Revenue Contracts

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Q. What is FTA's current policy regarding the placement of commercial advertising on bus shelters purchased with FTA grant financing?

A. FTA encourages grantees to produce revenue that can be used to offset program costs. However, FTA requires that revenue contracts be competitively awarded in order to give all businesses an opportunity to participate when a federally funded asset is being used as a revenue-enhancing source for the grantee.  FTA distinguishes between competition necessary when there are limited contract opportunities and competition necessary when there are many contract opportunities. 

If your agency intends to produce revenue from advertising on its bus shelters, opportunities to obtain advertising space on those shelters would be limited.  For that reason, your agency should use a competitive process to permit interested parties an equal chance to obtain access to that space; see especially, FTA guidance concerning revenue contracts is contained in Chapter II, Subparagraph 2.b(4)(a) of FTA Circular 4220.1F, “Third Party Contracting Guidance,” available online at http://www.fta.dot.gov/documents/FTA_Circular_4220_-_Third_Party_Contracting_Guidance_-_7-1-10_final.pdf.  Additional guidance is available in FTA’s “Best Practices Procurement Manual” (BPPM), Section 1.3.3.8–Revenue Contracts, available online at http://www.fta.dot.gov/funding/thirdpartyprocurement/grants_financing_6037.html.
(Revised: July, 2010)

 

Q. Is there any Federal regulation for the construction and installation of bus shelters that have advertising? 

A. FTA does not have any construction or installation requirements or specifications for bus shelters.  If the shelters are to be purchased with Federal grant funds, and will be revenue producing, FTA does require grantees to compete the advertising contract in order to give all interested parties an equal opportunity obtain use of the federally assisted shelters.  Revenue contracts with limited opportunities for participation, such as advertising on bus shelters, are discussed in the Chapter II, Subparagraph 2.b(4)(a) of FTA Circular 4220.1F, “Third Party Contracting Guidance,” available online at http://www.fta.dot.gov/documents/FTA_Circular_4220_-_Third_Party_Contracting_Guidance_-_7-1-10_final.pdf(Revised: July, 2010)

Q.
Would competitive negotiations using the request for proposal (RFP) process be correct for solicitation of transit advertising services, as a concession agreement, in which the contractor pays commissions to the Grantee in exchange for the exclusive right to sell advertising space?

A. We would agree that a competitive RFP could be an effective method of soliciting offers leading to the ultimate award of a concession-type revenue contract.  FTA does in fact require that concession-type revenue contracts generally be competed but does not specify the method of competition.  Grantees have the discretion to choose the best method for soliciting bids or proposals.  FTA guidance on procurement procedures is located in Chapter VI, Sections 2 and 3 of FTA Circular 4220.1F, “Third Party Contracting Guidance,” available online at http://www.fta.dot.gov/documents/FTA_Circular_4220_-_Third_Party_Contracting_Guidance_-_7-1-10_final.pdf.
(Revised: July, 2010)

 

Q. Would competitive negotiations using the request for proposal RFP process be correct for solicitation of transit advertising services, as a concession agreement, in which the contractor pays commissions to the Grantee in exchange for the exclusive right to sell advertising space?  The Grantee has bus shelter advertising display kiosks as well as transit bus advertising space.  The Grantee is interested in a competitive solicitation to award a term contract based on the most advantageous revenue-producing offer. 

A.
We would agree that a competitive RFP could be an effective method of soliciting offers leading to the ultimate award of a concession-type revenue contract.  FTA does in fact require that revenue contracts be competed but does not specify the method of competition.  Grantees have the discretion to choose the best method for soliciting bids or proposals.  FTA guidance on procurement procedures in Chapter VI, Sections 2 and 3 of FTA Circular 4220.1F, “Third Party Contracting Guidance,” available online at http://www.fta.dot.gov/documents/FTA_Circular_4220_-_Third_Party_Contracting_Guidance_-_7-1-10_final.pdf.  Additional guidance is available in FTA’s “Best Practices Procurement Manual” (BPPM), Section 4, “Methods of Solicitation and Selection,” available online at http://www.fta.dot.gov/funding/thirdpartyprocurement/bppm/grants_financing_6187.html. (Revised: July, 2010)



Q.  If a public agency obtained land for a transit facility through completely locally funded means, but improved upon that land with construction paid for by the FTA grants, is this a federally funded asset that would require competitive bidding for any revenue contracts involving that station?  For example, would the installation of pay phones for revenue purposes need to be competitively bid?

