83_FR_33425 83 FR 33288 - Proposed Guidance on Safe Harbor Rate Streamlining for Engineering and Design Services Consultant Contracts

83 FR 33288 - Proposed Guidance on Safe Harbor Rate Streamlining for Engineering and Design Services Consultant Contracts

DEPARTMENT OF TRANSPORTATION
Federal Highway Administration

Federal Register Volume 83, Issue 137 (July 17, 2018)

Page Range33288-33290
FR Document2018-15231

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.

Federal Register, Volume 83 Issue 137 (Tuesday, July 17, 2018) 
[Federal Register Volume 83, Number 137 (Tuesday, July 17, 2018)]
[Notices]
[Pages 33288-33290]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-15231]


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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.

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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: http://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 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: http://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: http://www.archives.gov and the U.S. 
Government Publishing

[[Page 33289]]

Office's web page at: http://www.access.thefederalregister.org/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

33288 Federal Register / Vol. 83, No. 137 / Tuesday, July 17, 2018 / Notices presentations and breakout sessions include original equipment FAHP-funded contracts are allowable in during which participants can provide manufacturers, technology suppliers, accordance with the Federal regulations. input to FHWA and DOT transportation network companies, DATES: Comments must be received on representatives. The National Dialogue associations, and public sector partners. or before August 16, 2018. Late-filed meetings began on June 26 and will The National Dialogue will help inform comments will be considered to the continue through the end of 2018. national research, policy, and extent practicable. DATE AND TIME: The FHWA will hold the implementation assistance activities to ADDRESSES: Mail or hand deliver public meetings in approximately five support automation readiness. comments to the U.S. Department of locations across the country. A tentative Meeting Format Transportation, Dockets Management schedule is outlined below and is The National Dialogue meetings are Facility, Room W12–140, 1200 New subject to change. Meeting information designed to support significant Jersey Avenue SE, Washington, DC will be updated and made available on interaction among participants. 20590, or fax comments to (202) 493– the FHWA National Dialogue on Workshops will include discussions 2251. Alternatively, comments may be Highway Automation website: https:// with government and industry leaders, submitted to the Federal eRulemaking ops.fhwa.dot.gov/automationdialogue/ breakout sessions, listening sessions, portal at: http://www.regulations.gov. index.htm. and opportunities to collaborate with All comments must include the docket Tentative meetings include the meeting participants. Each workshop number that appears in the heading of following: will run from 1 to 1.5 days and will this document. All comments received • Week of July 30, 2018: National will be available for examination and Workshop 2: Data and Digital have opportunities for general and topic-specific input. Focus areas copying at the above address from 9 Infrastructure (Seattle, Washington) a.m. to 5 p.m., ET, Monday through • September 2018: National Workshop identified include policy and planning, data and digital infrastructure, freight, Friday, except Federal holidays. Those 3: Freight (Chicago, Illinois) desiring notifications of receipt of • October 24–25, 2018: National operations, safety, infrastructure, and multi-modal safety. comments must include a self- Workshop 4: Operations (Phoenix, addressed, stamped postcard, or you Arizona) Authority: 49 U.S.C. 1.25a. may print the acknowledgment page • November 14–15, 2018: National Issued on: July 6, 2018. that appears after submitting comments Workshop 5: Infrastructure and Multi- Brandye