<DOC> [106th Congress House Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:73004.wais] H.R. 4012, THE CONSTRUCTION QUALITY ASSURANCE ACT OF 2000 ======================================================================= HEARING before the SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY of the COMMITTEE ON GOVERNMENT REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTH CONGRESS SECOND SESSION ON H.R. 4012 TO ASSURE QUALITY CONSTRUCTION AND PREVENT CERTAIN ABUSIVE CONTRACTING PRACTICES BY REQUIRING EACH BIDDER FOR A FEDERAL CONSTUCTION CONTRACT TO IDENTIFY THE SUBCONTRACTORS THAT THE CONTRACTOR INTENDS TO USE TO PERFORM THE CONTRACT, AND FOR OTHER PURPOSES __________ JULY 13, 2000 __________ Serial No. 106-238 __________ Printed for the use of the Committee on Government Reform ______ U.S. GOVERNMENT PRINTING OFFICE 73-004 DTP WASHINGTON : 2001 For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpr.gov Phone (202) 512ÿ091800 Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001 Available via the World Wide Web: http://www.gpo.gov/congress/house http://www.house.gov/reform _______________________________________________________________________ For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001 COMMITTEE ON GOVERNMENT REFORM DAN BURTON, Indiana, Chairman BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California CONSTANCE A. MORELLA, Maryland TOM LANTOS, California CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania JOHN L. MICA, Florida PATSY T. MINK, Hawaii THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington, MARK E. SOUDER, Indiana DC JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio Carolina ROD R. BLAGOJEVICH, Illinois BOB BARR, Georgia DANNY K. DAVIS, Illinois DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts ASA HUTCHINSON, Arkansas JIM TURNER, Texas LEE TERRY, Nebraska THOMAS H. ALLEN, Maine JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois DOUG OSE, California ------ PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont HELEN CHENOWETH-HAGE, Idaho (Independent) DAVID VITTER, Louisiana Kevin Binger, Staff Director Daniel R. Moll, Deputy Staff Director James C. Wilson, Chief Counsel Robert A. Briggs, Clerk Phil Schiliro, Minority Staff Director Subcommittee on Government Management, Information, and Technology STEPHEN HORN, California, Chairman JUDY BIGGERT, Illinois JIM TURNER, Texas THOMAS M. DAVIS, Virginia PAUL E. KANJORSKI, Pennsylvania GREG WALDEN, Oregon MAJOR R. OWENS, New York DOUG OSE, California PATSY T. MINK, Hawaii PAUL RYAN, Wisconsin CAROLYN B. MALONEY, New York Ex Officio DAN BURTON, Indiana HENRY A. WAXMAN, California J. Russell George, Staff Director and Chief Counsel Randy Kaplan, Counsel Bryan Sisk, Clerk Trey Henderson, Minority Counsel C O N T E N T S ---------- Page Hearing held on July 13, 2000.................................... 1 Text of H.R. 4012............................................ 3 Statement of: Barnhart, Douglas E., chief executive officer, Douglas E. Barnhart Inc., San Diego, CA, representing the Associated General Contractors of America............................. 76 Drabkin, David, Deputy Associate Administrator, Office of Acquisition Policy, General Services Administration........ 14 Dunleavy, John J., executive vice president, Pierce Associates, Inc., Alexandria, VA, representing the Mechanical-Electrical-Sheet Metal Construction Alliance.... 59 Fuqua, John, chief executive officer, Carol Electrical Co., Inc., Los Alamitos, CA, representing the National Electrical Contractors Association......................... 38 Petzen, George, skylight specialist, Traco Skytech Systems, Bloomsburg, PA............................................. 32 Swab, William K., president, Ennis Electric Co., Manassas, VA, representing the American Subcontractors Association... 24 Letters, statements, etc., submitted for the record by: Barnhart, Douglas E., chief executive officer, Douglas E. Barnhart Inc., San Diego, CA, representing the Associated General Contractors of America, prepared statement of...... 79 Drabkin, David, Deputy Associate Administrator, Office of Acquisition Policy, General Services Administration, prepared statement of...................................... 16 Dunleavy, John J., executive vice president, Pierce Associates, Inc., Alexandria, VA, representing the Mechanical-Electrical-Sheet Metal Construction Alliance, prepared statement of...................................... 62 Fuqua, John, chief executive officer, Carol Electrical Co., Inc., Los Alamitos, CA, representing the National Electrical Contractors Association, prepared statement of.. 40 Petzen, George, skylight specialist, Traco Skytech Systems, Bloomsburg, PA, prepared statement of...................... 34 Swab, William K., president, Ennis Electric Co., Manassas, VA, representing the American Subcontractors Association, prepared statement of...................................... 27 H.R. 4012, THE CONSTRUCTION QUALITY ASSURANCE ACT OF 2000 ---------- THURSDAY, JULY 13, 2000 House of Representatives, Subcommittee on Government Management, Information, and Technology, Committee on Government Reform, Washington, DC. The subcommittee met, pursuant to notice, at 10 a.m., in room 2154, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding. Present: Representatives Horn, Biggert, Walden, Ose, Burton (Ex Officio), Turner, and Kanjorski. Staff present: J. Russell George, staff director and chief counsel; Randy Kaplan, counsel; Bonnie Heald, director of communications; Bryan Sisk, clerk; Elizabeth Seong, staff assistant; Will Ackerly, Chris Dollar, and Davidson Hullfish, interns; Trey Henderson, minority counsel; Mark Stephenson, minority professional staff member; and Jean Gosa, minority assistant clerk. Mr. Horn. The Subcommittee on Government Management, Information, and Technology will come to order. We're here today to examine H.R. 4012, the Construction Quality Assurance Act of the year 2000, introduced by Representative Kanjorski from Pennsylvania. This bill is an attempt to ensure quality construction on Federal public works projects. The bill is designed to discourage practices known as ``bid shopping'' and ``bid peddling.'' Bid shopping occurs when a general contractor seeks to obtain lower-priced subcontractors than those listed in the original bid. Bid peddling occurs when a subcontractor reduces its price to induce the prime contractor to substitute that company for a subcontractor listed on the bid. H.R. 4012 would require companies that bid on Federal construction projects costing more than $1 million to list the subcontractors they intend to use on the project. The bill would also establish a set of procedures that contractors must follow if they want to substitute a subcontractor listed in the original bid. The bill limits these substitutions, however. A contractor could only replace a listed subcontractor for good cause, such as death, dissolution, or bankruptcy of the subcontractor and with the consent of the contracting officer. From 1963 until 1983 the General Services Administration Procurement Regulations required companies bidding on Federal construction projects to list the subcontractors they intended to use for the project. The General Services Administration in 1984 rescinded this requirement, in part, to reduce project delays and administrative costs and burdens associated with the requirement. Currently, there is no Federal bid-listing requirement. Today we will examine a number of issues related to H.R. 4012, including the extent to which contractors are engaging in bid shopping and/or bid peddling on Federal construction projects. In addition, we will hear testimony of the impact of these practices on contractors and construction projects and whether the provisions of this bill would ensure quality Federal construction. We welcome our witnesses. We look forward to your testimony and are now delighted to yield to the ranking member on the subcommittee, the gentleman from Texas, Mr. Turner. [The text of H.R. 4012 follows:] [GRAPHIC] [TIFF OMITTED] T3004.001 [GRAPHIC] [TIFF OMITTED] T3004.002 [GRAPHIC] [TIFF OMITTED] T3004.003 [GRAPHIC] [TIFF OMITTED] T3004.004 [GRAPHIC] [TIFF OMITTED] T3004.005 [GRAPHIC] [TIFF OMITTED] T3004.006 [GRAPHIC] [TIFF OMITTED] T3004.007 [GRAPHIC] [TIFF OMITTED] T3004.008 [GRAPHIC] [TIFF OMITTED] T3004.009 [GRAPHIC] [TIFF OMITTED] T3004.010 [GRAPHIC] [TIFF OMITTED] T3004.011 Mr. Turner. Thank you, Mr. Chairman. H.R. 4012, the Construction Quality Assurance Act of 2000, was sponsored by Representative Paul Kanjorski; and I think Congressman Kanjorski will join us shortly, Mr. Chairman. This bill ends the practice of bid shopping by requiring prime contractors to list the names of the subcontractors that they intend to use on a project on bid day and stick with those subcontractors through the duration of the project. This process is known as bid listing. The bill also allows substitution of subcontractors only for situations such as bankruptcy or inability of the subcontractors to perform the contract. In this matter, the preliminary contractors are required to use the subcontractors that they used to prepare the bid at the price they agreed to pay on bid day. I want to commend Representative Kanjorski for his leadership on the issue. I appreciate the chairman holding this hearing, and I welcome all the witnesses here today to talk about the issues that the legislation raises. Thank you, Mr. Chairman. Mr. Horn. Thank you. Since we're waiting for Mr. Kanjorski, I'll give you the ground rules for testifying here. Some of you have been regulars and others haven't. We will go by the order on the agenda. And when we call your name like, let's say, Mr. Drabkin, who is going to be the first witness, your resume, your full texts are automatically in the hearing record. We'd like you to summarize that in 5 minutes, whatever your text is, because the Members have had it, and they know what the written text is. So we would like to get down to the essences, if you will, so then we can have a dialog between the Members and you and within those if there are differing opinions. We also--since we are an investigating subcommittee of the full Committee on Government Reform, we swear all witnesses or affirm. So we will do that right now. So if you will stand, raise your right hands--and that includes your assistants behind you if they might be whispering in your ear. So get them to stand, too. [Witnesses sworn.] Mr. Horn. The clerk will note the six witnesses and any supporters behind, and they will be affirmed now. Since Mr. Kanjorski is a little late, we'll begin with David Drabkin, the Deputy Associate Administrator, Office of Acquisition Policy for the U.S. General Service Administration. Mr. Drabkin. STATEMENT OF DAVID DRABKIN, DEPUTY ASSOCIATE ADMINISTRATOR, OFFICE OF ACQUISITION POLICY, GENERAL SERVICES ADMINISTRATION Mr. Drabkin. Thank you, Congressman Horn. Mr. Chairman, getting to the meat of the testimony, there are essentially three points that we wanted to make as to why the administration is opposed to this bill. First point deals with locking the prime contractor into business relationships that can be revised only with permission of the contracting officer, which requires the contracting officer to become involved in prime subcontractor relationships, an issue which the Federal Government has traditionally avoided, invading the privity of contract between primes and subs. We believe that this will not only do damage to the existing contract system overall by requiring contracting officers to spend a great deal of time involved in these private relationships between the prime and the sub, but it also will invade the prime's ability to manage his contracts or her contracts in an efficient manner. Inserting the government in that process won't add any value. Second, we point out that the subcontractors listing requirements could adversely affect the timeliness and cost of contract performance and would increase the government's administrative expenses. One of the key issues to getting the job done that the Congress gives us to do in terms of construction is getting the contracts awarded and getting the construction started and getting the project delivered on time for the money which the government has agreed to pay. This process proposed in H.R. 4012 would result in government contracting officers having to spend a great deal of time up front and during contract administration should there be a need for changing a subcontractor as outlined in the bill. This time normally will result in work getting stopped while we resolve the issue of who's going to be permitted to perform the work during the course of the general construction project. Every time you delay performance, there's an additional cost to the government in terms of real dollars, filing claims and there's time; and that time will affect the ability of the government to deliver that project in accordance with the schedule. Third, we point out that there's an issue dealing with what I like to refer to as subbing up. One of the things that in my last position at the Pentagon renovation we were trying to do was to allow the government to have access to the best subcontractors team possible. As you know, today in major construction projects most of the work--a large portion of the work is done by subcontractors. If we force contractors in the community to go out and enter into exclusive arrangements with subcontractors before we make award of the contract, the result would be a suboptimized subcontractors team. One of the things we