[Federal Register Volume 77, Number 171 (Tuesday, September 4, 2012)]
[Proposed Rules]
[Pages 53802-53814]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21520]


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DEPARTMENT OF TRANSPORTATION

Federal Highway Administration

23 CFR Part 172

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


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

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

ACTION: Notice of proposed rulemaking (NPRM); request for comments.

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SUMMARY: The FHWA proposes to update the regulations governing the 
procurement, management, and administration of engineering and design 
related services directly related to a highway construction project and 
reimbursed with Federal-aid highway program (FAHP) funding. The intent 
is to make the regulations consistent with prior changes in legislation 
and other applicable regulations. These revisions also address certain 
findings and recommendations for the oversight of consultant services 
contained in national review and audit reports.

DATES: Comments must be received on or before November 5, 2012. Late 
comments will be considered to the extent practicable.

ADDRESSES: Mail or hand deliver comments to the U.S. Department of 
Transportation, Dockets Management Facility, Room W12-140, 1200 New 
Jersey Avenue SE., Washington, DC 20590, or submit electronically at 
http://www.regulations.gov or fax comments to (202) 493-2251. All 
comments should include the docket number that appears in the heading 
of this document. All comments received will be available for 
examination and copying at the above address from 9 a.m. to 5 p.m., 
e.t., Monday through Friday, except Federal holidays. Those desiring 
notification of receipt of comments must include a self-addressed, 
stamped postcard or you may print the acknowledgment page that appears 
after submitting comments electronically. You may review DOT's complete 
Privacy Act Statement in the Federal Register published on April 11, 
2000 (Volume 65, Number 70, Page 19477-78), or you may visit http://dms.dot.gov.

FOR FURTHER INFORMATION CONTACT: Mr. Jon Obenberger, Preconstruction 
Team Leader, FHWA Office of Program Administration, (202) 366-2221, or 
via email at jon.obenberger@dot.gov, or Mr. Steven Rochlis, Attorney 
Advisor, FHWA Office of the Chief Counsel, (202) 366-1395, or via email 
at steve.rochlis@dot.gov. Office hours for the FHWA are from 8 a.m. to 
4:30 p.m., e.t., Monday through Friday, except Federal holidays.

SUPPLEMENTARY INFORMATION:

Electronic Access and Filing

    This document 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, 366 days this year. Please 
follow the instructions. Electronic submission and retrieval help and 
guidelines are available under the help section of the Web site.
    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 Printing Office's 
Web page at: http://www.gpo.gov/fdsys.

Background

    The FHWA proposes to modify existing regulations for the 
administration of engineering and design related service contracts to 
ensure consistency and compliance with prior changes in authorizing

[[Page 53803]]

legislation codified in 23 U.S.C. 112(b)(2) and changes in other 
applicable Federal regulations. Proposed revisions will also address 
certain findings contained in a 2008 U.S. Government Accountability 
Office (GAO) review report (http://www.gao.gov/products/GAO-08-198) 
regarding increased reliance on consulting firms by State 
transportation agencies (STAs) and a 2009 DOT Office of Inspector 
General (OIG) audit report (http://www.oig.dot.gov/library-item/4710) 
regarding oversight of engineering consulting firms' indirect costs 
claimed on Federal-aid grants. This rulemaking does not otherwise 
impose any new burdens on States, local public agencies, or other 
grantees and subgrantees.
    The primary authority for the procurement, management, and 
administration of engineering and design related services directly 
related to a highway construction project and reimbursed with FAHP 
funding is codified in 23 U.S.C. 112(b)(2). On November 30, 2005, the 
Transportation, Treasury, Housing and Urban Development, the Judiciary, 
the District of Columbia, and Independent Agencies Appropriations Act, 
2006 (Pub. L. 109-115, 119 Stat. 2396, HR 3058), commonly referred to 
as the ``2006 Appropriations Act,'' was signed into law. Section 174 of 
this Act amended 23 U.S.C. 112(b)(2) by removing the provisions that 
permitted States to use ``alternative'' or ``equivalent'' State 
qualifications-based selection procedures and other procedures for 
acceptance and application of consultant indirect cost rates that were 
enacted into State law prior to June 9, 1998.
    Effective on the date of enactment of the ``2006 Appropriations 
Act,'' States and local public agencies could no longer use alternative 
or equivalent procedures. States and local public agencies are required 
to procure engineering and design related services in accordance with 
the qualifications-based selection procedures prescribed in the Brooks 
Act (40 U.S.C. 1101 et seq.) and to accept and apply consultant 
indirect cost rates established by a cognizant Federal or State agency 
in accordance with the Federal Acquisition Regulation (FAR) cost 
principles (48 CFR part 31). To comply with the amendments to 23 U.S.C. 
112(b)(2), this proposed rulemaking will remove all references to 
alternative or equivalent procedures.
    In addition, the Civilian Agency Acquisition Council and the 
Defense Acquisition Regulations Council published a final rule in the 
Federal Register of August 30, 2010 (75 FR 53129), and effective on 
October 1, 2010, raising the Federal simplified acquisition threshold 
established in 48 CFR 2.101 of the FAR from $100,000 to $150,000 to 
account for inflation using the Consumer Price Index as required in 
statute. The FHWA proposes to revise the small purchase procedures 
section to reflect this increase in the Federal threshold.
    The proposed revisions will also address certain findings and 
recommendations contained in the aforementioned GAO review and OIG 
audit reports, clarify existing requirements to enhance consistency and 
compliance with Federal laws and regulations, and address evolutions in 
industry practices regarding the procurement, management, and 
administration of consultant services.
    Specific proposed revisions are described in the section-by-section 
analysis below.

Section-by-Section Discussion of the Proposals

    The FHWA proposes to revise 23 CFR part 172--Administration of 
Engineering and Design Related Service Contracts as follows:

Title--Administration of Engineering and Design Related Services 
Contracts

    The title of this part would be changed to Procurement, Management, 
and Administration of Engineering and Design Related Services to 
reflect the range of requirements and Federal interests associated with 
the procurement, management, and administration of engineering and 
design related services addressed within this part.

Section 172.1--Purpose and Applicability

    Section 172.1 would be amended to clarify the applicability of the 
requirements of this part for the procurement, management, and 
administration of engineering and design related services and the 
requirements of the common grant rule (49 CFR part 18) for procurement 
of these and other consultant services reimbursed with FAHP funding.

Section 172.3--Definitions

    Section 172.3 would be amended to clarify the definitions of 
``audit'' and ``cognizant agency'' to provide consistency with the FAR 
cost principles (48 CFR part 31) and with industry guidance established 
in the American Association of State Highway and Transportation 
Officials (AASHTO) Uniform Audit and Accounting Guide, 2010 Edition 
(http://audit.transportation.org/Documents/2010_Uniform_Audit_and_Accounting_Guide.pdf). The definition of ``competitive negotiation'' 
would be amended to remove references to State alternative or 
equivalent procedures prohibited by sec. 174 of the ``2006 
Appropriations Act.'' The definitions of ``contracting agencies'' and 
``one-year applicable accounting period'' would be amended to provide 
consistency with other terminology of this part. The definition of 
``engineering and design related services'' would be amended to also 
include professional services of an architectural or engineering nature 
as defined by State law, consistent with the Brooks Act and common 
grant rule requirements. Definitions would be added for the terms 
``contract,'' ``contract modification,'' ``Federal cost principles,'' 
``fixed fee,'' ``scope of work,'' and ``State transportation agency 
(STA)'' to clarify the meaning of each within the context of the 
regulation. A definition would also be added for ``management role'' to 
clarify the types of services and roles performed by consultants that 
require FHWA or direct grantee approval.

