Contracting and Contracting and Procurement Issues in Procurement Issues in

Engineering and Engineering and ConstructionConstruction

Fred GuymontFred Guymont

Mechanisms USAID UsesMechanisms USAID Uses

USAID has used contracts, cooperative agreements and USAID has used contracts, cooperative agreements and grants to implement engineering and constructiongrants to implement engineering and construction

Differences are importantDifferences are important

Contracts are used to acquire commodities or services Contracts are used to acquire commodities or services with the expectation that USAID will exercise substantial with the expectation that USAID will exercise substantial dayday--day controlday control

Cooperative agreements are used when the principal Cooperative agreements are used when the principal purpose is the transfer of money, property or services to purpose is the transfer of money, property or services to the recipient. Substantial USAID involvement in the recipient. Substantial USAID involvement in approving key personnel, implementation plans and the approving key personnel, implementation plans and the right to stop constructionright to stop construction

Grants and Cooperative Grants and Cooperative AgreementsAgreements

Grants are given to a Grants are given to a recipient to accomplish a recipient to accomplish a program with no direct program with no direct USAID involvement in the USAID involvement in the implementation of the implementation of the program.program.

Grants and cooperative Grants and cooperative agreements usually require agreements usually require some cost sharing and the some cost sharing and the recipient does not receive a recipient does not receive a fee. fee.

Most grants and cooperative Most grants and cooperative agreements go to NGOs agreements go to NGOs although for profit firms can although for profit firms can apply apply

ContractsContracts

Two types of contracts for engineering & construction Two types of contracts for engineering & construction –– host country host country and directand direct

In a host country contract USAID acts as the financier onlyIn a host country contract USAID acts as the financier only

Host country contracting and financial systems have to be approvHost country contracting and financial systems have to be approved ed by USAID before USAID can finance a contractby USAID before USAID can finance a contract

About 10 mandatory clauses including USAID approvals, marking, About 10 mandatory clauses including USAID approvals, marking, cargo preference, workman compensation insurancecargo preference, workman compensation insurance

Host country contracts for construction usually use FIDIC terms Host country contracts for construction usually use FIDIC terms and and conditions conditions –– FIDIC is used internationally and is familiar to host FIDIC is used internationally and is familiar to host countries, engineering and construction companiescountries, engineering and construction companies

USAID used host country contracts extensively in the 80s and 90sUSAID used host country contracts extensively in the 80s and 90s in in countries like Egyptcountries like Egypt

Today there is less host country contracting done with most Today there is less host country contracting done with most engineering and construction contracts direct contracts that useengineering and construction contracts direct contracts that use the the FAR. USAID Egypt is currently using Fixed Amount Reimbursement FAR. USAID Egypt is currently using Fixed Amount Reimbursement Agreements which are a type of host country contract. Agreements which are a type of host country contract.

Role of the EngineerRole of the Engineer

An engineering firm is needed as USAID’s An engineering firm is needed as USAID’s representative for all but the smallest representative for all but the smallest construction activities.construction activities.

This is true whether the contract is a This is true whether the contract is a design/build, conventional design/bid/build, design/build, conventional design/bid/build, construction management services construction management services

Engineer is necessary to do the designs, Engineer is necessary to do the designs, manage the construction contractor procurement manage the construction contractor procurement and supervise constructionand supervise construction

Contracts USAID UsesContracts USAID Uses

Conventional design/bid/buildConventional design/bid/build

Two separate contracts, one for engineering Two separate contracts, one for engineering work, one for constructionwork, one for construction

Engineering work can include feasibility studies, Engineering work can include feasibility studies, preliminary and final designs, preparation of preliminary and final designs, preparation of construction tender documents, assistance construction tender documents, assistance during the tendering process. during the tendering process.

The engineer then oversees the construction The engineer then oversees the construction which is done under a separate contract which is done under a separate contract

Design/BuildDesign/BuildDesign/build (Turnkey)Design/build (Turnkey)

This term is used quite often in USAID these days, This term is used quite often in USAID these days, mostly incorrectly.mostly incorrectly.

Design/build means there is one contract to do Design/build means there is one contract to do the engineering/constructionthe engineering/construction

Proponents claim it is faster and less expensive. Proponents claim it is faster and less expensive. Construction can be started before design is Construction can be started before design is completedcompleted

Problem with D/B is in the procurement Problem with D/B is in the procurement –– how to how to ensure each bidder tenders on the same thing.ensure each bidder tenders on the same thing.

