[Federal Register Volume 81, Number 232 (Friday, December 2, 2016)]
[Rules and Regulations]
[Pages 86928-86947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-28977]


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DEPARTMENT OF TRANSPORTATION

Federal Highway Administration

23 CFR Parts 630 and 635

[FHWA Docket No. FHWA-2015-0009]
RIN 2125-AF61


Construction Manager/General Contractor Contracting

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

ACTION: Final rule.

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SUMMARY: Section 1303 of the Moving Ahead for Progress in the 21st 
Century Act (MAP-21) authorizes the use of the Construction Manager/
General Contractor (CM/GC) contracting method. This final rule 
implements the new provisions in the statute, including requirements 
for FHWA approvals relating to the CM/GC method of contracting for 
projects receiving Federal-aid Highway Program funding.

DATES: This final rule is effective January 3, 2017.

FOR FURTHER INFORMATION CONTACT: Mr. Gerald Yakowenko, Contract 
Administration Team Leader, Office of Program Administration, (202) 
366- 1562, or Ms. Janet Myers, Office of the Chief Counsel, (202) 366-
2019, Federal Highway Administration, 1200 New Jersey Avenue SE., 
Washington, DC 20590. Office hours 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.

Executive Summary

    This regulatory action fulfills the statutory requirement in 
section 1303(b) of MAP-21 requiring the Secretary to promulgate a 
regulation to implement the CM/GC method of contracting. The CM/GC 
contracting method allows a contracting agency to use a single 
procurement to secure pre-construction and construction services. In 
the pre-construction services phase, a contracting agency procures the 
services of a construction contractor early in the design phase of a 
project in order to obtain the contractor's input on constructability 
issues that may be affected by the project design. If the contracting 
agency and the construction contractor reach agreement on price 
reasonableness, they enter into a contract for the construction of the 
project.
    The CM/GC method has proven to be an effective method of project 
delivery through its limited deployment in the FHWA's Special 
Experimental Project Number 14 (SEP-14) Program. Utilizing the 
contractor's unique construction expertise in the design phase can 
recommend for the contracting agency's consideration innovative methods 
and

[[Page 86929]]

industry best practices to accelerate project delivery and offer 
reduced costs and reduced schedule risks.

Background

    Section 1303 of MAP-21 amended 23 U.S.C. 112(b) by adding paragraph 
(4) to authorize the use of the CM/GC method of contracting. While the 
term CM/GC is not used in Section 1303 of MAP-21 to describe the 
contracting method, the statute allows contracting agencies to award a 
two-phase contract to a ``construction manager or general contractor'' 
for the provision of construction-related services during both the 
preconstruction and construction phases of a project. State statutes 
authorizing this method of contracting use different titles including: 
CM/GC, Construction Manager at-Risk, and General Contractor/
Construction Manager. The FHWA has elected to use the term 
``construction manager/general contractor,'' or ``CM/GC,'' in reference 
to two-phase contracts that provide for constructability input in the 
preconstruction phase followed by the construction phase of a project.
    The CM/GC contracting method allows a contracting agency to receive 
a contractor's constructability recommendations during the design 
process. A number of States including Utah, Colorado, and Arizona, have 
used the CM/GC project delivery method on Federal-aid highway projects 
under FHWA's SEP-14 program with varying degrees of success. These 
projects have shown that early contractor involvement through the CM/GC 
method has the potential to improve the quality, performance, and cost 
of the project while ensuring that construction issues are addressed 
and resolved early in the project development process.
    The CM/GC contractor's constructability input during the design 
process is used to supplement, but not replace or duplicate, the 
engineering or design services provided by the contracting agency or 
its consultant. A CM/GC contractor does not provide engineering 
services. More information about the CM/GC project delivery method can 
be found on the FHWA's Every Day Counts Web page at http://www.fhwa.dot.gov/everydaycounts/edctwo/2012/cmgc.cfm.

Notice of Proposed Rulemaking (NPRM)

    On June 29, 2015, FHWA published an NPRM in the Federal Register at 
80 FR 36939 soliciting public comments on its proposal to adopt new 
regulations. Comments were submitted by nine State Transportation 
Agencies (STAs),\1\ six industry associations, and one private 
individual.
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    \1\ In this rule FHWA uses the term STA to refer to State 
Transportation Departments (STD). STA and STD have the same meaning 
and are used interchangeably in 23 CFR part 635.
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Analysis of NPRM Comments and FHWA Response

    The following summarizes the comments submitted to the docket on 
the NPRM, notes where and why FHWA has made changes to the final rule, 
and explains why certain recommendations or suggestions have not been 
incorporated into the final rule.
    Generally speaking, most commenters agreed that the proposed rule 
implements the statutory requirements. The majority of the comments 
related to requests for clarification or interpretation of various 
provisions in the proposed regulatory text. The FHWA has carefully 
reviewed and analyzed all comments and, where appropriate, made 
revisions to the rule.

General

    The NYSDOT generally supported the proposed regulations and 
expressed an appreciation for the flexibility allowed by FHWA in 
various requirements, such as the method of selecting different project 
delivery methods, developing early work packages, establishing self-
perform requirements, and other requirements related to the CM/GC 
contract method. The FHWA appreciates these comments and finds no 
substantive response is needed.
    The American Association of State Highway and Transportation 
Officials (AASHTO) indicated the NPRM is consistent with State 
environmental requirements and protects the integrity of the National 
Environmental Policy Act (NEPA) decisionmaking process by including 
specific safeguards to ensure the NEPA decisionmaking process is not 
biased by the existence of a CM/GC contract and that all reasonable 
alternatives will be fairly considered when a project involves an 
Environmental Impact Statement (EIS) or Environmental Assessment (EA). 
The FHWA appreciates these comments and finds no substantive response 
is needed.
    The Professional Engineers in California Government (PECG) 
expressed concerns that the CM/GC contracting method will result in 
non-competitive awards of construction contracts. The group stated the 
CM/GC contracting method may lead to situations where there is an 
inherent conflict of interest in having the contractor provide input 
during the design phase (e.g., a contractor's recommendation to use a 
specific material because it believes that there is more profitability 
with that material over another). The PECG believed that CM/GC 
contracting may result in situations where there is little cost 
competition because some contracting agencies may be subject to undue 
pressure to agree to proposed prices to avoid the risk of delaying 
important highway projects. In response, FHWA has no evidence of 
situations where a contracting agency was misled by a contractor's 
recommendation for materials or construction methods. Ultimately, the 
contracting agency is responsible for the design and material selection 
issues. Given this responsibility, it is unlikely that there would be 
an inherent conflict of interest in the design or material selection 
process. The FHWA acknowledges that some contracting agencies may 
experience schedule pressures, but all public agencies are responsible 
for cost, schedule, and quality issues in the development of their 
projects. The FHWA did not make any revisions to the proposed 
regulatory text as a result of this comment.

Section-by-Section Analysis

Part 630--Preconstruction Procedures

Section 630.106--Authorization To Proceed
    The Minnesota DOT indicated that the proposed provisions in this 
section would allow certain preconstruction services associated with 
preliminary design to be authorized but would not provide sufficient 
flexibility for other limited actions, such as the acquisition of long-
lead-time materials, prior to completing NEPA, even at the STA's own 
risk. The Minnesota DOT stated that materials acquired solely with 
State funds would not be incorporated into the project until NEPA is 
complete and would follow FHWA's procurement requirements. The 
Minnesota DOT recommended that such at-risk work should be eligible for 
Federal participation once the NEPA evaluation process is completed, 
and FHWA authorizes construction.
    In response, contracting agencies should be aware that 23 U.S.C. 
112(b)(4) does not allow construction activities (even at-risk 
activities) before the conclusion of the NEPA process (and only allows 
for contracting agency final design activities on an at-risk basis). 
Title 23 U.S.C. 112(b)(4)(C)(ii) expressly prohibits a contracting 
agency from awarding the construction services phase of a contract, and 
from proceeding or permitting any consultant or contractor to proceed 
with

[[Page 86930]]

construction until completion of the environmental review process. The 
FHWA considers the acquisition of materials, even on an at-risk basis, 
to be a ``construction'' activity. Even when performed on an at-risk 
basis, the early acquisition of materials is an indication that the 
contracting agency has made a commitment of resources--possibly 
prejudicing the selection of alternatives before making a final NEPA 
decision.
    The NYSDOT stated that the regulation should provide for an 
exception to the limitation on final design activities for design 
elements that are necessary to complete the NEPA process (e.g., to 
secure environmental approval, an element of the project common to all 
alternatives may need to be completely designed). The FHWA appreciates 
this comment but believes that the definition of preliminary design (as 
contained in 23 CFR 636.103 and referenced in 23 CFR 635.502) is 
sufficiently broad to include such necessary design work so long as it 
does not materially affect the objective consideration of alternatives 
in the NEPA review process. In addition, 23 U.S.C. 139(f)(4)(D) 
provides authority for a higher level of design for the preferred 
alternative, subject to conditions in that provision.
    In developing the provisions for at-risk activities in the rule, 
FHWA considered the MAP-21 revisions to 23 U.S.C. 112(b) that added two 
provisions relating to final design. Section 112(b)(4)(C)(ii) prohibits 
a contracting agency from proceeding, or permitting any consultant or 
contractor to proceed, with final design until completion of the NEPA 
process. Additionally, MAP-21 included language, codified at 23 U.S.C. 
112(b)(4)(C)(iv)(I), providing that a contracting agency may proceed at 
its own expense with design activities at any level of detail for a 
project before completion of the NEPA process for the project without 
affecting subsequent approvals required for the project.\2\ As noted in 
the NPRM, FHWA considered these provisions together to determine 
whether it could give meaning to both. This is consistent with 
applicable conventions of statutory interpretation. The FHWA determined 
both provisions could be applied if they are interpreted to prohibit 
FHWA approval or authorization of financial support for final design 
work before the conclusion of NEPA, but to allow final design work by a 
contracting agency solely at its own risk.
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    \2\ Section 1440 of the Fixing America's Surface Transportation 
(FAST) Act (Pub. L. 114-94) (December 4, 2015) allows at-risk 
preliminary engineering activities under certain conditions. That 
general provision does not supersede section 112's specific 
provisions on at-risk final design in connection with CM/GC 
projects.
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    Other NEPA requirements and policies, including 40 CFR 1506.1(a)-
(b) and FHWA Order 6640.1A--FHWA Policy on Permissible Project Related 
Activities During the NEPA Process, limit agencies from taking actions 
that might limit the choice of reasonable alternatives in the NEPA 
review process. The FHWA has a responsibility to ensure compliance with 
all aspects of the NEPA review process in any federally assisted 
project, and thus it is important that States not take any actions that 
might be perceived as limiting the choice of reasonable alternatives--
even if those actions are 100 percent State-funded actions taken at the 
State's financial risk. It is important for FHWA and its partners to be 
consistent with this issue on both a project-level and national-program 
basis.
    Based on the comments from the Minnesota DOT, NYSDOT, and other 
commenters, FHWA believes further clarification of allowable at-risk 
construction activities on CM/GC projects is appropriate. As a result 
of these comments, we have provided appropriate revisions to the 
definition of `early work package' in sections 635.502 and 635.505(b), 
to clarify what constitutes an early work package and the timing 
limitations applicable to early work packages. See the discussion in 
this preamble for each of these sections.
    The National Association of Surety Bond Producers (NASBP), the 
Surety & Fidelity Association of America (SFAA), and the American 
Subcontractors Association, Inc. (ASA) submitted combined comments. In 
part, their comments suggested that FHWA revise the appropriate 
sections of 23 CFR part 630 to clarify the applicability of part 630 to 
projects that are pursued as public private partnerships (PPP) and 
receive Federal credit or loan assistance. These associations expressed 
an interest in ensuring that all Federal assistance is reported for 
transparency and accountability for long-term PPP agreements. No 
revisions were made to the proposed regulatory text as these comments 
are outside of the scope of this rulemaking, and existing USDOT program 
regulations (49 CFR part 80) and guidance address accountability for 
Federal credit-based funding in PPP projects.

Part 635--Construction and Maintenance

Subpart A--Contract Procedures
Section 635.110--Licensing and Qualifications of Contractors
    The NASBP, SFAA, and ASA recommended that FHWA require contracting 
agencies to follow the bonding requirements in 49 CFR 18.36--``Uniform 
Administrative Requirements for Grants and Cooperative Agreements to 
State and Local Governments'' (currently 2 CFR 200.325 in 2 CFR part 
200--``Uniform Administrative Requirements, Cost Principles and Audit 
Requirements for Federal Awards''). They also suggested that FHWA set 
appropriate minimum requirements for bonding and other procurement 
requirements for PPP projects. In response, we note FHWA's contracting 
regulations do not specify the process or provide requirements for 
furnishing performance bonds on Federal-aid projects. In general, the 
contracting agencies may use their own procedures and requirements for 
bonding, insurance, prequalification, qualification, or licensing of 
contractors on Federal-aid projects as long as those procedures do not 
restrict competition (23 CFR 635.110(b)). The revision to this section 
simply clarifies that this general requirement applies to CM/GC 
contracting. In general, the provisions of 2 CFR part 200 apply to all 
Federal assistance programs, except where an authorizing statute 
provides otherwise. For contracting under the Federal-aid highway 
program, 23 U.S.C. 112 provides the authority, and the regulations in 
23 CFR part 635 implement specific requirements, for construction 
contracting, including performance bonding requirements. Therefore, the 
provisions of 23 CFR 635.110 are applicable to all Title 23 funded 
construction projects, and FHWA did not make any revisions to this 
section.
    The AASHTO provided a recommendation to clarify this section to 
ensure that both CM/GC and design-build projects are subject to the 
contracting agency's own bonding, insurance, licensing, qualification, 
or prequalification procedures. The NPRM proposed to revise the first 
sentence of subsection (f) to make such clarification. The FHWA 
reviewed the proposed language and made minor clarifying edits to make 
it clear the provision applies to both design-build and CM/GC projects. 
The FHWA concluded the provision is otherwise clear as proposed and 
therefore made no further revision to the proposed language.

