Electric System Construction Policies and Procedures

Federal RegisterFeb 23, 1995

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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1726

RIN 0572-AA47

Electric System Construction Policies and Procedures

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

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SUMMARY: The Rural Utilities Service (RUS), successor to the Rural

Electrification Administration (REA), hereby amends its regulation on

Electric System Construction Policies and Procedures. This action

codifies the policies and the procedures applicable to RUS electric

borrowers when purchasing materials and equipment, and when

constructing system facilities by contract or force account. These

policies and procedures were contained in six REA bulletins. The

changes made pertain to RUS approval of contracts, subcontracts and

amendments to contracts; documentation of contracting activity by RUS

borrowers; procurement procedures to be used by RUS borrowers; and

closeout procedures for construction contracts.

EFFECTIVE DATE: This rule is effective March 27, 1995.

FOR FURTHER INFORMATION CONTACT: Mr. Fred J. Gatchell, Deputy Director,

Electric Staff Division, Rural Utilities Service, U.S. Department of

Agriculture, Washington, DC 20250-1500, telephone (202) 720-1398.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be not significant for the

purposes of Executive Order 12866 and therefore has not been reviewed

by OMB.

Regulatory Flexibility Act Certification

This action does not fall within the scope of the Regulatory

Flexibility Act.

Information Collection and Recordkeeping Requirements

In compliance with the Office of Management and Budget (OMB)

regulations (5 CFR part 1320) which implement the Paperwork Reduction

Act of 1980 (Pub. L. 96-511) and section 3504 of the Act, the

information collection and recordkeeping requirements contained in this

rule have been approved by OMB under control number 0572-0107. Comments

concerning these requirements should be directed to the Office of

Information and Regulatory Affairs of OMB, Attention: Desk Officer for

USDA, room 10102, New Executive Office Building, Washington, DC 20503.

National Environmental Policy Act Certification

The Administrator has determined that this rule will not

significantly affect the quality of the human environment as defined by

the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.).

Therefore, this action does not require an environmental impact

statement or assessment.

Catalog of Federal Domestic Assistance

The program described by this rule is listed in the Catalog of

Federal Domestic Assistance programs under No. 10.850, Rural

Electrification Loans and Loan Guarantees. This catalog is available on

a subscription basis from the Superintendent of Documents, the United

States Government Printing Office, Washington, DC 20402. Telephone

(202) 783-3238.

Executive Order 12372

This rule is excluded from the scope of Executive Order 12372,

Intergovernmental Consultation, which may require consultation with

State and local officials. A Notice of Final Rule entitled Department

Programs and Activities Excluded from Executive Order 12372 (50 FR

47034) exempts RUS loans and loan guarantees from coverage under this

order.

Executive Order 12778

This rule has been reviewed under Executive Order 12778, Civil

Justice Reform. This rule will not: (1) Preempt any State or local

laws, regulations. or policies; (2) Have any retroactive effect; and

(3) Require administrative proceedings before parties may file suit

challenging the provisions of this rule.

Background

The Federal Crop Insurance Reform and Department of Agriculture

Reorganization Act of 1994 (Pub. L. 103-354, 101 Stat. 3178), signed by

President Clinton on October 13, 1994, provides for the establishment

of RUS as successor to REA with respect to various programs, including

the electric loan program established by the Rural Electrification Act

of 1936, as amended, (the RE Act) (7 U.S.C. 901 et seq.). On October

20, 1994, the Secretary of Agriculture issued Secretary's Memorandum

1010-1, establishing RUS and abolishing REA. Therefore, RUS is

publishing this final rule that was previously proposed by REA.

Pursuant to the RE Act, RUS hereby amends 7 CFR chapter XVII, by

revising Part 1726, Electric System Construction Policies and

Procedures. This revised part contains the policies and the procedures

applicable to RUS borrowers and contractors when purchasing materials

and equipment and constructing electric system facilities by contract

or force account (the RUS borrower's own construction crews).

These policies and the procedures implement certain provisions of

the RUS standard form of loan documents regarding the borrower's

purchase of materials and equipment and the construction of its

electric system by contract or force account. In order to facilitate

the programmatic interests of the RE Act, and, in order to assure that

loans made or guaranteed by RUS are adequately secured, RUS, as a

secured lender, has established certain standards and specifications

for materials, equipment, and the construction of electric systems. The

use of standard forms and procurement procedures helps assure RUS that:

(1) appropriate standards and specifications are maintained; (2) RUS's

loan security is not adversely affected; and (3) loan and loan

guarantee funds are used effectively and for the intended purposes.

The previous policies and procedures were set forth in REA Bulletin

40-6, Construction Methods and Purchase of Materials and Equipment; REA

Bulletin 40-8, Construction Specifications, Drawings and Contract Forms

for Distribution, Transmission and Generation Facilities; REA Bulletin

81-6, Closeout Procedures and Documents for Contract Construction of

Distribution and Transmission Facilities; REA Bulletin 85-1, Closeout

Procedures and Documents for the Contract Construction of Generating

Facilities and Associated Buildings; REA Bulletin 86-1, Closeout

Procedures and Documents for the Construction of Buildings Other than

Generating Plants; and REA Bulletin 86-3, Headquarters Facilities for

Electric Borrowers. The previous policies and procedures are being

changed and updated by this rule. When this rule is effective,

Bulletins 40-6, 81-6, 85-1, 86-1, and 86-3 will be superseded in their

entirety and rescinded, and Bulletin 40-8 will be superseded with

respect to the contract forms listed in this rule.

Bulletin 40-8 will be superseded in its entirety and rescinded when

all forms referenced therein have been promulgated.

Major Changes

The major substantive changes are as follows: [[Page 10153]]

(a) This rule applies to procurement and construction for all

projects which are financed, in whole or in part, with loans made or

guaranteed by RUS, including reimbursable projects. REA Bulletin 40-6

contained the requirements for all procurement and construction,

regardless of the source of funds.

(b) This rule eliminates the previous requirement that RUS approve

subcontracts. (Subcontracts for generating projects were already exempt

from RUS approval.)

procurement procedure is to be used for a project.

(d) This rule raises the dollar thresholds that determine whether

RUS approval of a contract is required and eliminates the requirement

of RUS approval of certain contract amendments.

(e) This rule eliminates the requirement of RUS approval of

borrowers' contracts for headquarters facilities.

(f) This rule adds procedures for procurement of communication and

control facilities.

(g) This rule simplifies the procedures for the closeout of

construction contracts by reducing the number of forms to be submitted

to RUS.

(h) This rule revises the RUS standard contract forms. The major

changes in the contract forms are as follows:

(1) Change the forms to reflect the changes listed above.

(2) Change the insurance and bonding dollar limits as outlined in 7

CFR part 1788.

(3) Change the forms to require prequalification of all bidders.

(4) Change the interest rate on overdue accounts.

(5) Change the ``Buy American'' provision to include Mexico and

Canada in accordance with the North American Free Trade Agreement

Implementation Act of December 8, 1993, Pub. L. 103-182.

(6) Change the indemnification clause (also called ``hold harmless

clause'') to reflect RUS's current policy.

(7) Incorporate certain technical changes relating to wood treating

and right-of-way clearing chemicals. In order to reduce printing cost

and volume, the forms included in this part are condensed, especially

the tables. Also, several forms refer to guide drawings, which do not

contain requirements, and, hence, will not be included. RUS intends to

reformat these forms similar to their current configuration (including

the tables and drawings) and make them available in that format either

from RUS or for purchase from the Government Printing Office. See

Sec. 1726.300 for a list of the standard forms of electric contracts

and where each may be obtained.

