    [House Hearing, 106 Congress]
    [From the U.S. Government Publishing Office]

           H.R. 4012, THE CONSTRUCTION QUALITY ASSURANCE ACT OF 2000

    =======================================================================

                                    HEARING

                                   before the

                     SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                          INFORMATION, AND TECHNOLOGY

                                     of the

                         COMMITTEE ON GOVERNMENT REFORM
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED SIXTH CONGRESS

                                 SECOND SESSION

                                       ON

                                   H.R. 4012

    TO ASSURE QUALITY CONSTRUCTION AND PREVENT CERTAIN ABUSIVE CONTRACTING
     PRACTICES BY REQUIRING EACH BIDDER FOR A FEDERAL CONSTUCTION CONTRACT
     TO IDENTIFY THE SUBCONTRACTORS THAT THE CONTRACTOR INTENDS TO USE TO
                  PERFORM THE CONTRACT, AND FOR OTHER PURPOSES

                                   __________

                                 JULY 13, 2000

                                   __________

                               Serial No. 106-238

                                   __________

           Printed for the use of the Committee on Government Reform

                                     ______

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                         COMMITTEE ON GOVERNMENT REFORM

                         DAN BURTON, Indiana, Chairman
    BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
    CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
    CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
    ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
    JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
    STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
    JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
    THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
    DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington,
    MARK E. SOUDER, Indiana                  DC
    JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
    STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
    MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
        Carolina                         ROD R. BLAGOJEVICH, Illinois
    BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
    DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
    ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
    LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
    JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
    GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
    DOUG OSE, California                             ------
    PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont
    HELEN CHENOWETH-HAGE, Idaho              (Independent)
    DAVID VITTER, Louisiana

                          Kevin Binger, Staff Director
                     Daniel R. Moll, Deputy Staff Director
                         James C. Wilson, Chief Counsel
                            Robert A. Briggs, Clerk
                     Phil Schiliro, Minority Staff Director

       Subcommittee on Government Management, Information, and Technology

                       STEPHEN HORN, California, Chairman
    JUDY BIGGERT, Illinois               JIM TURNER, Texas
    THOMAS M. DAVIS, Virginia            PAUL E. KANJORSKI, Pennsylvania
    GREG WALDEN, Oregon                  MAJOR R. OWENS, New York
    DOUG OSE, California                 PATSY T. MINK, Hawaii
    PAUL RYAN, Wisconsin                 CAROLYN B. MALONEY, New York

                                   Ex Officio

    DAN BURTON, Indiana                  HENRY A. WAXMAN, California
              J. Russell George, Staff Director and Chief Counsel
                             Randy Kaplan, Counsel
                               Bryan Sisk, Clerk
                        Trey Henderson, Minority Counsel

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on July 13, 2000....................................     1
        Text of H.R. 4012............................................     3
    Statement of:
        Barnhart, Douglas E., chief executive officer, Douglas E.
          Barnhart Inc., San Diego, CA, representing the Associated
          General Contractors of America.............................    76
        Drabkin, David, Deputy Associate Administrator, Office of
          Acquisition Policy, General Services Administration........    14
        Dunleavy, John J., executive vice president, Pierce
          Associates, Inc., Alexandria, VA, representing the
          Mechanical-Electrical-Sheet Metal Construction Alliance....    59
        Fuqua, John, chief executive officer, Carol Electrical Co.,
          Inc., Los Alamitos, CA, representing the National
          Electrical Contractors Association.........................    38
        Petzen, George, skylight specialist, Traco Skytech Systems,
          Bloomsburg, PA.............................................    32
        Swab, William K., president, Ennis Electric Co., Manassas,
          VA, representing the American Subcontractors Association...    24
    Letters, statements, etc., submitted for the record by:
        Barnhart, Douglas E., chief executive officer, Douglas E.
          Barnhart Inc., San Diego, CA, representing the Associated
          General Contractors of America, prepared statement of......    79
        Drabkin, David, Deputy Associate Administrator, Office of
          Acquisition Policy, General Services Administration,
          prepared statement of......................................    16
        Dunleavy, John J., executive vice president, Pierce
          Associates, Inc., Alexandria, VA, representing the
          Mechanical-Electrical-Sheet Metal Construction Alliance,
          prepared statement of......................................    62
        Fuqua, John, chief executive officer, Carol Electrical Co.,
          Inc., Los Alamitos, CA, representing the National
          Electrical Contractors Association, prepared statement of..    40
        Petzen, George, skylight specialist, Traco Skytech Systems,
          Bloomsburg, PA, prepared statement of......................    34
        Swab, William K., president, Ennis Electric Co., Manassas,
          VA, representing the American Subcontractors Association,
          prepared statement of......................................    27

           H.R. 4012, THE CONSTRUCTION QUALITY ASSURANCE ACT OF 2000

                                  ----------

                            THURSDAY, JULY 13, 2000

                      House of Representatives,
    Subcommittee on Government Management, Information,
                                        and Technology,
                                Committee on Government Reform,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 10 a.m., in
    room 2154, Rayburn House Office Building, Hon. Stephen Horn
    (chairman of the subcommittee) presiding.
        Present: Representatives Horn, Biggert, Walden, Ose, Burton
    (Ex Officio), Turner, and Kanjorski.
        Staff present: J. Russell George, staff director and chief
    counsel; Randy Kaplan, counsel; Bonnie Heald, director of
    communications; Bryan Sisk, clerk; Elizabeth Seong, staff
    assistant; Will Ackerly, Chris Dollar, and Davidson Hullfish,
    interns; Trey Henderson, minority counsel; Mark Stephenson,
    minority professional staff member; and Jean Gosa, minority
    assistant clerk.
        Mr. Horn. The Subcommittee on Government Management,
    Information, and Technology will come to order.
        We're here today to examine H.R. 4012, the Construction
    Quality Assurance Act of the year 2000, introduced by
    Representative Kanjorski from Pennsylvania. This bill is an
    attempt to ensure quality construction on Federal public works
    projects. The bill is designed to discourage practices known as
    ``bid shopping'' and ``bid peddling.'' Bid shopping occurs when
    a general contractor seeks to obtain lower-priced
    subcontractors than those listed in the original bid. Bid
    peddling occurs when a subcontractor reduces its price to
    induce the prime contractor to substitute that company for a
    subcontractor listed on the bid.
        H.R. 4012 would require companies that bid on Federal
    construction projects costing more than $1 million to list the
    subcontractors they intend to use on the project. The bill
    would also establish a set of procedures that contractors must
    follow if they want to substitute a subcontractor listed in the
    original bid. The bill limits these substitutions, however. A
    contractor could only replace a listed subcontractor for good
    cause, such as death, dissolution, or bankruptcy of the
    subcontractor and with the consent of the contracting officer.
        From 1963 until 1983 the General Services Administration
    Procurement Regulations required companies bidding on Federal
    construction projects to list the subcontractors they intended
    to use for the project. The General Services Administration in
    1984 rescinded this requirement, in part, to reduce project
    delays and administrative costs and burdens associated with the
    requirement. Currently, there is no Federal bid-listing
    requirement.
        Today we will examine a number of issues related to H.R.
    4012, including the extent to which contractors are engaging in
    bid shopping and/or bid peddling on Federal construction
    projects. In addition, we will hear testimony of the impact of
    these practices on contractors and construction projects and
    whether the provisions of this bill would ensure quality
    Federal construction.
        We welcome our witnesses. We look forward to your testimony
    and are now delighted to yield to the ranking member on the
    subcommittee, the gentleman from Texas, Mr. Turner.
        [The text of H.R. 4012 follows:]
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        Mr. Turner. Thank you, Mr. Chairman.
        H.R. 4012, the Construction Quality Assurance Act of 2000,
    was sponsored by Representative Paul Kanjorski; and I think
    Congressman Kanjorski will join us shortly, Mr. Chairman. This
    bill ends the practice of bid shopping by requiring prime
    contractors to list the names of the subcontractors that they
    intend to use on a project on bid day and stick with those
    subcontractors through the duration of the project. This
    process is known as bid listing.
        The bill also allows substitution of subcontractors only
    for situations such as bankruptcy or inability of the
    subcontractors to perform the contract. In this matter, the
    preliminary contractors are required to use the subcontractors
    that they used to prepare the bid at the price they agreed to
    pay on bid day.
        I want to commend Representative Kanjorski for his
    leadership on the issue. I appreciate the chairman holding this
    hearing, and I welcome all the witnesses here today to talk
    about the issues that the legislation raises.
        Thank you, Mr. Chairman.
        Mr. Horn. Thank you.
        Since we're waiting for Mr. Kanjorski, I'll give you the
    ground rules for testifying here. Some of you have been
    regulars and others haven't. We will go by the order on the
    agenda. And when we call your name like, let's say, Mr.
    Drabkin, who is going to be the first witness, your resume,
    your full texts are automatically in the hearing record. We'd
    like you to summarize that in 5 minutes, whatever your text is,
    because the Members have had it, and they know what the written
    text is. So we would like to get down to the essences, if you
    will, so then we can have a dialog between the Members and you
    and within those if there are differing opinions.
        We also--since we are an investigating subcommittee of the
    full Committee on Government Reform, we swear all witnesses or
    affirm. So we will do that right now. So if you will stand,
    raise your right hands--and that includes your assistants
    behind you if they might be whispering in your ear. So get them
    to stand, too.
        [Witnesses sworn.]
        Mr. Horn. The clerk will note the six witnesses and any
    supporters behind, and they will be affirmed now.
        Since Mr. Kanjorski is a little late, we'll begin with
    David Drabkin, the Deputy Associate Administrator, Office of
    Acquisition Policy for the U.S. General Service Administration.
    Mr. Drabkin.

      STATEMENT OF DAVID DRABKIN, DEPUTY ASSOCIATE ADMINISTRATOR,
     OFFICE OF ACQUISITION POLICY, GENERAL SERVICES ADMINISTRATION

        Mr. Drabkin. Thank you, Congressman Horn.
        Mr. Chairman, getting to the meat of the testimony, there
    are essentially three points that we wanted to make as to why
    the administration is opposed to this bill. First point deals
    with locking the prime contractor into business relationships
    that can be revised only with permission of the contracting
    officer, which requires the contracting officer to become
    involved in prime subcontractor relationships, an issue which
    the Federal Government has traditionally avoided, invading the
    privity of contract between primes and subs.
        We believe that this will not only do damage to the
    existing contract system overall by requiring contracting
    officers to spend a great deal of time involved in these
    private relationships between the prime and the sub, but it
    also will invade the prime's ability to manage his contracts or
    her contracts in an efficient manner. Inserting the government
    in that process won't add any value.
        Second, we point out that the subcontractors listing
    requirements could adversely affect the timeliness and cost of
    contract performance and would increase the government's
    administrative expenses.
        One of the key issues to getting the job done that the
    Congress gives us to do in terms of construction is getting the
    contracts awarded and getting the construction started and
    getting the project delivered on time for the money which the
    government has agreed to pay.
        This process proposed in H.R. 4012 would result in
    government contracting officers having to spend a great deal of
    time up front and during contract administration should there
    be a need for changing a subcontractor as outlined in the bill.
    This time normally will result in work getting stopped while we
    resolve the issue of who's going to be permitted to perform the
    work during the course of the general construction project.
    Every time you delay performance, there's an additional cost to
    the government in terms of real dollars, filing claims and
    there's time; and that time will affect the ability of the
    government to deliver that project in accordance with the
    schedule.
        Third, we point out that there's an issue dealing with what
    I like to refer to as subbing up. One of the things that in my
    last position at the Pentagon renovation we were trying to do
    was to allow the government to have access to the best
    subcontractors team possible. As you know, today in major
    construction projects most of the work--a large portion of the
    work is done by subcontractors. If we force contractors in the
    community to go out and enter into exclusive arrangements with
    subcontractors before we make award of the contract, the result
    would be a suboptimized subcontractors team.
        One of the things we were trying to figure out how to do in
    a fair and equitable manner was to allow the prime, after
    award, to go out and pick the best subcontractors team to help
    get the job done. And in a community like Washington there are
    not a lot of big--or small, for that matter--mechanical,
    electrical, and other types of subcontractors.
        Typically, prime contractors engage, they lock one up, and
    there's no others for them to choose from. If this bill were
    passed as the way it's currently written, the government would
    always wind up with a suboptimized subcontractor team instead
    of the possibility of getting the best of the subcontractors
    available post award.
        For these three reasons, then, essentially we oppose the
    bill.
        We also provide in our testimony later on the results of
    our experience from 1964, I believe it was, to 1983 in terms of
    having this kind of provision and what impact it had on the
    agency.
        Thank you for this opportunity to present the
    administration's position.
        Mr. Horn. We thank you.
        [The prepared statement of Mr. Drabkin follows:]
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        Mr. Horn. We're going to go out of order now. Mr.
    Kanjorski, the author of the bill, of Pennsylvania is here. If
    he has an opening statement he's certainly welcome, and we'll
    put the testimony following his statement.
        Mr. Kanjorski. Mr. Chairman, I look forward to listening to
    the testimony. I pass for a few more extra minutes when we get
    to questions.
        Mr. Horn. I thank the gentleman.
        We now have our second witness, which is William K. Swab,
    the president of the Ennis Electric Co. in Manassas, VA,
    representing the American Subcontractors Association. Mr. Swab.

