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                                                   Calendar No. 382

115th Congress}                                            { Report
                                 SENATE
  2d Session  }                                            { 115-231

======================================================================
        CONSTRUCTION CONSENSUS PROCUREMENT IMPROVEMENT ACT OF 2017

                               __________

                              R E P O R T

                                 OF THE

                   COMMITTEE ON HOMELAND SECURITY AND

                          GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                              to accompany

                                S. 2113

         TO AMEND TITLE 41, UNITED STATES CODE, TO IMPROVE THE
            MANNER IN WHICH FEDERAL CONTRACTS FOR DESIGN AND
           CONSTRUCTION SERVICES ARE AWARDED, TO PROHIBIT THE
          USE OF REVERSE AUCTIONS FOR DESIGN AND CONSTRUCTION
             SERVICES PROCUREMENTS, AND FOR OTHER PURPOSES

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


                 April 18, 2018.--Ordered to be printed
        
        
                               __________
                                                   

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
                           WASHINGTON : 2018     
        
        
        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                    RON JOHNSON, Wisconsin, Chairman
JOHN McCAIN, Arizona                 CLAIRE McCASKILL, Missouri
ROB PORTMAN, Ohio                    THOMAS R. CARPER, Delaware
RAND PAUL, Kentucky                  HEIDI HEITKAMP, North Dakota
JAMES LANKFORD, Oklahoma             GARY C. PETERS, Michigan
MICHAEL B. ENZI, Wyoming             MAGGIE HASSAN, New Hampshire
JOHN HOEVEN, North Dakota            KAMALA D. HARRIS, California
STEVE DAINES, Montana                DOUG JONES, Alabama

                  Christopher R. Hixon, Staff Director
                Gabrielle D'Adamo Singer, Chief Counsel
       Patrick J. Bailey, Chief Counsel for Governmental Affairs
               Margaret E. Daum, Minority Staff Director
               Stacia M. Cardille, Minority Chief Counsel
       Charles A. Moskowitz, Minority Senior Legislative Counsel
        Thomas J.R. Richards, Minority Professional Staff Member
                     Laura W. Kilbride, Chief Clerk
                     
                     
  
                                                   Calendar No. 382

115th Congress}                                            { Report
                                 SENATE
  2d Session  }                                            { 115-231

======================================================================                   
 
     CONSTRUCTION CONSENSUS PROCUREMENT IMPROVEMENT ACT OF 2017

                                _______
                                

                 April 18, 2018.--Ordered to be printed

                                _______
                                

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

                              R E P O R T

                         [To accompany S. 2113]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Homeland Security and Governmental 
Affairs, to which was referred the bill (S. 2113) to amend 
title 41, United States Code, to improve the manner in which 
Federal contracts for design and construction services are 
awarded, to prohibit the use of reverse auctions for design and 
construction services procurements, and for other purposes, 
having considered the same, reports favorably thereon without 
amendment and recommends that the bill do pass.

                                CONTENTS

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

                         I. Purpose and Summary

    S. 2113, the Construction Consensus Procurement Improvement 
Act of 2017, seeks to improve the procedure that civilian 
agencies use to select construction companies to perform design 
and construction projects. The bill reduces Federal Government 
documentation requirements, reduces costs for construction 
companies bidding on Federal contracts, and ensures that the 
Government does not use a reverse auction to establish a fair 
and reasonable price for certain construction contracts.\1\
---------------------------------------------------------------------------
    \1\On February 10, 2016, the Committee approved S. 1526, the 
Construction Consensus Improvement Act of 2015. That bill is 
substantially similar to S. 2113. Accordingly, this report is in large 
part a reproduction of Chairman Johnson's committee report for S. 1526, 
S. Rep. No. 114-366 (2016).
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              II. Background and the Need for Legislation

