A somewhat disconcerting trend from several state and local agencies is to attempt to unilaterally reduce existing contract prices is apparently not acceptable to the federal government.
A few agencies have sent letters to their consultants that effectively state “due to budget constraints we are going to reduce the price of all contracts by X%, and there will no changes in either scope or schedule”.
While we have sympathy with agencies in the current economic crunch on their available funds, this is clearly a unilateral change in a single contract term (price) being imposed by one party to the contract.
FHWA has advised one state DOT in a letter dated October 21st, that this process does not comply with applicable laws and regulations. FHWA states that any change in a contract term requires a renegotiation of all terms of the contract, including reducing scope if price is reduced. In other words a unilateral decision by one party in the contract is not a valid contracting approach.
We believe this advisory letter may discourage other agencies that are thinking of using this approach to reduce their expenses. We also believe this is a fair approach by FHWA, since basic contract law does not permit unilateral contract changes such as were being sought by the government.
Friday, October 30, 2009
Thursday, October 8, 2009
AASHTO Audit Committee Adopts New Audit Guide
By a vote of 40 to 3 the AASHTO Audit Committee has adopted the proposed revised Audit Guide.
The draft Guide now goes to the full AASHTO group for approval, and is expected to be adopted at their meeting the week of October 19th.
If adopted as expected, the Guide will become effective January 1, 2010.
Since this Guide requires firms serving DOT clients to be proactive to obtain approval of their costs, we urge all firms to become familiar with its contents and begin to plan for compliance.
The draft Guide now goes to the full AASHTO group for approval, and is expected to be adopted at their meeting the week of October 19th.
If adopted as expected, the Guide will become effective January 1, 2010.
Since this Guide requires firms serving DOT clients to be proactive to obtain approval of their costs, we urge all firms to become familiar with its contents and begin to plan for compliance.
Saturday, September 12, 2009
New AASHTO Audit Guide Available
The final draft of the revised AASHTO Audit Guide is now available for review and downloading. It is available at:
http://audit.transportation.org/?siteid=43 & select Uniform Audit & Accounting Guide 09-11-09 (No Markup) to open the PDF file, which can be saved.
This is the version expected to be adopted, first by the AASHTO Audit Subcommittee (by the end of September), the full AASHTO group (at their October meeting) and then to be effective January 1, 2010 and applicable to all costs and audits for years starting on or after this date. FHWA is expected to proceed with rulemaking in 2010 to make this guide part of the rules applicable to federal grants.
Firms with DOT clients should pay particular attention to the chapters on timekeeping, labor costing and compensation. If the firm has their own CPA overhead audit they should have their CPA review the chapters on audit standards and the audit checklist.
The major beneficial change for firms is this manual will be adopted by all states, and will apply to all states. This will greatly reduce the individual overhead rate schedules now required because so many states have policies that require unique treatment of costs just for the individual state. The guide clearly states that any deviations from FAR (or this guide) must be based on state law.
http://audit.transportation.org/?siteid=43 & select Uniform Audit & Accounting Guide 09-11-09 (No Markup) to open the PDF file, which can be saved.
This is the version expected to be adopted, first by the AASHTO Audit Subcommittee (by the end of September), the full AASHTO group (at their October meeting) and then to be effective January 1, 2010 and applicable to all costs and audits for years starting on or after this date. FHWA is expected to proceed with rulemaking in 2010 to make this guide part of the rules applicable to federal grants.
Firms with DOT clients should pay particular attention to the chapters on timekeeping, labor costing and compensation. If the firm has their own CPA overhead audit they should have their CPA review the chapters on audit standards and the audit checklist.
The major beneficial change for firms is this manual will be adopted by all states, and will apply to all states. This will greatly reduce the individual overhead rate schedules now required because so many states have policies that require unique treatment of costs just for the individual state. The guide clearly states that any deviations from FAR (or this guide) must be based on state law.
Sunday, July 26, 2009
AASHTO Audit Guide Delayed
Despite the effort to have the revised AASHTO Audit Guide ready for a final approval by the AASHTO Audit Group at their annual convention in July, certain portions of the draft are still being revised.
