[Federal Register Volume 73, Number 190 (Tuesday, September 30, 2008)]
[Notices]
[Pages 56896-56918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-22914]


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DEPARTMENT OF TRANSPORTATION

Federal Transit Administration

[Docket No. FTA-2007-29125]


Third Party Contracting Guidance: Notice of Final Circular

AGENCY: Federal Transit Administration (FTA), DOT.

ACTION: Notice of Availability of Final Circular.

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SUMMARY: The Federal Transit Administration (FTA) has issued FTA 
Circular 4220.1F, ``Third Party Contracting Guidance'' to provide 
comprehensive guidance to grantees and recipients of cooperative 
agreements (recipients) to implement third party contracting 
requirements that apply to FTA assisted procurements.

DATES:  Effective Date: The effective date of this circular is November 
1, 2008.

ADDRESSES: A copy of this circular and comments and material received 
from the public, as well as any documents indicated in the preamble as 
being available in the docket, are part of docket FTA-2007-29125 and 
are available for inspection or copying at the Docket Management 
Facility, U.S. Department of Transportation, 1200 New Jersey Ave., SE., 
West Building Ground Floor, Room W12-140, Washington, DC between 9 a.m. 
and 5 p.m., Monday through Friday, except Federal holidays.
    You may retrieve the circular and comments online through the 
Federal Document Management System (FDMS) at Web site: http://regulations.gov. Enter the docket number FTA-2007-29125 in the search 
field. The FDMS is available 24 hours each day, 365 days each year. 
Electronic submission and retrieval help and guidelines are available 
under the help section of the Web site.
    This notice does not include the final circular. An electronic 
version of the circular may be found on the docket: http://regulations.gov, docket number FTA-2007-29125, or on the FTA Web site: 
http://www.fta.dot.gov. Paper copies of the circular may be obtained by 
contacting FTA's Administrative Services Help Desk, at 202-366-4865.

FOR FURTHER INFORMATION CONTACT: James Harper, Director, Office of 
Procurement, Office of Administration, Federal Transit Administration, 
1200 New Jersey Avenue, SE., East Building, Room E42-332, Washington, 
DC 20590, phone: 202-366-1127, fax: 202-366-3808, or e-mail 
<a href="/cdn-cgi/l/email-protection#98d2f9f5fdebb6d0f9eae8fdead8fcf7ecb6fff7ee"><span class="__cf_email__" data-cfemail="b7fdd6dad2c499ffd6c5c7d2c5f7d3d8c399d0d8c1">[email protected]</span></a> for issues regarding third party contracting 
procedures and practices; or Kerry L. Miller, Assistant Chief Counsel 
for General Law, Office of Chief Counsel, Federal Transit 
Administration, 1200 New Jersey Avenue, SE., East Building, Room E56-
314, Washington, DC 20590, phone: 202-366-1936, fax: 202-366-3809, or 
e-mail, <a href="/cdn-cgi/l/email-protection#a4efc1d6d6dd8ae9cdc8c8c1d6e4c0cbd08ac3cbd2"><span class="__cf_email__" data-cfemail="d299b7a0a0abfc9fbbbebeb7a092b6bda6fcb5bda4">[email protected]</span></a>, for legal issues.

Table of Contents

I. Background
II. Overview
III. Chapter-by-Chapter Analysis
    A. Chapter I--Introduction and Role of the Federal Transit 
Administration
    B. Chapter II--Applicability
    C. Chapter III--The Recipient's Responsibilities
    D. Chapter IV--The Recipient's Property and Services Needs and 
Federal Requirements Affecting Those Needs
    E. Chapter V--Sources
    F. Chapter VI--Procedural Guidance for Open Market Procurements
    G. Chapter VII--Protests, Changes and Modifications, Disputes, 
Claims, Litigation, and Settlements
    1. Appendix A--References
    2. Appendix B--FTA Regional and Metropolitan Contact Information
    3. Appendix C--Third Party Contracting Checklists
    4. Appendix D--Matrices of Third Party Contract Provisions

