SPEAKERS CONTENTS INSERTS
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24–084CC
1997
THE PAYMENTS OF STIPENDS TO BIDDERS RELATING TO THE CONSTRUCTION OF FEDERAL BUILDINGS UNDER THE PUBLIC BUILDINGS ACT OF 1959
PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.
(104–56)
HEARING
BEFORE THE
SUBCOMMITTEE ON
PUBLIC BUILDINGS AND ECONOMIC DEVELOPMENT
OF THE
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COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTH CONGRESS
SECOND SESSION
APRIL 17, 1996
Printed for the use of the
Committee on Transportation and Infrastucture
COMMITTEE ON TRANSPORTATION AND INFRASTUCTURE
BUD SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska
WILLIAM F. CLINGER, Jr., Pennsylvania
THOMAS E. PETRI, Wisconsin
SHERWOOD L. BOEHLERT, New York
HERBERT H. BATEMAN, Virginia
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HOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
SUSAN MOLINARI, New York
WILLIAM H. ZELIFF, Jr., New Hampshire
THOMAS W. EWING, Illinois
WAYNE T. GILCHREST, Maryland
Y. TIM HUTCHINSON, Arkansas
BILL BAKER, California
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
PETER I. BLUTE, Massachusetts
JOHN L. MICA, Florida
JACK QUINN, New York
TILLIE K. FOWLER, Florida
VERNON J. EHLERS, Michigan
SPENCER T. BACHUS, Alabama
JERRY WELLER, Illinois
ZACH WAMP, Tennessee
TOM LATHAM, Iowa
STEVEN C. LaTOURETTE, Ohio
ANDREA SEASTRAND, California
RANDY TATE, Washington
SUE KELLY, New York
RAY LaHOOD, Illinois
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BILL MARTINI, New Jersey
DAN FRISA, New York
TODD TIAHRT, Kansas
RICHARD H. BAKER, Louisiana
JAMES L. OBERSTAR, Minnesota
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
WILLIAM O. LIPINSKI, Illinois
ROBERT E. WISE, Jr., West Virginia
JAMES A. TRAFICANT, Jr., Ohio
PETER A. DeFAZIO, Oregon
BOB CLEMENT, Tennessee
JERRY F. COSTELLO, Illinois
PETE GEREN, Texas
GLENN POSHARD, Illinois
BUD CRAMER, Alabama
BARBARA-ROSE COLLINS, Michigan
ELEANOR HOLMES NORTON, District of Columbia
JERROLD NADLER, New York
PAT DANNER, Missouri
ROBERT MENENDEZ, New Jersey
JAMES E. CLYBURN, South Carolina
CORRINE BROWN, Florida
JAMES A. BARCIA, Michigan
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BOB FILNER, California
EDDIE BERNICE JOHNSON, Texas
BILL K. BREWSTER, Oklahoma
KAREN McCARTHY, Missouri
FRANK MASCARA, Pennsylvania
THOMAS C. SAWYER, Ohio
GENE TAYLOR, Mississippi
JUANITA MILLENDER-McDONALD, California
ELIJAH E. CUMMINGS, Maryland
Subcommittee on Public Buildings and Economic Development
WAYNE T. GILCHREST, Maryland, Chairman
ANDREA SEASTRAND, California
JOHN J. DUNCAN, Jr., Tennessee
PETER I. BLUTE, Massachusetts
STEVEN C. LaTOURETTE, Ohio
DAN FRISA, New York
BUD SHUSTER, Pennsylvania
(Ex Officio)
JAMES A. TRAFICANT, Jr., Ohio
ROBERT E. WISE, Jr., West Virginia
ELEANOR HOLMES NORTON, District of Columbia
CORRINE BROWN, Florida
EDDIE BERNICE JOHNSON, Texas
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JAMES L. OBERSTAR, Minnesota
(Ex Officio)
CONTENTS
TESTIMONY
Davis, Hon. Thomas, a Representative in Congress from Virginia
Eakin, David, Program Manager, Office of Property Development, U.S. General Services AdministratioN
Mitchell, Stephen C., P.E., Chairman, Council on Federal Procurement of Architectural and Engineering Services (COFPAES)
Ustad, Ida, Deputy Associate Administrator, Office of Acquisition Policy, U.S. General Services Administration
Worrall, Phillip W., Principal, Grieves, Worall, Wright, and O'Hatnick, on behalf of the American Institute of Architects, accompanied by Stuart Binstock, Vice President, Federal Affairs for the American Institute of Architects
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Davis, Hon. Thomas, of Virginia
Oberstar, Hon. James L., of Minnesota
Traficant, Hon. James A., of Ohio
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PREPARED STATEMENTS SUBMITTED BY WITNESSES
Eakin, David
Mitchell, Stephen C
Ustad, Ida
Worrall, Phillip W
SUBMISSIONS FOR THE RECORD
Eakin, David, Program Manager, Office of Property Development, U.S. General Services Administration:
Responses to questions from Rep. Traficant
Responses to questions from Rep. Mascara
Gilchrest, Hon. Wayne T., Chairman of Subcommittee on Public Buildings and Economic Development, statement of the Associated General Contractors of America
Mitchell, Stephen C., P.E., Chairman, Council on Federal Procurement of Architectural and Engineering Services (COFPAES), responses to post hearing questions
Ustad, Ida, Deputy Associate Administrator, Office of Acquisition Policy, U.S. General Services Administration:
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Responses to questions from Rep. Johnson
Responses to questions from Rep. Mascara
Worrall, Phillip W., Principal, Grieves, Worall, Wright, and O'Hatnick, on behalf of the American Institute of Architects, responses to post hearing questions
ADDITION TO THE RECORD
Design-Build Institute of America
THE PAYMENTS OF STIPENDS TO BIDDERS RELATING TO THE CONSTRUCTION OF FEDERAL BUILDINGS UNDER THE PUBLIC BUILDINGS ACT OF 1959
WEDNESDAY, APRIL 17, 1996
U.S. House of Representatives,
Subcommittee on Public Buildings and Economic Development,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to notice, at 8:50 a.m. in room 2253, Rayburn House Office Building, Hon. Wayne Gilchrest (chairman of the subcommittee) presiding.
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Mr. GILCHREST. The Subcommittee on Public Buildings and Grounds will come to order. Due to unforeseen circumstances, we'll start the hearing this morning with Mr. Davis, and I'll go into my opening statement after Mr. Davis has a chance to give his testimony, if that's all right with Mr. Traficant.
Mr. TRAFICANT. Fine.
Mr. GILCHREST. Mr. Davis.
TESTIMONY OF HON. THOMAS DAVIS, A REPRESENTATIVE IN CONGRESS FROM VIRGINIA
Mr. DAVIS. Thank you, Chairman Gilchrest and members of the subcommittee for convening this hearing to examine a question I think is important to all taxpayers who are concerned about the quality and cost of the design and construction of Federal buildings.
How can the Federal Government guarantee the procurement of the highest-quality design and construction services at the lowest price?
As the author of the Davis Amendment on Design bill that was incorporated in the recently-enacted procurement legislation, and as an active member of the Government Committee, where most procurement reform originates, I take a special interest in working toward effective changes in current law and regulation that will give the Government buyer better-quality goods and services at the lowest possible price.
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The experts from the Administration and the architectural and engineering community will flesh out the details for you today, but I'd like to briefly highlight a few issues.
First, the word ''stipend'' often triggers false alarms that someone will be receiving tax dollars for an inadequate proposal that provides no benefit to the taxpayer. On the contrary, such payments, which I think are better described as partial reimbursements for services rendered, provide a direct benefit to the Government by making the second and third place bid the property of the Government to incorporate in the final project.
In addition, there is no mystery about whether these partial reimbursements work. They are already used on occasion by the General Services Administration, as well as in private projects. The problem that these reimbursements resolve has become more serious recently with the increased use of the design-build approach, which requires more elaborate and packaged proposals to be submitted, at great expense to the architectural and engineering firms that do not win the job.
You'll hear this morning of Federal building projects that require as many as 15 unsuccessful bidders to spend as much as $250,000 each simply to submit a qualified bid.
The recently-enacted procurement reform bill will limit the number of final bidders to five, but the adverse market effects of this trend toward high-stakes, poker-style bidding continue.
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I'm concerned that, without partial reimbursement, many highly-qualified bidders will shy away from attempting to work on Federal projects. I believe that none of us would like to see the day when only a handful of firms could control the market for the design and construction of Federal buildings. This potential problem could be augmented during times when the market for design and construction in the private sector is strong.
During a strong private economic period, few firms would choose to submit to the risky process of doing business with the Government. I believe the continued innovation, improved durability, and safety in the construction of public buildings depend on a healthy market where numerous competitors feel it's worth their time to bid on Federal building projects.
Many States, counties, and cities are successfully using partial reimbursements to guarantee that a range of competitors, big and small, new and established, bid on public projects.
Let me conclude by saying that partial reimbursements are not a cure-all. Instead, they offer a useful tool that should be available to all Federal agencies that are involved in Federal construction procurement, whether it's the Army Corps of Engineers or the Bureau of Prisons.
To the extent that some agencies have argued that partial reimbursements are not authorized by law, I would urge this subcommittee to consider amending the law to encourage the use of this important procurement tool, although I think it was clear from the debate on the House floor and the colloquy that we believe that adequate legal—the law is adequate at this point to allow for that discretion area with the agency.
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I look forward to working with Chairman Gilchrest and the other members of the Subcommittee on Public Buildings and Economic Development to advance our shared goal, guaranteeing the design and construction of the highest-quality buildings at the lowest price.