A. Because the building was financed with Federal grant funds, even if the land were not, the building would qualify as a federally funded asset.  Consequently, any revenue contracts associated with the building's use would have to be competitively awarded in order to provide all interested parties an equal opportunity to obtain that use if business opportunities can be expected to be limited.   See, Chapter II, Subparagraph 2.b(4)(a) of FTA Circular 4220.1F, “Third Party Contracting Guidance,” available online at available online at http://www.fta.dot.gov/documents/FTA_Circular_4220_-_Third_Party_Contracting_Guidance_-_7-1-10_final.pdf.  Additional guidance is available in FTA’s “Best Practices Procurement Manual” (BPPM), Section 4, “Methods of Solicitation and Selection,” available online at http://www.fta.dot.gov/funding/thirdpartyprocurement/bppm/grants_financing_6187.html. (Revised: July, 2010)

 

Q.  Could you please cite references for FTA requirements pertaining to revenue contracts?   A particular concern relates to the applicability of Disadvantaged Business Enterprise (DBE) requirements.
 
A.
The FTA Procurement Circular 4220.1F, “Third Party Contracting Guidance,” addresses revenue contracts in Chapter II, Paragraph 2.b(4)(a), available online at http://www.fta.dot.gov/documents/FTA_Circular_4220_-_Third_Party_Contracting_Guidance_-_7-1-10_final.pdf.  But specific guidance about DBE participation is found in FTA’s “Best Practices Procurement Manual” (BPPM). The BPPM discusses revenue contracts in section 1.3.3.8, available online at
http://www.fta.dot.gov/funding/thirdpartyprocurement/grants_financing_6037.html.
The BPPM advises that FTA policy requires revenue contracts to be competed so that all business entities have an equal opportunity for award, including DBEs. The following language is taken from the BPPM:

Disadvantaged Business Enterprises — DBEs should have the maximum opportunity to participate in both contracts and subcontracts that use any federal funds. The grantee is responsible for taking all necessary and reasonable steps to ensure that DBEs have maximum opportunity to compete for revenue contracts since these contracts are considered business opportunities.
The requirement concerning DBEs is an equal opportunity to compete with other firms with respect to revenue contracts. (Revised: July, 2010)



Q. 
Is advertising revenue produced from privately constructed and privately funded bus shelters along the public transit bus routes required to be used to fund the public transit system?  Since the shelters serve the existing transit system, do they qualify as a federally funded project subject to Circular 4220.1F?  Ulster County Area Transit serves a number of municipalities within its borders and has an active bus shelter expansion program in place.   A local advertising agency has offered the following unsolicited proposal to one of the smaller municipalities:  The ad agency will construct, maintain and clean bus shelters purchased by the advertising agency.  The shelters will be placed along the existing public transit routes.  The ad agency has offered to share its advertising revenue with the local municipality but not the public transit agency.

A.  If the bus shelters are constructed entirely with non-Federal funds, then there is no Federal interest in the advertising revenues.  Because the bus shelters are not assets in which the Federal Government has provided Federal funding, the provisions of FTA Circular 4220.1F would not apply to advertising revenue contracts applicable to those bus shelters. (Revised: July, 2010)



Q. What are the applicable FTA required clauses in a revenue contract?  Most of the clauses are there for protection of the grantee and the FTA where funds are being provided for goods are services; the opposite is true with revenue contracts.

A.  Competition - The most important principle is that the competitive selection procedures described in FTA Circular 4220.1F apply to all business opportunities including all revenue producing contracts.  The competitive process usually consists of a formal bid or proposal process but it does not always have to. Grantees may use their own judgment about how to meet the intent of the competition requirement, but they must document the record to show how competition requirements were met.

Unsolicited proposals may appear when companies see an opportunity to use the transit system (an FTA-funded activity) to enhance their business interest. It may appear from such proposals that no other company could offer the same product or service. However, this does not justify a sole source contract. If the idea or activity is interesting, the concept should be evaluated on its own merit and revenue producing potential. If the decision is to implement it, then a competitive process should be used to select the contractor, unless you determine that the proposed concept itself is proprietary.  It is always important to always keep in mind the requirement for competition.

