NEW YORK STATE DEPARTMENT OF TRANSPORTATION



NEW YORK STATE DEPARTMENT OF TRANSPORTATION

CONSULTANT INSTRUCTION

SUBJECT: PROFESSIONAL ENGINEERING, LAND SURVEYING, AND ARCHITECTURE CONSULTANT CONTRACT NEGOTIATION PROCESS

DATE: June 19, 2006 CODE: 06 – 03 SUPERSEDES: 95-02

APPROVED: ______________________________________________________

R. ALBERTIN, DIR., CONTRACT MANAGEMENT OFFICE

CONTACT PERSON: VINCENT PALLESCHI TELEPHONE: (518) 457-2600

The purpose of this Consultant Instruction is to provide a description of the cost negotiations process used by NYSDOT and the consultant community to negotiate agreements for Architectural, Engineering, Land Surveying and other professional engineering type services. These procedures incorporate all requirements of Section 136-a of the State Finance Law and conforms to 23 CFR Section 112(b) (2) as modified by Public Law 109-115, HR 3058. These procedures will be used to negotiate all Cost Plus Fixed Fee and Cost Plus Net Fee agreements. The principles described herein shall also be applied to determining a fair and reasonable value for Lump Sum and Specific Hourly Rate agreements.

Section 136-a of the State Finance Law stipulates that agencies select the highest qualified consultant for a project, and then negotiate a fair and reasonable cost for the services. The 1994 amendment to 136-a adds that negotiations cannot be terminated solely based upon the "ratio of the allowable indirect costs to direct labor costs of the professional consultant or the hourly labor rate in any category of the professional consultant exceeds a limitation generally set by the department in the determination of the reasonableness of the estimated cost of services to be rendered by the professional consultant. 23 CFR Section 112(b) (2) requires the application of a consultant’s accepted overhead rate for the purpose of contrast estimation, negotiation, administration, reporting and payment without limit by any ceiling of any kind. “However, the NYSDOT is obligated to "consider the reasonableness of cost based on the total estimated cost of the service." The NYSDOT may terminate negotiations based upon the determination of a fair and reasonable total estimated cost figure by the Department and the refusal of the selected consultant to meet that figure.

The first phase of contract negotiations establishes the effort required to implement the SCOPE of Services, it involves determining appropriate labor titles and grades, work hours and direct non salary cost (DNSC) items. The Department’s Consultant Job Manager (CJM) should confine his/her negotiations with a consultant to scope of services related issues and should not discuss the reasonableness of salary, overhead, and fee costs. The CJM may discuss the quantity and cost of DNSC items with the consultant. CJMs can not consider terminating negotiations with a consultant based upon cost issues. Any CJM that believes significant cost issues exist relative to an agreement should discuss that situation with the Contract Analyst assigned to that project. Regardless of the services being provided, the negotiation of cost is the responsibility of the Contracts Analyst and it will be accomplished in strict conformance with Section 136-a of the State Finance Law. Contract Analysts should keep the CJM apprised of any cost issues that may affect the agreement.

Segregation of technical and cost negotiations is required because the State's fair and reasonable total cost estimate is defined as the fair and reasonable pricing of the titles, hours, DNSC, actual OH and level of fee, necessary to complete a project. The CJM has the knowledge associated with the hours and effort portion of the cost estimate and the Contract Analyst has knowledge of the labor, overhead and fee rate portions of the cost estimate.

The steps in the negotiation process are as follows:

1. PRE-SCOPE MEETING ACTIVITIES

The Program Area prepares the Consultant Scope of Services and an independent estimate of staffing requirements and DNSC prior to designation. The Consultant Scope of Services and a summary of the independent estimate are sent to CMB. While they may be subsequently altered in step 2 or 3, they are the initial basis for the Departmental estimate of fair and reasonable cost. The scope of services is transmitted to the designated consultant by the CMB.

Once both the CJM and the consultant are notified of the tentative designation by the CMB Analyst, the CJM and the consultant should begin their discussions on scope and staffing requirements.

