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[Ý ƒ"à©$ÝÔUSUS.,ÔÔ€ôXòXXÔÚÚ19Ú ÚÝÝÔ_Ôòòóóòòóó€To€locate€a€state€insurance€department€contact€the€National€Association€of€Insurance€Commissioners€atÐ ° ÐÔ4‚æÝ °ÔÝ‚TÍOÝÔÿÔòòÝÝÔ5 ÔÝ‚.ÿÿÿÝóóòòÔÿÿÔÝÝwww.naic.orgÝ‚.ÿÿÿFƒ*ÝóóÔÿÿÔÝÝÔ6úÔÝ‚Tƒ"ÝÔÿÔÝÝÔ7Ý R<Ô.€€See€also€the€U.S.€Treasury€List€at€Ô4‚èÝ ªÔÝ‚TÍOÝÔÿÔòòÝÝÔ5 ÔÝ‚.ÿÿÿÝóóòòÔÿÿÔÝÝwww.fms.treas.gov/c570/index.htmlÝ‚.ÿÿÿƒ*ÝóóÔÿÿÔÝÝÔ63ÔÝ‚TGƒ"ÝÔÿÔÝÝÔ7Ý uÔ ÙÝ ƒ"à©$ÝÔUSUS.,ÔÔ€ôXòXXÔÚÚ11Ú ÚÝÝÔ_Ô€„€šRules€relating€to€expiration€of€wage€determinations€are€discussed€in€detail€at€FAR€ðð22.404-5.šhttp://www.naic.org èÝ ƒ"à©$ÝÔUSUS.,ÔÔ€ôXòXXÔÚÚ12Ú ÚÝÝÔ_Ô€„€šIf€award€of€the€contract€is€not€made€within€90€days€after€bid€opening,€the€modification€becomes€effective€unlessÐ ° Ðthe€Wage€and€Hour€Division€Administrator€extends€the€90€day€period.€€If€an€extension€is€not€granted,€theÐ tÄ Ðmodification€is€treated€the€same€as€a€new€wage€determination€and€the€same€procedures€as€discussed€above€apply.šhttp://www.fms.treas.gov/c570/index.html ¨Ý ƒ"à©$ÝÔUSUS.,ÔÔ€ôXòXXÔÚÚ20Ú ÚÝÝÔ_Ôòòóóòòóó€The€Treasury€List€may€be€downloaded€on€the€Internet€at€€Ô4‚ëÝ pÔÝ‚TÍOÝÔÿÔòòÝÝÔ5 ÔÝ‚.ÿÿÿÝóóòòÔÿÿÔÝÝwww.fms.treas.gov/c570/index.htmlÝ‚.ÿÿÿƒ*ÝóóÔÿÿÔÝÝÔ6¸ÔÝ‚TÌƒ"ÝÔÿÔÝÝÔ7Ý ØúÔ.€€The€Treasury€ListÐ ° Ðidentifies€the€various€states€where€the€listed€bonding€companies€are€licensed€and€the€state€insurance€departments€withÐ tÄ Ðtheir€phone€numbers.http://www.fms.treas.gov/c570/index.html ãÝ ƒ"à©$ÝÔUSUS.,ÔÔ€ôXòXXÔÚÚ21Ú ÚÝÝÔ_Ôòòóóòòóó€For€more€information€about€the€SAAððs€Model€Contractor€Development€Program,€contact€the€Surety€AssociationÐ ° Ðof€America€at€202„463„0600€or€their€Web€site:€Ô4‚XÝ úÔÝ‚TÍOÝÔÿÔòòÝÝÔ5 Ôwww.surety.orgÔ6/ÔÝ‚TÍOCƒ"ÝóóÔÿÔÝÝÔ7Ý qÔ. ¬Ý ƒ"à©$ÝÔUSUS.,ÔÔ€ôXòXXÔÚÚ22Ú ÚÝÝÔ_Ôòòóóòòóó€For€this€and€other€materials,€contact€the€Surety€Information€Office€at€202„686„7463€or€their€Web€site:Ð ° ÐÔ4‚UÝ °ÔÝ‚TÍOÝÔÿÔòòÝÝÔ5 Ôwww.sio.orgÔ6ûÔÝ‚TÍOƒ"ÝóóÔÿÔÝÝÔ7Ý =Ô. 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ÞÝ ƒ"à©$ÝÔUSUS.,ÔÔ€ôXòXXÔÚÚ40Ú ÚÝÝÔ_ÔÔ_ÔšSee€the€discussion€of€how€this€publication€may€be€obtained€in€Note€3.€under€Section€8.1.1. õÝ ƒ"à©$ÝÔUSUS.,ÔÔ€ôXòXXÔÚÚ41Ú ÚÝÝÔ_ÔÔ_ÔWheeler€Bros.,€Ô_ÔASBCAÔ_Ô€20465,€79„1€Ô_ÔBCAÔ_Ô€ðð€13,642.š NÝ ƒ"à©$ÝÔUSUS.,ÔÔ€ôXòXXÔÚÚ42Ú ÚÝÝÔ_ÔÔ_ÔJohn€Ô_ÔCibinicÔ_Ô,€Jr.€and€Ralph€Nash,€Jr.òò€€Administration€of€Government€Contracts.€óó€Third€Ed.€€Washington,€D.C.:Ð ° ÐGeorge€Washington€University,€1995.šÝ ƒfüœ!ÝÔUSUS.,ÔÝÝÔ_ÔÔ‡PX»(XXXÔÑÏ°ÑÓÓòòÑÑÖ€£ÿÿÖChapter€8óóÐ 3 ÐòòÌÓÓòòóó8€„€òòContract€ClausesóóóóÐ Ø ÐòòÌóóàà8.1€òòFederal€Requirementsóó€€€(1/98)òòÐ ã ° Ðààà` àÌààà0` àóó8.1.1€òòSources€of€Model€Federal€Clauses€and€Applicabilityóó€€€(1/98)òòÐ»ˆ` (#` (# Ðààà` àóó8.1.2€òòDavis€Bacon€Actóó€€€(1/98)òòÐ § t Ðààà0` àóó8.1.3€òòCargo€Preferencesóó€€€(1/98)òòÐ“`` (#` (# Ðààà0` àóó8.1.4€òòBuy€Americaóó€€€(6/03)òòÐL ` (#` (# Ðààà0` àóó8.1.5€òòFly€Americaóó€€€(1/98)òòÐk8 ` (#` (# ÐààÌà0àóó8.2€òòSurety€Bondsóó€€€(4/05)òòÐC(#(# Ðààà` àÌààà` àóó8.2.1€òòPerformance€Bondsóó€€€Ô_Ô(4/05)òòÔ_ÔÐ è Ðààà0` àóó8.2.2€òòOptionsóó€€€(1/98)òòÐÔ ` (#` (# Ðààà0` àóó8.2.3€òòLiquidated€Damagesóó€€€(1/98)òòÐóÀ` (#` (# ÐÌà0àà0` (#(#àà0¸` (#` (#àóó8.2.3.1€òòRelationship€with€Default€Terminationóó€€€(1/98)òòÐË˜¸(#¸(# ÐÌààà0` àóó8.2.4€òòIntellectual€Property€Rightsóó€€€(1/98)òòÐ£p` (#` (# Ðààà` àà¸àÌààà` àà0¸àóó8.2.4.1€òòDisclosure€of€Trade€Secretsóó€€€(1/98)òòÐ{H¸(#¸(# Ðààà` àà0¸àóó8.2.4.2€òòContract€Work€Products,€Patents€and€Copyrightsóó€€€(1/98)òòÐg4¸(#¸(# Ðààà` àà¸àÌààà0` àóó8.2.5€òòTerminationóó€€€(1/98)òòÐ?` (#` (# ÐóóÌà0àà0` (#(#àà0¸` (#` (#à8.2.5.1€òòTermination€for€Convenienceóó€€€(1/98)òòÐ ä¸(#¸(# Ðà0àà0` (#(#àà0¸` (#` (#àóó8.2.5.2€òòPartial€Terminationsóó€€€(1/98)òòÐ!Ð¸(#¸(# Ðà0àà0` (#(#àà0¸` (#` (#àóó8.2.5.3€òòTermination€for€Defaultóó€€€(1/98)Ðï!¼¸(#¸(# Ðà0àà0` (#(#àà¸ààààhàÐ ` (#` (# ÐòòÓÓ8.1€€FEDERAL€REQUIREMENTSÔÿÿÔóóàÀààààpààÈàà ààxàÐ Ç#” ÐÌòòÔÿÿÔÔÔ8.1.1€€òòSources€of€Model€Federal€Clauses€and€ApplicabilityÔb ÔÔÿÿÔóóÐ Ÿ%l! ÐóóÔÿÿÔÌÔ*…ƒddd Xdd Xdd X°(#°(#…ÔÔ,xttÔÔ+ ÔÐ1€w'D #w'D €€‚‚ƒƒ1ÐÓdÓÌÓÿÿð°œXÓÓdÓòòREQUIREMENTÐ@€-ë'¸ % €€‚‚ƒƒ@Ðóóðð16€of€FTA€Circular€4220.1E€requires€that€grantees€evaluate€Federal€statutory€and€regulatoryÐ ÷(Ä!& Ðrequirements€for€relevance€and€applicability€to€a€particular€procurement.€òò€óóÐ ã)°"' ÐÌAppendix€A.1€of€this€Manual€contains€a€discussion€of€each€of€the€most€generally€applicableÐ ¿+Œ$) Ðrequirements,€including€the€types€of€contracts€to€which€each€applies,€any€specific€wording€thatÐ «,x%* Ðmust€be€incorporated€in€your€contracts,€suggested€wording€where€specific€wording€is€notÐ —-d&+ Ðmandatory,€and€the€applicability€to€subcontracts.òòÐ.$"ƒ.P', .ÐòŒòÐ /L(, ÐDISCUSSIONóŒóóóÐ 3 ÐÌòòFTA€grantees€recognize€that€the€most€significant€of€the€strings€attached€to€the€receipt€ofÐ Ø Ðfederal€funds€is€the€requirement€to€comply€with€federal€statutes€and€regulations€applicableÐ ÷ Ä Ðto€their€project€or€particular€contract.€€Ð ã ° ÐÌYou€will€want€to€be€able€to€determine€exactly€which€clauses€are€required€for€a€specificÐ »ˆ Ðprocurement€because€the€incorporation€of€unnecessary€or€loosely€drafted€clauses€can:€Ð § t ÐÌÓ€ H_)*+-9<EF(¼p3@ÓÝ"‚_´J"ÝÝÝÓ$°,4P ŠXÿÿð$ÓààÝ‚_´J¢ÝÔ2¼ÔððÔ3 Ôà04àÝÝòŒòdiscourage€competitors,€Ýƒ_´J¢ÿÝŒÐL 4(#4(# ÐŒÝ ÝóŒóÝ"‚_´J"ÝÝÝà0àÝ‚_´J¦ÝÔ2¼ÔððÔ3 Ôà04(#(#àÝÝcause€confusion€for€anyone€involved€with€the€contract,€and€óóÝƒ_´J¦ßÝŒÐk8 4(#4(# ÐŒÝ ÝÝ"‚_´J"ÝÝÝààÝ‚_´J®ÝÔ2¼ÔððÔ3 Ôà04àÝÝÓK.ÿÿðÌøP ¨X°`¸hÀ!°,4P ŠXKÓòòultimately€result€in€additional€€costs€for€your€agency.€€óóÝƒ_´J®çÝŒÐW$ 4(#4(# ÐŒÝ Ýà0Ìàà0øÌ(#Ì(#àÐ ø(#ø(# ÐÓE+ÿÿ ðøP ¨X°`¸hÀ!ÿÿðÌø‹XEÓòòAppendix€A.1€of€this€manual€discusses€each€of€the€most€generally€applicable€clauses.€€€Ð 3 ÐKnowing€that€a€particular€law€must€be€complied€with€and€that€appropriate€language€mustÐ ì Ðbe€included€in€a€third€party€contract,€still€leaves€the€Grantee€trying€to€draft€or€incorporateÐ Ø Ða€clause€that€meets€those€requirements.€€The€clause-by-clause€discussions€in€Appendix€A.1Ð ÷Ä Ðhave€been€developed€by€FTA€to€assist€you.óóÐ ã° ÐàøàÌòòBest€PracticesÐ »ˆ ÐóóÌAppendix€A.1€of€this€Manual€contains€thirty€model€contract€clauses€that€are€either€federallyÐ “` Ðrequired€or€are€suggested€model€clauses€that€you€may€include€in€contracts.€The€clauses€containedÐ L Ðin€this€Appendix€include€the€following€common€elements€which€will€be€helpful€to€grantees€inÐ k8 Ðdeciding€if€a€specific€clause€is€required€in€a€particular€procurement:Ð W$ ÐÌòòApplicability€to€Contractsóó€-€discusses€the€types€of€contracts€for€which€the€clause€is€applicable.Ð /ü ÐòòÌFlow€Downóó€-€discusses€to€which€prime€contractors€and€which€level€of€subcontractors€the€clausesÐ !Ô Ðapply.Ð ó!À ÐÌòòMandatory€Clause/Languageóó€-€includes€the€model€clause,€identified€by€FTA€as€either€a€requiredÐ Ë#˜ Ð(specified)€clause€or€a€suggested-language€clause.Ð ·$„ ÐÌThe€narratives€provided€with€the€individual€clauses€in€the€Appendix€indicate€the€source€of€theÐ &\" Ðclause,€if€required.€€Many€of€the€required€clauses€come€directly€from€requirements€in€variousÐ {'H # Ðsections€of€the€Code€of€Federal€Regulations€(Ô_ÔCFRÔ_Ô)€which€is€published€by€various€executiveÐ g(4!$ Ðdepartments€of€the€federal€government.€€The€most€common€requirements€for€FTA€grantees€comeÐ S) "% Ðfrom€various€parts€of€Title€49€of€the€Ô_ÔCFRÔ_Ô,€published€by€the€Department€of€Transportation.€Ð ?*#& ÐRequirements€of€the€Department€of€Labor€(such€as€Davis-Bacon€Act€clauses)€originate€asÐ ++ø#' Ðspecific€language€in€Title€29€of€the€Ô_ÔCFRÔ_Ô.€Where€clauses€are€not€mandated€by€an€executiveÐ ,ä$( Ðdepartment,€they€are€frequently€€modeled€after€clauses€in€the€Federal€Acquisition€RegulationsÐ -Ð%) Ð(FAR)€which€are€applicable€to€those€executive€departments.€€Ð ï-¼&* Ðâ âÓB+ÿÿ ðøP ¨X°`¸hÀ!ÿÿðø‹XBÓÐ Û.¨'+ ÐÓB+ÿÿ ðøP ¨X°`¸hÀ!ÿÿðø‹XBÓEven€though€the€FAR€does€not€apply€to€grantee€Ô_ÔprocurementsÔ_Ô,€one€advantage€of€using€FARÐ 3 Ðâ âclauses€in€the€absence€of€a€specific€requirement€imposed€upon€your€Agency€is€that€a€body€ofÐ ì Ðfederal€law€has€been€developed€which€interprets€those€clauses.òòÝ‚ÿÿÿÝÔ€PX»(XXPX»(ÔÔ€XSXXPX»(ÔÔÔòòÝÝÔ€PX»(XhXSÔ×ƒ§×Ý ƒ ¢˜Ýò…òòŽòÚÚ1Ú ÚóŽóó…óÝÝ× ×Ý‚ÿÿÿB!ny€oÝÔ€PX»(XhPX»(ÔÔ€PX»(XhPX»(ÔÔÔóóÝÝóóÐ Ø ÐÌYour€State,€local€jurisdiction,€or€transit€Agency€may€have€enacted€a€procurement€code€or€€bodyÐ ã ° Ðof€regulations€that€actually€establishes€specific€clauses€which€you€must€use.€€In€that€case,€you€willÐ Ïœ Ðbe€obligated€to€use€what€has€been€established€for€you.€€Many€of€the€recent€enactments€of€thoseÐ »ˆ Ðcodes€or€regulations€are€adaptations€of€the€American€Bar€Association's€òòModel€Procurement€CodeÐ § t Ðfor€State€and€Local€Governmentsóó.€òòÝ‚ÿÿÿÝÔ€PX»(XXPX»(ÔÔ€XSXXPX»(ÔÔÔòòÝÝÔ€PX»(XhXSÔ×ƒª ×Ý ƒ ¢˜Ýò…òòŽòÚÚ2Ú ÚóŽóó…óÝÝ× ×óóÝ‚ÿÿÿ¯$ny€oÝÔ€PX»(XhPX»(ÔÔ€PX»(XhPX»(ÔÔÔóóÝÝ€€Ð “` ÐÌYou€may€have€the€ability€€to€incorporate€clauses€by€reference€(such€as,€title,€date€and€where€it€canÐ k8 Ðbe€found)€€in€your€contracts.€€To€the€extent€clauses€you€want€to€incorporate€are€published€in€aÐ W$ ÐFederal,€State,€or€local€statute,€code,€or€ordinance,€or€in€an€official€regulation€such€as€the€Ô_ÔCFRÔ_Ô,Ð C Ðyou€should€be€able€to€incorporate€those€provisions€directly€into€your€contractual€document€byÐ /ü Ðreference€only.€€You€can€check€with€your€supporting€legal€counsel€on€what€clauses€you€can€andÐ è Ðcannot€incorporate€by€reference€and€the€manner€in€which€they€may€be€incorporated.€€It€is€doubtfulÐ Ô Ðyou€would€ever€be€able€to€incorporate€by€reference€a€clause€that€was€only€published€in€an€FTAÐ óÀ ÐCircular,€because€of€the€way€FTA€Circulars€are€published€(i.e.€they€are€not€officially€published€inÐ ß¬ Ðthe€òòFederal€Registeróó).Ð Ë˜ ÐÌòò8.1.2€€òòDavis€Bacon€ActóóóóÔÿÿÔÐ £p ÐÔÿÿÔÌÔ*_ƒ&'ddxttx°(#°(#_ÔÔ,xjjÔÔ+ ÔÐ1€{H{H €€‚‚ƒƒ1ÐÓdÓòòÌÓd*+ÓREQUIREMENTóóÐ@€-ï¼ €€‚‚ƒƒ@ÐÌðð€24€of€the€Master€Agreement€delineates€the€Grantee's€obligations€to€comply€with€theÐ ç´ Ðemployee€protection€requirements€of€the€Davis-Bacon€Act.€€For€construction€activitiesÐ Ó Ðexceeding€$2,000€performed€in€connection€with€an€FTA-funded€Project,€the€Recipient€of€thoseÐ ¿Œ Ðfunds€agrees€to€comply€with,€and€assure€compliance€with,€the€requirements€of€49€U.S.C.Ð « x Ððð5333(a),€the€Davis-Bacon€Act€Ý‚ÿÿÿÝÔ€PX»(XXPX»(ÔÔ€XSXXPX»(ÔÔÔòòÝÝÔ€PX»(XhXSÔòò×ƒÉ´×Ý ƒ ¢˜Ýò…òòŽòÚÚ3Ú ÚóŽóó…óÝÝ× ×óóÝ‚ÿÿÿv-€reqÝÔ€PX»(XhPX»(ÔÔ€PX»(XhPX»(ÔÔÔóóÝÝ,€and€the€implementing€regulations€of€the€Department€ofÐ —!d ÐLabor€at€29€Ô_ÔCFRÔ_Ô€Part€5.€€In€addition€to€the€requirements€of€the€statute€and€regulations,€theÐ ƒ"P ÐRecipient€also€agrees€to€report€to€the€FTA€every€suspected€or€reported€violation€of€theÐ o#< ÐDavis-Bacon€Act€or€its€Federal€implementing€Regulations.Ð [$(! ÐÐ.$"G%" .ÐÐ C&" ÐòòDISCUSSIONóóÐ 3 ÐòòÌThe€Davis-Bacon€Act€(the€Act)€provides€that€contracts€in€excess€of€$2,000€to€which€theÐ Ø ÐUnited€States€is€a€party€(i.e.,€federal€funds€are€involved)€for€construction,€alteration,€orÐ ÷ Ä Ðrepair€(including€painting€and€decorating)€of€public€buildings€or€public€works€within€theÐ ã ° ÐUnited€States€shall€contain€a€clause€that€no€laborer€or€mechanic€employed€directly€uponÐ Ïœ Ðthe€site€of€the€work€shall€receive€less€than€the€prevailing€wage€rates€as€determined€by€theÐ »ˆ ÐSecretary€of€Labor.€òòÝ‚ÿÿÿÝÔ€PX»(XXPX»(ÔÔ€XSXXPX»(ÔÔÔòòÝÝÔ€PX»(XhXSÔóó×ƒÌ×Ý ƒ ¢˜Ýò…òòŽòÚÚ4Ú ÚóŽóó…óÝÝ× ×óóÝ‚ÿÿÿ3EÓÝÔ€PX»(XhPX»(ÔÔ€PX»(XhPX»(ÔÔÔóóÝÝòò€€The€clause€mandated€by€the€Act€and€its€implementing€federalÐ § t Ðregulations€is€found€in€Appendix€A.1€of€the€Manual.€€The€purpose€of€this€section€in€theÐ “` ÐManual€is€to€discuss€the€practical€issues€surrounding€the€requirements€of€the€Act€and€theÐ L Ðregulations€implementing€it.óóÐ k8 ÐòòÌBest€PracticesÐ C ÐóóÌòòFederal€Wage€Determinationsóó€-€€€When€a€construction€project€is€being€performed€with€federalÐ è Ðfunds,€laborers€and€mechanics€employed€directly€upon€the€site€of€the€work€shall€be€paid€aÐ Ô Ðminimum€wage€which€is€determined€by€the€Secretary€of€Labor.€€That€rate€of€pay€is€referred€to€asÐ óÀ Ðthe€"Davis-Bacon€wage€rate"€and€is€specifically€identified€in€the€contract€between€the€RecipientÐ ß¬ Ðand€the€Contractor.€Ð Ë˜ ÐÌòòTypes€of€Wage€Determinationsóó€„€Federal€wage€determinations€are€of€two€types:€(a)€GeneralÐ £p ÐWage€Determinations€and€(b)€Project€Wage€Determinations.€€òòGeneral€wage€determinationsóóÐ \ Ðcontain€prevailing€wage€rates€for€the€types€of€construction€designated€in€the€determination,€andÐ {H Ðthey€are€used€in€contracts€performed€within€a€specified€geographical€area.€€They€contain€noÐ g4 Ðexpiration€date€and€remain€valid€until€modified,€superseded,€or€canceled€by€a€notice€in€theÐ S ÐFederal€Register€by€the€Department€of€Labor.€€These€determinations€should€be€used€wheneverÐ ? Ðpossible.€Ð +ø ÐÌòòProject€wage€determinationsóó€are€issued€at€the€specific€request€of€the€grantee.€€They€are€used€onlyÐ !Ð Ðwhen€no€general€wage€determination€applies€and€they€are€effective€for€180€days€from€the€date€ofÐ ï!¼ Ðthe€determination.Ð Û"¨ ÐÌIt€is€the€obligation€of€the€contracting€officer€to€ensure€that€a€copy€of€the€most€current€wageÐ ³$€ Ðdetermination€of€the€Department€of€Labor€(DOL)€is€actually€included€in€the€solicitation€andÐ Ÿ%l! Ðensuing€contract.€€The€Wage€and€Hour€Division€of€the€DOL€is€responsible€for€the€publication€ofÐ ‹&X" Ðwage€determinations.€€Such€determinations€are€numbered,€dated,€and€issued€as€different€rateÐ w'D # Ðschedules,€depending€upon€the€type€of€construction€involved€(building,€residential,€highway,€orÐ c(0!$ Ðheavy€construction).€òòÝ‚ÿÿÿÝÔ€PX»(XXPX»(ÔÔ€XSXXPX»(ÔÔÔòòÝÝÔ€PX»(XhXSÔ×ƒÏT×Ý ƒ ¢˜Ýò…òòŽòÚÚ5Ú ÚóŽóó…óÝÝ× ×óóÝ‚ÿÿÿ(>actuÝÔ€PX»(XhPX»(ÔÔ€PX»(XhPX»(ÔÔÔóóÝÝ€€Ð O)"% Ðâ âòòÐ ;*#& ÐState€Wage€Determinations€on€Federally€Funded€Projectsóó€„€Your€state€may€also€prescribeÐ 3 Ðâ âminimum€wages€and€benefits€for€public€works€projects.òò€If€your€state€has€established€€prevailingÐ ì Ðwages€that€are€higher€than€Davis€Bacon€Act€rates,€you€should€get€advice€of€counsel€to€determineÐ Ø Ðwhether€or€not€the€state€law€or€Davis€Bacon€Act€rate€prevails,€however€in€no€event€can€rates€beÐ ÷ Ä Ðlower€than€Davis€Bacon€Act€rates.€òòóóÐ ã ° ÐÌWhere€to€Obtain€Wage€Determinationsóó€-€€General€wage€determinations€may€be€found€in€theÐ »ˆ ÐGovernment€Printing€Office€document€entitled€òòGeneral€Wage€Determinations€Issued€Under€TheÐ § t ÐDavis-Bacon€and€Related€Acts.€€óóÐ “` ÐÌSubscriptions€to€this€information€are€available€electronically€òòÝ‚ÿÿÿÝÔ€PX»(XXPX»(ÔÔ€XSXXPX»(ÔÔÔòòÝÝÔ€PX»(XhXSÔ×ƒÒ×Ý ƒ ¢˜Ýò…òòŽòÚÚ6Ú ÚóŽóó…óÝÝ× ×óóÝ‚ÿÿÿ*Ce€moÝÔ€PX»(XhPX»(ÔÔ€PX»(XhPX»(ÔÔÔóóÝÝ€and€by€hard-copy.€×ƒÕ ×Ý ƒ ¢˜ÝòòòòÚÚ7Ú ÚóóóóÝÝ× ×€€The€decisionsÐ k8 Ðare€included€in€six€different€volumes,€arranged€by€state.€€If€ordering€a€hard-copy€subscription,Ð W$ Ðonly€get€the€volume€that€includes€your€state.€€An€annual€edition€is€published€in€January€orÐ C ÐFebruary€of€each€year€and€then€updated€weekly€throughout€the€year€as€part€of€the€loose-leafÐ /ü Ðservice.Ð è ÐÌThis€publication€is€available€at€each€of€the€50€Regional€Government€Depository€Libraries€andÐ óÀ Ðmany€of€the€Government€Depository€Libraries€across€the€country.€€In€large€metropolitan€areas,Ð ß¬ Ðthis€document€may€also€be€available€in€a€central€public€library€as€well€as€through€local€offices€ofÐ Ë˜ Ðyour€state's€department€of€transportation.€€In€addition,€The€Davis€Bacon€Act€wage€rates€can€beÐ ·„ Ðaccessed€on€the€Internet€at€http://159.185.2:80/wagerate.