were trying to figure out how to do in a fair and equitable manner was to allow the prime, after award, to go out and pick the best subcontractors team to help get the job done. And in a community like Washington there are not a lot of big--or small, for that matter--mechanical, electrical, and other types of subcontractors. Typically, prime contractors engage, they lock one up, and there's no others for them to choose from. If this bill were passed as the way it's currently written, the government would always wind up with a suboptimized subcontractor team instead of the possibility of getting the best of the subcontractors available post award. For these three reasons, then, essentially we oppose the bill. We also provide in our testimony later on the results of our experience from 1964, I believe it was, to 1983 in terms of having this kind of provision and what impact it had on the agency. Thank you for this opportunity to present the administration's position. Mr. Horn. We thank you. [The prepared statement of Mr. Drabkin follows:] [GRAPHIC] [TIFF OMITTED] T3004.012 [GRAPHIC] [TIFF OMITTED] T3004.013 [GRAPHIC] [TIFF OMITTED] T3004.014 [GRAPHIC] [TIFF OMITTED] T3004.015 [GRAPHIC] [TIFF OMITTED] T3004.016 [GRAPHIC] [TIFF OMITTED] T3004.017 [GRAPHIC] [TIFF OMITTED] T3004.018 [GRAPHIC] [TIFF OMITTED] T3004.019 Mr. Horn. We're going to go out of order now. Mr. Kanjorski, the author of the bill, of Pennsylvania is here. If he has an opening statement he's certainly welcome, and we'll put the testimony following his statement. Mr. Kanjorski. Mr. Chairman, I look forward to listening to the testimony. I pass for a few more extra minutes when we get to questions. Mr. Horn. I thank the gentleman. We now have our second witness, which is William K. Swab, the president of the Ennis Electric Co. in Manassas, VA, representing the American Subcontractors Association. Mr. Swab. STATEMENT OF WILLIAM K. SWAB, PRESIDENT, ENNIS ELECTRIC CO., MANASSAS, VA, REPRESENTING THE AMERICAN SUBCONTRACTORS ASSOCIATION Mr. Swab. Mr. Chairman, members of the committee, thank you for this opportunity to speak today in support of H.R. 4012. Hopefully, I can give you a little different perspective. My name is Chip Swab, and I'm president of Ennis Electric Co. in Manassas, VA. My company performs Federal construction work, including 19 specific contracts in the past 2 years. I am a member of the American Subcontractors Association, which represents over 6,500 construction specialty trade contractors all over the United States, and I am speaking on their behalf today. The American Subcontractors Association strongly supports H.R. 4012, the Construction Quality Assurance Act of 2000, because it will end the practice of bid shopping on Federal construction, a practice which cheats the government out of value and quality. Bid shopping occurs when a prime contractor approaches its subcontractor after it has been awarded a construction contract and tells the subs to lower their prices or lose the subcontracts. The savings from that subcontract enrich the prime contractor to the detriment of the value delivered to the owner. Although bid shopping may be unethical, it currently is legal and sometimes seems to be encouraged on Federal construction. Of the 19 Federal contracts my company has performed work on and the many more that we have bid on during the past 2 years, every single one has featured some form of bid shopping. Today, the Federal Government does not get the best value for construction. This is because in most cases the final decisions as to which contractors, suppliers and manufacturers will be used on a project are not made until after the government accepts a bid or proposal from a prime contractor. Let me give some background, explain how the current system operates, and provide my assessment of how H.R. 4012 will benefit both taxpayers and the construction industry. For many years, the accepted method of procurement for Federal construction was the ``Invitation for Bid'' or ``IFB.'' We referred to it as the ``rip it and read'' process, since bid envelopes were brought to the public area of a Federal agency, and at a given hour on a given date all bids received were opened, read and recorded in public. Having the paperwork properly executed was important, but the overriding factor was the lowest price. Participating contractors saw this process as open and fair, but it did not offer the Federal agency discretion to choose a contractor on any basis other than price. Reputation, past performance, financial stability and special expertise were not factors that were available for review. As a result, many jobs suffered because the low bidder was not always the best available contractor to perform the work. Contractors that performed good or even exemplary work were not rewarded for their efforts unless they had the low bid. Fortunately, the government learned an important lesson: You get what you pay for. By only considering price, much of the construction delivered under the IFB process was inferior. So the government looked to the private sector for another way, Best Value Procurement. Out went the Invitation for Bid process, and in came the Request for Proposal, of which there are many forms. The main feature is the increased ability of a Federal agency to weigh factors in addition to price in making a choice of prime contractor. Unlike the IFB process, the review and decisionmaking process followed for an RFP is done in private, and pricing is not revealed until after the notification of award to the prime contractor. Under the RFP process, the emphasis is on getting the best value for the price paid, not just on having the lowest price. But the RFP process is undermined and the government's value is reduced by a practice known as bid shopping. Bid shopping occurs when a general contractor forces a subcontractor to reduce the price or forfeit the subcontract after the prime contractor's bid has been accepted by the government. Since subcontractors know they'll be asked to lower their price once the prime wins the contract, few subcontractors put their best price out on the street at the beginning of the proposal process. They wait until the actual buy decisions are made, a process that takes place after the government awards the prime contract. Starting at the manufacturer level, through their authorized sales agents or distributors, through suppliers, then subcontractors and specialty contractors and finally through the prime contractor, there is a bid shopping markup of costs at every level to the final price that is quoted to the government. Since few of these parties offer their best pricing when they submit their original proposals because they know they will be shopped after the contract is awarded, the government gets an inflated bid, not the best value or best quality that the RFP process is supposed to provide. The construction delivered under the current system costs the government considerably more than it is actually worth, with the prime contractors pocketing whatever amount they are able to squeeze out of their subcontractors. Further, under the current system everyone knows that there will be another bite at the apple after the prime bid is awarded and all of the subcontracts are shopped. Therefore, many firms won't expend the time and effort required for a detailed review prior to bid day, because they know they can afford to wait until the bid shopping that will come later. This lack of attention to detail is a major contributor to errors and omissions that plague a project from its inception and further detract from the quality side of the best value equation. H.R. 4012 and its requirements for bid listing of major subcontractors would change this process. By requiring a general contractor to make its final decisions on what subcontractors and suppliers it is going to use and to commit to those decisions in writing at the time it submits its proposal to bid, the dynamics for the pricing of a project change. To use a few cliches, the day of reckoning, the time to play your hand, the chance to lay all your cards on the table is the due date for submission of the proposal. Under H.R. 4012, prime contractors and subcontractors such as myself can tell all of our suppliers and specialty firms that in order to be named on the proposal we must have everyone's best price on bid day. In order to provide the best price, we have to spend the time and effort necessary to study the contract specifications and to assure that we all fully understand all the requirements, because there is going to be no going back for another round. Once our suppliers know that we are going to make a buy commitment on bid day, they can take the same leverage and use it with the manufacturers and the agents that represent them. The combination of open competition and a date and time certain when final choices will be made assure that each party at each level is willing to quote its best number on bid day. That way the final real price is passed directly to the end user, in this case the Federal Government and the taxpayers. H.R. 4012 would assure that taxpayers receive full value and quality for the price they are paying. Sorry, I've gone over my time. I would just like to state that we respectfully urge your support for and quick action on H.R. 4012. Thank you very much. Mr. Horn. I thank you very much. [The prepared statement of Mr. Swab follows:] [GRAPHIC] [TIFF OMITTED] T3004.020 [GRAPHIC] [TIFF OMITTED] T3004.021 [GRAPHIC] [TIFF OMITTED] T3004.022 [GRAPHIC] [TIFF OMITTED] T3004.023 [GRAPHIC] [TIFF OMITTED] T3004.024 Mr. Horn. Our next witness is George Petzen, the skylight specialist from the TRACO Skytech Systems in Bloomsburg, PA. I assume that's in Mr. Kanjorski's district. Good. Welcome. We're glad to have you here. STATEMENT OF GEORGE PETZEN, SKYLIGHT SPECIALIST, TRACO SKYTECH SYSTEMS, BLOOMSBURG, PA Mr. Petzen. I'm very glad to be here. Thank you very much, Mr. Chairman, members of the committee. I'm here to testify in support of this legislation. I think it's very important. The Construction Quality Assurance Act of 2000 will actually benefit not only the government, it will benefit subcontractors, and it actually will benefit the general contractors on a project by leveling the playing field not only where the general contractors play but for the subcontractors and for the--for everyone underneath, not only second-tier players but third-tier material suppliers where we sometimes play as well. We talk about these things kind of in generalities, but I think it's important to look at what bid shopping actually does in the real world. Several years ago, the Veterans Administration did a major renovation of a property in Wilkes-Barre, PA. The bid process worked as it usually does, subcontractors and material suppliers preparing bids to the bidding general contractors. On the selection of the low general contractor for the bid, everyone knows who is going to be doing the job. The day following that award, the general contractor puts several of the bid packages, the major parts of the construction documents, major parts of the scope of work, back out on the street and rebids them. He owns the contract from the government. He's going to build this building at this price. And the day after he takes major sections of the package and rebids them. I strongly suspect that the government was not benefited by a rebate from the contractor at that point. This process happened not once but twice. And, after that, there were negotiations. We were called in to look at certain areas of scope; and at that point, at the end of our discussion, we were presented with the low contractor's proposal, subcontractor's proposal and told this is the number you have to beat to write the business. That's not a fair process. It's not what the government expects. Certainly it's not what subcontractors expect. But we are exposed to these practices not every once in a while but on virtually every job. It is absolutely undemocratic; and, at times, subcontractors are our worst enemy. We're approached with, beat this number and you play the game of how low can you go. And our margins get skinnied up past the point of it being a safe margin, but in order to write the business, it's what have you to do. It's not a fair process. It really needs to change. To testify in this room, which is so nicely appointed, I kind of wonder if the guy that was low on bid day for all the case work and all of the appointments in this room actually was a subcontractor that did the work. It would be nice to think that that was the case, but my experience is it probably was someone else. It was probably someone else. Not fair for the government. There's a lot of pride in doing this work. You know, to walk into this room as a subcontractor that performed this business is a source of great pride. And we hang our hats on that. To walk in being low on bid day and look at someone else's work that was based on your price, doesn't give you the same source of pride. We need to reinstate pride across the board for the material suppliers, for the subcontractors, for the primes, for the design professionals, and for the government. Thank you. Mr. Horn. Thank you. That's a very moving statement. [The prepared statement of Mr. Petzen follows:] [GRAPHIC] [TIFF OMITTED] T3004.025 [GRAPHIC] [TIFF OMITTED] T3004.026 [GRAPHIC] [TIFF OMITTED] T3004.027 [GRAPHIC] [TIFF OMITTED] T3004.028 Mr. Horn. The next witness I've known for a number of years and am delighted to see him here, and that's John Fuqua, the chief executive