[[Page 86931]]

Section 635.112--Advertising for Bids and Proposals
    The Idaho Transportation Department (ITD) suggested that FHWA's 
approval of projects included on the Statewide Transportation 
Improvement Program (STIP) also serve as FHWA's approval of the project 
for advertising for bids and proposals. The ITD suggested that separate 
FHWA review and approvals would inevitably delay projects. In response, 
FHWA notes that the cost information typically available at the time 
the STIP is developed is preliminary in nature and does not provide 
sufficient information regarding the project scope and estimated cost 
for construction authorization purposes. Therefore, FHWA made no 
revisions to the proposed language.
Section 635.113--Bid Opening and Bid Tabulations
    The ITD suggested adding language to the rule that would require 
the use of low bid procedures if the contracting agency and the CM/GC 
contractor do not reach an agreed price for construction of the 
project. In response, FHWA does not want to limit contracting agencies 
to the use of competitive sealed bidding in circumstances where an 
agreed price is not reached with the CM/GC contractor. It is possible 
that another competitive delivery method (such as design-build) could 
be appropriate for unique projects. Given the need for flexibility in 
this area, FHWA made no revisions in response to this comment.
Section 635.122--Participation in Progress Payments
    The Michigan DOT asked for clarification whether the solicitation 
document (early in the project development process) needs to specify 
the method for making construction phase payments. The Michigan DOT 
recommended that the final rule provide more flexibility to allow 
contracting agencies to determine the payment method later in the 
process as long as the method is clearly defined in the construction 
contract. The Michigan DOT stated that the payment mechanism is one 
area where risks can be mitigated and transferred effectively. The FHWA 
agrees with this comment and modified the provision to require the 
State Transportation Department (STD) to define its procedures for 
making construction phase progress payments in either the CM/GC 
solicitation document or the construction services contract documents.

Part 635--Construction and Maintenance

Subpart C--Physical Construction Authorization
Section 635.309--Authorization
    The Colorado DOT commented on the preamble discussion for this 
section and asked if the contracting agency could negotiate the agreed 
price for construction with the CM/GC contractor before the NEPA review 
of the project is complete. In response, FHWA notes section 635.505(b) 
prohibits the contracting agency from awarding the construction 
services phase of a CM/GC contract before NEPA is complete. The 
regulation, however, does not prohibit the parties from undertaking the 
evaluation and negotiation processes that precede such award.
    The Maryland State Highway Administration (SHA) asked for 
clarification whether the term ``Request for Proposals document'' in 
the proposed language for section 635.309(p)(1)(vi) was in reference to 
the initial solicitation document or a Request for Proposals for an 
agreed price for construction services. In response to this comment, 
FHWA clarifies the provision establishes requirements for design-build 
Request for Proposals and CM/GC initial solicitation documents. The 
FHWA edited the references in the provision to better reflect this 
intended meaning.

Part 635--Construction and Maintenance

Subpart E--Construction Manager/General Contractor (CM/GC) Contracting
Section 635.502--Definitions
Construction Services
    The AASHTO expressed a concern that, should the contracting agency 
desire to include a percent fee when compensating the contractor, it 
may not be included in the definition and, therefore, not allowed under 
the rule. The AASHTO suggested adding language to the definition that 
says the term includes all costs to supervise and administer physical 
construction work, including fees paid to the CM/GC contractor for 
project administration. The FHWA acknowledges that, in some instances, 
payment of a fee to a CM/GC contractor may be an eligible cost. 
However, after considering the comment, we concluded the eligibility of 
fees should be addressed on a contract-specific basis. In response to 
the comment, FHWA added language to the final rule definition that 
clarifies the term ``construction services'' includes all costs to 
perform, supervise, and administer physical construction work for the 
project.
    The Connecticut DOT suggested adding the phrase ``[f]or which this 
portion will be determined by the STA through consideration of the 
complexity and additional factors associated with each individual 
project'' after the phrase ``project or portion of the project.'' The 
FHWA concluded, however, that it was not clear the addition would 
clarify the definition and therefore did not accept this proposed 
revision. The Delaware DOT suggested that the definition of 
``construction services'' should be modified to account for the 
possibility that the construction manager does not perform the 
construction work because an agreed price cannot be negotiated. This 
possibility is addressed through the provisions in section 
635.504(b)(6), and therefore, FHWA did not make this proposed revision 
to the definition.
    Additionally, due to concerns raised by the Minnesota and 
Connecticut DOTs regarding the statutory requirement for FHWA approval 
of a price estimate for the entire project before authorizing 
construction activities (23 U.S.C. 112(b)(4)(C)(iii)(I)), FHWA reviewed 
the definition of ``construction services'' for clarity. The FHWA 
determined the last sentence in the proposed definition, concerning 
procurement and authorization procedures, could cause confusion and 
could be read as conflicting with requirements in section 635.506(d)(2) 
of the final rule. For these reasons, FHWA is removing the last 
sentence in the NPRM definition of ``construction services.''
Early Work Package
    The Colorado DOT expressed a concern that the preamble language 
does not allow contracting agencies to perform long-lead time 
procurements for materials, equipment, and items at risk. The Minnesota 
DOT expressed a similar concern and suggested that contracting agencies 
be allowed to acquire long-lead time materials at their own risk, but 
not be allowed to install the material prior to the completion of the 
NEPA process.
    For the reasons noted in the discussion for section 630.106, FHWA 
revised the definition of an early work package to include examples of 
early construction work, which may not be performed prior to the 
conclusion of NEPA, even on an at-risk basis (e.g., site preparation, 
structure demolition, hazardous material abatement/treatment/removal, 
early material acquisition/fabrication contracts, or any action that 
may materially affect the objective consideration of alternatives in 
the NEPA review process). Based on the

[[Page 86932]]

concerns expressed by the Minnesota DOT and Colorado DOT, FHWA also 
added language in the definition of ``preconstruction service'' and in 
section 635.505(b) to clarify allowable preconstruction activities and 
emphasize that early construction packages are not allowed until NEPA 
is complete. In further response to comments questioning the clarity of 
the definition and the timing of early work package authorizations, 
FHWA added language to clarify two provisions in the definition that 
relate to pricing. First, FHWA clarified the type of risks 
(construction risks) that must be understood before the contracting 
agency and the CM/GC contractor can agree on a price. The FHWA also 
inserted into the definition an explicit reference to section 
635.506(d)(2), to make it clear that FHWA approval of the price 
estimate for construction of the entire project must occur before it 
can authorize any early work package. In addition to the responses 
above, FHWA believes it is important to emphasize early work packages 
are for minor elements or stages of project construction that can be 
accomplished during the period after NEPA is complete and before design 
of the project is sufficient to permit the parties to reach an agreed 
price for construction of the project. Early work packages are not to 
be used to piecemeal construction of the project. Early work packages 
are intended to support the objective of the CM/GC contracting process, 
which is to expedite competitive procurement and improve project 
delivery through use of the two-stage contracting process.
Preconstruction Services
    The Michigan DOT requested clarification as to whether the proposed 
definition of preconstruction services prohibits a design firm from 
being on the CM/GC contractor's preconstruction team if the design firm 
is not providing the contracting agency with design/engineering 
services. In response to this request, the regulation does not prohibit 
a CM/GC contractor from hiring a design or engineering firm for 
consultation during preconstruction services. This consulting firm may 
assist the CM/GC contractor by providing incidental engineering related 
services typically performed by general construction contractors, such 
as the preparation of site plans or falsework plans. In order to avoid 
conflict of interest issues, the design-engineering firm hired by the 
CM/GC contractor may not be the same as, or affiliated with, the 
design-engineering firm under contract to the contracting agency for 
engineering services. The FHWA does not believe it is necessary to 
revise the regulatory language to address this comment.
    The Minnesota DOT expressed concern that the proposed definition 
for ``preconstruction services'' appeared to disallow site work for 
testing and other field studies before NEPA completion. The Minnesota 
DOT suggested that FHWA modify the definition of ``preconstruction 
services'' to include site work for testing for the contracting 
agency's design team and other field studies to inform the 
environmental process. In response, FHWA agrees with this suggestion 
and revises the final sentence of the definition to expressly include 
on-site material sampling and data collection to assist the contracting 
agency's design team in its preliminary design work. The definition 
still excludes design and engineering-related services as defined in 23 
CFR 172.3.
    The Minnesota DOT also suggested that FHWA broaden the definition 
to allow the CM/GC contractor to perform engineering typically 
performed by the contractor (e.g., falsework plans, shop drawings) 
during the preconstruction phase of the project. A private individual 
raised similar concerns, indicating that incidental engineering related 
services were not within the definition of ``construction'' or the 
definition of ``engineering'' in 23 CFR 172.3. The private individual 
requested more specificity on the types of incidental engineering work 
that could be offered at the preconstruction services (for example, 
falsework studies, shop plans, formwork studies). The FHWA agrees that 
it may be appropriate for the CM/GC contractor to develop certain 
preliminary plans typically prepared by a construction contractor (such 
as falsework plans) to assist the contracting agency's design team 
during its preconstruction activities. Shop drawings or fabrication 
plans, however, are considered to be an element of final design, not 
preliminary design, and FHWA is precluded from approving or authorizing 
financial support for final design activities until the NEPA process is 
complete. In addition, shop drawings are typically developed by a 
fabricator or material supplier who is under contract with a 
construction contractor. Even on an at-risk basis, contracting for the 
acquisition or fabrication of materials is not allowed before the 
conclusion of the NEPA process. This is necessary to prevent the 
perception of bias and a commitment of resources to a particular NEPA 
alternative. The FHWA made modifications to the definition of 
``preconstruction services'' to provide clarity on what preconstruction 
services are eligible and which of these services can or cannot be 
provided before the completion of the NEPA process.
    The Minnesota DOT asked why the proposed rule was silent on the use 
of subcontractors for preconstruction services. The FHWA does not 
believe it is necessary to address subcontractors, as the regulation 
applies directly to Federal-aid recipients (contracting agencies) and 
indirectly to CM/GC firms. The CM/GC firm may have contractual 
relationships with subcontractors, lower-tier subcontractors, material 
suppliers, etc. in accordance with applicable Federal and State 
requirements. Therefore, no revisions are made to the regulatory 
language to address this comment.
    The NYSDOT asked if guidance should be provided regarding design 
liability issues identified in Coghlin Electrical Contractors, Inc. v. 
Gilbane Bldg. Co. et al., 472 Mass. 549 (2015). The FHWA believes that 
providing guidance regarding the applicability of this case, or other 
liability cases, is beyond the scope of this rule.
    The Greater Contractors Association of New York (GCA) supported the 
distinction in the definition between design services and 
constructability reviews. The GCA believed that the definition makes it 
clear that the CM/GC contractor is providing input on constructability, 
scheduling, risk identification, and cost-related issues only. The FHWA 
agrees with this comment and does not believe that the regulatory text 
requires further revisions.
Section 635.504--CM/GC Requirements
Section 635.504(b)(1)
    The Maryland SHA expressed concern that the NRPM did not discuss 
allowable procurement practices (e.g., discussions, procedures for 
request for proposals, competitive ranges). It requested clarification 
that State procedures be allowable where FHWA's regulation is silent on 
an issue. The FHWA agrees with this comment and revises the regulatory 
text to allow for the use of applicable State or local procedures as 
long as these procedures do not restrict competition or conflict with 
Federal law or regulations. In considering this comment, FHWA also 
recognized the rule should be clearer that the use of State and local 
procedures is permissive, not mandatory. For this reason, FHWA replaced 
``shall'' with ``may'' in the provision.
    The ARTBA commented that it was pleased to see numerous references 
in the NPRM regarding the importance of open competition. At the same 
time, it

