United States
                Environmental Protection
                Office of Water
                Programs Operations (WH-547)
                Washington, DC 20460
February 1982
                                                   c, i
                Water and Waste Management
Contracting  For
Professional Services

     This publication was prepared with the support of a
grant from the U.S. Environmental Protection Agency's
Municipal Operations Branch.  The statements,  conclusions
and/or recommendations contained herein are those of the
authors and do not necessarily reflect the views of the
U.S. Government, the U.S. Environmental Protection Agency,
or the Municipal Finance Officers Association.

U.S. Environment^ Prctsction Agency
Region V,  Library
230  South Daa/born  forest
Chicago, Illinois  6C6C4

U.S. Environmental Protection  Agency


                              TABLE OF CONTENTS











     •   EVALUATE PROPOSALS  	     9



     •   SCOPE OF SERVICES	     11

     •   CONTRACTING METHOD  	     11

             FIXED PRICE	     11

             TIME AND MATERIALS	     12

             COST PLUS FIXED FEE	     12

     •   FINAL AGREEMENT ON PRICE  	     12



                              TABLE OF CONTENTS


             KEY PERSONNEL	     13

             SUBCONTRACTORS  	     13

             PENALTIES	     13

             TERMINATION RIGHTS  	     14

             METHOD OF PAYMENT	     14


REFERENCES   	     15


     Many  problems  encountered by  wastewater  utilities  require  the use  of
consultants  to  provide services,  technical expertise,  and/or  resources  not
available to the utility.   For example, these services may be needed for:

     •  diagnostic evaluations  to  identify  utility  problems  and  to  develop

     •  design of new or modified facilities; and

     •  financial, accounting, legal, management information  systems  or  other
        specialized services.

In  addition  to  the  need   for   specialized  resources,  consultants  may  be
required in special situations when:

     •  an independent evaluation or second opinion is required; and

     •  an authoritative report  is  required by or  for the governing  body  or
        regulatory agency.

     Whatever the  reason  for  seeking  professional  services,  the  utility  is
faced with two basic tasks:

     •  identifying and selecting the  consultant best  qualified to  meet  the
        utilities' need; and

     •  ensuring  that  the  consultant  understands   and   provides  for  the
        utility's specific  needs in the most cost-effective manner.

These tasks can be difficult and  time  consuming to  accomplish.  The objective
of this  manual is to  present  a systematic set of  proven  contract procedures
that help  to achieve these  tasks.   At the  same  time,  the manual   addresses
the most common  issues  and  problems that  can  arise and provides  guidance  on
how to minimize or avoid them.

     The discussion  focuses  on obtaining  specialized professional  services
and does not address long-term contracting  for performing plant  operations,
maintenance,  laboratory services,  and  so  forth.

     Most utilities and/or  local  governments have specific  legal requirements
or contracting  requirements that must  be  followed  when contracting  for pro-
fessional  services.   Because  these requirements  and  practices vary  widely
across the country, the procedures  presented here  are a "best  set" which  can

be modified for local use.  In addition Federal and state grant requirements
also vary from program to program.  Specific agency requirements should be
reviewed prior to procurement of professional services that are to be paid in
part by Federal funds.

     Following is a summary of the basic steps to follow when contracting for
professional services and the principal issues and questions that arise at
each step in the process.
     Questions and Issues When Contracting
     for Professional Services

        When and why should a utility use
        outside professional services?

        How can a utility communicate its
        needs to prospective consultants?
Contracting Process
Step 1  Requirements

Step 2  Request for Qualifi-

        Select prospective
        How can a utility identify and
        evaluate qualified professionals?
        How can the utility ensure that it
        achieves  the best possible price
        for services rendered?

        What  types of  contracts  should be
        used, and what are the significant
        contract  terms and conditions that
        should be considered?

