Number range CHAPTER **Chapter 11**

**11 - [Disputes]{.underline}**

11.1 [Protests]{.underline} (6/03)

11.2 [Claims, Grievances and Other Disputes with
Contractors]{.underline} (6/99)

**11.1** **PROTESTS**

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| ## REQUIREMENT                                                        |
+-----------------------------------------------------------------------+
| § 7.l. of FTA Circular 4220.1E states:                                |
|                                                                       |
| > [Written Protest Procedures]{.underline}. Grantees shall have       |
| > written protest procedures to handle and resolve disputes relating  |
| > to their procurements and shall in all instances disclose           |
| > information regarding protests to FTA. [^1] All protest decisions   |
| > must be in writing. A protester must exhaust all administrative     |
| > remedies with the grantee before pursuing a protest with FTA.       |
| >                                                                     |
| > Reviews of protests by FTA will be limited to: (1) a grantee\'s     |
| > failure to have or follow its protest procedures, or its failure to |
| > review a complaint or protest; or (2) violations of Federal law or  |
| > regulation. [^2]                                                    |
| >                                                                     |
| > An appeal to FTA must be received by the cognizant FTA regional or  |
| > Headquarters Office within five (5) working days of the date the    |
| > protester learned or should have learned of an adverse decision by  |
| > the grantee or other basis of appeal to FTA. [^3]                   |
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**DISCUSSION**

You can adopt protest procedures that will provide an outlet for
supplier concerns that cannot be informally resolved. These procedures
will help you resolve these concerns on a schedule that minimizes the
ultimate cost to your agency. Consider including the procedures or key
requirements of the procedures in your solicitations. If you adopt and
adhere to these procedures, FTA's involvement will be very limited.

**Purpose**

A protest is a potential bidder's or contractor's remedy for correcting
a perceived wrong in the procurement process. A protest must be accepted
and reviewed with the understanding that integrity of the procurement
process as well as the procurement office may be at stake.

If an offeror does not have a satisfactory means of resolving his/her
disagreement with you, his/her efforts to obtain satisfaction, including
the possibility of litigation, may substantially interfere with the
procurement process and be costly to the agency. One aspect of the
protest process is am acknowledgment that public procurement officials
are making major public decisions, can conceivably err on occasion, and
that there should be some process short of litigation to remedy such and
error. The success of this process enables FTA to discharge its
responsibility while seldom becoming directly involved in a procurement
dispute.

**Best Practices**

There are three basic types of protests, based on the time in the
procurement cycle when they occur.

-   A pre-bid or solicitation phase protest is received prior to the bid
    opening or proposal due date.

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-   A pre-award protest is a protest against making an award and is
    received after receipt of proposals or bids, but before award of a
    contract.

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-   A post-award protest is a protest received after award of a
    contract.

[Content of Procedures]{.underline} -To ensure that protests are
received and processed effectively, all grantees must have adequate
written bid protest procedures. It is recommended that these procedures
be included or referenced in the solicitation document. If they are
referenced, information must be included on how a copy of the procedures
may be acquired by any interested party. When the procedures are
requested, they should be provided immediately. The written procedures
typically address the following elements:

-   Difference in procedures for pre-bid, pre-award and post-award
    protests;

-   Specific deadlines (in working days) for filing a protest, filing a
    request for reconsideration and for the grantee's response to a
    protest;

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-   Specific contents of a protest (name of protester,
    solicitation/contract number or description, statement of grounds
    for protest);

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-   Location where protests are to be filed;

-   Statement that the grantee will respond, in detail, to each
    substantive issue raised in the protest,

-   Identification of the responsible official who has the authority to
    make the final determination;

-   Statement that the grantee's determination will be final;

-   Statement that FTA will only entertain a protest that alleges the
    grantee failed to follow their protest procedures and that such a
    protest must be filed in accordance with the Circular; and

-   Allowance for request for reconsideration (if data becomes available
    that was not previously known, or there has been an error of law or
    regulation).

[Effect on Pending Actions]{.underline} - One of the concerns that may
arise in administering a protest is the effect on the award or contract.
The decision to open a bid or to award a contract prior to resolution of
a protest rests with you. However, should the grounds for the protest be
found valid by FTA, FTA may choose not to participate in the contract.
You must weigh this risk against the cost to the agency for terminating
the contract or providing alternative funding.

