General Services Administration Acquisition Regulation (GSAR); Adoption of Construction Project Delivery Method Involving Early Industry Engagement-Construction Manager as Constructor (CMc)

 
CONTENT
Federal Register, Volume 84 Issue 244 (Thursday, December 19, 2019)
[Federal Register Volume 84, Number 244 (Thursday, December 19, 2019)]
[Rules and Regulations]
[Pages 69627-69639]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26367]
[[Page 69627]]
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GENERAL SERVICES ADMINISTRATION
48 CFR Parts 501, 536, and 552
[GSAR Case 2015-G506; Docket No. GSAR-2018-0013; Sequence No. 1]
RIN 3090-AJ64
General Services Administration Acquisition Regulation (GSAR);
Adoption of Construction Project Delivery Method Involving Early
Industry Engagement--Construction Manager as Constructor (CMc)
AGENCY: Office of Acquisition Policy, General Services Administration
(GSA).
ACTION: Final rule.
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SUMMARY: The General Services Administration (GSA) is issuing a final
rule amending the General Services Administration Acquisition
Regulation (GSAR) to adopt an additional project delivery method for
construction, known as ``construction manager as constructor'' (CMc).
The private sector commonly uses a similar construction project
delivery method, which allows for early industry engagement by the
construction contractor to enable reduced cost growth, reduced schedule
growth, and administrative savings. The current Federal Acquisition
Regulation (FAR) lacks coverage of the CMc project delivery method. GSA
has previously issued policies on CMc through other means.
Incorporating CMc into the GSAR provides centralized guidance to
industry and ensures consistent application of construction project
principles across GSA. Additionally, integrating these requirements
into the GSAR allowed for revision and improvement of the requirements
through public comments in the rulemaking process.
DATES: Effective Date: This final rule is effective on January 21,
2020.
FOR FURTHER INFORMATION CONTACT: Ms. Christina Mullins, General
Services Acquisition Policy Division, Procurement Analyst, by email at
[email protected]. For information pertaining to status or publication
schedules, contact the Regulatory Secretariat Division by mail at 1800
F Street NW, Washington, DC 20405, or by phone at 202-501-4755.
SUPPLEMENTARY INFORMATION:
I. Background
    CMc refers to a project management and contracting technique that
is one of three predominant methods used for acquiring construction
services by GSA. The other two methods are design-bid-build and design-
build. The CMc model used by GSA follows many industry best practices
and has worked well for numerous GSA construction procurements. While
there is ample guidance on traditional and design-build procurements in
the FAR, there is no guidance on CMc procurement. By providing specific
contracting guidance on CMc, GSA is adopting a major project delivery
method that is similar to one commonly used by the private sector and
is fundamentally updating the practice of buying construction services
within the Federal Government. This move supports the Government's
shift toward category management by providing a more robust playbook
framework for efficient procurement of construction services.
Additionally, incorporating CMc into the GSAR provides centralized
guidance to industry that makes it easier to do business with the
Government and ensures consistent application of construction project
principles across GSA that provides for greater compliance with
requirements.
II. Discussion and Analysis
    The GSAR Case 2015-G506 proposed rule was published in the Federal
Register at 83 FR 55838 on November 8, 2018 and provided details on how
GSA is amending the General GSAR to revise sections of GSAR Part 536,
Construction and Architect-Engineer Contracts, and corresponding
clauses in GSAR Part 552, Solicitation Provisions and Contract Clauses
to incorporate CMc contracting. The proposed rule clarified, updated,
and incorporated existing CMc guidance previously implemented through
internal Public Building Service (PBS) policies.
    Bringing this existing CMc policy into the GSAR allows for greater
transparency and provided an opportunity for the public to comment on
these long-standing procedures. In addition, bringing CMc policies into
one location ensures clarity and consistency that will make it easier
for companies to do business with the Government and will provide
better guidance to contracting officers.
    The CMc project delivery method is similar to project delivery
models used extensively in the private sector for large complex
construction projects. The CMc method engages the construction
contractor during the design phase of the project and establishes a
ceiling on the eventual construction price (i.e., the guaranteed
maximum price (GMP)) before construction documents are prepared. The
CMc method emphasizes technical qualifications for contractor
selection, and includes price competition of the GMP before initial
contract award and provides more detail on the GMP elements. The CMc
project delivery method creates value through early collaboration
between the architect and constructor. In addition to the benefits of
design phase services, which include constructability reviews and cost
estimating validation by the constructor, CMc offers the opportunity to
begin construction prior to full completion of the design which reduces
the total project schedule. GSA also provides a cost incentive through
shared savings that are split between the constructor and the
Government under CMc contracts which promotes constructor innovation
and efficiencies to reduce costs through the construction phase of the
project, see GSAR 536.7105-5.
A. Summary of Significant Changes
    The General Services Administration has reviewed all comments
submitted in the development of this final rule.
    This final rule makes the following two significant changes from
the proposed rule:
1. CMc Contingency Allowance (CCA)
    The definition at 536.7102 for CCA was revised to include
scheduling error costs. The description in 536.7105-2 subparagraph
(a)(3)(iii) regarding design errors and omissions has been deleted
to more closely align with the definition provided for CCA in
536.7102. The text at 536.7105-2 was also revised to clarify that
the CCA may be adjusted through negotiation at the time of GMP
option exercise, and to provide additional CCA flexibility up to 5
percent with HCA approval.
2. Fee for Construction Work
    The definition at 536.7102 of ``Fee'' was revised to clarify
that this definition encompasses solely profit and home office
overhead costs. The description at 536.7105-2 was revised to allow
adjustment to the Fee for scope changes and Government-caused
delays. Additionally, GSA revised the definition of cost to mean all
allowable costs per FAR Part 31, removing the limitation for direct
cost only.
    A full discussion of all the comments received and the changes made
to the rule as a result of those comments is provided below.
B. Analysis of Public Comments
    GSA received comments on the proposed rule from five respondents.
Comments are grouped into categories in order to provide clarification
and to better respond to the issues raised.
1. Economic Impact
    i. Comment: As a supporting statement, an industry group
representing general contractors recognized that many aspects of the
[[Page 69628]]
CMc project delivery method are aligned with the private sector,
including early collaboration between the construction contractor and
the architect, early work packages for things like demolition, and the
use of shared savings incentives. The commenter noted that further
alignment of CMc to the private sector model can increase interest and
competition from the market for Government projects. They further
explained that deviations from private sector models, especially those
that are punitive in nature, such as audit requirements, can have the
opposite effect and outcome.
    Response: GSA recognizes that there are differences between CMc and
the private sector, and believes that the CMc model as presented in the
rule strikes the right balance of adopting industry best practices for
construction while adhering to the constraints of Government statutory
requirements and ensuring appropriate risk management in the best
interests of the Government. No changes were made to the proposed rule
as a result of these comments.
    ii. Comment: As a supporting statement, an industry group
representing general contractors suggested changes to the text to
clarify that a reduction in specific sunk costs is attributable to
lower costs associated with the solicitation process.
    Response: The final rule was revised to clarify that sunk costs
associated with price proposal preparation efforts may be lower with
CMc as compared with the design-build.
    iii. Comment: An industry group representing architects noted that
the CMc method as drafted did not take into account the increased time
and effort expended by the architect-engineer contractor in design
reviews and cost saving option reviews under a CMc project that goes
above and beyond ``normal'' responsibilities.
    Response: GSA does not believe that design reviews and cost saving
option reviews under a CMc project are beyond normal responsibilities
of a typical architect-engineer contract. As such, no additional costs
need to be taken into account. Design reviews are not unique to the CMc
project delivery method and any early collaboration under CMc should
only result in cost saving options being identified earlier in the
project when such options are more easily addressed.
2. Miscellaneous
    i. Comment: A model building code industry respondent provided
comments to the proposed rule specifically commenting on building code
requirements and application to this rule. The respondent noted that
they take no position on the proposed rule language, but make general
notes regarding compliance provisions, and whether those provisions
should be codified in the CFR.
    Response: The GSA PBS P-100 Guide provides considerable details on
implementing building code compliance, and is incorporated in GSA
construction contracts. Codifying building codes in the CFR is beyond
the scope of this rule. No changes were made to the proposed rule as a
result of these comments.
    ii. Comment: An industry group representing general contractors
suggested that GSA should mandate collaboration between the architect-
engineer and CMc contractors during the design phase.
    Response: The final rule further clarifies the expectation that the
architect-engineer and CMc contractor must collaborate during the
design phase. The final rule clarifies at GSAR 536.7105-1(d), that
``During the design phase, the architect-engineer contractor and the
construction contractor shall collaborate on the design and
constructability issues''.
    iii. Comment: An industry group representing design-build
contractors recommends the use of the progressive design-build project
delivery method.
    Response: The design-build project delivery method is already
addressed in the FAR (see FAR 36.3) and is beyond the scope of this
rule. No changes were made to the proposed rule as a result of this
comment.
    iv. Comment: A few other suggestions and comments were made by
industry groups representing architects and general contractors,
including: 1. Suggestion to allow conversion to FFP after 75 percent
versus 100 percent of the construction documents were completed, 2.
