Chapter 10 — Consultant Selection

QBS, sealed cost proposals, and the audit-or-die principle

Chapter 10 has the highest stakes of any LAPM chapter at the LPA level — improper consultant procurement is the single largest source of disallowed costs in audit findings. The procedural framework is unforgiving: "Comply with Chapter 10 or be ineligible for reimbursement."

Definition of A&E. Per 23 CFR 172 and California Government Code 4525: "program management, construction management, feasibility studies (includes environmental studies and analysis), preliminary engineering, design, engineering, surveying, mapping or architectural related services." This definition is broad — environmental consulting, surveying, CM, all fall under A&E procurement.

Brooks Act core rule (40 USC §§1101–1104). LPAs must award federally-funded A&E contracts based on:

1. Fair and open competitive negotiations
2. Demonstrated competence (23 CFR 172)
3. Professional qualifications
4. At a fair and reasonable price (48 CFR 31.201-3)

The procurement sequence — drilled into LAPM:

1. Cost proposals submitted to LPA must be sealed and must not be included as a criterion for rating
2. After ranking by qualifications only, cost negotiations begin with the most qualified consultant
3. Only the top-ranked firm's cost proposal is opened
4. If negotiations fail to produce a fair and reasonable price, they must be formally terminated in writing
5. LPA then negotiates with the second most qualified consultant
6. If those fail, formally terminated, proceed to third, and so on

Subcontracted Services. The consultant's organization and all associated consultants and subconsultants must be identified in the proposal. To use a subconsultant not specified in the proposal, prior written approval from the LPA is required. All subawards must include adequate oversight, management, and administration per 23 USC §106(g)(4) and 2 CFR 200.331-333.

Conflicts of interest (23 CFR 172.7(b)(4)) require the LPA to maintain a written code of standards of conduct. The five COI prohibitions:

1. No LPA employee participating in procurement/management/administration of federal-funded contracts may have any direct or indirect financial or other personal interest in the contract
2. No person/entity performing services may have any direct or indirect financial or personal interest, other than employment by the LPA, in any contract or subcontract on the project
3. No person/entity performing services may have any direct or indirect financial interest in any real property acquired for the project
4. No LPA employees or agents may solicit nor accept gratuities, favors, or anything of monetary value from consultants
5. LPA must promptly disclose in writing any potential conflict of interest to FHWA

Multi-phase contracts: a contract for design phase services may NOT be amended to include construction phase services unless the construction phase services were included within the original advertised scope of services and evaluation criteria of the solicitation from which a QBS was conducted. All consultants in management support role must complete Exhibit 10-U (CMSR COI Statement) and retain in LPA files.

Authorization to Proceed (E-76) prerequisite. FHWA must give the LPA an E-76 prior to performing work for which federal reimbursement is sought. Eligible consultant contracts may be procured using local funds prior to E-76, but reimbursement is only for work performed after the E-76 authorization date. If contract is procured using state or local funds, federal procedures must still have been followed if federal reimbursement is sought.

Contract administrator, segmenting work, scope, and method of payment

Contract Administrator. Designated as soon as the need for consultant services is identified. Must be a qualified LPA employee or have staff that is qualified. On Federal-aid contracts, the Contract Administrator or staff must be a full-time public employee familiar with the work and the standards to be used. The CA's duties are detailed in 23 CFR 172.9(d)(1) — including contract negotiation, payment, evaluation of compliance, performance/quality of services, knowledge of contract requirements/scope/products, evaluating personnel changes, monitoring progress, documenting contract monitoring activities (per 2 CFR 200.332-334), preparing/distributing RFQ/RFP, preparing draft contract, ensuring independent cost estimate, ensuring fee/profit negotiation, closing out the contract.

Segmenting Consultant Work. "Consultant services are most effective when consultant work is segmented appropriately." Combining preliminary engineering tasks with the required environmental analysis is normally desirable. Final design must not begin until NEPA environmental approval has been received if federal reimbursement is desired.

Title VI Assurances (Appendices A and E — required in each consultant contract per Exhibit 10-R Article XXXII).

DBE Participation requirements under 49 CFR 26 carry forward from Ch 9 — see Exhibit 10-I (Notice to Proposers DBE Information), 10-O1 (Proposal DBE Commitment), 10-O2 (Contract DBE Commitment).