€€This€site€is€maintained€by€the€GeneralÐ £p ÐServices€Administration€(GSA).Ð \ ÐÌIf€you€are€involved€in€a€project€that€will€involve€the€issuance€of€multiple€construction-relatedÐ g4 Ðsolicitations€over€an€extended€period€of€time,€you€may€want€your€own€copy€of€this€document.€Ð S ÐThis€is€not€only€for€convenience€but€also€ensures€that€your€solicitations€and€contracts€contain€theÐ ? Ðmost€up-to-date€determinations.€òòÝ‚ÿÿÿÝÔ€PX»(XXPX»(ÔÔ€XSXXPX»(ÔÔÔòòÝÝÔ€PX»(XhXSÔ×ƒØð×Ý ƒ ¢˜Ýò…òòŽòÚÚ8Ú ÚóŽóó…óÝÝ× ×óóÝ‚ÿÿÿJe€moÝÔ€PX»(XhPX»(ÔÔ€PX»(XhPX»(ÔÔÔóóÝÝ€€Ð +ø ÐÌòòRequesting€a€Wage€Determinationóó€-€As€you€start€a€project€involving€construction,€one€of€the€bestÐ !Ð Ðpersonal€contacts€you€can€make€is€with€the€local€DOL€representative€who€will€be€monitoringÐ ï!¼ Ðyour€contract€for€compliance€with€the€Davis-Bacon€minimum€wage€requirements.€€If€a€generalÐ Û"¨ Ðwage€determination€is€available€for€your€area,€you€may€use€it€without€notifying€the€DepartmentÐ Ç#” Ðof€Labor.€€If€a€general€determination€is€not€available€for€your€area,€you€can€work€with€your€local€Ð ³$€ ÐDOL€representative€in€requesting€either€a€general€wage€determination€or€a€project€determination.òòÝ‚ÿÿÿÝÔ€PX»(XXPX»(ÔÔ€XSXXPX»(ÔÔÔòòÝÝÔ€PX»(XhXSÔ×ƒÛ×Ý ƒ ¢˜Ýò…òòŽòÚÚ9Ú ÚóŽóó…óÝÝ× ×óóÝ‚ÿÿÿ›Ne€moÝÔ€PX»(XhPX»(ÔÔ€PX»(XhPX»(ÔÔÔóóÝÝ€Ð 3 ÐDo€not€hesitate€to€utilize€the€services€of€a€project's€design€services€professional€to€assist€inÐ ì Ðobtaining€information€about€the€latest€wage€determinations.€€In€all€likelihood,€that€firm€will€knowÐ Ø Ðprecisely€what€the€requirements€are€and€who€to€contact€at€the€DOL.€€Ð ÷ Ä ÐÌBecause€the€process€to€make€a€determination€takes€at€least€45€days,€it€is€important€to€know€earlyÐ Ïœ Ðin€the€project€whether€or€not€a€determination€is€available€for€your€area.€The€request€to€have€aÐ »ˆ Ðdetermination€made€needs€to€be€submitted€to€the€DOL€45€to€60€days€before€the€solicitation€is€toÐ § t Ðbe€issued.Ð “` ÐòòÌWage€Determinations€and€Your€Solicitation/Contractóó€-€The€clause€and€regulations€require€thatÐ k8 Ðthe€wage€determination€be€physically€attached€to€the€solicitation.€€The€wage€determination€cannotÐ W$ Ðbe€incorporated€by€reference.€€If€the€solicitation€is€issued€without€a€wage€determination€included,Ð C Ðbids€may€not€be€opened€until€a€reasonable€time€after€the€wage€determination€has€been€furnishedÐ /ü Ðto€all€bidders€and€incorporated€into€the€solicitation€by€amendment.€€Ð è ÐÌòòWhat€if€the€wage€determination€expires€before€award?€€óóIt€should€be€noted€that€òògeneral€wageÐ óÀ Ðdeterminationsóó€never€expire€and€remain€valid€until€modified,€superseded€or€canceled€by€DOL.€Ð ã° ÐButòò€project€wage€determinationsóó€do€expire.€€In€the€event€that€your€project€wage€determinationÐ Ïœ Ðexpires€or€your€general€wage€determination€is€superseded€by€a€new€determination€òò€before€bidsóóÐ »ˆ Ðòòare€receivedóó,€you€must€request€a€new€project€determination€(if€using€a€project€wageÐ §t Ðdetermination)€and€incorporate€the€new€rates€in€a€solicitation€amendment€in€sufficient€time€forÐ “` Ðbidders€to€amend€their€bids.€€If€the€new€determination€does€not€change€the€wage€rates€and€wouldÐ L Ðnot€cause€bidders€to€change€their€bid€prices,€you€should€amend€the€solicitation€to€include€theÐ k8 Ðnumber€and€date€of€the€new€determination.Ð W$ ÐÌòòIf€the€wage€determination€expires€after€bid€receipt€but€prior€to€awardóó,€you€should€request€anÐ /ü Ðextension€of€the€determination€from€DOL's€Wage€and€Hour€Division.€€If€necessary,€award€of€theÐ è Ðcontract€should€be€delayed€until€the€request€for€extension€has€been€granted€or€a€new€wageÐ !Ô Ðdetermination€has€been€issued.€€If€the€request€for€extension€is€denied€and€a€new€wageÐ ó!À Ðdetermination€issued€that€changes€the€wage€rates€for€classifications€to€be€used€in€the€contract,€theÐ ß"¬ Ðcontracting€officer€may€either€cancel€the€solicitation€and€re-advertise€with€the€appropriateÐ Ë#˜ Ðdetermination€or€award€the€contract€and€incorporate€the€new€determination€effective€on€the€dateÐ ·$„ Ðof€contract€award.€òòÝ‚ÿÿÿÝÔ€PX»(XXPX»(ÔÔ€XSXXPX»(ÔÔÔòòÝÝÔ€PX»(XhXSÔ×ƒß×Ý ƒ ¢˜Ýò…òòŽòÚÚ10Ú ÚóŽóó…óÝÝ× ×óóÝ‚ÿÿÿ\€€ThÝÔ€PX»(XhPX»(ÔÔ€PX»(XhPX»(ÔÔÔóóÝÝ€€If€the€new€wage€determination€did€not€change€any€wage€rate,€the€Ð £%p! Ðcontracting€officer€should€award€the€contract€and€modify€it€to€include€the€number€and€date€of€theÐ 3 Ðnew€determination.€òòÝ‚ÿÿÿÝÔ€PX»(XXPX»(ÔÔ€XSXXPX»(ÔÔÔòòÝÝÔ€PX»(XhXSÔ×ƒä×Ý ƒ ¢˜Ýò…òòŽòÚÚ11Ú ÚóŽóó…óÝÝ× ×óóÝ‚ÿÿÿ\^modiÝÔ€PX»(XhPX»(ÔÔ€PX»(XhPX»(ÔÔÔóóÝÝÐ ì ÐÌòòWhat€if€the€wage€determination€is€modified€before€award?óó€€òòIf€the€wage€determination€isÐ ÷ Ä Ðmodified€(as€opposed€to€expires)€before€bids€are€receivedóó,€whether€or€not€it€must€be€included€inÐ ç ´ Ðthe€solicitation€is€determined€by€the€time€of€receipt€of€the€modification€by€the€contracting€agencyÐ Ó Ðor€the€time€of€its€publication€in€theòò€Federal€Registeróó.€€The€modification€is€effective€and€must€beÐ ¿Œ Ðincluded€in€the€solicitation€if€€(a)€€it€is€received€by€the€contracting€agency,€or€notice€of€theÐ « x Ðmodification€is€published€in€the€òòFederal€Registeróó,€10€or€more€calendar€days€before€the€date€of€Ð —d Ðbid€opening€or€(b)it€is€received€by€the€contracting€agency€or€notice€of€the€modification€isÐ ƒP Ðpublished€in€the€òòFederal€Registeróó,€less€than€10€days€before€bids€are€due€to€be€opened€unless€theÐ o< Ðcontracting€officer€finds€that€there€is€not€reasonable€time€to€notify€bidders€of€the€modification.€Ð [( ÐÌòòIf€the€modification€is€received€(or€notification€of€the€modification€published€in€the€FederalÐ 3 ÐRegister)€after€bid€opening,óó€it€is€not€effective€and€shall€not€be€included€in€the€solicitation.òòÝ‚ÿÿÿÝÔ€PX»(XXPX»(ÔÔ€XSXXPX»(ÔÔÔòòÝÝÔ€PX»(XhXSÔ×ƒçT×Ý ƒ ¢˜Ýò…òòŽòÚÚ12Ú ÚóŽóó…óÝÝ× ×óóÝ‚ÿÿÿÞdmodiÝÔ€PX»(XhPX»(ÔÔ€PX»(XhPX»(ÔÔÔóóÝÝ€€Ð ì ÐYou€may€have€a€situation€where€an€"effective€modification"€(i.e.,€received€by€the€contractingÐ Ø Ðagency€or€published€in€the€òòFederal€Registeróó€10€days€prior€to€the€bid€opening€date)€is€received€byÐ ÷Ä Ðthe€contracting€officer€at€some€time€later€than€it€was€received€by€the€contracting€agency.€€In€thisÐ ã° Ðcase,€if€the€"effective€modification"€is€€received€by€the€contracting€officer€prior€to€bid€opening,Ð Ïœ Ðthe€bid€opening€date€shall€be€postponed€to€allow€a€reasonable€time€to€amend€the€solicitation€toÐ »ˆ Ðincorporate€the€modification€and€permit€bidders€to€consider€the€impact€of€the€modification€onÐ §t Ðtheir€bids.€€If€the€modification€is€received€after€bid€opening,€but€prior€to€award,€the€sameÐ “` Ðprocedures€apply€as€in€our€earlier€discussion€about€new€wage€determinations€received€after€bidÐ L Ðopening,€but€prior€to€award.€€If€the€effective€modification€is€not€received€by€the€contractingÐ k8 Ðofficer€until€after€award,€the€contracting€officer€must€modify€the€contract€to€incorporate€the€wageÐ W$ Ðmodification€retroactively€to€the€date€of€contract€award€and€equitably€adjust€the€contract€for€anyÐ C Ðincreased€or€decreased€cost€of€performance€resulting€from€any€changed€wage€modifications.òòÝ‚ÿÿÿÝÔ€PX»(XXPX»(ÔÔ€XSXXPX»(ÔÔÔòòÝÝÔ€PX»(XhXSÔ×ƒïh×Ý ƒ ¢˜Ýò…òòŽòÚÚ13Ú ÚóŽóó…óÝÝ× ×óóÝ‚ÿÿÿ·k€theÝÔ€PX»(XhPX»(ÔÔ€PX»(XhPX»(ÔÔÔóóÝÝÐ /ü ÐÌòòWhat€if€the€Wage€Determination€is€modified€after€award?€€€óóIt€is€recommended€that€granteesÐ !Ô Ðincorporate€language€such€that€contractors€are€obligated€to€pay€prevailing€wages€throughout€theÐ ÷!Ä Ðlife€of€the€project€and€are€not€entitled€to€change€orders€for€increased€costs€associated€with€anyÐ ã"° Ðchange€in€the€prevailing€wage€made€after€award.Ð Ï#œ ÐÌÐ §%t! ÐAs€you€can€see€from€this€discussion,€you€should€not€wait€until€you€are€ready€to€issue€theÐ 3 Ðsolicitation€to€start€checking€on€the€Davis-Bacon€wage€rates€for€your€area€and€it€should€beÐ ì Ðequally€obvious€that€a€good€working€relationship€with€your€local€Department€of€Labor€officials€isÐ Ø Ðvery€important.€€They€generally€are€very€cooperative€and€helpful€in€answering€any€questions€youÐ ÷ Ä Ðmay€have€and€notifying€you€of€impending€changes€or€revisions€to€existing€wage€determinationsÐ ã ° Ðthat€would€impact€your€contract€because€it€is€in€their€best€interests€that€your€project€run€smoothlyÐ Ïœ Ðfrom€a€minimum€wage€standpoint.Ð »ˆ ÐòòÔ€PôN”òXPX»(ÔÌÔ€PX»(XòPôN”ÔContract€Administration€and€the€Davis-Bacon€Actóó€-€€Once€the€contract€is€awarded,€it€is€initiallyÐ k8 Ðthe€responsibility€of€the€contracting€officer€to€ensure€that€the€contractor€comply€with€theÐ W$ Ðprovisions€of€the€contract€clause.€€This€means€ensuring€that€the€appropriate€signs€are€availableÐ C Ðand€posted,€as€well€as€ensuring€that€the€appropriate€payrolls€and€certificates€are€submitted€notÐ /ü Ðless€frequently€than€weekly.€€If€€you€have€a€construction€management€contractor,€you€may€wantÐ è Ðto€assign€that€firm€the€task€of€checking€payrolls€on€a€regular€basis€and€spot„€check€the€pay€ofÐ Ô Ðindividuals€against€the€actual€work€that€they€are€performing.€€The€failure€of€the€contractingÐ óÀ Ðofficer€to€properly€monitor€the€contractors€compliance€with€Davis€Bacon€may€result€in€aÐ ß¬ Ðdetermination€by€DOL€that€your€agency€is€responsible€for€payment€of€the€back€wages.Ð Ë˜ ÐÔ€PôN”òXPX»(ÔÌÔ€PX»(XòPôN”ÔIf€€you€do€not€have€such€a€contractual€relationship€and€your€construction€management€is€doneÐ {H Ð"in-house,"€the€contracting€officer€will€have€responsibility€for€compliance€checks.€€Once€youÐ g4 Ðhave€reviewed€the€payrolls,€they€should€be€retained€unless€requested€by€an€appropriate€FTAÐ S Ðofficial.€€In€your€initial€meeting€with€the€FTA€regional€officials€for€your€project€(or€this€particularÐ ? Ðcontract)€make€sure€it€is€clear€to€whom€the€payrolls€should€be€transmitted.€FTA€may€request€thatÐ +ø Ðyou€hold€them€on-site€or€at€the€agency€for€them€to€review€and€not€actually€transmit€them.€FTAÐ ä Ðmay€also€delegate€the€review€fuÔ_ÔnctionÔ_Ô€to€its€Project€Management€Oversight€contractor.€Ð Ð ÐòòÔ€PôN”òXPX»(ÔÌÔ€PX»(XòPôN”ÔComplaint€Processóó€-€If€DOL€comes€to€the€site€to€investigate€a€complaint€(often€the€way€minimumÐ ³€ Ðwage€discrepancies€are€uncovered),€you€(and€the€contractor)€will€want€to€cooperate€in€thatÐ Ÿl Ðinvestigation.€€If€a€determination€is€made€that€the€contractor€is€not€in€compliance€with€theÐ ‹ X ÐDavis-Bacon€Act€contractual€provisions,€it€is€the€contracting€officer's€responsibility€to€ensure€thatÐ w!D ÐDOL€and€the€FTA€are€informed€of€the€discrepancy.€€If€it€is€determined€that€back€wages€are€owed,Ð c"0 Ðyou€will€receive€written€communication€to€that€effect€from€the€DOL€and€the€FTA€and€you€shouldÐ O# Ðcomply€very€strictly€with€that€direction€--€at€this€point€in€time,€it€is€an€issue€between€theÐ ;$ Ðcontractor€and€the€DOL,€and€the€DOL€regulations€govern€the€reviews€and€appeals€fromÐ '%ô! Ðdeterminations€of€that€type.Ð &à" ÐòòÌòòóó8.1.3€€òòCargo€PreferenceóóÔÿÿÔóóÐ ë'¸ $ ÐÔÿÿÔÓN7ÿÿëøP ¨X°`¸hÀ!$p&È( +ÿÿðø‹XNÓà0ëàÐ ë(#ë(# ÐÔ*_ƒ78ddxjjx&'°(#°(#_ÔÔ,xttÔÔ+ ÔÐ1€Ã)"&Ã)" €€‚‚ƒƒ1ÐÓK4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿëøXKÓòòREQUIREMENTóóÐ@€-Ó) "' €€‚‚ƒƒ@ÐÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿÐXHÓÔ€Pd.cXPX»(ÔÌÔ€PX»(XcPd.Ôðð€14.b€of€the€Master€Agreement€sets€forth€the€Grantee's€obligations€to€comply€with€theÐ +Ô#) Ðrequirements€of€the€United€States€Maritime€Administration€regulations€entitled€"CargoÐ ó+À$* ÐPreference€--€U.S.€-Flag€Vessel,"€found€at€46€Ô_ÔCFRÔ_Ô€Part€381.€€Specifically,€the€grantee€isÐ ß,¬%+ Ðobligated€to€incorporate€the€clause€found€at€46€Ô_ÔCFRÔ_Ô€Section€381.7(b)€into€contracts€in€whichÐ Ë-˜&, Ðequipment,€materials,€or€commodities€may€be€transported€by€an€ocean€vessel.€Ð ·.„'- ÐÔ€Pd.cXPX»(ÔÌâ âÐ.$"Ë/˜(/ .ÐÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿÐXHÓòòÔ€PX»(XcPd.ÔBest€PracticesóóÐ 3 Ðâ âÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿÐXHÓÌÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿÐXHÓThe€fourth€model€clause€in€Appendix€A.1€to€this€Manual€contains€a€suggested€clause€thatÐ Ø Ðcomplies€with€the€requirements€of€the€United€States€Maritime€Administration€at€46€Ô_ÔCFRÔ_Ô€SectionÐ ÷ Ä Ð381.7(b),€which€provides€a€suggested€clause€for€use€as€well.€€Ð ã ° ÐÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿÐXHÓÌÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿÐXHÓIf€your€contract€contemplates€the€shipment€of€any€equipment,€materials,€or€commodities€by€oceanÐ »ˆ Ðvessel,€a€clause€that€meets€the€requirements€of€46€Ô_ÔCFRÔ_Ô€Part€381€must€be€included€in€the€contract.Ð § t ÐAdditionally,€if€a€subcontractor€at€any€tier€would€be€responsible€for€the€ocean€vessel€shipment,Ð “` Ðthe€clause€would€flow€down€to€that€subcontractor.€€The€clause€in€Appendix€A.1€or€as€found€atÐ L ÐSection€381.7(b)€meets€that€requirement€and€it€is€recommended€that€either€of€these€clauses€beÐ k8 Ðutilized.€€Ð W$ ÐÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿÐXHÓÌÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿÐXHÓIf€it€appears€you€have€a€contract€in€which€ocean€vessel€transport€would€be€required,€it€isÐ /ü Ðrecommended€you€check€with€your€legal€counsel€and€ascertain€if€there€are€any€changes€to€the€lawÐ è Ðor€the€clause.€€Questions€about€this€clause€frequently€come€up€in€the€context€of€rail€carÐ Ô ÐÔ_ÔprocurementsÔ_Ô€which,€until€recently,€invariably€required€the€shipment€of€rail€cars€from€overseasÐ óÀ Ðlocations.€€It€is€recommended€that€you€either€be€prepared€to€address€this€requirement,€or€beÐ ß¬ Ðprepared€to€respond€to€any€questions€Ô_ÔofferorsÔ_Ô€may€have€at€any€pre-bid€or€pre-proposalÐ Ë˜ Ðconferences€held€in€conjunction€with€those€Ô_ÔprocurementsÔ_Ô.€€Ð ·„ ÐÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿÐXHÓà8(àà8€(°"(°"àÓK7ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿÐXKÓà0Ø €X €X àÐ Ø X Ø X ÐòòÓQ4ÿÿøP ¨X°`¸hÀ!$p&È( +ÿÿÐ(€XQÓ8.1.4€€òòBuy€AmericaóóÔÿÿÔóóÐ \ ÐÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿøXHÓà8(àà8€(°"(°"àÓK7ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿÐXKÓà8Ø €X €X àà00Ø Ø àÔÿÿÔÐ 00 ÐÓQ4ÿÿøP ¨X°`¸hÀ!$p&È( +ÿÿÐ(€XQÓÔ*_ƒ:;ddxttx78°(#°(#_ÔÔ,xttÔÔ+ ÔÐ1€g4g4 €€‚‚ƒƒ1ÐÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿøXHÓÓ ázÓòòREQUIREMENTóóÐ@€-wD €€‚‚ƒƒ@ÐÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿÐXHÓÓ ázÓÔ€P–“C–XPX»(ÔÌÔ€PX»(X–P–“CÔðð€14.a€of€the€Master€Agreement€requires€compliance€with€49€U.S.C.€ðð€5323(j)€and€FTA's€BuyÐ ¿Œ ÐAmerica€regulations€found€at€49€Ô_ÔCFRÔ_Ô€Part€661,€as€well€as€implementing€guidance€issued€byÐ «x Ðthe€FTA.€€Ð —d ÐÔ€P–“C–XPX»(ÔÐ3)'ƒ P 3ÐòòÔ€PX»(X–P–“CÔÌDISCUSSIONÐ »!ˆ ÐÌÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿÐXHÓPlease€see,€òòSection€4.3.3.2.2óó€of€this€Manual€for€a€thorough€discussion€of€the€Buy€AmericaÐ “#` Ðrequirements.€€Please€see€the€Appendix€for€the€required€clauses.óóÐ $L! Ðà(àÌòò8.1.5€€òòFly€AmericaÐ W&$# ÐÌÓH4ÿÿøP ¨X°`¸hÀ!$p&È( +ÿÿÐXHÓóóóóÔ*_ƒCDddxttx:;°(#°(#_ÔÔ,xttÔÔ+ ÔÐ1€/(ü %/(ü €€‚‚ƒƒ1ÐÓH4ÿÿÐ(€Ø 0ˆà8è@˜ðH! #ø%ÿÿøXHÓòòREQUIREMENTóóÐ@€-?(!& €€‚‚ƒƒ@ÐÔ€P–“C–XPX»(ÔÌÔ€PX»(X–P–“CÔðð€14.c€of€the€Master€Agreement€states€that€if€the€contract€or€subcontracts€may€involve€theÐ ‡)T"( Ðinternational€transportation€of€goods,€equipment,€or€personnel€by€air,€the€contract€must€requireÐ s*@#) Ðcontractors€and€subcontractors€at€every€tier€to€use€U.S.-flag€air€carriers,€to€the€extent€serviceÐ _+,$* Ðby€these€carriers€is€available.€€49€U.S.C.€40118€and€4€Ô_ÔCFRÔ_Ô€Part€52.€Ð K,%+ ÐÔ€P–“C–XPX»(ÔÐ.