**Subject:** **THIRD PARTY CONTRACTING REQUIREMENTS**
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**1. PURPOSE.** This circular sets forth the requirements a grantee must
adhere to in the solicitation, award and administration of its third
party contracts. These requirements are based on the common grant rules,
Federal statutes, Executive Orders and their implementing regulations,
and FTA policy.[^1]

**2. CANCELLATION.** This circular cancels FTA Circular 4220.1D \"Third
Party Contracting Requirements,\" dated 4-15-96.

**3. REFERENCES.**

> a\. Federal Transit Laws, 49 U.S.C. Chapter 53.
>
> b\. Transportation Equity Act for the 21^st^ Century 1998 (TEA-21),
> P.L. 105-178 as amended, TEA-21 Restoration Act 1998, P.L. 105-206.
>
> c\. Sections 4001 and 1555 of the Federal Acquisition Streamlining Act
> of 1994, 41 U.S.C. § 403(11) and 40 U.S.C. § 481(b), respectively,
>
> d\. 49 C.F.R. part 18, Uniform Administrative Requirements for Grants
> and Cooperative Agreements to State and Local Governments.
>
> e\. 49 C.F.R. part 19, Uniform Administrative Requirements for Grants
> and Agreements with Institutions of Higher Education, Hospitals, and
> Other Non-Profit Organizations.
>
> f\. Executive Order 12612, \"Federalism,\" dated 10-26-87.

g.  FTA Circular 5010.1C, \"Grant Management Guidelines,\" dated
    10-1-98.

h.  FTA Master Agreement.

i.  Appendix D, Best Practices Procurement Manual.

**4. APPLICABILITY.** 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.[^2]

> 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.[^3]
>
> 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.[^4]
>
> a\. States. 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.[^5]
>
> b\. All Other Recipients. Subgrantees of states and all other FTA
> grantees (to include regional transit authorities) will administer
> contracts in accordance with this circular.

**5. POLICY.** FTA\'s role in grantee procurements is reflective of
Executive Order 12612, Federalism. The executive order directs Federal
agencies to refrain from substituting their judgment for that of their
recipients unless the matter is primarily a Federal concern and to
defer, to the maximum extent feasible, to the States to establish
standards rather than setting national standards.

> In 1996, FTA reduced its role in grantee third party procurement
> activity in several important respects. To ensure compliance with
> Federal procurement requirements, FTA will continue to provide
> guidance and technical assistance to its grantees consistent with its
> Federal oversight responsibilities.
>
> a\. Grantee Self-Certification. Recognizing that most FTA grantees
> have experience with the third party contracting requirements of the
> \"common grant rules\" (49 C.F.R. parts 18 and 19), FTA will rely
> primarily on grantees\' \"self-certifications\" that their procurement
> system meets FTA requirements and that a grantee has the technical
> capacity to comply with Federal procurement requirements. All grantees
> must \"self certify\" as part of the Annual Certification/Assurance
> Process.[^6]
>
> FTA will monitor compliance with this circular as part of its routine
> oversight responsibilities. If FTA becomes aware of circumstances that
> might invalidate a grantee\'s self-certification, FTA will investigate
> and recommend appropriate measures to correct whatever deficiency may
> exist.
>
> b\. FTA Review of Third Party Contracts. FTA relies on the validity of
> each grantee\'s self-certification rather than on a pre-award review
> of third party contracts. Accordingly, FTA will rely on periodic,
> post-grant reviews to ensure that grantees comply with Federal
> requirements and standards. Grantees are still free to request FTA\'s
> pre-award review of their procurements as part of FTA's technical
> assistance program. Conversely, if FTA requests to review the record
> of a particular procurement, grantees must make their procurement
> documents available for FTA\'s pre-award (or post-award) review.
>
> c\. Procurement System Reviews. FTA is required by 49 U.S.C. §5307 to
> perform reviews and evaluations of grant programs and to perform a
> full review and evaluation of the performance of grantees in carrying
> out grant programs with specific reference to their compliance with
> statutory and administrative requirements. Accordingly, FTA will
> perform procurement system reviews as part of its on-going oversight
> responsibility. FTA may recommend \"best practices\" in order to
> assist the grantee in improving its procurement practices. In such
> cases, FTA will identify such recommendations as \"advisory.\"
>
> d\. FTA Procurement Technical Assistance. FTA provides procurement
> training and technical assistance at both regional and national levels
> by offering various instructional courses, by conducting regional
> technical assistance conferences, by providing assistance by a
> contractor on an as-needed basis, and by updating and revising the FTA
> \"Best Practices Procurement Manual. \" The manual contains
> procurement guidance and \"best practices\" that grantees may choose
> to follow in performing their procurement functions.
>
> e\. Contract Clauses and Provisions. The Master Agreement, issued
> annually, lists many but not all FTA and other crosscutting Federal
> requirements applicable to FTA grantees. Many of these requirements
> are related to grantee procurements. Further guidance and suggested
> wording for contract clauses and provisions is provided in the \"Best
> Practices Procurement Manual. \"

f.  Use of GSA Schedules is restricted to those transit properties with
    specific legislative authority to use them.[^7]

**6. DEFINITIONS.** All definitions in 49 U.S.C. §5302 are applicable to
this circular. The following definitions are provided:

> a\. \"Grantee\" means the public or private entity to which a grant or
> cooperative agreement is awarded by FTA. The grantee is the entire
> legal entity even if only a particular component of the entity is
> designated in the assistance award document.[^8]
>
> For the purposes of this circular, \"grantee\" also includes any
> subgrantee of the grantee. Furthermore, a grantee is responsible for
> assuring that its subgrantees comply with the requirements and
> standards of this circular, and that subgrantees are aware of
> requirements imposed upon them by Federal statutes and regulations.
>
> b\. \"State\" means any of the several states of the United States,
> the District of Columbia, the Commonwealth of Puerto Rico, any
> territory or possession of the United States, or any agency or
> instrumentality of a State exclusive of local governments. \"State\"
> does not include any public and Indian housing agency under the United
> States Housing Act of 1937.
>
> c\. \"FTA\" refers to the Federal Transit Administration.
>
> d\. \"Third party contract\" refers to any purchase order or contract
> awarded by a grantee to a vendor or contractor using Federal financial
> assistance awarded by FTA.
>
> e\. \"Piggybacking\" is an assignment of existing contract rights to
> purchase supplies, equipment, or services.[^9]
>
> f\. \"Tag-on\" is defined as the addition of work (supplies, equipment
> or services) that is beyond the scope of the original contract that
> amounts to a cardinal change as generally interpreted in Federal
> practice by the various Boards of Contract Appeals. "In scope" changes
> are not tag-ons.[^10]
>
> g\. \"Best Value\" is a selection process in which proposals contain
> both price and qualitative components, and award is based upon a
> combination of price and qualitative considerations. Qualitative
> considerations may include technical design, technical approach,
> quality of proposed personnel, and/or management plan. The award
> selection is based upon consideration of a combination of technical
> and price factors to determine {or derive} the offer deemed most
> advantageous and of the greatest value to the procuring agency.[^11]
>
> h\. "Design-Bid-Build" refers to the project delivery approach where
> the grantee commissions an architect or engineer to prepare drawings
> and specifications under a design services contract, and separately
> contracts for at-risk construction, by engaging the services of a
> contractor through sealed bidding or competitive negotiations.[^12]
>
> i\. "Design-Build" refers to a system of contracting under which one
> entity performs both architectural/engineering and construction under
> one contract.[^13]

**7. GENERAL PROCUREMENT STANDARDS APPLICABLE TO THIRD-PARTY
PROCUREMENTS.**

> a\. Conformance with State and Local Law. Grantees and subgrantees
> shall use their own procurement procedures that reflect applicable
> State and local laws and regulations, provided that the procurements
> conform to applicable Federal law, including the requirements and
> standards identified in this circular. If there is no State law on a
> particular aspect of procurement, then Federal contract law principles
> will apply.
>
> b\. Contract Administration System. Grantees shall maintain a contract
> administration system that ensures that contractors perform in
> accordance with the terms, conditions, and specifications of their
> contracts or purchase orders.
>
> c\. Written Standards of Conduct. Grantees shall maintain a written
> code of standards of conduct governing the performance of their
> employees engaged in the award and administration of contracts. No
> employee, officer, agent, immediate family member, or Board member of
> the grantee shall participate in the selection, award, or
> administration of a contract supported by FTA funds if a conflict of
> interest, real or apparent, would be involved.
>
> Such a conflict would arise when any of the following has a financial
> or other interest in the firm selected for award:
>
> \(1\) The employee, officer, agent, or Board member,
>
> \(2\) Any member of his/her immediate family,
>
> \(3\) His or her partner, or
>
> \(4\) An organization that employs, or is about to employ, any of the
> above.
>
> The grantee\'s officers, employees, agents, or Board members will
> neither solicit nor accept gifts, gratuities, favors, or anything of
> monetary value from contractors, potential contractors, or parties to
> subagreements. Grantees may set minimum rules when the financial
> interest is not substantial or the gift is an unsolicited item of
> nominal intrinsic value. To the extent permitted by state or local law
> or regulations, such standards of conduct will provide for penalties,
> sanctions, or other disciplinary action for violation of such
> standards by the grantee\'s officers, employees, or agents, or by
> contractors or their agents.
>
> d\. Ensuring Most Efficient and Economic Purchase. Grantee procedures
> shall provide for a review of proposed procurements to avoid purchase
> of unnecessary or duplicative items. Consideration should be given to
> consolidating or breaking out procurements to obtain a more economical
> purchase.
>
> Where appropriate, an analysis will be made of lease versus purchase
> alternatives and any other appropriate analysis to determine the most
> economical approach.
>
> e\. Intergovernmental Procurement Agreements.

