Feedback on the Effectiveness of FTA's Third Party Contracting Requirements and Procurement Assistance Program

Number C-01-08
6/15/2001

U.S. Department
of Transportation
Federal Transit
Administration

Administrator

400 Seventh St. S.W.
Washington, D.C. 20590

Dear Colleague:

In May 1999, the Federal Transit Administration (FTA) issued a survey inviting feedback on the effectiveness of FTA’s Third Party Contracting Requirements and Procurement Assistance Program. Based on comments and suggestions in the survey responses, FTA implemented certain changes to these two areas of our program. These changes include offering an increased number and variety of procurement courses; adding to and refining the "Best Practices Procurement Manual;" and posting procurement questions and answers on the Internet.

During a workshop held on May 9, 200l, at the American Public Transportation Association (APTA) Bus and Paratransit Conference in Calgary, Canada, FTA provided an update on the actions it has undertaken. The participants felt it was necessary to work collaboratively to address the 5-year term limitation issue at a workshop dedicated solely to this topic at the Fall APTA Bus Equipment and Maintenance/Procurement and Materials Management Conference in Ft. Worth, Texas. Both FTA and APTA agreed to this recommendation.

It was also agreed that in the interim, FTA would exempt certain classes of contracts from the requirement to obtain prior FTA approval for periods of performance in excess of a 5-year term, and that FTA would clarify other areas of Circular 4220.1D, "FTA Third Party Contracting Requirements," that the survey revealed were in need of further clarification.

A. FTA Circular 4220.1D, Paragraph 7(m) – Contract Period of Performance Limitation

Paragraph 7(m) states, "grantees shall not enter into either service or supply contracts with a period of performance exceeding five years inclusive of options without prior written FTA approval. A maximum of five years’ requirements may be acquired under a single contract without prior FTA approval (including rolling stock), even though delivery may occur beyond five years after the date of contract award. FTA approval is required for contract extensions or renewals beyond a five-year term. This limitation does not apply to construction contracts or to leases of real property for the life of a transit asset to be constructed on such property (which period will extend beyond five years in order to fulfill the statutory requirements that grantees have ‘satisfactory continuing control.’)"

Further, a blanket waiver is granted to exempt the following class of contracts from the requirement to obtain FTA prior approval for a contract term in excess of five years:

Non-construction related contracts such as proprietary software maintenance, consulting and other professional services contracts (except contracts for general engineering services) awarded for a discrete, identifiable item, e.g., a particular piece of litigation, a discrete tort claim, and audit of a particular transaction or fiscal year.

This blanket waiver, however, does not cover the following class:

All contracts for general engineering consultant services are non-exempt. Task order type arrangements for engineering, architectural, legal, accounting, non-proprietary software maintenance or other professional services not tied directly to a related construction contract or a discrete identifiable item, require prior FTA approval for periods of performance in excess of five years.

B. Revenue Contracts – Five-Year Term Limitation

It is FTA’s policy that all persons be afforded an equal opportunity to benefit from business opportunities arising from use of FTA-funded assets. It is also FTA’s policy to encourage FTA recipients to maximize non-farebox revenues through contractual and other appropriate arrangements involving non-interfering uses of such FTA-funded assets. The establishment of a five-year contract term limitation is one means by which FTA seeks to balance these potentially conflicting policies. A review of recent requests for exemption from the 5-year limitation in the area of "revenue contracts," however, suggests that prior FTA approval is not required under certain conditions. Accordingly, prior FTA approval of the following categories of "revenue contracts" in excess of five years is no longer required:

  1. Non-exclusive revenue contracts: Revenue contracts involving business opportunities, that due to their nature and the capacity of the transit system, are not limited by physical constraints or grantee policy to any specific number of entrants do not require prior FTA approval. For example, if a grantee allows any vendor to install fiber optic cable within the grantee’s right-of-way on reasonable terms and conditions, until such time as the grantee decides to limit the number of entrants due to capacity of the system or other factors, there is no need for prior FTA review. Another example might be allowing multiple vendors to put transmission towers or antennas on grantee property.
  2. Exclusive revenue contracts under certain conditions: Revenue contracts involving business opportunities due to their nature and the capacity of the transit system which are limited to a specific number of entrants, whether due to physical constraints or grantee policy, do not require prior FTA approval where the following conditions exist and are documented in the grantee’s files:
    1. Contracts are awarded through a competitive process;
    2. Economic analysis shows that a contract term longer than five years is necessary to allow the contractor to recover any required capital investment and a reasonable return on investment taking into account both tax (depreciation) and economic/business considerations.
  3. Transit Oriented/Joint Development Revenue Contracts. Transit Oriented Developments and Joint Development projects undertaken in conformance with FTA joint development policies may subsequently give rise to revenue contracts. Prior FTA concurrence in a contract term in excess of five years is governed by the same criteria as described in paragraphs 1) and 2) above. Note that FTA routine oversight and concurrence in transit oriented development and joint development projects remains unchanged by this exemption.

C. FTA Circular 4220.1D, Paragraph 12 - Payment Provisions in Third Party Contracts

The survey results indicated that there is some confusion concerning the use of advance payments. With regard to advance payments, the Circular states, "FTA does not authorize and will not participate in funding payments to a contractor prior to the incurrence of costs by the contractor unless prior written concurrence is obtained from FTA." This policy is unchanged. To clarify, however, there is no prohibition on a Grantee’s using local funds for advance payments where a grant has been awarded or the project is covered by a letter of no prejudice, or other pre-award authority. Please note that advance payments made before a grant has been awarded or before the project is covered by a letter of no prejudice or other pre-award authority, will be ineligible for reimbursement.

D. Preventive Maintenance

Preventive maintenance is an eligible expense under FTA’s capital and operating assistance programs depending upon the size of the population served by the grantee. Grantees have asked how the requirements of FTA Circular 4220.1D apply when preventive maintenance activities are contracted to third parties under a capital assistance program rather than an operating assistance program. The question arises because of the different treatment of capital and operating contracts by the Circular in accordance with applicable law. There are two options. Under the capital assistance program, the grantee may apply the Circular only to the specific preventive maintenance contracts identified in the grant application, but not others. Alternatively, the grantee may elect to receive preventive maintenance funds as a certain percentage of total maintenance costs. Under this alternative, the requirements of the Circular apply across the board to all of the grantee’s maintenance contracts. Please note that under the latter option, grantees may not selectively exclude certain maintenance contracts from the total operations amount on which they base their percentage calculation.

All of the changes reflected in this "Dear Colleague" letter are effective immediately.

FTA does appreciate your feedback. Please continue to give us your suggestions for improving our procurement program.

Sincerely,


Hiram J. Walker
Acting Deputy Administrator