        How can the contract be  monitored
        and controlled?
Step 3  Request for

        Evaluate and
        select consultants

Step 4  Contract Negotiation
 Step  5   Project Management
      There  are  situations  when it  is  not  necessary  to  use  all  of  these  proce-
 dures or when sufficient time  is not  available.   For example,  if  a  plant
 engineering task is  required and the  utility  has  a  longstanding relationship
 with a qualified engineering firm,  a  contract can be negotiated on  a  "sole
 source" basis.   Caution should be  exercised,  however,  not  to request  such
 firms or consultants to perform tasks outside their field  in areas  in which
 they have only  a passing knowledge.  In most  cases, taking the time to  use
 the procedures  in this manual   will result in obtaining better and  more
 cost-effective  services.

      The balance of  this manual discusses each step in the process and the
 issues and problems  that can be encountered.


     Before  a  utility solicits consulting  services,  it is essential  that it
have clear and specific answers for the following questions:

     •  What needs to be done?

     •  Why does it need to be done?

     •  Why should a consultant do it?

     •  What level of effort will  be required to do it?

     In some  cases  the answers to  these  questions are  straightforward.   For
example, if management has  made  the decision to  build a new  interceptor  and
the utility has no design staff,  the need  for a  design consultant is clear.

     In many  cases,  however,  the  answers will  not  be  straightforward.   For
example, if the utility has  a  compliance  problem,  does it need  a  design, con-
sultant, a management  consultant,  or a process  control consultant?   Does  it
need a consultant to identify  the  problem,  or is the  problem  already  identi-

     If these  questions  are  not  answered  before consultants  are  retained,
there is little chance that  the consultants'  skills  and services  can  be  used
successfully.  As a  result,  a utility  or local  government  should  carry  out
the following procedures  before moving to  Step 2,  Request for  Qualifications:

     •  The technical persons  most  familiar with  the  perceived area  of  need
        should write  down what they believe needs to be  done,  and  what quali-
        fications  and resources are  required to  do it.

     •  A  joint management/technical review of  the needs statement  should  be
        made  and the  following questions answered:

          •  Is this  the  actual need  and is  it sufficiently  defined?

          •  If so, can we  do it  ourselves or do we need a  consultant  because

               -   have  technical limitations?

                  have limited  resources?

                  need an independent  opinion?

               -   have other  limitations or needs?

     •   A  specific statement of work and  qualifications  requirements   should
        be  developed  and subjected to a final review.


     The request for qualifications step is conducted to:

     •  limit proposals to a small group of prequalified consultants; and

     •  reduce resource expenditures  for  both consultants and  the  utility by
        avoiding proposal  development  and review  of proposals  from unquali-
        fied firms.

     The request for qualifications and selection  of potential consultants is
accomplished as follows.

Elements of the Qualifications Request

     A request for qualifications statement should include:

     •  a  brief  description of  the  problem  and  the nature  of  the services

     •  the minimum qualifications required including:

          -  experience of the organization;

          -  experience of each professional who would participate;  and

          -  references  for both the  organization  and  the   proposed  staff
             (including contact names and telephone numbers).

     •  the time frame in which the work is to be performed.

Solicit Qualifications from Interested Firms

     A  formal  advertisement  should  be  published  containing  all  necessary
information  to  enable  prospective consultants to  respond.   The advertisement
should  also  include a specific  cutoff  date after which  submissions will not
be  accepted.   Normally 15  working days  from the  date of  the advertisement
should be  sufficient.

     To ensure that qualified submissions will be received, the  advertisements
should be  placed in appropriate publications:

     •  for  local  general  consultants - the local newspaper.

     •  for national general consultants - Commerce  Business Daily.

     •  for  engineering  services  -  appropriate  engineering  journals  and/or
        Engineering News  Record.

     •  for  other  specialty areas  - appropriate trade journals.

 Evaluate  Qualifications  Statements

      Consulting  firms  in  the  same  field  vary substantially  in  experience,
 training,  skills,  capabilities, personnel, workload,  and particular  special-
 ties.   Before screening and  selecting  prospective consultants,  the  utility
 should  set up a review team and establish a  uniform  set of  criteria to  be
 used  by each  reviewer.

      The  review  team  should  have at  least three members.  At least one member
 should  be a  technical  person in the area  for which services  are sought  and
 one should be a management member.