Thank you.
Mr. GILCHREST. Thank you, Mr. Davis.
I think there was some confusion when this did come up on the House floor. The word ''stipend'' did raise some concerns. I think there are, it seems to me, fairly significant safeguards in this area, and I thank you very much for your testimony for bringing us to a more enlightened understanding of the process.
Are there any other questions from any Members?
[No response.]
Mr. GILCHREST. Thank you very much, Mr. Davis.
Mr. DAVIS. Thank you very much.
[The prepared statement of Mr. Davis follows:]
[Insert here.]
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Mr. GILCHREST. We'll begin now, and before I ask Ms. Ustad and Mr. Eakin up, I'll read a brief opening statement, and then offer other Members the opportunity to do the same.
This morning the subcommittee will hear from witnesses who will testify on the issue of the payment of stipends to bidders on the design of Federal buildings. We are pleased to have with us representatives from the General Services Administration, as well as representatives from the private sector to discuss the issue.
Last year, during consideration of H.R. 1670, the Federal Acquisition Reform Act of 1995, an amendment was offered by the gentleman from Virginia, Mr. Davis, which would allow a two-phased design-build authority and allow Federal agencies to choose between the traditional design-bid build system, two phase, or another acquisition procedure authorized by law.
This amendment also allowed a Federal agency to develop either in-house or by contract the scope of working, defining the project.
The amendment gave an agency latitude to determine the number of offerors to be selected to submit competitive proposals in the second phase. The amendment spelled out determinations on whether two-phase procedures are appropriate, including the factors that may be used to select contractors using a uniform Government-wide approach.
Finally, the amendment authorized the payment of stipends to phase two competitors if it was deemed fair to competitors and in the interest of the agency. This provision allowing the payment of stipends was eliminated from the amendment, since there was resistance to a wide-scale program of such payments. Instead, it was agreed by the parties involved that this subcommittee should hold a hearing on the subject and allow witnesses to make their views known.
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Currently, there has not been wide use of the payment of stipends by the Government to design Federal buildings. Over the past 10 years, GSA paid stipends to bidders on three projects, totaling $740,000. I do believe, however, that if the Government were to commence a wide-scale policy of payment of stipends, then Congress ought to know what it's getting into and how much it will cost.
We will welcome the witnesses this morning, and I now yield to the distinguished gentleman from Ohio, Mr. Traficant.
Mr. TRAFICANT. Thank you, Mr. Chairman.
General Services Administration is responsible for our Government's real estate program. The agency has many experts and many highly-qualified, dedicated employees who have made a conscientious effort to get the best value for each taxpayer's dollar.
I do believe, however, passing the scoring bill, H.R. 1325, would give the GSA much more flexibility and the ability to make better deals for our taxpayers, but that's an issue for another day. But I think that this subcommittee should in earnest pursue the changes in that which are brought about by that scoring bill. I think it would save us all a lot of money and let our GSA go out and be all that they can be.
This morning witnesses, as you have said, will explain how the GSA stipend program is functioning, and perhaps how private sector professionals view and appraise the program.
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The concept of design is often misunderstood. Good design should lead to efficient space and high space utilization. More efficiency should translate into better budgeting and fewer dollars wasted during the construction process.
Clearly-understood designs with a focus on function should enable GSA to effectively meet the space needs of not only the Federal worker, but also members of the Judicial Branch.
So I'm anxious to hear today about the particular program. I'd also be interested to know the numbers relative to bidding that would bring about the need for these incentives. All of them, I guess, packaged together lead us all to one final end—to try and develop the best space and space utilization for the best possible dollar buy.
With that, I'm looking forward to the testimony and thank you and commend you for having these hearings, Mr. Chairman.
Mr. GILCHREST. Thank you, Mr. Traficant.
I think we need to sit down fairly soon, within the next couple weeks, so we can make scoring a priority. I would like to hold a couple of hearings and get something marked up.
Any other—Mr. Oberstar?
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Mr. OBERSTAR. Thank you, Mr. Chairman. I think your approach to holding the hearings in response to a commitment made on the floor to avoid a more serious confrontation is a wise one, indeed. It's useful to air this issue, and I look forward to hearing the testimony. I must say that I come with a predisposition against the practice of paying stipends or incentives to architects, engineers, or engineering construction firms as an incentive to get bidders on Federal Government projects.
It may be more of a serious problem with the military than with GSA, but I must say that in 33 years experience with this committee, with thousands of buildings that have been authorized by our committee, I have never seen a problem in getting competition among architects or contractors to bid on and build Federal buildings.
If that were a problem, I would say maybe there is a need to provide some incentive, but there is a scramble and fierce competition to design and to build federally-authorized and funded buildings.
There have been a few instances, as cited in very fine staff report in preparation for this hearing, but that's only within the last 10 years and some very unusual circumstances.
I am highly skeptical of the proposal to pay an incentive to firms to bid on the very skimpy argument that they spend a lot of money and they may lose. We don't do that in the highway program, we don't do that in the aviation program. I don't know of a widespread practice in the private sector, certainly not in my part of the country. That's a risk of doing business. You know you're putting together a package that's going to cost you a lot of money. You take your chances. If you don't think you've got a good crack at winning, then you don't put the package together.
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At a time when we're cutting back a lot of Federal programs, to single out one group of people—architects, engineers, contractors on Federal buildings—to give them an incentive to bid and compete I think is going to be anathema to the public.
But I come with an open mind to hear—
[Laughter.]
Mr. OBERSTAR.——what is going to be said in defense of this reprehensible practice.
[Laughter.]
Mr. GILCHREST. Thank you, Mr. Oberstar.
Are there any other opening statements?
[No response.]
[The prepared statements of Mr. Oberstar and Mr. Traficant follow:]
[Insert here.]
Mr. GILCHREST. At this point I call upon Ms. Ida Ustad and Mr. David Eakin—thank you for coming this morning. We look forward to your testimony.
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Ms. Ustad.
TESTIMONY OF IDA USTAD, DEPUTY ASSOCIATE ADMINISTRATOR, OFFICE OF ACQUISITION POLICY, U.S. GENERAL SERVICES ADMINISTRATION, AND DAVID EAKIN, PROGRAM MANAGER, OFFICE OF PROPERTY DEVELOPMENT, U.S. GENERAL SERVICES ADMINISTRATION
Ms. USTAD. Thank you, Chairman Gilchrest and members of this subcommittee. I appreciate the opportunity to appear before you today. It's my pleasure to discuss the payment of stipends to offerors relating to construction of Federal buildings under the Public Buildings Act of 1959.
I serve as the senior procurement executive for the General Services Administration, so I will be testifying from a procurement policy perspective. And Mr. Eakin from the Public Building Service will also testify and provide his perspective on payments of stipends, as well.
A stipend is a stated amount paid to certain unsuccessful offerors in consideration for developing and submitting a design proposal. A stipend generally is given only to offerors who have initially been evaluated and have been found to have a likely chance of receiving the award.
The payment of the stipend is conditional upon the offeror satisfying the final proposal submission requirements and participating throughout the procurement to its conclusion. Stipends only cover a portion of the unsuccessful proposer's proposal preparation cost.
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In the GSA, we have used stipends in a limited number of projects in delivering the capital construction program. GSA uses stipends in two situations. The first is when a traditional design bid-build approach is used to project delivery. GSA has used stipends in design competitions for selecting the architect/engineer to do the design.
GSA has also used stipends in competitions for design-build contracts where design is a significant factor in selecting the successful contractor.
In the first case, the authority for conducting the design competition is provided in section 36.602–1 of the Federal acquisition regulation. The regulation provides for the use of design competitions when unique situations exist involving prestigious projects such as the design of a memorial or a structure of unusual national significance, where sufficient time is available for the production and evaluation of the conceptual designs and the design competition with its cost will substantially benefit the project.
This regulatory provision is derived from the legislative history of the 1972 amendments to the Federal Property and Administrative Services Act, which provides for the selection of architects and engineers by Federal agencies, and it's otherwise known as the Brooks A&E Act.
In the second case, the authority for providing stipends in design-build projects has two bases: the design is a significant factor in selecting the successful offeror, and GSA has made a determination that it may provide stipends because a design-build contract combines a design contract with a construction contract, and a stipend or partial payment for the design portion is analogous to the cost authorized to be incurred for a design competition.
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In addition, GSA has made a determination that it may provide stipends in design-build contracts under the principle of Federal appropriation law known as ''necessary expense doctrine.''
The General Accounting Office has long recognized, and it's a well-settled rule of statutory construction, that where there is an appropriation to be made for a particular object, expenses that are proper or incident to the proper execution of that project or object are appropriate.
Therefore, GSA uses its appropriations for design, development, and construction projects as the authority to provide a stipend in those cases as a necessary expense.
In GSA, the decision to provide for a stipend is made jointly by the contracting officer and the project officer. In deciding whether to pay a stipend, consideration is given to the nature and complexity of the project, the budget for the project, the need to provide an incentive for small business or other offerors to compete, and the cost to the offerors for preparing the design submissions.
The amount of the stipends provided by GSA on these projects vary, and our guidance provides that the amount should range between 2 to 5 percent of the estimated design fee.
To put that in perspective, the design fee may not exceed 6 percent of the estimated construction cost.
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In closing, GSA believes that it is sound procurement policy to provide for the use of stipends on a discretionary basis. GSA needs to retain the flexibility to use stipends in those procurements where the amount of effort and the expense in preparing a design proposal is considered to be so significant that at least partial compensation is considered to be appropriate to compensate the unsuccessful offerors in order to promote competition by small business and to provide equitable treatment for those that participate.
