[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
H.R. 4012, THE CONSTRUCTION QUALITY ASSURANCE ACT OF 2000
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY
of the
COMMITTEE ON GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
ON
H.R. 4012
TO ASSURE QUALITY CONSTRUCTION AND PREVENT CERTAIN ABUSIVE CONTRACTING
PRACTICES BY REQUIRING EACH BIDDER FOR A FEDERAL CONSTUCTION CONTRACT
TO IDENTIFY THE SUBCONTRACTORS THAT THE CONTRACTOR INTENDS TO USE TO
PERFORM THE CONTRACT, AND FOR OTHER PURPOSES
__________
JULY 13, 2000
__________
Serial No. 106-238
__________
Printed for the use of the Committee on Government Reform
______
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_______________________________________________________________________
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COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
HELEN CHENOWETH-HAGE, Idaho (Independent)
DAVID VITTER, Louisiana
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
James C. Wilson, Chief Counsel
Robert A. Briggs, Clerk
Phil Schiliro, Minority Staff Director
Subcommittee on Government Management, Information, and Technology
STEPHEN HORN, California, Chairman
JUDY BIGGERT, Illinois JIM TURNER, Texas
THOMAS M. DAVIS, Virginia PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon MAJOR R. OWENS, New York
DOUG OSE, California PATSY T. MINK, Hawaii
PAUL RYAN, Wisconsin CAROLYN B. MALONEY, New York
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
J. Russell George, Staff Director and Chief Counsel
Randy Kaplan, Counsel
Bryan Sisk, Clerk
Trey Henderson, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on July 13, 2000.................................... 1
Text of H.R. 4012............................................ 3
Statement of:
Barnhart, Douglas E., chief executive officer, Douglas E.
Barnhart Inc., San Diego, CA, representing the Associated
General Contractors of America............................. 76
Drabkin, David, Deputy Associate Administrator, Office of
Acquisition Policy, General Services Administration........ 14
Dunleavy, John J., executive vice president, Pierce
Associates, Inc., Alexandria, VA, representing the
Mechanical-Electrical-Sheet Metal Construction Alliance.... 59
Fuqua, John, chief executive officer, Carol Electrical Co.,
Inc., Los Alamitos, CA, representing the National
Electrical Contractors Association......................... 38
Petzen, George, skylight specialist, Traco Skytech Systems,
Bloomsburg, PA............................................. 32
Swab, William K., president, Ennis Electric Co., Manassas,
VA, representing the American Subcontractors Association... 24
Letters, statements, etc., submitted for the record by:
Barnhart, Douglas E., chief executive officer, Douglas E.
Barnhart Inc., San Diego, CA, representing the Associated
General Contractors of America, prepared statement of...... 79
Drabkin, David, Deputy Associate Administrator, Office of
Acquisition Policy, General Services Administration,
prepared statement of...................................... 16
Dunleavy, John J., executive vice president, Pierce
Associates, Inc., Alexandria, VA, representing the
Mechanical-Electrical-Sheet Metal Construction Alliance,
prepared statement of...................................... 62
Fuqua, John, chief executive officer, Carol Electrical Co.,
Inc., Los Alamitos, CA, representing the National
Electrical Contractors Association, prepared statement of.. 40
Petzen, George, skylight specialist, Traco Skytech Systems,
Bloomsburg, PA, prepared statement of...................... 34
Swab, William K., president, Ennis Electric Co., Manassas,
VA, representing the American Subcontractors Association,
prepared statement of...................................... 27
H.R. 4012, THE CONSTRUCTION QUALITY ASSURANCE ACT OF 2000
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THURSDAY, JULY 13, 2000
House of Representatives,
Subcommittee on Government Management, Information,
and Technology,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2154, Rayburn House Office Building, Hon. Stephen Horn
(chairman of the subcommittee) presiding.
Present: Representatives Horn, Biggert, Walden, Ose, Burton
(Ex Officio), Turner, and Kanjorski.
Staff present: J. Russell George, staff director and chief
counsel; Randy Kaplan, counsel; Bonnie Heald, director of
communications; Bryan Sisk, clerk; Elizabeth Seong, staff
assistant; Will Ackerly, Chris Dollar, and Davidson Hullfish,
interns; Trey Henderson, minority counsel; Mark Stephenson,
minority professional staff member; and Jean Gosa, minority
assistant clerk.
Mr. Horn. The Subcommittee on Government Management,
Information, and Technology will come to order.
We're here today to examine H.R. 4012, the Construction
Quality Assurance Act of the year 2000, introduced by
Representative Kanjorski from Pennsylvania. This bill is an
attempt to ensure quality construction on Federal public works
projects. The bill is designed to discourage practices known as
``bid shopping'' and ``bid peddling.'' Bid shopping occurs when
a general contractor seeks to obtain lower-priced
subcontractors than those listed in the original bid. Bid
peddling occurs when a subcontractor reduces its price to
induce the prime contractor to substitute that company for a
subcontractor listed on the bid.
H.R. 4012 would require companies that bid on Federal
construction projects costing more than $1 million to list the
subcontractors they intend to use on the project. The bill
would also establish a set of procedures that contractors must
follow if they want to substitute a subcontractor listed in the
original bid. The bill limits these substitutions, however. A
contractor could only replace a listed subcontractor for good
cause, such as death, dissolution, or bankruptcy of the
subcontractor and with the consent of the contracting officer.
From 1963 until 1983 the General Services Administration
Procurement Regulations required companies bidding on Federal
construction projects to list the subcontractors they intended
to use for the project. The General Services Administration in
1984 rescinded this requirement, in part, to reduce project
delays and administrative costs and burdens associated with the
requirement. Currently, there is no Federal bid-listing
requirement.
Today we will examine a number of issues related to H.R.
4012, including the extent to which contractors are engaging in
bid shopping and/or bid peddling on Federal construction
projects. In addition, we will hear testimony of the impact of
these practices on contractors and construction projects and
whether the provisions of this bill would ensure quality
Federal construction.
We welcome our witnesses. We look forward to your testimony
and are now delighted to yield to the ranking member on the
subcommittee, the gentleman from Texas, Mr. Turner.
[The text of H.R. 4012 follows:]
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Mr. Turner. Thank you, Mr. Chairman.
H.R. 4012, the Construction Quality Assurance Act of 2000,
was sponsored by Representative Paul Kanjorski; and I think
Congressman Kanjorski will join us shortly, Mr. Chairman. This
bill ends the practice of bid shopping by requiring prime
contractors to list the names of the subcontractors that they
intend to use on a project on bid day and stick with those
subcontractors through the duration of the project. This
process is known as bid listing.
The bill also allows substitution of subcontractors only
for situations such as bankruptcy or inability of the
subcontractors to perform the contract. In this matter, the
preliminary contractors are required to use the subcontractors
that they used to prepare the bid at the price they agreed to
pay on bid day.
I want to commend Representative Kanjorski for his
leadership on the issue. I appreciate the chairman holding this
hearing, and I welcome all the witnesses here today to talk
about the issues that the legislation raises.
Thank you, Mr. Chairman.
Mr. Horn. Thank you.
Since we're waiting for Mr. Kanjorski, I'll give you the
ground rules for testifying here. Some of you have been
regulars and others haven't. We will go by the order on the
agenda. And when we call your name like, let's say, Mr.
Drabkin, who is going to be the first witness, your resume,
your full texts are automatically in the hearing record. We'd
like you to summarize that in 5 minutes, whatever your text is,
because the Members have had it, and they know what the written
text is. So we would like to get down to the essences, if you
will, so then we can have a dialog between the Members and you
and within those if there are differing opinions.
We also--since we are an investigating subcommittee of the
full Committee on Government Reform, we swear all witnesses or
affirm. So we will do that right now. So if you will stand,
raise your right hands--and that includes your assistants
behind you if they might be whispering in your ear. So get them
to stand, too.
[Witnesses sworn.]
Mr. Horn. The clerk will note the six witnesses and any
supporters behind, and they will be affirmed now.
Since Mr. Kanjorski is a little late, we'll begin with
David Drabkin, the Deputy Associate Administrator, Office of
Acquisition Policy for the U.S. General Service Administration.
Mr. Drabkin.
STATEMENT OF DAVID DRABKIN, DEPUTY ASSOCIATE ADMINISTRATOR,
OFFICE OF ACQUISITION POLICY, GENERAL SERVICES ADMINISTRATION
Mr. Drabkin. Thank you, Congressman Horn.
Mr. Chairman, getting to the meat of the testimony, there
are essentially three points that we wanted to make as to why
the administration is opposed to this bill. First point deals
with locking the prime contractor into business relationships
that can be revised only with permission of the contracting
officer, which requires the contracting officer to become
involved in prime subcontractor relationships, an issue which
the Federal Government has traditionally avoided, invading the
privity of contract between primes and subs.
We believe that this will not only do damage to the
existing contract system overall by requiring contracting
officers to spend a great deal of time involved in these
private relationships between the prime and the sub, but it
also will invade the prime's ability to manage his contracts or
her contracts in an efficient manner. Inserting the government
in that process won't add any value.
Second, we point out that the subcontractors listing
requirements could adversely affect the timeliness and cost of
contract performance and would increase the government's
administrative expenses.
One of the key issues to getting the job done that the
Congress gives us to do in terms of construction is getting the
contracts awarded and getting the construction started and
getting the project delivered on time for the money which the
government has agreed to pay.
This process proposed in H.R. 4012 would result in
government contracting officers having to spend a great deal of
time up front and during contract administration should there
be a need for changing a subcontractor as outlined in the bill.
This time normally will result in work getting stopped while we
resolve the issue of who's going to be permitted to perform the
work during the course of the general construction project.
Every time you delay performance, there's an additional cost to
the government in terms of real dollars, filing claims and
there's time; and that time will affect the ability of the
government to deliver that project in accordance with the
schedule.
Third, we point out that there's an issue dealing with what
I like to refer to as subbing up. One of the things that in my
last position at the Pentagon renovation we were trying to do
was to allow the government to have access to the best
subcontractors team possible. As you know, today in major
construction projects most of the work--a large portion of the
work is done by subcontractors. If we force contractors in the
community to go out and enter into exclusive arrangements with
subcontractors before we make award of the contract, the result
would be a suboptimized subcontractors team.
One of the things we were trying to figure out how to do in
a fair and equitable manner was to allow the prime, after
award, to go out and pick the best subcontractors team to help
get the job done. And in a community like Washington there are
not a lot of big--or small, for that matter--mechanical,
electrical, and other types of subcontractors.
Typically, prime contractors engage, they lock one up, and
there's no others for them to choose from. If this bill were
passed as the way it's currently written, the government would
always wind up with a suboptimized subcontractor team instead
of the possibility of getting the best of the subcontractors
available post award.
For these three reasons, then, essentially we oppose the
bill.
We also provide in our testimony later on the results of
our experience from 1964, I believe it was, to 1983 in terms of
having this kind of provision and what impact it had on the
agency.