      The  criteria  that  the  utility  should establish should  include  the  fol-

      •  Experience of the personnel specifically committed to the  project:

           -   years

           -   similar projects

           -   education

     •  Number of qualified personnel offered

     •  Location and availability of personnel

           -   will they have to travel short distances or long distances?

     •  Experience of the firm

           -   years in the field

           -   similar projects in scope and size

     •  References

           -   did the firm perform as  expected?

          -  on time?

           -  within budget?

          -  with demonstrated professionalism?

Select Prospective  Consultants

     Each  review committee  member should independently  evaluate  and  rank in
order each submission based  upon the uniform  criteria  using a standard  work
sheet.  The   committee  should meet,  compare  evaluations  and  rankings,  and

develop  a  consolidated  ranking.   The  top  three  to  five  firms  should  be
selected as qualified  prospective  consultant unless  the committee  feels that
no qualified  submissions were  received.   In such  a case,  the  qualification
submission procedures should be repeated.

     Each  step  of  the  selection  process  should  be  thoroughly  documented.
Such  documentation  is  required in  the  event  unqualified  offerers  request
reasons for not being selected or file formal protests.


     The request  for proposal  process  is  the most  important step  in the pro-
curement process because it is the only opportunity, before selection, for:

     •  the utility  to communicate its need  to the prospective consultant; and

     •  the  consultants  to  communicate  their  understanding  and  proposed
        approach  to  the utility.

The  success  of  this process will  in  large  part determine the  success  of the
project.   Failure  in communication in either direction will result in a dis-
illusioned utility  and/or  a consultant  placed in a  position  in which he can-
not  meet  the  utility's needs or is  unable   to  provide  the required  technical
      The   recommended   process   for  maximizing  communication  and   ensuring
 responsive  proposals from prospective consultant  is as  follows:

      •  develop  and  provide each  qualified  prospective  consultant  with  a
        request  for proposal;

      •  conduct  interviews  with  prospective consultant  before  proposal  sub-

      •  receive  and evaluate proposals;  and

      •  interview  the  best  two or  three firms  and select  one firm  for  nego-

 Following is a brief discussion of  each  step in the process.

 Develop Request  for Proposal

      The   request  for  proposal serves  several  purposes:    it  provides  pro-
 spective   consultants  with   information  needed  to  develop  their  technical
 understanding and approach and tells them what  other  specific information the
 utility requires for  evaluation  purposes.   The more  background and  technical
 information  the  utility can  provide  the  prospective  consultant,   the  more
 responsive the proposals will be.   Only  relevant information need  be  provided.
 The utility should not specify how the consultant should do the work.  Exhibit
   1 illustrates the  topics  normally covered in a request for proposals.

                            EXHIBIT   1







     -  Technical Approach
     -  Firm Qualifications
     -  Personnel Committed to Project
     -  Project Management
     -  Price



     The  request  for  proposal  should  require  the  following  information  in
addition to how and what the consultant proposes to do:

     •  estimated calendar time to perform the work;

     •  proposed key project personnel by name;

     •  proposed project management plan; and

     •  a  cost  proposal  that  details  level  of  effort,  cost  per hour,  and

     The  utility  has  several   options  when   specifying  the  cost  proposal
requirements.   It  can  elect  to  tell  the  consultant  the  maximum amount  of
money available  for  the contract.  If this  is  done, responses will  be keyed
to what can  be  done for  the amount  of money available.  While  this  approach
results  in more consistent  responses  from consultants,  it also eliminates
cost competitiveness.

     If no level of  effort information is  provided  by  the  utility, responses
will vary  substantially in price and  scope.  Cost  competition,  however, will
be present.

     A second option  available  to the  utility is to specify  the  form of con-
tracting.  This can be:

     •  fixed price (lump sum);

     •  cost plus fixed fee; and

     •  time and material with or without an upset limit.

