[Federal Register Volume 61, Number 77 (Friday, April 19, 1996)]
[Rules and Regulations]
[Pages 17243-17245]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9558]
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DEPARTMENT OF TRANSPORTATION
Federal Highway Administration
23 CFR Part 635
[FHWA Docket 95-21]
RIN 2125-AD61
General Material Requirements; Warranty Clauses
AGENCY: Federal Highway Administration (FHWA), DOT.
ACTION: Final rule.
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SUMMARY: The FHWA is adopting, as final, a current interim final rule
that revises the use of guaranty and warranty clauses on Federal-aid
highway construction contracts. This final rule permits greater use of
warranties in Federal-aid highway construction contracts within
prescribed limits.
EFFECTIVE DATE: August 25, 1995.
FOR FURTHER INFORMATION CONTACT: Mr. James Daves, Office of
Engineering, (202) 366-0355 or Mr. Wilbert Baccus, Office of the Chief
Counsel, (202) 366-0780, Federal Highway Administration, 400 Seventh
Street, SW., Washington, DC 20590.
SUPPLEMENTARY INFORMATION: On August 25, 1995, the FHWA published in
the Federal Register (60 FR 44271) an interim final rule along with a
request for comments, revising its regulation regarding warranty
clauses on Federal-aid highway construction contracts. That action
permitted the greater use of warranties in Federal-aid highway
construction contracts within prescribed limits.
Discussion of Comments
The public comment period for the interim final rule closed on
October 24, 1995. The FHWA received 20 written responses from 19
organizations including 11 associations, six State Departments of
Transportation (DOTs), and two private companies. The responses
concerning this interim final rule are available for review at the
Federal Highway Administration, Public Docket Room 4232, Office of the
Chief Counsel, 400 Seventh Street, SW., Washington, DC 20590.
Of the 20 responses received, 13 comments did not support the
interim final rule and seven did support the interim final rule. The
significant comments are summarized in the following discussion.
Requiring Warranties
An association responding to the interim final rule stated that by
revising its regulation the FHWA was requiring
[[Page 17244]]
the use of warranty clauses on Federal-aid highway construction
contracts. This statement, however, is inaccurate. The FHWA removed its
regulation prohibiting the use of warranty clauses, but left it to the
State DOTs to decide when or if they will use warranty clauses. If
warranty clauses are used on Federal-aid highway construction
contracts, it will be because the State DOT chooses to use them, with
FHWA concurrence.
Bonding Capacity
Four associations, two private companies and one DOT commented on
the effect of warranty provisions on bonding capacity, particularly on
smaller contractors. They noted that requiring warranties of several
years typically requires the contractor to provide a performance bond
for that period of time. The size of the performance bond could be
quite large and, particularly in the case of smaller contractors, the
effect on their overall bonding capacity could affect their ability to
obtain work. The seven commenters argue that this would effectively
stifle competition for contracts and ultimately increase the cost to
the taxpayers. One commenter felt that the effect on smaller
contractors violates the Regulatory Flexibility Act. Discussion of that
comment is included in the following paragraphs, and later under the
heading ``Regulatory Flexibility Act.''
The FHWA believes that removing the restriction on warranty clauses
will not stifle competition or negatively affect smaller contractors'
overall bonding capacity and ability to obtain work. In the first
place, experience to date has shown no negative effect on the bonding
capacity of small businesses. State DOTs have been following their own
procedures regarding the inclusion of warranties in non-NHS Federal-aid
contracts since the passage of the Intermodal Surface Transportation
Efficiency Act of 1991 (Pub. L. 102-240, 105 Stat. 1914). These non-NHS
projects constitute approximately one-third of the FHWA's Federal-aid
highway program, and have amounted to several billions of dollars worth
of construction each fiscal year. The FHWA has not observed any problem
with the bonding capacity of smaller contractors who perform work
eligible for such warranties. This regulation allows the FHWA simply to
extend the option to use such warranty clauses by the State DOTs on the
remaining two-thirds of the program, and the FHWA does not believe that
this added flexibility will be used to an extent or in such a way as to
negatively impact the bonding capacity of small businesses.
