dyeresume.comdyeresume.com/orig_entire_manuals.doc · Web viewCONSULTANT MANAGEMENT . AND. ADMINISTRATION. CLASS MANUAL (Updated August 2010) The following information is located

DES615

CONSULTANT MANAGEMENT

AND

ADMINISTRATION

CLASS MANUAL

(Updated August 2010)

The following information is located in the Class Manual provided in the DES615 Consultant Management & Administration training classes.

To find out the date and location of the next DES615 training class, check the “News and Events” section of the DES-CCO website.

The Engineering, Architectural, and Surveying Services (EAS) Manual is currently undergoing revisions. In the interim, the DES615 Class Manual serves as the EAS Manual.

The Class Manual used in your class may be different from the on-line Class Manual since the on-line manual is updated on a regular basis.

In each of the modules, Resource Materials (RMs) are referenced throughout. The following Class Manual contains a Table of Contents for each module and section; the number and the name of the Resource Materials within each section are also shown. The Resource Materials listed are located throughout the DES-CCO web page.

For example, RM #1 is referenced on page 13 of Module 1, Part B. Using the Table of Contents in Module 1, RM #1 corresponds to the Roles and Responsibilities Table.

When reading the individual modules, it is advised to also review the Resource Materials to obtain a better understanding of the overall process. Most of the materials include additional explanation and guidance for the specific step or activity being covered.

This is a PDF file of the Class Manual; there are no electronic links in this document.

Introduction

Class Purpose:

Develop good contracting practices for all phases of the process.

Phase 1 – Provider SelectionPhase 2 – Contract Development & NegotiationPhase 3 – Management & Administration

Class Goals:

Improve your understanding of the three phases Identify the activities relative to your responsibilities Identify how your responsibilities relate to other’s Identify the controlling basis for the three phases

Increase your confidence level in performing the individual activities Perform the steps Locate and utilize the available resources

Improve your understanding of the importance of good judgment and sound decisions throughout the process

Differentiate between the perception of fair and unfair (and reality)

Be aware of the potential consequences of bad decisions

Module 1: The Purpose for and Basis of Good Contracting Practices

Table of Contents

A. Contracting FundamentalsB. Roles & Responsibilities

RM1. Roles and Responsibilities TableC. Federal and State Laws

RM2. US Code, Title 40, Sections 1101-1104US Code, Title 23, Section 112Code of Federal Regulations, Title 23, Part 172

RM3. Texas Government Code, Chapter 2254, Subchapter ATexas Government Code, Chapter 2161, Subsection 2161.252Texas Transportation Code, Chapter 223, Subchapter B

RM4. Rules for Contracting for Architectural, Engineering, and Surveying Services

D. Basic Principles of Contract Law

Module 1 – The Purpose for and Basis of Good Contracting Practices

Module 1:The Purpose for and Basis of Good Contracting PracticesA. Contract FundamentalsB. Roles and ResponsibilitiesC. Federal and State LawsD. Basic Principles of Contract Law

Objectives:

Identify sources and consequences of contracting problems.

Locate and use the Roles and Responsibilities Table as a Resource.

Identify Your Role(s) with respect to the three phases and steps and activities associated with that Role(s).

Identify the other key individuals within your District/Division that satisfy the other Roles and Responsibilities identified from the Provider Selection through Project Management.

Identify applicable Federal and State Laws.

Identify applicable rules and regulations.

Distinguish among Laws, Rules and Guidance and Procedures.

Locate and utilize as a resource the Texas Administrative Code (TAC) rules for Architectural, Engineering and Surveying Services.

Have a basic understanding of contract law as it applies to engineering agreements.

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A. Contract FundamentalsObjective: Identify sources and consequences of contracting

problems.

What Is a Contract?

A contract is a legally binding agreement. Therefore, what is in the contract matters, and it matters much more than what is in your heart or your head. Judges can’t read minds or see into souls, but they can read words on paper. So can the lawyers, accountants, and managers of our contracting partners whenever a dispute arises.

The contract is how we control the expenditure of public funds. Without a good contract, we might as well open the public coffers and invite people to carry off as much as they want. The contract also assures the public that we are taking good care of their hard-earned money—and it provides the means that allows auditors, legislators, and others to confirm that we have in fact spent public money responsibly.

The contract is also how we make sure our work gets done. Without the contract, we cannot refuse to pay for shoddy or incomplete work, and we have no assurance that work will be completed on time.

No one enters a contract expecting failure. No one looks forward to contract disputes and incomplete work. Things happen, though, that we do not expect. When the unexpected happens, it is the contract that protects the department . . . and protects you.

Sources of Contracting ProblemsWhy all this fuss? After all, we’ve been building roads forever, haven’t we? And there haven’t been any problems to speak of, have there?

The average TxDOT employee does not see many contract problems and may find it difficult to understand what is at stake in

A. Contract Fundamentals 3

our contracting program. The department’s contracting program encompasses literally thousands of contracts involving billions of dollars, and it does not take very many problems to add up to a lot of money.

Contracting problems come from a variety of sources. Sometimes the parties think they know what is expected, but do not write it down in the scope of work, and a hidden misunderstanding surfaces later, when it is too late to correct easily. Sometimes changes in project managers and other consultant personnel cause a loss in continuity that affects productivity or even success. Sometimes consultants have internal problems—personnel problems, financial problems, legal problems—that affect performance even though they have nothing to do with TxDOT. Sometimes consultants face cost pressures that require them to cut corners or reduce staff, at the expense of our projects. Sometimes the contract was poorly written, and this permits the consultant to take advantage of ambiguities to our detriment. Sometimes even a good contract is managed poorly, so problems are not addressed early and are allowed to fester and grow. And sometimes either the consultant or TxDOT just plain performs poorly under the contract.

How do these problems come about, and why don’t we see them all around us? While TxDOT has long had professional services contracts, their dollar volumes and importance have grown rapidly in only a few years. We just do not have as much experience with this as some think, and as individuals, our experience is generally even thinner than for the department as a whole.

Experience has shown that many TxDOT contracting problems can be traced to a set of attitudes that are as common as they are wrong and unproductive. For one thing, although everyone enters contracts as individuals—home purchases, auto purchases, credit card agreements, and so forth—and although everyone understands that those contracts are legally binding and have serious consequences, all this flies out of some people’s heads when they think about TxDOT contracts. They imagine that while their real estate contract for $100,000 is massively significant, a TxDOT engineering contract for $2,000,000 is hardly worth a moment’s thought.

To some extent, this is simply a matter of not caring enough about public money. It has been said that when I fall down, it is a tragedy, but when you fall down, it is comedy. One may say equally that when a dollar of my money is at stake, a contract is serious business; when a dollar of someone else’s money is at state, it is just paperwork. That attitude toward our responsibility to taxpayers is simply indefensible.


Still, as government employees, we face a lot of paperwork and a lot of forms. It is easy, perhaps, to become just a little jaded and to stop taking all these forms so seriously. Yet if one is ever going to laugh off a form, the last one to consider would be a legally binding, multi-million-dollar formal contract.

Of course, individual TxDOT employees do not see all the contracting problems we face as a department. And we know from personal experience that you can cut a lot of corners with no apparent effect. But we are talking about many, many contracts, and what may be unlikely on a particular contract becomes inevitable when the entire contracting program is taken into account.

A contract is not your enemy. It is not an obstacle to keep you from doing your job. It is not unnecessary paperwork or pointless bureaucracy. It is, in fact, the definitive legal way in which we control our projects, limit our costs, and meet our schedules. Don’t tell me that contracting is not your real job. A well-written, well-managed contract is the essential tool that allows you to get your job done.

There have in fact been many contracting problems with our engineering, architecture, and surveying contracts. We’ve received false statements of overhead. We’ve seen fraudulent time sheets. Millions of dollars worth of errors and omissions have been committed. At least one engineer has filed a formal contract claim—and won it. Contracts have been terminated for poor performance or for unethical conduct. TxDOT employees have been disciplined for their mismanagement of professional services contracts. And yet all this is but the tip of the iceberg, because anyone familiar with this program knows that the two biggest and most common risks are cost overruns and even worse, not getting the work done on time. Many times the ultimate effect of bad contracting is not a legal proceeding, but simply buying our way out of an issue by paying a consultant more than expected or by paying a different consultant to start over.

We simply cannot afford to let each TxDOT employee learn contracting lessons the hard way, through trial and error. There has to be some way we can pool our knowledge, share our experiences, and learn from each other. And there is a way—this course you are taking now.


Contracting EssentialsGenerally, there are three major stages in contracting: Procurement, Contract Development and Execution, and Contract Management. Overlaying all three stages is the need to follow Good Contracting Practices.

There are three kinds of procurement processes followed in TxDOT. Low-bid contracts are awarded to the lowest bidder who meets minimum qualifications. Low-bid contracts include large

highway improvement contracts and most purchase orders. Best-value contracts are awarded to the company that offers the best value to the state, considering both quality and price in a weighted average. Best-value contracts include private consulting

contracts, professional services contracts for services other than

engineering, architecture, and surveying, and most large purchases of service.

Qualifications-based contracts are awarded in a two-step process. In the first step, the most

qualified applicant is chosen without regard to price. In the second step, a fair and reasonable price is negotiated with the most qualified applicant, if possible. Qualifications-based contracts are limited to contracts for the provision of engineering, architecture, or surveying services.

The TxDOT qualifications-based process involves a series of steps established by rule and by policy. In order, these are:

1. Issuance of a Notice of Intent2. Receipt of Letters of Interest3. Preparation of the long list of qualified applicants4. Preparation of the short list for further consideration5. Receipt of proposal, holding of interviews, or both6. Initial selection for negotiation7. Negotiation of scope and budget8. Determination whether negotiated prices is fair and

reasonable price or whether to negotiate with the next most qualified firm

9. Contract execution

Qualifications-based contracts use one of four approved payment methods. The cost-plus-fixed-fee method is designed to reimburse the company for its actual costs and to provide a negotiated amount of profit. The formula for calculating TxDOT’s required payment is [(actual hourly rate)*(1+ overhead rate)*(1 + profit rate)] + direct costs. While a company’s actual costs are the starting point for discussion, the range of allowable hourly rates, the


overhead rate, the profit rate, and direct cost rates or maximum rates are all subject to negotiation.The specified-rate method of payment consists of a negotiated hourly rate, plus direct costs. Because the hourly rate includes the actual hourly rate, the overhead rate, and the profit rate in a single negotiated number, this is often called a “loaded” rate. For engineering contracts, the negotiation of the specified hourly rate often begins with actual hourly rate and overhead rate information provided by the company, but this method is also suited for companies (like surveyors) who typically do not have audited overhead rates.

The unit-cost method of payment consists of a unit price for a particular unit of work, plus direct costs. The unit of work may be a discrete item (such as a particular test) or a bundle of items yielding a single deliverable (such as all the work necessary for a toll feasibility evaluation). When feasible, the unit price may be built up from actual hourly rates or overhead rates, or it may be negotiated directly.

The lump sum method of payment consists of a single price that is all inclusive for one or more deliverables. Direct costs are not charged separately. It may be built up by applying a level of effort to specified rates and direct costs.

FIMS Segment 41TxDOT professional services contracts are paid through Segment 41 of the department’s Financial Information Management System, or FIMS, also known as the Miscellaneous Contract Information System. Each contract is entered with its unique contract number, expiration date, and maximum amount payable, and the system records each payment and aggregate payments to date. This system is also used to generate various reports required by the legislature.


Each professional services contract is assigned its own contract identification number prior to its execution. The contract number is composed of ten digits that communicate important information including the D/D/O number, fiscal year, description code, and sequence number of the contract. The number must be placed in the upper right hand corner of the contract.

Here is an example of a contract number that would be assigned to the first engineering contract for the Houston District beginning in FY 2008. 12-848P5001

D/D/O (12) 2 numeric digits

Fiscal Year (8) 1 numeric digits

Open field (XX) Refers to the Design Division

2 alphabetic characters (majority of the time XX)

Description Code (Code Chart 41) (P5)

2 alphanumeric digits

Sequence number (001)* 3 numeric digits*In the past, the sequence number started over at 001 at the beginning of each fiscal year. To avoid multiple contracts with the same number, the sequence number should be consecutive from year to year until it reaches 999.

The D/D/O administering the contract will assign the number to the contract with assistance from Contract Services (GSD-CSS).

Where Do We Go Wrong?

Your attitude towards contracting is critical when managing a contract. Just because a project was completed on time and under budget does not mean the contract was a good one. You may just have been lucky…this time.

Individual TxDOT employees working on a particular type of contract do not see the number of problems that can arise with contracts. TxDOT has experienced significant problems with many contracts covering a broad range of activities.

When everything is going fine, the contract may seem like


unnecessary paperwork—just as a seat belt seems unnecessary if there is no accident or a safety net is unnecessary until someone falls into it. Contract problems may be triggered by a wide variety of immediate causes—confusion over the contracts terms, changes in contractor personnel, internal contractor difficulties, cost pressures on the contractor, poor contract design, poor TxDOT management, or poor contractor or TxDOT performance, for example. Whatever the immediate cause, as soon as the contract is put in issue for any reason, managers, accountants, and lawyers will focus first and foremost on the contract’s terms.

The most common practical problem with a poorly written contract is misconstruction. This occurs when the words written in the scope are not sufficiently clear to define the work. TxDOT and consultant employees think they understand what the scope is, but their understanding is different. This leads to wasted money and unnecessary delay.

A contract may be so poorly written that it is legally invalid. This won’t normally come up until there is a dispute. Then, just when TxDOT needs to rely on the contract most, the other side states that it is unenforceable. Of course, a contract is always most important just when it is most needed.

During negotiations, both sides are generally cooperative. When work starts falling behind, when deliverables do not meet our needs, when a project starts losing money for a consultant, the cooperation tends to fall apart quickly. Relations can become acrimonious and lead to bitterness, delay, finger-pointing, and even litigation. If you thought it took too much time to prepare the contract correctly in the beginning, you will likely find that managing and living with a series of contract disputes is an endless black hole of effort absorbing huge amounts of precious time, attention, and effort.

As a state agency, TxDOT is accountable to the legislature and its various arms – the legislative budget board, the Sunset Advisory Commission, committees, inquiries from individual legislators, and so forth. We may do hundreds of millions of dollars in consulting contracting, but a visible contracting failure of only a few hundred thousand dollars can become a focus of attention overnight and absorb the attention of commissioners and TxDOT Administration. The end result can easily be more legislation controlling and restricting our ability to contract.


We also face scrutiny by the press. The press will often highlight a contracting failure disproportionally – and not always in a way that you would consider fair. Coincidences may be pointed out in a way that seems ominous, and normal procedures treated as dangerous anomalies. It is not always enough to be able to defend our actions with technical arguments. We need to operate in a way that is not merely proper, but is also obviously proper. We need to avoid something that is wrong, and we need equally to avoid practices that look wrong or can easily be portrayed as wrong.

Contracting problems can have serious legal implications. The most benign is an audit. We are subject to region and district auditors, agency auditors, state auditors of various kinds, and numerous federal auditors. Their job is to look for problems and recommend solutions, and solutions often involve more controls, more bureaucracy, and more paperwork.

Poor contracting practices can be addressed through TxDOT’s progressive discipline policy. Bad performance can result in lost merit raises and poor evaluations. In some cases it has led to the termination of employees, even of employees who supervised or reported to the employees most closely involved in a problem.

It should be no surprise that a contractor can sue TxDOT over a contract dispute. After all, legal enforceability is the essence of any contract. It may be more of a shock to learn that TxDOT employees can be—and in some cases have been—sued as individuals over allegations of misconduct on contracts. If you do things right and follow the rules, this is very unlikely; if you decide that you don’t need to be concerned with learning how to do things right, you could be on your own.

Sadly, there are also cases in which TxDOT employees have been prosecuted and sent to jail for misconduct with regard to TxDOT contracts. Mostly, these involve ethical violations of different kinds. These employees typically seem to think that everyone is doing it, that they are only doing what has always been done, and that the rules from Austin were just a bunch of technicalities that didn’t relate to the “real world.” You can still visit some of these former employees in prison.

Contracting is a serious business for TxDOT. Millions of dollars, critical projects affecting the safety of the traveling public, the agency’s future, careers, and even legal consequences are


affected by our contracting practices. We need to be serious and professional to protect ourselves, our department, and the public.


B. Roles and ResponsibilitiesObjectives: Locate and use the Roles and Responsibilities table as a

resource. Identify your Role(s) with respect to the three phases and

steps and activities associated with that Role(s). Identify the other key individuals within your

District/Division that satisfy the other Roles and Responsibilities identified from Provider Selection through Project Management.

Who’s Responsible?

Good contracting practice is not just the responsibility of contract administrators. The TxDOT contracting process requires decisions and approvals of numerous individuals at various levels throughout the process. Deciding and approving contract-related issues without understanding the process and purpose of the written agreement creates risk for the department.

Typical roles involved in contracting decisions include:

Contract Administration Consultant Selection Team (CST) Members CST Chair Project Manager Contract Office Manager Work Authorization Project manager Other Managing Office Staff Signature Authority Delegation District Engineer or Division Director

Key IndividualsProject ManagersThe project manager is responsible for the overall management of the contract and the work being performed by the consultant. Organizational and reporting structures vary among districts and divisions. The depth of resources committed to deal with contract issues also varies. If a district or division is going to enter into a contract, however, there should be one person specifically assigned project management responsibilities for that contract which includes ensuring that administrative responsibilities are also taken care of.

The expertise and availability of contract administrative staff may vary from none to multiple experienced staff dedicated to

B. Roles and Responsibilities 12

contracting activities. A project manager can cover the contract administration responsibilities, but contract administrators cannot cover the responsibilities of a project manager.

Selection Team ChairThe selection team chair is responsible for the selection process. The selection process is the first phase of the effort. From the first form through final selection, one person must be dedicated to oversee that the appropriate decisions are being made. The selection team chair may not be the project manager, but they must understand the process which includes knowing which steps require their action, oversight, and approval. The selection team chair is also responsible for ensuring that other selection team members follow the process correctly and that administrative responsibilities are also taken care of. The selection team chair can cover the contract administration responsibilities, but contract administrators cannot cover the responsibilities of the selection team chair.

Contract AdministratorsThe term contract administration is typically used to describe the wide variety of administrative or support tasks that are necessary in association with the three basic contracting phases including provider selection, contract development and negotiation, and project management and contract administration.

Someone providing contract administration support may have one of many TxDOT job titles. It is not specific to contract specialists. Staff providing contract administration support, typically wear many hats and have varying levels of experience and expertise with respect to the contracting process. The more experienced staff will be able to take on more responsibilities and provide a wider range of support. Some districts have dedicated contract administrative staff and others do not.

Because of the variety of operational and management structures, levels of experience, and staffing combinations, it is impossible to identify specifically what tasks a contract administrator should be responsible for. District staff should take the appropriate factors into consideration and assign responsibilities accordingly. It is not assumed, however, that contract administrative staff have the technical expertise to take responsibility for key decisions that are the responsibility of the selection team members and project managers.


Where’s My List?

The basic list of steps and activities are included in the Roles and Responsibilities Table. The table is divided into the three contracting phases:

Provider Selection Contract Development & Negotiation Project Management & Contract Administration

The tasks and descriptions identified are not intended to represent a comprehensive list of every step required. The order is not exact. Several tasks can be done in a different order or parallel with other tasks. The roles identified represent the typical individual(s) involved in provider selection and project management within a Managing Office.

A Managing Office is the District or Division with the responsibility to select and manage the provider. Depending on the size of the office and amount of work outsourced, one person may have the responsibility of more than one role. It is the responsibility of the Contract Administrators, the CST Chair and CST members to be aware of the rules for the selection process and resources available to assist the individuals involved throughout the selection and management of a provider.

Each person has a responsibility to make sure the process is followed correctly. It is the responsibility of the Contract Administrators and Project Managers at the contract or work authorization level, to not only have a complete copy of the contract


and work authorizations, but also to know what's in them and what constitutes good contracting practices as accepted by TxDOT.

The designation of responsibilities, in the Roles and Responsibilities Table, is provided as a guide of what is typically expected. Specific operations within each Managing Office will vary.

Why is This Important Again?

It should be noted that a significant amount of time, effort, and real money is invested in a typical selection process. In addition, a significant amount of time, effort, and tax payer's money is invested and expended over the life of a contract. A structure of responsibility and accountability of qualified staff should be in place for the tasks involved from selection through management of a provider and delivery of final products.

A number of significant decisions related to the contract, such as use of work authorizations and supplemental work authorizations, are made at the Managing Office level. It is imperative that the Managing Office have a check and balance system in place to ensure that good contracting practices are being followed.

Can’t Find the Answer to your Question?

As stated above, a significant amount of time, effort, and money is invested in the entire process; therefore, deciding and approving contract-related issues without fully understanding the process or trying to make it up as you go along creates a risk for the department. No question is too simple or silly, if by asking, it will help you understand the process or help you handle an issue you are struggling with.

This manual is a work in progress, if you cannot find an answer to your question or need guidance on a particular issue in this manual; please contact DES-CCO for assistance.


C. Federal and State LawsObjectives: Identify applicable Federal and State Laws. Identify applicable rules and regulations. Distinguish among Laws, Rules, and Guidance and

Procedures. Locate and utilize, as a resource, the Texas Administrative

Code (TAC) rules for Architectural, Engineering, and Surveying Services.

Why Can’t I Just Go Get the Consultant I Want?

TxDOT spends both federal and state money on contracts for architectural, engineering, and surveying services. As a result, TxDOT’s contracting process must be compliant with state and federal laws. In order to be compliant, TxDOT employees that select consultants and manage contracts must follow the applicable rules, regulations, and policies.

Understanding the Structure – The Federal Level

Federal legal authority comes from three sources.

Laws Regulations Policies and Guidelines

Federal laws are bills signed by the president (or passed over his veto). Some that may sound familiar include the various transportation acts, the Brooks Act, and the National Environmental Policy Act (NEPA), etc.b

Where Can I Find That in Writing?Federal laws are codified in the U.S. Code. The U.S. Code (USC) is where the general and permanent laws of the United States are written down. The USC is organized by titles. Examples of titles that affect TxDOT are:

Title 23 Highways Title 40 Public Buildings, Property, and Works Title 49 Transportation

Federal regulations provide more specific explanation of how laws are to be implemented. These regulations are found in the Code of Federal Regulations (CFR) and are issued by executive branch

C. Federal and State Laws 16

agencies such as the US Department of Transportation – Federal Highways Administration (USDOT-FHWA). The CFR is also organized by titles such as Title 23 Highways and Title 49 Transportation.

Federal policies and guidelines provide even more specific information in how federal laws and regulations are to be applied. This information is issued typically in the form of memos and circulars from governing entities such as FHWA or the Office of Management and Budget (OMB). The various directives and policy memos serve to establish, for example, policy, organization, methods, procedures, requirements, guidelines, and delegation of authority.

Understanding the Structure – The State Level

State legal authority also comes from three sources.

Laws Rules Guidelines and Procedures

State laws are bills signed by the governor (or passed over his veto).

Where Can I Find That in Writing?State laws are codified in the Texas statues. The statues are organized by specific codes, such as:

Government Code Transportation Code

These are two that include many statutes that govern TxDOT business.

State rules, comparable to federal regulations, provide more specific explanation of how laws are to be implemented. These regulations are found in the Texas Administrative Code (TAC) and are issued by individual state agencies such as TxDOT. The TAC is organized by titles. Title 43 Transportation contains many of the rules applicable to TxDOT.

TxDOT policy, in general, is represented by the TAC rules. It can also be established by the Transportation Commission or in some cases by the TxDOT Administration.


State guidelines and procedures provide even more specific information in how state laws and rules are to be applied. This

information is issued typically in the form of individual documents, Administrative directives, and agency manuals. TxDOT manuals are developed at the staff level to provide guidance on how rules or procedures are to be carried out. Manuals are written to be variable and are not intended to address every detail that will be addressed in every situation.

Federal Laws & Regulations Applicable to Contracting

40 USC §1101-1104One federal law that is commonly referred to in contracting is the “Brooks Act”. This act was passed in 1972 and is located in the U.S. Code, Title 40. Chapter 11, Sections 1101-1104. This is the law that requires providers, for architectural and engineering services, to be selected based on qualifications and that the contract should be negotiated for a fair and reasonable price.

23 USC §112(b)(2)This law focuses more specifically on contracts for state transportation department projects. It provides a more descriptive list of the related services that are also subject to award in accordance with 40 USC §1101-1104. This law also specifically addresses indirect cost rates (overhead) and in what situations that a firms indirect cost rate is to be accepted and not negotiated. This is an example where additional information was needed, and subsequently issued by the FHWA, in order to understand the intent and how it was to be applied.

23 CFR Part 172These regulations provide further definition and clarification related to the two laws identified above. General instructions with respect to procurements methods are identified such as the requirement of a public announcement or advertisement that ensures consultants are given a fair opportunity to be considered. These regulations also include additional clarification with respect to the audits for indirect cost rates as identified in 23 USC §112(b)(2). In addition, these regulations specify that agencies prepare written procedures for their procurement methods and that the procedures and any revisions must be reviewed and approved by the FHWA. The regulations also outline the basic steps that are to be included in the written procedures.


State Laws & Rules Applicable to Contracting

Government Code, Chapter 2254, Subchapter A This subchapter is referred to as the Professional Services Procurement Act. This is the state law that defines and lists the nine areas referred to as professional services and how they are to be selected. This is where architectural, engineering, and surveying services (three of nine) are specifically identified to be selected based on qualifications. Reporting requirements to the Legislative Budget Board of professional services contracts are also identified.

Government Code, Chapter 2161, Subchapter F, Subsection 2161.252This law implemented the HUB Subcontracting Plan (HSP) requirement for all State Agencies and was adopted by the Texas Building and Procurement Commission (TBPC) in September 2004. This law applies to a wide range of services and is not specific to TxDOT or Professional Services. Texas Administrative Code (TAC) Title 1, Part 5 (TBPC), Chapter 111, Subchapter B, Rule §111.14 outlines procedures for completing a HSP.

The standard Notice of Intent (NOI) template includes all the necessary instructions to the consultant for completing the HSP and Design Division – Consultant Contract Office (DES-CCO) internal guidance and instructions provide direction to TxDOT staff for reviewing HSPs as submitted with a Letter of Interest (LOI).

It is the policy of the commission to encourage the use of historically underutilized businesses (HUBs) by state agencies and to assist agencies in the implementation of this policy through race, ethnic, and gender-neutral means. The purpose of this program is to promote full and equal business opportunities for all businesses in state contracting in accordance with the goals specified in the State of Texas Disparity Study.

Transportation Code, Title 6, Chapter 223, Subsection 223.041This law identifies the minimal value for engineering –related services that are to be paid to private sector providers within a fiscal year.

Texas Administrative Code (TAC), Title 43, Part I, Chapter 9, Subchapter C

These are the contracting rules that TxDOT must follow for architectural, engineering, and surveying services.


State Guidelines and Procedures

Some of the locations for guidelines and procedures for contracting of architectural, engineering, and surveying services include the Engineering, Architectural & Surveying Services Manual maintained by DES-CCO [currently under revision]. Another applicable manual is the Contract Management Manual maintained by GSD-CSS. Other documents include Administrative and Division-level directives, as well as the information posted on the DES-CCO web site.

Written Versus Unwritten Law

The various laws, rules and regulations discussed in this section apply primarily to the selection of consultants, yet a significant portion of the relationship is while the consultant is under contract and being managed by TxDOT. One of the difficulties that the average project manager faces is understanding the basis for many of the decisions that are required over the course of a contract that constitute good contracting practice. Everything is not going to be written into the rules or documented in a manual. Everything cannot be written into the rules or documented in a manual.

I Want to See Where it Says That in Writing

We are accustomed to most of the laws that affect us being written down, but all laws are not written down. The unwritten laws, however, are just as applicable. And the unwritten laws that affect contracting for TxDOT, as well as any other party to a contract, are referred to as, “Contract Law.” The average engineer, TxDOT or otherwise, is not going to have even a working knowledge of contract law. That’s why there has to be lawyers, more specifically contract lawyers; and a trust among contract users that the lawyers do, at times, know what’s best.





D. Basic Principles of Contract Law or “No, We’re Not Making It Up!”

Objective: Have a basic understanding of contract law as it applies to

engineering agreements.

History of Contract Law

The law exists in two different forms that we use today:

1) Statutory law: Law created by the Texas legislature or the U.S. Congress

2) Common law: Law handed down by the judiciary, who interprets both statutes and common law

Contract law arose almost exclusively through the common law. The basic principles of contract law are not found in any volume of the Texas code. They are found by searching through decisions of Texas courts in individual cases over a period of more than one hundred and fifty years.

How did this system come about? It owes its origins to events of almost a thousand years ago, when the very concept of objective law was still in its infancy in England.

We can trace the creation of the common law back to medieval England. King Henry II of England created magistrate courts in the mid-12th century. With those courts, he introduced the concept of trial by jury. Before then, if someone wanted to resolve a dispute, or prove their innocence, the

community forced the person to undergo trial by ordeal.

Henry II

In the time of Henry II, no legislative bodies had been created. That did not happen until the 1200s, when the Parliament originated in the Magna Carta. Thus, the magistrates had no written law to enforce, even if they wanted to. Instead, they

D. Basic Principles of Contract Law 21


relied on the common law—the law that everyone understood intuitively, the law that was common to all England.

We still see the common law today. It has evolved into what we sometimes call case law—or the rules that are handed down by judges in court cases, sometimes referred to as “judge-made” law. It works hand-in-hand with statutory law—either state or federal. While most areas of law originated in common law, the two areas that remain almost completely subject to common law are tort law and contract law.

Entering the Contract

A legally binding contract is formed through the process of offer and acceptance. This procedure creates a meeting of the minds, an agreement on essential terms that is at the heart of any contract. Until a contract comes into existence legally, no work can be performed and no payments can be made.

To be accepted, an offer must be clear and sufficiently detailed that if it is accepted without any change or addition, the resulting contract can be understood and enforced by someone who has no knowledge of any negotiations or discussions. On a TxDOT professional services contract, an offer takes place when the consultant signs a contract and offers it to us for acceptance.

The acceptance of a contract must be absolute. Anything short of complete acceptance is no acceptance at all. If even a word or a single number is changed, the offer is rejected. When we change a term and initial and date the change, legally we have rejected the consultant’s offer and made a counteroffer. The counteroffer is accepted only if and when the changes are initialed and dated by the consultant.

To be valid, a contract must be mutual. Both parties must be bound by promises in which they give something up or agree to do something. This is rarely a problem with prime contracts, but often is a problem with amendments that are designed to affect one party’s rights without affecting the other’s rights.

A contract must be sufficiently certain that an outside person, like a judge, can identify the party’s obligations and determine if one party has violated one of those obligations. More than anything else, this means that every contract must specify the nature, quality, quantity, and timing of the work to be done and the amount of money that must be paid for that work.

Agreements to agree are NOT contracts. Important terms cannot be open to future negotiation. Bear in mind that contracts with work authorizations



still establish the type of work to be done and the crucial payment terms. All that is left for negotiation is the level of effort—and under our contracts; a refusal by a consultant to accept a work authorization is grounds for terminating the contract.

If multiple contracts are executed, each one is considered a “duplicate” and is equally valid. To avoid confusion, TxDOT policy is to execute only one duplicate original per party. A copy, which does not have an original signature, can be used to prove a contract as long as the validity of the signature is not questioned.

Construing the Contract

When a contract is being considered by a court (or by a lawyer predicting what a court would decide), there is a simple guiding principle. A court will always assume that the parties to a commercial transaction are competent.

It is often said that ignorance of the law is no excuse. The same can be said of ignorance of the contract. It is expected that before entering a contract, both parties read and understood its terms. This expectation is so strong that a court will not even allow evidence to the contrary. The law holds that you have read the contract, whether or not that is true as a matter of fact.

Thus, a court will read the meaning of the contract according to the plain meaning of the terms it contains. One may not twist words or infer convoluted meanings to make a contract mean, in retrospect, what we wish it had said from the beginning. It says what it says, and that’s that.

Therefore, if you agree to do something in a contract, you’re stuck by what you agreed to, even if you were really stupid to agree. The court will not allow your foolishness to become an excuse for not abiding by your agreements. The moral, of course, is that it is vitally important that we not agree to do stupid things, since the law will not save us from our own folly.

Similarly, a contract consists solely of what is written in the contract document. The parties’ intentions, held and nurtured in their hearts, are of no significance whatsoever. The law says that your task is to ensure that your intentions are included in and reflected in the contract’s terms.

Even an honest mistake will not save you. If you make a mistake in a contract and agree to something you did not intend, you will be held to your



mistake. It is our task to read and correct mistakes before we execute contracts.

All your plans, discussions, agreements, and thoughts must be incorporated in a contract or they are of no avail. You may have intended to enter a different contract. You may have planned to enter a different contract. You may even have believed that you had entered a different contract. All a court cares about is the contract you did in fact enter, and that contract is found only in the words on the printed and signed page.

In general, courts will try to give effect to every provision written in the contract, and read them to work together with each and every other provision. If one provision seems to contradict another one, then the court will try to read it in such a way to give effect to all.

Also, courts will construe the language of the contract in the light most favorable to the party who did not draft the contract. In nearly all instances, TxDOT drafts the engineering, architectural, and survey contracts. So, any mistakes or ambiguities are likely to be resolved in the contractor’s favor. Be careful!

Ambiguity in a contract is when language in a contract can have two or more possible meanings. If the court finds there to be an ambiguity in a contract, it may allow evidence to be presented by the parties to determine the document’s meaning. This evidence is referred to as “extrinsic” evidence or “parol” evidence. In the absence of a legitimate ambiguity, the courts will only look within the four corners of the document itself to establish its meaning.

Administering the Contract

An amendment is a contract to change a contract. Therefore, it must satisfy the same elements necessary to form a contract. All the above rules about offer and acceptance and about certainty apply just as much to an amendment as to a prime contract. And if you don’t know, a “supplemental agreement” is just one of the phrases we use to describe an amendment

to a professional services contract.

One must also have new consideration to support the new agreement. If one party agrees to do something new (like pay more money), the other



party must also do something new (like more work). The obligations in an amendment, like those in a prime contract, must always be mutual.

All agreements can be modified or amended—even orally. In TxDOT contracts, we include language to notify the other party that the only person with authority to amend an agreement is a person with signature authority to sign the document. In that way, we seek to avoid reliance on verbal agreements by our employees who do not have authority to amend our contracts.

As a general rule, if one party violates a term of a contract, the other party does not have the right to terminate the contract. Thus, if a deliverable is late or a promise is violated, the only recourse for the wronged party is to collect damages. These promises are often called warranties. The exception to the general rule occurs when a promise is so central to a contract that its violation makes the whole contract pointless. This kind of violation permits termination of a contract and is typically called a condition.

If two parties create a contract, then they are bound by its terms—even if later it becomes impossible for one party to perform. The one exception to this rule is if the contract contains a “force majeure” clause. If so, one or both parties may be excused from their duties under a contract if an “Act of God” occurs, normally defined as flood, war, pestilence, or other natural disaster.

A breach of contract occurs when one party fails to perform its duty under a contract. To establish a claim for damages, one must show:

-a valid contract-some attempt to perform by the injured party-failure to perform by the breaching party-damage suffered by the injured party.

Under common law, a party who has been damaged by a breach of contract is only entitled to be restored to the condition the party was in prior to the contract being entered. The actual damages must be proven to the court in order for them to be recoverable. They must also directly relate to the breach, and must be a foreseeable consequence of the breach of contract.

The Contract Is the Law

Contract law is unique. Most often, when we think of law, we think of a government edict that we must do something or we may not do something else. Contract law, in effect, allows us to make our own law every time we write a contract. This is what gives contracts their power and flexibility, and



it is why we must draft contracts with the same precision we would use in drafting a statute.


Module 2: Provider Selection

Table of Contents

A. Contract Type SelectionB. Process Overview

RM1. Roles and Responsibilities TableRM5. Professional Services Contract Selection and Award Process

FlowchartRM6. Contracting Process Time Frames for Engineering, Architecture, and

Survey ContractsC. Consultant Selection Team

RM1. Roles and Responsibilities TableD. Request for Use of Provider Services (RFU)

RM7. RFU (CCO-1) FormRFU (CCO-1) ChecklistCCO-23 Certificate of Non-DisclosureCCO-24 TxDOT Communication Management Plan

RM8. CCO-2 FormE. Notice of Intent (NOI)

RM9. NOI Template NOI ChecklistQuestions and Responses Template

RM10. CCO-6 Project Team Composition FormCCO-6 Guidance and Instructions

RM11. CCO-20 Project Team PrecertificationCCO-20 Guidance and Instructions

RM12. CCO-21/CCO-21.1 Firm Precertification by Work CategoryCCO-21 Guidance and Instructions

RM13. Past Performance EvaluationClient Reference Past Performance Evaluation Letter

F. Letters of Interest (LOI)RM14. LOI Receipt LogRM15. LOI Screening Guidance and Instructions with a Sample ChecklistRM16. CCO-4 Long List Evaluation Form

Long List Evaluation WorksheetRM17. CCO-5 Long List Evaluation Summary

G. Short List Evaluation (Proposals and Interviews)RM18. Request for Proposal (RFP) TemplateRM19. CCO-8 Proposal Evaluation Form

Proposal Evaluation WorksheetRM20. Proposal Receipt Log

RM21. CCO-16 Debarment Certification – Architectural, Engineering,and Surveying (“Provider”) Contracts

CCO-17 Lower Tier Participant Debarment Certification(Architectural, Engineering and Surveying Contracts)

CCO-19 Audit Contact List for Project TeamCCO-22 Key Staff Availability and Commitment SummaryLobbying Certification for Grants, Contracts, Loans, and

Interagency Cooperation ContractsRM22. CCO-9 Proposal Evaluation SummaryRM23. Interview and Contract Guide (ICG) TemplateRM24. Guidance on Interview Format OptionsRM25. CCO-10 Interview Evaluation Summary

Interview Evaluation Worksheet (with and without presentation)RM26. CCO-11 Interview Evaluation Summary

CCO-12 Proposal and Interview Evaluation SummaryRM27. References/Database Past Performance Worksheet

H. Consent to NegotiateRM28. CCO-13 Consent to Negotiate (Multiple)

CCO-14 Consent to Negotiate (Single)Selection Packet ChecklistProcedure for Submitting the Required Nepotism Form for

Professional Services Contracts and the Nepotism FormsI. Documentation

RM46. Example Contract Filing System

Module 2 – Provider Selection

Module 2:Provider SelectionA. Contract Type SelectionB. Process OverviewC. Consultant Selection TeamD. Request for Use of Providers Services (RFU)E. Notice of Intent (NOI)F. Letters of Interest (LOI)G. Short List Evaluation (Proposals and Interviews)H. Consent to NegotiateI. Documentation

Objectives:

Identify the characteristics of a Specific Deliverable Contract.

Identify the characteristics of an Indefinite Deliverable Contract.

Map the provider selection process.

List the qualifications of CST Members.

Identify the roles and responsibilities of CST Members and the CST Chair.

Understand when a CST Member can and cannot be replaced.

Identify the requirements for submission of the CCO-1.

Recognize common RFU issues.

Explain the purpose for the Notice of Intent.

Identify the forms used and posted in the NOI.

Understand how to assemble the NOI.

Understand the purpose for logging the receipt of the Letters of Interest.

Identify the forms used in the LOI review process.

Differentiate between screening and evaluating LOIs.

How to develop LOI evaluation criteria and scoring methodology.

How to prepare for LOI evaluations.

Identify the requirements for notifying selected and eliminated providers.

Identify the forms used in the process.

Develop a Request for Proposal.

1


How to develop proposal evaluation criteria and scoring methodology.

Develop an Interview and Contract Guide.

How to develop interview evaluation criteria and scoring methodology.

Differentiate between interview formats.

How to prepare for Proposal and Interview Evaluations.

Identify the forms used for the Consent to Negotiate.

List the requirements to break a tie.

Identify the forms and documents to preserve.

2

A. Contract Type Selection

Objectives: Identify the characteristics of a Specific Deliverable

Contract. Identify the characteristics of an Indefinite Deliverable

Contract.

Service Type – Are You On the Right Trail?

When you identify the need for an outside provider, the first question you have to address is if it includes engineering, architectural, or surveying (EAS) services. If it does not, you should contact the procurement officer in your district or division that is accustomed to working with GSD procurement specialists. If you think this will result in your only option being low bid, you’re mistaken. You will have the opportunity to consider qualifications along with cost. If the service you need does include engineering, architectural, or surveying services, you should contact DES-CCO for assistance.

Contract Type Selection

Typically, when we refer to contract type we are talking about either:

A specific deliverable contract, or An indefinite deliverable contract.

This decision has to be made at the beginning of the process because the contract type is identified in the advertisement and cannot be changed without re-posting the advertisement. Over the last five years, 91 percent of the executed EAS contracts were indefinite deliverable. This does not mean that yours’ should be or that 91 percent of the contract type decisions made over the last five years were actually good decisions. It is important to know what the differences are and the consequences of choosing the wrong one.

Indefinite Deliverable Contract Type

Texas Administrative Code (TAC) Definition:This contract may be for an individual project or for multiple projects. The typical type of work will be described in the notice. The contract period, in which initial work authorizations may be issued, may not be longer than two years from the date of contract execution, unless approved by the Texas Transportation A. Contract Type Selection 3

Commission prior to NOI publication. Supplemental agreements may be issued to extend the contract period beyond the two years, but only as necessary to complete work on an initial work authorization.

A combination of the rules and an Administrative directive currently limit all indefinite deliverable contracts to $2 million for all districts and divisions.

Contract ScopeFor an indefinite deliverable contract, the contract scope generally defines the type of work expected and should address standards and requirements that apply to the work. The scope, although general, should be specific enough to identify a limit as to what work can and cannot be issued under the contract. The scope should have meaning and purpose. It should not be so general and vague that practically any assignment could be issued.

Work Authorization ScopeFor an indefinite deliverable contract, the work authorization scope specifically defines the project assignment, tasks, controls, and deliverables. The scope should also identify any additional requirements not addressed in the contract scope. The task outline should clearly correspond to the negotiated budget since the two should be directly related. The work authorization scope should not be open-ended. This is an inappropriate use of a work authorization.

