B-152306, JAN. 24, 1967

B-152306, JAN. 24, 1967

TO ADMINISTRATOR, VETERANS ADMINISTRATION:

REFERENCE IS MADE TO YOUR LETTER DATED NOVEMBER 30, 1966, IN WHICH YOU REFER TO OUR DECISION B-152306, AUGUST 31, 1966, 46 COMP. GEN. -, WHEREIN WE HELD THAT ARCHITECT-ENGINEER (A-E) CONTRACTS AUTHORIZED UNDER 38 U.S.C. 213 SHOULD BE CONSIDERED AS SUBJECT TO THE PROVISIONS OF SECTION 304 (B) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, AS AMENDED (41 U.S.C. 254 (B) (, AND THE FEE LIMITATIONS CONTAINED THEREIN.

YOU ADVISE THAT THE FEE PAID UNDER YOUR A-E CONTRACTS GENERALLY COVERS THE PREPARATION OF WORKING DRAWINGS AND SPECIFICATIONS, CONSTRUCTION-TIME DUTIES, AND IN SOME INSTANCES THE PREPARATION OF PRELIMINARY PLANS; THAT AN A-E SERVICES CONTRACT CAN BE DIVIDED INTO THREE PHASES: (1) PRELIMINARY PLANS, (2) PREPARATION OF WORKING DRAWINGS AND SPECIFICATIONS AND (3) ISSUANCE OF PROJECT AND CONSTRUCTION-TIME DUTIES. IN THAT RESPECT, IT IS STATED THAT YOUR A-E CONTRACTS PROVIDE FOR CERTAIN ITEMS OF PROFESSIONAL OR NONPROFESSIONAL SERVICES TO BE FURNISHED BY THE A-E ON A COST- REIMBURSABLE BASIS. EXAMPLES OF SUCH REIMBURSABLE ITEMS ARE SITE AND SUBSURFACE INVESTIGATIONS, REPRODUCTION OF WORKING DRAWINGS FOR BIDDING PURPOSES AND CERTAIN TRAVEL EXPENSES. IN ADDITION, A-E CONTRACTS ALSO PROVIDE FOR CHANGES IN SCOPE WHICH MAY INCREASE, DECREASE, OR MAKE NO CHANGE IN THE FEE. THESE CONTRACT CHANGES MAY REQUIRE ADDITIONAL SERVICES OR REDUCE THE SERVICE REQUIRED BY THE A-E AND THE PROBLEM IS COMPLICATED IN THAT THESE CHANGES MAY RESULT IN AN INCREASE, DECREASE, OR HAVE NO AFFECT ON THE ESTIMATED CONSTRUCTION COST; AND IT IS OBSERVED THAT AT THE TIME OF NEGOTIATING AN A-E CONTRACT, THE COST OF REIMBURSABLE ITEMS IS NOT EASILY ESTIMATED AND THAT THERE IS NO WAY TO PREDICT CHANGES WHICH MAY BE MADE IN THE CONTRACT.

IN THE LIGHT OF THE FOREGOING, YOU REQUEST OUR VIEWS AND DECISION AS TO THE FOLLOWING UESTIONS:

"/A) TO WHAT PART, OR PARTS, OF ARCHITECT-ENGINEER SERVICES DOES THE 6 PERCENT LIMITATION APPLY?

"/B) MUST ALL OUTSIDE ARCHITECT-ENGINEER SERVICES BE WITHIN THE 6 PERCENT LIMITATION FOR A SPECIFIC PROJECT EVEN THOUGH THE VARIOUS PHASES ARE CONTRACTED FOR SEPARATELY WITH THE SAME OR DIFFERENT FIRMS?

"/C) MUST REIMBURSABLE ITEMS BE INCLUDED WITHIN THE 6 PERCENT LIMITATION?

"/D) MUST ADDITIONAL FEES RESULTING FROM CONTRACT CHANGES REQUIRING ADDITIONAL SERVICES BE CONSIDERED WHEN ARRIVING AT THE 6 PERCENT LIMITATION?

