Watch these videos regarding Federal Acquisition Process. Link: https://youtu.be/3k1qB-y0NFg After watching this video, reflect u

Federal Acquisition Regulation Applied to Alliancing Contract Practices

Travis R. Johnson, P.E.1; Peter Feng, Ph.D., P.E., M.ASCE2; William Sitzabee, Ph.D., P.E.3; and Mark Jernigan4

Abstract: The U.S. federal construction sector led the development of partnering as a project-delivery method and continues to use it as standard practice. Alliancing has since emerged as an evolution of the partnering method and offers substantial advantages over partnering, but it also poses more difficulties with federal acquisition regulations. This research aims to determine if an alliancing contract can be effectively utilized in federal construction and, if so, to create a framework under which federal agencies can utilize the advantages of alliance contracts within existing regulations. A commercially available standard form alliancing contract was selected for analysis against the Federal Acquisition Regulation. Key practices that characterize the alliancing method were identified. Utilizing a panel of federal contracting experts, qualitative data were gathered to analyze which of these key practices do or do not comply with federal regulations, why certain practices do not comply, and how those practices could achieve compliance. The results show that most alliancing key practices can be utilized in a federal construction project. Although other practices cannot be used effectively under current regulations, these limitations do not sig- nificantly hinder the use of a comprehensive and effective federal alliancing contract. DOI: 10.1061/(ASCE)CO.1943-7862.0000592. © 2013 American Society of Civil Engineers.

CE Database subject headings: Contract management; Contracts; Construction management; Military engineering; Federal government.

Author keywords: Contract management; Federal project policy; Contracts; Construction management; Government; Military engineering.

Introduction and Background

The U.S. Army Corps of Engineers took a leading role in the development and implementation of partnering in the 1980s, first using partnering in the Portland, Oregon (Gerard 1995; Naoum 2003), and Mobile, Alabama districts (Sanders and Moore 1992). The Corps inaugural partnering project was the construction of the Oliver Lock and Dam, which began in 1988 with a partnering agreement between the Corps Mobile District and the construction contractor FRU-CON (Schroer 1994).

The foundation of partnering is the partnering agreement, a non- contractual but formally structured charter tying each party to act in the best interest of the project and the project team (Weston and Gibson 1993). It utilizes tools such as regular meetings, partnering workshops, team building exercises, declarations of common ob- jectives, and dispute resolution mechanisms to encourage harmo- nious working relationships and shared goals. Partnering proved to be a genuine success. A study of Corps construction projects by

Weston and Gibson (1993) compared 16 partnering projects to 28 nonpartnering projects. The study found that partnering projects achieved much better performance, averaging an improvement of 40–80% over nonpartnered projects in the aspects of cost change, change order cost, claims costs, and duration change. The Corps quickly embraced the philosophy of partnering and made it a stan- dard way of doing business (Schroer 1994).

Partnering has allowed many federal project teams to develop better relationships, trust, and commitment, but it is only the first step in the right direction. Although this process does deliver mutual benefits, it lacks the definitive incentives required to elevate collec- tive interests above those of the individual. Partnering establishes mutual goals butlacks binding methods of enforcing or incentivizing them. Gains and losses are still allocated independently, not jointly. Although their goals may overlap in some areas, parties are ulti- mately rewarded for acting in their own interest.

To address this issue, the government of Hong Kong uses an expanded form of partnering that includes incentivization agree- ments, and the United Kingdom and Australia use collaborative alliance contracts as a standard practice in public sector construc- tion with great success (Chan et al. 2010; NEC 2010; Department of Treasury and Finance 2009; Sakal 2005).

