[Federal Register Volume 89, Number 124 (Thursday, June 27, 2024)]
[Rules and Regulations]
[Pages 53502-53504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-13863]
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Part 236
[Docket DARS-2024-0019]
RIN 0750-AM16
Defense Federal Acquisition Regulation Supplement: Architect and
Engineering Service Fees (DFARS Case 2024-D019)
AGENCY: Defense Acquisition Regulations System, Department of Defense
(DoD).
ACTION: Final rule.
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SUMMARY: DoD is issuing a final rule amending the Defense Federal
Acquisition Regulation Supplement (DFARS) to implement a section of the
National Defense Authorization Act for Fiscal Year 2024 that increases
the statutory fee limit for architect and engineering services.
DATES: Effective August 26, 2024.
FOR FURTHER INFORMATION CONTACT: Mr. Jon Snyder, telephone 703-945-
5341.
SUPPLEMENTARY INFORMATION:
I. Background
This final rule revises the DFARS to implement section 2881 of the
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2024
(Pub. L. 118-31). Section 2881 increases the statutory fee limitation
at 10 U.S.C. 7540, 8612, and 9540 from six to 10 percent that may be
earned by contractors providing certain architect and engineering
services under contracts with the Departments of the Army, Navy, and
Air Force.
At DFARS 236.606-70, Statutory fee limitation, DoD increased the
statutory fee that contractors may earn under contracts for architect-
engineer services for the preparation of designs, plans, drawings, and
specifications. The fee is increased to 10 percent of the project's
estimated construction cost. Minor editorial revisions are made to the
text of section 236.606-70 to comply with drafting conventions.
II. Publication of This Final Rule for Public Comment Is Not Required
by Statute
The statute that applies to the publication of the Federal
Acquisition Regulation (FAR) is 41 U.S.C. 1707, Publication of Proposed
Regulations. Subsection (a)(1) of the statute requires that a
procurement policy, regulation, procedure, or form (including an
amendment or modification thereof) must be published for public comment
if it relates to the expenditure of appropriated funds, and has either
a significant effect beyond the internal operating procedures of the
agency issuing the policy, regulation, procedure, or form, or has a
significant cost or administrative impact on contractors or offerors.
This final rule is not required to be published for public comment,
because the rule addresses internal operating procedures of the
Government.
III. Applicability to Contracts at or Below the Simplified Acquisition
Threshold (SAT), for Commercial Products (Including Commercially
Available Off-the-Shelf (COTS) Items), and for Commercial Services
This final rule does not create any new solicitation provisions or
contract clauses. It does not impact any existing solicitation
provisions or contract clauses or their applicability to contracts
valued at or below the simplified acquisition threshold, for commercial
products including COTS items, or for commercial services.
IV. Expected Impact of the Rule
Architects and engineers are limited in the amount they can charge
the Departments of the Army, Navy, and Air Force for producing and
delivering designs, plans, drawings, and specifications. The limitation
is a percentage of the architect and engineer's estimate of the
construction costs for the project. The limitation is specified at 10
U.S.C. 7540, 8612, and 9540; the limitation has been 6 percent of the
estimated construction costs. Section 2881 of the National Defense
Authorization Act for Fiscal Year 2024 increases the percentage at 10
U.S.C. 7540, 8612, and 9540 to 10 percent of the estimated construction
costs. This updated statutory limit only applies to requirements of the
Departments of the Army, Navy, and Air Force; it does not apply to the
rest of DoD or to civilian agencies.
Currently, DoD contracting officers evaluate architect and
engineering proposals in accordance with FAR 36.602 and DFARS 236.602.
Army,
[[Page 53503]]
Navy, and Air Force contracting officers conduct an additional
evaluation of proposals or portions of proposals for producing and
delivering designs, plans, drawings, and specifications in accordance
with DFARS 236.606-70, to ensure that the proposed price does not
exceed the 6 percent statutory limit of the architect and engineer's
estimated construction costs. The contracting officer divides the total
proposed price for producing and delivering designs, plans, drawings,
and specifications by the total estimated construction costs. The
resulting percentage may not exceed the statutory limitation.
This rule, which implements section 2881, merely changes each of
the occurrences of ``six percent'' in DFARS 236.606-70 to ``10
percent.'' The way the contracting workforce implements the limitation
will be unchanged, but the limitation will be a higher percentage.
This increase will allow architect and engineering entities, with
particular benefit to those with smaller contracts, to cover labor,
overhead, indirect, and other direct cost increases since the 6 percent
rate was put in place over 80 years ago on contracts for producing and
delivering designs, plans, drawings, and specifications. The increase
will also benefit architect and engineering entities with contracts for
producing and delivering designs, plans, drawings, and specifications
for large horizontal and complex vertical construction projects. While
costs have increased for architects and engineers, construction costs
have increased more dramatically, which results in a higher cost limit.
For example, if a particular construction project in the past cost
$900,000, the statutory fee limit was $54,000. If the same construction
project today costs $1.8 million, the prior statutory fee limit would
be $108,000 for the same effort, and with the increased statutory
limit, the fee would be limited to $180,000.
