oversight

Federal Construction: Army Corps of Engineers and GSA Need to Improve Data on Contract Changes

Published by the Government Accountability Office on 2019-07-02.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office
             Report to Congressional Requesters




             FEDERAL
July 2019




             CONSTRUCTION

             Army Corps of
             Engineers and GSA
             Need to Improve Data
             on Contract Changes




GAO-19-500
                                                July 2019

                                                FEDERAL CONSTRUCTION
                                                Army Corps of Engineers and GSA Need to Improve
                                                Data on Contract Changes
Highlights of GAO-19-500, a report to
congressional requesters




Why GAO Did This Study                          What GAO Found
In fiscal year 2018, federal agencies           Multiple factors affect the time it takes to finalize a construction contract change.
spent more than $36 billion on                  For example, preparing cost estimates can be time consuming, particularly for
construction contracts, with more than          complex changes. Yet the time may be used to help ensure the government has
45 percent going to small business.             adequate cost data to inform negotiations. In addition, according to agency
Typically, construction projects involve        officials, miscommunication during the contract change process—which can lead
some degree of change as the project            to problems such as unauthorized work undertaken by the contractor—can result
progresses. Some federal construction           in additional reviews and longer time frames. According to U.S. Army Corps of
contractors have raised concerns that           Engineers (USACE) data, most of its construction contract changes are finalized
delays in processing contract changes           within 60 days. Some take much longer, however (see figure).
and making payments creates
challenges, particularly for small              Time Frames for Finalizing Construction Contract Changes at the U.S. Army Corps of
businesses. Section 855 of the National         Engineers, 2013 through 2018
Defense Authorization Act for Fiscal
Year 2019 requires agencies to report
information related to how quickly they
finalize contract changes.
GAO was asked to review federal
construction contract change processes
and timeframes. GAO (1) identified
factors that affect the time it takes to
finalize contract changes, and (2)
assessed the extent to which selected
agencies monitor time frames for
finalizing contract changes. GAO
reviewed relevant regulations and
agency policies, analyzed available
data, and interviewed officials from            Note: The General Services Administration’s (GSA) Public Buildings Service could not provide similar
                                                data.
GSA’s Public Buildings Service and
USACE—two agencies with large                   Agency officials and industry representatives agreed that perceptions differ about
amounts of obligations on                       the length of the contract change process. For example, because a change can
construction—and two industry                   impact the contractor’s cost and schedule immediately, the contractor typically
associations.                                   perceives that the process starts earlier—and lasts longer—than the government
What GAO Recommends                             does.

GAO is making two recommendations:              Neither GSA nor USACE regularly monitors how long it takes to finalize
that GSA’s Public Buildings Service and         construction contract changes, limiting management’s ability to identify and
USACE each develop a strategy to                respond to problems. Internal controls require agencies to collect and use quality
routinely collect information on and            data for management purposes such as monitoring agency activities. GSA
monitor time frames for construction            systems do not collect data that permit analysis of contract change timeframes at
contract changes at the headquarters            the headquarters level. USACE systems produce contract change data for its
level. Both agencies concurred with our         districts, but data consolidation and calculations must be done manually and are
recommendation.                                 not done regularly. Neither agency has a strategy in place to address these
                                                issues. Without regular review of these timeframes, USACE and GSA contracting
                                                officials may be unaware of any existing or potential problems, such as long
                                                process times that may affect project schedules. In addition, these data system
                                                limitations are likely to create difficulties for agencies when providing the
View GAO-19-500. For more information,          information required by new legislation.
contact William T. Woods at (202) 512-4841 or
woodsw@gao.gov.


                                                ______________________________________ United States Government Accountability Office
Contents


Letter                                                                                    1
               Background                                                                3
               Multiple Factors Affect Time Frames for Finalizing Contract
                 Changes                                                                 8
               Selected Agencies Do Not Regularly Monitor Contract Change
                 Time Frames                                                            13
               Conclusions                                                              15
               Recommendations for Executive Action                                     16
               Agency Comments                                                          16

Appendix I     Objectives, Scope, and Methodology                                       18



Appendix II    Comments from the Department of Defense                                  21



Appendix III   Comments from the General Services Administration                        23


Table
               Table 1: Construction Contract Change Requirements Established
                       in Agency Regulation and Policy                                   6

Figures
               Figure 1: Notional Representation of the Construction Contract
                        Change Process                                                   5
               Figure 2: Selected Steps That Can Be Factors in Contract Change
                        Process Time Frames                                             10
               Figure 3: Contract Changes by Days to Finalize (January 2013 -
                        August 2018)                                                    12




               Page i                               GAO-19-500 Construction Contract Changes
Abbreviations

DOD               Department of Defense
FAR               Federal Acquisition Regulation
FPDS-NG           Federal Procurement Data System – Next Generation
GSA               General Services Administration
PBS               Public Buildings Service
REA               request for equitable adjustment
USACE             U.S. Army Corps of Engineers
VA                Department of Veterans Affairs




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Page ii                                        GAO-19-500 Construction Contract Changes
                       Letter