Project alliancing differs from project partnering in that it is both a relationship management system and a project-delivery sys- tem (Chan et al. 2010). Where partnering encourages closer rela- tionships and shared goals, alliancing mandates them. Traditional contracting and partnering allocate responsibilities and risk to indi- vidual parties that severally incur consequences for success or fail- ure of the project. In alliancing, all the parties either benefit together or not at all; parties consent to their level of contribution and risk and jointly incur rewards or losses (Walker et al. 2002). Table 1 illustrates the similarities and differences between partnering and

1Capt, USAF, 820th RED HORSE Squadron, Nellis AFB, NV 89191 (corresponding author). E-mail: [email protected]

2Lt Col, USAF, Air Force Institute of Technology, Wright Patterson AFB, OH 45433. E-mail: [email protected]

3Lt Col, USAF, Air Force Institute of Technology, Wright Patterson AFB, OH 45433. E-mail: [email protected]

4Instructor, The Civil Engineer School, Air Force Institute of Technol- ogy, Wright Patterson AFB, OH 45433. E-mail: [email protected]

Note. This manuscript was submitted on October 24, 2011; approved on July 24, 2012; published online on July 27, 2012. Discussion period open until October 1, 2013; separate discussions must be submitted for indivi- dual papers. This paper is part of the Journal of Construction Engineering and Management, Vol. 139, No. 5, May 1, 2013. © ASCE, ISSN 0733- 9364/2013/5-480-487/$25.00.

480 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / MAY 2013

alliancing. Both methods share many objectives; but partnering pursues these objectives in parallel with the project contract, whereas alliancing makes them an integral part of the contract.

The U.S. private sector has recently created a promising adap- tation of the alliancing concept: Integrated Project Delivery (IPD). IPD contracts were pioneered in 2005 with the Integrated Form of Agreement, developed by Will Lichtig for Sutter Health (Post 2010). Introducing specific contractually binding requirements for equitable relationships, risk sharing, and dispute resolution, IPD offers significant opportunities for a highly collaborative and suc- cessful construction project. The IPD method has also become extremely accessible with the commercial publication of standard form contracts by ConsensusDOCS and the American Institute of Architects (AIA). These boilerplate contracts provide a solid base- line for project parties, allowing them to complete a comprehensive contract by simply filling in the details of their particular project.

Although the use of IPD in construction is still in an early stage, AIA has analyzed case studies of six projects from 2004 to 2009 that implemented IPD practices. AIA claims a successful proof of concept, with every project meeting or exceeding expectations with respect to budget, schedule, design quality, and sustainability (AIA 2010a).

Although alliancing offers many advantages and is becoming common in the private sector, the traditional partnering method continues to be the standard practice of the Corps of Engineers and other federal agencies (U.S. Army Corps of Engineers 2010). The potential benefits of IPD combined with its ease of accessibility make it the most logical vehicle for a federal alliancing contract. However, the primary challenge of implementing an IPD contract in federal construction is stringent regulation of the acquisition pro- cess. The purpose of this research is to determine if an IPD contract can effectively be utilized in federal construction and, if so, to cre- ate a framework under which federal organizations can take advan- tage of the benefits of IPD. This article will introduce leading standard form IPD single-project construction contracts, identify and explain the specific key practices, and evaluate these key prac- tices against the requirements of the governing federal regulations.

Federal Acquisition Regulation

The Federal Acquisition Regulation (FAR) is published as Chapter 1 of Title 48 of the Code of Federal Regulations and is the body of laws that govern the U.S. Federal Government’s procurement pro- cess, regulating the acquisition of supplies and services with appro- priated funds. It became effective on April 1, 1984, and is issued under the joint authorities of the Administrator of General Services, the Secretary of Defense, and the Administrator for the National

Aeronautics and Space Administration, under the broad policy guidelines of the Administrator, Office of Federal Procurement Policy, Office of Management and Budget (FAR 2005).

Encompassing more than 2,000 pages, the FAR consists of 53 parts organized in 8 subchapters. The major objectives of the docu- ment are assurance of fair and competitive source selection, elimi- nation of conflicts of interest or corruption, standardization of contract methods and management, and compliance with adminis- trative, financial, labor, and environmental laws.

Contracts

There are currently two major commercially available boilerplate IPD contracts: ConsensusDOCS 300 and AIA Document C191 (2009). ConsensusDOCS describes itself as “a coalition of associ- ations representing diverse interests in the construction industry that collaboratively develops and promotes standard form construc- tion contract documents that advance the construction process” (ConsensusDOCS 2010). The organization counts 32 associations as part of their coalition, the most notable of which is the Associ- ated General Contractors of America (AGC). ConsensusDOCS 300 Standard Form of Tri-Party Agreement for Collaborative Project Delivery, first published in September 2007, is touted as the signa- ture document of their catalog and the first standard construction contract to address IPD (Perlberg 2009).