Section 172.5--Methods of Procurement

    This section would be redesignated as sec. 172.7 and revised. The 
title would be changed to Procurement Methods and Procedures, to 
reflect the proposed content which would address not only methods of 
procurement, but also the procurement requirements associated with 
these methods.
    The title of paragraph (a) would be changed from procurement to 
procurement methods, and would be revised to specify the three 
currently allowable procurement methods: Competitive negotiation 
(qualifications-based selection), small purchases, and noncompetitive. 
The provisions of subparagraph (a)(1) would be amended to remove 
references to State alternative or equivalent procedures prohibited by 
sec. 174 of the ``2006 Appropriations Act.'' Additional provisions 
would be added to clarify the requirements and expectations for 
solicitation; request for proposal; evaluation factors; evaluation, 
ranking, and selection; and negotiation to ensure consistency and 
compliance with the provisions of the Brooks Act as required by 23 
U.S.C. 112(b)(2)(A).
    Subparagraph (a)(2) would be amended to clarify the requirements 
for use of small purchase procedures and reflect the increase in the 
Federal simplified acquisition threshold from $100,000 to $150,000 (as 
specified in the final rule published in the Federal Register of August 
30, 2010 (75 FR 53129)). Additional revisions would

[[Page 53804]]

define the negotiation requirements for small purchase procedures and 
clarify the limitations on participation of FAHP funding in contract 
costs exceeding the established small purchase threshold.
    The provisions of subparagraph (a)(3) would be amended to define 
contract negotiation requirements for noncompetitive procurement 
procedures and to remove references to State alternative or equivalent 
procedures prohibited by sec. 174 of the ``2006 Appropriations Act.''
    Subparagraph (a)(4) would be removed, as State alternative or 
equivalent procedures are now prohibited.
    Paragraph (b) would be redesignated as sec. 172.7(b)(2) and revised 
to clarify the methods contracting agencies may use to achieve 
Disadvantaged Business Enterprise (DBE) participation on engineering 
and design related services contracts in accordance with the 
requirements of 49 CFR part 26 and the agency's DBE program approved by 
FHWA.
    Paragraph (b) of the redesignated sec. 172.7 would be amended to 
reference and clarify the applicability of various title 23 and 49 
procurement related requirements, including the common grant rule 
procurement provisions, verification of suspension and debarment 
actions, and prevention of conflicts of interest. A requirement to 
develop a written code of conduct governing the performance of 
contracting agency employees and consultants is proposed to be included 
within contracting agency written policies, procedures, and contract 
documents to ensure consistency with the conflict of interest 
requirements specified in 23 CFR 1.33 and the common grant rule.
    Information in paragraph (c) of the existing sec. 172.5 would be 
transferred to paragraph (b) of a new sec. 172.9 titled Contracts and 
Administration. The proposed sec. 172.9(b) would clarify the permitted 
and prohibited methods of payment and requirements associated with the 
use of lump sum and cost reimbursement contract payment methods, 
consistent with FAR requirements and industry guidance established in 
the AASHTO Guide for Consultant Contracting, 2008 Edition.

Section 172.7--Audits

    This section would be redesignated as sec. 172.11 and revised. The 
title of this section would be changed to Allowable Costs and 
Oversight, and would address requirements for the allowability of 
contract cost and for providing assurance of compliance with the 
Federal cost principles.
    Paragraph (a) of the proposed sec. 172.11 would clarify consultant 
requirements for accounting for costs, maintaining adequate records, 
and applying the FAR cost principles to determine the allowability of 
costs.
    Paragraph (b) of the proposed sec. 172.11 would clarify the 
requirements for the allowability, acceptance, and application of 
elements of contract cost in accordance with the common grant rule, FAR 
cost principles, and requirements of 23 U.S.C. 112(b)(2). Subparagraph 
(b)(1) of the proposed sec. 172.11 would clarify requirements regarding 
cognizance, acceptance, and application of consultant indirect cost 
rates consistent with applicable Federal requirements and industry 
guidance established in the AASHTO Uniform Audit and Accounting Guide, 
2010 Edition. Indirect cost rate requirements are proposed to include 
subconsultant rates since the Federal cost principles also apply to 
subconsultant costs, the qualifications of subconsultants are 
considered under a qualifications-based selection, and subconsultants 
may perform a significant portion of the contracted services. 
Subparagraph (b)(1)(iii) would clarify the requirement for STAs or 
other direct grantees to perform an evaluation of a consultant's or 
subconsultant's indirect cost rate prior to acceptance and application 
of the rate to a contract when the rate has not been established by a 
cognizant agency. This subparagraph would permit STAs and other direct 
grantees to follow a risk-based oversight process for the evaluation 
performed to provide assurance of indirect cost rate compliance with 
the FAR cost principles, as described in proposed subparagraph (c)(2).
    Information from paragraphs (b) and (c) of the existing sec. 172.7 
would be transferred to subparagraph (b)(1) of the proposed sec. 172.11 
and revised to remove references to other State procedures prohibited 
by sec. 174 of the ``2006 Appropriations Act.'' Subparagraph (b)(2) of 
the proposed sec. 172.11 would clarify requirements for establishment 
of consultant direct salary or wage rates on contracts to ensure 
compliance with qualifications-based selection procurement requirements 
and the reasonableness provisions of the FAR cost principles. 
Subparagraph (b)(3) of the proposed sec. 172.11 would clarify 
requirements for the determination of fixed fees or profit in 
accordance with qualifications-based selection procurement requirements 
and industry practices. Subparagraph (b)(4) of the proposed sec. 172.11 
would clarify the requirements for determining the allowability of 
other direct contract costs in accordance with the Federal cost 
principles.
    Paragraph (c) of the proposed sec. 172.11 would clarify the 
responsibilities for contracting agencies to provide assurance of 
consultant cost compliance with the FAR cost principles. Subparagraph 
(c)(2) would permit STAs and other direct grantees written procedures 
to incorporate a risk-based oversight process for providing assurance 
of consultant cost compliance with the Federal cost principles on 
contracts administered by the grantee or its subgrantees. This 
oversight process would consist of risk assessment, mitigation, and 
evaluation procedures in support of the STA or other direct grantee 
effectively allocating resources to provide reasonable assurance of 
consultant compliance with the FAR cost principles.
    Information in paragraph (a) of the existing sec. 172.7, 
performance of audits, would be transferred to subparagraph (c)(2) of 
sec. 172.11 and revised to remove references to other State procedures 
prohibited by sec. 174 of the ``2006 Appropriations Act.'' Audits 
performed in accordance with generally accepted government audit 
standards to test compliance with the FAR cost principles would be 
listed as an evaluation procedure under an established risk-based 
oversight process.
    Subparagraph (c)(3) of the proposed sec. 172.11 would require 
consultants to certify to the contracting agency that costs included 
within proposals to establish indirect cost rates are allowable in 
accordance with the FAR cost principles prior to contracting agency 
acceptance of the indirect cost rates for application to contracts. 
Implementation of this cost certification requirement was a 
recommendation in the aforementioned 2009 OIG Audit Report, and is 
based on FHWA Order 4470.1A, FHWA Policy for Contractor Certification 
of Costs in Accordance with FAR to Establish Indirect Cost Rates on 
Engineering and Design related Services Contracts (http://www.fhwa.dot.gov/legsregs/directives/orders/44701a.htm).
    Subparagraph (c)(4) of the proposed sec. 172.11 would require 
contracting agencies to pursue administrative, contractual, or legal 
remedies as may be appropriate when consultants knowingly charge 
unallowable costs to a FAHP funded contract.
    Paragraph (d) of the existing sec. 172.7 would be redesignated as 
sec. 172.11(d) and revised to ensure consistency of terminology within 
the regulation.

[[Page 53805]]