Comment that the use of alternates across clauses is inconsistent and
may be confusing, 3. Comment that the order of precedence is not
consistent with typical practice, and 4. Suggestion to review an
industry organization's CMc contracts more specifically.
    Response: GSA considered allowing conversion to FFP after 75
percent completion of the construction documents, but concluded that to
more effectively protect taxpayer dollars, 100 percent as presented in
the proposed rule was more appropriate. Prior to 100 percent
construction documents, a GMP type contract allocates risk more
appropriately between the Government and contractor since the design is
not complete and details may still change that materially affect the
price, limiting the ability to establish good firm prices. GSA believes
the structure of alternates for clauses is appropriate. Andy any
differences between industry models or typical practices and the GSA
CMc model were driven by unique statutory or regulatory requirements,
including the Competition in Contracting Act of 1984 (CICA), 41 U.S.C.
3301. No changes were made to the proposed rule as a result of these
comments.
3. Value Engineering
    Comment: An industry association representing general contractors
provided a comment on value engineering. The comment notes that value
engineering is a key component of the CMc contract method. It is the
main tool the CMc offers through its design phase owner consultation to
assist in aligning the scope with the target ECW. Incorporation of
efficiencies, innovation, fast-tracked scheduling and economical
materials/systems are critical to the best value approach.
    Additionally, an industry group representing general contractors
suggested that when exercising the GMP option, if the ECW, CCA and Fee
exceed the GMP, then the ECW should be reduced through value
engineering and/or scope modifications.
    Response: While the CMc may suggest the incorporation of
efficiencies, innovation, fast-tracked scheduling and economical
materials/systems, value engineering is a formal technique described at
FAR Part 48, and is different from the design phase services contracted
from a general contractor under CMc. In accordance with FAR 48.202, the
clause at FAR 52.248-3 Value Engineering--Construction, shall not be
included in incentive-type construction contracts. Accordingly, value
engineering shall not apply to the CMc project delivery method
described in this subpart. No changes were made to the proposed rule as
a result of this comment. Additionally, GSAR 536.7105-2(c)(3) has been
revised to state that ``If the sum of the final ECW, CCA, and fee for
the construction work is greater than the GMP as established at
contract award or as adjusted in accordance with FAR Part 43, then the
contracting officer should work with the contractor to identify
measures to reduce the overall GMP. Such measures may include reducing
the CCA, reducing the fee, or as a last resort, reducing the scope of
the project.
4. Managing Risks
    Comment: An industry group representing general contractors
provided comments related to managing risk. They provided suggestions
to significantly reduce or eliminate
[[Page 69629]]
liquidated damages, to remove reimbursement of certain audit costs, and
to remove the ability to withhold 10 percent of payment requests if the
contractor fails to comply with GSAR 552.236-80, Accounting Records and
Progress Payments. The respondent noted that these elements are not in
alignment with this delivery method.
    Response: While CMc is viewed more as a partnership between GSA and
CMc contractor, GSA maintains that additional audit and accountability
risk management measures are appropriate to manage risk or are required
by existing laws and regulations. Similar to other government delivery
methods, CMc includes these measures to protect the Government and its
partners. Liquidated damages and other risk management tools are used
to appropriately mitigate issues and concerns that could arise.
Similarly, the Government provides remedies for contractors to collect
equitable adjustments for changes that could arise. GSA maintains the
text at 552.236-80 regarding audits and retainage as appropriate risk
management. This clause provides clear details on how the audit and
retainage requirements apply.
5. Procurement Timing
    Comment: Three respondents provided comments regarding procurement
timing. An industry group representing general contractors commented
that CMc should be procured as early as possible in the design phase,
ideally prior to the concept design. A construction industry commenter
recommended that GSA require, at a minimum, the programming, schematics
and concepts be complete. An industry group representing architects
commented that when the CMc is not brought on early enough, the
architect is then forced to adjust when the design is over budget. They
affirmed that the request for proposal should be issued early in the
design phase, preferably during concept design to allow early cost
savings suggestions from the CMc.
    Response: The rule includes flexible language so that each project
can individually balance the goal of early collaboration with the
ability to permit meaningful price competition (see GSAR 536.7103(a)).
6. A/E Role and Compensation
    Comment: An industry group representing architects provided
comments related to the role and compensation of the architect/engineer
under a CMc project. The respondent commented that CMc increases the
time and effort expended by the architect-engineer contractor in design
reviews and cost saving options. Also, the respondent noted that
clarity is needed to ensure the architect/engineer retains control of
the design decision making. The industry group representing architects
noted that GSA should inform the architect/engineer of the construction
project delivery method prior to design fee negotiations, so that the
architect-engineer can prepare appropriately. The industry group
representing architects also commented that there is no defined
liability for who is responsible for design changes that are due to
constructor contractor issues. Additionally, a construction industry
commenter recommended that GSA should consider adding a provision
requiring the designer to design to the Target ECW that the CMc
proposes.
    Response: GSA reviewed and appreciates the comments provided. The
rule is written to provide sufficient guidance on CMc and coordination
with the architect/engineer. GSA believes that informing the architect/
engineer of the construction project delivery method prior to design
fee negotiations, when possible, is a good practice. GSA believes the
existing architect/engineer contract clauses appropriately detail the
responsibilities and requirements for changes. The clause at FAR
52.243-1, Changes--Fixed-Price (Alternate III), provides a mechanism
for the A/E to request an equitable adjustment, if appropriate. GSA's
Design Excellence policy is still applicable and Government personnel
should be involved in all design decision making. Lastly, the A/E
contract is established prior to CMc offerors proposing a Target ECW.
However, the A/E contract already contains the clause at FAR 52.236-22,
Design Within Funding Limitations. No changes to the regulatory text
were made as a result of these comments.
7. Accounting and Auditing Requirements
    Comment: An industry group representing general contractors
provided comments to adjusting the text at 536.7105-3 Accounting and
Auditing Requirements. Several suggestions are provided to revise the
GSAR text provided in the proposed rule noting that ``Audits are not
applicable in this contracting and procurement method. This auditing
requirement should be removed from this rule.''
    Response: GSA did not adopt suggested changes to the text in the
proposed rule. GSA maintains that open book accounting and audit
requirements are appropriate in this procurement method. For example,
the amount, if any, of the shared savings incentive, is determined by
the difference between the final GMP and the final cost of performance
(see 536.7105-5(a)). To protect the public interest, an audit of the
CMc's costs is required before determining the amount of shared
savings, if any.
8. Cost Accounting Standards (CAS)
    Comment: Two respondents provided a comment on the application of
CAS and its applicability to CMc. An industry organization representing
general contractors noted that modified CAS should be applied and do
away with open book accounting, and an industry construction commenter
noted that full CAS should be applied as it is currently noted and
referenced in FAR Part 30.
    Response: GSA has determined that the application of open book
accounting and auditing requirements provides the Government the best
flexibility to review and maintain cost elements. The requirements
allow for maximum competition amongst all qualified contractors looking
to service the Government through CMc contracting. Based on the
variation in comments provided, GSA is confident that the requirements
in FAR Subpart 30.2 \1\ for full CAS compliance for applicable
negotiated contracts over $50 million, modified CAS compliance for
applicable negotiated contracts below $50 million, and open book
accounting practices are appropriate for CMc contracting.
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    \1\ FAR 30.201 states that ``Title 48 CFR 9903.201-1 (FAR
Appendix) describes the rules for determining whether a proposed
contract or subcontract is exempt from CAS. Negotiated contracts not
exempt in accordance with 48 CFR 9903.201-1(b) shall be subject to
CAS. A CAS-covered contract may be subject to either full or
modified coverage. The rules for determining whether full or
modified coverage applies are in 48 CFR 9903.201-2 (FAR Appendix).''
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9. Incentives
    Comment: Two respondents provided comments on performance
incentives and the element of shared savings. An industry group
representing general contractors provided suggestions for early
completion bonuses or successive targets. Both the industry group
representing general contractors and an industry group representing
architects suggested that GSA include a shared savings incentive for
the architect/engineer.
    Response: GSA reviewed and appreciates the comments provided.
Regarding an early completion bonus for the CMc, the CMc contract
already contains a shared savings incentive (see GSAR 536.7105-5).
Early completion
[[Page 69630]]
may be one way the CMc is able to reduce costs and increase the
potential for shared savings. Regarding an incentive for the architect/
engineer, GSA does not believe that is necessary to successfully
implement and experience the benefits of CMc. No changes to the
regulatory text were made as a result of these comments.
10. Contingency Allowance (CCA)
    Comments: An industry group representing general contractors
suggested adjustment to the definition of CCA provided at 536.7102 by
including the word ``scheduling'' as an included cost element. They
also suggested that GSA set the minimum CCA at 3 percent. A commenter
from the construction industry questioned the CCA's purpose and whether
the CCA is meant to be a true ``allowance''. This same industry
commenter noted that CCAs should not include design errors and
omissions.
    Response: GSA adopted the suggestion to adjust the definition of
CCA at 536.7102. GSA adopted the suggestion for proper alignment with
536.7102 by deleting 536.7105-2(a)(3)(iii) regarding design errors and
omissions. GSA also provided additional CCA flexibility up to 5 percent
with HCA approval.
