 2022, Construction Spending (census.gov) 2 Texas Rail Advocates, “DART Sliver Line Revenue Service Start Pushed Back to 2024,” July 14, 2021. 3 Dallas Area Rapid Transit (DART), “Silver Line Project,” https://texasrailadvocates. org/post/dart-silver-line-revenue-service-start-pushed-back-to-2024 4 N.Y. Times, “The M.T.A.’s $54 Billion Plan to Transform Your Commute.” By Emma Fitzsimmons, September 16, 2019, https://www.nytimes.com/2019/ 09/16/nyregion/mta-budget-subway.html. 5 Bloomberg City Lab, “Is This High-Speed Train the First Megaproject of the Biden Era,” Anthony Flint, February 17, 2021, https://northatlanticrail.org/ archive/2021/february17-tl87c-9lg56-c5xmw.

Introduction ◾  19

20  ◾  Introduction

Chapter 2

Design and Construction Contract Risks Introduction There are so many things that can go wrong during design and construction. What if the construction cannot be completed within the required schedule or budget? What if there are errors or omissions in the design and the completed facility does not work as intended? What if hidden conditions or bad weather impedes or stops construction? What if the contractor fails to pay subcontractors and suppliers? There are many risks and consequences that make design and construction different from procuring goods and services. The NIGP Dictionary of Procurement Terms defines “risk” as “The chance of injury, damage, or loss; the probability of some occurrence (e.g., a failure) and the consequences and impact of the occurrence.” A risk is some action or event that might delay, impede, add cost, or even stop a construction project. An important procurement planning objective is to identify, analyze, and manage risks so they can be prevented or mitigated if they do occur. This is risk management. Although each contracted party shares the common objective of successfully completing a project, each party also has conflicting priorities. The DOI: 10.4324/9781003276975-2

21

22  ◾  Design and Construction Contract Risks

project owner wants the project completed according to the specifications, on time, and under budget. The design and construction contractors wish to recover costs and earn a profit. To achieve the shared and individual objectives, each party wants to limit risk. The contract serves to allocate risks. For many years, public construction contracts burdened the contractor with most of the project risks. If the contractor wished to submit a bid on the project, the contractor had to assume responsibility for those risks as stated in the invitation for bids, without exception. Designers and contractors have pushed back against contract terms that they consider onerous or unfair through legislation, bid exceptions, or simply refusing to bid or propose. Given the opportunity to negotiate Design-Build and Construction Manager at Risk contracts, designers and contractors will push hard against accepting some risks, especially when they have limited or no control over those risks. On occasion, courts have ruled that some risks were unfairly assigned to the contractor. For example, federal and state courts have eroded or overturned the commonly used “no damages for delay” or “contractor’s duty to inspect the site” clauses that make the contractor financially responsible for unknown site conditions and owner-caused delays. Even with a fair and equitable allocation of risks, there is often tension between the owner, designer, and contractor. Designers want to avoid the consequences of design errors, pushing responsibility on the owner or contractor. Contractors may attempt to take advantage of contract ambiguities or delays to seek additional compensation. Owners may push responsibility for unusual hidden conditions onto the contractor. The most diligent owner cannot identify and address every risk in drafting a contract. Even when risk is addressed in a contract, mitigating circumstances and conditions may affect which party is responsible for the risk. For example, the owner may collect liquidated damages from the contractor for late completion of the work, while the contractor may claim damages for delay or acceleration, blaming the delay on the owner. This chapter explores the risks that are unique to design and construction contracts and how those risks may be identified and fairly and equitably distributed to the contracted parties best able to prevent and mitigate the risks. Government procurement and construction contracting laws may differ significantly in each jurisdiction on how risks are allocated, and they may even conflict with this text. For example, some state and local laws may require or prohibit no damages for delay clauses. Procurement professionals must be familiar with the laws of their jurisdiction and consult with legal counsel when preparing solicitations, awarding and administering contracts, and handling disputes and claims.

Design and Construction Contract Risks ◾  23

Risk Assessment Risk has three elements: ◾ A potential adverse event that may prevent or delay successful completion of the project unless it is prevented or mitigated ◾ The probability that the adverse event may occur ◾ The consequence of the adverse event Risk assessment is the process of identifying each potential risk and estimating the probability and consequence of those risks. Once identified, each risk may be plotted on a matrix with probability on one axis and consequence on the other. Table 2.1 illustrates a simple risk matrix showing the consequence of an event on the X-axis and the probability of an event on the Y-axis. An event with a high probability and high consequence will be in the upper right quadrant, while a low probability and low consequence event will be in the lower left quadrant. Risks are what might go wrong. Probability is how likely it will happen. Consequence is the impact that risk might have on the project. For example, in the construction of a new fire station on a “brownfield” site that was previously occupied by a service station, there is a high probability that there may be unidentified underground hazardous materials. The consequence would be the delay and additional costs to remove and dispose of the hazardous materials. Plotted on a matrix, this risk would be in the right upper quadrant as high both in probability and in consequence. With the risks identified and plotted, measures can be taken to prevent or mitigate the likely and costly risks. Risk mitigation includes: Table 2.1 Risk Matrix

p r o b a b i l i t y

Low probability High consequence

High probability High consequence

Low probability Low consequence

High probability Low consequence

consequence

Created by the author.

24  ◾  Design and Construction Contract Risks

◾ ◾ ◾ ◾

Preventing the risk by eliminating the cause of the risk Controlling the cause or consequence of the risk Accepting the risk Transferring the risk

A risk prevention and mitigation plan must be made by the government agency for any risk with high probability and high consequence and should be made for any risk of lower probability and high consequence. Low consequence risks may not require a risk mitigation plan. There may be no way to avoid the existing underground hazardous material risk in the fire station example, but there are several approaches to mitigate that risk: ◾ The risk might be controlled by conducting additional soil tests. ◾ If hazardous materials are discovered through soil tests, the government agency could accept the risk, excavate the site, and dispose of the hazardous materials before requesting offers for construction. ◾ The government agency could accept the risk and establish an allowance in the contract for the removal and disposal of any hazardous waste discovered during construction. ◾ The risk could be transferred to the contractor. If the government is aware of the risk, it must disclose the potential for hazardous materials in the solicitation and contract so the contractor may account for it in the price. Construction project risks may come from any direction: ◾ Technical—Size and complexity of the project and potential for design errors and omissions ◾ Cost—Potential for exceeding project funding ◾ Schedule—Consequences of completing the project or an essential milestone late ◾ Scope Creep—Possibility of adding additional requirements during construction ◾ Market Conditions—Capacity of the construction market and availability of labor and building materials ◾ Political—Public perceptions and push-back on the project ◾ Real Estate—Availability and cost of real estate required for the project ◾ Legal—Legal requirements that must be considered for the project ◾ Funding—Conditions imposed by the funding sources ◾ Environmental—Conditions that might impact the environment ◾ Weather—Timing of construction to minimize impact of weather ◾ Natural Disaster—Potential for extreme events that may stop or delay the project ◾ Unknown Conditions or Circumstances

Design and Construction Contract Risks ◾  25

Contractors also assess the risks when considering construction contracting opportunities and preparing offers. In identifying risks, the contractor may elect not to submit an offer, take exception to the risk in its offer, or add a contingency for the risk in its price. If the contractor takes exception, it risks having its offer rejected. In adding a contingency, the contractor risks pricing its offer too high to have a reasonable chance of winning the contract. If the risk is too high, the contractor is likely to not bid or propose and seek a more favorable opportunity.

Rushing to the Finish Line With already overcrowded classrooms and a steadily growing population of students, the Catatonic Public School District is preparing to request bids for the construction of six classrooms and the expansion of the cafeteria. Contract award is anticipated by the last day of school and construction shall be completed in time for the following school year. The primary school is located on a small property, and the entire school will be closed during construction. The project manager proposes requiring liquidated damages of $10,000 per day for late completion of construction. What is the big risk? How can the school district prevent or mitigate the risk? The schedule is the big risk for the school district and the liquidated damages are the big risk for the contractor. The NIGP Dictionary of Procurement Terms defines “liquidated damages” as: Damages (usually in the form of money) to be paid by a party who breaches all or part of a contract with another party. The amount of damages are agreed upon by all parties to a contract. These damages may be applied on a daily basis for as long as the breach is in effect, but they may not be imposed as an arbitrary penalty. The key to establishing liquidated damages is reasonableness; it is incumbent upon the buyer to demonstrate, through quantifiable means, that damages did occur. In this case, it is unlikely that a contractor can complete construction during the short summer recess. The short schedule and excessive liquidated damages are unreasonable and will discourage bidders from competing or cause them to include the liquidated damages in their price. District officials could consider measures to phase the work and isolate construction from student activities. For example, they may be able to

26  ◾  Design and Construction Contract Risks

complete expansion of the cafeteria during the summer recess and fence off the construction site for the subsequent construction of the classrooms. The district might also consider using temporary classroom facilities. Risk assessment is best conducted early in the planning phase of a major construction project. For large projects, many entities assemble a team of project personnel, planning, design, construction, finance, risk management, legal, and procurement officials to brainstorm and prepare a risk register that identifies and classifies project risks. The register is used to determine how the risks can be prevented, reduced, mitigated, avoided, transferred, or retained. Responsibility for specific risks is distributed through the contract. Some risks are best handled by the government owner and others by the general contractor. Consider the following examples: ◾ Because of federal grant funding, the construction of a project requires domestic steel. High demand for domestic recycled steel coupled with low production is driving up the price for rebar and creating shortages. Contractors report that, unless some relief is provided in the contract, they will be unable to meet the construction schedule and will need to include a contingency for steel price increases. The contracting officer may include provisions in the solicitation and contract, allowing for an economic price adjustment for rebar and extension of time for rebar delivery delays. ◾ A new primary school will be constructed on a brownfield site that once included a service station. It is possible that there may be an underground storage tank and hazardous materials on the site. Since the amount and distribution of hazardous materials is unknown, general contractors will refuse to offer, take exception to the requirement, or add an excessive amount for risk. The contracting officer should consider procuring a contractor that specializes in site assessment and hazardous waste removal before seeking construction bids or proposals. ◾ The construction of a light rail line will require relocation of utilities, including underground water and sewer and underground and aboveground electrical and communication lines. The utilities are all owned by third parties and relocation will require direct negotiation with the utility owners. These utility owners will only negotiate with the property owner and operate on their own schedules. It is unlikely that general contractors will accept the risk for relocation of utilities. The contracting officer should negotiate directly with the utilities and any delays in relocating the utilities should be accommodated in the construction schedule. ◾ During a pre-bid meeting, contractors complained that their equipment and materials would be subject to vandalism and theft after hours because the job site is in a high-crime area and poorly lighted. One

Design and Construction Contract Risks ◾  27

contractor suggests that the county should provide portable light towers and assign deputy sheriffs to patrol the site. Perhaps a compromise will work. The contractor can hire security and rent light towers, and deputy sheriffs can occasionally drive by the site during off hours. ◾ Construction in a local area is booming. Contractors are reporting difficulty finding workers, transportation, and building materials. The contracting officer could consider delaying the procurement until the market settles. Risks are addressed and allocated in contract terms and conditions. When requesting bids, the allocation of risks is set in the solicitation and may not be changed after bids are due. When requesting proposals or statements of qualifications, allocation of risks may be negotiated before the contract is awarded.

Responsibilities of the Owner and Designer The formation and elements of the contract are the same for design and construction as with other procurements. What makes design and construction contracting different is the unique roles of the design architect or engineer and construction contractor and their relationships with the government owner. Under the Design-Bid-Build and Construction Manager at Risk delivery methods, there are three contracted parties. The architect or engineer is contracted by the owner to design the work, estimate costs, and prepare plans and specifications within the reasonable standards of the profession. The owner may also contract with the architect or engineer for assisting with contract administration during construction. The builder or general contractor is procured by the owner to perform the work as directed in the plans and specifications or scope of work provided by the owner. With both designer and builder under separate contracts with the owner, and not with each other, the roles can conflict.

The Spearin Doctrine—Implied Warranty of Plans and Specifications More than 100 years ago, the federal government contracted with a company called Spearin to build a drydock in the Brooklyn Navy Yard for $757,000. The plans prepared by the Navy called for relocation and diversion of a sewer before constructing the drydock. Spearin completed the relocation of the sewer main according to the plans.

28  ◾  Design and Construction Contract Risks

About one year later and during the construction of the drydock, a heavy rainstorm combined with high tide broke through the sewer and flooded the worksite excavation. Investigation revealed that a dam inside the sewer caused internal pressure and flooding. The dam was not shown on the government plans and specifications. The government was not aware of the barrier. However, the government was aware that flooding had occurred in the past and did not notify the contractor. Spearin considered the conditions unsafe and stopped work until the government agreed to assume responsibility and correct the sewer system. The government insisted that Spearin was responsible for correcting the sewer and completing the work. After 15 months of exchanging letters, the government terminated the contract and awarded the work to another contractor. Spearin disputed the termination and prevailed in the Court of Claims. The US government appealed, and Spearin again won. In 1918, the Supreme Court upheld the ruling, “(I)f the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications.” The court also ruled that the implied warranty of the plans and specifications is not “overcome” by contract provisions requiring the contractor to examine the site. This landmark decision formed the basis for the Spearin Doctrine and is the origin of the implied warranty of design. United States v. Spearin, 248 US 132 (1918) Might the decision have been different if the contract was Design-Build?

Under the Design-Build project delivery method, the contractor is responsible for both design and construction under one contract. Under the logic of the Spearin decision, the owner is responsible for the contractor’s damages resulting from defective plans and specifications. Even if the plans and specifications were prepared by a third party contracted by the government, the government is responsible for damages because the owner is responsible for the design. Conversely, the design architect or engineer is only bound by the ordinary standards of their profession. The owner may not be able to obtain compensation from the architect or engineer resulting from the defective plans and specifications if the design meets the ordinary standard of the profession. The

Design and Construction Contract Risks ◾  29

ordinary standard of care for engineers is a subjective measurement and is not perfection. It is reasonable and ordinary care and diligence in performing the design. In a Design-Build project, the contractor is responsible for both design and construction and bears the responsibility for design errors and omissions. With Spearin, it probably would not have mattered whether the project was contracted as Design-Bid-Build or Design-Build, because the owner was aware of and did not disclose the sewer problem. Spearin also advised the owners that requiring the contractor to investigate the site before preparing its bid does not relieve the owner from its obligation to disclose any known conditions.

Contract Authority The NIGP Dictionary of Procurement Terms defines “agency” as: A legal relationship that exists between two parties by which one (the agent) is authorized to perform or transact specified business activities for the other (the principal). Black’s Law Dictionary defines “agency” as: A fiduciary relationship created by express or implied contract or by law, in which one party (the agent) may act on behalf of another party (the principle) and bind that party by words or actions. A contracting officer has, or should have, the express written authority to represent the government. Federal contracting officers have a written warrant that declares their contracting authority. Likewise, an architect or engineer may have express authority to represent the government through the construction contract or other written direction to the builder. Agency or authority may be apparent in the title of the principal. The title “purchasing agent” implies some level of contracting authority, even if that authority is not expressed in writing. Authority may also be implied in the actions of the principal. For example, a contractor might assume that the project manager has authority because they issue a change order. Actual authority exists in fact, while apparent authority is what is perceived. What makes construction contracts different from other government contracts is the many parties representing the government and their respective roles. A project manager may be responsible for approving the work

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and issuing change orders. The architect or engineer may have authority for approving or rejecting the work. Others may be responsible for testing, inspections, managing the safety program, and approving invoices for payment. The contracting officer may be responsible for interpreting the contract and issuing contract modifications. Absent express written authority, the roles and responsibilities may be confused, as direction to the general contractor can come from many sources. Construction contract disputes are often the result of confusion over who has what authority. An architect may direct the contractor to change the work, yet the owner may refuse to pay for the change. A government inspector may approve work that is later rejected by their supervisor. Both these situations establish the basis for a dispute. In the former, the architect’s express or implied authority may obligate the government to pay for the change. In the latter, the apparent authority of the employee may not be sufficient to relieve the contractor of their obligation to conform to the contract. Even though the resolution of these disputes may seem reasonably clear, mitigating circumstances and differing laws may influence the outcome.

Misdirection Prior to starting construction for a new public works maintenance facility, the contractor’s superintendent asks the plant supervisor where to locate the storage yard and office trailer. The plant supervisor replies, “Anywhere is ok, as long as it does not block the access road.” The project architect arrives after the storage yard was fenced and the office and storage trailers placed. Red-faced and angry, the architect orders the contractor’s superintendent to move the storage and temporary office to the other side of the construction site. “You needed to check with me first before setting up,” the architect declares, without providing a reason for the move. The contractor storms off in a huff and submits a change request for the $1,400 cost to relocate. Who is at fault here for the misdirection? Should the contractor be compensated for relocating the storage yard and office? Who has the authority here? In our example, the contract should have designated a specific location for the storage yard and office. The contract should also have designated a person with authority to answer the contractor’s questions. Absent any other guidance, the contractor assumed that the

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maintenance facility supervisor had apparent authority if not actual authority to authorize location of the storage yard and office. The maintenance facility supervisor should have referred the superintendent to the architect or at least checked with the architect. Although there may be many other details that might influence a decision, the contractor has a good argument to support a claim for additional compensation. To avoid claims based on questionable directions, some contracts require written notice by the contractor to the entity, usually within a specific timeframe, to determine if the misdirection is considered a compensable change. Failure to follow the notice provision is often strictly applied against the contractor by courts, the theory being that the government otherwise loses the ability to investigate and correct its actions. Reviewing project meeting minutes is one way for a procurement officer or contracting officer to spot situations in which unauthorized misdirection could lead to a dispute. When a possible change to specifications is discussed, the contract administrator should monitor the issue to ensure that appropriate change orders or amendments are issued. The roles, responsibilities, and authority of each person representing the owner, contractor, and designer should be clearly stated in the contract or other supporting document before a notice to proceed with design or construction is issued. The Federal Acquisition Regulation (FAR) requires written designation of a contracting officer representative (COR), with delegated authority from the contracting officer. When shared with the contractor, the COR agreement or letter serves to eliminate confusion and conflicts over project team roles and responsibilities. A COR is the person authorized in writing by the contracting officer to perform specific technical and administrative contract functions and is not permitted to make any commitments or changes to the contract. The COR agreement is standard practice for federal and many state and local procurement departments.

Contract Type The contract serves to allocate risks among the contracted parties. The two basic government contract types are “firm-fixed price” and “cost reimbursement.” The NIGP Dictionary of Procurement Terms defines a “firm-fixed-price contract” as: A type of contract providing for a price that is not subject to adjustment on the basis of the contractor’s cost experience in performing the contract.

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The dictionary defines a “cost reimbursement contract” as a contract that: Reimburses the contractor for all incurred costs that are allowable and allocable under the terms of the contract and applicable laws and regulations; may include profit or fee. There are multiple variations of firm-fixed-price and cost reimbursement contracts. Variations of fixed- price contracts include “fixed price with economic adjustment” and “fixed-price incentive.” Cost reimbursement variations include “cost-plus fixed fee,” “cost-plus award fee,” and “cost-plus incentive.” Plotted on a scale, cost-plus fixed-fee contracts place the greater risk on the government owner, while firm-fixed-price contracts place the greater risk on the contractor, with the variations falling somewhere in between. Most government construction contracts are firm-fixed price. Design-Build and Construction Manager at Risk contracts start with a guaranteed maximum or not-to-exceed price and are later negotiated as fixed price when the design is completed. Cost reimbursement contracts are rarely used for public construction in circumstances in which the risks involved cannot be predicted with a reasonable degree of certainty and are limited to a fixed ceiling. The objective in determining the appropriate contract type is to allocate risk to achieve sufficient competition and optimal efficiency and economy. Too much risk for the contractor will reduce competition and result in a higher price. Certain risks may be isolated and mitigated for the contractor in fixedprice contracts using allowances and economic adjustment provisions. For example, if the amount of utilities that may need to be moved is unknown, a cost reimbursement allowance can be established in the fixed-price contract. If the market for steel or copper is unstable, an economic adjustment provision could be included in the contract for those commodities.

Contract Ambiguities The size and complexity of construction contracts increase the risk and consequences of ambiguities. Despite the best efforts of the contract author, the contract may contain specifications or clauses that may be interpreted in more than one way, or a requirement in one part of the contract may conflict with another. For example, a drawing may differ from a statement in the specifications, or a design detail may not conform to a state or local building code. When these ambiguities impact time, cost, or performance, they often become an opportunity for dispute.

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The Short Vents A state inspector measures the height of each exhaust vent on the roof of a school cafeteria and shakes his head. “They will have to be raised at least 30 inches,” he says as he attaches a pink rejection sticker to each vent. “You will circulate the kitchen fumes right into the dining area through the air conditioning.” The contractor quickly pulls the roll of plans from his truck and locates the ventilation drawing, saying, “We fabricated them just as the architect designed them. Get us a change order and we can make up some new ones for $500 or $600 a piece.” The architect pulls out her copy of the contract. “According to the contract specifications, you are supposed to build everything to state code. Obviously, these vents don’t comply with state code. It’s your fault. Fix them at your expense.” The contractor jumps into his truck and slams the door. “You did the drawings! I won’t touch those vents until you promise I’ll get paid for the work.” Which party is correct? Is the architect responsible for a design error, or is the contractor responsible for not conforming to the building code?

In our example, while the contract requires compliance with state code, the drawings depict the short vents. The contractor is obliged to lengthen the vents to comply with the building code. However, each party has an argument to avoid the additional cost. The owner and designer can argue that the contractor is responsible for verifying compliance with the building code. In contrast, the contractor can argue that the vents are exactly as they are depicted in the drawings. If the contractor prevails in the dispute, the owner may claim that the design is defective and blame the architect, while the architect may counter that the design met the ordinary standard of care of the profession. The contracting officer is usually called on to referee and interpret contract ambiguities, and a sequence of logic may be applied. In this case, the order of preference clause in the contract is applied when two contract statements conflict. In the absence of a stated order of preference, specific terms take precedence over general terms, and specifications take precedence over drawings. The cardinal rule for interpreting contracts is to carry out the intent of the parties when the agreement was executed. The intention is analyzed based

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on how a reasonable and prudent offeror or contractor would interpret the contract. Although the contractor may have been guided by the vent dimensions in the drawings, the contractor was also required to conform to the building code by the specifications. The contract is interpreted in its complete form. An ambiguity is interpreted to conform to the general context of the agreement. Generally, prevailing dictionary definitions and custom and trade usage are used for interpretation. If all else fails, the ambiguity is interpreted against the party that drafted the contract. Finally, both parties have a duty to seek clarification of apparent ambiguities. A reasonable and prudent contractor should have been aware of the building code and of the potential hazard of circulating kitchen fumes and gasses through the student dining area. Such a contractor would have requested clarification before installing the deficient vents.

The Fish Hatchery Renovation A construction contract includes replacing concrete fish hatchery raceways with state-of-the-art aluminum raceways. The new raceways feature an oxygen system to enhance fish growth. The design drawing shows a water line serving ten fish raceways but only one inlet line, noted as “typical” on one raceway. The specifications state that water inlets shall be provided to each raceway, and a specification table lists enough pipe and materials for ten water inlets. The contractor argues that the drawing illustrates only one water inlet, and they refuse to construct any additional inlets without additional compensation. The contractor argues that it assumed the government would use the remaining materials to construct inlets on its own after the contract is completed. The design engineer argues that the water inlets were not omitted from the drawing. Instead, the single inlet was presented as typical for all raceways. Drawing inlets for the remaining raceways was not necessary, as such an effort would be inefficient. Which party should prevail? What is the basis for your decision? Either the contractor won the contract on price by omitting the required plumbing or they are attempting to earn additional profit through creative interpretation of the contract. The problem would have been avoided if the engineer depicted all the water inlets on the drawings. The contract required

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the installation of the inlets, and the contractor should not have assumed otherwise. Noting the one inlet as “typical” should have been sufficient to guide the contractor to provide all inlets. Also, the specifications, which have precedence over the drawings, required the inlets. The contractor’s argument is creative but nonsensical. The hatchery could not operate without the inlets. Resolving contract disputes is often based on what a reasonable contractor would do under similar circumstances. The reasonable person is a hypothetical legal standard that is used as the basis for resolving disputes. A reasonable person is prudent, acts sensibly, takes proper precautions, and acts without delay. In the case of our hatchery inlets, a reasonable contractor could not have interpreted the contract to exclude water inlets on all but one raceway. At a minimum, the contractor should have requested clarification before submitting an offer for the project.

Contract Payments One advantage of public contracts for general contractors is the assurance that they will be paid. Unfortunately, their risk is that they will not be paid on time. Contractors incur substantial payment obligations and typically earn small profit margins for public construction. A payment delay of a few days can adversely impact a contractor’s bottom line. If a government entity has a reputation of being slow to pay, contractors will add a little extra to the price. Likewise, subcontractors and suppliers have similar payment obligations and often operate with small margins. The government is obligated to pay the contractor as work progresses. Likewise, the contractor is obligated to pay subcontractors and suppliers on time. For small projects over short durations of fewer than 60 days, the contractor may be paid in one lump sum when the government accepts the completed work. For projects of longer durations, the owner makes monthly progress payments. Once payment is made, the government “owns” the completed work and delivered materials. There is some payment risk for the government owner. Progress payments are based on the work completed and materials purchased and stored during the preceding month. Contractors may seek to maximize revenue as early as possible during construction by “front-loading” invoices, estimating excessive costs for mobilization and start-up, and inflating the value of the work completed. Front-loading payments puts the government at risk if the contractor does not complete the project or pay its suppliers and subcontractors. For example, the contractor could default after receiving 50% of the total contract amount while completing only 40% of the work and without paying its subcontractors

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and suppliers. The contractor may also complete the work on time but refuse to complete defective work or fail to provide required documentation after substantial completion. To prevent front loading, contractor invoices must be scrutinized on two levels. The COR is responsible for inspecting the work and stored materials and verifying the contractor’s invoice for accuracy, followed by review and authorization by the contracting officer. To ensure sufficient incentive to complete the work, the contract should require that the owner retain 5% to 10% of each progress payment as retention. This retention is released when the work is completed, and all contract requirements are satisfied.

Bid, Performance, and Payment Bonds A surety bond is a legally binding agreement in which the surety guarantees that the principal will satisfy its obligations to the obligee. With bid, performance, and payment bonds, the principal is the contractor, and the obligee is the government. Contract surety bonds are provided by insurance companies.

Bid Bond A bid bond guarantees that the bidder or proposer will enter a contract with the owner if awarded the contract. Bid bonds are usually 5% of the offer amount. If the offeror refuses to perform the contract or refuses to provide the performance and payment bonds, the bid bond surety is responsible for paying the government the difference between the accepted offer that was refused and the amount awarded to the next responsible offeror.

Performance Bond The biggest risk for the government owner is termination of performance by the contractor before the construction work is completed. The contractor could refuse to complete the work or close its business, leaving the government owner with a partially completed facility. Reasons for the contractor’s termination could be a dispute with the owner, bankruptcy, and inability or refusal to perform the work. When a contractor defaults, it is likely that the cost of the work required to complete the project will exceed the remaining contract balance. The performance bond is a guarantee that the contracted work will be completed, even if the contractor defaults. The performance bond surety is

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responsible for completion of the work in the event of a default or anticipated default by the contractor. The performance bond is usually 100% of the contract value. Some governments will reduce the value of the bond when the work progresses beyond 50%, but the bond amount should never be less than the cost of the remaining work. Should the contractor default, the performance bond surety is responsible for stepping in to complete the project. The surety may elect to assist the general contractor or replace the general contractor to complete the project. Ensuring that the general contractor is responsible during the evaluation of offers is the important first step in protecting against contractor default. Vigilant monitoring of the contractor’s performance may also provide early warning of a potential default. Warning signs include: ◾ ◾ ◾ ◾ ◾ ◾

Delayed or nonpayment of suppliers and subcontractors General contractor falling behind schedule milestones Increased claims and lawsuits against contractor Poor job site supervision High employee turnover Increase in claims

The owner is responsible for notifying the surety in writing of the contractor’s default or potential default.

Payment Bond Subcontractors and suppliers also have payroll and supplier obligations and expect to receive timely payment from the general contractor. When payments are delayed, or default is suspected, subcontractors and suppliers may demand payment from the owner for any amount that the general contractor did not pay. In the private sector, subcontractors and suppliers may file a lien on the project until their payment claim is satisfied. A lien is a legal property right of a creditor that secures payment for work or materials supplied for construction or repairs. When a lien is filed, the creditor has an interest in the property, building, or vehicle until it receives payment and releases the lien. To obtain release of the lien, the owner must pay the outstanding amount, obtain a lien release, and attempt to recover the payment from the contractor. For example, a homeowner contracts for the construction of a swimming pool. If the contractor fails to pay a supplier, the supplier may file a lien demanding payment by the homeowner, even though the homeowner previously paid the contractor for the materials. This lien is applied to the owner’s property until payment is made and the lien is released.

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However, government property belongs to the citizens, and creditors cannot claim or take possession of government property by lien. One can imagine the consequences of a citizen filing a lien on a public building, highway, or aircraft carrier because a contractor failed to pay a supplier. Although contractors have no right to lien government property, contractors have some protection under what is called the Miller Act for Federal Contracts and the Little Miller Act for state and local government contracts. The Miller Act is a federal law enacted in 1935 that requires the execution of a payment bond for public work. The payment bond guarantees payment for all materials and labor provided by suppliers and subcontractors. Depending on the applicable law, payment bonds range from 50% to 100% of the contract amount. The surety is responsible for payment if the contractor fails to pay a supplier or subcontractor, and proper notice is filed. Although suppliers and subcontractors cannot lien government property, they will continue to file lien notices with the owner. The general contractor must furnish lien releases from the suppliers and subcontractors to the owner before the final contract payment is made and the payment bond is released. Courts in some jurisdictions have ordered governments to pay the defaulting contractor’s obligation to suppliers and subcontractors when the government failed to obtain a payment bond or released the payment bond before all suppliers and subcontractors were paid.

Surety Payment and performance bonds are provided by a surety, usually an insurance carrier or other financial institution that takes responsibility for the action. The surety is obliged to complete the duties of the defaulting contractor at no additional expense to the owner. Since the surety has a considerable stake in the project, the surety may assist the contractor in meeting its payment and performance obligations. This assistance might include managing the work of the contractor and paying suppliers and subcontractors. Not all surety companies are the same. The contracting officer must ensure that the surety company is licensed in the state, certified by the US Department of the Treasury Bureau of Fiscal Services, and has an AM Best rating of A or better. Contractors may offer an alternate form of security, like a bank letter of credit or corporate guarantee. A letter of credit gives the owner access to a specified sum held in reserve by a bank or other financial institution. A corporate guarantee has the financial backing of the corporation. Both are not an adequate substitute for surety bonds for construction contracts. Contracting officers should request assistance from legal counsel or risk managers to

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ensure that the surety has a satisfactory rating and the bond is adequate and properly executed.

Health, Safety, and Security A construction job site can be a perilous place. Safety hazards can injure workers. Unsafe practices can result in fires. Excavation can rupture gas and damage electrical lines or collapse on workers. Unhealthy practices can expose employees to disease and sickness. Security lapses can result in theft or vandalism. The contractor is responsible for the health, safety, and security on the job site for its workers, government employees, and the public. A sound health, safety, and security program is a factor in determining contractor responsibility.

Health and Safety The Occupational Safety and Health Administration (OSHA) provides requirements and standards to minimize health and safety risks and regulates companies to maintain safe and healthy working conditions. OSHA provides guidance for employers and contractors under the following headings in its Recommended Practices for Safety and Health Programs1: ◾ ◾ ◾ ◾ ◾ ◾ ◾

Management leadership Worker participation Hazard identification & assessment Hazard prevention & control Education & training Program evaluation & improvement Communication and coordination for host employees, contractors, and staffing agencies

Construction job site health and safety is the responsibility of the general contractor, but it is also a duty of every person on the job site. The contractor should be required to provide a copy of its health, safety, and security manual for evaluation to determine responsibility before the contract is awarded. The safety record of contractors may be checked through the OSHA. The health and safety protocol will be different for each project. Any excavation work requires blue staking of the site. Working on or near a railroad or airport will require flagging. Working near powerlines will require a safety observer and non-conductive tools. The contractor should be required

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to provide a health and safety plan for the project for acceptance by the COR and the contracting officer before receiving a notice to proceed with construction.

Security Construction job site security is also the responsibility of the general contractor. Contract security requirements should address: ◾ ◾ ◾ ◾ ◾ ◾

Employee background and security checks Drug and alcohol testing programs Site access controls and badging for employees and visitors Emergency response plan Emergency notification procedures Security training

This is not an all-inclusive list. Requirements will be different for each project. Construction in prisons or airports, on or near active railroads and highways, or in or near schools requires unique and enhanced safety and security measures. Job site health, safety, and security must be addressed in the contract. Many governments, airports, transportation agencies, transit authorities, and school districts have their own health, safety, and security manuals that may be referenced for compliance in the solicitation and contract.

Quality Assurance and Quality Control A construction project involves an infinite number of operations, from driving a nail or pouring concrete to installing electrical transformers and air conditioning units. Each operation introduces the risk of a deficiency or defect. The general contractor is responsible for quality assurance and quality control. Quality assurance is preventing mistakes and defects, and quality control is finding them. Quality assurance is the management of the work and materials to prevent mistakes and defects. Quality control is the monitoring and inspection of the work and materials to ensure quality requirements are met. The requirement for quality assurance and quality control should be stated in the solicitation and contract. The contractor should be required to provide its quality assurance and quality control manual as part of its evaluation for responsibility. The contractor should also provide its quality assurance and

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quality control plan for the project for acceptance by the COR and the contracting officer before receiving a notice to proceed with construction. The contract should stipulate that the owner has reasonable access from the contractor to inspect and test work and materials during construction. However, the owner’s right to do so does not relieve the contractor of its own responsibility and cannot be used as an argument to contest the discovery of a latent defect.

Insurance A construction site is a bustling and active place with workers and equipment moving in all directions. Imagine a job site for a new office building. Say a welder accidently drops his cutting torch on his construction drawings, setting them on fire. The flaming blueprints fall to the floor. In his haste to put out the fire, the welder stumbles into a ladder, knocking an open paint can out of the window and onto the windshield of a dump truck exiting the job site. The dump truck careens out of control, bouncing off two cars and crashing through the front window of a fast-food restaurant, scattering workers and customers. Nobody is hurt, but the nearly completed government office building burns to the ground, both cars are totaled, and the restaurant is closed two months for repairs. In our slapstick example, the mess was caused by the contractor’s employee, yet the government might end up with some vicarious liability. The restaurant and car owners sue the contractor and the government, and all construction stops on the office building until the insurance companies sort out liability. Liability means responsibility for an action. Although the contractor is responsible in our example, the government also assumes some responsibility through the nature of its relationship with the contractor. Vicarious liability is a secondary form of liability under the law of agency in which one party engages another. In this case, the government engaged the contractor to perform construction and has vicarious liability for the contractor’s actions. The contractor’s insurance policy should cover all the liabilities exposed in our example: ◾ General liability or commercial general liability insurance provides liability protection in case of bodily harm or property damage. ◾ Commercial auto and truck liability insurance covers vehicles used by the contractor. ◾ Builder’s risk or course of construction insurance provides property coverage for the project and reimburses the insured for damages or destruction of the project while it is under construction. Builder’s risk

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insurance protects the owner’s investment in the completed work and materials stored on the job site. ◾ Workers’ compensation insurance protects the employees and contractor when workers are insured on the job, including medical expenses, missed wages, legal fees, and funeral costs. ◾ Other insurance may be required to cover unique risks, such as the use of explosives or removal and transportation of hazardous materials. By naming the government as insured on the contractor’s policy and indemnifying the government from the contractor’s negligence, the contractor’s general and auto policy protects the government from its vicarious liability and covers claims from third parties up to the limits of the policy. In addition to general and auto liability and workers compensation insurance, the designer or design-builder should maintain professional liability insurance. Professional liability insurance covers the cost of correcting work or claims brought by the government, contractor, or other parties resulting from the architect’s or engineer’s errors and omissions. The contracting officer should consult with the risk manager and legal counsel in crafting indemnification and insurance clauses, including the types and amount of coverage required. The insurance certificate shall name the government as insured on the general, auto, and workers’ compensation policy and should be scrutinized for adequate coverage, exclusions, terms of coverage, notice of cancellation, and rating of the insurance provider. The certificate of insurance is only proof of insurance and is not a contract with the insurance agency. Since the insurance agency may revoke coverage at any time, the insurance certificate should provide for at least 30 days’ advance notification of policy termination. For large multi-million-dollar construction contracts, governments may benefit from considerable cost savings by insuring the project, general contractor, subcontractors, and suppliers under an owner-controlled insurance policy or “OCIP.” Under an OCIP, all contractors and subcontractors are directed to deduct the cost of insurance from the bid or proposal and contract price, and the owner purchases “umbrella coverage” for the project. Government owners report that job site safety is improved through an OCIP program.

Indemnity Indemnity is the obligation of one party to compensate another party for a loss or damages resulting from its actions. The contract indemnification clause serves to allocate risk among the contracted parties. The indemnification clause should clearly state that the designer or contractor shall indemnify,

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defend, and hold harmless the owner from the designer’s or builder’s actions in the performance of the contract. Contractors may attempt to limit their liability. They may request a fixed liability ceiling or limit liability to potential “gross negligent acts.” There is no limit to the potential damages a contractor and the government owner might incur, and gross negligence is a difficult standard to prove. Limiting the contractor’s indemnity exposes the government to any potential damages claimed by a third party that exceed the limit or do not reach the standard of gross negligence. Contractors may also demand that the owner indemnify the contractor for the owner’s actions. The contracting officer should consult with legal counsel and the risk manager when negotiating contract terms that might limit the contractor’s liability or create a government liability.

Time and Delays Time is money for the general contractor. The cost of idle employees and equipment, insurance, overhead, interest, and other expenses accumulate for the contractor when work is delayed or suspended. If the cause for the delay could not have been anticipated and is beyond the control of the contractor, the contract schedule may be extended for the period of the delay. For example, an unusual event, such as a flood or tornado, may make the work site inaccessible. In such a case, the contractor would be entitled to an extension for the number of days that employees were unable to work. The contractor is expected to make a reasonable effort to mitigate the delay and return to work as soon as is practical under the circumstances. Some delay events may be under the reasonable control of the contractor and not cause for a time extension. For example, timely delivery of materials, subcontractor default, or rejection of deficient work is the responsibility of the contractor and is not cause for an extension. Events that can be reasonably anticipated by the contractor should not be cause for a time extension. For example, summer rain that is typical for an area and season can be expected and is not cause for an extension. Unless the delay is caused by the owner or an agent of the owner, the contractor is not eligible for additional compensation for the down time. Owner-caused delays might include excessively slow review and approval of submittals, change orders or inspections, and suspension of the work without cause. Governments frequently rely on a “no damages for delay” clause in the contract to prevent claims for additional compensation from contractors. This clause provides for an extension of time but no damages for delays caused by the owner. However, courts in some jurisdictions have overturned

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no damage for delay clauses as unreasonable, especially when finding the owner or designer negligent or intentional in causing the delay.

Liquidated Damages Time is money for the owner. Late completion of the work can have severe consequences for the government. Delayed opening of a school could leave a district scrambling to find space for students. Delays in repaving a highway can result in many angry motorists arriving late for work. Late completion of construction is a contract breach and entitles the owner to recovery of its damages. Liquidated damages are the estimated costs the owner suffers for a contractor’s delay in completing construction which are applied instead of actual damages. Liquidated damages are not a fine or penalty and cannot be inflated to punish the contractor. Liquidated damages are collected as a fixed amount for each day, starting on the day following the date the work should have been completed and ending when the contractor achieves substantial completion of the work. Although the calculation of liquidated damages does not have to be precise, it should be a reasonable estimate of actual costs. Courts have denied excessive liquidated damages, considering them a penalty rather than a reasonable estimation of actual cost. The daily rate for liquidated damages is determined before bids or proposals are requested and are included in the solicitation and construction contract. If the contract does not specify liquidated damages, the government may claim actual damages for delay. However, in claiming actual damages, the government is responsible for providing evidence of its actual costs, and the calculations are likely to be contested by the contractor. Most contractors prefer liquidated damages over actual damages because they can determine their risks when preparing their bid or proposal.

Unforeseeable Conditions There is always a risk that the construction site conditions may be different from what the contractor expected, or from what the owner reported. The contractor is responsible for inspecting the site before it prepares its bid. The government is responsible for revealing what it knows or suspects about the site to all prospective offerors. The owner and designer should apply due diligence when investigating the site and conducting geotechnical testing for underground conditions

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before designing a project. The more certainty of the site conditions, the less risk for the contractors. More site condition uncertainty means more risk priced into the contractor’s bid or proposal. Offerors may also take exception to the site condition clause and attempt to push the risk of uncertainty back on the owner or simply refuse to offer if the potential for differing site conditions is too high. As we learned with Spearin, it is the responsibility of the owner to disclose all known conditions when requesting bids or proposals for a construction project. Failure to disclose may make the owner liable for any delay and costs associated with the differing site conditions, even if the contract includes a provision placing site condition risk on the contractor. The government and Spearin were not aware of the sewer dam that contributed to the flooding. However, the government knew about the previous flooding and should have shared that information with the contractor. Even though the contract contained provisions making the contractor responsible for unknown conditions, the court found the government liable for the contractor’s damages. A hidden site condition can impose a high cost on the contractor. The contractor may find subsurface conditions that require additional time and cost. For example, underground soil conditions like clay or shifting sand may require deeper excavation or extra foundation reinforcement. Hazardous materials may be discovered during a remodeling project, such as asbestosor lead-based paint that requires expensive removal, transportation, and disposal. The potential for unknown and unforeseeable conditions should be addressed in the risk assessment. If a high potential for risk exists, the contracting officer might consider: ◾ Eliminating or reducing the risk by conducting additional site investigation ◾ Accepting certain risks for unknown and unforeseeable site conditions, like relocation of utilities or removal of hazardous waste ◾ Sharing the risk by establishing a cost-based allowance for the risk in the contract The contractor should expect to deal with geological site conditions and other situations that may not be known but are common to the geographic area. The answer depends on the contract. Under some differing site conditions clauses, there may be an argument that the conditions differed from those represented in the owner’s tests, entitling the contractor to an adjustment in contract price, time, or both.

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Shifting Sands While drilling piers to support the foundation for a new hospital, the contractor encounters an unusual formation of sand. During drilling, the sand cascaded back into the bored holes, preventing the placement of rebar and forms and preventing the pouring of concrete. The sand was not discovered in the soil tests provided by the owner. To prevent the shifting sand from backfilling the holes, the contractor proposes using metal casings that would require deeper and larger diameter borings. The contractor requests a change order to authorize the additional work, adding extra compensation of $180,000. The architect requests that the contractor submit shop drawings for the proposed remedy. Citing the contract clause for unforeseeable site conditions, the contracting officer denies the contractor’s request for additional compensation and a 21-day extension. According to the contracting officer, the contractor should have anticipated the possibility for sand and was required to inspect the site prior to submitting its bid. Is the contracting officer correct in denying the claim? What information should be considered in responding to this claim? If the contract stipulates that the contractor is responsible for unforeseeable site conditions, and sand is common in the geographic area, the contractor is responsible for the additional cost and time for reinforcing the piers. An experienced contractor would have planned for differing soil conditions by shoring the holes during drilling.

Warranty A warranty is a promise to fulfill the conditions of a contract. The NIGP Dictionary of Procurement Terms defines “full warranty” as: A warranty as to full performance covering both labor and material; the warrantor must remedy the product within a reasonable time and without charge after notice of a defect or malfunction. Black’s Law Dictionary defines “contract warranty” as: An express or implied promise that something in furtherance of the contract is guaranteed by one of the contracting parties; esp.,

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a seller’s promise that the thing being sold is as represented as promised. A warranty may be express or implied. An express warranty is in writing. An implied warranty is not specifically written but is implied through law. Although a warranty is most often viewed as the promise of the seller to the buyer, all parties in a construction contract maintain some form of “express” or “implied” warranty, including: ◾ Owner—The owner guarantees that the information stated in the plans and specifications is accurate and suitable for completion of the project in a timely and reasonable manner. The owner also guarantees payment for accepted work. ◾ Architect and Engineer—The architect or engineer guarantees the plans and specifications to the owner. Absent a more stringent express warranty, the architect or engineer is generally bound to meet the ordinary standard of its profession. ◾ Contractor—If adequately stated in the contract, the general contractor guarantees: ◾ The work shall be performed in a good and professional manner ◾ Materials shall be new and of good quality ◾ The work will conform to the requirements of the contract ◾ The work will be free from defects in materials and workmanship for one year, or longer if designated in the contract ◾ The constructed facility is fit for its intended purpose The contracting officer must be careful in crafting the designer’s warranty obligations in the contract to ensure that the designer bears responsibility for all costs resulting from a design omission or defect. Design contracts often limit the warranty of the design to the cost of making changes to the design to correct omissions and defects. A defective design will often result in additional construction costs that the contractor will pass on to the owner. For example, if a defective design results in the replacement of a wall or foundation, the contractor is entitled to recover the additional costs from the owner. Although the contractor’s warranty may be limited to one year, latent defects may be discovered long after the warranty expires. A latent defect is one that existed at the time the project was completed but could not be found by reasonable observation or inspection. For example, the owner might find that the plumbing was installed improperly, resulting in a costly leak. Although the warranty expired two years before the defect was discovered, the owner may still claim damages from the latent defective work. Express

48  ◾  Design and Construction Contract Risks

warranties and rights arising out of discovery of latent defects, and the time for pursuing remedies should be defined by the contract. In addition to any express warranty, the contractor is bound by implied warranties of workmanship and that the completed project is fit and habitable for its stated purpose. As demonstrated in Spearin, warranty obligations can be muddled. The contractor may argue that a defect is the result of the engineer’s or architect’s design, while the designer may claim that the design was done according to the ordinary standard of the profession. Designers and contractors may attempt to claim that the owner’s review and acceptance of defective designs or construction imposes some liability. This is not a reasonable argument. The owner’s right to observe, inspect, or test the work carries no obligation to discover defects.

Missed the Mark Capitol City Purchasing Agent Chuck Roast leads a parade of contractors to a conference room for the bid opening for construction of a new bus maintenance facility. The $12.5 million independent cost estimate was not published in the invitation for bids, but the $14 million budget was general knowledge among local contractors. Chuck always enjoyed the bid opening ceremony, and he opens each bid with his sterling silver letter opener while his buyer writes down the numbers. The architect and public works director, Red Rose, are seated in the front of the room. The first bid from a big national contractor comes in at $18.5 million, and the remaining bids are even higher. After the bidders leave the room, Red, Chuck, and the architect discuss the next steps. They agree that some design changes are necessary to bring the project in under budget. The architect does some quick figuring and reports that the design changes could be done in two months for another $150,000. Chuck wonders out loud why the architect did not design the project within the budget limitations to begin with. The architect responds that it is not possible to predict construction costs accurately. Chuck issues a written notice to the bidders that their bids are rejected, and new bids are requested in 90 days. What responsibility does the architect have to design the project within budget constraints? What could the city have done to avoid this predicament?

Design and Construction Contract Risks ◾  49

Bids exceeding budget are a common occurrence in public construction contracting. Cost estimating is not precise. Contractors can spend many thousands of dollars preparing bids or proposals for public projects. In this situation, their efforts were wasted, as the bids were rejected. If the project budget was stated in the invitation for bids, bidders might have alerted the city purchasing agent that the project budget was insufficient before submitting their bids. The design architect or engineer is responsible for designing the project within the funding constraints. If the design contract is prepared correctly, the architect is responsible for designing the work within the project budget. The design contract should cite the project budget and include a clause stating that if bids exceed budget, the architect is responsible for any re-design at their own expense. If there is concern that bids might exceed a budget, the government can identify specific requirements as additive or deductive options (in priority of preference) that can be added or removed to meet budget constraints. For example, expanded parking or upgraded lighting could be designated as an additive option.

What Happened Here? Water leaks through the windows of a new government office building each time it rains. The contractor faithfully responds to the owner’s complaints for two years, caulking leaks, repairing the flashing, and repainting. In the third year, leaks during an especially severe storm damage the carpeting and three computers. The contractor refuses to make any further repairs, citing its one-year warranty. The contractor complains that they have gone far beyond the requirements of the warranty and therefore have no further obligation to the owner. The county then contracts for repairs with another contractor, who reports that the windows were not properly installed. Is the original contractor responsible for the cost of repairs and replacement of the carpet and computers? Did the ­warranty expire? Although the contractor’s one-year warranty had expired, the contractor is responsible for correcting the latent defect. Merely patching its defective work does not satisfy its warranty obligations. The contractor must make permanent repairs to the building. If the contractor refuses to comply with a written notice to correct their defective work, the owner may procure another contractor for

50  ◾  Design and Construction Contract Risks

the repairs and file a claim for the costs against the original contractor. Since the defective work caused interior damage, the contractor should be responsible for replacing the computers, carpeting, and repairing the interior damage. Unfortunately, the contractor is likely to contest the latent defect claim and refuse to pay for the damages. The government could have avoided a dispute by directing the contractor to find and correct the root cause of the leak when the leak was first discovered. Now the government will need to seek recovery through settlement, a dispute resolution process, or the courts.

Compliance with Federal Laws Federal procurement and contract requirements apply when the federal government fully or partially funds a state or local government project. 49 CFR Part 18, or the “Common Rule,” provides general requirements for grant compliance for state and local governments. However, specific contracting requirements may be unique to the federal funding source and stated in rules, circulars, or guidelines or expressed in the specific funding or grant agreement. For example, Federal Transit Administration (FTA) procurement requirements for design and construction contracts are provided in FTA Circular 4220.1F and include among other requirements: ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾

Full and open competition Contractor accounting system Independent cost estimate Fair and reasonable price determination Non-discrimination requirements Prohibited use of debarred or suspended contractors Davis Bacon provisions requiring payment of prevailing wages to employees Buy America Act, which requires the use of domestically produced products in construction Fly America and Cargo Preference Act Disadvantaged business goals, requiring subcontracting goals for minority- and women-owned small businesses Brooks Act, which requires the selection of architects and engineers based on qualifications and experience Clean Air Act and environmental protection requirements Prompt payment of subcontractors Compliance with FAR Part 31 cost principles Program and procurement audits

Design and Construction Contract Risks ◾  51

The Christian Doctrine Statutes and ordinances direct the inclusion of certain requirements in government contracts. Examples include surety bonds, warranty, termination for convenience, and the right to audit the contractor’s records. The Christian Doctrine derives from the United States Court of Claims, GL Christian and Associates v. United States, 312 F.2d 418 (Ct. Cl. 1963). The court determined that a required termination for convenience clause applied to a government contract, even though the clause was omitted from the contract. Although the Christian Doctrine provides some security, it may not apply in certain situations and jurisdictions and is subject to argument when disputed. To be safe, contracting officers should include all clauses required by law and regulations.2

FTA periodically reviews grantee procurement practices for compliance with funding requirements. Failure of the government or contractor to conform with federal funding requirements can result in serious sanctions, including withdrawal of federal funding. Compliance with federal requirements can also add additional cost to a construction project. For example, complying with Buy America may require the purchase of domestic steel that may be more expensive than imported steel. When applicable, contracting officers should carefully review federal and state grant requirements before preparing solicitation and contract documents to ensure compliance.

Claims and Disputes With the lengthy performance periods and high value of many construction contracts, there are many opportunities for disagreement. Construction contract administration involves many actions and decisions, and each is subject to challenge when they do not go the contractor’s way. Federal contractors are prohibited by law and through required contract clauses from walking away from a project during a dispute. Instead, the contractor must press on with the work and its only legal recourse is to initiate a claim. State and local laws may differ from federal law. Absent specific guidance in law, the contractor’s ability to stop work during a dispute depends on the specific contract language.

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The NIGP Dictionary of Procurement Terms defines a “claim” as: A written assertion or demand by one of the parties to a contract that seeks as a contractual right payment of money, adjustment of contract terms, or other relief for injury, loss, or damage arising under or relating to the contract. The dictionary defines “dispute” as: A contractual disagreement or misunderstanding between contracting parties specific to contract provisions or language. Absent a formal claims process in the contract, the contractor must seek justice through litigation. Litigation is expensive for both parties, and months or even years may pass before a dispute is resolved. There are various alternatives to litigation, often referred to as alternate dispute resolution (ADR). The NIGP Dictionary of Procurement Terms ­defines “alternate dispute resolution” as “A process or procedure used voluntarily between parties to resolve issues without the need to resort to litigation.” ADR alternatives include: ◾ Negotiation—Both disputing parties negotiate an agreement without a facilitator. This is usually the first step in resolving claims. If negotiations fail, the dispute may advance to another form of ADR. ◾ Mediation—A third-party mediator facilitates the dispute resolution process and may suggest but not impose a resolution. ◾ Arbitration—A third-party arbitrator hears the facts presented by the disputing parties and decides on a resolution that may be binding or non-binding on the parties. The claims process should be addressed in the contract, including: ◾ Requirement that claims be submitted by the contractor in writing to the contracting officer within a fixed number of days after the contractor knows or should have known the basis for the claim ◾ Setting a time limit for the contracting officer’s written decision on the claim ◾ Providing for an ADR process for appealing the contracting officer’s decision The contracting officer’s decision is based on facts and law and should be fair and impartial. This role places the contracting officer in a difficult position,

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often resolving disputes between the project manager or designer and the construction contractor. The American Bar Association (ABA) 2000 Model Procurement Code for State and Local Governments, Article 9, Legal and Contractual Remedies, recommends a multi-step process for resolving disputed claims. Step one is a written final decision on the claim by the contracting officer that includes: ◾ ◾ ◾ ◾

Description of the dispute Reference to the pertinent contract provisions and law Description of the factual areas of agreement or disagreement Final decision of the contracting officer and rationale for the decision

Appeals are made to an administrative appeals board under the FAR and under some state laws. Some entities, such as the State of Arizona and Dallas Area Rapid Transit, refer appeals to an administrative hearing officer. This hearing process operates in similar fashion to a court of law, with presentation of evidence and witnesses. A claim may also be initiated by the owner against the designer or contractor. Owner-generated claims may also be addressed through the contract claims process. The best method for settling disputes is to avoid them in the first place. Contractors and owners report that there are fewer disputes when using the Design-Build or Construction Manager at Risk delivery methods than with the Design-Bid-Build delivery method. Disputes may also be avoided by using a partnering process to settle disagreements. The US General Services Administration recommends partnering,3 describing it as: A formal management process in which all parties to a project voluntarily agree at the outset to adopt a cooperative, team approach to project development and written problem resolution to eliminate, or at least reduce, conflicts, litigation, and claims.

