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[Senate Report 114-366]
[From the U.S. Government Publishing Office]

                                                      Calendar No. 656
                                                      
114th Congress    }                                        {    Report
                                 SENATE                          
 2d Session       }                                        {    114-366
_______________________________________________________________________

                                     

                                                       

       CONSTRUCTION CONSENSUS PROCUREMENT IMPROVEMENT ACT OF 2015

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON HOMELAND SECURITY AND

                          GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                              to accompany

                                S. 1526

  TO AMEND TITLE 10 AND TITLE 41, UNITED STATES CODE, TO IMPROVE THE 
MANNER IN WHICH FEDERAL CONTRACTS FOR CONSTRUCTION AND DESIGN SERVICES 
  ARE AWARDED, TO PROHIBIT THE USE OF REVERSE AUCTIONS FOR DESIGN AND 
  CONSTRUCTION SERVICES PROCUREMENTS, TO AMEND TITLE 31 AND TITLE 41, 
  UNITED STATES CODE, TO IMPROVE THE PAYMENT PROTECTIONS AVAILABLE TO 
   CONSTRUCTION CONTRACTORS, SUBCONTRACTORS, AND SUPPLIERS FOR WORK 
                   PERFORMED, AND FOR OTHER PURPOSES
                   
                   

                October 27, 2016.--Ordered to be printed
Filed, under authority of the order of the Senate of September 29, 2016

                           _________ 
                                  
            U.S. GOVERNMENT PUBLISHING OFFICE
 69-010              WASHINGTON : 2016       

        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                    RON JOHNSON, Wisconsin, Chairman
JOHN McCAIN, Arizona                 THOMAS R. CARPER, Delaware
ROB PORTMAN, Ohio                    CLAIRE McCASKILL, Missouri
RAND PAUL, Kentucky                  JON TESTER, Montana
JAMES LANKFORD, Oklahoma             TAMMY BALDWIN, Wisconsin
MICHAEL B. ENZI, Wyoming             HEIDI HEITKAMP, North Dakota
KELLY AYOTTE, New Hampshire          CORY A. BOOKER, New Jersey
JONI ERNST, Iowa                     GARY C. PETERS, Michigan
BEN SASSE, Nebraska

                  Christopher R. Hixon, Staff Director
                Gabrielle D'Adamo Singer, Chief Counsel
       Patrick J. Bailey, Chief Counsel for Governmental Affairs
    Ann F. Van Houten, U.S. Department of Homeland Security Detailee
              Gabrielle A. Batkin, Minority Staff Director
           John P. Kilvington, Minority Deputy Staff Director
               Mary Beth Schultz, Minority Chief Counsel
         Brian F. Papp, Jr., Minority Professional Staff Member
                     Laura W. Kilbride, Chief Clerk
                     
                     
                     
                     
                     

                                                       Calendar No. 656
                                                       
114th Congress     }                                       {    Report
                                 SENATE
 2d Session        }                                       {   114-366

======================================================================

 
       CONSTRUCTION CONSENSUS PROCUREMENT IMPROVEMENT ACT OF 2015

                                _______
                                

                October 27, 2016.--Ordered to be printed

Filed, under authority of the order of the Senate of September 29, 2016

                                _______
                                

 Mr. Johnson, from the Committee on Homeland Security and Governmental 
                    Affairs, submitted the following

                              R E P O R T

                         [To accompany S. 1526]

    The Committee on Homeland Security and Governmental 
Affairs, to which was referred the bill (S. 1526) to amend 
title 10 and title 41, United States Code, to improve the 
manner in which Federal contracts for construction and design 
services are awarded, to prohibit the use of reverse auctions 
for design and construction services procurements, to amend 
title 31 and title 41, United States Code, to improve the 
payment protections available to construction contractors, 
subcontractors, and suppliers for work performed, and for other 
purposes, having considered the same, reports favorably thereon 
with an amendment (in the nature of a substitute) and 
recommends that the bill, as amended, do pass.