That concludes my remarks, and I'd be happy to answer any questions you might have.
Mr. GILCHREST. Thank you very much, Ms. Ustad.
Mr. Eakin?
Mr. EAKIN. Good morning. Mr. Chairman and members of the subcommittee, my name is David Eakin. I serve as the program manager within GSA's Public Building Service, responsible for design-build criteria development.
In concert with remarks made by Ida Ustad, I wish to offer further support for the Government's discretionary use of stipends for design-build procurements.
Design-build procurements typically involve contractor selections that are based upon proposed design concepts. It is GSA's position that, while not always necessary, stipends should be considered in appropriate cases to defray a portion of the cost to develop these concepts.
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This is appropriate when the Government requires competitors to develop design concept proposals. The cost for an architect, engineer, and contractor firm to compete may be well in excess of normal market risks.
This is also appropriate as proposal expenses that can run into the hundreds of thousands of dollars can be so prohibitive as to limit the competition to only the largest firms. By providing a stipend, the Government encourages small businesses and those firms who specialize in creative ideas to compete.
It is also very important to realize that design competitions and the use of stipends typically will cost the Government no more than traditional design development. Traditional design delivery usually requires the selected designer to develop several design solutions at a cost that is fully reimbursed. Design competitions involving single concept proposals affectively provide the same or even greater diversity of alternate solutions at no increase in project cost.
Stipend amounts will vary, depending on project size and the proposal submission requirements. Over the past 8 years, GSA's use of stipends has been limited to three projects. The stipend payments per firm amounted to $20,000 for one project, $85,000 for another, and $135,000 representing the largest amount paid.
Stipend amounts can be preset in requests for proposals if the number of competing firms is limited to a specified maximum number. Generally, it's desirable not to have more than five. This is provided by the design-build selection procedures contained in the Federal Acquisition Reform Act of 1996, public law 104-106.
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When considering stipends for a design-build competition, it is important that the Government set strict limitations on the amount of proposal materials the competitors may provide. This will help ensure that the stipend can accomplish its purpose to reasonably compensate firms for the design services rendered.
In conclusion, GSA favors the discretionary use of stipends in design-build procurements. It helps to ensure that the Government gets the greatest value out of the design-build process, a broad range of competitors, and a reasonable compensation for the design services while at no extra cost to the project.
Mr. GILCHREST. Thank you, Mr. Eakin.
We'll go to Mr. Traficant for questions.
Mr. TRAFICANT. I have a number of questions that I will submit, and I would like for you to answer them in writing and they'll be placed in the record.
[The questions and answers thereto follow:]
[Insert here.]
Mr. TRAFICANT. But I have a couple of questions.
First of all, I want to thank you for your testimony. It's very impressive. You seem to know what you're talking about.
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Mr. Eakin, in your testimony you cited GSA's use of stipends in three limited—limited to three projects, and these stipends range from 20 to 85 to 135. What were those three projects?
Mr. EAKIN. Two projects involved the Foley Square work, one was for the courthouse project, one was for the Federal office building; and the third project was for the Beckley Courthouse.
Mr. TRAFICANT. What were the significant aspects of those three projects versus others that you had seen that motivated you to, in fact, utilize the stipend scenario to effect advanced competition there? What was significant about them that separated them from the others?
Mr. EAKIN. In the case of the Foley Square project, we were dealing, in both instances, with an extremely large project that demanded a significant amount of design services. These projects were, in each case, over $200 million.
The associated design services were extensive. There were a number of iterative changes that were involved in the delivery of the proposals that required additional burden on the part of the offerors. As such, the stipend amounts were felt necessary to compensate for the extra burden that the Government imposed on the offerors.
In the case of the Beckley project, this was a full design competition, and in most instances in design competitions the GSA will provide either full or partial payment for the involved offerors.
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Mr. TRAFICANT. How about the Triangle project here in Washington? What's significant?
Mr. EAKIN. That project was really not a GSA project. That was really controlled through the Pennsylvania Avenue Development Corporation. We have not been able to determine at this point whether stipends were used. We'd be happy to research that.
Mr. TRAFICANT. Were there any other projects in size significance similar to the Foley Square activity that you did not, in fact, utilize to use of stipend?
Mr. EAKIN. There have been a number of very significant projects that GSA has been involved with involving design-build that did not involve the use of stipends.
Mr. TRAFICANT. What ones were they? Do you recall by name any of those that were, in cost, similar to the Foley Square activity where stipend activity was not utilized?
Mr. EAKIN. You could relate to the Metcalf Federal Building Complex that was built in Chicago, the White Plains project in New York, the Minneapolis Courthouse, the Shreveport Courthouse.
Mr. TRAFICANT. How about Atlanta?
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Mr. EAKIN. I don't think that was a Federal construction project.
Mr. TRAFICANT. Okay. See, the only question I have—I don't mean to belabor this—is it seems to me that this word ''discretionary''—GSA takes a look at these projects and determines that maybe Foley Square could be incentivized, but Metcalf in Chicago need not be. I wonder what type of situation we have here and how this plays into an overall strategy and policy that the committee could have a handle on.
Mr. EAKIN. It is probably important to put into context the developmental nature of the use of design-build in the GSA construction program. The Metcalf project and the Foley Square projects were the first three design-build applications that GSA pursued. There was a lot of developmental understanding of design-build relating to the process involved. At that time there were no established procedures or guidelines for the involved regions to use. It's only understandable to expect that variations would take place in how those procurements were handled.
A significant number of the design-build projects that GSA was involved with between about 1989 and 1993 were also design-build involving a single-phase selection process, and that selection process is not particularly compatible with the use of stipends. You almost require the ability to limit the field of offerors in order to make a reasonable effort at compensating people.
Mr. TRAFICANT. One other question here. I've heard in both of your testimony continuing reference to small business, and everybody's been a champion of small business throughout America.
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First of all, can certain small businesses actually handle some of the design and other characteristics of this process?
Number two, were any of your stipends so far awarded to small businesses?
Mr. EAKIN. In answer to the first part, small businesses should be able to accommodate a significant number of the GSA construction projects.
Mr. TRAFICANT. Small businesses could handle the Foley Square projects, in other words?
Mr. EAKIN. No.
Mr. TRAFICANT. Okay. Go ahead.
Mr. EAKIN. A significant number of the GSA projects. The Foley Square projects—when you are dealing with projects in excess of $200 to $300 million, you will typically find only the very largest firms having the capability of accommodating the services involved. But a number of projects that GSA has been involved with are in the $20 to $50 to $70 million range, and small firms are able to accommodate those designs.
Mr. TRAFICANT. Have you ever paid a stipend to small business? Name one?
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Mr. EAKIN. I'm not aware of one.
Mr. TRAFICANT. The only thing I'd like to say for the record is we always hear about small businesses, but small businesses don't get a whole lot of play in the procurement, but they're used to advance much of the legislation sometimes. I'd have to actually see the numbers on a lack of competitive bidders and a rationale for an incentive plan to create a competitive atmosphere.
I think this: if we're showing some degree of lack of competition and that lack of competitive bidding is driving up price of our Federal procurement dollars, then I could understand that. And I would like to see, in the thrust of my questions being submitted to GSA, I'd like to see some rationale showing the need for more extensive competitive bidding that, in effect, would drive down cost. That would be the parameters under which my concern would be.
I would also like to have—it's not listed in these questions which have been prepared mainly by staff—when there have been stipends paid to small businesses, and I'd like them cited.
With that, Mr. Chairman, I thank you for the time, and I thank you for the testimony.
Mr. GILCHREST. Mr. Traficant, thank you very much.
Mr. Oberstar?
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Mr. OBERSTAR. Thank you, Mr. Chairman. I appreciate our witnesses being here this morning. I think you have a hard case to defend.
The argument on page two of your testimony, Mr. Eakin, that the Government encourages small businesses and firms who specialize in creative ideas to compete by providing these stipends—again, picking up on Mr. Traficant's point, I'll just cite: 30 years ago in Duluth GSA was the agent for the then Federal Water Pollution Control Administration to build an environmental research laboratory. I think the total construction cost was about $6 million.
There was a lot of competition among very small architectural firms. They thought this was a really exciting opportunity to be the architect for this laboratory to do work on this pristine lake of Lake Superior and the other Great Lakes and all the other freshwater lakes of the country, to be the beacon and vanguard against pollution of our freshwater lakes. There was no shortage of competition.
By the same token, the firm that eventually was the winner would never have undertaken to bid on a $750 million project like Foley Square. They know their limits. They didn't need incentive. The incentive was not to compete, because they knew better. They wouldn't have bid on a project that big.
What I want to understand is: what were the factors that went into your decision that you had to provide incentives to firms to bid on a $750 million project?
Mr. EAKIN. It really speaks to the issue of what is fair and reasonable to expect from competing offerors to be exposed as a risk in simply providing an offer to the Government. If the Government uses design-build as a form of design competition, which has been the case for the Foley Square projects and the Beckley project, we are requiring, as a basis of competition, offerors to provide professional services without the benefit of a contract. We are asking that they provide, gratis, design services for consideration, while the use of stipend offers is a reasonable attempt at compensating for the professional services involved.
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To be specific on this, the use of stipends is not intended to compensate people for the preparation of proposals. The use of stipends is intended to compensate for the provision of professional services, design services that are associated with a proposal.
So the orientation that we are taking with stipends is that where we are asking for a professional service, we should provide some measure of compensation for that service.
Mr. OBERSTAR. Your not getting a service; you're asking them to compete to be the winner for the project.
