U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

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

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

86–553 PDF 2014

ASSESSING GOVERNMENT USE OF DESIGN–BUILD 

CONTRACTS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FEDERAL WORKFORCE, 

US POSTAL SERVICE AND THE CENSUS 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

DECEMBER 3, 2013 

Serial No. 113–73 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

CYNTHIA M. LUMMIS, Wyoming 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

KERRY L. BENTIVOLIO, Michigan 

RON DESANTIS, Florida 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

JACKIE SPEIER, California 

MATTHEW A. CARTWRIGHT, Pennsylvania 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

DANNY K. DAVIS, Illinois 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

Vacancy 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

STEPHEN CASTOR, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL SERVICE AND THE CENSUS

BLAKE FARENTHOLD, Texas, Chairman 

TIM WALBERG, Michigan 

TREY GOWDY, South Carolina 

DOUG COLLINS, Georgia 

RON DESANTIS, Florida 

STEPHEN F. LYNCH, Massachusetts, 

Ranking Minority Member 

ELEANOR HOLMES NORTON, District of 

Columbia 

WM. LACY CLAY, Missouri 

(III) 

C O N T E N T S 

Page 

Hearing held on December 3, 2013 ........................................................................ 1 

WITNESSES 

Mr. James Dalton, Chief, Engineering and Construction Division, Directorate 

of Civil Works, U.S. Army Corps of Engineers 

Oral Statement ................................................................................................. 5 

Written Statement ............................................................................................ 7 

Mr. Charles Dalluge, Executive Vice President, Leo A. Daly Company, On 

Behalf of the American Institute of Architects 

Oral Statement ................................................................................................. 10 

Written Statement ............................................................................................ 12 

Mr. Randall Gibson President Whitesell-Green, Inc, On Behalf of the Associated General Contractors of America 

Oral Statement ................................................................................................. 18 

Written Statement ............................................................................................ 20 

APPENDIX 

Statement of Rep. Blake Farenthold ...................................................................... 36 

Statement of Rep. Stephen Lynch .......................................................................... 38 

(1) 

ASSESSING GOVERNMENT USE OF DESIGN– 

BUILD CONTRACTS 

Tuesday, December 3, 2013, 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL

SERVICE AND THE CENSUS, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:00 a.m. in room 

2154, Rayburn House Office Building, the Honorable Blake 

Farenthold [chairman of the subcommittee], presiding. 

Present: Representatives Farenthold, Walberg, Collins and 

Lynch. 

Staff Present: Molly Boyl, Majority Deputy General Counsel and 

Parliamentarian; Daniel Bucheli, Majority Assistant Clerk; John 

Cuaderes, Majority Deputy Staff Director; Adam P. Fromm, Majority Director of Member Services and Committee Operations; Jennifer Hemingway, Majority Deputy Policy Director; Laura L. Rush, 

Majority Deputy Chief Clerk; Eric Cho, Majority Detailee; Jaron 

Bourke, Minority Director of Administration; Devon Hill, Minority 

Research Assistant; Juan McCullum, Minority Clerk; and Bruce 

Fernandez, Minority Staff Member. 

Mr. FARENTHOLD. The committee will come to order. 

I would like to begin this committee as we begin all Government 

Oversight Committee hearings with the committee mission statement. 

We exist to secure two fundamental principles. First, Americans 

have the right to know that the money Washington takes from 

them is well spent. Second, Americans deserve an efficient and effective government that works for them. 

Our duty on the Government Oversight and Reform Committee 

is to protect these rights. Our solemn responsibility is to hold the 

government accountable to taxpayers because taxpayers have a 

right to know what they get from their government. We will work 

tirelessly in partnership with citizen watchdogs to deliver the facts 

to the American people and bring genuine reform to the federal bureaucracy. 

This is the mission of the Government Oversight and Reform 

Committee. 

At this point, I will start with my opening statement. Then will 

give Mr. Lynch a chance to give his opening statement. We will 

move on then to our panel of witnesses. 

In fiscal year 2012, the Federal Government spent over $41 billion on construction and engineering contracts. That is eight perVerDate Aug 31 2005 10:56 Feb 11, 2014 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\86553.TXT APRIL
2 

cent of the roughly $500 billion the government spends annually on 

goods and services. Of the $41 billion spent each year on construction and A&E contracting, $17 billion goes to small business prime 

contractors. 

As government watchdogs, it is our job to make sure these construction and A&E contracts are managed efficiently and effectively 

and the taxpayers’ money is well spent. This hearing will focus on 

government award of contracts to those companies who do the best 

job and not the companies who are the best at competing for government contracts. 

Right now when choosing, we use a two step process in most design-build contracts. In others, sometimes we will use a single step 

or turn key process which requires all construction and design 

teams to submit a full proposal up front. Sometimes these full proposals cost more than three percent of the entire project cost while 

the contractors have no idea how many competitors they are up 

against and what realistic chance they have of getting the job. 

More commonly, there is a two phase process. Phase one requires 

companies to submit limited information, usually related to experience and past performance. Based on this information, a small 

number of the most qualified offers—usually three to five—are selected for phase two of the competition. Those selected then each 

submit a more detailed price proposal and technical specifications. 

The problem is in many cases now we are getting above that 

three to five number and in some cases getting into the 10 to 15 

numbers. All of a sudden when you are spending three percent of 

the cost just to prepare the proposal with a 1 in 10 or 1 in 15 

chance, this is incredibly difficult for small businesses. 

A quick analysis of economics would say how will we this money 

back? If there are ten people, are we seeing a 30 percent increase 

in the cost of jobs bid to the government to recover for those not 

gotten and those lost opportunities? 

To help solve this problem, we have come up with a solution. 

Several members of this committee are co-sponsors of Mr. Graves’ 

bill. Mr. Meadows, Mr. Connolly and I are all co-sponsors of H.R. 