The American Institute of Architects first began publishing construction contracts in 1888 and currently publishes more than 120 contracts and administrative forms for the construction indus- try (AIA 2010b). AIA publishes three series of IPD documents, differentiated by how the parties contract with each other. Published in November 2009, AIA Document C191 (2009) Stan- dard Form Multi-Party Agreement for Integrated Project Delivery, like ConsensusDOCS 300, is a three-party agreement between the owner, designer, and constructor. This document represents the middle ground of AIA’s IPD contracts. Of AIA’s other IPD offer- ings, one contracts the owner to each of the other parties separately and the other coalesces the three parties into a Limited Liability Corporation.

Key Practices

IPD aims to create a contractual environment fundamentally differ- ent than that of a traditional or partnering agreement contract. However, when looking at specific contractually enforceable differ- ences, ConsensusDOCS 300 and AIA C191 use five basic methods: (1) joint decision making; (2) shared risk; (3) budget development

Table 1. Partnering versus Alliancing

Objective Partnering Alliancing

Organization Partnering agreement/charter (noncontractual) Project contract Relationships Trust and relationship development Joint decision making

Team building Project management team: Unanimous decisions Communication protocols Executive oversight team: Unanimous decisions Stakeholder commitment Dispute resolution procedures (contractual) Decision processes

Dispute resolution procedures (non-contractual) Risk Division of liability Shared liability

Fault-based claims Waiver of consequential damages Performance Set mutual goals (noncontractual) Contractual profit sharing

Performance measures Contractual loss sharing Continuous improvement Performance incentives

Continuous improvement

JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / MAY 2013 / 481

and management; (4) pain/gain sharing and incentives; and (5) dis- pute resolution.

Joint Decision Making

Ensuring all parties are involved in decision making is essential to a collaborative project. Both contracts use an explicit joint decision- making process as the cornerstone of the contract. They employ two managing bodies to execute a project: an executive team and a project team. Each team is composed of a three-member core representing the principal parties of the owner, designer, and con- structor with allowances for the addition of other interested parties when necessary. The executive team provides senior oversight and decision making, whereas the project team provides day-to-day management. These teams are designed to make decisions in the best interest of the project as a whole and not each member’s own interest. To that end, the teams make decisions by unanimity (AIA) or consensus (ConsensusDOCS requires consensus for the executive team, but does not specifically designate a decision pro- cess for the project team). If agreement cannot be reached between the three core members, the owner reserves the right to make a uni- lateral determination. The other parties may dispute the owner’s decision through the dispute resolution provisions of the contract.

Shared Risk

Provisions for sharing project risks and waiving claims are another important element of the IPD contracts. When implemented, the shared risk clauses waive the majority of claims except in cases of negligence, breach of contract, or when insurance proceeds are available for the claim. Contractually shared risk forces the par- ties to act as a single team, removing the organizational barriers required of fault-based claim environments. It creates an atmos- phere in which all parties are either going to win together or lose together.

Budget Development and Management

IPD projects use a progressive approach to developing project cost estimates. A not-to-exceed amount may be written into the original contract, but it represents an initial planning budget instead of a target cost. From this initial budget, the designer and constructor develop preliminary cost models. These cost models are regularly updated as the design phase progresses through specified mile- stones. When the project design is sufficiently complete, the parties agree to a target cost for the project that is not adjusted except in the case of a material change of work, differing site conditions, or com- pensable delay. This target is the cost utilized as a basis for payment to and cost/profit sharing with the designer and constructor.

This method of budget development takes advantage of in- creasing certainty in construction cost estimates as the project

is designed. As Fig. 1 demonstrates, a fixed price design and con- struction contract must decide on a final price early in the process when cost estimates contain many unknowns and are highly var- iable. In contrast, a contract that allows revisions to cost estimates can decide on a target cost when those costs are much more certain.

Pain/Gain Sharing and Incentives

The next technique further enforces a win–win (or lose–lose) atmosphere by integrating the project rewards (or losses). When project costs are less than the target cost, a gain sharing agreement distributes the savings among the parties according to predeter- mined percentages. In the other case, when project costs exceed the target cost, pain sharing distributes the losses among the parties. Pain sharing agreements often limit the designer’s and constructor’s losses to their overhead and profit, limiting their financial risk of joining a project.