11. Fee for Construction Work
    i. Comment: Two respondents provided comments on the structure and
definition of ``Fee for Construction Work''. An industry group
representing general contractors noted that the Fee cannot include all
of the contractor's indirect costs. Some indirect costs are a function
of the ECW as a percentage. Therefore, they fluctuate with increases
and decreases in price. They also add, there needs to be a
clarification between the industry defined general conditions (staffing
related costs) and general requirements (indirect costs such as
hoisting, cranes, field engineering, etc.). A construction industry
commenter believes that GSA's proposed fee structure raises several
issues. First, they note that general conditions typically are not part
of a contractor's fee, but instead, are actual costs. Thus, including
them as part of the fee will create confusion during an audit. Second,
they note that the definition's reference to overhead is unclear as it
does not specify whether ``overhead'' means field office overhead or
home office overhead.
    Response: GSA has revised the definition of fee to specifically
mean profit and home office overhead costs. GSA revised fee guidance to
allow adjustment to the fee for scope changes and Government-caused
delays. Additionally, GSA revised the definition of cost.
    ii. Comment: An industry group representing general contractors
noted that the ``proposal form typically includes a proposed rate (%)
for Overhead (Corp G&A), profit and commission for scope changes. This
should be used in all CMc RFP's to establish these rates ``up-front''.
The price proposal forms used by the Government are not aligned with
the mark-up percent provisions of 552.243-71 Equitable Adjustments.
Either the pricing form should be changed to include the provisions
(especially subparagraph (h)), or the GSAR equitable adjustments mark-
ups should be modified to a ``flat'' rate as currently modeled by the
Government's price proposal form.''
    Response: The rule provides flexibility by not providing a
``required proposal form'', however, GSAR 536.7105-2(a)(4)(iv), notes
that ``The limitations of GSAR 552.243-71, especially markups, still
apply for any changes.''
12. Guaranteed Maximum Price
    i. Comment: An industry group representing general contractors and
a construction contractor provided comments on the GMP guidance at
536.7105-2. These comments included a suggestion that GSA adjust the
language to say GMP ``may'' be modified downward for deletions during
the design phase. They provided further suggested adjustments to the
language to allow for an increase to the GMP for ``no fault of CMc''
issues. Another comment requests GSA provide additional guidance on how
the various evaluation criteria must be weighted and expressed concern
that the pricing structure effectively incentivizes contractors to
submit an artificially low price and further assumes that the lowest
price proposal will be selected absent a compelling reason to select a
higher priced proposal. Lastly, they noted that the evaluation should
consider contractor approach to maximize the project within the GMP.
    Response: GSA has reviewed and appreciates the comments provided.
GSA has adopted the suggestion to provide greater flexibility for GMP
modifications for deletions during the design phase. GSA notes that the
GMP is subject to adjustment under various standard contract clauses,
including the changes clause, differing site conditions clause, and
suspensions clause. GSAR 536.7103(b)(1)(i) provides that the technical
evaluation factors, when combined, shall be considered significantly
more important than cost or price. The rule provides flexibility by not
establishing required technical evaluation factors or specific weights
for technical evaluation factors. Additionally, the commenter's
assumption that the lowest price proposal will always be selected is
not consistent with the flexibility provided by FAR 15.101-1, Tradeoff
Process. Regarding the concern that that the pricing structure
effectively incentivizes contractors to submit an artificially low
price, see GSAR 536.7103(b)(2), which states that a price realism
analysis is required ``for the purpose of assessing, among others,
whether an offeror's price reflects a lack of understanding of the
contract requirements or risk inherent in an offeror's proposal.''
    ii. Comment: An industry group representing general contractors
commented that the target ECW is not bonded and that while the CMc can
advise the Owner and its design team on changes to make to adhere the
target ECW, the CMc has no control over the outcome, quality,
coordination and/or completeness of the design.
    Response: As stated in GSAR 536.7105-1(d), ``During the design
phase, the architect-engineer contractor and the construction
contractor shall collaborate on the design and constructability issues.
The goal of this collaboration is to establish a final ECW that does
not exceed the original target ECW.'' No changes to the regulatory text
were made as a result of this comment.
    iii. Comment: An industry group representing general contractors
commented that each of the Owner's contractors should validate program
requirements with the project prospectus prior to advancing from one
design phase to the next and certainly before exercising the
construction phase.
    Response: GSA appreciates the comment. Under CMc, the Government
has flexibility to adopt appropriate project management techniques. No
changes to the regulatory text were made as a result of this comment.
III. Expected Economic Impact of This Rule
    All three predominant construction project delivery methods,
Design-Bid-Build (D-B-B), Design/Build (D-B), and Construction Manager
as Constructor (CMc), have merit. CMc specifically allows for early
industry engagement by the construction contractor that can provide a
net economic burden reduction compared with the other project delivery
methods. An Economic Impact Analysis (EIA) reflecting the data and
benefits of CMc has been prepared
[[Page 69631]]
consistent with the principles of OMB Circular A-4 and is summarized as
follows:
    A study by the Pankow Foundation \2\ as well as GSA's own data
analysis, further detailed herein, have shown that early engagement
by the construction contractor under a CMc project can provide
reduced cost growth, reduced schedule growth and administrative
savings, resulting in a net economic burden reduction compared with
other project delivery methods.
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    \2\ Leicht, R.M., Molenaar, K.R., Messner, J.I., Franz, B.W.,
and Esmaeili, B. (2015). Maximizing Success in Integrated Projects:
An Owner's Guide. Version 0.9, May. Available at http://bim.psu.edu/delivery.
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    All economic impact estimate calculations were based on
discussions with GSA subject matter experts from the PBS Office of
Design and Construction and PBS Office of Acquisition Management,
and the following data. Historic data was gathered and analyzed from
GSA's Electronic Planning Module (ePM),\3\ an internal system which
was mandated as a project management tool for construction starting
in 2009. Historic data was also gathered and analyzed from the
Federal Procurement Data System (FPDS),\4\ the authoritative source
for government wide contract award data.
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    \3\ A total of 124 GSA capital construction contracts (i.e. over
prospectus) were completed between 2009 and 2016. Capital
construction contracts were selected as they were determined to be
the most likely to be suitable for the CMc project delivery method.
    \4\ A total of 283 construction contracts (i.e. PSC of Y1xx or
Z2xx) over the current prospectus threshold of $3M were awarded by
GSA between 2009 and 2016. On average 4.4 offers were received for
each solicitation. Of the total population, 125 (44%) were large
business awards and 158 (56%) were small business awards.
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    The results of the analysis showed this rule will provide a net
deregulatory savings of 9,405 hours ($659,011), or ($488,710) when
annualized at a 7 percent discount. These savings are a result of
the following elements:
    A. Reduced Schedule Growth: Under a CMc project delivery method,
the general contractor (GC) for construction work is engaged through
a separate contract during the design phase of the project,
sometimes as early as 30 percent design completion. By comparison,
under a design-bid-build (D-B-B) project delivery method, the GC is
not engaged through a separate contract until the design is 100
percent complete. Under a design-build (D/B) project delivery
method, the GC and the architect are part of the same contract with
the Government. The early engagement of the GC under CMc may create
collaboration between the architect and the GC. This early
engagement also offers the opportunity to begin advanced work on
certain elements of the project while the design is finalized. For
example, an early work package may be definitized to allow for
demolition work to be done, which is not typically impacted by the
final touches of a design. Similarly, site preparation work to clear
the land for a project may be started. This concurrent work while
the design is completed can result in meaningful schedule savings.
Analysis of the GSA capital construction project data from ePM
showed that on average the reduced schedule growth potential for CMc
projects is 75 days. This allows for increased efficiency for a
senior project manager (PM), senior CO, and journeyman CS. Based on
subject matter expertise, the PM would save 6 hours per day, the CO
would save 2.5 hours per day, and the CS would save 5 hours per day.
Based on the historic ePM data, GSA estimated that 10 capital
projects funded annually would use the CMc method. Given this
population, the total annual savings to the Government is 10,125
hours ($701,343). Similar savings to the public may be realized and
may be reflected as direct cost savings in the contract, but cannot
be quantified.
    B. Final GMP Proposal: For CMc projects, the contract begins as
a fixed price incentive contract type where the guaranteed maximum
price (GMP) negotiated at the outset is the price ceiling for the
contract. This contract type is necessary because the design is not
complete and all the costs for the construction work cannot be
determined. However, once the design for a project is completed, the
final GMP for the construction work can be established and the
contract can be converted to a firm fixed price (FFP) contract type.
This may be attractive to both industry and Government. A conversion
to FFP allows the contractor to end cost accounting standard (CAS)
compliance efforts. Conversion to FFP also allows the Government to
further mitigate risk by placing the full responsibility for all
costs on the contractor. In order to execute this conversion, the
contractor must submit a revised proposal for the final GMP. Based
on subject matter expertise within GSA, it is assumed that the
contractor will require 40 hours of effort to obtain subcontractor
quotes, adjust costs and submit a new proposal for the final GMP
element. It is assumed that the Government will require 20 hours of
effort to review and negotiate the final GMP. The total annual
burden to the public is 400 hours ($22,076) and to the Government is
200 hours ($11,038).