When Does it Stop?Every contract has a control that defines its life. A contract is not intended to last forever. The maximum contract time for an indefinite deliverable contract is the time needed to complete all work authorizations that will be issued in the first two years of the contract. This is established in the rules.

Other ConsiderationsSince the specific projects aren’t identified in the contract, the general nature allows for several contracts to be advertised for one selection process which can save time. This provides flexibility in responding to changing priorities in project development. It is also easier to execute the actual contract because the scope is general and typically requires very little, if any negotiation. And only rates

A. Contract Type Selection 4

CONTRACT SCOPE

Work Authorization

Scope

Work Authorization

Scope

Work Authorization

Scope

Work Authorization

Scope

are negotiated rather than a project related budget. A detailed project scope and budget, however, must still be negotiated at the work authorization level.

Where contract users get into trouble is by starting a project under an indefinite deliverable contract to save selection time, only to find out that the time or dollar limit catches up to them before the project is complete. This has happened numerous times. Indefinite deliverable contracts were intended to support smaller, more routine projects of reasonable size that can be completed within a reasonable time relative to the contract size and duration. Indefinite deliverable contracts are not intended to be dedicated to one project.

Specific Deliverable Contract Type

Texas Administrative Code (TAC) Definition:This contract may be for an individual project or for multiple projects. The notice will describe the specific deliverables to be produced under the contract. There is no dollar limit on the size of the contract, and there is no time restriction on the contract.

Contract ScopeFor a specific deliverable contract, the contract scope specifically defines the project assignment, tasks, controls, and deliverables. The scope should address standards and requirements that apply to the work. The task outline should clearly correspond to the negotiated budget since the two should be directly related. The contract scope should not be open-ended or general like an indefinite deliverable contract scope. This is an inappropriate use of a specific deliverable contract.

When Does it Stop?Every contract has a control that defines its life. The maximum contract time for a specific deliverable contract is the time needed to complete the specific project as defined in the contract. The scope of work must define what constitutes the end of the project effort. Typically, this is completion of the identified deliverables.


CONTRACT SCOPE

Work Authorization

Scope

Work Authorization

Scope

Work Authorization

Scope

Work Authorization

Scope

Other ConsiderationsFor specific deliverable contracts, the specific project must be identified at the time it’s advertised. The flexibility is in the time and budget. There is no time limit. The contract can last until the defined work is complete, but there must be a defined end. There is also no budget limit. The contract value can be the amount needed to complete the defined work. It takes time to negotiate the contract scope and budget for the project, but the scope and budget is required to do the work regardless of the contract type.

A specific deliverable contract can be managed with or without work authorizations. Contract users typically use work authorizations on more complex or multi-phased projects. The work authorizations help to control and manage the phased work. Use of work authorizations does not mean that the contract can be managed like an indefinite deliverable contract. The contract is still a specific deliverable contract.

What’s a Project?

For specific deliverable contracts, the project is defined at the contract level. For indefinite deliverable contracts, the projects are defined at the work authorization level. The project definition must be specific enough to represent an assignment that has an end. Both TxDOT and the consultant need to know in advance when it will be time for the consultant to go home.

The typical project description needs at least three components to define the intent and life of the agreement.

Roadway Name, such as SH 101 Limits, such as from I-40 to Broadway The assignment, such as route study, schematic design,

PS&E, or some combination of phases. These, for example, are the specific deliverables to be produced under the contract.

The task descriptions, deliverables, and negotiated budget should then clearly support the purpose and intent of the agreement.


Indefinite vs. Specific DeliverableIndefinite vs. Specific Deliverable

Detailed Detailed Budget/ Budget/

Max$ NTEMax$ NTE

Rate Schedules/Rate Schedules/Detailed Budget/Detailed Budget/

Max$ NTEMax$ NTE

Detailed Detailed Budget/Budget/

Max$ NTEMax$ NTE

Rate Rate Schedules/ Schedules/ Max$ NTEMax$ NTE

Fee Fee ScheduleSchedule

YesYesYesYesYesYesNANAScheduleSchedule

Reflects Reflects ContractContractDetailedDetailedDetailedDetailedGeneralGeneralScopeScope

SD WASD WASDSDID WAID WAIDID

Packaging Considerations

When evaluating work to be outsourced, the type of contract to be used should be based on the consideration of a variety of factors. These factors basically affect how work could or should be packaged within a contract for acceptable and effective outsourcing. Factors to be considered include:

One or More Project Needs Similarity of Projects Project Size/Value Project Duration and Complexity One or More Project Development Phases Type of Work to Support Multiple Projects Magnitude of Work Type Needed Good Contracting Practice Departmental Goals and Objectives

Advertising Options

There are several advertising options available that could help save time, depending on the type of work and projects needing to be outsourced. One Notice of Intent (NOI) can be used to advertise:

One Specific Deliverable Contract Multiple Specific Deliverable Contracts with:

o Identical Work Categorieso Similar Project Characteristics


One Specific Deliverable Contract with Multiple Specific Projects

One Indefinite Deliverable Contract Multiple Indefinite Deliverable Contracts with:

o Identical Work Categories

Saving Time in the Beginning May Cost You in the End

A bad decision about the contract type usually results in a situation where only more bad decisions are available as alternatives to problems that would have been avoided if the right contract type had been used. Adequate planning and good judgment are key to having the right contract in place at the right time to avoid project delays. Plan ahead.


B. Process Overview

Objectives: Map the provider selection process.

Resource Materials

The Professional Services Contract Selection and Award Process Flowchart provides a general step-by-step picture of the process from identification of the need to contract through the execution of the contract. The emphasis, however, is on the steps that lead to the point where the Managing Office initiates contract negotiations. The various phases are color-coded and references to the respective forms required to be used are also included.

The Roles and Responsibilities Table, mentioned in Module 1 is also a good resource to reference in preparing for and going through the selection process.

Summary of the Procurement Steps

Identify the need for a contract. Form a Consultant Selection Team. Request authorization to use a provider contract. Prepare the Notice of Intent. Advertise the Notice of Intent. Receive Letters of Interest. Screen the Letters of Interest and Prepare a Long List. Evaluate and Score the Letters of Interest and Prepare a

Short List. Request proposals or conduct interviews or both.

o Prepare/Distribute the Request for Proposals. o Evaluate and Score the Proposals. o Prepare/Distribute the Interview and Contract Guide. o Evaluate and Score the Interviews.

Make final selection and Request Approval to Negotiate. Notification of Selection. Debrief Non-Selected Providers.

B. Process Overview 9

Selection Time The selection time is generally considered the period of time from posting the NOI through approval of the consent to negotiate form and notification to proceed with negotiations. This constitutes the “selection process” that precedes the negotiation period for one or more contracts. The process is divided into basically three periods.

Period 1 – From NOI posting through NOI Closing Period 2 – From NOI closing through submittal of the Selection

Packet for approvalPeriod 3 – From Receipt of the Selection Packet through

notification to proceed with negotiations

Prior to contract negotiations, the only fixed time period dictated by the contracting rules is the 21-day minimum posting period for the Notice of Intent (NOI). The time required to complete the balance of the process is a result of the schedule established by the Managing Office and Consultant Selection Team, in addition to review time for the RFU, NOI, and Selection Packet by DES-CCO. The tables below show the average time for selection for FY 06 and FY 07.

FY 06 Average Selection Process Time# of Solicitations Period 1 Period 2 Period 3 Total

DaysTotal Weeks

Metro 81 27.3 71.8 12.8 112 16Urban 28 28.3 82.6 11.6 122 17Rural 33 28.0 64.9 16.0 109 16Statewide 142 27.9 73.1 13.5 114 16

FY 07 Average Selection Process Time# of Solicitations Period 1 Period 2 Period 3 Total

DaysTotal Weeks

Metro 30 26.6 78.0 12.0 117 17Urban 15 25.8 70.3 9.5 106 15Rural 33 29.1 60.2 14.2 104 15Statewide 63 27.2 69.5 11.9 109 16

In FY 06 for metro districts, the average time to receive approval to begin negotiations was 16 weeks, with the shortest being 10 weeks and the longest being 34 weeks. For urban districts the average time was 17 weeks with the shortest and longest being 8 weeks and 36 weeks, respectively. For rural districts the average time was 16 weeks with the shortest and longest being 8 weeks and 39 weeks, respectively.


In FY 07 for metro districts, the average time to receive approval to begin negotiations was 17 weeks, with the shortest being 10 weeks and the longest being 34 weeks. For urban districts the average time was 15 weeks with the shortest and longest being 10 weeks and 23 weeks, respectively. For rural districts the average time was 15 weeks with the shortest and longest being 8 weeks and 30 weeks, respectively.

Request for Use of Provider ServicesThe time period between submitting an RFU and posting an NOI can vary significantly among solicitations. In some cases a district will submit the RFU and NOI together with the intent to post the NOI as soon as the RFU and NOI are approved. In other cases a district may submit and receive approval for an RFU and then wait several months before initiating the NOI process. Because of the extreme variation, the period preceding the NOI is fairly unpredictable.

Contract Development and NegotiationWhen looking at multiple selection processes, the period of time from selection to contract execution is also less predictable because of the variation in the number of contracts resulting from one solicitation and the complexity of certain projects. One solicitation, for example, can result in one or several indefinite deliverable contracts. The negotiation period for one contract is 30 working days which is increased by five working days for each additional contract. So for eight contracts the negotiation period would be 70 working days. And it is not unusual for districts to request multiple extensions before submitting the first contract for review. As a result, trying to average negotiation time periods for analysis purposes is not practical.

Contracting Process Time Frames

Prior to FY 2009, specific time frames were not established for periods other than the NOI posting and negotiation periods. In September 2008, however, time frames were established for major steps in the process.

The referenced table, Contracting Process Time Frames for Engineering, Architecture, and Survey Contracts, indicates the major steps and corresponding time frames established. The table is divided into two parts including the selection phase and negotiation phase. Historical data, such as the FY 06 and 07 data, presented earlier, were used in establishing the selection process time frames. The negotiation time frames and extensions are not new, but remain the same as established in the current rules.


Flexibility is provided at both the selection and negotiation phase for unique situations that are expected to require more time. It is necessary, however, that these situations be identified up front in order to receive the appropriate approval.

Consideration of Coordination Time through DES-CCO

The Managing Office is responsible for initiating and implementing the selection process according to the rules and procedures in place. Built in to the selection process are points where the Managing Office coordinates directly with the DES-CCO to ensure the primary steps are being followed, time frames are applied, the correct forms are being used to document the appropriate information, and the overall process is being implemented consistently across the state, to the extend possible.

The Professional Services Contract Selection and Award Process Flowchart is a good resource for identifying the points in the process where coordination with DES-CCO occurs.

At the beginning of the process, the CCO-1 Request for Use of Provider Services form must be submitted to DES-CCO for review, processing, and approval according to the appropriate signature authority. This step includes DES-CCO coordination with the appropriate staff in either General Services Division (GSD) or Office of Civil Rights (OCR) to review and assign the appropriate HUB or DBE goal according to the state or federal requirements.

The Managing Office must also submit the Notice of Intent (NOI) to DES-CCO for review, processing, and posting on the internet. The newspaper ads are also reviewed by DES-CCO as part of this process. After NOI posting, the responsibility for implementing the selection process steps resides with the Managing Office.

Upon completion of the selection process, the final Selection Packet is submitted to DES-CCO for review, processing, and approval by the administration.

Upon approval, DES-CCO communicates the appropriate negotiation deadline to the Managing Office. This step includes DES-CCO’s coordination with the Audit Office (AUD) to trigger the development of the Pre-Negotiation Report that is supplied by AUD directly to the Managing Office. This step also includes the submission of the necessary selected prime and subprovider information by DES-CCO to GSD or OCR for the purpose of establishing


the initial data in the system for ultimate HUB or DBE utilization reporting purposes.

This summary of the basic steps above constitutes the extent of coordination with DES-CCO through the selection process. More detailed information associated with the steps will be covered in subsequent sections of this module. Subsequent modules will cover finalizing the negotiated contract including the review and processing through DES-CCO for approval according to the appropriate signature authority. DES-CCO is also involved in the review and processing of supplemental agreements, as well as work authorizations valued at $1 million or more.

There are currently three contract specialists that process the information summarized above and provide support to the managing offices through questions and answers primarily by e-mail and phone. The 25 districts and nine divisions (34 Managing Offices) are divided among the three contract specialists. They are also responsible for other assigned duties within DES-CCO.

It is important to allow adequate time for processing through DES-CCO for each of the steps involved. DES-CCO strives to maintain the internal processes in order to provide the most expeditious service possible. The time it takes to address each document, however, directly affects the time it takes to get to other documents that have been submitted by others. The time it takes, overall, is directly related to the quality of the documents being submitted. The Managing Offices are responsible for the oversight and quality control of the documents associated with the contracting process. The level of understanding and attention given to document preparation directly affects the time it will take to get it approved.

To put it into perspective, from 2004 to 2008 (five years):

The number of contracts processed annually for execution averaged around 280.

During peak periods, the number of solicitation processes underway at any one time was around 90. Each process required multiple steps of coordination and each one ultimately resulted in one or more contracts.

The number of supplemental agreements processed annually averages over 600.

And the number of work authorizations processed averaged around 100.

The number of questions, conversations, phone calls, and e-mails originating from DES-CCO or responded to by DES-CCO, in association with each submission, is unknown, but the coordination time required is significant.


The activity summarized above was divided among three people. If every document submitted through DES-CCO requires one or more comments, resulting in a second submission, the number of required “touches” across the board is doubled.

Each district or division deals directly with one contact person within DES-CCO. That one person, however, deals directly with multiple other districts and divisions, which typically includes multiple offices within each district.

Based on the volume being processed, it is not realistic to assume that a document will be reviewed and addressed the day of submission or even the day after submission. For planning purposes, it is best to assume an average turnaround time of two weeks. It may be more or less depending on the actual volume. Implementation of a Fair Process is Priority

The selection process can involve numerous individuals within a district beyond those specifically assigned to a selection team. It is important that staff potentially associated with a selection process be aware of the significance of providing for a fair process.

It is expected that consultants will request to meet with district staff prior to solicitations. There should be consistency in who routinely meets with consultants and the information that is provided in advance of a solicitation.

Because of the level of outsourcing within many districts, there is TxDOT staff working directly with consultants under contract that may not be associated with or involved in a selection process, but has direct or indirect knowledge of the project or process. It is also important that these TxDOT staff understand the importance of not discussing information with consultants under contract that other consultants do not have access to. This also applies to situations where TxDOT staff is friends with consultants. Whether intentional or not, sharing certain information with consultants can create an unfair advantage for consultants who have privileged access to TxDOT employees.

Once a Notice of Intent (NOI) has been posted, it is important that contact with consultants concerning the NOI be limited to the contact person identified in the NOI or other specifically identified individuals in the district. Other TxDOT staff should be made aware of these restrictions.

Consultant requests for meetings (marketing calls) to make introductions and inquire about future work are integral to the consultant business development model. Meeting with consultants


is part of the process and can be beneficial to TxDOT as well. It’s helpful for TxDOT staff of be knowledgeable of the diversity and depth of the consultant industry in addition to the issues that affect it. It’s important, however, that districts have a plan for communications with consultants to ensure that appropriate information is being shared and at appropriate times.

TxDOT has a significant number of active contracts across the state and the expectation of maintaining effective working relationships with the consultants involved. Communication is a key factor in the management of consultant contracts. It is just as important, however, for TxDOT staff working directly with consultants to be aware of what they’re talking about and the information that is being shared during project specific discussions as well as casual conversations. It’s simply a matter of remaining aware of who you’re talking to and what you’re saying.

The TxDOT consultant program involves a significant number of contracts that include significant sums of money. The consultant industry is very competitive. It is important that TxDOT staff understand the need for fairness and provide a fair selection process for each contract.




C. Consultant Selection Team

Objectives List the qualifications of CST Members. Identify the roles and responsibilities of CST Members and

the CST Chair. Understand when a CST Member can and cannot be

replaced.

When considering and discussing the use of consultant contracts, the focus tends to be on the management and administration of the contract. Prior to initiating work on a contract, however, a significant amount of resources are invested by TxDOT, as well as the consultant community, in the selection process. TxDOT has a responsibility to ensure that the process is conducted fairly according to the rules, regulations, and policies governing the qualifications-based selection process.

Although DES-CCO serves as a check and balance in reviewing information at various points in the process, the responsibility for conducting an organized, efficient, fair, and effective process is the responsibility of the CST Chair and the members of consultant selection team. As a qualifications-based process, it is important that the CST members have the background and experience to effectively evaluate the qualifications of the submitting teams and their staff.

Consultant Selection Team (CST) Members

At a minimum, the CST consists of three TxDOT employees which include:

an employee designated by the managing officer to be the chair

the project manager at least one other employee.

At least one member of the CST must be:

a professional engineer for engineering contracts a professional engineer or registered or licensed

professional land surveyor for surveying contracts a registered architect for architectural contracts.

It is not uncommon for selection teams to include more than three people. It should be taken into consideration, however, that as the number of members increases the harder it is to coordinate schedules to complete the various steps of the process.

C. Consultant Selection Team 17

It is important that all team members understand the commitment of time and responsibility associated with being a CST member from beginning to end of the process. Because of a variety of unavoidable reasons, there are times when a designated team member is unable to complete the process. Whether or not they can be replaced depends on at what point in the process they withdraw.

TxDOT must ensure the integrity of the qualification-based selection process. To maintain the high level of professionalism and consistency throughout the process, there are rules governing who may be a member of the Consultant Selection Team as well as policies regarding the roles and responsibilities of the CST members. As stated previously, the rules indicate the CST must consist of TxDOT employees only.

To avoid conflict of interest, bias, inappropriate influence, or the appearance of any impropriety, non-TxDOT employees are prohibited from participating in the selection process.

Replacing Team Members

If a Consultant Selection Team member withdraws before the letters of interest are evaluated, a replacement can be named. If a member withdraws after letters of interest are evaluated, the remaining CST members complete the selection process even if there are only two members remaining. The one constraint is that the team must maintain the required professional engineer, professional land surveyor, or registered architect as described above.

CST members are identified on the Request for Use of Provider (CCO-1) form. Once approved, if the team membership changes, it is not necessary to revise this form. The change must be identified, however, as part of the consent to negotiate package submitted to DES-CCO upon completion of the selection process. This reduces the potential number of questions during review.

Responsibilities

The CST members and chair should refer to the Roles and Responsibilities Table for a description of steps and indication of level of responsibility throughout the selection process.

It is not uncommon for staff to assume that the selection process is primarily a contract administrator responsibility, simply because of the number of forms and amount of paperwork involved. This is not necessarily the case.


Several districts have very experienced contract specialists and other support staff who can provide a significant level of support throughout the process. There are numerous decisions throughout the process, however, that must be addressed by CST members or more specifically, the chair. Overlooking or over-delegating these responsibilities by the CST/chair can affect the integrity of the process as well as the overall effectiveness of the selection. An inappropriate delegation has the potential to impact the number, type, and size of the contracts being contemplated; type of work categories being advertised; selection of the advertised sample project; selection criteria used; qualified firms being firms being eliminated and unqualified firms continuing in the process; and ultimately the firm being selected.

The consultant selection process is not internal to TxDOT. It involves direct interaction with the consultant community. The implementation and management of the selection process is as much a reflection of TxDOT’s business practices as managing the contract. It is important that CST members and the chair understand the process, their roles and responsibilities, and the consequences of their actions as a member of the process.





D. Request for Use of Provider Services (RFU)

Objective: Identify requirements for submission of the CCO-1. Recognize common RFU issues.

Resource Materials

CCO-1 Request for Use (RFU) of Provider Services Request for Use of Provider Services (CCO-1) Checklist CCO-2 Request for Work Category Changes or Additional

Funds CCO-23 Certificate of Non-Disclosure CCO-24 TxDOT Communications Management Plan

Request Approval to Contract

To begin the selection process, the managing office completes a Request for Use (RFU) of Provider Services Form (CCO-1) and submits it to DES-CCO for processing. Appropriate signature authority must be followed. A Request for Use of Provider Services (CCO-1) Checklist is available and should be referenced each time a CCO-1 is completed to ensure each item on the most current form has been adequately addressed.

CCO-23 Certificate of Non-Disclosure

Prior to submitting the RFU, all CST members must sign a CCO-23 Certificate of Non-Disclosure form. Copies of the signed forms should be submitted with the RFU. The RFU will not be approved until copies of the forms are received.

It is the responsibility of each CST member to fully understand the process and the sensitivity of the materials involved. It is also the responsibility of each CST member to follow the correct process and ensure fairness. The purpose of the CCO-23 Certificate of Non-Disclosure is to heighten the awareness of the CST member responsibilities. The requirements remain applicable through completion of the selection process and the execution of all contracts awarded under the solicitation. The CCO-23 is currently required for CST members only. The CCO-23 form is not to be

D. Request for Use of Provider Services (RFU) 21

http://crossroads/org/gsd/forms/des/CCO-01.dot


confused with the Nepotism Disclosure Form (submitted with the Selection Packet) that is required by law. CCO-24 TxDOT Communications Management Plan

A copy of the completed CCO-24 must be also submitted with each CCO-1 Request for Use of Provider form. The Consultant Selection Team (CST) chair is responsible for providing a copy of this plan to each TxDOT employee who is listed on the plan or who is directly involved in the contracting process. It is recommended the plan be scanned and e-mailed to the individuals identified in the plan for their information.

The CCO-24 form is formatted specifically for the contracting process for engineering, architectural, and surveying contracts. The form is in compliance with the policy requiring a communications management plan that was implemented in 2008. The policy can be referenced in Contract Services’ Contract Management Manual (Chapter 1, Section 5).

TxDOT contracting involves the annual expenditure of hundreds of millions of public dollars and the interaction with private industry service providers that expect fair and competitive selection processes. Controls to ensure the responsible management of risk are expected before and after contract execution. A Communications Management Plan is one of those controls.

The purpose of the Communications Management Plan is, for those responsible for the contracting process, to think through each phase, prior to solicitation, in order to identify the information and individuals involved. Risks are associated with TxDOT’s management of information before and during the selection and negotiation phases. It is important that only appropriate information be shared with the appropriate people and that the information be provided consistently. Communications must be managed to ensure the integrity of the solicitation, selection, and negotiation processes. During management of the contracts, risks are associated with oversight and approval of the work being produced and paid for with taxpayer funds. Communications must be managed to ensure consistent and acceptable progress, timely delivery of an acceptable product, avoidance of problems that put the contract and funds at risk, and overall contract compliance.

Correct communication is key to the effectiveness and success of any process. Communications must be managed in order to ensure correctness. Management is a deliberate action and the significance of this action requires a plan.



The plan is not intended to be a living document that requires updating as the process progresses. It is important, however, that the decisions be given appropriate thought at the beginning of the process so that individuals are aware of their responsibilities and significance of their actions. The project manager is identifying the people they think, at the beginning, will be responsible for certain activities. It is not intended to represent formal documentation of assignments. It’s understood that changes in personnel will occur, but their role and responsibilities in their assignment still need to be emphasized.

Unique Contracting Process Request

If it is anticipated that the standard contracting process time frames (refer to RM#6) are not adequate, additional time can be requested. The request memo must be received with the CCO-1 RFU for approval by the appropriate signature authority, prior to NOI posting.

Copies of the CCO-1, CCO-1 Checklist, CCO-23, and CCO-24 are included in Resource Materials notebook under the referenced tab.

CCO-1 RFU Development

The CST Chair is responsible for making sure the RFU is filled out correctly, including the funding source, and coordinating with other staff to ensure that the work categories and any non-listed categories are adequately defined and cover the anticipated scope of the project.

If non-listed categories (NLCs) are included, the NLC descriptions and minimum requirements must be submitted with the CCO-1. This is referenced in the Roles and Responsibilities Table. Non-listed category description and minimum requirements should be clearly stated so the provider understands the intent and submittals can be easily evaluated for acceptance or rejection.

For Specific Deliverable contract requests, a preliminary scope and budget must be included with the CCO-1.

For Indefinite Deliverable contract requests, a list of projected work authorization projects/assignments that contains a general description of the type of work to be performed and anticipated value for each project, must be included. This does not apply to:

Division-level contracts



Survey contracts Materials Engineering Traffic Engineering

If you are requesting approval to contract (indefinite deliverable) for services that are different from the services traditionally outsourced and are not sure if a list of projected projects is expected with the CCO-1, contact DES-CCO.

CCO-1 RFU Not Approved

If the CCO-1 (RFU) is approved, the managing office continues the selection process.

If the request is not approved, the managing office may perform the work in house, delay the work pending a later request, or appeal the denial.

To appeal a denial, the managing office prepares an appeal memo to the Deputy Executive Director (DED):

requesting reconsideration of the original request to contract

attaching a copy of the original request and the denial providing additional justification for the contract addressing the reason for the denial requesting approval to contract for the services.

If the DED denies the appeal, the managing office may complete the project in house or delay the project until it can be approved for contracting.

If the appeal is approved, the managing office continues with the contracting process.

The DED’s decision is final.

Status of CCO-1 Information After Approval

A range of information is requested on the CCO-1. The primary purpose is to ensure that an acceptable plan is in place for pursuing and implementing the requested contract(s). Some of the information will have a direct effect on the content of the Notice of Intent and cannot be changed without coordination through DES-CCO, for example, work categories, contract type, number of contracts, and contract funding source. Some of the information on



the form represents the districts best estimate at the time the form is completed and this information may change over time, but revisions to the form are not necessary, for example, payment type, construction cost, and estimated payout by fiscal year.

Time Limit for CCO-1 RFU Approval

After CCO-1 (RFU) approval, it is generally expected that the Notice of Intent (NOI) will be advertised within a reasonable time period. If the NOI has not been posted within a year of CCO-1 (RFU) approval, the CCO-1 will have to be re-submitted. Depending on the type of contract(s) intended to be advertised, even within a year of CCO-1 approval, if a significant period of time has lapsed, DES-CCO may request re-submittal of the CCO-1 before processing the NOI.

When to Use the CCO-2 Form

Changes to Work CategoriesPRIOR TO NOI CLOSING, if a change needs to be made to the work categories to be advertised or work categories currently being advertised, the change should be coordinated with DES-CCO with the completion of Part A on the CCO-2 form. If the change is not significant, the form does not have to be signed by the managing officer. The purpose is to ensure the category changes and associated percentages are correct and clearly communicated between the managing office and DES-CCO.

After an NOI has closed, work category changes and associated percentages can no longer be communicated to consultants preparing Letters of Interest. That opportunity has passed. If the change is significant, the NOI may have to be re-posted. If the change is minor, it can be addressed at the time the scope is being developed for the contract. The managing office must coordinate with DES-CCO to determine the significance of the change in the scope of work and if it is acceptable to include.

Additional FundsPRIOR TO CONTRACT EXECUTION, if additional funds are needed over and above what was approved on the CCO-1, Part B on the CCO-2 form must be completed, with appropriate signature, and submitted to DES-CCO for processing.

The CCO-2 form is no longer applicable after contract execution.






E. Notice of Intent (NOI)

Objective: Explain the purpose for the Notice of Intent. Identify the forms used and posted in the NOI. Understand how to assemble the NOI.

Resource Materials

Notice of Intent (NOI) Template NOI/Newspaper Ad Checklist CCO-06 Project Team Composition CCO-06 Guidance and Instructions CCO-20 Project Team Precertification CCO-20 Guidance and Instructions CCO-21 Firm Percentage by Work Category CCO-21 Guidance and Instructions CCO-21.1 Firm Percentage by Work Category Past Performance Evaluation Form TxDOT Letter

Overview

The Notice of Intent to Contract (NOI) is TxDOT’s means of communicating to providers that TxDOT is seeking the services of an engineer, architect, or surveyor. The NOI provides specific instructions for the provider’s preparation of the Letter of Interest (LOI). Based on the information included in the NOI, a provider will decide if they will submit a Letter of Interest. This is why it is important to have a clear and complete NOI.

Changing something in the NOI that would affect a provider’s decision to submit or their teaming decisions at a point where it’s too late for them to change their response creates an unfair situation. TxDOT’s process must be fair. That is why some changes require a NOI to be re-posted or the posting time to be extended.

E. Notice of Intent (NOI) 27

http://crossroads/org/gsd/books/eas/letters_of_interest.htm


Developing the Notice of Intent

A managing office must use the appropriate NOI template, inserting information about the contract(s) into the highlighted areas and deleting highlighted instructions. Other additions, deletions, or revisions to the standard language in the NOI template must be coordinated with DES-CCO.

The CST Chair or PM should develop the project description, selection requirements, criteria weighting, and address other key decisions that affect the selection process and utilization of the future contract.

The Notice of Intent and Newspaper Advertisement Checklist should be referenced during development and as a review prior to submission to DES-CCO for review and posting. It is important that, at a minimum, the CST chair review the NOI for accuracy and completeness, prior to submission.

It is important that staff involved in the screening and evaluation of LOIs be familiar with the content and instructions in the NOI.

Contents of the Notice of Intent

Following, is a general list of information contained in the NOI:

number and type of contract contract number (or RFP number) general project description or work to be performed precertification requirements, including waivers (if

appropriate) DBE/HUB goal and requirements work categories and percentages non-listed category description and requirements major work categories LOI evaluation criteria short list meeting information (if applicable) if written proposals, interviews, or both will be required LOI format, content requirements and attachments deadline for providers to send Letters of Interest TxDOT contact name, address, phone and fax number, and

email address

For multiple selections only, a score range which is applicable after completion of interviews and proposals is required to be included in the NOI. The CST Chair should set the score range depending on


http://crossroads/org/des/CCO/Checklists&Forms.asp


the level of difficulty of the interview/proposal requirements. It is not recommended to simply set the minimum at 70 percent of the total score. There is no required minimum; it can be zero or more. Again, this range is applied only after completion of interviews and proposals to determine providers selected. It is NOT applied to determine the number of short listed providers. There is no score range for a single selection.

When multiple specific deliverable contracts are solicited under one notice, the projects are to be listed in the NOI in descending order based on the estimated project value; project #1 is the project that has the highest estimated value, project #2 has the second highest value, and so on. Projects will be assigned to the selected providers in order of rank. The highest ranked provider will be assigned project #1, the highest value project, and so on. This topic is discussed further in this Module under Section H, Consent to Negotiate.

If additional criteria are added, the CST chair should ensure that the criteria target qualifications. They should be clearly stated so the provider understands the intent and information submitted by the consultant in response can be easily evaluated and scored.

Selecting “Major” Work Categories

There are currently 78 standard work categories that cover the range of work types that are typically needed. For types of work not covered by the standard work categories, non-listed categories can be developed for use in a particular NOI. These are the options available for identifying the range of work, by relative percentage, which is expected on the contract. Given the available options, it is not uncommon to see 30 to 40 or more categories included in one NOI. There is not necessarily a problem with 30 to 40 work categories, but all 40 should not be identified as “major” work categories.

In preparing the NOI, make sure you read the instructions carefully and take the time to understand what the consultant will be doing to respond to the specific instructions. According to the NOI instructions, the major work categories are those that the consultant must address the team’s capabilities and experience in. These should be the categories that are most important to the managing office in evaluating the consultants’ qualifications. It doesn’t matter what the allocated percentages are. It will be the identified major work categories that the consultant will focus the content of their LOI on.



Keep in mind, the maximum number of pages that can be allowed is five. The more categories identified as “major” means the less information that the consultant can provide per category which could affect the quality of the LOI and the ability to effectively evaluate and differentiate qualifications among providers.

Preparation of Required Forms

There are three forms (CCO-6, CCO-20, and CCO-21) that are required to be completed and submitted by the consultants as attachments to their LOIs. If a consultant chooses to include a non-TXDOT client reference in their LOI, they will need access to the Past Performance Evaluation form and TxDOT Letter. Prior to NOI posting and as part of the NOI development process, blank versions of these forms must be downloaded and modified according to the corresponding NOI information so they are specific to each solicitation. The modified files will be posted with the NOI and accessed by the consultants for completion.

CCO-6 Project Team CompositionThe CCO-6 form is designed to provide essential information during the initial LOI screening process, in addition to supplying an audit trail for the verification of HUB or DBE certifications during the short-list review process. The form and corresponding checklist should be downloaded from the DES-CCO web site and completed according to the instruction tab on the form and the checklist guidance.

CCO-20 Project Team PrecertificationThe CCO-20 form is designed to assist with verifying precertification status of task leaders for the proposed project teams. The form and corresponding checklist should be downloaded from the DES-CCO web site and completed according to the instruction tab on the form and the checklist guidance.

CCO-21 Firm Percentage by Work CategoryThe CCO-21 form is designed to include the advertised work categories for a specific NOI, the respective percentage advertised. The consultant then includes the names of each prime and subprovider team member, and the percentage by category distributed among each team member. The form and corresponding checklist should be downloaded from the DES-CCO web site and completed according to the instruction tab on the form and the checklist guidance.



Past Performance Evaluation (PPE) form and TxDOT LetterThe Past Performance Evaluation form is for use by the consultant to obtain reference information from non-TxDOT references identified in the LOI. The form follows the same format as the TxDOT Prime Provider Evaluation form. Use of the PPE by the consultants and appropriate internal use of the TxDOT Prime Provider Evaluation form (CCO-15) results in a more consistent approach to evaluating references for short listed providers at that stage of the process.

The blank PPE form should be downloaded from the DES-CCO web site and the appropriate sections filled in for the specific solicitation. A standard letter with general instructions from TxDOT to the non-TxDOT client should also be downloaded and completed. The NOI includes instructions to the consultant for completion and submittal of the form.

Information Meetings Prior to NOI Posting

It doesn’t happen often, but periodically, a district planning to advertise for a major project will discuss the possibility of holding a meeting to discuss the upcoming project prior to the NOI being posted. Any meeting announcement prior to an NOI posting must be coordinated through DES-CCO, so that the meeting notice can be posted on the TxDOT web site. It is not acceptable for districts to simply notify consultants using their own consultant e-mail contact list. That is not adequate notice.

Adding Instructions that Affect the Consultants’ LOIs

The purpose of the NOI is to provide the necessary instructions for consultants to prepare their Letters of Interest (LOIs). The standard NOI template is structured to address rule requirements and numerous TxDOT preferences that have been developed over time to improve what and how LOI content is presented, which in turn, improves the effectiveness of the LOI evaluation process. Screening criteria are used to determine if the NOI instructions were followed and evaluation criteria are used to score the qualifications.

If a Consultant Selection Team (CST) wants to impose additional restrictions or requirements because of unique project characteristics or specific management expectations, adequate instructions must be added to the NOI so that all potentially



responding consultants are made aware. For example, if a selection team does not want the consultant project manager to also serve as a task leader, this must be clearly stated in the NOI. It would be unfair to penalize a consultant in the screening or scoring process for proposing this arrangement if the restriction was not stated. Another example is if a selection team does not want one person to serve as a task leader for more than one task, this must be clearly stated in the NOI. Again, it would be unfair to penalize a consultant for proposing this team structure if the restriction was not stated. These are two examples of normal staffing arrangements that are routinely proposed and accepted. There is no other way for consultants to be aware of this restriction if it is not stated in the NOI. Another example is if a project size warrants the expectation of three survey providers as a teaming requirement, this should be clearly stated in the NOI. As long as it’s stated, then it’s fair to reject an LOI if the requirements were not followed.

Advertising on the Internet

TxDOT uses its Internet web site and the Electronic State Business Daily, to advertise Notices of Intent.

The managing office sends the NOI to DES-CCO. DES-CCO reviews the NOI for accuracy, content, and format; coordinates with the managing office to calculate the deadline for providers to submit Letters of Interest; and simultaneously posts the Notice on the TxDOT Internet site and the Electronic State Business Daily.

The Notice is advertised for no less than 21 calendar days prior to the deadline for receiving Letters of Interest.

Advertising in the Newspaper

After DES-CCO has coordinated the advertisements on the Internet, the managing office advertises the Notice in a local newspaper within the geographical area where the work will be performed. Most newspapers require multiple days advance notice. Be sure to contact the newspaper and know the time and steps required in advance. Since the ad will reference the TxDOT internet site, it is important to know the NOI is approved and when DES-CCO is scheduled to post it in order to have the NOI in place when the ad runs.

If the contract will be used statewide, the managing office may advertise the contract in one or more regional newspapers.


http://crossroads/org/gsd/books/eas/letters_of_interest.htm


The newspaper advertisement is displayed for only one day, typically a Sunday, at least 21 calendar days before the deadline date for receiving Letters of Interest and must include the following:

the proposed contract or RFP number the general description of the project and work to be done the due date for providers to send Letters of Interest the name, address, phone and fax numbers, and email

address of the TxDOT contact person a reference to the TxDOT Internet site and the Electronic

State Business Daily for more information.

Other Advertising

The managing office may also advertise in trade journals and other industry publications.

Required Timing for NOI Posting

The contract advertisement is required to be posted a minimum of 21 calendar days. This requirement is state law. For TxDOT’s qualifications-based contracts, the 21 days are calculated from the date the NOI is posted or when the newspaper ad is run, whichever date is later.

For example, if the NOI is posted Friday, January 2nd, and the newspaper ad is run the following Sunday, January 5th, the 21 calendar days would start on Monday, January 6th and conclude on Sunday, January 25th. Since the NOI cannot close on a weekend, the NOI would close on Monday, January 26th.

An NOI should never close on a federal holiday since the mail is not delivered on those days. It is also not recommended for the NOI to close on a state holiday because of reduced staff and the possibility of delays or confusion in properly receiving and documenting the receipt of the LOIs. DES-CCO will assist in calculating the 21 days and assigning the closing date to be posted in the NOI.

Revisions to the NOI

Any correction, addition, or deletion (extension to the deadline) to the NOI during the posting period is to be coordinated through DES-CCO. Attempting to call or e-mail consultants about a change is not acceptable. The change must be made through DES-CCO with an addendum to the NOI. In most cases, an NOI addendum



can be posted the same day DES-CCO is contacted. If letters of interest are submitted prior to the change to the NOI, the consultant should be contacted and their NOI returned for re-submittal, if needed.

Pre-LOI Meeting (Optional)

If a managing office decides to have a pre-LOI meeting, the information must be included in the Notice of Intent. The primary purpose is to provide additional information about the project or work to be performed and provide an opportunity for consultants to ask questions.

The purpose of the NOI is to provide clear written instructions about how LOIs should be prepared. The Managing Office should refrain from adding more LOI instructions verbally during the pre-LOI meeting. This is not the purpose of the meeting. There is a significant risk of someone simply not hearing what was said or misunderstanding the verbal instructions. If additional instructions or clarification is needed, there should be an addenda to the NOI so the same information is clearly communicated in writing to everyone and not just the individuals attending the meeting.

Information to be presented should be reviewed by the CST Chair and coordinated with other CST members, as needed. Questions should be anticipated and a plan identified in advance to address unanticipated questions/requests received during the meeting. Prepare an outline or agenda. Plan how and what information will be presented.

Opportunity for Questions Prior to NOI Closing

Once the NOI is posted, questions regarding the project or solicitation should be handled according to the instructions specified in the NOI.

The Managing Office must decide prior to the NOI being posted how questions received about the project or service to be provided will be answered.

The NOI templates include two options regarding questions received in addition to the template that is formatted for questions and responses. The NOI templates state all questions must be sent by e-mail to the contact listed in the NOI.



The Managing Office should not conduct telephone or any other verbal conversations about the NOI, project, or services with potential providers. Any telephone calls regarding the NOI should be referred to the internet web site where the NOI is posted.

The NOI must include one of the following options:

(1) Under Option 1, the NOI states questions will be limited to errors in the notice, missing information, or problems with the forms to be submitted. These types of issues will be addressed with addenda. All other questions will not be addressed.

(2) Under Option 2, The NOI states questions must be submitted to the contact by a certain deadline date and the date official responses will be provided. The compiled questions and official responses will be posted to the internet for all potential providers to review.

It is recommended the deadline for receipt of questions be within the initial 10 days of the posting of the NOI. The Managing Office compiles the questions and responses, using the Q&A Template, and submits them by e-mail to DES-CCO. The questions and responses must be received by DES-CCO within one day following the posted deadline. DES-CCO will post the questions and responses on the 3rd day after the deadline. The location of the questions and responses is the same internet page where the required attachments reside.






F. Letters of Interest (LOI)Objectives: Understand the purpose for logging the receipt of Letters

of Interest. Identify the forms used in the LOI review process. Differentiate between screening and evaluating LOIs. How to develop LOI evaluation criteria and scoring

methodology. How to prepare for LOI evaluations. Identify the requirements for notifying selected and

eliminated providers.

Resource Materials

LOI Receipt Log LOI Screening Guidance and Instructions LOI Screening Sample Checklist Long List Evaluation Worksheet CCO-4 Long List Evaluation Form CCO-5 Long List Evaluation Summary Form

Who Submits the LOI?

A consultant interested in competing for a contract advertised in a Notice of Intent (NOI) prepares and submits a Letter of Interest (LOI) according to the NOI instructions. One LOI typically represents the interest of a prime provider and their team of subproviders. The prime provider is responsible for the LOI and any subsequent steps in the process. A firm can submit as the prime provider only one time in response to a solicitation. It is common, however, for a subprovider to participate on multiple teams in response to one solicitation.

A prime and subprovider may “flip-flop” and submit a second LOI with their prime and subprovider roles reversed. This is acceptable. If both teams are short-listed, however, the project manager and key staff attending the interview cannot be the same for both teams. If they are, one team will have to withdraw. Interviewing the same people twice, although roles are reversed, is not acceptable. It is the consultants’ responsibility to address these staffing decisions in preparing their LOI to include different key staff members in anticipation of both LOIs being short listed.

F. Letters of Interest (LOI) 37


Required Timing for Selection

There are specific maximum time frames associated with the NOI closing date which is the date LOIs are due. Refer to Part B in this module under the section entitled “Contracting Process Time Frames” for the reference to where the time frame requirements are documented. It is important the CST members plan the process steps in advance in order to meet the time frame requirements from NOI closing to submittal of the Selection Packet.

Receipt of the LOIs

The first contact TxDOT has with the LOIs is upon receipt by the provider’s choice of delivery method. The number of LOIs received may vary from one to 60 or more and they may arrive, for example, by fax, hand delivery, regular mail, or express mail. Proper handling and management of the LOIs received is of utmost importance. The managing office must have a plan in place and staff designated with the responsibility to deal with the incoming submissions.