(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.[^14]

(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.[^15]

(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.[^16]

> f\. Use of Excess Or Surplus Federal Property. Grantees are encouraged
> to use Federal excess and surplus property in lieu of purchasing new
> equipment and property, whenever such use is feasible and reduces
> project costs.
>
> g\. Use of Value Engineering in Construction Contracts. Grantees are
> encouraged to use value engineering clauses in contracts for
> construction projects. FTA cannot approve a New Starts grant
> application for final design funding or a full funding grant agreement
> until value engineering is complete (see FTA Circular 5010.1C).[^17]
>
> h\. Awards to Responsible Contractors. Grantees shall make awards only
> to responsible contractors possessing the ability to perform
> successfully under the terms and conditions of a proposed procurement.
> Consideration shall be given to such matters as contractor integrity,
> compliance with public policy, record of past performance, and
> financial and technical resources.
>
> i\. Written Record of Procurement History. Grantees shall maintain
> records detailing the history of each procurement. At a minimum, these
> records shall include:
>
> \(1\) the rationale for the method of procurement,
>
> \(2\) selection of contract type,
>
> \(3\) reasons for contractor selection or rejection, and
>
> \(4\) the basis for the contract price.[^18]
>
> j\. Use of Time and Materials Type Contracts. Grantees will use time
> and material type contracts only:
>
> \(1\) After a determination that no other type of contract is
> suitable; and
>
> \(2\) If the contract specifies a ceiling price that the contractor
> shall not exceed except at its own risk.
>
> k\. Responsibility for Settlement of Contract Issues/Disputes.
> Grantees alone will be responsible in accordance with good
> administrative practice and sound business judgment 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.
>
> FTA will not substitute its judgment 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.
>
> l\. Written Protest Procedures. 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.[^19] 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.[^20]

> 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.[^21]
>
> m\. Contract Term Limitation. Grantees shall not enter into any
> contract for rolling stock or replacement parts with a period of
> performance exceeding five (5) years inclusive of options. All other
> types of contracts (supply, service, leases of real property, revenue
> and construction, etcetera) should be based on sound business
> judgment. Grantees are expected to be judicious in establishing and
> extending contract terms no longer than minimally necessary to
> accomplish the purpose of the contract. Additional factors to be
> considered include competition, pricing, fairness and public
> perception. Once a contract has been awarded, an extension of the
> contract term length that amounts to an out of scope change will
> require a sole source justification[^22]
>
> n\. Revenue Contracts. Revenue contracts are those third party
> contracts 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. FTA requires these
> contracts to be awarded utilizing competitive selection procedures and
> principles. The extent of and type of competition required is within
> the discretionary judgment of the grantee.[^23]
>
> o\. Tag-ons. The use of tag-ons is prohibited and applies to the
> original buyer as well as to others as defined in paragraph 6f.
>
> p\. Piggybacking. Piggybacking is permissible when the solicitation
> document and resultant contract contain an assignability clause that
> provides for the assignment of all or a portion of the specified
> deliverables as originally advertised, competed, evaluated, and
> awarded. If the supplies were solicited, competed and awarded through
> the use of an indefinite-delivery-indefinite-quantity (IDIQ) contract,
> then both the solicitation and contract award must contain both a
> minimum and maximum quantity that represent the reasonably foreseeable
> needs of the party(s) to the solicitation and contract. If two or more
> parties jointly solicit and award an IDIQ contract, then there must be
> a total minimum and maximum.[^24]
>
> q\. E-Commerce. E-Commerce is an allowable means to conduct
> procurements. If a grantee chooses to utilize E-Commerce, written
> procedures need to be developed and in place prior to solicitation and
> all requirements for full and open competition must be met in
> accordance with this circular.[^25]

**8. COMPETITION.**

a.  Full and Open Competition. All procurement transactions will be
    conducted in a manner providing full and open competition. Some
    situations considered to be restrictive of competition include, but
    are not limited to:[^26]

\(1\) Unreasonable requirements placed on firms in order for them to
qualify to do business;

> \(2\) Unnecessary experience and excessive bonding requirements;
>
> \(3\) Noncompetitive pricing practices between firms or between
> affiliated companies;
>
> \(4\) Noncompetitive awards to any person or firm on retainer
> contracts;
>
> \(5\) Organizational conflicts of interest. An organizational conflict
> of interest means that because of other activities, relationships, or
> contracts, a contractor is unable, or potentially unable, to render
> impartial assistance or advice to the grantee; a contractor\'s
> objectivity in performing the contract work is or might be otherwise
> impaired; or a contractor has an unfair competitive advantage;
>
> \(6\) Specifying only a "brand name" product instead of allowing "an
> equal" product to be offered without listing its' salient
> characteristics.
>
> Grantees may define the salient characteristics in language similar to
> the following:
>
> \(a\) 'Original Equipment Manufacturer (OEM) part #123 or approved
> equal that complies with the original equipment manufacturer's
> requirements or specifications and will not compromise any OEM
> warranties'; or
>
> \(b\) 'Original Equipment Manufacturer part #123 or approved equal
> that is appropriate for use with and fits properly in \[describe the
> bus, engine, or other component the part must be compatible with\] and
> will not compromise any OEM warranties'[^27]; and
>
> \(c\) Any arbitrary action in the procurement process.[^28]^7.5^
>
> b\. Prohibition Against Geographic Preferences. Grantees shall conduct
> procurements in a manner that prohibits the use of statutorily or
> administratively imposed in-State or local geographical preferences in
> the evaluation of bids or proposals, except in those cases where
> applicable Federal statutes expressly mandate or encourage geographic
> preference. This does not preempt State licensing laws. However,
> geographic location may be a selection criterion in procurements for
> architectural and engineering (A&E) services provided its application
> leaves an appropriate number of qualified firms, given the nature and
> size of the project, to compete for the contract.
>
> c\. Written Procurement Selection Procedures. Grantees shall have
> written selection procedures for procurement transactions. All
> solicitations shall:
>
> \(1\) Incorporate a clear and accurate description of the technical
> requirements for the material, product, or service to be procured.
> Such description shall not, in competitive procurements, contain
> features that unduly restrict competition. The description may include
> a statement of the qualitative nature of the material, product, or
> service to be procured and when necessary, shall set forth those
> minimum essential characteristics and standards to which it must
> conform if it is to satisfy its intended use. Detailed product
> specifications should be avoided if at all possible. When it is
> impractical or uneconomical to make a clear and accurate description
> of the technical requirements, a "brand name or equal" description may
> be used as a means to define the performance or other salient
> characteristics of a procurement. The specific features of the named
> brand which must be met by offerors shall be clearly stated.
>
> \(2\) Identify all requirements that offerors must fulfill and all
> other factors to be used in evaluating bids or proposals.
>
> d\. Prequalification Criteria. Grantees shall ensure that all lists of
> prequalified persons, firms, or products that are used in acquiring
> goods and services are current and include enough qualified sources to
> ensure maximum full and open competition. Also, grantees shall not
> preclude potential bidders from qualifying during the solicitation
> period, which is from the issuance of the solicitation to its closing
> date.[^29]

**9. METHODS OF PROCUREMENT.** The following methods of procurement may
be used as appropriate:

> a\. Procurement by Micro-Purchases. Micro-purchases are those
> purchases under \$2,500. Purchases below that threshold may be made
> without obtaining competitive quotations. Such purchases are exempt
> from Buy America requirements. There should be equitable distribution
> among qualified suppliers and no splitting of procurements to avoid
> competition. The Davis-Bacon Act applies to construction contracts
> between \$2,000 and \$2,500. Minimum documentation is required: A
> determination that the price is fair and reasonable and how this
> determination was derived. The other requirements of paragraph 7(i) do
> not apply to micro-purchases.[^30]
>
> b\. Procurement by Small Purchase Procedures**.** Small purchase
> procedures are those relatively simple and informal procurement
> methods for securing services, supplies, or other property that cost
> more than \$2,500 but do not cost more than the simplified acquisition
> threshold fixed at 41 U.S.C. § 403(11) (currently set at \$100,000).
> If small purchase procedures are used, price or rate quotations shall
> be obtained from an adequate number of qualified sources.[^31]
>
> c\. Procurement By Sealed Bids/Invitation For Bid (IFB). Bids are
> publicly solicited and a firm-fixed-price contract (lump sum or unit
> price) is awarded to the responsible bidder whose bid, conforming to
> all the material terms and conditions of the invitation for bids, is
> the lowest in price.

