U.S. GOVERNMENT PRINTING OFFICE

73–004 DTP WASHINGTON : 2001

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

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: (202) 512–1800 Fax: (202) 512–2250

Mail: Stop SSOP, Washington, DC 20402–0001

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

HELEN CHENOWETH-HAGE, Idaho

DAVID VITTER, Louisiana

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

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

THOMAS M. DAVIS, Virginia

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JIM TURNER, Texas

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

PATSY T. MINK, Hawaii

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

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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

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H.R. 4012, THE CONSTRUCTION QUALITY

ASSURANCE ACT OF 2000

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 construc- tion 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

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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.

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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

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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.

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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.

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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.

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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.

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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 bestvalue 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

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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 conVerDate 11-MAY-2000 08:38 Sep 21, 2001 Jkt 000000 PO 00000 Frm 00080 Fmt 6633 Sfmt 6633 C:\DOCS\73004.TXT HGOVREF1 PsN: HGOVREF1
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tracting 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

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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 bestvalue 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

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ready, 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

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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

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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

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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

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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.

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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.

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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

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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

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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 Stateof-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.

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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——

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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?

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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

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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

$51⁄2 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

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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?

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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.

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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 dayin/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.

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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 designbuild 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?

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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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