DC Convention Center

Good morning Mr. Chairman and members of the subcommittee, my name is Rick Hendricks and I am the Director of the Property Development Division in the National Capital Region for General Services Administration (GSA). Thank you for the opportunity to appear before you today to describe GSA's involvement in the DC Convention Center construction contract.

We at GSA have been working with the Washington Convention Center Authority (WCCA), at their request, for over a year. In August 1997, WCCA sought our opinion and recommendations regarding the design-build solicitation that was on the market at that time (offers were due September 8, 1997). WCCA believed that they were only going to receive one offer. GSA recommended that they cancel the procurement and change the solicitation strategy to attract more competition. WCCA did receive only one offer and it exceeded the budget. GSA reviewed the proposal and determined that it was approximately $100 million too high and could not be value-engineered within the budgeted cost. GSA again recommended the procurement be cancelled and reissued using the Construction Management at Risk (CM at risk ) method to get the project cost under control and still remain on schedule. CM at risk means that the owner selects a contractor to perform construction management services and construction work in accordance with the plans and specification for a fixed fee and the contractor guarantees the maximum construction price.

The issues that must be managed on such a project include: price competition, design and construction control, risks to the involved parties, relationships and the project cost. GSA recommended that the WCCA pursue an "at risk" construction manager as constructor (CMc) contract. Experience has shown that this method of contracting helps to minimize adversarial relationships between the parties, thus reducing claims and change orders. It was felt that this type of contract would eliminate barriers to competition and encourage more firms to submit proposals. Such a competitive procurement process should produce prices more in line with the Government's project estimate. The resultant contract would produce a controllable and predictable Guaranteed Maximum Price (GMP) and schedule for the construction. WCCA would retain control over the design while the CMc would assume control over the construction to manage risks, means and methods to bring the project in on schedule and within the GMP.

WCCA rejected the lone bid because it failed to meet technical requirements in its proposal and significantly exceeded the cost estimated. Their subsequent solicitation for a guaranteed maximum price CMc contract produced four competitive proposals.

For this testimony, I have reviewed Clark-Smoot's guaranteed maximum price proposal. We feel that WCCA chose the appropriate contracting vehicle for their new Convention Center. One of the things the CMc contract does is to define the risks of both parties. In this manner, the contractor is better able to quantify the costs associated with those risks. WCCA has incorporated the normal GMP provisions into the contract to place the risk of meeting the project schedule and costs on the constructor. WCCA has obtained unit prices for hazardous material in what I consider to be an effort to minimize unknown risks to the contractor. While this action will place risk on the WCCA, the cost impact will still be less than if the contractor included the price for that unknown risk within the GMP. WCCA developed creative arrangements to reduce up-front costs by proposing a long term service contract with a Thermal Energy Services Provider (TESP) to build a plant and then recover the capital outlay through higher operating charges during the life of the contract. They have incorporated affirmative action goals in the contract and are making every reasonable effort to afford District of Columbia residents, minorities, and women (residents of Shaw neighborhood are included in DC residents), as well as Local, Small, or Disadvantaged Business Enterprises, with opportunities to participate in the project. Provisions have been made that in the event an acceptable Guaranteed Maximum Price and Project Schedule are not developed, the contract will be terminated and WCAA will only be obligated to pay the construction manager the preconstruction fee.

In conclusion, GSA finds the proposed contract for the Washington Convention Center to be appropriate. While construction contracting by its nature is an inherently risky business, this contract appears to have a high probability of satisfactorily achieving its stated purpose of constructing the Washington Convention Center within budget and on schedule and establishes a reasonable allocation of risks.

Again, Thank you for inviting me to appear before the subcommittee today. I will be happy to answer any questions about our involvement in the DC Convention Center construction contract.