     STATEMENT OF WILLIAM K. SWAB, PRESIDENT, ENNIS ELECTRIC CO.,
        MANASSAS, VA, REPRESENTING THE AMERICAN SUBCONTRACTORS
                              ASSOCIATION

        Mr. Swab. Mr. Chairman, members of the committee, thank you
    for this opportunity to speak today in support of H.R. 4012.
    Hopefully, I can give you a little different perspective.
        My name is Chip Swab, and I'm president of Ennis Electric
    Co. in Manassas, VA. My company performs Federal construction
    work, including 19 specific contracts in the past 2 years. I am
    a member of the American Subcontractors Association, which
    represents over 6,500 construction specialty trade contractors
    all over the United States, and I am speaking on their behalf
    today.
        The American Subcontractors Association strongly supports
    H.R. 4012, the Construction Quality Assurance Act of 2000,
    because it will end the practice of bid shopping on Federal
    construction, a practice which cheats the government out of
    value and quality.
        Bid shopping occurs when a prime contractor approaches its
    subcontractor after it has been awarded a construction contract
    and tells the subs to lower their prices or lose the
    subcontracts. The savings from that subcontract enrich the
    prime contractor to the detriment of the value delivered to the
    owner. Although bid shopping may be unethical, it currently is
    legal and sometimes seems to be encouraged on Federal
    construction. Of the 19 Federal contracts my company has
    performed work on and the many more that we have bid on during
    the past 2 years, every single one has featured some form of
    bid shopping.
        Today, the Federal Government does not get the best value
    for construction. This is because in most cases the final
    decisions as to which contractors, suppliers and manufacturers
    will be used on a project are not made until after the
    government accepts a bid or proposal from a prime contractor.
    Let me give some background, explain how the current system
    operates, and provide my assessment of how H.R. 4012 will
    benefit both taxpayers and the construction industry.
        For many years, the accepted method of procurement for
    Federal construction was the ``Invitation for Bid'' or ``IFB.''
    We referred to it as the ``rip it and read'' process, since bid
    envelopes were brought to the public area of a Federal agency,
    and at a given hour on a given date all bids received were
    opened, read and recorded in public.
        Having the paperwork properly executed was important, but
    the overriding factor was the lowest price. Participating
    contractors saw this process as open and fair, but it did not
    offer the Federal agency discretion to choose a contractor on
    any basis other than price. Reputation, past performance,
    financial stability and special expertise were not factors that
    were available for review. As a result, many jobs suffered
    because the low bidder was not always the best available
    contractor to perform the work. Contractors that performed good
    or even exemplary work were not rewarded for their efforts
    unless they had the low bid.
        Fortunately, the government learned an important lesson:
    You get what you pay for. By only considering price, much of
    the construction delivered under the IFB process was inferior.
    So the government looked to the private sector for another way,
    Best Value Procurement.
        Out went the Invitation for Bid process, and in came the
    Request for Proposal, of which there are many forms. The main
    feature is the increased ability of a Federal agency to weigh
    factors in addition to price in making a choice of prime
    contractor. Unlike the IFB process, the review and
    decisionmaking process followed for an RFP is done in private,
    and pricing is not revealed until after the notification of
    award to the prime contractor.
        Under the RFP process, the emphasis is on getting the best
    value for the price paid, not just on having the lowest price.
        But the RFP process is undermined and the government's
    value is reduced by a practice known as bid shopping. Bid
    shopping occurs when a general contractor forces a
    subcontractor to reduce the price or forfeit the subcontract
    after the prime contractor's bid has been accepted by the
    government. Since subcontractors know they'll be asked to lower
    their price once the prime wins the contract, few
    subcontractors put their best price out on the street at the
    beginning of the proposal process. They wait until the actual
    buy decisions are made, a process that takes place after the
    government awards the prime contract. Starting at the
    manufacturer level, through their authorized sales agents or
    distributors, through suppliers, then subcontractors and
    specialty contractors and finally through the prime contractor,
    there is a bid shopping markup of costs at every level to the
    final price that is quoted to the government.
        Since few of these parties offer their best pricing when
    they submit their original proposals because they know they
    will be shopped after the contract is awarded, the government
    gets an inflated bid, not the best value or best quality that
    the RFP process is supposed to provide. The construction
    delivered under the current system costs the government
    considerably more than it is actually worth, with the prime
    contractors pocketing whatever amount they are able to squeeze
    out of their subcontractors.
        Further, under the current system everyone knows that there
    will be another bite at the apple after the prime bid is
    awarded and all of the subcontracts are shopped. Therefore,
    many firms won't expend the time and effort required for a
    detailed review prior to bid day, because they know they can
    afford to wait until the bid shopping that will come later.
    This lack of attention to detail is a major contributor to
    errors and omissions that plague a project from its inception
    and further detract from the quality side of the best value
    equation.
        H.R. 4012 and its requirements for bid listing of major
    subcontractors would change this process. By requiring a
    general contractor to make its final decisions on what
    subcontractors and suppliers it is going to use and to commit
    to those decisions in writing at the time it submits its
    proposal to bid, the dynamics for the pricing of a project
    change. To use a few cliches, the day of reckoning, the time to
    play your hand, the chance to lay all your cards on the table
    is the due date for submission of the proposal.
        Under H.R. 4012, prime contractors and subcontractors such
    as myself can tell all of our suppliers and specialty firms
    that in order to be named on the proposal we must have
    everyone's best price on bid day. In order to provide the best
    price, we have to spend the time and effort necessary to study
    the contract specifications and to assure that we all fully
    understand all the requirements, because there is going to be
    no going back for another round.
        Once our suppliers know that we are going to make a buy
    commitment on bid day, they can take the same leverage and use
    it with the manufacturers and the agents that represent them.
    The combination of open competition and a date and time certain
    when final choices will be made assure that each party at each
    level is willing to quote its best number on bid day. That way
    the final real price is passed directly to the end user, in
    this case the Federal Government and the taxpayers. H.R. 4012
    would assure that taxpayers receive full value and quality for
    the price they are paying.
        Sorry, I've gone over my time. I would just like to state
    that we respectfully urge your support for and quick action on
    H.R. 4012. Thank you very much.
        Mr. Horn. I thank you very much.
        [The prepared statement of Mr. Swab follows:]
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        Mr. Horn. Our next witness is George Petzen, the skylight
    specialist from the TRACO Skytech Systems in Bloomsburg, PA. I
    assume that's in Mr. Kanjorski's district. Good. Welcome. We're
    glad to have you here.

    STATEMENT OF GEORGE PETZEN, SKYLIGHT SPECIALIST, TRACO SKYTECH
                        SYSTEMS, BLOOMSBURG, PA

        Mr. Petzen. I'm very glad to be here. Thank you very much,
    Mr. Chairman, members of the committee.
        I'm here to testify in support of this legislation. I think
    it's very important. The Construction Quality Assurance Act of
    2000 will actually benefit not only the government, it will
    benefit subcontractors, and it actually will benefit the
    general contractors on a project by leveling the playing field
    not only where the general contractors play but for the
    subcontractors and for the--for everyone underneath, not only
    second-tier players but third-tier material suppliers where we
    sometimes play as well.
        We talk about these things kind of in generalities, but I
    think it's important to look at what bid shopping actually does
    in the real world.
        Several years ago, the Veterans Administration did a major
    renovation of a property in Wilkes-Barre, PA. The bid process
    worked as it usually does, subcontractors and material
    suppliers preparing bids to the bidding general contractors. On
    the selection of the low general contractor for the bid,
    everyone knows who is going to be doing the job.
        The day following that award, the general contractor puts
    several of the bid packages, the major parts of the
    construction documents, major parts of the scope of work, back
    out on the street and rebids them. He owns the contract from
    the government. He's going to build this building at this
    price. And the day after he takes major sections of the package
    and rebids them.
        I strongly suspect that the government was not benefited by
    a rebate from the contractor at that point. This process
    happened not once but twice. And, after that, there were
    negotiations. We were called in to look at certain areas of
    scope; and at that point, at the end of our discussion, we were
    presented with the low contractor's proposal, subcontractor's
    proposal and told this is the number you have to beat to write
    the business.
        That's not a fair process. It's not what the government
    expects. Certainly it's not what subcontractors expect. But we
    are exposed to these practices not every once in a while but on
    virtually every job. It is absolutely undemocratic; and, at
    times, subcontractors are our worst enemy. We're approached
    with, beat this number and you play the game of how low can you
    go. And our margins get skinnied up past the point of it being
    a safe margin, but in order to write the business, it's what
    have you to do. It's not a fair process. It really needs to
    change.
        To testify in this room, which is so nicely appointed, I
    kind of wonder if the guy that was low on bid day for all the
    case work and all of the appointments in this room actually was
    a subcontractor that did the work. It would be nice to think
    that that was the case, but my experience is it probably was
    someone else. It was probably someone else. Not fair for the
    government.
        There's a lot of pride in doing this work. You know, to
    walk into this room as a subcontractor that performed this
    business is a source of great pride. And we hang our hats on
    that. To walk in being low on bid day and look at someone
    else's work that was based on your price, doesn't give you the
    same source of pride. We need to reinstate pride across the
    board for the material suppliers, for the subcontractors, for
    the primes, for the design professionals, and for the
    government. Thank you.
        Mr. Horn. Thank you. That's a very moving statement.
        [The prepared statement of Mr. Petzen follows:]
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        [GRAPHIC] [TIFF OMITTED] T3004.028

        Mr. Horn. The next witness I've known for a number of years
    and am delighted to see him here, and that's John Fuqua, the
    chief executive officer of Carol Electrical Co. in Los
    Alamitos, CA, right over my district line--why don't you move
    that, John--representing the National Electrical Contractors
    Association. Pleasure to have you here.