officer of Carol Electrical Co. in Los Alamitos, CA, right over my district line--why don't you move that, John--representing the National Electrical Contractors Association. Pleasure to have you here. STATEMENT OF JOHN FUQUA, CHIEF EXECUTIVE OFFICER, CAROL ELECTRICAL CO., INC., LOS ALAMITOS, CA, REPRESENTING THE NATIONAL ELECTRICAL CONTRACTORS ASSOCIATION Mr. Fuqua. Mr. Chairman, members of the committee, first of all, thank you for the opportunity to testify here this morning. I am an electrical contractor, and I'm also here today speaking for the National Electrical Contractors Association. Mr. Horn. I was going to tell you. The clerk ought to go down and do that. Move that mic closer to you. Mr. Fuqua. Is that better? Mr. Horn. I think so. Mr. Fuqua. Bid shopping has been with us a long time-- certainly as long as I have been an electrical contractor. It is an unethical practice which works not only to decrease the value of the construction the owner receives for his price but also to undermine the ability of the contractor to offer his best price and guarantee the quality of work produced for that price. Unfortunately, it's a common practice on Federal, State, local and private work alike. When I spend time and money to prepare a bid, I expect that it will be accepted and honestly used if it is low and responsive. It's my best price, one that will give the general contractor and the owner true value for their construction price and where I can do the work properly and also make a reasonable profit. If, after he has been awarded the contract, the general contractor shops my bid or tries to lower my price by threatening to shop it, he is doing me and his customer a disservice. When he attempts to shop my bid, he is trying to increase his own profitability at my expense and also the expense of the customer. I have given the prime contractor my best price. I want the work, and there is no reason for me to add a margin to my bid. Doing so could mean that I would not be low and not get the job. Squeezing me or another for a better price once the prime contractor has the contract means that I would have to cut or eliminate my profit or, worse yet, cut corners on a job. I'm not in business to work at a loss. I'm not in business to lower quality on my jobs or endanger a hard-won reputation of quality. So when a contractor shops my bid or threatens to do so, I don't play the game. I do not bid that contractor in the future. It's simply not worth the danger to my company's reputation. But if I choose not to work for the contractor again, I have already lost time and money spent to estimate the job and price it. From that standpoint, this committee, the customer is a loser, too. He doesn't know it. He doesn't know he is a loser. He's paid for my best workmanship, quality and expertise as part of the contract price; and he's not going to get it. It's going to the prime contractor's wallet as a windfall profit. A legislative approach to bid listing has been around for a long time. Since 1931, in the 72nd Congress, and again in 1938, a measure passed both Houses of Congress, was vetoed by the President because of an unrelated provision requiring agencies to supervise subcontractor payments. Bills have been introduced in many Congresses since then with varying degree of activity. Both the House and Senate have each again passed bid listing measures in years since the veto. This activity has caused the GSA and others to take a close look at the practice. In 1963, the General Services Administration tried a pilot bid listing regulation. In 1964, it issued general bid listing regulations covering contracts over $150,000 and subcontracts over 3.5 percent of the total. In 1965, the Interior Department issued similar regulations. Both agencies experienced good results. Speciality contractors have been consistent in their efforts to implement a policy of bid listing. In March 1965, the Associated General Contractors also adopted an official policy supporting bid listing for mechanical and electrical specialty contractors on all Federal building construction products. They are on record as of this day abhorring the bid shopping and peddling practice. In the meantime, in 20 years experience with the bid listing policy in the Federal agencies, they exposed flaws in the regulations, administered under sometimes unclear and confusing regulations. These led to some administrative complications and costly lawsuits. By 1984, the GSA, the last remaining Federal agency requiring bid listing, dropped its use. And that brings us right back to where we were in 1931, seeking a legislative remedy to a costly pervasive and divisive problem, the ongoing unethical practice of bid shopping and peddling. H.R. 4012 makes use of seven decades of experience in legislative and executive approaches to bid listing. It is simple enough to be understandable. Its scope is broad enough to be effective, and yet it's limited enough not to be an insurmountable burden. It sets the administrative standard that's fair, understandable and enforceable, taking Federal agencies off the hook and protecting them from unwanted lawsuits. The language is clear, concise and workable. Federal agencies should compare this measure objectively against what has gone on before. We believe they will find it a usable and cost-effective tool to assure the government and taxpayers alike receive quality construction for what they've paid for. NACA would like to thank Congressman Kanjorski, Chairman Horn and other Members, cosponsors of this committee for providing us with a superior piece of legislation. We urge this subcommittee to report it favorably and to move it swiftly through the legislative process. Thank you. Mr. Horn. Thank you very much. [The prepared statement of Mr. Fuqua follows:] [GRAPHIC] [TIFF OMITTED] T3004.029 [GRAPHIC] [TIFF OMITTED] T3004.030 [GRAPHIC] [TIFF OMITTED] T3004.031 [GRAPHIC] [TIFF OMITTED] T3004.032 [GRAPHIC] [TIFF OMITTED] T3004.033 [GRAPHIC] [TIFF OMITTED] T3004.034 [GRAPHIC] [TIFF OMITTED] T3004.035 [GRAPHIC] [TIFF OMITTED] T3004.036 [GRAPHIC] [TIFF OMITTED] T3004.037 [GRAPHIC] [TIFF OMITTED] T3004.038 [GRAPHIC] [TIFF OMITTED] T3004.039 [GRAPHIC] [TIFF OMITTED] T3004.040 [GRAPHIC] [TIFF OMITTED] T3004.041 [GRAPHIC] [TIFF OMITTED] T3004.042 [GRAPHIC] [TIFF OMITTED] T3004.043 [GRAPHIC] [TIFF OMITTED] T3004.044 [GRAPHIC] [TIFF OMITTED] T3004.045 [GRAPHIC] [TIFF OMITTED] T3004.046 [GRAPHIC] [TIFF OMITTED] T3004.047 Mr. Horn. We now go to Mr. John J. Dunleavy, the executive vice president of Pierce Associates in Alexandria, VA; and he represents the Mechanical-Electrical-Sheet Metal Construction Alliance. Mr. Dunleavy. STATEMENT OF JOHN J. DUNLEAVY, EXECUTIVE VICE PRESIDENT, PIERCE ASSOCIATES, INC., ALEXANDRIA, VA, REPRESENTING THE MECHANICAL- ELECTRICAL-SHEET METAL CONSTRUCTION ALLIANCE Mr. Dunleavy. Good morning Mr. Chairman, members of the subcommittee. My name is John Dunleavy. I'm executive vice president of Pierce Associates. Pierce Associates is a member of the Mechanical Contractors Association of America and, I should also add, a proud member of the Associated General Contractors. I am pleased to be here today on behalf of the Mechanical- Electrical-Sheet Metal Alliance to support H.R. 4012, the Construction Quality Assurance Act of 2000. The Alliance, comprised of MCAA, the National Electrical Contractors Association, and the Sheet Metal and Air Conditioning Contractors' Association of America, represents more than 12,000 speciality construction contracting firms that employ more than 540,000 highly skilled employees. Alliance contractors hold a growing market share of more than 60 percent of the Nation's nonresidential construction activity. MCAA and Alliance contractors compete vigorously in the market for Federal construction projects and perform as prime contractors, speciality subcontractors, and sub- subcontractors. Pierce Associates has been in business since 1961, performing work on Federal projects in the Washington, DC, metropolitan area, primarily as a subcontractor. MCAA and the Alliance strongly support H.R. 4012, which is aimed at improving the quality of Federal construction project delivery and the competitiveness of Federal construction markets. By effectively stemming the parallel abuse of business practices of bid shopping and bid peddling, both universally condemned by leading industry groups, but which nevertheless occur in practice, the Construction Quality Assurance Act will bring many more quality construction firms back into competition in the Federal market. Additionally, the act will lead to project performance based on best-value performance contracting, rather than adversarial buying-the-job practices. H.R. 4012 is a necessary Federal procurement reform that continues the pattern of procurement policy improvements starting with the Competition in Contracting Act, the Prompt Payment Act and its amendments, the Federal Acquisition Streamlining Act and the recent Miller Act Amendments. Taken together, these predecessor reforms establish congressional policy allowing Federal construction purchasing officials to be much more discerning market participants by choosing from among the full range of proven best-value contractor selection options, gaining the full performance incentives of past performance evaluations, and fully utilizing FAR authority to evaluate and assess the responsibility and performance capabilities of major subcontractors actually performing the vast majority of work on Federal projects. By extending bid listing protections to major first-tier subcontractors, H.R. 4012 would ensure that performing contractors and subcontractors are committed to successful project performance. Unfortunately, bid shopping and bid peddling can lead to adversarial wrangling over construction documents, in an effort to recover fiscally from post-bidding auctions selling the job to chisel down the actual cost of the low bid, would be eliminated. Additionally, bid listing would end the administrative and claims processing overhead engendered by bid shopping and bid peddling, overhead that far outstrips any perceived cost savings because these unethical practices leave the performing subcontractors vulnerable to an unprotected auction after the initial bidding. Attached is an ostensibly humorous trade press item that describes the counterproductive risk transfer dynamics in the low-bid system. The trend in actual procurement practices requires reform of the low-bid selection procedure. Subcontractor listing is imperative on low-bid as well as the competitive negotiation best-value systems. Over the last decade, Federal contracting officials have voted with their feet in choosing between low- bid versus competitive negotiation in construction contractor selection methods. Attached are tables based on Alliance- commissioned research with the Federal Procurement Data Service, showing the precipitous decline in the use of the low- bid selection method in construction procurements and speciality construction over the period from 1990 to 1999. The Alliance research documents that agencies are turning more and more to negotiated best-value contractor selection because Part 15 of the Federal Acquisition Regulations encourages identification and past-performance evaluation of major subcontractors. Discerning public officials know they get better results when they know the qualifications, skills and performance records of the contractors and subcontractors who will be performing the work. H.R. 4012 would help preserve the use of the low-bid system as a viable best-value selection method by protecting the integrity of careful estimates and retaining quality construction contractors competing in that market. Similarly, while FAR encourages the evaluation of major subcontractors in competitive negotiations, the protections against post-award substitutions in H.R. 4012 should specifically be extended to that selection system as well. In that way, the government will be assured the performance premium it bargains for when awarding on the basis of competitive proposals. In conclusion, the severely deleterious effects of bid shopping and bid peddling on construction industry performance is widely recognized. Similarly, the beneficial aspects of listing major subcontractors are just as widely recognized. Moreover, the trends in direct Federal procurement prove this trend in actual agency experience. Because of that, the subcommittee should continue its impressive record of Federal construction procurement reforms and bring both best-value contractor selection systems--low-bid and negotiated selection--into line with the best private-sector procurement practices. Mr. Chairman, thank you and your colleagues for your steadfast interest in keeping the Federal construction market up to par with the best practices in other public and private sector markets. This proposal should clearly apply to all solicitations, both invitations for bid and requests for proposals. It is our firm conviction that the pace of change in the industry and in Federal procurement law virtually requires bid listing as a way to retain and attract quality performance subcontractors to obtain for the public and taxpayer the quality performance they deserve. Thank you for your opportunity to testify. Mr. Horn. Thank you, Mr. Dunleavy. [The prepared statement of Mr. Dunleavy follows:] [GRAPHIC] [TIFF OMITTED] T3004.048 [GRAPHIC] [TIFF OMITTED] T3004.049 [GRAPHIC] [TIFF OMITTED] T3004.050 [GRAPHIC] [TIFF OMITTED] T3004.051 [GRAPHIC] [TIFF OMITTED] T3004.052 [GRAPHIC] [TIFF OMITTED] T3004.053 [GRAPHIC] [TIFF OMITTED] T3004.054 [GRAPHIC] [TIFF OMITTED] T3004.055 [GRAPHIC] [TIFF OMITTED] T3004.056 [GRAPHIC] [TIFF OMITTED] T3004.057 [GRAPHIC] [TIFF OMITTED] T3004.058 [GRAPHIC] [TIFF OMITTED] T3004.059 [GRAPHIC] [TIFF OMITTED] T3004.060 [GRAPHIC] [TIFF OMITTED] T3004.061 Mr. Horn. We have with us the chairman of the full Committee on Government Reform. We're delighted to see Mr. Burton, the gentleman from Indiana, who's here for an introduction. Mr. Burton. Thank you, Mr. Horn. I am always interested in legislation Mr. Kanjorski is proposing, and I'm anxious to hear all the testimony. The testimony I've missed thus far I want to apologize for, and I will be reading it, so I will be up to date. I'm particularly happy to be here at this time because I see my good friend Doug Barnhart and his lovely wife Nancy there; and I think your daughter is with you, isn't she? They're from San Diego. While I won't get into a lengthy introduction, Mr. Chairman, I will tell you that these are two of the nicest people I have ever met. They do an awful lot of things for the community in San Diego. They're very active in something that's near and dear to my heart, and that is helping abused children, and they worked very hard in the Children's Center out in the San Diego Center for Children. They've raised a lot of money for them and helped. That's how I got to know them. So I'm very happy to welcome you guys here today. If you don't eat too much, I'd love to take you to lunch. Thank you, Mr. Chairman. Mr. Horn. We thank you very much. We know have Mr. Douglas E. Barnhart, the chief executive officer of Douglas E. Barnhart Inc., San Diego, CA; and he's here representing the Associated General Contractors of America. Mr. Barnhart. STATEMENT OF DOUGLAS E. BARNHART, CHIEF EXECUTIVE OFFICER, DOUGLAS E. BARNHART INC., SAN DIEGO, CA, REPRESENTING THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA Mr. Barnhart. Thank you, Congressman Burton, for that fine introduction. Good morning, Mr. Chairman and members of the committee. My name is Doug Barnhart. I'm CEO of the Barnhart Corp. which was founded in 1983 in San Diego, CA. Since that time, my company has constructed various projects for the Federal Government as well as many projects involving State agencies and lots of projects with private owners. It's received awards from the American Institute of Architects; Coalition for Adequate School Housing; American Public Works Association; Engineering Society of San Diego; four Best of the West awards, including two Grand awards; Grand Orchids, three Build San Diego awards, Build America awards. We're very proud of the diverse work that the corporation has undertaken. I am here today representing the Associated General Contractors of America and to explain our opposition to H.R. 4012, which is misnamed Construction Quality Assurance Act of 2000. I say it's misnamed because it does nothing to assure quality; and, in fact, from my experience, it will hamper my ability to ensure that quality and safe work is performed on Barnhart job sites. AGC represents more than 33,000 construction firms, including 7,500 of America's finest general contractors, 12,000 speciality contracting firms, and over 14,000 service providers and suppliers associated with AGC through a network of some hundred chapters. AGC opposes H.R. 4012, bid listing for Federal procurement, because it is unnecessary and will be harmful to the Federal procurement process. The Federal Government, during a 20-year test period, said bid listing caused project delays, higher completion costs and adversely impacted the construction process. In addition, this legislation underlines the government's attempts to streamline procurement instead of helping them. It removes the flexibility of the prime contractor to manage the project and will do nothing to improve the quality, safety or decrease the cost of construction. Let me be clear, however, AGC supports industry self- regulation in the area of bid shopping or auctions. In its Model Antitrust Compliance Manual, AGC of America has indicated that it disfavors auctions leading to bidding inefficiencies, demeaning the integrity of the competitive bidding system and reflecting adversely on the industry relationship. One activity that the Federal Government is engaged in may be leading to a record increase in what is perceived as bid shopping, and that's the negotiated procurement. The way this works is through the best and final offer rounds called BAFOs. What this has done is forced prime contractors to continually revisit bids as they revise to another best and final round and in doing that they resolicit subcontractor bids. This may be being interpreted in the subcontracting community as bid shopping. The solution is that best and final offers should be solicited and submitted to ensure fairness and confidentiality of a competitor's bid and not used as a tool to continually lower the price the government will pay the prime and his or her team. I think it's important to remember that construction is not about steel, concrete, mechanical equipment or any of those things. It is a people business. It is a relationship business. Most general contractors are named after a person, such as mine, and that's because our word is on the line every time we sign a contract. In California, the State requires subcontractor listing on low-bid projects. However, the State of California, if you will check, is moving away from that. They're moving away using design-build, turnkey, and construction management in its agency procurement. The reason it's doing that is a couple of reasons. One is to reduce paperwork and speed up delivery but also to avoid disputes such as those that arise under subcontractor listing. The bid listing process in California is time consuming, burdensome and does little to protect anyone. Of all the work performed by the Barnhart Corp. only that in the State of California requires bid listing, and we have worked in Nevada and Texas and throughout the Southwest. I'll give you an example. On a recent high school project in Anza, CA, if you happen to know where that is, there was a high school bid and there were only two electoral bids. The Barnhart bid team questioned both bidders as to bonding and capability. One of the subcontractors said that they could not bond; the other one said they could bond but was unable to provide the source of the bond. The bid team, as it moved on to 2, had to make a decision. They listed the one subcontractor that said he could bond but would not give us the source of the bond. Immediately after the award, we went to the school district. The school district had an adverse past history with the subcontractor, expressed concern of how the project would go. Nevertheless, the subcontractor produced the required bond, and there was no legal basis for replacement--and there will be no basis for replacement under your bill either. The work proceeded, and the ensuing contract was nothing short of a disaster. The electrical subcontractor immediately started installing work that did not conform to the specifications. When the school district complained, we hired, at my expense a special electrical inspector to inspect the work, in addition to the DSA inspectors that were out there for the State of California. Adding more difficulty, the switch gear and those critical elements came in wrong, did not match the shop drawings that had been improved. Finally, after much haggling around, because every one of these individuals has an attorney, we finally were able to get the subcontract terminated and went through a delisting hearing with the school district, all of which took a lot of time. End result is as follows: The school district received the school 6 months late. That means some California kids did not get to attend their new school. The School district was unable to use the $10 million facility during the delay. The bonding company for the electrical contractor paid me $450,000, but that only covered half the loss. There was another half a million dollars out of the Barnhart Corp. into the project. And, worst of all, a qualified electrical contractor was not allowed to perform the work. We had liens from the Economic Development Department of the State of California, the IRS, suppliers, trade workers and three lawsuit attachments from previous contracts. But there was no escape because we were locked in, right on the listing. For every example that these fine subcontractors can give you, I will give you an example that is just as bad the other way. The point I'm trying to make is construction is a relationship-based business. There are owners that I do not work for because those owners do not match our value system. Subcontractors and general contractors have the same relationship. It is a business relationship. You do not do business with business partners who take advantage of you, and the travel on that road goes both ways. Requiring prime contractors to list bids puts a lot of strain on the bid room. There's a lot of price maneuvering going on before 2. All this law says is that after 2 all of that changes. It absolutely will not change the face of construction one bit. It will hamper the prime's ability to produce a quality project. Everyone is moving away from these low-bid systems where price is the only determining factor in whether someone does the job. Everyone is moving to best values--the State, the Federal Government. This is bad legislation. This is unnecessary legislation. And I believe that with my entire heart. Thank you. Mr. Horn. Thank you. [The prepared statement of Mr. Barnhart follows:] [GRAPHIC] [TIFF OMITTED] T3004.062 [GRAPHIC] [TIFF OMITTED] T3004.063 [GRAPHIC] [TIFF OMITTED] T3004.064 [GRAPHIC] [TIFF OMITTED] T3004.065 [GRAPHIC] [TIFF OMITTED] T3004.066 [GRAPHIC] [TIFF OMITTED] T3004.067 [GRAPHIC] [TIFF OMITTED] T3004.068 [GRAPHIC] [TIFF OMITTED] T3004.069 [GRAPHIC] [TIFF OMITTED] T3004.070 Mr. Horn. We will now begin the questioning. Does the gentleman, who is Mr. Burton, would you like to begin the questioning? Mr. Burton. Thank you, Mr. Chairman. I think you answered my question, Mr. Barnhart. You ended up losing quite a bit of money on this particular job you were talking about because of the problems you had with that electrical subcontractor. Mr. Barnhart. Yes, sir. Mr. Burton. It slowed down the project by--how much did you say; 6 months? Mr. Barnhart. Six months. Mr. Burton. Is that something that's common or uncommon? Mr. Barnhart. Well, the problem is, everyone in the United States today has an attorney. And everyone is entitled to due process. So basically we were locked in. There was no legal basis for the replacement. No one wanted this person on the job. Everyone knew from the start that this was a mistake. The law dictated that he be awarded the job. The job was awarded. And then--basically, then what we suspected might happen is the performance issue started mounting. But, you know, the first time something is done wrong you don't go in for a request for substitution. So you wait and you live with it. You work through it. You do the process. And then, you know, the discussions take place; and it just takes months and months and months. Mr. Burton. You said California is moving away from this law? What do you mean? Have they changed it or---- Mr. Barnhart. You know, procurement in this country for a long, long time was done particularly, specifically on a low- bid basis, where everyone was selected on the basis of price. Well, that may have worked well for the United States a long, long time ago, but it doesn't work well for the United States in the year 2000. These projects are complicated. They're sophisticated. There are computer systems that control the HVAC. There are electrical systems. We got ADA requirements. There's environmental concerns. The management of the project has become much, much--so important and the quality of the relationship. So alternate delivery systems have come in. The Federal Government is using them. So they're using the system as best they can called best value. Prime contractors are doing the same thing. Because if I'm working for the Federal Government under a best-value system, I better deliver. Even to deliver I'm going to need strong electrical contractors, I'm going to need strong mechanical contractors, and I want to be able to select them. Because, again, construction is a relationship-driven business. Mr. Burton. Mr. Drabkin--is that how I pronounce your name? Mr. Drabkin. Yes, sir. Mr. Burton. I was reading your statement. You said, the ultimate result of several months of discussions with these groups resulted in the agreement that the administrative burden to manage subcontractor listing efforts exceeded the benefits in 1983 based on 20 years of experience with the GSA's subcontractors listing requirement. Can you elaborate on that for me? You may have already, but if you could give me a little more information I would appreciate it. Mr. Drabkin. Unfortunately, Congressman, I wasn't present in the agency in 1983. Mr. Burton. You look a lot younger than that. Mr. Drabkin. What I have found through doing the preparation for the testimony is that the program that GSA had in place produced administrative costs associated with arbitrating or mediating or becoming involved with the subcontractor disputes with the prime contractors. There were court cases in which the agency was drawn into. There were protests in which the agency was drawn into. And all of those things, added up over that period of time, indicated to the agency