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Appendix A The Views of Agency Representatives on the Nature and Causes of Budget-Related Problems in Federal Construction Programs ~ order to get a clear picture of the problems of federal agencies with early estimates, He commit- tee asleep the agency liaison members to provide data and expressions of views on the subject Be- cause agencies are especially al to and con- strained by congressional approbations, the liai- son members were asked to focus on the budget estimates used to seek appropriations. The desired information was obtained at a spe- cial meeting of the liaison members. The agencies represented were the Anny, Navy, Air Force, Vet- erans A~ninis~tion, Asian Heals Service, and National institutes of Health. The participants pro vided infonnation primarily on the basis of their personal experience and knowledge. Id order to help the participants approach a con- sensus on the issues, a modified version of the "Delphi" technique* was employed. Specifically, the participants were asked first to answer venous questions of which were framed to elicit re- sponses in He form of percentagesseparately in writing. Next the responses of all participants were *The Delphi tec}mique is a systematic procedure for generating a reasoned consensus Tom die individual judgments of a group of experm. Lee technique was first used for long-range forecasting by He RAND Corpora- tion. As described by Helmer (1968), He Delphi tech- nique is an interactive process in which a group of ex- perts first Moe ~n~pendent estimates of a numerical value (e.g., a year) and Men narrow He spread in Heir estimates through a series of reviews and revisions of their individual estimates. 23 revealed, averages were calculated, and He partici- pants were asked to justify estimates that were far Tom the mean. Finally, after He responses to each question were discussed, the participants were given an o~ormnity to change their answers (which they often did), and new averages were calculated. The participants were asked to provide informa- tion on five issues: 1. the percentage of major cons~uchon projects on which problems are encountered with budget es- timates, 2. the effects of budget estimating problems, 3. how budget estimating problems are solved, 4. the causes of budget estimating problems, and 5. the percentage of initial low bids within vari- ous percentages of budget estimates. The results of the exercise are summarized in Figures A-1 Trough A-S, which correspond to He five issues mentioned above. ~ each figure the judgments of the participants are shown both as overall average estimates and as ranges of esti- mates. With regard Figure A-1, the participants were instructed to consider the entire spectrum of serious difficulties that could occur on a federal construc- tion project as a result of a budget-related problem. Consequently, He percentages shown are higher Han they would have been if the participants had been asked to estimate, for example, the percentage of contracts that cannot be awarded the first time Hey are advertised due to excessive bids.

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24 Percent 0 5 10 15 20 25 30 35 40 45 50 l 1 Overall Average Range of Estimates Figure A-1 Agency estimates of the percentage of construction projects on which budget-related problems are encountered. APPENDIX A Percent 0 10 20 30 40 50 60 70 80 90 100 Embarrassingly Low Bids Failure to Award Construction Contract Design Problems Failure to Award Design Contract Project Delays rim I I ~ I , ///////// - ~/i////D~ /////////////// , J: 1 1 ,,,, l Figure A-2 Agency estimates of percentages (shown as ranges and overall averages) of budget-related problems Mat manifest themselves in venous ways. When providing input on the effects of budget- related problems (Figure A-2), survey participants were asked to estimate the percentage of problems that result in or manifest themselves as: 1. Embarrassingly low bids. Agency officials are embarrassed, and subject to criticism, when the low bid on a project is far below the budgeted amount. There are many competitors for federal funds, and when funds allocated to one project are not used, managers and sponsors of other programs are annoyed because they view the unspent funds as wasted. 2. Inability to award a construction contract because no responsive bids are low enough to per- mit an award. Eventually, almost all projects are constructed, but some percentage of projects can- not be awarded the first time they are advertised. 3. Design problems; for example, the design organization reports in the course of the design phase that it cannot design a facility that meets the criteria for the amount of funds available. Other less serious design problems are of course dealt with routinely during every design effort. 4. Inability to award a design contract because the selected design firms all indicate that the type of facility desired cannot be built without addi- tional funding. 5. Project delays. These may be due, for ex- ample, to design problems and/or to the need to re- advertise. The slim of the estimated percentages shown in Figure 2 exceed 100 percent because budget-re- lated problems can manifest themselves in several ways. For example, delays are a coincident effect of a large percentage of budget-related problems. When providing input for Figure A-3, the agency participants were asked to estimate the percentage of budget-related problems that are solved by: redesigning the project, with or without a change in scope or criteria; a formal value engineering (or similar) analy-

