Proposed Guidance on Safe Harbor Rate Streamlining for Engineering and Design Services Consultant Contracts, 33288-33290 [2018-15231]
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Federal Register / Vol. 83, No. 137 / Tuesday, July 17, 2018 / Notices
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presentations and breakout sessions
during which participants can provide
input to FHWA and DOT
representatives. The National Dialogue
meetings began on June 26 and will
continue through the end of 2018.
DATE AND TIME: The FHWA will hold the
public meetings in approximately five
locations across the country. A tentative
schedule is outlined below and is
subject to change. Meeting information
will be updated and made available on
the FHWA National Dialogue on
Highway Automation website: https://
ops.fhwa.dot.gov/automationdialogue/
index.htm.
Tentative meetings include the
following:
• Week of July 30, 2018: National
Workshop 2: Data and Digital
Infrastructure (Seattle, Washington)
• September 2018: National Workshop
3: Freight (Chicago, Illinois)
• October 24–25, 2018: National
Workshop 4: Operations (Phoenix,
Arizona)
• November 14–15, 2018: National
Workshop 5: Infrastructure and MultiModal Safety (Austin, Texas)
FOR FURTHER INFORMATION CONTACT: If
you have questions about the public
meeting, please contact John Corbin at
john.corbin@dot.gov or
highwayautomation@dot.gov.
SUPPLEMENTARY INFORMATION:
Registration is necessary for all
attendees. Registration information will
be available at https://ops.fhwa.dot.gov/
automationdialogue/index.htm. Inperson attendance will be limited, so
advance registration is required for all
attendees. Should it be necessary to
cancel the meeting due to inclement
weather or other emergency, FHWA will
take all available measures to notify
registered participants beforehand.
Background
Automated vehicles have the
potential to significantly transform the
Nation’s roadways. They could help
save lives, expand access to
transportation, and improve the
convenience of travel. However, even as
these technologies offer new
opportunities, they may introduce new
challenges for the agencies responsible
for the planning, design, construction,
operation, and maintenance of the
Nation’s roadway infrastructure. As a
result, FHWA is interested in better
understanding the implications of
highway automation.
This National Dialogue on Highway
Automation is an opportunity to engage
the public and broader stakeholder
community to understand their key
areas of interest. These stakeholders will
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include original equipment
manufacturers, technology suppliers,
transportation network companies,
associations, and public sector partners.
The National Dialogue will help inform
national research, policy, and
implementation assistance activities to
support automation readiness.
Meeting Format
The National Dialogue meetings are
designed to support significant
interaction among participants.
Workshops will include discussions
with government and industry leaders,
breakout sessions, listening sessions,
and opportunities to collaborate with
meeting participants. Each workshop
will run from 1 to 1.5 days and will
have opportunities for general and
topic-specific input. Focus areas
identified include policy and planning,
data and digital infrastructure, freight,
operations, safety, infrastructure, and
multi-modal safety.
Authority: 49 U.S.C. 1.25a.
Issued on: July 6, 2018.
Brandye L. Hendrickson,
Acting Administrator, Federal Highway
Administration.
[FR Doc. 2018–15232 Filed 7–16–18; 8:45 am]
BILLING CODE 4910–22–P
DEPARTMENT OF TRANSPORTATION
Federal Highway Administration
[FHWA Docket No. FHWA–2017–0023]
Proposed Guidance on Safe Harbor
Rate Streamlining for Engineering and
Design Services Consultant Contracts
Federal Highway
Administration (FHWA), U.S.
Department of Transportation (DOT).
ACTION: Notice; request for comment.
AGENCY:
The FHWA is soliciting
comments regarding proposed guidance
on implementation of a Safe Harbor
indirect cost rate for certain engineering
design service firms that find
establishing such rates to be costly and
a barrier to participating in engineering
and design service contracts reimbursed
with Federal-aid Highway Program
(FAHP) Funds. The FHWA seeks
comment on its proposed
implementation of a Safe Harbor
indirect cost rate and its intention to
notify all contracting agencies receiving
FAHP funds that an agency-developed
Safe Harbor indirect cost rate for eligible
consulting firms may be used as a
component of a risk-based oversight
process to provide reasonable assurance
to FHWA that consultant costs on
SUMMARY:
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FAHP-funded contracts are allowable in
accordance with the Federal regulations.
