Professional Services

Q. Is the grantee administrator of a DOT grant allowed to pay himself or herself professional fees without first soliciting bids or proposals for those services?  Does the grantee have to enter into a signed contract with the terms and conditions for professional services?  Our past executive director was paying herself substantial amounts of money from a DOT grant for "professional services." There are no bills submitted for these services and minimal documentation of the services rendered.  One DOT grant was awarded for a feasibility study in which the past executive director paid herself thousands of dollars for her services.

A. There appears to be a number of problems with the situation you describe.

Under certain circumstances, it is appropriate for a grantee's employees or officials to perform professional services in connection with a grant.  For example, Office of Management and Budget (OMB), "Cost Principles for Non-Profit Organizations (OMB Circular A-122)," 2 C.F.R. Part 230, acknowledges that the costs of grantee officers and employees of performing project work can be eligible costs.  Specifically, 2 C.F.R. Part 230, Appendix B, Section 8, provides in pertinent part, as follows:

Appendix B to Part 230--Selected Items of Cost

  1. Compensation for personal services. a. Definition. Compensation for personal services includes all compensation paid currently or accrued by the organization for services of employees rendered during the period of the award (except as otherwise provided in subparagraph 8.h of this appendix). It includes, but is not limited to, salaries, wages, director's and executive committee member's fees, incentive awards, fringe benefits, pension plan costs, allowances for off-site pay, incentive pay, location allowances, hardship pay, and cost of living differentials.
    1. Allowability. Except as otherwise specifically provided in this paragraph, the costs of such compensation are allowable to the extent that:
      1. Total compensation to individual employees is reasonable for the services rendered and conforms to the established policy of the organization consistently applied to both Federal and non-Federal activities; and
      2. Charges to awards whether treated as direct or indirect costs are determined and supported as required in this paragraph.
    2. Reasonableness.
      1. When the organization is predominantly engaged in activities other than those sponsored by the Federal Government, compensation for employees on federally-sponsored work will be considered reasonable to the extent that it is consistent with that paid for similar work in the organization's other activities.
      2. When the organization is predominantly engaged in federally-sponsored activities and in cases where the kind of employees required for the Federal activities are not found in the organization's other activities, compensation for employees on federally-sponsored work will be considered reasonable to the extent that it is comparable to that paid for similar work in the labor markets in which the organization competes for the kind of employees involved.
    3. Special considerations in determining allowability. Certain conditions require special consideration and possible limitations in determining costs under Federal awards where amounts or types of compensation appear unreasonable. Among such conditions are the following:
      1. Compensation to members of non-profit organizations, trustees, directors, associates, officers, or the immediate families thereof. Determination should be made that such compensation is reasonable for the actual personal services rendered rather than a distribution of earnings in excess of costs.
      2. Any change in an organization's compensation policy resulting in a substantial increase in the organization's level of compensation, particularly when it was concurrent with an increase in the ratio of Federal awards to other activities of the organization or any change in the treatment of allowability of specific types of compensation due to changes in Federal policy. * * * * *
    1. Incentive compensation. Incentive compensation to employees based on cost reduction, or efficient performance, suggestion awards, safety awards, etc., are allowable to the extent that the overall compensation is determined to be reasonable and such costs are paid or accrued pursuant to an agreement entered into in good faith between the organization and the employees before the services were rendered, or pursuant to an established plan followed by the organization so consistently as to imply, in effect, an agreement to make such payment

    Thus, if a grantee employee or official performs professional services in connection with a grant and generally receives his or her customary salary as a grantee employee, then that arrangement can be viewed as a comparable to "force account" work that could be an eligible cost under OMB Cost Principles.  In addition, any charges for a grantee employee or official's work would be expected to meet FTA standards for cost eligibility of "force account" work stated in FTA Circular 5010.1D, Subsection 4.e.; see, http://www.fta.dot.gov/documents/C_5010_1D_Finalpub.pdf.

