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This document was superseded by the 06/28/1995 memo Equipment Purchases for Construction Engineering Use -- Cellular Telephones

Subject: Contractor Furnished Equipment and Liability Insurance Date: September 11, 1986
From: Associate Administrator for Engineering and Program Development Reply To: HHO-32
To: Regional Federal Highway Administrators
Regions 1-10

We have had several inquiries recently regarding our policy on eligibility of certain equipment items for inclusion as contract bid items. Examples include: telephone answering devices, mobile radios, unmarked cars for resident engineers, microcomputer systems, variable message signs, and flashing arrow signs, etc. In addition, the appropriateness of requiring the contractor to furnish liability insurance coverage for State highway agency (SHA) employees as a condition of the contract has been raised.

Concerning furnishing of equipment items, normal Federal-aid procedures permit costs of nonexpendable equipment necessary for construction of a Federal-aid project to be charged to the project. When a contractor is required to furnish a specific equipment item, it is normally provided as a contract bid item for a period of time without transfer of ownership. Equipment items necessary for the project construction engineering activities of the SHA are generally furnished by the SHA and appropriate costs are charged the project as construction engineering. However, there may be instances where it is determined to be cost effective to require the contractor to furnish, on a rental basis as a contract bid item, certain project construction engineering equipment items for use by the SHA inspection staff on the project. In the past, such equipment items have included field offices, laboratories, telephone answering devices, mobile radios, and microcomputers.

There have also been instances where, upon Federal Highway Administration (FHWA) approval, construction funds have been used to purchase specialized equipment items as contract bid items. The equipment items were acquired by the contractor for use on the project and upon completion of the project, ownership was turned over to the SHA for use on other projects. This practice resulted from a desire by the FHWA to encourage the SHA's to become familiar with new types of equipment or to gain experience with an improved construction method which required certain specialized equipment. Equipment items authorized by this method include variable message signs, flashing arrow signs, and temporary median barriers.

Whenever the SHA proposes that equipment items be purchased under the terms of a Federal-aid contract and become the property of the State upon completion of the project, FHWA approval will only be given after the SHA has conducted a proper analysis to the satisfaction of the Division Administrator. Such analysis should include a comparison of leased versus purchased alternatives and other information considered appropriate to determine which approach would be the most economical. In addition, upon transfer of ownership and use of the equipment item off the project site, salvage credit considerations must be addressed pursuant to Mr. P. E. Cunningham's May 28, 1985, memorandum.

Under no circumstances should a contractor be required to furnish items that are for the personal use of project personnel such as unmarked vehicles, regardless of who retains ultimate ownership. In some States, engineers have been reprimanded and even terminated for accepting fuel or maintenance for private or State vehicles. Thus, requiring the contractor to provide what may be considered a gratuity should not be condoned.

Items that are bid and/or furnished by the contractor which are used by the SHA for construction engineering activities shall be coded for funding as construction engineering costs.

Concerning the question of extent of liability insurance coverage to be required of the contractor under terms of a Federal-aid contract, FHWA supports the concept set forth in Section 107.14 of the AASHTO Guide Specification for Highway Construction. Contractors should only be required to provide liability insurance coverage for operations performed by either the contractor or his/her subcontractors. In no instance should the contractor be required to furnish coverage for any act or omission, neglect, or misconduct of SHA employees. Such coverage is considered a responsibility of the SHA as part of a suitably organized and equipped State highway department pursuant to Title 23 U.S.C.

In the event SHA specifications presently require contractors to furnish personal use equipment items and/or liability insurance coverage for SHA employees, the following steps shall be taken:

Such specification shall be immediately disapproved for use in future Federal-aid contracts.

On currently active projects and completed projects which have not yet had the final voucher approved, costs resulting from such contractor actions shall be made nonparticipating and any previous funding for these items withdrawn.

Costs of State owned equipment items and State procured liability insurance which are allocable to a specific Federal-aid project are allowable charges to the construction engineering account for that project.

\s\ Rex C. Leathers

Updated: 06/27/2017
Federal Highway Administration | 1200 New Jersey Avenue, SE | Washington, DC 20590 | 202-366-4000