600 KAR 6:070. Contracting for engineering
or engineering-related services.
RELATES TO: KRS 45A.800-45A.835, 45A.838,
23 C.F.R. 172, 23 U.S.C. 112, 121, 304, 315
STATUTORY AUTHORITY: KRS 45A.807(2),
NECESSITY, FUNCTION, AND CONFORMITY: KRS
45A.807(2) requires the Transportation Cabinet to promulgate administrative regulations
to implement its procurement of engineering or engineering-related services
pursuant to KRS 45A.800 to 45A.835. KRS 45A.838 requires the cabinet to
promulgate administrative regulations to establish requirements for
establishing and operating a pool of firms to provide professional contract
services. This administrative regulation sets forth the procedure to be used by
the Transportation Cabinet to select engineering or engineering-related
services while implementing the provisions of KRS 45A.800 to 45A.835.
Section 1. Methods of Contracting with
Consultants. (1) The following methods of contracting with a consultant shall be
(a) Lump sum;
(b) Cost plus a fixed fee;
(c) Specific rate of compensation;
(d) Cost per unit of work; or
(e) Other contract method approved by
(2)(a) If the cabinet chooses the lump
sum method of contracting, the consultant shall present a statement to the
Division of Program Performance showing the probable cost for the elements of
work and the expected operating margin.
(b) This statement shall include a
supported breakdown of the direct and indirect costs and subconsultant costs
which the consultant expects to incur.
(c) The method of dividing the project
into work units and the calculation of related time units shall be devised so
that the estimate can be easily reviewed.
(d) The Division of Program Performance and
the user division shall verify the following supporting documentation before
recommending the contract for approval:
1. Reasonableness of the amount proposed
and consideration of the degrees of risk and responsibility to be assumed by
2. The extent, scope, complexity,
character and duration of the required services;
3. Professional and financial investments
to be required of the consultant;
4. The consultant's normally-expected
return for services;
5. Conditions under which the consultant
is expected to perform;
6. The cabinet's estimate of the appropriate
amount for the services required; and
7. The cabinet's findings on the basis of
experience and knowledge.
(3)(a) If the cabinet chooses the cost
plus a fixed fee method of contracting, an upper limit of payment of actual
cost shall be established which shall not be exceeded without obtaining cabinet
(b) During negotiations, the Division of
Program Performance or other negotiation unit shall be responsible for
establishing the upper limit along with the fixed fee to be paid to the consultant
for the services required.
(c) The Division of Program Performance or
other negotiation unit shall establish the fixed fee and an upper limit based
1. Past experience gained from
negotiations of similar projects;
2. Judgment regarding scheduling;
3. Complexity of work; and
4. User division's estimate.
(4)(a) If the cabinet chooses the
specific rate of compensation method of contracting, the Division of Program
Performance or other negotiation unit shall document the basis on which the
amount specified as the upper limit or upset limit was established.
(b) The agreement shall contain
provisions which permit adjustment to this upper limit if the consultant
establishes, and the user division agrees, that there has been or is to be a
significant change in the:
1. Scope, complexity or character of the
services to be performed;
2. Conditions under which the work is
required to be performed; or
3. Duration of the work if the change
from the time period specified in the agreement for completion of the work
warrants that adjustment.
(c) For a statewide agreement under which
there is to be subsequent individual authorizations, the establishment of a
maximum amount for the overall contract shall be submitted to the LRC's Government
Contract Review Committee. A maximum amount shall be established for each of
the individual authorizations which shall not exceed the maximum amount for the
(5)(a) If the cabinet is using the cost
per unit of work method of compensation, the consultant shall be paid on the
basis of units completed.
(b) Cost per unit contracting shall be
appropriate for use if:
1. The extent of the work cannot be
accurately figured; and
2. The cost of the work per unit can be
determined with reasonable accuracy in advance.
(c) A proposal using this method of
contracting shall be supported in the same manner as that indicated for the
lump sum method used for consultants.
(6)(a) For an individual acting as a
consultant, the specific rates of compensation shall include the direct salary
costs, salary additives, indirect costs and the net fee. The agreement of supporting
data shall specifically identify these costs.
(b) Other direct costs may be included as
an element of a specific rate or as independent cost items.
Section 2. Prenegotiation Procedures.
(1)(a) A consultant selected pursuant to 600 KAR 6:060 shall meet with cabinet
representatives in accordance with the schedule identified in the procurement
bulletin issued pursuant to 600 KAR 6:050 to discuss in detail the scope of
services to be provided by the consultant for the project.