        STATEMENT OF JOHN FUQUA, CHIEF EXECUTIVE OFFICER, CAROL
       ELECTRICAL CO., INC., LOS ALAMITOS, CA, REPRESENTING THE
              NATIONAL ELECTRICAL CONTRACTORS ASSOCIATION

        Mr. Fuqua. Mr. Chairman, members of the committee, first of
    all, thank you for the opportunity to testify here this
    morning. I am an electrical contractor, and I'm also here today
    speaking for the National Electrical Contractors Association.
        Mr. Horn. I was going to tell you. The clerk ought to go
    down and do that. Move that mic closer to you.
        Mr. Fuqua. Is that better?
        Mr. Horn. I think so.
        Mr. Fuqua. Bid shopping has been with us a long time--
    certainly as long as I have been an electrical contractor. It
    is an unethical practice which works not only to decrease the
    value of the construction the owner receives for his price but
    also to undermine the ability of the contractor to offer his
    best price and guarantee the quality of work produced for that
    price. Unfortunately, it's a common practice on Federal, State,
    local and private work alike.
        When I spend time and money to prepare a bid, I expect that
    it will be accepted and honestly used if it is low and
    responsive. It's my best price, one that will give the general
    contractor and the owner true value for their construction
    price and where I can do the work properly and also make a
    reasonable profit.
        If, after he has been awarded the contract, the general
    contractor shops my bid or tries to lower my price by
    threatening to shop it, he is doing me and his customer a
    disservice. When he attempts to shop my bid, he is trying to
    increase his own profitability at my expense and also the
    expense of the customer.
        I have given the prime contractor my best price. I want the
    work, and there is no reason for me to add a margin to my bid.
    Doing so could mean that I would not be low and not get the
    job. Squeezing me or another for a better price once the prime
    contractor has the contract means that I would have to cut or
    eliminate my profit or, worse yet, cut corners on a job. I'm
    not in business to work at a loss. I'm not in business to lower
    quality on my jobs or endanger a hard-won reputation of
    quality. So when a contractor shops my bid or threatens to do
    so, I don't play the game. I do not bid that contractor in the
    future. It's simply not worth the danger to my company's
    reputation.
        But if I choose not to work for the contractor again, I
    have already lost time and money spent to estimate the job and
    price it. From that standpoint, this committee, the customer is
    a loser, too. He doesn't know it. He doesn't know he is a
    loser. He's paid for my best workmanship, quality and expertise
    as part of the contract price; and he's not going to get it.
    It's going to the prime contractor's wallet as a windfall
    profit.
        A legislative approach to bid listing has been around for a
    long time. Since 1931, in the 72nd Congress, and again in 1938,
    a measure passed both Houses of Congress, was vetoed by the
    President because of an unrelated provision requiring agencies
    to supervise subcontractor payments.
        Bills have been introduced in many Congresses since then
    with varying degree of activity. Both the House and Senate have
    each again passed bid listing measures in years since the veto.
    This activity has caused the GSA and others to take a close
    look at the practice.
        In 1963, the General Services Administration tried a pilot
    bid listing regulation. In 1964, it issued general bid listing
    regulations covering contracts over $150,000 and subcontracts
    over 3.5 percent of the total. In 1965, the Interior Department
    issued similar regulations. Both agencies experienced good
    results.
        Speciality contractors have been consistent in their
    efforts to implement a policy of bid listing. In March 1965,
    the Associated General Contractors also adopted an official
    policy supporting bid listing for mechanical and electrical
    specialty contractors on all Federal building construction
    products. They are on record as of this day abhorring the bid
    shopping and peddling practice.
        In the meantime, in 20 years experience with the bid
    listing policy in the Federal agencies, they exposed flaws in
    the regulations, administered under sometimes unclear and
    confusing regulations. These led to some administrative
    complications and costly lawsuits. By 1984, the GSA, the last
    remaining Federal agency requiring bid listing, dropped its
    use. And that brings us right back to where we were in 1931,
    seeking a legislative remedy to a costly pervasive and divisive
    problem, the ongoing unethical practice of bid shopping and
    peddling.
        H.R. 4012 makes use of seven decades of experience in
    legislative and executive approaches to bid listing. It is
    simple enough to be understandable. Its scope is broad enough
    to be effective, and yet it's limited enough not to be an
    insurmountable burden. It sets the administrative standard
    that's fair, understandable and enforceable, taking Federal
    agencies off the hook and protecting them from unwanted
    lawsuits. The language is clear, concise and workable.
        Federal agencies should compare this measure objectively
    against what has gone on before. We believe they will find it a
    usable and cost-effective tool to assure the government and
    taxpayers alike receive quality construction for what they've
    paid for.
        NACA would like to thank Congressman Kanjorski, Chairman
    Horn and other Members, cosponsors of this committee for
    providing us with a superior piece of legislation. We urge this
    subcommittee to report it favorably and to move it swiftly
    through the legislative process. Thank you.
        Mr. Horn. Thank you very much.
        [The prepared statement of Mr. Fuqua follows:]
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        Mr. Horn. We now go to Mr. John J. Dunleavy, the executive
    vice president of Pierce Associates in Alexandria, VA; and he
    represents the Mechanical-Electrical-Sheet Metal Construction
    Alliance. Mr. Dunleavy.

    STATEMENT OF JOHN J. DUNLEAVY, EXECUTIVE VICE PRESIDENT, PIERCE
     ASSOCIATES, INC., ALEXANDRIA, VA, REPRESENTING THE MECHANICAL-
              ELECTRICAL-SHEET METAL CONSTRUCTION ALLIANCE

        Mr. Dunleavy. Good morning Mr. Chairman, members of the
    subcommittee. My name is John Dunleavy. I'm executive vice
    president of Pierce Associates. Pierce Associates is a member
    of the Mechanical Contractors Association of America and, I
    should also add, a proud member of the Associated General
    Contractors.
        I am pleased to be here today on behalf of the Mechanical-
    Electrical-Sheet Metal Alliance to support H.R. 4012, the
    Construction Quality Assurance Act of 2000. The Alliance,
    comprised of MCAA, the National Electrical Contractors
    Association, and the Sheet Metal and Air Conditioning
    Contractors' Association of America, represents more than
    12,000 speciality construction contracting firms that employ
    more than 540,000 highly skilled employees.
        Alliance contractors hold a growing market share of more
    than 60 percent of the Nation's nonresidential construction
    activity. MCAA and Alliance contractors compete vigorously in
    the market for Federal construction projects and perform as
    prime contractors, speciality subcontractors, and sub-
    subcontractors.
        Pierce Associates has been in business since 1961,
    performing work on Federal projects in the Washington, DC,
    metropolitan area, primarily as a subcontractor. MCAA and the
    Alliance strongly support H.R. 4012, which is aimed at
    improving the quality of Federal construction project delivery
    and the competitiveness of Federal construction markets. By
    effectively stemming the parallel abuse of business practices
    of bid shopping and bid peddling, both universally condemned by
    leading industry groups, but which nevertheless occur in
    practice, the Construction Quality Assurance Act will bring
    many more quality construction firms back into competition in
    the Federal market.
        Additionally, the act will lead to project performance
    based on best-value performance contracting, rather than
    adversarial buying-the-job practices.
        H.R. 4012 is a necessary Federal procurement reform that
    continues the pattern of procurement policy improvements
    starting with the Competition in Contracting Act, the Prompt
    Payment Act and its amendments, the Federal Acquisition
    Streamlining Act and the recent Miller Act Amendments.
        Taken together, these predecessor reforms establish
    congressional policy allowing Federal construction purchasing
    officials to be much more discerning market participants by
    choosing from among the full range of proven best-value
    contractor selection options, gaining the full performance
    incentives of past performance evaluations, and fully utilizing
    FAR authority to evaluate and assess the responsibility and
    performance capabilities of major subcontractors actually
    performing the vast majority of work on Federal projects.
        By extending bid listing protections to major first-tier
    subcontractors, H.R. 4012 would ensure that performing
    contractors and subcontractors are committed to successful
    project performance. Unfortunately, bid shopping and bid
    peddling can lead to adversarial wrangling over construction
    documents, in an effort to recover fiscally from post-bidding
    auctions selling the job to chisel down the actual cost of the
    low bid, would be eliminated. Additionally, bid listing would
    end the administrative and claims processing overhead
    engendered by bid shopping and bid peddling, overhead that far
    outstrips any perceived cost savings because these unethical
    practices leave the performing subcontractors vulnerable to an
    unprotected auction after the initial bidding.
        Attached is an ostensibly humorous trade press item that
    describes the counterproductive risk transfer dynamics in the
    low-bid system.
        The trend in actual procurement practices requires reform
    of the low-bid selection procedure. Subcontractor listing is
    imperative on low-bid as well as the competitive negotiation
    best-value systems. Over the last decade, Federal contracting
    officials have voted with their feet in choosing between low-
    bid versus competitive negotiation in construction contractor
    selection methods. Attached are tables based on Alliance-
    commissioned research with the Federal Procurement Data
    Service, showing the precipitous decline in the use of the low-
    bid selection method in construction procurements and
    speciality construction over the period from 1990 to 1999.
        The Alliance research documents that agencies are turning
    more and more to negotiated best-value contractor selection
    because Part 15 of the Federal Acquisition Regulations
    encourages identification and past-performance evaluation of
    major subcontractors. Discerning public officials know they get
    better results when they know the qualifications, skills and
    performance records of the contractors and subcontractors who
    will be performing the work. H.R. 4012 would help preserve the
    use of the low-bid system as a viable best-value selection
    method by protecting the integrity of careful estimates and
    retaining quality construction contractors competing in that
    market.
        Similarly, while FAR encourages the evaluation of major
    subcontractors in competitive negotiations, the protections
    against post-award substitutions in H.R. 4012 should
    specifically be extended to that selection system as well. In
    that way, the government will be assured the performance
    premium it bargains for when awarding on the basis of
    competitive proposals.
        In conclusion, the severely deleterious effects of bid
    shopping and bid peddling on construction industry performance
    is widely recognized. Similarly, the beneficial aspects of
    listing major subcontractors are just as widely recognized.
    Moreover, the trends in direct Federal procurement prove this
    trend in actual agency experience. Because of that, the
    subcommittee should continue its impressive record of Federal
    construction procurement reforms and bring both best-value
    contractor selection systems--low-bid and negotiated
    selection--into line with the best private-sector procurement
    practices.
        Mr. Chairman, thank you and your colleagues for your
    steadfast interest in keeping the Federal construction market
    up to par with the best practices in other public and private
    sector markets. This proposal should clearly apply to all
    solicitations, both invitations for bid and requests for
    proposals.
        It is our firm conviction that the pace of change in the
    industry and in Federal procurement law virtually requires bid
    listing as a way to retain and attract quality performance
    subcontractors to obtain for the public and taxpayer the
    quality performance they deserve. Thank you for your
    opportunity to testify.
        Mr. Horn. Thank you, Mr. Dunleavy.
        [The prepared statement of Mr. Dunleavy follows:]
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        Mr. Horn. We have with us the chairman of the full
    Committee on Government Reform. We're delighted to see Mr.
    Burton, the gentleman from Indiana, who's here for an
    introduction.
        Mr. Burton. Thank you, Mr. Horn.
        I am always interested in legislation Mr. Kanjorski is
    proposing, and I'm anxious to hear all the testimony. The
    testimony I've missed thus far I want to apologize for, and I
    will be reading it, so I will be up to date.
        I'm particularly happy to be here at this time because I
    see my good friend Doug Barnhart and his lovely wife Nancy
    there; and I think your daughter is with you, isn't she?
    They're from San Diego.
        While I won't get into a lengthy introduction, Mr.
    Chairman, I will tell you that these are two of the nicest
    people I have ever met. They do an awful lot of things for the
    community in San Diego. They're very active in something that's
    near and dear to my heart, and that is helping abused children,
    and they worked very hard in the Children's Center out in the
    San Diego Center for Children. They've raised a lot of money
    for them and helped. That's how I got to know them.
        So I'm very happy to welcome you guys here today. If you
    don't eat too much, I'd love to take you to lunch.
        Thank you, Mr. Chairman.
        Mr. Horn. We thank you very much.
        We know have Mr. Douglas E. Barnhart, the chief executive
    officer of Douglas E. Barnhart Inc., San Diego, CA; and he's
    here representing the Associated General Contractors of
    America. Mr. Barnhart.