I. Background

    This notice provides a summary of FTA's Third Party Contracting 
Guidance final circular, and addresses comments received in response to 
the FTA's September 28, 2007, Federal Register notice (72 FR 55630). 
FTA's most recent enabling legislation, the Safe, Accountable, 
Flexible, Efficient Transportation Equity Act: A Legacy for Users 
(SAFETEA-LU), Public Law 109-59, August 10, 2005, as amended by the 
SAFETEA-LU Technical Corrections Act, 2008, Public Law 110-244, June 6, 
2008, added new third party contracting requirements for FTA 
recipients. Other Federal laws and regulations have also amended 
certain Federal requirements or added new Federal requirements 
affecting third party procurements

[[Page 56897]]

undertaken by FTA recipients. To address these changes, FTA is re-
issuing FTA Circular 4220.1E, issued June 19, 2003, and last amended in 
February of 2004.
    FTA published proposed FTA Circular 4220.1F in the Federal Document 
Management System (FDMS) at Web site: http://regulations.gov, and in 
the FTA Web site: http://www.fta.dot.gov. FTA published a notice of 
availability in the Federal Register (72 FR 55630) on September 28, 
2007, seeking public comment on the proposed circular. FTA established 
a November 27, 2007, deadline for comments, but extended the comment 
period to February 15, 2008, as announced in the Federal Register on 
October 31, 2007 (72 FR 61708).
    Ten commenters responded to FTA's request for comments in response 
to that notice and the proposed circular. Commenters included four 
State departments of transportation, four regional transportation 
authorities, one trade association, and one private for-profit firm.
    This notice does not include the final circular. An electronic 
version of the circular may be found on the docket: http://regulations.gov, docket number FTA-2007-29125, or on the FTA Web site: 
http://www.fta.dot.gov. Paper copies of the circular may be obtained by 
contacting FTA's Administrative Services Help Desk, at 202-366-4865.

II. Overview of the Circular

    We recognize that this edition ``F'' of FTA Circular 4220.1 is 
substantially different from the previous FTA Circular 4220.1E, ``Third 
Party Contracting Requirements,'' 06-19-03. The final FTA Circular 
4220.1F (the final circular) does contain much more information and 
guidance than was available in the previous circular, which focused 
mostly on Federal requirements. In part, this results from the SAFETEA-
LU amendment to 49 U.S.C. Section 5334 adding a new subsection ``(l)'' 
requiring FTA to publish for notice and comment any ``guidance document 
* * * that * * * imposes obligations, produces significant effects on 
private interests, or effects a significant change in existing 
policy.'' The final circular now describes many procedures and 
processes that will assist the recipient in complying with the many 
Federal statutory and regulatory requirements that can affect third 
party procurements.
    Many commenters expressed the following views about the format and 
contents of the proposed circular as a whole:

1. Too Much Information and Complexity

    Several commenters objected to the length and complexity of the 
proposed circular, expressing a preference for the ``tight structure 
and focused approach'' of the previous circular. We understand that a 
streamlined list of requirements can be desirable. Because we are 
required by law to present all matters that may have a significant 
effect on private interests for public comment, we have included as 
many subjects as possible that might directly or indirectly affect a 
specific FTA assisted procurement. FTA assisted procurements are 
subjected not only to many Federal procedural requirements, but also to 
many Federal requirements about the nature of property and services 
that may be acquired and the prospective contractors that might seek to 
provide them. FTA lacks authority to issue blanket waivers to those 
Federal requirements.
    The circular's purpose is to provide guidance on how a recipient 
might comply with the many requirements affecting its procurements that 
accompany the use of Federal assistance awarded by FTA. If the 
recipient is prepared to forgo the use of FTA assistance to support a 
procurement, then the circular's guidance will not apply to that 
procurement. Nevertheless, we have attempted to reduce the circular's 
complexity and make it more user-friendly by consolidating related 
information in seven separate chapters. Chapter I describes the context 
in which the guidance takes place and FTA's role in third party 
contracting. Chapter II designates to whom and to what the circular 
applies. Chapter III outlines the recipient's general procurement 
responsibilities. Chapter IV describes the various Federal requirements 
that may affect the eligibility of prospective contractors to 
participate, the property and services to be acquired, the limitations 
imposed on the use of the property or services acquired, as well as the 
acquisition procedures to be used. Chapter V lists the various sources 
from which the recipient might acquire property and services. Chapter 
VI describes the procedural requirements that apply to the various 
procurement methods. Chapter VII closes by providing guidance on 
resolving contract difficulties that might emerge. Appendix A lists the 
various laws, regulations, executive orders, and directives referenced 
in the circular. Appendix B provides an updated list of FTA regional 
and metropolitan offices with contact information. A new Appendix C 
adds checklists to remind the recipient of the many Federal 
requirements that might apply to its procurement, with references to 
the various sections, subsections, paragraphs, and subparagraphs of 
Chapters II through VI. A new Appendix D adds clause matrices. After a 
recipient gains a clear understanding of the meaning of the terms used 
in the circular, what FTA may do, and the types of acquisitions covered 
by the circular, the recipient can use the later chapters of the 
circular as reminders of the many Federal requirements that affect 
various acquisitions, alternatives to the open market that may provide 
the property and services that are sought, and the different procedures 
to be used for the various methods of procurement.
    Specifically, we are concerned that the recipient remains aware of 
the many Federal requirements that could affect the contractor that may 
be selected and the nature of what is being required. If concentration 
is focused mainly on acquisition procedures, it can be easy to lose 
sight of other Federal requirements that may prove difficult or 
expensive to administer if considered too late. While these matters 
were briefly noted in former FTA third party contracting circulars, 
mostly by reference to the Master Agreement, we disagree that they are 
beyond the scope of a third party contracting procurement circular. For 
example, a prospective contractor should be aware of the implications 
of entering into contracts financed with FTA assistance, such as 
complying with our Buy America and Charter Service regulations, 
government-wide environmental protections, among others, before 
submitting a bid or proposal in response to a recipient's solicitation. 
Also, the recipient may wish to consider the various sources from which 
the property or services it seeks may be obtained.
    One commenter complained that the proposed circular would no longer 
be useful as a training document because it is too complex. We 
disagree. We believe the final circular with its focus on consolidating 
topics, providing more guidance and information, coupled with 
checklists of requirements that might be overlooked if contract awards 
need to be expedited, will far better serve the individuals to be 
trained.
    One commenter asked for review aids such as worksheets, clause and 
certifications matrices, and model clauses. We agree that these aids 
could be helpful, and have included a new Appendix C with checklists 
including references to specific parts of the circular. FTA has also 
prepared a new Appendix D with matrices identifying

[[Page 56898]]

the various clauses and contract provisions that might be required. For 
examples of model clauses, we refer you to the FTA's Best Practices 
Procurement Manual (BPPM), which we are planning to update in the near 
future. We caution, however, that while these checklists and matrices 
will be current on the day the final circular is issued, later enacted 
Federal laws and regulations may not be reflected in timely amendments 
to the circular. FTA will attempt to update the circular as necessary, 
but recommends that the recipient check the Master Agreement and the 
FTA Web site for information about any new Federal requirements.