(b) The Transportation Cabinet may
require a consultant to obtain project-specific professional liability
insurance for an unusual project.
(c) If project-specific professional
liability insurance is required:
1. A firm's audit may be reexamined to
determine if a change in the overhead rate is needed; or
2. The consultants may jointly purchase
the insurance if there is more than one (1) consultant involved in the project.
(2)(a) After this prenegotiation meeting,
the consultant shall submit the following to the cabinet:
1. Official minutes of the prenegotiation
2. All required tasks and work units.
(b) The cabinet shall have the following
options regarding the submittal:
2. Modify and return the modification to
the consultant; or
3. Reject and ask the consultant to
evaluate and resubmit the work units.
(3) The consultant shall submit to the
Division of Program Performance a fair and reasonable fee proposal which shall
include the following:
(a) Personnel classifications and average
wage rates for each classification as they appear in the audit and adjusted for
work in the future years;
(b) Distribution of work by the personnel
(c) Overhead rates as determined by an
(d) Subconsultants and fee proposals for
(e) Direct expenses not included in the
overhead and subject to the limitations of subsections (5), and (6) of this
(f) Person-hours to achieve the agreed upon
task to achieve the scope of services that appear in the advertisement or procurement
(4) After the Division of Program Performance
requests a proposal and fee estimate from the consultant, the user division
(a) Prepare an estimate of resources
required to complete the project;
(b) Discuss the project with other
divisions and request resource estimates from them as necessary; and
(c) Coordinate all of the resource
estimates from other divisions to be used by the Division of Program Performance
in negotiation of the contract; and
(d) Submit an independent person-hour
estimate for each discipline in which the firm's fee proposal exceeds 500
(5) For contract negotiation purposes,
travel expenses for a consultant employee or survey crew shall be limited to
those incurred from an office in Kentucky or the border of Kentucky nearest the
(6) For contract negotiation purposes,
direct expenses shall be limited to the following items and limits:
(a) Reimbursement rates for travel
expenses related to mileage shall be the twelve-month average of reimbursement
rates in accordance with the provisions of 200 KAR 2:006 beginning January 1st
and ending December 31st;
(b) Printing of reports for distribution
external to the Transportation Cabinet - estimated cost from the printer per
(c) Special equipment which is
(d) Capital cost of money;
(e) Computer time, if accounted for as a
direct charge, shall not exceed fifteen (15) dollars per hour; and
(f) Travel time for survey crew - travel
time to and from a job site in hours multiplied by the survey crew wage rate
multiplied by one and three-tenths (1.3) for salary additives.
Section 3. Contract Negotiations. (1)(a)
The Division of Program Performance shall be the designated negotiating agent
for the Department of Highways in the Cabinet.
(b) If engineering or engineering-related
services are requested by user divisions within the cabinet but not in the
Department of Highways, that user division shall designate the negotiating
(2)(a) The Division of Program
Performance or other designated negotiation unit shall receive the proposal and
fee estimate from the consultant.
1. The proposal submitted by the
consultant shall include a breakdown of the estimated fee for performing the
work and one (1) of the following:
a. A statement that the payment shall be
based on the percentage of work completed; or
b. The proposed project milestones and
corresponding maximum percentage payments.
2. The breakdown of the estimated fee
a. Direct salaries;
c. Other direct costs including cost of
materials which are not included in the overhead;
d. Subconsultant costs;
e. Operating margin; and
f. Use of DBE firms.
(b) The Division of Program Performance or
other designated negotiation unit shall analyze the proposal and may confer
with others regarding the proposal as necessary. The proposal shall be used as
a basis for further negotiation of the professional services agreement.
(c) Unreasonable or deliberately inflated
proposals shall be rejected and may be cause for terminating negotiations in
accordance with KRS 45A.825(9).
(3) If the contract which is being
negotiated uses a method of compensation other than lump sum, the consultant
shall use an accounting system which segregates and accumulates reasonable, allocable
and allowable costs to be charged to a contract for an audit by the External
(4)(a) If a consultant intends to utilize
the services of a subconsultant to perform any part of the work, at the time of
negotiations the consultant shall submit a fee proposal for the amount of work
to be subcontracted.
(b) The fee proposal shall be based on
the audited overhead and wage rates for the subconsultant.
(c) A subconsultant shall be prequalified
with the cabinet to perform the services to be subcontracted to it if the
services are required to be prequalified.
(d) Prior approval from the Division of
Program Performance or other negotiation unit shall be necessary.
(e) If a consultant desires to utilize a
subconsultant to perform part of the work after a contract has been approved
and notice has been given to begin work, the procedures set forth in Section 6
of this administrative regulation shall be followed.