Mr. EAKIN. We're asking for fully-developed design concepts.
Mr. OBERSTAR. Right. And the Government is not getting a service from those who don't win.
Mr. EAKIN. That is a design service.
Mr. OBERSTAR. The Government is getting a design service?
Mr. EAKIN. Yes.
Mr. OBERSTAR. It's something that the Government uses? The losing bidders are providing a service? What does the Government use of that service?
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Mr. EAKIN. All of the design concepts that the Government receives as a result of these competitions are, if the Government provides stipends, they are owned by the Government. The Government can consider them, use them, apply them in the development of the eventual project, just as the Government would in considering multiple concepts by a traditional designer. The issue is only that we have different offerors providing the different concepts. The level of effort and the associated cost is identical.
Mr. TRAFICANT. Will the gentleman yield?
Mr. OBERSTAR. Yes, I'll be happy to yield.
Mr. TRAFICANT. You have these five designs. You select one design builder. You now say that you own the property submitted, the design submitted, proposals of those other four; is that correct?
Mr. EAKIN. Correct.
Mr. TRAFICANT. The Government has paid for them Now the Government says that in design user number two, they have a theater concept that we believe is better than the design winner.
Mr. EAKIN. Correct.
Mr. TRAFICANT. And we would like to incorporate the theater design of loser two into winner one. Is that a reasonable scenario?
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Mr. EAKIN. That is.
Mr. TRAFICANT. Now, when you, in fact, begin to embrace putting these two together in some sort of synergy and whole process of bringing them all together, who pays for that cost to reconfigure the design bidder that has won the matter?
Mr. EAKIN. That is a cost that is normal and routine in the development of any design. There is always opportunity for expanding upon various concepts that are associated with a competition.
Mr. TRAFICANT. With that, have you ever taken a design feature of a design-build proposal that was not awarded, and have you ever incorporated any of their characteristics into a design winner? And if you do not have that specifically, I would like that on the record and I would like the citations of the specific design-build contract awarded that was an amended process by some other design proposal in one that was not accepted, if you understand my drift.
Mr. EAKIN. I think the only way that I could respond to that at this point is that there were instances on the Foley Square project where various offerors who were unsuccessful provided enhanced finishes in addition or above standard—let me restate that. They provided finishes that we considered to be appropriate for a courthouse where the winning offeror did not.
The result was that a change to the winning offeror's proposal was required to upgrade the finishes that were associated with the initial proposal.
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Mr. TRAFICANT. With that, I thank you, Mr. Chairman.
Mr. OBERSTAR. Just briefly—I know we're extending my time here—these bidders are not required to submit bids by the Federal Government; they're invited.
Mr. EAKIN. Correct.
Mr. OBERSTAR. If they were being required, I could understand why you would want to pay them something, but they're competing of their own free will. In the highway contracting business, in the aviation runway contracting business, there are numbers of bidders. I don't know of an airport, I don't know of a highway department in this country that gives a pat on the back with money to the losing contractor, even though they may have some good ideas in their bid that weren't in the package submitted by the Government.
Second, what's the cutoff where you feel you have to make these payments—cutoff in terms of building size or dollar amount of building?
Mr. EAKIN. I don't believe that there is a defined cutoff. The guideline range that is in place is what we consider the amount of effort associated with providing the design concepts and associated professional services, and that, based upon the level of effort, a stipend amount is to be set, and typically that will fall within 2 to 5 percent of the design cost.
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Mr. OBERSTAR. The question I asked goes into another question raised by your comment that you have to pay these—you feel it necessary to pay these stipends because the cost to compete may well be in excess of normal market risks. What is a normal market risk and what is the abnormal risk against which you are, in effect, insuring by providing these incentives?
Mr. EAKIN. If you relate to a traditional procurement, what an AE firm is exposed to is the cost of assembling the associated team, preparing a series of standard forms, coordinating the development of very basic arguments and presentation materials associated with past experience.
There is no requirement whatsoever for an architect/engineering firm to go into a proposed design of the involved project.
In the case of a design competition to which design-build procurements can fall within, the Government is not only asking for that, but is asking for the delivery of professional services, asking for the delivery of a design concept as a basis of being considered.
We are talking about the differences between what might be something well under a—hard to say—maybe a $10,000 to $20,000 mobilization cost compared to what might be a $200,000 to $300,000 cost to prepare design concepts. It's almost an order of magnitude more.
Mr. OBERSTAR. Just one final question here. There are other Members who have questions.
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What does it cost a firm to do the design, mobilize its team, look at the Government specs, and do the architectural design/engineering on a $100 million building?
Mr. EAKIN. That would probably be best answered by members who are going to be following who are representing the private sector.
Mr. OBERSTAR. I don't accept that. GSA must have some idea of the cost, since you're saying that the cost to compete may well be in excess of normal market risks. You use other language such as, ''Design is a significant factor.'' Significant factor in terms of what? Dollar amounts? Costs? You must have made an assessment of what it cost these firms to compete if you're going to be paying them a pretty sizeable pat on the back for competing and then owning their documents. You must have some assessment of that cost.
If you don't, I'll stop there and—
Mr. TRAFICANT. Mr. Chairman, would you yield before you yield your time back?
Mr. OBERSTAR. Yes. Just briefly.
Mr. TRAFICANT. Yes. To both panel members, if you could, is there a lack of competition for GSA projects that are, in fact, amenable to the stipend program?
Mr. EAKIN. To date certainly there has not been.
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Mr. TRAFICANT. Ms. Ustad?
Ms. USTAD. I would agree with that.
Mr. TRAFICANT. All right. Thank you.
Mr. GILCHREST. Thank you, Mr. Oberstar.
Ms. Johnson?
Ms. JOHNSON. Thank you, Mr. Chairman.
I'd like to ask: when the submissions come in, are they returned if they are not selected to the submitter?
Ms. USTAD. The design submissions?
Ms. JOHNSON. Yes.
Ms. USTAD. The design submission, as Dave mentioned, is the Government's property, so it wouldn't be returned. It's basically unique to that project and that site and it would be of limited value to the submitter for another project, anyway.
Ms. JOHNSON. I wasn't trying to discuss the value; I was trying to discuss the submissions remain there, and therefore the Government does have the opportunity to look at that design and look at the points in order to put together RFPs for another one some place else, I assume.
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Mr. EAKIN. The request for proposals that are put forth are typically very project specific and would not be able to take a strong advantage or not be able to make use of a previous submission from an unsuccessful firm in a different procurement.
Ms. JOHNSON. I understand what you're saying in terms of the total package, but often there are features, and that would give you perhaps information of some of the latest technology or whatever that you could perhaps look for in a later package, and I was leading in that direction to ask if there is a fee for these submissions, or is that the cost of doing business for the firms.
Mr. EAKIN. This is the whole purpose of the consideration of a stipend, is that where a design service is being asked for as a basis of competition, it's our position that we are obliged to provide some form of compensation for that extra burden.
It is also the case, speaking to an issue that you raised earlier, that as a firm provides concepts, they are motivated to provide the most innovative and technically sophisticated response that they can in an effort to win the contract, and that does afford the Government an opportunity to learn from the associated submissions.
Ms. JOHNSON. And the reputation is that there are some firms that get the contracts to the point that they are called ''Government contractor'' firms, and others are just kind of that and about. Give me your definition of small business in this context where you feel it would increase the opportunity.
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Mr. EAKIN. Small business is a legally-defined term.
Ms. JOHNSON. I understand that, but I want to know, from your standpoint, what are you looking for when you define something as small business.
Mr. EAKIN. Firms that meet the definition of small business. In this case, there is a threshold for architect/engineering firms. I'm not sure what the current amount is on that.
Ms. USTAD. It's average annual gross receipts for the previous 3 years of $2.5 million.
Ms. JOHNSON. Yes. And the percentage of those submissions are what from small businesses?
Mr. EAKIN. I guess I don't understand the question.
Ms. JOHNSON. What percentage of small businesses do you find in the mix of submissions?
Mr. EAKIN. Are we talking specifically to design-build projects or to the overall construction program?
Ms. JOHNSON. Design-build. What you're talking about in this legislation.
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Mr. EAKIN. I would not have immediate knowledge of that at this time.
Ms. JOHNSON. So there's no projection of what opportunities might come from this legislation to small businesses?
Ms. USTAD. We can provide information from the Federal procurement data system by agency as to how many small businesses are getting design contracts and how many are getting construction contracts. There is currently no category that separates out a design-build contract. It would just fall within the construction category. But we'd be pleased to supply those for the record, if you would like.
Ms. JOHNSON. I would like that.
[The information received follows:]
[Insert here.]
Ms. JOHNSON. Now, from what I understand, this is primarily design-build submissions that you are putting before us, right, putting it all together in sort of what's sometimes called a ''turnkey'' package?
Mr. EAKIN. The issue of stipends was specifically raised in the context of design-build applications.
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Ms. JOHNSON. Yes. And that's the context. I'm not talking about contracts. I'm talking about the context of design-build. I'd like to see what you would project or what has been submitted from small businesses and if this stipend would actually reach that, or would it still just be going to big businesses.
Mr. EAKIN. It's probably best to also put this into perspective that the use of design-build is only an option and has been, to date, a very small portion of the overall GSA design and construction program. The database of trying to relate to the use of stipends and to the consideration of the amount of small business firms who have been involved with design-build programs is going to be correspondingly based upon a very limited set of examples.
Ms. JOHNSON. Yes.
Mr. EAKIN. It would only be anecdotal.
