[House Report 113-660]
[From the U.S. Government Publishing Office]
113th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 113-660
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COMMONSENSE CONSTRUCTION CONTRACTING ACT OF 2013
_______
December 11, 2014.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Graves of Missouri, from the Committee on Small Business,
submitted the following
R E P O R T
[To accompany H.R. 2751]
[Including cost estimate of the Congressional Budget Office]
The Committee on Small Business, to whom was referred the
bill (H.R. 2751) to amend the Small Business Act to prohibit
the use of reverse auctions for design and construction
services procurements, having considered the same, report
favorably thereon without amendment and recommend that the bill
do pass.
CONTENTS
Page
I. Amendment.......................................................2
II. Purpose of the Bill and Summary.................................2
III. Background and the Need for Legislation.........................3
IV. Hearings........................................................4
V. Committee Consideration.........................................5
VI. Committee Votes.................................................5
VII. Section-by-Section Analysis of H.R. 2751........................5
VIII. Congressional Budget Cost Estimate..............................7
IX. Unfunded Mandates...............................................8
X. New Budget Authority, Entitlement Authority, and Tax Expenditure8
XI. Oversight Findings..............................................8
XII. Statement of Constitutional Authority...........................8
XIII. Congressional Accountability Act................................8
XIV. Federal Advisory Committee Statement............................8
XV. Statement of No Earmarks........................................9
XVI. Statement of Duplication of Federal Programs....................9
XVII. Disclosure of Directed Rule Makings.............................9
XVIII.Performance Goals and Objectives................................9
XIX. Changes in Existing Law Made by the Bill, as Reported...........9
I. Amendment
The text of H.R. 2751 as consider by the Committee is as
follows:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Commonsense Construction Contracting
Act of 2013''.
SEC. 2. REVERSE AUCTIONS PROHIBITED FOR CONTRACTS FOR DESIGN AND
CONSTRUCTION SERVICES.
The Small Business Act (15 U.S.C. 631 et seq.) is amended--
(1) by redesignating section 47 as section 48; and
(2) by inserting after section 46 the following:
``SEC. 47. REVERSE AUCTIONS PROHIBITED FOR CONTRACTS FOR DESIGN AND
CONSTRUCTION SERVICES.
``(a) In General.--In the case of any contract for design and
construction services, reverse auction methods may not be used if the
contract--
``(1) is suitable for award to a small business concern; or
``(2) if the award is to be made under--
``(A) section 8(a);
``(B) section 8(m);
``(C) section 15(a);
``(D) section 15(j);
``(E) section 31; or
``(F) section 36.
``(b) Definitions.--For purposes of this section--
``(1) The term `reverse auction' means, with respect to
procurement by an agency, a real-time auction on the Internet
between a group of offerors who compete against each other by
submitting bids for a contract or task order with the ability
to submit revised bids throughout the course of the auction,
and the award being made to the offeror who submits the lowest
bid.
``(2) The term `design and construction services' means--
``(A) site planning and landscape design;
``(B) architectural and interior design;
``(C) engineering system design;
``(D) performance of construction work for facility,
infrastructure, and environmental restoration projects;
``(E) delivery and supply of construction materials
to construction sites; and
``(F) construction, alteration, or repair, including
painting and decorating, of public buildings and public
works.''.
II. Purpose and Bill Summary
The purpose of H.R. 2751, the ``Commonsense Construction
Contracting Act of 2013,'' is to amend the Small Business Act
(the Act)\1\ to prohibit the use of reverse auctions when a
design and construction services contract is suitable for award
to a small business, or when the procurement is made using a
small business program. Under a reverse auction, companies
continue to underbid each other, usually through a digital
portal, until one is declared the winner. The intention is to
drive down prices to the lowest possible amount. However, the
United States Army Corps of Engineers (USACE) found that this
methodology did not work for construction contracts due to
their high degree of variability and did not deliver the
promised savings. Consequently, it issued a policy to stop
using reverse auctions for construction contracts.
