[Federal Register Volume 80, Number 99 (Friday, May 22, 2015)]
[Rules and Regulations]
[Pages 29908-29935]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12024]



[[Page 29907]]

Vol. 80

Friday,

No. 99

May 22, 2015

Part IV





Department of Transportation





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Federal Highway Administration





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23 CFR Part 172





Procurement, Management, and Administration of Engineering and Design 
Related Services; Final Rule

  Federal Register / Vol. 80 , No. 99 / Friday, May 22, 2015 / Rules 
and Regulations  

[[Page 29908]]


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DEPARTMENT OF TRANSPORTATION

Federal Highway Administration

23 CFR Part 172

[FHWA Docket No. FHWA-2012-0043]
RIN 2125-AF44


Procurement, Management, and Administration of Engineering and 
Design Related Services

AGENCY: Federal Highway Administration (FHWA), U.S. Department of 
Transportation (DOT).

ACTION: Final rule.

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SUMMARY: This rule updates the regulations governing the procurement, 
management, and administration of engineering and design related 
services directly related to a highway construction project and 
reimbursed with Federal-aid highway program (FAHP) funding. In issuing 
the final rule, FHWA revises the regulations to conform to changes in 
legislation and other applicable regulations [including the DOT's 
recent adoption of the revised ``Uniform Administrative Requirements, 
Cost Principles, and Audit Requirements for Federal Awards,'' and 
removal of outdated references] and addresses certain findings and 
recommendations for the oversight of consultant services contained in 
national review and audit reports.

DATES: This final rule is effective June 22, 2015.

FOR FURTHER INFORMATION CONTACT: For technical information, please 
contact: Mr. Robert Mooney, FHWA Office of Program Administration, 
(202) 366-2221, or via email at [email protected]. For legal 
information, please contact: Mr. Steven Rochlis, FHWA Office of the 
Chief Counsel, (202) 366-1395, or via email at [email protected]. 
Office hours for FHWA are from 8 a.m. to 4:30 p.m., e.t., Monday 
through Friday, except Federal holidays.

SUPPLEMENTARY INFORMATION:

Electronic Access and Filing

    This document, the notice of proposed rulemaking (NPRM), and all 
comments received may be viewed online through the Federal eRulemaking 
portal at: http://www.regulations.gov. The Web site is available 24 
hours each day, 365 days each year. Please follow the instructions. An 
electronic copy of this document may also be downloaded by accessing 
the Office of the Federal Register's home page at: http://www.archives.gov/federal-register/, or the Government Publishing 
Office's Web page at: http://www.gpo.gov/fdsys.

Background

    This rulemaking modifies existing regulations for the 
administration of engineering and design related service contracts to 
ensure consistency and conformance to changes in authorizing 
legislation codified in 23 United States Code (U.S.C.) 112(b)(2) and 
changes in other applicable Federal regulations. These revisions also 
address certain findings contained in a 2008 U.S. Government 
Accountability Office (GAO) review report (http://www.gao.gov/products/GAO-08-198) regarding increased reliance on consulting firms by State 
transportation agencies (STAs) and a 2009 DOT Office of Inspector 
General (OIG) audit report (http://www.oig.dot.gov/library-item/30274) 
regarding oversight of engineering consulting firms' indirect costs 
claimed on Federal-aid projects or activities related to construction.
    The primary authority for the procurement, management, and 
administration of engineering and design related services directly 
related to a highway construction project and reimbursed with FAHP 
funding is codified in 23 U.S.C. 112(b)(2). On November 30, 2005, the 
Transportation, Treasury, Housing and Urban Development, the Judiciary, 
the District of Columbia, and Independent Agencies Appropriations Act, 
2006 (Pub. L. 109-115, 119 Stat. 2396, HR 3058), commonly referred to 
as the ``2006 Appropriations Act,'' was signed into law. Section 174 of 
this Act amended 23 U.S.C. 112(b)(2) by removing the provisions that 
permitted States to use ``alternative'' or ``equivalent'' State 
qualifications-based selection procedures and other procedures for 
acceptance and application of consultant indirect cost rates that were 
enacted into State law prior to June 9, 1998.
    Effective on the date of enactment of the ``2006 Appropriations 
Act,'' States and local public agencies could no longer use alternative 
or equivalent procedures. States and local public agencies are required 
to procure engineering and design related services in accordance with 
the qualifications-based selection procedures prescribed in the Brooks 
Act (40 U.S.C. 1101 et seq.) and to accept and apply consultant 
indirect cost rates established by a cognizant Federal or State agency 
in accordance with the Federal Acquisition Regulation (FAR) cost 
principles (48 CFR part 31) as required by 23 U.S.C. 112(b)(2). To 
comply with the amendments to 23 U.S.C. 112(b)(2), this rulemaking 
removes all references to alternative or equivalent procedures.
    In addition, the Civilian Agency Acquisition Council and the 
Defense Acquisition Regulations Council published a final rule in the 
Federal Register of August 30, 2010, (75 FR 53129), and effective on 
October 1, 2010, raising the Federal simplified acquisition threshold 
established in 48 CFR 2.101 of the FAR cost principles from $100,000 to 
$150,000 to account for inflation using the Consumer Price Index as 
required in statute. This rulemaking revises the small purchase 
procurement method to reflect this increase in the Federal threshold.
    This rulemaking also addresses certain findings and recommendations 
contained in the aforementioned GAO review and OIG audit reports, 
clarifies existing requirements to enhance consistency and compliance 
with Federal laws and regulations, and addresses evolutions in industry 
practices regarding the procurement, management, and administration of 
consultant services.

Summary Discussion of Comments Received in Response to the NPRM

    On September 4, 2012, FHWA published an NPRM in the Federal 
Register at 77 FR 53802 soliciting public comments on its proposal to 
update the existing regulations. The following presents an overview of 
the comments received to the NPRM. Comments were submitted by STAs, 
local government agencies, industry organizations, and individuals. The 
docket contained comments from 31 different parties, including 18 STAs, 
1 regional association of local government agencies, 8 industry 
organizations, and 4 individuals.
    The majority of the comments received related to clarification or 
interpretation of various provisions within the proposed regulatory 
text. Many commenters supported the proposed rule and its alignment 
with current policies, guidance, and industry best practices. Several 
STA commenters asserted that the provisions proposed within the NPRM 
would impose burdens on STAs, requiring additional staff and resources. 
However, the majority of these specific comments related to existing 
requirements imposed by statute and other applicable regulations which 
were clarified within the text of this part for consistency and to 
assure compliance with all applicable requirements for the procurement, 
management, and administration of engineering and design related 
consultant services.
    The FHWA appreciates the feedback the commenters provided and has 
carefully reviewed and analyzed all the

[[Page 29909]]

comments that were submitted and made revisions to the NPRM to 
incorporate suggestions where necessary. For example, some of the more 
significant revisions made in the Final Rule include:
     Adding, removing, or revising several definitions or 
phrases such as the terms ``subconsultant,'' ``fixed fee,'' 
``management support role,'' and others;
     Revising Sec.  172.7(a)(1)(iv)(C) regarding discussion 
requirements following submission and evaluation of proposals to 
require STA's to specify within a Request for Proposals (RFP) what type 
of additional discussions, if any, will take place;
     Adding clarifying language in Sec.  172.9(a)(3)(iv)(B)(1) 
to indicate that the process of issuing a task order under an 
indefinite delivery/indefinite quantity (IDIQ) contract, may include, 
but does not require a second, formal RFP, and;
     Revising the term ``performance report'' to ``performance 
evaluation'' in Sec.  172.9(d)(2) to allow States discretion as to the 
structure of the evaluation.
    A discussion of the substantive comments received is provided in 
the following section.

Comments Directed at Specific Sections of the Proposed Revisions to 23 
CFR Part 172

    The California DOT suggested changing the title of the part to 
``Procurement, Management, and Administration of Architectural, 
Engineering and Related Services'' for consistency with the terminology 
of the Brooks Act (40 U.S.C. 1101 et seq.).
    While the Brooks Act establishes the qualifications-based selection 
procurement procedures, the title proposed was selected to correlate to 
the terminology contained within 23 U.S.C. 112(b)(2), an authorizing 
statute for this part. No change was made to the regulation.

Sec.  172.3--Definitions

    The Virginia DOT and California DOT proposed that definitions of 
``grantee,'' ``subgrantee'' and ``other direct grantee'' be added.
    After these comments were received, the Office of Management and 
Budget revised and published 2 CFR part 200, the Uniform Administrative 
Requirements, Cost Principles, and Audit Requirements for Federal 
Awards. That regulation, adopted by DOT by issuance of 2 CFR part 1201, 
effective December 26, 2014 \1\, no longer uses the terms ``grantee,'' 
``subgrantee,'' or ``other direct grantee.'' New terms to describe 
Federal assistance include: ``recipients'' (2 CFR 200.86) and 
``subrecipients'' (2 CFR 200.93). Given the terms discussed above are 
defined in 2 CFR part 200, FHWA has decided not to redefine the terms. 
The term ``direct grantee'' was modified to ``recipient'' to conform to 
these changes.
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    \1\ https://www.federalregister.gov/articles/2014/12/19/2014-28697/federal-awarding-agency-regulatory-implementation-of-office-of-management-and-budgets-uniform.
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    The California DOT proposed that a definition of ``subconsultant'' 
be added to the regulation.
    The FHWA agrees with the comment and the regulation was modified 
accordingly.
    The Oregon DOT proposed that a definition of ``assurance'' be added 
as this is a specific audit term. Oregon DOT recommends reference to 
the American Institute of Certified Public Accountants (AICPA) 
standards where ``assurance'' is defined.
    The context in which the ``assurance'' term is used in the 
regulation is one of providing assurance of compliance with the cost 
principles, similar to that used in 2 CFR 200.300(b) requiring non-
Federal recipients of Federal financial assistance to be responsible 
for compliance with Federal requirements; and not, in the AICPA 
standards context. No change was made to the regulation.
    The Oregon DOT proposed that a definition of ``acceptance'' be 
added, as it could be interpreted as either ``approved'' or 
``audited,'' when used in the context of ``acceptance of indirect cost 
rates.''
    Within the context of ``acceptance of indirect cost rates,'' 
contracting agencies must accept cognizant agency approved rates 
established in accordance with the FAR cost principles (48 CFR part 
31). The FHWA considered the recommendation but believes that the term 
``acceptance'' could not be interpreted as ``approved'' or ``audited'' 
in this context. No change was made to the regulation.
    The Professional Engineers in California Government (PECG) proposed 
that a definition of ``fair and reasonable'' be added which would 
include an analysis of the cost using internal contracting agency staff 
to determine whether it is more cost effective to perform the services 
in-house or to contract the services out to consultants.
    Section 302(a) of Title 23, U.S.C. permits the State to use private 
engineering firms to the extent necessary or desirable, provided the 
contracting agency is suitably equipped and organized to discharge to 
the satisfaction of the Secretary, the duties required by Title 23. No 
change was made to the regulation.
    A comment from Collins Engineers, Inc. recommended that the 
definition of ``engineering and design related services'' be expanded 
to include bridge inspection, rating, and evaluation services.
    ``Engineering and design related services'' contracts are described 
in 23 U.S.C. 112(b)(2)(A) and ``bridge inspection, rating, and 
evaluation services'' are not specifically addressed. The Brooks Act 
further defines architectural and engineering related services as 
professional services of an architectural or engineering nature, as 
defined by State law, if applicable, that are required to be performed, 
approved, or logically/justifiably performed by a person licensed, 
registered, or certified as an engineer or architect to provide the 
services (as specified in 40 U.S.C. 1102(2)). As such, bridge 
inspection, rating, and evaluation services may be considered 
engineering services under State law and regulation, and dependent upon 
the specific details of the scope of work being provided and its nexus 
with construction, these engineering services would be subject to these 
requirements. No change was made to the regulation.
    The South Dakota DOT recommended that activities such as 
``research, planning, and feasibility studies'' be explicitly excluded 
from the definition of ``engineering and design related services.''
    ``Engineering and design related services'' contracts are described 
in 23 U.S.C. 112(b)(2)(A) and include ``feasibility studies.'' However, 
each contract subject to and being procured under 23 U.S.C. 112(b)(2) 
must have a construction nexus (related in some way to highway 
construction) to be subject to these requirements. The proposed 
definition was expanded to include other services included within the 
definition of engineering under State law as specified within the 
Brooks Act. As such, service contracts for research or planning cannot 
be excluded as these contracts may require engineering expertise under 
State law and regulation. For those contracts to be subject to 23 
U.S.C. 112(b)(2), however, they must be related to highway construction 
as specified in 23 U.S.C. 112(b)(2)(A), which cross-references section 
112(a) of Title 23. No change was made to the regulation.
    The Connecticut DOT requested that additional detail as to what is 
included in ``construction management'' be provided.
    ``Engineering and design related services'' '' contracts are 
described in 23 U.S.C. 112(b)(2)(A) and includes ``construction 
management.'' Construction management is a common

[[Page 29910]]

term within the industry. However, it is difficult to quantify the 
extent of services included within construction management by every 
STA. The proposed definition of engineering and design related services 
was expanded to include other services included within the definition 
of engineering under State law as specified within the Brooks Act. As 
such, State law will determine whether construction related services 
would be considered engineering and design related for the purposes of 
applying part 172 requirements. No change was made to the regulation.
    The California DOT suggested expanding the second part of the 
proposed definition of engineering and design related from 
``Professional services of an architectural or engineering nature . . 
.'' to ``Professional services of an architectural or engineering 
nature including support services as defined by State law . . .''
    The proposed definition is consistent with the Brooks Act. State 
law already determines what is included in the ``related services'' 
term. No change was made to the regulation.
    The Indiana DOT believes the definition for ``cognizant agency'' 
imposes a requirement on the STA to determine the location of a 
consultant's accounting and financial records.
    The definition of ``cognizant agency'' is consistent with the 
American Association of State Highway and Transportation Officials 
(AASHTO) Uniform Audit & Accounting Guide \2\ and state of the 
practice. Consultants are responsible for disclosing and properly 
representing their financial information. No change was made to the 
regulation.
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    \2\ Per https://bookstore.transportation.org/item_details.aspx?ID=2048, ``This concept was developed to assign 
primary responsibility for an audit to a single entity (the 
``cognizant agency'') to avoid the duplication of audit work 
performed in accordance with Government Auditing Standards to obtain 
reasonable assurance that claimed costs are accordance with the FAR 
Subpart 31.2 cost principles. Such audit work may be performed by 
home-State auditors, a Federal audit agency, a CPA firm, or a non-
home State auditor designated by the home-State auditor.''
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    Gannett Fleming, Inc. proposed revisions to recognize consultants 
working under contract to Federal agencies as a cognizant Federal 
agency, ranking above a State agency in a hierarchy.
    The NPRM definition is consistent with the AASHTO Uniform Audit & 
Accounting Guide and state of the practice. The referenced Federal 
statutory provisions apply to direct Federal contracting and are not 
incorporated for application to the Federal Aid Highway Program. No 
change was made to the regulation.
    The American Council of Engineering Companies (ACEC) commented on 
the definition of the ``federal cost principles,'' indicating that the 
term Federal Acquisition Regulation is a singular term and the ``s'' 
should be removed.
    The FHWA agrees with the comment and the regulation was modified 
accordingly.
    To ensure consistency with terminology used throughout the 
regulation and AASHTO publications, the Indiana DOT recommended 
changing the word ``overhead,'' found in the definition for ``fixed 
fee,'' to ``indirect cost.''
    The FHWA agrees with the comment and the regulation was modified 
accordingly.
    To provide a more accurate definition for ``fixed fee,'' the ACEC 
recommends replacing ``not allocable to overhead'' with ``not allowable 
or otherwise included in overhead.''
    The FHWA agrees with the comment and a change was made in the 
regulation; however, the word ``overhead'' was replaced with ``indirect 
cost'' to be consistent with terminology used throughout the regulation 
and AASHTO publications.
    The Massachusetts DOT stated that their department pays ``net 
fees'' on task order contracts whereby fees are paid on a net basis 
based on the amount of salary expended for each assignment, although a 
maximum fee is budgeted similar to ``fixed fee'' as defined. 
Massachusetts DOT is concerned that the proposed definition of ``fixed 
fee'' would prohibit use of the ``net fee'' approach on task order 
contracts.
    The use of ``net fee'' is similar to a cost plus percentage of cost 
payment method which is prohibited from use under 23 CFR 172.9(b)(2) 
(previously 23 CFR 172.5(c)) on engineering and design related services 
funded with FAHP funding. No change was made to the regulation.
    The American Society of Civil Engineers (ASCE) requested 
clarification of the engineer's management role.
    The range of management services provided by a consultant will vary 
based on the organizational structure and capacity of the contracting 
agency. While the definition in Sec.  172.3 is more general, 23 CFR 
172.7(b)(5) provides additional parameters and examples of management 
roles. No change was made to the regulation.

Sec.  172.5--Program Management and Oversight

Sec.  172.5(a)--STA Responsibilities
    The North Dakota DOT asserts that oversight of subgrantee 
(subrecipient) consultant services programs will be cumbersome for the 
DOT and require significant additional staff time and resources.
    The STA (or other recipient) responsibility for subrecipient 
oversight is an existing requirement specified in 23 U.S.C. 106(g)(4) 
and 23 CFR 172.9(a), and 2 CFR 200.331. No change was made in the 
regulation.
    The PECG recommended adding a requirement for grantees (recipients) 
and subgrantees (subrecipients) to perform a cost comparison analysis, 
in which the cost of using a private engineering consultant is compared 
with the cost of using engineers employed by a public agency, to 
determine if using a private engineering firm is in the public interest 
and an efficient use of public funds.
    Section 302(a) of Title 23, U.S.C. permits a suitably equipped and 
organized STA to use consultants to the extent necessary or desirable. 
No change was made in the regulation.
    The ACEC strongly opposed the recommendations made by PECG and 
others related to the placement of restrictions on the flexibility of 
STAs to ``contract out'' for engineering and design services.
    Section 302(a) of Title 23, U.S.C. permits a suitably equipped and 
organized STA to use consultants to the extent necessary or desirable. 
No change was made in the regulation.
    The Virginia DOT and AASHTO requested clarification on expectations 
for the compliance with ``develop and sustain organizational 
capacity.'' They assert that the responsibilities listed in Sec.  
172.5(a)(1)-(4) are new requirements, burdensome, and contrary to 
FHWA's intent noted in the Background section.
    The existing 23 U.S.C. 302(a) requires STA's to have adequate 
powers and be suitably equipped and organized to receive FAHP funds. In 
meeting the provisions of 23 U.S.C. 302(a), a STA may engage the 
services of private engineering firms. Subparagraphs (a)(1)-(4) help 
clarify the responsibilities of the STA in demonstrating its ability to 
procure, manage, and administer those services. No change was made in 
the regulation.
Sec.  172.5(a)(2)
    The Indiana DOT, Virginia DOT, and AASHTO assert that staffing and 
resource estimates for consultant services are labor intensive and 
difficult