The implementation of this rule will increase the amount the
Government will pay for contracts that include producing and delivering
designs, plans, drawings, and specifications. However, this rule may
also encourage more architect and engineering entities to submit
proposals for DoD contracts.
Data was obtained from the Federal Procurement Data System (FPDS)
on Army, Navy, and Air Force construction contracts awarded for the
last three fiscal years. FPDS data shows that from FY 2021 through FY
2023, there was an average of 1,857 construction contracts awarded with
an average annual value of approximately $25 billion for all of the
contracts. DoD subject matter experts established that DoD considers
projects valued at less than $5 million as small projects and projects
over $5 million as large projects. Data obtained from FPDS shows that
from FY 2021 through FY 2023, there was an average of 1,420 small
construction contracts awarded with an average annual value of
approximately $1.4 billion. Information obtained from DoD subject
matter experts establishes that the historical average price for
architect and engineering entities to produce and deliver designs,
plans, drawings, and specifications is 3.25 percent of the estimated
construction costs. DoD expends on average approximately $811 million
($25 billion x 3.25 percent) annually for producing and delivering
designs, plans, drawings, and specifications.
Once section 2881 is implemented, the statutory limit for
architects and engineers to produce and deliver designs, plans,
drawings, and specifications will be raised to 10 percent of the
estimated construction costs. The historical average architect and
engineer's price for producing and delivering designs, plans, drawings,
and specifications is 45 percent less than the statutory limit, at 3.25
percent of the estimated construction costs. This is because,
architects and engineers must justify their proposed costs to
accomplish the work. They cannot simply state in their proposals that
the fee is 6 percent; they must negotiate the fee with the contracting
officer. Given this historical average while the statutory limit was 6
percent, it is unlikely that the price for this work would increase to
the new statutory limit of 10 percent of the estimated construction
costs. According to DoD subject matter experts, the statutory increase
will have the greatest benefit to projects involving large horizontal
projects and complex vertical projects with multi-disciplinary teams.
DoD expects that architect and engineering contracts associated
with large construction projects (i.e., estimated construction costs of
more than $5 million) will experience only a small increase within the
range of about 3.25 percent to about 3.75 percent of the estimated
construction costs, based on information provided by DoD subject matter
experts. From FY 2022 to FY 2023, the military departments' spending on
construction projects more than doubled, mainly due to inflation in
construction costs, and most of the dollars spent were for large
construction projects. As a result, even at 3.25 percent of the
estimated construction costs, the price for architect and engineering
contracts associated with large construction projects is substantially
more today than it was three or more years ago. While costs have also
increased for architects and engineers, construction costs have
increased more dramatically, which results in a substantially higher
fee limit. For example, if a particular construction project in the
past cost $6 million, the statutory fee limit was $360,000. If the same
construction project today costs $10 million, the prior statutory fee
limit would be $600,000 for the same architect and engineering effort.
As this example demonstrates, architect and engineering entities have
already seen an increase in the fee limit due to the dramatic increase
in the estimated construction costs.
Based on information provided by DoD subject matter experts, DoD
expects architect and engineering contracts associated with smaller
construction projects (i.e., estimated construction costs of less than
$5 million) to increase from 3.25 percent to 5.42 percent of the
estimated construction costs for producing and delivering designs,
plans, drawings, and specifications. DoD calculated that 3.25 percent
is about 54.16 percent of the statutory fee limit of 6 percent (3.25/6
= 0.54166, or 54.16 percent). If DoD continues to pay about 54.16
percent of the statutory fee limit (i.e., 54.16 percent of the new 10
percent limit), the resulting fee would be 5.42 percent. DoD expects
this increase will be driven by the small-dollar contracts that would
hit the 6 percent limit without this rule, but with this rule would be
between 6 percent and 10 percent. The construction projects associated
with these architect and engineering contracts are much smaller, but
may require more architect and engineering effort due to the complexity
even though the construction project is relatively small. For example,
a simple renovation project may require architects and engineers to
produce drawings of the existing space, demolition plans and drawings,
plans and drawings for structural modifications, etc., in addition to
producing the drawings for the renovation. Even with inflation in the
cost of construction, 3.25 percent of a small construction project may
not be enough for the architects and engineers to cover anticipated
costs. Therefore, DoD expects to see a larger increase in the amount
paid to architects and engineers for smaller contracts.
Based on an increase in smaller architect and engineering contracts
to 5.42 percent of the estimated construction costs and an increase in
larger architect and engineering contracts to 3.6 percent of the
estimated
[[Page 53504]]
construction costs, DoD estimates an average annual economic impact of
approximately $110 million. This amount was calculated using FPDS data
on construction contracts awarded in FY 2021 through FY 2023. The
construction contracts awarded during this 3-year period were valued at
an annual average of $24,359,067,619, of which large construction
contracts were $22,965,495,843 per year and smaller construction
contracts were $1,393,571,776 per year.
DoD calculated the value of the architect and engineering contracts
associated with large construction projects using the historical
average price of 3.25 percent of estimated construction costs for
producing and delivering designs, plans, drawings, and specifications
by multiplying the annual average value for large construction
contracts by 3.25 percent. This results in architect and engineering
contracts valued at $746,378,615 ($22,965,495,843 * 0.0325 =
$746,378,615). DoD also calculated the value of the architect and
engineering contracts associated with large construction projects using
higher prices in the range of 3.25 percent to 3.75 percent of estimated
construction costs, which DoD expects to pay as a result of this rule.
This results in architect and engineering contracts valued in the range
of $746,378,615 to $861,206,094 ($22,965,495,843 * 0.0325 =
$746,378,615 and $22,965,495,843 * 0.0375 = $861,206,094). The
difference between the value of the architect and engineering contracts
calculated using the higher percentage and those calculated using the
lower percentage is $80,379,235 ($861,206,094 - $746,378,615 =
$114,827,479). DoD expects to pay up to $114,827,479 more for architect
and engineering contracts associated with large construction projects
as a result of this rule.
DoD calculated the value of the architect and engineering contracts
associated with smaller construction projects using the historical
average price of 3.25 percent of estimated construction costs for
producing and delivering designs, plans, drawings, and specifications
by multiplying the annual average value for smaller construction
contracts by 3.25 percent. This results in architect and engineering
contracts valued at $45,291,083 ($1,393,571,776 * 0.0325 =
$45,291,083). DoD also calculated the value of architect and
engineering contracts associated with smaller construction projects
using the higher price of 5.42 percent of estimated construction costs,
which DoD expects to pay as a result of this rule. This results in
architect and engineering contracts valued at $75,531,590
($1,393,571,776 * 0.0542 = $75,531,590). The difference between the
value of the architect and engineering contracts calculated using the
higher percentage and those calculated using the lower percentage is
$30,240,507 ($75,531,590 - $45,291,083 = $30,240,507). DoD expects to
pay that much more for architect and engineering contracts associated
with smaller construction projects as a result of this rule.
Therefore, as a result of this rule, DoD expects to pay up to
approximately $145,021,999 ($114,827,479 + $30,194,520 = $145,021,999)
more per year than it has paid in recent years for architect and
engineering contracts associated with both large and smaller
construction projects.
V. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This is a significant regulatory action and, therefore, was subject to
review under section 6(b) of E.O. 12866, Regulatory Planning and
Review, as amended.
VI. Congressional Review Act
As required by the Congressional Review Act (5 U.S.C. 801-808)
before an interim or final rule takes effect, DoD will submit a copy of
the interim or final rule with the form, Submission of Federal Rules
under the Congressional Review Act, to the U.S. Senate, the U.S. House
of Representatives, and the Comptroller General of the United States. A
major rule under the Congressional Review Act cannot take effect until
60 days after it is published in the Federal Register. The Office of
Information and Regulatory Affairs has determined that this rule is a
major rule as defined by 5 U.S.C. 804.
VII. Regulatory Flexibility Act
The Regulatory Flexibility Act does not apply to this rule because
this final rule does not constitute a significant DFARS revision within
the meaning of FAR 1.501-1, and 41 U.S.C. 1707 does not require
publication for public comment.
VIII. Paperwork Reduction Act
This final rule does not contain any information collection
requirements that require the approval of the Office of Management and
Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).
List of Subjects in 48 CFR Part 236
Government procurement.
Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition Regulations System.
Therefore, the Defense Acquisition Regulations System amends 48 CFR
part 236 as follows:
PART 236--CONSTRUCTION AND ARCHITECT-ENGINEER CONTRACTS
0
1. The authority citation for 48 CFR part 236 continues to read as
follows:
Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
0
2. Revise section 236.606-70 to read as follows:
236.606-70 Statutory fee limitation.
(a) The statutes at 10 U.S.C. 7540, 8612, and 9540, for the
Departments of the Army, Navy, and Air Force, respectively, limit the
contract price (or fee) for architect-engineer services for the
preparation of designs, plans, drawings, and specifications to 10
percent of the project's estimated construction cost.
(b) The 10 percent limit also applies to contract modifications,
including modifications involving--
(1) Work not initially included in the contract; apply the 10
percent limit to the revised total estimated construction cost; and
(2) Redesign work; apply the 10 percent limit by--
(i) Adding the estimated construction cost of the redesign features
to the original estimated construction cost;
(ii) Adding the contract cost for the original design to the
contract cost for redesign; and
(iii) Dividing the total contract design cost by the total
estimated construction cost. The resulting percentage may not exceed
the 10 percent statutory limitation.
(c) The 10 percent limit applies only to that portion of the
contract (or modification) price attributable to the preparation of
designs, plans, drawings, and specifications. If a contract or
modification also includes other services, the part of the price
attributable to the other services is not subject to the 10 percent
limit.
[FR Doc. 2024-13863 Filed 6-26-24; 8:45 am]
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