Document ID: DOT-OST-2009-0092-0395
Agency: dot
Document Type: Notice
Title: Contracting Initiatives
Posted Date: 2015-03-06T05:00Z

[Federal Register Volume 80, Number 44 (Friday, March 6, 2015)]
[Notices]
[Pages 12257-12259]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-05204]

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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

Contracting Initiative

AGENCY: Office of the Secretary (OST), Department of Transportation 
(DOT).

ACTION: Notice.

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SUMMARY: The DOT is announcing an initiative to permit, on an 
experimental basis, Federal Highway Administration (FHWA) and Federal 
Transit Administration (FTA) recipients and subrecipients to utilize 
various contracting requirements that generally have been disallowed 
due to concerns about adverse impacts on competition. This initiative 
will be carried out as a pilot program for a period of 1 year (unless 
extended) under the FHWA and FTA's existing authorities. The purpose of 
this pilot program is to determine whether the use of such requirements 
``unduly limit competition,'' as provided in an August 23, 2013, 
opinion from the Department of Justice's Office of Legal Counsel (OLC). 
Should DOT find that such restrictions do not unduly limit competition, 
DOT may provide further guidance regarding their use.

DATES: This pilot program is effective March 6, 2015.

FOR FURTHER INFORMATION CONTACT: For technical information: Mr. Michael 
Harkins, Deputy Assistant General Counsel for General Law, Office, U.S. 
Department of Transportation, 1200 New Jersey Avenue SE., Washington, 
DC 20590, 202-366-0590 (telephone), Michael.Harkins@dot.gov (email).

SUPPLEMENTARY INFORMATION:

Electronic Access

    An electronic copy of this document may also be downloaded from the 
Office of the Federal Register's home page at http://www.archives.gov/federal_register and the Government Publishing Office's Web page at 
http://www.gpoaccess.gov.

Background

Interpretation of Competition Mandate

    Traditionally, DOT has prohibited its recipients and subrecipients 
from using certain contracting provisions that do not directly relate 
to the bidder's performance of work in a competent and responsible 
manner. An example of such provisions includes local and other 
geographic-based labor hiring preferences. The DOT's position was 
reinforced by a 1986 opinion of the OLC, which concluded that 23 U.S.C. 
112 (``section 112'') obligated the Secretary of Transportation to 
withhold Federal funding from 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).
    However, in August 2013, at DOT's request, the OLC provided DOT 
with a memorandum opinion, clarifying its 1986 opinion on section 112. 
See Competitive Bidding Requirements Under the Federal-Aid Highway 
Program, 23 U.S.C. 112, (Aug. 23, 2013) (``2013 opinion''). The 2013 
opinion is available at http://www.justice.gov/olc/opinions. The 2013 
opinion clarifies that section 112 does not compel the DOT's position 
with respect to contracting requirements that do not directly relate to 
the bidder's performance of work, but rather provides the Secretary 
with discretion to permit other types of state or local requirements as 
long as they do not ``unduly limit competition.'' \1\
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    \1\ While the 2013 opinion was specific to section 112, which 
only applies to highway projects, it also is relevant in 
interpreting and implementing FTA's statutory mandate under 49 
U.S.C. 5325(a) that broadly requires full and open competition in 
the award of contracts utilizing financial assistance from the FTA.
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    The 2013 opinion explains that competition would not be unduly 
limited by ``[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. . . .'' 
2013 opinion at 2. In contrast, ``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.'' Id. at 2-
3. In assessing whether a requirement does promote the efficient and 
effective use of federal funds, the agency ``may take into account 
whether the requirement promotes such efficiency in connection with the 
letting of a particular contract and also whether it more generally 
furthers the efficient and effective use of federal funds in the long 
run or protects the integrity of the competitive bidding process 
itself.'' Id. at 3. So long as a state or local requirement serves 
these purposes, ``the Administrator may reasonably determine, 
consistent with section 112, that the requirement does not unduly limit 
competition, even if it may have the effect of reducing the number of 
eligible bidders for a particular contract.'' Id.
    Thus, DOT retains discretion under the statute to evaluate whether 
a particular State or local law or policy that has more than an 
incidental effect on the pool of potential bidders is nonetheless 
compatible with section 112(b)(1)'s competitive bidding requirement. 
The process used to evaluate whether state and local requirements 
satisfy section 112 also is a matter of agency discretion. Id. at 17-18 
(``It is for FHWA and DOT to determine the regulatory approach the 
agency should take in exercising this discretion and in evaluating 
whether certain state and local requirements are consistent with 
[section 112's] statutory mandates. . . .'').

