Performance and Payment Bonding Requirements

Number C-01-04
1/20/2004

Re: Performance and Payment Bonding Requirements

Dear Colleague:

In working with our grantees and their transit suppliers, we have found some misunderstanding about the Federal Transit Administration (FTA) requirements regarding performance and payment bonds in Federally-assisted procurements, particularly for rolling stock procurements. In short, FTA does not require bonding in any amount for rolling stock or any other non-construction contracts. FTA leaves to the good business judgment of our grantees the discretion to determine the appropriate amount of bonding – if any – to incorporate in non-construction contracts.

With APTA’s assistance, FTA examined the prices rolling stock manufacturers pay for bonds and how those prices have reacted to changes in the broader bond market. We found wide variation in manufacturers’ experiences overall, but a strong indication that rail car manufacturers have been particularly hard hit in terms of bond pricing and availability. Needless to say, high bond costs and reduced availability directly impact both the grantee’s bottom line and competition within the industry. I challenge each of you to carefully assess the risks involved in any given procurement and carefully balance those risks against the cost and competitive impacts of bonding requirements. At FTA, we will continue to work with the industry to identify cost-effective ways to manage risks, and will share that information through our Best Practices Procurement Manual. Additionally, we will continue to work with both the public and private sectors to ensure our grantees have access to the information they need to make informed choices as they consider bonds in their procurement practices.

Even in the area of construction contracts (where bonding is an FTA requirement), we remain willing to review and approve sensible alternatives and exceptions to the bonding levels identified as adequate to protect the Federal interest in FTA Circular 4220.1E. The Circular notes that “a Grantee may seek FTA approval of its bonding policy and requirements if they do not comply with these criteria,” and FTA has approved exceptions to the circular requirements.

As responsible stewards of our public resources, it is incumbent upon each of us to maximize the benefits generated by every transit dollar. Please review your bonding practices to ensure that you are prudently utilizing this important tool. I look forward to sharing the sound and innovative practices that the transit industry always generates.

Sincerely,


Jennifer L. Dorn