441 G St. N.W.
Washington, DC 20548




                       July 2, 2019

                       The Honorable Nydia M. Velázquez
                       Chairwoman
                       The Honorable Steve Chabot
                       Ranking Member
                       Committee on Small Business
                       House of Representatives

                       The Honorable Stephanie Murphy
                       House of Representatives

                       In fiscal year 2018, federal agencies spent more than $36 billion on
                       construction contracts, with more than 45 percent going to small
                       businesses. Typically, federal construction projects involve some degree
                       of change as the project progresses. Contract changes, made through
                       modifications to a contract, can occur for a variety of reasons, including
                       design errors, unforeseen site conditions, and changes in user
                       requirements. 1 Some federal contractors have raised concerns that the
                       government’s process for managing construction contract changes
                       causes unnecessary delays in payments, creating cash flow issues and
                       other challenges that can be particularly difficult for small businesses to
                       manage. Recently, Congress took action that, when implemented, should
                       provide more information on certain contract changes to prospective
                       contractors. Section 855 of the National Defense Authorization Act for
                       Fiscal Year 2019 generally requires agencies to include information
                       related to the time frames to definitize – or finalize – some contract
                       changes in certain solicitations, beginning in August 2019. 2

                       You asked us to review federal construction contract change processes
                       and time frames. This report (1) identifies factors that affect the time it
                       takes to finalize contract changes at selected agencies and (2) assesses


                       1
                        For the purposes of this report we use “modifications” and “contract changes” or
                       “changes” synonymously to refer to both bilateral and unilateral contract modifications,
                       including the issuance of change orders. This phrase does not include certain other types
                       of modifications that do not generally result in a schedule or price change such as
                       administrative changes or the exercise of priced options. FAR § 43.101, 43.103.
                       2
                        John S. McCain National Defense Authorization Act for Fiscal Year 2019, Pub. L. No. 115-232, §
                       855 (2018).




                       Page 1                                            GAO-19-500 Construction Contract Changes
the extent to which selected agencies monitor time frames for finalizing
contract changes.

To identify agencies for our review, we used federal procurement data to
determine defense and civilian agencies that had a high amount of
construction contract spending, with a significant portion going to small
business. Based on these factors, we selected the U.S. Army Corps of
Engineers (USACE) and the General Services Administration’s (GSA)
Public Buildings Service (PBS). To identify factors that affect the time it
takes to finalize contract changes, we reviewed federal and agency
acquisition regulations and agency policies. We also interviewed USACE
and PBS contracting officials, agency small business advocates, and
representatives from two associations that represent a variety of federal
construction contractors: the Associated General Contractors of America
and the National Association of Small Business Contractors.

To assess the extent to which selected agencies monitor time frames for
finalizing contract changes, we reviewed relevant statutes, regulations,
and policies, and interviewed agency officials, including officials from
GSA’s Office of Government-wide Policy, which is responsible for
acquisition policy across GSA. We requested data on contract changes
from USACE and PBS, but only USACE was able to provide data. We
reviewed USACE data and analysis on contract changes finalized
between January 2013 and August 2018—representing more than 62,000
changes primarily from the more than 40 USACE districts that execute
construction contracts—to determine the time it takes to process a
contract change. 3 See appendix I for more information on our scope and
methodology and the types of contract modifications included in our
review.

We conducted this performance audit from August 2018 to July 2019 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
3
 A contract change is considered definitized when the contracting officer signs a Standard
Form 30, Amendment of Solicitation/Modification of Contract. A contract change order is
considered definitized when the parties sign a supplemental agreement containing an
equitable adjustment and a contractor’s statement of release using Standard Form 30,
Amendment of Solicitation/Modification of Contract. FAR 43.204(c); FAR 43.301(a). In this
report, we refer to definitization as finalization. Finalization excludes the settlement or
payment processes.




Page 2                                         GAO-19-500 Construction Contract Changes
             the evidence obtained provides a reasonable basis for our findings based
             on our audit objectives.


             Throughout the course of a construction project, small and large contract
Background   changes can be expected after the contract is awarded. These changes
             are made through modifications to a contract. There are two types of
             contract changes discussed in this report: bilateral and unilateral. 4

                 Bilateral change. A bilateral change (also called a supplemental
                 agreement) is a contract modification that is signed by the contractor
                 and the contracting officer. In these cases, the contractor and
                 contracting officer come to an agreement on the price of a contract
                 change prior to the execution of work.
                 Unilateral change. The contracting officer may direct a unilateral
                 change, executed through a change order, without the contractor’s
                 agreement on the terms and conditions of the change. 5 A unilateral
                 contract modification is signed only by the contracting officer. The
                 contractor is generally required to perform the related work. When
                 change orders do not include an agreed-upon price for the work, they
                 may also be referred to as an unpriced change.
             If a contract change causes an increase or decrease to the cost of
             performing the work or the scheduled time for performing the work, the
             contractor will communicate these price and schedule changes to the
             contracting officer. For there to be an adjustment to the contract’s price,
             the contractor must submit a specific request or proposal seeking
             reimbursement for the change. If the contract change has been ordered
             unilaterally by the government, the contractor may submit a request for
             equitable adjustment (REA) that reflects these cost and schedule