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\1\Originally, title II of the Act of July 30, 1953, c. 282, 67
Stat. 232 was designated as the Small Business Act of 1953. A plethora
of amendments in subsequent Congresses led to a rewrite in 1958. Pub.
L. No. 85-536, Sec. 1, 72 Stat. 384 (1958). The Act is codified at 15
U.S.C. Sec. Sec. 631-657s.
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Despite this finding, the use of reverse auctions has
continued at other agencies, especially the Department of
Veterans Affairs (DVA) and the Department of the Interior
(DOI). Small businesses have complained that the use of reverse
auctions for design and construction continues, placing them at
a competitive disadvantage. This bill directs the government to
use better methods for choosing construction and design
services so that taxpayers get the best value possible and
small businesses, as well as the jobs they support, are
protected from unscrupulous bidding behavior.
III. Need for Legislation
While construction and architect and engineering (A&E)
contracting accounts for about eight percent of federal prime
contract dollars, this segment accounts for over 17 percent of
the awards to small businesses.\2\ Therefore, issues affecting
construction and A&E contracts have a disproportionate effect
on small business opportunities. Over the last decade, reverse
auctions have become an increasingly prevalent contracting
methodology that poses special challenges for small businesses
and construction contractors.
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\2\Analysis based upon the Federal Procurement Data System,
available at https://www.fpds.gov (last accessed March 6, 2012). Copies
of reports are on file with the Committee.
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The term ``reverse auction'' is not defined by statute or
regulation. However, a 2004 USACE study explained it thusly:
Under this reverse auction methodology, there is an
`auction' process whereby [contractors] offer multiple
and consecutively lower bids on a rapid `auctioning'
basis to eventually arrive at the lowest bid-price of
goods or services for the privilege of a standard
contract award. In the case of government reverse
auctions . . . [t]he government publicly solicits for
specific goods and/or services from responsible and
responsive contractors to provide these specific goods
or services. The reverse auction process simply is the
method by which contractors submit their bids and the
lowest bid is received. The award is then executed
through a standard firm fixed price contract.
Yet, there is a major difference in the operational
dynamics of the reverse auction methodology that is
unlike anything available in the standard sealed bid
process. In the standard sealed bid process, the
contractor only gets only one chance to submit a bid.
Additionally, the contractor does not know the relative
ranking of his bid versus others during the bid
process. Hence, in a standard sealed bid process, a
contractor cannot bidgame, because he is forced to
submit his best bid with only one chance to bid.\3\
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\3\USACE, Final Report Regarding the USACE Pilot Program On Reverse
Auctioning 11 (2004) (hereinafter USACE Study). Generally, the term
``sealed bidding'' is used to describe a process where bids are all
submitted by a time certain, publicly opened and recorded, with
immediate award to the lowest bidder; however, within the construction
industry it is commonly preceded by a round when an offeror's technical
capability is evaluated. FAR Part 14.
Therefore, a reverse auction is a multi-round low-bid
process where the lowest bids are disclosed. A typical reverse
auction will be conducted for commodities--products that are
standardized and where price is the primary differentiator.\4\
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\4\While the use of reverse auctions for commercial goods itself
remains controversial, the legislation does not address reverse
auctions for such goods.
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The use of reverse auctions for construction services has
been denounced by most of the construction-related trade
associations.\5\ They allege that reverse auctions do not
guarantee the lowest price, may encourage imprudent bidding, do
not allow for a thorough evaluation of value, do not assure
that the successful bidder is responsive and responsible, and
may contravene federal procurement laws.\6\ When these auctions
are conducted by third parties, work that should be reserved
for small business is frequently awarded to large businesses,
and pricing information that the FAR insists remain private is
publicized.\7\ Indeed, even the chief legislative proponent of
reverse auctions, former Congressman Tom Davis (R-VA),
specifically exempted construction from any legislation he
introduced promoting the use of reverse auctions.\8\
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\5\See, e.g., Sheet Metal and Air Conditioning Contractors National
Association, Reverse Auctions (2004), available at http://
www.smacna.org/pdf/ACF6BF7.pdf; Chuck Scislo, To the Lowest Bidder,
Professional Roofing, March 2006, available at http://
docserver.nrca.net/technical/8633.pdf (National Roofing Contractors
Association opposes reverse auctions); Associated General Contractors
of America, White Paper on Reverse Auctions for Procurement of
Construction 2005, available at http://newsmanager.commpartners.com/
agcleg/downloads/AGC%20Position%20on%20Reverse%20Auctions%20-
%20FINAL.pdf (hereinafter AGC White Paper).