    Currently, many Federal construction contracts are awarded 
using a two-phase ``design-build'' procedure.\2\ The first 
phase begins with an agency soliciting general design and 
background information from construction companies.\3\ The 
agency then reviews the information and selects a subset of the 
companies to participate in the second phase of the selection 
process.\4\
---------------------------------------------------------------------------
    \2\Joseph C. Kovars, Barbara R. Gadbois and John R. Heisse, Turning 
a Battleship: Design-build on Federal Construction Projects, Ober-Kaler 
(2011), http://www.ober.com/publications/1172-turning-battleship-
design-build-federal-construction-projects.
    \3\Virginia E. Mitchell, Two-Phase Design/Build Selection Process 
Speeds Contract Review, U.S. Army AL&T; Magazine (June 2011), http://
www.army.mil/article/58694/
Two_Phase_Design_Build_Selection_Procedure_Speeds_Contract_Review/.
    \4\Id.
---------------------------------------------------------------------------
    In the second phase, the agency requests detailed design 
and cost information from the selected companies, evaluates 
that information, determines a fair and reasonable price, and 
awards the contract to the company that will provide the best 
value to the Government.\5\
---------------------------------------------------------------------------
    \5\Id.
---------------------------------------------------------------------------
    While this two-phase design-build procedure is generally 
useful, it has several downsides. First, for smaller projects, 
the requirement that the contracting officer confirm that ten 
criteria were reviewed and satisfied before beginning the two-
phase procedure can be onerous both for the Government and the 
contractors.\6\
---------------------------------------------------------------------------
    \6\FAR 36.301, Use of two-phase design build selection procedures 
(1997).
---------------------------------------------------------------------------
    Second, the contracting officer must consider not less than 
five bidders in the second phase of the procedure.\7\ Some 
estimate that it costs a company between $50,000 and $100,000 
to submit the full design documentation required at this stage 
of the procedure.\8\ When a contracting officer includes 
bidders in the second phase of the process that do not have a 
reasonable chance of winning the contract, it wastes their time 
and money.
---------------------------------------------------------------------------
    \7\FAR 36.303-1(a)(4) (1997).
    \8\Virginia E. Mitchell, Two-Phase Design/Build Selection Process 
Speeds Contract Review, U.S. Army AL&T; Magazine (June 2011), http://
www.army.mil/article/58694/Two_Phase_ 
Design_Build_Selection_Procedure_Speeds_Contract_Review/.
---------------------------------------------------------------------------
    Finally, the design-build procedure outlined in statute and 
detailed in the Federal Acquisition Regulation (FAR) lacks 
guidance on how to determine a fair and reasonable price. 
Without this guidance, a contracting officer could use a 
reverse auction to determine a fair and reasonable cost to the 
Government.\9\ In a reverse auction, the sellers continually 
lower their prices in order to win the award, as opposed to a 
regular auction where buyers raise their offers until they win 
the item for sale.\10\ To win the auction, in most cases the 
company must be the low bidder at the end of the auction.\11\ 
While this procedure generally results in a low price for the 
item, the quality of the product, delivery terms, and other 
important features may be lacking.\12\ Therefore, reverse 
auctions are not appropriate for design-build contracts that 
require design concepts, key personnel, and technical 
solutions.\13\
---------------------------------------------------------------------------
    \9\FAR 36.303-2(b) (1997).
    \10\Reverse Auctions, What are Reverse Auctions?, (2008), http://
reverseauctions.com/index.html.
    \11\Gov't Accountability Office, GAO-14-108, Guidance is Needed to 
Maximize Competition and Achieve Cost Savings 3 (2013), http://gao.gov/
assets/660/659530.pdf.
    \12\Id.
    \13\FAR 36.30-2(a) (1997).
