[Federal Register Volume 82, Number 193 (Friday, October 6, 2017)]
[Proposed Rules]
[Pages 46716-46717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-21574]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 82, No. 193 / Friday, October 6, 2017 / 
Proposed Rules

[[Page 46716]]



DEPARTMENT OF TRANSPORTATION

Office of the Secretary

2 CFR Part 1201

[Docket DOT-OST-2015-0013]
RIN 2105-AE38


Geographic-Based Hiring Preferences in Administering Federal 
Awards

AGENCY: Office of the Secretary (OST); U.S. Department of 
Transportation (DOT).

ACTION: Notice of withdrawal of proposed rulemaking and related pilot 
programs.

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SUMMARY: The Department of Transportation (the Department) is 
withdrawing a Notice of Proposed Rulemaking (NPRM) issued on March 6, 
2015, that proposed to amend its regulations implementing the 
Government-wide Uniform Administrative Requirements, Cost Principles, 
and Audit Requirements for Federal Awards to permit recipients and 
subrecipients of certain DOT funds to impose geographic-based hiring 
preferences whenever not otherwise prohibited by Federal law. The 
Department is withdrawing this NPRM because, after review of all 
comments, the Department has determined that promulgating a provision 
to allow geographic-based hiring preferences is not practicable for the 
efficient and cost-effective delivery of projects. Additionally, this 
Notice rescinds two related pilot programs: 1. Innovative Contracting 
and 2. FHWA HUD Livability Local Hire Initiative.

DATES: As of October 6, 2017, the NPRM ``Geographic-Based Hiring 
Preferences in Administering Federal Awards,'' published on March 6, 
2015 (80 FR 12092), is withdrawn. As of October 6, 2017, the 
Department's two experimental contracting pilot programs--1. Innovative 
Contracting (Local Labor Hire) (80 FR 12557), and 2. the FHWA HUD 
Livability Local Hire Initiative (75 FR 36467)--are withdrawn.

ADDRESSES: U.S. Department of Transportation, 1200 New Jersey Ave. SE., 
Washington, DC 20590, 202-366-9152.
    Electronic Access: You can view and download related documents and 
public comments by going to the Web site http://www.regulations.gov. 
Enter the docket number DOT-OST-2015-0013 in the search field.

FOR FURTHER INFORMATION CONTACT: Terence Carlson, Assistant General 
Counsel for General Law (OST-C10), U.S. Department of Transportation, 
1200 New Jersey Ave. SE., Washington, DC 20590, 202-366-9152.

SUPPLEMENTARY INFORMATION: 

Background

    On March 6, 2015, the Department published an NPRM proposing to 
amend the Department's regulations at 2 CFR part 1201 to permit 
recipients and subrecipients of certain DOT funds to impose geographic-
based hiring preferences whenever not otherwise prohibited by Federal 
law. On March 13, 2015, the American Public Transportation Association 
(APTA) filed a comment requesting that the Department extend the 
comment period for the NPRM by 30 days to May 6, 2015. The Department 
granted APTA's request on April 8, 2015 (80 FR 18784).
    Recipients and subrecipients at the local government level have 
local hiring provisions that they apply to procurements that do not 
involve Federal funding. However, the Department's regulations at 2 CFR 
part 1201, which adopted the Office of Management and Budget's (OMB) 
revised Government-wide Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal awards to non-Federal 
entities at 2 CFR part 200 (Common Rule), prohibit the use of in-State 
or local geographic-based preferences in the evaluation of bids or 
proposals except where Federal statute mandates or encourages the use 
of such preferences. This prohibition extends to the use of geographic-
based hiring preferences in contracts that are awarded by recipients 
and subrecipients with Federal financial assistance since such 
preferences could result in a competitive advantage for contractors 
based in the targeted hiring area.
    Under the NPRM, the Department proposed to amend Part 1201 by 
promulgating a provision that would have deviated from the OMB guidance 
by making clear that geographic-based hiring preferences might be used 
in certain DOT grant programs. However, the proposed deviation would 
have only applied to the extent that such geographic-based hiring 
preferences would not have otherwise been prohibited by Federal statute 
or regulation.
    Approximately 181 comments were filed in response to the NPRM. 
These comments were submitted by approximately 23 contractors, 22 
contractor trade groups, 11 rolling stock manufacturers, 4 unions, 14 
government agencies, 32 advocacy groups, 70 individuals, and 5 Federal 
and State elected officials (U.S. Senator Charles E. Schumer, U.S. 
Representative Tom Reed, Georgia State Senator Nan Orrock, California 
State Senator Connie M. Leyva, and California State Assembly Member 
Cheryl R. Brown). All of the construction and rolling stock industry 
comments were opposed to the adoption of the proposed rule, while the 
advocacy groups and unions all were in favor. The individual commenters 
were split. States and municipalities were mostly in favor of the 
proposed rule. However, the California Department of Transportation 
(Caltrans), Regional Transportation District in Denver (RTD-Denver), 
Foothill Transit, and the Capital Metropolitan Transportation Authority 
expressed concerns with the implementation of the rule. Generally, 
commenters agreed that transportation investments and policies can 
improve access to jobs, education, and goods movement, while providing 
construction and operations jobs. However, many commenters questioned 
the assertion that local and geographic-based hiring preferences led to 
such economic benefits.

Discussion of Comments

    While there were comments regarding the benefits of transportation 
investments, commenters opposed to the Department's proposed amendments 
to Part 1201 expressed concerns about the unintended consequences of 
the NPRM, including, for example, impacts on safety, competitive 
bidding, the ability to maintain a well-trained workforce, and 
increased project costs.