\6\AGC White Paper.
\7\Small businesses win most contracts awarded using reverse
auctions; however, given that all of the awards are under the statutory
amount reserved exclusively for small businesses, these awards should
be made exclusively to small companies. Likewise, pricing is frequently
disclosed in contravention of FAR Sec. 52.203-2.
\8\H.R. 2067, 109th Cong. (2005).
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Industry's assertions are borne out by the only study on
the use of reverse auctions for construction services. USACE
spent a year studying the use of the procurement methodology
and found that ``it offered not even marginal edge in savings
over the sealed bid process for construction service projects''
and that construction was too variable to be considered a
commodity.\9\ As a result, USACE no longer uses reverse
auctions for construction contracts. Even though USACE has the
most construction contracting experience of any federal agency,
not all federal agencies have followed USACE's example and
construction contracts continue to be awarded using reverse
auctions.\10\ Specifically, they are being awarded as
commercial item contracts, in direct contravention of Office of
Management and Budget Guidance.\11\ Given these factors, H.R.
2751 is necessary to ensure that small firms in the design and
construction arena are able to effectively compete for federal
contracts.
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\9\USACE Study at 34-37.
\10\See, e.g., supra note 3, DOI, Solicitation P12PS25233 (Jun. 13,
2012), available at https://www.fbo.gov/
?s=opportunity&mode=form&tab=core&id=b55a55a0cc7346ab722e4c4b011c4911&_c
view=0 (supply and deliver flexible road base); DVA, Solicitation
VA24413Q0363, (Jan. 31, 2013), available at https://www.fbo.gov/
?s=opportunity&mode=form&id=039ef8d115384d0cebef055c25934d07&tab=core&_c
view=1 (testing or poser distribution system); DVA, Solicitation
VA24312Q1952 (Jul. 30, 2012), available at https://www.fbo.gov/
?s=opportunity&mode=form&id=8a576e312880690d317f3fc78314f401&tab=core&_c
view=0 (complete overhaul of chiller).
\11\Memorandum From Angela Styles, Administrator, Office of Federal
Procurement Policy, Applicability of FAR Part 12 to Construction
Acquisitions (Jul. 3, 2003), available at http://www.whitehouse.gov/
sites/default/files/omb/assets/omb/procurement/far/far_part12.pdf. This
guidance has not been withdrawn.
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IV. Hearings
In the 113th Congress, the Subcommittee on Contracting and
Workforce held a hearing on May 23, 2013, that examined the use
of reverse auctions for construction and construction services
for small business contractors. During that hearing, which was
titled ``Building America: Challenges for Small Construction
Contractors,'' Mr. James Dalton, Chief of Construction and
Engineering for the USACE discussed a pilot program run by
USACE which concluded that for construction projects reverse
auctions did not provide the government with substantial
savings. Further witnesses from the Small Business
Administration (SBA), Associated General Contractors, National
Association of Surety Bond Producers, and the American
Institute of Architects offered support for the Committee to
prohibit the use of reverse auctions for construction services
under the Act.
On December 11, 2013, the Subcommittee on Contracting and
Workforce of the Committee on Small Business and the
Subcommittee on Oversight and Investigations of the Committee
on Veterans' Affairs held a joint hearing titled, ``Contracting
Away Accountability-Reverse Auctions in Federal Agency
Acquisitions.'' The hearing focused on whether reverse auctions
provided adequate competition and adhered to the requirements
of the Small Business Act, while also assessing the purported
cost savings associated with this procurement methodology.