TxDOT has had at least one instance where the provider called and confirmed that their LOI had been received. After not hearing anything further, they called to see if they had been eliminated and were told that their LOI had not been received or considered. It was determined that the LOI had simply been lost at the beginning of the process. This is unacceptable.

The managing office should coordinate with the mailroom or other staff responsible for receiving mail to advise that contract Letters of Interest are being mailed to TxDOT. The managing office is responsible for taking the following actions when LOIs are received:

recording the date and time received (mailroom stamps are preferred)

recording the mode of delivery (hand, US Mail, overnight) and the number of LOIs received

maintaining LOIs in a secure limited access location until the closing date

A sample LOI Receipt Log has been developed by DES-CCO. This log or something similar should be used by the managing office.

LOI Screening – Creating the Long List



LOI Screening is the process of determining which LOIs were prepared according to the NOI instructions. LOI Screening is different from LOI Evaluation. Evaluation of qualifications and application of the criteria and scoring is not part of the screening process. LOIs should be screened according to a checklist that is based on the detailed instructions in the respective NOI.

LOI screening is the first look at the LOIs to verify if NOI instructions were followed, precertification requirements are met, and minimum requirements of NLCs are met as evaluated by a member of the CST or other qualified staff. Most managing offices verify HUB certification at this step, but it's an option to wait and verify only for potentially short listed teams. DES-CCO has developed Letter of Interest (LOI) Screening Guidance and Instructions with a Sample Checklist.

The checklist is intended to be modified as needed to correspond to the NOI instructions for each solicitation.

Within the LOI Screening Checklist, there are additional references to:

● HUB Subcontracting (HSP) Plan Review Guidance and Instructions

● CCO-6 Project Team Composition Guidance and Instructions

● CCO-20 Project Team Precertification Guidance and Instructions

● CCO-21 Firm Percentage by Work Category Guidance and Instructions

These documents provide detailed explanation and instruction for addressing these attachments to the LOI.

It is very important that managing offices be consistent in how they screen LOIs for acceptance or rejection. The CST Chair or Contract Office Manager, for example, should ensure that the screening process followed is acceptable. Eliminated LOIs are not included on the Long List. The result of the screening process is the Long List.

Contacting Eliminated ProvidersIt is important that the CST chair ensure that the LOIs eliminated are consistent, defensible decisions.

Providers that do not make the long list must be contacted in writing. It is recommended, however, that no providers be



contacted until the managing office is prepared to contact the short listed providers in addition to those eliminated from the long list (non-short listed firms). When the short listed providers are notified and the providers eliminated from the long list are notified, the providers who’s LOIs were eliminated during screening should also be notified.

LOI Evaluation Criteria

The basic criteria and weighting were developed and published in the NOI. Development of the detailed sub-criteria and scoring methodology is the responsibility of the CST Chair with the support of other CST members and other Managing Office technical staff, as appropriate. The sub-criteria and scoring methodology should be developed and agreed upon by CST members prior to the CST members seeing the LOIs submitted.

The criteria should be qualifications-based with an emphasis on the technical aspects of the work anticipated. Care should be given not to bias the process towards providers with previous TxDOT experience. A provider with no TxDOT experience should have a fair opportunity to be evaluated based on technical qualifications and not on knowledge of internal processes, forms, and procedures that only firms with previous TxDOT contracts would have experience with. It is the responsibility of each CST member and Contract Office Manager to ensure that evaluation criteria and the scoring methodology is fair and applicable to the work anticipated.

It is the responsibility of the CST Chair to explain and ensure that all CST members understand how the criteria is to be applied and how the scores are to be documented and maintained for ultimate completion of the CCO-4 prior to beginning evaluation. The intent is to have a common understanding of the criteria and process of evaluation to avoid extreme application and skewed results.

DES-CCO has developed a sample scoring matrix format for use at the long list evaluation stage. This matrix or something similar should be used to document the detailed criteria and scoring methodology for evaluating each LOI.

For each criterion identified in the NOI, detailed sub-criteria should be developed more specific to the subject work in the contract and the expectations of the CST. For each sub-criterion, preferred responses are identified with points assigned within the scale indicated. As an LOI is reviewed, points are given for information that lines up with the preferred responses.



Evaluating Letters of Interest on the Long ListIt is the responsibility of each CST member to read and evaluate each LOI on the long list according to the criteria developed for the respective process. It is also the responsibility of each CST member to properly and legibly document their scores, on the Long List Evaluation Worksheet, so that the individual responsible for completing the Long List Evaluation form CCO-4 can clearly understand and check the scoring process.

LOI Scoring Each team member will evaluate and score each LOI. Joint evaluations are not permitted due to the inherent problems associated with them, such as:

The CST teams may be unable to reach a consensus on the score for a particular selection sub-criteria or selection criteria.

A CST team member may push for their score, trying to override other team members, resulting in a consensus of one.

At the meeting of the CST team, all members may not arrive fully prepared to evaluate, discuss and score the LOIs.

The temptation to abdicate responsibility and let one do all the work.

CST members use their professional judgment to assess a team’s knowledge, experience, skills, and qualifications. The worksheet, detailing evaluation criteria, sub-criteria and scoring methodology is used to document the evaluation and scoring of each Letter of Interest. The scores from the worksheet are transferred to the CCO-4 form. All information related to each step of the process is subject to open records requests. Each person involved has the responsibility of maintaining unquestionable documentation that clearly supports a fair process. This information can also help to provide a more effective debrief.

LOI Evaluation Scores SummaryThe scores from the CCO-4 forms are summarized on the CCO-5 Long List Evaluation Summary. The CST Chair is responsible for verifying that the summary is correct. If scores appear to be significantly skewed, the CST Chair should review the evaluations to insure the instructions were clearly understood and the process was conducted fairly. One member may score harsher than another, but as long as they are consistent in their application, the results should not be affected.



EvaluationsWhen evaluating the LOIs, each CST member reads the LOIs, evaluates and scores the LOIs on the Long List Evaluation Worksheet.

A CCO-4 form is completed for each CST member.

Can CST Members talk to Each Other?

Throughout the process there is nothing that restricts CST members from talking to each other about the content of the process. What should be avoided are situations where one or more members are applying an inappropriate level of influence over another member. Each member of the selection team has a responsibility for ensuring the process is being conducted fairly. If conduct of the CST chair is in question, the problem should be reported to a supervisory level that will allow the problem to be addressed.

Evaluate Only What’s Presented Within the Process

The competing providers have an opportunity to submit LOIs with a combination of proposals and interviews with evaluations and references. The CST members’ evaluation must be based solely on the information presented in the LOI, the proposal, the interview, and evaluations and references. CST members may have significant knowledge of the competing firms or employees through previous employment, previous TxDOT contracts, existing TxDOT contracts, or other means. This information cannot be used in evaluating a firm or individual if it is not presented as part of the process. It is the consultant’s responsibility to decide and provide the information to be evaluated. CST members’ use of information from outside the process, as a basis for evaluation and assigning scores, is inappropriate, unfair, and unacceptable.



Short List Determination

The CCO-5 Long List Evaluation Summary form includes a total LOI evaluation score for each provider. Based on the total scores from highest to lowest, the short list of providers is identified.

Number of Firms to be Short Listed

If the managing office is conducting a single contract selection, a minimum of three firms are included on the Short List, unless fewer than three were on the Long List.

If the managing office is conducting a multiple contract selection, the Short List consists of the advertised number of contracts plus three, unless fewer than that number were on the Long List.

If more than the minimum are short listed, there should be a reasonable point break between the last firm on the short list and the next firm that is eliminated.

Non-Short Listed Firms

The managing office must notify in writing, the firms that do not advance to the Short List. This includes the firms who submitted an LOI that was eliminated at the LOI screening stage. At the end of the selection process, the Consultant Selection Team may conduct debriefings with the non-selected firms.






G. Short List Evaluation(Proposals and Interviews)

Objectives: Identify the forms used in the process. Develop a Request for Proposal. How to develop proposal evaluation criteria and scoring

methodology. Develop an Interview and Contract Guide. How to develop interview evaluation criteria and scoring

methodology. Differentiate between interview formats. How to prepare for the Proposal and Interview Evaluations.

Resource Materials

Request for Proposal Template Proposal Evaluation Worksheet CCO-8 Proposal Evaluation Form CCO-9 Proposal Evaluation Summary Interview and Contract Guide Template Interview Evaluation Worksheet Request for Proposal/Interview and Contract Guide Template Reference/Database Past Performance Evaluation Worksheet CCO-10 Interview Evaluation Form CCO-11 Interview Evaluation Summary CCO-12 Proposal and Interview Evaluation Summary CCO-16 Debarment Certification - Architectural, Engineering

and Surveying ("Provider") Contracts CCO-17 Lower Tier Participant Debarment Certification

(Architectural, Engineering and Surveying Contracts) CCO-19 Audit Contact List for Project Team CCO-22 Availability and Commitment of Key Staff Lobbying Certification for Grants, Contracts, Loans and

Interagency Cooperation Contracts

Short List Meeting

If the managing offices determines it will hold a Short List Meeting, notify the Short List firms and let them know when and where to meet. Inform the firms that attendance is mandatory and that providers who do not attend will not be eligible to submit a proposal or participate in an interview.

G. Short List Evaluation (Proposals and Interviews) 45


Request for Proposals (RFP)

If the managing office requires written proposals, a Request for Proposals is issued, and proposals are received and evaluated.

The RFP tells Short List providers what to include in a written proposal and how to submit it to the Consultant Selection Team.

A managing office must use the appropriate RFP template, inserting the appropriate information into the highlighted areas and deleting highlighted instructions. Other additions, deletions, or revisions to the standard language in the template must be coordinated with DES-CCO. The RFP template provided is set up for use assuming interviews will not be conducted.

If the managing office requires both a written proposal and an interview, the RFP/ICG template combines the requirements of the RFP and Interview and Contract Guide (ICG) into one document. Many of the requirements of the ICG are incorporated into the RFP since the proposals will be submitted prior to conducting interviews. The RFP/ICG is addressed later in this section.

The PM should develop the scope of work, criteria weighting, and address other key decisions that affect the RFP, proposal, and utilization of the future contract.

It is important that staff involved in the screening and evaluation of proposals be familiar with the content and instructions in the RFP.

Proposal Evaluation Criteria

The basic criteria and weighting were developed and published in the RFP. The RFP template includes the following standard criteria:

understanding of scope of services experience of the project manager and the project team ability to meet the project schedule prime provider’s Quality Assurance/Quality Control program

(If this criterion was not included in the NOI, it must be evaluated in the proposal.)

other criteria included in the RFP.

Development of the detailed sub-criteria and scoring methodology is the responsibility of the CST Chair with the support of other CST members and other Managing Office technical staff, as appropriate. The sub-criteria and scoring methodology should be developed and



agreed upon by CST members prior to the CST members seeing the proposals submitted.

The criteria should be qualifications-based with an emphasis on the technical aspects of the work anticipated. Care should be given not to bias the process towards providers with previous TxDOT experience. A provider with no TxDOT experience should have a fair opportunity to be evaluated based on technical qualifications and not on knowledge of internal processes, forms, and procedures that only firms with previous TxDOT contracts would have experience with. It is the responsibility of each CST member and Contract Office Manager to ensure that evaluation criteria and the scoring methodology is fair and applicable to the work anticipated.


DES-CCO has developed a sample scoring matrix format for use evaluating proposals. This matrix or something similar should be used to document the sub-criteria and scoring methodology for evaluating each proposal.

For each criterion identified in the RFP, detailed sub-criteria should be developed more specific to the subject work in the contract and the expectations of the CST. For each sub-criterion, preferred responses are identified with points assigned within the scale indicated. As a proposal is reviewed, points are given for information that lines up with the preferred responses.

Receiving Proposals

Proper handling and management of the proposals received is importance. The managing office must have a plan in place and staff designated with the responsibility to deal with the incoming submissions.

The managing office coordinates with the mailroom or other staff responsible for receiving mail to advise that contract proposals are being mailed to TxDOT. The managing office is responsible for taking the following actions when proposals are received:

recording the date and time received (mailroom stamps are preferred)



recording the mode of delivery (hand, US Mail, overnight) and the number of proposals received

maintaining proposals in a secure limited access location until the closing date

A sample Proposal Receipt Log has been developed by DES-CCO. This log or something similar should be used by the managing office.

Proposal Screening

Screen proposals according to the RFP to determine if the proposal was developed according to the instructions in the RFP. Refer to the Sample LOI Screening Checklist as an example format for developing a RFP screening checklist. Proposals that are not prepared according to the instructions should not be evaluated and given a score of zero.

As indicated in the RFP, the following five forms must be submitted with each proposal:

CCO-16 Debarment Certification - Architectural, Engineering and Surveying ("Provider") Contracts

CCO-17 Lower Tier Participant Debarment Certification (Architectural, Engineering and Surveying Contracts)

CCO-19 Audit Contact List for Project Team Lobbying Certification for Grants, Contracts, Loans and

Interagency Cooperation Contracts CCO-22 Availability and Commitment of Key Staff

The top four forms will be important if the provider is selected and negotiates a contract. The CCO-22, however, will be used in the evaluation of their ability to meet the project schedule.

Evaluating Proposals

It is the responsibility of each CST member to read and evaluate individually, or as a team, each proposal according to the criteria developed for the respective process. It is also the responsibility of each CST member to properly and legibly document their scores, on the Proposal Evaluation Worksheet, so that the individual responsible for completing the CCO-8 Proposal Evaluation form can clearly understand and check the scoring process.



Proposal ScoringEach team member will prepare an evaluation worksheet to score the proposal. CST members use their professional judgment to assess a team’s understanding of the scope of services, ability to meet a project schedule, knowledge, experience, skills, and qualifications. The worksheet, detailing evaluation criteria, sub-criteria and scoring methodology is used to document the evaluation and scoring of each proposal. The scores from the worksheet are transferred to the CCO-8 form. All information related to each step of the process is subject to open records requests. Each person involved has the responsibility of maintaining unquestionable documentation that clearly supports a fair process. This information can also help to provide a more effective debrief.

Refer to the section on “Checking Past Performance/References” for an explanation of how to address the criteria (past performance scores in CCIS or references) for the short listed firms.

Proposal Evaluation Scores SummaryThe scores from the CCO-8 forms are summarized on the CCO-9 Proposal Evaluation Summary. The CST Chair is responsible for verifying that the summary is correct. If scores appear to be significantly skewed, the CST Chair should review the evaluations to insure the instructions were clearly understood and the process was conducted fairly. One member may score harsher than another, but as long as they are consistent in their application, the result should not be affected.

If interviews will not be conducted the highest score(s) reflect the firms that will be selected for the contract(s).

Interview and Contract Guide

If a written proposal is not required, the Consultant Selection Team will conduct interviews with the Short List providers. An Interview and Contract Guide (ICG) is issued, interviews are scheduled and conducted.

The ICG tells Short List providers the date, time, and location of the interview, along with what information and forms are to be brought to the interview.

A managing office must use the appropriate ICG template, inserting the appropriate information into the highlighted areas and deleting highlighted instructions. Other additions, deletions, or revisions to the standard language in the template must be coordinated with



DES-CCO. The ICG template provided is set up for use assuming proposals will not be required.

If the managing office requires both a written proposal and an interview, the ICG/RFP template combines the requirements of the RFP and ICG into one document. Many of the requirements of the ICG are incorporated into the RFP since the proposals will be submitted prior to conduction interviews. The ICG/RFP is addressed later in this section.

The PM should develop the scope of work, criteria weighting, and address other key decisions that affect the ICG, interview, and utilization of the future contract.

It is important that staff involved in the evaluation of interview be familiar with the content and instructions in the ICG.

Interview Format Options

A managing office has some format options for the interview process. A table entitled Guidance On Interview Format Options is available on the DES-CCO web site. The table outlines the different components of the basic options. A question and answer component is required in every interview.

Telephone interviews are an option as long as long as all interviews with all providers are of the same type. Telephone interviews are not appropriate for complex or non-standard projects such as major corridor projects, exotic bridge design, etc.

Interview Evaluation Criteria

The basic criteria and weighting were developed and published in the ICG. The ICG template includes the following standard criteria:

understanding of scope of services experience of the project manager and the project team ability to meet the project schedule responses to interview questions prime provider’s Quality Assurance/Quality Control program

(If this criterion was not included in the NOI, it must be evaluated in the interview.)

design innovation other criteria included in the ICG



Development of the interview questions (detailed sub-criteria) and scoring methodology is the responsibility of the CST Chair with the support of other CST members and other Managing Office technical staff, as appropriate. The question and scoring methodology should be developed and agreed upon by CST members prior to the interview.

The questions should be qualifications-based with an emphasis on the technical aspects of the work anticipated. Care should be given not to bias the process towards providers with previous TxDOT experience. A provider with no TxDOT experience should have a fair opportunity to be evaluated based on technical qualifications and not on knowledge of internal processes, forms, and procedures that only firms with previous TxDOT contracts would have experience with. It is the responsibility of each CST member and Contract Office Manager to ensure that evaluation criteria and the scoring methodology is fair and applicable to the work anticipated.


DES-CCO has developed a sample scoring matrix format for use evaluating interviews. This matrix or something similar should be used to document the questions and scoring methodology for evaluating each interview.

For each criterion identified in the ICG, interview questions (detailed sub-criteria) should be developed more specific to the subject work in the contract and the expectations of the CST. For each interview question, preferred responses are identified with points assigned within the scale indicated. As an interview is evaluated, points are given for an answer that lines up with the preferred responses.

All providers are asked the same questions, but a provider may be asked follow-up questions if the team needs clarification of the provider’s response. If follow-up questions are asked, they must be recorded in the interview records.

Interview Screening

Interview screening is not unlike a checklist to screen a LOI or proposal. Typically instructions are given in the ICG specifying who can and cannot attend the interviews. CST members need to be



fully aware of instructions and prepared to enforce these requirements at the time of the interview.

Also, as indicated in the ICG, the following five forms must be presented at the interview:

CCO-16 Debarment Certification - Architectural, Engineering and Surveying ("Provider") Contracts

CCO-17 Lower Tier Participant Debarment Certification (Architectural, Engineering and Surveying Contracts)

CCO-19 Audit Contact List for Project Team Lobbying Certification for Grants, Contracts, Loans and

Interagency Cooperation Contracts CCO-22 Availability and Commitment of Key Staff

The top four forms will be important if the provider is selected and negotiates a contract. The CCO-22, however, will be used in the evaluation of their ability to meet the project schedule.

Conducting the Interview

AttendanceA Consultant Selection Team member must be present to evaluate a provider.

A prime provider’s project manager is required to attend to conduct the interview for the provider. If the project manager’s does not attend, the provider will be disqualified from further participation in the procurement process.

In the case where a firm is on multiple short listed teams, such as firms flip-flopping the prime/subprovider roles, the same person from the firm must not participate in more than one interview. The firm must be represented by a separate person at each interview.

The CST may further limit attendance at the interview to a reasonable number.

Subproviders If authorized in the Interview and Contract Guide, subproviders may attend the interview and present their qualifications and proposed contributions to the project.

Recording Interviews The recording of interviews by the CST or by the consultant is not permitted. There are a number of potential issues associated with the making of recordings, some relatively minor, some potentially serious. To minimize the risks associated with these issues, the



making of audio or video recordings of the interview are not permitted.

Observing Interviews Observing an interview is not to be considered as a training opportunity for future CST members. During the interview, the attention of the team must be focused on the information being conveyed, without the distraction of an observing trainee. Training for future CST members is to be accomplished by participation in the required TxDOT contracting class, coaching by the CST chair, and experience gained through participation in the process as a CST member.

Presentations The interview may include a presentation by the provider. However, depending upon the nature of the project, a Consultant Selection Team may decide that formal provider presentations are not needed. If the CST requires the provider to make a presentation, the provider’s presentation must comply with the format, length, number of participants, etc. established in the ICG.

Evaluating Interviews

It is the responsibility of each CST member to listen and evaluate each interview according to the criteria developed for the process. It is also the responsibility of each CST member to properly and legibly document their scores, on the Interview Evaluation Worksheet, so the individual responsible for completing the CCO-10 Interview Evaluation Form can clearly understand and check the scoring process.

Interview ScoringEach team member will evaluate and score each interview. Joint evaluations are not permitted.

CST members use their professional judgment to assess a team’s knowledge, experience, skills, and qualifications. The worksheet, detailing evaluation criteria, sub-criteria and scoring methodology is used to document the evaluation and scoring of each interview. The scores from the worksheet are transferred to the CCO-10 form. All information related to each step of the process is subject to open records requests. Each person involved has the responsibility of maintaining unquestionable documentation that clearly supports a fair process. This information can also help to provide a more effective debrief.



Refer to the section on “Checking Past Performance/References” for explanation of how to address the criteria (past performance scores in CCIS or references) for the short listed firms.

Interview Evaluation Scores Summary The scores from the CCO-10 forms are summarized on the CCO-11 Interview Evaluation Summary Form. The CST Chair is responsible for verifying that the summary is correct. If scores appear to be significantly skewed, the CST Chair should review the evaluations to insure the instructions were clearly understood and the process was conducted fairly. One member may score harsher than another, but as long as they are consistent in their application, the results should not be affected.

If proposals are not required, the highest score(s) reflect the firms that will be selected for the contract(s).

When Proposals and Interviews Are Conducted

When proposals are requested and interviews are to be conducted, the Managing Office must use the combination RFP/ICG template, by inserting the appropriate information into the highlighted areas and deleting highlighted instructions. Other additions, deletions, or revisions to the standard language in the template must be coordinated with DES-CCO. The process for using proposals and interviews should be followed as covered previously in this section.

When doing both, the scores from the CCO-9 and CCO-11 are summarized on the CCO-12 Proposal and Interview Evaluation Summary.

A firm’s total score is combination of their proposal and interview score. The proposal is 30% and the interview is 70% of the total score. The highest total score(s) reflect the firms that will be selected for the contract(s).

Checking Past Performance/References

Evaluation of past performance scores or references is required for short listed providers. This criterion is evaluated one time and scores are included either on the CCO-8 or CCO-10.

The primary purpose of this exercise is to collect information on the evaluation of the qualifications of primarily the proposed prime provider's project manager and secondarily, the firm. According to



the NOI instructions, each consultant must list three client references in their LOI. These references may be TxDOT or non-TxDOT client references.

For non-TxDOT references (identified in the LOI), the process requires the non-TxDOT reference to submit their information about the consultant on a form, the Past Performance Evaluation, which follows the same format as the TxDOT Prime Provider Evaluation form. It is the consultant’s responsibility to provide this form to the non-TxDOT reference. According to the instructions, the non-TxDOT reference must submit the form directly to the TxDOT contact information provided within the number of days indicated. CST members no longer have to contact these references.

For TxDOT database references (identified in the LOI), instructions to the consultants emphasize that the person should be an individual in a position to evaluate the qualifications of the proposed prime provider's project manager. For example, the TxDOT project manager or someone with close oversight responsibilities. In other words, it should be someone that has or can complete the standard TxDOT Prime Provider Evaluation Form (CCO-15) for the proposed individual. The CST member, or supporting staff collecting the information, should access the CCIS database directly, according to available instructions. They should not contact the district reference. This is a waste of the district reference’s time if they have already posted their evaluations in CCIS. Use the database.

If an evaluation is not on file in the CCIS database, the identified TxDOT reference should be asked to complete one by the selection team staff collecting the reference information. If they are the PM, it should be input into CCIS. If they are not the PM, it should not be entered. So, use of a separate form or something different from the standard form is unnecessary.

In addition to references identified in the LOI, there may be additional TxDOT Prime Provider Evaluations input into CCIS by other TxDOT project managers as part of their project management responsibilities. There is no reason that all available past performance scores should not be looked up and considered in combination with the references identified in the LOI.

Use of the Past Performance Evaluation form by the consultants for non-TxDOT references and appropriate internal use of the TxDOT Prime Provider Evaluation Form (CCO-15) results in a more consistent approach for this step and reduces the motions required to obtain the information.



A Sample Reference/Database Past Performance Worksheet is available with some example sub-criteria for evaluating all references.

Can CST Members talk to Each Other?

Throughout the process there is nothing that restricts CST members from talking to each other about the content of the process. What should be avoided are situations where one or more members are applying an inappropriate level of influence over another member. Each member of the selection team has a responsibility for ensuring the process is being conducted fairly. If conduct of the CST chair is in question, the problem should be reported to a supervisory level that will allow the problem to be addressed.

Evaluate Only What’s Presented Within the Process

The competing providers have an opportunity to submit LOIs with a combination of proposals and interviews with evaluations and references. The CST members’ evaluation must be based solely on the information presented in the LOI, the proposal, the interview, and evaluations and references. CST members may have significant knowledge of the competing firms or employees through previous employment, previous TxDOT contracts, existing TxDOT contracts, or other means. This information cannot be used in evaluating a firm or individual if it is not presented within the process. It is the consultant’s responsibility to decide and provide the information to be evaluated. CST members’ use of information from outside the process as a basis for evaluation and assigning scores is inappropriate, unfair, and unacceptable.

Project Manager and Task Leader Replacement

The current process allows limited options for a consultant to replace a project manager or task leader during the selection process. There is specific language in the NOI (under Letter of Interest Requirements) that addresses the limited options. Please refer to the specific language.

The consultant may identify the need for a replacement during the LOI evaluation stage, the short list evaluation stage, or during negotiations. Any replacement must come from the team identified in the LOI because there is no opportunity to provide any supplemental information to the LOI or a proposal after submittal. The information, as submitted, may or may not be enough for the



consultant to receive a successful score, but that is the risk of a change in staff during a selection.

It is typically not advisable to “back up” in the process in order to address a change. It is best to continue forward with what was submitted and address the change at the next step in the process.

If TxDOT is notified of a change after selection, but before contract execution, the firm’s option for replacement is still subject to the personnel identified in the LOI which was subject to evaluation during the process. If the replacement is deemed unsatisfactory, TxDOT will go with the next qualified provider. After contract execution, the process is governed by the provisions in the contract regarding personnel.






H. Consent to Negotiate

Objectives: Identify the forms used for the Consent to Negotiate. List the requirements to break a tie.

After interviews and proposals have been evaluated and scored, the final steps in the selection process include:

prepare the selection packet send documentation to DES-CCO receive final approval notify selected provider(s) conduct debriefings.

Resource Materials

Selection Packet Checklist CCO-13 Consent to Negotiate (Multiple Selection) CCO-14 Consent to Negotiate (Single Selection) Nepotism Disclosure Statement for Purchasing Personnel, if

applicable

Completion of Final Form

The results of the process are documented on one of two forms. For a multiple selection process, the CCO-13 Consent to Negotiate form is completed. For a single selection process, the CCO-14 Consent to Negotiate form is completed. The scores on these forms are taken from the appropriate summary forms, the CCO-10 (Proposal Evaluation), CCO-11 (Interview Evaluation), or CCO-12 (Proposal and Interview Evaluation). The Consent to Negotiate form will include all shortlisted providers, their final scores, and their ranking within the list. Nepotism Disclosure Statements must be completed for all Selected Providers.

Tie Scores

Resolution of tied scores is addressed in the rules. In the event of a tie score, the providers’ score for the evaluation criterion “pm and project team experience” is used to break the tie. If there is still a tie, the providers’ score for the evaluation criterion “ability to meet the proposed project schedule” is used to break the tie. If the

H. Consent to Negotiate 59


scores are still tied, and an interview was conducted, the score for the “responses to interview questions”, or if proposals were submitted, it will be the score for “understanding of scope of services” that is used to break the tie. If additional tie breakers are needed, and if an interview was conducted, the tie breaker will be the next criterion listed, or if proposals were submitted, the breaker will be the next criterion listed. The remaining criteria should be compared in the order listed until the tie is broken. If a tie is still remaining, then the Managing Officer can flip a coin or use another random method of selection to break the tie. The method used to break the tie is to be documented in the submission to DES-CCO.

Multiple Selection

The CCO-13 is specifically for a multiple selection process where more than one provider will be selected. The multiple selection process involves a score range that is established and identified in the NOI at the beginning of the process. The score range identified at the beginning of the process comes into play at the end of the process when the selected providers are identified. In order to be eligible for selection, the provider’s final score has to be within the range.

If there are more providers appearing within the range of acceptable scores than there are available contracts, the Consultant Selection Team will recommend that providers be selected in the order of rank. If, on the other hand, there are more contracts than there are providers appearing within the range of acceptable scores, the team will select each prime provider appearing within the range of acceptability to receive one contract, and the remaining contracts will be randomly assigned to these same providers until all contracts have been assigned.

Assigning Providers to Contracts (Multiple Selection)

When multiple specific deliverable contracts are solicited under one notice, one should not assume that all of the projects being solicited are exactly the same. There are differences and the most important one to the providers is the estimated value of the contract. Therefore, when the providers have been selected, a fair and reasonable method for assigning a specific provider to a specific project must be used. To make an assignment based on who the project manager has work with in the past or other purely subjective reasoning is biased and inappropriate.

For specific deliverable contracts, the order of the project assignments will be based on the selected provider’s ranking and



the order of estimated project value at the time of selection. The number one ranked provider, the one with the highest score, is assigned the highest value project, the second ranked provider is assigned the second highest value project, and so on.

In the case of indefinite deliverable contracts, specific projects may not be identified at the time of selection. However, if contracts with differing values are being solicited in the same notice, the same principle of using the ranking for assigning providers to contracts will apply. The number one or highest ranking provider will receive the contract for the highest value, the number two provider will receive the next highest value contract, and so on.

Selection Packet

The Selection Packet Checklist should be referenced when assembling the final documentation to submit to DES-CCO to ensure that the packet is complete.

The selection packet should include the following forms:

● CCO-5 (Long List Evaluation Summary)● CCO-13 (Multiple Selections) or CCO-14 (Single Selection)

For all Short-listed Firms:

● CCO-6 (Project Team Composition)● If proposals were requested, copies of the CCO-8 (Proposal

Evaluation), and CCO-9 (Proposal Evaluation Summary). ● If interviews were performed, copies of the CCO-10

(Interview Evaluation), and CCO-11 (Interview Evaluation Summary).

● If proposals and interviews were done, in addition to the CCO-8, CCO-9, CCO-10, and CCO-11 forms; include CCO-12 (Contract Evaluation Summary Final Score).

If during the course of the review of the selection package a question is encountered, to support the selection decision, DES-CCO may request that the managing office provide the supporting documentation such as receipt logs, LOI or Proposal review worksheets, interview questions and worksheets, etc.

For all Selected Providers:

● CCO-19 (Audit Contact List for Project Team)



● CCO-21 or CCO-21.1 (Firm Percentage by Work Category) [Instructions allow firm Names to be abbreviated.]

● LOIs (including the HSP, if applicable)● If applicable, Nepotism Forms for each individual contract,

signed by appropriate staff who meet the requirements. The Nepotism form is not a TxDOT form.

Request for Unique Negotiation Schedule

When DES-CCO returns the approved Consent to Negotiate form to the Managing Office, the negotiation deadline will be included. DES-CCO will calculate the negotiation deadline according to the time frames discussed in Part B of this module. If the Managing Office anticipates that the standard time frame will not be adequate because of special characteristics or factors associated with the contract(s), an extended (unique) negotiation schedule can be requested. This request must be submitted with the Selection Packet for approval with the Consent to Negotiate form.

Required Timing for Selection

There are specific maximum time frames associated with the Selection Packet due date. Refer to Part B in this module under the section entitled “Contracting Process Time Frames” for the reference to where the time frame requirements are documented. It is important the CST members plan the process steps in advance in order to meet the time frame requirements from NOI closing to submittal of the Selection Packet.

Receive Final Approval

DES-CCO will review the Selection Packet to verify that approved procedures were followed in the selection process and send the Consultant Selection Team's Consent to Negotiate form to the appropriate Assistant Executive Director (AED) for approval.

After AED approval, DES-CCO will notify the Managing Office in writing that the selection has been approved and the Managing Office can proceed with negotiations for a fair and reasonable price.

There is a period of time between preparation and submittal of the Selection Packet and the receipt of the approved Consent to Negotiate form signed by the administration. It is not uncommon for the consultants to call and request information about the results. The managing office is strongly advised to wait until the form has been approved before revealing the results to the consultants.



Although rare, there have been instances where something happened to change the results such as math errors. This is an example of the type of information, that multiple people may have access to, which should be appropriately managed and controlled. A negotiation deadline is provided based on the number of contracts proposed.

Notification of Selection

DES-CCO will publish the selection notice in the Electronic State Business Daily and on the TxDOT Internet site approximately five days after the Managing Office has been notified of the approval to proceed. This provides time for the selected providers to be notified by the Managing Office. It is good business practice for the short listed providers to be notified of results verbally by TxDOT prior to seeing the results posted publicly on the web site. If the Managing Office will not be able to notify the providers within five days, DES-CCO should be contacted with the additional time needed.

At the same time, DES-CCO will notify the Audit Office that a selection has been approved along with the prime and subprovider names of the selected team. The Audit Office will furnish the Managing Office with an administrative qualifications report on the selected provider(s) when notified by DES-CCO. If the Managing Office has not received any information within a reasonable time period, they should contact the Audit Office to verify status of the information.

When the Managing Office receives the approved Consent to Negotiate form, it contacts the selected provider or providers in writing to schedule a meeting to begin negotiations.

The Managing Office also prepares a letter to each of the Short List providers who were not selected, informing them that selections have been made.

Consultant Debriefings

A member of the Consultant Selection Team may conduct debriefings with non-selected providers. The debriefings should include helpful information to improve the provider’s letter of interest, proposal, or interview content/format for future submittals; identify areas of weakness in experience, skills, and knowledge; and other topics as appropriate.



The debriefing should not compare providers’ LOIs or proposals, but should focus on issues that could help a provider improve its chances for future selection. Some providers want to know their score. If asked, provide their score and where they ranked, but do not provide scores of other providers. It is not appropriate to discuss the other competing providers.

If the consultant’s score was affected by the results of their references and evaluations, it is not necessary to be specific about the comments or where they came from. It’s not necessary to identify other districts by name. The consultant should be aware and has access to all their TxDOT evaluations in the database. Recommend they review their information available through CCIS.

If a provider’s LOI was eliminated at the screening process, it is acceptable for a non-selection team member to debrief the provider on why their LOI was eliminated.

Typically, if a provider’s LOI was rejected (not on the Long List), they will request a debrief. Providers that were not short listed may also request a debrief. Providers short listed, but not selected, may also request a debrief. It is also not uncommon for a successful selected provider to request a debrief to discuss areas of potential improvement for future solicitations.



I. Documentation

Objectives: Identify the forms and documents to preserve.

Purpose

The District, Division, or Region (Managing Office) is the office of record for the contract file. The contract file includes the selection process. Complete and accurate records of the selection process must be maintained. These records are to be maintained in accordance with the department’s retention schedule. For survey contracts, this includes the original contract documents. For engineering and architecture, GSD-CSS is the office of record for the original contract documents, but the Managing Office remains responsible for the selection process files.

These records will document, for example:

Notices and deadline dates; Submittal requirements; Documents (Letters of Interest, Proposals, forms,

correspondence, etc.) received; Communications; That the required procedures were followed; That appropriate approvals were received; Meetings and attendance; and Evaluations, scores, actions, and decisions.

The lack of documentation exposes the department to an increase risk should the selection be challenged or when the records are audited. The lack of documentation raises large flags in audits.

Selection records are subject to open records requests.

An Example Filing System is available that covers from selection and award through project management and administration.

The Example Filing System outlines in detail the documentation to be maintained through each step of the process. The example is provided as a guide only and should be modified as needed to support the effective management and administration of each contract. Information filed can include hard-copy documents, CDs of electronic data, or a description of where the information is located. The CST Chair is responsible for ensuring that the selection process files and content are appropriately maintained. The PM assumes responsibility for negotiations and management.I. Documentation 65


The PM should note whether or not the selection process files are in order. Incomplete files should be addressed before proceeding. The filing system, for the selection process and beyond, should be organized and maintained in a way that is understandable by the initial project manager as well as subsequent project managers who may inherit responsibility for the project.

I. Documentation 66

Module 3: Contract Development and Negotiations

Table of Contents

A. Negotiable ComponentsB. Scope of Work – The Primary Component

RM29. PS&E Stages – Expected Completion GuidanceRM30. Examples of Deliverables for Advance Planning Type ProjectsRM31. Providing for Construction Phase ServicesRM32. Guidance on the Expectation and Delivery of Quality

DeliverablesC. Writing Scopes of WorkD. Budget (the Fee Schedule)D-1 Staffing Categories & Hourly Rates

RM33. Example – General Staffing Guidance – NOT APPLICABLERM34. Engineering Grade Descriptions - NOT APPLICABLE

Professional Grade Descriptions - NOT APPLICABLERM35. PS&E Hourly Rate Ranges

D-2 Escalation RatesD-3 Other Direct Expenses

RM36. Guidance on Other Direct Expenses for Contract Rate Schedules

RM37. Example List of Other Direct Expenses (ODE)Miscellaneous ODE Tracking Sheet

D-4 Overhead Rate (Indirect Cost Rate)RM38. Exercise – Example Billable Base and Overhead Rate

Calculations - NOT APPLICABLERM39. Chapter 5 from AASHTO Uniform Audit and Accounting - for

Indirect Cost Items (for information only) - NOT APPLICABLERM40. Pre-Negotiation Report Example

D-5 Profit RateD-6 Level of EffortE. ScheduleF. Concluding NegotiationsG. Negotiation TechniquesH. Understanding Payment Types

RM41. Examples – Lump Sum Table of Deliverables

Module 3 – Contract Development and Negotiations

Module 3:Contract Development and NegotiationsA. Negotiable ComponentsB. Scope of Work – The Primary ComponentC. Writing Scopes of WorkD. Budget (the Fee Schedule)E. ScheduleF. Concluding NegotiationsG. Negotiation TechniquesH. Understanding Payment Types

Objectives:

Identify negotiable contract components.

Identify key components of a fee schedule.

Identify good practices for scope development.

● Writing tips used to draft contracts that are clear and brief.

● Learn how to draft a clear, legally binding scope of work.

Identify ways to better define staffing categories.

Identify and incorporate other direct expenses.

Identify the difference between direct and indirect costs.

Identify key values on the audited overhead rate report for evaluating the reasonableness of a firm’s OH rate.

Identify factors for assigning a profit rate.

Recognize the purpose of the Schedule.

Identify appropriate steps for wrapping up negotiations.

Learn useful techniques for achieving successful results in professional service contract negotiations.

Identify the four payments and the defining differences for rate negotiations, developing the maximum amount NTE, and invoicing & payment.

Know how to complete the rate schedules correctly.

Identify considerations for selecting a particular payment type.

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Identify special control for lump sum payments.

2

Module 3 - Contract Development and Negotiations

A. Negotiable Components

Objectives: Identify negotiable contract components. Identify key components of a fee schedule.

TxDOT Negotiation Experience

TxDOT negotiates two to three hundred contracts per year. Negotiation responsibilities are at the Managing Office level and the range of TxDOT staff knowledge and experience in contract negotiations ranges from none to quite a bit. To-date, training has been very limited and districts and divisions have made an admirable effort to develop their own methodologies over time as their contracting needs have progressed.

In many cases the approaches developed are acceptable and sufficient for TxDOT contracts, but in others, the lack of understanding of the contract, the components to be negotiated, and the operational characteristics of the private sector result in poorly developed agreements. In addition, the consultants walk away with the impression that many of the TxDOT managers don’t really know what they’re negotiating, yet they are responsible for negotiating agreements worth millions of dollars.

It’s also understandable why consultants with contracts in multiple districts express frustration about the extreme differences they experience in how different districts interpret and approach what appear to be similar negotiation situations. The fact that TxDOT is negotiating contracts with the private sector means that TxDOT’s business practices are open to outside scrutiny by the public. It is important to TxDOT that individuals with negotiation and management responsibilities understand what they are doing and follow general guidance, when available.

It’s understood that the negotiation process will continue to vary from person to person because of the individual nature of the process and variation in project characteristics. But it is possible to attain some level of consistency if TxDOT negotiators start with the same basic level of understanding of the contract, the components to be negotiated, and the operational characteristics of the private sector. That is the purpose of the training.

A. Negotiable Components 3


Negotiable Components

For discussion purposes, the negotiable components are going to be presented from a specific deliverable contract perspective. The information discussed is applicable to indefinite deliverable contracts and work authorizations, but the timing of the application varies because of the unique relationship of the contract and work authorizations in an indefinite deliverable contract.

For a specific deliverable contract the primary negotiable components are:

Scope Budget (fee schedule), and Schedule

These components provide the basis for managing the work, monitoring progress, and processing payment. The important thing that is so often times ignored, overlooked, or misunderstood is that the three components are interdependent. The direct relationship among the three should be obvious to anyone that picks up the contract at any point in the process of the project.

The Fee Schedule

The product of the negotiation process is the detailed fee schedule which represents the agreement on:

● Work to be done● Rate schedules (by payment type)

o Staffing categorieso Labor rateso Overhead rateo Profit rate

● Level of effort● Max $ Not to Exceed (NTE)

The typical format of a fee schedule is shown below.



Fee ScheduleFee SchedulePrime Provider Staffing Categories

Hourly Rates by Category ($)

Project Tasks Based On

Scope of Work

Hours or Level of Effort Defined By

Function Codes

Total Labor ($) Overhead (%) + OH($) Other Directs Unit Costs Profit (%) + Fixed Fee ($) Travel $/unit Other Directs + OD Cost ($) Per diem $/unit + Sub A ($) Other Items $/unit + Sub B ($) Maximum Amount

Not to Exceed Fair and Reasonable

Cost ($)

Cost Plus Fixed Fee Format

There are numerous steps required to develop a complete, detailed negotiated fee schedule. There are typically no fewer than ten components that must be addressed when preparing for and conducting negotiations for a project.

1. Scope of work2. Staffing categories3. Hourly rates4. Escalation rate5. Overhead rate6. Profit rate7. Level of effort8. Other direct expense rate9. Quantities of other direct expenses10.Subprovider rates

Some of these components can be addressed simultaneously or in a different order. The one component, however, that must always come first is the scope of work. The scope of work drives everything. Without the scope of work the other components cannot really be adequately addressed which results in a contract that will more than likely result in problems that could have been avoided.

Separate Pieces, but Part of the Whole Each of the components listed above will be covered in more detail in the following sections. Although covered separately, for explanation purposes, it is important to understand that each component should not stand alone in the overall negotiation



approach. The negotiator should look at each individual component and evaluate it, but the value of all the components in combination should also be evaluated. The components listed above in addition to the schedule are all variables in determining the overall value as a whole.