Section 172.9--Approvals

    Information in this section would be transferred to a new sec. 
172.5, Program Management and Oversight, a redesignated sec. 172.7, 
Procurement Methods and Procedures, and a new sec. 172.9, Contracts and 
Administration, and revised for clarification to ensure consistency 
with applicable Federal laws and regulations.
    Paragraph (a) of the existing sec. 172.9 would be redesignated as 
sec. 172.5(c) and revised to clarify the requirements for contracting 
agency written procedures to ensure compliance with existing Federal 
statutes and regulations. A new paragraph (a) of sec. 172.5 would 
clarify STA or other direct grantee responsibilities for management of 
consultant services programs and oversight of subgrantees. A new 
paragraph (b) of sec. 172.5 would clarify program level 
responsibilities of subgrantees. A new paragraph (d) of sec. 172.5 
would clarify a contracting agency's ability to adopt direct Federal 
Government or other contracting procedures and requirements which are 
not in conflict with laws and regulations applicable to the FAHP. 
Paragraph (e) of sec. 172.5 proposes a 12-month period from the 
effective date of a final rule for contracting agencies to issue or 
update current written procedures for review and approval by the 
appropriate oversight agency.
    Information in subparagraph (a)(5) of the existing sec. 172.9 would 
be expanded under a new paragraph (d) of a proposed sec. 172.9 titled 
Contracts and Administration. This new paragraph (d) would clarify 
requirements for consultant monitoring and oversight which include 
providing a qualified, full-time, public employee of the contracting 
agency in responsible charge of each contract to ensure compliance with 
the requirements of 23 U.S.C. 302(a) and evaluating a consultant's 
performance on a contract.
    Paragraph (a) of the proposed sec. 172.9, Contracts and 
Administration, would define the various contract types and clarify the 
requirements associated with the use of on-call or indefinite delivery/
indefinite quantity contracts in a manner that is consistent with 
Federal laws and regulations.
    Paragraph (c) of the proposed sec. 172.9 would clarify the 
provisions required to be incorporated into engineering and design 
related services contracts when FAHP funding is used to ensure 
consistency and compliance with applicable Federal laws and 
regulations.
    Paragraph (e) of the proposed sec. 172.9 would clarify the 
requirements associated with contract modifications to ensure 
modifications are warranted, properly scoped, and in compliance with 
applicable Federal procurement requirements.
    Paragraph (b) of the existing sec. 172.9 would be redesignated as 
paragraph (f) of the proposed sec. 172.9. Paragraph (c) of the existing 
sec. 172.9 would be removed since the oversight and approval 
responsibility of contracts for major projects, as specified in 23 
U.S.C. 106(h), should be defined within the stewardship and oversight 
agreements that are established between individual STAs and respective 
FHWA division offices.
    Paragraph (d) of the existing sec. 172.9 would be redesignated as 
sec. 172.7(b)(5) and revised to clarify contracting agency 
responsibilities associated with participation of FAHP funding for 
consultants performing services in a management role. These revisions 
would ensure compliance with applicable Federal requirements regarding 
oversight, procurement, conflicts of interest, and cost allowability.
    For ease of reference, the following distribution table is 
provided:

------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
172.1.....................................  172.1 Revised.
172.3.....................................  172.3 Revised.
Audit.....................................  Revised.
Cognizant agency..........................  Revised.
Competitive negotiation...................  Revised.
Contract..................................  Added.
Contracting agencies......................  Revised.
Contract modification.....................  Added.
Engineering and design related services...  Revised.
Federal cost principles...................  Added.
Fixed fee.................................  Added.
Management role...........................  Added.
One-year applicable accounting period.....  Revised.
Scope of work.............................  Added.
State transportation agency...............  Added.
172.5(a)..................................  172.7(a) Revised.
172.5(a)(1)...............................  172.7(a)(1) Revised.
172.5(a)(2)...............................  172.7(a)(2) Revised.
172.5(a)(3)...............................  172.7(a)(3) Revised.
172.5(a)(4)...............................  Removed.
None......................................  172.7(b) Added.
172.5(b)..................................  172.7(b)(2) Revised.
None......................................  172.9(a) Added.
172.5(c)..................................  172.9(b)
None......................................  172.9(c), (d), and (e)
                                             Added.
None......................................  172.11(a), (b), and (c)
                                             Added.
172.7(a)..................................  172.11(c)(2) Revised.
172.7(b)..................................  172.11(b)(1) Revised.
172.7(c)..................................  172.11(b)(1) Revised.
172.7(d)..................................  172.11(d) Revised.
None......................................  172.5(a) and (b) Added.
172.9(a)..................................  172.5(c) Revised.
172.9(a)(5)...............................  172.5(c)(11), (12), and
                                             172.9(d) Revised.
None......................................  172.5(d) and (e) Added.
172.9(b)..................................  172.9(f) Revised.
172.9(c)..................................  Removed.
172.9(d)..................................  172.7(b)(5) Revised.
------------------------------------------------------------------------

Rulemaking Analyses and Notices

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

    The FHWA has determined that this action 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 proposed amendments clarify and revise requirements for the 
procurement, management, and administration of engineering and design 
related services using FAHP funding and directly related to a 
construction project. Additionally, this action complies with the 
principles of Executive Order 13563. The proposed changes to part 172 
will provide additional clarification, guidance, and flexibility to 
stakeholders implementing these regulations. After evaluating the costs 
and benefits of these proposed amendments, the FHWA anticipates that 
the economic impact of this rulemaking would be minimal. These changes 
are 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. It is anticipated that the economic impact of this 
rulemaking will be minimal; therefore, a full regulatory evaluation is 
not necessary.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (Pub. L. 96-354, 
5 U.S.C. 60l-612), the FHWA has evaluated the effects of this proposed 
rule on small entities, such as local governments and businesses. Based 
on the evaluation, the FHWA anticipates that this action would not have 
a significant economic impact on a substantial number of small 
entities. The proposed amendments clarify and revise requirements for 
the procurement, management, and administration of engineering and 
design related services using FAHP

[[Page 53806]]

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, the FHWA believes the projected impact upon small 
entities which utilize FAHP funding for consultant engineering and 
design related services would be negligible. Therefore, I certify that 
the proposed action would not have a significant economic impact on a 
substantial number of small entities.

Unfunded Mandates Reform Act of 1995

    This NPRM would not impose unfunded mandates as defined by the 
Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4, March 22, 1995, 
109 Stat. 48). The actions proposed in this NPRM would not result in 
the expenditure by State, local, and tribal governments, in the 
aggregate, or by the private sector, of $143.1 million or more in any 
one year (2 U.S.C. 1532). Further, in compliance with the Unfunded 
Mandates Reform Act of 1995, FHWA will evaluate any regulatory action 
that might be proposed in subsequent stages of the proceeding to assess 
the effects on State, local, and Tribal governments and the private 
sector. 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 proposed action has been analyzed in accordance with the 
principles and criteria contained in Executive Order 13132, dated 
August 4, 1999, and it has been determined that this proposed action 
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 proposed 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 proposed action does not contain a 
collection of information requirement for the purpose of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501, et seq.).

National Environmental Policy Act

    The FHWA has analyzed this proposed action for the purpose of the 
National Environmental Policy Act (42 U.S.C. 4321 et seq.) and has 
determined that this action would not have any effect on the quality of 
the human and natural environment because this rule would merely 
establish the requirements for the procurement, management, and 
administration of engineering and design related services using FAHP 
funding and directly related to a construction project.

Executive Order 13175 (Tribal Consultation)

    The FHWA has analyzed this proposed action under Executive Order 
13175, dated November 6, 2000, and believes that this proposed action 
would not have substantial direct effects on one or more Indian Tribes, 
would not impose substantial direct compliance costs on Indian Tribal 
governments, and would not preempt Tribal law. This proposed rulemaking 
merely 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 proposed 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 has analyzed this proposed action under Executive Order 
13211, Actions Concerning Regulations that Significantly Affect Energy 
Supply, Distribution, or Use. We have determined that this proposed 
action would not be a significant energy action under that order 
because any action contemplated would not be likely to have a 
significant adverse effect on the supply, distribution, or use of 
energy. Therefore, the FHWA certifies that a Statement of Energy 
Effects under Executive Order 13211 is not required.

Executive Order 12630 (Taking of Private Property)

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

Executive Order 12988 (Civil Justice Reform)

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

Executive Order 13045 (Protection of Children)

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

Regulation Identification Number

    A regulation identification number (RIN) is assigned to each 
regulatory action listed in the Unified Agenda of Federal Regulations. 
The Regulatory Information Service Center publishes the Unified Agenda 
in April and October of each year. The RIN number contained in the 
heading of this document can be used to cross-reference this action 
with the Unified Agenda.

List of Subjects in 23 CFR Part 172

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

    Issued on: August 24, 2012.
Victor M. Mendez,
Administrator.
    In consideration of the foregoing, the FHWA proposes to amend part 
172 of title 23, Code of Federal Regulations, as follows:
title 23--highways
1. Revise Part 172 to read as follows:

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

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

    Authority: 23 U.S.C. 106, 112, 114(a), 302, 315, and 402; 40 
U.S.C. 1101 et seq.; 48 CFR part 31; 49 CFR 1.48(b) and part 18.

[[Page 53807]]

Sec.  172.1  Purpose and applicability.

