Selection Processes and Administrative Qualification Camille Thomason PEPS Center of Excellence Manager October 18, 2014

Agenda Topics 1 Rules Changes – Alignment with FHWA Requirements 2 Overview of Administrative Qualification 3 Preparing for the Federal Process 4 Other Processes 5 Questions

February 2013 Rule Changes – Align with FHWA Requirements Texas Administrative Code Title 43, Part I, Chapter 9, Subchapter C Applicable to advertisements posted after February 21, 2013 Revised the administrative qualifications process to align with federal requirements Separated federal from non-federal process: Federal Process Other processes

For contracts subject to 23CFR Part 172 Federal Process For contracts subject to 23CFR Part 172 Required for the procurement of an engineering or design related service contract that is both: Directly related to a highway construction project, and Reimbursed with federal-aid highway program (FAHP) funding

Applicable to the prime and subproviders Federal Process Firms providing engineering and design related services must be administratively qualified with an effective rate by the SOQ deadline; (modified August 2013) or be determined eligible by the TxDOT Audit Office, to use the federal safe harbor rate, by the SOQ deadline. Applicable to the prime and subproviders

Federal Definition per FHWA CFR Title 23, Part 172 Engineering and design related services means program management, construction management, feasibility studies, preliminary engineering, design, engineering, surveying, mapping, or architectural related services with respect to a construction project subject to 23 U.S.C. 112(a).

Process Type and Administrative Qualification Federal Process: Administrative qualification is required for firms providing engineering and design related services on applicable projects. Other Processes: Administrative qualification is not required to compete. Comprehensive Streamlined Accelerated Projected Contracts List will identify the process type to expect

Agenda Topics 1 Rules Changes – Alignment with FHWA Requirements 2 Overview of Administrative Qualification 3 Preparing for the Federal Process 4 Other Processes 5 Questions

Administrative Qualification Defined in the TAC A single process used by the department to verify that a provider: Has a Federal Acquisition Regulation (FAR) compliant indirect cost rate that meets department requirements Has a job cost accounting system adequate for segregating direct and indirect costs, and Is aware of federal cost eligibility and documentation requirements Refer to rule 9.34 for specific requirements, as needed Two options for becoming administratively qualified

Option 1 – Qualification by Audit Requires the preparation of a FAR compliant audit report by: A qualified public accountant or Acceptable federal, state, or local agency More typical for medium to large firms Preparation time varies by firm size and availability of a CPA Cost can range from $10,000 to $15,000

Option 2 – Qualification by Self-Certification Option made available with February 2013 TAC rule changes Requires the completion of a specific report by the firm Resulting rate is FAR compliant, if completed correctly Has become option of choice for most small and some medium firms Preparation time controlled by the firm Cost to complete is significantly less

Administrative Qualification Not a process where TxDOT audits a firm’s indirect costs TxDOT merely reviews the information and indirect cost rate development process for compliance purposes If elements are in conflict with requirements, adjustments will be made for approval purposes Any adjustments are discussed with the firm for clarification purposes

FAR Compliant - Indirect Cost Rate As approved by PEPS Admin Qual Group Becomes effective: Six months after the end of the provider’s fiscal year, or Immediately, if filed more than six months after the end of the provider’s fiscal year Effective no more than 12 months Expires 18 months after the end of the fiscal year upon which it was based

A Firm’s Administrative Qualification Status TxDOT maintains a list, posted externally Firms listed with date range of effective status If the date range shown is not inclusive of the current date, then the firm is not currently administratively qualified An administratively qualified firm has an effective indirect cost rate according to TAC rule 9.34 (a FAR compliant rate) Rates are maintained confidentially by the PEPS Admin Qual Group

Posted List – Administrative Qualification Status

FAR Compliant Rate The firm’s actual indirect cost rate for the firm’s last fiscal year Assumed to be the most representative rate of the firm’s indirect costs Used for cost development purposes when selected

Administrative Qualficiation Not required for every firm Requirements vary by selection process Federal Process most restrictive Comprehensive, Streamlined, and Accelerated processes offer more flexibility

Agenda Topics 1 Rules Changes – Alignment with FHWA Requirements 2 Overview of Administrative Qualification 3 Preparing for the Federal Process 4 Other Processes 5 Questions

Preparing for the Federal Process Firms providing engineering and design related services must be administratively qualified with an effective rate by the SOQ deadline; (modified August 2013) or be determined eligible by the TxDOT Audit Office, to use the federal safe harbor rate, by the SOQ deadline.