---------------------------------------------------------------------------
    The Government Accountability Office (GAO) recommended that 
the Director of the Office of Management and Budget (OMB) issue 
guidance on the appropriate use of reverse auctions in a 2013 
report.\14\ In 2015, the Office of Federal Procurement Policy 
(OFPP) issued a memorandum mentioning reverse auction guidance; 
however, OFPP has failed to include reverse auction policy 
within the FAR.\15\ Without a FAR provision, agencies may use 
reverse auctions to set prices for design-build contracts or to 
contract for building materials using the reverse auction 
process. For example, concerns with the use of reverse auctions 
were highlighted when the United States Army Corps of Engineers 
issued a policy to stop using reverse auctions for construction 
contracts after finding that the reverse-auction methodology 
did not work for construction contracts due to their high 
degree of variability, and that they did not deliver promised 
savings.\16\
---------------------------------------------------------------------------
    \14\ Gov't Accountability Office, GAO-14-108, Guidance Is Needed to 
Maximize Competition and Achieve Cost Savings, http://www.gao.gov/
products/GAO-14-108.
    \15\ Office of Federal Procurement Policy. Memorandum on Effective 
Use of Reverse Auctions (June 1, 2015), https://www.whitehouse.gov/
sites/default/files/omb/procurement/memo/effective-use-of-reverse-
auctions.pdf.
    \16\ Press Release, Joint-Hearing Finds The Use Of Reverse Auction 
Contracts Limits Competition, Increases Costs For Taxpayer, H. Comm. on 
Small Business, Subcomm. On Contracting & Workforce (Dec. 11, 2013), 
http://smallbusiness.house.gov/news/documentsingle.aspx?Document 
ID=364146.
---------------------------------------------------------------------------
    According to a study commissioned by the Department of 
Transportation, the use of the design-build procurement process 
has been steadily increasing in the United States public 
building sector for more than ten years.\17\ Most of the design 
build contracts surveyed used the two-phase selection procedure 
because it assessed qualitative factors rather than relying 
solely on the low-cost bid.\18\ A 2013 report by Reed 
Construction Data corroborated this finding when it reported 
that more than 80 percent of the Department of Defense's 
construction projects were awarded using the design-build 
procedure.\19\ The report also found that slightly more than 30 
percent of all government construction projects used the 
design-build procedure in 2012.\20\ Based on the body of 
support for two-phase design-build procurements, it is 
important to address the flaws that may keep civilian agencies 
from using this procurement process for most of their 
construction contracts.
---------------------------------------------------------------------------
    \17\ U.S. Dep't of Transp. Fed. Highway Admin. Office of Int'l 
Programs, Design-Build, http://international.fhwa.dot.gov/
contractadmin/04.cfm (last visited Mar. 8, 2018).
    \18\ Id.
    \19\ Tim Duggan & Darshan Patel, Design-Build Project Delivery 
Market Share and Market Size Report (May 2013), http://www.dbia.org/
resource-center/Documents/rsmeansreport _2013rev.pdf.
    \20\ Id.
---------------------------------------------------------------------------
    S. 2113 addresses the flaws in the current design-build 
process to expand its use to award civilian construction 
contracts. First, the bill requires the use of the two-phase 
process for all construction projects that are $3,000,000 or 
greater. Second, the bill discourages the contracting officer 
from including more than five construction companies in the 
second phase by requiring the agency to report to Congress all 
design-build procurements that allow more than five firms to 
participate in the second phase of the design-build procedure. 
Third, S. 2113 prohibits reverse auctions that are part of the 
two-phase design-build selection procedure. This prevents 
agency contracting officers from experimenting with 
inappropriate methods to determine a fair and reasonable price. 
The bill is not intended to prohibit the use of reverse 
auctions in acquisitions other than those services defined in 
the section.