The negotiator should not become fixed on the idea that one number is the best number or that any rate above a certain number is always too high. Business models and management philosophies vary from consultant to consultant and this can result in variations in numbers from firm to firm. For example, higher hourly rates in combination with a relatively low overhead rate from one firm may result in an overall lower cost than a firm with average hourly rates and an average overhead rate. Higher hourly rates for staff that require fewer hours to do the work may be comparable or better than staff with average hourly rates that take longer. A firm willing to accept a reduced profit rate in return for a higher overhead rate may result in the same or better cost than a firm with an average overhead rate and average profit rate. It is important that the negotiator step back and also evaluate the value as a whole.

It is also important that negotiators understand that each contract stands alone. There are many solicitations that result in multiple contracts. TxDOT negotiates with each provider based on the individual components of their contract. At the same time, some firms are simple better negotiators than others. Rates among the contracts will vary. There is nothing wrong with this. What’s important is that the TxDOT negotiator understand what they are negotiating, understand the relationship of the components being negotiated, be prepared to make responsible decisions, be fair and reasonable in their approach, and be prepared to walk away when the results are not in TxDOT’s best interest.



B. Scope of Work - The Primary Component

Objectives: Identify good practices for scope development.

Where Do You Begin?Where Do You Begin?Prime Provider Staffing Categories



Scope of Work


Function Codes



Cost ($)


TxDOT scopes of work, on average, are below the level of detail needed to adequately communicate to, or enforce upon, the consultant what is expected.

The scope of work defines the project and the work to be done. Scope of work development should begin before the Notice of Intent (NOI) is posted. It is the basis for identifying staffing needs, level of effort, type and quantities of other direct expenses, and time required to complete the project. It also reflects the level of complexity which will affect profit rate considerations. The scope of work should identify, for example:

● Full range of tasks● Task descriptions● Location/Limits● Special analysis requirements● Assumptions● Major milestones● Deliverables● Project details

B. Scope of Work – The Primary Component 7


● Required design criteria and standards● Project phasing● Software requirements● District preferences for drainage, design, TCP, etc.● Contract administration and management requirements

Although it is tempting, for the purpose of emphasis, it is not good practice to repeat contract provisions in the scope of work. It serves no purpose, creates ambiguity, results in confusion, and increases risk of problems. Know what the contract says and don’t repeat it.

The scope of work represents what TxDOT wants and expects from the consultant in return for a negotiated price.

Who’s Responsible?TxDOT is responsible for developing the scope of work. It can be refined, sometimes significantly, during negotiations with input from the consultant, but the scope of work should be a TxDOT product. The consultant should not be asked to develop the scope of work.

Considerations Prior to Scope NegotiationsThe primary purpose for scope negotiations, initially, is to ensure that both parties have a clear understanding of what the project entails. Anything that could affect the magnitude of effort or level of expertise needed should be discussed. Keep in mind that the negotiated scope of work will be what the consultant will base their cost proposal on. It will also be the basis for TxDOT’s independent cost estimate for comparison to, and evaluation of, the consultant’s proposal. So it’s important that it address all the areas that will require some level of effort and other direct expenses by the consultant. A tight, well-defined scope reduces risk for both sides. Recommendations for preparation include:

● Coordinate with other district staff● Coordinate with divisions● Review previous/ongoing related projects● Review similar project scopes● Organize by function code

(But use logical task headings so the order of work is clear and understandable)

● Discuss level of detail expected● Ask for/provide examples of deliverables● Take advantage of consultant expertise if project warrants● Visit the site with the consultant● Assume a different PM will be responsible for project

completion, so be clear● Consider other governmental agency involvement● Identify critical deadlines/letting dates● Consider future phasing



● Consider construction scope● Don’t hesitate to make assumptions – document them in the

scope● Don’t assume the consultant can/will read your mind● Don’t be too casual with repeat client/consultant● Don’t assume the current project is the same as the last

Time invested in developing a good scope will ultimately result in significant savings of time, money, effort, and frustration.

Do I Actually Have to Meet With the Consultant?It’s not absolutely necessary to have a scope negotiation meeting, but it is strongly recommended to have at least one. If you do meet, plan in advance and make the appropriate arrangements so it is time well spent for all involved. Consider who needs to be there and be clear to the consultant about the purpose of the meeting so they can be responsive as well.

Participants should at least include the TxDOT and consultant project managers. If they don’t have the authority to make final decisions, have someone there that does. Also consider any other key staff that will ultimately be involved or affected that should have an opportunity for input. They don’t necessarily have to attend the whole time. Set a schedule and provide for them to come and go.

It is recommended the scope negotiation meeting be structured to accomplish the following:

● Discuss project tasks● Discuss interim and final deliverables● Discuss assumptions/unknowns● Identify/address questions● Consider changes suggested by the provider● Clarify expectations● Refine scope language● Consider site visit● Discuss payment type● Set tone for project management● Review evaluation schedule● Review progress report expectations● Highlight contract terms and conditions specific to PM’s

responsibility● Cover any issues that will affect consultant’s level of effort● Establish format requirements for fee schedule/estimate● Identify action plan for completing negotiations



Let’s Talk About DeliverablesThe deliverables are what it’s all about. If we didn’t need something from the consultant, we wouldn’t need the consultant, but across the board we do a less than adequate job of identifying expected deliverables.

PS&E ProjectsTxDOT routinely uses consultants to develop PS&E. If a specific deliverable is identified at all, it is typically no more specific than a 30, 60, or 90 percent deliverable. The problem with this type of description is that no two people within TxDOT have the exact same definition of what 30, 60, or 90 percent complete is. As a result, the consultant is left to make their own determination, which in many cases is not what the TxDOT project manager is expecting. It is important to take the description of the deliverable further and define in some way what 30, 60, and 90 percent are expected to be for the project being developed.

Expected completion guidelines have been developed for use in defining what’s expected at various stages of PS&E completion. The PS&E Stages – Expected Completion Guidelines are available on the DES-CCO web site.

The guidelines are not expected to be rigid. The tasks and percentages should be modified, as needed, according to the project delivery expectations. This table, or something similar should be discussed with the consultant during negotiations and included as part of the scope of work for the specific project.

Advance Planning, Corridor Study Type ProjectsTxDOT also relies on consultants for advance planning projects which include corridor studies and other phases of work that do not result in a set of plans like a PS&E project. The clear definition of the process, tasks, and deliverables is still important in the development of a good scope of work. Because of the planning nature of the work, many people think that deliverables cannot be identified because the result of the study is not known until it’s completed. The mistake is in thinking that the result of the study is the only deliverable. The deliverable is the completion of all the steps required as part of the planning process in addition to all the documentation and products that are associated with each step or phase of the study process.



The scope of work should clearly outline and describe “the process” the consultant is expected to follow and identify the reports and documentation produced along the way. Examples of Deliverables for Advance Planning Type Projects has been developed and is available on the DES-CCO web site.

In addition to the list of deliverables, a series of three presentations on Scope Development for Planning Projects are also posted on the web site. The presentations were given at the 2006 Short Course.

Construction Phase ServicesWhen we have contracts for PS&E, the districts are encouraged to keep the contract active through construction when practical. It has become common practice for districts to include construction phase services as part of the scope of work subsequent to the preparation of the PS&E. It is recognized that construction phase services can be less predictable than other phases of work. As a result, a level of flexibility is provided in the requirements for scope and budget for this phase of work. Guidance entitled Providing for Construction Phase Service is available on the DES-CCO web site. This guidance generally describes the level of detail expected.

Because direction for construction phase services may involve the TxDOT construction project manager, it is important that this person be made aware of the contractual requirements, budget constraints, and management expectations for this phase of work before any coordination with the consultant is initiated during construction.

In developing the scope and processing invoices, TxDOT should also take note of the new function 309 that was added February 2008. An explanation memo was distributed by the Finance Division Director February 27, 2008. See Code Chart 12 – Segment 76 on the FIN web page.

309 Design Verification, Changes and Alterations (Consultant Prepared Plans Only)Cash payments to consultants for construction engineering services related to function 351. All in-house costs relating to function 351 should be charged to function 351. Use FIMS object of expenditure 423 for all charges to function 309.



Consultant Quality ControlIn 2006, Guidance on the Expectation and Delivery of Quality Deliverables was developed to explain how certain deliverables could be identified as part of the scope of work to ensure that consultants are in fact checking their work prior to submittal.

Quality control is the responsibility of the consultant and not the TxDOT reviewer. TxDOT expects the consultants to review their own work before submittal of deliverables as a means of providing the quality work expected. Consultants routinely talk about their quality control programs. Expecting evidence of their quality control measures puts the burden on the consultant to back-up the talk with action. TxDOT staff should consider this approach to deliverable submittals when appropriate.

Survey Scope Template Now AvailableEvery district has one or more indefinite deliverable survey contracts in addition to engineering contracts with survey as a component. The Standing Committee on Surveying (SCOS) has developed a template for use in indefinite deliverable contracts. Selected scope text from the template can also be adapted as needed and included in an indefinite deliverable engineering contract or a specific deliverable contract where survey is a component of the work. The template is available on the DES-CCO web site.

Consistency in use will improve the consistency of expectations and ultimate product delivery from district to district as the survey consultant industry recognizes that there is a consistent approach in how the survey work is expected to be performed and provided.

Negotiation DocumentationKeep up with all the related communications including e-mails, meeting notes, phone conversation notes, and internal memos. All negotiation documentation should go in the project file. The primary purpose is to show that responsible negotiations did occur as required. The documentation may be needed to clarify the intent of a particular item in the future, but the priority should be to get the necessary clarification, assumptions, and instructions in the contract. The contract is what matters.



C. Writing Scopes of WorkObjectives: Writing tips used to draft contracts that are clear and brief. Learn how to draft a clear, legally binding scope of work.

Basic Writing Techniques

Writing Is Communication

Words, phrases, sentences, and paragraphs are the raw material from which we fashion meaning. A fault in a girder, too much sand in the concrete, a cable asked to carry too much stress, or even a single missing bolt can spell disaster for a bridge. In much the same way, sloppy word usage, poor word choice, convoluted sentence structure, or inadvertent grammatical errors can spell disaster in a contract. One can no more write a good contract without understanding writing than one can design a safe bridge without understanding mathematics.

The purpose of writing is to communicate clearly. Good writing is not self-consciously artful and indeed does not call attention to itself at all. When you read something that is well written, it is almost as if the words disappear and you can look directly into the mind of the author. When you write a contract well, there is no room for doubt or argument about what you intended. A well-written contract heads off potential disputes, defuses arguments before they begin, and makes sure you can always answer the one question that is asked first whenever we say that a consultant’s performance is deficient: “Where does it say that in the contract?”

Choose Words Carefully Genteelisms and

legalisms:

Sometimes language is used to convey an impression of prestige at the expense of understanding. Thus, butlers and sociologists use fancy words in an effort to elevate their position, while bad lawyers use archaic language to convey the impression that they are different from ordinary mortals. These genteelisms and legalisms get in the way of communication and do not belong in TxDOT contracts.

C. Writing Scopes of Work 13


Genteelisms

● “Assistance” instead of “help”● “Inquired” instead of “asked”● “Sufficient” instead of “enough”

Legalisms

● “Said” instead of “this”● “Same” instead of “that”● “Herein” instead of “in this contract”

If you find yourself writing a sentence that looks like this, think again:

“The State will promulgate said work authorizations utilizing the form included in Attachment D (Work Authorizations and Supplemental Work Authorizations) hereafter for the purpose of authorizing all endeavors herein.”

You probably mean:

“The State will issue work authorizations using the form included in Attachment D (Work Authorizations and Supplemental Work Authorizations) to authorize all work under this contract.”

The difference between “which” and “that”:

A good way to tell the difference between “which” and “that” is “that” is a defining or restricting pronoun. The pronoun “which” is non-defining and non-restrictive. In other words, use “that” when the phrase after “that” is essential to

identifying what came before. Use “which” when the phrase after “that” adds additional

information, but is not necessary to identify what came

before. One other good tip is that “which” should almost always be

preceded by a comma or a preposition. If a comma is not necessary in the sentence where you want to use “which” and if “which” does not have a preposition in front of it, you should probably use “that” rather than “which.”

The use of “which” for “that,” by the way, is another form of genteelism. To some, using “which” for “that” sounds fancier and more formal. It is not. It is just wrong.



Which: “The plans, which shall conform to TxDOT standards,

shall be delivered on June 1.”

That: “The plans that shall conform to TxDOT standards


Wrong: “The plans which shall conform to TxDOT standards


In the first example, particular plans shall be delivered on June 1 and shall conform to TxDOT standards. In the second example, some plans shall conform to TxDOT standards and shall be delivered on June 1, but other plans, which do not conform to TxDOT standards, may be delivered on some other date. In the third example, the lack of a comma in front of the pronoun “which” makes this sentence ambiguous. You cannot tell from the sentence if the phrase “shall conform to TxDOT standards” is merely additional descriptive information, or if the phrase is essential to describing these plans. To avoid the confusion remember the rule above…which will almost always be preceded by a comma.

Words containing slashes:

“And/or” is a legal and linguistic abomination. Generally, the use of “or” is taken to include “and.” If there is a risk of ambiguity, you can always say “A or B, or both.”

Gender-specific language:

Gender-specific pronouns are generally considered poor drafting in legal documents or any type of professional writing. There are several good techniques for avoiding the following gender-specific sentence.

“If the Engineer submits work that does not comply with the terms of this contract, the State shall instruct him to make whatever revision is necessary to bring the work into compliance with the contract.”

You can rewrite the sentence to avoid the situation.



“If the Engineer submits work that does not comply with the terms of this contract, the State shall provide instructions to make whatever revision is necessary to bring the work into compliance with the contract.”

You can repeat the term for which you are using a pronoun.

“If the Engineer submits work that does not comply with the terms of this contract, the State shall instruct the Engineer to make whatever revision is necessary to bring the work into compliance with the contract.”

If no other method will suffice, you can use both genders as alternatives.

“If the Engineer submits work that does not comply with the terms of this contract, the State shall instruct him or her to make whatever revision is necessary to bring the work into compliance with the contract.”

You can recognize that the Engineer is probably a corporation and therefore is actually neither a “he” nor a “she.”

“If the Engineer submits work that does not comply with the terms of this contract, the State shall instruct it to make whatever revision is necessary to bring the work into compliance with the contract.”

“S(he),” “s/he,” and similar unpronounceable formulations are as abhorrent as “s/he/it,” with which they have much in common.

Inherently ambiguous words:

“Presently” really means “soon,” but a less common minor meaning is “currently.” In general, use “currently” or “soon” and avoid “presently” altogether.

“May” grants permission, but it can also mean “might.” A contract must be clear about whether you

are granting the State the power to do something or merely predicting that

the State might do it. Use “might” to indicate probability and “may in its

discretion” to grant permission.

“Should” expresses a kind of wistful sense of moral obligation and rarely belongs in a contract. Almost always, the better word is “shall.”



Building Phrases

Twofers, threefers, and more:

Bad lawyers historically have used multiple words when a single word would be perfectly adequate. They are always wanting people to “cease and desist,” “to have and to hold,” or “to give and devise.” If bad lawyers are your role model, you need a new role model.

When you find yourself saying something like “to maintain, keep, preserve, uphold, have, and possess,” you know that you are not only sounding like a truly pitiful lawyer, you are on the verge of turning your contract into a comedic sketch.

Parallel phrasing:

Parallel phrasing signals to a reader that two or more items constitute a series. The application of parallelism in sentence construction improves clarity and readability.:

Not parallel:

“This list shall include the suppliers’ names, suppliers’ addresses, the telephone numbers, and a type of work.”

Parallel: “This list shall include for each supplier its name,

address, telephone numbers, and type of work.”

This example illustrates another important tip: whenever possible, write using singular nouns instead of plural nouns. In the first example, the plural nouns confuse whether each supplier must provide multiple telephone numbers. The second example, by relying on the singular whenever possible, makes clear the each supplier may include multiple telephone numbers.

Commas in a series:

When listing more than two items, it is best to use a comma before the conjunction.

Confusing:

“name and address, mobile and office telephone numbers and type of work”



Clear:

“name and address, mobile and office telephone numbers, and type of work”

In the first example, it almost seems as if “mobile” and “office” refers both to “telephone numbers” and to “type of work.” In the second example, the addition of the comma after “numbers” makes clear that “type of work” is separate.

Writing Sentences

“A sentence should contain no unnecessary words, a paragraph no unnecessary sentences, for the same reason that a drawing should have no unnecessary lines and a machine no unnecessary parts.” Strunk and White, The Elements of Style

Active and passive voice:

Active voice refers to the standard noun-verb-object sentence construction. Passive voice refers to a sentence structure in which the object comes first, followed by a “to be” verb.

Active Voice:

“The Engineer shall submit Progress Assessment Reports.”

Passive Voice:

“Progress Assessment Reports shall be submitted.”

What’s it matter? The whole purpose of a contract is to make clear who is doing what. The passive voice hides the identity of the entity responsible for submitting the reports.

Connecting modifiers:

As a rule, indefinite modifiers in a sentence are taken to refer back or forward to the next noun to which they can refer. When an indefinite modifier like a pronoun or a participle is placed near the wrong word, the result is apt to be confusing or even silly.

Dangling constructions:



“Showing the percent completion of the work accomplished, the Engineer shall submit a separate report with each billing statement.”

“At its sole discretion, the Engineer’s time to complete work may be extended by the State through execution of a supplemental work authorization.”

Proper constructions:

“The Engineer shall submit a separate report with each billing statement showing the percent completion of the work accomplished.”

“At its sole discretion, the State may extend the Engineer’s time to complete work through execution of a supplemental work authorization.”

The first two examples make it look as if the Engineer is showing the percent completion and the Engineer is the one with discretion. The second two examples make clear that the report must show the percent completion and the discretion belongs to the State.

Connecting Paragraphs

Topic sentences

A topic sentence at the beginning of a paragraph allow you to signal to the reader that you are changing direction, either by moving to a new topic or by exploring a previous topic in more detail. They should not be stilted or merely summarize the contents of the paragraph. The key language may be only a phrase or even a single word, such as “however.”

● “The engineering plans shall be developed in accordance with the applicable State’s Standard Specifications for Construction and Maintenance of Highways, Streets and Bridges, and the special specifications and special provisions related thereto.”

● “In procuring professional services, the parties to this Agreement must comply with federal requirements cited in 23 CFR Part 172 if the project is federally funded and with Texas Government Code 2254, Subchapter A, in all cases. “

Note that the second paragraph signals its contents with only the introductory phrase, “in procuring professional services.” Without



that phrase, the reader might be two or three sentences into the paragraph before figuring out what the topic really is.

Repetition

Another way to connect thoughts is to repeat sentence elements so the reader is easily able to see how sentences fit together.

● “The Contractor is responsible for providing any public meetings or public hearings required for development of the environmental assessment. Public hearings will not be held before approval of the project schematic.”

Note that the second paragraph repeats the phrase “public hearings” to orient the reader.

Repeat sentence elements for continuity.

● “The Contractor is responsible for providing any public meetings or public hearings required for development of the environmental assessment. Public hearings will not be held prior to the approval of project schematic.”

Composing DraftsBetty Flowers, “Madman, Architect, Carpenter, Judge: Roles and the Writing Process” (1981)

In this book Professor Flowers notes that our attitude toward writing must change as we go through the writing process. In the beginning, we are

the madman, jotting down ideas and brainstorming without much concern for details. We then must become the architect and arrange those preliminary

ideas in a sensible overall design. When that has been accomplished, we are the carpenter, carefully fitting the raw materials into the overall design and building new components as required. Finally, we become the judge, critically

examining each aspect of the draft with a skeptical eye.

Taking these steps out of order or skipping steps will lead to problems with your writing. Someone who is too critical in the beginning will run into writer’s block; someone who is rearranging the structure at the end will produce a confusing product; someone who tries to write too carefully before finishing the design will end up wasting a lot of effort.



The first rule of clear writing is clear thinking. If you are having trouble writing something, one likely cause is that you have not fully thought through what you need to say. It is very common for the act of writing to reveal holes in our knowledge or thought process. When you hear someone say that it’s not necessary to write something down because that person already knows what it is, approach with caution—until it’s been written down and critically examined, the likelihood is that it’s not really understood.

Write to a simple, non-technical level. Every word (except for the occasional technical term) should be understandable to a seventh grader. While the length of sentences will vary, keep the average around 20 words. An excellent check is to read your writing aloud. If it sounds hard to understand to the ear, then it is in fact hard to understand.

Words MatterWe use a lot of words—in conversation, over the phone, in emails, in memos, in letters. Talk is cheap, and words can be even cheaper. We get used to using words freely, and that can rob us of the precision we need when we most need it, in a permanent, legally binding contract.

Words and grammar are vital to a contract. A misplaced word can be as fatal in a contract as a misplaced number in an equation. Tens of millions of dollars have literally changed hands based on a single word.

If you want to write contracts, you have to understand and appreciate the meaning of words, the rules of grammar, and the elements of style. None of us will ever be perfect. Learning to write clearly is likely to be a lifelong effort, one that will demand your time and be worth your time. If you think that writing clearly is not worth your time, that’s understandable as long as you do not try to write contract language. Because if writing contract language is part of your job, you are simply in the wrong line of work.

Structuring Scopes of Work

What Is a Scope of Work?The scope of work identifies the tasks that the entity is authorized to perform during the contract period. Its contents will vary from project to project but must always set-forth detailed specifications, requirements, and instructions for completing the work in a very exact, measurable form.

Consequences of a vague scope of work are costly: a traveler may know the destination, but without a



map and a compass is easily steered off-course, confused, and delayed. The traveler needs the tools and directions to complete the journey. Likewise, the performing entity requires detailed specifications for completing the required services or the project will be steered off course, hindered by costly amendments, untimely delays, disputes, and other contract management difficulties. A nebulous scope will fail to chart the course of the project and will become more precise only insofar as amendments permit it to take a more definitive form.

These problems are averted when the department’s in-house experts invest time developing a clearly defined, objective, and measurable scope of work prior to the execution of the contract or work authorization. The benefits of this investment are numerous for all parties to the contract. The precise scope will promote timely delivery of services, efficient management of the contract, resourceful use of the department’s funds, and a professional rapport with the performing entity that is untainted by disputes arising from an unclear scope.

Developing the scope of work is the department’s responsibility; however, the tasks set forth in the scope are negotiable items. Therefore, the final scope should reflect the input and desire of not only TxDOT, but also the performing entity that will be completing the project.

The Starting PointTxDOT needs to prepare the first draft of the scope. Entities preparing scopes for TxDOT are understandably more interested in protecting themselves than in protecting TxDOT. We know of some entities that are actually taught to write scopes that are vague and make no promises to deliver. And there’s no need for us to be overly self-righteous about this, since the truth is that when TxDOT is contracting to perform a service, we write the scope to benefit us, just as consultants do.

In general, information needs to flow in the opposite direction from services. In other words, if we want a consultant to provide us with the services we want, we will need to provide the consultant with the information it needs to do that.

A good scope reduces risk for all parties – especially TxDOT.

Beware of the initial aura of optimism and cooperation

• Circumstances change – Work with the entity when they come



across bumps in the road. Negotiate amendments to the contract.

• Personnel change – When there is a change in personnel, work with them to ensure that they understand the project. That is why good scope writing is important. Scopes should be written so that anyone can pick up the contract and understand what is going on and what needs to happen.

• Behind every friendly project manager lurks a small army of hostile administrators, accountants, and lawyers. There are people in the department and in the consultant’s home office that may not take a casual view toward contracting at all. They are watching these contracts to ensure that we are doing things legally and sticking to the contract as it was written, not as it was intended to be written.

Types of ScopesEvery task in a scope needs to identify:

Who will do the workWhat work will be doneWhen will it be doneWhere will it be doneHow will it be doneWhy it is being done is generally irrelevant.

Types of Performance Measures

• A technical measure defines deliverables and process in detail. For example, construction must meet a host of detailed specifications. It is used most often in a low-bid contract when we need to control and can control every aspect of the work and output.

• A deliverables-based measure sets a standard for compliance, either by defining the standard or referring to an outside standard. For example, PS&E shall adhere to the Roadway Design Manual. It is useful when we need to give a contractor the ability to control inputs, and we cannot define a precise output, but we can define deliverables in terms of objective standards that must be met.

• A functional performance measure defines output in terms of functionality. For example, the contractor shall correct a problem within 24 hours after receiving notice, or training shall teach students to perform identifiable tasks. It is useful when we want to or need to give a contractor the ability to



control inputs, but we cannot define a precise output in terms of detailed deliverables.

• A level of effort measure commits the contractor to the devotion of specific resources to a project. For example, three policeman shall patrol full-time. It is useful when we can predict the level of effort required and cannot or do not need to specify a particular outcome.

In broader terms, scopes are generally divided into two general categories—design-based scopes and performance-based scopes. Generally, the first three performance measures above would fall into the category of performance-based scopes, while the last measure is more typical of a design-based scope. Design-Based ScopesThe scope of work for a design-based scope must detail the processes used. Tasks must be clearly defined and all procedures required to complete the task must be listed.

The advantage of a design-based scope versus a performance-based scope is the lesser effort required in its development. This type of scope also provides limited up-front work and allows some flexibility in the end result.

There are disadvantages to the design-based scope. There is the risk of cost overruns and the lack of guarantee that TxDOT will get anything usable. This arises from the profit incentive, which in a design-based scope encourages maximizing inputs, especially labor, as a means of maximizing the total return to the consultant. At worst, this is a positive incentive to do wasteful work; at best, it does little to encourage a consultant to operate as efficiently as possible. Design-based scopes also require more resources to monitor properly because it is necessary to monitor many inputs rather than a few outputs.

The essential elements of design-based scopes are the price and management of each input, including labor, direct costs, indirect costs, and profit.

Performance-Based Scopes The scope of work for a performance-based scope should place a lot of emphasis on the end result. What will it be? What do we need it to do?

The advantages of a performance-based scope are that a clear definition of the end result and the exact cost of the project are provided.



One disadvantage is the effort it takes to develop the scope. It must be very clear and concise. A commonly cited but overrated disadvantage is that if work takes less effort than projected, we may pay more than we would have in a design-based scope. A project may be completed ahead of schedule, resulting in fewer man hours worked, but the same price is paid. This risk is typically overrated because performance-based scopes encourage efficiency, the apparent “overpayment” may be a natural and beneficial consequence of a good scope. But while a performance-based scope eliminates the risk that we will pay for a consultant’s inefficiency, it also gives the consultant an opportunity to make money by reducing the amount of work done. Therefore, the more significant risk is the possibility that inadequate performance measures will leave us paying for deliverables that do not meet our needs.

Building Performance-Based ScopesThere are five steps in developing a sound performance-based scope:

1. Organizational Analysis — When developing your scope, you should develop a mission statement. Know what it is that you want to accomplish. Be clear on what it is you want out of the project, and what resources you need to get the job done. Be clear on your deliverables. What is TxDOT getting out of the project?

2. Work Analysis — Brainstorm with others involved in the project to identify all the steps needed to accomplish your goal. Arrange tasks in an order that makes sense. Identify in the scope any tasks or equipment that TxDOT is to provide.

3. Performance Analysis — Identify deliverables and ensure

the scope is very clear on how and what the contractor will be delivering. Deliverables are the most important item of a scope of work. Make sure that the deliverables are developed according to TxDOT needs and are usable by TxDOT. Get rid of any unnecessary deliverables. Use clear

words such as develop, construct, will provide, etc.

The scope of work must clearly define the deliverables we

want, the time we need them, what format we want, and their level of quality. Watch

your requirements so that you



are not setting limits that are not feasible. There’s no point in setting a specific date for deliverables if the date is so aggressive that it will result in a poor quality product due to a lack of sufficient time to produce it. Prioritize the importance of each deliverable. Is it more important to have a timely but poor quality product, or do we want quality before timeliness? These items should be negotiated with the consultant. TxDOT should have an idea of what is wanted (or needed), how long it should take and the cost, with the contracting entity understanding and knowing what it can do.

4. Evaluation Analysis — Identify ways to monitor the contracting entity’s progress. Defining a good scope is essential, but without monitoring, no scope can even be adequate.

5. Incentive Development — What motivates the provider? Usually money. If the contracting entity develops a deliverable by a certain time in good quality, then it will be paid extra. Provide a letter of appreciation that can be used as a reference for future projects with TxDOT and other agencies. On future projects, we might allow access to use of the equipment or intellectual property they developed for us.

What Every Scope Needs To AddressThe purpose of a good scope of work is to communicate exactly what the parties want to accomplish, to the degree that an accurate estimation of project costs can be achieved.

The scope of work needs to be clear and definite. It must list the personnel it is going to take to achieve the end product; the level of effort that is going into the project, and the materials and equipment required to conduct and complete the project. It must identify deadlines for completing tasks and the entire project.

What’s a Bad Scope Look Like?Read the following scope of work and identify as many problems as you can in 10 minutes.




The Engineer has widespread experience in overseeing transportation projects. It is expected that this experience will enable the project to proceed with a minimum of disruption.

The Engineer will serve as the GEC supervising the SDCs, ROWAPS Team, and QA/AC Provider. An electronic data monitoring system will be developed. Coordinating with environmental resource agencies on environmental issues. Assistance will be provided on any matter relating to the project at the request of the TxDOT project manager.

A web site will be designed, and a separate project office will be maintained. The Engineer will aid in the development of project control systems. The Engineer will collaborate with the district to facilitate the electronic exchange of documents.

Constructability reviews will be performed at the conclusion of the preliminary design phase. The Engineer will review PS&E. Additional details will be agreed upon later.





D. Budget (the Fee Schedule)

Objectives: Identify ways to better define staffing categories. Identify and incorporate other direct expenses. Identify the difference between direct and indirect costs. Identify key values on the audited overhead rate report for

evaluating the reasonableness of a firm’s OH rate. Identify factors for assigning a profit rate.

D-1 Staffing Categories and Hourly Rates

Next Step?Next Step?Prime Provider Staffing Categories



Scope of Work


Function Codes



Cost ($)


Based on the scope of work, the TxDOT PM and consultant should reach agreement on the range of staffing categories needed. It is recommended that the consultant provide the names of as many of the actual (or similar individuals) that might be expected to work on the project with their assigned or potential project role, and current salary. There should be enough categories to sufficiently cover, yet differentiate among, the range of disciplines and expertise anticipated.

Staffing Category Naming ConventionStaffing category names should not necessarily be driven by the professional naming convention of the selected consultant. The TxDOT PM should consider the project structure, anticipated staff,

D. Budget (the Fee Schedule) 29


and the detailed billing process when determining the most effective naming convention for staffing categories.

DES-CCO, through coordination with several districts, has identified a standard series of staffing categories for typical PS&E projects. The category names also have corresponding approximate years of experience. This additional piece of information enables DES-CCO to identify ranges of rates for each category based on industry salary surveys which are also based on experience level.

Historically, staffing categories have simply been names with no definition of experience level. As a result, consultants select the category that most closely covers the person’s salary rather than the category that most closely represents their role on the project. DES-CCO recommends that TxDOT PM’s consider providing some level of definition to staffing categories to provide a more common understanding, between TxDOT and the consultant, of which categories are appropriate to charge against based on the individual’s project role, experience, or expertise.

TxDOT has one series of contracts where staffing category definitions are included as part of the contract. A copy is included in the Resource Materials notebook for reference. Because of the unique nature of the hazardous materials engineering contracts, the example is not applicable to most of the general engineering contracts at the district level, but the list provides a good example.

DES-CCO is continuing to work towards developing additional guidance and examples in this area because it is important that TxDOT pursue a consistent approach to the use of category definitions. This is the direction we need to go in order to have a consistent basis for hourly rate negotiations from district to district and control what staff is eligible to charge to the identified categories.

Engineering Grade Descriptions

One resource that will be used in the development of additional guidance and example categories is the list of Engineering Grade Descriptions that are recognized, for example, by the National Society of Professional Engineers (NSPE) as a reasonable breakdown by level of experience. What we want to avoid is negotiating senior level rates for a category that junior level staff will charge to. DES-CCO has added approximate year ranges across the top of the grade descriptions for reference. The referenced information is provided as part of this training to indicate the



direction of change and improvement that DES-CCO is planning to go.

Professional Grade Descriptions

A similar resource is the list of Professional Grade Descriptions that are recognized and used, for example, by the Texas Council of Engineering Companies (TCEC). The descriptions follow the same format as the Engineering Grade Descriptions, but they are not specific to engineers. The Professional Grade Descriptions are used to classify non-engineering professionals, such as planning and environmental staff, that can be typical categories on engineering contracts. DES-CCO has added approximate year rages across the top of the grade descriptions for reference.

Hourly RatesFor each category, rate ranges or base rates should be negotiated based on knowledge of current rates within the industry. Negotiated rates should be fair and reasonable, but that does not mean that every salary has to be accommodated.

The TxDOT and consultant PM should identify and address the range of scenarios that could come up with respect to changes in staff titles and responsibilities within the company, raises and promotions, and the unexpected use of staff that the staffing categories may not cover. How these situations are expected to be handled should be understood by both sides and adequate explanation included on the rate schedule so that subsequent managers know what is intended and how it should apply.

One example used by a district is:

Note: The labor rate billed to the State for a particular employee of the Engineer or its subprovider may not increase by more than four percent within a classification within any twelve-month period unless promotion to a higher classification and no particular employee shall receive more than one promotion to a higher classification within a twenty-four month period.

Individuals who negotiate contracts on an infrequent basis have difficulty knowing what the going rate is for different categories. DES-CCO recognizes this and has investigated salary survey data sources that could be used to provide rate information to assist with negotiation preparations. Information currently provided targets PS&E contracts and the typical staffing categories for this type of work.



The information entitled PS&E Hourly Rate Ranges is based on actual salary survey data for Texas engineering consultants as collected by the Texas Council of Engineering Consultants (TCEC). This information is not available to the public, but TCEC provides this information to TxDOT as a courtesy to assist in improving consistency in negotiations. Data from the previous year’s survey is the most current data available. Data for 2008 was received in January 2009. The table will be updated accordingly as new data becomes available.

This data, in addition to other data that may be available, should be used as a basis for TxDOT negotiator’s starting position. The TxDOT negotiator should have a general basis for why they select the maximums they are willing to accept. In order to say a proposed number is too high, they should have a basis for that opinion. In other words, if necessary, the negotiator should be able to explain why they think it is too high.

When negotiating hourly rates, refer back to Section A for the reminder that although a significant piece, hourly rates should also be evaluated from the perspective of the whole contract, taking other components into consideration, as well.

How many Project Managers do you need?There typically should only be one category specifically for the designated project manager and only the designated project manager. There may be a need for a deputy project manager, but that’s a separate role that will have its own rates based on the assigned person.

If there happens to be task leaders or other support staff on the project that happen to have a professional title within their firm of project manager or they have project manager responsibilities on other projects, it doesn’t matter. They are not the designated project manager for the project. There should be other engineering categories defined and negotiated that they will charge to.

What to do with the Principal?While we’re here, let’s just look at it. The typical question we get goes something like…

I just had a quick question. We have a situation where the Project Manager for one of our ID Contracts was recently promoted to a Principal for the firm he is working for. I just recently received a Fee Schedule from them for a Supplemental Agreement and when we questioned all



the Principal hours he had listed, he said that he had been promoted from Project Manager to Principal and thus the Principal hours shown were actually for him. I was wondering how we should handle this when things like this happen.

Generally, when a principal or principal in charge (PIC) is identified on an organization chart, it typically represents the person the TxDOT PM could go to if they’re having problems with the consultant project manager or if the consultant PM has special needs within the firm to be responsive to TxDOT’s needs. It’s a position in the “project” organization.

Using this person referenced above as an example, he has a title and responsibilities within the company (not exactly our primary interest) and he has a specific role and responsibility on the contract (very much our primary interest). When the roles (staffing categories) and rates were identified in the contract it was for the purpose of that specific contract and associated projects. Take the person identified as the responsible project manager, for example, we don't care what his title is within the firm. His day to day responsibilities are as the project manager and that's the purpose for that column on the project budget spreadsheet. He may be called king, queen, or vice president of whatever, but if his role and responsibilities on the contract and project are as project manager, then that's all he is to us.

Now maybe his salary goes up. How we handle that depends on the payment type of the contract or work authorization. If it's cost plus fixed fee with ranges, he should bill his actual rate and we can pay whatever fits into the range for the project manager. If it's specified rate, they still bill the specified rate for the project manager regardless of what his title is in the company. If it's lump sum, we use the loaded (specified) rate for the project manager as well in developing the project costs. If they lose money because what we reimburse doesn't cover his salary - too bad. That's what we agreed to pay the PM at the time the rates were negotiated. If they're going to lose money, they can eat the difference or assign a new PM that meets TxDOT’s approval.

When we list the staffing categories across the top of the budget spreadsheet and include a column for principal, we or they have identified the need for that role and associated responsibilities somewhere in the course of completing the work. We use the word "principal" only for that purpose - to identify that role which is typically a higher level person that would provide some sort of oversight or review responsibilities at selected times throughout the process; or the TxDOT PM can go straight to them if they are having problems with the PM; or the consultant PM can go to them D. Budget (the Fee Schedule) 33


if they are needing assistance in getting the firm to respond to special resource needs.

The role of "principal" should never be needed on a day to day basis throughout a project. On the consultant side, a person can be assigned principal responsibilities on a project without that being their formal title. It's a firm’s choice on the title names they use. Some firms don't even use the title principal.

Another example...think about what a typical organization chart looks like for a project. The principal (typically referred to as a principal in charge - PIC) is usually shown up and off to the side of the PM. They're the person responsible for overseeing the project manager and making sure the contract/project doesn't fall apart; they can go to bat internally for the PM if they need more resources; they should be checking in periodically to make sure TxDOT’s happy with the work; they may also have specific oversight responsibilities on a project. What they actually do can vary, but they are not going to be the PM or the lead engineer or some kind of task leader. The box on the organization chart (and column in the budget sheet) represents a role in the "project" organization - not the firm's internal operational organization.

You could have contract A and contract B. On contract A the firm may identify Rudy Smith as the PM and Sue Brown as the PIC in the org chart. On contract B they may identify Sue Brown as the PM and Rudy Smith as the PIC. The project titles represent their role and basic responsibilities on each contract. And that's fine. Neither one of them may have the internal professional title of principal or project manager within the firm - and we don't care. We just care about what they're going to do on the project.

What if the Subprovider’s Rates are Considered High?Although much of the focus and discussion centers on the prime provider, many of the contracts also involve multiple subproviders whose labor and other direct costs rates are negotiated at the same time as the prime’s. A reasonable question is whether or not negotiations should be terminated because a subprovider’s rates appear to be too high? This is not a simple yes or no question.

Several things should be taken into consideration. The main thing to keep in mind in negotiations is to not become totally focused on just one number or a series of numbers. The whole is the sum of the parts, and therefore the parts are important. The negotiator, however, should maintain perspective on the totality of what is being negotiated.

At the contract level, the variation in totality depends on the contract type. With specific deliverable contracts, negotiators have D. Budget (the Fee Schedule) 34


the benefit of being able to evaluate all of the components, including level of effort and quantities of other direct expenses. So the overall effect of a particular subprovider’s participation in the project can be evaluated much easier. Whether their role on the project is minor or significant will influence the negotiator’s decision.

With indefinite deliverable contracts, negotiators are limited to rates only. Level of effort and quantities of other direct expenses will not be addressed until an individual work authorization is negotiated. At the contract level, however, the negotiator should have an idea of the type of work that will be issued and the potential level of involvement of the subprovider. Acceptance of the higher than average rates may come with the expectation and understanding that lower than average levels of effort will be expected to support successful negotiations at the work authorization level.

D-2 Escalation Rates

Although negotiated rates are required in every contract, it is not a requirement that escalation always be factored in. It depends on the intended duration of the contract, applicability of staffing categories, and the reasonableness of the negotiated rates. Whether to include any escalation at all is negotiable; if included, the rate(s) and where it’s applied is also negotiable. As with the other negotiable components, it is necessary for the negotiator to exercise judgment and have a reasonable basis for their approach.

TxDOT controls the staffing categories and negotiated rates that are included in the contract. The negotiated hourly labor rates in the contract are intended to reasonably cover the provider’s cost for paying the expected type of employees working on the contract. It is reasonable to assume, that over multiple years, an individual’s hourly rate may increase as a result of raises or promotions, so the consideration of escalation is not unreasonable. When considering what’s reasonable to accept, however, it’s important to understand it does not have to be one number that is applied to all staffing categories for every year. This is why there is no place on the rate schedule to identify an escalation rate. It’s not always necessary to include escalation, and it shouldn’t necessarily be the same number across the board.

Most contracts include a list of personnel titles that cover a wide range of roles from clerical to project management. Within certain areas there will also be a progression of experience covered, for example Junior Engineer, Engineer I, Engineer II; or Design Engineer, Project Engineer, Senior Project Engineer; or Planner I, Planner II, Senior Planner.



Someone charging initially at a Junior Engineer level, for example, may acquire enough experience or be given a promotion that enables them to move up and charge according to a higher rate. At the same time, newer individuals can join the project charging at the reasonable Junior Engineer rate. This movement from category to category is one way that an individual’s salary increase can be accommodated. This can occur whether an escalation rate is included or not; so exclusion of an escalation rate does not mean that no options are available for accommodating actual reasonable rate increases. To just apply a five percent increase each year for a Junior Engineer category can be very high in comparison to the actual average increase in rates within the industry. A category, such as clerical, project manager, or the last category in a progressive series does not provide for any progression from one category to another, so those might be better addressed with annual escalation. But at the same time realize that one rate may not be applicable to all.

In developing a negotiation approach for escalation, first determine if it is necessary to consider it at all. If it’s determined to be reasonable to consider, it may be useful to identify the categories that allow for upward progression and those that do not; and approach them differently. If escalation will be included on the progressive categories, consider applying lower rates. For other categories, relatively higher rates may be appropriate. And there may be categories that will not be escalated. At the same time, the same rate does not have to apply every year.

The comments above imply that the negotiator is looking at a multi-year contract that includes rates for three to five, or more, years out. With over 90 percent of TxDOT contracts being indefinite deliverable, more often than not, the TxDOT negotiator will be negotiating no more than a two-year contract. Although most indefinite deliverable contracts are ultimately extended beyond two years for the completion of initiated work, the contract will initially only address rates for the first two years. Rates can be negotiated for each year or a single set of rates can be negotiated that are applicable to both years. If necessary, rates can be adjusted when the contract time is extended.