Thank you for this opportunity to present the
administration's position.
Mr. Horn. We thank you.
[The prepared statement of Mr. Drabkin follows:]
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Mr. Horn. We're going to go out of order now. Mr.
Kanjorski, the author of the bill, of Pennsylvania is here. If
he has an opening statement he's certainly welcome, and we'll
put the testimony following his statement.
Mr. Kanjorski. Mr. Chairman, I look forward to listening to
the testimony. I pass for a few more extra minutes when we get
to questions.
Mr. Horn. I thank the gentleman.
We now have our second witness, which is William K. Swab,
the president of the Ennis Electric Co. in Manassas, VA,
representing the American Subcontractors Association. Mr. Swab.
STATEMENT OF WILLIAM K. SWAB, PRESIDENT, ENNIS ELECTRIC CO.,
MANASSAS, VA, REPRESENTING THE AMERICAN SUBCONTRACTORS
ASSOCIATION
Mr. Swab. Mr. Chairman, members of the committee, thank you
for this opportunity to speak today in support of H.R. 4012.
Hopefully, I can give you a little different perspective.
My name is Chip Swab, and I'm president of Ennis Electric
Co. in Manassas, VA. My company performs Federal construction
work, including 19 specific contracts in the past 2 years. I am
a member of the American Subcontractors Association, which
represents over 6,500 construction specialty trade contractors
all over the United States, and I am speaking on their behalf
today.
The American Subcontractors Association strongly supports
H.R. 4012, the Construction Quality Assurance Act of 2000,
because it will end the practice of bid shopping on Federal
construction, a practice which cheats the government out of
value and quality.
Bid shopping occurs when a prime contractor approaches its
subcontractor after it has been awarded a construction contract
and tells the subs to lower their prices or lose the
subcontracts. The savings from that subcontract enrich the
prime contractor to the detriment of the value delivered to the
owner. Although bid shopping may be unethical, it currently is
legal and sometimes seems to be encouraged on Federal
construction. Of the 19 Federal contracts my company has
performed work on and the many more that we have bid on during
the past 2 years, every single one has featured some form of
bid shopping.
Today, the Federal Government does not get the best value
for construction. This is because in most cases the final
decisions as to which contractors, suppliers and manufacturers
will be used on a project are not made until after the
government accepts a bid or proposal from a prime contractor.
Let me give some background, explain how the current system
operates, and provide my assessment of how H.R. 4012 will
benefit both taxpayers and the construction industry.
For many years, the accepted method of procurement for
Federal construction was the ``Invitation for Bid'' or ``IFB.''
We referred to it as the ``rip it and read'' process, since bid
envelopes were brought to the public area of a Federal agency,
and at a given hour on a given date all bids received were
opened, read and recorded in public.
Having the paperwork properly executed was important, but
the overriding factor was the lowest price. Participating
contractors saw this process as open and fair, but it did not
offer the Federal agency discretion to choose a contractor on
any basis other than price. Reputation, past performance,
financial stability and special expertise were not factors that
were available for review. As a result, many jobs suffered
because the low bidder was not always the best available
contractor to perform the work. Contractors that performed good
or even exemplary work were not rewarded for their efforts
unless they had the low bid.
Fortunately, the government learned an important lesson:
You get what you pay for. By only considering price, much of
the construction delivered under the IFB process was inferior.
So the government looked to the private sector for another way,
Best Value Procurement.
Out went the Invitation for Bid process, and in came the
Request for Proposal, of which there are many forms. The main
feature is the increased ability of a Federal agency to weigh
factors in addition to price in making a choice of prime
contractor. Unlike the IFB process, the review and
decisionmaking process followed for an RFP is done in private,
and pricing is not revealed until after the notification of
award to the prime contractor.
Under the RFP process, the emphasis is on getting the best
value for the price paid, not just on having the lowest price.
But the RFP process is undermined and the government's
value is reduced by a practice known as bid shopping. Bid
shopping occurs when a general contractor forces a
subcontractor to reduce the price or forfeit the subcontract
after the prime contractor's bid has been accepted by the
government. Since subcontractors know they'll be asked to lower
their price once the prime wins the contract, few
subcontractors put their best price out on the street at the
beginning of the proposal process. They wait until the actual
buy decisions are made, a process that takes place after the
government awards the prime contract. Starting at the
manufacturer level, through their authorized sales agents or
distributors, through suppliers, then subcontractors and
specialty contractors and finally through the prime contractor,
there is a bid shopping markup of costs at every level to the
final price that is quoted to the government.
Since few of these parties offer their best pricing when
they submit their original proposals because they know they
will be shopped after the contract is awarded, the government
gets an inflated bid, not the best value or best quality that
the RFP process is supposed to provide. The construction
delivered under the current system costs the government
considerably more than it is actually worth, with the prime
contractors pocketing whatever amount they are able to squeeze
out of their subcontractors.
Further, under the current system everyone knows that there
will be another bite at the apple after the prime bid is
awarded and all of the subcontracts are shopped. Therefore,
many firms won't expend the time and effort required for a
detailed review prior to bid day, because they know they can
afford to wait until the bid shopping that will come later.
This lack of attention to detail is a major contributor to
errors and omissions that plague a project from its inception
and further detract from the quality side of the best value
equation.
H.R. 4012 and its requirements for bid listing of major
subcontractors would change this process. By requiring a
general contractor to make its final decisions on what
subcontractors and suppliers it is going to use and to commit
to those decisions in writing at the time it submits its
proposal to bid, the dynamics for the pricing of a project
change. To use a few cliches, the day of reckoning, the time to
play your hand, the chance to lay all your cards on the table
is the due date for submission of the proposal.
Under H.R. 4012, prime contractors and subcontractors such
as myself can tell all of our suppliers and specialty firms
that in order to be named on the proposal we must have
everyone's best price on bid day. In order to provide the best
price, we have to spend the time and effort necessary to study
the contract specifications and to assure that we all fully
understand all the requirements, because there is going to be
no going back for another round.
Once our suppliers know that we are going to make a buy
commitment on bid day, they can take the same leverage and use
it with the manufacturers and the agents that represent them.
The combination of open competition and a date and time certain
when final choices will be made assure that each party at each
level is willing to quote its best number on bid day. That way
the final real price is passed directly to the end user, in
this case the Federal Government and the taxpayers. H.R. 4012
would assure that taxpayers receive full value and quality for
the price they are paying.
Sorry, I've gone over my time. I would just like to state
that we respectfully urge your support for and quick action on
H.R. 4012. Thank you very much.
Mr. Horn. I thank you very much.
[The prepared statement of Mr. Swab follows:]
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Mr. Horn. Our next witness is George Petzen, the skylight
specialist from the TRACO Skytech Systems in Bloomsburg, PA. I
assume that's in Mr. Kanjorski's district. Good. Welcome. We're
glad to have you here.
STATEMENT OF GEORGE PETZEN, SKYLIGHT SPECIALIST, TRACO SKYTECH
SYSTEMS, BLOOMSBURG, PA
Mr. Petzen. I'm very glad to be here. Thank you very much,
Mr. Chairman, members of the committee.
I'm here to testify in support of this legislation. I think
it's very important. The Construction Quality Assurance Act of
2000 will actually benefit not only the government, it will
benefit subcontractors, and it actually will benefit the
general contractors on a project by leveling the playing field
not only where the general contractors play but for the
subcontractors and for the--for everyone underneath, not only
second-tier players but third-tier material suppliers where we
sometimes play as well.
We talk about these things kind of in generalities, but I
think it's important to look at what bid shopping actually does
in the real world.
Several years ago, the Veterans Administration did a major
renovation of a property in Wilkes-Barre, PA. The bid process
worked as it usually does, subcontractors and material
suppliers preparing bids to the bidding general contractors. On
the selection of the low general contractor for the bid,
everyone knows who is going to be doing the job.
The day following that award, the general contractor puts
several of the bid packages, the major parts of the
construction documents, major parts of the scope of work, back
out on the street and rebids them. He owns the contract from
the government. He's going to build this building at this
price. And the day after he takes major sections of the package
and rebids them.
I strongly suspect that the government was not benefited by
a rebate from the contractor at that point. This process
happened not once but twice. And, after that, there were
negotiations. We were called in to look at certain areas of
scope; and at that point, at the end of our discussion, we were
presented with the low contractor's proposal, subcontractor's
proposal and told this is the number you have to beat to write
the business.
That's not a fair process. It's not what the government
expects. Certainly it's not what subcontractors expect. But we
are exposed to these practices not every once in a while but on
virtually every job. It is absolutely undemocratic; and, at
times, subcontractors are our worst enemy. We're approached
with, beat this number and you play the game of how low can you
go. And our margins get skinnied up past the point of it being
a safe margin, but in order to write the business, it's what
have you to do. It's not a fair process. It really needs to
change.
To testify in this room, which is so nicely appointed, I
kind of wonder if the guy that was low on bid day for all the
case work and all of the appointments in this room actually was
a subcontractor that did the work. It would be nice to think
that that was the case, but my experience is it probably was
someone else. It was probably someone else. Not fair for the
government.
There's a lot of pride in doing this work. You know, to
walk into this room as a subcontractor that performed this
business is a source of great pride. And we hang our hats on
that. To walk in being low on bid day and look at someone
else's work that was based on your price, doesn't give you the
same source of pride. We need to reinstate pride across the
board for the material suppliers, for the subcontractors, for
the primes, for the design professionals, and for the
government. Thank you.
Mr. Horn. Thank you. That's a very moving statement.
[The prepared statement of Mr. Petzen follows:]
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Mr. Horn. The next witness I've known for a number of years
and am delighted to see him here, and that's John Fuqua, the
chief executive officer of Carol Electrical Co. in Los
Alamitos, CA, right over my district line--why don't you move
that, John--representing the National Electrical Contractors
Association. Pleasure to have you here.
STATEMENT OF JOHN FUQUA, CHIEF EXECUTIVE OFFICER, CAROL
ELECTRICAL CO., INC., LOS ALAMITOS, CA, REPRESENTING THE
NATIONAL ELECTRICAL CONTRACTORS ASSOCIATION
Mr. Fuqua. Mr. Chairman, members of the committee, first of
all, thank you for the opportunity to testify here this
morning. I am an electrical contractor, and I'm also here today
speaking for the National Electrical Contractors Association.
Mr. Horn. I was going to tell you. The clerk ought to go
down and do that. Move that mic closer to you.
Mr. Fuqua. Is that better?
Mr. Horn. I think so.
Mr. Fuqua. Bid shopping has been with us a long time--
certainly as long as I have been an electrical contractor. It
is an unethical practice which works not only to decrease the
value of the construction the owner receives for his price but
also to undermine the ability of the contractor to offer his
best price and guarantee the quality of work produced for that
price. Unfortunately, it's a common practice on Federal, State,
local and private work alike.
When I spend time and money to prepare a bid, I expect that
it will be accepted and honestly used if it is low and
responsive. It's my best price, one that will give the general
contractor and the owner true value for their construction
price and where I can do the work properly and also make a
reasonable profit.