DATES: Comments must be received on
or before August 16, 2018. Late-filed
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 fax comments to (202) 493–
2251. Alternatively, comments may be
submitted to the Federal eRulemaking
portal at: https://www.regulations.gov.
All comments must 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., ET, Monday through
Friday, except Federal holidays. Those
desiring notifications of receipt of
comments must include a selfaddressed, stamped postcard, or you
may print the acknowledgment page
that appears after submitting comments
electronically. Anyone can search the
electronic form of all comments in any
one of our dockets by the name of the
individual submitting the comment (or
signing the comment, if submitted on
behalf of an association, business, or
labor union). Anyone may review DOT’s
complete Privacy Act Statement in the
Federal Register published on April 11,
2000 (Volume 65, Number 70, Pages
19477–78).
FOR FURTHER INFORMATION CONTACT: For
questions about the program discussed
herein, contact John McAvoy,
Consultant Services Program Manager,
FHWA Office of Program
Administration, (202) 853–5593 or via
email at john.mcavoy@dot.gov. For legal
questions, please contact Steve Rochlis,
Office of the Chief Counsel, (202) 366–
1395, or via email at steve.rochlis@
dot.gov. Office hours are from 8:00 a.m.
to 4:30 p.m., ET, Monday through
Friday, except Federal holidays.
SUPPLEMENTARY INFORMATION:
Electronic Access and Filing
You may submit or retrieve comments
online through the Federal eRulemaking
portal at: https://www.regulations.gov.
The website is available 24 hours each
day, 365 days each year. Please follow
the instructions. Electronic submission
and retrieval help and guidelines are
available under the help section of the
website. An electronic copy of this
document may also be downloaded
from the Office of the Federal Register’s
home page at: https://www.archives.gov
and the U.S. Government Publishing
E:\FR\FM\17JYN1.SGM
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Federal Register / Vol. 83, No. 137 / Tuesday, July 17, 2018 / Notices
Office’s web page at: https://
www.access.gpo.gov/nara.
daltland on DSKBBV9HB2PROD with NOTICES
Purpose of This Notice
The FHWA is requesting comment on
its proposed guidance for
implementation of a Safe Harbor
indirect cost rate and its intention to
notify all contracting agencies receiving
FAHP funds that an agency-developed
Safe Harbor indirect cost rate for eligible
consulting firms may be used as a
component of a risk-based oversight
process to provide reasonable assurance
to FHWA that consultant costs on
FAHP-funded contracts are allowable in
accordance with the Federal regulations.
Comments received through this notice
will be considered by FHWA to assess
implementation of a Safe Harbor
indirect cost rate.
Background
Consulting firms and contractors
providing services under a contract
reimbursed with FAHP funds are
required to account for, and bill, costs
in accordance with the Federal cost
principles of 48 CFR part 31. In
addition, Federal law and regulations
for the FAHP require contracting
agencies to accept indirect cost rates
developed in accordance with the
Federal cost principles and to apply
those rates for the purposes of contract
estimation, negotiation, administration,
reporting, and contract payment (as
specified in 23 U.S.C. 112(b)(2) and 23
CFR 172.7). As such, consulting firms
providing engineering and designrelated services to a contracting agency
under a contract funded by the FAHP
are required to develop indirect cost
rates in accordance with the Federal
cost principles on an annual basis.
Similarly, contracting agencies must
provide reasonable assurance that
consulting firm costs claimed under
FAHP-funded contracts, including both
direct and indirect costs, are allowable
in accordance with the Federal cost
principles.
Adhering to these accounting
requirements can place a significant
burden on some consulting firms and
may create a barrier for otherwise
eligible and qualified firms to compete
for FAHP-funded contracts. For
example, small firms, including many
Disadvantaged Business Enterprise
firms, may lack the financial expertise
to develop an indirect cost rate that
would be acceptable to a cognizant
Federal or State government agency, or
lack the resources to hire a Certified
Public Accountant (CPA) to conduct an
audit to provide assurance as to the
development of an indirect cost rate
compliant with Federal requirements.