    C. Regulation Familiarization: GSA Class Deviation SPE-2012-04-
02 has been in place for several years and provides the existing
policies and procedures for CMc construction projects. GSAR Case
2015-G506 essentially incorporates these existing policies and
procedures. However, there are some clarifications and updates to
these policies that reflect on lessons learned and best practices
over the years. These changes include: clarification on the level of
design development required for CMc procurement competition, further
details as to what is included in the fee for construction work, and
guidance for establishing separate allowance items. The rule
contains minimal changes from existing policies and procedures for
CMc methods, and thus, should result in minimal burden to understand
new requirements. Based on subject matter expertise within GSA, it
is assumed that industry and Government alike will require two
additional hours during the solicitation phase to review and
understand the differences between the existing policy and this rule
in order to provide a representative proposal. Based on the historic
FPDS data, GSA estimated that 5 offers would be received for each
CMc project. Given this population, the total annual burden to the
public is 100 hours ($7,755) and to the Government is 20 hours
($1,464).
    D. Unquantified Benefits: There are several economic benefits
specific to CMc that are expected to reduce burden that are
difficult to quantify. Although not easily quantifiable they
collectively represent additional meaningful savings to qualify this
rule as deregulatory.
    1. Direct cost savings may result from potential reduced
schedule growth for CMc projects. Construction projects include
general conditions and other costs that are calculated by a daily
rate. If a CMc project finishes earlier, the total direct costs will
be lower.
    2. Early collaboration between the CMc and architect allows for
(a) innovation during design that leads to fewer change orders
during construction, and (b) identification of conflicts or errors
before work investments are made.
    3. As compared with design-build projects, CMc projects will
reduce sunk costs associated with price proposal preparation efforts
and lower barriers to entry for industry to submit proposals and
compete in this space. Design-build project solicitations often
require a detailed concept level design submission as part of the
proposal. Offerors must partner with an architecture-engineering
firm at great expense to obtain these design concepts in order to
prepare and submit an offer to the Government.
    4. Early work packages under CMc allow for advanced execution of
certain elements while the design is finalized, such as demolition
or site preparation work, which are not typically impacted by the
final touches of a design. These early work package elements can be
removed from the GMP and converted to separate firm-fixed-price
(FFP) line items. Conversion to a FFP may allow the Government to
lock-in lower prices and allow the CMc to subcontract labor trades
earlier. In a tight labor or material market, this may translate to
meaningful cost and schedule savings.
    Interested parties may obtain a copy of the complete EIA from the
Regulatory Secretariat Division.
IV. Executive Orders 12866 and 13563
    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 supplements E.O. 12866 and emphasizes the importance of
quantifying both costs and benefits, of reducing costs, of harmonizing
rules, and of promoting flexibility. This is a significant regulatory
action and, therefore, was subject to review under section 6(b) of E.O.
12866, Regulatory
[[Page 69632]]
Planning and Review, dated September 30, 1993. This rule is not a major
rule under 5 U.S.C. 804.
V. Executive Order 13771
    This rule is considered an E.O. 13771 deregulatory action. Details
on the estimated savings of this final rule can be found in the rule's
economic impact analysis detailed in Section III.
VI. Executive Order 13777
    This rule has been identified by GSA's Regulatory Reform Task Force
as a rule that improves efficiency by eliminating procedures with costs
that exceed the benefits as described in Section III.
VII. Regulatory Flexibility Act
    GSA does not expect this final rule to have a significant economic
impact on a substantial number of small entities within the meaning of
the Regulatory Flexibility Act, at 5 U.S.C. 601, et seq., because the
rule will incorporate clauses that are currently in use in GSA
construction solicitations and contracts and contractors are familiar
with and are currently complying with these practices. However, a Final
Regulatory Flexibility Analysis (FRFA) has been prepared. There were no
comments submitted in response to the initial regulatory flexibility
analysis provided in the proposed rule. The FRFA has been prepared
consistent with the criteria of 5 U.S.C. 604 and is summarized as
follows:
    The final rule amends the General Services Administration
Acquisition Regulation (GSAR) coverage on construction contracts,
including clauses for solicitations and resultant contracts, to
clarify, update, and incorporate existing guidance on the
construction manager as constructor (CMc) project delivery method.
    There were no comments submitted and therefore no significant
issues raised by the public in response to the initial regulatory
flexibility analysis provided in the proposed rule.
    The final rule changes will apply to approximately 10 GSA
construction contracts per year. Of these, approximately 6 (60
percent) contracts may be held by small businesses. The final rule
is unlikely to affect small businesses awarded GSA CMc construction
contracts as it implements clauses currently in use in CMc
solicitations and contracts. The final rule does not pose any new
reporting, recordkeeping or other compliance requirements.
    The Regulatory Secretariat Division has submitted a copy of the
FRFA to the Chief Counsel for Advocacy of the Small Business
Administration. Interested parties may obtain a copy of the FRFA from
the Regulatory Secretariat Division.
VIII. Paperwork Reduction Act
    There are two information collection requests associated with this
rule.
    First, this rule requires contractors to keep all relevant
documents for a period of three years after the final payment. This
requirement is currently covered by existing OMB Control Number 9000-
0034, titled: Examination of Records by Comptroller General and
Contract Audit; Sections Affected: FAR 52.215-2; FAR 52.212-5; FAR
52.214-26.
    Second, this rule requires contractors to submit revised proposals
and negotiate contract modifications during contract administration.
OMB has cleared this information collection requirement \5\ under OMB
Control Number 3090-0320, titled: Construction Manager as Constructor
(CMc); GSAR Section Affected: 552.236-79, in the amount of 400 burden
hours. No comments were received on the information collection
requirement that was provided in the proposed rule; however, due to the
use of more current data to calculate the burden, revisions were made
to the burden estimate associated with the collection.
---------------------------------------------------------------------------
    \5\ The 30-day Federal Register Notice associated with IC 3090-
0320 was published at 84 FR 42917 on August 19, 2019.
---------------------------------------------------------------------------
List of Subjects in 48 CFR Parts 501, 536, and 552
    Government procurement.
Jeffrey A. Koses,
Senior Procurement Executive, Office of Acquisition Policy, Office of
Government-wide Policy.
    Therefore, GSA amends 48 CFR parts 501, 536, and 552 as set forth
below:
0
1. The authority citation for 48 CFR parts 501, 536, and 552 continues
to read as follows:
    Authority: 40 U.S.C. 121(c).
PART 501--GENERAL SERVICES ADMINISTRATION ACQUISITION REGULATION
SYSTEM
0
2. Amend section 501.106 by adding to the table, in numerical order,
GSAR references ``552.236-79'' and ``552.236-80'' and their
corresponding OMB control numbers ``3090-0320'' and ``9000-0034'' to
read as follows:
501.106  OMB approval under the Paperwork Reduction Act.
------------------------------------------------------------------------
                                                            OMB control
                     GSAR reference                             No.
------------------------------------------------------------------------

                                * * * * *
552.236-79..............................................       3090-0320
552.236-80..............................................       9000-0034

                                * * * * *
------------------------------------------------------------------------
PART 536--CONSTRUCTION AND ARCHITECT-ENGINEER CONTRACTS
0
3. Add section 536.102 to read as follows:
536.102  Definitions.
    Construction-Manager-as-Constructor (CMc) means the project
delivery method where design and construction are contracted
concurrently through two separate contracts and two separate
contractors. Unlike the traditional design-bid-build delivery method,
under the CMc delivery method, the Government awards a separate
contract to a designer (i.e., architect-engineer contractor) and to a
construction contractor (i.e., CMc contractor) prior to the completion
of the design documents. The Government retains the CMc contractor
during design to work with the architect-engineer contractor to provide
constructability reviews and cost estimating validation. The CMc
contract includes design phase services at a firm-fixed-price and an
option for construction at a guaranteed maximum price.
0
4. Amend section 536.515 by--
0
 a. Removing from the introductory text ``Use the clause--'' and adding
``Use the clause:'' in its place;
0
 b. Removing from paragraph (a) ``will be followed; or'' and adding
``will be followed.'' in its place; and
0
 c. Adding paragraph (c) to read as follows:
536.515  Schedules for construction contracts.
* * * * *
    (c) With its Alternate III when the contract amount is expected to
be above the simplified acquisition threshold and a construction-
manager-as-constructor project delivery method will be followed.
0
5. Revise section 536.521 to read as follows:
536.521  Specifications and drawings for construction.
    Insert the clause at 552.236-21, Specifications and Drawings for
Construction, in solicitations and contracts if construction,
dismantling, demolition, or removal of improvements is contemplated.
Use the clause:
    (a) With its Alternate I when a design-build project delivery
method will be followed.
    (b) With its Alternate II when a construction-manager-as-
constructor
[[Page 69633]]
project delivery method will be followed.
0
 6. Revise section 536.571 to read as follows:
536.571  Contractor responsibilities.
    Insert the clause at 552.236-71, Contractor Responsibilities, in
solicitations and contracts if construction, dismantling, demolition,
or removal of improvements is contemplated. Use the clause:
    (a) With its Alternate I when a design-build project delivery
method will be followed.
    (b) With its Alternate II when a construction-manager-as-
constructor project delivery method will be followed.