L. Hendrickson, electronically. Anyone can search the Modal Safety (Austin, Texas) Acting Administrator, Federal Highway electronic form of all comments in any FOR FURTHER INFORMATION CONTACT: If Administration. one of our dockets by the name of the you have questions about the public individual submitting the comment (or [FR Doc. 2018–15232 Filed 7–16–18; 8:45 am] meeting, please contact John Corbin at signing the comment, if submitted on BILLING CODE 4910–22–P john.corbin@dot.gov or behalf of an association, business, or highwayautomation@dot.gov. labor union). Anyone may review DOT’s SUPPLEMENTARY INFORMATION: DEPARTMENT OF TRANSPORTATION complete Privacy Act Statement in the Registration is necessary for all Federal Register published on April 11, attendees. Registration information will Federal Highway Administration 2000 (Volume 65, Number 70, Pages be available at https://ops.fhwa.dot.gov/ 19477–78). [FHWA Docket No. FHWA–2017–0023] automationdialogue/index.htm. In- FOR FURTHER INFORMATION CONTACT: For person attendance will be limited, so Proposed Guidance on Safe Harbor questions about the program discussed advance registration is required for all Rate Streamlining for Engineering and herein, contact John McAvoy, attendees. Should it be necessary to Design Services Consultant Contracts Consultant Services Program Manager, cancel the meeting due to inclement AGENCY: Federal Highway FHWA Office of Program weather or other emergency, FHWA will Administration (FHWA), U.S. Administration, (202) 853–5593 or via take all available measures to notify Department of Transportation (DOT). email at john.mcavoy@dot.gov. For legal registered participants beforehand. questions, please contact Steve Rochlis, ACTION: Notice; request for comment. Background Office of the Chief Counsel, (202) 366– Automated vehicles have the SUMMARY: The FHWA is soliciting 1395, or via email at steve.rochlis@ potential to significantly transform the comments regarding proposed guidance dot.gov. Office hours are from 8:00 a.m. Nation’s roadways. They could help on implementation of a Safe Harbor to 4:30 p.m., ET, Monday through save lives, expand access to indirect cost rate for certain engineering Friday, except Federal holidays. transportation, and improve the design service firms that find SUPPLEMENTARY INFORMATION: convenience of travel. However, even as establishing such rates to be costly and Electronic Access and Filing these technologies offer new a barrier to participating in engineering opportunities, they may introduce new and design service contracts reimbursed You may submit or retrieve comments challenges for the agencies responsible with Federal-aid Highway Program online through the Federal eRulemaking for the planning, design, construction, (FAHP) Funds. The FHWA seeks portal at: http://www.regulations.gov. operation, and maintenance of the comment on its proposed The website is available 24 hours each Nation’s roadway infrastructure. As a implementation of a Safe Harbor day, 365 days each year. Please follow result, FHWA is interested in better indirect cost rate and its intention to the instructions. Electronic submission daltland on DSKBBV9HB2PROD with NOTICES understanding the implications of notify all contracting agencies receiving and retrieval help and guidelines are highway automation. FAHP funds that an agency-developed available under the help section of the This National Dialogue on Highway Safe Harbor indirect cost rate for eligible website. An electronic copy of this Automation is an opportunity to engage consulting firms may be used as a document may also be downloaded the public and broader stakeholder component of a risk-based oversight from the Office of the Federal Register’s community to understand their key process to provide reasonable assurance home page at: http://www.archives.gov areas of interest. These stakeholders will to FHWA that consultant costs on and the U.S. Government Publishing VerDate Sep<11>2014 17:07 Jul 16, 2018 Jkt 244001 PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 E:\FR\FM\17JYN1.SGM 17JYN1