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Often, a CPA audit is cost-prohibitive
given the size and scope of the federally
funded contracts for which the firm
could compete. In addition, new or
start-up firms generally do not have a
contract-related cost history to use as a
base for development of an indirect cost
rate. Other well-established firms may
not have previous experience with
federally funded contracts for which a
compliant indirect cost rate could be
developed. Currently, these firms are
prohibited from participating in FAHPfunded contracts without the
development and application of a
provisional indirect cost rate for the
specific contract, which is adjusted
based upon a contracting agency
conducted final audit at the completion
of the contract. Even the smallest final
audit requires a significant commitment
of contracting agency audit resources.
To remove these barriers for otherwise
qualified consulting firms, and to
enhance contracting agency oversight of
compliance with Federal cost
principles, in 2012, the FHWA
developed the Safe Harbor Indirect Cost
Rate Test and Evaluation pilot. Ten
contracting agencies representing a
diversity of location and size
participated in the test. Eligible
consulting firms with whom the
contracting agencies do business have
the option of applying a Safe Harbor
indirect cost rate to contracts in
instances where the firm does not have
an established rate for the reasons stated
above. The selected Safe Harbor indirect
cost rate is significantly lower than the
industry average rate, providing an
incentive for firms to develop an actual
rate, when able to do so and consistent
with their cost experience, in
accordance with the Federal cost
principles as required in Federal law
and regulation.
Test results have shown a reduction
in the financial management barriers
that prevented new, small, or
disadvantaged but qualified consulting
firms from entering the federally funded
engineering services market, and
creation of a framework for these
consulting firms to establish a cognizant
agency approved indirect cost rate.
Contracting agencies report that 17
consulting firms have graduated from
the program after developing a cost
history leading to an approved indirect
cost rate. In addition, following a riskbased approach allows contracting
agency oversight and audit resources to
shift focus from those firms opting to
apply a Safe Harbor indirect cost rate
(which are generally employed on fewer
contracts or on smaller contracts) to
those firms with multiple, higher dollar
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33289
contracts and more complex accounting
structures.
The test and evaluation of the Safe
Harbor indirect cost rate was conducted
by the following contracting agencies
and respective FHWA Division Offices:
Alabama DOT, California Department of
Transportation, Michigan DOT,
Missouri DOT, North Carolina DOT,
North Dakota DOT, Ohio DOT, South
Carolina DOT, Texas DOT, and
Washington State DOT. In these States,
eligible consulting firms have the option
of using a Safe Harbor indirect cost rate
on contracts executed within the
established test period. A consulting
firm is considered eligible if it has not
had an indirect cost rate previously
accepted by a cognizant agency (i.e., a
governmental agency that has performed
or reviewed an audit in accordance with
generally accepted government auditing
standards (GAGAS) 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, as
described in 23 CFR 172.3). Consulting
firms with an audited, or otherwise
accepted, actual indirect cost rate,
developed in accordance with the
Federal cost principles, are not
considered eligible to participate in the
Safe Harbor Program. Contracting
agencies are given discretion to
determine the eligibility of consulting
firms for a Safe Harbor indirect cost rate
for use on a case-by-case basis and are
required to document their decision.
Through collaboration with the test
contracting agencies, FHWA’s test and
evaluation pilot used a nationwide Safe
Harbor indirect cost rate of 110 percent
of a firm’s direct salary rate. The test
contracting agencies agreed that this rate
was conservative and significantly
lower than the industry average of
typically claimed indirect cost rates. As
such, while still providing for
reimbursement of a significant portion
of basic overhead costs, the use of this
conservative rate incentivized
consulting firms to develop an actual
indirect cost rate when able to do so.
The Safe Harbor indirect cost rate also
provided a minimal risk to contracting
agencies for overpayment to those
consulting firms participating in the
program. Based on FHWA’s experience
with this pilot, FHWA is proposing to
expand the use of the Safe Harbor
indirect cost rate, beyond the 10 pilot
States, to allow eligible consulting firms
to use a State contracting agency–
developed indirect cost rate.
A Safe Harbor indirect cost rate is not
intended for use on field-based
contracts involving field overhead rates.
Other direct costs that are not
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Federal Register / Vol. 83, No. 137 / Tuesday, July 17, 2018 / Notices
considered to be included within the
Safe Harbor Program include: Travel
costs (airfare, rental car, mileage,
lodging, per diem, etc.), external
printing and reproduction costs, mailing
and shipping costs, equipment rental
fees, sub-consultants, and other direct
costs as appropriate to the contracted
services.