If, after he has been awarded the contract, the general
contractor shops my bid or tries to lower my price by
threatening to shop it, he is doing me and his customer a
disservice. When he attempts to shop my bid, he is trying to
increase his own profitability at my expense and also the
expense of the customer.
I have given the prime contractor my best price. I want the
work, and there is no reason for me to add a margin to my bid.
Doing so could mean that I would not be low and not get the
job. Squeezing me or another for a better price once the prime
contractor has the contract means that I would have to cut or
eliminate my profit or, worse yet, cut corners on a job. I'm
not in business to work at a loss. I'm not in business to lower
quality on my jobs or endanger a hard-won reputation of
quality. So when a contractor shops my bid or threatens to do
so, I don't play the game. I do not bid that contractor in the
future. It's simply not worth the danger to my company's
reputation.
But if I choose not to work for the contractor again, I
have already lost time and money spent to estimate the job and
price it. From that standpoint, this committee, the customer is
a loser, too. He doesn't know it. He doesn't know he is a
loser. He's paid for my best workmanship, quality and expertise
as part of the contract price; and he's not going to get it.
It's going to the prime contractor's wallet as a windfall
profit.
A legislative approach to bid listing has been around for a
long time. Since 1931, in the 72nd Congress, and again in 1938,
a measure passed both Houses of Congress, was vetoed by the
President because of an unrelated provision requiring agencies
to supervise subcontractor payments.
Bills have been introduced in many Congresses since then
with varying degree of activity. Both the House and Senate have
each again passed bid listing measures in years since the veto.
This activity has caused the GSA and others to take a close
look at the practice.
In 1963, the General Services Administration tried a pilot
bid listing regulation. In 1964, it issued general bid listing
regulations covering contracts over $150,000 and subcontracts
over 3.5 percent of the total. In 1965, the Interior Department
issued similar regulations. Both agencies experienced good
results.
Speciality contractors have been consistent in their
efforts to implement a policy of bid listing. In March 1965,
the Associated General Contractors also adopted an official
policy supporting bid listing for mechanical and electrical
specialty contractors on all Federal building construction
products. They are on record as of this day abhorring the bid
shopping and peddling practice.
In the meantime, in 20 years experience with the bid
listing policy in the Federal agencies, they exposed flaws in
the regulations, administered under sometimes unclear and
confusing regulations. These led to some administrative
complications and costly lawsuits. By 1984, the GSA, the last
remaining Federal agency requiring bid listing, dropped its
use. And that brings us right back to where we were in 1931,
seeking a legislative remedy to a costly pervasive and divisive
problem, the ongoing unethical practice of bid shopping and
peddling.
H.R. 4012 makes use of seven decades of experience in
legislative and executive approaches to bid listing. It is
simple enough to be understandable. Its scope is broad enough
to be effective, and yet it's limited enough not to be an
insurmountable burden. It sets the administrative standard
that's fair, understandable and enforceable, taking Federal
agencies off the hook and protecting them from unwanted
lawsuits. The language is clear, concise and workable.
Federal agencies should compare this measure objectively
against what has gone on before. We believe they will find it a
usable and cost-effective tool to assure the government and
taxpayers alike receive quality construction for what they've
paid for.
NACA would like to thank Congressman Kanjorski, Chairman
Horn and other Members, cosponsors of this committee for
providing us with a superior piece of legislation. We urge this
subcommittee to report it favorably and to move it swiftly
through the legislative process. Thank you.
Mr. Horn. Thank you very much.
[The prepared statement of Mr. Fuqua follows:]
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Mr. Horn. We now go to Mr. John J. Dunleavy, the executive
vice president of Pierce Associates in Alexandria, VA; and he
represents the Mechanical-Electrical-Sheet Metal Construction
Alliance. Mr. Dunleavy.
STATEMENT OF JOHN J. DUNLEAVY, EXECUTIVE VICE PRESIDENT, PIERCE
ASSOCIATES, INC., ALEXANDRIA, VA, REPRESENTING THE MECHANICAL-
ELECTRICAL-SHEET METAL CONSTRUCTION ALLIANCE
Mr. Dunleavy. Good morning Mr. Chairman, members of the
subcommittee. My name is John Dunleavy. I'm executive vice
president of Pierce Associates. Pierce Associates is a member
of the Mechanical Contractors Association of America and, I
should also add, a proud member of the Associated General
Contractors.
I am pleased to be here today on behalf of the Mechanical-
Electrical-Sheet Metal Alliance to support H.R. 4012, the
Construction Quality Assurance Act of 2000. The Alliance,
comprised of MCAA, the National Electrical Contractors
Association, and the Sheet Metal and Air Conditioning
Contractors' Association of America, represents more than
12,000 speciality construction contracting firms that employ
more than 540,000 highly skilled employees.
Alliance contractors hold a growing market share of more
than 60 percent of the Nation's nonresidential construction
activity. MCAA and Alliance contractors compete vigorously in
the market for Federal construction projects and perform as
prime contractors, speciality subcontractors, and sub-
subcontractors.
Pierce Associates has been in business since 1961,
performing work on Federal projects in the Washington, DC,
metropolitan area, primarily as a subcontractor. MCAA and the
Alliance strongly support H.R. 4012, which is aimed at
improving the quality of Federal construction project delivery
and the competitiveness of Federal construction markets. By
effectively stemming the parallel abuse of business practices
of bid shopping and bid peddling, both universally condemned by
leading industry groups, but which nevertheless occur in
practice, the Construction Quality Assurance Act will bring
many more quality construction firms back into competition in
the Federal market.
Additionally, the act will lead to project performance
based on best-value performance contracting, rather than
adversarial buying-the-job practices.
H.R. 4012 is a necessary Federal procurement reform that
continues the pattern of procurement policy improvements
starting with the Competition in Contracting Act, the Prompt
Payment Act and its amendments, the Federal Acquisition
Streamlining Act and the recent Miller Act Amendments.
Taken together, these predecessor reforms establish
congressional policy allowing Federal construction purchasing
officials to be much more discerning market participants by
choosing from among the full range of proven best-value
contractor selection options, gaining the full performance
incentives of past performance evaluations, and fully utilizing
FAR authority to evaluate and assess the responsibility and
performance capabilities of major subcontractors actually
performing the vast majority of work on Federal projects.
By extending bid listing protections to major first-tier
subcontractors, H.R. 4012 would ensure that performing
contractors and subcontractors are committed to successful
project performance. Unfortunately, bid shopping and bid
peddling can lead to adversarial wrangling over construction
documents, in an effort to recover fiscally from post-bidding
auctions selling the job to chisel down the actual cost of the
low bid, would be eliminated. Additionally, bid listing would
end the administrative and claims processing overhead
engendered by bid shopping and bid peddling, overhead that far
outstrips any perceived cost savings because these unethical
practices leave the performing subcontractors vulnerable to an
unprotected auction after the initial bidding.
Attached is an ostensibly humorous trade press item that
describes the counterproductive risk transfer dynamics in the
low-bid system.
The trend in actual procurement practices requires reform
of the low-bid selection procedure. Subcontractor listing is
imperative on low-bid as well as the competitive negotiation
best-value systems. Over the last decade, Federal contracting
officials have voted with their feet in choosing between low-
bid versus competitive negotiation in construction contractor
selection methods. Attached are tables based on Alliance-
commissioned research with the Federal Procurement Data
Service, showing the precipitous decline in the use of the low-
bid selection method in construction procurements and
speciality construction over the period from 1990 to 1999.
The Alliance research documents that agencies are turning
more and more to negotiated best-value contractor selection
because Part 15 of the Federal Acquisition Regulations
encourages identification and past-performance evaluation of
major subcontractors. Discerning public officials know they get
better results when they know the qualifications, skills and
performance records of the contractors and subcontractors who
will be performing the work. H.R. 4012 would help preserve the
use of the low-bid system as a viable best-value selection
method by protecting the integrity of careful estimates and
retaining quality construction contractors competing in that
market.
Similarly, while FAR encourages the evaluation of major
subcontractors in competitive negotiations, the protections
against post-award substitutions in H.R. 4012 should
specifically be extended to that selection system as well. In
that way, the government will be assured the performance
premium it bargains for when awarding on the basis of
competitive proposals.
In conclusion, the severely deleterious effects of bid
shopping and bid peddling on construction industry performance
is widely recognized. Similarly, the beneficial aspects of
listing major subcontractors are just as widely recognized.
Moreover, the trends in direct Federal procurement prove this
trend in actual agency experience. Because of that, the
subcommittee should continue its impressive record of Federal
construction procurement reforms and bring both best-value
contractor selection systems--low-bid and negotiated
selection--into line with the best private-sector procurement
practices.
Mr. Chairman, thank you and your colleagues for your
steadfast interest in keeping the Federal construction market
up to par with the best practices in other public and private
sector markets. This proposal should clearly apply to all
solicitations, both invitations for bid and requests for
proposals.
It is our firm conviction that the pace of change in the
industry and in Federal procurement law virtually requires bid
listing as a way to retain and attract quality performance
subcontractors to obtain for the public and taxpayer the
quality performance they deserve. Thank you for your
opportunity to testify.
Mr. Horn. Thank you, Mr. Dunleavy.
[The prepared statement of Mr. Dunleavy follows:]
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Mr. Horn. We have with us the chairman of the full
Committee on Government Reform. We're delighted to see Mr.
Burton, the gentleman from Indiana, who's here for an
introduction.
Mr. Burton. Thank you, Mr. Horn.
I am always interested in legislation Mr. Kanjorski is
proposing, and I'm anxious to hear all the testimony. The
testimony I've missed thus far I want to apologize for, and I
will be reading it, so I will be up to date.
I'm particularly happy to be here at this time because I
see my good friend Doug Barnhart and his lovely wife Nancy
there; and I think your daughter is with you, isn't she?
They're from San Diego.
While I won't get into a lengthy introduction, Mr.
Chairman, I will tell you that these are two of the nicest
people I have ever met. They do an awful lot of things for the
community in San Diego. They're very active in something that's
near and dear to my heart, and that is helping abused children,
and they worked very hard in the Children's Center out in the
San Diego Center for Children. They've raised a lot of money
for them and helped. That's how I got to know them.
So I'm very happy to welcome you guys here today. If you
don't eat too much, I'd love to take you to lunch.
Thank you, Mr. Chairman.
Mr. Horn. We thank you very much.
We know have Mr. Douglas E. Barnhart, the chief executive
officer of Douglas E. Barnhart Inc., San Diego, CA; and he's
here representing the Associated General Contractors of
America. Mr. Barnhart.
STATEMENT OF DOUGLAS E. BARNHART, CHIEF EXECUTIVE OFFICER,
DOUGLAS E. BARNHART INC., SAN DIEGO, CA, REPRESENTING THE
ASSOCIATED GENERAL CONTRACTORS OF AMERICA
Mr. Barnhart. Thank you, Congressman Burton, for that fine
introduction.
