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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:

• 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;

• The FHWA must complete the rulemaking process within three years of the date of TEA-21 enactment, or by June 9, 2001; and

• 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.

• 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.

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.

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.

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.

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.

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 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.

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.

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) 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).

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.

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 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.

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 § 636.107 for additional details.

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.

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 § 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 § 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 alternate technical concepts, the FHWA has no objection to the use of alternate technical concepts. For this reason, we have modified the language in § 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.

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 § 630.203.

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.

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 § 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.

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.

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 § 635.104 to indicate that no justification of cost effectiveness is necessary in selecting projects for the design-build delivery method.

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.

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 § 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 § 26.9.

The AASHTO commented that the use of DBE commitments as proposal evaluation factors, as described in § 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.

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. 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.

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 § 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.

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 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 § 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.

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 § 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.

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.

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.

Three commenters suggested that this proposed section was satisfactory. One commenter suggested that the term “STD” be revised to “contracting agency.” For reasons previously indicated, the FHWA prefers to use the term STD throughout this section.

The Wisconsin DOT suggested an amendment to the proposed language in § 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 § 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 § 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 § 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 § 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 § 635.309 are superseded by paragraph (p).

Several commenters suggested a change to § 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 § 636.109 below.

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.

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.

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.

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.

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.

The DBIA recommended several revisions to the definitions used in this section. The suggested revisions include the following:

• 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?”

• 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.

• 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 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.

• 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.”

• 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.

• 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.

• 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:

• 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.

• 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.

• 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 §§ 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:

• 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.

• 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 § 636.103 reflects the current usage and is appropriate.

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 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.

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.

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.

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 § 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.”

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.

As noted in § 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 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 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, § 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.

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.

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.

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 § 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 § 636.103 and the regulatory text in § 636.112. Otherwise, the FHWA believes this section is sufficiently clear.

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 § 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.”

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 § 636.114(a) in the final rule.

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.

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:

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

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.

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.

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 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.

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 § 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 § 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 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.

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.

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.

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.

The DBIA and the Colorado DOT suggested that the provisions of this section were problematic and inconsistent with the provision in § 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.

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.

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 § 627.5 above, the final rule is also modified to clarify that contracting agencies may allow proposers to submit alternate technical proposals.

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.

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.

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 § 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 § 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.

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.

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 § 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.”

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 the second phase of a two-phase selection process.

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.

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.

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 § 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 § 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 § 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 § 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.”

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 § 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.

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 § 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 § 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 § 636.103) , and therefore, the language in § 636.407 appropriately prohibits the use of communications to cure proposal deficiencies or material omissions. No revisions are made to the final rule.

The AASHTO recommended that the provision of § 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 § 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 provisions of § 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 § 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 § 636.511 to incorporate the term “best and final offer” in the final rule.

The AASHTO and the Virginia DOT recommended the provisions of § 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.

The AASHTO and the South Carolina, Virginia, Colorado and Washington State DOTs recommended that § 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 §§ 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 § 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 § 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, § 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.

Similar to the comments made in § 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 § 637.207(a)(1)(iv) to reference the revisions made to § 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 § 635.413 should be sufficient for this purpose.

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. 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:

• Suggested that clarifications be provided for the submittal of right-of-way certifications and right-of-way availability statements. As previously indicated, we revised § 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 § 710.313(a) to require compliance with the right-of-way certification requirements of § 635.309(p) and a sentence to ensure that right-of-way is available prior to the start of physical construction.

• 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.”

• 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.

• 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.

• 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.

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.

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 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.

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.

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 § 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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

Elsewhere in today's Federal Register , FRA is publishing a notice soliciting additional comments on its NPRM to amend its alcohol and drug testing rule (49 CFR part 219). 66 FR 64000 (Dec. 11, 2001). (Hereinafter, references to a numbered part are to a part in title 49 of the CFR.) Under the proposed amendments to part 219, employees of a foreign railroad whose primary reporting point is outside the United States who perform train or dispatching service in the United States covered by hours of service laws (“covered service”) would become subject to all of the requirements of part 219.

On December 11, 2001, (66 FR 63942), FRA published an IFR that prohibited any extraterritorial dispatching for a period of 365 days, but included exceptions for emergency situations, any United States track segment that was regularly extraterritorially dispatched in December of 1999, and fringe border operations, as those operations were defined in the IFR. The IFR went into effect on January 10, 2002, and remains in effect through January 10, 2003.

In the IFR, FRA solicited comments on the benefits and costs of FRA's proposal as well as comments on whether FRA should adopt an alternative regulatory scheme under which extraterritorial dispatching of United States rail operations would be permitted and, if so, under what conditions. The IFR generated ten written comments, which may be found in the docket and which are discussed below. 1

One of the commenters, CP, requested that FRA delay indefinitely the effective date of the IFR. CP requested the delay because it felt that it was not possible for FRA to resolve all of the issues surrounding the IFR and the related NPRM revising part 219 in such a short period of time. CP felt that it would be better to delay the effective date until written comments could be submitted and FRA's Railroad Safety Advisory Committee consultations could take place. In return for the delay, CP pledged to refrain from expanding any extraterritorial dispatching of United States rail operations.

FRA did not grant the request, however, because CP's operations were not the sole impetus for the IFR. Instead, as explained below, FRA concerns were and still are the recent increase in mergers and acquisitions by and between the larger railroads that has raised the potential for extensive extraterritorial dispatching, the fact that present technology enables any railroad operating in the United States to move its dispatching of United States train operations to any location in the world, and the safety and security problems associated with extraterritorial dispatching of domestic rail operations. In order to preserve the status quo that FRA believed would be jeopardized by delaying the effective date of the IFR, FRA determined that the safest course of action would be to proceed with the IFR and then make a final determination based on the comments received after the IFR had become effective.

In addition to requesting written comments, FRA held a public hearing on the IFR in Washington, DC, on February 12, 2002, at which four parties submitted oral comments. These parties consisted of CP, Canadian National Railway Company (CN), the Brotherhood of Locomotive Engineers (BLE), and the American Train Dispatchers Department of the BLE (ATDD). A transcript of this hearing is available in the public docket of this rulemaking. After reviewing both the written and oral comments, FRA has decided that the safety and security issues presented by extraterritorial dispatching mandate that FRA proceed with this Final Rule.

Proper dispatching is essential for safe railroad operations of both freight and passenger trains. Freight trains can be more than a mile in length, typically carry hazardous materials, and require a mile or more to stop. Freight trains sometimes carry arms, ammunition, and implements of war as well as spent nuclear fuel. Shipments of spent nuclear fuel will dramatically increase once the storage site in Nevada's Yucca Mountain opens in 2010. As was explained in detail in the preamble to the IFR, dispatchers are the railroad employees primarily responsible for the safe movement of trains. See 66 FR 63492. Dispatchers actually steer the train by remotely aligning switches. They determine whether the train should stop or move, and if so, at what speed, by operating signals and issuing train orders and other forms of movement authority or speed restriction. In addition, dispatchers protect track gangs and other roadway workers from passing trains by issuing authorities for working limits. Train crews on board locomotives carry out the dispatchers' instructions and are responsible for actually moving the train, but dispatchers make it possible to do so safely.

Currently, dispatchers located outside of the United States control only very limited train movements in the United States. Their operations are listed in appendix A to the rule and are as follows: 1.8 miles from Windsor, Ontario, to Detroit, Michigan (dispatched by CP); 3.1 miles from Sarnia, Ontario, to Port Huron, Michigan (dispatched by CN); 43.8 miles of the Sprague Subdivision between Baudette, Minnesota, and International Boundary, Minnesota (dispatched by CN); and 99 miles between Vanceboro, Maine, and Brownville Junction, Maine (dispatched by the Eastern Maine Railway Company). 2