V. Committee Consideration
The Committee on Small Business met in open session, with a
quorum being present, on March 5, 2014 and ordered H.R. 2751
reported to the House by a voice vote at 2:35 p.m. During the
markup, no amendments were offered.
VI. Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the recorded
votes on the motion to report the legislation and amendments
thereto. There were no recorded votes on H.R. 2751.
VII. Section-by-Section Analysis of H.R. 2751
Section 1. Short title
This Section designates the bill as the ``Commonsense
Construction Contracting Act of 2013.''
Section 2. Reverse auctions prohibited for contracts for design and
construction services
This section amends the Act (15 U.S.C. Sec. Sec. 631-657s)
by Sec. 47 as Sec. 48 and creating a new Sec. 47 of the Act.
Subsection (a)--In General
Currently, federal agencies may utilize reverse auctions as
the procuring method for design and construction service
contracts. Subsection (a) changes this practice to prohibit the
use of reverse auctions for design and construction service
contracts if specific contracting authorities in the Act are
used. It forbids the use of a reverse auction if the contract
is awarded pursuant the 8(a) business development program for
socially and economically disadvantaged small businesses under
section 8(a) of the Act. Agencies also cannot use reverse
auction procurement methodologies if the contract is awarded
using the procurement program for women (section 8(m) of the
Act); historically underutilized business zone (HUBZone)
procurement program (section 31 of the Act); or service-
disabled veterans (section 36 of the Act). Finally, the
contracting officer may not use a reverse auction when the
contract is set aside for small businesses, either because the
procurement is less than $150,000 (section 15(j) of the Act),
or is suitable for award to small businesses (section 15(a) of
the Act).\12\ Given that in fiscal year 2012, 95 percent of
reverse auctions were for less than $150,000, the Committee
believes that this definition should encompass the vast
majority of reverse auctions for design and construction
services.\13\
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\12\Section 15(a), in pertinent part, states:
To effectuate the purposes of this Act, small-business concerns
within the meaning of this Act shall receive any award or contract or
any part thereof, and be awarded any contract for the sale of
Government property, as to which it is determined by the Administration
and the contracting procurement or disposal agency (1) to be in the
interest of maintaining or mobilizing the Nation's full productive
capacity, (2) to be in the interest of war or national defense
programs, (3) to be in the interest of assuring that a fair proportion
of the total purchases and contracts for property and services for the
Government in each industry category are placed with small-business
concerns, or (4) to be in the interest of assuring that a fair
proportion of the total sales of Government property be made to small-
business concerns.
This provision was implemented by creating the so-called rule of
two, which stated that, ``[t]he contracting officer shall set aside any
acquisition over $150,000 for small business participation when there
is a reasonable expectation that: (1) Offers will be obtained from at
least two responsible small business concerns offering the products of
different small business concerns . . .; and (2) Award will be made at
fair market prices.'' F.A.R. part 19.502-2(b). For an in-depth
discussion of the small business procurement programs, see Committee on
Small Business, ``Small Business Act Programs for Small Federal
Contractors'' (2013), available at http://smallbusiness.house.gov/
uploadedfiles/
small_business_act_programs_for_small_federal_contractors.pdf.
\13\Government Accountability Office (GAO), Reverse Auctions,
Guidance Is Needed to Maximize Competition and Achieve Cost Savings 10
GAO-14-108 (2013).