                                CONTENTS

                                                                   Page
  I. Purpose and Summary..............................................1
 II. Background and Need for the Legislation..........................2
III. Legislative History..............................................4
 IV. Section-by-Section Analysis......................................4
  V. Evaluation of Regulatory Impact..................................5
 VI. Congressional Budget Office Cost Estimate........................5
VII. Changes in Existing Law Made by the Bill, as Reported............6

                         I. Purpose and Summary

    S. 1526, the Construction Consensus Procurement Improvement 
Act of 2015, seeks to improve the procedure that civilian 
agencies use to select construction companies to perform design 
and construction projects. The bill reduces Federal Government 
documentation requirements, reduces costs for construction 
companies bidding on Federal contracts, and ensures that the 
Government does not use a reverse auction to establish a fair 
and reasonable price for certain construction contracts.

              II. Background and the Need For Legislation

    Currently, many Federal construction contracts are awarded 
using a two-phase ``design build'' procedure.\1\ The first 
phase begins with an agency soliciting general design and 
background information from construction companies.\2\ The 
agency then reviews the information and selects a subset of the 
companies to participate in the second phase of the selection 
process.\3\
---------------------------------------------------------------------------
    \1\Joseph C. Kovars, Barbara R. Gadbois and John R. Heisse, Turning 
a Battleship: Design-build on Federal Construction Projects, Ober-Kaler 
(2011), http://www.ober.com/publications/1172-turning-battleship-
design-build-federal-construction-projects.
    \2\Virginia E. Mitchell, Two-Phase Design/Build Selection Process 
Speeds Contract Review, U.S. Army AL&T Magazine (June 2011), http://
www.army.mil/article/58694/Two-Phase-Design-Build-Selection-Procedure-
Speeds-Contract-Review/.
    \3\Id.
---------------------------------------------------------------------------
    In the second phase, the agency requests detailed design 
and cost information from the selected companies, evaluates 
that information, determines a fair and reasonable price, and 
awards the contract to the company that will provide the best 
value to the Government.\4\
---------------------------------------------------------------------------
    \4\Id.
---------------------------------------------------------------------------
    While this two-phase design build procedure is generally 
useful, it has several downsides. First, for smaller projects, 
the requirement that the contracting officer confirm that ten 
criteria were reviewed and satisfied before beginning the two-
phase procedure can be onerous both for the Government and the 
contractors.\5\
---------------------------------------------------------------------------
    \5\FAR 36.301 Use of two-phase design build selection procedures 
(1997).
---------------------------------------------------------------------------
    Second, the contracting officer must consider not less than 
five bidders in the second phase of the procedure.\6\ Some 
estimate that it costs a company between $50,000 and $100,000 
to submit the full design documentation required at this stage 
of the procedure.\7\ When a contracting officer includes 
bidders in the second phase of the process that do not have a 
reasonable chance of winning the contract, it wastes their time 
and money.
---------------------------------------------------------------------------
    \6\FAR 36.303-1(a)(4) (1997).
    \7\Virginia E. Mitchell, Two-Phase Design/Build Selection Process 
Speeds Contract Review, U.S. Army AL&T Magazine (June 2011), http://
www.army.mil/article/58694/Two-Phase-Design-Build-Selection-Procedure-
Speeds-Contract-Review/.
---------------------------------------------------------------------------
    Finally, the design build procedure outlined in statute and 
detailed in the Federal Acquisition Regulation (FAR) lack 
guidance on how to determine a fair and reasonable price. 
Without this guidance, a contracting officer could use a 
reverse auction to determine a fair and reasonable cost to the 
Government.\8\ In a reverse auction, the sellers continually 
lower their prices in order to win the award, as opposed to a 
regular auction where buyers raise their offers until they win 
the item for sale.\9\ To win the auction, in most cases the 
company must be the low bidder at the end of the auction.\10\ 
While this procedure generally results in a low price for the 
item, the quality of the product, delivery terms, and other 