[[Page 29911]]

for contracting agencies. Additionally, Virginia DOT requests 
clarification on ``staffing and resource estimates'' and asserts it is 
too restrictive and would impact subgrantees (subrecipients).
    The staffing and resource estimate is for STA oversight of 
consultant services needed as well as for any services to be provided 
by the STA. The estimated STA costs (staffing and resources) combined 
with estimated consultant costs would then be used to support the 
project authorization submitted to FHWA. These resource estimates also 
ensure the STA is suitably equipped and organized to discharge the 
duties required of the STA under Title 23, including its use of 
engineering consultants [23 U.S.C. 302(a)]. The provision was reworded 
to clearly indicate the STA is responsible for establishing a procedure 
for estimating the costs of ``. . . agency staffing and resources for 
management and oversight in support of project authorization requests . 
. .''
    The South Dakota DOT requested clarification whether the submittal 
is for each project or is it a procedure applied by the agency to all 
projects. South Dakota DOT recommends that this provision should only 
apply when engineering services are anticipated to exceed $150,000.
    As this provision is located under the ``Program management and 
oversight'' section, the procedure is intended to be an agency 
procedure for estimation of consultant costs and agency oversight in 
support of individual project authorizations. The procedures developed 
by STAs for estimation may vary based on estimated size of engineering 
services contracts needed. No change was made to the regulation.
Sec.  172.5(a)(4)
    The Tennessee DOT recommended indicating that STAs may accept work 
performed by subgrantees (subrecipients) via certification acceptance.
    ``Certification acceptance,'' formerly authorized under 23 U.S.C. 
117, permitted the Secretary to discharge the responsibilities under 
Title 23 by accepting a certification of the STA, applicable to 
projects not on the Interstate System, that the STA would accomplish 
consistent with the policy, objectives, and standards of Title 23. This 
provision was struck by section 1601(a) of Public Law 105-178 (112 
Stat. 255). An STA may use a variety of methods in providing oversight 
of a Local Public Agency (LPA), including use of certifications from 
the LPA. Regardless of the method used, the STA is not relieved of 
oversight responsibility and subrecipient monitoring and management in 
accordance with 23 U.S.C. 106, and 2 CFR 200.331. No change was made to 
the regulation.
    The California DOT recommended adding (or other direct grantee) 
following STA for consistency.
    The FHWA agrees with the recommendation of consistency and the 
regulation was modified to read (or other recipient). This reflects the 
recent change in nomenclature adopted by 2 CFR part 200.
Sec.  172.5(b) Subrecipient Responsibilities
    The Indiana DOT asserted that requiring LPAs to develop detailed 
hourly estimates places a severe undue burden on LPAs.
    The development of an independent agency estimate to use as a basis 
for negotiation with the selected consultant is a fundamental element 
of Qualification Based Selection (QBS) in accordance with the Brooks 
Act. No change was made in the regulation.
Sec.  172.5(b)(1)
    The Virginia DOT interpreted the requirements of Sec.  172.5(b)(1) 
to require a resolution by subgrantees (subrecipients) to adopt the 
STA's policy and recommends this be a ``may'' condition.
    The provision requires subrecipients to adopt the STA's policy or 
to develop its own for review and approval by the STA. The subrecipient 
must do one or the other and the awarding STA may require use of the 
STA's policy. As the regulation does not limit the STA to require 
subrecipients to adopt the STA's policy, no change was made in the 
regulation.
    The California DOT recommends using the word ``administering'' 
instead of ``awarding.''
    The word ``awarding'' is consistent with 2 CFR part 200 
terminology. No change was made in the regulation.
Sec.  172.5(c) Written Policies and Procedures
    The New York State DOT expressed a concern with FHWA requiring 
approval of minor changes as the New York State DOT often issues 
Consultant Instructions containing guidance on various and sometimes 
minute aspects of its consultant program without prior FHWA approval.
    The FHWA approval of written policies and procedures (often in the 
form of a Consultant Manual) is an existing requirement under Sec.  
172.9(a) and will continue under proposed Sec.  172.5(c). The FHWA 
approved written policies and procedures should define minor changes/
clarifications that may be adopted without additional FHWA review. No 
change was made in the regulation.
    The Wyoming DOT asserted the addition of items to be addressed 
within written procedures such as conflicts of interest, penalty 
assessment, and dispute resolution are overly burdensome and would be 
more appropriate as guidance.
    These are fundamental contract administration functions 
incorporated to address compliance concerns and internal controls, and 
address recommendations from national audits/reviews. The regulations 
do not address how to implement these procedures and thus allow STAs 
flexibility in addressing these elements within their written policies 
and procedures. No change was made in the regulation.
    The PECG recommended that FHWA should approve subgrantee 
(subrecipient) written policies and procedures instead of the STA.
    Subrecipient oversight is a primary responsibility of the STA in 
accordance with 23 U.S.C. 106(g)(4). No change was made in the 
regulation.
    The Oregon DOT requested clarification regarding how and when 
``approval by FHWA'' would occur.
    The FHWA approval must occur whenever changes to the consultant 
manual are necessary or desired (or in accordance with the STA and FHWA 
stewardship and oversight agreement) and the approval will come from 
the FHWA Division Office. This is an existing requirement under Sec.  
172.9(a). No change was made in the regulation.
    The Virginia DOT, Idaho Transportation Department, and AASHTO 
asserted that the requirement for STA review and approval of subgrantee 
(subrecipient) written policies and procedures will be an extreme 
burden for Virginia DOT and the LPAs.
    Subrecipient oversight is a responsibility of the STA in accordance 
with 23 U.S.C. 106(g)(4) and STA review and approval of subrecipient 
written policies and procedures is an existing requirement under Sec.  
172.9(a). No change was made in the regulation.
    The California DOT suggested noting that subgrantees 
(subrecipients) may adopt the STA procedures and do not necessarily 
have to prepare their own procedures.
    In accordance with the requirements in Sec.  172.5(b)(1), a 
subrecipient may only prepare written procedures when not prescribed by 
the awarding STA. No change was made in the regulation.

[[Page 29912]]

Sec.  172.5(c)(2)
    The California DOT suggested that the ``Soliciting proposals from 
prospective consultants'' phrase be revised to ``Soliciting proposals/
qualifications from prospective consultants.''
    The FHWA agrees, as the procedures should address evaluation of 
prequalification information, statements of qualifications, and 
proposals. The regulation was modified accordingly.
Sec.  172.5(c)(5)
    The California DOT suggested that the ``Evaluating proposals and 
the ranking/selection of a consultant'' phrase be revised to 
``Evaluating proposals/qualifications and the ranking/selection of a 
consultant.''
    The FHWA agrees, as the procedures should address evaluation of 
prequalification information, statements of qualifications, and 
proposals. The regulation was modified accordingly.
Sec.  172.5(c)(6) [Re-Designated Sec.  172.5(c)(7)]
    The California DOT suggested that the ``Preparing an independent 
agency estimate for use in negotiation with the selected consultant'' 
phrase be revised to ``Preparing an independent agency cost estimate 
for use in negotiation with the highest ranked consultant.''
    The independent agency estimate is more than a cost estimate and 
includes a breakdown of tasks, hours, etc. The existing regulation and 
the Brooks Act use the term ``selected.'' The term ``selected'' is used 
over ``higher ranked'' since negotiations could be terminated with the 
highest ranked consultant and negotiations initiated with the next 
highest ranked consultant. No change was made in the regulation.
Sec.  172.5(c)(7) [Re-Designated Sec.  172.5(c)(8)]
    The California DOT suggested that subparagraph (c)(7) [re-
designated subparagraph (c)(8)] should have a higher precedence and 
should be moved to follow subparagraph (c)(1).
    After review and consideration, FHWA deemed no change was 
necessary. No change was made in the regulation.
Sec.  172.5(c)(8) [Re-Designated Sec.  172.5(c)(9)]
    The California DOT suggested that the ``Negotiating a contract with 
the selected consultant'' phrase be revised to ``Negotiating a contract 
with the highest ranked consultant.''
    The existing regulation and the Brooks Act use the term 
``selected.'' The term ``selected'' is used over ``highest ranked'' 
since negotiations could be terminated with the highest ranked 
consultant and negotiations initiated with the next highest ranked. No 
change was made in the regulation.
Sec.  172.5(c)(9) [Re-Designated Sec.  172.5(c)(10)]
    The Montana and Virginia DOTs, and AASHTO expressed concern with 
the language ``assuring consultant compliance'' since the definition of 
assure is ``to make certain.'' The Montana DOT asserted that the 
meaning ``assuring'' makes it too burdensome. Montana DOT and AASHTO 
recommended allowing the STAs to use a risk-based approach with 
periodic reviews of the consultant for compliance.
    The provision states ``. . . assuring consultant compliance with 
the Federal cost principles in accordance with Sec.  172.11.'' The 
expectation for providing this ``assurance'' is provided in Sec.  
172.11 which includes a risk-based approach. Additionally, the 
determination of cost allowance in accordance with the Federal cost 
principles is an existing requirement of the Uniform Administrative 
Requirements, Cost Principles and Audit Requirements for Federal Awards 
(2 CFR 200.401(a)). No change was made in the regulation.
Sec.  172.5(c)(10) [Re-Designated Sec.  172.5(c)(11)]
    The Montana DOT expressed a concern with the language ``assuring 
consultant compliance'' since the definition of assure is ``to make 
certain.'' Montana DOT asserted that ``assuring'' is too burdensome. 
Montana DOT recommended allowing STAs to use a risk-based approach with 
periodic reviews of the consultant for compliance.
    Determination of cost allowance in accordance with the Federal cost 
principles in part 31 of the FAR cost principles is an existing 
requirement of 23 U.S.C. 112(b)(2)(B). A risk-based approach to provide 
reasonable assurance of consultant compliance with Federal cost 
principles is allowed in Sec.  172.11. No change was made in the 
regulation.
    The Indiana DOT asserted that assuring consultant costs billed are 
allowable in accordance with the Federal cost principles is a new 
requirement which will require additional training for project 
managers.
    Determination of cost allowance in accordance with the Federal cost 
principles in part 31 of the FAR cost principles is an existing 
requirement of 23 U.S.C. 112(b)(2)(B). No change was made in the 
regulation.
Sec.  172.5(c)(12) [Re-Designated Sec.  172.5(c)(13)]
    The Colorado DOT supports the consideration of performance 
evaluations in the evaluation and selection phase, but asked what 
happens if a few consultants being considered do not have available 
performance evaluation results.
    Many STAs include ``past performance'' as an evaluation criteria 
which considers the consultant's previous work on similar projects and 
may also include any available performance evaluation data. If a 
consultant has not performed work for the STA previously, references 
from other clients of the consultant should be considered. No change 
was made in the regulation.
Sec.  172.5(c)(15) [Re-Designated Sec.  172.5(c)(16)] and 172.9(c)(12) 
[Re-Designated Sec.  172.5(c)(13)]
    The ACEC requested FHWA to include a provision under ``policies and 
procedures'' and under ``contract provisions'' which prohibits 
``unreasonable indemnification and liability provisions imposed by 
contracting agencies.''
    This would introduce a new provision not included within the NPRM 
and would be difficult to define/enforce ``unreasonable'' 
indemnification and liability provisions. The proposed provisions 
clearly state that liability is based upon errors and omissions in the 
work furnished under the consultant's contract (e.g., negligence). No 
change was made in the regulation.
Sec.  172.5(c)(16) [Re-Designated Sec.  172.5(c)(17)]
    The Nebraska Department of Roads (DOR) asked whether the failure to 
meet the project schedule is considered a violation or breach of 
contract.
    The answer depends on the specific terms of the contract and the 
materiality of the delay in relation to the project consistent with 
State law. No change was made in the regulation.
Sec.  172.5(c)(17) [Re-Designated Sec.  172.5(c)(18)]
    The California DOT suggested adding language to Sec.  172.5(c)(17) 
[re-designated Sec.  172.5(c)(18)] so it would read: ``Resolving 
disputes in the procurement, management, and administration of 
engineering and design related consultant services in accordance with 
the contract.''
    The FHWA asserts a dispute could occur at any time in the 
procurement process regardless of whether a contract had yet been 
established. The intention of the section is to establish a dispute

[[Page 29913]]

resolution process that could be invoked regardless of contract status. 
No change was made in the regulation.
Sec.  172.5(e)
    The North Dakota DOT, Virginia DOT, Wyoming DOT, and AASHTO 
expressed concerns about this section. The North Dakota DOT requested 
that the time frame to update written procedures be extended to 18 
months and that it include compliance with the final rule provisions 
and not simply just update of written procedures. Virginia DOT 
requested a time period of 18 to 24 months to ensure changes are made 
to policies and procedures of the STA and LPAs. Wyoming DOT expressed 
concern with reviewing and approving LPA policies and procedures within 
the 12 months proposed. The AASHTO noted that some STAs may need 
changes in legislation to meet the requirements of the rule.
    The updated regulations provide clarifications of existing 
requirements and as such, a 12-month period is adequate for an update 
of the written procedures. An extension may be granted to a contracting 
agency by FHWA where unique or extenuating circumstances exist. No 
change was made in the regulation.

Sec.  172.7--Procurement Methods and Procedures

    The South Dakota DOT recommended that activities funded by State 
Planning and Research or Metropolitan Planning funds be excluded from 
the requirement of this section.
    The application of 23 CFR 172.7 depends on whether the engineering 
and design related services as defined in 23 CFR 172.3 are connected to 
highway construction and is not dependent on the category of FAHP 
funding being used to fund the services. No change was made in the 
regulation.
    The Virginia DOT and AASHTO asserted that this section is detailed 
beyond the intent of the Brooks Act and should be re-issued as 
guidance.
    The proposed rule provides clarification and promotes uniformity of 
procurement requirements based upon the Brooks Act and other applicable 
regulations to ensure a compliant and transparent procurement process. 
No change was made in the regulation.

Sec.  172.7(a) Procurement Methods

    The Massachusetts DOT believes the procurement methods under this 
regulation should apply consistently to all Federal-aid architectural 
and engineering procurements, not just those related to construction 
projects. The Massachusetts DOT recommended striking ``and directly 
related to a highway construction project subject to the provision of'' 
and replacing it with ``under'' to allow these regulations to apply to 
all engineering related procurements whether leading to a construction 
project or not (e.g., bridge inspection, bridge load rating, etc.).
    The application of these requirements is based on the authority 
provided within 23 U.S.C. 112(b)(2)(A) and requires the engineering 
services in question to be related to a highway construction project. 
The Brooks Act defines architectural and engineering related services 
as professional services of an architectural or engineering nature, as 
defined by State law, if applicable, that are required to be performed, 
approved, or logically/justifiably performed by a person licensed, 
registered, or certified as an engineer or architect to provide the 
services (as specified in 40 U.S.C. 1102(2)). As such, bridge 
inspection, rating, and evaluation services may be considered 
engineering services under State law and regulation, and dependent upon 
the specific details of the scope of work being provided, and its nexus 
with construction, these engineering services would be subject to these 
requirements. Accordingly, STAs must apply 23 CFR part 172 to all Title 
23 eligible engineering and design related services procurements that 
have a construction nexus. For those architectural or engineering 
contracts unrelated to construction, States must follow their 
procurement procedures for those contracts consistent with 2 CFR 
200.317. No change was made in the regulation.
Sec.  172.7(a)(1)(i)
    Tennessee DOT disagrees with the use of the Request for 
Qualifications (RFQ) and Request for Proposals (RFP) terminology. 
Tennessee DOT requests ``Letters of Interest'' and shortlisted firms 
are asked to provide ``Contract Specific Qualifications'' (using the 
Federal SF 330).
    The FHWA believes that the NPRM terminology is consistent with the 
AASHTO Guide for Consultant Contracting,\3\ which has widespread 
acceptance and use by the States. No change was made in the regulation.
---------------------------------------------------------------------------

    \3\ This item is available for purchase through AASHTO at: 
https://bookstore.transportation.org/item_details.aspx?ID=1196.
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    The Texas DOT uses a multitiered approach to selecting the most 
qualified provider which includes a prequalification process, 
evaluation of statements of qualifications or letters of interest, and 
then conducting interviews of the highest qualified providers (3 or 
more). The requirements for an RFP impose an additional requirement 
upon the STA and provider beyond the requirements stated in 40 U.S.C. 
1103. Texas DOT requests the use of proposals remain optional.
    The Brooks Act requires an evaluation of qualified firms for each 
proposed procurement or project. An RFP specific to the project, task, 
or service is required for evaluation of a consultant's specific 
technical approach and qualifications. No change was made in the 
regulation.
    The California DOT asserted that the rule will increase costs to 
both the consultant industry and public agencies by requiring an RFQ 
followed by an RFP. California DOT typically issues an RFQ followed by 
an interview of shortlisted firms to evaluate the technical approach of 
the firms.
    Oral technical proposals may be permitted in response to an RFP 
under a multiphase process following an RFQ; however, for the purpose 
of transparency, the requirements for an RFP would remain as stated in 
the proposed regulation. No change was made in the regulation.
    The Montana DOT, ACEC-Montana, and Wyoming DOT expressed some 
concerns with this section. The Montana DOT and ACEC-Montana opposed 
the provision that an RFP specific to a project is required. Both 
organizations asserted that this requirement will increase time and 
consultant costs and will eliminate the ability to procure consultants 
using only a prequalification process for routine services or time 
sensitive projects. The ACEC-Montana recommended allowing the use of a 
comprehensive prequalification process such as that of Montana's DOT 
for procurement of consultants to provide a specific and narrow range 
of services. The Wyoming DOT asserted that RFPs are not appropriate for 
all engineering and design related services, and that requiring a RFP 
will eliminate current streamlined processes, increasing cost and time.
    The FHWA contends that a prequalification process alone does not 
satisfy qualifications based selection requirements. The Brooks Act 
provides that for each proposed procurement or project, the agency 
shall evaluate qualifications and conduct discussions with at least 
three consultants to consider concepts and compare alternative methods 
for furnishing services. Simplified acquisition procedures for work 
that fall within the simplified acquisition threshold provide a more 
streamlined process for those procurements meeting the simplified

[[Page 29914]]

acquisition threshold. For procurements that fall outside the 
simplified acquisition threshold, the RFP facilitates this discussion 
of concepts, alternatives, and methods specific to each project. No 
change was made in the regulation.
    The ACEC requested clarification on whether an RFP is required for 
task orders under an IDIQ contract. The ACEC asserted that issuance of 
a ``full-blown'' RFP for every task order under an IDIQ would be 
burdensome. The ACEC recommends deleting ``task, or service'' from the 
provision or to provide some other clarification. Additionally, AASHTO 
and California DOT asserted that an RFP is not a feasible process in 
evaluating consultants for on-call contracts which are not project 
specific.
    ``Project, task, or service'' is language in existing regulation 
and is necessary as an RFP may not relate to a specific project, but 
may be to provide a service or perform a task on multiple projects 
which may be unknown at the time of RFP issuance. The IDIQ is a type of 
contract and award of task orders to selected engineering consulting 
firms is focused on contract administration after the selection of the 
most qualified consultant firm(s). In instances where multiple 
consultants are selected and awarded IDIQ contracts under a single RFP, 
the procedures in Sec.  172.9(a)(3)(iv) would be followed. To clarify 
expectations, the following language was added to Sec.  
172.9(a)(3)(iv)(B)(1), ``which may include, but does not require a 
formal RFP in accordance with Sec.  172.7(a)(1)(ii).''
    The Tennessee DOT, Massachusetts DOT, South Dakota DOT, Wyoming 
DOT, and AASHTO commented on prequalification periods. The Tennessee 
DOT recommended that a 24 or 26 month prequalification process be 
permitted rather than an annual basis. Massachusetts DOT currently 
employs a biannual prequalification process and recommended allowing 
prequalification at ``regular intervals not to exceed 2 years.'' South 
Dakota DOT recommended evaluation of consultant qualification on a 2-
year basis. Wyoming DOT currently utilizes a 2 year cycle and finds it 
sufficient.
    The STAs (or other recipients) may opt to use a prequalification 
process to assess minimum qualifications of consultants to perform 
services under general work categories. The Brooks Act requires the STA 
to encourage firms to submit annual statements of qualifications and 
performance data. The regulation was revised to better align with the 
requirements of the Brooks Act because 23 U.S.C. 112(b)(2)(A) requires 
that engineering service contracts subject to 23 U.S.C. 112(a) be 
awarded in the same manner as the Brooks Act.
    The California DOT requested clarification on what constitutes 
proper notice to consultants and asked if posting on a Web site was 
adequate.
    Specific examples of public notice are more appropriate for 
guidance versus regulation. As noted within the regulation, any method 
which provides both in-State and out-of-State consultants an equal and 
fair opportunity to be considered is adequate. No change was made in 
the regulation.
Sec.  172.7(a)(1)(ii)(A)
    The South Dakota DOT and Connecticut DOT made recommendations 
pertaining to competitive negotiations. The South Dakota DOT 
recommended that providing a general description of the work and 
requiring the consultant to provide a more detailed description and 
scope of work be allowed, as it is helpful in selecting the consultant 
based on their understanding of the work needed. The Connecticut DOT 
recommended eliminating the language ``clear, accurate, and detailed 
description of the.'' The Connecticut DOT asserted that a comprehensive 
understanding of the details are sometimes unknown early in a project's 
development and may create an administrative burden to make 
modifications later.
    The information provided for the scope of work should address the 
items specified within the provision at a minimum, but the level of 
detail is subject to the level of project planning, range of services 
desired, etc. The Brooks Act requires that ``all requirements'' be 
advertised such that interested and qualified consultants all have an 
equal opportunity to compete. No change was made in the regulation.
    The Tennessee DOT indicated that the level of detail proposed for 
an RFP is not obtained until negotiations under Tennessee DOT's current 
multiphase process.
    The RFP contents proposed are consistent with AASHTO Guide for 
Consultant Contracting (March 2008) and industry practice. The Brooks 
Act requires ``all requirements'' be advertised and the basic contents 
proposed are necessary to determine the most qualified consultant to 
provide the necessary services. The FHWA acknowledges that for some 
projects/services, the level of detail suggested in the provision may 
not be available. To clarify expectations, the regulation was changed 
by adding the phrase ``To the extent practicable'' to the beginning of 
the second sentence of Sec.  172.7(a)(1)(ii)(A).
Sec.  172.7(a)(1)(ii)(B) and (iv)(C)-(E)
    The Indiana DOT, South Dakota DOT, California DOT, Nebraska DOR, 
and AASHTO had comments related to the competitive negotiation 
requirement to identify at least three of the most qualified firms 
responding to a solicitation. The Indiana DOT asserted that the 
requirement for a minimum of three consultants in the discussion 
process and final ranking is new. Indiana DOT, as well as AASHTO, also 
recommended that agencies should have flexibility to evaluate two 
sources if advertised and competition is found to be limited. The South 
Dakota DOT recommended language requiring three responses be removed, 
provided that a procedure to verify a good faith effort to solicit 
responses is in place. The California DOT requested clarification and 
the Nebraska DOR asked what options are available if less than three 
firms submit proposals.
    To clarify expectations, the regulation was changed to address 
instances where only two qualified consultants respond to the 
solicitation, which, as described in Sec.  172.7(a)(1)(iv)(D), would 
permit the contracting agency to proceed provided competition was not 
arbitrarily limited. In addition, in unique circumstances, a 
contracting agency may pursue procurement following the noncompetitive 
method when competition is inadequate and it is not feasible or 
practical to re-compete under a new solicitation.
Sec.  172.7(a)(1)(ii)(C)
    The Tennessee DOT and Connecticut DOT provided comments in relation 
to evaluation factors and their relative weight. Tennessee DOT 
disagrees that evaluation factors with relative weight of importance be 
provided in an RFP. Tennessee DOT indicates that providing weights 
implies a rigid formula and eliminates STA discretion to select between 
firms with similar qualifications. Connecticut DOT recommends removing 
the requirement to identify the weight of importance as it is unclear 
of the benefit to the selection process.
    The FHWA believes that providing relative weights for evaluation 
factors is consistent with Federal procurement practices under the 
Brooks Act, provides consultants a better understanding of what to 
focus their proposal on, and is essential for transparency of the 
selection process. No change was made in the regulation.