What about firms not subject to the requirement? Federal Process Administrative qualification is required for firms providing engineering and design related services on applicable projects. What about firms not subject to the requirement? They may be administratively qualified (not prohibited) If not administratively qualified, no indirect cost rate, loaded rates will be negotiated inclusive of base rate, indirect cost, and profit What about a firm subject to the requirement, but unable to complete the administrative qualification process? The only option is to establish eligibility to use the federal Safe Harbor Rate

August 2013 Rule Changes – Federal Safe Harbor Rate The Federal Highway Administration is conducting a pilot program to evaluate the use of a “safe harbor rate.”  The safe harbor rate serves as an indirect cost rate for firms providing engineering and design-related services lacking a Federal Acquisition Regulations (FAR) compliant indirect cost rate.  The amendment to §9.35, Federal Process, allows the safe harbor rate to be used, which accommodates the department’s participation in the pilot program. Rule change became effective August 15, 2013

Safe Harbor Indirect Cost Rate – Test & Evaluation Authorized FHWA trial Part of “Test and Evaluation Project TE-045” FHWA Financial Management Improvement (FMI) Initiative Purpose being to remove the potential barrier for certain firms TxDOT submitted the concept as the lead agency in cooperation with the FHWA Texas Division Office 10 Participating states Texas Alabama California North Carolina South Carolina Michigan Missouri North Dakota Ohio Washington

Safe Harbor Indirect Cost Rate – Test & Evaluation The safe harbor indirect cost rate for optional use by eligible consulting firms on FAHP funded contracts under the test program is 110%. Eligibility must be approved by the TxDOT Audit Office prior to the closing date of the solicitation in order to compete. The test period for use and application of the safe harbor indirect cost rate on new contracts will expire on June 30, 2016.

Safe Harbor Indirect Cost Rate Level of use anticipated is low Majority of solicitations are non-federal Small firms are taking full advantage of self-certification The rate is very low

Eligibility Considerations The firm has not had an indirect cost rate previously accepted by a cognizant agency and lacks previous experience with federally funded contracts for which an indirect cost rate would have been developed The firm has limited or no federal contracting experience that has resulted in an accounting structure by which development of an indirect cost rate in accordance with Federal Cost Principles would be challenging and likely not result in a representative rate. The firm lacks the financial resources to hire a certified public accountant (CPA) to conduct a FAR compliant audit.

Eligibility Considerations - cont. The firm lacks the financial sophistication to develop an indirect cost rate through the self-certification process. The firm is a new or start-up firm without a contract-related history to use as a base for development of an indirect cost rate. The firm does not have an audited or self-certified actual indirect cost rate developed in accordance with the FAR cost principals. The firm is not currently administratively qualified, and has not been previously administratively qualified by TxDOT.

Additional Guidelines The firm must complete and submit the internal control questionnaire The firm must demonstrate that they have, and are utilizing, an acceptable cost accounting system capable of segregating direct and indirect costs. The safe harbor rate will be applicable for the duration of the contract. The safe harbor rate is not intended for and will not be used as a field rate for a field-based contract. If needed, a field rate will be negotiated.

Agenda Topics 1 Rules Changes – Alignment with FHWA Requirements 2 Overview of Administrative Qualification 3 Preparing for the Federal Process 4 Other Processes 5 Questions

Other Processes The majority of TxDOT solicitations Administrative Qualification is not required to compete So what rates will TxDOT use for a selected team?

Other Process For a selected team: A firm may be administratively qualified Non-engineering firms are exempt Engineering services that are exempt: Bridge Inspection Materials Inspection and Testing Geotechnical Engineering Surveying and Mapping Subsurface Utility Engineering Architecture If none of the above, they can accept the TxDOT developed rate As of August 2014 its 145% For survey firms, only A or C would apply

If not administratively qualified: Exempt Status Means TxDOT does not expect a firm to be administratively qualified (although a firm is not prohibited from becoming administratively qualified) If not administratively qualified: The firm is not subject to taking the TxDOT developed rate for contracting purposes Loaded rates will be negotiated inclusive of base rate, indirect cost, and profit

Agenda Topics 1 Rules Changes – Alignment with FHWA Requirements 2 Overview of Administrative Qualification 3 Preparing for the Federal Process 4 Other Processes 5 Questions

Administrative Qualification Guidance External web page includes information presented PEPS Administrative Qualification Group is point of contact for questions Contact information posted on the web page Bruce Reed (512) 416-2315

Thank you - Questions? Camille Thomason PEPS Division – Center of Excellence 512-416-2263 camille.thomason@txdot.gov