$"7-&, .ÐòòÔ€PX»(X–P–“CÔÌÐ o.<'- ÐDISCUSSIONóóÐ 3 ÐÌòòA€contract€for€goods€or€equipment€must€contain€a€Fly€America€provision€as€discussed€inÐ Ø ÐAppendix€A.1,€just€as€it€contains€a€Cargo€Preference€provision,€if€there€is€reason€to€expectÐ ÷ Ä Ðthat€international€air€travel€would€be€involved.€€Although€there€is€no€Federally€prescribedÐ ã ° Ðlanguage€for€this€provision,€model€language€is€contained€in€Appendix€A.1.€€If€there€is€noÐ Ïœ Ðpossibility€of€international€shipments€or€travel€under€the€contract,€these€provisions€are€notÐ »ˆ Ðrequired.Ð § t ÐÌÓH4ÿÿøP ¨X°`¸hÀ!$p&È( +ÿÿÐXHÓ8.2€SURETY€BONDSóóÐ L ÐÌòòÔ#†XSXXPX»(=#ÔÔ‡BX»(XXXSÔòòHistoryÐ W$ ÐóóÌóóThe€idea€behind€surety€bonding€is€straightforward.€€One€person€guarantees€to€another€that€a€thirdÐ /ü Ðperson€will€perform.€Ð è ÐÌThe€first€corporate€surety€bonding€company€in€the€United€States,€the€Fidelity€InsuranceÐ óÀ ÐCompany,€was€formed€in€1865.€€In€1894,€Congress€passed€the€Heard€Act,€which€required€suretyÐ ß¬ Ðbonds€on€all€federally€funded€projects€as€a€result€of€the€large€number€of€contractors€working€onÐ Ë˜ Ðpublic€projects€who€had€defaulted€and€in€response€to€complains€from€unpaid€suppliers€andÐ ·„ Ðsubcontractors.€The€Miller€Act€(40€U.S.C.€ðð270a€et€seq.)€was€passed€in€1935€to€replace€the€HeardÐ £p ÐAct.€€The€Miller€Act€requires€performance€and€payment€bonds€for€all€public€work€contracts€inÐ \ Ðexcess€of€$100,000€and€payment€protection,€with€payment€bonds€the€preferred€method€forÐ {H Ðcontracts€in€excess€of€$25,000.€Ý‚ÿÿÿÝòòÝÝòòÑÈÑÝ‚ÿÿÿlŸƒyÝóóÝÝ×ƒ÷×Ý ƒ ¢˜ÝòòòŽòÚÚ14Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿ ƒyÝó…óÝÝóóóó€€Almost€all€states€and€most€local€jurisdictions€have€enactedÐ g4 Ðsimilar€legislation€requiring€surety€bonds€on€public€works.€€These€generally€are€referred€to€asÐ S Ðð ðLittle€Miller€Acts.Ð ? ÐÌToday,€surety€bonds€protect€virtually€every€public€construction€project€in€the€U.S.€€In€1977,Ð ä Ðnearly€$160€billion€in€public€works€projects€were€so€protected€with€surety€bonds.€€From€1990„Ð !Ð Ð1997,€more€than€80,000€contractors€failed,€with€losses€of€$21.8€billion,€according€to€Dun€andÐ ï!¼ ÐBradstreetððs€òòBusiness€Failure€Recordóó.€€From€2001„2003,€surety€companies€incurred€more€thanÐ Û"¨ Ð$1.8€billion€in€losses€from€surety€bonds,€according€to€The€Surety€Association€of€America.Ð Ç#” ÐòòÌÔ&tÔòòTypes€of€Surety€BondsÐ Ÿ%l! ÐóóÌòòóóSurety€Bondóó€„€A€written€agreement€whereby€one€party,€called€the€òòsuretyóó,€obligates€itself€to€aÐ w'D # Ðsecond€party,€called€the€òòÔ_ÔobligeeÔ_Ô€óó(the€owner,€grantee),€to€answer€for€the€default€of€a€third€party,Ð c(0!$ Ðcalled€the€òòprincipalóó€or€òòÔ_ÔobligorÔ_Ôóó.€€Surety€bonds€used€in€construction€are€called€òòcontract€suretyÐ O)"% Ðbondsóó.€€There€are€three€primary€types€of€contract€surety€bonds:€òòbid€bondsóó,€òòperformance€bonds,óóÐ ;*#& Ðand€òòpayment€bondsóó.€Ô't·(›£ÔÐ '+ô#' ÐòòÐ ,à$( ÐòòóóBid€Bond€(or€Bid€Guarantee)òòóó€ð!ð€óóA€promise€from€a€surety€(or€a€certified€or€cashierððs€check€givenÐ 3 Ðby€a€bidder)€for€a€supply€or€construction€contract€to€guarantee€that€the€bidder,€if€awarded€theÐ ì Ðcontract€within€the€time€stipulated,€will€enter€into€the€contract€at€the€price€bid€and€furnish€theÐ Ø Ðprescribedòò€óóperformance€and/or€payment€bond.€€Default€ordinarily€will€result€in€liability€to€theÐ ÷ Ä ÐÔ_ÔobligeeÔ_Ô€for€the€difference€between€the€amount€of€the€principalððs€bid€and€the€bid€of€the€next€lowÐ ã ° Ðbidder€who€can€qualify€for€the€contract.€€The€liability€of€the€surety€is€limited€to€the€bid€bondÐ Ïœ Ðpenalty.€€Contractors€that€have€a€relationship€with€a€surety€can€normally€obtain€bid€bonds€at€noÐ »ˆ Ðcost.€€Bid€bonds€are€not€usually€appropriate€for€negotiated€Ô_ÔprocurementsÔ_Ô€due€to€the€nature€of€theÐ § t Ðprocess.Ð “` ÐÌòòPerformance€Bondóó€-€A€promise€from€a€bonding€company€("the€surety")€to€perform€(or€cause€to€beÐ k8 Ðperformed)€those€obligations€of€the€contractor€€("the€principal"),€when€the€contractor€fails€toÐ W$ Ðperform€its€obligations,€in€an€amount€up€to€but€not€exceeding€the€amount€of€the€bond€("penalÐ C Ðsum").€€Performance€bonds€can€incorporate€payment€bond€(labor€and€materials)€and€maintenanceÐ /ü Ðbond€liability€(see€below).€A€performance€bond€protects€the€owner€(grantee)€from€financial€lossÐ è Ðshould€the€contractor€fail€to€perform€the€contract€in€accordance€with€its€terms€and€conditions.Ð Ô ÐOnce€a€surety€bond€is€issued,€it€cannot€be€withdrawn€or€cancelled.€€€General€contractors€may€alsoÐ óÀ Ðact€as€the€Ô_ÔobligeeÔ_Ô€when€bonding€subcontractors.€€General€contractors€may€require€subcontractorÐ ß¬ Ðbonds€if€the€subcontractor€is€a€significant€part€of€the€job€or€a€specialized€contractor€that€isÐ Ë˜ Ðdifficult€to€replace.Ð ·„ ÐÌòòPayment€Bondóó€-€A€promise€from€a€surety€that€guarantees€payment€to€certain€subcontractors,Ð \ Ðlaborers€and€suppliers€for€the€labor€and€materials€used€in€the€work€performed€under€the€contract.€Ð {H ÐPayment€bonds€are€also€called€òòlabor€and€material€bondsóó.€€These€bonds€protect€laborers€andÐ g4 Ðsuppliers€in€the€event€the€contractor€fails€to€pay€them.€The€suretyððs€obligation€is€limited€by€theÐ S Ðamount€of€the€bond.Ð ? ÐÌòòMaintenance€Bondóó€„€A€maintenance€bond€normally€guarantees€against€defective€workmanship€orÐ ä Ðmaterials.€€However,€maintenance€bonds€occasionally€may€incorporate€an€obligationÐ !Ð Ðguaranteeing€ð ðefficient€or€successful€operationðð€or€other€obligations€of€like€intent€and€purpose.€Ð ï!¼ ÐÌIt€is€important€to€note€that€surety€bonds€are€not€intended€to€protect€the€contractors€that€post€them.€Ð Ç#” ÐThese€bonds€are€for€the€protection€of€the€owner€of€the€construction€project€and€for€the€protectionÐ ³$€ Ðof€laborers,€material€suppliers€and€subcontractors.€€Since€mechanicððs€liens€cannot€be€placedÐ Ÿ%l! Ðagainst€public€property,€the€payment€bond€may€be€the€only€protection€these€claimants€have€ifÐ ‹&X" Ðthey€are€not€paid€for€the€goods€and€services€they€provide€to€the€project.€€Under€normalÐ w'D # Ðcircumstances,€sureties€do€not€charge€a€separate€premium€for€Payment€Bonds.Ð c(0!$ ÐòòÌÔ&œÔòòGeneral€Indemnity€AgreementÐ ;*#& ÐóóóóÌWhen€a€surety€guarantees€the€performance€of€a€firm€(the€principal),€the€principal€remains€liableÐ ,à$( Ðfor€this€obligation€to€the€surety€in€the€event€of€a€contract€default€by€the€principal.€€The€principal€isÐ ÿ,Ì%) Ðobligated€to€reimburse€the€surety€for€whatever€sums€the€surety€is€required€to€pay€out€to€complete€Ô'œ;*õ´ÔÐ ë-¸&* Ðthe€principalððs€contract.€€Many€contracting€firms€do€not€have€the€capital€to€assure€this€repayment,Ð 3 Ðand€so€most€surety€companies€require€a€general€agreement€of€indemnity€(GAI)€to€be€signed€notÐ ì Ðonly€by€the€firm,€but€by€individuals€willing€to€support€the€firm.€€This€might€be€the€owner€of€theÐ Ø Ðfirm,€the€spouse€of€the€owner,€a€parent€corporation€or€other€individuals€willing€to€risk€their€assetsÐ ÷ Ä Ðfor€the€firm.Ð ã ° ÐÌÔ&°ÔòòòòPublic€Vs.€Private€SectorsÐ »ˆ ÐóóóóÌPerformance€bonding€is€not€typical€in€large€private€sector€contracts€but€is€required€in€the€publicÐ “` Ðsector.€€Public€construction€contract€performance€bonding€is€more€common€because:Ô'°»¶¸ÔÐ L ÐÌÓ€ A_)*+-9<EF(ÜypH_)*+-9<EFÓÝ"‚_´J"ÝÝÝÓXÓÝ‚_´JpºÝÔ2ÜÔððÔ3 Ôà0øàÝÝThe€public€interest€is€served€by€the€surety€industryððs€protection€of€taxpayer€dollarsÐ W$ Ðexpended€for€public€sector€projects;Ýƒ_´Jpº«ºÝŒÐCø(#ø(# ÐŒÝ ÝÌÝ"‚_´J"ÝÝÝÝ‚_´JÆ»ÝÔ2ÜÔððÔ3 Ôà0øàÝÝthe€public€sector€undertakes€large,€fixed€price€public€works€projects;Ýƒ_´JÆ»ó»ÝŒÐèø(#ø(# ÐŒÝ ÝÌÝ"‚_´J"ÝÝÝÝ‚_´JÃ¼ÝÔ2ÜÔððÔ3 Ôà0øàÝÝunforeseen€costs€could€easily€bankrupt€a€construction€contractor€that€is€a€pure€serviceÐ óÀ Ðorganization€with€few€assets;Ýƒ_´JÃ¼ð¼ÝŒÐß¬ø(#ø(# ÐŒÝ Ý€ÌÝ"‚_´J"ÝÝÝÝ‚_´J¾ÝÔ2ÜÔððÔ3 Ôà0øàÝÝpublic€agencies€accept€the€lowest€responsive€bid€from€a€responsible€bidder€without€anÐ ·„ Ðopportunity€to€fully€consider€and€adjust€the€contracting€strategy€and€terms€to€theÐ £p Ðapparent€low€bidder;€andÝƒ_´J¾1¾ÝŒÐ\ø(#ø(# ÐŒÝ Ý€ÌÝ"‚_´J"ÝÝÝÝ‚_´J¥¿ÝÔ2ÜÔððÔ3 Ôà0øàÝÝif€a€contractor€is€unable€to€perform,€(e.g.€because€it€is€having€difficulty€obtaining€fundsÐ g4 Ðto€pay€suppliers€and€employees)€and€if€the€work€is€slowed€down€and€ultimately€turnedÐ S Ðover€to€other€forces€to€complete,€the€cost€to€the€public€agency€of€mobilizing€theÐ ? Ðsubstitute€forces€and€picking€up€each€of€the€work€tasks€where€the€failed€contractor€leftÐ +ø Ðthem€is€higher€than€in€a€typical€supply€contract€where€there€are€usually€a€number€ofÐ ä Ðsuppliers€offering€the€product€at€competitively€established€market€prices.Ýƒ_´J¥¿Ò¿ÝŒÐ!Ðø(#ø(# ÐŒÝ Ýà0øàÐ ø(#ø(# ÐÓXÓÓK7°hÀ°pÈ xÐÀpÈ xÐ (#ÿÿøXKÓPayment€Bonds€have€a€related€but€secondary€purpose.€€Usually€in€the€public€sector,€a€contractor'sÐ Û"¨ Ðsuppliers€cannot€place€liens€on€the€material€and€work€supplied€when€payment€to€theÐ Ç#” Ðsubcontractor€is€overdue.€€States€often€protect€public€property€and€services€by€exempting€publicÐ ³$€ Ðworks€from€Ô_ÔmaterialmenÔ_Ô's€liens.€€Therefore,€although€performance€bonds€alone€would€oftenÐ Ÿ%l! Ðguarantee€payment€to€subcontractors,€additional€payment€bonds€are€often€required€in€constructionÐ ‹&X" Ðcontracts€to€assure€there€are€no€disputes€over€potential€performance€bond€liability€to€satisfyÐ w'D # Ðsecond€and€third€tier€subcontractor€claims.Ð c(0!$ ÐÌÓT.°°` ¸hÀpÈ xÐ (#°hÀ°…XÀ†X(#TÓòòòòÔ_ÔPrequalificationÔ_Ô€of€ContractorsÐ ;*#& ÐóóóóÌMost€surety€companies€are€subsidiaries€or€divisions€of€insurance€companies,€and€both€suretyÐ ,à$( Ðbonds€and€traditional€insurance€policies€are€risk€transfer€mechanisms€regulated€by€state€insuranceÐ ÿ,Ì%) Ðdepartments.€€However,€traditional€insurance€is€designed€to€compensate€the€insured€againstÐ ë-¸&* Ðunforeseen€adverse€events.€€The€policy€premium€is€actuarially€determined€based€on€aggregateÐ ×.¤'+ Ðpremiums€earned€versus€expected€losses.€€Surety€companies€operate€on€a€different€business€Ð Ã/(, ÐÑÈÑmodel.€€òòThe€surety€Ô_ÔprequalifiesÔ_Ô€the€contractor€based€on€financial€strength€and€constructionÐ 3 Ðexpertiseóó.€€Since€the€bond€is€underwritten€with€little€expectation€of€loss,€the€premium€is€primarilyÐ ì Ða€fee€for€Ô_ÔprequalificationÔ_Ô€services€and€the€allocation€of€the€suretyððs€capital€to€protect€the€Ô_ÔobligeeÔ_ÔÐ Ø Ðagainst€the€possibility€of€loss.€Ð ÷ Ä ÐÌAlthough€the€bonding€companies€perform€this€Ô_ÔprequalificationÔ_Ô€for€their€own€purposes€and€theirÐ Ïœ Ðinterests€are€similar€to€those€of€the€transit€agency,€the€transit€agency€is€still€required€to€reviewÐ »ˆ Ðpotential€contractorsðð€responsibility€before€award.€€While€surety€bonds€are€a€necessary€conditionÐ § t Ðin€the€determination€of€responsibility,€they€alone€are€not€sufficient.€€Ô_ÔPrequalificationÔ_Ô€ofÐ “` Ðcontractors€is€the€primary€focus€of€surety€underwriters.€€Surety€bond€underwriters€must€analyzeÐ L Ðapplicants€closely€since€they€are€committing€the€assets€of€their€companies€to€guarantee€theÐ k8 Ðcontractorððs€performance€and€payment€of€its€suppliers.€€Underwriters€must€be€certain€that€onlyÐ W$ Ðthose€contractors€who€can€complete€a€project€receive€a€bond,€and€they€must€be€fully€satisfied€thatÐ C Ðthe€contractorððs€business€is€well„managed€and€profitable.€€Ô_ÔPrequalificationÔ_Ô€is€one€of€the€mostÐ /ü Ðvaluable€services€of€the€surety€bond€process.€The€process€involves€underwriters€satisfyingÐ è Ðthemselves€that€the€contractor€has:€Ð Ô ÐÌÝ"‚_´J"ÝÝÝÓ-°°‚,¸‰X(#°°ŒX(#-ÓÓXÓÝ‚_´J]ÐÝÔ2ÜÔððÔ3 Ôà04àÝÝGood€references€and€reputation;Ýƒ_´J]ÐÅÐÝŒÐß¬4(#4(# ÐŒÝ ÝÝ"‚_´J"ÝÝÝÝ‚_´JmÑÝÔ2ÜÔððÔ3 Ôà04àÝÝA€track€record€of€successful€operations€in€the€past€and€the€ability€to€meet€current€andÐ Ë˜ Ðfuture€obligations;Ýƒ_´JmÑšÑÝŒÐ·„4(#4(# ÐŒÝ ÝÝ"‚_´J"ÝÝÝÝ‚_´J¢ÒÝÔ2ÜÔððÔ3 Ôà04àÝÝExperience€matching€the€contract€requirements;Ýƒ_´J¢ÒÏÒÝŒÐ£p4(#4(# ÐŒÝ ÝÝ"‚_´J"ÝÝÝÝ‚_´J†ÓÝÔ2ÜÔððÔ3 Ôà04àÝÝThe€necessary€equipment€to€do€the€work€or€the€ability€to€obtain€it;Ýƒ_´J†Ó³ÓÝŒÐ\4(#4(# ÐŒÝ ÝÝ"‚_´J "ÝÝÝÝ‚_´JÔÝÔ2ÜÔððÔ3 Ôà04àÝÝThe€financial€strength€to€support€the€desired€work€program;Ýƒ_´JÔ¬ÔÝŒÐ{H4(#4(# ÐŒÝ ÝÝ"‚_´J "ÝÝÝÝ‚_´JpÕÝÔ2ÜÔððÔ3 Ôà04àÝÝAn€excellent€credit€history,€and€an€established€bank€relationship€and€line€of€credit.€€Ýƒ_´JpÕÕÝŒÐg44(#4(# ÐŒÝ ÝÓX·ÐÓÓ1 °°ŒX(#°°‚,¸‰X(#ŠÐ1ÓÌSurety€bonds€are€obtained€through€insurance€agents€and€brokers,€called€òòproducers.€€óóTheseÐ ? Ðproducers€help€their€contractor€clients€during€the€Ô_ÔprequalificationÔ_Ô€process€and€assist€them€inÐ +ø Ðdeveloping€a€business€relationship€with€the€surety€bond€company.€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿØnd€tÝóóÝÝ×ƒý×Ý ƒ ¢˜ÝòòòŽòÚÚ15Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿ¬Ønd€tÝó…óÝÝóóóó€Ð ä ÐÌÔ&L ÔòòòòSurety€Bonds€Versus€Bank€Letters€of€CreditÐ ï!¼ ÐÌÓE.°°` ¸hÀpÈ xÐ (#°°ŒX(#EÓóóóóBank€letters€of€credit€are€discussed€below€for€consideration€under€ð ðBest€Practicesðð€in€the€contextÐ Ç#” Ðof€non„construction€contracts.€€At€first€glance€it€may€appear€that€letters€of€credit€and€surety€bondsÐ ³$€ Ðoffer€the€same€degree€of€financial€protection.€€However,€a€more€thorough€review€reveals€thatÐ Ÿ%l! Ðsurety€bonds€provide€greater€benefits€to€both€the€grantee€(Ô_ÔobligeeÔ_Ô)€and€the€contractor€Ð ‹&X" Ð(principal).€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿ«Ûnd€tÝóóÝÝ×ƒT×Ý ƒ ¢˜ÝòòòŽòÚÚ16Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿOÜnd€tÝó…óÝÝóóóó€Ô'L C$ ÙÔÐ w'D # ÐÐ c(0!$ ÐÔ*lƒKkddxttxCD°(#°(#lÔÔ,<dd ÔÔ,<dd ÔÔ+ ÔÐ$33 €€……$ÐòòA€ComparisonóóÐ—d ÐòòÔ#†XSXXBX»(T›#ÔÔ‡QXSXXXSÔBank€Letters€of€CreditÐ ä ÐóóòòòòÔ€Q,úÉ,XQXSÔÌÔ€QXSX,Q,úÉÔÔ_ÔPrequalificationÔ_Ô€Servicesóó:Ð y F ÐòˆòóˆóóóÌThe€underwriting€bank€focuses€primarily€onÐ Q Ðthe€quality€and€liquidity€of€the€underlyingÐ = Ðcollateral;€i.e.,€on€the€ability€of€the€contractorÐ )ö Ðto€repay€any€draws€on€the€LOCÔ#†XSXXQXSüÝ#ÔÔ‡BX»(XXXSÔ.Ð â ÐòòSurety€BondsÐ ä ÐÌóóÌThe€essence€of€surety€underwriting€isÐ Û¨ ÐÔ_ÔprequalificationÔ_Ô.€€The€surety€examines€theÐ Ç” Ðcontractorððs€entire€business€operation,Ð ³ € Ðchecking€for€adequate€finances,€necessaryÐ Ÿl Ðexperience,€organization,€existing€work„€loadÐ ‹X Ðand€its€profitability,€and€management€skills€toÐ wD Ðsuccessfully€complete€the€project€for€whichÐ c0 Ðthe€bond€is€required.€Ð O ÐòòòòClaims€„€Access€to€Fundsóó:óóÐ Ïœ ÐÌThe€beneficiary€must€make€a€demand€prior€toÐ §t Ðexpiration€date.€€No€funds€are€available€afterÐ “` Ðexpiration€date,€even€for€liabilities€incurredÐ L Ðprior€to€expiration.€€The€bank€has€€€noÐ k8 Ðobligation€to€complete€the€project.Ð W$ ÐÌÌÌÌÌÌÌÌThere€is€no€completion€clause€in€a€LOC.€€TheÐ £!p$ Ðtask€of€administering€completion€of€theÐ "\% Ðcontract€is€left€to€the€owner.€€The€owner€mustÐ {#H& Ðevaluate€work€done,€develop€detailedÐ g$4' Ðspecifications€for€completion€of€the€work€andÐ S% ( Ðsolicit€bids€or€negotiate€(depending€on€stateÐ ?&) Ðlaw)€for€a€new€contractor€to€complete€theÐ +'ø* Ðwork.€€Under€a€performance€bond,€these€tasksÐ (ä + Ðare€the€responsibility€of€the€surety.€€Ð )Ð!, ÐÌÌThe€owner€must€determine€the€validity€ofÐ Ç+”$/ Ðclaims€by€subcontractors,€laborers,€andÐ ³,€%0 Ðmaterial€suppliers.€€If€there€is€not€enoughÐ Ÿ-l&1 Ðmoney€from€the€letter€of€credit€to€pay€all€ofÐ ‹.X'2 Ðthe€claims,€then€the€owner€has€to€decide€à$àÐ w/D(3 ÐÓ'Pc¨‹XÈ2°°ŒX(#'ÓÌÌIn€most€cases,€a€bond€covers€liabilities€thatÐ §t6 Ðwere€incurred€during€the€bond€term.€€A€claimÐ “`7 Ðmay€be€made€on€the€bond€after€theÐ L8 Ðtermination€of€the€bond€for€liabilities€incurredÐ k89 Ðprior€to€cancellation€or€Ô_ÔnonrenewalÔ_Ô.