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Contract Administration Core Curriculum
Participant's Manual and Reference Guide 2006
IV. Other Issues
A. Non-traditional Contracting Practices
- Headquarters memorandum - "Innovative Contracting Practices and Special Experimental Project No. 14," February 13, 1990
- Headquarters memorandum - "Transportation Research Circular No. 386, Innovative Contracting Practices," February 19, 1992
- Headquarters memorandum - "Special Experimental Project No. 14," May 4, 1995
Applies to all Federal-aid highway construction projects.
In 1988, a Transportation Research Board (TRB) task force, comprised of representatives from all segments of the highway industry, was formed to evaluate Innovative Contracting Practices. The task force's mission was to:
- research and compile information on contracting practices used by agencies in the U.S. and other countries,
- assess how current practices affect quality, progress and cost, and
- suggest measures for improving contracting practices and promoting quality in construction.
The TRB task force requested that the FHWA establish a project to evaluate and validate the findings of the task force, which are documented in Transportation Research Circular Number 386, titled, "Innovative Contracting Practices," dated December 1991. In response, the FHWA initiated Special Experimental Project No. 14 (SEP-14).
SEP-14 strives to "identify, evaluate, and document innovative contracting practices that have the potential to reduce the life cycle cost of projects, while at the same time, maintain product quality." Within the regulatory requirements of the Federal-aid highway program, some degree of flexibility does exist. SEP-14 is an effort to explore this flexibility to its fullest. However, SEP-14 does not seek alternatives to the open competitive bid process.
The innovative practices originally approved for evaluation were: cost-plus-time bidding, lane rental, design/build contracting, and warranty clauses. Forty-one States have used at least one of the innovative practices under SEP-14. Based on their collective experiences, FHWA decided that cost-plus-time bidding, lane rental, and warranty clauses were techniques suitable for use as non-experimental, operational practices and in 1995 these were made "regular Federal-aid procedures." Therefore, the STAs are encouraged to use these techniques on future projects. Detailed discussions of each practice are provided later in this section under the "Non-experimental methods" heading.
The FHWA will not mandate the use of innovative contracting practices. However, through SEP-14, the agency is working to maintain an environment that allows the STAs and the construction industry to try innovative contracting practices that may result in an improvement of the industry's traditional contracting methods. FHWA hopes to try all proposed concepts that fall within the flexibility of the Federal-aid program requirements.
In 2005, FHWA completed development of an NHI course on alternative contracting. This two-day course explores the many different methods and techniques available through a case study. The course number is 134058 and may be requested through NHI.
1. Experimental methods
The following contracting techniques are either: 1) under evaluation by a number of states under SEP-14, or 2) under evaluation by some states as non-participating (state funding only).
The following is a very brief discussion of each technique.
Indefinite delivery/indefinite quantity (ID/IQ): This is a concept that several STAs currently use for design, maintenance or traffic control activities, and for other recurring tasks. For an ID/IQ contract, the contractor bids per unit of specific work (for example, the work unit might be signalizing an intersection, or constructing an off-system bridge) with a guaranteed minimum amount of work units over the life of the contract. Actual work locations are determined during the life of the contract. Since the contract may be written to cover multiple years and multiple districts, the STA eliminates the need to advertise several small contracts around the State. The contractor gains by having some guaranteed level of work for the core crew.
No excuse incentive (bonuses): Under this concept, the STA gives the contractor a "drop-dead date" (or an incentive date) for completion of a phase or project. If the work is completed in advance of that date, the contractor receives a bonus. The agency will not accept any excuses, including weather delays, for not meeting the incentive date; meaning that the incentive date will not be changed. However, the STA may use its normal procedures to grant weather days or time extensions outside the incentive date. The contract will identify both a bonus date and a completion date for normal construction. If the contractor does not meet the bonus date, normal contract administration processes are followed.
Lump sum bidding: This method requires the contractor to develop the quantities from the contract package prepared by the STA. The contractor then submits a Lump Sum bid for the project. The method is designed to reduce quantity overruns due to errors in quantity calculations or changed field conditions. An added benefit is the reduction in paperwork related to quantity measurement and verification, allowing STA field personnel to spend more time on inspection of the work. Any costs associated with changed or unforeseen conditions as well as added or deleted work will be negotiated using standard practices. States typically use this method for simple projects such as resurfacing, bike paths, box culvert extensions and minor bridge widening.
NOTE: a normal lump sum project for which the STA prepares a complete PS&E package is NOT experimental. The method discussed in the preceding paragraph is experimental because the contractor develops the estimated quantities as part of preparing the bid estimate.
Best value: A few States have considered awarding construction contracts on the basis of price and "other factors." The Oregon DOT has used a form of price/qualifications-based bidding to replace the counterweight trunnion assemblies on the I-5 lift span bridge over the Columbia River. This contract was awarded on the basis of the highest composite score considering both price information and technical criteria. The composite score was determined with a 50 percent weight for cost and 50 percent weight for technical qualifications.
Alternative pavement type bidding: The FHWA does not encourage the use of alternate bids to determine the mainline pavement type, primarily due to the difficulties in developing truly equivalent pavement designs. In those rare instances where the use of alternate bids is considered, the STA's engineering and economic analysis used in the selection process for the pavement type should clearly demonstrate that there is no clear cut choice between two or more alternatives having equivalent designs. Equivalent design implies that each alternative will be designed to perform equally over the same performance period and have similar life-cycle costs.
