[Federal Register Volume 60, Number 165 (Friday, August 25, 1995)]
[Rules and Regulations]
[Pages 44271-44274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21115]



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DEPARTMENT OF TRANSPORTATION

Federal Highway Administration

23 CFR Part 635

[FHWA Docket 95-21]
RIN 2125-AD61


General Material Requirements; Warranty Clauses

AGENCY: Federal Highway Administration (FHWA), DOT.

ACTION: Interim final rule; request for comments.

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SUMMARY: The FHWA is revising its regulation that generally prohibits 
the use of guaranty and warranty clauses on Federal-aid highway 
construction contracts. This action will permit greater use of 
warranties in Federal-aid highway construction contracts within 
prescribed limits.

DATES: This interim final rule is effective August 25, 1995. Written 
comments must be received on or before October 24, 1995.

ADDRESSES: Submit signed, written comments to FHWA Docket No. 95-21, 
Federal Highway Administration, Room 4232, HCC-10, 400 Seventh Street, 
SW., Washington, DC 20590. All comments 

[[Page 44272]]
received will be available for examination at the above address from 
8:30 a.m. to 3:30 p.m., e.t., Monday through Friday, except Federal 
holidays. Those desiring notification of receipt of comments must 
include a self-addressed, stamped postcard.

FOR FURTHER INFORMATION CONTACT: Mr. James Daves, Office of 
Engineering, (202) 366-0355 or Mr. Wilbert Baccus, Office of the Chief 
Counsel, (202) 366-0780, Federal Highway Administration, 400 Seventh 
Street, SW., Washington, DC 20590.

SUPPLEMENTARY INFORMATION:

Background

    The current regulation pertaining to warranty clauses, found at 23 
CFR 635.413, generally prohibits their use on Federal-aid highway 
construction contracts, with limited exceptions. There is no statutory 
mandate requiring this prohibition. This regulation was issued in 1976 
and is a formulation of a longstanding FHWA policy against the use of 
warranties. The rationale for the prohibition is that warranty 
provisions can indirectly result in Federal-aid participation in 
maintenance costs. Prior to 1991, maintenance was a Federal-aid non-
participating item. However, the Intermodal Surface Transportation 
Efficiency Act of 1991 (ISTEA), Pub. L. 102-240, 105 Stat. 1914, 
amended 23 U.S.C. 119 to include an interstate maintenance funding 
category. Section 1009 of the ISTEA revised 23 U.S.C. 119 to include 
preventive maintenance on existing interstate routes as an eligible 
item. Preventive maintenance activities are eligible for Federal-aid 
highway funds when a State highway agency (SHA) can demonstrate, 
through its pavement management system, that such activities are a 
cost-effective means of extending interstate pavement life.
    In addition, over the past 5 years, the FHWA has gained experience 
with warranty clauses through its efforts with Special Experimental 
Project No. 14 (SEP 14) ``Innovative Contracting Practices.'' The June 
1995 FHWA publication entitled ``Rebuilding America: Partnership for 
Investment, Innovative Contracting Practices,'' gives an overview of 
and discusses SEP 14. It identifies applications where warranties may 
enhance the quality of a Federal-aid construction project. That 
publication has been placed on the docket and is available for 
inspection at the above address.
    For the above reasons, the FHWA is revising the current warranty 
clause regulation to permit SHAs to include warranty provisions 
covering specific construction products or features in National Highway 
System (NHS) Federal-aid contracts, but maintenance items not eligible 
for Federal-aid funds cannot be included. As already permitted, 
pursuant to section 1016 of the ISTEA, the SHAs may continue to follow 
their own procedures regarding the inclusion of warranties in non-NHS 
Federal-aid contracts.
    In 1981, a notice of proposed rulemaking (NPRM) (46 FR 9642) was 
issued by the FHWA which would have revised the warranty regulations to 
provide that States may specify warranty requirements where the FHWA 
agrees that such provisions are consistent with the State's 
responsibility to maintain the completed project in accordance with 23 
U.S.C. 116. Four comments were received; one supported, two opposed, 
and one asked for clarification of the proposed regulation. Due to a 
lack of consensus, this action was not finalized.
    In 1985, the FHWA issued an advance notice of proposed rulemaking 
(50 FR 4234) to request information on how warranty clauses might 
affect the quality of construction and competition on Federal-aid 
construction projects. While a number of specialty contractors (e.g., 
signing and joint sealant) favored the expanded use of warranty 
provisions, comments received from the trade associations and general 
contractors generally opposed any change in policy. Due to a lack of 
favorable documentation and strong support for a change, no revision 
was made to the regulations.
    In 1990, the FHWA initiated SEP 14 to evaluate innovative 
contracting practices. The intent of SEP 14 is to develop a data base 
for use in making future decisions regarding the applicability of 
nontraditional contracting practices to Federal-aid highway 
construction projects. The use of warranty provisions is an innovative 
practice which has been evaluated by eight SHAs. Under SEP 14, the FHWA 
has approved warranty concepts with the objective of improving quality 
and increasing contractor accountability without shifting the 
maintenance burden to the contractor. Ordinary wear and tear damage 
caused by normal usage and routine service maintenance have remained 
the responsibility of the SHAs.
    The 1990 European Asphalt Study Tour and the 1992 European Concrete 
Study Tour, both jointly sponsored by the FHWA and AASHTO (American 
Association of State Highway and Transportation Officials) and 
participated in by Federal, State, and private industry 
representatives, reported that many European countries provide 
contractors great latitude in the selection of materials and designs. 
Warranties, varying from 1 to 5 years, are used to hold contractors 
accountable for their decisions. The 1993 FHWA Contract Administration 
Techniques for Quality Enhancement Study Tour (CATQEST), also 
participated in by representatives from all segments of the United 
States highway community, visited four European countries and examined 
their use of warranties. The CATQEST team concluded that ``a wide 
divergence of opinion appears to exist across country boundaries and 
within individual countries regarding the value of warranty 
requirements. Some believe they have a positive, decisive influence on 
sustained high quality. Others seem convinced that quality would not be 
diminished if warranty requirements were eliminated.''
    In 1991, the Congress directed the General Accounting Office (GAO) 
to conduct a study on means to improve the quality of Federal-aid 
highways. The GAO report, ``Highway Infrastructure: Quality 
Improvements Would Safeguard Billions of Dollars Already Invested'' was 
published in September 1994. The report concluded that, while the SHAs 
that have utilized warranty clauses have generally been satisfied with 
the results, the SHAs' limited experiences with warranties make it 
difficult to assess their costs and benefits.
    The SEP 14 has provided valuable information to the FHWA regarding 
the use of warranties. The SEP 14 currently includes 23 projects with 
warranty provisions in eight States. Warranties for asphaltic concrete 
pavement, bridge painting, bridge expansion joints and pavement 
markings have been included. Durations have varied from 1 to 5 years. 
The GAO in its 1994 report stated:

