United States
Environmental Protection
Agency
Office of Water
Programs Operations (WH-547)
Washington, DC 20460
February 1982
EPA-430/9-82-005
c, i
vvEPA
Water and Waste Management
Contracting For
Professional Services
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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.
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CONTRACTING FOR PROFESSIONAL SERVICES
U.S. Environment^ Prctsction Agency
Region V, Library
230 South Daa/born forest
Chicago, Illinois 6C6C4
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U.S. Environmental Protection Agency
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CONTRACTING FOR PROFESSIONAL SERVICES
TABLE OF CONTENTS
INTRODUCTION 1
REQUIREMENTS DEFINITION 3
REQUEST FOR QUALIFICATIONS 4
ELEMENTS OF THE QUALIFICATIONS REQUEST 4
SOLICIT QUALIFICATIONS FROM INTERESTED FIRMS 4
EVALUATE QUALIFICATION STATEMENTS 5
SELECT PROSPECTIVE CONSULTANTS 5
REQUEST FOR PROPOSALS 6
DEVELOP REQUEST FOR PROPOSAL 6
CONDUCT PRELIMINARY INTERVIEWS 8
EVALUATE PROPOSALS 9
CONDUCT FINAL INTERVIEWS 10
CONTRACT NEGOTIATIONS 10
SCOPE OF SERVICES 11
CONTRACTING METHOD 11
FIXED PRICE 11
TIME AND MATERIALS 12
COST PLUS FIXED FEE 12
FINAL AGREEMENT ON PRICE 12
CONTRACT TERMS AND CONDITIONS 13
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CONTRACTING FOR PROFESSIONAL SERVICES
TABLE OF CONTENTS
(Continued)
KEY PERSONNEL 13
SUBCONTRACTORS 13
x'
PENALTIES 13
TERMINATION RIGHTS 14
METHOD OF PAYMENT 14
PROJECT MANAGEMENT 14'
REFERENCES 15
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CONTRACTING FOR PROFESSIONAL SERVICES
INTRODUCTION
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
solutions;
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
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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
Definition
Step 2 Request for Qualifi-
cations
Select prospective
consultants
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
Proposal
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.
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REQUIREMENTS DEFINITION
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-
fied?
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
we:
- 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.
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REQUEST FOR QUALIFICATIONS
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
sought.
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.
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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-
lowing:
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
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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.
REQUEST FOR PROPOSALS
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
services,
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-
mission;
receive and evaluate proposals; and
interview the best two or three firms and select one firm for nego-
tiation.
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.
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EXHIBIT 1
REQUEST FOR PROPOSAL OUTLINE
COVER LETTER
BACKGROUND OF PROJECT
STATEMENT OR SCOPE OF WORK
GENERAL INSTRUCTIONS FOR THE PREPARATION AND SUBMISSION OF TECHNICAL
AND COST PROPOSALS
CRITERIA USED TO EVALUATE PROPOSALS
- Technical Approach
- Firm Qualifications
- Personnel Committed to Project
- Project Management
- Price
LEGAL REQUIREMENTS
ANTICIPATED CONTRACT PROVISIONS
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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
expenses.
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,
Negotiations.
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-
sultants;
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.
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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
to:
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.
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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
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.
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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.
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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-
sible.
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
requirements.
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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.
Subcontractors
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-
tractor.
Penalties
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.
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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.
PROJECT MANAGEMENT
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.
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REFERENCES
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.
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* U. S. GOVERNMENT PRINTING OFFICE 1982 361-082/306
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