Ms. JOHNSON. But this proposal has been—
Mr. EAKIN. To draw any general conclusions based upon this very limited program to date I think might be inappropriate.
Ms. JOHNSON. Yes. But this proposal is being brought to expand field, to expand opportunity. So if this is going to expand it, you must have some projections of what expansions you expect, based upon comments or based upon—
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Mr. EAKIN. To the principles involved, if we provide an incentive and make it easier for small business to compete, the principle is that we are not precluding small business by what has been historically, to date, a cost prohibitive procurement process.
Ms. JOHNSON. Yes.
Mr. EAKIN. So it is from that perspective that we speak to the expectation that small business may be encouraged to compete, whereas to date they have been almost—
Ms. JOHNSON. But you have no projections based upon comments, based upon anything that this would have some impact on participation for small businesses?
Mr. EAKIN. Nothing quantitative.
Ms. JOHNSON. Okay. Thank you.
Mr. GILCHREST. Thank you, Ms. Johnson.
Mr. Mascara?
Mr. MASCARA. Thank you, Mr. Chairman.
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I must admit I'm a new member on this subcommittee, and that might inure to my benefit, because the more contentious questions have already been asked. In fact, most of what I was going to ask has already been asked. But I do have some questions I'd like to submit for response to both of you.
[The questions and answers thereto follow:]
[Insert here.]
Mr. MASCARA. I must admit that I read most of this material at 2:00 a.m. this morning and sleep was easy after preparing for the truth in budgeting bill that we're going to debate today, and then going on to the statements that both of you submitted. But, in fact, I'm going to ask a question because I am new.
I note that you are presently operating under the Public Buildings Act of 1959, and it's apparent that under that act you have some leeway under some rule or regulation that permits the use of a stipend under certain circumstances.
Mr. EAKIN. Right.
Mr. MASCARA. You've indicated that in your statements. So under the current piece of legislation, which I believe if H.R. 1670, does that somehow negate GSA from using any stipend whatsoever in your operations, or is there a carry-over from the 1959 act?
Ms. USTAD. I believe that when H.R. 1670 was considered there was a discussion on the House floor which indicated that there was no intention to alter existing authorities of agencies at the time.
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Mr. MASCARA. Then perhaps my colleagues and the chairman can enlighten me: under H.R. 1670 was there an attempt to broaden the use of the stipend from what is permitted under current regulations or law, to somehow extend stipends to——
Ms. USTAD. The original proposal for the two-phase selection for design-build projects did include a stipend provision, but that provision was stripped at the time. So what was enacted did not include anything about stipends one way or another. And the exchange, as I recall, on the floor indicated there was no intention to change the current law at the time, and that if agencies had the authority they could continue to use stipends, if they didn't have authority they couldn't.
Mr. MASCARA. So then why are we here if there's not going to be much change? I understand Mr. Davis' amendment that failed—I believe failed. He failed to amend the legislation and the chairman has been good enough to hold a hearing, but why are we here then if—
Mr. GILCHREST. Mr. Mascara, if you will yield for a second, this was to expand the stipend option beyond GSA. For example, the Corps of Engineers does not have that option at this point. The Defense Department doesn't have the option. EPA doesn't have the option if EPA, has authority to build their own buildings. But this was to expand the option of stipends beyond GSA.
Mr. MASCARA. Is that Mr. Davis' proposal, Mr. Chairman?
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Mr. GILCHREST. Yes, it is.
Mr. MASCARA. So his current—the amendment that he wanted and continues to pursue expands the stipend then to other agencies; is that correct?
Mr. GILCHREST. It's my understanding that that's correct.
Mr. MASCARA. Okay. We have a design-build process and we have a design-bid-build. Most of the projects that you oversee, what percentage would go to design-bid-build or design-build currently?
Mr. EAKIN. Virtually all projects that GSA is involved with and has been for the last several years have been associated with what we call ''traditional design-bid-build'' procurement. The use of design-build has been very limited. There is only one design-build project in the 1997 proposed projects, and that's for the Las Vegas Courthouse.
Mr. MASCARA. Well then, finally, can both of you or either of you compare the total architectural, engineering, and inspection fees as a percentage of the total project cost under the traditional design-bid-build in comparison to the design-build? Say for a $50 million project.
Mr. EAKIN. There are cost models that GSA uses associated with establishing professional services, and the disposition to date is that, in terms of professional service cost, it is roughly comparable to both delivery methods. They are approximately the same.
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Mr. MASCARA. That's interesting.
That concludes my questioning, Mr. Chairman. I'd like to submit some questions perhaps for you to consider later. Thank you.
Mr. GILCHREST. Thank you very much, Mr. Mascara.
Mrs. Seastrand?
Mrs. SEASTRAND. You stated that all the questions were asked, but I was delayed and I didn't hear the answers to many of those. I understand that we've only used this in the past 10 years three times. I was just wondering—and this might have been asked—but what is planned for the near future within the GSA on pending projects?
Mr. EAKIN. As I indicated, there is only one project that is known to be scheduled to be developed using design-build. It will likely not involve a stipend, and that is because of the nature of the request for proposals that is going out to the involved firms.
The technique involved with the Las Vegas project is that the Government is providing basically the design concept for all firms to relate to. As such, the amount of professional services asked of an offeror is substantially reduced. The result is that very likely there will be no stipends at all for that particular project.
Mrs. SEASTRAND. So, other than that, it's your belief then that we should expand or consider expanding this beyond the GSA to other departments and agencies?
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Mr. EAKIN. We are aware that other departments and agencies have expressed their belief that they are now restricted in not being able to use stipends for design-build projects. They would have to speak to that themselves.
Mrs. SEASTRAND. Thank you.
Mr. GILCHREST. Thank you, Mrs. Seastrand.
I have just a couple of very quick questions this morning.
In the design-build contracts, the stipends are used for a number of reasons, one of which is to pay for the services that are provided to GSA, the professional services. Can you make a distinction between—and I think you alluded to it just now with Mrs. Seastrand, but I'd like a further clarification as to the differences between projects such as Foley Square and the ones in White Plains, Minneapolis, Chicago, and others that you mentioned earlier that used design-build. Were they not professional services that were given to GSA? And what was the difference between the stipend for Foley Square, the two projects up there, and the others I just mentioned?
Mr. EAKIN. That requires probably some degree of research to give a complete answer to that.
Mr. GILCHREST. Could I then further clarify the question by asking you who in GSA would make that distinction? And I would assume it's a few people, a group of people. And then who are they accountable to as far as the final decision to make that decision?
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Mr. EAKIN. The issue is that the use of stipends is probably first broached by the involved project manager and the contracting officer involved with the particular project. It is they who will be most sensitive to the character of the request for proposal that the Government is offering, as well as the submission requirements that they are asking of the involved offerors.
The accountability that they have is that both of those activities fall within the organization, within GSA, that is headed by a regional director for property development, and, as such, the oversight from a supervisory perspective is accommodated regionally. There is also close liaison with the GSA chief architect in the central office on these very major projects.
So between these four to five people, they would probably be the principal sources of making a determination as to whether stipends would be used.
Mr. GILCHREST. So there's a relatively firm, established structure that can screen this particular process to determine who would be eligible for a stipend.
One of the reasons for stipends, or some of the reasons for stipends, that you both mentioned is that the Government, in essence, is purchasing services—design, certain architectural expertise—and then it is your property. And also to offer a broader array of competition among competing firms, perhaps even throughout the Nation, especially—and these are your words—''for smaller firms,'' in essence, maybe those that make $2 million a year.
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In the instance of Foley Square, as opposed to White Plains or Chicago and Minneapolis—and these are all fairly large projects—I go out on a limb to assume that Foley Square may have been the largest. Was there a need for competition with Foley Square, being it would only be probably—a contract would be rendered to some of the larger firms in the United States because they would be perhaps the only ones that could have done such a large project? And if that was the case, then the idea that we needed more competition would seem to me to be somewhat irrelevant.
Mr. EAKIN. Right. The issue is that the very large projects, such as Foley Square, are almost going to be outside of the capability of a small business firm to provide support.
The use of a stipend is not being argued on the basic that in that particular case we were intending to invite and encourage small business to participate. The issue is that it is one of providing a reasonable compensation, of providing an element of fairness to a procurement process which was extraordinarily expensive for those particular projects.
What we are hoping to see is that, for the smaller projects in the $20 to $50 million range, that small business can be encouraged to respond to these solicitations.
Mr. GILCHREST. I see.
Mr. EAKIN. And we do think that a stipend will be supportive to that end.
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Mr. GILCHREST. Well, Mr. Eakin and Ms. Ustad, thank you very much for your testimony. We will put this into the pot for consideration. Thank you very much.
Before we go on to our next panel, I would like to submit for the record the Associated General Contractors of America's testimony.
Without objection, so ordered.
[The statement of the Associated General Contractors of America follows:]
[IInsert here.]
Mr. GILCHREST. Our next panel will be Mr. Stephen C. Mitchell, Chairman of the Council on Federal Procurement of Architectural and Engineering Services, and Mr. Phillip Worall, principal, Grieves, Worrall, Wright, and O'Hatnick, representing the American Institute of Architects.
Mr. Mitchell.
