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Contract Administration Core Curriculum
Participant's Manual and Reference Guide 2006

II. Federal Statute Or Regulation

A. Required Contract Provisions (Form FHWA-1273)

References:
  • 23 U.S.C. 114
  • 23 U.S.C. 315
  • 23 CFR 633
  • 49 CFR 1.48
Purpose:

The Form FHWA-1273, Required Contract Provisions (.pdf, 0.2 mb) (.doc, 54 kb), is a convenient collection of contract provisions and proposal notices that are required by regulations promulgated by the FHWA and other Federal agencies. For example, the payment of prevailing wages is promulgated by the U.S. Department of Labor (DOL) regulations implemented through contractual requirements in the Form FHWA-1273.

Applicability:

The provisions contained in Form FHWA-1273 are generally applicable to all Federal-aid construction projects; however, certain provisions, such as Davis-Bacon and Copeland Act requirements that are only required for projects located on a Federal-aid highway system. Form FHWA-1273 must be made a part of, and physically incorporated into all contracts as well as appropriate subcontracts and purchase orders.

Background:

The "Required Contract Provisions" were initiated as the Form PR 1273 in 1974, with subsequent revisions made in 1975, 1983, and 1986. In 1987, the Form PR-1273 was replaced by the Form FHWA-1273. At this time, the regulations were modified to remove the text of Form PR-1273 from 23 CFR 633, thus eliminating the need to amend the regulations each time the form is revised.

In 1989, the Form FHWA-1273 was revised to include a new section, "Certification Regarding Debarment, Suspension, Ineligibility, and Voluntary Exclusion-Lower Tier Covered Transactions" and to delete the Final Certificate requirement on wages paid, which is no longer applicable to Federal-aid construction contracts.

In 1993, the current version of the Form FHWA-1273 was issued. The Form FHWA-1273 was updated primarily to incorporate the required equal employment opportunity (EEO) special provisions (23 CFR 230, Subpart A, Appendix A); the requirements of the Americans with Disabilities Act of 1990 (ADA); and to include the certification regarding the use of contract funds for lobbying. Clarification was made as to the applicability of various provisions of the Form FHWA-1273 to be consistent with the ISTEA.

In addition, a new attachment was added that incorporates the additional requirements for Appalachian Development Highway (ADH) contracts, previously in the Form PR-1316. The revised Form FHWA-1273, along with this attachment, replaces the Form PR-1316 on ADH contracts. The attachment is printed on a separate sheet, as Form FHWA-1273A, and should only be included in ADH contracts.

At the time of the printing of this manual, FHWA was revising Form FHWA-1273 to incorporate relatively minor changes, however, the FHWA needs to coordinate with the FHWA Office of Civil Rights, the US Department of Labor, and the US Environmental Protection Agency prior to proceeding.

The Form FHWA-1273 is provided to the STAs by the FHWA. Copies of Form FHWA-1273 may be ordered through the FHWA Division Office, or from the U.S. DOT, Utilization and Storage Section M-443.2, 1200 New Jersey Avenue SE, Washington, D.C. 20590. Several STAs have elected to reproduce the form. To assist in the reproduction, the FHWA has an electronic version of the Form FHWA-1273 that is available to the STA through the Division Offices. (The current electronic version of form FHWA-1273 is dated March 10, 1994.) Copies of the current versions of the Form FHWA-1273 and Form FHWA-1273A are included in the Appendix (see pp. A-5 to A-14).

Modification. STAs are not permitted to modify the provisions of Form FHWA-1273. Minor additions covering State requirements may be included in a separate supplemental specification, provided that they do not conflict with State or Federal laws and regulations and do not change the intent of the required contract provisions.

The following are brief summaries of the provisions in each of the sections of the Form FHWA-1273.

1. General

This section sets forth the general provisions of the Form FHWA-1273.

Section I.1. The Form FHWA-1273 provisions apply to all work performed on the contract including work performed by subcontract.

Section I.2. The Form FHWA-1273 provisions are required to be physically incorporated into each subcontract and subsequent lower tier subcontracts and shall not be incorporated by reference. The prime contractor is responsible for compliance with the Form FHWA-1273 requirements by all subcontractors and lower tier subcontractors.

Section I.3. Failure to comply with the Required Contract Provisions may be considered as grounds for contract termination.

Section I.4. Furthermore, failure to incorporate the Form FHWA-1273 into all subcontracts or failure to comply with the requirements of Section IV, Payment of Predetermined Minimum Wage, and Section V, Statements and Payrolls, may be considered as grounds for debarment under 29 CFR 5.12.

Section I.5. Since the payment of a predetermined minimum wage and the submission of payrolls are requirements of DOL programs, disputes pertaining to these provisions (Sections IV and V) shall be resolved in accordance with DOL procedures.

Section I.6. This Section sets forth general requirements pertaining to labor and employment as contained in 23 CFR 635.117.

a. Use of Local Hiring Preferences
References:
  • 23 USC 112
  • 23 CFR 635.117(b)
  • Headquarters memorandum - "Local Hiring Preferences," April 20, 1994.
Applicability:

Applies to all Federal-aid highway construction projects.

Guidance:

The STAs may not include a provision that requires a contractor to give any preference in hiring on a Federal-aid project. Furthermore when an STA or local public agency has a policy that requires or creates a preference for local hiring, the contracting agency may not require or encourage a contractor to comply with this policy on Federal-aid projects (even if the hiring requirement is not included in the contract itself).

While the STAs (or local governments) are precluded from enacting such preference requirements on Federal-aid projects, this requirement does not apply to the Federal Government. Therefore, Federal hiring preference requirements, such as, EEO/Affirmative Action, Appalachian Preference, and Indian Preference are not in conflict with this policy.

Some states and local public agencies have implemented policies which encourage or mandate the use of local employment or local contracting. In such cases, Federal-aid contracts (including invitations for bids or request-for-proposal documents) should contain specific provisions which state that such preferences are not applicable to contracts funded by FHWA. Compliance with local preference provisions will not be a condition of responsiveness in the consideration of bids or a condition of responsibility prior to the award of contract.

b. Use of Convict Labor
References:
  • 23 U.S.C. 114(b)
  • 23 CFR 635.117
Applicability:

FHWA's prohibition for the use of convict labor only applies to Federal-aid highway construction contracts located on Federal-aid highways. It does not apply to projects on roadways functionally classified as local roads or rural minor collectors (reference Mr. Schimmoller's May 9, 1996 memorandum and Mr. Baccus's May 14, 1997 legal opinion).

Guidance:

FHWA's regulation in 23 CFR 635.117(a) states:

"No construction work shall be performed by convict labor at the site or within the limits of any Federal aid highway construction project from the time of award of the contract or the start of work on force account until final acceptance of the work by the STA unless it is labor performed by convicts who are on parole, supervised release, or probation."

The principle behind the prohibition of convict labor is that use of convict labor restricts competition, because convict labor can be furnished at rates well below market labor costs or force account rates.

The terms "parole, supervised release, or probation" refer to the status of a person who has completed the condition of imprisonment. "Supervised release" does not include inmates currently serving their imprisonment terms while performing supervised work either inside or outside the walls of the incarcerating facility. Thus, it is not acceptable to have inmates who are currently serving the terms of their incarceration performing work on a project where convict labor is prohibited.

Use of materials produced by convict labor is discussed in more detail in Section II.C.5.a.

2. Nondiscrimination

References:
  • 23 U.S.C. 140
  • 23 U.S.C. 324
  • 23 CFR 200
  • 23 CFR 230A and D
  • 28 CFR 35
  • 29 CFR 1630
  • 41 CFR 60
  • 49 CFR 21
  • 49 CFR 23
  • The Civil Rights Act of 1964, Title VI
  • The Age Discrimination and Employment Act of 1967
  • The Age Discrimination Act of 1975
  • The Americans with Disabilities Act of 1990
  • FHWA Order 4710.8, Clarification of Federal Highway Administration (FHWA) and State Responsibilities Under Executive Order 11246 and Department of Labor (DOL) Regulations in 41 CFR Chapter 60, February 1, 1999
Applicability:

Applies to all Federal-aid construction contracts and to all related subcontracts of $10,000 or more.

Background:

The basic statutory authority for a nondiscrimination provision is Title VI of the Civil Rights Act of 1964, which is implemented by 23 CFR 200. Title VI mandates that Federal assistance not be used to discriminate. Through expansion of this mandate and the issuance of parallel legislation, the prescribed basis for discrimination now includes race, color, religion, sex, national origin, age, and disability.

Title VI assures that the STAs guarantee that no person is subjected to discrimination in connection with any activity, including any contract, for which the State receives Federal assistance. In the event of noncompliance by a contractor and/or subcontractor, payment may be withheld or the contract may be canceled in whole or in part.

This section of the Form FHWA-1273 is essentially the Standard EEO Construction Contract Specifications, as included in 23 CFR 230, Subpart A, Appendix A.

The goal of EEO is increased participation of minorities and women in the work force, and extends to contractor practices in recruitment, hiring, pay, training, promotion, and retention.

Guidance:

No person is to be subjected to discrimination because of race, color, religion, sex, national origin, age, or disability. The nondiscrimination provisions extend to the contractor's employment practices, solicitations for employment, selection of subcontractors and suppliers, and procurement of materials.

Section II.1. The contractor is required to have an EEO policy that prohibits discrimination and provides for affirmative action in employment practices. The contract shall adopt the following statement as his operating policy:

"It is the policy of this company to assure that applicants are employed, and that employees are treated during employment, without regard to their race, religion, sex, color, national origin, age, or disability. Such action shall include: employment, upgrading, demotion, or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship, pre-apprenticeship, and/or on-the-job training."

Affirmative action is defined as a good faith effort to eliminate past and present discrimination and to ensure that future discriminatory practices do not occur. Actions aimed at addressing under-representation of minorities and women are outlined in the "Sixteen Steps" in 41 CFR 60.

Section II.2. The contractor is required to have a designated EEO Officer who has the responsibility and authority to administer the contractor's EEO program.

Section II.3. All of the contractor's employees who have an active role in the hiring, supervision, or advancement of employees are required to be aware of and to implement the contractor's EEO policy. In addition, it is required that employees, including applicants and potential employees, be informed of the contractor's EEO policy through posted notices, posters, handbooks, and employee meetings.

Section II.4. The contractor shall not discriminate in his recruitment practices and should make an effort to identify sources of potential minority and women employees.

Section II.5. The contractor is required to periodically review project sites, wages, personnel actions, etc., for evidence of discriminatory treatment. The contractor is to promptly investigate all alleged discrimination complaints.

Section II.6. The contractor is required to advise employees and applicants of training programs available and to assist in the improvement of the skills of minorities, women, and applicants, through such programs.

Section II.7. The contractor is not, and cannot be, required to hire union employees; however, if the contractor relies on unions as a source of employees, the contractor is encouraged to obtain cooperation with the unions to increase opportunities for minorities and women. The contractor should use his best efforts to incorporate an EEO clause into union agreements.

Section II.8. The contractor's EEO policy also pertains to his selection of subcontractors, including material suppliers and equipment leasing companies. Contractors are encouraged to use Disadvantaged Business Enterprises (DBEs) or other subcontractors that employ minorities and women. Furthermore, contractors are required to exercise their best efforts to ensure that subcontractors comply with the EEO requirements.

Section II.9. Records that document compliance with the EEO policy are to be prepared and retained by the contractor for a period of 3 years after project completion. These records should include the numbers of minority, women, and non-minority employees in each work classification on the project; and the progress and effort being made to increase the employment opportunities for minorities and women.

The contractor is required to submit an annual EEO report to the STA each July, for the duration of the project. If the project contains on-the-job training (OJT), this information is also required to be collected and reported.

Compliance:

Enforcement responsibilities have been vested with the contracting agency - ultimately the STA project engineer. The project engineer should be cognizant of the contractual requirements and observe the contractor for compliance. Specifically, the project engineer's concern should center on whether discriminatory practices take place, particularly in the hiring, firing, training, promotion, and utilization of employees.

Non-compliance with the EEO specifications may be considered a breach of contract for which payment may be withheld or the contract canceled. However, see FHWA Order 4710.8 for enforcement guidance. The US DOL Office of Federal Contract Compliance Programs (OFCCP), is the only agency which has authority for enforcing Executive Order 11246 and its implementing regulations (USDOL regulations - 41 CFR 60). The State compliance staff may conduct reviews to ensure compliance with FHWA policy (23 USC 140 and Title 23 CFR).

3. Nonsegregated Facilities

References:
  • 23 CFR 633A
Applicability:

Applies to contractors, subcontractors, and material suppliers on all Federal-aid construction contracts and related subcontracts of $10,000 or more.

Background:

The intent of this provision, also derived from Title VI, is to ensure that past discriminatory practices of providing separate facilities or prohibiting minorities access to facilities are eliminated.

Guidance:

By entering into the contract, the organizations and firms certify that they maintain nonsegregated facilities that conform to requirements of 41 CFR 60.1.8. The prime contractor is required to obtain a similar certification from each subcontractor and supplier, as applicable.

One exception to the nonsegregated facilities provision is for the disabled when the demands for accessibility override (e.g., disabled parking). In addition, single-user or separate bathrooms or dressing facilities are also allowable for privacy purposes.

4. Payment of Predetermined Minimum Wage

References:
  • 23 U.S.C. 113 - as amended by ISTEA, Section 1006(g)(2)
  • 40 U.S.C. 276(a) - Davis-Bacon Act
  • 40 U.S.C. 276(c) - Copeland Act
  • 23 CFR 633 Subpart A
  • 23 CFR 635.309
  • 29 CFR 1, 3, 5
Applicability:

Applies to all Federal-aid construction contracts within the right-of-way of a Federal-aid highway exceeding $2,000 and to all related subcontracts. Davis-Bacon and Copeland Act provisions are not required for highway construction projects located on roadways classified as local roads or rural minor collectors. However, non-highway construction projects administered under 49 CFR 18 (Common Rule) are subject to Davis-Bacon, Copeland and Contract Work Hours and Safety Standards Act requirements as required in 49 CFR 18.36(i) (4,5 and 6).

Prior to the 1991 ISTEA, Davis-Bacon was applicable to Federal-aid contracts exceeding $2,000 that were on the Federal-aid system. Section 1006 of the 1991 ISTEA amended Title 23 U.S.C. 113(a) to make Davis Bacon wage rates applicable to Federal-aid highways. The ISTEA defined the term "Federal aid highways" as roadways "... other than highways classified as local roads or rural minor collectors." Therefore, FHWA's statutes limit the applicability of Davis Bacon prevailing wage rates to Federal-aid construction projects on Federal-aid highways. This includes roadways functionally classified as freeways, arterials and collectors but exempts projects located on highways functionally classified as local roads, rural minor collectors and projects that are not located within the right-of-way of a Federal-aid highway (off-system bridges, trails, railroad branch line upgrades, etc.).

Note that Davis-Bacon coverage applies to any "contract", (not to be confused with the term "project"). Thus, any Federal-aid construction contract, regardless of the level of Federal-participation, will be a covered contract if it meets the functional classification criteria described above, or is being administered under the Common Rule.

Background:

The payment of predetermined minimum wages on Federal aid contracts is derived from the Davis Bacon Act of 1931 and is prescribed by 23 U.S.C. 113. The Davis-Bacon Act requires the payment of locally prevailing wages and fringe benefits to laborers and mechanics employed on Federal contracts in excess of $2,000 for construction, alteration, or repair (including painting and decorating) of public buildings or public works. Davis Bacon was enacted as a means to prevent contractors from importing cheap labor from outside the area, thereby, keeping capital at home with the local labor force where it would do the most good. See the US DOL's Wage and Hour Division Web site for additional information regarding labor policies (http://www.dol.gov/esa/whd/contracts/dbra.htm.)

Guidance:

Section IV.1. This section sets forth the general requirements for the contractor, and subcontractors, to pay employees working at the site at least the minimum wage rate and fringe benefits specified for the classification of work performed.

The STA is responsible for incorporating the applicable wage rate decision into each Federal-aid contract. The US DOL requires that an amendment for a general wage rate determination be incorporated into a Federal-aid contract if notification of the change is published in the Federal Register 10 days or more prior to the opening of bids. During the period between August 30,1990 and May 24, 1995, the FHWA modified the effective date for applying the 10-day rule as the date the rates are actually received by the STA rather than the date of publication in the Federal Register. The FHWA's current policy is that the US DOL's "10-day rule" as contained in 29 CFR 1.6(c)(3) applies to Federal-aid highway projects. (refer to Mr. William A. Weseman's May 24, 1995 memorandum).

Section IV.2. All employees covered by Section IV are to be classified in conformance with the wage rate determination. If an additional classification is deemed appropriate, either US DOL approval or a US DOL determination for the classification is required. In this case, the contracting officer should submit Standard Form SF-308 - "Request For Wage Determination And Response To Request." Detailed procedures for submitting this form to the US DOL are provided on their web page.

Section IV.3. This section sets forth requirements for the paying of fringe benefits.

Section IV.4. The provisions of this section set forth the requirements for paying less than the full specified wage rate for employees who are registered in US DOL apprenticeship and trainee programs or for those who are classified as helpers.

Section IV.5. This section clarifies that the US DOT apprenticeship and trainee programs are not subject to the US DOL program provisions stated in Section IV.4.

Section IV.6. The STA has the authority to withhold funds from the contractor, as may be determined necessary, to pay employees of the contractor the full amount of wages required by the contract.

Withholdings are maintained by the contracting agency until restitution is evidenced. These withholding provisions also apply to wage underpayment by a subcontractor; however, the actual withholding is taken from progress payments to the prime contractor.

Section IV.7. The contractor is required to pay overtime at the rate of one-and-one-half times the employee's basic pay rate for all hours worked in excess of 40 hours per week.

Section IV.8. This section provides for the assessment and withholding of liquidated damages for days on which the contractor did not pay overtime in accordance with Section IV.7.

This withholding is a liability assessment against the contractor or subcontractor of $10 per day for each employee that was underpaid. The liquidated damages are furnished to the US DOL for its overall enforcement activities. Liquidated damages should be forwarded to FHWA Headquarters (specifically to the Office of the Chief Financial Officer (HCF), Finance Division, Washington, D.C. 20590) for deposit into the United States Treasury.

Section IV.9. The STA has the authority to withhold funds from the contractor, as may be determined necessary, to pay the liquidated damages and to pay employees of the contractor the overtime wages required by Section IV.8.

Enforcement

The US DOL has responsibility for enforcing these statutes and determining the prevailing wage rates. The US DOL establishes the prevailing wage rates by either a determination based on an in house review of payroll data, or by a survey based on wage data from active projects. The affected STAs are consulted during the formulation of the wage rate decision.

Notices of wage rate decisions are published in the Federal Register.

After many years of operating a subscription service for the publication of prevailing wage rates, the US DOL is now posting this information on the Internet. As of March 2, 2001, Davis-Bacon wage rates are available electronically at http://www.access.gpo.gov/davisbacon/.

Additional information is also on the US DOL, Employment Standards Administration, Wage and Hour Division website at: http://www.dol.gov/esa/whd/contracts/dbra.htm.

Applicability of Davis-Bacon - Site of the Work

The Davis-Bacon Act limits coverage to laborers and mechanics "... employed directly upon the site of the work." Since 1972, the US DOL and the courts have been addressing various aspects of the applicability of Davis-Bacon requirements to site-of-work facilities.

The US DOL's implementing regulation, 29 CFR 5.2(l)(2), extends coverage to off site facilities that are dedicated exclusively and in proximity to the actual construction site. In the 1990's, US DOL's regulation was challenged in the court system and two U.S. District Courts issued decisions against the US DOL.

On December 20, 2000, the US DOL issued a final rule making for the "site of the work" issue in light of the US District Court Decisions. The proposed rule uses the court terms "significant portion" and "adjacent or virtually adjacent" in describing sites that are covered, however, the rule does not define these terms.

Revised 29 CFR 5.2 (l)(1) now states "The site of the work is the physical place or places where the building or work called for in the contract will remain; and any other site where a significant portion of the building or work is constructed, provided that such site is established specifically for the performance of the contract or project..." One example would be a casting or fabrication yard for a segmental concrete bridge which is specifically established for a project after the award of contract. State DOTs should contact the US DOL Regional Offices regarding a determination of what percentage of the work would constitute a "significant portion" and the potential coverage of such sites.

If a significant portion of the work is to be constructed off-site, the contracting agency should attempt to include the wage determinations covering potential off-site location in the bid proposal. Reference is made to comments on page 80275 in the December 20, 2000 Federal Register.

Revised Title 29 CFR 5.2 (l)(2) also indicates other work areas not located on the site of permanent construction (job headquarters, tool yards, batch plants, borrow pits, etc.), may be part of the site of the work "... provided they are dedicated exclusively, or nearly so, to performance of the contract or project, and provided they are adjacent or virtually adjacent to the site of the work." Permanent, previously established facilities are not covered, even where the operations for a period of time may be dedicated exclusively, or nearly so, to the performance of the contract.

Revised Title 29 CFR 5.2 (j)((1)(iv) provides that transportation between locations which are included in the "site of the work" are covered. This includes transportation between the permanent location of construction and covered sites where a "significant portion" (l)(1) of the work will be accomplished or covered sites which are dedicated exclusively and adjacent or virtually adjacent to the site of the work (l)(2).

The US DOL has made the determination that when transportation will take place in more than one wage determination area, the applicable wage determination will be the wage determination for the area in which the construction will remain when completed. This determination will apply to all bidders, regardless of where they propose to construct significant portions of the project (refer to FR 12/20/00, page 80276).

FHWA has taken the position that since this is the US DOL's program, it is inappropriate for FHWA to provide guidance in this area. FHWA encourages STAs to work jointly with their division office and the US DOL regional offices to resolve "site of work" issues.

Applicability of Davis-Bacon - To Specific Work Types

Additional discussion on the following can be found in the US DOL's Field Operations Handbook (FOH), Chapter 15. In November 2002, the US DOL issued the "Prevailing Wage Resource Book". (See: http://www.wdol.gov/docs/WRB2002.pdf) However, the Resource Book does not include all previous US DOL guidance and in some cases, the Field Operations Handbook continues to provide the best available guidance on specific work types.

The following summary is FHWA's interpretation of the applicability of Davis-Bacon provisions to Federal-aid construction projects based both FHWA policy and the US DOL's requirements:

Force Account Work by Public Agencies - In some circumstances, the STA or local public agency may perform the construction work using their own forces. Davis-Bacon provisions do not apply to governmental agencies and states. Public agencies are not considered "contractors" or "subcontractors" within the meaning of the Davis-Bacon Act. See DOL FOH 15b05(a).

Exploratory drilling services - Subsurface utility engineering or utility location services are considered to be exploratory drilling services. These contracts provide the location of utilities for engineering or planning purposes. The Davis-Bacon Act does not cover them. See DOL FOH 15d03(b).

Railroad and Utility Adjustments - Davis Bacon provisions are not applicable to:

  • the relocation work done by a public utility or railroad forces, or
  • the relocation done by a contractor engaged by the utility or railroad.

This has been a long-standing FHWA policy and has a basis in a May 15, 1985 legal opinion from FHWA's Chief Counsel.

However, Davis Bacon provisions apply when utility relocation work is part of a highway construction project to be performed by the highway construction contractor and/or subcontractor.

Summer Youth - The US DOL has strict requirements for the employment and payment of summer youth. See DOL FOH 15e03.

Helpers - Helpers are permitted on covered contracts if the helper classifications are specified in the applicable wage rate determinations. The US DOL has a long-standing policy of recognizing helper classifications only where:

  • their duties are clearly defined and distinct from those of journeyworker and laborer classifications in the area,
  • the use of such helpers is an established prevailing practice in the area, and
  • the term "helper" is not synonymous with "trainee" in an informal training program.

See DOL FOH 15e04 and the November 20, 2000 Federal Register.

Project Engineers - The contractor's project engineers are generally not considered to be laborers or mechanics, and therefore, are not covered. See DOL FOH 15e06.

Flaggers - The US DOL has determined that the duties of flaggers are manual or physical in nature, and therefore, are covered by the Davis-Bacon Act. See DOL FOH 15e09(a). Employees of traffic service companies which rent equipment and perform only incidental functions at the work site in conjunction with the delivery of equipment are not covered. See DOL FOH 15e09(b).

Inspectors - The contractor's employees who make inspections for quality and contract compliance (including quality control or quality assurance) are not usually considered to be laborers or mechanics, and therefore, are not covered. See DOL FOH 15e13.

Survey Crews - The actual duties of the survey crew members must be considered. Generally speaking, instrument persons, party chiefs and rod persons are not considered laborers or mechanics, and therefore, are not covered. However, a crew member who primarily does manual work (clearing brush) is covered for the time so spent. See DOL FOH 15e19.

Materialmen and Suppliers - The manufacturing and delivery of supply items such as sand, gravel and ready-mixed concrete at the work site, when performed by companies serving the general public, are generally not activities covered by Davis-Bacon. See DOL FOH 15e15.

Owner-operators of Trucks and Other Hauling Equipment - As a matter of policy, the US DOL exempts truck owner-operators from Davis-Bacon coverage. The contractor's certified payrolls should show the names of the truck owner-operator with the notation "Owner-operator" but need not list hours worked or rates paid. This policy does not pertain to owner-operators of other equipment such as bulldozers, scrapers, backhoes, etc. See DOL FOH 15e16.

Truck Drivers (not truck owner-operators) - After 10 years in the courts, in May 1991, the Court of Appeals for the District of Columbia reached a final decision in the case of The Building and Construction Trades Department vs. Midway.

The regulation in question, 29 CFR 5.2(j), included the "transporting of materials and supplies to or from the building or work by the employees of the construction contractor or construction subcontractor" in the definition of work covered by the Davis-Bacon Act. The Court ruled that this regulation is inconsistent with the Act and that it conflicts with the statutory objective of the Act. In the Court's view, the Act covers only mechanics and laborers who work on the site of the Federally funded projects and does not cover those employed off site, such as suppliers and material delivery truck drivers.

In its review of the legislative history of the Act, the Court concluded that Congress clearly intended the Act to apply only to on site workers. Thus, the Court ruled that truck drivers who come onto the site of the work to drop off construction materials are not covered by the Act, even if they are employed by the contractor. For additional guidance concerning truck drivers, see the US DOL's "Prevailing Wage Resource Book". (See: http://www.wdol.gov/docs/WRB2002.pdf)

Transportation Enhancement Projects - Davis-Bacon only applies to projects located on highways functionally classified as Federal-aid highways (not local roads, rural minor collectors or projects not located on a highway system). Therefore, Davis-Bacon does not apply to TE projects that are not on Federal-aid highways unless they are tied to a Federal-aid highway project (See Appendix A-145).

Warranty Work - Davis-Bacon coverage applies to warranty or repair work if it is provided for in the original construction contract. This is true regardless of whether there is a pay item for the work. If an employee spends more than 20% of his/her time in a workweek engaged in such activities on the site of the original work, he/she is covered for all time spent on the site. The contract minimum wage rates apply regardless of whether the work is done 5, 10 or even 20 years after the contract execution.

Compliance:

Enforcement of the provisions in Section IV of the Form FHWA-1273 is the STA's responsibility. In addition to withholdings and liquidated damages, as provided for by Sections IV.7. and IV.8., the following actions may be considered for continued violations:

  • termination of the contract, or
  • for more serious violations, legal prosecution and debarment (however, only the US DOL has the statutory authority to pursue a debarment for Davis-Bacon violations).

FHWA's April 13, 1998 memorandum outlines the revised procedures for submitting Form FHWA-1494, "Semiannual Labor Compliance Enforcement Report". The FHWA Division Offices have the option of: 1) sending the report directly to the US DOL or 2) allowing the STA to forward the report directly to the US DOL. Electronic submittals may be sent to Helm.Timothy@dol.gov. Hard copies may be sent to: US DOL Wage and Hour Division, Office of Enforcement Policy, Government Contracts Team, Room S-3018, 200 Constitution Avenue, N.W., Washington, D.C. 20210 (faxed copies to (202) 693-1425).

Additional Guidance:

State Wage Rates. Approximately two-thirds of the States have laws establishing minimum wage rates. These laws are commonly referred to as "Little" Davis-Bacon Acts. The wage rates for about 15 of these States are predominately higher than the DOL rates. The FHWA has generally accepted the States' right to establish their own prevailing wage statutes, and rates higher than the Federal rates are implicitly approved for Federal aid contracts.

Application of Davis-Bacon Act to Ferryboat Projects. In some states, ferryboats provide vital links in the highway network. In those states, the FHWA participates in projects for the construction and reconstruction of ferryboats and docking facilities. While the US DOL's current guidance, the "Prevailing Wage Resource Book", does not address the construction of ferryboats, the former guidance in the Field Operations Handbook is still applicable:

"The building, alteration, and repair of ships under Government contracts is work performed upon 'public works' within the meaning of the Davis-Bacon Act. Wage determinations are issued only if the location of contract performance is known when bids are solicited." (See DOL FOH 15d08 - Shipbuilding, Alteration, Repair, and Maintenance)

If Davis-Bacon is not included in a ferryboat project, the US DOL requires that the contract provisions include:

  • a statement that explains why the wage rate determinations are not included;
  • a reminder that the contractor must pay at the very least the Federal minimum wage rate;
  • a reminder that the contractor must submit weekly certified payroll statements; and
  • a reminder that the contractor must comply with all other US DOL labor standards.

5. Statements and Payrolls

References:
  • 40 U.S.C. 276(a) - Davis-Bacon Act
  • 40 U.S.C. 276(c) - Copeland Act
  • 23 CFR 635.118
  • 29 CFR 3, 5
Applicability:

Applies to all Federal-aid highway construction contracts exceeding $2,000 and to all related subcontracts, except for projects located on roadways classified as local roads or rural minor collectors, which are not covered. Non-highway construction projects administered under 49 CFR 18 are subject to Davis-Bacon, Copeland and Contract Work Hours and Safety Standards Act requirements as required in 49 CFR 18.36(i) (4,5 and 6).

Background:

This section is prompted by the Copeland Act. Under the Copeland Act, workers are protected from paying "kickbacks" to employers for the "privilege" of being employed.

FHWA-1273 Provisions Regarding Payrolls:

Section V.1. The DOL regulations which implement the Copeland Act are incorporated by reference in the Form FHWA 1273.

Section V.2. These regulations require that the contractor, and subcontractors, furnish weekly certified payroll statements to the STA. The weekly payroll statement is to include information on employees and wages in order that compliance with the Davis-Bacon requirement of Section IV can be verified.

Guidance:

FHWA's August 7, 1996 memo titled, "Electronic Submission of Weekly Payroll Records" provides guidance on the use of electronic documentation of payroll records. When such methods are used, the records must be acceptable from an engineering, audit and legal perspective. While the US DOL has agreed that electronic weekly payroll records are acceptable under their regulations, the US DOL still insists on an original signed hard copy "Statement of Compliance". The US DOL's form WH-347, "payroll", is available at the following website: http://www.dol.gov/esa/programs/dbra/wh347.htm.

Compliance:

The STA should review the payroll statements for completeness and certification, and then "spot-check" items, such as: classification, hourly rate, authorized deduction, fringe benefits, overtime hours and rate, and net wages paid. Through employee interviews, good cross reference checks can be made on classifications and hourly rates. The STA should refer any discrepancies to the USDOT/OIG.

Although out of date in the policy area, the "FHWA Labor Compliance Manual" contains pertinent information on responsibilities and procedures.

The US DOL Davis Bacon and Related Acts (DBRA) requirement for payment of prevailing wages may be found in 29 CFR Part 5. Enforcement provisions are addressed in found in Section 5.6. It states in part that, "The Federal agency shall cause such investigations to be made as may be necessary to assure compliance with the labor standards clauses required by 5.5..." Also, "Investigations shall be made ... with such frequency as may be necessary to assure compliance." It further states that "Such investigations shall include interviews with employees, ... examination of payroll data..."

The FHWA's implementation of the US DOL requirement is found in Title 23 U.S.C. § 113. Section 113 states in part that, "(a) The Secretary {Dept. Of Transportation} shall take such action as may be necessary to insure that all laborers and mechanics employed by contractors and subcontractors on the construction work performed on highway projects on the Federal aid highways ... be paid wages at rates not less than those ... as determined by the Secretary of Labor..." The FHWA "Labor Compliance Manual" was developed to provide guidance in carrying out the above requirement. Although the manual is out of date in the compliance policy area, the information on responsibilities and procedures is still applicable.

The Labor Compliance Manual defines Contracting Agency as the governmental unit in charge of the construction of a project. In the case of Federal aid projects, it will usually be the STA but may be a subdivision of the State which acts as the agent of a State. The contracting agency is required to ensure that: "(a) a representative sampling of employees is interviewed ... to verify contractors' compliance; (b) on a sampling basis, contractors' and subcontractors' payroll records ... are reviewed."

The regulation does not require 100% coverage; it requires coverage frequency "... as may be necessary to assure compliance." It is recommended that the division office and STA agree on what that coverage is appropriate. It is also recommended that all contractors and subcontractors on the project be included in spot checks, and that contractors or subcontractors with violations be reviewed in more detail.

6. Record of Materials, Supplies, and Labor

References:
  • 23 CFR 635.126
Applicability:

Applies to all Federal-aid highway construction projects in excess of $1 million that are on the National Highway System (NHS), excluding force account, beautification, and railroad protective device projects.

Background:

The purpose of the Form FHWA 47 is to supply information to support a database on usage factors for various construction materials. A series of four reports are published that cover aggregates, cement and bitumens, lumber, and steel construction materials. This information is compiled by the Office of Program Administration, Federal-aid Programs (HIPA-10).

Guidance:

Section VI.1. The contractor is required to complete and submit a "Statement of Materials and Labor Used by Contractors on Highway Construction Involving Federal Funds", Form FHWA-47.

Section VI.2. The contractor may either submit a single Form FHWA-47 covering all contract work or may submit individual Form FHWA-47's covering himself and each subcontractor.

Compliance:

The contractor is required to submit the Form FHWA-47 to the STA to be verified for reasonable accuracy. If the contractor submits individual forms for the subcontractors, all the information is to be combined onto one Form FHWA-47, covering the entire project. The Form FHWA 47 is forwarded to the Office of Program Administration, Federal-aid Programs (HIPA-10) where the data is checked, coded, and computerized.

Both inch-pound and metric versions of Form FHWA-47 are available on FHWA's web site at the following address: http://www.fhwa.dot.gov/programadmin/contracts/fhwa47.cfm

Common errors made on the Form FHWA-47 include:

  • failure to complete all the items that have been pre marked on the Form FHWA 47 with an asterisk,
  • unreasonable gross labor earnings,
  • unrealistic data entries (i.e., rebar data where there is no corresponding cement or concrete data),
  • lumber reported in board feet instead of thousand board feet,
  • the cost of materials and labor is greater than the final construction cost (with no indication that the contractor lost money), and
  • culvert sizes reported which do not exist, etc.

A review of Form FHWA 47 should detect these and similar errors and appropriate corrections should be made before the information is transmitted to Headquarters.

7. Subletting or Assigning the Contract

References:
  • 23 CFR 633
  • 23 CFR 635.116
Applicability:

Applies to all Federal-aid highway construction projects on the NHS.

Background:

The intent of this long-standing FHWA policy was to prohibit the "brokering" of a contract by a prime contractor (subletting all contract work). The FHWA policy on subcontracting was eased in 1982, in part as a result of the red tape reduction effort by the US Government. The former requirement that at least 50 percent of the contract work had to be performed by the prime contractor was reduced to 30 percent.

Current FHWA policy requires that the prime contractor perform at least 30 percent of contract work with its own organization. This percentage shall be of the original contract price, exclusive of specialty items, but include the cost of materials and manufactured products purchased or produced by the prime contractor. The STA may be more restrictive and specify a higher self-performance percentage. Conversely, with adequate justification, the Division Administrator may approve a reduction or a waiver of the 30 percent self-performance requirement on a project-by-project basis.

Specialty items are defined as work that requires highly specialized knowledge, abilities, or equipment not ordinarily available in the type of contracting organization qualified and expected to bid on the contract. In general, these items are to be limited to minor components of the overall contract. As noted earlier, the amount of identified specialty work is deducted from the original contract amount before determining the total amount that may be subcontracted. The definition of specialty items is included in 23 CFR 635.102.

Guidance:

Section VII.1. The contractor is required to perform work amounting to not less than 30 percent of the original contract amount, excluding specialty items, with his own organization. Specialty items are to be designated by the STA and include items that require highly specialized knowledge, abilities, or equipment.

Section VII.2. This section clarifies that the contract amount indicated in Section VII.1. includes the cost of materials and manufactured products that are purchased or produced by the contractor.

Section VII.3. The provisions of this section require the contractor to provide competent supervision of the project. The contractor must employ a superintendent or foreman who will have full authority to direct the work, and be in charge of the operation. In addition, the contractor shall furnish other resources (i.e., supervision, management, and engineering services), as required by the STA.

Section VII.4. No portion of the work may be sublet, assigned, or otherwise subcontracted without the written consent of the STA. Subcontract approval shall be based on satisfactory evidence that each subcontract is in writing and contains all the pertinent provisions. The approval of a subcontract does not relieve the contractor of responsibility for fulfillment of the contract.

FHWA does not have a regulatory definition of a "subcontract" detailing when a formal written document may be required. Instead we rely on the STA's specifications or policies for subcontracting requirements. While it is generally understood that a subcontract is appropriate where a firm other than the prime contractor is responsible for the satisfactory completion of a specific element of the contract, the actual need for a written subcontract will depend upon STA requirements.

Employee lease agreements:

In response to an inquiry from Texas DOT about the appropriateness of employee lease agreements, Mr. Horne's July 5, 2000 memorandum states that employee lease arrangements are acceptable for Federal-aid projects if the leased employees are under the direct supervision and control of the contractor's superintendent and/or supervisor. Leased employees may be considered to be part of the prime's "own organization" if:

  • The prime contractor maintains control over the supervision of the day-to-day activities of the leased employees;
  • The prime contractor remains responsible for the quality of the work of the leased employees;
  • The prime contractor retains all power to accept or exclude individual employees from work on the project; and
  • The prime contractor remains ultimately responsible for the payment of predetermined minimum wages, the submission of payrolls, statements of compliance and all other Federal regulatory requirements.

The key issue is supervision and control of any leased personnel. If the leased personnel are treated as employees of the prime contractor, and would be considered as such but for their actual employment by a leasing agency, then for purposes of 23 CFR Section 635.116(a), they should be considered employees of the prime contractor's organization.

For the purpose of Davis-Bacon compliance, the prime's agreement with the employee leasing firm must ensure compliance with minimum wage requirements. The prime is also responsible for providing the appropriate payroll information for all leased employees.

Subcontract approval:

The FHWA requires each subcontract to be approved in writing by the STA. This allows some control to screen subcontractors that are not qualified or that may be ineligible (e.g., debarred). It also assures that all Federal and State requirements will be included in the subcontract. In order to reduce the amount of paper flow, the FHWA Division Administrator may permit the STA to satisfy the subcontract approval requirement by instituting a certification process. This process must require the contractor to certify that each subcontract arrangement will be in the form of a written agreement containing all the pertinent provisions and requirements of the prime contract. The STA must demonstrate that it has an acceptable plan for monitoring such a certification.

Design-Build Projects:

The 30% self-performance requirement does not apply to design-build contracts (see: 23 CFR 635.116 (d) (1 and 2) ). While there is no Federal self-performance requirement for design-build contracts, an STA may elect to use its own criteria.

8. Safety: Accident Prevention (Compliance with OSHA Regulations)

References:
  • 40 U.S.C. 333
  • 23 CFR 635.108
  • 29 CFR 1926
Applicability:

Applies to all Federal-aid construction projects.

Background:

The administration of the national program for occupational safety and health rests with the Occupational Safety and Health Administration (OSHA) of the DOL. Many States have their own comparable programs administered by one or more State agencies. An excellent summary of safety concerns and responsibilities is presented in the 1972 AASHTO "An Informational Guide on Occupational Safety."

In response to problems experienced by US DOL representatives regarding access to project sites, Section VIII.3. was added to specifically grant US DOL representatives right of entry.

Guidance:

The FHWA is required by law to ensure compliance with construction safety standards.

Section VIII.1. The provisions of this section require the contractor to comply with all applicable Federal, State, and local laws governing safety, health, and sanitation. The contractor is required to provide all safeguards, safety devices and protective equipment and is required to take such actions, as deemed necessary, to protect the life and health of employees and the safety of the public and property.

Section VIII.2. Furthermore, the contractor or subcontractor may not require or permit a laborer or mechanic to perform work under conditions which are unsanitary, hazardous, or dangerous to health or safety as determined by construction safety standards.

Section VIII.3. This section specifically sets forth the right of entry of US DOL representatives to any site of contract performance for the inspection or investigation of compliance with OSHA standards.

Compliance:

The STA has enforcement responsibilities of State standards. In addition, the STA should cooperate with and alert other responsible agencies in regard to serious violations and provide full cooperation and assistance as required.

9. False Statements Concerning Highway Projects

References:
  • 18 U.S.C. 1020
  • 23 CFR 633
  • 23 CFR 635.119
Applicability:

Applies to all Federal-aid construction projects.

Background:

This provision derives from an anti fraud statute contained in the Federal aid Road Act of 1916.

Guidance:

The making or use of false statements is a felony, punishable by fine of not more than $10,000, or imprisonment of not more than five years, or both. Making or using false claims for the purpose of obtaining payment against Federal funds subjects violators to forfeiture of $2,000 for each violation.

Section IX. This section specifically provides that "willful falsification, distortion, or misrepresentation with respect to any facts related to the project is a violation of Federal law" and requires that the "false statements" poster, Form FHWA 1022, shall be posted on the project. A list of required job site posters and project forms is provided in Appendix A-15. A reproduction of Form FHWA-1022 is included in Appendix A-26).

The STA is to conduct investigations on complaints and to review records that are potentially vulnerable to fraud. It is also the STA's responsibility to furnish the prime contractor with the required poster (Form FHWA 1022) and to ensure that it is posted accordingly.

The STA should conduct a preliminary inquiry and review of records concerning any allegations of fraud. If the preliminary inquiry and review validates any of the allegations, the STA should retain any real or potential evidence, such as documents, interview notes, etc., and contact the USDOT/OIG.

10. Implementation of the Clean Air Act & Federal Water Pollution Control Act

References:
  • 33 U.S.C. 1251
  • 42 U.S.C. 1857
  • 23 CFR 633
  • 23 CFR 635.107
  • 40 CFR 15
Applicability:

Applies to all Federal-aid construction contracts and related subcontracts of $100,000 or more.

Background:

There may be facilities (e.g., asphalt or concrete plants) which are proposed for use in construction operations that do not meet air or water quality standards of the Clean Air Act or Federal Water Pollution Control Act. The Environmental Protection Agency (EPA) regulations, 40 CFR 15, require that these facilities be listed and not be used on government contracts. These facilities are included on the GSA "Excluded Parties List System" (GSA List).

Guidance:

The Form FHWA 1273 implements EPA regulations that prohibit the use of violating facilities on government contracts. The Form FHWA-1273 provision constitutes a certification by the contractor that facilities to be used by the contractor or subcontractor in the execution of the contract are not violating facilities (or potential violating facilities) by EPA. The contractor is also required to inform the STA of any notification from EPA indicating that a facility to be used for the contract is under consideration by EPA as a violating facility.

11. Certification Regarding Debarment, Suspension, Ineligibility, and Voluntary Exclusion

References:
  • 49 CFR 29
Applicability:

Applies to all Federal-aid contracts, and related subcontracts, purchase orders, and other lower tier transactions of $25,000 or more.

Background:

Government-wide suspension and debarment regulations became effective on October 1, 1988 (49 CFR 29). As part of the Administration's initiatives to curb fraud, waste, and abuse, the President's Council for Integrity and Efficiency created an interagency task force to study the feasibility and desirability of a comprehensive suspension and debarment system encompassing the full range of Federal activities.

Guidance:

The prime contractor and lower tier participants are required to certify as to their current eligibility status. Certification is also required of all prospective participants in lower tier transactions. This includes subcontractors, material suppliers, vendors, etc.

Each participant in the Federal-aid highway program must certify "that it and its principals are not presently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from covered transactions by any Federal department or agency ... and that they have not been convicted or had civil judgment rendered within the past three years for certain types of offenses."

