[Federal Register Volume 67, Number 237 (Tuesday, December 10, 2002)]
[Rules and Regulations]
[Pages 75902-75935]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-30428]



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Part II





Department of Transportation





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Federal Highway Administration



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23 CFR Parts 627, et al.



Design-Build Contracting; Final Rule

  Federal Register / Vol. 67, No. 237 / Tuesday, December 10, 2002 / 
Rules and Regulations  

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DEPARTMENT OF TRANSPORTATION

Federal Highway Administration

23 CFR Parts 627, 635, 636, 637 and 710

[FHWA Docket No. FHWA-2000-7799]
RIN 2125-AE79


Design-Build Contracting

AGENCY: Federal Highway Administration (FHWA), DOT.

ACTION: Final rule.

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SUMMARY: The FHWA is implementing regulations for design-build 
contracting as mandated by section 1307(c) of the Transportation Equity 
Act for the 21st Century (TEA-21), enacted on June 9, 1998. The TEA-21 
requires the Secretary of Transportation (Secretary) to issue 
regulations to allow design-build contracting for selected projects. 
The regulations list the criteria and procedures that will be used by 
the FHWA in approving the use of design-build contracting by State 
Transportation Departments (STDs). The regulation does not require the 
use of design-build contracting, but allows STDs to use it as an 
optional technique in addition to traditional contracting methods.

EFFECTIVE DATE: The final rule is effective January 9, 2003.

FOR FURTHER INFORMATION CONTACT: For technical information: Mr. Gerald 
Yakowenko, Office of Program Administration (HIPA), (202) 366-1562. For 
legal information: Mr. Harold Aikens, Office of the Chief Counsel (HCC-
30), (202) 366-1373, Federal Highway Administration, 400 Seventh 
Street, SW., Washington, DC 20590-0001. Office hours are from 8 a.m. to 
4:30 p.m., e.t., Monday through Friday, except Federal holidays.

SUPPLEMENTARY INFORMATION:

Electronic Access

    Internet users may access all comments received by the U.S. DOT 
Dockets, Room PL-401, by using the universal resource locator (URL) 
http://dms.dot.gov. It is available 24 hours each day, 365 days each 
year. Please follow the instructions on-line for more information and 
help. An electronic copy of this document may be downloaded using a 
modem and suitable communications software from the Government Printing 
Office's Electronic Bulletin Board Service at (202) 512-1661. Internet 
users may reach the Federal Register's home page at http://www.nara.gov/fedreg and the Government Printing Office's web page at 
http://www.access.gpo.gov/nara.

Background

    Section 1307 of the Transportation Equity Act for the 21st Century 
(TEA-21, Public Law 105-178, 112 Stat. 107 (1998)) amends 23 U.S.C. 112 
to allow the design-build contracting method after the FHWA promulgates 
a regulation prescribing the Secretary's approval criteria and 
procedures on qualified projects. The TEA-21 defined qualified projects 
as projects that comply with the criteria in this regulation and whose 
total costs are estimated to exceed: (1) $5 million for intelligent 
transportation system projects, and (2) $50 million for any other 
project. It also provides certain key requirements that the FHWA must 
address in the development of these regulations. These requirements 
include, but are not limited to, the following:
    [sbull] Prior to initiating the rulemaking process, the FHWA must 
consult with representatives from the American Association of State 
Highway and Transportation Officials (AASHTO) and representatives from 
other affected industries;
    [sbull] The FHWA must complete the rulemaking process within three 
years of the date of TEA-21 enactment, or by June 9, 2001; and
    [sbull] The regulation must: (1) Identify the criteria to be used 
by the Secretary in approving design-build projects, and (2) establish 
the procedures to be followed by Federal-aid recipients in seeking the 
FHWA's approval.
    [sbull] Section 1307(f) of the TEA-21 requires the FHWA to assess 
the impacts of design-build contracting by June 9, 2003.
    The FHWA has been allowing the STDs to evaluate design-build 
contracting under Special Experimental Project No. 14 (SEP-14). To 
date, approximately 25 STDs and several local public agencies have 
evaluated design-build projects under SEP-14.

Notice of Proposed Rulemaking (NPRM)

    This final rule is based on the NPRM published at 66 FR 53288 on 
October 19, 2001. All comments received in response to the NPRM have 
been considered in adopting this final rule. Comments were received 
from 42 entities. The commenters include: fourteen STDs, two local 
public agencies, thirteen interest groups, and thirteen other 
representatives from government and industry.

Discussion of Rulemaking Text

    The following discussion summarizes the comments submitted to the 
docket by the commenters on the NPRM, notes where and why changes have 
been made to the rule, and, where relevant, states why particular 
recommendations or suggestions have not been incorporated into the 
following regulations. Paragraph references are as designated in the 
NPRM.

Discussion of Comments and Responses by Section

General

    The majority of commenters provided specific comments and/or 
recommendations for individual sections of the NPRM. In addition, some 
entities provided general comments on the NPRM as noted below.

Requests for an Extension of Comment Period

    The General Machine Corporation requested a 120-day extension and 
the National Society of Professional Engineers (NSPE) requested a 60-
day extension of the comment period to provide additional review time 
and opportunity for comment. Since a full 60-day comment period was 
provided and the majority of commenters did not state that an extension 
was necessary, the FHWA is not extending the comment period.

Request to Withdraw NPRM

    The Council on Federal Procurement of Architectural & Engineering 
Services (COFPAES) opposed the proposed regulation and urged the FHWA 
to immediately withdraw the NPRM. The COFPAES stated the proposed 
regulation is inconsistent with Federal law based on the following: (1) 
The FHWA failed to meet the June 9, 2001, statutory deadline to issue 
the rule and therefore, the authority to issue the rule has expired; 
(2) representatives from affected industries were not consulted as 
required by section 1307 of the TEA-21; and (3) the NPRM violates other 
provisions of law. It stated that the FHWA does not have the authority 
to repeal or supersede other provisions of law that require the use of 
qualifications-based selection procedures for architectural and 
engineering service contracts (23 U.S.C. 112(b)(2)).
    The FHWA recognizes the concern regarding the statutory deadline; 
however, the lateness of the proposed regulation does not relieve the 
FHWA of its statutory responsibilities. Section 1307 of the TEA-21 
requires the FHWA to issue design-build regulations and the

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FHWA will comply with this statutory provision even though we did not 
meet the statutory deadline.
    The FHWA also acknowledges, but disagrees with the comment 
concerning outreach efforts prior to the NPRM. A similar comment from 
the Missouri DOT expressed a concern that the outreach efforts did not 
contact the AASHTO Subcommittee on Civil Rights, the Minority 
Contractor's Association, or the National Association of Women in 
Construction. On the other hand, other commenters expressed support for 
the manner in which the FHWA conducted its outreach efforts. The FHWA 
conducted an extensive outreach program in an effort to fulfill the 
TEA-21 requirement of consulting with representatives from the AASHTO 
and affected industries. The FHWA met on numerous occasions with 
entities that it believed would be affected by the proposed rulemaking. 
Due to the broad nature of design-build contracting, the FHWA was not 
able to identify all entities that might potentially be affected by the 
NPRM. However, several pre-rule coordination events were organized to 
capture the recommendations and opinions of various entities that might 
not be represented by the AASHTO or industry associations. These events 
include a special two-hour pre-rule outreach session related to the 
design-build rulemaking effort at the national ``Design-Build for 
Transportation Conference'' (April 21-23, 1999, Salt Lake City, UT) and 
a one-day pre-rule workshop (December 16, 1999, Washington, D.C.).
    The FHWA also conducted a detailed field review of existing design-
build projects in seven States. The FHWA representatives interviewed 
contractors, consultants, owners and other industry entities to gather 
information for the NPRM.
    The FHWA disagrees with the comment from the COFPAES concerning the 
NPRM violating other provisions of law. By definition, design-build 
contracts include both construction and engineering services. Design-
build contracts are not contracts strictly for the procurement of 
architectural or engineering services and, therefore, they are not 
subject to the requirement to use qualifications-based selection 
procedures. In many design-build contracts, the engineering or 
architectural services comprise a relatively small percent of the total 
contract amount. The FHWA recognizes the importance of architectural 
and engineering services in reducing the life-cycle cost of projects. 
However, design-build contracts are not architectural and engineering 
contracts and the provisions of 23 U.S.C. 112(b)(2) do not apply to 
design-build contracts.

Compliance With Other Federal Laws

    The American Society of Civil Engineers (ASCE) and the NSPE 
expressed concerns similar to those suggested above. They suggested 
that the NPRM violates the requirements of the Federal Acquisition 
Reform Act of 1996 (Public Law 104-106, Div. D, 110 Stat. 642), which 
mandates the use of the two-phase competitive source selection 
procedures for federally funded projects.
    The FHWA disagrees with these commenters. The Federal Acquisition 
Reform Act of 1996 does not apply to the Federal-aid highway program. 
The FHWA is encouraging the use of two-phase selection procedures in 23 
CFR 636, Subpart B; however, it is not requiring the use of two-phase 
selection procedures.

Flexibility

    The AASHTO, the Design-Build Institute of America (DBIA), the 
Transportation Corridors Agencies (TCA) and one private individual 
suggested that the NPRM is too prescriptive and did not provide enough 
flexibility to the States who are administering the Federal-aid 
program. These commenters noted that the provisions in 23 U.S.C. 
112(b)(3)(A) provide an indication of congressional intent not to 
interfere in State and local legislative decisions regarding the 
appropriate methods for procurement of design-build contracts. They 
stated that this provision requires the FHWA to allow State and local 
agencies to use any procurement process permitted by State and local 
law. These commenters further said that, if not revised, the proposed 
regulation would require State and local agencies to follow specific 
requirements that may be inconsistent with their existing enabling 
authorization. The commenters expressed the belief that, if not 
changed, the proposed regulation would result in a monumental 
nationwide effort, requiring each agency to analyze its enabling 
authorization to determine whether it complies with the FHWA's 
requirements, and in many cases requiring agencies to seek legislative 
modifications to enable compliance.
    The FHWA disagrees with these commenters. The language in section 
1307 of the TEA-21 must be considered in its entirety. While section 
1307(a) indicates that STDs ``may award a design-build contract for a 
qualified project described in subparagraph (c) using any procurement 
process permitted by applicable State and local law,'' other provisions 
in section 1307(c) prescribe specific responsibilities for the FHWA in 
developing a design-build regulation. Section 1307(c)(2) specifies the 
contents of the design-build regulation. This section states that the 
regulations shall ``(A) identify the criteria to be used by the 
Secretary in approving the use by a State transportation department or 
local transportation agency of design-build contracting; and (B) 
establish the procedures to be followed by a State or local 
transportation agency for obtaining the Secretary's approval of the use 
of design-build contracting by the department or agency.''
    If the Congress intended that the design-build statute be 
implemented by States using applicable State or local laws (without 
identifying specific design-build criteria that a State must adhere to 
in order to receive the FHWA's approval), there would have been no need 
to add subsection (c) to section 1307. In Section 1307(c) of the TEA-
21, the Congress set forth the need for the Secretary to identify 
specific criteria in approving design-build contracting and establish 
the procedures to be followed in obtaining the Secretary's approval for 
a design-build project. In order for section 1307(c) to have any 
meaning, the FHWA must identify the approval criteria (whether best 
practice criteria, minimum criteria or some combination of best 
practice) and establish procedures for contracting agencies to obtain 
the FHWA's approval. Thus, when read in its entirety, section 1307 
requires the FHWA to develop approval criteria and procedures and not 
simply allow any procedure that meets State or local law.
    The FHWA believes that only a few, if any, State and local agencies 
will need to seek legislative change to comply with the regulation. 
Generally, this situation would arise where a Federal regulation would 
prohibit certain procedures and the State or local law would require 
the same procedure. The FHWA is not aware of any State law that would 
not be in compliance with the regulation. Although some State laws may 
allow certain procedures that would not comply with the regulation 
(such as procedures that would give a preference to local firms in the 
selection process), these States could not use these procedures on 
Federal-aid design-build projects. In addition, the use of design-build 
is not mandatory. It is merely another project delivery technique for 
qualified projects.
    One private individual suggested that the FHWA's decision to use 
modified Federal Acquisition Regulation (FAR)

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terminology and requirements (48 CFR 15) is likely to create numerous 
problems in practice. This individual noted that even where State law 
is generally consistent with the procurement approach set forth in the 
Federal Acquisition Regulation, it is likely that terminology will be 
different, and that specific requirements will be inconsistent.
    The FHWA's decision to adopt a modified version of the Federal 
Government's competitive negotiation policies (48 CFR part 15) was 
based on the fact that a large body of case law on this subject already 
exists. In the long run, the use of these concepts and terminology will 
promote fairness and minimize the opportunity for lawsuits and 
challenges on Federal-aid highway projects. Many firms in the industry 
work with Federal Government agencies and are familiar with the 
terminology and concepts in competitive negotiation. The adoption of 
these concepts is appropriate for Federal-aid highway program.
    Several commenters indicated that much of the content of the 
proposed NPRM should be issued as guidance rather than as a regulation.
    The TEA-21 clearly requires the development of a regulation and not 
a set of guidelines. Although some commenters suggested the need for 
guidelines in lieu of regulations, the FHWA is complying with the 
intent of the Congress in issuing this regulation. The FHWA 
acknowledges that there are many design-build issues where guidelines 
(developed with the assistance of AASHTO and industry) will be helpful. 
However, the approval criteria and procedures identified in this 
regulation are necessary for the FHWA to continue its stewardship of 
the Federal-aid highway program and to comply with the provisions of 
section 1307.
    The TCA suggested that the FHWA approve design-build projects upon 
receipt of a certification from the contracting agency providing 
evidence that the project complies with, or will comply with, all 
applicable requirements. The TCA suggested that the FHWA issue a 
``statement of no objection'' in response to a written request from the 
contracting agency.
    The FHWA disagrees with this comment. The FHWA is accountable for 
the appropriate expenditure of funds from the highway trust fund. It is 
important for the FHWA to implement sufficient accountability standards 
so that it can fulfill its stewardship obligation.
    Finally, the AASHTO and the Virginia DOT indicated that additional 
modifications should be made to ensure that the rule does not limit a 
State's ability to gain the maximum possible benefit from the design-
build delivery method and to ensure that the rule does not restrict the 
States from using the most effective selection process for each 
individual project. They expressed support for the flexibility in the 
NPRM but also encouraged the FHWA to think progressively to provide for 
other variations of design-build, such as, design-build-warrant, 
design-build-operate, design-build-operate-maintain and finance-design-
build-operate-maintain.
    While we agree with these commenters, the FHWA believes the 
regulation provides sufficient flexibility for Federal-aid recipients 
while maintaining the FHWA's stewardship responsibilities for the 
Federal-aid highway program. We believe these requirements are 
necessary to maintain open, fair, competitive contracting while 
providing the States with complete flexibility in project selection and 
great flexibility in choosing the appropriate selection procedures, 
award criteria, and evaluation factors that fit their needs. With this 
flexibility, the STDs should have few, if any, requirements that hinder 
project delivery, innovation or cost savings. Sufficient flexibility 
has been provided to account for numerous variations of the design-
build project delivery system. While not specifically addressed in the 
NPRM, the regulation applies to all variations of design-build 
contracts including contracts that would also include financing, 
warranties, operations, and maintenance functions.
    In the final rule, the FHWA removed proposed Subpart F, 
Notifications and Debriefings, and replaced these requirements with a 
provision that allows contracting agencies to provide notifications and 
debriefings in accordance with State law. While notifications and 
debriefings are a very important part of the overall procurement 
process, the FHWA believes that the goals of this rulemaking can still 
be achieved if contracting agencies rely on State approved procedures 
in this area (see the discussion for Subpart F below for additional 
information).

Applicability of Requirements

    One private individual suggested that there should be greater 
flexibility when Federal funding is a relatively small percentage of 
the total project funding. This commenter stated that there is a 
national trend toward smaller projects that are largely funded with 
other than Federal funds. It was suggested that the FHWA recognize this 
special condition and allow STDs to proceed in accordance with 
applicable State laws and Federal requirements such as the National 
Environmental Policy Act (NEPA) but without some of the restrictions 
placed on the STD by this rule. It was further suggested that a 
modified SEP-14 process might be appropriate for such projects.
    We disagree with this comment. There is no statutory basis for 
waiving selected regulatory requirements for certain projects because 
the overall percentage of Federal funding is relatively small. This 
would be inconsistent with the FHWA policy in other Federal-aid program 
areas.

Report to Congress

    The Professional Engineers in California Government (PECG) 
questioned whether the study completed by Florida DOT (Transportation 
Research Record 1351) is applicable to other contracting agencies. The 
PECG questioned whether the limited number of projects is 
representative of the cost or efficiency of design-build projects in 
other States. This commenter suggested that a broader evaluation of the 
design-build concept with a detailed study of the costs incurred and 
the safety impacts on the user of completed projects would be 
warranted.
    The American Council of Engineering Companies (ACEC) provided 
recommendations on issues that should be addressed in the Report to 
Congress. These include the following: (1) Design-build is an 
appropriate delivery method to select if it offers the best value, 
given the unique opportunities, constraints, risks and demands of a 
particular project; (2) preliminary design should be advanced to the 
extent that risks are identified and each properly allocated to the 
party who is best able to manage it; (3) the design-build regulation 
should not give preferential treatment to a firm based on its size 
during the selection process; and (4) there should be flexibility in 
all procurement policies to allow the situation where a design firm of 
any size serves as the leader on a design-build team.
    The Florida DOT suggested that the FHWA evaluate the reduction in 
total time (from project authorization to the completion of 
construction) in comparison with design-bid-build projects and the 
reduction in STD construction engineering and inspection costs.
    The Report to Congress required by section 1307(f) should provide 
an unbiased evaluation of a broad range of projects. However, to the 
FHWA's

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knowledge, the Florida DOT study is the best comprehensive comparison 
of a limited number of transportation projects that is currently 
available. The FHWA will consider all of the issues that have been 
identified in the comment period during the development of the Report 
to Congress.

Simplification of SEP-14

    Several commenters recommended that the SEP-14 be simplified. 
Others expressed an appreciation for the availability of this technique 
to proceed with projects that did not meet the statutory definition of 
a qualified project. Still others felt that it was appropriate for the 
FHWA to delegate approval authority to the Division Offices as proposed 
in the NPRM.
    We agree with these comments. The NPRM described several proposed 
methods to simplify the SEP-14 approval process. In addition, given the 
statutory definition for ``qualified projects,'' it will be necessary 
to maintain the SEP-14 program and make it available for non-qualified 
projects and other innovative contracting techniques. See the 
discussion for Sec.  636.107 for additional details.

Miscellaneous

    Two private individuals representing construction companies did not 
provide specific recommendations but expressed their concern regarding 
the use of design-build in the Federal-aid highway program. Generally, 
these commenters indicated the following concerns: (1) Design-build 
will limit competition and overall prices will increase; (2) the 
proposal process is too expensive except for the largest of firms; (3) 
quality and safety will suffer because design-build provides no 
incentive for either; (4) some contracting agencies might be biased in 
the evaluation process against firms that have a claim on a previous 
project; and (5) the benefits of faster project delivery have been 
improperly addressed by some in the industry. One commenter believed 
that the actual inconvenience to the public during construction is no 
shorter for design-build than it is for the traditional design-bid-
build delivery system and this should be a primary consideration in 
selecting a project delivery method.
    The TCA provided specific recommendations to revise FHWA policy in 
23 CFR 645.109, 23 CFR 645.113, and 23 CFR 645.115 to utilize design-
build terminology.
    The FHWA recognizes this concern; however, we note that some 
sections of 23 CFR use terms that relate to the traditional design-bid-
build process (i.e., plans, specifications, estimates, bids, etc.) and 
do not include terms that relate to the design-build process (i.e., 
Request for Proposal document, proposals, offerors, etc.). We did not 
propose to revise all sections of 23 CFR with this rulemaking. Such 
revisions are beyond the scope of this rulemaking action and will be 
considered in future rulemakings by the appropriate FHWA program 
office.

Section-by-Section Analysis

Part 627--Value Engineering

Section 627.5 General Principles and Procedures

    The ACEC and the Design Professionals Coalition (DPC) were 
generally in agreement with the proposed value engineering provisions 
and the flexibility provided in the NPRM.
    The AASHTO, the DBIA, the Virginia DOT and the TCA suggested 
replacing the word ``shall'' with ``may'' in Sec.  627.5(e) to allow 
for additional flexibility.
    The Associated General Contractors of America (AGC) and the 
American Road and Transportation Builders Association (ARTBA) generally 
supported the proposed value engineering language in the NPRM and 
recommended against the use of value engineering as part of the design-
build proposal process.
    While the FHWA agrees with the commenters who suggested 
clarification of the NPRM language, we disagree with the suggestion 
that the use of the word ``may'' in lieu of ``shall'' would provide 
sufficient clarification. We agree that the final rule must explain how 
contracting agencies can meet the value engineering analysis 
requirement for design-build projects.
    Several commenters suggested that the final sentence of Sec.  
627.5(e)(2) be deleted as the existing value engineering regulation 
does not address value engineering change proposals during 
construction. The FHWA agrees with these commenters. This issue is not 
addressed in the existing value engineering regulation. Therefore, we 
have removed that sentence from the regulation.
    The AGC believed that including value engineering proposals as part 
of the proposal process only tends to add more subjective variables to 
the selection process. The ARTBA took a different viewpoint from the 
AGC. It suggested that the FHWA should consider the use of alternate 
technical concepts as a means of allowing the STDs to fulfill the value 
engineering analysis requirements.
    The Washington State DOT indicated that design-build proposers 
should have the widest possible range of expertise at their disposal 
when developing a proposal in a competitive environment. It suggested 
that the FHWA should provide flexibility to allow value engineering 
proposals developed by a design-build proposer to fulfill the value 
engineering analysis requirement.
    The TCA suggested that it had received a number of significant 
value engineering proposals under contract provisions and it is 
inappropriate for the FHWA to discourage such provisions.
    The DBIA suggested that while it is possible to request value 
engineering ideas during the procurement process and post-award, the 
fruitfulness of this process is highly questionable and very unlikely 
to yield measurable results. It concurred with the NPRM provisions that 
stated that ``value engineering reviews are generally not recommended 
as part of the design-build proposal process.''
    The FHWA recognizes the differing viewpoints concerning the use of 
value engineering reviews conducted during the procurement process and 
post award. While such reviews may be useful in meeting a contracting 
agency's project objectives, they do not necessarily meet the 
objectives of FHWA's value engineering analysis requirement.
    The ARTBA, the TCA, the Colorado DOT and the Texas DOT suggested 
that the FHWA allow the use of alternate technical concepts during the 
proposal development process. These entities suggested that the 
alternate technical proposal process is similar to value engineering 
and may be even more thorough than any formal value engineering 
procedure presently required. These commenters stated that the proposed 
alternative technical proposals are typically well developed since they 
incorporate both designer and contractor input. Both the proposer and 
the contracting agency benefit from the use of this procedure as it 
gives the proposer a potential means of lowering its proposal price and 
the contracting agency receives 100 percent of the cost saving. The 
Colorado DOT requested that the FHWA make it clear that alternate 
technical concepts be allowed in the design-build procurement process.
    While the FHWA questions the overall effectiveness of a value 
engineering requirement during the proposal process or after contract 
award, several commenters provided convincing testimony that such 
provisions should not be prohibited. As long as the contracting agency 
maintains a fair and competitive process in reviewing, evaluating and 
recognizing

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alternate technical concepts, the FHWA has no objection to the use of 
alternate technical concepts. For this reason, we have modified the 
language in Sec.  636.209 to allow the use of the alternate technical 
proposal concept as long as such alternate concepts do not change the 
assumptions used in the environmental decision making process. However, 
contracting agencies must not rely solely on an alternate technical 
concept requirement to fulfill the FHWA's value engineering analysis 
requirement.
    SAVE International, a value engineering society, proposed a 
revision to this section that would require STDs to perform a value 
engineering analysis prior to the procurement process and allow other 
value engineering studies during the procurement process and during the 
life of the design-build contract at the discretion of the STD. This 
association stated that the greatest opportunity for savings exists 
prior to the initiation of the design-build procurement process, and 
therefore, recommended that the FHWA require a value engineering 
analysis at this point and allow additional value engineering studies 
afterwards.
    The FHWA agrees with the concept of requiring a value engineering 
analysis prior to the release of the Request for Proposal (RFP) 
document. SAVE International suggested two additional value engineering 
reviews but recommended that these two be discretionary; therefore, we 
did not feel it was necessary to include these provisions in the 
regulation.
    The AASHTO and the DBIA suggested that value engineering is 
inherent in the design-build process but also suggested that this 
section needs further clarification. The AASHTO questioned why the FHWA 
was modifying the existing value engineering regulation and several 
STDs (Florida, Utah, New Jersey and Washington) recommended no changes 
to the existing value engineering regulation. They indicated that the 
existing regulation applies to any Federal-aid highway project on the 
National Highway System greater than $25 million, regardless of whether 
is it a design-build or a design-bid-build project. These commenters 
suggested that the proposed modifications are not necessary.
    Still other commenters suggested several modifications to the NPRM 
language to clarify requirements. The TCA suggested that contracting 
agencies should be given the flexibility to determine which project 
procedures or contract requirements could be used to fulfill the value 
engineering analysis required by the FHWA.
    While the FHWA agrees with the commenters who suggested that value 
engineering concepts may be inherent in the design-build process, we 
disagree with the commenters who suggested that all design-build 
projects would fulfill the FHWA's value engineering analysis 
requirement. The use of the design-build project delivery method does 
not fulfill the congressional mandate for a value engineering analysis 
on National Highway System projects greater than $25 million.
    In consideration of all of these comments, the FHWA believes that 
it is necessary to amend the NPRM language to clarify the minimum 
requirements for fulfilling the value engineering analysis requirement 
on design-build projects. For the purpose of clarification, we revised 
the language to require a value engineering analysis prior to the 
release of the RFP document. The NPRM provisions of paragraph (e)(2) 
have been deleted. The final rule clearly states that a value 
engineering analysis is required prior to the release of the RFP 
document. This will be the only requirement for fulfilling the value 
engineering analysis requirement for design-build projects on the 
National Highway System greater than $25 million. This does not 
preclude further value engineering reviews or studies at subsequent 
points in the procurement process or even after contract award. 
However, subsequent value engineering reviews will not be acceptable 
for the purposes of fulfilling the value engineering analysis 
requirement.

Part 630--Preconstruction Procedures

Section 630.203 Applicability

    The TCA suggested that this section be modified to provide an 
exception for design-build projects such that contracting agencies 
would not be subject to the FHWA's requirements for the preparation, 
submission and approval of plans, specifications, estimates and 
supporting documents on Federal-aid projects.
    The FHWA disagrees with this comment. The FHWA's requirements for 
reviewing and approving design-build RFP documents are contained in 23 
CFR 635.112. Therefore, it is not necessary to modify Sec.  630.203.

Section 630.1010 Contents of the Agency Procedures

    The TCA suggested that a revision be made to the FHWA's policies in 
Subpart J, Traffic Safety in Highway and Street Work Zones, to 
accommodate design-build projects. This commenter suggested that the 
existing regulations be modified to indicate that, for design-build 
projects, the design-builder would develop the traffic control plan. It 
was also suggested that the responsible person be an employee of the 
design-builder or a subcontractor.
    The FHWA disagrees with this comment. We did not modify this 
section and traffic control plans are beyond the scope of this 
rulemaking action. The FHWA will consider appropriate revisions to its 
policy in this area in a future rulemaking.

Part 633--Required Contract Provisions

Section 633.102 Applicability

    The TCA suggested that this section be modified to allow 
contracting agencies to strike or modify Section VII of Form FHWA-1273, 
Required Contract Provisions, that concerns minimum contracting 
responsibilities of the prime contractor. A similar recommendation was 
provided for Appendix B, Section VIII(4) for Appalachian projects.
    The FHWA disagrees with this comment. Although the FHWA proposed to 
change the contracting requirements of Sec.  635.116 for design-build 
contracts in the NPRM, such a change would best be implemented with a 
modification to Form FHWA 1273, Required Contract Provisions and 
Attachment A for Appalachia projects. These changes are beyond the 
scope of this rulemaking.

Part 635--Construction and Maintenance

Section 635.102 Definitions

    The ACEC indicated the proposed modifications were acceptable. The 
TCA suggested that the FHWA add a definition for the term ``contracting 
agency'' (or cross-reference the definition in part 636), revise the 
definition of ``design-build project,'' revise the definition of 
``incentive/disincentive for early completion,'' and use the term 
``contracting agency'' instead of ``STD'' in many sections within part 
635. The TCA also suggested that the current definition of ``design-
build project'' might preclude the STD from entering into multiple 
contracts relating to a single project.
    The FHWA agrees with the comment concerning the definition of a 
design-build project. We have modified the definition to read as 
follows: ``Design-build project means a project to be developed using 
one or more design-build contracts.'' The other suggested revisions are 
either beyond the scope of this rulemaking or are not appropriate.

[[Page 75907]]

Section 635.104 Method of Construction

    The ACEC indicated the proposed modifications were acceptable. The 
TCA recommended that the FHWA modify this section to clearly indicate 
that contracting agencies do not need to justify design-build as being 
more cost-effective than design-bid-build.
    Section 636.106 clearly indicates that a contracting agency may use 
design-build for any project that the contracting agency believes is 
appropriate. However, we added a sentence to Sec.  635.104 to indicate 
that no justification of cost effectiveness is necessary in selecting 
projects for the design-build delivery method.

Section 635.105 Supervising Agency

    The TCA recommended that the FHWA modify this section to clarify 
the relationships among the FHWA, the STDs and local agencies.
    The FHWA disagrees with this comment. This subject is not 
appropriate for the scope of this rulemaking. Section 635.105(c) 
describes the responsibilities for STDs and locals when a project is 
administered by a local public agency. The details of these 
relationships are defined in the local stewardship agreement between 
the FHWA Division Office and the STD.

Section 635.107 Participation by Disadvantaged Business Enterprises

    The ACEC and the ARTBA found the disadvantaged business enterprises 
(DBE) provisions in the NPRM to be satisfactory. On the other hand, 
numerous commenters suggested that the NPRM language in Sec.  
635.107(b) was not clear or that it conflicts with the requirements of 
49 CFR part 26.
    The Missouri DOT and several individuals were concerned with a 
provision that would allow contractors to furnish specific DBE 
commitment information after the award of contract. The DBIA and the 
California DOT suggested that the NPRM was not clear in defining what 
information, material and/or data should be used to make a fair and 
reasonable judgment concerning proposer's efforts to meet the DBE goal 
during the evaluation process.
    Several individuals expressed the concern that post-award DBE 
commitment requirements would make the STD's enforcement efforts 
problematic since it would be difficult for the STD to be certain that 
any DBE participation would actually occur once the contract is awarded 
and underway.
    Some individual commenters recommended that, as a minimum, 
proposers be required to sign and notarize letters of subcontract 
intent (co-signed by the DBE) confirming that the contractor actually 
discussed the project with the DBE for specific products/services at 
specific amounts.
    The FHWA appreciates the concerns of the commenters who must 
administer DBE provisions on design-build projects. We agree with the 
commenters who suggested that it is not always feasible to require 
proposers to submit DBE commitments prior to award. The level of design 
provided in the RFP document is often not sufficient to allow the 
design-builder to enter into subcontracts. In many cases, the design-
builder may not have advanced the design to a sufficient level during 
the proposal process to serve as a basis for negotiating subcontracts. 
In many cases, it will be impractical to require design-build proposers 
to provide DBE subcontract commitments prior to the award of the 
contract.
    The New Jersey DOT commented that many DBEs do not have the 
capacity to perform significant subcontracts on large design-build 
projects and that opportunities for DBE engineering firms may be 
limited by contractors who are used to dealing with DBE construction 
contractors.
    The California DOT suggested that separate goals for the design and 
construction phases might be appropriate to allow greater opportunities 
for DBE engineering firms.
    We agree with these commenters. In setting project DBE goals, the 
STDs should consider separate DBE goals for the various elements of a 
design-build project. At the STD's discretion, separate goals may be 
used based on the amount and availability of DBEs for certain elements 
of the project. In some cases it may be appropriate to utilize separate 
DBE goals for design and construction services (or other services such 
as right-of-way acquisition, construction inspection, etc.). However, 
we recognize that the goal setting process is governed by 49 CFR part 
26 and STDs are to be guided by interpretations provided for in Sec.  
26.9.
    The AASHTO commented that the use of DBE commitments as proposal 
evaluation factors, as described in Sec.  635.107(b)(4) should be left 
to the State's discretion. On the other hand, the AGC suggested that 
DBE commitments ``above or below'' the contractual requirements must 
not be used as a proposal evaluation factor in determining the 
successful offeror. The AGC indicated that where the design-builder has 
demonstrated a good faith effort to achieve contract goals, failure to 
achieve the goals should not be a determining factor in the selection 
process.
    The FHWA appreciates the differing viewpoints of both contracting 
agencies and industry participants. At their discretion, contracting 
agencies may require design-build proposers to submit DBE utilization 
information or DBE commitments and such information may be used in a 
determination of responsiveness prior to contract award. However, we 
kept the NPRM provision that precludes contracting agencies from using 
proposal evaluation factors that are based on DBE commitments above the 
contractual requirements. The degree of DBE use in excess of the goal 
should not be used as an evaluation factor that would provide an 
additional credit or preference in the selection process.
    The AASHTO and three STDs (Florida, South Carolina, and Virginia) 
suggested that this section was too prescriptive and did not account 
for all possible measures of ensuring equality. The AASHTO recommended 
that this section of the regulation merely provide a requirement for 
the contracting agency's design-build program to comply with the 
State's approved DBE plan. The Colorado DOT suggested that the 
regulations give the STDs more flexibility to determine the methodology 
to implement DBE programs based on the specific requirements of the 
design-build project. The FHWA agrees with these commenters.
    In light of the above, the FHWA believes that the comments provided 
to the docket concerning this section of the NPRM raised significant 
DBE/design-build issues and highlighted the fact that NPRM paragraph 
(b) was not clear. However, few commenters provided suggestions that 
would provide sufficient clarity for the resolution of these issues in 
all cases. We have elected to simplify the language in the regulatory 
section by requiring compliance with 49 CFR part 26 and the STD's 
approved DBE plan. It will be incumbent upon those States that are 
using the design-build project delivery method to modify their DBE 
plans to address these issues. The STDs will have the flexibility to 
structure their DBE plans to meet individual design-build project goals 
while complying with the requirements of 49 CFR part 26.

Section 635.109 Standardized Changed Condition Clauses

    Several commenters suggested that the FHWA does not have the 
statutory authority to require the use of the standardized change 
condition clauses on design-build projects. Title 23, U.S.

[[Page 75908]]

Code, section 112(e)(2)(B) specifically exempts design-build contracts 
from being required to include these clauses. Some of these commenters 
believed that the terminology used in the existing clauses might be 
incompatible with the common use of design-build terminology. For 
example, the standardized ``Suspension of Work Ordered by the 
Engineer'' clause uses the term ``engineer'' to refer to the owner's 
representative. However, several commenters noted an inconsistency with 
common design-build terminology where the term ``engineer'' refers to 
the design-builder's engineer.
    The ARTBA recommended that the FHWA ``strongly encourage'' STDs to 
use these clauses instead of mandating the use of standardized clauses. 
The DPC suggested that the use of these clauses should generally be 
left to each STD to assess on a project-by-project basis. There could 
potentially be a situation where risk allocation is unbalanced because 
of the use of such clauses. The TCA suggested that where the design-
builder is given responsibility for tasks, such as, quality assurance 
or environmental mitigation, the owner may want to have the ability to 
temporarily stop work, without providing a time extension or declaring 
a default, so as to enable it to determine whether a problem exists.
    Several commenters representing the contracting industry strongly 
urged the FHWA to require the use of a standard ``changed conditions'' 
clause and also supported the use of a ``Suspensions of Work Ordered by 
the Engineer'' clause on design-build projects. These commenters 
believed that the clauses are appropriate for the risk and 
responsibilities that are shared with the design-builder in creating a 
fair and equitable contract for all parties. They suggested that 
inappropriate risk shifting will only increase the overall project cost 
and may increase the potential for unneeded litigation.
    The FHWA believes that flexibility is appropriate for this issue. 
Section 1307 of the TEA-21 clearly indicates that the standardized 
change condition clauses may not be applied to design-build projects. 
In the proposed rule, the FHWA took the position that it would be 
appropriate to require one of the three clauses--the suspensions of 
work ordered by the engineer. The FHWA also proposed that the two other 
standardized clauses be used appropriately where the risk and 
responsibility are shared with the design-builder.
    In traditional design-bid-build projects, risk and responsibility 
are generally well defined and there is little variation from project 
to project. The standardized changed condition clauses are very 
appropriate for these projects. However, for design-build projects, 
risk sharing and the ability to manage and control risk vary with each 
project. In light of the comments received, the FHWA has elected to 
provide flexibility to the contracting agencies who must perform risk 
analysis and structure contract provisions based on the individual 
characteristics of each project. Therefore, the final rule strongly 
encourages but does not mandate the use of ``suspensions of work 
ordered by the engineer'' clause. Contracting agencies may also 
consider ``differing site condition'' and ``significant changes in the 
character of work'' clauses which are appropriate for the risk and 
responsibilities that are shared with the design-builder.

Section 635.110 Licensing and Qualification of Contractor

    Several commenters agreed with the NPRM language that allows STDs 
to use their own licensing and pre-qualification requirements. However, 
the ARTBA expressed a concern regarding a provision that would allow 
proposers to demonstrate their ability to become licensed. Instead it 
recommended that, if required, proof of licensing and/or 
prequalification should be demonstrated at the time of submission of 
the proposal. We disagree and have not made this change to the rule.
    The ACEC expressed a concern that by allowing STDs to use their own 
prequalification and licensing statutes and procedures, design firms 
may be precluded from leading a design-build team if the State 
requirements are too stringent.
    The DPC agreed with the FHWA's approach in allowing STDs to use 
their prequalification procedures, but expressed a concern that STDs 
may rely heavily on existing prequalification practices instead of 
developing procedures specifically for design-build. This commenter 
believed that this could limit the formation of joint ventures. The 
FHWA recognizes this concern but does not believe that it is 
appropriate to require STDs to modify their existing procedures to use 
design-build.
    The TCA suggested that the NPRM language for this section was 
confusing and did not appear to be necessary. This commenter was 
concerned that the NPRM could be interpreted to require local agencies 
to comply with State prequalification requirements. The FHWA agrees and 
incorporated minor revisions in Sec.  635.110(f)(2) to clarify that 
local public agencies are not required to comply with State 
prequalification requirements.
    The AASHTO questioned a perceived discrepancy between the 
prohibition against geographical preferences in the preamble versus the 
use of the words ``may not'' in the regulatory section of 23 CFR 
635.110(f)(1). The final rule provides a prohibition for geographic 
preferences. Such preferences limit competition and may not be used.
    In consideration of the above comments, the FHWA made minor changes 
to this section. As stated in the NPRM, prequalification and licensing 
procedures may be used, however, such procedures may not limit 
competition or preclude an otherwise qualified proposer from submitting 
a proposal. The STDs have the flexibility to develop prequalification 
procedures appropriate for the specific characteristics of a given 
design-build project.

Section 635.112 Advertising for Bids and Proposals

    The DBIA suggested that the FHWA authorization should be based on 
the contract award rather than the RFP document. The DBIA and the 
Orange North-American Trade Rail Access Corridor Authority were 
concerned that the requirement for the FHWA to approve the RFP document 
would only lead to extensive time delays. The DBIA believed that the 
FHWA's approval process would serve to add additional time to what is 
usually a very time-sensitive project schedule, thereby diminishing any 
possible time savings advantage. The DBIA further suggested that STDs 
be allowed to proceed ``at risk'' with the procurement process, with 
the recognition that they must comply with the rules in order to obtain 
the FHWA authorization prior to contract award.
    The FHWA disagrees with these comments. Since the release of the 
RFP document is a key point in the project development process, it is 
also an appropriate point for the FHWA's project approval.
    The TCA suggested that contracting agencies should have the ability 
to proceed with a project using their own funds and at their own risk, 
without the FHWA's approval, pending the final NEPA decision. This 
commenter suggested that the FHWA project authorization is only 
necessary prior to the commencement of final design or the initiation 
of construction work. This commenter recommended that the FHWA issue a 
``statement of no objection'' in response to a written request from the 
contracting agency accompanied by certificates evidencing

[[Page 75909]]

compliance with applicable requirements.
    The FHWA disagrees with this comment. It is not appropriate to make 
Federal-aid participation decisions after major project decisions have 
been made and possibly after a contracting agency has incurred costs.
    The Colorado DOT recommended that the FHWA clarify the difference 
between ``major'' and ``minor'' addenda. The FHWA does not agree that 
this clarification is appropriate in the final rule. The FHWA Division 
Administrator currently has the flexibility to define ``major'' and 
``minor'' addenda. This flexibility will continue for design-build 
projects.
    Several commenters provided recommendations concerning the 
delegation of the FHWA's approval authority from Headquarters to the 
Division Offices. See Sec.  636.107 for details.
    In summary, the FHWA is not revising this section. As previously 
noted, the FHWA is accountable for the appropriate expenditure of funds 
from the highway trust fund. It is important for the FHWA to implement 
sufficient review and accountability procedures so that it can fulfill 
its stewardship obligation. The FHWA Division Administrator's review 
and approval of the RFP document is an important and timely approval in 
the FHWA's authorization of a design-build project. The STD and the 
FHWA Division Office should identify the review and approval procedures 
that will enable the FHWA to fulfill its stewardship obligations for 
design-build projects.

Section 635.113 Bid Opening and Bid Tabulations

    The Orange North-American Trade Rail Access Corridor Authority was 
concerned about the requirement to furnish a tabulation of proposal 
costs. This commenter was concerned with a possible breach in 
confidentiality procedures and the need to maintain the integrity of 
the selection process while minimizing chances for protests or disputes 
over the selection method.
    One private individual suggested that the requirement to furnish a 
tabulation of price information should only be associated with post 
contract award information.
    The TCA recommended that the FHWA revise Sec.  635.113(c)(2) to 
refer to ``price proposal line items'' instead of ``proposal costs.'' 
In addition, this commenter suggested changing references to ``STD'' to 
``contracting agency.''
    In consideration of these comments, the FHWA has incorporated some 
minor revisions in this section to indicate that the tabulation of 
proposal prices is to be done after the award of contract. This should 
address the confidentiality concerns expressed by two commenters. The 
FHWA does not believe is it necessary to use the term ``price proposal 
line item'' as the rule language is sufficiently clear. The FHWA also 
prefers to use the term ``STD'' rather than ``contracting agency'' to 
maintain consistency throughout this part.

Section 635.114 Award of Contract and Concurrence in Award

    Several commenters suggested that paragraph (k) appeared to 
preclude STDs from entering negotiations following the proposal being 
submitted but before the contract award. The AASHTO suggested revising 
this statement to read ``Design-build contracts shall be awarded in 
accordance with the RFP document.'' The TCA suggested that the 
reference to Part 636 is inconsistent with the TEA-21 requirement that 
allows contracting agencies to use any procurement process permitted by 
applicable State or local law.
    We made a minor change to this section to indicate that design-
build contracts shall be awarded in accordance with the RFP document. 
The FHWA did not intend to preclude the use of the part 636 competitive 
acquisition procedures. The comment regarding inconsistencies was 
previously addressed in the Background portion of this preamble.

Section 635.116 Subcontracting and Contractor Responsibilities

    Peter Kiewit and Sons, Inc. supported the proposed changes while 
the ARTBA objected to waiving the current 30 percent self-performance 
requirement. The ARTBA believed that the 30 percent requirement should 
remain in place for projects under the $50 million threshold that will 
continue to be approved under SEP-14. The ARTBA suggested that the FHWA 
should clarify what type of work done by a design-builder would be 
applicable to a minimum percentage level of work (design work for 
example). The ARTBA, ACEC and the DPC recommended that the FHWA offer 
some guidance to the STDs so that self-performance requirements match 
the actual needs of the project and are not set arbitrarily.
    The FHWA appreciates these concerns, however, we do not believe it 
is appropriate to provide guidance concerning self-performance 
requirements in the final rule. Contracting agencies will have the 
flexibility to implement minimum self-performance requirements for a 
project if they feel that this is appropriate. The FHWA believes that 
flexibility is appropriate in this area and does not believe that it is 
appropriate for continued evaluation under SEP-14. While a joint 
AASHTO/Industry/FHWA guidance paper on this subject may be desirable, 
that is outside of the scope of this final rule.
    The TCA believed the term ``design-builder'' as used in this 
section warranted further definition to include any firms which are 
equity participants in the design-builder, their sister and parent 
companies, and their wholly owned subsidiaries. The FHWA agrees with 
this comment. We added a sentence to clarify the definition of a 
design-builder for this section to include equity participants in the 
design-build firm, its sister and parent companies, and their wholly 
owned subsidiaries.
    Several commenters expressed opposition to the FHWA's proposal to 
eliminate the 30 percent requirement. These commenters believed that 
such requirements are necessary to minimize the potential for fraud 
that could occur when certain companies are used as pass-through firms 
to meet DBE requirements.
    We disagree with this comment. We do not believe that the 
elimination of the 30 percent self-performance requirement will lead to 
an increased potential for fraud. The DBE provisions at 49 CFR part 26 
define commercially useful function and provide adequate guidance for 
the crediting of DBE related work to minimize the potential for fraud.
    The Colorado DOT objected to the prohibition regarding subcontract 
goals. This commenter believed that subcontract goals ensure that the 
design-build contractor on large projects use all different sizes and 
levels of subcontractors. This commenter further suggested that 
provision be reduced to a guideline and a recommendation. We disagree 
with this comment. The FHWA continues to believe that such requirements 
could serve as a local contracting preference and thereby create an 
artificial contractual barrier to the design-builder's ability to 
manage an efficient contract. Therefore, we did not make any 
modifications to this paragraph.

Section 635.122 Participation in Progress Payments

    Three commenters suggested that this proposed section was 
satisfactory. One commenter suggested that the term ``STD'' be revised 
to ``contracting agency.'' For reasons previously

[[Page 75910]]

indicated, the FHWA prefers to use the term STD throughout this 
section.

Section 635.309 Authorization

    The Wisconsin DOT suggested an amendment to the proposed language 
in Sec.  635.309(p)(2) that would allow a design-build project to 
continue during a conformity lapse, if the NEPA process was completed 
as it applies to transportation and the project has not changed 
significantly in design scope. This commenter recommended that the 
project be allowed to continue because it has already gone through the 
air quality analysis and it had been shown not to increase regional 
emissions. The FHWA agrees with this comment but also recognizes that 
projects cannot proceed during a conformity lapse unless the FHWA has 
granted project approval or authorization prior to the conformity 
lapse. Accordingly, the FHWA has elected to revise the language in 
Sec.  635.309(p)(2) to allow a design-build project to continue during 
a conformity lapse if the NEPA process was completed and the FHWA 
authorized the design-build project, prior to the conformity lapse.
    The Florida DOT suggested that contracting agencies should not have 
to provide any certification of right-of-way prior to release of the 
RFP document. This commenter suggested that the project assurances 
required by 49 CFR 24.4 should be adequate to cover all subsequent 
federally assisted projects. Several commenters suggested a revision to 
Sec.  635.309(p)(1)(v) since the design-builder's schedule is not known 
at the time of the release of the RFP document. The suggested revision 
would allow the STD to certify that all necessary arrangements will be 
made for the completion of right-of-way, utility, and railroad work and 
would allow the STD to include such work in the design-build contract 
if desired.
    The TCA suggested the contracting agency should be allowed to 
certify that arrangements have been made by: (1) Delegating 
responsibility to the design-builder, or (2) obtaining a commitment 
from the contracting agency to complete or arrange for the completion 
of all right-of-way, utility and railroad relocations.
    The FHWA agrees with these commenters and has elected to revise the 
language in Sec.  635.309(p)(1)(v) to allow contracting agencies to 
certify that sufficient arrangements will be made for the completion of 
the necessary right-of-way, utility, or railroad relocation work. The 
FHWA agrees that STDs may base this certification on their use of 
provisions in the RFP document to accomplish this work or by their own 
coordination efforts during the contract. The STDs need this 
flexibility in allocating risk and preparing the appropriate contract 
documents.
    The TCA suggested that there could be numerous problems 
interpreting Sec.  635.309 paragraphs (a) through (o) unless paragraph 
(p) supersedes rather than supplements prior paragraphs. We agree in 
part with this comment. We provided a modification of this section such 
that the certification requirements of Sec.  635.309 are superseded by 
paragraph (p).
    Several commenters suggested a change to Sec.  635.309(p)(1)(iii) 
to allow STDs to release the RFP document prior to the conclusion of 
the NEPA process. The AASHTO recommended that the NEPA process be 
allowed to continue until contract award, as the amount of time between 
RFP and contract award can be significant and time savings is one of 
the primary advantages of the design-build process. The New York State 
DOT suggested that the design-builder be allowed to perform some work 
necessary to complete the NEPA document as long as appropriate trigger 
points were included (i.e. stop or control points for final design and 
construction). The FHWA disagrees with these commenters. The issue of 
NEPA compliance is discussed in Sec.  636.109 below.

Section 635.411 Material or Product Selection

    Several commenters indicated that the NPRM language in this section 
was acceptable. Several commenters agreed with the NPRM language and 
expressed a concern regarding the use of proprietary product provisions 
in the RFP document that may limit DBE participation. These commenters 
believed that certain DBE firms might lack access to purchasing, 
distribution or production of certain proprietary materials. The TCA 
suggested that the intent of this paragraph was to supersede existing 
paragraphs (a) through (e) of the existing regulation and recommended 
language to accomplish this. The FHWA does not agree with this comment.
    No revisions of this section are provided. It was not the FHWA's 
intent to supersede paragraphs (a) through (e). The intent of the 
existing regulation is to ensure open competition in the contracting 
agency's material or product selection requirements. The intent of the 
language was to supplement the existing regulation for design-build 
projects by limiting the requirement to materials, specifications, or 
processes specifically set forth in the RFP document.

Section 635.413 Warranty Clauses

    The ARTBA suggested that the FHWA should not require warranties but 
that this decision should be at the STD's discretion. However, the 
ARTBA went on to say that it agreed with the FHWA's proposal to only 
allow warranties for specific products or construction features on 
Federal-aid design-build projects. It suggested that if warranties are 
allowed beyond this, that their coverage be limited to line items 
related to workmanship and materials. Peter Kiewit and Sons', Inc. 
recommended that warranty requirements should include specific 
performance criteria for a specific product or feature.
    Several commenters representing STDs and local public agencies 
suggested that the use of warranties should be left to the discretion 
of the States and that the limitation of warranties to specific 
products or construction features is too restrictive. These commenters 
suggested that ``bumper-to-bumper, blanket, or general workmanship-and-
material warranties'' are appropriate for design-build. The AASHTO and 
the Virginia DOT cited an agreement with the advocacy for asset 
management at the Federal level for recommending this. The FHWA 
appreciates the concern of these commenters. We agree that it is 
desirable to provide performance criteria in the RFP document for 
performance warranties but we also believe that contracting agencies 
should have some flexibility in preparing warranty provisions.
    The Texas DOT suggested that there is a significant difference 
between the use of warranties on a traditional design-bid-build project 
and a design-build project that must be taken into account. It 
suggested that a warranty identifying specific pieces of the work may 
omit a particular component and shift the very risk the contracting 
agency was hoping to delegate back to the project owner, thereby 
nullifying one of the critical benefits and innovations of design-
build. The Texas DOT went on to describe the successful use of 
``blanket warranty'' clauses on major design-build projects and 
suggested that such warranties are already an industry standard and are 
expected, priceable and enforceable. It was suggested that the FHWA 
allow the use of ``blanket warranty'' clauses for a limited, but 
reasonable period of time, in order to give the owner time after the 
completion of the project to discover defects in the work. The FHWA 
agrees that limited, general project warranties may be appropriate in 
some circumstances.

[[Page 75911]]

    The DBIA suggested that performance warranties are routinely 
negotiated into design-build contracts. It further suggested that due 
to the unique and specific performance requirements of each project, 
STDs need the flexibility to negotiate these warranties with the 
offerors on each project. The FHWA agrees that some flexibility is 
appropriate, however, we are concerned with the concept of negotiating 
warranties into design-build contracts. Contracting agencies must 
include warranty performance criteria in the RFP document. These 
conditions should not be ``negotiated into the contract'' through 
discussions with the proposers. This is important to keep a level 
playing field and provide all proposers with the opportunity to provide 
competitive proposals.
    The DPC supported the proposed limitation of warranties to certain 
features or construction products. This association was concerned with 
the potential for unbalanced risk allocation, especially as it might 
apply, directly or indirectly, to the project design. The ACEC 
expressed concern regarding attempts by STDs to directly or indirectly 
extend uninsurable warranty provisions to professional engineering 
services, for example, those that go beyond legal standards of care in 
the industry. The FHWA appreciates the concern of these commenters, 
however, we do not believe it is appropriate to address this in the 
final rule.
    The National Association of Surety Bond Producers expressed support 
for the FHWA's proposed position not to alter the current level of 
discretion provided STDs on the use of warranties. It suggested that 
the STDs must have sufficient discretion in developing contracts to 
provide for the proper allocation of risk. However, this commenter went 
on to express many concerns regarding the potential negative effects of 
warranties that extend beyond a reasonable duration or include 
requirements that are beyond the control of the design-builder.
    In light of the above comments, we elected to provide additional 
flexibility in the final rule. We agree with the STDs who suggested 
that contracting agency discretion is appropriate in this area. Based 
on the comments provided, it appears that general project warranties 
are a valuable asset in preventing and correcting construction defects 
on design-build projects. Contracting agencies must still incorporate a 
quality assurance program as a means for accepting the final product; 
however, the FHWA agrees that short term, general warranties may be 
beneficial in providing the contracting agency with a method for 
addressing obvious defects with the work. Several commenters indicated 
that this is already industry practice for workmanship and material 
warranties. In addition, the FHWA is aware that certain State laws 
already require contractors to furnish one-year maintenance bonds on 
traditional construction contracts to protect against any failure due 
to defective workmanship or materials. For this reason, we revised this 
section to allow general project warranties on NHS design-build 
projects with the conditions that: (1) They are short term (one to two 
years); (2) they are not the sole means of acceptance; (3) they do not 
include items of routine maintenance which are not eligible for Federal 
participation; and (4) they may include the quality of workmanship, 
materials and other specific tasks identified in the contract.
    A provision for performance warranties for specific products or 
features is also provided. The contracting agency must include detailed 
performance criteria in the RFP document so that all proposers are 
competing on a level playing field. The final rule also includes a 
provision that allows contracting agencies to receive alternate 
warranty proposals that improve upon the warranty terms in the RFP 
document. For best value selections, such alternate warranty proposals 
must be in addition to the base proposal that responds to the RFP 
requirements.
    Also, see the discussion regarding quality assurance programs in 
Section 637.207.

Part 636--Design-Build Contracting

Section 636.101 What Does This Part Do?

    The TCA suggested revisions to this section to indicate that the 
TEA-21 allows contracting agencies to use any procurement procedure 
allowed by applicable State and local law. It stated that the Congress 
did not authorize the FHWA to regulate this area and suggested that the 
FHWA's role should be limited to providing guidelines on this subject. 
For the reasons listed in the General section above, the FHWA disagrees 
and we did not make any changes in this section.

Section 636.102 Does This Part Apply to Me?

    One commenter indicated that the language for this section was 
acceptable. Other commenters did not provide specific comments on this 
section. Therefore, no revisions are made in the final rule for this 
section.

Section 636.103 What Are the Definitions of Terms Used in This Part?

    The DBIA recommended several revisions to the definitions used in 
this section. The suggested revisions include the following:
    [sbull] Delete the term ``clarifications'' and revise the 
definition of ``communications'' to apply to a single-phase selection 
procedure or both phases of a two-phase procedure. The DBIA suggested 
that all exchanges between the contracting agency and the offerors 
prior to establishing a competitive range (and subsequent discussions) 
or selection without discussions, are for the purpose of correcting 
non-substantive errors and omissions and addressing issues and 
ambiguities in order to enhance understanding and facilitate evaluation 
of the qualification submissions or proposals.
    The FHWA disagrees with the recommendation to delete the term 
``clarifications'' and revise the term ``communications.'' These terms 
have specific meanings based on case law. The use of the commenter's 
recommended definition would not clarify this issue. However, there is 
merit in clarifying that the terms ``clarifications, communications, 
and discussions'' only apply to information exchanges after the release 
of the RFP document. We added a new section, 636.401 titled ``What 
types of information exchange may take place prior to the release of 
the RFP document?'' to clarify that such information exchanges (in the 
first-phase of a two-phase selection procedure) must be consistent with 
State and/or local procurement integrity requirements. In the final 
rule, we revised Section 636.401 to Section 636.402 ``What types of 
information exchange may take place after the release of the RFP 
document?''
    [sbull] Revise the second sentence of the definition of ``fixed 
price/best design'' to read: ``Design solutions and other qualitative 
factors are evaluated and rated, with award going to the firm offering 
the best qualitative proposal for the established price.'' This 
commenter suggested this change to eliminate potentially restrictive 
and ambiguous language. We agree with this recommendation and have 
incorporated this in the final rule.
    [sbull] Revise the definition of ``stipend'' by inserting the term 
``unsuccessful offerors'' in lieu of the term ``most highly qualified 
unsuccessful offerors.'' This commenter stated that some

[[Page 75912]]

agencies pay stipends to all responsive, unsuccessful offerors; others 
pay only to those offerors in the competitive range. The commenter 
suggested a change in the definition to remove a potential ambiguity. 
We agree with this recommendation and have incorporated this in the 
final rule. With this revision, contracting agencies will have more 
discretion in providing stipends.
    [sbull] Revise the term ``technical proposal'' to read as follows: 
``Technical proposal means that portion of a design-build proposal 
which contains design solutions and other qualitative factors, which 
may include, without limitation, schedule, quality control/quality 
assurance (QC/QA), management plans, maintenance of traffic, 
maintainability and community relations.'' This commenter suggested 
that the term could include any relevant information that the 
contracting agency deems to be important. We partially agree with the 
recommended revision for the term ``technical proposal,'' however, it 
would seem more practical to keep the definition as simple as possible. 
Therefore, we provided the following definition in the final rule: 
``Technical proposal means that portion of a design-build proposal 
which contains design solutions and other qualitative factors that are 
provided in response to the RFP document.''
    [sbull] Revise the definition of ``tradeoff'' to read as follows: 
``Tradeoff means an analysis technique involving tradeoffs among price 
and non-price factors, which can be used by the contracting agency to 
assist in the comparative assessment of proposals to determine the best 
value when considering selection of other than the lowest priced 
proposal.'' This commenter believed that a tradeoff is not a separate 
best value selection method, but rather an analysis technique to 
determine best value. We agree with this recommendation and have 
incorporated this in the final rule.
    [sbull] Revise the definition of ``discussions'' to use the plural 
versions of the words offeror and proposal to be consistent with the 
requirement to include all offerors in the competitive range in 
discussions. We agree with this recommendation and have incorporated 
this in the final rule.
    [sbull] Revise the definitions of the ``request for qualification'' 
and ``short listing'' to provide consistent terminology by using the 
term ``most highly qualified offerors'' in each. We agree with this 
recommendation and have incorporated this in the final rule.
    A private individual suggested revisions similar to the 
recommendations above for the terms ``discussions,'' ``fixed price/best 
design,'' ``stipend,'' ``technical proposal,'' ``tradeoff,'' ``request 
for qualification,'' and ``short listing.'' In addition, this commenter 
suggested that FHWA consider the following:
    [sbull] It would make more sense to include the definitions for 
``clarifications'' and ``communications'' in the same section as the 
regulatory text. We disagree with this suggestion.
    [sbull] Consider deleting the term ``modified design-build.'' This 
commenter stated that the design-builder's role is not generally 
limited to completion of the design and construction. It was suggested 
that there is no need to have a defined term for a level of preliminary 
design if the FHWA kept this definition. We agree that the level of 
design should be removed, however, many contracting agencies continue 
to utilize modified design-build method of contracting and therefore, 
we believe that it is appropriate to maintain this definition in the 
final rule.
    [sbull] The FHWA needs to recognize the difference in meaning 
between the terms ``price'' and ``cost.'' The price offered by the 
design-builder is the owner's cost. From the design-builder's 
perspective, the price is its cost plus overhead and profit. This 
commenter suggested that when considering mostly fixed price, lump sum 
design-build contracts, the FHWA should consider using the term 
``price'' when discussing the consideration and evaluation of proposals 
(e.g., in the definitions for ``best value selection,'' ``single-phase 
selection,'' ``two-phase selection,'' and ``weighted criteria 
process,'' and Sec. Sec.  636.201, 636.203, and 636.302). We agree with 
this recommendation and revisions have been made as appropriate in the 
final rule.
    The TCA suggested that the terminology used in part 636 is 
inconsistent with the terminology contained in legislation in various 
States allowing agencies to use design-build and further suggested that 
this would not be an issue if the part 636 requirements were converted 
to guidance. This entity also suggested revisions to two proposed 
definitions as follows:
    [sbull] Revise the definition of ``contracting agency'' as follows: 
``Contracting agency means the public agency awarding and administering 
a design-build contract, which may be the STD or another State or local 
public agency.'' This commenter stated that in some cases, projects are 
developed by an entity which is not the ultimate owner, and which is 
not acting as an agent for the ultimate owner. We agree with this 
comment and have incorporated similar language in the final rule.
    [sbull] Revise the definition of ``design-build contract'' as 
follows: ``Design-build contract means an agreement that provides for 
design and construction of improvements by a contractor or private 
developer. The term encompasses design-build-maintain, design-build-
operate, design-build-finance and other contracts that include services 
in addition to design and construction. Franchise and concession 
agreements are included in the term if they provide for the franchisee 
or concessionaire to develop the project that is the subject of the 
agreement.'' We agree with this recommendation and have incorporated 
this revision in the final rule.
    The ASCE suggested that the FHWA incorrectly used the term 
``stipend'' but did not provide a recommendation for the proper term to 
use. We disagree with this comment. Many contracting agencies have used 
stipends in SEP-14 design-build projects. The definition in Sec.  
636.103 reflects the current usage and is appropriate.

Section 636.104 Does This Part Apply to All Federal-Aid Design-Build 
Projects?

    Several commenters recommended different revisions to the first 
sentence of this section to clarify the applicability of the regulation 
to Federal-aid projects. We agree with these commenters. The FHWA is 
revising the first sentence of this section to remove references to 
highway systems. The final rule applies to all Federal-aid design-build 
projects within the highway right-of-way or linked to a Federal-aid 
highway project (i.e., the project would not exist without another 
Federal-aid highway project). Projects that are not located within the 
highway right-of-way, and not linked to a Federal-aid highway project 
may use State-approved procedures. This rule applies to all Federal-aid 
projects in the highway right-of-way (or linked to a Federal-aid 
highway project) regardless of whether that project is located on the 
NHS or non-NHS systems.
    The TCA suggested that it would be advisable to divide this section 
into two subparts--one of which is binding and one of which is 
advisory. This commenter went on to say that many of the rules should 
be converted to guidelines, rather than imposing restrictions that 
reduce the agency's flexibility under applicable State and local 
procurement law, and which in some cases may conflict with requirements 
of State and local laws. This entity suggested that the public interest 
would be best served by

[[Page 75913]]

allowing applicable State and local law to control the procurement 
process, including the rules that apply to the source selection 
decision. We disagree with this comment. The FHWA response to this 
issue was previously provided in the ``Flexibility'' section above.

Section 636.105 Is the FHWA Requiring the Use of Design-Build?

    Peter Kiewit Sons', Inc. supported the language and indicated that 
a program that gives the States options is appropriate. The FHWA agrees 
and did not make any revisions to this section.

Section 636.106 What Type of Projects May Be Used With Design-Build 
Contracting?

    Several commenters supported the flexibility provided by this 
section; however, one commenter suggested that contracting agencies be 
required to justify their decision to use design-build. The AGC 
recommended that STDs be required to submit their rationale for 
electing to use the design-build contracting method for a specific 
project rather than using the traditional design-bid-build selection 
procedure. This association further stated that contracting agencies 
should be required to specify what they hope to gain in using design-
build that could not be achieved by using the traditional process.
    On the other hand, Sundt Construction, Inc. suggested that owners 
should be able to select a contracting method that will provide the 
greatest opportunity for success based on the project objectives deemed 
to be most important for that particular project. This commenter stated 
that project size, type and location are immaterial to the contracting 
method and should not limit the selection of the appropriate delivery 
method.
    While the FHWA appreciates the differing viewpoints voiced by the 
construction industry association, we agree with the majority of 
commenters who agreed with the flexibility provided by this section, 
and therefore, no changes are provided in the final rule.

Section 636.107 Does the Definition of a Qualified Project Limit the 
Use of Design-Build Contracting?

    The Missouri DOT acknowledged that the definition of a ``qualified 
project'' is a statutory requirement that the FWHA cannot change. The 
Utah DOT recommended that if the definition could be modified, it be 
revised to include small projects and not list a dollar amount. Several 
commenters believed the definition of a qualified project is too narrow 
and suggested that the FHWA expand the definition to include what is 
currently termed ``modified design-build,'' as well as ``quality based 
selection,'' where selection is based solely on technical merit and 
where cost is negotiated at a later date with the selected contractor. 
While we appreciate the concerns of the contracting agencies concerning 
the implications of the definition of a ``qualified project,'' the FHWA 
cannot revise the statutory definition. Furthermore, the FHWA believes 
that this definition will have little or no impact on a contracting 
agency's decision to use design-build.
    The New Jersey DOT suggested that neither the TEA-21 nor the 
proposed rule clearly defines a qualifying design-build project. It 
suggested that if the final rule does not provide a more complete 
definition, the STDs should have the ability to select design-build 
projects under the authority of 23 U.S.C. 145. We agree with this 
commenter. The final rule incorporates the statutory definition of a 
``qualified project'' without further limitation. The FHWA believes 
that it is important to provide discretion to contracting agencies in 
the selection of design-build projects.
    The Missouri DOT recommended the removal of SEP-14 from existing 
rules. However, the New York State DOT was pleased that the SEP-14 
process would continue so that design-build could continue for projects 
that did not meet the ``qualified projects'' definition. This commenter 
believed the statutory definition of a ``qualified project'' was too 
narrow and hoped that future legislation would remedy this. Numerous 
commenters agreed with the concept of delegating SEP-14 approval 
authority to the FHWA Division offices. In addition, several commenters 
suggested that, for those States with an approved design-build program 
in place, the STD may elect to assume the approval authority for the 
design-build RFP, any addenda, and for the SEP-14 process.
    The TCA recommended specific revisions to this section and 
suggested the rule also address the use of SEP-14 for innovative 
contracting approaches for ``qualified projects.''
    The FHWA believes the rule is clear; however, we agree with one of 
the commenters who suggested that SEP-14 approval might be appropriate 
for qualified projects that incorporate innovative contracting 
techniques and might not fully comply with the rule. These types of 
projects would still need SEP-14 concept approval. Therefore, the last 
sentence of Sec.  636.107(a) is revised to read as follows: ``Projects 
which do not meet the requirements of this part (either ``qualified'' 
or ``non-qualified'' projects) must be submitted to the FHWA 
Headquarters for concept approval.''

Section 636.108 How Does the Definition of a Qualified Project Apply to 
ITS Projects?

    The AASHTO suggested that there needs to be consistency between the 
definitions of ITS among the various segments of the Federal government 
but did not offer a specific recommendation. The ITS definition is 
taken from section 1307 of the TEA-21. No revisions are made in the 
final rule.

Section 636.109 How Does the NEPA Review Process Relate to the Design-
Build Procurement Process?

    As noted in Sec.  635.309 above, several commenters suggested that 
the FHWA remove the limitation that prohibits the STDs from releasing 
the RFP document prior to the conclusion of the NEPA process. The 
AASHTO suggested that this could be accomplished without compromising 
the intent of NEPA process. It suggested that the procurement process 
could stretch out over several months, or even years. The AASHTO 
believed that the FHWA's requirement for a complete NEPA process 
followed by the release of the RFP document would only lengthen an 
already lengthy process and negate any potential time saving benefits 
of the design-build delivery method. We disagree with this commenter 
for the NEPA policy reasons noted below.
    An individual commenter suggested that, without the limitation on 
the release of the RFP document, offerors could simultaneously be 
preparing and submitting their proposals for evaluation while the NEPA 
process is concluding. In addition, contract award, mobilization and 
continuation of preliminary design by the design-builder could also 
take place if the contracting agency elected to do so. We disagree with 
this commenter for the NEPA policy reasons noted below.
    The New York State DOT suggested that the design-builder be allowed 
to perform work necessary to complete the NEPA document as long as 
appropriate trigger points were included in the contract (i.e. stop or 
control points for final design and construction). Other commenters 
suggested that the RFP document could be released prior to the 
completion of the NEPA process, but award of the contract should not be 
made until the NEPA process is complete. The TCA suggested that a 
design-build contract award could be made prior to the conclusion of 
the

[[Page 75914]]

NEPA process, as long as there were provisions made to modify or 
terminate the contract. It indicated that the design-builder could 
proceed with the contract work as long as it did not include final 
design or construction. We disagree with these commenters for the NEPA 
policy reasons stated below. We have made no changes to the rule.
    On the other hand, the AGC and the ACEC agreed with the NPRM 
limitation on the release of the RFP document. The AGC stated that 
asking for proposals prior to the conclusion of NEPA shifts an 
unnecessary risk to the proposers. It believed that it is not fair to 
ask proposers to undertake design and proposal costs on a project that 
has the potential for not moving forward. The AGC believed that STDs 
would not be willing to compensate proposers for their development 
costs should the project be stopped in the NEPA process. The AGC 
believed that this would limit competition to those firms that are 
willing to accept certain risks. The ARTBA suggested that it is 
important to maintain an even playing field with the traditional low-
bid system that currently requires the NEPA process to reach conclusion 
before a project advances. The DPC expressed a concern regarding 
concurrent NEPA and project delivery processes with a guaranteed 
completion date that would add significant cost if the project is 
unexpectedly delayed. We agree with the industry commenters who are 
concerned about unreasonable risk allocation through an early release 
of the RFP document. However, we do not believe that modifications are 
necessary in the final rule.
    The New Jersey DOT and Sundt Construction, Inc. seem to be 
concerned that the proposed rule would require all environmental 
clearances (permits) to be obtained prior to advertising design-build 
projects. The AASHTO noted that the subject of environmental permitting 
was not discussed in the NPRM, but suggested that there be no FHWA 
restrictions that would prohibit the STDs from delegating the 
responsibility for obtaining environmental permits to the design-
builder.
    The FHWA agrees with AASHTO's comment. The rule does not address 
the subject of environmental permits and provides complete flexibility 
to contracting agencies regarding the responsibility for obtaining 
these permits. Contracting agencies may delegate the responsibility for 
obtaining such permits from other resource agencies (e.g., Corps of 
Engineers, U.S. Coast Guard, etc.) to the design-builder. Therefore, 
the FHWA made no changes concerning this topic.
    The AASHTO and the DBIA noted that there is no requirement in the 
TEA-21 or the NEPA that limits a contracting agency from issuing the 
RFP prior to concluding the NEPA process. They suggested the limitation 
in the rule would unnecessarily extend the time for putting the project 
under contract and therefore the ultimate timeline for project 
completion. The FHWA disagrees with this comment. While there may be 
some delay in the procurement process for certain projects, the 
overriding NEPA policy concerns noted below are more important from the 
FHWA's perspective.
    The DBIA stated that Congress enacted 23 U.S.C. 112 (b)(3)(B) to 
resolve disputes between the FHWA and State and local agencies 
regarding whether the NEPA prohibits local and State agencies from 
entering into design-build contracts prior to the completion of the 
NEPA process. This commenter contended that 23 U.S.C. 112(b)(3)(B) 
resolved this dispute by clarifying that those portions of the design-
build process, up to but not including final design, may be initiated 
prior to the completion of the NEPA process. The FHWA disagrees with 
this commenter who interprets the TEA-21 provisions to allow the 
release of the RFP document at any time during the NEPA process. We 
disagree for the NEPA policy reasons noted below.
    Several commenters suggested that case law interpreting the NEPA 
permits State and local agencies to proceed with projects at their own 
risk prior to completion of the NEPA process, so long as the agency 
does not take irretrievable action to develop the project. These 
commenters believed that STDs should be granted the flexibility to take 
these actions when warranted on a particular project. We disagree with 
these commenters and have made no changes in the final rule.
    Based on the comments provided to the docket, there is apparently a 
certain degree of confusion regarding NEPA compliance as it relates to 
design-build. First, the FHWA disagrees with the commenters who 
suggested that the provisions of the TEA-21 allow the RFP document to 
be released at any time during the NEPA process. Title 23, U.S. Code, 
section 112(b)(3)(B) states the following: ``Final design under a 
design-build contract referred to in subparagraph (A) shall not 
commence before compliance with section 102 of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332).'' We believe the 
congressional intent of this provision was to ensure full compliance 
with the NEPA for all design-build projects. It was not meant to 
nullify the independent NEPA decision-making process by allowing STDs 
to award design-build contracts and proceed with all work except for 
final design and construction. To ensure a completely unbiased NEPA 
process, it is imperative that the STDs perform a level of design and 
environmental review that is adequate to fully evaluate the range of 
reasonable alternatives chosen to meet project goals and avoid adverse 
environmental impact. Only after the STD concludes the NEPA independent 
decision-making process, is it acceptable to release the final RFP 
document.
    Second, the FHWA's NEPA review process was developed to ensure that 
environmental impact information for any federally funded action is 
available to public officials and citizens before decisions are made 
and before actions are taken. The success of the NEPA process is based 
on the assumption that there will be an objective and unbiased review 
of all reasonable alternatives that address project needs and are 
prudent in terms of avoiding potential environmental effects. Moreover, 
the public perception of the NEPA review process is very important to 
the FHWA and the States. The perception of an unbiased review process 
(which includes a no-build alternate) must not be compromised by a 
decision to release the design-build RFP prior to the conclusion of the 
NEPA review process. Therefore, the NEPA review process must be 
complete (an approval received for a Categorical Exclusion, Finding of 
No Significant Impact, or a Record of Decision as defined in 23 CFR 
771.113(a)) prior to releasing the RFP document. The FHWA's 
environmental regulations in 23 CFR 771 require the evaluation of 
alternatives, their environmental consequences, and the incorporation 
of mitigation measures (avoidance, minimization, and compensation) 
prior to proceeding with an action. Project activities beyond those 
necessary to answer environmental questions during the NEPA review 
process (for example: final design, right-of-way acquisition, and 
construction) are not permitted prior to the conclusion of the NEPA 
review process.
    Third, due to the nature of the design-build process, proposers 
often expend significant effort preparing technical and price proposals 
in response to an RFP. Therefore, STDs have a responsibility to: ensure 
that the RFP scope of work includes the details related to all 
environmental commitments, and, assure proposers that the scope will 
not change as a result

[[Page 75915]]

of the environmental review process. All proposers on design-build 
projects must be given the opportunity to consider environmental 
mitigation commitments in their price proposals. This is important for 
ensuring reasonable risk allocation for environmental commitments and 
maintaining the integrity of the competitive acquisition process.
    Fourth, many of the commenters to the docket may not have been 
aware that the rule provides some degree of flexibility in this area. 
Section 636.109 allows contracting agencies to solicit qualifications 
prior to the conclusion of the NEPA process as long as the solicitation 
informs proposers of the general status of the NEPA process. Therefore, 
a contracting agency can request, receive, and evaluate qualifications 
and develop a short list of the most qualified offerors. In addition, 
Sec.  636.115 allows contracting agencies to issue draft RFPs and to 
exchange certain types of information prior to releasing the final RFP 
document. Draft RFPs may be released prior to the conclusion of the 
NEPA process as long as the draft RFP informs proposers of the general 
status of the NEPA process and lists all NEPA alternatives (including 
the no-build alternative) under consideration by the contracting 
agency. The draft RFP document, however, must make it clear that the 
final RFP document will not be released until the conclusion of the 
NEPA process. Contracting agencies have the discretion to determine how 
a draft RFP document may be revised to develop and release a final RFP 
document.
    For all of the above reasons, the FHWA is not revising the language 
for this section. We believe that the limitation concerning the release 
of the RFP document is appropriate and necessary to maintain an 
objective and unbiased NEPA review process for design-build projects.

Section 636.110 What Procedures May Be Used for Solicitations and 
Receipt of Proposals?

    Peter Kiewit and Sons'', Inc. indicated the proposed rule was 
acceptable however, they expressed a concern that all contracting 
agencies might not actually have ``procedures'' to adequately address a 
process that involves design-build. It was suggested that the FHWA work 
with industry to develop guidelines in this area. The FHWA will be glad 
to work with the AASHTO and industry in developing any guidelines that 
might be appropriate for design-build contracting. However, we believe 
the language for this section is satisfactory and we made no revisions 
to the final rule.

Section 636.111 Can Oral Presentations Be Used During the Procurement 
Process?

    Most comments supported this section, however, the TCA suggested 
this section should be converted to a guideline. The FHWA believes the 
language for this section is satisfactory and no revisions are made in 
the final rule.

Section 636.112 May Stipends Be Used?

    Most comments supported this section. The DBIA recommended that all 
information regarding the proposed use of stipends on a particular 
procurement must be included in the solicitation documents. The FHWA 
believes that flexibility is appropriate here. Therefore, contracting 
agencies may, at their own discretion, include information regarding 
the use of stipends in solicitation documents.
    Peter Kiewit and Sons'', Inc. and the DBIA recommended the deletion 
of the phrase ``the most highly ranked'' for the reasons noted in the 
preamble discussion for Sec.  636.103 above. We agree with these 
commenters. As noted in the definitions section above, the final rule 
provides a revision to delete the phrase ``the most highly ranked'' 
from the definition of a ``stipend'' in Sec.  636.103 and the 
regulatory text in Sec.  636.112. Otherwise, the FHWA believes this 
section is sufficiently clear.

Section 636.113 Is the Stipend Amount Eligible for Federal 
Participation?

    Most comments supported this section. Several commenters suggested 
that the proposed language could be interpreted to mean that there is a 
difference between ``If provided by State law'' and ``If not prohibited 
by State law.'' These commenters provided differing recommendations to 
allow flexibility if it is not prohibited by State law.
    The FHWA agrees with the recommendation for clarity. The final rule 
provides a revision for Sec.  636.113(b) to read as follows: ``Unless 
prohibited by State law, you may retain the right to use ideas from 
unsuccessful offerors if they accept stipends.''

Section 636.114 What Factors Should Be Considered in Risk Allocation?

    Most comments supported this section. The ACEC suggested that 
contracting agencies should consider establishing a comment period on 
proposed terms and conditions prior to requesting qualifications on a 
project. Additionally, they might consider owner controlled insurance 
programs as market trends indicate an increasing unavailability of 
policies for design firms in the design-build market based on severe 
owner provisions and requirements.
    The TCA suggested that this section be converted to guidance. This 
commenter also suggested adding the phrase ``or the impact of a given 
risk'' be added to the second sentence of paragraph (a), as in some 
cases a party may not be able to control the occurrence of a risk, but 
does have the ability to manage the impact.
    The FHWA appreciates the concerns of the industry representatives 
regarding risk allocation, and we believe that a minor revision is 
appropriate in the final rule. The FHWA has incorporated the TCA's 
recommendation in the second sentence of Sec.  636.114(a) in the final 
rule.

Section 636.115 May I Meet With Industry To Gather Information 
Concerning the Appropriate Risk Allocation Strategies?

    Several commenters recommended the use of the term ``potential 
offerors'' or ``other offerors'' instead of the word ``public'' in 
paragraph (e) so that a public hearing process is not inadvertently 
invoked. The FHWA agrees that this language needs clarification so the 
term ``all potential offerors'' is used instead of the term ``the 
public.''
    Peter Kiewit Sons'', Inc. supported the proposed language and the 
concept of information exchanges about project risks that have become 
known as ``industry review sessions.'' This commenter believed that 
such sessions benefit both offerors and contracting agencies and often 
result in a less costly project with fewer disputes and claims.
    The TCA suggested that this section be converted to guidance and 
also recommended that a clause be added to the second sentence of 
paragraph (e) such that it would read as follows: ``Information 
provided to a particular offeror in response to that offeror's request 
shall not be disclosed if such information was provided in accordance 
with procedures established in the RFP and if disclosure would reveal 
the potential offeror's confidential business strategy.'' This 
commenter suggested that this revision is necessary to avoid problems 
that may arise when the procedures for communications set forth in the 
RFP document are not followed. The FHWA does not believe that the 
second sentence of paragraph (e) needs additional clarification.

[[Page 75916]]

Section 636.116 What Organizational Conflict of Interest Requirements 
Apply to Design-Build Projects?

    The AASHTO, the New York State DOT and the Virginia DOT recommended 
that paragraph (a)(2)(v) be revised to require all proposers to provide 
information concerning potential organizational conflicts of interest 
in their proposals (not prior to award as stated in the proposed rule). 
These commenters believed that this would avoid unnecessary delays. The 
FHWA agrees and the final rule provides the following for this section: 
``(v) Requires offerors to provide information concerning potential 
organizational conflicts of interest in their proposals.''
    The Colorado DOT suggested that this section is inconsistent with 
its State law, which is more specific than the proposed language. This 
commenter said it is not clear whether its State rules would have to be 
amended to comply with the proposed rules even though the State rules 
are more specific. This commenter also questioned the use of the phrase 
``Involvement with the design-build procurement process'' in paragraph 
(a)(1)(ii). This entity believed that all actions leading up to 
issuance of the RFP document are part of the design-build process. 
Finally, this commenter believed that this section be converted to 
guidance or that the regulation provide that local statutes or policies 
regarding conflicts of interest are applicable to design-build 
projects. The FHWA does not agree that this section should be converted 
to guidance because paragraph (b) indicates this section only provides 
minimum standards to identify actual or potential conflicts of 
interest. To the extent State or local standards are more stringent 
than those in the rule, the State or local standards prevail. We 
partially agree with this commenter that this section needs 
clarification (see below).
    Two individual commenters suggested that consultants and sub-
consultants used by owners in the development or preparation of the RFP 
document be prohibited from participating on a team proposing on the 
project. These commenters suggested that as a minimum, contracting 
agencies should require written disclosure. The commenters suggested 
that the FHWA's proposed language, which gives the STDs flexibility in 
this area, is a mistake given the potential for STDs to ignore these 
conflicts in the interest of contracting expediency. We note the 
concerns of these commenters and have revised paragraph (a)(1) for 
clarification (see below).
    The TCA recommended a number of revisions to paragraph (a)(1) to 
clarify that contracting agencies may determine that an organizational 
conflict of interest does not exist for both consultants and sub-
consultants under certain conditions. The recommended revision reads as 
follows:

    (1) Consultants and/or sub-consultants who assist the owner in 
the preparation of a RFP document will not be allowed to participate 
as an offeror or join a team submitting a proposal in response to 
the RFP. However, a contracting agency may determine there is not an 
organizational conflict of interest for a consultant or sub-
consultant where:
    (i) The role of the consultant or sub-consultant was limited to 
provision of preliminary design, reports, or similar ``low-level'' 
documents that will be incorporated into the RFP, and did not 
include assistance in development of instructions to offerors or 
evaluation criteria, or
    (ii) Where all documents and reports delivered to the agency by 
the consultant or sub-consultant is made available to all offerors.

    We agree with this recommendation to clarify paragraph (a)(1) and 
the final rule incorporates the text recommended by the TCA.

Section 636.117 What Conflict of Interest Standards Apply to 
Individuals Who Serve as Selection Team Members for the Owner?

    The Shamrock Paving Company suggested that the regulations should 
require that those involved in the selection process sign a 
certification (under penalty of perjury) that no bias entered into the 
selection process. The TCA recommended specific revisions to require 
contracting agencies to adopt a policy rather than imposing Federal 
Acquisition Requirements.
    The FHWA believes the language is appropriate and no revisions are 
made in the final rule. The rule clearly indicates that the 
requirements of 48 CFR Part 3, Improper Business Practices and Personal 
Conflicts of Interest, will only apply in the absence of such State 
provisions.

Section 636.118 Is Team Switching Allowed After Contract Award?

    The AASHTO and the Virginia DOT noted that the proposed language 
did not address the subject of consultants joining multiple teams. 
These commenters recommended that the FHWA continue to allow 
flexibility in this area. The TCA suggested that this section be 
converted to guidance.
    The FHWA's primary concern is that post-award team switches do not 
result in a reduction in the quality of team members. We did not 
specifically address the subject of consultants joining multiple teams 
in the proposed rule. We do not believe it is appropriate to develop a 
policy in this area as this is a business decision that should be left 
to the discretion of the industry representatives. No revisions are 
made in the final rule.

Section 636.119 How Does This Part Apply to a Project Developed Under a 
Public-Private Partnership?

    The ARTBA suggested that the NPRM provisions regarding public-
private partnerships were confusing. This commenter questioned the 
appropriateness of the requirement for a competitive process as a basis 
for Federal-aid participation. The commenter believed that there may be 
situations where a public agency followed its own policies, but would 
not be eligible for Federal-aid because the process was not deemed to 
be a competitive process by the FHWA. We do not agree with this 
comment.
    The Texas DOT suggested that the language needs to be clarified to 
describe the eligibility of a process where a contracting agency 
receives an unsolicited proposal based on a State law that does not 
require a competitive process. While the language in this section 
needed some clarification, the FHWA maintains that we are not obligated 
to participate in a project simply because a contracting agency 
followed its own procedures. Such procedures may include local 
preferences, minimal incentives for open competition or other 
provisions that are unacceptable for Federal-aid participation. 
Generally speaking, the FHWA does not participate in contracts that are 
based on unsolicited proposals (or developed under other non-
competitive procedures) unless an emergency exists or the contract is 
shown to be cost effective. Upon receiving an unsolicited proposal, a 
contracting agency has the option of notifying other potential 
proposers of the receipt of an unsolicited proposal in the hope of 
receiving other competitive proposals or developing a new project with 
a similar scope of work. If a contracting agency wishes to use Federal-
aid funding, it should develop procedures that address unsolicited 
proposals and provide for open and fair competition.
    The TCA reiterated its belief that these provisions should be 
revised to be consistent with the TEA-21 provisions allowing ``any 
procurement process permitted by applicable State and local law.'' This 
commenter also suggested that a requirement that private developers 
comply with Federal

[[Page 75917]]

procurement procedures is likely to ``chill'' private interest in 
public-private agreements and negate potential private sector 
efficiencies. This entity believed that private developers should be 
permitted to enter into subcontracts in accordance with the terms of 
the public-private agreement and any applicable requirements of State 
and local laws without any Federal requirements that might be tied to 
Federal funding. This commenter also suggested that contracting 
agencies be allowed to provide price justifications if the private 
partner elected not to follow Federal procurement requirements for a 
project where Federal-aid funding was requested. The price 
justifications would be used to convince the FHWA that prices are fair 
and reasonable.
    The FHWA disagrees with this commenter. Private developers will 
need to be aware of FHWA's requirements if the contracting agency 
anticipates using Federal-aid funds in the project. We disagree with 
the approach of using price justifications instead of open competition 
as a basis for Federal-aid participation.
    We believe this section is consistent with the FHWA's long-standing 
policies for competitive contracting and to assure adequate procedures 
for the stewardship of public funds. The FHWA is merely being 
consistent with traditional Federal-aid funding and loan assistance 
programs in setting the policy for this section. Owners must be aware 
that they will have to comply with the FHWA's policies if they wish to 
use Federal-aid funding at some point in the project development 
process.
    The final rule includes a provision that requires a competitive 
process and compliance with State and local laws as a basis for Federal 
participation in public-private partnerships. In addition, in order for 
such projects to be eligible for traditional Federal-aid funds, the 
final rule clarifies the FHWA's eligibility criteria. When the 
developer is acting as an agent of the owner, it must follow the 
appropriate Federal-aid procurement requirements (part 172 for 
engineering service contracts, part 635 for construction contracts and 
the requirements of this part for design-build contracts) for all prime 
contracts.

General Comments--Subparts B Through F

    Several commenters felt that these sections are more prescriptive 
than necessary and that Federal preferences should not be stated in a 
rule. These commenters believed that the procurement mechanism used for 
a design-build project should be left to each contracting agency's 
discretion. Several of these commenters suggested that 23 U.S.C. 
112(b)(3)(A) provides a clear indication of congressional intent not to 
interfere in State and local legislative decisions regarding the 
appropriate methods for procurement of design-build contracts.
    The AASHTO and the TCA indicated that if this language is not 
changed, a monumental nationwide effort would be necessary to revise 
State and local laws and regulations to comply with the FHWA's 
requirements. Several of the commenters recommended that Subparts B 
through F be removed from the regulation and be provided to the 
industry as guidance. We disagree with these comments. The FHWA has 
already addressed the issue of congressional intent and disagrees with 
the recommendation to provide this section as guidance (see the 
discussion in the Flexibility section above).
    The DBIA supported the use of two-phase selection procedures but 
recommended that all selection procedures have value and that the FWHA 
should consider allowing qualification-based selection procedures. This 
commenter suggested that qualification-based selection procedures are 
already authorized in a number of States and this would be consistent 
with the congressional intent of section 1307. The FHWA disagrees with 
this recommendation. We believe that price must be considered in the 
selection of the design-builder where construction is a major component 
of the scope of work under the design-build contract. The use of 
qualifications-based selection procedures or even quality based 
selection procedures is appropriate when the scope of work primarily 
consists of engineering or architectural services; however, where 
construction is the major component of the contract, price must be 
considered in selecting the design-builder.
    A private individual supported the use of an alternate procurement 
process and suggested that, even when a competitive procurement process 
is used, the regulations should not preclude the opportunity for 
negotiations between the selected offeror and the contracting agency 
prior to award. This commenter believed that it is impossible to award 
a contract, where the design-builder is to provide financing, without a 
negotiations phase. The commenter stated that there simply are too many 
variables to address through a proposal process and suggested that this 
section be revised to specifically allow negotiations and to permit use 
of alternative procurement processes. This commenter further suggested 
that, where a pure qualifications-based selection process is used, or 
another alternative procurement process is used that does not include 
price competition, it would be appropriate to require some sort of 
price justification as a condition for Federal participation.
    The FHWA agrees that there is merit in allowing limited 
negotiations after the selection of the design-builder but prior to the 
execution of the contract, however, we believe that such negotiations 
should be restricted to the clarifications that are necessary to 
prepare the final contract language. In order to be fair to the other 
proposers, such negotiations must not be used to substantially change 
the basic concepts that were provided in the successful offeror's 
proposal. We agree that when the design provided in the RFP documents 
is very conceptual, limited negotiations may be beneficial and 
necessary in order for both parties to clearly understand the issues 
and to ensure the contract clearly reflects this understanding.
    Therefore, we have added Sec.  636.513, Are limited negotiations 
allowed prior to contract execution? This provision allows for limited 
negotiations to clarify any remaining misunderstanding regarding scope, 
schedule and financing issues. However, the limited negotiations must 
not violate the prohibitions of Sec.  636.507. It is not acceptable to 
use concepts from other proposers in final negotiations prior to 
contract execution.
    The Texas DOT suggested, that when design is in the very conceptual 
stage (less than 5 percent complete), negotiations prior to award are 
often beneficial and necessary in order for both parties to ensure that 
their intent is clearly understood and reflected in the contract 
documents. This commenter noted that the Federal Transit Administration 
encourages negotiated design-build contracts. As noted above, we agree 
with the need for limited negotiations; however, we note that the 
Federal Transit Administration also requires a competitive acquisition 
process where price must be considered in the selection process if 
construction is a major element of the scope of work.
    The ACEC recommended that contracting agencies use fully developed, 
pre-defined point award systems and judging rules that are described in 
the RFQ and/or RFP documents. This commenter believed that contracting 
agencies should place significant weight on technical qualifications 
and not over emphasize price at the expense of other essential 
criteria. The commenter believed that owners must assign knowledgeable

[[Page 75918]]

people to the selection team and require separate price and technical 
proposal submissions whereby price proposals are opened only after the 
technical scoring is completed and published. We agree that a 
contracting agency's evaluation and selection process need to be 
clearly defined in the RFQ and RFP documents; however, we believe the 
final rule provides appropriate flexibility while fostering an open and 
competitive process.

Section 636.201 What Selection Procedures and Award Criteria May Be 
Used?

    The ASCE and NSPE expressed support for the mandatory use of the 
two-phase competitive source selection procedures and recommended that 
the FHWA amend the proposed regulation to require all STDs to use the 
two-phase competitive source-selection procedures for design-build 
projects, to the extent that the awarding of a design-build contract is 
consistent with State law.
    On the other hand, the AGC supported the provisions that recommend, 
but do not require, the use of two-phase selection procedures. Based on 
its experiences, this commenter suggested that the two-phase selection 
process works well in most instances, but there may be certain cases 
where it might be appropriate to use a different selection procedure. 
This commenter highlighted the fact that the Congress recognized this, 
when debating the inclusion of design-build language in the TEA-21, it 
decided to reject a requirement for the use of the two-phase process. 
This commenter believed that the provisions address both of these 
concerns.
    The FHWA does not believe it is appropriate to mandate the use of 
two-phase selection procedures in the Federal-aid highway program. 
While the Federal Government has elected to do so for Federal 
contracting, we do not believe that this is appropriate for the 
transportation industry. We strongly encourage contracting agencies to 
utilize two-phase selection procedures, however, the use of two-phase 
procedures remains optional.

Sections 636.202, 636.203, 636.204, 636.208 and 636.212

    Very few substantive comments were received regarding these 
sections and, therefore, we are addressing these sections cumulatively. 
Peter Kiewit Sons', Inc. expressed support for these provisions while 
the TCA suggested that these provisions be converted to guidance.
    We previously addressed the section to convert this rule to 
guidance. We made a minor revision in the final rule to use the term 
``price'' instead of ``cost'' when referring to price proposals.

Section 636.205 Can Past Performance Be Used as an Evaluation Criteria?

    The AGC suggested that in order for a two-phase selection process 
to work properly, it is important that contractors have faith in the 
system and that as much subjectivity as possible be removed from the 
process. It suggested that the FHWA work with the industry to develop 
guidance for the fair evaluation of past performance. The AGC indicated 
that this guidance should provide for a neutral appeals process, a 
means of ensuring the opinions of a single individual do not control 
the process, and a means to eliminate or at least mitigate a poor 
performance evaluation.
    The ARTBA opposed the use of past performance as an evaluation 
criteria since it opens up the process to significant subjectivity. 
This commenter suggested that, if contracting agencies are allowed to 
use past performance as a selection criteria, its use should be limited 
to the short listing process and should not be used in final selection.
    While the FHWA appreciates the industry concerns concerning the use 
of past performance, we believe that contracting agencies should have 
the ability to consider past performance in the procurement process; 
therefore, no revisions are made in the final rule. The FHWA concurs 
with the suggestions that guidance be cooperatively developed with the 
industry but this is outside the scope of this rulemaking.

Section 636.206 How Do I Evaluate Offerors Who Do Not Have a Record of 
Relevant Past Performance?

    The DBIA and the Colorado DOT suggested that the provisions of this 
section were problematic and inconsistent with the provision in Sec.  
636.205(a) and (b). These commenters suggested that this requirement be 
deleted in its entirety. The TCA suggested that these provisions be 
converted to guidelines.
    The FHWA utilized the FAR provisions for the language in this 
section. The intent of this section is to provide an equal footing for 
those firms who do not have a record of relevant past performance. 
Federal agencies have used similar requirements for several years and 
are available as a resource for contracting agencies that may have 
questions in this area.

Section 636.207 Is There a Limit on Short Listed Firms?

    The AASHTO and the Virginia DOT suggested using the word ``shall'' 
with ``should'' in the first sentence and striking the phrase, ``and is 
consistent with the purposes and objectives of two-phase design-build 
contracting,'' as this appears to reinforce a preference for a two-
phase procurement process. The South Carolina DOT recommended removing 
any restriction on the maximum number of firms to be short listed.
    On the other hand, the DBIA supported the provisions; however, it 
suggested that there are times when it is appropriate to short list 
only two offerors and a provision should be made for this in the 
regulation as well.
    The FHWA believes that there is sufficient flexibility in the 
language of the rule to address most of these concerns. However, it is 
not appropriate to short list only two firms as one commenter 
suggested.

Section 636.209 What Items Must Be Included in a Phase-Two 
Solicitation?

    The AASHTO and the DBIA supported the provisions of this section. 
The TCA suggested that these provisions be converted to guidelines. 
Peter Kiewit Sons', Inc. suggested that the phase-two solicitation also 
should include the prime contract, applicable design and construction 
standards and criteria, procedures for requesting clarifications or 
changes in the RFP documents, intergovernmental agreements (if 
applicable), and any other item that offerors reasonably require to 
develop their proposed price, schedule and technical approach for the 
project.
    The FHWA believes that language in the rule is sufficiently broad 
and clear. As noted in Sec.  627.5 above, the final rule is also 
modified to clarify that contracting agencies may allow proposers to 
submit alternate technical proposals.

Section 636.210 What Requirements Apply to Projects Which Use the 
Modified Design-Build Procedure?

    The New Jersey DOT disagreed with the provision that indicated the 
modified design-build technique should be limited to projects that are 
``simple in scope.'' Based on its experience, this commenter believed 
that it is possible to use modified design-build on very complex 
projects. The FWHA agrees and has removed the term ``simple in scope'' 
from the final rule. We agree that many projects that have used the 
modified design-build method are not simple projects.

[[Page 75919]]

    The AASHTO, the Florida DOT and the Virginia DOT recommended that 
this section be deleted. Assuming that the STDs would have discretion 
in choosing the appropriate procurement method for a given project, 
these commenters believed that the information in this section is 
unnecessary. The FHWA disagrees and believes that it is important to 
include a provision that describes this process.
    The ASCE and the NSPE recommended that the FHWA delete any 
reference to the use of the ``modified design-build contracting 
method'' included in this section as it believed that this novel low-
bid method is not sanctioned by other provisions of law and violates 
the requirements of the Federal Acquisition Reform Act of 1996. We 
disagree with these commenters. The Federal Acquisition Reform Act of 
1996 does not apply to the Federal-aid highway program.
    The Utah DOT noted the benefits of tradeoff techniques and 
questioned why tradeoffs were not allowed for modified design-build 
projects. This commenter suggested that the FHWA re-evaluate this 
decision. We disagree with this suggestion. Since modified design-build 
projects are awarded to the lowest price responsive proposer, it is not 
appropriate to consider tradeoffs between price and non-price factors 
when awarding such projects.

Section 636.211 When and How Should Tradeoffs Be Used?

    Several commenters recommended that this section be deleted from 
the regulation as STDs should have the discretion to develop their own 
evaluation criteria, award formulas and selection procedures for each 
project.
    The DBIA and Peter Kiewit Sons', Inc. questioned the requirement 
that cost or price must have a weight of at least 50 percent in the 
award criteria. These commenters believed that contracting agencies 
should have more flexibility in developing evaluation criteria and 
award formulas in order to obtain a best value selection. The DBIA 
questioned why the procedure of dividing the submitted price by the 
technical evaluation score would be viewed as complying with the 50 
percent requirement. We appreciate the concern regarding the 50 percent 
price-weight criteria. The FHWA has used this criteria as a rule of 
thumb in providing guidance for the SEP-14 program. However, we 
recognize the problems associated with compliance with this 
requirement. Therefore, we have revised this section and Sec.  636.302 
of the final rule to be consistent with the provisions in 48 CFR 15.302 
which provides that the solicitation shall state, at a minimum, whether 
all evaluation factors other than cost or price, when combined, are--
(1) Significantly more important than cost or price; (2) Approximately 
equal to cost or price; or (3) Significantly less important than cost 
or price.
    The DBIA and a private individual suggested that the term 
``tradeoff process'' be replaced with ``tradeoff technique'' as 
discussed in the definition discussion above. As noted in Sec.  636.103 
above, we agree. We have revised the appropriate sections of this part 
in the final rule.
    The ARTBA suggested that when tradeoff techniques are used, the 
solicitation should not only include all of the factors that will be 
evaluated, but also the numeric scale that will be applied to each 
factor. This commenter believed that many design-build solicitations 
only list weighted percentages for each factor, which can be easily 
manipulated after the fact. We disagree with this suggestion and 
believe contracting agencies need the ability to develop and 
appropriately weight evaluation criteria.

Section 636.301 How Should Proposal Evaluation Factors Be Selected?

    The Illinois DOT suggested that STDs be provided maximum discretion 
in their decisionmaking process concerning the selection of evaluation 
factors. This commenter suggested that they be allowed to mirror the 
prequalification requirements in the request for proposal.
    The FHWA believes the provisions were sufficiently broad and 
flexible. No revisions were made to the final rule.

Section 636.302 Are There Any Limitations on the Selection and Use of 
Proposal Evaluation Factors?

    Two private individuals, the AASHTO, the Virginia DOT and the South 
Carolina DOT suggested that this section be deleted and rewritten to 
give the STDs broad discretion in selecting proposal evaluation 
factors. Peter Kiewit Sons', Inc. and the Washington State DOT 
questioned the requirement that cost or price must have a weight of at 
least 50 percent in the award criteria and suggested that contracting 
agencies be provided more flexibility.
    On the other hand, the AGC and the Shamrock Paving Company believed 
that both the FHWA and the States have a fiduciary responsibility to 
manage the expenditure of Highway Trust Fund dollars in the most 
efficient fashion possible. This commenter recommended that price be a 
significant factor in contractor selection in the design-build process 
whether using the two-phase selection method or some other method.
    As noted in the discussion for Sec.  636.211 above, we are revising 
the language in this section to remove the 50 percent criteria. The 
final rule provides the following text in paragraph (a)(1): ``You must 
evaluate price in every source selection where construction is a 
significant component of the scope of work.''

Section 636.303 May Pre-Qualification Standards Be Used as Proposal 
Evaluation Criteria in the RFP?

    Peter Kiewit Sons', Inc. commented that it is unclear whether 
``proposal evaluation criteria'' are the same as ``selection 
criteria.'' This commenter believed that prequalification standards 
should be included in the selection criteria because qualifications are 
part of the value an owner receives. The FHWA believes that the 
proposed rule was clear in this respect. The term ``proposal evaluation 
criteria'' was used to describe the criteria for evaluating proposals.
    A private individual suggested that there is always a range in the 
quality of the short listed offerors and it would be appropriate to 
further consider these differences in the second phase of a two-phase 
selection procedure. This commenter recommended that this section be 
deleted. The FHWA disagrees with this commenter. For most projects 
utilizing a two-phase selection process, proposers who are prequalified 
or short listed must be allowed to submit price and technical proposals 
with the understanding that the contracting agency considers their 
qualifications to be satisfactory and that they will be afforded equal 
standing in their preparation of price and technical proposals. 
However, we acknowledge that there may be certain projects where it is 
important to consider technical expertise and financial considerations 
as evaluation factors in the second phase of a two-phase selection 
process. For this reason, we have included the term ``specialized 
financial qualifications'' in paragraph (b)(1).
    The TCA believed that it is absolutely critical that contracting 
agencies have the ability to reconsider the offeror's qualifications 
during proposal evaluations. This entity believed that this is 
especially true for revenue-financed projects, where the contractor's 
financial status and other qualifications are a key factor in making 
underwriting decisions. As noted above, we agree that a firm's 
financial qualification is an important criteria which, at the owner's 
discretion, merits additional consideration as an evaluation factor in

[[Page 75920]]

the second phase of a two-phase selection process.

Section 636.304 What Process May Be Used To Rate and Score Proposals?

    The AASHTO and the Virginia DOT recommended that this statement be 
deleted from the rule as it does not add value. They recommended that a 
reference be made to compliance with each State's procurement laws.
    The TCA believed the intent of this section is to reduce 
subjectivity in the evaluation process. This commenter suggested that, 
as a practical matter, it will not reduce subjectivity, because the 
decisions underlying a ``best value'' determination are, by their 
nature, subjective. The commenter stated that the best way to assure 
fairness in the evaluation process is to make sure that the individuals 
conducting the evaluations are qualified and do not have personal or 
business interests that would impact their evaluations.
    We disagree with the recommendation to delete this section. The 
intent of this section is to clearly indicate that proposals will be 
evaluated solely on the factors and subfactors in the solicitation; to 
clearly indicate rating methods that are acceptable; and to clearly 
indicate that the relative strengths, deficiencies, significant 
weaknesses, and risks supporting proposal evaluation must be documented 
in the contract file. These provisions are necessary to ensure the 
integrity of the competitive proposal process. No revisions were made 
in the final rule.

Section 636.305 Can Price Information Be Provided to Analysts Who Are 
Reviewing Technical Proposals?

    Peter Kiewit Sons' Inc. recommended that the FHWA require technical 
evaluations to be completed before the price proposals are reviewed, so 
that knowledge of pricing does not affect technical evaluations.
    The TCA suggested that some contracting agencies may wish to use 
qualifications-based selection procedures and may not have a price 
proposal.
    While it is desirable to perform the technical evaluations first so 
that knowledge of price does not influence technical review team 
members, the FHWA does not believe that it is appropriate to require 
this. This section is consistent with the FAR provisions used by the 
Federal government. No revisions are made in the final rule.

Sections 636.401 and 636.402

    Peter Kiewit Sons' Inc. suggested that communications should be 
controlled to prevent the appearance of positive or negative prejudice 
towards an offeror.
    The DBIA suggested eliminating the term ``clarifications'' and 
revising the term ``communications'' (see the discussion for Sec.  
636.103). A private individual suggested revising these sections to 
eliminate the need for the defined terms ``clarifications'' and 
``communications'' but this commenter did not provide a recommended 
revision. The FHWA disagrees with the recommendations to modify the 
definitions of ``clarifications'' and ``communications'' for the 
reasons previously discussed (see Sec.  636.103). Communications, 
clarifications and discussions are all important aspects of competitive 
acquisition. Each has a specific meaning based on case law. While the 
FHWA appreciates the concern of the commenter who suggested that such 
communications be controlled to prevent the appearance of positive or 
negative prejudice, we believe that the policies incorporated in this 
final rule will form the cornerstone of a fair, equitable process.
    The TCA and the Colorado DOT recommended Sec.  636.402 be revised 
to make it clear that proposers may get clarifications of the owner's 
RFP. That process is necessary to allow owners to clarify any sections 
of the RFP that are not clear at the time of issuance. The FHWA does 
not object to the concept of proposers asking the contracting agency 
for clarifications of the RFP documents. If it is necessary to clarify 
and revise the RFP document, the contracting agency could issue an 
addenda for this purpose. The following sentence will be added to Sec.  
636.402 for clarity: ``You may wish to clarify and revise the RFP 
document through an addenda process in response to questions from 
potential offerors.''

Sections 636.403, 636.404, 636.405, and 636.406

    Peter Kiewit Sons' Inc. objected to the use of the competitive 
range. This commenter suggested, that if properly used, a two-phase 
selection process should eliminate the need to establish a competitive 
range.
    The TCA believed that the issues associated with establishment of a 
competitive range are complex, and are intertwined with the laws 
applicable to the contracting agency, as well as its policies, and 
therefore, it is not appropriate for the FHWA to regulate the 
procurement process used by State and local agencies.
    The FHWA disagrees with these commenters. The intent of Sec.  
636.403 is to allow contracting agencies to establish a competitive 
range to minimize the overall impact to industry proposers in a lengthy 
procurement process. The contracting agency will have the discretion to 
do this. This section will serve as the FHWA basis for participation in 
such decisions provided they do not unnecessarily restrict competition. 
No revisions are made in the final rule.

Sections 636.407 and 636.408

    The New York State DOT recommended that these sections be revised 
to allow ``communications'' to cure minor proposal deficiencies, such 
as, inadvertent omissions. The Texas DOT perceived the provisions in 
Sec.  636.407 as prohibiting the correction of a clerical error, an 
unclear term or an omission in a proposal. This commenter stated that 
design-build projects are typically long and costly, the proposals are 
relatively complex, and the proposal review process is very detailed. 
This commenter felt that it is reasonable to allow proposers to cure 
minor omissions.
    The FHWA believes the rule language is satisfactory. The table that 
accompanies Sec.  636.401 clearly indicates that minor or clerical 
revisions in a proposal are allowable during a clarification. The term 
``deficiencies'' has a specific meaning based on case law (see Sec.  
636.103) , and therefore, the language in Sec.  636.407 appropriately 
prohibits the use of communications to cure proposal deficiencies or 
material omissions. No revisions are made to the final rule.

Sections 636.501 Through 636.512

    The AASHTO recommended that the provision of Sec.  636.512(a) be 
deleted. It recommended that the evaluation of proposals be based on 
each State's procurement laws. Peter Kiewit Sons', Inc. strongly 
objected to the use of bargaining in the selection process as described 
in Sec.  636.501. This commenter believed that the contracting agency 
should be limited to identifying sections of a proposal that do not 
meet RFP requirements, but no assistance or guidance should be given to 
the offeror regarding how the deficiency should be corrected. However, 
if all price proposals exceed an advertised budget, this commenter 
suggested that the contracting agency should have individual 
discussions with all offerors regarding the factors that may have led 
to high prices. The contracting agency should then issue a revised RFP 
document to all offerors.
    The FHWA appreciates the viewpoints of this commenter. While we 
agree that contracting agencies will need to be judicious in their use 
of bargaining techniques, we also believe that the

[[Page 75921]]

provisions of Sec.  636.507 will offset some of these concerns. The 
FHWA also believes that contracting agencies must have the right to 
maximize their ability to obtain the best value based on the 
requirements and evaluation factors set forth in the RFP document.
    The Orange North-American Trade Rail Access Corridor Authority 
suggested that contracting agencies be allowed to negotiate with the 
apparent winning proposer as they would under a qualifications-based 
selection procedure. This commenter believed that negotiating with more 
than one team at a time can often lead to misunderstandings and 
disputes. As previously noted in the discussion of Subparts B through 
F, we believe that limited negotiations may be appropriate for 
clarifying certain contract provision prior to contract execution.
    The DBIA, the Texas DOT and a private individual noted the use of 
the term ``final proposal revision'' in Sec.  636.511 and suggested 
that it would be helpful to add the phrase ``also called best and final 
offer (BAFO)'' to the end of that sentence. We agree with this 
suggestion and have revised Sec.  636.511 to incorporate the term 
``best and final offer'' in the final rule.
    The AASHTO and the Virginia DOT recommended the provisions of Sec.  
636.512(a) be deleted and, if necessary, a reference be provided for 
compliance with each State's procurement laws. We disagree with this 
recommendation and believe the rule is sufficiently clear.

Subpart F--Sections 636.601 Through 636.608

    The AASHTO and the South Carolina, Virginia, Colorado and 
Washington State DOTs recommended that Sec.  636.602(a) be replaced 
with the following sentence: ``The STD must follow State procedures and 
regulations for notification of unsuccessful offerors.'' These 
commenters stated that the procurement code in certain States does not 
allow the inclusion of the issues listed in paragraph (a) to be listed 
in the contracting agency's written notification to unsuccessful 
offerors.
    These commenters also suggested that Sec. Sec.  636.605 through 
636.608 be deleted as these provisions are too prescriptive and 
contradict too many existing State procurement laws. The AASHTO 
recommended that Sec.  636.604 be replaced with the following: ``Any 
offeror may request a debriefing. The STD may provide preaward and 
postaward debriefings in accordance with the State's procurement 
process.'' The Colorado DOT indicated that three days was not 
sufficient time to provide proposers with the information required by 
Sec.  636.602.
    The FHWA agrees with the commenters that this subpart is 
prescriptive. While notifications and debriefings are very important in 
maintaining the integrity of a competitive acquisition process, the 
FHWA believes that the goals and objectives of this rule can be 
maintained by allowing contracting agencies to follow State procedures 
in these areas. Therefore, the proposed rule for Subpart F is removed 
in its entirety. A new section, Sec.  636.514 How may I provide 
notifications and debriefings?, has been added to Subpart E to allow 
contracting agencies to conduct pre-award and post-award notifications 
and debriefing in accordance with State approved procedures.

Section 637.207 Quality Assurance Program

    Similar to the comments made in Sec.  635.413, a number of 
commenters indicated that the use of warranties should be left to the 
discretion of the States and that the limitation of warranties to 
specific products or construction features is too restrictive. The FHWA 
is providing minor revisions to Sec.  637.207(a)(1)(iv) to reference 
the revisions made to Sec.  635.413(e). This will provide greater 
flexibility to STDs in allocating risk and appropriately structuring 
design-build contracts.
    The Florida DOT suggested that contracting agencies be allowed to 
incorporate all construction engineering and inspection services 
(including verification testing) under the design-build contract. While 
this STD would still provide some level of oversight, it expressed a 
preference for including all construction, engineering and inspection 
services under one contract to avoid redundant inspection services. 
This commenter suggested that the FHWA's requirement for independent 
verification leads to unnecessary duplication, inefficient operations 
and wasted funding that could be better used elsewhere.
    We disagree with this commenter and believe that it is necessary to 
have a reliable, verifiable program for accepting the completed work. 
This program must rely on a system of checks and balances, including 
verification tests that must be done by the owner (or the owner's 
agent). It is not acceptable to allow the design-builder to perform (or 
contract with another firm to perform) all of the acceptance tests for 
the project. While the FHWA's quality assurance policy provides the 
STDs with the flexibility to structure a broad-based acceptance program 
(even including the design-builder's quality control test results as 
part of the acceptance program), it is still absolutely critical that 
there be an independent, verification check on the design-builder's 
results by the owner for acceptance purposes.
    The TCA suggested revisions to use the term ``engineer of record'' 
in lieu of the term ``State Engineer''. We disagree with this comment. 
In the case of the materials certification documentation referenced in 
this section, the term ``State Engineer'' is a term used to refer to 
the contracting agency's representative, and if a project was performed 
by a local public agency, it would refer to that agency's engineer, not 
the design-builder's engineer. The responsibility for this 
certification must remain with the contracting agency.
    The Washington State DOT recommended that this section be modified 
to direct STDs not to use warranties for items of routine maintenance. 
We do not agree with this comment. The reference to Sec.  635.413 
should be sufficient for this purpose.

Part 710--Right-of-Way and Real Estate

Section 710.313 Design-Build Projects

    The DPC agreed with the flexibility provided in this section, but 
noted that contracting agencies have powers that the private sector 
does not have (such as the right of eminent domain) and, therefore, the 
acquisition of right-of-way should generally rest with the contracting 
agency. Sundt Construction, Inc. indicated that right-of-way 
acquisitions should be the responsibility of the party that can best 
control this risk and that is normally the owner except in very unique 
circumstances. The FHWA agrees, but there may be certain circumstances, 
where it is reasonable to assign certain right-of-way related 
responsibilities to the design-builder. We believe the provisions in 
this section adequately address these circumstances.
    The TCA recommended a specific revision to paragraph (c) to provide 
additional flexibility to the contracting agency. This commenter 
believed that in some cases, it may be desirable to allow the design-
builder to start construction on parcels for which rights of access 
have been obtained pursuant to condemnation authority or negotiations, 
with the formal transfer of title occurring at a later date. We do not 
agree with this comment and believe that the final rule provides 
sufficient flexibility.
    A private individual suggested that the FHWA perform a complete 
review for consistency, as there are a variety of references to right-
of-way acquisition.

[[Page 75922]]

This commenter also suggested that, in general, the FHWA should allow 
the contracting agencies to advance the projects as long as there is a 
plan for the acquisition of right-of-way consistent with the schedule, 
State and Federal law and good business practice. We generally agree 
with this comment and believe that the final rule provides sufficient 
flexibility for this purpose.
    The Florida DOT provided detailed comments and recommended 
revisions for several paragraphs as noted below. This commenter:
    [sbull] Suggested that clarifications be provided for the submittal 
of right-of-way certifications and right-of-way availability 
statements. As previously indicated, we revised Sec.  635.309(p)(1)(v) 
to allow contracting agencies to provide a right-of-way certification 
at the time of project authorization to certify that either all right-
of-way work has been completed or that all necessary arrangements will 
be made for the completion of the necessary right-of-way related work. 
This certification is a necessary requirement for the FHWA's 
authorization of the project. On the other hand, not all STDs use 
right-of-way availability statements. The STDs must ensure that right-
of-way is available prior to the design-builder entering onto the 
property and the start of physical construction. In the final rule, we 
have provided a modification to Sec.  710.313(a) to require compliance 
with the right-of-way certification requirements of Sec.  635.309(p) 
and a sentence to ensure that right-of-way is available prior to the 
start of physical construction.
    [sbull] Disagreed with the provisions of paragraph (d)(1)(i) which 
require the design-builder to submit written acquisition and relocation 
procedures for the STD's approval. This commenter believed that this 
requirement is not necessary and compliance could be achieved through 
proper oversight of the contract. We agree that a revision is 
appropriate in this case. We have added a sentence to paragraph 
(d)(1)(i) that reads as follows: ``STD's which have an FHWA approved 
procedures manual, in accordance with 23 CFR 710.201(c), may comply 
with this section by requiring the design-builder to execute a 
certification in its proposals that it has received the approved right-
of-way manual and will comply with the procedures.''
    [sbull] Recommended that paragraph (d)(1)(ii) should explicitly 
reference 49 CFR 24.205 and its requirements. We agree with this 
comment and an appropriate reference is provided in paragraph 
(d)(1)(ii). The commenter further suggested that the additional 
detailed schedule related requirements should be removed as it may be 
more appropriate to provide for compliance through the contracting 
agency's oversight of the contract. We disagree with this comment. This 
language is appropriate and necessary to ensure compliance with the 
Uniform Relocation Assistance and Real Property Acquisition Policies 
Act of 1970 (Uniform Act) as many contracting agencies do not have 
sufficient experience with the design-build contracting method.
    [sbull] Believed that the requirement of paragraph (d)(2)(i) for a 
quality control system would be a good management tool. However, this 
commenter questioned the need for a regulation on this subject. We 
disagree. Paragraph (d)(2)(ii) provides great latitude to the STDs in 
complying with the requirement for a quality control system for right-
of-way activities. This section is permissive to allow a consultant to 
perform the activity desired by the STD.
    [sbull] Questioned the necessity for, and recommended that the 
deletion of paragraphs (d)(3) through (d)(6). We disagree with this 
comment. Although not a requirement, the establishment of a hold off 
zone around occupied properties is encouraged in paragraph (d)(3). 
While regulations of the U.S. Department of Labor's Occupational Safety 
and Health Administration may provide policy concerning the safety of 
construction workers, the FHWA believes that it is important to address 
this issue specifically for the instance where there are occupied 
properties adjacent to construction activities. Therefore, no changes 
were made in the final rule.

Executive Order 12866 (Regulatory Planning and Review) and DOT 
Regulatory Policies and Procedures

    The FHWA has determined that this action is a significant 
regulatory action within the meaning of Executive Order 12866, and 
within the meaning of the U.S. Department of Transportation's 
regulatory policies and procedures because of the substantial State and 
industry interest in the design-build contracting technique. The Office 
of Management and Budget has reviewed this document under E.O. 12866. 
The FHWA anticipates that the economic impact of this rulemaking would 
be minimal. However, this rule is considered to be significant because 
of the substantial State and industry interest in the design-build 
contracting technique.
    None of the commenters provided evidence to indicate that there 
would be a material or adverse economic impact. The FHWA hereby 
certifies that the final rule would not adversely affect, in a material 
way, any sector of the economy.
    In addition, this rule will not interfere with any action taken or 
planned by another agency and will not materially alter the budgetary 
impact of any entitlements, grants, user fees, or loan programs. This 
rule allows the STDs to use the design-build contracting technique--a 
contracting method that has been used only on an experimental basis to 
date in the Federal-aid highway program. The rule will not affect the 
total Federal funding available to the STDs under the Federal-aid 
highway program. Therefore, it is anticipated that an increased use of 
design-build delivery method will not yield significant economic 
impacts to the Federal-aid highway program. Consequently, a full 
regulatory evaluation is not required. The increased usage of the 
design-build contracting method may result in certain efficiencies in 
the cost and/or time it normally takes to deliver a transportation 
project.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
612), the FHWA has evaluated the effects of this action on small 
entities and has determined that the final rule will not have a 
significant economic impact on a substantial number of small entities.
    Several commenters expressed a concern that this rule may have an 
adverse impact on small disadvantaged business enterprises and other 
small firms; however, one commenter recommended that the FHWA not give 
preferential treatment to a firm based on its size during the selection 
process because such a limitation may limit the ability of engineering 
firms from leading the design-build team.
    By its very nature, design-build contracting is best suited to 
large transportation projects. However, several STDs such as 
Pennsylvania, Ohio and Michigan have successfully completed several 
relatively small design-build contracts (less than $5 million) under 
SEP-14. Approximately 50 percent of the projects approved under SEP-14 
have been less than $5 million. We expect that this trend will continue 
after the final rule is enacted.
    Design-build contracts will present subcontracting opportunities 
that are similar to or greater than those available under design-bid-
build contracts. In many cases, design-build contractors will 
subcontract for design services. Under the traditional design-bid-build 
system, owners typically prepare a

[[Page 75923]]

design with their own staff or will contract with a design consultant 
for this work. Based on 2001 data provided by the Pennsylvania 
Department of Transportation (PennDOT), the average subcontracting 
amount for design-build contracts compares favorably with the average 
subcontracting amount for design-bid-build projects in the same 
contract size range. While the number of PennDOT completed design-build 
projects is small, this data (shown in Table 1) shows that there are 
comparable subcontracting opportunities for relatively small design-
build projects.

                                                     Table 1
----------------------------------------------------------------------------------------------------------------
                                                           Design-build                  Design-bid-build
                                                 ---------------------------------------------------------------
         PennDOT projects contract size               No. of      Subcontracting      No. of      Subcontracting
                                                     projects       percentage       projects       percentage
----------------------------------------------------------------------------------------------------------------
$0-5 million....................................               3              19             517              18
$5-10 million...................................               2              33              25              29
$10-20 million..................................               0  ..............              13              30
 $20 million.........................               0  ..............              15              38
----------------------------------------------------------------------------------------------------------------

    Large design-build contracts will present significant 
subcontracting opportunities for firms of all sizes. Table 2 
illustrates the subcontracting opportunities that have been associated 
with medium to large-sized highway design-build contracts.

                                                     Table 2
----------------------------------------------------------------------------------------------------------------
                                                                                   Contract size  Subcontracting
                  Project                                   Owner                    (million)      percentages
----------------------------------------------------------------------------------------------------------------
Eastern Toll Road..........................  Transportation Corridors Agency, CA            $767              39
San Joaquin Hills Toll Road................  Transportation Corridors Agency, CA           799.7              41
I-15 Reconstruction........................  Utah DOT...........................           1,318              54
I-17 Reconstruction........................  Arizona DOT........................            79.7              33
E-470 Segments I and II....................  E-470 Public Highway Authority.....           323.6              90
Southern Connector.........................  South Carolina DOT.................           106.4              87
Conway Bypass..............................  South Carolina DOT.................           386.0              89
----------------------------------------------------------------------------------------------------------------

    Thus, from the data available, the FHWA believes that the 
subcontracting opportunities for small entities will be similar under 
both design-build and design-bid-build contracts.
    To offset potential adverse impacts on small entities, the final 
rule eliminates the FHWA's existing requirement for the prime 
contractor to perform 30 percent of all contract work, less specialty 
items (see Sec.  635.116). This will provide greater flexibility for 
STDs in administering design-build contracts. For design-builders, it 
will remove potential barriers regarding the choice of subcontractors, 
and most important, it will provide greater subcontracting 
opportunities for firms of all sizes. For these reasons and because the 
final rule is directed to the States and directly affects the STDs, 
which are not considered small entities for the purposes of the 
Regulatory Flexibility Act, the FHWA certifies that the final rule will 
not have a significant economic impact on a substantial number of small 
entities.

Unfunded Mandates Reform Act of 1995

    This final rule will not impose unfunded mandates as defined by the 
Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4, March 22, 1995, 
109 Stat. 48). This final rule will not result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more in any one year. (2 U.S.C. 1531 
et seq.). This rulemaking allows STDs to use a contracting method that 
has only been used in the Federal-aid highway program on an 
experimental basis to date. There is no requirement for a State to use 
the design-build contracting technique. It is strictly an optional 
contracting method.

Executive Order 13132 (Federalism)

    This action has been analyzed in accordance with the principles and 
criteria contained in Executive Order 13132, dated August 4, 1999, and 
the FHWA has determined that this action would not have sufficient 
federalism implications to warrant the preparation of a Federal 
assessment. Nothing in this document directly preempts any State law or 
regulation or affects the States' ability to discharge traditional 
State governmental functions. Section 1307 of the TEA-21 directs the 
FHWA to develop regulations that will: (1) Identify Secretary's 
approval criteria for design-build contracts, and (2) establish 
procedures for obtaining the FHWA's approval for design-build 
contracts. Throughout the final rule there is an effort to give the 
STDs flexibility in deciding where to appropriately use design-build 
contracting while keeping administrative burdens to a minimum.

Executive Order 13175 (Tribal Consultation)

    The FHWA has analyzed this final rule under Executive Order 13175, 
dated November 6, 2000, and believes that the final rule will not have 
substantial direct effects on one or more Indian tribes; will not 
impose substantial direct compliance costs on Indian tribal 
governments; and will not preempt tribal law. The final rule does not 
address issues that are related to tribal operations. Therefore, a 
tribal summary impact statement is not required.

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

[[Page 75924]]

Federal programs and activities apply to this program.

Executive Order 12988 (Civil Justice Reform)

    This final rule meets applicable standards in sections 3(a) and 
3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden.

Executive Order 13045 (Protection of Children)

    We have analyzed this action under Executive Order 13045, 
Protection of Children from Environmental Health Risks and Safety 
Risks. The final rule is not economically significant and does not 
concern an environmental risk to health or safety that may 
disproportionately affect children.

Executive Order 12630 (Taking of Private Property)

    This final rule will not effect a taking of private property or 
otherwise have taking implications under Executive Order 12630, 
Governmental Actions and Interference with Constitutionally Protected 
Property Rights.

Executive Order 13211 (Energy Effects)

    We have analyzed this final rule under Executive Order 13211, 
Action Concerning Regulation That Significantly Affect Energy Supply, 
Distribution, or Use. We have determined that it is not a significant 
energy action under that order because, although it is a significant 
regulatory action under Executive Order 12866, it is not likely to have 
a significant adverse effect on the supply, distribution, or use of 
energy. Therefore, a Statement of Energy Effects under Executive Order 
13211 is not required.

Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501, 
et. seq.), Federal agencies must obtain approval from the Office of 
Management and Budget (OMB) for each collection of information they 
conduct, sponsor, or require through regulations. The FHWA has reviewed 
this rule and determined that it does not contain collection of 
information requirements for the purposes of the PRA.
    Since 1990 the FHWA has been allowing the STDs to evaluate design-
build contracting on an experimental basis through Special Experimental 
Project No. 14 (SEP-14). To receive the FHWA's approval, STDs were 
requested to prepare experimental project work plans and evaluation 
reports for all design-build projects.
    Under the final rule, the STDs will no longer be required to 
develop work plans or evaluation reports for ``qualified projects.'' 
However, because of the ``qualified project'' definition in section 
1307 of TEA-21, the FHWA will continue to approve ``non-qualified'' 
design-build projects under SEP-14. Therefore, a SEP-14 work plan and 
evaluation will continue to be necessary for these projects. The 
evaluation reports will document the lessons learned through design-
build contracting and this information will be shared with others in 
the highway industry. The collection of SEP-14 information does not 
entail the reporting of information in response to identical questions. 
The SEP-14 design-build evaluation reports do not involve answering 
specific questions; they address issues relating to competitive 
acquisition. Each is a one of a kind document that relates to the 
lessons learned on a particular project.

National Environmental Policy Act

    The agency has analyzed this rule for the purposes of the National 
Environmental Policy Act of 1969 (NEPA), as amended (42 U.S.C. 4321 et 
seq.), and has determined that this rule will not have any effect on 
the quality of the environment. Design-build projects must comply with 
NEPA requirements and the final rule includes guidance concerning 
compliance with NEPA in relation to the release of the Request for 
Proposals document.

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 proposed action with 
the Unified Agenda.

List of Subjects

23 CFR Part 627

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

23 CFR Part 635

    Grant programs-transportation, Highways and roads, Reporting and 
recordkeeping requirements.

23 CFR Part 636

    Design-build, Grant programs-transportation, Highways and roads.

23 CFR Part 637

    Construction inspection and approval; Highways and roads.

23 CFR 710

    Grant programs-transportation, Highway and roads, Real property 
acquisition, Rights-of-way, Reporting and recordkeeping requirements.

    Issued on: November 22, 2002.
Mary E. Peters,
Federal Highway Administrator.

    For reasons set forth in the preamble, the FHWA amends Chapter I of 
title 23, Code of Federal Regulations, as set forth below:

PART 627--VALUE ENGINEERING

    1. Revise the authority citation for part 627 to read as follows:

    Authority: 23 U.S.C. 106(d), 106(f), 112(b), 302, 307, and 315; 
49 CFR 18.


    2. In part 627 revise all references to ``State highway agencies'' 
to read ``State transportation departments''; and revise the acronyms 
``SHA'' and ``SHAs'' to read ``STD'' and ``STDs'', respectively.

    3. In Sec.  627.5, add paragraph (e) to read as follows:


Sec.  627.5  General principles and procedures.

* * * * *
    (e) In the case of a Federal-aid design-build project meeting the 
project criteria in 23 CFR 627.1(a), the STDs shall fulfill the value 
engineering analysis requirement by performing a value engineering 
analysis prior to the release of the Request for Proposals document.

PART 635--CONSTRUCTION AND MAINTENANCE

    4. Revise the authority citation for part 635 to read as follows:

    Authority: 23 U.S.C. 101 (note), 109, 112, 113, 114, 116, 119, 
128, and 315; 31 U.S.C. 6505; 42 U.S.C. 3334, 4601 et seq.; Sec. 
1041 (a), Pub. L. 102-240, 105 Stat. 1914; 23 CFR 1.32; 49 CFR 
1.48(b).


    5. In part 635 revise all references to ``State highway agencies'' 
to read ``State transportation departments''; and revise the acronyms 
``SHA'' and ``SHAs'' to read ``STD'' and ``STDs'', respectively.

    6. Amend Sec.  635.102 by removing the definition of 
``certification acceptance,'' and by adding the definition of ``design-
build project'' to read as follows:


Sec.  635.102  Definitions.

* * * * *
    Design-build project means a project to be developed using one or 
more design-build contracts.
* * * * *

[[Page 75925]]


    7. Amend Sec.  635.104 by adding paragraph (c) to read as follows:


Sec.  635.104  Method of construction.

* * * * *
    (c) In the case of a design-build project, the requirements of 23 
CFR part 636 and the appropriate provisions pertaining to design-build 
contracting in this part will apply. However, no justification of cost 
effectiveness is necessary in selecting projects for the design-build 
delivery method.

    8. Revise Sec.  635.107 to read as follows:


Sec.  635.107  Participation by disadvantaged business enterprises.

    (a) The STD shall schedule contract lettings in a balanced program 
providing contracts of such size and character as to assure an 
opportunity for all sizes of contracting organizations to compete. In 
accordance with Title VI of the Civil Rights Act of 1964, subsequent 
Federal-aid Highway Acts, and 49 CFR part 26, the STD shall ensure 
equal opportunity for disadvantaged business enterprises (DBEs) 
participating in the Federal-aid highway program.
    (b) In the case of a design-build project funded with title 23 
funds, the requirements of 49 CFR part 26 and the State's approved DBE 
plan apply. If DBE goals are set, DBE commitments above the goal must 
not be used as a proposal evaluation factor in determining the 
successful offeror.

    9. Amend Sec.  635.109 by adding paragraph (c) to read as follows:


Sec.  635.109  Standardized changed condition clauses.

* * * * *
    (c) In the case of a design-build project, STDs are strongly 
encouraged to use ``suspensions of work ordered by the engineer'' 
clauses, and may consider ``differing site condition'' clauses and 
``significant changes in the character of work'' clauses which are 
appropriate for the risk and responsibilities that are shared with the 
design-builder.

    10. Amend Sec.  635.110 by adding paragraph (f) to read as follows:


Sec.  635.110  Licensing and qualification of contractors.

* * * * *
    (f) In the case of a design-build project, the STDs may use their 
own bonding, insurance, licensing, qualification or prequalification 
procedure for any phase of design-build procurement.
    (1) The STDs may not impose statutory or administrative 
requirements which provide an in-State or local geographical preference 
in the solicitation, licensing, qualification, pre-qualification, short 
listing or selection process. The geographic location of a firm's 
office may not be one of the selection criteria. However, the STDs may 
require the successful design-builder to establish a local office after 
the award of contract.
    (2) If required by State statute, local statute, or administrative 
policy, the STDs may require prequalification for construction 
contractors. The STDs may require offerors to demonstrate the ability 
of their engineering staff to become licensed in that State as a 
condition of responsiveness; however, licensing procedures may not 
serve as a barrier for the consideration of otherwise responsive 
proposals. The STDs may require compliance with appropriate State or 
local licensing practices as a condition of contract award.

    11. Amend Sec.  635.112 by revising the section heading and by 
adding paragraph (i) to read as follows:


Sec.  635.112  Advertising for bids and proposals.

* * * * *
    (i) In the case of a design-build project, the following 
requirements apply:
    (1) The FHWA Division Administrator's approval of the Request for 
Proposals document will constitute the FHWA's project authorization and 
the FHWA's approval of the STD's request to release the document. This 
approval will carry the same significance as plan, specification and 
estimate approval on a design-bid-build Federal-aid project.
    (2) The STD may decide the appropriate solicitation schedule for 
all design-build requests. This includes all project advertising, the 
release of the Request for Qualifications document, the release of the 
Request for Proposals document and all deadlines for the receipt of 
qualification statements and proposals. Typical advertising periods 
range from six to ten weeks and can be longer for large, complicated 
projects.
    (3) The STD must obtain the approval of the Division Administrator 
prior to issuing addenda which result in major changes to the Request 
for Proposals document. Minor addenda need not receive prior approval 
but may be identified by the STD at the time of or prior to requesting 
the FHWA's concurrence in award. The STD must provide assurance that 
all offerors have received all issued addenda

    12. Amend Sec.  635.113 by adding paragraph (c) to read as follows:


Sec.  635.113  Bid opening and bid tabulations.

* * * * *
    (c) In the case of a design-build project, the following 
requirements apply:
    (1) All proposals received must be opened and reviewed in 
accordance with the terms of the solicitation. The STD must use its own 
procedures for the following:
    (i) The process of handling proposals and information;
    (ii) The review and evaluation of proposals;
    (iii) The submission, modification, revision and withdrawal of 
proposals; and
    (iv) The announcement of the successful offeror.
    (2) The STD must submit a post-award tabulation of proposal prices 
to the FHWA Division Administrator. The tabulation of price proposal 
information may include detailed pricing information when available or 
lump sum price information if itemized prices are not used.

    13. Amend Sec.  635.114 by adding paragraph (k) to read as follows:


Sec.  635.114  Award of contract and concurrence in award.

* * * * *
    (k) In the case of a design-build project, the following 
requirements apply: Design-build contracts shall be awarded in 
accordance with the Request for Proposals document. See 23 CFR Part 
636, Design-build Contracting, for details.

    14. Amend Sec.  635.116 by adding paragraph (d) to read as follows:


Sec.  635.116  Subcontracting and contractor responsibilities.

* * * * *
    (d) In the case of a design-build project, the following 
requirements apply:
    (1) The provisions of paragraph (a) of this section are not 
applicable to design-build contracts;
    (2) At their discretion, the STDs may establish a minimum 
percentage of work that must be done by the design-builder. For the 
purpose of this section, the term design-builder may include any firms 
that are equity participants in the design-builder, their sister and 
parent companies, and their wholly owned subsidiaries;
    (3) No procedure, requirement or preference shall be imposed which 
prescribes minimum subcontracting requirements or goals (other than 
those necessary to meet the Disadvantaged Business Enterprise program 
requirements of 49 CFR part 26).

    15. Amend Sec.  635.122 by adding paragraph (c) to read as follows:

[[Page 75926]]

Sec.  635.122  Participation in progress payments.

* * * * *
    (c) In the case of a design-build project, the STD must define its 
procedures for making progress payments on lump sum contracts in the 
Request for Proposal document.

    16. Amend Sec.  635.309 by adding paragraph (p) to read as follows:


Sec.  635.309  Authorization.

* * * * *
    (p) In the case of a design-build project, the following 
certification requirements apply:
    (1) The FHWA's project authorization (authorization to advertise or 
release the Request for Proposals document) will not be issued until 
the following conditions have been met:
    (i) All projects must conform with the statewide and metropolitan 
transportation planning requirements (23 CFR part 450).
    (ii) All projects in air quality nonattainment and maintenance 
areas must meet all transportation conformity requirements (40 CFR 
parts 51 and 93).
    (iii) The NEPA review process has been concluded. (See 23 CFR 
636.109).
    (iv) The Request for Proposals document has been approved.
    (v) A statement is received from the STD that either all right-of-
way, utility, and railroad work has been completed or that all 
necessary arrangements will be made for the completion of right of way, 
utility, and railroad work.
    (vi) If the STD elects to include right-of-way, utility, and/or 
railroad services as part of the design-builder's scope of work, then 
the Request for Proposals document must include:
    (A) A statement concerning scope and current status of the required 
services, and
    (B) A statement which requires compliance with the Uniform 
Relocation and Real Property Acquisition Policies Act of 1970, as 
amended, and 23 CFR part 710.
    (2) During a conformity lapse, a design-build project (including 
right-of-way acquisition activities) may continue if, prior to the 
conformity lapse, the NEPA process was completed and the project has 
not changed significantly in design scope, the FHWA authorized the 
design-build project and the project met transportation conformity 
requirements (40 CFR parts 51 and 93).
    (3) Changes to the design-build project concept and scope may 
require a modification of the transportation plan and transportation 
improvement program. The project sponsor must comply with the 
metropolitan and statewide transportation planning requirements in 23 
CFR part 450 and the transportation conformity requirements (40 CFR 
parts 51 and 93) in air quality nonattainment and maintenance areas, 
and provide appropriate approval notification to the design-builder for 
such changes.

    17. Amend Sec.  635.411 by adding paragraph (f) to read as follows:


Sec.  635.411  Material or product selection.

* * * * *
    (f) In the case of a design-build project, the following 
requirements apply: Federal funds shall 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 Request for Proposals document unless the conditions of 
paragraph (a) of this section are applicable.

    18. Amend Sec.  635.413 by revising the section heading and adding 
paragraph (e) to read as follows:


Sec.  635.413  Guaranty and warranty clauses.

* * * * *
    (e) In the case of a design-build project, the following 
requirements will apply instead of paragraphs (a) through (d) of this 
section.
    (1) General project warranties may be used on NHS projects, 
provided:
    (i) The term of the warranty is short (generally one to two years);
    (ii) The warranty is not the sole means of acceptance;
    (iii) The warranty must not include items of routine maintenance 
which are not eligible for Federal participation; and,
    (iv) The warranty may include the quality of workmanship, materials 
and other specific tasks identified in the contract.
    (2) Performance warranties for specific products on NHS projects 
may be used at the STD's discretion. If performance warranties are 
used, detailed performance criteria must be provided in the Request for 
Proposal document.
    (3) The STD may follow its own procedures regarding the inclusion 
of warranty provisions on non-NHS Federal-aid design-build contracts.
    (4) For best value selections, the STD may allow proposers to 
submit alternate warranty proposals that improve upon the warranty 
terms in the RFP document. Such alternate warranty proposals must be in 
addition to the base proposal that responds to the RFP requirements.

    19. Add Part 636 to read as follows:

PART 636--DESIGN-BUILD CONTRACTING

Subpart A--General
Sec.
636.101 What does this part do?
636.102 Does this part apply to me?
636.103 What are the definitions of terms used in this part?
636.104 Does this part apply to all Federal-aid design-build 
projects?
636.105 Is the FHWA requiring the use of design-build?
636.106 What type of projects may be used with design-build 
contracting?
636.107 Does the definition of a qualified project limit the use of 
design-build contracting?
636.108 How does the definition of a qualified project apply to ITS 
projects?
636.109 How does the NEPA review process relate to the design-build 
procurement process?
636.110 What procedures may be used for solicitations and receipt of 
proposals?
636.111 Can oral presentations be used during the procurement 
process?
636.112 May stipends be used?
636.113 Is the stipend amount eligible for Federal participation?
636.114 What factors should be considered in risk allocation?
636.115 May I meet with industry to gather information concerning 
the appropriate risk allocation strategies?
636.116 What organizational conflict of interest requirements apply 
to design-build projects?
636.117 What conflict of interest standards apply to individuals who 
serve as selection team members for the owner?
636.118 Is team switching allowed after contract award?
636.119 How does this part apply to a project developed under a 
public-private partnership?
Subpart B--Selection Procedures, Award Criteria
636.201 What selection procedures and award criteria may be used?
636.202 When are two-phase design-build selection procedures 
appropriate?
636.203 What are the elements of two-phase selection procedures for 
competitive proposals?
636.204 What items may be included in a phase-one solicitation?
636.205 Can past performance be used as an evaluation criteria?
636.206 How do I evaluate offerors who do not have a record of 
relevant past performance?
636.207 Is there a limit on short listed firms?
636.208 May I use my existing prequalification procedures with 
design-build contracts?
636.209 What items must be included in a phase-two solicitation?
636.210 What requirements apply to projects which use the modified 
design-build procedure?
636.211 When and how should tradeoffs be used?
636.212 To what extent must tradeoff decisions be documented?

[[Page 75927]]

Subpart C--Proposal Evaluation Factors
636.301 How should proposal evaluation factors be selected?
636.302 Are there any limitations on the selection and use of 
proposal evaluation factors?
636.303 May pre-qualification standards be used as proposal 
evaluation criteria in the RFP?
636.304 What process may be used to rate and score proposals?
636.305 Can price information be provided to analysts who are 
reviewing technical proposals?
Subpart D--Exchanges
636.401 What types of information exchange may take place prior to 
the release of the RFP document?
636.402 What types of information exchange may take place after the 
release of the RFP document?
636.403 What information may be exchanged with a clarification?
636.404 Can a competitive range be used to limit competition?
636.405 After developing a short list, can I still establish a 
competitive range?
636.406 Are communications allowed prior to establishing the 
competitive range?
636.407 Am I limited in holding communications with certain firms?
636.408 Can communications be used to cure proposal deficiencies?
636.409 Can offerors revise their proposals during communications?
Subpart E--Discussions, Proposal Revisions and Source Selection
636.501 What issues may be addressed in discussions?
636.502 Why should I use discussions?
636.503 Must I notify offerors of my intent to use/not use 
discussions?
636.504 If the solicitation indicated my intent was to award 
contract without discussions, but circumstances change, may I still 
hold discussions?
636.505 Must a contracting agency establish a competitive range if 
it intends to have discussions with offerors?
636.506 What issues must be covered in discussions?
636.507 What subjects are prohibited in discussions, communications 
and clarifications with offerors?
636.508 Can price be an issue in discussions?
636.509 Can offerors revise their proposals as a result of 
discussions?
636.510 Can the competitive range be further defined once 
discussions have begun?
636.511 Can there be more than one round of discussions?
636.512 What is the basis for the source selection decision?
636.513 Are limited negotiations allowed prior to contract 
execution?
636.514 How may I provide notifications and debriefings?

    Authority: Sec. 1307 of Pub. L. 105-178, 112 Stat. 107; 23 
U.S.C. 101, 109, 112, 113, 114, 115, 119, 128, and 315; 49 CFR 
1.48(b).

Subpart A--General


Sec.  636.101  What does this part do?

    This part describes the FHWA's policies and procedures for 
approving design-build projects financed under title 23, United States 
Code (U.S.C.). This part satisfies the requirement of section 1307(c) 
of the Transportation Equity Act for the 21st Century (TEA-21), enacted 
on June 9, 1998. The contracting procedures of this part apply to all 
design-build project funded under title 23, U.S.C.


Sec.  636.102  Does this part apply to me?

    (a) This part uses a plain language format to make the rule easier 
for the general public and business community to use. The section 
headings and text, often in the form of questions and answers, must be 
read together.
    (b) Unless otherwise noted, the pronoun ``you'' means the primary 
recipient of Federal-aid highway funds, the State Transportation 
Department (STD). Where the STD has an agreement with a local public 
agency (or other governmental agency) to administer a Federal-aid 
design-build project, the term ``you'' will also apply to that 
contracting agency.


Sec.  636.103  What are the definitions of terms used in this part?

    Unless otherwise specified in this part, the definitions in 23 
U.S.C. 101(a) are applicable to this part. Also, the following 
definitions are used:
    Adjusted low bid means a form of best value selection in which 
qualitative aspects are scored on a 0 to 100 scale expressed as a 
decimal; price is then divided by qualitative score to yield an 
``adjusted bid'' or ``price per quality point.'' Award is made to 
offeror with the lowest adjusted bid.
    Best value selection means any selection process in which proposals 
contain both price and qualitative components and award is based upon a 
combination of price and qualitative considerations.
    Clarifications means a written or oral exchange of information 
which takes place after the receipt of proposals when award without 
discussions is contemplated. The purpose of clarifications is to 
address minor or clerical revisions in a proposal.
    Communications are exchanges, between the contracting agency and 
offerors, after receipt of proposals, which lead to the establishment 
of the competitive range.
    Competitive acquisition means an acquisition process which is 
designed to foster an impartial and comprehensive evaluation of 
offerors' proposals, leading to the selection of the proposal 
representing the best value to the contracting agency.
    Competitive range means a list of the most highly rated proposals 
based on the initial proposal rankings. It is based on the rating of 
each proposal against all evaluation criteria.
    Contracting agency means the public agency awarding and 
administering a design-build contract. The contracting agency may be 
the STD or another State or local public agency.
    Deficiency means a material failure of a proposal to meet a 
contracting agency requirement or a combination of significant 
weaknesses in a proposal that increases the risk of unsuccessful 
contract performance to an unacceptable level.
    Design-bid-build means the traditional project delivery method 
where design and construction are sequential steps in the project 
development process.
    Design-build contract means an agreement that provides for design 
and construction of improvements by a contractor or private developer. 
The term encompasses design-build-maintain, design-build-operate, 
design-build-finance and other contracts that include services in 
addition to design and construction. Franchise and concession 
agreements are included in the term if they provide for the franchisee 
or concessionaire to develop the project which is the subject of the 
agreement.
    Design-builder means the entity contractually responsible for 
delivering the project design and construction.
    Discussions mean written or oral exchanges that take place after 
the establishment of the competitive range with the intent of allowing 
the offerors to revise their proposals.
    Fixed price/best design means a form of best value selection in 
which contract price is established by the owner and stated in the 
Request for Proposals document. Design solutions and other qualitative 
factors are evaluated and rated, with award going to the firm offering 
the best qualitative proposal for the established price.
    Intelligent Transportation System (ITS) services--means services 
which provide for the acquisition of technologies or systems of 
technologies (e.g., computer hardware or software, traffic control 
devices, communications link, fare payment system, automatic vehicle 
location system, etc.) that provide or contribute to the provision of 
one or more ITS user services as defined in the National ITS 
Architecture.
    Modified design-build means a variation of design-build in which 
the

[[Page 75928]]

contracting agency furnishes offerors with partially complete plans. 
The design-builders role is generally limited to the completion of the 
design and construction of the project.
    Organizational conflict of interest means that because of other 
activities or relationships with other persons, a person is unable or 
potentially unable to render impartial assistance or advice to the 
owner, or the person's objectivity in performing the contract work is 
or might be otherwise impaired, or a person has an unfair competitive 
advantage.
    Prequalification means the contracting agency's process for 
determining whether a firm is fundamentally qualified to compete for a 
certain project or class of projects. The prequalification process may 
be based on financial, management and other types of qualitative data. 
Prequalification should be distinguished from short listing.
    Price proposal means the price submitted by the offeror to provide 
the required design and construction services.
    Proposal modification means a change made to a proposal before the 
solicitation closing date and time, or made in response to an 
amendment, or made to correct a mistake at any time before award.
    Proposal revision means a change to a proposal made after the 
solicitation closing date, at the request of or as allowed by a 
contracting officer, as the result of negotiations.
    Qualified project means any design-build project with a total 
estimated cost greater than $50 million or an intelligent 
transportation system project greater than $5 million (23 U.S.C. 112 
(b)(3)(C)).
    Request for Proposals (RFP) means the document that describes the 
procurement process, forms the basis for the final proposals and may 
potentially become an element in the contract.
    Request for Qualification (RFQ) means the document issued by the 
owner in Phase I of the two-phased selection process. It typically 
describes the project in enough detail to let potential offerors 
determine if they wish to compete and forms the basis for requesting 
qualifications submissions from which the most highly qualified 
offerors can be identified.
    Short listing means the narrowing of the field of offerors through 
the selection of the most qualified offerors who have responded to an 
RFQ.
    Single-phase selection process means a procurement process where 
price and/or technical proposals are submitted in response to an RFP. 
Short listing is not used.
    Solicitation means a public notification of an owner's need for 
information, qualifications, or proposals related to identified 
services.
    Stipend means a monetary amount sometimes paid to unsuccessful 
offerors.
    Technical proposal means that portion of a design-build proposal 
which contains design solutions and other qualitative factors that are 
provided in response to the RFP document.
    Tradeoff means an analysis technique involving a comparison of 
price and non-price factors to determine the best value when 
considering the selection of other than the lowest priced proposal.
    Two-phase selection process means a procurement process in which 
the first phase consists of short listing (based on qualifications 
submitted in response to an RFQ) and the second phase consists of the 
submission of price and technical proposals in response to an RFP.
    Weakness means a flaw in the proposal that increases the risk of 
unsuccessful contract performance. A significant weakness in the 
proposal is a flaw that appreciably increases the risk of unsuccessful 
contract performance.
    Weighted criteria process means a form of best value selection in 
which maximum point values are pre-established for qualitative and 
price components, and award is based upon high total points earned by 
the offerors.


Sec.  636.104  Does this part apply to all Federal-aid design-build 
projects?

    The provisions of this part apply to all Federal-aid design-build 
projects within the highway right-of-way or linked to a Federal-aid 
highway project (i.e., the project would not exist without another 
Federal-aid highway project). Projects that are not located within the 
highway right-of-way, and not linked to a Federal-aid highway project 
may utilize State-approved procedures.


Sec.  636.105  Is the FHWA requiring the use of design-build?

    No, the FHWA is neither requiring nor promoting the use of the 
design-build contracting method. The design-build contracting technique 
is optional.


Sec.  636.106  What type of projects may be used with design-build 
contracting?

    You may use the design-build contracting technique for any 
qualified or non-qualified project which you deem to be appropriate on 
the basis of project delivery time, cost, construction schedule and/or 
quality.


Sec.  636.107  Does the definition of a qualified project limit the use 
of design-build contracting?

    (a) No, the use of the term ``qualified project'' does not limit 
the use of design-build contracting. It merely determines the FHWA's 
procedures for approval. The FHWA Division Administrator may approve 
the design-build method for ``qualified projects'' which meet the 
requirements of this part.
    (b) The FHWA Division Administrator may also approve other design-
build projects (which do not meet the ``qualified projects'' 
definition) by using Special Experimental Projects No. 14 (SEP-14), 
``Innovative Contracting Practices,'' \1\ provided the project meets 
the requirements of this part. Projects which do not meet the 
requirements of this part (either ``qualified or non-qualified'' 
projects) must be submitted to the FHWA Headquarters for concept 
approval.
---------------------------------------------------------------------------

    \1\ Information concerning Special Experimental Project No. 14 
(SEP-14), ``Innovative Contracting Practices,'' is available on 
FHWA's home page: http://www.fhwa.dot.gov. Additional information 
may be obtained from the FHWA Division Administrator in each State.
---------------------------------------------------------------------------


Sec.  636.108  How does the definition of a qualified project apply to 
ITS projects?

    For the purpose of this part, a Federal-aid ITS design-build 
project meets the criteria of a ``qualified project'' if:
    (a) A majority of the scope of services provides ITS services (at 
least 50 percent of the scope of work is related to ITS services); and
    (b) The estimated contract value exceeds $5 million.


Sec.  636.109  How does the NEPA review process relate to the design-
build procurement process?

    In terms of the design-build procurement process:
    (a) The RFQ solicitation may be released prior to the conclusion of 
the NEPA review process as long as the RFQ solicitation informs 
proposers of the general status of the NEPA process.
    (b) The RFP must not be released prior to the conclusion of the 
NEPA process. The NEPA review process is concluded with either a 
Categorical Exclusion classification, an approved Finding of No 
Significant Impact, or an approved Record of Decision as defined in 23 
CFR 771.113(a).
    (c) The RFP must address how environmental commitments and 
mitigation measures identified during the NEPA process will be 
implemented.

[[Page 75929]]

Sec.  636.110  What procedures may be used for solicitations and 
receipt of proposals?

    You may use your own procedures for the solicitation and receipt of 
proposals and information including the following:
    (a) Exchanges with industry before receipt of proposals;
    (b) RFQ, RFP and contract format;
    (c) Solicitation schedules;
    (d) Lists of forms, documents, exhibits, and other attachments;
    (e) Representations and instructions;
    (f) Advertisement and amendments;
    (g) Handling proposals and information; and
    (h) Submission, modification, revisions and withdrawal of 
proposals.


Sec.  636.111  Can oral presentations be used during the procurement 
process?

    (a) Yes, the use of oral presentations as a substitute for portions 
of a written proposal can be effective in streamlining the source 
selection process. Oral presentations may occur at any time in the 
acquisition process, however, you must comply with the appropriate 
State procurement integrity standards.
    (b) Oral presentations may substitute for, or augment, written 
information. You must maintain a record of oral presentations to 
document what information you relied upon in making the source 
selection decision. You may decide the appropriate method and level of 
detail for the record (e.g., videotaping, audio tape recording, written 
record, contracting agency notes, copies of offeror briefing slides or 
presentation notes). A copy of the record should be placed in the 
contract file and may be provided to offerors upon request.


Sec.  636.112  May stipends be used?

    At your discretion, you may elect to pay a stipend to unsuccessful 
offerors who have submitted responsive proposals. The decision to do so 
should be based on your analysis of the estimated proposal development 
costs and the anticipated degree of competition during the procurement 
process.


Sec.  636.113  Is the stipend amount eligible for Federal 
participation?

    (a) Yes, stipends are eligible for Federal-aid participation. 
Stipends are recommended on large projects where there is substantial 
opportunity for innovation and the cost of submitting a proposal is 
significant. On such projects, stipends are used to:
    (1) Encourage competition;
    (2) Compensate unsuccessful offerors for a portion of their costs 
(usually one-third to one-half of the estimated proposal development 
cost); and
    (3) Ensure that smaller companies are not put at a competitive 
disadvantage.
    (b) Unless prohibited by State law, you may retain the right to use 
ideas from unsuccessful offerors if they accept stipends. If stipends 
are used, the RFP should describe the process for distributing the 
stipend to qualifying offerors.


Sec.  636.114  What factors should be considered in risk allocation?

    (a) You may consider, identify, and allocate the risks in the RFP 
document and define these risks in the contract. Risk should be 
allocated with consideration given to the party who is in the best 
position to manage and control a given risk or the impact of a given 
risk.
    (b) Risk allocation will vary according to the type of project and 
location, however, the following factors should be considered:
    (1) Governmental risks, including the potential for delays, 
modifications, withdrawal, scope changes, or additions that result from 
multi-level Federal, State, and local participation and sponsorship;
    (2) Regulatory compliance risks, including environmental and third-
party issues, such as permitting, railroad, and utility company risks;
    (3) Construction phase risks, including differing site conditions, 
traffic control, interim drainage, public access, weather issues, and 
schedule;
    (4) Post-construction risks, including public liability and meeting 
stipulated performance standards; and
    (5) Right-of-way risks including acquisition costs, appraisals, 
relocation delays, condemnation proceedings, including court costs and 
others.


Sec.  636.115  May I meet with industry to gather information 
concerning the appropriate risk allocation strategies?

    (a) Yes, information exchange at an early project stage is 
encouraged if it facilitates your understanding of the capabilities of 
potential offerors. However, any exchange of information must be 
consistent with State procurement integrity requirements. Interested 
parties include potential offerors, end users, acquisition and 
supporting personnel, and others involved in the conduct or outcome of 
the acquisition.
    (b) The purpose of exchanging information is to improve the 
understanding of your requirements and industry capabilities, thereby 
allowing potential offerors to judge whether or how they can satisfy 
your requirements, and enhancing your ability to obtain quality 
supplies and services, including construction, at reasonable prices, 
and increase efficiency in proposal preparation, proposal evaluation, 
negotiation, and contract award.
    (c) An early exchange of information can identify and resolve 
concerns regarding the acquisition strategy, including proposed 
contract type, terms and conditions, and acquisition planning 
schedules. This also includes the feasibility of the requirement, 
including performance requirements, statements of work, and data 
requirements; the suitability of the proposal instructions and 
evaluation criteria, including the approach for assessing past 
performance information; the availability of reference documents; and 
any other industry concerns or questions. Some techniques to promote 
early exchanges of information are as follows:
    (1) Industry or small business conferences;
    (2) Public hearings;
    (3) Market research;
    (4) One-on-one meetings with potential offerors (any meetings that 
are substantially involved with potential contract terms and conditions 
should include the contracting officer; also see paragraph (e) of this 
section regarding restrictions on disclosure of information);
    (5) Presolicitation notices;
    (6) Draft RFPs;
    (7) Request for Information (RFI) ;
    (8) Presolicitation or preproposal conferences; and
    (9) Site visits.
    (d) RFIs may be used when you do not intend to award a contract, 
but want to obtain price, delivery, other market information, or 
capabilities for planning purposes. Responses to these notices are not 
offers and cannot be accepted to form a binding contract. There is no 
required format for an RFI.
    (e) When specific information about a proposed acquisition that 
would be necessary for the preparation of proposals is disclosed to one 
or more potential offerors, that information shall be made available to 
all potential offerors as soon as practicable, but no later than the 
next general release of information, in order to avoid creating an 
unfair competitive advantage. Information provided to a particular 
offeror in response to that offeror's request must not be disclosed if 
doing so would reveal the potential offeror's confidential business 
strategy. When a presolicitation or preproposal conference is 
conducted, materials distributed at the conference should be made 
available to all potential offerors, upon request.

[[Page 75930]]

Sec.  636.116  What organizational conflict of interest requirements 
apply to design-build projects?

    (a) State statutes or policies concerning organizational conflict 
of interest should be specified or referenced in the design-build RFQ 
or RFP document as well as any contract for engineering services, 
inspection or technical support in the administration of the design-
build contract. All design-build solicitations should address the 
following situations as appropriate:
    (1) Consultants and/or sub-consultants who assist the owner in the 
preparation of a RFP document will not be allowed to participate as an 
offeror or join a team submitting a proposal in response to the RFP. 
However, a contracting agency may determine there is not an 
organizational conflict of interest for a consultant or sub-consultant 
where:
    (i) The role of the consultant or sub-consultant was limited to 
provision of preliminary design, reports, or similar ``low-level'' 
documents that will be incorporated into the RFP, and did not include 
assistance in development of instructions to offerors or evaluation 
criteria, or
    (ii) Where all documents and reports delivered to the agency by the 
consultant or sub-consultant are made available to all offerors.
    (2) All solicitations for design-build contracts, including related 
contracts for inspection, administration or auditing services, must 
include a provision which:
    (i) Directs offerors attention to this subpart;
    (ii) States the nature of the potential conflict as seen by the 
owner;
    (iii) States the nature of the proposed restraint or restrictions 
(and duration) upon future contracting activities, if appropriate;
    (iv) Depending on the nature of the acquisition, states whether or 
not the terms of any proposed clause and the application of this 
subpart to the contract are subject to negotiation; and
    (v) Requires offerors to provide information concerning potential 
organizational conflicts of interest in their proposals. The apparent 
successful offerors must disclose all relevant facts concerning any 
past, present or currently planned interests which may present an 
organizational conflict of interest. Such firms must state how their 
interests, or those of their chief executives, directors, key project 
personnel, or any proposed consultant, contractor or subcontractor may 
result, or could be viewed as, an organizational conflict of interest. 
The information may be in the form of a disclosure statement or a 
certification.
    (3) Based upon a review of the information submitted, the owner 
should make a written determination of whether the offeror's interests 
create an actual or potential organizational conflict of interest and 
identify any actions that must be taken to avoid, neutralize, or 
mitigate such conflict. The owner should award the contract to the 
apparent successful offeror unless an organizational conflict of 
interest is determined to exist that cannot be avoided, neutralized, or 
mitigated.
    (b) The organizational conflict of interest provisions in this 
subpart provide minimum standards for STDs to identify, mitigate or 
eliminate apparent or actual organizational conflicts of interest. To 
the extent that State-developed organizational conflict of interest 
standards are more stringent than that contained in this subpart, the 
State standards prevail.


Sec.  636.117  What conflict of interest standards apply to individuals 
who serve as selection team members for the owner?

    State laws and procedures governing improper business practices and 
personal conflicts of interest will apply to the owner's selection team 
members. In the absence of such State provisions, the requirements of 
48 CFR Part 3, Improper Business Practices and Personal Conflicts of 
Interest, will apply to selection team members.


Sec.  636.118  Is team switching allowed after contract award?

    Where the offeror's qualifications are a major factor in the 
selection of the successful design-builder, team member switching 
(adding or switching team members) is discouraged after contract award. 
However, the owner may use its discretion in reviewing team changes or 
team enhancement requests on a case-by-case basis. Specific project 
rules related to changes in team members or changes in personnel within 
teams should be explicitly stated by the STD in all project 
solicitations.


Sec.  636.119  How does this part apply to a project developed under a 
public-private partnership?

    (a) In order for a project being developed under a public-private 
agreement to be eligible for Federal-aid funding (including traditional 
Federal-aid funds, direct loans, loan guarantees, lines of credit, or 
some other form of credit assistance), the contracting agency must have 
awarded the contract to the public-private entity through a competitive 
process that complies with applicable State and local laws.
    (b) If a contracting agency wishes to utilize traditional Federal-
aid funds in a project under a public-private agreement, the 
applicability of Federal-aid procurement procedures will depend on the 
nature of the public-private agreement.
    (1) If the public-private agreement establishes price and an 
assignment of risk, then all subsequent contracts executed by the 
developer are considered to be subcontracts and are not subject to 
Federal-aid procurement requirements.
    (2) If the public-private agreement does not establish price and an 
assignment of risk, the developer is considered to be an agent of the 
owner, and the developer must follow the appropriate Federal-aid 
procurement requirements (23 CFR part 172 for engineering service 
contracts, 23 CFR part 635 for construction contracts and the 
requirements of this part for design-build contracts) for all prime 
contracts (not subcontracts).
    (c) The STD must ensure such public-private projects comply with 
all non-procurement requirements of 23 U. S. Code, regardless of the 
form of the FHWA funding (traditional Federal-aid funding or credit 
assistance). This includes compliance with all FHWA policies such as 
environmental and right-of-way requirements and compliance with such 
construction contracting requirements as Buy America, Davis-Bacon 
minimum wage rate requirements, for federally funded construction or 
design-build contracts under the public-private agreement.

Subpart B--Selection Procedures, Award Criteria


Sec.  636.201  What selection procedures and award criteria may be 
used?

    You should consider using two-phase selection procedures for all 
design-build projects. However, if you do not believe two-phase 
selection procedures are appropriate for your project (based on the 
criteria in Sec.  636.202), you may use a single phase selection 
procedure or the modified-design-build contracting method. The 
following procedures are available:

[[Page 75931]]



------------------------------------------------------------------------
                              Criteria for using a     Award criteria
     Selection procedure       selection procedure         options
------------------------------------------------------------------------
(a) Two-Phase Selection       Sec.   636.202......  Lowest price,
 Procedures (RFQ followed by                         Adjusted low-bid
 RFP).                                               (price per quality
                                                     point), meets
                                                     criteria/low bid,
                                                     weighted criteria
                                                     process, fixed
                                                     price/best design,
                                                     best value.
(b) Single Phase (RFP)......  Project not meeting   All of the award
                               the criteria in       criteria in item
                               Sec.   636.202.       (a) of this table.
(c) Modified Design-Build     Any project.........  Lowest price
 (may be one or two phases).                         technically
                                                     acceptable.
------------------------------------------------------------------------

Sec.  636.202  When are two-phase design-build selection procedures 
appropriate?

    You may consider the following criteria in deciding whether two-
phase selection procedures are appropriate. A negative response may 
indicate that two-phase selection procedures are not appropriate.
    (a) Are three or more offers anticipated?
    (b) Will offerors be expected to perform substantial design work 
before developing price proposals?
    (c) Will offerors incur a substantial expense in preparing 
proposals?
    (d) Have you identified and analyzed other contributing factors, 
including:
    (1) The extent to which you have defined the project requirements?
    (2) The time constraints for delivery of the project?
    (3) The capability and experience of potential contractors?
    (4) Your capability to manage the two-phase selection process?
    (5) Other criteria that you may consider appropriate?


Sec.  636.203  What are the elements of two-phase selection procedures 
for competitive proposals?

    The first phase consists of short listing based on a RFQ. The 
second phase consists of the receipt and evaluation of price and 
technical proposals in response to a RFP.


Sec.  636.204  What items may be included in a phase-one solicitation?

    You may consider including the following items in any phase-one 
solicitation:
    (a) The scope of work;
    (b) The phase-one evaluation factors and their relative weights, 
including:
    (1) Technical approach (but not detailed design or technical 
information);
    (2) Technical qualifications, such as--
    (i) Specialized experience and technical competence;
    (ii) Capability to perform (including key personnel); and
    (iii) Past performance of the members of the offeror's team 
(including the architect-engineer and construction members);
    (3) Other appropriate factors (excluding cost or price related 
factors, which are not permitted in phase-one);
    (c) Phase-two evaluation factors; and
    (d) A statement of the maximum number of offerors that will be 
short listed to submit phase-two proposals.


Sec.  636.205  Can past performance be used as an evaluation criteria?

    (a) Yes, past performance information is one indicator of an 
offeror's ability to perform the contract successfully. Past 
performance information may be used as an evaluation criteria in either 
phase-one or phase-two solicitations. If you elect to use past 
performance criteria, the currency and relevance of the information, 
source of the information, context of the data, and general trends in 
contractor's performance may be considered.
    (b) Describe your approach for evaluating past performance in the 
solicitation, including your policy for evaluating offerors with no 
relevant performance history. You should provide offerors an 
opportunity to identify past or current contracts (including Federal, 
State, and local government and private) for efforts similar to the 
current solicitation.
    (c) If you elect to request past performance information, the 
solicitation should also authorize offerors to provide information on 
problems encountered on the identified contracts and the offeror's 
corrective actions. You may consider this information, as well as 
information obtained from any other sources, when evaluating the 
offeror's past performance. You may use your discretion in determining 
the relevance of similar past performance information.
    (d) The evaluation should take into account past performance 
information regarding predecessor companies, key personnel who have 
relevant experience, or subcontractors that will perform major or 
critical aspects of the requirement when such information is relevant 
to the current acquisition.


Sec.  636.206  How do I evaluate offerors who do not have a record of 
relevant past performance?

    In the case of an offeror without a record of relevant past 
performance or for whom information on past performance is not 
available, the offeror may not be evaluated favorably or unfavorably on 
past performance.


Sec.  636.207  Is there a limit on short listed firms?

    Normally, three to five firms are short listed, however, the 
maximum number specified shall not exceed five unless you determine, 
for that particular solicitation, that a number greater than five is in 
your interest and is consistent with the purposes and objectives of 
two-phase design-build contracting.


Sec.  636.208  May I use my existing prequalification procedures with 
design-build contracts?

    Yes, you may use your existing prequalification procedures for 
either construction or engineering design firms as a supplement to the 
procedures in this part.


Sec.  636.209  What items must be included in a phase-two solicitation?

    (a) You must include the requirements for technical proposals and 
price proposals in the phase-two solicitation. All factors and 
significant subfactors that will affect contract award and their 
relative importance must be stated clearly in the solicitation. Use 
your own procedures for the solicitation as long as it complies the 
requirements of this part.
    (b) At your discretion, you may allow proposers to submit alternate 
technical concepts in their proposals as long as these alternate 
concepts do not conflict with criteria agreed upon in the environmental 
decision making process. Alternate technical concept proposals may 
supplement, but not substitute for base proposals that respond to the 
RFP requirements.


Sec.  636.210  What requirements apply to projects which use the 
modified design-build procedure?

    (a) Modified design-build selection procedures (lowest price 
technically

[[Page 75932]]

acceptable source selection process) may be used for any project.
    (b) The solicitation must clearly state the following:
    (1) The identification of evaluation factors and significant 
subfactors that establish the requirements of acceptability.
    (2) That award will be made on the basis of the lowest evaluated 
price of proposals meeting or exceeding the acceptability standards for 
non-cost factors.
    (c) The contracting agency may forgo a short listing process and 
advertise for the receipt of proposals from all responsible offerors. 
The contract is then awarded to the lowest responsive bidder.
    (d) Tradeoffs are not permitted, however, you may incorporate cost-
plus-time bidding procedures (A+B bidding), lane rental, or other cost-
based provisions in such contracts.
    (e) Proposals are evaluated for acceptability but not ranked using 
the non-cost/price factors.
    (f) Exchanges may occur (see subpart D of this part).


Sec.  636.211  When and how should tradeoffs be used?

    (a) At your discretion, you may consider the tradeoff technique 
when it is desirable to award to other than the lowest priced offeror 
or other than the highest technically rated offeror.
    (b) If you use a tradeoff technique, the following apply:
    (1) All evaluation factors and significant subfactors that will 
affect contract award and their relative importance must be clearly 
stated in the solicitation; and
    (2) The solicitation must also state, at a minimum, whether all 
evaluation factors other than cost or price, when combined, are--
    (i) Significantly less important than cost or price; or
    (ii) Approximately equal to cost or price; or
    (iii) Significantly less important than cost or price.


Sec.  636.212  To what extent must tradeoff decisions be documented?

    When tradeoffs are performed, the source selection records must 
include the following:
    (a) An assessment of each offeror's ability to accomplish the 
technical requirements; and
    (b) A summary, matrix, or quantitative ranking, along with 
appropriate supporting narrative, of each technical proposal using the 
evaluation factors.

Subpart C--Proposal Evaluation Factors


Sec.  636.301  How should proposal evaluation factors be selected?

    (a) The proposal evaluation factors and significant subfactors 
should be tailored to the acquisition.
    (b) Evaluation factors and significant subfactors should:
    (1) Represent the key areas of importance and emphasis to be 
considered in the source selection decision; and
    (2) Support meaningful comparison and discrimination between and 
among competing proposals.


Sec.  636.302  Are there any limitations on the selection and use of 
proposal evaluation factors?

    (a) The selection of the evaluation factors, significant subfactors 
and their relative importance are within your broad discretion subject 
to the following requirements:
    (1) You must evaluate price in every source selection where 
construction is a significant component of the scope of work.
    (2) You must evaluate the quality of the product or service through 
consideration of one or more non-price evaluation factors. These 
factors may include (but are not limited to) such criteria as:
    (i) Compliance with solicitation requirements;
    (ii) Completion schedule (contractual incentives and disincentives 
for early completion may be used where appropriate); or
    (iii) Technical solutions.
    (3) At your discretion, you may evaluate past performance, 
technical experience and management experience (subject to Sec.  
636.303(b)).
    (b) All factors and significant subfactors that will affect 
contract award and their relative importance must be stated clearly in 
the solicitation.


Sec.  636.303  May pre-qualification standards be used as proposal 
evaluation criteria in the RFP?

    (a) If you use a prequalification procedure or a two-phase 
selection procedure to develop a short list of qualified offerors, then 
pre-qualification criteria should not be included as proposal 
evaluation criteria.
    (b) The proposal evaluation criteria should be limited to the 
quality, quantity, value and timeliness of the product or service being 
proposed. However, there may be circumstances where it is appropriate 
to include prequalification standards as proposal evaluation criteria. 
Such instances include situations where:
    (1) The scope of work involves very specialized technical expertise 
or specialized financial qualifications; or
    (2) Where prequalification procedures or two-phase selection 
procedures are not used (short listing is not performed).


Sec.  636.304  What process may be used to rate and score proposals?

    (a) Proposal evaluation is an assessment of the offeror's proposal 
and ability to perform the prospective contract successfully. You must 
evaluate proposals solely on the factors and subfactors specified in 
the solicitation.
    (b) You may conduct evaluations using any rating method or 
combination of methods including color or adjectival ratings, numerical 
weights, and ordinal rankings. The relative strengths, deficiencies, 
significant weaknesses, and risks supporting proposal evaluation must 
be documented in the contract file.


Sec.  636.305  Can price information be provided to analysts who are 
reviewing technical proposals?

    Normally, technical and price proposals are reviewed independently 
by separate evaluation teams. However, there may be occasions where the 
same experts needed to review the technical proposals are also needed 
in the review of the price proposals. This may occur where a limited 
amount of technical expertise is available to review proposals. Price 
information may be provided to such technical experts in accordance 
with your procedures.

Subpart D--Exchanges


Sec.  636.401  What types of information exchange may take place prior 
to the release of the RFP document?

    Verbal or written information exchanges (such as in the first-phase 
of a two-phase selection procedure) must be consistent with State and/
or local procurement integrity requirements. See Sec.  636.115(a) for 
additional details.


Sec.  636.402  What types of information exchange may take place after 
the release of the RFP document?

    Certain types of information exchange may be desirable at different 
points after the release of the RFP document. The following table 
summarizes the types of communications that will be discussed in this 
subpart. These communication methods are optional.

[[Page 75933]]



----------------------------------------------------------------------------------------------------------------
     Type of information exchange                When                   Purpose              Parties involved
----------------------------------------------------------------------------------------------------------------
(a) Clarifications...................  After receipt of         Used when award without  Any offeror whose
                                        proposals.               discussions is           proposal is not clear
                                                                 contemplated. Used to    to the contracting
                                                                 clarify certain          agency.
                                                                 aspects of a proposal
                                                                 (resolve minor errors,
                                                                 clerical errors,
                                                                 obtain additional past
                                                                 performance
                                                                 information, etc.).
(b) Communications...................  After receipt of         Used to address issues   Only those offerors
                                        proposals, prior to      which might prevent a    whose exclusion from,
                                        the establishment of     proposal from being      or inclusion in, the
                                        the competitive range.   placed in the            competitive range is
                                                                 competitive range.       uncertain. All
                                                                                          offerors whose past
                                                                                          performance
                                                                                          information is the
                                                                                          determining factor
                                                                                          preventing them from
                                                                                          being placed in the
                                                                                          competitive range.
(c) Discussions (see Subpart E of      After receipt of         Enhance contracting      Must be held with all
 this part).                            proposals and after      agency understanding     offerors in the
                                        the determination of     of proposals and         competitive range.
                                        the competitive range.   offerors understanding
                                                                 of scope of work.
                                                                 Facilitate the
                                                                 evaluation process.
----------------------------------------------------------------------------------------------------------------

Sec.  636.403  What information may be exchanged with a clarification?

    (a) You may wish to clarify any aspect of proposals which would 
enhance your understanding of an offeror's proposal. This includes such 
information as an offeror's past performance or information regarding 
adverse past performance to which the offeror has not previously had an 
opportunity to respond. Clarification exchanges are discretionary. They 
do not have to be held with any specific number of offerors and do not 
have to address specific issues.
    (b) You may wish to clarify and revise the RFP document through an 
addenda process in response to questions from potential offerors.


Sec.  636.404  Can a competitive range be used to limit competition?

    If the solicitation notifies offerors that the competitive range 
can be limited for purposes of efficiency, you may limit the number of 
proposals to the greatest number that will permit an efficient 
competition. However, you must provide written notice to any offeror 
whose proposal is no longer considered to be included in the 
competitive range. Offerors excluded or otherwise eliminated from the 
competitive range may request a debriefing. Debriefings may be 
conducted in accordance with your procedures as long as you comply with 
Sec.  636.514.


Sec.  636.405  After developing a short list, can I still establish a 
competitive range?

    Yes, if you have developed a short list of firms, you may still 
establish a competitive range. The short list is based on 
qualifications criteria. The competitive range is based on the rating 
of technical and price proposals.


Sec.  636.406  Are communications allowed prior to establishing the 
competitive range?

    Yes, prior to establishing the competitive range, you may conduct 
communications to:
    (a) Enhance your understanding of proposals;
    (b) Allow reasonable interpretation of the proposal; or
    (c) Facilitate your evaluation process.


Sec.  636.407  Am I limited in holding communications with certain 
firms?

    Yes, if you establish a competitive range, you must do the 
following:
    (a) Hold communications with offerors whose past performance 
information is the determining factor preventing them from being placed 
within the competitive range;
    (b) Address adverse past performance information to which an 
offeror has not had a prior opportunity to respond; and
    (c) Hold communications only with those offerors whose exclusion 
from, or inclusion in, the competitive range is uncertain.


Sec.  636.408  Can communications be used to cure proposal 
deficiencies?

    (a) No, communications must not be used to:
    (1) Cure proposal deficiencies or material omissions;
    (2) Materially alter the technical or cost elements of the 
proposal; and/or
    (3) Otherwise revise the proposal.
    (b) Communications may be considered in rating proposals for the 
purpose of establishing the competitive range.


Sec.  636.409  Can offerors revise their proposals during 
communications?

    (a) No, communications shall not provide an opportunity for an 
offeror to revise its proposal, but may address the following:
    (1) Ambiguities in the proposal or other concerns (e.g., perceived 
deficiencies, weaknesses, errors, omissions, or mistakes); and
    (2) Information relating to relevant past performance.
    (b) Communications must address adverse past performance 
information to which the offeror has not previously had an opportunity 
to comment.

Subpart E--Discussions, Proposal Revisions and Source Selection


Sec.  636.501  What issues may be addressed in discussions?

    In a competitive acquisition, discussions may include bargaining. 
The term bargaining may include: persuasion, alteration of assumptions 
and positions, give-and-take, and may apply to price, schedule, 
technical requirements, type of contract, or other terms of a proposed 
contract.


Sec.  636.502  Why should I use discussions?

    You should use discussions to maximize your ability to obtain the 
best value, based on the requirements and the evaluation factors set 
forth in the solicitation.


Sec.  636.503  Must I notify offerors of my intent to use/not use 
discussions?

    Yes, in competitive acquisitions, the solicitation must notify 
offerors of your intent. You should either:
    (a) Notify offerors that discussions may or may not be held 
depending on the quality of the proposals received (except 
clarifications may be used as described in Sec.  636.401). Therefore, 
the offeror's initial proposal should contain the offeror's best terms 
from a cost or price and technical standpoint; or

[[Page 75934]]

    (b) Notify offerors of your intent to establish a competitive range 
and hold discussions.


Sec.  636.504  If the solicitation indicated my intent was to award 
contract without discussions, but circumstances change, may I still 
hold discussions?

    Yes, you may still elect to hold discussions when circumstances 
dictate, as long as the rationale for doing so is documented in the 
contract file. Such circumstances might include situations where all 
proposals received have deficiencies, when fair and reasonable prices 
are not offered, or when the cost or price offered is not affordable.


Sec.  636.505  Must a contracting agency establish a competitive range 
if it intends to have discussions with offerors?

    Yes, if discussions are held, they must be conducted with all 
offerors in the competitive range. If you wish to hold discussions and 
do not formally establish a competitive range, then you must hold 
discussions with all responsive offerors.


Sec.  636.506  What issues must be covered in discussions?

    (a) Discussions should be tailored to each offeror's proposal. 
Discussions must cover significant weaknesses, deficiencies, and other 
aspects of a proposal (such as cost or price, technical approach, past 
performance, and terms and conditions) that could be altered or 
explained to enhance materially the proposal's potential for award. You 
may use your judgment in setting limits for the scope and extent of 
discussions.
    (b) In situations where the solicitation stated that evaluation 
credit would be given for technical solutions exceeding any mandatory 
minimums, you may hold discussions regarding increased performance 
beyond any mandatory minimums, and you may suggest to offerors that 
have exceeded any mandatory minimums (in ways that are not integral to 
the design), that their proposals would be more competitive if the 
excesses were removed and the offered price decreased.


Sec.  636.507  What subjects are prohibited in discussions, 
communications and clarifications with offerors?

    You may not engage in conduct that:
    (a) Favors one offeror over another;
    (b) Reveals an offeror's technical solution, including unique 
technology, innovative and unique uses of commercial items, or any 
information that would compromise an offeror's intellectual property to 
another offeror;
    (c) Reveals an offerors price without that offeror's permission;
    (d) Reveals the names of individuals providing reference 
information about an offeror's past performance; or
    (e) Knowingly furnish source selection information which could be 
in violation of State procurement integrity standards.


Sec.  636.508  Can price or cost be an issue in discussions?

    You may inform an offeror that its price is considered to be too 
high, or too low, and reveal the results of the analysis supporting 
that conclusion. At your discretion, you may indicate to all offerors 
your estimated cost for the project.


Sec.  636.509  Can offerors revise their proposals as a result of 
discussions?

    (a) Yes, you may request or allow proposal revisions to clarify and 
document understandings reached during discussions. At the conclusion 
of discussions, each offeror shall be given an opportunity to submit a 
final proposal revision.
    (b) You must establish a common cut-off date only for receipt of 
final proposal revisions. Requests for final proposal revisions shall 
advise offerors that the final proposal revisions shall be in writing 
and that the contracting agency intends to make award without obtaining 
further revisions.


Sec.  636.510  Can the competitive range be further defined once 
discussions have begun?

    Yes, you may further narrow the competitive range if an offeror 
originally in the competitive range is no longer considered to be among 
the most highly rated offerors being considered for award. That offeror 
may be eliminated from the competitive range whether or not all 
material aspects of the proposal have been discussed, or whether or not 
the offeror has been afforded an opportunity to submit a proposal 
revision. You must provide an offeror excluded from the competitive 
range with a written determination and notice that proposal revisions 
will not be considered.


Sec.  636.511  Can there be more than one round of discussions?

    Yes, but only at the conclusion of discussions will the offerors be 
requested to submit a final proposal revision, also called best and 
final offer (BAFO). Thus, regardless of the length or number of 
discussions, there will be only one request for a revised proposal 
(i.e., only one BAFO).


Sec.  636.512  What is the basis for the source selection decision?

    (a) You must base the source selection decision on a comparative 
assessment of proposals against all selection criteria in the 
solicitation. While you may use reports and analyses prepared by 
others, the source selection decision shall represent your independent 
judgment.
    (b) The source selection decision shall be documented, and the 
documentation shall include the rationale for any business judgments 
and tradeoffs made or relied on, including benefits associated with 
additional costs. Although the rationale for the selection decision 
must be documented, that documentation need not quantify the tradeoffs 
that led to the decision.


Sec.  636.513  Are limited negotiations allowed prior to contract 
execution?

    Yes, after the source selection but prior to contract execution, 
you may conduct limited negotiations with the selected design-builder 
to clarify any remaining issues regarding scope, schedule, financing or 
any other information provided by that offeror. You must comply with 
the provisions of Sec.  636.507 in the exchange of this information.


Sec.  636.514  How may I provide notifications and debriefings?

    You may provide pre-award or post-award notifications in accordance 
with State approved procedures. If an offeror requests a debriefing, 
you may provide pre-award or post-award debriefings in accordance with 
State approved procedures.

PART 637--CONSTRUCTION INSPECTION AND APPROVAL

    20. The authority citation for part 637 is revised to read as 
follows:

    Authority: Sec. 1307, Pub. L. 105-178, 112 Stat. 107; 23 U.S.C. 
109, 114, and 315; 49 CFR 1.48(b).

PART 637--[AMENDED]

    21. In part 637 revise all references to ``State highway agency's'' 
to read ``State transportation department's''; revise the acronyms 
``SHA'' and ``SHAs'' to read ``STD'' and ``STDs'', respectively; and 
revise the references to ``non-SHA'' to read ``non-STD''.

    22. Amend Sec.  637.207 by adding paragraph (a)(1)(iv) and 
paragraph (b) to read as follows:


Sec.  637.207  Quality assurance program.

    (a) * * *
    (1) * * *
    (iv) In the case of a design-build project on the National Highway

[[Page 75935]]

System, warranties may be used where appropriate. See 23 CFR 635.413(e) 
for specific requirements.
* * * * *
    (b) In the case of a design-build project funded under title 23, 
U.S. Code, the STD's quality assurance program should consider the 
specific contractual needs of the design-build project. All provisions 
of paragraph (a) of this section are applicable to design-build 
projects. In addition, the quality assurance program may include the 
following:
    (1) Reliance on a combination of contractual provisions and 
acceptance methods;
    (2) Reliance on quality control sampling and testing as part of the 
acceptance decision, provided that adequate verification of the design-
builder's quality control sampling and testing is performed to ensure 
that the design-builder is providing the quality of materials and 
construction required by the contract documents.
    (3) Contractual provisions which require the operation of the 
completed facility for a specific time period.

PART 710--RIGHT-OF-WAY AND REAL ESTATE

    23. The authority citation for part 710 is revised to read as 
follows:

    Authority: Sec. 1307, Pub. L. 105-178, 112 Stat. 107; 23 U.S.C. 
101(a), 107, 108, 111, 114, 133, 142(f), 156, 204, 210, 308, 315, 
317, and 323; 42 U.S.C. 2000d et seq., 4633, 4651-4655; 49 CFR 
1.48(b) and (cc), 18.31, and parts 21 and 24; 23 CFR 1.32.

    24. Amend part 710 by adding Sec.  710.313 to subpart C to read as 
follows:


Sec.  710.313  Design-build projects.

    (a) In the case of a design-build project, right-of-way must be 
acquired and cleared in accordance with the Uniform Relocation 
Assistance and Real Property Acquisition Policies Act of 1970, as 
amended, and STD right-of-way procedures. The STD shall submit a right-
of-way certification in accordance with 23 CFR 635.309(p) when 
requesting FHWA's authorization. If the right-of-way services are 
included in the Request for Proposal document, the STD shall ensure 
that right-of-way is available prior to the start of physical 
construction on individual properties.
    (b) The decision to advance a right-of-way segment to the 
construction stage shall not impair the safety or in anyway be coercive 
in the context of 49 CFR 24.102(h) with respect to unacquired or 
occupied properties on the same or adjacent segments of project right-
of-way.
    (c) Certain right-of-way acquisition and clearance services may be 
incorporated into the design-build contract if allowed under State law. 
The contract may include language that provides that construction will 
not commence until all property is acquired and relocations have been 
completed; or, the construction could be phased or segmented to allow 
right-of-way activities to be completed on individual properties or a 
group of properties, thereby allowing certification in a manner 
satisfactory to the STD for each phase or segment.
    (d) If the STD elects to include right-of-way services in the 
design-build contract, the following provisions must be addressed in 
the request for proposals document:
    (1)(i) The design-builder must submit written acquisition and 
relocation procedures to the STD for approval prior to commencing 
right-of-way activities. These procedures should contain a prioritized 
appraisal, acquisition, and relocation strategy as well as check points 
for STD approval, such as approval of just compensation, replacement 
housing payment calculations, replacement housing payment and moving 
cost claims, appraisals, administrative and stipulated settlements that 
exceed determined thresholds based on a risk management analysis, etc. 
STD's which have an FHWA approved procedures manual, in accordance with 
23 CFR 710.201(c), may comply with this section by requiring the 
design-builder to execute a certification in its proposal that it has 
received the approved right-of-way manual and will comply with the 
procedures.
    (ii) The written relocation plan must provide reasonable time 
frames for the orderly relocation of residents and businesses on the 
project as provided at 49 CFR 24.205. It should be understood that 
these time frames will be based on best estimates of the time it will 
take to acquire the right-of-way and relocate families in accordance 
with certain legal requirements and time frames which may not be 
violated. Accordingly, the time frames estimated for right-of-way 
acquisition will not be compressed in the event other necessary actions 
preceding right-of-way acquisition miss their assigned due dates.
    (2)(i) The design-builder must establish a project tracking system 
and quality control system. This system must show the appraisal, 
acquisition and relocation status of all parcels.
    (ii) The quality control system may be administered by an 
independent consultant with the necessary expertise in appraisal, 
acquisition and relocation policies and procedures, who can make 
periodic reviews and reports to the design-builder and the STD.
    (3) The STD may consider the establishment of a hold off zone 
around all occupied properties to ensure compliance with right-of-way 
procedures prior to starting construction activities in affected areas. 
The limits of this zone should be established by the STD prior to the 
design-builder entering on the property. There should be no 
construction related activity within the hold off zone until the 
property is vacated. The design-builder must have written notification 
of vacancy from the right-of-way quality control consultant or STD 
prior to entering the hold off zone.
    (4) Adequate access shall be provided to all occupied properties to 
insure emergency and personal vehicle access.
    (5) Utility service must be available to all occupied properties at 
all times prior to and until relocation is completed.
    (6) Open burning should not occur within 305 meters (1,000 feet) of 
an occupied dwelling.
    (7) The STD will provide a right-of-way project manager who will 
serve as the first point of contact for all right-of-way issues.
    (e) If the STD elects to perform all right-of-way services relating 
to the design-build contract, the provisions in Sec.  710.311 will 
apply. The STD will notify potential offerors of the status of all 
right-of-way issues in the request for proposal document.

[FR Doc. 02-30428 Filed 12-9-02; 8:45 am]
BILLING CODE 4910-22-P