This rule was published as a proposed rule at 59 FR 28924, June 3,

1994. In addition, ``Permitted Contract Modifications--

Indemnification,'' dealing with indemnification of the owner by the

contractor in RUS's standard contract forms, was published as a

proposed rule at 59 FR 4603, February 1, 1994. This rule incorporates

the changes and addresses the comments resulting from the proposed rule

``Permitted Contract Modifications--Indemnification.''

Comments

A total of 45 organizations submitted comments on the proposed

rule, including 27 borrowers, the National Rural Electric Cooperative

Association, 6 engineers and engineering organizations, the Power and

Communication Contractors Association, two insurance companies, two

state borrower associations, and 6 others. RUS considered all comments

received. The more significant and most commonly made comments are

addressed herein.

Applicability

Many commenters suggested changes or clarification as to when this

rule applies. This rule has been clarified to state that it applies

when materials, equipment, and construction are financed, in whole or

in part, with loans made or guaranteed by RUS, including reimbursable

projects. A statement regarding jointly owned projects has also been

added. Competitive bidding for new capacity resources, however, is

outside the scope of this rule.

Threshold Limits

There were many comments suggesting changes in the various dollar

limits regarding forms to be used, bidding procedures to be followed,

RUS approvals, etc. Several comments also suggested making the dollar

limits more consistent. RUS has increased the contract approval limit

for transmission construction and for load control, communication, and

SCADA systems for power supply borrowers. RUS believes that the limits,

as revised, are a reasonable balance that allows the borrower

reasonable flexibility while assuring RUS that loan funds are being

used properly. A number of clarifications have been added to avoid

potential ambiguities.

Several commenters expressed concern about using a calendar year

limit, since one or two large procurements could consume the entire

limit, and very small procurements thereafter would be subject to more

stringent requirements. This situation is inherent in any calendar

limit, and RUS expects each borrower to manage its procurement program

by using the procurement procedure (e.g., formal competitive bidding)

or the contract form not subject to the calendar year limit for large

procurements and prudently utilizing the flexibility provided by this

rule so that the calendar year limits are not exceeded.

Bidders Qualifications and Competition

Several commenters suggested that a bidder's performance record,

safety record, and similar factors should be considered when evaluating

bids. RUS strongly disagrees with this. RUS believes that such factors

can and should be considered when determining the bidder's

qualifications to be invited to bid, but it is inappropriate and

unacceptable to evaluate these factors when evaluating a bid from a

qualified and invited bidder. Language has been added to the rule

clarifying this position.

Other comments concerned how to deal with a potential conflict of

interest with a bidder. This rule places primary responsibility on the

borrower's board of directors to determine if a potential conflict of

interest is significant, and RUS believes this is appropriate.

A number of commenters suggested that fewer than three bidders

could represent adequate competition. RUS believes that, for most

procurement, three or more bidders are needed to assure adequate

competition. We have, however, eliminated the requirement that RUS

concurrence be obtained prior to awarding a contract based on fewer

than three bids, providing that the borrower documents that all

reasonable measures were taken to assure adequate competition.

Engineer

Many commenters noted that borrowers often utilize staff engineers,

but the language of the rule generally implies that the engineer is an

outside consultant. RUS agrees with this position and has revised the

language accordingly.

One commenter noted that several engineering contract forms were

not included in the list of RUS standard contract forms. Such forms are

still available and in some cases mandatory, but are outside the scope

of this rule and are contained in other RUS rules.

[[Page 10154]]

Definitions

Various commenters recommended clarifications and changes to the

definitions as well as the addition of several more definitions. RUS

has revised several definitions and added two new definitions. The

other proposed definitions appear to be self-explanatory without

modification.

Several commenters suggested that the contracting committee was not

needed or should have a different make-up. RUS believes that this

committee, required only under informal competitive bidding and

multiparty negotiation, is needed as specified to insure the integrity

of these procedures.

RUS Approvals

Some commenters suggested that RUS approval be automatic after a

specified time period (30 or 60 days) without RUS action. Due to

numerous factors which may affect RUS approval, including other agency

priorities, human resources, and unresolved issues, this change was not

made.

Other commenters felt that RUS approval should not be required to

purchase used equipment and materials. Since most RUS loans are long-

term, RUS must be satisfied that the physical security is adequate, so

RUS will continue to require new equipment and materials unless

specifically approved by RUS.

Many commenters objected to RUS reserving the right to require

contract construction in lieu of force account construction

(Sec. 1726.22). While RUS has rarely exercised this right in the past

and does not expect to use it often in the future, there are

circumstances where such authority has been and may again be needed,

therefore, the language of the rule has not been changed.

Many commenters also objected to certain amendments being subject

to RUS approval even if the original contract was not. The purpose of

this requirement was to prevent changing the RUS approved form of

contract by amendment where the borrower is not permitted to make such

changes in the form without RUS approval. The language of the rule has

been changed to indicate that the approved form of contract cannot be

changed either prior to bidding or by amendment without prior RUS

approval, but the actual amendment would not be subject to RUS

approval.

Other commenters suggested that a RUS approved form of contract

should only be required if RUS approval of the contract is required.

RUS disagrees with this. RUS has eliminated many of the requirements

for RUS approval of contracts based on the requirement that the

borrower use certain forms and procedures for other contracts. This

also applies to the amendment forms, although RUS has determined that

special requirements for amendments for payment for material delivered

are not necessary, so Sec. 1726.26, along with RUS Form 800, have been

deleted.

Documents Submitted to RUS

Many commenters suggested that certain of the documents submitted

to RUS are unnecessary. With regard to ``Proof of Insurance,'' RUS

agrees and has deleted this requirement. RUS believes that the

remaining documents to be submitted are needed to assure that loan

funds are being used properly.

Procurement Procedures

Several commenters requested clarification of the applicability of

some of the procedures and changes to some of the details of the

requirements. Several changes have been made in this area. Other

commenters suggested that the informal bidding procedure and the

multiparty negotiation procedure be changed to allow clarifying

discussions or negotiations, respectively, with only the apparent low

evaluated bidder. This change has not been made. RUS believes that

meeting with at least the three apparent lowest evaluated bidders will

insure adequate competition and fairness without undue burden on the

borrower.

Forms

A number of commenters suggested that computer generated versions

of RUS standard contract forms should be acceptable in addition to the

preprinted versions. RUS agrees with this only for those forms which

are primarily tables (Forms 251 and 254). For the remainder of the

contract forms, RUS continues to believe that the most effective means

of maintaining accurate and recognizable forms is to continue to use

the preprinted version.

Commenters suggested that RUS Form 792 be modified to allow multi-

year contracting and to allow RUS Form 786 to be modified to be a

``purchase only'' contract form. These changes have been made. One

commenter suggested that all contract bonds use RUS Form 168c instead

of RUS Form 168b. Form 168c is currently used when the contractor's

surety has accepted a Small Business Administration guarantee and the

contract is for one million dollars or less. RUS Form 168b has proved

to be a satisfactory bond form for other contracts, so RUS has

determined that it will require the RUS Form 168b where the Form 168c

is not applicable.

A number of other suggestions were made regarding changes to the

contract forms. Some minor changes have been made, but RUS intends to

thoroughly review and revise these forms in the near future, so other

comments will be considered at that time.

Two commenters suggested that RUS prepare a standard form for

``Engineer-Procure-Construct'' (EPC) or ``Turnkey'' type projects.

RUS's experience with such projects indicate that each one tends to be

unique and not well suited to a standard contract form, so therefore,

no attempt has been made to develop such a standard form at this time.

Indemnification

RUS requires borrowers to use standard contract forms for certain

construction, material supply, equipment supply, architectural

services, and engineering services contracts. The construction contract

forms contain a standard indemnification clause (also called ``hold

harmless'') pursuant to which the contractor agrees to indemnify the

owner against certain risks. Some borrowers have requested approval to

incorporate an alternative indemnification clause in certain contracts.