Flow-down Requirements - Generally, if federal funds (not assets) are not used to produce revenues, then there are no requirements to include federal clauses in the revenue contract itself.  Nevertheless, you should not overlook opportunities to support the various Federal civil rights and disadvantaged business enterprise objectives.

We refer you to the Best Practices Procurement Manual (BPPM), which discusses revenue contracts in section 1.3.3.8, online at http://www.fta.dot.gov/funding/thirdpartyprocurement/bppm/grants_financing_6105.html#c1_3_3_8. (Revised: July, 2010)

 

Q. We currently have a lease for a single ATM machine at our federally funded transit hub/24-hour parking garage.  The lease is expiring and I think the process used previously was a bit overkill.  From my understanding, the staff thought that an RFP and lease would be a "safe" method for this item.  The goal of having the ATM onsite was simply to provide the amenity to the transit riders and the public.  The goal of the lease was to recover any expense incurred by the ATM (the only expense is the electrical usage).  Since we are providing the ATM as an amenity and the usage is fairly small, we are not looking to produce revenue from the ATM.  Other than some minor electrical usage, the operation would incur zero cost for having the ATM onsite.  I have two questions.  First, I generally understand that we need to offset any operational expense caused by a third party using a federally funded facility but does this apply in this case since the ATM is an amenity?  Secondly, if we recover the minor operating expense (e.g., solely our electrical cost to the utility) would you see this as a revenue contract requiring us to follow FTA Circular 4220.1F?

A.
If the ATM machine had been placed in the transit facility as an amenity or for the convenience of transit riders, there would not be any need for a competitive bid or RFP.  However, ATM machines are big money producers for their owner/operators.  Although the financial cost and benefit to the transit agency may be small, the potential revenue stream for the vendor may be significant, particularly if the right of placement is an exclusive one.  We would therefore recommend that you advertise the ATM machine placement as you would any other revenue contract.  If, however, you are willing to accommodate all or nearly all owner/operators that wish to place ATM machines in your facility, then you would not need to use a competitive procurement process.  See, Chapter II, Paragraph 2.b(4) of FTA Circular 4220.1F, “Third Party Contracting Guidance,” available online at http://www.fta.dot.gov/documents/FTA_Circular_4220_-_Third_Party_Contracting_Guidance_-_7-1-10_final.pdf
(Revised: July, 2010)



 
Q.
After a solicitation (RFP) where no proposals are received for a revenue producing bus-advertising contract, can the grantee approach a vendor to negotiate a contract?  The buses are funded in part by FTA.  Vendors were contacted following the procurement and, except for one local vendor, each vendor stated that the timing and economy was not right.

A.  While there is a requirement for competition, FTA also allows grantees latitude as to the form of competition. The normal rules that would apply to procurements do not apply as rigidly to revenue contracts. The important objective with revenue contracts is to give each prospective vendor an equal opportunity to compete for the award, and thus fairness (not formality) is paramount. You appear to have been fair to every vendor that might have a possible interest in this opportunity.

We would advise, then, that you could accept and negotiate a late proposal without compromising the principle of fairness. If you are still concerned, however, you could advise the prospective vendors that you are extending the period for proposals in order to allow for reconsideration on their part.  If you approach one vendor to negotiate a contract, you could approach the others you invited to submit proposals, or approach those who responded when you contacted them after the procurement closed.
The Best Practices Procurement Manual (BPPM) discusses revenue contracts in section 1.3.3.8 online at http://www.fta.dot.gov/funding/thirdpartyprocurement/bppm/grants_financing_6105.html#c1_3_3_8  (Revised: July, 2010)


Q.  For revenue contracts related to transit advertising, if the minimum annual guarantee has been met, should individual transit authorities be able to require contractors to pay the authority a percentage of revenue on net billings rather than collections without any protection for the contractor from bad debt due to bankruptcy or business closure?  We are an advertising contractor who is required to pay a percentage of sales to authorities when the sales are billed not collected.  If the advertiser fails to pay due to a business failure or bankruptcy we are still responsible to pay despite receiving any revenue.  We believe that as long as we have exceeded the minimum annual payment we should only have to pay the % share on revenue received.  This practice puts mid-level advertising contractors at tremendous risk and it should be banned.