The  advantages  and disadvantages  to  each  of  these is  discussed  in  Step  4,

Conduct Preliminary Interviews

     The  advantage of  conducting preliminary  interviews  with each  prospective
consultant are:

     •  an  opportunity for  the utility  staff  to  meet and  assess  the con-

     •  an opportunity to discuss the  technical problems and provide the con-
        sultant with a better understanding of needs and expectations;  and

     •  an  opportunity to  sharpen  its  own  focus   as  a result   of  the dis-
        cussions with  professionals  in the  technical field.

     The pre-proposal  interview  increases  the  consultant's  ability to provide
a  far more  responsive  proposal because the  interview  process  permits the ex-
change of details and  information  that  cannot  be easily conveyed in a written
request for proposal.

Evaluate Proposals

     The evaluation  of  the  proposals  should proceed exactly as the evaluation
of  the  qualification submission.   The  principal  difference  is  the  criteria
used  to  evaluate  each proposal.   Evaluation  should  be  conducted in  two
stages; first the technical  and  management proposal should  be evaluated, then
the cost proposals should be evaluated.

     The technical  and  management  proposals should be  evaluated  with respect

     •  understanding of the problem or need;

     •  soundness of the proposed approach;

     •  recognition of potential problems and difficulties;

     •  key personnel to be assigned to the project; and

     •  reasonableness of the estimated time to complete each task.

     Only after the  proposals have  been ranked  based  on the technical evalua-
tion should the cost proposals be  considered.    Cost  should be  evaluated with
respect to the quality of the  technical proposal and  personnel  to be assigned
to the project.   Cost proposals  should  also be  evaluated for  completeness and
reasonableness.  The following items should be  reviewed:

     •  Are any costs not included such as:

          •  travel;

          •  computer cost;

          •  report production; and

          •  other.

     •  Are the labor costs  per hour in line with other firms?

     •  Is   sufficient  detail  presented to  allow  evaluation  and  comparison
        with other cost proposals?

     The lowest cost proposal is  not  always the best.   For  example, if  the
top ranked technical proposal is 10%  more  in cost, the  evaluators  may  deter-
mine that  the incremental  cost  is more  than   offset  by the  quality of  the
offerer's  personnel, understanding  of the  problem, and soundness  of approach.

     For certain professional services, i.e. Architect-Engineer  and  Land Sur-
veying,  selection  procedures typically  do not  consider  cost.   Rather,  the
selection  is  based  on the demonstrated  competence and qualifications  of the
competing  firms  and  price  is considered  only during  negotiation.   This  is
considered, by many,  to be more  desirable  if  there is a  lack  of a  definition
scope of work.  It gives both parties an opportunity  to  review in detail what
is involved in the work  such as  estimates of man-hours,  personnel  costs, and
alternatives  to  be  considered.   If  a fair  and reasonable  fee  can  be nego-
tiated with the highest qualified firm, the award  would  be made, without con-
sideration of  proposals  and  fees of competing  firms.   If the fee can  not be
negotiated  successfully  with  the  highest qualified  firm,  negotiations with
other qualified firms would be initiated.

     Whether or not  cost  is  considered,  the utility  should  at the  completion
of  its  proposal  evaluation  select  the  two  or three best  firms  and  set  up
interviews with each.

Conduct  Final Interviews

     The  final  interview round  is  the  last  opportunity  for the utility to
evaluate the prospective firms.  The objective of the interview  is to:

     •   answer any open questions or obtain clarifications on  proposals;  and

     •   get a  "feel" for the consultants  and  determine  if  the  utility  staff
         can work comfortably with them.

     Of  major importance in  the  interview  is  to ensure that the key  personnel
to  be  assigned  to the project are  present and participate  in the  interview.
Discussions  with  a  polished  "marketing  man" provides  no  insights  to  the
quality  and ability  of the staff who will  perform  the work.

     At  the completion  of  the interviews,  a final  evaluation is made  and  one
firm is  selected for  negotiation.


     Contract negotiation is a critical step in the use of consultants.  Final
agreement  on  the following activities occur during  contract  negotiation:

     •   the scope of services  to be performed;

     •   the method  of contracting;

     •   the price;  and

     •   the contract terms and conditions.