Experimental Authority

    In 1988, a Transportation Research Board (TRB) task force, 
comprised of representatives from all segments of the highway industry, 
was formed to evaluate Innovative Contracting Practices. This TRB task 
force requested

[[Page 12258]]

that the FHWA establish a project to evaluate and validate certain 
findings of the task force regarding innovative contracting practices, 
which are documented in Transportation Research Circular Number 386, 
titled, ``Innovative Contracting Practices,'' dated December 1991. In 
response, the FHWA initiated Special Experimental Project No. 14 (SEP-
14) pursuant to the authority granted to the Secretary, which now is 
codified at 23 U.S.C. 502. The SEP-14 program strives to identify, 
evaluate, and document innovative contracting practices that have the 
potential to reduce the life cycle cost of projects, while at the same 
time, maintain product quality. Under SEP-14, the FHWA has the 
flexibility to experiment with innovative approaches to contracting.
    The innovative practices originally approved for evaluation under 
SEP-14 were: Cost-plus-time bidding, lane rental, design-build 
contracting, and warranty clauses. Forty-one States have used at least 
one of the innovative practices under SEP-14. Based on their collective 
experiences, FHWA decided that cost-plus-time bidding, lane rental, and 
warranty clauses were techniques suitable for use as non-experimental, 
operational practices and in 1995 these were made regular Federal-aid 
procedures. Design-build contracting in the Federal-aid highway program 
was conducted under SEP-14 until Congress modified section 112 in 
section 1307 of the Transportation Equity Act for the 21st Century to 
permanently authorize the use of this contracting method. Additionally, 
the construction manager/general contractor method of contracting in 
the Federal-aid highway program was originally conducted under SEP-14 
until Congress modified section 112 in section 1303 of the Moving Ahead 
for Progress in the 21st Century Act to permanently authorize the use 
of this contracting method. The SEP-14 program continues to be used to 
test and evaluate experimental contracting practices.
    Also, the FTA has authority under 49 U.S.C. 5312 to carry out 
research, development, demonstration, and deployment projects that will 
improve public transportation. Additionally, 49 U.S.C. 5314 authorizes 
FTA to carry out activities that will assist recipients of assistance 
to administer funds received under Chapter 53 in compliance with 
Federal law, including the development of voluntary and consensus-based 
standards and best practices by the public transportation industry, 
including standards and best practices for procurement.

