HHS awarded $48.6M for IHS staff quarters in Arizona, exceeding initial estimates by over 100%

Contract Overview

Contract Amount: $48,571,005 ($48.6M)

Contractor: M Greenberg Construction Inc

Awarding Agency: Department of Health and Human Services

Start Date: 2013-08-28

End Date: 2016-03-18

Contract Duration: 933 days

Daily Burn Rate: $52.1K/day

Competition Type: FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES

Number of Offers Received: 3

Pricing Type: FIRM FIXED PRICE

Sector: Construction

Official Description: IGF::OT::IGF KAYENTA STAFF QUARTERS DESIGN/BUILD

Place of Performance

Location: KAYENTA, NAVAJO County, ARIZONA, 86033

State: Arizona Government Spending

Plain-Language Summary

Department of Health and Human Services obligated $48.6 million to M GREENBERG CONSTRUCTION INC for work described as: IGF::OT::IGF KAYENTA STAFF QUARTERS DESIGN/BUILD Key points: 1. The contract value significantly surpassed initial projections, indicating potential cost overruns or scope changes. 2. The fixed-price contract type offers some cost certainty, but the final price was substantially higher than anticipated. 3. The project involved new single-family housing construction, a sector with fluctuating material and labor costs. 4. The award was made under full and open competition, suggesting a competitive bidding process. 5. The duration of the contract (933 days) was lengthy, potentially contributing to cost escalation. 6. The geographic location in Arizona may have influenced labor and material costs.

Value Assessment

Rating: questionable

The final award of $48.6 million is more than double the initial estimated value of $23.6 million. This substantial increase raises concerns about the accuracy of initial cost estimations, potential scope creep, or unforeseen market conditions that drove up prices. Benchmarking against similar single-family housing construction projects for federal agencies is difficult without more specific details on the scope and quality of the housing. However, a cost increase of this magnitude warrants scrutiny.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under 'FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES,' indicating that while the competition was intended to be broad, specific sources may have been excluded at some point. Three bids were received, which is a moderate level of competition. The significant price increase from estimate to award suggests that either the initial estimate was too low, or the competitive process did not sufficiently drive down costs to the expected level.

Taxpayer Impact: Taxpayers may have paid a premium due to the substantial increase in the contract's final value compared to initial estimates, despite a competitive bidding process.

Public Impact

The primary beneficiaries are the residents of the Indian Health Service (IHS) facilities in Arizona who will receive new housing. The contract delivered new single-family housing construction, directly addressing a need for adequate living quarters. The geographic impact is concentrated in Arizona, specifically within the service area of the IHS facility. The project likely supported local construction jobs and businesses in Arizona during its execution.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Significant cost increase from estimate to award suggests potential issues with initial budgeting or contractor pricing.
The 'exclusion of sources' clause in the competition type warrants further investigation into why certain bidders were excluded.
The lengthy contract duration could have exposed the project to market volatility and cost escalation.
Lack of detailed cost breakdowns makes it difficult to assess the value for money achieved.

Positive Signals

The use of a Firm Fixed Price contract provides some cost control, assuming the scope was well-defined.
Awarding under full and open competition generally promotes market efficiency and potentially better pricing.
The project addresses a critical need for housing for IHS staff, which can improve service delivery.

Sector Analysis

This contract falls within the construction sector, specifically new single-family housing. The federal government is a significant consumer of construction services, with spending often driven by infrastructure needs, housing for federal employees in remote locations, and facility upgrades. Market conditions, including labor availability and material costs, heavily influence pricing in this sector. Comparable spending benchmarks would typically involve analyzing other federal housing construction projects or large-scale residential developments.

Small Business Impact

There is no indication that this contract included small business set-asides, nor is there information on subcontracting plans. The contractor, M Greenberg Construction Inc., is not explicitly identified as a small business. Further analysis would be needed to determine the extent of small business participation, if any, in this project.

Oversight & Accountability

The contract was a Definitive Contract, suggesting a standard agreement with defined terms. Oversight would typically be managed by the Indian Health Service contracting office. Transparency is limited by the publicly available data; detailed cost breakdowns, justifications for the price increase, and performance reports are not readily accessible. Inspector General jurisdiction would apply if any fraud, waste, or abuse were suspected.