[[Page 86933]]

was dismayed by the USDOT's promotion of local labor hiring preference 
provisions in the Federal-aid highway program and other USDOT 
assistance programs. It believed that such provisions are in conflict 
with the principles of open competition. This particular comment is 
outside of the scope of this rulemaking, and FHWA did not make changes 
in response to the comment. Local hiring preference is the subject of a 
separate rulemaking, ``Geographic-Based Hiring Preferences in 
Administering Federal Awards'' [Docket DOT-OST-2015-0013; RIN 2105-
AE38], 80 FR 12092 (Mar. 6, 2016).
Section 635.504(b)(2)
    The AGC referenced the procurement requirements in this section of 
the NPRM and recommended that FHWA include a discussion of what is the 
expectation in the construction services portion of a contracting 
agency's solicitation. The AGC suggested that contracting agencies 
should clarify whether the CM/GC contractor's responsibilities are 
limited to providing constructability and material reviews, or whether 
the CM/GC contractor is expected to perform design services. The AGC 
referenced recent cases that showed a trend of liability and 
responsibility being assigned to CM/GC contractors related to the 
preconstruction phase of the contract for what have been considered 
professional services provided. The FHWA does not believe that the 
regulatory language requires clarifications. The definition of 
``preconstruction services'' in section 635.502 specifically excludes 
design and engineering-related services as defined in 23 CFR part 172.
Section 635.504(b)(3)
    The ARTBA expressed several concerns regarding objectivity and 
transparency of the selection process for alternative contracting 
methods. The ARTBA agreed that the NPRM language is consistent with the 
provision in MAP-21 that gives flexibility to the contracting agency in 
determining factors for the selection of the CM/GC contractor, but 
wished to underscore the importance of certain procurement requirements 
(such as interviews) to ensure integrity and enlist the participation 
of the industry in CM/GC projects. The ARTBA highlighted the importance 
of clarity and disclosure in all procurement documents. The FHWA agrees 
with ARTBA's general comments that clarity and transparency are 
important in the procurement process. Section 635.504(b)(3)(ii) 
requires solicitation documents to list the evaluation factors and 
significant subfactors and their relative importance in evaluating 
proposals. This provision does not require contracting agencies to use 
any particular method of identifying relative importance. There are a 
number of ways to do so, such as by the assignment of specific weights 
or percentages to the factors, or by listing the evaluation criteria in 
descending order of importance. This decision about how to do the 
procurement rests with the contracting agency under 23 U.S.C. 
112(b)(4)(B). Under section 635.504(b)(3)(ii), the contracting agency 
must disclose the evaluation criteria it will use, and the relative 
importance of the criteria, in the solicitation documents.
    In connection with section 635.504(b)(3)(iv), Michigan DOT 
recommended that FHWA provide some flexibility in allowing the 
contracting agency to decide whether interviews would be necessary 
after the receipt of responses to the solicitation but before 
establishing a final rank. The Michigan DOT indicated that the 
contracting agency should have the flexibility to determine whether 
interviews are needed, based upon the strength of written responses to 
the solicitation document. The Michigan DOT indicated that in some 
cases, interviews might not be necessary if there were a significant 
separation between one team and all others. Similarly, the ITD 
commented that interviews should be conducted at the discretion of the 
State when the topped ranked firms are close in score, and the 
evaluation team should determine appropriate additional criteria to be 
evaluated in the interview. In response, FHWA believes Michigan DOT and 
ITD have raised valid points for those circumstances where it may not 
be necessary to interview firms before establishing the final rank. In 
the final rule, if interviews are used, the contracting agency must 
offer the opportunity for an interview to all short listed firms (or 
firms that submitted responsive proposals, if a short list is not used) 
as required by section 635.504(b)(4). In response to the comments, we 
have added a parenthetical to section 635.504(b)(3)(iv) so that the 
provision explicitly recognizes contracting agencies may reserve the 
right to make a final determination whether interviews are needed based 
on responses to the solicitation. The FHWA disagrees with ITD, however, 
about flexibility for the proposal evaluation team to establish 
additional criteria applicable to the interview process. The FHWA does 
not believe adding criteria not disclosed in the solicitation documents 
is conducive to open and transparent competition. For that reason, no 
change is made to the rule in response to this comment. Under section 
635.504(b)(3)(ii), contracting agencies must identify in the 
solicitation documents their intent to use, or not use, interviews and 
the relative importance of the interviews as part of the evaluation 
criteria. The contracting agency must disclose in the solicitation 
documents any criteria specific to the interview phase, including its 
relative importance with respect to all evaluation factors.
    The AGC suggested that FHWA encourage the use of interviews in the 
selection process and clarify what value (percent of selection ranking) 
will be given to the interview. The FHWA agrees that interviews are 
important element of the selection process, and if used, it is 
important for proposers to understand the value that contracting 
agencies will assign to the interview. Section 635.504(b)(3)(ii) 
requires inclusion in the solicitation documents of the relative 
importance of evaluation factors, and this requirement would apply to 
the use of interviews. For this reason, FHWA did not revise the rule in 
response to this comment.
    The AGC also suggested that FHWA add a new section recommending the 
use of a short list process where only a limited number of firms are 
selected to proceed through the procurement process and that FHWA 
require the solicitation to identify the number of firms to be included 
on the short list. After considering the comment, FHWA concluded the 
use of shortlisting is a topic that normally would be included in 
contracting agencies' CM/GC procurement procedures. This procurement 
process detail is best left to the discretion of the contracting 
agency, consistent with 23 U.S.C. 112 (b)(4)(B). Those procedures are 
subject to FHWA approval under section 635.504(c), and will be publicly 
available. For these reasons, no changes are made to the NPRM language 
in response to these AGC comments.
    The NYSDOT indicated that the NPRM was silent regarding best 
practices in the administration of CM/GC projects. As an example, it 
cited the practice of ensuring interaction and coordination between the 
contracting agency's design or engineering consultant (if out-sourced) 
and the CM/GC contractor. The NYSDOT suggested that FHWA consider the 
need for issuing guidance related to other best practices such as risk 
management plans. The FHWA agrees that coordination and interaction 
between the contracting agency's designer (if out-

[[Page 86934]]

sourced) and the CM/GC contractor is desirable, but this is a matter of 
administrative practice best addressed by the contracting agency. The 
issuance of guidance on best practices related to the administration of 
CM/GC projects is outside of the scope of this rulemaking, and FHWA 
made no changes to the rule in response to these comments.
Section 635.504(b)(5)
    The ITD suggested that approvals by the FHWA Division Administrator 
be limited to approving changes to the approved State solicitation 
template documents. The FHWA's role in the CM/GC project approval and 
authorization process is described in section 635.506, and this comment 
is addressed in the discussion of that section. Therefore, FHWA did not 
make changes to this section.
Section 635.504(b)(6)
    The Minnesota DOT suggested allowing additional flexibility in 
situations where the contracting agency and CM/GC contractor are unable 
to reach agreement on price and schedule for construction services 
(including early work packages). In particular, the commenter suggested 
the rule expressly allow flexibility in such cases for the contracting 
agency to use design-build contracting for the project or individual 
work packages. The proposed rule suggested that the traditional 
competitive bidding process be used in these situations. In response, 
FHWA recognizes that there may be circumstances where it would be 
appropriate to have the option of using either competitive bidding (23 
CFR 635.112) or another approved method, such as design-build 
contracting under 23 CFR part 636, for both early work packages and the 
main portion of project construction (i.e., project construction 
exclusive of any early work packages). The FHWA revised the first 
sentence of the paragraph by adding ``or another approved method'' at 
the end of the sentence. The FHWA also deleted the proposed language in 
the paragraph that would have prohibited the contracting agency, once 
it advertises for bids or proposals for the project or a portion of the 
project (early work packages), from using the CM/GC agreed price 
procedures. Under the final rule, when the contracting agency and the 
CM/GC contractor fail to agree on a price for an early work package, 
the contracting agency may perform that work itself under force account 
provisions, or may undertake a new procurement for that early work 
package, without affecting its ability to use CM/GC agreed price 
procedures for other early work packages and for construction services 
for the main portion of the project.
    The AASHTO noted that the proposed provisions of this section 
(requiring a transition to competitive bidding if the contracting 
agency and CM/GC contractor are unwilling or unable to enter into a 
contract for construction services) create a potential conflict with 
the CM/GC laws of at least one State. Apparently, this unidentified 
State's statute allows the contracting agency to enter into 
negotiations with the next highest scored firm(s) until agreement is 
reached or the process is terminated. The AASHTO provided a recommended 
revision which would allow such a State to enter into negotiations with 
the highest ranked firm from the original solicitation for CM/GC 
services. From FHWA's perspective, the level of design would typically 
be 60 percent to 90 percent complete when final negotiations for 
construction services for the main portion of the project take place 
with the CM/GC contractor. If the contracting agency and the CM/GC 
contractor are not able to reach agreement regarding schedule and 
price, then it is in the public interest to transition to a new 
procurement and solicit competitive bids or proposals from all firms 
that might be interested in the construction services phase. It is not 
logical to enter into negotiations for construction services with a 
firm that was the next highest ranked firm for the preconstruction 
services because, at this point in the project delivery process, a 
large portion of the advisory services provided by the CM/GC firm for 
the preconstruction phase have been completed. In addition, the 
importance the contracting agency places on various qualifications and 
contractor experience may be different when it is seeking only 
construction services, as compared to seeking a combination of 
preconstruction and construction services. Thus, it does not make sense 
to enter into negotiations with the second highest scoring CM/GC firm 
merely for the sake of finalizing input and obtaining construction 
pricing. Where the contracting agency and CM/GC contractor are 
unwilling or unable to enter into a contract for construction services, 
it is appropriate to require either competitive sealed bidding (23 CFR 
635.112) or a transition to another approved contracting method, such 
as design-build contracting under 23 CFR part 636. Therefore, FHWA is 
not adopting AASHTO's recommendation.
    The Connecticut DOT suggested that the requirement in this section 
for FHWA approval before advertising for construction bids or proposals 
be removed. The Connecticut DOT believed that an additional round of 
FHWA approvals would be more cumbersome than beneficial. The FHWA does 
not agree with this recommendation. In situations where the contracting 
agency and CM/GC contractor are unwilling or unable to enter into a 
contract for construction services, it is appropriate that the 
contracting agency notify the FHWA Division Administrator of this 
decision and request FHWA's concurrence before advertising for 
construction bids or proposals in accordance with 23 CFR 635.112 (bid-
build) or 23 CFR part 636 (design-build). The reason is that 
contracting agency is effectively converting from a CM/GC contracting 
process to a non-CM/GC process subject to separate bidding requirements 
under title 23 (e.g., bid-build or design-build). In such case, FHWA 
approval provisions applicable to those procedures will apply. In 
considering the comments, however, FHWA recognizes there is potential 
for confusion due to the use of the term ``notification'' in the 
proposed rule language. In the final rule, FHWA has substituted the 
term ``concurrence'' for ``notification'' in the first sentence of 
paragraph (6). This change better reflects FHWA's intent, which is that 
the contracting agency will follow appropriate procedures for required 
FHWA approvals prior to issuing new bid/proposal documents. The change 
makes the rule more consistent with the concurrence concepts used in 23 
CFR 635.114(h) and 636.109(c). The concurrence point will help to 
ensure that FHWA's requirements are being met for before a new 
solicitation starts.
    The ITD suggested using the term ``competitive advantage'' or 
better defining the term ``conflict of interest.'' The Delaware DOT 
suggested a clarification of the terms in this section to say that ``. 
. . the contracting agency may prohibit the CM/GC contractor from 
submitting competitive bids during the construction phase of the 
contract if the contracting agency determines that the inclusion of the 
CM/GC contractor may inhibit fair and open competition among the 
bidders.'' The FHWA generally agrees with these comments. The final 
rule permits the contracting agency to exclude the CM/GC contractor 
from bidding on construction of the project if the contracting agency 
determines the CM/GC contractor is likely to have a competitive 
advantage that could adversely affect fair and open competition.
    The ARTBA commented that the contracting agency's ability to 
preclude a CM/GC contractor from bidding on the