2. SCOPE OF CONSULTANT SERVICES MEETING

The Department conducts a scope of services meeting with the consultant team. The CJM presents and discusses with the consultants the scope of services and the advertised project complexity. The Department and the consultants discuss in detail the tasks, technical assumptions, deliverables, DNSC, project schedule, and need for premium time. Measures which help define the work effort are discussed and agreed upon (e.g., number of test pits and borings; coverage of surveys; quantities of DNSC). This should be done in as much detail as possible in order to permit the prime consultant's first proposal to address all aspects of the services required for the project. The prime consultant may present more efficient and/or cost reduction methods for discussion with the Department. The CMB Analyst discusses administrative, contractual and processing information. The Civil Rights Unit of CMB or a Regional Compliance Specialist will discuss Minority/Women's Business Enterprise goals (for STATE funded projects) or Disadvantaged Business Enterprises goals (for Federal funded projects) and training requirements.

3. SCOPE NEGOTIATIONS

A. GENERAL GUIDELINES

During the negotiation process, the CJM and the Consultant finalizes the Scope of Services, including technical assumptions. The CJM and the Consultant will negotiate the scope of services, estimated work hours by ASCE/NICET grade for each task or month (Staffing Table), a work complexity rating and DNSC. Labor rates, overhead rates and proposed fixed or net fee amounts will be negotiated with the CMB Analyst at a later stage or previously negotiated in Specific Hourly Rates.

B. DESIGN AGREEMENTS

The Consultant’s proposal submitted to the CJM for negotiation purposes will consist of titles & grades, hours by titles and task (Staffing Table) and DNSC. The proposal should not include average or maximum labor rates and costs, overhead costs or fixed fee information. When agreement has been reached with the CJM, the Prime Consultant sends a final version of the Scope of Services, Staffing Table and DNSC to the CJM without labor, overhead or fee costs. The CJM then transmits the approved Staffing Table, DNSC, complexity ratings (for each consultant on the team), Executive Summary and Scope of Services, including technical assumptions, with a standard cover memorandum to the CMB Analyst.

C. CONSTRUCTION INSPECTION (CI) AGREEMENTS

The Consultant’s proposal submitted to the CJM for negotiation purposes will consist of titles & grades, hours by titles and month (Staffing Table) and DNSC. To facilitate negotiations, the Department will attempt to provide the Consultant with an initial estimate of proposed staffing with hours. As a means of expediting the negotiation of CI agreements, the proposal may also include average and maximum labor rates (Salary Schedule) and costs, overhead costs and net fee information. Although labor rates, overhead rates and net fee may be included in the initial proposal, they will be negotiated only by the CMB Analyst. The CJM negotiates titles & grades, hours and DNSC items, but not the value of labor, overhead and fee associated with those items. When agreement has been reached with the CJM, the Prime Consultant sends technical assumptions, Salary Schedules, Staffing Tables, DNSC and Summary pages to the CJM. The CJM then transmits the approved Salary Schedules, Staffing Tables, DNSC, Summary pages, complexity ratings (for each consultant on the team) and the final version of the scope of services and technical assumptions with a standard cover memorandum to the CMB Analyst.

D. The Scope of Services and estimated staffing to be included in the agreement shall reflect only those tasks and hours that can be reasonably assured to be performed and fully funded as a result of the agreement being negotiated. Generally, scope tasks and hours that are to be performed in subsequent supplemental agreements should not be included in the original agreement; they should be detailed and incorporated into the agreement during the processing of the subsequent supplemental agreements. The CJM should state in the Executive Summary what additional phases of work may be expected to be performed and funded under supplemental agreement(s).

4. CONSULTANT COST PROPOSAL

A. GENERAL GUIDELINES

Final proposals (including diskette or CD) are submitted to the CMB Analyst for financial negotiations. The final cost proposal should be in both Excel and pdf formats. In lieu of submitting electronic files on a diskette or CD, they may be e-mailed as attachments to the appropriate CMB Analyst. In accordance with Consultant Instruction 96-08, overhead rates should correspond to the split rate appropriate for the type of services to be provided (e.g., office rates for design, field rates for construction inspection).

B. DESIGN AGREEMENTS

The prime consultant prepares and sends the complete final proposal (including diskette or CD) with complexity rating justification statements (for each consultant on the team), scope of services, Salary Schedule, Staffing Table with labor rates, fully detailed DNSC, proposed overhead rate and fixed fee for each consultant to the appropriate CMB Analyst only. The CMB Analyst will compare the final proposal submitted by the Consultant with the information approved and submitted by the CJM (see item 3.B. above) and verify that the information is consistent.

C. CONSTRUCTION INSPECTION AGREEMENTS

As noted in item 3.C. above, the CJM will submit the complete final proposal (including diskette or CD) to the CMB Analyst.

