Critics say federal design-build construction contracts stifling competition

Wednesday - 12/4/2013, 4:15am EST

Jared Serbu reports.

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As lawmakers examine possible reforms to the contracting process for federal building construction, they heard Tuesday from industry advocates who say current agency practices are chasing away perfectly qualified contractors, wasting money and stifling competition.

The issues surround the government's use of design-build contracts for federal buildings — a setup in which the architectural work and the actual building construction are bundled into a single contract. Agencies can award those contracts in either a one-step or two-step process, and architects and builders who work in the federal space say they're seeing problems with both.

In the one-step version, contractor teams have to submit virtually all of the technical details of their proposals all at once, and so do all their competitors.

That's an expensive process. Charles Dalluge, an associate with the American Institute of Architects, said the average design-build proposal costs a company about $260,000.

"Teams must complete up to approximately 80 percent of the design work in advance, they must determine space needs, mechanic, electrical, structural, HVAC and other systems, building supplies and materials and, of course, the cost of construction," he said. "As federal buildings become more complex, this work requires a considerable investment of time from the professionals on each of the design build teams."

Dalluge said firms obviously are willing to make that investment if they think they can win a contract. But in the one-step design-build contracting process, they have no way of knowing how many other companies they're competing with, and consequently, they can't calculate their odds of success.

"The one-step really does not lend itself to any project where the architects and the engineers have to invest a lot in doing free design at risk," he said. "So maintenance, upgrades, paint up, fix-up, those types of projects work very well for one-step. For projects like a court house, a post office, a project that requires some sophisticated design and engineering and construction, that really lends itself to the two-step process, which can be any size."

Downselect narrows competition

In the two-step process, companies first submit just their basic qualifications and experience for a given project. The agency then whittles the group down to a smaller number of candidates who then have to create their detailed proposals.

Industry officials say that process works well when the government downselects to just three to five firms, so that each one has a reasonable chance to win the contract and recoup their design investments.

But according to Randall Gibson, the president of a small Pensacola, Fla.-based contracting company that frequently bids on federal contracts, agencies have frequently been picking eight to 10 candidates. He said small firms aren't willing to take their chances in competitions with that many vendors.

"I work with small business design firms as well. I have a default firm that I like to go to most often and they tell me straight out that they're judging whether to participate in a job by the prospects for how many they're going to have to compete with if they moved on to phase two. They can't afford to be spending the multiples tens of thousands, upwards of $100,000 to submit a proposal, whereas, maybe some of the larger design firms can have that in their budget," he said. "I personally feel that an excellent performing designer, such as my default partner, when he steps out of the arena, competition is stifled. He's stepping away at a percentage rate of perhaps half the time from opportunities to offer a proposal out of fear of having to spend that money and then go unrewarded in step two."

Gibson pointed to two Army Corps of Engineers projects as examples of inappropriate uses of design-build. In one case, the corps issued a solicitation for a $170 million project at West Point using the one-step process. In another, the Army wanted to build a $100 million barracks at Fort Carson, Colo., also using one-step.

Bill requires 2-step process

James Dalton, the Army Corps' chief of engineering and construction, said his agency has since sent more guidance to contracting officers in the field. He said it is agency policy to lean toward the two-step process and to try and limit the final pool of contenders.

"The experience that we've got within our agency is that we try to limit that down-selected number of firms to between three and five," he said. "And it is actually required of us to identify how many of those firms would be identified to down-select to. We want to make sure that companies are aware that they are competing with five or less and not beyond five."