Good morning, Mr. Chairman and members of the committee. My
name is Doug Barnhart. I'm CEO of the Barnhart Corp. which was
founded in 1983 in San Diego, CA. Since that time, my company
has constructed various projects for the Federal Government as
well as many projects involving State agencies and lots of
projects with private owners.
It's received awards from the American Institute of
Architects; Coalition for Adequate School Housing; American
Public Works Association; Engineering Society of San Diego;
four Best of the West awards, including two Grand awards; Grand
Orchids, three Build San Diego awards, Build America awards.
We're very proud of the diverse work that the corporation has
undertaken.
I am here today representing the Associated General
Contractors of America and to explain our opposition to H.R.
4012, which is misnamed Construction Quality Assurance Act of
2000. I say it's misnamed because it does nothing to assure
quality; and, in fact, from my experience, it will hamper my
ability to ensure that quality and safe work is performed on
Barnhart job sites.
AGC represents more than 33,000 construction firms,
including 7,500 of America's finest general contractors, 12,000
speciality contracting firms, and over 14,000 service providers
and suppliers associated with AGC through a network of some
hundred chapters.
AGC opposes H.R. 4012, bid listing for Federal procurement,
because it is unnecessary and will be harmful to the Federal
procurement process. The Federal Government, during a 20-year
test period, said bid listing caused project delays, higher
completion costs and adversely impacted the construction
process. In addition, this legislation underlines the
government's attempts to streamline procurement instead of
helping them. It removes the flexibility of the prime
contractor to manage the project and will do nothing to improve
the quality, safety or decrease the cost of construction.
Let me be clear, however, AGC supports industry self-
regulation in the area of bid shopping or auctions. In its
Model Antitrust Compliance Manual, AGC of America has indicated
that it disfavors auctions leading to bidding inefficiencies,
demeaning the integrity of the competitive bidding system and
reflecting adversely on the industry relationship.
One activity that the Federal Government is engaged in may
be leading to a record increase in what is perceived as bid
shopping, and that's the negotiated procurement. The way this
works is through the best and final offer rounds called BAFOs.
What this has done is forced prime contractors to continually
revisit bids as they revise to another best and final round and
in doing that they resolicit subcontractor bids. This may be
being interpreted in the subcontracting community as bid
shopping.
The solution is that best and final offers should be
solicited and submitted to ensure fairness and confidentiality
of a competitor's bid and not used as a tool to continually
lower the price the government will pay the prime and his or
her team.
I think it's important to remember that construction is not
about steel, concrete, mechanical equipment or any of those
things. It is a people business. It is a relationship business.
Most general contractors are named after a person, such as
mine, and that's because our word is on the line every time we
sign a contract.
In California, the State requires subcontractor listing on
low-bid projects. However, the State of California, if you will
check, is moving away from that. They're moving away using
design-build, turnkey, and construction management in its
agency procurement. The reason it's doing that is a couple of
reasons. One is to reduce paperwork and speed up delivery but
also to avoid disputes such as those that arise under
subcontractor listing. The bid listing process in California is
time consuming, burdensome and does little to protect anyone.
Of all the work performed by the Barnhart Corp. only that
in the State of California requires bid listing, and we have
worked in Nevada and Texas and throughout the Southwest. I'll
give you an example.
On a recent high school project in Anza, CA, if you happen
to know where that is, there was a high school bid and there
were only two electoral bids. The Barnhart bid team questioned
both bidders as to bonding and capability. One of the
subcontractors said that they could not bond; the other one
said they could bond but was unable to provide the source of
the bond. The bid team, as it moved on to 2, had to make a
decision. They listed the one subcontractor that said he could
bond but would not give us the source of the bond.
Immediately after the award, we went to the school
district. The school district had an adverse past history with
the subcontractor, expressed concern of how the project would
go. Nevertheless, the subcontractor produced the required bond,
and there was no legal basis for replacement--and there will be
no basis for replacement under your bill either.
The work proceeded, and the ensuing contract was nothing
short of a disaster. The electrical subcontractor immediately
started installing work that did not conform to the
specifications. When the school district complained, we hired,
at my expense a special electrical inspector to inspect the
work, in addition to the DSA inspectors that were out there for
the State of California. Adding more difficulty, the switch
gear and those critical elements came in wrong, did not match
the shop drawings that had been improved. Finally, after much
haggling around, because every one of these individuals has an
attorney, we finally were able to get the subcontract
terminated and went through a delisting hearing with the school
district, all of which took a lot of time.
End result is as follows: The school district received the
school 6 months late. That means some California kids did not
get to attend their new school. The School district was unable
to use the $10 million facility during the delay. The bonding
company for the electrical contractor paid me $450,000, but
that only covered half the loss. There was another half a
million dollars out of the Barnhart Corp. into the project.
And, worst of all, a qualified electrical contractor was not
allowed to perform the work.
We had liens from the Economic Development Department of
the State of California, the IRS, suppliers, trade workers and
three lawsuit attachments from previous contracts. But there
was no escape because we were locked in, right on the listing.
For every example that these fine subcontractors can give
you, I will give you an example that is just as bad the other
way. The point I'm trying to make is construction is a
relationship-based business. There are owners that I do not
work for because those owners do not match our value system.
Subcontractors and general contractors have the same
relationship. It is a business relationship. You do not do
business with business partners who take advantage of you, and
the travel on that road goes both ways.
Requiring prime contractors to list bids puts a lot of
strain on the bid room. There's a lot of price maneuvering
going on before 2. All this law says is that after 2 all of
that changes. It absolutely will not change the face of
construction one bit. It will hamper the prime's ability to
produce a quality project.
Everyone is moving away from these low-bid systems where
price is the only determining factor in whether someone does
the job. Everyone is moving to best values--the State, the
Federal Government. This is bad legislation. This is
unnecessary legislation. And I believe that with my entire
heart. Thank you.
Mr. Horn. Thank you.
[The prepared statement of Mr. Barnhart follows:]
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Mr. Horn. We will now begin the questioning. Does the
gentleman, who is Mr. Burton, would you like to begin the
questioning?
Mr. Burton. Thank you, Mr. Chairman.
I think you answered my question, Mr. Barnhart. You ended
up losing quite a bit of money on this particular job you were
talking about because of the problems you had with that
electrical subcontractor.
Mr. Barnhart. Yes, sir.
Mr. Burton. It slowed down the project by--how much did you
say; 6 months?
Mr. Barnhart. Six months.
Mr. Burton. Is that something that's common or uncommon?
Mr. Barnhart. Well, the problem is, everyone in the United
States today has an attorney. And everyone is entitled to due
process. So basically we were locked in. There was no legal
basis for the replacement. No one wanted this person on the
job. Everyone knew from the start that this was a mistake. The
law dictated that he be awarded the job. The job was awarded.
And then--basically, then what we suspected might happen is
the performance issue started mounting. But, you know, the
first time something is done wrong you don't go in for a
request for substitution. So you wait and you live with it. You
work through it. You do the process. And then, you know, the
discussions take place; and it just takes months and months and
months.
Mr. Burton. You said California is moving away from this
law? What do you mean? Have they changed it or----
Mr. Barnhart. You know, procurement in this country for a
long, long time was done particularly, specifically on a low-
bid basis, where everyone was selected on the basis of price.
Well, that may have worked well for the United States a long,
long time ago, but it doesn't work well for the United States
in the year 2000.
These projects are complicated. They're sophisticated.
There are computer systems that control the HVAC. There are
electrical systems. We got ADA requirements. There's
environmental concerns. The management of the project has
become much, much--so important and the quality of the
relationship. So alternate delivery systems have come in. The
Federal Government is using them. So they're using the system
as best they can called best value. Prime contractors are doing
the same thing.
Because if I'm working for the Federal Government under a
best-value system, I better deliver. Even to deliver I'm going
to need strong electrical contractors, I'm going to need strong
mechanical contractors, and I want to be able to select them.
Because, again, construction is a relationship-driven business.
Mr. Burton. Mr. Drabkin--is that how I pronounce your name?
Mr. Drabkin. Yes, sir.
Mr. Burton. I was reading your statement. You said, the
ultimate result of several months of discussions with these
groups resulted in the agreement that the administrative burden
to manage subcontractor listing efforts exceeded the benefits
in 1983 based on 20 years of experience with the GSA's
subcontractors listing requirement. Can you elaborate on that
for me? You may have already, but if you could give me a little
more information I would appreciate it.
Mr. Drabkin. Unfortunately, Congressman, I wasn't present
in the agency in 1983.
Mr. Burton. You look a lot younger than that.
Mr. Drabkin. What I have found through doing the
preparation for the testimony is that the program that GSA had
in place produced administrative costs associated with
arbitrating or mediating or becoming involved with the
subcontractor disputes with the prime contractors. There were
court cases in which the agency was drawn into. There were
protests in which the agency was drawn into. And all of those
things, added up over that period of time, indicated to the
agency through a public rulemaking process that it was better
not to have this production, as opposed to have it, that the
government's interests were better served without it.
And, to date, I'm unaware of any significant cases where
bid listing issues have been brought to the attention of the
General Services Administration or, while I was in the
Department of Defense, to the Department of Defense involving
failure to perform or additional costs or other issues that
would be of concern.
Mr. Burton. Thank you, Mr. Chairman. I think that answers
the questions I have. I'll listen to the other questions.
Mr. Horn. I thank the gentleman; and we will now turn to
the ranking member, the gentleman from Texas, Mr. Turner.
Mr. Turner. Thank you, Mr. Chairman.
I think every one of the panelists, irrespective of the
side of the issue you're on, for or against this bill, would
concur that the practices being complained about are clearly
unethical and should not be permitted. Am I correct, Mr.
Barnhart?
Mr. Barnhart. Correct.
Mr. Turner. Now the bill here before us attempts to deal
with the abuse that we all agree shouldn't exist. But I think
what you're suggesting to us is that the remedy is, or the cure
is, worse than the disease. Is that correct?
Mr. Barnhart. Well, not completely. A long time ago, I was
in the Civil Engineer Corps and ran contracts. And a value
structure in a company is a value structure in a company. And
every one of those prime contractors that worked for the U.S.
Navy that were difficult to work with were just as difficult to
work with with their suppliers and subs.
I can tell you none of those firms exist today. And there's
a good reason for that. It's because the market is very
dynamic, and it deals with it. Just as this one gentleman down
there said that he does not bid those primes anymore who shop
his bids. Congratulations. Because you know what? As people
make those decisions those firms lose their competitive ability
to compete, and they cease to exist. The marketplace deals with
that. There's just no need for this bill.
Mr. Turner. It seems to me that what you say is probably
correct. If you get burned a few times you're going to quit
submitting a bid to a prime contractor that shops your bid.
But when you get right down there on the firing line and
you're the sub that's worked for hours trying to put together a
bid and you submit it and then you end up having it shopped on
you, I don't think you worry about the marketplace working.