(1) In order for sealed bidding to be feasible, the following conditions
    should be present:

\(a\) A complete, adequate, and realistic specification or purchase
description is available;

> \(b\) Two or more responsible bidders are willing and able to compete
> effectively for the business;
>
> \(c\) The procurement lends itself to a firm fixed price contract and
> the selection of the successful bidder can be made principally on the
> basis of price; and
>
> \(d\) No discussion with bidders is needed.

(2) If this procurement method is used, the following requirements
    apply:

\(a\) The invitation for bids will be publicly advertised and bids shall
be solicited from an adequate number of known suppliers, providing them
sufficient time to prepare bids prior to the date set for opening the
bids;

> \(b\) The invitation for bids, which will include any specifications
> and pertinent attachments, shall define the items or services sought
> in order for the bidder to properly respond;
>
> \(c\) All bids will be publicly opened at the time and place
> prescribed in the invitation for bids;
>
> \(d\) A firm fixed-price contract award will be made in writing to the
> lowest responsive and responsible bidder. When specified in bidding
> documents, factors such as discounts, transportation costs, and life
> cycle costs shall be considered in determining which bid is lowest;
>
> Payment discounts will only be used to determine the low bid when
> prior experience indicates that such discounts are usually taken
> advantage of; and
>
> \(e\) Any or all bids may be rejected if there is a sound documented
> business reason.

\(3\) The sealed bid method is the preferred method for procuring
construction if the conditions in paragraph 9c(1) above apply.

> d\. Procurement By Competitive Proposal/Request for Proposals (RFP).
> The competitive proposal method of procurement is normally conducted
> with more than one source submitting an offer, i.e., proposal. Either
> a fixed price or cost reimbursement type contract is awarded. This
> method of procurement is generally used when conditions are not
> appropriate for the use of sealed bids. If this procurement method is
> used the following requirements apply:

\(1\) Requests for proposals will be publicized. All evaluation factors
will be identified along with their relative importance;

> \(2\) Proposals will be solicited from an adequate number of qualified
> sources;

(3) Grantees will have a method in place for conducting technical
    evaluations of the proposals received and for selecting awardees;

> \(4\) Awards will be made to the responsible firm whose proposal is
> most advantageous to the grantee\'s program with price and other
> factors considered; and
>
> \(5\) In determining which proposals is most advantageous, grantees
> may award (if consistent with State law) to the proposer whose
> proposals offer the greatest business value to the Agency based upon
> an analysis of a tradeoff of qualitative technical factors and
> price/cost to derive which proposal represents the "best value" to the
> Procuring Agency as defined in Section 6, Definitions. If the grantee
> elects to use the best value selection method as the basis for award,
> however, the solicitation must contain language which establishes that
> an award will be made on a "best value" basis.[^32]
>
> e\. Procurement Of Architectural and Engineering Services (A&E).
> Grantees shall use qualifications-based competitive proposal
> procedures (i.e., Brooks Act procedures) when contracting for A&E
> services as defined in 40 U.S.C. §541and 49 U.S.C. §5325(d).
> [^33]^1.5^ Services subject to this requirement are program
> management, construction management, feasibility studies, preliminary
> engineering, design, architectural, engineering, surveying, mapping,
> and related services.[^34]
>
> Qualifications-based competitive proposal procedures require that:
>
> \(1\) An offeror's qualifications be evaluated;
>
> \(2\) Price be excluded as an evaluation factor;
>
> \(3\) Negotiations be conducted with only the most qualified offeror;
> and
>
> \(4\) Failing agreement on price, negotiations with the next most
> qualified offeror be conducted until a contract award can be made to
> the most qualified offeror whose price is fair and reasonable to the
> grantee.
>
> These qualifications-based competitive proposal procedures can only be
> used for the procurement of the services listed above. This method of
> procurement cannot be used to obtain other types of services even
> though a firm that provides A&E services is also a potential source to
> perform other types of services.
>
> These requirements apply except to the extent the grantee's State
> adopts or has adopted by statute a formal procedure for the
> procurement of these services.
>
> f\. Procurement of Design-Bid-Build. Grantees may procure
> design-bid-build services through means of sealed bidding or
> competitive negotiations. These services must be procured in a manner
> that conforms to applicable state and local law, the requirements of
> this Circular relative to the method of procurement used and all other
> applicable federal requirements.
>
> g\. Procurement of Design-Build. Grantees must procure design-build
> services through means of qualifications-based competitive proposal
> procedures based on the Brooks Act as set forth in Section 9e when the
> preponderance of the work to be performed is considered to be for
> architectural and engineering (A&E) services as defined in Section 9e,
> Qualifications-based competitive proposal procedures should not be
> used to procure design-build services when the preponderance of the
> work to be performed is not of an A&E nature as defined in Section 9e,
> unless required by State law.[^35]
>
> h\. Procurement By Noncompetitive Proposals (Sole Source). Sole Source
> procurements are accomplished through solicitation of a proposal from
> only one source, or after solicitation of a number of sources,
> competition is determined inadequate. A contract change that is not
> within the scope of the original contract is considered a sole source
> procurement that must comply with this subparagraph.[^36]

\(1\) Procurement by noncompetitive proposals may be used only when the
award of a contract is infeasible under small purchase procedures,
sealed bids, or competitive proposals and at least one of the following
circumstances applies:

> \(a\) The item is available only from a single source;
>
> \(b\) The public exigency or emergency for the requirement will not
> permit a delay resulting from competitive solicitation;
>
> \(c\) FTA authorizes noncompetitive negotiations---e.g., if FTA
> provides a joint procurement grant or a research project grant with a
> particular firm or combination of firms, the grant agreement is the
> sole source approval;[^37]^4.5^
>
> \(d\) After solicitation of a number of sources, competition is
> determined inadequate; or

(e) The item is an associated capital maintenance item as defined in 49
    U.S.C. §5307(a)(1) that is procured directly from the original
    manufacturer or supplier of the item to be replaced. The grantee
    must first certify in writing to FTA:

> 1 that such manufacturer or supplier is the only source for such item;
> and
>
> 2 that the price of such item is no higher than the price paid for
> such item by like customers.

\(2\) A cost analysis, i.e., verifying the proposed cost data, the
projections of the data, and the evaluation of the specific elements of
costs and profit, is required.

> i\. Options. Grantees may include options in contracts. An option is a
> unilateral right in a contract by which, for a specified time, a
> grantee may elect to purchase additional equipment, supplies, or
> services called for by the contract, or may elect to extend the term
> of the contract. If a grantee chooses to use options, the requirements
> below apply:
>
> \(1\) Evaluation of Options. The option quantities or periods
> contained in the contractor\'s bid or offer must be evaluated in order
> to determine contract award. When options have not been evaluated as
> part of the award, the exercise of such options will be considered a
> sole source procurement.
>
> \(2\) Exercise of Options.

\(a\) A grantee must ensure that the exercise of an option is in
accordance with the terms and conditions of the option stated in the
initial contract awarded.

> \(b\) An option may not be exercised unless the grantee has determined
> that the option price is better than prices available in the market or
> that the option is the more advantageous offer at the time the option
> is exercised.

