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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: July 11, 2003

SUBJECT: Office of Federal Procurement Policy (OFPP); Applicability of Federal Acquisition Regulation (FAR) Part 12 to Construction Acquisitions

SOURCE: OFPP Memorandum, July 3, 2003

AGENCIES: Office of Management and Budget (OMB), OFPP

ACTION: Notice

SYNOPSIS:OFPP Administrator Angela Styles has issued a memorandum to agencies' senior procurement executives in which she states that FAR Part 12, Acquisition of Commercial Items, "should rarely, if ever be used for new construction acquisitions or non-routine alteration and repair services."

FOR FURTHER INFORMATION CONTACT: Mathew Blum, OFPP, 202-395-4953.

SUPPLEMENTAL INFORMATION: Questions regarding whether construction needs may be acquired using the policies of FAR Part 12 frequently arise. Many agencies have resorted to the streamlined procedures in FAR Part 12 to expedite construction projects. However, in a memorandum dated July 3, 2003, OFPP Administrator Styles writes that "agencies should apply the policies of FAR Part 36 [Construction and Architect-Engineer Contracts] to these acquisitions...The provisions and clauses in FAR Part 36 address all fundamental aspects of construction contracting. Part 36 applies well-established commercial principles that are designed to result in an equitable distribution of risk between the government and contractors...

"By contract, FAR Part 12 lacks clauses for handling critical circumstances common to construction efforts, especially those involving new construction or non-routine alteration and repair services. Clauses that would typically be expected in these efforts include those addressing differing site conditions, change orders, and suspension of work. The gap in coverage reflects the fact that construction contracting was not generally contemplated when Part 12 was promulgated. New construction projects and complex alteration and repair, in particular, involve a high degree of variability, including innumerable combinations of site requirements, weather and physical conditions, labor availability, and schedules. The current coverage in Part 12 fails to allocate risk in a manner that takes into account the nature of these activities."

Ms. Styles points out several problems when using FAR Part 12 to acquire construction: "Contracting for new construction or complex alterations and repair work without the protections of the Part 36 provisions and clauses would likely force contractors to include contingencies in their offers that would unnecessarily drive up construction costs borne by the taxpayer. Increased risk also could discourage contractors from bidding on federal projects. Small businesses, who may lack the financial ability to take on higher levels of risk, may find participation in federal construction contracting to be especially difficult which, in turn, could deprive agencies of the innovation and ingenuity that small businesses offer when given the chance to compete. Simply put, if Part 36 is not used, an agency may be hard pressed to obtain the marketplace competition needed to negotiate fair and reasonable prices on these construction projects."

Nevertheless, Ms. Styles points out several types of construction projects for which FAR Part 12 may be suitable: "routine painting or carpeting, simple hanging of drywall, everyday electrical or plumbing work, and similar noncomplex services, as well as purchases of commercial construction mterial and associated ancillary services. Of course, as part of acquisition planning, contracting officers need to consider the particular circumstances of a given acquisition (e.g., the likelihood of a differing site condition) to determine if the current clauses in Part 12 properly allocate risk."

As a final reminder, Ms. Styles points out that agencies must adhere to the policies of FAR Subpart 22.4, Labor Standards for Contracts Involving Construction, when construction is acquired under either FAR Part 36 or FAR Part 12.

Ms. Styles concludes her memorandum by directing the senior procurement officers to "promptly review any agency guidance on the applicability of FAR Part 12 to construction acquisitions and change or rescind agency guidance, as necessary, to ensure consistency with this memorandum."

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2003 by Panoptic Enterprises. All Rights Reserved.

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