[[Page 29915]]

Sec.  172.7(a)(1)(ii)(D)
    The New York State DOT and the Connecticut DOT expressed concern in 
relation to contract types and method(s) of payment. Connecticut DOT 
recommends removal of (D) as the decision on contract type and payment 
method is often determined in negotiations with the selected firm and 
questions if specifying up front would preclude the STA from changing 
the type later if necessary. New York State DOT expressed a similar 
concern.
    The contract type and payment method are a function of how well the 
scope of work is defined, the type and complexity of the work, the 
period of performance, etc. These items should generally be known in 
advance, when the need for consultant services is identified. Where 
appropriate, deviations from the advertised contract type and payment 
method may be warranted, such as for subcontracts, contract 
modifications, etc. To clarify expectations, the regulation was revised 
to read: ``Specify the contract type and method(s) of payment 
anticipated to contract for the solicited services in accordance with 
Sec.  172.9.''
Sec.  172.7(a)(1)(ii)(E)
    The Connecticut DOT-Local Roads requested clarification on what 
special provisions or contract requirements are required.
    This provision requires inclusion of any ``special'' provisions or 
contract requirements associated with the solicited services that are 
not included within the standard contract template/documents used by 
the contracting agency. This would include provisions unique to the 
services being solicited or contracted. No change was made in the 
regulation.
Sec.  172.7(a)(1)(ii)(F) and 172.7(a)(1)(v)(C)
    The ACEC and Connecticut DOT-Local Roads expressed concern in 
relation to consultant cost information. The ACEC requested that the 
submittal of concealed cost proposals not be permitted, as the accuracy 
of the scope of work and cost proposal at the RFP stage is limited. The 
Connecticut DOT-Local Roads recommended not permitting submittal of 
consultant cost information until later in the selection process to 
guard against improper use of that information.
    Many contracting agencies currently require concealed cost 
proposals. This practice was recognized within the regulations provided 
that the specified controls are included. The FHWA agrees that the 
scope of work and accuracy of the cost proposal at the RFP stage is 
limited on some projects, but submittal of cost proposals with the RFP 
may prove more efficient on more routine and straightforward projects/
services. As such, the flexibility should be provided to STAs. No 
change was made in the regulation.
Sec.  172.7(a)(1)(ii)(G)
    Connecticut DOT recommends removal of the language ``key dates.'' 
Connecticut DOT asserts that aside from the submittal deadline for 
responses to the RFP, the selection timeline may vary depending on the 
number of responses received and other procurement steps. The Virginia 
DOT suggested removing the provision.
    To provide transparency in the procurement process, a schedule of 
estimated dates for interviews and selection of the most qualified 
consultant shall be provided to interested consultants. A 14-calendar 
day minimum advertisement period is required to ensure fair and open 
competition. Based on the comments received, the regulation was revised 
to require an ``estimated schedule'' rather than a ``schedule of key 
dates''.
    The AASHTO agreed that a consultant should be provided sufficient 
time to prepare a proposal, but recommended against mandating a 14-day 
requirement.
    The 14-day period is provided as the minimum length of time for 
advertisement of an RFP. No change was made in the regulation.
Sec.  172.7(a)(1)(iii)(B)
    The South Dakota DOT recommended that price/cost of engineering 
services be permitted as an evaluation criteria.
    Consideration of price or cost in the evaluation and selection of 
engineering consultant services is prohibited in (23 U.S.C. 
112(b)(2)(A) and 40 U.S.C. 1103). No change was made in the regulation.
Sec.  172.7(a)(1)(iii)(C)
    The Nebraska DOR requested clarification on ``local preference'' 
and whether it simply means that the consultant must have an in-state 
professional engineering (PE) license.
    Requirements at 2 CFR 200.319(b) prohibits the use of in-state or 
local geographic preferences in the evaluation of bids or proposals 
except where Federal statute mandates or encourages the use of such 
preferences \4\. However, a State may require that the consultant have 
the necessary PE license per State law or regulation. No change was 
made in the regulation.
---------------------------------------------------------------------------

    \4\ For example, 23 U.S.C. 140(d) authorizes the preferential 
employment of Indians living on or near a reservation on projects 
and contracts on Indian reservations roads under the Federal-aid 
Highway Program.
---------------------------------------------------------------------------

    The South Dakota DOT, Connecticut DOT, and Connecticut DOT-Local 
Roads expressed a need for clarification between Sec.  
172.7(a)(1)(iii)(C) and (D) feeling that the provisions in 
(a)(1)(iii)(C) and (a)(1)(iii)(D) contradict one another.
    The provisions in (a)(1)(iii)(C) and (a)(1)(iii)(D) are intended to 
address separate elements; subparagraph (a)(1)(iii)(C) addresses the 
prohibition of ``local preference'' while subparagraph (a)(1)(iii)(D) 
makes allowance for evaluation criteria that is related to services 
performance, which may include an agency's desire for a ``local office 
presence'' or use of Disadvantage Business Enterprise (DBE) 
subconsultants. No change was made in the regulation.
Sec.  172.7(a)(1)(iii)(D)
    The Tennessee DOT and Massachusetts DOT recommended that the ``non-
qualifications'' based criteria not be permitted since such criteria 
are inconsistent with the Brooks Act.
    A local office presence criterion is used by many States and while 
not specifically qualifications oriented, a local office presence 
criterion recognizes that providing a local office presence may provide 
value to the quality and efficiency of a project. The use of DBE 
participation as an evaluation criterion is practiced by many STAs and 
harmonizes Brooks Act requirements with DBE regulations as specified in 
49 CFR part 26. By addressing and providing a limitation on the use of 
these criteria, the integrity of a QBS process is maintained. No change 
was made in the regulation.
Sec.  172.7(a)(1)(iii)(D)(1)
    The Tennessee DOT asserted that a local presence criterion may add 
value at times and that it should be merged with (a)(1)(iii)(C) 
regarding the prohibition on in-State and local preference.
    The provisions in (a)(1)(iii)(C) and (a)(1)(iii)(D) are intended to 
address separate elements; (a)(1)(iii)(C) addresses the prohibition of 
``local preference'' while (a)(1)(iii)(D) makes allowance for other 
evaluation criteria that have historically been used on a limited basis 
to promote efficient project delivery and other FAHP goals. No change 
was made in the regulation.
    The North Dakota DOT asserted that the proposed revision is too 
restrictive and believes that location is a valid criterion that adds 
value to the quality and efficiency of a project, under certain 
circumstances.

[[Page 29916]]

    Evaluation criteria such as knowledge of a locality and familiarity 
of the general geographic area are qualifications that a consultant may 
need to demonstrate to compete for a project and may be included along 
with technical criteria. A consultant could demonstrate knowledge of a 
locality and project site without having a physical local office and 
thus the need for a limitation on evaluation of a ``local presence'' as 
local presence is unrelated to the technical expertise of the firm. No 
change was made in the regulation.
Sec.  172.7(a)(1)(iii)(D)(2)
    The Connecticut DOT-Local Roads questioned the benefit gained by 
awarding points in the evaluation process for use of DBEs when meeting 
a DBE goal is a requirement of the project contract.
    The allowance of an evaluation criterion for participation of 
qualified and certified DBEs is to harmonize Federal requirements for 
qualifications based selection and for consideration of DBEs in the 
procurement of engineering and design related services. No change was 
made in the regulation.
Sec.  172.7(a)(1)(iv)
    The ACEC recommended that a provision be inserted to provide an 
opportunity for non-selected firms to review evaluation, ranking and 
selection information with the agency, if requested (e.g., debriefing).
    The FHWA encourages agencies to provide for debriefings to maintain 
transparency in the procurement process; however, this does not relate 
to statutory requirements. No change was made in the regulation.
Sec.  172.7(a)(1)(iv)(A)
    The Texas DOT recommended that ``public solicitation'' be replaced 
with ``RFP.''
    While the ``solicitation'' is effectively the RFP as defined within 
Sec.  172.7(a)(1)(i), solicitation is used generally throughout the 
proposed part 172. Reference to solicitation is key to reinforce the 
requirements for public advertisement and consideration of both in-
State and out-of-State consultants. No change was made in the 
regulation.
Sec.  172.7(a)(1)(iv)(C)
    The ACEC, Alaska DOT, Nebraska DOR, South Dakota DOT, and Texas DOT 
expressed similar opinions in reference to Sec.  172.7(a)(1)(iv)(C). 
The ACEC recommended that ``shall'' conduct interviews or other types 
of discussions be changed to ``may'' so as to not conflict with the 
final sentence of the provision which allows for no discussions if 
proposal information is sufficient. The ACEC recognized that 
discussions are not necessary in some situations. The Alaska DOT and 
South Dakota DOT made the same recommendations, while the Nebraska DOR 
and Texas DOT requested some clarification.
    The FHWA agrees the wording was confusing and the regulation was 
revised to require the STA to establish criteria and a written policy, 
[as specified in Sec.  172.5(c)(6)] under which additional discussions 
would be take place following RFP submission and evaluation. The RFP 
shall state what type of discussions, if any, will take place following 
submission and evaluation of proposals.
    The Connecticut DOT-Local Roads asserted that not requiring 
discussions following proposal submission will remove structure from 
the selection process and make it difficult to document decision 
criteria.
    Historically, many contracting agencies relied on the information 
contained within consultant proposals and did not conduct subsequent 
discussions/interviews. This is an acceptable practice based upon State 
procedures under a risk-based framework and consistent with the 
comments received on this NPRM provided the proposals contain 
sufficient information for evaluation of technical approach and 
qualifications. The contracting agency must maintain documentation to 
support the evaluation and selection of a consultant based on the 
advertised evaluation criteria. No change was made in the regulation.
Sec.  172.7(a)(1)(iv)(C) Through (E)
    The New York State DOT indicated that it does not always conduct 
additional discussions and that when shortlisting firms for additional 
discussions, and the rankings are not provided.
    Section 172.7(a)(1)(iv)(C), modified to require the STA to 
establish a written policy under which additional discussion are 
needed, will not mandate additional discussion of proposals that 
contain sufficient information for evaluation of technical approach and 
qualifications. Section 172.7(a)(1)(iv)(E) does not require initial 
rankings to be provided when short-listing firms, only the final 
rankings must be provided. No change was made to Sec.  
172.7(a)(1)(iv)(E) of the regulation.
Sec.  172.7(a)(1)(iv)(D)
    The South Dakota DOT recommended language requiring ``three 
responses'' be removed provided a procedure to verify a good faith 
effort to solicit responses is in place. The South Dakota DOT 
recommended adding the following language, ``When an RFP does not 
result in three responses, the agency may proceed with the evaluation 
of the responses obtained.''
    To clarify expectations, the regulation was changed to address 
instances where only two qualified consultants respond to the 
solicitation, which, as described in Sec.  172.7(a)(1)(iv)(D), would 
permit the contracting agency to proceed provided competition was not 
arbitrarily limited. In addition, in unique circumstances, a 
contracting agency may pursue procurement following the noncompetitive 
method when competition is inadequate and it is not feasible or 
practical to re-compete under a new solicitation.
Sec.  172.7(a)(1)(iv)(E)
    The Tennessee DOT, South Dakota DOT, Connecticut DOT-Local Roads, 
Montana DOT, Nebraska DOR, and Wyoming DOT expressed similar opinions. 
Tennessee DOT recommended deleting Sec.  172.7(a)(1)(iv)(E), since it 
objects to providing notification of the ``final ranking'' of the three 
most highly qualified. The South Dakota DOT also recommended removing 
the requirement for notification of ranking because all participating 
consultants are notified of the consultant selected and are provided a 
brief explanation of why they were not selected. The Connecticut DOT-
Local Roads questioned the benefit of providing the final ranking 
information to responding consultants. The Montana DOT asserted that 
compliance with this provision will require additional staff time to 
prepare notifications to each respondent. The Nebraska DOR recommended 
that the term ``ranking'' be replaced with the term ``selection.'' The 
Wyoming DOT asserted that the proposed section changes the notification 
procedures by adding additional unnecessary requirements.
    The Brooks Act requires the evaluation of at least three of the 
most highly qualified firms based upon established and published 
criteria. The contracting agency must enter into negotiations with the 
highest ranked firm and negotiate a contract for compensation that is 
fair and reasonable to the Federal Government. If the contracting 
agency is unable to negotiate a satisfactory contract with the highest 
ranked firm, the contracting agency must undertake negotiations with 
the next highest ranked firm, continuing the process until a contract 
agreement for fair and reasonable compensation is reached. Section 
172.7(a)(1)(iv)(E)

[[Page 29917]]

promotes transparency in the selection process and notification can be 
as simple as posting the final ranking on a Web site. No change was 
made in the regulation.
Sec.  172.7(a)(1)(v)
    The Idaho Transportation Department and AASHTO suggest ensuring 
reasonable wage rates for specific labor classifications, in addition 
to employee classifications, labor hours by classification, fixed fees 
and other direct costs contribute to the overall reasonableness of the 
agreement.
    The FHWA agrees. Section 172.7(a)(1)(v)(B) references Sec.  172.11 
for establishment of the direct salary rates, which includes an 
assessment of reasonableness in accordance with the Federal cost 
principles. For clarification, proposed Sec.  172.7(a)(1)(v)(B), under 
the re-designated Sec.  172.7(a)(1)(v)(C) was revised to indicate that 
the use of the independent estimate and determination of cost allowance 
in accordance with Sec.  172.11 shall ensure the consultant services 
are obtained at a fair and reasonable cost.
    The Oregon DOT recommended a section regarding ``order of 
negotiation'' [40 U.S.C. 1104(b)] from the Brooks Act be included so it 
is not misinterpreted that this section does not apply.
    Although the ``order of negotiation'' section [40 U.S.C. 1104(b)] 
of the Brooks Act applies as specified in Sec.  172.7(a)(1), for 
clarification purposes, specific language was added to Sec.  
172.7(a)(1)(v) as new paragraph Sec.  172.7(a)(1)(v)(A).
Sec.  172.7(a)(1)(v)(A)
    The North Dakota DOT, Indiana DOT, Wyoming DOT, AASHTO, and the 
Illinois Association of County Engineers (IACE) expressed concerns with 
the requirement to develop a detailed independent cost estimate. The 
North Dakota DOT asserted that the independent estimate is a new 
requirement that would require additional STA resources (time and 
staff). The Indiana DOT asserted that STAs and LPAs do not all have the 
ability to prepare detailed labor estimates (independent estimate) as 
the basis for negotiation with a consultant and that detailed labor 
estimates may not be the best way to estimate the cost of consultant 
services in all instances. The Wyoming DOT asserted that other 
procedures are equally appropriate and effective for obtaining 
independent estimates, and that the proposed method is too 
prescriptive. The AASHTO asserted that smaller contracting agencies, 
especially local agencies, may not have the expertise to prepare a 
detailed independent estimate with a breakdown of labor hours, direct 
and indirect costs, fixed fees, etc. In this situation, contracting 
agencies should be allowed to use typical percentages of construction 
costs to prepare their independent estimate for purposes of 
negotiation. The IACE asserted that development of independent cost 
estimates with an appropriate breakdown of the labor hours and 
classifications could add considerable staff time for STAs and LPAs, as 
most of the current IACE members rely on previous experience with 
projects of similar scope, magnitude, and construction cost to 
determine an estimate or anticipated range of consultant costs prior to 
negotiation. The IACE recommends that the description of independent 
agency estimate be broadened to include less rigorous estimating 
methods and guidelines.
    The regulation is consistent with 2 CFR 200.323, which requires 
recipients to perform a cost or price analysis in connection with every 
procurement action in excess of the simplified acquisition threshold 
(as defined in 48 CFR 2.101) and with the Brooks Act (40 U.S.C. 1104) 
which requires the agency head to consider the scope, complexity, 
professional nature, and estimated value of the services to be 
rendered. The method and degree of analysis is dependent on the facts 
surrounding the particular procurement situation, but as a starting 
point, contracting agencies must make independent estimates before 
receiving bids or proposals. The proposed provision notes ``an 
appropriate breakdown'' of the various cost elements which provides 
flexibility in the degree of analysis subject to the scope and 
complexity of the services. No change was made to the regulation.
Sec.  172.7(a)(1)(v)(C) [Re-Designated Sec.  172.7(a)(1)(v)(D)]
    The Alaska DOT recommended changing ``consultants with which 
negotiations are not initiated'' to ``unsuccessful consultants'' as 
price proposals are not returned until negotiations are concluded and 
the cost proposal of the 2nd ranked firm will be needed should 
negotiations fail with the highest ranked firm.
    The FHWA agrees the revision to ``unsuccessful consultants'' 
streamlines the provision while the first sentence of subparagraph 
(a)(1)(v)(C) [re-designated subparagraph (a)(1)(v)(D)] provides the 
requirement to only open the proposal of a consultant when entering 
negotiations and to only consider that consultant's proposal. The 
regulation was modified accordingly.
    The Alaska DOT and New York State DOT provided comments on 
concealed cost proposals. The Alaska DOT recommended changing ``should 
be returned'' to ``may be returned if requested by the consultant'' as 
this places a burden on STAs to return the documents to consultants in 
lieu of destroying along with unsuccessful proposals. The New York 
State DOT asserted that returning cost proposals is not necessary. Cost 
proposals are often electronic and would simply be discarded, or if 
hard copies are provided, the hard copies would be shredded unopened.
    The FHWA agrees to the revision [re-designated Sec.  
172.7(a)(1)(v)(D)] changing ``should'' to a ``may'' condition where the 
contracting agency establishes written policies and procedures [in 
accordance with Sec.  172.5(c)] for disposal of unopened cost 
proposals. The regulation was modified accordingly.
    The California DOT recommended replacing the word ``concealed'' 
with ``sealed.''
    Many contracting agencies currently require concealed cost 
proposals though not all proposals are in hard copy form. The FHWA 
considered the recommendation and determined that using the term 
``sealed'' would imply erroneously that a hard copy sealed envelope 
would be required. No change was made to the regulation.
Sec.  172.7(a)(2)
    The Connecticut DOT-Local Roads asserted that the subject 
provisions are in conflict since (a)(2) indicates a lower State 
threshold must be used and (b)(1)(ii) indicates that Federal 
requirements prevail when a conflict with State or local requirements 
exist.
    The provisions do not conflict. A State small purchase threshold 
that is lower than the Federal threshold would not violate Federal 
requirements, as the Federal requirement would still be satisfied. 
However, a State threshold above the Federal threshold would not be 
permitted as this would violate Federal requirements. No change was 
made to the regulation.
    The Indiana DOT did not support the requirement for discussion/
review of a minimum of three sources (consultants) when using small 
purchase procedures. Existing regulations indicate ``adequate number of 
qualified sources.''
    Section 172.7(a)(2)(ii) established that a minimum of three 
consultants be reviewed to promote adequate competition. The regulation 
was revised to include requirements to address circumstances where 
there are less than three respondents.

