The recent past economic recession has caused many smaller A/E firms that have not historically worked in the public sector to jump in as a way to help smooth out the trough that has been experienced in the private sector. These smaller firms generally do not have the background to prepare FAR compliant overhead rates and are willing to receive lower margins to gain access to the public sector. FHWA, AASHTO, and State Agencies have established a ten-state pilot program to address this issue.
The program allows small firms to bid on a project by project basis with a safe harbor overhead rate of 110% for up to three years. There is no associated audit requirement to use that rate. The idea is to allow these smaller firms to get work at reasonably safe overhead rates while they develop their internal controls and structure so that as they grow and get familiar with the standards they can then develop FAR compliant overhead rates and start using those actual rates vs. the safe harbor rate. After the three year program is over the results will be analyzed and the results will influence whether or not the program is extended and whether or not the rest of the states will be able to participate.