The Big Spill “There is no way to be certain that the design will work,” the design engineer argues. “Engineering is art—not science. Calculations only approximate reality. Maybe if we added more outlets on the lower raceways, they would drain properly.”

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A large crowd turns out to watch the governor dedicate a new fish hatchery. The project was completed on schedule a month before the dedication ceremony. The crowd gathers around as the governor prepares to turn the valve to start the water cascading through the lower tier of raceways. The two upper tiers are already teeming with trout fingerlings that were delivered the week before. The hatchery had taken 18 months to build and represents the latest state of the art in hatchery design with an oxygenation system, automated valves, and feeding stations. After a brief speech, the governor turns the valve and cold, fresh water fills the empty lower raceways. Soon the news cameras are recording the governor, dignitaries, and other spectators standing in water with live fish flopping around their feet. The lower raceways overflow first, followed by the upper raceways. Alarms sound in the egg incubator building as hatchery workers toss fish back into the flooding raceways, and engineers scurry around the site turning valves and looking for the cause of the debacle. The excitement is caught on camera for the evening news. Many of the fingerling fish and all the eggs are lost before some order is restored. After nearly two months of investigating, the engineer can only guess at the cause. The pipe was assembled according to the plans. All valves were correctly installed. The video camera that was routed through the pipe could find no obstructions. Finally, an independent engineer confirms that the pipe diameter is too small by 50%. Replacing the pipe would cost another $300,000 and shut the hatchery down for at least three months. The contractor files a claim for $100,000 to investigate the pipe. The engineer wants another $50,000 to change the design, exclaiming, “Your own engineers reviewed the plans and should have caught the problem.” Is engineering an art or a science? Who should be responsible for repairing the hatchery? How could the owner have prevented this debacle? What alternatives should the owner consider in repairing the hatchery? This fiasco falls far below the ordinary and reasonable standards of the engineering profession. Although there is some art to any engineering design, calculating pipe diameter is science and can be done with accuracy. Engineers have been calculating water flow and pipe diameters for centuries. Missing the pipe diameter by 50% is negligent. The design was faulty, and the designer should shoulder the cost of repairing the facility.

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The design engineer also argued that the contractor and owner verified the calculations and share responsibility for the error. The owner and contractor should be under no obligation to verify and correct the design. Many construction contracts contain disclaimers requiring that the contractor check design calculations. Even with such a disclaimer, the contractor is responsible for building what is specified in the contract and cannot be held responsible for the engineer’s mistakes. The proposed solution to replace the pipe with a larger diameter appears to be the best alternative. The contracting officer should authorize a change order directing the contractor to replace the under-sized pipe and file a claim against the design engineer and their professional liability insurance carrier for the additional cost. Recovery of damages may be slow, as the designer and insurer may contest responsibility and damages. In the future, the owner might consider investing in an independent review of complex designs before requesting construction bids or proposals.

Summary There are many potential risks with every construction project. A risk assessment enables the contracting officer to identify and classify risks and plan to prevent and mitigate those risks. Many of those risks may be addressed in the contract. In drafting the contract terms and conditions, the contracting officer should protect the interests of the government and place the responsibility for dealing with the risk on the party best positioned to handle it. Many government construction contracts are standard boilerplate, placing most risks on the contractor. Such one-sided contracts discourage competition and result in excessive pricing for projects. Despite best efforts at drafting contracts, disagreements and claims are likely. Claims are best resolved by the contracting officer through negotiation. The contract should contain a mandatory process for elevating disputes that are not able to be resolved through negotiation.

Notes 1 Occupational Safety and Health Administration, Recommended Practices for Safety & Health Programs in Construction, OSHA 3886, October 2016. https:// www.osha.gov/sites/default/files/OSHA3886.pdf. 2 Justia US Law, G.L. Christian and Associates v. the United States, 312 F.2D 418 (Ct. Cl. 1963), https://law.justia.com/cases/federal/appellate-courts/F2/312/ 418/53812/. 3 U.S. General Services Administration, Construction Excellence, Partnering, “What Is Partnering?,” https://www.gsa.gov/real-estate/design-and-construction/ construction-excellence/partnering.

Chapter 3

Planning and Budgeting

Introduction The investor Warren Buffett said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.”1 John F. Kennedy said, “The time to repair the roof is when the sun is shining”.2 Planning for public construction requires anticipation of community needs and planning for the infrastructure necessary to support those needs. Scholars believe the Greek architect and philosopher Hippodamus of Miletus was the first urban planner. Ancient European cities grew haphazardly and chaotically until the fifth century BC, when Hippodamus brought order to cities through urban planning. He developed a grid system, dividing the city into blocks arranged around a city center.3 The Romans later adopted Greek community planning concepts, including the strategic location of public buildings, roads, aqueducts, and public latrines connected to underground sewers. Communities constantly evolve, expanding and contracting as the population grows, shrinks, or migrates to or from the suburbs. A growing population requires expanded or new schools, water treatment plants, sewers, parks, roads, police and fire stations, libraries, administrative offices, and DOI: 10.4324/9781003276975-3

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other facilities. Population shifts to or from the city core may require new or expanded facilities in the growth zones, transportation systems to connect to the city center and decommissioning or repurposing of facilities where the population is decreasing. In larger communities, planning may occur on several levels: ◾ An urban, region, or community plan provides a vision for the future of the community. ◾ The capital improvement plan identifies the specific infrastructure improvements necessary to implement the community plan. ◾ The annual capital budget identifies the funding required for the capital improvement plan. ◾ The project plan is the detailed plan for each specific project. ◾ The procurement plan addresses the procurement and contract administration process for the project. In smaller communities with relatively stable population trends, infrastructure needs may be limited to routine maintenance and repair and addressed only in a capital budget. Every government has limited resources. The capital improvement plan is constrained by available funding. Higher priority capital improvement projects are selected for inclusion in the capital budget or financial plan for approval by the authorizing executive, board, or commission, while lower priority projects are deferred for future consideration. Once budgeted, each project is subject to a project planning process. For small renovation and repair projects, planning may be limited to preparing a schedule, cost estimate, and specifications for procuring the services of an architect or engineer, and contractor. For new construction and larger projects, a more comprehensive planning process, including real estate acquisition, funding sources, community outreach, environmental and feasibility studies, resource requirements, and other considerations may be required. Finally, the procurement of design and construction services to construct the improvement requires a procurement plan. The procurement plan is the detailed strategy and schedule for procuring the design, construction, and sometimes the financing, operation, and maintenance of the facility. The Contracting Officer’s role in capital improvement planning and budgeting varies by organization. Ideally, the Contracting Officer serves an active consulting role, advising on schedule, budget, risks, required resources, and procurement strategy. At a minimum, the Contracting Officer should be aware of the community plan and budget to deliver effective procurement support.

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Chapter 3 will explore: ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾

Urban and Community Planning Capital Improvement Planning Capital Budgeting Financing Strategy Environmental and Technical Clearances Site Selection and Right of Way and Real Estate Acquisition Project Management Procurement Planning

Urban and Community Planning Change is a common thread and driving force in our lives and our communities. Populations shift from region to region, and city center to suburbs. Populations change demographically. The economy changes. Commerce and industry changes with the advancement of technology and the global supply chain. One industry may advance, while another contracts. Our environment is changing, and we are making a concerted effort to improve it, and the health, safety, and welfare of our community. An urban, community, or regional plan is the blueprint or vision for the future of a city, community, or region. The plan is an assessment of the current conditions of a community, goals for maintaining and improving the community, and strategies to achieve those goals. The plan focuses on land use and the development and design of housing, transportation, communications, environment, infrastructure, and services. Urban planning helps determine how people will live, work, and play and serves as the community guide for future development. Urban planning addresses such factors as4: ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾

Safe and affordable housing Maintaining and attracting commerce and industry Efficient transportation of people and products Distribution of water, electricity, gas, and communications Sanitation and collection and processing of waste Police, fire, and other public services Parks and recreation Preservation of green spaces and protection of the environment Disaster prevention and response Preserving historical landmarks and buildings Equity and inclusion of all cultures

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Urban or community planning is a complex process, involving input from city officials, planners, architects, and engineers, and the entire community. It its 2021 American Planning Association award–winning City of Austin Parks and Recreation Department “Our Parks, Our Future” long-range plan, the city engaged the entire community, including people with disabilities, people of color, and people with limited English proficiency.5 Dallas Area Rapid Transit (DART) engaged regional and local community leaders, and the entire regional community to develop its 2045 transportation plan.6 Urban planning is common in large communities and may be required by law or by a regional development authority. Comprehensive plans may be developed by regions incorporating multiple communities, cities and towns, and neighborhoods and planning districts. Comprehensive plans may also be developed by specialized governments like transportation authorities and water districts. The DART Transit 2045 Plan is its vision for moving people in its 13 member cities and other North Texas communities. DART anticipates population growth nearly doubling to 11 million, and 2.4 million new jobs by 2040. The 2040 plan addresses where that growth will occur and how to move people efficiently and safely from home to job, shopping, recreation, health care, and back.7 Smaller and relatively stable communities may not need a formal comprehensive plan. However, all communities should have a vision, even if that vision is to maintain its existing infrastructure. The community plan starts with a vision that cascades down to specific goals to achieve that vision. The City of Albuquerque/Bernalillo County Comprehensive Plan8 identifies six Guiding Principles for Strong Neighborhoods, Mobility, Economic Vitality, Equity, Sustainability, and Community Health. These guiding principles form the community vision, and the comprehensive plan has specific chapters identifying goals for: ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾

Community Identity Land Use Transportation Urban Design Economic Development Housing Parks and Open Space Heritage Conservation Infrastructure, Community Facilities, and Services Resilience and Sustainability

Examples for specific goals include Transportation Goal 6.6 “Invest in a transportation system that stimulates and supports job creation and business

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development and improves the movement of people, goods, and services.” Goal 12.1 for Infrastructure is “Plan, coordinate, and provide for efficient, equitable, and environmentally sound infrastructure to support existing communities and the Comp Plan’s vision for future growth.” Each goal includes specific objectives and actions. Procurement may not be a direct contributor to the urban or community plan, but procurement may be involved in contracting for the services necessary to develop and implement the plan. Procurement should be aware of and understand the urban or community plan, as it will drive the capital improvement plan, budget, and future capital procurements.

Capital Improvement Plan The capital improvement plan or program (CIP) may stand on its own or provide the strategy for implementing the urban or community plan. The CIP will consist of projects and projected spending to build, upgrade, expand, and repair roads, bridges, buildings, sewers, and other government infrastructure. The CIP is also likely to contain other capital purchase requirements such as new fire trucks, telecommunication systems, and the replacement of police cars. The CIP process assists public officials by: ◾ Analyzing community needs, demographic characteristics, and economic conditions ◾ Forecasting future revenue and expenditure requirements ◾ Evaluating the costs and benefits of alternative investments ◾ Assessing various fiscal policies and methods of financing The CIP has many purposes and benefits. It can provide for an orderly rehabilitation and replacement of capital infrastructure, especially buildings and roadways. The CIP recognizes that the design of a complex project may take several years, and it allocates sufficient time for the design to be completed. Time spent securing financing sources is also part of the planning process, as projects may be delayed until appropriate funding is identified. The CIP provides a mechanism to ensure coordination among participating departments, including procurement. The CIP is the most critical part of the capital budgeting process, as it is in this phase that projects are evaluated, ranked, and estimated. The CIP is typically a five-year or longer forecast expressing the: ◾ Need for major capital projects and acquisitions ◾ Projected cost of each project

62  ◾  Planning and Budgeting Table 3.1

Capital Improvement Plan

Library Expansion Traffic Light Upgrade Fire Station 19

Year One

Year Two

Year Three $400,000

$250,000

$400,000 $350,000 $500,000

$500,000

Created by the author.

◾ Source(s) of funding for each project and ◾ Impact of project completion on the operating budget DART utilizes a 20-year financial plan that is updated annually. The plan includes capital improvement projects, sources of funding, and cost to operate and maintain the project once it is built and placed into service. The plan also includes any short-term and long-term financing costs for municipal bonds or government-backed loans. The multi-year CIP forecast is revised annually concurrent with the capital budgeting process. Projects that are listed in the first year of the CIP are those that are funded by that year’s capital budget. From the first step of planning to the final step of completed construction, a specific project may take multiple years to complete. The CIP will reflect the forecasted cost for each year of the multi-year effort: Table 3.1 is an example of a line-item capital improvement plan for a city, showing planned annual expenditures over three consecutive years for construction of public facilities. The CIP process involves a series of research and analysis steps that are reviewed by multiple stakeholders. The result is a prioritized list, with projected costs and financing sources attached to each project. As conditions and needs change, priorities may change as well. A top-rated project in one year may fall to a lower place on the list the following year if funding sources become uncertain. If projected population growth is greater than expected, a new fire station or school may have to be built sooner than originally anticipated, displacing another project in the plan. Procurement may have an advisory role in the development of the CIP, providing cost and schedule estimates. Careful review of the CIP will help procurement planning and scheduling to ensure adequate resources are available to conduct and administer the planned procurements.

Capital Budget There are two components to an annual budget, the capital budget and the operating budget. The capital budget identifies and funds major capital

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improvements while the operating budget identifies and funds operations and maintenance. For example, the capital budget may include the projected spending on the design and construction of a new fire station, and the operating budget will include the costs to operate and maintain the fire station along with all other entity operating costs. The capital budget process is a comprehensive, structured approach, recognizing the potentially wide variety of funding sources and the resulting complexity of making valid choices and ranking priorities. In a larger city, there may be a team of department heads and experts involved in preparing the budget, especially if the agency has several projects at various stages of planning and review. In a smaller city with fewer projects, one person, such as the city manager or chief financial officer, may coordinate the process. Capital budget requirements are initiated at the program level, with department heads identifying and justifying capital projects. The chief financial officer may oversee the financial analysis for various projects, including identification of funding sources. Given that the finance department reviews all departmental requests, its focus will be on maximizing the returns from individual projects in the context of achieving overall economies. The chief executive or governing board may set general policies and specific ranking criteria at the start of the process and approve the final budget at the conclusion of the process.

Excerpt from Approved 2007–08 Capital Improvement Plan: City of Evanston, IL9 Identification of a calendar and timetable should be drafted at the beginning of the capital budgeting process, then modified as the year progresses to allow for needed input from all relevant stakeholders and public officials. In many cases this calendar runs parallel to the operating budgeting process, as the two budgets are approved concurrently at the conclusion of the budgeting process.

The following is an example from the City of Orlando, FL, depicting a timetable and deadlines for the creation of their 2006–07 Budget which began October 1, 200610: December 14, 2005—Distribution of project request packets for CIP requests

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February 3, 2006—CIP project request input due to the Office of Management and Budget May 1, 2006—CIP status reports distributed to the departments May 15, 2006—CIP status reports due to Office of Management and Budget July 24, 2006—Mayor presented combined budget requests to the City Council The Office of Management and Budget (OMB) was responsible for recognizing the impact that the capital projects may have had on the operating budget prior to the mayor’s presentation to the City Council. The City Council then held public hearings and passed the budget by October 1, 2006.

CB Project Prioritization A wide range of approaches are used as part of the annual prioritization process of projects submitted for consideration in the capital budget, including: ◾ Using experience-based judgment ◾ Requesting that departments making the capital budget requests rank or prioritize them ◾ Using broad categories of need as general criteria, including those that reflect a degree of urgency Approaches can be quantitative, qualitative, or a combination of the two, for example: ◾ High Priority—should be approved and funded in the upcoming fiscal year ◾ Medium Priority—meets important needs, but can wait until subsequent years for funding ◾ Low Priority—beneficial, but not included in the CIP Another, more specific, set of “urgent need” criteria include: ◾ Meets legal mandates ◾ Removes threats to public safety and health ◾ Advances jurisdiction goals

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◾ Improves efficiency or service delivery quality ◾ Supports economic development Either set of criteria can be quantified, as each could be ranked according to a 10-point scale to elicit different assessments of the degree of urgency for a given project. Procurement will be actively involved in the capital budgeting process by initiating its own budget requirements and providing support for other department requirements. Procurement should also be aware of the capital budget in planning strategy and resource requirements.

Capital Financing Strategy The goals of any capital financing strategy include: ◾ Minimize the acquisition and lifecycle cost of capital purchases, while meeting the needs of the community ◾ Achieve a balance between pay-as-you-go and debt services to pay for infrastructure needs ◾ Maintain and strengthen bond ratings by implementing sound financial practices Capital projects may be funded using existing and planned revenue in a “pay-as-you-go” approach or through debt financing. Capital projects funded through existing and planned revenue will not incur debt and interest payments. However, “pay-as-you-go” may not provide sufficient funding to keep pace with capital demands from a growing population.

Pay-as-You-Go Financing Pay-as-you-go financing is the use of existing and planned revenue to pay for design and construction of capital projects. Existing and planned revenue sources may include reserve funds, special assessments, impact fees, development charges, and grants.

Reserve Funds In addition to maintaining a healthy operating fund balance, local governments may establish capital reserve funds as part of their pay-as-you-go

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strategy. Reserve funds are designated for capital spending, and there are various approaches that can be used: ◾ Separate Fund for Designated Purpose—The local government may set aside a specific amount or percentage of revenue in a reserve fund designated for capital spending, for example, building a new fire station. ◾ Part of the General Fund—Reserve fund designated for capital spending but not specifically designated for a specific project; designed to give officials flexibility to use monies for operating expenses if needed. ◾ Revolving Fund—a revolving fund is not subject to fiscal year limitations. An example would be an internal service fund that is used to purchase and replace vehicles; it is funded by money transfers from department budgets as agency personnel use specific vehicles.

Special Assessments A variety of construction projects can be funded by assessing home or business owners whose property would be positively impacted by the project. Special assessments place the greatest burden of payment on those receiving the greatest benefit. Street lighting, arterial road construction, sewer collection pipes, and storm water retention ponds are a few of the many examples of special assessment projects. Assessments can be made on property that abuts a project or on all homeowners that live in a designated district. For example, homeowners may be assessed for a user fee for connection to the city sewer system.

Impact Fees Developers or builders of single-family developments may be charged impact fees, which help to pay for infrastructure that is needed to provide services to support the new homes, such as police, fire, and education services. Unlike special assessments, the facilities that provide these services do not have to be located on the property that they serve. They are usually charged based on a formula that includes a residential unit and the size or square footage of the house. Separate fees can be charged for services such as water or sewer lines, parks, streets, schools, police, and fire. Fees are collected as houses are built and sold, and these fees must be spent for the designated purpose.

Development Charges Like impact fees, developers can be directed to donate land and fund capital facilities as part of an agreement with a municipality to approve a

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residential housing development. Existing roadways can be widened, new roadways can be built, and land designated for schools and fire stations. In some cases, developers have built schools as part of an extensive residential development, realizing that having schools in place, instead of waiting for the local school board to build them, can be an attractive feature to home buyers.

Grant Funding The federal government awards hundreds of billions of dollars in grants to state and local governments each year. In 2019 alone, the federal government awarded $721 billion in grants to state and local governments.11 Grants are a form of financial assistance that supports a public purpose and may be in the form of money or property. There are many state and federal grant programs that serve as sources of revenue for capital improvement projects. These range from funds available for community development, urban parks, highways, transit, and wastewater projects. Grants are awarded by federal agencies from funds budgeted by Congress. Grants are made available to state and local governments through an application and eligibility process. There are six types of federal grants: ◾ Categorical Grants—Provide funding for specific activities and may be used only for purposes established in statute, regulations, or grant guidance. ◾ Block Grants—Provide more flexibility for states by funding broad activities identified in the authorizing legislation. ◾ Entitlement Grants—Require payment or services to all eligible persons and are often awarded by formula. Examples include Social Security Disability Insurance and low-income programs. ◾ Formula Grants—Are awarded by formula such as dollars per public school pupil. ◾ Discretionary Grants—Are awarded to eligible applicants based on competition. ◾ Matching Grants—Require matching funds contributed by the grant recipient. The federal grants process has three phases12: ◾ Pre-award Phase—The federal agency announces funding opportunities and invites applications. Eligible governments submit applications for review and selection by the federal agency.

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◾ Award Phase—Following a review, the federal agency selects eligible applicants and announces grant awards. ◾ Post-award Phase—The recipient implements the grant, reports progress, and completes the grant close-out requirements. There are several requirements or “strings” attached to federal grants. Office of Management and Budget Guidance and Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards is provided in Title 2 of the Code of Federal Regulations.13 The granting authority may have additional guidance and requirements that may be stated in the grant application and agreement or in other sources. For example, the Federal Transit Administration provides procurement guidance in its Circular 4220.1.F. Federal agencies may also provide loan assistance for capital projects. One example is the Transportation Infrastructure Finance and Innovation Act (TIFIA) program14 that provides credit assistance for large-scale surface transportation projects. Through TIFIA, state and local governments can obtain low interest rate financing for eligible projects. Federal financing assistance carries the same or similar compliance and audit requirements as federal grants. State agencies may also provide grants for eligible projects. These grants are often funded by federal agencies, with federal and state compliance and audit requirements. It is essential for the Contracting Officer to know and understand the requirements attached to each grant, as the recipient agency is subject to audit for compliance. Failure to meet the grant requirements can subject the recipient to serious sanctions, including forfeiture of the grant.

Debt Financing There are four types of debt financing used for capital projects: ◾ ◾ ◾ ◾

General Obligation (GO) Bonds Revenue Bonds Lease or Lease-Purchase Debt Special Obligation (SO) Bonds

Government bonds are a form of debt, requiring the government to pay on the principal and interest until the face value of the bond is paid on or before the maturity date. The interest on government bonds is usually tax-free,

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making them attractive to investors. The interest rate is based on the credit rating of the government selling the bonds. A government with a good credit rating will pay a lower interest rate than a government with a lower rating. There are several factors that contribute to a local government’s decision to employ one type of debt financing or another. A key issue in determining the type of debt financing is the source of the funds that are used to make periodic debt service payments.

GO Bonds GO bonds are those for which a “full-faith and credit” pledge stands behind the repayment of the debt. In other words, the government promises to repay the debt with property tax revenue. This promise is made on the basis that the local government has the unlimited power to raise taxes. In many states, however, this is not true, as state law prohibits issuance of GO bonds beyond a certain level, or cap. Often the cap is identified as a percentage of the property tax valuation. Another potential hindrance is the requirement that GO bonds must be approved in a voter referendum. Due to these restrictions, GO bonds are used to finance large, long-lived capital projects that benefit the public, such as county courthouses, city halls, local government office buildings, and public safety buildings. Since seeking voter approval entails some degree of risk for local politicians, GO bonds would be used only for those large projects for which general support is assumed to be high. Since repayment terms are often 20 years or more, long-term debt is appropriate only for infrastructure that is expected to be functional for the life of the bond or longer. Another factor to be considered is the cost of financing the bond issuance. Since GO bonds have fixed costs that are the same no matter what the amount of the bond, total costs for a relatively small GO bond can be greater than alternative financing methods.

Revenue Bonds Revenue bonds are supported by specific revenue sources. The most common sources are user fees and other revenues from a self-supporting utility or enterprise fund or project. Property taxes or other funds are not pledged as support. Net revenues, equaling general revenue minus operating and maintenance expenses, are preferred by bond-issuing authorities. Since the revenue source is more limited than that of property taxes supporting GO bonds, interest rates for revenue bonds are higher.

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Projects for which revenue bonds have been issued include: ◾ Utility projects such as water, sanitary sewer, and storm water ◾ Transportation projects such as toll roads, parking decks, and airports ◾ Recreation and mass transportation projects The better the historical revenue collecting capability of a facility, the greater the security that can support a given revenue bond issuance and the lower the interest rate. Utility and toll road projects are likely to receive strong support from the bond market. Other projects, such as mass transportation, for which revenue is less likely, are considered less secure and may incur a higher interest rate. To assure investors that the bond issuers can repay the loan, revenue bonds contain covenants—clauses which have the force of law and limit or direct the agency or government to operate in specific ways. There may be construction and operation covenants, for example, that reinforce intentions are met as precisely as possible. These covenants may require performance bonds from construction contractors as well as certification from a consulting engineer that work has been satisfactorily completed.

Lease or Lease-Purchase Leases are an increasingly important alternative to capital acquisitions, major improvements, and construction projects. They are used by governments to avoid referenda and limitations on GO debt. If state law permits, lease payments may be considered an operating expense and not long-term debt and may not fall under any debt restrictions. Lease and lease-purchase agreements contain non-appropriation language that the government is not obliged to make payments for more than one year at a time. A capital lease refers to any leasing arrangement that is used to finance the construction of a capital asset such as buildings and infrastructure. A lease-purchase and an installment-purchase are two types of capital leases. The state or local government lessee assumes the risks and benefits of ownership. The capital lease must meet one or more of the following criteria15: ◾ ◾ ◾ ◾

Ownership of the leased property is transferred to the government There is a nominal or bargain purchase option Lease term equals 75% or more the useful life of the item leased Lease payments equal at least 90% of the fair market value of the item at the inception of the lease

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Security for the lease is not based on taxes or revenues; it is based on the value of the capital item. If a county leases an office building, for example, the security to investors is the office building. If the county does not make lease payments, the lessor can seize the property and sell it or lease it to another party to recover its investment. Many capital leases are divided into shares, termed certificates of participation. These are marketed in public sales to individual investors, mutual funds, and others. For lease-purchase financing of $10 million or less, for example, certificates of participation may be sold at $5,000 each. Capital leases have advantages for the lessor, as interest income received from the government is tax-free. This may be advantageous to the government, as the government is not affected by legal restrictions that are found with GO debt and other debt types. In many cases, if it is privately financed with a single bank or investor, and the lease is for modest capital or renovation projects, the capital lease costs compare favorably with the GO bond costs.

SO Bonds SO bonds are a type of municipal bond secured by special taxes or other revenues rather than by property taxes. These may be permitted by state law and vary widely in nature. The three categories of SO bonds are: ◾ Special or limited tax bonds ◾ Special districts (SDs) and authorities ◾ Tax Increment Financing Districts

SPECIAL TAX BONDS

A Special Tax Bond is a type of municipal bond repaid with tax revenue levied against a specific activity or asset. Examples include the use of motor fuel taxes to finance highway construction bonds and hotel occupancy taxes used to help secure bonds for convention centers. Specific sales taxes may support capital construction of roads, schools, and other infrastructure, such as downtown revitalization efforts. These bonds are like GO bonds in that there are fixed caps or rates determined by law. Since only the revenue from the tax can be used to support the bond issuance, usually covenants exist that are like those found with revenue bonds. The city or agency must demonstrate that there is sufficient revenue to pay debt service after all operations, maintenance, and other costs have been paid.

72  ◾  Planning and Budgeting SD AND AUTHORITIES

An SD or authority is established by state law to provide specific services to a given geographical area. Governments have used SDs to provide a wide variety of services such as utilities, storm water drainage, transit and transportation services, hospitals, parks and recreation, school construction, and libraries. SDs can cover a geographical area or region that encompasses several local governments, providing bus services, for example, that can take advantage of “economies of scale” and providing services on a more regional basis. Alternatively, citizens within one area of a city may decide they wish for services that other citizens may not require, such as mosquito control, and establish an SD to collect revenue and pay for the service. Some SDs have service areas that have the same boundaries as the local government. These are established primarily to allow financing and administration to be separate from the jurisdiction and control of a specific local government. Funding support for SDs can come from a variety of sources, depending on state law and the services provided. User fees, for example, paid by citizens for water and sewer services, can provide one revenue source. Other SDs have the authority to levy taxes. In many cases, however, the amount of revenue is not sufficient to cover operating and maintenance costs. A transit authority, for example, may need the support of financial contributions from area local governments, as revenue from ridership may produce a revenue shortfall. Likewise, in many areas, costs of providing water and sewer services are subsidized in part from general property taxes. Bond issuance depends on the legal authority of the SD. In many cases, revenue bonds are the only means available to support construction efforts. In some cases, GO bonds can be used, gaining a lower interest rate, with the expectation that debt service will be paid from a revenue stream. General property taxes are offered only in case there is a revenue shortfall. TAX INCREMENT FINANCING DISTRICTS

A Tax Increment District (TID) may be formed by a local government to construct facilities and infrastructure that support private development or redevelopment. As a downtown area becomes developed, for example, the increase in taxes generated from property in that area serves as the basis for the generation of bonds that can only be used to construct or renovate infrastructure in that designated area. Tax increment bonds are also known as economic development bonds. Cities may use them to renovate infrastructure to attract more development. A key issue in determining security for the bonds is the degree of commitment from private developers. If there are few developers expressing interest, then other sources to support bond issuance must be found.

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If the bonds benefit one private company, such as roads being widened to attract a company that will provide jobs to city residents, then the bond may be interpreted as a private activity bond. These do not have tax-exempt status. If the infrastructure built with these bonds benefits the public, then investors may not have to pay taxes on the interest income they receive.

Public-Private Partnership (P3) Financing On occasion and when permitted by law, governments invite private investment in public infrastructure through a Public-Private Partnership or “P3.” The NIGP Dictionary of Procurement Terms defines P3: A public-private partnership (P3) is a broad term used to describe public facility and infrastructure contracts that minimally include components of design and build (e.g., construction, renovation, rehabilitation) in a single contract. Components of financing, operations, maintenance, or management may be included within this single contract. A P3 contract allocates risks to the party (the government or the contractor) best able to manage the risks and may assign a higher level of responsibility for means and methods to the private partner. In the NIGP Research Report, “A Guide to Public-Private Partnerships (PPPs): What Public Procurement Specialists Need to Know,” a publicprivate partnership is conceptualized as:16 A contractual agreement between one or more government/public agencies and one or more private sector or nonprofit partners for the purpose of supporting the delivery of public services or financing, designing, building, operating and/or maintaining a certain project for the public good. These types of partnerships are usually developed with the implicit and explicit objectives of leveraging additional financing resources and expertise, which otherwise might not have been available for public purposes through traditional procurement processes. P3s are Design-Build (DB) contracts that may include requirements for operation, maintenance, and financing: ◾ Design-Build-Operate-Maintain (DBOM) ◾ Design-Build-Finance (DBF) ◾ Design-Build-Finance-Operate-Maintain (DBFOM)

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Financing may be provided by the contractor to fund the project fully or partially, often through a Joint Venture (JV) or Special Purpose Vehicle (SPV). An SPV is a separate legal corporate entity formed specifically for the P3 project for the purpose of limiting liability. Financing requires a revenue stream over the life of the contract to recover the P3 contractor’s investment. P3 financing is usually spread over the life of the asset, often 20 years or more. P3 financing revenue streams include direct payments from the government operating budget, user fees or concessions, taxes, tolls, and other sources: ◾ P3 financing for a fire station might be paid through commitment of property tax revenue ◾ P3 financing for a water treatment facility might be paid through customer and business user fees ◾ P3 financing for a school district bus maintenance facility might be paid direct through the operating budget or property taxes ◾ P3 financing for a highway might be paid through tolls P3 financing can help governments close the gap between capital cost for large-scale projects and available funding. However, careful financial analysis is required to ensure that governments and citizens are paying a fair and reasonable price. For example, a government is likely to have access to long-term debt for a lower interest rate than a P3 contractor. Citizens may also oppose a water bill surcharge or highway toll dedicated to the P3 contractor. P3 contracts often start as unsolicited proposals. Proposers may argue, and some public officials may agree, that a P3 is a sole source procurement or is exempt from public procurement laws. P3s are contracts and therefore should be subject to full and open competition as a public procurement. In the NIGP Public Procurement Practice, “Public-Private Partnership (P3): Facilities and Infrastructure,” NIGP recommends that a P3 should follow the procurement cycle:17 Due to the complexity and importance of a P3, every stage of the procurement must be carefully planned. Procurement must use an increased degree of diligence and expertise to find a way to market the opportunity, seek full and open competition, and balance all risks and responsibilities associated with the project. The formal plan should ensure that all elements of the procurement cycle, from need to disposal, are addressed. The NIGP Research Report, “A Guide to Public-Private Partnerships: What Procurement Specialists Need to Know,” concludes:18 It is important that public procurement specialists remain realistic about the possibilities of PP/NPs (Public Private/Nonprofit

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Partnerships) and proceed with caution when advocating or establishing such contractual relationships. It’s critical to remember that such contracts are very complex, and the consequences of badly underwritten agreements can be disastrous. It is also fundamental that public procurement specialists scrutinize in detail and with a healthy level of skepticism, the sponsors, consultants, and publications that hail PPPs as safe partnerships that are guaranteed to yield large benefits to the public sector.

Big News in Cloverdale The announcement made the evening news. The following morning, everyone in the city public works office was talking about the new micro-circuit plant that will be built on 1,200 acres of recently annexed, undeveloped city land. The plant will employ at least 2,000 workers. Soon a nearby industrial park will be home to as many as 50 other businesses supporting the plant, and a developer is making plans for a mixed residential and retail development north of the city. The mayor is predicting the population of Cloverdale will grow by 20% in the next five years and 50% in ten years. Located only 40 miles from the big city, the Cloverdale population has held steady around 25,000 for the last ten years. Known mostly as a bedroom community for a large neighboring city, its tax base is supported mostly by an outlet mall, several downtown businesses, and some light industry. The city manager has scheduled a 10:00 AM meeting with all the department managers to talk about the new plant. As the purchasing manager, you are wondering what you will be able to contribute to the first of many planning sessions. You are also a little worried about the additional workload you can expect for the three employees in your small purchasing department. What infrastructure will the city need to build or upgrade to support this new plant and the accompanying development? How will the city pay for this infrastructure? What will the role of purchasing be in the planning, design, and construction? What resources will you need to support the development?

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Planning for the Cloverdale development offers an extreme challenge to the small community. Since the plant and supporting community will be built on undeveloped land, new infrastructure will be required: ◾ Water and sewer service will be required to support the plant and developments. ◾ Many workers may commute from other nearby communities, requiring more highway travel lanes and public transit services. ◾ New primary and secondary schools will be needed for the residential development. ◾ Fire and police stations, city services, sanitation, parks, and a new library may be required. In addition to the infrastructure, many new employees, fire fighters, police officers, teachers, administrative staff, and others will be needed to support this new community. More jobs contribute to further growth and will require more homes and public services. Planning will require coordination with the federal, state, and county governments, public and private utilities, business owners, and citizens. Land will have to be acquired for public buildings and right of way will be needed for roads, telephone, and power lines. Funding will be a challenge. While all these new residents and businesses will pay taxes, the infrastructure will be necessary before any homes are occupied or businesses opened. Some funding may come from federal, state, and county coffers and from development fees, but most will have to be raised by issuing bonds, tax increment financing, or through a P3. All of this means the procurement of many new contracts for construction and services. Procurement along with other departments will need to ramp up to support the development. The procurement department might consider contracting for supplemental procurement support, as much of the additional workload will be temporary.

Environmental and Technical Clearances Construction can have a profound and sometimes adverse impact on the environment. A poorly designed facility can divert natural streams, causing flooding of adjacent properties. Overflow from a wastewater facility can pollute the habitat, streams, and groundwater. Placement of a highway or rail line can disturb native wildlife and fauna, divide communities, and create safety hazards for pedestrians. Fortunately, federal, state, and local governments have

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systems in place to ensure that construction projects are safe for the public and the environment. Environmental and technical and engineering studies are required during the planning, design, and construction of every public infrastructure project to ensure that the functional needs of the government and public and environmental requirements are met.

Environmental Clearances The National Environmental Policy Act (NEPA) was passed into federal law in 1970 setting national policy for the environment. NEPA requires federal agencies to assess the environmental impact of proposed major federal actions, including federally funded state and local public construction.19 Section 101 of the Act states national policy20: to use all practicable means and measures, including financial and technical assistance, in a manner calculated to foster and promote the general welfare, to create and maintain conditions under which man and nature can exist in productive harmony, and fulfill the social, economic, and other requirements of present and future generations of Americans. Section 102 of NEPA provides procedural requirements, including21: 1. A detailed environmental impact statement (EIS) on the proposed action 2. Identification of any adverse impact that cannot be avoided 3. Alternatives to the proposed action 4. The relationship between short-term uses of man’s environment and the maintenance and enhancing of long-term productivity 5. Any irreversible and irretrievable commitments of resources that would be involved in the proposed action NEPA applies to federal agencies and to state and local governments using federal funds to ensure that governments consider the environmental consequences of proposed actions. At least 16 states have adopted environmental policy acts22 and all public agencies should follow the same guidance for major public construction projects. If the project requires the purchase of real estate, alternative sites must be considered. For example, alternatives for a new highway or rail line must be considered to determine the optimal route.

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Under NEPA, an EIS is required for projects that will have a significant impact on the environment and an environmental assessment for projects where the significance of any environmental impact is not known. A Categorical Exclusion (CE) applies if there is no significant environmental impact. As Figure 3.1 illustrates, the NEPA process is arduous, involving considerable analysis and assessment, community involvement and public hearings, consideration of alternatives, and extensive documentation. Figure 3.1 illustrates the complexity of the Federal Highway Administration environmental review process for transportation and other infrastructure projects. This complex process is typically required of state and local governments for projects funded in full or partially by the federal government. Figure 3.1

USDOT NEPA Process Major Milestones Develop Project Plan and Schedule

Notice of Intent and Scoping

Checkpoint 1 Purpose & Need

Public Comment Period

Publish Draft Environmental Impact Statement

Checkpoint 2 Range of Alternatives

Draft Final Environmental Impact Statement

Public Notice

Checkpoint 3 Preliminary Least Environmental Damaging Practicable Alternative Publish Final Environmental Impact Statement

Conceptual Mitigation

Final Biological Opinion

Record of Decision

Source: Adapted from Federal Highway Administration 2015 Red Book, Synchronizing Environmental Reviews for Transportation and Other Infrastructure Projects, September 2015, Publication No. FHWA-HEP-15-047

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The NEPA Environmental Assessment (EA) checklist for Housing and Urban Development (HUD) includes categories for: ◾ Land development, including compliance with comprehensive plans and zoning, noise, air quality, and environmental design ◾ Socioeconomic, including demographic and character changes, displacement, and employment ◾ Community facilities and services, including educational facilities, social services, solid waste, water supply, and public safety ◾ Natural features, including water resources, agricultural, and vegetation and wildlife ◾ Other factors, including disaster prevention and preparedness See the complete HUD checklist at DOC_12975.DOC (live.com).

Building Codes and Permits Building codes specify minimum state and local government standards for the construction of buildings. The purpose for building codes is to give reasonable assurance that a building or facility is safe to occupy following construction and it is intended to protect public health, safety, and welfare. The building code also addresses environmental responsibility and energy savings. Building permits serve as written confirmation that the building complies with applicable building codes. Building permits are the permanent record of the work and inspections conducted during and after construction. The owner is responsible for applying for building permits and paying the associated fees once the design plans and specifications are completed. Applications are made to the state or local building office and submitted with the design drawings and specifications. Depending on the responsible jurisdiction, the applications and plans may be reviewed by the local planning department, building department, fire departments, and other authorities and may be approved or returned for revision to meet the building code. Local or state building officials will inspect the work during construction to ensure code and permit compliance. Inspections are scheduled by the designer or contractor for key points during construction. For example, electrical and plumbing are inspected when the work is “roughed in” and exposed before sheet rock is installed.

Site Selection and Acquisition Construction of infrastructure may require the purchase of land or the rights to access land owned by others. Real estate acquisition is the process

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of obtaining ownership, control, or access rights from an owner. A specific parcel may be required to build a courthouse or fire station, or right of way may be required to build a road or pipeline. Right of way is the right to pass over the property of another and may be obtained by grant, purchase, or easement. Construction of a highway or high-speed rail line may require purchase of parcels or portions of parcels for right of way. For example, right of way for railroads is 66 feet wide from the center of the tracks. Right of way for a state or county road is at least 40 feet wide. Purchase of an easement may be more appropriate for construction of utilities, like sewers, water pipelines, or electric lines. An easement is the right to use real property owned by another person on a limited basis. For example, a utility may pay an annual fee under a long-term contract to run a power line or construct a cellular tower on private property. A railroad may lease an easement to a city to install an underground sewer line under a railroad right of way. Usually, real property for public construction is obtained through negotiation with the property owner. Under the Fifth Amendment of the US Constitution, property may not be taken for public use, without just compensation to the owner. Just compensation is based on the appraised value of the property. If land or easements need to be purchased, specific guidelines must be followed. If federal funds are used, there must be compliance with the Uniform Relocation and Acquisition Act and other applicable regulations. Typically, several steps are required before purchasing the property, especially if federal funds are applied. A real estate specialist must be designated to perform these steps, by assigning either an in-house expert or a contractor. Records must be researched to identify the property owner. Title companies must ensure that there are no restrictions to obtaining the title. The property owner must allow the specialist to enter the property and perform “due diligence,” by thoroughly examining all aspects of the property ownership and conditions and characteristics of the property. The property must be appraised to determine fair market value for the purchase. For federally funded projects, environmental analysis must be completed, and approval from the federal granting agency must be received prior to acquiring the property. Occasionally owners may be unwilling to sell or demand an excessive price. If the public agency is unable to obtain the required real property for fair market value through mutual agreement, federal, state, and local laws provide for condemnation. Condemnation is the legal process for obtaining real property for public use through eminent domain. State and local laws differ on condemnation and eminent domain, but the process generally requires resolution through federal or state court.

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Procurement is not usually involved in acquisition of real estate but may be required to procure consultants and appraisers to assist with the acquisition process.

Project Management Plan Every construction project requires support from a wide variety of professionals, each contributing to part of the overall project completion. To optimize communication and produce a successful project, a Project Manager is assigned to the project. The Project Manager works on behalf of the agency or government owner and is tasked with controlling what potentially may be differing or conflicting intentions among project participants and guiding all efforts toward a successful project outcome. The Project Manager manages the project and coordinates a team of professional staff, including: ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾

Design Architect or Engineer Surveyor Planner Right-of-way Acquisition Specialist Engineers: Systems, Traffic, Structural, Civil, Noise Scheduler Cost Estimator Financial Analyst Contracting Officer Inspection and Testing Personnel Other project stakeholders

The degree of participation of these professionals depends on the scope, size, value, and complexity of the project. The degree to which some or all these participants are employed by the government or contracted as consultants adds to the complexity of the construction effort. The Project Manager may be an in-house employee of the government or may be a contracted consultant. Ideally, the Project Manager views these aspects as a whole, understanding how each impacts the remaining parts. Attempting to reduce the design phase to lower overall project costs may backfire, as an incomplete design may lead to construction problems and unanticipated delays. In addition, the Project Manager should consider operation and maintenance issues and costs that may be affected by the construction. To some extent the planning and design phases overlap. Environmental impact assessment and right-of-way acquisition activities occur as design

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moves from the initial general conceptual phase toward the final design. All planning and design efforts must be completed before construction begins.

Project Management Functions After a project has been approved, the project management team begins the project initiation phase. First, the team must plan how the project will be implemented. Appropriate steps include: ◾ Choosing the project delivery method ◾ Identifying the amount and types of resources required ◾ Assigning project staff, including procuring a Project Manager if inhouse staff is not available The next step is to create a Project Scope or Projects Requirements Definition. This document summarizes the major aspects of the project as well as setting in broad terms those aspects that expect to be more specifically defined as the project progresses. The content includes: ◾ ◾ ◾ ◾ ◾ ◾ ◾

Statement of work—a broad summary of the construction product Initial cost estimate—general projection of overall costs Key project milestones—initial project schedule Financial requirements and sources of funding Independent cost estimate (ICE) Risk assessment—identifying the major risks Acceptance criteria—final product approval criteria

Project Management Planning Once the Project Scope is completed, planning begins. An initial step is to identify all the experts and professionals that will participate in the project, along with their likely roles and contributions: ◾ Project Management and Control ◾ Project Management ◾ Change and Configuration Management ◾ Cost Control ◾ Schedule Control ◾ Document Control

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◾ Procurement ◾ Finance and Accounting ◾ Planning, Engineering, and Technical ◾ Architectural ◾ Engineering ◾ Environmental ◾ Real Estate ◾ Communications ◾ Contractor ◾ Subcontractors ◾ Utilities and other third parties ◾ Suppliers There may be some overlap of functions, depending on the size and complexity of the project. For example, change management and schedule control may be performed by the same person. If the capability and competency to carry out required tasks is not found within the agency or government, outside consultants must be contracted. Typically, these include the architect and the contractor.

Project Management Plan The next step is to establish an overall management plan, specifying and clarifying the decisions already made and adding milestones for all phases of the project including construction. The project management plan includes: ◾ Project management schedule, budget, and cost controls ◾ Conceptual and final design management, including standards ◾ Construction phase management, including inspections and safety controls ◾ Quality assurance/quality control ◾ Risk management ◾ Safety management ◾ Procurement and contract administration management ◾ Project close-out schedule and tasks ◾ Communication policies and procedures with the media, government, and other stakeholders The project management plan will evolve and change as the project progresses. The project management plan establishes a baseline when it is initially

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devised, requiring the Project Manager to add or adjust the plan and document reasons for the changes. Procurement has an important role and should be actively involved in the project management plan.

Procurement Plan The first step in any procurement is the acquisition or procurement plan. The NIGP Dictionary of Procurement Terms defines the contract acquisition plan and contract administration plan (CAP) as: A planning tool that provides the framework for effective contract administration with an emphasis on process, output, and outcome. The length and detail of the CAP depends on the complexity and potential risk of the contract. Also referred to as contract acquisition plan. The procurement plan describes and documents the detailed strategy for the specific procurement. The plan includes: ◾ Procurement Objectives—The outcome the procurement is intended to achieve ◾ Project Scope—Describes the procurement and project requirements ◾ ICE—The independently prepared cost estimate for the procurement ◾ Project Budget—Total funds available for the project and identification of funding sources ◾ Project Delivery Method—Design-Bid-Build, DB, Construction Manager at Risk, or other method ◾ Procurement Schedule and Milestones—Includes the milestones that must be met to conform to the project plan, including critical path elements ◾ Risks and Constraints—Identifies any risks or events that might delay the procurement, impede performance of the work, increase costs or any other project challenges ◾ Evaluation Criteria—The technical evaluation committee should determine the evaluation criteria and the relative priority of or weight for each evaluation factor ◾ Required Approvals—Identifies any required findings and determinations and approvals required of other public officials or boards ◾ Disadvantaged Business Participation Plan—If required, the participation plan identifies any goals for use of small or disadvantaged

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businesses and minority- or women-owned businesses necessary to meet federal, state, and local contracting requirements ◾ Type of Contract ◾ Technical Evaluation Committee Members ◾ Source Selection Method—Once the scope, budget, schedule, risks, and constraints are identified, the acquisition team or procurement officer can develop the procurement strategy. The source selection method describes in general terms the methods that will be used for source selection and contract administration and justification for the strategy A critical element of the acquisition plan is the ICE. The Institute for Public Procurement (NIGP) defines the ICE as: Generally refers to the Project Manager or consultant’s cost estimate for the pending project, which reflects anticipated project costs for budgetary funding purposes. FAR Part 36.203(a) requires: An independent Government estimate of construction costs shall be prepared and furnished to the contracting officer at the earliest practicable time for each proposed contract and for each contract modification anticipated to exceed the simplified acquisition threshold. The contracting officer may require an estimate when the cost of required work is not anticipated to exceed the simplified acquisition threshold. The estimate shall be prepared in as much detail as though the Government were competing for award.23 For federally funded procurements, 2 CFR 200.324(a) (Uniform Guidance) requires an independent cost estimate for procurements above the simplified procurement threshold.24 The ICE is a tool to assist the Contracting Officer in determining the reasonableness of a bid or proposal and is used as a target for negotiation. The ICE is a starting point for performing cost and price analysis. The ICE is especially important for situations when there is no price competition, such as procuring architect and engineering services or modifying a contract. The ICE is usually prepared by the Project Manager, independent of the procurement officer and without input from prospective proposers. Depending on the size and complexity of the project, the ICE may range from a single line estimate to a complex spreadsheet. A procurement plan helps to keep the procurement process on track and provides transparency for management and customers. The plan is prepared

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Sample Procurement Plan Project Scope: The Farfetched County Courthouse was originally built in 1859, with additions in 1878 and 1912. The Courthouse was last renovated in 1962. This renovation included extensive foundation repairs, upgrade of electrical and mechanical systems, interior remodeling, and roof replacement. The purpose of this procurement is to contract for services from a professional architect to design a complete renovation of the Courthouse as a public museum, including upgrade of all electrical and mechanical systems and restoration of all interior and exterior features to original condition. Procurement of construction through a CM@Risk contract shall be procured concurrently with the design contract. Type of Contract: Firm-fixed price Procurement Timeline: Project shall be completed in all respects prior to the 150th Anniversary Celebration on June 15, 2024. Acquisition Plan Approval Prepare Statement of Work Prepare Solicitation Advertise Requirements Issue Solicitation Proposal Due Date Evaluate Proposals Negotiations Prepare Contract Obtain Board Approval Award Contract

06-01-21 06-30-21 07-15-21 07-15-21 07-15-21 08-30-21 09-30-21 10-15-21 10-30-21 11-01-21 11-10-21

Independent Cost Estimate for design services: $480,000 Project Budget: Revenue Bonds Historic Preservation Federal Grant Homeland Security Total

$3,000,000 $400,000 $1,000,000 $100,000 $4,500,000

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Project Risks: Facility has not been inspected for hazardous materials. It will be difficult to find qualified contractors for historic renovation and artisans for masonry and woodwork. From the budget, 10% has been reserved as a contingency fund, and additional funds for removal of hazardous materials may be available from state or local sources. Source Selection Method: Qualification-based selection of an architectural design firm and subcontractors qualified and experienced with historic renovation of public facilities. The architect will be selected through a request for statements of qualifications in accordance with Procurement Regulation 45–7. Technical Evaluation Committee Contracting Officer Project Manager City Architect Member Member

Hilary Smith Jazmine Leary Jacob Jones Colt Dixon, Facilities Manager Raphael Hernandez, Maintenance Director

Technical Advisors Finance Legal DEI

Mike Stone Sam Adams Taylor Johnson

Required Approvals: County Manager and County Board of Supervisors Disadvantaged Business Enterprise (DBE) Plan: 15% Minority Business Enterprises (MBE) and 10% Women Business Enterprises (WBE) by the Contracting Officer and the technical evaluation committee or Project Manager. A major capital project may require multiple contracts, for planning, EA, design services, real estate appraisals, construction, construction inspection, and materials or equipment that will require support over a period of months or years. Each of these contracts may require a specialized procurement skillset. Requirements for certain services like appraisals and planning may be

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combined to support multiple contracts. A strategic procurement plan will help the procurement department prepare to meet program needs efficiently and reduce the risk of “surprises.” Developing a procurement plan provides stakeholders with an opportunity to discuss the requirements, schedule, risks, strategy, and resource requirements. The procurement plan aligns the procurement strategy and schedule with the project schedule and is used to measure progress. The project goals may be later used to determine negotiation objectives.

Summary In most large communities, capital planning may occur on several levels, starting with an urban or capital plan at the macro level and ending with a project plan and procurement plan at the micro level. Capital planning in smaller communities may be limited to the capital and operating budgets, but project and procurement planning is still essential. Every construction project requires an environmental and project management plan, and every procurement requires a procurement plan. The procurement official plays a key role throughout the planning and budgeting processes, from advisory at the financial and project planning level to preparing a procurement plan that aligns with the project plan. The more proactive and analytical the roles that procurement officials can play, the greater the benefits for the government and the community.