[[Page 86935]]

construction services contract if the agency and firm have been unable 
to agree on a price will be a risk allocation factor affecting the 
price of CM/GC proposals. The commenter stated this type of provision 
should be clearly delineated in the initial CM/GC procurement documents 
and elsewhere. The GCA raised similar concerns. It suggested that the 
contracting agency's original solicitation must outline the process for 
how the project will be handled if the agency and the CM/GC contractor 
cannot reach agreement on a final contract. The GCA noted that the NPRM 
allows the contracting agency the option of allowing or preventing the 
CM/GC contractor from bidding on the construction in the event a final 
contract is not negotiated. The GCA believed that this is not 
acceptable because it exposes the CM/GC contactor to the risk that an 
agency will simply refuse to negotiate a reasonable price and thereby 
gain the advantage of the CM/GC's proposal without entering into a 
contract.
    In response, FHWA recognizes that the possibility of contract 
termination for failure to agree on price for construction creates some 
risk to the CM/GC contractor when performing preconstruction services. 
FHWA decided not to revise the rule in response to these comments, 
however. First, the authority for such termination appears in the rule, 
which places potential CM/GC contractors on notice of the risk. We also 
expect contracting agencies to include this termination authority in 
their CM/GC contract documents. Under section 635.504(b)(3)(v), the 
solicitation documents must include or reference sample contract forms. 
Second, a decision to preclude the CM/GC contractor from bidding on 
construction (including an early work package where the parties failed 
to reach an agreed price) under a new procurement will be a very fact-
specific determination that depends on the circumstances of the 
particular project. Facts relevant to the decision about a real or 
apparent competitive advantage often will not be fully available until 
well after the solicitation process has resulted in the selection of a 
CM/GC contractor. This would make it difficult for a contracting agency 
to make that decision at the time the CM/GC solicitation document is 
developed. The FHWA concluded it is important to provide contracting 
agencies with flexibility in timing their determination whether the CM/
GC contractor has a competitive advantage that could adversely affect 
fair and open competition for the work in question. That said, we 
believe contracting agencies need to be consistent with their State 
policies related to competition (and apparent competitive advantage). 
The contracting industry appropriately expects fairness and 
transparency in an owner's procurement process--including any notices 
to the industry in the solicitation process. Both the owner and the 
industry rightfully expect good faith negotiations regarding scope, 
schedule, and price for construction.
Section 635.504(c)
    The FHWA received some comments on this section that relate to the 
relationship between CM/GC provisions and FHWA's Risk-Based Stewardship 
and Oversight (RSBO) Program. The FHWA's RSBO Program is meant to 
optimize the successful delivery of programs and projects and ensure 
compliance with Federal requirements. This risk-based program involves 
three main avenues: (1) Project approval actions, (2) data-driven 
compliance assurance, and (3) risk-based stewardship and oversight 
involvement in Projects of Division Interest (PoDIs) and Projects of 
Corporate Interest (PoCIs). The FHWA Division Offices are required to 
execute a Stewardship and Oversight agreement with their respective STA 
for the oversight of Federal-aid projects, including PoDI and PoCI 
projects. This agreement establishes the roles and responsibilities for 
project actions that require FHWA approval.
    The Michigan DOT suggested that FHWA's review and approval of a 
State's procurement document should constitute FHWA's approval to use 
the CM/GC contracting method for all Federal-aid projects except those 
where full oversight is needed (e.g., PoDIs or PoCIs). The Michigan DOT 
indicated that for non-PoDI or non-PoCI projects, FHWA's involvement 
could be designated in the STA's approved CM/GC procurement procedures, 
and therefore, the Michigan DOT recommended that FHWA revise numerous 
sections in part 635 to eliminate the requirement for FHWA approvals 
for non-PoCI and non-PoDI projects. The FHWA does not agree with this 
suggestion. Given the differences in FHWA's Stewardship and Oversight 
Agreements from State-to-State, it is not appropriate to implement a 
change that would eliminate FHWA Division Office review/approval 
requirements in our regulations. The FHWA Division Offices have the 
authority to assess program risks in their States and come to an 
agreement with their respective States regarding the stewardship of the 
Federal-aid program. Section 635.506(a) provides a discussion of the 
flexibilities that are available for States in assuming certain FHWA 
responsibilities for project approval actions. The Stewardship and 
Oversight Agreement will formalize these responsibilities in each 
State. It is expected that the State's assumption of FHWA 
responsibilities will vary from State-to-State (even on PoDI and PoCI 
projects), and therefore, no revisions are made in section 635.504(c) 
related to this recommendation.
Section 635.504(d)
    Two commenters on this section, Minnesota DOT and Connecticut DOT, 
suggested clarification of the terms used and requirements included in 
this section. The Minnesota DOT indicated that the NPRM appeared to 
require each construction services contract (i.e., each work package) 
to include a minimum 30 percent self-performance requirement. The 
Minnesota DOT said that the application of the self-performance 
requirement might not be appropriate for particular work packages, such 
as supplying long lead time materials. The Minnesota DOT suggested that 
the rule specifically exclude providing materials from the self-
performance requirement. They also suggested that the 30 percent self-
performance requirement apply to the project overall and not to each 
individual work package. The Connecticut DOT suggested that the 
application of the 30 percent self-performance requirement be left to 
the discretion of the contracting agency, which would allow the use of 
the Construction Manager-at-Risk concept where the CM/GC contractor 
serves totally as a construction manager and does not perform any 
construction during the construction services phase of the project.
    The three contracting associations providing comments on this 
section strongly supported the use of self-performance requirements; 
however, they differed in their recommended revisions to the NPRM. The 
AGC supported the use of the traditional 30 percent self-performance 
minimum requirement and suggested that the rule point out that States 
are free to use a higher self-performance requirement if they so desire 
or are mandated under State law. The AGC suggested that the regulation 
should clarify that there is no upper limit on self-performed work and 
that the ``total cost of construction services'' should be inclusive of 
any early work packages and/or task orders. The AGC took exception to 
the sentence that would allow States to require the CM/GC contractor to 
competitively let and award subcontracts for construction services to 
the lowest responsive bidder

[[Page 86936]]

if required by State law. The AGC believed that it is imperative that 
the CM/GC contractor have control over the solicitation, selection, and 
administration of subcontractors in much the same way as subcontractors 
are selected through the traditional design-bid-build process.
    The GCA had similar concerns. It indicated that it is critical to 
assure taxpayers that the contractor awarded the contract is the entity 
responsible for building the project and meeting all obligations. The 
GCA contended that contracting agencies must ensure that the CM/GC 
contractor has the same contractual responsibilities as a general 
contractor during the construction services phase of the project by 
ensuring that the CM/GC contractor has full control of the 
subcontractor selection process and is contractually and financially 
liable for delivering the project on schedule and at a fixed price. The 
GCA noted that a self-performance requirement of 40-50 percent is 
common in the industry and recommended that the CM/GC model contain a 
self-performance requirement higher than the NPRM 30 percent minimum.
    The ARTBA also noted the importance of recognizing the difference 
between CM/GC contracting as currently used by transportation agencies 
and its use in the ``vertical'' construction industry. The ARTBA noted 
that by maximizing self-performance, CM/GC contractors can maximize 
innovation and efficiency, and enhance the value for the project's 
owner-agency and the taxpayers. This process is in contrast to the 
customary practices in the vertical building industry, where the 
``construction manager'' is often a broker of construction services by 
other firms.
    In response, FHWA is not adopting the Connecticut DOT suggestion 
that the self-performance requirement be left to the contracting 
agency's discretion so that the CM/GC contractor can serve in a solely 
managerial capacity during the construction services phase of the 
project. The FHWA recognizes such practice occurs in vertical 
construction, but it is not authorized under 23 U.S.C. 112(b)(4), which 
requires the CM/GC contractor to be responsible for construction of the 
project where the parties reach an agreed price for construction 
services.
    After considering the comments, FHWA is revising the rule to 
clarify that the 30 percent self-performance requirement applies to the 
total of all construction services performed under the CM/GC contract, 
not to each individual contract for early work packages and 
construction services for the main portion of the project. The CM/GC 
contractor should take steps to ensure its work meets this requirement, 
which may necessitate adjustments in work performance as the 
construction work progresses. The exception for specialty work is 
retained, but FHWA has not expanded the exception to materials. The 
NPRM language was clear that the 30 percent criteria is a minimum, and 
contracting agencies have the discretion to set higher threshold if 
provided for by State or local policy. The final rule retains that 
language. The FHWA is not revising the sentence that allows contracting 
agencies to require the CM/GC contractor to competitively let and award 
subcontracts for construction services to the lowest responsive bidder 
if required by State law, regulation, or administrative policy. The 
MAP-21 Section 1303 requirements did not address this issue, and FHWA 
believes that it is appropriate to allow States to develop their own 
policies.
    Finally, it is important to note in this context that awards of 
subcontracts must be in accordance with the Disadvantaged Business 
Enterprise (DBE) regulations in 49 CFR part 26, including the good 
faith efforts requirements at 49 CFR 26.53 when a DBE contract goal has 
been set on the contract. Further discussion of FHWA's DBE requirements 
for CM/GC contracts is provided below in the response to comments on 
section 635.506(e).
Section 635.504(e)
    The Connecticut DOT noted that this section allows for compensation 
based on actual costs and commented that the accompanying requirement 
of indirect cost determinations would render this an extremely 
burdensome option for the CM/GC contractor and contracting agency. The 
Connecticut DOT recommended that FHWA consider eliminating this option 
since actual costs are not defined and would probably need to be 
audited; indirect cost rates would also need to be negotiated, audited, 
and established. If this method were to remain an option, the 
Connecticut DOT recommended that the indirect cost be defined as a 
specific amount, such as 10 percent. The FHWA believes that the use of 
actual cost rates would be very rare; however, there may be specific 
circumstances where it might be advantageous for a contracting agency 
to do so. In these cases, it is important to give the contracting 
agencies the flexibility to do this. FHWA does not believe that 
limiting indirect costs to 10 percent of direct costs is appropriate 
and, therefore, did not adopt any limitations.
    When reviewing this comment from Connecticut DOT, FHWA recognized 
the need for a correction in section 635.504(e). In the NPRM, language 
relating to indirect cost rates was mistakenly placed in paragraph 
635.504(e)(3) rather than in paragraph (e)(2). The FHWA corrected this 
error in the final rule.
    The Connecticut DOT requested that FHWA provide clarification for 
the basis for prohibiting the use of ``cost plus a percentage of cost 
and percentage of construction cost methods'' as methods of payment for 
preconstruction services. In response, FHWA notes that under these 
payment methods, there is a potential conflict of interest between the 
contractor's professional responsibility to the contracting agency and 
the contractor's financial interest in maximizing revenues. This is 
inherent in cost plus percentage of cost compensation, creating little 
incentive for the contractor to control its administrative costs or 
provide recommendations that would result in a more cost effective 
project. Furthermore, the use of the cost plus a percentage of cost and 
percentage of construction cost methods of contracting is prohibited in 
the Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards (2 CFR 200.323(d)). The FHWA made no 
revisions to the regulatory text in response to this comment. In 
reviewing the comment from Connecticut DOT on this topic, however, FHWA 
determined that including a similar sentence in paragraph (e)(3) 
(method of payment for construction services) would eliminate any 
confusion to the applicability of 2 CFR 200.323(d) for construction 
services payment methods.
Section 635.505--Relationship to the NEPA Process
    As is evident from this preamble's discussion of individual 
sections of the rule, there is some uncertainty among stakeholders 
about the types of CM/GC contractor activities allowed before the 
completion of the NEPA review for the project. The FHWA believes it may 
be useful to summarize how CM/GC contractor services can be used before 
the conclusion of NEPA under this rule as well as applicable NEPA 
requirements. This summary consolidates, and expands on, FHWA's 
responses to specific comments on section 635.505.
     The FHWA may approve and authorize financial support for 
necessary and reasonable CM/GC contractor costs related to

[[Page 86937]]