Ð W$: ÐÌThe€surety€has€obligations€to€both€the€ownerÐ /ü< Ðand€the€contractor.€€If€the€contractor€andÐ è= Ðowner€disagree€on€contract€performanceÐ Ô> Ðissues€and€the€owner€declares€the€contractorÐ óÀ? Ðin€default,€the€surety€must€investigate€theÐ ß¬@ Ðclaim.Ð Ë˜A ÐÌThe€surety€has€several€alternatives€if€the€Ð £!pC ÐContractor€defaults:Ð "\D ÐÓ€ @(#3yA_)*+-9<EFÓFinance€the€original€contractor€or€provideÐ {#HE Ðsupport€necessary€to€allow€the€contractor€toÐ g$4F Ðfinish€the€project;Ð S% G ÐArrange€for€a€new€contractor€to€complete€theÐ ?&H Ðcontract;Ð +'øI ÐAssume€the€role€of€the€contractor€anÐ (ä J Ðsubcontract€the€remaining€work;Ð )Ð!K ÐPay€the€penal€sum€of€the€bond.Ð ï)¼"L ÐÌWith€payment€bonds,€the€surety€pays€theÐ Ç+”$N Ðrightful€claims€of€certain€subcontractors,Ð ³,€%O Ðlaborers€and€suppliers.Ð Ÿ-l&P Ðâ âÐ ‹.X'Q Ð‡â âÔ*ƒlmdd<dd <<dd <Kk°(#°(#ÔÔ,<dd ÔÔ,<dd ÔÔ+ ÔÐ33 Ðwhich€claims€will€be€paid€and€which€will€beÐ —d Ðrejected.àÄ àÐ ƒP ÐÐ —d ÐòòòòBorrowing€Capacityóó:Ð Ð ÐòˆòóˆóóóÌSpecific€assets€are€pledged€to€secure€bankÐ Û¨ Ðletters€of€credit.€€Ô_ÔLOCsÔ_Ô€diminish€an€existingÐ Ç” Ðline€of€credit,€and€are€reflected€on€theÐ ³ € Ðcontractorððs€financial€statement€as€aÐ Ÿl Ðcontingent€liability.€€The€tying€up€of€assets,€orÐ ‹X Ðthe€reduction€of€an€available€line€of€credit,€isÐ wD Ðcounter„productive€to€both€the€owner€and€theÐ c0 Ðcontractor.€€This€can€adversely€affect€theÐ O Ðcontractorððs€cash€flow€during€contractÐ ; Ðperformance.€€Ð 'ô ÐÌSubcontractors€and€material€suppliers€may€beÐ ÿÌ Ðreluctant€to€provide€labor€and€supplies€to€theÐ ë¸ Ðcontractor€since€they€have€no€access€or€rightsÐ ×¤ Ðto€funds€available€from€the€LOC.Ð Ã ÐÌÌWith€few€exceptions,€performance€andÐ Û¨ Ðpayment€bonds€are€issued€on€an€unsecuredÐ Ç” Ðbasis.€€They€are€usually€provided€on€theÐ ³ € Ðstrength€of€the€corporate€and€personalÐ Ÿl Ðsignatures€of€the€company€owners.€€TheÐ ‹X Ðissuance€of€bonds€has€no€effect€on€theÐ wD Ðcontractorððs€bank€line€of€credit.Ð c0 ÐÌÌÌÌSubcontractors€and€material€suppliers€may€beÐ ÿÌ" Ðmore€willing€to€provide€labor€and€materials€toÐ ë¸# Ðthe€contractor€when€they€are€protected€by€aÐ ×¤$ Ðpayment€bond.Ð Ã% ÐòòòòCostóó:Ð C& ÐÌóóCost€is€generally€1%€of€the€contract€amountÐ è( Ðcovered€by€the€LOC„€e.g.,€if€the€LOC€coversÐ Ô) Ð10%€of€contract,€Cost€=€1%€x€(10%€xÐ óÀ* ÐContract€Amount).Ð ß¬+ ÐÌÌGenerally€ðð€„€2%€of€contract€price.€€TheÐ è. Ðpremium€includes€100%€performance€bond,€aÐ Ô/ Ð100%€payment€bond,€and€normally€a€one„yearÐ óÀ0 Ðmaintenance€period.Ð ß¬1 ÐÌòòòòCost€of€BondsóóÐ ç ´2 ÐòòÌóóóóThe€price€or€premium€for€a€bond€will€vary€depending€on€the€type€of€construction,€the€contractÐ ¿"Œ4 Ðamount,€the€duration€of€the€project,€the€surety€company,€and€the€experience€and€financial€strengthÐ «#x5 Ðof€the€contractor.€€Premiums€range,€on€average,€from€ðð€%€to€2€%€(or€perhaps€higher,€and€notÐ —$d6 Ðnecessarily€tied€to€business€strength)€of€the€contract€price€for€contractors€with€establishedÐ ƒ%P7 Ðbonding€credit.€€If€the€contract€amount€changes,€the€bond€premium€will€be€adjusted€for€theÐ o&<8 Ðchange€in€contract€price.€€There€is€usually€no€additional€cost€for€bid€bonds€or€payment€bondsÐ ['( 9 Ðwhen€purchased€with€a€performance€bond.€€Ð G(!: ÐÌBond€premiums€cannot€be€reduced€by€lowering€the€percentage€of€the€bond€from,€say,€100%€toÐ *ì"< Ð50%.€€Thus,€it€usually€makes€sense€to€require€100€percent€performance€and€payment€bonds€so€theÐ +Ø#= Ðâ âowner€receives€maximum€protection.€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿTûÝÝóóÝÝ×ƒÝ×Ý ƒ ¢˜ÝòòòŽòÚÚ17Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿøûÝÝó…óÝÝóóóó€€òòThe€advantage,€however,€in€considering€a€lowerÐ ÷+Ä$> Ðpercentage€is€that€more€contractors€may€be€allowed€to€compete€because€some€may€not€have€theÐ 3 Ðbonding€capacity€to€get€a€100%€bond,€but€may€qualify€for€a€lesser€amount.€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿDýÝÝóóÝÝ×ƒà×Ý ƒ ¢˜ÝòòòŽòÚÚ18Ú ÚóŽóóóÝÝ× ×òˆòòòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿëýÝÝó…óÝÝóóóóÐ ì Ðâ âÓH.°°` ¸hÀpÈ xÐ (#Pc¨‹XÈ2HÓóˆóóóÌòòóóSurety€bonds€issued€through€the€SBA€òòSurety€Bond€Guarantee€Programóó€(see€below)€carry€anÐ ÷ Ä Ðadditional€0.6€percent€fee.Ð ã ° ÐÌòòòòGovernment€Oversight€Ð »ˆ Ðààà` àà¸àààÌóóóóSurety€bond€companies€are€regulated€by€state€insurance€departments.€€€Surety€bonds€on€stateÐ “` Ðpublic€works€must€be€issued€by€a€surety€bond€company€licensed€by€the€insurance€department€inÐ L Ðthat€state.€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿŸshedÝóóÝÝ×ƒãT×Ý ƒ ¢˜ÝòòòŽòÚÚ19Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿCshedÝó…óÝÝóóóóÐ k8 ÐÌOn€the€federal€level,€the€U.S.€Treasury€Department€maintains€a€list€of€surety€bond€companies€thatÐ C Ðit€has€qualified€to€write€surety€bonds€required€for€federal€construction€projects.€€To€be€on€this€list,Ð /ü Ða€surety€bond€company€must€file€financial€and€other€information€with€the€Treasury€DepartmentÐ è Ðand€undergo€the€Departmentððs€financial€analysis.€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿ:shedÝóóÝÝ×ƒé¤×Ý ƒ ¢˜ÝòòòŽòÚÚ20Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿÞshedÝó…óÝÝóóóóÐ Ô ÐÌÔ&ˆÔòòòòBonding€Assistance€ProgramsÐ ß¬ ÐóóóóÌSince€the€early€1970s,€the€Small€Business€Administration€(SBA)€has€operated€its€òòSurety€BondÐ ·„ ÐGuarantee€Programóó,€which€provides€some€repayment€of€losses€to€surety€bond€companies€fromÐ £p Ðbonds€they€would€otherwise€not€provide.€€Small€contractors€have€performed€more€than€$1€billionÐ \ Ðof€contracts€per€year€with€the€help€of€this€SBA€program.€€Ô'ˆ—>ÔÐ {H ÐÌThe€U.S.€Department€of€Transportation€(DOT)€has€established€a€òòBonding€Assistance€ProgramóóÐ S Ðthat€is€administered€by€the€Office€of€Small€and€Disadvantaged€Business€Utilization€(Ô_ÔOSDBUÔ_Ô)Ð ? Ðwithin€the€Office€of€the€Secretary.€€The€Bonding€Assistance€Program€offers€certified€minority,Ð +ø Ðwomen„owned€and€disadvantaged€business€enterprises€(Ô_ÔDBEsÔ_Ô)€an€opportunity€to€obtain€bid,Ð ä Ðpayment€and€performance€bonds€for€transportation„related€projects.€€The€Program€providesÐ !Ð Ðsurety€companies€an€80%€guarantee€against€losses€on€contracts€up€to€$1,000,000.€€Bond€approvalÐ ï!¼ Ðand€issuance€are€performed€by€the€DOT€approved€surety€companies.Ð Û"¨ ÐÌÐ ³$€ ÐA€number€of€states€have€also€established€bond€guarantee€programs€for€contractors,€as€well€asÐ 3 Ðother€special€bonding€assistance€programs.€Ð ì ÐÌThe€Surety€Association€of€America€(SAA)€is€a€nonprofit€trade€association€that€represents€moreÐ ÷ Ä Ðthan€650€U.S.€and€eight€foreign€surety€bond€companies.€€€SAA€has€developed€a€òòModelÐ ã ° ÐContractor€Development€Programóó€(Ô_ÔMCDPÔ_Ô)€to€increase€and€promote€the€availability€of€suretyÐ Ïœ Ðbonds€to€small,€minority€and€women€contractors.€€The€objectives€of€this€program€include:€Ð »ˆ ÐÌÓ€ A_)*+-9<EF(Üy3@ÓÝ"‚_´J"ÝÝÝÓXÓÝ‚_´JšÝÔ2ÜÔððÔ3 Ôà0` àÝÝEducating€emerging€contractors€about€surety€bonds€and€helping€them€becomeÐ “` Ðbondable,Ýƒ_´JšÕÝŒÐL ` (#` (# ÐŒÝ ÝÝ"‚_´J"ÝÝÝÝ‚_´JÅ ÝÔ2ÜÔððÔ3 Ôà0` àÝÝIdentifying€resources€available€to€emerging€contractors€in€obtaining€their€firstÐ k8 Ðbond,€such€as€the€SBA€Surety€Bond€Guarantee€Program€and€similar€state€andÐ W$ Ðlocal€programs,Ýƒ_´JÅ ò ÝŒÐC` (#` (# ÐŒÝ ÝÝ"‚_´J"ÝÝÝÝ‚_´JMÝÔ2ÜÔððÔ3 Ôà0` àÝÝProviding€assistance€and€referrals€to€emerging€contractors€in€obtaining€appropriateÐ /ü Ðaccounting,€project€management€and€financing€expertise,Ýƒ_´JMzÝŒÐè` (#` (# ÐŒÝ ÝÝ"‚_´J"ÝÝÝÝ‚_´J¢ÝÔ2ÜÔððÔ3 Ôà0` àÝÝAssisting€these€contractors€with€increasing€their€bonding€capacity.€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿYshedÝóóÝÝ×ƒì×Ý ƒ ¢˜ÝòòòŽòÚÚ21Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿýshedÝó…óÝÝóóóóÝƒ_´J¢ÏÝŒÐÔ ` (#` (# ÐŒÝ ÝÓE.°°` ¸hÀpÈ xÐ (#°°ŒX(#EÓÐ óÀ ÐÓE.°°` ¸hÀpÈ xÐ (#°°ŒX(#EÓÓXÓSAA€also€offers€an€educational€tool€for€contractors€and€subcontractors,€òòYour€First€Bondóó,€aÐ ß¬ Ðvideotape€and€brochure€of€what€contractors€need€to€do€to€apply€for€bonds,€and€other€educationalÐ Ë˜ Ðmaterials.€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿ+shedÝóóÝÝ×ƒî×Ý ƒ ¢˜ÝòòòŽòÚÚ22Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿÏshedÝó…óÝÝóóóóÐ ·„ ÐÌÓE.°°` ¸hÀpÈ xÐ (#°°ŒX(#EÓòòòòRatings€OrganizationsÐ \ ÐÓE.°°` ¸hÀpÈ xÐ (#°°ŒX(#EÓÌóóóóÓE.°°` ¸hÀpÈ xÐ (#°°ŒX(#EÓA.M.€Best€Company€(Bestððs)€is€a€private€company€that€analyzes€and€rates€insurance€companies.€Ð g4 ÐEach€year€it€publishes€òòBestððs€Insurance€Reports,€Property„Casualty,óó€which€includes€detailedÐ S Ðprofiles€and€financial€information€on€almost€every€insurance€company€operating€in€the€UnitedÐ ? ÐStates.€€Bestððs€gives€each€company€a€rating€(designated€by€an€alphabetic€character)€and€aÐ +ø Ðfinancial€size€category€(designated€by€a€Roman€numeral€scale).€€Best€also€publishes€anÐ ä Ðabbreviated€version€of€its€òòBestððs€Key€Rating€Guide,€Property„Casualtyóó,€which€contains€only€theÐ !Ð Ðalphabetic€ratings€and€financial€size€categories€of€each€insurance€company.€€These€books€areÐ ï!¼ Ðâ âavailable€in€many€public€and€financial€libraries€or€may€be€purchased€from€A.M.€Best.€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿ¼shedÝóóÝÝ×ƒðh×Ý ƒ ¢˜ÝòòòŽòÚÚ23Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿ`shedÝó…óÝÝóóóóÐ Û"¨ ÐOther€ratings€organizations€include€Dun€&€Bradstreet,€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿõshedÝóóÝÝ×ƒó×Ý ƒ ¢˜ÝòòòŽòÚÚ24Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿ™shedÝó…óÝÝóóóó€Ô_ÔFitchÔ_Ô€Ratings,€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿshedÝóóÝÝ×ƒöT×Ý ƒ ¢˜ÝòòòŽòÚÚ25Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿ·shedÝó…óÝÝóóóó€Moodyððs€InvestorsÐ 3 ÐService,€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿ4shedÝóóÝÝ×ƒùà×Ý ƒ ¢˜ÝòòòŽòÚÚ26Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿØshedÝó…óÝÝóóóó€Standard€&€Poorððs€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿ8shedÝóóÝÝ×ƒül×Ý ƒ ¢˜ÝòòòŽòÚÚ27Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿÜshedÝó…óÝÝóóóó€and€Weiss€Ratings€Inc.€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿ>shedÝóóÝÝ×ƒÿø×Ý ƒ ¢˜ÝòòòŽòÚÚ28Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿâshedÝó…óÝÝóóóó€€FTA€does€not€endorse€any€particularÐ ì Ðâ âcompany€or€program.Ô#†XSXXBX»(ðß#ÔÔ‡PX»(XXXSÔÐ Ø ÐÌòò8.2.1€€òòPerformance€BondsÐ ã ° ÐÌóóóóÔ*ƒ(dd<dd <<dd <lm°(#°(#ÔÔ,xdd ÔÔ+ ÔÐ»ˆ»ˆ ÐòòREQUIREMENTóóÐ ì ÐòòòòòòÔ‡P&ï%àPX»(ÔFor€Construction€Activitiesóó:Ô#†PX»(X¶P&ï"#ÔÐ Ÿl ÐóóÌóóðð€15.m.€(1)€of€the€Master€Agreement€states€that:ÓÏ½°°ŒX(#ÓÐ c0 ÐÌà0½àòòConstruction€Activitiesóó.€€The€Recipient€agrees€to€provide€bid€guarantee,€contractÐ ; Ðperformance,€and€payment€bonding€to€the€extent€deemed€adequate€by€FTA€andÐ 'ô Ðapplicable€Federal€regulations,€and€comply€with€any€other€bonding€requirements€FTAÐ à Ðmay€issue.€ÐÿÌ ½Ä"½Ä" ÐÌFTA€Circular€4220.1E€states€the€specific€minimum€bonding€requirements€for€construction€orÐ ×¤ Ðfacility€improvement€contracts€with€a€value€exceeding€$100,000:Ð Ã ÐÌÓ ½‚,Ï½Óà½à11.à0éàòòBONDING€REQUIREMENTSóó.€€For€those€construction€or€facility€improvementÐ ›h Ðcontracts€or€subcontracts€exceeding€$100,000,€FTA€may€accept€the€bonding€policyÐ ‡T Ðand€requirements€of€the€grantee,€provided€FTA€determined€that€the€policy€andÐ s@ Ðrequirements€adequately€protect€the€Federal€interest.€€FTA€has€determined€thatÐ _, Ðgrantee€policies€and€requirements€that€meet€the€following€minimum€criteriaÐ K Ðadequately€protect€the€Federal€interest.€×ƒI„×Ý ƒ ¢˜ÝòòòòÚÚ29Ú ÚóóóóÝÝ× ×Ð7éÄ"éÄ" ÐÓ! ½é` ½‚,!Óà½ààéàà` àÌà½ààéàa.à0` àA€bid€guarantee€from€each€bidder€equivalent€to€five€(5%)€percent€of€the€bid€à@"!àà@"!àà@"!àÐ Ü Ðprice.€€The€"bid€guarantee"€shall€consist€of€a€firm€commitment€such€as€a€bid€à@D!àà@D!àà@D!àâ âÐ û È` Ä"` Ä" Ðà½ààéàà` àbond,€certified€check,€or€other€negotiable€instrument€accompanying€a€bid€as€Ð —d Ðâ âà½ààéàà` àassurance€that€the€bidder€will,€upon€acceptance€of€his€bid,€execute€such€Ð ƒP Ðà½ààéàà` àcontractual€documents€as€may€be€required€within€the€time€specified;Ð o < ÐÔ#†XSXXPX»(¦ #ÔÔ‡PX»(XXXSÔÌÓ$ ½ø` ½éw$Óà0½ààøàb.à0` ½Ä"½Ä"àà@` àA€performance€bond€on€the€part€of€the€contractor€for€100€percent€of€the€à@Öàà@ÖàcontractÐ G Ðprice.€€A€"performance€bond"€is€one€executed€in€connection€with€a€contract€toÐ 3 Ðsecure€fulfillment€€of€all€the€contractor's€obligations€under€such€a€contract;€andÐ ì` Ä"` Ä" ÐÌà0½ààøàc.à0` ½Ä"½Ä"àA€payment€bond€on€the€part€of€the€contractor.€€A€payment€bond€is€one€executedÐ ÷Ä Ðin€connection€with€a€contract€to€assure€payment,€as€required€by€law,€of€allÐ ã° Ðpersons€supplying€labor€and€material€in€the€execution€of€the€work€provided€for€inÐ Ïœ Ðthe€contract.€€Payment€bond€amounts€required€from€contractors€are€as€follows:Ð »ˆ Ð(1)à@H à€50%€of€the€contract€price€if€the€contract€price€is€not€more€than€$1€million;€(2)Ð §t Ðà@` à40%€of€the€contract€price€if€the€contract€price€is€more€than€$1€millionà@à€but€notÐ “` Ðmore€than€$5€million;€or€(3)€à@Pà$2.5€million€if€the€contract€price€is€à0@TÐ à€more€than€$5Ð L Ðmillion.Ðk8` Ä"` Ä" ÐÌà0½ààøàd.à0` ½Ä"½Ä"àA€grantee€may€seek€FTA€approval€of€its€bonding€policy€and€requirements€if€theyÐ C Ðdo€not€comply€with€these€criteria..Ð/ü` Ä"` Ä" ÐÓÿÿ½øhÓÌòòState€laws€are€sometimes€specific€in€requiring€or€prohibiting€security€and€guaranties€in€publicÐ Ô ÐÔ_ÔprocurementsÔ_Ô;€performance€bond€requirements€may€apply€even€when€the€FederalÐ óÀ Ðrequirements€do€not,€and€the€state€requirement€may€also€affect€bid€guaranties.šòòóóÐ ß¬ ÐÌòòòòÔ‡P&ï%àPX»(ÔFor€Non„Construction€Activitiesóó:Ô#†PX»(X¶P&ïˆ2#ÔóóÔ#†XSXXPX»(+#ÔÔ‡PX»(XXXSÔÐ ·„ ÐóóÌòòFTA€does€not€require€bonding€in€any€amount€for€non„construction€contracts,€including€rollingÐ {H Ðstock.óó€€FTA€leaves€the€decision€to€require€bonds€for€non„construction€contracts€to€theÐ g 4 Ðdiscretion€of€its€grantees.€×ƒh×Ý ƒ ¢˜ÝòòòòÚÚ30Ú ÚóóóóÝÝ× ×òòÐ S! ÐÔ€P,I,XPX»(ÔÐ ?" ÐÔ€PX»(X,P,IÔÌòŒòDISCUSSIONÐ Ñ#ž ÐóŒóÌòòConstructionóó:€€òŒòFor€construction€contracts€with€a€value€exceeding€$100,000,€your€solicitationÐ ©%v! Ðdocuments€must€include€the€performance€bond,€payment€bond,€and€bid€securityÐ •&b" Ðrequirements€specified€above.€€Bids€that€do€not€include€the€required€bid€security€are€to€beÐ 'N # Ðrejected.€€Your€state€law€may€require€additional€bond€protection€(e.g.,€for€even€smallerÐ m(:!$ Ðconstruction€contracts).€€Ð Y)&"% ÐÌÐ 1+þ#' ÐóŒóÔ#†XSXXPX»(3#ÔÔ‡BX»(XXXSÔòòÑ€G”ÑNon„Constructionóó:€€You€may€decide€to€include€bond€requirements€in€other€Ô_ÔprocurementsÔ_ÔÐ 3 Ðwhere€your€agency€has€a€material€risk€of€loss€because€of€a€failure€of€the€prospectiveÐ ì Ðcontractor.€€This€is€particularly€so€if€the€risk€arises€from€the€potential€for€contractorÐ Ø Ðbankruptcy€or€financial€failure€at€the€time€of€partially€completed€work.€€If€you€require€aÐ ÷ Ä Ðperformance€bond,€you€may€also€require€bid€security€that€assures€the€execution€of€theÐ ã ° Ðperformance€bond€as€described€in€4.3.3.3.2,€"Bid€Guaranty."€€Payment€bonds€are€mostÐ Ïœ Ðtypically€used€in€construction€contracts€or€contracts€where€the€risk€of€failure€of€the€primeÐ »ˆ Ðcontractor€with€debts€to€subcontractors€is€material.óó€€òòSince€the€contract€is€incorporated€intoÐ § t Ðthe€bond,€it€is€essential€that€the€grantee€complies€with€the€terms€of€the€contract€or€the€bondÐ —d Ðmay€not€be€enforceable.