Notes 1 Kirkpatrick, Andy, “Of Permanent Value: The Story of Warren Buffett,” Andy Kirkpatrick Publishing Empire, March 7, 2008. 2 Kennedy, John F. (1962). State of the Union Address, January 11, 1962. 3 Burns, Alfred, “Hippodamus and the Planned City”, Journal Article, Historia: Zeitschrift fur Alte Geschichte, 1976 https://www.jstor.org/stable/4435519 4 Yin, Jordan (2012). Urban Planning for Dummies. Mississauga: John Wiley and Sons. 5 City of Austin, Our Parks, Our Future Long-Range Plan, available from Our Parks, Our Future Long-Range Plan, https://www.austintexas.gov/page/our-parksour-future-long-range-plan. 6 Dallas Area Rapid Transit 2045 Plan, https://www.dart.org/about/project-andinitiatives/expansion/transit-system-plan. 7 Dallas Area Rapid Transit 2040 Plan, https://www.dart.org/about/ project-and-initiatives/expansion/transit-system-plan 8 City of Albuquerque/Bernalillo Comprehensive Plan, Approved 2017, available from Albuquerque / Bernalillo County Comprehensive Plan | Interactive Comprehensive Plan, https://abc-zone.com/2017-abc-comp-plan#:~:text=The%20

Planning and Budgeting  ◾  89 updated%20ABC%20Comp%20Plan%20was%20heard%204,2017%20 for%20property%20within%20the%20City%20of%20Albuquerque. 9 City of Evanston, IL. Approved 2007–08 capital improvement plan (p. 11). Available from https://www.cityofevanston.org/home/showpublisheddocument/ 4414/636229441025830000. 10 City of Orlando, Florida 2006–07 budget. 11 Office of Congresswoman Suzanne DelBene, Federal Grants 101, PowerPoint presentation, October 19, 2015 https://delbene.house.gov/sites/delbene.house. gov/files/federal%20grants%20101%20presentation.pdf. 12 Office of Congresswoman Suzanne DelBene, Federal Grants 101, PowerPoint presentation, October 19, 2015 https://delbene.house.gov/sites/delbene.house. gov/files/federal%20grants%20101%20presentation.pdf. 13 Office of Management and Budget, Grants.Gov, “Uniform Administrative ­Requirements, Cost Principles, and Audit Requirements for Federal Awards”, https://www.grants.gov/learn-grants/grant-policies/omb-uniform-­guidance-2014. html. 14 U.S. Department of Transportation, Build America Bureau, “TIFIA Credit Program Overview,” https://www.transportation.gov/buildamerica/financing/ ­ tifia/tifia-credit-program-overview. 15 Hayes, Adam, “Capital Lease: What it Means in Accounting, 4 Criteria”, March capitallease. 19, 2022, Investopedia, https://www.investopedia.com/terms/c/­ asp#:~:text=To%20qua lif y %20as%20a%20capita l%20lease%2C%20 a%20lease,greater%20than%2090%25%20of%20the%20asset%27s%20 market%20value. 16 NIGP The Institute for Public Procurement, Research Report, “A Guide to Public-Private Partnerships (PPPs): What Public Procurement Specialists Need to Know” Prepared by Alexandru V. Roman, Ph.D., https://www.nigp.org/­ resource/research-papers/A%2520Guide%2520to%2520Public-­Private%2520P artnerships%2520PPPs%2520-%2520What%2520Public%2520Procurement %2520Specialists%2520Need%2520to%2520Know.pdf?dl=true 17 NIGP The Institute for Public Procurement, Public Procurement Practice, “Public Private Partnership (P3): Facilities and Infrastructure”, https://www. nigp.org/resource/global-best-practices/Public-Private Partnership P3 Facilities and Infrastructure Best Practice.pdf 18 NIGP The Institute for Public Procurement, Research Report, “A Guide to Public-Private Partnerships (PPPs): What Public Procurement Specialists Need to Know” Prepared by Alexandru V. Roman, Ph.D., https://www.nigp.org/­ resource/research-papers/A%2520Guide%2520to%2520Public-­Private%2520P artnerships%2520PPPs%2520-%2520What%2520Public%2520Procurement %2520Specialists%2520Need%2520to%2520Know.pdf?dl=true 19 U.S. Environmental Protection Agency, What Is the National EnvironmenPolicy Act, https://www.epa.gov/nepa/what-national-environmental-pol tal ­ icy-act. 20 U.S. Environmental Protection Agency, National Environmental Policy Act, as amended, 42 U.S.C. §4321 et seq, https://www.epa.gov/laws-regulations/ summary-national-environmental-policy-act. 21 U.S. Environmental Protection Agency, National Environmental Policy Act, as amended, 42 U.S.C. §4321 et seq, https://www.epa.gov/laws-regulations/ summary-national-environmental-policy-act.

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Chapter 4

Construction Project Delivery Methods Introduction For most of the 20th century, state and local governments were limited by law and practice to employing the Design-Bid-Build (DBB) contracting method for construction contracts. Under this traditional approach, the government employs or procures a design architect or engineer to produce plans and specifications, uses those plans and specifications to obtain bids, and then awards construction to the responsible contractor offering the lowest responsive bid. Although this method may not be efficient or even effective for many construction projects, it is perceived as being fair and transparent, producing a defendable source selection decision and usually resulting in a satisfactory contract and project. Although the DBB construction contracting method has been the standard for state and local government, it has been “traditional” only in the last half of the 20th century. For centuries, government buildings were built using contracting methods that may be viewed today as innovative alternatives. For example, the pharaohs’ designers managed artisans, craftsmen, and laborers to construct the pyramids under a Design-Build method. The ancient Greeks and Romans used variations of Design-Build or construction DOI: 10.4324/9781003276975-4

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manager methods to build their cities, grand highways, buildings, sewers, and aqueducts. Closer to home, our national capitols, Philadelphia, and later Washington DC, were built by an architect who employed craftsmen and artisans. In World War II, the US government contracted with designbuilders for military bases, depots, training centers, and warships. Awarding construction contracts to the lowest bidder has generally served the government well. Most modern public infrastructure has been contracted using competitive bids, and most public construction contract case law is based on traditional DBB construction contracts. Our highways, schools, waste and water treatment plants, fire and police stations, prisons, and fish hatcheries were all built using the DBB contracting method. The DBB process is viewed as open and fair, as any reasonably qualified bidder can win the contract by bidding the lowest price. Transparency is assured, and cheating is avoided by accepting and opening bids at a predetermined place and time. The resulting contract is awarded for a firm and fixed price that may not be changed except in limited and controlled circumstances. The contractor is compensated with progress payments, changes are accompanied by an equitable adjustment to the price and schedule, and the contractor is subject to damages if the work is not completed on time. If administered effectively, the work is completed according to the plans and specifications, on time, and under budget. However, DBB contracting has some inherent weaknesses. The three-way contract relationship, owner to designer and owner to contractor, can result in confusion and disputes over responsibility for problems and mistakes. Each contracted party might blame another, and disputes may simmer for months or years before they are resolved through administrative or legal means. The bidding process forces the contractor to “pinch pennies” and assume risks to achieve the lowest bid and keep the project profitable. This imposed austerity can compel the contractor to cut corners on materials and workmanship or attempt to deceive the owner on changes. At best, the owner can expect to achieve nothing more than what is called for in the specifications. Contractors are more likely to aggressively claim additional compensation for perceived delays and changed conditions. DBB contracting is often slow and inefficient, as construction bids cannot be obtained until the design is completed. The source selection process leaves selection to chance and the lowest bidder may not always be the best contractor for the job. In the past 30 years, governments have discovered the advantages of alternate project delivery methods that are commonly employed in the private sector. These methods include Design-Build, in which the designer and builder are procured as one team, and Construction Manager at Risk (CMAR), in which the designer and contractor are procured separately but concurrently. These are becoming increasingly common in public contracting.

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There are also challenges with using alternate project delivery methods. Laws in some jurisdictions continue to require obtaining bids for construction or do not permit Design-Build contracts. Since price is most often not the determining selection factor for alternate project delivery method contractors, governments are not assured that they are receiving the lowest price. Alternate project delivery method contracts are sometimes awarded with cost-plus pricing with a not-to-exceed ceiling, requiring vigilant cost containment and auditing by the owner. In addition, many local governments do not employ contract administrators with the competence and skills necessary to administer these contracts. Selecting the project delivery method should be based on the project requirements, and the decision must be made early in the project planning process. If Design-Build is chosen, the contracting officer procures the contractor during the planning phase. If the CMAR method is chosen, the contracting officer procures the construction contractor concurrently with the designer or when the design is partially completed. Contracting officers should analyze the requirements of each project and offer a recommendation on the most appropriate delivery method. Many owners claim improved quality and lower prices when using Design-Build and CMAR project delivery methods than with DBB. However, there is little if any conclusive empirical evidence supporting or refuting these claims. It is likely that the ability to choose contractors based on their experience and qualifications will result in improved quality and lower prices. However, quality and value depend on the ability of the owner to negotiate a fair and reasonable price and effectively administer the contract. In Chapter 4 we will explore the various project delivery methods, their variations, and the advantages and disadvantages of each.

Six Frigates1 One of the biggest US government procurements of the 18th century and an example of early American public works is the construction of six frigates for the US Navy. President Adams commissioned a fleet of frigates to deal with the Barbary Pirates of the Mediterranean and harassment and attacks on shipping by British warships. The 18th-century frigate was a fast and heavily armed sailing battleship, designed to prey on merchant shipping, fight open sea battles, convey public officials, and transport troops. A frigate is a 1,000-ton

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wooden floating city, carrying 24 to 40 three-ton cannons, 400 sailors, and all the sail, rigging, food, water, ammunition, spare parts, pumps, materials, and supplies necessary to travel for months without refreshment and wage war halfway across the globe. These sailing frigates, named the President, Constitution, Congress, Chesapeake, Constellation, and United States, were constructed in private shipyards under the guidance of naval architect Joshua Humphries using a Design-Build approach. The shipyards were leased by the government in four different cities to buy the votes necessary to support the appropriation. Craftsmen, artisans, and laborers were employed by the shipyards to construct the ships. The Navy paid private agents costplus percentage of cost to obtain lumber, supplies, and materials to build the ships. Shipbuilding was a big undertaking for our fledgling nation. We had little experience building such large ships, and their design was uniquely American. The ships were larger and more heavily armed than European frigates. A sailing ship is a complex structure. The location and size of the masts, configuration of the hull, and location of the cannons have a profound effect on the safety and sailing qualities of the ship. This construction of the US Navy was the largest and most controversial procurement of the US government to date. The original appropriation of $688,000, or more than $15 million in 2022 dollars, was a huge amount for our young nation. The cost of the ships more than doubled before construction was complete, and construction was delayed for years due to labor and material shortages. Despite our inexperience and the many challenges, these first six ships were fast, excellent fighters that proved superior in battle against the best the British could offer. Britannia ruled the seas, but the 800-ship British Navy met its match in confrontations with the six frigates of the US Navy. In the end, our tiny Navy helped subdue the Barbary Pirates and contributed to our victory over the British in the War of 1812.

DBB Project Delivery Method The DBB project delivery method has three phases: design, construction bidding, and build or construction. The NIGP Public Procurement Dictionary of Terms defines “Design-Bid-Build” as: The traditional project delivery method, which customarily involves three sequential project phases: design, procurement,

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and construction, and two distinct contracts for the design and construction (build) phases. DBB is often called the “traditional” method, as it was the primary construction project delivery method in the 20th century. Using the DBB contracting method, the government owner first procures the services of an architect or engineer designer. Most state and local government construction procurement laws are like the Federal Brooks Act and require selecting an architect based on qualifications and experience, without consideration of price. The price or fee for the design is negotiated with the selected designer. The designer prepares plans and specifications, which are combined with an invitation for bids and distributed to prospective bidders. Interested contractors obtain a copy of the plans, specifications, and other bidding documents and prepare bids based on their internal estimates and quotes from suppliers and subcontractors. After bids are received, the government evaluates them and, assuming the bids are equal or less than the project budget, the contract is awarded to the responsible bidder who tenders the lowest responsive bid. ­ After a contractor is selected, the designer may assist the owner with inspection, testing, and administration of the contract to ensure the contract requirements are met.

Characteristics of DBB ◾ There are three sequential phases: design, bid, and build. ◾ There are three parties and two contracts: owner to designer and owner to contractor. ◾ The owner guarantees the plans and specifications to the contractor. The design architect or engineer is responsible for designing to the normal standard of care of their profession, and the construction contractor guarantees the completion of the project as designed.

DBB Considerations ◾ The designer and builder work directly under separate contracts with the owner. ◾ DBB has long been considered the standard and primary delivery method in public procurement. DBB is widely accepted and understood, with clearly defined roles and responsibilities and strong foundation in public law.

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◾ Because the construction price is determined through competitive bids, there is higher confidence that the price is fair and reasonable. ◾ The construction price is not known until after bids are received. ◾ The design architect or engineer may serve as the advocate for the owner during construction contract administration. ◾ The process is longer than CMAR and Design-Build, as design and construction are performed in consecutive phases with a 30- to 90-day bidding phase in between. ◾ The design may be produced in separate packages, permitting some construction work while the remaining design is completed. This is referred to as “fast-tracking” and usually results in a higher design and construction cost and elevated risk. ◾ There is no collaboration between the designer and builder during design. ◾ It may be argued that competitive bidding will produce a lower overall project cost than other delivery methods. However, DBB does not benefit from contractor collaboration with the designer, which is likely to produce significant savings through material choices, construction means and methods, sequencing, scheduling, operation and maintenance efficiencies, and other factors. ◾ Unless best-value selection is permitted by law, the owner must award the contract to the responsible bidder tendering the lowest responsive bid. ◾ The designer is required to perform the design according to the standards of the profession. If the work is completed according to the plans and specifications, the owner is responsible for the success or failure of the project. ◾ Changes, disputes, and claims from the builder are more likely with DBB than with other methods.

Multiple-Prime Variation Multiple-prime contracting is a variation of DBB in which the owner acts as the general contractor, procuring and contracting directly with multiple trade contractors and suppliers. This method places considerable risk on the owner, as it is responsible for the project outcome and administering multiple contractors. Multiple-prime contracting requires a competent and skilled contract management team. One owner described this method as “herding cats.” Multiple-prime contracting is sometimes used for emergency and disaster recovery construction. A third-party construction manager is recommended

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for administering multiple-prime contracts, especially if the organization lacks sufficient resources.

When DBB Works Well ◾ ◾ ◾ ◾ ◾ ◾

For small- to medium-sized construction projects For routine construction projects When requirements can be clearly defined in plans and specifications When there is ample time for design, procurement, and construction If the owner is not familiar with other delivery methods When the owner needs the assistance of the design architect or engineer for contract administration

The biggest complaint heard from project managers about the DBB delivery method is the potential for incompetent or unethical contractors to “lowball” their bids to win a contract. This is a possibility for any project delivery method, but it is less likely when selection is based fully or partially on technical qualifications. No matter the delivery method, the contracting officer is required to perform a responsibility evaluation of the contractor before awarding a contract. If performed correctly, the responsibility evaluation will ensure that only responsible and capable contractors are selected for public works projects.

Design-Build Project Delivery Method Design-Build contracts involve two primary parties, the government owner and the contractor. The contractor is a single party responsible for both design and construction. The NIGP Public Procurement Dictionary of Terms defines “Design-Build” as: A construction project delivery method that combines architectural and engineering design services with construction performance under one contract. In this method, the owner’s requirements are expressed in performance specifications or a scope of work, including a timeline with specific milestones. It is supplemented with preliminary drawings instead of detailed design plans and specifications. Since prospective contractors cannot rely on detailed plans and specifications, price is negotiated as a firm-fixed price, guaranteed maximum price, or a cost-plus fixed fee with a not-to-exceed ceiling. Depending on the

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laws of the jurisdiction, selection may be based entirely on contractor qualifications or on a combination of qualifications and price after negotiations.

Characteristics of Design-Build The Design-Build contractor is a single entity led by the design architect, engineer, or general contractor. The contractor may be a single business, a joint venture (JV), or a special purpose vehicle (SPV). ◾ There are two parties and one contract, owner to Design-Builder. ◾ The Design-Builder is responsible for both design and construction to meet the stated requirements of the owner. ◾ The Design-Builder has control over design, and the owner is responsible for any gaps in the stated requirements or changes to the stated requirements. ◾ Design and construction may be performed concurrently, allowing for “fast-tracking” of construction.

Design-Build Considerations ◾ The designer and builder work as a team under one contract with the owner. ◾ Design-Build has wide acceptance in the business sector, and during the last 20 years has become common in the public sector, especially for transportation projects. ◾ Project requirements are stated in a performance or outcome-based specification instead of through prescriptive design specifications. The Design-Build contractor is responsible for design and for completing the project in accordance with the contract requirements in order to achieve the specified outcome. ◾ The Design-Build contractor is selected based on qualifications and price, or qualifications without consideration of price, depending on the applicable law. ◾ The contract price is negotiated and is structured as a guaranteed maximum price, fixed price, or cost-plus fixed fee. ◾ Because a significant amount of effort is required to prepare preliminary sketches and design submittals as part of the proposal process, the owner may be required to pay a stipend to own the rights to the Design-Build proposals that were not selected.

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◾ The designer and builder collaborate on the selection of subcontractors, components and materials, means and methods, sequencing, scheduling, and other factors, resulting in increased efficiency, quality, and reduced cost. ◾ The project is completed faster than DBB, as there is no separate bidding phase for the general contractor, and work may be fast-tracked as portions of the design are completed. ◾ The owner benefits from advance knowledge of the construction price, as it is determined before the design is completed. ◾ Since the Design-Build contractor is responsible for design, there are fewer changes and claims than with DBB or CMAR. ◾ Because the Design-Build contractor is responsible for design based on performance or outcome-based requirements, the owner has less control over the design details. ◾ Additional services, including project financing, maintenance, and operations, may be included in the contract as a “public-private partnership” or “P3” arrangement. ◾ Because the design architect or engineer is part of the Design-Build team, the owner may not contract them to assist with administering the construction contract. ◾ Fewer contractors may be capable of competing for Design-Build contracts. ◾ The laws of a jurisdiction may prohibit or restrict Design-Build contracts. Design-Build procurement laws may vary between jurisdictions. For example, some jurisdictions require selection of the Design-Build contractor based on qualifications only, while others permit selection based on a combination of qualifications and price.

Design-Build Variations Different variations of Design-Build continue to evolve in the industry. With progressive Design-Build, the contract is negotiated in two phases. In phase one, the contractor is paid a fixed fee for preconstruction services, including preliminary planning and design. These services are provided in consultation with the owner. In phase two, the contractor provides final design and construction. The final project price is negotiated following completion of phase one. If the owner and contractor cannot agree on the project price, the contract may be terminated at the end of phase one and the owner may choose a different delivery method and seek bids or proposals for the remaining work. The owner has more input on design, but the final price and schedule is not determined until after the completion of phase one.

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With the Design-Build bridging method, the owner contracts separately with an engineer or architect to prepare a preliminary design that is used to solicit Design-Build proposals. Bridging provides the owner with more input on the project design and a more definitive contract that serves as the basis for a firm-fixed project price. With integrated project delivery or integrated Design-Build, the owner, designer, and builder are equals and actively collaborate in the planning, management, and design. All three parties share in the financial and schedule risks and rewards. Instead of negotiating a guaranteed maximum price, the owner provides a budget or target price, and the team shares in any savings below or excess cost above the target. Integrated project delivery is relatively new and may not be addressed or permitted in state or local laws. Public-Private Partnerships combine Design-Build construction with some form of private equity or financing and may include operation and maintenance. Public-Private Partnerships are addressed in Chapter 3.

The Monitor and the Merrimac2 The construction of ships is very similar to the construction of infrastructure. An early and experimental use of competitive negotiations was used in the procurement of the US Navy warship Monitor during the Civil War. The US government was aware of the Confederacy’s conversion of the captured US warship Merrimac into an indestructible, ironclad ship, and they recognized its potential for wreaking havoc on the Atlantic coast. As an ironclad warship, the former Merrimac, now the “CSS Virginia,” could simply roam up and down the coast, destroying every ship in its path. Desperate to oppose the CSS Virginia, the US Navy quickly issued a “request for propositions.” Of the 16 proposals received, the technical evaluation committee shortlisted three: two for conventional steam ships wrapped in iron with fixed cannons, and one for an innovative low-floating platform with a revolving turret holding two large, rifled cannons. The latter was a controversial design, and many feared it would never float. Still, the technical evaluation committee had the foresight and courage to award the contract to the innovative design, enabling the construction of the Monitor. The $275,000 Design-Build contract was performance-based, requiring a full refund if the design was not seaworthy. The Monitor

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was built for the contracted amount and was finished before the CSS Virginia attacked at Hampton Roads. On March 8, 1862, the CSS Virginia was proving invincible, sinking two US warships and grounding another. Upon return the next day to destroy more ships, it encountered the ironclad Monitor. In an epic battle, both ships traded devastating blows before returning to the safety of their respective ports for repairs. Innovative procurement and a Design-Build contractor saved the day and perhaps the entire US Navy. The US Navy continued to build a fleet of warships for several decades based on the Monitor’s innovative design.

When Design-Build Works Well When permitted by law For medium- to large-sized construction projects For technically complex construction projects When a high level of collaboration between the designer and contractor is required ◾ When speed to completion is a requirement ◾ When the owner is competent and confident with the delivery method ◾ ◾ ◾ ◾

CMAR Project Delivery Method A construction manager manages all or some phases of a construction project, including design and construction. The construction manager serves a consulting role and is not responsible or “at risk” for design or construction. These managers may be required for complex and expensive projects, or if the owner lacks qualified resources. The responsibilities of this role vary, depending on the needs of the owner. The construction manager may be responsible for helping select the designer, construction contractor, subcontractors, and contract administrators, but is not responsible for the means and methods of the work. The construction manager does not guarantee construction quality, timely completion of the work, or price. Conversely, a CMAR is responsible for construction. In addition to performing the various roles of a construction manager, the CMAR contractor is “at risk” for completing the project as specified by the owner, on time, and for a guaranteed maximum price. The NIGP Public Procurement Dictionary of Terms defines CMAR as: A project delivery system in which a construction manager, acting as an entity’s general contractor, is contracted to advise the

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designer and builder and deliver a project within a guaranteed maximum price (GMP). The CMAR contractor may be contracted at the same time as the architect or engineer, or when plans and specifications are partially completed. Selection is based on a combination of technical qualifications and a guaranteed maximum price based on the preliminary design. The CMAR contract is negotiated in two parts. The CMAR proposes a fixed fee for services during design and a guaranteed maximum price for construction. The guaranteed maximum price is the ceiling price for construction. The CMAR advises on the design but is not responsible for it. When the design is at least 75% complete, the contractor proposes a firm-fixed price for construction. If the government and contractor agree on the fixed price, the CMAR serves as the general contractor for construction. If the government and contractor are unable to negotiate a fair and reasonable fixed construction price, the government may terminate the contract (after paying for the contractor’s services during design) and then seek bids for construction. The contractor is “at risk” for any costs above the guaranteed maximum price. To encourage a lower total cost, the owner may negotiate a value engineering incentive in which the contractor and owner share any amount of savings below the guaranteed maximum price.

Example of a CMAR Contract (Dallas, TX)3 Dallas Area Rapid Transit (DART) is using a form of a CMAR contract for constructing its light rail network. The construction manager general contractor (CMGC) and their team of subcontractors are selected through a request for proposal process. The selection criteria include technical factors and price—which is offered as a guaranteed maximum price—based on preliminary design documents (approximately 30% complete). The CMGC works side by side with the design engineer during the remaining design phases. The final contract price is negotiated when the plans and specifications are 90% complete. If DART and the contractor are unable to negotiate a fair and reasonable price, DART may terminate the contract and request competitive bids for the work.

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Characteristics of CMAR ◾ There are three sequential phases—design, bid, and build—with concurrent procurement of the designer and contractor. ◾ There are three parties and two contracts: owner to designer and owner to contractor. ◾ The owner warrants the plans and specifications to the contractor. The designer is responsible for designing to a normal standard of professional care, and the contractor warrants completion of the project as designed.

CMAR Considerations ◾ The designer and builder work directly under separate contracts with the owner. ◾ During the past 20 years, CMAR has gained wide acceptance in the public sector. ◾ The CMAR is selected based on qualifications and price or qualifications without consideration of price, depending in the applicable law. ◾ The CMAR contract is structured in two phases: a consulting phase for a fixed fee and a construction phase with a guaranteed maximum price. The construction price is refined during the design process and may be fixed or cost-plus fixed fee, capped at the guaranteed maximum price. ◾ Fixed price for construction is negotiated when design is at least 75% complete. If the owner and CMAR are unable to agree on a fair and reasonable construction price, the owner may terminate the contract following the consulting phase and seek competitive bids based on the design. ◾ The CMAR collaborates with the designer on the selection of components and materials, means and methods, sequencing, scheduling, and other factors, resulting in increased efficiency, quality, and reduced cost. ◾ The owner benefits from advance knowledge of the maximum construction price, as it is determined before the design is completed as a guaranteed maximum price. ◾ The design architect or engineer may serve as an advocate for the owner during construction contract administration. ◾ The project is completed faster than DBB, as the designer and contractor are procured concurrently, and work may be fast-tracked as portions of the design are completed. ◾ The contract may include value engineering, which provides for the contractor and owner to share in any savings that are obtained through the contractor’s recommendations.

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◾ The designer is required to perform the design according to the ordinary standards of the profession. If the work is completed according to the plans and specifications, the owner is responsible for the success or failure of the project. ◾ Fewer contractors may be capable of competing for CMAR contracts. ◾ The laws of a jurisdiction may prohibit or restrict CMAR contracts.

When CMAR Works Well When permitted by law For medium- to large-sized construction projects For technically complex construction projects When a high level of collaboration between the designer and contractor is required ◾ When speed to completion is a requirement ◾ If the owner is competent and confident with the delivery method ◾ ◾ ◾ ◾

Job Order Contracting (JOC) Project Delivery Method Job order contracts provide for an efficient delivery method for small and routine construction projects, such as building repairs, electrical and mechanical upgrades, facility remodeling, and interior buildouts. Job order contracts are typically used for small construction projects valued at less than $1 million. The NIGP Public Procurement Dictionary of Terms defines “Job Order ­Contracting” as: A maximum dollar value or a fixed term construction contract resulting from a competitively bid solicitation in which the contractor will perform according to separate job orders issued during the term of the contract. Prices for each job order are based on a unit price book (UPB). A job order contract is a requirement or indefinite delivery/indefinite quantity (ID/IQ) contract, with price based on a premium or a discount multiplier applied to a unit price book. The unit price book breaks the work into individual tasks to determine labor and material costs for an assigned project. The job order contractor is selected based on competitive bids or best value. Job order contracts may be awarded to a single contractor or multiple

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contractors to perform public work over a specific term. Pricing is based on a specified unit price book to ensure all offerors are competing on the same basis. The unit price book is a software application provided or hosted by a third party. Most often, the owner utilizes an architect or engineer to design the project, with some collaboration with the contractor. However, some jurisdictions rely on the job order contractor for design and construction. Once the design is at least 75% complete, the job order contractor submits a firm-fixed price based on a contract discount or a mark-up applied to the unit price book.

Job Order Cost Contracting Considerations ◾ The contractor is selected based on competitive bids or a combination of technical qualifications and price. ◾ Job orders are awarded to the contractor for each project. ◾ Considerable time is saved, as a formal bidding process is not required for each project, and the contractor may start work and order materials before the design is completed. ◾ The owner may benefit from the combined expertise of the designer and the contractor working together, resulting in fewer changes. ◾ Owners report a higher level of quality and lower price in comparison to other contracting methods. ◾ Job order contracts and third-party JOC software applications and unit price books are available to state and local governments through various cooperative procurement programs. ◾ There is the possibility of higher project costs, because each job order is based on unit price book and not competition.

When Job Order Cost Contracting Works Well ◾ For small and routine construction projects ◾ For facility maintenance and repair ◾ For emergency projects As an alternative to job order contracts for small and routine projects, owners may award contracts to multiple contractors that are invited to compete by bidding on each project. For each project task, plans and specifications are submitted to each contractor and the project is awarded to the contractor offering the lowest price.

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Choosing the Right Project Delivery Method In its Public Procurement Practice, “Selecting the Appropriate Construction Project Delivery Method,” the Institute for Public Procurement (NIGP) advises: Selection of a construction project delivery method will depend on which delivery methods are permitted by legislation and will be determined through a business analysis of the project characteristics. Project characteristics may include price, complexity of scope, risk, qualifications, experience, capability, and capacity of the contractor. The attributes of each project characteristic and the priorities of the entity will also help determine which method is selected.4

Legal Authority The first consideration in choosing a project delivery method is legal authority. The Design-Build Institute of America reported in 2021 that all but two states permit Design-Build construction. State laws vary widely, and there may be some restrictions on the use of Design-Build and unique requirements on the procurement process. For example, state law may permit or not prohibit use of Design-Build or CMAR contracts, but the law may require use of competitive bids to award the contracts. Contracting officers should carefully review applicable laws and regulations before selecting a construction project delivery method.

Schedule and Sequencing In the NIGP Public Procurement Practice, “Selecting the Appropriate Construction Project Delivery Method,” Design-Build is rated fastest, DBB slowest, and CMAR in the middle. However, if the CMAR builder is contracted at the same time as the designer, it should be nearly equal in speed to Design-Build. DBB is a linear process with three consecutive phases: design, bid, and build, preceded by the selection of the designer. There is no opportunity for the phases to overlap, and the work cannot be fast-tracked unless it is divided into packages that are bid on separately. For example, the excavation of a facility could be procured while its design is completed. With CMAR and Design-Build, the designer and builder are procured at the same time, eliminating a separate bidding phase and enabling design and some construction to be performed concurrently. Designer and contractor

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collaboration also may produce schedule and sequencing efficiencies that further reduce the time required to construct the project.

Project Cost NIGP rated Design-Build as highest for cost, DBB as lowest, and CMAR in the middle. However, there is insufficient comparable empirical data available to determine which delivery method might produce the lowest price. If there is sufficient competition, the DBB method will achieve the lowest price for the specific design. However, this price may increase for changes and claims during construction. Design-Build and CMAR methods provide for designer and builder collaboration on materials, construction techniques, scheduling, sequencing, and other factors that can reduce project and lifecycle cost and improve efficiency. The savings achieved through collaboration, especially on large and complicated projects, can exceed any savings achieved through competitive bidding. Owners also report fewer changes, claims, and disputes when using Design-Build and CMAR.

Budget Certainty DBB is a reliable delivery method if used when there is confidence that the budget is sufficient to complete the specified construction project. If bids are significantly higher than the budget, rescoping the project, revising the design, and rebidding the project will result in a significant delay. With Design-Build and CMAR, the guaranteed maximum price is known before design is completed, allowing the owner to adjust the project scope, design, or budget without delaying the work.

Complexity of Scope In its practice, “Selecting the Appropriate Construction Project Delivery Method,” NIGP recommends Design-Build and CMAR for more complex projects, and DBB for projects of less complexity. With Design-Build and CMAR, the owner benefits from collaborating with the builder during design to drive innovative solutions for complex requirements.

Owner Control over Design With Design-Build, the design is based on the performance- or outcome-based contract requirements, with the contractor controlling design. Any changes

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to the design are likely to add to the price. With DBB and CMAR, the owner has more input into the design details and more control over what is designed.

Contractor Expertise and Capacity Historically, governments are required to award contracts to the responsible contractor tendering the lowest responsive bid. This can result in awarding construction contracts to inferior or litigious contractors, resulting in quality control issues, delays, changes, claims, and disputes. The risk of awarding contracts to inferior contractors can be mitigated by use of best-value selection methods or prequalifying contractors. Using qualification-based or best-value contractor selection methods (rather than selection based on price) for Design-Build and CMAR is likely to result in the selection of a superior and more competent construction contractor.

Design Risk When using the DBB and CMAR methods, the owner contracts directly with the designer and guarantees the constructability of the design to the builder. This relationship can result in claims, disputes, and costly changes if the design is defective. The Design-Build contractor guarantees that the design will achieve the specified contract outcome and be responsible for correcting any work resulting from any design deficiencies. Through its collaboration during design, the CMAR contractor is likely to identify design errors and omissions that may be addressed by the architect or engineer before the design is completed. This advantage inherent in using the Design-Build method is offset somewhat by the control the contractor has over design details, which the owner must accept or else pay for the additional cost of changes to the project requirements.

Contract Administration Owners are most familiar with DBB, and these projects tend to be the easiest to administer from an owner’s perspective. With DBB, the design architect or engineer may assist the owner with administering the construction contract. Owners may be less familiar with CMAR, but they can rely on the design architect or engineer to assist with the administration of the construction contract.

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Owners may also be less familiar with Design-Build. Because the design architect or engineer is part of the Design-Build team, it cannot assist the owner with administering the construction contract. Design-Build contracts require a “mental shift” to allow the contractor more latitude over design details. In its Public Procurement Practice, “Selecting the Appropriate Construction Project Delivery Method,” NIGP advises: The procurement professional should consider the capability and capacity of the entity when assessing the potential benefits of each construction project delivery method. For example, a higher level of depth, experience, and competence is required of the owner with a DB contract than with DBB or CMAR. With DBB or CMAR, the contracted architect or engineer functions as a guide through the procurement and construction process. The owner may consider employing a third-party professional project manager or construction manager to support or supplement staff.5 Although any project delivery method may work for a given project, the unique requirements and circumstances of each project may favor one method over another. For simple or routine projects without time constraints, DBB usually provides the best solution. Design-Build works best for projects that have short deadlines, such as improving or remodeling a school during summer break. Complex projects such as a jail, computer center, or historical site renovation are best done using a Design-Build or CMAR contractor. The selection of the project delivery method should be documented by the contracting officer in a findings and determination report.

Summary Alternate project delivery methods are relatively new for state and local governments, and there may be a limited pool of qualified contractors. The government may lack the expertise necessary to administer these contracts. Since they are likelier to be able to negotiate higher margins with Design-Build and CMAR contracts, larger contractors are more likely to compete for them than for DBB contracts, which have lower margins. These large firms with their superior marketing capabilities often have a competitive advantage over small and disadvantaged businesses.

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Which Project Delivery Method Would Work for Each of These Situations? ◾ Replacing storm sewers along a busy downtown road: The estimated construction cost is $2.5 million, and construction should be finished before the busy summer tourist season. ◾ Renovating 20 grade-school classrooms, including installing conduit and network cabling, installing energy-efficient lighting, ensuring Americans with Disabilities Act (ADA) compliance, and removing suspected asbestos ceiling tiles. The construction budget is $1.5 million. ◾ Renovating the state capitol building in accordance with preservation standards and in time for the bicentennial celebration: The amount appropriated for the structural, roof, and exterior is $12 million this current year and $10 million for interior spaces the following year. ◾ Constructing five new fire stations in developing areas of the city and renovating three existing fire stations: The $45 million in funding will come from the sale of municipal bonds with an additional $5 million in Federal Homeland Security funds. ◾ Upgrading the city wastewater treatment facility to double capacity: The amount appropriated is $10 million. ◾ Repaving parking lots at three schools: The work must be done before school starts, and it’s already June. The amount appropriated is $250,000. ◾ Renovating 30 public housing facilities to meet current building codes: Up to $12 million is available in the current fiscal year. Additional funds may be appropriated, if necessary, in subsequent years. ◾ Widening 12 miles of State Route 42 from two lanes to four lanes, including constructing two bridges. Total construction estimate is $28 million. All project delivery methods are practicable in each of the above scenarios, so all answers are technically correct. However, depending on the circumstances, one method may be a better choice than another. Selecting the “right” project delivery method for a specific project is not easy. The project team, including the contracting officer, needs to drill down into the details of each project, considering factors such as schedule, budget, complexity, risks, market, internal resources, and others before making an ideal project delivery decision. Assuming laws permit the use of alternate project delivery methods, again consider the above scenarios: ◾ With a short schedule to replace storm sewers before summer, Design-Build may to be the best choice in the first scenario.

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A Design-Build contract will save time by eliminating the bid phase and allowing the contractor to prepurchase materials and fast-track construction. The classroom renovation will require a compressed schedule. A job order contract, if available, would be the quickest solution. DBB will work if the design is completed, and construction bids are awarded prior to summer break. Renovating a historic structure like the state capitol will require a team of skilled artisans working together with the designer. The work will also require considerable oversight by the project manager, and it is likely that the contractor will encounter unknown conditions as the work progresses. CMAR will facilitate designer and contractor collaboration and allow for owner oversight of the design. The fire chief and project manager will require considerable input in the design of the fire stations. DB will work, but any input in the design by the fire chief will probably add to the project cost. CMAR provides for designer and builder collaboration and project owner input during design. More details are required before settling on a project delivery method for the city wastewater treatment plant. However, the project would benefit from CMAR or Design-Build designer and builder collaboration. Given the schedule constraints for the small parking lot projects, a job order contract, if available, is the best approach. DBB can be used if the design is completed and construction contracts are awarded prior to summer break. Job order contracts may be the best approach for renovating 30 public housing units. DBB will also work unless there are schedule constraints. Road and bridge construction on an active highway is a complicated challenge. This project would benefit from designer and contractor collaboration through a Design-Build or CMAR contract.

Selecting the best project delivery method is all about trade-offs. Certainly, JOC is the best approach for small and routine construction projects if the contracts are already established prior to the requirement. If there is adequate competition, one can be reasonably assured that DBB will produce a fair and reasonable price. With the support of the architect or engineer, the contract is easier to administer, but without collaboration, the owner does not benefit from the efficiencies the contractor brings to the project. Design-Build gets the project done quicker and benefits from designer and contractor collaboration, but the owner has limited control over the design. There is also good collaboration with CMAR, but like Design-Build, price is negotiated.

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Some agencies prefer Design-Build and CMAR because selection is based all or in part on the contractor’s technical qualifications. In theory, this should result in the selection of the most qualified contractor (rather than the cheapest) and produce a good contractor-owner relationship. However, a vigorous prequalification process and bidder responsibility evaluation should also result in selecting a competent and honest contractor. Laws permitting, selecting the right project delivery method is a team effort and requires an assessment of a project’s requirements, risks, budget, complexity, market, internal resources, and other factors. While any project delivery method can get a job done, a carefully chosen one is more likely to get it done better, faster, and/or cheaper.

Notes 1 Toll, Ian W. (2006). Six frigates: The epic history of the founding of the US Navy. New York: W.W. Norton and Company, Inc. 2 Snow, Richard (2016). “Iron Dawn, The Monitor, the Merrimack, and the Civil War Battle That Changed History,” Scribner, November 1, 2016. 3 Dallas Area Rapid Transit (DART), CMGC Contract for Green Line Light Rail Construction. 4 NIGP The Institute for Public Procurement, Public Procurement Practice, “Selecting the Appropriate Construction Project Delivery Method, 2018,” https://www.nigp.org/resource/global-best-practices/Selecting%20the%20Ap propriate%20Construction%20Project%20Delivery%20Method%20Best%20 Practice.pdf?dl=true. 5 NIGP The Institute for Public Procurement, Public Procurement Practice, “Selecting the Appropriate Construction Project Delivery Method, 2018,” https://www.nigp.org/resource/global-best-practices/Selecting%20the%20Ap propriate%20Construction%20Project%20Delivery%20Method%20Best%20 Practice.pdf?dl=true.

Chapter 5

QualificationBased Selection of Professional Services Introduction In his 1967 Report to Congress, the US Comptroller General noted that certain federal agencies, including the General Services Administration, were not complying with laws requiring submission of competitive pricing for architectural and engineering (A-E) services. Although the report acknowledged that national architect and engineer associations were opposed to price competition for their services, the report concluded: We find no present statutory basis, however, which would exempt A-E services from compliance with the requirements of public law 87-653 to solicit proposals from the maximum number of qualified sources, as explained in the preceding section of this report, and to conduct discussions with all responsible offerors whose proposals are within a competitive range, price and other factors considered.1 Despite this finding, some federal agencies continued to procure architect and engineer services based on qualifications without consideration of price, DOI: 10.4324/9781003276975-5

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and they sought relief through Congress. The architect and engineering professions argued that selection based on price would threaten public health and safety. Passed in 1972, US Public Law 92-582, commonly known as “The Brooks Act,” provided the statutory standard for qualification-based procurement of professional services: The Congress hereby declares it to be policy of the Federal Government to publicly announce all requirements for architectural and engineering services on the basis of demonstrated competence and qualification for the type of professional services required at fair and reasonable prices.2 The Brooks Act, named after its sponsor, Texas Congressman Jack Brooks, and signed by President Richard Nixon, requires the selection of architects and engineers based on competence and qualifications, without consideration of price. Price is negotiated only with the most qualified proposer. This procurement sourcing method is called “qualifications-based selection.” The Brooks Act was initially opposed by professional public procurement associations, but qualifications-based selection has become standard practice for state and local government procurement of architect and engineering services. Nearly every state has adopted a form of the Brooks Act, often called “Mini-Brooks Acts,” for the state and local procurement of professional services. Section 5-205 of the 2000 American Bar Association (ABA) Model Procurement Code for State and Local Governments is nearly identical to the federal law: It is the policy of this [State] to publicly announce all requirements for Architectural and Engineering Services and to negotiate contracts for Architectural and Engineering Services on the basis of demonstrated competence and qualification for the type of services required, and at fair and reasonable prices.3 In its Principles and Practices for Public Procurement “Qualifications-Based Selection for Architectural and Engineering Services,” the Institute for Public Procurement (NIGP) recommends selecting architects or engineers based on: ◾ Recommendations by a team of qualified professionals led by a procurement professional ◾ Use of relevant evaluation criteria ◾ A two-step selection process

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◾ Interviews with the top-ranked firms ◾ Negotiation with the highest-ranked firm4 The Brooks Act contracting method is intended to allow procurement officials to identify the most highly qualified firm for a specified architectural and engineering service and negotiate a contract for a price that is fair and reasonable. It gives the government great latitude in selecting design firms. It also poses a greater challenge for procurement professionals, as price is determined without the benefit of competition.

Application of Qualifications-Based Selection The Brooks Act applies to a broad range of professional architectural, engineering, and other related and incidental services. The 2000 ABA Model Procurement Code defines architectural and engineering services as: ◾ Professional services of an architectural or engineering nature, as defined by State law, if applicable, which are required to be performed or approved by a person licensed, registered, or certified to provide such services as described in this Subsection ◾ Professional services of an architectural or engineering nature performed by contract that are associated with research, planning, development, design, construction, alteration, or repair of real property ◾ Such other professional services of an architectural or engineering nature, or incidental services, which members of the architectural and engineering professions (and individuals in their employ) may logically or justifiably perform, including: studies, investigations, surveying, mapping, tests, evaluations, consultations, comprehensive planning, program management, conceptual designs, plans and specifications, value engineering, construction phase services, soils engineering, drawing reviews, preparation of operating and maintenance manuals, and other related services According to Federal Acquisition Regulation (FAR) Part 36.102, architect and engineer services include: ◾ A/E professional services, or other professional services that require performance by a registered architect or engineer ◾ Professional services of an architectural or engineering nature that are associated with research, planning, development, design construction, alteration, or repair of real property

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◾ Other incidental professional services of an architectural or engineering nature including: ◾ Studies ◾ Program management ◾ Investigations ◾ Conceptual designs ◾ Surveying ◾ Plans and specifications ◾ Mapping ◾ Value engineering ◾ Tests ◾ Construction management services ◾ Evaluations ◾ Soils engineering ◾ Consultations ◾ Plan reviews ◾ Planning ◾ Operation and maintenance manuals5 Architects and engineers are registered by their professional associations and licensed by their respective states to perform professional services. Architects often serve as the prime consultant for design projects, employing engineers and other professionals as subconsultants. Engineers may also serve as prime consultants for engineering projects, such as highways, railroads, water treatment facilities, and transit systems. Engineering specialties include civil, mechanical, electrical, environmental, and structural engineering. State and local laws may differ significantly on the definition of professional services that require qualification-based selection. Other professional services that may be included in state and local Brooks Act laws include landscape architects, geologists, planners, surveyors, construction managers, and other professions, as well as doctors, lawyers, and accountants. Some state and local laws may also require qualification-based selection of Design-Build contractors, or for the design services included in a Design-Build contract.

Jack Bascom Brooks, Fighting Marine and Texas Legacy Texas Congressman Jack Bascom Brooks served as a US Congressman for 42 years, was an advocate for civil rights and civil liberties, and was a watchdog for government spending. A graduate of the University of

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Texas, Jack Brooks served as a Marine in the Pacific during World War II, seeing action on Guadalcanal and Guam. He retired as a Colonel in the US Marine Corps Reserves in 1972. After serving in the Texas Legislature, Brooks was elected to the US House of Representatives in 1953. He was one of the few southern supporters of civil rights and helped draft the Civil Rights Act of 1964 and Voting Rights Act of 1965. As Chair of the House Judiciary Committee, he sponsored the Americans with Disabilities Act of 1991 and Civil Rights Act of 1991. His name was applied to two signature bills: the Brooks Act of 1965, which required competitive bidding for federal computing contracts, and the Brooks Act of 1972, which required qualification-based selection for architect and engineering services. Brooks was in President Kennedy’s Dallas motorcade on November 22, 1963, and was present on Air Force One when President Lyndon Johnson was sworn into office. Brooks also drafted President Richard Nixon’s articles of impeachment in 1974. Congressman Brooks served 21 terms in Congress until 1994 and died at the age of 90 in 2012 in Beaumont, Texas.6

Role of the Architect and Engineer Although some public construction may be designed by in-house staff, often architect or engineering services are procured by governments from contracted sources. The design team is led by an architect or engineer as the prime contractor, with specialized work provided by their staff or subcontracted. For example, the architect or engineer may subcontract civil, electrical, mechanical, and structural engineering to other consulting firms. The primary role of the architect or engineer is to translate the expressed needs of the client into design plans and specifications in sufficient detail for contractors to prepare bids and construct the public work. The architect or engineer may also act as agent of the owner, performing inspection and testing, accepting the completed work, directing or authorizing changes, and making other binding decisions on behalf of the owner. Specific tasks performed by the architect or engineer may include: ◾ Planning—Before initiating the design, the design professional meets with the owner to achieve mutual understanding of the project requirements, including design requirements and elements, budget and schedule, safety, zoning, and other details. Planning may involve

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interviewing key stakeholders, conducting research, visiting the jobsite and similar public works, and other activities. Documentation and Drawings—The design professional is responsible for producing detailed design drawings, instructions, and technical specifications for approval by the owner. The final design may include electrical, mechanical, structural, and other systems in sufficient detail to describe the intended construction. The design is prepared in phases and may be revised at the request of the owner. Scheduling and Cost Estimating—The design professional develops a project schedule and estimates costs at various phases of design to meet the project budget. Bidding and Negotiation—If required by the owner, the design professional assists with obtaining the bids and selection of the construction contractor. Construction Contract Administration—If required by the owner, the design professional may act as the government’s agent or representative during construction, reviewing submittals, inspecting the work, authorizing progress payments, preparing change orders, advising on contract modifications, handling disputes, directing corrective contractor actions, and other contract administration duties. Final Inspection and Contract Close-Out—If required by the owner, the designer performs final inspections, directs corrections, authorizes final payment, reviews as-built submittals, and closes out the contract.

Architect and engineering design services are provided in the following two phases:

Conceptual Design and Preliminary Engineering At the initiation of the design phase, the design professional translates the requirements of the project into drawings or sketches that illustrate the concepts representing what is to be constructed. If it is a building, these drawings illustrate the spaces found in the building, including how they interact. The designer develops the conceptual design to the point where general or baseline cost data and a construction schedule can be identified. Design criteria are a key part of this phase. The criteria may include site aspects such as paving, utility access, and landscaping. The conceptual design will also include relevant codes and standards, any lighting required, and mechanical and electrical standards dealing with aspects such as plumbing and air conditioning requirements. The government project manager reviews the conceptual design for compliance with project requirements. Relevant stakeholders also review the conceptual design and provide feedback to the project manager.

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The final step in conceptual design is termed “the 30% review.” The project manager reviews the conceptual design before authorizing the final design process. This review includes: ◾ Identifying the impacts of construction on all key stakeholders ◾ Verifying the project cost and schedule estimate ◾ Requesting clarifications of and changes to the conceptual design

Final Design The final design phase includes at least three formal reviews of the detailed drawings and specifications by the project manager as the design progresses. Members of the project management team can comment and suggest changes, especially during the constructability review, which focuses on the extent to which the project is feasible in terms of it producing the intended result. At the end of this process, the design is ready for procuring the general contractor and construction.

Project Manager Review of Design The project manager reviews the design as it progresses and may request clarifications and changes: ◾ During the 60% review, the project manager reviews all drawings and specifications for compliance with the conceptual design. The “constructability” review is often performed by the project manager at this stage. ◾ Another extensive review occurs when the design is 90% complete. This review includes verification that all issues raised during the 60% review have been addressed. The architect, engineer, or project manager sends the plans and specifications to the permitting authority for review. The architect or engineer updates the cost and schedule estimates. This is the last major review. ◾ During the final 100% review, the project manager checks for corrections in response to any previous comments. ◾ Following final approval by the project manager, the design plans and specifications are forwarded to procurement. The contracting officer assembles the sourcing documents with the plans and specifications and procures the general construction contractor. This is the general process for Design-Bid-Build projects. The design process is similar for Construction Manager at Risk projects, except that the construction contractor is procured before the design is completed, so that the

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Esto Perpetua7 “Let It Be Perpetual” is inscribed in Latin on the Washington Aqueduct. In the 1850s, Washington DC relied on wells and springs for water to serve its growing population. Recognizing the need for more water, Congress commissioned a public water system in 1853. The Army Corps of Engineer Construction began working on the Washington Aqueduct in 1854 under the leadership of Army engineer Montgomery Meigs. The Corps built a dam on the Potomac River to divert water into a 12-mile underground conduit to reservoirs to settle sediment before distribution by gravity into the city water system. The aqueduct includes 2 reservoirs, 11 tunnels, and 6 bridges. Expanded in the 1920s, the system is still in operation today. General Meigs was also chief engineer for the US Capitol dome and for the expansion of the General Post Office Building. Through history, wars are won and lost on logistics. During the Civil War, General Meigs was appointed Quartermaster General by President Lincoln. He quickly organized an efficient supply chain and eliminated systemic supply chain corruption to support US troops. According to Secretary of State William H. Seward, the war may have been lost if not for the service of General Meigs. While many of his southern colleagues joined the Confederacy, General Meigs remained a staunch supporter of the Union cause and was a confidential advisor to President Lincoln. Honest, diligent, and a tireless leader, General Meigs was a pioneer of military logistics and civil engineering. He is buried in Arlington National Cemetery, which he also helped build after the land was taken from Confederate General Robert E. Lee. contractor can collaborate with the architect or engineer during subsequent design phases. The design process is also similar for Design-Build projects, except the design architect or engineer is part of the construction team.

Qualifications-Based Selection Process In the NIGP Public Procurement Practice, “Qualifications-Based Selection for Architectural & Engineering Services,” qualifications-based selection is defined as: A procurement process for the competitive selection of architectural and engineering services, under which the most appropriate

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professional or firm is selected based on qualifications such as knowledge, skill, experience, and other project specific factors rather than on fees. Fair and reasonable fees are negotiated with the top-ranked firm for an agreed-upon scope of services. For each project, a technical evaluation committee, led by the contracting officer, invites prospective offerors to submit their qualifications for evaluation and selects at least three of the most qualified firms for discussions before ranking the firms by order of qualification. The most qualified firm is selected by the contracting officer following discussions. This procurement method is described in Section 5-205 of the ABA Model Procurement Code for State and Local Government: In the procurement of Architectural and Engineering Services, the Chief Procurement Officer or the head of a Purchasing Agency shall encourage firms engaged in the lawful practice of their profession to submit annually a statement of qualifications and performance data. [The Chief Procurement Officer or the head of a Purchasing Agency], the Procurement Officer, and [the State Architect] shall comprise the Architect-Engineer Selection Committee for each Architectural and §5-205 49 Engineering Services contract over [$]. The Selection Committee for Architectural and Engineering Services contracts under this amount shall be established in accordance with regulations promulgated by the [Policy Office] [Chief Procurement Officer] [State]. The Selection Committee shall evaluate current statements of qualifications and performance data on file with the [State], together with those that may be submitted by other firms regarding the proposed contract. The Selection Committee shall conduct discussions with no less than three firms regarding the contract and the relative utility of alternative methods of approach for furnishing the required services, and then shall select therefrom, in order of preference, based upon criteria established and published by the Selection Committee, no less than three of the firms deemed to be the most highly qualified to provide the services required.8 The ABA Model Procurement Code recommends maintaining annual statements of qualifications and evaluating other statements of qualifications “that may be submitted by other firms regarding the proposed contract.” This implies that the procuring agency should publicize the opportunity through a request for statements of qualifications, as recommended by NIGP in its Public Procurement Practice, “Qualifications-Based Selection

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for Architectural and Engineering Services.”9 “Selecting the most qualified firm from only those firms who previously submitted statements of qualifications lacks transparency and does not cast the wide net necessary for full and open competition.” Federal agencies are required to use the standard form SF330 for statements of qualifications. Although a local government agency may use its own forms for statements of interest and qualification, US Standard Form SF330 provides the essential information necessary for evaluating qualifications and is universally accepted in the industry. SF330 requires detailed information on the experience, capabilities, and qualifications of the firm and may be filed electronically or manually.

Request for Statements of Qualifications NIGP in its Public Procurement Practice, “Qualifications-Based Selection for Architectural and Engineering Services,” recommends a two-step Request for Qualifications procurement process for professional services. Step 1: Statement of Qualifications: In this step, firms are invited to submit documentation that establishes an ability to meet the established criteria, scope, and other requirements as described in detail in the solicitation document. The technical evaluation committee evaluates the submissions and ranks the firms based on the criteria stated in the solicitation document. The top-ranked firms (usually 3–5) are shortlisted and invited to submit detailed technical proposals. Step 2: Detailed Technical Proposals: The technical evaluation committee assesses the thorough in-depth responses submitted by the service providers and considers the previously submitted rankings of the firms based on the criteria stated in the solicitation document.10 In step 1, the contracting officer advertises for and invites statement of qualifications from architect and engineering firms for the specific project or contract. The invitation directs proposers to submit statements of qualifications based on a specific project scope. The evaluation committee evaluates the submissions and ranks the firms based on the criteria stated in the invitation. The top three to five firms are invited to participate in step 2 and submit technical proposals. The technical evaluation committee conducts discussions with the topranked firms to achieve a mutual understanding of the scope and requirements. The purpose for these discussions is to provide more clarity on the project requirements, encourage dialog on the method of approach and

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design concepts, discuss project risks and constraints, and further explore the technical qualifications of the offerors. After discussions, the contracting officer issues a request for technical proposals, inviting the top-ranked firms to submit unpriced technical proposals. The evaluation committee evaluates the technical proposals along with the statements of qualifications and ranks the proposing firms based on both the qualifications and technical proposals. The contracting officer conducts price negotiations only with the most qualified firm. The negotiation objective is to agree on a fair and reasonable price, taking into consideration the estimated value, scope, complexity, and services the architect or engineer is to perform. If the contracting officer is unable to reach a fair and reasonable agreement with the most qualified firm, negotiations are terminated and then initiated with the next most qualified firm.

