The Parts of the FAR that Construction and A&E Contractors Need to Know

FAR Part 36 - Construction and Architect-Engineer Contracts provides the direction to contracting officer on the expected processes and requirements around contracting for construction and Architectural and Engineering (A&E) services. Part 36 addresses construction and A&E separately and we have included some of the key areas below.

Federal Construction and A&E Contracting Requirements for Contracting Officers

General Section

• Part 36 is not all inclusive – other parts of the FAR also apply to construction and A&E but part 36 takes precedence if there is any inconsistence
• A contract can include both construction/A&E and supplies/services, requiring clauses to address both
• Preference for sealed bid firm-fixed-price for construction
• Guiding Principles for Federal Leadership in High-Performance and Sustainable Buildings
• Ensuring pollution prevention and eliminate waste by recycling
• Energy efficiency
• Government independent estimates (See our article, The Hidden Competitor in Federal Construction and A&E Contracting)
• Public disclosure of projects to generate as many prospective offers as possible
• Congressional set cost limitations on some projects
• Prohibits firm-fixed price and cost reimbursable contracts at the same work site
• Limitation of awarding construction to the firm that designed the project or its subsidiaries or affiliates
• Negotiations need to follow FAR Part 15, including the require for certified cost or pricing data

Construction Contracting Methods

• “Design-Build” combining design and construction in a single contract with one contractor
• “Design-Bid-Build” the traditional method where design and construction are sequential and contracted for separately with two contracts and two contractors
• Two-Phase Design-Build:
  • Phase 1 – Three or more companies engaged to perform design effort to support the development of price or cost proposals, based on Government developed scope of work that defines the project and states the requirements
  • Phase 2 – Then an additional solicitation is issued to Phase 1 companies, based on FAR part 15, and includes evaluation factors, such as design concepts, management approach, key personnel, and proposed technical solutions to support the development of the technical and price proposal from each company to be evaluated separately, based on FAR part 15

A&E Contracting Method

• Evaluation Board:
  • The Board selects at least three potential firms
  • The head of agency approves the selections
  • The contracting officer then attempts to negotiate a contract with the firms in the order set by the Board during their selection
• A&E includes mapping and surveying scope of work
• The board method constitutes competition
• The A&E firm is liable for any additional cost to the Government resulting from design errors or deficiencies

While your initial read of these requirements leads you to believe that the Federal Government want to award mostly competitive fixed price contracts placing limited estimating and accounting requirements on the contractor, it is just not that easy. Fixed price competition is the Government’s gateway drug, once they have you hooked, they are going to make things much more complex. We have rarely seen a Federal Government construction contract that did not require at least one (if not many) change orders and potential delay claims. This is where the Government auditors show up and start asking for cost or pricing data and accounting records your company may not have readily available. While we would hope to see that the auditors understand they need just enough data to help support the contracting officer’s business decision to make a fair and reasonable (to all parties) adjustment to the contract price, that is often not the mindset. The auditors, to often, are simply looking for any reason to question any proposed cost and then pressure the contracting officer to support not allowing any reasonable increase in cost. This is not because the auditors do not believe an adjustment is appropriate but simply because the auditors cannot tie the increase to specific records in your systems. We have also seen auditors threaten to report the contracting officer for not supporting the auditor’s position.

Contract Clauses Specific to Construction and A&E Contracts

Now that we have a general overview of the requirements placed on the contracting officer that you will need to support, we will highlight a few of the key FAR contract clauses:

Construction

• FAR 52.236-1 Performance of Work by the Contractor requires the contractor receiving the award to perform a specific percentage of the work – a limitation on subcontracting. Required in fixed price construction contracts exceeding $1.5M, except when awarded through Set-Asides, 8(a), HUBZone, Disabled Veteran, and Woman-Owned program. If you do not have documentation to support the contracting officer approved your delivery of a lower percentage of the work, an auditor is likely to question a portion of your subcontracts and recommend your fixed-price contract be reduced.
• FAR 52.236-3 Site Investigation and Conditions Affecting the Work requires the contractor to acknowledge it has taken reasonable steps to ascertain the nature and location of the work and limit the impact (i.e., cost) on the Government for any conclusions or interpretations made by the Contractor. Required in fixed price contracts exceeding Simplified Acquisition Threshold (SAT – $250,000), but may be included in contracts below the SAT. So, if you forget to factor into your proposal the additional time to get on and off the access-controlled Government facility, you are not going to be able to go back the contracting officer for a price adjustment when the threat level changes, and your employees and equipment sit in line everyday at the gate.
• FAR 52.236-6 Superintendence by the Contractor require the contractor to have a superintendent on site throughout the work. Required in fixed price contracts exceeding Simplified Acquisition Threshold (SAT – $250,000), but may be included in contracts below the SAT. The Government could withhold a portion of your milestone payments until you can provide support that your superintendent not being on site did not create any issues with performance.
• FAR 52.236-8 Other Contracts requires the contractor to adapt its schedule and work performance to accommodate other Government contract work. Required in fixed price contracts exceeding Simplified Acquisition Threshold (SAT – $250,000), but may be included in contracts below the SAT. If you happen to delay the other contractor, even unintentionally, the Government may come looking for you to reimburse any additional cost the Government incurred.
• FAR 52.236-11 Use and Possession Prior to Completion requires the contractor to allow the Government to take possession of or use any completed or partially completed part of the work. Required in fixed price contracts exceeding Simplified Acquisition Threshold (SAT – $250,000), but may be included in contracts below the SAT. This could create delays for your employees that will not be reimbursed.
• FAR 52.236-15 Schedules for Construction Contracts requires the submission and maintenance of a work schedule of planned and actual performance. Required in fixed price contracts exceeding Simplified Acquisition Threshold (SAT – $250,000) and more than 60 days but may be included in contracts below the SAT or less than 60 days. The Government is going to expect significantly more reporting than your commercial customers. You will need to factor the cost of this additional reporting into your proposed price.

A&E Services

• FAR 52.236-22 Design Within Funding Limitations requires the firm to ensure its design services provide that the construction price does not exceed the Government's funding limitation. Any necessary redesign effort will be at no cost to the Government to get the cost under the Government's funding limitation. Required in most contracts.
• FAR 52.236-23 Responsibility of the Architect-Engineer Contractor makes the firm liable for any damages to the Government due to the firm’s design errors or deficiencies. Additionally, the firm will make correction at its cost. Required in fixed-priced contracts.

Enough said here, the Government place additional risk on the firm.

Cost-Reimbursement Contracts

FAR 36.215 specifically allows for the award of a cost-reimbursable contract for construction provided the contracting officer follows all the requirements in FAR Subpart 16.3, Cost-Reimbursement Contracts, and FAR Part 15 related to negotiation and setting the fixed fee. FAR 36.6, Architect-Engineer Services, does not specifically discuss cost-reimbursement contracts. We see no limitation or restriction on the use of cost-reimbursement contracts for A&E services.

Can I Shift All of the Cost Risk to the Government and Get a Preset Amount of Profit?

You need to understand the requirements of cost-reimbursement contracts and you are not likely to see it as the golden goose it sounds like. Here are just a few of the FAR requirements:

• FAR 16.104, Factors in Selecting Contract Types, in (i) prohibits a contracting officer from awarding a contract type other than firm-fixed price unless the contractor has an adequate accounting system. An adequate accounting system requires detailed project level (i.e., contract by contract) accounting that can provide a report of direct and indirect cost by contract with all FAR Part 31 unallowable costs removed from the amount to be billed to the Government on at least a monthly basis. Government auditors are going to show up to verify the adequacy and will likely return every three years to audit the system again – this is a significant investment in your resources to support the auditors.
• 216-7, Allowable Cost and Payment, requires you to submit a final indirect cost rate proposal each year that may be audited to ensure you have not billed the Government for any unallowable cost. Likely requiring you to contract with a subject matter expert or hire one of your own to put this annual proposal together.
• 232-20, Limitation of Cost, and 52.232-22 Limitation of Funds, require you to notify the Government when you are about to exceed 75% of the total cost or allocated funds the Government has placed on the contract. If you exceed these amounts the Government does not have to pay you for your efforts. (See our article, Limitation of Cost or Funds – The Burden Falls on You for more details.)

There are numerous other FAR contract clause requirements that can make this an expensive investment for you to stay in compliance throughout and even after the period of performance of the contract. Yes – the cost of a cost-reimbursement contract does not end when you hand the keys to the facility to the Government. You will have potential audits and the contract closeout process to go through at your own cost. The Government does not allow you to assign these on-going costs to a completed contract – not fair, but them the rules – Government rules that is. We are not saying going after Federal Government business is a bad idea, you simply need to understand what it brings with it and be prepared for it.

Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations and supporting contractors from contract award to contract closeout. We would be happy to be part of your team.