A Safe Harbor indirect cost rate is
applied to new contracts executed with
a contracting agency, or subrecipient.
Once applied to a contract, the Safe
Harbor indirect cost rate should be used
for the duration of the contract. It is not
uncommon for new or start-up firms to
show large fluctuations in an indirect
cost rate in the initial years of operation,
before contract workload normalizes.
Using the Safe Harbor indirect cost rate
for the duration of a contract provides
cost certainty in estimating the total
contract amount and helps reduce the
risk of costly contract modifications,
necessary due to a significant
fluctuation of an indirect cost rate.
Similarly, a Safe Harbor indirect cost
rate may be used in the determination
of the fixed fee portion of the contract,
which would not be subject to
adjustment unless warranted by changes
to the scope of work or duration of the
contract.
Eligible consulting firms that use the
Safe Harbor indirect cost rate, and do
not have established salaries or wage
rates for employees or classes of
employees, use negotiated, fixed hourly
labor rates for the direct labor portion of
the contracted services. The negotiated
direct labor rate should meet the
reasonableness provisions as set forth in
2 CFR 200.404, considering the nature
of the services to be provided. Where
appropriate for the scope of services
under contract, a ‘‘fully loaded’’ hourly
rate could be established utilizing a
reasonable hourly direct labor rate, a
Safe Harbor indirect cost rate as the
overhead rate component, and an
appropriate amount of fixed fee that
considers the complexity and risk
involved.
The Safe Harbor indirect cost rate is
intended to be a component of a
contracting agency’s risk-based
oversight process. Contracting agencies
using the Safe Harbor indirect cost rate
must first develop written risk-based
oversight procedures designed to
provide reasonable assurance of
consultant compliance with the Federal
cost principles in accordance with 23
CFR 172.11(c)(2). The use of the Safe
Harbor indirect cost rate is voluntary for
both the contracting agency and for
eligible firms. In reviewing the
eligibility of a consulting firm opting to
use the Safe Harbor indirect cost rate, it
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may be necessary to contact the State
department of transportation in the
home State of the consulting firm to
verify the audit history of the firm and
ensure the firm does not have an
audited or otherwise accepted indirect
cost rate developed in accordance with
the Federal cost principles. Use and
application of the Safe Harbor indirect
cost rate by eligible firms is one
component of this risk-based oversight
process. Some evaluation of the
accounting system of the consulting
firms choosing to use the Safe Harbor
indirect cost rate may be necessary to
verify the capability of accumulating
and tracking direct labor for applying
the Safe Harbor indirect cost rate, as
well as for billing other direct costs by
contract, segregating indirect costs, etc.
The Internal Control Questionnaire
provided in Appendix B of the
AASHTO Uniform Audit and
Accounting Guide (2016 Edition) may be
used by contracting agencies as a tool
for assessing the accounting system
capabilities of firms opting to use the
Safe Harbor indirect cost rate. A
contracting agency may wish to conduct
post contract audits or other evaluations
to verify accurate accumulation and
billing of direct contract costs. However,
an audit of indirect costs is not
necessary for Safe Harbor indirect cost
rate contracts, as the rate should be
applied for the duration of the contract,
and retroactive adjustments to indirect
costs incurred on these contracts is not
necessary.
If a contracting agency elects to use a
Safe Harbor indirect cost rate program
as an element of a risk-based oversight
process in compliance with 23 CFR
172.11(c)(2), the agency shall prepare
and maintain written policies and
procedures establishing the program in
accordance with 23 CFR 172.5(c)(10). In
conjunction with the development of
written risk-based oversight procedures,
the contracting agency should consider
any actions necessary to comply with
State regulation, policy, and/or
procedures, as well as any revisions
needed in boilerplate contract language
or cost certifications on contracts
applying the Safe Harbor indirect cost
rate.
The FHWA Division Office will serve
as the primary point of contact and
liaison for the contracting agency. The
FHWA Division Offices also will
monitor the respective contracting
agency’s use of the Safe Harbor indirect
cost rate in accordance with the
approved, written risk-based oversight
procedures.
