A. The FTA policy on advance payments is stated in FTA Procurement Circular 4220.1F, Ch. IV, ¶ 2. B. (5)(b), which is reproduced below. As you can see, the issue of approving advance payments such as mobilization is left with the FTA regional office and you should consult your regional FTA office for approval.
Advance payments are payments made to a contractor before the contractor incurs contract costs. The recipient may use its local share funds for advance payments. However, if there is no automatic preaward authority for its project, then advance payments made with local share funds before FTA assistance has been awarded, or before a letter of no prejudice has been issued or other preaward authority has been provided, or before FTA approval for the specific advance payment has been obtained, are ineligible for reimbursement.
Where grantees wish to make advance payments with FTA funds, they should contact their regional office to obtain FTA concurrence. There may be a sound business reason for providing advance payments under a number of circumstances and, where FTA finds adequate security for the advance payment combined with a sound business reason to grant the advance payment, will normally grant the required concurrence. These advance payments may be in the nature of mobilization payments, start-up costs, or other advances backed by sound business judgment and adequate security
The Best Practices Procurement Manual (BPPM), Section 184.108.40.206 – Advance Payments, discusses this topic. You will see there that New York City Transit used mobilization payments for a major rail car procurement. FTA approved this contract provision because NYCT was able to demonstrate a significant price benefit as consideration for the advance payments, and they also protected the agency’s interest in the payments with an Advance Payment Bond or Letter of Credit.
(Revised: September 2010)
Q. In a service contract for janitorial services, the contract calls for regular weekly services; it also has "extra" services that are performed every 2 months, 4 months and 6 months (such as floor waxing, window washing, appliance cleaning, etc.). For ease of billing the contractor wants to total up all the services in the schedule of the contract and divide that by 12 and bill us that amount each month. We would be paying in advance for some of the "extra" services before they are performed. Is this considered advance payment?
A. It would appear from your information that the fixed monthly payments would be considered "advance payments," and therefore unacceptable. However, as noted in the Best Practices Procurement Manual (BPPM) section 220.127.116.11—"Advance Payments," there is an exception for payments that are standard industry practice. The BPPM reads as follows:
Exceptions to the Prior Approval Requirement— The FTA requirement for
prior approval of advance payments does not apply to transactions where it is
"generally accepted industry practice" to pay in advance. In these
situations, grantees may make advance payments without prior FTA
approval. These situations would include (but not necessarily be restricted to)
the following types of transactions:
3. Insurance premiums
4. Subscriptions to publications
5. Software licenses
6. Construction mobilization costs
7. Public utility connections
If you can determine that the standard industry practice is to bill a fixed monthly amount for janitorial services although the scheduled services may vary periodically, then you may make advance payments. It would be more prudent to fix the contract payments on the basis of the services actually performed. (Revised: September 2010)
Q. I understand that "Software Licenses" are one of the exceptions to the Prior Approval requirement for advance payments. However, am I particularly interested in advanced payment for computer software and/or hardware maintenance (rather than licenses). Could you clarify whether an annual maintenance agreement would be permitted to be paid in advance for software and/or hardware maintenance, without obtaining FTA approval in advance. This deals with an upcoming contract and the vendor’s insistence that they be paid for annual maintenance in advance.
A. FTA policy concerning advance payments may be found in the FTA Procurement Circular 4220.1F, Chapter IV. 2. b. (5) (b) - "Advance Payments." The Circular may be found online: http://www.fta.dot.gov/documents/FTA_Circular_4220_-_Third_Party_Contracting_Guidance_-_7-1-10.pdf
FTA permits advance payments when such payments are "customarily required in the marketplace." Software licenses are specifically mentioned in the Circular. With regard to software and hardware maintenance agreements, we would be inclined to see them as also being customary in the industry. However, this is a determination that your agency must make after researching the marketplace. If there is any doubt in your mind as to whether software and/or hardware maintenance agreements are customarily paid in advance, you should submit the request to your regional FTA Office and get their written approval.
The Circular would in these customary cases not require advance approval of FTA. However, if the payment is to exceed $100,000, even though customary, you will need advance approval by FTA. (Posted: June, 2011)