[[Page 29918]]

    The Wyoming DOT asserted that requiring STAs to use a lessor STA 
threshold for small purchase procedures is too restrictive.
    Both 23 CFR 1.9 and 2 CFR 200.317 require compliance with State 
laws where not inconsistent with applicable Federal law and regulation. 
As such, a lessor State threshold for use of small purchase procedures 
is more restrictive than Federal requirements and thus must be complied 
with. No change was made to the regulation.
    The Alaska DOT recommended allowing procurements less than $10,000 
to be accomplished without competition and not require three quotes as 
with small purchase procurement procedures.
    The small purchase procedures permitted mirror direct Federal 
acquisition requirements which do not provide a similar threshold where 
competition is not necessary. No change was made to the regulation.
Sec.  172.7(a)(2)(ii)
    The Oregon DOT requested clarification on what is meant by ``review 
of at least three qualified sources.'' South Dakota DOT recommended 
language requiring ``three responses'' be removed and replaced with a 
provision for agencies to provide a procedure to verify a good faith 
effort to solicit responses. South Dakota DOT recommends adding the 
following language, ``When an RFP does not result in three responses, 
the agency may proceed with the evaluation of the responses obtained.''
    The level of review (request for proposals, discussions, etc.) 
shall be in accordance with State procedures, but a minimum of three 
consultants must be considered. Although small purchases are a 
permitted exception to compliance with the Brooks Act, review of three 
sources is a simplified means to promote competition among qualified 
firms. Section 172.7(a)(2)(ii), was revised to address instances where 
less than three consultants respond to the solicitation.
Sec.  172.7(a)(2)(iv)
    The Nebraska DOR and AASHTO requested clarification as to whether 
only the amount above the simplified acquisition threshold is 
ineligible or the entire contract is ineligible. The AASHTO asserted 
that ``The full amount of any contract modification or amendment that 
would cause the total contract amount to exceed the established 
simplified acquisition threshold would be ineligible for Federal-aid 
funding'' is penalty enough and that FHWA needed to establish 
circumstances that warranted the extreme action of withdrawal of all 
Federal funding from the contract.
    As specified within the proposed regulation, the full amount of any 
contract modification or amendment which causes a contract to exceed 
the threshold would be ineligible. The FHWA has the discretion to 
withdraw all Federal-aid funding from the contract if it determines 
that the small purchase procurement was used to circumvent competitive 
negotiation procurement procedures. No change was made to the 
regulation.
    The Connecticut DOT asserted that this provision may be difficult 
to monitor and administer.
    This provision is intended to prevent abuse of the use of small 
purchase procedures to circumvent qualifications based selection 
procurement requirements. A simple check or audit of contracts procured 
under small purchase procedures to verify the appropriate threshold was 
not exceeded is all that would be necessary to verify compliance. No 
change was made to the regulation.
Sec.  172.7(a)(3)
    The AASHTO requests clarification as to whether FHWA is approving 
each contract or approving a STA's noncompetitive procedures. The 
AASHTO recommends approval of procedures.
    The specific scenarios for use of noncompetitive procedures should 
be addressed within the STA's written procedures. While FHWA approval 
on a contract basis is indicated within Sec.  172.7(a)(3)(ii), a STA's 
procedures allow programmatic approval under specified circumstances. 
No change was made to the regulation.
    The California DOT requested clarification as to whether this 
applies if less than three qualified consultants submit proposals in 
response to a RFQ.
    Yes, noncompetitive procedures would apply under Sec.  
172.7(a)(3)(iii)(C). Revisions to the regulation, Sec.  
172.7(a)(iv)(D), address instances where less than three consultants 
respond to the solicitation. No change was made to the regulation.
Sec.  172.7(a)(3)(iii)
    The San Diego Association of Governments (SANDAG) requested that 
proposed language be modified to clarify that approval from FHWA is one 
method for authorizing a sole source, but not the only method.
    Use of noncompetitive procedures requires FHWA approval as 
specified within the existing and proposed regulations. An agency's 
written procedures approved by the FHWA Division Office may define 
situations whereby FHWA approval is granted on a programmatic basis. No 
change was made to the regulation.
Sec.  172.7(b)(1)(i)
    The Nebraska DOR finds the phrase, ``. . . procedures which are not 
addressed by or in conflict with applicable Federal laws . . .'' 
confusing when compared to Sec.  172.7(b)(1)(ii) which states ``When 
State and local procurement laws, regulations, policies, or procedures 
are in conflict with applicable Federal laws and regulations . . .''
    For clarity, Sec.  172.7(b)(1)(i) was revised to read, ``. . . 
procedures which are not addressed by or are not in conflict with 
applicable Federal laws and regulations . . .''
Sec.  172.7(b)(2)(i)
    The AASHTO recommends revising ``shall'' to ``may'' as DBE 
requirements are met through construction contracts.
    Participation by DBE firms in FAHP projects is a requirement of 49 
CFR 26. A contracting agency might meet most of its approved DBE 
participation goals through construction contracts; however, in 
accordance with the STA's DBE program approved by FHWA, consultant work 
accomplished by consultants/subconsultants that are on the STA's 
approved DBE list could count toward satisfying DBE goals. No change 
was made to the regulation.
    The California DOT requested additional clarification regarding the 
utilization of DBE goals or evaluation criteria for DBE participation.
    The proposed rule is consistent with existing FHWA policy and 
guidance. A contracting agency might meet most of its approved DBE 
participation goals through construction contracts; however, in 
accordance with the STA's DBE program approved by FHWA, consultant work 
accomplished by consultants/subconsultants that are on the STA's 
approved DBE list could count toward DBE goal accomplishment. No change 
was made to the regulation.
    The Virginia DOT and AASHTO asserted that this provision is in 
conflict with the Federal DBE Small Business Enterprise Program, and 
interpreted this provision as requiring STAs to have set-asides for 
Small Business.
    The proposed rule is consistent with existing FHWA policy and 
guidance, and it is not in conflict with 49 CFR 26.43, which explicitly 
prohibits set-asides or quotas for DBEs. No change was made to the 
regulation.

[[Page 29919]]

Sec.  172.7(b)(3)
    The AASHTO recommended allowing consultant self-certification for 
no suspension or debarment actions rather than requiring STAs to verify 
eligibility on a contract by contract basis. The Wyoming DOT also 
suggested self-certification by consultants and subconsultants.
    The requirements for verification of suspension and debarment 
actions and consultant eligibility status are specified within 2 CFR 
part 180. Use of a contract-based self-certification is currently 
permitted. No change was made to the regulation.
Sec.  172.7(b)(4)
    The Wyoming DOT asserted that this section is unclear and 
potentially far reaching.
    The proposed provision addresses basic Conflict of Interest (COI) 
scenarios and is an existing requirement of the Uniform Administrative 
Requirements, Cost Principles and Audit Requirements for Federal Awards 
(2 CFR 200.112). No change was made to the regulation.
    The California DOT recommended including COI provisions for various 
types of services (design and construction engineering, design and 
environmental services, etc.).
    The regulations provide the basis for STAs to develop more specific 
COI policies based on the specific risks and range of controls a STA 
may have. No change was made to the regulation.
Sec.  172.7(b)(5)(i)
    The PECG recommended that STAs be precluded from awarding 
management contracts as it is inappropriate for a consultant to perform 
an inherently governmental function.
    Use of consultants in a program management role is permitted under 
existing requirements in 23 U.S.C. 112(b)(2)(A). Section 302(a) of 
Title 23, U.S.C. allows the use of consultants to the extent necessary 
or desirable provided the contracting agency is suitably equipped and 
organized. Use of consultants in a management role warrants additional 
conflicts of interest controls as prescribed to mitigate concerns with 
performance of inherently governmental functions. No change was made to 
the regulation.
Sec.  172.7(b)(5)(ii)
    The California DOT recommended that project management services to 
manage scope, cost, and schedule of a project be excluded.
    In order to show that the STA has adequate powers and is suitably 
equipped and organized to discharge the duties required by this title, 
Sec.  172.9(d)(1) requires a public agency employee to perform these 
functions and serve in responsible charge of the project. No change was 
made to the regulation.
Sec.  172.7(b)(5)(iii)
    Guy Engineering Services, Inc. interpreted the provision to 
prohibit a consultant from providing construction management services 
for projects for which the consultant provided design services.
    A ``management support role,'' as defined in Sec.  172.3 and as 
intended in Sec.  172.5(b), relates to a program or project 
administration type role on behalf of the contracting agency where a 
consultant may manage or oversee the work of other consultants or 
contractors. The scenario described by the commenter does not involve a 
consultant overseeing its own work. No change was made to the 
regulation.
    The ACEC and the American Road and Transportation Builders 
Association recommended the removal of the last sentence, ``A 
consultant serving in a management role shall be precluded from 
providing services on projects, activities, or contracts under its 
oversight.'' The ACEC is concerned the sentence is broad and will limit 
various technical services that firms in program management roles 
routinely provide to their clients.
    The FHWA agrees that the sentence could be interpreted and applied 
in a manner more restrictive than intended. The regulation was modified 
to read that consultants ``may'' be precluded from providing additional 
services due to potential conflicts of interest.
    The Alaska DOT expressed a concern that this provision would 
preclude a consultant from providing construction management services 
for projects in which they provided design services. Alaska recommends 
the provision be amended to specifically allow consultants to provide 
construction management services for projects in which they provided 
design services.
    Consistent with current FHWA policy and guidance, necessary 
controls must be in place for oversight and prevention of conflicts of 
interest to permit a consultant to provide services in the design and 
construction phase of the same project. As such, a specific blanket 
approval via regulation would not be appropriate. Additionally, the 
proposed provision notes that the consultant in a management support 
role would be precluded from providing services on projects under its 
oversight. No change was made to the regulation.
    The PECG agrees with the provision to preclude a consultant serving 
in a management role from also providing services on projects, 
activities, or contracts under its oversight.
    The PECG's position was noted. No change was made to the 
regulation.
Sec.  172.9(a)(2)
    The California DOT and AASHTO requested clarification on whether 
negotiation includes both scope and costs on a phase by phase basis 
under a multiphase contract.
    Negotiation always includes detailed elements of the scope of work 
and associated costs. However, the type of services and work negotiated 
must be included within the overall scope of services of the original 
solicitation from which a qualifications-based selection was made. The 
regulation was modified to include clarification language.
Sec.  172.9(a)(3)(i)
    The Indiana DOT, New York State DOT, California DOT, SANDAG, 
Massachusetts DOT, Virginia DOT, South Dakota DOT, Texas DOT, and 
AASHTO expressed concerns with the maximum 5 years limitation specified 
in the regulation. The Indiana DOT recommended that exceptions to the 
on-call contract timeframe be provided where a consultant may have 
largely completed a project design and it would be unreasonable to 
contract with another firm to complete the design. The New York State 
DOT noted that 5 years may not be sufficient where it is desired to 
retain the consultant to provide ongoing construction support services. 
The California DOT asserted that it is sometimes required to have a 
contract last longer than 5 years due to the complexity of the projects 
and its length of construction, and that this section should include 
language to allow exceptions. The SANDAG requested that FHWA consider 
recommending the 5 year contract term, but allow contract terms in 
excess of 5 years when justified by grantee (recipient) documentation. 
Massachusetts DOT recommended removal of the 5 year limitation on 
contracts. Virginia DOT questioned the need for a 5 year limitation for 
on-call contracts. South Dakota DOT and Texas DOT recommended removal 
of the 5 year limitation on contracts.
    The 5 year maximum contract length only applies to IDIQ contracts. 
The IDIQ contracts are intended for smaller projects or for performance 
of routine or specialized services on a number of projects. As such, 
only services which fall within the advertised scope, funding, and 
schedule limitations of the established IDIQ contract may be awarded to 
the consultant. Should the

[[Page 29920]]

scope or complexity of a project warrant a more flexible schedule, a 
project specific solicitation should be utilized over a task order 
under an IDIQ contract. No change was made to the regulation.
Sec.  172.9(a)(3)(ii)
    The South Dakota DOT asserted this provision is misplaced and 
should be moved to project specific contracts rather than IDIQ 
contracts.
    The thresholds provided for IDIQ contracts are essential to 
ensuring that an unlimited amount of work over an unlimited period of 
time is not awarded to a single consultant. While project specific 
contracts will also generally define a maximum total contract dollar 
amount, these contracts are subject to contract modification as 
appropriate which may increase the amount. No change was made to the 
regulation.
Sec.  172.9(a)(3)(iv)
    The California DOT requested clarification on the process for 
awarding multiple consultants on-call contracts under a single 
solicitation.
    If the STA wishes to award contracts to three consultants, then the 
top three ranked firms may be awarded contracts under a single 
solicitation when advertised accordingly. Additional information may be 
provided in implementing guidance, but is not appropriate for inclusion 
within the regulatory language. No change was made to the regulation.
Sec.  172.9(a)(3)(iv)(A)
    The Tennessee DOT recommended deleting the provision to specify the 
number of consultants that may be selected under the IDIQ solicitation 
as providing this information is unnecessary and provides little useful 
information to interested firms. The Massachusetts DOT and South Dakota 
DOT also recommended similar revisions.
    The provision is to indicate the number of consultants/contracts 
that ``may'' be awarded through the specific IDIQ solicitation. When 
advertising, an STA should know how many contracts it may need based on 
an estimated workload of needed services. This allows interested 
consultants to know how many contracts ``may'' be awarded and provides 
transparency to the process. Additionally, since ``may'' is used, this 
does not lock the STA into awarding the number of contracts shown on 
the solicitation and contract provision, if an adequate number of 
qualified consultants do not submit a proposal. No change was made to 
the regulation.
Sec.  172.9(a)(3)(iv)(B)
    The Tennessee DOT, Massachusetts DOT, Texas DOT, Montana DOT, 
Connecticut DOT, Wyoming DOT, and AASHTO expressed concerns about the 
additional QBS process specified in this provision. The Tennessee DOT 
recommended deleting this section based on their concern that requiring 
an additional QBS process to award task orders among multiple firms is 
contrary to the purpose of an IDIQ contract to accelerate the selection 
process of small or short duration type projects. Massachusetts DOT 
recommended deleting this section based on their opinion that requiring 
an additional QBS process or regional method to award task orders among 
multiple firms is contrary to the purpose of an IDIQ contract to 
accelerate the selection process and it limits the flexibility of the 
STA. Texas made similar recommendations and offered that a third option 
for award of task orders on a rotational basis be provided. Montana DOT 
and Connecticut DOT expressed concerns with additional time and cost 
associated with a secondary qualification based process. The 
Connecticut DOT recommended revising the provision to simply state 
``the contracting agency shall ensure it has an equitable method to 
distribute the work between the selected qualified consultants and it 
shall be approved by FHWA in advance.'' Wyoming DOT expressed similar 
concerns of additional time and resources. The AASHTO expressed a 
concern with the requirements of the provision and asked that if a 
``full'' competitive negotiation procedure was not what was meant by 
the secondary ``qualifications-based selection,'' that the provision be 
revised for clarification or that the requirement for a secondary 
qualifications-based selection be removed.
    If multiple consultants are awarded IDIQ contracts under a QBS 
procedure, a methodology which considers consultant qualifications must 
be used to award individual task orders among the firms. A Department 
of Homeland Security Office of Inspector General audit has criticized 
practices of Federal agencies awarding task orders on a rotational 
basis (equitable funding distribution) as a potential violation of the 
Brooks Act.\5\ A fair and transparent methodology is necessary. The 
``second'' QBS process to award task orders may be abbreviated and not 
require additional submittals by firms under contract. The regulation 
was modified to include clarification language.
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    \5\ http://www.oig.dhs.gov/assets/Mgmt/OIG_11-02_Oct10.pdf.
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    The South Dakota DOT recommended that the contracting agency be 
permitted to award task orders on the basis of qualifications and 
price/cost. The South Dakota DOT proposed the following language, 
``Task or work orders shall not be competed and awarded among the 
selected, and qualified consultants on the sole basis of costs . . .''
    If multiple consultants are awarded IDIQ contracts under a QBS 
procedure, a methodology which considers consultant qualifications must 
be used to award individual task orders among the firms. A Department 
of Homeland Security Office of Inspector General audit has criticized 
practices of Federal agencies awarding task orders on a rotational 
basis (equitable funding distribution) as a potential violation of the 
Brooks Act.\5\ A fair and transparent methodology is necessary and 
competing on the basis of costs is not permitted. No change was made to 
the regulation.
Sec.  172.9(a)(3)(iv)(B)(1)
    The Ohio DOT recommended that an additional QBS procedure to award 
task orders under an IDIQ contract should apply only to specific tasks 
which exceed the simplified acquisition threshold.
    The provision only applies to task orders on IDIQ contracts 
procured under competitive negotiation. Adding a caveat to only apply 
to task orders over $150,000 is mixing competitive negotiation and 
simplified acquisition procurement procedures. The regulation was 
modified to include clarification language concerning the QBS 
procedure.
    The ACEC recommended clarifying that a ``full-blown'' RFP is not 
required to compete every task order under an IDIQ with multiple 
consultants under contract.
    The ``second'' QBS process to award task orders may be abbreviated 
and not require additional submittals by firms under contract. The 
regulation was modified to include clarification language.
Sec.  172.9(a)(3)(iv)(B)(2)
    The Texas DOT requested clarification on assigning work if 
consultants are selected to provide work in a particular region.
    Under a regional basis, a single consultant would be selected to 
provide the desired services on an on-call basis within a designated 
region. Any specified services within that region could then be 
assigned via task order to

[[Page 29921]]

the selected consultant. No change was made to the regulation.
Sec.  172.9(b)(1)
    The Connecticut DOT questioned why payment method must be included 
in the original solicitation.
    The payment method is a function of how well the scope of work is 
defined, the type and complexity of the work, the period of 
performance, etc. This should generally be known up front when the need 
for consultant services is identified. Where appropriate, deviations 
from the advertised payment method may be warranted, such as for 
subcontracts, contract modifications, etc. It is noted within the 
provision that different payment methods may be warranted for different 
elements of the work. No change was made to the regulation.
Sec.  172.9(b)(5)
    The California DOT recommended providing additional information 
regarding the specific rates of compensation payment method and any 
limitations to auditing the indirect cost rate or in providing 
oversight on contracts where the indirect cost rate is fixed for the 
term of a multiyear contract.
    The specific rates of compensation payment method does not impose 
any special requirements related to indirect cost rate different from 
other payment methods other than the indirect cost is included within a 
loaded hourly rate. No change was made to the regulation.
Sec.  172.9(b)(6) and (c)(10)
    The ACEC strongly supported the Sec.  172.9(b)(6) and (c)(10) 
provisions regarding retainage and prompt pay.
    The ACEC's position was noted. No change was made to the 
regulation.
Sec.  172.9(c)
    Wyoming DOT questioned the value of the proposed section of 
contract requirements and recommends lengthening the compliance period 
to allow STAs time to consult with State Attorney General's office to 
determine appropriate contract language.
    Many of the contract provisions noted reference a requirement 
contained within other applicable regulations. Other general provisions 
reflect similar requirements contained within the Uniform 
Administrative Requirements, Cost Principles and Audit Requirements for 
Federal Awards (2 CFR 200.326/appendix II of 2 CFR part 200). No change 
was made in the regulation.
    The Virginia DOT and AASHTO asserted that not all provisions seem 
applicable to subcontracts; specifically the provisions for Title VI 
assurance, DBE assurance, error and omissions, and conflicts of 
interest.
    The extension of the assurances for Title VI and DBE to 
subcontracts is a requirement of the referenced order or regulation. 
The errors and omissions and conflicts of interest provisions must be 
incorporated into subcontracts as well, since these issues reach beyond 
the consultant and subconsultant. No change was made to the regulation.
    The New York State DOT asserted that many of the provisions are too 
lengthy to include in each individual contract and the regulations 
should allow incorporation by reference.
    The FHWA agrees that some contract provisions may permit 
incorporation by reference. However, other provisions specified in 
other applicable statutes and regulations require physical 
incorporation of the language into each contract. The regulation was 
modified to allow incorporation by reference where applicable.
Sec.  172.9(c)(6)
    The ACEC requested clarification on to whom the records retention 
requirements apply and what is meant by ``all other pending matters are 
closed.''
    The provision is consistent with 2 CFR 200.333 and was incorporated 
to 23 CFR 172 to avoid any misinterpretations of its application to 
consultant contracts under the FAHP. As a consultant contract 
provision, it applies to consultants under contract with a contracting 
agency. ``All other pending matters'' could include claims, lawsuits, 
etc. No change was made to the regulation.
Sec.  172.9(d)(1)
    The PECG expressed concerns that the provisions permit a public 
employee to serve in responsible charge of multiple projects and that 
contracting agencies may use multiple employees to fulfill monitoring 
responsibilities. The PECG recommended requiring STAs to employ 
sufficient staff to carry out a highway program in a manner that 
maximizes public safety and promotes efficient use of public funds.
    Clarification is provided that responsible charge is not intended 
to correspond to its usage in State laws regarding PE licensure. The 
provision is intended to articulate the minimum requirements for 
contract administration and oversight. No change was made to the 
regulation.
    The Virginia DOT and AASHTO asserted that this provision appears to 
be a job description instead of a regulation and should be removed.
    The provision sets the requirements for oversight of consultants 
under contract to provide engineering and design related services 
funded with FAHP funds. The monitoring requirements specified within 
the regulation are fundamental to administration of the FAHP as 
specified in 23 U.S.C. 302(a). Providing a full-time agency employee in 
responsible charge is also addressed within 23 CFR 635.105(b). No 
change was made to the regulation.
    The PECG expressed concerns that ``responsible charge'' is a 
recognized term within the profession of engineering. The ACEC 
expressed concerns with the use of the term ``responsible charge'' for 
public agency employee functions since the term has legal connotations 
within the engineering profession.
    The ``responsible charge'' term is used in 23 CFR 635.105 for 
construction project oversight and has been a common term within the 
Federal-aid highway program for years. It is intended to be applied 
only in the context defined within the regulation. It may or may not 
correspond to its usage in State laws regulating licensure of 
professional engineers. Language to clarify the intentions of the 
``responsible charge'' term was added to the regulation.
    The North Dakota DOT, Montana DOT, Wyoming DOT, and AASHTO 
expressed concerns that the monitoring requirements would require 
additional staff. The Montana DOT expressed a particular concern with 
the responsible charge individual having to ensure that consultant 
costs billed are allowable in accordance with the Federal cost 
principles and consistent with the contract terms as well as the 
acceptability and progress of the consultant's work. The AASHTO 
expressed the concern that the requirement to provide a ``Full-Time'' 
employee to monitor and administer the contracts can be extremely 
burdensome on LPAs and pointed out that many use ``Part-Time'' 
employees to oversee contracts.
    The monitoring requirements specified within the regulation are 
fundamental to administration of the FAHP as specified in 23 U.S.C. 
302(a). The provision allows for a full-time public employee to serve 
in responsible charge of multiple projects, and contracting agencies 
may use multiple public employees to fulfill monitoring 
responsibilities. Providing a full-time agency employee in responsible 
charge is also addressed within 23 CFR 635.105(b). No change was made 
to the regulation.

