The Federal Process applies to an engineering or design related service contract directly related to a highway construction project and reimbursed with federal-aid highway program (FAHP) funding.

A firm providing engineering or design related services must be administratively qualified with an effective rate by the closing date of the solicitation to compete for contracts using the Federal Process, unless they are eligible to utilize the federal “safe harbor” indirect cost rate. Eligibility must be approved by the PEPS Administrative Qualifications Group prior to the closing date of the solicitation in order to compete. No engineering or design related services are exempt.

• Federal Safe Harbor Indirect Cost Rate: The Texas Department of Transportation (TxDOT) participated in a Financial Management Improvement (FMI) initiative to test and evaluate the availability and utilization of a safe harbor indirect cost rate. The test program expired on Dec. 31, 2017. FHWA has approved a nationwide program, which became effective on June 5, 2018. The safe harbor indirect cost rate for optional use by eligible consulting firms on FAHP funded contracts under the program is 120% (effective Jan. 1, 2020). 

• Eligibility Considerations for Providers not Administratively Qualified: A prime or subprovider firm providing engineering or design related services that is not administratively qualified, must be able to certify to one or more of the following to be eligible to utilize the federal safe harbor indirect cost rate:
  
  
  • The firm must be domiciled in the State of Texas.
    
  • 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.
  • 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 Federal Acquisition Regulations (FAR) cost principals.
  • The firm is not currently administratively qualified, and has not been previously administratively qualified by TxDOT.

In addition, the firm must complete and submit the AASHTO Internal Control Questionnaire and demonstrate that they have, and are utilizing, an acceptable cost accounting system capable of segregating direct and indirect costs.

If a firm is eligible and the safe harbor rate is used, 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. Should an eligible firm opting for the safe harbor rate be selected to provide services requiring a field rate, TxDOT will establish a field rate for the firm.

Revised: April 9, 2020

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Administrative Qualifications Administrator
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