They believe that it provides them indemnification in addition to that

afforded by the currently required clause. Some contractors have

expressed concern about the extent of their potential liability under

such a modified indemnification provision, particularly for certain

actions of the owner. RUS has determined that it is in the Government's

and the borrowers' best interest to have a reasonable and balanced

indemnification provision: one that provides adequate protection for

the borrower while not placing an unreasonable business risk on the

contractor. An indemnification provision that does not adequately

protect the borrower could expose the borrower to liability for damages

which could endanger the Government's loan security. An indemnification

provision which places an unreasonable business risk on the contractor

could result in qualified, capable contractors declining to bid under

such conditions, which could result in reduced competition and higher

costs. It could even result in the borrower being exposed to increased

liability if only financially weak contractors bid, since the

contractor may be financially unable to meet its indemnification

obligations. In response to these requests, ``Permitted Contract

Modifications--Indemnification,'' was published as a proposed rule at

59 FR 4603, February 1, 1994. This final rule incorporates the changes

concerning the [[Page 10155]] indemnification clause in the contract

forms proposed by both of these rules.

In response to the proposed ``Permitted Contract Modifications--

Indemnification,'' the issue which drew the most comments was whether

to extend the indemnification to the borrower's engineer. Nine

organizations (generally engineers or engineering organizations) are in

favor of including the engineer, while two commenters opposed their

inclusion. Since the engineer is independent of the borrower and has no

direct contractual relationship with the contractor, RUS has determined

that a clear separation should be maintained between the engineer and

the contractor. Therefore, the indemnification clause does not extend

to the engineer.

Many commenters expressed the view that the borrower (owner) should

be named as Additional Insured on the contractor's liability insurance

policies. Others felt that the engineer should also be named as

Additional Insured. It appears that naming the borrower (but not the

engineer) as Additional Insured will further RUS'S overall objective

without adding significantly to the cost of the contract. RUS has

decided, therefore, to add a requirement to name the owner as

Additional Insured on the contractor's liability insurance policies.

Several commenters suggested minor wording changes under certain

circumstances to insure that the language accomplishes its purpose. A

section has been added under Section H allowing the borrower to make

certain changes in the language if appropriate in its jurisdiction. One

commenter found the indemnification language to be ``weak at best,''

while two commenters felt that it placed too much burden on the

contractor. RUS believes that the final language included in this rule

reasonably balances the interests of the borrower, the engineer, and

the contractor.

Other Comments

A number of comments were received suggesting or requesting

clarifications or corrections to the language of the rule. These have

generally been made, although certain areas which appeared reasonably

clear were not clarified further.

List of Subjects in 7 CFR Part 1726

Electric power, Loan programs--energy, Reporting and recordkeeping

requirements, Rural areas.

In view of the above, RUS hereby amends 7 CFR chapter XVII by

revising part 1726 to read as follows:

PART 1726--ELECTRIC SYSTEM CONSTRUCTION POLICIES AND PROCEDURES

Subpart A--General

Sec.

1726.1-1726.9 [Reserved]

1726.10 Introduction.

1726.11 Purpose.

1726.12 Applicability.

1726.13 Waivers.

1726.14 Definitions.

1726.15 ``Buy American''.

1726.16 Debarment and suspension.

1726.17 Restrictions on lobbying.

1726.18 Preloan contracting.

1726.19 Use of competitive procurement.

1726.20 Standards and specifications.

1726.21 New materials.

1726.22 Methods of construction.

1726.23 Qualification of bidders.

1726.24 Written contracts.

1726.25 Subcontracts.

1726.26-1726.34 [Reserved]

1726.35 Submission of documents to RUS.

1726.36 Documents subject to RUS approval.

1726.37 OMB control number.

1726.38-1726.49 [Reserved]

Subpart B--Distribution Facilities

1726.50 Distribution line materials and equipment.

1726.51 Distribution line construction.

1726.52-1726.74 [Reserved]

Subpart C--Substation and Transmission Facilities

1726.75 General.

1726.76 Substation and transmission line materials and equipment.

1726.77 Substation and transmission line construction.

1726.78-1726.124 [Reserved]

Subpart D--Generation Facilities

1726.125 Generating plant facilities.

1726.126-1726.149 [Reserved]

Subpart E--Buildings

1726.150 Headquarters buildings.

1726.151-1726.174 [Reserved]

Subpart F--General Plant

1726.175 General plant materials.

1726.176 Communications and control facilities.

1726.177-1726.199 [Reserved]

Subpart G--Procurement Procedures

1726.200 General requirements.

1726.201 Formal competitive bidding.

1726.202 Informal competitive bidding.

1726.203 Multiparty negotiation.

1726.204 Multiparty unit price quotations.

1726.205 Multiparty lump sum quotations.

1726.206-1726.249 [Reserved]

Subpart H--Modifications to RUS Standard Contract Forms

1726.250 General.

1726.251 Prior approved contract modification related to price

escalation on transmission equipment, generation equipment, and

generation construction contracts.

1726.252 Prior approved contract modification related to liability

for special and consequential damages.

1726.253 Prior approved contract modification related to

alternative bid provision for payment to contractor for bulk

purchase of materials.

1726.254 Prior approved contract modifications related to RUS

approval of contracts and amendments and modified bidding

requirements.

1726.255 Prior approved contract modifications related to

indemnification.

1726.256-1726.299 [Reserved]

Subpart I--RUS Standard Forms

1726.300 List of RUS standard contracting forms for electric

systems.

1726.301 Use of printed forms.

1726.302 RUS approved forms of contract.

1726.303 Interest on overdue accounts.

1726.304-1726.309 [Reserved]

1726.310 Contractor's bond, RUS Form 168b.

1726.311 Contractor's bond, RUS Form 168c.

1726.312 Construction contract amendment, RUS Form 180.

1726.313 Certificate of completion, contract construction for

buildings, RUS Form 181.

1726.314 Certificate of completion, contract construction, RUS Form

187.

1726.315 Equipment contract, RUS Form 198.

1726.316-1726.319 [Reserved]

1726.320 Construction contract, generating, RUS Form 200.

1726.321 Right-of-way clearing contract, RUS Form 201.

1726.322 Transmission system right-of-way clearing contract, RUS

Form 203.

1726.323 Certificate (Buy America), RUS Form 213.

1726.324 Waiver and release of lien, RUS Form 224.

1726.325 Certificate of contractor, RUS Form 231.

1726.326 Construction or equipment contract amendment, RUS Form

238.

1726.327 Material receipt, RUS Form 251.

1726.328 Construction inventory (for labor and material contract),

RUS Form 254.

1726.329 Contract to construction buildings, RUS Form 257.

1726.330 [Reserved]

1726.331 Bid bond, RUS Form 307.

1726.332-1726.339 [Reserved]

1726.340 Substation and switching station erection contract, RUS

Form 764.

1726.341 Electric system communications and control equipment

contract, RUS Form 786.

1726.342 Distribution line extension construction contract (labor

and materials), RUS Form 790.

1726.343 Distribution line extension construction contract (labor

only), RUS Form 792.

1726.344 [Reserved]

1726.345 Certificate of contractor and indemnity agreement (line

extensions), RUS Form 792b.

1726.346 Supplemental contract for additional project, RUS Form

792c.

1726.347-1726.350 [Reserved] [[Page 10156]]

1726.351 Electric system construction contract (labor and

materials), RUS Form 830.

1726.352 Electric transmission construction contract (labor and

materials), RUS Form 831.