The new plan is to have a final draft ready by mid August and to have the states ratify it by written or electronic ballot.
The goal is to have the full AASHTO approval occur at AASHTO’s annual meeting in October, and then to have FHWA begin any necessary rulemaking early in 2010.
For a copy of the most recent draft of the guide go to http://audit.transportation.org/?siteid=43 and select the current draft (with or without comment versions are available)
This updated guide will (if adopted as expected) significantly change allowable cost practices in the states that have established individual state policies on costs, as the primary purpose of this update to the guide is to standardize the states to FAR standard practices.
The new plan is to have a final draft ready by mid August and to have the states ratify it by written or electronic ballot.
The goal is to have the full AASHTO approval occur at AASHTO’s annual meeting in October, and then to have FHWA begin any necessary rulemaking early in 2010.
For a copy of the most recent draft of the guide go to http://audit.transportation.org/?siteid=43 and select the current draft (with or without comment versions are available)
This updated guide will (if adopted as expected) significantly change allowable cost practices in the states that have established individual state policies on costs, as the primary purpose of this update to the guide is to standardize the states to FAR standard practices.
Saturday, July 11, 2009
Delay on Transportation Act Seems Likely
The House Ways & Means Committee has announced they will not take up a renewal of the soon to expire Surface Transportation authorization until after they have finished with Health Care Reform.
With Health Care now looking like it will extend into at least September (with the August Recess) it appears unlikely that Transportation will be not be finalized in time to prevent a lapse in September.
Look for an extension of current programs at current funding levels.
However, the Administration has proposed an 18 month extension.
Also complicating matters is the shortage in the Highway Trust fund that will begin to reduce spending next month if this is not fixed.
Transportation uncertainty is likely to delay transportation construction in states as they are unlikely to be able to make long-term project plans with uncertain funding.
Firms are likely to see lower new starts until this issue is respolved on a long term basis.
With Health Care now looking like it will extend into at least September (with the August Recess) it appears unlikely that Transportation will be not be finalized in time to prevent a lapse in September.
Look for an extension of current programs at current funding levels.
However, the Administration has proposed an 18 month extension.
Also complicating matters is the shortage in the Highway Trust fund that will begin to reduce spending next month if this is not fixed.
Transportation uncertainty is likely to delay transportation construction in states as they are unlikely to be able to make long-term project plans with uncertain funding.
Firms are likely to see lower new starts until this issue is respolved on a long term basis.
September 8 Appears to be E-verify deadline
After several delays, Congressional pressure to implement the requirment for E-verify use by all federal contractors is no o track to actually go into effect on September 8.
As part of the final rules, the requirment to terminate employees within 30 days following a "no-match" result has been modified.
As part of the final rules, the requirment to terminate employees within 30 days following a "no-match" result has been modified.
Sunday, June 28, 2009
New Jersey DOT Seeking Salary Freeze in Consultant Contracts
In a June 26, 2009 letter to all NJ DOT consultants, the state is advising that all new contracts will no longer contain cost escalation clauses. DOT will also be seeking to change existing contracts to eliminate current clauses permitting cost escalation.
This is primarily aimed at labor escalation, meaning the DOT is seeking a labor rate freeze for all existing and future contracts.
This is primarily aimed at labor escalation, meaning the DOT is seeking a labor rate freeze for all existing and future contracts.
Sunday, June 7, 2009
E-Verify Postponed Again
The requirement for government contractors to use the E-Verify system to verify prospective employees eligibility for employment has been postponed again.
The date is now September 8, 2009. No reason was cited for this latest delay.
The date is now September 8, 2009. No reason was cited for this latest delay.
Sunday, May 31, 2009
Maximum Individual Compensation for 2009
The Exectuive compensation becnhmark limit for 2009 has been established as $684,181.
This is the limit on indiviudal compesation for the calander year
This is the limit on indiviudal compesation for the calander year
Saturday, May 23, 2009
Expanded Definition for Federally Funded Work from FHWA
In the past FHWA, and most state DOTS have interpreted the requirements for a federal assistance engineering project as one in which all, or part of the engineering fees were funded by federal aid funds.