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Request for Comment
Federal regulations require
contracting agencies to provide
reasonable assurance to the FHWA that
consultant costs on contracts
reimbursed with FAHP funding are
allowable in accordance with the
Federal cost principles. The FHWA is
seeking public comment on expanding
the use of the Safe Harbor indirect cost
rate, beyond the 10 pilot States, to allow
other interested contracting agencies to
use a self-administered Safe Harbor
Program, under a risk-based approach
compliant with 23 CFR 172.11(c), to
provide that reasonable assurance. A
self-administered Safe Harbor Program
would involve, but not be limited to, the
following:
(1) A contracting agency developed
risk-based analysis compliant with 23
CFR 172.11(c)(2);
(2) Written policies and procedures
(Work Plan) consistent with the pilot
program detailed above; and
(3) Approval from the FHWA Division
Office in the relevant State.
The workplan used in the test
evaluation has been posted on the
docket as an example of the elements
that should be included in a risk-based
oversight procedure submitted to FHWA
for approval.
Commenters are encouraged to
address any or all the areas listed above.
The FHWA encourages commenters to
submit any information or data
demonstrating the benefits, costs, and
cost-savings of this program. For
example, FHWA would be interested in
receiving quantifiable estimates of the
burden associated with the annual
development of an indirect cost rate,
hiring a CPA to conduct necessary
audits, and any other costs that would
be avoided by a consulting firm or
contracting agency in utilizing this Safe
Harbor indirect cost rate. Commenters
are also encouraged to focus on matters
within the control of FHWA. The
FHWA will consider public comment
before adopting its final guidance on the
application of a Safe Harbor indirect
cost rate under a risk-based stewardship
approach.
Authority: 23 U.S.C. 112, 145 and 315; 23
CFR 1.32, and 172; 49 CFR 1.85.
Issued on: July 9, 2018.
Brandye L. Hendrickson,
Acting Administrator, Federal Highway
Administration.
[FR Doc. 2018–15231 Filed 7–16–18; 8:45 am]
BILLING CODE 4910–22–P
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]]>Agencies
[Federal Register Volume 83, Number 137 (Tuesday, July 17, 2018)]
[Notices]
[Pages 33288-33290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15231]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Federal Highway Administration
[FHWA Docket No. FHWA-2017-0023]
Proposed Guidance on Safe Harbor Rate Streamlining for
Engineering and Design Services Consultant Contracts
AGENCY: Federal Highway Administration (FHWA), U.S. Department of
Transportation (DOT).
ACTION: Notice; request for comment.
-----------------------------------------------------------------------
SUMMARY: The FHWA is soliciting comments regarding proposed guidance on
implementation of a Safe Harbor indirect cost rate for certain
engineering design service firms that find establishing such rates to
be costly and a barrier to participating in engineering and design
service contracts reimbursed with Federal-aid Highway Program (FAHP)
Funds. The FHWA seeks comment on its proposed implementation of a Safe
Harbor indirect cost rate and its intention to notify all contracting
agencies receiving FAHP funds that an agency-developed Safe Harbor
indirect cost rate for eligible consulting firms may be used as a
component of a risk-based oversight process to provide reasonable
assurance to FHWA that consultant costs on FAHP-funded contracts are
allowable in accordance with the Federal regulations.
DATES: Comments must be received on or before August 16, 2018. Late-
filed 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 fax comments to (202) 493-
2251. Alternatively, comments may be submitted to the Federal
eRulemaking portal at: https://www.regulations.gov. All comments must
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., ET, Monday through Friday,
except Federal holidays. Those desiring notifications of receipt of
comments must include a self-addressed, stamped postcard, or you may
print the acknowledgment page that appears after submitting comments
electronically. Anyone can search the electronic form of all comments
in any one of our dockets by the name of the individual submitting the
comment (or signing the comment, if submitted on behalf of an
association, business, or labor union). Anyone may review DOT's
complete Privacy Act Statement in the Federal Register published on
April 11, 2000 (Volume 65, Number 70, Pages 19477-78).
FOR FURTHER INFORMATION CONTACT: For questions about the program
discussed herein, contact John McAvoy, Consultant Services Program
Manager, FHWA Office of Program Administration, (202) 853-5593 or via
email at [email protected]. For legal questions, please contact Steve
Rochlis, Office of the Chief Counsel, (202) 366-1395, or via email at
[email protected]. Office hours are from 8:00 a.m. to 4:30 p.m.,
ET, Monday through Friday, except Federal holidays.