You're worried about what's happening to you in that particular
point in time, which obviously is very unfair, and we all agree
that it is unfair.
Do you have any suggestions on how we could address this or
make it clear that this practice is not acceptable in Federal
contracting if the bill itself seems objectionable? Do you have
anything you could offer to us that might get at the problem,
protect the subcontractors from this kind of unethical behavior
and maybe not be as broad as the bill that you object to?
Mr. Barnhart. There's nothing in the bill that requires
first-tier subcontractors to list second-tier subcontractors or
list suppliers. So the testimony that you've heard that this
will clean it up all the way down the line, it won't do that.
There's nothing in this bill that says the electrical
subcontractor will list who's going to supply the switch gear,
who's going to supply the lighting package, who's going to do
the fire alarm system, who's going to do the security system--
nothing. This bill is a bill solely directed at the general
contractor as the root and cause of all evil. That I take great
exception to, as do the 75,000 first line of American GC's that
belong to the AGC.
I think have you to have a little patience, have some faith
in the market. The market deals with this. And I think these
are, you know, fine subcontractors; and I think they will agree
with me: The market over a period of time determines who
succeeds and who doesn't succeed. And I suggest to you that
that's based on values and business structure and your
relationship with your subcontractors.
I have some wonderful subcontractor relations, and they bid
us, and they bid us consistently. And the reason they do is it
is because they have trust and faith that we're going to do the
right thing and vice versa. That's the nature of the business.
This bill goes against the nature of the business. It goes
against human nature.
Mr. Drabkin. Mr. Turner, if I might add to what Mr.
Barnhart has said, existent in our current process is the
emphasis since the passage of FAS and the use of past
performance, one of the elements that the government evaluates
in a major contract on past performance is the relationship
that the prime has with the subcontractors and its ability to
deliver the project. If there's a circumstance where a prime is
mistreating his subcontractors, it will reflect in their
performance. And in today's environment, if you get an average
performance rating, the chances of you winning a Federal
contract is going to be very low. I mean, you've got to score
above average today. And that's a success story that is
attributable to this Congress in terms of the passage of FAS
and the empowerment of the government to use the past
performance process.
So it's a little more than just the commercial marketplace
deciding who's going to survive or not. There's an active role
which Federal Government contracting officers play in the past
performance evaluation process of prime contractors and their
relationships with subs.
Mr. Turner. Mr. Chairman, I see my time is up. I wanted to
give the subcontractors a chance to respond, but maybe one of
our other members of the committee can do that. Thank you, Mr.
Chairman.
Mr. Horn. I now call on the gentleman from California, Mr.
Ose.
Mr. Ose. Thank you, Mr. Chairman.
Mr. Horn. Five minutes for questioning.
Mr. Ose. I have read this testimony last night, and I'm a
little bit unclear. If I understand Mr. Barnhart's point, I
think the only situation in which the bid shopping or bid
peddling is occurring, according to the testimony, at least,
was within these best and final offer practices that the
Federal Government is engaged in.
Mr. Barnhart. That's not true.
Mr. Ose. OK.
Mr. Barnhart. That's--that is a potential source of what's
perceived as shopping.
Mr. Ose. Mr. Drabkin, I have seen no--or I have heard no
confirmed evidence that the Federal Government's projects are
being conducted under a system that basically allows bid
shopping.
Mr. Drabkin. That's correct. The Federal Government does
not interfere in the relationship between the prime and the
sub. However, as I pointed out in my comments to Mr. Turner's
question, we do evaluate the prime on their ability to manage
subcontracts and to deliver the project on time. To that
extent, in terms of the--evaluating the prime contractor's
performance, we do provide oversight to the prime and to the
subs and to the lower-tiered subs as well.
Mr. Ose. I think my question really boils down to, to what
degree do we wish to intrude into the relationship between the
general and the subs? Now having built $50 or $60 million worth
of stuff, not as a contractor but as an owner, something
analogous to the position of the Federal Government--you know,
Mr. Barnhart talked about his relationships with his subs, and
I can tell you the relationship between the owner and the
general are very, very similar to the relationship between a
prime and a sub who has a long history of working with that
person. What I'm interested in is, at the end of the day,
whether or not the prime or the general--however you wish to
describe the person--meets the time deadline on budget or
under.
Mr. Drabkin. That's the task that you have given us in the
executive branch and that is to measure our performance by how
we perform. In the end, what we're interested in is bringing
the project in on the budget and on the schedule and dealing
with quality contractors.
Mr. Ose. Mr. Barnhart talked about the complexity of
construction projects as they exist today, and I will confirm
that, without going into any great detail. I'm curious--the
contracting officer that works for GSA, for instance, to what
degree does that person have the experience, if you will, the
leading edge experience that might exist in a general
contractor shop or, for that matter, in a subcontractor's shop?
It seems to me that the contracting officer's job is to manage
the contract. To what degree do they stay on the edge of
construction techniques?
Mr. Drabkin. I'm glad you asked me that question. It's a
problem. It's a problem because we lack the resources to give
our people the kind of training they need on a regular basis
and the kind of tools they need. Most of these contracting
officers on a daily basis are concerned about processing the
paper and getting the actions out.
As you know, in the civilian agencies, which was a shocker
to me when I came over from DOD, don't have the kind of
training budget, don't have the kind of educational
institutions that were available to me when I was in the
Department of Defense. And it was a challenge and one which I
identified immediately upon my assumption of these duties and
one which I'm working toward but one with which I have very few
resources to deal.
Mr. Ose. Let me take it to a more mundane level. Mr.
Dunleavy, in the sheet metal side of things when you do HVAC
work, the controls for HVA systems are moving technically far
ahead of where they were even 5 or 10 years ago. In other
words, when you build a building, your systems now allow you to
balance your demand for cooling air very, very effectively
relative to what happened 5 years ago. If this legislation were
to pass on day one and on day two industry or science created a
system that allowed a far better balancing of the load at a far
lower price, and the prime contractor had a sub who wasn't up
on that, if I understand the legislation correctly the prime
couldn't change the sub. And you could take that to say
concrete construction, as it has evolved over the few years,
past 5 years--you see my dilemma here.
Mr. Dunleavy. I'm not sure I understand your dilemma. There
is a remedy to that situation. It's called a change under the
contract. I think the same bar would exist as the--in the State
we have now before the legislation. If there's a change in
technology once the subcontract was awarded, they would have to
be handled by some sort of change order mechanism.
Mr. Ose. I see my time has expired. I thank you. I hope we
have another round here.
Mr. Horn. We will have a second and possibly third round.
I now yield 5 minutes to the gentleman from Pennsylvania,
who's the author of the bill, Mr. Kanjorski.
Mr. Kanjorski. Thank you, Mr. Chairman.
Mr. Barnhart, I'm sure you are an exceptional general
contractor and any of the questions I ask you don't go to your
integrity. But I listened to the testimony of the GSA and
either he lives in a different world than I do or we're going
to get together and start looking at some jobs. Because I've
just had three government contracts performed in my
congressional district, and if there weren't 20 or 30 suppliers
and subcontractors that called me with the offensiveness of bid
shopping, I'm surprised.
I think I'm going to take you up to some of these jobs and
let you get some experience in the field, Mr. Drabkin. Maybe
that is the problem, that too many of GSA's people are staying
in Washington and not getting out in the field to find out
what's happening.
But you said something that strikes me. Who selects the
subcontractor to be put into the prime bid?
Mr. Barnhart. The prime contractor.
Mr. Kanjorski. That's right. Well, then, if you want a
quality subcontractor you decide who you're going to pick to
put in there. Why should you put a bumbling fool in as your
subcontractor and then complain that you have to have
dictatorial powers over him or brush him aside at your will?
Mr. Barnhart. Congressman, the example I gave you, neither
firm we were familiar with.
Mr. Kanjorski. Why didn't you go out and get a good
contractor?
Mr. Barnhart. Well, we tried. But----
Mr. Kanjorski. Your problem is that California and San
Diego has so much construction going on that you don't have
enough good subcontractors left in California. But maybe you
don't have them left for the very testimony some of these
subcontractors said. They're sick and tired of being drummed
down to negative losses in doing subcontracting work, and a lot
of them have picked up their marbles and have gone somewhere
else.
Why would you stay in the business if the prime contractor
can constantly come down to you and take your profit away from
you and force you to do inferior work or use inferior supplies?
Now, I'm not saying you're doing that, but you are aware that
some construction jobs by general contractors in this country
are doing that, aren't you, Mr. Barnhart?
Mr. Barnhart. Congressman, let's say----
Mr. Kanjorski. I'd like you to answer that. Are you aware,
you know, that--after the conference, when you're at the bar at
night, are there any stories in the subcontracting field like
there is in the legal profession of who the bums are and who
the good guys are?
Mr. Barnhart. I hear rumors.
Mr. Kanjorski. OK. It's out there. So Mr. Drabkin, if he
circulated to some of these conferences or parties--we ought to
get him into some of the parties because he could hear at least
the rumors and follow through on the rumors. Is that correct?
Mr. Barnhart. Many of rumors I hear are subcontractors
complaining about someone else.
Mr. Kanjorski. Absolutely. I agree with you. There aren't
any virgins in this room.
The question that this legislation is geared to--through
the last decade or better I have been overwhelmed with
frustration--the need to dumb down the operation, to buy
inferior products, almost act as a plantation relationship that
a lot of subcontractors just don't want to get involved
anymore, are being forced out of business or being forced, in
order to hold their businesses, to make no profits at all and
try a squeeze the few dollars they can out of the job if
possible.
Now, why should we, as a matter of public policy, give you,
a general contractor, a prime contractor, dictatorial powers?
Whereas, opposed to that, under this act, all we're saying to
you is, Mr. Barnhart, if you're going to bid this job you break
out every category, every subcategory; and when you went to
these suppliers or these subcontractors to provide the work at
specification, you list them; and if you get the low bid or win
the bid, then you use them.
You know, I want to make a point, Mr. Chairman, I don't
know if the committee is aware of the fact, but under the
common law the principle of a subcontractor giving a contractor
his estimation and then that contractor using that in his
estimate would constitute a contract. There would be value to
the subcontractor, or the general contractor, he used it.
It's only because we have perverted the law now that we go
away from common law. And what we've done is provided a
servitude of subcontractors doing the hard work and making the
analysis, doing the bid pricing, giving the subcontractor the
work. Then if he has a good relationship and knows these
subcontractors, he knows who's good, he can take their work,
plug it in. But then when the prime comes back he knows what
he's going to get out of the general job.
Now, if he wants to increase his profit, all he has to do
is go to the subcontractors that worked with him in good faith,
either dumb them down another 5 or 10 percent or threaten that
he's got a nonunion operator, a nonexperienced operator,
somebody who's going to do the job at considerably less. That's
what's happening now. I don't know whether--maybe my district
out of the 435 in the country is unique. So I worry about that.
Yes, Mr. Barnhart.