2750. H.R. 2750 mandates the use of the two-phase selection procedure for any design-build projects costing more than $750 million. 

The bill also requires any contracting officer, who selects more 

than five finalists, needs to explain why that is being done and get 

a higher level approval. 

I want to take a second to talk about why this is so important 

and why government contracting is so important. We sometimes 

lose sight in Washington that there are millions of Americans out 

there living and fighting to attain the American dream. You start 

off as a small contracting company and look for opportunities to 

move into government contracting. 

We set the bar so high with potential hundreds of thousands of 

dollars in costs just to prepare a proposal for the government. It 

makes the American dream out of reach, drives up the cost for government and to me is a lose-lose situation. 

There is a balancing act. We want to give everyone who wants 

to participate the opportunity to participate, but are we setting 

that bar so high with the costs to get involved? Is this another form 

of government regulation, bureaucracy and red tape that is making 

3 

the American dream harder to achieve for those in the architecture 

industry, the construction industry and for anyone interested in 

participating in the design-build program or, for that matter, in 

government contracting overall? 

We are trying to make the American dream more achievable for 

everyone. One of the ways we can do that is how we choose to 

spend our federal dollars, how we choose to spend them wisely and 

who and how we set the bars to entry. 

I look forward to receiving a lot of information from this hearing 

today. My best friend through high school was a general contractor. 

I have grown up around folks in the industry. When I had my computer company, I shared an office with architects. Believe me, my 

phone has been ringing about this hearing. My brother-in-law is a 

government contracting lawyer. 

We look forward to your input. Whether this bill we have so 

many co-sponsors of or a version of the bill that is modified with 

amendments based on this testimony, we have a unique opportunity to make the American dream available to more people today. 

I look forward to the hearing. 

Mr. FARENTHOLD. At this point, I will yield to Mr. Lynch for his 

opening statement. 

Mr. LYNCH. Thank you very much, Mr. Chairman. Thanks for 

holding this hearing. 

I want to thank the witnesses for their willingness to participate 

and help the committee with this work. 

Just yesterday, the U.S. Census Bureau reported that total 

spending on public and private construction for October 2013 was 

on pace for an annual rate of $908.4 billion, an increase of about 

5 percent over the estimate from the same reporting period last 

year. However, I would note the total annual construction spending 

is still approximately 25 percent less than it was in 2007 when the 

global financial crisis began. 

These figures suggest that the construction and architectural 

services industries are still slowly recovering. In addition, the construction and design sectors are bracing for a planned second round 

of sequestration cuts in 2014 that will inevitably affect construction. 

This hearing specifically seeks to address industry reports that 

agency implementation of design-build contracting is hindering 

competition and efficiency. As evidenced by today’s witness testimony and the hearing held in the Small Business Committee back 

in May, design-build stakeholders have expressed concern that 

smaller firms are regularly faced with the dilemma of whether to 

spend significant time, effort and scarce resources to compete for 

projects they may have little chance of winning or alternatively, refrain from competitive bidding altogether. 

This concern relates to the primary selection methods that are 

available for the design-build contracting process. Under the socalled on-step selection process which the Chairman described, an 

agency will require all bidders to submit extensive proposals up 

front. This includes site plans, design calculations, code analysis, 

basis of design narratives, renderings and detailed construction 

cost estimates. 

4 

The first one-step process favors large firms that have the ability 

to make those expenditures to support their one step bid. The alternative method, the two-step selection process includes a preliminary evaluation of team qualifications in order to narrow down a 

short list. That provides opportunities for smaller firms. 

I agree with the Chairman that in many cases the awarding 

agency is allowing 8 to 10 bidders into that final round, the second 

round, which diminishes the opportunity of one of the finalist getting that final bid and also presents a cost factor for smaller firms 

that they simply cannot withstand. They are eventually forced out 

of the process. 

That is what we are trying to get at. We certainly welcome your 

thoughts on the legislation the Chairman has put forward, the Design-Build Efficiency and Jobs Act of 2013. 

I do want to note I think the Chairman misspoke. He said that the line would be $750 million. It is actually $750,000. 

Mr. FARENTHOLD. The curse of Washington is the number of zeroes. 

Mr. LYNCH. I could not let that one go. That is a whopper. 

Mr. FARENTHOLD. Yes, it is. 

Mr. LYNCH. So that is $750,000. I want to say at the outset I 

agree with the spirit of this bill. I know the Chairman and Mr. 

Graves put it forward. I think they are getting right at the problem. 

My issue going forward will be where the line is drawn, the $750,000. In my district, we have small restaurants, 100 seats, that 

are $750,000. I have condos in my neighborhood, three deckers, 

where one floor will be $750,000. A $750,000 contract will be four 

guys and two pickup trucks. It is a very, very low bar. That will 

create a problem. 

I am just wondering where that line should be drawn if not at $750,000. That is where I think I will spend the bulk of my time. 

Also, on some of our larger projects, we have seen great success 

in my district, in my area, with the use of project labor agreements 

which has really forced contractors to use the benefit of smart design and design-build processes rather than trying to beat down 

the wages of workers on those medium and large sized projects. We 

see some success using the PLA model. I might ask some questions 

about that as well. 

Mr. Chairman, I think your legislation is largely right on. I hope 

we can figure out where the good line is. I do not think it is 

$750,000 but we can talk about that. Obviously we will greatly 

benefit from the witnesses’ testimony. 

Thank you. I yield back. 

Mr. FARENTHOLD. Thank you, Mr. Lynch. You are going to save 

some of my precious questioning time because that was one of the 

lines of questioning I had, whether that $750,000 number is the 

right number. 

Pursuant to committee rules, all witnesses will be sworn before 

they testify. Please rise and raise your right hand. 