In a revised definition from FHWA, federally assistance includes projects where the engineering fees are used as all, or part of the local matching funds for a federally assisted highway construction projects.
The difference for A/E firms is that projects that qualify as federal projects must use FAR contracting rules and cost allowability rather than typically more restrictive cost reimbursement under state policies.
Several states have claimed that they pay engineering fees from state funds, thus the rules of Section 307 and 174 requiring FAR overhead rates do not apply. Firms are thus restricted to lower maximum salaries and higher unallowable costs under state policies that do not conform to FAR rules.
This change means more A/E contracts should be considered to be federally funded for the purposes of applying FAR cost rules to contract costs.
Firms should ask their DOT not only if a proposed contract is federally assisted, but if the contract is being used for the local matching requirements on a federally assisted construction project.
In a revised definition from FHWA, federally assistance includes projects where the engineering fees are used as all, or part of the local matching funds for a federally assisted highway construction projects.
The difference for A/E firms is that projects that qualify as federal projects must use FAR contracting rules and cost allowability rather than typically more restrictive cost reimbursement under state policies.
Several states have claimed that they pay engineering fees from state funds, thus the rules of Section 307 and 174 requiring FAR overhead rates do not apply. Firms are thus restricted to lower maximum salaries and higher unallowable costs under state policies that do not conform to FAR rules.
This change means more A/E contracts should be considered to be federally funded for the purposes of applying FAR cost rules to contract costs.
Firms should ask their DOT not only if a proposed contract is federally assisted, but if the contract is being used for the local matching requirements on a federally assisted construction project.
Wednesday, April 29, 2009
E-Verify Postponed (Again)
The requirement for many government contractors to use the E-Verify system to verify employee eligability to work in the U. S. has been postponed again.
The new deadline for implementation is now June 30, 2009
The new deadline for implementation is now June 30, 2009
Saturday, March 28, 2009
Stimulus Funds Include All Federal Contracting Rules
As the stimulus rules are issued by the various agencies dispensing funds and grants, it is very clear that all federal contracting rules apply to all stimulus funds, no matter who actually does the contracting.
For A/E contracts this includes:
Project selection must be by Brooks Act (QBS) procedures
Contracts must be an acceptable federal contract type, and lump sum contracts are the preferred form of agreement
Costs must be estimated and costs accumulated in accordance with Federal Acquisition Regulations (FAR) cost principals
Proposals and contracts are subject to audit
For some local government or agencies, these requirements may not be in synch with their normal A/E contracting policies. Not acceptable contracting includes bidding for A/E contracts and percentage of construction cost contracts.
Agencies the do not adhere to the applicable federal rules risk the revocation of grant funds, which could place agencies at risk for reimbursing stimulus funds.
One message is becoming exceedingly clear as the rules are issued. Not only are all rules applicable to stimulus funds, even past exemptions are prohibited for these funds. Added rules have been enacted on reporting spending progress as well so the contracts must clearly adhere to the stimulus rules.
Saturday, March 14, 2009
FAA Issues Stimulus Grant Guidelines
On March 3rd the FAA issued guidance to recipients of grants from the Stimulus bill.
This guidance instructs airports to use all existing contracting regulations for any funds received from the Stimulus bill.
For A/E services, this means projects selections must be by QBS (Brooks Act) procedures.
Contracts are subject to the Federal Acquisition Regulations (FAR) so costs and fees must meet these regulations.
Of particular interest is that airports must not “mix” stimulus funds with other grant funds. This means that stimulus funds may not be used to modify existing contracts funded from other grant sources. Since the local matching funds are 0% for, this should mean all stimulus funs are stand-alone projects, not extensions of other current projects.
This guidance instructs airports to use all existing contracting regulations for any funds received from the Stimulus bill.
For A/E services, this means projects selections must be by QBS (Brooks Act) procedures.
Contracts are subject to the Federal Acquisition Regulations (FAR) so costs and fees must meet these regulations.