             4
              FAR § 43.103 definitions refer to these changes as bilateral and unilateral contract
             modifications.
             5
              Generally, government contracts contain a Changes clause that permits the contracting
             officer to make changes within the general scope of the contract, and requires the
             contractor to perform the work as changed. FAR § 43.201. Ordinarily, a modification falls
             within the scope of the contract provided that it is of a nature which potential offerors
             would have reasonably anticipated under the Changes clause. AT&T Communications,
             Inc. v. Wiltel, Inc., 1 F.3d 1201, 1205 (Fed. Cir. 1993). The Changes clause also provides
             a process by which a contractor gives the government written notice that it considers an
             order to be a change to the contract, also known as a constructive change. FAR clause
             52.243-4.




             Page 3                                          GAO-19-500 Construction Contract Changes
changes and requests reimbursement. 6 In other circumstances, the
contractor may submit a proposal in response to a request by the agency
that similarly reflects the contractor’s estimate for that increased or
decreased cost and the schedule changes.

Bilateral and unilateral contract changes typically begin with a similar set
of activities, but then the processes diverge once the bilateral or unilateral
determination is made. Initial process steps include:

•   identifying the need for a change;
•   determining that the change is within the scope of the existing
    contract;
•   receiving a cost estimate; and
•   verifying that funds are available for the change.
It is generally after this point that the contracting officer determines the
type of change—unilateral or bilateral—required. See figure 1 for a
notional representation of a change process. Individual contract changes
may involve circumstances and process steps that are not outlined below.




6
 Other clauses give contractors the right to give notice and initiate a request for a time
extension or equitable adjustment in price for events like differing site conditions, or to
request a revised schedule for completion following an excusable delay such as unusually
severe weather. FAR clause 53.236-2; FAR clause 52.249-14.




Page 4                                          GAO-19-500 Construction Contract Changes
Figure 1: Notional Representation of the Construction Contract Change Process




                                        Note: Individual contract changes may not follow the process as laid out above. For example,
                                        according to contracting officials at the U.S. Army Corps of Engineers, at that agency a “notice to
                                        proceed” change begins as a unilateral change that includes a ceiling or not-to-exceed price, which
                                        permits the contractor to begin work and receive payments up to the specified amount while
                                        negotiations take place. Ultimately this type of change is finalized through a supplemental agreement.




                                        Page 5                                               GAO-19-500 Construction Contract Changes
                                                                 Agency regulations and policies provide additional direction for managing
                                                                 the construction contract change process (see table 1).

Table 1: Construction Contract Change Requirements Established in Agency Regulation and Policy

                                          General Services Administration                                              U.S. Army Corps of Engineers
                                          (GSA)                                                                        (USACE)
 Delegates                                The contracting officer may delegate the                                     The contracting officer may delegate the
                                          responsibility to execute contract changes to the                            responsibility to execute contract changes to the
                                          contracting officer’s representative, within the                             administrative contracting officer, within the
                                                               a                                                                           a
                                          delegate’s warrant.                                                          delegate’s warrant.
 Review processes                         If the contracting officer’s representative personally                       Contract changes greater than $500,000 must be
                                          performs all actions related to an unpriced change                           reviewed by the contracting officer and Counsel
                                          order, the contracting officer must either review                            before being finalized.
                                          each change order or designate another official to
                                          perform the review.
 Cost estimates                           Both GSA and USACE permit the short-term use of a less detailed cost estimate to expedite the work,
                                          with the full cost estimate required prior to negotiations.
 Time frames                              Unilateral modifications must be finalized within 90                         Certain unpriced change orders greater than $5
                                                                                                                                                                           b
                                          days, unless the contracting officer receives an                             million must contain a schedule for definitization.
                                          extension.
Source: Defense Federal Acquisition Regulation Supplement, the USACE Acquisition Instruction, the GSA Acquisition Manual, the GSA Acquisition Regulation and the GSA Public Buildings Service,
Procurement Instructional Bulletin 13-03, Amendment 02 (Nov. 10, 2015). | GAO-19-500
                                                                 a
                                                                  A warrant authorizes a contracting officer to obligate funds on behalf of the federal government.
                                                                 b
                                                                  The Defense Federal Acquisition Regulation Supplement requires that an unpriced change order
                                                                 greater than $5 million contain a schedule that provides for definitization by the earlier of (1) 180 days
                                                                 after the issuance of the change order, with possible extension to 180 days after the contractor
                                                                 submits a qualifying proposal, or (2) the date on which the amount of funds obligated is equal to more
                                                                 than 50 percent of the not-to-exceed price. DFARS §§243.204-70-1 (a) and 243.204-70-3. Our review
                                                                 of data provided by USACE indicated less than 1 percent of all reported changes from 2013 to 2018
                                                                 were greater than $5 million.