    But if the grantee's employee or official performs professional services in connection with a grant and charges the value of those professional services as a project cost, although OMB Cost Principles do not expressly prohibit that arrangement, many issues must be resolved before FTA can justify those costs as reasonable. First, a grant program manager/administrator needing the professional services would be required under the FTA's force account standards at FTA Circular 5010.1D, Subsection 4.e to: * * * * *

    1. Submit documentation equivalent to a sole source justification stating the basis for a determination that no private sector contractor has the expertise to perform the work. In addition, the required documentation must provide the basis for the grantee decision to use force account labor including the following information;
    2. Provide the present worth of the estimated cash drawdown for both the force account and private sector contract options. In the analysis, use the current interest rate paid on one-year Treasury Bills as the discount rate;
    3. Include the cost of preparing documents; cost of administration and inspection; cost of labor, materials and specialized equipment; cost of overhead; and profit for private contract;
    4. Include the unit prices for labor; materials and equipment; overhead; and profit, if applicable for private contract;
      * * * * *

Then the grant administrator/manager would still need to obtain the approval of a grantee official with delegated authority to approve the arrangement before costs could be billed to the project.  The grant administrator/manager could not simply contract with whomever he/she chose.

FTA requirements for sole source contracts are described in Chapter VI, Subparagraph 3.i(1)(b) of FTA Circular 4220.1F, "Third Party Contracting Guidance."  A grantee's failure to comply with the FTA requirements for full and open competition because it did not obtain the proper grantee approvals for its sole source contract would probably result in the grantee being required to return to FTA any funds expended for that procurement.

Second, another very serious problem with this situation concerns the problem of a personal conflict of interest on the part of a grantee official. Chapter III, Subsection 1.a of FTA Circular 4220.1F, describes the Federal prohibitions against personal conflicts of interest (real or apparent).  At a minimum, this arrangement should have been disclosed in the grant application and approved in advance by FTA.

The FTA Best Practices Procurement Manual (BPPM) discusses conflicts of interest in section 2.4.2.2.2 - Standards of Conduct and Conflicts of Interest: Personal and Organizational. The BPPM is available online.   Third, we question whether, in your example, the costs for the professional services paid the executive director, in fact, were reasonable under the standards of OMB Cost Principles.

Fourth, we also question whether, in your example, the executive director performing the professional services was "double-billing" under the grant, both for a portion of her salary as executive director involved with the project and as a "consultant" performing professional services.  This is prohibited by OMB "Cost Principles for Non-Profit Organizations (OMB Circular A-122)," 2 C.F.R. Part 230, Appendix A, Paragraphs A.2.f and C.1.  (Revised: July 2010)

Q. Why can't negotiations just be done with the best-qualified, top ranked firm on an RFP for professional services?

A. Grantees are required to comply with either DOT regulations, "Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments," 49 C.F.R. Part 18, or DOT regulations, "Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations," 49 C.F.R. Part 19, as applicable. These regulations limit the use of qualifications-based selection procedures to procurements of architectural/engineering (A/E) professional services; see, 49 C.F.R. § 18.36(d)(3)(v) and 49 C.F.R. § 19.40(f)(2),

For all other procurements using competitive proposals, awards are to be determined on the basis of price and other factors; see, 49 C.F.R. § 18.36(d)(3)(iv) and 49 C.F.R. § 19.43  FTA's enabling legislation, however, does permit award to be made "to other than the lowest bidder if the award furthers an objective consistent with the purposes of this chapter, including improved long-term operating efficiency and lower long-term costs," 49 U.S.C. § 5325(c). (Revised: July 2010)

Q. Does FTA Circular 4220.1F govern legal service contracts that provide only general counsel representation for an agency if the representation is not related to a transit project?

A. Whether FTA Circular 4220.1F, "Third Party Contracting Guidance," applies to a contract awarded for general operating services, such as legal services for general counsel representation, depends upon whether FTA is participating in the costs of that contract.

If the grantee has a grant for a specific project and the grantee is billing FTA an overhead charge under the grant, and the overhead charge includes a portion for general legal services, then FTA Circular 4220.1F applies to the contract for general legal services.  Because a grantee may choose to charge or not to charge overhead costs to the grant, we cannot assume in our answer that the grantee is in fact billing FTA for general counsel costs as part of its overhead costs.  If there is no billing for overhead costs, and the general counsel costs are not otherwise billed as direct costs to the grant, then the general counsel's contract would not be covered by FTA Circular 4220.1F.