Secondly, the warranties allowed by this regulation are limited to
a specific construction product or feature. This regulation does not
apply to design engineering or full project warranties. The FHWA
believes that this fact will limit the warranties given and, in turn,
the contractor's exposure.
Thirdly, the FHWA anticipates these warranties will be primarily
applied to small specialty or experimental item contracts. As a result,
some small businesses may benefit from the ability to offer warranties
on specialty or experimental items, either included as one element of
the contract or as the main element of the contract. When warranties
are prohibited, such items are often limited to experimental item
contracts because the contracting agent (State DOT) has no assurance of
the item's effectiveness. By removing the restriction on such
warranties, the FHWA believes the smaller contractors may in fact have
greater opportunity to enter the market with their experimental items
because they can be guaranteed by a warranty.
Finally, the FHWA believes that the concern over this regulation's
effect on the bonding capacity of smaller contractors is overstated.
These warranties are expected to be relatively short term--five years
or less. Given the type of contracts involved (relatively short term
and for a specific product or item), the FHWA expects that the bonding
capacity of smaller contractors will not be adversely affected.
Since publication of the interim final rule, one State DOT has
proposed a warranty contract provision which eliminates the need for a
long term bond and, in turn, the criticism that warranties affect
bonding capacity. In this State's proposal, a portion of the
contractor's bid amount is retained and paid to the contractor on an
annual cycle based on satisfactory performance of the item which has
been warranted. Using such an approach, no long term bond is required
by the contractor. The FHWA sees this as a possible alternative to
bonding warranties, which deserves monitoring to determine if it is
effective.
Increased Flexibility
Six State DOTs (one DOT responded twice) responding to the interim
final rule commented on the increased flexibility afforded to
contracting agencies by the revision of the FHWA regulation. These
commenters saw this as a positive change, and generally supported
allowing contracting agencies to decide when to use warranty clauses
within the framework of the revised regulation, with concurrence by the
FHWA.
Design Liability
Four associations and one private company stated that they opposed
the contractor being liable for the design of a project under the
umbrella of a warranty. They felt that such design exposure was outside
the control of the construction contractor and, therefore,
inappropriate. The warranty regulation as revised by the FHWA states
that the warranty provision shall be for a specific construction
product or feature. There is no mention in the regulation of design
being warranted, as these commenters assert. Furthermore, the warranty
regulation states that the construction contractor will not be
obligated for items over which the contractor has no control. A
construction contractor does not typically have any control over the
design of a project, therefore a warranty provision could not bind them
to the project design.
Administrative Procedure Act
One association commenting on the interim final rule discussed the
publication of an interim final rule as it relates to the
Administrative Procedure Act (APA). That commenter criticized the
FHWA's decision to waive the notice and comment requirements of the
APA, 5 U.S.C. 553, and proceed directly to an interim final rule. The
commenter stated that the interim final rule imposes ``significant new
obligations on the States by granting the government the authority to
mandate greater use of warranties on Federal-aid highway projects.'' In
fact, the interim final rule relieves a restriction and imposes no new
obligation or requirement on the States. It merely enables the States
to include warranty clauses in Federal-aid highway construction
contracts if they find such clauses would be beneficial. Warranty
clauses have been found to enhance the quality of highway construction
projects, so proceeding to an interim final rule in this instance was
in the public interest. Moreover, the FHWA did solicit comments on this
rulemaking and is considering and responding to those comments to the
same extent it would be in the case of a notice of proposed rulemaking.
Semiannual Regulatory Agenda
One association commenting on the interim final rule noted its
objection to the FHWA's failure to publish this rulemaking in the DOT's
Semiannual Regulatory Agenda (Agenda) prior to publication of the
interim final rule. (The current rulemaking was published
[[Page 17245]]
in the DOT's Semiannual Regulatory Agenda on November 28, 1995.) While
the commenter is correct in noting that Executive Order 12866 and the
Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612) require the DOT to
prepare a semiannual regulations agenda for publication in the Federal
Register, neither the Executive Order nor the RFA prevent the FHWA from
publishing a rulemaking document which has not previously been listed
in the Agenda. Section 602(d) explicitly provides that the requirement
to publish such an agenda does not preclude the agency from considering
or acting on any matter not listed in such agenda.
