JA_Fort Hood_HVAC Chillers_Redacted.pdf

Control Number: SWF 21-23 CONTROLLED UNCLASSIFIED INFORMATION (CUI)

CONTROLLED UNCLASSIFIED INFORMATION (CUI)

4. Authority Cited: The statutory authority permitting acquisition of the requirement by other than full and open competition is 10 United States Code (U.S.C) 2304(c)(1), as implemented by Federal Acquisition Regulation (FAR) 6.302-1(b)(4), only one responsible source and no other supplies or services will satisfy agency requirements.

5. Reason for Authority Cited: As set forth in FAR 6.302-1(b)(4), which indicates that use of FAR 6.302-1 is appropriate, "When the agency head has determined in accordance with the agency's standardization program that only specified makes and models of technical equipment and parts will satisfy the agency's needs for additional units or replacement items, and only one source is available."

a. Background:

(1) On 16 April 2018, the Secretary of the Army issued a memorandum directing the implementation of Category Management to improve Army services contract processes and supporting data analytics to enable the Army to save time, money and manpower for higher priorities.

(2) On 8 April 2019, the Under Secretary of the Army issued a memorandum, Subject: Directive for Implementation of Category Management, establishing the implementation date of 30 September 2019 for specific categories, including category management for facilities and construction. The Commanding General for Army Materiel Command (AMC) and the Assistant Secretary of the Army for Installations, Environment, and Energy were identified as Co-managers of the Facilities and Construction categories.

(3) On 5 July 2019, U.S. Army Material Command, released Operation Order

(OPORD) 19-190 providing guidance to AMC organizations on implementing category management. In this OPORD, AMC Facilities Category Co-manager responsibility was delegated to IMCOM.

(4) IMCOM, as a Category Lead, is responsible for establishing the priority of effort for contract expenditures within their assigned services based on those with the highest expenditures and greatest projected overall return on investment.

(5) On 11 September 2020, IMCOM G4 serving as the Army’s category lead for facilities, issued a memorandum mandating a selection of a single manufacturer of chiller systems for Fort Hood. This memorandum also directed the implementation of the Category Intelligence Report (CIR) findings by identifying Daikin Applied Chillers as the single manufacture of chiller systems for Fort Hood. By selecting this manufacturer as the single manufacturer to acquire chillers from Fort Hood implements this standardization of chillers.

b. Justification:

(1) (FAR) 6.302-1(b)(4), only one responsible source and no other supplies or services will satisfy agency requirements.

In early fiscal year 2020, IMCOM initiated a pilot category management study at Fort Hood to determine if the establishment of a single manufacturer of a range of chiller sizes would result in efficiencies and dollar savings and thus meet the goals of category management. IMCOM completed this study and issued a Category Intelligence Report (CIR) for a HVAC Chiller Pilot that was approved on 14 August 2020 by the Facilities Category Co-Managers, Headquarters Department of the Army Assistant Deputy Chief of Staff G9, and IMCOM G4. In the CIR, analysis supported selecting a single manufacturer to procure HVAC Chiller systems. By selecting a single manufacturer, Fort Hood would realize measurable cost savings from efficiency during the sustainment of these chiller systems.

(2) Fort Hood owns, operates, and maintains 247 Real Property Installed

Equipment (RPIE) HVAC Chillers representing 14 different manufacturers. Daikin Applied Chillers represent the manufacturer comprising the largest number (106) and percentage of (43%) chillers on Fort Hood as Daiken Applied Chillers are presently the predominant chiller used on Fort Hood, it is logical to continue with Daiken Applied Chillers as the most expedient means of reaching the desired end state.

(3) Currently, Fort Hood Public Works Community has an in-house maintenance technician workforce of 50 personnel and is required to train the in-house technicians on at least three of the most predominant chiller systems on the installation. This required level of training is not presently accomplished due to its high expense. Because the in-house technicians are unable to keep up with demand and unable to train adequately to maintain the variety of chiller systems, Fort Hood must hire contractors to ensure required maintenance standards are met. The Spend Analysis conducted within the CIR details Chiller training on each manufacturer’s equipment over the next 5 years is $3.7M;

a “should cost” to properly train technicians for three HVAC Chiller manufacturers.

Through standardization and onsite training, the cost can be reduced by ~$2.6M, over the next 5 years, to train each technician on Daikin Applied Chillers in-house.