Ð ƒP ÐÌIn€recent€years€sureties€have€been€paying€much€more€attention€to€the€terms€of€theirÐ [( Ðcustomersðð€contracts.€€One€area€of€great€concern€to€sureties€in€the€current€environment€isÐ G Ðthe€òòlength€of€contractsóó.€€Here€the€issues€tend€to€be€òòparts€warrantiesóó€andòò€optionóó€provisions.€Ð 3 ÐSureties€are€tending€to€limit€their€exposure€to€five€years,€including€warranties.€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿl=/ÝóóÝÝ×ƒw×Ý ƒ ¢˜ÝòòòŽòÚÚ31Ú ÚóŽóóóÝÝ× ×òŒòòòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿ>/Ýó…óÝÝóóóó€€AnotherÐ ì Ðmajor€surety€issue€affecting€the€transit€industry,€especially€bus€manufacturers,€is€the€òòpoorÐ Ø Ðfinancial€condition€of€many€suppliersóó.€€The€financial€strength€of€the€contractor€affects€theÐ ÷Ä Ðcost€of€the€bond,€as€well€as€the€ability€of€the€contractor€to€secure€a€bond.€€If€a€grantee€asksÐ ã° Ðfor€a€100%€performance€bond€on€a€bus€procurement€in€the€current€environment,€it€mayÐ Ïœ Ðvery€well€preclude€potential€suppliers€from€bidding.€€Another€practice€causing€suretyÐ »ˆ Ðproblems€concerns€liquidated€damageòòsóó;€i.e.,€some€agencies€have€contractual€provisions€thatÐ §t Ðproduce€òòunlimited€liquidated€damages.Ð “` ÐóóÌÓE7°hÀ°pÈ xÐÀpÈ xÐ (#ÿÿEÓAlternative€forms€of€acceptable€security€include€òòletters€of€creditóó€from€financially€secureÐ k8 Ðinstitutions,€such€as€banks,€and€cash€deposits.€€Letters€of€credit€are€frequently€used€in€aÐ W$ Ðfield€or€for€a€principal€with€which€bonding€companies€have€little€experience.€€Letter€ofÐ C Ðcredit€terms€differ€from€bonds€in€that€they€do€not€provide€for€completion€of€the€contract,€inÐ /ü Ðthe€event€the€principal€is€unable€to€perform.€€Procedures€should€be€established€to€makeÐ è Ðcertain€the€letter€is€issued€by€a€bank€or€other€financial€institution€that€offers€financialÐ !Ô Ðsecurity€similar€to€a€bonding€company.€€Cash€deposits€are€not€typically€used€except€as€bidÐ ó!À Ðsecurity.Ð ß"¬ ÐÌÝ‚VÿÿÿÝÔ-ÔÔÔÓ]7°hÀ°pÈ xÐÀpÈ xÐ (#°hÀ°…XÀ†X(#]ÓÝÝÝ‚VÿÿÿÒDÝÝÝThe€FTA€requirement€discourages€unnecessary€bonding€because€it€increases€the€cost€of€theÐ ·$„ Ðcontract€and€restricts€competition,€particularly€by€disadvantaged€business€enterprises.€Ð £%p! ÐBonding€companies€exercise€their€discretion€and€assure€their€profits€primarily€by€decliningÐ &\" Ðto€undertake€excessive€risks.€€Consequently€many€bidders€have€limited€"bonding€capacity."€Ð {'H # ÐUnnecessary€performance€bonds€reduce€their€ability€to€bid€on€bonded€work.€€SmallÐ g(4!$ Ðbusinesses€with€short€histories€may€have€particular€difficulty€obtaining€a€bond.ÝƒVÿÿÒDfEÝŒÐ S) "% Ðâ âŒÓB°hÀ°…XÀ†X(#°hÀ°…XÀ†X(#BÓÔ-ÔÔÔÝ ÝÐ ?*#& ÐÑG”Ñâ GâÑÈÈÑâ GâÑ ÑÔ_ÔÝ‚ÿÝÔ€BX»(XXBX»(ÔòŒòòòÔ ÔÝÝÓT.°°` ¸hÀpÈ xÐ (#°hÀ°…XÀ†X(#TÓÔ&ØÔâ âÝ‚ÿÿÿþHÝÝÝóŒóóŒóBest€PracticesÝƒÿÿþHµIÝÔbi3IÔŒÐ 3 ÐŒóóóóÔ€BX»(XXBX»(ÔÝ ÝÌÝ‚ÿÝÔ€BX»(XXBX»(ÔòòòòÔ ÔÝÝÝ‚ÿÿÿZJÝÝÝóóBond€Authenticityóó€„€It€is€essential€that€bonds€be€verified€as€being€authentic€when€they€areÐ Ø Ðpresented€to€owners.€€It€is€a€fact€that€unscrupulous€contractors€have€on€occasion€presentedÐ ÷ Ä Ðfraudulent€bonds.€€òòOwners€(Ô_ÔobligeesÔ_Ô)€should€always€contact€the€surety€company€to€confirm€theÐ ã ° Ðauthenticity€of€the€bond€that€has€been€presented.óó€€The€Surety€Association€of€America€(SAA)Ð Ïœ Ðmaintains€a€list€of€surety€companies€that€will€assist€in€verifying€the€authenticity€of€a€surety€bond.€Ð »ˆ ÐThe€authenticity€program€is€available€via€the€Internet.€Ý‚ÿÿÿÝòòÝÝÝ‚ÿÿÿrMty€oÝóóÝÝ×ƒ€×Ý ƒ ¢˜ÝòòòòÚÚ32Ú ÚóóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿNty€oÝó…óÝÝóó€€ÝƒZJ´JÝÔurœJÔŒÐ § t ÐŒÔ€BX»(XXBX»(ÔÝ ÝÌÓN7°hÀ°pÈ xÐÀpÈ xÐ (#°°ŒX(#NÓòòExclude€Warranties€from€Bondóó€ð!ð€It€has€become€increasingly€difficult€to€obtain€bonds€of€longerÐ L Ðduration€than€two€years.€€Since€the€warranty€periods€will€greatly€extend€the€duration€of€the€bond,Ð k8 Ðit€would€be€best€to€remove€any€warranty€requirement€from€the€performance€bond€and€cover€theÐ W$ Ðwarranty€risk€through€other€techniques.€€Suggestions€include€withholding€a€reasonable€portion€ofÐ C Ðthe€contract€price€for€warranty€repairs€and€releasing€the€withholding€in€increments€as€theÐ /ü Ðwarranty€time„period€dissipates,€or€requiring€a€separate€Maintenance€or€Warranty€Bond€in€aÐ è Ðreduced€amount€sufficient€to€cover€the€potential€obligations€of€the€Contractor€for€repairs€orÐ Ô Ðmaintenance.€€This€will€remove€a€bonding€obstacle€and€keep€the€bonding€costs€more€reasonable.€Ð óÀ ÐThe€key€message€here€is€to€òòkeep€long„term€obligations€with€the€manufacturers€and€not€attempt€toÐ ß¬ Ðgive€them€to€suretiesóó.Ô'Ø3ŸIÔÐ Ë˜ ÐÌòòConsider€Letters€of€Creditóó€ð!ð€On€non„construction€contracts,€where€you€are€not€required€by€FTAÐ £p Ðto€have€bonds,€but€where€you€may€be€required€to€protect€your€progress€payments€to€the€contractorÐ \ Ðprior€to€delivery€of€final€products,€consider€the€use€of€a€bank€òòletter€of€creditóó€(LOC)€from€theÐ {H Ðcontractor€instead€of€a€bond.€€A€bank€letter€of€credit€(LOC)€is€a€cash€guarantee€to€the€owner.€TheÐ g4 Ðowner€can€call€on€the€letter€of€credit€on€demand€without€cause.€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿ¤Uty€oÝóóÝÝ×ƒ…T×Ý ƒ ¢˜ÝòòòŽòÚÚ33Ú ÚóŽóóóÝÝ× ×òòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿHVty€oÝó…óÝÝóóóó€€Once€called€upon,€the€letter€ofÐ S Ðcredit€converts€to€a€payment€to€the€owner€and€an€interest„bearing€loan€for€the€contractor.€€BondsÐ ? Ðmay€be€an€expense€that€you€donððt€need€to€incur,€and€bonds€may€not€even€be€available€in€theÐ +ø Ðamounts€you€would€need€at€reasonable€prices.€Ý‚ÿÿÿÝòòÝÝòòÝ‚ÿÿÿÝWty€oÝóóÝÝÔ_Ô×ƒˆ,×Ý ƒ ¢˜ÝòòòŽòÚÚ34Ú ÚóŽóóóÝÝ× ×Ô_ÔòòÝ‚ÿÿÿÝò…òÝÝÝ‚ÿÿÿ¡Xty€oÝó…óÝÝóóóóÐ ä ÐÌòòCap€the€Liquidated€Damagesóó€ð!ð€The€Contractorððs€maximum€risk€must€be€clearly€expressed€in€theÐ ï!¼ Ðcontract€so€that€the€surety€will€know€how€to€price€the€risk.€€Damages€should€not€be€open„ended.Ð Û"¨ ÐAdditionally,€if€damages€are€expressed€ð ðper€day,ðð€make€the€daily€damages€accrue€for€òòbusinessÐ Ç#” Ðdaysóó€only.€€Do€not€include€Saturdays€or€Sundays€since€you€cannot€take€delivery€on€those€days.€Ð ³$€ Ðâ âÐ Ÿ%l! ÐÓT.°°` ¸hÀpÈ xÐ (#°hÀ°…XÀ†X(#TÓòòDesign„Build€Projectsóó€ð!ð€For€design„build€projects€and€large€transit€capital€projects€(those€overÐ 3 Ðâ â$200M)€it€would€be€advisable€to€òòtalk€to€prospective€sureties€before€the€solicitation€is€issued€toÐ ì Ðsee€if€the€Design„Build€contractors€will€have€problems€securing€bonds€because€of€the€size€of€theÐ Ø Ðprojectóó.€There€are€two€problems€to€be€aware€of:€€(1)€The€lack€of€bonding€capacity€in€the€industryÐ ÷ Ä Ðat€the€current€time,€and€(2)€The€fact€that€surety€practice€has€historically€been€based€on€theÐ ã ° Ðconventional€òòDesign„Bid„Buildóó€method,€where€design€and€construction€are€performed€by€separateÐ Ïœ Ðcompanies€and€where€sureties€have€detailed€designs€completed€for€which€they€can€assess€theÐ »ˆ Ðperformance€risks.€€On€a€Design„Build€project,€the€lack€of€detailed€designs€desired€by€sureties€toÐ § t Ðevaluate€project€risk€may€make€it€difficult€to€obtain€performance€bonds€for€the€full€value€of€theÐ “` Ðcontract.€€When€this€is€the€case,€the€grantee€will€want€to€involve€their€FTA€regional€office€andÐ L Ðrequest€a€waiver€from€the€standard€bonding€requirements.€€It€should€also€be€noted€thatÐ k8 Ðconsultation€with€FTA€would€be€advisable€in€any€design„build€project€to€create€a€reasonableÐ W$ Ðbonding€strategy.€€In€any€case,€if€a€100%€bond€were€required€by€your€agency,€it€would€apply€onlyÐ C Ðto€the€value€of€the€construction€work€within€the€design„build€contract.€€Ð /ü ÐÓN7°hÀ°pÈ xÐÀpÈ xÐ (#°°ŒX(#NÓÌÓT.°°` ¸hÀpÈ xÐ (#°hÀ°…XÀ†X(#TÓòòTechnologyóó€„€Surety€companies€like€ð ðbrick€and€mortarðð€business€because€they€understand€it.€Ð Ô ÐThey€are€adverse€to€òòtechnology€(e.g.,€projects€requiring€software€development)óó,€and€do€not€like€toÐ óÀ Ðbond€the€òòOperation€and€Maintenance€óóphase€of€contracts€where€rail€cars€are€being€bought€withÐ ß¬ ÐO&M€responsibilities.€€If€you€are€considering€a€bond€in€these€situations,€you€should€contactÐ Ë˜ Ðprospective€sureties€to€determine€if€bonds€will€be€available€before€you€issue€your€solicitation.Ð ·„ ÐÌòòNotify€Surety€of€Problems€Early€óóð!ð€It€is€very€important€to€òònotify€the€surety€of€problems€as€soon€asÐ \ Ðthey€occuróó.€€When€the€surety€is€notified,€and€becomes€involved,€contractors€are€stronglyÐ {H Ðmotivated€to€perform€because€the€òòthreat€of€losing€the€ability€to€obtain€bonds€is€a€very€seriousÐ g4 Ðconcern€to€contractorsóó.€Ð S ÐÌIf€the€Contractor€is€experiencing€financial€difficulties,€the€surety€will€often€provide€workingÐ +ø Ðcapital€to€keep€the€contractor€going.€€Thisòò€financial€assistanceóó€may€occur€without€a€formalÐ ä Ðdeclaration€of€default€by€the€owner.€€Another€form€of€financial€assistance€often€provided€byÐ !Ð Ðsureties€is€to€guarantee€a€line€of€bank€credit.€This€will€assure€a€steady€flow€of€materials€to€the€jobÐ ï!¼ Ðsite€and€payments€to€subcontractors.Ð Û"¨ ÐÌSureties€frequently€will€provide€òòtechnical€assistanceóó€in€order€to€minimize€problems€and€losses€onÐ ³$€ Ða€project.€€Many€sureties€employ€professional€engineers,€accountants,€and€other€technical€staff€orÐ Ÿ%l! Ðadvisors€who€can€help€a€contractor€who€is€experiencing€problems.€€Ð ‹&X" ÐÌSureties€can€provide€òòmediation€between€an€owner€and€Contractoróó.€€When€problems€occur€on€aÐ c(0!$ Ðconstruction€project,€itððs€likely€that€the€relationship€between€the€owner€and€Contractor€is€strained.€Ð O)"% ÐThe€surety,€as€a€third„party€participant,€can€investigate€the€issues€that€are€dividing€the€parties€andÐ ;*#& Ðoffer€workable€solutions€before€the€owner€declares€a€default.Ð '+ô#' ÐÌSubcontractor€failure€is€a€frequent€cause€of€a€primeððs€problems.€€Sureties€can€become€involved€inÐ ÿ,Ì%) Ðòòassisting€a€subcontractoróó€with€financing€and€technical€help,€just€as€they€do€with€the€prime€Ð ë-¸&* Ðcontractors€they€are€bonding.€€They€will€do€this€to€protect€their€bonded€contractor€from€default.€Ð 3 ÐOnce€again,€it€is€important€that€the€surety€be€informed€early€of€performance€problems€on€allÐ ì Ðlevels€of€the€project€so€they€can€assist€when€circumstances€require€it.Ð Ø ÐòòÌSubcontractor€Bondsóó€ð!ð€Grantees€can€help€their€prime€Ô_ÔcontactorsÔ_Ô€manage€risk€by€òòrequiringÐ ã ° Ðperformance€bonds€from€major€subcontractorsóó.€€If€a€subcontractor€is€a€significant€part€of€the€jobÐ Ïœ Ðor€so€specialized€that€it€will€be€difficult€to€find€a€replacement,€bonding€is€a€cost„effective€way€toÐ »ˆ Ðlimit€the€exposure€of€both€the€grantee€and€the€prime€contractor.€€Ð § t ÐÌRemember€the€important€contribution€of€the€surety€in€òòÔ_ÔprequalifyingÔ_Ô€the€subcontractor.€óó€This€is€anÐ L Ðimportant€step€in€ensuring€that€a€responsible€subcontractor€is€selected€by€the€prime€for€a€criticalÐ k8 Ðrole€on€the€project.€€While€the€cost€of€the€subcontractorððs€bond€will€have€to€be€paid€by€the€primeÐ W$ Ðand€will€be€passed€on€to€the€grantee,€it€is€nevertheless€an€insurance€policy€that€can€help€avoidÐ C Ðsignificant€problems€for€the€prime€and€thus€for€the€grantee.€€It€is€also€well€to€keep€in€mind€that€aÐ /ü Ðsubcontractor€that€is€experiencing€financial€difficulties€is€more€likely€to€complete€a€bondedÐ è Ðproject€because€corporate€assets,€and€possibly€personal€assets,€are€at€risk.€€This€may€be€aÐ Ô Ðsingularly€important€factor€in€keeping€the€subcontractor€performing€on€the€job.€€Be€sure€toÐ óÀ Ðinvestigate€the€quality€of€the€subcontractorððs€surety,€using€one€of€the€industry€rating€companiesÐ ß¬ Ðmentioned€above,€and€always€confirm€the€authenticity€of€any€bond€presented.Ð Ë˜ ÐÌSubcontractor€bonding€may€also€be€beneficial€when€the€prime€contractor€is€not€financially€strong.€Ð £p ÐFor€example,€New€York€City€Transit€(Ô_ÔNYCTÔ_Ô)€recently€had€a€situation€where€the€cost€of€aÐ \ Ðwarranty€bond€was€very€expensive€to€a€vehicle€manufacturer€because€of€their€financial€condition.€Ð {H ÐIn€order€to€overcome€this,€the€manufacturer€had€its€major€parts€supplier€provide€the€bond,€and€asÐ g4 Ða€result€the€manufacturer€saved€$2,000€per€vehicle.€€The€supplierððs€cost€for€the€bonding€wasÐ S Ðsignificantly€less€since€they€were€in€excellent€financial€condition.Ð ? ÐòòÌÓN7°hÀ°pÈ xÐÀpÈ xÐ (#°°ŒX(#NÓConsider€More€Stringent€Ô_ÔPrequalificationÔ_Ô/Responsibility€Criteriaóó€-€If€performance€bonding€is€aÐ ä Ðproblem€because€the€project€is€so€large€that€few€bidders€can€be€fully€bonded,€or€because€of€itsÐ !Ð Ðeffect€on€competition,€you€can€consider€other€ways€of€reducing€your€agency's€risk.€€You€mayÐ ï!¼ Ð(through€Ô_ÔprequalifyingÔ_Ô€only€strong€bidders,€or€requiring€a€high€standard€of€responsibility)€be€ableÐ Û"¨ Ðto€reduce€your€risk€in€a€way€that€allows€more€competition€than€would€result€from€a€fullÐ Ç#” Ðperformance€bond€requirement.Ð ³$€ ÐÌòòBalance€the€Costs€of€Bonding€against€Risks€Present€in€a€Range€of€Contractorsóó€-€€In€addition€toÐ ‹&X" Ðconstruction€contracts,€specialty€supply€contracts€that€involve€custom€manufacturing,€e.g.,€for€railÐ w'D # Ðcars€or€buses,€involve€some€risk€of€failure€and€consequences€similar€to€construction€situations.€Ð c(0!$ ÐHowever,€performance€bonds€are€far€less€common€in€these€situations€than€in€constructionÐ O)"% Ðcontracts.€€Information€technology€development€contracts€also€hold€the€potential€for€loss€in€theÐ ;*#& Ðevent€of€contractor€failure,€but€performance€bonding€is€less€common€in€developmental€workÐ '+ô#' Ðbecause€the€risks€of€failing€are€too€expensive€to€insure€and€because€the€surety/contractorÐ ,à$( Ðrelationships€have€not€developed€as€they€have€in€the€construction€industry.Ð ÿ,Ì%) Ðâ âÐ ë-¸&* ÐIf€you€are€seriously€concerned€about€one€or€more€of€the€following,€considering€your€possibleÐ 3 Ðsuccessful€Ô_ÔofferorsÔ_Ô,€you€can€evaluate€the€need€for€a€performance€bond,€in€light€of€its€cost,€itsÐ ì Ðeffect€on€competition,€and€effect€on€Ô_ÔDBEsÔ_Ô:Ð Ø Ðâ âÌÝ"‚_´J"ÝÝÝÓE hÀÜÈ ƒXÀ†X(#°hÀ°…XÀ†X(#EÓÔ#†XSXXBX»([7#ÔÓ €Óà'àÝ‚_´Jî~ÝÔ2ÜÔððÔ3 Ôà0pàÝÝfinancial€strength€and€liquidity€of€the€Ô_ÔofferorsÔ_Ô,Ýƒ_´Jî~£ÝŒÐã °p(#p(# ÐŒÝ ÝÝ"‚_´J"ÝÝÝà'àÝ‚_´J}€ÝÔ2ÜÔððÔ3 Ôà0pàÝÝinadequacy€of€legal€remedies€for€contractor€failure€and€the€effect€that€failure€of€theÐ E Ðcontractor€could€have€on€your€agency,Ýƒ_´J}€¶€ÝŒÐ1 þp(#p(# ÐŒÝ ÝÝ"‚_´J"ÝÝÝà'àÝ‚_´JÏÝÔ2ÜÔððÔ3 Ôà0pàÝÝdifficulty€and€high€cost€of€completing€the€contractor's€work€if€it€is€interrupted,Ýƒ_´JÏ‚ÝŒÐ“` p(#p(# ÐŒÝ ÝØ! !ØÓ€ A_)*+-9<E(ÜyyA_)*+-9<EFÓÝ"‚_´J"ÝÝÝÔ‡BX»(XXXSÔà'àÝ‚_´J…ƒÝÔ2ÜÔððÔ3 Ôà0pàÝÝexperience€of€the€contractor€on€other€contracts€ð!ð€whether€there€is€a€history€of€contractÐ õÂ Ðfailure€in€a€particular€activity,Ýƒ_´J…ƒÝƒÝŒÐá® p(#p(# ÐŒÝ ÝÓ €ƒÓÝ"‚_´J"ÝÝÝà'àÝ‚_´J…ÝÔ2ÜÔððÔ3 Ôà0pàÝÝÔ#†XSXXBX»(²ƒ#Ôdegree€of€technical€difficulty;€e.g.,€where€new€working€methods€are€required.Ýƒ_´J…J…ÝŒÐCp(#p(# ÐŒÝ ÝÓ`7°hÀ°pÈ xÐÀpÈ xÐ (# hÀÜÈ ƒXÀ†X(#`ÓÌòòConsider€Corporate€Guarantyóó€-€Where€your€concern€is€partly€that€the€proposers€have€limitedÐ è Ðfinancial€resources,€but€they€have€relationships€with€financially€stronger€corporate€entities,€youÐ Ô Ðcould€consider€requiring€a€corporate€guaranty€of€the€contract€rather€than€a€performance€bond.€€InÐ óÀ Ðthis€case,€the€parent€corporation€of€your€contractor,€whose€liquidity€might€rival€the€bondingÐ ß¬ Ðcompany's,€would€promise€to€perform€the€contract€should€the€contracting€corporation€fail€to€doÐ Ë˜ Ðso.€€This€arrangement€may€not€only€be€less€expensive€than€a€performance€bond,€but€may€alsoÐ ·„ Ðresult€in€more€influence€on€the€contractor€where€contract€disputes€are€involved.