2. Separate Requirements From Guidance

    One commenter asked whether the circular only provides guidance to 
FTA recipients or whether it intends to provide mandatory directions or 
requirements when financing third party contracts with Federal 
assistance. Several other commenters requested us to clearly identify 
distinctions between Federal requirements and guidance or 
recommendations or separate Federal third party procurement 
requirements from guidance.
    FTA considers this circular to be FTA's official guidance for 
implementing Federal requirements. This guidance consists of FTA's 
recommendations for achieving compliance with the various Federal 
requirements that might apply to a recipient or its procurement. The 
actual Federal requirements are contained in the provisions of Federal 
statutes or in promulgated Federal regulations, and in many cases 
impose binding requirements on participants in FTA assisted 
procurements. Appendix A contains a list of many of those laws and 
regulations applicable to FTA assisted procurements. Executive Orders, 
directives, and similar publications are binding on the Executive 
Branch of the U.S. Government, which must implement them. While the 
Executive Orders and other directives to Federal agencies do not apply 
directly to parties or individuals outside the Federal Government, some 
provisions of those Orders or directives require the cooperation of 
parties that are not part of the Executive Branch of the U.S. 
Government. Consequently, FTA must gain the consent of the relevant 
parties to ensure compliance with the Executive Orders and Federal 
directives. FTA does this through the provisions of its Master 
Agreement incorporated by reference in each FTA grant agreement and FTA 
cooperative agreement. To determine what is required of the various 
participants in an FTA assisted project, we suggest that you review 
those documents.
    Because this circular consists of a broad range of guidance to FTA 
recipients, some of that guidance will simply re-state a Federal law or 
regulation, while other guidance will provide one or more methods of 
complying with an underlying Federal law or regulation, focusing on the 
terms of the FTA law or regulation to clarify what is needed for 
compliance. Doing so will result in ``blurring of lines between legal 
and regulatory requirements, guidance, and commentary,'' as noted by 
one commenter. Throughout the final circular, however, FTA has 
attempted to identify those provisions that constitute Federal 
statutory or regulatory requirements. Information not designated as a 
Federal statutory or regulatory requirement in nearly all cases will be 
compliance guidance.
    FTA is willing to give serious consideration to alternative ways a 
recipient may comply with the Federal laws and regulations that apply 
to FTA programs. In some situations, FTA is familiar with only one 
method of achieving compliance, and then only that method is listed in 
the final circular. Other situations lend themselves to various methods 
of compliance. In summary, an FTA recipient should review the Federal 
laws and regulations cited in connection with each subject of concern 
to learn what requirements apply to it and to other participants in its 
project. To determine what is required of FTA that might affect third 
party procurement, the recipient may also review any Executive orders 
and other Federal directives referred to in connection with each 
subject of concern as well as the relevant Federal laws and 
regulations. FTA's BPPM, while not official FTA guidance, includes more 
extensive examples of procedures, processes, or ways in which 
compliance with specific Federal requirements might be achieved.
    A recipient seeking methods of complying with a Federal requirement 
other than those described in the final circular or in the BPPM should 
contact FTA employees and officials in its region, particularly because 
FTA is not authorized to provide Federal assistance for third party 
procurements that do not comply with Federal requirements. While many 
recipient actions do not expressly require approval under Federal law 
or regulation, if FTA finds that a third party procurement fails to 
comply with Federal requirements, then FTA may need to withdraw 
funding, obtain a refund, or offset future Federal assistance that 
would have been provided to the recipient. In summary, the recipient is 
ultimately responsible for compliance with Federal requirements. If the 
recipient chooses to take an action that is later determined to violate 
Federal law or regulations, then it can expect that the Federal 
Government will take remedial action.

3. Links to Relevant Documents Needed

    One commenter requested us to add links to essential documents 
referenced in the proposed circular. We are unable to do so at this 
time, although we have included on-line addresses of certain resources 
that may be difficult to find. Be aware, however, that these addresses 
may change as Web sites change.
    In summary, we recognize that implementing FTA's third party 
contracting guidance can be complicated, and that many disparate 
Federal requirements will apply. We expect to continue to learn from 
your experience in administering the many Federal requirements that 
apply to third party contracting. We will be monitoring the usefulness 
of this guidance, and we continue to be open to comments and 
suggestions. We value input from our recipients and others, and we urge 
you to communicate with FTA staff at our headquarters and regional 
offices regarding questions and concerns you may have and successes you 
experience.