Prior GAO Work, Industry                                         In prior work at the Department of Veterans Affairs (VA), we identified
Concerns, and Recent                                             challenges and made several recommendations related to the time
                                                                 required for the construction contract modification process.
Congressional Action
                                                                 •     In 2013, we found that VA had not developed guidance to ensure that
                                                                       change orders were approved in a prompt manner, and
                                                                       recommended that officials implement guidance on streamlining the
                                                                       change-order process. 7 VA agreed with our recommendations and
                                                                       has implemented them.



                                                                 7
                                                                  GAO, VA Construction: Additional Actions Needed to Decrease Delays and Lower Costs
                                                                 of Major Medical-Facility Projects, GAO-13-302 (Washington, D.C.: Apr. 4, 2013).




                                                                 Page 6                                                              GAO-19-500 Construction Contract Changes
•   In 2017, we found that VA did not collect sufficient information to
    determine if new guidelines intended to ensure the timely processing
    of change orders were being followed. We also found that it did not
    have a mechanism in place to evaluate data on time frames to
    process change orders. Without such a mechanism, VA could not
    determine how processing time frames and design changes affect
    costs and schedules, and thus was at risk for unexpected cost
    increases and schedule delays. We recommended that VA establish a
    mechanism to monitor the extent that major facilities projects were
    following guidelines on change orders’ time frames and design
    changes. 8 VA has also addressed this recommendation.
•   In 2018, we found that the Veterans Health Administration, a
    component of the VA, had not established time frames for processing
    contract changes, and did not have a way to monitor the length of
    time or the reason contract changes occur. We recommended that
    officials collect information on contract modifications, establish target
    time frames that trigger a higher-level review of contract modifications,
    and centrally establish a mechanism to monitor and review certain
    contract modifications that were taking longer than the established
    target time frame. 9 To date, the Veterans Health Administration has
    not yet fully implemented the recommendations.
At a May 2017 congressional hearing before two subcommittees of the
House Committee on Small Business, witnesses from the construction
industry identified the contract change process as a challenge. They
stated that the change process negatively affects cash flows, increases
administrative and legal costs, and creates a risk of not receiving
reimbursement for completed work. Industry representatives we spoke
with reiterated these concerns. Industry representatives also explained
that while contract changes were a challenge for businesses of all sizes,
small business were likely to be more susceptible to challenges due to
their having fewer financial and administrative resources. One resource
for small businesses is an agency’s Office of Small and Disadvantaged
Business Utilization or Office of Small Business Programs. These offices
are responsible for working with agency officials to facilitate participation


8
 GAO, VA Construction: Improved Processes Needed to Monitor Contract Modifications,
Develop Schedules, and Estimate Costs, GAO-17-70 (Washington, D.C.: Mar. 7, 2017).
9
 GAO, VA Construction: Management of Minor Construction and Non-Recurring
Maintenance Programs Could Be Improved, GAO-18-479 (Washington, D.C.: July 31,
2018).




Page 7                                      GAO-19-500 Construction Contract Changes
                          of small businesses in procurement. 10 However, the small business
                          advocates at GSA and USACE told us that their offices had a limited role
                          in the construction contract change process. According to small business
                          advocates at GSA, for example, their office may get involved in a limited
                          manner when a small business contractor is having difficulty receiving
                          payment by providing guidance on how to make a claim.

                          Congress recently took action that will prompt agencies to gather
                          information on the time it takes to make certain contract changes. Section
                          855 of the Fiscal Year 2019 National Defense Authorization Act includes
                          a provision that requires agencies to make available information about the
                          agency’s past performance in finalizing, or “definitizing,” REAs with
                          certain construction solicitations. 11 The provision also requires agencies
                          to provide information about its policies and practices associated with
                          how the agencies comply with Federal Acquisition Regulation
                          requirements to definitize REAs in a timely manner. Agencies must start
                          including this information no later than August 13, 2019.


                          A variety of factors affect how long it takes to process a contract change.
Multiple Factors Affect   The factors include the time needed for making a change determination,
Time Frames for           creating a cost estimate, identifying funds, negotiating with the contractor,
                          completing reviews, and processing the change. According to agency
Finalizing Contract       officials, some of these steps play a role in protecting the government’s
Changes                   best interests. For example, creating robust cost estimates helps provide
                          the government with information to inform negotiations with the
                          contractor. Unauthorized work—resulting from unauthorized direction or
                          miscommunication—is another factor that can affect the change process
                          timelines. When the contractor performs unauthorized work, the agency
                          must then take additional steps, such as reviewing the work to determine

                          10
                            In 1978, statute established an Office of Small and Disadvantaged Business Utilization
                          in each federal agency with procurement powers. The Small Business Act, as amended,
                          establishes a number of requirements related to the functions and duties of these offices.
                          For example, duties include assisting small businesses in obtaining payments from an
                          agency or prime contractor with which they have contracted. See GAO, Small Business
                          Contracting: Actions Needed to Demonstrate and Better Review Compliance with Select
                          Requirements for Small Business Advocates, GAO-17-675 (Washington, D.C.: Aug. 25,
                          2017).
                          11
                            Pub. L. No. 115-232, § 855, amending Section 15 of the Small Business Act (15 U.S.C.
                          § 644). Generally, agencies are to include the required information in the notices
                          accompanying solicitations for the award of a construction contract anticipated to be
                          awarded to a small business.