Mr. Barnhart. Congressman, there is nothing in this
legislation that requires the listing of suppliers. So the
suppliers that called your office and complained, is it perhaps
possible that those suppliers were quoting subcontractors?
Nothing in this bill changes that. It's a bill that requires
the general contractor and I don't have to list suppliers. So
you're going to still get all those calls.
Mr. Kanjorski. We're going to amend the bill and then make
you list your suppliers. That's OK with me.
Mr. Barnhart. And how about making the subcontractors list
their suppliers and their second-tier subs and their third-tier
subs and see how they like it? What's good for the goose should
be good for the gander.
Mr. Kanjorski. I agree. I think transparency in the bid is
the best thing the government can have. Because they honestly
know what kind of product and what kind of end result they're
going to get if the specifications are held to.
What's happened is everybody has taken the easy way. If you
look at the--it's interesting, Mr. Drabkin came from the
Defense Department to GSA, but this is a 1984, 1984 change. I
wonder what happened in 1984 in this country? A couple things
happened.
Mr. Horn. We're going to have another round on this.
Mr. Kanjorski. I guess I am getting too close to
California----
Mr. Horn. You can load the cannons. In the meantime, I'm
going to yield 5 minutes for questioning to the vice chairman
of the committee, Mrs. Biggert, the distinguished
Representative from Illinois.
Mrs. Biggert. Thank you, Mr. Chairman.
Mr. Drabkin, on your testimony on page 6 you talk about
that a major tenet of government contracting is that the
Federal Government has no privity of contract with
subcontractors, and you think that this really is a major flaw
of this bill. Could you give a little more information on that?
Mr. Drabkin. Yes, ma'am. The Federal Government, both in
the construction area and in all other areas of government
contracting, has steadfastly avoided interfering or
establishing a relationship between subcontractors and the
government, preferring instead to rely upon the expertise and
the responsibility of the prime contractor to manage
subcontracts.
If you could imagine the additional workload and burden
that would be added if all of the--I think it's over several
hundred thousand contractors who the government does work with
on a prime basis, and then add their subcontractors and, as Mr.
Kanjorski suggested, amend the bill, their subcontractors and
suppliers, you would have to increase the Federal acquisition
work force several folds, already overworked and underresourced
in the education and training arena.
So the Federal Government has as a--and the Congress
actually has expressed this as a congressional policy, has
avoided involving the Federal Government and the executive
agencies in the relationships between primes and their subs.
Mrs. Biggert. Thank you.
Mr. Swab, do you know of subcontractors where there's been
a bid and then it switched to other subcontractors where the--
let's say the subcontractors that were in a losing bid were
switched into working for the contractor who won the bid?
Mr. Swab. Yes, ma'am. That happens, unfortunately, all the
time.
One point I'd like to make about Mr. Drabkin's statement,
this legislation does not ask that the government get involved
with any of the subcontractors. It does not ask that they get
involved in the contracts or in anything involving the GC's
relation with the subcontractor. All it asks is that the
general contractor simply, after a certain level of dollars is
reached, list the subcontractor that they're going to use on
the project.
Mrs. Biggert. Well, what would happen, then, if the
subcontractor was not able to perform and so there had to be
another subcontractor? Wouldn't the Federal Government have to
OK a switch in that and, in effect, establish that relationship
with a subcontractor?
Mr. Swab. I think there are provisions where they can ask
for a substitution, the general contractor can ask for a
substitution.
Mrs. Biggert. They could ask, but then again wouldn't----
Mr. Swab. They----
Mrs. Biggert [continuing]. The agency has to approve that
after a bid has been let and they're not being able to follow
then the contract?
Mr. Swab. Yes, ma'am. But I think if the criteria that's
established is shown, then it's a simple decision. It's not
something where they have to develop into any further than the
criteria that's established by this legislation.
Mrs. Biggert. Mr. Drabkin, would you agree with that?
Mr. Drabkin. No, ma'am. The legislation would specifically
require the contracting officer to become involved in the GC
subcontractor dispute, not involved in the current way, which
is we monitor the performance and we rate the GC on it, but
actually become involved in the dispute and the determination
to replace the subcontractor. That would add significant
workload, and as I pointed out earlier, it would also involve
time, time which will delay the delivery of the construction
project.
Mrs. Biggert. OK. Then Mr. Swab, you testified that the
current construction delivered on the current system cost the
government more than it's actually worth with the prime
contractor's pocketing whatever amount they're able to squeeze
out of their subcontractors. So if this bill was enacted into
law, can you explain how its bidding listing provision would
prevent contractors and suppliers from marking up the cost of
their services and products any way?
Mr. Swab. Hopefully I can. Mr. Barnhart mentioned that
there would be a real stressful situation involving his bid
team and the minutes leading up to the magical hour, which for
most bidders is 2 p.m., because as he stated, there's a lot of
price adjustment going on. What that price adjustment is, is
prebid bid shopping. I'm sure Mr. Barnhart's firm probably does
not engage in that. But I will routinely get a call at 20
minutes to 2 and be told that Joe Blow, electrical contractor
down the street, has me beat by $50,000. See if you can do
anything. So the price adjustments, if they've been made to one
GC--and Barnhart Corp. is a very good GC--if I'm going to make
that adjustment, I'm going to immediately get on the phone and
make sure the other contractors on that work get that same
number. That's why all of that price adjustment takes place.
Mrs. Biggert. Are these sealed bids?
Mr. Swab. In many cases the bids that are presented to the
Federal Government, yes, ma'am. Requests for proposals are
turned in at a date and time certain. The bids that take place
between suppliers, subcontractors and general contractors is
done verbally, and in most cases, over the phone, followed by
faxes, e-mails, or other forms of verification.
Mrs. Biggert. Thank you. My time is up. Thank you, Mr.
Chairman.
Mr. Horn. Thank you. We now yield to the gentleman from
Oregon, Mr. Walden, for 5 minutes for questioning.
Mr. Walden. Thank you very much, Mr. Chairman. Some of you
may know that Oregon's legislation recently enacted a similar
type of law, HB 2895, so we're seeing this take place, put into
action out in Oregon. And there are concerns by both
contractors and subcontractors about the implementation of that
particular law. I'm not sure specifically how it mirrors what's
being proposed here. But as I listen to the comments today, I
think from my own experience, which is not contracting but
broadcasting, and nobody likes the squeeze that you get put in.
I'm sure the subs don't like it and the generals and all that.
I get it from ad agencies that do exactly the same thing. So
maybe I should come here and get a Federal law to protect my
industry and myself from this. But what I'd like to do now is
yield my time to the Member from California.
Mr. Ose. I thank the gentleman from Oregon. I want to
explore something with Mr. Drabkin, and that is, in a Federal
project, the actual product is designed by an architect; is it
not?
Mr. Drabkin. It may or may not be, Mr. Ose. As you know, we
are now in the Federal Government finally catching up with
private industry and going to design-build.
Mr. Ose. In terms of the design-build, what people bid on
at any step in the process is well defined in terms of the end
product?
Mr. Drabkin. In terms of the outcome we desire, it's
defined, sir. But in terms of what that will actually look
like, when you use a design-build, you start without knowing.
Mr. Ose. So, if you will, your specifications then become,
by design, somewhat flexible. The objective being we are here,
we want to be there, how you get there, if you can substantiate
it, is your choice.
Mr. Drabkin. Yes, sir. Generally you would outline the
number of square feet that you might need, the type of office
space or space that this will ultimately be. And then you
will--other additional factors, if there's a special heating or
cooling requirement, etc., and then leave it to the talent of
the winning design-build team to design it, and then to
construct it.
Mr. Ose. If I recall correctly, let me just cite the most
apparent example of Federal construction, that's the Reagan
Building down here. Between the time we first put that building
out to bid and the time the turnkey was delivered, was that 2
years, 3 years?
Mr. Drabkin. I'm sorry I have no specific knowledge
regarding the Reagan Building, sir.
Mr. Ose. Let's say it's a year and a half, because it's a
big project. I bet up to a year and a half, it probably took
that long. Well, in a year and a half time, it would seem to me
that under a design-build process, the prime may very well not
lock down exactly how he or she will handle the 14th aspect on
day 1.
Mr. Drabkin. That's correct.
Mr. Ose. Would the listing that's proposed, or would the
intention of this bill as proposed, facilitate or complicate
the prime contractor's efforts to finish a project? Keep in
mind, because the prime contractor has got a delivery date,
they have to meet, and if they don't meet it, they're going to
suffer sanctions, does this legislation facilitate or
complicate the delivery of the product from the prime
contractor?
Mr. Drabkin. Effectively precludes the use of design-build
contracting as it's currently used in the private sector.
Mr. Ose. Is design-build--did you say the design-build is
State-of-the-art?
Mr. Drabkin. It's one of a number of ways of doing
business, but one which the government is trying to follow the
private sector in utilizing more and more of.
Mr. Ose. Let me then examine the more traditional approach
where you have a set of plans, everything is well defined, the
specs are in there and it will say product X or equivalent. The
contracting officer, as I understand it, has the discretion to
say this substitution is the equivalent of what's defined by
the architect; is that accurate?
Mr. Drabkin. In those types of contracts it is, but I point
to the committee that in accordance with the Congress's
guidance, we're trying to move to a use of performance specs,
but in your example, sir, you're absolutely correct.
Mr. Ose. So the suggestion I'm trying to get to is that a
prime contractor, an exercise of judgment in suggesting to a
subcontractor or allowing a subcontractor to substitute will
have to first go by the contracting officer in any case. It may
well be that that substitution allows the prime contractor to
deliver the project at a lower price; is that accurate?
Mr. Drabkin. That's accurate.
Mr. Ose. Thank you. Thank you, Mr. Chairman. I see Mr.
Walden's time is up.
Mr. Horn. Thank you. And we now turn to the ranking member,
the gentleman from Texas, Mr. Turner.
Mr. Turner. Mr. Chairman, I think I'll yield to Mr.
Kanjorski, let him followup on his earlier line of questions.
Mr. Kanjorski. Thank you, Mr. Chairman, Mr. Turner. Same
question to you, Mr. Drabkin. We do not want to inhibit modern
methodologies of construction either to save money or perform
things quickly. But can you give me any rationale, assuming we
have a straight prime contractor sealed bid award for the total
project cost, make the assumption the project comes in at $100
million, after he has assembled all his subcontractors and
supplier bids and come up with these figures that probably
represent, $88 million for the costs. And he's got his profit.
That's all well and good, but you're arguing it's going to cost
time, it's going to become cumbersome. And yet the problem is
if the general contractor goes out and dumbs down the bids of
the subcontractors and drives it down to $80 million on a $100
million project, why should the government not benefit from
that $8 million? Why should it go to the prime contractor?
Mr. Drabkin. There's no reason why the government shouldn't
participate in that savings, and that's one of the reasons why
we're moving away from sealed bidding.