TESTIMONY OF STEPHEN C. MITCHELL, P.E., CHAIRMAN, COUNCIL ON FEDERAL PROCUREMENT OF ARCHITECTURAL AND ENGINEERING SERVICES (COFPAES), AND PHILLIP W. WORRALL, PRINCIPAL, GRIEVES, WORALL, WRIGHT, AND O'HATNICK, ON BEHALF OF THE AMERICAN INSTITUTE OF ARCHITECTS, ACCOMPANIED BY STUART BINSTOCK, VICE PRESIDENT, FEDERAL AFFAIRS FOR THE AMERICAN INSTITUTE OF ARCHITECTS
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Mr. MITCHELL. Good morning, Mr. Chairman and members of the committee. My name is Stephen Mitchell. I am chairman of the Council on Federal Procurement of Architectural and Engineering Services, better known as COFPAES. I am also the president of Lester B. Knight and Associates, Inc., a 700-person A/E form headquartered in Chicago, Illinois, with offices throughout the United States.
I am pleased to appear before the subcommittee today to offer our views, i.e., COFPAES' views, in favor of the need for legislation to provide for the partial reimbursement of professional design service fees in the construction of public buildings by the Federal Government under the design-build project delivery system.
COFPAES is composed of the seven principal associations of design professionals. We have a longstanding interest in ensuring the Government obtains the services of the most competent and skilled architects and engineers to assist in the construction and maintenance of our national constructed infrastructure.
The council was established in 1966 to secure passage of legislation that would establish a method for the selection and negotiation of the most highly-qualified professional architects and engineers to design Federal construction projects.
COFPAES remains strongly committed to the selection of design professionals on the basis of demonstrated competence. We believe that the selection of project designers should result from competition based on the qualifications best suited to complete the specific project successfully.
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Nevertheless, we recognize that the Federal Government may wish to engage in alternative contracting methods. Many Federal agencies have expressed a growing preference for the use of design-build project delivery system in the construction of public buildings and facilities.
COFPAES supports the design-build process when it is appropriate for use, providing that the method protects the interest of all parties to the transaction—the Government agency, the design professional, the project contractor, and the public.
But design-build, which is a client-driven innovation, has been applied unevenly by different Federal agencies. The lack of coordination grew out of the unclear legal authorities available to procurement officials in the military and civilian agencies. It resulted in inconsistent acquisition practices throughout the Government.
To end this confusion, COFPAES supported enactment of a universal design-build methodology to be used for all Federal design-build projects. Those provisions, as we all know, were enacted in February in the Federal Acquisition Reform Act of 1996.
That act requires every Federal agency that desires to build a building under a single contract method to use a two-phase competitive source selection process. In the two-phase process, the agency develops a scope of work statement for the project that defines the project and provides prospective offerers with sufficient information on the Government's requirements, including budgetary restrictions, schedule requirements, and preliminary design criteria to allow the offerers to submit qualifications for this project.
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These phase one submittals may not include detailed design information or cost or price data. This is a key point.
In the second phase, the agency selects a maximum of five of the most highly-qualified firms based on these phase one submittals to submit final project responses.
The projects are then awarded on a variety of criteria established by the Government in phase one and may be weighted in favor of different criteria, depending upon the project.
Cost may be weighed more or less heavily in the process than other criteria. In other words, the eventual low bidder may or may not be the project contractor.
One barrier to the successful use of the design-build process is the cost to the project team. Once the Federal agency selects the short list of no more than five pre-qualified offerers, each offerer must complete a substantial portion of the design work in advance of the award of a contract. This can be an expensive process. Design costs can amount to tens and even hundreds of thousands of dollars.
Let me cite two striking examples. In 1992, the U.S. Army Corps of Engineers awarded a contract to build the $58 million Sparkman Center for Missile Excellence in Huntsville, Alabama. Sixteen offerers made proposals to the Government. One was chosen, 15 were not. The total cost of the proposals was more than $4 million. This represents an average cost of $250,000 per design proposal. None of the successful offerers was able to recoup its preliminary design cost.
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A much smaller $2 million contract put out by the U.S. Navy for a facility in Silverdale, Washington, cost five offerers $25,000 each to prepare design proposals. The successful offerer was able to recapture its initial cost in the project, but the others were forced to absorb a total of $100,000 in unreimbursed professional design fees.
To be sure, the newly-elected design-build selection procedures will correct the worst of these problems. Restricting the number of offerers to a maximum of five firms will limit the number of proposals that must be developed by the private sector. Limiting the number of offerers early in the process provides much greater certainty to the design community, which will be told up front that it will not need to expend large sums unnecessarily.
Normal market forces also will exert their inevitable downward pressure on private businesses to ensure that they eradicate needless cost.
But we believe that Congress should pass legislation to grant each Federal agency the discretion to provide partial reimbursement for services rendered to the unsuccessful offerers in this phase two process of the two-phase design-build approach.
The FAR does not give explicit authority to pay such costs. The agencies remain without clear guidance from Congress on how to address the question. As a result, each agency follows different practices.
The General Services Administration, as you've just heard, now reimburses design-build offerors between 2 percent and 5 percent of the design development fee when they have made a discretionary decision to do so. Other agencies, such as the Corps of Engineers, do not believe they have the legal authority to authorize these payments.
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This does not mean that the Government should compensate all design-build offerers in full for the preliminary design cost on every project, but we think it should have the authority to provide some reimbursement in appropriate cases. Reimbursements would spread part of the burden of developing essential Government buildings to the public, which is the ultimately beneficiary of the project.
This partial reimbursement for services would encourage a greater variety of design firms to enter the process. The Government, which has an obvious economic incentive in fostering a strong competitive environment among design professionals in the private sector, would benefit in the long run.
Design-build is frequently used also for advanced technology projects. Reimbursements would offset some of the cost of researching and developing improvements in design technology and construction methods for America's infrastructure.
Mr. Chairman, that concludes our remarks on the selection of architects and engineers by the Federal Government. I'd be pleased to answer any questions from members of the subcommittee.
Thank you very much.
Mr. GILCHREST. Thank you, Mr. Mitchell.
Mr. Worrall.
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Mr. WORRALL. Thank you, Mr. Chairman and members of the subcommittee. I am Phil Worrall of a small, Baltimore-based architectural firm, Grieves, Worrall, Wright, and O'Hatnick, and today I'm testifying on behalf of the American Institute of Architects, the professional society representing the Nation's architects. It was founded in 1857 and it has 56,000 members and 300 State and local chapters.
I'm accompanied today by Stuart Binstock, who is vice president of Federal affairs for the American Institute of Architects.
As you all know, on February 10th the President signed the National Defense Authorization Act, which included several acquisition reform measures, including the provision for implementing the two-phase selection process for procuring design-build projects.
The provision incorporates qualifications-based selection procedures at phase one in the selection process. The new selection procedures are expected to improve the process and establish some uniform standards in design-build procurement which can be used by the Federal agencies. The new law enjoys the support of the AIA, along with other members of the design and construction community.
At the outset, we'd like to thank the chairman for fulfilling his promise to hold this hearing on the inclusion of stipends within the two-phase selection procedures for design-build projects.
The AIA supports the inclusion of stipends in the two-phase selection procedure language for the design-build project delivery system for several reasons.
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First we should clarify the intent of the use of the word ''stipend,'' which probably has created confusion rather than clarified the situation. What we mean by this term is a professional services fee.
In our view, under design-build the Government, during the selection process, is actually purchasing from this short list of firms a product which helps the Government ascertain the best solution for the Government's needs. This produce becomes the property of the Federal Government.
From this perspective, it's difficult to understand why the Government would not pay a fee for services rendered. The General Services Administration, as you know, does have the authority and presently does pay a professional services fee where it deems appropriate.
The AIA supports the existing GSA policy for stipends and would encourage similar language in the two-phase legislation as it reflects a good faith commitment on the part of the Government to defray a portion of the expenses incurred by the private sector.
Second reason, the stipend provision that was deleted from House resolution 1670 was not a mandatory provision but merely authorized Federal agencies to provide professional services fees when they deemed it appropriate. As a permissive policy, the agency would have decided whether or not to have professional services fee for a design-build project. Moreover, the legislation included a provision which directed the Office of Federal Procurement Policy to issue regulations regarding criteria to be used in determining whether the payment of a stipend is appropriate and for determining the amount of the stipend. Therefore, the legislation foresaw appropriate oversight on the part of the OFPP.
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The third reason, a design-build project is far more expensive to prepare in the pre-selection process than the traditional design-bid-bid process, and therefore some amount of compensation is in order or quality teams will be less inclined to compete for such projects.
During design-bid-build project selection process, design professional are selected on a basis of qualifications that are not required to submit design proposals.
On the other hand, the Federal Government often requires design professional to submit extensive design proposals in order to compete for design-build projects.
In essence, the Government is asking the private sector to incur additional expenses under design-build projects process.
It's worth noting that the extra work incurred applies more to a AE portion of the design-build team than it does to the construction contractor. The Sparkman project that you heard about a few minutes ago—and further details are outlined in my written testimony—is instructive in regarding the issue we are discussing today.
The AIA had been told the Sparkman solicitation never envisioned that the teams would spend the amount of money they eventually did. Thus, we recommend regulations regarding the two-phase selection process should establish an absolute limit on the amount of deliverables required necessary to judge adequately between the competing proposals.
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Curtailing the detail required in the phase two submission reduces time and expense to the owner, as well as the design-build competitors. Limiting the number of presentation products will attract more initial teams and also assist in creating a level playing field for all the design-build teams.
If limits are imposed on the materials and documents that the competitors are required to produce during the second phase, it's possible to provide a modest yet fair professional services fee which will compensate the competitors for their efforts.
We urge the subcommittee to forward this recommendation to the OFPP as it prepares regulations on the new two-phase selection process legislation.
Finally, from the small business perspective, providing professional services fee will allow more small firms to compete on these projects. Providing design services without compensation is a real hardship for any design firm. A small firm in most cases will be precluded entirely from the process, as they simply do not have the financial wherewithal to absorb the cost.
