Since 2006, annual military construction budgets have increased about 33 percent a year, cumulating in a 2009 budget of more than $24 billion. This bright spot in the overall architecture, engineering and construction (AEC) industry, which recently has seen considerable reductions in growth, is even better for design-builders, as 80 percent of this work is projected to be design-build.
However, military construction procurement, particularly using existing approved design-build methodologies, presents a unique set of challenges and opportunities for design-builders. The challenges are the length of the military design-build procurement process and the added risk involved and the current systems used to evaluate a design-builder’s past performance.
Steps 1 and 2
The most common approach for military officials to procure design-build services is the two-phase design-build selection process, governed by Subpart 36.3 of the Federal Acquisition Regulations. Phase One proposals determine which design-build teams will proceed to Phase Two. Phase One evaluation factors typically consist of the design-builder’s technical and/or management approach, specialized experience, key personnel, firm capabilities and past performance. Those selected to advance to Phase Two typically must submit design concepts, technical solutions and pricing information. While similar in many facets to non-military procurements, the military procurement cycle can be extraordinarily long, which can increase risk to the design-builder, including - but not limited to - commitment of key personnel, budget constraints and capacity constraints.
In the past year, Lifecycle Construction Services Inc., for example, has participated in more than 10 two-phase design-build military procurements. The average time from the government’s notification of a requirement to the actual project award has been more than eight months. The Phase One selection process alone has averaged between five and six months. As a result, this process presents several challenges.
The first challenge is personnel. Most military design-build solicitations require commitment letters from the design-build firm indicating the dedicated project personnel (project manager, superintendent, quality control manager, etc.) the firm will use if awarded the project. With key team members committed to a project that a firm may or may not win eight-months later, it creates several problems. As a firm can’t limit opportunities to bid other design-build projects while waiting to hear results of a military design-build, it creates the risk of having key personnel committed to more than one project. Design-builders must ask themselves if they should dedicate key personnel to multiple projects knowing they can’t fulfill the commitment if awarded both.
Budget constraints add another challenge. Before a military procurement official ever advertises a design-build project for competition, Congress must approve the appropriation, which can take several years. As a result, the project budget is typically several years outdated before it is advertised for competition. This problem is further exacerbated by the lengthy procurement process. Escalating material prices and mandated design and construction requirements, such as the use of Building Information Modeling, sustainable design and construction and anti-terrorism/force protection, put added pressure on already tight budgets. Should a design-builder commit his limited resources to a project with severe budget constraints, especially knowing the length of the procurement cycle could have further negative implications?
From a business development and operations perspective, all design-build firms have a finite resource capacity and are thus limited in the number of quality opportunities they can and should pursue. An eight-month procurement cycle forces management to decide whether to pursue more opportunities than they know can be successfully executed, or run the risk of passing on current opportunities with no guarantee that existing proposal submissions will be successful. Should the design-builder run the risk of being over extended with clients, possibly leading to sub-standard performance or a failed project? This will limit future opportunities, as past performance is a key metric for gaining future work. The alternative is to limit the number of opportunities pursued, running the risk of insufficient backlog to replace existing work.
These are just a few of the inherent risks for a military design-build project. At the same time, however, these requirements and schedule constraints highlight the strengths of the design-build methodology for military procurements.
Design-build provides the best opportunity for the military and the design-builder to improve the overall project delivery time after all of the approval processes are complete. But to do so, new steps to improve efficiency of the procurement process to limit risk to the design-builder and improve service to the military are crucial.
Information Overload
Multiple construction risk studies conducted by both academia and industry indicate that the single, most reliable predictor of future performance on a construction contract is a company’s past performance. These studies have empirically verified an intuitive reality: a company’s previous performance is an excellent starting point to determine future project performance.
As a military customer determines who is awarded a construction contract and the level of risk associated with that choice, difficulty can arise in how the military attempts to capture information concerning a prospective design-builder’s past performance. This is not a new issue, and the military has gone to great lengths to standardize systems for capturing past performance data.
Using the Construction Contractor Administration Support System (CCASS), a Web-Based System that helps military customers determine past performance, the military attempts to base evaluations on objective data, which includes items such as on-time delivery, management skill, contract adherence and safety compliance.
In theory, this system would be sufficient for all design-builders that have completed some military contracts. But there are gaps in the system. Many companies, for example, perform projects for both military and non-military clients, in which past performance could be misinterpreted, depending on the project. To their credit, military construction clients support this combination — in fact, the crossover of technology and methodology is at the very heart of the Military Construction Transformation program, but much is left to interpretation. And there is also inconsistency in the use of the evaluation system by military procurement officials.
With the gaps in the CCASS system, military procurement officials must find other ways to collect information to make informed past-performance evaluations. The most common method requires that a former client of the design-builder complete and submit a Past Performance Survey. These surveys allow for past performance to be demonstrated for projects that were of a non-military nature or a CCASS evaluation was not completed. This too is problematic. While information requested on Past Performance surveys is generally the same, there is inconsistency among the various military agencies, and sometimes within the same agency. With no central collection point for these surveys, a design-build company must ask past clients to resubmit yet another survey. To maintain data integrity, the survey must come directly from the client to the contracting officer on the new project, which can become cumbersome if a client is asked repeatedly to submit an additional survey. It could turn a good reference into a poor one.
Entrenched Challenges
With a considerable portion of the military procurement cycle at the mercy of the congressional appropriations process, these challenges will remain fixed for the foreseeable future. However, efforts should be made to further streamline the two-phase design-build procurement process, allowing risks to be more easily quantified by the design-builder, ultimately producing better outcomes for military clients. A better sense of what the actual construction cost indexes will be when the project is finally awarded is one solution that could be more effectively employed. In addition, attempting to provide the future contracting authority some latitude to actually procure the project in a reasonable and responsible manner could help as well.
In terms of evaluating risk to the government, a company’s track record will remain the most reliable predictor of how a company will perform on its next project. But with the military’s decentralized procurement process, it is incredibly burdensome on prospective design-builders and their former clients to resubmit data multiple times on each new request for proposal. (Ironically, many former clients are actually military construction professionals from another office or district.)
The several fragmented and underutilized database systems in place are not meeting the government’s need to collect information to evaluate risk. Therefore, the military and industry must implement systems and methodologies that provide the data required but reduce the cumbersome and inefficient requirements on contractors and previous clients.
Being a part of what the Department of Defense calls the “Total Force,” the entire system of military personnel, federal civilian employees and contractors that work in conjunction to serve in the defense of America is a very rewarding effort. Brig. Gen. Bo Temple, director of military programs for the Army Corps of Engineers noted last year, “On any given day, there are about 300,000 contract personnel working to help us be successful and accomplish our many USACE missions. A strong construction industry is vitally important to us.”
Design-builders of all types can take not just the normal satisfaction in successfully meeting a client’s building needs, but also realize that in some small way they have contributed to America’s defense. However, the military procurement process creates several unique conditions in which military and industry must work together to improve, so that the ultimate clients, the service men and women and the taxpayer are ensured the best possible outcomes.
Sean Haynes is president and George Woods is a vice president of Lifecycle Construction Services Inc.