      STATEMENT OF DOUGLAS E. BARNHART, CHIEF EXECUTIVE OFFICER,
       DOUGLAS E. BARNHART INC., SAN DIEGO, CA, REPRESENTING THE
               ASSOCIATED GENERAL CONTRACTORS OF AMERICA

        Mr. Barnhart. Thank you, Congressman Burton, for that fine
    introduction.
        Good morning, Mr. Chairman and members of the committee. My
    name is Doug Barnhart. I'm CEO of the Barnhart Corp. which was
    founded in 1983 in San Diego, CA. Since that time, my company
    has constructed various projects for the Federal Government as
    well as many projects involving State agencies and lots of
    projects with private owners.
        It's received awards from the American Institute of
    Architects; Coalition for Adequate School Housing; American
    Public Works Association; Engineering Society of San Diego;
    four Best of the West awards, including two Grand awards; Grand
    Orchids, three Build San Diego awards, Build America awards.
    We're very proud of the diverse work that the corporation has
    undertaken.
        I am here today representing the Associated General
    Contractors of America and to explain our opposition to H.R.
    4012, which is misnamed Construction Quality Assurance Act of
    2000. I say it's misnamed because it does nothing to assure
    quality; and, in fact, from my experience, it will hamper my
    ability to ensure that quality and safe work is performed on
    Barnhart job sites.
        AGC represents more than 33,000 construction firms,
    including 7,500 of America's finest general contractors, 12,000
    speciality contracting firms, and over 14,000 service providers
    and suppliers associated with AGC through a network of some
    hundred chapters.
        AGC opposes H.R. 4012, bid listing for Federal procurement,
    because it is unnecessary and will be harmful to the Federal
    procurement process. The Federal Government, during a 20-year
    test period, said bid listing caused project delays, higher
    completion costs and adversely impacted the construction
    process. In addition, this legislation underlines the
    government's attempts to streamline procurement instead of
    helping them. It removes the flexibility of the prime
    contractor to manage the project and will do nothing to improve
    the quality, safety or decrease the cost of construction.
        Let me be clear, however, AGC supports industry self-
    regulation in the area of bid shopping or auctions. In its
    Model Antitrust Compliance Manual, AGC of America has indicated
    that it disfavors auctions leading to bidding inefficiencies,
    demeaning the integrity of the competitive bidding system and
    reflecting adversely on the industry relationship.
        One activity that the Federal Government is engaged in may
    be leading to a record increase in what is perceived as bid
    shopping, and that's the negotiated procurement. The way this
    works is through the best and final offer rounds called BAFOs.
    What this has done is forced prime contractors to continually
    revisit bids as they revise to another best and final round and
    in doing that they resolicit subcontractor bids. This may be
    being interpreted in the subcontracting community as bid
    shopping.
        The solution is that best and final offers should be
    solicited and submitted to ensure fairness and confidentiality
    of a competitor's bid and not used as a tool to continually
    lower the price the government will pay the prime and his or
    her team.
        I think it's important to remember that construction is not
    about steel, concrete, mechanical equipment or any of those
    things. It is a people business. It is a relationship business.
    Most general contractors are named after a person, such as
    mine, and that's because our word is on the line every time we
    sign a contract.
        In California, the State requires subcontractor listing on
    low-bid projects. However, the State of California, if you will
    check, is moving away from that. They're moving away using
    design-build, turnkey, and construction management in its
    agency procurement. The reason it's doing that is a couple of
    reasons. One is to reduce paperwork and speed up delivery but
    also to avoid disputes such as those that arise under
    subcontractor listing. The bid listing process in California is
    time consuming, burdensome and does little to protect anyone.
        Of all the work performed by the Barnhart Corp. only that
    in the State of California requires bid listing, and we have
    worked in Nevada and Texas and throughout the Southwest. I'll
    give you an example.
        On a recent high school project in Anza, CA, if you happen
    to know where that is, there was a high school bid and there
    were only two electoral bids. The Barnhart bid team questioned
    both bidders as to bonding and capability. One of the
    subcontractors said that they could not bond; the other one
    said they could bond but was unable to provide the source of
    the bond. The bid team, as it moved on to 2, had to make a
    decision. They listed the one subcontractor that said he could
    bond but would not give us the source of the bond.
        Immediately after the award, we went to the school
    district. The school district had an adverse past history with
    the subcontractor, expressed concern of how the project would
    go. Nevertheless, the subcontractor produced the required bond,
    and there was no legal basis for replacement--and there will be
    no basis for replacement under your bill either.
        The work proceeded, and the ensuing contract was nothing
    short of a disaster. The electrical subcontractor immediately
    started installing work that did not conform to the
    specifications. When the school district complained, we hired,
    at my expense a special electrical inspector to inspect the
    work, in addition to the DSA inspectors that were out there for
    the State of California. Adding more difficulty, the switch
    gear and those critical elements came in wrong, did not match
    the shop drawings that had been improved. Finally, after much
    haggling around, because every one of these individuals has an
    attorney, we finally were able to get the subcontract
    terminated and went through a delisting hearing with the school
    district, all of which took a lot of time.
        End result is as follows: The school district received the
    school 6 months late. That means some California kids did not
    get to attend their new school. The School district was unable
    to use the $10 million facility during the delay. The bonding
    company for the electrical contractor paid me $450,000, but
    that only covered half the loss. There was another half a
    million dollars out of the Barnhart Corp. into the project.
    And, worst of all, a qualified electrical contractor was not
    allowed to perform the work.
        We had liens from the Economic Development Department of
    the State of California, the IRS, suppliers, trade workers and
    three lawsuit attachments from previous contracts. But there
    was no escape because we were locked in, right on the listing.
        For every example that these fine subcontractors can give
    you, I will give you an example that is just as bad the other
    way. The point I'm trying to make is construction is a
    relationship-based business. There are owners that I do not
    work for because those owners do not match our value system.
        Subcontractors and general contractors have the same
    relationship. It is a business relationship. You do not do
    business with business partners who take advantage of you, and
    the travel on that road goes both ways.
        Requiring prime contractors to list bids puts a lot of
    strain on the bid room. There's a lot of price maneuvering
    going on before 2. All this law says is that after 2 all of
    that changes. It absolutely will not change the face of
    construction one bit. It will hamper the prime's ability to
    produce a quality project.
        Everyone is moving away from these low-bid systems where
    price is the only determining factor in whether someone does
    the job. Everyone is moving to best values--the State, the
    Federal Government. This is bad legislation. This is
    unnecessary legislation. And I believe that with my entire
    heart. Thank you.
        Mr. Horn. Thank you.
        [The prepared statement of Mr. Barnhart follows:]
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        Mr. Horn. We will now begin the questioning. Does the
    gentleman, who is Mr. Burton, would you like to begin the
    questioning?
        Mr. Burton. Thank you, Mr. Chairman.
        I think you answered my question, Mr. Barnhart. You ended
    up losing quite a bit of money on this particular job you were
    talking about because of the problems you had with that
    electrical subcontractor.
        Mr. Barnhart. Yes, sir.
        Mr. Burton. It slowed down the project by--how much did you
    say; 6 months?
        Mr. Barnhart. Six months.
        Mr. Burton. Is that something that's common or uncommon?
        Mr. Barnhart. Well, the problem is, everyone in the United
    States today has an attorney. And everyone is entitled to due
    process. So basically we were locked in. There was no legal
    basis for the replacement. No one wanted this person on the
    job. Everyone knew from the start that this was a mistake. The
    law dictated that he be awarded the job. The job was awarded.
        And then--basically, then what we suspected might happen is
    the performance issue started mounting. But, you know, the
    first time something is done wrong you don't go in for a
    request for substitution. So you wait and you live with it. You
    work through it. You do the process. And then, you know, the
    discussions take place; and it just takes months and months and
    months.
        Mr. Burton. You said California is moving away from this
    law? What do you mean? Have they changed it or----
        Mr. Barnhart. You know, procurement in this country for a
    long, long time was done particularly, specifically on a low-
    bid basis, where everyone was selected on the basis of price.
    Well, that may have worked well for the United States a long,
    long time ago, but it doesn't work well for the United States
    in the year 2000.
        These projects are complicated. They're sophisticated.
    There are computer systems that control the HVAC. There are
    electrical systems. We got ADA requirements. There's
    environmental concerns. The management of the project has
    become much, much--so important and the quality of the
    relationship. So alternate delivery systems have come in. The
    Federal Government is using them. So they're using the system
    as best they can called best value. Prime contractors are doing
    the same thing.
        Because if I'm working for the Federal Government under a
    best-value system, I better deliver. Even to deliver I'm going
    to need strong electrical contractors, I'm going to need strong
    mechanical contractors, and I want to be able to select them.
    Because, again, construction is a relationship-driven business.
        Mr. Burton. Mr. Drabkin--is that how I pronounce your name?
        Mr. Drabkin. Yes, sir.
        Mr. Burton. I was reading your statement. You said, the
    ultimate result of several months of discussions with these
    groups resulted in the agreement that the administrative burden
    to manage subcontractor listing efforts exceeded the benefits
    in 1983 based on 20 years of experience with the GSA's
    subcontractors listing requirement. Can you elaborate on that
    for me? You may have already, but if you could give me a little
    more information I would appreciate it.
        Mr. Drabkin. Unfortunately, Congressman, I wasn't present
    in the agency in 1983.
        Mr. Burton. You look a lot younger than that.
        Mr. Drabkin. What I have found through doing the
    preparation for the testimony is that the program that GSA had
    in place produced administrative costs associated with
    arbitrating or mediating or becoming involved with the
    subcontractor disputes with the prime contractors. There were
    court cases in which the agency was drawn into. There were
    protests in which the agency was drawn into. And all of those
    things, added up over that period of time, indicated to the
    agency through a public rulemaking process that it was better
    not to have this production, as opposed to have it, that the
    government's interests were better served without it.
        And, to date, I'm unaware of any significant cases where
    bid listing issues have been brought to the attention of the
    General Services Administration or, while I was in the
    Department of Defense, to the Department of Defense involving
    failure to perform or additional costs or other issues that
    would be of concern.
        Mr. Burton. Thank you, Mr. Chairman. I think that answers
    the questions I have. I'll listen to the other questions.
        Mr. Horn. I thank the gentleman; and we will now turn to
    the ranking member, the gentleman from Texas, Mr. Turner.
        Mr. Turner. Thank you, Mr. Chairman.
        I think every one of the panelists, irrespective of the
    side of the issue you're on, for or against this bill, would
    concur that the practices being complained about are clearly
    unethical and should not be permitted. Am I correct, Mr.
    Barnhart?
        Mr. Barnhart. Correct.
        Mr. Turner. Now the bill here before us attempts to deal
    with the abuse that we all agree shouldn't exist. But I think
    what you're suggesting to us is that the remedy is, or the cure
    is, worse than the disease. Is that correct?
        Mr. Barnhart. Well, not completely. A long time ago, I was
    in the Civil Engineer Corps and ran contracts. And a value
    structure in a company is a value structure in a company. And
    every one of those prime contractors that worked for the U.S.
    Navy that were difficult to work with were just as difficult to
    work with with their suppliers and subs.