[[Page 29922]]

Sec.  172.9(d)(1)(i)
    The PECG asserted that construction inspection is an inherently 
governmental function that must be performed by public agency 
employees.
    Section 302(a) of Title 23 U.S.C. permits the use of consultants to 
the extent necessary or desirable provided the contracting agency is 
suitably equipped and organized. Use of consultants in management 
support roles, including construction management is permitted under 
existing regulations. No change was made to the regulation.
Sec.  172.9(d)(2)
    The Tennessee DOT recommends deleting reference to ``report'' and 
to simply note a performance evaluation to allow the STA discretion as 
to the structure of the evaluation.
    The FHWA agrees with the recommendation and the regulation was 
modified accordingly.
    The Alaska DOT interprets the existing Sec.  172.9(a)(5) for the 
conduct of consultant performance evaluations as optional per STA 
developed written procedures and requests that the proposed regulations 
not make consultant performance evaluations mandatory. Wyoming DOT also 
asserts that conducting performance evaluations is a new requirement.
    The requirement to establish a written procedure to monitor a 
consultant's work and to prepare a consultant's performance evaluation 
at project completion is an existing regulatory requirement found in 
Sec.  172.9(a)(5) and is a component of a sound oversight program 
required by 23 U.S.C. 106(g). The proposed regulations do not impose a 
new requirement. However, the regulation was revised to require a 
``performance evaluation'' rather than an ``evaluation report'' to 
maintain the STA's discretion as to the structure of the evaluation.
    The Nebraska DOR requested clarification and asserted that there is 
a current ``low threshold contract value of $30,000'' whereby contracts 
under that threshold do not require a performance evaluation.
    The FAR cost principles set contracting procedures when the Federal 
Government acts as the contracting agency. Section 42.1502(f) of the 
FAR cost principles states that ``past performance evaluations shall be 
prepared for each architect-engineer services contract of $30,000 or 
more . . .'' In the case of the FAHP, the STA is recognized as the 
contracting agency. The FHWA regulations and policy do not currently 
provide a ``contract threshold'' for the requirement to conduct 
performance evaluations. Section 172.5(c) allows the STA to create 
performance evaluation materials, forms, and procedures that are 
commensurate with the scope, complexity and size of a contract. No 
change was made to the regulation.
Sec.  172.9(e)
    The California DOT recommended adding a provision which states that 
a contract cannot be amended after the term of the contract has ended/
expired.
    This is a fundamental contract law issue for the States and not 
necessary for inclusion within the regulation. No change was made to 
the regulation.
Sec.  172.9(e)(4)
    The IACE and the Wyoming DOT expressed concerns with the proposed 
regulation limiting the type of services and work allowed to be added 
to a contract. The IACE recommended that the provision be clarified to 
allow contractual supplements or additional necessary work items so 
long as they are germane to the contract and receive an appropriate 
level of review/approval by the public agency. The Wyoming DOT 
recommended eliminating this requirement to provide flexibility to STAs 
for unforeseen circumstances.
    The addition of work not included in the advertised scope of 
services and evaluation criteria would be contrary to the intent of the 
competitive negotiation/qualifications based selection (Brooks Act) 
process to publicly announce all requirements and ensure qualified 
firms are provided a fair opportunity to compete and be considered to 
provide the prescribed services as specified in 23 U.S.C. 112(b)(2)(A) 
and 23 CFR 172.5(a)(1). No change was made to the regulation.
Sec.  172.9(f)
    The AASHTO requests clarification of the intent of this section.
    Section 172.9(f) is redundant and addressed in 23 CFR 140(e). The 
regulation was revised to delete this section in its entirety.
Sec.  172.11
    The ASCE asserted that the proposed section attempts to establish 
the allowable costs that are reimbursable by FHWA to the STA for 
architectural and/or engineering nature services that are not directly 
connected to a project's actual construction and thus may conflict with 
the allocability requirements of 48 CFR 31.2.
    The rule establishes that allowable costs shall be determined in 
accordance with the Federal cost principles in 48 CFR part 31. For 
consultants serving in a management support role which benefits more 
than a single Federal-aid project, the allocability of the consultant 
costs must be distributed consistent with the cost principles 
applicable to the contracting agency. The STAs with indirect cost 
allocation plans will be able to seek reimbursement of these indirect 
costs when properly allocated to all benefiting cost objectives. No 
change was made to the regulation.
    The California DOT recommended referencing the 2012 AASHTO Audit 
Guide within the regulation.
    The AASHTO Audit Guide is a guidance document based on statutory 
and regulatory requirements. Incorporation of the AASHTO Audit Guide 
within the regulation is not necessary and may create unintended 
consequences relating to guidance material contained within the Guide. 
No change was made to the regulation.
    The SANDAG requested clarification that it may continue to perform 
post award audits in lieu of pre-award audits.
    Section 172.11(b)(1)(iii)(C) permits contracting agencies to 
establish a provisional indirect cost rate for the specific contract 
and adjusting contract costs based upon an audited final audit at the 
completion of the contract. No change was made to the regulation.
Sec.  172.11(b)(1)
    The Texas DOT asserted that this section requires an STA to accept 
indirect cost rates generated by a private entity and not actually 
reviewed or approved by any cognizant State or Federal agency in 
violation of Federal statute.
    The proposed revision complies with Federal statute and requires 
the STA (or other grantee) to perform an evaluation to establish or 
accept an indirect cost rate to provide assurance of compliance with 
the Federal cost principles. No change was made to the regulation.
    The New York State DOT stated that it believes negotiation of 
indirect cost rates should be permitted.
    Section 112(b)(2) of Title 23, U.S.C. requires acceptance of 
consultant indirect cost rates established in accordance with the 
Federal cost principles for the applicable 1-year accounting period of 
the consultant. No change was made to the regulation.
    Gannett Fleming, Inc. proposed incorporation of procedures found in 
48 CFR 42.7 into 23 CFR 172.11 because consultants can also act in a 
Federal role on FAHP funded projects. Gannett Fleming also asserted 
that the proposed options for establishment of a consultant indirect 
cost rate when a

[[Page 29923]]

cognizant audit is not available conflicts with the single cognizant 
agency concept discussed in 48 CFR 72.703.
    The recommended Federal statutory provisions apply to direct 
Federal contracting and have not been incorporated for application to 
the FAHP. No change was made to the regulation.
Sec.  172.11(b)(1)(i)
    The Wyoming DOT stated that it does not believe an annual update of 
indirect cost rates is necessary, especially in instances where a 
consultant is not being considered for a new contract.
    Section 112(b)(2)(C) of Title 23, U.S.C. requires establishment of 
consultant indirect cost rates in accordance with the Federal cost 
principles for the applicable 1-year accounting period of the 
consultant. As such, establishment on an annual basis is required. 
However, if it is mutually agreed to utilize the established indirect 
cost rate for the duration of a contract and a consultant is not being 
considered for work in subsequent years, the establishment of a new 
rate in subsequent years would not be necessary. No change was made to 
the regulation.
Sec.  172.11(b)(1)(ii)
    The California DOT requested the regulation address circumstances 
where an established indirect cost rate is above an independent 
analysis of what is fair and reasonable and when negotiations can then 
proceed with the second highest ranked firm.
    Reasonableness of the indirect cost rate is determined during the 
audit or other evaluation of the indirect cost rate. Under 23 U.S.C. 
112(b)(2)(C), a rate developed in accordance with the Federal cost 
principles is not subject to negotiation. No change was made to the 
regulation.
    The AASHTO asserted that requiring subconsultants to have an 
audited indirect cost rate puts an additional burden on both the 
subconsultant and the STA.
    An audit is not required, but the contracting agency must perform 
an evaluation of a subconsultant's indirect cost rate when that cost 
rate has not been established by a cognizant agency. The evaluation 
provides assurance of consultant compliance with the Federal cost 
principles under part 31 of the FAR cost principles as required by 23 
U.S.C. 112(b)(2)(B). No change was made to the regulation.
Sec.  172.11(b)(1)(iii)
    The Ohio DOT recommended providing an exemption on establishing a 
FAR cost principles compliant indirect cost rate for firms providing 
non-engineering related support services or for small firms (e.g., less 
than 20 employees).
    Under 23 U.S.C. 112(b)(2)(B), use of the FAR cost principles for 
determination of allowable costs of ``for-profit'' entities is 
required. A cost analysis of individual elements of costs is still 
necessary for non-engineering services when price competition is 
lacking and the firm submits the cost breakdown of proposed services. 
No change was made to the regulation.
    The North Dakota DOT and Montana DOT expressed concerns with the 
indirect cost rate requirements extending to subconsultants. The North 
Dakota DOT asserted that including subconsultants within the indirect 
cost rate requirements would require additional STA resources (time and 
staff) to evaluate subconsultant rates. The Montana DOT has established 
a minimum contract amount for requiring subconsultant audited rates. 
Montana DOT asserts that reviewing all subconsultant rates would 
require additional staff and may be difficult for small firms to pay 
for an audit.
    While cognizant audit requirements were not previously prescribed 
for subconsultants, subconsultant costs must still comply with the 
Federal cost principles and reasonable assurance of compliance must be 
provided via some level of evaluation. The level of evaluation may be 
subject to a STAs risk based analysis in accordance with 23 CFR 
172.11(c)(2). Additionally, subconsultants can perform a significant 
percentage of the work on a contract and may have a cognizant approved 
or otherwise accepted indirect cost rate. As such, it would not be 
prudent to limit or otherwise not apply the accepted rate based solely 
on the role as a subconsultant. No change was made to the regulation.
Sec.  172.11(b)(1)(iii)(A)
    The Montana DOT recommended that generally accepted auditing 
standards other than generally accepted government auditing standards 
(GAGAS) be permitted for use in conducting audits of consultants. 
Montana DOT asserted that some STAs internal audit staff conduct audits 
of consultants and follow International Professional Practices 
Fieldwork Standards of Internal Auditing Standards.
    Per accepted practice in the AASHTO Uniform Audit and Accounting 
Guide, AASHTO and ACEC agree that for an audit to be cognizant, it must 
be performed to test compliance with the Federal cost principle in 
accordance with GAGAS (Yellow Book). Additionally, 23 CFR 140.803 
requires that project related audits must be performed in accordance 
with GAGAS for the agency audit related costs to be reimbursable under 
the FAHP. An audit performed by an STA not following GAGAS may still 
provide reasonable assurance of consultant compliance with the Federal 
cost principles in accordance with an STAs risk-based oversight process 
as specified in Sec.  172.11(b)(1)(iii)(D) and (c)(2), but the audit 
could not be considered as cognizant and the associated agency audit 
costs would not be eligible for Federal reimbursement. No change was 
made to the regulation.
Sec.  172.11(b)(1)(iii)(B)
    The ACEC requested that paragraph (b)(1)(iii)(B) be moved to 
precede paragraph (b)(1)(iii)(A) to provide some deference to FAR cost 
principles compliant CPA audits to encourage firms to obtain CPA audits 
and to discourage agencies from performing additional and unnecessary 
work. If paragraph (b)(1)(iii)(A) is then listed second, provide the 
following introductory clause, ``If another audit has not already been 
performed . . .''
    Section 172.11(b)(1)(iii)(A)-(D) are not a hierarchy; they do not 
have to be taken in order. Subpart A through subpart D are options for 
the STA to consider when evaluating an indirect cost rate that has not 
been established by a cognizant agency. Using any single or combination 
of options would satisfy the provision. No change was made to the 
regulation.
Sec.  172.11(b)(1)(iii)(C)
    The AASHTO asserted that this paragraph is too restrictive and 
recommended removal.
    Use of a provisional indirect cost rate with adjusted final audit 
is an option for STA use. The STA is able to follow other evaluations 
in accordance with paragraph (b)(1)(iii)(D). No change was made to the 
regulation.
    The California DOT suggested adding a clarification that the 
contract can be executed and work may commence with adjustment of the 
indirect cost rates at a later date as necessary.
    Subject to a successful negotiation and acceptance of an indirect 
cost rate (including a provisional rate) any contract may be executed. 
No change was made to the regulation.
    The California DOT requested clarification of the definition of 
``final'' indirect cost rate and questioned whether the rate be 
``reviewed'' rather than ``audited.''

[[Page 29924]]

    The regulation states an audited final rate, but adding ``at the 
completion of the contract'' will clarify that this means an audit of 
the incurred indirect cost at the completion of the contract. The 
regulation was modified accordingly.
Sec.  172.11(b)(1)(iv)
    The ACEC requested that the provision for acceptance of an indirect 
cost rate offered ``voluntarily'' by a consultant be deleted, as ACEC 
believes the existing provision is used by STAs and LPAs to pressure 
firms to negotiate lower overhead rates.
    This is a provision in existing regulations that was substantiated 
in the 2002 Final Rule. The 2002 Final Rule noted there are many 
reasons an indirect cost rate of a firm may be unusually high for a 
short period of time and that a firm should be permitted to offer a 
lower rate. No change was made to the regulation.
Sec.  172.11(b)(1)(v)
    The AASHTO asserted that requiring use of the actual indirect cost 
rate in negotiations and contract estimations makes the independent 
estimate less independent and assumes the rate is reasonable.
    This is an existing statutory and regulatory requirement. 
Reasonableness of the indirect cost rate is determined by the 
evaluation of the rate in accordance with the Federal cost principles. 
No change was made to the regulation.
    The ACEC requests clarification as to whether a rate ``accepted'' 
by an agency requires acceptance by all other agencies whether a 
cognizant audit or letter of concurrence is provided or not. The ACEC 
supports the interpretation that once accepted by an agency, the rate 
must also be accepted by other agencies.
    The provision in question requires agencies to apply the rate free 
of an administrative or de facto ceiling. Subparagraphs (b)(1)(ii)-(iv) 
establish the process for acceptance of a consultant's indirect cost 
rate. Only rates established by a cognizant agency must be accepted for 
use and application by other agencies. No change was made to the 
regulation.
Sec.  172.11(b)(1)(vii)
    The Oregon DOT asserted that STAs do not have staff to support 
disputes on cognizant rates and request clarification as to what level 
within the STA should a dispute resolution process be located.
    The ``disputed rates'' section is an existing section to permit 
agencies the ability to not accept a cognizant rate if in dispute among 
the parties involved in performing the indirect cost rate audit. 
Procedures under Sec.  172.5(c) require an agency to provide a general 
dispute resolution process for resolving disputes among the STA and 
consultants within the procurement, management, and administration 
process. There is no requirement for a full-time independent employee 
to handle disputes, and STAs are free to develop a process that fits 
with their organizational structure, as appropriate. No change was made 
to the regulation.
Sec.  172.11(b)(2)(ii)
    The Virginia DOT, Idaho Transportation Department, and AASHTO 
requested clarification and details of what is acceptable and expected 
to establish salary benchmarks.
    The reasonableness provisions of the FAR cost principles (as 
specified in 48 CFR 31.201-3 and 31.205-6(b)(2)) establish the 
expectations. No change was made to the regulation.
    The Wyoming DOT asserted that while this would allow STAs the 
ability to negotiate direct salary rates based on an assessment of 
reasonableness, the process is likely too cumbersome for agency 
programs.
    The STAs may limit or benchmark consulting firm direct salaries and 
wages if an assessment of reasonableness is performed in accordance 
with FAR cost principles (as specified in 48 CFR 31.201-3 and 31.205-
6(b)(2)). If an assessment of reasonableness has not been performed, 
contracting agencies must use and apply the consulting firm's actual 
direct salary rates when negotiating or administering contracts or 
contract amendments. No change was made to the regulation.
Sec.  172.11(b)(2)(iii)
    The Montana DOT and AASHTO opposed this provision and asserted that 
STAs would lose the ability to evaluate the reasonableness of the total 
cost of the proposed work since a consultant's actual indirect cost 
rate and actual direct salary rates would be utilized for estimation 
and negotiation.
    In accordance with Sec.  172.11(b)(2)(i)-(ii), the STA is to 
evaluate the reasonableness of the consultant's proposed direct salary 
rates in accordance with the reasonableness provisions of the FAR cost 
principles. In the absence of a reasonableness assessment to benchmark 
or limit rates, a consultant's actual rates must be used. Limitations 
or benchmarks on direct salary rates which do not consider the factors 
prescribed in the FAR cost principles are contrary to qualifications 
based selection procedures as specified in 23 U.S.C. 112(b)(2)(A) and 
40 U.S.C. 1104(a), which require fair and reasonable compensation 
considering the scope, complexity, professional nature, and value of 
the services to be rendered. Additionally, if limitations or benchmarks 
on direct salary rates are too low, their use is likely to limit the 
number of consulting firms and the qualifications of the firms which 
submit proposals to perform work on projects. Furthermore, as a 
consulting firm's indirect cost rate is applied to direct labor costs, 
any direct labor limitations or benchmarks not supported by the FAR 
cost principles have the effect of creating an administrative or de 
facto ceiling on the indirect cost rate, contrary to FAHP requirements 
[as specified in 23 U.S.C. 112(b)(2)(D)]. No change was made to the 
regulation.
Sec.  172.11(b)(3)
    The California DOT recommends specifying a range for fixed fee and 
incorporating the following Federal statutory provisions: 10 U.S.C. 
2306(d) and 41 U.S.C. 254(b).
    The recommended Federal statutory provisions apply to direct 
Federal contracting and have not been incorporated for application to 
the FAHP. No change was made to the regulation.
Sec.  172.11(b)(3)(ii)
    The SANDAG requests clarification as to whether a grantee 
(recipient) may establish a fixed fee at the contract level in addition 
to the project or task order level.
    A fixed fee may be established at the contract level. The 
regulation was modified to include clarification language.
Sec.  172.11(c)(2)
    The Virginia DOT, Idaho Transportation Department, Wyoming DOT, and 
AASHTO expressed concerns with the requirements of this section. 
Virginia DOT asserted that the provisions for risk-based analysis are 
too prescriptive and burdensome. Idaho Transportation Department 
recommended using the phrase ``To the extent applicable, a risk-based 
oversight process shall . . . '' rather than ``A risk-based oversight 
process shall . . .'' which would require all of the listed items be 
included in a risk-based approach. Wyoming DOT asserted that requiring 
specific factors removes flexibility for STAs. The AASHTO asserted that 
the term ``shall'' is very prescriptive and does not allow the 
contracting agency any flexibility in developing the risk-based 
analysis.
    Each of the factors proposed address a different area of risk and 
are consistent