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Subsection (b)--Definitions
Subsection (b)(1) addresses the term ``reverse auction,''
which is not defined by statute or regulation despite its
frequent use within the federal procurement arena. Therefore,
H.R. 2751 defines the term to mean a procurement by an agency
that is conducted in real-time on the Internet between a group
of offerors who compete against each other by submitting bids
for a contract or task order with the ability to submit revised
bids throughout the course of the auction, and the award being
made to the offeror who submits the lowest bid. Several factors
of this definition are important. First, there is the notion
that this applies only to federal agency procurements, not to
private sector transactions or subcontracts, even though some
subcontracts use the procurement authorities mentioned in
subsection (a). Second, there is the element that this is a
real time procurement conducted through the Internet. This is
important to distinguish reverse auctions from procurements
that permit multiple offers as part of a negotiated
procurement, such as one conducted pursuant to F.A.R. Part 15.
Third, it requires that there be a group of offerors competing
against each other--thus, contracts cannot be awarded to single
bidders, which is currently happening in 27.1 percent of
reverse auctions.\14\ Fourth, it clarifies that this applies to
contracts and task orders, since 47 percent of reverse auctions
are task order awards.\15\ Fifth, it requires that offerors be
allowed to submit revised bids, since in 26.8 percent of
reverse auctions only one round of bidding is conducted, which
negates any benefit derived from reverse auction procurement
over a sealed bid procurement.\16\ Finally, it requires that
award be made on the basis of price, since in a quarter of
reverse auctions award is made to someone other than the lowest
bidder.\17\ Thus, the definition should provide clarity to both
contracting officers and government contractors.
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\14\Id. at 22.
\15\Id. at 12.
\16\Id. at 22. Information on sealed bid procurements may be found
at F.A.R. Part 14.
\17\Id. at 14.
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Subsection (b)(2) defines the term ``design and
construction services'' to clarify which contract using reverse
auctions are governed by H.R. 2751. Specifically, it lists six
groups of activities that are considered design and
construction services: (1) Site planning and landscape design;
(2) architectural and interior design; (3) engineering system
design; (4) performance of construction work for facility,
infrastructure, and environmental restoration projects; (5)
delivery and supply of construction materials to construction
sites; and (6) construction, alteration, or repair, including
painting and decorating, of public buildings and public works.
Items (1)-(4) are derived from the definitions of ``design and
construction services'' found at 41 C.F.R. Sec. 102-76, which
governs the construction of federal buildings. Item (5) is
derived from the particular experiences of the USACE. Finally,
item (6) is derived from the definition of construction
services found in 40 U.S.C. Sec. 3142. Together, the Committee
believes these provide a comprehensive definition of design and
construction services.
VIII. Congressional Budget Cost Estimate
H.R. 2751--Commonsense Construction Contracting Act of 2013
H.R. 2751 would prohibit federal agencies from purchasing
design or construction services using online, dynamic
auctions--often referred to as reverse auctions. In a
traditional auction a buyer with the highest bid wins the right
to purchase an object. In a reverse auction a buyer seeking a
good or service solicits bids, multiple sellers offer bids, and
the seller with the lowest bid wins the competition. The
legislation would prohibit a specific type of reverse auction
for construction and design procurements, specifically those
done in a real-time auction on the Internet among a group of
sellers with the option to submit revised bids during the
auction.
CBO reviewed information on the use of reverse auctions in
government procurement contracts by the Army Corps of
Engineers, the General Services Administration, and the
Government Accountability Office. In general, those offices
have found that reverse auctions are not suitable for complex
contracts like design and constructive services. Those agencies
have found that using this type of reverse auction in such
complex procurements does not consistently result in lower
procurement cost than would result from other methods such as
sealed bids or negotiated procurements. CBO estimates that
implementing H.R. 2751 would not require agencies to make a
significant change in their typical contracting process and
thus would not have a significant effect on the federal budget.
Enacting the bill could affect direct spending by agencies
not funded through annual appropriations; therefore, pay-as-
you-go procedures apply. CBO estimates, however, that any net
increase in spending by those agencies would be negligible.
Enacting H.R. 2751 would not affect revenues.
H.R. 2751 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
The CBO staff contact for this estimate is Matthew
Pickford. This estimate was approved by Theresa Gullo, Deputy
Assistant Director for Budget Analysis.
