Federal Acquisition Regulation: Prohibition on the Use of Reverse Auctions for Complex, Specialized, or Substantial Design and Construction Services

Federal Acquisition Regulation: Prohibition on the Use of Reverse Auctions for Complex, Specialized, or Substantial Design and Construction Services

Supplementary Information

I. Background

DoD, GSA, and NASA are proposing to revise the FAR to implement section 2 of the Construction Consensus Procurement Improvement Act of 2021 (Pub. L. 117-28). Section 2 of the Construction Consensus Procurement Improvement Act of 2021 amended section 402 of Title IV of Division U of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) entitled the Construction Consensus Procurement Improvement Act of 2020 to require rulemaking to promulgate a definition of "complex, specialized, or substantial design and construction services", which includes site planning and design; architectural and engineering services (as defined in 40 U.S.C. 1102); interior design; performance of substantial construction work for facility, infrastructure, and environmental restoration projects; and construction or substantial alteration of public buildings or public works. The statute prohibits the use of reverse auctions for such services having a value that exceeds the simplified acquisition threshold (SAT).

II. Discussion and Analysis

The proposed rule establishes a new definition at FAR 2.101 for "complex, specialized, or substantial design and construction services" that reflects the statutory definition to support its use at FAR 17.803 and 36.103. In addition, the definition of "reverse auction" in FAR 2.101 is revised to better reflect the statutory definition provided in the Construction Consensus Procurement Improvement Act of 2021.

The proposed rule implements the prohibition against using reverse auctions for the procurement of complex, specialized, or substantial design and construction services exceeding the SAT at FAR 36.103, Methods of contracting. This placement will reinforce to contracting officers the need to comply with the statutory prohibition. While the statute does not prohibit the use of reverse auctions for the subject services at or below the SAT, a reverse auction may only be used if market research indicates it is appropriate (see FAR 17.802(a)) and not prohibited by regulation or statute (see FAR 17.803, 36.104, and 36.601).

The FAR identifies two types of procurements for which reverse auctions may not be used, regardless of dollar value:

-Procurements for the design and construction of a public building, facility or work using the two-phase design-build selection procedures authorized by 10 U.S.C. 3241 and 41 U.S.C. 3309, as implemented at FAR 36.104, may not be conducted using a reverse auction.

-Procurements for architectural and engineering services subject to 40 U.S.C. chapter 11, commonly known as the Brooks Architect Engineer Act, may not be awarded using reverse auctions because reverse auctions do not comply with the qualifications-based selection processes required by statute and implemented at FAR subpart 36.6.

III. Applicability to Contracts at or Below the Simplified Acquisition Threshold (SAT) and for Commercial Products (Including Commercially Available Off-the-Shelf (COTS) Items) or for Commercial Services

This proposed rule does not impose any new requirements on contracts at or below the simplified acquisition threshold, for commercial products including commercially available off-the-shelf items, or for commercial services.

IV. Expected Impact of the Proposed Rule

The proposed rule is not expected to have a significant impact on the public or the Government because the rulemaking does not supersede current statutory direction on the use of FAR part 36 procedures for construction. Contracting officers are still required to conduct market research to determine the most appropriate contracting method for the particular procurement. Requirements for sealed bidding, design-build construction, and architect-engineering services remain unchanged.

Offerors participating in competitive procurements that are valued at or below the SAT will still be provided advance notices and solicitations in accordance with FAR 36.211 and for actions anticipated to be awarded to a small business, 15 U.S.C. 644(w). Use of a reverse auction as the method of obtaining pricing does not impact these requirements.

V. Executive Orders 12866 and 13563

Executive Orders (E.O.s) 12866 (as amended by E.O. 14094) 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 not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993.

VI. Regulatory Flexibility Act

DoD, GSA, and NASA do not expect this proposed rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601-612, because the rulemaking is not expected to change how construction services valued above the SAT are conducted while providing some flexibility for certain awards valued at or below the SAT. However, an Initial Regulatory Flexibility Analysis (IRFA) has been performed and is summarized as follows:

DoD, GSA, and NASA are proposing to amend the Federal Acquisition Regulation (FAR) to implement section 2 of the Construction Consensus Procurement Improvement Act of 2021 (Pub. L. 117-28), which prohibits the use of reverse auctions for complex, specialized, or substantial design and construction services exceeding the simplified acquisition threshold (SAT). DoD, GSA, and NASA published FAR case 2015-038, Reverse Auction Guidance, as a final rule at 89 FR 61327 on July 30, 2024, with an effective date of August 29, 2024. The final rule added policy on the use of reverse auctions to the FAR.

The objective of the proposed rule is to establish a definition for complex, specialized, or substantial design and construction services and to implement the statutory prohibition against using reverse auctions for such services that are valued above the SAT. The legal basis for the rule is the Construction Consensus Procurement Improvement Act of 2021 (Pub. L. 117-28). Promulgation of the FAR is authorized by 40 U.S.C. 121(c); 10 U.S.C. chapter 4 and 10 U.S.C. chapter 137 legacy provisions (see 10 U.S.C. 3016); and 51 U.S.C 20113.

The proposed rule will apply to all entities submitting offers in response to solicitations for construction services pursuant to FAR part 36; however, the impact of the rule on construction services valued above the SAT is expected to be de minimis because the rule maintains current direction.

