In re: Docket ID Number DOT-OST , Geographic-Based Hiring Preferences in Administering Federal Awards

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1 May 6 th, 2015 United States Department of Transportation Docket Management Facility 1200 New Jersey Avenue S.E. W Washington, D.C In re: Docket ID Number DOT-OST , Geographic-Based Hiring Preferences in Administering Federal Awards The Highway Materials Group (HMG), an ad-hoc group comprised of eight national associations representing approximately one million direct jobs in the highway materials and equipment industry, submits the following comments in response to the United States Department of Transportation s (U.S. DOT s) notice of proposed rulemaking (NPRM) concerning geographic-based hiring preferences in administering Federal-aid contracts for highway and transit projects. While the HMG agrees with the U.S. DOT claim that Transportation investments and policies can improve access to jobs, education, and goods movement, while providing construction and operations jobs, we stand in strong opposition to the assertion that local and other geographic-based hiring preferences are essential to realizing such economic benefits, whether at the local, regional or national level. The HMG is for this reason and the reasons mentioned below opposed to U.S. DOT s proposal to permit geographic-based hiring preferences in administering Federal-aid contracts for highway and transit projects. A significant majority of roadway paving contractors are nomadic, often traveling more than 50 miles and increasingly, to other regions of the country to build, rehabilitate, and preserve our nation s highway pavements. These contractors tend to deploy the best of the best crews to meet demanding schedules; adapt to unforeseen challenges, and employ the problem solving abilities that are typically required of these projects. Good construction management personnel can work with construction personnel of varying degrees of experience, but the very best results and the best return on the investment of public monies occurs when the project is delivered by cohesive teams of people who have honed their skills and talents by working well together on multiple projects. 1 P age

2 In addition to this important consideration, there are other compelling reasons why we oppose both the one-year pilot program and the suggested permanent changes to regulations that would allow state and local governments to use local geographic hiring preferences on their Federal-aid highway and Federal transit-assisted contracts. We urge the U.S. DOT to consider these factors: Discrimination Local hiring preferences are discriminatory in nature as they allow one state/locality to overtly discriminate against residents of another state/locality. Restricting an individual s right to work based solely on where the person lives contradicts federal labor and employment law. Title 23 Part 635 subpart A of the U.S. Code of Federal Regulations states: Labor and employment. (b) No procedures or requirement shall be imposed by any State which will operate to discriminate against the employment of labor from any other State, possession or territory of the United States, in the construction of a Federal-aid project. Competition Geographic based hiring preferences disrupt the competitive bidding process, and are contrary to the efficient use of federal funds. Explicitly excluding potential bidders from participating solely because they are not located in a specific geographical area, overtly constrains competition. As an August 23, 2013, Memorandum Opinion for the Acting General Counsel Department of Transportation titled, Competitive Bidding Requirements Under the Federal-aid Highway Program (23 USC par. 112, Aug. 23, 2013) concludes, the efficient use of federal funds is the touchstone by which the legality of state procurement rules for federally funded highway projects is to be tested. As noted above, a significant majority of paving contractors are nomadic, and do most of their work away from home. The adoption of local hiring preferences would immediately and directly exclude a significant sector of the paving industry from participating. This will not only have a significant negative impact on the number of bidders and the level of competition, it will also result in less efficient use of federal highway funds. Another consideration is how geographic based hiring preferences impact the efficacy of federal stewardship on Federal-aid projects. Although state and local agencies play a key role in executing the Federal-aid highway program, the federal process requires that they be delivered efficiently through procurement methods that are free from local political pressures and biases. If local hiring preferences are allowed, the Federal-aid program is much more susceptible to such local influences and pressures. This is why Congress, in the Federal Highway Act of 1954, instructed that the Secretary had to require as a condition precedent a sworn statement, executed by or on behalf of the person or entity to which such contract is to be awarded, certifying that such person or entity has not, either directly or indirectly, entered into any agreement, participated in any collusion, or otherwise taken any action in restraint of free competitive bidding in connection with such contract. (23 USC par. 112, Aug. 23, 2013) Cost This pilot program and the longer term initiative especially if codified as policy changes in procurement requirements would add significantly to project costs, forcing contractors to recover those costs by factoring them into bids. Workers hired to meet local hiring preferences typically do not become fulltime permanent employees as contractors move from one locale to another building project. This 2 P age

3 places a burden on employers who must constantly train an influx of new workers, and invest time and money in assimilating an influx of temporary workers. To compete for contracts in areas with local hiring preferences, contractors are routinely forced to lay off part of their well-trained, highly skilled, and loyal work force in order to hire unknown individuals who reside in the preferred geographic location. If faced with local hiring preferences, contractors would have to invest time and money in additional training, not only to develop or hone the basic skill sets of workers performing varied functions, but also for other purposes. For example, contractors would have to provide additional training on safety, as well as unique operational issues, such as the safe and proper use of equipment, tools, materials, etc., which naturally will vary from contractor to contractor. If these efforts were multiplied by the many locations contractors typically have active projects, the effect will undoubtedly be significant added costs. Current regulations Current regulations in 2 CFR Part 1201 are sufficient and are rooted in a firm understanding of Congressional intent. It is with good reason that CRF Title 2 Subtitle A Chapter II, Part 200 states (emphasis added): Competition. (a) All procurement transactions must be conducted in a manner providing full and open competition consistent with the standards of this section. In order to ensure objective contractor performance and eliminate unfair competitive advantage, contractors that develop or draft specifications, requirements, statements of work, or invitations for bids or requests for proposals must be excluded from competing for such procurements. Some of the situations considered to be restrictive of competition include but are not limited to: (1) Placing unreasonable requirements on firms in order for them to qualify to do business; (2) Requiring unnecessary experience and excessive bonding; (3) Noncompetitive pricing practices between firms or between affiliated companies; (4) Noncompetitive contracts to consultants that are on retainer contracts; (5) Organizational conflicts of interest; (6) Specifying only a brand name product instead of allowing an equal product to be offered and describing the performance or other relevant requirements of the procurement; and (7) Any arbitrary action in the procurement process. (b) The non-federal entity must conduct procurements in a manner that prohibits the use of statutorily or administratively imposed state, local, or tribal geographical preferences in the evaluation of bids or proposals, except in those cases where applicable Federal statutes expressly mandate or encourage geographic preference. Nothing in this section preempts state licensing laws. When contracting for architectural and engineering (A/E) services, geographic location may be a selection criterion provided its application leaves an appropriate number of qualified firms, given the nature and size of the project, to compete for the contract. As detailed in the August 23, 2013, U.S. DOT General Counsel Memorandum Opinion (23 USC par. 112, Aug.23, 2013), this regulation is rooted in a long history of legislative and judicial precedents. 3 P age