Subpart 536.70--[Reserved]
0
 7. Add and reserve Subpart 536.70.
0
8. Add subpart 536.71 to read as follows:
Subpart 536.71--Construction-Manager-as-Constructor Contracting
Sec.
536.7101 Scope of subpart.
536.7102 Definitions.
536.7103 Construction contract solicitation procedures.
536.7104 Construction contract award.
536.7105 Construction contract administration.
536.7105-1 Responsibilities.
536.7105-2 Guaranteed maximum price.
536.7105-3 Accounting and auditing requirements.
536.7105-4 Value engineering.
536.7105-5 Shared savings incentive.
536.7105-6 Allowances.
536.7105-7 Early work packages.
536.7105-8 Conversion to firm-fixed-price.
536.7106 Construction contract closeout.
536.7107 Contract clauses.
536.7101  Scope of subpart.
    This subpart describes policies and procedures for the use of the
CMc project delivery method.
536.7102  Definitions.
    As used in this subpart--
    CMc Contingency Allowance (CCA) means an allowance for the
exclusive use of the construction contractor to cover reimbursable
costs during construction that are not the basis of a change order.
These costs could include estimating, scheduling, and planning errors
in the final Estimated Cost of the Work (ECW) or other contractor
errors.
    Cost means allowable costs in accordance with FAR Part 31.
    Cost of Performance means the final sum of cost of the construction
work and fee for the construction work.
    Early Work Package means a set of construction activities that can
be clearly defined and separately performed from the remainder of the
construction work. Demolition is an example of an early work package.
    Estimated Cost of the Work (ECW) means the estimated cost of the
construction work, not including home office overhead.
    Fee for the Construction Work means the amount established in the
construction contract for the contractor's profit and home office
overhead costs, as described in FAR part 31, for the construction work.
    Guaranteed Maximum Price (GMP) means the sum of the ECW, CCA, and
the fee for the construction work.
536.7103  Construction contract solicitation procedures.
    (a) Procurement Timing. The request for proposals should be issued
only when the project design requirements have been developed to a
sufficient degree of specificity to permit competition with meaningful
pricing for the ECW. The contracting officer should obtain written
documentation for the contract file from the project manager that the
project design requirements satisfy the condition stated in this
section.
    (b) Proposal Evaluation.
    (1) Evaluation Factors.
    (i) Except as provided in paragraph (ii) of this section, the
solicitation shall provide that the technical evaluation factors, when
combined, shall be considered significantly more important than cost or
price.
    (ii) Subject to the approval of the HCA, the weighting of the
technical evaluation factors and cost or price may be different than
that required under paragraph (i) of this section. Any such written
approval shall be documented in the contract file.
    (2) Price Realism. The contracting officer shall provide for a
price realism analysis in the solicitation for the purpose of
assessing, among others, whether an offeror's price reflects a lack of
understanding of the contract requirements or risk inherent in an
offeror's proposal. The solicitation shall provide offerors with notice
that the agency intends to perform a price realism analysis.
    (3) Total Evaluated Price. For purposes of evaluation, the total
evaluated price shall include the firm-fixed-price for design phase
services, the construction work GMP option(s), and any other fixed-
priced line items. If advance pricing elements such as extended
overhead rates and daily delay rates are proposed, those shall also be
evaluated as part of the total evaluated price.
    (c) Government Budget (e.g., Prospectus) Information. Subject to
the approval of the contracting director, the solicitation may include
information contained or referenced within a prospectus submission to
Congress for a project.
536.7104  Construction contract award.
    In accordance with FAR 4.1001, the contracting officer shall use
the SF 1442 to identify the services or items to be acquired as
separately identified line items on a unit price or lump sum basis
including the design phase services, the construction work GMP
option(s), and any other work not included in the previously identified
items.
536.7105  Construction contract administration.
536.7105-1  Responsibilities.
    (a) During all phases of the project, the architect-engineer
contractor that is providing design services under a separate contract
with GSA is contractually responsible for the design in the same manner
as under a traditional, design-bid-build project delivery method.
    (b) The design phase services provided by the construction
contractor can include, but are not limited to, scheduling, systems
analysis, subcontractor involvement, cost-estimating, constructability
reviews, cost-reconciliation services, and market analysis.
    (c) The scope of work should task the construction contractor with
reviewing the design documents and providing pricing information at
various defined milestones during the design phase.
    (d) During the design phase, the architect-engineer contractor and
the construction contractor shall collaborate on the design and
constructability issues. The goal of this collaboration is to establish
a final ECW that does not exceed the original target ECW.
    (e) No discussions between the architect-engineer contractor and
the construction contractor shall be considered as a change to the
construction contract or design contract unless incorporated by the
contracting officer through a modification.
536.7105-2  Guaranteed Maximum Price.
    (a) General.
    (1) GMP.
    (i) The GMP is the ceiling price described by FAR 16.403-2.
    (ii) The GMP is established at contract award. The GMP may be
established as one option or as multiple options through separate line
items, with a separate GMP amount for each line item.
[[Page 69634]]
    (iii) The GMP is subject to adjustment under various standard
contract clauses, including the changes clause, differing site
conditions clause, and suspensions clause.
    (iv) The contract file shall contain all documents to support any
scope changes including a separate analysis to document the rationale
for any upward or downward adjustment to the GMP.
    (2) ECW.
    (i) The proposed ECW incorporated at construction contract award is
the target ECW.
    (ii) The final ECW should be established prior to completion of the
design (i.e. 100 percent construction documents), generally no earlier
than completion of 75 percent construction documents.
    (iii) The contracting officer shall negotiate the final ECW and
incorporate it into the construction contract through a bilateral
modification prior to exercising the GMP option.
    (3) CCA.
    (i) The CCA type of allowance may only be used as part of the CMc
project delivery method and should not be confused with other types of
allowances that may be used with other construction project delivery
methods.
    (ii) The CCA provides for a contingency relative to a fixed
percentage of the ECW, except for the requirements at paragraph (c)(3)
of this section. The CCA at time of GMP option exercise is subject to
negotiation between the contractor and the contracting officer and may
be different than the amount at time of contract award.
    (iii) The amount of the CCA will depend on the status of design and
construction, as well as the complexity and uncertainties of the
project. Early phase designs usually include less defined scope and,
accordingly, may require a higher initial CCA at time of contract
award. Later phase designs may remove uncertainties and reduce risk,
allowing for a lower CCA at time of GMP option exercise.
    (iv) The CCA shall not exceed 3 percent of the ECW, unless approved
in writing by the HCA for a higher amount not to exceed 5 percent of
the ECW.
    (4) Fee for the Construction Work.
    (i) The fee may be proposed per phase of construction if each phase
is a separate option.
    (ii) At time of proposal submission, the offeror shall submit a
list of the items included within the offeror's home office overhead.
    (iii) At time of proposal submission, the fee elements may be
expressed as a percentage of the ECW, but shall be converted to a fixed
amount prior to executing the GMP option.
    (iv) The fee for the construction work is not increased or
decreased based on fluctuations in the actual costs of the work. The
fee may, however be adjusted for changes that are the basis for a
change order, including scope changes, differing site conditions, and
Government-caused delays.
    (v) Any fee for the construction work associated with a change
order shall not be driven by a fixed percentage. The contracting
officer should determine whether the profit included, if any, in a
contractor's proposal is reasonable, see FAR 15.404-4 for additional
guidance. The limitations of GSAR 552.243-71, especially markups, still
apply for any changes.
    (b) Design Phase.
    (1) The GMP may be bilaterally modified upward during the design
phase only for approved additions to the scope of work.
    (2) The GMP may be bilaterally modified downward during the design
phase for deletions to the scope of work.
    (c) Exercising the GMP Option.
    (1) The GMP option shall not be exercised until the final ECW is
established.
    (2) If the sum of the final ECW, CCA, and fee for construction work
is less than the GMP as established at contract award or as adjusted in
accordance with FAR Part 43, then the contracting officer shall adjust
the GMP downward accordingly through a bilateral modification to
exercise the GMP option.
    (3) If the sum of the final ECW, CCA, and fee for the construction
work is greater than the GMP as established at contract award or as
adjusted in accordance with FAR Part 43, then the contracting officer
should work with the contractor to identify measures to reduce the
overall GMP. Such measures may include reducing the CCA, reducing the
fee, or as a last resort, reducing the scope of the project.
    (4) The GMP option shall not be exercised if the final ECW, CCA,
and fee for the construction work is greater than the GMP as
established at contract award or as adjusted in accordance with FAR
Part 43.
    (d) Construction Phase.
    (1) After award of the GMP option, changes in scope may be issued
as an adjustment to the GMP or as a stand-alone firm-fixed-price line
item.
    (2) Any changes in scope after award of the GMP option shall be
reflected by a written modification to the construction contract in
accordance with FAR Part 43.
    (e) Early Work Package. (1) Early work packages (see 536.7105-7)
may be used in the procurement that are priced separately or included
in the GMP option.
    (2) If any early work package exercised reduces the scope of the
construction services under the GMP option, the ECW shall be reduced,
and the CCA, fee for the construction work, and GMP shall be adjusted
accordingly.