€€Ð £p ÐÌòòReturn€Unnecessary€Bid€Guarantyóó€-€Because€guarantees€have€a€financial€impact€on€proposers€asÐ {H Ðlong€as€they€are€in€effect,€unused€bid€guarantees€should€be€returned€to€proposers€as€soon€as€it€isÐ g4 Ðdetermined€that€they€have€no€reasonable€chance€of€winning€the€contract.€€This€is€discussed€inÐ S ÐSection€4.3.3.3.2,€"Bid€Guaranty."Ð ? ÐÌòòSurety€Bond€Claims€and€Counselóó€ð!ð€Before€a€surety€will€assume€responsibility€for€a€contractorÐ ä Ðthat€you€have€defaulted,òò€the€surety€must€be€satisfied€that€its€contractor€owes€a€debt.€óó€òòThe€suretyÐ !Ð Ðwill€conduct€an€investigation€as€a€result€of€receiving€your€notice€of€claimóó.€Keep€in€mind€that€theÐ ï!¼ Ðissues€of€default€and€claims€under€the€bond€are€predicated€on€the€legal€interpretation€of€aÐ Û"¨ Ðcontractual€relationship,€as€developed€through€statutes€and€legal€precedents.€€This€means€it€isÐ Ç#”! Ðcritical€that€you€seek€legal€assistance€from€counsel€who€is€familiar€with€surety€bonds€andÐ ³$€" Ðconstruction,€which€is€a€specialized€field€of€law.€€Never€rely€on€a€laypersonððs€interpretation€of€theÐ Ÿ%l# Ðcontract.€€òòExperienced€counsel€can€save€time,€money,€and€frequently,€unnecessary€litigation.€€óóTheÐ ‹&X$ ÐAmerican€Bar€Association€(ABA)€Trial€Tort€and€Insurance€Practice€Sectionððs€Fidelity€and€SuretyÐ w'D % ÐLaw€Committee€includes€lawyers€who€specialize€in€surety€law.€€Many€state€bar€associations€alsoÐ c(0!& Ðhave€surety€committees€or€construction€law€committees.€€For€names€of€lawyers€in€your€area,€callÐ O)"' Ðthe€ABA€(312)€988„5607€and€ask€for€the€Ô_ÔFLSCÔ_Ô€membership€directory€or€the€pages€for€aÐ ;*#( Ðparticular€state,€or€call€the€state€bar€association€for€a€reference.Ð '+ô#) ÐÌIt€is€also€of€the€utmost€importance€that€you€document€the€progress€of€your€project.€€RememberÐ ÿ,Ì%+ Ðthat€the€surety€promises€to€complete€the€contract€when€the€ð ðprincipal€is€in€default€of€the€contract€Ð ë-¸&, Ðand€has€been€declared€to€be€in€default€by€the€Ô_ÔobligeeÔ_Ô.ðð€€Well€documented€project€files€will€be€aÐ 3 Ðgreat€asset€to€facilitate€the€suretyððs€initial€investigation€and€especially€if€the€matter€goes€to€court.€Ð ì ÐSee€Ô_ÔBPPMÔ_Ô€Section€11.2€ð!ð€òòClaims,€Grievances€and€Other€Disputes€With€Contractors,óó€paragraphÐ Ø Ðtitled€ð ðAvoiding€Disputes€Through€Proper€Documentation.ððÐ ÷ Ä ÐÓT.°hÀ° hÀpÈ xÐ (#°hÀ°…XÀ†X(#TÓà àÌÓZ7°hÀ°pÈ xÐÀpÈ xÐ (#°hÀ° ˆX(#ZÓòòIndemnification€Clausesóóð!ð€One€of€suretiesðð€concerns€in€any€construction€contract€today€is€theÐ Ïœ Ðincreasingly€broad€and€unlimited€indemnity€that€contractors€are€contractually€required€to€provide.€Ð »ˆ ÐIf€this€indemnification€is€needed€to€satisfy€political€constituencies€or€due€to€other€factors,€clearlyÐ § t Ðstating€that€the€liability€is€to€be€covered€through€insurance€and€not€the€performance€and/orÐ “` Ðpayment€bond€would€eliminate€one€potential€obstacle€that€sureties€sometimes€raise€as€anÐ L Ðunderwriting€road€block.Ð k8 ÐÌÓT.°°` ¸hÀpÈ xÐ (#°hÀ°…XÀ†X(#TÓGrantees€should€not€assume€that€contractual€indemnification,€whereby€the€contractor€agrees€toÐ C Ðindemnify€and€hold€the€grantee€harmless€from€and€against€various€risks,€is€an€adequate€substituteÐ /ü Ðfor€bonds€or€insurance.€€€These€contractual€promises€are€only€as€good€as€the€contractorððs€financialÐ è Ðresources€backing€them.€€If€the€contractor€fails€to€perform€the€contract,€it€is€likely€that€theÐ Ô Ðcontractual€indemnification€provisions€will€be€of€little€value.€It€is€important,€therefore,€to€ensureÐ óÀ Ðthe€contractor€is€bonded€or€has€adequate€insurance€to€support€the€indemnification€clauses€in€theÐ ß¬ Ðcontract.Ð Ë˜ ÐòòÌResourcesóó€ð!ð€Following€is€a€list€of€organizations€offering€information€and€resources€related€toÐ £p Ðsurety€bonds€and€insurance:Ð \ ÐÌÓ€ W«¬®¯°±²³(ÿÿ0yA_)*+-9<EÓØ/ /ØÓ¨ýÓÓ'` 4` ŠX(#°°ŒX(#'ÓÝ"‚«ÿÿ"ÝÓÔþ¨ýÓÓ,ÓÓK1ÜÜÜ` ¸hÀpÈ xÐ (#` 4` ŠX(#KÓÝÝÓ-` 4` ŠX(#ÜÜÜ‹X(#-ÓÓ¨ýÔþÓÓ°,ÓÝ‚«ÿÿKœÝÔ2ÿÿÔÚÚ1Ú Ú.Ô3 Ôà4àÝÝSurety€Information€Office€(Ô_ÔSIOÔ_Ô)Ýƒ«ÿÿKœ(ÝŒÐ g4 ÐŒÓ°ÓÓ*` 4` ŠX(#` 4` ŠX(#*ÓÓ¨ý¨ýÓÝ ÝÓ°Óà04à5225€Wisconsin€Avenue€NW,€Suite€600ÐS 4(#4(# Ðà04àWashington,€DC€20015„2014Ð?4(#4(# Ðà04à(202)€686„7463Ð+ø4(#4(# Ðà04àÔ4‚tio4ÔÝ‚TÍOÝÔÿÔòòÝÝÔ5 ÔÝ‚.ÿÿÿÝóóòòÔÿÿÔÝÝwww.sio.orgÝ‚.ÿÿÿqŸwithÝóóÔÿÿÔÝÝÔ6%ŸÔÝ‚T9ŸiditÝÔÿÔÝÝÔ7io:gŸÔÐ ä4(#4(# Ðà04àÐ 4(#4(# Ðà04àÔ_ÔSIOÔ_Ô€is€the€information€source€on€contract€surety€bonds€in€public€and€privateÐ ï!¼ Ðconstruction.€€Ô_ÔSIOÔ_Ô€is€supported€by€The€Surety€Association€of€America€and€theÐ Û"¨ ÐNational€Association€of€surety€Bond€Producers.ÐÇ#”4(#4(# ÐÐ ³$€ ÐÝ"‚«ÿÿ"ÝÓÔþ¨ýÓÓ,°ÓÓK1ÜÜÜ` ¸hÀpÈ xÐ (#` 4` ŠX(#KÓÝÝÓ-` 4` ŠX(#ÜÜÜ‹X(#-ÓÓ¨ýÔþÓÓ°,ÓÝ‚«ÿÿö¡ÝÔ2ÿÿÔÚÚ2Ú Ú.Ô3 Ôà4àÝÝNational€Association€of€Surety€Bond€Producers€(Ô_ÔNASBPÔ_Ô)Ýƒ«ÿÿö¡Ó¢ÝŒÐ Ÿ%l! ÐŒÓ°°ÓÓ*` 4` ŠX(#` 4` ŠX(#*ÓÓ¨ý¨ýÓÝ Ýà04à5225€Wisconsin€Avenue€NW,€Suite€600Ð‹&X"4(#4(# Ðà04àWashington,€DC€20015„2014Ðw'D #4(#4(# Ðà04à(202)€686„3700Ðc(0!$4(#4(# Ðà04àÔ4‚uio4ÔÝ‚TÍOÝÔÿÔòòÝÝÔ5 ÔÝ‚.ÿÿÿÝóóòòÔÿÿÔÝÝwww.nasbp.orgÝ‚.ÿÿÿ$¥withÝóóÔÿÿÔÝÝÔ6Ø¤ÔÝ‚Tì¤iditÝÔÿÔÝÝÔ7io" ¥ÔÐO)"%4(#4(# Ðà04àÐ 4(#4(# Ðà04àÔ_ÔNASBPÔ_Ô€is€the€international€organization€of€professional€surety€bond€producers€andÐ '+ô#' Ðbrokers.€€Ô_ÔNASBPÔ_Ô€represents€more€than€5,000€personnel€who€specialize€in€suretyÐ ,à$( Ðbonds€for€the€construction€industry€and€other€types€of€bonds€such€as€license€andÐ ÿ,Ì%) Ðpermit€bonds.Ðë-¸&*4(#4(# ÐÐ ×.¤'+ ÐÐ 3 ÐÓ*` ` ŠX(#` 4` ŠX(#*ÓÝ"‚«ÿÿ"ÝÓÔþ¨ýÓÓ,°ÓÓK1ÜÜÜ` ¸hÀpÈ xÐ (#` ` ŠX(#KÓÝÝÓ-` ` ŠX(#ÜÜÜ‹X(#-ÓÓ¨ýÔþÓÓ°,ÓÝ‚«ÿÿ4¨ÝÔ2ÿÿÔÚÚ3Ú Ú.Ô3 ÔààÝÝThe€Surety€Association€of€America€(SAA)Ýƒ«ÿÿ4¨©ÝŒÐ ì ÐŒÓ°°ÓÓ*` ` ŠX(#` ` ŠX(#*ÓÓ¨ý¨ýÓÝ Ýàà1101€Connecticut€Avenue€NW,€Suite€800Ð Ø Ðà0àWashington,€DC€20036Ð÷ Ä(#(# Ðà0à(202)€463„0600Ðã °(#(# Ðà0àÔ4‚vfeÔÝ‚TÍOÝÔÿÔòòÝÝÔ5 ÔÝ‚.ÿÿÿÝóóòòÔÿÿÔÝÝwww.surety.orgÝ‚.ÿÿÿ'«rs,ÝÝóóÔÿÿÔÝÝÔ6ÛªÔÝ‚TïªiditÝÔÿÔÝÝÔ7fe} «ÔÐÏœ(#(# Ðà0àÐ (#(# Ðà0àSAA€is€a€voluntary,€non„profit,€incorporated€association€of€companies€engaged€in€theÐ § t Ðbusiness€of€Ô_ÔsuretyshipÔ_Ô.€€SAA€represents€more€than€500€companies€that€collectivelyÐ “` Ðunderwrite€the€majority€of€Ô_ÔsuretyshipÔ_Ô€and€fidelity€bonds€in€the€United€States.ÐL (#(# ÐÐ k8 ÐÓ*` 4` ŠX(#` ` ŠX(#*ÓÝ"‚«ÿÿ"ÝÓÔþ¨ýÓÓ,°ÓÓK1ÜÜÜ` ¸hÀpÈ xÐ (#` 4` ŠX(#KÓÝÝÓ-` 4` ŠX(#ÜÜÜ‹X(#-ÓÓ¨ýÔþÓÓ°,ÓÝ‚«ÿÿ®ÝÔ2ÿÿÔÚÚ4Ú Ú.Ô3 Ôà4àÝÝU.S.€Department€of€the€TreasuryÝƒ«ÿÿ®ã®ÝŒÐ W$ ÐŒÓ°°ÓÓ*` 4` ŠX(#` 4` ŠX(#*ÓÓ¨ý¨ýÓÝ Ýà4àÔ4‚xfe4ÔÝ‚TÍOÝÔÿÔòòÝÝÔ5 ÔÝ‚.ÿÿÿÝóóòòÔÿÿÔÝÝwww.fms.treas.gov/c570Ý‚.ÿÿÿ3°rs,ÝÝóóÔÿÿÔÝÝÔ6ç¯ÔÝ‚Tû¯iditÝÔÿÔÝÝÔ7fe)°ÔÐ C ÐÐ /ü ÐÓ„°Óààà4àThis€website€offers€a€free€download€of€the€Federal€Treasury€List€(Circular€570),Ð è Ðwhich€lists€all€surety€companies€qualified€to€underwrite€surety€bonds€on€federalÐ Ô Ðconstruction.Ð óÀ ÐÐ ß¬ ÐÓ¨ýœÓÓ€ ^«¬®¯°±²³(ÿÿ00W«¬®¯°±²³ÓÓ*` Ê` ŠX(#` 4` ŠX(#*ÓÓÔþÓ5.à04àThe€International€Risk€Management€Institute€(Ô_ÔIRMIÔ_Ô)ÐË˜4(#4(# ÐÔ4‚yfeÔÝ‚TÍOÝÔÿÔòòÝÝÔ5 ÔÝ‚.ÿÿÿÝóóòòÔÿÿÔÝÝàžàà4àwww.irmi.comÝ‚.ÿÿÿø³rs,ÝÝóóÔÿÿÔÝÝÔ6¬³ÔÝ‚TÀ³iditÝÔÿÔÝÝÔ7feîî³ÔÐ ·„ ÐÐ £p Ðàžàà4àThe€Ô_ÔIRMIÔ_Ô€site€offers€articles€and€information€on€surety€bonds€and€other€riskÐ \ Ðmanagement€tools,€along€with€contact€information€for€risk€management€professionalsÐ {H Ðand€advisors.€€The€Expert€Commentary€section€includes€more€than€500€articles€on€aÐ g4 Ðvariety€of€risk€management€issues.Ð S ÐÐ ? ÐÓ' ŠXG"` Ê` ŠX(#'ÓÓ€ W«¬®¯°±²³(ÿÿ00^«¬®¯°±²³ÓÓ‰þÔþÓ6.à4àThe€National€Association€of€Insurance€Commissioners€Ð +ø ÐÔ4‚{fe½ÔÝ‚TÍOÝÔÿÔòòÝÝÔ5 ÔÝ‚.ÿÿÿÝóóòòÔÿÿÔÝÝà4àwww.naic.comÝ‚.ÿÿÿ¸rs,ÝÝóóÔÿÿÔÝÝÔ6Í·ÔÝ‚Tá·iditÝÔÿÔÝÝÔ7feì¸ÔÐ ä ÐÐ !Ð Ðà4àThe€National€Association€of€Insurance€Commissioners€site€verifies€that€a€suretyÐ ï!¼ Ðcompany€is€licensed€to€conduct€business€in€a€particular€state,€and€provides€access€toÐ Û"¨ Ðstate€insurance€department€Ô_ÔwebsitesÔ_Ô.Ð Ç#” ÐÐ ³$€ ÐÓ¨ý‰þÓÓ°„ÓÓ'` 4¸‰X(#ŠXG"'Ó7.à04àThe€Risk€&€Insurance€Management€SocietyÐŸ%l!4(#4(# ÐÔ4‚|feÔÝ‚TÍOÝÔÿÔòòÝÝÔ5 ÔÝ‚.ÿÿÿÝóóòòÔÿÿÔÝÝà4àwww.rims.orgÝ‚.ÿÿÿN»rs,ÝÝóóÔÿÿÔÝÝÔ6»ÔÝ‚T»iditÝÔÿÔÝÝÔ7fe´D»ÔÐ ‹&X" ÐÐ w'D # ÐÓ„°ÓÓ*44ŠXü!` 4¸‰X(#*Óààà4àThe€Risk€&€Insurance€Management€Society€website€offers€a€number€of€helpful€toolsÐ c(0!$ Ðto€assess€and€manage€risk.Ð O)"% ÐÐ ;*#& ÐÓ°„ÓÓ*` 4` ŠX(#44ŠXü!*Ó8.à04àU.S.€Small€Business€Administration€(SBA)Ð'+ô#'4(#4(# ÐÔ4‚~feÔÝ‚TÍOÝÔÿÔòòÝÝÔ5 ÔÝ‚.ÿÿÿÝóóòòÔÿÿÔÝÝà4àwww.sba.gov/osgÝ‚.ÿÿÿ*¾rs,ÝÝóóÔÿÿÔÝÝÔ6Þ½ÔÝ‚Tò½ditÝÔÿÔÝÝÔ7feÈ ¾ÔÐ ,à$( ÐÐ ÿ,Ì%) ÐÓ„°ÓÓ*44ŠXü!` 4` ŠX(#*Óààà4àThe€SBA€website€offers€information€on€the€Surety€Bond€Guarantee€Program,Ð ë-¸&* Ðincluding€free€copies€of€forms€required€to€be€submitted€for€approval€into€the€programÐ ×.¤'+ Ðand€contacts€for€local€SBA€offices.Ð Ã/(, ÐÓ|ü¨ýÓòòÔ‡PX»(XXXSÔ8.2.2€òòOptionsóóóóÐ 3 ÐÐ ì ÐÔ*_ƒúddxdd x(4(#4(#_ÔÔ,§jjÔÔ+ ÔÐ1€ Ø Ø €€‚‚ƒƒ1ÐÓdÓòòÐ è ÐÓd«ÁÓREQUIREMENTóóÐ@€- L €€‚‚ƒƒ@Ððð€9.Ô_ÔiÔ_Ô€of€FTA€Circular€4220.1E€requires€grantees€to€evaluate€options:Ð ‹ X ÐÐ wD ÐÓ-X°‚Â¸ƒX44ŠXü!-Óà0rà(1)€òòEvaluation€of€Optionsóó.€€The€option€quantities€or€periods€contained€in€theÐ c0 Ðcontractor's€bid€or€offer€must€be€evaluated€in€order€to€determine€contract€award.€Ð O ÐWhen€options€have€not€been€evaluated€as€part€of€the€award,€the€exercise€of€theÐ ; Ðoptions€will€be€considered€a€sole€source€procurement.Ð'ô rí rí ÐÐ à Ðà0rà(2)€òòExercise€of€Optionsóó.ÐÿÌ rí rí ÐÐ ë¸ ÐÓ6X°ržé¸ƒXX°‚Â¸ƒX6Óà0ràà0žrí rí à(a)€A€grantee€must€ensure€that€the€exercise€of€€an€option€is€in€accordance€withÐ ×¤ Ðthe€terms€and€conditions€of€the€option€stated€in€the€initial€contract€award.ÐÃží ží ÐÐ ¯| Ðà0ràà0žrí rí à(b)€An€option€may€not€be€exercised€unless€the€grantee€has€determined€that€theÐ ›h Ðoption€price€is€better€than€the€prices€available€in€the€market€or€that€the€option€isÐ ‡T Ðthe€more€advantageous€offer€at€the€time€the€option€is€exercised.Ý‚ÿÿÿÝÔ€PX»(XXPX»(ÔÔ€XSXXPX»(ÔÔÔòòÝÝÝ‚ÿÿÿ_Ç4ÝÔ€XSXhXSÔÔ€PX»(XhXSÔÔÔóóÝÝÐs@ží ží ÐÐ _, Ððð€7.m€of€FTA€Circular€4220.1E€states€that:Ð K ÐÐ 7 Ðà0ràGrantees€shall€not€enter€into€any€contract€for€rolling€stock€or€replacement€parts€€withÐ #ð Ða€period€of€performance€exceeding€five€(5)€years€inclusive€of€options.€Ð=31Ürí rí =ÐÐ Ø ÐòòDEFINITIONSóóÐ ÷Ä ÐÐ ã° ÐòòÓ„ÓÓ|üÓOptionóó€-€A€unilateral€right€in€a€contract€by€which,€for€a€specified€time,€a€grantee€may€elect€toÐ Ïœ Ðpurchase€additional€equipment,€supplies,€or€services€called€for€by€the€contract,€or€may€elect€toÐ » ˆ Ðextend€the€term€of€the€contract.€Ð §!t ÐàràÌòòDISCUSSIONÔ‡P:ÈXPX»(ÔÐ #L ÐóóÌÔ#†PX»(XP:ÈrË#ÔòòIf€you€include€terms€in€a€contract€that€permit€you€to€choose,€at€the€time€of€award€or€later,Ð %Ö! Ðquantities€and€items€in€addition€to€the€base€amount€(options),€you€must€include€the€price€ofÐ õ%Â" Ðthose€quantities€or€items€in€the€price€evaluation€of€the€offer€before€selecting€an€apparentÐ á&®# Ðlow€bidder€or€determining€the€€competitive€range€for€negotiations.€€Otherwise€you€may€notÐ Í'š $ Ðuse€Federal€funds€for€the€additional€quantity€without€a€separate,€non-competitiveÐ ¹(†!% Ðprocurement€process€(i.e.,€processing€as€a€sole„source€procurement).€€Ð ¥)r"& ÐÌIf€you€include€the€price€in€the€evaluation€and€later€choose€to€order€the€additional€quantitiesÐ }+J$( Ðor€items,€you€must€again€review€the€prices€to€ensure€that€they€are€advantageous.€€Ð i,6%) ÐÌÐ A.'+ ÐPurposeÐ 3 ÐóóÌOptions€are€most€often€used€where€there€is€uncertainty€as€to€the€quantity€of€goods€and€servicesÐ Ø Ðyou€will€require€under€a€contract.€€Rather€than€planning€a€separate,€later€procurement€when€theÐ ÷ Ä Ðrequirement€becomes€certain,€€and€incurring€potential€delays€in€delivery€of€the€items€because€ofÐ ã ° Ðthe€procurement€lead„time€to€buy€additional€items,€you€may€want€to€specify€the€option€to€buyÐ Ïœ Ðmore€in€your€present€contract.€€Options€may€also€be€appropriate€when€there€is€a€need€forÐ »ˆ Ðstandardization€of€parts€or€interchangeability€and€it€is€best€to€get€proposers€to€bid€competitively€Ð § t Ðon€the€entire€potential€need€€at€the€time€of€the€first€procurement,€rather€than€processing€a€sole„Ð “` Ðsource€add„on€at€a€later€date€when€the€supplier€will€be€under€no€competitive€pressures.€€€Ð L ÐÌAnother€common€use€of€options€is€to€fit€a€construction€project€to€a€budget.€€For€example,€aÐ W$ Ðnumber€of€elective€items€such€as€additional€landscaping,€Ô_ÔsignageÔ_Ô€that€could€be€purchasedÐ C Ðseparately,€and€a€higher€quality,€lower€maintenance€finish€are€specified€as€options€in€aÐ /ü Ðconstruction€solicitation.€€When€the€bids€are€evaluated,€you€can€elect€the€base€construction€plusÐ è Ðthose€options€that€can€be€procured€with€the€available€funds.€€Those€options€that€are€not€purchasedÐ Ô Ðunder€the€basic€contract€would€be€established€as€options€and€ordered€when€future€fundingÐ óÀ Ðbecomes€available.€€When€this€approach€is€used,€the€optional€items€are€often€called€"deductibleÐ ß¬ Ðoptions".€€In€this€case,€the€stated€bid€amount€already€includes€the€options,€and€each€option€isÐ Ë˜ Ðassociated€with€a€deduction€from€the€stated€bid.€€This€method€generally€caries€the€clearÐ ·„ Ðimplication€to€the€Ô_ÔofferorsÔ_Ô€that€the€cost€of€optional€items€will€be€evaluated€in€determining€theÐ £p Ðsuccessful€bid.€€If€you€award€the€contract€minus€certain€options,€and€then€wish€later€to€add€thoseÐ \ Ðoptional€items€back,€you€must€comply€with€the€requirement€to€make€a€new€determination€that€theÐ {H Ðoption€prices€are€advantageous.Ð g4 ÐÌòòBest€PracticesóóÐ ? ÐÌWhenever€the€option€quantities€are€a€significant€portion€of€the€total€potential€requirement,€youÐ ä Ðshould€carefully€consider€whether€aòò€requirementsóó€oròò€indefinite€deliveryóó€type€of€contract€wouldÐ !Ð Ðbetter€suit€your€circumstances€and€needs.€€A€òòrequirementsóó€contract€would€provide€for€filling€allÐ ï!¼ Ðof€your€requirements€for€certain€supplies€or€services€during€a€specified€time€period€by€placingÐ Û"¨ Ðorders€with€the€contractor€who€wins€the€competition.€€Your€solicitation€and€contract€would€stateÐ Ç#” Ðwhat€you€believe€to€be€a€realistic€estimated€total€quantity€but€you€would€not€be€legally€required€toÐ ³$€ Ðorder€that€quantity.€€The€contract€would€also€state€the€maximum€limit€of€the€contractor'sÐ Ÿ%l! Ðobligation€to€deliver€as€well€as€the€minimum€quantities€that€you€may€order€under€an€individualÐ ‹&X" Ðorder.€€The€contract€would€contain€competitively€bid,€fixed€unit€prices€for€the€items€beingÐ w'D # Ðprocured.Ð c(0!$ ÐÌAn€òòindefinite€quantityóó€contract€works€like€the€òòÔ_ÔrequirmentsÔ_Ôóó€contract€above€except€that€you€do€notÐ ;*#& Ðobligate€your€agency€to€fill€all€of€your€requirements€for€a€particular€supply€or€service€from€anyÐ '+ô#' Ðgiven€contractor.Ð ,à$( ÐòòÌóóÐ ë-¸&* ÐOrders€placed€under€a€requirements€or€indefinite€delivery€contract€are€not€treated€as€sole„sourceÐ 3 ÐÔ_ÔprocurementsÔ_Ô€and€do€not€have€to€be€evaluated€like€option€orders€and€found€to€be€advantageousÐ ì Ðfrom€a€price€standpoint€before€being€placed.Ð Ø ÐÌWhen€options€are€justified€by€the€degree€of€uncertainty,€the€difficulty€of€conducting€a€separateÐ ã ° Ðprocurement€in€a€timely€manner,€or€the€importance€of€a€single€source,€then€include€in€yourÐ Ïœ Ðsolicitation€a€clear€statement€that€the€full€option€price€€will€be€included€in€your€evaluation€ofÐ »ˆ Ðprices€to€determine€the€lowest€bid.€€Ð § t ÐÌWhen€options€may€be€exercised€at€a€time€of€your€choosing€over€a€long€contract€period,€you€mayÐ L Ðwish€to€reduce€the€Ô_ÔofferorÔ_Ô's€risk€by€including€a€price€escalation€provision.€€Consumer€priceÐ k8 Ðindices€or€other€indices€of€prices€germane€to€your€suppliers€may€be€obtained€from€the€Bureau€ofÐ W$ ÐLabor€Statistics€of€the€U.S.