**10. CONTRACT COST AND PRICE ANALYSIS FOR EVERY PROCUREMENT ACTION.**
Grantees must perform a cost or price analysis in connection with every
procurement action, including contract modifications. The method and
degree of analysis is dependent on the facts surrounding the particular
procurement situation, but as a starting point, grantees must make
independent estimates before receiving bids or proposals.[^38]

> a\. Cost Analysis. A cost analysis must be performed when the offeror
> is required to submit the elements (i.e., labor hours, overhead,
> materials, etc.) of the estimated cost, (e.g., under professional
> consulting and architectural and engineering services contracts,
> etc.).
>
> A cost analysis will be necessary when adequate price competition is
> lacking and for sole source procurements, including contract
> modifications or change orders, unless price reasonableness can be
> established on the basis of a catalog or market price of a commercial
> product sold in substantial quantities to the general public or on the
> basis of prices set by law or regulation.
>
> b\. Price Analysis. A price analysis may be used in all other
> instances to determine the reasonableness of the proposed contract
> price.
>
> c\. Profit. Grantees will negotiate profit as a separate element of
> the price for each contract in which there is no price competition and
> in all cases where cost analysis is performed. To establish a fair and
> reasonable profit, consideration will be given to the complexity of
> the work to be performed, the risk borne by the contractor, the
> contractor's investment, the amount of subcontracting, the quality of
> its record of past performance, and industry profit rates in the
> surrounding geographical area for similar work.
>
> d\. Federal Cost Principles. Costs or prices based on estimated costs
> for contracts under grants will be allowable only to the extent that
> costs incurred or cost estimates included in negotiated prices are
> consistent with Federal cost principles. Grantees may reference their
> own cost principles that comply with applicable Federal cost
> principles.
>
> e\. Cost Plus Percentage of Cost Prohibited. The cost plus a
> percentage of cost and percentage of construction cost methods of
> contracting shall not be used.

**11. BONDING REQUIREMENTS.** For those construction or facility
improvement contracts or subcontracts exceeding \$100,000, FTA may
accept the bonding policy and requirements of the grantee, provided FTA
determined that the policy and requirements adequately protect the
Federal interest. FTA has determined that grantee policies and
requirements that meet the following minimum criteria adequately protect
the Federal interest:[^39]

a\. A bid guarantee from each bidder equivalent to five (5) percent of
the bid price. The \"bid guarantee\" shall consist of a firm commitment
such as a bid bond, certified check, or other negotiable instrument
accompanying a bid as assurance that the bidder will, upon acceptance of
his bid, execute such contractual documents as may be required within
the time specified;

> b\. A performance bond on the part of the contractor for 100 percent
> of the contract price. A \"performance bond\" is one executed in
> connection with a contract to secure fulfillment of all the
> contractor\'s obligations under such contract; and
>
> c\. A payment bond on the part of the contractor. A payment bond is
> one executed in connection with a contract to assure payment, as
> required by law, of all persons supplying labor and material in the
> execution of the work provided for in the contract. Payment bond
> amounts determined to adequately protect the federal interest are as
> follows:
>
> \(1\) Fifty percent of the contract price if the contract price is not
> more than \$1 million;
>
> \(2\) Forty percent of the contract price if the contract price is
> more than \$1 million but not more than \$5 million; or
>
> \(3\) Two and a half million dollars if the contract price is more
> than \$5 million.

d\. A Grantee may seek FTA approval of its bonding policy and
requirements if they do not comply with these criteria.

**12. PAYMENT PROVISIONS IN THIRD PARTY CONTRACTS.**

> a\. Advance Payments. FTA does not authorize and will not participate
> in funding payments to a contractor prior to the incurrence of costs
> by the contractor unless prior written concurrence is obtained from
> FTA. There is no prohibition on a grant recipient's use of local match
> funds for advance payments. However, advance payments made with local
> funds before a grant has been awarded, or before the issuance of a
> letter of no prejudice or other pre-award authority, are ineligible
> for reimbursement.[^40]
>
> b\. Progress Payments. Grantees may use progress payments provided the
> following requirements are followed:[^41]

\(1\) Progress payments are only made to the contractor for costs
incurred in the performance of the contract.[^42]^8.2^

> \(2\) The grantee must obtain adequate security for progress payments.
> Adequate security may include taking title, letter of credit or
> equivalent means to protect the grantee's interest in the progress
> payment.[^43]^8.5^

**13. LIQUIDATED DAMAGES PROVISIONS.** A grantee may use liquidated
damages if it may reasonably expect to suffer damages and the extent or
amount of such damages would be difficult or impossible to determine.

> The assessment for damages shall be at a specific rate per day for
> each day of overrun in contract time; and the rate must be specified
> in the third party contract. Any liquidated damages recovered shall be
> credited to the project account involved unless the FTA permits
> otherwise.[^44]

**14. CONTRACT AWARD ANNOUNCEMENT.** If a grantee announces contract
awards with respect to any procurement for goods and services (including
construction services) having an aggregate value of \$500,000 or more,
the grantee shall:

a\. Specify the amount of Federal funds that will be used to finance the
acquisition in any announcement of the contract award for such goods or
services; and

> b\. Express the said amount as a percentage of the total costs of the
> planned acquisition.

**15. CONTRACT PROVISIONS.** All contracts shall include provisions to
define a sound and complete agreement. In addition, contracts and
subcontracts shall contain contractual provisions or conditions that
allow for:

a\. Administrative, contractual, or legal remedies in instances where
contractors violate or breach contract terms, including sanctions and
penalties as may be appropriate. (All contracts in excess of the small
purchase threshold.)

> b\. Termination for cause and for convenience by the grantee or
> subgrantee including the manner by which it will be effected and the
> basis for settlement. (All contracts in excess of \$10,000.)
>
> **16. STATUTORY AND REGULATORY REQUIREMENTS.** A current but not all
> inclusive and comprehensive list of statutory and regulatory
> requirements applicable to grantee procurements (such as Davis-Bacon
> Act, Disadvantaged Business Enterprise, Clean Air, and Buy America) is
> contained in the FTA Master Agreement. Grantees are responsible for
> evaluating these requirements for relevance and applicability toeach
> procurement. For example, procurements involving the purchase of iron,
> steel and manufactured goods will be subject to the \"Buy America\"
> requirements in 49 C.F.R.
>
> Part 661. Further guidance concerning these requirements and suggested
> wording for contract clauses may be found in FTA\'s Best Practices
> Procurement Manual.
>
> For specific guidance concerning the crosscutting requirements of
> other Federal agencies, grantees are advised to contact those
> agencies.

Jennifer L. Dorn

Administrator

1 - FTA's purpose in re-issuing Circular 4220.1 is to incorporate policy
updates contained in several Dear Colleague letters issued since 1996.
At the same time, we have attempted to ease unnecessary requirements
applied in our grantees' procurement processes while remaining
consistent with applicable law and regulations, particularly the Uniform
Administrative Requirements for Grants and Cooperative Agreements to
State and Local Governments at 49 CFR Part 18 (the Common Grant Rule).
We believe many of these 'requirements' have evolved from earlier
versions of the circular through varying interpretations or as
unintended consequences of the language as it was drafted. To help avoid
this, we have compiled these interpretive comments to better explain
what FTA believes the law and regulations conveyed through the circular
actually require of our grantees. As applicable laws, regulations, and
contracting practices evolve, we will use these interpretive comments to
continue conveying our views to our grantees and the transit industry as
a whole.

2 - 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.

FTA also applies the requirements of this Circular to recipients of
cooperative agreements through provisions of those agreements.

3 - 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.

4 - 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.

Procurements of real property and art are beyond the scope of Circular
4220.1E and covered in separate guidance. \[*added October 2003* -- Real
property acquisition is covered in 49 CFR, Part 24. FTA Circular 9400.1A
discusses art in transit projects. The Best Practices Procurement Manual
includes extensive non-binding guidelines for applying C.9400.1A and
related requirements.\]

5 - The language of this paragraph was adjusted to comport with the
Common Grant Rule. FTA believes that only States -- not their
sub-grantees, regional transit authorities, local agencies, or any other
grantees or sub-grantees -- are free to apply only limited portions of
the circular to their procurements.

All other grantees and sub-grantees are obligated to apply the circular
to their procurements as described above.

6 - To preclude unnecessary delay in grantee procurements, FTA does not,
as a general rule, conduct pre-award reviews of third party contracts as
envisioned in the Common Grant Rule. Instead, we have chosen to rely
heavily on our grantees' self-certification of their procurement
systems.

7 - Within FTA's knowledge, the only grantee with full access to the GSA
schedules is the Washington Metropolitan Area Transit Authority. GSA
issued initial guidance implementing a program to allow state and local
governments to use the GSA information technology schedule in May 2003.
\[*deleted October 2003* - ~~and FTA will update this section as more
information becomes available.~~ \] \[*added October 2003* -- Directions
for using the GSA information technology schedule are available at
[http://www.gsa.gov/Portal/gsa/ep/channelView.do?pageTypeld=8199&channelPage=%2Fep%2Fchannel%FgsaOverview.jsp&channelld=-13463](http://www.gsa.gov/Portal/gsa/ep/channelView.do?pageTypeld=8199&channelPage=%2Fep%2Fchannel%25FgsaOverview.jsp&channelld=-13463)

8 - This definition was changed to comport with the Common Grant Rule.

9 - FTA has introduced a limited definition of 'piggybacking' and, to
differentiate vastly different practices, has separated this practice of
assigning contractual rights among grantees from joint procurements or
other intergovernmental agreements. Paragraph 7.e. further explains
these different practices. Our intent was to eliminate some of the
confusion that has grown around this term.