4. Notification of Changes to the Final Circular

    One commenter recommended that FTA provide notice and comment about 
all amendments or updates to the final circular, even if FTA later 
amends or updates the final circular because of revisions to other FTA 
or other Federal regulations or guidance that has undergone notice and 
comment.
    FTA disagrees. When the revision of a circular or regulation 
requires the Federal Government to provide an opportunity for notice 
and comment, there is no need to satisfy that requirement again just to 
update a reference to that revised document. FTA is required by 49 
U.S.C. 5334(l) to provide notice and comment and otherwise follow 
applicable Federal rulemaking procedures about any change that ``grants 
rights, imposes obligations, produces significant effects on private 
interests, or effects a significant change in existing policy.'' FTA, 
however, need not provide notice and comment when making minor 
technical corrections, such as updating legal citations and ensuring 
conformity of its circulars with the latest Federal regulations or 
guidance that has

[[Page 56899]]

undergone notice and comment. FTA will notify the public of those 
changes as they occur.
    FTA will also post updates on its Web site: http://www.fta.dot.gov. 
The recipient should register for notifications when FTA issues Federal 
Register notices or new guidance. To register for notifications, go to 
the FTA public Web site: http://www.fta.dot.gov. In the middle of the 
page will be a box with the following message:

Sign up for e-mail updates
The Federal Transit Administration now offers e-mail updates on various 
topics including Federal Register notices, SAFETEA-LU and others.
Please click on the link above to begin the sign-up process.

5. Editorial Comments

    A few commenters recommended brief descriptions of citations, and 
noted editorial discrepancies and typographical errors. We agree with 
most of their recommendations and have made appropriate changes in the 
final circular.

III. Chapter-by-Chapter Analysis

    This section briefly describes the contents of each chapter of the 
final circular and addresses public comments received in response to 
its September 28, 2007, and October 31, 2007, notices.