If the grantee is receiving operating assistance under a grant, then FTA Circular 4220.1F applies to all costs of the grantee's operations incurred for contracts or purchase orders that are included in the computation of the grantee's  net operating deficit.  But if the grantee is receiving operating assistance and can demonstrate effectively that it did not use FTA assistance to finance a specific operations contract or contracts, then FTA Circular 4220.1F provisions would not apply to those contracts except for certain DBE principles discussed in that circular in Chapter II, Subparagraph 2.b(2)(b) of that circular. (Revised: July 2010)

Q. How could I justify using the FTA Best Practices Procurement Manual (BPPM) as criteria for a procurement process that procures medical services? I am conducting an audit of an agency that procures medical services. Your BPPM is the best I've seen, but medical services are quite different than transit projects.

A. The BPPM sets forth many Federal requirements, as well as transit industry "best practices" that are either not directly applicable or not relevant to buying medical services with non-federal funds.  However, the basic principles underlying the requirements of the BPPM may be helpful.  FTA grantees, for example, would be expected to comply with FTA requirements as expressed in the BPPM when they procure medical services using Federal funds.
For your purposes, the BPPM contains a guide to fundamental procurement principles, rather than precise procedures, especially when they pertain to the procurement of professional services.  Beginning at Section 6.4* - Professional Services, of the BPPM, note that, "it does not make sense to buy the services of a brain surgeon through a low bid process."  The BPPM also reminds you to consult your State law regarding any relevant statutes pertaining to the procurement of professional services to see what is specifically permitted or required.

When judgments will be necessary for the procuring agency to select competent, qualified service providers at reasonable prices, you should use a competitive negotiated (proposal) procurement process (not sealed bidding).  Negotiated procurements are covered in Section 4.5** - Competitive Proposals (Request for Proposals), which addresses evaluation of proposals, including evaluation criteria and scoring mechanics, as well discussions and clarifications with the offerors.
As far as the agency's documentation of its selection decision and actual negotiation of the contract, you may find Section 5.4.2*** - Negotiated Procurements, helpful. Another useful section of the BPPM may be 5.1 - Responsibility of Contractor.  The procuring agency will need to determine that the service providers have the resources and a history of successful performance under other contracts.
____________
* Section 6.4, Professional Services, of the Best Practices Procurement Manual (BPPM) is available online.
** Section 4.5, Competitive Proposals (Requests for Proposals), of the Best Practices Procurement Manual (BPPM) is available online.
***Section 5.4,2. Negotiated Procurements, of the Best Practices Procurement Manual (BPPM) is available online.
**** Section 5.1, Responsibility of Contractor, of the Best Practices Procurement Manual (BPPM) is available online.

Q. Can you define the difference between "Professional Services" and "Operations/Management Services"?

A. FTA has not established formal definitions for "professional services" or for "operations/management services."  Generally, however, we consider "professional services" to be a subset of or related to "operations/management" services.

"Professional Services"

FTA recognizes services identified in 49 U.S.C. § 5325, "program management, architectural engineering, construction management, a feasibility study, and preliminary engineering, design, architectural, engineering, surveying, mapping, or related services" as "professional services." In addition, we recognize the services of accountants, appraisers, archaeologists, business consultants, business development managers, lawyers, physicians, professors, public relations professionals, researchers, real estate brokers, translators, and web designers to be professional services.  Frequently, but not always, individuals that perform professional services are required to have a license.  Those identifying themselves as "independent" are sought after on the basis of knowledge, reputation, ethics, and creativity, as well as price.  While FTA grantees are required by law to select contractors performing professional services in connection with construction identified in 49 U.S.C. § 5325 on the basis of their qualifications, Federal law and regulations require Federal grantees to select contractors offering other professional service on the basis of their cost as well as other factors important to the grantee.

Professional Services: We would suggest that you read the coverage on "Professional Services" in the FTA Best Practices Procurement Manual (BPPM), Section 6.4 – "Professional Services."  The BPPM is available online.

The BPPM notes that different States have defined "professional services" in different ways, and with some having established regulations covering the procurement of those services.  Thus you will have to consult your State law to determine if the legislature has defined professional services and prescribed procurement regulations.