10 - We have similarly attempted to limit the definition of 'tag-on' and
align it with the concept of a 'cardinal change' or 'out-of-scope
change.' FTA believes that earlier attempts to categorize virtually any
change in quantity, for example, as a forbidden 'tag-on' failed to
account for the realities of the marketplace and unnecessarily limited
grantees from exercising reasonable freedom to make those minor
adjustments "fairly and reasonably within the contemplation of the
parties when the contract was entered into." *Freund v. United States,*
260 U.S. 60 (1922).

In applying the concept of 'cardinal change' to third party contracts,
FTA recognizes that this is a difficult concept, not easily reduced to a
percentage, dollar value, number of changes, or other objective measure
that would apply to all cases. We also recognize that the various Boards
of Contract Appeals, Federal courts, and Comptroller General have
wrestled with these issues over many years and built an extensive array
of case law differentiating in-scope from out-of-scope or cardinal
changes. We do not imply that the Boards of Contract Appeals cases are
controlling, only that we will look to their collective wisdom in
judging where changes in grantee contracts fall along the broad spectrum
between clearly in-scope and clearly out-of-scope changes. It is our
intent to monitor our grantees and oversight contractors to ensure this
concept is well understood and uniformly applied, and to issue
additional guidance as necessary to assist our grantees in exercising
this authority.

Before attempting any change in quantity of major items (e.g., buses,
rail cars), grantees should review their contract clauses to ensure they
allow for such changes. For instance, in Federal practice, the 'changes'
clause from the Federal Acquisition Regulation has been interpreted not
to allow changes in quantity of major items. Federal contracting
officers use additional clauses specific to this desired flexibility
when they anticipate that there may be a need to add quantities of these
major items.

11 - This new definition was intended to recognize the concept of best
value. The language is intended neither to limit nor dictate qualitative
measures grantees may employ.

12 - This definition was added only to acknowledge this method of
construction contracting.

13 - This definition was added only to acknowledge this method of
construction contracting.

14 - 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.

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.

16 - 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.

17 - The first sentence in this paragraph was drawn from the Common
Grant Rule and reflects FTA's encouragement of value engineering. It is
important to note that some contractual arrangements (e.g., design-build
contracts) may inherently include value engineering concepts and
principles. Where this is the case, FTA does not require separate value
engineering proposals, change orders, or other processes. From a
procurement view, the concept of value engineering is more important
than the form it takes.

18 - This paragraph is taken from the Common Grant Rule. FTA recognizes
that these written records will vary greatly for different procurements.
For a \$100 credit card purchase from a lumberyard, all of the required
information may be able to be inferred from the receipt and/or bill
itself. More substantial procurements may include voluminous analysis.
FTA believes the rule of reason must be applied to this requirement and
the documents comprising a procurement history should be commensurate
with the size and complexity of the procurement itself.

19 - Prior versions of the circular contained the language in this
paragraph related to "disclos\[ing\] information regarding protests to
FTA." We noted that this provision allowed for widely differing
interpretations but found ourselves 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.

20 - 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 our 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.

21 - 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. We have 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.

22 - Although the 'five-year rule' has been eliminated for all but
rolling stock and replacement part contracts (i.e., those for which the
rule is statutorily required), FTA expects grantees to be judicious
about the terms of their contracts. Sound business judgment should
underlie any decision on contract term, whether or not it exceeds five
years. This sound business judgment should be evident in the procurement
files. In keeping with the general tone of the new circular, contract
extensions will be viewed with an eye to whether they are in-scope and
out-of-scope contract changes. Out-of-scope changes will, of course, be
regarded as new procurements and the normal sole source rules will
apply. \[*inserted October 2003* Regarding rolling stock, this provision
is intended only to reflect the statutory five-year rule and not in any
way to limit grantees beyond the statute. FTA interprets this five-year
period as the *requirements* from day one of the contract to those at
the end of the fifth year. In determining what a requirement for today
is, we look at the date a piece of equipment is needed, then back the
date off to offset the necessary lead time for delivery. If it takes 18
months to deliver a product and it is *needed* 18 months from now, it is
a *requirement* today. If (assuming the same 18 month lead time) the
transit agency enters into a contract on January 1^st^, year 1 and needs
a piece of equipment delivered in March of year 7, it is a requirement
in September of year 5 (March of year 7 minus 18 months) and can be
ordered then under the contract. If the transit needs a piece of
equipment in January of year 8, it is a requirement of July of year 6
and the transit agency could not order it under this contract since it
is a requirement beyond the five-year limitation. As this example shows,
the five-year rule does not mean delivery, acceptance, or even
fabrication must be completed in five years -- only that a contract is
limited to purchasing five years of requirements.

23 - When addressing revenue contracts, FTA allows grantees broad
latitude in determining what level of competition is appropriate for a
particular contract. As an example, where a grantee wishes to enter into
a contract to allow advertising on the sides of buses and there are
several potential competitors for that limited space, a competitive
process would be required to allow interested parties an equal chance at
obtaining this limited opportunity. Where a grantee wishes to enter into
a contract to allow a private utility to run cable through subway
tunnels and is willing to grant similar contracts/licenses to others
similarly situated (since there is room for a substantial number of such
cables without interfering with transit operations), no competition
would be required since the opportunity is open to all.

Another example where competition may be limited is in the area of
leveraged leasing. Many grantees are taking advantage of the
opportunities to obtain a portion of the tax benefits available to
private sector investors who lease or buy grantee assets through
innovative financing techniques that keep possession and continuing
control of the assets in the grantee's hands while transferring
ownership for tax purposes. As grantees seek arrangers to construct
these transactions, they should use some competitive procedure (but note
that since these contracts are not Federally funded and involve no
Federally-funded assets, the contract with the arranger need not comply
with the circular) process. When the grantee's arranger constructs the
actual transaction (a contract that will involve Federally-funded assets
so FTA must approve of the transaction), competition is limited by
securities regulations.

An emerging area that combines aspects of Federally funded construction
and revenue contracting is that of joint development. Certainly the
circular has to apply to the Federally funded construction aspects of
joint development but revenue contracting aspects make for difficult
procurement practice decisions. FTA will work with grantees on a
case-by-case basis to craft approaches that satisfy the statutory and
regulatory requirements while preserving the benefits of this innovative
contracting strategy to the maximum possible extent.

24 - As discussed above, 'piggybacking' is still allowable. Given the
opportunities for joint procurements, inter-governmental procurements,
and other innovative means of obtaining goods and services, grantees
should pay renewed attention to their procurement practices to ensure
they contract only for their reasonably anticipated requirements and do
not build excess capacity into their contracts simply to assign rights
to others at a later date.

25 - This paragraph was added to recognize that a well-structured
e-commerce procurement system is acceptable.

26 - Grantees have expressed frustration when attempting to capture the
salient characteristics of common parts and items that must be precisely
engineered to be useful and for which simple notations (such as original
equipment manufacturer's part numbers) describe, in a practical sense,
the requirements. Sub-paragraph (6) was annotated to demonstrate two
potential (although not required) means by which grantees can meet the
Common Grant Rule's requirement to list salient characteristics when
using a 'brand name or equal' specification without attempting to
reverse-engineer a complicated part to discern precise measurements or
specifications.

27 - This is meant only as an example of how a grantee might define
salient characteristics, not as an exclusive means of doing so. Other
examples can be found in the Best Practices Procurement Manual.

28 - Prequalification and the Common Grant Rule's requirement to allow
potential bidders to qualify throughout solicitation periods has led to
substantial confusion among some grantees. Prequalification lists are
most common in recurring requirements for goods that take some period of
time to evaluate to determine if they satisfy the grantee's standards.
In those cases, grantees must accept submissions for evaluation, even
during ongoing procurement actions. Evaluation need not be accelerated
or truncated and FTA does not believe a particular solicitation must be
held open to accommodate a potential bidder who submits a person, firm,
or product for approval before or during that solicitation.

Additionally, some procurement methods may include preliminary steps
that should not be confused with prequalification. For instance, in
Federal practice, 41 USC 253m allows for a two-phase selection procedure
for large design-build projects and FTA believes grantees may also use
that procedure. Essentially, the two-phase selection procedure allows
the contracting officer to solicit proposals for design-build projects
in two steps, the first a review of technical qualifications and
technical approach to the project and the second a complete proposal.
This allows the contracting officer to narrow the competitive range in
the first step without a requirement for extensive proposal review on
the government's part or expensive proposal drafting on potential
contractors' parts. This two-phase selection procedure is separate and
distinct from prequalification and is but one method grantees may use in
their procurements.

