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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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Highlights

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.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Transportation 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.
Closed – Implemented
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.
Department of Transportation 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.
Closed – Implemented
FHwA's field office worked with Caltrans to resolve rental rate discrepancies.
Department of Transportation 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.
Closed – Implemented
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.
Department of Transportation 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.
Closed – Implemented
FHwA has incorporated its rental rate policy into the Federal Aid Policy Guide.
Department of Transportation 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.
Closed – Implemented
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.

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Topics

Construction contractsContract costsstate relationsOverhead costsProcurement regulationsPublic roads or highwaysRental equipmentRental ratesRoad constructionDepreciation