38 U.S.C. 213 PROVIDES AS FOLLOWS:

"THE ADMINISTRATOR MAY, FOR PURPOSES OF ALL LAWS ADMINISTERED BY THE VETERANS' ADMINISTRATION, ACCEPT UNCOMPENSATED SERVICES, AND ENTER INTO CONTRACTS OR AGREEMENTS WITH PRIVATE OR PUBLIC AGENCIES OR PERSONS, FOR SUCH NECESSARY SERVICES (INCLUDING PERSONAL SERVICES) AS HE MAY DEEM PRACTICABLE.'

IN OUR DECISION OF AUGUST 31, 1966, SUPRA, WE HELD THAT, ALTHOUGH SECTION 213 AUTHORIZES THE PROCUREMENT OF SERVICES AS DEEMED NECESSARY BY THE ADMINISTRATOR OF VETERANS' AFFAIRS, THE PROCEDURE REQUIRED TO BE FOLLOWED IN ENTERING INTO CONTRACTS FOR SUCH SERVICES IS THAT CONTAINED IN TITLE III OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949.

IN OUR DECISION TO THE ADMINISTRATOR OF GENERAL SERVICES, B 152306,DECEMBER 19, 1966, 46 COMP. GEN. -, COPY HEREWITH, WE EXAMINED THE LEGISLATIVE HISTORY OF THE STATUTORY FEE LIMITATION CONTAINED IN 41 U.S.C. 254 (B) AND HELD:

"IN OUR OPINION, SECTION 304 (B) OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT IS NOT LIMITED SOLELY TO THE COSTS OF PROFESSIONAL SERVICES INCURRED IN THAT SEGMENT OF THE CONTRACT REQUIRING THE PREPARATION OF DESIGNS, PLANS, ETC. RATHER, IT IMPOSES A LIMITATION ON THE TOTAL COMPENSATION PAYABLE FOR ALL SERVICES PERFORMED UNDER THE ARCHITECT-ENGINEER CONTRACT, REGARDLESS OF WHETHER THE COST OF THESE SERVICES REPRESENTS TRAVEL EXPENSES, CONSULTANT FEES, REPRODUCTION EXPENSES, SUPERVISION OF CONSTRUCTION, PRELIMINARY ENGINEERING EFFORT, OR THE LIKE. FURTHERMORE, IT IS QUITE CLEAR THAT THE EXPLICIT LANGUAGE OF THE STATUTORY LIMITATION REQUIRES THE INCLUSION OF ALL COSTS CATEGORIZED AS ENGINEERING SERVICES IN COMPUTING COMPLIANCE WITH THE FEE LIMITATION. THEREFORE, THE HOLDING IN OUR DECISION TO THE SECRETARY OF DEFENSE (B- 152306, DECEMBER 12, 1966, 46 COMP. GEN. -) THAT 10 U.S.C. 2306 (D) PERMITS NO COST EXCLUSIONS FROM APPLICATION OF THE 6-PERCENT FEE LIMITATION IS EQUALLY APPLICABLE HERE IN THE CASE OF 41 U.S.C. 254 (B).'

THEREFORE, IN ANSWER TO QUESTIONS (A) AND (C), THE TOTAL COST OF ALL A-E SERVICES CONTRACTED FOR MAY NOT EXCEED 6 PERCENT OF THE ESTIMATED COST OF THE CONSTRUCTION PROJECT TO WHICH SUCH SERVICES APPLY.

OUR OFFICE HAS HELD THAT THE WORD "PROJECT" AS USED IN 41 U.S.C. 254 (B) MUST BE INTERPRETED AS HAVING REFERENCE TO THAT PART OF THE UNDERTAKING FOR WHICH THE A-E SERVICES ARE TO BE PERFORMED AND DOES NOT HAVE REFERENCE TO ANY LARGER BUDGETARY OR OTHER PROJECT OF WHICH IT MAY FORM A PART. HOLD OTHERWISE WOULD BE TO ALLOW THE ARCHITECT ENGINEER'S FEE TO BE BASED ON THE COST OF WORK FOR WHICH HE RENDERED NO SERVICE. EXAMINATION OF THE LEGISLATIVE HISTORY OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949 DISCLOSES NOTHING SUPPORTIVE OF SUCH AN INTENTION ON THE PART OF THE CONGRESS. SEE 40 COMP. GEN. 188. ALSO, IN ANSWER TO QUESTION (B), IN VIEW OF THE FACT THAT THE FEE IS BASED ON THE PROJECT, IT IS OUR OPINION THAT COSTS OF OUTSIDE ARCHITECT-ENGINEER SERVICES RELATING TO A SPECIFIC PROJECT ARE SUBJECT TO THE 6-PERCENT FEE LIMITATION EVEN THOUGH THE VARIOUS PHASES OR SEGMENTS OF THE A-E EFFORT ARE CONTRACTED FOR SEPARATELY WITH THE SAME OR DIFFERENT A-E FIRMS.