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APPENDIX A sis by a team that is not a part of the design organi- zation; developing alternate bid items; obtaining an increase In the budget for the project through '`reprogramming" (i.e., using money appropriated for over projects, with congressional approval); obtaining an increase in the budget for the project through a change in the ap~opria~d amount; and dropping the project from the current pro- gram and adding it (with an increased budget) to the program for a subsequent year, or dropping the project entirely. It will be noted that no percentages are given for the last option mentioned above (dropping a proj- ect) because the representatives all reported that their agencies almost never solve a budget problem by either dropping a project entirely or deferring it until a later year. When discussing the causes of budget estimat- ing problems (Figure A-4) the participants were asked to estimate the percentage of problems that are caused by: inexperienced or inadequately trained agency estimators, inexperienced or inadequately trained estima- tors employed by private A-E funs (which actually prepare a large percentage of government budget estimates), inadequate budget estimating procedures and methods, Redesign Value Engineering Alternate Bid Items Reprogramming Increased Appropriation 25 arbitrary reduction in budget estimates in order to conform to general cost limits or guidelines (such as the Cost Estimating Guidance for Military Con- s~uction), - arbitrary reductions in budget estimates by agency managers or budget officers, arbibary reductions in budget estimates by Congress, insufficient or inaccurate cost data, insufficient time in He budgeting process to prepare accurate estimates, the need to prepare budget estimates before designs have been completed, poor definition of needs by user organiza- tions, poor design work by private A-E firms, and poor management of ibe design process by construction agencies. It will be noted that, as in Figure A-2, the sum of the percentages for the various causes exceeds 100 percent. The reason, of course, is that Here are sometimes multiple reasons for budget estimating problems. With regard to Figure A-5, the participants were asked to indicate the percentage of initial low bids (i.e., low bids received the first time a project is advertised) that are within a certain range of the original budget estimate: from 20 percent under to 20 percent over, in increments of 5 percentage points. It should be noted that different agencies have dif- ferent policies regarding how much a low bid may exceed the appropriated amount without necessitat- ing re-advertising. Percent 0 10 20 30 40 50 60 70 80 90 100 Figure A-3 Agency estimates of percentages (shown as ranges and overall averages) of budget-related problems Mat are solved by various means.

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26 ~rE=wA Percent 0 10 20 30 40 50 60 70 80 90 100 Poor Agency Estimators Poor A-E Estimators Inadequate Estimating Procedures Inadequate Estimating Data Reductions to Meet Guidelines Reductions by Agency Managers Reductions by Congress Inadequate Time for Estimating Need to Prepare Estimates too Early Poor Definition of User Needs Poor Design Work Poor Agency Management t I I ~ I I I 1: . I - ~/////~/////~/~ ,=/.///~/////~:' , ... . .. i/// - 1- W~7///~/////~//~7/~ :..,.-...: Figure AN Agency estimates of percentages (shown as ranges and overall averages) of budget-related problems Cat are caused by various factors.

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PE~DIX A LOW BIDS VS. BUDGET ESTIMATES More than 20% over 15% to 20% over 10% to 15% over 5% to 10% over Up to 5% over Up to 5% under 5% to 10% under 10% to 15% under 15% to 20% under More than 20% under 27 Percent 0 10 20 30 40 5Q 1 1 1 1 ~////////////~//////////////// 1 ~ 1 7 1 1 1 1 ////////i/////////~/////////////: ////////////////~////////////////////////////////////// 1 /~//i////////////////////////~ ////////////////~////////////////////~ ////////////// ////////////~////////////: - ~//////////////~///////////////////////~ Figure A-S Agency estimates of percentages (shown as ranges and overall averages) of low bids that are within various percentages of budget estimates for projects.

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