(4) Cost of performing maintenance by contract when it is beyond the capability of in-house technicians show that Fort Hood spent over $10M for contract repair of chillers during FY19. Roughly 25% of this cost was for labor, overhead, and profit that could have been accomplished by in-house labor. If in-house training efforts could be focused on a single manufacturer, the calculated cost savings of performing these repairs in-house is approximately $415K per year ($475K contract cost vice the calculated $61K in-house cost). Over five years that equates to over $2M.

c. Alternatives: The standardization determination executed by IMCOM compels

USACE to include the requirement for Daikin Applied Chillers in solicitations for construction work at Fort Hood. There is no alternative product that meets IMCOM’s mandate to standardize this equipment for Fort Hood. The only alternative considered that would differ from the terms of this J&A was to purchase the HVAC equipment separately and provide it to the construction contractor as Government Furnished Equipment (GFE). This alternative would still involve the purchase of the Daikin Applied Chillers on a sole-source basis. The effort associated with purchasing, storing, conveying, and managing the GFE is both inefficient and uneconomical. No other feasible alternatives were identified.

d. Impact: If this J&A is not approved, the Central Energy Plant Construction contract will not be executed in accordance with IMCOM’s Category Management mandate.

Failure to initiate this standardization effort will prevent IMCOM, and the Army from realizing the efficiencies and reductions in costs that have been identified through Category Management efforts. Fort Hood will continue to contend with significant duplication of manpower and financial costs due to the variety of existing chiller equipment across Fort Hood. The IMCOM CIR shows that limiting new chiller acquisitions to one manufacturer will substantially reduce these expenditures by reducing: training requirements, need for contract repairs that are beyond in-house capability, software engineering, documentation and procurement requirements, and lost mission man-hours due to equipment reliability issues and the resultant downtime.

Failure to implement this Category Management initiative will result in forfeiture of the opportunity to use Fort Hood’s workforce more efficiently by increasing working knowledge of the chiller inventory while increasing HVAC system maintenance reliability and enhancing DPW mission capability. Anticipated advantages include reduced training costs for Fort Hood maintenance personnel, reduced contract maintenance cost, and decreased disruption to mission by rapid resolution of any HVAC system failures.

6. Efforts to Obtain Competition: The Contracting Officer published the notices required by FAR 5.201, as described below, and any bids or proposals received shall be considered.

a. Though the brand name requirement for HVAC equipment will be stipulated in the solicitations, this is a small component of all construction projects at Fort Hood. The majority of construction requirement, in both effort and total dollars for each project will not be subject to limits to competition. Effective competition will be achieved in multiple ways, including full and open competition, small business set asides, and competition for Multiple Award Task Order Contracts (MATOCs). This J&A will be posted with each solicitation. Potential contractors will be made aware that specifications for subsequent projects will require the installation of Daikin Applied Chillers. This coordination alerts them to engage subcontractors that are certified in installing this item. This coordination alerts them to engage subcontractors that are certified in installing this item.

b. Though the use of specified makes of items cannot be considered competitive regardless of the number of suppliers available, it is anticipated that multiple vendors will be available to provide and install Daikin Applied Chillers at the subcontracting level and this sole source requirement will not affect the overall competition for the construction requirements.

7. Actions to Increase Competition: In accordance with FAR Part 5.2 Synopses of Proposed Contract Actions, a Pre-Solicitation Notification of Intent to sole source was issued under NAICS 236220, Commercial and Institutional Building Construction, to include the brand name for Daikin Applied Chillers was posted to SAM.gov on 29 June 2021 and requested responses by 14 July 2021. To date, four (4) responses have been received: Greenland Enterprises, Blackstar Energy Group, AMES, LLC, and McGoldrick Construction Services. Based on responses received, it is apparent that there are adequate suppliers available to provide the required items and no alternative sources were identified for HVAC equipment that would meet the government’s requirements.

IMCOM’s requirement to use Daikin Applied Chillers at Fort Hood means that only the standard chillers will be required. Due to this standardization requirement, there are no planned actions to increase competition for this requirement.

8. Market Research: Market research indicated that competition among authorized suppliers for the brand name product, Daikin Applied Chillers, will exist since they are readily available in the commercial marketplace and there are multiple companies that are licensed to sell the products. The current industrial base also allows for competition and continued support of small businesses even with one manufacturer. Because there are multiple sources, it is reasonable to expect that a fair and reasonable price will result from adequate competition at the subcontracting level.

Procurement IQ Procurement Report 28834333, “Chillers” published by IBIS World in December 2019, identifies the chiller price environment, supply chain, and vendors.