        I can tell you none of those firms exist today. And there's
    a good reason for that. It's because the market is very
    dynamic, and it deals with it. Just as this one gentleman down
    there said that he does not bid those primes anymore who shop
    his bids. Congratulations. Because you know what? As people
    make those decisions those firms lose their competitive ability
    to compete, and they cease to exist. The marketplace deals with
    that. There's just no need for this bill.
        Mr. Turner. It seems to me that what you say is probably
    correct. If you get burned a few times you're going to quit
    submitting a bid to a prime contractor that shops your bid.
        But when you get right down there on the firing line and
    you're the sub that's worked for hours trying to put together a
    bid and you submit it and then you end up having it shopped on
    you, I don't think you worry about the marketplace working.
    You're worried about what's happening to you in that particular
    point in time, which obviously is very unfair, and we all agree
    that it is unfair.
        Do you have any suggestions on how we could address this or
    make it clear that this practice is not acceptable in Federal
    contracting if the bill itself seems objectionable? Do you have
    anything you could offer to us that might get at the problem,
    protect the subcontractors from this kind of unethical behavior
    and maybe not be as broad as the bill that you object to?
        Mr. Barnhart. There's nothing in the bill that requires
    first-tier subcontractors to list second-tier subcontractors or
    list suppliers. So the testimony that you've heard that this
    will clean it up all the way down the line, it won't do that.
    There's nothing in this bill that says the electrical
    subcontractor will list who's going to supply the switch gear,
    who's going to supply the lighting package, who's going to do
    the fire alarm system, who's going to do the security system--
    nothing. This bill is a bill solely directed at the general
    contractor as the root and cause of all evil. That I take great
    exception to, as do the 75,000 first line of American GC's that
    belong to the AGC.
        I think have you to have a little patience, have some faith
    in the market. The market deals with this. And I think these
    are, you know, fine subcontractors; and I think they will agree
    with me: The market over a period of time determines who
    succeeds and who doesn't succeed. And I suggest to you that
    that's based on values and business structure and your
    relationship with your subcontractors.
        I have some wonderful subcontractor relations, and they bid
    us, and they bid us consistently. And the reason they do is it
    is because they have trust and faith that we're going to do the
    right thing and vice versa. That's the nature of the business.
        This bill goes against the nature of the business. It goes
    against human nature.
        Mr. Drabkin. Mr. Turner, if I might add to what Mr.
    Barnhart has said, existent in our current process is the
    emphasis since the passage of FAS and the use of past
    performance, one of the elements that the government evaluates
    in a major contract on past performance is the relationship
    that the prime has with the subcontractors and its ability to
    deliver the project. If there's a circumstance where a prime is
    mistreating his subcontractors, it will reflect in their
    performance. And in today's environment, if you get an average
    performance rating, the chances of you winning a Federal
    contract is going to be very low. I mean, you've got to score
    above average today. And that's a success story that is
    attributable to this Congress in terms of the passage of FAS
    and the empowerment of the government to use the past
    performance process.
        So it's a little more than just the commercial marketplace
    deciding who's going to survive or not. There's an active role
    which Federal Government contracting officers play in the past
    performance evaluation process of prime contractors and their
    relationships with subs.
        Mr. Turner. Mr. Chairman, I see my time is up. I wanted to
    give the subcontractors a chance to respond, but maybe one of
    our other members of the committee can do that. Thank you, Mr.
    Chairman.
        Mr. Horn. I now call on the gentleman from California, Mr.
    Ose.
        Mr. Ose. Thank you, Mr. Chairman.
        Mr. Horn. Five minutes for questioning.
        Mr. Ose. I have read this testimony last night, and I'm a
    little bit unclear. If I understand Mr. Barnhart's point, I
    think the only situation in which the bid shopping or bid
    peddling is occurring, according to the testimony, at least,
    was within these best and final offer practices that the
    Federal Government is engaged in.
        Mr. Barnhart. That's not true.
        Mr. Ose. OK.
        Mr. Barnhart. That's--that is a potential source of what's
    perceived as shopping.
        Mr. Ose. Mr. Drabkin, I have seen no--or I have heard no
    confirmed evidence that the Federal Government's projects are
    being conducted under a system that basically allows bid
    shopping.
        Mr. Drabkin. That's correct. The Federal Government does
    not interfere in the relationship between the prime and the
    sub. However, as I pointed out in my comments to Mr. Turner's
    question, we do evaluate the prime on their ability to manage
    subcontracts and to deliver the project on time. To that
    extent, in terms of the--evaluating the prime contractor's
    performance, we do provide oversight to the prime and to the
    subs and to the lower-tiered subs as well.
        Mr. Ose. I think my question really boils down to, to what
    degree do we wish to intrude into the relationship between the
    general and the subs? Now having built $50 or $60 million worth
    of stuff, not as a contractor but as an owner, something
    analogous to the position of the Federal Government--you know,
    Mr. Barnhart talked about his relationships with his subs, and
    I can tell you the relationship between the owner and the
    general are very, very similar to the relationship between a
    prime and a sub who has a long history of working with that
    person. What I'm interested in is, at the end of the day,
    whether or not the prime or the general--however you wish to
    describe the person--meets the time deadline on budget or
    under.
        Mr. Drabkin. That's the task that you have given us in the
    executive branch and that is to measure our performance by how
    we perform. In the end, what we're interested in is bringing
    the project in on the budget and on the schedule and dealing
    with quality contractors.
        Mr. Ose. Mr. Barnhart talked about the complexity of
    construction projects as they exist today, and I will confirm
    that, without going into any great detail. I'm curious--the
    contracting officer that works for GSA, for instance, to what
    degree does that person have the experience, if you will, the
    leading edge experience that might exist in a general
    contractor shop or, for that matter, in a subcontractor's shop?
    It seems to me that the contracting officer's job is to manage
    the contract. To what degree do they stay on the edge of
    construction techniques?
        Mr. Drabkin. I'm glad you asked me that question. It's a
    problem. It's a problem because we lack the resources to give
    our people the kind of training they need on a regular basis
    and the kind of tools they need. Most of these contracting
    officers on a daily basis are concerned about processing the
    paper and getting the actions out.
        As you know, in the civilian agencies, which was a shocker
    to me when I came over from DOD, don't have the kind of
    training budget, don't have the kind of educational
    institutions that were available to me when I was in the
    Department of Defense. And it was a challenge and one which I
    identified immediately upon my assumption of these duties and
    one which I'm working toward but one with which I have very few
    resources to deal.
        Mr. Ose. Let me take it to a more mundane level. Mr.
    Dunleavy, in the sheet metal side of things when you do HVAC
    work, the controls for HVA systems are moving technically far
    ahead of where they were even 5 or 10 years ago. In other
    words, when you build a building, your systems now allow you to
    balance your demand for cooling air very, very effectively
    relative to what happened 5 years ago. If this legislation were
    to pass on day one and on day two industry or science created a
    system that allowed a far better balancing of the load at a far
    lower price, and the prime contractor had a sub who wasn't up
    on that, if I understand the legislation correctly the prime
    couldn't change the sub. And you could take that to say
    concrete construction, as it has evolved over the few years,
    past 5 years--you see my dilemma here.
        Mr. Dunleavy. I'm not sure I understand your dilemma. There
    is a remedy to that situation. It's called a change under the
    contract. I think the same bar would exist as the--in the State
    we have now before the legislation. If there's a change in
    technology once the subcontract was awarded, they would have to
    be handled by some sort of change order mechanism.
        Mr. Ose. I see my time has expired. I thank you. I hope we
    have another round here.
        Mr. Horn. We will have a second and possibly third round.
        I now yield 5 minutes to the gentleman from Pennsylvania,
    who's the author of the bill, Mr. Kanjorski.
        Mr. Kanjorski. Thank you, Mr. Chairman.
        Mr. Barnhart, I'm sure you are an exceptional general
    contractor and any of the questions I ask you don't go to your
    integrity. But I listened to the testimony of the GSA and
    either he lives in a different world than I do or we're going
    to get together and start looking at some jobs. Because I've
    just had three government contracts performed in my
    congressional district, and if there weren't 20 or 30 suppliers
    and subcontractors that called me with the offensiveness of bid
    shopping, I'm surprised.
        I think I'm going to take you up to some of these jobs and
    let you get some experience in the field, Mr. Drabkin. Maybe
    that is the problem, that too many of GSA's people are staying
    in Washington and not getting out in the field to find out
    what's happening.
        But you said something that strikes me. Who selects the
    subcontractor to be put into the prime bid?
        Mr. Barnhart. The prime contractor.
        Mr. Kanjorski. That's right. Well, then, if you want a
    quality subcontractor you decide who you're going to pick to
    put in there. Why should you put a bumbling fool in as your
    subcontractor and then complain that you have to have
    dictatorial powers over him or brush him aside at your will?
        Mr. Barnhart. Congressman, the example I gave you, neither
    firm we were familiar with.
        Mr. Kanjorski. Why didn't you go out and get a good
    contractor?
        Mr. Barnhart. Well, we tried. But----
        Mr. Kanjorski. Your problem is that California and San
    Diego has so much construction going on that you don't have
    enough good subcontractors left in California. But maybe you
    don't have them left for the very testimony some of these
    subcontractors said. They're sick and tired of being drummed
    down to negative losses in doing subcontracting work, and a lot
    of them have picked up their marbles and have gone somewhere
    else.
        Why would you stay in the business if the prime contractor
    can constantly come down to you and take your profit away from
    you and force you to do inferior work or use inferior supplies?
    Now, I'm not saying you're doing that, but you are aware that
    some construction jobs by general contractors in this country
    are doing that, aren't you, Mr. Barnhart?
        Mr. Barnhart. Congressman, let's say----
        Mr. Kanjorski. I'd like you to answer that. Are you aware,
    you know, that--after the conference, when you're at the bar at
    night, are there any stories in the subcontracting field like
    there is in the legal profession of who the bums are and who
    the good guys are?
        Mr. Barnhart. I hear rumors.
        Mr. Kanjorski. OK. It's out there. So Mr. Drabkin, if he
    circulated to some of these conferences or parties--we ought to
    get him into some of the parties because he could hear at least
    the rumors and follow through on the rumors. Is that correct?
        Mr. Barnhart. Many of rumors I hear are subcontractors
    complaining about someone else.
        Mr. Kanjorski. Absolutely. I agree with you. There aren't
    any virgins in this room.
        The question that this legislation is geared to--through
    the last decade or better I have been overwhelmed with
    frustration--the need to dumb down the operation, to buy
    inferior products, almost act as a plantation relationship that
    a lot of subcontractors just don't want to get involved
    anymore, are being forced out of business or being forced, in
    order to hold their businesses, to make no profits at all and
    try a squeeze the few dollars they can out of the job if
    possible.
        Now, why should we, as a matter of public policy, give you,
    a general contractor, a prime contractor, dictatorial powers?
    Whereas, opposed to that, under this act, all we're saying to
    you is, Mr. Barnhart, if you're going to bid this job you break
    out every category, every subcategory; and when you went to
    these suppliers or these subcontractors to provide the work at
    specification, you list them; and if you get the low bid or win
    the bid, then you use them.
        You know, I want to make a point, Mr. Chairman, I don't
    know if the committee is aware of the fact, but under the
    common law the principle of a subcontractor giving a contractor
    his estimation and then that contractor using that in his
    estimate would constitute a contract. There would be value to
    the subcontractor, or the general contractor, he used it.
        It's only because we have perverted the law now that we go
    away from common law. And what we've done is provided a
    servitude of subcontractors doing the hard work and making the
    analysis, doing the bid pricing, giving the subcontractor the
    work. Then if he has a good relationship and knows these
    subcontractors, he knows who's good, he can take their work,
    plug it in. But then when the prime comes back he knows what
    he's going to get out of the general job.
        Now, if he wants to increase his profit, all he has to do
    is go to the subcontractors that worked with him in good faith,
    either dumb them down another 5 or 10 percent or threaten that
    he's got a nonunion operator, a nonexperienced operator,
    somebody who's going to do the job at considerably less. That's
    what's happening now. I don't know whether--maybe my district
    out of the 435 in the country is unique. So I worry about that.
        Yes, Mr. Barnhart.
        Mr. Barnhart. Congressman, there is nothing in this
    legislation that requires the listing of suppliers. So the
    suppliers that called your office and complained, is it perhaps
    possible that those suppliers were quoting subcontractors?
    Nothing in this bill changes that. It's a bill that requires
    the general contractor and I don't have to list suppliers. So
    you're going to still get all those calls.
        Mr. Kanjorski. We're going to amend the bill and then make
    you list your suppliers. That's OK with me.
        Mr. Barnhart. And how about making the subcontractors list
    their suppliers and their second-tier subs and their third-tier
    subs and see how they like it? What's good for the goose should
    be good for the gander.
        Mr. Kanjorski. I agree. I think transparency in the bid is
    the best thing the government can have. Because they honestly
    know what kind of product and what kind of end result they're
    going to get if the specifications are held to.
        What's happened is everybody has taken the easy way. If you
    look at the--it's interesting, Mr. Drabkin came from the
    Defense Department to GSA, but this is a 1984, 1984 change. I
    wonder what happened in 1984 in this country? A couple things
    happened.
        Mr. Horn. We're going to have another round on this.
        Mr. Kanjorski. I guess I am getting too close to
    California----
        Mr. Horn. You can load the cannons. In the meantime, I'm
    going to yield 5 minutes for questioning to the vice chairman
    of the committee, Mrs. Biggert, the distinguished
    Representative from Illinois.
        Mrs. Biggert. Thank you, Mr. Chairman.
        Mr. Drabkin, on your testimony on page 6 you talk about
    that a major tenet of government contracting is that the
    Federal Government has no privity of contract with
    subcontractors, and you think that this really is a major flaw
    of this bill. Could you give a little more information on that?
        Mr. Drabkin. Yes, ma'am. The Federal Government, both in
    the construction area and in all other areas of government
    contracting, has steadfastly avoided interfering or
    establishing a relationship between subcontractors and the
    government, preferring instead to rely upon the expertise and
    the responsibility of the prime contractor to manage
    subcontracts.
        If you could imagine the additional workload and burden
    that would be added if all of the--I think it's over several
    hundred thousand contractors who the government does work with
    on a prime basis, and then add their subcontractors and, as Mr.
    Kanjorski suggested, amend the bill, their subcontractors and
    suppliers, you would have to increase the Federal acquisition
    work force several folds, already overworked and underresourced
    in the education and training arena.
        So the Federal Government has as a--and the Congress
    actually has expressed this as a congressional policy, has
    avoided involving the Federal Government and the executive
    agencies in the relationships between primes and their subs.
        Mrs. Biggert. Thank you.
        Mr. Swab, do you know of subcontractors where there's been
    a bid and then it switched to other subcontractors where the--
    let's say the subcontractors that were in a losing bid were
    switched into working for the contractor who won the bid?
        Mr. Swab. Yes, ma'am. That happens, unfortunately, all the
    time.
        One point I'd like to make about Mr. Drabkin's statement,
    this legislation does not ask that the government get involved
    with any of the subcontractors. It does not ask that they get
    involved in the contracts or in anything involving the GC's
    relation with the subcontractor. All it asks is that the
    general contractor simply, after a certain level of dollars is
    reached, list the subcontractor that they're going to use on
    the project.
        Mrs. Biggert. Well, what would happen, then, if the
    subcontractor was not able to perform and so there had to be
    another subcontractor? Wouldn't the Federal Government have to
    OK a switch in that and, in effect, establish that relationship
    with a subcontractor?
        Mr. Swab. I think there are provisions where they can ask
    for a substitution, the general contractor can ask for a
    substitution.
        Mrs. Biggert. They could ask, but then again wouldn't----
        Mr. Swab. They----
        Mrs. Biggert [continuing]. The agency has to approve that
    after a bid has been let and they're not being able to follow
    then the contract?
        Mr. Swab. Yes, ma'am. But I think if the criteria that's
    established is shown, then it's a simple decision. It's not
    something where they have to develop into any further than the
    criteria that's established by this legislation.
        Mrs. Biggert. Mr. Drabkin, would you agree with that?
        Mr. Drabkin. No, ma'am. The legislation would specifically
    require the contracting officer to become involved in the GC
    subcontractor dispute, not involved in the current way, which
    is we monitor the performance and we rate the GC on it, but
    actually become involved in the dispute and the determination
    to replace the subcontractor. That would add significant
    workload, and as I pointed out earlier, it would also involve
    time, time which will delay the delivery of the construction
    project.
        Mrs. Biggert. OK. Then Mr. Swab, you testified that the
    current construction delivered on the current system cost the
    government more than it's actually worth with the prime
    contractor's pocketing whatever amount they're able to squeeze
    out of their subcontractors. So if this bill was enacted into
    law, can you explain how its bidding listing provision would
    prevent contractors and suppliers from marking up the cost of
    their services and products any way?
        Mr. Swab. Hopefully I can. Mr. Barnhart mentioned that
    there would be a real stressful situation involving his bid
    team and the minutes leading up to the magical hour, which for
    most bidders is 2 p.m., because as he stated, there's a lot of
    price adjustment going on. What that price adjustment is, is
    prebid bid shopping. I'm sure Mr. Barnhart's firm probably does
    not engage in that. But I will routinely get a call at 20
    minutes to 2 and be told that Joe Blow, electrical contractor
    down the street, has me beat by $50,000. See if you can do
    anything. So the price adjustments, if they've been made to one
    GC--and Barnhart Corp. is a very good GC--if I'm going to make
    that adjustment, I'm going to immediately get on the phone and
    make sure the other contractors on that work get that same
    number. That's why all of that price adjustment takes place.
        Mrs. Biggert. Are these sealed bids?
        Mr. Swab. In many cases the bids that are presented to the
    Federal Government, yes, ma'am. Requests for proposals are
    turned in at a date and time certain. The bids that take place
    between suppliers, subcontractors and general contractors is
    done verbally, and in most cases, over the phone, followed by
    faxes, e-mails, or other forms of verification.
        Mrs. Biggert. Thank you. My time is up. Thank you, Mr.
    Chairman.
        Mr. Horn. Thank you. We now yield to the gentleman from
    Oregon, Mr. Walden, for 5 minutes for questioning.
        Mr. Walden. Thank you very much, Mr. Chairman. Some of you
    may know that Oregon's legislation recently enacted a similar
    type of law, HB 2895, so we're seeing this take place, put into
    action out in Oregon. And there are concerns by both
    contractors and subcontractors about the implementation of that
    particular law. I'm not sure specifically how it mirrors what's
    being proposed here. But as I listen to the comments today, I
    think from my own experience, which is not contracting but
    broadcasting, and nobody likes the squeeze that you get put in.
    I'm sure the subs don't like it and the generals and all that.
    I get it from ad agencies that do exactly the same thing. So
    maybe I should come here and get a Federal law to protect my
    industry and myself from this. But what I'd like to do now is
    yield my time to the Member from California.
        Mr. Ose. I thank the gentleman from Oregon. I want to
    explore something with Mr. Drabkin, and that is, in a Federal
    project, the actual product is designed by an architect; is it
    not?
        Mr. Drabkin. It may or may not be, Mr. Ose. As you know, we
    are now in the Federal Government finally catching up with
    private industry and going to design-build.
        Mr. Ose. In terms of the design-build, what people bid on
    at any step in the process is well defined in terms of the end
    product?
        Mr. Drabkin. In terms of the outcome we desire, it's
    defined, sir. But in terms of what that will actually look
    like, when you use a design-build, you start without knowing.
        Mr. Ose. So, if you will, your specifications then become,
    by design, somewhat flexible. The objective being we are here,
    we want to be there, how you get there, if you can substantiate
    it, is your choice.
        Mr. Drabkin. Yes, sir. Generally you would outline the
    number of square feet that you might need, the type of office
    space or space that this will ultimately be. And then you
    will--other additional factors, if there's a special heating or
    cooling requirement, etc., and then leave it to the talent of
    the winning design-build team to design it, and then to
    construct it.
        Mr. Ose. If I recall correctly, let me just cite the most
    apparent example of Federal construction, that's the Reagan
    Building down here. Between the time we first put that building
    out to bid and the time the turnkey was delivered, was that 2
    years, 3 years?
        Mr. Drabkin. I'm sorry I have no specific knowledge
    regarding the Reagan Building, sir.
        Mr. Ose. Let's say it's a year and a half, because it's a
    big project. I bet up to a year and a half, it probably took
    that long. Well, in a year and a half time, it would seem to me
    that under a design-build process, the prime may very well not
    lock down exactly how he or she will handle the 14th aspect on
    day 1.
        Mr. Drabkin. That's correct.
        Mr. Ose. Would the listing that's proposed, or would the
    intention of this bill as proposed, facilitate or complicate
    the prime contractor's efforts to finish a project? Keep in
    mind, because the prime contractor has got a delivery date,
    they have to meet, and if they don't meet it, they're going to
    suffer sanctions, does this legislation facilitate or
    complicate the delivery of the product from the prime
    contractor?
        Mr. Drabkin. Effectively precludes the use of design-build
    contracting as it's currently used in the private sector.
        Mr. Ose. Is design-build--did you say the design-build is
    State-of-the-art?
        Mr. Drabkin. It's one of a number of ways of doing
    business, but one which the government is trying to follow the
    private sector in utilizing more and more of.
        Mr. Ose. Let me then examine the more traditional approach
    where you have a set of plans, everything is well defined, the
    specs are in there and it will say product X or equivalent. The
    contracting officer, as I understand it, has the discretion to
    say this substitution is the equivalent of what's defined by
    the architect; is that accurate?
        Mr. Drabkin. In those types of contracts it is, but I point
    to the committee that in accordance with the Congress's
    guidance, we're trying to move to a use of performance specs,
    but in your example, sir, you're absolutely correct.
        Mr. Ose. So the suggestion I'm trying to get to is that a
    prime contractor, an exercise of judgment in suggesting to a
    subcontractor or allowing a subcontractor to substitute will
    have to first go by the contracting officer in any case. It may
    well be that that substitution allows the prime contractor to
    deliver the project at a lower price; is that accurate?
        Mr. Drabkin. That's accurate.
        Mr. Ose. Thank you. Thank you, Mr. Chairman. I see Mr.
    Walden's time is up.
        Mr. Horn. Thank you. And we now turn to the ranking member,
    the gentleman from Texas, Mr. Turner.
        Mr. Turner. Mr. Chairman, I think I'll yield to Mr.
    Kanjorski, let him followup on his earlier line of questions.
        Mr. Kanjorski. Thank you, Mr. Chairman, Mr. Turner. Same
    question to you, Mr. Drabkin. We do not want to inhibit modern
    methodologies of construction either to save money or perform
    things quickly. But can you give me any rationale, assuming we
    have a straight prime contractor sealed bid award for the total
    project cost, make the assumption the project comes in at $100
    million, after he has assembled all his subcontractors and
    supplier bids and come up with these figures that probably
    represent, $88 million for the costs. And he's got his profit.
