The Federal-Aid Highway Program generally mandates the use of low-bid procurements. Federal-aid highway construction contracts should be awarded competitively to the lowest responsive bidder.119 Thus, a state planning to use federal money for a project or seeking to improve a federal-aid highway must use competitive bidding procedures unless it demonstrates that some other method is more cost effective or that an emergency exists. Moreover, engineering service con-tracts should be awarded using qualifications-based selection procedures.120 As a result of these two federal statutory requirements, which require design and construction contracts to be procured in different manners, D/B contracts and other quality-oriented contracting techniques often used in PPPs effectively are prohibited unless explicit FHWA approval is obtained.
Since 1990, FHWA has supported the evaluation of certain innovative contracting techniques through SEP-14.121 SEP-14 originally was formed, under FHWA's research and development authority, to evaluate recommendations made by a Transportation Research Board task force on innovative contracting practices. SEP-14 provided a vehicle for states to experiment with new concepts in construction contracting within the Federal-Aid Highway Program. The objective of SEP-14 was to assess innovative contracting practices that might reduce the life-cycle cost of projects while maintaining project quality. As a result of successful implementation by many states under SEP-14, four experimental techniques (D/B, cost-plus-time bidding, lane rental, and warranty clauses) have become accepted techniques. As noted above, a SEP-14 waiver granted by FHWA allowed UDOT to use certain experimental D/B and procurement techniques for the I-15 reconstruction project that would otherwise have been prohibited by federal procurement law.
In October 2004, FHWA established Special Experimental Project No. 15 (SEP-15) to explore alternative and innovative approaches to the project development process.122 SEP-15 allows FHWA to explore innovative approaches to project delivery that are designed to in-crease project management flexibility, encourage innovation, improve timely delivery, and generate new revenue streams for federal-aid highway projects. SEP-15 allows states to apply for conditional approval of innovative approaches to project development on a project-by-project basis.
The purpose of the SEP-15 program is to encourage tests and experimentation in the entire project delivery process with a focus on identifying impediments in current laws, regulations, and practices to the greater use of PPPs and private investment in transportation projects. This gives states the flexibility to propose innovative procurement ideas, although any proposed experimental approach must comply with otherwise applicable federal and state laws (such as environmental laws) and any conditioned approval will be contingent on close oversight and monitoring by FHWA. Prior to FHWA's August 2007 enactment of its final D/B contracting rule, FHWA had granted both Texas and Oregon conditional approval to issue an RFP for a D/B contract prior to the completion of the NEPA process. This approach is now permitted under the FHWA regulations.
One example of a SEP-15 method under evaluation is the procurement process that was proposed as part of the Oregon Innovative Partnerships Program. As part of the procurement process for the three projects under consideration, Oregon proposed to negotiate the final design and construction price with the developer using a completely transparent (open book) approach to con-firm its reasonableness. FHWA's D/B rule generally contemplates that a proposed lump sum price for D/B services will be a factor in contractor selection, thus allowing a competing price proposal to be used as the basis for determining price reasonableness. Nonetheless, FHWA gave Oregon conditional approval to proceed with this approach but (if any of the three projects go forward) will monitor whether the "open book" method adequately ensures competition and price reasonableness.
As demonstrated by the examples mentioned above, both SEP-14 and SEP-15 provide significant opportunities for project sponsors to seek FHWA approval for experimental approaches to project delivery. Although neither SEP-14 nor SEP-15 would authorize any action expressly prohibited by federal highway law or other federal and state laws, both programs give FHWA considerable flexibility to consider the permissibility of innovative approaches that allow project sponsors to work around federal legal barriers. As the D/B example shows, many of these experimental approaches later become codified into law or regulation following successful implementation in practice.
___________________________________________________________________________
119 Section 112(b)(1) of tit. 23.
120 Section 112(b)(2) of tit. 23. The federal "Brooks Act," 40 U.S.C. § 1101 et seq. (formerly § 541), with a counterpart at FAR 36.6, requires federal agencies procuring architectural, engineering, or land surveying services to base their selection on "demonstrated competence and qualifications" instead of just the lowest responsible bidder. Id. Many states have modeled their own public RFP procedures on the Federal Brooks Act.
121 SEP-14 originally was referred to as the "Innovative Contracting" program. In 2002, FHWA changed the name of the program to "Alternative Contracting" to reflect the fact that many of the contracting practices under evaluation had become widely used. See Ray, supra note 114, at 2.
122 See 69 Fed. Reg. 59983 (Oct. 6, 2004).