Of particular interest is that airports must not “mix” stimulus funds with other grant funds. This means that stimulus funds may not be used to modify existing contracts funded from other grant sources. Since the local matching funds are 0% for, this should mean all stimulus funs are stand-alone projects, not extensions of other current projects.
Monday, March 2, 2009
Auditors May be Everywhere!
For the projects that will be performed using Stimulus Act funds, there is extra access for auditors on Stimulus funding.
1. The Government Accounting Office (GAO) is granted the right to audit all stimulus funded contracts.
2. The Inspector General (IG) of each agency can audit any contract using stimulus funds.
3. There is going to be a new Accountability and Transparency Board (to be appointed) that will also have the right to audit all stimulus fund contracts
The audit rights of each of these groups have also been expanded. Each of these audit groups will now have the right to interview any officer or employee of the contracted firm.
Another item of note is that these offices may accept information from the public and must investigate the information if they believe it has credibility.
Clearly, stimulus funds are going to be subject to a very high degree of scrutiny.
1. The Government Accounting Office (GAO) is granted the right to audit all stimulus funded contracts.
2. The Inspector General (IG) of each agency can audit any contract using stimulus funds.
3. There is going to be a new Accountability and Transparency Board (to be appointed) that will also have the right to audit all stimulus fund contracts
The audit rights of each of these groups have also been expanded. Each of these audit groups will now have the right to interview any officer or employee of the contracted firm.
Another item of note is that these offices may accept information from the public and must investigate the information if they believe it has credibility.
Clearly, stimulus funds are going to be subject to a very high degree of scrutiny.
Ethics Program Requirements
The new more formal requirements for government contractors to have in place ethics programs require firms to have more extensive documentation on business ethics.
Every contractor with a “covered contract” (defined as a contract of over $5 million and lasting more than 120 days) must have:
1. A written business ethics plan.
2. A written process for employees to report possible ethics violations by the business or its subcontractors (supported by notification of employees of how this works)
3. Processes in place to show that all employees have been instructed in how the plan works
4. Principal employees must have sufficient background checks to determine they do not have past ethics violations that would bar them from government contracts. While Principals is not defined, it appears to mean persons with contract responsibility, such as the PM or PIC.
5. That processes are in place to verify that proposed subcontractors meet these ethics requirements
These rules are contained at FAR 52.203-13
Since most A/E contracts will require performance over a longer than 120 period, it is likely that if you have FAR covered contracts, you will need to meet these standards.
Of particular concern is the requirement to verify that subs are in compliance, since this may affect how you select teams even before you are selected for a project.
Every contractor with a “covered contract” (defined as a contract of over $5 million and lasting more than 120 days) must have:
1. A written business ethics plan.
2. A written process for employees to report possible ethics violations by the business or its subcontractors (supported by notification of employees of how this works)
3. Processes in place to show that all employees have been instructed in how the plan works
4. Principal employees must have sufficient background checks to determine they do not have past ethics violations that would bar them from government contracts. While Principals is not defined, it appears to mean persons with contract responsibility, such as the PM or PIC.
5. That processes are in place to verify that proposed subcontractors meet these ethics requirements
These rules are contained at FAR 52.203-13
Since most A/E contracts will require performance over a longer than 120 period, it is likely that if you have FAR covered contracts, you will need to meet these standards.
Of particular concern is the requirement to verify that subs are in compliance, since this may affect how you select teams even before you are selected for a project.
Sunday, February 22, 2009
Contracting with Stimulus Funds
The federal government has promised “unprecedented” oversight to reduce “waste and fraud” in the use of stimulus funds.
OMB has the first guidance to recipients of stimulus funds on the requirements for this spending (OMB Guidance February 18,2009 – Initial Implementing Guidance for the American Recovery and Investment Act of 2009).
The initial guidance (they anticipate a series of directives) offers primary guidance to agencies in documenting on they use funds.
Primary recipients of funds are defined as Federal agencies and the first level of recipients from the federal level (with an exception for tribal entities). This first level could be a state, a local government or a contractor. Levels below that first tier are not subject to the same reporting rules. Thus state grants to cities, or state or local contracts with contractors would not be subject to the tier 1 reporting rules.
