By joel hoffman on Tuesday, August 13, 2002 - 10:29 pm:

Can anyone please explain the advantage to the Government in acquiring construction as a commercial item? I'm not familiar with most of the motives or issues underlying the desire for construction as a commercial item.

I know that not having to furnish cost or pricing data is something that the industry has been mouth watering over, but what advantage is that to the owner in a non-competitive acquisition?

Many of the various social clauses don't apply to commercial acquisition. That's a lot simpler for the contractor and for the Gov't to administer.

I'm not aware of any waiver of the Miller Act (bonding is the predominant practice anyway for most governmental and many commercial construction contracts). I don't think that there is a waiver of the Davis-Bacon Act or other labor provisions, either.

What else is great about construction as a commercial item? Normal industry practice, except for turnkey services, is for the owner to provide the contract terms and conditions, not contractors. The FAR construction clauses are fairly standard for the most part. I don't understand what advantage there would be to the owner in allowing or requesting that the contractors each propose their own contract clauses and conditions. There are six or seven major model contract formats, with varying risk allocations, depending upon the industry association that drafts the model contracts. Both design-build and design-bid-build contract risk allocation can widely vary, depending upon whose format you use. Would the Government compare proposed contract formats/risk allocation between offerors as part of its evaluation? That would be a major undertaking, in my opinion. Commercial contracts are subject to state laws. The state court rulings widely vary and aren't consistent.

There is an open FAR case presently in the formulation stage to authorize construction as a commercial item. I spoke with the CAAC representative about it, last week. The only thing that he mentioned was not using cost based pricing. He asked me if one could reasonably use unit priced based estimating to determine reasonableness. He used Means Estimating as an example. Apparently, he didn't know that Means and all major commercial estimating guides use cost based estimating methods.

My only experience with pure price based estimating was in Europe in the late 1980's. Our estimators merely collected data from all unit priced contracts in Germany to build the database. Nobody could tell what anything actually "cost", only what the average unit price paid was. The estimators couldn't detect that there was a massive bid rigging scheme going on in Europe, on US projects, in the 1980's. The contractors were rigging bids to share work, plus were paying kickbacks and bribes to certain German Government officials for inside information. Our unit-priced estimating system had no way of detecting this scam. The lid was blown off in the early 90's. Several contractors and German officals were sent to prison.

I would appreciate any information someone can shed on the reasons for desiring construction to be a commercial item. happy sails! joel

By formerfed on Wednesday, August 14, 2002 - 09:13 am:

Joel,

The most immediate benefit that comes to mind is using Simplified Acquisition procedures for smaller jobs.

By Roy on Wednesday, August 14, 2002 - 09:46 am:

One can already use the simplified acquisition procedures under FAR Part 13 for construction not to exceed $100,000. The test program under 13.5 can not be used for construction.

By joel hoffman on Wednesday, August 14, 2002 - 10:07 am:

Roy, If GSA can declare that construction is a commercial item, why can't they use the 13.5 program? It appears to be applicable to any type of commercial acquisition.

I'm aware that GSA has wanted to implement this. I'm also aware that DOD is not wild about the idea. DOT (the biggest source of Federal construction funding) has it's own standard methods for construction, with State DOT's doing most of the contracting, so DOT may not intend to use it.

It would appear that the current commercial items clauses would have to be supplemented for larger construction jobs. There are no provisions for progress payments. Construction contractors can't/don't normally finance much of their project costs. They make most of their their money on monthly turnover. Several other clauses should also be added to define typical construction risk allocation. Also, the commercial item changes clause is wholely inadequate for construction, in my opinion (requires mutual agreement to make changes). The current set of C.I. clause, terms and conditions is geared toward standard commercial supplies and services. just some thought, in conjunction with my original comments. happy sails! joel

By formerfed on Wednesday, August 14, 2002 - 10:34 am:

Joel,

I think you're right about needing to supplement the clauses for construction.

The benefits seem to be in those acquisitions less than $5 million where time savings occur from avoiding formal solicitations. There also isn't a need to get the requiremenst in a level of detail suitable for sealed bids or competitice RFPs and dialog can take easily place with quoters prior to award.

This seems to me to help with those acquisitions on the border of being/not being construction more than anything else.