Mr. Kanjorski. Absolutely. Let's not talk about--I happen
to be for construction management and processes like that. But
in the sealed bid process, if we just had this bill saying
henceforth, a direct bid by a prime contractor who reduces the
subcontractor's prices in that bid and therefore gains a better
price and a better profit because he doesn't change the
ultimate cost to the government, the government will get the
benefit of that profit. What's wrong with that?
Mr. Drabkin. With the government sharing in the----
Mr. Kanjorski. Getting the profit. If he's going to dumb
down to dumb contractor--or the contractor or subcontractors,
and if he's going to go to the suppliers and knock their price
down, why should that benefit go to the profit of the prime
contractor? Why should it not come to the government?
It seems to me, in listening to your testimony, you're on
the position that you don't want your agency to have more
responsibility, you don't want to have to do more work, and
it's very nice to appoint a dictator. And that's what you do.
The day the sealed bid is opened up and the general award is
made to the prime contractor, the U.S. Government has said this
is a $100 million project, you are the sole dictator. We're not
going to get involved. Go out. If you want to break Davis Bacon
rules, break them. If you want to go out and knock down the
subcontractor, break them. Other than that, you will have a
responsibility of oversight. And I think that's what we expect
from GSA. But all those things being the same, if he does go
out and get the subcontractor to give a lower bid, or the
supplier to give a lower bid, and therefore it costs him less,
why shouldn't that benefit go to the American taxpayer rather
the prime contractor?
Mr. Drabkin. There's no reason why, but I also make sure,
Mr. Kanjorski, you understand that if he breaks Davis Bacon,
he's got a problem with me. I am responsible for enforcing that
and I----
Mr. Kanjorski. In the Commonwealth of Pennsylvania, the
Department of Labor has one Representative with 22 counties out
of 67 counties, for a third of the State of the Commonwealth of
Pennsylvania. It's common, rather than bringing a person into a
job and treating him as a journeyman, he will treat him as
laborer and have him do a journeyman level work and pay him
significantly less and he does make more money. I am sure that
only happens in the Commonwealth of Pennsylvania and probably,
peculiarly, to my district. But you don't have any people out
on these jobs. I've got to tell you that. You have got a person
that comes by every 2 or 3 weeks checks out with the prime
contractor, what's going on, see if anybody has fallen off the
roof. And if they haven't, you're gone. You don't have the
personnel to do it. I understand that. I'm not knocking you. I
think general contractors are doing a pretty good job on the
whole. I'm not knocking those general contractors. I think we
have a percentage of bad actors. And the way to weed them out
is to say that if they use a good subcontractor in their
general contract bid and they are awarded the contract, that
subcontractor should be able to say that's what I'm going to
get paid. If I'm going to get paid any less, and you may have a
right to renegotiate, then the benefit will go to the American
taxpayer, not to the general contractor.
Mr. Drabkin. Mr. Kanjorski, any way we can share the
benefit and the savings or resultant reductions in cost to the
government, I agree with. I also point out to you sir, if I may
finish, that if there is a problem with the small percentage of
these contractors, the solution isn't a piece of legislation,
which is difficult to change. The solution is for me to work
harder with my contracting officers, to evaluate the
performance, and to weed these people out through the
competitive process, which we are being successful in doing.
And if we have a few more years, we'll have only great
contractors working with the government.
Mr. Kanjorski. Let me tell you something. I mentioned 1984
before, and the meetings and the conferences were held. If you
remember what happened in this country in 1980, then you know
why I referred to 1984. This was another way of turning the
system, privatizing the government's control of the system to
the private market. There's nothing wrong with it if that
financially benefited the taxpayer. But suddenly all of you
guys down at GSA, for 16 years, haven't realized that there's
bid shopping going on. The general contractor is knocking that
price down sometimes significantly 5 and 10 percent, and none
of that benefit is falling to the U.S. taxpayer. I think you
would have been in here running saying hey, there's some
practice out there in the field and if it occurs, we want a
subcontractor or a prime contractor to certify to us that he
did not get a lesser bid from a subcontractor. If he did, we
want the money back.
Mr. Drabkin. Sir, I've been at GSA for 6 weeks and in
another 6 weeks I'll be glad to come over to your office and
discuss with you any problems and work with you to solve them.
Mr. Kanjorski. Didn't they have anybody over there that's
been there a few more?
Mr. Drabkin. I think I was the only one they wanted to send
over this morning. Something about being the new guy on the
block.
Mr. Kanjorski. I was going to make the comment, you said
you came from the Defense Department. I don't think that's the
most notorious department in the world for getting cheap prices
in construction.
Mr. Drabkin. Sir, I don't represent them anymore.
Mr. Kanjorski. My time has expired, Mr. Chairman.
Mr. Horn. Does the gentleman from Indiana, the chairman of
the full committee, wish to question the witnesses at this
point?
Mr. Burton. I'm afraid to get started. Mr. Kanjorski and I
might end up in fisticuffs, so I'll yield to Mr. Ose.
Mr. Ose. I thank the full chairman. I want to ask my friend
from Pennsylvania--I mean, I've spent a lot of my productive
life building things. And I'm just--I--I'm struck, it must be a
different universe. I'm curious, you must have built something
in Pennsylvania that gave you this bad experience.
Mr. Kanjorski. Personally or you mean as a Member of
Congress?
Mr. Ose. Well, personally.
Mr. Kanjorski. I've been involved in construction and
representing contractors as a lawyer for about 20 years. And
I've handled both sides of the cases, and my law firm had the
definitive Supreme Court decision of the Commonwealth that, in
fact, a subcontractor's bid used by a general contractor and
submitted as a bid for a general contractor is a contract. And
he has an obligation then to pay the subcontractor. That's, in
general, private work, not in government work. The one point I
do want to point out to you, I think you are from California,
aren't you?
Mr. Ose. Oh, yes, last time I checked.
Mr. Kanjorski. Your State seems to be one of the most
enlightened States. They have this legislation. They are doing
excellent work, very successful. And Mr. Barnhart here appears
to me to be an extraordinary, successful general contractor
from San Diego, and he's surviving under this onerous type of
law that would disclose your subcontractors.
Mr. Ose. Let me reclaim my time and ask another question.
While I am not an attorney, I have great respect for those that
are, but I will tell you that what I lack in courtroom
experience, I more than make up in field experience. And I can
tell you, completing the project on time on budget is far
different than arguing the nuances or the niceties of a
contract, and its terms in a courtroom. And I don't, I'm not--
--
Mr. Kanjorski. Would the gentleman yield?
Mr. Ose. I'd be happy to. I want to make a point though.
It's two different arenas.
Mr. Kanjorski. I agree with you. Mr. Barnhart had suggested
that a lot of times in the subcontracting field and whatnot, to
do away with some of these people would be beneficial. And I
could maybe suggest to do away with some lawyers would be
beneficial too.
Mr. Ose. And I would pile on and say some developers too.
If I may--I want to kill the phone. I want to explore
something. This legislation is focused on situations where we
are talking about a bid or an award that's been made, and then
there are savings that the prime contractor may have recognized
after the fact and gone back to the subs to try and implement.
It does not talk about the reverse situation where a prime
contractor, or the amount of money originally set aside or
segregated for an award, proves either to be a mistake or
inadequate.
So I'm curious, how would this legislation govern
situations, Mr. Chairman, where the final bid comes in at a
price higher than the allowed amount and the prime contractor,
in order to actually complete the award process, must go back
to the subcontractors and ask for some adjustments.
Mr. Horn. You want to ask that to the panel?
Mr. Ose. Mr. Drabkin.
Mr. Drabkin. I'm not sure I understand, Mr. Ose, your
point.
Mr. Ose. Let me be more specific. Let's say GSA says we've
got $5 million to build this project. We're going to accept
awards at 2 p.m., on such and such a date, for the completion
by such and such a date of the bids coming in and it's $5.5
million at the lowest responsible bid. Now, under this
legislation, the prime contractor is not able to go back and
negotiate without----
Mr. Drabkin. The prime contractor would be precluded from
bidding. Because if we set the number at $5 million in a
design-to-cost scenario--this is another way to manage our
dollars--he could not submit a bid above $5 million. So he
would then be out of the competition.
Mr. Ose. As would everybody else, because that's the
lowest--we'd be stuck in a position where, boom, we're not
going to get the product.
Mr. Swab.
Mr. Swab. That's where the term BAFO comes from. The
Federal Government will routinely come back if the work indeed
is worth $5\1/2\ million. There's aspects of the design that
lead to that cost. The government will issue an amendment, they
will adjust certain aspects of the job and they will come back
for what's called a best and final offer, where they anticipate
that adjustments will be made based on the design changes, and
there will be pricing changes accordingly. The general
contractor has the BAFO come back to them, they necessarily go
to the subcontractors if it involves some speciality; typically
it will be mechanical and electrical because those are the most
important or expensive parts of a project if it's not the
structure itself, and ask for a repricing of the job, based on
the new specification. There are many cases, however, where a
very minor amendment will be made and the BAFO process is then
kicked off and the government comes back again. In cases where
it goes once, we call it a BAFO. In cases where it happens
twice, we call it a BARFO, best and real final offer.
Mr. Drabkin. With all due respect to my colleagues, and
make sure it's clear in the record, there is no longer anything
in Federal Government contracting called BAFO. We specifically
changed it to deal with the point Mr. Swab makes when we
rewrote FAR 15 in 1997. So that process doesn't occur. In
response to your question, they wouldn't be able to submit a
bid, so there would be no further discussion with them if they
couldn't come in at the dollar figure we said they had to come
in at.
Mr. Ose. I see my red light on. My point is that it seems
to me that this legislation puts in place that it's OK to have
adjustments when prices rise, but it's not OK when they fall.
So with that, Mr. Chairman----
Mr. Horn. Mr. Drabkin, I'm interested in the degree to
which the Clinger-Cohen legislation changes the dynamics of
what you are now working under by GSA. Since you came from the
Pentagon, I assume I have some experience with that. Tell me a
little bit about it. Is GSA going to take advantage of that?
That's why the legislation was there, to get responsible people
and to get flexibility in doing it.
Mr. Drabkin. One of the things that all of the civilian
agencies have been working with is how to implement the
requirements of Clinger-Cohen with regard to the acquisition
work force. As you know, the Defense Department had DAWIA,
which was passed in about 1990, I think 1991. We have--GAO has
been to GSA and to the Veteran's Administration, and observed
how the implementation was proceeding. We were found wanting in
a number of areas. Those are the prime interests I have is
dealing with the work force. In fact, it's the only resource we
have to deal with the problem that Mr. Kanjorski's bill
addresses and other issues associated with acquisition. We have
to get our people educated, less than 40 percent of my
acquisition work force meets the education requirements.
I have to find a way to get the resources to help them get
the education. They need training tools. They need stuff that's
available to them just in time. I can't afford to send them to
school for 4 weeks. And the Department of Defense, we had a
different culture, in sending people away to school for 4 weeks
was an accepted thing. In the civilian agencies it's not.