Technical Evaluation Committee Evaluating architect and engineering proposals or statements of qualifications should be performed by an acquisition team or technical evaluation committee led by a procurement professional. In its Public Procurement Practice, “Qualifications-Based Selection for Architectural and Engineering Services,” NIGP recommends use of a qualified acquisition team: The process should be led by a qualified procurement professional and include an acquisition team. The acquisition team (also known as a technical evaluation committee) should be actively involved in project planning, developing the statement of work (SOW), evaluation criteria, and firm selection. Even if the acquisition team or technical evaluation committee is not involved in planning and budget decisions, the committee should be aware of project issues as they draft the solicitation documents. It is critical that the acquisition team include one or more professionals who are knowledgeable in the services to be provided to ensure a complete understanding of the services sought. This expertise may be provided by in-house or third-party resources.11 The technical evaluation committee comprises professional- and management-level individuals possessing skills, experience, and competence relevant to a specific procurement. When procuring an architectural firm, the technical evaluation team should include an architect. When procuring an engineering firm, the technical evaluation team should include an engineer.

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The technical evaluation committee should include enough members to make a fair and competent selection decision, numbering at least three people, but (for efficiency’s sake) no more than five or seven. Most procurement professionals prefer an odd number of team members to avoid tie votes. However, the technical evaluation committee recommendation or decision should be by consensus and not a majority vote, so an odd number of members is not essential. FAR 36.602-2 provides guidance on the composition of technical evaluation committees for architectural and engineering services: [The committee should] be composed of members who, collectively, have experience in architecture, engineering, construction, and government and related acquisition matters. Members shall be appointed from among highly qualified professional employees of the agency or other agencies, and if authorized by agency procedures, private practitioners of architecture, engineering, or related professions. One government member of each board shall be appointed as the chairperson.12 The technical evaluation committee is led by a contracting officer who facilitates, manages, and documents the procurement process, ensures the procurement process is fair and legal, and receives the recommendations of the technical evaluation committee. Other technical evaluation committee members may include: ◾ Project manager—The project manager is the government official responsible for planning and managing the specific public work. ◾ Design professional—Some procurement laws or regulations require at least one evaluator registered in the profession in which the government is seeking proposals. ◾ Construction professional—The construction professional should have considerable experience working with design professionals and can bring a unique and valuable perspective to the selection process. ◾ DBE or MBE/WBE representative—The team may include representatives from the equity and inclusion or affirmative action department to serve as members or advisors. ◾ Stakeholders—The perspective of the people who will use, occupy, operate, or maintain the facility is important in the selection process. The technical evaluation committee may also call on non-voting advisors, including planning, finance, and risk management professionals and legal counsel.

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If not prohibited by law, the technical evaluation team may include non-government members. Including outsiders on the team adds transparency and credibility to the selection process. Adding small and disadvantaged business owners to the technical evaluation committee also helps them gain insight into the selection process to help improve their marketing skills for future opportunities. Each member of the technical evaluation committee must sign a statement declaring any potential conflicts of interest and agree to maintain confidentiality during the evaluation process. Any member with a potential conflict shall be dismissed from the technical evaluation committee. The contracting officer should also provide each team member with instructions on how the evaluation process will be conducted. The instructions should set forth requirements and restrictions for communications, confidentiality, objectivity, and applicable legal requirements. To ensure that all proposers are treated equally and receive the same information, communication with prospective and actual offerors should be limited to the contracting officer. The technical evaluation committee: ◾ Evaluates statements of qualifications and technical proposals ◾ Recommends selection of the most qualified firms for discussion and submission of technical proposals ◾ Conducts interviews and discussions with the most qualified firms ◾ Ranks proposers and recommends the most qualified firm for contract negotiation The technical evaluation committee may be responsible for the selection decisions or recommend selection decisions to the contracting officer, depending on the laws or policy of the government agency. The selection decision or recommendation may also require approval by the agency head or governing body. The technical evaluation committee should be actively involved in the entire procurement process, from planning to negotiation to award of the contract.

Preparing the Request for Qualifications The Request for Qualifications for architectural and engineering services comprises: ◾ ◾ ◾ ◾

Scope of work (SOW) Evaluation criteria Instructions Contract clauses

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Scope of Work The scope or statement of work describes the project in detail and the services required of the architect or engineer. The NIGP Public Procurement Dictionary of Terms defines “scope of work” as: A written description of an entity’s needs and desired outcomes for a procurement developed at the beginning of the procurement cycle. The scope of work is the basis for any resulting solicitation; it helps ensure that the product or service meets the stated outcome and establishes the parameters of the resulting contract. The terms “scope of work” and “statement of work” are often applied interchangeably. However, through its Public Procurement Practice, “Practical Guidance for Distinguishing between Scope of Work and Statement of Work,” NIGP applies the scope of work to the solicitation and the statement of work to the contract. The scope of work serves as the basis for negotiation, and, when refined following negotiations, as the basis for the statement of work in the contract. The scope of work should be precise, clear, and concise so it is equally understood by all prospective offerors. The scope should list each task expected of the architect or engineer with measurable standards for completion and acceptance of the tasks. The construction project management team normally prepares the scope of work. The contracting officer reviews and edits the scope of work to ensure that it is clear, complete, and concise, complies with applicable laws, and is not unduly restrictive. The scope of work contains five essential elements: ◾ Project Description—Describes the project and the specific services required of the design team, including project location, type of construction, construction project delivery method, approximate dimensions and sizes, and any other relevant information about the project or work. ◾ Required Tasks—Describes the professional services required and the tasks the design team shall perform to complete the project. This section also defines the performance and compliance standards that apply to the work. ◾ Project Funding—This section provides details on the amount of funds budgeted or estimated for the project and funding sources. ◾ Schedule of Submittals—Describes the work products required of the design team, including preliminary design, plans and specifications, cost estimates, bidding documents, and other submittals.

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◾ Other Requirements—This final section describes other project and design considerations, including the use of small, disadvantaged, minority- and women-owned businesses, required permits and approvals, value engineering, partnering, and other details of the project.

Sample Scope of Work for Professional Design Services Project Description: The Farfetched County Courthouse was originally built in 1859, with additions in 1878 and 1912. The courthouse was last renovated in 1962. The 1962 renovation included extensive foundation repairs, upgrade of electrical and mechanical systems, interior remodeling, and roof replacement. The purpose of this project is to design a complete renovation of the courthouse as a public museum, including a complete upgrade of all electrical and mechanical systems and a restoration of all interior and exterior features to their original condition. The architect shall refer to the June 1, 2000, study of the Farfetched County Courthouse, which is available upon request from the procurement office. This study describes in detail the recommended improvements necessary to restore the courthouse to its original condition. Required Tasks: Design shall include replacement of the Heating Ventilation and Air Conditioning (HVAC) system, interior electrical distribution system, and interior plumbing. The interior shall be converted from office space to a museum for storing and displaying county artifacts and archives. The interior and exterior shall be restored to their original appearance, as depicted in archive drawings. The entire structure shall be renovated to meet current standards for public buildings. Exits, entries, and restrooms shall be upgraded to meet current Americans with Disabilities Act (ADA) standards. Design shall include replacement of the roof and all windows. The architect shall provide all planning and design services and prepare design drawings and specifications in collaboration with the project manager. The architect shall assist with preparing bidding documents and evaluating construction bids. The architect shall provide construction management services, including periodic inspections, review of payment requests, drafting of contract modifications, inspection and testing, and administration of warranties. The architect shall complete final design by no later than November 15, 2022, so that construction may begin by January 5, 2023.

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Schedule of Submittals: Preliminary design, concept study, and drawings (30%) Project design for constructability review (95%) Final design plans and specifications (100%) Project Budget: A project budget of $4,500,000 has been allotted for design and construction. Funding will be provided from the sale of revenue bonds ($3 million), general appropriation ($1 million), and state historical preservation funding ($500,000). Other considerations: The architect shall obtain all required approvals necessary to qualify for historical preservation funding. Small Business Participation: The architect shall submit a subcontractor plan demonstrating compliance with county small business goals: 15% minority-owned businesses and 10% women-owned businesses. The scope of work should also include all other services required of the architect or engineer, including: ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾

Interior and landscape design Soil testing and subsurface investigations Solar energy studies Energy conservation Security Value engineering Real estate acquisition Quality assurance and safety plan Hazardous materials investigation Structural analysis Lifecycle cost analysis Operation and maintenance manuals Partnering

Evaluation Criteria The evaluation criteria guide the architect or engineer in the preparation of the proposal and the evaluation committee in the selection of the most qualified offeror to achieve the best possible procurement outcome. Evaluation criteria are determined by the technical evaluation committee under

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the guidance of the contracting officer, and they are stated in relative order of importance in the Request for Qualifications. The contracting officer shall ensure that the evaluation criteria conform to the laws and regulations of the jurisdiction, promote fair and open competition, and accurately reflect the requirements. Various evaluation methods may be used, depending on the laws and regulations of the jurisdiction and the preferences of the contracting officer, provided that the value or importance of each evaluation factor is clearly stated in the Request for Qualifications. Evaluation methods may include: ◾ ◾ ◾ ◾

Numerical weights and scores Adjectival ratings Ordinal ranking Combination of above

There are various views on what is the best evaluation method for proposals. Many contracting officers lean toward a numerical weight and score method, as it may appear more objective than other methods because the decision is mathematically derived. However, assigning weights and scores is also subjective. Adjectival ratings provide a narrative explaining the basis for the selection decision. Regardless of whether numerical ratings are used, it is most important for evaluators to reach consensus on the best proposal and be able to explain the foundation for their decision in a narrative supporting it. Selection criteria or the relative importance or weight of the criteria may not be altered after proposals are received. In its Public Procurement Practice, “Qualifications-Based Selection for Architectural & Engineering Services,” NIGP recommends the following selection criteria: ◾ Professional qualifications of the firm and the individuals assigned to perform the work ◾ Specialized experience and technical competence of the firm and individuals in the type of work described in the solicitation or invitation to tender ◾ Capacity and capability of the firm to perform the services ◾ Method of approach demonstrating the firm’s understanding of the project and the risks, challenges, and strategy that will be employed to complete the project on time and under budget ◾ Demonstrated success on similar projects ◾ Past performance on contracts in terms of cost control, quality, and schedule. Past performance may be used to determine responsibility and as an evaluation factor

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The following are common criteria used in a Request for Qualifications for architect and engineering services (as adapted from FAR Part 36): ◾ Professional qualifications of the firm and of the individual key staff necessary for performing the work ◾ Specialized experience and technical competence of the firm and individual designers in the type of work described in the RFP ◾ Capacity or capability of the design firm to perform the SOW in the required time ◾ Past performance on contracts in terms of cost control, quality of work, and compliance with schedules ◾ Location of the design firm in the general geographical area of the project, provided that enough firms are available to compete13 Social, economic, and environmental evaluation factors may include (as adapted from FAR Part 36): ◾ Sustainable architecture and engineering practices to minimize the negative environmental impact of buildings through improved efficiency in the use of materials, energy, space, and ecosystem, including sustainable energy use, HVAC efficiency, renewable energy generation, using recycled materials, waste reduction, sustainable building materials, lower volatile organic compounds, and water usage efficiency ◾ Diversity and inclusivity plan for using disadvantaged businesses and minority- and women-owned businesses14 Minimum qualifications and standards may also be established to meet the requirements of the specific project, provided the qualifications and standards accurately reflect the requirements and are not overly restrictive. When using a two-step request for the qualifications process, qualifications, experience, capacity, and past performance are addressed in the step 1 Request for Qualifications, while method of approach is addressed in the step 2 request for technical proposals.

Instructions The Request for Qualifications instructions provide guidance on how to prepare and submit proposals, including deadlines for submission of offers, formats, and other essential details to enable architects and engineers to submit competitive proposals. Instructions may include: ◾ Place, date, and time for submission of proposals and notice that late proposals will not be accepted

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◾ Format for preparing the proposal, including font size, any page limits, and number of copies required ◾ Evaluation criteria and selection method ◾ Name and contact information for solicitation contact person ◾ Notice of pre-offer conference, if provided ◾ Information and schedule for selection process, including whether interviews will be conducted with finalists ◾ Whether or not a debriefing will be provided to unsuccessful offerors To protect the security and integrity of the procurement, one single point of contact is designated in the solicitation for questions from offerors, and each offeror must be given identical instructions and clarifications. To ensure fairness and accurate documentation of questions and answers, the contracting officer is the recommended point of contact.

Contract Clauses The contract between the government and the architect or engineer guides a complex relationship. Unless the delivery method is Design-Build, the architect or engineer has both a direct relationship with the owner and an indirect relationship with the construction contractor, as the architect or engineer may represent the government as the agent for delegated contract administration decisions. The agent role may create obligations and liabilities for the government. The contract must address both the architect’s or engineer’s relationship with the government and its relationship with the construction contractor. The agency may use its own contract terms and conditions or an industry contract template. There are several industry contract templates available, including from: ◾ American Institute of Architects—Owner-Architect Agreement. A licensing fee is required to use the agreement.15 ◾ American Society of Civil Engineers—Standard Form of Agreement between Owner & Engineer for Professional Services. Several other contract documents are available, including agreements for Design-Build, performance and payment bond forms, and price proposal form. A licensing fee is required to use association documents.16 ◾ Construction Owners Association of America—Standard contract forms are available to members. This association represents owners and produces numerous publications of interest.17 ◾ National Society of Professional Engineers—Agreement between Owner & Engineer. Several other contract documents are available,

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including contract for construction and change order templates. A licensing fee is required to use association documents.18 ◾ US Army Corp of Engineers—Although standard contract forms are not provided, many forms, guides, and publications of interest are available at no cost.19 These contracts are comprehensive, contain common contract clauses that are universally accepted in standard practice, and serve as convenient templates for drafting the design contract. However, these contracts also tend to favor the association that provides them. Industry contract templates may be modified to include required government clauses and to meet specific owner requirements. If the government chooses to draft the architect or engineer contract, it should be careful to ensure that notable risks and liabilities are adequately addressed and that the clauses are fair and reasonable. Extremely one-sided clauses discourage competition and may not be enforceable when challenged. Governments should never accept contract documents prepared by the architect or engineer, as these will favor the designer. Whether the contract is drafted by the owner or modified from a template, contracting officers should carefully review and modify the form of agreement and obtain review by legal counsel to ensure compliance with prevailing laws and that the agreement adequately addresses the government’s requirements. Examples of contract requirements that are unique to architect and engineer contracts include: Standard of Care—Architects and engineers do not guarantee design perfection. Instead, they are bound by the ordinary standards of their profession and the laws of the jurisdiction. Generally, architects and engineers are bound by an explicit standard of care that their work will be performed with the professional skill exercised by other members of the profession. For example, this standard of care is expressed in the AIA Owner-Architect Agreement (AIA B-141): The Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances. The architect shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the Project.20 The contracting officer should refer to the specific laws of the jurisdiction and legal counsel when drafting standard of care or warranty provisions for the contract.

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Professional Registration Requirement—Professional services, as defined by relevant state laws, shall be performed by a licensed or registered architect or engineer. Other professional services, including land surveying, construction management, and testing services, may also require a license or registration. Responsibility for Construction Cost—The architect or engineer is responsible for managing design to meet the established project budget or cost ceiling. The project budget includes all project costs, including design, construction, and other costs, such as internal expenses of the organization. The cost ceiling for construction should be stated in the contract. The contract should also contain a clause requiring the architect or engineer to be responsible for: ◾ ◾ ◾ ◾ ◾

Maintaining cost control Providing periodic cost estimates Obtaining owner approval at various stages of design Designing within the project funding or budget constraints Redesigning at no additional cost to the government if bid or proposal prices exceed the funding or budget constraints

Ownership of the Design—Although the architect or engineer is contracted for hire, under copyright law, the architect or engineer owns the design. The owner only receives the right to use the design for the specific project. Any further rights—including the agency’s right to own, use, reproduce, or adapt the design documents as well as prepare derivative works from those documents—needs to be negotiated with the architect or engineer upfront and clearly stated in the contract. Architect or Engineer as Agent—The architect or engineer may be expected to serve as agent or advocate for the owner for specified tasks, including observing and approving the work, inspecting, testing, evaluating contractor bids, and reviewing or approving contractor invoices. These responsibilities— and any limitations—should be clearly stated in the contract. Professional Liability Insurance—In addition to general and auto liability insurance and worker’s compensation insurance, the architect or engineer must be required to provide professional liability insurance. Professional liability insurance—also called errors and omissions insurance—covers any acts of negligence, misrepresentation, or inaccurate advice on behalf of the design professional. Compliance with Federal Requirements—If the project will include federal funding, the design must comply with applicable federal requirements. Contract Close-Out—Addresses all actions and obligations to complete the contract for release of the final payment.

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Acceptable Accounting System—The contractor shall have an acceptable accounting system to provide reasonable assurance of compliance with laws and regulations, accurate and reliable cost data, accurate billing, and minimized risk of misallocations and mischarges. This is not an exhaustive list of required contract clauses for architect or engineer agreements. Additional clauses may be required by law, policy, or application. Architects and engineers may insist on clauses limiting liability and setting forth owner responsibilities. Considerable negotiation may be required, with guidance from legal counsel. The templates referenced in this text provide a firm foundation for crafting the contract and include checklists for designating required services.

Issuing the Request for Qualifications Depending on the complexity of the project, the Request for Qualifications document may be simple and as short as three or four pages, containing the scope of work, instructions, and selection criteria. Since the contract will be negotiated after the architect or engineer is selected, it may be referenced instead of included in the solicitation and negotiated following selection of the designer. The contracting officer places legal notices according to laws and regulations of the jurisdiction. To cast a wide net for competition, these notices may be supplemented by advertising in local, national, small, and disadvantaged business association, industry, and trade publications. Distribution of the Request for Qualifications is made to persons and firms who have registered with the jurisdiction for professional design services or who respond to legal notices or advertisements. The process for communicating with prospective offerors, issuing solicitation amendments, and receiving and opening proposals is identical to standard procurement practices, as provided for in the laws of the jurisdiction. The contracting officer issues solicitation amendments to all prospective offerors, and offerors acknowledge each amendment in their response. Statements of qualifications are received and secured in the procurement office until the date and time they are to be opened and logged by the contracting officer. Late responses are not accepted unless the government is responsible for the cause of the delay.

Evaluating Responses After the statements of qualifications are received and logged, they are reviewed for completeness and distributed by the contracting officer to the

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technical evaluation committee. The contracting officer is responsible for providing guidance and instructions to the evaluators before allowing them to see the proposals. To ensure a fair and honest evaluation, the following direction and guidance is recommended: ◾ Conflict of Interest—A conflict of interest is any conflict between the interest of the government and the personal interest of a committee member. Technical evaluation committee members shall avoid any actual or perceived conflict of interest, including a personal or business relationship with any offeror. A signed statement declaring any known or potential conflicts should be obtained by the contracting officer from each evaluator. Evaluators who have an actual or potential conflict of interest shall be released from the technical evaluation committee. ◾ Communication with Offerors—To ensure that every prospective offeror receives the same information, and to guard against creating an unfair competitive advantage, communication should be limited to one designated person, preferably the contracting officer. ◾ Proposal Security—Care must be taken to ensure that information contained in proposals, evaluation notes, ratings, or other confidential information is not disclosed to proposers or outside interests. Each evaluation committee member should sign a non-disclosure agreement prior to viewing the statements of qualifications. ◾ Evaluation Criteria—Evaluation must be limited to the criteria stated in the Request for Qualifications. Evaluators may not consider other factors, alter evaluation criteria, or change the relative importance of criteria after proposals are received. ◾ Independent Analysis—To maintain an unbiased perspective, evaluators should perform the initial evaluation independently. Any discussion of proposals among evaluators should occur only during evaluation committee meetings when all evaluators are present, and the discussion is documented by the contracting officer. ◾ Evaluation Schedule—An established timeline for evaluation committee activities will help achieve an efficient evaluation process.

Initial Evaluation Process Evaluators first read and rate offers separately before meeting to discuss their findings. The selection decision must be documented in a narrative that describes the facts and reasoning for the selection and represents the consensus of the technical evaluation committee.

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Interviewing all proposers can be unwieldly if many responses are received. For efficiency, interviews should be limited to the top three to five ranked offerors. Unsuccessful offerors are notified by the contracting officer after the shortlist is determined so they may seek other opportunities.

Interviews and Discussions Discussions or interviews with the top-ranked firms by the technical evaluation committee are conducted to obtain clarification of the proposals, discuss design strategies, and gain a greater understanding of the expertise, competence, qualifications, and capabilities of each offeror. Offerors may be requested to make a short presentation as a part of the interview, followed by questions from evaluators. Interviews are not sales calls, and they should be limited to issues directly related to the project. Evaluators should be careful to avoid considering other factors that are not specifically identified in the Request for Qualifications, and they should not let personalities affect their selection. Some agencies evaluate and score interviews. Scoring interviews tends to introduce bias based on personalities and marketing skills and should be avoided. A clarification during discussions may result in a better understanding of an offeror’s expertise, qualifications, experience, or method of approach. Evaluators should be permitted to change their evaluation rating if the clarification is documented by the offeror in the response to the request for technical proposals or other written submission.

Request for Technical Proposals If a two-step process is used, as recommended by NIGP, a request for technical proposals is issued by the contracting officer to the top-ranked firms. The request for technical proposals should include the statement of work, as revised following interviews, and instructions for submitting unpriced technical proposals. The instructions should include a date and time for submission. The evaluation factors should remain the same as those in the Request for Qualifications. The technical evaluation committee reconvenes to evaluate the responses to the request for technical proposals. The technical evaluation committee may adjust their evaluation based on the responses and select or recommend the most qualified offeror for negotiating the contract. The revised statement of work and response to the request for technical proposals becomes the basis

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for the contract that is negotiated by the contracting officer with the selected offeror.

Design Competition If permitted by law, government agencies may require a design competition as part of the architect or engineer selection process. The design competition may require the submission of schematic drawings or even models of the proposed design for evaluation by the technical evaluation team. Preparing a detailed design proposal is an expensive effort for proposers and should be requested only from the most qualified or shortlisted proposers. Unless another arrangement is negotiated with the architect or engineer, the proposed design is the intellectual property of the proposer and may not be used by the government agency if the architect or engineer is not selected. Negotiation of the rights to use the proposed design may require payment of a stipend.

Offeror Responsibility As with any public contract, architect and engineer contracts shall only be awarded to responsible businesses. The contracting officer must evaluate each shortlisted offeror for responsibility before inviting them for discussions. The NIGP Public Procurement Dictionary of Procurement Terms defines “responsible offeror” as “a supplier with the integrity and reliability as well as the financial and technical capacity to perform the requirements of the solicitation and subsequent contract.” Determining responsibility is an affirmative act of the contracting officer and is addressed in more detail in Chapter 6.

Final Evaluation and Selection After conducting interviews or discussions, or after receiving technical proposals, the technical evaluation committee convenes to rank responses and select the most qualified firm. Consensus is important in making the selection. Evaluators should agree on the selection of the most qualified firm, and any dissenting opinions should be addressed before a decision is reached. The contracting officer documents the selection decision or recommendation in an evaluation report that is signed by the contracting officer and each evaluation committee member. This report should be clear and concise and should contain the detailed findings of the evaluation committee and the basis for selection.

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Negotiation of the Design Fee The NIGP Public Procurement Dictionary of Procurement Terms defines ­“negotiation” as: A process of planning, reviewing, analyzing, and conferring used by two or more parties to reach a mutually acceptable agreement in a contracting relationship. The NIGP dictionary defines “negotiation team” as: A group of people, typically including a procurement professional, project manager, technical staff, financial analyst, and legal expert with the essential skills or knowledge necessary to reach a sound agreement. The objective of architect or engineer contract negotiations is to agree upon a scope of work and schedule to achieve the project requirements at a fair and reasonable price. Negotiating design fees is more challenging than with other competitively negotiated procurements because the contracting officer does not have other priced offers for comparison. Instead, the contracting officer must effectively use other negotiation tools, including cost and price analysis, to achieve a fair and reasonable price. A firm-fixed price contract is used for most design projects. A cost reimbursement contract with a “not-to-exceed” ceiling may also be used in situations in which considerable pre-design investigation is required. Contracting officers should avoid determining fee as a percentage of construction cost, as this form of pricing removes any incentive for construction cost savings. Negotiation is a team effort, involving the project manager under the authority of the contracting officer and with support from legal counsel, finance, audit, risk management, and other professionals. The negotiation team may include members of the technical evaluation committee. All members of the negotiation team must be free of any conflicts of interest with the selected design firm. If negotiation does not result in an agreement, the government may terminate the negotiation and select the next most qualified firm and continue with succeeding firms until an agreement is reached. Once negotiation is terminated, the rejected firm is eliminated from further consideration. Architect and engineer contract negotiations are conducted in three phases:

Planning Phase In this phase, the contracting officer assembles the negotiation team, provides instructions, and appoints a negotiation team leader. The team leader may be

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the contracting officer or another person designated by the contracting officer and operating under their authority. The negotiation team: ◾ Reviews the contract requirements, including the scope of work, and all tasks necessary to complete the project ◾ Reviews the statement of qualifications and technical proposal for the selected offeror, including any proposal deficiencies, weaknesses, questions, or concerns that will be addressed during negotiation ◾ Identifies and prioritizes the negotiation objectives, including: ◾ Required design elements and tasks ◾ Target price based on the independent cost estimate ◾ Schedule and milestones for completion of design ◾ Reviews the market conditions for design and construction ◾ Determines a range of acceptance for the negotiation objectives ◾ Develops its negotiation strategy and prepares the negotiation plan

Negotiation Phase ◾ The contracting officer schedules the negotiation sessions and prepares the meeting agendas. ◾ The government and offeror negotiation teams are introduced and declare who has decision authority. ◾ The parties discuss and agree on the scope of work, schedule, milestones, required tasks, and other project elements. ◾ The parties discuss and agree on contract terms and conditions. ◾ The contracting officer requests a detailed priced proposal to be submitted by the offeror by a designated time and date. ◾ The contracting officer may schedule follow-up meetings to negotiate price. During these meetings, further clarifications may be provided to help refine the requirements and price. Negotiations may include offers and counteroffers. ◾ If negotiations are successful and an agreement is reached, the contracting officer may award or recommend award of the contract. If not, the contracting officer terminates negotiations and notifies the next highest-ranked offeror of its selection.

Documentation Phase ◾ The contracting officer prepares a negotiation memorandum, documenting the agreement.

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◾ The contracting officer distributes the negotiation memorandum to all parties for signature. ◾ If the contract award is approved by the governing authority, the contracting officer prepares the contract for legal review and signatures. ◾ The contracting officer prepares the contract administration plan. The purpose of the first negotiation meeting with the selected design team is to ensure that both parties have a mutual understanding of the project scope and schedule so the architect or engineer may prepare a detailed price proposal. This meeting should address the following topics: ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾

Project scope and required tasks Roles and responsibilities of the design firm and the government Construction budget or estimated construction costs Project schedule and milestones Schedule of deliverables Applicable laws, technical criteria, and required standards Available project information, test results, surveys, drawings, and other government-furnished information Site inspection Subcontracting plan Environmental considerations Diversity and inclusion requirements Verification of registration for design professionals Method and schedule of progress payments Insurance requirements Administrative and communication procedures and requirements Design review and approval process Form of contract and required government clauses

The AIA Owner-Architect Agreement (Form A201) provides a useful checklist of required and optional design tasks that may be used to support negotiations.

Negotiating the Design Fee After the government and architect or engineering firm agree on the project scope and required tasks, the contracting officer requests a price proposal. The price proposal is required in sufficient detail for negotiation and to support a determination that the price is fair and reasonable. At a minimum, the

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price proposal should include cost data (that may require certification under federal and some state laws) for: ◾ Direct and indirect labor rates and hours required of each design team member for each task ◾ Direct expenses ◾ Indirect overhead rate and cost components of the overhead rate ◾ Profit or fee ◾ Subcontractor quotes The contracting officer establishes the time and place for submission of the proposer’s price proposal. The independent cost estimate is used to compare the total fee with the hours and rates proposed by the architect. The negotiation team identifies and analyzes any differences or “gaps” between the proposal and independent cost estimate for negotiation with the designer. The negotiation objective is to reduce or at least explain the gaps. 48 CFR § 836.606-71 limits architect and engineer fees for federal contracts to 6% of construction costs. The 6% limit applies to production of design, plans, and specifications, but does not apply to other investigative services, surveys, assistance with construction bidding, contract administration, and other services not associated with design. Although fees for state and local projects may vary depending on the size, scope, and complexity of the project, the 6% federal limit is universally understood (but not always enthusiastically accepted by architects and engineers) and is a good reference for inclusion in the solicitation or as a target for negotiations. State and local government laws may also limit design fees to a percentage of the total project cost. The contract may be negotiated as a firm-fixed price or cost-plus fixed fee. A firm-fixed price contract puts the burden of risk to contain costs on the designer, while cost-plus fixed fee puts more of the cost risk on the owner. If a cost-plus fixed fee type contract is used, the contract should include a fixed cap on the total cost allowed for the work. Cost-plus percentage of cost contracts are prohibited when using federal funds and by most state laws and should not be used for architect and engineering contracts under any circumstances.

Cost Analysis Because price competition is not permitted for architect and engineer contracts, cost analysis of the proposed price or fee is necessary to ensure that

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the contract price is fair and reasonable. Cost analysis is the evaluation of the separate cost elements and profit in the offeror’s proposal to determine whether the proposed price is fair and reasonable for the scope of work. Cost analysis is required for federally funded contracts when the price is not established through competition, including architect and engineering contracts, sole source contracts, and contract modifications. To perform cost analysis, the contracting officer requests cost data from the contractor to support its proposed price. In federal contracts, and in some state laws, certified cost data is required above certain cost values in cost-type contracts or contracts entered without adequate price competition. The certification shall include a statement signed by the contractor that the cost data is accurate, complete, and current as of the date of the submission. In most jurisdictions, the cost data is considered confidential. Cost analysis requires review and validation of: ◾ Direct labor rates and hours for individuals performing the work. Labor rates may be compared to industry standards and hours compared to the independent cost estimate. Labor rates shall be “fully loaded” to include benefits. One source for wage rates by profession is the US Department of Labor, Bureau of Labor Statistics.21 ◾ Other direct costs are the costs that can be directly applied to the project and contract, including travel, equipment, supplies, computer charges, printing, vehicle use, telecommunications, and other cost elements. Direct costs do not include costs that are charged as overhead. For example, phones and computers purchased for use at the jobsite might be considered direct costs. Phones and computers used in the architect’s or engineer’s business office are part of the business overhead. ◾ Indirect costs or overhead is the cost of operating the business that cannot be directly applied to a particular project or contract. Overhead might include lease and utilities of the business, salaries for management and support staff, depreciation on office equipment and furniture, and other costs not directly charged to the project. Overhead is applied as a percentage of direct costs. For example, 80% overhead on $1,000 in direct costs is $800. There is no industry standard for consultant overhead rates, as each business may calculate overhead in different ways. For example, one firm may expense computer-assisted design services as a direct cost while another may include that cost in its overhead rate. Overhead is also dependent on total business revenue. Indirect cost or overhead rates of more than 100% are common in the architect and engineering professions.

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The overhead rate may be similar but not the same for all customers of the business, as certain overhead expenses, like lobbying, alcohol, and entertainment, shall not be applied to government contracts. Verification of the overhead rate requires an independent audit to ensure that the rate is accurate and does not include non-allowable expenses. This can be accomplished as part of the contractor’s annual audit, last audit provided for the federal government or another government agency, or an audit performed by the procuring government. ◾ Profit or fee is the earned income the contractor receives over its costs and is applied as a percentage to direct costs and overhead. The percentage of profit allowed is based on the complexity of the work, risk undertaken, and the contractor’s investment. The federal government caps profit at 6% for architect and engineering contracts and 10% for cost-plus-fixed-fee contracts. State law may require a similar cap. Although state and local governments are not required to use the federal caps, they serve as a good rule of thumb for negotiating. Various indexes for industry profit margins can be found through an internet search. ◾ Subcontractors or subconsultant costs are direct expenses to the architect and engineer and should also be evaluated by the contracting officer as part of the cost analysis. The architect or engineer should provide cost proposals from its major subcontractors, which are also subject to negotiation. The architect or engineer may attempt to add its own profit on its subcontractor costs. This practice is subject to negotiation. At a minimum, the prime consultant should explain the reason for the markup and the markup should be less than its own profit margin. Architects and engineers are also known to add profit on work performed by its own subsidiaries. This becomes profit on profit and should not be permitted. Verifying certified cost data can be an arduous task and requires support from a financial professional. It is the obligation of every government to ensure that the price paid for architectural and engineering services, as with any major expenditure, is fair and reasonable. For more information on government cost principles and procedures, refer to: ◾ FAR Part 31—Contract Cost Principles and Procedures22 ◾ Federal Transit Administration, Best Practices Procurement & Lessons Learned Manual, October 201623 ◾ US Department of Housing and Urban Development, Procurement Handbook for Public Housing Agencies, February 200724

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Once the cost analysis is completed, the procurement officer schedules the price negotiation meeting with the architect or engineer. An initial factfinding session may be held with the design firm to clarify the proposed price. Subsequent negotiation sessions focus on narrowing the gap between the proposed price and the independent cost estimate. Prior to discussing price with the architect or engineer, the negotiation team prepares price negotiation objectives, identifying specific negotiation issues that will be discussed with the architect or engineer and price objectives. The contracting officer assigns specific negotiation responsibilities for each team member and prepares an agenda. The contracting officer should ensure that there is a common understanding of the statement of work, responsibilities, and schedule. There may be considerable give-and-take during negotiations, including trade-off or adjustment of requirements to achieve schedule and price objectives. For example, the government might eliminate a requirement for an elaborate architectural feature or drop a requirement for an expensive display model to reduce design and construction costs. The contracting officer documents the negotiations with a negotiation memorandum that is maintained in the procurement file. When negotiations are completed, the contracting officer requests a final proposal revision or best and final offer. The negotiation team reviews the best and final offer and, if acceptable, recommends award of the contract. If the best and final offer is not acceptable, the contracting officer notifies the design firm that negotiations are terminated and begins negotiation with the next most qualified firm. After the contract is awarded, the contracting officer obtains the necessary signatures on the design contract and requests evidence of insurance and any required bonds or certification. After obtaining all necessary approvals, the contracting officer issues a written notice to proceed with design services and schedules a “kickoff” meeting.

Design Contract Administration Like all public contracts, design contract administration requires constant monitoring and evaluation of performance, frequent communication, documentation of contract actions, prompt response to inquiries, and proper contract close-out. Some considerations unique to design contract administration include: ◾ Project Budget—The total amount of funds available for construction must be established in the contract. This amount serves as a control point for the design. The contract should stipulate that if the

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construction bid or proposal price exceeds the project budget to the extent that the government must request design changes, the architect or engineer is responsible for preparing revised plans and specifications at no additional cost to the owner. Contract Modifications—Design changes may be required because of unexpected site conditions, owner discretion, contractor suggestions, or other factors. Modifications may occur at any time during design and construction and must be documented in the form of a written change order to the designer. Change orders may result in an equitable adjustment of the designer’s fee. Undocumented changes can lead to confusion and disputes. Payment—A single lump sum payment may be acceptable for designs that are completed in less than 60 days. Progress payments are required for projects of longer duration. Progress payments may be based on completion of specified tasks or deliverables, or work completed since the previous payment. Advance payments should not be authorized. Invoices are reviewed by the contracting officer representative and authorized by the contracting officer. Design Errors and Omissions—Some design errors may require a simple change to the plans and specifications. However, errors and omissions discovered during or after construction may result in additional costs to the government or the contractor. The designer must be notified and directed in writing to correct the design error immediately after the error is discovered. Design errors and omissions that result in additional cost for the construction contractor may be claimed by the contractor against the government. The government may in turn file a claim against the designer for the costs resulting from the design error or omission. The design architect or engineer may agree to pay the claim directly or through its professional liability insurance carrier. The design architect or engineer or its insurance carrier may also contest the error or omission claim. The contract should contain a provision for resolving disputed claims. Dispute resolution is addressed in Chapter 7. Compliance with Building Codes—Like the owner, the designer is required to ensure that the design conforms with all applicable building codes. Duty to Cooperate—The architect or engineer has a duty to cooperate with the contractor. They must conduct timely reviews of submittals and promptly respond to questions to facilitate the contractor’s prompt payment and fair and reasonable inspection and testing. This duty is implied but should also be stated in the design contract. Construction Contract Administration—The architect or engineer may be contracted to assist with the evaluation of bids and to perform

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construction administration after the design is completed. The designer’s role in construction contract administration must be clearly described in both the design and construction contracts.

Task Order Contracts Task order contracts provide an efficient means for procuring design services for small projects. If permitted by law, governments may procure an indefinite quantity/indefinite delivery (ID/IQ) task order contract for architect and engineering services. An indefinite delivery/indefinite quantity task order contract is one that provides for an indefinite quantity of services, delivered when required over a fixed period. Services are requested by issuance of a task order. Because contractors are required to staff up to support the contract, a minimum amount of value should be guaranteed for each contractor. If numerous projects requiring different professional disciplines are anticipated, the government may award contracts for each required discipline, such as architecture, civil engineering, mechanical engineering, construction management, and other professional services. Tasks are assigned based on the professional discipline required to lead the design. If many task assignments are anticipated, multiple awards may be made to ensure that designs can be completed on a timely basis. Tasks are awarded through a “mini-qualification-based selection” to ensure that the most qualified firm is selected for each task. Price cannot be a factor in selecting a designer for a specific task. Task order contracts should include: ◾ Guidelines for how a designer is selected for each task ◾ A cost ceiling for each task ◾ A limit for minimum and maximum value that may be performed by each contractor ◾ A fixed contract term, usually five years or less

The Federal Audit “I just have a few questions about this professional services task order contract,” you say as you sit down with the transit agency procurement director. Your team was contracted to do an annual review of federally funded contracts. The task order contract was procured

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through qualification-based selection and awarded to the following firms: Firm

Score

Hourly Rate

ABC Engineering DEF Services JKL Professionals

796 740 720

$300 $220 $280

The first task order was issued to JKL to review and negotiate engineering tasks on behalf of the agency. JKL was chosen for this task because of its experience with a previous contract. When questioned, the procurement director advised that JKL knows the agency requirements and history and has a good relationship with agency staff. The procurement director said that JKL is owned by a former board member and has had contracts with the agency for the last 23 years. She also said, “We do not have experience negotiating design fees. JKL is much better at that than we are.” Of the remaining 12 task orders, 9 were awarded to JKL, and 3 were awarded to DEF. The procurement director explained that tasks were awarded to JKL based on their superior qualifications and experience, and to DEF because it has the lowest hourly rate. When asked why price was a factor in selecting DEF, the procurement director responded, “The firms were selected to the contract based on qualifications and not price. We just thought $300 an hour is too much for these projects.” As the auditor, what do you write in your report?

It appears there are some serious problems with this task order contract. First, JKL is “the fox guarding the chicken coop.” JKL is negotiating and assigning most of the tasks to itself. This is an obvious conflict of interest and has apparently been going on for a long time. Also, with the lowest technical score, JKL does not appear to be the most qualified of the three firms and should not be receiving the bulk of the work. There is also a violation of the Brooks Act. DEF was selected for three tasks based primarily on its lower hourly rate. Selection for tasks awarded under the contract should be based on technical qualifications and not price. Both the conflict of interest and Brooks Act violation should be written up as audit deficiencies.

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The contracting officer should establish ground rules that comply with applicable laws and best practices up front for use of task order type architect and engineering contracts and provide training to staff who will use the contracts.

Summary Under the Brooks Act, architects and engineers are selected based on their qualifications and experience. Price competition is not permitted. The contract is negotiated with the most qualified firm first. If the architect or engineer and government are not able to reach a fair and reasonable agreement, the government may terminate negotiations and negotiate with the next most qualified firm. Negotiating contracts without the benefit of price competition is very challenging. Negotiating architect and engineer contracts is a team effort, requiring expert project management, risk management, cost and price analysis, and legal counsel supporting the contracting officer.

Notes 1 Comptroller General of the United States. (1967). Government-Wide Review of the Administration of Certain Statutory and Regulatory Requirements Relating to the Architect-Engineer Fee. Washington, DC: Government Accountability Office (GAO) (formerly known as U.S. General Accounting Office). 2 Public Law 92-582 (86 STAT 1278), “Public Buildings—Selection of Architects and Engineers,” Section 902. 3 American Bar Association, 2000 Model Procurement Code for State and Local Governments, Section 5-205. 4 NIGP The Institute for Public Procurement, Principles and Practices of Public Procurement, “Qualifications-Based Selection for Architectural & Engineering Services,” https://www.nigp.org/resource/global-best-practices/QualificationsBased%20Selection%20for%20Architectural%20and%20Engineering%20 Services%20Best%20Practice.pdf. 5 Federal Acquisition Regulation. Part 36, https://www.acquisition.gov/browse/ index/far. 6 Timothy, McNulty, Brendan McNulty, and Jim Wright (2019). The Meanest Man in Congress, Jack Brooks and the Making of an American Century. Randwick: New South Books. 7 O’Harrow, Robert Jr., (2016). The Quartermaster: Montgomery C. Meigs, Lincolns General, Master Builder of the Union Army. New York: Simon & Schuster. 8 American Bar Association, 2000 Model Procurement Code for State and Local Governments, Section 5-205. 9 NIGP The Institute for Public Procurement, Principles and Practices of Public Procurement, “Qualifications-Based Selection for Architectural & Engineering Services”.

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Chapter 6

Construction Contract Procurement Introduction Throughout most of the 20th century, federal, state, and local laws required using the Design-Bid-Build construction delivery method and competitive bidding for government construction contracts. During the last three decades, government laws have evolved, permitting the use of alternate project delivery methods, including Design-Build and Construction Manager at Risk. Competitive bidding works well for procuring Design-Bid-Build contractors. However, the Design-Build and Construction Manager at Risk construction delivery methods are not compatible with traditional competitive bidding, as the final price is not determined at the time construction is procured. Instead, these alternate project delivery methods are procured through competitive negotiation or qualification-based selection. Competitive bidding is defined in the NIGP Public Procurement Dictionary of Terms as: The process for inviting and obtaining bids from competing suppliers, by which an award is made to the lowest responsive bid from a responsible bidder meeting written specifications. The DOI: 10.4324/9781003276975-6

151

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process provides potential bidders with a reasonable opportunity to win a contract. Competitive negotiation is defined in the NIGP Public Procurement Dictionary of Terms as: A procurement method for obtaining goods, services, and construction in which discussion and negotiation may be conducted with responsible proposers who submit responsive proposals. The process concludes with the award of a contract to the proposer who offers the best value. While competitive bidding emphasizes price, competitive negotiation emphasizes best value, or the best combination of quality, service, time, and price. As with any procurement method, state and local laws vary considerably. Some governments continue to require the Design-Bid-Build project delivery method and limit the procurement process to competitive bidding for construction contracts. The laws permitting the use of alternate project delivery methods may require the use of different and specific procurement methods and procedures. Additional procurement requirements come with federal funding of state and local construction projects. Contracting officers must be familiar with the federal, state, and local procurement and construction contracting laws as well as the regulations that apply to a specific procurement and seek guidance from legal counsel, especially when considering the use of alternate project delivery methods. This chapter explores the various procurement methods for public construction and how they apply to each project delivery method. The competitive bidding procurement process for construction projects will be addressed, as well as the competitive negotiations that are now permitted for public construction under the laws of many state and local governments.

General Contractor, Subcontractors, and Suppliers Construction is a team effort performed by subcontractors and suppliers under the leadership of a general contractor. The general contractor, sometimes called the prime contractor, is defined in the NIGP Public Procurement Dictionary of Terms as: A contractor delegated with the entire responsibility and risk for the day-to-day management and contract performance of a construction project designed by a third party.

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When using the Design-Build construction project delivery method, the general contractor is also responsible for project design. The general contractor is licensed by the state and is responsible for: ◾ Constructing the project according to the contract requirements ◾ Complying with applicable laws and regulations, including building codes ◾ Obtaining required bonds and permits ◾ Procuring equipment, materials, and supplies for the project ◾ Procuring and managing subcontractors, including verifying their licenses and insurance ◾ Providing insurance, including worker compensation insurance ◾ Paying suppliers and subcontractors in a timely manner ◾ Managing the project schedule ◾ Scheduling required inspections and tests ◾ Complying with and enforcing safety and security requirements ◾ Safely disposing waste ◾ Providing required documentation, including as-built drawings While some of a project’s construction will be performed by the general contractor, subcontractors will perform specialty work. Subcontractors are licensed specialty contractors, including electrical, mechanical, masonry, demolition, excavation, transportation, and other tradespeople who contract with the general contractor to perform assigned portions of the work. There may be multiple tiers of subcontractors. For example, an excavation contractor may subcontract to a material hauler, or a mechanical contractor may subcontract electrical work. Suppliers provide materials and supplies to the general contractor and subcontractors. The general contractor is ultimately responsible for the performance of all suppliers and subcontractors. With Design-Bid-Build and Design-Build contracts, the general contractor selects all subcontractors and suppliers. There may be a few exceptions when the owner elects to “buy-out” certain special items such as communications equipment, back-up power systems, security devices, or other long-leadtime items for installation by the general contractor. When using a Construction Manager at Risk contract, the owner may leave the selection of subcontractors to the discretion of the general contractor or may require that the general contractor use competitive bidding for subcontractors and suppliers.

Plans and Specifications Requirements for construction projects are described in plans and specifications. Plans are two-dimensional drawings that describe the project in detail.

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Specifications are the detailed narrative descriptions of the required physical characteristics, quality, materials, and outcomes required for a project. Construction projects are complex, involving many separate, yet interdependent, systems and thousands of components. Drawings show where the site must be excavated or filled, location of foundations, footings and walls, placement of doors and windows, routing of pipe and electrical conduit, mechanical systems, and many other details. Specifications describe the materials that are required, construction methods, performance standards, and other requirements. The location and construction of the foundation and walls are described in precise detail in the drawings, while mechanical devices such as Heating Ventilation and Air Conditioning (HVAC) are described in the specification, including the required capacity and output under a range of operating conditions. Many details, such as door handles and hinges or electrical outlets, may be stated as pre-approved brand name or brand name or equal products in the specifications. Detailed plans and specifications are required for all construction projects and for obtaining bids or proposals for Design-Bid-Build contracts. Less prescriptive functional or performance specifications are used for obtaining proposals for Design-Build and Construction Manager at Risk contracts, but detailed design plans and specifications are required before the contractor may begin construction. Design plans and specifications are prescriptive and describe the required project characteristics in precise detail: ◾ Architectural and engineering drawings depict the visual design of all aspects of the work, including overall layout, earthwork, mechanical, electrical, structural, and systems through scale drawings and detailed elevations and plans. ◾ Construction specifications provide details and instructions for the required project, including general provisions, required products and materials, installation instructions, quality standards, and other project details. Most organizations use the Construction Specifications Institute (CSI) division format for specifications. ◾ Manuals describing organizational quality, safety, performance, testing, inspection, and other requirements and standards may be provided or referenced to supplement the plans and specifications. For small construction projects, plans and specifications may entail one or two drawings and a few pages of specifications. For larger projects, plans and specifications can be voluminous, containing more than 100 drawings and

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multiple specification volumes. These documents were typically distributed to contractors and subcontractors by the procuring agency or through a contracted plan service, often for a fee or deposit. Advances in technology have enabled procuring agencies to distribute plans and specifications electronically. There are also software applications that enable the distribution of relevant portions of the plans and specifications or “takeoffs” to suppliers and subcontractors. Because the Design-Build contractor is responsible for both design and construction, functional or performance specifications are used for soliciting proposals. A performance or functional specification is less prescriptive than design plans and specifications, describing the objectives and outcome the contractor is required to achieve. The government may also provide a partial or schematic design showing the preliminary plan with line drawings and essential details. The selected Design-Build contractor is then responsible for preparing the detailed plans and specifications for approval by the owner before construction of the project. Functional or performance specifications along with the preliminary or schematic design are used to procure the Construction Manager at Risk contractor. The Construction Manager at Risk contractor is procured at the same time as the design architect or engineer, or after the architect or engineer prepares the preliminary or schematic design, so the contractor and designer may collaborate on the design. The Construction Manager at Risk contract is negotiated for two phases: a fixed fee for services during design and a guaranteed maximum price for construction. The final construction price is negotiated after the detailed design plans and specifications are completed or nearly completed. Federal, state, and local laws require that specifications describe the government requirements in such a way as to promote full and open competition. To achieve these objectives, specifications must: ◾ Be Clear, Complete, and Unambiguous—Unclear or ambiguous specifications may restrict competition because bidders are unable to compete on a common and equal basis, which may result in claims and disputes over interpretation. ◾ Not be Unnecessarily Restrictive—While certain restrictive specifications may be necessary to achieve the government objective, unnecessary restrictions can lead to protests, reduced competition, and excessive prices. ◾ Consider Comparable Alternatives for Brand-Name Specifications— With thousands of components, it is impractical to avoid using brandname specifications. Brand names are commonly used to describe

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Why Are Blueprints Blue? The astronomer and photographer John Herschel developed the cyanotype process for blueprints in 1842, and it was widely used by architects and engineers for more than a century. Drawings were made on semi-transparent paper and weighted down with a sheet of paper or cloth coated with a photosensitive chemical. When exposed to light, the paper turned blue, while the lines and figures blocked the coated paper from exposure and remained white. Although often still called blueprints, this process became obsolete with advances in technology that provided less expensive and more efficient printing methods. Diazo prints or “whiteprints” with blue lines on a white background replaced blueprints and xerographic prints replaced whiteprints. These methods were eventually replaced with computer-assisted design and large computer printers and plotters.1

electrical switches, door hardware, surfaces, finishes, and many other material requirements. However, unless using a specific brand name is necessary and justified, the designer should offer multiple brand names for each detail, and the contracting officer should allow for approval of substitute or “equal” products in the request for bids or proposals.

Restrictive Specifications Federal, state, and local government procurement laws prohibit “unduly restrictive” specifications. By their nature, specifications are restrictive, excluding products that do not meet the stated requirements. Government procurement laws prohibit the use of restrictive specifications when they are not necessary to meet government requirements or are used to restrict competition. For example, a restrictive specification for a specific product that is not available to some contractors or available to certain contractors for a more favorable price may serve to limit competition or create an unfair competitive advantage. In either case, overly restrictive specifications lead to excessive pricing for government contracts. For example, a supplier for a specified HVAC system may offer lower pricing or limit sale to one or a limited number of contractors or subcontractors. When the specified product represents a significant percentage of the total construction cost, the favored contractor has a distinct competitive advantage, which is usually reflected in its price.

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Limited use of restrictive specifications may be necessary in certain situations. For example, a government may require standard door hardware and locks that match existing facilities for security or certain light fixtures to limit maintenance inventory. In these circumstances, the procurement professional should check to ensure that all contractors are able to obtain the restricted products directly or through subcontractors. If the restrictive item is not commonly available to contractors, buying the product under a separate procurement for installation will ensure that the government needs are met without restricting competition for the construction contract.

Sealed Plans and Specifications Plans and specifications are stamped or “sealed” by the architect or engineer with the designer’s registration or license number. Only the sealing designer may alter them. The contracting officer should review the plans and specifications and discuss any restrictive and unclear requirements with the project manager and designer. Unclear and ambiguous specifications and unduly restrictive specifications should be corrected by the designer before the solicitation is issued.

Bids and Proposals Most state and local laws require award of Design-Bid-Build contracts to the responsible bidder who tenders the lowest responsive bid. However, there are a few variations to the traditional bidding process. Local governments in Arizona may use a two-stage bidding process to prequalify firms to bid on construction projects. In the first stage, firms are invited to submit statements of qualifications and are evaluated on expertise and experience relevant to the specific project. Only the highest-ranking responsible firms are prequalified to submit bids, and the contract is awarded to the lowest responsive prequalified bidder. Some state laws also permit best-value sourcing of Design-Bid-Build contractors through competitive negotiations. A+B bidding is a competitive bidding method used by the Washington State Department of Transportation for highway construction. Using A+B bidding, the government assigns a value for each day required for construction. Bidders are required to bid both the price of construction and the time required to complete construction. The bid amount for construction and the daily time value is combined to determine the lowest bidder. If the contractor exceeds its time commitment for construction, the daily rate is deducted from the contract amount as liquidated damages.

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A+B Bidding Example

Bidder

Bid (A)

Days

B Amount

Total

ABC DEF XYZ

$850,000 $860,000 $950,000

400X$500 360X$500 300X$500

$200,000 $180,000 $150,000

$1,050,000 $1,040,000 $1,100,000

Created by the author.

In Table 6.1, bidder DEF’s A+B bid is the lowest, and, assuming the bidder is responsible, and the bid is responsive, will be awarded the construction contract. Design-Build contracts cannot be awarded based on competitive bids because the contracts include architect or engineering services, and the final price may not be negotiated until the design is completed. Instead of competitive bidding, state and local laws may require use of the qualification-based procurement method or competitive negotiations for Design-Build contracts. Construction Manager at Risk contracts are also not conducive to competitive bidding, as the final price is not determined until after the design is complete or nearly complete. Instead, Construction Manager at Risk contracts are awarded based on competitive negotiations and best value.

Construction Solicitation Documents While the architect or engineer is responsible for preparing the plans and specifications, the contracting officer is responsible for preparing the solicitation documents. The order of documents contained in the solicitation is based on internal policy and procedures. The solicitation generally comprises the following documents or forms, combined with the plans and specifications: ◾ ◾ ◾ ◾ ◾

Instructions for offerors Minimum qualifications and selection criteria Construction contract terms and conditions Price schedule Other solicitation documents

Instructions for Offerors The instructions guide the offeror in the preparation of bids or proposals. Although the instructions do not become a part of the construction contract, they are important in providing direction to the contractor on how to prepare the offer and the process for how the contract will be awarded.