[[Page 29925]]

with the AASHTO Uniform Audit & Accounting Guide and state of the 
practice. A STA's use of a risk-based oversight process is optional, 
but shall address the factors specified at a minimum. No change was 
made to the regulation.
Sec.  172.11(c)(2)(i)
    The Indiana DOT, Idaho Transportation Department, and AASHTO 
expressed concerns about this section. Indiana DOT recommended that 
risk assessment factors (A)-(K) are listed for consideration and not be 
required for every consultant, every year. Idaho Transportation 
Department and AASHTO asserted that conducting an ``annual'' risk 
assessment of all consultants (and subconsultants) is burdensome and 
not reasonable.
    Each of the factors proposed address a different area of risk and 
are consistent with the AASHTO Uniform Audit & Accounting Guide and 
state of the practice. An STA's use of a risk-based oversight process 
is optional, but shall address the factors specified at a minimum. 
Indirect costs are established for consultants on an annual basis and 
thus an annual assessment of risk is warranted. Only the consultants 
doing business with the STA (contracting) would need to have a risk 
assessment performed. No change was made to the regulation.
    The Idaho Transportation Department and AASHTO asserted that the 
risk-based analysis process would not produce favorable responses for 
small and/or new firms and thus not allow the STAs to gain any 
efficiency.
    Consultant contract volume is one of the identified factors for 
consideration. Small and/or new firms typically have a smaller volume 
of contracts and are generally lower dollar contracts. Additionally, 
the risk-based process will allow the STA to reduce time spent on 
larger, more established consultants with which the STA has familiarity 
in order to focus on other firms of higher risk. No change was made to 
the regulation.
Sec.  172.11(c)(2)(i)(B)
    The AASHTO and Idaho Transportation Department asserted that a 
specific STA will not be concerned with the volume of work a consultant 
has in another State.
    This factor is consistent with the AASHTO Uniform Audit & 
Accounting Guide. To reduce the duplication of effort in reviewing a 
consultant's compliance with the Federal cost principles, STAs should 
be aware of a consultant's workload in other States and can accept the 
review or evaluation performed by the other STAs. No change was made to 
the regulation.
Sec.  172.11(c)(2)(ii)(C)
    The Oregon DOT requests clarification and examples of ``desk 
reviews'' or ``other analytical procedures.''
    The level of analysis and evaluation performed by STAs under a 
``desk review'' varies and has not been defined within the AASHTO 
Uniform Audit & Accounting Guide. As such, ``(C) Desk reviews;'' was 
removed from the provision. The evaluation and analysis performed by 
STAs under the label of ``desk review'' could be captured under ``Other 
analytical procedures.'' Additional information for ``other analytical 
procedures'' will be provided with implementing guidance, but an STA 
may define these procedures within its written policies and procedures 
for FHWA review and approval. The regulation was modified accordingly.
Sec.  172.11(c)(2)(ii)(F) [Re-Designated Sec.  172.11(c)(2)(ii)(E)]
    The Indiana DOT requested clarification on whether the ``Training 
on the Federal cost principles'' is directed to STA staff or consultant 
staff.
    To provide reasonable assurance of consultant compliance with the 
Federal cost principles, a risk mitigation strategy could be to provide 
additional training to consultants and CPAs. The regulation was 
modified accordingly.
Sec.  172.11(c)(3)
    The Wyoming DOT supported the addition of the Consultant Cost 
Certification requirement.
    The Wyoming DOT's position is noted. No change was made to the 
regulation.
    The Connecticut DOT is concerned that indirect cost rate 
certification is required with each response to an RFP or with each 
negotiation. The Connecticut DOT recommended that STAs be given the 
option of requiring consultant certification of final indirect costs 
either during the proposal preparation phase or once yearly through an 
audit.
    The ``proposal'' referred to in the certification language is 
referring to the consultant's indirect cost rate proposal which is 
assumed to be provided to the STA once yearly as a part of an audit 
process and not necessarily with each response to a RFP or with each 
negotiation. No change was made to the regulation.
    The Virginia DOT, Idaho Transportation Department, and AASHTO 
recommended that STAs be provided the flexibility to incorporate items 
important to that State within the Contractor Cost Certification.
    In an effort to promote consistency and STA acceptance of audits 
conducted or reviewed by other STAs, it is essential a standard 
contractor cost certification be utilized. The STAs are free to require 
an additional STA specific certification to address areas of concern to 
the STA. No change was made to the regulation.
Sec.  172.11(c)(3)(i)
    Gannett Fleming, Inc. asserted that the requirement is redundant 
for consultants that are Federal contractors. Gannett Fleming, Inc. 
proposed that the provision note inclusion of the cost certification 
with the indirect cost rate proposal submitted to the consultant's 
cognizant agency and reference 48 CFR 42.703-2, 10 U.S.C. 2324(h), and 
41 U.S.C. 256(a).
    The recommended Federal statutory provisions apply to direct 
Federal contracting and have not been incorporated for application to 
the FAHP. Additionally, a consultant cost certification is warranted 
even when a consultant's indirect cost rate proposal is not being 
audited or reviewed for cognizant approval or acceptance. No change was 
made to the regulation.
    The ACEC requested that the certification be required on an annual 
basis rather than submit a certification for every project submission.
    The FHWA agrees that only one certification submittal is necessary 
at the time the consultant's indirect cost rate proposal for its 
applicable 1-year accounting period is submitted for acceptance. 
Subparagraph (i) indicates that the certification requirement applies 
to all indirect cost rate proposals submitted for acceptance. Assuming 
the rate is submitted on an annual basis to the STA for acceptance, 
only one certification for that rate is necessary. No change was made 
to the regulation.
Sec.  172.11(c)(3)(i) and (ii)
    The ACEC requested that an additional provision be added to clarify 
that a firm can only certify their own rate and is not responsible for 
or required to certify the rate of another firm (subconsultant).
    The FHWA agrees with the comment. The regulation was modified to 
include clarification language.
Sec.  172.11(c)(4)
    The Indiana DOT requested clarification on requirements for 
sanctions and penalties to include within written policies and contract 
documents.

[[Page 29926]]

    The extent of sanctions and penalties are a matter of State laws, 
regulations, policies, and procedures. Although false claims, false 
statement, and suspension and debarment actions may be imposed at the 
Federal level, FHWA is not a party to the contract with the consultant 
and as such, any contract sanctions and penalties, except for those 
prosecutions brought under the False Claims Act are a matter for the 
STA. These provisions address incorporation of any sanctions and 
penalties within policies and contract documents, as appropriate. No 
change was made to the regulation.
    The Wyoming DOT asserted that these requirements are very specific 
and entail additional work with limited benefit to the contracting 
agency.
    Sanctions and penalties are fundamental contract administration 
functions and address recommendations from national audits/reviews. 
These regulations do not prescribe how sanctions and penalties are 
assessed and thus allow STAs flexibility in addressing these elements 
within their written policies and procedures. No change was made to the 
regulation.
    One individual interpreted Sec.  172.11(c)(4)(i) as a requirement 
for STAs to pursue sanctions and penalties against consultants who 
knowingly charge unallowable costs and asserts this would be a hardship 
on STA resources. The language ``as may be appropriate'' is of concern 
and needs clarification.
    ``As may be appropriate'' is a determination of the contracting 
agency and the range of sanction or penalties are a function of State 
law, regulation, policies, and procedures. The actions pursued by a 
contracting agency will be defined in agency written procedures as 
noted in Sec. Sec.  172.11(c)(4), 172.5(c), and 172.9(c). No change was 
made to the regulation.

General Comments

    The ACEC requested that current FHWA question and answer guidance 
regarding field indirect cost rates be incorporated into the regulation 
update.
    Provisions regarding FHWA guidance on field indirect cost rates 
were not included within the NPRM, as the guidance is based on the 
Federal cost principles. The FHWA's guidance and interpretation of the 
Federal cost principles as it relates to home and field based indirect 
cost rates is still valid, but was not included as the Federal cost 
principles are subject to change. No change was made to the regulation.
    The Nebraska DOR asked if ``testing services'' are considered 
engineering and design related services.
    The FHWA question and answer guidance addresses this, but the 
answer depends on the specifics of the services in question and 
definition of engineering services in State law and regulation and 
their relationship to highway construction. No change was made to the 
regulation.

Rulemaking Analyses and Notices

Executive Order 12866 (Regulatory Planning and Review), Executive Order 
13563 (Improving Regulation and Regulatory Review), and DOT Regulatory 
Policies and Procedures

    The FHWA determined that this rule does not constitute a 
significant regulatory action within the meaning of Executive Order 
12866 or within the meaning of DOT regulatory policies and procedures. 
The amendments clarify and revise requirements for the procurement, 
management, and administration of engineering and design related 
services using FAHP funding and directly related to a construction 
project. Additionally, this action complies with the principles of 
Executive Order 13563. The changes to part 172 provide additional 
clarification, guidance, and flexibility to stakeholders implementing 
these regulations. This rule is not anticipated to adversely affect, in 
any material way, any sector of the economy. In addition, these changes 
will not create a serious inconsistency with any other agency's action 
or materially alter the budgetary impact of any entitlements, grants, 
user fees, or loan programs. After evaluating the costs and benefits of 
these amendments, FHWA anticipates that the economic impact of this 
rule will be minimal; therefore, a full regulatory evaluation is not 
necessary.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (Public Law 96-
354, 5 U.S.C. 601-612), FHWA evaluated the effects of this rule on 
small entities, such as local governments and businesses. The FHWA 
determined that this action would not have a significant economic 
impact on a substantial number of small entities. The amendments 
clarify and revise requirements for the procurement, management, and 
administration of engineering and design related services using FAHP 
funding and directly related to a construction project. After 
evaluating the cost of these proposed amendments, as required by 
changes in authorizing legislation, other applicable regulations, and 
industry practices, FHWA has determined the projected impact upon small 
entities which utilize FAHP funding for consultant engineering and 
design related services would be negligible. Therefore, FHWA certifies 
that the rule would not have a significant economic impact on a 
substantial number of small entities.

Unfunded Mandates Reform Act of 1995

    This final rule does not impose unfunded mandates as defined by the 
Unfunded Mandates Reform Act of 1995 (Public Law 104-4, March 22, 1995, 
109 Stat. 48). Furthermore, in compliance with the Unfunded Mandates 
Reform Act of 1995, FHWA evaluated this rule to assess the effects on 
State, local, and tribal governments and the private sector. This rule 
does not result in the expenditure by State, local, and tribal 
governments, in the aggregate, or by the private sector, of $143.1 
million or more in any one year (2 U.S.C. 1532). Additionally, the 
definition of ``Federal Mandate'' in the Unfunded Mandates Reform Act 
excludes financial assistance of the type in which State, local, or 
tribal governments have authority to adjust their participation in the 
program in accordance with changes made in the program by the Federal 
Government. The FAHP permits this type of flexibility.

Executive Order 13132 (Federalism Assessment)

    This rule was analyzed in accordance with the principles and 
criteria contained in Executive Order 13132, dated August 4, 1999, and 
it was determined that this rule does not have a substantial direct 
effect or sufficient federalism implications on States that would limit 
the policymaking discretion of the States. Nothing in this rule 
directly preempts any State law or regulation or affects the States' 
ability to discharge traditional State governmental functions.

Paperwork Reduction Act

    Federal agencies must obtain approval from the Office of Management 
and Budget for each collection of information they conduct, sponsor, or 
require through regulations. This rule does not contain a collection of 
information requirement for the purpose of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501, et seq.).

National Environmental Policy Act

    The FHWA analyzed this rule for the purpose of the National 
Environmental Policy Act (42 U.S.C. 4321 et seq.) and determined that 
this action would not have any effect on the quality of the human and 
natural environment. This rule establishes the requirements for the

[[Page 29927]]

procurement, management, and administration of engineering and design 
related services using FAHP funding and directly related to a 
construction project.

Executive Order 13175 (Tribal Consultation)

    The FHWA analyzed this rule under Executive Order 13175, dated 
November 6, 2000, and believes that this proposed action would not have 
substantial direct effects on one or more Indian tribes, would not 
impose substantial direct compliance costs on Indian tribal 
governments, and would not preempt tribal law. This rule establishes 
the requirements for the procurement, management, and administration of 
engineering and design related services using FAHP funding and directly 
related to a construction project. As such, this rule would not impose 
any direct compliance requirements on Indian tribal governments nor 
would it have any economic or other impacts on the viability of Indian 
tribes. Therefore, a tribal summary impact statement is not required.

Executive Order 13211 (Energy Effects)

    The FHWA analyzed this rule under Executive Order 13211, Actions 
Concerning Regulations that Significantly Affect Energy Supply, 
Distribution, or Use. We determined that this proposed action would not 
be a significant energy action under that order because any action 
contemplated would not be likely to have a significant adverse effect 
on the supply, distribution, or use of energy. Therefore, FHWA 
certifies that a Statement of Energy Effects under Executive Order 
13211 is not required.

Executive Order 12630 (Taking of Private Property)

    The FHWA analyzed this rule and determined that this proposed 
action would not affect a taking of private property or otherwise have 
taking implications under Executive Order 12630, Governmental Actions 
and Interference with Constitutionally Protected Property Rights.

Executive Order 12988 (Civil Justice Reform)

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

Executive Order 13045 (Protection of Children)

    The FHWA analyzed this rule under Executive Order 13045, Protection 
of Children from Environmental Health Risks and Safety Risks, and 
certifies that this proposed action would not cause an environmental 
risk to health or safety that may disproportionately affect children.

Regulation Identifier Number

    A regulation identifier 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 number contained in the heading 
of this document can be used to cross-reference this action with the 
Unified Agenda.

List of Subjects in 23 CFR Part 172

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

    Issued On: May 13, 2015.
Gregory G. Nadeau,
Deputy Administrator.

    In consideration of the foregoing, FHWA revises part 172 of title 
23, Code of Federal Regulations, to read as follows:

PART 172--PROCUREMENT, MANAGEMENT, AND ADMINISTRATION OF 
ENGINEERING AND DESIGN RELATED SERVICES

Sec.
172.1 Purpose and applicability.
172.3 Definitions.
172.5 Program management and oversight.
172.7 Procurement methods and procedures.
172.9 Contracts and administration.
172.11 Allowable costs and oversight.

    Authority: 23 U.S.C. 106, 112, 114(a), 302, 315, and 402; 40 
U.S.C. 1101 et seq.; 48 CFR part 31; 49 CFR 1.48(b); and 2 CFR part 
200.


Sec.  172.1  Purpose and applicability.

    This part prescribes the requirements for the procurement, 
management, and administration of engineering and design related 
services under 23 U.S.C. 112 and as supplemented by the Uniform 
Administrative Requirements For Federal Awards rule. The Uniform 
Administrative Requirements, Cost Principles and Audit Requirements For 
Federal Awards rule (2 CFR part 200) shall apply except where 
inconsistent with the requirements of this part and other laws and 
regulations applicable to the Federal-aid highway program (FAHP). The 
requirements herein apply to federally funded contracts for engineering 
and design related services for projects subject to the provisions of 
23 U.S.C. 112(a) (related to construction) and are issued to ensure 
that a qualified consultant is obtained through an equitable 
qualifications-based selection procurement process, that prescribed 
work is properly accomplished in a timely manner, and at fair and 
reasonable cost. State transportation agencies (STA) (or other 
recipients) shall ensure that subrecipients comply with the 
requirements of this part and the Uniform Administrative Requirements, 
Cost Principles and Audit Requirements For Federal Awards rule. 
Federally funded contracts for services not defined as engineering and 
design related, or for services not in furtherance of a highway 
construction project or activity subject to the provisions of 23 U.S.C. 
112(a), are not subject to the requirements of this part and shall be 
procured and administered under the requirements of the Uniform 
Administrative Requirements, Cost Principles and Audit Requirements For 
Federal Awards rule and procedures applicable to such activities.


Sec.  172.3  Definitions.

    As used in this part:
    Audit means a formal examination, in accordance with professional 
standards, of a consultant's accounting systems, incurred cost records, 
and other cost presentations to test the reasonableness, allowability, 
and allocability of costs in accordance with the Federal cost 
principles (as specified in 48 CFR part 31).
    Cognizant agency means any governmental agency that has performed 
an audit in accordance with generally accepted government auditing 
standards to test compliance with the requirements of the Federal cost 
principles (as specified in 48 CFR part 31) and issued an audit report 
of the consultant's indirect cost rate, or any described agency that 
has conducted a review of an audit report and related workpapers 
prepared by a certified public accountant and issued a letter of 
concurrence with the audited indirect cost rate(s). A cognizant agency 
may be any of the following:
    (1) A Federal agency;
    (2) A State transportation agency of the State where the 
consultant's accounting and financial records are located; or
    (3) A State transportation agency to which cognizance for the 
particular indirect cost rate(s) of a consulting firm has been 
delegated or transferred in writing by the State transportation

[[Page 29928]]

agency identified in paragraph (2) of this definition.
    Competitive negotiation means qualifications-based selection 
procurement procedures complying with 40 U.S.C. 1101-1104, commonly 
referred to as the Brooks Act.
    Consultant means the individual or firm providing engineering and 
design related services as a party to a contract with a recipient or 
subrecipient of Federal assistance (as defined in 2 CFR 200.86 or 2 CFR 
200.93, respectively).
    Contract means a written procurement contract or agreement between 
a contracting agency and consultant reimbursed under a FAHP grant or 
subgrant and includes any procurement subcontract under a contract.
    Contracting agencies means a State transportation agency or a 
procuring agency of the State acting in conjunction with and at the 
direction of the State transportation agency, other recipients, and all 
subrecipients that are responsible for the procurement, management, and 
administration of engineering and design related services.
    Contract modification means an agreement modifying the terms or 
conditions of an original or existing contract.
    Engineering and design related services means:
    (1) Program management, construction management, feasibility 
studies, preliminary engineering, design engineering, surveying, 
mapping, or architectural related services with respect to a highway 
construction project subject to 23 U.S.C. 112(a) as defined in 23 
U.S.C. 112(b)(2)(A); and
    (2) Professional services of an architectural or engineering 
nature, as defined by State law, which are required to or may logically 
or justifiably be performed or approved by a person licensed, 
registered, or certified to provide the services with respect to a 
highway construction project subject to 23 U.S.C. 112(a) and as defined 
in 40 U.S.C. 1102(2).
    Federal cost principles means the cost principles contained in 48 
CFR part 31 of the Federal Acquisition Regulation for determination of 
allowable costs of commercial, for-profit entities.
    Fixed fee means a sum expressed in U.S. dollars established to 
cover the consultant's profit and other business expenses not allowable 
or otherwise included as a direct or indirect cost.
    Management support role means performing engineering management 
services or other services acting on the contracting agency's behalf, 
which are subject to review and oversight by agency officials, such as 
a program or project administration role typically performed by the 
contracting agency and necessary to fulfill the duties imposed by title 
23 of the United States Code, other Federal and State laws, and 
applicable regulations.
    Noncompetitive means the method of procurement of engineering and 
design related services when it is not feasible to award the contract 
using competitive negotiation or small purchase procurement methods.
    One-year applicable accounting period means the annual accounting 
period for which financial statements are regularly prepared by the 
consultant.
    Scope of work means all services, work activities, and actions 
required of the consultant by the obligations of the contract.
    Small purchases means the method of procurement of engineering and 
design related services where an adequate number of qualified sources 
are reviewed and the total contract costs do not exceed an established 
simplified acquisition threshold.
    State transportation agency (STA) means that department or agency 
maintained in conformity with 23 U.S.C. 302 and charged under State law 
with the responsibility for highway construction (as defined in 23 
U.S.C. 101); and that is authorized by the laws of the State to make 
final decisions in all matters relating to, and to enter into, all 
contracts and agreements for projects and activities to fulfill the 
duties imposed by title 23 United States Code, title 23 Code of Federal 
Regulations, and other applicable Federal laws and regulations.
    Subconsultant means the individual or firm contracted by a 
consultant to provide engineering and design related or other types of 
services that are part of the services which the consultant is under 
contract to provide to a recipient (as defined in 23 CFR 200.86) or 
subrecipient (as defined in 2 CFR 200.93) of Federal assistance.


Sec.  172.5  Program management and oversight.