**11.2 CLAIMS, GRIEVANCES AND OTHER DISPUTES WITH CONTRACTORS**

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| ## REQUIREMENT                                                        |
+-----------------------------------------------------------------------+
| FTA Circular 4220.1E paragraph 7.k reads as follows:                  |
|                                                                       |
| > k\. [Responsibility for Settlement of Contract                      |
| > Issues/Disputes.]{.underline} Grantees alone will be responsible in |
| > accordance with good administrative practice and sound business     |
| > judgement for the settlement of all contractual and administrative  |
| > issues arising out of procurements. These issues include, but are   |
| > not limited to, source evaluation, protests, disputes, and claims.  |
| > These standards do not relieve the grantee of any contractual       |
| > responsibility under its contracts.                                 |
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+-----------------------------------------------------------------------+
| > FTA will not substitute its judgement for that of the grantee or    |
| > subgrantee , unless the matter is primarily a Federal concern.      |
| > Violations of the law will be referred to the local, State, or      |
| > Federal authority having proper jurisdiction.                       |
|                                                                       |
| FTA Circular 5010.1C, Chapter I, Section 7b deals with issues of      |
| *claims* and *change orders,* including the settlement of *disputes*. |
|                                                                       |
| The FTA Master Agreement MA(12), October 1, 2005, Section             |
| 43-*Disputes, Breaches, Defaults, or Other Litigation,* states that   |
| FTA has a vested interest in the settlement of any dispute, breach,   |
| default, or litigation involving the Project. Accordingly:            |
|                                                                       |
| a\. [Notification to FTA]{.underline}. The Recipient agrees to notify |
| FTA of any current or prospective major dispute, breach, default, or  |
| litigation that may affect the Federal Government's interests in the  |
| Project of the Federal Government's administration or enforcement of  |
| Federal laws or regulations. If the Recipient seeks to name the       |
| Federal Government as party to litigation for any reason, in any      |
| forum, the Recipient agrees to inform the FTA before doing so.        |
|                                                                       |
| b\. [Federal Interest in Recovery.]{.underline} The Federal           |
| Government retains the right to a proportionate share, based on the   |
| percentage of the Federal share awarded for the Project, of any       |
| proceeds derived form any third party recovery, except that the       |
| Recipient may return any liquidated damages recovered to the Project  |
| Account in lieu of returning the Federal share to the Federal         |
| Government.                                                           |
|                                                                       |
| c\. [Enforcement.]{.underline} The Recipient agrees to pursue all     |
| legal rights available under any third party contract.                |
|                                                                       |
| d\. [FTA Concurrence.]{.underline} FTA reserves the right to concur   |
| in any compromise or settlement of any claim involving the Project    |
| and the Recipient.                                                    |
|                                                                       |
| e\. [Alternative Dispute Resolution.]{.underline} FTA encourages the  |
| Recipient to use all alternative dispute resolutions procedures, as   |
| may be appropriate.                                                   |
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**DISCUSSION**

**FTA Circular 4220.1E paragraph 7k gives grantees the authority to
settle protests, claims and disputes with their third-party contractors.
The Circular stipulates "FTA will not substitute its judgement for that
of the grantee or subgrantee, *unless the matter is primarily a Federal
concern.*" The types of situations that constitute a *Federal concern*
are discussed below in the paragraph entitled FTA *Review and
Concurrence.***

**[Notification of FTA-]{.underline}The Master Agreement MA(12), Section
43a, requires grantees to notify FTA of any current or prospective major
dispute, breach, default, or litigation**

**pertaining to the Project. And if the Recipient seeks to name the
Federal Government as a party to the litigation for any reason, the
Recipient must inform the FTA before doing so.**

**FTA Circular 5010.1C, Chapter I, Section 7b(1)(d) requires grantees to
notify FTA of any current or prospective litigation or major disputed
claim in excess of \$100,00 relating to any third party contract. This
Circular also requires grantees to provide a list of all outstanding
claims exceeding \$100,000 and a list of all claims settled during the
reporting period as part of each quarterly progress report. A brief
description and reasons for each claim should accompany this list.**

**[FTA Review and Concurrence]{.underline} - The FTA Master Agreement
MA(12), Section 43d, states that FTA reserves the right to concur in any
compromise of settlement of any claim involving the Project and the
grantee. FTA Circular 5010.1C, Chapter I, Section 7b(4), *FTA Review and
Concurrence,* requires grantees to secure the FTA review and concurrence
in a proposed claim settlement before using Federal funds in the
following instances:**

**1. When the negotiated settlement exceeds \$100,00. This would include
any situation when the grantee is waiving liquidated damages in an
amount over \$100,000. The Government has a vested interest in the
recovery of liquidated damages, and the general rule is that liquidated
damages may not be waived. However, grantees may "set-off" the
liquidated damages against some other valid claim of the contractor, but
FTA concurrence is necessary in any "set-off" action.**