preconstruction activities including but not limited to: Cost 
estimating, scheduling; constructability reviews/recommendations; risk 
analysis; development of implementation plans as required by the 
contracting agency (safety plans, environmental compliance plans, 
quality control plans, hazardous material plans, etc.); field studies 
that assist with preliminary design, including site coring and 
sampling; site studies; and other activities that do not materially 
affect the objective consideration of NEPA alternatives;
     The FHWA cannot approve or authorize financial support for 
final design or construction activities such as: Site preparation, 
structure demolition, hazardous material removal/treatment/abatement, 
preparation of shop drawings, early material acquisition contracts 
(regardless of lead time), or material fabrication contracts (e.g., 
structural steel, precast concrete members, etc.);
     On an at-risk basis, the contracting agency may perform 
at-risk final design activities at any level of detail and may contract 
with the CM/GC firm to perform preconstruction services related to 
final design if the contracting agency has a procedure for segregating 
the costs of the CM/GC contractor's at-risk work from the CM/GC 
contractor's preconstruction services eligible for reimbursement during 
the NEPA process; and
     Even on an at-risk basis, the contracting agency must not 
contract for (or direct the CM/GC contractor to perform) construction 
activities before the completion of NEPA review, including the 
following activities: Site preparation, demolition, hazardous material 
treatment/removal, materials acquisition (regardless of lead time), and 
fabrication of materials or other activities that would adversely 
affect the objective consideration of NEPA alternatives. Plans or 
submittals that require an agreement/contract with a supplier or 
fabricator, such as shop drawings or fabrication plans, are not 
allowed, even on an at-risk basis prior to the completion of the NEPA 
review process.
Section 635.505(b)
    The Colorado DOT noted that the preamble discussion for this 
section prohibits contracting agencies from awarding early work 
packages (such as advanced material acquisition) before the NEPA review 
process is complete. The Colorado DOT stated that contracting agencies 
need an exception for long lead time procurements for advanced 
materials procured at their own risk. The Minnesota DOT stated that the 
NPRM provides for very limited pre-NEPA activities, and it specifically 
prohibits advanced material acquisition. The Minnesota DOT recommended 
that the regulations allow contracting agencies to perform limited 
construction services, such as procuring materials on an at-risk basis 
before completing the NEPA review process. The Minnesota DOT suggested 
that these materials would not be incorporated into the work until NEPA 
is complete and would follow Federal procurement rules. The Minnesota 
DOT also suggested that this at-risk work should be eligible for 
Federal reimbursement once NEPA is completed and the project is 
authorized.
    As noted in the discussion of section 630.106, the advanced 
acquisition of materials, even on at-risk basis, is an early 
construction activity which 23 U.S.C. 112(b)(4)(C)(ii) prohibits. That 
provision provides that contracting agencies may not with the award of 
the construction services phase before the completion of the NEPA 
review process. The FHWA acknowledges additional clarification 
regarding this issue is appropriate, and therefore, we have revised 
paragraph (b) to prohibit the contracting agency from initiating 
construction activities or allowing such activities to proceed, even on 
an at-risk basis, prior to the completion of the NEPA process. The 
prohibition includes construction work self-performed by the 
contracting agency and contracts let by the contracting agency for 
construction services (including construction services under a CM/GC 
contract such as early work packages for advanced material acquisition 
or site preparation work).
Section 635.505(e)
    The ITD commented that it is not readily apparent why the CM/GC 
contractor needs to know the NEPA alternatives, as they are only 
responsible for implementing the preferred alternative identified in 
the environmental decision. In response, while it is true that the CM/
GC contractor will only be responsible for implementing the selected 
alternative identified in the NEPA process, the CM/GC contractor may 
provide technical information to the contracting agency during the 
preconstruction phase for use in the NEPA evaluation for the project. 
Issues such as constructability and cost often are relevant to the 
comparison of alternatives. The FHWA and the State are responsible for 
ensuring a fair and objective comparative evaluation of reasonable 
alternatives for the project under 40 CFR 1502.14. This includes an 
analysis of the proposed action and alternatives to it in a 
substantially similar manner, using consistent criteria for evaluating 
and screening. See Question and Answer 5b, ``Forty Most Asked Questions 
Concerning CEQ's National Environmental Policy Act Regulations,'' 
Council on Environmental Quality (46 FR 18026 (March 23, 1981)), as 
amended (available online at https://ceq.doe.gov/nepa/regs/40/40P1.HTM). For these reasons, it is incumbent on the contracting agency 
to ensure it will have access to comparable data for the evaluation of 
the reasonable alternatives for the project. To the extent the 
contracting agency wishes to use data provided by the CM/GC contractor, 
this means the contracting agency should include provisions in its CM/
GC bid and contract documents that permit it to obtain such data from 
the CM/GC contractor as needed. After considering the comments, FHWA 
agrees with the commenter that the language proposed in the NPRM did 
not fully capture the intended meaning. To better capture the scope of 
the responsibility, this section was revised to place the 
responsibility on the contracting agency for ensuring its CM/GC 
contract gives it the ability to obtain, as needed, technical 
information needed for a fair and objective comparative evaluation of 
reasonable alternatives for the project.
Section 635.505(f)
    The NPRM proposed a requirement that the CM/GC contract include 
provisions ensuring no commitments are made to any alternative during 
the NEPA process, and that the comparative merits of all alternatives 
identified and considered during the NEPA process, including the no-
build alternative, will be evaluated and fairly considered. The ITD 
indicated that the provisions of this section are design functions, not 
functions of the CM/GC contractor. In response to this comment, FHWA 
agrees that the NEPA requirements reflected in this section have direct 
applicability to the contracting agency, but they have implications for 
the contracting agency's consultants as well. The proposed language, 
which is similar to language in the design-build regulations (23 CFR 
636.109(b)(4)), is intended to ensure NEPA requirements for an 
independent and non-biased evaluation of project alternatives are 
satisfied. The provision will help contracting agencies and prospective 
CM/GC contractors understand the issues related to the NEPA review 
process, the need for the CM/GC contractor to be unbiased in the advice 
given to the contracting agency about alternatives, and the contracting 
agency's role in implementing these requirements during design 
development. After considering the

[[Page 86938]]

comment, FHWA concluded the provision is important to maintain the 
integrity of the NEPA process, and FHWA is not revising the regulatory 
text.
Section 635.505(h)
    The Minnesota DOT noted a concern with the requirement for each 
construction services contract to include a provision ensuring that the 
CM/GC contractor will meet all environmental and mitigation measures 
committed to in the NEPA document. The Minnesota DOT said that in many 
situations, the NEPA document has mitigation measures beyond the 
control of the CM/GC contractor. The Minnesota DOT suggested modifying 
the clause to require the STA to include ``applicable'' commitments in 
each contract and deleting the ``and'' in the phrase ``environmental 
and mitigation'' as unnecessary. The proposed language is consistent 
with a provision in the design-build regulations at 23 CFR 
636.109(b)(5), and FHWA believes that consistency should be maintained 
in the rule. FHWA agrees the provision would benefit from a 
clarification to address the concern that the CM/GC contractor ought 
not to be held responsible for environmental and mitigation work that 
is not part of the CM/GC contract scope of work. The FHWA revised this 
section to provide an exception for measures the contracting agency 
expressly describes in the CM/GC contract as excluded because they are 
the responsibility of others.
Section 635.506--Project Approvals and Authorizations
    The AGC noted that the proposed FHWA review and approval 
requirements in this section showed a trend away from the past several 
years during which FHWA has given more flexibility and authority to the 
States in managing their Federal-aid projects. The ARTBA expressed a 
similar concern noting that some of the requirements for FHWA review 
were based on the MAP-21 provisions, while others originated from 
FHWA's customary stewardship practices. The AGC expressed the concern 
that such involvement may unnecessarily delay project activities and 
suggested that, if FHWA believed such reviews were necessary, FHWA 
should also include timeframes for approval period as to not delay the 
start of the work. As noted in the discussion of section 635.504(b)(5), 
the ITD suggested that approvals by the FHWA Division Administrator be 
limited to only approving changes to the approved State solicitation 
template documents.
    In response to these comments, it should be noted that 23 U.S.C. 
112(b)(4)(C)(iii) explicitly requires FHWA's review and approval of the 
following: (a) The price estimate of the contracting agency for the 
entire project and (b) any price agreement with the CM/GC contractor 
for the project or a portion of the project. Other proposed approvals 
in the NPRM are consistent with oversight provisions found in other 
title 23 procurement regulations, such as the design-build regulations 
in 23 CFR part 636. In drafting the proposed rule, FHWA believed it was 
appropriate to include decision points, designed to ensure the 
integrity of the Federal-aid Highway Program, but also to make clear 
which decisions may be assigned by FHWA to the STAs under the authority 
of 23 U.S.C. 106(c).
    Under 23 U.S.C. 106(c), the States may assume certain FHWA 
responsibilities for project design, plans, specifications, estimates, 
contract awards, and inspections on the National Highway System (NHS), 
including projects on the Interstate System, and must assume such 
responsibilities off the NHS unless the State determines such 
assumption is inappropriate. After considering the comments, FHWA 
revised the regulatory text for section 635.506(a) to specify which 
FHWA review and approval activities in subpart E may, and which may 
not, be assumed by the STAs. In the final rule, section 635.506(a)(2) 
provides that STA's may not assume the FHWA review or approval 
responsibilities for section 635.504(c) and 635.506(c). The approval of 
procurement procedures required by section 635.504(c) is not a project 
specific action and cannot be delegated or assigned to the STA. The 
section 635.506(c) approval of at-risk preconstruction costs for 
eligibility after the completion of the NEPA process is a Federal-aid 
eligibility determination and cannot be delegated or assigned to the 
STA under 23 U.S.C. 106(c). In situations where the State is directly 
responsible for NEPA compliance (either under an assignment of 
environmental responsibilities pursuant to 23 U.S.C. 326 or 327, or 
under a programmatic categorical exclusion agreement as authorized by 
section 1318(d) of MAP-21), the Division Administrator may rely on a 
State certification indicating the NEPA-related conditions are 
satisfied. New section 635.506(a)(3) lists the subpart E project-
related FHWA approval responsibilities that are subject to State 
assumption. In addition to the listed subpart E approvals, the approval 
of advertising under 23 CFR 635.112(j) is subject to State assumption 
pursuant to 23 U.S.C. 106(c). None of these approvals involve financial 
authorization or eligibility determinations, both of which remain 
solely FHWA functions. When a State first undertakes CM/GC contracting, 
the FHWA Division should work with the State on implementation of the 
requirements of this rule so that both parties can develop an 
understanding of which approvals the State should assume. As 
contracting agencies become more familiar with CM/GC contracting, it is 
likely that States will assume FHWA responsibilities for CM/GC project 
approvals listed in section 636.506(a)(3), and the risk of related 
delays will be minimal.
Section 635.506(a)(2)
    The Connecticut DOT recommended deleting NPRM section 
635.506(a)(2), which would require FHWA approval of project-specific 
solicitation documents. The Connecticut DOT commented that its 
interpretation of this requirement is that it would require FHWA 
approval of Requests for Qualifications and Requests for Proposals 
documents. The Connecticut DOT noted that for larger, more complex, 
projects these documents can be extremely large and would require 
longer than ideal review/approval periods, which would introduce 
additional risk to on-time project delivery. The Connecticut DOT noted 
that section 635.504(c) requires the submission of CM/GC procurement 
procedures to FHWA for approval. In response, FHWA agrees with this 
comment. With other methods of procurement, FHWA has no role in 
approving the contracting agency's procurement procedures. The 
requirement for FHWA to review and approve a contracting agency's CM/GC 
procurement procedures (including changes), combined with FHWA 
compliance oversight in accordance with FHWA's RSBO Program, should be 
sufficient to satisfy FHWA's interest. It should not be necessary for 
FHWA to review and approve individual solicitation documents. 
Therefore, FHWA removed proposed paragraph 635.506(a)(2) from the final 
rule. That said, FHWA emphasizes it expects all contracting agencies to 
follow their approved procurement procedures, and to provide for 
transparency and fairness in the solicitation process.
Section 635.506(b)(1)
    The Michigan DOT requested clarification regarding the language and 
intent of this provision, which requires a contracting agency to 
request authorization of preliminary

[[Page 86939]]

engineering before incurring such costs. The Michigan DOT asked if the 
contracting agency needs to have funds obligated before incurring 
costs. In response, the requirements of this section are consistent 
with 23 CFR 1.9(a), which requires an FHWA funding authorization 
through an approved project agreement before costs are incurred. 
However, after the comment period on the NPRM closed, Congress enacted 
the FAST Act, which included an uncodified provision in section 1440 
relating to reimbursement, under specified conditions, of preliminary 
engineering costs incurred prior to authorization. The FHWA revised the 
final rule language to recognize the enactment of section 1440.
Section 635.506(b)(2)
    The Minnesota DOT asked for clarification regarding the requirement 
for FHWA's Division Administrator review and approval of a cost or 
price analysis for every procurement before authorizing pre-
construction services. The Minnesota DOT asked if the phrase ``every 
procurement'' pertains to just the pre-construction services or also 
construction services contracts. The Minnesota DOT also said that it 
was not clear if the requirement applies only when the contracting 
agency is requesting Federal-aid funding in preconstruction service 
contracts or in all situations. The FHWA agrees with the need for 
clarification. It is anticipated that there will be a single 
procurement for CM/GC preconstruction services. The requirement for a 
cost or price analysis would apply to that agreement and to any 
modifications of that agreement, when the contracting agency is 
requesting (or, under FAST Act section 1440, may request in the future) 
Federal-aid funding for the cost of preconstruction services. The FHWA 
revised the language of the rule to explicitly state the requirement 
applies to preconstruction services procurements when Federal-aid 
funding is involved in the preconstruction services contract. The NPRM 
language is further clarified by replacing the phrase ``currently 
$150,000'' with a reference to the simplified acquisition threshold in 
2 CFR 200.88. This change avoids the need for amending the regulation 
in the event the simplified acquisition threshold changes in the 
future.
Section 635.506(d)(1)
    The Michigan DOT asked if the language of this section requires the 
contracting agency to have funds obligated before incurring costs. In 
response to this inquiry, consistent with 23 CFR 1.9(a) and as 
discussed in FHWA's response to a similar comment on section 
635.506(b)(1), the contracting agency must request FHWA's construction 
authorization through an approved project agreement before incurring 
any costs if Federal assistance is being requested. The FHWA made no 
revisions to the regulatory text.
Section 635.506(d)(2)
    The Minnesota DOT and the Connecticut DOT noted that the 
requirement for FHWA approval of a price estimate for the entire 
project prior to authorizing construction activities may be problematic 
when early work packages are involved. The Minnesota DOT said that in 
these cases, it may not be possible to provide a very accurate 
estimate, depending on how far the design has progressed. The FHWA 
recognizes the Minnesota DOT's concern; however, the requirement for 
FHWA to approve a price estimate for the entire project is a statutory 
requirement (23 U.S.C. 112(b)(4)(C)(iii)). In addition, the 
authorization of CM/GC construction services occurs only after 
completion of the NEPA review, which typically includes preliminary 
design work that reaches (and sometimes exceeds) 80 percent. After 
considering the comments, FHWA concluded the contracting agency should 
have sufficient data available at the time of a request for 
construction services authorization to provide a good faith estimate of 
the price for the entire project. The FHWA understands that when a 
contracting agency is using early work packages, the level of final 
design for the entire project (i.e., final construction plans and 
detailed specifications) may not be at an advanced stage, and thus, the 
price estimate for the entire project at this point in the design 
process may not be as accurate as a detailed engineer's estimate later 
in the design phase. The FHWA believes, however, the contracting 
agencies can provide a sound enough price estimate to meet the 
statutory requirement. This requirement applies to the first request 
for an authorization for activities meeting the definition of 
``construction services.'' Where a contracting agency requests 
construction authorization for only a portion of the project (e.g., 
early work packages), the contracting agency may submit a revised price 
estimate once final design is complete if such revision is needed to 
support subsequent authorization requests. The FHWA made no revisions 
in response to these comments.
    The GCA noted the need for openness and transparency in the CM/GC 
procurement process and the need for FHWA to conduct its review and 
approval in a timely and reasonable manner. In response, we agree with 
openness and transparency are important in these procurements, but have 
concluded no revision is needed. We believe this rule and other 
applicable Federal laws (including regulations) already foster open and 
transparent procurement practices. In addition, States must act in 
accordance with State procurement integrity and other requirements. The 
FHWA fully appreciates the need for time and reasonable decisions on 
price estimates, but does not believe there is a need to establish 
standards in the regulation.
Section 635.506(d)(3)
    As noted in the above in the discussion for section 635.506(b)(2), 
the use of the phrase ``currently $150,000'' in this section is 
replaced with a reference to the simplified acquisition threshold in 2 
CFR 200.88. This change will avoid the need to amend this rule each 
time the simplified acquisition threshold is adjusted.
Section 635.506(e)
    The GCA believed that the CM/GC rule should clarify that CM/GC is 
similar to design-build with respect to the use of DBE program 
requirements. The GCA believed that design-build and CM/GC are similar 
in that it is difficult to identify specific DBE commitments up front 
as part of the bid documents. The GCA stated that the CM/GC contractor 
should only be required to put forth the list of the DBEs to be used 
for work in the first year of the project, or for early work items, 
and, for work that will be performed in later years, to list the 
categories of work that will be available for DBE participation. The 
ARTBA noted that the DBE program requirements are still geared toward 
the traditional design-bid-build delivery process and that the 
increased use of alternative contracting techniques has precipitated 
apparent compliance gaps in the DBE program. The ARTBA stated that it 
is critical that FHWA provide clarity in exactly how DBE program 
compliance is to be harmonized with the CM/GC process as the latter 
evolves in use. The ARTBA indicated that uncertainty in this regard 
merely invites various agencies, or individual officials, to inject 
their own, unrelated policy priorities into the procurement process. As 
it relates to DBE compliance, the GCA and ARTBA believed that CM/GC 
projects should be treated like design-build projects where the 
contractor has some flexibility in identifying DBE commitments when 
submitting its technical and price proposals.