Scope of Services

     The scope  of services  is  a  formal  part of  the  contract  and  specifies
exactly what the  consultant  will  provide  the utility.  The  scope  of services
should be  complete  and  specific.   Under  no  circumstances should  there  be an
"understanding" on  the  part  of  the utility  or  consultant that  is  not expli-
citly reflected in  the  scope  of services.  In the event of  a  dispute  or sub-
sequent misunderstanding only the  scope of services will  be  valid.  The scope
of services should delineate:

     •  tasks to be performed;

     •  schedule for performance;

     •  deliverables (reports, systems, drawings, etc.);

     •  review procedures; and

     •  numbers of reports to be delivered.

Contracting Method

     The methods  for  contracting  vary depending  upon  the nature  of the work
to be performed, the preference  of the utility and consultant,  and/or Federal,
state or local requirements.  Federal  and state  requirements are imposed when
their funds are being used in whole or in part to pay the consultant.

     The three basic types of contracts are:

     •  fixed price (lump sum);

     •  time and materials; and

     •  cost plus fixed fee.

     Fixed Price

     Fixed-price  (lump-sum)  contracts  are  agreements  under  which  the  con-
sultant agrees  to provide a  specific  service and/or  product  for a specific
amount of money.  Under fixed-price terms the consultant  is  obligated  to pro-
vide the service  and/or product  for the  specified price irrespective  of  any
unforeseen difficulty or problem.

     This  type  of contract is usually used  by  consultants  when  the  service
and/or  product  to  be  provided  is of little  risk and  unforeseen  problems
unlikely,  based  on  prior experience.    The  advantage  to  the utility  is  that
the  cost   of  service  and/or  product   is  fixed  and will  not  be  subject  to
change.  The  disadvantage  to the  utility is establishing a reasonable  price
since this type of contract provides the  incentive  for  the consultant  to com-
plete the work for the least  cost  to maximize profit.

     The second  potential  problem  is  that if  the  consultant  does  encounter
difficulty and their  costs  exceed the  contract  amount,  they are  required to
complete the work with their own time and money.  This can  result  in the con-
sultant trying to  get "rid" of the job  as  quickly  and expeditiously  as pos-

     Time and Materials

     Time and materials contracts  are agreements  under which the utility pays
only  for the  time  worked,  at an  agreed  upon  rate.   This type  of  contract is
only  used when  the utility is not  looking  for a specific  product  or service
but uses the  consultant  as  an advisor.   Examples include having a consultant
attend  a  meeting,  review  a report, or  work  for a day  or two with utility
staff as an advisor.

      The advantage of a time and  materials  contract  is  that  they  are  simple
to  use and  provide  a  mechanism  to  obtain  time  from  a  specialist without
additional  obligation.   The disadvantage is that the consultant is obligated
only  to provide  the time and has no requirement for results  or  products.

      Cost Plus Fixed  Fee

      Cost  plus   fixed fee   contracts  are designed  for  large,  difficult,  and
high-risk jobs  or  when required by Federal  or state agencies.   Under a  cost
plus  fixed  fee  contract,  the total labor, overhead,  and  expenses,  net  of  fee
or  profit,  to complete  the  job are estimated.  A fixed  fee or  profit is  then
established.   If.  over  the course  of   the  project  it   is  determined   that,
through no  fault of  the  consultant,  costs will exceed the  estimate,  the  costs
may be  adjusted  to meet  the increase.   No change, however,   is made  in the  fee
or  profit.

      Conversely, if the consultant completes  the job at  a  cost less  than  the
estimate,  there is no  requirement to  pay  the balance  of  the  estimate.   The
entire fixed fee,  however,  must  be paid.

      Cost plus  fixed  fee contracts are   difficult to administer  and,  when cost
estimates are adjusted,  there  is always a potential for  dispute.   The question
which always arises  is "whether  increased  costs  are  justified  or did  they
 result from the consultant's ineptness?"