SUPPLEMENTARY INFORMATION:
Electronic Access and Filing
You may submit or retrieve comments online through the Federal
eRulemaking portal at: https://www.regulations.gov. The website is
available 24 hours each day, 365 days each year. Please follow the
instructions. Electronic submission and retrieval help and guidelines
are available under the help section of the website. An electronic copy
of this document may also be downloaded from the Office of the Federal
Register's home page at: https://www.archives.gov and the U.S.
Government Publishing
[[Page 33289]]
Office's web page at: https://www.access.gpo.gov/nara.
Purpose of This Notice
The FHWA is requesting comment on its proposed guidance for
implementation of a Safe Harbor indirect cost rate and its intention to
notify all contracting agencies receiving FAHP funds that an agency-
developed Safe Harbor indirect cost rate for eligible consulting firms
may be used as a component of a risk-based oversight process to provide
reasonable assurance to FHWA that consultant costs on FAHP-funded
contracts are allowable in accordance with the Federal regulations.
Comments received through this notice will be considered by FHWA to
assess implementation of a Safe Harbor indirect cost rate.
Background
Consulting firms and contractors providing services under a
contract reimbursed with FAHP funds are required to account for, and
bill, costs in accordance with the Federal cost principles of 48 CFR
part 31. In addition, Federal law and regulations for the FAHP require
contracting agencies to accept indirect cost rates developed in
accordance with the Federal cost principles and to apply those rates
for the purposes of contract estimation, negotiation, administration,
reporting, and contract payment (as specified in 23 U.S.C. 112(b)(2)
and 23 CFR 172.7). As such, consulting firms providing engineering and
design-related services to a contracting agency under a contract funded
by the FAHP are required to develop indirect cost rates in accordance
with the Federal cost principles on an annual basis. Similarly,
contracting agencies must provide reasonable assurance that consulting
firm costs claimed under FAHP-funded contracts, including both direct
and indirect costs, are allowable in accordance with the Federal cost
principles.
Adhering to these accounting requirements can place a significant
burden on some consulting firms and may create a barrier for otherwise
eligible and qualified firms to compete for FAHP-funded contracts. For
example, small firms, including many Disadvantaged Business Enterprise
firms, may lack the financial expertise to develop an indirect cost
rate that would be acceptable to a cognizant Federal or State
government agency, or lack the resources to hire a Certified Public
Accountant (CPA) to conduct an audit to provide assurance as to the
development of an indirect cost rate compliant with Federal
requirements. Often, a CPA audit is cost-prohibitive given the size and
scope of the federally funded contracts for which the firm could
compete. In addition, new or start-up firms generally do not have a
contract-related cost history to use as a base for development of an
indirect cost rate. Other well-established firms may not have previous
experience with federally funded contracts for which a compliant
indirect cost rate could be developed. Currently, these firms are
prohibited from participating in FAHP-funded contracts without the
development and application of a provisional indirect cost rate for the
specific contract, which is adjusted based upon a contracting agency
conducted final audit at the completion of the contract. Even the
smallest final audit requires a significant commitment of contracting
agency audit resources.
To remove these barriers for otherwise qualified consulting firms,
and to enhance contracting agency oversight of compliance with Federal
cost principles, in 2012, the FHWA developed the Safe Harbor Indirect
Cost Rate Test and Evaluation pilot. Ten contracting agencies
representing a diversity of location and size participated in the test.
Eligible consulting firms with whom the contracting agencies do
business have the option of applying a Safe Harbor indirect cost rate
to contracts in instances where the firm does not have an established
rate for the reasons stated above. The selected Safe Harbor indirect
cost rate is significantly lower than the industry average rate,
providing an incentive for firms to develop an actual rate, when able
to do so and consistent with their cost experience, in accordance with
the Federal cost principles as required in Federal law and regulation.
Test results have shown a reduction in the financial management
barriers that prevented new, small, or disadvantaged but qualified
consulting firms from entering the federally funded engineering
services market, and creation of a framework for these consulting firms
to establish a cognizant agency approved indirect cost rate.