The contracts also allow for the designer and constructor to earn incentive payments for meeting performance benchmarks. These plans can offer payments during the project for meeting certain goals, providing financial incentives earlier and/or in excess of the savings shared at the end of the project. The details of the incentive plans are left to the project parties to decide at the begin- ning of the project as a contract amendment. Incentives can be based on noncost goals such as safety and quality but are funded through project savings, so they also depend on superior cost performance.

Dispute Resolution

One of the keys of the IPD contracts is the utilization of established dispute resolution procedures, preagreed as a binding clause of the contract at its formation. They use a three-step dispute resolution procedure. A dispute that cannot be resolved between the directly involved parties is first submitted to the joint executive team for resolution. If the executive team is unable to resolve the issue, a third-party will mediate an agreement between the project partic- ipants. If an acceptable settlement is still not agreed upon at this point, the binding resolution process is used. The preferred option is binding arbitration through a preestablished method, such as the Construction Industry Arbitration Rules of the American Arbitra- tion Association. If binding arbitration is selected, the three parties agree to abide by it in lieu of litigation. Both contracts also offer traditional litigation for binding resolution if parties decline to agree to arbitration at the beginning of the project.

Selecting a Contract to Review

The contract to be reviewed in this study was chosen through the Choosing by Advantages (CBA) decision-making system. The cen- tral principles of CBA are that decision makers must use sound decision-making methods, decisions must be based on the impor- tance of advantages, and decisions must be anchored to the relevant facts (Suhr 1999). To choose between the two alternatives, the attributes of each key practice were compared between contracts and the advantages identified. Each key practice was scored equally. Utilizing a decision table (Table 2), ConsensusDOCS 300 scores the most advantages and was selected for analysis.

Methodology

An embedded single case study design was selected for this re- search, which is composed of a single case and multiple units of

Fig. 1. Cone of uncertainty (adapted from Gannon 2011)

482 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / MAY 2013

analysis (Yin 2009). This type of study is appropriate to test a hypothesis with a clear set of propositions as well as clear circum- stances within which they are believed to be true. The FAR pro- vides explicit circumstances under which to test if the specific key practices of ConsensusDOCS 300 can be utilized in federal construction.

The ConsensusDOCS 300 contract is divided into 25 Articles, seven of which are used to implement the key IPD practices. This study extracted the articles of the contract dealing with each alli- ance practice. Each key practice was used as a unit of analysis for

review by a panel of three U.S. Air Force contracting officers, each with extensive experience in construction contracting. Each reviewer received a copy of the contract and a short form that speci- fied the articles they were to review and the central clauses of each article. The reviewers were asked to answer the following questions for each article of the contract: • Do the terms of the contract meet the Federal Acquisition

Regulations? • If so, are there any sections of the FAR that address the issue? • If not, what specific section(s) of the FAR does not allow certain

contract conditions? • Do you see any potential alterations to the contract conditions

that would bring them in line with the FAR? The Delphi method was utilized for data collection; after re-

viewing each article the members of the panel were provided with a summary of the entire panel’s response to an article and allowed to revise or clarify their inputs. A summary of the notable findings can be found in Table 3, indicating findings that impede or facilitate possible implementation under federal regulations. When research- ing the reviewers’ findings, the authors discovered some additional findings, which are included in the table. This paper’s analysis was developed from a combination of the reviewers’ findings and in- terpretations, the authors’ own research and interpretations, and respondent validation performed during data collection and after completion of early drafts.

Tri-Party Agreement (Article 1)

Article 1 is not necessarily an IPD key practice, but is an im- portant facet of the contract that should be analyzed. It arranges three distinct parties into a single contract. This is unusual in the federal sector, where typical construction contracts use either a single contract between the owner and a design-build contrac- tor or two separate contracts between the owner/designer and

Table 2. CBA Decision Table

Key practice Advantage

Joint decision making

Advantage AIA C191: Management processes and teams are more clearly defined. (20 points) More defined processes decrease likelihood of conflict due to ambiguity.

Shared risk Advantage ConsensusDOCS 300: Provides traditional liability option. (20 points) Provides additional options to contracting parties.