(5) A consultant which is awarded a
contract for engineering or engineering-related services with the cabinet shall
perform at least fifty (50) percent of the dollar value of the work for the
project unless otherwise approved by the Director of the Division of Program
Performance, or designee.
(6)(a) The operating margin allowed an
engineering or engineering-related services consultant shall be allowed only on
the negotiated direct labor and overhead costs regardless of the type of
contract and shall not exceed the following:
1. For a lump sum contract, fifteen (15)
percent of the total direct labor cost plus overhead costs for a contract,
including all contract modifications up to and including $2,000,000 and ten
(10) percent of the total direct labor cost plus overhead costs for a contract,
including all contract modifications, for the amount in excess of $2,000,000.
The subconsultant's fee negotiated as part of the contract shall not be counted
against the first $2,000,000; or
2. For a unit price contract, fifteen
(15) percent of the estimated unit cost at the time of execution of the
(b) A cost plus fixed fee contract shall
have a lump sum fee equal to ten (10) percent of the estimated cost at the time
of the execution of the agreement.
(7) The Division of Program Performance or
other negotiation unit shall compare the consultant's proposed fee with the
cabinet's estimate to determine both the reasonableness of the fee and areas of
substantial differences which may require further negotiation.
(8) The Division of Program Performance or
other negotiation unit shall negotiate with the consultant to establish a
reasonable fee and basis of payment, including incremental payments for
completed work if appropriate, for the services to be performed under the
(9)(a) The consultant shall keep written
documentation of each negotiation meeting and shall submit to the Division of
Program Performance or other negotiation unit the following:
1. Minutes of negotiations;
2. As-negotiated fee;
3. As-negotiated person-hours;
4. Classification percentage
5. Direct cost breakdowns.
(b) The public shall not be denied access
to the items set forth in paragraph (a) of this subsection.
(10) After the Division of Program
Performance or other negotiation unit has negotiated a contract, the head of
the unit shall comply with the provisions of KRS 45A.825(10).
Section 4. Contract Preparation and
Execution. (1) The Division of Program Performance or other negotiation unit
shall prepare an agreement or contract to cover the services to be provided,
method and amount of payment, the time of completion and necessary special
(a) The agreement shall include by
reference the General Provisions Attachment, unless the project is for a
consultant structure inspection.
(b) If the project is for a consultant
structure inspection, the agreement shall also include by reference the
Division of Maintenance, Consultant Inspection Provisions.
(2) The contract and negotiation minutes
shall be sent to the consultant for the signature of an authorized
representative. All original documents shall be returned to the Division of
Program Performance or other negotiation unit.
(3) The contract shall be reviewed and
approved by the secretary of the cabinet.
(4) For each project that has received
final approval for state or federal funding, the Division of Program
Performance shall retain the following documents:
(a) A copy of the contract;
(b) The negotiated fee and person-hours;
(c) The consultant's fee and person-hour
(d) The cabinet's person-hour estimate;
(e) The minutes of the negotiation;
(f) The minutes of the predesign
(g) A copy of the advertisement and
(h) The list of firms that responded to
the announcement in a timely manner;
(i) The written approval from the
secretary of the cabinet to engage a professional firm;
(j) The minutes of the Professional
Engineering and Engineering-related Services Selection Committee;
(k) The memorandum from the Chairman of
the Selection Committee stating the ranking of the three best-qualified firms
by the Professional Engineering and Engineering-related Services Selection Committee;
(l) The audit report of overhead and wage
rates which was used to establish the fee.
(5) If FHWA does not approve the
contract, the secretary of the cabinet, after discussion with the State Highway
Engineer and staff, may decide to modify the contract, redefine the project, terminate
the project or ask for reconsideration by the FHWA.
Section 5. Notice to Proceed and
Payments. (1)(a) Before a notice of approval for payment can be issued, funds
shall be encumbered by the cabinet.
(b) The funds for statewide contracts
shall be encumbered on a project by project basis.
(2) After the Division of Program
Performance or other negotiation unit receives notification indicating that the
LRC Government Contract Review Committee has received the contract and project
information for review, a notice to proceed shall be transmitted to the
consultant indicating that it may commence work but it shall not bill for
services until specifically authorized to do so. For projects requiring
approval of a unit of the federal government, notice to proceed shall not be
issued until the federal approval is obtained.
(3) If the LRC Government Contract Review
Committee issues a notification of acceptance on a contract, the Division of
Program Performance or other negotiation unit shall issue a letter to the
consultant informing it that it may bill the cabinet for charges incurred while
working on the project.