Federal Register / Vol. 83, No. 137 / Tuesday, July 17, 2018 / Notices 33289 Office’s web page at: http:// Often, a CPA audit is cost-prohibitive contracts and more complex accounting www.access.gpo.gov/nara. given the size and scope of the federally structures. funded contracts for which the firm The test and evaluation of the Safe Purpose of This Notice Harbor indirect cost rate was conducted could compete. In addition, new or The FHWA is requesting comment on start-up firms generally do not have a by the following contracting agencies its proposed guidance for contract-related cost history to use as a and respective FHWA Division Offices: implementation of a Safe Harbor base for development of an indirect cost Alabama DOT, California Department of indirect cost rate and its intention to rate. Other well-established firms may Transportation, Michigan DOT, notify all contracting agencies receiving not have previous experience with Missouri DOT, North Carolina DOT, FAHP funds that an agency-developed federally funded contracts for which a North Dakota DOT, Ohio DOT, South Safe Harbor indirect cost rate for eligible compliant indirect cost rate could be Carolina DOT, Texas DOT, and consulting firms may be used as a developed. Currently, these firms are Washington State DOT. In these States, component of a risk-based oversight prohibited from participating in FAHP- eligible consulting firms have the option process to provide reasonable assurance funded contracts without the of using a Safe Harbor indirect cost rate to FHWA that consultant costs on development and application of a on contracts executed within the FAHP-funded contracts are allowable in provisional indirect cost rate for the established test period. A consulting accordance with the Federal regulations. specific contract, which is adjusted firm is considered eligible if it has not Comments received through this notice based upon a contracting agency had an indirect cost rate previously will be considered by FHWA to assess conducted final audit at the completion accepted by a cognizant agency (i.e., a implementation of a Safe Harbor of the contract. Even the smallest final governmental agency that has performed indirect cost rate. audit requires a significant commitment or reviewed an audit in accordance with Background of contracting agency audit resources. generally accepted government auditing To remove these barriers for otherwise standards (GAGAS) to test compliance Consulting firms and contractors with the requirements of the Federal providing services under a contract qualified consulting firms, and to enhance contracting agency oversight of cost principles (as specified in 48 CFR reimbursed with FAHP funds are part 31) and issued an audit report of required to account for, and bill, costs compliance with Federal cost principles, in 2012, the FHWA the consultant’s indirect cost rate, as in accordance with the Federal cost described in 23 CFR 172.3). Consulting principles of 48 CFR part 31. In developed the Safe Harbor Indirect Cost firms with an audited, or otherwise addition, Federal law and regulations Rate Test and Evaluation pilot. Ten accepted, actual indirect cost rate, for the FAHP require contracting contracting agencies representing a developed in accordance with the agencies to accept indirect cost rates diversity of location and size Federal cost principles, are not developed in accordance with the participated in the test. Eligible considered eligible to participate in the Federal cost principles and to apply consulting firms with whom the Safe Harbor Program. Contracting those rates for the purposes of contract contracting agencies do business have agencies are given discretion to estimation, negotiation, administration, the option of applying a Safe Harbor determine the eligibility of consulting reporting, and contract payment (as indirect cost rate to contracts in firms for a Safe Harbor indirect cost rate specified in 23 U.S.C. 112(b)(2) and 23 instances where the firm does not have for use on a case-by-case basis and are CFR 172.7). As such, consulting firms an established rate for the reasons stated required to document their decision. providing engineering and design- above. The selected Safe Harbor indirect Through collaboration with the test related services to a contracting agency cost rate is significantly lower than the contracting agencies, FHWA’s test and under a contract funded by the FAHP industry average rate, providing an evaluation pilot used a nationwide Safe are required to develop indirect cost incentive for firms to develop an actual Harbor indirect cost rate of 110 percent rates in accordance with the Federal rate, when able to do so and consistent of a firm’s direct salary rate. The test cost principles on an annual basis. with their cost experience, in contracting agencies agreed that this rate Similarly, contracting agencies must accordance with the Federal cost was conservative and significantly provide reasonable assurance that principles as required in Federal law lower than the industry average of consulting firm costs claimed under and regulation. typically claimed indirect cost rates. As FAHP-funded contracts, including both Test results have shown a reduction such, while still providing for direct and indirect costs, are allowable in the financial management barriers reimbursement of a significant portion in accordance with the Federal cost that prevented new, small, or of basic overhead costs, the use of this principles. disadvantaged but qualified consulting conservative rate incentivized Adhering to these accounting firms from entering the federally funded consulting firms to develop an actual requirements can place a significant engineering services market, and indirect cost rate when able to do so. burden on some consulting firms and creation of a framework for these The Safe Harbor indirect cost rate also may create a barrier for otherwise consulting firms to establish a cognizant provided a minimal risk to contracting eligible and qualified firms to compete agency approved indirect cost rate. agencies for overpayment to those for FAHP-funded contracts. For Contracting agencies report that 17 consulting firms participating in the example, small firms, including many consulting firms have graduated from program. Based on FHWA’s experience Disadvantaged Business Enterprise the program after developing a cost with this pilot, FHWA is proposing to firms, may lack the financial expertise history leading to an approved indirect expand the use of the Safe Harbor to develop an indirect cost rate that cost rate. In addition, following a risk- indirect cost rate, beyond the 10 pilot daltland on DSKBBV9HB2PROD with NOTICES would be acceptable to a cognizant based approach allows contracting States, to allow eligible consulting firms Federal or State government agency, or agency oversight and audit resources to to use a State contracting agency– lack the resources to hire a Certified shift focus from those firms opting to developed indirect cost rate. Public Accountant (CPA) to conduct an apply a Safe Harbor indirect cost rate A Safe Harbor indirect cost rate is not audit to provide assurance as to the (which are generally employed on fewer intended for use on field-based development of an indirect cost rate contracts or on smaller contracts) to contracts involving field overhead rates. compliant with Federal requirements. those firms with multiple, higher dollar Other direct costs that are not VerDate Sep<11>2014 17:07 Jul 16, 2018 Jkt 244001 PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 E:\FR\FM\17JYN1.SGM 17JYN1

