We're having a debate regarding the payment of pre-construction submittals (not administrative submittals) such as shop drawings. One school of thought is we only pay for work put in place and the cost of submittals are included in the respective construction activity. The other position is that the submittals are tangible and have value in the event of a surety take-over, as they would likely still be used.

UFGS 01 32 17.05 20 states: Procurement Activities: Examples of procurement activities include, but are not limited to; Material/equipment submittal preparation, submittal and approval of material/equipment; material/equipment fabrication and delivery, and material/equipment on-site. As a minimum,

separate procurement activities will be provided for critical items, long lead items, items requiring government approval and material/equipment procurement for which payment will be requested in advance of installation.

Then under cost-loading: Cost Loading Activities: Costs for incremental design preparation shall be assigned to the respective design phase submittal milestone(s). Material and Equipment Costs for which payment will be requested in advance of installation shall be assigned to their respective procurement

activity (i.e., the material/equipment on-site activity). All other construction costs shall be assigned to their respective Construction Activities.

I don't understand why the guide spec says to treat submittals as procurement activities, but then seemingly limits reimbursement to only material & equipment delivered to the site.

I'm curious how others treat the payment of these type of submittals and what basis is used.

We're having a debate regarding the payment of pre-construction submittals (not administrative submittals) such as shop drawings. One school of thought is we only pay for work put in place and the cost of submittals are included in the respective construction activity. The other position is that the submittals are tangible and have value in the event of a surety take-over, as they would likely still be used.

UFGS 01 32 17.05 20 states: Procurement Activities: Examples of procurement activities include, but are not limited to; Material/equipment submittal preparation, submittal and approval of material/equipment; material/equipment fabrication and delivery, and material/equipment on-site. As a minimum,

separate procurement activities will be provided for critical items, long lead items, items requiring government approval and material/equipment procurement for which payment will be requested in advance of installation.

Then under cost-loading: Cost Loading Activities: Costs for incremental design preparation shall be assigned to the respective design phase submittal milestone(s). Material and Equipment Costs for which payment will be requested in advance of installation shall be assigned to their respective procurement

activity (i.e., the material/equipment on-site activity). All other construction costs shall be assigned to their respective Construction Activities.

I don't understand why the guide spec says to treat submittals as procurement activities, but then seemingly limits reimbursement to only material & equipment delivered to the site.

I'm curious how others treat the payment of these type of submittals and what basis is used.

Is this a NAVFAC contract specification?

We're having a debate regarding the payment of pre-construction submittals (not administrative submittals) such as shop drawings. One school of thought is we only pay for work put in place and the cost of submittals are included in the respective construction activity. The other position is that the submittals are tangible and have value in the event of a surety take-over, as they would likely still be used.

UFGS 01 32 17.05 20 states: Procurement Activities: Examples of procurement activities include, but are not limited to; Material/equipment submittal preparation, submittal and approval of material/equipment; material/equipment fabrication and delivery, and material/equipment on-site. As a minimum,

separate procurement activities will be provided for critical items, long lead items, items requiring government approval and material/equipment procurement for which payment will be requested in advance of installation.

Then under cost-loading: Cost Loading Activities: Costs for incremental design preparation shall be assigned to the respective design phase submittal milestone(s). Material and Equipment Costs for which payment will be requested in advance of installation shall be assigned to their respective procurement

activity (i.e., the material/equipment on-site activity). All other construction costs shall be assigned to their respective Construction Activities.

I don't understand why the guide spec says to treat submittals as procurement activities, but then seemingly limits reimbursement to only material & equipment delivered to the site.

I'm curious how others treat the payment of these type of submittals and what basis is used.

After having read this Progress schedule guide spec in the day time, it is more coherent to me.

Ok, you ask why we require submittals and procurement efforts to be included as activities. The reason is that they are activities associated with the procurement of material and equipment that require specific actions on the part of the contractor and often the owner before the M&E can be acquired and installed. Such an activity is a constraint upon installation that we want to make sure is included in network schedules so that it can be managed, statused and observed. The schedule shows he interactions between activities, constraints, lags and lead times necessary. Let's use the example of a transformer, which often has a long lead time ("long lead item") to be ordered months before it has to be installed. It provides for installation of the transformer to be scheduled in phases - submit the transformer, govt reviews, order the transformer - do other activities while waiting for the transformer - transformer delivery - install the transformer. Makes a lot more sense than just showing one activity "called transformer". We include the trade labor resources in the associated installatioin activitiy so that the contractor knows when the labor resources are actually needed and how many. The scheduling program will allow the managers to see how much total labor is required on the jobsite and what trades are involved on-site at the same time.