Two key points are evident in the spending requirements:
First, contracts are expected to be lump sum contracts in accordance with FAR Part 16. Other types of federal contracts are permissible, but only if the decision to use other than a fixed price contract is approved by the granting authority.
This means percentage of construction cost, cost plus a percentage of cost and some other contract types are prohibited in the use of stimulus funds. The risk to grant recipients is that the grant can be rescinded if an improper contract type is used.
The other key requirement is reporting of jobs created or sustained in the use of funds. This will require firms using stimulus funds to report somewhat different information, equivalent to the FTE expectations for a contract.
Agencies should start adding this requirement immediately to contract proposals in order to meet OMB and stimulus legislative requirements.
OMB has the first guidance to recipients of stimulus funds on the requirements for this spending (OMB Guidance February 18,2009 – Initial Implementing Guidance for the American Recovery and Investment Act of 2009).
The initial guidance (they anticipate a series of directives) offers primary guidance to agencies in documenting on they use funds.
Primary recipients of funds are defined as Federal agencies and the first level of recipients from the federal level (with an exception for tribal entities). This first level could be a state, a local government or a contractor. Levels below that first tier are not subject to the same reporting rules. Thus state grants to cities, or state or local contracts with contractors would not be subject to the tier 1 reporting rules.
Two key points are evident in the spending requirements:
First, contracts are expected to be lump sum contracts in accordance with FAR Part 16. Other types of federal contracts are permissible, but only if the decision to use other than a fixed price contract is approved by the granting authority.
This means percentage of construction cost, cost plus a percentage of cost and some other contract types are prohibited in the use of stimulus funds. The risk to grant recipients is that the grant can be rescinded if an improper contract type is used.
The other key requirement is reporting of jobs created or sustained in the use of funds. This will require firms using stimulus funds to report somewhat different information, equivalent to the FTE expectations for a contract.
Agencies should start adding this requirement immediately to contract proposals in order to meet OMB and stimulus legislative requirements.
Notes on Stimulus Funding
The recently enacted Stimulus bill, while not immediately helping design firms does offer some hope for increasing project opportunities going forward.
The initial infrastructure spending is going to “shovel-ready” projects where design, permitting and all right of way and utility issues are finished. These projects are ready for construction bidding, so there will be no design work beyond any construction period services required.
However, this does clear out a backlog of projects on infrastructure work that had been started, but was stopped as tax revenues declined going into the recession. This clears a backlog of work that was blocking new starts. By clearing this backlog, agencies should be able to get started with new projects sooner.
Will the clearing of unfinished projects help? It is really too early to tell. Unknown at this time are how much of the stimulus money will be used to clear this backlog, and how current tax receipts will translate into new funding for agencies.
Current evidence is mixed at best, with some agencies preparing to initiate new projects, and other agencies are still facing cuts in future funding. This is an agency by agency situation and likely will not be resolved until the first round of stimulus money and the current governmental budgeting cycle is much further along.
Our advice, stay in touch regularly with all of you agency clients. Don’t wait for the RFP development process (after they receive their budgets) as that may be too late to be in line for new projects.
The initial infrastructure spending is going to “shovel-ready” projects where design, permitting and all right of way and utility issues are finished. These projects are ready for construction bidding, so there will be no design work beyond any construction period services required.
However, this does clear out a backlog of projects on infrastructure work that had been started, but was stopped as tax revenues declined going into the recession. This clears a backlog of work that was blocking new starts. By clearing this backlog, agencies should be able to get started with new projects sooner.
Will the clearing of unfinished projects help? It is really too early to tell. Unknown at this time are how much of the stimulus money will be used to clear this backlog, and how current tax receipts will translate into new funding for agencies.
Current evidence is mixed at best, with some agencies preparing to initiate new projects, and other agencies are still facing cuts in future funding. This is an agency by agency situation and likely will not be resolved until the first round of stimulus money and the current governmental budgeting cycle is much further along.