The General Services Administration maintains a government-wide list of excluded parties. This web-based system titled, "Excluded Parties List System" (GSA List), is located at http://www.epls.gov/.

More discussion of the suspension and debarment process is contained in Chapter III.

12. Certification Regarding the Use of Contract Funds for Lobbying

References:
  • 23 CFR 635.112(g)
  • 49 CFR 20
Applicability:

Applies to all Federal-aid construction contracts and subcontracts exceeding $100,000.

Background:

Lobbying limitations were established by Section 319 of Public Law 101-121 (Department of the Interior and Related Agencies Appropriations Act for fiscal year 1990). The law prohibits Federal funds from being expended to influence, or attempt to influence, a Federal agency or Congress in connection with the awarding of any Federal contract or grant. This prohibition applies to all recipients, including lower tier subrecipients of a Federal contract or grant.

Interim guidance on implementation of the lobbying certification requirements was issued by OMB as an Interim Final Rule and published in the Federal Register on February 26, 1990. The FHWA field offices were advised of the interim guidance by memorandum dated February 7, 1990.

Guidance:

Prior to receiving funds in excess of $100,000 per grant, the STA must submit to the FHWA a certification that it has not and will not make any prohibited payments for lobbying. By signing the project agreement form, the STA certifies to FHWA that it will agree to comply with the lobbying restrictions in 49 CFR Part 20 (see 23 CFR 630.307(c)(5). Local agencies subrecipients, contractors, subcontractors and consultants on contracts and subcontracts that exceed $100,000 are also required to make a lobbying certification. By signing a contract or subcontract, a prime contractor or subcontract is certifying that it will comply with lobbying restrictions.

The STA certification is to be retained by the FHWA Division Office. Likewise, lower tier certifications are to be retained by the next higher tier (i.e., prime contractors retain their subcontractors' certifications, etc.).

Any participant that has made, or agreed to make, payments for lobbying activities using non-Federal funds, is required to disclose such activities. Payments of non-Federal funds to regularly employed officers or employees of the agency or firm are exempt from the disclosure requirement. All disclosure forms, including those by lower tier recipients, are to be forwarded to the Division Administrator by the STA. Formerly, the disclosure forms were forwarded to the FHWA Office of Program Administration (HIPA-30) for further processing in accordance with OMB guidance. However, the Lobbying Disclosure Act of 1995 eliminated the requirement for agencies to forward this information to Congress. Thus the lobbying disclosure forms should be maintained at the Division Office.

Note: The fiscal year 2002 appropriations bill (Public Law 107-87 Section 325) included an anti-lobbying provision that also prohibits the use of Federal funds for lobbying State legislatures. It is noted that the US DOT anti-lobbying certification requirements in 49 CFR 20 do not address State legislatures. The temporary nature of an appropriations bill does not warrant a change in the US DOT regulation, however, contracting agencies may elect to include a clause in their project agreements to reference this law and ensure compliance with the intent of Congress. It is also noted that the FHWA's regulations concerning the Federal-aid project agreement (23 CFR 630.112(a)) require compliance with all Federal laws and regulations.

13. Employment Preference for Appalachian Development Highway Contracts (Attachment A)

References:
  • 40 U.S.C. Appendix 201
  • 23 CFR 633B
Applicability:

Applies to projects funded by the Appalachian Regional Commission (ARC). These contract provisions shall apply to all work performed on the contract by the Contractor's own organization, with the assistance of workers under the Contractor's immediate superintendence, and to all work performed by any subcontractor. These provisions only apply to Appalachia Development Highway projects and not all projects in the Appalachia region (even if they are on the Appalachia Development Highway System).

Background:

Appalachian Development Highway System (ADHS) projects are comparable to Federal aid projects. The "Appalachian" projects are administered by the STA under the auspices of the Appalachian Regional Commission (prior to the 1993 revisions to the Form FHWA-1273, the required contract provisions for Appalachian projects were contained in the Form PR 1316). The Commission, established by the Appalachian Regional Development Act of 1965, is comprised of the Governors of the thirteen States of the Appalachian Region. The Commission is empowered to formulate rules for the use of funds earmarked for the Appalachian Region. These funds are appropriated from the general fund and have been used, in addition to highways, for schools, libraries, water and sewer treatment plants, medical treatment facilities etc. The 13 States of the Appalachian Region are Alabama, Georgia, Kentucky, Maryland, Mississippi, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia.

However, since the text of the Form PR-1316 is physically incorporated into the regulations (23 CFR 633), updating of the form must be done through the rulemaking process. The only significant difference between the Form PR 1316 and the Form FHWA-1273 is the Appalachian local labor hiring preference requirements of the Form PR-1316. The additional requirements for Appalachian projects have been included in Attachment A, Form FHWA-1273A. By replacing the Form PR-1316 with the Form FHWA-1273 and Form FHWA-1273A, consistent contract requirements are applied to Federally funded highway projects.

Guidance:

Any ADHS project must be designed in accordance with the prevailing Federal-aid highway standards, specifications, policies and guidelines applicable to the project type and design year traffic volumes.

This provision requires that 80 percent of the employees, excluding supervisory personnel, be from the local labor market. Certain craft classifications that require specific experience or expertise may be also be excluded. Rates of less than 80 percent may be permitted upon certification by the State Employment Board that sufficient employees from the specified area are not available. To verify compliance with this requirement, the contractor is required to indicate on the payroll records whether or not each employee normally resides in the specified labor area (refer to Section V.2.b. of the Form FHWA-1273). Subcontractor payroll records will also need to show whether the employees normally reside within the specified labor area.

The material preference provisions of 23 CFR 633.207(e) where inadvertently omitted when Form FHWA-1273 - Attachment A was revised in 1994. This provision allows STAs to give a special preference for the use of mineral resources native to the Appalachian region. Future revisions of Attachment A will include this provision.

B. Other Contract Provisions

1. Buy America

References:
  • 23 USC 313
  • ISTEA Section 1041(a) and 1048(a)
  • 23 CFR 635.410
Applicability:

Applicable to all Federal-aid construction projects

Background:

Federal domestic procurement requirements have been around since 1933. The original requirements, commonly referred to as the "Buy American" requirements, are found in 41 CFR 10a-10d, and apply only to direct Federal procurement activities. A direct Federal procurement occurs when a Federal government agency makes the purchase or awards a contract. Construction contracts done under the Federal Lands Highways program are examples of Federal direct procurements.

The STAA of 1978 (Pub. L. 95-599), §401 expanded domestic procurement coverage to the Federal-aid highway program by establishing "Buy America" requirements. Current Buy America policy is based on §165 of the STAA of 1982 (Pub. L. 97-424), as amended by ISTEA, and codified by SAFETEA-LU, §1903 as 23 USC 313. The requirements apply to all Federal-aid construction projects. Projects located on highways classified as local roads and rural minor collectors; transportation enhancement projects; and non-highway construction are also covered by these requirements when funded by Federal Highway Trust Fund money.

Section 165 initially covered cement, steel and manufactured products. However, in developing the implementing regulations, FHWA determined that Congress had not intended to cover all manufactured products and, therefore, FHWA's regulations cover only manufactured products containing iron and steel. Due to concerns about an inadequate domestic supply of cement, §165 was amended in 1983 to limit the coverage to steel materials and products only. Subsequently, ISTEA §1048(a) amended §165 to include iron. Further, ISTEA §1041(a) defined the action of applying a coating to a covered material and products (i.e., steel or iron) as a manufacturing process subject to Buy America requirements. In 1994, FHWA issued two nationwide waivers: the first in February covered a list of specific ferryboat parts; and the second in August, covered pig iron, scrap, raw alloy materials, and processed, pelletized or reduced iron ore. These waivers are still in effect.

In August 2005, SAFETEA-LU §1903 codified the Buy America requirements as section 313 of Title 23 but made no substantive changes to the requirements.

Guidance:

Simply stated, the current regulations require the use of domestic steel and iron in Federally funded construction projects. All foreign steel and iron materials and products are covered by Buy America regardless of the percentage they comprise in a manufactured product or the form they may take. The regulations allow bidders and the contracting agency some latitude through minimum use, waivers, and alternate bids.

All manufacturing processes must take place domestically. Manufacturing begins with the initial melting and mixing, and continues through the coating stage. Any process which modifies the chemical content, the physical size or shape, or the final finish is considered a manufacturing process. These processes include rolling, extruding, machining, bending, grinding, drilling and coating. "Coating" includes epoxy coating, galvanizing, painting, or any other coating that protects or enhances the value of the material.

Buy America does not apply to raw materials (iron ore and alloys), scrap, pig iron or processed, pelletized, and reduced iron ore. Insufficient domestic supplies of raw materials caused FHWA to issue a nationwide waiver allowing foreign source supplies of these items. The waiver may be found in the March 24, 1995 Federal Register.

If domestically produced steel billets or iron ingots are shipped overseas for any manufacturing process, and then returned to the U.S., the resulting product does not conform with the Buy America requirements. Mr. Weseman's memorandum of July 6, 1989 (Appendix A-32) provides further guidance.

The manufacturing process for a steel/iron product is considered complete when the product is ready for use as an item (e.g., fencing, posts, girders, pipe, manhole cover, etc.) or could be incorporated as a component of a more complex product through a further manufacturing process (e.g., the case for a traffic signal head). The final assembly process does not need to be accomplished domestically so long as the steel/iron component is only installed and no manufacturing process is performed on the steel/iron component.

EXAMPLE: shapes produced domestically from foreign source steel billets are not acceptable under Buy America since the initial melting and mixing of alloys to create the steel occurred in a foreign country.

EXAMPLE: all welding must take place domestically since the welding rod itself is typically an iron/steel product and the welding process substantially alters the rod.

Buy America does not apply to minimal use of iron/steel materials provided that the total cost of all foreign source items used in the project, as delivered to the project site, is less than $2500 or does not exceed one-tenth-of-one-percent of the total contract amount, whichever is greater. If a supplier or fabricator wishes to use a partial fabrication process where domestic and foreign source components are assembled at a domestic location, the "as delivered cost" of the foreign components should include any transportation, assembly and testing costs required to install them in the final product.

For the Buy America requirements to apply, the steel or iron product must be permanently incorporated into the project. Buy America does not apply to temporary steel items, e.g., temporary sheet piling, temporary bridges, steel scaffolding and falsework, etc. Further, Buy America does not apply to materials which remain in place at the contractor's convenience.

The practice of making otherwise eligible items nonparticipating for the purpose of circumventing the Buy America requirements is unacceptable and should not be approved in Federal-aid projects. There is no clear-cut rule for resolving an after-the-fact discovery of an inadvertent incorporation of an excess amount of foreign materials into a project. Each situation will be resolved on a case-by-case basis.

Buy America provisions apply to all steel and iron materials that is to be permanently incorporated in a Federal-aid project, even if an item is rendered as a "donated material" in accordance with 23 U.S.C. 323 - Donations and Credits. While States and local governments may receive a credit for donated material, this material must generally comply with Buy America requirements. There have been instances where FHWA Divisions have approved Buy America waivers for the donation of material from existing stockpiles of locally owned material. The use of existing material was determined to be in the public interest; however, the procurement of new material for a donation would not generally be considered for a waiver.

Waivers. With prior concurrence from Headquarters, the FHWA Division Administrator may grant a waiver of the Buy America requirements for specific projects if it can be shown that:

  • following the requirements is inconsistent with the public interest, or
  • insufficient quantities of satisfactory quality domestic products are available.

Only under very limited circumstances will materials delivery delay be considered as grounds for a waiver. The cost differential between domestic and foreign products is generally not grounds for a waiver. Approval authority for waivers of Buy America requirements cannot be delegated to the STA for any FHWA-funded contract.

When domestic steel products are available, meeting the contractor's schedule should not be the basis for requesting a Buy America waiver. The contracting agency, and any design consultants, should be aware of our Buy America requirements and consider these issues in the design and specification development process. Contractors must be aware of the Buy America contract provisions and take this into account in developing their anticipated schedules and bids for a construction project.

Only the Federal Highway Administrator may grant nationwide waivers, which are done through the public rulemaking process. To date, two nationwide waivers have been approved. One dealt with the issue of raw materials and includes scrap; pig iron; processed, pelletized, and reduced iron ore; and raw alloys. The second waiver deals with specific equipment and machinery items required for ferryboats. The items included in the waiver are marine diesel engines, electrical switchboards and switchgear, electric motors, pumps, ventilation fans, boilers, electrical controls, and electronic equipment (see February 9, 1994 Federal Register). Items not specifically included in these waivers remain subject to the Buy America requirements.

A State may apply for a waiver of the Buy America provisions if it believes that a waiver is warranted. The STA should submit the waiver request with supporting information to the FHWA Division Administrator sufficiently in advance of need (preferably during the preliminary engineering stage, in order to allow time for proper review and action).

For Headquarters's prior concurrence review of the waiver request, the supporting information must include:

  • the project number/description, project cost, waiver item, item cost, country of origin for the product and reason for the waiver, and
  • an analysis of re design of the project using alternate or approved equal domestic product.

No prior concurrence from Headquarters is needed for waivers for steel or iron products totaling less than $50,000 as delivered to the project. FHWA Division Offices should correspond directly with Mr. Edwin Okonkwo, HIPA 30, Phone 202 366 1558; Fax: 202 366 3988.

NAFTA

On March 17, 1994, the Federal Highway Administrator wrote to the American Road and Transportation Builders Association to indicate that the North American Free Trade Agreement (NAFTA) does not affect the Buy America requirements for the Federal-aid highway program. Article 1001 of NAFTA expressly exempts grants, loans, cooperative agreements, and other forms of Federal financial assistance from its coverage. Unless future negotiations among the US, Canada and Mexico modifies NAFTA, or additional statutory requirements are implemented, the NAFTA does not affect Buy America requirements.

In the late 1990s, ADF Group, a steel fabricator on a Federal-aid project in Virginia, filed suit against VDOT and FHWA claiming that the FHWA's Buy America policies prevented it from using a Canadian fabrication facility, thus violating the NAFTA's investment chapter. ADF Group claimed $90 million in damages.

The litigation was eventually resolved on January 9, 2003, when an international arbitration tribunal issued an award in favor of the United States, rejecting ADF Group's claims in their entirety. The tribunal upheld the FHWA's Buy America requirements and found that the application of Buy America requirements did not violate international law or discriminate against ADF on the basis of its nationality.

Alternative Bidding Procedures. An alternative bidding procedure may be used to justify the use of foreign steel or iron. Under this procedure, the total project is bid using two alternatives: one which is based on foreign source products, and the second using domestic products. The use of foreign products may be justified if the lowest total bid based on domestic steel or iron products is 25 percent more than the lowest bid using corresponding foreign steel or iron products. The 25 percent differential applies to the total bid for the entire project, not just the bid prices for the steel or iron products.

