Number range CHAPTER**FACILITIES DIVISION**

**Policy Guidance Memorandum**

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| **DATE: January 30, 2003**                                            |
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| **SUBJECT: Guidelines for Separately Priced Line Items**              |
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| **in Construction Projects**                                          |
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| **NUMBER: PGM-03-001**                                                |
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| **EFFECTIVE DATE: Immediately Until Replaced or Superseded**          |
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**1. [Purpose]{.underline}**

> This Policy Guidance Memorandum provides guidance on the use of
> separately priced line items in construction projects.

**2. [References]{.underline}**

> AGAR 436.205 and 452.236-70, Statutory Cost Limitations
>
> FAR 17.2, Options
>
> FAR 36.205, Statutory Cost Limitations
>
> P&P 242.2, Facilities Construction Authorities
>
> P&P 242.4M, Major Facilities Construction Manual

**3. [Definitions]{.underline}**

> [Appropriation Limitations]{.underline}: The appropriation limitations
> specified in the various construction authorizations include the cost
> of all services and materials that normally would be acquired by
> contract that are reasonable and necessary to construct, alter, or
> improve buildings including the design, fixed equipment, utility
> systems, site development, and other costs necessary to provide a
> complete and usable facility. The appropriation limitations include
> administrative and/or monitoring costs such as predesign, design
> review, bid phase, or quality assurance services performed by
> contract.
>
> [Separately Priced Line Items]{.underline}: Items of work in the
> solicitation that may be added or deducted from the base line item at
> time of award or separately priced option line item(s) that may be
> exercised after contract award. Exclusion of any separately priced
> line item(s) from a contract award must result in the end product
> being a usable facility.
>
> [Base Line Item]{.underline}: The first line item of work in a
> solicitation (Section B, Schedule of Items) that provides sufficient
> features of construction for a complete and usable facility.
>
> [Estimated Construction Cost (ECC)]{.underline}: The cost for all
> labor, material, and fixed equipment associated with actual onsite
> construction of the facility.
>
> [Option Line Items]{.underline}: Items of work in the solicitation
> that may be exercised after contract award through a contract
> modification. They are in addition to the base line item and are
> called out separately in the project documents. If these items are not
> exercised, it would not adversely affect the usability of the
> facility.
>
> [Usable Facility]{.underline}: The end product resulting from an
> individual construction, alteration, or improvement project that can
> be used to accomplish the intended program mission. The facility must
> be fully operational and include the necessary utilities, such as
> electricity, water and sewer, heating, ventilation, and
> air-conditioning, as well as all necessary fixed equipment, such as
> cabinets, benches, and other items that are permanently attached to
> the building and capitalized as part of the facility.

**4. [Background]{.underline}**

> Each individual construction, alteration, or repair project that is
> initiated to accomplish the program mission must result in a complete
> and usable facility. When it appears that funds available for a
> project may be insufficient for all desired features of construction,
> the solicitation may provide for a base line item that encompasses the
> work generally specified and one or more additive, deductive, or
> option line items which progressively add or omit specified features
> of work in a stated order of priority.

**5. [General Guidance for Separately Priced Line Items]{.underline}**

a\. It is the responsibility of the Contracting Officer (CO),

> in consultation with the Location staff, Engineering

Project Manager (EPM), and A-E firm, to determine the

method of procurement and the appropriate use of

separately priced line items. The provisions at

AGAR 436.205 and the clause at AGAR 452.236-70, as well

> as FAR 17.2, contain further guidance and must be
>
> followed.
>
> b\. All solicitations for construction projects subject to

appropriation limitations (see P&P 242.2, Facilities

Construction Authorities) must comply with the following:

> 1\. Additive, deductive, and option line items shall be

used only as necessary, and are to be in addition to

the base line item.

2\. The base line item shall consist of sufficient

features to ensure construction of a usable facility.

3\. The base line item and all additive, deductive, and

option line items must not exceed 100 percent of the

ECC.

> c\. The CO and EPM must review design documents to ensure

that separately priced line items are included only when

necessary and that such items of work are clearly

identified in the solicitation's Schedule of Items,

specifications, drawings, cost estimates, and contract

performance times.

> The EPM must ensure that the scope of the base line item contains
> sufficient features to ensure construction of a complete and usable
> facility and that use or exclusion of separately priced line items
> will not adversely affect any resultant facility. Additive and option
> line items are preferred over deductive line items because they are
> less confusing and result in more competitive prices. However, there
> is no prohibition on the use of deductive line items.
>
> d\. In developing the Schedule of Items with additive or
>
> option line items, the value of the base line item may be 90 to 95
> percent of the ECC with at least one additive or option line item
> valued at 5 percent of the ECC. Due to construction market
> uncertainty, it is highly desirable to have the sum of all additive or
> option line items approach 10 percent of the ECC. In all cases, the
> base line item and all additive or option items must not exceed 100
> percent of the ECC.
>
> Additive line items must be listed in order of decreasing priority.
> The first additive line item should be the highest priority or most
> important and the last line item would be the lowest priority or least
> important. Option line items are not required to be in priority order.
>
> The work specified in additive line items that was not included in the
> basic contract award may not be awarded afterwards through a contract
> modification in accordance with AGAR. However, a contract that
> contained option line items can be modified to exercise those options
> that were not included in the basic contract award, but a timeframe
> must be specified for the exercise of each option line item.

e\. In developing schedules with deductive line items, the value of the
base line item must be equal to 100 percent of the ECC and the sum of
all deductive line items may be equivalent to 10 percent of the ECC. In
all cases, the project shall be designed within the amount of funds
programmed for the work and shall not exceed 100 percent of the ECC.

Deductive line items must be listed in order of increasing priority with
the first deductive line item being the lowest priority or least
important and the last line item being the highest priority or most
important.

6.  **[Evaluation of Bids or Proposals with Alternate Line
    Items]{.underline}**

    Evaluation of bids and proposals that contain additive or deductive
    line items must comply with the provisions of

    AGAR 436.205 and 452.236-70. Solicitations containing option line
    items must include the appropriate clauses and provisions as
    required by FAR 17.208, Solicitation Provisions and Contract
    Clauses, and be evaluated accordingly.

7.  **[Point of Contact]{.underline}**

    For further information, please contact the Facilities Contracts
    Branch on 301-504-1171.

    /s/ Patrick G. Barry

    \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

    PATRICK G. BARRY

    Director

    Facilities Division