Design/build can be used on certain types of Design/build can be used on certain types of facilities such as chemical plants where the facilities such as chemical plants where the design is so closely related to the construction design is so closely related to the construction work that they can’t be separatedwork that they can’t be separated

Even if D/B is used the employment of an Even if D/B is used the employment of an Engineer is needed to assist with contracting, Engineer is needed to assist with contracting, approval of drawings, supervision of construction approval of drawings, supervision of construction activities, certification of paymentsactivities, certification of payments

What USAID has used is a modified D/B where the What USAID has used is a modified D/B where the design is carried to say 30% and then D/B design is carried to say 30% and then D/B contractor bids to complete the design and carry contractor bids to complete the design and carry out the construction.out the construction.

These types of contracts were used by USAID in These types of contracts were used by USAID in the 90s in Egypt on water and wastewater projectsthe 90s in Egypt on water and wastewater projects

Construction ManagementConstruction Management

Has been used extensively by USAID for programs in the Balkans, Has been used extensively by USAID for programs in the Balkans, Iraq, Afghanistan and Sri LankaIraq, Afghanistan and Sri Lanka

Programs were characterized by the need to do something quickly,Programs were characterized by the need to do something quickly, exactly what was not clearexactly what was not clear

Contract is a USAID direct contract Contract is a USAID direct contract –– a cost plus fixed fee type a cost plus fixed fee type contract is usedcontract is used

Usually contractor assesses the situation and make Usually contractor assesses the situation and make recommendations on subprojectsrecommendations on subprojects

USAID then authorizes contractor to proceed with the engineeringUSAID then authorizes contractor to proceed with the engineering, , construction tendering and construction. The engineering might bconstruction tendering and construction. The engineering might be e subcontracted out or done by the construction manager.subcontracted out or done by the construction manager.

The The subcontactssubcontacts are usually firm fixed price or unit price contractsare usually firm fixed price or unit price contracts

This type of contract requires a strong USAID project managementThis type of contract requires a strong USAID project management staff staff –– in Iraq the program used the Army Corps of Engineers to in Iraq the program used the Army Corps of Engineers to augment its support staffaugment its support staff

Fixed Amount ReimbursementFixed Amount Reimbursement

Agreements USAID enters into with host countriesAgreements USAID enters into with host countries

Reimburse a fixed amount depending upon agreed upon outputs Reimburse a fixed amount depending upon agreed upon outputs –– schools, kilometers of road, meters of pipeschools, kilometers of road, meters of pipe

USAID not concerned about procedures used by host country to USAID not concerned about procedures used by host country to rehab the schools, USAID doesn’t get involved in the contractingrehab the schools, USAID doesn’t get involved in the contracting

USAID is concerned on whether the outputs conform to standardsUSAID is concerned on whether the outputs conform to standards

USAID disbursements not related to actual costs. Payment is fixeUSAID disbursements not related to actual costs. Payment is fixed d in advance based on reasonable cost estimatesin advance based on reasonable cost estimates

Payment is made on the basis of a completed project or a Payment is made on the basis of a completed project or a quantifiable subquantifiable sub--element.element.

USAID often requires a host country contributionUSAID often requires a host country contribution

USAID will often retain an engineer to inspect the construction USAID will often retain an engineer to inspect the construction and and certify payments. certify payments.

Innovative Contracting ApproachesInnovative Contracting Approaches HondurasHonduras

In 1998 Hurricane Mitch devastated Central AmericaIn 1998 Hurricane Mitch devastated Central America

USAID used host country contracts for constructionUSAID used host country contracts for construction

USAID funded a technical support unit (15 Honduran engineers andUSAID funded a technical support unit (15 Honduran engineers and one USAID PSC)one USAID PSC)

US engineering firms did final designs and construction supervisUS engineering firms did final designs and construction supervisionion

Construction contracts were fixed unit rates Construction contracts were fixed unit rates

Quick response task orders were used for activities less than $1Quick response task orders were used for activities less than $100k 00k –– scope of work and budget were drawn up by the technical supportscope of work and budget were drawn up by the technical support unit.unit.