State Restrictions. States may have "Buy America" provisions that are more restrictive than the Federal requirements, including provisions for products that are not covered by Buy America, such as crumb rubber, glass, plastic, and aluminum. However, the more restrictive provisions must be required by State law. If more restrictive requirements are imposed as a matter of State policy, directive or regulation, the FHWA requires a State legal opinion that the requirements are authorized under State law and do not conflict with the competitive bidding statutes of the State. The State law or policy may not establish an in-State materials preference.

Enforcement. The STA is responsible for enforcing the Buy America provisions. Generally, the materials certification process has been adequate for determining compliance; however, there are some products for which origin is difficult to ascertain. The contract provisions should require the contractor to provide a definitive statement about the origin of all products covered under the Buy America provisions.

Another option is to use step certification for products. Under step certification, each handler of the product (supplier, fabricator, manufacturer, processor, etc.) certifies that their step in the process was domestically performed. Both AASHTO and FHWA encourage the use of step certification. Refer to AASHTO guidance on step certifications.

Cargo Preference. The Cargo Preference Act: P.L. 83-644 (August 26, 1954), as amended, contains permanent legislation concerning the transportation of waterborne cargoes in U.S.-flag vessels. The Act requires that certain products be shipped on privately owned U.S.-registered vessels.

Mr. Farris's February 19, 1988 memorandum clarified that the Cargo Preference Act requirements are not to be imposed on any materials, supplies or equipment used on or in Federal-aid projects.

2. Disadvantaged Business Enterprise

References:
Applicability:

DBE program requirements apply to all Federal-aid construction projects.

Background:

Title VI of the Civil Rights Act of 1964 is the legislation that forms the foundation for the creation of the DBE Program. Other efforts that followed include:

Executive Order 11625 (October 13, 1971).

DOT Regulations (1980) - These regulations required the States to develop and implement Affirmative Action Programs to promote Minority Business Enterprise (MBE) and Women Business Enterprise (WBE) participation in Federal-aid contracts. As a result, the States achieved 3.0% MBE and 0.6% WBE participation rates on Federal-aid contracts during the year the regulations became effective.

STAA of 1982 - This legislation established a national minimum annual goal of 10% MBE participation across the board in all the States.

STURAA of 1987 - This act included the following key provisions:

  • continuation of the annual 10% national goal,
  • inclusion of women business enterprises (WBE) as DBE's,
  • establishment of DBE maximum business size standards, and
  • establishment of DOT uniform certification criteria.

ISTEA 1991 - This act continued the basic program elements as established or modified by the STURAA of 1987. The program changes included a modification to the business size standard, increasing its threshold to $16,600,000 average gross receipts over three years, and a change in the reporting requirements to Congress on DBE program participation.

February 2, 1999 Final US DOT DBE Rule - These regulations provided sweeping changes in the DBE program to implement the "narrow tailoring" requirements of the Adarand v. Pena Supreme Court Decision (see narrative below).

SAFETEA-LU of 2005 raised the business size standard from $16.6 million to $19.57 million average gross receipts over three years.

Guidance:

By regulatory definition, a DBE is:

"... a for profit small business concern -- (1) That is at least 51 percent owned by one or more individuals who are both socially and economically disadvantaged or, in the case of a corporation, in which 51 percent of the stock is owned by one or more such individuals; and (2) Whose management and daily business operations are controlled by one or more of the socially and economically disadvantaged individuals who own it."

All Federal-aid projects, regardless of system or oversight agency are subject to the legislative and regulatory DBE requirements. FHWA must continue to approve each State's DBE program and its annual goals to ensure compliance with all DBE Program requirements. The main objective of the DBE Program is to ensure that DBE firms have an opportunity to participate in DOT funded contracts.

Effective administration of the DBE program requires full understanding of the program, including its goals and objectives. It is not the intent of this manual to provide detailed information on the DBE Program. An excellent reference source, in addition to the cited Federal regulations, is the "DBE Program Administration Manual." This manual was developed from a collaborative effort between the Contract Administration Group (HIPA-30) and the Office of Civil Rights (HCR) and is used as a participant's manual in a training course with the same title.

Other resources are the US DOT's DBE website and the FHWA's DBE Community of Practice.

It is desirable from a contract administration perspective to highlight the following points:

  • The DBE participation requirements in Federal aid highway contracts are contract provisions like any other contract provisions (i.e., predetermined minimum wage, Buy America provisions, and statements and payrolls, etc.), and should be administered as such.
  • DBE administrative issues that will require review and attention may arise during a project. These issues will require the reviewer to have an adequate background of the DBE Program and may include such items as:

    DBE Specifications and contract provisions should include the following:

    • DBE Program Policy;
    • Definitions;
    • DBE Contract Goal;
    • Eligibility Criteria;
    • Good Faith Effort Provisions;
    • DBE Obligations;
    • Sanctions on Failure to Comply with DBE Requirements;
    • Determination Procedures on Counting DBE participation towards the DBE Goal;
    • Award Documentation and Procedures;
    • Post Award Compliance Provisions; and
    • Records and Reporting Requirements.

    The two most prevalent forms of fraud and abuse that occur in the DBE Program are:

    • an ineligible firm is certified, and
    • a legitimate DBE firm fails to perform a commercially useful function.

Certification decisions address the nature of a firm's ownership and structure, and serve as the first safeguard for preventing fraud and abuse. Commercially useful function is primarily concerned with the role a certified firm has played in a particular transaction, and serves as the second line of defense against fraud and abuse. Commercially useful function determinations occur during the administration of the project. Items to review in these determinations include:

  • the DBE's management of the work,
  • whether the DBE is utilizing his/her work force,
  • whether the DBE owns/rents his/her equipment, and
  • whether the DBE is utilizing his/her own materials.

Other contract administration items include:

  • replacement or substitution of DBE's during the contract,
  • Good Faith Effort determinations on the part of the prime contractor to comply with DBE program requirements,
  • crediting DBE participation in a contract,
  • record keeping/reporting requirements of the State and contractor,
  • program monitoring by the STA, and
  • sanctions for non-compliance.

Difficulties with any matter regarding the DBE Program should be brought to the attention of the STA's Office of Civil Rights, or equivalent. This office contains the expertise needed to deal with contract matters that may arise involving the DBE Program.

FHWA Responsibilities. The FHWA field engineers should be familiar with the general provisions of the DBE Program and have responsibility to:

  • encourage the utilization of DBE contractors and subcontractors,
  • encourage the utilization of DBE consulting firms,
  • include DBE considerations in such functions as:
    • PS&E reviews,
    • authorization actions,
    • contract solicitation and award processes,
    • project inspections, and
    • process reviews, etc.
  • provide technical advice, assistance, and services to the STA in regard to the administration of the DBE program,
  • coordinate with the FHWA Resource Center Office of Civil Rights and other program office activities,
  • maintain liaisons with DBE organizations, and
  • provide required or requested reports to FHWA headquarters.
DBE Support Services

DBE supportive services funding was first authorized under the Surface Transportation Assistance Act of 1982. It is FHWA's policy to promote increased participation of DBEs in Federal aid highway contracts, in part, through the development and implementation of cost effective supportive services programs through the STAs.

Subject to the availability of funds under 23 U.S.C. 140(c), a State highway agency may establish procedures to develop and conduct training and provide technical assistance specifically for the benefit of disadvantaged firms. The assistance may include training in estimating, plan reading, basic accounting skills, record keeping and many other skills associated with operating a construction business.

Supportive services funds cannot be used to finance the training of State DOT employees, to provide services in support of such training or to provide bonus payments to supportive services contractors.

3. Indian Preference on Federal-aid Projects

References:
  • 23 U.S.C. 140
  • 23 CFR 635.117
  • FHWA Notice 4720.7, Indian Preference In Employment On Federal-Aid Highway Projects On And Near Indian Reservations, March 15, 1993
Applicability:

Applies to any Federal-aid highway construction project meeting the criteria described under "Guidance."

Background:

In 1985, the FHWA determined, based on the opinion of the Chief Counsel, that Title 23 precluded States from requiring contractors on Federal-aid contracts to give Indians preference in employment. Subsequently, Congress, in Section 122 of the STURAA of 1987, amended Section 140 of Title 23 to permit States to show such preference on Federal-aid projects located on "Indian reservation roads," as defined in Section 101 of Title 23. The preference is not mandatory.

Therefore, by memorandum dated May 8, 1987, the FHWA established its policy based on the legislative change. The FHWA advised its field offices that the revised 23 U.S.C. 140 allowed, but did not require, Indian employment preference on qualified Federal-aid projects.

Subsequently, the FHWA received correspondence from the Chairman of the EEO Commission and the leadership of the Senate Committee on Environment and Public Works. Both expressed concerns that the FHWA had not gone far enough in its implementation of Section 122 of the 1987 STURAA. In response, the FHWA issued a memorandum to the field offices dated October 6, 1987, which further clarified of the Agency's Indian preference policy. This memorandum supplemented the May 8, 1987 memorandum and addressed the significant issues contained in the Senate Committee Report which accompanied the 1987 STURAA.

The passage of the ISTEA continued the basic program elements as established in the 1987 STURAA. The only noted change was that States may now implement an Indian employment preference provision on projects near Indian reservations. The FHWA Notice N 4720.7, dated March 15, 1993, addresses this legislative change to Section 140(d) of 23 U.S.C. and consolidates all previous guidance to the field on Indian employment preference. This Notice sets forth the FHWA's current policy on this subject.

Guidance:

An STA may implement procedures or requirements which extend preferential employment to all Indians. Recruiting efforts may be targeted toward those living on or near a reservation or Indian lands. Indian preference shall be applied without regard to tribal affiliation or place of enrollment.

Indians previously hired by a contractor shall be included as part of the contractor's core-crew. In no instance should a contractor be compelled to layoff or terminate a core-crew employee (regardless of Indian or non-Indian status) to meet a preference goal.

Projects eligible for Indian employment preference are those located on roads within, or providing access to an Indian reservation or other Indian lands (as defined under the term "Indian reservation roads" in Section 101 of Title 23), and projects located on roads that are "near" the boundaries of reservations. Roads "near" an Indian reservation are defined as those within a reasonable commuting distance from the reservation.

Accordingly, States are encouraged to work together with Indian tribes and their Tribal Employment Rights Offices (TERO's) to develop contract provisions which will promote employment opportunities for Indians on eligible Federal-aid highway projects. Reasonable overall employment goals for Indians, and the requirements which can be used to achieve such goals, should be agreed upon in advance and made part of the contract documents.

In setting the employment goals, consideration should be given to the scope of the contract and the potential employment requirements of the contractor beyond its core-crew. Once established, the goals should only be changed by the State following consultation with the Indian tribal representative and the contractor and only after good faith efforts to achieve the original goals. Sanctions for failure to meet the employment goals should be determined in advance and be made a part of the contract to facilitate enforcement.

TERO Tax

Many tribes have established a TERO tax, which is applied to contracts for projects performed on the reservation. TERO tax receipts are used to support the TERO. The tax may only be imposed on a project within the reservation's boundaries, as Indian tribes do not have any tax authority off the reservations. However, in off reservation situations, the TERO may bill the contractor at an agreed upon rate for services rendered, e.g., recruitment, employee referral and related supportive services. TERO service fees are not eligible for Federal participation. If a portion of a proposed project is not within the reservation boundaries, that portion which will be subject to the TERO tax should be clearly indicated.

FHWA will participate in any State or local tax provided the tax does not discriminate or single out Federal-aid highway construction contracts. Therefore, if the TERO tax rate on highway construction contracts is the same as that imposed on other contracts on the reservation, such costs are eligible for Federal-aid reimbursement.

Tribal Construction of Federal-aid Projects

In general, Federal aid projects are subject to 23 U.S.C. § 112, and therefore, competitive bidding requirements. However, there may be instances where it is appropriate to allow the tribe to perform the work with its own forces. Title 23 U.S.C. Section 112(b) provides for another method of contracting, where it can be demonstrated that it is more cost effective or an emergency exists. The authority to determine cost effectiveness has been delegated to the FHWA Division Administrator in each State.

If the STA agrees, the Stewardship Agreement could delegate the cost effectiveness determination to the STA for non NHS projects. FHWA does have experience where Transportation Enhancement projects have been funded on Indian lands. In some instances, the STA determined that it was more cost effective to have the tribe construct the project. In those instances, the STA entered into a formal agreement with the tribe (similar to a local agency project agreement) which allowed the tribe to both administer and construct the project. On Federal aid projects, the STA determines whether the tribe is equipped to administer the work prior to the agreement being signed. The determination includes a review of the tribe's accounting procedures to ensure appropriate project cost allocations, and a review of the tribe's equipment and personnel capabilities. Per FAPG Nonregulatory Supplement 635B, the tribe should not need to purchase or rent substantial amounts of equipment to undertake the work in question. Because the project is not administered by the Bureau of Indian Affairs, P.L. 93 638 procedures do not apply. Instead, State contracting procedures apply.

4. Noncollusion Statement

References:
  • 23 U.S.C. 112
  • 23 CFR 635.112(f)
Applicability:

Applies to all Federal-aid highway construction projects.

Background:

The submission of a noncollusion statement protects the integrity of the Federal-aid highway program by serving as a deterrent to bid rigging activities. The certification also becomes evidence in prosecuting cases involving construction contract bid rigging.

Prior to 1986, noncollusion affidavits were required only from the successful low bidders although the AASHTO encouraged States to require a signed certification from all bidders. A copy of the 1981 AASHTO publication Suggested Guidelines for Strengthening Bidding and Contract Procedures is included in the Appendix (see Appendix A-34 to A-45). Also, the U.S. Department of Justice (DOJ) Antitrust Division strongly encouraged that noncollusion affidavits be required from all bidders (Appendix A-46 to A-61). In response, the FHWA changed the regulations and now all bidders are required to submit a noncollusion statement.

Guidance:

A noncollusion statement is required from all bidders and is to be submitted as part of the bid proposal package. Failure to submit the required certification will result in the bid being considered as non-responsive and ineligible for award consideration.

The STAs must include provisions in the bidding proposals that require all bidders to include a noncollusion statement with their bid. The FHWA, in consultation with the DOJ, has concluded that the noncollusion statement may be either an unsworn declaration made under penalty of perjury under the laws of the U.S., or a sworn affidavit executed and sworn before a person who is authorized to administer oaths by the laws of the State.

All noncollusion certifications shall be retained by the STA in accordance with the retention policy of 49 CFR 18.42. These certifications could serve as important evidence in the event that collusion or bid rigging is discovered at a later date.

If for any reason, a person feels that fraud has occurred, they should contact the nearest USDOT/OIG office. This may be based on a suspicion or actual evidence of fraud, waste, and abuse in any project funded by FHWA. See Appendix A-1 to A-4 for details.

5. On the Job Training

References:
  • 23 CFR 230 Subpart A
  • 23 U.S.C. 140(a) - Federal aid Highway Act of 1968 (OJT Program)
  • 23 U.S.C. 140(b) - Federal Aid Highway Act of 1970(OJT Supportive Services Program)
Applicability:

Applies to all Federal-aid highway construction projects.