Estimated Cost of Consultant Work — the Independent Cost Estimate (ICE). Per 23 CFR 172.7(a)(1)(v)(B): an independent estimate for cost or price analysis is needed for all consultant contracts. ICE must be prepared prior to opening the cost proposal from the top-ranked consultant, so the LPA has a cost comparison. ICE is for the use of the LPA's negotiating team — kept confidential and maintained in records.

Three cost estimating techniques:

• Analogous — actual cost of previous similar contract; less accurate; expert judgment
• Parametric — statistical relationship between historical data and variables; higher accuracy
• Bottom-up — estimate individual work items, sum up; should include estimated hours per task, labor cost (professional and non-professional), subconsultant costs, other direct costs, profit

Contract Type

On-call task order assignment must follow one of two acceptable procedures (per 23 CFR 172.9(a)(3)(iv)(B)):

1. Mini-RFP (additional QBS): task orders solicited among multiple on-call consultants via informal solicitation with evaluation criteria. Mini-RFP evaluation criteria can include availability of personnel, staff capabilities, DBE (≤10% of overall score), completion time, consultant experience, specialized expertise, past performance. Recommend at least 3 panel members.
2. Regional basis: each on-call consultant contracted to a designated area.

Rotational task order award does NOT meet QBS intent. If only one proposal is received or emergency, a Non-Competitive process must be justified and Exhibit 12-F documented and signed by DLAE.

Method of Payment

Per 23 CFR 172.9(b), four methods are permitted. A single contract may contain different payment methods for different work elements. Markups are NOT allowed on any method. Cost plus a percentage of cost and percentage of construction cost methods are explicitly prohibited.

Changes to cost proposal requiring IOAI resubmittal: consultant/subconsultant name change; new participating subconsultant's ICR; change in ICR rate. Since these changes require an amendment, the LPA must update the A&E Consultant Contract form.

ICR, Safe Harbor Rate, the $1M threshold, and what IOAI does

Every A&E contract using state or Federal-aid highway funds is subject to audit or review by Caltrans Independent Office of Audits and Investigations (IOAI), other state audit organizations, or the federal government. Not all are audited — risk-based selection.

Applicable standards serve as audit benchmarks:

• LAPM (this manual)
• Master Agreements between LPAs and Caltrans
• Project Program Supplemental Agreements (PSAs)
• 23 USC §112 — Letting of Contracts
• 40 USC Ch 11 — Brooks Act
• 23 CFR 172 — Procurement, Management, and Administration of Engineering and Design Related Services
• 48 CFR (FAR) Part 31 — Contract Cost Principles and Procedures
• 48 CFR Ch 99 — Cost Accounting Standards Board
• 2 CFR Part 200 — Uniform Administrative Requirements
• US GAO Government Auditing Standards (GAGAS)
• California Government Code §§4529.5, 4529.10-4529.20
• AASHTO Uniform Audit and Accounting Guide

Allowable Costs

Per 23 USC §112(b)(2)(B), any A&E contract using Federal-aid highway funds must be performed and audited in compliance with federal cost principles. LPAs must perform cost analysis to ensure all costs are allowable, reasonable, allocable, and in compliance.

Hourly rates and ICRs must be supported with required financial documents (IOAI Financial Document Review Request form). Costs not adequately documented are presumed not incurred or not properly recorded — and are subject to disallowance and repayment.

Safe Harbor Rate (SHR)

The SHR is DLA's adoption of Caltrans DPAC's Safe Harbor Rate to relieve smaller/newer A&E firms from the burden of developing FAR-compliant ICRs annually. Eligible firms can voluntarily use the established SHR on new A&E contracts using Federal-aid highway funds executed by LPAs.

Use of the SHR provides reasonable assurance of compliance with federal cost principles per 23 CFR 172.11(c)(2). SHR-approved firms still have their accounting system evaluated for capability of accumulating and tracking direct labor.

LPA responsibilities for SHR:

• Collect and screen all requests to use the SHR (Consultant Firm Certification of Eligibility form)
• Submit all SHR documents to IOAI as part of Financial Document Review Request package (Conformance.Review@dot.ca.gov)
• Requests must be accepted/approved by IOAI before contracts are executed

ICR Approval Pathways

Cognizant Letter of Approval. An ICR audited by a cognizant agency (state transportation agency where consultant's books are located) per GAGAS testing compliance with 48 CFR 31. Two outputs:

1. Audit report of consultant's ICR, OR
2. Review of CPA audit and workpapers with letter of concurrence

Cognizant-approved ICR may be used across states for the one-year applicable accounting period.