1726.353-1726.399 [Reserved]

Subpart J--Contract Closeout

1726.400 Final contract amendment.

1726.401 Material contract closeout.

1726.402 Equipment contract closeout.

1726.403 Project construction contract closeout.

1726.404 Non-site specific construction contract closeout.

1726.405 Inventory of work orders (RUS Form 219).

Authority: 7 U.S.C. 901 et seq., 1921 et seq.; Pub. L. 103-354,

108 Stat. 3178 (7 U.S.C. 6941 et seq.).

Subpart A--General

Secs. 1726.1-1726.9 [Reserved]

Sec. 1726.10 Introduction.

The policies, procedures and requirements included in this part are

intended to implement provisions of the standard form of loan documents

between the Rural Utilities Service (RUS) and its electric borrowers.

Unless prior written approval is received from RUS, borrowers are

required to comply with RUS policies and procedures as a condition to

RUS providing loans, loan guarantees, or reimbursement of general funds

for the construction and improvement of electric facilities.

Requirements relating to RUS approval of plans and specifications,

duties and responsibilities of the engineer and architect, and

engineering and architectural services contracts, are contained in

other RUS regulations. The terms ``RUS form'', ``RUS standard form'',

``RUS specification'', ``and RUS bulletin'' have the same meanings as

the terms ``REA form'', ``REA standard form'', ``REA specification'',

``and REA bulletin'', respectively, unless otherwise noted.

Sec. 1726.11 Purpose.

Each borrower is responsible for the planning, design,

construction, operation and maintenance of its electric system. RUS, as

a secured lender, has a legitimate interest in accomplishing RUS's

programmatic objectives, and in assuring that the costs of

construction, materials, and equipment are reasonable and economical

and that the property securing the loans is constructed adequately to

serve the purposes for which it is intended.

Sec. 1726.12 Applicability.

The requirements of this part apply to the procurement of materials

and equipment for use by electric borrowers in their electric systems

and to the construction of their electric systems if such materials,

equipment, and construction are financed, in whole or in part, with

loans made or guaranteed by RUS, including reimbursable projects. In

order for general fund expenditures for procurement or construction to

be eligible for reimbursement from loan funds, the borrower must comply

with the procedures required by this part. In the case of jointly owned

projects, RUS will determine on a case by case basis the applicability

of the requirements of this part.

Sec. 1726.13 Waivers.

The Administrator may waive, for good cause on a case by case

basis, certain requirements and procedures of this part. RUS reserves

the right, as a condition of providing loans, loan guarantees, or other

assistance, to require any borrower to make any specification,

contract, or contract amendment subject to the approval of the

Administrator.

Sec. 1726.14 Definitions.

Terms used in this part have the meanings set forth in 7 CFR

1710.2. References to specific RUS forms and other RUS documents, and

to specific sections or lines of such forms and documents, shall

include the corresponding forms, documents, sections and lines in any

subsequent revisions of these forms and documents. In addition to the

terms defined in 7 CFR 1710.2, the following terms have the following

meanings for the purposes of this part:

Approval of proposed construction means RUS approval of a

construction work plan or other appropriate engineering study and RUS

approval, for purposes of system financing, of the completion of all

appropriate requirements of part 1794 of this chapter.

Architect means a registered or licensed person employed by the

borrower to provide architectural services for a project and duly

authorized assistants and representatives.

Bona fide bid means a bid which is submitted by a contractor on the

borrower's list of qualified bidders for the specific contract, prior

to bid opening.

``Buy American'' certificate means a certification that the

contractor has complied with the ``Buy American'' requirement (see

Sec. 1726.15).

Competitive procurement means procurement of goods or services

based on lowest evaluated bid for similar products or services when

three or more bids are received.

Construction unit means a specifically defined portion of a

construction project containing materials, labor, or both, for purposes

of bidding and payment.

Contracting committee means the committee consisting of three to

five members representing the borrower's management and board of

directors and the engineer. The contracting committee represents the

borrower during contract clarifying discussions or negotiations under

informal competitive bidding or multiparty negotiation, respectively.

Encumbrance means the process of approval for advance of loans

funds by RUS.

Engineer means a registered or licensed person, who may be a staff

employee or an outside consultant, to provide engineering services and

duly authorized assistants and representatives.

Equipment means a major component of an electric system, e.g., a

substation transformer, heat exchanger or a transmission structure.

Force account construction means construction performed by the

borrower's employees.

Formal competitive bidding means the competitive procurement

procedure wherein bidders submit sealed proposals for furnishing the

goods or services stipulated in the specification. Bids are publicly

opened and read at a predetermined time and place. If a contract is

awarded, it must be to the lowest evaluated responsive bidder (see

Sec. 1726.201).

Goods or services means materials, equipment, or construction, or

any combination thereof.

Informal competitive bidding means the competitive procurement

procedure which provides for private opening of bids and allows

clarifying discussions between the contracting committee and the

bidders. During the clarifying discussions any exceptions to the bid

documents must be eliminated, or the bid rejected, so that the contract

is awarded to the lowest evaluated responsive bidder (see

Sec. 1726.202).

Material means miscellaneous hardware which is combined with

equipment to form an electric system, e.g., poles, insulators, or

conductors.

Minor error or irregularity means a defect or variation in a bid

that is a matter of form and not of substance. Errors or irregularities

are ``minor'' if they can be corrected or waived without being

prejudicial to other bidders and when they do not affect the price,

quantity, quality, or timeliness of construction. A minor error or

[[Page 10157]] irregularity is not an exception for purposes of

determining whether a bid is responsive.

Minor modification or improvement means a project where the cost is

less than $50,000, exclusive of the cost of owner furnished materials.

Multiparty lump sum quotations means the procurement of goods or

services on a lump sum basis, based on the lowest evaluated offering,

when three or more offers are received. (See Sec. 1726.205).

Multiparty negotiation means the procurement procedure where three

or more bids are received and provides for negotiations between the

contracting committee and each bidder to determine the bid which is in

the borrower's best interest (see Sec. 1726.203).

Multiparty unit price quotations means the procurement of goods or

services on a unit price basis, based on the lowest evaluated offering,

when three or more offers are received (See Sec. 1726.204).

Net utility plant (NUP) means Part C, Line 5 of RUS Form 7 for

distribution borrowers or Section B, Line 5 of RUS Form 12a for power

supply borrowers for the immediately preceding calendar year.

Procurement method means a procedure, including, but not limited

to, those in subpart G of this part, that a borrower uses to obtain

goods and services.

Owner furnished materials means materials or equipment or both

supplied by the borrower for installation by the contractor.

Responsive bid means a bid with no exceptions or non-minor errors

or irregularities on any technical requirement or in the contract terms

and conditions.

RUS approval means written approval by the Administrator or a

representative with delegated authority. RUS approval must be in

writing, except in emergency situations where RUS approval may be given

over the telephone followed by a confirming letter.

Unit prices means individual prices for specific construction units

defined in accordance with RUS approved units specified in RUS standard

contract forms.

Sec. 1726.15 ``Buy American''.

The borrower must ensure that all materials and equipment financed

with loans made or guaranteed by RUS complies with the ``Buy American''

provisions of the Rural Electrification Act of 1938 (7 U.S.C. 903

note), as amended by the North American Free Trade Agreement

Implementation Act (107 Stat 2129). When a ``Buy American'' certificate

is required by this part, this must be on RUS Form 213.

Sec. 1726.16 Debarment and suspension.

Borrowers are required to comply with certain requirements on

debarment and suspension in connection with procurement activities as

set forth in part 3017 of this title, particularly with respect to

lower tier transactions, e.g., procurement contracts for goods or

services.

Sec. 1726.17 Restrictions on lobbying.

Borrowers are required to comply with certain restrictions and

requirements in connection with procurement activities as set forth in

part 3018 of this title.

Sec. 1726.18 Preloan contracting.

