[Federal Register Volume 86, Number 97 (Friday, May 21, 2021)]
[Pages 27667-27671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10785]



Federal Highway Administration

Enhancing Highway Workforce Development Opportunities Contracting 

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

ACTION: Notice.


SUMMARY: The FHWA is announcing an initiative to permit, on an 
experimental basis, recipients and subrecipients of Federal funds for 
Federal-aid highway projects to utilize geographic, economic, or other 
hiring preferences or innovative contracting approaches not otherwise 
authorized by law that have the potential to enhance workforce 
development opportunities in the transportation construction industry, 
including for low-income communities. This initiative will be carried 
out as a pilot program for a period of 4 years (unless extended) under 
FHWA's existing experimental contracting authority and the legal 
authority in the Consolidated Appropriations Act, 2021. The purpose of 
this pilot program is to provide flexibility to utilize hiring 
preferences and innovative contracting approaches while evaluating the 
efficacy and equitable impact of such requirements on workforce 
development and employment opportunities, as well as their impact on 
competition and project delivery.

DATES: This pilot program is effective May 21, 2021. This pilot program 
will end May 21, 2025, unless it is extended.

FOR FURTHER INFORMATION CONTACT: For technical information: Mr. James 
DeSanto, Office of Preconstruction, Construction and Pavements, (614) 
357-8515, [email protected], or Mr. Patrick Smith, Office of Chief 
Counsel, (202) 366-1345, [email protected], Federal Highway 
Administration, 1200 New Jersey Avenue SE, Washington, DC 20590.


Electronic Access

    An electronic copy of this document may be downloaded from the 
Office of the Federal Register's website at www.FederalRegister.gov and 
the Government Publishing Office's website at www.GovInfo.gov.


    The Federal-aid highway program, administered by FHWA, supports 
State and local governments in the design, construction, and 
maintenance of the Nation's highway system and Federal-aid eligible 
public roadways. The program has helped to create and sustain long-
term, good-paying jobs in the transportation construction industry. 
People of color, women, and other underserved groups, however, have 
historically experienced significant barriers to entry into the 
transportation construction industry. Further, FHWA-funded projects 
have prohibited local employment-preferences or workforce development 
opportunities for individuals residing in economically depressed 
communities in which projects are often located. While this prohibition 
was based upon maintaining competition in contract bidding, the 
consequence was that the workforce on federally-funded projects was 
often not necessarily representative of all communities where projects 
were located.
    On January 20, 2021, President Biden issued Executive Order (E.O.) 
13985, ``Advancing Racial Equity and Support for Underserved 
Communities Through the Federal Government.'' This E.O. provides that 
the Federal Government should pursue a comprehensive approach to 
advancing equity for all, including people of color and others who have 
been historically underserved, marginalized, and adversely affected by 
persistent poverty and inequality. Accordingly, FHWA is now committed 
to work to redress inequities that resulted from barriers to equal 
opportunity by announcing an initiative that could result in increased 
employment and workforce development opportunities for those who have 
historically been excluded from participation on federally-funded 
transportation projects.
    In the past, FHWA has received requests from States and local 
agencies to allow the inclusion of local hiring contract requirements 
in their projects with the goal of improving workforce development and 
employment opportunities for their residents. As discussed in more 
detail below, FHWA historically disallowed such requirements out of 
concern for their

[[Page 27668]]

potential impact on competition. Generally, Federal law requires 
Federal-aid highway and roadway projects (apart from a few exceptions) 
to be awarded on the basis of competitive bidding. However, from 2015 
to 2017, DOT conducted a contracting initiative with FHWA and the 
Federal Transit Administration (FTA) to evaluate the potential impacts 
to competition from local hiring contracting requirements, as discussed 
further below.
    Today, FHWA announces this initiative to permit and evaluate 
geographic, economic, or other hiring preferences or innovative 
contracting approaches not otherwise authorized by law that have the 
potential to enhance workforce development opportunities in the 
transportation construction industry, including for low-income 
communities. This initiative can support programs that provide funding 
for existing training and registered apprenticeship programs, such as 
FHWA's On-the-Job Training (OJT) programs, authorized under 23 U.S.C. 
140(b) and 23 CFR part 230, subpart A, or other similar programs. This 
initiative is needed to support local and other workers in overcoming 
barriers to obtaining successful, long term careers in the 
transportation construction industry.