When negotiating indefinite deliverable contracts, it’s also important to consider at what point in the fiscal year, the contract will become active. It is very questionable when a contract comes through for execution, for example, in the last three months of the fiscal year, and there are rates for the partial fiscal year end in addition to escalated rates across the board for the two subsequent fiscal years. It is very unlikely that the potential contract staff will receive rate increases in the last three months of a year. Yet that appears to be the assumption someone is making; and three months after D. Budget (the Fee Schedule) 36


contract execution, a new set of fully escalated rates are in affect. Rate increases do not occur only at the end of the year. The scenario described above can appear excessive when compared to other rate structures.

The point is to step back and review the logic of the assumptions about how rate increases actually work in order to avoid unnecessary and costly increases.

Typically, consultants are trying to balance maintaining reasonable rates with retaining employees within an industry where competition for staff can be significant. There are a number of factors that consultants consider, from year to year, when evaluating potential rate increases (raises and promotions). A primary factor is if current salaries are in line with the competition. Consultants rely on annual salary surveys, such as those conducted by the National Society of Professional Engineers (NSPE) and the Texas Council of Engineering Companies (TCEC), to evaluate salaries within the industry. Other factors include: the business climate within the industry and within their company (are they growing, maintaining, or looking at staff reductions); financial conditions within the company (current and projected); the “market” for staff within the industry (is there a shortage or glut of engineers on the market); the work load, performance, and profitability of an individual; the cost of living (varies by location); and inflation.

Given the list of considerations, there’s obviously no one formula for calculating a meaningful range, much less a single number. What’s reasonable depends very much on the reasonableness of the negotiated rates in the beginning, the applicability of staffing categories, and the duration of the contract.

A zero escalation rate is common, especially in the short run. For new negotiators that have limited or no perspective on what would be reasonable, a range of zero to 3.5 percent is acceptable, based simply on the evaluation of inflation. This does not mean that 3.5 percent is a recommended cap. A higher rate is acceptable, but the negotiator should take the staffing structure into consideration and not just apply one rate across the board. Five percent is on the outside of high. So an example of excessive would be a five percent escalation rate applied across the board for multiple years. This decision shows little to no consideration of the variables involved. For those who can’t resist using a single number, it should be less than five.

To put this into perspective, most people associate inflation rates with the Consumer Price Index. The Consumer Price Index regularly overstates inflation for various reasons. It is heavily dependent on the prices of housing, food, and gasoline, none of D. Budget (the Fee Schedule) 37


which are important components in our professional services contracts. It also doesn't take into account consumer behavior in substituting less expensive goods for more expensive goods. While the Consumer Price Index increased 3.3 percent in 2004, for example, the Producer Price Index for Architectural, Engineering, and Related Services increased by only 2.0 percent in the same year. When choosing an escalation rate, it is easy to be influenced by general impressions and misleading published information. The best course, if an escalation rate simply must be included in a long-term contract, is to keep it under 3.5 percent and probably more in the range of 2-3 percent at most.

At the same time, when negotiating escalation rates, refer back to Section A for the reminder that as a negotiable component, the escalation rate should also be evaluated from the perspective of the whole contract; taking other components into consideration, as well.



D-3 Other Direct Expenses

Other Direct ExpensesOther Direct ExpensesPrime Provider Staffing Categories



Scope of Work


Function Codes



Cost ($)


Other direct expenses are non-labor direct expenses associated with a project which are reimbursable according to the requirements and negotiated rates at the contract level. The emphasis being, that controls in the form of a fixed cost per unit - or - a maximum cost per unit must be identified in the contract for items to be reimbursed.

The emphasis for other direct expenses is on non-labor, such as travel expenses, postage, and copies. The costs for these items do not include a labor component. Other direct expenses do not include “unit costs”. The TxDOT contract defines a “unit cost” as including all direct and indirect costs and profit, such as a unit cost for a particular material field test. Unit costs for typical field tests on a materials engineering (lab) contract, for example, include the cost for labor and profit. TxDOT staff should look at each item and make a conscious effort to differentiate between other direct expense items and unit cost items, because they should be labeled as such and shown separately using the appropriate format with the appropriate notes as indicated on the other direct expenses template and unit cost template.

Controlling Other Direct Expenses Generally, it is the intent to reimburse the other direct expenses necessary to perform the scope of work. It is commonly questioned why these expenses need to be addressed in the contract if the actual cost is going to be reimbursed. The simple response is to D. Budget (the Fee Schedule) 39


control the consultant’s consideration of the actual cost before it is incurred. If TxDOT is going to reimburse the actual cost of a plane ticket, there should be some incentive (or disincentive) for the consultant when selecting between the $500 and $800 round trip, or the $45 per day rental car and the $65 per day option.

Negotiation of Rates and QuantitiesIn addition to identifying the anticipated other direct expenses items needed on a particular project, it is also necessary to identify and negotiate the quantities in order to calculate the total cost of other direct expenses. The quantities are based directly on the scope of work. The more thorough the scope of work, the easier it is to identify potential needs so the agreement accurately represents the potential cost of the work expected.

Available GuidanceGuidance on Other Direct Expenses for Contract Rate Schedules was issued in May 2007.

The guidance includes explanation as well as an Example List of Other Direct Expenses and directions for including other direct expenses on the typical rate schedule templates.

The guidance and example list also provide direction on how potential miscellaneous costs are to be addressed and ultimately tracked.

Subprovider versus Other Direct ExpenseThere are many times that a service is clearly needed by the prime, but it’s not clear whether it should be billed as an Other Direct Expense or if the service provider should be identified and billed as a subprovider. In general, if a vendor is providing services involving the use of judgment and discretion, the vendor should be listed as a subprovider with the appropriate hourly labor or unit cost categories and rates. If a vendor is providing ministerial services (like copying), unrelated services (like airline travel), or goods (like office supplies), then they would not be listed as a subprovider; rather the type of service should be listed as an Other Direct Expense with a corresponding “fixed” or “maximum” cost per identified unit.

D-4 Overhead Rate (Indirect Cost Rate)

Business costs that are incurred are divided into two groups.

● Direct Costs● Indirect Costs



Direct Costs include any cost identified specifically with a particular final cost objective such as a TxDOT project. Example direct costs are labor, materials, and travel associated with the project. Direct costs are those that can be recovered by direct reimbursement. The consultant submits an invoice documenting the expenses and TxDOT reimburses the consultant by paying the invoice.

Indirect Costs include any cost not identified specifically with a particular final cost objective but with two or more such as rent, utilities, and administrative support salaries. These costs cannot be identified with a specific project for direct reimbursement. Allowable indirect costs are recovered in the overhead rate. Unallowable indirect costs are not recoverable.

In discussing Allowable Overhead Expenses, they are typically referred to as allowable general and administrative (general overhead) expenses and fringe benefit costs (payroll additives). Where Does it Come From?The overhead rate is a percentage or rate that is developed by dividing the allowable overhead expenses by the direct labor base. The direct labor base includes all the billable wages, those billed to a client, for the year being audited.

OH Rate = (Allowable Overhead Expenses)/(Direct Labor Base)

The department rules require firms (unless excepted by rule) to submit an overhead audit report if their contract value will be for $250,000 or more. A firm’s audit report is prepared by an independent auditor according to applicable Federal Acquisition Regulations (FAR). The report typically includes a one-page summary statement of the firm’s direct labor (billable wages), general overhead expenses, and fringe benefit expenses for a fiscal year. These three numbers are then used to calculate the overhead rate as described above.

An example audit report is shown below. The direct labor base is circled at the top and the total of general overhead and fringe benefits is circled at the bottom. The OH rate for this firm for the fiscal year shown would be:

5,050,897/3,209,211 = 1.5739 or 157.39%

An overhead rate is based on real costs and it will change from year to year. The rate for the next year cannot be calculated until the year is complete and the costs are audited.



The audit reports are typically shown in the same format, although some of the category descriptions may be worded differently. The same Federal Acquisition Regulations apply, regardless of the name of the category.

Fringe benefits are benefits that staff receive other than their wages, such as insurance, paid leave (vacation), and retirement contributions. General overhead expenses are those required for operations such as rent, utilities, supplies, non-billable salaries, and various other categories. Note that billable salaries are direct labor costs and non-billable salaries are indirect labor costs. A person that typically charges half of their time on their timesheet to project work and half of their time to marketing contributes to both pools. How much labor is direct and how much labor is indirect is based on how they charge each hour on their timesheet.



What Does it Mean to the Firm?A firm’s goal is to be competitive, maintain a reasonable overhead rate by maximizing the direct labor costs (billable wages) and minimizing the indirect costs, both allowable and unallowable. The figures below show a breakdown of costs for three different sized firms. The top figure shows a direct labor base of $500,185 (blue). If this represents total billable wages, it is obviously a much smaller firm than the third one shown with a direct labor base of over $92 million in billable wages (blue). Their overhead rates are, however, approximately the same. Is this good or bad? The answer is it depends on how they compare to other firms of comparable size within the industry.

Their goal again is to maximize the blue portion relative to the green, yellow, and red. The decisions of how much to spend on green, yellow, and red are all management decisions. A firm must purchase and maintain equipment and supplies and maintain a threshold of staff in order to compete and stay in business. The extent, however, depends on the stability of the industry and the management style and culture of the company.



What’s Allowed to be Overhead?The Federal Acquisition Regulations (FAR) that define what is allowable and not allowable are too extensive to address in this explanation. The determination of what is allowable is not the responsibility of an engineer negotiating a contract, but rather a certified public accountant or auditor. The list below, however, provides examples of the types of costs that fall within the different categories. The lists are not comprehensive.

Also note that there are detailed explanations that correspond to each as they are addressed in the regulations. For reference only,

D. Budget (the Fee Schedule)

Small Firm Costs OH = 1.6809

Direct Labor, $500,185

Fringe Benefits, $278,389

General & Administrative,

$562,383

Unallowable Costs, $22,471

Direct Labor

Fringe Benefits

General & Administrative

Unallow able Costs

Medium Firm Costs OH = 1.5523

Direct Labor, $5,666,033

Fringe Benefits, $4,475,042

General & Administrative,

$4,320,601

Unallowable Costs, $697,183

Direct Labor

Fringe Benefits


Unallow able Costs

Large Firm Costs OH = 1.6807

Direct Labor, $92,544,891

Fringe Benefits, $42,434,261

General & Administrative, $113,105,093

Unallowable Costs, $10,230,446

Direct Labor

Fringe Benef its


Unallow able Costs

44


an excerpt from the AASHTO Uniform Audit and Accounting Guide for Transportation Consultants is included in the Resource Materials notebook. This is additional information and educational purposes only. There is no step in the negotiation process where this information should be used. This is cost accounting guidance for consultants.

Examples of Allowable Costs are:

Fringe Benefits insurance (group insurance, worker’s compensation) paid leave (sick leave and vacation) social security taxes unemployment taxes bonuses retirement contributions

General Overhead non-billable salaries (indirect labor) rent utilities equipment and supplies computers depreciation printing and reproduction postage telephone professional fees advertising marketing maintenance and repairs dues and subscriptions employee education and training employee recruitment and moving vehicle compensation travel and meals community service activities contributions incentive compensation

Examples of Unallowable Costs are:

advertising (defined differently than allowable advertising) trade show expenses trade show labor promotional materials/brochures souvenirs/imprinted clothing provided to public membership in Civic and Community Organizations



bad debts collection costs personal use of company vehicles contributions or donations employee gifts and recreation membership in Social/Dining/Country Clubs fines/penalties interest expense lobbying costs patent costs organization/re-organization legal fees organization/re-organization accounting fees organization/re-organization incorporation fees organization/re-organization labor premium time retainer agreements relocation costs if over $1,000 travel costs in excess of FTR rates goodwill alcoholic beverages

TxDOT does business with several large statewide, national, and international firms. It is helpful to remember that an audited overhead rate is typically based on the firm’s costs that may include numerous offices within the firm. It is possible for incorrect assumptions to be drawn on what is affecting an overhead rate if they are based on observing only the primary office doing the work rather than associating the overhead rate with the overall firm.

As stated above, the evaluation of what is allowable is the responsibility of the accountants and auditors. The negotiating TxDOT engineer’s responsibility is to evaluate what is reasonable taking into consideration what is normal for comparable businesses within the industry.

Although we do receive a FAR overhead audit and the report should be respected, the overhead rate is negotiable.

The previous sections have generally covered what the overhead rate is; where you get it and what you do with it is covered in the following sections.

The Pre-Negotiation Report from the Audit Office According to the contracting rules in the Texas Administrative Code (§9.42), selected providers are required to provide specific information directly to the TxDOT Audit Office in order to satisfy administrative qualification review requirements. With exception of certain types of firms, as noted in the rules, the required information includes submittal of an indirect cost rate (overhead) audit. The D. Budget (the Fee Schedule) 46


Audit Office staff has the expertise to review the details and make any necessary adjustments to the audited rate.

Information provided by the firm for the administrative qualifications process is the basis for the Pre-Negotiation Report that the Audit Office prepares and provides to the Managing Office. Please note that the rate information provided in the Pre-Negotiation Report is confidential information. Where this information is maintained and who has access should be managed accordingly. TxDOT staff is provided this information by the Audit Office in order to prepare for the negotiation of TxDOT contracts. This is not information that should be the topic of conversation over lunch or break with individuals who are not directly involved in the negotiation process.

Approximately June 2008, the Audit Office revised the format of the Pre-Negotiation Report. For those who have received audit reports prior to June 2008, the detailed audit page (by firm) you are used to seeing is no longer included. The information in the report for indirect cost rate includes basically four pieces of information:

The direct labor cost range (this provides a general indication of firm size)

The current (latest) audited rate Historical audited rates on file (there may be several or

none) Historical median audited rates of firms in the same direct

labor cost range (similar size)

The direct labor cost range provides a general indication of the firm size. This information will enable the negotiator to compare the audited rate with other audited rates of firms in the same range (comparable size). The available data is described in the following section.

The current (latest) audited rate is the primary number being provided for negotiation preparations. The negotiated rate for the contract cannot exceed this number. The rate in the contract can be this rate or a reduced rate. Knowing the direct labor cost range, this audited rate can be compared to other audited rates on file.

The historical audited rates on file for the firm are provided for reference only. If the firm has not done business with TxDOT before, there will not be any numbers on file. This information can provide an indication of a relatively stable rate from year to year, increasing rates, decreasing rates, an extreme rate (high or low) in comparison to previous years, or chaotic jumps from year to year. This information can also help to anticipate what the consultant’s



negotiation position might be and what they’re preparing as an explanation of what they will be asking for. This helps the TxDOT negotiator to be better prepared.

The historical median rates for firms in the same direct labor cost range are also provided for reference only. The median is the middle number of a series listed from lowest to highest. If there are five numbers in the range, for example, the median is the value of the third number in the list. If there are 15 numbers, the median if the value of the eighth number. If the list is an even number, such as 16, the median is the average of the two numbers in the middle (8th and 9th number). The contributing value of this information may be limited. It would be more helpful if the number of values in the sample for each year was included. DES-CCO is continuing to work with the Audit Office to refine the format. The current data provided by AUD is the same data that is provided graphically in the next section.

There is no formula or specific guidance that tells the negotiator what number is acceptable or unacceptable. The goal, however, is that the same information be referenced by negotiators in order to develop more consistency in the approach and range targeted for negotiations.

If the Managing Office receives a detailed audit page directly from the consultant, the TxDOT negotiator should not attempt to evaluate and compare among firms, the individual cost categories identified in the audit as a basis for negotiating a lower rate. Evaluating this detailed information is beyond the expertise of the typical negotiator and a realistic evaluation is not possible without the more detailed information that supports the audit. The TxDOT negotiator should only be evaluating the total number.

Evaluation and Negotiation of the Overhead RateOverhead rates are associated with characteristics of a specific firm. The department rules require firms to submit audited overhead reports for contract values of $250,000 or greater. Excepted firm types are identified in the rules.

As of December 2006, the audit office had audit reports for 86 firms. These firms range from small (direct labor base of $161,000) to large (direct labor base of over $350 million). The graph below shows that there were 26 firms with a direct labor base of less than $1 million, 34 firms with a direct labor base between $1 and $10 million, 18 firms with a direct labor base between $10 and $100 million, and eight firms with a direct labor base from $100 to over $350 million.



Distribution By Direct Labor (Billable Wages)(Audits On File As Of December 2006)

0

5

10

15

20

25

30

Less

Than

$100

,000

$100

,000 -

$250

,000

$250

,000 -

$500

,000

$500

,000 -

$1 M

illion

$1 - $

5 Mil li

on

$5 - $

10 Milli

on

$10 -

$20 M

illion

$20 -

$30 M

illion

$30 -

$50 M

illion

$50 -

$75 M

illion

$75 -

$100 M

illion

$100

- $1

50 M

illion

$150

- $3

50 M

illion

Over $

350 M

illion

Num

ber o

f Firm

s

26 Firms

34 Firms

18 Firms 8 Firms

Direct Labor

When evaluating a firm’s overhead rate, it is recommended to look at comparable firms within the industry. Therefore, it is recommended to group the firms by size rather than compare a small firm’s rate directly to that of a national, multi-office firm.

The following graphs show the individual overhead rates by direct labor base for the firms within each group size.

The purpose is to evaluate the reasonableness of the rate taking into consideration what is normal for comparable businesses within the industry. The TxDOT negotiator should have a basis for establishing their position for negotiations. This information is one resource for that basis. Other resources are the historical rate data provided in the Pre-Negotiation Report. An additional resource that is being developed will be the provision of previously negotiated rates for executed contracts with the selected prime provider.

There is no pre-established cap on overhead rates for the department, therefore there must not be pre-established caps applied within a district or division as a basis for a negotiation position across contracts.

Each negotiator has the opportunity and responsibility to negotiate each contract independent from another based on the team and rates for each contract. The maximum rate (cap) that can be accepted is the current audited rate provided in the Pre-Negotiation Report which varies by firm. The consultant should know this is the maximum, if not, make it clear.

The position to be established for entering negotiations should be the target (lowest) number you think is reasonable to expect and



the maximum number you think will be reasonable to accept (equal to or less than the audited rate). The TxDOT negotiator should not give their position away just as the consultant will not reveal their initial position. Keep in mind that factors may change during negotiations that could affect your initial range.

When negotiating the overhead rate, refer back to Section A for the reminder that although a significant piece, the overhead rate should also be evaluated from the perspective of the whole contract, taking other components into consideration, as well.

If the firm is fixed on asking for the current rate, consider reducing the profit rate as an alternative to reducing the overhead rate. Refer to subsection D-5 on Profit Rate.

OH Rate By Direct Labor($100,000 to $250,000)

0.000.200.400.600.801.001.201.401.601.802.002.202.402.60

Direct Labor

OH

Rate

OH rate By Direct Labor($250,000 to $500,000)

0.000.200.400.600.801.001.201.401.601.802.002.202.402.602.803.00

Direct Labor

OH

Rate



OH Rate By Direct Labor($500,000 to $1 Million)

0.000.200.400.600.801.001.201.401.601.802.002.202.40

Direct Labor

OH

Rat

e

OH Rate By Direct Labor($1 Million to $5 Million)

0.000.20

0.400.600.80

1.001.201.40

1.601.802.00

2.202.40

$1.00 $2.00 $3.00 $4.00 $5.00Direct Labor ($1,000,000)

OH

Rate




0.000.200.400.600.801.001.201.401.601.802.002.202.40

$5.00 $6.00 $7.00 $8.00 $9.00 $10.00 $11.00

Direct Labor ($1,000,000)

OH

Rat

e


0.000.200.400.600.801.001.201.401.601.802.002.202.402.60

$10.00 $15.00 $20.00 $25.00 $30.00


OH

Rat

e




0.00

0.20

0.400.60

0.80

1.00

1.201.40

1.60

1.80

2.002.20

2.40

$30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00 $100.00


OH

Rat

e


0.00

0.20

0.400.60

0.80

1.00

1.201.40

1.60

1.80

2.002.20

2.40

$100.00 $150.00 $200.00 $250.00 $300.00 $350.00 $400.00 $450.00 $500.00


OH

Rat

e



The following graph shows along the bottom, eight different groups by size based on direct labor. For each group, the graph shows two numbers, the average and median overhead rate for the firms that fall within each group as shown in the individual graphs above for the audits on file as of December 2006. The average varies a little more dramatically with the smaller firms, those less than $1 million. There is an increase in the rates for firms between $1 million to $30 million and decrease in the numbers for the firms with a direct labor base above $100 million. This graph, in addition to the graphs above should be referenced when evaluating the rate for a particular firm.

Audits on File as of December 2006OH Rate By Direct Labor Range

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

1.90

$100

,000 -

$250

,000

$250

,000 -

$500

,000

$500

,000 -

$1 M

illion

$1 - $

5 Milli

on

$5 - $

10 M

illion

$10 -

$30 M

illion

$30 -

$100

Millio

n

$100

- $50

0 Millio

n

OH

Rat

e

Average Median

Direct Labor



For comparison purposes, the summary graph for previous 2004 data is shown below. One notable difference is the increase in average and median for the range from $5 million to $30 million. It’s reasonable to assume that a firm’s rate should not vary significantly from year to year, but the two graphs do show that there are factors that do affect the industry and the average rates within the firm size categories.

Previous OH Rate Graph for Comparison OnlyOH Rate By Direct Labor Range - based on older data from 2004

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

Less

Than $

100,0

00

$100

,000 -

$250

,000

$250

,000 -

$500

,000

$500

,000 -

$1 M

illion

$1 - $

5 Milli

on

$5 - $

10 M

illion

$10 -

$30 M

illion

$30 -

$100

Millio

n

$100

- $40

0 Millio

n

OH

Rat

e

Average Median

Direct Labor

Don’t RoundIf the audited rate is accepted as the rate for the contract, be sure to show the complete number. The overhead rate is typically shown to five significant digits, such as 163.65%. This is how the audited overhead rate will be shown. There is a difference between 164% and 163.65%. If 163.65 is the audited rate and 164 is shown in the contract, it appears that we negotiated a higher rate than the audited rate. When showing the rate in the contract and in calculations, all five digits should be clearly shown and used.

On-Site versus Off-Site RatesFor some firms, the Pre-Negotiation Report may indicate an on-site rate as well as an off-site rate. For the majority of TxDOT contracts, the on-site rate is the overhead rate that is applicable. If you’re not sure what to reference, contact DES-CCO.

The reason some firms have these two audited rates is because their operations are divided into two types of locations. On-site operations include the permanent office for the company including all of the direct (labor and other) and indirect costs associated with those offices. The identified costs associated with the on-site operations are used to calculate the on-site overhead rate. D. Budget (the Fee Schedule) 55


typically, if there are no significant events or changes in operations, these costs are relatively the same from year to year. For large, multi-office firms, the ability to combine the costs into one representative on-site rate for the company helps to maintain that stability of the rate. A relatively stable rate is preferable for business planning purposes.

If the company needs to establish a project (temporary) office for five or six years, for example, it may be preferable to track the temporary costs separate from the permanent office costs to avoid a significant change to the rate for permanent office operations.

Off-site operations include the temporary (project) offices that are in place, typically for the purpose of a particular project. This is not unusual for very large firms that work on large projects that warrant the dedication of staff (temporarily) in a location separate from the permanent office location. The project offices will have many of the same types of expenses, but they will be tracked separately from the other on-site costs. The project offices will also have specially identified staff associated with the off-site operations. The direct and indirect costs for those individuals will also be tracked separately from other company (on-site) staff.

The identified costs associated with the off-site operations are used to calculate the off-site overhead rate. The rate can be based on costs from more than one project office. Because the offices are more dedicated to a particular effort, off-site rates are typically lower than on-site rates.

Is it Okay to Agree to a Higher Rate in Exchange for the Consultant Not Billing Certain Other Direct Expenses?If the consultant is suggesting or TxDOT is considering accepting a higher than audited rate in exchange, for example, not invoicing for project-related travel expenses or other direct expenses, you should contact DES-CCO before pursuing this option. What may appear to be a good deal initially can result in problems later.

One of the main reasons that TxDOT prefers other direct expenses to be invoiced directly rather than rolled into the overhead rate is that profit is ultimately paid on top of the overhead costs. This is potentially an advantage to the consultant. Travel expenses, for example, are easy enough to separate. TxDOT should not be paying profit for this type of other direct expense as part of overhead. Rolling other direct expenses, such as travel, into the overhead rate affects the consultant’s incentive structure; it may be harder to get them to come to a meeting, for example, or bring the appropriate staff. In addition, it’s not always easy to determine in advance how much travel will be necessary and thus how much of an overhead increase would be appropriate, and therefore the risk D. Budget (the Fee Schedule) 56


of overpayment or underpayment for travel. This approach can also make the contract hard to audit.

D-5 Profit Rate

Profit is simply part of doing business with the private sector. TxDOT is not hiring non-profit organizations to design projects, and businesses that operate to break even or continually take a loss will not be in business for long.

Maximizing profit is the underlying goal of any business and influences practically every decision they make.

The profit rates assigned to contracts should be reasonable and not excessive. How much actual profit a firm makes per project depends directly on the payment type used.

The profit rate, or sometimes referred to as the margin, typically ranges between 10 and 15 percent, but it can be less than 10 percent. There is no single table or mathematical formula for identifying the correct profit rate. It’s characteristic of the project and judgment should be exercised in identifying what’s appropriate and how flexible to be in negotiating it. Basic factors to consider include:

● Project size● Complexity● Duration● Degree of risk

Other factors can be included, as appropriate. It doesn’t have to be a complicated exercise. For the large majority of TxDOT contracts, the exercise is very simple because they involve projects that are not very large, not complex, have reasonable schedules, and are fairly predictable in terms of the work required to produce the deliverables.

It’s true that the consultants should earn a reasonable profit. The question is in the predictability of the level of effort required to do the work. If the negotiated level of effort is comparable to the actual level of effort expended, then the consultant basically clears the profit calculated in the agreement. If the negotiated level of effort is more than the actual level of effort, the consultant can actually realize a higher overall profit rate depending on the payment type. If the negotiated level of effort is less than the actual level of effort then the consultant realizes a lower overall profit rate, because the additional hours worked will not be paid by TxDOT, but



will eat away at the profit margin for the contract on the consultant side. This is what the consultant wants to avoid.

To be clear, however, if the additional hours are the result of TxDOT requesting additional work above what was in the scope, a supplemental agreement should be developed to reasonably compensate the consultant for the effort. The consultant should not see being asked to do additional work without being compensated as a risk and the basis for a higher profit rate. If the contract is being properly managed, there should be no risk of this happening.

The risk to the consultant is in estimating and negotiating a level of effort that turns out to be too low in comparison to what it ultimately takes to get it done, for whatever reason. It could have been a very unpredictable task; a large complex project can contribute to the unpredictability. It’s also possible the consultant may have managed the staffing assignment and oversight poorly; there may have been an unavoidable change in internal staffing that resulted in more hours being required; it may have been a predictable project and the consultant just blew the estimate and negotiations; TxDOT may have estimated incorrectly and refused to negotiate higher and the consultant agreed to the hours anyway. Any of these things could happen, but few are of TxDOT’s concern.

Predictability of the level of effort is the one that TxDOT negotiators should recognize. As said before, however, a large majority of the projects being negotiated are fairly predictable because TxDOT does this type of work on a regular basis and has done this type of work for years. As a result, because of the predictability of the work, the profit rates on average should be closer to 10 percent. And for projects that may fall into the less predictable category, if the TxDOT negotiator acknowledges this and purposely allows more hours to be negotiated into the contract, then the risk has been addressed. There’s no basis for agreeing to a higher profit rate.

Some consideration should be given to the payment type being used. Lump sum is typically used on routine predictable work. And lump sum, in and of itself, provides the opportunity for the consultant to realize a higher than negotiated profit rate. So it appears excessive to agree to a 15 percent profit rate on a lump sum agreement. There could always be underlying factors from the negotiation process that are not apparent in the review of a contract, but the negotiator should be able to clearly explain why that combination was agreed to.

All else being equal, a 10 percent profit rate is a very reasonable rate. Because the range is typically described as being from 10 to 15 percent, many TxDOT negotiators don’t even consider going D. Budget (the Fee Schedule) 58


below 10 percent; and as a result the consultants expect at least 10 percent and more. The most common reason for a less than 10 percent profit rate is when a consultant is focused more on negotiating a better overhead rate. They are usually willing to take a reduced profit rate as a concession in the overhead rate negotiation.

When negotiating the profit rate, refer back to Section A for the reminder that although a significant piece, the profit rate should also be evaluated from the perspective of the whole contract; taking other components into consideration, as well.

D-6 Level of Effort

The level of effort, or hours required to do the work, is based directly on the scope of work. It is absolutely necessary that both parties have a clear understanding of the work and deliverables expected in order to develop a cost proposal and evaluate the reasonableness of a cost proposal.

TxDOT’s Independent Man-Hour AssessmentTxDOT should be developing their own estimate while the consultant is preparing theirs, if not before. There is no magical reference. Good judgment should be exercised. Inexperienced staff or staff short on time should not simply be guessing what the number should be and basing detailed negotiations on that guess.

The TxDOT PM should discuss different discipline requirements (traffic, hydraulics, etc.) with staff experienced in those areas. It’s not unreasonable to contact other districts for input. The estimator should have a thorough working knowledge of the project development process. If they don’t, it’s important that they know when they are out of their element or dealing with something beyond their level of expertise – and ask for help in those situations.

What if Your Numbers Don’t Match?When evaluating the consultant’s proposal, significant differences should be addressed whether they are high or low. Major differences are typically an indication of different interpretations of the scope. So go back to the scope and figure out who’s thinking what. It’s possible that the scope needs to be revised or at least made clearer. Differences in level of effort may result in further negotiation of the scope. Be willing to give and take. Don’t hesitate to talk to the consultant and find out what they’re thinking, you may have missed something that’s important to you.



Staffing Categories Eligible for Invoicing Purposes at the Work Authorization LevelAll contracts, both specific and indefinite deliverable, should have identified staffing categories and negotiated hourly rates. For indefinite deliverable contracts, the level of effort is not addressed until a work authorization is negotiated. A work authorization may or may not include all the staffing categories identified in the contract. For a particular invoice, the consultant can only invoice for the categories referenced in that work authorization. Invoice charges for hours in a staffing category that was not included in the work authorization should be disallowed. If it is identified that the category will be needed in the future, it can be added by supplemental work authorization for future billing purposes.

When negotiating the work authorization, identifying the allowable staffing categories is a means of control that TxDOT can exercise, if necessary. TxDOT should exercise this control when appropriate.

In some cases, however, controlling the available categories may not be necessary or even advantageous to TxDOT. If it’s not necessary to limit the categories, the potential categories to be used can be included in the negotiated level of effort table, but hours do not have to be assigned to every category. It’s acceptable to include a category with zero hours. If the consultant chooses or it becomes necessary to use that category, it’s available for use and invoiced charges are eligible for reimbursement.

TxDOT should make a conscious decision whether or not it is important to limit the available categories. If it is not important, it is recommended to include all the applicable categories to avoid potential disallowed charges and unnecessarily restricting the staffing management options of the consultant.

Seldom will the actual hours charged match exactly the hours negotiated for level of effort. It is important to monitor the reasonableness of hours charged by task and staffing category over the course of a project because this can be an indicator of potential problems, but keep in mind that the staffing categories and negotiated level of effort are the basis for the maximum amount not to exceed for the negotiated scope of work. This maximum amount is the primary controlling number that cannot be exceeded.



E. Schedule

Objectives: Recognize the purpose of the schedule.

What about the Schedule?

The schedule should not be an afterthought. It should have meaning with respect to how the project will be managed and monitored. It should be realistic. It does not have to be the most detailed working schedule, but it should represent major milestones that correspond to the work expected to be done. It should be reviewed and updated as appropriate to stay in line with project expectations.

The consultant should be required to address the schedule in each progress report. The schedule should also be a specific topic at each progress meeting.

The closer a project is to design and letting, the more significant deadlines become. The TxDOT project manager should be very specific with the consultant project manager about what is expected and use the schedule to communicate and enforce that. A consultant that tends to be slow should be given interim deadlines to provide assurance that the work is progressing as needed. Don’t wait until it’s too late to do anything about it and then suddenly pull out the schedule and complain.

Timelines for projects that are in earlier stages of development may have more flexibility, but there should be a plan (the scope) and schedule for both parties to monitor and manage according to.

It is also important that TxDOT understand its role in the critical path. Both parties agree to the schedule, so it’s important that TxDOT be prepared to do its part to keep the project moving.

Where does it go?

For specific deliverable contracts, a schedule is required in the contract. For an indefinite deliverable contract, a schedule is required in each work authorization.

E. Schedule 61


Who Develops the Schedule?

TxDOT should provide any significant key dates, but the consultant will develop the actual schedule for the agreement. A simple Gantt chart in Excel or Suretrak conveys significantly more information in terms of time and relationships, than a list of dates.

The schedule is a negotiable component. The tasks identified in the schedule should correspond directly to the outline of the scope and should be discussed for thorough and common understanding between TxDOT and the consultant.

E. Schedule 62


F. Concluding Negotiations

Objective: Identify appropriate steps for wrapping up negotiations.

When you get to the end of the process, you’ll either agree or disagree on the outcome. If you’re in agreement, you move forward with developing the actual contract document. At the same time you collect and file the appropriate negotiation documentation.

If there’s a disagreement in the total cost and the thought is it’s too high, it’s important to understand where in the process to go back to. The scope should have been agreed upon, the staffing and other rates should have been settled, with the last component being level of effort. If the cost is too high, it may be necessary to go back to the scope of work and see what can be adjusted there.

TxDOT should provide adequate opportunity to resolve differences before ending negotiations.

Terminating NegotiationsIf it’s not possible to reach an agreement, the Managing Officer must approve terminating the negotiations. Once that approval has been given, the consultant should be notified that negotiations are terminated. Only then can negotiations be initiated with a second firm. You cannot go back to the first firm.

It is absolutely unacceptable to play one firm against another or leave the appearance of playing one firm against another. Level of effort or anything related to the work or cost cannot be compared between firms for the purpose of assigning work. That applies at the contract level as well as the work authorization level.

If negotiations are terminated, you must contact DES-CCO with this information so the selection information on the external webs site can be revised.

Negotiation DocumentationKeep up with all the related communications including e-mails, meeting notes, phone conversation notes, and internal memos. All negotiation documentation should go in the project file. The primary purpose is to show that responsible negotiations did occur as required. The documentation may be needed to clarify the intent of a particular item in the future, but the priority should be to get the necessary clarification, assumptions, and instructions in the contract. The contract is what matters.

F. Concluding Negotiations 63



F. Concluding Negotiations 64


G. Negotiation Techniques

Objective: Learn useful techniques for achieving successful results in

professional service contract negotiations.

The Meaning of Negotiation

Negotiation is a process under which two or more parties with imperfectly aligned interests reach a mutually agreeable result. This definition has several key components. First, negotiation is a process, not an end in itself. Second, the parties negotiating may have much in common and many common interests, but there are always some interests that are not perfectly aligned. The party with whom we are negotiating is neither our enemy nor an extension of ourselves; the other party is simply another legal entity, with interests that run parallel to ours in some ways and do not run parallel in others. Finally, the end result of a negotiation is something that must be acceptable to both parties. Negotiation does not mean bending another party to our will; it means finding a common ground where both parties are better off with an agreement than without one.

Prepare To Be a Good Negotiator

Successful negotiation begins before the first session with preparation. You need to be thinking about the negotiation—who will be there, how it will play out, where it will take place, and the ways in which the other party will try to influence you.

For an in-person negotiation, it is always best to conduct the negotiation at TxDOT facilities, where we are more at ease and more in control. Do not underestimate home-field advantage!

The agenda can and usually should be written, but you may also be in a position where you can control the agenda during the meeting. Either way, it is usually best to handle the easiest issues first so you can build momentum toward a final agreement. Sometimes, however, if there is a single killer issue, you may want to resolve it first rather than waste time on details that may prove unnecessary if the killer issue cannot be resolved. Keep an eye out for situations in which we can make a concession

G. Negotiation Techniques 65


that means little to us in return for a concession that means much more to us. While issues are usually handled one at a time, look for opportunities to link them so that a concession in one area may be used to leverage a concession in another.

Knowledge is power. Tactical knowledge relates to the identity, positions, and interests of the other party. Is their negotiator someone who blusters and threatens, or is it someone who listens quietly and means every word? Is their business booming so they don’t really need this contract, or are they in need of new business and perhaps willing to make concessions to get it?

Another source of potential negotiating power is an appreciation of the different interests of stakeholders in relation to each party. Although we usually think of negotiations as occurring between two parties, the actual situation is often much more complex, since each party will have stakeholders inside and outside its organization, and each stakeholder may have a different interest in the outcome. Are there stakeholders on the other side who may be willing to agree with our positions and thus create some momentum for the other side’s holdouts to concede?

Most of all, the life-blood of any negotiation is the substantive area that is being negotiated. You must understand as much as possible about the business area that is being negotiated and have ready access to technical experts who understand everything. Otherwise, you will be unable to answer points made by the other party, and you will be forced to concede points by default.

When negotiations break down, it is often because people confuse positions and interests. Interests are the underlying objectives of each party; positions are how those interests are reflected in specific proposals. Whenever a party’s position is unacceptable, look behind it to what that party is really trying to achieve. We may not be able to agree to their negotiating position, but that doesn’t mean we can’t satisfy their underlying interest in a different way—sometimes in a way that is better than either party’s initial position. Similarly, we want to pursue positions that satisfy our interests, but we don’t want to become so locked into particular positions that we fail to see other opportunities that may, on balance, achieve our interests even better than our initial positions.

Before you go into a negotiation, know and think about your Best Alternative to a Negotiated Agreement. There is always an alternative—another supplier, performing the work in-house, not doing it at all, cutting back the scope. The BATNA defines your bottom-line position, your true walk-away point. Do not fall into the trap of defining a bottom-line that is not really a walk-away position. If you fail to define a true bottom-line up front, there is a real risk



you will end up accepting a solution that is worse than you could have achieved by terminating the negotiations.

Your first position should be the most aggressive position you can defend. This establishes your expectations for a final outcome and is the most important thing you can do to encourage a good result. Do not ever begin by conceding points in the expectation of seeming “reasonable.” Also, beware of making the first offer. The person who responds to the first offer has the opportunity to define expectations by creating a bracket between the first offer and the response. Thus, if the initial offer is 10, the response creates a very different expectation if it is 20 rather than 12.

Learn from Aristotle

Aristotle’s Rhetoric established three components of persuasiveness. “Ethos” refers to the extent to which a listener is influenced by the identity of a speaker. “Pathos” refers to the extent to which a listener is influenced by emotion. “Logos” is the extent to which a listener is influenced by logic. This framework is useful in analyzing negotiations.

We want to use Ethos to bolster our credibility. The other negotiating party will evaluate your position in part by their perceptions of who you are. They will look at your apparent position within the department. If they have a negotiating history with you, they will bring it to the table.

Most of all, your perceived credibility and integrity will dominate your effectiveness as a negotiator. Think about it—the currency of a negotiation is words. The other side needs to believe that you know what you’re talking about, that you mean what you say, that your stated bottom line is in fact where you will draw the line, and that your agreements and concessions will not be overruled. If they can’t believe what you’re saying, you might as well not be talking at all. Your integrity and credibility is easily your most precious resource in any negotiation.

You can bolster your position by acting in a way that conveys professionalism and trustworthiness. One of the best techniques in this regard is simply to listen actively and ask questions. People



think that other people who ask questions are intelligent, and they tend to be flattered that you care what they have to say. You can also bolster your credibility by tailoring your actions and even how you dress to the other side, since people tend to give more credence to people who are like them. If they are all business, you should be all business. If they are more loose, you should loosen up. And don’t be afraid to start with a little social chatter about a neutral topic, like the weather, a recent sporting event, or some neutral news topic that is not one on which people are likely to take sides. In general, the more one dehumanizes someone, the easier it is to be rude or hostile. By humanizing the relationship, you help to create an atmosphere that is conducive to getting results.

Pathos relates to our emotional reactions. As human beings, we can never entirely subordinate our emotions. Create an atmosphere that makes a successful result more likely, mainly by treating the other party with respect and decency. Use silence to your advantage; it conveys a sense of respect, while at the same time encouraging the other party to keep talking and thus to keep giving you valuable information. That means you need to listen to the other side and equally important, to look like you’re listening. You may listen best with your eyes closed, but that will not appear respectful to the other side or advance your cause. You can show that you’re listening by beginning your response with a brief paraphrase of what the other side just said, as in “I see why you want the scope to be more flexible, but . . . .”

Recognize that turning a negotiation into a wrestling match can significantly hinder progress, especially if it occurs near the beginning of a negotiation. A negotiation is not a winner-take-all contest or an argument. It is an effort by two entities to reach an agreement that will be better for both than no agreement at all. Turning a negotiation into a dispute will serve neither party’s true objective.

One can rely too much on pathos. You may think that a concession would improve the atmosphere and make a favorable agreement more likely. Banish that thought. A concession, once given, is gone and can no longer be used as leverage. Be sure you get a concession for every one you give up.

Deadlines tend to encourage results. Very often people will try to hold out as long as they can and will only concede on major points when they feel they must or perhaps lose the agreement. For this reason, it is good to be clear up front about you expectations of how long negotiations can go on before you will have to consider other options. Just be sure any deadline you set is a real one. If you get caught bluffing, if you are seen to have made false threats,



or if you walk out and then walk back in, your credibility will be shot and your effectiveness as a negotiator will be over.

Watch out for hot buttons that will irritate the other side without giving you a real advantage. If you know your counterpart went to West Point, don’t bring up that Army hasn’t been to a bowl game since 1996. Here is also where a colorful vocabulary may work to your disadvantage. Saying that a position is “nonsensical” or “stupid” will put people off and inject a note of hostility that you would not elicit if you simply said that you didn’t think you could agree with the entirety of what was said.

Do not allow anyone’s emotions to undermine your negotiation. Anger and irritation cause chemical reactions in our brain that are as real and as uncontrollable as the effect of alcohol, hormones, or any other chemical. If you feel your temper rise, sit back and talk some deep breaths. Take a five-second micro-vacation and think about something you enjoy. If you have no other option, take a break or adjourn for the day rather than continue in an atmosphere that is more likely to lead to impasse than success.

