CONTRACTING FOR ENVIRONMENTAL STUDIES: PITFALLS AND CAUTIONS—GOVERNMENT PERSPECTIVE
Robert M. Griffin, Jr.
Naval Facilities Engineering Command
The greatest difficulty originally experienced by Naval Facilities Engineering Command (NAVFACENGCOM) personnel was in trying to use familiar firm fixed-price contracting methods for an undefinable requirement. We quickly discovered that only new and varied types of contracts could enable us to deal with the increasing demands of the navy's Environmental Program. The Navy's strategy, therefore, is to establish and maintain a portfolio of contract vehicles that in concert will successfully execute the Navy's environmental requirements.
CLEAN Contracts. The Comprehensive Environmental Response, Compensation and Liability Act of 1980 requires that response action contractors be selected using Brook Act procedures. Accordingly, NAVFACENGCOM procures environmental work which requires a licensed professional (i.e., studies and designs) utilizing “Brooks Act” procedures. This process uses technical merit as the basis for selection. To manage this type of work NAVFACENGCOM developed a series of Cost Plus Award Fee, Architect-Engineer contracts known as CLEAN (Comprehensive, Long-Term Environmental Action, Navy) contracts.
The primary focus of the CLEAN contracts is the study and design phases of the installation restoration program and post remediation inspection services. The CLEAN contracts are administered on a regional basis. Their term is a base year with nine option years. The values of these contracts range from $100 million to $260 million per contract. We currently have eight CLEAN contracts for a total of $1.2 billion. NAVFACENGCOM is presently negotiating two new CLEAN contracts at our Southwestern Division (San Diego, CA) and at our Northern Division (Philadelphia, PA).
Fixed-Price Contracts. With experience we have been able to separate from the cost reimbursement arena various project types which can be accomplished on a fixed-price basis. Some examples are air and water studies, compliance evaluations, underground storage tank removals, asbestos abatement, and uncomplicated remediation projects.
RAC Contracts. Since the CLEAN contracts are awarded utilizing “Brooks Act” procedure, remedial action cannot be accomplished except in rare cases where immediate
removal is necessary to prevent continued, unacceptable risk to population and environment. Work which does not require a licensed professional (i.e., remedial action and long-term maintenance) is procured utilizing price competition. Since technical considerations may be more important in environmental remediation than lowest price, we utilize Source Selection procedures. This involves evaluation of factors such as technical capability, management capability, quality and depth of human resources, and experience with a variety of types of environmental remediation in addition to cost. Award is made to the contractor whose proposal represents the best overall value to the government.
The Source Selection process was used to award eight contaminant-specific Cost Plus Fixed Fee (CPFF) Remedial Action Contracts (RAC) which are nationwide in application but are centrally managed in Port Hueneme, CA. The aggregate value of all eight contracts is $150 million and the maximum term is five years. A primary focus of the RAC contracts is complicated remedial action efforts and technology demonstration projects. Our decision to centrally manage the first eight RAC contracts was driven by the small number of remedial actions anticipated at that time. As earlier studies are completed and the Navy moves heavily into remedial action, we believe that RAC contracts will be awarded on a regional basis and will probably be structured to include several compatible types of contaminants. Use of the fixed fee may not enable us to adequately incentivize excellent work since the contractor would receive the same fee for any acceptable performance. Therefore, whenever resources are available the award fee is preferred for any large, continuing effort.
Environmental Job Order Contracting (JOC). The newest type of contract vehicle being tested is a combination Fixed Unit Price Indefinite Quantity contract. Wage rates to be paid are based on the local Davis-Bacon wage determination. Unit prices are bid for materials and equipment usage. A multiplier is bid which includes indirect costs and profit. When a delivery order is being negotiated, a reasonable number of hours and units will be determined. The multiplier will then be applied to the total negotiated price of the delivery order. The primary focus of this type of contract is small environmental compliance projects.
Special Requirements. The availability of all of these contract types is the first defense against environmental contracting problems. However, the use of cost reimbursement contracts may result in additional contracting pitfalls. For example, in most cases neither the contractor nor the government personnel are acclimated to the requirements of cost reimbursement accounting as contrasted with fixed price accounting. The applicability of indirect costs was not a problem when the contractor merely quoted a final price, which he determined annually covered all of his costs and permitted a reasonable profit. Award of a cost reimbursement contract may require the contractor's accounting system to attain a new level of sophistication. Government personnel must use caution when developing the basic requirement since the government must pay for all reasonable effort. Technical oversight which includes decisions on what type of effort is required becomes crucial. Financial personnel can contribute to an understanding of cost accounting methods which is necessary to perform the invoice review to certify only allowable, allocable, reasonable and applicable costs for payment.
Oversight Requirements. The administration of a cost type contract is extremely resource intensive. NAVFACENGCOM greatly benefited from having a structure already in place for the administration of construction contracts. While the need for Navy construction has decreased, the need for environmental remediation has increased, especially with respect to base closings. This change permitted NAVFAC resources to be transferred to meet the new requirement. A regional structure which includes contracting, technical, and financial components is essential in the administration of very large cost reimbursement contracts. Attempts to manage large cost reimbursement contracts without such resources bear a high risk of failure. Specialized training in the administration of Cost Reimbursement contracts is critical. Accordingly, NAVFACENGCOM developed a five-day Environmental Cost Reimbursement course and a three-day Environmental Contracting Officer's Technical Representative course to supplement previous contracts training.
Standardized Procedures. Committees composed of NAVFACENGCOM regional representatives developed generic Invoice Review Procedures, Award Fee Plans, RAC Acquisition Plans, Source Selection Plans, and Request for Proposal documents. These jointly developed procedures provide a more standardized response to the environmental industry and distribute lessons learned throughout the NAVFACENGCOM community.
Conclusion. Each new development was a response to a pitfall discovered during solicitation and administration of environmental remediation contracts within NAVFACENGCOM. Keys to continuing success in contracting for a clean environment will include:
Continuous development of innovative contract vehicles;
Maintenance of a large portfolio of contract options;
Continuous training in new contracting methods; and
Establishment of partnerships, both internal among different professions and external with clients, regulator, and the hazardous waste management industry.