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Information provided in the instructions may include: ◾ Time, date, and location for submission of offers and notification that late offers will not be accepted ◾ Point of contact and deadline for submission of questions about the solicitation ◾ Appropriate method of communication with the government and notification that the written document takes precedence over oral statements ◾ The number of days offers are valid after the due date ◾ Treatment of solicitation amendments, including requirement that all amendments must be acknowledged in writing ◾ Pre-offer meeting and site visit, including the time, date, location, information on site security, and access procedures ◾ Requirement that offerors take reasonable steps to investigate and inspect the site prior to submitting an offer ◾ Requirement for identification of major subcontractors and suppliers ◾ Instructions on how to prepare and submit the offer, including signatures, forms, acknowledgments, and certifications that must be completed and submitted with the offer ◾ Process for offering alternate or equal products ◾ Required qualifications, including contractor licenses, references, experience performing similar work, and other responsibility requirements ◾ Bid, payment, and performance bond requirements ◾ Set asides or goals for small or disadvantaged businesses ◾ Any submittals that may be required for the evaluation of offers, including proof of insurance, references, licenses, and product literature ◾ Information on how offers will be evaluated, and how the contract will be awarded ◾ How bid mistakes will be treated ◾ The process for protesting the solicitation and contract award Contracting officers should be careful to avoid confusing instructions and unnecessary requirements, such as stating the bid price in words and numbers or initialing each page of the solicitation. Such requirements do not add value to the procurement and invite mistakes that may result in rejecting otherwise good offers and subsequent protests.

Two-Step Prequalification Process Minimum qualifications provide for a more efficient procurement process by eliminating prospective offerors who lack the experience or capability to perform

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the contract. Use of minimum qualifications, when relevant and applied fairly, helps contractors avoid wasting time attempting to compete for a project they are unable to perform. This process can be accomplished in two steps. Step One—The contracting officer issues a Request for Qualifications that: ◾ Describes the scope of the project ◾ Provides minimum qualification criteria and explains how firms will be qualified ◾ Instructs offerors on how to submit qualifications, including the due date and time The contracting officer and technical evaluation team selects only those firms that meet the minimum qualifications. If there is doubt or questions regarding a contractor’s qualifications, the contracting officer should request clarification from the offeror. To avoid eliminating qualified firms from competition, the maximum number of qualified offerors should not be determined in advance. Offerors are either qualified or not qualified, based on the criteria stated in the Request for Qualifications. Minimum qualifications may include: ◾ Experience of the contractor performing similar work ◾ Licenses and qualifications of the firm and subcontractors that are necessary to perform the work ◾ Verification of bonding and insurance ◾ Evidence of capacity and capability to perform the work ◾ Customer references for determining past performance Prequalification is pass or fail and not a ranking process. All firms meeting the minimum qualifications are allowed to compete on an equal basis. Care must be taken to ensure that any minimum qualifications are relevant and necessary to avoid eliminating any otherwise qualified contractors. Step Two—The request for bids or proposals is issued to prequalified offerors

Technical Selection Criteria While most Design-Bid-Build contracts are awarded to the responsible bidder that tenders the lowest responsive bid, Design-Build and Construction Manager at Risk procurements are awarded to the offeror that proposes the best value. Best value is defined in Part 2.101 of the Federal Acquisition

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Regulation (FAR) as “the expected outcome of an acquisition that in the Government’s estimation, provides the greatest overall benefit in response to the requirements.”2 Best value is based on technical factors and price. All technical evaluation factors and subfactors that will be used to determine best value shall be clearly stated in the order of their relative importance in the request for proposals (RFP). The solicitation shall also state whether the technical evaluation factors are more important than price, equal to price, or less important than price. Technical evaluation factors are tailored to the specific procurement, represent what is important in the selection decision, and should support meaningful comparison of competing proposals. Only the technical evaluation factors stated in the solicitation may be used to evaluate proposals. Examples of technical evaluation criteria include: ◾ Experience of the offeror performing similar work ◾ Licenses and qualifications of the offeror and any subcontractors that are necessary to perform the work ◾ Experience of key personnel, including architect and engineers, construction superintendent, and safety and quality control managers ◾ Capacity to perform the work, including bonds, insurance, and capital ◾ Quality assurance and control plan ◾ Management, safety, and security plans ◾ Past performance based on references and documented violations and complaints ◾ Small or disadvantaged business program and plan ◾ Plan and schedule for performing the work ◾ Technical approach to the project ◾ Any other criteria relevant to the procurement A proposed preliminary design and innovative aspects are important evaluation factors in selecting the Design-Build contractor. The preliminary design represents the design-builder’s concept for the project. Innovative aspects are the design-builder’s ideas for providing best value on the project from a lifecycle cost prospective. The preliminary design and innovative aspects are requested from only those firms shortlisted or in the competitive range following the initial evaluation of technical qualifications. Unless directed by law, the contracting officer determines the evaluation method. FAR Part 15.305 explains: Proposal evaluation is an assessment of the proposal and the offeror’s ability to perform the prospective contract successfully. Evaluations may be conducted using any rating method or

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combination of methods, including color or adjectival ratings, numerical weights, and ordinal rankings. The relative strengths, significant weaknesses, and risk supporting the proposal evaluation shall be documented in the contract file.3 The most common evaluation methods include: ◾ Adjectival Rating—assessment of the proposal based on a narrative description of the strengths, weaknesses, and deficiencies in each proposal ◾ Weighted Scoring—each evaluation factor is assigned a weight representing its relative importance and scored on a standard scale (1–5 or 1–10, for example) ◾ Ordinal Ranking—ranking each factor for each proposer ◾ Colors—colors denote the quality of each evaluation factor. For example, green is strength, blue is acceptable, yellow is weakness, and red is deficiency ◾ Combination—any combination of the above methods Public contracting officers tend to prefer using the weighted scoring method, as it is perceived to be more objective than other methods. However, the assigned weights and scores are also subjectively assigned. It is more important to explain the basis for the score in a narrative when evaluating proposals, as the narrative is necessary to support the selection decision, especially if the decision is challenged. How price is evaluated depends on the laws and policies of the jurisdiction as they relate to the specific project delivery method. Some jurisdictions require that a Design-Build contractor be selected through a qualification-based selection process, without consideration of price. Some jurisdictions require submission of price separate from the technical proposal, to be evaluated only after completing the technical evaluation. Others require selection of a “short list” of the most qualified firms for Design-Build or Construction Manager at Risk projects, who are later invited to submit priced proposals. If price is a selection factor, the relative importance of price in comparison to the technical factors and the method for evaluating price must be stated in the solicitation. The solicitation should also address how price negotiations may be conducted if permitted for the procurement.

Construction Contract The construction contract governs the relationship of the owner and contractor and the role of the architect or engineer during and after construction. The

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contract comprises standard clauses that apply to all procurements, clauses that cover public works, and custom clauses that apply to specific projects. The government may use its own terms and conditions or a template contract with modifications unique to the specific government and project. A license to use a template contract may be purchased from various professional associations and commercial sources, including: ◾ American Institute of Architects (AIA), A-101 Standard Form of Agreement between Owner and Contractor, and A201 General Conditions of the Contract for Construction ◾ American Society of Civil Engineers (ASCE), C-401 Suggested Bid Form and Construction Contract, and C-520 Suggested Form of Agreement between Owner and Contractor ◾ Construction Owners Association of America (COAA) ◾ Design-Build Institute of America (Design-Build Institute of America), #501 Standard Form of Contract for Design-Build Consultant Services, and #520 Standard Form of Preliminary Agreement between Design-Builder and Teaming Party ◾ National Society of Professional Engineers, C520 Agreement between Owner and Contractor These associations also provide many other resources and templates, including surety bond forms, solicitations, and change orders. Commercial contracts may be modified to meet specific government and project requirements. Contract clauses are also published in the FAR, which may be modified for state and local government use.4 Clauses unique to government construction contracts include: ◾ Authorized Agent—Persons authorized to represent the owner and contractor and their respective authority are identified in the contract. ◾ Building Standards—The contractor must comply with state and local building codes, and the contractor may be required to obtain permits and third-party inspection of the work. ◾ Changes—Changes are common with construction and may be directed by the owner or through the architect or engineer. The contractor may also request changes. Changes may be in the form of unilateral change orders from the owner, architect, or engineer if authorized by the owner, or by negotiated modifications to the contract. The contract should address what types of changes may be allowed, authority for directing changes, and the process for negotiating and authorizing the changes.

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◾ Claims and Disputes—The required process for settlement and administration of claims and disputes, based on the laws and regulations of the jurisdiction, should be identified in the contract. ◾ Delays—The contract should address the treatment of delays: ◾ Contractor delays are the responsibility of the contractor and shall not result in an extension of the schedule. ◾ An adjustment to the schedule may be made for unusual and unforeseeable delays. Unless stated otherwise in the contract, the contractor is not entitled to monetary compensation for the delay. ◾ In addition to extending the schedule, owner-caused delays may result in damages for the contractor for extended overhead, wages for idled workers and equipment, and other costs. Some governments include a “no damage for delay” clause that permits a time extension and prohibits the contractor from claiming monetary damages for an owner-caused delay. A “no damage for delay clause” is not permitted in some states and may be perceived by contractors as unfair. The clause has also been overturned in some jurisdictions when the owner, architect, or engineer was found responsible for the delay. ◾ Differing Site Conditions—The contractor has a duty to inspect for differing site conditions before bidding or proposing and is responsible for notifying the contracting officer of subsurface or site conditions that differ materially from those described in the solicitation or contract. Treatment of differing site conditions depends on the relevant contract clauses and nature of the differing conditions. Clauses may grant entitlement to equitable adjustment to price and/or schedule when conditions differ materially from tests, borings, or other information provided by the owner, or when unusual subsurface conditions are discovered on the site that significantly increase the contractor’s costs or schedule. ◾ Inspection and Testing—The contract should identify the requirements and responsibility for testing and inspection, including in-process testing and inspection, punch-list inspection, and final acceptance inspection. The contractor shall be required to provide reasonable access to the owner for inspection and testing. ◾ Insurance—The contract describes all required insurance and insurance forms for: ◾ Workers’ Compensation Insurance—Covers medical expenses and wages for employees injured in the course of employment. Covered employees relinquish the right to sue the employer or project owner for their injuries.

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◾ General and Auto Liability Insurance—Auto liability covers the cost of damage and injury resulting from a vehicle incident. General liability insurance provides protection for property damage and personal injury caused by the contractor or its employees. ◾ Builder’s Risk Insurance—Covers damage to facilities while under construction, including loss or theft of assembled and stored materials. Builder’s risk insurance is especially important for the project owner, as it covers work and materials previously paid for by the owner through progress payments. ◾ Professional Liability Insurance—Covers the cost of defending an errors and omissions claim and the damages awarded or negotiated from such a claim. Professional liability insurance is required for the design architect or engineer, whether contracted directly with the project owner or as a member of the Design-Build team. ◾ Insurance Certificate—The contractor is required to provide a certificate of insurance as proof of coverage. Except for professional liability insurance, the certificate should name the government owner as insured under the contractor’s policy. The insurance certificate must also require at least 30 days’ advance notice of expiration or termination. The standard form for certificates of insurance is available through the Association for Cooperative Operations Research and Development (ACORD). It is important for the contracting officer to consult with a risk manager when preparing the solicitation and contract and when reviewing the contractor’s certificate of insurance. ◾ Liquidated Damages—Liquidated damages are the specific sum of damages stipulated in the contract as the amount to be recovered by the owner for each day of delay in completion of the work. Liquidated damages should be a reasonable estimate of the government’s actual cost for delay. The method for determining the liquidated damages should be documented in the procurement file. Liquidated damages are not a penalty, and excessive damages might be considered punitive and unenforceable if challenged through claim or litigation. ◾ Order of Precedence—The order of precedence for solicitation and contract documents is required to resolve any conflicting language. For example, the order of precedence in the Arizona State Procurement Uniform Terms and Conditions is:5 ◾ Special terms and conditions ◾ Uniform terms and conditions ◾ State or scope of work ◾ Specifications ◾ Attachments

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◾ Exhibits ◾ Documents referenced or included in the solicitation Prevailing Wage—The Davis-Bacon Act requires payment of prevailing wages within a geographic region to contractor and subcontractor employees for federally funded projects. Some state and local laws also require payment of prevailing wages. If applicable, the contract must stipulate the requirement for payment of prevailing wages and how the contracting officer will verify wage rates. Progress Payments and Retention—A single payment may be appropriate for construction contracts completed in 60 days or less. For longer-duration projects, the contractor is paid through progress payments for work completed and materials delivered to the site. The contract should state the level of invoice detail and documentation required, method for verifying progress, required approvals, payment terms, and other information relative to the payment process. The contractor should be paid within 30 days after the government receives an accurate and correct invoice. Likewise, the contractor should pay each suppler and subcontractor within 30 days after its payment is received. The contract should stipulate the percentage the owner may withhold from each progress payment as retention. The amount of retention is usually 5% to 10% and may be required or otherwise limited by state law. Retention is released to the contractor when the work—including all required documentation containing as-built drawings and lien releases—is satisfactorily completed and submitted by the contractor and accepted by the contracting officer. If permitted by law, the government may also reduce the amount of retention if the contractor’s performance is satisfactory when the project is 50% complete. Protection of the Worksite—The contractor shall be responsible for protecting existing vegetation, structures, equipment, utilities, and improvements on or near the worksite during construction and shall repair any damage it caused at its own expense. Subcontractors and Suppliers—The contractor is responsible for the performance of their subcontractors and suppliers. The contractor should be required to identify its subcontractors in its bid or proposal, and the contracting officer should have the right to reject subcontractors and suppliers that are determined to be not responsible. Any subcontractor changes requested by the contractor are subject to the contracting officer’s review and authorization. This requirement is especially important for ensuring compliance with goals for contracting with disadvantaged-, minority-, and women-owned businesses.

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◾ Documentation—Shop drawings are drawings produced by the contractor before and during construction to illustrate proposed layouts and fabrication that are submitted for approval by the project manager. As-built drawings are the detailed drawings of the completed work that are submitted by the contractor for approval by the project manager when the work is completed. The contract should describe the process for submission and approval of shop drawings, as-built drawings, and other required documentation. ◾ Surety Bonds—The contractor is required to furnish a performance bond, guaranteeing faithful and complete performance of the work, and a payment bond, guaranteeing timely payment of suppliers and subcontractors. Payment and performance bonds are required by law and are essential for protecting the government, subcontractors, and suppliers. Substitute security, in the form of cash, certified check, or money order, does not provide the same or equal protection of surety bonds and are not an acceptable substitute. ◾ Suspending and Stopping the Work—The contracting officer or, if authorized, the project manager, architect, or engineer may suspend or stop the work if hazardous or unsafe conditions exist or to correct defective work. ◾ Termination for Convenience—The contracting officer may terminate the contract if the work is no longer needed or there are insufficient funds to complete the project. Under these clauses, the contractor is compensated for all work completed prior to termination. The contractor is not permitted to terminate the contract for any reason. ◾ Termination for Default—The contracting officer may terminate the contract if the contractor is in default, and the contract must stipulate the reasons and notification process for terminating the contract. Notification of the default and the intent to terminate the contract must be provided in writing by the contracting officer, and the contractor must be given a reasonable time to cure the default. ◾ Warranties—The work shall be guaranteed free of defects in materials and construction for at least one year following acceptance of the work or discovery of a latent defect. A latent defect is one that could not be discovered through reasonable or customary inspection. Manufacturer warranties are required for major components installed during construction, such as appliances and HVAC systems. ◾ Other Contract Information—The contract may also contain information and direction that is specific to the construction project: ◾ Communication protocol ◾ Storage and staging areas

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Water, sewer, phone and electrical service hookups and responsibility Site and employee safety and security Site access and traffic control Use of owner-furnished utilities Working hours Quality and safety programs Owner-furnished equipment and materials Borrow and waste site locations Discovery, handling, and disposal of hazardous materials

The contracting officer and project manager should ensure that all solicitation documents are consistent and aligned to avoid conflicting guidance to offerors and contractors. For example, a statement in the specifications or drawings might conflict with a statement in the solicitation instructions or contract terms and conditions. To avoid confusion and conflicting clauses, it is a good practice to place all contract clauses in one section of the solicitation and contract—not in the drawings or specifications. Stating an order of preference in the instructions and contract terms is important for addressing any conflicting language. For example, the contract terms and conditions take precedence over the specifications, and the specifications take precedence over the drawings. Contract terms and conditions are not negotiable when procuring through competitive bids, and any exceptions taken may be cause for rejecting the bid. However, certain terms and conditions may be negotiable when procuring through competitive negotiations or qualification-based selection. Contracting officers should confer with legal counsel before agreeing to any changes to the contract terms and conditions that are requested by the offeror.

Bid or Proposal Price Schedule As illustrated in Table 6.2, the bid or proposal price schedule is the required form in the solicitation used for the offeror to enter the price amount and any additive or deductive bid or proposal options. The price schedule should include a signature block for the offeror to certify its price and compliance with the solicitation requirements. The price schedule may include line items for pricing the work and materials. Breaking down the price by line item is a valuable tool for verifying the bid amount, performing cost or price analysis, administering progress payments, and for use in pricing contract modifications. The project manager or architect or engineer should help determine the required line items for the bid schedule, including general conditions and mobilization.

Construction Contract Procurement ◾  169 Table 6.2 Price Schedule Example Line Item

Unit

Mobilization General Conditions Excavation Structural Electrical Concrete Culvert, 24” Sewer, 12” False Decking Total Bid Amount

LSUM LSUM Yard LSUM LSUM Yard Feet Feet Feet

Quantity

120

80 100 80 12

Unit Price

Subtotal

$ $ $ $ $ $ $ $ $

$ $ $ $ $ $ $ $ $ $

Created by the author.

Mobilization is the cost incurred following notice to proceed and prior to the start of construction. General conditions are those costs incurred during construction that will not be part of the finished product, such as insurance, bonds, waste removal, fuel, transportation, security, and temporary offices and storage.

Deductive and Additive Options Deductive or additive bid options are portions of the work that may be added or deducted from the bid price and are often used to help meet the project budget. The Institute for Public Procurement (NIGP) defines an option as: A unilateral right in a contract that the entity may choose to exercise to purchase additional supplies or services called for in the contract, or to extend the period of performance. For example, if a bid or proposal exceeds available project funding, a deductive option may be applied to the base bid to achieve the budget objective. Conversely, if bids or proposals come in below the available funding, one or more additive options may be awarded. When using deductive or additive bid options, it is important to explain in the solicitation instructions how those options will be considered in awarding the contract. The options should be listed in the order that they will be applied to avoid situations in which certain options might be selected to the advantage or disadvantage of an offeror. For example, Offeror A wins if options one and two are selected, and Offeror B wins if option three is selected.

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Options or Alternates? Additive and deductive options are often incorrectly called “additive or deductive alternates.” A deductive or additive option is a line item in a solicitation price schedule that may be added or deducted at the discretion of the contracting officer when awarding the contract. An “alternative bid/proposal” is defined in the NIGP Public Procurement Dictionary of Terms as “A response to a bid or proposal that does not meet the exact requirements of the specification or scope of work, but offers an alternative for consideration.”

Options shall be considered as a part of the evaluation of offers and the award of the contract. The Federal Transit Administration advises in Procurement Circular 4220.1F that options must be evaluated and considered in determining the contract award if they are to be exercised. If they are not considered in determining award, they cannot be exercised later unless they are justified as a sole source.6

Type of Contract Nearly all government construction contracts are firm-fixed price. Cost reimbursement type contracts subject the government to considerable risk and should only be used in situations in which the required level of effort is unknown. Cost reimbursement contracts provide minimal incentive for the contractor to control costs and should be avoided unless no reasonable alternative exists. Use of cost-plus percentage of cost contracts is prohibited. If certain costs cannot be reasonably predicted, an allowance may be established in the bid schedule and contract for specific line items. For example, an allowance might be provided for relocation of any unknown utilities like underground sewer lines or removal and disposal of hazardous waste that are discovered during excavation. Allowances help reduce the contractor’s risk, which would be reflected in the proposed price. Occasionally, the market for certain materials like copper or rebar may be unstable, with the potential for significant price swings. These price swings can pose a significant risk for contractors, especially for lengthy construction projects. The contracting officer may include a price adjustment provision that applies only to the specific material if the market for that material is unstable.

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Cost and Price Analysis To support evaluation of price, the instructions should include a requirement for submission of certified copies of working papers to support cost analysis, if requested by the contracting officer. The working papers include all documents used by the offeror to prepare its offer, including spreadsheets, notes, quotes, quantity takeoffs, labor and overhead rates, profit margin, insurance, and other relevant information. Evaluating working papers may be necessary to support cost or price analysis if only one priced offer is received, if there is a wide variance between offers or among independent cost analyses, or if there is a suspected or claimed error in pricing an offer. Escrowing the bid or proposal documents is the process of collecting and securing the offer documents at the time of a bid to ensure bids or proposals are not altered after the offer is submitted. The bid or proposal documents may be used later, if necessary to perform cost and price analysis. Escrowing also protects the confidentiality of the offer documents.

Other Solicitation Documents The signature of an authorized agent of the offering firm is required to bind the offer. The signature may be required on the price schedule or in another document within the solicitation under a statement that the offeror certifies compliance with all solicitation requirements, and the price offered was determined without collusion. The signature page should require other essential bid information, including the bidder’s business name and address, the contractor’s license number, a contact person and phone number, a Federal Employee Identification Number (FEIN), and other information that may be necessary to evaluate the offer and award the contract. Other forms and documents that may also be provided in the solicitation include: ◾ Bid, Performance, and Payment Bonds—The bid bond guarantees that the offeror will enter a contract and furnish performance and payment bonds if awarded a contract. Providing standard bond forms in the solicitation will ensure that the surety bonds meet the contract requirements. ◾ Reference Form—This form provides space for three to five business references, including address, phone number, and contact person. References are an important tool for evaluating contractor responsibility. ◾ Register of Solicitation Amendments—This section provides lines for offerors to acknowledge receipt of solicitation amendments. ◾ Non-collusion Affidavit—This document certifies that the offeror did not collaborate with another firm in preparing its offer.

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◾ Debarment Status—The offeror shall declare whether it is debarred or suspended by the federal government, or a state or local government. ◾ Subcontractor List—A list of major subcontractors and suppliers is required to verify responsibility and qualification of subcontractors. ◾ Equipment List—The equipment list requires identification of specified major components, such as HVAC or security systems. Laws and regulations of the jurisdiction or funding source may require other forms, documents, and certifications, such as certification of compliance with laws prohibiting discrimination, lobbying, and conflicts of interest.

Sourcing Process Advertising and notifying prospective offerors of a construction procurement opportunity is done in the same manner as other procurement opportunities. The primary difference is in the way the construction solicitation documents are distributed. Construction plans and specifications can be very large documents or files that cannot be easily distributed to prospective offerors. Instead of distributing the solicitation package to all prospective offerors, a notice is issued by the procurement department, advising prospective offerors on how to obtain the solicitation, including the plans and specifications.

e-Procurement Solutions It’s all going digital! Throughout the 20th century, requesting construction bids was an arduous and expensive process. A construction project might require dozens and sometimes more than 100 plan sheets and multiple volumes of specifications that were reproduced for distribution by the procurement department or a third-party plan room. In the old days, the procurement department would advertise in a newspaper and send out notices to general contractors by mail. Interested contractors would visit or call the procurement department or plan room to obtain copies of the solicitation documents. To recover or limit reproduction cost, the government or plan service would collect a fee or deposit from contractor “plan holders.” General contractors would then make “takeoffs” for distribution to suppliers and subcontractors. After collecting and evaluating subcontractor and supplier bids, general contractors would prepare and submit bids to the government agency. After the contract was awarded, unsuccessful contractors and subcontractors would return the plans and specifications to the procurement department and collect the refundable fee or deposit.

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The digital age has eliminated the need for paper and bulky plans and specifications. Plans and specifications are now prepared through computer-assisted design, or CAD. Requests for bids and proposals are prepared and distributed through cloud-based, enterprise, or third-party software applications. General contractors request and collect supplier and subcontractor bids through bid management applications. Digital bids are prepared and submitted by the general contractors to the procurement department. If your procurement department is still mired in paper, consider going digital. There are several cloud or enterprise-based e-Procurement applications on the market that will streamline the construction bidding and proposal process. Third-party plan services will also provide digital sourcing services. Among other features, these digital platforms provide: ◾ Custom solicitation templates ◾ Offeror notification and advertising ◾ Solicitations, including plans and specifications, and amendment distribution ◾ Subcontractor and supplier networking and takeoffs ◾ Electronic offer submission ◾ Offer evaluation and analytic tools Procurement will continue to evolve with new and better applications, emerging best practices, artificial intelligence, 3D printing, robotics, and other advancements.

Offerors List Most state and local governments maintain their own offerors’ or bidders’ list or use a third party to provide a list of businesses interested in competing for government contracts. Prospective offerors are classified by commodity and service codes for their respective areas of interest. These lists may be supplemented through market research and trade directories and publications to “cast a wide net” for prospective contractors. Notifying subcontractors is also important, as it enables them to begin networking with general contractors. The offerors’ list should include general contractors and major trades, such as electrical, mechanical, and other categories that may be required to perform the work. The timing of the solicitation is very important to achieve maximum competition. If contractors are busy or there are many public and private entities advertising for work at the same time, contractors can be choosy in

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picking their opportunities. Contractors will compete for the opportunities that offer the best chance of success or highest profit margins. Many factors may determine the level of competition for government contracts. Private sector work is often more attractive to contractors because of the higher margins possible with negotiated contracts and the perceived “red tape” in government contracting. Project risks will influence the interest level of contractors in a project. More risk means a higher price and less competition. For example, contractors may add a risk factor to their price for excessive liquidated damages or simply not compete. The reputation of the government agency is also an important factor affecting competition. Governments with a good reputation for fair and equitable treatment of contractors and prompt payment will attract more competition than ones perceived as difficult, unfair, or slow-paying.

Advertising Most procurement laws require legal advertising in a local general circulation newspaper. With the use of a bidders’ list, the internet, and other forms of advertising, legal ads serve more as a public notice and should not be relied on as an effective contractor recruitment tool. For large projects, the contracting officer may publish advertisements in local and national business, trade, and industry publications. Local business and trade associations, including small, minority- and women-owned business groups, will help spread the word and assist with recruiting prospective contractors and subcontractors. Technology and the internet have dramatically improved recruitment of contractors. Governments may post requirements on a community webpage and distribute email notices to thousands of businesses in just a few seconds, saving the delay and cost of postage. Construction plan services provide a variety of support services for contractors, subcontractors, and suppliers, including assistance with bidding, subcontractor and supplier recruitment, and networking and access to plans and specifications. Providing a copy of the bidding documents, including plans and specifications to these “plan rooms,” will help recruit general contractors, subcontractors, and suppliers usually at no cost to the government. There are several national online construction solicitation management companies available to governments for posting and advertising procurement opportunities. These companies also offer a variety of services, including solicitation management, supplier and subcontractor networking, and other services. They include: ◾ BidClerk.com ◾ Construction Bid Source

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Construction Wire Dodge Construction Central Government bids iSqFt by Construction Connect The Blue Book Network

Issuing the Solicitation Contractors are notified of the procurement opportunity through issuance of email notices by the procurement office that describe the project and provide details on how the solicitation may be obtained. Although technology has virtually eliminated the need for bulky rolls of blueprints and multiple volumes of specifications, the construction industry continues to rely on paper. However, the digital age is always expanding and evolving. With computer-aided design and cloud-based computing, plans and specifications can be distributed to contractors and takeoffs issued to suppliers and subcontractors instantly. As the industry continues to advance, more and more construction supervisors, architects, engineers, and project managers will carry their plans and specifications on laptops, tablets, and smart phones instead of paper. Issuing plans and specifications from the procurement office can be somewhat daunting. Cost-effective alternatives include having the architect or engineer distribute the plans, or contracting with a plan service to reproduce and distribute plans and specifications. Outsourcing the distribution of plans and specifications also relieves the government from the task of collecting fees or deposits from contractors and making refunds for returned plans and specifications. Contractors and subcontractors who request plans and specifications should be logged by the procurement office with address and contact information for distribution of notices and solicitation amendments. Contractors and plan rooms will request copies of the plan-holder list for recruiting subcontractors and suppliers. Subcontractors and suppliers may also request copies of the plan-holder list to engage and network with prospective general contractors. Some governments prefer to keep the plan-holder list confidential so contractors cannot determine their competition. However, the plan-holder list is a valuable tool for connecting general contractors, subcontractors, and improving competition.

Solicitation Amendments Prospective offerors are likely to have questions about the solicitation after it is issued. Questions should be addressed to the contracting officer, who

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logs and distributes them to the appropriate subject matter expert to answer. Questions and answers are edited and issued as an amendment by the contracting officer to all prospective offerors who have registered to receive the solicitation, so all competitors have the same information. Solicitation changes may be prompted by questions received during the question-and-answer process or pre-offer meeting. Any changes to the solicitation are issued by the contracting officer in solicitation amendments. For clarity, solicitation amendments that change the plans and specifications should include the entire plan sheet or a specification page that is being changed. Solicitation amendments that contain material changes must be acknowledged by offerors in their response. This acknowledgment may be made by signing and submitting a copy of each solicitation amendment with the offer or through a register of amendments in the solicitation on which the offeror can list and acknowledge each solicitation amendment received.

Receiving Offers Bids and proposals are received, logged, and kept in secure and locked storage until the time and date set for opening offers. Bids are read aloud and recorded by the contracting officer. When opening bids, the base bid amount, line item, and option prices are read aloud and recorded. Unless otherwise required by law, only the name of the offeror is read when opening proposals or statements of qualifications. Some contracting officers also verify and report whether required forms and information are included with the offer during the public opening. While informative, this practice can lead to complaints and protests should the contracting officer later discover a misplaced document or signature. Late offers are a frequent topic of discussion among procurement officials. The primary reason for rejecting late offers is to protect against offerors gaining an unfair competitive advantage through access to competitors’ prices. Since late offers are common, there is considerable history in the legal and administrative record on treatment of late offers. Late offers are rejected unless the government is responsible for causing the late submission.

Pre-offer Conference and Site Visit The pre-offer conference provides contractors with the opportunity to ask questions, request clarification of the solicitation requirements, network with prospective subcontractors and suppliers, and inspect the site conditions.

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Contractors may also point out defects and ambiguities in the solicitation or their concerns about the project. The pre-offer conference is conducted by the contracting officer, who facilitates a panel of subject matter experts, including the architect or engineer and project manager. Representatives from inclusion and economic opportunity, finance, risk management, and other departments may also be included on the panel or available to answer questions. Conference attendees are provided with an agenda and advised by the contracting officer of the purpose and ground rules at the beginning of the conference. Conference attendees are advised by the contracting officer that the requirements contained in the solicitation are not changed by statements made during the conference, unless documented in a solicitation amendment. This statement should also be printed on the agenda. It is a good practice to rehearse and discuss ground rules before the conference. Even with a disclaimer, undocumented statements made by the government representative during conferences may serve as evidence in the event of a dispute. For construction projects within high security areas, the site visit may be the only opportunity for prospective offerors to view the site. For prisons and other high security facilities, background checks and advance authorization of visitors may be required. Some government agencies require mandatory attendance at the pre-offer conference as a condition for bidding. Mandatory pre-offer conferences are not recommended, as they restrict competition, invite protests, and may result in delaying the procurement if an insufficient number of prospective offerors attend the conference. If only one contractor attends, they can be certain they are the only competitor and will price the offer accordingly. The government agency may record the conference or take minutes. Minutes and recordings are a double-edged sword. As public record, recordings and minutes of pre-offer conferences may be requested by the winning contractor for use in filing a claim, or by disappointed offerors preparing to protest the procurement. Asking for written questions prior to the conference will help the contracting officer prepare responses in advance. Having prepared answers is much more professional than responding to questions with, “We’ll have to get back to you.” Common pre-offer questions address: ◾ Project Budget—The budget is important for determining whether the contractor can obtain bonds and has sufficient resources to perform the work. The budget also serves as a benchmark for comparing estimates. Some governments refuse to reveal budget information out of concern that it may influence bidding. In many cases, the project budget is public record. If there is some concern that releasing the project

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budget might bias offerors, the agency can publish an estimate range instead of the budget amount. Offerors also need to know their budget ceiling when preparing offers for Design-Build projects. ◾ Timing of the Contract Award—The timing of the award is important in estimating material and labor costs. Prices can change dramatically in the weeks or months required for evaluating offers, obtaining approvals, and awarding the contract. Offerors want some assurance that the contract will be awarded in a reasonable amount of time, usually less than 60 days. ◾ Job Site Logistics—Contractors may ask about locations for storage and office trailers, borrow and waste locations, delivery access, utilities, security requirements, and vehicle access. ◾ Other Questions—Other questions may concern inspection and testing procedures, potential for hazardous materials, location of utilities, communication protocol, payment practices, construction schedule, access to reports, drawings, test data, and required permits and fees. The contracting officer should be prepared for these questions, or better yet, address them in the solicitation.

Evaluating Offers—Offeror Responsibility Government contracts are awarded only to responsible contractors. With competitive bidding, contracts are awarded to the responsible bidder who submits the lowest responsive bid. With competitive negotiation and qualification-based procurement methods, contracts are awarded to the most advantageous responsible offeror. The NIGP Public Procurement Dictionary of Terms defines a “responsible bidder or proposer” as: A supplier with the integrity and reliability as well as the financial and technical capacity to perform the requirements of the solicitation and subsequent contract. The American Bar Association (ABA) Model Procurement Code for State and Local Governments defines a “responsible bidder or offeror” as: A person who has the capability in all respects to perform fully the contract requirements, and the integrity and reliability which will assure good faith performance.7

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Determining responsibility is an affirmative act of the contracting officer. Section 9.103(b) of the FAR states: No purchase or award shall be made unless the contracting officer makes an affirmative determination of responsibility. In the absence of information clearly indicating that the prospective contractor is responsible, the Contracting Officer shall make a determination of nonresponsibility.8 To determine responsibility, the contracting officer shall verify that the contractor has9: ◾ Adequate financial resources necessary to perform the contract, or the ability to obtain those resources ◾ The ability to comply with the required delivery or performance schedule ◾ A satisfactory performance history ◾ A satisfactory record of integrity and business ethics ◾ The necessary organization, experience, accounting, operational controls, and technical skills, or the ability to obtain them, including production and property control, quality assurance measures, and safety programs ◾ The necessary production, construction, and technical equipment and facilities, or the ability to obtain them ◾ The necessary qualifications and eligibility to perform the work, including required licenses and certifications and sufficient insurance coverage The offeror is responsible for ensuring that its subcontractors and suppliers are also responsible. However, the contracting officer should at a minimum verify suspension and debarment status and required licensing of subcontractors. Sources of information to determine offeror responsibility include: ◾ Current Contractor and Subcontractor Licenses—The prime contractor and subcontractors must be licensed within the state to perform the work. Licensing and any complaints may be verified through the state registrar of contractors or other licensing agency. ◾ References—References for performance on other contracts is an important indicator of responsibility. References should be requested in the solicitation and contacted by the procurement department direct or by survey.

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Business references may also be obtained from other sources not identified in the offer, including agency staff. One negative reference among several positive or neutral references may not be sufficient to determine that an offeror is not responsible, but multiple negative references may support a “not responsible” finding. Reference questions should address the contractor’s conformance to the schedule, quality of the work, safety record, cooperation, submission of required documentation, coordination of suppliers and subcontractors, and supervision of staff. Debarment and Suspension Status—Suspension or debarment of a contractor is a determination by the federal, state, or local government that a contractor is not responsible. Suspension is the temporary procurement exclusion of a contractor while it is under investigation or legal proceedings. A debarment is a procurement exclusion of a contractor for a specified period following an investigation or legal conclusion. Suspended and debarred contractors are listed on the federal System for Award Management. Financial Statements—The contracting officer may request income statements, balance sheet, and cash flow statements from the offeror to verify financial capacity. Financial ratios may be compared with industry standards, including acid test and quick ratios, debt/equity ratio, and working capital ratio. Financial statements should be reviewed by a qualified accounting or financial professional. The contracting officer can also request letters of credit from the offeror’s bank. Credit Reporting—There are various business credit reporting sources available through subscription or fee, including Dun & Bradstreet, Equifax, and Experian. These reporting services provide information on credit status, tax liens, business health, and comparison to industry standards. OSHA Complaints—The Occupational Safety and Health Administration maintains a file of inspections and complaints. Business Rating Agencies—Various business rating agencies, like the Better Business Bureau and Procurated, provide business rating services.

It is not necessary to evaluate the responsibility of every bidder or proposer. The responsibility evaluation is performed by the contracting officer only for the potential contract awardees, such as the lowest bidder, offerors selected to the competitive range, and prequalified offerors. Circumstances can change after a business is prequalified or included in the competitive range. It is important for the contracting officer to verify the proposed awardee’s responsibility immediately prior to awarding the contract.

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The responsibility finding should be carefully documented for the procurement file. It is important for the contracting officer to discuss a possible “not responsible” determination with the offeror and invite a response to the finding.

A Nasty Situation County Purchasing Agent Shane McFlame gave a deep sigh as he reviewed the bids. The lowest bidder, Nasty Builders, has a reputation for abusing governments. The contractor was late completing three county construction projects and contested the liquidated damage assessments. The contractor is known throughout the industry for submitting “low ball” bids and filing change requests and claims to make up the difference. The work is often of poor quality. There were 14 claims filed on its last county project, including for work and materials that were rejected for nonconformance with the plans and specifications. Shane shook his head. Despite the many problems, there is little written documentation on file to support the complaints. The references, although tepid, were either neutral or favorable. Shane noted that the same three references are always submitted by Nasty. He would like to call some government colleagues who have had trouble with Nasty, but they were not given as references. The construction project manager pleaded for rejection of Nasty’s bid, describing the contractor as her “worst nightmare.” Should Shane reject the bid or award Nasty another contract? What information will Shane need to document rejection of the Nasty bid? Can Shane call his colleagues for a reference? As the adage goes, “Fool me once, shame on you. Fool me twice, shame on me.” The previous county experience with Nasty Builders should be sufficient cause to determine that Nasty is not a responsible bidder. Even if contract files lack sufficient documentation, there should be some record of the late and poor performance. Shane is not limited to the references provided by Nasty in making the responsibility determination. Requests for additional references are permitted. Shane can request that Nasty provide a list of all government contracts performed by Nasty during the last two or three years for reference checks and interview the county project manager

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on his experience as a reference for Nasty. In the end, Shane is obligated to determine that Nasty Builders is not a responsible contractor and prepare for the inevitable protest. A determination that an offeror is not responsible is likely to be challenged. However, if the determination is based on verified facts, is not in violation of the law, is not arbitrary or capricious, and is consistent with other findings, the contracting officer will likely prevail in any protest. Contracting officers are advised to seek legal advice about recommended practices for documenting a non-responsibility determination, including any reference interviews for inclusion in the procurement file. Any determination of nonresponsibility must comply with state and local laws and must be reviewed by legal counsel.

Evaluating Competitive Bids Evaluating construction bids is much like evaluating bids for commodities and services. It is the duty of the contracting officer to ensure that the bidder who tenders the lowest bid is responsible and the bid is responsive. If either of these two conditions is not met, the bid must be rejected.

Responsive Bid The NIGP Public Procurement Dictionary of Terms defines “responsive bid” as: A bid that fully conforms in all material respects to the solicitation and all of its requirements, including all form and substance. The ABA Model Procurement Code for State and Local Governments defines a responsive bidder as “a person who has submitted a bid which conforms in all material respects to the Invitation for Bids.”10 If a bid contains material exceptions to the solicitation requirements, it must be rejected as nonresponsive. Requiring responsiveness ensures that all bidders compete on an equal basis. The contracting officer is responsible for carefully examining the offer for material deviations from the solicitation requirements. Whether the material deviation is a mistake or intentional, the bid must be rejected as not responsive. Governments have different standards for determining responsiveness of bids. Some hold to a strict standard, rejecting an offer for any defect, while other governments allow deviations that are deemed not material. Material

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defects are a matter of substance that affect price or time, do not conform to the solicitation requirements, or prejudice other bidders. Non-material defects are a matter of form and not substance and may be corrected without prejudicing other bidders. Material bid defects may not be corrected after bid opening. Responsiveness applies to competitive bids, but, depending on the applicable law, may not apply to competitive negotiations, as offer deficiencies and significant weaknesses may be improved through negotiation. The laws and regulations of a jurisdiction are the first and most important guidance for dealing with deviations from bid requirements. The contracting officer should confer with legal counsel before accepting or rejecting a defective offer. The following examples are common defects in bids: ◾ An omission or deviation from the specification or contract requirements is most often a material deviation. ◾ Offering an alternative to the specification or contract requirements is not a material defect if the requirement is also met, or the alternate complies with the requirements. ◾ Omission of a price schedule line item is material unless the omitted price is included in another line item, or the omission does not affect the bid amount. ◾ Failure to acknowledge a solicitation amendment is a material defect unless the amendment is not material to the offer, or if there is evidence of acknowledgment of the amendment elsewhere in the offer. Failing to acknowledge a solicitation amendment that only extends the due date and time is not material and is not sufficient cause to reject an offer. ◾ Failure to sign the bid or proposal is a material defect, as the offer is not binding. However, other evidence in the offer, including a signed bid bond, may make the offer binding, even if the signature is omitted and may be sufficient for acceptance of the offer. ◾ Failure to enclose product literature or the insurance certificate with the offer is usually not material, as the product literature or certificate may be obtained later from the offeror. ◾ Failure to submit the required number of bid copies is not material if the original offer is submitted. ◾ Failure to provide the bid amount in both numeric and written form is not material if the amount is evident on the face of the offer. Entering two different amounts on the offer is a material defect unless the intended amount is clear. ◾ Failure to provide a bid bond is material.

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◾ Omission of required signed documents like a non-collusion affidavit, subcontractor list, or references is material. ◾ Failure to price an option is material if the contract award will include the option. Consistency is important with the treatment of offer defects. An agency should never reject an offer as not responsive if it has accepted other offers with the same or similar defect. Inconsistency in determining responsiveness opens the door to protests. Rejecting an offer for a material defect or waiving an immaterial defect may result in a protest. If the decision to reject an offer or waive the defect conforms to the law, is not a violation of law, is not arbitrary or capricious, and is consistent with other decisions, the contracting officer will likely prevail in any protest.

Bid Mistakes The law of a jurisdiction governs the treatment of bid mistakes. Generally, if a bidder reports a material mistake in its bid after bid opening and requests permission to correct the mistake, the bid may not be corrected unless the mistake and the intended bid is evident. Part 14.407 of the FAR allows a bidder to correct a bid mistake only if “the existence of the mistake and the bid actually intended are ascertainable substantially from the invitation and the bid itself.” For example, the bidder might report that it miscalculated its bid amount due to a math error. If the intended bid amount can be determined by the sum of line items that comprise the bid, the error may be corrected. Unless otherwise required in law, if a bidder reports a material mistake and requests withdrawal of its bid, the contracting officer may not permit withdrawal of the bid unless evidence of the mistake is clear, but the intended bid is not clear. In this case, the bid may be withdrawn but not corrected. For example, the bidder reports that it failed to include excavation in its bid and provides evidence of the omission in its worksheets. The contracting officer may allow for withdrawal of the bid but cannot allow correction. Offer mistakes discovered after the contract is awarded pose a daunting challenge for the contracting officer and should only be addressed after consulting with legal counsel. Such mistakes might have resulted in the rejection of the offer or award to a different contractor. Correcting the mistake may require reforming the contract. Underpricing the offer in error is generally not correctable. However, the contractor might argue hardship and that it would be unconscionable to deny correction.

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Lowest Bid If there is sufficient competition, price analysis is applied to the lowest bid to determine if it is fair, reasonable, and rational. The NIGP Public Procurement Dictionary Terms defines “fair and reasonable price” as: A price that is fair to both contracting parties, considering the market range for the good or service, agreed-upon conditions, promised quality, and timeliness of contract performance. It defines “reasonable cost” as: A cost that by its nature or amount does not exceed what would normally be incurred by an ordinarily prudent person in the conduct of competitive business. “Rational” means based on reason or logic. The first step in analyzing the lowest bid is to verify the extensions and calculations on the bid schedule. The treatment of errors depends on the laws and regulations of a jurisdiction. The FAR requires reporting the error to the bidder and permits correction of the error if the correct intent is evident on the face of the bid. For example, bidder A multiplies a quantity of ten by $10 for an incorrect subtotal of $110. Correcting the bid amount results in a bid reduction of $10. Other government laws or regulations may prohibit correcting the bid or require correcting without conferring with the bidder. It is a good idea to confer with legal counsel before acting on bid pricing errors. Price analysis is applied to the low bid by the contracting officer. Price analysis is the evaluation of price, without evaluating the separate cost elements and profit to determine the reasonableness of the price and errors in the offer. With construction bids, price analysis primarily consists of comparing the low bid with competing bids and the independent cost estimate. A low bid that varies substantially from competing bids or the independent cost estimate merits further analysis, as it may be irrational or unreasonable. Below are some examples. Table 6.3

Variance among Bidders

Bidder A Bidder B Bidder C Bidder D Independent Cost Estimate Created by the author.

$12,500,000 $17,000,000 $17,400,000 $61,200,000 $17,500,000

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In Table 6.3, the low bid is significantly lower than competing bids and the independent cost estimate. The variance could indicate that Bidder A omitted a portion of the work or made a calculation error. The variance could also indicate that Bidder A has a competitive advantage, such as a sole source relationship with the supplier of a key component or owns an essential proprietary process. The variance could also mean that Bidder A is idle and chasing work. The contracting officer should notify Bidder A of the bid disparity and request clarification. It is likely that Bidder A will discover its error and request correction or withdrawal of its bid. Procurement laws prohibit correction of the bid unless the error is clearly evident on the face of the bid, but they may permit withdrawal of the bid if Bidder A provides evidence of its mistake. Bidder A could have relied on assumptions to intentionally omit requirements, intending to seek additional compensation through changes. If Bidder A insists that its bid is correct, a cost analysis is required to validate the price. Bidder D may have transposed numbers on the bid schedule or is just hoping to get lucky. The wide variance in the bids in Table 6.4 could indicate an ambiguity in the requirements, causing each bidder to make different assumptions. The low bidder is exceptionally low, and competing bid prices are scattered over a wide range. The variance could also indicate an element of risk perceived by some of the bidders. If there is a wide variation among bids, or if the lowest bid is much lower than competing bids, cost analysis is required to determine whether the bid amount is rational, fair, and reasonable. Table 6.4 Variance among All Competitors Bidder A Bidder B Bidder C Bidder D Independent Cost Estimate

$12,500,000 $14,000,000 $17,500,000 $22,200,000 $15,000,000

Created by the author.

Table 6.5 Line-Item Variance among Competitors Bidder

Mobilization

Bidder A $1,500,000 Bidder B $150,000 Bidder C $180,000 Independent Cost Estimate $200,000 Created by the author.

Construction

Total

$14,500,000 $16.000.000 $15,900,000 $16,000,000

$16,000,000 $16,150,000 $16,700,000 $16,200,000

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Bids Exceed the Independent Cost Estimate

Bidder A Bidder B Bidder C Bidder D Independent Cost Estimate

$27,000,000 $27,600,000 $28,200,000 $26,500,000 $24,000,000

Created by the author.

In Table 6.5, Bidder A appears to have submitted an unbalanced bid by “front-loading” mobilization to receive a monetary advance. The government cannot pay in advance for construction. An unbalanced bid is one that contains a serious price aberration and is not responsive. Under the FAR, the bid would be considered unbalanced. The FAR also provides guidance for the treatment of unbalanced bids. The contracting officer should confer with Bidder A and perform cost analysis to determine the reason for the excessive mobilization cost and consult with legal counsel on how to address the unbalanced bids. State and local laws may differ in the treatment of unbalanced bids, and the contracting officer should confer with legal counsel before rejecting or accepting an unbalanced bid. In Table 6.6, all bids exceed the independent cost estimate by at least $3 million, or more than 10%. The bids are also likely to exceed the funding available for the project. The contracting officer should explore the variance with the project manager and architect or engineer. If line-item prices are included in the price schedule, the contracting officer can analyze variances among them. If the bid also exceeds available funding for the project, it must be rejected, and the project be redesigned to meet the funding objective. Some state and local laws permit negotiation with the low bidder if bids exceed the budget by a small amount. Dallas Area Rapid Transit procurement regulations allow conversion of bids to proposals for negotiation when all bids exceed the available funding or the independent cost estimate.

Cost Analysis Part 15-801 of the FAR defines “cost analysis” as: The review and evaluation of the separate cost elements and proposed profit of (a) an offeror’s or contractor’s costs or pricing data and (b) the judgmental factors applied in projecting from the data

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to the estimated costs in order to form an opinion on the degree to which the proposed costs represent what the cost of the contract should be, assuming reasonable economy and efficiency.11 Cost analysis is performed on the working papers that the offeror used to prepare its bid or proposal and should only be performed if the contracting officer is unable to determine that the price offered is fair and reasonable through price analysis. Most jurisdictions and most contractors will require that working papers and the analysis be kept confidential. Cost analysis is an arduous task, requiring careful examination of the offeror’s working papers, spreadsheets, supplier and subcontractor quotes, calculations, and assumptions. Cost analysis should be performed by a qualified cost and price analyst, accounting professional, or construction estimator, either from within the organization or from an outside source. Cost analysis is addressed in more detail in Chapter 5.

Evaluating Competitive Proposals Unless another procurement method such as competitive bidding or qualification-based selection is required by law or regulation, competitive negotiations are used for the selection of Design-Build and Construction Manager at Risk contractors. Competitive negotiations may also be used for selecting job order contractors, if permitted by law. The ABA 2000 Model Procurement Code for State and Local Governments recommends using competitive sealed proposals for procuring Design-Build contracts.12 There are various names for the competitive negotiations sourcing method, including best value, competitive proposals, competitive sealed proposals, request for proposals, and RFP. The NIGP Public Procurement Dictionary of Terms defines “competitive negotiation” as: A procurement method for obtaining goods, services, and construction in which discussions and negotiations may be conducted with responsible proposers who submit responsive proposals. The process concludes with the award of a contract to the proposer who offers the best value. NIGP defines “best value” as: 1. A procurement method that emphasizes value over price. 2. An assessment of the return that can be achieved over the useful life of an item, e.g., the best combination of quality, service, time, and price.

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NIGP defines “Request for Proposals (RFP)” as: The document used to solicit proposals from potential providers (proposers) for goods and services. Price is usually not a primary evaluation factor. An RFP provides for negotiation of all terms, including price, prior to contract award. May include a provision for the negotiation of best and final offers. May be a single-step or multi-step process. For clarity in this text, keep in mind that: ◾ Competitive negotiations is the sourcing process. ◾ RFP is the document used by the procuring authority to obtain proposals. ◾ Proposal or offer is the response to the RFP. ◾ Best value is the intended outcome of the sourcing process.

Technical Evaluation Committee Proposals are evaluated by a technical evaluation team tailored for a specific procurement. The team should include subject matter experts with expertise and qualifications relevant to the procurement, including the project manager, architect or engineer, and key stakeholders. The team may also include evaluators or advisors representing legal, finance, risk management, economic opportunity and inclusion, and other departments. The team is chaired by the contracting officer, who, as a non-voting member: ◾ Provides guidance and instructions to evaluators ◾ Facilitates the evaluation process ◾ Obtains non-collusion and conflict of interest statements for each evaluator ◾ Ensures that the procurement process follows the procurement plan and applicable laws and regulations ◾ Ensures that the proposals are evaluated based solely on evaluation factors contained in the solicitation ◾ Documents the process for the procurement file ◾ Selects or recommends the most qualified proposal, based on the committee findings In addition to evaluating proposals, the technical evaluation committee should be engaged early in the procurement process, including planning the procurement and determining evaluation criteria.

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Evaluation Process A two-step proposal evaluation process provides for an efficient procurement and is required in many state and local governments for construction contracts. The first step is the initial evaluation of technical proposals and selection of offers that are within the competitive range. The second step involves discussions with the shortlisted offerors within the competitive range. The state of Arizona requires evaluation of the technical proposal and selection of a “short list” of the most qualified firms before considering the proposed price for construction contracts. The evaluation process for competitive negotiations is conducted in four primary phases: initial evaluation, discussions, final proposal revisions, and selection of the most qualified offeror for contract award. State and local laws differ on how and when price is evaluated. Best practice is to consider price along with the technical factors in determining the competitive range or short list. In some jurisdictions, price may not be invited or considered until after the initial technical evaluation of offers and the selection of the short list. Other jurisdictions require the submission of price separately to be viewed and evaluated only after the competitive range is determined, or the most advantageous proposer is selected.

Initial Evaluation and Short List The first step in the proposal evaluation process is to compare each offer to the RFP requirements. In this initial review, evaluators rate the proposals independently to identify the strengths, weaknesses, and deficiencies of each proposal, in comparison to the criteria contained in the solicitation. The purpose of this first step is to determine which offers are susceptible for award or ranked within a competitive range of acceptance: ◾ Strengths are features of the proposal that exceed the requirements of the solicitation or are superior to other proposals. ◾ Weaknesses are flaws in a proposal that decrease the chance of success or are inferior to other proposals. ◾ Deficiencies are material proposal deviations from the solicitation requirements. After the initial evaluations are completed, the offers may be ranked for inclusion in the competitive range. The competitive range includes the proposals that are most highly rated and have a reasonable chance of winning

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the contract. The NIGP Public Procurement Dictionary of Terms defines “competitive range” as: The group of responsible proposers chosen for additional discussions and negotiations based on an evaluation of their proposals, which are determined to be responsive and have a reasonable chance of being selected for award. The competitive range provides for an efficient procurement by eliminating inferior offers prior to discussions. The competitive range is often called the “short list.” Only those offerors included in the competitive range are allowed to participate in discussions and are considered for award of the contract. After preparing the short list, the contracting officer notifies all offerors and prepares for discussions. The contracting officer must be careful to ensure that all offers with a reasonable chance of success—or that might have a reasonable chance of success following negotiations—are included in the competitive range. Unless required by law or regulation, limiting the competitive range or short list to a specific number of proposers risks excluding an offer that may turn out to be the best one once discussions are completed. Many organizations invite the shortlisted firms to participate in interviews. Interviews provide a forum for clarifying proposals and allowing offerors to elaborate on the details of their proposals. Interviews should not be a sales pitch “dog and pony show” or an opportunity to assess the compatibility and personality of proposers.