    That's all well and good, but you're arguing it's going to cost
    time, it's going to become cumbersome. And yet the problem is
    if the general contractor goes out and dumbs down the bids of
    the subcontractors and drives it down to $80 million on a $100
    million project, why should the government not benefit from
    that $8 million? Why should it go to the prime contractor?
        Mr. Drabkin. There's no reason why the government shouldn't
    participate in that savings, and that's one of the reasons why
    we're moving away from sealed bidding.
        Mr. Kanjorski. Absolutely. Let's not talk about--I happen
    to be for construction management and processes like that. But
    in the sealed bid process, if we just had this bill saying
    henceforth, a direct bid by a prime contractor who reduces the
    subcontractor's prices in that bid and therefore gains a better
    price and a better profit because he doesn't change the
    ultimate cost to the government, the government will get the
    benefit of that profit. What's wrong with that?
        Mr. Drabkin. With the government sharing in the----
        Mr. Kanjorski. Getting the profit. If he's going to dumb
    down to dumb contractor--or the contractor or subcontractors,
    and if he's going to go to the suppliers and knock their price
    down, why should that benefit go to the profit of the prime
    contractor? Why should it not come to the government?
        It seems to me, in listening to your testimony, you're on
    the position that you don't want your agency to have more
    responsibility, you don't want to have to do more work, and
    it's very nice to appoint a dictator. And that's what you do.
    The day the sealed bid is opened up and the general award is
    made to the prime contractor, the U.S. Government has said this
    is a $100 million project, you are the sole dictator. We're not
    going to get involved. Go out. If you want to break Davis Bacon
    rules, break them. If you want to go out and knock down the
    subcontractor, break them. Other than that, you will have a
    responsibility of oversight. And I think that's what we expect
    from GSA. But all those things being the same, if he does go
    out and get the subcontractor to give a lower bid, or the
    supplier to give a lower bid, and therefore it costs him less,
    why shouldn't that benefit go to the American taxpayer rather
    the prime contractor?
        Mr. Drabkin. There's no reason why, but I also make sure,
    Mr. Kanjorski, you understand that if he breaks Davis Bacon,
    he's got a problem with me. I am responsible for enforcing that
    and I----
        Mr. Kanjorski. In the Commonwealth of Pennsylvania, the
    Department of Labor has one Representative with 22 counties out
    of 67 counties, for a third of the State of the Commonwealth of
    Pennsylvania. It's common, rather than bringing a person into a
    job and treating him as a journeyman, he will treat him as
    laborer and have him do a journeyman level work and pay him
    significantly less and he does make more money. I am sure that
    only happens in the Commonwealth of Pennsylvania and probably,
    peculiarly, to my district. But you don't have any people out
    on these jobs. I've got to tell you that. You have got a person
    that comes by every 2 or 3 weeks checks out with the prime
    contractor, what's going on, see if anybody has fallen off the
    roof. And if they haven't, you're gone. You don't have the
    personnel to do it. I understand that. I'm not knocking you. I
    think general contractors are doing a pretty good job on the
    whole. I'm not knocking those general contractors. I think we
    have a percentage of bad actors. And the way to weed them out
    is to say that if they use a good subcontractor in their
    general contract bid and they are awarded the contract, that
    subcontractor should be able to say that's what I'm going to
    get paid. If I'm going to get paid any less, and you may have a
    right to renegotiate, then the benefit will go to the American
    taxpayer, not to the general contractor.
        Mr. Drabkin. Mr. Kanjorski, any way we can share the
    benefit and the savings or resultant reductions in cost to the
    government, I agree with. I also point out to you sir, if I may
    finish, that if there is a problem with the small percentage of
    these contractors, the solution isn't a piece of legislation,
    which is difficult to change. The solution is for me to work
    harder with my contracting officers, to evaluate the
    performance, and to weed these people out through the
    competitive process, which we are being successful in doing.
    And if we have a few more years, we'll have only great
    contractors working with the government.
        Mr. Kanjorski. Let me tell you something. I mentioned 1984
    before, and the meetings and the conferences were held. If you
    remember what happened in this country in 1980, then you know
    why I referred to 1984. This was another way of turning the
    system, privatizing the government's control of the system to
    the private market. There's nothing wrong with it if that
    financially benefited the taxpayer. But suddenly all of you
    guys down at GSA, for 16 years, haven't realized that there's
    bid shopping going on. The general contractor is knocking that
    price down sometimes significantly 5 and 10 percent, and none
    of that benefit is falling to the U.S. taxpayer. I think you
    would have been in here running saying hey, there's some
    practice out there in the field and if it occurs, we want a
    subcontractor or a prime contractor to certify to us that he
    did not get a lesser bid from a subcontractor. If he did, we
    want the money back.
        Mr. Drabkin. Sir, I've been at GSA for 6 weeks and in
    another 6 weeks I'll be glad to come over to your office and
    discuss with you any problems and work with you to solve them.
        Mr. Kanjorski. Didn't they have anybody over there that's
    been there a few more?
        Mr. Drabkin. I think I was the only one they wanted to send
    over this morning. Something about being the new guy on the
    block.
        Mr. Kanjorski. I was going to make the comment, you said
    you came from the Defense Department. I don't think that's the
    most notorious department in the world for getting cheap prices
    in construction.
        Mr. Drabkin. Sir, I don't represent them anymore.
        Mr. Kanjorski. My time has expired, Mr. Chairman.
        Mr. Horn. Does the gentleman from Indiana, the chairman of
    the full committee, wish to question the witnesses at this
    point?
        Mr. Burton. I'm afraid to get started. Mr. Kanjorski and I
    might end up in fisticuffs, so I'll yield to Mr. Ose.
        Mr. Ose. I thank the full chairman. I want to ask my friend
    from Pennsylvania--I mean, I've spent a lot of my productive
    life building things. And I'm just--I--I'm struck, it must be a
    different universe. I'm curious, you must have built something
    in Pennsylvania that gave you this bad experience.
        Mr. Kanjorski. Personally or you mean as a Member of
    Congress?
        Mr. Ose. Well, personally.
        Mr. Kanjorski. I've been involved in construction and
    representing contractors as a lawyer for about 20 years. And
    I've handled both sides of the cases, and my law firm had the
    definitive Supreme Court decision of the Commonwealth that, in
    fact, a subcontractor's bid used by a general contractor and
    submitted as a bid for a general contractor is a contract. And
    he has an obligation then to pay the subcontractor. That's, in
    general, private work, not in government work. The one point I
    do want to point out to you, I think you are from California,
    aren't you?
        Mr. Ose. Oh, yes, last time I checked.
        Mr. Kanjorski. Your State seems to be one of the most
    enlightened States. They have this legislation. They are doing
    excellent work, very successful. And Mr. Barnhart here appears
    to me to be an extraordinary, successful general contractor
    from San Diego, and he's surviving under this onerous type of
    law that would disclose your subcontractors.
        Mr. Ose. Let me reclaim my time and ask another question.
    While I am not an attorney, I have great respect for those that
    are, but I will tell you that what I lack in courtroom
    experience, I more than make up in field experience. And I can
    tell you, completing the project on time on budget is far
    different than arguing the nuances or the niceties of a
    contract, and its terms in a courtroom. And I don't, I'm not--
    --
        Mr. Kanjorski. Would the gentleman yield?
        Mr. Ose. I'd be happy to. I want to make a point though.
    It's two different arenas.
        Mr. Kanjorski. I agree with you. Mr. Barnhart had suggested
    that a lot of times in the subcontracting field and whatnot, to
    do away with some of these people would be beneficial. And I
    could maybe suggest to do away with some lawyers would be
    beneficial too.
        Mr. Ose. And I would pile on and say some developers too.
    If I may--I want to kill the phone. I want to explore
    something. This legislation is focused on situations where we
    are talking about a bid or an award that's been made, and then
    there are savings that the prime contractor may have recognized
    after the fact and gone back to the subs to try and implement.
    It does not talk about the reverse situation where a prime
    contractor, or the amount of money originally set aside or
    segregated for an award, proves either to be a mistake or
    inadequate.
        So I'm curious, how would this legislation govern
    situations, Mr. Chairman, where the final bid comes in at a
    price higher than the allowed amount and the prime contractor,
    in order to actually complete the award process, must go back
    to the subcontractors and ask for some adjustments.
        Mr. Horn. You want to ask that to the panel?
        Mr. Ose. Mr. Drabkin.
        Mr. Drabkin. I'm not sure I understand, Mr. Ose, your
    point.
        Mr. Ose. Let me be more specific. Let's say GSA says we've
    got $5 million to build this project. We're going to accept
    awards at 2 p.m., on such and such a date, for the completion
    by such and such a date of the bids coming in and it's $5.5
    million at the lowest responsible bid. Now, under this
    legislation, the prime contractor is not able to go back and
    negotiate without----
        Mr. Drabkin. The prime contractor would be precluded from
    bidding. Because if we set the number at $5 million in a
    design-to-cost scenario--this is another way to manage our
    dollars--he could not submit a bid above $5 million. So he
    would then be out of the competition.
        Mr. Ose. As would everybody else, because that's the
    lowest--we'd be stuck in a position where, boom, we're not
    going to get the product.
        Mr. Swab.
        Mr. Swab. That's where the term BAFO comes from. The
    Federal Government will routinely come back if the work indeed
    is worth $5\1/2\ million. There's aspects of the design that
    lead to that cost. The government will issue an amendment, they
    will adjust certain aspects of the job and they will come back
    for what's called a best and final offer, where they anticipate
    that adjustments will be made based on the design changes, and
    there will be pricing changes accordingly. The general
    contractor has the BAFO come back to them, they necessarily go
    to the subcontractors if it involves some speciality; typically
    it will be mechanical and electrical because those are the most
    important or expensive parts of a project if it's not the
    structure itself, and ask for a repricing of the job, based on
    the new specification. There are many cases, however, where a
    very minor amendment will be made and the BAFO process is then
    kicked off and the government comes back again. In cases where
    it goes once, we call it a BAFO. In cases where it happens
    twice, we call it a BARFO, best and real final offer.
        Mr. Drabkin. With all due respect to my colleagues, and
    make sure it's clear in the record, there is no longer anything
    in Federal Government contracting called BAFO. We specifically
    changed it to deal with the point Mr. Swab makes when we
    rewrote FAR 15 in 1997. So that process doesn't occur. In
    response to your question, they wouldn't be able to submit a
    bid, so there would be no further discussion with them if they
    couldn't come in at the dollar figure we said they had to come
    in at.
        Mr. Ose. I see my red light on. My point is that it seems
    to me that this legislation puts in place that it's OK to have
    adjustments when prices rise, but it's not OK when they fall.
    So with that, Mr. Chairman----
        Mr. Horn. Mr. Drabkin, I'm interested in the degree to
    which the Clinger-Cohen legislation changes the dynamics of
    what you are now working under by GSA. Since you came from the
    Pentagon, I assume I have some experience with that. Tell me a
    little bit about it. Is GSA going to take advantage of that?
    That's why the legislation was there, to get responsible people
    and to get flexibility in doing it.
        Mr. Drabkin. One of the things that all of the civilian
    agencies have been working with is how to implement the
    requirements of Clinger-Cohen with regard to the acquisition
    work force. As you know, the Defense Department had DAWIA,
    which was passed in about 1990, I think 1991. We have--GAO has
    been to GSA and to the Veteran's Administration, and observed
    how the implementation was proceeding. We were found wanting in
    a number of areas. Those are the prime interests I have is
    dealing with the work force. In fact, it's the only resource we
    have to deal with the problem that Mr. Kanjorski's bill
    addresses and other issues associated with acquisition. We have
    to get our people educated, less than 40 percent of my
    acquisition work force meets the education requirements.
        I have to find a way to get the resources to help them get