Do you solemnly swear or affirm that the testimony you are 

about to give will be the truth, the whole truth, and nothing but 

the truth? 

[Witnesses responded in the affirmative.] 

5 

Mr. FARENTHOLD. Thank you. You may be seated. 

Let the record reflect that both witnesses answered in the affirmative. 

We have your prepared testimony. Time is short always in life 

and even more so in Washington, D.C. as we have a very crowded 

agenda. We ask that you take the opportunity to summarize the 

key points. We will give each of you five minutes to summarize 

your testimony and the key points to allow time for those members 

of the subcommittee to ask questions. 

Let me introduce the panel and then we will get going. Mr. 

James Dalton is the Chief of Engineering and Construction, U.S. 

Army Corps of Engineers. Mr. Charles Dalluge is Executive Vice 

President, Leo A. Daly, an architectural and engineering firm. He 

is testifying today on behalf of the American Institute of Architects. 

Mr. Randall Gibson is President of Whitesell-Green, Inc. He is testifying on behalf of the Associated General Contractors of America. 

We will start today with Mr. Dalton. Mr. Dalton, you are recognized for about five minutes or until the red light in front of you 

comes on. 

STATEMENT OF JAMES DALTON 

Mr. DALTON. Thank you, Mr. Chairman. 

Mr. Chairman and members of the subcommittee, my name 

again is James Dalton. I am the Chief of Engineering and Construction for the U.S. Army Corps of Engineers’ Headquarters Office here in Washington. 

I provide engineering and construction leadership to nine divisions, 45 districts and guide development of engineering and construction policy for our worldwide civil works and military program 

missions. 

I thank you for the opportunity to testify today to discuss construction contracting. My testimony will address the Corps’ policy 

regarding two step design-build contracts. 

The Corps employs various acquisition strategies and contract 

types to perform its mission whether the effort is for construction, 

engineering, environmental services or operation and maintenance 

of facilities. 

During the last ten years, the design-build delivery system has 

been used for many of the Corps’ construction requirements. The 

FAR Part 36.102 definition of design-build is ‘‘the combination of 

design and construction in a single contract with one contractor responsible for design and construction.’’ 

The FAR further defines two-phase design-build, also known as 

two-step design-build, as ‘‘a source selection procedure in which a 

limited number of offerors’’—normally in the range of five or less— 

‘‘are selected during Phase 1 to submit detailed proposals for Phase 

II.’’ 

The Corps utilizes the two-phase design-build process and has 

developed policy implementing the FAR. The Corps also uses a onestep design-build or turn key process as authorized by Statute 10 

U.S. Code 2862. The Corps policy discourages the use of one-step 

design-build procedures for most construction requirements. 

The two-phase selection procedure allows offerors to submit relatively inexpensively information related to experience and past 

6 

performance in step one. Based on this information, the source selection authority selects a limited number of the most qualified 

offerors to advance to phase two of the competition where the 

down-selected offerors—again in the range of between three and 

five generally is what we look for—submit much resource intensive 

price and technical proposals for evaluation. 

The offerors advancing to phase two have a much more favorable 

chance of winning the competition and are therefore incentivized to 

submit superior technical and price proposals which reduces overall 

costs to the government and to the industry. 

Mr. Chairman, this concludes my statement. Once again, thank 

you for allowing me to be here today to discuss the Corps’ construction contracting. I would be happy to answer any questions you or 

other members may have. 

[Prepared statement of Mr. Dalton follows:] 

7 


Insert offset folio 1 here 86553.001
8 


Insert offset folio 2 here 86553.002
9 


Insert offset folio 3 here 86553.003
10 

Mr. FARENTHOLD. Thank you very much, Mr. Dalton. He gave 

back 1 minute and 34 seconds. 

Mr. Dalluge, you are up. 

STATEMENT OF CHARLES DALLUGE 

Mr. DALLUGE. Thank you. 

Chairman Farenthold, Ranking Member Lynch and members of 

the subcommittee, I am Charles Dalluge, Associate AIA and Executive Vice President of Leo Daly, an architecture-engineering-interior design and planning firm ranked in the top ten of all firms in 

the United States and top 25 in the world. Thank you for allowing 

me to testify on behalf of the American Institute of Architects. 

My written testimony covers a number of issues related to federal design-build, but I would like to spend my time now discussing 

an issue of major concern to architects, namely the impact on architects, engineers, contractors and taxpayers of having too many 

finalists in design-build competitions. 

As you stated before, there are two different methods for the government to procure design-build teams, the one step and the two 

step, I would like to focus on the two step approach for a moment. 

When agencies choose design-build, any interested teams may 

submit their qualifications to the pre-selection board which creates 

a short list. The short list of teams then develop a more in-depth 

proposal to derive a design and construction cost. 

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

A 2012 survey published by the AIA Large Firm Roundtable 

found that between 2007 and 2011 architecture firms spent a median of $260,000 per project when competing for both public and 

private sector design-build projects. If the team wins, they can 

hopefully make up the cost. If they lose, those competition costs are 

gone for good. 

In the past, agencies would typically short list three to five design-build teams for a design-build project. Now, there are reports 

that some agencies are short listing as many as eight to ten teams 

for some projects. In these cases, the odds of being selected drop 

significantly, even as the cost to compete continues to rise. 

Design firms face the dilemma of betting it all on a contract they 

may not get or self selecting out of the federal design-build market 

altogether. The government also loses out when contacting officers 

need to spend more and more of their time reviewing larger numbers of proposals which can include design drawings, specifications, 

complex construction documents and the construction guaranteed 

maximum price. 

This is a serious challenge to the ability of federal agencies to deliver results for taxpayers. Fortunately, there is a way Congress 

can address the problem. 

H.R. 2750, the Design-Build Efficiency and Jobs Act of 2013, requires contracting officers to provide a written justification to the 

11 

head of their agency for requiring more than five finalists in the 

second stage of a design-build solicitation. It requires agency approval of such an increase. 