SEP-14 approval is necessary when the contracting agency uses a life-cycle-cost adjustment factor to determine the successful bidder. This adjustment factor typically takes into account the differences in life-cycle-costs between asphaltic concrete and Portland cement concrete pavements. If no adjustment factor is used, then SEP-14 approval is not necessary.
Missouri DOT experimented with five experimental projects that utilized alternate pavement type bidding procedures in 1996-1997. Following consultation with the asphaltic concrete and Portland cement concrete paving industries, Missouri DOT let five experimental projects using alternate pavement types under FHWA's Special Experimental Project No. 14 - Innovative Contracting (SEP-14). A price differential was utilized in the bid comparisons to take into account the differences in expected life cycle costs. Missouri DOT's July 1998 final report documented the use of this technique and recommended additional study on life cycle costs in order to be fair to both asphalt and concrete paving industries.
Since then, several additional states have received SEP-14 approval to evaluate alternate pavement type bidding.
Bid averaging: At least one State is experimenting with bid averaging, although bid averaging is NOT a method which will or could be evaluated under SEP-14 since the method does not fit within the statutory framework for competitive bidding in 23 U.S.C. 112 which requires that contracts be awarded to the lowest responsive/responsible bidder. In bid averaging, the high and low bids are discarded, then the remaining bids are averaged with the contract being awarded to the contractor that comes closest to the average bid. The theory behind this concept is that a contractor will submit a true and reasonable bid for a project and therefore will be less likely to submit claims and have less incentive to "cut corners." To work well, "sufficient" (five or more) bidders must compete for the project.
2. Non-experimental methods
These contracting techniques may be considered to be non-traditional by some agencies, however, after a number of years of evaluation under SEP-14, FHWA declared them to be operational (FHWA Headquarters approval is not necessary).
a. Cost-Plus-Time Bidding:
Cost-plus-time bidding, commonly referred to as the A+B bidding, allows both time and cost to be considered, in the low bid determination.
Under the A+B method, each submitted bid consists of two components:
- the "A" component is the traditional bid for the contract items and is the dollar amount for all work to be performed under the contract; while
- the "B" component is the total number of calendar days the bidder stipulates will be required to complete the project. Calendar days are used to avoid any potential controversy.
The lowest and best bid is determined by adding the sum of the amount bid for the contract items to the cost associated with the time bid to complete the project. The time cost is found by multiplying the number of days bid by the daily road user cost identified in the specifications. The formula looks like this:
A + (B x Daily Road User Cost) = Bid value
The bid value is only used to determine the winning bidder. Total payments to the contractor will be based on the "A" component of the bid but may be revised over the life of the contract depending on a variety of factors; including plan changes, change orders, and liquidated damages.
The project timetable will be based on the contractor's "B" bid. Therefore, a disincentive provision, using the same daily road user cost value as used in the bid analysis formula must also be a part of the contract to discourage the contractor from overrunning the number of calendar days "bid" for the project. In addition, an incentive provision may be included in the contract to reward the contractor for completing the work early. As with other I/D clauses, FHWA recommends that a cap be placed on the total possible incentive amount.
For projects with high road user impacts, the A+B method can prove to be an effective technique. By giving the contractor the flexibility to establish his/her own completion time, operational efficiency is rewarded and significant reductions in project impacts can result. However, the cost-plus-time bidding approach is not suitable for all projects. Routine contracts should continue to be let using conventional methods.
b. Lane Rental:
Similar to the cost-plus-time bidding concept, the goal of the lane rental concept is to encourage contractors to minimize road user impacts during construction. Under the lane rental concept, a provision for a rental fee assessment is included in the contract. The lane rental fee is based on road user costs. The fee is assessed for the time that the contractor occupies or obstructs part of the roadway and is deducted from the monthly progress payment.
The rental fee is dependent on the number and type of lanes closed or obstructed (i.e., shoulder and lane closure combinations). The rental fee is usually assessed on a daily or an hourly basis and may vary for different hours of the day (e.g., rush hour periods). Exactly how the closure time will be determined should be clearly defined in the specifications. Some STAs give contractors a specified number of "free" closure periods and do not assess the rental fee until these have been used.
The bidding package does not normally indicate the STA's estimate for the length of time that the contractor's operations will impact traffic. Also, the contractor does not typically submit an estimate of impact time with the bid. The low bid is determined solely on the lowest amount bid for the contract items.
The intent of lane rental is to encourage contractors to schedule their work to keep traffic restrictions to a minimum, both in terms of duration and number of lane closures. The lane rental concept has merit for use in contracts for projects which significantly impact the traveling public.
c. Alternate Bids
- 23 CFR 635.411 (b).
- Notice of Policy "Alternate Design for Bridges," Federal Register, August 15, 1995.
Applies to all Federal-aid highway construction projects on the NHS.
Alternate bidding is a method used to minimize the overall cost of Federal aid projects through increased competition. In theory, allowing alternate designs and/or construction methods will attract the greatest number of bidders and result in the lowest possible bid prices.
Alternate bidding procedures should be used when more than one alternate is judged equal over the design life and there is a reasonable possibility that the least costly design approach will depend on the competitive circumstances. The potential for using alternates will normally be developed through design studies and value engineering analysis during project development. Moreover, the STA may have standard plan alternates developed for repetitive design items (i.e., drainage items, retained earth walls, etc.).