Pilot Program

    The DOT is interested in permitting State and local recipients of 
Federal financial assistance to utilize contracting requirements that 
traditionally have been prohibited on the basis that they would 
restrict competition by not directly relating to the bidder's 
performance of work. Thus, DOT is establishing a pilot program under 
the existing authorities of the FHWA and FTA grant programs. The 
objective of this pilot program is to enable DOT to determine which 
requirements may be used consistently with the 2013 OLC opinion by 
promoting efficiency in connection with the letting of a particular 
contract, furthering the efficient and effective use of federal funds 
in the long run, or protecting the integrity of the competitive bidding 
process.
    In particular, with respect to procurements for which FHWA or FTA 
funds will be used, recipients and subrecipients may request those 
agencies to permit the use of a particular contracting requirement that 
otherwise may be found to be inconsistent with the general requirement 
for full and open competition. DOT is particularly interested in 
contracts for which recipients and subrecipients wish to utilize a 
local or other geographic labor hiring preferences, economic-based 
labor hiring preferences (i.e., low-income workers), and labor hiring 
preferences for veterans \2\ because, in the DOT's view, such 
requirements can promote Ladders of Opportunity by ensuring that 
disadvantaged workers in the communities in which the projects are 
located benefit from the economic opportunities such projects present. 
DOT, however, will not approve projects for which recipients wish to 
alter the requirements of the Disadvantaged Business Enterprise 
Program.
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    \2\ See also 23 U.S.C. 114(d), which requires recipients, to the 
extent practicable, to encourage contractors to make a best faith 
effort to hire veterans on Federal-aid highway projects.
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    This pilot program will be carried out for a period of 1 year from 
the date of publication of this notice. As such, DOT is only interested 
in contracts that will be advertised during this time frame. For any 
such contracts, the DOT will monitor and evaluate whether contracting 
requirements that traditionally have been prohibited on the basis that 
they would restrict competition by not directly relating to the 
bidder's performance of work have an undue restriction on competition. 
While DOT's current plan is to conduct this pilot program for 1 year, 
DOT reserves the right to extend this time period at its discretion.

FHWA

    For contracts to be funded by FHWA, State and local recipients and 
subrecipients must request prior approval from the FHWA to use a 
specific contracting requirement under SEP-14. In order to receive SEP-
14 approval, States and local recipients and subrecipients would follow 
the normal process that includes submitting work plans to the 
appropriate FHWA division office. For more information on the SEP-14 
process, please see: http://www.fhwa.dot.gov/programadmin/contracts/sep_a.cfm.
    In developing requests to FHWA to use contracting requirements 
under SEP-14, recipients and subrecipients should address, at a 
minimum, the following points:
    (1) Describe the project, including the amount of FHWA funding 
involved in the as well as the estimated total project cost.
    (2) Describe the contracting requirement that may otherwise be 
found to be inconsistent with the general requirement for full and open 
competition.
    (3) Describe how they will evaluate the effects of relevant 
contracting requirements on competitive bidding. In doing so, the 
recipient or subrecipient should, at a minimum, provide comparisons of 
bids received for the projects utilizing the relevant contract 
requirements to other projects of similar size and scope and in the 
same geographic area not utilizing such requirements. If a reduction in 
the pool of bidders is evident, explain the potential offsetting 
benefits resulting from the use of the requirement.
    (1) Describe and quantify how the relevant contracting requirement 
would lead to increases in the effectiveness and efficiency of Federal 
funds for the project.
    (2) Describe and quantify how the experimental contracting 
technique would protect the integrity of the competitive bidding 
process either in connection with the particular contract or when 
considered over the long term for that agency's program.
    For contracts involving the use of local and other geographic labor 
hiring preferences, economic-based labor hiring preferences, and/or 
labor hiring preferences for veterans, FHWA may approve, at the request 
of the recipient or subrecipient, the use of such requirements for a 
specific contract, a specific group of, or on a more general 
programmatic basis. The use of other contracting requirements may be

[[Page 12259]]

approved by FHWA after coordination with the DOT Office of General 
Counsel.