(4)(a) If the LRC Government Contract
Review Committee objects to the contract and the cabinet determines that the
contract is to be canceled, the Division of Program Performance or other
negotiation unit shall notify the consultant of the cancellation and shall take
necessary steps to close the contract.
(b) If the cabinet determines that the
contract is to be modified to comply with the concerns of the LRC Government Contract
Review Committee, the Division of Program Performance or other negotiation unit
shall notify the consultant of the necessary modifications and shall follow the
contract modification procedures specified in Section 7 of this administrative
(c) If the cabinet determines that the
contract is to be executed as submitted to the LRC Government Contract Review
Committee, the Division of Program Performance or other negotiation unit shall
issue a letter to the consultant informing it that it may bill the cabinet for
charges incurred while working on the project.
Section 6. Contract Administration. All
work performed under a professional services contract shall be subject to
general supervision, direction, review and approval by the cabinet. (1)(a) A
project manager shall be assigned to the project by the director or office head
of the user division.
(b) The division director or office head
may serve as the project manager.
(c) The project manager shall be
responsible for coordinating all cabinet activities with the consultant and for
providing necessary supervision through the duration of the contract. This coordination
shall include the following:
1. Scheduling, monitoring and controlling
the consultant's activities;
2. Reporting the status of these activities
to the appropriate authority;
3. Periodically reviewing the work to
determine if the work:
a. Is acceptable;
b. Is in accordance with the agreement
for the particular project; and
c. Scope has changed to the point that it
may require a supplemental agreement and increased or decreased compensation;
4. Completing and processing the
Consultant Monthly Report Form incorporated by reference in Section (9) of this
(2)(a) During the project, the consultant
may subcontract with other firms to perform specialized services in a manner
similar to Section 1(4) of this administrative regulation. The subconsultant
shall be prequalified by the cabinet in accordance with the provisions of 600
KAR 6:040 if the services that are subcontracted are required to be
(b) If the services to be performed by
the subconsultant are subject to prequalification by the cabinet and were not
previously identified in the original negotiation or subsequent contract
modifications, the consultant shall submit a request for a fee adjustment for
the person-hours to be performed by the subconsultant.
(c) If the subconsultant services are not
subject to prequalification procedures and exceed $25,000, they shall be
reviewed by the External Audit Branch for reasonableness of cost. For subcontracts
equal to or less than $25,000, the Director of the Division of Program Performance
or other negotiation unit, upon recommendation of the negotiator, may accept
the rates and costs if they are reasonable and in line with past costs incurred
for similar work.
Section 7. Contract Modifications. (1) If
it is determined by either the consultant or the cabinet that one (1) or more
of the following conditions are acceptable and necessary, a contract modification
for a fee or schedule adjustment may be requested:
(a) Change in termini or section;
(b) Addition of major phases of work to
the negotiated scope of work;
(c) Modification of previously approved
work resulting from factors beyond the control of the consultant;
(d) Modification of a major item, if in
the original contract, the item is designated as a basis of the original
negotiations and the conditions for a contract modification consideration are
identified in the original contract;
(e) Delay by the cabinet as outlined in
(f) Use of a subconsultant for services
previously identified to be done by the consultant or other subconsultant; or
(g) Availability of current audit
established in accordance with 600 KAR 6:080.
(2) The request for a contract
modification may be originated by the Division of Professional Services, user
division, highway district office or the consultant.
(3)(a) If the director or office head of
the user division determines the change is appropriate, the user division shall
advise the consultant in writing of the contemplated change in the scope,
complexity, extent, character or duration of the original agreement.
(b) If additional or reduced compensation
is justified, the user division shall request a revised proposal from the
(4) The contract modification shall be
negotiated using the procedures set forth in Sections 1, 2, and 3 of this
(5) The Division of Program Performance or
other negotiation unit shall send the Contract Modification form TC 40-17 to
the consultant for its approval.
(6) After approval by the cabinet, the
contract modification, LRC's proof of necessity form and other supporting
documentation shall be submitted to the LRC Government Contract Review Committee.
(7) For projects requiring FHWA
oversight, the approved contract modification shall be sent to the Federal
Highway Administration for approval.
(8) Funds shall be encumbered by the
cabinet sufficient to pay for the approved contract modification.
(9) If a contract modification results in
a fee negotiated for the contract modification in other than lump sum as a
method of compensation, the consultant shall use an accounting system which
segregates and accumulates allocable and allowable costs which are to be
charged to the contract modification.
