Indefinite Delivery/Indefinite Quantity Contracting Practices (2015)

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3 “[FASA] was designed to increase contracting efficiency—faster, better, cheaper—by reducing bureaucracy and giving contracting officers more flexibility.” (Couture 2005) Federal agencies realized a number of benefits from the IDIQ contracting approach, including shorter project deliv­ ery periods, lower preconstruction costs, and flexible delivery scheduling (OFPP 1997; Sandner and Snyder 2001; Rueda and Gransberg 2014b). Federal IDIQ successes led some state departments of transportation (DOTs) to adopt IDIQ tech­ niques in their alternative contracting method toolbox. How­ ever, given marked differences between federal and state contracting statutes as well as the diversity found among the 50 states’ procurement cultures, many state DOTs realized that federal contracting procedures cannot simply be adopted for state IDIQ contracts. Therefore, each state transportation agency develops its own IDIQ contracting procedures within its current practices, specific requirements and preferences, and applicable state regulations (Rueda and Gransberg 2014a). As a consequence, the study team found a wide range of IDIQ contracting approaches across the country, giving this synthe­ sis a rich pool of potential effective practices to report. State-Level IDIQ Experience Despite the great variety of DOT IDIQ contracting approaches, little formal research literature was found. Indeed, the lit­ erature on state­level IDIQ implementation is almost non­ existent. Only one state DOT, Minnesota, had addressed IDIQ implementation through formal research (MnDOT 2014). The Minnesota DOT (MnDOT) study developed an IDIQ imple­ mentation guide for the state. Thus, the literature review, sur­ veys, and structured interviews conducted for this NCHRP synthesis report are complemented by findings and data col­ lected for the MnDOT study. This synthesis report benchmarks the current state of the practice of IDIQ contracting in the transportation industry. It also presents an analysis of the perceptions of different stakeholders (contractors, subcontractors, DOTs, and sure­ ties) regarding IDIQ contracting and documents stake­ holder perceptions of risk, successful practices, and potential improvements. INTRODUCTION The Federal Acquisition Regulation (FAR) defines Indefinite Delivery/Indefinite Quantity (IDIQ) contracting as a method that “provides for an indefinite quantity, within stated limits, of supplies or services during a fixed period” (GSA 2005). Although the definition applies specifically to federally funded projects, it was generally used in this study to identify IDIQ contracting practices in the transportation industry at the state level, but with a slight difference. For the purposes of this report, the decision on whether or not to establish “stated lim­ its” on the quantities of work to be ordered under a given IDIQ contract is optional at the state level and depends on either constraints found in state regulations or on a given agency’s preferences. Thus, this synthesis report defines IDIQ contracts as those contracting approaches that involve the procurement of an indefinite quantity of supplies and/or services on an as­needed basis using individual orders over a fixed period of time. An order may be termed as a work order, task order, delivery order, or job order. “A more expeditious and cost-efficient procurement process allows government agencies to successfully keep up with their procurement demands.” (Sandner and Snyder 2001) Federal IDIQ Experience The General Services Administration (GSA) was created in the mid­20th century to accelerate the acquisition of supplies and services by federal agencies (U.S. Congress 1951; GAO 1979), and it developed the use of single solicitations for the acquisition of multiple supplies or services by issuing indi­ vidual work orders. It was not until the mid­1990s that the use of IDIQ contracts was formally regulated through the enactment of the 1994 Federal Acquisition Streamlining Act (FASA) by the U.S. Congress for use in federally funded proj­ ects (U.S. Congress 1994). Thus, current FAR IDIQ contract­ ing regulations are the result of successful practices observed in federal agencies over the past four decades and a number of amendments made during the 20 years since the enactment of FASA (Rueda and Gransberg 2014a), which have been complemented by the results of studies ordered by the U.S. Congress (U.S. Congress 1951; GAO 1979; OFPP 1997). chapter one INTRODUCTION