THE PROHIBITION AGAINST BASING THE ESTIMATED COST OF A PROJECT ON THE CONSTRUCTION COST OF WORK WHICH WAS NOT INCLUDED IN THE DESIGNS, SPECIFICATIONS, OR SERVICES REQUIRED BY THE A-E'S BASIC CONTRACT DOES NOT PRECLUDE THE AGENCY HEAD FROM EITHER ENLARGING OR REDUCING THE SCOPE OF THE AGREEMENT. TO HOLD OTHERWISE WOULD UNREASONABLY ASCRIBE TO CONGRESS AN INTENT WHICH WOULD EFFECTIVELY PREVENT AN AGENCY FROM READJUSTING ITS PROGRAMS TO MEET CONTINGENCIES THAT COULD NOT HAVE BEEN ANTICIPATED. WITH RESPECT TO QUESTION (D), IT IS OUR OPINION THAT WHEN AN AGENCY, PURSUANT TO THE "CHANGES" CLAUSE, MODIFIES AN A-E'S CONTRACT TO INCLUDE THE DESIGN OF ADDITIONAL FACILITIES, A FEE BASED ON THE ESTIMATED ADDITIONAL COST OF CONSTRUCTING THE FACILITIES WOULD BE PROPER WITHIN THE FEE LIMITATION PRESCRIBED BY THE STATUTE.

YOU FURTHER REQUEST OUR DECISION ON A SPECIFIC PROBLEM ARISING OUT OF AN A-E CONTRACT NO. V1006C-653, FEBRUARY 24, 1966, ENTERED INTO WITH DEAN PRICE AND ASSOCIATES, LTD., UNDER PROJECT NO. 34-5268, FOR THE CONSTRUCTION OF A RESEARCH WING AT THE VETERANS ADMINISTRATION HOSPITAL, CINCINNATI, OHIO. THE TARGET ESTIMATED CONSTRUCTION COST FOR PHASE 1 OF THE CONTRACT WAS ESTABLISHED AT $895,700. THIS PROJECT IS DIVIDED INTO TWO PHASES. PHASE 1 CALLS FOR THE PREPARATION OF PRELIMINARY DRAWINGS, SPECIFICATIONS, CONSTRUCTION COST ESTIMATES, RELATED REPORTS, AND TYPEWRITTEN MATERIAL NECESSARY FOR THE COMPLETION OF THE PRELIMINARY DESIGN WORK. PHASE 2 COVERS THE PREPARATION OF WORKING DRAWINGS AND SPECIFICATIONS, ADVERTISING THE PROJECT FOR BIDS ON THE ACTUAL CONSTRUCTION AND CERTAIN CONSTRUCTION-TIME DUTIES.

UNDER THE SUBJECT CONTRACT, DEAN PRICE AND ASSOCIATES AGREED TO PERFORM THE SERVICES REQUIRED FOR PHASE 1 FOR A LUMP-SUM FEE OF $40,000. THE CONTRACT FURTHER PROVIDED AN OPTION WHICH, IF EXERCISED BY THE GOVERNMENT, WOULD OBLIGATE THE CONTRACTOR TO PERFORM THE WORK NECESSARY TO THE COMPLETION OF PHASE 2. THE FEE FOR THE WORK UNDER PHASE 2 IS STATED TO BE 4 PERCENT OF THE GOVERNMENT'S ESTIMATED CONSTRUCTION COST TO BE ESTABLISHED UPON COMPLETION AND ACCEPTANCE OF ALL SERVICES OF PHASE 1 RELATING TO THAT CONSTRUCTION. IN THIS REGARD, WE HAVE BEEN INFORMALLY ADVISED THAT THE ESTIMATED CONSTRUCTION COST HAS BEEN INCREASED BY $100,183 OVER THE ORIGINAL TARGET ESTIMATED CONSTRUCTION COST.