                          Page 8                                          GAO-19-500 Construction Contract Changes
                          if it should be reimbursed. Data we reviewed from USACE indicate that a
                          majority of contract changes made from January 2013 through August
                          2018 were finalized in fewer than 60 days, and a little more than 3
                          percent took more than 1 year. Contractors and the government
                          sometimes have different perceptions about when the contract change
                          process begins—and therefore how long it takes—based on when the
                          change begins to impact the work.


Contract Change Steps     The construction contract change process includes a number of steps
Add Time to the Process   that can factor into the time frames for finalizing a contract change,
                          depending on the facts and circumstances surrounding an individual
                          change. For example, USACE officials stated that obtaining a complete
                          proposal from the contractor—with sufficient information on cost and
                          schedule changes to begin negotiations—is a significant factor affecting
                          contract change time frames. Figure 2 illustrates where these factors fall
                          in a notional change process and describes how they may affect time
                          frames.




                          Page 9                                 GAO-19-500 Construction Contract Changes
Figure 2: Selected Steps That Can Be Factors in Contract Change Process Time Frames




                                       Note: Some of the selected steps above may occur at points other than those identified in the figure.
                                       For example, cost estimates and reviews may be performed at varying points in the process.




                                       Page 10                                              GAO-19-500 Construction Contract Changes
                           Agency contracting officials at both PBS and USACE note that some of
                           these procedural steps are necessary to protect the government’s
                           interests—which includes negotiating a fair and reasonable price for the
                           work related to the change.

                           According to USACE and PBS contracting officials, any unauthorized
                           work undertaken by the contractor is another factor that can extend
                           contract change process timelines. When unauthorized work is done, the
                           government must take steps such as determining (1) if the work was
                           required; (2) if the work constituted a change to the existing contract; and
                           (3) if so, a fair and reasonable price for the work. Unauthorized work may
                           occur, for example, when the contractor receives direction from a person
                           who is not authorized to direct work, like a project manager. An
                           authorized individual, such as the contracting officer, must provide such
                           direction. Agency officials explained that unauthorized work can be the
                           result of miscommunication between a government project official and the
                           contractor. The contractor may interpret instructions from the
                           unauthorized official as a formal direction to proceed with a change. In
                           other cases, the contractor may begin work in anticipation of a contract
                           change, before receiving any direction at all. One contractor
                           representative told us that, at times, contractors feel pressured to start
                           work without authorized direction to avoid disruption to the overall project
                           that may result in negative performance reviews from the agency.


USACE Data Show That       According to USACE contracting officials, the agency compiles and
More than Half of          reviews data on construction contract changes on an ad hoc basis to gain
                           insight into time frames for the contract change process within that
Construction Contract
                           agency. The data and analysis show that the majority of changes from
Changes Are Finalized      2013 through 2018 at that agency were finalized within 60 days; however,
Within 60 Days, but Some   a smaller percentage took substantially longer. 12 Approximately 45
Take Much Longer           percent of the completed contract changes took more than 60 days to
                           finalize, and a little more than 3 percent took more than 1 year. See figure


                           12
                             The data–compiled from USACE’s Resident Management System–provides high-level
                           information on each contract change that was finalized from January 2013 to August
                           2018, including the dates of key milestones, the price of the change, and a reason code.
                           USACE officials calculated how long each contract change took by determining how many
                           days passed between when a proposal was received from the contractor and the contract
                           change was finalized. When compiling these data, USACE officials excluded modifications
                           identified as terminations, paid through claims, exercising options, and administrative
                           modifications. GSA was unable to provide similar data on its contract changes.




                           Page 11                                       GAO-19-500 Construction Contract Changes
                           3 for information on USACE contract changes by the number of days
                           taken to finalize the change.

                           Figure 3: Contract Changes by Days to Finalize (January 2013 - August 2018)




                           Note: Days to finalize are calculated by measuring the time elapsed from the date USACE receives a
                           proposal from the contractor to when the contract change is finalized by the signature of Standard
                           Form 30, which officially modifies the contract.


Agency Officials and       Contracting officials at USACE, as well as industry representatives, told
Industry Representatives   us that government officials and contractors often have different
                           perspectives on when the contract change process begins and, therefore,
Report Differing
                           the time needed to complete it. For example, one industry representative
Perceptions of When the    said that the process begins for some contractors when the need for a
Process Begins             contract change is identified. The representative explained that this is the
                           point that the project work can change and the contractor begins to
                           experience an impact on cost and schedule. Another industry
                           representative said that some businesses think that the process begins
                           when they submit their request for equitable adjustment, but that the
                           government may not start measuring the process until a government
                           official actively begins to address the request.