By joel hoffman on Wednesday, August 14, 2002 - 11:31 am:

I think it might be good for such things as relocatable structures and associated site work, which are essentially a commercial item. Most of the engineering and labor are done in a factory and there is relatively small amount of on-site work. Also good for simple repair by replacement projects. It appears to be most appropriate for pre-fabricated or primarily installed equipment oriented projects. happy sails! joel

By Roy on Wednesday, August 14, 2002 - 12:46 pm:

The language on exclusion of construction from the test program was included in the final rule published on January 2, 1997, FAC 90-45, Item VII. It reads:

"At the present time, this rule does not extend authority to use the special test procedures for construction. The proposed language included on construction, in Part 13, was not intended to address the applicability of the test procedures to construction and the language in the final rule has been amended to eliminate this ambiguity. The broader issue of the applicability of the FAR's commercial item policies to construction contracting is under review"

FAR Case 2000-10 was initiated to address Acquistion of Construction under Part 12. The last update on 11/28/01, indicated that an Ad Hoc Committee will draft proposed FAR rule.

Acquisition of construction under FAR Part 12 is clearly not allowed by current procedures in the FAR. Not sure where GSA gets their authority for this policy. But, nothing surprises me anymore. I think this is a misapplication of the authority provided by FAR Part 102.

By joel hoffman on Wednesday, August 14, 2002 - 01:31 pm:

Roy, I'm guessing that GSA is probably not making sufficient progress working with DOD on drafting the proposed rule to address construction under Part 12. The COE is against the idea; I'm not sure about the rest of DOD. David Drabkin, GSA's Deputy Associate Administrator for Acquisition Policy in the Office of Governmentwide Policy, doesn't seem to be boxed in by silly "rules". So, they probably "just did it." happy sails! joel

By Roy on Wednesday, August 14, 2002 - 02:05 pm:

I understand what you are saying. Maybe we ought to throw the baby out with the bathwater, including the FAR. Seems to me that is were we are today. No one likes rules and some don't bother to read them and understand them anyway. It's a mad house and I'm glad my time in this arena is getting short.

Thanks, Roy

By joel hoffman on Wednesday, August 14, 2002 - 02:14 pm:

Vern, you knew that this topic would raise the hair on the back of my neck, when you initiated it, last night! My wife became irate, because I wouldn't let her have the computer to print out her teacher work! What do you think? happy sails! joel

By Roy on Wednesday, August 14, 2002 - 03:25 pm:

The following question was posted to DOD's "Ask a Professor" on 8/12/02:

"The Scenario
We have a current solicitation for a construction project being solicited using commercial item procedures (D-M is a test base for this practice). We did not receive a SF 1449 with the contractor's RFP and can't determine if that constitutes non-responsiveness.

The Question
Is an RFP which is received without a signed SF 1449, and ammendments, considered non-responsive under commercial acquisition procedures"

Just some more examples on current practices and sources of information on the subject.

By Vern Edwards on Wednesday, August 14, 2002 - 03:45 pm:

Joel, et al.:

Let's look at it this way: What are the main advantages of the FAR Part 12 commercial items procedures? I think that they mainly include:

(1) fewer, simpler contract clauses (FAR § Subpart 12.3);

(2) a shorter minimum publicizing and response time [FAR § 5.203(a)];

(3) streamlined solicitation (combined synopsis/soliciation) (FAR § 12.603) and evaluation of offers (FAR § 12.602); and,

(4) the simplified acquisition test program (FAR Subpart 13.5).

Of these, only the simplified acquisition test program is likely to have much impact in the acquisition of construction.

First, as Joel pointed out, construction is construction and a contracting officer would be foolish to enter into a construction contract without at least some of the specialized clauses listed in FAR § 52.236. I agree with Joel that you need a traditional changes clause and some provision for progress payments, and other clauses such as differing site conditions, liquidated damages, material and workmanship, permits and responsibilities, etc., which are pretty standard in commercial construction. Davis-Bacon still applies. So there goes the advantage of fewer, simpler clauses.

Moreover, I think construction is the single biggest source of contract litigation in the United States, government and commercial. Most of the standard FAR construction clauses are well known to the boards of contract appeals and the U.S. Court of Federal Claims; leaving some out or changing the text of any of them even slightly could result in considerable litigation risk.

Second, a shorter solicitation response time will not be an advantage in any project that entails significant subcontracting, since bidders will need to solicit, obtain, and analyze subcontractor quotes. Forcing bidders to rush the preparation of bids and quotes is likely to increase bidding error and subsequent claims and disputes. Thirty days can be pretty short even on relatively small jobs, so experienced construction contracting officers will not want to cut the bid preparation time much below 30 days.