The bidding documents and contract plans should clearly indicate the design criteria and the type of alternate designs or contractor options that will be acceptable. The contractor should be permitted to bid any designated alternate that is consistent with its expertise and equipment.
Alternate Bridge Type Bidding
From December 1979 to August 1995, FHWA policy required the development of alternate bridge designs for major bridge structures (greater than $10 million). This policy was established to get the best possible value in an unstable market by requiring alternate bridge designs. The analysis of cost data from 1979 through 1987 indicated that the alternate bridge design policy resulted in an average savings of $2 million for each major bridge project. Although this policy was effective in documenting large savings in the design and construction of major structures, it was discontinued on August 15, 1995. The revised FHWA policy allows States to use their discretion in providing alternate designs where appropriate.
Alternate Pavement Type Bidding
See discussion under Experimental Methods.
Additive Alternate Bidding
Some owners use a bidding technique called additive alternates when it is necessary to keep the awarded contract amount within budget. Under this procedure, the owner includes most of the project scope-of-work in "base-bid" items, and then specifies additional work packaged as "additive alternates" which may be selected if the "base-plus-alternates" price is within budget. The owner must clearly specify the priority order in which the alternates will be considered and indicate that the award will be based on the lowest responsive bid considering the sum of the base bid and those additive alternates which are within budget. The Federal Lands Highway Division and several local public agencies have used this technique.
d. Warranty Clauses
- 23 CFR 635.413
Applies to NHS projects.
The FHWA had a longstanding policy, with few exceptions, against the use of warranties on Federal-aid projects. The policy was based on the rationale that participation in a warranty payment constituted an indirect Federal-aid participation in maintenance costs.
Warranties have been successfully used in other countries and by some STAs on non-Federal projects to protect investments from early failure. Many of the European countries use some form of warranty in their highway contracts, with warranty period ranging from 1 to 5 years. The consensus among the European transportation agencies is that warranties do improve construction quality.
Beginning in the 1980s, contracting agencies became increasingly interested in using warranties as a way to improve product quality, and as an element of certain innovative contracting approaches, such as, design/build/warrant contracting. Under SEP-14, the FHWA approved warranty concepts with the objective of encouraging improved quality and contractor accountability without shifting the maintenance burden to the contractor. Ordinary wear and tear, damage caused by others, and routine maintenance remain the responsibility of the STA. As a result, several States evaluated the use of warranties. Their collective experience led FHWA to revise its policy on warranties. The final rule which was published in the Federal Register on April 19, 1996, with an effective date of August 25, 1995, allows States to include warranty provisions for construction products or features in their contracts.
Warranty provisions shall be for a specific construction product or feature. A general warranty for the entire project is unacceptable since the contractor does not control the design process or make decisions during that phase.
Warranties may not cover items of maintenance not eligible for Federal participation. An example of this might be a warranty for guardrail construction where it would be inappropriate to warrant routine damage done to the guardrail by vehicle impacts.
Contractors are not to be required to warrant items over which they have no control. An example of this might be a warranty for asphaltic concrete pavement on an overlay project. It would be appropriate for the contractor to warrant the smoothness of the pavement or the rutting performance, but inappropriate to warrant reflective cracking which might occur due to preexisting underlying layers regardless of how well the contractor constructs the new pavement.
Currently the regulations do not restrict the duration of the warranty. However, practical experience has shown that 2 to 5 year warranties are common, and warranties beyond 5 years may not be as cost effective due to bonding and/or surety concerns. Warranty provisions have been used for asphalt concrete pavements, bridge painting, traffic striping, and bridge expansion joints.
Prior approval by the FHWA Division Administrator of a warranty provision and its subsequent revisions are required for NHS projects. The clause must not require a contractor to warrant items over which they do not have control. Maintenance items ineligible for Federal-aid funding are not allowed to be warranted.
Use of warranty provisions for non-NHS projects will be governed by the individual State written procedures.
Note: Section I.2 of Form FHWA-1273 - "Required Contract Provisions" indicates that the prime contractor is responsible for subcontractor compliance with the Required Contract Provisions. However, this does not limit the ability of the contracting agency to ask or require the transfer of specific warranty provisions to appropriate subcontractors.
Provisions for General project warranties: Generally speaking, the FHWA is prohibited from participating in costs related to routine or recurring maintenance (snow removal, graffiti removal, litter pickup, mowing, roadside vegetation control, etc.), however, the FHWA may participate in preventive maintenance work that is shown to be cost effective (such as pavement joint repair, crack sealing, drainage clean out work, etc.). See Mr. Gee's October 8, 2004 memorandum on Preventive Maintenance Eligibility provides guidance on this subject.
- 23 CFR 636
Any project an STA chooses to use design-build to deliver using Federal funds
The design/build concept allows the contractor maximum flexibility for innovation in the selection of design, materials, and construction methods. Under the design/build concept, the contracting agency identifies the parameters for the desired end result and establishes the minimum design criteria. The prospective bidders then develop design proposals which optimize their construction abilities. The submitted proposals are rated by the contracting agency on the basis of design quality, timeliness, management capability, and cost.
The design/build concept opens up a new degree of flexibility for innovation. Basing the project design on the contractor's preferred construction methods and expertise provides the flexibility to compensate for cost increases in one area through efficiencies in another. This concept allows the contractor to optimize the work force, equipment, and scheduling.