One can then manage the overall construction process and plan work.

Ok, now let's look at cost loading. The Payments clause says we make progress payments for work in place and for materials on-site (and maybe for off-site materials or fabrication- let's not get bogged down here with details). The procurement, overhead, management costs and other markups are to be included in the associated material installation activities and/or spread over the actual installation activities, not the administrative and procurement activities.

The guide spec you quoted appears to be one for design-build, so it also mentions design activities, which can be paid for.

Does my explanation make sense as to why a detailed progress schedule has more than one purpose?

One is to detail the sub-activities, if I can call them such for this discussion, associated with a larger activity, that are necessary to manage the overall project within the contract duration. Everyone can tell when these activities are needed, how long they take, and their interrelationship with other activities. One can estimate, schedule and manage labor and equipment resources for the actual installation process. One can tell how many electricians are needed overall and at any one time, whether that many are available and if that many will fit in the building or on the jobsite at any one time.

The schedule separately allows management of he value of the contract, cash flow and measurement of progress against the total value or price/cost of the contract. Contractor can estimate when it will get paid and an owner can see when the money is scheduled for outflow.

Bottom line - we don't pay for admin and procurement activities under those activities. Those indirect costs are spread over the actual installation activities.

Now, having said all that, the Spec you quoted appears to be a NAVFAC prepared simplified version of a progress schedule guide spec, which has also apparently been tailored for a design-build contract. It has some quirks in it, which might deviate from the concepts that I described above. I asked you a day and a half ago if it was a NAVFAC version. You didn't respond. I should have simply advised you to check with the proponent agency for your guide Spec

I researched the Whole Building Design Guide and found a similar NAVFAC Guide Spec for design-bid-build (SECTION 01 32 17.00 20 NETWORK ANALYSIS SCHEDULES (NAS) 08/10). I believe that the ..20" designation means that it written is for NAVFAC use. The designation "01 32 17.05 20" in your example may mean that it is a NAVFAC, design-build tailored version. You didn't explain where it came from.

The cost loading portion of the NAVFAC Unified Facility Guide Specification at the Whole Building Design Guide website (Construction Criteria Base - UFGS) says:

"1.6.2.5 Cost Loading

Cost Loading Activities: Material and Equipment Costs for which payment will be requested in advance of installation shall be assigned to their respective procurement activity (i.e., the material/equipment on-site activity). All other construction costs shall be assigned to their respective Construction Activities. The value of inspection/testing activities will not be less than 10 percent of the total costs for Procurement and Construction Activities. Evenly disperse overhead and profit to each activity over the duration of the project."

NAVFAC may allow a separate cost loaded "procurement activity" - I don't know. I suggest asking their Headquarters activity in D.C. or whoever the proponent is for your spec what it means.

I was taught not to cost load administrative and management activities and that we (Army Corps of Engineers) make progress payments only for in-place construction and materials. We tell contractors to spread the management and admin costs over the actual construction activities. Having been at the District oversight level for many years, I've seen scads of contractor defaults. I can tell you that a bonding company taking over a defaulted job is very interested when we've shown progress and made payment for paperwork activities that isnt reflected on the ground when they have to come in and complete the project with remaining funds.

I've also seen tours by Generals and other VIP tours where the on-site activities don't square with the reported progress in the briefing - It is very embarasing when the Chief of Staff asks why we've paid 40% with barely anything to show on the ground! Often, submittals and other procurement activities aren't transferrable or usable by the completing entity.

The Payments clause says we make progress payments for work in place and for materials on-site (and maybe for off-site materials or fabrication- let's not get bogged down here with details). The procurement, overhead, management costs and other markups are to be included in the associated material installation activities and/or spread over the actual installation activities, not the administrative and procurement activities.

Joel: Which payments clause for construction contracts says those things, especially about "work in place"? What exactly does the clause say? Please cite and quote.

Joel: Which payments clause for construction contracts says those things, especially about "work in place"? What exactly does the clause say? Please cite and quote.