    This part prescribes the requirements for the procurement, 
management, and administration of engineering and design related 
services under 23 U.S.C. 112 and as supplemented by the common grant 
rule (as specified in 49 CFR part 18). The requirements of the common 
grant rule shall apply except where inconsistent with the requirements 
of this part and other laws and regulations applicable to the Federal-
aid highway program (FAHP). The requirements herein apply to federally 
funded contracts for engineering and design related services for 
highway construction projects subject to the provisions of 23 U.S.C. 
112(a) and are issued to ensure that a qualified consultant is obtained 
through an equitable qualifications-based selection procurement 
process, that prescribed work is properly accomplished in a timely 
manner, and at fair and reasonable cost.
    State transportation agencies (STAs) (or other direct grantees) 
shall ensure that subgrantees comply with the requirements of this part 
and the common grant rule.
    Federally funded contracts for services not defined as engineering 
and design related, or for services not in furtherance of a highway 
construction project or activity subject to the provisions of 23 U.S.C. 
112(a), are not subject to the requirements of this part and shall be 
procured and administered under the requirements of the common grant 
rule and procedures applicable to such activities.


Sec.  172.3  Definitions.

    As used in this part:
    Audit means a formal examination, in accordance with professional 
standards, of a consultant's accounting systems, incurred cost records, 
and other cost presentations to test the reasonableness, allowability, 
and allocability of costs in accordance with the Federal cost 
principles (as specified in 48 CFR part 31).
    Cognizant agency means any agency described below that has 
performed an audit in accordance with generally accepted government 
auditing standards to test compliance with the requirements of the 
Federal cost principles (as specified in 48 CFR part 31) and issued an 
audit report of the consultant's indirect cost rate, or any described 
agency that has conducted a review of an audit report and related 
workpapers prepared by a certified public accountant and issued a 
letter of concurrence with the audited indirect cost rate(s). A 
cognizant agency may be any of the following:
    (1) Federal agency;
    (2) State transportation agency of the State where the consultant's 
accounting and financial records are located; or
    (3) State transportation agency to whom cognizance for the 
particular indirect cost rate(s) of a consulting firm has been 
delegated or transferred in writing by the State transportation agency 
identified in subparagraph (2) of this definition.
    Competitive negotiation means qualifications-based selection 
procurement procedures complying with 40 U.S.C. 1101-1104, commonly 
referred to as the Brooks Act.
    Consultant means the individual or firm providing engineering and 
design related services as a party to a contract.
    Contract means a procurement contract or agreement between a 
contracting agency and consultant under a FAHP grant or subgrant and 
includes any procurement subcontract under a contract.
    Contracting agencies means State transportation agency or a 
procuring agency of the State acting in conjunction with and at the 
direction of the State transportation agency, other direct grantees, 
and all subgrantees that are responsible for the procurement, 
management, and administration of engineering and design related 
services.
    Contract modification means an agreement modifying the terms or 
conditions of an original or existing contract.
    Engineering and design related services means:
    (1) Program management, construction management, feasibility 
studies, preliminary engineering, design engineering, surveying, 
mapping, or architectural related services with respect to a highway 
construction project subject to 23 U.S.C. 112(a) (as defined in 23 
U.S.C. 112(b)(2)(A)); and
    (2) Professional services of an architectural or engineering 
nature, as defined by State law, which are required to or may logically 
or justifiably be performed or approved by a person licensed, 
registered, or certified to provide the services (as defined in 40 
U.S.C. 1102(2)).
    Federal cost principles means the cost principles contained in 48 
CFR part 31 of the Federal Acquisition Regulations for determination of 
allowable costs of commercial, for-profit entities (as specified in 49 
CFR 18.22(b)).
    Fixed fee means a dollar amount established to cover the 
consultant's profit and business expenses not allocable to overhead.
    Management role means acting on the contracting agency's behalf, 
subject to review and oversight by agency officials, to perform 
management services such as a program or project administration role 
typically performed by the contracting agency and necessary to fulfill 
the duties imposed by title 23 U.S.C., other Federal and State laws, 
and applicable regulations.
    One-year applicable accounting period means the annual accounting 
period for which financial statements are regularly prepared by the 
consultant.
    Scope of work means all services, work activities, and actions 
required of the consultant by the obligations of the contract.
    State transportation agency (STA) means that department or agency 
maintained in conformity with 23 U.S.C. 302 and charged under State law 
with the responsibility for highway construction (as defined in 23 
U.S.C. 101); and that is authorized by the laws of the State to make 
final decisions in all matters relating to, and to enter into, all 
contracts and agreements for projects and activities to fulfill the 
duties imposed by title 23 United States Code, title 23 Code of Federal 
Regulations, and other applicable Federal laws and regulations.


Sec.  172.5  Program management and oversight.

    (a) STA responsibilities. STAs (or other direct grantees) shall 
develop and sustain organizational capacity and provide the resources 
necessary for the procurement, management, and administration of 
engineering and design related consultant services, reimbursed in whole 
or in part with FAHP funding (as specified in 23 U.S.C. 302(a)). 
Responsibilities shall include the following:
    (1) Preparing and maintaining written policies and procedures for 
the procurement, management, and administration of engineering and 
design related consultant services in accordance with paragraph (c) of 
this section;
    (2) Establishing a procedure for estimating staffing, resources, 
and costs of needed consultant services and associated agency oversight 
in support of project authorization requests submitted to FHWA for 
approval (as specified in 23 CFR 630.106);
    (3) Procuring, managing, and administering engineering and design 
related consultant services in accordance with applicable Federal and 
State laws, regulations, and approved policies and procedures (as 
specified in 23 CFR 1.9(a)); and
    (4) Administering subgrants in accordance with State laws and 
procedures (as specified in 49 CFR 18.37) and the requirements of 23 
U.S.C.

[[Page 53808]]

106(g)(4)). This shall include providing oversight of the procurement, 
management, and administration of engineering and design related 
consultant services by subgrantees to assure compliance with applicable 
Federal and State laws and regulations. Nothing in this part shall be 
taken as relieving the STA of its responsibility under laws and 
regulations applicable to the FAHP for the work performed under any 
consultant agreement or contract entered into by a subgrantee.
    (b) Subgrantee responsibilities. Subgrantees shall develop and 
sustain organizational capacity and provide the resources necessary for 
the procurement, management, and administration of engineering and 
design related consultant services, reimbursed in whole or in part with 
FAHP funding (as specified in 23 U.S.C. 106(g)(4)(A)). Responsibilities 
shall include the following:
    (1) Adopting written policies and procedures prescribed by the 
awarding STA (or other direct grantee) for the procurement, management, 
and administration of engineering and design related consultant 
services in accordance with applicable Federal and State laws and 
regulations; or when not prescribed, shall include:
    (i) Preparing and maintaining its own written policies and 
procedures in accordance with paragraph (c) of this section; or
    (ii) Submitting documentation associated with each procurement and 
subsequent contract to the awarding STA (or other direct grantee) for 
review to assess compliance with applicable Federal and State laws, 
regulations, and the requirements of this part;
    (2) Procuring, managing, and administering engineering and design 
related consultant services in accordance with applicable Federal and 
State laws, regulations, and approved policies and procedures (as 
specified in 23 CFR 1.9(a)).
    (c) Written policies and procedures. The contracting agency shall 
prepare and maintain written policies and procedures for the 
procurement, management, and administration of engineering and design 
related consultant services. The STA (or other direct grantee) written 
policies and procedures and all revisions shall be approved by the 
FHWA. Written policies and procedures prepared by subgrantees shall be 
approved by the awarding STA (or other direct grantee). Any deviations 
from approved policies and procedures shall require review by FHWA, or 
the direct grantee as appropriate, to assess compliance with applicable 
requirements. These policies and procedures shall, as appropriate for 
each method of procurement a contracting agency proposes to use, 
address the following items to assure compliance with Federal and State 
laws, regulations, and the requirements of this part:
    (1) Preparing a scope of work and evaluation factors for the 
ranking/selection of a consultant;
    (2) Soliciting proposals from prospective consultants;
    (3) Preventing, identifying, and mitigating conflicts of interest 
for employees of both the contracting agency and consultants (as 
specified in 23 CFR 1.33 and the requirements of this part).
    (4) Verifying suspension and debarment actions and eligibility of 
consultants (as specified in 49 CFR 18.35 and 2 CFR part 180);
    (5) Evaluating proposals and the ranking/selection of a consultant;
    (6) Preparing an independent agency estimate for use in negotiation 
with the selected consultant;
    (7) Selecting appropriate contract type, payment method(s), and 
terms and incorporating required contract provisions, assurances, and 
certifications in accordance with Sec.  172.9;
    (8) Negotiating a contract with the selected consultant;
    (9) Establishing elements of contract costs, accepting indirect 
cost rate(s) for application to contracts, and assuring consultant 
compliance with the Federal cost principles in accordance with Sec.  
172.11;
    (10) Assuring consultant costs billed are allowable in accordance 
with the Federal cost principles and consistent with the contract terms 
as well as the acceptability and progress of the consultant's work;
    (11) Monitoring the consultant's work and compliance with the 
terms, conditions, and specifications of the contract;
    (12) Preparing a consultant's performance evaluation when services 
are completed and using such performance data in future evaluation and 
ranking of consultant to provide similar services;
    (13) Closing-out a contract;
    (14) Retaining adequate programmatic and contract records (as 
specified in 49 CFR 18.42 and the requirements of this part);
    (15) Determining the extent to which the consultant, which is 
responsible for the professional quality, technical accuracy, and 
coordination of services, may be reasonably liable for costs resulting 
from errors and omissions in the work furnished under its contract;
    (16) Assessing administrative, contractual, or legal remedies in 
instances where consultants violate or breach contract terms and 
conditions, and providing for such sanctions and penalties as may be 
appropriate; and
    (17) Resolving disputes in the procurement, management, and 
administration of engineering and design related consultant services.
    (d) A contracting agency may formally adopt, by statute or within 
approved written policies and procedures as specified in paragraph (c) 
of this section, any direct Federal Government or other contracting 
regulation, standard, or procedure provided its application does not 
conflict with the provisions of 23 U.S.C. 112, the requirements of this 
part, and other laws and regulations applicable to the FAHP.
    (e) Notwithstanding the foregoing, a contracting agency shall have 
a reasonable period of time, not to exceed 12 months from the effective 
date of this rule unless an extension is granted for unique or 
extenuating circumstances, to issue or update current written policies 
and procedures for review and approval in accordance with paragraph (c) 
of this section and consistent with the requirements of this part.