Background:

During the late 1960's and early 1970's it was recognized that a need existed to train minority employees in the highway construction trades. Though minorities had been employed in highway construction for a number of years, they were usually assigned the more labor intensive jobs or the lower paying jobs in the semi skilled or unskilled labor classifications.

Discrimination based on sex has always been prohibited in the highway construction industry; however, the role of women in the industry was not specifically addressed until 1975. Since 1975, a conscientious effort has been made to train and employ women in nontraditional jobs (i.e., highway construction skilled trades).

Section 1208(a) of the Transportation Equity Act for the 21st Century (TEA-21) allows STAs to reserve training positions for welfare recipients. This section requires that such positions shall not cause current employees to be displaced or current positions to be supplanted.

Guidance:

The objectives of the OJT Program are to:

  • provide training and improve the skills of women and minorities so that they have the opportunity and access to the higher paying skilled trade jobs and journeyman positions, and
  • broaden the labor pool to meet the projected future labor needs in the construction industry.

FHWA does not require that 100 percent of the trainees and apprentices on a project be minority or women. However, for trades in which minorities or women are under-represented, a majority of the training positions on that project must be filled by minorities or women. The contractor must demonstrate a systematic and direct recruitment effort to comply with the contract's training special provisions.

The OJT program involves several major components and involves shared responsibilities between the FHWA, the STA, and the contractor. These components include:

  • Development of Statewide Training Goals - According to the regulations, the STA's overall statewide training goals are to be developed by the FHWA based on Federal aid apportioned amounts and minority populations. However, in actual practice the FHWA requests the STAs to submit recommended calendar year goals for approval, which are to be based on the following factors:
    • the type and duration of projects,
    • the estimated number of projects to be awarded during the year,
    • letting referrals,
    • the changing character of projects, and
    • the interrelationship of the above factors and any other relevant factors.
  • Assignment of Contract Training Goals - The STA assigns the training goals for each contract. The contracts selected for a training goal and the goal set for each contract should be based on:
    • availability of minorities and women in the project vicinity,
    • potential for effective training,
    • duration of the contract(s),
    • dollar value (slots should not be assigned based on dollar value of contracts alone),
    • total anticipated work force,
    • geographical location,
    • type of work,
    • need for journeyman in the area and by type of trade,
    • statewide goal, and
    • satisfactory ratio of journeyman to trainee expected during normal operation of the construction project (ordinarily in the range of 10:1 to 4:1).

    The contract training goal is the actual number of training positions or slots required on the project. The OJT Program requires that a special provision to be placed in the contract which specifies the number of trainees that are to be assigned to various appropriate highway construction skilled crafts for actual hands on experience. If a trainee quits or is terminated, the slot is to be refilled until a trainee completes the program. If a contractor does not attain the contract training goal for the project, the contractor could be subject to monetary penalties. For example, the Alaska Department of Transportation and Public Facilities establishes a monetary penalty equal to the number of training hours remaining multiplied by the prevailing wage.

  • Development and Acceptance of the OJT Program at the Project Level Prior to Commencing Construction - The contractor shall submit to the STA, for approval, the commitment in terms of the number of trainees to be trained for each selected classification and the training programs to be utilized.

    Note: In unionized States, apprenticeship programs have been developed by the various trade unions and are registered with the DOL, Bureau of Apprenticeship and Training (BAT). These training programs are acceptable for use on Federal-aid projects but may not require employees to be or become union members.

    The STA must review, analyze, accept or reject training programs proposed by the contractor. The STA should ensure that:

    • proposed training programs are reasonable and realistic based on the job skill classification, and
    • the number of training hours specified in the training program is consistent with the project's duration and sufficiently long enough for the trainee to obtain journeyman level status.

    The contractor recruits and selects the trainees. However, the contractor may receive assistance from outside sources to accomplish this task. For example, in unionized States, local unions may refer trainees or apprentices to the contractor.

  • Provide Training - Once the contractor's training program has been finalized and approved by the STA, the trainees in each training slot begin hands on training at the project site. Normally, the trainees are paid a percentage of the journeyman's wages (Davis-Bacon rates). The following payment plan is required in the FHWA Training Special Provisions (23 CFR 230 A - Appendix B):
    • 60 percent of the journeyman's wages for the first half of the training period,
    • 75 percent of the journeyman's wages for the third quarter of the training period, and
    • 90 percent of the journeyman's wages for the last quarter of the training period.
  • Determination on the Adequacy of Training - The contractor must periodically evaluate the training provided, and the trainee's progress.
  • Reporting Requirements - Since 1983, the FHWA has required information to be submitted on the number of trainees and the job classifications in which training is occurring. The FHWA requires this information to be submitted on Forms FHWA-1391 (xls, 73 kb) and FHWA-1392 (xls, 76 kb) which are to be prepared by the STA and the contractor and submitted to the Office of Civil Rights (HCR-10).
  • Responsibilities - The STA has the primary responsibility to monitor and determine the effectiveness of on-the-job training. The FHWA has oversight responsibility to provide guidance and assistance, and to concur in proposed project training provisions, project goals, and proposed training programs.

    The STA and the FHWA share the responsibility of determining:

    • the number of trainees that complete training,
    • the number of trainees upgraded to journeyman level status,
    • the level of skills attained, and
    • whether the statewide training program is meeting the needs of the construction industry regarding work force requirements and level of skills.
  • OJT Reimbursement Provisions - Payment for training is made by the FHWA to the STA on a reimbursement basis. The training special provisions provide for a monetary incentive to the contractor to establish a project training program either at the rate of $0.80 per hour (generally felt to be inadequate to fully cover the costs incurred by the contractor); or
  • The STA has the option of permitting the contractor to bid on the training program provisions as a bid item. The STA will be reimbursed with Federal aid construction funds at the same pro rata basis as the construction cost of the project. Additionally, some STAs have chosen to make training incidental to the cost of construction.
OJT Pilot Programs

Michigan, Ohio and Colorado have implemented pilot programs to meet the objectives of the OJT program. During fiscal year 1996, Michigan DOT assigned 185 training slots to construction projects but only 25 trainees completed their programs. Of these trainees, 24% were minority males, 52% females, and 24% Caucasian males. MDOT noted the following barriers in the implementation of a successful OJT program:

  • retention of the trainees by contractors once the training on the project is completed,
  • inconsistencies in the content and quality of the training provided, and
  • lack of flexibility for contractors in assigning trainees.

In response to this problem, MDOT implemented a pilot OJT program to give the contracting industry more responsibility for planning, assigning, training, and retaining trainees in consideration of their long-range workforce needs. MDOT allocates training assignments to prequalified contractors annually based on a contractor's 3-year average gross receipts. The contractor must plan, schedule and implement an OJT program to meet the program objectives. To date, the industry has been supportive of this program and preliminary results indicate an improvement in program effectiveness.

Sanctions

The STA, the contractor, and FHWA should take appropriate corrective actions to ensure the adequacy and effectiveness of the training provided. Unfortunately there are no strong Federally regulated sanctions for non-compliance. However, the STAs are encouraged to develop and adopt sanctions that provide incentives for the contracting industry to pursue "good faith efforts" to comply with the OJT Program's intent. Such sanctions could include withholding progress payments or removal of prequalification status.

OJT Supportive Services

The purpose of OJT Supportive Services is to increase the effectiveness of the STA's approved training programs and to increase the training opportunities for minorities and women. The types of services that are deemed appropriate for this purpose include services related to recruiting, counseling, remedial training, and OJT Program administration conducted by concerns outside the STA.

The OJT Supportive Services funds were originally provided as a separate funding allocation at 100 percent participation and with a budget ceiling not to exceed $10 million as established by Congress. However, over the years, 23 CFR 140(b) funding for the OJT Supportive Services program was reduced to a level of $2.5 million for FY 1987 and FY 1988 and has not been budgeted since.

In lieu of the 100 percent Federal funding, which had been provided through 23 CFR 140(b), Congress provided for an alternative funding source by enactment of Section 337 of the 1990 Appropriations Act. This Section provided that one-fourth of one percent of regular Federal-aid funds authorized and allocated to each State for FY 1990 and FY 1991, could be utilized for OJT Supportive Service activities. This funding utilization is optional and requires a match of State funds.

The above concept was continued with the enactment of the 1991 ISTEA. However, the base source for the one-fourth of one-per cent formula has been limited to the State's allocations for the STP and the Bridge Replacement and Rehabilitation Program. Effective FY 1994, the percentage increased to one-half of one percent (Section 412 of the 1993 Appropriations Act).

6. Standardized Changed Conditions Contract Clauses

References:
  • 23 U.S.C. 112(e)
  • 23 CFR 635.109
Applicability:

Applies to all Federal-aid construction projects (except for design-build projects where applicability will be determined on a project by project basis).

Background:

Due to the nature of highway construction and the conditions under which work is performed, designers cannot always accurately determine and describe the existing conditions at project sites. Consequently, the actual conditions encountered during construction may differ from those indicated in the contract documents, resulting in a change in type or amount of work and ultimately in the cost of construction. Also, situations may develop during construction that require the contracting agency to order the contractor to slow down or to stop construction through no fault of the contractor. These slow downs or stoppages in the work may cause a change in construction costs.

There also may be situations encountered during construction that require the contracting agency to make alterations to the design. In addition to changing the amount of contract work, such alterations could significantly affect the contractor's production costs.

Prior to 1987, the FHWA did not mandate contract provisions that address these situations. However, the FHWA encouraged the STAs to adopt contract language, such as that of Sections 104.02 and 108.07 of the 1984 AASHTO Guide Specifications for Highway Construction.

The STURAA of 1987 required that FHWA develop standardized changed condition clauses that were to be included in all Federal-aid construction contracts unless prohibited or otherwise provided for by State law. Congress required the clauses cover the equitable adjustment of the contract for a) site conditions; b) suspensions of work ordered by the State; and c) material changes in the scope of work.

In theory, the use of the standardized changed condition clause takes the risk of differing subsurface conditions out of the bidding process. Bidders need not consider the cost and difficulty of taking their own borings and compare that with the risk of a differing site condition. They need not consider the amount of a contingency to be included in the bid. Theoretically, with a standardized changed condition clause, contractors will receive no windfalls nor suffer a disaster from a changed condition. The owner will benefit from more competitive bidding, as the bidders will not inflate costs for risks that may not happen. And finally, the use of the standardized changed condition clause was meant to provide uniformity across state lines.

Guidance:

The standardized changed condition clauses in 23 U.S.C. 112(e) must be included verbatim in all contracts, unless State statute prohibits their inclusion. Or, an alternate clause developed by the STA may be used, upon approval of the FHWA Division Administrator, when the alternate clause has been developed and implemented in accordance with State statute.

The regulation requires the use of three different clauses:

  • Differing Site Conditions Clause - This clause provides for the adjustment of the contract terms if the contractor encounters:
    • Type I Condition - subsurface or latent physical conditions that differ materially from those indicated in the contract, or
    • Type II Condition - unknown physical conditions of an unusual nature that differ materially from those ordinarily encountered and generally recognized as inherent to the work.

    Some examples of potential Type I conditions include encountering the following: more rock than indicated in the contract, larger rock, rock that is harder to drill, permafrost when the boring had given no indication of its general extent, or unexpected quantities of underground water not indicated on the boring logs.

    While these are potential Type I conditions, in order to receive compensation, the contractor must prove the following by a preponderance of evidence:

    "(1) the contract documents must have affirmatively indicated or represented the subsurface or latent physical conditions which form the basis of plaintiff's claim; (2) the contractor must have acted as a reasonably prudent contractor in interpreting the contract documents; (3) the contractor must have reasonably relied on the indications of subsurface or latent physical conditions in the contract; (4) the subsurface or latent physical conditions actually encountered within the contract area must have differed materially from the conditions indicated in the same contract area; (5) the actual subsurface conditions or latent physical conditions encountered must have been reasonably unforeseeable; and (6) the contractor's claimed excess costs must be shown to be solely attributable to the materially different subsurface or latent physical conditions within the contract site. To prove these six elements, the contractor is only required to use a simple logical process in evaluating the information in the contract documents to determine the expected subsurface or latent physical conditions..."
    (Source: NCHRP, "Selected Studies in Transportation Law, Construction Contract Law", p. 5-16)

    Some examples of a potential Type II conditions include unanticipated hazardous waste deposits or unanticipated archaeological sites.

    To recover costs under a Type II condition, the contractor must prove:

    "(1) that it did not know about the condition; (2) that it could not have reasonably anticipated the condition after a review of the contract documents, a site inspection, and the contractor's general experience in that area; and (3) that the condition was unusual because it varied from the norm in similar construction work."
    (Source: NCHRP "Selected Studies in Transportation Law, Construction Contract Law", p. 5-16)

    Further guidance for design and construction engineers on Differing Site Conditions can be found in FHWA's Geotechnical Engineering Notebook, Geotechnical Guidelines No. 15, dated April 30, 1996. (See http://www.fhwa.dot.gov/bridge/gt-15.pdf).

  • Suspensions of Work Ordered by the Engineer - This clause provides for the adjustment of the contract terms if the performance of all or a portion of the work is suspended or delayed by the Engineer, in writing, for an unreasonable period of time (not originally anticipated, customary, or inherent to the construction industry). The contractor is required to submit a request for adjustment, in writing, to the Engineer within 7 calendar days of receipt of the notice to resume work. Recovery of profit on costs resulting from suspensions of work is not allowed.

    This clause does not preclude the recognition of constructive suspensions or delays resulting from the contracting agency's actions, without written notification. These are delays caused by the owner's instructions that are not in writing. The contractor may receive verbal orders from the engineer, or be delayed by the owners' lengthy review of submittals. Some states recognized constructive delays in their specifications prior to the FHWA regulation. The preamble to the regulation indicates that states may continue to recognize construction delays if this is provided in their standard specifications and contract administration procedures.

    To qualify for an adjustment, suspensions must be for unreasonable periods and do not include brief, customary suspensions for reasons inherent to highway construction (i.e., material sampling and testing; approval of shop drawings, material sources, etc.; and other reasonable and customary suspensions necessary for the supervision of construction by the contracting agency). In addition, an adjustment under this clause is not allowed if the work is suspended for other reasons or if an adjustment is provided for, or excluded, under other terms or conditions of the contract.

  • Material Changes in the Scope of the Work - This clause provides for the adjustment of the contract terms if the Engineer orders, in writing, an alteration in the work or in the quantities that significantly change the character of work. The term "significant change" shall be construed to apply only to the following circumstances:
    • the altered character of the work differs materially from that of the original contract, or
    • a major item of work, as defined in the contract, is increased or decreased by more than 25 percent of the original contract quantity (adjustments shall apply only to that portion in excess of 125 percent of original contract quantity, or in case of a decrease, to the actual quantity performed.

    This clause provides for adjustments resulting from formal change orders by the Engineer, in writing, to the extent that the impacted work is part of the contract. Either party may initiate an adjustment and both must be in agreement before the work is performed. As with the suspension of work provision, this clause does not preclude the recognition of constructive suspensions or delays.

