[Code of Federal Regulations]
[Title 23, Volume 1]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 23CFR635.124]

[Page 181-182]
 
                           TITLE 23--HIGHWAYS
 
 CHAPTER I--FEDERAL HIGHWAY ADMINISTRATION, DEPARTMENT OF TRANSPORTATION
 
PART 635--CONSTRUCTION AND MAINTENANCE--Table of Contents
 
                     Subpart A--Contract Procedures
 
Sec. 635.124  Participation in contract claim awards and settlements.

    (a) The eligibility for and extent of Federal-aid participation up 
to the Federal statutory share in a contract claim award made by a State 
to a Federal-aid contractor on the basis of an arbitration or mediation 
proceeding, administrative board determination, court judgment, 
negotiated settlement, or other contract claim settlement shall be 
determined on a case-by-case basis. Federal funds will participate to 
the extent that any contract adjustments made are supported, and have a 
basis in terms of the contract and applicable State law, as fairly 
construed. Further, the basis for the adjustment and contractor 
compensation shall be in accord with prevailing principles of public 
contract law.
    (b) The FHWA shall be made aware by the SHA of the details of the 
claim at an early stage so that coordination of efforts can be 
satisfactorily accomplished. It is expected that SHA's will diligently 
pursue the satisfactory resolution of claims within a reasonable period 
of time. Claims arising on projects handled on Certification Acceptance 
projects or on exempt non-NHS projects should be processed in accordance 
with the State's approved Certification Acceptance Plan or Stewardship 
Plan, as appropriate.
    (c) When requesting Federal participation, the SHA shall set forth 
in writing the legal and contractual basis for the claim, together with 
the cost data and other facts supporting the award or settlement. 
Federal-aid participation in such instances shall be supported by a SHA 
audit of the actual costs incurred by the contractor unless waived by 
the FHWA as unwarranted. Where difficult, complex, or novel legal issues 
appear in the claim, such that evaluation of legal controversies is 
critical to consideration of the award or settlement, the SHA shall 
include in its submission a legal opinion from its counsel setting forth 
the basis for determining the extent of the liability under local law, 
with a level of detail commensurate with the magnitude and complexity of 
the issues involved.
    (d) In those cases where the SHA receives an adverse decision in an 
amount more than the SHA was able to support prior to the decision or 
settles a claim in an amount more than the SHA can support, the FHWA 
will participate up to the appropriate Federal matching share, to the 
extent that it involves a Federal-aid participating portion of the 
contract, provided that:
    (1) The FHWA was consulted and concurred in the proposed course of 
action;
    (2) All appropriate courses of action had been considered; and
    (3) The SHA pursued the case diligently and in a professional 
manner.
    (e) Federal funds will not participate:
    (1) If it has been determined that SHA employees, officers, or 
agents acted with gross negligence, or participated in intentional acts 
or omissions, fraud, or other acts not consistent with usual State 
practices in project design, plan preparation, contract administration, 
or other activities which gave rise to the claim;
    (2) In such cost items as consequential or punitive damages, 
anticipated profit, or any award or payment of attorney's fees paid by a 
State to an opposing party in litigation; and
    (3) In tort, inverse condemnation, or other claims erroneously 
styled as claims ``under a contract.''
    (f) Payment of interest associated with a claim will be eligible for 
participation provided that the payment to the contractor for interest 
is allowable by State statute or specification and the costs are not a 
result of delays caused by dilatory action of the State or the 
contractor. The interest rates must not exceed the rate provided for by 
the State statute or specification.

[[Page 182]]

    (g) In cases where SHA's affirmatively recover compensatory damages 
through contract claims, cross-claims, or counter claims from 
contractors, subcontractors, or their agents on projects on which there 
was Federal-aid participation, the Federal share of such recovery shall 
be equivalent to the Federal share of the project or projects involved. 
Such recovery shall be credited to the project or projects from which 
the claim or claims arose.

[56 FR 37004, Aug. 2, 1991, as amended at 62 FR 6873, Feb. 14, 1997]