Caltrans Acceptance of ICR. When ICRs have not been established by a cognizant agency, Caltrans (via IOAI) must perform audit or review for consultant contracts ≥$1M. One or more of:

• Review of whether ICR was prepared per 23 CFR 172 and 48 CFR 31
• Audit of ICR with audit report
• Review and acceptance of CPA audit report or another State Transportation Agency's audit
• Other risk-based evaluations

An ICR accepted by Caltrans may only be applied to A&E contracts with Caltrans or LPA contracts using pass-through Caltrans funding.

ICR validity period: Valid for the one-year applicable accounting period accepted/reviewed by Caltrans. Consultants must update ICRs annually in accordance with their accounting period. An ICR established for a contract may be extended beyond the one-year applicable period for the duration of the specific contract, provided all parties agree. Agreement to extension must NOT be a condition for award or work consideration. ICRs that have not been accepted by Caltrans for ≥$1M contracts are not eligible for indirect cost payment.

Audit Findings and Review Deficiencies. If a consultant's ICR is audited or reviewed downward, LPAs must apply the adjusted ICR to all executed and future contracts. LPAs should request reimbursement from the consultant for overpayments on rates that were adjusted down. LPAs may be subject to sanctions if the state or federal government determines reimbursements are the result of lack of proper contract provisions, unallowable charges, unsupported activities, or inadequate financial management system.

One-Step RFP, One-Step RFQ, or Two-Step RFQ/RFP

The LPA must retain all consultant selection documentation in project files as required by 23 CFR 172.

Selection committee, criteria, advertising, evaluation, negotiation

Consultant Selection Committee. Minimum 3 members appointed at the beginning of selection. Reviews materials, develops short list, develops final ranking. Includes Contract Administrator and subject matter experts. Caltrans district participation is at LPA's option. All committee members must meet 23 CFR 172.7(b)(4) COI requirements by completing Exhibit 10-T: Conflict of Interest & Confidentiality Statement prior to selection process initiation.

Technical Criteria for Evaluation. Critical rules:

• In-state or local preference must NOT be used as a factor in evaluation, ranking, and selection
• Local presence and DBE participation are the ONLY two non-qualifications-based evaluation criteria permitted per 23 CFR 172.7(a)(1)(iii)(D)
• Combined total of local presence + DBE participation cannot exceed nominal value of 10% of total evaluation criteria
• All price/cost related items (cost proposals, direct salaries/wage rates, ICRs, other direct costs) are prohibited from being used as evaluation criteria

Exhibit 10-B: Suggested Consultant Evaluation Sheet is a recommended (not mandatory) evaluation sheet with criteria and rating points for A&E consultants. Cost is not used as a rating factor.

Required RFP content: project description; scope of work; technical requirements/qualifications; services to be performed; deliverables; procurement schedule; applicable standards; schedule of work; method of payment; cost proposal requirements (separate sealed format); audit and review process requirements; proposal format and content; method, criteria, weighting; special provisions; DBE contract goal (Exhibit 10-I); CMSR requirements (Exhibit 10-U); protest procedures per 2 CFR 200.318(k) and 23 CFR 172.5(c)(18).

RFP minimum advertisement: 14 calendar days between publication and proposal submission. More for complex contracts.

Advertising: public advertisement or other public forum/method that assures qualified in-State and out-of-State consultants are given fair opportunity. Major newspaper, technical publications, professional associations, DBE organizations, web hosting/clearing houses (BidSync, Planetbids, Public Purchase), LPA website.

Proposals received and evaluated: Minimum of 3 proposals must be received and evaluated. If only 2 received, justification must be documented per 23 CFR 172.7(a)(1)(iv)(D) and (a)(3)(iii)(C). If only 1 received, Non-Competitive process must be justified and Exhibit 12-F signed by DLAE. Re-advertisement should be considered.

Negotiation

Cost proposal opened only for top-ranked consultant. The independent cost estimate (developed by LPA in advance) is the basis and tool for negotiations.

Items typically negotiated: work plan; schedule and deadlines; products to be delivered; classifications, wage rates, experience level of personnel; cost items, payments, and fees (fee required to be negotiated as a separate element); hours and level of effort by task and/or classification.

The consultant's ICR is NOT a negotiable item. A lower rate cannot be negotiated by the LPA.

A&E Consultant Contract Form. Prior to contract award, or after award but no later than the first invoice, the LPA must submit the A&E Consultant Contract form at https://dla.dot.ca.gov/fmi/webd/AE%20Consultant%20Contract%20Form for all new federal-funded A&E consultant contracts. Not required for non-A&E.

