The FHWA established SEP-14 in 1990 at the recommendation of the Transportation Research Board. The purpose of SEP-14 is to identify, evaluate, and document innovative contracting practices that have the potential to reduce the life cycle cost of projects while maintaining product quality. Within the regulatory requirements of the Federal-aid highway program, there is some degree of flexibility and thus SEP-14 was developed to provide the States with a vehicle to explore new concepts in construction contracting. These concepts often involve new and expanded roles for the private sector, and many also provide strong performance incentives for the private sector. Most projects undertaken under the SEP-14 program, however, have not involved private sector financing of highway projects. Even when no private money is directly involved in the construction and operation of the SEP-14 projects, many of the special construction techniques used place far greater responsibilities on the contractor. Thus, because of the greater role assumed by the private sector, they are considered public-private partnerships in this report.
The FHWA initially approved several contracting techniques for evaluation under SEP-14:
• Cost-Plus-Time Bidding (also known as A+B Bidding), a contracting method that considers the time needed to complete the project in addition to the project cost. This type of contracting shifts the risks of failing to meet project deadlines to the private contractor;
• Lane Rental is a concept to encourage contractors to minimize road user impacts during construction. Under the lane rental concept, a provision for a rental fee assessment is included in the contract. The lane rental fee is based on estimated cost of delay or inconvenience to the road user during the rental period. The fee is assessed for the time that the contractor occupies or obstructs part of the roadway and is deducted from the monthly progress payments;
∙ Design-Build Contracting, which allows a single contract for both the design and construction of a project. This type of contract gives the private contractor a greater decisionmaking role in project development; and
∙ Warranty Clauses, a contracting mechanism by which the private contractor provides assurances that it will correct failures in materials or workmanship for a certain period of time. This mechanism shifts the risk of maintaining an acceptable level of project quality to the private contractor.
In the early 1990s, the FHWA gave SEP-14 approval to hundreds of cost-plus-time bidding, lane rental and warranty projects. Since 1990, over 300 design-build projects have been approved under SEP-14. Most States have used at least one of the innovative practices under SEP-14. In 1995, based on the collective experience of the States, the FHWA decided that cost-plus-time bidding, lane rental, and warranty clauses were techniques suitable for use on a nonexperimental, operational basis.
On December 10, 2002, based on its experience with SEP-14 and as required by section 1307 of TEA-21, the FHWA issued a final rulemaking for the design-build contracting method. In keeping with the definition of a "qualified project" in section 1307, the FHWA Division Administrators were delegated the authority to approve design-build projects greater than $50 million on an operational basis and smaller design-build projects on an experimental basis under SEP-14. The FHWA's 2002 final rule has two provisions that have a significant bearing on the use of Federal-aid highway funds and the Federal-aid approval process as it relates to the most innovative public-private partnerships. These two provisions are as follows:
∙ 23 CFR 636.109 describes the FHWA's policy for the release of the Request-For-Proposal document in the typical design-build procurement process relative to the conclusion of the NEPA review process. This policy prohibits the release of a RFP prior to the conclusion of the NEPA process.
∙ 23 CFR 636.119 sets forth the Agency's contracting policies for design-build contracts. This policy requires contracting agencies to include price competition in the procurement process as a condition of receiving Federal-aid. If the contracting agency enters into a public-private agreement that does not assign price and risk, then the private entity (i.e., the developer) is considered to be an agent of the owner. As such, the "agent of the owner" must comply with the FHWA's requirements for construction or design-build contracts to ensure adequate price competition when subletting any work under the public-private agreement. If the public-private agreement assigns price and risk, then the developer is considered to be a design-builder and all subsequent contracts are considered to be subcontracts that are not subject to Federal-aid procurement requirements.
The design-build regulations were crafted for the typical design-build project. For example, the provision contained in Section 636.109 regarding prior completion of the NEPA process is appropriate for most design-build projects where project concepts are well developed before the design-build contract is let. However, a few public-private partnerships are formed before project concepts have developed to a point where they can be analyzed in a NEPA document. In these unusual cases, the FHWA believes further flexibility may be warranted.
Therefore, in two cases, the FHWA again used SEP-14 to allow States to try alternative approaches. On February 27, 2004 the FHWA approved the Texas Department of Transportation (TxDOT) request for a waiver of many of the FHWA's design-build requirements for the I-35 High Priority Trans-Texas Corridor Project. This waiver is significant in two important aspects. First, it will allow TxDOT to proceed with the procurement of the project developer in advance of the conclusion of the NEPA review process. To maintain an independent, unbiased NEPA review process, the TxDOT has contracted with an independent consultant to assist in the development of the NEPA document. Secondly, the I-35 waiver will also allow TxDOT to proceed with the procurement of the corridor developer at a very early stage in the project development process. It is expected that the final executed development agreement will contain provisions for the negotiation of scope and price as the project develops. Prior to executing the development agreement, the TxDOT and the FHWA Texas Division will develop formal procedures for verifying price reasonableness and developing an independent estimate. This procedure should ensure fair pricing for all work done under the development agreement. In addition, the FHWA allowed the Virginia DOT to proceed with the procurement of the I-81 corridor project subject to compliance with NEPA requirements.
It is anticipated that the use of public-private partnerships will continue to grow and the FHWA will support these projects with the appropriate SEP-14 related measures when necessary.