Budget development and management

Advantage ConsensusDOCS 300: Detailed milestone cost models. Target cost set after complete design. (20 points) Flexibility for cost changes during design. More accurate target cost without need for amendments.

Pain/gain sharing Advantage ConsensusDOCS 300: Flexible pain sharing methods. (20 points) Allows parties to accept greater risk/ reward if desired.

Dispute resolution (TIE) Advantage: Nonbinding mediation before binding arbitration. (0 points) No significant difference.

Score ConsensusDOCS 300: 60 AIA C191–2009: 20

Table 3. Impediments and Facilitators to Federal Implementation of ConsensusDOCS 300

Article Impediments Facilitators

Tri-party agreement Article 1 I-1. No precedent for binding tri-party contract (33) F-1. Similar to design-build method (36.6) I-2. Competitive selection (6.101, 36.6) F-2. Possible use of associate contractor agreement

(Air Force IG5317.9500) I-3. Possible organizational conflict of interest (9.5)

Management group Article 4 I-1. 4.6 contracting officer approval required for decisions (1.601)

F-1. 4.1, 4.6 parallels existing contractor/government relationship precedents F-2. 4.1, 4.6 mutual agreement policy (33.204) F-3. 4.6 owner’s final determination allows for contracting officer approval (1.601)

Shared risk Article 3 I-1. 3.8.2.1, 3.8.3 limitations on hazardous indemnification authority (50.102-1d)

F-1. 3.8.2.1, 3.8.3 limitations on indemnification apply to unusually hazardous only (50.102-1d)

I-2. 3.8.2.1-3 claims cannot be limited in some cases (11.5, 52.211-12, 33, 52.246-12)

F-2. 3.8.2.2 FAR equitable adjustments (52.211-18, 52.236-2, 52.242-17, 52.243-1, 52.249-2)

I-3. 3.8.3 damages under certain conditions (52.249-10)

Budget, compensation incentives, and risk sharing Articles 8-11

I-1. 8.1.1 restriction on contract types (16.102a,b) F-1. 8.1, 8.3, 11.4, 11.5 adaptable to FAR contract types (16.403-1, 16.403-2)

I-2. 8.1.1 lack of price competition (6.101, 16.104a) F-2. 11.2, 11.3 FAR incentive programs (16.402) I-3. 8.1, 8.3, 11.4, 11.5 limitations on incentive contracts (16.401a,d)

Dispute resolution Article 23 I-1. 23.3-5 alternative dispute resolution must be voluntary (33.214.2)

F-1. 23.2 mutual agreement policy (33.204)

I-2. 23.5 strict limits on binding arbitration (33.214.4g)

F-2. 23.3-5 precedence for alternative dispute resolution (33.214, 33.210) F-3. 23.3-4 neutral party resolution (33.214d)

Note: First clause number (e.g., 4.6) identifies ConsensusDOCS 300 clause number affected (Article 1 is a single clause). Parentheses indicate FAR section referenced (or other reference if indicated).

JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / MAY 2013 / 483

owner/constructor. However, there is a precedent of contracts requiring joint participation of prime contractors in the accom- plishment of a requirement. Air Force Informational Guidance 5317.9500 outlines Associate Contractor Agreements (ACA) that outline “the basis of sharing information, data, technical knowl- edge, expertise, and/or resources essential : : : to meet the terms of the contract” (Department of the Air Force 2006). This kind of agreement is similar to the way ConsensusDOCS 300 outlines the responsibilities and interactions between parties, and it could be argued that an alliance contract is just an extension of this idea. However, ACAs are not contracts and do not obligate the parties in the same way a contract does. Arranging an alliance contract as an ACA would encounter many of the same difficulties as partnering agreements; without contractually binding provisions, parties are ultimately rewarded for acting in their own interest and not the interest of the project.