€Department€of€Labor.€€Ð C ÐÌIn€the€case€of€rolling€stock€and€similar€custom€equipment€for€which€you€have€an€ongoing€need,Ð è Ðyou€may€find€that€the€advantage€of€having€an€option€for€identical€equipment€at€a€predeterminedÐ Ô Ðprice€outweighs€the€pricing€difficulties€introduced€by€options.€€Ð óÀ ÐÌYou€may€also€benefit€from€a€competitive€procurement€conducted€by€another€transit€agency€byÐ Ë˜ Ðasking€that€agency€to€specify€optional€quantities€for€rolling€stock€you€expect€you€may€need€in€theÐ ·„ Ðsame€time€frame€as€the€base€procurement.€€The€advantage€of€specifying€your€options€in€the€otherÐ £p Ðagency's€original€solicitation,€rather€than€piggy-backing€after€the€offers€are€submitted,€is€that€youÐ \ Ðwill€take€advantage€of€a€competitive€environment€instead€of€a€sole„source€add€on€at€a€later€date.Ð {H ÐÌòò8.2.3€òòLiquidated€DamagesóóÔÿÔÐ S ÐóóÌÔ*lƒ°dd§jj§ú°(#°(#lÔÔ,âdd ÔÔ+ ÔÐ+ø+ø ÐòòÔÿÔæÔREQUIREMENTóóÔÿÔÐ \ €€ÐÔÿÎçÔðð13€of€FTA€Circular€4220.1E€states:Ð !Ü ÐÔ€PôN”òXPX»(ÔÌÔ€PX»(XòPôN”Ôà0ràA€grantee€may€use€liquidated€damages€if€it€may€reasonably€expect€to€suffer€damagesÐ ¿"Œ Ðfrom€late€completion€and€the€extent€or€amount€of€such€damages€would€be€difficult€orÐ «#x Ðimpossible€to€determine.Ð—$d r."r." ÐÔ€PôN”òXPX»(ÔÌÔ€PX»(XòPôN”Ôà0ràThe€assessment€for€damages€shall€be€at€a€specific€rate€per€day€for€each€day€of€overrun€inÐ G&" Ðcontract€time;€and€the€rate€must€be€specified€in€the€third€party€contract.€€Any€liquidatedÐ 3' # Ðdamages€recovered€shall€be€credited€to€the€project€account€involved€unless€the€FTAÐ (ì $ Ðpermits€otherwise.ÔÿÔÐ)Ø!%r."r." ÐÔ€P:ÈXPX»(ÔÐ÷)Ä"& ÐÔ€PX»(XP:ÈÔÌÔÿ9ëÔòòDEFINITIONóóÐ ±+~$' ÐÌòòLiquidated€Damagesóó€-€Liquidated€damages€are€a€specific€sum€(or€a€sum€readily€determinable)€ofÐ ‰-V&) Ðmoney€stipulated€by€the€contracting€parties€as€the€amount€to€be€recovered€for€each€day€of€delay€inÐ u.B'* Ðdelivery€of€the€product€or€completion€of€the€contract.€€They€do€not€represent€actual€damages€butÐ a/.(+ Ðare€established€in€the€initial€contract€as€a€substitute€for€actual€damages.€€They€should€represent,Ð 3 Ðhowever,€the€most€realistic€forecast€possible€of€what€the€actual€damages€are€likely€to€be.€Ð ì ÐÌòòDISCUSSIONÐ ÷ Ä ÐÌLiquidated€damages€are€a€widely€used€method€of€ensuring€contractors€perform€timely.€Ð Ïœ ÐThese€provisions€are€regularly€used€in€construction€contracts€and€sometimes€in€supply€andÐ »ˆ Ðservice€contracts.Ð § t ÐÌLiquidated€damages€clauses€are€most€appropriately€used€when:óóÐ L ÐÌòòÝ‚bÿÝÝÝÓ6°X°‚Â¸ƒXX°ržé¸ƒX6ÓÝ‚bÆïÝà0ràð"ðà04r(#r(#àÝÝThe€time€of€delivery€or€performance€is€of€particular€importance€and€you€mayÐ W$ Ðreasonably€expect€to€suffer€damage€if€the€delivery€or€performance€is€delinquent;Ð C ÐandÝƒbÆïðÝŒÐ/ü 4(#4(# ÐŒÝ ÝÔÿÔòŒòÌÝ‚bÿÝÝÝòŒòÔÿdñÔÝ‚bxñÝà0ràð"ðà04r(#r(#àÝÝThe€extent€or€amount€of€such€damage€would€be€difficult€to€prove.ÝƒbxñªñÝŒÐÔ 4(#4(# ÐŒÝ ÝÌWhen€determining€whether€to€use€a€liquidated€damages€clause,€you€will€wish€to€considerÐ ß¬ Ðsuch€factors€as:Ð Ë˜ ÐÌÝ‚bÿÝÝÝÝ‚bóÝà0ràð"ðà04r(#r(#àÝÝThe€probable€effect€on€pricing€and€competition;€andòŒòÝƒbóóÝŒÐ£p4(#4(# ÐŒÝ ÝÌÝ‚bÿÝÝÝÝ‚bØóÝà0ràð"ðà04r(#r(#àÝÝThe€costs€and€difficulties€of€contract€administration.ÝƒbØóóóÝŒÐ{H4(#4(# ÐŒÝ ÝÌLiquidated€damages€may€be€used€for€supplies,€services€and€construction.Ð S ÐÓH+ÿÿ $ P ¨X°`¸hÀ!°X°‚Â¸ƒXHÓà0àà0$ (#(#àÓH.ÿÿ4$ P ¨X°`¸hÀ!ÿÿ$ P ŠXHÓà4àóŒóóŒóóŒóÐ $ (#$ (# ÐÓH+ÿÿ øP ¨X°`¸hÀ!ÿÿ4$ P ŠXHÓòŒòBest€PracticesóŒóÐ +ø ÐÌóóÓK4ÿÿøP ¨X°`¸hÀ!$p&È( +ÿÿø‹XKÓòòRate€Determinationóó€-€The€rate€of€liquidated€damages€must€be€a€reasonable€estimate€toÐ !Ð Ðcompensate€for€possible€damages€and€not€be€so€large€as€to€be€construed€as€a€penalty.€€If€it€isÐ ï!¼ Ðconstrued€as€a€penalty€it€will€be€held€unenforceable.€€The€most€prudent€approach€is€to€formulateÐ Û"¨ Ðthe€liquidated€damages€on€a€case„by„case€basis.€€You€will€find€it€useful€to€briefly€document€theÐ Ç#” Ðcalculation€of€the€rate€of€damages€each€time€you€use€liquidated€damages€in€a€contract€and€keepÐ ³$€ Ðthe€documentation€on€file.€€Appendix€B.3€is€an€example€of€a€òòLiquidated€Damages€ChecklistóóÐ Ÿ%l! Ðbeing€used€by€a€Transit€Authority.×ƒ×Ý ƒ ¢˜ÝòòòòÚÚ35Ú ÚóóóóÝÝ× ×€€Once€liquidated€damages€are€included€in€a€contract,€you€willÐ ‹&X" Ðbe€unable€to€recover€actual€damages€in€many€jurisdictions.€Ð w'D # ÐÌòòApplicationóó€-€€When€it€is€determined€that€a€liquidated€damages€clause€will€be€included€in€theÐ O)"% Ðcontract,€the€applicable€clause€and€appropriate€rate(s)€must€be€contained€in€the€solicitation.€€ForÐ ;*#& Ðconstruction€contracts,€the€rate€to€be€assessed€can€be€for€each€day€of€delay,€and€the€rate€typically,Ð '+ô#' Ðat€a€minimum,€covers€the€estimated€cost€of€inspection€and€superintendence€for€each€day€of€delay€Ð ,à$( Ðin€completion.€€If€you€will€suffer€other€specific€losses€due€to€failure€of€timely€completion,€the€rateÐ 3 Ðcan€also€include€an€amount€for€these€items€(for€example,€the€cost€of€substitute€facilities€or€theÐ ì Ðrental€of€buildings€or€equipment).€€The€contract€may€include€an€overall€maximum€dollar€amountÐ Ø Ðor€period€of€time,€or€both,€during€which€liquidated€damages€may€be€assessed.€€This€will€helpÐ ÷ Ä Ðensure€that€there€is€not€an€unreasonable€assessment€of€damages.Ð ã ° ÐÔ€P&ï%XPX»(ÔÌòòÔ‡PX»(X%P&ïÔIt€is€important€to€note,€that€in€your€establishment€of€liquidated€damages,€you€may€use€whateverÐ §t Ðconsequential€damages€may€result€from€a€failure€to€deliver€or€perform,€even€damages€for€itemsÐ “ ` Ðwhich€are€not€within€the€scope€of€the€grant.€€However,€it€must€be€understood€that€all€liquidatedÐ L Ðdamages€collected€from€the€contractor€must€be€credited€to€the€grant€and€treated€as€a€reductionÐ k8 Ðto€the€allowable€costs€of€the€grant,€in€accordance€with€ðð€13€of€FTA€Circular€4220.1E.€€This€willÐ W$ Ðhave€the€effect€of€making€the€funds€collected€(or€the€contract€price€reduction€taken)€available€toÐ C Ðthe€grantee€for€other€activities/costs€which€are€within€the€scope€of€the€grant.€€In€other€words,Ð /ü Ðwhile€you€may€use€the€incurred€cost€of€activities€which€are€not€within€the€scope€of€the€grant€toÐ è Ðestimate€and€establish€liquidated€damages€amounts,€you€will€not€be€able€to€directly€apply€theÐ Ô Ðcollected€damages€to€those€impacted€activities€unless€they€are€within€the€scope€of€the€grant.€€TheÐ óÀ Ðfunds€returning€to€the€grantee€must€be€credited€to€the€grant€where€they€become€available€forÐ ß¬ Ðother€activities€which€are€within€the€scope€of€the€grant.óóÔ#†P&ï%XPX»(£þ#ÔÐ Ë˜ ÐÌòòÔ‡PX»(X%P&ïÔCollectionóó€-€If€your€agency€has€a€financial€obligation€to€the€contractor€under€the€contract,€youÐ \ Ðmay€simply€credit€the€amount€of€liquidated€damages€due€from€the€contractor€to€your€agency€asÐ {H Ðpayment€by€your€agency€of€part€of€its€remaining€obligation€to€the€contractor.€€Some€contracts€inÐ g4 Ðwhich€liquidated€damages€are€particularly€critical€contain€Ô_ÔretainageÔ_Ô€provisions€which€areÐ S Ðactivated€when€liquidated€damages€are€anticipated.€€In€most€jurisdictions€you€may€also€have€aÐ ? Ðright€of€offset€to€credit€the€liquidated€damages€as€payment€to€the€contractor€under€other€contractsÐ +ø Ðit€holds€with€your€agency.€€If€you€decide€to€pursue€this€approach€be€sure€you€comply€with€theÐ ä ÐFTA€approval€requirements€in€Circular€4220.1E€concerning€the€crediting€of€the€project€accountÐ Ð Ðwith€the€amount€of€the€liquidated€damages.€€Finally,€like€any€claim,€you€may€settle€your€claim€forÐ ï¼ Ðliquidated€damages€in€exchange€for€credit€€on€future€purchases€such€as€spare€parts€or€other€itemsÐ Û ¨ Ðwithin€the€scope€of€the€contract.€Ô#†P&ï%XPX»(;#ÔÐ Ç!” ÐÌòòÔ‡PX»(X%P&ïÔExcusable€Delayóó€-€Contracts€with€liquidated€damages€clauses€should€also€contain€excusableÐ ‹#X Ðdelay€clauses.€€These€typically€provide€that€if€the€contractor€is€delayed€by€certain€specified€causesÐ w$D Ðthat€are€beyond€the€contractor's€control€(e.g.,€weather,€strikes,€natural€disasters)€then€the€resultingÐ c%0! Ðdelay€is€excused€and€liquidated€damages€will€not€be€assessed.€€Whenever€a€contractor€incursÐ O&" Ðliquidated€damages,€the€precise€counting€of€each€day's€delay€based€on€these€conditions€directlyÐ ;' # Ðaffects€the€sum€paid;€therefore,€it€is€worth€making€the€calculation€of€delay€in€your€contracts€asÐ '(ô $ Ðclear€as€possible.€€When€excusing€construction€delay€caused€by€rainfall€beyond€normal,€forÐ )à!% Ðexample,€you€may€specify€in€the€contract€what€normal€rainfall€is€and€how€the€number€of€days€ofÐ ÿ)Ì"& Ðgreater€than€normal€rainfall€will€be€computed.Ô#†P&ï%XPX»(_ #Ô€Ð ë*¸#' ÐÌòòÔ‡PX»(X%P&ïÔSubstantial€Completionóó€„€Liquidated€damages€are€not€assessed€after€the€date€on€which€the€work€isÐ ¯,|%) Ðâ âsubstantially€completed.€€Substantial€completion€is€usually€defined€as€the€time€when€theÐ ›-h&* Ðconstruction€site€or€the€supplies€delivered€areòò€capable€of€being€used€for€their€intended€purposesóó.òòÔ_Ô×ƒŸ×Ý ƒ ¢˜ÝòòòŽòÚÚ36Ú ÚóŽóóóÝÝ× ×Ô_Ôóó€Ð 3 Ðâ âThere€is€no€predetermined€percentage€that€will€establish€substantial€completion€and€the€decisionsÐ ì Ðplace€more€emphasis€on€the€availability€of€the€work€for€its€intended€use€than€on€the€use€ofÐ Ø Ðformulas€as€to€the€percentage€of€completion€of€the€work.òòÔ_Ô×ƒ¡×Ý ƒ ¢˜ÝòòòŽòÚÚ37Ú ÚóŽóóóÝÝ× ×Ô_ÔÐ ÷ Ä ÐÌòòóó8.2.3.1€òòRelationship€with€Default€TerminationÐ Ïœ ÐÌóóDISCUSSIONÐ § t ÐÌWhen€a€contract€containing€liquidated€damages€is€terminated€for€default€the€contractorÐ L Ðwill€be€liable€for€both€liquidated€damages€and€the€excess€costs€of€Ô_ÔreprocurementÔ_Ô€(i.e.,€theÐ k8 Ðamount€by€which€the€replacement€contractor's€price€exceeds€the€terminated€contractor'sÐ W$ Ðprice).€€You€have€an€obligation€to€the€defaulting€contractor€to€mitigate€both€his€liquidatedÐ C Ðdamages€and€the€excess€Ô_ÔreprocurementÔ_Ô€costs.€€This€means€that€you€need€to€not€undulyÐ /ü Ðdelay€your€termination€for€default€action€once€the€contractor€is€in€default,€and€you€willÐ è Ðneed€to€take€expeditious€action€to€Ô_ÔresolicitÔ_Ô€bids/proposals€for€the€supplies€or€work€notÐ Ô Ðperformed.€€The€time€period€for€the€liquidated€damages€will€be€the€time€between€theÐ óÀ Ðcontractually€required€date€of€completion€of€the€defaulted€contract€and€the€actualÐ ß¬ Ðcompletion€date€of€the€new€contract€òòassuming€there€is€no€unreasonable€delay€in€awardingÐ Ë˜ Ðthe€new€contract.óó€€Contractors€will€not€be€assessed€liquidated€damages€for€any€period€ofÐ ·„ Ðdelay€caused€by€your€agency.€This€Ô_ÔreprocurementÔ_Ô€must€not€only€be€done€expeditiously€toÐ £p Ðmitigate€liquidated€damages€but€must€also€be€in€accordance€with€sound€procurementÐ \ Ðprocedures,€producing€a€fair€and€reasonable€price,€so€as€to€mitigate€excess€Ô_ÔreprocurementÔ_ÔÐ {H Ðcost€damages.€€The€contract€to€Ô_ÔreprocureÔ_Ô€should€be€awarded€competitively,€with€bids/offersÐ g4 Ðsolicited€from€a€sufficient€number€of€competent€potential€sources€to€ensure€adequateÐ S Ðcompetition.Ð ? ÐÌòŒò8.2.4€€òòIntellectual€Property€RightsóóÔÿÔóŒóÐ ä ÐÌÔÿÔ8.2.4.1€€òòDisclosure€of€Trade€SecretsóóÔÿÔÐ ï!¼ ÐÌòŒòòŒòÔÿöÔDEFINITIONSÔÿÔÐ Ç#” ÐóŒóóŒóÌóóòòÔÿAÔTrade€Secretóó€-€€A€plan,€process,€tool€or€other€intellectual€property€which€is€used€in€some€processÐ Ÿ%l! Ðof€commercial€value€and€which€is€known€to€a€group€of€individuals€who€have€been€intentionallyÐ ‹&X" Ðrestricted€by€the€trade€secret€owner.€€The€key€attribute€of€a€trade€secret€is€that€the€owner€has€Ð w'D # Ðdiligently€and€effectively€restricted€knowledge€so€that€its€competitors€cannot€obtain€theÐ 3 Ðinformation.Ð ì ÐòòÌDISCUSSIONÐ ÷ Ä ÐÌòŒòIf€you€gain€access€to€trade€secrets€either€to€evaluate€the€offer€or€to€use€and€support€use€ofÐ Ïœ Ðthe€product€or€service,€you€may€undertake€an€obligation€to€protect€the€trade€secret.€€MoreÐ »ˆ Ðparticularly,€there€may€be€a€direct€conflict€between€the€supplier's€interest€in€the€tradeÐ § t Ðsecret,€and€sunshine€laws€that€require€you€to€disclose€any€information€upon€request.€€ByÐ “` Ðnot€retaining€the€proprietary€documents€or€by€use€of€intermediaries,€you€may€be€able€toÐ L Ðreduce€the€potential€for€a€violation€of€trade€secrets.€Ð k8 ÐÌóŒóThe€laws€permitting€public€access€to€government€data€vary€by€state.€€It€is€helpful€toÐ C Ðcontractors€to€disclose€your€obligations€under€the€laws€in€any€solicitation€document€whichÐ /ü Ðcalls€for€you€to€receive€confidential€information€from€a€supplier.€€Consideration€for€theÐ è Ðsuppliers'€legitimate€interests€will€be€an€important€factor€in€their€continuing€willingness€toÐ Ô Ðparticipate€in€your€programs.òŒòÐ óÀ ÐÌBest€PracticesóŒóÐ Ë˜ ÐòòÌóóReturn€Dataóó€-€One€method€of€accommodating€the€supplier's€interest€in€the€confidentiality€of€theÐ £p Ðdata€is€to€return€all€the€documents€to€the€supplier.€€This€is€particularly€feasible€at€the€conclusionÐ \ Ðof€a€procurement€in€which€you€have€been€evaluating€known€trade€secrets.Ð {H ÐÌòòInspect€Data€Off€Siteóó€-€If€concerns€about€trade€secrets€and€confidential€information€areÐ S Ðparticularly€acute,€you€may€find€it€advantageous€to€visit€the€contractor's€premises€and€inspect€theÐ ? Ðinformation€or€materials€there,€returning€with€only€the€minimum€necessary€data€in€recorded€form.Ð +ø ÐòòòòÌóóThird€Partiesóó€-€Another€way€to€resolve€the€conflict€is€to€use€a€third€party€(e.g.,€one€of€yourÐ !Ð Ðadvisors)€to€evaluate€the€data€or€retain€the€data.€€The€possession€of€data€by€an€agent€of€a€publicÐ ï!¼ Ðagency€is€sometimes€also€subject€to€action€under€public€access€laws.€€However,€this€method€isÐ Û"¨ Ðcommon€in€software€licensing€agreements,€where€a€trustee€retains€confidential€source€code€dataÐ Ç#” Ðuntil€specified€conditions€occur€under€which€the€supplier€has€agreed€that€the€data€can€beÐ ³$€ Ðdisclosed€to€the€public€agency.Ð Ÿ%l! ÐòòòòÌóóOpportunity€to€Defendóó€-€A€final€strategy€is€to€incorporate€into€your€contract€clauses€a€provision€Ð w'D # Ðgranting€(or€requiring,€depending€on€the€circumstances)€the€owner€of€the€trade€secret€the€abilityÐ c(0!$ Ðto€defend€your€agency€in€any€action€against€your€agency€to€force€disclosure.€€Often,€this€takes€theÐ O)"% Ðform€of€the€contractor€indemnifying€your€agency€for€your€cost€in€defending€against€disclosure,€or,Ð ;*#& Ðat€your€agency's€option,€the€contractor's€own€attorneys€undertaking€the€defense.Ð '+ô#' ÐòòòŒòÌÐ ÿ,Ì%) Ð8.2.4.2€€òòContract€Work€Products,€Patents,€and€CopyrightsóŒóóóÔÿÔÐ 3 ÐàøàÌÔ*_ƒd°dâdd â°(#°(#_ÔÔ,§jjÔÔ+ ÔÐ1€ Ø Ø €€‚‚ƒƒ1ÐÓdÓòŒòÌÓdñ)ÓÔÿ )ÔREQUIREMENTóŒóÔÿÔÐ@€- L €€‚‚ƒƒ@ÐóóÌÔÿ=*ÔAppendix€A.1€of€this€Manual€contains€the€requirements€for€intellectual€property€rightsÐ wD Ðcreated€under€research€and€development€contracts.€€These€requirements€apply€only€whereÐ c0 Ða€primary€purpose€of€the€contract€is€research€or€development.€€ÔÿÔÐ O ÐÐ.$"; .ÐòòÌÔÿº+ÔòŒòDISCUSSIONÐ #ð ÐóŒóÌòŒòIn€research€and€development€contracts,€you€are€required€to€obtain€certain€rights€in€theÐ ûÈ Ðintellectual€property€created€for€FTA,€and€also,€incidentally,€to€obtain€indemnification€forÐ ç´ ÐFTA€in€case€the€contractor€violates€another's€rights.€€A€clause€satisfying€these€requirementsÐ Ó Ðis€contained€in€Appendix€A.1.€€Ð ¿Œ ÐÌIn€contracts€that€are€not€primarily€research€and€development€contracts,€you€may€alsoÐ —d Ðconsider€including€portions€of€these€provisions€for€your€agency's€own€benefit.€€You€mayÐ ƒP Ðconsider€this€where€intellectual€property€(e.g.,€computer€software)€will€be€developed€withÐ o< Ðyour€funds€as€part€of€a€larger€effort€which€is€not€developmental.