important features may be lacking.\11\ Therefore, reverse 
auctions are not appropriate for design build contracts that 
require design concepts, key personnel and technical 
solutions.\12\
---------------------------------------------------------------------------
    \8\FAR 36.303-2(b) (1997).
    \9\Reverse Auctions, What are Reverse Auctions?, (2008), http://
reverseauctions.com/index.html.
    \10\Gov't Accountability Office, GAO-14-108, Guidance is Needed to 
Maximize COMPETITION AND Achieve Cost Savings 3 (2013), http://gao.gov/
assets/660/659530.pdf.
    \11\Id.
    \12\FAR 36.303-2(a) (1997).
---------------------------------------------------------------------------
    The Government Accountability Office (GAO) recommended that 
the Director of the Office of Management and Budget issue 
guidance on the appropriate use of reverse auctions in a 2013 
report.\13\ While in 2015, the Office of Federal Procurement 
Policy (OFPP) issued a memorandum mentioning reverse auction 
guidance, OFPP has failed to include reverse auction policy 
within the FAR.\14\ Without a FAR provision, agencies may use 
reverse auctions to set prices for design build contracts or to 
contract for building materials using the reverse auction 
process. For example, concerns with the use of reverse-auctions 
were highlighted when the United States Army Corps of Engineers 
issued a policy to stop using reverse auctions for construction 
contracts after finding that the reverse-auction methodology 
did not work for construction contracts due to their high 
degree of variability, and that they did not deliver promised 
savings.\15\
---------------------------------------------------------------------------
    \13\Gov't Accountability Office. GAO-14-108, Guidance is Needed to 
Maximize Competition and Achieve Cost Savings, http://www.gao.gov/
products/GAO-14-108.
    \14\Office of Federal Procurement Policy. Memorandum on Effective 
Use of Reverse Auctions (June 1, 2015), https://www.whitehouse.gov/
sites/default/files/omb/procurement/memo/effective-use-of-reverse-
auctions.pdf.
    \15\Press Release, Joint-Hearing Finds The Use Of Reverse Auction 
Contracts Limits Competition, Increases Costs For Taxpayer, H. Comm. on 
Small Business, Subcomm. On Contracting & Workforce (Dec. 11, 2013), 
http://smallbusiness.house.gov/news/
documentsingle.aspx?DocumentID=364146.
---------------------------------------------------------------------------
    According to a study commissioned by the Department of 
Transportation, the use of the design build procurement process 
has been steadily increasing in the United States public 
building sector for more than ten years.\16\ Most of the design 
build contracts surveyed used the two-phase selection procedure 
because it assessed qualitative factors rather than relying 
solely on the low-cost bid.\17\ A 2013 report by Reed 
Construction Data corroborated this finding when it reported 
that more than 80 percent of the Department of Defense's 
construction projects were awarded using the design build 
procedure.\18\ The report also found that slightly more than 30 
percent of all government construction projects used the design 
build procedure in 2012.\19\ Based on the body of support for 
two-phase design build procurements, it is important to address 
the flaws that may keep civilian agencies from using this 
procurement process for most of their construction contracts.
---------------------------------------------------------------------------
    \16\U.S. Dep't of Transp. Fed. Highway Admin. Office of Int'l 
Programs, Design-Build, http://international.fhwa.dot.gov/
contractadmin/04.cfm (last visited Oct. 24, 2016).
    \17\Id.
    \18\Tim Duggan & Darshan Patel, Design-Build Project Delivery 
Market Share and Market Size Report (May 2013), http://www.dbia.org/
resource-center/Documents/rsmeansreport--2013rev.pdf.
    \19\Id.
---------------------------------------------------------------------------
    S. 1526 addresses the flaws in the current design build 
process to expand its use to award civilian construction 
contracts. First, the bill requires the use of the two-phase 
process for all construction projects over $750,000. This 
eliminates the documentation requirement for many civilian 
agency construction projects. Second, the bill discourages the 
contracting officer from including more than five construction 
companies in the second phase by requiring the agency to report 
to Congress all design build procurements that allow more than 
five firms to participate in the second phase of the design 
build procedure. Third, S. 1526 prohibits reverse auctions as 
part of the two-phase design build selection procedure. This 
prevents agency contracting officers from experimenting with 
inappropriate methods to determine a fair and reasonable price.