The rule may impact entities submitting offers in response to solicitations for construction services valued at or below the SAT, if a contracting officer determines that market research supports the use of a reverse auction and the use of a reverse auction is not otherwise prohibited by statute ( i.e., 40 U.S.C. chapter 11, commonly known as the Brooks Architect Engineer Act).

Since the Government does not currently collect data on the number of awards that utilized a reverse auction to obtain pricing, the burden estimates are based upon data obtained from the Federal Procurement Data System (FPDS) for all construction services. The Government assumes that reverse auctions are not widely used for construction services, so the actual number of procurements utilizing reverse auctions is estimated to be only a small fraction of the total awards described below.

Data obtained from FPDS for fiscal years 2020, 2021, and 2022 indicates that an average of 1,318 unique small entities were awarded an estimated 2,644 construction service awards valued above the SAT annually. Data obtained from FPDS for the same period indicates that an average of 1,277 unique small entities were awarded an estimated 3,064 construction service awards valued at or below the SAT annually. Of those actions, approximately 122 small entities were awarded an estimated 577 construction service awards annually using procedures other than FAR part 36. For awards at or below the SAT, the use of reverse auctions to obtain pricing may be appropriate.

The proposed rule does not include additional reporting or recordkeeping requirements.

The proposed rule does not duplicate, overlap, or conflict with any other Federal rules.

There are no available alternatives to the proposed rule to accomplish the desired objective.

The Regulatory Secretariat Division has submitted a copy of the IRFA to the Chief Counsel for Advocacy of the Small Business Administration. A copy of the IRFA may be obtained from the Regulatory Secretariat Division. DoD, GSA, and NASA invite comments from small business concerns and other interested parties on the expected impact of this proposed rule on small entities.

DoD, GSA, and NASA will also consider comments from small entities concerning the existing regulations in subparts affected by the proposed rule in accordance with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite 5 U.S.C. 610 (FAR Case 2023-003), in correspondence.

VII. Paperwork Reduction Act

This proposed 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. 3501-3521).

Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 2, 17, 36, and 52 as set forth below:

Part 2 Definitions of Words and Terms

The addition and revision read as follows:

* * * * *

Complex, specialized, or substantial design and construction services (section 2 of the Construction Consensus Procurement Improvement Act of 2021 (Pub. L. 117-28)) means-

(1) Site planning and landscape design;

(2) Architectural and engineering services (as defined in 40 U.S.C. 1102);

(3) Interior design;

(4) Performance of substantial construction work for facility, infrastructure, and environmental restoration projects; or

(5) Construction or substantial alteration of public buildings or public works.

* * * * *

Reverse auction means a real-time auction generally conducted through an electronic medium among two or more offerors who compete by submitting bids for an award of a supply contract, service contract, purchase order, or blanket purchase agreement, or for an award of an order under a contract or blanket purchase agreement, with the ability to submit revised lower bids at any time before the closing of the auction (section 2 of the Construction Consensus Procurement Improvement Act of 2021 (Pub. L. 117-28)).

* * * * *

Part 17 Special Contracting Methods

The revision reads as follows:

* * * * *

(a) Complex, specialized, or substantial design and construction services as defined in 2.101, valued above the simplified acquisition threshold (see 36.103(c));

* * * * *

Part 36 Construction and Architect Engineer Contracts

* * * * *

(c) Contracting officers shall not use reverse auctions for an award of a contract, blanket purchase agreement, or order if the award is anticipated to exceed the simplified acquisition threshold for complex, specialized, or substantial design and construction services in accordance with the Construction Consensus Procurement Improvement Act of 2021 (Pub. L. 117-28). Contracting officers may use reverse auctions for procurements for complex, specialized, or substantial design and construction services at or below the simplified acquisition threshold-

(1) If market research indicates it may be appropriate (see 17.802(a)); and

(2) Use of a reverse auction is not otherwise prohibited by regulation or statute (see 17.803, 36.104, and 36.601).

Part 52 Solicitation Provisions and Contract Clauses

The revisions read as follows:

* * * * *

Reverse Auction (DATE)

(a) * * *

Reverse auction means a real-time auction generally conducted through an electronic medium among two or more offerors who compete by submitting bids for an award of a supply contract, service contract, purchase order, or blanket purchase agreement, or for an award of an order under a contract or blanket purchase agreement, with the ability to submit revised lower bids at any time before the closing of the auction (Section 2 of the Construction Consensus Procurement Improvement Act of 2021 (Pub. L. 117-28)).

* * * * *

The revisions read as follows:

* * * * *

Reverse Auction-Orders (DATE)

(a) * * *

Reverse auction means a real-time auction generally conducted through an electronic medium among two or more offerors who compete by submitting bids for an award of a supply contract, service contract, purchase order, or blanket purchase agreement, or for an award of an order under a contract or blanket purchase agreement, with the ability to submit revised lower bids at any time before the closing of the auction (Section 2 of the Construction Consensus Procurement Improvement Act of 2021 (Pub. L. 117-28)).

* * * * *

The revisions read as follows:

* * * * *

Reverse Auction Services (DATE)

(a) Definitions. As used in this clause-

* * * * *

Reverse auction means a real-time auction generally conducted through an electronic medium among two or more offerors who compete by submitting bids for an award of a supply contract, service contract, purchase order, or blanket purchase agreement, or for an award of an order under a contract or blanket purchase agreement, with the ability to submit revised lower bids at any time before the closing of the auction (Section 2 of the Construction Consensus Procurement Improvement Act of 2021 (Pub. L. 117-28)).

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