Sec.  172.7  Procurement methods and procedures.

    (a) Procurement methods. The procurement of engineering and design 
related services funded by FAHP funds and directly related to a highway 
construction project subject to the provisions of 23 U.S.C. 112(a) 
shall be conducted in accordance with one of three methods: Competitive 
negotiation (qualifications-based selection) procurement, small 
purchase procurement for small dollar value contracts, and 
noncompetitive procurement where specific conditions exist allowing 
solicitation and negotiation to take place with a single consultant.
    (1) Competitive negotiation (qualifications-based selection). 
Except as provided in (2) and (3) below, contracting agencies shall use 
the competitive negotiation method for the procurement of engineering 
and design related services when FAHP funds are involved in the 
contract (as specified in 23 U.S.C. 112(b)(2)(A)). The solicitation, 
evaluation, ranking, selection, and negotiation shall comply with the 
qualifications-based selection procurement procedures for architectural 
and engineering services codified under 40 U.S.C. 1101-1104, commonly 
referred to as the Brooks Act. In accordance with the requirements of 
the Brooks Act, the following

[[Page 53809]]

procedures shall apply to the competitive negotiation procurement 
method:
    (i) Solicitation. The solicitation process shall be by public 
announcement, public advertisement, or any other public forum or method 
that assures qualified in-State and out-of-State consultants are given 
a fair opportunity to be considered for award of the contract. 
Procurement procedures may involve a single step process with issuance 
of a request for proposal (RFP) to all interested consultants or a 
multiphase process with issuance of a request for statements or letters 
of interest or qualifications (RFQ) whereby responding consultants are 
ranked based on qualifications and request for proposals are then 
provided to three or more of the most highly qualified consultants. 
Minimum qualifications of consultants to perform services under general 
work categories or areas of expertise may also be assessed through a 
prequalification process whereby statements of qualifications are 
submitted on an annual basis. Regardless of any process utilized for 
prequalification of consultants or for an initial assessment of a 
consultant's qualifications under an RFQ, a RFP specific to the 
project, task, or service is required for evaluation of a consultant's 
specific technical approach and qualifications.
    (ii) Request for proposal (RFP). The RFP shall provide all 
information and requirements necessary for interested consultants to 
provide a response to the RFP and compete for the solicited services. 
The RFP shall:
    (A) Provide a clear, accurate, and detailed description of the 
scope of work, technical requirements, and qualifications of 
consultants necessary for the services to be rendered. The scope of 
work should detail the purpose and description of the project, services 
to be performed, deliverables to be provided, estimated schedule for 
performance of the work, and applicable standards, specifications, and 
policies;
    (B) Identify the requirements for any discussions that may be 
conducted with three (3) or more of the most highly qualified 
consultants following submission and evaluation of proposals;
    (C) Identify evaluation factors including their relative weight of 
importance in accordance with subparagraph (a)(1)(iii) of this section;
    (D) Specify the contract type and method(s) of payment to be 
utilized in accordance with Sec.  172.9;
    (E) Identify any special provisions or contract requirements 
associated with the solicited services;
    (F) Require that submission of any requested cost proposals or 
elements of cost be in a concealed format and separate from technical/
qualifications proposals as these shall not be considered in the 
evaluation, ranking, and selection phase; and
    (G) Provide a schedule of key dates for the procurement process and 
establish a submittal deadline for responses to the RFP which provides 
sufficient time for interested consultants to receive notice, prepare, 
and submit a proposal, which except in unusual circumstances shall be 
not less than 14 days from the date of issuance of the RFP.
    (iii) Evaluation factors. (A) Criteria used for evaluation, 
ranking, and selection of consultants to perform engineering and design 
related services must assess the demonstrated competence and 
qualifications for the type of professional services solicited. These 
qualifications-based factors may include, but are not limited to, 
technical approach (e.g., project understanding, innovative concepts or 
alternatives, quality control procedures), work experience, specialized 
expertise, professional licensure, staff capabilities, workload 
capacity, and past performance.
    (B) Price shall not be used as a factor in the evaluation, ranking, 
and selection phase. All price or cost related items which include, but 
are not limited to, cost proposals, direct salaries/wage rates, 
indirect cost rates, and other direct costs are prohibited from being 
used as evaluation criteria.
    (C) In-State or local preference shall not be used as a factor in 
the evaluation, ranking, and selection phase. State licensing laws are 
not preempted by this provision and professional licensure within a 
jurisdiction may be established as a requirement which attests to the 
minimum qualifications and competence of a consultant to perform the 
solicited services.
    (D) The following nonqualifications-based evaluation criteria are 
permitted under the specified conditions and provided the combined 
total of these criteria do not exceed a nominal value of ten percent of 
the total evaluation criteria to maintain the integrity of a 
qualifications-based selection:
    (1) A local presence may be used as a nominal evaluation factor 
where appropriate. This criteria shall not be based on political or 
jurisdictional boundaries and may be applied on a project-by-project 
basis for contracts where a need has been established for a consultant 
to provide a local presence, a local presence will add value to the 
quality and efficiency of the project, and application of this criteria 
leaves an appropriate number of qualified consultants, given the nature 
and size of the project. If a consultant outside of the locality area 
indicates as part of a proposal that it will satisfy the criteria in 
some manner, such as establishing a local project office, that 
commitment shall be considered to have satisfied the local presence 
criteria.
    (2) The participation of qualified and certified Disadvantaged 
Business Enterprise (DBE) subconsultants may be used as a nominal 
evaluation criteria where appropriate in accordance with 49 CFR part 26 
and a contracting agency's FHWA-approved DBE program.
    (iv) Evaluation, ranking, and selection. (A) Consultant proposals 
shall be evaluated by the contracting agency based on the criteria 
established and published within the public solicitation.
    (B) While the contract will be with the prime consultant, proposal 
evaluations shall consider the qualifications of the prime consultant 
and any subconsultants identified within the proposal with respect to 
the scope of work and established criteria.
    (C) Following submission and evaluation of proposals, the 
contracting agency shall conduct interviews or other types of 
discussions determined appropriate for the project with at least three 
of the most highly qualified consultants to clarify the technical 
approach, qualifications, and capabilities provided in response to the 
RFP. Discussion requirements shall be specified within the RFP and 
should be based on the size and complexity of the project as defined in 
contracting agency written policies and procedures (as specified in 
Sec.  172.5(c)). Discussions may be written, by telephone, video 
conference, or by oral presentation/interview. Discussions following 
proposal submission are not required provided proposals contain 
sufficient information for evaluation of technical approach and 
qualifications to perform the specific project, task, or service with 
respect to established criteria.
    (D) From the proposal evaluation and any subsequent discussions 
which have been conducted, the contracting agency shall rank, in order 
of preference, at least three consultants determined most highly 
qualified to perform the solicited services based on the established 
and published criteria.
    (E) Notification must be provided to responding consultants of the 
final ranking of the three most highly qualified consultants.
    (F) The contracting agency shall retain acceptable documentation of 
the solicitation, proposal, evaluation, and selection of the consultant 
in