    the education. They need training tools. They need stuff that's
    available to them just in time. I can't afford to send them to
    school for 4 weeks. And the Department of Defense, we had a
    different culture, in sending people away to school for 4 weeks
    was an accepted thing. In the civilian agencies it's not.
        So it is the very top priority I have as the deputy
    administrator for acquisition policy, it's the problem which
    I've already realized I have a resource problem in dealing
    with, and it's one which I hope we can talk about at a
    subsequent hearing or a meeting, because it's something we
    really need help with. It's something that will pay benefits in
    large dollars. In dealing with the problems we've discussed
    here and in dealing with other issues associated with Federal
    contracting.
        Mr. Horn. Well, I'm glad to hear your commitment in this,
    because when I came here in 1975 and we had the majority, that
    was one of the things I wanted to really push. And you're
    absolutely right, we don't know enough in the civilian sector
    to train and educate people, and those are the people that we
    either make it with or don't make it with. And that's our
    capital infrastructure, if you will, the human being. And the
    Pentagon is way ahead of everybody else and that, as you quite
    correctly say, we ought to be doing more, so I'll be glad to
    talk to you about that.
        Let me just ask the panel that are subcontractors, curious,
    how often do the general contractors require subcontractors to
    sign exclusive agreements now? This is just based on your own
    experience. Can we just go down the line?
        Mr. Swab, you're a subcontractor. And then Mr. Petzen, and
    Mr. Fuqua, and also, Mr. Dunleavy. So I'd be interested in what
    your experience is. How much of a problem is this?
        Mr. Swab. Are you referring, sir--you say sign an exclusive
    agreement.
        Mr. Horn. Yeah, if they've got an exclusive agreement or if
    they play the games that Mr. Kanjorski has identified.
        Mr. Swab. What common practice is in our experience is all
    general contractors, and rightfully so, this is a competitive
    process, are looking for an edge. They are hoping that someone
    in that process, let's say there are the electrical
    contractors, they're hoping one of those guys jumps out of the
    pack, either has a very good source for pricing a particular
    item on the job or, as the case is in many cases, makes a
    mistake. If he happens to be 10 percent under the market, for
    example, you will get a very quick call back from a general
    contractor asking if you've called your price out to anyone
    else. And if you State well, no, at the time I haven't, they'll
    say well, please, we're going to use you on this contract, but
    make sure you don't give this price to anyone else. Allow it to
    be our edge.
        That happens if you happen to separate yourself from the
    pack. If all eight contractors are within 2, 3, 4 percent, they
    then have a very good idea what the job is worth, they won't
    bother to talk to anyone until after they have a contract
    awarded.
        Mr. Horn. Mr. Petzen, how about your experience?
        Mr. Petzen. I'm still waiting.
        Mr. Horn. You'd be glad to have that call.
        Mr. Petzen. I would like to have that call. That would be
    interesting to have someone commit to me early days instead of
    when they've waited too long for the project to be delivered on
    time, which is more the case.
        Mr. Horn. Mr. Fuqua.
        Mr. Fuqua. We've had several calls. Generally they don't
    work out. Promises are promises. And we now, at this point in
    our relationship, we choose not to get into those things if we
    can avoid it.
        Mr. Horn. Mr. Dunleavy.
        Mr. Dunleavy. Mr. Chairman, I'm not saying that it never
    happens, it does happen that there is a commitment on bid day.
    It happens very rarely. I'm told that it does not happen as
    frequently as it used to happen, by my older colleagues who
    have been in business longer than I have which are getting
    fewer and fewer every day. I do--I think it's important to
    point out as well that one of the indirect results of bid
    shopping is an upward pressure on the final cost of the project
    as a result of change orders. It is true that in the market we
    deal in, the margins are getting extremely low. In fact, it's
    not uncommon where a subcontractor and perhaps even general
    contractors I've heard of taking jobs at no markup in
    anticipation of marking up on the base contract work, plus the
    change work that will justify a markup for the entire project.
        So I think if the GSA and the government is interested in
    budget and price, they should look to this bill as an aid in
    helping keep down the final cost by having a less adversarial
    relationship between the subcontractor, general contractors and
    the government, and try to underpin the partnering aspect that
    GSA likes to engage in in its projects currently.
        Mr. Horn. We have a vote coming on the floor. So this will
    be the last round of questioning for the next 10 minutes.
        Mr. Barnhart, you testified that the State of California is
    moving away from its bid listing law. And I wonder, Mr. Fuqua
    is head of a California contracting company. What are your
    thoughts on this? And to what degree have you seen that change
    in California policy?
        Mr. Fuqua. This bid listing in California has worked as far
    as my company is concerned. I don't have the statistics on the
    rest of our association, but I would be happy to get them and
    send them to your committee.
        Mr. Horn. Without objection, it will be put in the record
    at this point. Thank you.
        Any other questions? Some of you, especially the
    subcontractors, since that's the reason for this legislation,
    do you have any other suggestions you'd like to put on the
    record?
        Mr. Swab. Mr. Horn, there are nine States and the
    Congressperson states that Oregon has just adopted this type of
    legislation. So there are now 10 States that have public bid
    listing requirements. Those are Arkansas, California,
    Connecticut, Delaware, Florida, Massachusetts, New Mexico, New
    York and South Carolina. I would think that the staffs would be
    able to go back to those procurement agencies and see, in the
    real world, if they have noticed a reduction in their per-
    square-foot cost of construction, since they put this
    legislation in place.
        Mr. Horn. Mr. Petzen, do you have any additional ideas for
    the record?
        Mr. Petzen. No, I would just make a comment, Mr. Chairman,
    that the statement to Mr. Barnhart makes it in this business is
    based on relationships. He's absolutely right. Unfortunately,
    in too many instances, the general contractors that comprise
    the list of bidding primes deal with subcontractors on an
    adversarial relationship. It's an us-against-them situation
    before the bid, during the process of constructing the job, and
    also in collecting moneys. Would that it were not so. But
    that's what I deal with on a day-in/day-out basis. It's an
    adversarial relationship. This legislation probably won't
    completely cure that. There will still be bid shopping and
    peddling going on before the bid. But this legislation is
    designed to help someone like me who expends a great deal of
    time, effort and money in putting these bids together for the
    general contractors so they can write this business, and
    hopefully use our number if we're successful in providing the
    right number so that everyone comes out as a winner.
        Currently, that's not the case. If I take a general
    contractor to the dance, if you will, by virtue of having the
    right price on bid day, with the right scope of work, I feel
    like I should be entitled to work the job and perform that
    scope of work. If that's not the case, why did we go through a
    bid process at all?
        Mr. Horn. Mr. Fuqua, what would you like to leave in this
    record as something we ought to be considering?
        Mr. Fuqua. Well, as far as the Federal construction goes,
    they're probably one of the biggest consumers of construction
    dollars. I have figures here that show $16.6 billion used last
    year.
        Mr. Horn. Will the clerk adjust the microphone.
        Mr. Fuqua. I have a figure here that shows $16.6 billion on
    building construction alone in the last year. If we could save
    some of that, if we saved only 1 percent of that for the
    Federal Government through this legislation, we're talking $166
    million. That's a lot of money for the taxpayers.
        Mr. Horn. Mr. Dunleavy, your last word on this.
        Mr. Dunleavy. Nothing additional comes to mind Mr.
    Chairman.
        Mr. Horn. OK. Mr. Barnhart. What's your last word on this?
        Mr. Barnhart. Thank you, Mr. Chairman. I'd like to make
    three points. First of all, responsible general contractors are
    not looking for the lowest bid. And we're not looking for the
    person that makes mistakes because we have to build the
    project, and we have to build it on time. We're looking for the
    correct bid from the responsible subcontractor because that's
    the way we get this stuff done. Second of all, there are
    exclusive arrangements being arranged because in the design-
    build arena, each project is unique that's being submitted to
    the government.
        Now, my firm, we're not going to enter into an agreement
    with a design-build electrical subcontractor or design-build
    mechanical subcontractor who can then go and talk to our
    competitors. It is an exclusive lockdown arrangement, because
    the designs are specific, there are designs and then the
    government--you know, the government selects which one is the
    best. So anyone who tells you that those exclusive was
    agreements aren't in place needs to go back and review the
    record, because I don't see how you do a design-build without
    an exclusive agreement with some of them. You don't have an
    exclusive agreement with the painter, maybe because you haven't
    decided what color you're going to paint the walls.
        Third of all, the Congressman is exactly correct when he
    talks about oral contracts on bid day. When a person bids our
    firm, by law, if they're over 15 percent low, we have to call
    that person back and say you are too low on the project, will
    you please review your bid. If not, you cannot hold them
    legally to the bids because you're deemed to have superior
    knowledge about your other bids. Now invariably, that person
    will say well, how low am I, and what's the other number? So
    the cat-and-mouse game that's played is you do not want to give
    out that other number. You just say you're too low or we
    wouldn't be calling you. Go back and----
        Mr. Horn. Thank you. We're going to have to go to vote. I
    want to give the last word to the author, Mr. Kanjorski of
    Pennsylvania. You have 5 minutes. I'm going to go vote. We'll
    put the record of the excellent staff like Mr. Caplan that have
    put this together. And you will have the last word.
        Mr. Kanjorski. I won't take too many minutes. The four
    subcontractors, if we listen to Mr. Barnhart, this bid peddling
    doesn't happen very often, and GSA is totally unaware of that
    circumstance. Because it only happens in my congressional
    district. But I want to ask the 4 subcontractors. How prevalent
    is bidding and peddling after the bid to subcontractors, in
    your experience, in the last 16 years since the regulations
    have been changed?
        Mr. Swab. I can only speak for the market in this
    particular area and it is very prevalent.
        Mr. Kanjorski. It's more common than not?
        Mr. Swab. It is a normal practice. Yeah, it is unusual if
    does not happen.
        Mr. Kanjorski. Mr. Petzen.
        Mr. Petzen. Congressman, in my experience it is the order
    of the day. The first rule is shop the bids, get them peddled.
    The second rule is if you have any questions, go back to rule
    1.
        Mr. Kanjorski. Mr. Fuqua.
        Mr. Fuqua. I just reiterate what Mr. Petzen said, it's
    exactly the same thing. It's even away from the Federal work on
    the private work in California, it's unbelievably rampant.
        Mr. Kanjorski. Pull the microphone.
        Mr. Fuqua. I said even on private work in the State of
    California, it's unbelievably rampant.
        Mr. Kanjorski. Mr. Dunleavy.
        Mr. Dunleavy. Mr. Kanjorski, it's persuasive in mine and
    Mr. Swab's market.
        Mr. Kanjorski. So listening to the testimony on the four
    subject contractor representatives here, we live in a different
    world than Mr. Barnhart and Mr. Drabkin live in. They're not
    aware that it's this pervasive and the government's
    Representative says gee, this isn't a problem at all. So would
    it be right for me to conclude that the testimony here of the
    four subcontractors is that this is not only common, it's
    pervasive, it's after the bid is awarded, and that it causes a
    loss to the subcontractors and the benefits derived by the
    prime contractor of driving down that subcontractor price does
    not inure to the Federal Government or the taxpayers, is that
    correct?
        Mr. Petzen. That is correct. If that benefit did go from
    the general contractor to the Federal Government, I don't know
    that anybody at this panel would have a problem with that.
    Certainly they shouldn't. However, if Mr. Barnhart, in his
    company, does not engage in these practices, then I'd like to
    be on his subcontract bid list.
        Mr. Kanjorski. OK. Thank you, Mr. Chairman.
        Mr. Ose [presiding]. Thank you, Mr. Kanjorski. We are going
    to leave the record open for questions for 2 weeks. We would
    like to thank all the witnesses. Appreciate you coming. And
    with that, we're adjourned.
        [Whereupon, at 11:55 a.m., the subcommittee was adjourned.]
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