--------------------- Energy, Installations and Environment -

Contract Management of Problem Construction Projects

Briefing for the

House Committee on Armed Services

Pursuant to HASC Report 114-537, page 374,

accompanying H.R. 4909, the National Defense Authorization Act for Fiscal Year 2017

The estimated cost of this report or study for the Department of Defense is approximately $10,000 for Fiscal Year 2018. This includes $100 in expenses and $9,900 in DoD labor.

Generated on 2018Sep11 ReflD: 8-72CFDB3

Contents Energy, Installations and Environment -

• Congressional Request

• Current Policies

• Primary Responsibility for Recovery Actions

• Recovery Actions

• Failed/Terminated Projects

• Poor Performing Contractors

• Sharing Lessons Learned

2

Congressional Request

-------------------- Energy, Installations and Environment -

• HASC Report 114-537, page 374 requests the Secretary of Defense, in coordination with each of the mi litary services, provide a briefing on:

"the Department's policy for recovering funds from projects where quality standards were not met, a recent history on failed projects, terminated contracts and significant facilities with quality problems that occurred after beneficial occupancy, and the actions that the Department has taken on these projects to recover funding. Further, the briefing should identify the offices of primary responsibility and describe their levels of authority for recovering funds from failed projects or projects where the contractor has not meet quality standards, and how these offices share lessons learned. Finally, the briefing should address how the department identifies and ensures poor performing contractors are kept from receiving future government work."

3

Current Policies ------------------------ Energy, Installations and Environment -

• The Department policies that provide the procedures for recovering funds from contractors are:

o FAR 52.22~-15 Performance & Payment Bonds - Construction o FAR 52.211-12 Liquidated Damages-Construction o FAR 52.249-10 Default {Fixed-Price Construction)

• The Department's policies pertaining to quality assurance and control for construction contracts are:

o FAR 52.246-21 Warranty of Construction o FAR Part 42.15 requires that contractor performance information be collected and used in

source selections o FAR 52.236-15 Schedules for Construction Contracts o FAR 52.204-7 System for Award Management o FAR 52.204-8 Annual Representations and Certifications o FAR 52.209-5 Certification Regarding Responsibility Matters o FAR 52.209-6 Protecting the Government's Interest When Subcontracting with Contractors

Debarred, Suspended, or Proposed for Debarment o FAR 52.213-2 Invoices o FAR 52.232-5 Payments under Fixed-Price Construction Contracts o FAR 52.242-5 Payments to Small Business Subcontractors

4

Current Policies

------------------------ Energy, Installations and Environment -

• Army policies pertaining to recovering funds, and quality assurance and control for construction contracts are:

• AR 5-1, Management of Army Business Operations (previously titled, Total Army Quality Management)

• AR 11-2, Managers' Internal Control Program • ER 5-1-11, USACE Business Process

• ER 5-1-14, Resource Management - Quality Management System (QMS) • ER 1180-1-6, Construction Quality Management (CQM)ER 1110-345-100, Design Policy

for Military Construction

• ER 415-1-11, Biddability, Constructability, Operability, Environmental & Sustainability Review (BCOES)

• ER 415-345-38, Construction: Transfer and Warranties • USACE Acquisition Instructions • EP 415-1-260, Area/Resident Engineer Management Guide • PMBP Manual REF8008G

5

Current Policies Energy, Installations and Environment -

• Navy policies pertaining to recovering funds, and quality assurance and control for construction contracts are:

o NAVFAC Business Management System (BMS) Processes • B-1.4.6.1 Post Award Design Management • B-1.4.6.3 Design-Build Quality Management • B-1.4.6.4 Design-Build Technical Submittals • B-1.5.5.1 Design Bid Build Construction Quality Management • B-1.6.7.1 Acceptance Testing for Critical Systems • B-1.6.7.2.1 Performance Verification Testing - Power Generators • B-1.6.7.2 .2 Performance Verification Testing- Uninterruptible Power Supplies • B-1.6.7.2.3 Performance Verification Testing - Frequency Converters • B-1.6.7.3 Mechanical Systems Acceptance Program for TABS/ACATS/DALTS • B-1.6.7.4 Acceptance Testing - Fire Protection Systems • B-1.6.7.5 Roofing Systems Acceptance Program • B-1.6.8 Request for Information • B-1.6.11 NAVFAC Red Zone • B-1.6.12 Completion Inspection • B-1.6.13.2 Warranties