Imperative Mood, Active Voice

During the late 1990s, several states began re-writing their standard specifications in the imperative mood, active voice. While the standardized changed condition regulation requires the verbatim adoption of the clauses in 23 CFR 625.109, FHWA allows some flexibility in this area since FHWA encourages the use of clear, precise specifications.

As one facet of improved specification language, FHWA encourages the use of the imperative mood, active voice. Therefore, in response to a request from the State of Utah, FHWA counsel provided the following opinion on February 1, 1999:

"... However, to require Utah to adopt its own clause through a State statute just to make a simple linguistic change in voice (active instead of passive) would be technically correct, but highly questionable from a practical perspective ... (there should be) substantive compliance with the clause and contractors (should not be) adversely affected by the state's active voice linguistic change."

Therefore, as part of a revision of its standard specifications into imperative mood, active voice, an STA may, with the review and approval of the Division Administrator, modify the standardized changed conditions clauses.

Design-Build Projects

In Section 1307 of the TEA-21, Congress included a provision requiring FHWA to develop design-build regulations for the highway program. As part of the requirement, Congress specifically said that FHWA's standardized changed condition clauses are not necessary for design-build contracts.

While this could be construed to mean that such clauses should not be used on design-build contracts, most STAs that experimented with design-build under SEP-14 would probably say that modified changed condition clauses are necessary for design-build. Depending on the amount of risk and responsibility transferred between the owner and the contractor, owners and/or contracting agencies should consider using modified versions of standardized clauses appropriate for the circumstances and the project.

C. Other Program Requirements

1. Drug-Free Workplace

References:
  • 49 CFR 29
  • 23 CFR 630.307(c)(3)
Applicability:

Applies only to grantees and recipients who receive assistance directly from a Federal agency (i.e., STAs and Federal Lands Highway contractors). These requirements do not apply to subgrantees or subrecipients (i.e., local agencies) nor do they apply to Federal-aid contractors.

Background:

The Drug-Free Workplace Act of 1988 requires that all grantees receiving grants from any Federal agency certify that they will maintain a drug-free workplace. Furthermore, grantees are required to take steps to provide a drug-free workplace and impose sanctions against employees that violate the drug-free workplace requirements.

The final rule, amending the existing Government-wide nonprocurement suspension and debarment regulations (49 CFR 29) to include the drug-free workplace requirements, became effective on July 24, 1990.

Guidance:

The regulations require that prior to apportioning or allocating Federal-aid funds, the STA must annually certify that it will maintain a drug-free workplace. However, for the Federal-aid highway program, the State's certification for maintaining a drug-free workplace is made when it signs the Federal-aid project agreement. By doing so, it certifies that it will maintain a drug-free workplace as required in 49 CFR Part 29 Appendix C. In addition to the certification, the STA is required to publish a policy statement and implement a drug-awareness program.

Failure to comply with the requirements of the drug-free workplace requirement may result in:

  • suspension of payment under the grant,
  • suspension or termination of the grant, or
  • suspension and debarment of the grantee, up to a maximum of five years, in accordance with the Government-wide suspension and debarment regulations.

2. Public Agencies in Competition with the Private Sector

References:
  • 23 U.S.C. 112
  • 23 CFR 635.112(e)
Applicability:

Applies to all Federal-aid highway construction projects.

Background:

Open competitive bidding by private enterprises is a basic tenet of the Federal-aid program since it provides equal economic opportunity for private enterprises and permits projects to be completed at the lowest possible cost.

A public agency does not need to make a profit (in many states, public agencies are prohibited from making a profit). In addition, the taxpayer subsidizes their employee wages, benefits and equipment costs. Therefore, a public agency would have a competitive advantage over private companies if allowed to compete for contracts.

Guidance:

As indicated in 23 CFR 635.112(e): "No public agency shall be permitted to bid in competition or to enter into subcontracts with private contractors." A public agency is defined as any organization with administrative or functional responsibilities that are either directly or indirectly affiliated with a governmental body of any nation, State, or local jurisdiction.

There are no exceptions to this competitive bidding policy. However, under limited circumstances a public agency may be permitted to undertake efforts normally reserved for the private sector. These circumstances are discussed in detail in other sections in this manual:

  • Publicly Owned Equipment (Section II.C.4.a ),
  • Convict Produced Materials (Section II.C.5.a ), and
  • State Owned/Furnished/Designated Materials (Section II.C.5.d).

In addition, under limited circumstances a STA or local public agency may perform highway construction work on a force account basis by providing the labor, equipment, materials, and supplies needed to complete the work. Refer to Section III.A.3 - Method of Construction and 23 CFR 635 Subpart B for more information.

3. Public Interest / Cost Effectiveness Findings

References:
  • 23 U.S.C. 112
  • 23 CFR 635.106(a), 635.204, 635.205, 635.407(a), 635.411(c)
Applicability:

Applies to all Federal-aid highway construction projects.

In the subsequent sections, several requirements (e.g., use of a proprietary product, use of public equipment, or contract award based on other than competitive bidding} may be waived under specific conditions if it is found to be in the public interest or cost effective. These findings should be used sparingly since such a determination is an acknowledgment that the needs of the public will be better met by not following the general rules. Since the general requirement addresses a specific issue or concern, waiving that requirement should be done only after careful consideration of the effect or precedent that will be set.

The actual cost effectiveness / public interest finding will consist of a written document outlining the basis for the request and any supporting documentation such as a cost/benefit analysis; discussion of product compatibility; logistical concerns; etc.

The cost effectiveness / public interest finding is generally approved by the Division Administrator for Interstate and NHS projects, and the appropriate STA official for all other projects; however, the specific conditions of approval authority should be described in the oversight agreement between the FHWA Division Office and the STA. This agreement should address the appropriate approval levels for public interest findings related to different oversight levels. Note that some issues may require the DA's concurrence regardless of oversight levels; among these issues are DBE requirements, and method of construction.

Guidance concerning the content of stewardship agreements can be found in Mr. Ptak's August 20, 1998 memo titled, "Implementing Guidance - Project Oversight under Section 1305 of the Transportation Equity Act for the 21st Century (TEA-21) of 1998." (see http://www.fhwa.dot.gov/tea21/oversite.htm).

4. Equipment

a. Publicly Owned Equipment
References:
  • 23 CFR 635.106
Applicability:

Applies to all Federal-aid highway construction projects.

Guidance:

The policy definition of publicly owned equipment is "... equipment previously purchased or otherwise acquired by the public agency involved for use in its own operations." The policy goes on to state that "... publicly owned equipment should not normally compete with privately owned equipment on a project to be let to contract."

However, in exceptional cases, a showing that it would clearly be cost effective to use publicly owned equipment may be justified. When supported by a public interest finding, the Division Administrator may approve the STA's proposal to use publicly owned equipment. Federal funds may participate in the costs associated with the use of publicly owned equipment provided that:

  • the PS&E submittal clearly sets forth the proposed use,
  • the specifications indicate the items of equipment that are available, the rates to be charged, and the point(s) of availability or delivery, and
  • the specifications include the express condition that the contractor has the option to rent all or part of the available equipment, or to provide the equipment.

The public agency cannot benefit from the rental of its own equipment by virtue of a Federal aid contract. Accordingly, the rental rates must reasonably represent the cost of providing the equipment or there shall be a lump sum credit to Federal reimbursement on the project equal to the amount of profit on rental that the agency receives.

In unforeseen circumstances, publicly owned equipment may be used after award of contract based on rental rates agreed to between the public agency and the contractor. However, these rates shall not form the basis for an increase in Federal participation.

In force account work the rates on publicly owned equipment eligible for Federal participation may be the agreed unit price or actual cost. For agreed unit price, the equipment need not be itemized on the estimate. If the project is to be performed on the basis of actual cost, the estimate should include a schedule of rates, exclusive of profit, to be charged for the use of publicly owned equipment.

b. Contractor Purchased Equipment for State Ownership
References:
  • 23 U.S.C. 302
  • 23 CFR 140
Applicability:

Applies to all Federal-aid highway construction projects.

Background:

In the mid 1980's, several inquiries were received regarding participation in equipment purchased by the construction contractor, as a condition of the contract, with ownership transferred to the STA at the end of the project. Guidance was subsequently issued by Headquarters memorandum dated September 11, 1986. It provided that when a STA proposed that equipment be purchased by a contractor, under the terms of a Federal-aid contract, for ultimate ownership by the State, a lease versus purchase analysis must first be conducted. If the STA was able to justify purchase as being the most economical approach, approval would be given by the FHWA. However, once the equipment was removed from the Federal-aid project, the State was to provide an appropriate credit to the project for its remaining value.

Following the establishment of this policy, a number of significant events occurred which made this procedure difficult to effectively manage. In 1988, the DOT issued the "Common Rule" or 49 CFR Part 18, which eliminated the FHWA's ability to require a credit for remaining value when the equipment was removed from the project.

Credit was thereafter to be based on the State's own established practices for salvaging equipment, if any. Then, provisions of the 1991 ISTEA provided that States could exercise approval authority in-lieu-of FHWA's approval.

As a result of these actions, the FHWA re-evaluated its position on this issue and by Headquarters memorandum dated May 5, 1993, (Appendix A-62) established the current policy.

Guidance:

Equipment, as defined in 49 CFR section 18.3, means "tangible, nonexpendable, personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit." A State may use its own definition of equipment provided that such definition would at least include all equipment as defined above. All other tangible personal property is considered to be a "supply."

When a State must purchase equipment to adequately meet the construction engineering (CE) requirements of a Federal aid project, how the equipment is purchased (e.g., by the State directly or by a construction contractor with ownership transferred to the State) is irrelevant to Federal-aid participation.

An STA now has two options for requesting Federal-aid participation in eligible program costs. As noted in Mr. Wright's September 24, 1998 memorandum titled, "Indirect Costs Eligibility and Other TEA-21 Revisions to Title 23 U.S.C. Section 302" (see http://www.fhwa.dot.gov/tea21/indcosts.htm), most costs incurred by STAs are now eligible for Federal-aid reimbursement either as a direct cost or an indirect cost. STAs may request FHWA participation for indirect costs following the procedures detailed in the memo.

Conversely, an STA requesting FHWA participation in direct costs should follow the procedures in FHWA's May 5, 1993 memo. The STA must amortize the initial purchase cost over the useful life of the equipment. Federal aid funds will participate only in the portion of the amortized cost directly attributable to the time the equipment is used on a specific Federal aid project(s). Participation will be accounted for as a CE expenditure.

This procedure may also be used for non-CE equipment items, acquired by the State, for use on construction projects by either the State or contractor. Examples include: variable message signs, temporary bridges (e.g., Bailey Bridge), construction barrier systems, etc.

Ms. Weisman's May 5, 2004 memorandum titled "Clarification of Policy on Indirect Costs of State and Local Governments" provided additional guidance on this subject. A separate Federal-aid project cannot be established for the sole purpose of claiming indirect costs. Since indirect costs are not specified as a purpose of any Federal-aid program, it is not appropriate for the FHWA to authorize a specific project for indirect costs. Furthermore, when indirect costs are claimed, the FHWA is required to distribute the costs to each Federal award (i.e., project) that benefits from the indirect costs.

c. Equipment Rental Rates
References:
  • 48 CFR Part 31
  • OMB Circular A-87
  • FAPG NS 23 CFR 635.120
Applicability:

Applies to all Federal-aid highway construction projects.

Background:

In 1986, an Office of the Inspector General (OIG) audit of rental rates used by STAs found that a significant number of contractors were being reimbursed for equipment usage based on predetermined rates which included ineligible costs. Ineligible costs included use of contingencies and replacement cost escalator factors, and premium rental rates for rental periods less than one month.

The FHWA subsequently advised all field offices on August 22, 1986, that those STAs using predetermined rate guides must modify the equipment rental rates to eliminate the identified ineligible costs. PRIMEDIA Information Inc., San Jose, CA, the publisher of the Rental Rate Blue Book (Blue Book), responded by developing rate adjustment tables which corrected the discovered shortcomings. The adjustment tables were subsequently found acceptable by the OIG. The FHWA field offices were advised of this determination on December 23, 1986. Further rental rate guidance was issued by Headquarters' memorandum dated November 7, 1988 (See Appendix A-64 to A-66).

Guidance:

Federal policy requires that actual costs be used to determine extra work payments; however, typically actual equipment costs are not readily available. Therefore, the FHWA permits the STAs to specify in their construction contracts the predetermined rate guides as well as equipment rate schedules developed by STAs which are in conformance with the Federal cost principles and the FHWA's policy contained herein.

The Federal cost principles applicable to rental rates for contractor furnished equipment are contained in 48 CFR, Part 31. The provisions in OMB Circular 87 apply when State-owned equipment is used.

Rental Rate Guides - A State may, subject to the FHWA's concurrence, adopt the Blue Book or another industry rate guide, or it may develop its own guide. The State must make the determination that the equipment rental rates developed or adopted fairly estimate a contractor's actual cost to own and operate the equipment within its State. The Division must review their State's rates for compliance with the policy.

Adjustment Factors - Equipment is not expected to operate for 12 consecutive months. Maps at the beginning of each Blue Book equipment section indicate adjustment factors based on climate and regional costs. Rate adjustment tables indicate adjustment factors based on equipment age. The adjustment factors in the maps and tables are to be applied when determining the eligible rate.

Maximum Rate - The Blue Book adjusted rates cover all eligible equipment related costs. Therefore, they are considered to be the maximum eligible rates for Federal-aid participation purposes.

Hourly Rates - The developer of the Blue Book accumulates all contractor costs for owning a piece of equipment on an hourly basis. The monthly rate displayed in the rental guide is determined by multiplying the hourly accumulated costs by the monthly standard of 176 hours. Therefore, for periods of equipment use less than the standard 176 hours per month, Federal-aid participation shall be limited to the hourly rate obtained by dividing the monthly rate by 176. Premium rates contained in the rate guides shall not be used.

Standby Equipment Rates - The contractor continues to incur certain ownership costs when equipment is required to be on standby. The use of a standby rate is appropriate when equipment has been ordered to be available for force account work but is idle for reasons which are not the fault of the contractor. While an industry standard does not exist for standby rates, it has been the normal practice of the courts to reduce published ownership rental guide rates by 50 percent for standby rate usage. Therefore, the FHWA will accept use of 50 percent of the ownership rental rates of an approved guide as the standby rate in lieu of a contractor's actual standby costs. There should be no operating costs included in the rate used and standby time should not exceed 8 hours per day, 40 hours per week, or the annual usage hours as established by the rate guide.

Mobilization - The costs required to mobilize and demobilize equipment not available on the project is eligible for reimbursement. Standby rates should be used for equipment while being hauled to and from the project. This will be in addition to applicable rates for the hauling equipment. All costs associated with the assembly and disassembly of the equipment for transport should also be considered in the mobilization costs.