                        III. Legislative History

    S. 1526, the Construction Consensus Procurement Improvement 
Act of 2015, was introduced on June 8, 2015, by Senators Rob 
Portman (R-OH) and Mazie Hirono (D-HI). Senators Kelly Ayotte 
(R-NH) and Jeanne Shaheen (D-NH) joined as cosponsors on July 
8, 2015, and August 5, 2015, respectively. The bill was 
referred to the Committee on Homeland Security and Governmental 
Affairs.
    The Committee considered S. 1526 at a business meeting on 
February 10, 2016. During the business meeting, Senator Portman 
offered a modified substitute amendment, which made 
improvements to the bill and removed language that had already 
been enacted into law through the Fiscal Year 2015 National 
Defense Authorization Act, Public Law 113-291, enacted December 
19, 2014. The Committee approved the bill, as modified by the 
Portman modified substitute amendment, en bloc by voice vote. 
Members present for both the vote on the amendment and on final 
passage were: Johnson, McCain, Portman, Paul, Lankford, Ayotte, 
Ernst, Sasse, Carper, McCaskill, Tester, Baldwin, Heitkamp, 
Booker, and Peters.

       III. Section-by-Section Analysis of the Bill, as Reported

Section 1. Short title

    This section establishes the short title of the bill as the 
``Construction Consensus Procurement Improvement Act of 2015.''

Section 2. Congressional findings

    This section makes six findings: (1) acquisition procedures 
that are often used effectively for the procurement of other 
products and services are not always appropriate for design and 
construction services; (2) the Federal Government often 
effectively adopts contracting techniques from the private 
sector to procure products and services; (3) the design-build 
technique is a private sector practice adopted by the 
Government that works well for design and construction 
services; (4) the current statutory framework for design-build 
could benefit from legislative refinement; (5) reverse auctions 
are another private sector procurement technique that Federal 
officials have adopted and used successfully to award contracts 
for the purchase of products that are commercially equivalent 
to commodities; and (6) reverse auctions are generally 
inappropriate for procurement of design and construction 
services.

Section 3. Design-build construction process improvement

    This section replaces the current requirements in 41 U.S.C. 
Sec. 3309(b) with a requirement that the two-phase selection 
procedure be used for design and construction of a public 
building, facility, or work valued at or above $750,000. For 
smaller projects, having a value of less than $750,000, it 
retains the requirement that the contracting officer perform an 
analysis of the project's complexity before using the two-phase 
selection procedure.
    This section also requires the head of each agency to 
create and publically post information regarding the procedures 
used to award design and construction contracts in fiscal years 
2017 through 2021. Each agency must state the number of times 
that more than five bidders are included in the second phase of 
the two-phase procedure, as well as the number of design and 
construction contracts awarded using a procedure other than the 
two-phase selection procedure. The Director of the Office of 
Management and Budget is directed to facilitate public access 
to these reports. Finally, the section directs GAO to perform a 
one-time compliance review of this section within 270 days 
after enactment.

Section 4. Prohibition on the use of a reverse auction for the award of 
        a contract for design and construction services

    This section requires the Federal Acquisition Regulatory 
Council to prohibit the use of reverse auctions as part of the 
two-phase selection procedure for awarding contracts for 
construction and design services. The section includes a 
definition of design and a construction service that is 
consistent and broadly covers all contracts for design and 
construction of a public building, facility, or work. The 
section includes a definition of a reverse auction that the 
Federal Acquisition Regulatory Council is directed to include 
in the regulation so there is a clear and consistent 
understanding of the term and procedure across all Federal 
agencies.

                  IV. Evaluation of Regulatory Impact

    Pursuant to the requirements of paragraph 11(b) of rule 
XXVI of the Standing Rules of the Senate, the Committee has 
considered the regulatory impact of this act and determined 
that the act will have no regulatory impact within the meaning 
of the rules. The Committee agrees with the Congressional 
Budget Office's statement that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act and would not affect the budgets 
of state, local, or tribal governments.

              V. Congressional Budget Office Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 29, 2016.
Hon. Ron Johnson, Chairman,
Committee on Homeland Security and Governmental Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 1526, the 
Construction Consensus Procurement Improvement Act of 2015.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Matthew 
Pickford.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