Section 8. Completion of Contract. (1)
Upon completion of the contract, the cabinet shall review the work performed to
determine that it meets the terms and conditions of the contract and shall
evaluate the consultant for future reference.
(2) The project manager or the director
of the user division shall review the work performed by the consultant,
including any progress and final reports, to determine that all terms and
conditions of the contract have been met before processing the final voucher
for payment or releasing the consultant.
(3) Before approving the final invoice
for payment, the director of the user division or the project supervisor shall
evaluate the consultant and prepare written documentation of the consultant's
performance on the project.
(4) The user division shall send the
consultant written documentation of the consultant's performance for the
project. Copies of the documentation shall be placed in the contract file maintained
by the Division of Program Performance and in the consultant's experience
(5)(a) If a consultant receives a below
average rating, he may appeal, in writing, to the user division director within
thirty (30) days of receiving the rating notification.
(b) The written notice of appeal shall
specifically set forth the reasons why the consultant believes the below
average rating is erroneous.
(c) The appeal shall be conducted in
accordance with KRS Chapter 13B.
(d) At the conclusion of the appeal, if the
performance evaluation is revised, the initial documentation of the below
average rating shall be:
1. Removed from the file; and
2. Replaced with the revised performance
(6) The Director of the Division of
Program Performance or head of other negotiation unit shall request the
External Audit Branch to perform a final audit if appropriate. The audit shall
determine the total allowable contract costs and the total dollars to be paid
to the consultant. All contracts utilizing a cost plus fixed rate method of
payment shall be audited.
(7) The user division shall forward the
Federal Highway Administration a copy of all progress and final reports for
federal-aid projects if required or requested by the FHWA.
Section 9. Cancellation of Contract. (1)
Each professional service contract shall include a provision for the
termination of the agreement and shall allow for the cancellation of the
contract by the cabinet with proper notice to the consultant.
(2) If the cabinet decides to cancel a professional
services contract, the Division of Program Performance or other negotiation
unit shall notify the consultant of the cancellation and of the reasons for the
(3) The cabinet shall not be liable for
payment of services past the effective date of cancellation of the contract as
specified by the terms of the contract.
(4) The cabinet shall be liable for a
demobilization fee equal to ten (10) percent of the remaining balance of the
contract not to exceed $25,000, unless the contract is terminated due to
criminal, fraudulent, or negligent behavior.
Section 10. Payments to Consultants.
Before payment of a partial or final request for payment, the cabinet shall
review the work of the consultant, including any progress or final reports, to
ensure that the work for which the payment is to be made has been completed and
that the terms and conditions of agreement have been satisfactorily followed.
(1) During the course of the project,
progress billings shall be submitted by the consultant as agreed upon in the
contract. The consultant shall submit an Engineer's Pay Estimate, TC 61-408 and
a Consultant Monthly Report, Exhibit 200-02 as an invoice to the chief district
engineer or director of the user division or to their designees.
(2) The chief district engineer or
director of the user division or his designee shall review the Engineer’s Pay
Estimate and Consultant Monthly Report, verify that the work has been completed
as described in the document, and sign both forms.
(3) If an Engineer’s Pay Estimate is not
needed to be submitted to the chief district engineer or director of the user
division within a given month, the Consultant Monthly Report shall still be
(4) A final invoice and request for
payment shall not be authorized until after all work has been reviewed and
accepted or approved, including any final reports prepared by the consultant.
All terms and conditions of the contract shall be satisfactorily met and the
final audit shall be performed prior to processing the final payment.
Section 11. Incorporation by Reference.
(1) The following material is incorporated by reference:
(a) "Contract Modification",
Form TC 40-17, September 1999 edition;
(b) "Engineer's Pay Estimate",
Form TC 61-408, October 2002 edition;
(c) "Consultant Monthly
Report", Exhibit 200-02, August 2005 edition;
(d) "General Provisions Attachment
(Exhibit 15-06)", May 2003 edition; and
(e) Division of Maintenance Consultant
Inspection Provisions, May 1993 edition.
(2) This material may be inspected copied,
or obtained, subject to applicable copyright law, at the Transportation
Cabinet, Division of Program Performance, 200 Mero Street, Frankfort, Kentucky
40622, 8 a.m. to 4:30 p.m. (22 Ky.R. 1414;
Am. 1628; 1844; eff. 4-5-96; 24 Ky.R. 1378; 1693; eff. 2-19-98; 25 Ky.R. 1954;
2413; 2561; eff. 5-4-99; 29 Ky.R. 1881; 2489; 2884; eff. 6-3-03; 33 Ky.R. 552;
1314; eff. 11-9-06.)