                           Meanwhile, USACE contracting officials stated that process time should
                           be measured from when they receive a complete proposal from the
                           contractor, with no missing information. USACE officials told us that the



                           Page 12                                            GAO-19-500 Construction Contract Changes
                        data collected in its contract information system do not always reflect this
                        metric, however. USACE contracting officials told us that, when recording
                        the proposal receipt date that it uses as the start date for the contract
                        change process, some contracting officers enter the date that the initial
                        proposal was received, and others enter the date that a complete
                        proposal was received. USACE contracting officials stated that they plan
                        to address this issue in the future as part of a larger system upgrade.

                        An industry representative explained that these varying viewpoints
                        between government contracting officials and contractors are
                        exacerbated by the contractors’ lack of understanding about the contract
                        change process. The representative also stated that contractors find that
                        the process is not transparent and implementation of the process varies
                        by agency and even by district within the same agency, increasing
                        confusion.


                        While the amount of information on contract changes varies between
Selected Agencies Do    USACE and PBS, neither agency regularly monitors contract change time
Not Regularly Monitor   frames. In addition to agency guidance that establishes time frames for
                        certain contract change order actions, federal standards for internal
Contract Change         control state that an organization should obtain quality information to
Time Frames             achieve management objectives and establish monitoring activities. 13
                        Neither GSA nor USACE has fully established such controls over the
                        contract change process at the headquarters level, limiting management’s
                        ability to identify and respond to problems.

                        •    USACE information systems have data on contract changes for its
                             more than 40 districts that are sufficient to calculate time frames for
                             finalizing contract changes, but the agency does not regularly
                             aggregate or monitor the information. Officials explained that this was
                             in part due to the manual process required to compile the data
                             centrally and perform calculations. A user must pull data for each
                             USACE district from its contract information system and then
                             manually manipulate the data to determine the time frames. As a
                             result, the data are not reviewed by officials at headquarters on a
                             routine basis. The contracting officials we spoke with said that
                             contract change time frames are reviewed at the local level,
                             specifically by project teams, typically on a weekly basis. Contracting

                        13
                          GAO, Standards for Internal Control in the Federal Government, GAO-14-704G
                        (Washington, D.C.: Sept. 10, 2014).




                        Page 13                                     GAO-19-500 Construction Contract Changes
    officials also stated that contract change time frames are a factor in
    performance reviews for contracting personnel. There is currently no
    agency guidance or documentation for how often contract changes
    should be reviewed at either the project or district levels, the officials
    said. USACE contracting officials noted that they are in the early
    stages of planning for a system upgrade that they hope will automate
    the process of compiling and analyzing construction contract change
    data. However, these plans are preliminary. USACE has not yet
    determined which systems will be involved, nor has it documented
    these planning efforts to date.
•   PBS contracting officials cannot track time frames for contract
    changes. While GSA’s contract information system does track and
    centrally compile data on all contract modifications, PBS contracting
    officials said there was no efficient way to separate the types of
    contract changes that we included in our review from other
    modifications, such as administrative changes or the exercise of
    options, preventing the calculation of time frames for contract
    changes. Our review of the GSA data confirmed that the data cannot
    be used to distinguish between the various types of contract changes.
    According to PBS contracting officials, to identify a contract change
    type, a reviewer would have to seek information at the local level by
    going into the individual contract file and reviewing the modification.
Given these limitations, USACE and PBS cannot centrally identify
emerging problems with contract change time frames or monitor
compliance with existing Department of Defense (DOD) and GSA
requirements. As noted above, DOD and GSA have established time
frames for certain contract changes. USACE contracting officials said that
they would likely establish additional, broad goals for finalizing contract
changes in future policy revisions because more targeted goals were
often not practical due to the unique circumstances that may affect
process times. PBS contracting officials said that compliance with those
time frames should be monitored by local staff, such as the contracting
officer assigned to the project; however, there is no regular monitoring of
that data or systematic way for contracting officers to track this
information at the local level. There is currently no effort under way to
develop a strategy to address data limitations at the local and
headquarters level via information technology system upgrades,
according to GSA officials.

Further, USACE and GSA anticipate, and our analysis of available data
confirms, that system limitations at both agencies are likely to make
implementing section 855 of the Fiscal Year 2019 National Defense



Page 14                                  GAO-19-500 Construction Contract Changes
              Authorization Act more difficult. This provision generally requires
              agencies to include information on recent time frames for definitizing
              REAs with any construction solicitations anticipated to be awarded to
              small businesses no later than August 2019. For example, GSA officials
              stated that to implement this provision would require substantial changes
              to their contract information system, which they must plan for 2 years in
              advance. USACE officials said that staff level discussions were ongoing
              on potential ways to comply with the requirement. They added, however,
              that in the absence of a system change making the data readily available,
              they would likely compile data manually, similar to what was provided to
              us, as an ad hoc substitute.