Overhead - Equipment overhead includes such items as insurance, property taxes, storage, licenses and record keeping. The Blue Book rates include all equipment overhead costs. Therefore, when a project or home office overhead rate is applied to a Blue Book rate, the State must assure that it contains no equipment overhead cost factors. The Division Administrator shall determine the reasonableness of such a rate.

Profit - Profit on equipment rental is not provided for in the Blue Book published rates. There is no Federal regulation which prevents the addition of an amount for profit. If a State has a policy for the payment of profit, it should be followed on Federal-aid contracts. If a profit amount is to be used, the Division Administrator based on experience must determine the reasonableness.

Contractor Leased Equipment - When a contractor obtains equipment through a third party rental agreement for use in a force account situation, the cost will normally be the invoice cost. The invoice cost should be comparable with other rental rates of the area. The Associated Equipment Distributors (AED) Rental Rate and Specifications may be used to evaluate the costs for such equipment rental. Since rental agreements vary, the specific operating costs included in the rental agreement may need to be determined. There may be additional eligible operating costs not covered by the agreement which the contractor incurs and should be reimbursed (i.e., fuel, lubrication, field repairs, etc).

(Note: The AED book is not acceptable as a rate guide for contractor owned equipment. The AED rates are based on national averages of rates charged by equipment distributors and do not reflect the contractors cost of owning and operating the equipment.)

5. Materials

a. Convict Produced Materials
References:
  • 23 U.S.C. 114(b)(2)
  • 23 CFR 635.417
Applicability:

FHWA's prohibition against the use of convict material only applies to Federal-aid highways. It does not apply to projects on roadways functionally classified as local roads or rural minor collectors (reference Mr. Schimmoller's May 9, 1996 memorandum and Mr. Baccus's May 14, 1997 legal opinion).

Background:

The present policy was established by Section 112 of the STURAA of 1987, which amended 23 U.S.C. 114(b) to include limitations on convict produced materials. A final rule implementing the provisions of Section 112 was published in the Federal Register on January 25, 1988.

Subsequently, language in DOJ Appropriation Acts of FY 1989 and FY 1990 was interpreted by the FHWA Chief Counsel's Office to negate the limitations established by 23 U.S.C. 114. However, Section 1019 of the ISTEA of 1991 amended 23 U.S.C. 114(b)(2) by inserting "after July 1, 1991." This action clarified Congressional intent that the language in the DOJ Appropriation Acts relative to the permissible use of convict produced materials on Federal-aid highway projects did not override the requirements placed on such use by the STURAA of 1987.

Guidance:

Materials produced after July 1, 1991, by convict labor may only be incorporated in a Federal-aid highway construction project if:

  • such materials have been produced by convicts who are on parole, supervised release, or probation from a prison, or
  • such material has been produced in a qualified prison facility, e.g., prison industry, with the amount produced during any 12-month period, for use in Federal-aid projects, not exceeding the amount produced, for such use, during the 12-month period ending July 1, 1987.
Use of Convict Produced Materials Within the Statutory Limitation

Materials obtained from prison facilities (e.g., prison industries complying with the statutory limitations) are subject to the same requirements for Federal aid participation that are imposed upon materials acquired from other sources. Materials manufactured or produced by convict labor will be given no preferential treatment.

The preferred method of obtaining materials for a project is through normal contracting procedures which require the contractor to furnish all materials to be incorporated in the work. The contractor selects the source, public or private, from which the materials are to be obtained (23 CFR 635.407). Prison industries are prohibited from bidding on projects directly (23 CFR 635.112(e)), but may act as a material supplier to construction contractors (subject to the statutory limitations).

Such materials may also be approved as State furnished material. However, since public agencies may not bid in competition with private firms, direct acquisition of materials from a prison industry for use as State furnished material is subject to a public interest finding with the Division Administrator's concurrence (23 CFR 635.407(d)).

Use of Convict Produced Materials In Excess of the Statutory Limitation

The use of convict-produced materials in excess of the statutory limitations is prohibited. There should be no usage of these materials on a Federal-aid project, with or without Federal participation in this material. It is not satisfactory to designate this material as non-participating in an attempt to circumvent FHWA's policy.

Use of Convict Labor is discussed in more detail in paragraph A.1 of Chapter II.

b. Patented/Proprietary Products
References:
  • 23 U.S.C. 112
  • 23 CFR 635.411
  • Headquarters memorandum - Product Selection, November 25, 1987
  • Headquarters memorandum - Guidance on Patented and Proprietary Product Approvals, January 11, 2006
  • Headquarter memorandum - Guidance on Sign Sheeting Proprietary Products, January 13, 2006
Applicability:

Applies to all Federal-aid highway construction projects.

Guidance:

FHWA will not participate, directly or indirectly, in payment for any premium or royalty on any patented or proprietary material, specification, or process specifically set forth in the plans and specifications for a project, unless:

  • the item is purchased or obtained through competitive bidding with equally suitable unpatented items,
  • the STA certifies either that the proprietary or patented item is essential for synchronization with the existing highway facilities or that no equally suitable alternative exists, or
  • the item is used for research or for a special type of construction on relatively short sections of road for experimental purposes. States should follow FHWA's procedures for "Construction Projects Incorporating Experimental Features" (http://www.fhwa.dot.gov/programadmin/contracts/expermnt.cfm) for the submittal of work plans and evaluations.

The primary purpose of the policy is to have competition in selection of materials and allow for development of new materials and products. The policy further permits:

  • Materials and products that are judged equal may be bid under generic specifications. If only patented or proprietary products are acceptable, they shall be bid as alternatives with all, or at least a reasonable number of, acceptable materials or products listed; and
  • The Division Administrator may approve a single source if it can be found that its utilization is in the public interest.

Trade names are generally the key to identifying patented or proprietary materials. Trade name examples include 3M, Corten, etc. Generally, products identified by their brand or trade name are not to be specified without an "or equal" phrase, and, if trade names are used, all, or at least a reasonable number of acceptable "equal" materials or products should be listed. The licensing of several suppliers to produce a product does not change the fact that it is a single product and should not be specified to the exclusion of other equally suitable products.

Scenarios:

Below are examples of conditions under which patented or proprietary materials may be approved on Federal-aid projects.

  • Case I. The item is identified by the contract specifications along with a listing of other acceptable products, and the list includes a reasonable number of acceptable products. The FHWA may then participate in the cost of a patented or proprietary item since it is acquired competitively.
  • Case II. The STA certifies that the product is essential for synchronization. This is particularly appropriate when upgrading or expanding existing traffic signal systems. The existing controller(s) is part of an existing system that is not compatible with any system hardware. To convert the overall system would be more expensive than to add to what is already there. Thus, it is in the public interest to require the compatible proprietary item, and upon the Division Administrator's concurrence, the item may be specified.
  • Case III. The STA certifies that there is no equally suitable alternate. The Division Office should reasonably verify this situation. Based on a public interest finding with the Division Administrator's concurrence, the item may be specified.
  • Case IV. Products appear from time to time that are new and innovative, i.e., research item or experimental feature. Based on the developer's claim, manufacturer's claims, or because of certain local conditions, there may be sufficient justification to evaluate the product in actual highway usage. The STA may then elect to submit a detailed plan of research and evaluation (work plan) for the product. The work plan may also be used to develop specifications in order to provide a basis for future competition with other materials. The work plan should be approved with or prior to PS&E approval, and the specifications may then require the proprietary item.

A good discussion of FHWA's policy on product selection was included in Mr. Ronald E. Heinz's memorandum dated November 25, 1987 (Appendix A-68 to A-69).

On January 11, 2006, the Office of Program Administration issued a policy memo titled: Guidance on Patented and Proprietary Product Approvals. The memo references a series of Questions and Answers Regarding Title 23 CFR 635.411. The intent of this memo is to establish more uniform interpretations concerning the material selection and product approval issues relating to 23 CFR 635.411.

In addition, the Office of Safety issued a January 13, 2006 memorandum on Sign Sheeting Proprietary Products which discusses some of the available completed research comparing the performance of sign sheeting materials. Currently the Office of Safety is developing additional information and guidance on selection of sign sheeting materials.

SAFETEA-LU Section 5514

Section 5514 of the 2005 SAFETEA-LU, titled "Competition for Specification of Alternative Types of Culvert Pipes," requires the FHWA to ensure that States provide for competition with respect to the specification of alternative types of culvert pipes through requirements that are commensurate with competition requirements for other construction materials.

The FHWA published a final rule making on November 15, 2006 to implement Section 5514. Mr. Horne's November 30, 2006 policy implementation memo also provides further guidance on this subject.

c. State Preference
References:
  • 23 U.S.C. 112
  • 23 CFR 635.409
Applicability:

Applies to all Federal-aid highway construction projects.

Guidance:

The STA shall not impose any requirement or enforce any procedure which operates to require the use of, or provides a price differential in favor of, articles or materials produced within the State. This includes requirements that prohibit, restrict, or discriminate against the use of articles or materials shipped from or prepared, made, or produced in any State, territory, or possession of the U.S.

Basically, materials produced within a State shall not be favored to the exclusion of comparable materials produced outside of the State. State preference clauses give particular advantage to the designated source and thus restrict competition. Therefore, State preference provisions shall not be used on any Federal aid construction projects.

This policy also applies to State preference actions against materials of foreign origin, except as otherwise permitted by Federal law. Thus, States cannot give preference to in State material sources over foreign material sources. Under the Buy America provisions, the States are permitted to expand the Buy America restrictions provided that the STA is legally authorized under State law to impose more stringent requirements. However, STAs cannot prohibit materials from specific countries. Title 23 CFR 635.409(b) prohibits the use of foreign restrictions to a greater extent than the USDOT policy (49 CFR 30). In essence, a State may have a Buy America requirement for a product if it is provided by State statute, however, it cannot prohibit the use of products from a specific country unless this country is on the US DOT's prohibition list. (See also section II.7 - Foreign Contractor and Supplier Restrictions).

d. State Owned/Furnished/Designated Materials
References:
  • 23 U.S.C. 112
  • 23 CFR 635.407
Applicability:

Applies to all Federal-aid highway construction projects.

Guidance:

Current FHWA policy requires that the contractor must furnish all materials to be incorporated in the work, and the contractor shall be permitted to select the sources from which the materials are to be obtained. Exceptions to this requirement may be made when there is a definite finding, by the STA and concurred in by the Division Administrator, that it is in the public interest to require the contractor to use materials furnished by the STA or from sources designated by the STA. The exception policy can best be understood by separating State furnished materials into the categories of manufactured materials and local natural materials.

Manufactured Materials. When the use of State furnished manufactured materials is approved based on a public interest finding, such use must be made mandatory. The optional use of State furnished manufactured materials is in violation of our policy prohibiting public agencies from competing with private firms. Manufactured materials to be furnished by the State must be acquired through competitive bidding, unless there is a public interest finding for another method, and concurred in by the Division Administrator.

Local Natural Materials. When the STA owns or controls a local natural materials source, such as a borrow pit or a stockpile of salvaged pavement material, etc., the materials may be designated for either optional or mandatory use; however, mandatory use will require a public interest finding and the Division Administrator's concurrence.

In order to permit prospective bidders to properly prepare their bids, the location, cost, and any conditions to be met for obtaining materials that are made available to the contractor shall be stated in the bidding documents.

Mandatory Disposal Sites. Normally, the disposal site for surplus excavated materials is to be of the contractor's choosing; although, an optional site(s) may be shown in the contract provisions. A mandatory site shall be specified when there is a finding by the STA, with the concurrence of the Division Administrator, that such placement is the most economical or that the environment would be substantially enhanced without excessive cost. Discussion of the mandatory use of a disposal site in the environmental document may serve as the basis for the public interest finding.

Summarizing FHWA policy for the mandatory use of borrow or disposal sites:

  • Mandatory use of either requires a public interest finding and the Division Administrator's concurrence;
  • Mandatory use of either may be based on environmental consideration where the environment will be substantially enhanced without excessive additional cost; and
  • Where the use is based on environmental considerations, the discussion in the environmental document may be used as the basis for the public interest finding.

Factors to justify a public interest finding should include such items as cost effectiveness, system integrity, and local shortages of material.

6. Salvage Credits

References:
  • 49 CFR 18.36
Applicability:

Applies to all Federal-aid highway construction projects.

Guidance:

On October 3, 1988, the FHWA Office of Fiscal Services issued a memorandum clarifying the agency's policy relative to operating under the revised OMB Circular A-102 and the DOT common rule (49 CFR 18). Accordingly, salvage credit to Federal-aid projects is governed by State procedures. If the State has procedures that do not require credit to the project, then credit to a Federal-aid project is also not required. However, if a State does not have procedures addressing salvage credit, then salvage credit is required unless one of the following circumstances are met:

  • the salvaged item has a value less than $5,000,
  • the salvaged item becomes the contractor's property by virtue of the contract provisions, or
  • the salvaged item will be reused in future projects eligible under Title 23 U.S.C. until its useful life is expended.

When salvage is required, careful attention should be given to the contract provisions for salvage to ensure that the cost of the operation (i.e., removal or salvage) does not exceed the value of the item(s) to be salvaged. Items to be salvaged may be unused construction materials, salvaged highway appurtenances, or other equipment or material for which the useful life is greater than one year.

7. Foreign Contractor and Supplier Restriction

References:
  • 49 CFR 30
Applicability:

Applies to all Federal-aid construction projects.

Background:

The continuing resolution on the FY 1988 budget was enacted into law on December 22, 1987. It contained Section 109 which prohibited the obligation of funds appropriated for FY 1988 to any contract for the construction of any public work with any contractor, subcontractor, or supplier of products of a foreign country which was listed by the United States Trade Representative (USTR) as discriminating against U.S. firms in its public works projects.

Japan was specifically named as the only such country in Section 109 and was subsequently listed by the USTR. The conditions of Section 109 applied and continue to apply to all Federal-aid construction contracts and related consultant contracts authorized on or after December 22, 1987 and during FY 1988.

The 1988 legislative mandate had an effective date through October 1, 1988, at which time the restrictions against Japan were removed. Contracts authorized prior to October 1, 1988, even though awarded after that date, were subject to the restriction. Implementing guidance was issued by the FHWA on February 4, 1988 and March 22, 1988, which included a sample bid provision. On June 1, 1988 the DOT issued a regulation 49 CFR Part 30 which addressed the foreign contractor restrictions.

The FY 1991 DOT and Related Agencies Appropriations Act (P.L. 101-516) was enacted into law on November 5, 1990. Section 340 of this Act contained essentially the same provisions as those found in Section 109 of the FY 1988 budget act except neither Japan nor any other country was specifically identified for restrictions. Section 340 also only applied to the obligation of funds appropriated under the FY 1991 DOT and Related Agencies Appropriates Act.

Guidance:

49 CFR Part 30 remains in effect. However, since the enactment of the FY 1991 DOT and Related Agencies Appropriations Act, the USTR has listed no country as discriminating against U.S. firms in its public works projects.

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Updated: 12/12/2013
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