However, along with the increased flexibility, the contractor must also assume greater responsibility. Because both design and construction are performed under the same contract, claims for design errors or delays due to redesign are not allowed and the potential for other types of claims is greatly reduced. Extended liability insurance or warranty clauses may be used to ensure that the finished product will perform as required.
From a STA's perspective, the potential time savings is a significant benefit. Since the design and construction are performed through one procurement, construction can begin before all design details are finalized (e.g., pile driving could begin while bridge lighting is still being designed). However, this approach should only be applied to those projects for which the end product or facility can be well defined.
In response to the TEA-21 Section 1307 requirements, the FHWA issued a final rule making for design-build on December 10, 2002. The FHWA's design-build policies are codified in 23 CFR 636.
SAFETEA-LU Section 1503 also requires additional design-build regulations to be issued. At the time of final editing for this manual, the FHWA was preparing a Notice of Proposed Rule Making to comply with Section 1503. Section 1503 revises the definition of a design-build "qualified project" - effectively removing design-build from the experimental contracting category and making it operational. Thus, it is no longer necessary for the FHWA to approve design-build projects exceeding certain dollar thresholds under Special Experimental Project No. 14 (SEP-14).
Section 1503 also requires the FHWA to issue revised design-build regulations. The revised regulations must not preclude a State from: (a) issuing requests for proposals, (b) proceeding with awards of design-build contracts; or (c) issuing notices to proceed with preliminary design work under design-build contracts prior to the completion of Section 102 of NEPA. The State must receive concurrence from the FHWA before carrying out any of these activities; however, the design-build contractor must not proceed with final design activities or construction activities prior to completion of the NEPA process.
B. Architect/engineer consultant procurement
- 23 U.S.C. 112
- 40 U.S.C., Section 1101 -1104
- 23 CFR 172
- FHWA memorandum - "Awarding Engineering and Design Services Contracts Based on Brooks Act Requirements," December 12, 2005
- FHWA Employment of Consultants webpage: http://www.fhwa.dot.gov/programadmin/consultant.cfm
Any contract for architect/engineer consultant services directly related to a construction contract, and using Federal-aid highway funding.
Contracts for engineering and design services (A&E) contracts that are directly related to a construction project and use Federal-aid highway funding must be awarded in the same manner as a contract for engineering and design services is negotiated under the "Brooks Act" provisions contained in chapter 11 of 40 U.S.C. (1101-1104). The Brooks Act requires agencies to promote open competition by advertising, ranking, selecting, and negotiating contracts based on demonstrated competence and qualifications for the type of engineering and design related services being procedures, and at a fair and reasonable price. These other services may include professional engineering related services, or incidental services that may be performed by a professional engineer, or individuals working under their direction, who may logically or justifiably perform these services.
Prior to November 2005, an STA's procurement procedures for contracting engineering services under 23 U.S.C. 112 had to comply with the "Brooks Act," (Public Law 92-582, language included at the end of this subsection) unless a State statute passed prior to June 9, 1998, allowed for equivalent or alternative procurement procedures. However, the FY2006 Appropriations Act (Public Law 109-115), Section 174 amended 23 USC 112(b)(2) to require all A/E contracts to be awarded under Brooks Act provisions. Therefore, effective November 30, 2005, State and local agencies are no longer entitled to procure engineering and design related services (directly relating to a construction project) with Federal-aid highway funding using either "alternative" or "equivalent" procedures that were permitted prior to this amendment. The December 12, 2005 memorandum discusses the impact of the legislative change, and actions required by both Division and STA staff.
State and local agencies will also be required to use the indirect cost rates established by a cognizant agency audit (23 CFR 172 .7) based on the cost principles contained in 48 CFR 31 for the consultant, eliminating the placing of caps on indirect cost rates. West Virginia and Minnesota are granted exceptions from the requirements relating to audits, indirect cost rates, pre-notification and confidentiality of data. However these States must also follow the Brooks Act requirements when procuring engineering and design services using Federal-aid highway funding.
Title 23 U.S.C., Section 112(b)(2)(A) requires the "Brooks Act" procedures to be used for each contract for program management, construction management, feasibility studies, preliminary engineering, design, engineering, surveying, mapping, or architectural related services with respect to a construction project preformed by or supervised by the State. Consultant engineering contracts, which do not use Federal-aid funds, do not fall under these requirements even if the State will use Federal-aid funds in the construction phase.
Planning studies are not required to follow the Brooks Act procurement requirements since they are generally not directly related to a construction project. Planning studies typically require another contract for E&S prior to an agency pursuing a construction project. A statewide or corridor planning study to determine the need and feasibility for potential highway improvements along with identifying potential costs, would not need to have the consultant selected based on the Brooks Act requirements, unless State procedures specify that a qualifications based selection process is required. However studies that analyze alternatives that lead to the identification of a specific scope and details for a highway improvement project would need to follow the Brooks Act requirement.
Title 23 CFR 172 allows other procurement procedures to be used for special situations. Contracting agencies may use small purchase procedures for the procurement of engineering and design related services when the contract cost does not exceed $100,000. With FHWA approval, States may use noncompetitive negotiation to obtain engineering and design related services when the award of a contract is not feasible under small purchase or competitive negotiation procedures. However, circumstances under which a contract may be awarded by noncompetitive negotiation are limited to the following under 23 CFR 172.7:
- The service is available only from a single source, or
- There is an emergency which will not permit the time necessary to conduct competitive negotiations, or
- After solicitation of a number of sources, competition is determined inadequate.