Third, the streamlined solicitation cannot be used when a project entails compliance with government-prepared construction plans and specifications.

Thus, as Formerfed has already pointed out, the simplified acquisition test program for acquisition of commercial items of $5 million or less is probably the greatest net advantage, since it frees contracting officers from the requirement for full and open competition and allows more procedural flexibility. I think these are significant advantages, since I think most government construction projects are worth less than $5 million. The use of the test program for construction could save administrative time and money.

The head of GSA can authorize almost any procedure that he or she wants to authorize as long as it does not violate statute. All he or she has to do is authorize an individual or class deviation, if that's even necessary. FASA, which authorized the commercial items rules, does not mention construction, one way or the other, so it's not clear to me that GSA is breaking any laws by applying FAR Part 12 to construction.

There is, however, the question of where construction fits into the definition of commercial items in FAR § 2.101. That definition mentions only supplies and services; it does not expressly mention construction. So where does construction fit? It's not supply, so it must be a service. This raises the question of whether a particular project satisfies the definitional requirement of being sold based on catalog or market prices for specific tasks. Who knows?

We are in an era in which strict constructionist interpretations of the FAR are out of favor. I have found that most government contracting personnel don't know the FAR very well, don't care to know it, and have little patience with interpretations that restrict their freedom of action, or, as many of them like to put it, their freedom to be "innovative." (In this regard, see the first part of Prof. Kelman's interesting article at the Wifcon Analysis page.)

In the end, I don't think that GSA's move will make much difference. It may speed up the award of some contracts valued at $5 million or below; it may also lead to some fun litigation when some CO either leaves out a useful clause or gets an unexpected board decision based on some modification of a standard clause. But it won't result in better project execution.

Acquiring construction under FAR Part 12 may speed up the contract formation process. It is not likely to improve the either the quality or the execution of construction contracts. But that probably doesn't matter -- the overarching value among contracting professionals today is to get on contract as quickly as possible.

Vern

By joel hoffman on Thursday, August 15, 2002 - 09:44 am:

Another possible problem with applying Part 12 to construction, as currently written, is that it is written around products and supplies and corresponding principles from the Uniform Commercial Code. An example is the implied warranty of merchantability, the implied warranty of fitness for the particular purpose and the remedies contained in the acceptance paragraph.

Few courts have applied the UCC to construction, especially the UCC's warranty provisions. Some exceptions generally pertained to construction that primarily involved installation of a commercial product. happy sails! joel

By Vern Edwards on Thursday, August 15, 2002 - 10:28 am:

Joel:

Almost every construction contract awarded pursuant to FAR Part 12 should reflect extensive tailoring of the commercial item clause at FAR § 52.212-4. For example:

(1) Under the inspection/acceptance paragraph [paragraph (a)], the government has the right to inspect or test "any supplies or services that have been tendered for acceptance." This could be interpreted to mean that the government has no right of in-process inspection.

(2) As you have already pointed out, under the changes paragraph [paragraph (c)], the government cannot unilaterally change its construction specifications or drawings.

(3) The invoice and payment paragraphs [paragraphs (g) and (i)] do not require the contractor to submit information necessary to obtain percentage of completion progress payments under lump sum contracts. Moreover, FAR § 12.302(b) prohibits tailoring of the invoice and payment provisions.

A knowledgeable construction contracting officer who works his or her way through FAR 52.212-4 will find that almost every paragraph in that clause ought to be tailored in order to be suitable for the acquisition of construction. In the absence of carefully crafted boilerplate clauses, tailoring by individual contracting officers is likely to be time-consuming and troublesome. However, many contracting people take a "What, me worry?" approach to contract writing, and to them these are the concerns of a worry-wort. Perhaps they're right to think that way.

As a general rule, I find that government contracts are badly written and that most contracting people have not read, do not understand, and do not pay much attention to the clauses in their contracts, or to the underlying acquisition regulations. Yet, somehow, the job gets done, more or less well, most of the time. It may be that in 99 cases out of 100, or even 999 out of 1,000, contract language does not make that much difference to project outcomes and people find a way to work things out despite faulty contract documents. That was Stewart Macauley's famous finding of 1963. And in 1985 he wrote: "Business people often do not plan, exhibit great care in drafting contracts, pay much attention to those that lawyers carefully draft, or honor a legal approach to business relationships." ("An Empirical View of Contract," 1985 Wis. L. Rev. 465.)

Let's wish GSA well and hope that their experiment is a success.