Related Government Programs

Indian Health Service Housing Programs
Federal Employee Housing Construction
Department of Health and Human Services Construction Contracts
Bureau of Indian Affairs Construction Projects

Risk Flags

Significant Cost Overrun
Potential Underestimation of Project Costs
Moderate Competition Level
Long Contract Duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Health and Human Services awarded $48.6 million to M GREENBERG CONSTRUCTION INC. IGF::OT::IGF KAYENTA STAFF QUARTERS DESIGN/BUILD

Who is the contractor on this award?

The obligated recipient is M GREENBERG CONSTRUCTION INC.

Which agency awarded this contract?

Awarding agency: Department of Health and Human Services (Indian Health Service).

What is the total obligated amount?

The obligated amount is $48.6 million.

What is the period of performance?

Start: 2013-08-28. End: 2016-03-18.

What was the original estimated cost for this project, and what factors contributed to the final award being more than double that estimate?

The original estimated cost for the IGF::OT::IGF KAYENTA STAFF QUARTERS DESIGN/BUILD project was approximately $23.6 million. The final award amount reached $48.6 million, representing an increase of over 100%. While the specific factors driving this substantial increase are not detailed in the provided data, common reasons for such escalations in construction projects include underestimation of labor and material costs, unforeseen site conditions, changes in project scope or requirements during the design or construction phases, and fluctuations in market prices for construction materials and services. The lengthy contract duration of 933 days also increases the likelihood of market-driven cost increases.

How did the competition level (3 bidders) influence the final contract price, especially given the significant cost increase from estimate?

With three bids received, the competition for this contract was moderate. While full and open competition is generally expected to drive prices down, the significant increase from the estimated cost to the final award price suggests that the competitive pressure may not have been sufficient to achieve the initial cost targets, or that the initial estimate was fundamentally flawed. It's possible that the bidders factored in higher risk premiums or anticipated market conditions that led to higher bids than initially projected. Without knowing the details of the bids and the agency's cost analysis, it's difficult to definitively state how the competition level impacted the final price relative to the estimate.

What are the specific risks associated with a Firm Fixed Price contract when the initial estimate is significantly exceeded?

A Firm Fixed Price (FFP) contract is intended to provide cost certainty to the buyer. However, when the initial estimate is significantly exceeded, the risks shift. If the contractor underestimated costs, they bear the loss, potentially impacting their financial stability or future bidding behavior. If the agency underestimated requirements or market conditions, they may end up paying a price that is higher than anticipated, even though it's fixed. The primary risk for the agency in this scenario is paying a significantly higher price than initially budgeted, potentially straining program funds. The risk of contractor default or poor performance can also increase if the FFP contract proves unprofitable for them.

What is the typical cost range for constructing single-family housing for federal agencies in Arizona, and how does this contract compare?

Determining a precise 'typical' cost range for federal single-family housing construction in Arizona is challenging without specific project details (e.g., size, quality of materials, amenities, location specifics). However, general construction cost indices and data from similar federal projects can provide benchmarks. Given that this contract awarded at approximately $48.6 million for what is implied to be multiple housing units (as it's for 'staff quarters'), the per-unit cost would need to be calculated. If this project involved, for example, 20 units, that would be over $2.4 million per unit, which would be exceptionally high for standard single-family housing. This suggests either a very high-end build, a very small number of units, or significant additional project scope beyond basic housing construction.

What oversight mechanisms were in place for this contract, and how effective were they in managing the cost escalation?

Oversight for this contract would have been primarily managed by the Indian Health Service (IHS) contracting officers and potentially project managers. Standard oversight mechanisms include contract surveillance, monitoring progress against milestones, reviewing invoices, and ensuring compliance with contract terms. Given the significant cost overrun from estimate to award, it suggests that either the initial oversight of the estimation process was insufficient, or that the oversight during the procurement and negotiation phases did not adequately control the final price. Without access to internal agency reports or performance reviews, it's difficult to assess the effectiveness of the specific oversight applied to this contract.

Industry Classification

NAICS: Construction › Residential Building Construction › New Single-Family Housing Construction (except For-Sale Builders)

Product/Service Code: CONSTRUCT OF STRUCTURES/FACILITIES › CONSTRUCTION OF BUILDINGS

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES

Solicitation Procedures: TWO STEP

Offers Received: 3

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Address: 2400 E ARIZONA BILTMORE CIR STE 1450, PHOENIX, AZ, 85016

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $48,571,005

Exercised Options: $48,571,005

Current Obligation: $48,571,005

Contract Characteristics

Multi-Year Contract: Yes

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline