Chapter 1

**[Purpose and Scope]{.underline}**

1.1 [Assistance, Guidance and Requirements]{.underline} (10/02)

1.1.1 [FTA Circular 4220.1E]{.underline} (11/03)

1.1.2 [FTA Waivers and Approvals]{.underline} (6/03)

1.1.3 [Master Agreement]{.underline} (6/03)

1.1.4 [Federal Acquisition Regulation (FAR)]{.underline} (6/03)

1.1.5 [FTA Dear Colleague Letters]{.underline} (6/03)

1.1.6 [Locating FTA Documents]{.underline} (6/03)

1.1.7 [FTA Procurement System Reviews (PSRs)]{.underline} (11/03)

1.1.8 [FTA Helpline]{.underline} (6/03)

1.1.9 [Procurement System Self-Assessment Guide]{.underline} (11/03)

1.2 [Identifying a Contract]{.underline} (5/98)

1.2.1 [Offer, Acceptance, Consideration]{.underline} (5/98)

1.2.2 [Oral v. Written]{.underline} (5/98)

1.2.3 [Mutual and Unilateral Mistakes]{.underline} (5/98)

1.2.4 [Procurements Often Overlooked]{.underline} (5/98)

1.3 [Applicability of Federal Requirements]{.underline} (5/96)

1.3.1 [Recipient and Subrecipient]{.underline} (5/96)

1.3.2 [Federal Contractual Sphere]{.underline} (6/03)

1.3.3 [Types of Contract Actions]{.underline} (5/98)

1.3.3.1 [Supplies, Services, Equipment and Construction]{.underline}
(5/98)

1.3.3.2 [Legal and Associated Services]{.underline} (5/98)

1.3.3.3 [Employment Contracts]{.underline} (5/98)

1.3.3.4 [Real Estate Contracts]{.underline} (11/03)

1.3.3.5 [Intergovernmental Agreements, Joint Procurements,
Piggybacking/Assignments]{.underline} (03/04)

1.3.3.6 [Subgrants]{.underline} (6/03)

1.3.3.7 [Equipment Leases]{.underline} (5/98)

1.3.3.8 [Revenue Contracts]{.underline} (1/02)

1.3.3.9 [Transit Oriented Joint Development Projects]{.underline} (7/02)

1.3.3.10 [Disposition of Surplus]{.underline} (10/05)

> 1.3.3.11 [Operating Assistance, Preventive Maintenance, CMAQ and JARC
> Projects]{.underline} (11/03)

1.3.3.12 [E-Commerce]{.underline} (6/03)

**1.1 ASSISTANCE, GUIDANCE AND REQUIREMENTS**

The topics addressed by this Manual are developed according to a
standardized format, which consists of three parts: (1) Requirements,
(2) Discussion and (3) Best Practices.

  -----------------------------------------------------------------------
  **REQUIREMENT**

  Where a *requirement* exists in the third-party procurement regulations
  which grantees must follow, a table entitled REQUIREMENT will set forth
  the pertinent sections of the *FTA Circulars*, the *Master Agreement*
  (MA), the *Code of Federal Regulations* (CFR\'s) or an FTA *Dear
  Colleague Letter*. When there is a mandatory requirement it will be
  clearly set forth as such.
  -----------------------------------------------------------------------

**DISCUSSION**

**Following the statement of the requirement, or if there is no
requirement as such, there will be a *discussion* section giving some
definition and guidance concerning the meaning or purpose of the topic
being presented.**

**Best Practices**

In those situations where the Federal or grantee practices have proven
to be effective, the Manual will present these *best practices* for the
assistance and guidance of the grantee. The procedures and practices
presented are not mandatory unless so identified. These best practices
are meant to be informative and helpful to the grantee community. They
are offered for the guidance and assistance of the grantee, but it is
also recognized that a grantee may have a unique situation that
precludes it from adopting the procedures of another grantee in a
certain area.

**1.1.1 [FTA Circular 4220.1E]{.underline}**

This Circular sets forth the requirements a grantee must adhere to in
the solicitation, award and administration of its third party contracts.
The Circular contains 54 mandatory procurement standards that grantees
must meet in their procurement operations. These 54 standards are set
forth in Appendix B.19 -- *Mandatory Procurement Standards Worksheet.*
The "Worksheet" provides cross-references to specific paragraphs in the
Circular where the standards may be found, and a column for grantees to
cross-reference the standards to their own policies and procedures.
Grantees are encouraged to review their written procurement policies to
ensure that they cover each of the 54 mandatory standards.

The requirements of the Circular are based on the common grant rules
found at 49 CFR Part 18 (State and Local Governments) and 49 CFR Part 19
(Institutions of Higher Education, Hospitals, and Other Non-Profit
Organizations), and the Federal Transit Laws. The Best Practices
Procurement Manual will state the requirements of this Circular wherever
they pertain to a topic being covered by the Manual. Since this Circular
is updated periodically, grantees must ensure that they consult the
latest edition of the Circular.

This Circular replaces 4220.1D dated 4-15-96 and Change 1, dated 8-4-98.
The Circular incorporates policy updates contained in several Dear
Colleague letters issued since 1996.

[Annotated Circular]{.underline} - FTA has also published an annotated
version of this Circular with interpretive comments. These comments were
developed to help avoid incorrect interpretations of the Circular that
have evolved over time. The comments explain what FTA believes the law
and regulations conveyed through the Circular actually require of its
grantees. As applicable laws, regulations and contracting practices
evolve, FTA will use the annotated Circular to convey its views to FTA
grantees and the transit industry as a whole. As changes are made in the
comments, a date will be inserted with the change to notify the reader
of when the change was made. The *Annotated Circular* is available
online at:
[www.fta.dot.gov/ftahelpline/fta_c4220_1](http://www.fta.dot.gov/ftahelpline/fta_c4220_1%0DE.doc)

[E.doc](http://www.fta.dot.gov/ftahelpline/fta_c4220_1%0DE.doc).

**1.1.2 [FTA Waivers and Approvals]{.underline}**

Grantees are required to process their requests for waivers and
approvals required by Circular 4220.1E through their regional FTA
offices. The regional FTA offices will instruct grantees as to the
required content and format of these requests. The FTA Administrator has
established the FTA signatory levels for granting *waivers*, and for the
*approval of actions* which require FTA approval in the Circular, as
follows:

Authority to grant waivers - Administrator

Authority to grant approvals - Associate Administrator for
Administration

*Waivers* pertain to those third party contract actions which a grantee
is not authorized to take under the Circular, but for which FTA has
authority to make exceptions.

*Approval/disapproval* covers third party contract actions which a
grantee is authorized to take under the Circular only after receiving
FTA approval. An example would be the use of advance payments for an
individual procurement.

**1.1.3 [Master Agreement]{.underline}**

The FTA Master Agreement contains standard terms and conditions
governing the administration of a Project supported with Federal
assistance awarded by the FTA through a Grant Agreement or Cooperative
Agreement with the Recipient. The FTA Master Agreement is updated
annually at the start of each fiscal year (October 1) and published on
the FTA web site. [^1] The Master Agreement contains procurement
requirements that may be referenced in the Best Practices Procurement
Manual.

**1.1.4 [Federal Acquisition Regulation (FAR)]{.underline}**

This Manual will frequently contain references to the FAR. These
references are, with one exception, always for information purposes and
are not intended to suggest that grantees must follow the FAR. [^2]
Neither grantees nor their contractors are required to follow the FAR.
The FAR citations are given in order to inform grantees how the Federal
government treats a particular issue but the Federal practices are not
binding on grantees.

The Federal Acquisition Regulation is available at the following
internet address: <http://www.arnet.gov/far>.

**1.1.5 [FTA Dear Colleague Letters]{.underline}**

The FTA Administrator periodically issues *Dear Colleague Letters* to
the FTA grantee community. When these letters affect grantee procurement
operations by imposing new FTA requirements or clarifying earlier FTA
policy statements, the Manual will be updated to reflect the new Dear
Colleague Letter. Those Letters that affect grantee procurement
operations are contained in Appendix A.2 of the Manual.

**1.1.6 [Locating FTA Documents]{.underline}**

The *FTA HelpLine* web site (see 1.1.8 below) contains a link to
important FTA documents, such as Circulars, Dear Colleague Letters, etc.
You may access these documents by using the *Online Tools & Resources*
tab at the following Internet address:
<http://www.fta.dot.gov/ftahelpline/index.htm>. You may also access FTA
documents at the FTA web site address:
[http://www.fta.dot.gov](http://www.fta.dot.gov/) under the "grantee"
page tab.

**1.1.7 [FTA Procurement System Reviews (PSRs)]{.underline}**

FTA conducts periodic reviews of its grantee's procurement systems.
These reviews are conducted in accordance with the *Guide for
Procurement System Reviews,* which FTA has developed in order to
evaluate the grantee's compliance with the requirements of FTA Circular
4220.1E. Grantees now have access to this *Guide* and can effectively
evaluate their own procurement system's compliance with 4220.1E using
the *Guide*. Section III.2 of the *Guide* contains checklists for each
type of contract to be reviewed as well as for the procurement
system-wide elements that FTA also evaluates. The Guide is now available
on the Internet at the following FTA web site address:
<http://www.fta.dot.gov/grant_programs/fta_oversight/4022_8480_ENG_HTML.htm>

# Best Practices

[Audit Follow-Up and Tracking System]{.underline} - Grantees should
consider adopting a tracking system for following up on the findings
generated by FTA Procurement System Reviews (PSRs), FTA Triennial
Reviews, and other public audits or internal audits conducted by the
agency\'s own management staff. The Los Angeles County Metropolitan
Transportation Agency (LACMTA) has developed an in-house, MS
Access-based database to manage audit findings and track corrective
actions to ensure they are implemented as proposed. This tracking
system - the Findings and Recommendations Management System (FARMS) - is
a central repository for all audits, findings, recommendations, audit
responses, proposed corrective actions, and audit follow-up and
close-out information. Information can be sorted in a variety of ways
such as by executive area, audit source, findings, dates, or
recommendation status (e.g., open, closed). Tickler reports are
routinely routed to inform appropriate parties of approaching or missed
deadlines and quarterly reports of implemented actions are routed to
management. This system enables the agency to track who proposed to do
what by when. The system is especially valuable when agency management
changes (usually with voting cycles) and incoming managers need to be
made aware of commitments made by their predecessors. LACMTA has seen a
number of benefits from their tracking system:

-   Minimizes likelihood of recurring findings that can lead to fines,
    schedule delays, fraud, waste, or abuse.

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-   Assures Management corrective action has been taken.

-   Maximizes audit value by tracking each finding and recommendation
    through resolution.

-   Automatically compiles Lessons Learned and Best Practices and
    greatly enhances reporting options.

LACMTA has agreed to make their system available to any agency that
wishes to implement an audit follow-up and tracking system capability.
[^3]

**1.1.8 [FTA Helpline]{.underline}**

FTA has initiated a *Third Party Procurement HelpLine* to provide a
means for FTA customers to get answers to their procurement questions.
The goal is to answer questions within 48 hours of receiving them. The
web site also contains a topical index to *Frequently Asked Questions*
and helpful links to important FTA documents, the FAR, the BPPM, etc.
The Internet address is: <http://www.fta.dot.gov/ftahelpline/index.htm>.

**1.1.9 [Procurement System Self-Assessment Guide]{.underline}**

FTA has developed a *Procurement System Self-Assessment Guide* for
grantees. This *Guide* is provided for assessing those particular areas
of procurement that have historically been the most problematic, as
determined by oversight reviews of transit agency procurement systems
(the Procurement System Reviews conducted by FTA). The *Guide* discusses
the top ten areas of deficiency consistently found during the
Procurement System Reviews. This Guide may be accessed online at:
[http://www.fta.dot.gov/ftahelpline/Cover_Self-Assessment_Guide.htm](http://www.ftahelpline.com/Cover_Self-Assessment_Guide.htm)

**1.2 IDENTIFYING A CONTRACT**

As defined by the Federal Acquisition Regulation, a \"contract\" means a
mutually binding legal relationship obligating the seller to furnish the
supplies or services (including construction) and the buyer to pay for
them. Contracts would include bilateral instruments, awards and notices
of awards; job orders or task assignment letters issued under basic
ordering agreements; letter contracts; orders, such as purchase orders,
under which the contract becomes effective by written acceptance or
performance; and bilateral contract modifications. Contracts do not
include grants and cooperative agreements. [^4]

The parties to a contract must possess the legal capacity to enter into
the contract, and they must assent to the terms of the contract. The
terms of the agreement must not require the performance of an illegal
act by the parties. Contracts may be either oral or written in form. The
subject matter of a contract determines which primary law applies.
Generally, Common Law rules apply for contracts. However, the *Uniform
Commercial Code* (UCC) Article 2 applies when the contract is for the
sale of goods.

**1.2.1 [Offer, Acceptance, Consideration]{.underline}**

Offer, acceptance and consideration are three essential elements of a
contract.

[Offer]{.underline} - The offer to enter into a contract can be made by
either party to the contract. In third party contracting, the offer is
normally made by the contractor. The grantee issues solicitations for
offers either by an Invitation for Bid (IFB) or a Request for Proposal
(RFP). The offer is made when the contractor submits a signed bid or
proposal in response to the grantee\'s solicitation. In small purchases,
however, the roles are reversed. The grantee issues a purchase order,
which is an offer, to buy supplies or services at a specified price
(usually obtained by a Request for Quotation that the grantee has issued
earlier).

The party to whom the offer is made, the offeree, may accept the offer
until it is terminated by the offeror. Termination of an offer can occur
in one of many different ways:

-   Expiration. The offer is not accepted within the specified time
    period or within a reasonable time, if no time period is stated. The
    offeree may agree to extend its offer beyond the specified time
    period without any changes or qualifying terms to its offer.

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-   Revocation. The offeror may withdraw the offer. The withdrawal is
    effective when received by the offeree. Generally, the revocation
    may occur at any time prior to acceptance by the offeree.

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-   Rejection. The offeree may reject the offer, and the rejection is
    effective when received by the offeror.

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-   Counter-offer. The offeree proposes new terms, not an inquiry
    regarding the possibility of new terms. The offeree\'s counter-offer
    to the offeror is effective when received by the offeror.

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-   Death. The offer is terminated when either the offeror or offeree
    dies. However, the offer passes to the personal representative of
    the offeree\'s estate in an option contract.

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-   Illegality. The offer is void if the subject matter is illegal.

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-   Destruction. The offer is terminated if the subject matter is
    destroyed.

[Acceptance]{.underline} - The offer must be accepted unequivocally. The
offeree must accept the offer without changing or qualifying the terms
of the offer. If the terms are changed, the offer is rejected and a
counter-offer is made. This terminates the original offer.

The offer may be accepted by any reasonable means of communication
(i.e., fax, telephone, etc.) unless the offeror indicates a specific
method of acceptance. As a general rule, the acceptance is effective
when mailed by the offeree, except where the offeror specifies the
acceptance must be received by a specific date and time.

Grantee procurements involve two processes for acceptance of offers.
When the grantee has issued an IFB or RFP, acceptance occurs when the
grantee assents to the terms made by the bidder or offeror in its bid or
proposal. The grantee accepts the offer by signing the contract and
issuing the offeror a notice of award. For small purchases the
contractor accepts the offer made by the grantee in its purchase order
by either signing the order (contract), if so required by the purchase
order, or by actually performing in accordance with the terms of the
purchase order.

[Consideration]{.underline} - Each party must give consideration for an
agreement to be a contract. Consideration exists when something of value
is given up in a bargained-for exchange. The following must exist:

-   Legal benefit. Someone receives something they had no prior legal
    right to receive.

-   Legal detriment. Someone gives up something they did not have to
    relinquish. This detriment does not have to involve a tangible
    detriment, only a legal detriment.

    **1.2.2 [Oral v. Written]{.underline}**

[Statute of Frauds]{.underline} - Generally, the Statute of Frauds
dictates whether contracts should be oral or written. In order to be
enforceable, the Statute of Frauds requires certain contracts to be
written and signed by the party charged with performing the contract.
The following contracts must be in writing:

-   An agreement in which the period of performance is greater than one
    year. The time period starts the date the contract is made, not on
    the date the performance commences.

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-   Contracts regarding real property; i.e., mortgages, easements, sale
    of real estate, etc.

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-   Contracts of guaranty; i.e., where someone guarantees to pay the
    obligation of another (send the deliverable item to X, and if X does
    not pay, I will).

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-   Contracts involving the sale of investment securities.

-   Promises by an executor/administrator to be held personally liable
    for the debts incurred by an estate.

-   Contracts for the sale of goods in excess of \$500.

    Consult your state law for applicable requirements.

    **1.2.3 [Mutual and Unilateral Mistakes]{.underline}**

If a material mistake has been made by one or both parties, there is a
possibility the contract is voidable. If a material mistake was made by
both parties (mutual mistake), either party has the option to void the
contract. If a material mistake was made by one party (unilateral
mistake), the contract remains valid. However, if the other party is
aware of or should have been aware of the mistake, the contract is
voidable.

**1.2.4 [Procurements Often Overlooked]{.underline}**

Many organizations may be overlooking procurements which could benefit
from the application of the procedures outlined in this manual. These
overlooked areas would include: utility services, mailing/shipping
services, telephone service, electric and gas service. In the past these
areas have been under the control of a single source supplier, but
recent deregulation has, or will soon, open up many of these areas to
competitive procurement possibilities.

**1.3 APPLICABILITY OF FEDERAL REQUIREMENTS**

One of the principles of contracting with Federal funds received
directly or indirectly from FTA is a recognition that, as a condition of
receiving the funds, certain specific Federal requirements must be met
not only by the recipient of the funds (the grantee) but also by
sub‑recipients and a grantee's third party contractors. The Federal
requirements to be met by the grantee's third party contractors will be
defined by the clauses included in the grantee's third party contracts.
It should also be noted that third party contractors are not required to
follow FTA Circular 4220.1E in their subcontracting activities.

The specific requirements for your particular grant of funds will be
found in the Master Agreement incorporated into the Grant Agreement or
Cooperative Agreement that was executed by you as a grant recipient.
Different rules apply depending upon whether you, as the recipient or
subrecipient, are a state, local, or Indian tribal governmental entity
or whether you are an institution of higher learning, a hospital, or
another non‑profit organization. Also, depending upon the type of
Federal funds you receive (e.g., operating assistance) or the nature of
the capital project you are involved in, the contractual sphere of
Federal requirements may include your procurements regardless of whether
Federal funds are actually drawn down to fund payments in a particular
procurement.

As the person responsible for procurement within your agency, you must
be aware that compliance with Federal requirements is a condition of
receipt of Federal funds. Failure to comply with these provisions may,
in accordance with the terms of your Grant or Cooperative Agreement, be
grounds for default of that agreement and result in the loss of the
funds.

**1.3.1 [Recipient and Subrecipient]{.underline}**

**DEFINITIONS**

The Master Agreement [^5] provides the following definitions for
\"Recipient\" and \"Subrecipient.\"

[Recipient]{.underline} ‑ Any entity that receives Federal assistance
directly from FTA to accomplish the project. The term \"Recipient\"
includes each FTA \"Grantee\" as well as each FTA Recipient of a
Cooperative Agreement. Except as FTA permits otherwise, the Recipient is
the entire legal entity even though only a single organization within
that entity is designated as the Recipient in the Grant Agreement or
Cooperative Agreement. [^6]

[Subrecipient]{.underline} ‑ Any entity that receives Federal assistance
awarded by an FTA recipient rather than from FTA directly. The term
\"subrecipient\" also includes the term \"subgrantee,\" but does not
include \"third party contractor\" or \"third party subcontractor.\"
[^7]

**DISCUSSION**

**It is important to determine whether your agency is a recipient or
subrecipient so as to determine what third party contracting rules under
the Circular and 49 CFR Parts 18 and 19 (the \"common grant\" rules) are
applicable to your procurements.**

***What Third Party Contracting Requirements Under 49 CFR Parts 18 and
19 and FTA Circular 4220.1E are Applicable to Recipients and
Subrecipients?***

Section 15 of the Master Agreement contains the requirements to comply
with applicable procurement standards of 49 CFR Part 18.36 (state,
local, and tribal governments) or 49 CFR Part 19.40 through 19.48 and
Appendix A (hospitals, non‑profits, and institutions of higher
learning). For purposes of this discussion, it is important to recall
that \"recipient\" includes \"grantee,\" and \"subrecipient\" includes
\"subgrantee\" other than third party contractors and subcontractors.

Paragraph 4 of the FTA Circular 4220.1E outlines four distinct rules
relating to the applicability of the procurement requirements to
recipients/grantees or subrecipients/ subgrantees:

1.  **If a transit authority is both a direct recipient of Federal funds
    and a subrecipient of a State, the State may permit the transit
    authority to follow the requirements of the Circular instead of
    State procurement requirements, although it is not obligated to do
    so. If your transit authority is in this situation, make sure that
    the procurement requirements you are obligated to follow for
    Federally assisted procurements are clearly stated, preferably by
    both the State and FTA.**

> **2. When a \"State\"** [^8] **procures property or services under a
> grant or cooperative agreement with FTA, it will follow the same
> procurement policies and procedures it uses for procurements using
> non‑Federal funds. States must, however, comply with the requirements
> of paragraphs 8.a (Full and Open Competition) and b (Prohibition
> Against Geographic Preferences), and 9.d (Procurement of Architectural
> and Engineering Services (A&E) ) of the Circular and must include in
> all purchase orders and contracts executed by it, or a subgrantee
> using Federal funds, all clauses required by Federal statutes,
> executive orders and their implementing regulations. Subgrantees of a
> \"State\" (except as indicated in subparagraph (4) below) shall follow
> State law and procedures when awarding and administering contracts.**
>
> **3. For the purposes of this Circular, regional transit authorities
> are not State agencies or instrumentalities.**
>
> **4. Subgrantees of States which are institutions of higher education,
> hospitals or other nonprofit organizations and all other FTA
> recipients/grantees will administer contracts in accordance with the
> requirements of the Circular. Grantees and subgrantees that fall
> within this category shall use their own procurement\
> procedures that reflect applicable State and local laws and
> regulations provided that the procurements conform to applicable
> Federal law.** [^9]

**1.3.2 [Federal Contractual Sphere]{.underline}**

+-----------------------------------------------------------------------+
| # REQUIREMENT                                                         |
+-----------------------------------------------------------------------+
| \"\...the Recipient agrees to include appropriate clauses in each     |
| third party contract stating the third party contractor\'s            |
| responsibility under Federal law, regulation, or directive, including |
| any\                                                                  |
| necessary provisions requiring the third party contractor to extend   |
| applicable requirements to its subcontractors to the lowest tier      |
| necessary.\"                                                          |
|                                                                       |
| Master Agreement § 2.e.(2)(a).                                        |
|                                                                       |
| "This Circular applies to all FTA grantees and subgrantees that       |
| contract with outside sources under FTA assistance programs. FTA      |
| grant recipients who utilize FTA formula funds for operating          |
| assistance are required to follow the requirements of this Circular   |
| for all operating contracts. These requirements do not apply to       |
| procurements undertaken in support of capital projects completely     |
| accomplished without FTA funds or to those operating and planning     |
| contracts awarded by grantees that do not receive FTA operating and   |
| planning assistance.\"                                                |
|                                                                       |
| FTA Circular 4220.1E, Paragraph 4.                                    |
|                                                                       |
| \"Project means activity or activities (task or tasks), listed in the |
| Project Description, the Approved Project Budget, and any             |
| modifications stated in the Conditions to the Grant Agreement or      |
| Cooperative Agreement applicable to the project.\"                    |
|                                                                       |
| Master Agreement § 1.l.                                               |
+-----------------------------------------------------------------------+

There are several aspects of your grant agreement which together
establish the sphere of procurements to which Federal requirements may
apply. In general you may undertake capital projects wholly without
Federal funds, and be confident that your grant agreements will not
affect those procurements. However, Federal grant requirements apply to
many contracts in addition to the contracts between you and your
suppliers for which you intend to draw down Federal payments. Generally,
the concept is that solely because of the receipt of Federal funds by a
grantee, certain clauses and federal requirements are required to be
included in contracts within the contractual sphere. There are four
procurement contexts to which the concept is important:

> 1\. The general \"flow down\" of Federal requirements in contracts;

2\. The inclusion of all Federal requirements if the transit property
receives operating assistance;

> 3\. The inclusion of all Federal requirements in all elements and
> activities if the overall capital project (as defined in a full
> funding grant agreement) includes Federal funds; and,
>
> 4\. The concept of a \"minimal operable segment.\"

These concepts are highlighted below so you can be aware of them in your
capital project planning and procurement planning processes. Each
Federal requirement has applicability\
criteria deriving from statute, regulation, or policy. The sphere of
contracts to which the requirements apply, if they are otherwise
applicable, is affected by these four concepts:

1\. [Flow Down]{.underline} -- Perhaps the easiest determinant of the
sphere to visualize is the concept of "flow-down." Federally required
clauses and requirements, as a general rule, are required to be included
in each third party contract at every tier and in each subrecipient
agreement at every tier. [^10] When clauses are required to flow down,
the clauses and requirements flow down to all levels of the Federal
funding chain beginning with the grantee.

2\. [Inclusion of Federal Requirements when Receiving Operating
Assistance]{.underline} ‑ The second example of the sphere involves
grantees receiving operating assistance. In this instance, all grantee
procurements except for capital projects undertaken without Federal
funds, must include all of the Federal requirements that would be
included if the operating budget were fully Federally funded and must
comply with the Circular. [^11] FTA maintains that one dollar of Federal
operating assistance converts the operating funds of the transit
property so that all such funds of the property therefore become subject
to Federal requirements. The rules on this dimension of the sphere are
clear ‑‑ if you receive operating assistance, the requirements of the
Circular apply, even if you do not intend to use that assistance in
support of any procurement action (e.g., you intend to apply all the
operating assistance to pay salaries of your direct‑hire bus operators).

3\. [Inclusion of Federal Requirements in Federally Funded Capital
Projects]{.underline} ‑ FTA has recently taken the position that, when a
capital project requires a full funding grant agreement,

> *. . . the Federal \'undertaking\' in a Fully Funded Grant Agreement
> (FFGA) will no longer be segmented into Project and Local Activities.
> All activities related to a Federal undertaking will be identified as
> the Federal Project. The Federal funds will be distributed among all
> the activities in the project at a level funding ratio equal to the
> percentage of Federal financial participation in the entire project.
> Thus, all the elements and activities of the project, as described in
> the FFGA will be funded, in part, with Federal funds; and, the
> requirements attached to the use of Federal funds will apply to each
> such task, unless otherwise exempted as provided in the applicable
> laws, regulations and policies.* [^12]
>
> Regardless of how large or small the percentage of Federal funding is,
> where a full funding grant agreement with the FTA is executed, all
> elements of the project identified in the agreement are within the
> sphere and must be procured in compliance with Federal requirements.
>
> 4\. [Minimal Operable Segment]{.underline} ‑ In the case of a
> multi‑task capital undertaking, the sphere includes a segregable
> portion of the undertaking, or a project portion that has independent
> functional utility. Under this concept, FTA and your agency identify a
> segment of the overall undertaking that represents *the minimal
> segment that can be feasibly operated independently.* Imagine you are
> able to overmatch Federal funds to construct a badly needed new
> fueling station with 85% state and local money. FTA\'s policies may
> not apply to every related expenditure of these state and local funds,
> e.g., landscaping or a nearby tire storage structure; however, neither
> will FTA apply its policies to the mathematically minimum portion of
> the project with no independent utility (e.g., applying FTA policies
> to the roof, alone); rather you must define a segregable project with
> FTA to which the Federal requirements apply, and you may then have
> additional latitude in the remaining portions undertaken without
> Federal funds. The full funding grant agreement will cover all of the
> necessary elements to build and operate the segment ‑‑ a station at
> each end of the segment, land to build the stations on, rail cars to
> run on the segment, systems to support the rail cars, rail on which
> the cars will run, etc. Federal requirements of the Circular apply to
> all of the individual contracts relating to these elements because
> they are part of the minimal operable segment and within the Federal
> contractual sphere. [^13]

**1.3.3 [Types of Contract Actions]{.underline}**

Details and Best Practices for meeting the requirements for various
types of contract actions that are described below can be found in other
sections of the manual.

**1.3.3.1 [Supplies, Services, Equipment and Construction]{.underline}**

+-----------------------------------------------------------------------+
| # REQUIREMENT                                                         |
+-----------------------------------------------------------------------+
| FTA Circular 4220.1E defines the requirements a grantee must adhere   |
| to in the solicitation, award and administration of its third party   |
| contracts. Such contracts would include the procurement of supplies,  |
| services, equipment and construction.                                 |
+-----------------------------------------------------------------------+

**1.3.3.2 [Legal and Associated Services]{.underline}**

+-----------------------------------------------------------------------+
| # REQUIREMENT                                                         |
+-----------------------------------------------------------------------+
| The requirements of FTA Circular 4220.1E apply to the procurement of  |
| legal and associated services, such as paralegals, investigators,     |
| expert witnesses, etc. if Federal funds are being used to fund these  |
| contracts (i.e., if receiving operating funds or if the legal         |
| services are funded by a capital grant).                              |
+-----------------------------------------------------------------------+

# DISCUSSION

As noted above, the requirements of FTA Circular 4220.1E apply to the
procurement of legal and associated services, such as paralegals,
investigators, expert witnesses, etc. if Federal funds are being used to
fund the contracts for legal services. FTA Circular 4220.1E would not
apply if the legal services are funded entirely with local funds. The
Circular requires such services to be procured competitively, as with
other types of services. However, there may be cases where the grantee
has pending litigation which might be jeopardized through a public
disclosure which would result from advertising the procurement
beforehand. In such cases the grantee may have valid grounds for
limiting

the competition to the degree of not publicly advertising the
procurement. In such cases a waiver request should be submitted to the
FTA.

**1.3.3.3 [Employment Contracts]{.underline}**

These are contracts with individuals that result in those individuals
becoming "employees" of the agency. These are not \"third party
contracts\" within the meaning of FTA Circular 4220.1E, and thus the
requirements of that Circular do not apply to employment contracts. The
term "employment contract" does not refer to a contract that retains a
consultant to perform temporary services for the agency. The individual
retained on these consultant-services contracts remains an independent
contractor and does not become an employee of the agency; thus these
contracts are not "employment contracts," and they are subject to the
requirements of FTA Circular 4220.1E.

**1.3.3.4 [Real Estate Contracts]{.underline}**

+-----------------------------------------------------------------------+
| # REQUIREMENT                                                         |
+-----------------------------------------------------------------------+
| Requirements related to the acquisition, use and disposal of real     |
| property may be found in the following regulations:                   |
|                                                                       |
| > \(a\) FTA Circular 5010.1C, *Grant Management Guidelines,* Chapter  |
| > II-2 *Real Property.* This Circular defines the requirements of the |
| > Federal Transit Laws which are codified at 49 U.S.C. Chapter 53.    |
| >                                                                     |
| > \(b\) 49 CFR - 18.31 *Real Property,* and 49 CFR Part 24, Subpart B |
| > *Real Property Acquisition*.                                        |
| >                                                                     |
| > \(c\) Master Agreement MA(12) Section 19.                           |
+-----------------------------------------------------------------------+

**DISCUSSION**

**The acquisition of real property, either by purchase or lease, is not
subject to the requirements of FTA Circular 4220.1E. *Real property* is
defined in 49 CFR § 18.3 as "land, including land improvements,
structures and appurtenances thereto, excluding movable machinery and
equipment." The acquisition of easements and rights of way are
considered real estate acquisitions and the requirements discussed
herein pertain to these types of acquisitions.**

**Real property acquisition[,]{.underline} use and disposal is also
covered by FTA Circular 5010.1C, Chapter II-2; 49 CFR Part 18.31; 49 CFR
Part 24 Subpart B; and by the FTA Master Agreement, Section 19.** [^14]
**It is important that the grantee be familiar with the requirements
established by FTA in Circular 5010.1C, Chapter II-2. This circular
establishes procedures to be followed by grantees in the following
areas:**

-   **The conduct of Hazardous Waste Site Assessments before acquiring
    real property.**

-   **The conduct of an independent appraisal by a certified
    appraiser.**

-   **The requirement for a review appraisal of the initial appraisal.**

-   **FTA review and concurrence requirements related to the grantee\'s
    offer to buy the property.**

-   **Incidental use of acquired real property as a means to supplement
    transit revenues.**

-   **Disposition of excess real property by sale, transfer to other
    programs, etc.**

-   **The requirement to prepare an excess property utilization plan for
    all real property no longer used for its original purpose.**

    **1.3.3.5 [Inter-Governmental Agreements, Joint Procurements,
    Piggybacking]{.underline}**

+-----------------------------------------------------------------------+
| # REQUIREMENT                                                         |
+-----------------------------------------------------------------------+
| FTA Circular 4220.1E, paragraph 7.e. encourages inter-governmental    |
| procurements:                                                         |
|                                                                       |
| > e\. [Intergovernmental Procurement Agreements]{.underline}.         |
|                                                                       |
| \(1\) Grantees are encouraged to utilize available state and local    |
| intergovernmental agreements for procurement or use of common goods   |
| and services. When obtaining goods or services in this manner,        |
| grantees must ensure all federal requirements, required clauses, and  |
| certifications (including Buy America) are properly followed and      |
| included, whether in the master intergovernmental contract or in the  |
| grantee\'s purchase document. [^15]                                   |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > \(2\) Grantees are also encouraged to jointly procure goods and     |
| > services with other grantees. When obtaining goods or services in   |
| > this manner, grantees must ensure all federal requirements,         |
| > required clauses, and certifications are properly followed and      |
| > included in the resulting joint solicitation and contract           |
| > documents. [^16]                                                    |
|                                                                       |
| \(3\) Grantees may assign contractual rights to purchase goods and    |
| services to other grantees if the original contract contains          |
| appropriate assignability provisions. Grantees who obtain these       |
| contractual rights (commonly known as \'piggybacking\') may exercise  |
| them after first determining the contract price remains fair and      |
| reasonable. [^17]                                                     |
+-----------------------------------------------------------------------+

**DISCUSSION**

**[Piggybacking]{.underline} - Your Agency may be able to take advantage
of existing contracts awarded by other governmental entities for goods
and services which you currently need. This practice has become known as
"piggybacking**." **Piggybacking is defined by FTA Circular 4220.1E,
paragraph 6.e, as follows:**

***"Piggybacking" is an assignment of existing contract rights to
purchase supplies, equipment, or services.*** [^18]

**The use of piggybacking, which involves assignment of contracts or
portions of contracts from the original purchasing agency to another
agency, is discussed in the BPPM, Section 6.3.3 - *Joint Procurements of
Rolling Stock and "Piggybacking*." Appendix B. 16 of the BPPM contains a
*Piggybacking Worksheet* that will assist a grantee wishing to piggyback
another agency's contract to work through the FTA requirements that must
be met in order for piggybacking to be permissible.**

**[Adding Federal Clauses to Existing Contracts]{.underline} - FTA's
policy regarding the addition of Federal clauses to existing contracts
distinguishes between State GSA-type contracts and contracts awarded by
other grantees. For example, in the recently issued Circular 4220.1E,
paragraph 7.e.(1), *FTA allows grantees to modify State GSA-type
contracts and add Federally-required clauses and certifications when the
grantee issues the first purchase order against the contract.* *However,
FTA has taken the position that grantees may not add Federal clauses and
certifications to their own contracts or those of other grantees in
order to purchase against these contracts with Federal funds.* The
rationale is that, in a State GSA-type contract, the purchase order is
the transit community's initial work on the contract -- much as any buy
off the Federal GSA IT schedule will be when a grantee chooses to use
this Federal contract. In other cases (like transit agency A buying off
transit B's contract), the transit-unique rules are in place and known
from the beginning, there is no expressed intent in the common grant
rule (as with State schedules) to balance the rules against each other,
and it would infer that a transit agency could essentially avoid most
Federal rules by placing orders through another transit agency. In
short, the integrity of the system would be threatened by extending the
after-the-fact option beyond schedule purchases.**

**[Joint Procurements]{.underline} - You may also wish to plan
procurements in advance with other agencies or governmental users, and
competitively award contracts that several governmental entities can
draw upon to meet their needs. Such an approach would create economies
of scale, reduce procurement lead times in the case of being able to use
existing contracts, and reduce administrative effort and expense. Any
third party contracts resulting from or utilized by grantees under
inter-governmental agreements are subject to the requirements of FTA
Circular 4220.1E. Inter-governmental agreements not involving third
party contracts would not be subject to FTA Circular 4220.1E. The topic
of joint procurements that makes use of advance planning by several
agencies is discussed in the BPPM, Section 6.3.3 - *Joint Procurements
of Rolling Stock and "Piggybacking."***

**Best Practices**

[Piggybacking]{.underline} - If it appears that there may be an existing
governmental contract which may be used for a specific need, you will
first want to obtain a copy of the entire contract and review it
carefully to determine if it contains the provisions required by FTA
Circular 4220.1E. This is an important first step, because the
requirements of the Circular apply to procurements made through
inter-governmental contracts and assignments. If the contract lacks
required provisions, you may be able to have it modified by the awarding
Agency to include the necessary Federal clauses. Among the steps you may
want to take are the following:

1.  Determine that the contract is still in effect or can be modified by
    the awarding Agency to permit sufficient lead time to make the
    required deliveries to your Agency.

2.  Determine that the specifications in the existing contract will meet
    your needs.

3.  Review the terms and conditions carefully to determine that they are
    acceptable to you; e.g., warranty provisions, insurance
    requirements, etc.

4.  Determine that the requirements needed by your Agency will not be
    *beyond the scope of the existing contract*, creating a sole-source
    (noncompetitive) add-on to the contract which will have to be
    justified in accordance with FTA Circular 4220.1E Paragraph 9.h.
    Generally, if you are working with an indefinite quantity contract
    you should have the needed flexibility to order additional
    quantities without having a \"new procurement\" action requiring a
    sole-source justification.

5.  Determine that the contract was awarded competitively, either
    through sealed bids or competitive proposals. If the contract was a
    sole-source award, you will have to justify a sole-source award in
    accordance with FTA Circular Paragraph 9.h. and your Agency\'s
    procurement procedures.

6.  You are not required to do a second price analysis if one was
    originally performed. However, you must determine that the contract
    prices originally established are still fair and reasonable.
    Circumstances should dictate the steps to be taken. For example, if
    the original award was made some time ago, you may want to do a
    market survey and/or perform price analysis to ensure that the
    prices are still fair and reasonable (even if the original award was
    competitive and a price analysis was performed initially).
    Similarly, if your deliveries are to be made to a local or
    centralized delivery point and the original contract calls for
    statewide deliveries, you should be entitled to a price reduction.
    See BPPM Section 5.2 *Cost and Price Analysis* for a discussion of
    price analysis techniques.

7.  Determine that the contractor has submitted all federally required
    certifications to the awarding Agency; e.g., Buy America, debarment,
    restrictions on lobbying, etc. See paragraph above *Adding Federal
    Clauses to Existing Contracts* and BPPM Section 4.3.3.2 - *Federally
    Required Submissions with Offers.*

> 8\. Work through the items in the Piggybacking Worksheet in Appendix
> B. 16 (and explained in Section 6.3.3 - *Joint Procurements of Rolling
> Stock and Piggybacking* of the BPPM). Note that some of the items on
> this Worksheet may overlap with items already mentioned above.

9.  You should prepare a Memorandum for the Record documenting your
    analysis of the various items mentioned above. This will constitute
    the *Written Record of Procurement History* required by Paragraph
    7.i. of FTA Circular 4220.1E.

[Joint Procurements]{.underline} - When it appears that your agency has
a common requirement with another governmental user, and that a joint
procurement is feasible, you will want to carefully consider whether a
joint procurement will result in obtaining the best price for all of the
parties to the procurement. It is quite possible that substantial
differences in the requirements (delivery schedule, quantities,
location, etc.) of one party to the joint procurement will result in
increased costs to the other parties and thereby negate other benefits
of a joint procurement such as lower solicitation costs. You must also
determine whether the different funding sources have different
procurement regulations, especially where there are Federal and
non-Federal requirements affecting contract clauses, etc. Should
conflicts occur, grantees should consult their respective legal counsels
or request FTA pre-award review of their procurement (as permitted by
FTA Circular 4220.1E, Paragraph 5.b.)

**1.3.3.6 [Subgrants]{.underline}**

+-----------------------------------------------------------------------+
| # REQUIREMENT                                                         |
+-----------------------------------------------------------------------+
| FTA Circular 4220.1E, paragraph 4, defines the applicability of the   |
| Circular to subgrants:                                                |
|                                                                       |
| > 4\. [APPLICABILITY]{.underline}. This circular applies to all FTA   |
| > grantees and subgrantees that contract with outside sources under   |
| > FTA assistance programs. . . .                                      |
|                                                                       |
| a.  [States]{.underline}. When procuring property and services under  |
|     a grant, a State will follow the same procurement policies and    |
|     procedures that it uses for acquisitions that are not paid for    |
|     with Federal funds. States must, at a minimum, comply with the    |
|     requirements of paragraphs 7m, 8a and b, and 9e of this circular  |
|     and ensure that every purchase order and contract executed by it  |
|     using Federal funds includes all clauses required by Federal      |
|     statutes and executive orders and their implementing regulations. |
|                                                                       |
| > b\. [All Other Recipients]{.underline}. Subgrantees of states and   |
| > all other FTA grantees (to include regional transit authorities)    |
| > will administer contracts in accordance with this circular.         |
|                                                                       |
| 49 CFR § 18.37 -- *Subgrants* requires States and all other grantees  |
| to ensure that their subgrantees comply with certain requirements.    |
| These requirements are discussed below.                               |
+-----------------------------------------------------------------------+

**DISCUSSION**

**Subgrants themselves are not \"third party contracts\" within the
meaning of FTA Circular 4220.1E, and thus the requirements of that
Circular do not apply to the subgrant awards. However, to the extent
that the subgrantee contracts with third parties, the FTA Circular
applies to such contracts awarded by the subgrantee.**

***All subgrantees* are required to include in their contracts the
clauses required by Federal statutes and executive orders and their
implementing instructions. See BPPM Appendix A.1 *Federally Required and
Other Model Contract Clauses*.**

***Subgrantees which are institutions of higher education, hospitals or
other nonprofit organizations, and all subgrantees of grantees which are
not States,* are required to administer their contracts in accordance
with all of the requirements of the FTA Circular 4220.1E, *Third Party
Contracting Requirements*. *Subgrantees of states (excluding
institutions ***

***of higher education, hospitals or other non-profit organizations)*
are authorized to follow state law and procedures when awarding and
administering contracts.**

**If you are a grantee awarding subgrants with FTA funds, you will want
to have an overview system in place for periodic reviews of your
subgrantees to ensure that they are in compliance with the requirements
of FTA Circular 4220.1E and the requirements of 49 CFR Part 18.37. The
Federal government practice (FTA) is to perform periodic Procurement
System Reviews (PSR\'s) of its grantees, evaluating their procurement
activities against the requirements of the circular. FTA has developed a
*Procurement Systems Review Guide* for its review teams, and you may
want to obtain a copy of this guide for your review of subgrantees. (See
BPPM Section 1.1.7 - *FTA Procurement System Reviews* above). You should
note that 49 CFR Part 18.37 imposes a responsibility on all grantees to
ensure that their subgrantees have included all Federally required
clauses in their contracts and that the subgrantees are aware of
requirements imposed on them by Federal statute and regulation,
including those requirements imposed by 49 CFR Part 18. 49 CFR Part
18.37(a)(3) specifically mentions a responsibility to include a clause
in all cost reimbursement subgrants that the subgrantee comply with Part
18.42, which deals with retention and access requirements for records.**

**1.3.3.7 [Equipment Leases]{.underline}**

+-----------------------------------------------------------------------+
| # REQUIREMENT                                                         |
+-----------------------------------------------------------------------+
| Requirements related to the lease of equipment and facilities may be  |
| found in the following regulations:                                   |
|                                                                       |
| > \(a\) FTA Circular 4220.1E generally, and Paragraph 7.d which       |
| > requires, where appropriate, an analysis of lease versus purchase   |
| > alternatives to determine the most economical approach.             |
| >                                                                     |
| > \(b\) FTA Circular 5010.1C, *Grant Management Guidelines,* Chapter  |
| > II-3(d) *Leasing-Out Agreements.* These guidelines contain several  |
| > requirements which grantees must incorporate in their lease         |
| > agreements.                                                         |
| >                                                                     |
| > \(c\) FTA Master Agreement MA(12), Section 16, *Leases***.**        |
| >                                                                     |
| > \(d\) Capital Leases (49 CFR Part 639).                             |
+-----------------------------------------------------------------------+

**DISCUSSION**

**Since equipment leases are considered \"third party contracts\" within
the meaning of FTA Circular 4220.1E, the requirements of that Circular
apply to such procurements**.

**FTA Circular 4220.1E requires a lease versus purchase analysis to
determine the most economical approach to any given procurement. FTA
Circular 5010.1C, Chapter II-3(d),**

**deals with maintenance requirements under leases. The FTA Master
Agreement references regulations dealing with Capital Leases (49 CFR
Part 639).**

**[Lease vs. purchase alternatives]{.underline} - It is usually less
economical to lease equipment than to purchase it. However, there are
some instances where this is not true. For example, short-term leases of
equipment which is required for a short time or for a unique task may be
reasonable and economically sound. It may also be advisable to lease
equipment that undergoes rapid technological change such as personal
computers and other IT related equipment. n some cases, it is easier to
have equipment maintained if it is leased. But long term leases and
leases for items that should be purchased and capitalized but cannot be
because of budget constraints are not economically prudent. If a
decision is made to lease equipment, a lease vs. purchase analysis
should be made. The analysis should be appropriate to the size and
complexity of the procurement. In determining whether the lease of
equipment is feasible, the following factors must be considered:**

-   **Estimated length of the period the equipment is required and the
    amount of time of actual equipment usage;**

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-   **Technological obsolescence of the equipment;**

-   **Financial and operating advantages of alternative types and makes
    of equipment;**

-   **Total rental cost for the estimated period of use;**

-   **Net purchase price, if acquired by purchase;**

-   **Transportation and installation costs;**

-   **Maintenance, storage and other service costs;**

-   **Trade-in or salvage value;**

-   **Imputed interest costs; and**

-   **Availability of a servicing facility especially for highly complex
    equipment (can the Agency service the equipment if it is
    purchased).**

    **1.3.3.8 [Revenue Contracts]{.underline}**

+-----------------------------------------------------------------------+
| ##### REQUIREMENT                                                     |
+-----------------------------------------------------------------------+
| 49 CFR Part 18.25 *Program Income* states that *grantees are          |
| encouraged to earn income to defray program costs.*                   |
|                                                                       |
| FTA Circular 4220.1E *Third Party Contracting Requirements* requires  |
| grantees to use competitive selection procedures in the award of      |
| revenue contracts.                                                    |
|                                                                       |
| The FTA Administrator\'s *Dear Colleague Letter C-98-25,* dated       |
| October 1, 1998 defined *revenue contracts* and stipulated            |
| requirements regarding competitive selection procedures, five-year    |
| term limits (no longer applicable) and requests for waivers.          |
|                                                                       |
| The FTA *Dear Colleague Letter* C-08-02, dated May 29, 2002 rescinded |
| the requirement that grantees obtain FTA approval for contract terms  |
| longer than five years.                                               |
+-----------------------------------------------------------------------+

**DISCUSSION**

**It is critical to *first determine the primary purpose of the
contract*. If it is to procure supplies or services, then it is not a
*revenue contract*. For example, management and para‑transit contracts
are not *revenue contracts* because the primary purpose is to manage a
project or operate a service. Royalties received as a by‑product of a
development or supply contract,\
e.g. software, would not be considered a *revenue contract*. Disposal of
Project property would be another example that would not be considered a
*revenue contract*.**

**If the *primary purpose is to generate revenue* then the contract is a
revenue contract. Advertising, concessions (food and news-stands), use
of right‑of‑ways, licenses, and land leasing are some examples of
revenue contracts. The definition of a revenue contract developed by FTA
is as follows:**

***A revenue contract is any third party contract whose primary purpose
is to either generate revenues in connection with a transit-related
activity or to create business opportunities utilizing an FTA‑funded
asset.***

**There are three concepts involved in the definition of a revenue
contract. First, the objective of revenue contracts is to lower program
costs, and thereby reduce both the federal and the grantee's financial
contribution. Creative ways of generating these revenues are encouraged,
and FTA uses broad latitude in approving them.**

**Second, revenue generation for the transit agency is a business
opportunity for the business community. Such business opportunities can
take various forms, such as: advertising, land development, concessions,
and utilization of right‑of‑ways.**

**Third, an FTA‑funded asset is anything that has been purchased, in
whole or in part, with FTA funds** **as part of an approved
transportation budget. This can include funds for acquisition, operating
expense or maintenance. Grantees must have a detailed familiarity with
the approved budgets to know if a particular activity is included and
funded by federal funds, in which case it would be governed by federal
requirements.**

All revenue generated activity involving third‑party contracts must
follow an important requirement of FTA Circular 4220.1E:

-   **The *requirement for competitive selection procedures* applies to
    all business opportunities including all revenue generating
    contracts.**

**[Competition]{.underline} ‑ The competitive process usually consists
of a formal bid or proposal process but it does not always have to.
Grantees may use their own judgment about how to meet the intent of the
competition requirement, but they must document the record to show how
competition requirements were met.**

**[Disadvantaged Business Enterprises]{.underline} ‑ DBEs should have
the maximum opportunity to participate in both contracts and
subcontracts that use any federal funds. The grantee is responsible for
taking all necessary and reasonable steps to ensure that DBEs have
maximum opportunity to compete for revenue contracts since these
contracts are considered business opportunities*.***

**[Contract Term]{.underline} - The five-year contract term limit was
rescinded by FTA's Dear Colleague Letter of May 29, 2002. For a
discussion of establishing appropriate contract terms, see BPPM Section
2.2.1 - *Contract Period of Performance Limitation.***

**[Flow‑down Requirements]{.underline} ‑ Generally, if federal funds
(not assets) are not used to generate revenues, then there are no
requirements to include federal clauses in the revenue contract
itself.**

**[Unsolicited Proposals]{.underline} ‑ These may come forth when
companies see an opportunity to use the transit system (an FTA‑funded
activity) to enhance their business interest. It may appear from such
proposals that no other company could offer the same product or service.
However, this does not justify a sole source contract. If the idea or
activity is of interest to you, the concept should be evaluated on its
own merit and revenue producing potential. If the decision is to
implement it, then a competitive process should be used to select the
contractor, unless you determine that the proposed concept itself is
proprietary.**

**Best Practices**

It is important to always keep in mind the requirement for competition.

The New York City Transit Authority (NYCTA) has experience in many of
the areas of revenue generation:

-   advertising ‑ buses, trains, stations and other property
    (billboards), direct advertising on back of MetroCard

-   lease/rental of MTA‑owned property ‑ concessions, news stands,
    retail space, subleasing of office space

The NYCTA procurement office does not handle the revenue generation
contracts. Various departments of the transit agency are responsible for
the revenue contracts, like the Advertising Department and Real Estate
Department. These Departments are aware of the federal requirements and
follow them to obtain third‑party contractors.

NYCTA was approached recently by a company, which submitted an
unsolicited proposal, who wanted to install an electronic information
system on the subway cars. The company wanted to program the system so
that riders would know what was overhead, e.g. Wall Street, theater
district. New York City decided to investigate the concept first to
determine if it was something that they wanted to do to enhance the
subway system. Deciding that they liked the idea, they then prepared an
RFP and solicited vendors on a competitive basis.

Metropolitan Atlanta Rapid Transit Authority (MARTA) received an
unsolicited proposal from a company about use of subway right‑of‑way for
linking Atlanta with fiber optic cable using MARTA's system‑wide
conduits. MARTA determined that they had unused conduits and could lease
space in them to various telecommunication companies. They contacted the
regional FTA office and received their approval for a non‑exclusive RFP
to seek competitive proposals for twenty‑year leases. This has produced
successful revenue contracts. [^19]

**1.3.3.9 [Transit Oriented Joint Development Projects]{.underline}**

+-----------------------------------------------------------------------+
| ##### REQUIREMENT                                                     |
+-----------------------------------------------------------------------+
| FTA Circular 9300.1 *Capital Program: Grant Application               |
| Instructions*, Appendix B, "Joint Development Projects."              |
|                                                                       |
| Federal Register Notice, March 14, 1997, *FTA Policy on Transit Joint |
| Development*. This *clarifies* the relationship between transit laws  |
| and regulations and FTA policy regarding property disposition, leases |
| of property, and sale of property affecting program income and the    |
| definition of "highest and best transit use" for joint development.   |
|                                                                       |
| FTA Circular 5010.1C *Grant Management Guidelines* states:            |
|                                                                       |
| > II-2b. [Use]{.underline} - \...FTA encourages incidental uses of    |
| > real property that can raise additional revenues for the transit    |
| > system or, at a reasonable cost, enhance system ridership.          |
| >                                                                     |
| > FTA approval is required for these incidental uses of real property |
| > which must be compatible with the original purposes of the grant.   |
|                                                                       |
| FTA Circular 4220.1E *Third Party Contracting Requirements* states    |
| the requirements the grantee must adhere to in third party            |
| contracting. Specifically, note:                                      |
|                                                                       |
| -   Competitive Selection Procedures                                  |
|                                                                       |
| ● Possible Flow Down of Certain Federal Clauses                       |
+-----------------------------------------------------------------------+

**DISCUSSION**

**FTA is encouraging transit systems to undertake transit‑oriented joint
development projects (TODs) with either new grants or with property
acquired under previous grants. The property can be associated with
rail, bus or other transit facilities.**

**The purpose of a joint development project is to:**

-   **secure a revenue stream for the transit system; and,**

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-   **help shape the community that is being served by the transit
    system.**

**Where the grantee retains effective continuing control for mass
transit purposes, all proceeds of sale, lease or other encumbrance of
the property will be treated as *program income* for use by the transit
system to meet capital and operating needs. The very nature of a joint
development project *requires long‑term relationships* between the
various contracting parties due to issues related to land use, zoning,
financial investment, long‑term leases, multiple contracting parties,
construction, and management. The Federal Register notice of March 14,
1997, clarified and addressed apparent inconsistencies in the use of
revenues. This Notice states:**

1.  **Joint development projects are considered "mass transportation
    projects" eligible for funding under FTA capital programs.**

2.  **All projects must generate a one‑time payment or revenue stream
    for transit use, the present value of which equals or exceeds the
    fair market value of the property.**

3.  **When the grantee retains continuing control and use of the joint
    development for mass transportation purposes, all proceeds will be
    considered *program income*.**

**Grantees are advised to submit the joint development proposal to the
FTA regional office**

**in accordance with the Federal Register notice of March 14, 1997,
paragraph entitled "Procedures." The proposals to FTA should include:**

1.  **The proposed joint development agreement;**

2.  **A market and financial assessment of the joint development project
    and its impact on the transit system;\
    **

3.  **A statement of the outcome of planning and coordination between
    the joint development project and the transit facility; and**

4.  **Documentation of the projected benefits for the transit system as
    well as the effective continuing control of the joint development
    project for transit purposes.**

**[Competition]{.underline} is an important requirement in the
development of the project. Requirements for full and open competition
of the proposed project can be obtained by: public announcements in the
newspapers and trade journals; building a solicitation list that is
inclusive and not exclusive; developing a realistic response time for
developers, knowing that developers have to frequently build a "team" to
respond to the RFP; having realistic**

**criteria to judge the responses; having an evaluation team with broad
and diverse experience rate the proposals; and, competitive
negotiations.**

**[Flow‑down requirements]{.underline} dealing with Federal clauses in a
joint development project will follow the federal funds. It must be
determined whether and to what degree Federal regulations apply,
particularly to the privately funded, non‑transit portion of the
project. These regulations could include: National Environmental Policy
Act, Davis‑Bacon Act, Buy America Act, labor protection arrangements,
and third‑party procurement requirements. You should determine (with
FTA's assistance as necessary) the most appropriate procedures for
satisfying any flow‑down requirements, given the particular
circumstances of your project.**

**Best Practices**

Atlanta's transit system, Metropolitan Atlanta Rapid Transit Authority
(MARTA), is involved in a joint development project called the Lindbergh
Center. Their objective is to build a village that will: increase
ridership, be high‑density mixed use, be a livable community, generate
long‑term revenue, integrate the station and development. They have
addressed the issues, been through the procurement process, and selected
a developer. How did they do this? They began by working first with
their FTA regional office in explaining what they wanted to do. Next,
they

developed three requests for proposals (RFPs) leading to three contracts
for: marketing the property, evaluating the development proposals, and
the development itself.

The question of open and full competition was met through the marketing
strategy. The marketing plan was critical in reaching out to developers
who might bid on the project. MARTA set a target of 500 developers to
reach through a variety of methods: a predetermined listing of potential
developers, advertising in major newspapers (Wall Street Journal),
national and international solicitations. An outside management
consulting firm was retained to assist

MARTA in the evaluation of developers' proposals. The Development RFP
detailed the requirements of the expected development proposals.
Included in the evaluation factors was a

category of "maximize revenues and returns to MARTA." The process was
successfully completed and a developer has been chosen. [^20]

**1.3.3.10 [Disposition of Surplus]{.underline}**

+-----------------------------------------------------------------------+
| # REQUIREMENT                                                         |
+-----------------------------------------------------------------------+
| Requirements related to the generation of program income, and the     |
| disposition of surplus equipment, supplies and real property may be   |
| found in the following regulations:                                   |
|                                                                       |
| > \(a\) FTA Circular 4220.1E (general principles applicable to all    |
| > contracts involving Federal funds or Federally funded assets).      |
| >                                                                     |
| > \(b\) FTA Master Agreement MA(12), Section 19.g *Disposition of     |
| > Project Property*.                                                  |
| >                                                                     |
| > \(c\) 49 CFR 18.25 *Program Income*; 18.31 *Real Property*; 18.32   |
| > *Equipment*; 18.33 *Supplies.*                                      |
| >                                                                     |
| > \(d\) FTA Circular 5010.1C, *Grant Management Guidelines*, Chapter  |
| > II-2c, *Real Property -- Disposition;* Chapter III-4 *Program       |
| > Income*.                                                            |
| >                                                                     |
| > \(e\) 49 U.S.C. 5334(g) *Transfer of Assets No Longer Needed*.      |
+-----------------------------------------------------------------------+

# DISCUSSION

FTA interprets Circular 4220.1E as applying to contracts for the
disposition of surplus supplies, equipment or property. Grantees are
also advised to be familiar with other regulations that specifically
address the disposition of property, especially FTA Circular 5010.1C,
Chapter II -- *Management of Real Property, Equipment and Supplies.*

It is important that the grantee be familiar with the disposition
requirements of FTA Circular 5010.1C, Chapter II-2(c) and 3(f). This
Circular establishes procedures to be followed by grantees in a variety
of situations, and grantees need to carefully review these requirements.
They pertain to circumstances such as:

-   **Selling property (competitively to the extent practicable) and
    reimbursing FTA its share of the fair market value.**

-   **Selling real property and using the proceeds to reduce the cost of
    the grant if it is still open or of other FTA funded capital
    projects.**

-   **Retaining title to real property by reimbursing FTA for its share
    of the current (appraised) market value.**

-   **Disposing of rolling stock before the end of service life.**

-   **Disposing of equipment.** [^21]

-   **Transfer of equipment to a public agency for non-transit use.**

-   **Selling and using proceeds for other capital projects.** [^22]

**[Transfer of Assets No Longer Needed]{.underline} -- 49 USC 5334
(g)(1) allows for the transfer of assets no longer needed by the
grantee. If a grantee decides an asset acquired with FTA funds is no
longer needed for the purpose for which it was acquired, the grantee may
request FTA approval to transfer the asset to a local governmental
authority to be used for a public purpose with no further obligation to
FTA. The Secretary of Transportation may authorize a transfer for a
public purpose other than mass transportation, but only if the Secretary
decides -**

> **A) the asset will remain in public use for at least 5 years after
> the date the asset is transferred;**
>
> **B) there is no purpose eligible for assistance under 49 USC Chapter
> 53 for which the asset should be used;**
>
> **C) the overall benefit of allowing the transfer is greater than the
> interest of the Government in liquidation and return of the financial
> interest of the Government in the asset, after considering fair market
> value and other factors; and**
>
> **D) through an appropriate screening or survey process, that there is
> no interest in acquiring the asset for Government use if the asset is
> a facility or land.**

**The decision to permit the transfer must be in writing and include the
reasoning that supports the transfer.**

**[Sale of Assets No Longer Needed]{.underline} -- 49 USC 5334 (g)(4)
allows for the sale of assets no longer needed, subject to the approval
of the Secretary of Transportation. When real property, equipment, or
supplies acquired with FTA funds are no longer needed for mass
transportation purposes as determined under the applicable assistance
agreement, the Secretary may authorize the sale, transfer, or lease of
the assets under conditions determined by the Secretary. The net income
from asset sales, uses, or leases (including lease renewals) must be
used by the grantee to reduce the gross project cost of other capital
projects carried out with FTA funds.**

**Best Practices**

One transit agency has developed detailed procedures for disposing of
surplus items. [^23] These include:

-   Competitive bidding procedures for materials that are regularly
    generated, regularly removed, high volume, and low unit price such
    as scrap steel or motor oil.

-   Development of specifications by the Materials Management Department
    in coordination with the User Department(s) for the surplus items to
    be offered for sale and review by the Purchasing Department.

-   Preparation of a solicitation and advertising of the items being
    offered for sale by the Purchasing Department when competitive bids
    are being solicited.

-   Issuance of a \"Invitation to Quote\" letter to prospective bidders
    by the Purchasing Department, or a letter inviting "offers to
    purchase" by the Sales Division when the selling price of the
    material is expected to be below the small purchase threshold. [^24]

-   Analysis of bids by the Purchasing Department, with a written
    recommendation for award to the winning bidder.

-   Internal agency approvals to award a contract for the *sale* of
    Authority property or services parallels that of the approval
    process to award a contract for the *procurement* of goods and
    services.