Since the "Brooks Act" is short, the pertinent language is shown below. The "Brooks Act" can be found in 40 U.S.C., § 1101-1104.
United States Code (U.S.C.) Title 40 - Public Buildings, Property and Works
Chapter 11, Section 1101 - 1104: Selection of Architects and Engineers
§ 1101. Policy (Formerly 40 U.S.C. § 541)
§ 1102. Definitions (Formerly 40 U.S.C. § 542)
§ 1103. Selection procedure (Formerly 40 U.S.C. § 543)
§ 1104. Negotiation of contract (Formerly 40 U.S.C. § 544)
Subsurface Utility Engineering Services
The FHWA and the American Society of Civil Engineers both consider subsurface utility engineering to be an engineering process for obtaining accurate and comprehensive information about underground utilities and for using that information in the development (i.e., planning, preliminary engineering, design, etc.) of highway projects.
The acquisition of subsurface utility engineering services by the low bid method would generally violate the "Brooks Act" if Federal aid funds were used to reimburse the State for subsurface utility engineering services acquired in accordance with a contract between the State and a subsurface utility engineering provider. If the State pays for subsurface utility engineering with its own funds (i.e., 100% State funds) the "Brooks Act" does not apply, even if it is used on a project where Federal aid funds are used for other purposes. In cases where the subsurface utility engineering services are provided by subcontract to a construction contractor or a design builder, the "Brooks Act" does not apply.
If a State desires to employ the services of a subsurface utility engineering provider by the low bid method solely for the purpose of marking the approximate locations of underground utilities on the ground and/or exposing underground utilities, this is not considered to be subsurface utility engineering and reimbursement with Federal funds would be appropriate. However, if in addition to marking and/or exposing underground utilities, the subsurface utility engineering provider also surveys the locations and provides the information to the State for planning or design purposes, this is considered to be subsurface utility engineering and Federal aid funds cannot participate.
C. Intelligent Transportation System (ITS)
- Headquarters memorandum - "Guidance on Federal-aid Eligibility of Operating Costs for Transportation Management Systems," 1/3/2000
- Headquarters memo - "Procurement Information for ITS Projects," 5/1/97
- "ITS Procurement Resource Guide," 10/1/97
ITS projects and services vary significantly in scope. ITS improvements may be incorporated as part of a traditional Federal-aid construction contract, or the contracting agency may elect to procure ITS services under individual contracts. When procured as separate contracts, the scope of the ITS contract will determine the applicability of Federal procurement requirements. If an ITS project meets the definition of construction in 23 U.S.C. 101(a) (see definition below), then the contract should be bid competitively with award to the lowest responsive bidder meeting the specified conditions of responsibility. In this case, the procurement procedures in 23 CFR 635 (competitive sealed bidding) will apply.
Title 23 Section 101(a)(3) provides a broad definition for construction for Federal-aid eligibility purposes. For the purpose of ITS project procurement, the terms shown in bold below have a unique meaning (bold added for emphasis).
"The term "construction" means the supervising, inspecting, actual building, and incurrence of all costs incidental to the construction or reconstruction of a highway, including bond costs and other costs relating to the issuance in accordance with section 122 of bonds or other debt financing instruments and costs incurred by the State in performing Federal-aid project related audits that directly benefit the Federal-aid highway program. Such term includes -
- locating, surveying, and mapping (including the establishment of temporary and permanent geodetic markers in accordance with specifications of the National Oceanic and Atmospheric Administration of the Department of Commerce);
- resurfacing, restoration, and rehabilitation;
- acquisition of rights-of-way;
- relocation assistance, acquisition of replacement housing sites, and acquisition and rehabilitation, relocation, and construction of replacement housing;
- elimination of hazards of railway grade crossings;
- elimination of roadside obstacles;
- improvements that directly facilitate and control traffic flow, such as grade separation of intersections, widening of lanes, channelization of traffic, traffic control systems, and passenger loading and unloading areas; and
- capital improvements that directly facilitate an effective vehicle weight enforcement program, such as scales (fixed and portable), scale pits, scale installation, and scale houses."
Specific questions regarding the application of the definition of construction to ITS projects should be directed to the ITS Delivery Team (HOTM).
If the ITS project primarily involves an "engineering service contract," the procedures of 23 CFR 172 (qualifications-based selection) apply.
If the ITS project does not meet the legal definition of "construction" (23 U.S.C. 101(a)(3) - it does not "... directly facilitate and control traffic flow") and is not an engineering service contract, then the contract may be considered to be a service contract. Such contracts may be procured by State's using their own procurement procedures in accordance with 49 CFR 18 (DOT's implementation of the "Common Rule" for Grants and Cooperative Agreements to States and Local Governments). In accordance with 49 CFR 18.36(a), States are to use the same procedures for procuring goods and services with Federal funds that they use for procurement with their own funds. Examples of service contracts which could be procured using State procedures might include incident management activities such as service patrol, route diversion, *911 systems, computer-aided dispatch systems, and radio systems. Other ITS-related service contracts might include:
- the procurement of service patrol vehicles and hardware and software associated with Ridematching systems,
- software systems to match people wishing to form carpools and vanpools,
- marketing and education programs to encourage carpooling, and
- worksite programs to determine the commuting needs of the employees and promote carpooling, vanpooling, and alternative methods of commuting.