[[Page 86940]]

    In response, FHWA agrees that CM/GC contracting presents a 
variation from the DBE selection process used in traditional design-
bid-build projects. The FHWA recognizes ARTBA's concerns regarding 
potential DBE implementation issues on alternative contracting 
projects, but DBE policy revisions are best made through the rulemaking 
process for the DBE program. The FHWA believes that it is possible for 
the CM/GC contractor to provide the DBE documentation required by 49 
CFR 26.53(b)(2) when the CM/GC contractor is providing its initial 
proposal for the construction services. There may be situations, 
however, where at this stage there is not sufficient detail (such as 
price, scope, and schedule) to provide the required DBE information. 
The FHWA has added language to the rule that will allow the CM/GC 
contractor to provide a contractually binding commitment at the time of 
initial proposal that will commit the contractor to meet the DBE 
contract goal if the contractor is awarded the construction services 
contract. This would give the CM/GC contractor time to provide the 
information required by 49 CFR 26.53(b)(2) before the contracting 
agency awards the contract. For example, CM/GC contractors may be able 
to gather and provide the required DBE documentation when the 
contracting agency and the CM/GC contractor enter into final price 
discussions because the level of design would be relatively high, and 
the scope and schedule would be defined so that risk and price can be 
assigned. This allowance is consistent with 49 CFR 26.53.(b)(3)(ii) for 
negotiated procurement situations.
    The ITD stated that it is critical to use the term ``agreement'' 
when discussing preconstruction services and the term ``contract'' for 
the construction services. The FHWA appreciates this comment regarding 
Idaho's policy; however, we believe that the terms ``agreement'' and 
``contract'' are used interchangeably for professional services. In 
addition, FHWA's regulations on ``Procurement, Management, and 
Administration of Engineering and Design Related Services'' (23 CFR 
172) define a contract as a written procurement contract or agreement. 
For clarity, the terms ``preconstruction services contract'' and 
``construction services contact'' will be used throughout this subpart. 
The term ``agreement'' will be reserved for agreements between FHWA and 
the STA.
    The Connecticut DOT requested clarification of the requirement for 
FHWA approval of price estimates and project schedules for the entire 
project before authorization of construction services. The commenter 
expressed specific concern about situations which need to begin early 
work activities, such as building of temporary facilities and utility 
relocations, while the project's cost and/or schedule are still being 
refined. The commenter noted that, if the final rule retained the 
requirement as proposed, FHWA should appreciate that project costs and/
or schedules may evolve and warrant subsequent review(s)/approval(s). 
In response, to the extent this comment relates to approval of a price 
estimate for the entire project before beginning construction services, 
FHWA addressed this issue in the discussion for section 635.506(d)(2). 
The requirement for FHWA to approve a price estimate for the entire 
project is a statutory requirement (23 U.S.C. 112 (b)(4)(C)(iii)). The 
references to agreed price, scope, and schedule in section 635.506(e) 
relate to the approval of those elements for each individual contract 
awarded as part of the overall CM/CG contract. Award approval reflects 
an underlying determination that procurement requirements, such price 
reasonableness, are satisfied and it is reasonable to award of the 
contract.
Section 635.507--Cost Eligibility
    The Colorado DOT asked if the indirect cost rate provisions of 
section 635.507(b) applied to both preconstruction and construction 
contracts, and if the requirement applies to any other contracts 
besides cost-reimbursement contracts (e.g., lump sum, unit price, 
etc.).
    In response, the requirement to use an approved indirect cost rate 
applies where payments for preconstruction services are based on actual 
costs (cost reimbursement contracts). Indirect cost rates do not apply 
in the construction services context, where actual cost work required 
due to unforeseen conditions is subject to applicable force account 
provisions.
    The Michigan DOT noted that most construction contractors do not 
have an approved indirect cost rate. The Michigan DOT recommended, in 
the absence of an official indirect cost rate, a documented industry 
standard be used (e.g., a rate in the STA's Standard Specifications). 
The FHWA appreciates and understands the Michigan DOT comment, and the 
extent of the issue within the highway contracting community; however, 
if a contracting agency elects to use a payment method based on actual 
costs for preconstruction services, then it is necessary to ensure that 
the indirect cost rates comply with the Federal cost principles in 2 
CFR 200 Subpart E.
    The Connecticut DOT questioned the applicability of 2 CFR 200, 
Subpart E to CM/GC projects. The Connecticut DOT questioned the meaning 
and intent of the term ``individual elements of costs'' and asked for 
clarification if extra work is negotiated and an agreed upon price or 
cost plus is determined, could this extra work be seen as ``negotiated 
based on individual elements of costs'' and therefore also require 
indirect cost rates be established as part of its negotiations.
    In response, the provisions of 2 CFR 200 apply to all Federal 
assistance programs such as the Federal-aid Highway Program. Unless 
there is a specific statutory exception, the requirements of 2 CFR 200 
apply, including the ``Cost Allowability'' provisions of Subpart E. 
Regarding the use of the term ``individual elements of costs,'' the 
FHWA agrees that this term is not clear. The requirement for the use of 
indirect cost rates applies in cost-reimbursement type contracts. We 
agree that the NPRM language would benefit from a revision. We have 
changed the first sentence of section 635.507(b) to require the CM/GC 
contractor to provide an indirect cost rate established in accordance 
with the Federal cost principles when preconstruction service payments 
are based on actual costs. The FHWA notes that requirement is not 
applicable to competitive sealed bidding contracts that are typically 
bid on a lump sum or unit price basis. For competitive sealed bid 
contracts, the determination of price reasonableness is based on a 
price analysis (a comparison with the engineer's estimate or an 
independent cost estimate). For construction change order situations, 
where as a last resort, it is necessary to perform the construction 
work on an actual cost basis, the contracting agency may use its force 
account specifications as the basis for payment (23 CFR 635.120(d)).
    Finally, as it relates to cost eligibility, the NYSDOT referenced 
two recent National Cooperative Highway Research Program studies that 
cited the use of an independent third party to prepare cost estimates 
for the purpose of evaluating the acceptability of the engineer 
estimate and CM/GC price proposals.\3\ The NYSDOT suggested that costs

[[Page 86941]]

associated with the use of an independent estimator should be eligible 
for participation. The FHWA agrees. The use of an independent cost 
estimate is mentioned in section 635.506(d)(3) as an allowable 
activity. Experience to date has shown the independent cost estimate 
has been helpful in verifying price reasonableness. The preparation of 
an independent cost estimate falls within the statutory definition of 
``construction'' in 23 U.S.C. 101(a)(4) as a preliminary engineering 
activity. The FHWA Division Office has the authority to make all 
decisions regarding cost eligibility based on whether a cost is 
necessary, reasonable, and allocable to a Federal-aid project 
consistent with the Cost Principals in 2 CFR part 200, subpart E. Given 
the contracting agency's objectives of verifying price reasonableness 
in the price analysis required by section 635.506(d)(3), the costs 
associated with the independent cost estimate are eligible for 
participation.
---------------------------------------------------------------------------

    \3\ National Cooperative Highway Research Program, Synthesis 
402, ``Construction Manager-at-Risk Project Delivery for Highway 
Programs, http://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_syn_402.pdf; National Cooperative Highway Research Program 
Report 787, ``Guide for Design Management on Design-Build and 
Construction Manager/General Contractor Projects'', http://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_rpt_787.pdf.
---------------------------------------------------------------------------

Rulemaking Analyses and Notices

    The FHWA considered all comments received before the close of 
business on the comment closing date indicated above, and the comments 
are available for examination in the docket (FHWA-2015-0009) at 
Regulations.gov. The FHWA also considered comments received after the 
comment closing date and filed in the docket prior to this final rule.

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 Federal-Aid Highway Program (FAHP) funding and directly 
related to a construction project. Additionally, this action complies 
with the principles of Executive Order 13563. The changes to parts 630 
and 635 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 $156 
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

    Agencies must adopt implementing procedures for NEPA that establish 
specific criteria for, and identification of, three classes of actions: 
Those that normally require preparation of an EIS; those that normally 
require preparation of an EA; and those that are categorically excluded 
from further NEPA review (40 CFR 1507.3(b)). This action qualifies for 
an FHWA categorical exclusion under 23 CFR 771.117(c)(20) (promulgation 
of rules, regulations, and directives). The FHWA has evaluated whether 
the action would involve unusual circumstances or extraordinary 
circumstances and has determined that this action would not involve 
such circumstances. As a result, FHWA finds that this rule would not 
result in significant impacts on the human environment.

Executive Order 12898 (Environmental Justice)

    Executive Order 12898, Federal Actions to Address Environmental 
Justice in Minority Populations and Low-Income Populations, and DOT 
Order 5610.2(a) (the DOT Order), 91 FR 27534, May 10, 2012 (available 
at www.fhwa.dot.gov/enviornment/environmental_justice/ej_at_dot/order_56102a/index.cfm), require DOT agencies to achieve environmental 
justice (EJ) as part of their mission by identifying and addressing, as 
appropriate, disproportionately high and adverse human health or 
environmental effects, including interrelated social and economic 
effects, of their programs, policies, and activities on minority 
populations and low-income populations in the United States. The DOT 
Order requires DOT agencies to address compliance with Executive Order 
12898 and the DOT

[[Page 86942]]

Order in all rulemaking activities. In addition, FHWA has issued 
additional documents relating to administration of Executive Order 
12898 and the DOT Order. On June 14, 2012, FHWA issued an update to its 
EJ order, FHWA Order 6640.23A, FHWA Actions to Address Environmental 
Justice in Minority Populations and Low Income Populations (the FHWA 
Order) (available at www.fhwa.dot.gov/legsregs/directives/orders/664023a.htm).
    The FHWA has evaluated this rule under the Executive Order, the DOT 
Order, and the FHWA Order and has determined that this rule would not 
cause disproportionately high and adverse human health and 
environmental effects on minority or low income populations.

Executive Order 13175 (Tribal Consultation)

    The FHWA analyzed this rule under Executive Order 13175, dated 
November 6, 2000, and believes that this rule 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 rule 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 rule 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 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

23 CFR Part 630

    Government contracts, Grant programs--transportation, Highway 
safety, Highways and roads, Reporting and recordkeeping requirements, 
Traffic regulations.

23 CFR Part 635

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

    Issued on: November 23, 2016.
Gregory G. Nadeau,
Administrator, Federal Highway Administration.
    In consideration of the foregoing, FHWA amends title 23, Code of 
Federal Regulations, parts 630 and 635 as follows:

PART 630--PRECONSTRUCTION PROCEDURES

0
1. Revise the authority citation for part 630 to read as follows:

    Authority:  23 U.S.C. 106, 109, 112, 115, 315, 320, and 402(a); 
Sec. 1501 and 1503 of Pub. L. 109-59, 119 Stat. 1144; Pub. L. 105-
178, 112 Stat. 193; Pub. L. 104-59, 109 Stat. 582; Pub. L. 97-424, 
96 Stat. 2106; Pub. L. 90-495, 82 Stat. 828; Pub. L. 85-767, 72 
Stat. 896; Pub. L. 84-627, 70 Stat. 380; 23 CFR 1.32 and 49 CFR 
1.48(b), and Pub. L. 112-141, 126 Stat. 405, section 1303.