Contracting agencies report that 17 consulting firms have graduated
from the program after developing a cost history leading to an approved
indirect cost rate. In addition, following a risk-based approach allows
contracting agency oversight and audit resources to shift focus from
those firms opting to apply a Safe Harbor indirect cost rate (which are
generally employed on fewer contracts or on smaller contracts) to those
firms with multiple, higher dollar contracts and more complex
accounting structures.
The test and evaluation of the Safe Harbor indirect cost rate was
conducted by the following contracting agencies and respective FHWA
Division Offices: Alabama DOT, California Department of Transportation,
Michigan DOT, Missouri DOT, North Carolina DOT, North Dakota DOT, Ohio
DOT, South Carolina DOT, Texas DOT, and Washington State DOT. In these
States, eligible consulting firms have the option of using a Safe
Harbor indirect cost rate on contracts executed within the established
test period. A consulting firm is considered eligible if it has not had
an indirect cost rate previously accepted by a cognizant agency (i.e.,
a governmental agency that has performed or reviewed an audit in
accordance with generally accepted government auditing standards
(GAGAS) 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, as described in 23 CFR 172.3).
Consulting firms with an audited, or otherwise accepted, actual
indirect cost rate, developed in accordance with the Federal cost
principles, are not considered eligible to participate in the Safe
Harbor Program. Contracting agencies are given discretion to determine
the eligibility of consulting firms for a Safe Harbor indirect cost
rate for use on a case-by-case basis and are required to document their
decision.
Through collaboration with the test contracting agencies, FHWA's
test and evaluation pilot used a nationwide Safe Harbor indirect cost
rate of 110 percent of a firm's direct salary rate. The test
contracting agencies agreed that this rate was conservative and
significantly lower than the industry average of typically claimed
indirect cost rates. As such, while still providing for reimbursement
of a significant portion of basic overhead costs, the use of this
conservative rate incentivized consulting firms to develop an actual
indirect cost rate when able to do so. The Safe Harbor indirect cost
rate also provided a minimal risk to contracting agencies for
overpayment to those consulting firms participating in the program.
Based on FHWA's experience with this pilot, FHWA is proposing to expand
the use of the Safe Harbor indirect cost rate, beyond the 10 pilot
States, to allow eligible consulting firms to use a State contracting
agency-developed indirect cost rate.
A Safe Harbor indirect cost rate is not intended for use on field-
based contracts involving field overhead rates. Other direct costs that
are not
[[Page 33290]]
considered to be included within the Safe Harbor Program include:
Travel costs (airfare, rental car, mileage, lodging, per diem, etc.),
external printing and reproduction costs, mailing and shipping costs,
equipment rental fees, sub-consultants, and other direct costs as
appropriate to the contracted services.
A Safe Harbor indirect cost rate is applied to new contracts
executed with a contracting agency, or subrecipient. Once applied to a
contract, the Safe Harbor indirect cost rate should be used for the
duration of the contract. It is not uncommon for new or start-up firms
to show large fluctuations in an indirect cost rate in the initial
years of operation, before contract workload normalizes. Using the Safe
Harbor indirect cost rate for the duration of a contract provides cost
certainty in estimating the total contract amount and helps reduce the
risk of costly contract modifications, necessary due to a significant
fluctuation of an indirect cost rate. Similarly, a Safe Harbor indirect
cost rate may be used in the determination of the fixed fee portion of
the contract, which would not be subject to adjustment unless warranted
by changes to the scope of work or duration of the contract.
Eligible consulting firms that use the Safe Harbor indirect cost
rate, and do not have established salaries or wage rates for employees
or classes of employees, use negotiated, fixed hourly labor rates for
the direct labor portion of the contracted services. The negotiated
direct labor rate should meet the reasonableness provisions as set
forth in 2 CFR 200.404, considering the nature of the services to be
provided. Where appropriate for the scope of services under contract, a
``fully loaded'' hourly rate could be established utilizing a
reasonable hourly direct labor rate, a Safe Harbor indirect cost rate
as the overhead rate component, and an appropriate amount of fixed fee
that considers the complexity and risk involved.