A primary limitation in organizing a three-party contract is the need to provide for full and open competition in the selection of two separate contractors as required by FAR 6.101. Because of the requirement for competition, the designer and the construc- tor would have to be selected by a separate solicitation and source selection processes. In addition, FAR 36.601-3 outlines distinct solicitation and source selection procedures to be used for architect/engineer (A/E) services. Another limitation is potential conflicts of interest between contractors that enter the contract as separate entities but may have previous shared relationships or financial interests. Because the contract depends on collaborative principle and joint decision making, this could put the owner at an unfair negotiating position against a united front (perhaps a moot point when considering the owner’s final decision power). Accord- ing to FAR 9.5, the contracting officer must identify and mitigate conflicts of interest. All of these issues are resolvable but signifi- cantly complicate the solicitation and selection process. This could noticeably slow the project lead time, especially in the case of a protest of award.

A possible solution for these issues is to rearrange the contract to a design-build arrangement, in which the designer and constructor operate as a joint venture. This would change some of the collabo- rative principles of the contract, such as reducing three-party joint decision making to a two-party arrangement. Each member of the joint venture would have to depend on a shared representative. However, certain practices such as dispute resolution, shared risk, and incentives would still meet their original intent. Pain/gain shar- ing could still operate as an effective incentive tool, only requiring the joint venture to internally agree on the share percentage be- tween designer and constructor. Although an IPD design-build con- tract would require adept management between the designer and constructor, it likely provides the best arrangement for a federal alliancing contract.

Joint Decision Making (Article 4)

ConsensusDOCS 300 uses a project team known as the collabora- tive project delivery (CPD) team for day-to-day project manage- ment. The CPD team’s decision process is not expressly outlined in the contract, deferring the settlement of disputes to the executive team. The executive team, known as the management group, is assigned the responsibilities of making joint decisions on issues beyond the scope of day-to-day management or in cases of disputes within the CPD team. The management group and its decision process are defined in clauses 4.1 and 4.6. It is comprised of an authorized representative of the owner, designer, and constructor. The management group is to “act in the best interest of the Project

as a whole without consideration to each member’s own interest.” Each decision is to be made, to the greatest extent possible, by con- sensus. When consensus cannot be reached “the Owner shall make a determination in the best interest of the Project as a whole subject to the dispute resolution process in Article 23” (ConsensusDOCS 2007).

Several reviewers cited existing precedents for very similar de- cision processes in federal defense contracts. In particular, one reviewer expressed that this arrangement operates very similarly to the collaborative project management implemented in Air Force Center for Engineering and the Environment (AFCEE) design- build contracts. The FAR also directly supports joint decision mak- ing. FAR 33.204 outlines that the “Government’s policy is to try to resolve all contractual issues in controversy by mutual agreement at the contracting officer’s level.”

In regard to contract decisions made by the management group, the authority to enact contract actions is limited solely to con- tracting officers according to FAR 1.601 and 1.602. This may re- quire that the owner’s management group representative be the project contracting officer or that all management group deci- sions be subject to contracting officer approval. Because clause 4.6 already empowers final determination to the owner, the government retains the power to block any decisions that do not meet contracting officer approval. Therefore the contract should not have any difficulty meeting the requirements of 1.601 and 1.602.

Overall, the FAR does not provide any notable barriers to joint decision making. In fact, some areas of federal construction already use similar techniques. However, when applying this practice to the government it is important to ensure proper executive buy-in and representation in the management group. Federal bureaucracy can cause leadership confusion and typically creates a disparity be- tween the agency that executes construction projects and the agency that actually uses the facility. Addressing these types of is- sues is essential to a successful executive decision making team.

Shared Risk (Article 3)

ConsensusDOCS 300 implements a shared risk environment pri- marily through clause 3.8.2.1, in which the parties release each other against liabilities arising from non-negligent decisions, and 3.8.3, in which all parties waive claims against each other for con- sequential damages. The FAR directly addresses these types of clauses in FAR 50.102, in whic

Collepals.com Plagiarism Free Papers

Are you looking for custom essay writing service or even dissertation writing services? Just request for our write my paper service, and we'll match you with the best essay writer in your subject! With an exceptional team of professional academic experts in a wide range of subjects, we can guarantee you an unrivaled quality of custom-written papers.

Get ZERO PLAGIARISM, HUMAN WRITTEN ESSAYS

Why Hire Collepals.com writers to do your paper?

Quality- We are experienced and have access to ample research materials.

We write plagiarism Free Content

Confidential- We never share or sell your personal information to third parties.

Support-Chat with us today! We are always waiting to answer all your questions.