5. COST ANALYSIS AND COMPARISON

The CMB Analyst first verifies that the consultant's final proposal includes appropriate and accurate data. Prevailing wage rates, labor rates correlating to certified salary rosters, audited overhead rates (either by a pre-award audit performed by the Department or use of a previously completed audit), and DNSC are checked for reasonableness and conformance with the State Comptroller's reimbursement guidelines. Necessary adjustments are made to the consultant’s final proposal as a result of this verification process.

Based on the adjusted final proposal, the CMB Analyst then establishes a bottom line figure using industry salary data and annualized salary projection factors and the consultant’s actual overhead rate or the appropriate industry overhead rate, which ever is greater. A corresponding fee will also be calculated using industry data and applying the appropriate multiplier (see item 5.D. below). Together, that computation represents NYSDOT's determination of the fair and reasonable value of the project to the Department and is referred to as the Department’s bottom line.

The consultant's adjusted final proposal is then compared with the Department's bottom line figure. The CMB Analyst regularly keeps the CJM informed as to progress during this process. If the consultant's final proposal is acceptable, the contract is prepared. If it is higher, the CMB Analyst commences preliminary negotiation to reach the Department's bottom line figure. If necessary, the bottom line figure is presented to the consultant in writing in the final phase of cost negotiations.

The bottom line is calculated as follows:

A. Direct Labor

1. Labor hours agreed to by the consultant and the CJM.

2. Salary rates applied using industry data on file at CMB.

3. Salary for principals, officers and professional staff shall not exceed the salary of the Chief Engineer of the NYSDOT.

4. Salary rates are projected to the project’s mid-point using an established annualized projection factor.

B. Overhead Rate (OH)

The Department’s OH analysis for surveying, civil engineering and multi-discipline consultants is based on each consultant’s actual audited overhead or the aggregate industry complexity overhead rate for the services to be performed, whichever is greater. The complexity rating is either routine, or moderately complex or complex (50th, 65th and 75th percentiles, respectively, of latest industry rate data updated quarterly). Percentiles are derived from the most recent industry data complied over the past 24 months and on file at CMB for the type and relative location of services to be provided (e.g., office rates for design, field rates for construction inspection, or other appropriately segregated rate that has been reviewed and approved by the NYSDOT Contract Audit Bureau).

In Fixed Fee or Net Fee agreements if the consultant team’s proposal is below the Department’s “Bottom Line” calculation any consultant in that proposal having an initial overhead rate below the industry aggregate 65th percentile may be authorized to invoice increases in its documented overhead rate (float) during the term of that agreement. All authorized increases (float) in overhead rate invoices during the term of an agreement are limited to the lesser of the industry aggregate 65th percentile rate or 20 additional percentage points above the consultant’s initial overhead rate, as specified in the agreement. Prime consultants are reminded that if any consultant participates in the OH “float” provision of its agreement, the prime is responsible for the provision of all negotiated services within the established Maximum Amount Payable for its team. Supplemental agreements will not be processed to provide additional funding for increases in overhead rates for any team member. Should a consultant’s overhead rate decrease during the term of an agreement, it is required to invoice for its services at that lower overhead rate and retroactively adjust its invoices to correct any prior invoices that didn’t reflect its appropriate reduced overhead rate.

C. DNSC

Review of CJM approved detailed item description with verification using the State Comptroller's rates where applicable.

D. Fee

Fee is authorized at a rate of 11% when any individual consultant’s aggregate fee components are less than $500K and at a rate of 10% when any individual consultant’s aggregate fee components equals or exceeds $500K. Project complexity will also be a consideration in the calculation of the fee component. The $500K threshold is a cumulative amount applicable to each individual consultant in an agreement and is carried forward should supplemental agreements be required.

6. FINAL COST NEGOTIATIONS

Cost negotiations are only required if the consultant's approved proposal (as verified by CMB) is higher than the Department's fair and reasonable total cost estimate. During negotiations, the consultant may ask the Department to consider special circumstances that may warrant revision of the Department's bottom line total cost estimate. The consultant may revise its proposed reimbursement rates for overhead, fixed fee, and labor, including projected salary increases, in order to meet the Department's fair and reasonable estimate and avoid impasse.

The consultant is given an opportunity to revise its proposal to meet the Department's bottom line during negotiations. After one or two proposals and/or after a reasonable period of time for negotiations (as determined by the Department) have passed without agreement, the Department will consider that negotiations are at an impasse, and, after dedesignation of the consultant, will officially begin negotiations with the next most qualified consultant.

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