[[Page 53810]]

accordance with the provisions of 49 CFR 18.42.
    (v) Negotiation. (A) Independent estimate. Prior to receipt or 
review of the most highly qualified consultant's cost proposal, the 
contracting agency shall prepare a detailed independent estimate with 
an appropriate breakdown of the work or labor hours, types or 
classifications of labor required, other direct costs, and consultant's 
fixed fee for the defined scope of work. The independent estimate shall 
serve as the basis for negotiation and ensuring the consultant services 
are obtained at a fair and reasonable cost.
    (B) Elements of contract costs (e.g., indirect cost rates, direct 
salary or wage rates, fixed fee, and other direct costs) shall be 
established separately in accordance with Sec.  172.11.
    (C) If concealed cost proposals were submitted in conjunction with 
technical/qualifications proposals, only the cost proposal of the 
consultant with which negotiations are initiated may be considered. 
Concealed cost proposals of consultants with which negotiations are not 
initiated should be returned to the respective consultant due to the 
confidential nature of this data (as specified in 23 U.S.C. 
112(b)(2)(E)).
    (D) The contracting agency shall retain documentation of 
negotiation activities and resources used in the analysis of costs to 
establish elements of the contract in accordance with the provisions of 
49 CFR 18.42. This documentation shall include the consultant cost 
certification and documentation supporting the acceptance of the 
indirect cost rate to be applied to the contract (as specified in Sec.  
172.11(c)).
    (2) Small purchases. The small purchase method involves procurement 
of engineering and design related services where an adequate number of 
qualified sources are reviewed and the total contract costs do not 
exceed an established simplified acquisition threshold. Contracting 
agencies may use the State's small purchase procedures which reflect 
applicable State laws and regulations for the procurement of 
engineering and design related services provided the total contract 
costs do not exceed the Federal simplified acquisition threshold (as 
specified in 48 CFR 2.101). When a lower threshold for use of small 
purchase procedures is established in State law, regulation, or policy, 
the lower threshold shall apply to the use of FAHP funds. The following 
additional requirements shall apply to the small purchase procurement 
method:
    (i) The scope of work, project phases, and contract requirements 
shall not be broken down into smaller components merely to permit the 
use of small purchase procedures.
    (ii) A minimum of three consultants are required to satisfy the 
adequate number of qualified sources reviewed.
    (iii) Contract costs may be negotiated in accordance with State 
small purchase procedures; however, the allowability of costs shall be 
determined in accordance with the Federal cost principles.
    (iv) The full amount of any contract modification or amendment that 
would cause the total contract amount to exceed the established 
simplified acquisition threshold would be ineligible for Federal-aid 
funding. The FHWA may withdraw all Federal-aid from a contract if it is 
modified or amended above the applicable established simplified 
acquisition threshold.
    (3) Noncompetitive. The noncompetitive method involves procurement 
of engineering and design related services when it is not feasible to 
award the contract using competitive negotiation or small purchase 
procurement methods. The following requirements shall apply to the 
noncompetitive procurement method:
    (i) Contracting agencies may use their own noncompetitive 
procedures which reflect applicable State and local laws and 
regulations and conform to applicable Federal requirements.
    (ii) Contracting agencies shall establish a process to determine 
when noncompetitive procedures will be used and shall submit 
justification to, and receive approval from, the FHWA before using this 
form of contracting.
    (iii) Circumstances under which a contract may be awarded by 
noncompetitive procedures are limited to the following:
    (A) The service is available only from a single source;
    (B) There is an emergency which will not permit the time necessary 
to conduct competitive negotiations; or
    (C) After solicitation of a number of sources, competition is 
determined to be inadequate.
    (iv) Contract costs may be negotiated in accordance with 
contracting agency noncompetitive procedures; however, the allowability 
of costs shall be determined in accordance with the Federal cost 
principles.
    (b) Additional procurement requirements. (1) Common grant rule. (i) 
STAs (or other direct grantees) and their subgrantees must comply with 
procurement requirements established in State and local laws, 
regulations, policies, and procedures which are not addressed by or in 
conflict with applicable Federal laws and regulations (as specified in 
49 CFR 18.36).
    (ii) When State and local procurement laws, regulations, policies, 
or procedures are in conflict with applicable Federal laws and 
regulations, contracting agencies must comply with Federal requirements 
to be eligible for Federal-aid reimbursement of the associated costs of 
the services incurred following FHWA authorization (as specified in 49 
CFR 18.4).
    (2) Disadvantaged Business Enterprise (DBE) program. (i) 
Contracting agencies shall give consideration to DBE consultants in the 
procurement of engineering and design related service contracts subject 
to 23 U.S.C. 112(b)(2) in accordance with 49 CFR part 26. When DBE 
program participation goals cannot be met through race-neutral 
measures, additional DBE participation on engineering and design 
related services contracts may be achieved in accordance with a 
contracting agency's FHWA approved DBE program through either:
    (A) Use of an evaluation criterion in the qualifications-based 
selection of consultants (as specified in Sec.  172.7(a)(1)(iii)(D)); 
or
    (B) Establishment of a contract participation goal.
    (ii) The use of quotas or exclusive set-asides for DBE consultants 
is prohibited (as specified in 49 CFR 26.43).
    (3) Suspension and debarment. Contracting agencies must verify 
suspension and debarment actions and eligibility status of consultants 
and subconsultants prior to entering into an agreement or contract in 
accordance with 49 CFR 18.35 and 2 CFR part 180.
    (4) Conflicts of interest. (i) Contracting agencies shall maintain 
a written code of standards of conduct governing the performance of 
their employees engaged in the award and administration of engineering 
and design related services contracts under this part and governing the 
conduct and roles of consultants in the performance of services under 
such contracts to prevent, identify, and mitigate conflicts of interest 
in accordance with 23 CFR 1.33 and the provisions of this subparagraph.
    (ii) No employee, officer, or agent of the contracting agency shall 
participate in selection, or in the award or administration of a 
contract supported by Federal-aid funds if a conflict of interest, real 
or apparent, would be involved. Such a conflict arises when:
    (A) The employee, officer, or agent;
    (B) Any member of his or her immediate family;
    (C) His or her partner; or
    (D) An organization which employs or is about to employ, any of the 
above, has

[[Page 53811]]

a financial or other interest in the consultant selected for award.
    (iii) The contracting agency's officers, employees, or agents shall 
neither solicit nor accept gratuities, favors, or anything of monetary 
value from consultants, potential consultants, or parties to 
subagreements. Contracting agencies may establish dollar thresholds 
where the financial interest is not substantial or the gift is an 
unsolicited item of nominal value.
    (iv) Contracting agencies may provide additional prohibitions 
relative to real, apparent, or potential conflicts of interest.
    (v) To the extent permitted by State or local law or regulations, 
such standards of conduct shall provide for penalties, sanctions, or 
other disciplinary actions for violations of such standards by the 
contracting agency's officers, employees, or agents, or by consultants 
or their agents.
    (5) Consultant services in management roles. (i) When FAHP funds 
participate in the contract, the contracting agency shall receive 
approval from the FHWA, or the direct grantee as appropriate, before 
utilizing a consultant to act in a management role for the contracting 
agency, unless an alternate approval procedure has been approved. Use 
of consultants in management roles does not relieve the contracting 
agency of responsibilities associated with the use of FAHP funds (as 
specified in 23 U.S.C. 302(a) and 23 U.S.C. 106(g)(4)) and should be 
limited to large projects or circumstances where unusual cost or time 
constraints exist, unique technical or managerial expertise is 
required, and/or an increase in contracting agency staff is not a 
viable option.
    (ii) Management roles may include, but are not limited to, 
providing oversight of an element of a highway program, function, or 
service on behalf of the contracting agency or may involve managing or 
providing oversight of a project, series of projects, and/or the work 
of other consultants and contractors on behalf of the contracting 
agency. Contracting agency written policies and procedures (as 
specified in Sec.  172.5(c)) may further define allowable management 
roles and services a consultant may provide, specific approval 
responsibilities, and associated controls necessary to ensure 
compliance with Federal requirements.
    (iii) Use of consultants in management roles requires appropriate 
conflicts of interest standards as specified in subparagraph (b)(4) of 
this section and adequate contracting agency staffing to administer and 
monitor the management consultant contract (as specified in Sec.  
172.9(d)). A consultant serving in a management role shall be precluded 
from providing services on projects, activities, or contracts under its 
oversight.
    (iv) FAHP funds shall not participate in the costs of a consultant 
serving in a management role where the consultant was not procured in 
accordance with Federal and State requirements (as specified in 23 CFR 
1.9(a)).
    (v) Where benefiting more than a single Federal-aid project, 
allocability of consultant contract costs for services related to a 
management role shall be distributed consistent with the cost 
principles applicable to the contracting agency (as specified in 49 CFR 
18.22(b)).