The report states that the market for chillers has a shared negotiation power for buyers and suppliers, and also indicates that Fort Hood’s plan to switch out chillers at the end of their life cycle with a replacement of Daikin Applied Chillers will have low switching costs. Buying a reported “top” brand chiller, such as Daikin Applied Chillers, although more expensive, results in lower maintenance/sustainment costs over the life cycle of the chiller. In summary, limiting acquisition to Daikin Applied Chillers, although potentially more expensive to the Government initially, will result in an overall estimated 'life cycle" cost savings over the next five-years.

In addition to the aforementioned, Procurement IQ Chiller report, IBIS World has also published the “HVAC System Construction & Maintenance” report, also referred to as the “HVAC Report.” This report, first published in October 2019 and updated in March 2020, states that there is a low level of market share concentration. Although the top HVAC manufacturers are diversified contracting businesses, the majority of vendors installing are small-scale (Small Businesses) contractors that provide services on a local level.

Research conducted in April 2020 by Fort Hood subject matter experts in the DPW and U.S. Army Mission and Installation Contracting Command (MICC)-Fort Hood indicated vendors’ training costs vary greatly. Some train only their own employees, which may render those vendors unable to compete. Fort Hood DPW states that most of the top chiller manufacturers train personnel off-site, usually in a city that would require employees of the Fort Hood DPW to travel. Daikin Applied Chillers is an exception and provides onsite training which greatly increases their marketability at Fort Hood.

The Fort Worth Military Construction Section Chief researched the SBA Dynamic Small Business Search and found the Fort Hood local vendor demographics of HVAC service providers are:

a. 35 Small Businesses

b. 16 SBA Certified Disadvantages Small Business

c. 2 Woman Owned Small Businesses

d. 9 SBA Certified Section 8 (a) Small Business

e. 1 Service-Disabled Vet Owned Small Business

f. 0 Woman Owned (EDWOSB) Small Businesses

g. 7 SBA Certified HUB Zone Firms

In addition to the above, in accordance with FAR 5.201, the US Army Corps of Engineers posted a Notice of Proposed Contract Action/Special Notice, 236220, HVAC Chillers to SAM (SAM.gov) on 29 June 2021 when efforts were underway to prepare their Class J&A. This Army J&A included standardization to Daiken Applied HVAC Chillers, for the requirements of the Fort Hood Army Installation. The posting remained open for 15 days. A description of the requirement was included in the SAM notice and advised any interested responsible party that believed it was equally or otherwise uniquely capable of meeting the requirements to submit a capability statement.

9. Interested Sources: Sources that expressed interest in IMCOM’s market research were Carrier and Trane who responded to Fort Hood’s request for training costs and were included as attachments to the CIR. Preliminary information provided by the three manufacturers consisted primarily of estimates of the cost of training Fort Hood personnel to maintain the respective manufacturer’s chillers. The results of the Sources Sought Notice determined multiple sources exist that could supply Daikin Applied Chillers.

Four firms responded to the Notice of Intent (NOI) issued by the Fort Worth District in July 2021, Greenland Enterprises, Blackstar Energy Group, AMES, LLC, and McGoldrick Construction Services. Blackstar Energy Group and AMES, LLC provided capability statements and Greenland Enterprises provided a letter stating they are a supplier of Daikin-McQuay HVAC Chillers to Federal, State, and Local Governments. Blackstar Energy Group is an EDSB 8(a) HUBZone certified company with offices in Texas and Florida. Blackstar Energy Group capability statement states its strengths are general contracting, construction management, electrical services, HVAC services, plumbing services, interior services, and sustainable housing services. AMES, LLC capability statement stated that it specializes in facility services, environmental services, roofing/electrical/HVAC/plumbing and remediation with focus on HVAC, design/build, and electrical and industrial. AMES, LLC is an 8(a) certified HUBZone certified small-disadvantaged business concern with corporate headquarters located in Anchorage, Alaska. This J&A will be posted with the issuance of each forthcoming solicitation in accordance with FAR 5.102(a)(6).

10. Other Facts: Reasonable efforts were made to retrieve other facts from computer records, contract files, and other sources to support the use of other than full and open competition as follows:

a. Prior to the recent standardization efforts mandated by IMCOM, there is no known history of sole-source procurement of HVAC equipment on Fort Hood.

Approval

Based on the foregoing justification, I hereby approve the procurement of Daikin Applied Chillers for the estimated amount of $1.27M on an other than full and open competition basis pursuant to the authority of 10 U.S.C.2304(c)(1) Only One Responsible Source and No Other Supplies or Services will satisfy agency requirements subject to availability of funds, and provided that the services or property herein described have otherwise been authorized for acquisition. The Solicitation number for this action is W9126G21R0043.

Date: Signature:

Alternate Advocate for Competition