Borrowers must consult with RUS prior to entering into any contract

for material, equipment, or construction if a construction work plan,

general funds, loan or loan guarantee for the proposed work has not

been approved. While the RUS staff will work with the borrower in such

circumstances, nothing contained in this part is to be construed as

authorizing borrowers to enter into any contract before the

availability of funds has been ascertained by the borrower and all the

requirements of part 1794 of this chapter, Environmental Policies and

Procedures for Electric and Telephone Borrowers, have been fulfilled.

Sec. 1726.19 Use of competitive procurement.

RUS borrowers' procurement is not subject to the provisions of the

Federal Acquisition Regulation (48 CFR chapter 1); however, since

borrowers receive the benefit of Federal financial assistance borrowers

must use competitive procurement to the greatest extent practical. The

borrower must use competitive procurement for obtaining all goods or

services when a RUS loan or loan guarantee is involved except:

(a) As specifically provided for in subparts B through F of this

part; or

(b) A waiver is granted.

Sec. 1726.20 Standards and specifications.

All materials, equipment, and construction must meet the minimum

requirements of all applicable RUS standards and specifications. (See

Part 1728, Electric Standards and Specifications for Materials and

Construction, of this chapter, which is applicable regardless of the

source of funding.)

Sec. 1726.21 New materials.

The borrower shall purchase only new materials and equipment unless

otherwise approved by RUS, on a case by case basis, prior to the

purchase.

Sec. 1726.22 Methods of construction.

The borrower is generally responsible for determining whether

construction will be by contract or force account. If construction is

by contract, the borrower must determine whether materials will be

supplied by the contractor or will be furnished by the borrower. RUS

reserves the right to require contract construction in lieu of force

account construction on a case by case basis.

Sec. 1726.23 Qualification of bidders.

(a) Qualified bidder list (QBL). The borrower shall (acting through

its engineer, if applicable) review the qualifications of prospective

bidders for contract construction and for material and equipment

procurement, and select firms qualified for inclusion on the borrower's

list of qualified bidders for each contract. (See also Sec. 1726.16 and

Sec. 1726.17.) A bid may not be solicited from a prospective bidder or

opened by the borrower unless that bidder has been determined to be a

qualified bidder for the contract. When preparing the QBL, in addition

to the actual experience of the borrower, if any, in dealing with a

prospective bidder, the borrower may solicit information from that

bidder or from other parties with firsthand experience regarding the

firm's capabilities and experience. It is also important to consider

the firm's performance record, safety record, and similar factors in

determining whether to include that firm on the QBL, since the borrower

may not evaluate these factors when evaluating a bid from a qualified

and invited bidder.

(b) Conflict of interest. If there is a relationship between the

borrower or engineer and a prospective bidder which might cause the

borrower or engineer to have or appear to have a conflict of interest,

that prospective bidder shall not be included on the QBL unless the

engineer discloses the nature of the relationship to the borrower. In

the case of the borrower, if its employees or directors have a

relationship with a prospective bidder, the prospective bidder shall

not be included on the qualified bidders list unless the nature of the

relationship is disclosed to the board of directors, and the board of

directors specifically approves the inclusion of that bidder in light

of the potential for a conflict of interest.

Sec. 1726.24 Written contracts.

(a) General. Procurement of goods or services must be by written

contract or written purchase order. The borrower [[Page 10158]] shall

use a RUS Approved Form of Contract for such contracts where required

by subparts B through F of this part.

(b) Amendments to contracts.--(1) Contract forms. The borrower must

use RUS Form 180, Construction Contract Amendment, for any change or

addition in a distribution line construction contract. The borrower

must use RUS Form 238, Construction or Equipment Contract Amendment,

for any change or addition in any other contract for construction, or

for materials or equipment.

(2) Special considerations. Each time an amendment to a

construction contract is executed, the borrower must ensure that

contractor's bond is adequate, that all necessary licenses and permits

have been obtained, and that any environmental requirements associated

with the proposed construction have been met.

(3) Amendment approval requirements. (i) If a RUS approved form of

contract is required by this part, an amendment must not alter the

terms and conditions of the RUS approved form of contract without prior

RUS approval.

(ii) The borrower must make a contract amendment subject to RUS

approval if the underlying contract was made subject to RUS approval

and the total amended contract price exceeds 120 percent of the

original contract price (excluding any escalation provision contained

in the contract).

(iii) Contract amendments, except as provided in paragraph

(b)(3)(ii) of this section, are not subject to RUS approval and need

not be submitted to RUS unless specifically requested by RUS on a case

by case basis.

Sec. 1726.25 Subcontracts.

The contractor or supplier may use RUS Form 282, Subcontract, for

subcontracts on construction, material or equipment contracts.

Subcontracts are not subject to RUS approval and need not be submitted

to RUS unless specifically requested by RUS on a case by case basis.

Secs. 1726.26-1726.34 [Reserved]

Sec. 1726.35 Submission of documents to RUS.

(a) Where to send documents. Documents required to be submitted to

RUS under this part are to be sent to the office of the borrower's

respective RUS Regional Director, the Power Supply Division Director,

or such other office of RUS as designated by RUS (see part 1700 of this

chapter.)

(b) Borrower certification. When a borrower certification is

required by this part, it must be made by the borrower's manager unless

the board of directors specifically authorizes another person to make

the required certification. In such case, a certified copy of the

specific authorizing resolution must accompany the document or be on

file with RUS.

RUS three copies of each contract that is subject to RUS approval under

subparts B through F of this part. At least one copy of each contract

must be an original signed in ink (i.e., no facsimile signature). Each

contract submittal must be accompanied by:

(1) A bid tabulation and evaluation and, if applicable, a written

recommendation of the architect or engineer.

(2) For awards made under the informal competitive bidding

procedure or the multiparty negotiation procedure, a written

recommendation of the contracting committee (See Secs. 1726.202 and

1726.203).

(3) Three copies of an executed contractor's bond on RUS approved

bond forms as required in the contract form (at least one copy of which

must be an original signed in ink) and one copy of the bid bond or

facsimile of the certified check.

(4) A certification by the borrower or chairperson of the

contracting committee, as applicable, that the appropriate bidding

procedures were followed as required by this part.

(5) A certified copy of the board resolution awarding the contract.

(6) Evidence of clear title to the site for substations and

headquarters construction contracts, if not previously submitted.

(7) Documentation that all reasonable measures were taken to assure

competition if fewer than three bids were received.

(d) Contract amendments requiring RUS approval. The borrower must

submit to RUS three copies of each contract amendment (at least one

copy of which must be an original signed in ink) which is subject to

RUS approval under Sec. 1726.24(b). Each contract amendment submittal

to RUS must be accompanied by:

(1) A certified copy of the board resolution approving the

amendment; and

(2) A bond extension, where necessary.

(e) Encumbrance of loan or loan guarantee funds. (1) For contracts

subject to RUS approval, the submittals required under paragraph (c) of

this section will initiate RUS action to encumber loan or loan

guarantee funds for such contracts.

(2) For contracts not subject to RUS approval (except for

generation projects), loan or loan guarantee funds will normally be

encumbered using RUS Form 219, Inventory of Work Orders, after closeout

of the contracts. In cases where the borrower can show good cause for a

need for immediate cash, the borrower may request encumbrance of loan

or loan guarantee funds based on submittal of a copy of the executed

contract, provided it meets all applicable RUS requirements.

(3) For generation project contracts not subject to RUS approval,

the borrower must submit to RUS the following documentation:

(i) A brief description of the scope of the contract, including

contract identification (name, number, etc.);

(ii) Contract date;

(iii) Contractor's name;

(iv) Contract amount;

(v) Bidding procedure used;

(vi) Borrower certification that:

(A) The board of directors approved the contract;

(B) The bidding procedures and contract award for each contract

were in conformance with the requirements of Part 1726, Electric System

Construction Policies and Procedures;

the terms and conditions of the RUS approved form of contract have not

been altered;

(D) If RUS has approved plans and specifications for the contract,

the contract was awarded on the basis of those plans and

specifications; and

(E) No restriction has been placed on the borrower's right to

assign the contract to RUS or its successors.