To clarify my earlier statement, we pay for "estimates of work accomplished, which meets the standards of quality established under the contract." We may also authorize pay "...for material delivered on the site and preparatory work done to be taken into consideration." In our agency, "work accomplished" generally means the physical work, which can also include fabrication of assemblies, even though they aren't "in place". Examples are piping assemblies, electrical panels, mass electrical conduit assemblies, framing assemblies, truss fabrication, bridge fabrication, etc. See also 10 USC 2307, below. Paperwork, procurement activities and inspection of the work are NOT considered, in our agency, to be "work accomplished, which meets the standards of quality established under the contract." Such costs are indirect costs that should be spread over the physical work activities.

See below, but if you are referring to "prepatory work", preparatory work includes such items as cost of erection of batch plants, construction of haul roads, erecting fences, shops, etc. (less acquisition costs of equipment and materials not to be incorporated into the work, or mobilization costs."

For the Corps of Engineers, "Work" doesnt generally include admin, procurement activities, shop drawing preparation and submission, etc. I don't know what it means to NAVFAC. That's why I advised to check with NAVFAC for their interpretation, because their guide spec is somewhat unclear to me.

For USACE Design_Build contracts, design deliverables ARE payable under the design CLIN's. These are generally designs, though - not construction and extension of design submittals. I believe that it is the same for NAVFAC - but they may pay for extensions to design construction type submittals. The NAVFAC template for D-B contracts is unique to NAVFAC.

Clause 52.232-5 -- Payments Under Fixed-Price Construction Contracts (2002)

"...( Progress payments. The Government shall make progress payments monthly as the work proceeds, or at more frequent intervals as determined by the Contracting Officer, on estimates of work accomplished which meets the standards of quality established under the contract, as approved by the Contracting Officer.

...(2) In the preparation of estimates, the Contracting Officer may authorize material delivered on the site and preparatory work done to be taken into consideration. Material delivered to the Contractor at locations other than the site also may be taken into consideration if --

(i) Consideration is specifically authorized by this contract [Joel's Note: this will be specifically identified in the contract]; and

(ii) The Contractor furnishes satisfactory evidence that it has acquired title to such material and that the material will be used to perform this contract.

...(g) Reimbursement for bond premiums. In making these progress payments, the Government shall, upon request, reimburse the Contractor for the amount of premiums paid for performance and payment bonds (including coinsurance and reinsurance agreements, when applicable) after the Contractor has furnished evidence of full payment to the surety. The retainage provisions in paragraph (e) of this clause shall not apply to that portion of progress payments attributable to bond premiums."

Statutory authority for progress payments applicable to Military construction is found at 10 USC 2307 :

"(e) Conditions for Progress Payments.—

(1) The Secretary of Defense shall ensure that any payment for work in progress (including materials, labor, and other items) under a defense contract that provides for such payments is commensurate with the work accomplished that meets standards established under the contract. The contractor shall provide such information and evidence as the Secretary of Defense determines necessary to permit the Secretary to carry out the preceding sentence. "

DFARS 252.236-7003 Payment for Mobilization and Preparatory Work will specifically authorize payment for and describes "Prepatory Work".

As prescribed in 236.570((2), use the following clause:

PAYMENT FOR MOBILIZATION AND PREPARATORY WORK (JAN 1997)

(a) The Government will make payment to the Contractor under the procedures in this clause for mobilization and preparatory work under item no. ____________________.

( Payments will be made for actual payments by the Contractor on work preparatory to commencing actual work on the construction items for which payment is provided under the terms of this contract, as follows—

(1) For construction plant and equipment exceeding $25,000 in value per unit (as appraised by the Contracting Officer at the work site) acquired for the execution of the work;

(2) Transportation of all plant and equipment to the site;

(3) Material purchased for the prosecution of the contract, but not to be incorporated in the work;

(4) Construction of access roads or railroads, camps, trailer courts, mess halls, dormitories or living quarters, field headquarters facilities, and construction yards;

(5) Personal services; and

(6) Hire of plant.

This is implementing policy from a contract administration manual (Plan) for the Chemical Demilitarization Program at http://www.hnd.usace.army.mil/chemde/cap/Chap8.pdf Although the policy refers to an earlier version of the Payments Clause, the applicable wording in the 2 versions is essentially the same. I think the clause was updated to add coverage of Prompt Payment Act procedures.

"8.5 Payment for Preparatory Work and Mobilization. Contract Clause, Payments Under Fixed-Price Construction Contracts (Apr 1989), states, in part: "In the preparation of estimates the Contracting Officer may authorize . . . preparatory work done to be taken into consideration." Preparatory work includes such items as cost of erection of batch plants, construction of haul roads, erecting fences, shops, etc. (less acquisition costs of equipment and materials not to be incorporated into the work, or mobilization costs.