YOU ADVISE THAT IF THE OPTION TO PROCEED WITH PHASE 2 OF THE SUBJECT CONTRACT IS EXERCISED, IT WILL RESULT IN A TOTAL FEE EQUAL TO 8.46 PERCENT OF THE ESTIMATED CONSTRUCTION COST. THIS PERCENTAGE WAS ARRIVED AT AS FOLLOWS: THE $40,000 A-E FEE FOR PHASE 1 IS APPROXIMATELY 4.46 PERCENT OF THE TARGET ESTIMATED CONSTRUCTION COST OF $895,700; AND THE A-E FEE FOR PHASE 2 WAS ESTABLISHED AT 4 PERCENT WHICH, WHEN ADDED TO PHASE 1, AMOUNTS TO 8.46 PERCENT. IF THE GOVERNMENT ELECTS NOT TO REQUIRE THE SERVICES OF THE A-E'S FOR ADVERTISING AND SECURING BIDS AND THE SERVICES DURING CONSTRUCTION, THE TOTAL FEE WOULD BE REDUCED TO 7.66 PERCENT.

THE CONTRACT WITH DEAN PRICE AND ASSOCIATES WAS NEGOTIATED UNDER THE AUTHORITY CONTAINED IN 38 U.S.C. 5002. THIS SECTION PROVIDES:

"THE CONSTRUCTION OF NEW HOSPITALS, DOMICILIARIES AND OUT-PATIENT DISPENSARY FACILITIES, OR THE REPLACEMENT, EXTENSION, ALTERATION, REMODELING, OR REPAIR OF ALL SUCH FACILITIES SHALL BE DONE IN SUCH MANNER AS THE PRESIDENT MAY DETERMINE. THE PRESIDENT MAY REQUIRE THE ARCHITECTURAL, ENGINEERING, CONSTRUCTING, OR OTHER FORCES OF ANY OF THE DEPARTMENTS OF THE GOVERNMENT TO DO OR ASSIST IN SUCH WORK, AND HE MAY EMPLOY INDIVIDUALS AND AGENCIES NOT CONNECTED WITH THE GOVERNMENT, IF IN HIS OPINION DESIRABLE, AT SUCH COMPENSATION AS HE MAY CONSIDER REASONABLE.'

IN OUR DECISION OF AUGUST 31, 1966, TO YOU, WE ADVISED THAT A-E CONTRACTS NEGOTIATED UNDER 38 U.S.C. 5002 ON AND AFTER THE EFFECTIVE DATE OF PUBLIC LAW 89-343 (NOVEMBER 8, 1965) ARE SUBJECT TO THE FEE LIMITATION CONTAINED IN 41 U.S.C. 254 (B).

WE BELIEVE THAT THE GOVERNMENT'S EXERCISE OF THE OPTION FOR PHASE 2 WOULD RESULT IN THE PAYMENT OF A TOTAL A-E FEE IN EXCESS OF THE STATUTORY 6- PERCENT FEE LIMITATION, ESPECIALLY SINCE THE A-E SERVICES FOR PHASES 1 AND 2 WOULD NECESSARILY INVOLVE THE SAME "PROJECT.' HOWEVER, SINCE THE PARTIES ENTERED INTO THE SUBJECT CONTRACT IN GOOD FAITH AND SINCE WE ARE CURRENTLY UNDERTAKING A GOVERNMENT-WIDE REVIEW OF THE INTERPRETATIONS AND APPLICATIONS OF THE 6-PERCENT FEE LIMITATION, NO ACTION WITH REFERENCE TO THE TOTAL FEE PAYMENTS WILL BE TAKEN BY OUR OFFICE.