Applicability of other Federal Requirements to Service Contracts
FHWA requirements for construction contracts do not generally apply to "service contracts." However, there are some provisions which may apply to projects funded under Title 23 with specific limitations listed in each program (DBE, Buy America, non-discrimination, etc.). See Appendix A-135 to A-139 for a list of applicable requirements.
D. Transportation Enhancement Projects
- 23 U.S.C. 133(d)(2)
- 49 CFR 18, "The Common Rule"
- Headquarters memorandum - "Applicability of Davis-Bacon to Transportation Enhancement Projects," 7/28/94
- Headquarters memorandum - "Procurement of Transportation Enhancement Projects" 11/12/96
- Transportation Enhancement Activities Guidance on the FHWA website
Projects must conform to the qualifying activities list in 23 U.S.C. 101(a) and TEA-21, §1201.
Transportation Enhancements (TE) are transportation-related activities that are designed to strengthen the cultural, aesthetic, and environmental aspects of the Nation's intermodal transportation system. The TE program provides an opportunity to implement a wide variety of non-traditional projects. Eligible projects range from the restoration of historic transportation facilities, to bike and pedestrian facilities, to landscaping and scenic beautification, and to the mitigation of water pollution from highway runoff. Section 1007(a) of ISTEA created the TE program by adding 23 U.S.C. 133(d)(2) which required that 10 percent of the new Surface Transportation Program (STP) funds be available only for TE activities. Section 1007(c) of ISTEA established a list of qualifying activities while §1024 and 1025 modified the metropolitan and statewide planning requirements respectively to require that TE activities be considered in the development of transportation plans and programs
Mr. Ptak's November 12, 1996 memo provides flexibility for TE projects that are not located on the highway right-of-way. Such projects are not considered to be highway construction projects, and therefore, the FHWA's construction contracting requirements generally do not apply. FHWA has determined that the use of State procurement procedures (as provided in 49 CFR Part 18) is acceptable for projects not located within the highway right-of-way. The contracting agency may use State procurement procedures (or State approved local procedures) and FHWA's policies for construction contracting relating to competitive bidding are not applicable. Other FHWA policies not related to competitive bidding, such as Buy America, DBE and others, may still apply as appropriate. See Appendix A-135 for applicable requirements.
When a local public agency is the contracting agency for a Federal-aid non-highway construction contract, it must follow state-approved procedures. Title 49 CFR 18.37(a) says that a State shall follow state law and procedures when awarding and administering subgrants to local governments. Therefore, a State must use its own administrative procedures, not those in 49 CFR part 18, for dealing with the locals. For such projects, the State DOT may tell the local government to follow State procedures, follow the local government's own procedures, or follow the procedures in 18.36(b) - (i).
As previously noted, 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).
E. National Recreational Trails Program
As a replacement for the National Recreational Trails Funding Program, TEA-21 created the Recreational Trails Program and codified it in 23 U.S.C. 206. The program differs from the TE Program, and the 4/1/99 HQ memo should be used as guidance (See http://www.fhwa.dot.gov/environment/rectrails/guidance.htm).
In short, National Recreational Trails projects may generally be procured using State (or State approved) procedures. Buy America provisions apply. However, Davis-Bacon provisions do not apply unless the project is located on a Federal-aid highway right-of-way.
F. Emergency Relief (ER) Projects
- 23 U.S.C.120 & 125
- 23 CFR 668
- FAPG 23 CFR 668
- FAPG NS 23 CFR 668A
- Emergency Relief Manual, Interim Update August 2003
Projects on Federal-aid highways to repair serious damage by widespread natural disasters, or by catastrophic failure from an external cause.
Recognizing that widespread natural disasters can place an unexpected burden on the resources of an STA, Congress has established an emergency fund for the repair or reconstruction of highways, roads, and trails that have suffered serious damage as the result of:
- A natural disaster over a wide area such as a flood, hurricane, tidal wave, earthquake, unusually severe storm or landslide; or
- A catastrophic failure from any external cause such as the sudden collapse of a bridge after being struck by a barge or ship.
The following paragraphs are intended to be an introduction to the ER program. Detailed information on requirements of the ER program is contained in the CFR, the FAPG and the Emergency Relief Manual. Damage to Federal roads that are not part of the Federal-aid highway network will be handled under the procedures described in the Emergency Relief Manual for Federal Roads. Damage to local roads, streets, or other routes not eligible under the ER program, may be eligible for other Federal funds administered by the Federal Emergency Management Agency (FEMA). FEMA provides a brief overview of their programs in A Guide to Federal Aid in Disasters, June 1990.
The applicability of ER to a natural disaster is based on the extent and intensity of the disaster. Damage to highways must be severe, occur over a wide area, and result in unusually high expenses to the transportation agency.
For a catastrophic failure due to an external cause, the failure must not be the result of an inherent flaw in the facility. The failure must be a sudden event disastrously impacting transportation services and causing unusually high expenses to the highway agency.
All repair or reconstruction work which is proposed for ER funding must be either on a Federal-aid highway, or on a Federal road as defined by 23 U.S.C. 101. Approved ER funds are available at the pro rata share that would normally apply to the Federal-aid highway under consideration and include a sliding scale. Within the first 180 days after the disaster, emergency repair work to restore essential travel, minimize damage, or protect remaining facilities may be reimbursed at 100% Federal share.