4 Regulatory Analysis It is the HMG s opinion that U.S. DOT s regulatory analysis and interpretation are erroneous and incomplete. Despite the U.S. DOT s NPRM claims to the contrary, allowing geographic based hiring preferences is likely to unduly limit competition. As the Memorandum Opinion states in the opening paragraphs (emphasis added); Generally, state or local government requirements that eliminate or disadvantage a class of potential responsible bidders to advance objectives unrelated to the efficient use of federal funds or the integrity of the bidding process are likely to unduly impede competition in contravention of the substantive component of section 112 s competitive bidding requirement It is the HMG s position that U.S. DOT misinterprets the Memorandum Opinion, and that state or local requirements that eliminate or disadvantage a class of responsible bidders through geographic based hiring preferences is, in fact, likely to unduly limit competition. As articulated in the 2013 Memorandum Opinion (emphasis added): we believe that FHWA will rarely, if ever, be in a position to conclude that state or local requirements that eliminate or disadvantage a class of responsible bidders (for reasons unrelated to the necessary work) to advance objectives that neither enhance the efficient use of federal funds nor protect the fundamental integrity of the bidding process are compatible with the competitive bidding requirement of section 112. Nowhere in the U.S. DOT s regulatory analysis does it show how geographically based hiring preferences will either enhance the efficient use of federal funds or protect the fundamental integrity of the bidding process. In fact, the U.S. DOT s stated objectives of this program are inconsistent with the objectives stated above. The NPRM states that the objective of this rulemaking and pilot program is to promote Ladders of Opportunity for the workers in these communities by ensuring that they participate in, and benefit from, the economic opportunities such projects present. Moreover, the 2013 Memorandum Opinion reaffirms the U.S. DOT s posture articulated in a 1986 opinion regarding Congressional judgment that: the efficient use of federal funds afforded by competitive bidding is to be the overriding objective of all procurement rules for federally funded highway projects, superseding any local interest in using federal funds to advance a local objective, however laudable, at the expense of efficiency. The HMG believes that U.S. DOT both misinterpreted the 2013 Memorandum Opinion, and has failed to show how this program and regulation would enhance the efficient use of federal funds or protect the integrity of the bidding process. U.S. DOT s regulatory analysis suggests that the proposed action would not be a significant regulatory action within the meaning of Executive Order and would not be significant within the meaning of DOT regulatory policies and procedures. It is the HMG s posture that, as detailed in the section on Competition above, the proposed changes would, in fact, adversely and significantly affect a significant majority of the highway construction community. The adoption of local hiring preferences would 4 P age

5 exclude a significant portion of the paving industry from participating. Therefore a full regulatory evaluation of this action is required. Moreover, the U.S. DOT regulatory analysis did not include Executive Order Principles for Federal Infrastructure Investments (January 26, 1994). This executive order directs agencies to minimize legal and regulatory barriers to private sector participation: Consistent with the public interest, agencies should work with State and local entities to minimize legal and regulatory barriers to private sector participation in the provision of infrastructure facilities and services. It is the HMG s contention that the current proposal contradicts the intent of this executive order, and that the U.S. DOT is obligated to analyze and assess the impact of the proposed action with the principles and criteria contained in Executive order in mind. Conclusions The HMG opposes the U.S. DOT s pilot program and other regulatory initiatives aimed at geographicbased hiring preferences in administering federal awards. We feel that the proposed actions are discriminatory, will limit competition, will compromise the integrity of the bidding process, will increase costs to the public, and are based on an erroneous and inadequate regulatory analysis. The pilot program and the NPRM are focused on objectives that are not consistent with the overarching goal of procurement rules for Federal-aid contracts. As stated in a 1986 opinion, the U.S. DOT Office of Legal Counsel reaffirms that the efficient use of federal funds is the touchstone by which the legality of state procurement rules for federally funded highway projects is to be tested. U.S. DOT has failed to show how the proposed action addresses the efficient use of federal funds. Instead, we urge the U.S. DOT to focus on voluntary efforts that maximize the economic growth and jobcreating opportunities presented by transportation construction. These are not only the best practices in terms of public policy, but also have long served the best interests of taxpayers and all entities responsible for constructing, rehabilitating, and preserving our nation s surface transportation infrastructure. Respectfully, Associated Equipment Distributors National Stone Sand & Gravel Association Concrete Reinforcing Steel Institute National Ready Mixed Concrete Association National Asphalt Pavement Association Association of Equipment Manufacturers American Concrete Pavement Association Portland Cement Association 5 P age