29 - Determination of fair and reasonable pricing for micro-purchases
(usually credit card purchases) has been seen as a burden by some
grantees. FTA believes that determination may be done quickly and
efficiently in several ways. One possible method would be for the
official tasked to review and authorize payment of a credit card bill to
annotate (by stapling a preprinted sheet to the bill, stamping the bill
with a rubber stamp, or even asking the credit card provider to print an
appropriate statement on each bill) a finding such as ' I have examined
the expenditures reflected on this bill and determined that each
reflects a reasonable price based on market prices offered by the
vendors to the general public.'

30 - This is not intended to imply that any purchase under \$2,500 must
be treated as a micro-purchase or that any purchase under \$100,000 must
be treated as a small purchase. Grantees remain free to set lower
thresholds as they deem fit for either or both of these procurement
methods.

31 - Sub-paragraph (5), like paragraph 6.g., recognizes the concept of
best value. Once again, FTA does not wish to dictate any particular
factors or analytic process. Solicitations must, of course, tell
potential competitors for the contract what the basis for award will be.

32 - FTA has expanded this section to better explain the breadth of this
statutorily prescribed procurement method. FTA recognizes that most of
the services listed (e.g., surveying) are not performed by architectural
or engineering services companies. Qualifications-based competitive
proposals (i.e., Brooks Act procedures) still must be applied to these
procurements because of the statutory directive in 49 U.S.C. 5325(d).

33 - This paragraph was added to explain the requirements that apply to
design-build procurements because they involve significant
architectural, engineering, or other services that normally require
qualifications-based competitive proposals but also include significant
work that does not require this extraordinary procurement method.
Grantees should determine which portion of the work is predominant and
follow the method for that type of procurement. We would normally expect
the construction portion of a design-build procurement to be predominant
and, in that case, normal procurement methods can be used in lieu of
qualification-based competitive proposals (the Brooks Act method).

34 - This paragraph was changed from prior versions of the circular to
eliminate the phrase "or acceptance" of a single proposal when
discussing what constitutes a sole source procurement. FTA believes
that, upon receiving a single bid (or proposal) in response to a
solicitation, the grantee should determine if competition was adequate.
This determination may include a review of the specifications to
determine if they were unduly restrictive or contacting sources that
chose not to submit a bid or solicitation. It is only if the grantee
determines that competition was inadequate that the procurement should
proceed as a sole source procurement. The mere fact that only one bid or
proposal was received does not automatically mean competition was
inadequate since many unrelated factors could cause potential sources
not to submit a bid or proposal.

34.5 - *Added October 2003 -* This list of justifications is copied from
the Common Grant Rule, 49 CFR 18.36(d)(4) which includes authority to
use a sole source procurement when the "awarding agency \[FTA\]
authorizes noncompetitive proposals." To ensure grantees have
flexibility equal to that of Federal contracting officers, FTA
authorizes procurement by noncompetitive proposals in all of the
circumstances described in Part 6.3 of the Federal Acquisition
Regulations, even if it is not specifically mentioned in this list of
justifications.

35 - Cost and Price Analysis. Cost or price analysis has proven
difficult for grantees in some cases. FTA believes price analysis for
micro-purchases may be conducted on a limited basis as discussed above
(paragraph 9a). Similarly, an abbreviated price analysis may be used for
small purchases in most cases. One method to record this analysis is
through use of a preprinted form on which a contracting officer (or
other responsible person) can annotate a finding of fair and reasonable
pricing and check off the most common reasons why this would be so such
as catalog or market prices offered in substantial quantities to the
general public, regulated prices (e.g., for many utilities purchases),
or comparison with recent prices for similar goods and services.

Where cost analysis is required, some grantees have found difficulty
obtaining the information necessary to conduct a proper cost analysis.
The requirements for cost analysis are based in the Common Grant Rule
and require action beyond FTA or DOT's authority to change. FTA
continues to seek an equitable, practical solution to this problem
consistent with the flexibility Federal contracting officers enjoy under
the federal Acquisition Regulation.

36 - The language in this section has been amended from prior versions
of the circular to better explain that FTA will accept a local bonding
policy that meets the minimums of paragraphs a, b, and c but that a
policy that does not meet these minimums still may be accepted where the
local policy adequately protects the Federal interest. Grantees who wish
to adopt less stringent bonding requirements generally, for a specific
class of projects, or for a particular project may submit the policy and
rationale to their regional office for approval. \[*added October 2003
--* There is no FTA approval required for more stringent bonding
requirements. Additionally, FTA does *not* require bonds for rolling
stock, services, maintenance, operations, or any other contracts -- only
for construction.\]

37 - The language in this section has been amended from previous
versions of the circular to explain that grantees may make advance
payments from local share funds. Where grantees wish to make advance
payments with FTA funds, they should contact their regional office to
obtain FTA concurrence. FTA believes there are various sound business
reasons for providing advance payments under a number of circumstances
and, where we find adequate security for the advance payment combined
with a sound business reason to grant the advance payment, will normally
grant the required concurrence. These advance payments may be in the
nature of mobilization payments, start-up costs, or other advances
backed by sound business judgment and adequate security. \[*added
October 2003* -- Additionally, grantees may make advance payments with
either local match or FTA funds for those purchases where advance
payment is customary in the commercial marketplace such as utility
services and subscriptions. FTA concurrence in these circumstances is
only required where the advance payment or payments exceed \$100,000.\]

38 - We have re-drafted the paragraph related to progress payments to
account for the practical reality that taking title to work in progress
may not be desirable in some cases.

38.5 - \[*added October 2003 --* "Adequate security" should reflect the
practical realities of different procurement scenarios and factual
circumstances. For example, adequate security may consist of taking
title to work in progress in a rolling stock procurement, receiving a
draft document in a consulting contract, or receiving some portion of
recurring services under a services contract. Grantees should always
consider the costs associated with this security (e.g., bonds or letters
of credit must be purchased in the commercial marketplace) and the
impact those costs have on the contract price, as well as the
consequences of incomplete performance as they consider what constitutes
adequate security for a given procurement.\]

39 - The measurement period for liquidated damages may be something
other than a day, where some other measuring period is appropriate.

[^1]: FTA's purpose in re-issuing Circular 4220.1 is to incorporate
    policy updates contained in several Dear Colleague letters issued
    since 1996. At the same time, we have attempted to ease unnecessary
    requirements applied in our grantees' procurement processes while
    remaining consistent with applicable law and regulations,
    particularly the Uniform Administrative Requirements for Grants and
    Cooperative Agreements to State and Local Governments at 49 CFR Part
    18 (the Common Grant Rule). We believe many of these 'requirements'
    have evolved from earlier versions of the circular through varying
    interpretations or as unintended consequences of the language as it
    was drafted. To help avoid this, we have compiled these interpretive
    comments to better explain what FTA believes the law and regulations
    conveyed through the circular actually require of our grantees. As
    applicable laws, regulations, and contracting practices evolve, we
    will use these interpretive comments to continue conveying our views
    to our grantees and the transit industry as a whole.

[^2]: 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.

    FTA also applies the requirements of this Circular to recipients of
    cooperative agreements through provisions of those agreements.

[^3]: 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.

[^4]: 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.

    Procurements of real property and art are beyond the scope of
    Circular 4220.1E and covered in separate guidance. \[*added October
    2003* -- Real property acquisition is covered in 49 CFR, Part 24.
    FTA Circular 9400.1A discusses art in transit projects. The Best
    Practices Procurement Manual includes extensive non-binding
    guidelines for applying C.9400.1A and related requirements.\]

    [\[*added February 2004 --* Grants under the Rural Transportation
    Accessibility Incentive Program, section 3038, Pub.L. 105-178, as
    amended, are subject to the standards described at 67 FR 16799
    (April 8, 2002).\]]{.underline}

[^5]: The language of this paragraph was adjusted to comport with the
    Common Grant Rule. FTA believes that only States -- not their
    sub-grantees, regional transit authorities, local agencies, or any
    other grantees or sub-grantees -- are free to apply only limited
    portions of the circular to their procurements.

    All other grantees and sub-grantees are obligated to apply the
    circular to their procurements as described above.

[^6]: To preclude unnecessary delay in grantee procurements, FTA does
    not, as a general rule, conduct pre-award reviews of third party
    contracts as envisioned in the Common Grant Rule. Instead, we have
    chosen to rely heavily on our grantees' self-certification of their
    procurement systems.

[^7]: Within FTA's knowledge, the only grantee with full access to the
    GSA schedules is the Washington Metropolitan Area Transit Authority.
    GSA issued initial guidance implementing a program to allow state
    and local governments to use the GSA information technology schedule
    in May 2003. \[*deleted October 2003* - ~~and FTA will update this
    section as more information becomes available.~~ \] \[*added October
    2003* -- Directions for using the GSA information technology
    schedule are available at
    <http://www.gsa.gov/Portal/gsa/ep/contentView.do?P=FCIM&contentId=8273&contentType=GSA_OVERVIEW>
    \]

[^8]: This definition was changed to comport with the Common Grant Rule.

