Third Party Procurement
Frequently Asked Questions
Q = Question; A = Answer
Q. Would the FTA requirement for "full and open competition" be satisfied by the following procurement method? An open solicitation is issued asking for qualification-based proposals from prospective Construction Managers (CMs). The CM is then selected from these offerors based on qualifications. The CM then solicits bids from at least three subcontractors for each job to be done. The sub with the lowest bid is awarded a subcontract by the CM. The CM's contract price is adjusted to reflect the subcontract cost, and a management fee of 2.5 percent to 4 percent is negotiated with the CM. The CM is at risk under its fixed price prime contract with the agency.
A. Selection of CM at-Risk—In the private sector it has been the practice to select the CM at-Risk using a qualification-based process. This approach is also authorized by certain States, including Arizona and Texas. It is important to note, however, that FTA grantees may not use a qualifications-based selection (i.e., without prices) for this delivery method when using FTA funds. FTA regulations call for price to be considered as a factor in award for all but architect-engineering (A/E) services as defined by the FTA Procurement Circular 4220.1F. The services defined there as A/E include “construction management,” but this term refers to Construction Management (Agent) as discussed in section 22.214.171.124 of the FTA Best Practices Procurement Manual.
The term “construction management” as used in the FTA Circular does not include the Construction Manager at-Risk method. The reason for this is that the CM at-Risk becomes the construction contractor, and construction will be the preponderance of the dollar value of the work. The principle followed by FTA with CM at-Risk contracting is the same as with design-build contracting (i.e., when the preponderance of the work falls in the construction area, the contract is treated as one for construction, not A/E services).
Pricing the CM at-Risk Contract—The competitive RFP, using Federal requirements for competitive price proposals, would typically require offerors to propose the following elements:
- A Pre-Construction Phase Price. This fee would represent the costs and profit for the contractor’s effort on behalf of the owner during the pre-construction phase. Often the “fee” is negotiated on a lump sum (fixed price) basis, but it may also be negotiated on a cost-plus-fixed-fee basis. It would typically include the following responsibilities:
- Design review and analysis
- Recommendations on construction costs, feasibility and practicality regarding the selection of methods, materials and systems, including cost reducing alternatives
- Constructability reviews
- Value engineering—the CM will review the designs for possible economies and make recommendations to the Agency. The CM assumes no liability for design errors or omissions
- Schedule development
- Long lead time procurement
- Solicitation of competitive bids
- A Construction Phase Price per Month/Week of Field Activity. This monthly or weekly price would compensate the contractor for its management of subcontractors in the field during the construction phase. This effort would include the management of all construction subcontracts through final inspection and acceptance of the subcontractors’ work products. The price is usually negotiated with the initial proposal as a lump sum amount for a month (or week) of CM field effort. This monthly price is then converted to a lump sum (fixed price) amount for completion of the project when the construction phase begins and the project duration has been better defined. This phase would typically involve such expenses as:
- Field Office
- Office trailers
- Office furniture
- Office equipment (fax machine, copy machine, phones, etc)
- Office utility bills
- Office supplies
- Field Supervision
- Project Manager
- Project Engineer
- Project Scheduler
- Field Office Clerical
- Field Labor
- Safety crews
- Field Equipment
- Storage trailers
- Portable toilets
- Safety equipment
- Support equipment (forklift/backhoe, etc.)
- CM Contractor’s Profit & Home Office Overhead (G&A). The contractor’s profit and home office overhead (G&A) for managing the construction phase of the project should be proposed and negotiated with the initial proposals. This price would usually be negotiated as a percentage of the overall estimated cost of the project, but once established it is written into the contract as a lump sum or fixed fee that would not be increased or decreased with fluctuations in actual project construction costs. Grantees must be careful not to express this fee in the contract on a cost-plus-percentage-of cost basis, which is prohibited by Federal statute. The fee would of course be subject to equitable adjustments for grantee-ordered scope changes and grantee-caused delays. Experience would indicate that this price would generally range from 4 percent–7 percent of total estimated construction costs depending on complexity, risk and size of the project.
- Guaranteed Maximum Price (GMP). In most cases the owner will require the CM at-Risk contractor to agree to a guaranteed maximum price for the construction phase of the project. The GMP will consist of all the actual awarded subcontractor prices, plus the CM’s construction phase management effort, and such costs as bonds, insurance and the CM’s profit. The GMP is established early in the construction phase, not with initial proposals. As already noted, the GMP is subject to adjustment for owner issued change orders and owner caused delays. It is treated contractually as the fixed price in a typical construction contract.
- Other Direct Costs. These would include such costs as bonds and insurance. Since the contract calls for construction responsibility, the contract would have to include performance and payment bonds per FTA requirements in FTA Circular 4220.1F. The purchase of bonds by the CM will probably have to be delayed until designs are completed so that sureties can ascertain the construction risk and quote bond prices. The cost of bonds and insurance would be established in the contract as specific line items. Grantees will want to evaluate the contractor’s bonding capacity and insurance coverage in the initial proposal evaluation stage prior to selection to make sure there will be no problems later.
- Buy America. Construction is considered a “manufactured product” as defined in the Buy America regulations. Grantees will need to obtain the required Buy America certifications. The regulation calls for the certifications to be submitted with each “bid or offer.” In the case of a CM at-Risk contract, the “bid or offer” cannot be submitted until designs of the various subsystems are complete; i.e., at the time of solicitation of subcontractor bids by the CM. Grantees would be advised to obtain FTA approval (before award of the CM contract), describing when Buy America certifications will be obtained (at the time of subcontractor bids or offers for the various subsystems to be built).
(Reviewed: October 2010)
Q. A local agency has an RFP out for a CM At-risk Project, which is very similar to a design-build project in that it requires a team composed of an AE and General contractor. The RFP caps the overhead rate at 2.4. Is that legal under FTA circular 4220.1F? Please refer to the following web site under RFPs, page 16 of the General Provisions defines the Cap: http://www.mta.net/projects_plans/exposition/default.htm.
A. At this time the Federal Government (GSA, FTA, etc.) does not treat CM At-Risk procurements as A-E (Brooks Act) procurements. The current policy is to treat this kind of contract as one for construction (or, if you prefer, as Design-Build where the preponderance of the work is construction, not A-E services). Thus the Federal approach is to use a negotiated competitive RFP (pursuant to FAR Part 15) with price proposals from the CM At-Risk offerors. This being true, there does not appear to be a problem with the overhead cap, as there would be if this were an A-E procurement. (Reviewed: October 2010)