When people think of negotiations, they think most often of Logos, the rational side of our behavior. Remember that our interests are our underlying needs, and our positions are proposals we make to achieve those needs. Positions can be changed in response to circumstances; underlying interests do not generally change during the course of a negotiation. Remember also that you must always keep in mind the precise bottom line defined by your next best alternative. If you cannot beat that bottom line, you need to walk away. Finally, remember that an impasse on a particular issue may be resolved by altering your position on a different issue. Thus, you may resolve a cost issue by modifying the scope, or a legal question may be resolved by adjusting the work schedule.

The logic of negotiation usually turns on anchoring positions to recognized ways of supporting those positions. Thus, while our underlying interest may be to achieve a reasonable overall price, one would typically say something like “We need a lower fixed fee” (your position) “because this is not a risky project” (the anchor for your position).

The strongest anchors are that your position is mandated by law, by some standard adopted by a third party, or by previously adopted internal standards. This establishes that your position is not one that you just invented for this negotiation, but is derived from principles that apply generally to all your negotiations.

Logic can be an effective anchor, but logic can be refuted or challenged. “Policy” may seem effective at first glance, but the



difference between a policy and a position may be purely semantic. “Fairness” is the anchor most often cited by children, and there are so many definitions of fairness that it is nearly useless in a negotiation. “Take it or leave it” is a last-resort position.

Long-Distance Negotiations

The realities of modern business are that we often are required to conduct our negotiations at a distance.

The effectiveness of communication depends on the entirety of the ways in which a message is communicated. The words on this page convey ideas effectively, but it is generally less effective to tell someone to read a book than to teach them in person. In-person communication rests on visual stimuli (facial expressions and body language); auditory stimuli (tone of voice, the use of pauses in speech); and intellectual stimuli (the meaning of words).

Can you follow a story better by watching television with the sound off or with your eyes closed? It will depend on the type of program, but in many cases the visual component is more meaningful than the auditory, which may itself be more meaningful than the intellectual component.

This means that while necessary, reliance on letters, email, and telephone calls is generally less satisfactory. Any kind of long-distance communication is communication that has been partially disabled. Over the telephone, you cannot see the expression on a face; an email does not convey tone of voice; the studied phrases of a formal letter may hide more information than they reveal. You may not have a choice about the type of communication permitted in a particular circumstance, but you do have the ability to recognize when care is needed because you are communicating in a way that is inherently inefficient or even risky. Many an email has hindered, rather than advanced, communication because the sender’s tone was misunderstood.

Whether a negotiation is conducted in person, over the telephone, by email, or by exchange of letters and drafts, the same basic techniques can often be used. In particular, be aware of the effect of timing on how a response may be received, of the effectiveness of a response that asks for additional information, and of silence in structuring a negotiation. Not responding or responding slowly is itself a way of communicating information.



H. Understanding Payment Types

Objectives: ● Identify the four payment and the defining differences for rate

negotiations, developing the maximum amount NTE, and invoicing & payment.

● Know how to complete the rate schedules correctly.● Identify considerations for selecting a particular payment type.● Identify special control for lump sum payments.

What are we paying for?

When outsourcing services, TxDOT’s intent is to reimburse actual expenses within reasonable limits. Actual expenses include labor, overhead, and other direct expenses. TxDOT also intends to pay a reasonable profit. The key word is reasonable, and that’s why TxDOT is required to responsibly evaluate and negotiate any cost proposed by the provider. How these costs are evaluated, negotiated, and ultimately paid, varies by payment type. It’s important to understand how the payment types work and what the differences are in order to make the best decisions related to your project.

Basis of PaymentTxDOT contracts for engineering and architectural services include the option of four different payment types. These include:

● Cost Plus Fixed Fee● Specified Rate● Lump Sum● Unit Cost

Survey contracts don’t include cost plus fixed fee.

Depending on the type of contract and how the work will be issued, one, two, three, or all four payment types may be selected on Attachment E for the contract and used for different projects or phases of work.

H. Understanding Payment Types 71


Why Four?

The contracts provide the four options to accommodate the four different types of work that each have a different payment type accepted as traditional industry practice. The four areas are:

● Engineering – Planning/Design● Surveying● Materials Testing/Engineering● Architecture

Traditionally, cost plus fixed fee has been associated with engineering, specified rate with surveying, unit cost with materials testing/engineering, and lump sum with architecture. These relationships are not intended to be



restrictive. Different payment types can be used for different services if it’s reasonable and the consultant is able to do it. TxDOT, for example, cannot force a survey firm into a cost plus fixed fee arrangement because it is recognized that survey firms do not have the cost accounting systems to support the information required to do that.

Engineering – Planning/DesignWithin the engineering industry it is accepted practice that cost accounting systems are set up to track direct costs separately from indirect costs. As a result, engineering consultants have the ability to calculate their actual indirect cost (overhead) and rate. Department rules require engineering firms to submit audited overhead reports indicating direct and indirect costs for contract values over $250,000. Exceptions to this requirement are: Bridge Inspection, Materials Inspection & Testing, Geotechnical Services, Surveying & Mapping, and Architecture.

SurveyingWithin the survey industry, accepted practice is different from the engineering industry. Survey companies, and others, are not set up to track direct costs separately from indirect costs. This is why they are excepted from the requirement to submit an audited overhead rate report. As a result, cost plus fixed fee is not an option for survey firms. Contract rates are loaded (specified) rates that include labor, overhead, and profit.

Materials Testing/EngineeringWithin the materials testing/engineering industry, accepted practice also differs from engineering design firms. Materials Testing/Engineering companies are typically not set up to track direct costs separately from indirect costs. These firms are also excepted from the requirement to submit an audited overhead rate report. Contract rates are typically unit cost rates that include labor, overhead, and profit.

ArchitectureWithin the architecture industry, accepted practice is also different from engineering design firms. Architecture firms are typically not set up to track direct costs separately from indirect costs. These firms are also excepted from the requirement to submit an audited overhead rate report. Contract rates are typically loaded (specified) rates and method of pay is typically lump sum.



Don’t Forget What We Said About Profit

Profit is simply part of doing business with the private sector.

Maximizing profit is the underlying goal of any business and influences practically every decision they make.

How much actual profit a firm makes per project depends directly on the payment type used. It’s important to understand where the profit is for different payment types and how that can influence a consultant’s strategy for assigning staff and doing the work in order to maximize their profit.

Cost Plus Fixed Fee

For either specific deliverable or indefinite deliverable contracts, all rates are negotiated at the contract stage. This applies to all payment types. TxDOT has maximum negotiation leverage prior to the contract being signed. Locking the rates in the contract is a means of controlling the cost.

The rates that are addressed include:

● Labor Rates● Overhead Rate● Profit Rate● Other Direct Expense Rates

Negotiated Rates

Payment Type Labor Overhead Profit Labor Overhead Profit Other Direct Expenses

Cost Plus Fixed Fee Min-Max X X Min-Max X X

Specified Rate

Lump Sum

Unit Cost

Contract Fixed or Max

Negotiated Rates

Unit Cost

Ending Rates

Unit Cost

X(Base) X X

Cost Plus Fixed Fee Rate Schedule – Attachment EThe negotiated rate information is included in the contract in a rate schedule as part of Attachment E. The rate schedule format, inserted below, for cost plus fixed fee (CPFF) is different from other payment type rate schedules. The rate schedule templates and guidance are located on the DES-CCO web site.

There is typically a separate rate schedule for the prime and each subprovider, although this is not required if all the information is identical for the prime and each sub. The information on the rate schedule cannot be changed without a supplemental agreement.





Labor RatesFor cost plus fixed fee, a range (min and max) of hourly labor rates is negotiated with the intent that actual rates will be billed and reimbursed, not to exceed the negotiated maximum. The rate schedule template provides a place for a minimum and maximum rate for each staffing category. It is recommended that the minimum just be zero. Otherwise we risk paying the minimum rate identified even if their actual rate is less. If no minimum is shown, the implication is that the minimum is zero.

The maximum rates by category should be negotiated based on the staffing and salary data furnished by the provider, available rate data provided by DES-CCO, assumptions and expectations of the individual categories, and knowledge of rates within the industry.



Applicable Time Periods (Cost Plus Fixed Fee)If more than one series of maximum rates is included, the fiscal or calendar year to which they apply should be clearly indicated. The last series cannot be outside the termination date of the contract.

Multiple years can be shown to account for escalation. Escalation rates were discussed previously as a single number, for explanation purposes. If rates for multiple years are shown, each category does not have to increase by the same amount. Escalation is not a separate number that will be shown on the rate schedule. The same or different escalation rates are built into the hourly rates identified on the rate schedule.

If only one series of rates is included with no year designated, the rates will be applicable for all years.

For cost plus fixed fee, the actual rates billed should be the actual rates in affect at the time the hours were worked. Actual rates to be billed cannot exceed the maximum shown for the applicable fiscal year. If billable work continues beyond the last year for which there are negotiated rates, the maximum rates for the last fiscal year shown will apply to all later years.

Overhead RateThe rate schedule template also provides a place for the negotiated overhead rate. Depending on the results of the evaluation of the overhead rate, it’s possible the rate in the contract will be the actual audited rate or it may be a negotiated lower rate. The rate in the contract should never be higher than the audited rate provided by the TxDOT Audit Office. Show the overhead rate using five digits.

In ultimate calculations, the overhead amount for the agreement is the product of multiplying the overhead rate by the total labor cost.

($Labor Rate per Hour) X (# Hours) X Overhead Rate = $Overhead Amount

Profit Rate (%)The rate schedule also provides a place for the profit rate. As discussed in a previous section, the profit rate will be based on project characteristics and will not exceed 15 percent. This rate will be used to calculate the “fixed fee.”

Fixed Fee ($)The terminology fixed fee is associated only with the cost plus fixed fee payment type. The fixed fee is a “fixed” guaranteed dollar amount, identified in the agreement, to be paid as profit in return for completion of the scope of work.

The fixed fee calculation involves only the labor and overhead associated with the prime. The fixed fee goes to the prime. Subprovider profit is not included in the fixed fee. It represents what is agreed to be a reasonable



profit to be paid in return for the services provided by the prime. The subprovider’s profit passes through the prime as part of the subprovider’s total cost.

Prime Provider Staffing Categories Hourly Rates by Category ($)


Scope of Work


Function Codes



Cost ($)

Basis of Fixed Fee for PrimeBasis of Fixed Fee for Prime

The fixed fee is calculated by multiplying the profit rate by the total labor and overhead cost.

Fixed Fee ($) = ($Labor Rate per Hour) X (# Hours) X (1+ Overhead Rate) X (Profit Rate)

As a result, the higher the labor and overhead, the more profit a company makes. That’s why we want to negotiate and agree to reasonable rates throughout, otherwise the resulting profit ($) paid is excessive. The fixed fee ($) is all they get in profit, no more, no less.

Other Direct ExpensesAs discussed previously, refer to the specific guidance on other direct expenses to correctly identify categories and the negotiated maximum or fixed rates. Where a maximum rate is negotiated, the agreement is to reimburse the actual cost not to exceed that max. Where a fixed rate is identified, the agreement is to reimburse that rate per unit of use. The intent is to reimburse the actual cost to the consultant within reasonable limits.

Calculating Maximum Amount Not to Exceed With all rates already negotiated, the information required to calculate the maximum amount not to exceed is the negotiated level of effort (hours) per category and quantities of other direct expenses. This will be based



directly on the detailed scope of work and deliverables. The maximum amount not to exceed will be calculated at the contract level for specific deliverable contracts and at the work authorization level for indefinite deliverable contracts.

Payment Type Labor Overhead Profit Other Direct Expenses Effort Other Direct

Expenses

Cost Plus Fixed Fee Approximate Actual Rates Contract Rate Contract Rate

Specified Rate

Lump Sum

Unit Cost Negotiated Units

Contract Unit Costs

Rates

Contract Rates

Project Scope

Fixed or Approximate Actual Rate

Negotiated Hours Negotiated

QuantitiesX

The difference with cost plus fixed fee is in the labor calculation. The rates used to calculate the project cost should not automatically be the maximum or minimum rates identified in the contract. Although actual rates will be billed, use of the maximum rate for calculation purposes would inflate the fixed fee.

The rates used to calculate the project cost do not come directly form the contract. The rates used should be representative of the actual rates expected to be billed. TxDOT and the consultant should discuss and reach agreement on the rates to be used for calculation purposes before the consultant develops their cost proposal. These rates must fall within the ranges indicated in the contract. Keep in mind that the consultant may need to accommodate multiple individuals, within one category, that make different rates.

Clearly Show the Fixed Fee ($)The calculation of the fixed fee should be clearly shown. Although it is included in the maximum amount not to exceed, the fixed fee should be clearly noted since the provider and TxDOT will need to monitor the partial billing and reimbursement of fixed fee over the course of the project. It’s a fixed number so the consultant cannot invoice more profit than that amount.

Maximizing ProfitWith cost plus fixed fee, the profit is fixed and guaranteed. It’s not necessary to invoice every hour to earn the fixed fee. TxDOT is basically covering the actual cost of labor, overhead, and direct expenses within the maximum negotiated limits. It’s possible the consultant’s total profit could be reduced if they have to cover the difference in costs that exceed the maximums reimbursed, but it is not possible to make any more profit than the fixed fee.

The sooner the staff can get finished with the project, the sooner they can collect the fixed fee and move on to another project and earn more profit. If there is no other project to go to, then the project manager may adjust their pace and staffing decisions to make the project and budget last a little longer and avoid having someone sitting around without billable work. I’m



not saying they will charge to the project without doing work, but they may not work at their maximum pace.

One thing a consultant should never say to the client.

Cost Plus Fixed Fee InvoiceThe typical CPFF invoice should include the following:

● Detailed Progress Report● Table Identifying Staff, Hours, and Actual Rates● Timesheets● OH Cost Per Contract Rate● Partial Fixed Fee● Other Direct Expenses - With Back-Up● Subprovider Invoices In Similar Format● H-Forms

Categories and rates should be verified against the contract. Contract rate schedules and fee schedules that are thoroughly and accurately labeled with understandable column headings and clear instructions, will make invoice preparation and review significantly easier.

Considerations for Selecting Cost Plus Fixed FeeThe cost plus fixed fee payment method is better for less predictable project scopes, such as complex PS&E or advance planning projects. The fixed fee may provide an incentive for the consultant to finish early and leave money on the table that could be used on that contract for other tasks related to the project, or the left-over money could be de-committed and used to fund another contract. There is no risk of paying more profit than the fixed fee. With the consultant submitting detailed billings, the TxDOT project manager can monitor actual hours which can be useful for estimating future projects. The TxDOT PM can also see who’s actually doing the work which may or may not be of interest, depending on what expertise the consultant proposed and promised during selection and negotiations. It also offers flexibility to the consultant for changes in hourly rates within the negotiated ranges.


I could tell you the answer now, but we

still have three months budgeted to the

project.


Specified Rate

Similar to cost plus fixed fee, all rates are negotiated at the contract stage. Locking the rates in the contract is a means of controlling the cost.



Negotiated Rates



Specified Rate

Lump Sum

Unit Cost


Negotiated Rates

Unit Cost

Ending Rates

Unit Cost

X(Base) X X

Specified Rate Schedule – Attachment EThe negotiated rate information is included in the contract in a rate schedule as part of Attachment E. The rate schedule format, inserted below, for specified rate and lump sum payment types are the same. Characteristics unique to lump sum will be identified in the next section. The rate schedule templates and guidance are located on the DES-CCO web site. The format for surveying is slightly different than for engineering.


The example rate schedules for surveying are shown below.





Surveying – Contract RatesFor surveying, the labor, overhead, and profit come rolled into one rate. The individual components of the loaded rate cannot be evaluated separately. It is important to identify during negotiations what the rates do or don’t include. If the cost for mileage, for example, is not provided for as an other direct expense, then it’s expected the rates would be slightly higher than if the contract did provide for mileage separately.

The rates should be negotiated based on knowledge of the industry. The specified (loaded) rate for each category will be reimbursed for the actual hours charged to the categories. It doesn’t matter whether the actual cost the provider incurred is more or less. Timesheets are required as proof of hours worked.



The example rate schedules for engineering are shown below.



Engineering - Contract RatesSpecified rates for engineering also include labor, overhead, and profit, but the individual components are first evaluated and negotiated individually and then combined to calculate the loaded contract rates. After the contract rates are calculated and established in the contract, the individual components are not addressed again. Only the contract rates should be used or referred to. The specified (loaded) rate, referred to as the contract rate, for each category will be reimbursed for the actual hours charged to the categories. It doesn’t matter whether the actual rates are more or less. The consultant has the opportunity to make money or lose money for every hour charged, depending on the actual rate of the person charging to the project. Timesheets are required as proof of hours worked.

Engineering - Labor Rates



For specified rate, the labor is addressed by negotiating a base rate that should closely represent the actual salary rate of individuals expected to charge to the category. The rate schedule template provides a place for a base rate for each staffing category.

The base rates by category should be negotiated based on the staffing and salary data furnished by the provider, assumptions and expectations of the individual categories, and knowledge of rates within the industry.

Applicable Time Periods (Specified Rates) If more than one series of contract rates is included, the fiscal or calendar year to which they apply should be clearly indicated. The last series cannot be outside the termination date of the contract.

Multiple years can be shown to account for escalation. Escalation rates were discussed previously as a single number, for explanation purposes. If rates for multiple years are shown, each category does not have to increase by the same amount. Escalation is not a separate number that will be shown on the rate schedule. The same or different escalation rates are built into the hourly rates identified on the rate schedule.


For specified rate payment type (not lump sum), the contract rates billed should correspond to the fiscal year in which the hours were worked. If billable work continues beyond the last year for which there are negotiated rates, the contract rates for the last fiscal year shown will apply to all later years.

Engineering - Overhead RateThe rate schedule template also provides a place for the negotiated overhead rate. Depending on the results of the evaluation of the overhead rate, it’s possible the rate in the contract will be the actual audited rate or it may be a negotiated lower rate. The rate in the contract should never be higher than the audited rate provided by the TxDOT Audit Office. Show the overhead rate using five digits. The overhead rate will be multiplied by the negotiated base rate for each category, with profit, to establish the loaded contract rates.

Engineering - Profit RateThe rate schedule also provides a place for the profit rate. As discussed previously, the profit rate will be based on project characteristics and will not exceed 15 percent. This rate will be multiplied by the base labor rate and overhead to establish the loaded contract rates. As a result, profit is loaded into each hourly rate rather than identified and tracked separately.

Calculating the Contract (loaded) Rate



The contract rate is calculated by multiplying the base (labor) rate by one plus the overhead rate and multiplying that by one plus the profit rate.

($Base Rate per hour) * (1+Overhead Rate) * (1+Profit Rate) = $Contract Rate

Example using the following numbers:

Base Rate = $35 per hourOverhead Rate = 165.00% (1.6500)Profit Rate = 12% (0.12)

($35) X (1+1.6500) X (1+0.12) = $103.88 per hour

In this example, what is typically referred to as the multiplier, is made up of the highlighted portion of the equation. In this case, the multiplier is 2.9680. The multiplier multiplied by any base rate will equal the contract rate.

($35) X (1+1.6500) X (1+0.12) = $103.88 per hour

Other Direct ExpensesAs discussed previously, for surveying and engineering, refer to the specific guidance on other direct expenses to correctly identify categories and the negotiated maximum or fixed rates. Other direct expenses are handled exactly the same as with cost plus fixed fee.

Calculating Maximum Amount Not to Exceed With contract rates negotiated, the information required to calculate the maximum amount not to exceed is the negotiated level of effort (hours) per category and quantities of other direct expenses. This will be based directly on the detailed scope of work and deliverables. The maximum amount not to exceed will be calculated at the contract level for specific deliverable contracts and at the work authorization level for indefinite deliverable contracts.


Expenses


Specified Rate

Lump Sum


Contract Unit Costs

Rates

Contract Rates

Project Scope



QuantitiesX

The rates come directly from the contract. There should be no reference in any calculation of overhead or profit.



Prime Provider Staffing Categories Specified (Contract) Rates by Category ($)


Scope of Work


Function Codes

Total Labor ($) Other Directs Unit Costs Travel $/unit Other Directs + OD Cost ($) Per diem $/unit + Sub A ($) Other Items $/unit + Sub B ($) Maximum Amount


Cost ($)

Maximum NTEMaximum NTE

Maximizing ProfitWith specified rate, profit is included in every hourly rate. Depending on the actual rate of the individual charging, the actual profit rate for each hour may be more or less than the negotiated profit rate. Unless the consultant PM is losing money because of very high actual salary rates, they will maximize profit by charging every hour and dollar on the project. Although the profit rate was negotiated in the contract, the profit for the project is not fixed.

By using cheaper staff than the rates were negotiated to cover, the consultant PM can significantly increase the profit on the project, if no major problems occur.

Specified Rate InvoiceThe typical specified rate invoice should include the following:

● Detailed Progress Report● Table Identifying Staff, Hours, and Contract Rates● Timesheets● OH Cost Per Contract Rate● Partial Fixed Fee● Other Direct Expenses - With Back-Up● Subprovider Invoices In Similar Format● H-Forms

Categories and rates should be verified against the contract. Contract rate schedules and fee schedules that are thoroughly and accurately labeled



with understandable column headings and clear instructions, will make invoice preparation and review significantly easier.

Considerations for Selecting Specified RateDepending on the consultant and type of work, such as survey, cost plus fixed fee may not be an option. For engineering scopes of work that are less predictable, specified rate may be preferable if there are reasons for not using CPFF. It could be better than cost plus fixed fee in cases where the hours are uncertain and the work may be completed in significantly less time. With specified rate, the guaranteed fixed fee of CPFF, is not at risk. For the same reason, it’s better than lump sum. Adequate controls would be necessary, however, to reduce the risk of the consultant burning all the hours. Similar to CPFF, with the consultant submitting detailed billings, the TxDOT project manager can monitor actual hours which can be useful for estimating future projects. The TxDOT PM can also see who’s actually doing the work which may or may not be of interest, depending on what expertise the consultant proposed and promised during selection and negotiations.

Lump Sum

Several things should be considered when deciding whether or not to use lump sum. Lump sum requires a predictable, well-defined scope. The project manager doing the negotiation should be knowledgeable in the full scope of work and should be confident about the level of effort required to perform the work, because the entire lump sum is a fixed amount that is guaranteed to the consultant in return for completing the scope of work. There is a risk of paying more than what is necessary for the identified work. This risk should be within reasonable limits in order to pursue the use of a lump sum agreement. Once the agreement is executed, TxDOT is committed to paying the total amount. The actual hours worked or cost incurred by the consultant is irrelevant.

For lump sum, the rate schedule development process is identical to specified rate. The same template is used.




Module 3 – Contract Development and NegotiationsNegotiated Rates



Specified Rate

Lump Sum

Unit Cost


Negotiated Rates

Unit Cost

Ending Rates

Unit Cost

X(Base) X X

Lump Sum Rate Schedule – Attachment ESee the description above for specified rate.

Other Direct ExpensesAs discussed previously, for surveying and engineering, refer to the specific guidance on other direct expenses to correctly identify categories and the negotiated maximum or fixed rates. For indefinite deliverable contracts using lump sum, other direct expenses are handled exactly the same as with cost plus fixed fee at the contract level. For specific deliverable contracts, where the maximum amount not to exceed is negotiated at the contract level, fixed rates should be identified for all other direct expenses items. The fixed rates will be used to calculate the total lump sum cost. A maximum rate will never be referenced.

Calculating Maximum Amount Not to Exceed With contract rates negotiated, the information required to calculate the maximum amount not to exceed is the negotiated level of effort (hours) per category and quantities of other direct expenses. This will be based directly on the detailed scope of work and deliverables.


Expenses


Specified Rate

Lump Sum


Contract Unit Costs

Rates

Contract Rates

Project Scope



QuantitiesX

The rates come directly from the contract. There should be no reference in any calculation of overhead or profit.

The maximum amount not to exceed equals the lump sum guaranteed to be paid in return for completing the scope of services.



Maximizing ProfitA consultant can maximize their actual profit by minimizing the actual cost incurred to do the work. Reasonable options include using cheaper labor than what was included in the cost proposal; taking advantage of any efficiencies in order to maximize the pace and reduce the number of hours required; not spending time or resources on anything that’s not specifically identified in the scope of services; and using other payment methods for their subcontracts.

Table of Deliverables - How the Consultant is PaidHow the consultant is paid is significantly different for lump sum from cost plus fixed fee or specified rate. Those payment types are based on hours worked. Lump sum is based on actual hours completed. Granted, the actual invoicing process is easier because the detailed back-up required for other payment types is not required for lump sum. But the consultant doesn’t just send an invoice for some portion of the lump sum amount and get paid without giving TxDOT something first. The table of deliverables identified what must be completed and the corresponding value for payment.

The scope of work must have very specific tasks and deliverables identified. Well-defined tasks and deliverables are important for any payment type, but they are essential elements for a lump sum agreement.

The cost breakdown for calculating the maximum amount should line up very specifically with the scope tasks. The combination of scope and detailed budget should provide for the development of a table of deliverables. Each deliverable, with a corresponding dollar value, when added up equals the total maximum amount not to exceed for the H. Understanding Payment Types 91


agreement. Each deliverable description should be distinguishable from another. In other words, multiple deliverables cannot be called the same thing.

See examples in the Resource Notebook.

Upon acceptable completion of each deliverable, the consultant will be paid the corresponding value identified in the table of deliverables. It’s a “pay as you get” process. The consultant simply estimating the amount completed is not acceptable.

For most consultants, the frequency of payment is very important. The TxDOT and consultant PMs should work in coordination to identify an adequate number of interim deliverables at various points to provide for a reasonable frequency of payment. Dates can be included, but they are not required. The table is not intended to be used as the project schedule. All deliverables are not expected to be useable, final work products. They simply need to provide acceptable evidence that actual progress completed corresponds to the percentage of financial payout requested.

Depending on the timing and frequency of deliverables, invoicing may not be exactly monthly. This should be taken into consideration when incorporating invoice requirements into the scope of work. Cutting and pasting from another project scope with a different payment type may not work.

Lump Sum InvoiceThe typical lump sum invoice should include the following:

● Detailed Progress Report● Indication Of Work Completed As Defined In The Table of

Deliverables And Approved By TxDOT● Amount Invoiced That Corresponds To Work

Completed/Submitted/Approved● H-Forms

What Fiscal Year Will the Lump Sum Payment Hit?It is not unusual for work on a lump sum contract or work authorization to continue from one fiscal year to the next. The invoices, however, are not tied to time periods that work was done. The invoice and payment on a lump sum agreement applies to the fiscal year that the deliverable being paid for was submitted. A deliverable submitted in September (FY 09) will be paid for out of the FY 09 budget. This may raise an unnecessary question, because someone might try to consider that most of the work was done in FY 08. For lump sum, when the work done is irrelevant. For lump sum, it is all about the actual work produced.

Considerations for Selecting Lump Sum



It’s important to have a predictable scope of work. Although less of an administrative burden, the attractiveness of easier invoicing should not be the only consideration. Lump sum can maximize the efficiency of the consultant and it reduces the risk of paying for something that you didn’t get.

Unit Cost

Similar to the other payment types, all rates are negotiated at the contract stage. Locking the rates in the contract is a means of controlling the cost.

Negotiated Rates



Specified Rate

Lump Sum

Unit Cost


Negotiated Rates

Unit Cost

Ending Rates

Unit Cost

X(Base) X X

Unit costs should not be confused with other direct expenses. Other direct expenses are non-labor costs. A unit cost, as defined by the TxDOT contract, includes all direct (labor and non-labor) and indirect costs plus profit. If a few unit costs are anticipated as part of a CPFF, specified rate, or lump sum agreement, the unit cost items and associated unit costs should be labeled as unit costs and not rolled in with other direct expenses.

Unit Cost Rate Schedule – Attachment EThe negotiated rate information is included in the contract in a rate schedule as part of Attachment E. The rate schedule format, inserted below, for unit cost is different from other payment types. The rate schedule templates and guidance are located on the DES-CCO web site. The typical format is for materials testing/engineering, but unit costs can also be developed for other repetitive engineering tasks and identified using a unit cost format.


The example rate schedules for materials engineering are shown below.





Materials Engineering – Unit CostsFor materials engineering, the labor, overhead, and profit come rolled into one rate. The individual components of the unit cost cannot be evaluated separately. It is important to identify during negotiations what the unit costs do or don’t include. The activity associated with each unit cost should be clearly defined in the scope of work. Be specific to reduce the risk of the consultant cutting corners.

The rates should be negotiated based on knowledge of the industry. The unit cost for each category will be reimbursed for each unit completed. It doesn’t matter whether the actual cost the provider incurred is more or less. Work logs are required as back-up.



It’s also possible that certain activities will require staff time that will be billed hourly. Typically, this is shown in a specified rate format.

Applicable Time Periods (Unit Costs) If more than one series of unit costs is included, the fiscal or calendar year to which they apply should be clearly indicated. The last series cannot be outside the termination date of the contract.

Multiple years can be shown to account for escalation. Escalation rates were discussed previously as a single number, for explanation purposes. If rates for multiple years are shown, each category does not have to increase by the same amount. Escalation is not a separate number that will be shown on the rate schedule. The same or different escalation rates are built into the unit costs identified on the rate schedule.


For unit cost payment type, the unit costs billed should correspond to the fiscal year in which the work was done. If billable work continues beyond the last year for which there are negotiated rates, the unit costs for the last fiscal year shown will apply to all later years.

Engineering – Other Repetitive TasksThe development and use of unit costs for other repetitive tasks can save administrative time and effort. The description and deliverable requirements for the unit of work should be clearly defined in the scope of work. The development of the unit cost should also be clearly shown that includes the negotiation of specified rates, as described above. The level of effort to accomplish the unit of work should also be negotiated. The negotiated rates and hours are combined to represent the unit cost for the identified activity.

The development of the unit cost only needs to be shown one time. It’s not necessary to repeat it in a work authorization.

Other Direct ExpensesAs discussed previously, refer to the specific guidance on other direct expenses to correctly identify categories and the negotiated maximum or fixed rates. Other direct expenses are handled exactly the same as with cost plus fixed fee.

Calculating Maximum Amount Not to Exceed With unit costs negotiated, the information required to calculate the maximum amount not to exceed is the negotiated number of units and quantities of other direct expenses. This will be based directly on the detailed scope of work and deliverables.




Expenses


Specified Rate

Lump Sum


Contract Unit Costs

Rates

Contract Rates

Project Scope



QuantitiesX

The rates come directly from the contract. There should be no reference in any calculation of overhead or profit. The maximum amount not to exceed will be calculated at the contract level for specific deliverable contracts and at the work authorization level for indefinite deliverable contracts.

Maximizing ProfitWith unit cost, profit is included in every unit cost. A consultant can maximize their actual profit by minimizing the actual cost incurred to do the work. Depending on the actual costs incurred, the profit rate will vary by task. Reasonable options include using cheaper staff than the rates were negotiated to cover; taking advantage of any efficiencies in order to maximize the pace and reduce the number of hours required; not spending time or resources on anything that’s not specifically identified in the scope of services; and using other payment methods for their subcontracts Unless the consultant PM is losing money because of very high actual costs, they will maximize profit by charging for more units of work.

Unit Cost InvoiceThe typical unit cost invoice should include the following:

● Detailed Progress Report● Table Identifying Unit Costs and Units Completed● Work logs documenting work completed● Other Direct Expenses - With Back-Up● Subprovider Invoices In Similar Format● H-Forms

Categories and rates should be verified against the contract. Contract rate schedules and fee schedules that are thoroughly and accurately labeled with understandable column headings and clear instructions will make invoice preparation and review significantly easier.



Considerations for Selecting Unit CostDepending on the consultant and type of work, other payment types may not be an option. It eliminates the risk of paying for incomplete work and reduces contract administration burden.

Basis of Payment Summary

The table below summarizes the basic differences among the four payment types.

Payment Type Basis

Cost Plus Fixed FeeActual

Plus OH & Profit

Specified Rate Specified (Loaded)

Lump Sum

Unit Cost ActualUnit Unit Cost Actual

QuantitiesFixed or Actual

(*) Requires a table of deliverables that defines each deliverable and the corresponding percentage or dollar amount that the deliverable represents.

Labor/OH/Profit Other Direct Expenses

Progress

Performance

ActualHours

ActualQuantities

Fixed or Actual

Interim/Final Deliverables (*)

Based on the general categories of work outsourced, the following table summarizes the typical payments associated with each area.

Typical Payment Type SelectionTypical Payment Type Selection

EngineeringAdvanced PlanningSchematic DesignPS&EConstruction PhaseRepetitive Tasks

Surveying

Materials Testing

Geotechnical Services

Bridge Inspection

Architecture

CPFF SpecRate

Unit Cost Lump Sum

XXXX

XXXX

XXX

X

X

XX

X

XXX

As for payment type distribution, the following table summarizes the percentage of contracts by payment type from 2002 and 2006 in addition to the associated dollar-value and the percent by payment type. Keep in mind that approximately 30 percent of the contracts are survey contracts which use either specified rate or lump sum. Also note that the percent of contracts for CPFF is 14 percent, but the percent by dollar-value is 19



percent. The larger projects with less predictable scopes are typically CPFF.

Payment Type DistributionPayment Type Distribution(2002(2002--2006 Contracts)2006 Contracts)

12%12%

12%12%

34%34%

28%28%

14%14%

VariousVarious

Unit CostUnit Cost

Specified RateSpecified Rate

Lump SumLump Sum

Cost Plus FFCost Plus FFPayment Type

Percent of Contracts

Dollar-Value ($Million)

Percent of Dollar-Value

32%32%

5%5%

20%20%

24%24%

19%19%

$609$609

$96$96

$389$389

$456$456

$374$374

Two to three hundred contracts are executed per year in addition to thousands of work authorizations. It’s important to remember that no two projects are the same and that no one payment type is best.





Module 4: Finalizing the Contract

Table of Contents

A. Agreement Preparation and ExecutionRM42. Basic Contract Development Process FlowchartRM43. Engineering/Architectural Contract Review Checklist

B. The Standard ContractRM44. Contract for Engineering Services – Indefinite Deliverable with

Work AuthorizationsRM55. Oops Memorandum

C. Signature AuthorityRM45. Signatures on Contracts and Other Contract Documents

Module 4 – Finalizing the Contract

Module 4:Finalizing the ContractA. Agreement Preparation and ExecutionB. The Standard ContractC. Signature Authority

Objectives:

● Map the agreement preparation process.

● Recognize common preparation issues.

● Learn how to interpret the provisions of the department’s standard engineering contract.

● Learn how a contract must be properly executed.

● Learn how to implement revisions to a partially executed contract.

1



2

A. Agreement Preparation and ExecutionObjectives: Map the agreement preparation process. Recognize common preparation issues.

Formulate a Plan

After the selection process is complete and the Consent to Negotiate form has been approved by the Administration, the Managing Office officially moves into the second phase of the process, Contract Development and Negotiation.

DES-CCO returns the approved Consent to Negotiate form to the Managing Office which serves as notice that the selected provider(s) can be contacted and the negotiation process initiated. The instructions also include the negotiation deadline which is the date by which the contract must be signed by the consultant. For one contract, the negotiation period is 30 working days. For multiple contracts, five days are automatically added per additional contract of $1 million or more and five days per two contracts less than $1 million each.

Refer to Module 2, Part B for specific reference to the Contracting Process Time Frames and where these are documented.

Prior to receiving the approved Consent to Negotiate, the TxDOT project manager should have a plan in place, a schedule for developing the contract within the required time-frame. The schedule should include time for the following steps:

● Developing the initial contract attachments including the scope, fee schedule, and project schedule (if specific deliverable) as the basis for negotiations;

● Negotiating the scope, fee schedule, and project schedule (if specific deliverable);

● Completing Attachment H forms;● Internal review and completion of the checklist before submitting

the contract to DES-CCO for review;● Addressing DES-CCO comments, as needed; and● Submitting the contract to the consultant for signature.

A flowchart has been developed to indicate the basic logistical steps for developing the contract from downloading the form through execution.

A. Agreement Preparation and Execution 3

Once the contract is signed by the consultant, the negotiation deadline has been met. The remaining steps before work can begin include:

● Submission of the signed contract to DES-CCO for final processing;

● Contract execution per signature authority;● Provision of one original to the consultant; and● Notice to proceed on the contract or initiation of the development

of the first work authorization.

Each step of the process takes time and it’s the TxDOT project manager’s responsibility to plan ahead and manage the time throughout the process. This is the first opportunity for the TxDOT project manager to set the tone by managing the consultant through this process. The importance of following instructions and following an established time-line should be impressed upon the consultant.

There is no guarantee that the negotiations with the first selected provider will be successful. It is important that the TxDOT project manager maximize the utilization of the first 30 days so that if it becomes necessary to go the next qualified provider, minimal time has been lost from the point of notification to proceed with negotiations. The longer it takes and the more negotiation time extensions that are requested, the less TxDOT staff will be willing to cease negotiations and go to the next provider. It is important to keep the process moving, once the negotiation period has been initiated.

The Key to Meeting the Negotiation Deadline

The key to meeting the negotiation deadline is not waiting until the Consent to Negotiate is approved to start the process. The initial contract attachments including the scope, fee schedule, and project schedule (if specific deliverable) should be developed and ready to go upon receipt of the approved Consent to Negotiate and the assigned negotiation deadline. The TxDOT project manager should establish in advance the table formats and staffing categories that are expected to be used in the rate schedules and overall fee schedule. The TxDOT project manager should think through exactly what information will be provided to the consultant upon initiation of the process, for example:

● The contract form for reference, ● The draft scope, ● Applicable table formats, ● Key dates, and ● Any specific coordination and communication instructions and

requirements.


Also, identify what steps can be coordinated concurrently with the consultant. For example, during the time when negotiation information is being exchanged on the scope and fee schedule, the Attachment H forms can many times be addressed on a separate track in addition to the required insurance forms and child support statement.

If it anticipated that the negotiation deadline will not be met, allow adequate time to prepare and submit the extension request according to the requirements, prior to the deadline. Submitting the request the day before the deadline, for example, does not allow adequate time to process and obtain the necessary signature for approval. Plan ahead.

Preparing the Agreement

GSD-CSS maintains the standard contract forms for engineering, surveying, and architectural contracts. It is important to always download the latest contract form directly from the GSD-CSS web site to ensure the most up-to-date form is being used. DES-CCO has developed Contract Review Checklists for each type of contract, such as engineering and surveying.

This is the same list that DES-CCO uses to review the contract upon submittal. It is recommended that the current Contract Review Checklist be referenced at the very beginning to ensure that the information going into the contract at each step is correct.

Note that any request by the provider to change text on the standard contract template must be approved by GSD-CSS.

Negotiation Limit

The negotiation process will typically include multiple iterations of information exchanges. As the process progresses, portions of the document will be sent back and forth between TxDOT and the provider containing offers, counter offers, and other requests for changes or clarification. For planning purposes, the TxDOT project manager should determine internally in advance, how long they are willing to let the process last and at what point they will be prepared to stop and move forward, or stop and go to the next most qualified provider.

Draft Contract Review

Upon completion of negotiations, the managing office assembles the document, incorporating all the necessary attachments. Prior to submission to DES-CCO for review, the managing office completes a quality control review to ensure that the contract is complete and correct. The unsigned contract, along with the completed Contract Review Checklist is then submitted to DES-CCO for review. The DES-


CCO website has checklists for Engineering/Architectural contracts, Survey contracts; and Materials Engineering (formerly Commercial Laboratory) contracts.

The submittal can be a hard copy or e-mailed electronically since the first submittal is unsigned. If submitted electronically, a single .pdf file of the entire agreement is recommended. Do not submit multiple files that have to be printed out and assembled by DES-CCO for review, because there is always a chance that all the parts will not be received, printed, or assembled correctly.

DES-CCO will review the contract and coordinate with managing office staff to get any comments addressed. If comments result in changes by either TxDOT or the consultant, the managing office should review the revisions to ensure the comments were adequately addressed and changes are correct and complete before re-submission to DES-CCO. It is quite common that DES-CCO receives revised documents that were changed by the consultant, returned to the managing office, and sent directly to DES-CCO without any review by the managing office to see that the changes were correct and complete. Lack of internal review and quality control adds unnecessary steps and time to the review process.

Refer back to Module 2, Part B, under the section entitled “Consideration of Coordination Time Through DES-CCO” for additional information on planning adequate time for contract processing.

Contract Execution

Upon approval by DES-CCO, the managing office sends the final, fully assembled contract to the consultant for signature. If signature authority for the contract rests with the managing office, the managing officer (District Engineer, Division Director) executes the contract. If the signature authority is with the Design Division Director or within the Administration, the managing office submits the partially executed contract to DES-CCO for final processing and contract execution.

For contracts that require execution by a member of the administration, it should be anticipated that some additional time will be required. TxDOT policy requires review by GSD-CSS of any contract or work authorization that will be signed by a member of the administration. DES-CCO will coordinate directly with GSD-CSS for this review, but adequate time should be allowed for if the timing of execution is critical.



B. The Standard Contract(Indefinite Deliverable Engineering Contract)

Objective: Learn how to interpret the provisions of the department’s

standard engineering contract.

Controlling the Work

A contract must define the work that will be done, including establishing acceptable quality standards. The work itself is defined in Attachment B, Services To Be Provided by the State, and Attachment C, Services To Be Provided by the Engineer.

The standard contract sets quality levels in several ways. For one thing, it requires all work to meet the minimum professional requirements expected of all Texas engineers (or Texas land surveyors, in the case of a survey contract).

The standard contract also requires that work be free of negligent acts, errors, and omissions. Note that while this provision covers negligent acts, it covers all errors and omissions, whether or not we can show that they were caused by negligence. We pay top dollar to hire the most qualified engineers, and we are entitled to a work product that does not contain errors or omissions that cost us money.

To monitor these requirements, the standard contract provides TxDOT with the ability to require progress meetings, conferences, inspections, and audits of various kinds. Reports must first be submitted in preliminary form, and any comments from TxDOT must be addressed in the final version.

Quality is enforced through several mechanisms. While we will pay for the modification of work that was accepted as satisfactory, we will not pay for the correction of unsatisfactory work. Errors and omissions must be corrected at no cost to the State. Even more, the department is indemnified for costs incurred, including

B. The Standard Contract 7


construction costs, as a result of the engineer’s negligence or of errors or omissions. This means that if an error or omission costs us money, either because we become legally liable for damages or because it increases our costs, the consultant must pay us an amount sufficient to make good our losses.