FTA's enabling legislation requires grantees to procure professional architectural engineering (A&E) services on the basis of qualifications, rather than price competition.  FTA recognizes services such as "program management, architectural engineering, construction management, a feasibility study, and preliminary engineering, design, architectural, engineering, surveying, mapping, or related services," as specified  in 49 U.S.C. § 5325(b)(1), eligible for qualifications-based procurement procedures, provided that those services are directly in support of, directly connected to, directly related to, or lead to construction, alteration, or repair of real property.  The nature of the work to be performed and its relationship to construction, not the nature of the prospective contractor, determine whether qualifications-based procurement procedures may be used.

In contrast, even though State law may provide otherwise, DOT laws and regulations require the use of competitive price evaluation factors in conjunction with the technical/qualifications evaluation factors for such services as legal, medical, accounting, etc.  FTA's enabling legislation, however, does permit award to be made "to other than the lowest bidder if the award furthers an objective consistent with the purposes of this chapter, including improved long-term operating efficiency and lower long-term costs," 49 U.S.C. § 5325(c).

"Operations/Management Services"

FTA again has not defined the term "operations/management services," but would generally use that term to contrast capital activities, eligible for certain types of Federal assistance, from other activities needed to provide public transportation.  The term "operations," however, is used in several different contexts in FTA's regulations and policies, and thus its meaning varies with the circumstances. The term "operations" is used in a broad sense when referring to FTA grants for grantee "operations," as opposed to grants for "capital projects."  Here the term "operations" refers to everything the grantee is doing in order to use and manage its capital assets to provide public transportation.  Thus, "operations/management services" would include such functions as accounting, legal, procurement, etc., as well as operating the transit vehicles.


Q. Using qualifications-based procurement procedures is required for AE services, but in FTAC4220.1F,VI-11, it indicates the that it could be used for other procurements if permitted by state law.  Can the two-step method be used as long as all proposal prices are considered instead of just the most qualified proposer (like AE procurements require)?

Background: The County is considering procuring the services of one or more transportation operations/management contractor(s/provider(s). We want to encourage small/local providers to submit proposals. It seems best to pre-qualify firms to see what kind of companies are willing and able to provide the services and then negotiate on price based on what you have to work with.  Please respond by email if possible.
 
A.  The FTA Circular 4220.1F, Chapter VI 3.e. - "Two- Step Procurement Procedures," is not a "qualifications-based" selection procedure as that term is used when procuring A&E services.  Procurement using qualifications only (no prices) is permitted by FTA only for A&E services, and not allowed for other types of procurements - see Chapter VI 3.f.(2).  The two-step procedure described in VI 3.e. of the circular permits grantees to evaluate technical qualifications first and then determine which companies are qualified to submit price proposals in step two; i.e., to determine the "competitive range" on the basis of technical qualifications.  Having determined which contractors are qualified to perform the work, price proposals are then solicited in step two from all qualified firms.  Ultimately both technical factors and prices are considered when making the contract award decision (in accordance with the evaluation criteria published in the RFP).  If step two is a sealed bid approach, then the low responsive and responsible bidder will win the award.   This two - step approach is permissible for all types procurements when the grantee deems it advisable to "prequalify" bidders as to their technical capabilities to perform before soliciting prices.  The Circular is available online:
http://www.fta.dot.gov/laws/circulars/leg_reg_8641.html  (Posted: February 18, 2011)



Q. 
Under the old OMB Circular A-102, attachment O, there was a provision for professional services contracts. In Pennsylvania is it required that a municipal authority receiving federal funds do an RFP for legal services?

 A. Recipients of FTA grant funds are required to comply with the FTA Procurement Circular 4220.1F, which is available online: http://www.fta.dot.gov/laws/circulars/leg_reg_8641.html FTA requires grantees to procure professional services and solicit price proposals, which must be considered when awarding the contract.  This includes legal services.  Procurement using qualifications only (no prices) is permitted by FTA only for A&E services, and not allowed for other types of services - see Chapter VI 3.f.(2) of the Circular.  (Posted: February 25, 2011)