[[Page 46717]]

Some commenters supported the proposed amendments because, among other 
reasons, local residents would benefit from such investments. Other 
commenters explained that the NPRM did not go far enough and should 
have included other types of preferences, in addition to geographic-
based.
    The Department's proposed NPRM did not make a distinction by 
project type (e.g., transit vs. maritime project). Many commenters, 
especially in the transit arena, expressed strong opposition to the 
application of the NPRM to rolling stock procurements because of the 
potential effect on existing manufacturing plants and the capital and 
personnel investments already made in specific parts of the country.

Reason for Withdrawal

    The Department operates two experimental contracting pilot programs 
under FHWA and FTA's existing authorities: (i) Innovative Contracting 
(Local Labor Hire) (80 FR 12257) and (ii) FHWA HUD Livability Local 
Hire Initiative (75 FR 36467). The Local Labor Hire pilot is conducted 
under 23 U.S.C. 502 (i.e., FHWA's Special Experimental Project No. 14 
(SEP-14)) and 49 U.S.C. 5312, 5314 and 5325, and the FHWA HUD 
initiative is conducted under SEP-14. The Department has used these 
research authorities to advance non-traditional contracting practices 
for contracts awarded by FTA and FHWA.
    Under SEP-14 and 49 U.S.C. 5312, 5314 and 5325, the Department has 
the flexibility to experiment with innovative approaches to highway and 
transit contracting. However, the Department is discontinuing these two 
pilot programs because of minimal interest from intended participants 
and the difficulty in evaluating cost effectiveness based upon 
objective criteria.
    For additional background, 23 U.S.C. 112 requires a state 
transportation department to award contracts using federal highway 
funds by ``competitive bidding, unless the State transportation 
department demonstrates . . . that some other method is more cost 
effective.'' 23 U.S.C. 112(b)(1) (2006). For a bidding process to be 
``competitive,'' the state transportation department must award 
contracts for projects ``only on the basis of the lowest responsive bid 
submitted by a bidder meeting established criteria of responsibility.'' 
Id. section 112(b)(1). For example, a 1986 opinion from the Office of 
Legal Counsel (OLC) at the Department of Justice concluded that section 
112 obligated the Secretary of Transportation to withhold federal 
funding for highway construction contracts that were subject to a New 
York City law imposing disadvantages on a class of responsible bidders, 
where the city failed to demonstrate that its departure from 
competitive bidding requirements was justified by considerations of 
cost effectiveness. See Compatibility of New York City Local Law 19 
with Federal Highway Act Competitive Bidding Requirements, 10 Op. 
O.L.C. 101 (1986) (``Competitive Bidding Requirements''). Since that 
1986 opinion, FHWA had taken the position that state or local bidding 
specifications or contract requirements that limit the pool of 
potential bidders violate section 112's competition requirement unless 
they directly relate to the bidder's performance of the necessary work 
in a competent and responsible manner.
    In 2013, OLC opined that a state or local requirement that has only 
an incidental effect on the pool of potential bidders or that imposes 
reasonable requirements related to the performance of the necessary 
work would not unduly limit competition. However, a requirement that 
has more than an incidental effect on the pool of potential bidders and 
does not relate to the work's performance would unduly limit 
competition unless it promotes the efficient and effective use of 
federal funds. OLC stated that generally speaking, state or local 
government requirements that eliminate or disadvantage a class of 
potential responsible bidders (and thus have a non-trivial effect on 
the pool of such bidders) to advance objectives unrelated to the 
efficient use of federal funds or the integrity of the bidding process 
(or to the performance of the necessary work in a competent and 
responsible manner) are likely to unduly impede competition in 
contravention of the substantive component of section 112's competitive 
bidding requirement. OLC further reaffirmed the view expressed in its 
1986 opinion that ``the efficient use of federal funds is the 
touchstone by which the legality of state procurement rules for 
federally funded highway projects is to be tested,'' Competitive 
Bidding Requirements, 10 Op. O.L.C. at 105. In 2013, OLC did not 
understand section 112's competitive bidding requirement to compel FHWA 
to reject every state or local bidding specification or contract 
requirement that may have the effect of reducing the number of 
potential bidders for a particular contract.
    The stated purpose of this NPRM was to permit recipients and 
subrecipients of certain DOT grant program funds to impose geographic-
based hiring preferences whenever not otherwise prohibited by Federal 
law. DOT agrees that the efficient use of federal funds is the 
touchstone by which the legality of state procurement rules, including 
any proposed geographic-based hiring preferences, for federally funded 
projects is to be tested. Here, in light of the responses to the NPRM, 
the lack of data on whether specific local geographic preferences would 
have an incidental effect on competition, the long-standing Federal 
government prohibition in the Common Rule on the use of in-State or 
local geographic-based preferences, the demonstrated minimal interest 
from intended participants under the two experimental programs, and the 
inability to evaluate cost-effectiveness based upon objective criteria 
under the two experimental programs, the Department has determined that 
promulgating a regulation that would have deviated from the OMB 
guidance in the Common Rule, by allowing the use of geographic-based 
hiring preferences in some of the Department's grant programs, is not 
practicable for the efficient and cost-effective delivery of projects. 
The comments received did not include any data that demonstrates that 
the claimed benefits of the proposed rule justify the costs. The 
Department has also determined that an additional request for public 
comment based on the proposed NPRM would not provide the information 
needed to accomplish the stated purpose.

     Issued in Washington, DC, on October 2, 2017.
Elaine L. Chao,
Secretary of Transportation.
[FR Doc. 2017-21574 Filed 10-5-17; 8:45 am]
 BILLING CODE 4910-9X-P