              In addition, both agencies said that they had questions about what
              information they would include in solicitations. Specifically, while section
              855 refers to REAs, a USACE contracting official stated that REA could
              be interpreted differently by the government and industry. Similarly, GSA
              contracting officials said that the statutory language potentially covers a
              broad category of information, making it difficult to decide what data to
              capture and report. USACE officials stated that they will wait for DOD and
              the Department of the Army to provide direction before changing their
              system. GSA officials stated that they were not going to take action until
              further information is provided. One potential source of additional
              direction is Federal Acquisition Regulation (FAR) case 2018-020, which is
              developing a proposed FAR rule to implement section 855. The proposed
              rule is anticipated to be released in the first quarter of fiscal year 2020.


              Routine, central data collection on the construction contract change
Conclusions   process can help agencies understand the scope of any problems
              encountered. While USACE can compile and review construction contract
              change information on an ad hoc basis, the agency does not conduct
              regular monitoring at the headquarters level and must manually
              manipulate data to review this information. GSA lacks information on the
              contract change process and its time frames at the headquarters,
              regional, and local levels. Without regular collection and review of
              information on the contract change process, contracting officials may be
              unable to spot potential problems—such as long process times that may
              affect project schedules—as they occur and respond accordingly. In
              addition to needing data for management purposes, agencies must also
              implement new legislative requirements when issuing certain construction
              solicitations starting in August 2019. While the proposed FAR rule, when
              issued, should provide agencies with more information on how to
              implement the new requirements, GSA and USACE could immediately


              Page 15                                 GAO-19-500 Construction Contract Changes
                      begin to develop strategies to support routine collection and monitoring of
                      time frames. Pursuing preliminary strategies on basic issues—such as
                      what systems may need to be updated and what groups or individuals
                      should be involved—would help these agencies better position
                      themselves to comply with the requirement in a timely manner, and more
                      quickly expand the data available for management purposes.


                      We are making the following two recommendations:
Recommendations for
Executive Action      The Administrator of General Services should ensure that the
                      Commissioner of the Public Buildings Service develops a strategy that
                      outlines the steps needed to routinely collect information on and monitor
                      the time frames for finalizing construction contract changes at the
                      headquarters level. The strategy could address issues such as the types
                      of construction contract changes that should be included, when the
                      measurement of the contract change process should begin, and the
                      information systems that will be affected. (Recommendation 1)

                      The Secretary of the Army should direct the Chief of Engineers and
                      Commanding General of the U.S. Army Corps of Engineers to develop a
                      strategy to expand on existing data and systems to routinely collect
                      information on and monitor the time frames for finalizing construction
                      contract changes at the headquarters level. (Recommendation 2)


                      We provided a draft of this product to DOD, GSA, and OMB for comment.
Agency Comments       DOD and GSA provided written comments, reproduced in appendixes II
                      and III, respectively. DOD concurred with our recommendation and
                      provided a technical comment, which we incorporated as appropriate.
                      GSA also concurred with our recommendation, and noted that the agency
                      is developing a plan to address it. OMB provided technical comments,
                      which we incorporated as appropriate.


                      We are sending copies of this report to the appropriate congressional
                      committees, the Director of the Office of Management and Budget, the
                      Acting Secretary of Defense, and the Administrator of General Services.
                      In addition, the report is available at no charge on the GAO website at
                      http://www.gao.gov.




                      Page 16                                GAO-19-500 Construction Contract Changes
If you or your staff have any questions about this report, please contact
me at (202) 512-4841 or woodsw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made key contributions to this
report were Tatiana Winger (Assistant Director); Betsy Gregory-Hosler
(Analyst-in-Charge); Michael Dworman; Gail-Lynn Michel; Peter
Anderson; George Depaoli; Lorraine Ettaro; Lori Fields; Gina Hoover;
Sam Portnow; Bill Shear; and Anne Louise Taylor.




William T. Woods
Director, Contracting and National Security Acquisitions




Page 17                                GAO-19-500 Construction Contract Changes
Appendix I: Objectives, Scope, and
              Appendix I: Objectives, Scope, and
              Methodology



Methodology

              This report (1) identifies factors that affect the time it takes to finalize
              contract changes at selected agencies, and (2) assesses the extent to
              which selected agencies monitor time frames for finalizing contract
              changes.

              In this report we examined the process for managing unilateral and
              bilateral contract changes, but exclude certain types of contract
              modifications to focus on the issues of payments and cash flow
              challenges. Specifically, we excluded (1) administrative modifications
              because they do not entail changes to contract costs or time frames; 1 (2)
              contract changes that go beyond the scope of the existing contract,
              referred to as cardinal changes; (3) contract options because exercising
              an existing priced option does not entail the same type of negotiations
              that unilateral and bilateral changes require; (4) contract disputes and
              claims because they follow a separate and distinct process; (5) the
              payment process after a contract change has been finalized because that
              process is directed by the Prompt Payment Act; 2 and (6) any processes
              taking place between a prime contractor and its subcontractors because
              that is outside the focus of this review. 3