Job Opportunity and Workforce Development

    Despite training efforts by the States and industry, a survey 
conducted by the Associated General Contractors of America (AGC) of its 
members in 2015 found that more than 60 percent of construction firms 
across the country were struggling to fill open positions. See FHWA, 
Office of Innovative Program Delivery, Center for Accelerating 
Innovation, Every Day Counts, EDC-6 Innovations. (2021). Strategic 
Workforce Development. https://www.fhwa.dot.gov/innovation/everydaycounts/edc_6/strategic_workforce_development.cfm. A follow-up 
survey in 2018 by AGC provided similar results, with 80 percent of 
contractors reporting difficulty finding qualified craft workers to 
hire. Id.
    FHWA has historically supported States' construction workforce 
development efforts through OJT programs authorized by 23 U.S.C. 
140(b), and other training and education programs. FHWA requires full 
utilization of all available training and skill-improvement 
opportunities to assure the increased participation of minority groups 
and disadvantaged persons and women in all phases of the transportation 
construction industry. 23 CFR 230.107(b). FHWA also encourages States 
to provide supportive services to increase the effectiveness of OJT 
programs. Id. at 230.113.
    In addition to OJT efforts, FHWA supports innovative and cost-
effective means of leveraging relationships between project sponsors 
and State or local workforce development boards, where applicable, to 
improve training and skill-improvement opportunities and outcomes for 
all groups, including low-income communities and other under-
represented individuals or populations. For example, FHWA's Every Day 
Counts (EDC) initiative encourages States to collaborate with the 
construction industry, workforce boards, educational entities, and 
others to identify, train, and place a skilled transportation 
construction workforce. See https://www.fhwa.dot.gov/innovation/everydaycounts/edc_6/strategic_workforce_development.cfm. States can 
leverage FHWA OJT Supportive Services funds with existing local 
programs to incorporate training that focuses on construction skills in 
which there are current or anticipated future workforce gaps.
    FHWA has also supported innovative contracting approaches to 
workforce development, such as authorizing the Michigan Department of 
Transportation (MDOT), through Special Experimental Project No. 14 
(SEP-14), to implement an OJT Voluntary Incentive Program. 
Participating contractors in southeastern Michigan that exceed their 
OJT goals earn bid incentives to be used when competing for future work 
on designated projects. See MDOT's SEP-14 work plan, available at 
www.fhwa.dot.gov/programadmin/contracts/sep14mi171106.pdf. MDOT staff 
emphasized to FHWA the importance of coordinating their program with 
members of Michigan's construction industry and attributed that 
coordination to program successes. MDOT reports the pilot program 
resulted in increases in apprenticeships, increases in program 
graduates, increased Equal Employment Opportunity compliance, and 
increases in contractor participation. MDOT is currently evaluating 
potential impacts to competitive bidding.
    Based on the AGC surveys mentioned above, however, FHWA believes 
more can be done to further increase workforce development 
opportunities, by building from existing programs, such as OJT, or 
exploring new approaches, to improve fulfillment of successful, long-
term careers in the transportation construction industry.

Legal Authority

    The initiative set forth in this notice is authorized under Section 
199B of the Consolidated Appropriations Act, 2021, Public Law 116-260, 
Dec. 27, 2020, 134 Stat 1182. Section 199B expressly authorizes DOT-
assisted contracts under titles 49 and 23 of the U.S.C. to use 
geographic, economic, or any other hiring preference not otherwise 
authorized by law, provided that the grant recipient certifies the 
    (1) That except with respect to apprentices or trainees, a pool of 
readily available but unemployed individuals possessing the knowledge, 
skill, and ability to perform the work that the contract requires 
resides in the jurisdiction;
    (2) that the grant recipient will include appropriate provisions in 
its bid document ensuring that the contractor does not displace any of 
its existing employees in order to satisfy such hiring preference; and
    (3) that any increase in the cost of labor, training, or delays 
resulting from the use of such hiring preference does not delay or 
displace any transportation project in the applicable Statewide 
Transportation Improvement Program or Transportation Improvement 
    Accordingly, recipients and subrecipients using the application 
process for a pilot program described in this notice below must also 
include in their applications these required certifications from 
Section 199B of the FY 2021 Consolidated Appropriations Act.
    The initiative described in this notice is also based on FHWA's 
authority for special experimental projects. In 1988, a Transportation 
Research Board (TRB) task force, comprising representatives from all 
segments of the highway industry, was formed to evaluate innovative 
contracting practices. This TRB task force requested that FHWA 
establish a project to evaluate and validate certain findings of the 
task force regarding innovative contracting practices, which are 
documented in Transportation Research Circular Number 386, titled, 
``Innovative Contracting Practices,'' dated December 1991. In response, 
FHWA initiated SEP-14 pursuant to the authority granted to the 
Secretary, which now is codified at 23 U.S.C. 502(b)(2). Under SEP-14, 
FHWA has the flexibility to experiment with innovative approaches to 
contracting. FHWA continues to use this program to test and evaluate 
experimental contracting practices.