through a public rulemaking process that it was better not to have this production, as opposed to have it, that the government's interests were better served without it. And, to date, I'm unaware of any significant cases where bid listing issues have been brought to the attention of the General Services Administration or, while I was in the Department of Defense, to the Department of Defense involving failure to perform or additional costs or other issues that would be of concern. Mr. Burton. Thank you, Mr. Chairman. I think that answers the questions I have. I'll listen to the other questions. Mr. Horn. I thank the gentleman; and we will now turn to the ranking member, the gentleman from Texas, Mr. Turner. Mr. Turner. Thank you, Mr. Chairman. I think every one of the panelists, irrespective of the side of the issue you're on, for or against this bill, would concur that the practices being complained about are clearly unethical and should not be permitted. Am I correct, Mr. Barnhart? Mr. Barnhart. Correct. Mr. Turner. Now the bill here before us attempts to deal with the abuse that we all agree shouldn't exist. But I think what you're suggesting to us is that the remedy is, or the cure is, worse than the disease. Is that correct? Mr. Barnhart. Well, not completely. A long time ago, I was in the Civil Engineer Corps and ran contracts. And a value structure in a company is a value structure in a company. And every one of those prime contractors that worked for the U.S. Navy that were difficult to work with were just as difficult to work with with their suppliers and subs. I can tell you none of those firms exist today. And there's a good reason for that. It's because the market is very dynamic, and it deals with it. Just as this one gentleman down there said that he does not bid those primes anymore who shop his bids. Congratulations. Because you know what? As people make those decisions those firms lose their competitive ability to compete, and they cease to exist. The marketplace deals with that. There's just no need for this bill. Mr. Turner. It seems to me that what you say is probably correct. If you get burned a few times you're going to quit submitting a bid to a prime contractor that shops your bid. But when you get right down there on the firing line and you're the sub that's worked for hours trying to put together a bid and you submit it and then you end up having it shopped on you, I don't think you worry about the marketplace working. You're worried about what's happening to you in that particular point in time, which obviously is very unfair, and we all agree that it is unfair. Do you have any suggestions on how we could address this or make it clear that this practice is not acceptable in Federal contracting if the bill itself seems objectionable? Do you have anything you could offer to us that might get at the problem, protect the subcontractors from this kind of unethical behavior and maybe not be as broad as the bill that you object to? Mr. Barnhart. There's nothing in the bill that requires first-tier subcontractors to list second-tier subcontractors or list suppliers. So the testimony that you've heard that this will clean it up all the way down the line, it won't do that. There's nothing in this bill that says the electrical subcontractor will list who's going to supply the switch gear, who's going to supply the lighting package, who's going to do the fire alarm system, who's going to do the security system-- nothing. This bill is a bill solely directed at the general contractor as the root and cause of all evil. That I take great exception to, as do the 75,000 first line of American GC's that belong to the AGC. I think have you to have a little patience, have some faith in the market. The market deals with this. And I think these are, you know, fine subcontractors; and I think they will agree with me: The market over a period of time determines who succeeds and who doesn't succeed. And I suggest to you that that's based on values and business structure and your relationship with your subcontractors. I have some wonderful subcontractor relations, and they bid us, and they bid us consistently. And the reason they do is it is because they have trust and faith that we're going to do the right thing and vice versa. That's the nature of the business. This bill goes against the nature of the business. It goes against human nature. Mr. Drabkin. Mr. Turner, if I might add to what Mr. Barnhart has said, existent in our current process is the emphasis since the passage of FAS and the use of past performance, one of the elements that the government evaluates in a major contract on past performance is the relationship that the prime has with the subcontractors and its ability to deliver the project. If there's a circumstance where a prime is mistreating his subcontractors, it will reflect in their performance. And in today's environment, if you get an average performance rating, the chances of you winning a Federal contract is going to be very low. I mean, you've got to score above average today. And that's a success story that is attributable to this Congress in terms of the passage of FAS and the empowerment of the government to use the past performance process. So it's a little more than just the commercial marketplace deciding who's going to survive or not. There's an active role which Federal Government contracting officers play in the past performance evaluation process of prime contractors and their relationships with subs. Mr. Turner. Mr. Chairman, I see my time is up. I wanted to give the subcontractors a chance to respond, but maybe one of our other members of the committee can do that. Thank you, Mr. Chairman. Mr. Horn. I now call on the gentleman from California, Mr. Ose. Mr. Ose. Thank you, Mr. Chairman. Mr. Horn. Five minutes for questioning. Mr. Ose. I have read this testimony last night, and I'm a little bit unclear. If I understand Mr. Barnhart's point, I think the only situation in which the bid shopping or bid peddling is occurring, according to the testimony, at least, was within these best and final offer practices that the Federal Government is engaged in. Mr. Barnhart. That's not true. Mr. Ose. OK. Mr. Barnhart. That's--that is a potential source of what's perceived as shopping. Mr. Ose. Mr. Drabkin, I have seen no--or I have heard no confirmed evidence that the Federal Government's projects are being conducted under a system that basically allows bid shopping. Mr. Drabkin. That's correct. The Federal Government does not interfere in the relationship between the prime and the sub. However, as I pointed out in my comments to Mr. Turner's question, we do evaluate the prime on their ability to manage subcontracts and to deliver the project on time. To that extent, in terms of the--evaluating the prime contractor's performance, we do provide oversight to the prime and to the subs and to the lower-tiered subs as well. Mr. Ose. I think my question really boils down to, to what degree do we wish to intrude into the relationship between the general and the subs? Now having built $50 or $60 million worth of stuff, not as a contractor but as an owner, something analogous to the position of the Federal Government--you know, Mr. Barnhart talked about his relationships with his subs, and I can tell you the relationship between the owner and the general are very, very similar to the relationship between a prime and a sub who has a long history of working with that person. What I'm interested in is, at the end of the day, whether or not the prime or the general--however you wish to describe the person--meets the time deadline on budget or under. Mr. Drabkin. That's the task that you have given us in the executive branch and that is to measure our performance by how we perform. In the end, what we're interested in is bringing the project in on the budget and on the schedule and dealing with quality contractors. Mr. Ose. Mr. Barnhart talked about the complexity of construction projects as they exist today, and I will confirm that, without going into any great detail. I'm curious--the contracting officer that works for GSA, for instance, to what degree does that person have the experience, if you will, the leading edge experience that might exist in a general contractor shop or, for that matter, in a subcontractor's shop? It seems to me that the contracting officer's job is to manage the contract. To what degree do they stay on the edge of construction techniques? Mr. Drabkin. I'm glad you asked me that question. It's a problem. It's a problem because we lack the resources to give our people the kind of training they need on a regular basis and the kind of tools they need. Most of these contracting officers on a daily basis are concerned about processing the paper and getting the actions out. As you know, in the civilian agencies, which was a shocker to me when I came over from DOD, don't have the kind of training budget, don't have the kind of educational institutions that were available to me when I was in the Department of Defense. And it was a challenge and one which I identified immediately upon my assumption of these duties and one which I'm working toward but one with which I have very few resources to deal. Mr. Ose. Let me take it to a more mundane level. Mr. Dunleavy, in the sheet metal side of things when you do HVAC work, the controls for HVA systems are moving technically far ahead of where they were even 5 or 10 years ago. In other words, when you build a building, your systems now allow you to balance your demand for cooling air very, very effectively relative to what happened 5 years ago. If this legislation were to pass on day one and on day two industry or science created a system that allowed a far better balancing of the load at a far lower price, and the prime contractor had a sub who wasn't up on that, if I understand the legislation correctly the prime couldn't change the sub. And you could take that to say concrete construction, as it has evolved over the few years, past 5 years--you see my dilemma here. Mr. Dunleavy. I'm not sure I understand your dilemma. There is a remedy to that situation. It's called a change under the contract. I think the same bar would exist as the--in the State we have now before the legislation. If there's a change in technology once the subcontract was awarded, they would have to be handled by some sort of change order mechanism. Mr. Ose. I see my time has expired. I thank you. I hope we have another round here. Mr. Horn. We will have a second and possibly third round. I now yield 5 minutes to the gentleman from Pennsylvania, who's the author of the bill, Mr. Kanjorski. Mr. Kanjorski. Thank you, Mr. Chairman. Mr. Barnhart, I'm sure you are an exceptional general contractor and any of the questions I ask you don't go to your integrity. But I listened to the testimony of the GSA and either he lives in a different world than I do or we're going to get together and start looking at some jobs. Because I've just had three government contracts performed in my congressional district, and if there weren't 20 or 30 suppliers and subcontractors that called me with the offensiveness of bid shopping, I'm surprised. I think I'm going to take you up to some of these jobs and let you get some experience in the field, Mr. Drabkin. Maybe that is the problem, that too many of GSA's people are staying in Washington and not getting out in the field to find out what's happening. But you said something that strikes me. Who selects the subcontractor to be put into the prime bid? Mr. Barnhart. The prime contractor. Mr. Kanjorski. That's right. Well, then, if you want a quality subcontractor you decide who you're going to pick to put in there. Why should you put a bumbling fool in as your subcontractor and then complain that you have to have dictatorial powers over him or brush him aside at your will? Mr. Barnhart. Congressman, the example I gave you, neither firm we were familiar with. Mr. Kanjorski. Why didn't you go out and get a good contractor? Mr. Barnhart. Well, we tried. But---- Mr. Kanjorski. Your problem is that California and San Diego has so much construction going on that you don't have enough good subcontractors left in California. But maybe you don't have them left for the very testimony some of these subcontractors said. They're sick and tired of being drummed down to negative losses in doing subcontracting work, and a lot of them have picked up their marbles and have gone somewhere else. Why would you stay in the business if the prime contractor can constantly come down to you and take your profit away from you and force you to do inferior work or use inferior supplies? Now, I'm not saying you're doing that, but you are aware that some construction jobs by general contractors in this country are doing that, aren't you, Mr. Barnhart? Mr. Barnhart. Congressman, let's say---- Mr. Kanjorski. I'd like you to answer that. Are you aware, you know, that--after the conference, when you're at the bar at night, are there any stories in the subcontracting field like there is in the legal profession of who the bums are and who the good guys are? Mr. Barnhart. I hear rumors. Mr. Kanjorski. OK. It's out there. So Mr. Drabkin, if he circulated to some of these conferences or parties--we ought to get him into some of the parties because he could hear at least the rumors and follow through on the rumors. Is that correct? Mr. Barnhart. Many of rumors I hear are subcontractors complaining about someone else. Mr. Kanjorski. Absolutely. I agree with you. There aren't any virgins in