> **2. When insufficient funds remain in the approved grant to cover the
> settlement. The Government cannot be obligated to pay the grantee an
> amount that would exceed the funds obligated on the grant. To do so
> would be a violation of the Anti-Deficiency Act.**
>
> **3. Where a special Federal interest is declared because of program
> management concerns, possible mismanagement, impropriety, waste or
> fraud. FTA could notify the grantee that it wishes to review and
> concur in any particular claim/dispute settlement based on the
> criteria stated here in section 7b(4). Even more broadly, FTA may
> initiate a review of grantee claims under a particular grant whenever
> it deems a review to be necessary\--5010.1C, Section 7b(5).**
>
> **4. The requirement for FTA concurrence also applies to any
> settlement arrived at by arbitration, mediation, etc. Grantees must
> advise their contractors that any decisions reached through
> arbitration must be reviewed and approved by the FTA. The reason for
> this is that an arbitrator may require the grantee to pay for
> something that is ineligible for funding (unallowable cost) under the
> terms of the grant. The arbitrator may also require the grantee to pay
> its contractor an amount that would cause the funding limit of the
> grant to be exceeded, thus violating the Anti-Deficiency Act.**
>
> **5. There are certain situations that grantees must seek to avoid
> because they may result in the grantee being liable to its contractor
> but unable to recover from FTA. These circumstances may give rise to a
> FTA review, through its Project Management Offices and other oversight
> reviews, before FTA will participate in the cost of settling the
> claim/dispute. If grantees encounter any of these situations, and they
> believe the claim to be legitimate, they should be prepared to support
> a challenge by FTA. If the grantees's claim records substantiate that
> reasonable and prudent measures were taken to prevent or offset the
> causes underlying the claim, FTA may participate in the negotiated
> cost \[5010.1C, Section 7b(3)\]. The types of situations in question
> are those where the grantee has failed to:**

a\) obtain clear access to all needed right-of-way prior to award of the
construction contract;

> **b) execute all required utility agreements in time to assume
> uninterrupted construction progress;**
>
> **c) undertake comprehensive project planning and scheduling to
> achieve proper coordination among contractors;**
>
> **d) inform potential contractors of all available geo-technical
> information on subsurface conditions;**
>
> **e) assure that all grantee-furnished materials are compatible with
> contractor project facilities and/or equipment, and available when
> needed;**
>
> **f) complete all pre-construction survey and engineering prior to
> issuing the contractor a Notice to Proceed;**
>
> **g) obtain the necessary approvals and agreements from all other
> public** **authorities affected by the project prior to contract
> award;**
>
> **h) assure that all design and shop drawings are promptly approved
> and made available to the contractor as needed.**

**[Freedom of Information Act]{.underline} - Grantees are cautioned that
the written materials furnished to FTA with notifications of disputed
claims or relating to proposed statements of claims and disputes, are
subject to release to the public under the Freedom of Information Act
(FOIA). Therefore, when the dispute is still in the
evaluation/negotiation stage, and a settlement has not yet been reached,
a prudent approach would be for grantees to include in their quarterly
written reports to FTA only information that, if released, would not
prejudice the grantee's negotiation or settlement strategy.**

**Best Practices**

[Steps to be Taken Prior to Negotiations]{.underline} - When a claim
and/or grievance is initiated by one of the parties, the grantee should
take the following steps:

a\) Request from the contractor a written detailed position on each
separate claim setting forth the amount and rationale for the
contractor's positions on each item.

b\) List all the counterclaims by the grantee, setting forth the amount
and rationale for the grantee's position on each item.

c\) Perform a price, cost, technical and legal analysis, as required,
for each claim and/or grievance presented by the parties. See BPPM
Section 5.2 *Cost and Price Analysis.* A *technical analysis* is to
determine the validity of the claims and/or grievances, and to determine
the rebuttals to those claims and grievances. The *legal analysis* is to
consider all the factors available after the price, cost, and technical
reviews have been completed to determine the contractor's, the grantee's
and the Government's (FTA) legal position. Each review should be
performed by the persons qualified to make the particular
review/analysis.

d\) The grantee should then establish its best position assuming it
prevails on all of its claims and the other party loses all of its
claims before a court or arbitration panel. This is considered the
grantee's "best" position.

e\) The grantee should then determine the contractor's best position,
assuming the contractor prevails on all its claims before a court or
arbitration panel. This is the grantee's "worst" position.

f\) The grantee should then establish a "realistic" position, based on
the grantee's best judgement as to each item in issue, by attempting to
anticipate the outcome of a determination by a court or arbitration
panel. The "realistic" position should result from consideration of all
the arguments and facts gathered through the analysis above.

g\) Each claim or grievance item should be considered and handled
separately in the grantee's preparation for negotiations with the
contractor.

h\) If liquidated damages are involved in the claim/grievance
settlement, the Government has a vested interest in the liquidated
damages and will need a complete analysis of how the liquidated damages
amount was determined. Once assessed, liquidated damages may not be
waived by the grantee, without prior FTA concurrence. However, a valid
setoff against some other contract claims or other tradeoff for other
contractual deliverables may be appropriate with FTA approval.
Liquidated damages are considered assessed when a written notification
is sent to the contractor.

> Sections 9.2.3.5 *Delays*, and 9.2.3.6 *Acceleration,* should be
> carefully reviewed for guidance when settling claims involving delays,
> or claims where the contractor alleges "constructive acceleration" on
> the part of the grantee. Where, for example, there are *concurrent
> delays* (those caused by both parties), and it is impossible to
> apportion or separate the delays as to how much is due to the actions
> of the separate parties, then liquidated damages cannot be enforced.
> On the other hand, if the delays can be apportioned as to
> contractor-caused, grantee-caused, and "excusable" per the contract
> terms, then the grantee can enforce liquidated damages to the extent
> of the contractor-caused delays (but not for the grantee-caused delays
> or for "excusable" delays). The end product of your negotiations with
> the Contractor on the issue of delays and liquidated damages would be
> a contract modification extending the delivery date for "excusable
> delays" as defined by the contract terms, as well as for delays for
> which the grantee is responsible (changes, constructive changes,
> etc.). The delivery date would not be extended for delays that were
> caused by the Contractor. The newly established delivery date would
> then become the date used to assess liquidated damages.

i\) If there is an arbitration clause in the third party contract, FTA
must be notified before the matter is submitted to arbitration. FTA must
concur in any arbitration award before it becomes final and Federal
Funds are released.

[Negotiations]{.underline} - Negotiations should be on an *item-by-item
basis* with written arguments for each side. The grantee should
aggressively pursue all claims and counterclaims as well as defend
against all claims and counterclaims of the contractor. The final
position arrived at through the negotiations should be set forth and
justified in writing.

If diligent efforts to settle the claims and/or disputes on an
item-by-item basis have failed to resolve all the items, then a
determination can be made regarding the feasibility of a *total cost* or
other type settlement. If the determination is made by the parties to go
to a *total cost* or other type settlement, the grantee should write a
detailed explanation of how the parties arrived at the conclusion that
the total cost or the other type settlement was the best way to proceed.
In addition, the grantee should provide a complete explanation of how
the final settlement figure was reached, and how each item in the
claim/dispute was considered.

Finally, the grantee should not accept a contractor's claim for its cost
without having conducted an appropriate review/analysis. If the grantee
is unable to verify the cost prior to accepting it, the grantee should
conditionally accept it subject to later audit verification.

[When FTA Concurrence is Required]{.underline} - Should FTA request to
review the proposed settlement before it is implemented between the
grantee and its contractor, the grantee should send to the FTA Regional
Office a detailed summary of the settlement, and include as backup the
negotiation memorandum and all the pre-negotiation analyses, described
above, that led to the negotiations. In addition, the grantee should
provide a written opinion of counsel explaining why the proposed
settlement is fair and reasonable, consistent with State law, and in the
best interests of the grantee and the Government.

[Engaging Outside Counsel]{.underline} - If it becomes necessary for the
grantee to engage outside counsel to handle the settlement negotiations
or, if necessary, to litigate or arbitrate the case, the grantee must,
if grant funds are requested to cover the legal costs, obtain FTA's
concurrence in advance. Grantees must demonstrate to FTA that their own
legal resources are inadequate to handle the issues at hand, whether
because of the nature of the claim, the training and experience of its
personnel, or the potential strain on the grantee's staff resources.
Outside counsel must be selected through a competitive process that may
range from being very informal to very formal. Note that a
qualifications-based selection procedure, such as is permitted for A-E
procurements, is not permitted for legal services; cost/price proposals
must be requested and evaluated as apart of the selection process. The
fee arrangement with outside counsel cannot be based upon a contingency
or percentage of recovery methodology.

[Avoiding Disputes Through Proper Documentation]{.underline} -
*"Documentation of significant events as they occur in the form of
correspondence, daily diary entries, inspector's daily reports,
photographs, memoranda of telephone conversations and meetings, etc.,
creates a project record that is absolutely essential in evaluating
claims reaching litigation. Absolute attention to documentation is vital
in both discouraging submittals of invalid claims and properly analyzing
any claim filed."* [^4]

[Daily Logs]{.underline} - The daily reports/logs of the grantee's
inspector may be the most important source for claim research and
defense. Inspectors and field engineers must be trained to spot
change/claim situations and they must be instructed on what to include
in their reports, both on a routine basis and when they sense a real or
potential problem. The daily reports should track the construction
progress against the approved schedule (CPM Schedule). The daily reports
should also track the equipment on site as well as the utilization of
equipment. These inspector reports must be monitored carefully by the
inspector's supervisor to maintain high quality.

[Documentation of meetings and telephone conversations]{.underline} - In
order to avoid misunderstandings regarding agreements reached during
meetings and telephone conversations with the Contractor and/or between
grantee personnel, it is critical to prepare minutes of the meetings and
distribute them to all of the attendees. All important telephone
conversations should recorded on a Telephone Call Record, noting the
pertinent issues discussed, how the issues were resolved, who is
responsible for taking the required action, etc. The other party to the
call should always be sent a copy of the completed Telephone Call
Record.

[Photographs]{.underline} - Frequently, photographs are a valuable form
of documentation in a claim situation. The grantee's resident engineer
must make an adequate photographic record of the progress of the
contract. The photographs must be dated, properly identified, annotated
as to who took the photograph and the weather conditions at the time,
and filed. Photographs should cover the following items:

-   Progress of the work

-   Unusual construction techniques

-   Accidents or damages

-   Unsafe or hazardous working conditions

-   Reinforcing steel prior to concrete placement

-   Work completed prior to being covered

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-   Areas or activities where claims and/or changes are anticipated.

The construction contract should itself contain provisions requiring the
contractor to provide monthly progress photographs. The grantee's
resident engineer must participate in the choosing of locations, angles,
and subjects in order to maximize the usefulness of the photographs for
progress records.

[Alternative Dispute Resolution]{.underline}-The FTA Master Agreement
MA(12), Section 43e, encourages grantees to use alternative dispute
resolution procedures, as may be appropriate. The alternatives to
litigation that are most commonly used are *arbitration and mediation*.
Grantees are advised to be cautious in their decisions to use
arbitration. In cases that are complex, arbitration may not be
preferable over litigation because arbitrators frequently have
limitations on the amount of time they can devote to any individual
case. As a result, if the case is complex and time-consuming, it may be
necessary to change arbitrators during the proceedings, and this may be
very disruptive to the parties and their case. Arbitration may be more
advisable for disputes that are not complex and do not involve a great
deal of facts that must be determined in order to settle the claim.
Grantees are advised to think the case through carefully before deciding
not to litigate.

[^1]: \- Prior versions of the Circular contained the language in this
    paragraph related to \"disclos\[ing\] information regarding protests
    to FTA.\" FTA noted that this provision allowed for widely differing
    interpretations but found itself bound by the Common Grant Rule. FTA
    believes this provision requires grantees to, at a minimum,
    informally notify their FTA regional offices when they receive a
    protest related to a contract required to comply with the Circular
    and to similarly keep their regional offices apprised of the status
    of those protests. Regional offices may require grantees to forward
    copies of particular protests or all protests for information or
    review purposes at any time.

[^2]: \- This paragraph has been aligned with the Common Grant Rule and
    practice by adding \"violations of Federal law or regulation\" to
    the basis of FTA protest jurisdiction. FTA will continue to limit
    its review of grantee protest decisions and will read this Common
    Grant Rule provision in conjunction with the provisions that express
    its intent to avoid substituting FTA\'s judgment for those of its
    grantees. FTA will not consider each and every appeal of grantees\'
    protest decisions simply because a federal law or regulation may be
    involved. Instead, FTA will exercise discretionary jurisdiction over
    those cases deemed to involve issues important to the overall third
    party contracting program.

[^3]: \- Additionally, we have noted that requiring an appeal to be
    filed within five days of \"the violation\" yet also requiring
    protestors to extinguish their local remedies before filing with FTA
    led to some confusion. FTA has attempted to clarify this standard by
    starting the protestor\'s clock when it receives actual or
    constructive notice of an adverse decision or that a grantee failed
    to have or follow its procedures or review a complaint.

[^4]: \- MARTA resident Engineer's Manual, Section 5.17 *Contractor
    Claims.*