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cdhames

Reconciling RS Means Labor rates with Prevailing Wages

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Good morning and happy EOFY16.  I'm interested in knowing how other construction teams structure their IDIQs in terms of reconciling RS Means labor rates with Prevailing wage labor rates (assuming RS Means is the required pre-priced UPB required under contract). 

Here are my assumptions:  I've looked through the RS Means cost data labor rates at the back of each cost data book and note that the national union rates are generally up or down, but mostly below prevailing wages.  I've noted that RS Means uses a City Cost Index (CCI) to apply a rate adjustment based on locality which is often a rate increase per locale, but often after application, the wage is still under the prevailing wage (under the latest Construction Wage Rate).  I understand that using RS Means comes with issues and there is an ongoing debate about whether it saves the Government money (I understand many feel RS Means prices are inflated and does not save the Government money). 

So I've been perusing SABER IDIQ Specifications/Statement of Works that incorporate RS Means as a UPB and Costworks, or e4Clicks as the estimator (or Timberline for older specs).   I see a lot of the specifications request that the contractor use total bare costs, based on national average rates, defined by the RS Means price books.  What I hear from contractors is that these rates do not often match the prevailing wages, and so they are forced to provide "extra" labor hours to compensate for the cost of the prevailing wage they are operating under. 

I've heard it's possible to integrate a custom set of labor rates depending on the estimator a contractor or agency is using (such as plugging in prevailing wage rates in the estimator of choice) but I haven't actually seen this laid out in a Spec/SOW example.

My question is, how are your agencies handling this issue (is it a issue?), or is there a generally accepted better method to pre-price construction projects than using RS Means that your agency is using?  I admit I may not fully understand all of the issues with using RS Means so please understand I am on the learning curve.

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What is the idea being reconciling the difference between RS means and the Wage determination? Just because your IDIQ says you have to use RS Means to develop proposals doesn’t mean the prices RS means says is what the contractor actually pays.

If I were pricing a job, and I pay my employees $10 more an hour than RS means states because I know they can work twice as fast, I’m still going to submit a proposal for what RS means says I should regardless if I could do the work for less or not. Of course that would make my pricing not as competitive. 

In my opinion, as long as the contractor is paying the rates on the wage determination, I wouldn’t care what the hourly rates RS Means says, and would only use the number of hours for negotiating a level of effort.

 *I'm assuming Task Orders placed are fixed price.

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3 hours ago, cdhames said:

I've heard it's possible to integrate a custom set of labor rates depending on the estimator a contractor or agency is using (such as plugging in prevailing wage rates in the estimator of choice) but I haven't actually seen this laid out in a Spec/SOW example.

I don't know that I'd consider it custom labor rates, but I've seen this done before where you take RS Means Cost * City Cost Index * Coefficient = Total price, where your coefficient includes profit, OH, etc. So if the contractor thinks RS Means prices are understated they could make up that cost in their coefficient (e.g. 1.10). If the contractor thinks they can beat RS Means pricing they could decrease their coefficient to make them more competitive (e.g. .95).

I've also seen where you won't let contractors use Div 1 / Allowable Adjustment Factors when proposing pricing. Right or wrong I have no opinion for or against using Allowable Adjustment Factors.

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If the basis of labor cost is lower than that of the prevailing wage, the estimate wouldn't appear to be accurate IMO.  If we require a contractor to use RS Means, and labor cost is $10 dollars, and the bare cost is $20; and the prevailing wage is $20, and material is $10, but the contractor proposes $20 as required (based on RS Means), is that fair?  What contractors tell me is that they normally pad labor cost (extra quantity) to adjust for the difference.  That's fine if a CO wants to accept it like that (his/her decision).  I'm just asking if there's a better methodology.  I'm sorry if I'm not coming across clearly.

What if the contractor has a requirement where they have to propose only labor costs and by contract are required to estimate using RS Means cost data?  Or what if there are Non-Priced Items (NPI's) that require a contractor to use RS Means "crew size" cost data to calculate labor cost?  Assuming Task Orders are fixed price. 

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To me, it is stupid to use the Means Wage rates. The program allows one to plug in applicable wage rates, be they the DOL wage decisions or actual wage rates. To my recollection, the Means line item activities are applicable to whomever performs the work - the prime or a subcontractor. One must add the appropriate markups for sub and prime or prime, as applicable.  

Hoeever, I haven't seen recent solicitations so don't know how agencies are currently using Means.  

It would seem that the most useful aspect of Means is the crew makeup and productivity information. Of course, there are different ways to accomplish a task and the contractor may or may not use the same equipment as assumed by Means. 