(4) Contract amendments. (i) For amendments subject to RUS

approval, the submittals required under paragraph (c) of this section

will initiate RUS action to encumber loan or loan guarantee funds for

contract amendments requiring RUS approval.

(ii) For amendments not subject to RUS approval (except generation

projects), loan or loan guarantee funds will normally be encumbered

using RUS Form 219, Inventory of Work Orders, after closeout of the

contracts. In cases where the borrower can justify a need for immediate

cash, the borrower may request encumbrance of loan or loan guarantee

funds based on submittal of a copy of the executed amendment, providing

it meets all applicable RUS requirements.

(iii) For each generation project contract amendment not subject to

RUS approval, the borrower must submit to RUS the following information

and documentation:

(A) The contract name and number; [[Page 10159]]

(B) The amendment number;

(D) The dollar amount of the increase or the decrease of the

amendment;

(E) Borrower certification that:

(1) The amendment was approved in accordance with the policy of the

board of directors (the borrower must ensure that RUS has a certified

copy of the board resolution establishing such policy);

(2) If a RUS approved form of contract is required by this part,

the terms and conditions of the RUS approved form of contract has not

been altered; and

(3) No restriction has been placed on the borrower's right to

assign the contract to RUS or its successors.

Sec. 1726.36 Documents subject to RUS approval.

Unless otherwise indicated, the borrower shall make all contracts

and amendments that are subject to RUS approval effective only upon RUS

approval.

Sec. 1726.37 OMB control number.

The collection of information requirements in this part have been

approved by the Office of Management and Budget and assigned OMB

control number 0572-0107.

Secs. 1726.38-1726.49 [Reserved]

Subpart B--Distribution Facilities

Sec. 1726.50 Distribution line materials and equipment.

(a) Contract forms. (1) The borrower shall use RUS Form 198,

Equipment Contract, for purchases of equipment where the total cost of

the contract is $500,000 or more.

(2) The borrower may, in its discretion, use RUS Form 173,

Materials Contract, RUS Form 198, Equipment Contract, or a written

purchase order for purchases of equipment of less than $500,000 and for

all materials.

(b) Standards and specifications. Distribution line materials and

equipment must meet the minimum requirements of RUS standards as

determined in accordance with the provisions of part 1728 of this

chapter, Electric Standards and Specifications for Materials and

Construction. The borrower must obtain RUS approval prior to purchasing

any unlisted distribution line material or equipment of the types

listed in accordance with the provisions of part 1728 of this chapter.

borrower to determine the procurement method that best meets its needs

for the purchase of material and equipment to be used in distribution

line construction.

(d) Contract approval. Contracts for purchases of distribution line

materials and equipment are not subject to RUS approval and need not be

submitted to RUS unless specifically requested by RUS on a case by case

basis.

Sec. 1726.51 Distribution line construction.

(a) Contract forms. The borrower must use RUS Form 201, 790, 792,

or 830, as outlined in this paragraph (a), for distribution line

construction, except for minor modifications or improvements.

(1) The borrower may use RUS Form 790, Distribution Line Extension

Construction Contract (Labor and Materials), or RUS Form 792,

Distribution Line Extension Construction Contract (Labor only) under

the following circumstances:

(i) For contracts for which the borrower supplies all materials and

equipment; or

(ii) For non-site specific construction contracts accounted for

under the work order procedure; or

(iii) If neither paragraph (a)(1)(i) or (a)(1)(ii) of this section

are applicable, the borrower may use RUS Form 790 or 792 for contracts,

up to a cumulative total of $250,000 or one percent of NUP, whichever

is greater, per calendar year of distribution line construction,

exclusive of the cost of owner furnished materials and equipment

(2) The borrower must use RUS Form 830, Electric System

Construction Contract (Labor and Materials), for all other distribution

line construction. Where distribution lines are being constructed

incidental to transmission line construction, the borrower must use RUS

Form 831, Electric Transmission Construction Contract.

(3) The borrower must use RUS Form 201, Right-of-Way Clearing

Contract, for new distribution line construction right-of-way clearing

when done separately from work performed under RUS Form 830.

(b) Procurement procedures. (1) It is the responsibility of each

borrower to determine the procurement method that best meets its needs

to award contracts in amounts of up to a cumulative total of $250,000

or one percent of NUP, whichever is greater, per calendar year of

distribution line construction (including minor modifications or

improvements), exclusive of the cost of owner furnished materials and

equipment.

(2) In addition to the cumulative total stipulated in paragraph

(b)(1) of this section, a borrower may use Multiparty Unit Price

Quotations to award contracts in amounts of up to a cumulative total of

$350,000 or 1.5 percent of NUP, whichever is greater, per calendar year

of distribution line construction (including minor modifications or

improvements), exclusive of the cost of owner furnished materials and

equipment.

(3) The borrower shall use formal competitive bidding for all other

distribution line contract construction. The amount of contracts bid

using the formal competitive bidding procedure do not apply to the

cumulative total stipulated in paragraph (b)(1) of this section.

(4) An amendment which increases the scope of the contract by

adding a project is not considered competitively bid, therefore, the

amount of that amendment does apply to the cumulative total stipulated

in paragraph (b)(1) of this section.

are not subject to RUS approval and need not be submitted to RUS unless

specifically requested by RUS on a case by case basis.

Secs. 1726.52-1726.74 [Reserved]

Subpart C--Substation and Transmission Facilities

Sec. 1726.75 General.

As used in this part, ``substations'' includes substations,

switching stations, metering points, and similar facilities.

Sec. 1726.76 Substation and transmission line materials and equipment.

(a) Contract forms. (1) The borrower must use RUS Form 198,

Equipment Contract, for purchases of equipment where the total cost of

the contract is $500,000 or more.

(2) The borrower may, in its discretion, use RUS Form 173,

Materials Contract, RUS Form 198, Equipment Contract, or a written

purchase order for purchases of equipment of less than $500,000 and for

all materials.

(b) Standards and specifications. Substation and transmission line

materials and equipment must meet the minimum requirements of RUS

standards as determined in accordance with the provisions of part 1728

of this chapter, Electric Standards and Specifications for Materials

and Construction. The borrower must obtain RUS approval prior to

purchasing of any unlisted substation or transmission line material or

equipment of the types listed in accordance with the provisions of part

1728 of this chapter.

borrower to determine the procurement method that best meets its needs

for purchase of material and equipment to be used in

[[Page 10160]] substation and transmission line construction.

(d) Contract approval. Contracts for purchases of substation and

transmission line materials and equipment are not subject to RUS

approval and need not be submitted to RUS unless specifically requested

by RUS on a case by case basis.

Sec. 1726.77 Substation and transmission line construction.

(a) Contract forms. (1) The borrower must use RUS Form 764,

Substation Erection Contract, for construction of substations, except

for minor modifications or improvements. The borrower must use RUS Form

831, Electric Transmission Construction Contract for projects where

substations are incidental to transmission line construction and are to

be constructed under the same contract.

(2) The borrower must use RUS Form 831, Electric Transmission

Construction Contract, for construction of transmission lines (except

for minor modifications or improvements).

(3) The borrower must use RUS Form 203, Transmission System Right-

of-Way Clearing Contract, for new transmission line construction right-

of-way clearing when right-of-way clearing is performed separately from

work performed under RUS Form 831.