Unless specifically lifted by Congress, FHWA can provide up to a maximum of $100 million in ER funds per State per disaster.
ER funding is intended to supplement the resources provided by a State, its political subdivisions, or other Federal agencies in repairing damage that is beyond that normally performed by the STA during ordinary and occasional heavy maintenance. A State should not expect that ER funds will cover all damage repair costs or interim emergency repairs. State and local agencies are responsible for planning and responding to extraordinary conditions. Economic hardship is not a factor in determining eligibility. To simplify the inspection and estimate process, the Federal share payable should be a minimum of $5,000 per site, and $700,000 per disaster.
ER funds are not intended to replace other Federal-aid, State or local funds for new construction to increase capacity, correct non-disaster related deficiencies, or otherwise improve highway facilities. Work already scheduled to repair or replace deficient structures/bridges damaged during a disaster will not be eligible for ER funds, and should be funded as originally intended. A project is considered scheduled if the construction phase is included in the currently FHWA approved STIP, or if contract plans are being prepared.
The competitive bidding requirements of 23 USC 112 and 23 CFR 635.104 may be waived when an emergency exists. The FHWA's emergency relief regulations in 23 CFR 668 indicate that "emergency repair" work may be done by contract, negotiated contract or highway agency force account (use of public agency forces) as determined by the contracting agency to protect public health and safety. These contracting methods only apply to emergency repair work as defined in 23 CFR 668.103 as that necessary to: "... (1) Minimizing the extent of the damage, (2) Protecting remaining facilities, or (3) Restoring essential traffic." Regular Federal-aid procurement / contracting procedures apply to all other permanent repairs and reconstruction work regardless of funding source.
Public agencies may perform force account work but are not permitted to compete for solicited or negotiated contracts. In accordance with 23 CFR 635.204(b), a formal finding for force account work of emergency repairs is not required.
Most States require the contractor to take all necessary precautions to protect the section of all Federal-aid projects, including those financed with ER funds, under construction or practically completed, but not yet accepted by the State. Therefore, damage to an active construction project must be clearly shown to be beyond the contractor's responsibility before the rehabilitative work could be eligible for ER funds.
Since the objective of ER projects is to quickly restore traffic flow on a facility, they may be excellent candidates for innovative contracting techniques, such as design-build, incentive/disincentive, warranties and/or A+B bidding. Additional information about the use of innovative contracting techniques for ER projects is included in the ER Manual.
Davis-Bacon Act requirements may only be waived by the President. Such a waiver would require a specific Executive Order or Executive Proclamation (example: President Bush waived Davis-Bacon requirements for a short time period following Hurricane Katrina in 2005). Buy America provisions apply; however, the public interest provisions of 23 CFR 635.410(c)(1)(i) are available for appropriate use as determined by the Division Administrator.
- 1988 Omnibus Trade and Competitiveness Act, Section 5164
- Executive Order 12770
- State option activity
- Required for all FHWA documents and correspondence
The International System of Measurements (commonly referred to as the metric system or SI) came into general use in France following the French Revolution during Napoleon's effort to rationalize the French government. Following his tenure as Ambassador to France, Thomas Jefferson became the first SI promoter in the United States. Although SI did become a legal system of weights and measures for the United States in 1866; it was not designated as the official or preferred system.
There have been several legislative attempts to convert the United States to SI; the most recent general effort was the Metric Conversion Act of 1975 (P.L. 94-168). This act established a U.S. Metric Board under the auspices of the Department of Commerce (DOC) to coordinate a voluntary conversion of the metric system. Unfortunately, the voluntary approach did not work because of inconsistent application (although some industries did convert their operations).
The 1988 Omnibus Trade and Competitiveness Act, Section 5164 amended the 1975 Metric Conversion Act to require that Federal agencies use SI in their procurement, grants, and other business related activities. The 1988 legislation permits only two exceptions to metric conversion. These are:
- When use of the metric system is determined to be impractical, or
- When use is likely to cause significant inefficiencies or loss of markets to U.S. firms.
In July 1991, President Bush signed Executive Order 12770 requiring that all Federal agencies develop timetables for their transition to the metric system.
The FHWA Metric Conversion Plan was approved on October 31, 1991. The Metric Conversion Policy was published in the June 11, 1992 Federal Register. The FHWA worked closely with AASHTO and the States to coordinate an orderly transition to the metric system. The FHWA's Metric Conversion Plan identified intermediate target dates with a final target date of September 30, 1996, after which all plans, specifications and estimates (PS&E's) for Federal-aid highway construction projects were to be in metric units. The target date was shifted to September 30, 2000 by the NHS Act, §205(c).
Following the passage of TEA-21, project-related metric conversion activities by a State became optional. The FHWA still believes that the industry will eventually convert to SI and will support any STA that is already using the metric system and continues to encourage other States to convert as soon as possible.
The NHS Act, §205(c)(1) prohibits the U.S. Secretary of Transportation from requiring States to expend Federal or State funds for metric signs. Therefore, FHWA will not require metric legends on highway signs. This is a State prerogative. This provision does not restrict the use of Federal-aid funds for the installation of metric legend signs if an STA chooses to do so. The FHWA will assist any State that decides to develop an organized plan to convert its highway sign legends to metric units. The Office of Safety (HSA-10) should approve the signing plan, if a State decides to use metric signs.