6

Primary Officials Responsible for

Recovery Actions -------------- Energy, Ins tallations and Environment -

• The Government Contracting Officer leads the process to recover funds based on input by construction surveillance personnel such as: o Contracting Officer's Representative o Quality Assurance Inspectors o Construction Project Manager o Standards/Codes Inspectors o Safety Inspectors

7

Recovery Actions (During Contract Execution)

----------------- Energy, Installations and Environment -

• Process for recovering funds from terminated projects is defined in FAR 52.249-lO(a) :

o The Government may, by written notice to the Contractor, terminate the right to proceed with the work. The Contractor and its sureties shall be liable for any damage to the Government resulting from the Contractor's refusal or failure to complete the work within the specified time, whether or not the Contractor's right to proceed with the work is terminated.

o This liability includes any increased costs incurred by the Government in completing the work. The Government may take over the work and complete it by contract or otherwise, and may take possession of and use any materials, appliances, and plant on the work site necessary for completing the work.

8

Recovery Actions (Post Government Acceptance)

--------------------------- Energy, Installations and Environment -

• Recovery actions to address quality issues after the government accepts a facility are governed through the contract warranty clauses.

• Warranty Actions o The purpose of the warranty is to protect the government after acceptance as the Contractor

must repair the item at their expense to the extent of the terms of the warranty. Once the warranty expires; as specified in paragraph (k) of the Inspection clause, the only way for the government to overcome the conclusiveness or finality of acceptance is to prove that the item has a latent defect (see definition in FAR 2.101.} or if the contractor has committed fraud, which, if suspected, we would consult counsel.

o One year construction material and workmanship warranty. o Some engineered systems require a separate manufacturer's warranty.

• Warranty Management Plan o Performance bond remains in effect. o Designated customer representative contacts contractor directly for correction of items under

warranty. o 4 and 9 month joint post occupancy warranty inspections. o Reported warranty items are tracked until correction. o If the contractor fails to respond or correct under the contract warranty, the government has

the authority to have the work performed by others and charge the remaining construction warranty funds of expenses incurred by the Government while performing the work, including, but not limited to administrative expenses.'

9

Failed/Terminated Projects ---------------------- Energy, Installations and Environment -

• For the purposes of this briefing, a failed project is a project that has been terminated for default by the contracting officer as defined in FAR 52.249-10.

• The Department identified five construction projects (over $GM; 10 USC Unspecified Minor Military construction threshold} that "failed" between FY 2015-FY2017.

o All funds were recovered on these projects.

Design Construction

Agent

NAVFAC

NAVFAC

NAVFAC

USACE

USACE

Project

Replace Bolden Elementary-Middle School

Replacement of Taxiway Shoulder and Edge Lights Phases 1,2 & 3 Travis AFB

DIAC Parking Garage, JBAB

ANA Ammo Magazines

Repair Selah Airstrip Yakima Training Center

Location Amount

Beaufort, SC $35.7M

Travis AFB, CA $27M

Washington, DC $7.9M

Kabul, Afghanistan $6.9M

Yakima, WA $6.8M

10

Poor Performing Contractors -------------------------- Energy, Installations and Environment -

• Identification of poor performing contractors: o The Federal government requires contracting officers to evaluate contactor

performance annually and document that evaluation in the Contractor Performance

Assessment Reporting System, the government wide evaluation reporting tool (FAR

(42.1502) .

• Preventing future government work: o Prior to award, an agency must verify using the System for Award Management

Exclusions to ensure it does not solicit offers from, or award contracts to, or consent

to contracts with contractors debarred, suspended or proposed for debarment.

o During pre-award evaluation, prospective contractor's past performance information

is used during technical evaluation within the source selection process.

11

Lessons Learned ----------------------- Energy, Installations and Environment -

• How are Lessons Learned Shared

o Senior Military, Chief Engineer and Acquisition leaders meet together regularly at the HQ and Regional Office levels to discuss business processes, lessons learned, resourcing and initiatives.

o The Chief Engineer and Head of Acquisition meet on a regular basis and hold monthly conference calls with their worldwide field counterparts.

o NAVFAC product line leaders for construction and design host regular meetings and calls with worldwide field counterparts to discuss lessons learned as part of normal business processes.

o Technical subject matter experts located at HQ and all Regional Offices work as teams to share lessons learned, solve unique design and construction issues, and assist in the publishing of policies and guidance.

o Internal publications, such as USACE and NAVFAC Engineering Construction Bulletins, are consulted.

o Field activities are conducted, including technical discussions, mentoring, training, etc. which are a regular part of daily operations.

12