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APPENDIX A 23 Appendix A The Views of Agency Representatives on the Nature and Causes of Budget-Related Problems in Federal Construction Programs In order to get a clear picture of the problems of federal agencies with early estimates, the committee asked the agency liaison members to provide data and expressions of views on the subject. Because agencies are especially attuned to and constrained by congressional appropriations, the liaison members were asked to focus on the budget estimates used to seek appropriations. The desired information was obtained at a special meeting of the liaison members. The agencies represented were the Army, Navy, Air Force, Veterans Administration, Indian Health Service, and National Institutes of Health. The participants provided information primarily on the basis of their personal experience and knowledge. In order to help the participants approach a consensus on the issues, a modified version of the âDelphiâ technique* was employed. Specifically, the participants were asked first to answer various questionsâall of which were framed to elicit responses in the form of percentagesâseparately in writing. Next the responses of all participants were revealed, averages were calculated, and the participants were asked to justify estimates that were far from the mean. Finally, after the responses to each question were discussed, the participants were given an opportunity to change their answers (which they often did), and new averages were calculated. The participants were asked to provide information on five issues: 1. the percentage of major construction projects on which problems are encountered with budget estimates, 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 various percentages of budget estimates. The results of the exercise are summarized in Figure A-1, Figure A-2, Figure A-3, Figure A-4 through Figure A-5, which correspond to the five issues mentioned above. In each figure the judgments of the participants are shown both as overall average estimates and as ranges of estimates. With regard Figure A-1, the participants were instructed to consider the entire spectrum of serious difficulties that could occur on a federal construction project as a result of a budget-related problem. Consequently, the percentages shown are higher than 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 they are advertised due to excessive bids. *The Delphi technique is a systematic procedure for generating a reasoned consensus from the individual judgments of a group of experts. The technique was first used for long-range forecasting by the RAND Corporation. As described by Helmer (1968), the Delphi technique is an interactive process in which a group of experts first make independent estimates of a numerical value (e.g., a year) and then narrow the spread in their estimates through a series of reviews and revisions of their individual estimates.
APPENDIX A 24 Figure A-1 Agency estimates of the percentage of construction projects on which budget-related problems are encountered. Figure A-2 Agency estimates of percentages (shown as ranges and overall averages) of budget-related problems that manifest themselves in various 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 permit an award. Eventually, almost all projects are constructed, but some percentage of projects cannot 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 additional funding. 5. Project delays. These may be due, for example, to design problems and/or to the need to readvertise. The sum of the estimated percentages shown in Figure 2 exceed 100 percent because budget-related 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
APPENDIX A 25 sis by a team that is not a part of the design organization; ⢠developing alternate bid items; ⢠obtaining an increase in the budget for the project through âreprogrammingâ (i.e., using money appropriated for other projects, with congressional approval); ⢠obtaining an increase in the budget for the project through a change in the appropriated amount; and ⢠dropping the project from the current program 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 project) 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 estimating 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 estimators employed by private A-E firms (which actually prepare a large percentage of government budget estimates), ⢠inadequate budget estimating procedures and methods, ⢠arbitrary reduction in budget estimates in order to conform to general cost limits or guidelines (such as the Cost Estimating Guidance for Military Construction), ⢠arbitrary reductions in budget estimates by agency managers or budget officers, ⢠arbitrary reductions in budget estimates by Congress, ⢠insufficient or inaccurate cost data, ⢠insufficient time in the budgeting process to prepare accurate estimates, ⢠the need to prepare budget estimates before designs have been completed, ⢠poor definition of needs by user organizations, ⢠poor design work by private A-E firms, and ⢠poor management of the 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 there 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 different policies regarding how much a low bid may exceed the appropriated amount without necessitating re-advertising. Figure A-3 Agency estimates of percentages (shown as ranges and overall averages) of budget-related problems that are solved by various means.
APPENDIX A 26 Figure A-4 Agency estimates of percentages (shown as ranges and overall averages) of budget-related problems that are caused by various factors.
APPENDIX A 27 Figure A-5 Agency estimates of percentages (shown as ranges and overall averages) of low bids that are within various percentages of budget estimates for projects.
APPENDIX A 28