(b) Procurement procedures. (1) It is the responsibility of each

borrower to determine the procurement method that best meets its needs

to award contracts not requiring RUS approval in amounts of up to a

cumulative total of $250,000 or one percent of NUP (not to exceed

$2,000,000), whichever is greater, per calendar year of substation and

transmission line construction (including minor modifications or

improvements), exclusive of the cost of owner furnished materials and

equipment.

(2) The borrower shall use formal competitive bidding for all other

contract construction, including all contracts requiring RUS approval.

The amount of contracts bid using the formal competitive bidding

procedure do not apply to the cumulative total stipulated in paragraph

(b)(1) of this section.

(3) An amendment which increases the scope of the contract by

adding a project is not considered competitively bid, therefore, the

amount of that amendment does apply to the cumulative total stipulated

in paragraph (b)(1) of this section.

or more or one percent of NUP (not to exceed $500,000 for distribution

borrowers or $1,500,000 for power supply borrowers), whichever is

greater, exclusive of the cost of owner furnished materials and

equipment, are subject to RUS approval.

Secs. 1726.78-1726.124 [Reserved]

Subpart D--Generation Facilities

Sec. 1726.125 Generating plant facilities.

This section covers the construction of all portions of a

generating plant, including plant buildings and the generator step-up

transformer. Generally, the transmission switchyard will be covered

under this section during initial construction of the plant. Subpart C

of this part covers subsequent modifications to transmission

switchyards. Warehouses and equipment service type buildings are

covered under subpart E of this part.

(a) Contract forms. (1) The borrower must use RUS Form 198,

Equipment Contract, for the purchase of generating plant equipment in

the amount of $1,500,000 or more and for any generating plant equipment

contract requiring RUS approval.

(2) The borrower must use RUS Form 200, Construction Contract--

Generating, for generating project construction contracts in the amount

of $1,500,000 or more and for any generating project construction

contract requiring RUS approval.

(3) The borrower may, in its discretion, use other contract or

written purchase order forms for those contracts in amounts of less

than $1,500,000 and that do not require RUS approval.

(b) Plans and specifications. The borrower shall obtain RUS

approval of the plans and specifications for generating plant equipment

prior to issuing invitations to bid for any contract subject to RUS

approval as determined under this subpart and for any contract for

generating plant equipment or construction which will cost $1,500,000

or more. Plans and specifications for other equipment and construction

contracts do not require RUS approval and need not be submitted to RUS

unless specifically requested by RUS on a case by case basis.

borrower to determine the procurement method that best meets its needs

to award contracts in amounts of less than $1,500,000 each.

(2) If the amount of the contract is $1,500,000 or more or if the

contract requires RUS approval, the borrower must use formal or

informal competitive bidding to award the contract.

(3) Where formal or informal competitive bidding is not applicable,

or does not result in a responsive bid, multiparty negotiation may be

used only after RUS approval is obtained.

(d) Contract approval. During the early stages of generating plant

design or project design, RUS will, in consultation with the borrower

and its consulting engineer, identify the specific contracts which

require RUS approval based on information supplied in the plant design

manual. The following are typical contracts for each type of generating

project which will require RUS approval. Although engineering services

are not covered by this part, they are listed in this paragraph (d) to

emphasize that RUS approval is required for all major generating

station engineering service contracts in accordance with applicable RUS

rules. For types of projects not shown, such as nuclear and alternate

energy projects, RUS will identify the specific contracts which will

require RUS approval on a case by case basis.

(1) Fossil generating stations. Engineering services, steam

generator, turbine generator, flue gas desulfurization system,

particulate removal system, electric wiring and control systems,

mechanical equipment installation (including turbine installation and

plant piping), power plant building (foundation and superstructure),

site preparation, coal unloading and handling facilities, main step-up

substation, cooling towers, and dams or reservoirs.

(2) Diesel and combustion turbine plants. Engineering services,

prime mover and generator, building (foundation and superstructure),

and electrical control systems.

(3) Hydro installations. Engineering services, turbine/generator,

civil works and powerhouse construction, electrical control system, and

mechanical installation.

Secs. 1726.126-1726.149 [Reserved]

Subpart E--Buildings

Sec. 1726.150 Headquarters buildings.

This section includes headquarters buildings such as warehouses and

equipment service type buildings. Generating plant buildings are

covered under subpart D of this part.

(a) Contract forms. The borrower must use RUS Form 257, Contract to

Construct Buildings, for all contracts for construction of new

headquarters facilities, and additions to, or modifications of existing

headquarters facilities (except for minor modifications or

improvements).

(b) Procurement procedures. A borrower may use Multiparty Lump

[[Page 10161]] Sum Quotations to award contracts in amounts of up to a

cumulative total of $250,000 or one percent of NUP (not to exceed

$1,000,000), whichever is greater, per calendar year of headquarters

construction (including minor modifications or improvements.) The

borrower must use formal competitive bidding for all other headquarters

contract construction.

not subject to RUS approval and need not be submitted to RUS unless

specifically requested by RUS on a case by case basis.

Secs. 1726.151-1726.174 [Reserved]

Subpart F--General Plant

Sec. 1726.175 General plant materials.

This section covers items such as office furniture and equipment;

transportation equipment and accessories, including mobile radio

systems, stores and shop equipment, laboratory equipment, tools and

test equipment.

(a) Contract forms. The borrower may, in its discretion, use RUS

Form 173, Material Contract, RUS Form 198, Equipment Contract, or a

written purchase order.

(b) Procurement procedures. It is the responsibility of each

borrower to determine the procurement method that best meets its needs

for purchase of general plant material and equipment.

items are not subject to RUS approval and need not be submitted to RUS

unless specifically requested by RUS on a case by case basis.

Sec. 1726.176 Communications and control facilities.

This section covers the purchase of microwave and power line

carrier communications systems, load control, and supervisory control

and data acquisition (SCADA) systems. Mobile radio systems are covered

as general plant materials in Sec. 1726.175.

(a) Power line carrier systems. Power line carrier equipment will

frequently be purchased as part of a substation and will be included in

the complete substation plans and specifications. When purchased in

this manner, the requirements of subpart C of this part, Substation and

Transmission Facilities, will apply. If obtained under a contract for

only a power line carrier system, the requirements of paragraph (b) of

this section apply.

(b) Load control systems, communications systems, and SCADA

systems--(1) Contract forms. The borrower must use RUS Form 786,

Electric System Communication and Control Equipment Contract. This form

may be modified to be a ``purchase only'' contract form.

(2) Procurement procedures. (i) It is the responsibility of each

borrower to determine the procurement method that best meets its needs

to award contracts not requiring RUS approval in amounts of up to a

cumulative total of $250,000 or one percent of NUP (not to exceed

$2,000,000), whichever is greater, per calendar year of communications

and control facilities construction (including minor modifications or

improvements.), exclusive of the cost of owner furnished materials and

equipment.

(ii) The borrower must use multiparty negotiation for all other

communications and control facilities contract construction, including

all contracts requiring RUS approval. The amount of contracts bid using

the multiparty negotiation procedure do not apply to the cumulative

total stipulated in paragraph (b)(2)(i) of this section.

(iii) An amendment which increases the scope by adding a project is

not considered competitively bid, therefore, the amount of that

amendment does apply to the cumulative total stipulated in paragraph

(b)(2)(i) of this section.

(3) Contract approval. Individual contracts in amounts of $250,000

or more or one percent of NUP (not to exceed $500,000 for distribution

borrowers or $1,500,000 for power supply borrowers), whichever is

greater, exclusive of the cost of owner furnished materials and

equipment, are subject to RUS approval.

Secs. 1726.177-1726.199 [Reserved]

Subpart G--Procurement Procedures

Sec. 1726.200 General requirements.

The borrower must use the procedures described in this subpart

where such procedures are required under subparts B through F of this

part. The borrower must ensure that arrangements prior to announcement

of the award of the contract are such that all bidders are treated

fairly and no bidder is given an unfair advantage over other bidders.