4 SYNTHESIS OBJECTIVE The objective of this report is to identify and synthesize cur­ rent effective practices that comprise the state of the practice related to the use of IDIQ contracting by public transporta­ tion agencies for highway construction and maintenance con­ tracts. It covers multiple aspects of IDIQ practice, including contracting techniques, terminology in use by transportation agencies, contract advertising and award practices, success­ ful contracting procedures, pricing methods, risk manage­ ment issues, and effective contract administration practices. Given the lack of literature about IDIQ contracting proce­ dures at the state level, state DOTs have not had access to the essential information needed to develop and implement IDIQ procurement systems. The lack of knowledge and experience of some state agencies and their contractors can be consid­ ered a major weakness of this contracting approach (Farris 2002). The lack of IDIQ reference sources available for state DOTs compels agencies that want to use it to implement it by trial and error; constantly modifying their initial proce­ dures until satisfactory results are reached. Thus, it can take a fairly long time for an agency to settle on a set of optimal procedures, possibly negatively impacting the agency and its contractors. Therefore, this synthesis report constitutes a valuable and timely tool as a point of reference from which state DOTs can develop efficient and suitable IDIQ contract­ ing procedures or improve existing techniques. PROJECT DELIVERY METHODS For many years, traditional design­bid­build (DBB) contract­ ing techniques were considered as a single, one­size­fits­all procurement tool for the acquisition of construction ser­ vices. However, some limitations and deficiencies observed in DBB procurement systems have encouraged federal and state agencies to develop and implement alternative delivery methods and contracting approaches intended to “enhance quality, decrease cost, and compress the delivery period for public projects” (Gransberg and Shane 2010). For the last two decades, public owners have been expanding their pro­ curement toolboxes and increasing their contracting capa­ bilities with flexible sets of alternatives to adjust acquisition procedures to the unique needs of each project. “Reducing the time from planning to construction of a project can ensure that the benefits of a project are available sooner to the traveling public.” (Walewski et al. 2001) By definition, a delivery method is a system used by owners to organize and coordinate planning, design, and construction activities such as DBB, design­build (DB), and construction manager/general contractor (CMGC) (also called Construc­ tion Manager­at­Risk or CMR), which are commonly used in highway construction projects (Gransberg and Shane 2010). On the other hand, contracting approaches are tools such as A + B (Cost + Time) bidding, lane rental, and guaranteed max­ imum price (GMP) used to support procurement procedures stated by the selected delivery method (Walewski et al. 2001). In other words, delivery methods are intended to coordinate pre­construction, construction, and even post­construction (as required) activities, while contracting approaches are directed to address more specific aspects or cycles within a project life cycle. Based on the definitions presented in the previous para­ graph, IDIQ contracting is usually classified as a contract­ ing approach (Walewski et al. 2001), since it is commonly restricted to design, construction, or maintenance activities in DBB contracts. However, survey information collected for this synthesis report showed that at least five state DOTs are using DB­IDIQ contracts. In this approach, the contractor is required to furnish design and construction services on each work order. Therefore, DB­IDIQ is merely an available con­ tracting approach for DB project delivery. DB­IDIQ contracts deliver a group of similar types of DB projects within a single IDIQ contract. Likewise, survey data showed that some agen­ cies have also combined IDIQ contracting with CMGC proj­ ect delivery (CMGC­IDIQ or CMR­IDIQ), where the agency has a contract with a CMGC contractor to provide input during the design phase and perform as the general construction con­ tractor for each task order (West et al. 2012). DBB, DB, and CMGC are further described here to provide an idea of how the various factors in DB and CMGC delivery differ with the same factors in DBB. Design-Bid-Build In DBB, design must be fully accomplished by either in­ house or consultant designers before proceeding with the advertisement and award of a separate construction contract (Gransberg and Shane 2010). In other words, design and con­ struction activities are contracted separately, so that there is no contractual relationship between the designer and the contractor as shown in Figure 1. FIGURE 1 Design-bid-build.