Despite this being a HCC the USAID contracting officer worked Despite this being a HCC the USAID contracting officer worked closely with the Support Unitclosely with the Support Unit

Over 1000 kilometers of rural roads, culverts and bridges were Over 1000 kilometers of rural roads, culverts and bridges were constructedconstructed

EgyptEgypt

USAID used Fixed Amount Reimbursements USAID used Fixed Amount Reimbursements in a $100 million program to sewer in a $100 million program to sewer construction in the late 1980s and 1990s.construction in the late 1980s and 1990s.

Construction used local contractors in Construction used local contractors in heavily populated, poor areas of Cairo, very heavily populated, poor areas of Cairo, very narrow streets.narrow streets.

An engineering contractor under a host An engineering contractor under a host country contract provided assistance to the country contract provided assistance to the Egyptian Cairo Wastewater Organization to Egyptian Cairo Wastewater Organization to help them draw up, tender and monitor help them draw up, tender and monitor construction.construction.

USAID used its own staff and AMBRIC to USAID used its own staff and AMBRIC to monitor construction performance.monitor construction performance.

Project enabled Egyptian contractors to Project enabled Egyptian contractors to develop their capabilities and to play a more develop their capabilities and to play a more significant role in later USAID projects in significant role in later USAID projects in Egypt. Egypt.

KosovoKosovo

In 2000 USAID used Parsons Delaware In 2000 USAID used Parsons Delaware through a direct contract to manage the through a direct contract to manage the design and construction of infrastructure design and construction of infrastructure projects throughout Kosovo under the projects throughout Kosovo under the Community Infrastructure Services Community Infrastructure Services ProgramProgram

Projects were identified in part by NGOs Projects were identified in part by NGOs already working in Kosovoalready working in Kosovo

Parsons served as the construction Parsons served as the construction manager subcontracting out the design manager subcontracting out the design and construction to local and construction to local KosovarKosovar firmsfirms

Key aspects of the program were job Key aspects of the program were job creation and projects in different ethnic creation and projects in different ethnic and mixed ethnic communitiesand mixed ethnic communities

Parsons took on all responsibility with Parsons took on all responsibility with oversight of their contract by USAID oversight of their contract by USAID project management staff.project management staff.

SerbiaSerbia

In Community Revitalization through Democratic Action (CRDA) In Community Revitalization through Democratic Action (CRDA) Program USAID used assistance agreements not contracts.Program USAID used assistance agreements not contracts.

CRDA was a broad based program where representative citizens CRDA was a broad based program where representative citizens committees were actively engaged in making local decisions on committees were actively engaged in making local decisions on community development activitiescommunity development activities

One object of the program was to bring together opposing factionOne object of the program was to bring together opposing factions s in a community to develop activities that would benefit differenin a community to develop activities that would benefit different t groupsgroups

The scope of projects at the local level was broad and included The scope of projects at the local level was broad and included many small scale infrastructure projects such as schools and many small scale infrastructure projects such as schools and clinics, farm to market roads and local electrical systemsclinics, farm to market roads and local electrical systems

USAID used five grantees through cooperative agreements to USAID used five grantees through cooperative agreements to implement the program in different parts of the country.implement the program in different parts of the country.

The grantees in turn worked closely with local firms to design aThe grantees in turn worked closely with local firms to design and nd construct infrastructure projectsconstruct infrastructure projects

The grantees had engineering expertise on their staffsThe grantees had engineering expertise on their staffs

AfghanistanAfghanistanInfrastructure is done through various programs including Infrastructure is done through various programs including the Afghanistan Infrastructure and Rehabilitation Program the Afghanistan Infrastructure and Rehabilitation Program and Alternative Livelihoods Program.and Alternative Livelihoods Program.

USAID’s largest construction program, AIRP, is done thru USAID’s largest construction program, AIRP, is done thru a construction management direct USAID contract. a construction management direct USAID contract. AIRP’sAIRP’s two main sectors are roads and electricity.two main sectors are roads and electricity.

The construction management contractor works with The construction management contractor works with USAID to identify projects or USAID defines what USAID to identify projects or USAID defines what projects are to be done.projects are to be done.

The projects are then put out to tender to local, regional The projects are then put out to tender to local, regional or international contractors who subcontract with the or international contractors who subcontract with the consortium.consortium.

USAID monitors the $1 billion plus contract with an USAID monitors the $1 billion plus contract with an extensive staff of direct hire, PSC, Afghan engineers and extensive staff of direct hire, PSC, Afghan engineers and the US Army Corps of Engineers.the US Army Corps of Engineers.