Final contract, substitution, invoicing, amendments, retention

Substitution of Consultant Personnel and Subconsultants. Key team members identified in the original proposal/cost proposal must NOT change (be different than) in the executed contract. Substitutions during contract execution require prior written approval from the LPA.

Invoicing. Payments to the consultant are to be in arrears — consultant must have actually incurred and paid the costs before invoicing the LPA. Request consultants to submit invoices in timely fashion as provided in the contract. Promptly timestamp, review, and pay. California Prompt Payment Act (Government Code §927).

Contract Amendments. Formal modifications. Contracts may be modified or amended only if the contract allows it. Required for any amendment that changes the cost; significantly changes character, scope, complexity, or duration; or significantly changes conditions.

For new key employees and/or classifications added: must be approved by LPA before incurring work on the contract, or costs can be questioned/disallowed. LPAs are not required to update the A&E Consultant Contract form when new key employees/classifications are added.

Performance Evaluation. Required at close-out using Exhibit 10-S: Consultant Performance Evaluation.

Project Records / Retention Clauses. Project records retained 3 years after final voucher per 2 CFR 200.334.

Consultant in Management Support Role and the special-case procurements

Agreements with Other Governmental Agencies. Inter-agency agreements for A&E services don't require QBS; governmental entities aren't consultants.

Small Purchase Contracts. Per 2 CFR 200.320 simplified acquisition. Small purchase procedures may be used for contracts at or below the simplified acquisition threshold. Even so, A&E small purchases must follow QBS principles.

Noncompetitive Negotiated Contracts (Sole-Source). Justified only when:

• Only one consulting firm is qualified to do the work
• Public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation
• FHWA (or Caltrans by delegation) expressly authorizes
• After solicitation of a number of sources, competition is determined inadequate (only applies if LPA has advertised)

LPA must announce all requirements in the solicitation — scope of work, services, procurement schedule, proposal requirements. Provide acceptable justification and documentation when contract is state-only funded. Exhibit 12-F must be signed by DLAE.

Construction Engineering Services. Same QBS framework, but watch for the design-CE/I COI risk discussed in §10.1.1.

When federal procedures don't apply — and when they still do

State-only funded A&E contracts. Governed by California Government Code 4525-4529.5. Minimum audit requirements include written procedures, conflict of interest provisions, records retention, full and open competition, qualifications-based selection, publication of solicitation, solicitation procedures, cost comparison documentation, negotiation records, audit and review process compliance, A&E Consultant Contract Form.

The state-only path still requires QBS substantively — Cal Gov Code 4525 et seq. parallels the Brooks Act. The difference is in audit/oversight authority (no IOAI federal review for state-only) and in the cost principles (state cost principles rather than 48 CFR 31).

Non-A&E contracts are NOT subject to the Brooks Act QBS requirements — non-A&E consultant services may be selected using cost, cost and qualifications (best value), or other critical selection criteria. The procedures in §10.1 can be modified by adding cost as part of the evaluation.

Non-A&E examples per the chapter: ITS work that isn't engineering/design, certain types of public outreach, financial advisory, certain non-engineering project management.

RFP for Non-A&E must contain basic requirements similar to A&E plus a cost component. Cost-Effective / Public Interest Finding (Exhibit 12-F) may be required. Protest/Appeals/Reinstatement Procedures must be documented.

The audit cycle — and the sanction ladder

DLA's A&E Oversight Branch reviews LPA A&E procurement and administration. Two types of review:

• A&E Consultant Contract Form Review — automated/online review of submitted forms
• Process Reviews — periodic in-depth review of LPA A&E procurement

Common review findings/deficiencies: lack of independent cost estimate documentation; cost considered in qualifications ranking; ICR not properly accepted by Caltrans IOAI; sealed cost proposal opened prematurely; rotational task order award; fixed fee not separately negotiated; CMSR not screened for COI; missing/inadequate Title VI Assurances Appendices; design firm performing CE/I without documented COI safeguards; in-state/local preference improperly used.

Sanctions are the consequences when findings are not remediated:

• Corrective action plan required
• Disallowance of consultant costs (federal share)
• Suspension of federal-aid eligibility
• Increased oversight on subsequent contracts
• Referral to FHWA / USDOJ for further action

See LAPM Ch 20: Audits and Corrective Actions for the formal sanction procedure framework.