Interpretation of Competition Mandate

    DOT has historically prohibited recipients and subrecipients from 

[[Page 27669]]

certain contracting provisions that do not directly relate to the 
bidder's performance of work in a competent and responsible manner. In 
August 2013, at DOT's request, the U.S. Department of Justice, Office 
of Legal Counsel (OLC) issued a memorandum opinion interpreting 23 
U.S.C. 112. See Competitive Bidding Requirements Under the Federal-Aid 
Highway Program, 37 Op. OLC 33 (2013) (``2013 OLC opinion''). The 2013 
OLC opinion is available at http://www.justice.gov/olc/opinions. The 
2013 OLC opinion clarified that section 112 does not compel DOT's 
historic position with respect to contracting requirements that do not 
directly relate to the bidder's performance of work. Rather OLC 
concluded that section 112 provides the Secretary with discretion to 
permit other types of State or local requirements if they do not 
``unduly limit competition.'' OLC explained that FHWA may reasonably 
determine that a State or local contracting provision does not unduly 
limit competition under Section 112 even if it may have the incidental 
effect of reducing the number of eligible bidders if it imposes 
reasonable requirements related to performance of the necessary work. 
OLC opinion, at 35.
    Thus, DOT has discretion under 23 U.S.C. 112 to evaluate whether a 
State or local law or policy is compatible with the competitive bidding 
requirement under the statute. The process used to evaluate whether 
State and local requirements satisfy section 112's requirements is a 
matter of Agency discretion. OLC opinion, at 54.

Prior Contracting Initiative Pilot Program

    On March 6, 2015, DOT published a notice in the Federal Register 
(March 6, 2015 Notice) announcing a pilot program allowing FHWA and FTA 
to permit recipients and subrecipients to utilize various contracting 
requirements that generally have been disallowed due to concerns about 
adverse impacts on competition. 80 FR 12257. The initiative was to be 
carried out as a pilot program for a period of 1 year using the 
experimental authorities of the respective agencies. The DOT stated it 
was interested in contracts that utilize a local or other geographic 
labor hiring preferences, economic-based labor hiring preferences 
(i.e., low-income workers), and labor hiring preferences for veterans. 
Id., at 12258. The purpose of this pilot program was to determine 
whether the use of such requirements ``unduly limit competition,'' as 
provided in the 2013 OLC opinion.
    The DOT extended the pilot program on March 17, 2016 (81 FR 14524) 
and January 18, 2017 (82 FR 5645). With the extension notices, DOT also 
amended the pilot program by adding certifications from participants as 
required in the 2016 and 2017 DOT Appropriations Acts. See Public Law 
114-113, Dec. 18, 2015, 129 Stat 2242, at Sec. 192; and Public Law 115-
31, May 5, 2017, 131 Stat 135, at Sec. 191.
    On October 6, 2017, DOT published a notice in the Federal Register 
(2017 Notice) rescinding the pilot program announced in the March 6, 
2015 Notice as well as a related FHWA and U.S. Department of Housing 
and Urban Development (HUD) Livability Local Hire Initiative. See 82 FR 
46716. The 2017 notice also announced the withdrawal of a related 
Notice of Proposed Rulemaking (NPRM) published on March 6, 2015 (80 FR 
    During the two and a half years the Local Labor Hire Pilot Program 
(LLHPP) was in effect, FHWA approved SEP-14 workplans from 11 State and 
local agencies, encompassing 18 construction projects. Participants in 
the LLHPP committed to evaluating and reporting on the effects of the 
relevant contracting requirements on competitive bidding, effectiveness 
and efficiency of Federal funds, and integrity of the competitive 
bidding process. However, only half the participants provided reports 
to FHWA prior to program termination. From those reports, FHWA was 
unable to draw conclusions about the impacts of the local contracting 
requirements on these criteria.
    In the LLHPP workplans submitted to FHWA, agencies proposed a range 
of local contracting requirements. In 11 projects, the agencies 
mandated the use of local labor, or making good faith efforts to do so, 
and in 3 of these cases agencies offered an hourly payment to the 
contractor for local labor hours. In the other seven projects, agencies 
offered financial incentives to the contractor rather than mandating 
local hiring. Half of the projects applied local contracting goals on 
the total number of contract labor hours, while the other half applied 
the requirements or goals only to newly hired employees. Goals or 
thresholds set by the agencies varied by whether the target was based 
on total contract labor hours (ranging from 10% to 20%) or based on new 
hiring (ranging from 20% to 75%). Agencies proposed hourly payments to 
contractors ranging from $3.50 to $20.00 per local labor hour, with 
total incentive not to exceed amounts ranging between $15,000 and 
$500,000, depending on project size.
    At the time the LLHPP was rescinded, FHWA had received information 
from 5 of the 18 pilot projects about the impacts of the local-hiring 
contracting requirements on workforce outcomes. On four of the 
projects, agencies reported the number of local hires made by 
contractors were zero, two, six, and nine, respectively. In addition, 
one agency reported the impact as a percentage, reporting 17.4 percent 
of total contract labor hours were by local residents at the time of 
the report. In each of these cases, the outcomes reported to FHWA 
appeared to fall short of the numeric project goals. However, other 
benefits were realized from these collaborative efforts. For example, 
on Colorado's Central 70 project, a total of 156 employees were placed 
or received services through the employment platform created by the 
project partners.
    In another case, based on a recently submitted report from 
Minnesota DOT (MnDOT), contractors reported the geographic and 
economic-based incentives on their projects improved job opportunities 
for local residents. However, one of the contractor participants 
cautioned that the MnDOT program could incentivize hiring for a single 
job and promote short-term work opportunities rather than a career. 
MnDOT concluded that planning, communication, marketing, education, and 
training are all critical for program success.
    The reports FHWA received emphasized the importance of planning and 
coordination between project sponsor and stakeholders, such as 
workforce development agencies, pre-apprenticeship and registered 
apprenticeship programs, construction contractors, contractor 
associations, trade unions, community outreach groups, and others to 
achieve buy-in, participation, and success at meeting project goals.
    In addition, sponsors identified best practices and challenges in 
project selection. Some sponsors found that goals on smaller contracts 
and subcontracts offered limited hiring opportunities due to the short 
duration of work. Two sponsors mentioned challenges union contractors 
faced meeting local hiring goals due to their inability to select 
workers based on the workers' residency. One sponsor found they needed 
to revise the geographic scope of their targeted area to ensure that a 
sufficient pool of workers would be available to meet their goal.
    Based on this experience, FHWA is interested in additional data and 
information to assess the use of such requirements on job and workforce 
development opportunities that build