Rulemaking Analyses and Notices
Executive Order 12866 (Regulatory Policies and Procedures) and DOT
Regulatory Policies and Procedures
The FHWA has determined that this action is not a significant
regulatory action within the meaning of Executive Order 12866 or
significant within the meaning of Department of Transportation
regulatory policies and procedures. The revisions would merely
accommodate expanded use of warranty clauses on Federal-aid
construction contracts. Therefore, it is anticipated that the economic
impact of this rulemaking will be minimal and a full regulatory
evaluation is not required.
This final rule makes no changes to the interim final rule and
merely informs the public that the interim final rule remains
unchanged. Therefore, the FHWA finds that good cause exists to dispense
with the 30-day delayed effective date requirement under 5 U.S.C.
553(d).
Regulatory Flexibility Act
In compliance with the Regulatory Flexibility Act (Pub. L. 96-345,
5 U.S.C. 601-612), the FHWA has evaluated the effects of this rule on
small entities. Based on the evaluation, the FHWA hereby certifies that
this action will not have a significant economic impact on a
substantial number of small entities. As stated above, the FHWA made
this determination based on the fact that: (1) experience to date with
non-NHS Federal-aid projects that allow the use of warranties has shown
no negative effect on the bonding capacity of small businesses for non-
NHS Federal-aid projects; (2) some small businesses may benefit from
the ability to enter the market with specialty or experimental items,
either included as one element of the contract or as the main element
of the contract; and (3) given the type of contracts involved
(relatively short term and for a specific product or item), the FHWA
expects that the bonding capacity of smaller contractors will not
experience any significant adverse effect.
Executive Order 12612 (Federalism Assessment)
This action has been analyzed in accordance with the principles and
criteria contained in Executive Order 12612 and it has been determined
that this interim final rule does not have sufficient federalism
implications to warrant the preparation of a separate Federalism
assessment. Nothing in this document preempts any State law or
regulation, and no new requirements or obligations are imposed on
States or local governments by this action. Instead, this interim final
rule provides States with additional discretion to determine for
themselves whether to include warranty clauses in Federal-aid highway
construction contracts for projects on the National Highway System.
Executive Order 12372 (Intergovernmental Review)
Catalog of Federal Domestic Assistance Program Number 20.205,
Highway Planning and Construction. The regulations implementing
Executive Order 12372 regarding intergovernmental consultation on
Federal programs and activities apply to this program.
Paperwork Reduction Act
This action does not contain a collection of information
requirement for purposes of the Paperwork Reduction Act of 1980, 44
U.S.C. 3501-3520.
National Environmental Policy Act
This rulemaking does not have any effect on the environment. It
does not constitute a major action having a significant effect on the
environment, and therefore does not require the preparation of an
environmental impact statement pursuant to the National Environmental
Policy Act of 1969 (42 U.S.C. 4321 et seq.)
Regulation Identification Number
A regulation identification number (RIN) is assigned to each
regulatory action listed in the Unified Agenda of Federal Regulations.
The Regulatory Information Service Center publishes the Unified Agenda
in April and October of each year. The RIN contained in the heading of
this document can be used to cross reference this action with the
Unified Agenda.
List of Subjects in 23 CFR Part 635
Government contracts, Grant programs--transportation, Highways and
roads.
In consideration of the foregoing and under the authority of 23
U.S.C. 315, the interim final rule amending the authority for 23 CFR
part 635 and revising Sec. 635.413 which was published at 60 FR 44271,
August 25, 1995 is adopted as final without change.
Issued on: April 3, 1996.
Rodney E. Slater,
Federal Highway Administrator.
[FR Doc. 96-9558 Filed 4-18-96; 8:45 am]
BILLING CODE 4910-22-P