0
2. Amend Sec.  630.106 by adding paragraph (a)(8) to read as follows:


Sec.  630.106   Authorization to proceed.

    (a) * * *
    (8) For Construction Manager/General Contractor projects, the 
execution or modification of the project agreement for preconstruction 
services associated with final design and for construction services, 
and authorization to proceed with such services, shall not occur until 
after the completion of the NEPA process. However, preconstruction 
services associated with preliminary design may be authorized in 
accordance with this section.
* * * * *

PART 635--CONSTRUCTION AND MAINTENANCE

0
3. Revise the authority citation for Part 635 to read as follows:

    Authority:  Sections 1525 and 1303 of Pub. L. 112-141, Sec. 1503 
of Pub. L. 109-59, 119 Stat. 1144; 23 U.S.C. 101 (note), 109, 112, 
113, 114, 116, 119, 128, and 315; 31 U.S.C. 6505; 42 U.S.C. 3334, 
4601 et seq.; Sec. 1041(a), Pub. L. 102-240, 105 Stat. 1914; 23 CFR 
1.32; 49 CFR 1.85(a)(1).


0
4. Amend Sec.  635.102 by adding, in alphabetical order, the definition 
of ``Construction Manager/General Contractor (CM/GC) project'' to read 
as follows:


Sec.  635.102   Definitions.

* * * * *
    Construction Manager/General Contractor (CM/GC) project means a 
project to be delivered using a two-phase contract with a construction 
manager or general contractor for services during both the 
preconstruction and construction phases of a project.
* * * * *


0
5. Amend Sec.  635.104 by adding paragraph (d) to read as follows:


Sec.  635.104   Method of construction.

* * * * *
    (d) In the case of a CM/GC project, the requirements of subpart E 
and the appropriate provisions pertaining to the CM/GC method of 
contracting in this part will apply. However, no justification of cost 
effectiveness is necessary in selecting projects for the CM/GC delivery 
method.

0
6. Amend Sec.  635.107 by revising paragraph (b) to read as follows:


Sec.  635.107   Participation by disadvantaged business enterprises.

* * * * *

[[Page 86943]]

    (b) In the case of a design-build or CM/GC project funded with 
title 23 funds, the requirements of 49 CFR part 26 and the State's 
approved DBE plan apply.

0
7. Amend Sec.  635.109 by revising paragraph (a) introductory text to 
read as follows:


Sec.  635.109   Standardized changed conditions clauses.

    (a) Except as provided in paragraph (b) of this section, the 
following changed conditions contract clauses shall be made part of, 
and incorporated in, each highway construction project, including 
construction services contracts of CM/GC projects, approved under 23 
U.S.C. 106:
* * * * *

0
8. Amend Sec.  635.110 by revising paragraph (f) introductory text to 
read as follows:


Sec.  635.110   Licensing and qualifications of contractors.

* * * * *
    (f) In the case of design-build and CM/GC projects, the STDs may 
use their own bonding, insurance, licensing, qualification or 
prequalification procedure for any phase of procurement.
* * * * *

0
9. Amend Sec.  635.112 by adding paragraph (j) to read as follows:


Sec.  635.112   Advertising for bids and proposals.

* * * * *
    (j) In the case of a CM/GC project, the FHWA Division 
Administrator's approval of the solicitation document will constitute 
the FHWA's approval to use the CM/GC contracting method and approval to 
release the solicitation document. The STD must obtain the approval of 
the FHWA Division Administrator before issuing addenda which result in 
major changes to the solicitation document.

0
10. Amend Sec.  635.113 by adding paragraph (d) to read as follows:


Sec.  635.113   Bid opening and bid tabulations.

* * * * *
    (d) In the case of a CM/GC project, the requirements of this 
section do not apply. See subpart E of this part for approval 
procedures.

0
11. Amend Sec.  635.114 by adding paragraph (l) to read as follows:


Sec.  635.114   Award of contract and concurrence in award.

* * * * *
    (l) In the case of a CM/GC project, the CM/GC contract shall be 
awarded in accordance with the solicitation document. See subpart E for 
CM/GC project approval procedures.

0
12. Amend Sec.  635.122 by adding paragraph (d) to read as follows:


Sec.  635.122   Participation in progress payments.

* * * * *
    (d) In the case of a CM/GC project, the STD must define its 
procedures for making construction phase progress payments in either 
the solicitation or the construction services contract documents.

0
13. Amend Sec.  635.309 by revising paragraphs (p) introductory text, 
(p)(1)(vi) and (p)(3) to read as follows:


Sec.  635.309   Authorization.

* * * * *
    (p) In the case of a design-build or CM/GC project, the following 
certification requirements apply
    (1) * * *
    (vi) If the STD elects to include right-of-way, utility, and/or 
railroad services as part of the design-builder's or CM/GC contractor's 
scope of work, then the applicable design-build Request for Proposals 
document, or the CM/GC solicitation document must include:
* * * * *
    (3) Changes to the design-build or CM/GC project concept and scope 
may require a modification of the transportation plan and 
transportation improvement program. The project sponsor must comply 
with the metropolitan and statewide transportation planning 
requirements in 23 CFR part 450 and the transportation conformity 
requirements (40 CFR parts 51 and 93) in air quality nonattainment and 
maintenance areas, and provide appropriate approval notification to the 
design builder or the CM/GC contractor for such changes.

0
14. Add subpart E to read as follows:
Subpart E--Construction Manager/General Contractor (CM/GC) Contracting
Sec.
635.501 Purpose.
635.502 Definitions.
635.503 Applicability.
635.504 CM/GC requirements.
635.505 Relationship to the NEPA process.
635.506 Project approvals and authorizations.
635.507 Cost eligibility.

Subpart E--Construction Manager/General Contractor (CM/GC) 
Contracting


Sec.  635.501   Purpose.

    The regulations in this subpart prescribe policies, requirements, 
and procedures relating to the use of the CM/GC method of contracting 
on Federal-aid projects.


Sec.  635.502   Definitions.

    As used in this subpart:
    Agreed price means the price agreed to by the Construction Manager/
General Contractor (CM/GC) contractor and the contracting agency to 
provide construction services for a specific scope and schedule.
    CM/GC contractor means the entity that has been awarded a two-phase 
contract for a CM/GC project and is responsible for providing 
preconstruction services under the first phase and, if a price 
agreement is reached, construction services under the second phase of 
such contract.
    CM/GC project means a project to be delivered using a two-phase 
contract with a CM/GC contractor for services during the 
preconstruction and, if there is an agreed price, construction phases 
of a project.
    Construction services means the physical construction work 
undertaken by a CM/GC contractor to construct a project or a portion of 
the project (including early work packages). Construction services 
include all costs to perform, supervise, and administer physical 
construction work. Construction services may be authorized as a single 
contract for the project, or through a combination of contracts 
covering portions of the CM/GC project.
    Contracting agency means the State Transportation Agency (STA), and 
any State or local government agency, public-private partnership, or 
Indian tribe (as defined in 2 CFR 200.54) that is the acting under the 
supervision of the STA and is awarding and administering a CM/GC 
contract.
    Division Administrator means the chief FHWA official assigned to 
conduct business in a particular State.
    Early work package means a portion or phase of physical 
construction work (including but not limited to site preparation, 
structure demolition, hazardous material abatement/treatment/removal, 
early material acquisition/fabrication contracts, or any action that 
materially affects the objective consideration of alternatives in the 
NEPA review process) that is procured after NEPA is complete but before 
all design work for the project is complete. Contracting agencies may 
procure an early work package when construction risks have been 
addressed (both agency and CM/GC contractor risks) and the scope of 
work is defined sufficiently for the contracting agency and the CM/GC 
contractor to reasonably determine price. The requirements in Sec.  
635.506 (including Sec.  635.506(d)(2)) and Sec.  635.507 apply to 
procuring an early work package and FHWA authorization for an early 
work package.

[[Page 86944]]

    Final design has the same meaning as defined in Sec.  636.103 of 
this chapter.
    NEPA process means the environmental review required under the 
National Environmental Policy Act (NEPA) of 1969 (42 U.S.C. 4321 et 
seq.), applicable portions of the NEPA implementing regulations at 40 
CFR parts 1500-1508, and part 771 of this chapter.
    Preconstruction services means consulting to provide a contracting 
agency and its designer with information regarding the impacts of 
design on the physical construction of the project, including but not 
limited to: Scheduling, work sequencing, cost engineering, 
constructability, cost estimating, and risk identification. Under a 
preconstruction services contract, the CM/GC contractor may provide 
consulting services during both preliminary and, subject to provisions 
in this subpart, final design. Such services may include on-site 
material sampling and data collection to assist the contacting agency's 
design team in its preliminary design work, but do not include design 
and engineering-related services as defined in Sec.  172.3 of this 
chapter. The services may include the preparation of plans typically 
developed by a construction contractor during the construction phase 
(such as preliminary staging or preliminary falsework plans) when 
needed for the NEPA process. However, services involving plans or 
submittals that are considered elements of final design and not needed 
for the NEPA process (such as shop drawings or fabrication plans) is 
not allowed, even on an at-risk basis, prior to the completion of the 
NEPA review process.
    Preliminary design has the same meaning as defined in section 
636.103 of this title.
    Solicitation document means the document used by the contracting 
agency to advertise the CM/GC project and request expressions of 
interest, statements of qualifications, proposals, or offers.
    State transportation agency (STA) has the same meaning as the term 
State transportation department (STD) under Sec.  635.102 of this 
chapter.


Sec.  635.503   Applicability.

    The provisions of this subpart apply to all Federal-aid projects 
within the right-of-way of a public highway, those projects required by 
law to be treated as if located on a Federal-aid highway, and other 
projects which are linked to such projects (i.e., the project would not 
exist without another Federal-aid highway project) that are to be 
delivered using the CM/GC contractor method.


Sec.  635.504   CM/GC Requirements.

    (a) In general. A contracting agency may award a two-phase contract 
to a CM/GC contractor for preconstruction and construction services. 
The first phase of this contract is the preconstruction services phase. 
The second phase is the construction services phase. The construction 
services phase may occur under one contract or under multiple contracts 
covering portions of the project, including early work packages.
    (b) Procurement requirements. (1) The contracting agency may 
procure the CM/GC contract using applicable State or local competitive 
selection procurement procedures as long as those procedures do not 
serve as a barrier to free and open competition or conflict with 
applicable Federal laws and regulations.
    (2) Contracting agency procedures may use any of the following 
solicitation options in procuring a CM/GC contract: Letters of 
interest, requests for qualifications, interviews, request for 
proposals or other solicitation procedures provided by applicable State 
law, regulation or policy. Single-phase or multiple-phase selection 
procedures may also be used.
    (3) Contracting agency procedures shall require, at a minimum, that 
a CM/GC contract be advertised through solicitation documents that:
    (i) Clearly define the scope of services being requested;
    (ii) List evaluation factors and significant subfactors and their 
relative importance in evaluating proposals;
    (iii) List all required deliverables;
    (iv) Identify whether interviews will be conducted before 
establishing the final rank (however, the contracting agency may 
reserve the right to make a final determination whether interviews are 
needed based on responses to the solicitation); and
    (v) Include or reference sample contract form(s).
    (4) If interviews are used in the selection process, the 
contracting agency must offer the opportunity for an interview to all 
short listed firms (or firms that submitted responsive proposals, if a 
short list is not used). Also, if interviews are used, then the 
contracting agency must not engage in conduct that favors one firm over 
another and must not disclose a firm's offer to another firm.
    (5) A contracting agency may award a CM/GC contract based on 
qualifications, experience, best value, or any other combination of 
factors considered appropriate by the contracting agency and the 
Division Administrator and which are clearly specified in the 
solicitation documents.
    (6) In the event that the contracting agency is unwilling or unable 
to enter into a contract with the CM/GC contractor for the construction 
services phase of the project (including any early work package), after 
the concurrence of the Division Administrator, the contracting agency 
may initiate a new procurement process meeting the requirements of 
subpart A of this part, or of another approved method for the affected 
portion of the construction work. If Federal-aid participation is being 
requested in the cost of construction, the contracting agency must 
request FHWA's approval before advertising for bids or proposals in 
accordance with Sec.  635.112 and part 636 of this chapter. When the 
contracting agency makes a decision to initiate a new procurement, the 
contracting agency may determine that the CM/GC contractor is likely to 
have a competitive advantage that could adversely affect fair and open 
competition and not allow the CM/GC contractor to submit competitive 
bids.
    (c) FHWA approval of CM/GC procedures. (1) The STA must submit its 
proposed CM/GC procurement procedures to the FHWA Division 
Administrator for review and approval. Any changes in approved 
procedures and requirements shall also be subject to approval by the 
Division Administrator. Other contracting agencies may follow STA 
approved procedures, or their own procedures if approved by both the 
STA and FHWA.
    (2) The Division Administrator may approve procedures that conform 
to the requirements of this subpart and which do not, in the opinion of 
the Division Administrator, operate to restrict competition. The 
Division Administrator's approval of CM/GC procurement procedures may 
not be delegated or assigned to the STA.
    (d) Subcontracting. Consistent with Sec.  635.116(a), contracts for 
construction services must specify a minimum percentage of work (no 
less than 30 percent of the total cost of all construction services 
performed under the CM/GC contract, excluding specialty work) that a 
contractor must perform with its own forces. If required by State law, 
regulation, or administrative policy, the contracting agency may 
require the CM/GC contractor to competitively let and award 
subcontracts for construction services to the lowest responsive bidder.
    (e) Payment methods. (1) The method of payment to the CM/GC 
contractor shall be set forth in the original solicitation documents, 
contract, and any contract modification or change order thereto. A 
single contract may

[[Page 86945]]

contain different payment methods as appropriate for compensation of 
different elements of work.
    (2) The methods of payment for preconstruction services shall be: 
Lump sum, cost plus fixed fee, cost per unit of work, specific rates of 
compensation, or other comparable payment method permitted in State law 
and regulation. When compensation is based on actual costs, an approved 
indirect cost rate must be used. The cost plus a percentage of cost and 
percentage of construction cost methods of payment shall not be used.
    (3) The method of payment for construction services may include any 
method of payment authorized by State law (including, but not limited 
to, lump sum, unit price, and target price). The cost plus a percentage 
of cost and percentage of construction cost methods of payment shall 
not be used.