So it is the very top priority I have as the deputy
administrator for acquisition policy, it's the problem which
I've already realized I have a resource problem in dealing
with, and it's one which I hope we can talk about at a
subsequent hearing or a meeting, because it's something we
really need help with. It's something that will pay benefits in
large dollars. In dealing with the problems we've discussed
here and in dealing with other issues associated with Federal
contracting.
Mr. Horn. Well, I'm glad to hear your commitment in this,
because when I came here in 1975 and we had the majority, that
was one of the things I wanted to really push. And you're
absolutely right, we don't know enough in the civilian sector
to train and educate people, and those are the people that we
either make it with or don't make it with. And that's our
capital infrastructure, if you will, the human being. And the
Pentagon is way ahead of everybody else and that, as you quite
correctly say, we ought to be doing more, so I'll be glad to
talk to you about that.
Let me just ask the panel that are subcontractors, curious,
how often do the general contractors require subcontractors to
sign exclusive agreements now? This is just based on your own
experience. Can we just go down the line?
Mr. Swab, you're a subcontractor. And then Mr. Petzen, and
Mr. Fuqua, and also, Mr. Dunleavy. So I'd be interested in what
your experience is. How much of a problem is this?
Mr. Swab. Are you referring, sir--you say sign an exclusive
agreement.
Mr. Horn. Yeah, if they've got an exclusive agreement or if
they play the games that Mr. Kanjorski has identified.
Mr. Swab. What common practice is in our experience is all
general contractors, and rightfully so, this is a competitive
process, are looking for an edge. They are hoping that someone
in that process, let's say there are the electrical
contractors, they're hoping one of those guys jumps out of the
pack, either has a very good source for pricing a particular
item on the job or, as the case is in many cases, makes a
mistake. If he happens to be 10 percent under the market, for
example, you will get a very quick call back from a general
contractor asking if you've called your price out to anyone
else. And if you State well, no, at the time I haven't, they'll
say well, please, we're going to use you on this contract, but
make sure you don't give this price to anyone else. Allow it to
be our edge.
That happens if you happen to separate yourself from the
pack. If all eight contractors are within 2, 3, 4 percent, they
then have a very good idea what the job is worth, they won't
bother to talk to anyone until after they have a contract
awarded.
Mr. Horn. Mr. Petzen, how about your experience?
Mr. Petzen. I'm still waiting.
Mr. Horn. You'd be glad to have that call.
Mr. Petzen. I would like to have that call. That would be
interesting to have someone commit to me early days instead of
when they've waited too long for the project to be delivered on
time, which is more the case.
Mr. Horn. Mr. Fuqua.
Mr. Fuqua. We've had several calls. Generally they don't
work out. Promises are promises. And we now, at this point in
our relationship, we choose not to get into those things if we
can avoid it.
Mr. Horn. Mr. Dunleavy.
Mr. Dunleavy. Mr. Chairman, I'm not saying that it never
happens, it does happen that there is a commitment on bid day.
It happens very rarely. I'm told that it does not happen as
frequently as it used to happen, by my older colleagues who
have been in business longer than I have which are getting
fewer and fewer every day. I do--I think it's important to
point out as well that one of the indirect results of bid
shopping is an upward pressure on the final cost of the project
as a result of change orders. It is true that in the market we
deal in, the margins are getting extremely low. In fact, it's
not uncommon where a subcontractor and perhaps even general
contractors I've heard of taking jobs at no markup in
anticipation of marking up on the base contract work, plus the
change work that will justify a markup for the entire project.
So I think if the GSA and the government is interested in
budget and price, they should look to this bill as an aid in
helping keep down the final cost by having a less adversarial
relationship between the subcontractor, general contractors and
the government, and try to underpin the partnering aspect that
GSA likes to engage in in its projects currently.
Mr. Horn. We have a vote coming on the floor. So this will
be the last round of questioning for the next 10 minutes.
Mr. Barnhart, you testified that the State of California is
moving away from its bid listing law. And I wonder, Mr. Fuqua
is head of a California contracting company. What are your
thoughts on this? And to what degree have you seen that change
in California policy?
Mr. Fuqua. This bid listing in California has worked as far
as my company is concerned. I don't have the statistics on the
rest of our association, but I would be happy to get them and
send them to your committee.
Mr. Horn. Without objection, it will be put in the record
at this point. Thank you.
Any other questions? Some of you, especially the
subcontractors, since that's the reason for this legislation,
do you have any other suggestions you'd like to put on the
record?
Mr. Swab. Mr. Horn, there are nine States and the
Congressperson states that Oregon has just adopted this type of
legislation. So there are now 10 States that have public bid
listing requirements. Those are Arkansas, California,
Connecticut, Delaware, Florida, Massachusetts, New Mexico, New
York and South Carolina. I would think that the staffs would be
able to go back to those procurement agencies and see, in the
real world, if they have noticed a reduction in their per-
square-foot cost of construction, since they put this
legislation in place.
Mr. Horn. Mr. Petzen, do you have any additional ideas for
the record?
Mr. Petzen. No, I would just make a comment, Mr. Chairman,
that the statement to Mr. Barnhart makes it in this business is
based on relationships. He's absolutely right. Unfortunately,
in too many instances, the general contractors that comprise
the list of bidding primes deal with subcontractors on an
adversarial relationship. It's an us-against-them situation
before the bid, during the process of constructing the job, and
also in collecting moneys. Would that it were not so. But
that's what I deal with on a day-in/day-out basis. It's an
adversarial relationship. This legislation probably won't
completely cure that. There will still be bid shopping and
peddling going on before the bid. But this legislation is
designed to help someone like me who expends a great deal of
time, effort and money in putting these bids together for the
general contractors so they can write this business, and
hopefully use our number if we're successful in providing the
right number so that everyone comes out as a winner.
Currently, that's not the case. If I take a general
contractor to the dance, if you will, by virtue of having the
right price on bid day, with the right scope of work, I feel
like I should be entitled to work the job and perform that
scope of work. If that's not the case, why did we go through a
bid process at all?
Mr. Horn. Mr. Fuqua, what would you like to leave in this
record as something we ought to be considering?
Mr. Fuqua. Well, as far as the Federal construction goes,
they're probably one of the biggest consumers of construction
dollars. I have figures here that show $16.6 billion used last
year.
Mr. Horn. Will the clerk adjust the microphone.
Mr. Fuqua. I have a figure here that shows $16.6 billion on
building construction alone in the last year. If we could save
some of that, if we saved only 1 percent of that for the
Federal Government through this legislation, we're talking $166
million. That's a lot of money for the taxpayers.
Mr. Horn. Mr. Dunleavy, your last word on this.
Mr. Dunleavy. Nothing additional comes to mind Mr.
Chairman.
Mr. Horn. OK. Mr. Barnhart. What's your last word on this?
Mr. Barnhart. Thank you, Mr. Chairman. I'd like to make
three points. First of all, responsible general contractors are
not looking for the lowest bid. And we're not looking for the
person that makes mistakes because we have to build the
project, and we have to build it on time. We're looking for the
correct bid from the responsible subcontractor because that's
the way we get this stuff done. Second of all, there are
exclusive arrangements being arranged because in the design-
build arena, each project is unique that's being submitted to
the government.
Now, my firm, we're not going to enter into an agreement
with a design-build electrical subcontractor or design-build
mechanical subcontractor who can then go and talk to our
competitors. It is an exclusive lockdown arrangement, because
the designs are specific, there are designs and then the
government--you know, the government selects which one is the
best. So anyone who tells you that those exclusive was
agreements aren't in place needs to go back and review the
record, because I don't see how you do a design-build without
an exclusive agreement with some of them. You don't have an
exclusive agreement with the painter, maybe because you haven't
decided what color you're going to paint the walls.
Third of all, the Congressman is exactly correct when he
talks about oral contracts on bid day. When a person bids our
firm, by law, if they're over 15 percent low, we have to call
that person back and say you are too low on the project, will
you please review your bid. If not, you cannot hold them
legally to the bids because you're deemed to have superior
knowledge about your other bids. Now invariably, that person
will say well, how low am I, and what's the other number? So
the cat-and-mouse game that's played is you do not want to give
out that other number. You just say you're too low or we
wouldn't be calling you. Go back and----
Mr. Horn. Thank you. We're going to have to go to vote. I
want to give the last word to the author, Mr. Kanjorski of
Pennsylvania. You have 5 minutes. I'm going to go vote. We'll
put the record of the excellent staff like Mr. Caplan that have
put this together. And you will have the last word.
Mr. Kanjorski. I won't take too many minutes. The four
subcontractors, if we listen to Mr. Barnhart, this bid peddling
doesn't happen very often, and GSA is totally unaware of that
circumstance. Because it only happens in my congressional
district. But I want to ask the 4 subcontractors. How prevalent
is bidding and peddling after the bid to subcontractors, in
your experience, in the last 16 years since the regulations
have been changed?
Mr. Swab. I can only speak for the market in this
particular area and it is very prevalent.
Mr. Kanjorski. It's more common than not?
Mr. Swab. It is a normal practice. Yeah, it is unusual if
does not happen.
Mr. Kanjorski. Mr. Petzen.
Mr. Petzen. Congressman, in my experience it is the order
of the day. The first rule is shop the bids, get them peddled.
The second rule is if you have any questions, go back to rule
1.
Mr. Kanjorski. Mr. Fuqua.
Mr. Fuqua. I just reiterate what Mr. Petzen said, it's
exactly the same thing. It's even away from the Federal work on
the private work in California, it's unbelievably rampant.
Mr. Kanjorski. Pull the microphone.
Mr. Fuqua. I said even on private work in the State of
California, it's unbelievably rampant.
Mr. Kanjorski. Mr. Dunleavy.
Mr. Dunleavy. Mr. Kanjorski, it's persuasive in mine and
Mr. Swab's market.
Mr. Kanjorski. So listening to the testimony on the four
subject contractor representatives here, we live in a different
world than Mr. Barnhart and Mr. Drabkin live in. They're not
aware that it's this pervasive and the government's
Representative says gee, this isn't a problem at all. So would
it be right for me to conclude that the testimony here of the
four subcontractors is that this is not only common, it's
pervasive, it's after the bid is awarded, and that it causes a
loss to the subcontractors and the benefits derived by the
prime contractor of driving down that subcontractor price does
not inure to the Federal Government or the taxpayers, is that
correct?
Mr. Petzen. That is correct. If that benefit did go from
the general contractor to the Federal Government, I don't know
that anybody at this panel would have a problem with that.
Certainly they shouldn't. However, if Mr. Barnhart, in his
company, does not engage in these practices, then I'd like to
be on his subcontract bid list.
Mr. Kanjorski. OK. Thank you, Mr. Chairman.
Mr. Ose [presiding]. Thank you, Mr. Kanjorski. We are going
to leave the record open for questions for 2 weeks. We would
like to thank all the witnesses. Appreciate you coming. And
with that, we're adjourned.
[Whereupon, at 11:55 a.m., the subcommittee was adjourned.]
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