Sec.  172.9  Contracts and administration.

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

[[Page 53812]]

requires contracting agency management and monitoring of the 
consultant's level of effort and classification of employees used to 
perform the contracted services.
    (6) Contracting agencies may withhold retainage from payments in 
accordance with prompt pay requirements (as specified in 49 CFR 26.29). 
When retainage is used, the terms and conditions of the contract must 
clearly define agency requirements, including periodic reduction in 
retention and the conditions for release of retention.
    (c) Contract provisions. Contracts must include the following 
provisions:
    (1) Administrative, contractual, or legal remedies in instances 
where consultants violate or breach contract terms and conditions, and 
provide for such sanctions and penalties as may be appropriate (all 
contracts and subcontracts);
    (2) Termination for cause and for convenience by the contracting 
agency including the manner by which it will be effected and the basis 
for settlement (all contracts and subcontracts in excess of $10,000);
    (3) Notice of contracting agency requirements and regulations 
pertaining to reporting (all contracts and subcontracts);
    (4) Contracting agency requirements and regulations pertaining to 
copyrights and rights in data (all contracts and subcontracts);
    (5) Access by grantee, the subgrantee, the FHWA, the U.S. 
Department of Transportation's Inspector General, the Comptroller 
General of the United States, or any of their duly authorized 
representatives to any books, documents, papers, and records of the 
consultant which are directly pertinent to that specific contract for 
the purpose of making audit, examination, excerpts, and transcriptions 
(all contracts and subcontracts);
    (6) Retention of all required records for not less than 3 years 
after the contracting agency makes final payment and all other pending 
matters are closed (all contracts and subcontracts);
    (7) Lobbying certification and disclosure (as specified in 49 CFR 
part 20) (all contracts and subcontracts exceeding $100,000);
    (8) Standard DOT Title VI Assurances (DOT Order 1050.2) (all 
contracts and subcontracts);
    (9) Disadvantaged Business Enterprise (DBE) assurance (as specified 
in 49 CFR 26.13(b)) (all contracts and subcontracts);
    (10) Prompt pay requirements (as specified in 49 CFR 26.29) (all 
contracts and subcontracts);
    (11) Determination of allowable costs in accordance with the 
Federal cost principles (all contracts and subcontracts);
    (12) Contracting agency requirements pertaining to consultant 
errors and omissions (all contracts and subcontracts); and
    (13) Contracting agency requirements pertaining to conflicts of 
interest (as specified in 23 CFR 1.33 and the requirements of this 
part) (all contracts and subcontracts).
    (d) Contract administration and monitoring. (1) Responsible charge. 
A full-time, public employee of the contracting agency qualified to 
ensure that the work delivered under contract is complete, accurate, 
and consistent with the terms, conditions, and specifications of the 
contract shall be in responsible charge of each contract or project. 
While an independent consultant may be procured to serve in a program 
or project management role (as specified in Sec.  172.7(b)(5)) or to 
provide technical assistance in review and acceptance of engineering 
and design related services performed and products developed by other 
consultants, a full-time, public employee must be designated by the 
contracting agency as being in responsible charge. A public employee 
may serve in responsible charge of multiple projects and contracting 
agencies may use multiple public employees to fulfill monitoring 
responsibilities. The public employee's responsibilities shall include:
    (i) Administering inherently governmental activities including, but 
not limited to, contract negotiation, contract payment, and evaluation 
of compliance, performance, and quality of services provided by 
consultant;
    (ii) Being familiar with the contract requirements, scope of 
services to be performed, and products to be produced by the 
consultant;
    (iii) Being familiar with the qualifications and responsibilities 
of the consultant's staff and evaluating any requested changes in key 
personnel;
    (iv) Scheduling and attending progress and project review meetings, 
commensurate with the magnitude, complexity, and type of work, to 
ensure the work is progressing in accordance with established scope of 
work and schedule milestones;
    (v) Assuring consultant costs billed are allowable in accordance 
with the Federal cost principles and consistent with the contract terms 
as well as the acceptability and progress of the consultant's work;
    (vi) Evaluating and participating in decisions for contract 
modifications; and
    (vii) Documenting contract monitoring activities and maintaining 
adequate contract records (as specified in 49 CFR 18.42).
    (2) Performance evaluation. The contracting agency shall prepare a 
final evaluation report of the consultant's performance on a contract. 
The report should include, but not be limited to, an evaluation of the 
timely completion of work, adherence to contract scope and budget, and 
quality of the work. The consultant shall be provided a copy of the 
report and shall be provided an opportunity to provide written comments 
to be attached to the report. Additional interim performance 
evaluations should be considered based on the scope, complexity, and 
size of the contract as a means to provide feedback, foster 
communication, and achieve desired changes or improvements. Completed 
performance evaluations should be archived for consideration as an 
element of past performance in the future evaluation of the consultant 
to provide similar services.
    (e) Contract modification. (1) Contract modifications are required 
for any amendments to the terms of the existing contract that change 
the cost of the contract; significantly change the character, scope, 
complexity, or duration of the work; or significantly change the 
conditions under which the work is required to be performed.
    (2) A contract modification shall clearly define and document the 
changes made to the contract, establish the method of payment for any 
adjustments in contract costs, and be in compliance with the terms and 
conditions of the contract and original procurement.
    (3) Contract modifications shall be negotiated following the same 
procedures as the negotiation of the original contract.
    (4) Only the type of services and work included within the scope of 
services of the original solicitation from which a qualifications-based 
selection was made may be added to a contract. Services outside of the 
scope of work established in the original request for proposal must be 
procured under a new solicitation, performed by contracting agency 
staff, or performed under a different contract established for the 
services desired.
    (5) Overruns in the costs of the work shall not automatically 
warrant an increase in the fixed fee portion of a cost plus fixed fee 
reimbursed contract. Permitted changes to the scope of work or duration 
may warrant consideration

[[Page 53813]]

for adjustment of the fixed fee portion of cost plus fixed fee or lump 
sum reimbursed contracts.
    (f) Contracts. Contracts and contract settlements involving 
engineering and design related services for projects that have not been 
assumed by the State under 23 U.S.C. 106(c), that do not fall under the 
small purchase procedures (as specified in Sec.  172.7(a)(2)), shall be 
subject to the prior approval by FHWA, unless an alternate approval 
procedure has been approved by FHWA.


Sec.  172.11  Allowable costs and oversight.