H.R. 2750 will provide more certainty and opportunities for design and construction firms of all sizes. It will help ensure that 

agencies select the most qualified design-build teams who will deliver the best buildings. It will also limit agencies’ burdens in reviewing a large number of very complex proposals. In short, it is 

a win-win for everyone. 

That is why the AIA and a large coalition of organizations have 

endorsed the bill. I am pleased to note that Chairman Farenthold 

is a co-sponsor of this bill along with members of Congress from 

both parties. The AIA commends him for his steadfast support. 

In conclusion, I would like to thank the subcommittee for giving 

me the opportunity to testify today. The AIA looks forward to working with you to advance H.R. 2750. 

Thank you. 

[Prepared statement of Mr. Dalluge follows:] 

12 


Insert offset folio 4 here 86553.004
13 


Insert offset folio 5 here 86553.005
14 


Insert offset folio 6 here 86553.006
15 


Insert offset folio 7 here 86553.007
16 


Insert offset folio 8 here 86553.008
17 


Insert offset folio 9 here 86553.009
18 

Mr. FARENTHOLD. Thank you very much. 

We will now recognize Mr. Gibson. 

STATEMENT OF RANDALL GIBSON 

Mr. GIBSON. Good morning, Chairman Farenthold and Ranking 

Member Lynch. 

Thank you for inviting the Associated General Contractors of 

America, of which I am a member, to testify before the subcommittee on this important topic. 

My name is Randy Gibson. I am President of Whitesell-Green, 

Inc., a small business construction contracting firm founded in 

1970 and based in Pensacola, Florida. My firm focuses on federal 

contracts in the eastern United States. 

My company has participated in many federal design-build procurements and has successfully performed more than 50 of these 

projects after the good fortune of receiving an award. I hope to address today those design build-procurements that many AGC members like myself decide not to compete for, some of the reasons why 

and how H.R. 2750 can help overcome the impediments to full competition for the benefit of taxpayers as well as our industry. 

During the first step of the two step design-build option, the federal agency generally limits the proposal requirements to the qualifications of the offering design-build teams. This information necessary to respond to these questions is generally kept on file by 

most contractors so gathering it for a response is relatively easy 

and inexpensive. 

Any contractor with good qualifications should be inclined to 

offer a step one proposal. When this happens, the federal agency 

can also easily choose the best three or more candidates from a 

good quantity of offerors to move on to step two. 

Step two generally requires submission of extensive and expensive technical and design information. The short-listed three or 

more design-build teams can generally justify this expense as an 

acceptable risk when compared to the reward of possibly winning 

the contract in competition with that reasonable number of similarly qualified design-build teams. 

In contrast, in the single step design-build option there is no first 

round evaluation of qualifications. Instead, all teams must submit 

full proposals requiring the high cost described earlier. Designbuild teams considering pursuit of single step proposals have no 

way to judge their prospects for success as no team can be sure 

how many other teams are pursuing the project. 

Many qualified teams, especially small businesses like mine, cannot afford to chance these large costs when perhaps 20 or more 

teams might also be blindly competing thus limiting options for the 

government. In today’s budget constraints, agencies must evaluate 

the one step proposals of all such offerors and are expending much 

effort and resources analyzing these technical proposals, an added 

expense they could avoid by using the two step option. 

In AGC’s written testimony we provide anecdotal examples of 

problems that my firm and other AGC members have experienced 

with federal agency single step design-build procurements. I would 

be happy to address those in questions if you like. 

19 

H.R. 2750 would address AGC’s main concerns expressed today 

by reasonably limiting the single step design-build procurements 

and reasonably limiting the second step of the two step designbuild process to three to five finalists. 

First, the bill would prohibit one step procurements valued at or 

above $750,000 which AGC suggests may need to be adjusted to 

provide the contracting officer necessary flexibility for the demands 

of unusual or special projects. 

Second, the bill effectively limits the federal two step designbuild procurement to no more than five finalists while also allowing 

a reasonable degree of agency flexibility. 

In conclusion, AGC supports federal agency use of the two step 

design-build procurement method and recommends that Congress 

reasonably limit one step design-build procurements. AGC has long 

held for and continues to support the reasonable limitation of the 

second step selection to three to five finalists design-build teams. 

For these reasons, AGC is generally supportive of H.R. 2750 as 

a means to improve competition and eliminate waste in federal design construction procurements. 

Again, thank you for this opportunity to provide the views of the 

construction industry in this important matter. 

[Prepared statement of Mr. Gibson follows:] 

20 


Insert offset folio 10 here 86553.010
21 


Insert offset folio 11 here 86553.011
22 


Insert offset folio 12 here 86553.012
23 


Insert offset folio 13 here 86553.013
24 


Insert offset folio 14 here 86553.014
25 


Insert offset folio 15 here 86553.015
26 

Mr. FARENTHOLD. Thank you very much, Mr. Gibson. 

Let be say before we get started, if any member has an opening 

statement, we will give them five days to submit that for the 

record. Without objection, we will do that. 

I will now recognize myself for five minutes for questioning. 

Mr. Gibson, you said you got about 50 of your contracts in the 

two step process. How many did you not get? Without trying to be 

proprietary, give me a ballpark. 

Mr. GIBSON. Probably 300 or more. 

Mr. FARENTHOLD. You could spend as much as three percent of 

the cost in the design-build. Where do you make up that money? 

Mr. GIBSON. You have to receive awards enough to have a profit 

margin that supports the general overhead of pursuing. 

Mr. FARENTHOLD. Would it be a fair statement that if you were 

not competing against so many people you would have a higher 

chance of getting them? You would actually be able to offer these 

projects to the government at a lower cost? 

Mr. GIBSON. That is true. 