All engineering work must be sealed as required by the Board of Professional Engineers (or the Texas Board of Professional Land Surveying, in the case of surveyors). Engineering work that requires revisions may be corrected and resealed as permitted by the Board of Professional Engineer; and you may contact for DES-CCO for details of how that may best be accomplished. A written description of the process is on the DES-CCO website under “Management & Administration,” “Reference Material.” Surveying work may never be resealed by a different surveyor; if a change needs to be made and the original surveyor is unavailable, the work must be redone.

Contracts and contract documents must be retained for four years from the date of final payment under the contract. This is because the statute of limitations ordains that a lawsuit under a contract may be filed within four years of the breach, and retaining the documents ensures that we will have access to any necessary evidence.

Graphics files must meet the department’s standards. Particular standards may be specified in Attachment G.

Controlling the Cost

The standard engineering contract contains a number of provisions designed to ensure that the cost of work is reasonable and appropriate.

First and foremost, the contract specifies a maximum amount payable that is absolute

and can never be exceeded unless the contract is amended with a supplemental agreement. Please note that this is the maximum amount payable under the contract, but that the consultant has no right

to receive the maximum amount. Actual payments under the contract may be

significantly less than the maximum amount that may be paid.

The details of payment are governed by Attachment E, the fee schedule. Attachment E also governs the reimbursement of costs. To be eligible for reimbursement, a direct cost must be found both B. The Standard Contract 8


in the contract fee schedule and in the work authorization fee schedule. If it is missing from either, the cost cannot be reimbursed.

Satisfactory progress on the work to be performed is a “condition” of the department’s obligation to pay. A “condition,” as mentioned in the Contract Law segment of this training, is a legal term for a provision whose breach justifies the other party in not performing. Thus, the consultant’s failure to perform its work satisfactorily justifies the department’s failure to perform on its obligation to pay for work.

Billing statements are submitted no more frequently than monthly; although a billing statement is not required every month. The billing statement must be submitted within ninety days after the events giving rise to the statement. This, however, is not a condition of our obligation to pay. Therefore, we must pay a billing statement that is submitted late, although we may be able to subtract any additional costs we incur because of the lateness. A billing statement must contain sufficient detail to allow the department to verify that the billing statements are correct.

The department reserves the right to withhold payment if there is a dispute, if reports have not been submitted as required, or if there is a failure to comply with legal requirements. With each billing statement, the consultant must submit a report showing the percent of the work that was completed during the billing statement and the percent of the work that has been completed overall to date. The work may be more or less complete than the percentage of payments that have been made. If the disparity is significant, however, it may be a warning sign that further inquiry is justified and remedial steps may be necessary to get the project back on course. On the other hand, except with lump sum contracts, it would be a rare and suspicious phenomenon if the percent of work completed exactly matched the percent of payment made. Too exact a correspondence suggests that the figure given for the percent of work completed has been based on the financial calculation rather than an actual review of physical work.

To be eligible for reimbursement, a cost must comply with federal acquisition regulations, be consistent with the contract, and be identified in a work authorization. Provisional overhead rates must also be identified in the contract for the cost plus fixed fee payment method.

Controlling Work Authorizations

A work authorization is a creature of the contract. It is not itself an independent contract, and it has no independent existence or B. The Standard Contract 9


meaning outside the terms of the contract. Therefore, it must comply in every respect with the contract. It must be signed by both parties, it most be in the form dictated in Attachment D of the contract, and it must contain the information identified in the contract.

A contract is not an agreement to agree because a work authorization is not a new agreement, but is rather an outgrowth of the original contract. The crucial terms of a work authorization come straight from the contract, including the type of work to be performed, performance standards, and fees. The major item left to negotiate is the level of effort. When it signs a contract, a consultant agrees to accept work authorizations and to execute them within 7 days. If it fails to do so, it has violated the contract and may be terminated.

Most importantly, a work authorization may never be inconsistent with any aspect of the contract. If it is, the work authorization is invalid. For this reason, a work authorization can never be used to change a contract; this is the function of a supplemental agreement. Thus, if a contract is allowed to expire, all its work authorizations expire at the same time, even if they have later expiration dates.

A work authorization is the exclusive way the department authorizes work in a professional services contract. All work must be authorized by an executed work authorization. Thus, work performed before a work authorization is executed, after a work authorization expires, or outside the scope of a work authorization is not authorized and no payment can be made for that work. On the other hand, because the purpose of a work authorization is to authorize work, it should not generally contain a notice to proceed or any other document authorizing the work that was already authorized by the work authorization.

The standard contract terms do not allow payment based on oral work directions without a written work authorization, nor do they allow work to be begun without a work authorization and ratified later. If work needs to be done outside the work authorization’s scope, a supplemental work authorization is required. Similarly, a supplemental work authorization is required to extend the termination date of a work authorization. There is really no excuse for work done without a work authorization or outside the scope of a work authorization, since the contract allows an emergency work authorization that can be created rapidly and accepted with faxed signatures.



Work authorizations must be definite in scope. Thus, they must include a full description of the work and a work schedule, as well as a fee schedule and a maximum amount payable.

The standard indefinite deliverable contract does not guarantee that a work authorization will be issued and an engineer will be given work. Although it is rare, there have been occasions under the department’s indefinite deliverable contracts in which a contract has been executed, but no work authorizations have been issued under it. In general, the decisions whether to issue a work authorization, to whom to issue a work authorization, and whether to extend or modify a work authorization are in the department’s discretion.

A work authorization may be suspended by the department at any time with only oral notice and a written follow-up. In engineering contracts, a thirty-day window is permitted to allow ongoing work to be wrapped up. In survey contracts, the work authorization may be suspended immediately. Suspension of a work authorization does not delay or affect the termination date of the work authorization or the contract, however. If the contract or the work authorization terminates before the work authorization is reinstated, the work authorization is dead.

Proposal work authorizations are a way of allowing competition in deciding to whom a work authorization should be issued. The competition, however, must be based on qualifications and design ideas, and not on price.

Controlling the Contract

Some terms of the contract are designed to allow TxDOT to maintain control over the contracting process. The most obvious of these is probably the signature block, which requires authorized signatures. The signature warranty means that any person signing without authority is personally liable for fraud.

At the very beginning, the parties are identified and shortened forms are defined to ensure there can be no B. The Standard Contract 11


ambiguity about who is bound by the contract. The name of the consultant must be either its formal legal name or an assumed name (generally called a DBA for “doing business as”) that is registered with the Comptroller of Public Accounts. The shortened forms of names must be used rigorously throughout the contract and all other contract documents, including scopes of work, fee schedules, work schedules, supplemental agreements, work authorizations, and supplemental work authorizations. Thus, the Texas Department of Transportation is always referred to as the “State”—not the department, the agency, TxDOT, the DOT, or any other permutation—just the State. The Engineer is always referred to as the “Engineer”—not its legal name, its assumed name, its nickname, its familiar name, or any other name—just the “Engineer.”

One often hears of a contract’s “intent,” but the intent of the parties is rarely relevant in construing a contract and can never be used to contradict the contract’s plain language. In the rare case in which intent may be relevant, a court will look first to the “Whereas” clauses for the definitive statement of the parties’ intent.

The contract period sets the contract’s duration. When the period expires, the contract no longer exists and thus cannot be supplemented. For this reason, an extension of time must be executed while the contract is still in force. A contract may only be amended through the execution of a supplemental agreement.

Each contract identifies someone to receive formal notices under the contract. This is not a “contact person” or someone to ask questions; it is the person who gets the letter terminating a contract or filing suit. Therefore, it is recommended that the identified notice person either be the primary signature authority for the type of contract or the entity responsibly for maintaining the department’s official file. It is likely that the forms will be changed in the near future to fill in this blank for most TxDOT contracts.

A contract may be terminated immediately by either party if the other party commits a significant violation of its terms. It may also be terminated by the department for any reason or for no reason with thirty days’ notice. In the event of a premature termination, the department will pay for work done up to the time of the termination.

If any provision of the contract is found to be illegal, the remainder of the contract is still valid. A contract supersedes all prior discussions, agreements, contracts, and negotiations on the same subject matter. This is why every significant term of an agreement must be incorporated in the contract. It is also why it can be very risky to have the same work performed under or continued under different contracts.B. The Standard Contract 12


Controlling the Consultant

As a general rule, if TxDOT pays for something, TxDOT owns it under the contract. This applies to physical equipment as well as intellectual property. The consultant is required to maintain the

confidentiality of TxDOT’s information.

Contracts are often awarded based on the identity of key personnel. Therefore, the consultant is required to notify the department if key personnel are

replaced. The department has the right to approve replacement

personnel.

The consultant must follow TxDOT’s standard policies. These include maintaining insurance, adhering to TxDOT’s rules on gifts to state employees, and avoiding conflicts of interest.

Following Legal Requirements

Some contract provisions are designed to ensure compliance with laws. The most obvious and explicit of these is the clause mandating that the consultant follow all laws. One may well ask why we need a contract provision of this kind, since a consultant has to follow laws whether the contract says so or not. The purpose of the clause is to ensure that TxDOT has the right to take action under the contract if a law is violated. It makes a violation of law into a breach of contract that would allow us to collect damages or terminate the contract.

Other provisions meet various federal or state requirements or ensure that those requirements are applied to subcontractors. While they are just as binding as the provisions considered above in more detail, they rarely generate disputes between TxDOT and a consultant.



The Oops Memorandum There are a variety of legal theories under which a consultant might try to hold TxDOT responsible for work that was done, even though no contract was in effect. First, a consultant may make a claim under the theory of quantum meruit or unjust enrichment, which provides that a party cannot refuse to pay for a benefit that it has voluntarily accepted from a vendor who had an expectation of payment. Second, a consultant may say that by acting as though a contract were in place, TxDOT has waived its right to object to payment. Third, a consultant may claim that the parties’ course of dealing created an implied contract. Finally, the consultant may argue that work was ordered by a person who had the apparent authority to bind the department.

If carried to an extreme, these principles would deprive TxDOT of the ability to control its contracts and would vest every employee with the ability to spend large sums of taxpayer money with no accountability. In rare cases, however, in which both parties acted in mistaken good faith and it appears that a valid legal claim might be made, TxDOT will pay for work done outside a contract.

The Oops memorandum gives instructions for this situation. Basically, an invoice should be submitted to the Finance Division with an accompanying memorandum. The memorandum must signed by the regional business director, district engineer, or division director (no delegations of this duty are permitted). The memorandum must explain the circumstances, state that the work was satisfactory, state that the work would have been reimbursed if had been performed during a valid contract, and most importantly, detail the management controls that have been put in place to ensure that this situation does not recur. A copy must also be provided to GSD-CSS. If this is done, the Finance Division will pay the invoice.

While anyone can make an individual mistake, the presence of multiple Oops memoranda is a strong indication of critical deficiencies in the way a region, district, or division is managing its contracts.



C. Signature AuthorityObjectives: Learn how a contract must be properly executed. Learn how to implement revisions to a partially executed

contract.

Signature Authority Delegations

Only the executive director has the inherent authority to sign contracts on behalf of TxDOT. In most cases, the executive director has delegated this authority to district engineers, division directors, and office directors. The department’s comprehensive list of signature authority delegations by the executive director is found on the GSD-CSS intranet site at http://crossroads/org/gsd/Contract%20Services/Signature%20Authority/default.htm.

Where permissible, district engineers, division directors, and office directors often delegate signature authority to employees in their organizational units. These delegations are also collected at the GSD-CSS intranet site.

For engineering, architecture, and surveying contracts, at the present time the executive director has delegated signature authority as follows:

Surveying Regional Business Director District Engineer Design Division Director

Consultant Engineering: Commercial Laboratory Materials Testing and Inspection

Regional Business Director District Engineer Design Division Director

Consultant Engineering and Architectural Contracts $5 million or less

Regional Business Director Design Division Director

Consultant Engineering and Architectural Contracts more than $5 million, but $20 million or less

Assistant Executive Director of Engineering Operations

Consultant Engineering and Architectural Contracts more than $20 million

Executive Director

C. Signature Authority 15


Consultant Engineering and Architectural Supplemental Agreements to a Contract that is $5 million or less


Consultant Engineering and Architectural Supplemental Agreements to a Contract that is more than $5 million, but $20 million or less


Consultant Engineering and Architectural Supplemental Agreements to a Contract that is more than $20 million

Executive Director

Consultant Engineering and Architectural Work Authorizations $1 million or less

Regional Business Director District Engineer Division Director

Consultant Engineering and Architectural Work Authorizations more than $1 million, but $5 million or less


Consultant Engineering and Architectural Work Authorizations more than $5 million, but $20 million or less


Consultant Engineering and Architectural Work Authorizations more than $20 million

Executive Director

Consultant Engineering and Architectural Supplemental Work Authorizations when the Work Authorization Total Cumulative Value Is $1 Million or less

Regional Business Director District Engineer Division Director

Consultant Engineering and Architectural Supplemental Work Authorizations when the Work Authorization Total Cumulative Value Is more than $1 Million, but $5 Million or less


Consultant Engineering and Architectural Supplemental Work Authorizations when the Work Authorization Total Cumulative Value Is more than $5 Million, but $20 Million or less


Consultant Engineering and Architectural Supplemental Work Authorizations when the Work Authorization Total Cumulative Value Is more than $20 Million

Executive Director

CCO-1, Request for Use of Provider Services

CCO-2, Request for Additional Funds/Work Category Changes

CCO-3, Request for Supplemental Funds

Regional Business Director Assistant Regional Director District Engineer Division Director (no delegation below Area Engineer)



The delegations of signature authority to Regional Business Directors were made in September 2009, when the regions first became active. The intention was to provide broad delegations of signature authority to allow all aspects of the department to continue to function during the transition to regional operations. The plan was to make a final revision of signature authority when standard operating plans for the regions were finalized. As of the date of the most recent revision to this manual, the standard operating plans were still under development.

Confirming Signature Authority

To confirm the signature authority for a document, go first to the Contract Services intranet site, which can be located through Crossroads and the link to the GSD site. Click on the link for “Delegation of Authority.”

This link will take you to a copy of the TxDOT organization chart.



To locate delegations of authority from the governor to TxDOT, click on the box for the governor. To locate delegations of authority from the executive director to TxDOT employees, click on the box for the executive director. To locate delegations of authority by regional business directors, district engineers, or division directors, click on the box for a particular organizational unit.

Signature Authority and Contract Formation

A contract is formed through offer and acceptance. An offer occurs when one party signs a contract and provides it to the other side for signature. The signature of the offeror represents its agreement to be bound if the other party accepts the offer; the signature of the offeree represents its acceptance of the offer and the formation of a contract. If the offeree makes any changes in the document proposed by the offeror, it is considered a rejection of the initial offer and a counteroffer. The counteroffer is accepted when the original offeror initials and dates the changes. Until that time, there is no contract, work cannot begin, and payments cannot be made.

In general, TxDOT insists on original handwritten signatures. Faxed signatures may be accepted if the original is mailed at the same time and arrives later. Digital signatures are regulated by the Department of Information Resources and must meet stringent technical specifications.



A .pdf is not a digital or electronic signature. Moreover, it is extremely dangerous. A novice can easily copy a signature from one .pdf file and insert it into another. As a result, a .pdf signature is worthless legally to prove the identity of the signing party. Moreover, a handwriting expert cannot analyze a .pdf or photocopy of a signature. For the same reason, TxDOT does not accept signature stamps. Because the signatory warranty in the contract protects TxDOT and for practical reasons, TxDOT does not inquire into the internal signature authority of the other party.

Because so many signatures are illegible, it is vitally important that the name and the position of the signing person be printed below the signature, either on the original contract or on a label affixed to the original contract. Similarly, because a contract is entered on the date it was signed by the last necessary signature authority, it is crucial that each signature be associated with a date. Otherwise, it is impossible to prove when a contract became effective or when new work authorizations can no longer be issued.

Revisions

As explained above, a contract comes into existence only when an offer has been accepted unconditionally. If the second party signs a contract but makes changes in it, there is no legal contact at that point. Rather, the second party has made a counteroffer that must now be accepted by the first party. Traditionally, the counteroffer is reflected in a contract signed by both parties, with handwritten changes initialed and dated by the two parties. If the first party initials and dates the changes without further modification, it accepts the counteroffer.

As with the signature on a contract, initials must be accompanied by the date so we will know when a contract went into effect. If the initialer is not the same as the person who signed the contract, the initialer’s full name and position should be spelled out so the initialer can be identified later.

Sometimes, this mechanism seems like a tempting way to avoid the hassle of reprinting a contract and getting it resigned. The temptation probably results from not thinking things through. In general, in these days of computers and laser printers, it is just as easy to reprint the page as to hand-write changes on a printed



document. A cleanly printed contract not only looks more professional, it poses fewer risks because there is less risk of confusion from poor handwriting or deliberate tampering.

Thus, while handwritten changes are generally legally sufficient, they pose some special dangers and should be used very sparingly. For example, handwritten changes in dollar amounts are strongly discouraged under almost any circumstances. Handwritten numbers are just too easy for someone to change. The more important a provision is, the less it should be incorporated in a handwritten change. Handwritten changes must never be made to other handwritten changes; it would be impossible to determine whether changes had been made after other changes were initialed. And it is vitally important that any handwritten change is duplicated precisely on the duplicate of the contract, so both copies read precisely the same.

TxDOT allows some minor and nonsubstantive technical changes to be made in a contract without initials. The contract number is a TxDOT number and is entirely under our control. Therefore, we may change it without the agreement of the other party. (Doing so, however, may complicate the process of tracking the contract, its work authorizations, and payments made under it.) Minor typographical errors and misspellings may also be corrected.

Additional information regarding signatures on contracts is available in the Resource Materials notebook. The signature information is applicable to supplemental agreements, work authorizations, and supplemental work authorizations.


Module 5: Project Management and Contract AdministrationTable of Contents

A. Project Management and Contract AdministrationRM1. Roles and Responsibilities TableRM45. Signatures on Contracts and Other Contract DocumentsRM46. Example Contract Filing SystemRM47. Progress Reports and Project ManagementRM48. Work Authorization Development Process for Indefinite

Deliverable Contracts (Managing Office Signature Authority) FlowchartWork Authorization Development Process for Indefinite Deliverable Contracts (Design Division or Administration

Signature Authority) FlowchartIndefinite Deliverable Work Authorization ChecklistProcedure for Submitting the Required Nepotism Form for Work

Authorization and Nepotism FormsRM49. Contract Language Concerning Payment Approval – NOT

APPLICABLERM50. Example Tables – Projected versus Actual InvoicesRM51. Funding Source: Examples – Segment 76 Project Funding &

Expenditure Summary – NOT APPLICABLERM52. Segment 76 Review: Examples – Segment 76 Project Ledger -

NOT APPLICABLERM53. Supplemental Agreement Process Description for Engineering

and Architecture ContractsRM54. Professional Services Contract Close Out ChecklistRM55. Supplemental AgreementRM58. CCO-15 TxDOT Prime Provider Evaluation form

Guidance and Instructions for Direct Entry into CCISB. Writing Supplemental Agreements

RM55. Supplemental AgreementContract for Engineering Services – Name ChangeContract for Engineering Services – AssignmentOops Memorandum

C. Appropriate Use of Contracts, Work Authorizations and Supplemental AgreementsRM56. Specific Deliverable Contract Development – General GuidanceRM57. Example Work Authorization for Discussion - NOT

APPLICABLED. Delegation of ResponsibilityE. Prime Provider Evaluations

RM58. CCO-15 TxDOT Prime Provider Evaluation formGuidance and Instructions for Direct Entry into CCIS

Module 5 – Project Management and Contract Administration

Module 5:Project Management and Contract AdministrationA. Project Management and Contract AdministrationB. Writing Supplemental AgreementsC. Appropriate Use of Contracts, Work Authorizations, and

Supplemental AgreementsD. Delegation of ResponsibilityE. Prime Provider Evaluations

Objectives:

● Identify the reasons for having a designated project manager.

●● Identify the basic responsibilities

of a project manager. ● Identify basic responsibilities and

support functions of a contract administrator.

● Locate and use the roles and responsibilities table as a resource.

● Learn how to draft a clear, legally binding supplemental agreement.

● Identify the differences and what’s expected in specific deliverable contracts for traditional, traditional multi-phase, or non-traditional multi-phase projects.

● Distinguish between acceptable and unacceptable use of indefinite deliverable work authorizations.

● Distinguish between acceptable and unacceptable use of supplemental agreements.

● Recognize your responsibilities in implementing the TxDOT contracting program.

● Explain when evaluations are to be conducted.

● Differentiate between a management tool and a selection tool.

1



A. Project Management and Contract Administration

Objectives: Identify the reasons for having a designated project

manager. Identify the basic responsibilities of a project manager. Identify basic responsibilities and support functions of a

contract administrator. Locate and use the roles and responsibilities table as a

resource.

TxDOT enters into a contract for a purpose. TxDOT employees tasked with project management responsibilities must understand that contracts don’t manage themselves, even with the best consultants. TxDOT project managers (PMs) play a major role in the successful management and delivery of the many projects and assignments that are outsourced. The PM has responsibilities during the selection process as well as in negotiating the contract, but the ultimate success of the endeavor is a result of the actions that follow the execution of the contract.

TxDOT PMs typically wear many hats and have a wide range of responsibilities that demand their time. It’s important that a PM know and understand the basic responsibilities that come with a contract. A PM should schedule time to manage as they would set aside time for any other commitment. Identify what needs to be done, schedule time to do it, and follow through. (Easy to say, but not always easy to do.)

A. Project Management and Contract Administration 3


Have Contract Have Contract –– Will ManageWill Manage

Where Do You Start?Refer to the Roles and Responsibilities Table for an outline of tasks and responsibilities through the management and administration of the contract.

FIMS Segment 41 – Set up Record for Payment

The Contract Administrator or accounting staff should set up the record for payment in FIMS Segment 41 upon execution of the contract. Payments cannot be processed without this. Refer to the GSD form 1722 for the necessary information. It’s important that the information in Segment 41 be accurate and kept up to date. Refer to Chapter 12 of the Contract Management Manual, maintained by GSD-CSS, for additional information.

Contract Kick-off Meeting

After contract execution, it is suggested that a kick-off meeting be conducted with the provider(s). This provides an opportunity to set the tone for how the project will be managed. Establish protocol for communication. Who they do or don't talk to or take direction from. Specify format or preference of communication, such as e-mail, memos, letters, and phone calls - use of contract number. Identify restrictions they should be aware of. Identify priorities. The PM should review the evaluation form and communicate expectations. The Contract Administrator should also provide an example or outline of what is required for invoicing procedures. The PM should also provide an example or clearly outline the format and level of



detail expected in a progress report. Initial direction on starting the work can also be discussed. Train them to be responsive to you.

If No Meeting is Held – The Following Tasks Still Need to be Done

Review Evaluation Schedule with ProviderIf a kick-off meeting is not held, the PM is responsible for reviewing the evaluation form with the provider and communicating expectations prior to initiating the project.

Explanation of Expectations (set the tone)At some point prior to initiating the project, the PM should communicate clearly to the provider what their expectations are for coordination, delivery of submittals, and adhering to the schedule.

Explain Invoicing Guidelines and RequirementsIf a kick-off meeting is not held, the PM with the assistance of the Contractor Administrator should provide an example or a clear outline of invoicing procedures and requirements. For providers new to TxDOT, it can be beneficial to offer an opportunity for the provider's administrative staff to meet in person or by phone with TxDOT staff to review invoicing procedures and requirements prior to submittal of the first invoice.

Explain Progress Reporting RequirementsIf a kick-off meeting is not held, the PM should provide an example or clearly outline the format and level of detail expected in a progress report.

Contract Correspondence

The PM has primary responsibility for maintaining contract correspondence or ensuring that a system is established with the Contract Administrator for this purpose. All correspondence related to the contract should include the contract number.

Contract File Maintenance

The PM has the primary responsibility of maintaining the contract/project file that would include documentation other than normal correspondence such as notes from meetings, phone calls, faxes, deliverables, questions, requests for information, copies of information given to the provider, or any other related project information. See the Example Contract Filing System list.



Insurance Monitoring

The Contract Administrator should establish a schedule for checking. This is available on the GSD-CSS web site.

Communication

The PM is responsible for maintaining effective communication with the consultant, as well as other individuals, internal or external, who are involved in the project. E-mail is good for documentation, but it is far from the ideal means of communication. Don’t allow confusion and misunderstanding to propagate with e-mail strings that are out of control. Manage the communication. Pick up the phone or meet with the consultant or others face-to-face, if needed.

Possession of Complete Copy of Contract and WAs

The PM, Contract Administrator, and any staff with responsibility for managing a work authorization, should have a complete copy of the contract, supplemental agreements, the work authorization, and any supplemental agreements to the work authorizations. A complete copy means the contract with all attachments.

Know the Funding Source – for Engineering

Ninety percent of TxDOT’s contracts are indefinite deliverable. So there are many decisions being made about assigning projects to available contracts. It is the responsibility of the person assigning work authorizations on indefinite deliverable contracts to coordinate with the appropriate staff to determine the funding source for the work to be assigned and make sure the right contract is being used. For example, engineering for off-system projects cannot be paid for with state funds. A contract that was advertised with a HUB goal cannot be used for projects funded with federal dollars.

Work Authorization Assignment by Contract (indefinite deliverable)

For indefinite deliverable contracts, the project/contract manager or Contract Office Manager should have a clear understanding of the contract scope in place, the Work Authorization (WA) scope needed, and the preliminary engineering funding source to make the determination of which contract the WA should be issued through. The potential cost of the WA, possibility or supplemental agreements, and available budget capacity of the contract should also be taken into consideration.



Contract Budget Balance

In many offices, the responsibility of tracking the committed and available contract budget for an indefinite deliverable contract is shared between managers and contract administrative staff. It is important that the status be monitored in order to avoid exceeding the budget, but it is also important to monitor the status for planning and scheduling purposes so that a new solicitation process is initiated in time to avoid the risk of not having usable contracts in place.

Work Authorization Development

DES-CCO has developed a work authorization checklist and two flowcharts showing the Work Authorization Development Process for Indefinite Deliverable Contracts. One flowchart is for work authorizations with Managing Office signature authority and the other is for work authorizations with Design Division or Administration signature authority.

Development of the ScopeIf the work authorization Project Manager (WA PM) is different than the contract PM, the WA PM is responsible for developing the appropriate scope for the project. There are no general scopes at the work authorization level. The WA PM should coordinate with other district or division staff as appropriate to ensure that the information included is current and correct. The scope should clearly identify the tasks involved, assumptions, specifications, requirements, quantities, and interim and final deliverables. The provider is only obligated to do what is identified in the scope of work. The WA PM is responsible for referencing their complete copy of the contract to determine that no work is being scoped that falls outside the scope of the contract. If it appears a change in the contract is needed, the WA PM should coordinate with the PM or the Contract Administrator to verify if a supplemental agreement is needed and acceptable.

Scope NegotiationThe scope of work should be discussed and negotiated with the provider. The scope should be acceptable to both sides before level of effort is negotiated. TxDOT is responsible for developing the scope, but the provider should have the opportunity to offer suggestions and request modifications for their own clarification and protection. Scope of work negotiations should be documented and maintained as part of the project or contract file.



Independent Level of Effort EstimateBased on the negotiated scope of work, the WA PM is responsible for developing an independent level of effort estimate as preparation for negotiations with the provider. The WA PM should coordinate with other Managing Office staff to get their assistance with components outside the WA PM's area of expertise or to validate any assumptions or estimates prepared by the WA PM. Each task should be thought through and evaluated, taking into consideration how it was scoped, the assumptions stated, the complexity or routine nature of the work, and previous experience on similar projects.

Level of Effort Evaluation - NegotiationThe WA PM, with the assistance of other Managing Office staff, is responsible for evaluating and negotiating the provider's level of effort proposal in comparison to the independent level of estimate prepared in advance. Where major differences exist (higher or lower), it is important to discuss the assumptions and expectations of both sides to determine if or where additional clarification may be needed in the scope to support the level of effort expected (higher or lower). In anticipation of a negotiation process, it is expected that the provider will propose a higher level of effort than what was prepared or assumed by TxDOT. It is the WA PM's responsibility to negotiate and arrive at a fair and reasonable cost.

Review and Enforcement of H-1 (in the Contract)The WA scope of services and fee schedule/budget should be reviewed. The consultant's proposed use of subproviders should be compared with the H-1 commitment worksheet in the contract. As a matter of contract enforcement for HUB and DBE utilization, TxDOT should question where the commitment is not being followed and request an acceptable explanation to support the consultant's decision or request a revised WA.

In many cases, TxDOT selects a team not only because of the prime’s qualifications, but also because of the expertise of certain subproviders. TxDOT should also question when the commitment to use this expertise is not being followed and request an explanation or revised WA.

The consultant is expected to follow the plan for HUB and DBE utilization, to the extent possible, based on the plan and the type of work issued over the life of the contract. Putting off opportunities in anticipation of future WAs, for example, is not acceptable. If there are justifiable performance issues with the subprovider, they should be replaced through the appropriate means.



TxDOT expects the consultant to take the H-1 commitment seriously as work is being issued rather than expect TxDOT to accept weak explanations as justification for not meeting the HUB or DBE goal with submittal of the H-4 upon contract completion.

Negotiation Documentation MaintenanceIt is the responsibility of the WA PM and other individuals involved in the negotiation process to document the decisions and information exchanged with the provider through the negotiation process. This information is to be clearly identified and maintained as part of the project or contract file.

Work Authorization PreparationThe WA PM or Contract Administrator should prepare the WA for review and execution including all the appropriate attachments. It is the responsibility of the WA PM to make sure the content of the WA is accurate, complete, and conforms to the terms of the base contract. Work Authorizations for indefinite deliverable contracts should be prepared and checked using the Work Authorization Checklist.

Work Authorization ReviewPrior to execution, someone with the ability and authority to review and comment on the acceptability of the WA should review and verify that the scope falls within the limits of the contract scope, the scope has clearly identified deliverables, the budget clearly corresponds to the scope tasks, has been negotiated, is based on the rates identified in the contract, is clearly labeled, and the math is correct. As a part of the contract, the WA should be reviewed with the same level of scrutiny as if reviewed by DES-CCO for signature by the Design Division Director or the Administration. If there are any questions or potential issues, DES-CCO or GSD-CSS should be contacted for guidance.

Work Authorization ExecutionExecution of work authorizations should be according to the delegation of signature authority posted on GSD-CSS's web site.

Project Management and Direction

The PM or WA PM is responsible for providing clear communication of key dates, examples, expectations, preferences (personal, district, TxDOT), and priorities, as well as satisfaction and dissatisfaction with performance. They are also responsible for provision of specific direction and timely decisions. They are responsible for anticipating problems with the project or provider and do what's necessary to avoid or address these issues.



Progress Reports

Progress reports should be required monthly whether they are invoicing every month or not. The progress report is a means of communication. The consultant should keep the TxDOT PM up to date on what’s being done. The level of detail needed will depend on the project. TxDOT PMs should maintain a high standard of what’s expected. A meaningful progress report takes time to prepare. That’s a consultant project management responsibility that we should provide for in the contract. We should expect good project management practices from the consultant as well.

Read the progress report and be proactive in responding to activities that require attention. Refer to Progress Reports and Project Management for additional guidance and recommended format for progress reports.

Progress Meetings

It is the responsibility of the PM or WA PM to have progress meetings. These can be in person or by phone. They should include detailed review of project status including specific discussion of deliverables, budget status, schedule status, invoicing status, HUB or DBE goal status. The PM should manage and lead the meeting. The PM controls how effective the meeting will be. Establish a routine and tell the consultant what they need to be prepared for. The length of time it takes to have the meeting depends on the PM’s ability to lead and manage. Stay on topic. Assign the provider or someone else the responsibility for preparing meeting notes. You need to document decisions and direction.

Deliverable Review

The PM or WA PM is responsible for reviewing, providing comments, and accepting deliverables. For documentation purposes, the PM or WA PM should require that the provider submit with the deliverable, documentation identifying what the deliverable is and reference where it corresponds to the scope of work.

Have a plan. Other Managing Office staff may be involved in the review depending on what the deliverable is, but the PM is responsible for direct coordination with these individuals and communicating clear deadlines for when the review must be complete. The PM should schedule sufficient time for their reviews.



Develop and use checklists where applicable. Be consistent, thorough, and clear.

If it’s questionable whether or not the consultant reviewed the deliverable prior to submittal, ask for proof of their internal review. Know and define the end of the review process. Don’t contribute to endless review cycles. Where a TxDOT decision is necessary, make it or find someone who can.

Comments to the provider should be in writing. Approval and acceptance should also be in writing.

If apparent errors or omissions are identified during the review of a deliverable, the correction should be made at the consultant’s expense. Revisions to address an error or omission may be in combination with normal revisions in response to routine review comments. The TxDOT PM should be clear about what work should be done at the consultant’s expense and what work is considered billable. Refer to the Consultant Errors and Omissions Correction and Collection Procedures for additional guidance.

Project Correspondence

The PM or WA PM is responsible for knowing when correspondence should be prepared and for preparing it. Correspondence can include e-mails, letters, memos, or documentation of phone calls. Don’t put it off and don’t delegate inappropriately. Be professional.

WA/Project File Maintenance

Each Managing Office should have a structured filing system. The PM for an individual WA is responsible for maintaining the information for filing purposes whether the file is physically maintained with or separate from the contract.

TxDOT’s Scope Commitments

The PM or WA PM is responsible for making sure that information identified in the scope or discussed/promised in meetings is delivered. They should know what is being provided by others and that it meets the need and is usable. The PM or WA PM should be available to facilitate meetings and coordination with other TxDOT staff, as needed. Anticipate and coordinate in advance to have the appropriate TxDOT staff at meetings. Know TxDOT's role in the critical path.



Project Coordination within the District

The PM or WA PM is responsible for being proactive in communicating and coordinating with other sections that can be or will be affected by the project. The PM should also know what activities in other sections could affect their project and keep them informed as well.

Project Coordination with Appropriate Divisions

The PM or WA PM is responsible for knowing who to contact, when coordination is required, and when coordination could be helpful. It's always better to coordinate in advance of a problem. Divisions are there to help.

Invoice Review and Verification

The PM or WA PM, and Contract Administrator are responsible for knowing the timelines and requirements for disputing and approving an invoice. Contract administration or accounting staff should reference the contract to verify acceptable categories and billing rates. At a minimum, the PM should review the progress report and provider's staff and hours billed to the project (not available for lump sum). The PM or WA PM should review progress or deliverables related to the invoice period to determine if the payment should be approved. TxDOT should avoid paying for an unacceptable work product, but TxDOT is also required to comply with the Prompt Pay Act.

Refer to the contract for direction on when it is acceptable to withhold payment. When it’s appropriate, do it. The first priority is to get the product expected according to the contract scope.

As part of the monthly progress report requirements or with the invoice requirements, the consultant should be required to include a table showing projected versus actual invoice amounts.

The projected amounts should be filled out at the beginning of the project and the actual amounts filled in as the invoices are submitted. This exercise forces the consultant to focus on realistic planned activities and resources and reveals over the course of the project if they are staying on track or not. It also provides TxDOT with information on future spending amounts that can help determine total anticipated expenditures within a fiscal year, for example. Projected amounts can be updated as appropriate.



Invoice Approval (signature)Signature authority for invoices varies among Managing Offices. The PM or WA PM should document in writing that the invoice and progress has been reviewed and is acceptable.

FIMS Segment 76 Project Ledger Review

The PM or WA PM is responsible for reviewing the FIMS Segment 76 project ledger periodically to ensure that the cost records for their project are correct.

Examples of Project Funding and Expenditure Summary

Examples of Project Engineering and Construction Project Ledger.

Provider Evaluation

It is the responsibility of the PM or WA PM to complete provider evaluations. Performing provider evaluations is a requirement. The minimum time frame is annual, but providers prefer being evaluated more frequently - for example upon completion of a major milestone or deliverable. It is recommended that the PM or WA PM discuss the evaluation directly with the provider for the purpose of identifying where improvement may be needed. If the PM or WA PM is not satisfied with the provider's performance, they have a responsibility to communicate it clearly to the provider project manager.

The evaluations input into CCIS represent references that will be reviewed by selection team members in other districts and divisions if the consultant PM is short-listed on a future solicitation.

Completion of fair and accurate evaluations can have a direct affect on TxDOT continuing to select a good consultant or a consultant with poor performance.

Change in Consultant or TxDOT Project Manager It is not uncommon for the TxDOT or consultant PM to change over the course of a contract or work authorization. This is a significant time for evaluation of performance to occur. If the consultant PM leaves, an evaluation should be completed in order to separate their performance from the new PM’s performance. There are many times that consultant’s have called with concerns over a bad evaluation that was intended to reflect the dissatisfaction with the



consultant PM that preceded them. The dissatisfaction must be identified with the correct PM. The evaluation is not of the PM role, but of the specific individuals who perform the role.

At the same time, if a TxDOT PM is re-assigned or plans to leave, they should also complete an evaluation so that the consultant PM performance under their watch is recorded. The replacement TxDOT PM will have no way to determine and correctly evaluate the consultant PM’s performance if they were not directly involved.

Problem Anticipation/Identification/Resolution

It is the responsibility of the PM or WA PM to anticipate problems when possible, provide clear communication, maintain documentation, and address them based on consideration of available options. It is important to know the contract and know the options.

Agreement Enforcement

It is the responsibility of the PM or WA PM to know the contract, what requires TxDOT approval, what's been agreed to in the scope of work, budget, and schedule. And it’s their responsibility to enforce the agreement.

Subcontracts and Subprovider Management

TxDOT does not have a contract with a subprovider. It is the prime that has the contract with subprovider. While TxDOT approves the addition of a subprovider to a contract, agrees on the compensation that we pay the prime for each subprovider's work, and has the right to see the prime's contract with the subprovider, none of this means that TxDOT has any rights against subproviders directly or any special right or duty to enforce the subproviders’ contracts (whatever they may say) with the primes.

When it comes to getting the work done, a subprovider takes direction from and works directly for the prime. Instructions for subproviders should be directed to the prime. Subconsultant management is the prime’s responsibility. That’s why TxDOT does not evaluate the subproviders. TxDOT should not get involved in the prime/sub relationship, such as management, payment, and work distribution decisions. HUB/DBE issues may be the only exceptions. If there are subprovider performance issues, this is the prime's problem to handle. If the problem affects the project, then poor subprovider performance is a reflection of the prime’s



performance, and as such, should be reflected on the prime’s evaluation.

Disputes Between the Prime and the SubproviderA common dispute involves payments, for example, a subprovider contacts the TxDOT PM and complains the subprovider is not getting paid on time by the prime.

The subprovider wants TxDOT to enforce our contract provision saying the prime must pay subproviders within 10 days after the prime is paid. Often, our initial inclination is to do something to help the subprovider.

There is a clear line here that we must not cross. We cannot put ourselves in the position of mediating a contract dispute between a subprovider and the prime. For one thing, we probably don’t even have a copy of their contract and don’t know what it says. For another, we have no sure way of gathering the facts. While we might want to believe the subprovider, we can’t be sure what really happened. Was the invoice acceptable? Was the work done on time? Did it meet quality standards? Does the subprovider owe the prime money for some other reason? Getting in the middle of someone else’s contract is as perilous as getting in the middle of someone else’s marriage.

TxDOT does have an interest here, and we need to keep it in mind and make sure it is being served. When a subprovider is allegedly not being paid, we ourselves are at risk. This is just as true whether it is the prime’s fault because of impending financial doom, sloppiness, or whether it is the subprovider’s fault because of late or poor quality work. Any of those reasons can endanger our project or push us off schedule. The TxDOT PM needs to find out what’s going on and determine if we have to take any action to protect our project and keep it on schedule. If the problem is clear, we need to ensure that the consultant addresses it, one way or the other. That is good project management, good contract management, and good management of our relationship with the prime with whom we have a contract.

What we cannot do, however, is try to resolve an actual contract dispute. If the prime and the subprovider do not agree on the facts or what their contract means, we cannot take sides. It is not our place to decide who is wrong and who is right in a dispute between a prime and a subprovider.

That is the clear line between what we must do and what we cannot do. Whatever our private feelings, our role is limited to enforcing our contract with the prime and to protecting our project. Our role is



not to enforce the subprovider’s contract or to protect a subprovider from a prime, or vice versa.

Respect the prime project manager’s position. If there’s a concern related to the sub, the concern is with the prime. If a subprovider comes to the TxDOT PM with questions or complaints, they should be directed to talk to the prime and the prime PM should be contacted.

Second Tier SubprovidersIf a subprovider decides to subcontract their work further, the subprovider on the subcontract becomes a second tier subprovider to the prime contract. TxDOT must approve second-tier subproviders. TxDOT entered in to the prime contract based on the acceptance of the qualifications of the team including the subproviders. If a particular subprovider (a first tier subprovider) is going subcontract their work rather than perform the services themselves, TxDOT needs to know the qualifications of the firm they plan to use.

As for rates, TxDOT has agreed to subprovider rates in the contract with the prime. If a subprovider (first tier) then decides to further subcontract the work to a second tier subprovider, they will need to bill that work at the same rates that were negotiated for the first tier subprovider. If the first tier rates won’t work, then a supplemental agreement is needed to add the categories and rates for the second tier subprovider.

Another common assumption is that a second tier subprovider can just be billed as an Other Direct Expense. This is often, but not always, incorrect. It depends on the services being provided as well as the availability of applicable categories and rates in the contract. If the first tier subprovider is a HUB or DBE, the H-2 would have to be revised in the work authorization by supplemental work authorization. For additional explanation refer to Module 2, Part D, under “Subprovider versus Other Direct Expense”.

Supplemental Work Authorization (SWA) – Need Identification

The PM or WA PM should know when they are asking for work outside the scope - or - when a decision is made that will eliminate part of the scope and the relationship to the budget. The PM or WA PM should also be able to anticipate if additional time will be needed.



Supplemental Work Authorization NegotiationIt is the responsibility of the PM or WA PM to negotiate the addition or removal of scope and budget when appropriate.