    (a) Allowable costs. (1) Costs or prices based on estimated costs 
for contracts shall be eligible for Federal-aid reimbursement only to 
the extent that costs incurred or cost estimates included in negotiated 
prices are allowable in accordance with the Federal cost principles.
    (2) Consultants shall be responsible for accounting for costs 
appropriately and for maintaining records, including supporting 
documentation, adequate to demonstrate that costs claimed have been 
incurred, are allocable to the contract, and comply with Federal cost 
principles.
    (b) Elements of contract costs. The following requirements shall 
apply to the establishment of the specified elements of contract costs:
    (1) Indirect cost rates. (i) Indirect cost rates shall be updated 
on an annual basis in accordance with the consultant's annual 
accounting period and in compliance with the Federal cost principles.
    (ii) Contracting agencies shall accept a consultant's or 
subconsultant's indirect cost rate(s) established for a 1-year 
applicable accounting period by a cognizant agency that has:
    (A) Performed an audit in accordance with generally accepted 
government auditing standards to test compliance with the requirements 
of the Federal cost principles and issued an audit report of the 
consultant's indirect cost rate(s); or
    (B) Conducted a review of an audit report and related workpapers 
prepared by a certified public accountant and issued a letter of 
concurrence with the related audited indirect cost rate(s).
    (iii) When the indirect cost rate has not been established by a 
cognizant agency in accordance with subparagraph (1)(ii) herein, a STA 
(or other direct grantee) shall perform an evaluation of a consultant's 
or subconsultant's indirect cost rate prior to acceptance and 
application of the rate to contracts administered by the grantee or its 
subgrantees. The evaluation performed by STAs (or other direct 
grantees) to establish or accept an indirect cost rate(s) shall provide 
assurance of compliance with the Federal cost principles and may 
consist of the following:
    (A) Performing an audit in accordance with generally accepted 
government auditing standards and issuing an audit report;
    (B) Reviewing and accepting an audit report and related workpapers 
prepared by a certified public accountant or another STA;
    (C) Establishing a provisional indirect cost rate for the specific 
contract and adjusting contract costs based upon an audited final rate; 
or
    (D) Conducting other evaluations in accordance with a risk-based 
oversight process as specified in subparagraph (c)(2) of this section 
and within the agency's approved written policies and procedures (as 
specified in Sec.  172.5(c)).
    (iv) A lower indirect cost rate may be accepted for use on a 
contract if submitted voluntarily by a consultant; however, the 
consultant's offer of a lower indirect cost rate shall not be a 
condition or qualification to be considered for the work or contract 
award.
    (v) Once accepted in accordance with subparagraphs (1)(ii)-(iv) 
herein, contracting agencies shall apply such indirect cost rate(s) for 
the purposes of contract estimation, negotiation, administration, 
reporting, and contract payment and the indirect cost rate(s) shall not 
be limited by administrative or de facto ceilings of any kind.
    (vi) A consultant's accepted indirect cost rate for its 1-year 
applicable accounting period shall be applied to contracts; however, 
once an indirect cost rate is established for a contract, it may be 
extended beyond the 1-year applicable period, through the duration of 
the specific contract, provided all concerned parties agree. Agreement 
to the extension of the 1-year applicable period shall not be a 
condition or qualification to be considered for the work or contract 
award.
    (vii) Disputed rates. If an indirect cost rate established by a 
cognizant agency in subparagraph (1)(ii) herein is in dispute, the 
contracting agency does not have to accept the rate. A contracting 
agency may perform its own audit or other evaluation of the 
consultant's indirect cost rate for application to the specific 
contract, until or unless the dispute is resolved. A contracting agency 
may alternatively negotiate a provisional indirect cost rate for the 
specific contract and adjust contract costs based upon an audited final 
rate. Only the consultant and the parties involved in performing the 
indirect cost audit may dispute the established indirect cost rate. If 
an error is discovered in the established indirect cost rate, the rate 
may be disputed by any prospective contracting agency.
    (2) Direct salary or wage rates. (i) Compensation for each employee 
or classification of employee must be reasonable for the work performed 
in accordance with the Federal cost principles.
    (ii) To provide for fair and reasonable compensation, considering 
the classification, experience, and responsibility of employees 
necessary to provide the desired engineering and design related 
services, contracting agencies may establish consultant direct salary 
or wage rate limitations or ``benchmarks'' based upon an objective 
assessment of the reasonableness of proposed rates performed in 
accordance with the reasonableness provisions of the Federal cost 
principles.
    (iii) When an assessment of reasonableness in accordance with the 
Federal cost principles has not been performed, contracting agencies 
shall use and apply the consultant's actual direct salary or wage rates 
for estimation, negotiation, administration, and payment of contracts 
and contract modifications.
    (3) Fixed fee. (i) The determination of the amount of fixed fee 
shall consider the scope, complexity, contract duration, degree of risk 
borne by the consultant, amount of subcontracting, and professional 
nature of the services as well as the size and type of contract.
    (ii) The establishment of fixed fee shall be project or task order 
specific.
    (iii) Fixed fees in excess of 15 percent of the total direct labor 
and indirect costs of the contract may be justified only when 
exceptional circumstances exist.
    (4) Other direct costs. The Federal cost principles shall be used 
in determining the reasonableness, allowability, and allocability of 
other direct contract costs.
    (c) Oversight. (1) Agency controls. Contracting agencies shall 
provide reasonable assurance that consultant costs on contracts 
reimbursed in whole or in part with FAHP funding are allowable in 
accordance with the Federal cost principles and consistent with the 
contract terms considering the contract type and payment method(s). 
Contracting agency written policies, procedures, contract documents, 
and other controls (as specified in Sec.  172.5(c) and Sec.  172.9) 
shall address the establishment, acceptance, and administration of 
contract costs to assure compliance with the Federal cost

[[Page 53814]]

principles and requirements of this section.
    (2) Risk-based analysis. The STAs (or other direct grantees) may 
employ a risk-based oversight process to provide reasonable assurance 
of consultant compliance with Federal cost principles on FAHP funded 
contracts administered by the grantee or its subgrantees. If employed, 
this risk-based oversight process shall be incorporated into STA (or 
other direct grantee) written policies and procedures (as specified in 
Sec.  172.5(c)). In addition to ensuring allowability of direct 
contract costs, the risk-based oversight process shall address the 
evaluation and acceptance of consultant and subconsultant indirect cost 
rates for application to contracts. A risk-based oversight process 
shall consist of the following:
    (i) Risk assessments. Conducting and documenting an annual 
assessment of risks of noncompliance with the Federal cost principles 
per consultant doing business with the agency, considering the 
following factors:
    (A) Consultant's contract volume within the State;
    (B) Number of States in which the consultant operates;
    (C) Experience of consultant with FAHP contracts;
    (D) History and professional reputation of consultant;
    (E) Audit history of consultant;
    (F) Type and complexity of consultant accounting system;
    (G) Size (number of employees and/or annual revenues) of 
consultant;
    (H) Relevant experience of certified public accountant performing 
audit of consultant;
    (I) Assessment of consultant's internal controls;
    (J) Changes in consultant organizational structure; and
    (K) Other factors as appropriate.
    (ii) Risk mitigation and evaluation procedures. Allocating 
resources, as considered necessary based on the results of the annual 
risk assessment, to provide reasonable assurance of compliance with the 
Federal cost principles through application of the following types of 
risk mitigation and evaluation procedures appropriate to the consultant 
and circumstances:
    (A) Audits performed in accordance with generally accepted 
government audit standards to test compliance with the requirements of 
the Federal cost principles;
    (B) Certified public accountant or other STA workpaper reviews;
    (C) Desk reviews;
    (D) Other analytical procedures;
    (E) Consultant cost certifications in accordance with subparagraph 
(c)(3) herein; and
    (F) Training on the Federal cost principles.
    (iii) Documentation. Maintaining adequate documentation of the 
risk-based analysis procedures performed to support the allowability 
and acceptance of consultant costs on FAHP funded contracts.
    (3) Consultant cost certification. (i) Indirect cost rate proposals 
for the consultant's 1-year applicable accounting period shall not be 
accepted and no agreement shall be made by a contracting agency to 
establish final indirect cost rates, unless the costs have been 
certified by an official of the consultant as being allowable in 
accordance with the Federal cost principles. The certification 
requirement shall apply to all indirect cost rate proposals submitted 
by prime and subconsultants for acceptance by a STA (or other direct 
grantee).
    (ii) Consultant official shall be an individual executive or 
financial officer of the consultant's organization at a level no lower 
than a Vice President or Chief Financial Officer, or equivalent, who 
has the authority to represent the financial information utilized to 
establish the indirect cost rate proposal submitted for acceptance.
    (iii) The certification of final indirect costs shall read as 
follows:

Certificate of Final Indirect Costs

    This is to certify that I have reviewed this proposal to establish 
final indirect cost rates and to the best of my knowledge and belief:
    1. All costs included in this proposal (identify proposal and date) 
to establish final indirect cost rates for (identify period covered by 
rate) are allowable in accordance with the cost principles of the 
Federal Acquisition Regulation (FAR) of title 48, Code of Federal 
Regulations (CFR), part 31; and
    2. This proposal does not include any costs which are expressly 
unallowable under applicable cost principles of the FAR of 48 CFR part 
31.

Firm:------------------------------------------------------------------
Signature:-------------------------------------------------------------
Name of Certifying Official:-------------------------------------------
Title:-----------------------------------------------------------------
Date of Execution:-----------------------------------------------------

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

[FR Doc. 2012-21520 Filed 8-31-12; 8:45 am]
BILLING CODE 4910-22-P