FSH JA 2022_30 Approved HVAC Chillers JA 4 Dec 23_Redacted_v2.pdf

Control Number: MICC 2022-30

Justification Review Document FAR Part 6 Justification and Approval (J&A) for Other than

Full and Open Competition

Program/Equipment: The United States Army has a brand name requirement to procure Heating, Ventilation, & Air Conditioning (HVAC) chillers from Trane, Carrier, Daiken/McQuay, and York for CONUS, Hawaii, and Puerto Rico U.S. Army garrisons to support new construction, sustainment, restoration, and modernization of Army facilities.

Authority: 10 U.S.C. 3204(a)(1) as implemented by FAR 6.302-1, Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements.

Amount: $243 Million

Prepared by: DSN:

General Engineer, IMCOM G4 Date: 10 MAY 2023 Email:

Contracting Officer: DSN:

Contracting Officer Date: 10 MAY 2023 Email:

Technical: DSN:

Engineer Date: 10 MAY 2023 Email:

DSN:

Operations Research Analyst Date: 10 MAY 2023 Email:

DSN:

Operations Research Analyst Date: 10 MAY 2023 Email:

Requirements: DSN:

Chief, Infrastructure Sustainment Date: 10 MAY 2023 Email:

Director, Office of Small Business Programs:

DSN:

__ Date: See Digital Signature

Alternate Advocate for Competition:

Date: See Digital Signature

Senior Contracting Official:

Date: See digital Signature

FAR Part 6 Justification and Approval for Other than Full and Open Competition

1. Contracting Activity: U.S. Army Mission and Installation Contracting Command - Fort Sam Houston (MICC-FSH), 2205 Infantry Post Road, Joint Base San Antonio - Fort Sam Houston, TX.

2. Description of Action: Headquarters, U.S. Army Installation Management Command (IMCOM) requests a Class Justification and Approval (J&A) valued at $243M for specific brand name manufacturers (Trane, Carrier, Daiken/McQuay, and York) of HVAC chillers for lifecycle replacement and new installation at Army garrisons located in the CONUS, Hawaii, and Puerto Rico. One of these four manufacturers’ chillers has been selected as the standardized chiller brand at each IMCOM-managed garrison in the aforementioned geographical areas. This action is taken in accordance with Army Facility and Construction Category Management Policy and IMCOM’s designation as the Facilities Category Lead for the Army, and the findings in IMCOM’s HVAC Chiller Category Intelligence Report (CIR) dated 22 August 2021. Market conditions have changed since 2021 with regard to material costs and supply chain issues driving up costs across all brands, neither of which affect the recommended course of action (COA) of the CIR as of June 2023 to limit the number of brands to four.

The Facilities Category Manager has determined an enterprise-wide standardization to be in the Army’s best interest to only procure chillers from select manufacturers for IMCOM garrisons for both replacement of and new HVAC installations. Authority to act under this J&A will be in effect for five years from the date this J&A is approved. Five-year authority is required as it links the chiller acquisition strategy to the Fiscal Year Defense Program (FYDP). IMCOM’s analysis of its enterprise HVAC CIR demonstrates best value in chiller procurement when considering the total cost of chiller ownership over the expected life cycle of 15 years. This acquisition strategy linking procurement of chillers to the expected life cycle of the chillers is constrained given the uncertainty of resources beyond the FYDP.

This Class J&A will allow Army contracting activities to solicit and award contracts for the replacement of an existing chiller with a specific brand of chiller. Where a new HVAC chiller installation is part of a larger construction project requirement, this Class J&A will allow the U.S. Army Corp of Engineers (USACE) to solicit and award the contract to procure the chiller brand of choice for that installation. The Government will use appropriate fiscal year (FY) Operations and Maintenance, Army funding for each contract action to acquire an HVAC chiller to replace one. Also, USACE will use Military Construction (MILCON) funding for HVAC chillers associated with new installation contracts. For MILCON funded construction projects, this justification covers only the portion of the acquisition which is brand name or particular to one HVAC chiller manufacturer for a specific garrison. The government will not purchase the chiller brand of choice directly. It will still require a contractor to provide and install, either as a chiller brand of choice replacement action, or as part of a larger construction requirement that requires a sub-task for the installation of a new chiller.