this room. The question that this legislation is geared to--through the last decade or better I have been overwhelmed with frustration--the need to dumb down the operation, to buy inferior products, almost act as a plantation relationship that a lot of subcontractors just don't want to get involved anymore, are being forced out of business or being forced, in order to hold their businesses, to make no profits at all and try a squeeze the few dollars they can out of the job if possible. Now, why should we, as a matter of public policy, give you, a general contractor, a prime contractor, dictatorial powers? Whereas, opposed to that, under this act, all we're saying to you is, Mr. Barnhart, if you're going to bid this job you break out every category, every subcategory; and when you went to these suppliers or these subcontractors to provide the work at specification, you list them; and if you get the low bid or win the bid, then you use them. You know, I want to make a point, Mr. Chairman, I don't know if the committee is aware of the fact, but under the common law the principle of a subcontractor giving a contractor his estimation and then that contractor using that in his estimate would constitute a contract. There would be value to the subcontractor, or the general contractor, he used it. It's only because we have perverted the law now that we go away from common law. And what we've done is provided a servitude of subcontractors doing the hard work and making the analysis, doing the bid pricing, giving the subcontractor the work. Then if he has a good relationship and knows these subcontractors, he knows who's good, he can take their work, plug it in. But then when the prime comes back he knows what he's going to get out of the general job. Now, if he wants to increase his profit, all he has to do is go to the subcontractors that worked with him in good faith, either dumb them down another 5 or 10 percent or threaten that he's got a nonunion operator, a nonexperienced operator, somebody who's going to do the job at considerably less. That's what's happening now. I don't know whether--maybe my district out of the 435 in the country is unique. So I worry about that. Yes, Mr. Barnhart. Mr. Barnhart. Congressman, there is nothing in this legislation that requires the listing of suppliers. So the suppliers that called your office and complained, is it perhaps possible that those suppliers were quoting subcontractors? Nothing in this bill changes that. It's a bill that requires the general contractor and I don't have to list suppliers. So you're going to still get all those calls. Mr. Kanjorski. We're going to amend the bill and then make you list your suppliers. That's OK with me. Mr. Barnhart. And how about making the subcontractors list their suppliers and their second-tier subs and their third-tier subs and see how they like it? What's good for the goose should be good for the gander. Mr. Kanjorski. I agree. I think transparency in the bid is the best thing the government can have. Because they honestly know what kind of product and what kind of end result they're going to get if the specifications are held to. What's happened is everybody has taken the easy way. If you look at the--it's interesting, Mr. Drabkin came from the Defense Department to GSA, but this is a 1984, 1984 change. I wonder what happened in 1984 in this country? A couple things happened. Mr. Horn. We're going to have another round on this. Mr. Kanjorski. I guess I am getting too close to California---- Mr. Horn. You can load the cannons. In the meantime, I'm going to yield 5 minutes for questioning to the vice chairman of the committee, Mrs. Biggert, the distinguished Representative from Illinois. Mrs. Biggert. Thank you, Mr. Chairman. Mr. Drabkin, on your testimony on page 6 you talk about that a major tenet of government contracting is that the Federal Government has no privity of contract with subcontractors, and you think that this really is a major flaw of this bill. Could you give a little more information on that? Mr. Drabkin. Yes, ma'am. The Federal Government, both in the construction area and in all other areas of government contracting, has steadfastly avoided interfering or establishing a relationship between subcontractors and the government, preferring instead to rely upon the expertise and the responsibility of the prime contractor to manage subcontracts. If you could imagine the additional workload and burden that would be added if all of the--I think it's over several hundred thousand contractors who the government does work with on a prime basis, and then add their subcontractors and, as Mr. Kanjorski suggested, amend the bill, their subcontractors and suppliers, you would have to increase the Federal acquisition work force several folds, already overworked and underresourced in the education and training arena. So the Federal Government has as a--and the Congress actually has expressed this as a congressional policy, has avoided involving the Federal Government and the executive agencies in the relationships between primes and their subs. Mrs. Biggert. Thank you. Mr. Swab, do you know of subcontractors where there's been a bid and then it switched to other subcontractors where the-- let's say the subcontractors that were in a losing bid were switched into working for the contractor who won the bid? Mr. Swab. Yes, ma'am. That happens, unfortunately, all the time. One point I'd like to make about Mr. Drabkin's statement, this legislation does not ask that the government get involved with any of the subcontractors. It does not ask that they get involved in the contracts or in anything involving the GC's relation with the subcontractor. All it asks is that the general contractor simply, after a certain level of dollars is reached, list the subcontractor that they're going to use on the project. Mrs. Biggert. Well, what would happen, then, if the subcontractor was not able to perform and so there had to be another subcontractor? Wouldn't the Federal Government have to OK a switch in that and, in effect, establish that relationship with a subcontractor? Mr. Swab. I think there are provisions where they can ask for a substitution, the general contractor can ask for a substitution. Mrs. Biggert. They could ask, but then again wouldn't---- Mr. Swab. They---- Mrs. Biggert [continuing]. The agency has to approve that after a bid has been let and they're not being able to follow then the contract? Mr. Swab. Yes, ma'am. But I think if the criteria that's established is shown, then it's a simple decision. It's not something where they have to develop into any further than the criteria that's established by this legislation. Mrs. Biggert. Mr. Drabkin, would you agree with that? Mr. Drabkin. No, ma'am. The legislation would specifically require the contracting officer to become involved in the GC subcontractor dispute, not involved in the current way, which is we monitor the performance and we rate the GC on it, but actually become involved in the dispute and the determination to replace the subcontractor. That would add significant workload, and as I pointed out earlier, it would also involve time, time which will delay the delivery of the construction project. Mrs. Biggert. OK. Then Mr. Swab, you testified that the current construction delivered on the current system cost the government more than it's actually worth with the prime contractor's pocketing whatever amount they're able to squeeze out of their subcontractors. So if this bill was enacted into law, can you explain how its bidding listing provision would prevent contractors and suppliers from marking up the cost of their services and products any way? Mr. Swab. Hopefully I can. Mr. Barnhart mentioned that there would be a real stressful situation involving his bid team and the minutes leading up to the magical hour, which for most bidders is 2 p.m., because as he stated, there's a lot of price adjustment going on. What that price adjustment is, is prebid bid shopping. I'm sure Mr. Barnhart's firm probably does not engage in that. But I will routinely get a call at 20 minutes to 2 and be told that Joe Blow, electrical contractor down the street, has me beat by $50,000. See if you can do anything. So the price adjustments, if they've been made to one GC--and Barnhart Corp. is a very good GC--if I'm going to make that adjustment, I'm going to immediately get on the phone and make sure the other contractors on that work get that same number. That's why all of that price adjustment takes place. Mrs. Biggert. Are these sealed bids? Mr. Swab. In many cases the bids that are presented to the Federal Government, yes, ma'am. Requests for proposals are turned in at a date and time certain. The bids that take place between suppliers, subcontractors and general contractors is done verbally, and in most cases, over the phone, followed by faxes, e-mails, or other forms of verification. Mrs. Biggert. Thank you. My time is up. Thank you, Mr. Chairman. Mr. Horn. Thank you. We now yield to the gentleman from Oregon, Mr. Walden, for 5 minutes for questioning. Mr. Walden. Thank you very much, Mr. Chairman. Some of you may know that Oregon's legislation recently enacted a similar type of law, HB 2895, so we're seeing this take place, put into action out in Oregon. And there are concerns by both contractors and subcontractors about the implementation of that particular law. I'm not sure specifically how it mirrors what's being proposed here. But as I listen to the comments today, I think from my own experience, which is not contracting but broadcasting, and nobody likes the squeeze that you get put in. I'm sure the subs don't like it and the generals and all that. I get it from ad agencies that do exactly the same thing. So maybe I should come here and get a Federal law to protect my industry and myself from this. But what I'd like to do now is yield my time to the Member from California. Mr. Ose. I thank the gentleman from Oregon. I want to explore something with Mr. Drabkin, and that is, in a Federal project, the actual product is designed by an architect; is it not? Mr. Drabkin. It may or may not be, Mr. Ose. As you know, we are now in the Federal Government finally catching up with private industry and going to design-build. Mr. Ose. In terms of the design-build, what people bid on at any step in the process is well defined in terms of the end product? Mr. Drabkin. In terms of the outcome we desire, it's defined, sir. But in terms of what that will actually look like, when you use a design-build, you start without knowing. Mr. Ose. So, if you will, your specifications then become, by design, somewhat flexible. The objective being we are here, we want to be there, how you get there, if you can substantiate it, is your choice. Mr. Drabkin. Yes, sir. Generally you would outline the number of square feet that you might need, the type of office space or space that this will ultimately be. And then you will--other additional factors, if there's a special heating or cooling requirement, etc., and then leave it to the talent of the winning design-build team to design it, and then to construct it. Mr. Ose. If I recall correctly, let me just cite the most apparent example of Federal construction, that's the Reagan Building down here. Between the time we first put that building out to bid and the time the turnkey was delivered, was that 2 years, 3 years? Mr. Drabkin. I'm sorry I have no specific knowledge regarding the Reagan Building, sir. Mr. Ose. Let's say it's a year and a half, because it's a big project. I bet up to a year and a half, it probably took that long. Well, in a year and a half time, it would seem to me that under a design-build process, the prime may very well not lock down exactly how he or she will handle the 14th aspect on day 1. Mr. Drabkin. That's correct. Mr. Ose. Would the listing that's proposed, or would the intention of this bill as proposed, facilitate or complicate the prime contractor's efforts to finish a project? Keep in mind, because the prime contractor has got a delivery date, they have to meet, and if they don't meet it, they're going to suffer sanctions, does this legislation facilitate or complicate the delivery of the product from the prime contractor? Mr. Drabkin. Effectively precludes the use of design-build contracting as it's currently used in the private sector. Mr. Ose. Is design-build--did you say the design-build is State-of-the-art? Mr. Drabkin. It's one of a number of ways of doing business, but one which the government is trying to follow the private sector in utilizing more and more of. Mr. Ose. Let me then examine the more traditional approach where you have a set of plans, everything is well defined, the specs are in there and it will say product X or equivalent. The contracting officer, as I understand it, has the discretion to say this substitution is the equivalent of what's defined by the architect; is that accurate? Mr. Drabkin. In those types of contracts it is, but I point to the committee that in accordance with the Congress's guidance, we're trying to move to a use of performance specs, but in your example, sir, you're absolutely correct. Mr. Ose. So the suggestion I'm trying to get to is that a prime contractor, an exercise of judgment in suggesting to a subcontractor or allowing a subcontractor to substitute will have to first go by the contracting officer in any case. It may well be that that substitution allows the prime contractor to deliver the project at a lower price; is that accurate? Mr. Drabkin. That's accurate. Mr. Ose. Thank you. Thank