For these reasons, the American Institute of Architects recommends the inclusion of the stipend provision in the two-phase selection process procedures for design-build projects. Also, we urge this subcommittee to recommend to the OFPP that regulations regarding the two-phase selection process should establish an absolute limit on deliverables that will be considered when evaluating these short list of firms.
I would like to thank the chairman and the members of the committee and the subcommittee for the opportunity to speak on behalf of the architectural profession on this important subject, and I'll be happy to answers questions, too.
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Mr. GILCHREST. Thank you very much, Mr. Worrall.
Ms. Johnson, any questions?
Ms. JOHNSON. No questions.
Mr. GILCHREST. Mr. Mascara.
Mr. MASCARA. Thank you, Mr. Chairman.
I asked Mr. Eakin and Ms. Ustad about the percentage of the cost—to compare percentage of the cost for architectural engineering and inspection fees, comparing between the design-bid-build and the design-build. I said, for example, a $50 million building. Can you enlighten me as to the cost between those two types of builds, the design-bid-build and the design-build? Is there a savings?
Mr. WORRALL. The cost to the design professional would be the same, plus the cost of doing the design work. So you'd have the same, if you will, at-risk effort in getting yourself to win selected for the project, but then, on top of that, you would add whatever the design effort is, and that design effort is a variable component. It could be something—and that's one of the things I was talking about in my testimony, that the deliverables should be restricted so that you don't have people submitting different levels of effort in their response to the design-build solicitation.
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Mr. MASCARA. So the design-bid-build would be more expensive than the design-build?
Mr. WORRALL. Substantially. Yes.
Mr. MASCARA. Well, let's—from what I garnered last evening, under the design-bid-build, the GSA hires an architect to design and then it hires a contractor to build.
Mr. WORRALL. Yes.
Mr. MASCARA. And what you're saying is that under the design-build—and this is where there is a requirement for a contracting officer to be there—the design-build allows the Government to hire, under a single contract, a firm to provide all of the services and construction necessary to build the building?
Mr. MITCHELL. To design it and build it. That's correct.
Mr. MASCARA. And that is cheaper than the design-bid-build.
Mr. MITCHELL. No. I do not believe so.
Mr. MASCARA. You do not believe so?
Mr. WORRALL. I'm sorry. That's what I meant. Did I say it reversed?
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Mr. MITCHELL. Yes. If you look at—first of all, as I know you all know, the Federal acquisition regulations limit the design fee on Government projects to no more than 6 percent for design cost of the capital construction, so on a $50 million building that would be 6 percent or $3 million. That's in the design-bid-build approach.
On design-build, where the Government is acquiring a building for a single cost—say $50 million—the design costs are worked within the bid that the design-build contractor comes back with, so that they are ''buried'' in the one, single number that the Government negotiates with the successful design-build winner for that project.
So the costs, although they are not explicit and spelled out to the Government, unless the Government asks for how much of your bid is for design—it is my experience in design-build that there is very little difference between the design cost in a design-bid-build environment versus the design cost to the architect/engineering firm in a design-build contract where that design firm might be working for a construction contractor as a subcontractor, if it's a team put together, or the design component of a firm which is in the design-build business as an integrated firm. You'll find that those costs are pretty comparable.
There are areas where you can reduce the design cost in design-build, but that is based on a project-by-project basis.
So from my perspective, the answer is they are comparable.
Mr. MASCARA. Okay. So the percentage of the fees are comparable, the percentage of the cost of construction is comparable. Where I'm leading to is: how does the stipend then—other than what testimony provided earlier said that you could take Bid A and Bid B and Bid C, and Bid A got it and you can use Bid B and Bid C's information to change the design to be something more effective or more to be utilized in the process, so how does the stipend then change the overall cost of the construction?
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Mr. MITCHELL. I don't believe the stipend does change the overall cost. If you look at a continuum of design services from 0 to 100 percent of design, in traditional design-bid-build it starts at point 0 and the Government reimburses the successful design firm for all of the design services associated with the design of that building, which might include the first conceptual work, which might be 10 to 15 percent of the cost of the design services.
In design-build, what happens is that, when you compete, the AE firm or design entity that is competing for that project in the phase two part, as it is currently required by the FAR that we just passed, that 10 to 15 percent of the design cost is expended at risk by the AE before they are successfully completed, so that after they are—after the successful winner, they pick up at that point where they have put design professional services into the project to win it and then complete the design as part of the design-build contract.
So you don't have a change in the total cost of design; it's just when you incur it that is the difference. So what we're talking about is a matter of fairness to the five or less firms that are selected, to pay them a partial reimbursement only for the design fees that they expended in order to allow them to compete.
Mr. MASCARA. We're talking more or less a sense of fairness and—
Mr. MITCHELL. That's correct.
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Mr. MASCARA.—equity rather than it being a direct benefit to the Federal Government?
Mr. MITCHELL. It is a direct benefit because the—it's a combination of both, Mr. Congressman.
Mr. MASCARA. Would you explain the benefits, then?
Mr. MITCHELL. Yes.
Mr. MASCARA. I understand the fairness and equity.
Mr. MITCHELL. It is a fairness and equity issue, as well as it is a purchase of services by the Federal Government.
If you do select five firms, and each of those five firms, in order to—you've gone through qualifications-based selection in phase one. The teams are qualified. Any one of the five could do it successfully. They are now asked to prepare a design.
Mr. MASCARA. So they're all pre-qualified?
Mr. MITCHELL. They're all pre-qualified, and they are asked to prepare a design to compete to see who wins from those five. All right?
Mr. MASCARA. That competition contracts the cost?
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Mr. MITCHELL. But how do you get to cost? You have to do design work in order for the contractor to contract it. So, as my partner here on the right said, the AE incurs more of the cost during this second phase competition than the contractor does, because they are asked the put together—you've got to look at what's the architectural concept, what's the structural concept, what kind of mechanical systems, electrical systems, what kind of plumbing systems do you require in this building, so that the contractor can legitimately price it and assure himself and the Government that the building that they are proposing can actually be built for the cost that they are proposing in their fee, because one thing you don't want to do is sign a contract with a design-build entity and find out that the building that they proposed cannot be built for the cost.
So you have to do enough work to legitimize the cost. That is a professional service. You're getting that from five firms, not just one that you're paying after you've selected among the design-bid-build process.
Each one of those firms—architects and engineers are different in their approach to projects. You might find that you have five different designs. Each one has something unique. Let's say there is a different mechanical system approach which might be more energy-conserving than the successful winner that you liked the architectural design and had a different price. So you might say to the successful winner, ''Let's take a look at using the engineering design that firm C used, because it was more cost-efficient and less energy consuming,'' and that might be incorporated into the winning design. That means that the first person who had the idea and the creativeness has been left out and didn't get reimbursed at all for a contribution to a successful Government project that was less energy consuming over a 50-year life, or something like that.
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So you're going to have—the fairness issue is professional design services, both as architects and engineers have been expended, and the fairness to do that. And the other part is, there are technical issues that can carry on to the successful project.
Mr. MASCARA. So then there is some intellectual properties in bidder C, D, and E—
Mr. MITCHELL. That's correct.
Mr. MASCARA.—that you can't use unless—
Mr. MITCHELL. Unless you pay for it.
Mr. MASCARA. And if you pay them a stipend, then the stipend includes your right to use his intellectual property?
Mr. MITCHELL. That's correct.
Mr. MASCARA. I have no further questions.
Mr. GILCHREST. Thank you, Mr. Mascara.
I would like both of you to answer this. Neither one of you works for GSA, I guess.
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Mr. WORRALL. Yes, I have.
Mr. MITCHELL. Yes, I have also. My firm has also.
Mr. GILCHREST. But you don't now. I mean you haven't been employed by GSA.
Mr. MITCHELL. No.
Mr. WORRALL. Done projects.
Mr. GILCHREST. With this whole idea of stipends, are there examples of stipends used in the private sector similar to what is being proposed now for wider use by the Federal Government? Do you know of any stipends used by foreign governments in this matter? And, if you do, what kind of projects are these stipends offered on?
Mr. WORRALL. Most of the private sector I think marries up with design-builder before—through a qualifications-based process; therefore, you don't get into the submission of two or three designs in the design-build process.
I would say the bulk of the private sector design-build work is done that way.
There have been payments by private sector people to design-build entities when they're soliciting a broader array of responses. I'm aware of many instances where that occurs.
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As far as foreign governments go, I don't know. I'm not aware of any foreign governments or familiar with any.
Mr. MITCHELL. With respect to the private sector in the United States, there are stipends or reimbursement for professional services that are made. I can cite a specific example that we recently competed in.
We were working for Motorola Corporation, which you are familiar with. One of the specialties that my firm does is design micro-electronics and semiconductor manufacturing facilities. For a project in Phoenix, they short-listed three design-build firms based upon qualifications and asked each of those three to develop a building concept and approach, and they reimbursed each of the competitors what they referred to as an ''honorarium'' for competing in that.
The specific reason that they wanted to do that was that they would then own the intellectual property rights, as Congressman Mascara indicated, of the submittals that they got, and they would be able to use any of the innovative ideas that the three firms did.
Mr. GILCHREST. Is their percentage similar to what GSA is—
Mr. MITCHELL. No, it wasn't. It was actually less. It was less.