IX. Unfunded Mandates
H.R. 2751 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act, Pub.
L. No. 104-4, and would impose no costs on state, local or
tribal governments.
X. New Budget Authority, Entitlement Authority and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House, the Committee provides the following opinion and
estimate with respect to new budget authority, entitlement
authority and tax expenditures. The Committee adopts as its own
the cost estimate prepared by the Director of the Congressional
Budget Office pursuant to Sec. 402 of the Congressional Budget
Act of 1974, which found that H.R. 2751 could affect direct
spending by agencies not funded through annual appropriations,
but that any net increase in spending by those agencies would
be negligible so that enacting H.R. 2751 would not affect
revenues.
XI. Oversight Findings
In accordance with clause (2)(b)(1) of rule X of the Rules
of the House, the oversight findings and recommendations of the
Committee on Small Business with respect to the subject matter
contained in H.R.2751 are incorporated into the descriptive
portions of this report.
XII. Statement of Constitutional Authority
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
authority for this legislation in Art. I, Sec. 8, cl. 3 of the
Constitution of the United States.
XIII. Congressional Accountability Act
H.R. 2751 does not relate to the terms and conditions of
employment or access to public services or accommodations
within the meaning of Sec. 102(b)(3) of Pub. L. No. 104-1.
XIV. Federal Advisory Committee Act Statement
H.R. 2751 does not establish or authorize the establishment
of any new advisory committees as that term is defined in the
Federal Advisory Committee Act, 5 U.S.C. App. 2.
XV. Statement of No Earmarks
Pursuant to clause 9 of rule XXI, H.R. 2751 does not
contain any Congressional earmarks, limited tax benefits or
limited tariff benefits as defined in subsections (d), (e) or
(f) of clause 9 of Rule XXI of the Rules of the House.
XVI. Statement of Duplication of Federal Programs
Pursuant to clause 3(c) of rule XIII of the Rules of the
House, no provision of H.R. 2751 establishes or reauthorizes a
program of the federal government known to be duplicative of
another federal program, a program that was included in any
report from the GAO pursuant to Section 21 of Public Law 111-
139, or a program related to a program identified in the most
recent Catalog of Federal Domestic Assistance.
XVII. Disclosure of Directed Rule Makings
Pursuant to clause 3(c) of rule XIII of the Rules of the
House, H.R. 2751 does not direct any rulemaking.
XVIII. Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House, the Committee establishes the following performance-
related goals and objectives for this legislation:
H.R. 2751 prohibits the use the use of reverse
auctions for design and construction services contracts
if the contract is awarded pursuant to the Small
Business Act.
XIX. Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SMALL BUSINESS ACT
* * * * * * *
SEC. 47. REVERSE AUCTIONS PROHIBITED FOR CONTRACTS FOR DESIGN AND
CONSTRUCTION SERVICES.
(a) In General.--In the case of any contract for design and
construction services, reverse auction methods may not be used
if the contract--
(1) is suitable for award to a small business
concern; or
(2) if the award is to be made under--
(A) section 8(a);
(B) section 8(m);
(C) section 15(a);
(D) section 15(j);
(E) section 31; or
(F) section 36.
(b) Definitions.--For purposes of this section--
(1) The term ``reverse auction'' means, with respect
to procurement by an agency, a real-time auction on the
Internet between a group of offerors who compete
against each other by submitting bids for a contract or
task order with the ability to submit revised bids
throughout the course of the auction, and the award
being made to the offeror who submits the lowest bid.
(2) The term ``design and construction services''
means--
(A) site planning and landscape design;
(B) architectural and interior design;
(C) engineering system design;
(D) performance of construction work for
facility, infrastructure, and environmental
restoration projects;
(E) delivery and supply of construction
materials to construction sites; and
(F) construction, alteration, or repair,
including painting and decorating, of public
buildings and public works.
Sec. [47.] 48. All laws and parts of laws inconsistent with
this Act are hereby repealed to the extent of such
inconsistency.