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The original post mentioned that SABRE contractors or others on contracts that use Means as unit price books "are forced to provide "extra" labor hours to compensate for the cost of the prevailing wage they are operating under."

The only ways to do that would be to inflate quantities and/or to add dummy activities. Organizations use unit price books to provide a method to simplify and accelerate estimating and negotiating of job/task orders by locking in certain variables, such as crew mix, labor hours, equipment types and hours to perform various activities. This helps define some level of fair and reasonableness in a sole source task order environment  

UPB's have limitations that can sometimes be reduced if the estimating programs allow some tailoring .

They generally only provide bare costs, without regard to whether the work is self-performed or subcontracted. There should be some way to organize subcontracted activities as well as self-performed to allow appropriate markups. 

Material prices vary monthly and quarterly in many cases. There should be some way to provide for  more accurate material costs. 

Generic equipment types and output often represent only one solution and don't necessarily reflect a firm's owned equipment inventory or what they might actually rent. 

Unfortunately, instead of allowing some flexibility in using UPB's, organizations have often locked in the UPB's and have simply incorporated the use of "coefficients" for base contract period and each option year to apply to all UPB activity costs.  In developing the coefficient for each period, a proposer must "divine" what types and mix of possible tasks will be likely involved, the subcontracting market, material price trends, labor market, whether the UPB is unrealistically high or low (fat or thin) in all or certain activities, possible risk factors, the level of competition for the base (ID/IQ) contract, etc. 

As a result, the contracts have either been over or under priced. Most of the feedback I would receive from Army installations using Job Order Contracting ("JOC" contracts ) in the 1990's and 2000's  was that the UPB wasn't realistic for many activities or types of work. High level of competition for the base award resulted in unrealistically low coefficients. This led to performance and cooperation issues, especially in the out years, as contractors were reportedly losing money. 

The USACE developed what I think was the first UPB for use on the massive Saudi Arabian Military Infrastructure program of the 1970's and 1980's by adapting Means or some other estimating systems. R.S. Means might have been the developer - I don't know. The Saudi's obviously paid for the UPB. I think that the UPB's that the Corps and have used since then were an off-shoot of that program. My personal problems with the UPB's have been that they were usually blindly used for developing Government Estimates, with little or no tailoring to actual conditions, especially for estimating changes and claims. Once a contract is awarded, we and the contractors are "stuck with what we brung" - the prime's and subs'efficiencies or lack thereof, their actual job site equipment, and labor, material subcontracting markets, how the work is organized, and what is subbed or self-performed , etc.   

That was further complicated by the long standing requirement that negotiated award or negotiated settlement had to be less than or equal to the Government's Estimate.

Fortunately, USACE wised up and removed that requirement, instead emphasizing that the IGE was a tool, along with other price tools and cost analysis in developing the pre-negotiation objectives and for negotiating new contracts and settlements of changes and claims.  

The bottom line is that, the more you try to "simplify" negotiation of prices by (over) reliance on a stock UPB, the less realistic (dictionary definition) prices result for both the owner and contractor.  Risk of performance and cost issues go up  

 

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17 hours ago, cdhames said:

If the basis of labor cost is lower than that of the prevailing wage, the estimate wouldn't appear to be accurate IMO.

 

I agree the estimate would not be all that great. I was under the impression you’re using RS Means to price proposals not create estimates.  

17 hours ago, cdhames said:

What if the contractor has a requirement where they have to propose only labor costs and by contract are required to estimate using RS Means cost data?  . 

Well, part of entering into a contract is understanding the inherent risks and make a business decision if the risk is worth it. From a CO standpoint if I was awarding JOCs, I would understand RS means isn’t all that accurate and ask contractors for pricing using a coefficient I previously mentioned.

1 hour ago, joel hoffman said:

They generally only provide bare costs, without regard to whether the work is self-performed or subcontracted. There should be some way to organize subcontracted activities as well as self-performed to allow appropriate markups. 

 

Doesn't RS Means let you do this? I may be wrong but for some reason I think the online version lets you. I'll log in a little later and find out. I remember asking for contractors to list what work they would self-perform and to provide a list of activities they would subcontract if the subcontract value was 5% or more of the awarded amount citing FAR 44.201-1.  What I don't remember off the top of my head is if I ever asked for this using UPBs.

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I imagine that an automated estimate using Means software allows one to differentiate between self performed and subcontracted work and perhaps customize labor rates. But do the government Solicitations allow that?  I thought all that was supposed to be considered in the magic, all encompassing crystal ball - the "coefficient". 

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