    (f) GMP Adjustment. (1) Any changes to the total GMP or individual
parts of the GMP must be incorporated in the contract through a
modification.
    (2) Any modification that changes the GMP, including modifications
for early work packages and fixed price conversions, must clearly state
that it includes a change to the GMP and describe the changes to the
individual parts of the GMP components in the modification.
    (3) Any modification that changes the total GMP, or individual
parts of the GMP, is subject to the requirement for a prenegotiation
objectives memo and price negotiation memo, including fair and
reasonable price determination, per FAR 15.406.
    (4) The contracting officer should consult other members of the
acquisition team, including the project manager, to analyze and justify
any adjustments to the total GMP, or individual parts of the GMP.
536.7105-3  Accounting and auditing requirements.
    (a) Cost Accounting Standards. (1) Except as provided in paragraph
(a)(2) of this section or through an exemption at FAR 30.201-1,
construction contracts under the CMc project delivery method are
subject to the cost accounting standards (CAS) identified in FAR Part
30.
    (2) The contracting officer may request a CAS waiver in accordance
with the requirements at FAR 30.201-5 and 530.201-5.
    (3) If CAS applies, the contract clauses identified at FAR 30.201-4
shall be included in the contract.
    (4) If a CAS waiver is granted or if CAS does not apply, the
contract clause identified at 536.7107(b) shall be included in the
contract.
    (b) GMP Option Accounting. (1) Open Book Accounting. Open book
accounting shall be followed for financial tracking of all contract
line items that are awarded on a GMP basis. Such financial tracking may
be accomplished through an audit in accordance with paragraph (c) of
this section.
    (2) Payments and Reconciliation. All payments shall be reconciled
with the
[[Page 69635]]
open book accounting records and the schedule of values adjusted, as
appropriate. Reconciliation shall occur each month and should be
coordinated with monthly progress payments. The reconciliation shall be
documented in the contract file.
    (c) Auditing Requirements. In accordance with GSAM 542.102(a), for
any audit services required by this Subpart 536.71, the contracting
officer shall first request such services be performed by or through
the Assistant Inspector General for Auditing or the Regional Inspector
General for Auditing. If the Office of Inspector General declines to
perform such an audit, the contracting officer may obtain audit
services from a certified public accountant.
536.7105-4  Value engineering.
    In accordance with FAR 48.202, the clause at FAR 52.248-3 Value
Engineering-Construction does not apply to incentive contracts.
Accordingly, value engineering, as that term is used and described in
FAR Part 48, shall not apply to the CMc project delivery method
described in this subpart.
536.7105-5  Shared savings incentive.
    (a) General. The incentive is a shared portion of the difference
between the final GMP and the final cost of performance. Cost
reductions may be realized by the construction contractor as a result
of innovations and efficiencies during the construction phase, such as
increased labor productivity or strong material subcontract
negotiations.
    (b) Share Ratio. (1) Except as provided in paragraph (2) of this
section, the share ratio for the construction contractor shall range
from 30 percent to 50 percent. The share ratio for the construction
contractor shall not exceed 50 percent. The complexity of the project
and the amount of risk to the construction contractor should be
considered when determining the ratio. A project with greater risk to
the construction contractor should reflect a greater share ratio for
the construction contractor.
    (2) Subject to the approval of the HCA, the share ratio may be
different than that required under paragraph (b)(1) of this section.
Any such written approval shall be documented in the contract file.
    (c) Incentive calculation. The incentive amount is calculated in
accordance with the clause at 552.236-79 Construction-Manager-As-
Constructor.
536.7105-6  Allowances.
    (a) Establishing a separate allowance in addition to the CCA is
only permitted pursuant to a written determination approved by the
contracting director supporting the use of any such allowance.
    (b) The written determination for a separate allowance in addition
to the CCA shall consider the following:
    (1) Alternative contracting structures, such as a separate GMP line
item or performing the work as part of the GMP option, and
    (2) Ensuring conformance with all applicable rules and procedures
relating to allowances, including FAR 11.702.
536.7105-7  Early work packages.
    (a) Construction services for an early work package must be within
the scope of the overall contract.
    (b) Early work packages may be part of the initial procurement as a
separately priced line item, or the Government and the construction
contractor may agree to develop an early work package after award,
typically identified toward the beginning of the project.
    (c) Early Work Packages Developed After Award.
    (1) The parties shall bilaterally agree to the scope, schedule, and
pricing for any such early work package, and the contract shall be
modified in accordance with FAR Part 43.
    (2) If any such early work package reduces the scope of the
construction services under the GMP option, the ECW shall be reduced,
and the CCA, fee for the construction work, and GMP shall be adjusted
accordingly.
    (3) Any modification to the contract for an early work package is
subject to the requirement for a prenegotiation objectives memo and
price negotiation memo, including fair and reasonable price
determination, per FAR 15.406.
    (d) Early work packages that are firm-fixed-price are not subject
to open book accounting, a shared savings incentive, or the need for
determination of final settlement.
536.7105-8  Conversion to Firm-Fixed-Price.
    (a) At any time after completion of 100 percent construction
documents, the Government and the construction contractor may
bilaterally convert the whole contract to firm-fixed-price.
    (b) Conversion to firm-fixed-price may occur after the contingency
risks, to be covered by the CCA, have been sufficiently reduced in the
best interest of the Government. See FAR 16.103(b) for additional
guidance for assessing risk management, profit motive, and timing
considerations.
    (c) Conversion to firm-fixed-price is only permitted pursuant to a
written determination from the contracting officer to the contract file
supporting the conversion. The contracting officer should consult other
members of the acquisition team, including the project manager, to
analyze and justify the conversion.
    (d) The contracting officer shall not agree to a firm-fixed-price
in excess of the GMP.
    (e) In accordance with 536.7105-3(c), the contracting officer shall
obtain an independent audit of the construction contractor's costs
incurred in the performance of the contract to date.
    (f) When evaluating the construction contractor's proposal for
firm-fixed-price definitization, the contracting officer should compare
the anticipated final cost to the firm-fixed-price being proposed. It
may be reasonable for the construction contractor to include a
contingency for assuming the risk associated with agreeing to the firm-
fixed-price. The contracting officer should evaluate this contingency
to ensure that the proposed amount reasonably reflects the remaining
risks being assumed by the construction contractor. This evaluation may
be informed by the history of the project, the balance of the CCA, and
other factors.
    (g) The modification to convert to a firm-fixed-price is subject to
the requirement to obtain cost and pricing data unless one of the
exceptions in FAR 15.403-1 applies.
    (h) The modification to convert to a firm-fixed-price is subject to
the requirement for a prenegotiation objectives memo and price
negotiation memo, including fair and reasonable price determination,
per FAR 15.406.
    (i) Upon converting to a firm-fixed-price, the contract is no
longer subject to open book accounting, a shared savings incentive, or
the need for determination of final settlement.
536.7106  Construction contract closeout.
    Unless the contract has been converted to a standard firm-fixed-
price contract (see 536.7105-8)--
    (a) The contracting officer shall ensure that the construction
contractor's proposal for final settlement is accurate and reliable in
accordance with the open book accounting practices of the contract.
    (b) In accordance with 536.7105-3(c), the contracting officer shall
obtain an independent audit of the construction contractor's costs.
[[Page 69636]]
536.7107  Contract clauses.
    (a) Insert a clause substantially the same as the clause at
552.236-79, Construction-Manager-As-Constructor, in solicitations and
contracts if construction, dismantling, or removal of improvements is
contemplated when a CMc project delivery method will be followed. This
clause is in lieu of the clause at FAR 52.216-17 Incentive Price
Revision--Successive Targets.
    (b) Insert a clause substantially the same as the clause at
552.236-80, Accounting Records and Progress Payments, in solicitations
and contracts if construction, dismantling, or removal of improvements
is contemplated when a CMc project delivery method will be followed and
cost accounting standards do not apply. This clause is used when the
clauses at FAR 52.230-2 Cost Accounting Standards, FAR 52.230-3
Disclosure and Consistency of Cost Accounting Practices, and FAR
52.230-6 Administration of Cost Accounting Standards do not apply.
PART 552--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
11. Amend section 552.236-15 by adding Alternate III to read as
follows:
552.236-15  Schedules for Construction Contracts.
* * * * *
    Alternate III (JAN 2020). As prescribed in 536.515(c), substitute
the following paragraphs (c), (e), (h), and (i) for paragraphs (c),
(e), (h), and (i) of the basic clause:
    (c) Submission. (1) Within 30 calendar days of contract award, or
such other time as may be specified in the contract, the Contractor
shall submit the design phase project schedule.
    (2) Within 30 calendar days after establishing the final estimated
cost of work, the Contractor shall submit the construction phase
project schedule, together with a written narrative describing the
major work activities, activities on the critical path, and major
constraints underlying the sequence and logic of the project schedule.
    (e) Activities. (1) The design phase project schedule shall depict
all activities necessary to complete the design work, including, as
applicable, all submittal and submittal review activities, cost
reconciliation, and establishing the estimated cost of work for the
construction phase.
    (2) The Contractor shall use a critical path method project
schedule to plan, coordinate, and perform the construction phase work.