    (a) STA responsibilities. STAs or other recipients shall develop 
and sustain organizational capacity and provide the resources necessary 
for the procurement, management, and administration of engineering and 
design related consultant services, reimbursed in whole or in part with 
FAHP funding, as specified in 23 U.S.C. 302(a). Responsibilities shall 
include the following:
    (1) Preparing and maintaining written policies and procedures for 
the procurement, management, and administration of engineering and 
design related consultant services in accordance with paragraph (c) of 
this section;
    (2) Establishing a procedure for estimating the level of effort, 
schedule, and costs of needed consultant services and associated agency 
staffing and resources for management and oversight in support of 
project authorization requests submitted to FHWA for approval, as 
specified in 23 CFR 630.106;
    (3) Procuring, managing, and administering engineering and design 
related consultant services in accordance with applicable Federal and 
State laws, regulations, and approved policies and procedures, as 
specified in 23 CFR 1.9(a); and
    (4) Administering subawards in accordance with State laws and 
procedures as specified in 2 CFR part 1201, and the requirements of 23 
U.S.C. 106(g)(4), and 2 CFR 200.331. Administering subawards includes 
providing oversight of the procurement, management, and administration 
of engineering and design related consultant services by subrecipients 
to ensure compliance with applicable Federal and State laws and 
regulations. Nothing in this part shall be taken as relieving the STA 
(or other recipient) of its responsibility under laws and regulations 
applicable to the FAHP for the work performed under any consultant 
agreement or contract entered into by a subrecipient.
    (b) Subrecipient responsibilities. Subrecipients shall develop and 
sustain organizational capacity and provide the resources necessary for 
the procurement, management, and administration of engineering and 
design related consultant services, reimbursed in whole or in part with 
FAHP funding as specified in 23 U.S.C. 106(g)(4)(A). Responsibilities 
shall include the following:
    (1) Adopting written policies and procedures prescribed by the 
awarding STA or other recipient for the procurement, management, and 
administration of engineering and design related consultant services in 
accordance with applicable Federal and State laws and regulations; or 
when not prescribed, shall include:
    (i) Preparing and maintaining its own written policies and 
procedures in accordance with paragraph (c) of this section; or
    (ii) Submitting documentation associated with each procurement and 
subsequent contract to the awarding STA or other grantee for review to 
assess compliance with applicable Federal and State laws, regulations, 
and the requirements of this part;

[[Page 29929]]

    (2) Procuring, managing, and administering engineering and design 
related consultant services in accordance with applicable Federal and 
State laws, regulations, and approved policies and procedures, as 
specified in 23 CFR 1.9(a).
    (c) Written policies and procedures. The contracting agency shall 
prepare and maintain written policies and procedures for the 
procurement, management, and administration of engineering and design 
related consultant services. The FHWA shall approve the written 
policies and procedures, including all revisions to such policies and 
procedures, of the STA or recipient to assess compliance with 
applicable requirements. The STA or other recipient shall approve the 
written policies and procedures, including all revisions to such 
policies and procedures, of a subrecipient to assess compliance with 
applicable requirements. These policies and procedures shall address, 
as appropriate for each method of procurement a contracting agency 
proposes to use, the following items to ensure compliance with Federal 
and State laws, regulations, and the requirements of this part:
    (1) Preparing a scope of work and evaluation factors for the 
ranking/selection of a consultant;
    (2) Soliciting interests, qualifications, or proposals from 
prospective consultants;
    (3) Preventing, identifying, and mitigating conflicts of interest 
for employees of both the contracting agency and consultants and 
promptly disclosing in writing any potential conflict to the STA and 
FHWA, as specified in 2 CFR 200.112 and 23 CFR 1.33, and the 
requirements of this part.
    (4) Verifying suspension and debarment actions and eligibility of 
consultants, as specified in 2 CFR part 1200 and 2 CFR part 180;
    (5) Evaluating interests, qualifications, or proposals and the 
ranking/selection of a consultant;
    (6) Determining, based upon State procedures and the size and 
complexity of a project, the need for additional discussions following 
RFP submission and evaluation;
    (7) Preparing an independent agency estimate for use in negotiation 
with the selected consultant;
    (8) Selecting appropriate contract type, payment method, and terms 
and incorporating required contract provisions, assurances, and 
certifications in accordance with Sec.  172.9;
    (9) Negotiating a contract with the selected consultant including 
instructions for proper disposal of concealed cost proposals of 
unsuccessful bidders;
    (10) Establishing elements of contract costs, accepting indirect 
cost rate(s) for application to contracts, and assuring consultant 
compliance with the Federal cost principles in accordance with Sec.  
172.11;
    (11) Ensuring consultant costs billed are allowable in accordance 
with the Federal cost principles and consistent with the contract terms 
as well as the acceptability and progress of the consultant's work;
    (12) Monitoring the consultant's work and compliance with the 
terms, conditions, and specifications of the contract;
    (13) Preparing a consultant's performance evaluation when services 
are completed and using such performance data in future evaluation and 
ranking of consultant to provide similar services;
    (14) Closing-out a contract;
    (15) Retaining supporting programmatic and contract records, as 
specified in 2 CFR 200.333 and the requirements of this part;
    (16) Determining the extent to which the consultant, which is 
responsible for the professional quality, technical accuracy, and 
coordination of services, may be reasonably liable for costs resulting 
from errors and omissions in the work furnished under its contract;
    (17) Assessing administrative, contractual, or legal remedies in 
instances where consultants violate or breach contract terms and 
conditions, and providing for such sanctions and penalties as may be 
appropriate; and
    (18) Resolving disputes in the procurement, management, and 
administration of engineering and design related consultant services.
    (d) A contracting agency may formally adopt, by statute or within 
approved written policies and procedures as specified in paragraph (c) 
of this section, any direct Federal Government or other contracting 
regulation, standard, or procedure provided its application does not 
conflict with the provisions of 23 U.S.C. 112, the requirements of this 
part, and other laws and regulations applicable to the FAHP.
    (e) Notwithstanding paragraph (d) of this section, a contracting 
agency shall have a reasonable period of time, not to exceed 12 months 
from the effective date of this rule unless an extension is granted for 
unique or extenuating circumstances, to issue or update current written 
policies and procedures for review and approval in accordance with 
paragraph (c) of this section and consistent with the requirements of 
this part.


Sec.  172.7  Procurement methods and procedures.

    (a) Procurement methods. The procurement of engineering and design 
related services funded by FAHP funds and related to a highway 
construction project subject to the provisions of 23 U.S.C. 112(a) 
shall be conducted in accordance with one of three methods: Competitive 
negotiation (qualifications-based selection) procurement, small 
purchases procurement for small dollar value contracts, and 
noncompetitive procurement where specific conditions exist allowing 
solicitation and negotiation to take place with a single consultant.
    (1) Competitive negotiation (qualifications-based selection). 
Except as provided in paragraphs (a)(2) and (3) of this section, 
contracting agencies shall use the competitive negotiation method for 
the procurement of engineering and design related services when FAHP 
funds are involved in the contract, as specified in 23 U.S.C. 
112(b)(2)(A). The solicitation, evaluation, ranking, selection, and 
negotiation shall comply with the qualifications-based selection 
procurement procedures for architectural and engineering services 
codified under 40 U.S.C. 1101-1104, commonly referred to as the Brooks 
Act. In accordance with the requirements of the Brooks Act, the 
following procedures shall apply to the competitive negotiation 
procurement method:
    (i) Solicitation. The solicitation process shall be by public 
announcement, public advertisement, or any other public forum or method 
that assures qualified in-State and out-of-State consultants are given 
a fair opportunity to be considered for award of the contract. 
Procurement procedures may involve a single step process with issuance 
of a request for proposal (RFP) to all interested consultants or a 
multiphase process with issuance of a request for statements or letters 
of interest or qualifications (RFQ) whereby responding consultants are 
ranked based on qualifications and a RFP is then provided to three or 
more of the most highly qualified consultants. Minimum qualifications 
of consultants to perform services under general work categories or 
areas of expertise may also be assessed through a prequalification 
process whereby annual statements of qualifications and performance 
data are encouraged. Regardless of any process utilized for 
prequalification of consultants or for an initial assessment

[[Page 29930]]

of a consultant's qualifications under a RFQ, a RFP specific to the 
project, task, or service is required for evaluation of a consultant's 
specific technical approach and qualifications.
    (ii) Request for proposal (RFP). The RFP shall provide all 
information and requirements necessary for interested consultants to 
provide a response to the RFP and compete for the solicited services. 
The RFP shall:
    (A) Provide a clear, accurate, and detailed description of the 
scope of work, technical requirements, and qualifications of 
consultants necessary for the services to be rendered. To the extent 
practicable, the scope of work should detail the purpose and 
description of the project, services to be performed, deliverables to 
be provided, estimated schedule for performance of the work, and 
applicable standards, specifications, and policies;
    (B) Identify the requirements for any discussions that may be 
conducted with three or more of the most highly qualified consultants 
following submission and evaluation of proposals;
    (C) Identify evaluation factors including their relative weight of 
importance in accordance with paragraph (a)(1)(iii) of this section;
    (D) Specify the contract type and method(s) of payment anticipated 
to contract for the solicited services in accordance with Sec.  172.9;
    (E) Identify any special provisions or contract requirements 
associated with the solicited services;
    (F) Require that submission of any requested cost proposals or 
elements of cost be in a concealed format and separate from technical/
qualifications proposals, since these shall not be considered in the 
evaluation, ranking, and selection phase; and
    (G) Provide an estimated schedule for the procurement process and 
establish a submittal deadline for responses to the RFP that provides 
sufficient time for interested consultants to receive notice, prepare, 
and submit a proposal, which except in unusual circumstances shall be 
not less than 14 calendar days from the date of issuance of the RFP.
    (iii) Evaluation factors. (A) Criteria used for evaluation, 
ranking, and selection of consultants to perform engineering and design 
related services must assess the demonstrated competence and 
qualifications for the type of professional services solicited. These 
qualifications-based factors may include, but are not limited to, 
technical approach (e.g., project understanding, innovative concepts or 
alternatives, quality control procedures), work experience, specialized 
expertise, professional licensure, staff capabilities, workload 
capacity, and past performance.
    (B) Price shall not be used as a factor in the evaluation, ranking, 
and selection phase. All price or cost related items which include, but 
are not limited to, cost proposals, direct salaries/wage rates, 
indirect cost rates, and other direct costs are prohibited from being 
used as evaluation criteria.
    (C) In-State or local preference shall not be used as a factor in 
the evaluation, ranking, and selection phase. State licensing laws are 
not preempted by this provision and professional licensure within a 
jurisdiction may be established as a requirement for the minimum 
qualifications and competence of a consultant to perform the solicited 
services.
    (D) The following nonqualifications-based evaluation criteria are 
permitted under the specified conditions and provided the combined 
total of these criteria do not exceed a nominal value of 10 percent of 
the total evaluation criteria to maintain the integrity of a 
qualifications-based selection:
    (1) A local presence may be used as a nominal evaluation factor 
where appropriate. This criteria shall not be based on political or 
jurisdictional boundaries and may be applied on a project-by-project 
basis for contracts where a need has been established for a consultant 
to provide a local presence, a local presence will add value to the 
quality and efficiency of the project, and application of this criteria 
leaves an appropriate number of qualified consultants, given the nature 
and size of the project. If a consultant from outside of the locality 
area indicates as part of a proposal that it will satisfy the criteria 
in some manner, such as establishing a local project office, that 
commitment shall be considered to have satisfied the local presence 
criteria.
    (2) The participation of qualified and certified Disadvantaged 
Business Enterprise (DBE) subconsultants may be used as a nominal 
evaluation criterion where appropriate in accordance with 49 CFR part 
26 and a contracting agency's FHWA-approved DBE program.
    (iv) Evaluation, ranking, and selection. (A) The contracting agency 
shall evaluate consultant proposals based on the criteria established 
and published within the public solicitation.
    (B) Although the contract will be with the consultant, proposal 
evaluations shall consider the qualifications of the consultant and any 
subconsultants identified within the proposal with respect to the scope 
of work and established criteria.
    (C) The contracting agency shall specify in the RFP discussion 
requirements that shall follow submission and evaluation of proposals 
and based on the size and complexity of the project or as defined in 
contracting agency written policies and procedures, as specified in 
Sec.  172.5(c). Discussions, as required by the RFP, may be written, by 
telephone, video conference, or by oral presentation/interview and 
shall be with at least three of the most highly qualified consultants 
to clarify the technical approach, qualifications, and capabilities 
provided in response to the RFP.
    (D) From the proposal evaluation and any subsequent discussions 
which may have been conducted, the contracting agency shall rank, in 
order of preference, at least three consultants determined most highly 
qualified to perform the solicited services based on the established 
and published criteria. In instances where only two qualified 
consultants respond to the solicitation, the contracting agency may 
proceed with evaluation and selection if it is determined that the 
solicitation did not contain conditions or requirements that 
arbitrarily limited competition. Alternatively, a contracting agency 
may pursue procurement following the noncompetitive method when 
competition is determined to be inadequate and it is determined to not 
be feasible or practical to re-compete under a new solicitation as 
specified in paragraph (a)(3)(iii)(C) of this section.
    (E) Notification must be provided to responding consultants of the 
final ranking of the three most highly qualified consultants.
    (F) The contracting agency shall retain supporting documentation of 
the solicitation, proposal, evaluation, and selection of the consultant 
in accordance with this section and the provisions of 2 CFR 200.333.
    (v) Negotiation. (A) The process for negotiation of the contract 
shall comply with the requirements codified in 40 U.S.C. 1104(b) for 
the order of negotiation.
    (B) Independent estimate. Prior to receipt or review of the most 
highly qualified consultant's cost proposal, the contracting agency 
shall prepare a detailed independent estimate with an appropriate 
breakdown of the work or labor hours, types or classifications of labor 
required, other direct costs, and consultant's fixed fee for the 
defined scope of work. The independent estimate shall serve as the 
basis for negotiation.
    (C) The contracting agency shall establish elements of contract 
costs (e.g., indirect cost rates, direct salary or wage rates, fixed 
fee, and other direct costs) separately in accordance with Sec.  
172.11.

[[Page 29931]]

The use of the independent estimate and determination of cost allowance 
in accordance with Sec.  172.11 shall ensure contracts for the 
consultant services are obtained at a fair and reasonable cost, as 
specified in 40 U.S.C. 1104(a).
    (D) If concealed cost proposals were submitted in conjunction with 
technical/qualifications proposals, the contracting agency may consider 
only the cost proposal of the consultant with which negotiations are 
initiated. Due to the confidential nature of this data, as specified in 
23 U.S.C. 112(b)(2)(E), concealed cost proposals of unsuccessful 
consultants may be disposed of in accordance with written policies and 
procedures established under Sec.  172.5(c).
    (E) The contracting agency shall retain documentation of 
negotiation activities and resources used in the analysis of costs to 
establish elements of the contract in accordance with the provisions of 
2 CFR 200.333. This documentation shall include the consultant cost 
certification and documentation supporting the acceptance of the 
indirect cost rate to be applied to the contract, as specified in Sec.  
172.11(c).
    (2) Small purchases. The contracting agency may use the State's 
small purchase procedures that reflect applicable State laws and 
regulations for the procurement of engineering and design related 
services provided the total contract costs do not exceed the Federal 
simplified acquisition threshold (as defined in 48 CFR 2.101). When a 
lower threshold for use of small purchase procedures is established in 
State law, regulation, or policy, the lower threshold shall apply to 
the use of FAHP funds. The following additional requirements shall 
apply to the small purchase procurement method:
    (i) The scope of work, project phases, and contract requirements 
shall not be broken down into smaller components merely to permit the 
use of small purchase procedures.
    (ii) A minimum of three consultants are required to satisfy the 
adequate number of qualified sources reviewed. In instances where only 
two qualified consultants respond to the solicitation, the contracting 
agency may proceed with evaluation and selection if it is determined 
that the solicitation did not contain conditions or requirements which 
arbitrarily limited competition. Alternatively, a contracting agency 
may pursue procurement following the noncompetitive method when 
competition is determined to be inadequate and it is determined to not 
be feasible or practical to re compete under a new solicitation as 
specified in Sec.  172.7(a)(3)(iii)(C).
    (iii) Contract costs may be negotiated in accordance with State 
small purchase procedures; however, the allowability of costs shall be 
determined in accordance with the Federal cost principles.
    (iv) The full amount of any contract modification or amendment that 
would cause the total contract amount to exceed the established 
simplified acquisition threshold is ineligible for Federal-aid funding. 
The FHWA may withdraw all Federal-aid from a contract if it is modified 
or amended above the applicable established simplified acquisition 
threshold.
    (3) Noncompetitive. The following requirements shall apply to the 
noncompetitive procurement method:
    (i) A contracting agency may use its own noncompetitive procedures 
that reflect applicable State and local laws and regulations and 
conform to applicable Federal requirements.
    (ii) A contracting agency shall establish a process to determine 
when noncompetitive procedures will be used and shall submit 
justification to, and receive approval from FHWA before using this form 
of contracting.
    (iii) A contracting agency may award a contract by noncompetitive 
procedures under the following limited circumstances:
    (A) The service is available only from a single source;
    (B) There is an emergency which will not permit the time necessary 
to conduct competitive negotiations; or
    (C) After solicitation of a number of sources, competition is 
determined to be inadequate.
    (iv) Contract costs may be negotiated in accordance with 
contracting agency noncompetitive procedures; however, the allowability 
of costs shall be determined in accordance with the Federal cost 
principles.
    (b) Additional procurement requirements--(1) Uniform administrative 
requirements, cost principles and audit requirements for Federal 
awards. (i) STAs or other recipients and their subrecipients shall 
comply with procurement requirements established in State and local 
laws, regulations, policies, and procedures that are not addressed by 
or are not in conflict with applicable Federal laws and regulations, as 
specified in 2 CFR part 1201.
    (ii) When State and local procurement laws, regulations, policies, 
or procedures are in conflict with applicable Federal laws and 
regulations, a contracting agency shall comply with Federal 
requirements to be eligible for Federal-aid reimbursement of the 
associated costs of the services incurred following FHWA authorization, 
as specified in 2 CFR 200.102(c).
    (2) Disadvantaged Business Enterprise (DBE) program. (i) A 
contracting agency shall give consideration to DBE consultants in the 
procurement of engineering and design related service contracts subject 
to 23 U.S.C. 112(b)(2) in accordance with 49 CFR part 26. When DBE 
program participation goals cannot be met through race-neutral 
measures, additional DBE participation on engineering and design 
related services contracts may be achieved in accordance with a 
contracting agency's FHWA approved DBE program through either:
    (A) Use of an evaluation criterion in the qualifications-based 
selection of consultants, as specified in Sec.  172.7(a)(1)(iii)(D); or
    (B) Establishment of a contract participation goal.
    (ii) The use of quotas or exclusive set-asides for DBE consultants 
is prohibited, as specified in 49 CFR 26.43.
    (3) Suspension and debarment. A contracting agency shall verify 
suspension and debarment actions and eligibility status of consultants 
and subconsultants prior to entering into an agreement or contract in 
accordance with 2 CFR part 1200 and 2 CFR part 180.
    (4) Conflicts of interest. (i) A contracting agency shall maintain 
a written code of standards of conduct governing the performance of 
their employees engaged in the award and administration of engineering 
and design related services contracts under this part and governing the 
conduct and roles of consultants in the performance of services under 
such contracts to prevent, identify, and mitigate conflicts of interest 
in accordance with 2 CFR 200.112, 23 CFR 1.33 and the provisions of 
this paragraph (b)(4).
    (ii) No employee, officer, or agent of the contracting agency shall 
participate in selection, or in the award or administration of a 
contract supported by Federal-aid funds if a conflict of interest, real 
or apparent, would be involved. Such a conflict arises when there is a 
financial or other interest in the consultant selected for award by:
    (A) The employee, officer, or agent;
    (B) Any member of his or her immediate family;
    (C) His or her partner; or
    (D) An organization that employs or is about to employ any of the 
above.
    (iii) The contracting agency's officers, employees, or agents shall 
neither solicit nor accept gratuities, favors, or anything of monetary 
value from consultants, potential consultants, or

[[Page 29932]]

parties to subagreements. A contracting agency may establish dollar 
thresholds where the financial interest is not substantial or the gift 
is an unsolicited item of nominal value.
    (iv) A contracting agency may provide additional prohibitions 
relative to real, apparent, or potential conflicts of interest.
    (v) To the extent permitted by State or local law or regulations, 
the standards of conduct required by this paragraph shall provide for 
penalties, sanctions, or other disciplinary actions for violations of 
such standards by the contracting agency's officers, employees, or 
agents, or by consultants or their agents.
    (vi) A contracting agency shall promptly disclose in writing any 
potential conflict of interest to FHWA.
    (5) Consultant services in management support roles. (i) When FAHP 
funds participate in a consultant services contract, the contracting 
agency shall receive approval from FHWA, or the recipient as 
appropriate, before utilizing a consultant to act in a management 
support role for the contracting agency; unless an alternate approval 
procedure has been approved. Use of consultants in management support 
roles does not relieve the contracting agency of responsibilities 
associated with the use of FAHP funds, as specified in 23 U.S.C. 302(a) 
and 23 U.S.C. 106(g)(4) and should be limited to large projects or 
circumstances where unusual cost or time constraints exist, unique 
technical or managerial expertise is required, and/or an increase in 
contracting agency staff is not a viable option.
    (ii) Management support roles may include, but are not limited to, 
providing oversight of an element of a highway program, function, or 
service on behalf of the contracting agency or may involve managing or 
providing oversight of a project, series of projects, or the work of 
other consultants and contractors on behalf of the contracting agency. 
Contracting agency written policies and procedures as specified in 
Sec.  172.5(c) may further define allowable management roles and 
services a consultant may provide, specific approval responsibilities, 
and associated controls necessary to ensure compliance with Federal 
requirements.
    (iii) Use of consultants or subconsultants in management support 
roles requires appropriate conflicts of interest standards as specified 
in paragraph (b)(4) of this section and adequate contracting agency 
staffing to administer and monitor the management consultant contract, 
as specified in Sec.  172.9(d). A consultant serving in a management 
support role may be precluded from providing additional services on 
projects, activities, or contracts under its oversight due to potential 
conflicts of interest.
    (iv) FAHP funds shall not participate in the costs of a consultant 
serving in a management support role where the consultant was not 
procured in accordance with Federal and State requirements, as 
specified in 23 CFR 1.9(a).
    (v) Where benefiting more than a single Federal-aid project, 
allocability of consultant contract costs for services related to a 
management support role shall be distributed consistent with the cost 
principles applicable to the contracting agency, as specified in 2 CFR 
part 200, subpart E--Cost Principles.