A Gathering of Friends Mary scheduled all three interviews for the Impregnable Prison construction Design-Build RFP on the same day. The first two interviews started and ended on schedule in a very professional manner. Both firms presented information on their proposed methods and approach and answered clarification questions from evaluators. The presentations were somewhat dry, but evaluators seemed alert and interested. The third and last presentation with Bubba’s Excellent Construction Co. seemed like a family reunion. Evaluators greeted the team as if they were old friends and talked about their college football teams, families and friends, and the golf tournament Bubba recently hosted

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for his clients. It was difficult to keep the discussions on track, and the interview finished 40 minutes late. When the interview finally ended, they shook hands and Bubba handed out invitations to his Super Bowl party. As soon as the last interview ended, the evaluation committee agreed that Bubba’s was the best firm for the prison project. One evaluator commented that he just could not connect with the other firms. Another evaluator agreed, saying that Bubba really understands the local community. “How soon can you get them on board, Mary?” the project manager asked. Is this a best-value decision by the evaluation committee? What can Mary do to salvage this procurement?

Choosing Bubba’s is not a best-value decision. The procurement process was overwhelmed by personal relationships and is destined for disaster. Bubba’s may or may not be the best choice, but personal relationships and “connections” are not acceptable evaluation factors. This procurement is fertile ground for protests that will delay the project and embarrass the government. Mary’s safest alternative would be to appoint new evaluation team members who are not conflicted. This may not be possible, especially in smaller organizations. At a minimum, Mary needs to direct the evaluators to stick to the evaluation criteria stated in the RFP. Architects, engineers, contractors, and project managers often work together for long periods of time. They also tend to migrate back and forth between the public and private sectors. The closeness of this community of professionals can naturally produce both positive and negative relationships. It is important to keep those relationships at arm’s length and avoid any personal bias in the procurement process.

Clarifications and Discussions Communication with offerors before establishing the competitive range or short list are referred to as clarifications. FAR Part 15.306 describes clarifications as “exchanges, between Government and offerors after receipt of proposals, leading to establishment of a competitive range.”13 Clarifications are conducted to improve understanding of proposals and do not permit revision of proposals.

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Clarifications may be done before or after offers are selected to the competitive range. Discussions are only conducted with offerors after the competitive range is established. Discussions are negotiations. FAR Part 15.306 describes “negotiations” as: Exchanges, in either a competitive or sole source environment, between the Government and offerors, that are undertaken with the intent of allowing the offeror to revise its proposal. These negotiations may include bargaining. Bargaining includes persuasion, alteration of assumptions, give-and-take, and may apply to price, schedule, technical requirements, type of contract, or other terms of a proposed contract. When negotiations are conducted in a competitive acquisition, they take place after establishment of the competitive range and are called discussions.14 Discussions are permitted but are not required when evaluating proposals. Under most state and local laws and regulations, discussions are conducted with all firms in the competitive range. However, some state and local laws permit or require discussions only with the highest rated offeror. The purpose for discussions is to enable the government to maximize its ability to achieve best value in the procurement process. Discussions are guided by the contracting officer and conducted to address the specific strengths, significant weaknesses, and deficiencies in each proposal. The negotiation team should also discuss with each offeror aspects of the proposal that can be improved, including price, terms and conditions, exceptions, and technical factors. In discussions, the contracting officer shall ensure that the negotiations: ◾ ◾ ◾ ◾

Are tailored to each specific offeror and proposal Do not favor one proposer over others Do not reveal information from one offeror to another Do not compare offerors’ prices (however, the contracting officer may advise offerors that their price is too high or too low)

The government negotiation team may include members of the technical evaluation committee or others with experience and qualifications relevant to the procurement. The team should include the contracting officer as team leader, project manager, project architect or engineer, and may include a finance professional, economic opportunity and inclusion and risk management professionals, and legal counsel. The negotiation team leader should be a competent and experienced negotiator.

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Construction contract negotiations are a matter of addressing the gaps between what the government requires and what the proposer offers. The first step for every negotiation is to prepare a negotiation plan, identifying strengths, significant weaknesses, and deficiencies, and establishing goals and objectives for each negotiation. Each negotiation should follow an agenda prepared by the negotiation team and submitted in advance to the proposer. Negotiations are tailored to each proposal and the specific negotiation plan. It is not necessary for negotiations to be identical with all proposers as the specific strengths, significant weaknesses, and deficiencies of each proposal will be different. Negotiations must be meaningful, in that each significant weakness and deficiency is discussed, and the offeror is permitted to make changes to improve its proposal. However, it is not necessary to negotiate a weakness that has no significant bearing on the price or technical quality of the proposal. One objective of the negotiation is to achieve a fair and reasonable price. A price that exceeds the independent cost estimate or is significantly higher than that of competitors is a weakness. While the negotiation team cannot reveal or discuss competing prices, the team can advise that the price is considered high or exceeds the independent cost estimate. The negotiation team can also explore line items that exceed the independent cost estimate and provide clarifications that might help improve the price. There also may be superior features of the proposal that exceed the requirements that can be adjusted or eliminated to reduce the price. If there is only one price to consider, if there is a wide variation in the prices offered, or if prices significantly exceed the independent cost estimate, it may be necessary to perform a cost analysis. Cost analysis is the examination of all cost elements, including overhead and profit. It requires the proposer to submit the working papers or escrow documents it used to prepare its offer. Negotiation of Construction Manager at Risk and Design-Build contracts can be a complicated and arduous process and requires a team of specialists under the leadership of the contracting officer. The negotiation team should include professional-level design and construction experts with the skill and ability to analyze construction material, labor costs, and overhead. The guaranteed maximum price for Construction Manager at Risk and Design-Build contracts must be supported by detailed cost estimates. Analysis of cost estimates requires the support of construction estimators and cost and price analysts or accounting professionals. These resources may be available from within the government or contracted.

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Final Proposal Revisions or Best and Final Offers Negotiations may involve inviting multiple proposal revisions from each proposer to document proposal changes resulting from each negotiation session. Offerors may choose to drop out from the competition or may be eliminated from the competitive range as negotiations progress. When negotiations are concluded and the negotiation team is satisfied that all significant weaknesses and deficiencies have been addressed, the contracting officer invites all offerors remaining in the competitive range to submit a best and final offer or final proposal revision. The final proposal revision shall be submitted in writing by a specific deadline. If no final proposal revision is submitted, the last proposal or revision received is considered the final offer.

Final Evaluation and Selection After the submission of the final proposal revisions or best and final offers, the technical evaluation committee meets again to evaluate the proposals that remain in the competitive range and make its final selection or recommendation. The final selection decision or recommendation should represent the consensus of the technical evaluation committee, rather than a majority vote. Any dissenting perspectives should be discussed and resolved prior to making the final decision or recommendation. The contracting officer documents the final selection decision along with the basis for the decision. Members of the technical evaluation team sign the decision. When all approvals are received, the contracting officer notifies the winning contractor of award and requests all required bonds, insurance certificates, and other required contract submittals. Once all required documentation is received, the contracting officer issues the notice to proceed with construction to the contractor. The solicitation and proposal as revised may serve as the contract, or a separate contract may be prepared for signature, depending on the policy of the procuring department. Unsuccessful offerors are notified at this time so that they are free to compete for other opportunities.

Debriefing A debriefing for unsuccessful offerors should be provided for transparency and as a courtesy. FAR Part 15.506 requires debriefings within three days of a written request.15 The purpose of a debriefing is to inform unsuccessful

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offerors of the basis for the contract award, any significant weaknesses or deficiencies in their proposals, and the ranking of proposers. The briefing is conducted by the contracting officer and may include technical evaluation committee members. The debriefing should not include a point-by-point comparison of offers and may not reveal any confidential information from competing proposals, including trade secrets and commercial or financial information.

Procuring Design-Build and P3 Contractors Procuring a Design-Build contractor requires evaluating technical concepts and the innovative aspects offered to meet the performance or outcome requirements in the RFP. The technical concepts and innovative aspects may be vastly different from proposal to proposal. For example, one proposer may offer concrete tilt-slab construction, while another may propose concrete block. One offeror may propose steel, while another may propose reinforced concrete for a bridge. Evaluators must be able to compare and analyze different proposed solutions to determine which one provides the best value in terms of safety, durability, quality, and lifecycle cost. Procuring a Design-Build or public-private partnership (P3) contractor is a multi-step process and requires confidential communication with offerors throughout the procurement process. For example: 1. The technical evaluation committee selects proposers to the competitive range, based on their technical qualifications. 2. The technical evaluation committee meets with proposers selected to the competitive range to clarify requirements and proposals. 3. Proposers submit technical proposals that include conceptual design and innovative aspects. 4. The technical evaluation committee conducts discussions with proposers based on the proposed conceptual design and innovative aspects. 5. Proposers are invited to submit a priced proposal. 6. Further discussions may be required before proposers are invited to submit final proposal revisions. After selecting a short list of qualified firms, the evaluation or negotiation team meets with each offeror to review and discuss the requirements and the proposed preliminary design elements, innovative aspects, and construction concepts offered by each proposer. The initial evaluation of proposals should focus on technical factors rather than price, as the proposed price will be based on subsequent discussions.

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Some state and local laws prohibit consideration of price until negotiations are concluded with the shortlisted firms or the finalist. The RFP specifications for a Design-Build or P3 procurement are performance-based. Offerors selected to the competitive range are invited to submit their conceptual design and any innovative aspects for discussion. While conceptual design is the initial plan and elevation sketches and concepts of a design, innovative aspects are the ideas proposed by the offeror to achieve the project’s objectives. The accepted conceptual design and innovative aspects will serve as the basis for pricing the proposal. What is eventually accepted is what will be designed and constructed by the selected contractor. Early and frequent communication with proposers is required to clarify requirements, risks, goals, budget, schedule, and contract terms to achieve mutual understanding. Discussions initially are held individually with offerors to clarify requirements before conceptual designs, innovative aspects, and price are requested. These meetings may also include primary subcontractors. The contracting officer and technical evaluation committee also conducts discussions individually with offerors after they submit their conceptual designs and innovative aspects. The procurement team may accept the conceptual design and innovative aspects, or request changes to meet the project goals. Discussions can involve a series of meetings until the conceptual design and approved innovative aspects are agreed on. The offeror’s proposed price may change significantly during discussions as concepts or ideas are accepted, rejected, or revised. Once agreement is reached, offerors are invited to submit their best and final offers with their proposed price. The technical evaluation committee evaluates the final offers, may conduct additional discussions prompted by the price proposal, and selects the most qualified firm offering the best value, based on the RFP evaluation criteria. Confidentiality and fairness are important requirements for the technical evaluation and negotiation team. Each offer represents a unique approach to the requirements, and details cannot be shared with other offerors. At the same time, each offeror must be provided with the same information from the contracting officer, so no one firm receives an unfair competitive advantage. If an RFP requirement is changed for one offeror, it must be changed for all offerors. One offeror may request elimination of a requirement that reduces its cost. If allowed, that same requirement shall be eliminated for all offerors. For example, an offeror may request that the owner take responsibility for the relocation of utilities. If the contracting officer agrees, all offerors shall be notified of the change through a solicitation amendment. Preparing conceptual designs and innovative ideas is an expensive undertaking for offerors and represents their proprietary creative work. Industry best practices suggest—and some state and local laws require— paying a stipend to obtain ownership of the design submittals. These

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submittals may be considered proprietary, unless released to the government in exchange for a stipend. The stipend amount ranges from 0.5% to 1% of the contract amount. Contracting officers should know and understand applicable state and local laws for Design-Build procurements, as they vary significantly. The DBIA provides best practice guides and training for Design-Build procurement.16 NIGP also offers guidance on P3 procurements in its Public Procurement Practice, “Public-Private Partnership (P3): Facilities and Infrastructure.”17

P3 Proposals A public-private partnership—or P3—is a Design-Build contract that may include financing, maintenance, and operations. Variations of P3 contracts include: ◾ Design-Build-Maintain (DBM)—DBM procurements must address the technical, quality, and price aspects of maintaining a constructed facility. For example, a DBM procurement of a water treatment facility must address water quality and safety, facility security, staffing, and other technical factors. ◾ Design-Build-Operate-Maintain (DBOM)—In addition to the DBM requirements, DBOM procurements must address the technical, quality, and price aspects of operating the facility. ◾ Design-Build-Finance-Operate-Maintain (DBFOM)—DBFOM procurements must also address how the procurement will be financed and how the costs will be passed on to the owner or community. A common foundation for P3s is private financing of all or a portion of the capital cost. The private investment is recovered by the contractor through concessions in the form of periodic payments from the government or sharing in the revenue generated from the public facility. Toll roads are commonly constructed as P3s, with the government and contractor sharing the toll revenue over a long term. Other P3s include water and wastewater treatment facilities, university dormitories and food service facilities, and transit rail systems. A feasibility assessment is necessary before any P3 procurement can be initiated. This assessment will help determine whether a P3 project can or should be implemented and whether other alternatives may achieve a better value for the government. Tax-free public financing may achieve a lower interest rate than P3 financing. Conversely, private operation and maintenance may be more efficient and cost-effective than public.

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An agency should consider market research by issuing a request for information to the business community to gauge interest and to seek comments and recommendations on the best procurement approach for the P3, with follow-up meetings with respondents. Conducting an industry forum is another way to seek input on a prospective P3. Although evaluating P3 proposals is essentially the same as with Design-Build procurements, the additional elements make it much more complicated. Evaluating P3 proposals and negotiating P3 contracts requires support from subject matter experts in the relevant fields. The procurement team for a DBM contract should include a facility maintenance professional. A DBOM also requires an operations representative on the procurement team, and every P3 procurement team should include a finance professional. Contracting officers should know and understand applicable state and local laws for P3 procurements, as they vary significantly. The US Department of Transportation Federal Highway Administration provides P3 best practice guidance in its publication, “Public-Private Partnership (P3) Procurement: A Guide for Public Owners.”18 NIGP also offers guidance on P3 procurements in its Public Procurement Practice, “Public-Private Partnership (P3): Facilities and Infrastructure.”19

Procuring Construction Manager at Risk Contractors There are two components to a Construction Manager at Risk contract: ◾ A fixed fee for consulting services during planning and design ◾ A guaranteed maximum price for construction Since the contractor is selected prior to completion of final design and is an advisor to the architect or engineer during design, the final firm-fixed price cannot be negotiated until after the design is substantially complete. The procurement process is like Design-Build, except the contract for construction is negotiated for a guaranteed maximum price. The construction price is refined as design progresses and the final firm-fixed price is negotiated after the design is completed. In some jurisdictions, elements of the final price are determined through competitive award of subcontracts for portions of the work and agreed to by the owner and contractor. As a value-engineering incentive, the contract may be structured to provide for sharing any savings achieved below the guaranteed maximum price with the contractor. Any value-engineering incentive provisions must be included in the solicitation and negotiated before the contract is awarded.

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If following completion of design, the contractor and procuring department are unable to reach agreement on the construction price, the contract is terminated. After termination, the contract typically permits the procuring agency to use the completed design to solicit bids or proposals for a DesignBid-Build procurement.

Procuring Job Order Contract Contractors A job order cost or job order contract is an indefinite quantity/indefinite delivery contract for multiple small construction projects. Firm-fixed pricing is based on a construction catalog of priced work tasks over a fixed contract term. Job Order Contracting (JOC) contracts may be awarded by competitive bid or competitive negotiations, depending on the laws of the jurisdiction. Price competition is based on offered discounts or markups that are applied to a specified unit price book (UPB). The job order cost contract procurement terms specify a maximum dollar amount for each project and a maximum total contract amount that may be required by laws governing the use of JOC. A single JOC UPB shall be specified in the solicitation by the procuring agency. The UPB is a software application for pricing job orders and contains specific work tasks with unit prices. The UPB follows the Construction Specifications (CSI) format. Projects are assigned as tasks, with plans and specifications. Job orders are issued with project plans and specifications to the JOC contractor for individual projects for pricing based on the UPB. Tasks are awarded by the contracting officer following verification of price, supplier and subcontractor quotes, and the submission of any required bonds, insurance certificates, and other submittals. JOC has evolved with technology and advanced tools, including cloudbased UPBs, estimating tools, and contract management tools, which are available from third-party suppliers. JOC contracts are also available through various public procurement cooperatives. The Gordian Group is a pioneer in JOC and offers a video series on JOC through the Gordian Group website. The Gordian Group also partnered with NIGP on a research report, “Job Order Contracting (JOC) as an Alternative Project Delivery Method: Challenges and Opportunities.”20

Protests A protest is a written objection filed by an interested party contesting a solicitation or contract award. Although most protests are unfounded, they can

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provide prospective and give disappointed bidders the opportunity to air their grievances through an administrative process rather than formal litigation. Protests are handled according to the laws and regulations of a jurisdiction, which requires the submission of protests within a certain time and determines the administrative process for the treatment of protests. Protests of a solicitation must be filed before offers are due. Protests of a procurement decision must be filed within a reasonable period as defined by law or in solicitation terms after the decision is reached. In responding to a protest, the contracting officer must give fair and unbiased consideration to the complaint, analyze the relevant facts, and prepare a clear and concise decision. In most jurisdictions, the contracting officer’s decision may be appealed to a higher authority, such as the agency head, board, or commission.

Summary The purpose of the source selection process is to obtain a fair and reasonable price or achieve best value through full and open competition for a government requirement. Competitive bidding has been the standard procurement method for construction and qualification-based selection for professional design services for most of the 20th century. However, alternate project delivery methods—such as P3, Design-Build, and Construction Manager at Risk —cannot be reasonably procured through traditional bidding and require a multi-step competitive negotiation procurement process. When procuring competitive bids, the government awards the contract to the responsible bidder submitting the lowest responsive offer. When procuring through competitive negotiation, the government may negotiate and request proposal revisions and award the contract to the responsible business submitting the most advantageous offer or best value. Negotiation is a key element of the competitive negotiation and qualification-based selection process. Negotiating design and construction contracts requires support from a team of technical experts who understand construction and construction cost and pricing. This text provides a brief overview of the negotiation process. NIGP, NASPO, and other professional organizations offer specialized training for negotiating government design and construction contracts. Such training and experience are your most valuable tools when engaging in these negotiations.

Notes 1 Dove, Laura, “Why Are Blueprints Blue.” HowStuff Works, Why are blueprints blue? https://science.howstuffworks.com/engineering/structural/blueprints-

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7 8 9 10 11 12 13 14 15 16 17

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blue-.htm#:~:text=At%20its%20most%20basic%2C%20a%20blueprint%20 is%20a,signature%20hue%20is%20tied%20to%20a%20chemical%20process. Federal Acquisition Regulation (FAR), Part 2.101, https://www.acquisition.gov/ browse/index/far. Federal Acquisition Regulation (FAR), Part 15.305, https://www.acquisition. gov/browse/index/far. Federal Acquisition Regulation (FAR), https://www.acquisition.gov/browse/ index/far. State of Arizona, Uniform Terms and Conditions, Version 9, July 1, 2013. Federal Transit Administration, Circular 4220.1F, Revision 4, March 18, 2013, Third Party Contracting Guidance (Third Party Contracting Guidance (Circular 4220.1F), https://www.transit.dot.gov/funding/procurement/ third-party-procurement/third-party-procurement-faqs) American Bar Association 2000 Model Procurement Code for State and Local Governments. Federal Acquisition Regulation (FAR), Part 9.103(b), https://www.acquisition. gov/browse/index/far. Federal Acquisition Regulation (FAR), Part 9, https://www.acquisition.gov/ browse/index/far. American Bar Association 2000 Model Procurement Code for State and Local Governments. Federal Acquisition Regulation (FAR), Part 15-801, https://www.acquisition. gov/browse/index/far. American Bar Association 2000 Model Procurement Code for State and Local Governments. Federal Acquisition Regulation (FAR), Part 15.306, https://www.acquisition. gov/browse/index/far. Federal Acquisition Regulation (FAR), Part 15.306, https://www.acquisition. gov/browse/index/far . Federal Acquisition Regulation (FAR), Part 15.506, https://www.acquisition. gov/browse/index/far . Design-Build Institute of America, Design-Build Done Right Universally Applicable Best Design-Build Practices, https://dbia.org/best-practices/. NIGP The Institute for Public Procurement, Public Procurement Practice, “Public-Private Partnership (P3): Facilities and Infrastructure,” https://www. nigp.org/resource/global-best-practices/Public-Private%20Partnership%20 P3%20Facilities%20and%20Infrastructure%20Best%20Practice.pdf?dl=true. Federal Highway Administration, “Public-Private Partnership (P3) Procurement: A Guide for Public Owners,” March 2019, https://www.fhwa.dot.gov/ipd/p3/ toolkit/publications/other_guides/p3_procurement_guide_0319/ch_2.aspx. NIGP The Institute for Public Procurement, Public Procurement Practice, “Public-Private Partnership (P3): Facilities and Infrastructure,” https://www. nigp.org/resource/global-best-practices/Public-Private%20Partnership%20 P3%20Facilities%20and%20Infrastructure%20Best%20Practice.pdf?dl=true. Patrucco, Andrea and Ana Maria Dumand, “Job Order Contracting (JOC) as an Alternative Project Delivery Method: Challenges and Opportunities,” Gordian and NIGP The Institute for Public Procurement Research Report, Microsoft Word—2021 NIGP Research Report— https://ratings.procurated.com/ hubfs/2021%20NIGP%20Research%20Report%20-%20JOC%20Project%20 ­ Delivery%20Method.pdf.

Chapter 7

Construction Contract Administration Introduction A construction project involves a complex sequence of events performed in an uncontrolled environment, often over a long period of time. While products are manufactured on an assembly line in an enclosed and controlled environment, construction is performed outdoors in sunshine, rain, wind, or snow. Sometimes it is too cold to pour asphalt or too wet to pour concrete. On the product assembly line, components are designed with precision to fit together. On the construction jobsite, however, lumber, steel, and masonry must be fabricated and assembled, often in adverse conditions. Beneath the surface, there may be granite where there should be sandstone, or clay where there should be sand. Construction equipment will break down at the most inopportune times, and suppliers will be late with deliveries. Subcontractors will miss milestones. All the while, the general construction contractor is responsible for competing the work on time and for the contract price. Construction contract administration is a full-time job, requiring the proactive involvement of the project manager, the contracting officer, and the project architect or engineer working in harmony with the contractor.

DOI: 10.4324/9781003276975-7

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The NIGP Public Procurement Dictionary of Terms defines “contract administration” as: The functions that are performed after all parties have signed a contract. Typical contract administration activities are goaloriented and are aimed at ensuring compliance with the contract terms and conditions while giving attention to the achievement of the stated output and outcome of the contract. The NIGP (Institute for Public Procurement) Global Best Practice “Contract Administration” identifies three elements to contract administration: ◾ Ensuring maintenance of proper contract documentation ◾ Managing performance of the contract, including contract compliance ◾ Resolving any contract issues or disputes1 While the same procurement principles and practices apply to construction contract administration as to commodities and services, construction contract administration is much more challenging. For example: ◾ Construction projects are usually much longer in duration, requiring months or even years to complete the work. ◾ Construction projects are performed in the field under unpredictable and occasionally adverse conditions. ◾ Environmental conditions may be different from those described in the contract. ◾ There may be errors and omissions in the plans and specifications requiring changes and occasionally resulting in contractor claims. ◾ Frequent testing and inspection are required to ensure that the work is performed according to the contract and applicable laws and regulations. ◾ Constant observation of the contractor’s work is required to maintain a safe and secure jobsite. ◾ Schedules and milestones must be monitored to ensure that the project is completed on time. ◾ Completed work must be verified for each monthly progress payment. ◾ Verification of employee wages may be required to comply with prevailing wage laws. ◾ Suppliers and subcontractors may file claims against the government for non-payment by the contractor. ◾ Multiple contract changes may be required as the work progresses. This chapter will address construction contract administration and the contract administration activities and decisions unique to construction.

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Contract Administration or Contract Management? The NIGP Public Procurement Dictionary of Terms defines contract management as “The overarching process that includes the functions of both contract formation and contract administration,” and contract administration as procurement activities performed “after the contract is signed.”

Contract Administration Team Contract administration is performed by a cross-functional team under the authority of the contracting officer. The contract administration team must include the project manager with support from the following: ◾ The project architect or engineer for Design-Bid-Build and Construction Manager at Risk projects ◾ Quality assurance inspectors for observing and reporting on the contractor’s ­ work ◾ Safety and security monitor to ensure that the jobsite is safe and secure ◾ Legal counsel to help interpret contracts and resolve conflicts ◾ Other subject matter experts to support contract administration, including accounting, financial, risk management, and economic opportunity and inclusion ◾ Any contracted professional services to support contract administration, including testing, environmental, air quality, noise abatement, and other services For small construction projects, the project manager may take on multiple tasks, including quality assurance inspections, safety and security monitoring, and other tasks. Federal Acquisition Regulation (FAR) Part 1.604 requires that the contracting officer delegate authority for contract administration duties to a contracting officer representative (COR). The delegation is a written document describing the specific duties delegated to the COR and which duties may be further delegated.2 For construction projects, the project manager is most often designated as the COR. In smaller agencies, the project architect or engineer may serve as the project manager and COR. The primary advantage for delegated COR authority is the separation of responsibilities between the contracting officer and the COR. This separation ensures

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better project, budget, and schedule control and ensures that important contract decisions are made and authorized on multiple levels. Separating responsibilities and independent review for budget and schedule control provides impartiality and helps prevent conflicts of interest in contract administration decisions. For example: ◾ The COR reviews contractor progress payment invoices and recommends payment for authorization by the contracting officer. ◾ The COR requests contract changes and issues change orders that are negotiated and authorized by the contracting officer. ◾ The COR inspects the work for compliance with the plans and specifications. ◾ The contracting officer makes contract interpretations. ◾ The contracting officer is responsible for resolving contract disputes. ◾ The contracting officer determines and assesses liquidated damages. ◾ The contracting officer is responsible for contract suspension or termination. The contract administration team must work in harmony, using the contract as the guide and with regular and frequent communication. For Design-Bid-Build and Construction Manager at Risk contracts, the architect or engineer serves an important role in administering the construction contract. At a minimum, the architect or engineer is responsible for interpreting the plans and specifications, reviewing shop drawings and submittals, and adjusting the design in response to changes authorized by the owner. As the author, only the architect or engineer of record may change the design and specifications. For Design-Bid-Build and Construction Manager at Risk projects, the design architect or engineer may be contracted to assist the owner with contract administration during construction. The architect or engineer may be contracted and delegated to act as COR under the authority of the contracting officer. However, the contracting officer should be aware that the architect or engineer may be conflicted in questions or disputes involving potential ambiguities, errors, or omissions in the plans and specifications. As part of the Design-Build team, the design architect or engineer cannot assist the government with contract administration. For large projects, and especially Design-Build projects, the government might consider procuring the services of a construction manager to assist with contract administration, if sufficient resources do not exist within the agency. In addition to serving as the project manager and COR, the construction manager can collaborate with the architect or engineer during design; assist with scheduling, estimating, and cost analysis; inspect the work; and monitor testing, safety, and security.

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Some agencies may prefer to assign contract administration authority to the project manager, design architect or engineer, or another person, involving the contracting officer only if issues or disputes are encountered. This may be an acceptable practice if decisions are reviewed and authorized at a level separate and above the contract administrator. The contractor is represented by a construction superintendent who is the agent of the contractor and has the authority to make decisions on behalf of the contractor during construction.

Contract Administration Plan Contract administration starts before the contract’s formation. The project manager and architect or engineer should be actively engaged by the contracting officer in risk assessment before developing the solicitation. Active involvement by all parties early in the procurement process will help ensure that the contract addresses risks and contingencies and the contract administration team has a common understanding of the contract. The NIGP Public Procurement Dictionary of Terms defines a “contract administration plan” as: A planning tool that provides the framework for effective contract administration with an emphasis on process, output, and outcome. The length and detail of the contract administration plan depends on the complexity and potential risk of the contract. A contract administration plan describes the specific duties necessary for effective contract administration, including: ◾ The contracting officer is responsible for collecting and retaining performance and payment bonds and insurance certificates. ◾ The contracting officer issues the notice to proceed. ◾ The contracting officer may delegate facilitation of the pre-construction meeting and regular progress meetings to the COR. ◾ The COR is responsible for inspection and testing. ◾ The contracting officer may delegate review and verification of invoices to the COR, but the contracting officer or financial officer authorizes payments. ◾ The COR may request change orders and contract modifications, but the contracting officer is responsible for negotiating and authorizing contract modifications.

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◾ The contracting officer may delegate monitoring safety, security, and environmental compliance to the COR or a subject matter expert, but the contracting officer is responsible for any contract compliance actions. ◾ The contracting officer is responsible for approving subcontractor changes. ◾ The contracting officer may delegate auditing payroll for compliance with applicable prevailing wage law, but the contracting officer is responsible for taking any actions for non-compliance. ◾ The contracting officer may delegate monitoring for compliance with small, disadvantaged, minority, or woman-owned business requirements to an economic opportunity and inclusion specialist, but the contracting officer is responsible for any contract compliance actions.

Role of the Contracting Officer in Contract Administration Contract administration requires an independent and impartial perspective, which is most effectively performed by the contracting officer. In its Global Procurement Practice, “Contract Administration,” NIGP advises: Procurement should have the authority and be responsible for monitoring the performance of and compliance with the contract by both parties and taking appropriate action.3 Construction projects are often complicated, expensive, and long in duration. There are many opportunities for disagreements that can lead to disputes. The contracting officer often serves as a referee, facilitating the resolution of these disagreements. Examples include: ◾ Disagreements over contract interpretation, pricing of contract modifications, changed conditions, and ambiguities, errors, or omissions in specifications ◾ Rejection of nonconforming work or materials ◾ Claims for owner-caused delays or owner interference ◾ Assessment of liquidated damages ◾ Notification of the surety for contractors’ non-performance ◾ Contract termination

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Contract administration actions and decisions require a separation of duties or responsibilities and the leadership of a competent contracting officer to avoid bias and actual or perceived conflicts of interest. Separation of duties or responsibilities is the concept of having more than one person responsible for a task or action. With contract administration, this is best achieved by having the contracting officer’s representative recommend actions for authorization by the contracting officer. Construction contract disagreements and disputes can be compounded by the addition of a third party. With Design-Bid-Build and Construction Manager at Risk contracts, the contractor, designer, and owner may each have a stake in the outcome. For example, the contractor may claim that the design is defective, while the design architect or engineer may argue that the contractor is at fault. The contracting officer is responsible for investigating the facts and interpreting the contract to settle the issue.

Contract Administration Process Active contract administration begins after the contract is awarded. Following contract award, the contracting officer requests and collects all necessary contract submittals, including surety bonds, certificate of insurance, subcontractor list, and any other items required in the contract. After receipt, verification, and acceptance of the contract submittals, the contracting officer issues a written notice to proceed to the contractor and schedules the pre-construction meeting. The notice to proceed or NTP is the written notice to the contractor that states the date that construction shall begin. This date marks the beginning of the construction performance period and starts the clock for the assessment of liquidated damages if the project is completed late. It is a good practice to hold a pre-construction meeting following the contract award. During the pre-construction meeting, the contract administration team meets with the contractor and the architect or engineer to work out the details for administering the project. The agenda is provided by the contracting officer and should include: ◾ Roles and Responsibilities—Each party designates an agent or representative and defines their various contract administration roles. ◾ Construction Schedule—The contractor provides a construction schedule, with key milestones that will be used to measure progress. ◾ Communication Protocol—Regular progress meetings, inspections, and tests are scheduled.

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◾ Required Submittals—Any required submittals, including shop drawings, are identified. ◾ Other Project Issues—The parties discuss the design, construction methods, potential risks and challenges, and other performance issues. ◾ Partnering—If the parties have agreed to partnering, a partnering session is scheduled. ◾ Dispute Resolution Process—The process for reporting and elevating disagreements is discussed. The contractor may request authority to begin ordering materials or starting work before the notice to proceed is issued. Allowing the contractor to work “without a net” should not be permitted, as it may expose the owner to damages if the work is delayed or stopped before the written authorization is issued. Instead, the contracting officer may issue a partial notice to proceed, setting forth a boundary on what advance contractor action may be permitted. Immediately after receiving the notice to proceed, the contractor assembles its team of tradesmen and laborers, contracts with subcontractors, orders materials and supplies, and purchases and leases equipment. Before work begins, the contractor also secures the site, contracts for security, obtains any required permits, arranges for utilities, and sets up office and storage facilities. While the contractor is required to perform construction according to the design plans and specifications, the contractor is also responsible for the means and methods of construction. The contractor prepares shop drawings, which illustrate the construction and assembly details, for review and approval by the COR and the architect or engineer. The contractor advises the COR and architect or engineer about equipment deliveries, concrete pours, and other events, so material inspection and testing can be scheduled. Regular meetings with the contractor and architect or engineer are scheduled by the COR throughout the duration of construction, preferably concurrent with the submission of progress payment invoices. The purpose of these meetings is to discuss construction progress, challenges, changes, and other details impacting performance. The contracting officer may attend some or all progress meetings. Change orders, delays, test and inspection results, status of claims, and contract modifications are also discussed during these meetings. Minutes are taken by a person designated by the contracting officer or COR and are shared with the attendees and retained in the contract file. The contractor submits progress payment invoices for work completed and materials stored at the site as scheduled by the contract. The COR reviews the invoices, verifies the calculations, and, if necessary, corrects or returns the

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invoices for correction before forwarding them to the contracting officer for payment authorization. The COR performs or delegates periodic inspection and testing during construction to prevent “surprises” when the work is completed. For example, the placement of rebar is inspected prior to pouring concrete, and the density of the concrete is tested after the pour. Work that is substandard is rejected by the COR until it is repaired or replaced by the contractor. When the work is substantially complete and the facility is ready for use or occupancy, the contractor schedules the substantial completion inspection. The COR and architect or engineer prepares a “punch-list” of all defects and incomplete work for correction or replacement by the contractor. When work on the punch-list is completed, the project manager performs a final inspection. If the work is accepted on final inspection and all required contract documentation—including as-built drawings and lien releases—are provided, the final payment is made, retention is released, the contract is closed, and the warranty begins.

Molly and Wally Contracting officer Molly was perplexed. The classroom addition project was going well and was finished two weeks ahead of schedule. The contractor—Wally—seemed so friendly, always smiling, and offering a warm greeting when he stopped by the procurement office. He was always willing to add little extras for free when the teachers asked, including four more electrical outlets in each classroom. He even installed the white boards that Molly ordered in the new classrooms for no additional cost. But this afternoon, Wally was angry. He slammed the door when he walked in and handed Molly a claim for $15,000 for the additional work and declared that he would never contract with the school again. The architect arrived immediately after Wally. Wally complained that the architect would not release the $30,000 in payment retention. The architect quickly responded that Wally forgot to deliver the case of spare fluorescent lights that are required in the contract. Wally replied that the architect could deduct the $49 for the lights from his claim and walked out the door. What can Mary do to resolve this dispute? Is the architect correct in holding the contractor’s retention? Is the contractor entitled to a claim for additional work?

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Molly is stuck in the middle between the architect and the contractor. The architect overlooked the contractor’s extra work during construction but would not budge in releasing the final payment. The government is not entitled to free work, and the changes should have been documented in a contract modification. The teachers did not have authority and should not have requested additional work during construction, although the school district might have some liability if the project manager or contracting officer were aware of and passively ignored the requests. Even though the school did not issue a change order or contract modification, the contractor may argue that the teacher’s request for additional work is a constructive change, and under the theory of quantum meruit, the contractor is entitled to an equitable adjustment for the extra electrical outlets and installing whiteboards. A constructive change is a change resulting from the action or omission of the owner but is not authorized by a written change order or contract modification. Quantum meruit is a judicial measure of damages—a reasonable sum of money to be paid for services rendered or work performed when the amount due is not stipulated in a legally enforceable contract. Molly may counter that the additional work was not authorized per the terms of the contract, but the disagreement may end up in the dispute resolution process or litigation. It may be best for Molly to settle the dispute by issuing a contract modification and negotiating an equitable adjustment for the contractor’s extra work. The dispute started when the architect refused to authorize the final payment. Technically, the architect is correct, as the contract required completion of all contract requirements, including spare lights before release of retention. However, this is a minor issue involving money the contractor has rightfully earned. Molly could resolve the dispute by simply releasing all but $49 of the retention.

Partnering Given the long length, high cost, and low margins of construction projects, contract relationships can become adversarial. Partnering is a process involving all contracted parties to achieve a voluntary agreement to adopt a cooperative problem resolution approach to avoid or reduce conflicts, claims, and litigation. The NIGP Public Procurement Dictionary of Terms defines “partnering” as: Creating a mutually beneficial relationship with a supplier or contractor for the specific performance of work in which the relationship is trusting and supportive rather than adversarial.

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The US General Services Administration has adopted partnering as a standard business practice for public buildings. With the US General Services Administration (GSA) Partnering process: ◾ All project stakeholders meet in one or more partnering sessions, including the project manager, contracting officer, design architect or engineer, and contractor. ◾ A facilitator conducts a formal partnering session—including team building and group dynamics. ◾ The partnering team agrees on common goals, criteria for evaluating progress and performance, a communication protocol, and a process for resolving disputes, which is then documented in a written agreement signed by all members of the partnering team. ◾ Periodic status workshops are held by the team during the construction project. GSA reports that partnering results in lower stress levels, enhanced cooperation and communication, improved quality and safety, reduced construction time, and greater value-engineering savings.4

Quality Assurance and Control Quality assurance and control is necessary to ensure that construction meets the requirements of the contract, industry standards, and applicable building codes, and that the constructed facility is safe and achieves the program objectives. Quality assurance is preventing mistakes, and quality control is detecting and correcting mistakes. Quality assurance and control are the responsibility of the contractor. The quality assurance and control plan describe the guidance the contractor will follow to monitor, assess, and report its quality assurance and control activities. This plan is prepared and submitted by the contractor prior to starting construction for approval by the COR and design architect or engineer. To ensure compliance with the contract in performing the work, the contractor is responsible for: ◾ Providing documentation, including drawings, specifications, and product literature to ensure that construction operations conform to the contract ◾ Controlling the quality of the work and materials provided by the contractor, subcontractors, and suppliers

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◾ Providing and scheduling independent tests and inspections of the work in progress ◾ Providing technical documentation, including equipment and material warranties, operation and maintenance manuals, as-built drawings, and other technical publications ◾ Arranging for inspection when the work is substantially and finally complete Prior to and during construction, the contractor is required to provide documentation describing how the work will be performed. This documentation is referred to as “shop drawings.” Shop drawings are produced by the contractor, supplier, or subcontractor and describe prefabricated components for approval by the COR, architect, or engineer. Examples include fabrication of structural steel, elevators, Heating Ventilation and Air Conditioning and ductwork, appliances, and the materials the contractor intends to provide. Documentation may also include product literature and specifications and manufacturer installation instructions. The COR must review these submittals in a timely manner and cite the reason for any rejection of documentation in writing.

Inspection and Testing Inspection and testing are scheduled at key points during construction and performed by the COR, design architect or engineer, or other authorized representative of the owner to ensure that the construction work and materials conform to the contract requirements. For example, inspection of rebar and forms is performed before concrete is poured, composition of the concrete is tested prior to or during the pour, and the concrete density is tested after the concrete is cured. Construction framing, electrical, and plumbing is inspected before drywall is installed and walls finished. Much of the finished construction will be hidden when construction is completed, so it is important to discover and correct defects as they occur. The frequency of inspection and testing depends on the nature and size of the project. Large and complex projects may require a team of full-time inspectors. For smaller projects, inspection and testing may be performed at key points during construction by the COR, architect, or engineer. Independent testing is required for concrete; metal fabrication; major components like elevators, electrical, mechanical, and air conditioning systems; and other building components to ensure compliance with the contract and building code. Testing is performed by an independent certified test lab. To avoid a potential conflict of interest, the owner should procure testing services.

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If the work fails testing or inspection, it must be immediately addressed. If allowed to set, deficient concrete or asphalt will be difficult and expensive to remove and replace. Defective concrete piers are much more difficult and expensive to replace after the foundation is poured. Defective electrical circuits or plumbing may cause fires or leaks years after the building is accepted. In some cases, construction work must be stopped entirely until the defect is corrected. FAR Part 46.1 describes major nonconformance as a deficiency that “is likely to result in failure” or “to materially reduce the usability” and a minor nonconformance as one that “is not likely to materially reduce the usability” or “having little bearing on the use or operation.”5 The contracting officer has an obligation to reject work and demand the repair or replacement of major nonconforming work or materials or work or materials that may result in hazardous or unsafe conditions. The contracting officer has the discretion to accept minor nonconforming work or materials, provided that the contractor reimburses the owner for the reduced value. For example, substandard carpet or wall paneling may be accepted, but with a corresponding reduction to the contract price.

Fake Oak Paneling The architect was adamant that the contractor must immediately remove the office wall paneling and replace it with the oak paneling that is specified in the contract. The substitution was not discovered until construction was completed. The contractor argued that the oak paneling was not available, and the substitution is as good as the product specified. Replacing the paneling would require removing furnishings and appliances, and the removed paneling could not be reused. The project manager said he did not care about the paneling and just wanted the offices finished so he could start moving people in. Contracting officer Molly requested a copy of the contractor’s invoice for the wall paneling. By comparing prices from a local supplier, Molly discovered that the contractor saved a total of $2800 by substituting the paneling. But although it is slightly lighter in color, the paneling appears to be equal in quality and durability. The architect declared that she is the final authority on acceptance of changes that impact the look of the facility. How does Molly resolve this dispute?

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The substitution of less expensive paneling is wrong, but it should have been caught during the review of shop drawings or inspection prior to installation. Regardless of the reasons, the contractor cut a corner and saved $2,800. As contracting officer, Molly has the authority to reject the paneling and demand replacement with the specified product or negotiate a contract modification to deduct the difference in the value of the paneling from the contract price. Demanding replacement of the paneling will open the door to a dispute, with the contractor arguing that the paneling should have been rejected before it was installed. Demanding replacement will also delay occupancy of the building. Since the paneling is equal in quality and durability, it may be best to accept the nonconforming paneling, save the money, and expedite occupancy and use of the building. Inspection and testing are a right but not an obligation of the government. The owner’s failure to catch defective work or materials during construction does not relieve the contractor of its obligations to remedy or replace defective work.

Value Engineering As the construction experts, contractors often are aware of construction means, methods, and materials that will reduce construction costs, shorten the schedule, or improve efficiency without affecting the performance, function, safety, or reliability of the facility. Value engineering encourages the contractor to offer substitute materials and methods to reduce the cost of construction. The NIGP Public Procurement Dictionary of Terms defines “value engineering” as: An organized, systematic approach to providing the necessary functions in a project at the lowest possible cost by substituting methods and materials with less costly alternatives without negative affecting functionality. Value engineering is a formal process in which the contractor voluntarily offers materials and methods that differ from the specifications, with the collateral savings shared with the contractor as an incentive. Value engineering may be applied to both the capital acquisition cost and the lifecycle cost of a facility. Value engineering collateral savings may include measurable savings in construction and savings from reduced operation and

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maintenance costs of the constructed facility. For example, the contractor might propose a more expensive but more efficient HVAC system, increasing the construction contract by $10,000, but reducing annual operation and maintenance cost by $2,000, producing a net savings of $10,000 over the ten-year life of the HVAC system. Value engineering is a part of the natural progression of a Design-Build procurement, as proposers offer value engineering proposals during negotiation. Value engineering may also be included in a Design-BidBuild or Construction Manager at Risk procurement by including a value engineering clause in the solicitation. The federal value engineering clause may be found in FAR Part 52.248-1. For federal fixed-price contracts, savings achieved through voluntary value engineering is shared 50/50 with the contractor.6 Value engineering is conducted following award of the Design-Bid-Build or Construction Manager at Risk contract, and follows these steps: ◾ The contracting officer provides instructions and guidelines for the submission of value engineering proposals. ◾ The contract administration team evaluates the value engineering proposals objectively and notifies the contractor whether the savings proposal will be accepted or denied. ◾ The contract administration team conducts a cost and price analysis to determine the actual amount of the savings to be achieved. ◾ The contracting officer negotiates and issues a contract modification describing the change, amount of the change, and any savings incentive that is paid to the contractor. In the HVAC example, the contractor would be paid the $10,000 additional cost of the HVAC system and share the net $10,000 in operation and maintenance savings.

Invoicing and Payments There are many businesses and people who depend on the contractor being promptly paid. The profit margin for construction projects is often slim, leaving little room for payment delays. Continuous and timely cash flow is essential to the success and sometimes the survival of a contractor and its suppliers and subcontractors. For construction projects of less than 60 days, payment may be made in one lump sum. For projects longer than 60 days, the government pays the contractor with progress payments for work completed and materials delivered and stored on the site.

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The contract should require prompt payment of the contractor as well as subcontractors and suppliers. Arizona construction law requires payment of the contractor within ten days after presentation of a satisfactory invoice, and the contractor in turn must pay subcontractors and suppliers within ten days after receiving payment (Arizona Revised Statute § 41–2577). Payment of interest is required if a payment is late.7 Invoices are reviewed by the COR for accuracy and submitted with a recommendation for payment to the contracting officer. Careful analysis of the invoice compared to the work completed and materials received is important. Contractors tend to inflate invoices to capture cashflow early in a construction project. This practice of “front-loading” invoices exposes the owner to excessive risk if the contractor later defaults. Surety companies have also been successful in claiming damages when owners have paid a defaulting contractor more than the actual value of the work completed. Prompt payment is just as important for subcontractors and suppliers as it is for the general contractor. In the private sector, suppliers and subcontractors may file a lien against the work or property if the general contractor fails to pay for material or services. Liens cannot be filed on government property. Instead, the Miller Act of 1935 protects suppliers and subcontractors by requiring a payment bond for federal construction projects costing more than $100,000.8 Most states have enacted similar laws, commonly called “Little Miller Acts.” The contract should include a provision requiring that subcontractors be paid within a specified number of days after the contractor receives payment. Although liens cannot be obtained on government property, suppliers and subcontractors will file a notice of lien with the agency when invoicing the general contractor. Release of these lien notices must be obtained from all suppliers and subcontractors before the final payment is made to the general contractor. Failure to obtain a payment bond for a construction project or failing to obtain lien releases could result in claims by subcontractors and suppliers against the government for the general contractor’s payment obligation. Subcontractors and suppliers are quick to complain to an agency when payments by the general contractor are delayed. When payment problems are reported, the contracting officer should notify the general contractor and encourage payment. If payment problems persist, the contracting officer must notify the payment bond surety. Failure to notify the surety could result in the surety disputing its obligation to pay if the general contractor defaults. Slow payment to suppliers and subcontractors can be an early indicator that the general contractor is experiencing financial problems. With

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prompt notification, the surety may help the contractor resolve its payment problems. Retainage is the amount stated in the contract that is retained from each payment to ensure that work is completed. Additional retention may also be applied when work is rejected. The standard rate of payment retention is 5%–10%. Some governments reduce the contract retention when the work is proceeding satisfactorily, and the project is 50% complete. Contract retention is released after successful final inspection and submission of all contract close-out documentation. The contracting officer should closely monitor retainage. The courts have held the failure to properly administer retainage to be a breach of contract.

Prevailing Wage Rates The Davis-Bacon Act is federal law requiring payment of prevailing wages to employees working on federally funded or assisted projects exceeding $2,000 in total value.9 Approximately 25 states have also enacted prevailing wage laws with various thresholds ranging from 0 to $100,000. The Fair Labor Standards Act requires that contractors pay at least one and one-half times the regular rate of pay for any hours worked over 40 in a single workweek.10 The US Department of Labor maintains indexes of prevailing wages for labor classifications by geographic region. These indexes may be accessed through the General Services Administration WWW.SAM.GOV website. The contracting officer is responsible for enforcing and verifying the payment of prevailing wages and compliance with the Fair Labor Standards Act. Verification is performed through an audit of the contractor’s payroll and may be performed by the contracting officer or delegated to the COR or another designated person. Employees have the right to appeal their wage determination to the US Department of Labor. For example, an employee may appeal their classification as a laborer, claiming that their actual work should be classified as welder, worthy of a higher hourly wage. In May 2021, the US Department of Transportation announced its Local Hire and Workforce Development Pilot Programs. Under these programs, agencies are encouraged and permitted to apply geographic, economic, or other hiring preferences to provide career opportunities for economically or socially disadvantaged workers.11 Although not a mandatory federal requirement, local hiring and workforce development programs have been adopted in several local governments, including the cities of San Francisco, Seattle, Cleveland, and Milwaukee.

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The Davis-Bacon Act of 1931 and Copeland “Anti-Kickback” Act of 1934 After serving for a decade as Secretary of Labor, Senator James J. Davis (R-PA) introduced legislation in 1930 proposing paying locally prevailing wages to construction workers, while Representative Robert L. Bacon (R-NY) introduced a companion bill. They were concerned that contractors were winning construction contracts through cheap labor migrating from one state to another. In one example cited by Congressman Bacon, an Alabama contractor won a contract to build a federal hospital in New York, bringing in non-union laborers from Alabama. The 1931 act was signed into law by President Herbert C. Hoover. In 1932, President Hoover supplemented the act with his Executive Order 5778, requiring that prevailing wages be paid to contract workers, that workers be paid at least once per week, that payroll records be open for inspection, and that contracts be terminated for failing to pay workers prevailing wages. At the time, the act applied to federal contracts of more than $5,000. In 1935, the act was amended, applying the protections to contracts of $2,000 or more and requiring the debarment of violators. Some contractors attempted to circumvent the act by making deductions or “kickbacks” from employee wages. The Copeland “Anti-Kickback” Act of 1934 was introduced by Senator Royal Copeland (D-NY) to ban this practice. The act was quickly passed and signed by President Franklin D. Roosevelt in 1934.12

Disadvantaged, Minority, and Women-Owned Businesses Business programs promoting opportunities for disadvantaged business enterprises (DBE), small businesses, and minority- and women-owned businesses (MBE and WBE) are intended to remedy ongoing and past discrimination in public contracting. The US Department of Transportation and other federal agencies require that grantees set annual agency DBE goals and contract specific goals for federally funded or assisted projects. A DBE is defined as a for-profit business that is at least 51% owned by a socially or economically disadvantaged individual who also manages the business and is certified as a DBE. A minority-owned business enterprise is one that is at least 51% owned by a minority person, and a women-owned business enterprise is one that is

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at least 51% owned by a woman. The minority or woman business owner must control the management and operation of the business. MBE and WBE programs are administered at the state and local level. Organizations may set goals and preferences for MBE and WBE businesses to correct current or previous exclusionary practices in the award of contracts to minority- or woman-owned firms. The US Small Business Administration provides technical assistance, procurement set-asides, loans, and other support for certified HUBZone businesses. A HUBZone business is one located in a historically underutilized business zone. The Small Business Administration also provides assistance, loans, and other services for small businesses and veteran-owned businesses.13 The contracting officer, with the support of the agency diversity and inclusion department, is responsible for ensuring compliance with any program requirements when administering the contract, including verification of contract participation by DBE, MBE, and WBE suppliers and subcontractors. For example, if the general contractor requests permission to replace an MBE or WBE subcontractor, the contracting officer is responsible for investigating the reason for the change and ensuring that the contractor maintains its commitment by retaining the MBE or WBE subcontractor or replacing the subcontractor with another MBE or WBE business. A contractor failing to meet contract participation goals is in default and subject to the remedies contained in the contract.

Contract Changes Changes are common with construction contracts. Changes may be the result of unexpected conditions, design errors or omissions, value engineering, or owner discretion. The NIGP Public Procurement Dictionary of Terms defines a “contract modification” as: Any written alteration in specifications, delivery point, frequency of delivery, period of performance, price, quantity, or other provisions of the contract, accomplished by mutual agreement of the parties to the contract. The primary reasons for construction contract modifications include: ◾ Changed Conditions—It is nearly impossible to determine the nature of the jobsite with precision. Test holes bored into the soil may not reveal underground characteristics, like the presence of shifting sand that may require deeper piers or additional shoring. A higher-than-expected

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water table may require special foundation protections. Asbestos may be discovered during a building renovation, or hazardous materials may be encountered during excavation. Extreme weather conditions may require an extension to the contract schedule. The contractor is responsible for investigating the site when preparing its offer. The contractor is responsible for the potential risk of differing site conditions (unless the risk is shifted to the owner through the contract). Certain situations may hold the owner responsible for differing site conditions, including failing to disclose information or misrepresenting the conditions. For example, if the owner does not disclose a subsoil investigation report or provides a report that does not reveal actual underground conditions, the owner may be held responsible for the risk. ◾ Design plan and Specification Errors and Omissions—Any costs incurred by the contractor for errors and omissions in the design that could not be reasonably discovered when responding to the solicitation may be cause for an adjustment in the contract price or time. ◾ Owner Discretionary Changes—The owner may decide to change a design detail during construction, such as moving a door, adding a window, or upgrading the heating system. How changes are treated depends on how a contract is worded. The AIA-201 Owner-Architect Agreement and FAR provides for both bilateral and unilateral changes. A unilateral change is a directive or change order that is issued to direct a change in the work. When the contractor receives a change order, it is obligated to perform the change. If the change results in an increase in cost or time, the contractor may be entitled to an equitable adjustment. A bilateral change is a contract modification, negotiated and signed by both contracted parties. FAR Part 2.101 defines a change order as: A written order, signed by the Contracting Officer, directing the contractor to make a change that the changes clause authorizes the Contracting Officer to order without the contractor’s consent.14 Change orders may be issued by the COR if the contracting officer authorizes them, and they should be followed up with a contract modification issued by the contracting officer. For example, if the COR issues a change order to change the location of electrical outlets, the contracting officer will follow up with a contract modification to make an equitable adjustment to the price and schedule. An equitable adjustment is an adjustment to the price or schedule to compensate the contractor for the additional cost or time that is incurred due a

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government action. The adjustment may be an increase or decrease in price, time, or both, depending on the nature of the change. When ordering a unilateral change, the price and schedule may be negotiated when considering the change or after issuing the change order. However, it is a good practice to negotiate the price before the change when practical. When considering whether the change is allowable, the contracting officer applies logic and common sense in answering the following questions: ◾ Is the change permitted in the contract? ◾ Is the change within the general scope of the contract? Did both parties reasonably contemplate the change when the contract was signed? A change that is outside the scope of the contract is considered “cardinal” and is not permitted. ◾ Is it better for the government to seek bids or proposals and contract for the work separately? If full and open competition is practicable and is likely to produce better value, the contract should not be modified. ◾ Are there sufficient funds available to pay for the change? ◾ Is the price for the change fair and reasonable? Consider the following examples for the construction of a new public school: ◾ Adding a back-up power generation system—Although this might be within the general scope of the contract, the system can be reasonably procured separately, and full and open competition is likely to result in a better value. ◾ Upgrading the exterior and interior paint—This would be an allowable change. ◾ Adding appliances for the teachers’ lounge—Arguably, this might be within the general scope of the contract, However, appliances can be reasonably procured separately, and full and open competition is likely to result in a better value. ◾ Adding covered parking for the school administrators to a parking lot paving contract—This is outside the scope of the contract. ◾ Upgrading carpet and tile in the classrooms—This would be an allowable change. ◾ Adding ten multi-functional printers—This would not be an allowable change. It is outside the scope of the construction contract and best procured separately. ◾ Extending the concrete sidewalk to the parking lot—This would be an allowable change.