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sustainable, long-term career success for target populations, and to 
assess potential impacts on competition and project delivery. In 
addition, while some States may be reluctant to incorporate geographic-
based local preferences, many States may be interested in proposing 
other innovative methods to promote workforce development 

Current Pilot Program

    FHWA is interested in permitting State and local recipients of FHWA 
financial assistance to utilize geographic, economic, or other hiring 
preferences or innovative contracting approaches not otherwise 
authorized by law that have the potential to enhance workforce 
development opportunities in the transportation construction industry.
    FHWA's objective is to assess how such hiring preferences or 
innovative contracting approaches are used to support job opportunities 
and workforce development for those who may otherwise have significant 
barriers to entry while also assessing how the preferences or 
contracting approaches may affect competition and project delivery. 
Assessing impacts on competition may include assessing whether the 
hiring preferences or contracting approaches promote efficiency in 
connection with the letting of a particular contract, further the 
efficient and effective use of Federal funds in the long run, or 
protect the integrity of the competitive bidding process. FHWA is 
interested in obtaining this data and information for potential long-
term use of contracting requirements under this initiative.
    Examples of hiring preferences that may be utilized under this 
pilot program include local or other geographic labor hiring 
preferences, economic-based labor hiring preferences (e.g., for low-
income workers or economically disadvantaged communities), and other 
labor hiring preferences. Hiring preferences or contracting approaches 
may work in coordination with existing authorities designed to enhance 
workforce development, such as 23 U.S.C. 114(d) (requiring recipients, 
to the extent practicable, to encourage contractors to make a best 
faith effort to hire veterans on Federal-aid highway projects), 23 
U.S.C. 140(d) (authorizing States to implement a preference for 
employment of Indians on projects near Indian reservations), and FHWA 
OJT programs that focus on the recruitment of minorities, women, and 
other disadvantaged groups. See 23 CFR 230.107, 230.111, and 230.113. 
Appropriations Act certifications, as discussed above, preclude FHWA 
from approving projects with requirements that would cause a contractor 
to displace its existing employees to satisfy the local contracting 
    FHWA will not approve projects for which recipients wish to alter 
the requirements of the State's approved Disadvantaged Business 
Enterprise (DBE) Program or in any way require DBE firms to have any 
specific geographic location. In addition, we note that even though 
hiring preferences may be utilized under this pilot program, State and 
local contracting agencies are responsible for ensuring that the 
establishment and implementation of its hiring preference is otherwise 
consistent with applicable Federal, State, and local laws.
    This pilot program will be carried out for a period of 4 years from 
the date of publication of this notice. As such, FHWA is only 
interested in contracts that will be advertised during this time frame. 
Requests to participate in this pilot program should be made no more 
than 12 months prior to advertisement for bids.
    Based upon receiving timely reports from participants, FHWA will 
monitor and evaluate whether hiring preferences or innovative 
contracting approaches positively impact workforce development and 
employment opportunities. FHWA will also assess what impact the 
requirements may have on competition and project delivery. While FHWA's 
current plan is to conduct this pilot program for 4 years, FHWA may 
extend or terminate this period at its discretion.