8.6 Payment for Materials Delivered at Work Site. The same clause also permits payment to contractors for material delivered at the site, but not yet incorporated in the work. The clause gives the Contracting Officer wide latitude in determining whether or not to pay for material stored on the site and to determine what supporting documentation will be required. These determinations should be based on contract specific considerations such as job-site security conditions, the contractor's past record of paying subcontractors and suppliers, the value of the material and storage. The equirement for the contractor to acquire title is not mandatory, however, it may be appropriate to require the contractor to furnish a paid invoice as evidence of title. If conditions warrant payment for materials stored on site and adequate documentation to protect the Government's interest is otherwise furnished, then prepaid invoices should not be required. In each case, the duty to protect the overnment's interest must be balanced against the obligation to provide the contractor with timely payment. The sums so included in payment estimates will be subject to withholding of appropriate percentage, if applicable.

8.7 Payment for Materials Delivered Offsite. The contract provides that materials delivered to the contractor at locations other than the site of the work will be considered in making payments, if all the conditions of the payments under Fixed-Price Construction Contracts Clause are fulfilled. Payments for items delivered to locations other than the work site will be limited to those materials which have been fabricated to the point where they are identifiable to an item of work required under the contract. Make such payment only after the contractor furnishes satisfactory evidence that he has acquired title to such material and that the material will be used to perform the specific contract. Satisfactory evidence should be in the form of receipts of paid invoices with canceled check. 8.8 Performance and Payment Bond.

"a. Subparagraph (g) of the current Payments Under Fixed-Price Construction Contracts Clause in construction contracts provides as follows:

(g) In making these progress payments, the Government shall, upon request, reimburse the contractor for the amount of premiums paid for performance and payment bonds (including coinsurance and reinsurance agreements, when applicable) after the contractor has furnished evidence of full payment to the surety. The retainage provisions in paragraph (e) of this clause shall not apply to that portion of progress payments attributable to bond premiums."

b. In implementing this clause, use the following procedures:

(1) The contractor must request in writing that he be reimbursed for bond premiums, inclosing a letter from the Surety stating the amount of the premium paid. Evidence of full payment to the Surety will also be submitted with the contractor's request, i.e., a paid invoice with canceled check, or a certified statement from the Surety. After the Resident Engineer has ascertained that the request for reimbursement of the bond premium is in order, include payment as an added item to ENG Form 93. Forward all original documents relative to the reimbursement with the payment estimate request. Reduce the item entry for bond premium monthly in proportion to earnings in the bid schedule until final payment under the contract.

(2) Reimbursement for bond premiums will be limited to those bonds of the prime contractor. Do not reimburse subcontractors or suppliers for bonds."

Joel: Which payments clause for construction contracts says those things, especially about "work in place"? What exactly does the clause say? Please cite and quote.

To put my answers into context, the original discussion concerned:

"[paying] for work put in place and the cost of submittals are included in the respective construction activity...versus "...the submittals are tangible and have value in the event of a surety take-over, as they would likely still be used."

I didn't intend to have to provide a treatise on all aspects and nuances of scheduling and construction contract administration, which entire books have been written about.

In short, the payment clause does not say what you said it says. Just as I thought. Thank you.

An interesting point in this discussion: based on the fact that the people "administering" the construction contract do not even know what the Payments clause says, each contractor is treated differently in performance due to arbitrary and capricious decisions made by those in charge (organizationally). Moreover, the same people in charge don't really care to know what the Payment clause authorizes in terms of payments.

It amazes me that incompetent contract staff supporting the incompetent engineering staff (usually engineers are the ones "in charge" on construction contracts that I have been involved with), persist in making up new terms and conditions concerning the payment of work items. I understand they are trying to use it as a negotiation position, but they don't have the authority to do so.

Vern, how did you handle situations in which the payments submitted by Contractors included costs that should not be paid for? Depending on the Agency rules, technical representatives usually approve percentage complete work and based on those agreements, an invoice is provided to the Contracting Officer for certification. It takes a savvy KO who sets time aside to review the invoiced work items and walks the job site regularly to determine if the amounts are accurate.

