Q. Can we provide mobilization payments to the contractor selected to construct the permanent WTC railroad (PATH) station. The value of the Project is estimated at over $2B. Proposers have asked about the feasibility of mobilization payments. I understand that advance payments are not allowed with FTA funding unless authorized by the FTA. Under what conditions would such authorization be granted?
A. The FTA policy on advance payments is stated in the FTA Procurement Circular 4220.1E, paragraph 12a, which is reproduced below. As you can see, the issue of approving advance payments such as mobilization is left with the FTA regional office and you should consult your regional FTA office for approval.
12 a. Advance Payments. FTA does not authorize and will not participate in funding payments to a contractor prior to the incurrence of costs by the contractor unless prior written concurrence is obtained from FTA. There is no prohibition on a grant recipient’s use of local match funds for advance payments. However, advance payments made with local funds before a grant has been awarded, or before the issuance of a letter of no prejudice or other pre-award authority, are ineligible for reimbursement.*
* The language in this section has been amended from previous versions of the circular to explain that grantees may make advance payments from local share funds. Where grantees wish to make advance payments with FTA funds, they should contact their regional office to obtain FTA concurrence. FTA believes there are various sound business reasons for providing advance payments under a number of circumstances and, where we find adequate security for the advance payment combined with a sound business reason to grant the advance payment, will normally grant the required concurrence. These advance payments may be in the nature of mobilization payments, start-up costs, or other advances backed by sound business judgment and adequate security. [added October 2003 – Additionally, grantees may make advance payments with either local match or FTA funds for those purchases where advance payment is customary in the commercial marketplace such as utility services and subscriptions. FTA concurrence in these circumstances is only required where the advance payment or payments exceed $100,000.]
The Best Practices Procurement Manual (BPPM), Section 2.4.4.2 – Advance Payments, discusses this topic. You will see there that New York City Transit used mobilization payments for a major rail car procurement. FTA approved this contract provision because NYCT was able to demonstrate a significant price benefit as consideration for the advance payments, and they also protected the agency’s interest in the payments with an Advance Payment Bond or Letter of Credit. You may wish to speak with Mr. Stan Grill, VP of Contracts, at 646-252-6050, or Mr. William DeSantis at 646-252-6053 for further details.
The BPPM and the FTA Circular are both available online.
Q. In a service contract for janitorial services, the contract calls for regular weekly services; it also has "extra" services that are performed every 2 months, 4 months and 6 months (such as floor waxing, window washing, appliance cleaning, etc.). For ease of billing the contractor wants to total up all the services in the schedule of the contract and divide that by 12 and bill us that amount each month. We would be paying in advance for some of the "extra" services before they are performed. Is this considered advance payment?
A. It would appear from your information that the fixed monthly payments would be considered "advance payments," and therefore unacceptable to FTA. However, as noted in the Best Practices Procurement Manual (BPPM) section 2.4.4.2—"Advance Payments," there is an exception for payments that are standard industry practice. The BPPM reads as follows:
Exceptions to the Prior Approval Requirement— The FTA requirement for
prior approval of advance payments does not apply to transactions where it is
"generally accepted industry practice" to pay in advance. In these
situations, grantees may make advance payments without prior FTA
approval. These situations would include (but not necessarily be restricted to)
the following types of transactions:
1. Rent
2. Tuition
3. Insurance premiums
4. Subscriptions to publications
5. Software licenses
6. Construction mobilization costs
7. Public utility connections
If you can determine that the standard industry practice is to bill a fixed monthly amount for janitorial services although the scheduled services may vary periodically, then you may make advance payments. It would be more prudent in our opinion, however, to avoid any issues with FTA by fixing the contract payments on the basis of the services actually performed. The BPPM is available online:
http://www.fta.dot.gov/funding/thirdpartyprocurement/bppm/grants_financi
ng_6186.html#C2_4_4_2
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