                        III. Legislative History

    S. 2113, the Construction Consensus Procurement Improvement 
Act of 2017, was introduced on November 9, 2017, by Senators 
Rob Portman (R-OH) and Mazie Hirono (D-HI). The bill was 
referred to the Committee on Homeland Security and Governmental 
Affairs.
    The Committee considered S. 2113 at a business meeting on 
February 14, 2018. The Committee approved the bill en bloc by 
voice vote. Members present for the vote were: Johnson, 
Portman, Paul, Lankford, Enzi, Hoeven, Daines, McCaskill, 
Carper, Heitkamp, Peters, Hassan, Harris, and Jones.

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


Section 1. Short title

    This section establishes the short title of the bill as the 
``Construction Consensus Procurement Improvement Act of 2017.''

Section 2. Congressional findings

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

Section 3. Design-build construction process improvement

    This section replaces the current requirements in 41 U.S.C. 
Sec. 3309(b) with a requirement that the two-phase selection 
procedure be used for design and construction of a public 
building, facility, or work valued at or above $3,000,000. For 
smaller projects, having a value of less than $3,000,000, it 
retains the requirement that the contracting officer perform an 
analysis of the project's complexity before using the two-phase 
selection procedure.
    This section also requires the head of each agency to 
create and publically post information regarding the procedures 
used to award design and construction contracts in fiscal years 
2017 through 2022. Each agency must state the number of times 
that more than five bidders are included in the second phase of 
the two-phase procedure, as well as the number of design and 
construction contracts awarded using a procedure other than the 
two-phase selection procedure. The OMB Director shall 
facilitate public access to these reports. Finally, the section 
directs GAO to perform a one-time compliance review of this 
section within 270 days after enactment.

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

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

                  IV. Evaluation of Regulatory Impact

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

              V. Congressional Budget Office Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, February 23, 2018.
Hon. Ron Johnson,
Chairman, Committee on Homeland Security and Governmental Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2113, the 
Construction Consensus Procurement Improvement Act of 2017.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Matthew 
Pickford.
    Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

S. 2113--Construction Consensus Procurement Improvement Act of 2017

    S. 2113 would modify the federal government's procedures 
for awarding design and construction contracts for federal 
facilities and would prohibit the use of reverse auctions for 
such awards. Specifically, the legislation would require the 
selection process for designing and constructing any federal 
facility with a cost of more than $3 million to occur in two 
phases. In phase one, potential contractors would provide basic 
information on their experience and past performance. Agencies 
would then select several contractors and invite them to submit 
more detailed proposals in phase two.
    CBO reviewed information on the process of awarding 
contracts used by the Army Corps of Engineers (Corps) and the 
General Services Administration (GSA), two agencies that 
oversee construction of many federal facilities. Those agencies 
often use a two-phase selection process but also use other 
acquisition strategies to award contracts. Using information 
from those agencies, CBO estimates that implementing S. 2113 
would cost about $600,000 a year and $3 million over the 2018-
2022 period, primarily for the Corps, which would incur 
somewhat higher costs to evaluate two rounds of proposals 
before selecting a contractor for each construction project. 
Such spending would be subject to the availability of 
appropriated funds.
    CBO found that the Corps and GSA generally do not use 
reverse auctions for complex procurements because such auctions 
do not consistently result in costs that are lower than those 
from sealed bids or negotiated procurements. On the basis of 
that information, CBO estimates that implementing S. 2113 would 
not result in a significant changes in bidding practices for 
federal construction projects and thus would not have a 
significant effect on the federal budget.
    Because enacting the bill could affect direct spending by 
agencies not funded through annual appropriations, pay-as-you-
go procedures apply. CBO estimates, however, that any net 
change in spending by those agencies would be negligible. 
Enacting the bill would not affect revenues.
    CBO estimates that enacting S. 2113 would not increase net 
direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2028.
    S. 2113 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    On February 16, 2017, CBO transmitted a cost estimate for 
H.R. 679, the Construction Consensus Procurement Improvement 
Act of 2017, as ordered reported by the House Committee on 
Oversight and Government Reform on February 2, 2017. The two 
bills are similar and CBO's estimates of their budgetary 
effects are the same.
    The CBO staff contacts for this estimate are Matthew 
Pickford and Aurora Swanson. This estimate was approved by H. 
Samuel Papenfuss, Deputy Assistant Director for Budget 
Analysis.

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

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

UNITED STATES CODE

           *       *       *       *       *       *       *


TITLE 41--PUBLIC CONTRACTS

           *       *       *       *       *       *       *


Subtitle I--Federal Procurement Policy

           *       *       *       *       *       *       *


DIVISION C--PROCUREMENT

           *       *       *       *       *       *       *



CHAPTER 33--PLANNING AND SOLICITATION

           *       *       *       *       *       *       *



SEC. 3309. DESIGN BUILD SELECTION PROCEDURES

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

                                  [all]