5 Even though DBB contracts are usually awarded to the low­bid responsive contractor, they can also be awarded on a best­value or negotiated basis in order to mitigate risks related to the selection of a contractor who has submitted a low price proposal inconsistent with the construction docu­ ments (Scott et al. 2006; Gransberg and Shane 2010). Design-Build In this type of contract, the contractor (usually referred to as the design­builder) is in charge of furnishing design services and performing construction activities under the same con­ tract. This substantial alteration in traditional relationships among contract participants (see Figure 2) is intended to overcome some DBB limitations such as the lack of ability to overlap contract phases, absence of constructability reviews, and lack of contractual incentives for contractors to mini­ mize costs (Dunston and Reed 2000; Rueda 2013). DB contracts are usually advertised and awarded to the design­builder who represents the best­value alternative iden­ tified through request for qualification (RFQ)/request for pro­ posal (RFP) procedures. By allowing the contractor greater flexibility in the selection of design, materials, and construc­ tion methods, it is willing to increase its risk tolerance. Design­ builders submit fixed­price proposals, making themselves liable for all design and construction costs (Graham 1997; Ibbs et al. 2003; El Wardani et al. 2006), including potential cost overruns resulting from design inconsistencies discovered during the construction period. Figure 2 illustrates the relation, level of collaboration, and interaction among different contract participants under DB contracts. DB contracting decreases the owner’s responsibil­ ities and increases a design­builder’s control over the project delivery process, allowing the reduction of project delivery periods and making DB a great alternative for “fast­track” projects (Alder 2007). Construction Manager/General Contractor The original purpose of allowing an early involvement of a construction manager during the design phase of a highway project and the posterior furnishing of construction services by the same person or entity was to improve procurement pro­ cedures by incorporating knowledge and capabilities lacking within the owner’s organization (Strang 2002). In CMGC project delivery, design and construction services are fur­ nished through two separate contracts. The first contract is designed to obtain the construction manager’s input during the preconstruction phase on designs developed by either in­ house or external designers. Usually, the second contract for construction services becomes effective after completion of all design and construction documents. CMGC contracts often stipulate a GMP, which is a not­to­ exceed sum (dollars) to be paid by the owner to the CMGC for all work contained in the contract documents. Thus, the con­ tractor is liable for cost overruns, unless they were the result of changes in the project’s scope (authorized by the owner), in which case the GMP would be modified (Gransberg and Shane 2010). Frequently, these contracts also include incen­ tive clauses inserted to encourage the CMGC to complete the project below the GMP by sharing with the contractor any cost savings. Figure 3 illustrates the contractual structure among CMGC contract participants. It also shows how this relation­ ship remains unchanged between the owner and the designer (in­house or consultant), allowing the agency to maintain direct supervision and control over all preconstruction activities. According to the Associated General Contractors of Amer­ ica (AGCA), there are two principal characteristics that define CMGC and differentiate this method from other delivery methods (AGC 2004): unlike DB, the owner advertises and awards separate contracts for the designer and the CMGC and, as opposed to DBB, the CMGC is usually selected based on qualifications, past experience, or through best­value procedures (FHWA 2014). Besides transferring risk related FIGURE 2 Design-build. FIGURE 3 Construction manager/general contractor.

6 to cost overruns and construction delays to the CMGC, own­ ers see in this delivery method an opportunity to enhance “constructability, real­time construction pricing capability, and speed of implementation” (Gransberg and Shane 2010). INDEFINITE DELIVERY/INDEFINITE QUANTITY TERMINOLOGY AND KEY DEFINITIONS A number of different IDIQ contracting approaches as well as a number of different terms used to refer to this type of contract and the work orders issued under them were identi­ fied. Figure 4 shows the different types of services usually procured by public owners through IDIQ techniques and highlights those types of contracts covered by the scope of this synthesis report. Correspondingly, Figure 5 presents a classification of work orders and IDIQ contracts in accor­ dance with the different types of work and services presented in Figure 4. The terminology shown in Figure 5 is that used in this report unless a particular agency is being referred to, in which case corresponding terminology is used. The classifica­ tion and terminology in Figure 5 was developed by considering two main issues: the distinction as outlined by FAR for supplies (delivery orders) and services (task orders) (GSA 2005), and the wide use of the term “Job Order” for construction services (which may include supplies and services) (Farris 2002; Rueda and Gransberg 2014a). Figure 6 presents different terms that for the purposes of this study were considered to refer to IDIQ contracts because they meet the following definition: • IDIQ: The type of contract that provides for an indefinite quantity of supplies and/or services whose performance and delivery scheduling is determined by placing work orders with one or multiple contractors during a fixed period of time. IDIQ may be considered a general concept that covers all terms in Figure 6, which are used by FAR, other authors, and some state agencies to refer to specific IDIQ contracts with restrictions either in scope, size, and/or number of con­ tractors. Table 1 presents definitions given to some of the contracts contained in Figure 6. It is important to understand that these definitions are just some common descriptions for these terms, but they may vary among agencies; how­ ever, all of them usually meet the definition for IDIQ stated previously. FIGURE 4 Types of work and services procured through IDIQ. FIGURE 5 Work order and IDIQ contract classification scheme. FIGURE 6 IDIQ terminology.