33290 Federal Register / Vol. 83, No. 137 / Tuesday, July 17, 2018 / Notices considered to be included within the may be necessary to contact the State Request for Comment Safe Harbor Program include: Travel department of transportation in the costs (airfare, rental car, mileage, home State of the consulting firm to Federal regulations require lodging, per diem, etc.), external verify the audit history of the firm and contracting agencies to provide printing and reproduction costs, mailing ensure the firm does not have an reasonable assurance to the FHWA that and shipping costs, equipment rental audited or otherwise accepted indirect consultant costs on contracts fees, sub-consultants, and other direct cost rate developed in accordance with reimbursed with FAHP funding are costs as appropriate to the contracted the Federal cost principles. Use and allowable in accordance with the services. application of the Safe Harbor indirect Federal cost principles. The FHWA is A Safe Harbor indirect cost rate is cost rate by eligible firms is one seeking public comment on expanding applied to new contracts executed with the use of the Safe Harbor indirect cost component of this risk-based oversight a contracting agency, or subrecipient. rate, beyond the 10 pilot States, to allow process. Some evaluation of the Once applied to a contract, the Safe other interested contracting agencies to Harbor indirect cost rate should be used accounting system of the consulting firms choosing to use the Safe Harbor use a self-administered Safe Harbor for the duration of the contract. It is not Program, under a risk-based approach uncommon for new or start-up firms to indirect cost rate may be necessary to verify the capability of accumulating compliant with 23 CFR 172.11(c), to show large fluctuations in an indirect and tracking direct labor for applying provide that reasonable assurance. A cost rate in the initial years of operation, the Safe Harbor indirect cost rate, as self-administered Safe Harbor Program before contract workload normalizes. Using the Safe Harbor indirect cost rate well as for billing other direct costs by would involve, but not be limited to, the for the duration of a contract provides contract, segregating indirect costs, etc. following: cost certainty in estimating the total The Internal Control Questionnaire (1) A contracting agency developed contract amount and helps reduce the provided in Appendix B of the risk-based analysis compliant with 23 risk of costly contract modifications, AASHTO Uniform Audit and CFR 172.11(c)(2); necessary due to a significant Accounting Guide (2016 Edition) may be (2) Written policies and procedures fluctuation of an indirect cost rate. used by contracting agencies as a tool (Work Plan) consistent with the pilot Similarly, a Safe Harbor indirect cost for assessing the accounting system program detailed above; and rate may be used in the determination capabilities of firms opting to use the of the fixed fee portion of the contract, Safe Harbor indirect cost rate. A (3) Approval from the FHWA Division which would not be subject to contracting agency may wish to conduct Office in the relevant State. adjustment unless warranted by changes post contract audits or other evaluations The workplan used in the test to the scope of work or duration of the to verify accurate accumulation and evaluation has been posted on the contract. billing of direct contract costs. However, docket as an example of the elements Eligible consulting firms that use the an audit of indirect costs is not that should be included in a risk-based Safe Harbor indirect cost rate, and do necessary for Safe Harbor indirect cost oversight procedure submitted to FHWA not have established salaries or wage for approval. rate contracts, as the rate should be rates for employees or classes of applied for the duration of the