U.S. Transportation Secretary Anthony Foxx March 3 announced a one-year pilot program that will allow state and local transportation agencies to utilize local hiring preferences on federal-aid highway and transit projects. Previously, the U.S. Department of Transportation (DOT) has interpreted these preferences as conflicting with federal law, which requires federal-aid contracts to be awarded through a competitive, low-bid system, unless otherwise specified in another part of the statute. In launching the pilot program, U.S. DOT is citing a 2013 legal opinion from the U.S. Department of Justice, which now interprets federal law as giving U.S. DOT discretion to permit local hiring preferences provided they do not “unduly limit competition” in federal-aid procurement.

U.S. DOT also notes that Congress “diminished the legal effectiveness” of the long-time ban on geographic hiring preferences when it included a provision in the FY 2015 appropriations bill essentially allowing these preferences to be included in federal-aid transit projects during the current fiscal year. ARTBA and several other national construction associations urged all members of Congress to oppose this provision noting that it misunderstands the nature of transportation construction work and would shift the focus of the federal-aid procurement process away from maximizing taxpayer value.

U.S. DOT will be using the Federal Highway Administration’s (FHWA) Special Experimental Project No. 14 (SEP-14) program, and parallel programs at the Federal Transit Administration (FTA), as the mechanisms for considering and approving federal-aid projects with hiring preferences going forward. Since its inception in 1990, SEP-14 has been used to “evaluate non-traditional contracting techniques which are competitive in nature but do not fully comply” with low-bid requirements.  Previously, FHWA has used SEP-14 to allow certain states to use cost-plus-time bidding, lane rental, design-build contracting, warranty clauses and construction manager/general contractor (CM/GC) method on federal-aid highway projects. It should be noted, however, that hiring preferences seek to achieve a societal goal, while the SEP-14 process has largely focused on advancing procurement innovations.

U.S. DOT noted that the pilot program will allow for the potential approval of geographic, income-based and veteran preferences. The department asserts that allowing the preferences will enable “disadvantaged workers in the communities where projects are located to benefit from the economic opportunities such projects represent.” U.S. DOT stated, however, that any preferences which attempt to alter requirements of the federal Disadvantaged Business Enterprise (DBE) program would not be permitted.

It is important to note that a state or local transportation agency would need to initiate a hiring preference and seek approval from FHWA or FTA through the pilot program.  Three mayors—Eric Garcetti (D) of Los Angeles, Kasim Reed (D) of Atlanta and William Bell (D) of Birmingham, Ala.— endorsed the program as part of Secretary Foxx’s announcement.

U.S. DOT will be requesting public comments when it publishes information about the pilot program in the Federal Register in coming days. ARTBA intends to submit comments, and would appreciate any feedback from contractors and other members on this issue.  ARTBA also encourages its members and chapters to submit comments on their own. We will provide full information on this process when it is available. Please contact ARTBA Vice President of Regulatory Affairs Nick Goldstein with any questions.