Transportation Infrastructure:

Oversight of Rental Rates for Highway Construction Equipment Is Inadequate

RCED-93-86: Published: Jun 25, 1993. Publicly Released: Jun 25, 1993.

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Pursuant to a legislative requirement, GAO provided information on the equipment rental rates states use to reimburse contractors for unanticipated work on federal-aid highway projects, focusing on: (1) the basis on which states establish equipment rental rates; (2) whether states establish rental rates that are appropriate with contractors' actual equipment costs; and (3) whether the Federal Highway Administration (FHwA) adequately oversees states' use of rental rate guidelines.

GAO found that: (1) of the 52 departments of transportation that use a standard rate guide to determine equipment rental rates, 47 use national standard rate guidelines, 3 use published guidelines from external sources, and 2 have developed their own rate guides; (2) although the California Department of Transportation (Caltrans) has taken steps to lower its rates, its rates remain 10 percent higher than national standards because its equipment rental rate guidelines are not based on national standard rates and include unallowable costs; (3) 28 of 52 departments of transportation improperly established their equipment rental rates because they failed to follow FHwA guidelines, adhere to required methodologies, or fully account for duplicative overhead cost factors; (4) FHwA has allowed duplicative overhead costs to be paid by federal funds because its staff is not familiar with standard rate guidelines; (5) FHwA oversight of states' use of rental rates is inadequate because its rental rate guidance is not incorporated into highway program and policy manuals, guidance on contractor discounts is insufficient, review of rental rates is not systematic and consistent, and its field offices are not told of potential problems; and (6) FHwA inattention to rental rate policy guidance and rate-setting methodologies has resulted in higher costs and inequitable treatment of contractors.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: FHwA has incorporated its rental rate policy into the Federal Aid Policy Guide.

    Recommendation: The Secretary of Transportation should require the Administrator, FHwA, to incorporate federal policies and guidance on equipment rental rates into highway policy manuals to ensure that field personnel have the guidance readily available when needed.

    Agency Affected: Department of Transportation

  2. Status: Closed - Implemented

    Comments: The publisher of an equipment rental rate guide conducted a study that confirmed that the majority of contractors receive a new equipment discount. Therefore, the K-III Directory Corporation, formerly known as Dataquest Corporation, began incorporating discounts within its rental rate guide in January 1995.

    Recommendation: The Secretary of Transportation should require the Administrator, FHwA, to establish a requirement that the states use rental rates that take into account any discounts the contractors have received on the list price in calculating equipment rental rates for federal-aid highway projects, and work with the states and rate guide publishers to develop discount rates to fulfill this requirement.

    Agency Affected: Department of Transportation

  3. Status: Closed - Implemented

    Comments: FHwA's field office worked with Caltrans to resolve rental rate discrepancies.

    Recommendation: The Secretary of Transportation should require the Administrator, FHwA, to direct Caltrans to comply with the cost principles in the federal acquisition regulation within fiscal year 1993 and, if this does not occur, seek recovery of unallowable costs that result from Caltrans' use of replacement costs to calculate equipment depreciation.

    Agency Affected: Department of Transportation

  4. Status: Closed - Implemented

    Comments: FHwA issued a memorandum on October 13, 1993, to all FHwA field offices reemphasizing current policy for establishing rental rates and ensuring that all division officials and state departments of transportation are knowledgeable of this policy. In addition, FHwA established a requirement for its field offices to review how states are applying rental rates to ensure they adhere to federal policies. These reviews will be part of contract administration or general management reviews which occur at least every 3 years.

    Recommendation: The Secretary of Transportation should require the Administrator, FHwA, to require all state departments of transportation to establish rental rates in accordance with FHwA policies and with federal cost principles.

    Agency Affected: Department of Transportation

  5. Status: Closed - Implemented

    Comments: FHwA established a requirement for its field offices to review how states are applying rental rates to ensure that the states adhere to federal policies and cost requirements. The field offices are tasked with performing these reviews as part of their contract administration or general management reviews, which typically occur at least every 3 years.

    Recommendation: The Secretary of Transportation should require the Administrator, FHwA, to require FHwA field offices, as part of their contract reviews or general management reviews, to periodically review how the state departments of transportation are applying rental rates to ensure that the states adhere to federal policies and cost requirements.

    Agency Affected: Department of Transportation

 

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