Pilot Program Requests

    For contracts to be funded by FHWA, State and local recipients and 
subrecipients must request prior approval from FHWA to use a specific 
contracting requirement under SEP-14. To receive SEP-14 approval, 
States and local recipients and subrecipients would follow the normal 
process that includes submitting work plans to the appropriate FHWA 
Division Office. For more information on the SEP-14 process, please 
see: http://www.fhwa.dot.gov/programadmin/contracts/sep_a.cfm.
    In developing requests to FHWA to use contracting requirements 
under SEP-14, recipients and subrecipients should address certain 
project specific factors that will help FHWA evaluate the use of the 
particular hiring preference for the proposed project. These factors 
include, but are not limited to, the following:
    (1) Describe the project(s), including the amount of FHWA funding 
involved as well as the estimated total cost of the project(s).
    (2) Describe the hiring preference or innovative contracting 
approach not otherwise authorized by law. For example, is the 
requirement an incentive or mandatory? Does it apply to all labor on 
the project, or only to new hires, and how will the preference comply 
with the certifications required by Section 199B of the FY 2021 
Consolidated Appropriations Act? Does it apply to subcontractors? What 
is the estimated cost of applying the requirement?
    (3) Describe how the project will or will not work as part of the 
recipient's or subrecipient's current FHWA-approved OJT Program, if 
    (4) Describe how the hiring preferences or innovative contracting 
approaches will impact workforce development and employment 
opportunities, and how this will be monitored and evaluated. Include 
one or more numeric goals of success, and describe what data will be 
collected to measure performance in achieving the goal(s).
    (5) Describe how they will evaluate the effects of relevant 
contracting requirements on competition and project delivery. In doing 
so, the recipient or subrecipient should, at a minimum, explain how it 
will provide comparisons of bids and unit prices received for the 
projects utilizing the relevant contract requirements to other projects 
of similar size and scope and in the same geographic area not utilizing 
such requirements. Also explain the potential offsetting benefits 
resulting from the use of the requirement, which may be relevant if a 
reduction in the pool of bidders or an increase in unit prices becomes 
    (6) Describe and quantify how the experimental contracting 
technique would promote the efficient and effective use of Federal 
funds in connection with the particular contract, when considered over 
the long-term for that agency's program, or by serving to protect the 
integrity of the competitive bidding process.
    (7) Describe how recipients and subrecipients will evaluate the 
effects of relevant contracting requirements on participation by DBE 
contractors and subcontractors (for example, evaluating whether DBE 
project goals were attained and whether the requirements acted as a 
barrier to DBE firms based on the composition of DBE firms' workforce).
    (8) Describe whether the proposed contracting requirement has been 
the subject of litigation or whether litigation surrounding the use of 
the requirement has been threatened.

[[Page 27671]]

    (9) Provide the required certifications from Section 199B of the 
Consolidated Appropriations Act, 2021, Public Law 116-260.
    FHWA requests previous SEP-14 LLHPP participants that intend to 
participate in this program conduct the evaluations and complete the 
reporting for earlier projects they committed to do in their previously 
approved SEP-14 LLHPP workplan.
    For contracts involving the use of local and other preferences as 
described above, FHWA may approve, at the request of the recipient or 
subrecipient, the use of such requirements for a specific contract, a 
specific group of contracts, or on a more general programmatic basis.

    Authority:  23 U.S.C. 502(b); Section 199B of the Consolidated 
Appropriation Act, 2021.

    Issued in Washington, DC, on May 18, 2021.
Thomas D. Everett,
Executive Director, Federal Highway Administration.
[FR Doc. 2021-10785 Filed 5-20-21; 8:45 am]