Supplemental Work Authorization – Review and ApprovalThe SWA should clearly correspond to and reference the existing WA components being changed. Prior to execution, someone with the ability and authority to comment on the acceptability of the supplemental work authorization should review and verify that the change is acceptable, that scope and budget is not being added that changes the intent, focus, or characteristics of the assigned project of the initial WA; that the additional scope falls within the limits of the contract scope, deliverables are clearly identified, the budget clearly corresponds to the scope tasks, has been negotiated, is based on the rates identified in the contract, is clearly labeled, and the math is correct. As part of the contract, the supplemental work authorization should be reviewed with the same level of scrutiny as if reviewed by DES-CCO for signature by the Design Division Director or the Administration. An unacceptable SWA should not be approved for execution. If a WA needs to be modified to the extent that it may not meet acceptable contracting practices, the managing office should contact DES-CCO or GSD-CSS for guidance.

Supplemental Work Authorization ExecutionExecution of supplemental work authorizations should be the same as for the initial work authorization.

Contract Supplemental Agreement – Negotiation

It is the responsibility of the PM to negotiate the appropriate changes to the contract.

Contract Supplemental Agreement – Review of SubmittalThe SA should clearly correspond to and reference the existing contract components being changed. Refer to the Supplemental Agreement template on the GSD-CSS web page.

Quality control is the responsibility of the Managing Office. Supplemental agreements should be reviewed by appropriate staff for acceptability and completeness before submittal. SAs for engineering contracts are submitted to GSD-CSS. Survey and lab SAs are submitted directly to DES-CCO. Refer to the Professional Services Supplemental Agreement Process flowchart on the DES-CCO web page for additional information.



Contract Supplemental Agreement – ExecutionDistrict Engineers have signature authority for survey and lab contract supplemental agreements, but the SAs are required to be reviewed and approved by DES-CCO prior to execution. Signature authority for all other contract supplemental agreements is with the Design Division Director or the Administration. Refer back to Module 2, Part B, under the section entitled “Consideration of Coordination Time Through DES-CCO” for additional information on planning adequate time for supplemental agreement processing.

Additional information regarding signatures on contracts is available in the Resource Materials notebook. The signature information is applicable to supplemental agreements, work authorizations, and supplemental work authorizations.

FIMS Segment 41 – Update

The Contract Administrator or accounting staff is responsible for updating Segment 41 upon execution of a contract supplemental agreement.

CCO-3 Request for Additional Funds

To add funds to a contract, a CCO-3 must be completed and submitted with the supplemental agreement to the contract.

Project Delivery

There should be a designated PM for each contract. If WAs are managed independently, there should be a designated PM for each one. The designated PM or WA PM is responsible for the management of the provider and delivery of the scope of work and deliverables according to schedule as identified in the agreement.

If problems are anticipated or encountered that will prohibit the successful completion of the work, and the provider is not responsive, it is the responsibility of the PM or WA PM to request assistance from the appropriate level. The best course of action within the limits of the contract should be identified and taken to correct the problem. If there are no other alternatives, consideration should be given to terminating the agreement.

Passing the Baton



Typically, for PS&E projects, the consultant is kept on board after project letting to provide construction phase services. Who manages the consultant at this stage varies from district to district. If the management responsibilities do not remain with the TxDOT design project manager, there should be a deliberate step taken to transition responsibility from the district, for example, to the construction project engineer in the Area Office. Area Office staff should be made aware of the contract and management responsibilities associated with utilizing the consultant for support. Appropriate contact information should be provided to all parties. Any necessary changes to the contract or work authorization should be taken care of so the consultant is able to respond when needed. This also provides a good opportunity to invite the consultant to the pre-construction meeting.

Effective communication within TxDOT and between TxDOT and the consultant remains important through construction. A plan should be in place for who the appropriate contact people are as a project goes to construction.

The Consultant Errors & Omission Correction and Collection Procedures provide specific guidance on the process to be followed if a error and omission is identified during construction that may result in additional cost to TxDOT that should be recovered.

Early Contract Termination

It is the PM's responsibility to determine if a situation exists that warrants early termination of a contract. The decision to terminate should be discussed with the appropriate Managing Office staff and the contract should be referenced for the appropriate option to pursue. GSD-CSS or DES-CCO should be contacted if there are any questions or pending issues related to the contract. Signature authority for a termination letter is the same as for the contract. The letter should be submitted to DES-CCO for review prior to signature.

Contract Closeout

The Contract Management Manual identifies basic procedures for closing out a contract. Also refer to the Professional Services Contract Close Out Checklist on the DES-CCO web site.



Records Retention

The Managing Office is responsible for retaining the contract file for the required period. Check with the district or division records retention officer for guidance.



B. Writing Supplemental Agreements

Objectives: Learn how to draft a clear, legally binding supplemental

agreement.

Drafting Supplemental Agreements

What is a supplemental agreement?A supplemental agreement is a written document expressing a legally binding agreement to change an existing contract. It is, in all actuality, a contract itself. It modifies the original contract. Together, the existing contract and the supplemental agreement are read together to create a new and different contract.

Points to rememberThe very first thing you need to recognize in a supplemental agreement is that the scope, the fee schedule, and the work schedule are interrelated. If you change one, you probably need to change them all. If you change the scope on a specific deliverable contract, for example, you will also probably need to change the work schedule and the funding.

A supplemental agreement must meet the same contract standards as a contract. It must be signed and dated by the signature authorities, it must have consideration, and it must specify what it is doing with clarity.

The requirement of consideration means that we cannot just give away state money without obtaining something in return, no matter how deserving we think the consultant is. (It is also violates the Texas Constitution to agree to pay more for work for which we already have a valid existing contract for a lesser amount.) So, reference the additional work to be done in your CCO forms.

If a supplemental agreement extends time, Contract Services will require additional explanation before approving it. The explanation required depends on the type of contract involved. Because an

B. Writing Supplemental Agreements 21


indefinite deliverable contract can only be extended to complete work on existing work authorizations, we must demonstrate our compliance with this rule by identifying the specific work authorizations that will be continued under the time extension. A specific deliverable contract can be extended indefinitely, but an extension means that for some reason, the original work schedule has slipped. Repeated time extensions on specific deliverable contract create the impression of mismanagement or poor performance. To make sure that the contract record is clear, a time extension on a specific deliverable contract needs to include the reason why the original schedule had to be changed, such as the reallocation of resources to other priorities, delays in the environmental process, or other unforeseen events.

A handy shorthand way to look at this is in terms of time perspective. For an indefinite deliverable contract, we are looking forward in time and projecting the work that will be continued under the extension. For a specific deliverable contract, we are looking back on the old work schedule and explaining why it needs to be changed. This relatively simple fix will assist us in explaining to auditors and others why so many of our contracts need to be extended so many times.

Another area that often causes problems is the failure to anticipate direct costs when doing a supplemental agreement. Remember that for a cost to be reimbursed, it must appear both in the fee schedule for a work authorization and also in the contract, as amended by supplemental agreements. If a supplemental agreement is authorizing new work, you need to be doubly sure that you’ve anticipated all likely direct cost categories so that you’re not in a position later in which costs must be incurred, but cannot be reimbursed.

Supplemental agreement or new contract? Amendments are proper when a change will not alter the true, existing nature of the project. A new contract will be required if the change really amounts to a different project.

PitfallsOften a supplemental agreement feels to project managers like just a piece of technical paperwork that needs to be processed and that takes time and effort away from the real job of managing the contract. This perspective is skewed. The supplemental agreement is itself an important component in contract management. Getting supplemental agreements right the first time will save to time, effort, and aggravation later. In this area as in so many others, the goal of good project management is not to give



you more work to do, but is rather to provide you with tools that will forestall problems and save you time in the long run.

Project managers, understandably enough, tend to think in terms of the project. A supplemental agreement, however, is first, foremost, and always a change to a document, the original contract (as amended by prior supplemental agreements). The key question, therefore, is not how the project has evolved. The key question is how the documentary record needs to be changed.

At core, there are only two things you can do to a contract: You can take things out, or you can put things in. Therefore, the essential thrust of every supplemental agreement must be to identify the parts of the original contract that are no longer correct and must be deleted, and the new information that needs to be added. Supplemental agreements are therefore all about adding and deleting language.

Never attach a work authorization to a supplemental agreement. Because the supplemental agreement amends the contract itself, attaching a work authorization makes the work authorization part of the contract. Attaching the work authorization means that you no longer can amend that work authorization with a supplemental work authorization. It would have to be changed with another supplemental agreement instead.

No attachment is legally binding unless it is specifically identified on the signed page, also called incorporation by reference.

Attachments must be identified by their proper titles. If the top of the attachment says “Exhibit A,” don’t refer to it as “Attachment A” in the supplemental

agreement. Doing so raises a question later about what was really

attached and whether the contract file is correct.

Don’t call contract attachments and supplemental agreement attachments by the same name. This

leads to sentences that are almost incomprehensible, such as “Attachment C is amended by deleting Attachment C and attaching Attachment C as attached to this supplemental agreement.”

Also, numbering the contract and each attachment separately makes it easier to insert or delete later.



Keep the supplemental agreement numbers in sequence! A missing number makes everyone wonder if we may in fact have lost a crucial contract document.

Most of all, supplemental agreements need to be written with mathematical precision. It is not all that unusual for a contract to have ten or twenty supplemental agreements before it finally terminates. If you are not absolutely clear with each and every supplemental agreement, by the time we get to about supplemental agreement number eight, we can’t tell what the contract says anymore. What is in your head does not matter; what matters is what is on that little paper. Thus, you may think that it is sufficient to write, “The contract is amended with Attachment C-1.” But did you really mean to add it to the contract as a whole, or did you mean to add it to the preexisting Attachment C to the contract, or did you mean to replace the original with the new version? What happens next year is Attachment C is deleted and replaced? Will Attachment C-1 still be valid because it was never attached to Attachment C? Should you have written instead, “Attachment C to the contract is amended to add Attachment C-1”? Little language differences can affect the how a contract is interpreted, and when these differences accumulate over time, the result can be to foster confusion and encourage disputes.

This need for precision casts light on another issue that comes up repeatedly—the tendency to repeat language in various places in a contract, as if saying something two or three times makes it more important than if you say it only once. There are several reasons why this is a very bad practice. One practical reason is that if you later need to change that language, there is a high risk that you will change it in one place, and forget to change it elsewhere. In that case the contract will be internally inconsistent and a magnet for confusion and disputes.

The absolute best way to write an amendment is to imagine that you’re giving instructions to a printer who knows nothing about your contract. You have to tell that printer what to cut out and what to paste in, and where. And it helps to visualize that printer as being someone who just does what the printer has been told, without perhaps putting a lot of real intelligent thought into it.

With every supplemental agreement, it should be possible to take the original contract and literally cut



and paste according to the instructions in the supplemental agreement so a new complete contract will be revealed.

Steps for creating a supplemental agreementSimple supplemental agreements may be prepared off the cuff if you have some experience. For more complicated supplemental agreements, however, the following steps will help you get it right from the start.

1) Prepare: Make a copy of the contract. Go through the original contract from beginning to end and cross out everything to be removed. Mark each place where new language will be inserted.

2) Write: On a separate page, write a description of the deletions and insertions. Amend paragraphs and sections rather than cherry-picking individual words and sentences. This will avoid confusion. Also, make sure you refer to all parties, articles, sections, and attachments by the name or identifier used in the original contract. It causes much confusion to call your “Attachment A” your “Exhibit A” and vice versa.

3) Memorialize: Get the proper form for the amendment. Fill in all necessary blanks identifying the contract. Insert the description of the changes. Each change should be described in a separate section.

4) Edit: Review the document to ensure that you have changed everything you planned to amend. Revise so that a future reader who is not familiar with the contract can understand the changes.

Common changes If section 2, for instance, is deleted in its entirety, leave the

section number and next to it insert “Intentionally Omitted” or “Not Applicable” rather than try to renumber all of the sections or clauses.

If an entire section is added, for instance after section 3, then leave the numbers as they are, and add the new language as “section 3A.”

Name Change vs. AssignmentA human being, a corporation, and a partnership are all persons under the law. If a person changes his or her name, the name changes, but the person does not. If a corporation or partnership changes its name, the same holds true. Similarly, a corporation’s legal identity does not change based on who owns the stock in that



corporation, so a sale of stock does not change the corporation’s legal identity. If all that is changing is the name, the name on the contract may be changed using the form for a name change.

If one person buys the assets or stock of another, that is an assignment of the contract, and you must use the form for an assignment. This is true even if the new person has the same name as the original contracting party, is related to the original contracting party, is owned by the original contracting party, or is owned by the people who own the original contracting party.

Thus, as a general rule, if one company buys controlling stock in a consultant, the new owner will only need a name change because the corporate identity of the consultant has not changed. If one company buys all the assets and hires all the employees of a consultant, an assignment will be needed because the legal identity of our contractor will have changed—even if the new company adopts the same name as the old one.

Processing Supplemental AgreementsFor all supplemental agreements, it is generally a good idea to send a draft to Contract Services before getting the consultant’s signature. Even if it seems like this one is just like the last one, you can’t know whether something has arisen to prompt a change in policy or approach. Contract Services will submit comments to DES-CCO, which will then return consolidated comments to you.

For engineering and architecture supplemental agreements, submit two copies of the final agreement to Contract Services. After review, Contract Services will forward it to DES-CCO for execution. One copy will then go back to Contract Services for the official department file and the other will be returned to the managing office, which will then forward it on to the consultant.

For surveying and lab supplemental agreements, submit one copy of the agreement to DES-CCO by hard copy, fax, or email. After review, DES-CCO will notify you of approval. Depending on the signature authority, the managing office will then execute it or forward the signed final version to DES-CCO for execution. Either way, one copy will be placed in the official department file at the managing office and the other will be forwarded to the consultant.



And Here’s How . . .

Draft a supplemental agreement to reflect the following changes.


The maximum amount payable was $1.2 million and is being increased to $1.5 million. The expiration date used to be November 15, 2007 and will now be July 3, 2008. You’re doing a new budget page to give the engineer a pay raise. You’re also adding some pages to the scope so a new work authorization can be issued to permit construction phase services.





C. Appropriate Use of Contracts, Work Authorizations, and Supplemental Agreements

Objectives: Identify the differences and what’s expected in specific

deliverable contracts for traditional, traditional multi-phase, or non-traditional multi-phase projects.

Distinguish between acceptable and unacceptable use of indefinite deliverable work authorizations.

Distinguish between acceptable and unacceptable use of supplemental agreements.

Specific Deliverable Contracts

Specific deliverable contracts can be used for individual or multiple projects. The contract should clearly identify what the project is and what constitutes the end of the work. There should be a clear and enforceable scope with the appropriate specifications, requirements, assumptions, tasks, and deliverables.

This section is included to focus on one of the areas that TxDOT has struggled with in the use of specific deliverable contracts for projects that aren’t the size and shape that we’ve been used to developing.

Changing Characteristics of TxDOT ProjectsThe majority of TxDOT contract work still falls within the category of traditional projects, but periodically there is a project that comes along that doesn’t fit the typical mold. For these cases, some general guidance has been developed to further distinguish the different types of projects and identify what is basically expected at the contract and work authorization stage for these specific deliverable contracts.

Small to Medium – Traditional/Typical ProjectThis would include project types that TxDOT does on a regular basis like a route study or PS&E. There is historical knowledge and experience with the tasks involved and level of effort.

Medium to Large – Traditional/Typical Project Including Multiple Phases

C. Appropriate Use of Contracts, Work Authorizations, andSupplemental Agreements

29


This would include project types that TxDOT does on a regular basis and is familiar with, but the projects have more than one phase of project development such as route study and schematic design, or route study through PS&E. Results of initial phases will dictate definition of work in subsequent phases.

Large to Mega-Project - Usually Non-Traditional Work with Multiple PhasesThis would include projects where the work or service required is not routine to TxDOT. There is little or no experience with the services being outsourced and historical knowledge of level of effort required. Examples are program managers, previously called GECs, for CDA projects and other corridor projects involving management of section engineers.

Refer to the Specific Deliverable Contract Development – General Guidance for additional explanation.

Indefinite Deliverable ContractsUse of Work Authorizations

This section is included to focus on the problem that seems to be inherent with the use of indefinite deliverable contracts.

They’re AddictiveThe indefinite deliverable contract includes a general scope of work defining the type of work the contract is intended for. Although general, it is not intended to be so general that the contract can be used for practically anything. At the work authorization stage, in many cases, districts are not making good decisions about what is or isn’t acceptable when assigning work authorizations using the various contracts.

It is important that potential users of indefinite deliverable contracts understand what the contracts are scoped for. With signature authority for work authorizations delegated to the district, it is expected that contracts users know what the appropriate use is and implement them correctly. Being in a bind doesn’t justify using a contract inappropriately. There is no level of urgency that automatically makes it okay.

Refer to example for discussion.


30


Supplemental Agreements and Supplemental Work Authorizations

Changes to agreements are expected. For a supplemental agreement or supplemental work authorization to be acceptable, however, the change must be something that’s necessary in order to complete the initial contract or work authorization assignment. It may be related and it may be needed, but if the need is not related to the completion of the initial agreement, it should not be added.

Chaining Work Authorizations

When a district or division tries to fit too large a project into an indefinite deliverable contract, it runs the risk that the time or dollar limits will run out before the project is completed. It is tempting in those cases to issue a work authorization continuing the project under a different contract with the same provider. This practice of "chaining" work authorizations from one contract to another for a single project runs a variety of legal and practical risks.

These risks fall into four basic categories. First, there are risks relating to the commissions rules governing indefinite deliverable contracts. Second, there are risks relating to the procurement process for indefinite deliverable contracts. Third, there are risks relating to the legal enforceability of the obligations undertaken by the provider. Fourth, there are risks relating to the way in which work authorizations are issued.

1. The commission’s rules place dollar and time limits on the issuance of work authorizations under indefinite deliverable contracts. The issuance of a work authorization that is unlikely to be completed within those limits may easily be characterized as an intentional attempt to evade the commission’s rules. In fact, by chaining work authorizations from one contract to another over several years, it would be possible to complete a project of any size or duration by using only indefinite deliverable contracts. While it may seem that the literal language of the rules have been followed in that no individual contract has exceeded its limits, courts have been known in some cases to consider the deliberate manipulation of technicalities as a kind of rule violation, and that could result in the conclusion that a contract is not legally enforceable.

It must also be recognized that the commission’s rules are not merely arbitrary, but are founded on a very definite directive to its staff based on the way in which the commission wants the department to operate. An indefinite deliverable contract, with its general scope of work, no work schedule, and a generic price schedule, is acceptable for projects of a certain size. For larger


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projects, a specific deliverable contract is required to ensure and document that the most qualified firm has been selected for a particular project; and pricing must be sufficiently detailed to ensure that it is the most competitive or fair and reasonable for that project. Forcing large projects into indefinite deliverable contracts does not only violate the clear intent of the commissions rules; it results in the expenditure of state funds under a shorthand contracting method that the commission has determined to be inappropriate for projects that are large.

2. When a large work authorization is issued despite the recognition that the project may not be completed within the limits of a particular indefinite deliverable contract, it is reasonable to infer that the intent from the beginning was to chain the project onto another contract at a later time. In that case, at the time the first work authorization was issued, the decision had already been effectively made about the selection of the same provider for a later indefinite deliverable contract. State and federal laws require the use of a procurement process designed to select the most qualified provider. If, however, the selection of a provider was predetermined because of the need to continue ongoing work, the procurement process is a fraud. In that case the department may easily be seen as violating the laws governing procurement.

The chaining of work authorizations from one contract to another also poses practical problems. If a particular provider does not submit a letter of interest or for some reason is disqualified from the selection, the work will have to be transitioned to another provider at an increased cost, both in terms of money and delay. In contrast, a specific deliverable contract would have committed the provider to stay with the project until its completion.

Another problem with the chaining of work authorizations is that it undermines the competitiveness or the negotiation of the price under which the work will be performed. In theory, pricing should be determined at a time when the department could realistically turn to another provider, and this possibility of a realistic alternative gives the department some leverage in obtaining a competitive or a fair and reasonable price. When a project is continued onto a new contract, however, the provider is aware that the department may have no realistic alternative to selecting it, regardless of price. The result would thus be, at a minimum, the unnecessary expenditure of state money to complete the work.

3. As a general rule, enforcing a contract requires the ability to point to a particular contract provision that has been violated. If a project is spread over several contracts, it may not be possible to determine which contract was in effect at the time the breach occurred, or if more than one was in effect, which contract was C. Appropriate Use of Contracts, Work Authorizations, andSupplemental Agreements

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breached. As a result, the department may not be able to enforce any contract against the provider.

This problem becomes more acute if the various contracts over which work has been spread are not identical. The language of the scopes of work may differ, for example, or standard language may have changed as a result of legislative enactments or improvements resulting from experience. If a breach occurs with regard to a provision that is different in different contracts, it may not be possible to prove that the breach is in fact governed by the provision that should be applied.

Another aspect of this problem arises from the statute of limitations, which is generally four years from the date a contract expires. If work is spread over three contracts executed over a period of ten years, and if a defect in work is found during construction near the end of that period, the likelihood is that the first contract will have expired more than four years previously and thus be beyond the limitations period. Indeed, the first contract will probably have been destroyed under the department’s document retention policy. In either case, it may not be possible to maintain a lawsuit to enforce the department’s contract rights. Still another problem may occur because the later contract on the same subject may be seen as replacing or superseding the earlier contract, so that enforcement of the earlier contract may be precluded.

4. The decision to enter a contract is governed by state and federal laws. These result in an elaborate procurement process designed to ensure that the contract is entered with the most qualified provider or the one that provides the best value. This process is designed to protect the state and its revenue, but it also has the effect of providing some protection to employees who are involved in the selection process.

If the department has multiple indefinite deliverable contracts under which work authorizations may be issued for a particular project, there are no formal procedures governing which provider will receive a work authorization. This decision is made by department employees without any effective guidance or oversight.

Obviously, this may easily result in the selection of a provider for a work authorization who is different from the one that would be selected in a more formal competitive process. There is a considerable risk that department employees may be influenced by anecdotal information that is not really representative, by personal preferences, by information that is not strictly relevant to a selection, or by impermissible considerations. This could result in issuance of a work authorization to a firm that is not really the most qualified or the one that provides the best value.C. Appropriate Use of Contracts, Work Authorizations, andSupplemental Agreements

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Of equal or greater significance, this procedure exposes employees to allegations that their selection of a provider for a work authorization was based on impermissible factors, whether or not those allegations are true. In the absence of a formal, documented process that could show the objectivity of a selection, a disappointed firm or an outside party might well point to any number of connections between department employees and the selected firm -- friendships with employees of the firm, past dealings with the firm, the firm’s hiring of other former department employees, the potential of future employment with the firm, the existence of relatives who work for the firm, social connections ranging from hunting trips to hospitality rooms, racial or gender characteristics, and so forth. The absence of any structure in allocating work authorizations is a fertile field for cultivating the actuality, the appearance, and the false allegation of ethical problems of all kinds.

All these problems flow from a single bad decision at the beginning of the process -- the decision to "save time" in the short term by issuing an indefinite deliverable work authorization for a project that was too large to fit under a single indefinite deliverable contract. With just a little advance planning and a few months to complete a specific deliverable contract, all these problems go away, and you'll be in a position in which you can extend the contract and add money without limit until the project is complete. Good decisions up front make later decisions effective and easy; bad decisions in the beginning make more bad decisions, more risks, and more practical headaches almost inevitable.


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D. Delegation of Responsibility(for making good decisions)

Objective: Recognize your responsibilities in implementing the TxDOT

contracting program.

TxDOT’s contracts are between the consultant and the State of Texas. They are not area office contracts, or district contracts, or even division contracts. When things go right or wrong, contracting or otherwise, it reflects on TxDOT and the State of Texas.

It’s Just Paperwork

We need to remind ourselves occasionally that the trivial paperwork we’re shuffling, is associated with millions of dollars that are being spent daily. In addition to the money, TxDOT contract staff make decisions everyday that affect hundreds of private sector firms and thousands of employees that work everyday on TxDOT projects. For TxDOT to maintain a reputation of having a fair and reasonable selection process and being good stewards of the taxpayers’ money, everyone must do their part to know and follow the process and make good decisions.

We’re All Responsible

TxDOT is a very decentralized agency. The 25 regional districts are responsible for their projects from planning through construction and maintenance. This includes the selection and management of the consultants needed to support these efforts. Although decentralized in implementation, TxDOT contracting for engineering, architecture, and surveying services, is viewed as an agency program. There are not separate processes specific to different districts or divisions. The laws, rules, policies and good practices are expected to be followed by everyone.

It is important that each person know the roles and responsibilities involved and where they fit in the process.

D. Delegation of Responsibility 35



D. Delegation of Responsibility 36


E. Prime Provider Evaluations

Objectives: Explain when evaluations are to be conducted. Differentiate between a management tool and a selection

tool.

Evaluation Purpose

Evaluation scores will be maintained in a database for reference during consultant selection. Although the results are useful for this purpose, the primary emphasis is now on the use of the evaluation as a management tool for communication with the provider. The evaluation form should be reviewed with the provider upon initiation of the contract so that expectations can be clearly communicated. More often than not, it is the lack of communication of what is expected that results in dissatisfaction with performance and the final product. TxDOT project managers are strongly encouraged to review the evaluation results with the provider in person or by phone so that issues, if they exist, can be discussed.

The evaluations are for TxDOT use only. If a consultant asks if TxDOT’s evaluation scores or comments can be used, for some other purpose, the answer is no. The use of the TxDOT name for advertising purposes or monetary gain is not allowed. Consequently, TxDOT remarks or comments provided in the evaluations are not to be used in promotional material by the consultant or any other entity other than TxDOT.

Evaluation Process

The TxDOT project manager responsible for the contract will conduct the evaluation of the prime provider.

Prior to completing the evaluation form, the TxDOT project manager should review the contract file and discuss the project manager’s and firm’s performance with other TxDOT employees involved in the contract, as appropriate.

The TxDOT project manager should complete the evaluation form using the Consultant Certification Information System (CCIS) and discuss the results with the provider in person or by phone.

In August 2007 the new Prime Provider Evaluation Module in CCIS was implemented. This enables the TxDOT PM to complete the

E. Prime Provider Evaluations 37


evaluation form electronically through a web interface which inputs the data directly into the database. This eliminates the need for an additional data entry step after a hard-copy evaluation is completed. The process is very straightforward. Step-by-step instruction are provided in the Guidance and Instructions document for the CCO-15 TxDOT Prime Provider Evaluation Form – Direct Entry into CCIS.

The TxDOT project manager should sign the form and indicate a date by which the form should be returned to TxDOT, and retain a copy in the event that the form is not returned.

After the provider has returned the form, update CCIS. If the form is returned unsigned, check the appropriate box at the bottom of page seven. If the form is not returned, check the appropriate box at the bottom of page seven. Data for evaluations will remain in the database regardless of whether or not the provider signs the form.

Evaluation Schedule

The rules require that evaluations be conducted, at a minimum, on an annual basis. Evaluations should be conducted more frequently if problems exist. Providers have consistently indicated that they would prefer to be evaluated by milestone in order to have a better understanding of how they are performing throughout the process. The intended evaluation schedule should be discussed with the provider upon initiation of the project.

CCO-15 Form Structure

The form is an Excel document with four worksheets including instructions, Part A, Part B, and evaluation comments. Part A includes contract and project information. Part B includes the evaluation criteria and scoring. It is divided by Project Manager Evaluation and Firm Evaluation.

Part A – Contract and Project Information1. Evaluation Type

The majority of professional services contracts now include work authorizations. The TxDOT project manager has the option of evaluating the contract as a whole, whether it includes work authorizations or not, or by work authorization, if they exist. The option selected for the first evaluation determines the type for the remainder of the contract. For example, if the first annual



evaluation is for the overall contract, and the provider is half-way through the third work authorization, the second evaluation cannot be specifically for one work authorization. For survey contracts that have numerous small work authorizations within a year, it may be better to evaluate the contract as a whole so that fewer evaluations are required. Relative to survey contracts, engineering contracts typically have larger work authorizations with longer durations. Conducting evaluations by work authorization may be more appropriate and informative to the provider.

Work Authorization ManagerAlthough not often, it’s possible for the management of a work authorization to be delegated from the project manager to a major task leader. This requires prior TxDOT approval and should only be allowed in situations where the division of work and responsibility are appropriate. For these situations, the form allows for the work authorization manager to be evaluated and scores to be input under their sequence number. It is important that the TxDOT project manager, the provider project manager, and the work authorization manager understand who will be evaluated. The delegation of management does not, however, relieve the provider project manager from the responsibility of managing the overall contract and making sure that issues are avoided.

Contract or Work Authorization ValueThe value requested is the dollar value of the contract or work authorization being evaluated. It is not the construction value of the project.

2. Evaluation Stage

The TxDOT project manager should discuss with the provider if evaluations will be conducted annually or by milestone. If milestone is selected, reasonable stages should be identified according to the scope. An evaluation should also be conducted upon completion of a work authorization or a contract, depending on the option selected under Evaluation Type.

3. Project Information

This information may not be applicable in every case. It is considered supplemental information only and is not linked to DCIS. This information is to be included at the discretion of the TxDOT project manager.



4. Primary Work Type

If the Evaluation Type is for the overall contract, the primary Work Type should also correspond to the overall contract. If the evaluation scope is by work authorization, the primary Work Type should correspond to the type of work in the work authorization. There will be situations when there is not an exact fit. Select what appears to fit best. For PS&E or Preliminary Engineering/Planning projects, the approximate construction cost is requested according to four broad ranges. This is to indicate order of magnitude only.

Part B – Evaluation Criteria and ScoringThe Project Manager Evaluation includes eleven criteria that focus specifically on the responsibilities of the provider’s project manager. A base score is assigned to each, totaling 100. The base scores range from 17 to 4, which represents relative weighting from highest to lowest. With a base score of 17 for the first criterion, the provider runs the risk of losing the greatest number of points by not performing satisfactorily. With a base score of 4 for the last criterion, the provider may not perform satisfactorily, but only risks losing a maximum of three points.

For each evaluation, the provider project manager begins with a score of 100. The provider project manager’s goal, at a minimum, is to maintain the 100 points. The evaluation of each criterion can result in the reduction, addition, or maintenance of the base score. Points are added or deducted in increments of three not to exceed the base score. The possible score range is from 13 to 127. Scoring should be based on objective information. If points are deducted, the TxDOT project manager should be able to explain why. Written remarks are not required in every case, but there should be identifiable reasons for the point deductions and these should be discussed with the project manager in order to provide for future improvement.

Each criterion does not offer an opportunity for extra points. Additional points are limited to areas where the provider’s performance potentially saves time, adds value, or increases quality above normal expectations.

A general description is provided for each criterion. The length of which is obviously restricted by limited space. The descriptions are not intended to be comprehensive or limiting. Judgment should always be exercised in how these criteria are applied. General descriptions are also provided for each scoring increment to assist the evaluator in differentiating among the options. The descriptions



are not intended to provide hard defined lines between scores. Again, judgment should always be exercised in the relative interpretation and application of scores.

Although based on 100 points, the resulting score should not be compared to a 100 point grading system where 70 represents a threshold of failure. The final score does not necessarily represent the total level of success or failure. A provider project manager may consistently score well for accuracy and completeness of deliverables (zero deduction), but never meets a deadline, thus receiving a deduction for schedule management (-12). The overall score could then be 88. In comparison, another project manager may meet all deadlines (zero deduction), but consistently perform poorly with respect to accuracy and completeness of deliverables (-12). The resulting score could also be 88. When reviewing the previous performance of a project manager, it will be important to review if a project manager consistently scores low in one particular area, or if scores less than 100 are the result of various deductions over a range of criteria. Score results will be presented in a format that will provide for this review.

The Firm Evaluation includes three criteria with base scores totaling 50. Similar to the Project Manager Evaluation, the firm begins with 50 and can lose, gain, or maintain points with the evaluation of each criterion. The possible score range is from 11 to 59.





Module 6: The TxDOT and Consultant Relationship

Table of Contents

A. Consultant MarketingB. Ethics

RM59. Relevant LawsRM60. Guidance Regarding Post-Employment RestrictionsRM61. TxDOT Ethics Policy

Module 6:The TxDOT and Consultant RelationshipA. Consultant MarketingB. Ethics

Objectives:

Identify typical information to provide for routine consultant marketing calls.

Identify common ethical issues with engineering, architecture, and surveying contracts.

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2

Module 6 – The TxDOT and Consultant Relationship

A. Consultant Marketing

Objective: Identify typical Information to provide for routine

consultant marketing calls.

It’s Part of the Process

If there is any possibility of future work, consultants will be interested in marketing your district or division.

For the consultant, it’s part of their everyday business. They are doing their homework and trying to stay ahead of the game. To them, it’s important to get to know the client. And the client includes individuals, as well as TxDOT in general. By doing a little marketing, they can determine if it’s worth investing any more in actively pursuing potential work. What they learn influences whether they pursue work at all, their thoughts on which projects offer the best chance for them, how to prioritize staffing assignments, whether to staff up or make other changes, how to team with other providers, along with many other decisions they make.

A consultant marketing call provides an opportunity for them to both give and get information. They want an opportunity to sell themselves or others and their company, in general. They want you to know who they are and who they work for. They also want the opportunity to find out about future work in addition to TxDOT’s needs, preferences, and priorities.

If you think about what they’re interested in, it will help you know how to prepare so the meetings can be effective, beneficial to both sides, and relatively quick. Examples of what they might like to know include:

● Who are the decision makers?● What is your current project/contract cycle?● What do you typically outsource?● Do you outsource a lot or a little?● How many LOIs do you normally receive?● What software/equipment do you require?● Who has been successful in the past?

You should make a habit of emphasizing in each meeting and in every conversation that the selection process is qualifications-based and that the evaluation and selection is based on the content of LOIs, interviews, and proposals. A. Consultant Marketing 3


For newcomers to the process it may be beneficial to give them a copy of the rules and direct them to the web site. DES-CCO typically offers to e-mail the latest dollar-volume report to consultants who are trying to learn about TxDOT as a potential client.

It Doesn’t Have to Take Long

Be clear about the length of time you have. And if you don’t have time to meet without constant interruptions, don’t schedule the meeting. If you schedule 30 minutes, they have a responsibility to manage their time with you. If they waste it talking about Saturday’s football game then that’s their problem, but don’t contribute to wasted conversation. Make an effort to stay on topic.

Plan Ahead

It’s important to be consistent in the information you share with consultants. That doesn’t mean you can’t answer a question that other consultants haven’t thought to ask, but think about what’s coming up in your area and decide what information you will have ready to share and how you will provide it.

You’re Not Alone

Most consultants don’t like making marketing calls any more than you like receiving them, but it’s something they have to do. It’s nothing to be nervous about, and you should put them at ease as well, if they appear new to the process.

Don’t be Negative

Don’t be negative about other staff, other districts, or other consultants.

Networking Opportunities

Consultants are going to look for every opportunity to network with TxDOT staff. It’s very important that you use your very best judgment in deciding who you’re doing something with, what you’re doing, who’s paying (even if it’s free), where you’re doing it, how often you do it, and who’s possibly seeing you do it. And does the new job you have today affect these decisions differently from the job you may have had just yesterday?

Just think about what you’re doing.

A. Consultant Marketing 4


B. Ethics

Objectives: ● Identify common ethical issues with engineering,

architecture, and surveying contracts.

Ethics, Morality, and Conflicts of Interest

The average person usually equates ethics and morality, but this is a mistake, and potentially a very serious one. Morality is about what is right or wrong and is generally grounded in religious or philosophical beliefs. Thus, it is typically subjective. Ethics is about what is permissible or impermissible and is generally grounded in law or other written standards. Ethics are objective benchmarks that govern behavior.

TxDOT employees are often confused by conflicts of interest. Some think that a conflict does not matter as long as the employee

does not allow the employee’s official duties to be affected. This confuses ethics and

morality. You may not consider it immoral to accept a benefit if you give the donor nothing in return, and that

moral question is between you and your conscience. It is unquestionably a conflict of interest, however. Letting

morality alone be your guide is apt to land you in serious ethical difficulties. A good

rule of thumb is that if you think something is wrong, it probably is. If you think there’s nothing wrong, though, you may be mistaken. The law is what it is, not what you think it should be.

A conflict of interest is not an action. It is a status. The principle is not that you have done something wrong, but that you are in a position where an objective observer may believe that you are serving two conflicting masters. Finding yourself in a conflict does not imply that you have done something wrong. Continuing to function as if the conflict did not exist causes a serious ethical problem that can have severe personal consequences and severe consequences to our contracts.

In the end, conflicts of interest are about public trust. You may know that you are a good person, but the public has a right to believe that public servants paid with public funds are serving only the public interest and not some other, private interest. If you find yourself in a position where the public might doubt you, however unjust you may consider those doubts, you need to evaluate your B. Ethics 5

Module 6 – The TxDOT and Consultant Relationshipposition carefully. The department needs its business to be transacted by persons who are perceived by the public to be serving only the public interest.

Ethical Standards in Texas Law

Texas law, in Government Code, Chapter 572, prohibits a state employee from having any direct or indirect interest that conflicts with the discharge of the employee’s official duties. This includes accepting or soliciting a gift that may influence the discharge of official duties or a benefit in exchange for the discharge of official duties. It also includes accepting employment or engaging in any business that would involve using confidential information obtained through the employee’s discharge of official duties. A state employee is also precluded from making any personal investments that might generate a conflict of interest.

Several laws address the problem of the “revolving door” affecting former state employees. The most important of these is that any former employee whose highest salary was at the minimum pay grade for B-9 may not receive compensation for any matter in which the employee participated as a state employee. “Participated” is defined very broadly to include any discussion or recommendation. “Matter,” however, is defined narrowly to include only a specific matter, such as a contract.

Another law prevents a former employee from entering a professional services contract or a consultant contract with that employee’s agency for one year after separation. This does not, however, prevent a contract with the former employee’s current employer, and as a result, it tends to have little practical effect.

Two laws apply directly to high-level executives. For four years, all contracts with the employer of a former executive director must be approved by the Transportation Commission. In addition, a former commissioner or executive director may not appear before the agency for two years after separation.

No law prohibits contracts between an agency and a relative of an employee. Government Code, §2262.004, however, requires a disclosure form when an employee makes decisions or recommendations with regard to a contract and the other party B. Ethics 6


employs a close relative. In this case, a close relative is defined as a relative within (are you ready?) three degrees of consanguinity or two degrees of affinity. What this boils down to is that you must

disclose if the consultant employs your great grandparent, grandparent, parent, aunt or uncle,

sibling, niece or nephew, spouse, child, grandchild, or great grandchild, or if the consultant employs

your spouse’s grandparent, parent, sibling, child, or grandchild.

It is a serious crime to accept a bribe or an improper gift or to misuse public property or

public information. It is also a crime to impersonate a government worker . . .

something some employees might worry about, perhaps.

The natural reaction of most employees at this point is complete lack of concern. Bribery and other criminal violations seem to be a very remote possibility to the average law-abiding employee. You should keep several very important points in mind, however. First, it happens. TxDOT employees have been convicted in the past for bribery and other criminal violations. Second, it never seems fair to the ones who are caught. They never think they’ve done anything wrong. Either they think it’s just not wrong, or they think it’s justified by some other wrong that’s been done to them, or they think it’s all right because everyone else does it and has done it forever. Third, it’s not about what you think or I think. It’s mostly about what a prosecutor thinks and what a jury thinks. What you see as a persuasive denial will just seem to them like any other criminal denying guilt. Prosecutors in particular are human beings who may themselves be motivated by politics or ambition to take down a state employee. Fourth, issues often come up as a result of accidents arising from other problems or as a result of some disreputable personal vendetta by someone with an unrelated complaint. Prosecutors make their livings by getting co-conspirators (like contractors) to testify and rat out state employees.

You may think it unfair that a TxDOT employee could be convicted by an ambitious prosecutor based on a complaint filed by someone with an unrelated ax to grind. If so, you have missed the point. The way to keep yourself safe is not to push the envelope in this area by making clever arguments and rationalizations to yourself, whining about the stupidity of the rules, and assuring yourself that there’s nothing really wrong about your actions and you’re only getting what’s coming to you. Know the rules, keep away from the gray areas, and stay safe out there.

B. Ethics 7


TxDOT Policies

TxDOT’s ethical policies are among the most rigorous in state government. This likely results from the high dollar volumes of the contracts we process. Employees are enjoined to avoid conflicts of interest. An employee may not benefit financially from a government transaction. An employee may not work part-time for a consultant without first obtaining written permission from the executive director. And, employees are required to avoid even the appearance of impropriety.

Perhaps the most attention in TxDOT is drawn to the policy that with few exceptions, an employee is not allowed to accept any gift, however trivial, from a person who does business with the department. While this is the general rule, it is the exceptions on which most people focus. Just keep in mind that in any legal endeavor, following the general rule is a safer course than trying to fit in an exception.

The exceptions to the rule against accepting gifts are very limited. First, an employee may accept an item of nominal value, no more than $25, if it is distributed generally as advertising. Second, an employee may visit a hospitality room if it is open to the public without restriction and if it is offered in conjunction with a TxDOT-approved event. Third, an employee may accept an ordinary working meal—and the more ordinary it is, the easier it is to defend.

In the end, contracting ethics are about legally enforceable standards of conduct that are as binding, and potentially as arbitrary, as any other rules or laws. Don’t guess, don’t assume, and don’t imagine that anyone else will protect you if you don’t protect yourself by doing the right thing.

B. Ethics 8


These exceptions do not apply, however, to TxDOT employees who are involved in the procurement process. If the gift originates from an entity that may benefit from a TxDOT contract within that employee’s job responsibilities, the employee may accept NO gifts—not a piece of pizza over a working lunch, not a baseball hat with the engineer’s name, not a soft drink at a hospitality room. If you’re involved in procurement, you need to chip in for your share of the food you eat at a meeting, restrain the impulse to pick up freebies at conference booths, and keep your hands in your pockets if you wander into a hospitality room.

Close relationships of any kind with consultants can create an appearance of impropriety. Avoid romantic entanglements with consultants, and if you cannot, don’t transact TxDOT business with any consultants who are littered with your current or former paramours.

Don’t transact personal business with a consultant; it may be the best architect around, but it’s certainly not the only one. Don’t buy stock in a consultant or work part-time for a consultant. And even if you have never been close to your nephew, be aware that the nephew’s employment with a consultant can force you into a nepotism disclosure, or land you on the front page.

B. Ethics 9



B. Ethics 10