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◾ Removing the requirement for classroom audio-visual equipment— This would be an allowable change. ◾ Adding a gymnasium and football practice field—This would be considered outside the scope of the contract. ◾ Buying a bucket lift that was used during construction from the contractor—This would be considered outside the scope of the contract. There may be a logical and credible argument supporting a modification. The contractor may have purchased the bucket lift specifically for the project and is offering it at a significant discount to avoid transportation and storage. Instead of making a contract change, the contracting officer may use other means for the transaction, such as issuing a purchase order after obtaining quotes from other sources. There may also be a good argument for adding covered parking to the paving project. However, it is not within the scope of the project, and construction could be procured after paving is completed. A contract modification is a sole source supplemental contract that does not benefit from competition. If the contract modification will require an equitable adjustment, the contracting officer must perform a cost and price analysis for the change to ensure that the adjustment is fair and reasonable. The contractor submits a detailed cost estimate for the proposed change with back-up information, including subcontractor and supplier quotes for work and material. At the same time, the project manager provides an independent estimate for the change. Cost and price analysis is addressed in Chapter 5. If, after negotiation, the contracting officer and contractor cannot agree on the amount of the equitable adjustment for a change, the contracting officer may establish a price and issue a unilateral contract modification. If the contractor continues to disagree, the issue is addressed through the contract dispute resolution process.

Delays Delays can be frustrating and costly for all parties to a contract. Every day lost to delay is another day the facility cannot be used or occupied, which can have costly consequences for the government. Every day performance is delayed results in increased labor, equipment, and overhead costs for the contractor. Construction project delays fall into three general categories: excusable delays, inexcusable delays, and compensable delays.

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An excusable delay clause provides the contractor with a time extension and relief from liquidated damages for that extension. The NIGP Public Procurement Dictionary of Terms defines an “excusable delay” as: A contract clause that provides the contractor with protection from sanctions for delays resulting from circumstances arising from default termination, liquidated damages, actual damages, and excess costs. An excusable delay must meet two general requirements: It must be beyond the control of the contractor, and it must not be a result of the contractor’s fault or negligence. An excusable delay is: ◾ Unforeseeable—Normal weather conditions like rain and snow are foreseeable. Extreme and uncommon weather conditions like a tornado or hurricane may not be foreseeable. ◾ Beyond the Reasonable Control of the Contractor—These are circumstances that the contractor cannot prevent, such as a tornado or fire. ◾ The Result of an Event That Is Not the Contractor’s Fault—If the fire was caused by the contractor’s unsafe action or negligence, the delay is not excusable. The contractor is required to make a reasonable effort to mitigate the delay. Following the tornado or fire, the contractor must make a reasonable effort to restore the site and return to work in a timely manner. Relief for an excusable delay is based on the delay clause in the contract. The contract may be extended to compensate for the lost time, based on the contractor’s critical path. The contractor is not compensated for any additional costs incurred because of the delay. A compensable delay is a delay resulting from the actions of the owner. Examples of compensable delays include: ◾ Unreasonable suspension of the work by the contracting officer or suspension for an unreasonable period ◾ Delay in providing approval of contractor submittals, issuing changes, or inspecting the work ◾ Interference by the government, such as rejecting work that conforms to the contract requirements Depending on the contract, the contractor may be entitled to an extension of time and monetary damages for a compensable delay.

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Many government contracts contain a “no damage for delay” clause, allowing an adjustment of the contract schedule while prohibiting compensation for owner-caused delays. While a no damage for delay clause might provide some protection for the government, the clause may also discourage competition for the project. No damage for delay clauses have been overturned in some jurisdictions, allowing the contractor to claim damages, especially when the delay is the result of the owner’s negligence or interference. Acceleration is the contractor’s effort to speed up construction to complete the work earlier than the contract requires. Acceleration by the contractor’s initiative is not compensable. However, if the contractor accelerates the work because of an owner-caused delay or to recover from an excusable delay, the additional cost for the acceleration may be compensable. For example, if the contracting officer orders the contractor to suspend performance without cause, the additional cost to catch up may be a compensable expense. Constant monitoring of the contractor’s performance, regular status meetings, and good communication will help avoid and mitigate delays. To keep a project on schedule, the COR and contractor should meet frequently to discuss progress and schedule challenges. The COR and contracting officer should also respect the contractor’s time by promptly responding to contractor requests, questions, and submittals, and issuing changes in a timely manner.

The Project That Wouldn’t End Contracting officer Morton Salter was startled by the angry outburst from the architect when the contractor complained about delays during the weekly progress meeting. Morton agreed that the contractor was always whining, and he too was getting tired of all the excuses. The contractor was two months late, and the end of the project was not yet in sight. Drabble Construction was not noted as a premier firm, and there was concern among the project management team when it submitted the lowest bid. Drabble was five days late starting work, and the complaining began with the first weekly meeting. Issues arose from the start: The only source for the special plumbing fixtures was a month late, it rained off and on for two weeks, and laborers walked off the job in a pay dispute. Drabble complained that the architect held shop drawings and change orders for a month, well beyond the ten days stated in the contract. Now the project manager cannot make up his mind on interior finish colors, said Drabble. Progress payments are always at

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least a month late, he added, and one subcontractor is refusing to work until it is paid. The architect shouted, “I can hold shop drawings and submittals as long as I want. You think you have it bad now, buddy, wait till we collect liquidated damages. By the time I’m finished, you won’t have a business.” Morton was shocked when the contractor stormed out yelling, “That’s it! I’m pulling my crew. Get someone else to finish the job.” Morton wondered what happened to the warmth he felt in this same room during the pre-construction partnering workshop. What can Morton do to resolve this mess? Who is at fault for the delay?

Occasionally the contracting officer may serve as the referee in disagreements and disputes. Morton’s best diplomatic skills will be tested to resolve this issue. The contractor is probably at fault for much of the delay, but the architect appears to be deliberately stalling and holding payment approvals without cause. Morton should have been watching this situation more closely and interceded much earlier in the project. Morton needs to calm all parties, get them back together, and work out a solution. Morton also needs to remind the contractor that suspending performance is a breach of the contract and will only compound its problems. The architect needs to be told that his bullying is unacceptable and is contributing to the delay. Finally, Morton must ensure that the contractor and subcontractors are paid in a timely manner. Responsibility for late completion of the project is shared by all parties. Ideally, a reasonable settlement would resolve all existing claims. If a settlement cannot be achieved, the contracting officer should seek support from legal counsel and may unilaterally establish a revised completion date that serves as the reference point for assessment of liquidated damages. If the contractor disagrees with the revised completion date, it may pursue administrative remedies described in the contract.

Liquidated Damages Liquidated damages are the cost estimated by the owner for each day completion of the construction project is delayed beyond the contract schedule.

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Liquidated damages are an estimate of actual damages and are paid by the contractor in lieu of actual damages. Liquidated damages are not a penalty and need to be based on a reasonable estimate of the cost for delay. The estimate does not need to be perfect, but it does need to be based on a reasonable and documented estimate. When assessing liquidated damages, the contracting officer deducts the number of days for performance specified in the contract from the number of actual days until the project is substantially complete. Substantial completion is the point in time when construction is completed, the facility is ready to be occupied or used, and it is available for inspection. The contracting officer also deducts from the liquidated damages an assessment of any time lost for excusable delays. If there is a cost for completing the construction project late, there may also be value in completing it early. A liquidated incentive for encouraging early completion of a project rewards the contractor with a specified amount per day for early completion. Like liquidated damages, liquidated incentives must be a reasonable estimate of the savings that the government will achieve by early completion and stated in the contract. A ceiling for the total incentive may be required in the contract to prevent exceeding the project budget.

Liquidated Damages Estimate Example Rental per day for temporary classroom Cost per day for project manager and inspectors Cost per day for contract administration Total liquidated damages per day

$1,000 $ 300 $ 200 $1,500

Liquidated Savings and Damages Example If the school is not completed in time to prepare for the fall semester, the estimated liquidated damages are $1,500 per day. This includes $1,000 per day for continued use of temporary classroom facilities. If the work is completed 30 days early, the school district can return the temporary classrooms early and avoid one month of lease payments. $1,500 per day liquidated damages for each day construction is not substantially completed after July 31, 2022. An incentive of $30,000 will be paid to the contractor if construction is completed on or before June 30, 2022.

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Disagreements and Disputes Disagreements are common with construction contracts. Errors, omissions, and ambiguities in the plans and specifications, contract interpretations, requests for time extension, directives to replace defective work, assessment of damages, and compensation for changes are common sources of disagreement. Most disagreements are worked out through healthy debate and negotiation in pursuit of a reasonable solution. However, some disagreements may rise to the level of a claim or dispute, requiring a formal resolution process. A dispute is not a hostile action. It is simply a formal disagreement between the parties to a contract resulting in a written claim. To avoid the cost of litigation, most governments provide an administrative forum for settling disputes. The American Bar Association’s (ABA) 2000 Model Procurement Code for State and Local Governments recommends a two-level dispute resolution process. First, the contracting officer has the authority to settle the dispute. If the dispute cannot be settled, the contracting officer issues a written decision. If the contractor continues to dispute the decision, it may appeal to a higher authority, such as the agency head or an appeals board. If appealed, the agency head or appeals board may issue a written decision after hearing both sides of the dispute, or the law may provide or permit some form of alternative dispute resolution.15 The most common forms of alternate dispute resolution for government contracts include: ◾ Administrative Hearing—This is a hearing conducted in an environment like a court of law, with a legal counsel for each party presenting evidence to an administrative hearing officer or judge. The rules of evidence apply, and the disputing parties may subpoena evidence, examine witnesses, and present arguments. The finding of the hearing officer may be final or referred to the agency head. ◾ Mediation—Mediation involves both parties presenting arguments to an independent mediator, who attempts to facilitate a settlement. Mediation is only binding when both parties reach a settlement. If both parties cannot reach an agreement, the matter may be referred to the agency head for a final decision or an administrative hearing. ◾ Arbitration—Arbitration involves both parties presenting arguments to an independent arbitrator who makes a final decision based on the evidence. The finding of the arbitrator may be binding or non-binding. If the contractor continues to dispute the final decision of the agency after an administrative hearing, mediation, or arbitration, its last recourse may be in

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the courts. However, a judge is likely to uphold the findings of an impartial hearing officer or arbitrator, unless the finding was arbitrary, capricious, or contrary to law. Partnering is a healthy alternative to resolve disputes. When partnering, the parties agree to elevate disputes to a higher executive authority within the respective organizations. If the dispute cannot be resolved through the partnering process, it may be addressed through an alternate dispute resolution process.

Contract Suspension and Termination While terminating any contract is an extreme measure, terminating a construction contract in particular is usually a disaster. Most private sector contracts contain a default clause that allows either party to terminate if the other party is in default. With most government contracts, only the government may terminate the contract. There is simply too much at stake for the government to allow the contractor to terminate in the middle of a construction project. A government termination has harsh consequences for both the government and the contractor and should only be considered in extreme circumstances. Contract termination during construction leaves the facility incomplete and is likely to result in a lengthy dispute with the contractor and surety. The ability to suspend or terminate, including the reasons and process for suspension and termination, must be clearly stated in the contract.

Contract Suspension The owner may issue a written suspension notice to resolve issues such as safety concerns or poor workmanship. If the suspension is necessary to cure a contractor’s default, the contractor is not entitled to damages and remains obligated to complete the project on time. Depending on the contract and circumstances, the contractor may be entitled to compensation for delay damages if the suspension is the fault of the owner or the architect or engineer representing the owner. For example, if the contracting officer suspends the contract to allow time for the design architect to correct an error or omission in the plans. Under most contract clauses, a suspension notice must be issued in writing by the contracting officer, citing the reason for the suspension and what actions are necessary to lift the suspension.

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Termination for Default Termination for default occurs when the contractor is in default, and there is no reasonable expectation that the contractor will cure the default. Nonconforming work, unsafe practices, performance delays, and work stoppages may be cause for termination. When considering termination for default, the contracting officer must give written notice to the contractor and the surety and provide a reasonable period for the contractor to respond with a plan to cure the default. If the contractor does not respond to the cure notice or does not offer an acceptable cure, the owner may terminate the contract and demand a remedy from the surety. A cure notice is a notice of default that gives the contractor a specified time period to cure the default or submit a plan to cure the default. The NIGP Public Procurement Dictionary of Terms defines a “cure notice” as: A written notice issued to a contractor to correct poor performance by documenting performance issues and giving the contractor an opportunity to remedy the situation within a prescribed timeframe. The cure notice usually is a mandatory step that must occur before a contract is terminated. Some agencies employ a two-step notification process, first notifying the contractor that it is in default and providing an opportunity to cure. If the default is not immediately remedied, the agency provides a notification of default and intent to terminate. The cure notice and intent to terminate notice must also be submitted in writing to the performance bond surety. The performance bond guarantees that the construction project will be completed for no additional cost if the contract is properly terminated for default. Since the surety is at risk for completing the work and bearing any additional expense, the surety may attempt to assist the contractor in curing the default, help the contractor contest the default, or take both actions concurrently. If those actions fail, the surety is responsible for paying another contractor to complete the construction project. Courts generally consider default terminations to be forfeitures and are disfavored. The contract procedural requirements for terminations for default are strictly applied by the courts.

Termination for Convenience Termination for convenience is a controlled contract breach that is unique to government contracts. The NIGP Public Procurement Dictionary of Terms defines “termination for convenience” as:

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1. A contract clause, which may be contained in boilerplate language, that allows for a contract to be ended at the discretion of a government entity. 2. Action by which a purchasing entity, in accordance with contract provisions, unilaterally cancels all or part of the contract work for the best interest of the entity, and with no reflection on the contractor’s performance. Some contract clauses permit the conversion of a termination for default that is later invalidated by a court into a termination for convenience, so long as no bad faith was involved. Recoverable costs are usually more favorable to the government than damage claims for contract breach. Termination for convenience may occur if the requirement is no longer needed or funding is no longer available. In any event, the contractor is entitled to compensation for all work completed prior to termination, including purchased material, and may be entitled to additional damages resulting from the termination. Termination for convenience may also be applied through mutual agreement with the contractor to resolve a dispute and end the contract amicably.

The Big Mess Purchasing Manager Judy Blue could not believe the conditions on the job site. The parking lot looked like a small lake. Students were hopping over open trenches. Teachers complained about the mud in their classrooms, and parents would soon complain about their kids’ clothing. She chased two boys off an abandoned backhoe and wondered what would happen if they ever got it running. She called the architect for the third time to complain. The contractor for the water main repairs had been absent from the jobsite for two weeks. The entire school was being served by a temporary pipe from a fire hydrant. The toilets did not flush properly, and there was not enough water pressure in the cafeteria. County health inspectors warned her yesterday that they might have to close the school. The architect finally came on the line, “Hello, Judy, how are you?” Judy kept her temper in check and asked, “When is this going to end, Fred?” “Soon, Judy, real soon,” Fred replied, “The contractor thinks he’s got a handle on that special valve, and he should have it in and working next week. Be patient, Judy, and we will have you back in business in no

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time. You know, that’s a special valve, and there are only two or three companies that make it.” Should Judy be patient or worried? What can Judy do to protect her students and her school? This project is in crisis mode. The patronizing architect and the contractor are both in breach and probably in violation of local laws. The school is a health hazard and probably should be closed. The temporary water line may be sufficient for a few hours, but not days. Open trenches and unsecured equipment are a dangerous hazard. It is likely that an alternative to the special valve is available, and the contractor and architect should be scouring the globe for a replacement. The safety of students and staff are of immediate and paramount concern. Judy needs to direct the contractor to take immediate action to make the site safe and usable. Judy should also suggest temporary closure to school executives. She should send cure notices to the contractor, architect, and surety and notify their respective regulatory agencies of their incompetence.

Close-out and Commissioning The contract is not finished until all the paperwork is complete. Contract close-out begins with the substantial completion inspection by the project manager and architect or engineer. This inspection produces a checklist, or “punch-list,” of defects that must be corrected by the contractor before final payment may be released. Final payment is released only after a satisfactory final inspection and after the contracting officer determines that all contract requirements are met. The contractor is required to provide as-built drawings that show all the actual details of construction, copies of all warranties that will be transferred to the owner, all licenses and permits, warranty documentation, and other required contract submittals to the owner. The contractor must obtain and provide lien waivers from all suppliers and subcontractors as evidence that there are no outstanding payment claims. The contractor must also provide operation and maintenance manuals for all building systems. If the contractor passes the final inspection and has submitted all required paperwork, the owner may release final payment, including any retention, and send a release to the surety.

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In calculating the final payment, the contracting officer deducts any accumulated liquidated damages. The contracting officer should notify the contractor in advance of the intent to assess liquidated damages so that the contractor can offer evidence and arguments to dispute the damages. In closing out the contract, it is important that the contracting officer document the contractor’s performance for the contract file. This documentation will serve as a reference if the contractor competes for future contracts or if the agency is contacted as a reference.

Building Commissioning Commissioning is a practice that has been adopted by public procurement relatively recently that complements green building practices. Commissioning is a process for verifying that building heating, air conditioning, lighting, and other systems operate efficiently, and that operations and maintenance personnel are properly trained on those systems. Building commissioning provides the following benefits: ◾ Validating that building equipment and controls function efficiently and correctly ◾ Identifying and correcting systems and controls that operate sub-optimally ◾ Training operation and maintenance personnel on maintaining system efficiency ◾ Identifying other opportunities to improve efficiency and energy savings The US Department of Energy estimates that a building that is not commissioned will cost up to 20% more to operate compared to one that is commissioned.16 The requirement for commissioning should be described in the both the design and construction contracts.

Warranty The NIGP Public Procurement Dictionary of Terms defines “express warranty” as “A written description of the responsibilities of a seller in the event that a product is found to be defective or otherwise unsatisfactory.” The warranty

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for construction is expressed in the contract. For example, FAR Part 52–24621 requires the following or substantially similar warranty clause for federal construction contracts: (a) In addition to any other warranties in this contract, the Contractor warrants, except as provided in paragraph (i) of this clause, that work performed under this contract conforms to the contract requirements and is free of any defect in equipment, material, or design furnished, or workmanship performed by the Contractor or any subcontractor or supplier at any tier. (b) This warranty shall continue for a period of 1 year from the date of final acceptance of the work. If the Government takes possession of any part of the work before final acceptance, this warranty shall continue for a period of 1 year from the date the Government takes possession. (c) The Contractor shall remedy at the Contractor’s expense any failure to conform, or any defect. In addition, the Contractor shall remedy at the Contractor’s expense any damage to Government-owned or controlled real or personal property, when that damage is the result of: 1. The Contractor’s failure to conform to contract requirements; or 2. Any defect of equipment, material, workmanship, or design furnished. (d) The Contractor shall restore any work damaged in fulfilling the terms and conditions of this clause. The Contractor’s warranty with respect to work repaired or replaced will run for 1 year from the date of repair or replacement. (e) The Contracting Officer shall notify the Contractor, in writing, within a reasonable time after the discovery of any failure, defect, or damage. (f) If the Contractor fails to remedy any failure, defect, or damage within a reasonable time after receipt of notice, the Government shall have the right to replace, repair, or otherwise remedy the failure, defect, or damage at the Contractor’s expense. (g) With respect to all warranties, express or implied, from subcontractors, manufacturers, or suppliers for work performed and materials furnished under this contract, the Contractor shall: 1. Obtain all warranties that would be given in normal commercial practice; 2. Require all warranties to be executed, in writing, for the benefit of the Government, if directed by the Contracting Officer; and 3. Enforce all warranties for the benefit of the Government, if directed by the Contracting Officer.

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(h) In the event the Contractor’s warranty under paragraph (b) of this clause has expired, the Government may bring suit at its expense to enforce a subcontractor’s, manufacturer’s, or supplier’s warranty. (i) Unless a defect is caused by the negligence of the Contractor or subcontractor or supplier at any tier, the Contractor shall not be liable for the repair of any defects of material or design furnished by the Government nor for the repair of any damage that results from any defect in Government-furnished material or design. (j) This warranty shall not limit the Government’s rights under the Inspection and Acceptance clause of this contract with respect to latent defects, gross mistakes, or fraud.17 The warranty begins on the day following substantial completion of construction. The usual construction contract warranty for materials and workmanship is one year unless a longer warranty is required by law or the contract. The contractor is responsible for all warranty work, including work performed by subcontractors during the warranty period. Warranty claims should be made by the contracting officer to the contractor in writing, and the contractor is required to promptly correct the defect. There may be different commercial warranties for appliances and specialty items, such as the roof or HVAC system. For example, the warranty on the roofing system may be five or ten years, or the air conditioning system warranty may be five years. The construction contractor is also responsible for handling these warranties.

Latent Defect In most circumstances, the contractor’s warranty obligations end when the contract warranty period expires. However, some defects that may have existed at the time of acceptance may not be discovered until after the warranty has expired. The NIGP Public Procurement Dictionary of Terms defines a latent defect as “A defect that is not discoverable by initial customary or reasonable inspection upon delivery.” A latent defect may be dormant for years until it is exposed. For example, an electrical circuit hidden behind wall paneling may short because it was not wired properly, or a basement may flood because the wrong pipe was used under the foundation. The contractor remains responsible for correcting latent defects when they are discovered, even if the warranty has expired. However, the contractor is also likely to argue that the warranty has expired to dispute the warranty claim. Laws of the jurisdiction and the contract language may limit latent defect claims.

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The Walls Come Tumbling down Public Works Director Tom Max glanced up during his afternoon walk around the administrative building. He thought he caught some strange motion near the top of the building. On closer inspection, a marble exterior panel seemed to be flapping in the breeze. Just as he thought his new bifocals were playing tricks, the panel crashed and shattered at his feet. Before running into the building to notify security, he glanced up again and noticed several additional loose panels waiting for just the right breeze. The contractor arrived the next day and stepped over the crime scene tape to survey the damage. The following day, the contractor erected scaffolding and began inspecting the loose panels. By the third day, he offered his explanation: “Looks like water is getting underneath those panels and freezing. We should be able to fix it for a couple hundred grand or so. I’ll get my guys on it tomorrow.” “Wait,” Tom replied, “what about your warranty?” The contractor shook his head and replied, “You’ve got to be kidding me, Tom. That building is four years old. There is no warranty!” Tom knew that his budget would not cover repairs and started dialing the risk management office. Is this a warranty claim? Will insurance cover the expense of repairing the building? The defective panels are a latent defect. It is likely that they were not sealed or attached properly. The defect could be caused by defective design or improper installation of the panels. Tom should consult with general counsel and the risk manager and get the contractor and design architect or engineer together to discuss a solution. Tom also needs to prepare and send warranty claim notices to the contractor and designer.

Summary Contract administration includes all actions necessary to ensure compliance with the terms and conditions of a contract. Contract administration requires the active involvement of the contracting officer, COR, and architect or engineer. Good contract administration requires a good contract. Planning for contract administration starts with a risk assessment when drafting the contract clauses for the solicitation.

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Effective contract administration includes monitoring the contractor’s progress, inspecting; testing; reviewing invoices, submittals, and shop drawings; authorizing payment; resolving problems and disputes; negotiating changes; and closing out the contract. Proactive contract administration by all parties is essential for maintaining acceptable quality and safety and keeping the project on schedule and under budget.

Notes 1 NIGP The Institute for Public Procurement, Global Best Practice, Contract Administration Layout 1, https://www.nigp.org/resource/global-best-practices/ global-best-practice-contract-administration.pdf?dl=true. 2 Federal Acquisition Regulation (FAR) Part 1.604, Federal Acquisition Regulation | https://www.acquisition.gov/browse/index/far. 3 NIGP The Institute for Public Procurement, Global Best Practice, Contract Administration Layout 1, https://www.nigp.org/resource/global-best-practices/ global-best-practice-contract-administration.pdf?dl=true. 4 US General Services Administration, “Partnering,” https://www.gsa.gov/ real-estate/design-and-construction/construction-excellence/partnering?_ ga=2.129986636.1378289577.1676138088-942478960.1616442107. 5 Federal Acquisition Regulation (FAR) Part 46.1, Federal Acquisition Regulation |https://www.acquisition.gov/browse/index/far. 6 Federal Acquisition Regulation (FAR) Part 52.248-1, Federal Acquisition Regulation |https://www.acquisition.gov/browse/index/far. 7 Arizona Revised Statute §41–2577. 8 United States Code, 40 USC 270a: Bonds of contractors of public buildings or works. 9 United States Code, 40 USC 276a—276a-5: Rate of wages for laborers and mechanics. 10 United States Code, 29 USC: Fair Labor Standards. 11 U.S. Department of Transportation, “U.S. Department of Transportation Announces Expanded Local Hire and Workforce Development Pilot Programs,” May, 19, 2021, https://www.transportation.gov/briefing-room/us-departmenttransportation-announces-expanded-local-hire-and-workforce-development. 12 Congressional Research Service, “The Davis-Bacon Act: Institutional Evolution and Public Policy,” Updated November 20, 2007, https://www.everycrsreport.com/ files/20071130_94-408_69fb5d40cbc4e365e521ca9867058f812216d429.pdf. 13 U.S. Small Business Administration, HUBZone Program, https://www.sba.gov/ federal-contracting/contracting-assistance-programs/hubzone-program. 14 Federal Acquisition Regulation (FAR) Parts 2.101 Federal Acquisition Regulation |https://www.acquisition.gov/browse/index/far. 15 American Bar Association (ABA). (2000). The 2000 model procurement code for state and local governments. Chicago: ABA. 16 A Guide to Building Commissioning, Energy Efficiency and Renewable Energy, Building Technologies Program, US Department of Energy, September 25, 2011, https://www.energy.gov/eere/femp/articles/commissioning-federal-facilities. 17 Federal Acquisition Regulation Part 52-246-21. https://www.acquisition.gov/ browse/index/far.

Chapter 8

Construction Procurement Environmental and Social Responsibility Introduction Climate change is real. Our world is getting warmer at an alarming pace and will continue to warm into the foreseeable future. The Intergovernmental Panel on Climate Change—consisting of 1,300 scientists from around the word—reports a global average temperature rise of 2 degrees Fahrenheit since 1750, and it predicts a rise in average temperature of 2.5–10 degrees Fahrenheit within the next few decades.1 Scientists point to the continuing rise in greenhouse gas emissions as the primary cause for global warming. They accurately predicted that climate change would bring on melting sea ice, rising sea levels, droughts, heat waves, and devastating storms that plague us today. As temperatures continue to rise, we can expect changes in growing seasons and precipitation patterns, more droughts and heatwaves, more intense hurricanes, and sea levels rising as much as 8 feet.2 The construction industry has a large impact on nature and the environment. Buildings consume 36% of all energy, and produce 39% of energy, and discharge process related carbon dioxide into our atmosphere.3 We can help minimize the damage to the environment and help return it to its natural DOI: 10.4324/9781003276975-8

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state through sustainable construction—building with renewable and recyclable resources, reducing waste and energy consumption, and protecting the environment. Sustainable construction is smart construction. Sustainable “Green Building” practices are not only good for the environment, but they also can save money over the life of a public work. There is an increasing commitment in the construction industry to use strategies, materials, and equipment that maximize energy conservation, minimize adverse impact to the environment, and adapt to surrounding communities. There is also increasing interest in following sustainable building certification standards and employing construction practices that can achieve high ratings by those standards. The impact of construction is witnessed not only by changes to the environment, but also by the community, in terms of both the local or state economy and the everyday lives of citizens. Public works projects generate billions of dollars in revenue for contractors, designers, subcontractors, and suppliers. These enterprises employ millions of people and purchase goods and services from thousands of businesses. The employees and suppliers in turn purchase goods and services in the community and pay taxes. In 2019, the Association of General Contractors reported that 669,000 construction firms employed a total of 16.7 million employees. Ninety-two percent of these construction firms are small businesses.4 In its Public Procurement Practice, “Sustainable Procurement Practice,” the Institute for Public Procurement (NIGP) defines sustainable procurement as5: A purchasing and investment process that takes into account the economic, environmental, and social impacts of the entity’s spending. Sustainable procurement allows organizations to meet their needs for goods, services, and construction works and utilities in a way that achieves value for money on a whole-life basis in terms of generating benefits not only for the organization, but also to society and the economy, while remaining within the carrying capacity of the environment. NIGP further states: An organization practicing sustainable public procurement should consider the three aspects of sustainability (economic, social, and environmental) to create a more enduring approach to procuring goods and services that will contribute positively to the community and beyond.

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The three aspects of sustainable procurement—economic, social, and environmental—comprise the “triple bottom line,” and they are often referred to as the three “P’s”: people (social), planet (environmental), and prosperity (economic). This triple bottom line was coined by author John Elkins in 1994 to transform the traditional profit and loss focus of accounting into a more holistic approach to measuring business success.6 This chapter will address our responsibilities for sustainable public procurement in five sections: ◾ Environmental Sustainability—The protection of the environment and people and conservation of resources ◾ Social and Economic Sustainability—Equal rights for employees and equity and inclusion in public procurement ◾ Sustainable Procurement of Design and Construction—Procurement’s leadership role in sustainable design and construction ◾ Other Applicable Federal, State, and Local Laws—That apply to sustainable procurement ◾ Ethics and Integrity—In public procurement and contracting

Environmental Sustainability Buildings and construction have a large impact on the environment, public health, and the economy. According to the US Environmental Protection Agency (EPA), buildings in the US account for7: ◾ ◾ ◾ ◾

39% of total energy use 12% of total water consumption 68% of total electricity consumption 38% of carbon dioxide emission

Sustainable procurement, design, and construction practices can go a long way in reversing climate change and improving our environment, as well as providing significant operation and maintenance savings over the life of a sustainable investment. NIGP describes our environmental procurement challenge this way8: Finding sustainable ways to solve problems is an essential part of public procurement. Building roads and infrastructure using eco-friendly and sustainable materials and supplies benefits the environment now and in the future.

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By focusing on sustainable initiatives, public procurement can contribute to solving global environmental challenges, including the following: ◾ ◾ ◾ ◾ ◾ ◾

Reducing water usage Increasing energy efficiency Increasing sustainable agriculture Lowering greenhouse gas emissions Reducing air, water, and soil pollution Reducing waste and increasing recycling

Government has a responsibility to protect the environment and conserve scarce resources. Federal, state, and local laws prohibit construction and construction activities that may damage the environment, and they work to protect plants, wildlife, and historical sites. The EPA is responsible for setting and enforcing regulations that involve environmental sustainability and protection, including air and water quality, hazardous waste, and greenhouse gas emissions. The US Fish and Wildlife Service is responsible for enforcing the Endangered Species Act.

Green Building Standards Environmental sustainability goes far beyond compliance with government laws and regulations. According to the EPA, sustainability: Is based on the simple principle: Everything that we need for our survival and well-being depends, either directly or indirectly on our natural environment. To pursue sustainability is to create and maintain conditions which humans and nature can exist in productive harmony to support present and future generations.9 Environmental sustainability in construction translates to “Green Building.” According to the EPA10: Green Building is the practice of creating structure and using processes that are environmentally responsible and resource-efficient throughout a building’s life-cycle from siting to design, construction, operation, maintenance, renovation, and deconstruction. A Green Building is also known as a sustainable or high-performing building. A Green Building follows the principles of reduce, reuse, and recycle to reduce the overall adverse impact on the environment and human health by: ◾ Efficiently using energy, water, and other resources

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◾ Protecting occupant health and improving employee productivity ◾ Reducing waste, pollution, and environmental degradation Green Building applies to both new construction and upgrades of existing buildings. The EPA has implemented several strategies to enhance sustainability in its existing building portfolio, including11: ◾ Conducting retro-commissioning and re-commissioning to improve energy performance ◾ Using the most efficient heating, ventilation and air conditioning equipment and lighting ◾ Assessing for compliance with ventilation and thermal comfort standards ◾ Installing renewable energy systems ◾ Replacing plumbing fixtures with higher efficiency models ◾ Installing advanced energy and water meters ◾ Reducing irrigated landscape areas ◾ Retrofitting buildings and landscapes with low-impact development features ◾ Using integrated pest management techniques ◾ Contracting green cleaning services ◾ Purchasing environmentally preferable materials ◾ Implementing materials reduction, reuse, recycling, and composting programs According to the US Department of Energy, replacing an inefficient Heating Ventilation and Air Conditioning (HVAC) system can reduce energy costs by 38%–40%.12 According to Energy Star the EPA-backed program for certifying products for energy efficiency, upgrading commercial lighting to LED produces the same amount of light as traditional bulbs, with 90% less energy. LED lights also last 15 times longer than traditional bulbs.13 There are several Green Building codes available for sustainable building design and construction, including: ◾ US EPA, Federal Green Construction Guide for Specifiers (www. epa.gov) ◾ American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) Standard for the Design of High-Performance Green Buildings except Low-Rise Residential Buildings (www.ashrae.org) ◾ International Organization for Standardizations (ISO) provides performance standards for buildings (www.iso.org) ◾ International Code Council (ICC), 2018 International Green Construction Code (www.iccsafe.org)

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Green Building should be the standard for all public construction. More and more cities and states are becoming aware of the benefits that can be realized by utilizing a “build green” program. For example, investing in innovative construction can create savings over time, as demonstrated in a “greencertified” fire station built in Orlando, Florida.

Florida’s Green-Certified Firehouse14 Orlando will open a $3.2 million fire station today that city leaders say will become the first “green-certified” firehouse in Florida. Station 15, in Lake Nona’s Savannah Park neighborhood, was designed with ecofriendly features meant to reduce its impact on the environment and to save money on energy and water. For its fire station, the city has applied for Leadership in Energy and Environmental Design (LEED) certification from the US Green Building Council. The council awards points for a variety of factors, from the materials used in construction to the amount of open, undeveloped space on the site. The station’s features include: ◾ A design that allows sunlight into most areas, so little or no electrical lighting is needed during the day ◾ Urinals that use one-sixth of a gallon per flush, compared with the standard one gallon ◾ Bathrooms that have dual-flush toilets that use less water for liquids ◾ Sensors that turn off lights when no one is in the room ◾ High-efficiency heating and cooling systems “There are a lot of little facets that make up one big Green Building,” city spokesperson Carson Chandler said. “It’s literally dozens and dozens of little things.” The city will earn some points for features that likely would have been included anyway, such as the use of reclaimed water for irrigation. Other details, such as drought-tolerant landscaping and bicycle racks, didn’t add much to the cost. But green features did raise the price of the fire station by about $100,000. City officials estimate that they’ll save about $8,800 a year in electricity and water costs, so it will pay for itself in about 11 years. Mayor Buddy Dyer plans to use the fire station’s ceremonial opening to kick off “Green Works Orlando,” a citywide plan for more ecofriendly initiatives.

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Green Product Certification Green product certifications confirm that a product meets a certain standard and provides an environmental benefit, such as reduced energy use, recycled content, safe disposal, healthy air quality, and safety. While any manufacturer can claim that its products meet a green standard, certification by an independent third party is more reliable and provides greater assurance that the product meets the claimed green standard. Unverified green claims are known as “greenwashing” and are often nothing more than a marketing gimmick. Examples of independent third-party green product certifications include: ◾ ECOLOGO Index—A third-party certification for construction, cleaning, office, solar, and other products (www.ecolable.com) ◾ Energy Star—A government certification label for energy-efficient products provided jointly by the US Department of Energy and the EPA (www.energystar.gov) ◾ Electronic Product Environmental Assessment Tool (EPEAT)—A registry for environmentally preferable electronic products managed by the Global Electronics Council (www.epeat.net) ◾ WaterSense—An EPA certification for water-efficient products (www. epa.gov/watersense) ◾ Green Seal—Certification of commercial cleaning supplies, paints, lamps, and other products (www.greenseal.org) ◾ SCS Global—Certification of building materials, including carpet, textiles, wood products, and insulation (www.sbsglobalservices.com) ◾ GreenGuard—Certification guaranteeing that products do not exceed environmental thresholds for volatile organic compounds (www.greenguard.com) ◾ Safer Choice—An EPA certification for cleaning products with safer chemical ingredients (www.epa.gov/saferchoice) Requiring a recognized independent green product certification when buying or specifying products for construction and maintenance will both help improve our environment and lower operation and maintenance costs. In 2020, Energy Star-certified products saved American customers $42 billion in energy costs, reduced electricity consumption by 520 billion kilowatt hours, and reduced greenhouse gas emissions by 40 million metric tons.15 During the same time, WaterSense-certified products reduced water consumption by at least 20%.16

Green Building Certification Green Building ratings and certifications focus on the facility holistically. Green Building certification compares the design and construction to specific

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environmental goals and standards for environmental responsibility, resource efficiency, and the overall impact on human health and the environment over the lifecycle of the facility. Independent third-party building ratings and certifications include: ◾ Building Research Establishment Environmental Assessment (BREEAM) provides an international comprehensive Green Building rating and certification system for new construction and existing buildings. (https://bregroup.com) ◾ US Green Building Council, LEED provides a comprehensive Green Building rating and certification system for new construction and existing buildings. (www.usgbc.org) ◾ Green Globes provides a Green Building self-assessment program for new construction, major renovation, and building interiors. (www. greenglobes.net) Utilizing Green Building standards has the following benefits: ◾ ◾ ◾ ◾ ◾ ◾ ◾

Reduces greenhouse gas emissions Conserves energy and water consumption Reduces operating costs Increases asset value Promotes a healthy environment Improves employee productivity Sets an example for environmental responsibility

Building Research Establishment Environmental Assessment Method (BREEAM) BREEAM is an independent third-party international building assessment and certification for the sustainability and performance of buildings, communities, and infrastructure projects. The BREEAM assessment ranges from one to six stars for factors including low-impact design, carbon emissions reduction, design durability and resilience, adaptation to climate change, ecological value, and biodiversity protection. Initiated in 1990, BREEAM is the world’s first sustainability assessment program for buildings. In 2020, BREEAM reported granting more than 570,000 certificates and registering 2.2 million buildings in 85 countries.17

LEED Green Building Rating System The US Green Building Council created the LEED Green Building Rating System in 2000 to promote the use of environmentally sensitive design approaches and building materials for new construction and renovation.

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The LEED mission is “to transform the way buildings and communities are designed, built, and operated, enabling an environmentally and socially responsible, healthy, and prosperous environment that improves the quality of life.”18 LEED is a nationally accepted benchmark for the design, construction, and operation of high-performance Green Buildings. LEED gives building owners and operators the tools they need to have an immediate and measurable impact on their buildings’ performance. LEED promotes a wholebuilding approach to sustainability by recognizing performance in five key areas of human and environmental health: sustainable site development, water savings, energy efficiency, materials selection, and indoor environmental quality. LEED offers four certification levels: Certified, Silver, Gold, and Platinum. The rating criteria differ, depending on whether the project is for new construction or renovation, and how the building is used (e.g., as a school, laboratory, etc.) According to the Statisca Research Department, in 2021, 69,066 projects had attained LEED certification in the US.19 The US Green Building Council estimates that LEED-certified buildings consume 25% less energy and 11% less water than non-certified buildings.20 The General Building Contractors Association reports on its website that LEED-certified buildings produce 30%–40% savings on energy and water.21 Better indoor environmental quality helps reduce employee absenteeism and boost employee productivity.

DART Police Headquarters Earns LEED Platinum Designation22 The transformation of the near-century-old Monroe Shops streetcar maintenance barn into the headquarters for the Dallas Area Rapid Transit (DART) Police was a monumental task. In 2011, the facility was designated by the US Green Building Council (USGBC) as the first publicly owned building listed on the National Register of Historic Places to achieve the LEED Platinum Certification. DART earned this certification—the highest LEED recognition— by working closely during the renovation with the Texas Historical Commission, the Federal Transit Administration (FTA), and City of Dallas officials and staff. This helped ensure that the renovations were performed in an environmentally sensitive way and at the same time consistent with the US Secretary of the Interior’s Standards for Preservation.

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The facility provides approximately 69,000 square feet of workspace for police personnel, including three floors of modern offices, meeting rooms, showers, lockers, and an exercise facility. Commonly known as “Monroe Shops,” the former train maintenance facility was built in 1914 for the Texas Electric Railroad and placed on the National Register of Historic Places in 2006. It was remodeled, rebuilt, and transformed into the police headquarters in March 2011.

Green Globes Building Certification Green Globes is an online self-assessment building rating and certification tool for new construction, major renovations, and sustainable interiors. Green Globes was developed in Canada in 2000 by ECD Energy and Environmental Canada and Public Works and Governmental Services. The Green Globes rating and certification system was adapted for the US in 2004.23

Government Green Building Programs Many government agencies, cities, and states have initiated programs and adopted their own building guidelines based on many of the LEED criteria. The Department of Energy’s EnergySmart Schools Program is one example, promoting the use of construction techniques that support energy conservation in a variety of ways, including.24 ◾ Educating teachers and school administrators about planning and financing as well as operating high-energy efficient heating and cooling systems ◾ Providing technical guidance and training to building industry professionals ◾ Developing media materials and case studies about highly energyefficient schools The US General Services Agency (GSA) Office of Federal High-Performance Green Buildings develops best practices, guidance, and tools for highperformance buildings. By so doing, the GSA advances building innovations in planning, design, and operations to reduce costs, enable agency missions, enhance human health and performance, and minimize environmental

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i­ mpacts.25 The GSA offers many Green Building resources at www.gsa.gov/ governmentwide-initiatives/federal-highperformance-green-buildings. Several states have instituted their own sustainability-minded directives. In 1998, Pennsylvania Governor Tom Ridge created a Governor’s Green Government Council. There are 48 members on the council, representing a wide range of state agency heads and top managers. The council works in partnership with agencies throughout the Commonwealth as a catalyst to stimulate the development and continuous improvement of environmentally sustainable practices in planning, policymaking, and regulatory operations. Within each agency, green teams are formed and embark on projects and practices that follow council guidelines on green purchases, procurement efforts, and energy conservation.26 In 2019, Pennsylvania Governor Tom Wolf signed Executive Order 2-1901, establishing goals to reduce greenhouse gas emissions from 26% by 2026 and 80% by 2050. The executive order also requires state agencies to reduce their energy use by 21%, procure renewable energy and electric vehicles, and construct high-performance and energy-certified buildings.27 In 2009, the New York City School District issued a Green Building Rating System, compiling features from the LEED and the Collaborative for High Performance Schools (CHPS) rating systems. Supported by NYC local law 86/05, all major construction and renovation efforts must follow the district building guidelines.28 In 2005, Governor Arnold Schwarzenegger established a Green Building priority for California with Executive Order S-20-04. This order requires state-owned facilities to be designed, constructed, operated, and renovated as LEED Sliver or higher certification.29 These few examples represent much larger efforts occurring in a variety of public, non-profit, and commercial enterprises nationwide. They recognize the cost savings as well as the positive impact of Green Buildings on the environment.

Green Building Planning and Design Sustainability in public construction starts with project planning and design. According to the US General Services Administration:30 Sustainable design seeks to reduce the negative impacts on the environment, and the health and comfort of building occupants, thereby improving building performance. The basic objectives of sustainability are to reduce consumption of non-renewable

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resources, minimize waste, and create healthy, productive environments. Sustainable design principles include the ability to: ◾ ◾ ◾ ◾ ◾ ◾

Optimize site potential Minimize non-renewable energy consumption Use Environmentally Preferable Products Protect and conserve water Enhance indoor environmental quality Optimize operational and maintenance practices

Sustainable design is an integrated and holistic approach to design that impacts all phases of design, construction, operation, maintenance, and decommissioning. The American Society of Civil Engineers (ASCE), American Institute of Architects (AIA), and National Society of Professional Engineers (NSPE) embrace sustainability in project design. ASCE states its commitment to sustainable development in its Policy Statement 41831: ASCE defines sustainability as a set of economic, environmental, and social conditions (aka “The Triple Bottom Line”) in which all of society has the capacity and opportunity to maintain and improve its quality of life indefinitely without regarding the quantity, quality, or the availability of economic, environmental, and social resources. In its COP26 Communique, ASCE urges governments to “Reduce carbon emissions in the built environment to net zero as rapidly as possible.”32 The AIA Framework for Design Excellence “promotes better outcomes through good design” and is committed to “carbon neutrality.”33 The NSPE recognizes sustainability in its code of ethics: “Engineers are encouraged to adhere to the principles of sustainable development in order to protect the environment for future generations.”34 Sustainable design should be a standard requirement in every public facility design procurement scope of work, preferably with a requirement for certification by a recognized independent third-party rating system.

Green Construction Specifications and Practices Construction contractors build what is specified by the owner and designer. The project management and design team should be committed to integrating green specifications and practices into the entire project.

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Systems and equipment requirements should be based on performance and certification by an independent third-party rating agency, such as Energy Star. To have the least adverse impact on the environment, construction materials should consist of or contain the following: ◾ Materials from the local or regional area to lessen transportation distances ◾ Recycled materials to divert waste from landfills ◾ Organic compounds within industry limits, such as those found in paints, sealants, adhesives, and carpeting materials A major thrust of Green Building is to adopt a variety of building aspects that reduce or limit energy use as much as possible. One supporting effort is the Building America public-private partnership, sponsored by the US Department of Energy. One goal of this partnership is to build a near-zero-energy house, one that produces as much energy as it uses.35 Some highly energyefficient buildings contain: ◾ White tiled roof with a 3-foot overhang (versus the standard 1.5-foot overhang) ◾ R-30 attic insulation ◾ R-10 exterior insulation ◾ Windows selected to maximize light passing through while limiting heat ◾ Interior mounted, oversized ducts placed within the air conditioning system rather than in the attic ◾ Highly efficient appliances and lighting systems ◾ Programmable thermostats ◾ A solar water heating system ◾ A photovoltaic solar system A zero-energy building is one that combines energy efficiency and renewable energy generation to consume no more energy than it produces. Although zero energy may seem like an overly ambitious goal, with advances in technology, zero energy is achievable and many state and local governments are moving in that direction. As technology continues to advance, zero energy will become a common goal for public construction.

Total Cost of Ownership When considering sustainable buildings, the focus should be on the total cost to own, operate, and maintain the facility. The acquisition price for a capital

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Wayne Aspinall Federal Building and US Courthouse, Grand Junction Colorado36 The Wayne Aspinall Federal Building was originally constructed in 1918. Its renovation was completed in 2013 with the aim of becoming the first net-zero-energy building listed on the National Historic Register, while also preserving its original character. The net-zero objectives were met through a combination of highperformance, energy-efficient materials and systems and on-site renewable energy generation. The building is 50% more energy-efficient than a typical office building, and on-site renewable energy generation is intended to produce 100% of the facility’s energy requirements. According to the General Services Administration, energy efficiency features include: Variable refrigeration flow for the HVAC Geothermal heating and cooling Advance metering and building controls High-efficiency lighting Thermally enhanced building envelope Window systems that increase thermal performance Advance power strips with desk mounted individual occupancy sensors 385 photovoltaic solar roof panels asset or facility is only one factor in the total cost or value of the asset. total cost of ownership or “TCO” is a business analysis tool used to determine the best value for a capital asset based on the total cost of owning the asset. The NIGP Public Procurement Dictionary of Terms defines “total cost of ownership” as: A calculation used to determine the overall cost of a good or service throughout its lifecycle by adding to the initial purchase price all fixed and variable costs to own and operate that good or service, minus any residual value, if any. TCO is also called “lifecycle cost analysis” or LCC. The NIGP Public Procurement Dictionary of Terms defines “lifecycle cost” as: 1) The total cost of ownership over the lifespan of the asset, and 2) An analysis technique that takes into account operating, maintenance, the time value of money, disposal, and other associated costs of ownership as well as the residual value of the item.

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When considering purchasing a new car, buyers analyze the purchase price, mileage, warranty, maintenance cost, reports on reliability, and other information. The buyer might consider an electric car because of its low energy costs, but they must also factor in the distance between charges and the cost to replace the batteries when they expire. A sportier and more expensive car may have a higher resale value, but it may also have higher operation, maintenance, and insurance costs. Buyers also consider the expected lifespan of a car. A cheaper car will need to be replaced sooner than one with a longer warranty, and a more expensive car should have a higher resale value. The same analysis applies to the procurement of construction. The cheapest replacement roofing system will have a shorter lifespan than a more expensive system. Better roofing insulation will also lower energy costs. An air conditioning system with a higher Seasonal Energy Efficiency Ratio (or “SEER”) will use less energy than a less expensive system with a lower rating.

Sample Lifecycle Cost Analysis The acquisition cost for a public construction project does not reflect the actual value of the project. The best value is determined by considering the total lifecycle cost of the acquisition. Consider the replacement of a gymnasium roof. The standard roof insulation has an R-Value of 5.0, while premium systems have R-Values of 6.8 and 7.5. The R-Value is a rating system used to grade insulation. Roofing System

Acquisition

Energy Savings Life

Standard Upgrade Premium

$150,000 $200,000 $300,000

$10,000 $15,000

5 years 7 years 10 years

Annual Lifecycle Cost $30,000 $27,142 $28,500

The annual lifecycle cost is determined by deducting the estimated energy savings from the acquisition cost and dividing the balance by the estimated life. In this hypothetical comparison, both the upgrade and premium roofing systems have a higher acquisition price, but both provide a better value than the standard system. Note that this is a simplified analysis and does not take into consideration the value of money over time or any potential maintenance costs. A similar analysis may be applied to all major components and systems required for a construction project, including windows, mechanical and electrical systems, insulation, and finishes.

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Although the cheaper product will require less initial investment, the more expensive product may save more over the total product lifecycle. Another form of analysis is return on investment, or “ROI.” ROI is a performance measure used to determine the return of value on an investment or how long it will take to recover the cost of the original investment through revenue or savings. Adding solar panels to a facility represents a considerable investment, but the investment may be recovered in a few years from the energy savings or revenue the solar panels will produce. Calculating ROI for renewable energy sources may also include deductions for any grants, tax credits, or rebates that might apply. Analyzing TCO, lifecycle cost, or ROI may be applied when evaluating bids and proposals, but is more appropriately applied in the budget, planning, and design phases of a project, as budgeting and planning for the lowest acquisition price will often result in a higher total cost to the government.