    With few exceptions, state officials told us (GAO) that they 
have generally been satisfied with their experiences, on the basis 
of preliminary observations or final results from 23 of the 33 
warranted projects undertaken to date. These officials' satisfaction 
resulted from both the initial quality of the workmanship and the 
opportunity to obtain remedial action when necessary.

One SHA official commenting on two bridge painting projects with 
warranties stated ``These warranted projects are of the highest quality 
ever obtained in this State for bridge painting.'' Another SHA engineer 
commented about an asphaltic concrete pavement project with a warranty. 
On this project the pavement developed distress only 3 months after 
construction, and the contractor was ordered to repair it under 
warranty. The engineer felt that notifying the contractor to do the 
repairs, without 

[[Page 44273]]
using SHA funding for the repairs, was an effective use of public 
funds. The evaluation, reporting, and feedback procedures included in 
SEP 14 have provided the FHWA with an impetus to revise the existing 
warranty regulation, and give SHAs more flexibility to use warranties 
in Federal-aid contracts.

Rulemaking Analyses and Notices

    All comments received before the close of business on the comment 
closing date indicated above will be considered and will be available 
for examination in the docket at the above address. Comments received 
after the comment closing date will be filed in the docket and will be 
considered to the extent practicable, but the FHWA may issue a final 
rule at anytime after the close of the comment period. In addition to 
late comments, the FHWA will also continue to file relevant information 
in the docket as it becomes available after the comment closing date, 
and interested persons should continue to examine the docket for new 
material.
    The FHWA has determined that prior notice and opportunity for 
comment are unnecessary under 5 U.S.C. 553(b)(3)(B) because this 
interim final rule, in amending the FHWA's regulation on guaranty and 
warranty clauses in Federal-aid highway construction contracts to 
permit States to include such clauses, does not impose any new 
obligation or requirement on the States or highway contractors. 
Instead, it simply enables any State to include warranty clauses in 
Federal-aid highway construction contracts if the State determines that 
such clauses would be beneficial. In addition, to the extent that 
warranty clauses have been found to enhance the quality of highway 
construction projects, prior notice and opportunity for comment are 
contrary to the public interest under 5 U.S.C. 553(b)(3)(B) because 
this action of lifting the general prohibition against their use gives 
States the flexibility to include these potentially beneficial clauses 
in their construction contracts. For these same reasons, the FHWA has 
determined that prior notice and opportunity for comment are not 
required under the Department of Transportation's regulatory policies 
and procedures, as it is not anticipated that such action would result 
in the receipt of useful information.
    This interim final rule is effective upon its date of publication. 
Because this action removes the prohibition against the use of guaranty 
and warranty clauses on Federal-aid highway construction contracts, it 
``relieves a restriction'' in accordance with 5 U.S.C. 553(d)(1) and, 
therefore, is exempt from the 30-day delayed effective date requirement 
of that section. Executive Order 12866 (Regulatory Planning and Review) 
and DOT Regulatory Policies and Procedures.
    The FHWA has determined that this action is not a significant 
regulatory action within the meaning of Executive Order 12866 or 
significant within the meaning of Department of Transportation 
regulatory policies and procedures. The FHWA, at 23 CFR part 635, 
currently has regulations regarding guaranty and warranty clauses. The 
interim revisions would merely accommodate expanded use of warranty 
clauses on Federal-aid construction contracts. Therefore, it is 
anticipated that the economic impact of this rulemaking will be minimal 
and a full regulatory evaluation is not required.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
612), the FHWA has evaluated the effects of this interim final rule on 
small entities. The FHWA concluded that this action would have no 
effect on small entities. The FHWA concludes that warranties will have 
little or no effect on the bonding capacity of small contractors, and 
that any additional cost associated with warranties will be minimal. 
Therefore, the FHWA hereby certifies that this rulemaking would not 
have a significant economic impact on a substantial number of small 
entities.

Executive Order 12612 (Federalism Assessment)

    This action has been analyzed in accordance with the principles and 
criteria contained in Executive Order 12612 and it has been determined 
that this interim final rule does not have sufficient federalism 
implications to warrant the preparation of a separate Federalism 
assessment. Nothing in this document preempts any State law or 
regulation, and no new requirements or obligations are imposed on 
States or local governments by this action. Instead, this interim final 
rule provides States with additional discretion to determine for 
themselves whether to include warranty clauses in Federal-aid highway 
construction contracts for projects on the National Highway System.

Executive Order 12372 (Intergovernmental Review)

    Catalog of Federal Domestic Assistance Program Number 20.205, 
Highway Planning and Construction. The regulations implementing 
Executive Order 12372 regarding intergovernmental consultation on 
Federal programs and activities apply to this program.

Paperwork Reduction Act

    This action does not contain a collection of information 
requirement for purposes of the Paperwork Reduction Act of 1980, 44 
U.S.C. 3501-3520.

National Environmental Policy Act

    This rulemaking does not have any effect on the environment. It 
does not constitute a major action having a significant effect on the 
environment, and therefore does not require the preparation of an 
environmental impact statement pursuant to the National Environmental 
Policy Act of 1969 (42 U.S.C. 4321 et seq.).

Regulation Identification Number

    A regulation identification number (RIN) is assigned to each 
regulatory action listed in the Unified Agenda of Federal Regulations. 
The Regulatory Information Service Center publishes the Unified Agenda 
in April and October of each year. The RIN contained in the heading of 
this document can be used to cross reference this action with the 
Unified Agenda.

List of Subjects in 23 CFR Part 635

    Government contracts, Grant programs--transportation, Highways and 
roads.

    Issued on: August 18, 1995.
Rodney E. Slater,
Federal Highway Administrator.

    In consideration of the foregoing, the FHWA amends Title 23, Code 
of Federal Regulations, part 635 by revising Sec. 635.413 as set forth 
below:

PART 635--CONSTRUCTION AND MAINTENANCE  [AMENDED]

Subpart D--General Material Requirements

    1. The authority citation for part 635 is revised to read as 
follows and all other authority citations which appear throughout part 
635 are removed:

    Authority: 23 U.S.C. 109, 112, 113, 114, 116, 117, 119, 128, and 
315; 31 U.S.C. 6505; 42 U.S.C. 3334, 4601 et seq.; 49 CFR 1.48(b); 
Secs. 635.410 and 635.417 are also issued under secs. 1019, 1041(a) 
and 1048, Pub. L. 102-240, 105 Stat. 1914; sec. 10, Pub. L. 98-229, 
98 Stat. 55; sec. 165, Pub. L. 97-424, 96 Stat. 2136; sec. 112, Pub. 
L. 100-17, 101 Stat. 132.

    2. Section 635.413 is revised to read as follows: 

[[Page 44274]]



Sec. 635.413  Warranty clauses.

    The SHA may include warranty provisions in National Highway System 
(NHS) construction contracts in accordance with the following:
    (a) Warranty provisions shall be for a specific construction 
product or feature. Items of maintenance not eligible for Federal 
participation shall not be covered.
    (b) All warranty requirements and subsequent revisions shall be 
submitted to the Division Administrator for advance approval.
    (c) No warranty requirement shall be approved which, in the 
judgment of the Division Administrator, may place an undue obligation 
on the contractor for items over which the contractor has no control.
    (d) A SHA may follow its own procedures regarding the inclusion of 
warranty provisions in non-NHS Federal-aid contracts.

[FR Doc. 95-21115 Filed 8-24-95; 8:45 am]
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