    (3) The construction phase project schedule shall depict all
activities necessary to complete the construction work, including, as
applicable, all submittal and submittal review activities, all
procurement activities, and all field activities, including
mobilization, construction, start-up, testing, balancing,
commissioning, and punchlist.
    (4) Activities shall be sufficiently detailed and limited in
duration to enable proper planning and coordination of the work,
effective evaluation of the reasonableness and realism of the project
schedule, accurate monitoring of progress, and reliable analysis of
schedule impacts.
    (5) Activity durations shall be based upon reasonable and realistic
allocation of the resources required to complete each activity, given
physical and logistical constraints on the performance of the work. All
logic shall validly reflect physical or logistical constraints on
relationships between activities. Except for the first and last
activities in the project schedule, each activity shall have at least
one predecessor and one successor relationship to form a logically
connected network plan from notice to proceed to the contract
completion date.
    (h) Revisions to the schedule. (1) The Contractor should anticipate
that the project schedule will be subject to review and may require
revision. The Contractor shall devote sufficient resources for
meetings, revisions, and resubmissions of the project schedule to
address any exceptions taken. The Contractor understands and
acknowledges that the purpose of the review and resolution of
exceptions is to maximize the usefulness of the project schedule for
contract performance.
    (2) If the Contractor proposes a revision to the project schedule
after initial approved submission, the Contractor shall provide in
writing a narrative describing the substance of the revision, the
rationale for the revision, and the impact of the revision on the
projected substantial completion date and the available float for all
activities.
    (i) Updates. Unless a different period for updates is specified
elsewhere, the Contractor shall update the project schedule monthly to
reflect actual progress in completing the work, and submit the updated
project schedule within 5 working days of the end of each month.
0
 12. Amend section 552.236-21 by adding Alternate II to read as
follows:
552.236-21  Specifications and Drawings for Construction.
* * * * *
    Alternate II (JAN 2020). As prescribed in 536.521(b), add the
following paragraph to the basic clause:
    (h) For the purposes of this clause, specifications and drawings
refer only to the construction documents, meaning the 100 percent
complete specifications and construction drawings developed during the
design phase.
0
13. Amend section 552.236-71 by adding Alternate II to read as follows:
552.236-71  Contractor Responsibilities.
* * * * *
    Alternate II (JAN 2020). As prescribed in 536.571(b), delete
paragraphs (d), (e), (f), and (g) of the basic clause, and insert
paragraphs (d), (e), (f), (g), (h), (i), and (j) as follows:
    (d) The Contractor shall be responsible for performing the design
phase services in accordance with the statement of work. The Contractor
shall submit all deliverables and reports in accordance with the
statement of work.
    (e) The Contractor shall be responsible to review all design
information (e.g. draft specifications and drawings) provided. The
Contractor shall be responsible for determining that the project as
described in the design information is constructible using commercially
practicable means and methods; that the construction work is described
in the design documents with sufficient completeness to enable pricing
of a complete project within the guaranteed maximum price; and that the
manner of presentation and organization of information in the design
documents enables accurate estimation of the cost of the work.
    (f) Prior to establishment of the final estimated cost of work, the
Contractor shall bring to the Contracting Officer's attention all
instances that it has discovered or has been made aware of where design
errors and omissions affect the Contractor's ability to accurately
estimate the cost of the work.
    (g) Where installation of separate work components as shown in the
contract will result in conflict or interference between such
components or with existing conditions, including allowable tolerances,
it is the Contractor's responsibility to bring such conflict or
interference to the attention of the Contracting Officer and seek
direction before fabrication, construction, or installation of any
affected work. If the Contractor fabricates, constructs, or installs
any work prior to receiving such direction, the Contractor shall be
responsible for all cost and time incurred to resolve or mitigate such
conflict or interference.
    (h) Where drawings show work without specific routing, dimensions,
[[Page 69637]]
locations, or position relative to other work or existing conditions,
and such information is not specifically defined by reference to
specifications or other information supplied in the contract, the
Contractor is responsible for routing, dimensioning, and locating such
work in coordination with other work or existing conditions in a manner
consistent with contract requirements.
    (i) It is not the Contractor's responsibility to ensure that the
contract documents comply with applicable laws, statutes, building
codes and regulations. If it comes to the attention of the Contractor
that any of the contract documents do not comply with such
requirements, the Contractor shall promptly notify the Contracting
Officer in writing. If the Contractor performs any of the work prior to
notifying and receiving direction from the Contracting Officer, the
Contractor shall assume full responsibility for correction of such
work, and any fees or penalties that may be assessed for non-
compliance.
    (j) The Contractor is responsible to construct the project in
accordance with the drawings and specifications. The final Estimated
Cost of the Construction Work (ECW) may be determined based upon
incomplete design documents. In those instances in which the drawings
and specifications are not complete at the time the final ECW is
established, the Contractor shall exercise reasonable care and judgment
to determine the intent of the design and shall calculate the final ECW
on the basis of the quality of construction, materials, and finishes
that can be reasonably inferred from the design documents or other
specified sources.
0
14. Add sections 552.236-79 and 552.236-80 to read as follows:
552.236-79  Construction-Manager-As-Constructor.
    As prescribed in 536.7107(a), insert the following clause:
Construction-Manager-As-Constructor (JAN 2020)
    (a) General. Pricing for the Guaranteed Maximum Price (GMP) for
the option for construction services shall be subject to the
requirements below.
    (b) Definitions. The following definitions shall apply to this
clause:
    Construction-Manager-as-Constructor (CMc) Contingency Allowance
(CCA) means an allowance for the exclusive use of the construction
contractor to cover reimbursable costs during construction that are
not the basis of a change order. These costs could include
estimating, scheduling, and planning errors in the final Estimated
Cost of the Work (ECW) or other contractor errors.
    Cost means allowable costs in accordance with FAR Part 31.
    Cost of Performance means the final sum of cost of the
construction work and fee for the construction work.
    Early Work Package means a set of construction activities that
can be clearly defined and separately performed from the remainder
of the construction work. Demolition is an example of an early work
package.
    Estimated Cost of the Work (ECW) means the estimated cost of the
construction work, not including home office overhead.
    Fee for the Construction Work means the amount established for
the contractor's profit and home office overhead costs, as described
in FAR Part 31, for the construction work.
    Guaranteed Maximum Price (GMP) means the sum of the ECW, CCA,
and the fee for the construction work.
    (c) Guaranteed Maximum Price. This contract at award includes a
GMP.
    (d) Estimated Cost of the Work. The proposed ECW incorporated
into the contract at award is a target ECW. A final ECW is
negotiated during the design phase and is incorporated into the
contract prior to exercise of the GMP option.
    (e) Final Estimated Cost of the Work.
    (1) Submission Requirements for Final ECW Proposal. During the
design phase, and at a time agreed by the Contracting Officer, the
Contractor shall submit the following:
    (i) A detailed statement of all construction costs, including
early work packages in the performance of the construction work to
date;
    (ii) A detailed breakdown of home office overhead costs and a
statement that the accounting practices used for the allocation of
home office overhead on this contract is in accordance with the
Contractor's established cost accounting practices;
    (iii) A proposed final ECW;
    (iv) Sufficient data to support the accuracy and reliability of
the estimate;
    (v) An explanation of the difference between the proposed final
ECW and the target ECW used to establish the GMP; and
    (vi) The Contractor's affirmation that:
    (A) The Contractor is satisfied that the project as described in
the specifications and construction drawings is constructible using
commercially practicable means and methods;
    (B) The Contractor is satisfied that the construction work has
been sufficiently described to enable it to estimate the cost of the
work with reasonable accuracy;
    (C) The Contractor has disclosed to the Contracting Officer all
of its actual knowledge relating to design errors and omissions that
may affect the cost of the work; and
    (D) The Contractor acknowledges that the final ECW and time
established for completion shall not be adjusted on account of cost
or time attributable to known design errors and omissions disclosed
by the Contractor pursuant to paragraph (e)(1)(v)(C) of this clause.
Unknown design errors and omissions that form the basis for a change
order may still be settled in accordance with GSAR 552.243-71
Equitable Adjustments.
    (2) Establishment of the Final ECW. The parties shall negotiate
a final ECW based on the data provided under paragraph (e)(1) of
this clause. The final ECW shall be established and incorporated
into the Contract by bilateral modification. The Contracting Officer
will not accept a final ECW proposal that does not include the
written affirmation described in this clause. The Contracting
Officer will not exercise the GMP option for construction work
unless the final ECW has been incorporated into the contract.
    (f) CMc Contingency Allowance. The CCA shall be _ percent of the
ECW [Contracting Officer insert percentage amount].
    (g) Shared Savings Incentive. The Contractor shall be entitled
to _percent of the difference between the final GMP and the final
cost of performance [Contracting Officer insert percentage amount].
    (h) Adjustment of ECW and GMP. The ECW and GMP shall be subject
to adjustment for changes and any other conditions giving rise to
entitlement to an adjustment under this contract. The ECW and GMP
may be adjusted down for deletions to the scope of the construction
services through a bilateral modification.