              To identify agencies for our review, we analyzed Federal Procurement
              Data System – Next Generation (FPDS-NG) data on construction contract
              obligations for fiscal year 2017, the most recent data available at the time.
              This allowed us to identify defense and civilian agencies that had large
              amounts of construction contract obligations and a relatively significant
              portion of those obligations going to small business. The data that we
              used assigned the contract obligations to the agency that managed the
              construction project rather than the funding agency. We found that the
              Department of the Army’s U.S. Army Corps of Engineers (USACE)
              obligated approximately $10.5 billion for construction contracts, with
              approximately $3.9 billion going to small business concerns. This
              obligated amount is more than any other federal agency or service within
              the Department of Defense. We found that the General Services
              1
               Administrative modifications do not affect the substantive rights of the contractor or the
              government.
              2
                The Prompt Payment Act (31 U.S.C. §§3901-3907) requires federal agencies to make
              timely payments to vendors and impose interest penalties for late payments.
              3
               The data we report on time frames for finalizing contract changes include anything that
              occurred between the time that the contractor’s proposal or request for equitable
              adjustment was received and when the change was finalized, which could include time
              where the prime contractor was interacting with the subcontractor.




              Page 18                                          GAO-19-500 Construction Contract Changes
Appendix I: Objectives, Scope, and
Methodology




Administration’s (GSA) Public Buildings Service (PBS) obligated
approximately $1.9 billion for construction contracts, with approximately
$870 million going to small business concerns. To assess the reliability of
the FPDS-NG data we used, we (1) performed electronic testing of
selected data elements, and (2) reviewed existing information about the
FPDS-NG system and the data it produces. Specifically, we reviewed the
data dictionary, data validation rules, and other documentation. Based on
these steps, we determined the data were sufficiently reliable for the
purposes of this report.

To identify federal construction industry representatives for this
engagement, we collected information on potential associations from
various sources including previous congressional testimony and our prior
work. From this list of options, we sought organizations that were focused
on federal construction contracting, included a small business focus,
represented a large number of contractors, and had performed previous
advocacy work on the issues of under review in this engagement. Based
on these criteria, we selected two organizations to interview: the
Associated General Contractors of America and the National Association
of Small Business Contractors. The Associated General Contractors of
America, which sent a representative to a congressional hearing on the
contract change process, represents 26,000 member firms and includes a
division dedicated to federal construction as well as a small business
committee. The National Association of Small Business Contractors
specializes in small business contractors working with the federal
government, and is affiliated with the American Small Business Chamber
of Commerce. We interviewed representatives from these associations to
confirm background information about how the change process impacts
industry and further discuss the factors that affect process time frames.

To identify the factors which affect the time it takes to finalize contract
changes at selected agencies, we reviewed relevant legislation such as
the John S. McCain National Defense Authorization Act for Fiscal Year
2019, regulations including the Federal Acquisition Regulation (FAR), the
Defense Federal Acquisition Regulation Supplement, GSA Acquisition
Regulation, and the GSA Acquisition Manual and relevant agency policies
and guidance. We interviewed staff from the Office of Management and
Budget’s Office of Federal Procurement Policy—the Administrator of
which serves as the Chair of the FAR Council—and contracting officials
from the PBS and USACE. In addition, we interviewed officials from
GSA’s Office of Small Business Utilization and USACE’s Office of Small
Business Programs to discuss their role in the change process and their
perspective on possible impacts to small business concerns.


Page 19                                GAO-19-500 Construction Contract Changes
Appendix I: Objectives, Scope, and
Methodology




To assess the extent to which selected agencies monitor time frames for
finalizing contract changes, we collected and reviewed available GSA
data on contract modifications. We also collected available data and
analysis from USACE on construction contract changes from January 1,
2013 to August 17, 2018—representing more than 62,000 changes from
the more than 40 USACE districts and one office that execute
construction contracts—obtained from the USACE’s Resident
Management System. We reviewed USACE analysis of those data that
calculated time frames for the contract changes by measuring the time
elapsed from the date a proposal is received to when the contract change
is finalized by the signature of Standard Form 30, which officially modifies
the contract. We also reviewed system documentation on the
requirements for users to enter data into the systems. We interviewed
PBS and USACE officials at the headquarters level to discuss the time
frames for contract changes, including on how long officials believe the
process takes, what data are available, and who reviews any data
collected on the contract change process. We discussed the provided
USACE data with knowledgeable USACE officials who performed the
calculations to understand their process, assumptions, and methodology.
We determined the data were sufficiently reliable for the purposes of
describing what is known about the time frames for finalizing construction
contract changes. We also interviewed an official in GSA’s Office of
Government-wide policy, to discuss any GSA-wide plans for system
changes.

We conducted this performance audit from August 2018 to July 2019 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings based
on our audit objectives.




Page 20                                 GAO-19-500 Construction Contract Changes
Appendix II: Comments from the Department
             Appendix II: Comments from the Department
             of Defense



of Defense




             Page 21                                     GAO-19-500 Construction Contract Changes
Appendix II: Comments from the Department
of Defense




Page 22                                     GAO-19-500 Construction Contract Changes
Appendix III: Comments from the General
              Appendix III: Comments from the General
              Services Administration



Services Administration




(102975)
              Page 23                                   GAO-19-500 Construction Contract Changes
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