contract, Commenters are encouraged to employees, use negotiated, fixed hourly and retroactive adjustments to indirect address any or all the areas listed above. labor rates for the direct labor portion of the contracted services. The negotiated costs incurred on these contracts is not The FHWA encourages commenters to direct labor rate should meet the necessary. submit any information or data reasonableness provisions as set forth in If a contracting agency elects to use a demonstrating the benefits, costs, and 2 CFR 200.404, considering the nature Safe Harbor indirect cost rate program cost-savings of this program. For of the services to be provided. Where as an element of a risk-based oversight example, FHWA would be interested in appropriate for the scope of services process in compliance with 23 CFR receiving quantifiable estimates of the under contract, a ‘‘fully loaded’’ hourly 172.11(c)(2), the agency shall prepare burden associated with the annual rate could be established utilizing a and maintain written policies and development of an indirect cost rate, reasonable hourly direct labor rate, a procedures establishing the program in hiring a CPA to conduct necessary Safe Harbor indirect cost rate as the accordance with 23 CFR 172.5(c)(10). In audits, and any other costs that would overhead rate component, and an conjunction with the development of be avoided by a consulting firm or appropriate amount of fixed fee that written risk-based oversight procedures, contracting agency in utilizing this Safe considers the complexity and risk the contracting agency should consider Harbor indirect cost rate. Commenters involved. any actions necessary to comply with are also encouraged to focus on matters The Safe Harbor indirect cost rate is State regulation, policy, and/or within the control of FHWA. The intended to be a component of a procedures, as well as any revisions FHWA will consider public comment contracting agency’s risk-based needed in boilerplate contract language before adopting its final guidance on the oversight process. Contracting agencies or cost certifications on contracts using the Safe Harbor indirect cost rate application of a Safe Harbor indirect applying the Safe Harbor indirect cost cost rate under a risk-based stewardship must first develop written risk-based rate. approach. oversight procedures designed to provide reasonable assurance of The FHWA Division Office will serve Authority: 23 U.S.C. 112, 145 and 315; 23 consultant compliance with the Federal as the primary point of contact and CFR 1.32, and 172; 49 CFR 1.85. daltland on DSKBBV9HB2PROD with NOTICES cost principles in accordance with 23 liaison for the contracting agency. The Issued on: July 9, 2018. CFR 172.11(c)(2). The use of the Safe FHWA Division Offices also will Harbor indirect cost rate is voluntary for monitor the respective contracting Brandye L. Hendrickson, both the contracting agency and for agency’s use of the Safe Harbor indirect Acting Administrator, Federal Highway eligible firms. In reviewing the cost rate in accordance with the Administration. eligibility of a consulting firm opting to approved, written risk-based oversight [FR Doc. 2018–15231 Filed 7–16–18; 8:45 am] use the Safe Harbor indirect cost rate, it procedures. BILLING CODE 4910–22–P VerDate Sep<11>2014 17:07 Jul 16, 2018 Jkt 244001 PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 E:\FR\FM\17JYN1.SGM 17JYN1


Document Created: 2018-07-17 01:38:54
Document Modified: 2018-07-17 01:38:54
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
ActionNotice; request for comment.
DatesComments must be received on or before August 16, 2018. Late- filed comments will be considered to the extent practicable.
ContactFor 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.
FR Citation83 FR 33288 
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