The Safe Harbor indirect cost rate is intended to be a component of
a contracting agency's risk-based oversight process. Contracting
agencies using the Safe Harbor indirect cost rate must first develop
written risk-based oversight procedures designed to provide reasonable
assurance of consultant compliance with the Federal cost principles in
accordance with 23 CFR 172.11(c)(2). The use of the Safe Harbor
indirect cost rate is voluntary for both the contracting agency and for
eligible firms. In reviewing the eligibility of a consulting firm
opting to use the Safe Harbor indirect cost rate, it may be necessary
to contact the State department of transportation in the home State of
the consulting firm to verify the audit history of the firm and ensure
the firm does not have an audited or otherwise accepted indirect cost
rate developed in accordance with the Federal cost principles. Use and
application of the Safe Harbor indirect cost rate by eligible firms is
one component of this risk-based oversight process. Some evaluation of
the accounting system of the consulting firms choosing to use the Safe
Harbor indirect cost rate may be necessary to verify the capability of
accumulating and tracking direct labor for applying the Safe Harbor
indirect cost rate, as well as for billing other direct costs by
contract, segregating indirect costs, etc. The Internal Control
Questionnaire provided in Appendix B of the AASHTO Uniform Audit and
Accounting Guide (2016 Edition) may be used by contracting agencies as
a tool for assessing the accounting system capabilities of firms opting
to use the Safe Harbor indirect cost rate. A contracting agency may
wish to conduct post contract audits or other evaluations to verify
accurate accumulation and billing of direct contract costs. However, an
audit of indirect costs is not necessary for Safe Harbor indirect cost
rate contracts, as the rate should be applied for the duration of the
contract, and retroactive adjustments to indirect costs incurred on
these contracts is not necessary.
If a contracting agency elects to use a Safe Harbor indirect cost
rate program as an element of a risk-based oversight process in
compliance with 23 CFR 172.11(c)(2), the agency shall prepare and
maintain written policies and procedures establishing the program in
accordance with 23 CFR 172.5(c)(10). In conjunction with the
development of written risk-based oversight procedures, the contracting
agency should consider any actions necessary to comply with State
regulation, policy, and/or procedures, as well as any revisions needed
in boilerplate contract language or cost certifications on contracts
applying the Safe Harbor indirect cost rate.
The FHWA Division Office will serve as the primary point of contact
and liaison for the contracting agency. The FHWA Division Offices also
will monitor the respective contracting agency's use of the Safe Harbor
indirect cost rate in accordance with the approved, written risk-based
oversight procedures.
Request for Comment
Federal regulations require contracting agencies to provide
reasonable assurance to the FHWA that consultant costs on contracts
reimbursed with FAHP funding are allowable in accordance with the
Federal cost principles. The FHWA is seeking public comment on
expanding the use of the Safe Harbor indirect cost rate, beyond the 10
pilot States, to allow other interested contracting agencies to use a
self-administered Safe Harbor Program, under a risk-based approach
compliant with 23 CFR 172.11(c), to provide that reasonable assurance.
A self-administered Safe Harbor Program would involve, but not be
limited to, the following:
(1) A contracting agency developed risk-based analysis compliant
with 23 CFR 172.11(c)(2);
(2) Written policies and procedures (Work Plan) consistent with the
pilot program detailed above; and
(3) Approval from the FHWA Division Office in the relevant State.
The workplan used in the test evaluation has been posted on the
docket as an example of the elements that should be included in a risk-
based oversight procedure submitted to FHWA for approval.
Commenters are encouraged to address any or all the areas listed
above. The FHWA encourages commenters to submit any information or data
demonstrating the benefits, costs, and cost-savings of this program.
For example, FHWA would be interested in receiving quantifiable
estimates of the burden associated with the annual development of an
indirect cost rate, hiring a CPA to conduct necessary audits, and any
other costs that would be avoided by a consulting firm or contracting
agency in utilizing this Safe Harbor indirect cost rate. Commenters are
also encouraged to focus on matters within the control of FHWA. The
FHWA will consider public comment before adopting its final guidance on
the application of a Safe Harbor indirect cost rate under a risk-based
stewardship approach.
Authority: 23 U.S.C. 112, 145 and 315; 23 CFR 1.32, and 172; 49
CFR 1.85.
Issued on: July 9, 2018.
Brandye L. Hendrickson,
Acting Administrator, Federal Highway Administration.
[FR Doc. 2018-15231 Filed 7-16-18; 8:45 am]
BILLING CODE 4910-22-P