7 Table 2 contains a number of terms used by the authors throughout this synthesis report and the definition given to them in this document. These definitions were either pro­ posed by the authors or repeatedly encountered while con­ ducting this study. INDEFINITE DELIVERY/INDEFINITE QUANTITY GENERIC MODELS During previous research conducted on IDIQ practices by the study teams, three different IDIQ contracting models were identified, which were determined in accordance with the num­ ber of contractors selected to participate in the contract and the expected number of work orders to be issued (Rueda and Gransberg 2014a). Figure 7 shows this classification and highlights the different IDIQ contracting models. Table 3 illus­ trates the structure of each contracting model and describes the most appropriate conditions for successfully using each. These conditions are discussed in more detail throughout the report. In the case of federally funded IDIQ contracts, FAR establishes a clear preference for multiple award IDIQ construction contracts [this preference does not apply to architectural/engineering (A/E) services], encouraging agencies Term Definition Delivery Order Contract Contract for supplies whose performance and delivery scheduling is determined by placing delivery orders with the contractor or contractors during a fixed period of time (FAR 2005) Task Order Contract Contract for services whose performance and delivery scheduling is determined by placing task orders with the contractor or contractors during a fixed period of time (FAR 2005) Job Order Contract Contracts for construction services (Farris 2002) whose performance and delivery scheduling is determined by placing work orders (task, delivery, and/or job orders) with the contractor or contractors during a fixed period of time On-Call Contract Contract that involves a group of undetermined or predetermined small projects usually related to professional/engineering services, which are requested by issuing task orders (UDOT 2010b). Some state DOTs also use this term to refer to construction and maintenance/repair contracts (Maine DOT 2011; TennDOT 2010) Push-Button Contract Contract with a predetermined scope of work to be performed by the contractor pursuant to the agency’s issuance of work orders, which specify location, project description, and amount of work required (FDOT 2012) TABLE 1 IDIQ TERMINOLOGY—DEFINITIONS Term Definition Construction Manager/General Contractor IDIQ IDIQ contract where the contractor furnishes preconstruction services during design and construction services on each work order. Design-Build IDIQ IDIQ contract where the contractor furnishes both the design and construction services on each work order. IDIQ Contract Scope The description of work to be done under an IDIQ contract. These contracts are most often used to procure services of a repetitive nature and whose scope is quite narrow and clear, allowing a greater control over pricing. For example, an IDIQ contract to complete an indefinite amount of pavement overlay is a typical scope limitation for a single award IDIQ contract. Multiple Award IDIQ “A single contract is advertised and a pool of qualified contractors is selected. Only those selected are subsequently allowed to bid on work orders. In most cases the work orders are awarded to the lowest bidder among the contractors in the pool” (Rueda and Gransberg 2014a). Single Award IDIQ “A single contract is advertised and awarded to a single contractor who then is awarded work orders based on the pricing furnished in the initial bid package” (Rueda and Gransberg 2014a). Single Work Order IDIQ “A single contract is awarded to [a] single contractor. Once the need to issue the work arises, the contractor then performs the desired services or furnishes the requisite supplies [a single work order issued during the contract period]” (Rueda and Gransberg 2014a). Work Order Every project to be executed within an IDIQ contract is developed under the issuance of a work order. A work order becomes the contract document that determines location, contract time, and scope of work. Moreover, a work order outlines all required pay items, quantities, and unit prices (MnDOT 2014). Also termed Task, Job, or Service Order. TABLE 2 IDIQ KEY DEFINITIONS FIGURE 7 Generic IDIQ contracting models.