[^9]: FTA has introduced a limited definition of 'piggybacking' and, to
    differentiate vastly different practices, has separated this
    practice of assigning contractual rights among grantees from joint
    procurements or other intergovernmental agreements. Paragraph 7.e.
    further explains these different practices. Our intent was to
    eliminate some of the confusion that has grown around this term.

[^10]: We have similarly attempted to limit the definition of 'tag-on'
    and align it with the concept of a 'cardinal change' or
    'out-of-scope change.' FTA believes that earlier attempts to
    categorize virtually any change in quantity, for example, as a
    forbidden 'tag-on' failed to account for the realities of the
    marketplace and unnecessarily limited grantees from exercising
    reasonable freedom to make those minor adjustments "fairly and
    reasonably within the contemplation of the parties when the contract
    was entered into." *Freund v. United States,* 260 U.S. 60 (1922).

    In applying the concept of 'cardinal change' to third party
    contracts, FTA recognizes that this is a difficult concept, not
    easily reduced to a percentage, dollar value, number of changes, or
    other objective measure that would apply to all cases. We also
    recognize that the various Boards of Contract Appeals, Federal
    courts, and Comptroller General have wrestled with these issues over
    many years and built an extensive array of case law differentiating
    in-scope from out-of-scope or cardinal changes. We do not imply that
    the Boards of Contract Appeals cases are controlling, only that we
    will look to their collective wisdom in judging where changes in
    grantee contracts fall along the broad spectrum between clearly
    in-scope and clearly out-of-scope changes. It is our intent to
    monitor our grantees and oversight contractors to ensure this
    concept is well understood and uniformly applied, and to issue
    additional guidance as necessary to assist our grantees in
    exercising this authority.

    Before attempting any change in quantity of major items (e.g.,
    buses, rail cars), grantees should review their contract clauses to
    ensure they allow for such changes. For instance, in Federal
    practice, the 'changes' clause from the Federal Acquisition
    Regulation has been interpreted not to allow changes in quantity of
    major items. Federal contracting officers use additional clauses
    specific to this desired flexibility when they anticipate that there
    may be a need to add quantities of these major items. [\[*added
    February 2004* -- As an example, where a contract, as originally
    competed and issued, allowed a transit agency to purchase X number
    of 40' buses and Y number of 45' buses, a contract change that
    substituted a provision that would instead allow the transit agency
    to buy X+Y buses in any combination of 40' and 45' models would be a
    cardinal change since it would allow a substitution of major end
    items not contemplated in the original competition and contract. If
    the 'any combination' language was part of the original competition,
    it would not be objectionable.\]]{.underline}

[^11]: This new definition was intended to recognize the concept of best
    value. The language is intended neither to limit nor dictate
    qualitative measures grantees may employ.

[^12]: This definition was added only to acknowledge this method of
    construction contracting.

[^13]: This definition was added only to acknowledge this method of
    construction contracting.

[^14]: 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.

[^15]: 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.

[^16]: 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.

[^17]: The first sentence in this paragraph was drawn from the Common
    Grant Rule and reflects FTA's encouragement of value engineering. It
    is important to note that some contractual arrangements (e.g.,
    design-build contracts) may inherently include value engineering
    concepts and principles. Where this is the case, FTA does not
    require separate value engineering proposals, change orders, or
    other processes. From a procurement view, the concept of value
    engineering is more important than the form it takes.

[^18]: This paragraph is taken from the Common Grant Rule. FTA
    recognizes that these written records will vary greatly for
    different procurements. For a \$100 credit card purchase from a
    lumberyard, all of the required information may be able to be
    inferred from the receipt and/or bill itself. More substantial
    procurements may include voluminous analysis. FTA believes the rule
    of reason must be applied to this requirement and the documents
    comprising a procurement history should be commensurate with the
    size and complexity of the procurement itself.

[^19]: Prior versions of the circular contained the language in this
    paragraph related to "disclos\[ing\] information regarding protests
    to FTA." We noted that this provision allowed for widely differing
    interpretations but found ourselves 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.

[^20]: 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 our
    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. [\[*added February 2004 --* Any decision
    by FTA to decline jurisdiction over a protest does not imply
    approval of or agreement with the grantee's determination or that
    FTA has determined the contract is eligible for Federal
    participation but only that FTA does not believe the issues
    presented are important to the overall program.\]]{.underline}

[^21]: 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. We have 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.

[^22]: Although the 'five-year rule' has been eliminated for all but
    rolling stock and replacement part contracts (i.e., those for which
    the rule is statutorily required), FTA expects grantees to be
    judicious about the terms of their contracts. Sound business
    judgment should underlie any decision on contract term, whether or
    not it exceeds five years. This sound business judgment should be
    evident in the procurement files. In keeping with the general tone
    of the new circular, contract extensions will be viewed with an eye
    to whether they are in-scope and out-of-scope contract changes.
    Out-of-scope changes will, of course, be regarded as new
    procurements and the normal sole source rules will apply.
    \[*inserted October 2003* Regarding rolling stock, this provision is
    intended only to reflect the statutory five-year rule and not in any
    way to limit grantees beyond the statute. FTA interprets this
    five-year period as the *requirements* from day one of the contract
    to those at the end of the fifth year. In determining what a
    requirement for today is, we look at the date a piece of equipment
    is needed, then back the date off to offset the necessary lead time
    for delivery. If it takes 18 months to deliver a product and it is
    *needed* 18 months from now, it is a *requirement* today. If
    (assuming the same 18 month lead time) the transit agency enters
    into a contract on January 1^st^, year 1 and needs a piece of
    equipment delivered in March of year 7, it is a requirement in
    September of year 5 (March of year 7 minus 18 months) and can be
    ordered then under the contract. If the transit needs a piece of
    equipment in January of year 8, it is a requirement of July of year
    6 and the transit agency could not order it under this contract
    since it is a requirement beyond the five-year limitation. As this
    example shows, the five-year rule does not mean delivery,
    acceptance, or even fabrication must be completed in five years --
    only that a contract is limited to purchasing five years of
    requirements.

[^23]: When addressing revenue contracts, FTA allows grantees broad
    latitude in determining what level of competition is appropriate for
    a particular contract. As an example, where a grantee wishes to
    enter into a contract to allow advertising on the sides of buses and
    there are several potential competitors for that limited space, a
    competitive process would be required to allow interested parties an
    equal chance at obtaining this limited opportunity. Where a grantee
    wishes to enter into a contract to allow a private utility to run
    cable through subway tunnels and is willing to grant similar
    contracts/licenses to others similarly situated (since there is room
    for a substantial number of such cables without interfering with
    transit operations), no competition would be required since the
    opportunity is open to all.

    Another example where competition may be limited is in the area of
    leveraged leasing. Many grantees are taking advantage of the
    opportunities to obtain a portion of the tax benefits available to
    private sector investors who lease or buy grantee assets through
    innovative financing techniques that keep possession and continuing
    control of the assets in the grantee's hands while transferring
    ownership for tax purposes. As grantees seek arrangers to construct
    these transactions, they should use some competitive procedure (but
    note that since these contracts are not Federally funded and involve
    no Federally-funded assets, the contract with the arranger need not
    comply with the circular) process. When the grantee's arranger
    constructs the actual transaction (a contract that will involve
    Federally-funded assets so FTA must approve of the transaction),
    competition is limited by securities regulations.

    An emerging area that combines aspects of Federally funded
    construction and revenue contracting is that of joint development.
    Certainly the circular has to apply to the Federally funded
    construction aspects of joint development but revenue contracting
    aspects make for difficult procurement practice decisions. FTA will
    work with grantees on a case-by-case basis to craft approaches that
    satisfy the statutory and regulatory requirements while preserving
    the benefits of this innovative contracting strategy to the maximum
    possible extent.

[^24]: As discussed above, 'piggybacking' is still allowable. Given the
    opportunities for joint procurements, inter-governmental
    procurements, and other innovative means of obtaining goods and
    services, grantees should pay renewed attention to their procurement
    practices to ensure they contract only for their reasonably
    anticipated requirements and do not build excess capacity into their
    contracts simply to assign rights to others at a later date.

[^25]: This paragraph was added to recognize that a well-structured
    e-commerce procurement system is acceptable.

[^26]: Grantees have expressed frustration when attempting to capture
    the salient characteristics of common parts and items that must be
    precisely engineered to be useful and for which simple notations
    (such as original equipment manufacturer's part numbers) describe,
    in a practical sense, the requirements. Sub-paragraph (6) was
    annotated to demonstrate two potential (although not required) means
    by which grantees can meet the Common Grant Rule's requirement to
    list salient characteristics when using a 'brand name or equal'
    specification without attempting to reverse-engineer a complicated
    part to discern precise measurements or specifications.