    (i) Adjustment of CCA. If the sum of the final ECW, CCA, and fee
for the construction work is greater than the GMP as established at
contract award or as adjusted in accordance with FAR Part 43, then
the Contractor should work with the Contracting Officer to identify
measures to reduce the overall GMP, including reducing the CCA,
reducing the fee, or as a last resort, reducing the scope of the
project. At any time, the parties may agree to a different CCA than
the amount expressed at time of contract award. Prior to the use of
the CCA, the Contractor shall coordinate approval following the
procedures identified in the contract. For approved CCA uses, the
CCA shall be reduced and the ECW shall be adjusted accordingly.
    (j) Adjustment of the Fee for the Construction Work. The fee for
the construction work may be adjusted for changes that are the basis
for a change order, including scope changes, differing site
conditions, and Government-caused delays. The fee for the
construction work associated with a change order shall not be driven
by a fixed percentage. The fee for the construction work is not
increased or decreased based on fluctuations in the actual costs of
the work. At time of proposal submission, the fee elements may be
expressed as a percentage of the ECW, but shall be converted to a
fixed amount prior to executing the GMP option.
    (k) Conversion to Firm-Fixed-Price Prior to Final Settlement.
    (1) Submission Requirements for Conversion to Firm-Fixed Price.
If the parties agree to negotiate and establish a firm-fixed-price
for construction work prior to the exercise of the GMP option, or at
the request of the Contracting Officer, the Contractor shall submit
the following:
    (i) A proposed firm-fixed-price proposal for the completion of
the construction work, which shall include all markups, including
profit.
    (ii) A detailed statement of any costs incurred in the
performance of the contract work to date.
    (2) Establishment of Firm-Fixed-Price.
[[Page 69638]]
    (i) Prior to Exercise of GMP Option. The parties may negotiate
and establish a firm-fixed-price for construction work prior to the
exercise of the GMP option based on the data provided under
paragraph (k)(1) of this clause; provided that the firm-fixed-price
shall not exceed the GMP. The Contracting Officer shall have the
right, but not the obligation, to bilaterally exercise the GMP
option at the firm-fixed-price within 120 calendar days of the
establishment of such price.
    (ii) After Exercise of the GMP Option. At any time prior to
final settlement, the Contracting Officer may request that the
Contractor provide a firm-fixed-price proposal for the completion of
construction work in accordance with paragraph (k)(1) of this
clause. Within 60 calendar days of such request, the Contractor
shall provide such data. Within 60 calendar days of receipt of the
Contractor's proposal, the Contracting Officer shall have the right,
but not the obligation, to convert the contract to a firm-fixed-
price contract through a bilateral modification at the proposed
fixed-price or as otherwise negotiated by the parties; provided that
the firm-fixed-price, plus any costs incurred in the performance of
the construction work, shall not exceed the GMP.
    (iii) If any portion of the contract is converted to a firm-
fixed-price, then that portion of the contract is no longer subject
to open book accounting, a shared savings incentive, or the need for
final settlement. If the contract is not converted to a firm-fixed-
price contract, then the final settlement of the Contractor's
compensation shall be determined in accordance with paragraph (l) of
this clause.
    (3) Payments. If this contract is converted to a firm-fixed-
price contract, the Contractor shall submit a revised schedule of
values for the construction work allocating the unpaid balance of
the fixed price to the itemized work activities remaining
uncompleted, which shall be the basis for remaining progress
payments.
    (l) Final Settlement. The final settlement amount shall consist
of the cost of performance and the Contractor's shared savings
incentive, if any, provided that in no event shall the final
settlement exceed the GMP. The final settlement amount shall be the
Contractor's total compensation due under the contract.
    (1) Submission Requirements for Final Settlement Proposal. The
Contractor shall submit a final settlement proposal within 120 days
of substantial completion to determine the cost of the construction
work, which shall include the following:
    (i) A detailed statement of all costs incurred by the Contractor
in performing the construction work;
    (ii) A firm-fixed-price proposal for the performance of the
remaining work, if any, that may be necessary to complete
performance of the construction work;
    (iii) An executed release of claims, which shall describe any
and all exceptions, including a description of any outstanding
claims; and
    (iv) Any other relevant data that the Contracting Officer may
reasonably require.
    (2) Determination of the Cost of the Work. The cost of the
construction work shall be the sum of all costs incurred by the
Contractor in performing the construction work, the proposed fixed
price for performance of remaining work, if any, less the residual
value of any Contractor retained inventory. In order to determine
the cost of the construction work, the Contractor shall be subject
to an audit of the Contractor's records and/or the Contractor's
proposal. Establishment of the cost of the construction work shall
be subject to negotiation between the Government and the Contractor.
In the event that the parties are unable to reach agreement, the
Contracting Officer may unilaterally determine the cost of the
construction work, and such determination shall be subject to FAR
Clause 52.233-1 Disputes.
    (3) Determination of the Shared Savings Incentive. If the final
cost of performance is equal to or greater than the final GMP, the
Contractor is not entitled to any additional compensation. If the
final cost of performance is less than the final GMP, the Contractor
is entitled to the percentage specified in paragraph (g) of this
clause, of the difference between the final GMP and the final cost
of performance, as the shared savings incentive.
    (m) Subcontracts. No subcontract placed under this contract may
provide for cost-plus-a-percentage of cost. Any costs incurred by
the Contractor as a result of such a subcontract shall not be
included in the cost of the construction work or the final
settlement.
    (n) Open Book Access. (1) At any time prior to converting to
firm-fixed-price, the Government and its representatives, including
designated auditors and accountants, shall have the right, but not
the obligation, to attend any and all project meetings and shall
have access to any and all records maintained by the Contractor
relating to the contract. The Contractor shall include this
requirement for open book access by the Government in its
subcontracts for the contract.
    (2) After converting to firm-fixed-price, the Government
maintains the right to examine records under GSAR Clause 552.215-70.
    (o) Termination. If this Contract is terminated, the Contractor
shall not be entitled to a shared savings incentive.
    (p) The contractor agrees to incorporate the substance of this
clause in all subcontracts under this contract.
(End of Clause)
552.236-80  Accounting Records and Progress Payments.
    As prescribed in 536.7107(b), insert the following clause:
Accounting Records and Progress Payments (JAN 2020)
    (a) The Contractor shall keep full and detailed accounts and
exercise such controls as may be necessary for proper financial
management under this contract. The Contractor's accounting and
control systems shall meet Generally Accepted Accounting Principles
(GAAP) and provide for the following:
    (1) There is proper segregation of direct costs and indirect
costs.
    (2) There is proper identification and accumulation of direct
costs by contract.
    (3) There is a labor time distribution system that charges
direct and indirect labor appropriately.
    (b) The Contractor shall afford access to and shall permit any
authorized representatives of the Government to audit, examine and
copy any records, documents, books, correspondence, instructions,
drawings, receipts, subcontracts, purchase orders, vouchers,
memoranda, and other data relating to this contract. Records subject
to audit, examination, and copying shall include those records
necessary to evaluate and verify all direct and indirect costs,
including overhead and payroll tax and fringe benefit allocations,
as they may apply to costs associated with the contract. The
Contractor shall preserve these records for a period of three years
after the final payment, or for such longer period as may be
required by law.
    (c) The records identified in paragraphs (b) of this clause
shall be subject to inspection and audit by the Government or its
authorized representative for, but not limited to, evaluating and
verifying:
    (1) Contractor compliance with contract requirements;
    (2) Compliance with pricing change orders, invoices,
applications for payment, or claims submitted by the contractor or
any of its subcontractors at any tier, including vendors and
suppliers.
    (d) If requested by the Government, the Contractor shall
promptly deliver to the Government or its designee copies of all
records related to the contract, in a form acceptable to the
Government. The Contractor shall provide to the Government or its
authorized representative such records maintained in an electronic
format in a computer readable format on data disks or suitable
alternative computer data exchange formats.
    (e) The Government shall have access to the Contractor's
facilities, shall be allowed to interview all current and former
employees to discuss matters pertinent to the contract, and shall be
provided adequate work space, in order to conduct audits and
examinations.
    (f) If any audit or examination of the Contractor's records
discloses total findings resulting in overpricing or overcharges by
the Contractor to the Government in excess of one-quarter percent of
the total contract billings, the Contractor shall immediately
reimburse the Government for the overcharges. The Contractor shall
also reimburse the Government for the costs of the audit unless
otherwise agreed to by the Government and the Contractor.
    (g) The Government shall be entitled to audit all modifications,
including lump-sum modifications, to determine whether the proposed
costs, as represented by the Contractor and any of its
subcontractors, are in compliance with the contract. If it is
determined that the costs proposed under a modification, including
lump-sum modifications, are not in compliance with the contract, the
Government reserves the right to adjust the amount previously
approved and included in the modification.
    (h) If the Contractor fails to comply with any conditions in
this clause, the Contracting
[[Page 69639]]
Officer may retain a maximum of 10 percent of the amount of each
payment request submitted until such deficiencies are corrected.
    (i) These requirements regarding accounting records shall not
mitigate, lessen nor change any other requirements in the contract
regarding audits, payment submissions, records, or records
retention.
    (j) The contractor agrees to incorporate the substance of this
clause in all subcontracts under this contract.
(End of Clause)
[FR Doc. 2019-26367 Filed 12-18-19; 8:45 am]
BILLING CODE 6820-21-P