A.  While this is not a matter in which FTA can become involved, we do agree with your position that it is more equitable for the contract to provide for payments to be made on the basis of revenues actually received. 
We would advise appealing to the agency General Manager (and then to the Board of Directors if necessary), for a change to the terms of the contract.
(Revised: July, 2010)



Q.
Does the FTA best practices or experience encourage transit agencies to solicit through the RFP process for transit advertising services? Do they discourage agencies form doing the transit advertising sales in-house? What has been the opinion of the FTA on this matter? We feel transit agencies are best at what they do and know and should not be trying to bring selling bus ads in-house which is a business they do not know. Background: Transit Advertising Sales are being brought in-house by agencies rather than using professional contracting services thru a RFP to secure competitive firms that guarantee income to the agency and are experts in that business. Ultimately, when agencies do this, the sales go down.

A.  FTA's only requirement with respect to revenue (advertising) contracts is that they be awarded competitively.  This is to give all U.S. taxpayers an equal opportunity to participate in the business use of a U.S. funded asset. FTA does not encourage or discourage grantees (transit agencies) from using consultants to assist them (or to offer income guarantees such as you suggest) with respect to advertising revenue. It leaves this to the discretion of the grantee.  If a grantee were to use the approach you recommend, they would of course have to compete the award of the contract for transit advertising services.  The transit agency could not simply select a firm such as yours for a sole source contract award without advertising the contract and giving other firms an opportunity to submit proposals. You might wish to communicate your thoughts and corporate experiences to APTA since they have a great deal of influence with APTA transit agency members and they are always anxious to advise constituents of "Best Practices" that might enhance the APTA members' business operations. (Posted: December, 2010)



Q. 
Does a subreicpient have to include appropriate federal clauses and certifications in a contract with an advertising firm where the sub recipient gets revenue from the sale of advertising by third party?  No federal funds would be used to pay third party. Background: Subrecipient wants to put out an RFP for firms that will solicit advertising for sub recipient buses with County getting revenue from the money made by the third party contract.
   
A. 
The FTA Procurement Circular 4220.1F, II.2.b. (2), requires only that grantees (recipients & sub recipients) compete revenue contracts so as to give all interested parties an equal business opportunity related to an FTA funded asset. Since the sub recipient plans to compete the award of the third party revenue contract, it will satisfy the FTA requirements with respect to the award of that contract. There are no contract clauses required in that third-party contract since there will be no payments made to the contractor.  However, if the third party contractor will be awarding subcontracts to firms wishing to advertise on the buses, the third party contractor must also be required (by the sub recipient)  to solicit revenue proposals competitively  in order to comply with FTA policy regarding equal opportunities for FTA funded assets (buses). The FTA Circular is available online:
http://www.fta.dot.gov/documents/FTA_Circular_4220_Third_Party_Contracting_Guidance_-_7-1-10.pdf   (Posted: February 18, 2011)


Q. 
Is there a term limit for advertising on Para-transit buses under an unsolicited proposal that is accepted?
 
A. 
FTA has no term limits for grantee third party contracts except for rolling stock and replacement parts, which are limited by statute to five-years of requirements. FTA expects grantees to use good business judgment when structuring contract terms.  We would also note, however, that the FTA Procurement Circular 4220.1F, Chapter II. 2.b. (4) requires that revenue contracts be competed in order to give all interested parties (i.e., taxpayers) an equal opportunity to access a publicly funded asset, such as a bus.  Grantees may not accept unsolicited proposals for revenue contracts and make awards without competition. The method of competition is left to the grantee's judgment. The Circular may be found at:
http://www.fta.dot.gov/documents/FTA_Circular_4220_Third_Party_Contracting_Guidance_-_7-1-10.pdf (Posted: June, 2011)


Q. What FTA Circular addresses the topic of program income?

A. "Program Income" is addressed at 49 CFR 18.25 and in FTA Circular 5010.1D, Page VI-9. The circular is available online: http://www.fta.dot.gov/documents/C_5010_1D_Finalpub.pdf (Posted: August, 2013)

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