Mr. FARENTHOLD. Why does it cost so much to compete for these 

projects? 

Mr. GIBSON. In the one step option, the technical submission requirements generally involve a percentage of design. My firm uses 

out-of-house designers. I have a lot of good design partners who are 

members of AIA. I get a lot of feedback from these partners. Their 

expenditures are significant, not only their firms’ expenditures but 

the subconsultants they bring—mechanical designers, electrical designers. Everybody incurs costs answering the questions necessary 

to respond to the technical qualifications. 

Mr. FARENTHOLD. Is there additional reform that could be had in 

how that is done that would save money in either the one or two 

step process? 

Mr. GIBSON. I think the real savings would be in minimizing the 

one step. I do sympathize with the agencies. They have to get a feel 

for what the design-build team’s proposal requires technically. We 

do see a lot of streamlining in the agencies in what they do require. 

For example, when I first got into design-build competition, there 

were a lot of drawings required for submission. When most agencies can accept a narrative to explain design, they now are taking 

that option rather than requiring a lot of drawings. That always 

helps our design partners minimize their expense. 

Mr. FARENTHOLD. Mr. Gibson touched on the expenses that go 

into that. Mr. Dalluge, one of the concerns I have is, are you able 

to do anything creative or innovative in any of this? Are we getting 

cookie cutter stuff that doesn’t necessarily take advantage of the 

latest design technology? Are we sacrificing aesthetics? Are there 

any other losses in there? 

Mr. DALLUGE. I think every procurement method has its pros 

and cons, but the limitation to design-build is typically there isn’t 

as much engagement between the architect and engineer with the 

ultimate client. There is the builder partner and it is a subprime 

relationship. I believe there is some stifling in that process. 

Also if you look at the economics of a design-build project, referring back to the AIA Large Forum Roundtable survey of its memVerDate Aug 31 2005 10:56 Feb 11, 2014 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 C:\DOCS\86553.TXT APRIL
27 

bers, the average fee to the architect for a federal design-build opportunity was $1.4 million. 

Mr. FARENTHOLD. What percentage of overall construction costs 

is that? How does that compare to private sector jobs? 

Mr. DALLUGE. Mr. Dalton may know better, but there are stipulations for the fee range which I believe is up to six percent for federal work for basic services. 

Mr. FARENTHOLD. So we got you guys down? 

Mr. DALLUGE. I think rightfully so but if you look at the cost to compete, anywhere on average or median of $260,000, your expected fee to be $1.4 million, you can see that with more competition, you win fewer projects, and it becomes very difficult. 

Mr. FARENTHOLD. I am limited on time. We may have a second 

round of questions. I do want to address new entrants, small businesses, new contracting firms, and new architecture firms. Does 

the proposed legislation address that or how can we improve it 

where we lower the bar for new entrants while still getting quality 

work for the taxpayers’ dollars? 

Mr. DALLUGE. In my opinion, this bill goes a long way to providing more clarity and transparency about the system which will 

invite more people and allow small firms to compete better. 

The only next step that could be looked at would be quality based 

selection in both the first and second steps of the selection process. 

Mr. FARENTHOLD. I see my time has expired. I will now recognize 

Mr. Lynch for his questions. 

Mr. LYNCH. Thank you, Mr. Chairman. 

In our offline discussion this morning, I mentioned I spent about 

20 years in the construction industry as an iron worker. I have run 

work as a foreman and general foreman. My Bachelor’s Degree is 

in Construction Management and is an engineering degree, so I 

know just about enough to make myself dangerous in this hearing. 

I recently had feedback from some of my local folks. One gentleman, Ray Porfillio from West Roxbury, is an architect with a 

small architectural and planning firm, has spent over 15 years of 

his 30 year career working on design for federal contracts. His experience is design-build teams have often had to make the difficult 

choice of withdrawing from consideration when an agency using 

two step selection has short-listed more than three to five finalists, 

the very situation you described. 

He has been forced to make that choice because the significant 

time, effort and cost that is involved in preparing a detailed proposal could not be justified with the decreased likelihood of winning 

the contract that results from a large number of finalists. 

Mr. Dalluge and Mr. Gibson, is it true, do small business designbuild teams often feel pressure to withdraw from competition when 

an agency selects eight or ten finalists? 

Mr. DALLUGE. I would certainly agree. The risk versus rewards 

just is not there. 

Mr. LYNCH. Mr. Gibson? 

Mr. GIBSON. Yes, I agree. I think that the agencies have a responsibility when they put their solicitations out to identify how 

many finalists they expect, the maximum number. Also, it is very 

important they identify what the step two technical qualification 

requirement will be. We sometimes see solicitations where they 

28 

only tell you what you have to submit for step one and we are always sending RFIs. If they tell us what is going to be in step two, 

we can decide whether to go forward. 

Mr. LYNCH. Let me also say on behalf of the agency, they are trying to get competition. They are not selecting just three bidders because if three bidders know pretty much know the other firms, you 

can pump up the price of a contract if there is only two or three. 

You can have collusion—not explicit, not illegal but a general sense 

of what the operating overhead is for these other firms so you know 

a neighborhood of prices. 

If you can get some outliers in there—I am sure that is what 

they are trying to do—where someone comes in at a rock bottom 

price, that helps the taxpayer. In the end, it may result in a poorer 

quality project, but I can see the interest of the agency to try to 

get that bid down. You want more competition. 

I want to ask, if am a small contractor in round one and I am 

selected to go to round two and I decide this is not for me, say I 

am in Mr. Porfillio’s situation where he is backing out, is there any 

backlash or any negative consequences from the awarding agency? 

They are lining up people for bid and all of a sudden you back out. 

It is round two and they only have a certain number of people eligible to bid on round two or phase two. Is there any backlash or any 

negative consequences when you decide not to go forward in round 

two? Mr. Dalton, you might have some observations on this as well. 

