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FHWA Changes to Design-Build Rule Fall Short of PPP Needs

By: Nancy C. Smith, Christine D. Ryan, Brandon J. Davis
07/10/06

The "Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users’’ or ‘‘SAFETEA–LU"[1] required FHWA to issue modifications to its design-build regulations to implement provisions in SAFETEA-LU enhancing the ability of public agencies to use design-build and public-private partnerships for development of transportation infrastructure.  The Notice of Proposed Rulemaking for the proposed modifications was issued on May 25, 2006.[2] 

The most significant change of concern to the innovative contracting community concerns the ability of transportation agencies to take certain preliminary actions prior to receipt of NEPA approval for a project.[3]  Despite language in TEA-21[4] indicating Congressional intent to allow public agencies to enter into design-build contracts and to allow certain work to proceed under such contracts before completion of the NEPA process, the design-build rule adopted by FHWA in 2002 prohibited issuance of requests for proposals prior to NEPA approval, thereby also prohibiting agencies from entering into contracts until after issuance of the approval.  This has been particularly problematic for public-private partnerships, where the parties often expect the private sector partner to be involved in the project definition process.  The regulatory prohibition has given rise to a series of applications for special approvals under Special Experimental Project 15. 

SAFETEA-LU Requirements

Section 1503 of SAFETEA-LU mandated revisions to the regulations applicable to design-build contracts, making it clear that transportation agencies have the ability to proceed with certain actions prior to receipt of final NEPA approval.  The Secretary was directed to issue revised regulations within 90 days, and was specifically directed not to preclude agencies from taking the following actions prior to receipt of final NEPA approval: (1) issuing requests for proposals; (2) proceeding with awards of design-build contracts; or (3) issuing notices to proceed with preliminary design work under design-build contracts. 

General Comments on Proposed Rule

Although the proposed revisions would increase procurement flexibility for design-build contracts and public-private partnerships in certain respects, they fall far short of expectations in others.  Most importantly, although the proposed modifications satisfy the first two directives listed in the previous paragraph, it includes a restrictive definition of preliminary design, which is likely to present significant problems for innovative contracting if not changed.  If not modified, the proposed rule would impose restrictions not found in case law, would ignore two Congressional directives to FHWA to allow flexibility to the states in this area, and would represent a giant step backwards for innovative contracting. 

In addition, the revisions add several new "hold" points requiring FHWA approvals, including approval of the RFQ and state procurement procedures, authorization to proceed with preliminary design, and concurrence in price reasonableness determinations.

Issues that we believe FHWA should reconsider fall into the following categories:

·         First and foremost, the definition of what actions may (or may not) be taken by the design-builder/developer prior to NEPA approval

·         The extent to which FHWA approvals are required over the course of the procurement and contract

·         Whether NEPA consultants and subconsultants may participate on developer teams

·         Imposition of new legal standards on the procurement process

·         Circumstances under which a price reasonableness analysis is required

·         Level of FHWA involvement in price reasonableness determination

Definitions of Preliminary Design and Final Design

FHWA specifically requested comments on the proposed definition of preliminary design.  We submit to our readers the following proposed revisions to this definition and to the definition of final design, for their comment and consideration:

Draft Rule

Proposed revision

Preliminary design means all design activities necessary to complete the NEPA alternatives analysis and review process as outlined in 23 CFR 771.105, 771.111, and 771.113.

Preliminary design means services provided by or for design professionals prior to commencement of final design of a project, for the purpose of (a) defining the project alternatives, (b) otherwise supporting completion of the NEPA alternatives analysis and review process as outlined in 23 CFR 771.105, 771.111, and 771.113, (c) supporting permit applications, or (d) reducing project risks for the final design and construction phase of the project.  Preliminary design activities may include geotechnical investigations, utility surveys, hazardous materials assessments and other investigative activities, and production of reports.  The term specifically excludes any activity that would constitute an irreversible or irretrievable commitment of resources which has the effect of foreclosing the formulation or implementation of any reasonable and prudent alternatives.

Final design means any design activities following preliminary design. Final design activities are not necessary to complete the NEPA process as outlined in 23 CFR 771.

Final design means preparation of final construction plans and detailed technical specifications required for performance of construction work.

Organizational Conflicts and NEPA

With the advent of public-private partnerships, concerns regarding organizational conflicts of interest relating to NEPA have escalated.  Such conflicts have been a controversial topic over the years, due to a belief that it is inappropriate for anyone who has an interest in the outcome of the NEPA analysis to play a part in NEPA decision-making.  In response to these concerns, the draft revisions would specifically prohibit design-builders/developers from undertaking responsibility for preparing the NEPA decision document.  See Sections 636.109(b)(4) and 636.116(c) of the proposed rule. 

The authors believe that as a general matter it is preferable to allow public agencies flexibility to make determinations regarding organizational conflict issues on a case-by-case basis, in accordance with NEPA and applicable case law, instead of imposing requirements by regulation that are not mandated by law.

Other Comments

Our specific comments can be downloaded from the link at the end of this e-alert.

Request to E-Alert Readers

FHWA will accept comments on the proposed rule through July 24, 2006.  Comments can be mailed or hand delivered to the U.S. Department of Transportation, Dockets Management Facility, Room PL-401, 400 Seventh Street, SW., Washington, DC 20590-0001, or can be submitted electronically at http://dmses.dot.gov/submit or by fax to (202) 493-2251.  Comments can also be submitted via the eRulemaking Portal at http://www.regulations.gov.  All comments should reference FHWA Docket No. FHWA-2005-22477.

For a copy of the proposed rule, please click here.  For a copy of our current draft comments on the proposed rule, please click here.

For more information, please contact Nancy Smith at (213) 612-7837 / nsmith@nossaman.com, Christine Ryan at (512) 370-4978 / cryan@nossaman.com or Brandon Davis at (213) 612-7894 / bdavis@nossaman.com.

 

[1]      Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy For Users, Pub. L. No. 109-59, 119 Stat. 1144 (2005).

[2]      Design-Build Contracting, 71 Fed. Reg. 30,100 (May 25, 2006) (to be codified in Parts 630, 635 and 636 of 23 C.F.R.).

[3]      For additional information regarding these issues, please refer to articles by Ms. Smith published in the November 2001 and January 2003 editions of Public Works Financing. 

[4]      Transportation Equity Act for the 21st Century, Pub. L. No. 105-178, § 1307, 112 Stat. 107, 229-31 (1998).

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