      Cost  plus   fixed fee  contracts  are normally used  for   large scale  system
 development and implementation, major design  contracts, and when  the scope of
 work is difficult  to define precisely.

 Final Agreement on Price

      Final  price  should always  be negotiated when possible.   Through careful
 discussion, it  should be determined where costs can be  cut  or eliminated based
 upon services  to  be  provided and/or reasonableness of  expenses.   Conversely,
 depending on the  final scope  revisions  and  discussions  it  may  also be  deter-
 mined that additional costs should be added as a result  of the utility's final

     The objective of final price negotiation should not be "to get as much as
possible" but rather  to  develop a fair and  reasonable price  for  the service
to be provided.

Contract Terms and Conditions

     The major terms and conditions the contract should contain are:

     •  key personnel;

     •  subcontract provisions;

     •  penalties;

     •  change in scope

     •  termination-rights;

     •  method of payment; and

     •  amendment provisions.

     Other terms  and  conditions should be in compliance  with federal, state,
and local requirements.

     Key Personnel

     The utility  should  not  allow the consultant  to  substitute key personnel
of-  the  project without  written  permission.   If  the  utility  conducted  oral
interviews in the preceding  evaluation phase, it  will  have assessed personnel
capabilities and will probably be able to  specify  those  positions  in the pro-
ject that cannot be substituted without its approval.

     The utility  should  not  allow the consultant  to  subcontract  out portions
or the project without its express  permission.   Subcontractors  should receive
the same review  (scope,  approach, capabilities, and  cost)  as  the  prime con-


     Penalty clauses should be included for such items as a failure to deliver
or complete a project according to  specifications,  schedule,  or costs.   These
clauses could be  invoked at  the  option of the  utility to promote  high per-
formance  from  the   consultant.   To  minimize  subsequent  litigation,   these
penalties should not be  punitive  but should approximate the  reduced value of
the project to  the  utility should the  failure  occur.   Also,  a clause  can be
added that states that invoking such  penalties  would  not prevent  a subsequent
suit for damages.

     Conversely, there should be clauses  that  excuse  delay or non-performance
which occurs through no fault of  the consultant.  Examples could  be  a change
in scope, a revision in laws, etc.

     Termination Rights

     Termination rights should  also be  spelled  out.   Sample  clauses  usually
provide  for  termination:   (1)  at  the  option  of  the utililty  and (2)  upon
mutual  agreement  of  the  parties  to the  contract.   Reasons  for  termination
should also be included, e.g.,  non-performance or change in needs.

     Method of Payment

     Method of payment provisions should include:

     •  invoice requirements;

     •  approval requirements;

     •  payment frequency; and

     •  hold back or retainage until completion of project.

     Hold back or  retainage  provides the utility with  a  margin of protection
in the event the project does not  come  to a successful  completion or if there
are omissions or errors in the work which need to be corrected.


     The success of  using  a  consultant  depends upon maintaining communication
and monitoring results.  The utility should designate one individual to serve
as the project manager.  This individual would be responsible  for:

     •  day-to-day contact with the  consultant;

     •   coordination between the consultant and  the utility;

     •   provision of any information or materials required by  the  consultant;

     •   review of the  consultant's progress; and

     •   approval for  interim requests for  payment.

     The  individual  assigned this responsibility would be required to  follow
the  project  from  start to finish.   The  individual  should be  qualified  in  the
consultant's  field and should  have  sufficient authority  to  provide the  con-
sultant  direction and  perform the  coordination role.

1.  Consulting   Engineering:    A  Guide  for  the  Engagement  of  Engineering
    Services. ASCE  1975.

2.  State  and  Local Government  Purchasing —  A Digest,  The Council  of State
    Governments, June  1974.

3.  The  Model  Procurement  Code,  Articles  1-4,  American  Bar  Association,
    February 1979.

4.  Proposed Model  Procurement  Ordinance, Public  Review  draft,  prepared  for
    EPA by the ABA  Coordinating Committee on a Model Procurement Code.

                                                 * U. S. GOVERNMENT PRINTING OFFICE • 1982 361-082/306

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