Mr. DALLUGE. From our perspective, there are no repercussions 

but I think that would only happen, somebody withdrawing, when 

the number of competitors exceeds five. 

Mr. DALTON. From the agency point of view, I am unaware of 

any backlash from firms withdrawing once they have been down 

selected. 

If you would allow me the opportunity to talk about the three to 

five, the experience we have in the Corps of Engineers is that we 

try to limit that down selected number of firms to between three 

and five. As part of the part one requirements, it is expected and 

actually required of us to identify how many of those firms would 

be identified to down select. We want to make sure that companies 

are aware they are competing with five or less and not beyond. 

Mr. LYNCH. Where are these examples where there are eight and 

ten finalists in the second round? Where is that coming from? Is 

that GSA or some other awarding agency? 

Mr. DALTON. I do not know about other agencies. In one case 

where we may have more than five but it is not for a single designbuild contract. It is actually for a multiple award contract. In a 

case like that, we may have up to ten firms going into the second 

round. 

Mr. LYNCH. That is a special case though. 

Mr. DALTON. Absolutely. We are going to award five contracts 

and not one. 

Mr. LYNCH. I have exhausted my time and I yield back. 

Mr. FARENTHOLD. Thank you very much. 

I will now recognize the gentleman from Georgia, Mr. Collins, for 

five minutes. 

Mr. COLLINS. Thank you, Mr. Chairman. 

29 

I actually went through design-build from a private standpoint 

and saw benefits both ways. Mr. Dalton, you said there was a special circumstance as far as the multiple awards. How special is 

that? Does that mean one out of every ten bids, five out of every 

ten bids? What is special? 

Mr. DALTON. For a multiple award task order contract, we will 

likely award up to five firms. We are trying to have a pool of contractors from which we can select. Special means there is more 

than one design-build contract. 

Mr. COLLINS. I apologize. That was a bad question. 

How many of these types of awards do you make where you have 

multiple projects lumped together? I can see a problem here. If you 

take on multiple contracts, even though they are for multiple 

projects and you lump them together, you are sort of skirting a little bit even though you are going to award multiple contracts, you 

are still grouping a lot more people together to provide those. I am 

just asking how many of those multiple kind of proposals do you 

have? 

Mr. DALTON. I do not have a number or even a percentage. I 

would have to get back to you. We actually award more single 

award contracts than multiple award contracts. We use those types 

of contracts for various different services, a lot for ok services, for 

our standardized facilities such as barracks and those type things 

on military installations. 

Mr. COLLINS. I am not saying they are bad. I am just asking how 

many do you have. 

In both opening statements, $750,000 was the threshold number 

here. There was discussion of whether that was a good or bad number. I would open it to the panel. What is your belief? 

Mr. GIBSON. I believe that number was generated from a Corps 

of Engineers action. We applaud someone drawing a line in the 

sand and saying let’s have a number. 

From a contractor’s perspective, we do see a need to allow the 

contracting officer some flexibility in a case where you go above a 

limit like $750,000. As an example, we are seeing a lot of designbuild jobs these days that are improvements of energy efficiency in 

an existing building. 

Lots of times the government can save expense and time going 

with the one step because they can get the design information from 

the design-build team in the form of a narrative—things like upgrading an air conditioning system, giving narratives about capacities, scope of work and so forth. 

I would hate to see them lose the opportunity to use a one step 

for something like that when the dollar expenditure was a little bit 

higher than $750,000. We do applaud the Corps’ step forward and 

putting a line in the sand. 

Mr. DALLUGE. In my opinion, it is purposely kept small so that 

you do not have businesses of any size having to risk doing a lot 

of design work, spending hundreds of thousands of dollars and not 

even being qualified in the one step and not to put a lot of firms 

at risk, to purposely keep that small. 

When there is a lot of money at stake, go ahead and take the 

time to do it right. Do the two step and make sure that before a 

30 

firm has to invest a lot of money in doing design that the government knows they have the qualifications and experience to do it. 

Mr. COLLINS. I was not questioning the ability of the line. There was just some question is that the right number; is $750,000 the 

right number? Should it be higher or lower and making sure it is 

right. I think the bill is a good bill. The question is whether that 

number is the right number. I know it may fit the Corps but is it 

something we can apply in other places? 

Mr. DALTON. Let me try to clarify because I think this is a major 

point I need to try to make in this hearing. The Engineering Construction Bulletin we issued in August of 2012 that first identified 

the number of $750,000 was not intended to be a blanket $750,000 

line in the sand for all types of contracts. 

It actually referred to O&M Army funded construction work. The $750,000 is not our limit; that is a statute limit for ok funded construction work. 

The other two categories in that same Engineering Construction 

Bulletin were MILCON which does not have a limit and unspecified minor MILCON construction Army, UMMCA funding. That 

has a limit of $2 million. 

Mr. LYNCH. I want to back you up a bit. I know you love acronyms and I do too. So UMMCA is operations maintenance. The 

limit you implied in your bulletin was regarding operations and 

maintenance and not FAR construction? 

Mr. DALTON. It was for construction work funded using ok Army money. The dollar limit on that is $750,000. 

Mr. FARENTHOLD. We are back to a second round of questions. 

I am going to recognize myself for five minutes and follow up on 

that a bit. 

I want to get the scope of this because I understand where Mr. 

Lynch is coming from. If this is a contract to go out and build a 

new post office or a new federal courthouse, I cannot imagine a federal building coming in much under $750,000, anything of any size, 

as much as I would like it to. 

Can you give me some examples of an O&M? Is that like replacing all the air conditioning in a barracks, putting Internet access 

in a facility? I want to get an idea of the scope of O&M is and the 

size of the other types of jobs. Are there different limits for different types of jobs we might want to look at? Mr. Dalton, we will 

start with you. 