FTA

    For contracts to be funded by FTA (including federal financial 
assistance under any FTA formula or discretionary program), State and 
local recipients and subrecipients must request prior approval from the 
FTA to use a specific contracting requirement pursuant to FTA's 
research and assistance authorities discussed above. In making such 
requests, recipients and subrecipients must submit an application to 
their FTA Regional Office. In their application, recipients should 
address, at a minimum, the following points:
    (1) Describe the contracting opportunity, including the schedule 
for the type of project and type of asset being constructed and the 
amount of FTA funding involved in the project as well as the estimated 
total project cost.
    (2) Describe the contracting requirement that may otherwise be 
found to be inconsistent with the general requirement for full and open 
competition.
    (3) Describe how they will evaluate the effects of relevant 
contracting requirements on competitive bidding. In doing so, the 
recipient and subrecipient should, at a minimum, provide comparisons of 
bids received for the projects utilizing the relevant contract 
requirements to other projects of similar size and scope and in the 
same geographic area not utilizing such requirements. If a reduction in 
the pool of bidders is evident, explain the potential offsetting 
benefits resulting from the use of the requirement.
    (4) Describe how the relevant contracting requirement would lead to 
increases in the effectiveness and efficiency of Federal funds for the 
project.
    (5) Describe and quantify how the experimental contracting 
technique would protect the integrity of the competitive bidding 
process either in connection with the particular contract or when 
considered over the long term for that agency's program.
    An evaluation committee comprised of FTA staff will evaluate 
applications for inclusion in the pilot program. The evaluation 
committee reserves the right to evaluate applications it receives and 
to seek clarification from any proposer about any statement that is 
made in an application. FTA also may request additional documentation 
or information to be considered during the evaluation process. The 
evaluation committee will provide a recommendation to the FTA 
Administrator regarding each application. The FTA Administrator will 
provide a final written determination to each applicant, on a rolling 
basis, regarding whether an application has been accepted into the 
pilot program.
    For projects involving the use of local and other geographic labor 
hiring preferences, economic-based labor hiring preferences, and/or 
labor hiring preferences for veterans, FTA may approve, at the request 
of the recipient or subrecipient, the use of such requirements for a 
specific contract, a specific group of, or on a more general 
programmatic basis. The use of other contracting requirements may be 
approved by FTA after coordination with the DOT Office of General 
Counsel.
    With respect to in-state or local geographic labor hiring 
preferences, please note that Section 418 of the Consolidated and 
further Continuing Appropriations Act, 2015, Public Law 113-235 (FY 
2015 Appropriations Act), prohibits FTA from using FY 2015 funds to 
implement, administer, or enforce 49 CFR 18.36(c)(2), for construction 
hiring. Section 18.36(c)(2) prohibits the use of statutorily or 
administratively imposed in-State or local geographical preferences in 
the evaluation of bids or proposals.\3\ Accordingly, for construction 
contracts awarded or advertised in FY 2015, FTA recipients may use in-
state or local geographic preferences for construction labor hiring. 
Additional guidance on FTA's implementation of Section 418 may be found 
on FTA's Web site at www.fta.dot.gov.
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    \3\ Effective December 26, 2014, 49 CFR part 18 will apply only 
to grants obligated on or before December 25, 2014. Grants obligated 
on or after December 26, 2014 will be subject to 2 CFR part 200. 
This provision (18.36(c)(2)) has been recodified at 2 CFR 200.319(b) 
and is substantively the same as 18.36(c)(2). Although Congress did 
not address the change in codification in section 418, FTA intends 
to apply section 418 to grants obligated on or after December 26, 
2014 and subject to 2 CFR 200.319(b).
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    As a result of the enactment of Section 418, recipients and 
subrecipients do not need to submit applications for participation in 
the pilot program for the use of in-state or local geographic labor 
hiring preferences for contracts awarded or advertised on or before 
September 30, 2015. In other words, prior FTA approval is not required 
to use such requirements, and FTA recipients and subrecipients may 
impose such requirements for their contracts at their discretion. Such 
projects will receive automatic admission into the pilot program. 
However, in order to assess the effect of such preferences on 
competition, recipients and subrecipients that plan to utilize in-state 
or local geographic labor hiring preferences must notify their FTA 
Regional Office prior to advertising contracts that use such 
preferences. For in-state or local geographic hiring preferences 
proposed for inclusion in contracts advertised after September 30, 
2015, recipients and subrecipients must request prior approval from the 
FTA to utilize such hiring preferences through the above-described 
process unless provisions similar to section 418 are included in a new 
appropriations or re-authorization act. Requests to use requirements 
other than in-state or local geographic preferences for construction 
hiring, including requirements involving the procurement of rolling 
stock, must request prior FTA approval as described above.

    Issued in Washington, DC, on February 24, 2015.
Anthony R. Foxx,
Secretary of Transportation.
[FR Doc. 2015-05204 Filed 3-5-15; 8:45 am]
BILLING CODE 4910-9X-P