Our advice, stay in touch regularly with all of you agency clients. Don’t wait for the RFP development process (after they receive their budgets) as that may be too late to be in line for new projects.
Monday, February 16, 2009
3% Tax Witholding on A/E Fees
3% Withholding on Government contracts
The Stimulus Bill has extended the requirement for governmental agencies to withhold 3% of the payments to contractors has been pushed back to 2012.
This “tax compliance” measure may still undergo some changes, delays (or even repeal) but here is what is in the draft regulations currently contain
All governmental entities (which is basically every government except tribal governments) that has more than $100 million in qualified purchases must implement the withholding. Qualifying payments are virtually everything a government buys except for their own payroll and benefits and real property.
All payments in excess of $10,000 must be withheld on. Note that payments are defined as the contact, and not individual payments. A $20,000 contract that is invoiced in 4 monthly invoices of $5,000 would still be a covered purchase, subject to the withholding even though non of the individual payments were in excess of $10,000.
The 3% will be applied at the time of payment, as of the date of payment.
The governmental entity will withhold the 3% unless the receiving party can demonstrate it is a qualified non-profit entity for tax purposes.
The government will report the amounts withheld via an annual 1099 form to persons or firms that the government has applied the 3% withholding to.
Contracts in force prior to the implementation date are not subject to the withholding
Of special interest to A/E firms, this 3% withholding can only be applied to federal income tax payments, and can not be applied to other federal liabilities, such as payroll taxes.
This amount is to be applied to the prime contractor and can not be passed on to subconsultants. Thus if you have a state law, or contractual requirement to “pay when paid, you will need to remit 100% of the money due to the sub (thus creating a gap in your firm’s cash flow)
As a practical matter, this means almost every substantial government entity will have to implement this withholding on A/E contracts. Given the current cost of construction, all it will take is a single capital project to throw even medium size agencies into the high dollar value needed to qualify for this withholding plan. Since virtually all of the government spending except payroll and benefits counts towards the $100 million threshold, we estimate this any agency with a total annual budget in excess of $250 million is likely to qualify.
There are still comments being gathered on this, so we can expect further changes or delays, but you should be aware of this potential impact on your future cash flow.
The Stimulus Bill has extended the requirement for governmental agencies to withhold 3% of the payments to contractors has been pushed back to 2012.
This “tax compliance” measure may still undergo some changes, delays (or even repeal) but here is what is in the draft regulations currently contain
All governmental entities (which is basically every government except tribal governments) that has more than $100 million in qualified purchases must implement the withholding. Qualifying payments are virtually everything a government buys except for their own payroll and benefits and real property.
All payments in excess of $10,000 must be withheld on. Note that payments are defined as the contact, and not individual payments. A $20,000 contract that is invoiced in 4 monthly invoices of $5,000 would still be a covered purchase, subject to the withholding even though non of the individual payments were in excess of $10,000.
The 3% will be applied at the time of payment, as of the date of payment.
The governmental entity will withhold the 3% unless the receiving party can demonstrate it is a qualified non-profit entity for tax purposes.
The government will report the amounts withheld via an annual 1099 form to persons or firms that the government has applied the 3% withholding to.
Contracts in force prior to the implementation date are not subject to the withholding
Of special interest to A/E firms, this 3% withholding can only be applied to federal income tax payments, and can not be applied to other federal liabilities, such as payroll taxes.
This amount is to be applied to the prime contractor and can not be passed on to subconsultants. Thus if you have a state law, or contractual requirement to “pay when paid, you will need to remit 100% of the money due to the sub (thus creating a gap in your firm’s cash flow)
As a practical matter, this means almost every substantial government entity will have to implement this withholding on A/E contracts. Given the current cost of construction, all it will take is a single capital project to throw even medium size agencies into the high dollar value needed to qualify for this withholding plan. Since virtually all of the government spending except payroll and benefits counts towards the $100 million threshold, we estimate this any agency with a total annual budget in excess of $250 million is likely to qualify.
There are still comments being gathered on this, so we can expect further changes or delays, but you should be aware of this potential impact on your future cash flow.
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