8 to execute this type of contract, to the maximum extent pos­ sible, instead of single award IDIQ contracts (FAR 2005). This preference for a competitive multiple award approach is because this type of contract appears to represent more benefits for agencies as a consequence of a highly competi­ tive environment (GAO 1979; OFPP 1997). However, some authors and agencies agree that this is not always the most appropriate approach (DoD 1999), which appears to be the case for state DOTs. For these transportation agencies a single award approach “seems to better fit their procurement methods and limited resources, and even with less apparent benefits, DOTs have perceived an opportunity to improve their contracting practices” (Rueda 2013) by executing single award IDIQ contracts. Multiple award IDIQ practices are being used by some state DOTs. For this report four different multiple award con­ tractual approaches used by these transportation agencies to procure minor construction/maintenance projects were found. These approaches differ primarily from traditional multiple award federal contracts in that the assignation of work orders among awardees is not fully competitive; the selection of a contractor to perform a given work order completely depends on the content of the bid package originally submitted to enter into the contract. A closer look at multiple award IDIQ tech­ niques is presented in chapters three and four of this report. STUDY APPROACH Information used for this synthesis report was gathered using the following study instruments: • Literature review, • Survey of state transportation agencies, • Survey directed to members of AGC and American Road and Transportation Builders Association (ARTBA) to acquire industry opinion and perspective on risks asso­ ciated with IDIQ contracting, and • Structured interviews with participants for practical examples of existing IDIQ programs. Literature Review The study team conducted a comprehensive literature review supplemented by a content analysis of IDIQ procurement doc­ uments, policy and procedure manuals, and others sources of written information about IDIQ practices implemented by different federal and state agencies following the protocol proposed by Neuendorf (2002). IDIQ­related documents were collected from 32 different state DOTs, two local transporta­ tion agencies (Metropolitan Atlanta Rapid Transit Authority and Washington Metropolitan Area Transit Authority), and 20 federal agencies from different sectors of the construction IDIQ Model Diagram Typical Contract Characteristics Single Work Order Contract • When the agency foresees a future necessity that most likely will be fulfilled with one work order, but cannot fairly determine the total quantity of resources that will be ultimately required and/or the final delivery schedule. • Often used for emergency stand-by services, such as hurricane debris removal. Single Award Contract • For repetitive tasks or services contained in a narrow scope of work, allowing a certain degree of uniformity among work orders; • When only one contractor has the capabilities to perform all work orders to be issued under the IDIQ contract; or • When the agency considers that the ultimate number of work orders to be issued under the IDIQ contract will not justify awarding multiple contractors. Multiple Award Contract • For repetitive tasks or services contained in a broad scope of work, making it hard to determine a typical composition of work orders; • When more than one contractor has the capabilities to perform all work orders to be issued under the IDIQ contract; and • When the agency considers that the number of work orders to be issued under the IDIQ contract will justify awarding multiple contractors. Adapted from Rueda and Gransberg (2014a). TABLE 3 IDIQ CONTRACTING MODELS STRUCTURE AND TYPICAL USE

9 industry. A look at federal contracting practices was primar­ ily required to document the state of practice of this con­ tracting approach at different levels and sectors to permit a comparison with state policies. Additionally, content analysis techniques were applied to 76 legal cases related to IDIQ contracts (four design and 72 non­design professional services case studies) to identify trends in court decisions under different types of conflicts and common sources of disputes between contract partici­ pants. Results obtained from the analysis of these legal cases may become a valuable tool for DOTs to appropriately address risks factors related to award protests and litigation. By improv­ ing risk assessment procedures, these agencies may be able to develop strategies to avoid conflict escalation. Surveys and Interviews Using information collected from the literature review and applying the protocol prescribed by Oppenheim (2000), two dif­ ferent questionnaires were developed aimed at state DOTs and industry representatives (AGC and ARTBA members). A total of 43 survey responses were received