Sec. 1726.201 Formal competitive bidding.

Formal competitive bidding is used for distribution, transmission,

and headquarters facilities, and may be used for generation facilities.

The borrower must use the following procedure for formal competitive

bidding:

(a) Selection of qualified bidders. The borrower (acting through

its engineer, if applicable) will compile a list of qualified bidders

for each proposed contract. The borrower will send invitations to bid

only to persons or organizations on its QBL for the specific project

(see Sec. 1726.23).

(b) Invitations to bid. The borrower (acting through its engineer,

if applicable) is responsible for sending out invitations to

prospective bidders, informing them of scheduled bid openings and

taking any other action necessary to procure full, free and competitive

bidding. The borrower should send out a sufficient number of

invitations in order to assure adequate competition and so that at

least three bids will be received. Subject to the foregoing criteria,

the determination of how many and which bidders will be permitted to

bid will be the responsibility of the borrower.

of the bid, which are to be considered in evaluating the proposals of

qualified bidders (e.g., power consumption, losses, etc.) must be

stated in the ``Notice and Instructions to Bidders.'' The borrower will

not evaluate a bidder's performance record, safety record, and similar

factors when evaluating a bid from a qualified and invited bidder. Such

factors are to be considered when determining whether to include a

particular bidder on the qualified bidders list.

(d) Handling of bids received. The borrower or the engineer, as

applicable, will indicate, in writing, the date and time of receipt by

the borrower or the engineer on the outside envelope of each bid and

all letters and other transmittals amending or modifying the bids. Any

bid received at the designated location after the time specified must

be returned to the bidder unopened.

(e) Bid openings. Bid openings are generally conducted by the

engineer in the presence of bidders and a representative of the

borrower and the borrower's attorney. Each bona fide bid must be opened

publicly and reviewed for any irregularities, errors, or exceptions. It

must be verified that any addendum or supplement to the specification

has been acknowledged by the bidder. The adequacy of bid bonds or

certified checks must be verified at this time.

(f) Conditions affecting acceptability of bids. The borrower must

take the following specified action if any of the following exist:

(1) Fewer than three bona fide bids received. If fewer than three

bona fide bids are received for the contract project, the borrower must

determine that all reasonable measures have been taken to assure

competition prior to awarding the contract. This

[[Page 10162]] determination must be documented and such documentation

submitted to RUS where required by subpart A of this part. The borrower

may, however, elect to reject all bids, make changes in the

specification or the qualified bidders list or both and invite new

bids.

(2) Significant error or ambiguity in the specification. If a

significant error or ambiguity in the specification is found which

could result in the bidders having varying interpretations of the

requirements of the bid, the borrower must either issue an addendum to

each prospective bidder correcting the error or ambiguity before bids

are received, or reject all bids and correct the specification. If a

significant error or ambiguity in the specification is discovered after

the bids are opened, the borrower must reject all bids, correct the

specification and invite new bids.

(3) Minor errors or omissions in the specification. If minor errors

or omissions in the specification are found, the borrower must issue an

addendum to each prospective bidder correcting the error or omission

prior to opening any bids. After bid opening, the error or omission

must be corrected in the executed contract.

(4) Minor errors or irregularities in bid. The borrower may waive

minor errors or irregularities in any bid, if the borrower determines

that such minor errors or irregularities were made through

inadvertence. Any such minor errors or irregularities so waived must be

corrected on the bid in which they occur prior to the acceptance

thereof by the borrower.

(5) Non-minor error or irregularity in bid. If a bid contains a

non-minor error or irregularity, the bid must be rejected and the bid

price must not be disclosed.

(6) Unbalanced bid. If a bid contains disproportionate prices

between labor and materials or between various construction units, the

borrower may reject the bid.

(7) No acceptable price quoted. If none of the bidders quote an

acceptable price, the borrower may reject all bids.

(g) Evaluating bids. The borrower (acting through the engineer, if

applicable) must conduct the evaluation of bids on the basis of the

criteria set out in the ``Notice and Instructions to Bidders.'' The

contract, if awarded, must be awarded to the bidder with the lowest

evaluated responsive bid.

(h) Announcement of bids. If possible, the borrower will announce

bids at the bid opening. However, where extensive evaluation is

required, the borrower may elect to adjourn and make formal written

announcement to all bidders at a later time. Any discrepancy in a

rejected bid must be indicated in the bid announcement.

(i) Award of contract. Upon completion of the bid evaluations and

based upon the findings and recommendations of the borrower's

management and engineer, the borrower's board of directors will either:

(1) Resolve to award the contract to the lowest evaluated

responsive bidder; or

(2) Reject all bids.

(j) Certification by the borrower and its engineer. The borrower

shall certify and the engineer shall certify as follows: ``The

procedures for formal competitive bidding, as described in 7 CFR

1726.201, were followed in awarding this contract.'' The certification

executed by and on behalf of the borrower and its engineer shall be

submitted to RUS in writing where required by subpart A of this part.

Sec. 1726.202 Informal competitive bidding.

Informal competitive bidding may be used for equipment purchases

and generation construction. The borrower must use the following

procedure for informal competitive bidding:

(a) Selection of qualified bidders. The borrower (acting through

its engineer, if applicable) will compile a list of qualified bidders

for each proposed contract. The borrower will send invitations to bid

only to persons or organizations on its qualified bidder list for the

specific project (see Sec. 1726.23).

(b) Invitations to bid. The borrower (acting through its engineer,

if applicable) is responsible for sending out invitations to

prospective bidders, informing them of scheduled bid openings and any

other action necessary to procure full, free and competitive bidding.

In any event, however, sufficient invitations need to be sent out to

assure competition and that at least three bids will be received.

Subject to the criteria in the preceding sentence, the determination of

how many and which bidders will be permitted to bid will be the

responsibility of the borrower.

in the ``Notice and Instructions to Bidders'' section of the bid

documents that bids will be opened privately. The borrower may elect to

conduct clarifying discussions with the bidders. If such clarifying

discussions are held, at least the three apparent low evaluated bidders

must be given an equal opportunity to resolve any questions related to

the substance of the bidder's proposal and to arrive at a final price

for a responsive bid.

(d) Evaluation basis. Any factors, other than lowest dollar amount

of the bid, which are to be considered in evaluating the proposals of

qualified bidders (e.g., power consumption, losses, etc.) must be

stated in the ``Notice and Instructions to Bidders.'' The borrower will

not evaluate a bidder's performance record, safety record, and similar

factors when evaluating a bid from a qualified and invited bidder. Such

factors are to be considered when determining whether to include a

particular bidder on the qualified bidders list.

(e) Handling of bids received. The borrower or the engineer, as

applicable, will indicate, in writing, the date and time of receipt by

the borrower or the engineer on the outside envelope of each bid and

all letters and other transmittals amending or modifying the bids. Any

bid received at the designated location after the time specified must

be returned to the bidder unopened.

(f) Bid opening. The contracting committee will conduct the bid

opening in private. The contracting committee will open each bona fide

bid which has been received prior to the deadline, and review it for

any irregularities, errors, or exceptions. It must be verified that any

addendum to the specification has been acknowledged by each bidder. The

adequacy of bid bonds or certified checks must also be verified.

(g) Conditions affecting acceptability of bids. The borrower must

take the following specified action if any of the following exist:

(1) Fewer than three bona fide bids received. If fewer than three

bona fide bids are received for the contract project, the borrower must

determine that all reasonable measures have been taken to assure

competition prior to awarding the contract. This determination must be

documented and such documentation submitted to RUS where required by

subpart A of this part. The borrower may, however, elect to reject all

bids, make changes in the specification or the qualified bidders list

or both and invite new bids.