Mr. DALTON. There are different limits for different types of 

funding. 

Mr. FARENTHOLD. Give me two or three examples. 

Mr. DALTON. If you wanted to do a pavement widening project, 

that would be considered part of your O&M. That is new construction but you could spend up to $750,000 with that O&M Army 

funded fund. 

Mr. FARENTHOLD. It could be dredging or something like that? 

Mr. DALTON. No, that is totally different. 

Mr. FARENTHOLD. Maybe will go to Mr. Dalluge or Mr. Gibson 

from the private sector who deal with this. I don’t think there is 

as much design work for an architect, say I need a road to go from 

here to here. Obviously some engineering needs to be done, soil 

types and so forth. I want to get an idea of the size of projects that 

31 

typically fall under this. I am trying to get at where we need to 

draw that $750,000 line. 

Mr. DALTON. I think it is a great question. The difference between the one step and two step procurement methods is the one 

step really does not lend itself to any project where the architects 

and engineers have to invest a lot in doing free design at risk. 

Maintenance, upgrades, paint up, fix up, those types of projects 

work very well for one step which is why the limit of $750,000 

seemed appropriate. 

For projects like a courthouse, a post office, a project that requires some sophisticated design, engineering and construction, 

that really lends itself to the two step process which can be any 

size. 

Mr. FARENTHOLD. Everyone on this panel tends to agree on the 

number five. How do we avoid getting into a situation like Mr. 

Lynch alluded to? I could name the five general contractors in the 

district I represent who will probably get 80 percent of the jobs. 

How do we encourage new applicants and get in new people while 

still protecting the government—the wild card applicant, the new 

startup who just built a school for the school district and now 

wants to build something or who has done hundreds of miles of 

county roads and now wants to build a federal road? 

Does anyone have any thoughts on that? Mr. Dalluge? 

Mr. DALLUGE. Two points, sir. To begin, the federal agencies 

have very sophisticated and long experience levels of looking at 

projects. From the cost side, the competition know what is fair and 

appropriate based on project types and certain geographies, so I do 

not think there is the chance for unfair competition by limiting the 

number in the second step. 

I think by more clarity and transparency in this bill, you will encourage more young startups and small businesses to get engaged 

with federal projects because of that clarity and transparency. You 

will actually encourage that through this bill. 

Mr. FARENTHOLD. I am just about out of time but I would like 

to give Mr. Gibson and Mr. Dalton an opportunity to weigh in on 

that question. Mr. Gibson? 

Mr. GIBSON. I think the agencies do a good job of trying to encourage new people getting involved. I build a lot for the military 

and I do recognize the challenges they have because if you step into 

the military construction arena, you step into a whole different regulation of building. A firm coming from outside the military arena 

has a learning curve, so they have to deal with that, too. 

I do see a lot of the RFPs where if they are qualifying people for 

a hangar, they would say we will accept an example of past hangar 

experience in the private sector or we will accept a dormitory built 

for a college campus as an example of a relevant job for the dormitory we are building on the military reservation. 

Mr. FARENTHOLD. Mr. Dalton, did you have anything to add? 

Mr. DALTON. I would echo what Mr. Gibson said. We are trying 

to open up and consider similar type design and construction efforts for the federal rather than only look at federal construction 

work. We do still have a focus on bringing in more small businesses. We do that with our design-build contracts as well as our 

design-bid build contracts. 

32 

Mr. FARENTHOLD. Thank you very much. 

Mr. Lynch, you are up for six and a half minutes. I want to be 

fair about the time. 

Mr. LYNCH. Thank you. 

The legislation the chairman and Mr. Graves have put forward 

has two operative sections. Let me take the one I agree with first. 

One would be that in phase two no more than five offerors would 

be in the mix, so you would have a cap of five. I have no problem 

with that. I think that is a fair number. It will induce competition 

without being overly burdensome and give each of those five contractors—presuming they all proceed—a fair chance at getting the 

contract. I have no question on that. 

As Mr. Dalton has pointed out, the bulletin he issued was not necessarily one that said anything over $750,000 has to be two 

step. That is what I want to get away from, that assumption. Mr. 

Dalton, do you agree with what I just said? 

Mr. DALTON. I absolutely agree with it. The intent was for us to 

describe that we want to encourage everyone to use a two step 

process. We were trying to tie the $750,000 to a specific type of 

funding. That is where the $750,000 came from. It was not intended to say that was the threshold everyone should use in order 

to use two step. 

Mr. LYNCH. I agree with that. This is somewhat archaic language 

so I can see how someone might assume the intent was different. 

I do want to point out that under the Engineering and Construction Bulletins that were used, 2012–23, a one selection procedure 

may only be used when all of the following conditions are met: the 

planned contract is for an authorized military construction project, 

typically a minor MILCON funded project or O&M Army minor 

new construction projects less than $750,000; in those cases where 

the offerors are not required to submit design products as part of 

their technical proposal; and also approval to use a one step selection process shall be obtained from the headquarters of the Army 

Corps of Engineers, Chief of Construction. 

I want to avoid painting this with a broad brush that everything 

over $750,000—I think we are in trouble there. I think it is well 

intended. 

I do have a comparable piece of legislation at the State level on 

bids and when to use design-build and when not to use it. Their 

number is $5 million, just to show you where the cutoff is. This is 

Massachusetts general laws, Chapter 149A in Massachusetts, 

which is one example out of 50. It shows the marked difference in 

where they draw the line. 

Hopefully during the legislative process, we can find a better 

number than $750,000 which I think is much too low and maybe 

incorporate some of the complexity we are talking about here as 

well and use some other factors like previous experience on similar 

construction projects. That would make sense so you have good 

hard numbers and we are not out in space with a very, very low 

number or God forbid, a number that is off the charts we are forced 

to accept and someone taking advantage of the taxpayer. We do not 

want that to happen either. 