Recently USAID issued a RFA for a major rural roads Recently USAID issued a RFA for a major rural roads program in the South and Eastern parts of the country. program in the South and Eastern parts of the country.

USAID also does a considerable amount of infrastructure USAID also does a considerable amount of infrastructure thru the Alternative Livelihoods Program. thru the Alternative Livelihoods Program.

A large number of these projects are implemented thru A large number of these projects are implemented thru cash for work. cash for work.

ColombiaColombia

In Colombia, like Afghanistan, there In Colombia, like Afghanistan, there has been a significant alternative has been a significant alternative livelihoods program to stem the livelihoods program to stem the production of illicit drugs production of illicit drugs

Technical and financial support has Technical and financial support has been provided to rehabilitate rural been provided to rehabilitate rural roads, bridges, schools, rural health roads, bridges, schools, rural health clinics, and potable water systems.clinics, and potable water systems.

The projects are implemented through The projects are implemented through direct USAID contracts with firms such direct USAID contracts with firms such as as ChemonicsChemonics and ARD.and ARD.

Local contractors are used to increase Local contractors are used to increase employment employment

As with the program in Afghanistan, As with the program in Afghanistan, infrastructure is only one aspect of a infrastructure is only one aspect of a program designed to develop program designed to develop economic alternatives to illicit drugs.economic alternatives to illicit drugs.

The scale of infrastructure activity is The scale of infrastructure activity is significant with over 1100 projects significant with over 1100 projects being completed.being completed.

PeruPeru

To respond to the needs of Peru’s highland To respond to the needs of Peru’s highland communities the WB Rural Roads project communities the WB Rural Roads project aimed to increase access to basic social aimed to increase access to basic social services and income services and income ––generating activities generating activities by providing a well integrated rural roads by providing a well integrated rural roads system.system.

Project activities consisted of the Project activities consisted of the rehabilitation and maintenance of rural roads rehabilitation and maintenance of rural roads thru local laborthru local labor

Following the rehabilitation of the roads, Following the rehabilitation of the roads, communities took over maintenancecommunities took over maintenance

The interesting aspect of this program is that The interesting aspect of this program is that micro enterprises consisting of 10 micro enterprises consisting of 10 --15 15 members were formed to take over members were formed to take over maintenance such as clearing drainage maintenance such as clearing drainage ditches and culverts, filling pot holes and ditches and culverts, filling pot holes and ruts and removing small landslides ruts and removing small landslides

Haiti, Grenada, JamaicaHaiti, Grenada, Jamaica

In Sept 2004 Hurricane Ivan and Tropical Storm Jean struckIn Sept 2004 Hurricane Ivan and Tropical Storm Jean struck

In response Congress passed a $100 million supplemental In response Congress passed a $100 million supplemental appropriation.appropriation.

USAID and OMB agreed to a one year time frame USAID and OMB agreed to a one year time frame –– which which proved too ambitious given that construction was involved.proved too ambitious given that construction was involved.

USAID decided to hire a management firm rather than undertake USAID decided to hire a management firm rather than undertake the reconstruction with its own staff. the reconstruction with its own staff.

A subsequent GAO audit found flaws in the construction A subsequent GAO audit found flaws in the construction subcontracts such as no warranties or liability clausessubcontracts such as no warranties or liability clauses

Recognizing problems, the USAID mission in Haiti contracted an Recognizing problems, the USAID mission in Haiti contracted an engineering firm to monitor construction activities. engineering firm to monitor construction activities.

The GAO audit found that the engineering company identified The GAO audit found that the engineering company identified urgent construction needs that had to be addressed and worked urgent construction needs that had to be addressed and worked closely with construction companies to remedy problems.closely with construction companies to remedy problems.

The engineering company proved to be an arbiter of problems The engineering company proved to be an arbiter of problems between the management company and its subcontractors.between the management company and its subcontractors.

In my estimation, the GAO audit points out the need to not shortIn my estimation, the GAO audit points out the need to not short change engineering by building in engineering expertise either change engineering by building in engineering expertise either thru USAID’s own staff of thru engineering contractor support.thru USAID’s own staff of thru engineering contractor support.

GAO recommended that USAID revise staffing procedures to GAO recommended that USAID revise staffing procedures to allow the Agency to more quickly reassign or hire key personnel.allow the Agency to more quickly reassign or hire key personnel.