you, Mr. Chairman. I see Mr. Walden's time is up. Mr. Horn. Thank you. And we now turn to the ranking member, the gentleman from Texas, Mr. Turner. Mr. Turner. Mr. Chairman, I think I'll yield to Mr. Kanjorski, let him followup on his earlier line of questions. Mr. Kanjorski. Thank you, Mr. Chairman, Mr. Turner. Same question to you, Mr. Drabkin. We do not want to inhibit modern methodologies of construction either to save money or perform things quickly. But can you give me any rationale, assuming we have a straight prime contractor sealed bid award for the total project cost, make the assumption the project comes in at $100 million, after he has assembled all his subcontractors and supplier bids and come up with these figures that probably represent, $88 million for the costs. And he's got his profit. That's all well and good, but you're arguing it's going to cost time, it's going to become cumbersome. And yet the problem is if the general contractor goes out and dumbs down the bids of the subcontractors and drives it down to $80 million on a $100 million project, why should the government not benefit from that $8 million? Why should it go to the prime contractor? Mr. Drabkin. There's no reason why the government shouldn't participate in that savings, and that's one of the reasons why we're moving away from sealed bidding. Mr. Kanjorski. Absolutely. Let's not talk about--I happen to be for construction management and processes like that. But in the sealed bid process, if we just had this bill saying henceforth, a direct bid by a prime contractor who reduces the subcontractor's prices in that bid and therefore gains a better price and a better profit because he doesn't change the ultimate cost to the government, the government will get the benefit of that profit. What's wrong with that? Mr. Drabkin. With the government sharing in the---- Mr. Kanjorski. Getting the profit. If he's going to dumb down to dumb contractor--or the contractor or subcontractors, and if he's going to go to the suppliers and knock their price down, why should that benefit go to the profit of the prime contractor? Why should it not come to the government? It seems to me, in listening to your testimony, you're on the position that you don't want your agency to have more responsibility, you don't want to have to do more work, and it's very nice to appoint a dictator. And that's what you do. The day the sealed bid is opened up and the general award is made to the prime contractor, the U.S. Government has said this is a $100 million project, you are the sole dictator. We're not going to get involved. Go out. If you want to break Davis Bacon rules, break them. If you want to go out and knock down the subcontractor, break them. Other than that, you will have a responsibility of oversight. And I think that's what we expect from GSA. But all those things being the same, if he does go out and get the subcontractor to give a lower bid, or the supplier to give a lower bid, and therefore it costs him less, why shouldn't that benefit go to the American taxpayer rather the prime contractor? Mr. Drabkin. There's no reason why, but I also make sure, Mr. Kanjorski, you understand that if he breaks Davis Bacon, he's got a problem with me. I am responsible for enforcing that and I---- Mr. Kanjorski. In the Commonwealth of Pennsylvania, the Department of Labor has one Representative with 22 counties out of 67 counties, for a third of the State of the Commonwealth of Pennsylvania. It's common, rather than bringing a person into a job and treating him as a journeyman, he will treat him as laborer and have him do a journeyman level work and pay him significantly less and he does make more money. I am sure that only happens in the Commonwealth of Pennsylvania and probably, peculiarly, to my district. But you don't have any people out on these jobs. I've got to tell you that. You have got a person that comes by every 2 or 3 weeks checks out with the prime contractor, what's going on, see if anybody has fallen off the roof. And if they haven't, you're gone. You don't have the personnel to do it. I understand that. I'm not knocking you. I think general contractors are doing a pretty good job on the whole. I'm not knocking those general contractors. I think we have a percentage of bad actors. And the way to weed them out is to say that if they use a good subcontractor in their general contract bid and they are awarded the contract, that subcontractor should be able to say that's what I'm going to get paid. If I'm going to get paid any less, and you may have a right to renegotiate, then the benefit will go to the American taxpayer, not to the general contractor. Mr. Drabkin. Mr. Kanjorski, any way we can share the benefit and the savings or resultant reductions in cost to the government, I agree with. I also point out to you sir, if I may finish, that if there is a problem with the small percentage of these contractors, the solution isn't a piece of legislation, which is difficult to change. The solution is for me to work harder with my contracting officers, to evaluate the performance, and to weed these people out through the competitive process, which we are being successful in doing. And if we have a few more years, we'll have only great contractors working with the government. Mr. Kanjorski. Let me tell you something. I mentioned 1984 before, and the meetings and the conferences were held. If you remember what happened in this country in 1980, then you know why I referred to 1984. This was another way of turning the system, privatizing the government's control of the system to the private market. There's nothing wrong with it if that financially benefited the taxpayer. But suddenly all of you guys down at GSA, for 16 years, haven't realized that there's bid shopping going on. The general contractor is knocking that price down sometimes significantly 5 and 10 percent, and none of that benefit is falling to the U.S. taxpayer. I think you would have been in here running saying hey, there's some practice out there in the field and if it occurs, we want a subcontractor or a prime contractor to certify to us that he did not get a lesser bid from a subcontractor. If he did, we want the money back. Mr. Drabkin. Sir, I've been at GSA for 6 weeks and in another 6 weeks I'll be glad to come over to your office and discuss with you any problems and work with you to solve them. Mr. Kanjorski. Didn't they have anybody over there that's been there a few more? Mr. Drabkin. I think I was the only one they wanted to send over this morning. Something about being the new guy on the block. Mr. Kanjorski. I was going to make the comment, you said you came from the Defense Department. I don't think that's the most notorious department in the world for getting cheap prices in construction. Mr. Drabkin. Sir, I don't represent them anymore. Mr. Kanjorski. My time has expired, Mr. Chairman. Mr. Horn. Does the gentleman from Indiana, the chairman of the full committee, wish to question the witnesses at this point? Mr. Burton. I'm afraid to get started. Mr. Kanjorski and I might end up in fisticuffs, so I'll yield to Mr. Ose. Mr. Ose. I thank the full chairman. I want to ask my friend from Pennsylvania--I mean, I've spent a lot of my productive life building things. And I'm just--I--I'm struck, it must be a different universe. I'm curious, you must have built something in Pennsylvania that gave you this bad experience. Mr. Kanjorski. Personally or you mean as a Member of Congress? Mr. Ose. Well, personally. Mr. Kanjorski. I've been involved in construction and representing contractors as a lawyer for about 20 years. And I've handled both sides of the cases, and my law firm had the definitive Supreme Court decision of the Commonwealth that, in fact, a subcontractor's bid used by a general contractor and submitted as a bid for a general contractor is a contract. And he has an obligation then to pay the subcontractor. That's, in general, private work, not in government work. The one point I do want to point out to you, I think you are from California, aren't you? Mr. Ose. Oh, yes, last time I checked. Mr. Kanjorski. Your State seems to be one of the most enlightened States. They have this legislation. They are doing excellent work, very successful. And Mr. Barnhart here appears to me to be an extraordinary, successful general contractor from San Diego, and he's surviving under this onerous type of law that would disclose your subcontractors. Mr. Ose. Let me reclaim my time and ask another question. While I am not an attorney, I have great respect for those that are, but I will tell you that what I lack in courtroom experience, I more than make up in field experience. And I can tell you, completing the project on time on budget is far different than arguing the nuances or the niceties of a contract, and its terms in a courtroom. And I don't, I'm not-- -- Mr. Kanjorski. Would the gentleman yield? Mr. Ose. I'd be happy to. I want to make a point though. It's two different arenas. Mr. Kanjorski. I agree with you. Mr. Barnhart had suggested that a lot of times in the subcontracting field and whatnot, to do away with some of these people would be beneficial. And I could maybe suggest to do away with some lawyers would be beneficial too. Mr. Ose. And I would pile on and say some developers too. If I may--I want to kill the phone. I want to explore something. This legislation is focused on situations where we are talking about a bid or an award that's been made, and then there are savings that the prime contractor may have recognized after the fact and gone back to the subs to try and implement. It does not talk about the reverse situation where a prime contractor, or the amount of money originally set aside or segregated for an award, proves either to be a mistake or inadequate. So I'm curious, how would this legislation govern situations, Mr. Chairman, where the final bid comes in at a price higher than the allowed amount and the prime contractor, in order to actually complete the award process, must go back to the subcontractors and ask for some adjustments. Mr. Horn. You want to ask that to the panel? Mr. Ose. Mr. Drabkin. Mr. Drabkin. I'm not sure I understand, Mr. Ose, your point. Mr. Ose. Let me be more specific. Let's say GSA says we've got $5 million to build this project. We're going to accept awards at 2 p.m., on such and such a date, for the completion by such and such a date of the bids coming in and it's $5.5 million at the lowest responsible bid. Now, under this legislation, the prime contractor is not able to go back and negotiate without---- Mr. Drabkin. The prime contractor would be precluded from bidding. Because if we set the number at $5 million in a design-to-cost scenario--this is another way to manage our dollars--he could not submit a bid above $5 million. So he would then be out of the competition. Mr. Ose. As would everybody else, because that's the lowest--we'd be stuck in a position where, boom, we're not going to get the product. Mr. Swab. Mr. Swab. That's where the term BAFO comes from. The Federal Government will routinely come back if the work indeed is worth $5\1/2\ million. There's aspects of the design that lead to that cost. The government will issue an amendment, they will adjust certain aspects of the job and they will come back for what's called a best and final offer, where they anticipate that adjustments will be made based on the design changes, and there will be pricing changes accordingly. The general contractor has the BAFO come back to them, they necessarily go to the subcontractors if it involves some speciality; typically it will be mechanical and electrical because those are the most important or expensive parts of a project if it's not the structure itself, and ask for a repricing of the job, based on the new specification. There are many cases, however, where a very minor amendment will be made and the BAFO process is then kicked off and the government comes back again. In cases where it goes once, we call it a BAFO. In cases where it happens twice, we call it a BARFO, best and real final offer. Mr. Drabkin. With all due respect to my colleagues, and make sure it's clear in the record, there is no longer anything in Federal Government contracting called BAFO. We specifically changed it to deal with the point Mr. Swab makes when we rewrote FAR 15 in 1997. So that process doesn't occur. In response to your question, they wouldn't be able to submit a bid, so there would be no further discussion with them if they couldn't come in at the dollar figure we said they had to come in at. Mr. Ose. I see my red light on. My point is that it seems to me that this legislation puts in place that it's OK to have adjustments when prices rise, but it's not OK when they fall. So with that, Mr. Chairman---- Mr. Horn. Mr. Drabkin, I'm interested in the degree to which the Clinger-Cohen legislation changes the dynamics of what you are now working under by GSA. Since you came from the Pentagon, I assume I have some experience with that. Tell me a little bit about it. Is GSA going to take advantage of that? That's why the legislation was there, to get responsible people and to get flexibility in doing it. Mr. Drabkin. One of the things that all of the civilian agencies have been working with is how to implement the requirements of Clinger-Cohen with regard to the acquisition work force. As you know, the Defense Department had DAWIA, which was passed in about 1990, I think 1991. We have--GAO has been to GSA and to the Veteran's Administration, and observed how the implementation was