Ð [( ÐÌIn€contracts€that€involve€the€use€but€not€the€development€of€intellectual€property€(e.g.,€theÐ 3 Ðuse€of€patented€equipment)€€indemnification€against€the€contractor's€violation€of€another'sÐ ì Ðrights€may€be€advantageous.Ð Ø ÐÌBest€PracticesÐ ã° ÐóŒóÌòòóóIndemnificationóó€-€The€indemnification€provision,€in€case€the€contractor€violates€the€intellectualÐ » ˆ Ðproperty€rights€of€a€third€party,€(e.g.,€reproduces€copyrighted€material€or€incorporates€a€patentedÐ §!t Ðdevice€in€your€equipment)€is€a€useful€provision€wherever€intellectual€property€is€involved.€€EvenÐ “"` Ðthough€you€may€have€little€knowledge€of€the€intellectual€property€the€contractor€is€using,€theÐ #L Ðintellectual€property€owner€may€name€you€in€the€suit€and€you€may€have€more€funds€to€payÐ k$8 Ðdamages€than€does€your€contractor.€Ð W%$! ÐÌòòSecure€Support€Rightsóó€-€When€you€take€delivery€of€intellectual€property€which€you€will€need€forÐ /'ü# Ðyour€program,€you€will€also€need€to€carefully€anticipate€and€define€your€agency's€rights€to€use,Ð (è $ Ðmodify,€or€disseminate€the€material€to€others.€If€licenses€control€the€software€or€patents€control€Ð )Ô!% Ðthe€components€of€your€vehicles,€you€may€wish€to€obtain€the€right€to€reproduce€the€intellectualÐ ó)À"& Ðproperty€for€your€agency's€own€internal€use,€without€the€right€to€resell€it€or€distribute€it€outsideÐ ß*¬#' Ðyour€agency.€€Whether€the€contractor€is€willing€to€grant€that€right€depends€on€the€practices€in€theÐ Ë+˜$( Ðindustry,€the€competitive€value€of€the€intellectual€property,€and€theòò€óócontractor's€policies.€€If€aÐ ·,„%) Ðpractice€is€not€well-established,€the€matter€may€have€to€be€addressed€in€pre-bid€discussions€or€inÐ §-t&* Ðnegotiations.€€Where€the€contractor€is€unwilling€to€grant€access€except€through€additionalÐ “.`'+ Ðpurchases,€the€contractor€may€be€willing€to€place€the€intellectual€property€in€a€trust€arrangementÐ /L(, Ðwhereby€the€trustee€would€grant€you€access€in€case€of€the€contractor's€demise€or€inability€toÐ 3 Ðsupport€your€ongoing€use€of€the€product.Ð ì ÐÌòòEvolving€Lawóó€-€The€law€of€intellectual€property,€particularly€as€it€pertains€to€informationÐ ÷ Ä Ðtechnology,€is€evolving€rapidly.€€If€you€are€involved€in€procuring€software€or€other€intellectualÐ ã ° Ðproperty€with€any€substantial€value,€you€may€wish€to€have€attorneys€who€are€current€in€this€areaÐ Ïœ Ðreview€your€contract€provisions.Ð »ˆ ÐòòÌòŒò8.2.5€€òòTerminationóŒóÐ “` ÐÓ?+ÿÿ ðøP ¨X°`¸hÀ!ÿÿøX?ÓóóÌÓK4ÿÿøP ¨X°`¸hÀ!$p&È( +ÿÿðø‹XKÓÔ*_ƒ dd§jj§°(#°(#_ÔÔ,âttÔÔ+ ÔÐ,€k8 k8 ‚‚ƒƒ,ÐÓÿÿðÿÿøXÓòŒòREQUIREMENTóŒóÐ@€-{H €€‚‚ƒƒ@ÐóóÌðð€15.b€of€FTA€Circular€4220.1E€requires€grantees€to€include€provisions€in€their€contractsÐ s@ Ðand€subcontracts€that€allow€for:Ð _, ÐÌÓ $,'ÿÿðÓà0'àb.€€Termination€for€cause€and€for€convenience€by€the€grantee€or€Ô_ÔsubgranteeÔ_Ô€including€the€à@ý!àÐ 7 Ðmanner€by€which€it€will€be€effected€and€the€basis€for€settlement.€€(All€contracts€in€à@ÍàexcessÐ #ð Ðof€$10,0000.)Ð8.,Ü'"'" 8ÐÌÓ?+ÿÿ ðøP ¨X°`¸hÀ!$,û?ÓòòDISCUSSIONÐ ÷Ä ÐÓB+ÿÿ ðøP ¨X°`¸hÀ!ÿÿðø‹XBÓóóÌÓB+ÿÿ ðøP ¨X°`¸hÀ!ÿÿðø‹XBÓòòIt€is€sometimes€necessary€to€end€a€contractual€relationship€prior€to€the€completion€of€theÐ Ïœ Ðwork€called€for€in€the€contract.€€In€the€public€sector,€when€that€relationship€is€endedÐ »ˆ Ðbecause€of€a€problem€with€the€contractor's€compliance€with€one€or€more€terms€of€theÐ §t Ðcontract,€that€termination€is€most€commonly€referred€to€as€a€òòtermination€for€default€or€aÐ “` Ðtermination€for€causeóó.€€Ð L ÐÓB+ÿÿ ðøP ¨X°`¸hÀ!ÿÿðø‹XBÓÌÓB+ÿÿ ðøP ¨X°`¸hÀ!ÿÿðø‹XBÓWhen€the€public€agency€decides€to€end€the€contract€for€a€reason€other€than€the€default€ofÐ W $ Ðthe€contractor,€that€termination€is€most€frequently€referred€to€as€a€òòtermination€for€theÐ C! Ðconvenience€of€the€public€entityóó.€€Ð /"ü ÐÓB+ÿÿ ðøP ¨X°`¸hÀ!ÿÿðø‹XBÓÌÓB+ÿÿ ðøP ¨X°`¸hÀ!ÿÿðø‹XBÓIf€you€do€not€plan€for€the€possibility€of€one€or€the€other€of€these€events€occurring€in€yourÐ $Ô Ðcontractual€relationships,€through€the€careful€drafting€of€clauses€which€define€the€rightsÐ ó$À Ðandóó€òòobligations€of€the€parties€under€a€default€and€convenience€situation,€the€consequencesÐ ß%¬! Ðcan€be€substantial€from€a€monetary€and€contract€performance€standpoint.€Ð Ï&œ" ÐÌBecause€of€the€nature€of€the€different€types€of€contracts,€you€may€want€to€consider€havingÐ §(t!$ Ðdifferent€termination€clauses€for€fixed€price€as€opposed€to€cost€reimbursement€contracts.Ð “)`"% ÐÌBecause€of€the€different€nature€of€the€product€or€services€being€bought,€you€may€want€toÐ k+8$' Ðhave€different€termination€clauses€for€construction,€supply,€and€services€contracts,Ð W,$%( Ðincluding€professional€services.€€Ð C-&) Ðâ âÓB+ÿÿ HøP ¨X°`¸hÀ!ÿÿðø‹XBÓà0øàà0P ø(#ø(#àÓE.ÿÿH øP ¨X°`¸hÀ!ÿÿHø‹XEÓàøàÐ/.ü&*P (#P (# ÐÓ?+ÿÿ HøP ¨X°`¸hÀ!ÿÿHX?ÓYou€may€want€to€have€an€abbreviated€termination€clause€for€contracts€below€a€dollarÐ 3 Ðâ âthreshold€(say€$100,000).€€Likewise€for€purchase€orders,€you€will€need€to€decide€howÐ ì Ðsophisticated€you€want€these€to€be.Ð Ø ÐÓB+ÿÿ HøP ¨X°`¸hÀ!ÿÿHø‹XBÓà0øàà0P ø(#ø(#àÓE.ÿÿH øP ¨X°`¸hÀ!ÿÿHø‹XEÓàøàÐ P (#P (# ÐÓ?+ÿÿ HøP ¨X°`¸hÀ!ÿÿHX?ÓYou€need€to€address€òòpartialóó€as€well€as€òòcompleteóó€terminations.Ð ã ° ÐÓE.ÿÿH øP ¨X°`¸hÀ!ÿÿHø‹XEÓÌ8.2.5.1€òòTermination€For€Convenienceóó€Ð »ˆ ÐóóÌòòDISCUSSIONÐ “` ÐÌThe€development€of€clauses€allowing€the€government€to€terminate€contracts€for€itsÐ k8 Ðconvenience€was€a€necessity€growing€out€of€the€major€wars€and€the€need€to€end€the€largeÐ W$ Ðnumber€of€procurement€contracts€once€the€wars€were€ended.€€Without€such€clauses€theÐ C Ðgovernment€could€terminate€its€contracts€but€such€action€constituted€a€breach.€€This€meantÐ /ü Ðhaving€to€pay€profits€to€contractors€on€unperformed€work€(anticipatory€profits).€€Thus€theÐ è Ðneed€for€and€the€development€of€these€convenience€termination€clauses,€which€give€theÐ Ô Ðgovernment€the€right€to€terminate€without€cause€and€which€limit€the€contractor's€recoveryÐ óÀ Ðof€profit€€based€upon€the€work€actually€performed€up€to€the€point€of€termination.€Ð ß¬ ÐÌBest€Practices€Ð ·„ ÐÌóóYou€will€note€that€the€FTA€Circular€requires€a€clause€which€defines€"the€manner€by€which€theÐ \ Ðtermination€will€be€effected€and€the€basis€for€settlement."€€Appendix€A.1,€Model€ContractÐ {H ÐClauses,€€section€21,€contains€model€clauses€with€suggested€language€for€both€convenience€andÐ g4 Ðdefault€terminations.€€These€model€clauses€are€very€broad€in€their€definition€of€the€basis€forÐ S Ðsettlement.€€For€example,€while€the€clauses€clearly€limit€theòò€óócontractor's€profit€to€work€actuallyÐ ? Ðperformed,€and€they€commit€to€pay€the€contractor€its€costs,€they€do€not€define€how€those€costsÐ /ü Ðwill€be€determined,€Ô_ÔiÔ_Ô.€e.,€the€òòcost€principlesóó€which€will€be€used€to€determine€allowable€costs.€€òòIt€isÐ è Ðhighly€recommended€that€you€supplement€these€clauses€to€stipulate€the€òòcost€principlesóó€which€willÐ !Ô Ðbe€operative€in€the€event€of€a€terminationóó,€and€which€will€determine€which€costs€are€allowableÐ ó!À Ðand€which€are€not.€€By€using€an€objective€and€clearly€defined€method€for€determining€allowableÐ ß"¬ Ðcosts€you€will€avoid€problems€which€may€otherwise€arise€in€the€negotiation€of€final€costs.Ð Ë#˜ Ð€€€Ð ·$„ ÐThe€American€Public€Transit€Association€has€published€a€procurement€manual€with€aÐ £%p! ÐTermination€for€Convenience€Clause€referencing€Part€49,€òòTermination€of€Contractsóó,òò€óóof€theÐ &\" ÐFederal€Acquisition€Regulations€(48€Ô_ÔCFRÔ_Ô€49)€as€the€basis€for€settlement€of€claims.€×ƒ£×Ý ƒ ¢˜ÝòòòòÚÚ38Ú ÚóóóóÝÝ× ×€€€AnotherÐ 'L # Ðapproach€is€to€reference€the€FAR,€Part€31.205,€which€deals€very€comprehensively€with€òòSelectedÐ k(8!$ ÐCostsóó€and€their€Ô_ÔallowabilityÔ_Ô.€òò×ƒ¥×Ý ƒ ¢˜ÝòòòŽòÚÚ39Ú ÚóŽóóóÝÝ× ×óóÐ W)$"% Ðâ âòòÐ C*#& ÐóóThe€Ô_ÔAPTAÔ_Ô€approach€of€referencing€FAR€Part€49€as€the€basis€for€settlement€of€terminations€forÐ 3 Ðâ âconvenience€would€seem€to€be€a€very€effective€solution€to€the€problem€of€defining€the€basis€forÐ ì Ðsettlement.€€Part€49.113€of€the€FAR€incorporates€Part€31,€òòContract€Cost€Principles€andÐ Ø ÐProcedures,óó€thus€covering€all€the€normal€cost€issues€which€arise€on€cost„€type€contracts,€butÐ ÷ Ä Ðgoing€beyond€the€normal€to€define€those€costs€and€issues€peculiar€to€terminations€in€the€rest€ofÐ ã ° ÐFAR€Part€49.€€The€termination€clauses€themselves€may€be€found€in€FAR€Part€52,€and€you€willÐ Ïœ Ðsee€that€they€refer€to€both€Part€31€and€Part€49€of€the€FAR€in€order€to€define€the€cost€standards€toÐ »ˆ Ðbe€used€for€the€settlement.Ð § t ÐÌSuggested€termination€clauses€are€also€contained€in€the€ABA's€òòModel€Procurement€Code€forÐ L ÐState€and€Local€Governmentsóó€and€implementing€suggested€regulations.€òò×ƒ§×Ý ƒ ¢˜ÝòòòŽòÚÚ40Ú ÚóŽóóóÝÝ× ×óóÐ k8 ÐòòÌ8.2.5.2€òòPartial€TerminationsóóÐ C ÐÌDISCUSSIONÐ è ÐÌYour€Termination€for€Convenience€clause€must€include€a€provision€allowing€for€a€partialÐ óÀ Ðtermination€of€the€work,€in€which€case€the€contractor€must€continue€with€the€unterminatedÐ ß¬ Ðportion.€€The€Federal€government€clause€at€FAR€52.249„2(k)€allows€the€contractor€to€file€aÐ Ë˜ Ðproposal€for€an€equitable€adjustment€of€the€price(s)€for€the€continued€portion€of€theÐ ·„ Ðcontract.€€Note€that€the€model€clauses€in€Appendix€A.1€do€not€address€this€issue€of€anÐ £p Ðequitable€price€adjustment€for€the€continued€work,€and€you€should€consider€this€provisionÐ \ Ðas€a€matter€of€equity€to€the€contractor.€€This€price€adjustment€would€allow€the€contractorÐ {H Ðto€recover€those€costs€of€a€fixed€nature€which€he€would€have€recovered€in€the€prices€of€theÐ g4 Ðterminated€work,€had€there€been€no€termination.€€This€is€not€anticipatory€profit€butÐ S Ðrecovery€of€fixed€overhead.×ƒ©T×Ý ƒ ¢˜ÝòòòòÚÚ41Ú ÚóóóóÝÝ× ×€€An€example€might€be€the€rental€of€a€facility€whose€costsÐ ? Ðwould€have€been€recovered€over€all€the€deliverable€units€of€the€original€contract€but€whichÐ +ø Ðcan€only€be€€recovered€over€a€smaller€number€of€units€on€the€partially€terminated€contract,Ð ä Ðassuming€you€allow€a€price€adjustment€for€the€unterminated€portion€of€the€contract.Ð !Ð ÐÌ8.2.5.3€òòTermination€for€DefaultóóÐ Û"¨ ÐÌDISCUSSIONÐ ³$€ ÐÌòòFixed€Price€Supply€Contractsóó€„€If€you€are€using€a€default€termination€clause€similar€to€theÐ ‹&X" Ðfederal€clauses,€the€termination€is€likely€to€have€the€following€effects:Ð w'D # ÐÐ c(0!$ ÐÌÝ‚bÿÝÝÝÓ'°H‚X` ¨‰XÿÿHX'Óà0 àÝ‚bcÝà0ø (# (#àð"ðà0` ø(#ø(#àÝÝYour€agency€is€not€liable€for€the€costs€of€unaccepted€work.€€The€contractorÐ ì Ðwill€only€be€paid€for€work€which€you€accept.ÝƒbcOcÝŒÐ Ø` (#` (# ÐŒÝ ÝÌÝ‚bÿÝÝÝà àÝ‚bidÝà0øàð"ðà0` ø(#ø(#àÝÝYou€are€entitled€to€a€return€of€all€progress,€partial,€or€advance€payments.ÝƒbiddÝŒÐã °` (#` (# ÐŒÝ ÝÌÝ‚bÿÝÝÝà0 àÝ‚baeÝà0ø (# (#àð"ðà0` ø(#ø(#àÝÝYou€have€the€right€to€take€custody€of€the€contractor's€material,€inventory,Ð »ˆ Ðconstruction€plant€and€equipment€at€the€site,€and€of€the€drawings€and€plans,Ð § t Ðwith€the€price€to€be€negotiated.ÝƒbaeˆeÝŒÐ“`` (#` (# ÐŒÝ ÝÌÝ‚bÿÝÝÝà0 àÝ‚b÷fÝà0ø (# (#àð"ðà0` ø(#ø(#àÝÝThe€contractor€will€be€liable€for€the€excess€costs€of€Ô_ÔreprocurementÔ_Ô€orÐ k8 Ðcompletion.Ýƒb÷fgÝŒÐW$ ` (#` (# ÐŒÝ ÝÌÝ‚bÿÝÝÝà0 àÝ‚b2hÝà0ø (# (#àð"ðà0` ø(#ø(#àÝÝThe€contractor€will€be€liable€for€either€actual€damages€or€liquidated€damagesÐ /ü Ðif€your€contract€provides€for€them.Ýƒb2hYhÝŒÐè` (#` (# ÐŒÝ ÝÓ+ ÿÿHX°H‚X` ¨‰Xc+ÓÌòòServices€and€Construction€Contractsóó€„€Some€of€the€above€consequences€for€supplyÐ óÀ Ðcontracts€are€also€applicable€to€services€and€construction€contracts€but€a€contractorÐ ß¬ Ðfurnishing€services€or€construction€will€be€entitled€to€payment€for€work€that€was€properlyÐ Ë˜ Ðperformed€prior€to€the€default€termination.€€Under€supply€contracts€the€contractor€will€notÐ ·„ Ðbe€paid€costs€for€producing€supplies€not€accepted,€whereas€services€and€constructionÐ £p Ðcontractors€can€recover€costs€because€your€agency€will€be€seen€as€having€Ô_ÔbenefitedÔ_Ô€from€theÐ \ Ðcontractor's€partial€performance€in€the€services€rendered€or€the€improvements€made€toÐ {H Ðyour€property.€×ƒ«×Ý ƒ ¢˜ÝòòòòÚÚ42Ú ÚóóóóÝÝ× ×Ð g4 ÐÌBest€PracticesÐ ? ÐÌòòóóDefining€"Default"óó€„€The€clause€must€define€what€"default"€means€--€i.e.,€failure€to€deliver€theÐ ä Ðsupplies€or€perform€the€services€within€the€time€specified€in€the€contract,€failure€to€makeÐ !Ð Ðprogress€so€as€to€endanger€performance€of€the€contract,€refusal€or€failure€in€a€constructionÐ ï!¼ Ðcontract€to€prosecute€the€work€or€any€separable€part€within€the€time€specified€in€the€contract.Ð Û"¨ ÐÌòòExcess€Ô_ÔReprocurementÔ_Ô€Costsóó€„€The€model€contract€clauses€in€section€21€of€Appendix€A.1€includeÐ ³$€ Ðdefault€termination€clauses€for€various€types€of€contracts.€€You€will€need€to€decide€if€you€wish€toÐ Ÿ%l! Ðhold€the€contractor€responsible€for€excess€Ô_ÔreprocurementÔ_Ô€costs€and€include€an€appropriateÐ ‹&X" Ðprovision€in€your€clause.€€Only€the€construction€contract€termination€clause€[21.(h)]€in€AppendixÐ w'D # ÐA.1€includes€excess€Ô_ÔreprocurementÔ_Ô€costs.€Ð c(0!$ ÐÌThe€Ô_ÔAPTAÔ_Ô€bus€procurement€òòGuidelinesóó€at€ðð€2.2.6.2€€(see€note€20€in€this€chapter)€include€aÐ ;*#& Ðprovision€for€excess€Ô_ÔreprocurementÔ_Ô€costs€for€"similar€supplies€or€services."Ð '+ô#' ÐÐ ,à$( ÐòòExcusable€Reasons€for€Non„performanceóó€„€The€clause€typically€defines€acts€or€events€that€willÐ 3 Ðexcuse€the€contractor's€default€--€i.e.,€causes€beyond€the€control€and€without€the€fault€orÐ ì Ðnegligence€of€the€contractor,€such€as€acts€of€God,€unusually€severe€weather,€etc.Ð Ø ÐÌòòConversion€to€Convenience€Terminationóó€„€If€you€terminate€a€contract€for€default,€and€it€is€laterÐ ã ° Ðdetermined€that€the€contractor€was€not€in€default€or€that€the€default€was€excusable,€it€would€beÐ Ïœ Ðvery€helpful€if€your€default€termination€clause€specifically€stated€that€the€termination€will€beÐ »ˆ Ðtreated€as€if€it€had€been€issued€for€the€convenience€of€the€agency.€€This€will€act€to€limit€yourÐ § t Ðliability€for€a€wrongful€termination€by€invoking€the€procedures€of€€the€convenience€terminationÐ “` Ðclause,€thus€precluding€the€€contractor€from€recovering€anticipatory€profits.€€The€defaultÐ L Ðtermination€clauses€in€Appendix€A.1€contain€this€stipulation.Ð k8 ÐÌòòNotice€Provisionsóó€„€The€clause€typically€defines€what€kind€of€written€notices,€if€any,€must€beÐ C Ðfurnished€to€the€contractor€prior€to€the€termination€taking€place€--€i.e.,òò€cureóó€andòò€showóó€òòcauseóóÐ /ü Ðletters.€€Within€a€specified€time€after€you€notify€the€contractor€in€writing€to€òòcureóó€the€deficiency€inÐ è Ðperformance,€the€contractor€has€the€opportunity€(without€jeopardy€of€immediate€termination)€toÐ Ô Ðòòshow€causeóó€why€it€should€not€be€terminated;€it€may€accelerate€performance,€present€newÐ óÀ Ðinformation,€or€offer€additional€promises.€€If€the€contractor€does€not€successfully€show€that€itÐ ß¬ Ðshould€not€be€terminated,€your€agency€may€then€proceed€with€a€termination€for€default.€€If€yourÐ Ë˜ Ðclause€grants€the€contractor€a€cure€period,€you€may€wish€to€specify€exceptions€such€as€whereÐ ·„ Ðdefault€is€necessary€to€take€over€the€work€in€the€interest€of€public€safety.Ð £p Ð€ÌòòÓ¹ ÓÓÓAcronymsóóÐ {H ÐÓV{ÓÌÔ_ÔASBCAÔ_Ô€„€Armed€Services€Board€of€Contract€AppealsÐ S ÐÌÔ_ÔBCAÔ_Ô€„€Board€of€Contract€AppealsÐ +ø ÐÌÔ_ÔIBCAÔ_Ô€„€Department€of€Interior€Board€of€Contract€AppealsÐ !Ð ÐÌÔ_ÔPSBCAÔ_Ô€„€Postal€Service€Board€of€Contract€AppealsÔ#†XSXXPX»(—À#ÔÔ#†&œ!%XXSŒ #Ô