Joel:

Thanks for your responses. Yes, it is a NAVFAC Spec and it is design build. You certainly provided other good reasons why submittals would be listed as procurement activities, thank you. Your agency has done a better job of defining "work accomplished", because I have found no such definition in the FAR or my agency's guidelines. Of course I have "the way we've always done it", but I have been asked to explain that rationale by a contractor that hasn't dealt with our agency very often. They have a much more liberal view of "work accomplished."

In short, the payment clause does not say what you said it says. Just as I thought. Thank you.

You are welcome. The discussion partly concerned whether the payments clause "says" we pay for work in-place versus paperwork and procurement activities. Velhammer asked what other's experience was in paying or not paying for procurement activities.

Well. In essence, the Payments clause has been interpreted for at least 30 years in my agency to "say" that we pay for work in-place as well as other stuff. We haven't directly paid for admin, inspection and procurement type activities. Those items should be spread over the "work".

Velhammer also wondered why the (scheduling) guide spec says to treat submittals as procurement activities, but then seemingly limits reimbursement to only material & equipment delivered to the site.

I explained that, in my agency, we require the non-cost loaded procurement activities to be identified in the network type schedule in our progress schedule specification to ensure that those precursor activities and their constraint/influence on the overall schedule are shown so they can be tracked. It would be somewhat difficult to identify such precursor activities on a bar chart type schedule. But that doesn't mean that we assign cost against procurement activities.

Joel:

Thanks for your responses. Yes, it is a NAVFAC Spec and it is design build. You certainly provided other good reasons why submittals would be listed as procurement activities, thank you. Your agency has done a better job of defining "work accomplished", because I have found no such definition in the FAR or my agency's guidelines. Of course I have "the way we've always done it", but I have been asked to explain that rationale by a contractor that hasn't dealt with our agency very often. They have a much more liberal view of "work accomplished."

Vel, I think that some of our organization's history with defining progress payment procedures goes back a long way to when the Corps had a lot of big civil works contracts. Those jobs had a lot of mobilization, long lead items, plant, materials, construction equipment, etc. We used to use special items for mobilization and prepatory work and had to figure out what and how much to pay for separately from the actual "work". Work had to be something tangible and materials had to be something we could have physical control over in the event of default or other problems. We had all sorts of policy and procedures. We were trying to avoid the traps and pitfalls of front end loading that was widespread at the time (late 70's to mid 80's when I came into USACE on a huge civil works program).

Military construction side of the organization never seemed to have the same level of detailed procedures as the civil side. The last vestiges of our HQ policy organization are still in the civil works part of the organization, though they formulate policy for both civil and military works.

Fabricated materials that aren't installed were not traditionally treated as "progress" or "work", either. They were treated as on-site or "off-site" materials.

The contract clauses haven't caught up with modern construction practices. The contract clause "Performance of Work by the Contractor" still refers to self-performed work on the site, in determining the required percentage of self performed work, although much pre-fabrication is often done off site. I had alwyer tell me a few years ago that such fabrication doesn't count toward the required percentage.

Your agency has done a better job of defining "work accomplished", because I have found no such definition in the FAR or my agency's guidelines."

Vel, you could refer to the definition of mobilization and prepatory work in the DFARS "Payment for Mobilization and Prepatory Work" clause that I cited above for a start. It was to be used for large military projects with extensive up front costs and appears to be similar to one we used to use on civil works projects before there was a FAR. I don't doubt that your organization has different procedures for paying for prepatory work. We just had a "thing" about "work" being something that was physical and generally installed. That's why we didn't count stored materials as "progress" ("percent complete")..

Vern, how did you handle situations in which the payments submitted by Contractors included costs that should not be paid for? Depending on the Agency rules, technical representatives usually approve percentage complete work and based on those agreements, an invoice is provided to the Contracting Officer for certification. It takes a savvy KO who sets time aside to review the invoiced work items and walks the job site regularly to determine if the amounts are accurate.

Before issuing a notice to proceed, the CO would obtain a breakdown of the job and the amounts associated with each phase. The breakdown was usually made by the contractor and the government project engineer. Payment was then based upon measurement of percent complete, less withholding. The CO did not determine percentage of completion, but relied on the government's project engineer. Whether or not material submittals were a basis for progress payment depended on what the parties agreed to. The payment clause does not preclude progress payment based on material submittals. Nor does the clause limit the basis of payment to "work in place." That is a matter of policy and negotiation, not clause interpretation. If people know what they are doing and plan ahead, there should be few issues.