S. 1526--Construction Consensus Procurement Improvement Act of 2015

    S. 1526 would amend current law to modify the federal 
government's procedures for awarding design and construction 
contracts for federal facilities and to prohibit the use of 
reverse auctions for such procurements. Specifically, the 
legislation would require a two-phase selection process for 
designing and constructing any federal facility with a cost of 
more than $750,000. In phase one, firms would provide basic 
information on their experience and past performance; agencies 
then would select a few firms and invite them to submit a more 
detailed proposal in phase two.
    CBO reviewed information on the process of awarding 
construction contracts by the Army Corps of Engineers (Corps) 
and the General Services Administration, two agencies that 
oversee construction of many federal facilities. Those agencies 
often use a two-phase process to select firms for construction 
projects but also use other acquisition strategies to award 
contracts. On the basis of information from those federal 
agencies, CBO estimates that implementing S. 1526 would cost 
$10 million over the 2017-2021 period--$2 million a year--
because some agencies that currently evaluate certain projects 
using a one-phase process would incur somewhat higher costs to 
evaluate two rounds of proposals before selecting a firm for 
each construction project.
    CBO also reviewed information on the use of reverse 
auctions in government procurement contracts by the Corps and 
GSA. Those agencies have found that using reverse auctions in 
complex procurements does not consistently result in lower 
procurement costs than would result from other methods such as 
sealed bids or negotiated procurements. Those agencies 
generally do not use reverse auctions to obtain such services. 
Consequently, CBO estimates that implementing S. 2139 would not 
result in any significant change in the government's bidding 
practice and thus would not have a significant effect on the 
federal budget.
    Because enacting the bill could affect direct spending by 
agencies not funded through annual appropriations, pay-as-you-
go procedures apply. CBO estimates, however, that any net 
change in spending by those agencies would be negligible. 
Enacting the bill would not affect revenues. CBO estimates that 
enacting S. 1526 would not increase net direct spending or on-
budget deficits in any of the four consecutive 10-year periods 
beginning in 2027.
    S. 1526 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contacts for this estimate are Matthew 
Pickford and Aurora Swanson. This estimate was approved by H. 
Samuel Papenfuss, Deputy Assistant Director for Budget 
Analysis.

       VI. Changes in Existing Law Made by the Bill, as Reported

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
the bill, as reported, are shown as follows: (existing law 
proposed to be omitted is enclosed in brackets, new matter is 
printed in italic, and existing law in which no change is 
proposed is shown in roman):

UNITED STATES CODE

           *       *       *       *       *       *       *

TITLE 41--PUBLIC CONTRACTS

           *       *       *       *       *       *       *

Subtitle I--Federal Procurement Policy

           *       *       *       *       *       *       *

DIVISION C--PROCUREMENT

           *       *       *       *       *       *       *

CHAPTER 33--PLANNING AND SOLICITATION

           *       *       *       *       *       *       *

SEC. 3309. DESIGN--BUILD SELECTION PROCEDURES

    (a) * * *
    [(b) Criteria for Use.--A contracting officer shall make a 
determination whether two-phase selection procedures are 
appropriate for use for entering into a contract for the design 
and construction of a public building, facility, or work when--
          [(1) the contracting officer anticipates that 3 or 
        more offers will be received for the contract;
          [(2) design work must be performed before an offeror 
        can develop a price or cost proposal for the contract;
          [(3) the offeror will incur a substantial amount of 
        expense in preparing the offer; and
          [(4) the contracting officer has considered 
        information such as the following:
                  [(A) The extent to which the project 
                requirements have been adequately defined.
                  [(B) The time constraints for delivery of the 
                project.
                  [(C) The capability and experience of 
                potential contractors.
                  [(D) The suitability of the project for use 
                of the two-phase selection procedures.
                  [(E) The capability of the agency to manage 
                the two-phase selection procedure.
                  [(F) Other criteria established by the 
                agency.]
    (b) Criteria for Use.--
          (1) Contracts with a value of at least $750,000.--
        Two-phase selection procedures shall be used for 
        entering into a contract for the design and 
        construction of a public building, facility, or work 
        when a contracting officer determines that the project 
        has a value of $750,000 or greater, as adjusted for 
        inflation in accordance with section 1908 of this 
        title.
          (2) Contracts with a value less than $750,000.--For 
        projects that a contracting officer determines have a 
        value of less than $750,000, the contracting officer 
        shall make a determination whether two-phase selection 
        procedures are appropriate for use for entering into a 
        contract for the design and construction of a public 
        building, facility, or work when--
                  (A) the contracting officer anticipates that 
                3 or more offers will be received for the 
                contract;
                  (B) design work must be performed before an 
                offeror can develop a price or cost proposal 
                for the contract;
                  (C) the offeror will incur a substantial 
                amount of expense in preparing the offer; and
                  (D) the contracting officer has considered 
                information such as--
                                  (i) the extent to which the 
                                project requirements have been 
                                adequately defined;
                                  (ii) the time constraints for 
                                delivery of the project;
                                  (iii) the capability and 
                                experience of potential 
                                contractors;
                                  (iv) the suitability of the 
                                project for use of the two-
                                phase selection procedures;
                                  (v) the capability of the 
                                agency to manage the two-phase 
                                selection procedure; and
                                  (vi) other criteria 
                                established by the agency.
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