Sec.  635.505   Relationship to the NEPA process.

    (a) In procuring a CM/GC contract before the completion of the NEPA 
process, the contracting agency may:
    (1) Issue solicitation documents;
    (2) Proceed with the award of a CM/GC contract providing for 
preconstruction services and an option to enter into a future contract 
for construction services once the NEPA review process is complete;
    (3) Issue notices to proceed to the CM/GC contractor for 
preconstruction services, excluding final design-related activities; 
and
    (4) Issue a notice-to-proceed to a consultant design firm for the 
preliminary design and any work related to preliminary design of the 
project to the extent that those actions do not limit any reasonable 
range of alternatives.
    (b) The contracting agency shall not initiate construction 
activities (even on an at-risk basis) or allow such activities to 
proceed prior to the completion of the NEPA process. The contracting 
agency shall not perform or contract for construction services 
(including early work packages of any kind) prior to the completion of 
the NEPA process.
    (c) A contracting agency may proceed, solely at the risk and 
expense of the contracting agency, with design activities at any level 
of detail, including final design and preconstruction services 
associated with final design, for a CM/GC project before completion of 
the NEPA process without affecting subsequent approvals required for 
the project. However, FHWA shall not authorize final design activities 
and preconstruction services associated with final design, and such 
activities shall not be eligible for Federal funding as provided in 
Sec.  635.506(c), until after the completion the NEPA process. A 
contracting agency may use a CM/GC contractor for preconstruction 
services associated with at-risk final design only if the contracting 
agency has a procedure for segregating the costs of the CM/GC 
contractor's at-risk work from preconstruction services eligible for 
reimbursement during the NEPA process. If a contracting agency decides 
to perform at-risk final design, it must notify FHWA of its decision to 
do so before undertaking such activities.
    (d) The CM/GC contract must include termination provisions in the 
event the environmental review process does not result in the selection 
of a build alternative. This termination provision is in addition to 
the termination for cause or convenience clause required by Appendix II 
to 2 CFR part 200.
    (e) If the contracting agency expects to use information from the 
CM/GC contractor in the NEPA review for the project, then the 
contracting agency is responsible for ensuring its CM/GC contract gives 
the contracting agency the right to obtain, as needed, technical 
information on all alternatives analyzed in the NEPA review.
    (f) The CM/GC contract must include appropriate provisions ensuring 
no commitments are made to any alternative during the NEPA process, and 
that the comparative merits of all alternatives identified and 
considered during the NEPA process, including the no-build alternative, 
will be evaluated and fairly considered.
    (g) The CM/GC contractor must not prepare NEPA documentation or 
have any decisionmaking responsibility with respect to the NEPA 
process. However, the CM/GC contractor may be requested to provide 
information about the project and possible mitigation actions, 
including constructability information, and its work product may be 
considered in the NEPA analysis and included in the record.
    (h) Any contract for construction services under a CM/GC contract 
must include appropriate provisions ensuring that all environmental and 
mitigation measures identified in the NEPA documentation and committed 
to in the NEPA determination for the selected alternative will be 
implemented, excepting only measures the contracting agency expressly 
describes in the CM/GC contract as excluded because they are the 
responsibility of others.


Sec.  635.506   Project approvals and authorizations.

    (a) In general. (1) Under 23 U.S.C. 106(c), the States may assume 
certain FHWA responsibilities for project design, plans, 
specifications, estimates, contract awards, and inspections. Any 
individual State's assumption of FHWA responsibilities for approvals 
and determinations for CM/GC projects, as described in this subpart, 
will be addressed in the State's FHWA/STA Stewardship and Oversight 
Agreement. The State may not further delegate or assign those 
responsibilities. If an STA assumes responsibility for an FHWA approval 
or determination contained in this subpart, the STA will include 
documentation in the project file sufficient to substantiate its 
actions and to support any request for authorization of funds. The STA 
will provide FHWA with the documentation upon request.
    (2) States cannot assume FHWA review or approval responsibilities 
for Sec. Sec.  635.504(c) (review and approval of CM/GC procurement 
procedures) or 635.506(c) (FHWA post-NEPA review of at-risk final 
design costs for eligibility).
    (3) In accordance with 23 U.S.C. 106(c), States may assume FHWA 
review or approval responsibilities for Sec. Sec.  635.504(b)(6) 
(approval of bidding), 635.504(e)(3) (approval of indirect cost rate), 
635.506(b) (approval of preconstruction price and cost/price analysis), 
635.506(d)(2) (approval of price estimate for entire project), 
635.506(d)(4) (approval of construction price analysis for each 
construction services contract), and 635.506(e) (approval of 
preconstruction services and construction services contract awards) for 
CM/GC projects on the National Highway System, including projects on 
the Interstate System, and must assume such responsibilities for 
projects off the National Highway System unless the State determines 
such assumption is not appropriate.
    (b) Preconstruction services approvals and authorization. (1) If 
the contracting agency wishes Federal participation in the cost of the 
CM/GC contractor's preconstruction services, it must request FHWA's 
authorization of preliminary engineering before incurring such costs, 
except as provided by section 1440 of the Fixing America's Surface 
Transportation Act, Pub. L. 114-357 (December 1, 2015).
    (2) Before authorizing pre-construction services by the CM/GC 
contractor, the Division Administrator must review and approve the 
contracting agency's cost or price analysis for the preconstruction 
services procurement (including contract modifications). A cost or 
price analysis

[[Page 86946]]

is encouraged but not required for procurements less than the 
simplified acquisition threshold in 2 CFR 200.88. The requirements of 
this paragraph apply when the contracting agency is requesting Federal 
assistance in the cost of preconstruction services.
    (c) Final design during NEPA process. (1) If the contracting agency 
proceeds with final design activities, including CM/GC preconstruction 
services associated with final design activities, at its own expense 
before the completion of the NEPA process, then those activities for 
the selected alternative may be eligible for Federal reimbursement 
after the completion of the NEPA process so long as the Division 
Administrator finds that the contracting agency's final design-related 
activities:
    (i) Did not limit the identification and fair evaluation of a 
reasonable range of alternatives for the proposed project;
    (ii) Did not result in an irrevocable commitment by the contracting 
agency to the selection of a particular alternative;
    (iii) Did not have an adverse environmental impact; and
    (iv) Are necessary and reasonable and adequately documented.
    (2) If, during the NEPA process, the Division Administrator finds 
the final design work limits the fair evaluation of alternatives, 
irrevocably commits the contracting agency to the selection of any 
alternative, or causes an adverse environmental impact, then the 
Division Administrator shall require the contracting agency to take any 
necessary action to ensure the integrity of the NEPA process regardless 
of whether or not the contracting agency wishes to receive Federal 
reimbursement for such activities.
    (d) Construction services approvals and authorizations. (1) Subject 
to the requirements in Sec.  635.505, the contracting agency may 
request Federal participation in the construction services costs 
associated with a CM/GC construction project, or portion of a project 
(including an early work package). In such cases, FHWA's construction 
contracting requirements will apply to all of the CM/GC project's 
construction contracts if any portion (including an early work package) 
of the CM/GC project construction is funded with title 23 funds. Any 
expenses incurred for construction services before FHWA authorization 
shall not be eligible for reimbursement except as may be determined in 
accordance with Sec.  1.9 of this chapter.
    (2) The Division Administrator must approve the price estimate for 
construction costs for the entire project before authorization of 
construction services (including authorization of an early work 
package).
    (3) The contracting agency must perform a price analysis for any 
contract (or contract modification) that establishes or revises the 
scope, schedule or price for the construction of the CM/GC project or a 
portion of the project (including an early work package). The price 
analysis must compare the agreed price with the contracting agency's 
engineer's estimate or an independent cost estimate (if required by the 
contracting agency). A price analysis is encouraged but not required 
for procurements less than the simplified acquisition threshold in 2 
CFR 200.88.
    (4) The Division Administrator must review and approve the 
contracting agency's price analysis and agreed price for the 
construction services of a CM/GC project or a portion of the project 
(including an early work package) before authorization of construction 
services.
    (5) Where the contracting agency and the CM/GC contractor agree on 
a price for construction services that is approved under paragraph 
(d)(4) of this section, FHWA's authorization of construction services 
will be based on the approved agreed price for the project or portion 
of the project. The authorization may include authorization of an early 
work package, including the advanced acquisition of materials 
consistent with Sec.  635.122 and this subpart. In the event that 
construction materials are acquired for a CM/GC project but not 
installed in the CM/GC project, the cost of such material will not be 
eligible for Federal-aid participation. In accordance with Sec.  
635.507 and 2 CFR part 200, FHWA may deny eligibility for part or all 
of an early work package if such work is not needed for, or used for, 
the project.
    (e) Contract award. The award of a Federal-aid CM/GC contract for 
preconstruction services and the award of contract(s) for construction 
services require prior concurrence from the Division Administrator. The 
concurrence is a prerequisite to authorization of preconstruction and 
construction services (including authorization for an early work 
package). Concurrence in the CM/GC contract award for construction 
services constitutes approval of the agreed price, scope, and schedule 
for the work under that contract. Where the contracting agency has 
established a Disadvantaged Business Enterprise (DBE) contract goal for 
the CM/GC construction services contract, the initial proposal for CM/
GC construction services must include the DBE documentation required by 
49 CFR 26.53(b)(2), or it must include a contractually binding 
commitment to meet the DBE contract goal, with the information required 
by 49 CFR 26.53(b)(2) provided before the contracting agency awards the 
contract for construction services. A copy of the executed contract 
between the contracting agency and the CM/GC contractor, including any 
contract for construction services, shall be furnished to the Division 
Administrator as soon as practical after execution. If the contracting 
agency decides not to proceed with the award of a CM/GC construction 
services contract, then it must notify the FHWA Division Administrator 
as provided in Sec.  635.504(b)(6).


Sec.  635.507   Cost eligibility.

    (a) Costs, or prices based on estimated costs, under a CM/GC 
contract 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 
(as specified in 2 CFR part 200, subpart E). Contracting agencies must 
perform a cost or price analysis in connection with procurement 
actions, including contract modifications, in accordance with 2 CFR 
200.323(a) and this subpart.
    (1) For preconstruction services, to the extent that actual costs 
or cost estimates are included in negotiated prices that will be used 
for cost reimbursement, the costs must comply with the Federal cost 
principles to be eligible for participation.
    (2) For construction services, the price analysis must confirm the 
agreed price is reasonable in order to satisfy cost eligibility 
requirements (see Sec.  635.506(d)(3)). The FHWA will rely on an 
approved price analysis when authorizing funds for construction.
    (b) Indirect cost rates. Where preconstruction service payments are 
based on actual costs the CM/GC contractor must provide an indirect 
cost rate established in accordance with the Federal cost principles 
(as specified in 2 CFR part 200 subpart E).
    (c) Cost certification. (1) If the CM/GC contractor presents an 
indirect cost rate established in accordance with the Federal cost 
principles (as specified in 2 CFR part 200 subpart E), it shall include 
a certification by an official of the CM/GC contractor that all costs 
are allowable in accordance with the Federal cost principles.
    (2) An official of the CM/GC contractor shall be an individual 
executive or financial officer of the CM/GC contractor's organization, 
at a level

[[Page 86947]]

no lower than a Vice President or Chief Financial Officer, or 
equivalent, who has the authority to make representations about the 
financial information utilized to establish the indirect cost rate 
proposal submitted.
    (3) 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 in 2 CFR 
part 200 subpart E; and
    2. This proposal does not include any costs which are expressly 
unallowable under applicable cost principles of 2 CFR part 200 subpart 
E.

[FR Doc. 2016-28977 Filed 12-1-16; 8:45 am]
 BILLING CODE 4910-22-P