3. Description of Supplies/Services: The mission of IMCOM’s Directorate of Public Works (DPW) is to ensure that all facility support equipment is monitored, maintained, and replaced, including HVAC systems and their chiller sub-components. IMCOM DPWs expect to replace approximately 621 chillers over the next five years. This reflects the number of currently installed chillers based on installation date and manufacturer’s anticipated life expectancy (data was amalgamated from the DPWs and Builder, which is the facility-related Sustainment Management System used to track the condition of facilities).

This estimate of $243M is based on historical costs for procurement and installation as well as the projected chiller replacement projects over the next five-year period. This Class J&A supports both replacement chillers ($182M) as part of construction contracts issued by Army Contracting Command and USACE contracting offices, and new chiller installations ($61M) as part of MILCON construction contracts issued by USACE contracting offices. Periods of performance will be specified in each contract. Section 10, Other Facts, includes the acquisition strategies.

Class J&A Reporting: IMCOM DPWs will annually report obligated expenditures for all J&A purchases for the prior Fiscal Year to the IMCOM HQ Category Management Branch by 31 October of the new Fiscal Year. IMCOM HQ will track the savings realized at each installation from the transition to a single brand of chiller in out years. Savings are projected as a result of fewer contracts and reduced overall costs for maintenance, replacement parts, authorities to operate (ATOs), technician certifications, and training for a single brand versus multiple brands.

4. Authority Cited: 10 U.S.C. 3204(a)(1) as implemented by FAR 6.302-1, Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements.

5. Reason for Authority Cited: As described at FAR 6.302-1(a)(2), when the supplies or services required by the agency are available only from one responsible source, or for DoD, NASA, and the Coast Guard, from only one or a limited number of responsible sources, and no other types of supplies or services will satisfy agency requirements, full and open competition need not be provided. This J&A applies the authority through 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" (i.e., Category Management).

a. Rationale.

1) On 26 October 2022, the Under Secretary of Defense for Acquisition and Sustainment (OUSD(A&S)) issued a memorandum, Subject: Category Management Roles and Responsibilities. This memo designated the OUSD(A&S) as the CM

Accountable Official (CMAO) for DoD and the Office of the Secretary of Defense representative at the Office of Management and Budget (OMB) CM Leadership Council (CMLC). The CMLC is the governing body leading implementation of CM across the Federal government.

2) The Commanding General for Army Materiel Command (AMC) and the

Assistant Secretary of the Army for Installations, Environment, and Energy are identified as Co-managers of the Facilities and Construction categories.

3) U.S. Army Material Command (AMC) provided guidance to AMC subordinate commands on implementing category management. The AMC Facilities Category Lead responsibility was delegated to IMCOM.

4) IMCOM, as Facility Category Lead for sub-categories 4.3 Facility Related Materials and 4.4 Facility Related Services, is responsible for establishing the priority of effort for contract spend within their assigned services and developing an acquisition strategy which maximizes cost savings and efficiency for the Army. HVAC chillers fall within sub-category 4.3 Facility Related Materials.

5) The IMCOM Enterprise HVAC Chiller CIR was approved on 22 August 2021 by the Army Facility Category Lead and the IMCOM Facility Category Manager. The CIR determined U. S. Army Garrisons (USAGs) under IMCOM operate, maintain, and procure HVAC chillers from 54 different chiller manufacturers. The four (4) most common manufacturers of chiller equipment installed throughout IMCOM are Trane, Carrier, Daikin/McQuay, and York, in order of predominance. The four chiller manufacturers comprise 91% of IMCOM’s chiller inventory, i.e., 48% Trane, 22% Carrier, 11% Daikin, and 10% York. Each of the 50 other chiller brands represents an average of less than 0.2% of the total inventory. The CIR provides the necessary intelligence to justify why limiting chiller acquisition to one of the top four chillers at each garrison is more cost-efficient for the Army when considering total cost of ownership for the chillers over the 15-year life expectancy. The CIR analyzes in-house and contract documents and cost records at all CONUS IMCOM USAGs to determine past expenditures and performance, and to form the basis to estimate savings potential and cost avoidances.

b. Justification:

1) Implementing a single manufacturer chiller program at IMCOM Garrisons worldwide can reduce the total number of HVAC chiller manufacturers in the inventory and save an average of $16.4M per year, and approximately $246M once the single manufacturer chiller program is fully implemented after 15 years. The cost savings will result from reduced ATO costs (each chiller brand requires a separate ATO), duplicative training costs in repair and sustainment contracts (each chiller brand requires separate certification training), and an overall reduction in contracted repair requirements as the garrisons will be able to streamline training and certification to one chiller manufacturer as opposed to multiple contracts for every chiller brand. The CIR also shows that

c. Alternatives:

1) One alternative to HVAC chiller standardization is to continue purchasing chillers as is. This approach looks at cost at a moment in time and does not consider total cost of ownership over the chiller’s expected 15-year lifecycle. The acquisition model continues to present the drawback of expending unnecessary financial resources and manpower due to redundant ATO and training/certification costs, and duplication of effort encountered using multiple chiller manufacturers. Manufacturer supplied training and ATO costs are expensive. Reduced budgets have necessitated IMCOM’s review and analysis of its procurement strategy in a search of cost savings and efficiencies.

2) Another alternative would be to increase the number of chiller manufacturers beyond the four (4) predominant brands. This alternative is not practical because Army conducted an enterprise-wide market and historical spend analysis of all 54 chiller manufacturers and concluded that 50 of those manufacturers did not produce enough historical spend individually for inclusion in the Five Year Spend Analysis. Subject Matter Experts selected the four predominant chiller manufacturers throughout IMCOM for the Five Year Spend Analysis. The long-term Total Annual Cost (TAC) associated with the other 50 manufacturers was excluded from this analysis due to additional costs associated with switching over to one or more minor brands while maintaining costs for predominant brands over the life expectancy of the chillers. IMCOM’s current inventory was procured through competition and deemed technically acceptable through specifications and standards developed from individual USAG DPWs and the USACE Center of Excellence.

3) Another alternative would be to procure chillers in bulk, synchronized with lifecycle replacements in accordance with FAR 8.004(a)(1), use of Federal Supply Schedules. However, having to issue multiple Request for Quotes in the GSA’s E-buy Procurement System will prove difficult for several reasons. Bona fide need could become an issue depending on how far in advance of the scheduled replacement timeline the procurement may occur. Supply inventory would also require a storage facility to house ordered chillers and parts. A central storage location is necessary for any procurement of HVAC chiller systems through GSA, and that will incur additional costs using this procurement approach.

d. Impact if this justification request is not approved. If this Class J&A is not approved, the chiller replacement contracts across the enterprise for preferred manufacturers cannot be executed in accordance with IMCOM’s recommended COA in the HVAC Chiller CIR . Failure to initiate this standardization effort will prevent IMCOM, and the Army, from realizing the efficiencies and reductions in cost identified through category management business analytics and business intelligence reports. The IMCOM DPWs will continue to contend with significant duplication of manpower and financial burdens due to the variety of existing chiller equipment across IMCOM USAGs;

training requirements; need for contract repairs that are beyond in-house capability;

software engineering, documentation, and procurement requirements; and ATO costs.

Failure to implement this Category Management initiative will result in forfeiture of the opportunity to use the DPW workforce more efficiently by increasing working knowledge of the chillers in inventory while increasing HVAC system maintenance reliability and DPW mission capability.

6. Efforts to Obtain Competition: Competitive solicitations will be issued by the supporting contracting office for each USAG and USACE to install the selected chiller on a brand name basis. The Contracting Officer shall publish the notices required by FAR 5.201, Publicizing, and any bids or proposals received shall be considered.

a. The requirements of FAR Part 19, Small Business Programs, to provide maximum practicable opportunities for all the small business categories, still applies and must be considered. Effective competition is not applicable at the manufacturer level, as this is a brand name requirement. Limited competition is anticipated amongst vendors authorized to procure, install, and maintain chillers manufactured by one of the four HVAC chiller manufacturers.

b. Subcontracting Competition: Subcontracting the purchase and/or installation of the chiller of choice will be done on a case-by-case basis as determined by the prime contractor in accordance with this J&A.