Sustainable Building Commissioning To maximize the energy efficiency of a newly constructed building, many project owners engage a building commissioning process from the start of the project. The National Conference on Building Commissioning defines “Total Building Commissioning” as37: A systematic process of assuring by verification and documentation, from the design phase to a minimum of one year after construction, that all facility systems perform interactively in accordance with the design documentation and intent, and in accordance with the owner’s operational needs, including preparation of operation personnel. Commissioning ensures that a building is ready for the owner or occupants to move in and turn on the lights after construction is completed without any operating problems. Often, however, commissioning does not occur, and many owners face operational problems from the first day of occupancy. A 1994 study of more than 60 newly completed commercial buildings found that more than half of them experienced temperature control problems and 15% were missing specified equipment.38 Even with rigorous inspection and testing, an owner cannot assume that the contractor is committed to quality construction. Even when systems are properly installed, there is no certainty that they will operate efficiently. Uncomfortable working conditions can lead to higher turnover among

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employees. For schools, poor air quality and inadequate temperature controls can lead to poorer student performance. Modern buildings include sophisticated and complex systems, including heating, air conditioning, air handling, ventilation, water distribution, security, safety, and information technology. One of the most challenging aspects of vertical construction is integrating building controls to work optimally. In highly complex buildings, controls must be carefully integrated with design. Often building controls are subcontracted to field technicians, resulting in a lack of understanding of how the various controls are linked. A building is substantially completed when power, life safety, and ventilation systems comply with building codes. All outstanding problems become “punch-list” items to be resolved by the contractor after the client has occupied the building. However, although the completed building may comply with the contract requirements, there is no guarantee that the building systems will operate efficiently and in harmony. Commissioning is a quality assurance process that begins during final design phases and ends after the building has been occupied. If commissioning occurs throughout the construction process, all building systems are properly calibrated to work optimally and in harmony and needed tests and reports are completed, including39: ◾ ◾ ◾ ◾ ◾ ◾

Pipe/duct pressurization tests Installation, start-up, balancing, and training plans Start-up reports (per manufacturer’s requirements) Controls “point-to-point” check-out sheets Air/water balancing reports Equipment/system performance test reports

During the commissioning process, building personnel are trained by the contractor or building commissioning consultant on the proper operation and maintenance of the building systems. Commissioning ensures that all building systems are designed, constructed, operated, and maintained properly. On average, building commissioning provides energy savings of 10%–15% as well as lower maintenance costs, longer operating life, improved occupant safety, and a more comfortable working environment.40

Social and Economic Sustainability The design and construction industries comprise a diverse mix of business owners and employees of various races, genders, ethnic groups, religions, and political affiliations. Business owners and employees should enjoy equal

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­

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◾ Inclusion: “I describe inclusion as the degree to which an employee participates in the organization.” In 1961, President John F. Kennedy introduced the concept of affirmative action in his Executive Order 10925, establishing the President’s Committee on Equal Employment Opportunity, which required public contractors to take affirmative steps to overcome barriers to equal employment opportunity.42 The Civil Rights Act of 1964, as proposed by President Kennedy and signed into law by President Lyndon Johnson, prohibits discrimination based on race, color, religion, gender, and national origin. It also prohibits segregation in schools and public accommodations, and it outlaws employment discrimination.43 In 1965, President Johnson signed Executive Order 11246, prohibiting contractors from discriminating against employees based on race, color, religion, gender, or national origin, and directing contractors to take affirmative action to remedy past discrimination.44 The Equal Employment Act of 1972 empowers the Equal Employment Opportunity Commission to enforce laws against violations of the Civil Rights Act against individuals, employers, and labor unions.45 The purpose of an affirmative action program is to ensure that all persons have equal opportunities in being recruited, hired, promoted, and trained, regardless of race, color, religion, gender, or disability. The NIGP Public Procurement Dictionary of Terms defines “affirmative action” as: Required procedures contained with United States Federal Law (Equal Opportunity Act of 1972) designed to eliminate unlawful job discrimination among applicants, remedy the results of such prior discrimination, and prevent such discrimination in the future. Typically applies at least to race, creed, color, and national origin. Part 52.222-17 of the Federal Acquisition Regulation provides specific and detailed guidance for construction contractors and their subcontractors on affirmative action, including: ◾ Establish, maintain, and post an equal opportunity policy ◾ Designate a person responsible for affirmative action ◾ Ensure a working environment free of harassment, intimidation, and coercion ◾ Direct recruitment efforts specifically for minority and female hiring ◾ Develop on-the-job training opportunities that include minority and women

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◾ Ensure that seniority practices, job classifications, work assignments, and other personnel practices are not discriminatory ◾ Keep a record of solicitations and offers for subcontracts from minorityand woman-owned subcontractors Federally funded public construction contracts must comply with federal affirmative action requirements. Laws in most states also require diversity, equity, and inclusion in public contracting.

Equity for People with Disabilities Title I of the Americans with Disabilities Act of 1990 prohibits private businesses, state and local governments, employment agencies, and labor unions from discriminating against qualified individuals with disabilities. The Act applies to contractors with 15 or more employees and all state and local governments. A qualified disabled person is one who has a physical or mental impairment that substantially limits a major life activity. Reasonable accommodations for persons with disabilities include: ◾ Altering existing facilities so that they are usable ◾ Restructuring jobs and work schedules, or reassignment ◾ Obtaining or modifying equipment or devices, examinations, training materials, or policies Title II of the Americans with Disabilities Act of 1990 prohibits discrimination based on disability in services, programs, and activities provided to the public by state and local governments. Title II is implemented through Title 28, Part 35, of the Code of Federal Regulations. Among its many provisions, Title II requires that new construction, alteration, and maintenance of facilities shall accommodate people with disabilities. Title II also requires accessibility to public programs, services, and activities for people with disabilities. This means programs, services, and activities must be readily accessible and usable. In most circumstances, altering a facility so that it is accessible and usable for persons with disabilities is the most practical solution.46 The Code of Federal Regulations, Title 28, Chapter I, Part 35.151, requires of new construction and alterations: Each facility or part of a facility constructed by, or on behalf of, or for use of a public entity shall be designed and construed in such a

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manner that the facility or part of the facility is readily accessible to and usable by individuals with disabilities. The Act provides for certain exceptions. Buildings listed in the National Register of Historic Places or designated as historic under state or local laws are not required to make alterations that threaten or destroy the historic significance of the property. Compliance with the Americans with Disabilities Act and Title 28 of the Code of Federal Regulations shall be required in all federal, state, and local design and construction contracts.

Equity and Inclusion in Public Contracting Federal and state laws prohibit governments and contractors from discrimination in awarding public works projects. Federal grants for state and local projects require equity in awarding contracts and prohibit discrimination based on race, color, religion, political affiliation, disability, or gender. Likewise, general contractors are prohibited from discrimination in awarding contracts to suppliers and subcontractors. 49 CFR Part 26 requires state and local governments to establish a DBE (Disadvantaged Business Enterprise) program for federally funded projects. Qualifying businesses are defined as: ◾ A Minority Business Enterprise (MBE) is a business which is at least 51% owned, operated, and controlled daily by one or more ethnic minority American citizens. ◾ A Women Business Enterprise (WBE) is a business which is at least 51% owned, operated, and controlled daily by one or more women. ◾ A Disadvantaged Business Enterprise (DBE) is a small business which is at least 51% owned by a socially or economically disadvantaged person or persons within the meaning of federal regulations. Socially or economically disadvantaged persons include women and qualified minority Americans. To qualify as an MBE, WBE, or DBE, the business must be certified by the Small Business Administration; a tribal, state, or local certification authority; or a qualifying independent private organization. MBE and WBE goals are not permitted for federally funded contracts. Instead, 49 CFR Part 26 requires that state and local governments establish a DBE program and DBE goals for federally funded contracts.

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According to the Minority Business Development Agency (MBDA) in its December 2016 report, “Contracting Barriers and Factors Affecting Minority Business Enterprises: A Review of Existing Disparity Studies,” MBEs receive a lower number of public contracts and a lower amount of public contract dollars in proportion to their presence in the marketplace. Likewise, MBEs receive a lower number of subcontracts and a lower amount of public contract dollars from general contractors for public construction projects. The following are included among the reasons cited for this disparity47:

Barriers for Prime MBEs ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾

Untimely notification of procurement opportunities Discrimination and exclusion Stigma that MBEs are not capable High bonding and insurance requirements Large project size Restrictive solicitation requirements Slow payment Access to capital

Barriers for Minority Subcontractors and Suppliers ◾ ◾ ◾ ◾ ◾

Untimely notification of procurement opportunities Bid shopping Lack of good faith effort Discrimination and exclusion Stigma that MBEs are not capable

Some of these barriers can occur regardless of race or gender. For example, untimely notification of procurement opportunities can affect all firms. Likewise, bid shopping—the practice of leveraging a lower price by sharing competing bid numbers—works against all prospective subcontractors and suppliers, although it seems to affect minority- and woman-owned firms more often. Many times, there are simple solutions for these barriers. For example, contracting officers can allow another week for offerors to prepare bids, or they can adjust qualification requirements. Other barriers, like explicit discrimination or the perception that minorityor women-owned firms are less capable, are specifically tied to race or gender. Discrimination continues to be pervasive in public constructing contracting, and the unfounded perception that a minority- or woman-owned business is less capable than a majority-owned business continues to exist.

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Many governments have enacted numerous affirmative action programs, creating goals, preferences, and set-asides to counter current and historical disparities in awarding public contracts and subcontracts to minority- and woman-owned businesses. For example, the State of New York requires that contractors make a good faith effort to award minority- and women-owned businesses 30% of contracts valued at $100,000 or more.48 Through its COBID (Certification Office for Business Inclusion and Diversity) program, the City of Portland requires that 20% of awards for “hard construction” be given to businesses certified as owned by minorities, women, or servicedisabled veterans. The program also gives permission for such businesses to be given contracts of $150,000 or less without competition.49 In a series of US Supreme Court decisions, minority-owned and woman-owned business enterprise preference laws have been struck down, except in circumstances when an actual disparity in equity has been determined in the community. For example, the key holding in City of Richmond v. J.A. Croson (488 US 469 1989) and Adarand Constructors, Inc. v. Pena (515 US 200 1995) is that a race-conscious affirmative action program must be based on a compelling interest in remedying past discrimination and be narrowly tailored to achieve its objectives.50 In other words, governments cannot set goals, preferences, or setasides for minority-owned businesses unless they are based on an actual disparity. An economic disparity study is an analysis of procurement and contracting data to determine whether a disparity exists in the award of contracts and subcontracts to minority-owned and woman-owned firms. It compares the utilization of available and willing minority- and woman-owned firms with the total contracts and dollars awarded to contractors and subcontractors by a government or geographic region, and it provides recommendations for addressing any disparities uncovered. In its review of 2,385 disparity studies, the US Department of Commerce, MBDA, observed that nearly 80% of the studies reported a significant disparity in awarding contracts and subcontracts to minority-owned firms and that the disparity is most prevalent in awarding construction contracts. Among the anecdotal findings, minority-owned firms reported that a major reason for the disparity is “outright prejudicial treatment, attitudes, stereotypes, implementing a higher double standard for MBEs, or manipulating the bid process.”51 The NIGP Global Best Practice, “Establishing an Effective Supplier Diversity Program,” provides seven guidance recommendations for supplier diversity and inclusion: Guidance 1: Assess any disparities Start by identifying any differences between the businesses most likely to be chosen to receive a contract and those that are equally qualified, but not as likely to be chosen.

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Guidance 2: Comply with the program’s policy and legal requirements Identify your legal obligations in terms of addressing disparities in the contracting process to determine the appropriate scope of your supplier diversity program. Guidance 3: Identify the program’s stakeholders Stakeholders are those who have an interest in an entity’s efforts to promote supplier diversity. Identifying your stakeholders, continually engaging them throughout a project, and working to meet their expectations is essential to a successful program. Guidance 4: Clarify and develop the program’s scope Proactively create your own supplier diversity program by first determining the program’s scope and legal and contractual framework. Solicit community feedback to identify local needs and determine how your project can take them into account. Guidance 5: Align leadership and resources with the program’s scope Because there are often limited resources available to promote supplier diversity, smaller progressive changes may be more effective over the long term. These changes may include cultivating diversity champions, implementing change management, and defining compliance. Guidance 6: Develop the program Some essential elements to developing a successful supplier diversity program include obtaining community-wide support, widely publishing information about the project and the underserved groups within its scope, and developing a transparent communications plan. Guidance 7: Develop a meaningful compliance monitoring approach that engages the supplier community A thoughtful, effective monitoring process can foster a communicative relationship between public entities (federal, state, and local government) and stakeholders to build a successful supplier diversity program There are many ways to address disparity in public contracting. NIGP recommends the following race- and gender-neutral actions procurement agencies may take to promote supplier diversity and inclusion: ◾ Disadvantaged Business Enterprise (DBE) directories and “how to do business” seminars ◾ Small business development programs such as mentor/protégé arrangements ◾ Small/micro business set-asides ◾ Goals for small business subcontractor participation rates not tied to membership in a protected class group

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◾ Preferences for Historically Underutilized Business Zone (HUBZone) businesses or low-income based preferences (i.e., by zip code, census, etc.) to address economically depressed urban areas ◾ Veteran-owned business programs ◾ Preferences for businesses owned by disabled persons ◾ Businesses using domestic content or labor (Buy America Act) NIGP also recommends the following steps to establish a supplier diversity and inclusion program: ◾ Create aspirational goals and cultivate community support ◾ Create and publish an overall program objective that defines how best value procurement and supplier diversity complement one another and may negate the need for preference programs ◾ Identify race-, ethnicity-, and gender-neutral programs (i.e., practices and activities that demonstrate attempts at inclusion, but are short of preference programs) ◾ Define and widely publish consistent descriptions of the program and definitions of minority or other historically underutilized groups within the program’s scope ◾ Consider leveraging existing definitions from similar programs, such as those of the US Department of Transportation ◾ Continually focus on the method for determining how membership in the groups is established and validated ◾ Early in the program’s development, integrate change management strategies, such as involving affected stakeholders and communicating program progress to community organizations, such as: ◾ Procurement technical assistance centers ◾ Small business development centers ◾ Local chapters of Black-owned and Hispanic-owned chambers of commerce ◾ Women’s business centers ◾ Veterans’ business centers ◾ Association of General Contractors ◾ Develop a communication plan that emphasizes the value of the reduced risk from broader business engagement with the procurement process, including: ◾ Stronger competitive base with a more diverse supplier pool ◾ Better response to emergencies ◾ More continuity in the supply chain ◾ Overall better adaptability to fluctuations in the economy

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◾ With help from relevant stakeholders, identify and start working to change the laws, regulations, and written policies that may impede supplier diversity. Examples include: ◾ Rules requiring that an award be given to the bidder who submits the lowest price (e.g., Invitation for Bids [IFB], Invitation to Tender [ITT]) ◾ Prescribed factors for award in solicitation types other than IFBs or ITTs (e.g., requests for proposals that are not flexible enough to include small businesses) ◾ Identify and eliminate procurement practices that discourage underutilized suppliers from participation or that needlessly impose requirements that have the effect of reducing competition. For example: ◾ Unbundle or break out lower-cost common supplies from larger-cost items (e.g., separating sinks from pipes for plumbing replacement parts) ◾ Review and revise bonding requirements not prescribed by law and not necessary to reasonably mitigate risk ◾ Remove other barriers to competition and scope of work (e.g., specification requirements that exceed requirements and limit competition) ◾ Use strategies to increase the supplier base by engaging more diverse companies. For example: ◾ Provide suppliers with information, training, and outreach events ◾ Revise small purchase limits to eliminate unnecessary formal competition processes so best value is not sacrificed ◾ Develop new models for market research and requests for information to engage previously underutilized businesses earlier ◾ Explore subcontracting strategies to encourage the participation of diverse suppliers ◾ Leverage opportunities for larger suppliers to mentor/work with small businesses for consulting and solicitation development assistance ◾ Conduct training on evaluations to better define standards, improve application of standards, and remove unconscious bias ◾ Make supplier support a key part of the program by: ◾ Providing periodic training about effective procurement marketing, bid/proposal submissions, and contracting approaches ◾ Providing advocacy and education about current best practices and trends ◾ Teaching strategies for developing and fostering relationships with public procurement professionals

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◾ Providing opportunities for engagement in which suppliers can share their concerns and ideas ◾ Listening to suppliers about barriers to their participation ◾ Lowering conference fees to improve access, encourage participation, and provide networking opportunities Race- and gender-specific activities to promote supplier diversity and inclusion may include: ◾ Provide a dedicated professional to manage a procurement diversity, equity, and inclusion program ◾ Maintain a database of minority- and woman-owned businesses that can be accessed by prime contractors ◾ Advertise in minority and woman business association publications ◾ Participate in minority and woman business associations ◾ Measure and report contracts and subcontracts awarded to DBEs, MBEs, and WBEs ◾ Include language in solicitations that require anti-discrimination and a description of the offering organization’s DBE, MBE, and WBE business policy ◾ Encourage networking with DBE, MBE, and WBE subcontractors during pre-offer conferences ◾ Appoint an advisory committee of DBEs, MBEs, and WBEs ◾ Establish goals for contracts and subcontracts awarded to DBEs, MBEs, and WBEs ◾ Provide preferences to DBEs, MBEs, and WBEs ◾ Establish procurement set-asides for DBEs, MBEs, and WBEs—A procurement set-aside is a policy of awarding contracts for specific categories only to DBEs, MBEs, or WBEs. For example, all construction contracts costing less than $50,000 shall be awarded to DBEs or small businesses To withstand legal challenges, DBE, MBE, and WBE goals must be based on the number of certified DBE, MBE, or WBE businesses able and willing to perform compared to all businesses in the same category. For example, if 35% of the construction subcontractors registered to compete in the geographic area are certified DBEs, the DBE subcontractor goal would be 35%. A contractor must make a good faith effort to meet a procurement MBE, WBE, or DBE goal. A good faith effort may be achieved either by meeting the goal or by documenting efforts to achieve the goal. If the contractor is unable to demonstrate a good faith effort, its offer is not responsive.

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Restrictive Qualifications After receiving a phone complaint from a prospective offeror for the Main Street repaving project, Senior Procurement Officer Merry Harmony met with the project manager. The owner of a small minority-owned paving firm had asked that Merry reduce the minimum qualification for experience from seven years to five. The business owner complained that the seven-year minimum disqualifies his firm and is excessive. He also argued that only one paving firm in the county could meet the minimum. The project manager was adamant, “Come on Merry, you know they need at least seven years for my projects, and a minority-owned firm does not have the capacity for this project.” How should Merry respond to the Project Manager? How much experience is necessary to qualify for a paving project? Is seven years of mediocre performance better than five years of good work? Seven years seem excessive and clearly restrict competition to one firm. The project manager is also expressing a bias against minority-owned businesses. Restricting competition will not only cost the city more money, but it will also eliminate a capable firm from the opportunity to compete and expose the city to a potential protest or litigation. Merry needs to stand up to the project manager and adjust the minimum experience requirement.

Bait and Switch Walter, the owner of the minority-owned small business, “Walter’s Electric,” called Senior Procurement Officer Merry Harmony to complain that his firm was “fired” by the general contractor for the city hall electrical and mechanical upgrade project. Walter’s Electric was listed by the prime to meet the 30% MBE goal. Walter complained that he was told by the prime contractor that his firm would be responsible for buying all the required materials from sources designated by the prime but would not be allowed to perform any electrical work. When Walter complained, the prime contractor fired his firm. Merry called the prime contractor. Sam, the owner, said, “Of course we fired them. You cannot tell us how to run our business.” What should Merry say to the prime contractor?

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The prime contractor intended to use a minority-owned firm to meet the contract MBE goal and later fired the firm after the contract was awarded. This is a classic bait and switch by the prime contractor. To meet a DBE, MBE, or WBE goal, the subcontractor must be contracted to perform a commercially useful function. An MBE performs a commercially useful function when it is responsible for performing and managing the work. Instead, the subcontractor was awarded “pass-through” purchases of materials from sources directed by the prime contractor. By firing the minority-owned subcontractor, the prime contractor is in default. Merry should direct the contractor to rescind the termination of the subcontract and to assign the subcontractor meaningful work.

A Matter of Responsibility State and local procurement laws require that contracts only be awarded to responsible offerors. A responsible offeror is defined in the NIGP Public Procurement Dictionary of Terms as: A supplier with the integrity and reliability as well as the financial and technical capacity to perform the requirements of the solicitation and subsequent contract. Integrity is the quality of having high moral and ethical behavior. A contractor that does not have high ethical standards is not responsible and should not be awarded a public contract. A responsible business employs ethical strategies and procedures throughout its supply chain as part of its business and governance model, and it never sacrifices ethics for profit. A responsible business certifies that it and its suppliers: ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾

Comply with all applicable laws and regulations Provide safe and hygienic working conditions Ban child labor and human slavery Are honest in dealing with customers Require reasonable working hours and pay a livable wage Prohibit discrimination and retaliation Employ sustainable environmental practices Do not permit corruption

Determining responsibility is an affirmative determination of the contracting officer. In other words, the contractor must provide evidence to support a contracting officer’s determination that the contractor is responsible.

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A Hornet’s Nest Senior Procurement Officer Merry Harmony listened to the morning news as she prepared for work. She almost dropped her coffee cup as the reporter announced that the CEO of Hornet’s Nest Contracting was arrested for corruption and tax evasion. A county official from another state was also arrested for accepting a bribe from the contractor. Based on its low bid and Merry’s recommendation, Hornet’s Nest was just awarded a contract by the city council to renovate Fire Station Seven. Merry did a quick Google search and found that Hornet’s Nest has a long history of legal and financial issues. It was also listed on SAM. gov as a debarred vendor. Merry shook her head wondering what to do. None of these problems were reported in its bid, and Hornet’s Nest had certified that it is not debarred or suspended. What can Merry do to get out of this mess? If Merry did her job right before taking her contract award recommendation to the city council, she would not be in this mess. Her Google search and checking SAM.gov should have been done as part of her responsibility check. Debarment alone is cause for a determination that Hornet’s Nest is not a responsible contractor. The contractor also committed a crime in falsely certifying that it is not debarred. Merry has no choice but to meet with her supervisor and legal counsel and terminate the contract. No doubt Merry will have an uncomfortable discussion with her city council when she explains her actions.

Sustainable Procurement of Public Construction In its “Sustainable Procurement Practice,” NIGP recommends that procurement take a leadership role52: Effective procurement is sustainable procurement that promotes positive outcomes for the economy, environment, and society. The public sector should promote sustainable procurement throughout the acquisition and disposition process, and sustainability should be embedded in all procurement decision making. Beyond legislative requirements, there are many drivers (as referenced in the BS 8903: Principles and Framework for Procuring Sustainably) that support sustainable procurement.

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The NIGP’s Sustainable Procurement Practice includes six elements: ◾ Element 1.1: People and Leadership—Procurement should serve as the lead for developing, implementing, and maintaining sustainable procurement policy and programs. ◾ Element 1.2: Documentation and Drivers for Sustainable Procurement— Once significant drivers for sustainable procurement activity have been assessed and identified, it is advisable to document and describe the drivers in terms of potential benefits to the organization, key stakeholders, or beneficiary. ◾ Element 1.3: Sustainable Procurement, Policy, Strategy, and Communications—There should be clear and agreed-upon sustainability objectives embedded within procurement and organization policy, procedures, and process. ◾ Element 1.4: Sustainable Procurement Process—Processes should be developed and adopted to ensure sustainability is considered in the procurement of products and services. ◾ Element 1.5: Engagement of Suppliers in Sustainable Procurement— Engaging suppliers in sustainable procurement objectives will result in targets being set for suppliers that will improve their sustainability performance in relation to their provision of products and/or services to the organization. ◾ Element 1.6: Validate Achievement and Measurement Results in Sustainable Procurement—Identify and implement performance management improvements that will have a positive impact on sustainable procurement procedures. Published in 2017, ISO 20400 provides guidance on integrating sustainability into the procurement process. ISO 20400 defines sustainable procurement as53: The process of making purchasing decisions that meet an organization’s needs for goods and services in a way that benefits not only the organization but society as a whole, while minimizing its impact on the environment. This is achieved by ensuring that the working conditions of its supplier’s employees are decent, the products and services purchases are sustainable, where possible, and that socio-economic issues, such as inequality and poverty are addressed. Social and environmental sustainability should be an important consideration in every design and construction procurement.

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Procurement Leadership in Environmental and Social Sustainability In 2019, the State of New Mexico Facilities Management Division of the New Mexico General Services Department initiated a $32 million project to improve energy efficiency in more than 30 state office buildings in Santa Fe, with the goal of cutting energy bills in half while reducing carbon emissions. The effort included solar power, low-flow toilets, window film and caulking, improvements to temperature controls and HVAC systems, and upgrades to electrical systems. The effort has resulted in $1.1 million in annual energy savings, 5.13 million gallons in annual water savings, and an annual reduction of 7400 metric tons of emissions. The investment included the sale of $12 million in bonds that will be paid off through the utility savings. The Massachusetts Operational Services Division (OSD) is a leader in environmentally sustainable procurement. In 2016, the OSD received awards from the Green Electronic Council (GEC) and Sustainable Purchasing Leadership Council (SPLC). OSD received the GEC EPEAT award for achieving $713,000 in energy costs through the procurement of greener electronic products. OSD also received two SPLC awards for its innovative state contracts for Environmentally Preferable Products. These contracts resulted in a reduction of 190,000 metric tons of carbon equivalent and 19,000 tons of waste through recycling. Massachusetts led the effort to establish a multi-state cooperative purchasing agreement for environmentally preferable cleaning supplies and equipment. Oregon’s Sustainability Act of 2001 includes goals to incorporate criteria related to environmental, social, and economic sustainability into state procurements; invest in facilities, equipment, and durable goods “to reflect the highest feasible efficiency and lowest lifecycle costs”; and promote improvements in the efficient use of energy, water, and resources. Maryland Department of General Services received the SPLC Leadership Award for its Maryland Green Purchasing Committee that administers an environmentally preferable purchasing program for the State of Maryland. The committee provides state agencies with tools and resources to encourage the purchase of products that reduce the use of raw materials, do not contain hazardous or toxic substances, are biodegradable or recyclable, and are energy-efficient. DART maintains a recognized and successful diversity, equity, and inclusion procurement program that includes an executive-level

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Local Preferences Local preference laws are intended to give an advantage to local businesses when competing for government contracts. This preference is most often in the form of a small percentage, usually 5% or less that may be applied to the bid or proposal of a local firm. If a local firm’s responsive offer is greater by an amount less than the preference, the local firm is awarded the contract. Local preference laws may enable local governments to keep more business in the local community, thus increasing tax revenues. However, the increased tax revenues may be more than offset by the cost of decreased competition and higher costs. Federal funding requirements prohibit application of local preferences, and many state and local governments have enacted reciprocal preferences that are applied against businesses located in communities with preference laws.

Local Hiring Preference In a press release issued on May 19, 2021, the US Department of Transportation announced a four-year pilot program for construction hiring and workforce development. The program gives contracting agencies using FTA and Federal Highway Administration (FHWA) funding the flexibility to use hiring preferences to “enhance workforce development opportunities for those in economically or socially disadvantaged communities.”55 The FHWA On-the-Job Training (OJT) and On-the-Job Training and Supportive Services Programs (OJT/SS) require state transportation agencies to establish apprenticeship and training programs in skilled crafts for women, minorities, and disadvantaged individuals. The FTA Workforce Development Initiative includes funding for: ◾ Technical assistance activities ◾ Human resources and training projects, including employment training, outreach, research, training for veteran and minority businesses, and national training standards and certifications ◾ Innovative public transportation frontline workforce development projects, including apprenticeships and on-the-job training, training partnerships, improving safety, security, and emergency preparedness, and addressing workforce shortages

Ethics and Integrity Public procurement has and will always be at risk for corruption. Public construction is especially vulnerable, due to the large dollars involved and the complexity of design and construction procurement. In a 2014 report, the

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Organization for Economic Cooperation and Development (OECD) estimates that 15% of all foreign bribery cases involve construction, and that 10%–30% of the investment in public construction is lost due to bribery. There are also hidden costs from public bribery, including reduction of quality and safety, use of inferior materials, failure to meet contract schedule and terms, and erosion of public trust.56 Forms of public procurement corruption include: ◾ Bribery and Kickbacks—Offering money or favors to persuade another party to take a desired action. Examples include paying a percentage of a contract modification to the procuring official ◾ Favoritism—Giving preferential treatment to another person. Examples include favoring one party during negotiations or sharing confidential information with a preferred offeror ◾ Embezzlement—Theft or misappropriation of funds, property, or goods that are entrusted to the public official. For example, setting up a false company billing scheme ◾ Fraud—Intentional deception to obtain personal gain ◾ Collusion—Secret collaboration with another to cheat or steal from others Specific corrupt design and construction contracting practices include: ◾ Splitting requirements to avoid competition ◾ Imposing restrictive specifications and requirements that favor a preferred business ◾ Giving biased evaluations of offers ◾ Applying evaluation criteria that is not stated in the solicitation ◾ Favoring preferred contractors or discriminating against contractors ◾ Failing to disclose accurate cost and price data ◾ Using single or sole source procurement when capable competitors exist in the market ◾ Rotation and bid rigging schemes in which competitors agree on the distribution of contracts ◾ Substituting materials and equipment that do not conform to the contract requirements ◾ Fraudulent change orders and contract modifications for inflated prices or for work that is not performed ◾ Extending time of performance or waiving liquidated damages without sufficient cause ◾ Giving pass-through payments to subcontractors for work that is not performed to meet DBE goals

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◾ Fraudulently invoicing for work not performed ◾ Fraudulently issuing expense reports under cost-reimbursement contracts ◾ Disclosing confidential information to competitors This is not an all-inclusive list, and new schemes are encountered nearly every day. Procurement is the frontline of defense against public corruption and is responsible for putting measures in place to prevent corruption, including: Integrity: possessing honesty and maintaining high moral principles. It is consistently doing the right thing. Procurement can maintain its integrity by: ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾ ◾

Establishing a strong foundation of laws and regulations Maintaining a compliance and competition advocate officer Adopting a code of ethics Documenting and managing conflicts of interest Providing regular ethics training Maintaining consistent and effective leadership Requiring certified cost and pricing data Ensuring that contracts are awarded only to responsible contractors Providing for open communication of ethical issues and concerns, without fear of retaliation

Transparency: being open to public scrutiny. Procurement can promote transparency by: ◾ Advertising procurement opportunities ◾ Consistently seeking full and open competition ◾ Providing timely and fully disclosed information relevant to each procurement ◾ Providing adequate time to prepare offers ◾ Encouraging and answering clarification questions ◾ Debriefing competitors following contract award ◾ Making contracts available through open record requests ◾ Requiring clear documentation for procurement and contract decisions Oversight and Control: taking actions to review and monitor activities, including: ◾ Establishing internal controls, including audit of procurement and contract actions ◾ Requiring multiple levels of approval for procurement, contract actions, and payments ◾ Providing a fair and accessible process for protests and claims, with the opportunity to appeal to a level above procurement ◾ Including right to audit in all contracts

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Your Deal Mark popped open another beer as Ted dealt the next hand. It was Mark’s turn to host the weekly poker games, and as usual he was winning more than his share of hands. The games started right after work began on building the new high school and was proving to be a lucrative diversion for the school district project manager. The construction superintendent and his two foremen always provided the beer, and the design engineer furnished the snacks. Mark considered himself a pretty good poker player, much better than his friends. Holding two kings, he raised, “all in” as he pushed his pile to the center of the table. With a $200 pot, Mark was certain he would go home up $600. The other players wisely folded and called it a night. It was all harmless fun. Is the weekly poker game harmless fun or a form of public corruption?

Poker among friends may be a fun diversion. However, Mark is a public official and gambling with contractors is or can be perceived as public corruption. Consistently winning, even among inferior players, should give Mark a hint that he is being set up. If it has not already happened, his card-playing colleagues will expect favorable treatment in the administration of the design and construction contracts and with future procurements. Mark is in trouble and must immediately stop participating in the weekly games or any other activities with the contractor and engineer and report the activity to his supervisor. Procurement integrity is not limited to procurement officials. Integrity applies to every member of the organization, from the elected and appointed officials to every other member of the organization.

Summary Government procurement can no longer afford to view the supply chain from a strictly financial perspective. It must take a holistic “triple bottom line” approach, linking environmental, social, and financial performance throughout the entire supply chain. As stated by NIGP in its sustainable procurement practice: An organization practicing sustainable public procurement should consider the three aspects of sustainability (economic, social, and

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environmental) to create a more enduring approach to procuring goods and services that will contribute positively to the community and beyond. Environmental sustainability in construction means Green Building. Green Buildings are environmentally responsible and resource-efficient throughout the building’s lifecycle, working to: ◾ Efficiently use of energy, water, and other resources ◾ Protect occupant health and improve employee productivity ◾ Reduce waste, pollution, and environmental harm Innovations in Green Buildings continue to evolve as technology evolves. Solar and wind power generation is becoming more efficient and less expensive. It is important for procurement professionals, as well as design and construction professionals, to stay in touch and informed as the industry advances. Social sustainability in construction means fair and equitable treatment of contractors and people employed by contractors and subcontractors. Beyond complying with federal, state, and local laws, procurement professionals can take a leadership role in sustainable procurement by: ◾ Specifying use of Environmentally Preferable Products, components, and systems in design and construction procurements ◾ Applying lifecycle cost or TCO and ROI analysis in budgeting, planning, and construction design ◾ Requiring Green Building certification in procurement scopes of work for design services ◾ Ensuring designer and contractor affirmative action compliance through equity and inclusion

Notes 1 National Aeronautics and Space Administration, Earth Science Communication Team, The Effects of Climate Change, March 4, 2022, https://climate.nasa. gov/. 2 National Aeronautics and Space Administration, Earth Science Communication Team, The Effects of Climate Change, March 4, 2022, https://climate.nasa. gov/. 3 Global Alliance for Buildings and Construction, Dr. Fatih Birol and Inger Andersen, “2019 Global Status for Buildings and Construction,” https://www.unep.org/ resources/publication/2022-global-status-report-buildings-and-construction. 4 Association of General Contractors of America, “The Impact of Construction in the United States and California,” March 25, 2019, https://www.agc.org/sites/ default/files/Files/Construction%20Data/CA.pdf.

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Index Note: Bold page numbers refer to tables; italic page numbers refer to figures. ABA 2000 Model Procurement Code for State and Local Governments 7, 11; architectural and engineering services 115; Article 9, Legal and Contractual Remedies 53; competitive proposals 188; construction definition 7–8; design and construction contract management, responsibility for 11; disagreements and disputes 229; findings and determination 14; qualification-based selection of professional services 121; responsible bidder or offeror 178; responsive bid 182; acceptable accounting system 134 ACORD see Association for Cooperative Operations Research and Development (ACORD) ADA see Americans with Disabilities Act of 1990 (ADA) Adarand Constructors, Inc. v. Pena (1995) 261 administrative hearing 229 ADR see alternate dispute resolution (ADR) advertising 174–175 AE see architect and engineers (AE) affirmative action 257–258; definition of 257; programs 261 agency: definition of 29 AIA see American Institute of Architects (AIA) AIA-201 Owner-Architect Agreement 222 alternate dispute resolution (ADR) 52 American Institute of Architects (AIA) 16, 131, 163, 250; Framework for Design Excellence 250

American Society of Civil Engineers (ASCE) 16, 131, 163, 250; COP26 Communique 250 American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE): Standard for the Design of High-Performance Green Buildings except Low-Rise Residential Buildings 243 Americans with Disabilities Act of 1990 (ADA) 110, 259; Title I 258; Title II 258 arbitration 52, 229 architect and engineers (AE) 12, 113; as agent 133; implied warranty 47; role of 117–120 architectural and engineering drawings 154 architectural and engineering services: conceptual design and preliminary engineering 118–119; definition of 12, 115–116; final design 119; project manager review of rthe design 119–120 Army Corps of Engineer Construction 120 ASCE see American Society of Civil Engineers (ASCE) ASHRAE see American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) Association for Cooperative Operations Research and Development (ACORD) 165 Association of General Contractors 240 authorized agent 163

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282  n  Index Bacon, D. 4 bait and switch 266, 267 Better Business Bureau 180 bids 157–158, 158, 168–169; bond 36; competitive 151–152, 182–188; deductive or additive options 169–170; defects in 183–184; lowest 185–187, 185–187; mistakes 184; responsive 182–184 Black’s Law Dictionary: contract warranty 46–47; risk definition 29 block grants 67 blueprints 156 bond: bid 36; general obligation 69; payment 37–38; performance 36–37; revenue 69–70; special obligation 71–73; surety 167 BREEAM see Building Research Establishment Environmental Assessment (BREEAM) bribery 273 Brooks, J. B. 114, 116–117 Brooks Act, The 114, 115 Buffet, W. 57 builder’s risk insurance 165 building: codes and permits 79; standards 163 Building Research Establishment Environmental Assessment (BREEAM) 246 business rating agencies 180 Buy America Act 271 CAD see computer-assisted design (CAD) capital budget (CB) 62–65; project prioritization 64–65 capital financing strategy 65–76; debt financing 68–73; grant funding 67–68; pay-as-you-go financing 65–67; P3 financing 73–76 capital improvement plan (CIP) 61–62, 62 carbon neutrality 250 categorical grants 67 CB see capital budget (CB) Chandler, C. 244 change order 222 changes 163 Christian Doctrine, The 51 CIP see capital improvement plan (CIP) City of Richmond v. J.A. Croson (1989) 261 Civil Rights Act of 1964 256, 257 claims 51–55, 164; definition of 52

clarifications and discussions (negotiation) 192–194 climate change 239 CMAR see Construction Manager at Risk (CMAR) COAA see Construction Owners Association of America (COAA) COBID (Certification Office for Business Inclusion and Diversity) program 261 Code of Federal Regulations 258; Title 28 259 collusion 273 commissioning, building 234; sustainable 254–255 community planning 60–61 compensable delay 225 competitive bidding: definition of 151–152; evaluation of 182–188 competitive negotiation: definition of 152, 188 competitive proposals, evaluation of 188–196; clarifications and discussions 192–194; debriefing 195–196; evaluation process 190; final evaluation and selection 195; final proposal revisions (best and final offers) 195; initial evaluation and short list 190–192; technical evaluation committee 189 competitive range 191 compliance with federal laws 50–51, 133 computer-assisted design (CAD) 173 conceptual design and preliminary engineering 118–119 condemnation and eminent domain 80 conflict of interest 135 construction contract 162–168 construction definition 7–8 Construction Manager at Risk (CMAR) 92, 93, 101–104, 106–109, 111, 112, 153, 155, 194; characteristics of 103; considerations 103–104; definition of 101–102; functionality of 104; procuring 199–200 Construction Owners Association of America (COAA) 16, 131, 163 construction project delivery methods 91–112; CMAR project delivery method 101–104; contract administration 108– 109; Design-Bid-Build project delivery method 94–97; Design-Build project delivery method 97–101; JOC project

Index  n  283 delivery method 104–105; legal authority 106; selection of 106–109; situations 110–112 construction specifications 154 Construction Specifications Institute (CSI) 154 contract: ambiguities 32–35; authority 29–31; changes 221–224; claims 229; clauses 131–134; close-out 133, 233–234; modification 221–222, 224; payments 35–36; suspension 230; type of 31–32, 170 contract administration: challenges to 204; contracting officer, role of 208–209; definition of 204, 205; plan 207–208; process 209–212; team 205–207 contracting officer 205; definition of 13; role in capital improvement planning and budgeting 58; role in contract administration 208–209 contracting officer representative (COR) 31, 36, 205–208, 210–211, 213, 218, 219, 222, 226; definition of 13 contract management: definition of 205 contractor license 179 COP26 Communique 250 Copeland “Anti-Kickback” Act of 1934 220 COR see contracting officer representative (COR) cost and price analysis 141–144, 171; definition of 187–188 cost reimbursement contract 32 credit reporting 180 CSI see Construction Specifications Institute (CSI) CSS Virginia 100, 101 Dallas Area Rapid Transit (DART) 3, 4, 17, 60, 62, 270–271 DART see Dallas Area Rapid Transit (DART) Davis, J. J. 220 Davis, S.: Diversity, Equity, & Inclusion for Dummies 256–257 Davis-Bacon Act of 1931 166, 219, 220, 271 DBB see Design-Bid-Build (DBB) project delivery method DBE see disadvantaged business enterprises (DBE) DBIA see Design-Build Institute of America (DBIA)

debarment status 180 debriefing 195–196 debt financing 68–73; GO bonds 69; lease/ lease-purchase 70–71; revenue bonds 69–70; SO bonds 71–73 deductive or additive bid options 169–170 delays 43–44, 164, 224–227; compensable 225; excusable 225 design and construction contract management, responsibility for 10–11 design and construction contract risks 21–55 design and construction process 8–10 Design-Bid-Build (DBB) project delivery method 91–97; characteristics of 95; considerations 95–96; definition of 94–95; functionality of 97; multiple-prime variation 96–97 Design-Build bridging method 100 Design-Build Institute of America (DBIA) 16, 106, 163 Design-Build project delivery method: characteristics of 98; considerations 98–99; definition of 97; functionality of 104; variations 99–101 design competition 137 design contract administration 144–146 designers: responsibilities of 27–29 design fee, negotiation of: cost analysis 141–144; documentation phase 139–140; negotiation phase 139; planning phase 138–139 development charges 66–67 differing site conditions 164 disadvantaged business enterprises (DBE) 220, 221, 259, 262, 265, 271 disagreements 229–230 discretionary grants 67 disparity study 261 disputes 51–55, 164, 229–230; definition of 52 Diversity, Equity, and Inclusion 256–257 documentation 167 due diligence 44 Dun & Bradstreet 180 ECOLOGO Index 245 economic development bonds see Tax Increment District (TID) Electronic Product Environmental Assessment Tool (EPEAT) 245 embezzlement 273

284  n  Index Energy Star 245 entitlement grants 67 environmental and social sustainability: procurement leadership in 271–272 environmental clearances 77–79 Environmental Protection Agency (EPA) 241, 243; Federal Green Construction Guide for Specifiers 243 environmental sustainability 241–255 EPA see Environmental Protection Agency (EPA) EPEAT see Electronic Product Environmental Assessment Tool (EPEAT) e-procurement solutions 172–173 Equal Employment Act of 1972 257 Equal Employment Opportunity Commission 257 Equifax 180 equitable adjustment 222–223 equity, in public contracting 259–267 ethics 272–275 evaluation criteria 128–130 excusable delay 225 Executive Order 10925 257 Executive Order 11246 257 Experian 180 express warranty 47, 234 fair and reasonable price 185 Fair Labor Standards Act 219 FAR see Federal Acquisition Regulation (FAR) favoritism 273 F&D see findings and determination (F&D) Federal Acquisition Regulation (FAR) 11–12; affirmative action 257–258; architectural and engineering services 115–116; bid mistakes 184; claims and disputes 53; contracting officer representative 31; contracting officers, responsibilities of 179; cost analysis 187–188; evaluation criteria 130; independent cost estimate 85; technical selection criteria 160–162; unbalanced bids 187 Federal Employee Identification Number (FEIN) 171 Federal Highway Administration (FHWA): On-the-Job Training and Supportive Services Programs (OJT/SS) 272

Federal Transit Administration (FTA) 51; design and construction contracts, procurement requirements for 50; Workforce Development Initiative 272 FEIN see Federal Employee Identification Number (FEIN) FHWA see Federal Highway Administration (FHWA) Fifth Amendment of the US Constitution 80 final design 119 final proposal revisions (best and final offers) 195 financial statements 180 findings and determination (F&D): definition of 13–14 firm-fixed-price contract 31, 32, 139 Fly American Act 271 formula grants 67 fraud 273 frigates 93–94 front-loading payments 35–36 FTA see Federal Transit Administration (FTA) general and auto liability insurance 165 general contractor: definition of 12–13, 152; responsibilities of 153 general obligation (GO) bonds 69 GMP see guaranteed maximum price (GMP) government agency 12 Governor’s Green Government Council 249 grant funding 67–68 Green Building 276; certification 245–248; government programs 248–249; planning and design 249–250; standards 242–244, 246 Green-Certified Firehouse, Florida 244 green construction specifications and practices 250–251 Green Globes building certification 246, 248 GreenGuard 245 green product certifications 245 Green Seal 245 GSA see US General Services Administration (GSA) guaranteed maximum price (GMP) 102 health and safety 39–40 Hippodamus of Miletus 57 Historically Underutilized Business Zone (HUBZone) 221, 263

Index  n  285 ICC see International Code Council (ICC) ICE see independent cost estimate (ICE) ID/IQ see indefinite delivery/indefinite quantity (ID/IQ) contract impact fees 66 implied warranty 47 inclusion, in public contracting 259–267 indefinite delivery/indefinite quantity (ID/ IQ) contract 104, 146 indemnity 42–43 independent cost estimate (ICE) 82, 84; definition of 85 industry contract templates 131–132 inspection 164, 214–216 Institute of Supply Management (ISM) 16 insurance 41–42, 164–165 integrated project delivery 100 integrity 267, 274 Intergovernmental Panel on Climate Change 239 International Code Council (ICC): 2018 International Green Construction Code 243 International Organization for Standardizations (ISO) 243; ISO 20400 269 invoicing 217–219 ISM see Institute of Supply Management (ISM) ISO see International Organization for Standardizations (ISO) Job Order Contracting (JOC) project delivery method 104–105; considerations 105; definition of 104; functionality of 105 job site logistics 178 JOC see Job Order Contracting (JOC) project delivery method Johnson, L. 257 Kennedy, J. F. 57, 257 kickbacks 273 latent (hidden) defects 236–237 LCC see lifecycle cost analysis (LCC) lease/lease-purchase 70–71 Lee, General R. E. 120 LEED Platinum Mercedes-Benz Stadium 3–4

lifecycle cost analysis (LCC) 252, 253 liquidated damages 44, 165, 227–228; definition of 25 liquidated incentives 228 Little Miller Act 38 local preferences 272 lowest bid 185–187, 185–187 manuals 154 matching grants 67 MBDA see Minority Business Development Agency (MBDA) MBE see minority-owned business enterprise (MBE) mediation 52, 229 Meigs, General M. 120 Merrimac 100 Miller Act for Federal Contracts 38 Miller Act of 1935 218 Mini-Brooks Acts 114 Minority Business Development Agency (MBDA) 261; “Contracting Barriers and Factors Affecting Minority Business Enterprises: A Review of Existing Disparity Studies” 260 minority-owned business enterprise (MBE) 220–221, 259, 261, 265, 267, 271; barriers for 260 MISD see Marshall Independent School District (MISD) Monitor 100–101 multiple-prime contracting 96–97 NASPO see National Association of State Procurement Officials (NASPO) National Association of State Procurement Officials (NASPO) 11, 16 National Conference on Building Commissioning 254 National Contract Management Association (NCMA) 16 National Environmental Policy Act (NEPA): Environmental Assessment (EA) checklist for Housing and Urban Development (HUD) 79; milestones 78 National Society of Professional Engineers (NSPE) 16, 131–132, 163, 250 NCMA see National Contract Management Association (NCMA)

286  n  Index negotiation 52, 193; competitive 152, 188; definition of 138; team, definition of 138 NEPA see National Environmental Policy Act (NEPA) New York City MTA 3 NIGP (Institute for Public Procurement): 2017 Public Procurement Benchmark Survey Report 11; Code of Ethics 6–7; “Contract Administration” 204, 208; design and construction contract management, responsibility for 11; disparity in public contracting, addressing 262–263; “Establishing an Effective Supplier Diversity Program” 261–262; “Guide to Public–Private Partnerships (PPPs): What Public Procurement Specialists Need to Know, A” 73–75; independent cost estimate, definition of 85; option definition 168; procurement resources 15–16; “Public– Private Partnership (P3): Facilities and Infrastructure” 73; “QualificationsBased Selection for Architectural and Engineering Services,” 114–115, 120–122, 128; “Selecting the Appropriate Construction Project Delivery Method” 106, 109; social benefits of public procurement 256; supplier diversity and inclusion program 263–265; “Sustainable Procurement Practice” 268–269, 275–276 NIGP Dictionary of Procurement Terms: affirmative action 257; agency 29; architecture and engineering service 12; claims 52; competitive bidding 151–152; competitive negotiation 152; competitive range 191; construction 8; Construction Manager at Risk 101–102; contract administration plan 207; contracting officer 13; contract modification 221; cost reimbursement contract 32; Design-BidBuild project delivery method 94–95; Design-Build project delivery method 97; disputes 52; excusable delay 225; fair and reasonable price 185; findings and determination 13; firm-fixed-price contract 31; full warranty 46; general contractor 12; Job Order Contracting 104; lifecycle cost analysis 252; liquidated damages 25; negotiation 138; negotiation team 138; partnering 212; project manager 13; P3 financing 73; qualification-based

selection of professional services 120–121; reasonable cost 185; request for proposals 189; responsible bidder or proposer 178; responsible offeror 137, 267; responsive 182; risk 22; scope of work 126; total cost of ownership 252; value engineering 216 Nixon, R. 114 notice to proceed (NTP) 209 NSPE see National Society of Professional Engineers (NSPE) NTP see notice to proceed (NTP) Occupational Safety and Health Administration (OSHA): complaints 180; Recommended Practices for Safety and Health Programs 39 OCIP see owner-controlled insurance policy (OCIP) OECD see Organization for Economic Cooperation and Development (OECD) offerors: instructions for 158–159; list 173–174; responsibility 137, 178–182 offers, receiving 176 operating budget 63 order of precedence 165–166 ordinary standard of care 132 Organization for Economic Cooperation and Development (OECD) 273 OSHA see Occupational Safety and Health Administration (OSHA) oversight and control 275 owner: control over design 107–108; implied warranty 47; responsibilities of 27–29 owner-controlled insurance policy (OCIP) 42 ownership of the design 133 partnering 212–213, 230; definition of 212 pay-as-you-go financing: development charges 66–67; impact fees 66; reserve funds 65–66; special assessments 66 payments 217–219; bond 37–38; contract 35–36; progress 166 performance bond 36–37 plans 153–154; sealed 157 pre-construction meeting 209 pre-offer conference 176–178 prevailing wage 166; rates 219–221 price schedule 168–169, 169 Procurated 180 procurement 151–201; bids and proposals 157–158, 158; competitive bids,

Index  n  287 evaluation of 182–188; competitive proposals, evaluation of 188–196; of construction and design 16–18; laws and regulations 11–12; offeror responsibility 178–182; plans 84–88, 153–157; pre-offer conference 176–178; resources 15–16; site visit 176–178; solicitation documents 158–172; sourcing process 172–176; specifications 153–157 procuring Construction Manager at Risk (CMAR) 199–200 procuring Design-Build contractors 196–198 procuring Job-Order-Cost contractors 200 procuring public–private partnerships contractors (P3) 198–199 professional liability insurance 133, 165 professional registration 133 progressive Design-Build project delivery method 99 progress payments 166 project budget 177–178 project management: functions 82; plan 81–84 project manager: definition of 13; review of rthe design 119–120 proposals 157–158 protests 200–201 P3 see public–private partnerships (P3) financing public contracting, equity and inclusion in 259–267 public–private partnerships (P3) financing 73–76; definition of 73 public procurement corruption 273 qualification-based selection of professional services 113–148; application of 115–116; contract clauses 131–134; definition of 120–121; design competition 137; design contract administration 144–146; evaluation criteria 128–130; final evaluation and selection 137; initial evaluation process 135–136; instructions 130–131; interviews and discussions 136; negotiation of design fee 138–144; offeror responsibility 137; request for qualifications, issuing 134; request for qualifications, preparing 125–134; responses, evaluation of 134–137; scope of work 126–128; statements of qualifications, request for 122–123;

task order contracts 146–148; technical evaluation committee 123–125; technical proposals, request for 136–137 quality assurance 40–41, 213–216 quality control 40–41, 213–216 quantum meruit 212 reasonable cost 185 references 179 request for proposals (RFP) 161, 190, 192; definition of 189 reserve funds 65–66 responsibility 267–268; for construction cost 133 responsive bid 182–184 restricted specifications 156–157 restrictive qualifications 266 retention 166 return on investment (ROI) 254 revenue bonds 69–70 RFP see request for proposals (RFP) Ridge, T. 249 risk: assessment 23–27; construction project 24; definition of 22; design 108; management 21; matrix 23; mitigation 23, 24; prevention 24 ROI see return on investment (ROI) Safer Choice 245 Schwarzenegger, A. 249 scope of work (SOW) 126–128; definition of 126; example 127–128 SCS Global 245 sealed plans and specifications 157 Seasonal Energy Efficiency Ratio (SEER) 253 security 40 SEER see Seasonal Energy Efficiency Ratio (SEER) Seward, W. H. 120 Ship American Act 271 site: acquisition 79–81; selection 79–81; visit 176–178 social and economic sustainability 255–267 solicitation: amendments 175–176; issuing 175 solicitation documents: bid or proposal price schedule 168–169, 169; construction contract 162–168; cost and price analysis 171; deductive or additive bid options 169–170; offerors, instructions for 158– 159; technical selection criteria 160–162;

288  n  Index two-step prequalification process 159–160; type of contract 170 sourcing process 172–176; advertising 174– 175; e-procurement solutions 172–173; offerors list 173–174; offers, receiving 176; solicitation amendments 175–176 SOW see scope of work (SOW) Spearin Doctrine, the 27–28 special assessments 66 special districts (SDs) and authorities 72 special obligation (SO) bonds 71–73 Special Tax Bonds 71 specifications 153–157; restrictive 156–157; sealed 157 standard of care 132 stopping the work 167 subcontractors 153, 166, 218; license 179; minority, barriers for 260 subject matter experts 15 supplier diversity and inclusion program 263–265 suppliers 153, 166, 218; minority, barriers for 260 surety 38–39; bonds 167 suspending the work 167 suspension status 180 sustainability: definition of 250; environmental 241–255; social and economic 255–267 sustainable building commissioning 254–255 sustainable construction 240 sustainable design 250 sustainable procurement 240–241, 275– 279; definition of 240, 269; of public construction 268–269 task order contracts 146–148 Tax Increment District (TID) 72–73 TCO see total cost of ownership (TCO) technical clearances 76–79 technical evaluation committee 189 technical proposals, request for 136–137 technical selection criteria 160–162 termination: for convenience 167, 231–233; for default 167, 231 testing 164, 214–216 TID see Tax Increment District (TID) TIFIA see Transportation Infrastructure Finance and Innovation Act (TIFIA)

time 43–44 timing of the contract award 178 Tonto Creek Hatchery 1–2 Total Building Commissioning 254 total cost of ownership (TCO) 251–254; definition of 252 transparency 275 Transportation Infrastructure Finance and Innovation Act (TIFIA) 68 triple bottom line 241, 250 two-step prequalification process 159–160 unforeseeable conditions 44–46 Uniform Relocation and Acquisition Act 80 unit price book (UPB) 104 UPB see unit price book (UPB) urban planning 59–60 US: Army Corp of Engineers 132; Constitution 256; Department of Commerce 261; Department of Energy 234, 243, 251; Department of Labor 219; Department of the Treasury Bureau of Fiscal Services 38; Department of Transportation 219, 272; General Services Administration (GSA) 213, 249–250, 252; General Services Agency (GSA) Office of Federal High-Performance Green Buildings 248–249; Green Building Council, Leadership in Energy and Environmental Design (LEED) certification 244, 246–248; Local Hire and Workforce Development Pilot Programs 219; Small Business Administration 221 value engineering 216–217 warranty 46–50, 167, 234–237; contract 46–47; “express” or “implied” 47, 234; full 46 WaterSense 245 Wayne Aspinall Federal Building 252 WBE see women-owned business enterprise (WBE) Wolf, T. 249 women-owned business enterprise (WBE) 220, 221, 259, 265, 267, 271 workers’ compensation insurance 164 worksite, protection of 166