    **1.3.3.11 [Operating Assistance, Preventive Maintenance, CMAQ and
    JARC Projects]{.underline}**

+-----------------------------------------------------------------------+
| # REQUIREMENT                                                         |
+-----------------------------------------------------------------------+
| FTA Circular 4220.1E, paragraph 4, addresses the issue of the         |
| Circular's applicability to (a) operating contracts, (b) contracts    |
| utilizing Congestion Mitigation and Air Quality (CMAQ) and Job        |
| Access/Reverse Commute (JARC) project funds, and (c) preventive       |
| maintenance contracts which are funded with FTA formula capital       |
| funds:                                                                |
+-----------------------------------------------------------------------+
| > This circular applies to all FTA grantees and subgrantees that      |
| > contract with outside sources under FTA assistance programs. FTA    |
| > grant recipients who utilize FTA formula funds for operating        |
| > assistance are required to follow the requirements of this circular |
| > for all operating contracts. These requirements do not apply to     |
| > procurements undertaken in support of capital projects completely   |
| > accomplished without FTA funds or to those operating and planning   |
| > contracts awarded by grantees that do not receive FTA operating and |
| > planning assistance. [^25]                                          |
| >                                                                     |
| > Congestion Mitigation and Air Quality (CMAQ) and Job Access/Reverse |
| > Commute (JARC) project funds may be used for operations. Although   |
| > grantees must follow circular requirements for any specific         |
| > contracts that utilize CMAQ or JARC funds, the use of CMAQ and JARC |
| > funds for operations does not trigger the applicability of the      |
| > circular to all other operating contracts. [^26]                    |
| >                                                                     |
| > Grantees that utilize formula capital funds for preventive          |
| > maintenance contracts are subject to the following requirements of  |
| > the circular: If FTA formula capital funds are fully allocated to   |
| > discrete preventive maintenance contracts, then the requirements of |
| > this circular will apply only to those discrete contracts and must  |
| > be identified and tracked by the grantee. If the FTA formula funds  |
| > are not allocated to discrete contracts then all preventive         |
| > maintenance contracts are subject to the requirements of the        |
| > circular. [^27]                                                     |
+-----------------------------------------------------------------------+

**DISCUSSION**

**If a transit property receives FTA formula funds for *operating
assistance*, all grantee procurements must comply with FTA Circular
4220.1E except for capital projects undertaken without Federal funds or
those operating and planning contracts awarded by grantees that do not
receive FTA operating and planning assistance. Grantees whose net
operating deficit is financed by Federal funds cannot segregate any of
their operating or planning contracts so that they are exempt from the
requirements of the Circular. The Circular must be applied to all such
contracts.**

**When grantees receive *CMAQ and JARC funds* for operations projects,
the Circular requirements must be followed for those specific contracts
using CMAQ and JARC funds. However, the use of these particular funds
for operations does not trigger the applicability of the Circular to all
operating contracts, as is the case with FTA formula funds.**

**1.3.3.12 Commerce**

+-----------------------------------------------------------------------+
| # REQUIREMENT                                                         |
+-----------------------------------------------------------------------+
| FTA Circular 4220.1E, paragraph 7.q. recognizes E-Commerce as an      |
| allowable means to conduct procurements. If a grantee chooses to      |
| utilize E-Commerce, written procedures must be developed and all      |
| requirements for full and open competition must be met.               |
+-----------------------------------------------------------------------+

**DISCUSSION**

**The Best Practices Procurement Manual (BPPM) intends to cover the
topic of E-Commerce at a later date when industry experience has been
sufficient to indicate some "best practices" for the transit industry.
In the meantime, the *Dear Colleague Letter* of May 29, 2002 reminds
grantees that E-Commerce is an allowable means to conduct procurements.
If a grantee chooses to implement an E-Commerce system, written
procedures must be developed and all the requirements of FTA Circular
4220.1E must be met, including the requirement for "full and open
competition" as stated in FTA Circular 4220.1E, Paragraph 8a.**

[^1]: \- <http://www.fta.dot.gov/16874_16882_ENG_HTML.htm>.

[^2]: \- Grantees are required to use the Federal cost principles in FAR
    Part 31 to determine allowable costs on cost-type contracts and when
    negotiating (fixed) prices for contracts and modifications that are
    based on estimated costs. See BPPM Sections 2.4.3.1 and 2.4.3.2.

[^3]: \- Contact Michael Flores, LACMTA Audit Manager, at 213-922-6345
    or floresm@mta.net.

[^4]: \- FAR 2.101.

[^5]: \- Form FTA MA(12), October 1, 2005.

[^6]: \- Id. at Section 1.m.

[^7]: \- Id. at Section 1.p.

[^8]: \- See Paragraph 6.b., FTA Circular 4220.1E for definition of
    \"State.\" Note that the definition in both this paragraph of the
    Circular and 49 CFR Part 18.3 specifically excludes \"local
    governments\" (as defined therein as well) from the definition of a
    \"State.\" Thus, if you are a city government and a
    recipient/grantee, and if your state has a procurement statute that
    applies to \"local government\" procurements, you still must comply
    with the Circular and the provisions of 49 CFR Part 18.36(b) through
    (t). However, if you are a subrecipient/subgrantee of your state,
    you shall follow state law and procedures. The differences between
    these two instances may be subtle, but they are real differences
    that should be considered and addressed.

[^9]: \- *Id.* at Paragraph 7.a.

[^10]: \- The flow-down of clauses is not an absolute requirement; e.g.
    Drug and Alcohol Testing requirements apply only to the work of the
    prime contractor.

[^11]: \- Paragraph 4, FTA Circular 4220.1E.

[^12]: \- Letter from FTA Administrator to Executive Director, Dallas
    Area Rapid Transit dated March 3, 1992, page 2.

[^13]: \- In discussing statutory and regulatory requirements, Paragraph
    16 of FTA Circular 4220.1E advises grantees to contact other Federal
    agencies for specific guidance concerning the cross‑cutting
    requirements of those agencies. Section 8.1 of the BPPM, which
    discusses the federal contract clauses, will cross‑reference other
    agencies requirements, whenever possible.

[^14]: \- MA(12), dated October 1, 2005.

[^15]: \- Sub-paragraph (1) looks primarily to State government
    contracts that allow subordinate government agencies to buy from
    established schedules akin to the GSA schedules in Federal practice.
    FTA believes grantees may buy through these contracts provided all
    parties agree to append the required Federal clauses in the purchase
    order or other document that effects the grantee's procurement. When
    buying from these schedule contracts, grantees should obtain Buy
    America certification before entering into the purchase order. Where
    the product to be purchased is Buy America compliant, there is no
    problem. Where the product is not Buy America compliant, the grantee
    will still have to obtain a waiver from FTA before proceeding.

[^16]: \- Sub-paragraph (2) reflects FTA's belief that grantees should
    consider combining efforts in their procurements to obtain better
    pricing through larger purchases. Joint procurements offer the
    additional advantage of being able to obtain goods and services that
    exactly match each cooperating grantee's requirements. We believe
    this is superior to the practice of 'piggybacking' since
    'piggybacking' does not combine buying power at the pricing stage
    and may limit a grantee's choices to those products excess to
    another grantee's needs.

[^17]: \- Sub-paragraph (3) reflects grantees' continuing ability to
    assign contractual rights to others -- 'piggybacking.' FTA believes
    it is extremely important that grantees ensure they contract only
    for their reasonably anticipated needs and do not add quantities or
    options to contracts solely to allow them to assign these quantities
    or options at a later date.

[^18]: \- FTA's definition of "Piggybacking" in 4220.1E differentiates
    this practice from joint procurements or other intergovernmental
    agreements.

[^19]: \- Metropolitan Atlanta Rapid Transit Authority (MARTA), contact
    Mr. Durham Hamilton, Director of Program Management, at (404)
    848-4409, to discuss Atlanta's fiber optic cable contracts.

[^20]: \- Metropolitan Atlanta Rapid Transit Authority (MARTA), contact
    Ms. Lisa DeGrace, Director of Contracts, Procurement and Materials
    at (404) 848‑5467, to discuss Atlanta's transit oriented development
    and other revenue contracts.

[^21]: Equipment with a unit market value of \$5,000 or less, or
    supplies with a total aggregate value of \$5,000 or less, may be
    retained, sold or otherwise disposed of with no obligation to
    reimburse FTA, providing useful service life requirements have been
    met.

[^22]: The situations covered by the Circular include more than those
    listed above, and grantees need to carefully review the Circular
    instructions.

[^23]: \- New York City Transit. Contact Mike Zacchea, (646) 252-6204.

[^24]: \- If the material to be sold does not meet the criteria for
    competitive bidding, solicitation and advertising of individual
    items offered for sale would be a responsibility of the Sales
    Department, not Procurement.

[^25]: \- As a general rule, the circular, along with the underlying
    requirements in the Federal transit laws and regulations, applies
    whenever Federal funds are involved. Those grantees authorized to
    use formula funds for operating assistance must apply the circular
    to all operating contracts -- even if they are able to
    administratively segregate the federal funds to non-contract
    operating expenses. The ability to use formula funds for operating
    assistance hinges upon a grantee's total operating expenses and the
    portion of those expenses not offset by operating income. Since the
    entire range of operating expenses is considered in this
    calculation, each segment of those operating expenses must be
    subject to Federal standards. Grantees that are not authorized to
    use formula funds for operating assistance are not required to apply
    the circular to their operating contracts.

[^26]: \- Congestion Mitigation and Air Quality (CMAQ) and Job
    Access/Reverse Commute (JARC) funds may be used for operations by
    all grantees. The circular must be applied to all contracts that are
    funded, in part, by CMAQ or JARC funds. Using CMAQ or JARC funds for
    a specific operating contract or contracts does not trigger the
    requirement to apply the circular to other operating contracts. This
    is because the calculation required to use formula funds for
    operations contracts is not required as a prerequisite to using CMAQ
    or JARC funds for operating contracts.

[^27]: \- Grantees who use formula capital funds for preventative
    maintenance contracts must apply the circular to those contracts.
    If, through their accounting procedures, these grantees are able to
    allocate the Federal funds to discrete maintenance contracts, only
    those discrete contracts must adhere to the circular. If unable to
    allocate federal funds to discrete maintenance contracts, the
    circular applies to all maintenance contracts. Capital projects that
    don't include Federal funding are not required to conform to the
    circular.