I think that is pretty much it as far as I am concerned. I have 

seen project labor agreements work very, very well on the right 

33 

projects, mostly large projects where speed, quality of construction, 

getting firms in early on, making sure there are no interruptions, 

making sure we have plenty of qualified people on the job, and 

making sure we have apprenticeship programs that provide quality 

workers who are well trained to get out on those jobs. 

Mr. Gibson, have you worked on any projects that have had 

project labor agreements? 

Mr. GIBSON. No, sir, I have not. The region of the country where 

I work most often is open shop area. Most contractors there do not 

have labor agreements with the unions. The competition level 

would be impeded by that being forced into that particular market 

area. 

Speaking as a member of AGC, we are always for maximizing 

competition. We feel that PLA is limited. 

Mr. LYNCH. Mr. Dalluge? 

Mr. DALLUGE. I am speaking more from the architecture point of 

view so from our point of view, we don’t really get involved with 

that. I may be on the construction side but certainly not on the architecture side. 

Mr. LYNCH. Thank you. I yield back. 

Mr. FARENTHOLD. Following up on your line of questioning on whether the $750,000 is the magic number, I would like to invite 

Mr. Dalluge, Mr. Gibson and Mr. Dalton, if the Corps wants to be 

in there, if your organizations have some ideas either for another 

number or some more flexible language or refinements to this, we 

want to hear them. We would ask you submit them to this committee sooner not later and certainly not before we get to a potential mark up on this bill so we can look at amending the legislation 

with something we could all agree to. 

I see the Vice Chair of the committee, the gentleman from Michigan, Mr. Walberg, has arrived and has some questions. I would recognize him for five minutes. 

Mr. WALBERG. Mr. Chairman, thank you. I apologize for being 

late. I am going from Pell grants to design-build contracts. I am interested in both. 

Mr. Dalluge, you testified, according to what I read, that having 

more finalists in competition increasing costs for agencies because 

contracting officers have to spend more time reviewing the proposals. Isn’t competition beneficial to the taxpayer? 

Mr. DALLUGE. Absolutely, sir. I think what is wonderful about 

the two step process is it does not stifle competition at all. The first 

step, anyone from anywhere, big or small, is able to compete for the 

work based on their qualifications and experience they have—the 

requirements set out by the agency. There could be thousands of 

people pursuing that. 

The second step merely tries to select the best of the best of 

those many, many firms competing for the work. Whether you 

short list three firms, five firms or eight to ten, as we are seeing 

as the trend, you haven’t stifled competition at all. In fact, I would 

argue you are encouraging more competition by limiting the number. 

Mr. WALBERG. Mr. Gibson? 

Mr. GIBSON. Speaking as a small business, I work with small 

business design firms as well. I have a default firm that I like to 

34 

go to most often and they tell me straight out they are judging 

whether to participate in a job by the prospects of how many they 

will have to compete with if they moved on to phase two. 

They cannot afford to be spending the multiple tens of thou- sands, upwards of $100,000, to submit a proposal whereas maybe 

some of the larger design firms can have that in their budget. 

I personally feel an excellent performing designer, such as my default partner, when he steps out of the arena, competition is stifled. 

He does like the fact if you want to pick me on my qualifications 

and I know I am going against five, I will take my chances and I 

will spend the money to turn in that phase two proposal. 

He is stepping away at a percentage rate of perhaps half the 

time from opportunities to offer a proposal out of fear of having to 

spend that money and go unrewarded in step two. 

Mr. WALBERG. Let me ask a question of each of you beginning 

with Mr. Dalton. Do contracting officers have a reasonable understanding of what goes into a design-build project and do they have 

proper expertise to undertake that? 

Mr. DALTON. Our contracting officers work within a team so I 

have people on that team from the technical side of the house. The 

combined team of contracting officer plus the engineering and construction knowledge we have I think absolutely provides the right 

level of understanding of what it takes to go into a design-build 

project. 

Mr. WALBERG. Mr. Dalluge? 

Mr. DALLUGE. I believe in some agencies there is a lack of understanding as to the implication of short listing multiple firms. While 

many have the proper training, I think sometimes selection groups 

believe they are making the right decision, they believe they are 

doing the right thing; they just do not understand the ramifications. 

Mr. WALBERG. What are those ramifications or implications you 

are referring to? 

Mr. DALLUGE. By short listing more firms, thinking more competition rather than stifling it, the burden in the next phase of the 

review committee having to review more complex proposals which 

takes more of the agency’s time as well. 

Mr. WALBERG. Mr. Gibson? 

Mr. GIBSON. I do think at some of the local levels there is a lack 

of understanding of the benefits of short listing a limited number 

of participants. I think the best example I could give you is the one 

I gave a while ago. We have a lot of designers who are stepping 

out of the arena out of fear of how many they will have to compete 

against. They are going to have to put their money up against a 

very low percentage of possible awards. That is the best example 

I can give as to why competition is limited. 

Mr. WALBERG. Thank you, Mr. Chairman. I yield back. 

Mr. FARENTHOLD. Thank you very much, Mr. Walberg. 

I would like to thank the witnesses for their participation in our 

hearing. We look forward to moving ahead with this legislation. 

Thanks as well to the committee members and staff for putting 

this together. 

With that, we are adjourned. 

[Whereupon, at 11:05 a.m., the subcommittee was adjourned.] 

(35) 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

36 


Insert offset folio 16 here 86553.016
37 


Insert offset folio 17 here 86553.017
38 


Insert offset folio 18 here 86553.018
39 


Insert offset folio 19 here 86553.019
40 


Insert offset folio 20 here 86553.020
41 


Insert offset folio 21 here 86553.021
42 

Æ 


Insert offset folio 22 here 86553.022