Prior to June 2001, FHWA required the use of dual units in documents that were intended for a broad audience such as a NEPA document. However, Mr. Schimmoller's June 1, 2001 memorandum titled, "Update on Metric Use Requirements," rescinded FHWA's December 13, 1993 and May 6, 1999 memoranda on this subject. The new policy makes the use of SI units optional in all documents prepared by the STAs.
H. Owner Controlled Insurance Programs / Wrap-up Insurance
State option activity
An Owner Controlled Insurance Program (OCIP), sometimes referred to as "Wrap Up Insurance," is the purchasing of insurance by the owner on behalf of the builder (contractor) rather than the traditional purchase by the contractor for the contractor and the owner for the owner. The types of insurance typically included are: Workers Compensation, General Liability, Excess Liability, Pollution Liability, Professional Liability, Builders Risk, and Railroad Protective Liability. The insurance covers contractors, subcontractors, construction management and state employees working on the construction site who are approved by the owner for participation in the program. The contractors are required to carry their own insurance for work off the site and to pay a deductible when claims occur.
States have the prerogative to consider and develop an OCIP. Such insurance is legally feasible under the Federal-aid highway program; however, there are several points that must be clarified prior to its implementation:
- The STA must have internal administrative policies and procedures to assure that insurance cost components can be identified. Typically an OCIP puts a greater administrative burden upon the owner;
- There needs to be clear definition of the process to select insurers to ensure competitiveness and fairness;
- Contractors must understand that insurance is provided for them so that they do not need to include it in their bids;
- The STA must demonstrate that an OCIP is more beneficial to the public interest than contractor provided insurance; and
- OCIPs are typically used only on large projects, i.e., over $75 million.
There have been several Federal-aid highway construction projects which have used an OCIP. These projects are Boston's Central Artery/Tunnel Project ($10.8 billion-1992), Michigan's Blue Water Bridge Project ($90 million-1995), Utah's I-15 Design/Build Project ($1.4 billion-1997), New Mexico's Route 44 Finance/Design/Build ($400 million-1998), and Michigan's I-75 Reconstruction and I-696 Construction Projects in the Detroit Area combined under one OCIP ($60 and $50 million respectively-1999);
Also, the State of Utah is in the process of providing an OCIP for the entire State government including UDOT projects.
The Federal Transit Administration has significantly greater history of utilizing OCIP's on Construction Projects. An OCIP was used in construction of the Washington, D.C. METRO subway system and the Los Angeles, California subway system. The FTA indicates that OCIP's are an option for projects exceeding $1 Billion and other high-risk projects exceeding $50 million. The Urban Mass Transportation Administration had a study conducted in 1977 which indicated OCIPs should be considered for projects in excess of $60 million.
The Office of Inspector General and the General Accounting Office are in the process of reviewing OCIP's to determine their effectiveness in reducing the overall cost of insurance on construction projects.
I. Project Labor Agreements
- OST memorandum - "Project Labor Agreements (PLAs)," 3/19/99
- FHWA memorandum - "Project Labor Agreements," 3/15/01
- FHWA memorandum - "Project Labor Agreements (April 6 Amendment to Executive Order 13202)" 4/20/01
Currently, Executive Order 13202 prohibits owner mandated project labor agreements (see below).
On June 5, 1997, President Clinton issued a Memorandum on the Use of Project Labor Agreements for Federal Construction Projects. Although this memorandum specifically pertained to direct Federal construction, it does not preclude the use of PLAs on Federally-assisted projects.
On February 17, 2001, President George W. Bush signed Executive Order 13202 titled "Preservation of Open Competition and Government Neutrality Towards Government Contractors' Labor Relations on Federal and Federally Funded Construction Projects." This Executive Order essentially revokes the Presidential Memorandum dated June 5, 1997 and prohibits owners from requiring PLAs on Federally assisted construction projects. Executive Order 13208 provides additional guidance on existing PLAs that are not subject to Executive Order 13202.
By definition, a project labor agreement (PLA) is a project specific agreement between the project owner, contractor, subcontractors, and the labor unions representing the crafts that are needed for the construction project. A PLA is usually designed for a large, long-term construction project. Under the PLA, the project owner, the contractor, subcontractors, and the unions agree on the terms and conditions of employment for the duration of the projects, establishing a framework for labor-management cooperation. The PLA is incorporated into the construction contract and thus binds the contractor and all subcontractors to the terms of the agreement. PLAs are referred to as pre-hire agreements because they can be negotiated before employees vote on union representation or before the contractor hires any workers.
Typically, PLAs cover new construction, as well as maintenance, repairs and alterations. PLA provisions typically:
- apply to all work performed under a specific contract or project, or at a specific location,
- require recognition of the signatory unions as the sole bargaining representatives for all workers, whether or not they are union members,
- supersede all other collective bargaining agreements,
- prohibit strikes and lockouts,
- require hiring through union referral systems,
- require all subcontractors to become signatory to the agreements,
- establish uniform work rules covering overtime, working hours, dispute resolution, and other matters, and
- prescribe craft wages (usually equal to or greater than Davis-Bacon rates).
A voluntary labor agreement between a contractor or subcontractor and the unions is not considered a PLA if the agreement is not specifically required by terms of the contract developed by the owner-agency.
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