7. Actions to Increase Competition: In accordance with FAR Subpart 5.2, Synopses of Proposed Contract Actions, a Sources Sought Synopsis (SSS) was posted to SAM.Gov on 15 June 2022 with responses due 15 July 2022 to notify Industry of the Government’s intent to limit chiller acquisition to four manufacturers (consisting of Trane, Carrier, Daikin/McQuay, and York), identifying the chiller of choice for each IMCOM garrison to determine small and large business response. The SSS requested Industry to provide the following:

a. Identify any condition or action that may be having the effect of unnecessarily restricting competition with respect to this proposed action and identify alternative solutions. Provide the specific aspects that unreasonably restrict competition and the rationale for such conclusion.

b. If you feel that your firm can provide a similar product or one of the four systems of choice, please provide the name of the firm, point of contact, phone number, email address, DUNS number, CAGE code, identify business size (large business or a small business), and if applicable, a statement regarding small business status (including small business type(s)/certifications(s) such as SDB, 8(a), HUBZone, SDVOSB, WOSB, etc.) and the corresponding NAICS code.

c. If a similar product is proposed, provide the following information: Is the proposed product manufactured by a small or large business? Does the proposed product comply with the Buy American Act? Provide estimated life cycle cost.

d. Identify how the Army can best structure contract requirements to facilitate low switching costs. Buying a reported “top” brand chiller, i.e., Trane, Carrier, Daikin/McQuay, and York, although it may be more expensive up front, results in lower maintenance/ sustainment/operating costs over the lifecycle of the chiller. In summary, limiting acquisition to a preferred chiller, although potentially more expensive to the Government initially, will result in an estimated lifecycle cost savings of approximately $70M over the duration of this J&A. A total of $210M cost savings may potentially be realized if subsequent J&As are approved to cover the last 10 years of the total lifecycle.

b. In addition to the 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 frequently updated since then, with the latest update occurring in May 2023, states that there is a low-level HVAC and chiller market share concentration. Although the top HVAC manufacturers are diversified contracting businesses, most vendors installing HVAC systems and components are small business contractors that provide services on a local level.

c. IMCOM DPWs and their supporting MICC contracting offices concluded through research conducted in January 2021 that vendors’ training costs vary greatly. Because of potentially high training and certification costs, some vendors limit HVAC training to one or only a few manufactured systems. This requirement for training on multiple brands may render those vendors unable to compete if they are not trained or refuse to train on the chiller of choice selection. Research also found that most chiller manufacturers provide training of their systems at off-site/remote locations. HVAC and chiller training for in-house IMCOM Garrison DPW personnel is accessible by traveling to the manufacturers’ off-site training locations, or potentially, chiller of choice manufacturers may provide onsite (at the garrison) training.

d. Current IMCOM local vendor demographics of HVAC chiller service providers are:

• 69 Small Businesses

• 35 Large Business

• 29 SBA Certified Small Disadvantaged Business

• 23 Woman-Owned Small Businesses

• 15 SBA Certified Section 8(a) Small Business

• 6 Service-Disabled Veteran-Owned Small Business

• 6 Economically Disadvantaged Woman Owned Small Business

• 4 Veteran-Owned SB

• 1 SBA Certified HUBZone Firm

9. Interested Sources: Carrier and Trane expressed interest during IMCOM’s market research from January to July 2021 and provided training cost information that was used in developing the market research section of the Enterprise HVAC Chiller CIR.

10. Other Facts:

a. Procurement History. Historically, IMCOM has awarded contracts for HVAC chillers under the Lowest Price Technically Acceptable criteria. No brand name J&As were utilized for the procurement of most chillers; therefore, this allowed for the non-dominant brands to be added to the installation’s inventory, which has resulted in 54 different HVAC chiller brands across USAGs and additional Operations and Maintenance requirements for the Installation to maintain equipment.

b. Examples of individual J&As: USAG Fort Cavazos completed their Fort Cavazos HVAC Chiller CIR on 28 July 2020. Seven chiller procurements were completed during FY21 at Fort Cavazos under their individual J&A to start the process to standardize the brand of chillers procured by both the local MICC office and USACE contracting office.

The J&A successfully allowed the implementation of standardization based on total annual cost at the installation level. At the end state, it will reduce the inventory to only Daikin/McQuay HVAC chillers.

c. Class J&A: This Class J&A will cover the procurement of future chillers up to $243M (expected replacement of HVAC chillers over the next five years). A Directive Memorandum enforcing compliance with the J&A will be provided to the USAGs and their assigned MICC/USACE Contracting Office by HQ IMCOM for replacements or USACE for MILCON once the J&A is approved. Each solicitation will include a copy of the approved Class J&A. Once this Class J&A is approved, the Fort Cavazos J&A for HVAC will be discontinued, and future procurement will be accomplished under this Class J&A. The procurement strategy for chiller projects will vary from garrison to garrison and between replacements and new installations (MILCON).