from state DOTs, includ­ ing the District of Columbia DOT, yielding an 84% response rate. In addition, 18 contractors were contacted to collect the industry’s perception of IDIQ contracts. Face­to­face structured interviews were conducted with four of these contractors fol­ lowing procedures used by the U.S. General Accounting Office (referred to as the U.S. Government Accountability Office since 2004) (GAO 1991). The interviews with transportation­ related contractors allowed an in­depth discussion of some key aspects of IDIQ contracting, and also allowed the collection of more detailed information about their risk perception with regard to this alternative contracting approach. IDIQ Project Cases Cogent information gathered by the authors while developing an IDIQ implementation guide for MnDOT is also presented in this synthesis report (Gransberg and Rueda 2014). This information played an important role in benchmarking the state of practice of IDIQ contracting and identifying effective procurement techniques among state transportation agencies. This information was collected through structured interviews with project engineers from the Florida, Missouri, and New York State DOTs and the Central Federal Lands Highway Division (CFLHD), and a subsequent case study analysis of IDIQ contracts executed by these agencies plus one contract awarded by MnDOT (Rueda and Gransberg 2014b). In addi­ tion, this report contains a work order case from the New York State DOT, which was previously analyzed in NCHRP Synthesis 438: Expedited Procurement Procedures for Emer- gency Construction Services (Gransberg and Loulakis 2012), and one case from a multiple award IDIQ executed by the South Dakota DOT. The cases were collected using Yin’s methodology for case study data collection (1994). Surveys Likewise, information collected specifically for this synthe­ sis is compared with three different surveys conducted for MnDOT of 56 contractors and subcontractors; 54 MnDOT staff members involved in the planning, execution, and closing of IDIQ contracts; and 39 surety companies doing business in Minnesota. Although this was a local study, it is important to consider that most of the contractors and surety companies do business in other states, and some have partici­ pated in IDIQ contracts executed by other agencies (includ­ ing non­transportation agencies), which broadens the value to their opinions, perceptions, and suggestions for improve­ ment. Figure 8 shows IDIQ contracting users and highlights those state transportation agencies that are not permitted to use this contracting approach. This figure also indicates those DOTs involved in the case example analysis and those whose solicitation documents and procedures manuals were reviewed in the content analyses. All information in this section was analyzed, compared, and contrasted to develop conclusions, identify effective IDIQ practices, and describe important gaps between the state of art and the state of practice that would benefit from future study. Protocols to Develop Conclusions and Suggestions for Future Research Information collected through each study instrument was individually analyzed and intersections of trends found in two or more of these tools were used as the major factor to develop conclusions. Concurrent trends observed in more than one data set were important to identify effective IDIQ practices when the observations came from different contract participants. FIGURE 8 IDIQ users, case studies, and IDIQ document content analysis map.

10 ORGANIZATION OF THE REPORT The remainder of the report is organized as follows: • Chapter two—Legal and Contractual Issues Associated with IDIQ Contracting • Chapter three—Indefinite Delivery/Indefinite Quantity Procurement Policies, Procedures, and Programs • Chapter four—Indefinite Delivery/Indefinite Quantity Contract Administration Procedures • Chapter five—Indefinite Delivery/Indefinite Quantity Contract Examples • Chapter six—Conclusions The next chapter will set the legal foundation for under­ standing the details contained in subsequent chapters. It consists of survey results regarding statutory authority and limita­ tions and a formal content analysis of 76 specific legal case studies associated with IDIQ procurement. Chapters three and four synthesize data obtained from the literature, sur­ veys, and structured interviews and review findings as they relate to different procurement and administration proce­ dures required to plan and execute IDIQ contracts. Chapter five comprises an analysis and discussion of the six IDIQ contracts and one work order mentioned earlier in this report. It presents six different contracting approaches from agen­ cies with different contracting systems. Finally, chapter six provides a summary of the key findings of the synthesis proj­ ect, including effective IDIQ contracting practices and com­ ments on the state of research and opportunities for additional research.