[^27]: This is meant only as an example of how a grantee might define
    salient characteristics, not as an exclusive means of doing so.
    Other examples can be found in the Best Practices Procurement
    Manual.

[^28]: ^27.5^ [\[*added February 2004 -* This provision was intended as
    paragraph 8.a.(7) and is not intended to be a portion of paragraph
    8.a.(6).\]]{.underline}

[^29]: Prequalification and the Common Grant Rule's requirement to allow
    potential bidders to qualify throughout solicitation periods has led
    to substantial confusion among some grantees. Prequalification lists
    are most common in recurring requirements for goods that take some
    period of time to evaluate to determine if they satisfy the
    grantee's standards. In those cases, grantees must accept
    submissions for evaluation, even during ongoing procurement actions.
    Evaluation need not be accelerated or truncated and FTA does not
    believe a particular solicitation must be held open to accommodate a
    potential bidder who submits a person, firm, or product for approval
    before or during that solicitation.

    Additionally, some procurement methods may include preliminary steps
    that should not be confused with prequalification. For instance, in
    Federal practice, 41 USC 253m allows for a two-phase selection
    procedure for large design-build projects and FTA believes grantees
    may also use that procedure. Essentially, the two-phase selection
    procedure allows the contracting officer to solicit proposals for
    design-build projects in two steps, the first a review of technical
    qualifications and technical approach to the project and the second
    a complete proposal. This allows the contracting officer to narrow
    the competitive range in the first step without a requirement for
    extensive proposal review on the government's part or expensive
    proposal drafting on potential contractors' parts. This two-phase
    selection procedure is separate and distinct from prequalification
    and is but one method grantees may use in their procurements.

[^30]: Determination of fair and reasonable pricing for micro-purchases
    (usually credit card purchases) has been seen as a burden by some
    grantees. FTA believes that determination may be done quickly and
    efficiently in several ways. One possible method would be for the
    official tasked to review and authorize payment of a credit card
    bill to annotate (by stapling a preprinted sheet to the bill,
    stamping the bill with a rubber stamp, or even asking the credit
    card provider to print an appropriate statement on each bill) a
    finding such as 'I have examined the expenditures reflected on this
    bill and determined that each reflects a reasonable price based on
    market prices offered by the vendors to the general public.'

[^31]: This is not intended to imply that any purchase under \$2,500
    must be treated as a micro-purchase or that any purchase under
    \$100,000 must be treated as a small purchase. Grantees remain free
    to set lower thresholds as they deem fit for either or both of these
    procurement methods.

[^32]: Sub-paragraph (5), like paragraph 6.g., recognizes the concept of
    best value. Once again, FTA does not wish to dictate any particular
    factors or analytic process. Solicitations must, of course, tell
    potential competitors for the contract what the basis for award will
    be.

[^33]: ^31.5^ [\[*added February 2004 -* The Brooks Act has been
    re-codified and is now found at 40 U.S.C. §1102. The provision in 49
    U.S.C. §5325 has been redesignated as subsection
    5325(b).\]]{.underline}

[^34]: FTA has expanded this section to better explain the breadth of
    this statutorily prescribed procurement method. FTA recognizes that
    most of the services listed (e.g., surveying) are not performed by
    architectural or engineering services companies.
    Qualifications-based competitive proposals (i.e., Brooks Act
    procedures) still must be applied to these procurements because of
    the statutory directive in 49 U.S.C. 5325(d).

[^35]: This paragraph was added to explain the requirements that apply
    to design-build procurements because they involve significant
    architectural, engineering, or other services that normally require
    qualifications-based competitive proposals but also include
    significant work that does not require this extraordinary
    procurement method. Grantees should determine which portion of the
    work is predominant and follow the method for that type of
    procurement. We would normally expect the construction portion of a
    design-build procurement to be predominant and, in that case, normal
    procurement methods can be used in lieu of qualification-based
    competitive proposals (the Brooks Act method).

[^36]: This paragraph was changed from prior versions of the circular to
    eliminate the phrase "or acceptance" of a single proposal when
    discussing what constitutes a sole source procurement. FTA believes
    that, upon receiving a single bid (or proposal) in response to a
    solicitation, the grantee should determine if competition was
    adequate. This determination may include a review of the
    specifications to determine if they were unduly restrictive or
    contacting sources that chose not to submit a bid or solicitation.
    It is only if the grantee determines that competition was inadequate
    that the procurement should proceed as a sole source procurement.
    The mere fact that only one bid or proposal was received does not
    automatically mean competition was inadequate since many unrelated
    factors could cause potential sources not to submit a bid or
    proposal.

[^37]: ^34.5^ \[*Added October 2003 -* This list of justifications is
    copied from the Common Grant Rule, 49 CFR 18.36(d)(4) which includes
    authority to use a sole source procurement when the "awarding agency
    \[FTA\] authorizes noncompetitive proposals." To ensure grantees
    have flexibility equal to that of Federal contracting officers, FTA
    authorizes procurement by noncompetitive proposals in all of the
    circumstances described in Part 6.3 of the Federal Acquisition
    Regulations, even if it is not specifically mentioned in this list
    of justifications.\]

[^38]: Cost and Price Analysis. Cost or price analysis has proven
    difficult for grantees in some cases. FTA believes price analysis
    for micro-purchases may be conducted on a limited basis as discussed
    above (paragraph 9a). Similarly, an abbreviated price analysis may
    be used for small purchases in most cases. One method to record this
    analysis is through use of a preprinted form on which a contracting
    officer (or other responsible person) can annotate a finding of fair
    and reasonable pricing and check off the most common reasons why
    this would be so such as catalog or market prices offered in
    substantial quantities to the general public, regulated prices
    (e.g., for many utilities purchases), or comparison with recent
    prices for similar goods and services

    Where cost analysis is required, some grantees have found difficulty
    obtaining the information necessary to conduct a proper cost
    analysis. The requirements for cost analysis are based in the Common
    Grant Rule and require action beyond FTA or DOT's authority to
    change. FTA continues to seek an equitable, practical solution to
    this problem consistent with the flexibility Federal contracting
    officers enjoy under the Federal Acquisition Regulation.

[^39]: The language in this section has been amended from prior versions
    of the circular to better explain that FTA will accept a local
    bonding policy that meets the minimums of paragraphs a, b, and c but
    that a policy that does not meet these minimums still may be
    accepted where the local policy adequately protects the Federal
    interest. Grantees who wish to adopt less stringent bonding
    requirements generally, for a specific class of projects, or for a
    particular project may submit the policy and rationale to their
    regional office for approval. \[*added October 2003 --* There is no
    FTA approval required for more stringent bonding requirements.
    Additionally, FTA does *not* require bonds for rolling stock,
    services, maintenance, operations, or any other contracts -- only
    for construction.\]

[^40]: The language in this section has been amended from previous
    versions of the circular to explain that grantees may make advance
    payments from local share funds. Where grantees wish to make advance
    payments with FTA funds, they should contact their regional office
    to obtain FTA concurrence. FTA believes there are various sound
    business reasons for providing advance payments under a number of
    circumstances and, where we find adequate security for the advance
    payment combined with a sound business reason to grant the advance
    payment, will normally grant the required concurrence. These advance
    payments may be in the nature of mobilization payments, start-up
    costs, or other advances backed by sound business judgment and
    adequate security. \[*added October 2003* -- Additionally, grantees
    may make advance payments with either local match or FTA funds for
    those purchases where advance payment is customary in the commercial
    marketplace such as utility services and subscriptions. FTA
    concurrence in these circumstances is only required where the
    advance payment or payments exceed \$100,000.\]

[^41]: We have re-drafted the paragraph related to progress payments to
    account for the practical reality that taking title to work in
    progress may not be desirable in some cases.

[^42]: ^38.2^ [\[*added February 2004 --* Progress payments in
    construction contracts may be made on a percentage of completion
    method in accordance with 49 CFR 18.21(d). This payment method may
    not be used in non-construction contracts.\]]{.underline}

[^43]: ^38.5^ \[*added October 2003 --* "Adequate security" should
    reflect the practical realities of different procurement scenarios
    and factual circumstances. For example, adequate security may
    consist of taking title to work in progress in a rolling stock
    procurement, receiving a draft document in a consulting contract, or
    receiving some portion of recurring services under a services
    contract. Grantees should always consider the costs associated with
    this security (e.g., bonds or letters of credit must be purchased in
    the commercial marketplace) and the impact those costs have on the
    contract price, as well as the consequences of incomplete
    performance as they consider what constitutes adequate security for
    a given procurement.\]

[^44]: The measurement period for liquidated damages may be something
    other than a day, where some other measuring period is appropriate.