Sec.  172.9  Contracts and administration.

    (a) Contract types. The contracting agency shall use the following 
types of contracts:
    (1) Project-specific. A contract between the contracting agency and 
consultant for the performance of services and defined scope of work 
related to a specific project or projects.
    (2) Multiphase. A project-specific contract where the solicited 
services are divided into phases whereby the specific scope of work and 
associated costs may be negotiated and authorized by phase as the 
project progresses.
    (3) On-call or indefinite delivery/indefinite quantity (IDIQ). A 
contract for the performance of services for a number of projects, 
under task or work orders issued on an as-needed or on-call basis, for 
an established contract period. The procurement of services to be 
performed under on-call or IDIQ contracts shall follow either 
competitive negotiation or small purchase procurement procedures, as 
specified in Sec.  172.7. The solicitation and contract provisions 
shall address the following requirements:
    (i) Specify a reasonable maximum length of contract period, 
including the number and period of any allowable contract extensions, 
which shall not exceed 5 years;
    (ii) Specify a maximum total contract dollar amount that may be 
awarded under a contract;
    (iii) Include a statement of work, requirements, specifications, or 
other description to define the general scope, complexity, and 
professional nature of the services; and
    (iv) If multiple consultants are to be selected and multiple on-
call or IDIQ contracts awarded through a single solicitation for 
specific services:
    (A) Identify the number of consultants that may be selected or 
contracts that may be awarded from the solicitation; and
    (B) Specify the procedures the contracting agency will use in 
competing and awarding task or work orders among the selected, 
qualified consultants. Task or work orders shall not be competed and 
awarded among the selected, qualified consultants on the basis of costs 
under on-call or IDIQ contracts for services procured with competitive 
negotiation procedures. Under competitive negotiation procurement, each 
specific task or work order shall be awarded to the selected, qualified 
consultants:
    (1) Through an additional qualifications-based selection procedure, 
which may include, but does not require, a formal RFP in accordance 
with Sec.  172.5(a)(1)(ii); or
    (2) On a regional basis whereby the State is divided into regions 
and consultants are selected to provide on-call or IDIQ services for an 
assigned region(s) identified within the solicitation.
    (b) Payment methods. (1) The method of payment to the consultant 
shall be set forth in the original solicitation, contract, and in any 
contract modification thereto. The methods of payment shall be: Lump 
sum, cost plus fixed fee, cost per unit of work, or specific rates of 
compensation. A single contract may contain different payment methods 
as appropriate for compensation of different elements of work.
    (2) The cost plus a percentage of cost and percentage of 
construction cost methods of payment shall not be used.
    (3) The lump sum payment method shall only be used when the 
contracting agency has established the extent, scope, complexity, 
character, and duration of the work to be required to a degree that 
fair and reasonable compensation, including a fixed fee, can be 
determined at the time of negotiation.
    (4) When the method of payment is other than lump sum, the contract 
shall specify a maximum amount payable which shall not be exceeded 
unless adjusted by a contract modification.
    (5) The specific rates of compensation payment method provides for 
reimbursement on the basis of direct labor hours at specified fixed 
hourly rates, including direct labor costs, indirect costs, and fee or 
profit, plus any other direct expenses or costs, subject to an 
agreement maximum amount. This payment method shall only be used when 
it is not possible at the time of procurement to estimate the extent or 
duration of the work or to estimate costs

[[Page 29933]]

with any reasonable degree of accuracy. This specific rates of 
compensation payment method should be limited to contracts or 
components of contracts for specialized or support type services where 
the consultant is not in direct control of the number of hours worked, 
such as construction engineering and inspection. When using this 
payment method, the contracting agency shall manage and monitor the 
consultant's level of effort and classification of employees used to 
perform the contracted services.
    (6) A contracting agency may withhold retainage from payments in 
accordance with prompt pay requirements, as specified in 49 CFR 26.29. 
When retainage is used, the terms and conditions of the contract shall 
clearly define agency requirements, including periodic reduction in 
retention and the conditions for release of retention.
    (c) Contract provisions. (1) All contracts and subcontracts shall 
include the following provisions, either by reference or by physical 
incorporation into the language of each contract or subcontract, as 
applicable:
    (i) Administrative, contractual, or legal remedies in instances 
where consultants violate or breach contract terms and conditions, and 
provide for such sanctions and penalties as may be appropriate;
    (ii) Notice of contracting agency requirements and regulations 
pertaining to reporting;
    (iii) Contracting agency requirements and regulations pertaining to 
copyrights and rights in data;
    (iv) Access by recipient, the subrecipient, FHWA, the U.S. 
Department of Transportation's Inspector General, the Comptroller 
General of the United States, or any of their duly authorized 
representatives to any books, documents, papers, and records of the 
consultant which are directly pertinent to that specific contract for 
the purpose of making audit, examination, excerpts, and transcriptions;
    (v) Retention of all required records for not less than 3 years 
after the contracting agency makes final payment and all other pending 
matters are closed;
    (vi) Standard DOT Title VI Assurances (DOT Order 1050.2);
    (vii) Disadvantaged Business Enterprise (DBE) assurance, as 
specified in 49 CFR 26.13(b);
    (viii) Prompt pay requirements, as specified in 49 CFR 26.29;
    (ix) Determination of allowable costs in accordance with the 
Federal cost principles;
    (x) Contracting agency requirements pertaining to consultant errors 
and omissions;
    (xi) Contracting agency requirements pertaining to conflicts of 
interest, as specified in 23 CFR 1.33 and the requirements of this 
part; and
    (xii) A provision for termination for cause and termination for 
convenience by the contracting agency including the manner by which it 
will be effected and the basis for settlement.
    (2) All contracts and subcontracts exceeding $100,000 shall 
contain, either by reference or by physical incorporation into the 
language of each contract, a provision for lobbying certification and 
disclosure, as specified in 49 CFR part 20.
    (d) Contract administration and monitoring--(1) Responsible charge. 
A full-time, public employee of the contracting agency qualified to 
ensure that the work delivered under contract is complete, accurate, 
and consistent with the terms, conditions, and specifications of the 
contract shall be in responsible charge of each contract or project. 
While an independent consultant may be procured to serve in a program 
or project management support role, as specified in Sec.  172.7(b)(5), 
or to provide technical assistance in review and acceptance of 
engineering and design related services performed and products 
developed by other consultants, the contracting agency shall designate 
a public employee as being in responsible charge. A public employee may 
serve in responsible charge of multiple projects and contracting 
agencies may use multiple public employees to fulfill monitoring 
responsibilities. The term responsible charge is intended to be applied 
only in the context defined within this regulation. It may or may not 
correspond to its usage in State laws regulating the licensure and/or 
conduct of professional engineers. The public employee's 
responsibilities shall include:
    (i) Administering inherently governmental activities including, but 
not limited to, contract negotiation, contract payment, and evaluation 
of compliance, performance, and quality of services provided by 
consultant;
    (ii) Being familiar with the contract requirements, scope of 
services to be performed, and products to be produced by the 
consultant;
    (iii) Being familiar with the qualifications and responsibilities 
of the consultant's staff and evaluating any requested changes in key 
personnel;
    (iv) Scheduling and attending progress and project review meetings, 
commensurate with the magnitude, complexity, and type of work, to 
ensure the work is progressing in accordance with established scope of 
work and schedule milestones;
    (v) Ensuring consultant costs billed are allowable in accordance 
with the Federal cost principles and consistent with the contract terms 
as well as the acceptability and progress of the consultant's work;
    (vi) Evaluating and participating in decisions for contract 
modifications; and
    (vii) Documenting contract monitoring activities and maintaining 
supporting contract records, as specified in 2 CFR 200.333.
    (2) Performance evaluation. The contracting agency shall prepare an 
evaluation summarizing the consultant's performance on a contract. The 
performance evaluation should include, but not be limited to, an 
assessment of the timely completion of work, adherence to contract 
scope and budget, and quality of the work conducted. The contracting 
agency shall provide the consultant a copy of the performance 
evaluation and an opportunity to provide written comments to be 
attached to the evaluation. The contracting agency should prepare 
additional interim performance evaluations based on the scope, 
complexity, and size of the contract as a means to provide feedback, 
foster communication, and achieve desired changes or improvements. 
Completed performance evaluations should be archived for consideration 
as an element of past performance in the future evaluation of the 
consultant to provide similar services.
    (e) Contract modification. (1) Contract modifications are required 
for any amendments to the terms of the existing contract that change 
the cost of the contract; significantly change the character, scope, 
complexity, or duration of the work; or significantly change the 
conditions under which the work is required to be performed.
    (2) A contract modification shall clearly define and document the 
changes made to the contract, establish the method of payment for any 
adjustments in contract costs, and be in compliance with the terms and 
conditions of the contract and original procurement.
    (3) A contracting agency shall negotiate contract modifications 
following the same procedures as the negotiation of the original 
contract.
    (4) A contracting agency may add to a contract only the type of 
services and work included within the scope of services of the original 
solicitation from

[[Page 29934]]

which a qualifications-based selection was made.
    (5) For any additional engineering and design related services 
outside of the scope of work established in the original request for 
proposal, a contracting agency shall:
    (i) Procure the services under a new solicitation;
    (ii) Perform the work itself using contracting agency staff; or
    (iii) Use a different, existing contract under which the services 
would be within the scope of work.
    (6) Overruns in the costs of the work shall not automatically 
warrant an increase in the fixed fee portion of a cost plus fixed fee 
reimbursed contract. Permitted changes to the scope of work or duration 
may warrant consideration for adjustment of the fixed fee portion of 
cost plus fixed fee or lump sum reimbursed contracts.


Sec.  172.11  Allowable costs and oversight.

    (a) Allowable costs. (1) Costs or prices based on estimated costs 
for contracts shall be eligible for Federal-aid reimbursement only to 
the extent that costs incurred or cost estimates included in negotiated 
prices are allowable in accordance with the Federal cost principles.
    (2) Consultants shall be responsible for accounting for costs 
appropriately and for maintaining records, including supporting 
documentation, adequate to demonstrate that costs claimed have been 
incurred, are allocable to the contract, and comply with Federal cost 
principles.
    (b) Elements of contract costs. The following requirements shall 
apply to the establishment of the specified elements of contract costs:
    (1) Indirect cost rates. (i) Indirect cost rates shall be updated 
on an annual basis in accordance with the consultant's annual 
accounting period and in compliance with the Federal cost principles.
    (ii) Contracting agencies shall accept a consultant's or 
subconsultant's indirect cost rate(s) established for a 1-year 
applicable accounting period by a cognizant agency that has:
    (A) Performed an audit in accordance with generally accepted 
government auditing standards to test compliance with the requirements 
of the Federal cost principles and issued an audit report of the 
consultant's indirect cost rate(s); or
    (B) Conducted a review of an audit report and related workpapers 
prepared by a certified public accountant and issued a letter of 
concurrence with the related audited indirect cost rate(s).
    (iii) When the indirect cost rate has not been established by a 
cognizant agency in accordance with paragraph (b)(1)(ii) of this 
section, a STA or other recipient shall perform an evaluation of a 
consultant's or subconsultant's indirect cost rate prior to acceptance 
and application of the rate to contracts administered by the recipient 
or its subrecipients. The evaluation performed by STAs or other 
recipients to establish or accept an indirect cost rate shall provide 
assurance of compliance with the Federal cost principles and may 
consist of one or more of the following:
    (A) Performing an audit in accordance with generally accepted 
government auditing standards and issuing an audit report;
    (B) Reviewing and accepting an audit report and related workpapers 
prepared by a certified public accountant or another STA;
    (C) Establishing a provisional indirect cost rate for the specific 
contract and adjusting contract costs based upon an audited final rate 
at the completion of the contract; or
    (D) Conducting other evaluations in accordance with a risk-based 
oversight process as specified in paragraph (c)(2) of this section and 
within the agency's approved written policies and procedures, as 
specified in Sec.  172.5(c).
    (iv) A lower indirect cost rate may be accepted for use on a 
contract if submitted voluntarily by a consultant; however, the 
consultant's offer of a lower indirect cost rate shall not be a 
condition or qualification to be considered for the work or contract 
award.
    (v) Once accepted in accordance with paragraphs (b)(1)(ii) through 
(iv) of this section, contracting agencies shall apply such indirect 
cost rate for the purposes of contract estimation, negotiation, 
administration, reporting, and contract payment and the indirect cost 
rate shall not be limited by administrative or de facto ceilings of any 
kind.
    (vi) A consultant's accepted indirect cost rate for its 1-year 
applicable accounting period shall be applied to contracts; however, 
once an indirect cost rate is established for a contract, it may be 
extended beyond the 1-year applicable period, through the duration of 
the specific contract, provided all concerned parties agree. Agreement 
to the extension of the 1-year applicable period shall not be a 
condition or qualification to be considered for the work or contract 
award.
    (vii) Disputed rates. If an indirect cost rate established by a 
cognizant agency in paragraph (b)(1)(ii) of this section is in dispute, 
the contracting agency does not have to accept the rate. A contracting 
agency may perform its own audit or other evaluation of the 
consultant's indirect cost rate for application to the specific 
contract, until or unless the dispute is resolved. A contracting agency 
may alternatively negotiate a provisional indirect cost rate for the 
specific contract and adjust contract costs based upon an audited final 
rate. Only the consultant and the parties involved in performing the 
indirect cost audit may dispute the established indirect cost rate. If 
an error is discovered in the established indirect cost rate, the rate 
may be disputed by any prospective contracting agency.
    (2) Direct salary or wage rates. (i) Compensation for each employee 
or classification of employee must be reasonable for the work performed 
in accordance with the Federal cost principles.
    (ii) To provide for fair and reasonable compensation, considering 
the classification, experience, and responsibility of employees 
necessary to provide the desired engineering and design related 
services, contracting agencies may establish consultant direct salary 
or wage rate limitations or ``benchmarks'' based upon an objective 
assessment of the reasonableness of proposed rates performed in 
accordance with the reasonableness provisions of the Federal cost 
principles.
    (iii) When an assessment of reasonableness in accordance with the 
Federal cost principles has not been performed, contracting agencies 
shall use and apply the consultant's actual direct salary or wage rates 
for estimation, negotiation, administration, and payment of contracts 
and contract modifications.
    (3) Fixed fee. (i) The determination of the amount of fixed fee 
shall consider the scope, complexity, contract duration, degree of risk 
borne by the consultant, amount of subcontracting, and professional 
nature of the services as well as the size and type of contract.
    (ii) The establishment of fixed fee shall be contract or task order 
specific.
    (iii) Fixed fees in excess of 15 percent of the total direct labor 
and indirect costs of the contract may be justified only when 
exceptional circumstances exist.
    (4) Other direct costs. A contracting agency shall use the Federal 
cost principles in determining the reasonableness, allowability, and 
allocability of other direct contract costs.
    (c) Oversight--(1) Agency controls. Contracting agencies shall 
provide reasonable assurance that consultant costs on contracts 
reimbursed in whole or in part with FAHP funding are allowable in 
accordance with the Federal cost principles and consistent

[[Page 29935]]

with the contract terms considering the contract type and payment 
method. Contracting agency written policies, procedures, contract 
documents, and other controls, as specified in Sec. Sec.  172.5(c) and 
172.9 shall address the establishment, acceptance, and administration 
of contract costs to assure compliance with the Federal cost principles 
and requirements of this section.
    (2) Risk-based analysis. The STAs or other recipient may employ a 
risk-based oversight process to provide reasonable assurance of 
consultant compliance with Federal cost principles on FAHP funded 
contracts administered by the recipient or its subrecipients. If 
employed, this risk-based oversight process shall be incorporated into 
STA or other recipient written policies and procedures, as specified in 
Sec.  172.5(c). In addition to ensuring allowability of direct contract 
costs, the risk-based oversight process shall address the evaluation 
and acceptance of consultant and subconsultant indirect cost rates for 
application to contracts. A risk-based oversight process shall consist 
of the following:
    (i) Risk assessments. Conducting and documenting an annual 
assessment of risks of noncompliance with the Federal cost principles 
per consultant doing business with the agency, considering the 
following factors:
    (A) Consultant's contract volume within the State;
    (B) Number of States in which the consultant operates;
    (C) Experience of consultant with FAHP contracts;
    (D) History and professional reputation of consultant;
    (E) Audit history of consultant;
    (F) Type and complexity of consultant accounting system;
    (G) Size (number of employees or annual revenues) of consultant;
    (H) Relevant experience of certified public accountant performing 
audit of consultant;
    (I) Assessment of consultant's internal controls;
    (J) Changes in consultant organizational structure; and
    (K) Other factors as appropriate.
    (ii) Risk mitigation and evaluation procedures. Allocating 
resources, as considered necessary based on the results of the annual 
risk assessment, to provide reasonable assurance of compliance with the 
Federal cost principles through application of the following types of 
risk mitigation and evaluation procedures appropriate to the consultant 
and circumstances:
    (A) Audits performed in accordance with generally accepted 
government audit standards to test compliance with the requirements of 
the Federal cost principles;
    (B) Certified public accountant or other STA workpaper reviews;
    (C) Other analytical procedures;
    (D) Consultant cost certifications in accordance with paragraph 
(c)(3) of this section; and
    (E) Consultant and certified public accountant training on the 
Federal cost principles.
    (iii) Documentation. Maintaining supporting documentation of the 
risk-based analysis procedures performed to support the allowability 
and acceptance of consultant costs on FAHP funded contracts.
    (3) Consultant cost certification. (i) Indirect cost rate proposals 
for the consultant's 1-year applicable accounting period shall not be 
accepted and no agreement shall be made by a contracting agency to 
establish final indirect cost rates, unless the costs have been 
certified by an official of the consultant as being allowable in 
accordance with the Federal cost principles. The certification 
requirement shall apply to all indirect cost rate proposals submitted 
by consultants and subconsultants for acceptance by a STA or other 
recipient. Each consultant or subconsultant is responsible for 
certification of its own indirect cost rate and may not certify the 
rate of another firm.
    (ii) The certifying official shall be an individual executive or 
financial officer of the consultant's organization at a level no lower 
than a Vice President or Chief Financial Officer, or equivalent, who 
has the authority to represent the financial information utilized to 
establish the indirect cost rate proposal submitted for acceptance.
    (iii) The certification of final indirect costs shall read as 
follows:
Certificate of Final Indirect Costs
    This is to certify that I have reviewed this proposal to establish 
final indirect cost rates and to the best of my knowledge and belief:
    1. All costs included in this proposal (identify proposal and date) 
to establish final indirect cost rates for (identify period covered by 
rate) are allowable in accordance with the cost principles of the 
Federal Acquisition Regulation (FAR) of title 48, Code of Federal 
Regulations (CFR), part 31; and
    2. This proposal does not include any costs which are expressly 
unallowable under applicable cost principles of the FAR of 48 CFR part 
31.

Firm:------------------------------------------------------------------

Signature:-------------------------------------------------------------

Name of Certifying Official:-------------------------------------------

Title:-----------------------------------------------------------------

Date of Execution:-----------------------------------------------------

    (4) Sanctions and penalties. Contracting agency written policies, 
procedures, and contract documents, as specified in Sec. Sec.  172.5(c) 
and 172.9(c), shall address the range of administrative, contractual, 
or legal remedies that may be assessed in accordance with Federal and 
State laws and regulations where consultants violate or breach contract 
terms and conditions. Where consultants knowingly charge unallowable 
costs to a FAHP funded contract:
    (i) Contracting agencies shall pursue administrative, contractual, 
or legal remedies and provide for such sanctions and penalties as may 
be appropriate; and
    (ii) Consultants are subject to suspension and debarment actions as 
specified in 2 CFR part 1200 and 2 CFR part 180, potential cause of 
action under the False Claims Act as specified in 32 U.S.C. 3729-3733, 
and prosecution for making a false statement as specified in 18 U.S.C. 
1020.
    (d) Prenotification; confidentiality of data. FHWA, recipients, and 
subrecipients of FAHP funds may share audit information in complying 
with the recipient's or subrecipient's acceptance of a consultant's 
indirect cost rates pursuant to 23 U.S.C. 112 and this part provided 
that the consultant is given notice of each use and transfer. Audit 
information shall not be provided to other consultants or any other 
government agency not sharing the cost data, or to any firm or 
government agency for purposes other than complying with the 
recipient's or subrecipient's acceptance of a consultant's indirect 
cost rates pursuant to 23 U.S.C. 112 and this part without the written 
permission of the affected consultants. If prohibited by law, such cost 
and rate data shall not be disclosed under any circumstance; however, 
should a release be required by law or court order, such release shall 
make note of the confidential nature of the data.

[FR Doc. 2015-12024 Filed 5-21-15; 8:45 am]
BILLING CODE 4910-22-P