proceeding. We were found wanting in a number of areas. Those are the prime interests I have is dealing with the work force. In fact, it's the only resource we have to deal with the problem that Mr. Kanjorski's bill addresses and other issues associated with acquisition. We have to get our people educated, less than 40 percent of my acquisition work force meets the education requirements. I have to find a way to get the resources to help them get the education. They need training tools. They need stuff that's available to them just in time. I can't afford to send them to school for 4 weeks. And the Department of Defense, we had a different culture, in sending people away to school for 4 weeks was an accepted thing. In the civilian agencies it's not. So it is the very top priority I have as the deputy administrator for acquisition policy, it's the problem which I've already realized I have a resource problem in dealing with, and it's one which I hope we can talk about at a subsequent hearing or a meeting, because it's something we really need help with. It's something that will pay benefits in large dollars. In dealing with the problems we've discussed here and in dealing with other issues associated with Federal contracting. Mr. Horn. Well, I'm glad to hear your commitment in this, because when I came here in 1975 and we had the majority, that was one of the things I wanted to really push. And you're absolutely right, we don't know enough in the civilian sector to train and educate people, and those are the people that we either make it with or don't make it with. And that's our capital infrastructure, if you will, the human being. And the Pentagon is way ahead of everybody else and that, as you quite correctly say, we ought to be doing more, so I'll be glad to talk to you about that. Let me just ask the panel that are subcontractors, curious, how often do the general contractors require subcontractors to sign exclusive agreements now? This is just based on your own experience. Can we just go down the line? Mr. Swab, you're a subcontractor. And then Mr. Petzen, and Mr. Fuqua, and also, Mr. Dunleavy. So I'd be interested in what your experience is. How much of a problem is this? Mr. Swab. Are you referring, sir--you say sign an exclusive agreement. Mr. Horn. Yeah, if they've got an exclusive agreement or if they play the games that Mr. Kanjorski has identified. Mr. Swab. What common practice is in our experience is all general contractors, and rightfully so, this is a competitive process, are looking for an edge. They are hoping that someone in that process, let's say there are the electrical contractors, they're hoping one of those guys jumps out of the pack, either has a very good source for pricing a particular item on the job or, as the case is in many cases, makes a mistake. If he happens to be 10 percent under the market, for example, you will get a very quick call back from a general contractor asking if you've called your price out to anyone else. And if you State well, no, at the time I haven't, they'll say well, please, we're going to use you on this contract, but make sure you don't give this price to anyone else. Allow it to be our edge. That happens if you happen to separate yourself from the pack. If all eight contractors are within 2, 3, 4 percent, they then have a very good idea what the job is worth, they won't bother to talk to anyone until after they have a contract awarded. Mr. Horn. Mr. Petzen, how about your experience? Mr. Petzen. I'm still waiting. Mr. Horn. You'd be glad to have that call. Mr. Petzen. I would like to have that call. That would be interesting to have someone commit to me early days instead of when they've waited too long for the project to be delivered on time, which is more the case. Mr. Horn. Mr. Fuqua. Mr. Fuqua. We've had several calls. Generally they don't work out. Promises are promises. And we now, at this point in our relationship, we choose not to get into those things if we can avoid it. Mr. Horn. Mr. Dunleavy. Mr. Dunleavy. Mr. Chairman, I'm not saying that it never happens, it does happen that there is a commitment on bid day. It happens very rarely. I'm told that it does not happen as frequently as it used to happen, by my older colleagues who have been in business longer than I have which are getting fewer and fewer every day. I do--I think it's important to point out as well that one of the indirect results of bid shopping is an upward pressure on the final cost of the project as a result of change orders. It is true that in the market we deal in, the margins are getting extremely low. In fact, it's not uncommon where a subcontractor and perhaps even general contractors I've heard of taking jobs at no markup in anticipation of marking up on the base contract work, plus the change work that will justify a markup for the entire project. So I think if the GSA and the government is interested in budget and price, they should look to this bill as an aid in helping keep down the final cost by having a less adversarial relationship between the subcontractor, general contractors and the government, and try to underpin the partnering aspect that GSA likes to engage in in its projects currently. Mr. Horn. We have a vote coming on the floor. So this will be the last round of questioning for the next 10 minutes. Mr. Barnhart, you testified that the State of California is moving away from its bid listing law. And I wonder, Mr. Fuqua is head of a California contracting company. What are your thoughts on this? And to what degree have you seen that change in California policy? Mr. Fuqua. This bid listing in California has worked as far as my company is concerned. I don't have the statistics on the rest of our association, but I would be happy to get them and send them to your committee. Mr. Horn. Without objection, it will be put in the record at this point. Thank you. Any other questions? Some of you, especially the subcontractors, since that's the reason for this legislation, do you have any other suggestions you'd like to put on the record? Mr. Swab. Mr. Horn, there are nine States and the Congressperson states that Oregon has just adopted this type of legislation. So there are now 10 States that have public bid listing requirements. Those are Arkansas, California, Connecticut, Delaware, Florida, Massachusetts, New Mexico, New York and South Carolina. I would think that the staffs would be able to go back to those procurement agencies and see, in the real world, if they have noticed a reduction in their per- square-foot cost of construction, since they put this legislation in place. Mr. Horn. Mr. Petzen, do you have any additional ideas for the record? Mr. Petzen. No, I would just make a comment, Mr. Chairman, that the statement to Mr. Barnhart makes it in this business is based on relationships. He's absolutely right. Unfortunately, in too many instances, the general contractors that comprise the list of bidding primes deal with subcontractors on an adversarial relationship. It's an us-against-them situation before the bid, during the process of constructing the job, and also in collecting moneys. Would that it were not so. But that's what I deal with on a day-in/day-out basis. It's an adversarial relationship. This legislation probably won't completely cure that. There will still be bid shopping and peddling going on before the bid. But this legislation is designed to help someone like me who expends a great deal of time, effort and money in putting these bids together for the general contractors so they can write this business, and hopefully use our number if we're successful in providing the right number so that everyone comes out as a winner. Currently, that's not the case. If I take a general contractor to the dance, if you will, by virtue of having the right price on bid day, with the right scope of work, I feel like I should be entitled to work the job and perform that scope of work. If that's not the case, why did we go through a bid process at all? Mr. Horn. Mr. Fuqua, what would you like to leave in this record as something we ought to be considering? Mr. Fuqua. Well, as far as the Federal construction goes, they're probably one of the biggest consumers of construction dollars. I have figures here that show $16.6 billion used last year. Mr. Horn. Will the clerk adjust the microphone. Mr. Fuqua. I have a figure here that shows $16.6 billion on building construction alone in the last year. If we could save some of that, if we saved only 1 percent of that for the Federal Government through this legislation, we're talking $166 million. That's a lot of money for the taxpayers. Mr. Horn. Mr. Dunleavy, your last word on this. Mr. Dunleavy. Nothing additional comes to mind Mr. Chairman. Mr. Horn. OK. Mr. Barnhart. What's your last word on this? Mr. Barnhart. Thank you, Mr. Chairman. I'd like to make three points. First of all, responsible general contractors are not looking for the lowest bid. And we're not looking for the person that makes mistakes because we have to build the project, and we have to build it on time. We're looking for the correct bid from the responsible subcontractor because that's the way we get this stuff done. Second of all, there are exclusive arrangements being arranged because in the design- build arena, each project is unique that's being submitted to the government. Now, my firm, we're not going to enter into an agreement with a design-build electrical subcontractor or design-build mechanical subcontractor who can then go and talk to our competitors. It is an exclusive lockdown arrangement, because the designs are specific, there are designs and then the government--you know, the government selects which one is the best. So anyone who tells you that those exclusive was agreements aren't in place needs to go back and review the record, because I don't see how you do a design-build without an exclusive agreement with some of them. You don't have an exclusive agreement with the painter, maybe because you haven't decided what color you're going to paint the walls. Third of all, the Congressman is exactly correct when he talks about oral contracts on bid day. When a person bids our firm, by law, if they're over 15 percent low, we have to call that person back and say you are too low on the project, will you please review your bid. If not, you cannot hold them legally to the bids because you're deemed to have superior knowledge about your other bids. Now invariably, that person will say well, how low am I, and what's the other number? So the cat-and-mouse game that's played is you do not want to give out that other number. You just say you're too low or we wouldn't be calling you. Go back and---- Mr. Horn. Thank you. We're going to have to go to vote. I want to give the last word to the author, Mr. Kanjorski of Pennsylvania. You have 5 minutes. I'm going to go vote. We'll put the record of the excellent staff like Mr. Caplan that have put this together. And you will have the last word. Mr. Kanjorski. I won't take too many minutes. The four subcontractors, if we listen to Mr. Barnhart, this bid peddling doesn't happen very often, and GSA is totally unaware of that circumstance. Because it only happens in my congressional district. But I want to ask the 4 subcontractors. How prevalent is bidding and peddling after the bid to subcontractors, in your experience, in the last 16 years since the regulations have been changed? Mr. Swab. I can only speak for the market in this particular area and it is very prevalent. Mr. Kanjorski. It's more common than not? Mr. Swab. It is a normal practice. Yeah, it is unusual if does not happen. Mr. Kanjorski. Mr. Petzen. Mr. Petzen. Congressman, in my experience it is the order of the day. The first rule is shop the bids, get them peddled. The second rule is if you have any questions, go back to rule 1. Mr. Kanjorski. Mr. Fuqua. Mr. Fuqua. I just reiterate what Mr. Petzen said, it's exactly the same thing. It's even away from the Federal work on the private work in California, it's unbelievably rampant. Mr. Kanjorski. Pull the microphone. Mr. Fuqua. I said even on private work in the State of California, it's unbelievably rampant. Mr. Kanjorski. Mr. Dunleavy. Mr. Dunleavy. Mr. Kanjorski, it's persuasive in mine and Mr. Swab's market. Mr. Kanjorski. So listening to the testimony on the four subject contractor representatives here, we live in a different world than Mr. Barnhart and Mr. Drabkin live in. They're not aware that it's this pervasive and the government's Representative says gee, this isn't a problem at all. So would it be right for me to conclude that the testimony here of the four subcontractors is that this is not only common, it's pervasive, it's after the bid is awarded, and that it causes a loss to the subcontractors and the benefits derived by the prime contractor of driving down that subcontractor price does not inure to the Federal Government or the taxpayers, is that correct? Mr. Petzen. That is correct. If that benefit did go from the general contractor to the Federal Government, I don't know that anybody at this panel would have a problem with that. Certainly they shouldn't. However, if Mr. Barnhart, in his company, does not engage in these practices, then I'd like to be on his subcontract bid list. Mr. Kanjorski. OK. Thank you, Mr. Chairman. Mr. Ose [presiding]. Thank you, Mr. Kanjorski. We are going to leave the record open for questions for 2 weeks. We would like to thank all the witnesses. Appreciate you coming. And with that, we're adjourned. 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