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Mr. GILCHREST. This is a hypothetical question. If either one of you worked for GSA—and they have the flexibility now to use stipends, what rationale do you see was used to offer stipends for Foley Square—and I'm sure you're not that familiar with some of the other projects, but a design-build project, fairly major—Foley Square was offered stipends, and Minneapolis, White Plains, and some other places were not. Would you draw—how would you draw a distinction between major projects where stipends are offered and major projects where stipends are not offered?
I ask you this question as taxpayers, because we're going to legislate using your dollars to offer stipends. Do you have any recommendations there or suggestions?
Mr. MITCHELL. Why don't I take a first crack at that one?
First of all, I am not familiar with Foley Square; however, I am familiar with a couple of others, including the building in Chicago that was discussed, I believe the Metcalf Building, and I'm also familiar with one that was not mentioned, which was an IRS building in Detroit, I believe, that was recently completed under design-build by the GSA.
On the building in Chicago, the Metcalf Building, we looked at competing on that particular project in a design-build teaming relationship, but when we sat down and looked at the cost of competing, which was not reimbursed, our estimate was that our out-of-pocket cost for labor and expenses would have been in excess of $300,000 to compete to win that project.
Mr. GILCHREST. So even though the stipend would have been in the range of 2 to 5 percent, that would have justified being involved in that?
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Mr. MITCHELL. That would have certainly been more encouraging than completely out-of-pocket. Yes, sir.
Mr. GILCHREST. I see.
Mr. MITCHELL. And the building in Detroit, which also did not have a stipend, which was an IRS building, had a similar number of probably around a quarter of a million dollars. In fact, I know firms in Chicago who did compete for that. In fact, the winning team that competed that figured that they, in talking with the principals of that firm, who are friends, that they probably spent between $300 and $400,000 in expenses in their own firm.
Mr. GILCHREST. Would you have thought it reasonable to offer a stipend on that particular project?
Mr. MITCHELL. Yes, I would have. It was something in the range of $50,000 to $60,000, or a number like that, which is—basically, it becomes an honorarium, but it helps to reimburse maybe the out-of-pocket cost and the expenses, but not necessarily the labor.
Mr. GILCHREST. In your judgment, then, what would be the advantage of the Government offering stipends under those circumstances?
Mr. MITCHELL. Well, I think the competition is one, sir, because when—we are a very high-quality firm, and we have elected on each of those projects that are design-build within GSA to not compete. We have not competed on a GSA project like that since they started the design-build approach, so we have basically shied away from working on those because it's too expensive.
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Mr. GILCHREST. Would you consider stipends for other than design-build projects?
Mr. MITCHELL. For design competition where you're doing an architectural design competition, where you're asking people to provide—
Mr. GILCHREST. Yes.
Mr. MITCHELL.—a creative product to the Government through a design competition, I think stipends are totally appropriate.
Mr. GILCHREST. Did you say appropriate or inappropriate?
Mr. MITCHELL. Appropriate. Totally appropriate. Yes, sir.
Mr. GILCHREST. Thank you.
Mr. WORRALL. I have not and my firm has not done any GSA design-build work. We've only done design-bid-build work, so my involvement—and my involvement in design-build is somewhat limited.
Generally, we, in the private sector and for local government agencies that are asking for design-build proposals, we generally ask to be paid for the service by the design-builder, so as the architect we are only going to participate in the event we are compensated. That means that if we're not being compensated, we would not participate.
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Mr. GILCHREST. What is a percentage that you're looking for for compensation?
Mr. WORRALL. Generally it depends on what level of effort we go through. A schematic design effort, we would be looking for somewhere around 15 to 20 percent of the fee, and if they want a design development level effort, we'd go up to 35 to 40 percent of the fee.
Mr. GILCHREST. So if we're talking about 2 to 5 percent, that doesn't fall within your range of consideration?
Mr. WORRALL. No, that would not. That's very low, as a matter of fact.
Mr. MITCHELL. He was saying 2 to 5 percent of the fee.
Mr. WORRALL. Of the design fee?
Mr. MITCHELL. Right. That's low.
Mr. WORRALL. Yes. Very low. I would expect—
Mr. GILCHREST. So this legislation would virtually have no impact on your decision to submit design proposals?
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Mr. WORRALL. Not me, personally. I believe—you asked as a taxpayer. If I was a taxpayer, I wouldn't use the design-build process.
Mr. GILCHREST. If you were a taxpayer, you wouldn't use design-build process?
Mr. WORRALL. No.
Mr. GILCHREST. So you think we should not use the design-build process?
Mr. WORRALL. If you are going to use the design-build process, though, I believe the stipend is the way to elicit the best response out of the participating community, because without—
Mr. GILCHREST. You're saying that, as a taxpayer—and we take your hard-earned money up here and we pay the light bill and we send people to the moon and we build buildings—you're saying that the design-build process is not as efficient as the design-bid-build process unless a stipend is used for the design-build process?
Mr. MITCHELL. I think, to go back—no, I didn't say that. On the design-build—as a taxpayer, on the design-build I think there are appropriate applications of design-build, and I think that in any use or application of design-build that the stipend is an appropriate way to bring out, because of the equity issue, to bring out the brightest and best to participate in the process. If you don't provide the stipend, you will not get the brightest and the best, I don't think.
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In terms of the overall issue of design-build and the determination of it, I think you have to look at the project types and what's being done and the ability of the Government to participate and the entire limitations that pervade, and that's the reason I made the earlier statement that I think there's a lot that slips between the cup and the lip when you—
Mr. GILCHREST. Where does the slippage occur? When you talk about the Government, it's such an ambiguous statement about slippage and building. Where does this slippage occur?
Mr. WORRALL. The design professional is no longer a fiduciary to the user.
Mr. GILCHREST. And that is because of the—
Mr. WORRALL. The client is the design-builder. The architect's client is the design-builder.
Mr. GILCHREST. And not the Government.
Mr. WORRALL. And not the Government, unless the architect is the design-builder.
Mr. GILCHREST. That's an interesting dimension to this whole thing.
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A couple more—unless you had any other comment?
Mr. MITCHELL. I didn't finish the answer on mine with respect to foreign government, and I believe yours was a two-part question. One was experience with the private sector and then what experience on foreign government experience.
In the European market, the governments there I know quite often pay honorariums and stipends on design competitions. We have competed in a number of those in Europe, as well as in the Far East in Korea and in Singapore and areas like that.
They pay nominal honorariums for those firms who are successful in making the first cut at qualifications level.
With respect to design-build in Europe, design-build is the normal way of contracting in Europe for public infrastructure. It's a different market than in the U.S., so they have built that into part of their cost structure.
Mr. GILCHREST. When you say Europe, are you talking about—
Mr. MITCHELL. Germany, France, England, that area.
Mr. GILCHREST. And they have used design-build as a concept for 10 years, 20 years?
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Mr. MITCHELL. For a good deal of time. Yes.
Mr. GILCHREST. And they incorporate stipends in that process?
Mr. MITCHELL. Yes. They also incorporate—the companies have built the cost of competing into their overhead structures and into their—because they are design-build firms, they have a different cost structure than a typical AE firm may have.
Mr. GILCHREST. In closing—and I'm not sure how this was answered. I think I asked it and you threw me a curve. Would you support stipends for anything other than design-build?
Mr. WORRALL. Competitions.
Mr. GILCHREST. Any competitive bidding, you feel that stipends—design competitions stipends should be—
Mr. WORRALL. Where there is intellectual property that is passed, ownership is passed, I think it's appropriate you pay for that. Yes.
Mr. MITCHELL. My answer on that is exactly the same. The design-bid-build process, the traditional Brooks Act process, is not something that requires stipends, but that's a proven method that is low-cost and reasonable and rational to the Government, as well as to the design community, in preparing submittals.
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It's only when you get into the production of design services, such as in design-build competition or in a design only competition, where you begin to expend professional service hours in order to qualify and be selected.
Mr. GILCHREST. In that case, would there be a cut-off to the size of the project in the design-build concept? And I guess I'm asking that because of the difference between Foley Square and White Plains and Minneapolis and Chicago. What was the—you're saying that each of those should have been compensated with a stipend?
Mr. MITCHELL. In my opinion, yes.
Mr. GILCHREST. In those projects?
Mr. MITCHELL. Yes. In my opinion, yes, sir.
Mr. GILCHREST. Is there a size for a design-build project that—$50 million, $300 million—if it's design-build then there should be a stipend offered?
Mr. MITCHELL. I don't think—my personal comment on that is there shouldn't be, again, because it gets into the issue of who is going to compete. Clearly, if you had a $5 million dormitory for the U.S. Navy that was going to be design-built, you would be able to pre-qualify smaller firms that met the small business qualifications, or even smaller than that—a firm that does $1 million a year.
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If they have to do a conceptual design on a $5 million project, that might cost them $30,000 to $40,000 to do that. If you're a million dollar a year firm, that might be your entire profit for the year.
So you're looking for some kind of a stipend or some kind of a reimbursement for the services—at least your direct labor cost, let's hope—that would be able to reward you somewhat for competing in that. And, if not, you're going to walk away from it saying, ''Within my cost structure, I can't afford to compete for those kind of projects.''
So it goes up the line as you get larger and larger projects. Different firms will compete, but it has the same amount of impact on their bottom line by having them put a tremendous amount of out-of-pocket cost against those projects in the competition.
Mr. GILCHREST. Gentleman, thank you very much. You have been very helpful to the process, and I perhaps will see Mr. Worrall at Camden Yards or maybe the new Raven's stadium, whatever that's going to be called.
Thank you very much. The hearing is adjourned.
[Whereupon, at 10:35 a.m., the subcommittee was adjourned, to reconvene at the call of the Chair.]
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