A. Chapter I--Introduction and Background

    Chapter I is an introductory chapter with general information about 
FTA and how to contact us. It also provides a brief review of FTA's 
authorizing legislation, along with information about Grants.gov. It 
includes definitions applicable to third party contracting, and 
describes FTA's role in third party procurements. While contact 
information about FTA officials is identified in the various chapters 
of the final circular, if you have a question and an FTA official is 
not identified as a contact source, you should contact the Regional 
Administrator for the region in which the project is administered or 
the Associate Administrator for the Program under which a headquarters 
project is administered.
Sections 1 Through 4--Description of FTA, Its Authorizing Legislation, 
Contact Information, and General Background
    We have edited the first four sections of Chapter I, but they 
otherwise remain substantially similar to those of the proposed 
circular provided in connection with FTA's September 27, 2007, Federal 
Register notice.
Section 5--Definitions
    The fifth section of Chapter I contains definitions of various 
terms used in the final circular. Several commenters submitted 
recommendations, including requests for changes in some of the proposed 
definitions and requests for additional definitions.
    From FTA Circular 4220.1E, we have retained the definitions of 
``Best Value,'' ``FTA,'' ``State,'' and ``Third Party Contract,'' 
modified to accommodate comments we received.
    From the ``Definitions'' subsection of the proposed circular, we 
have retained definitions of ``Approval, Authorization, Concurrence, 
Waiver,'' ``Common Grant Rules,'' ``Cooperative Agreement,'' ``Design-
Bid-Build Project,'' ``Design-Build Project,'' ``Grant,'' ``Master 
Agreement,'' ``Non-Governmental Recipient,'' ``Electronic Commerce (E-
Commerce),'' ``Property,'' ``Recipient,'' and ``Revenue Contract,'' 
modified to accommodate comments we received. We have separated the 
definitions of ``State,'' ``Local Government'' and ``Indian Tribal 
Government'' from the definition of ``Governmental Recipient'' without 
changing the meaning of those terms.
    We have also added definitions of ``Cardinal Change,'' ``Change 
Order,'' ``Constructive Change,'' ``Force Account,'' ``Full and Open 
Competition,'' ``Joint Procurement,'' ``Project Labor Agreement 
(PLA),'' ``Public Transportation,'' ``State or Local Government 
Purchasing Schedule or Purchasing Contract,'' ``Unsolicited Proposal,'' 
and ``Value Engineering,'' to preclude misunderstanding of those 
subjects as they are discussed in the final circular.
    As stated in the preamble to the proposed circular, we have 
substituted a definition of ``Recipient'' for the definition of 
``Grantee'' to encompass both recipients of Federal grants and 
recipients of cooperative agreements. We transferred the term 
``Piggybacking'' included in previous FTA Circular 4220.1E from the 
Definitions section of Chapter I to the Chapter V discussion of 
``Assignment of Contract Rights.'' We also transferred the term ``tag-
on'' included in previous FTA Circular 4220.1E from the Definitions 
section of Chapter I to the Chapter V discussion of ``Cardinal 
Changes.''
Subsection 5.a--Approval, Authorization, Concurrence, Waiver
    In the definition of ``Approval, Authorization, Concurrence, 
Waiver,'' appearing for the first time in the proposed circular, one 
commenter objected to the term ``conscious written statement,'' and 
recommended that it be replaced with ``written sanction * * * by.'' FTA 
disagrees with this recommendation because not every ``approval, 
authorization, concurrence, [or] waiver'' constitutes a sanction. We 
have, however, replaced the word ``conscious'' with ``deliberate.''
Subsection 5.b--Best Value
    Commenters submitted four recommendations for revisions to the 
definition of ``Best Value.'' We have accepted those recommendations 
and have redrafted the definition to emphasize that best value is one 
type of competitive, negotiated procurement process with award 
determined on the basis of other factors important to the recipient in 
addition to cost or price factors. In this subsection, we have replaced 
terms used in connection with sealed bid procurements, which implicitly 
require award to the low bidder, with terms suitable for negotiated 
procurements. We have also included a statement that the evaluation 
factors for a specific procurement should reflect the subject matter 
and the elements that are most important to the recipient, and a 
clarification that our list of evaluation factors appearing in the 
proposed circular are not an exhaustive list of acceptable evaluation 
factors.
Subsection 5.c--Cardinal Change
    One commenter sought clarification of terms pertaining to 
``changes.'' To remedy misunderstandings, we have added a definition of 
``Cardinal Change.''
Subsection 5.d--Change Order
    To remedy misunderstandings, we have also added a definition of 
``Change Order.''
Subsection 5.f--Constructive Change
    We have also revised the definition of ``Constructive Change'' in 
view of the same request for clarification.
Subsection 5.h--Design-Bid-Build Project
    Another commenter requested that we remove the term ``at risk'' in 
the definition of ``Design-Bid-Build Project'' when referring to 
contracting for the construction portion of the project. We agree, and 
have made that change.
Subsection 5.i--Design-Build Project
    The same commenter also requested us to broaden the definition of 
``Design-Build Project'' to include projects other than transportation 
systems or operable segments. We agree, and have made the change.

[[Page 56900]]

Subsection 5.k--Force Account
    One commenter's statements about our involvement in a recipient's 
decision to use its workforce to perform project work prompted us to 
add a definition of ``Force Account.''
Subsection 5.m--Full and Open Competition
    One commenter's statements prompted us to add a definition of 
``Full and Open Competition.''
Subsection 5.p--Indian Tribal Government
    We separated the definition of ``Indian Tribal Government'' from 
the definition of ``Governmental Recipient.''
Subsection 5.q--Joint Procurement
    We have added a definition of ``Joint Procurement'' to 
differentiate it from ``State or Local Purchasing Schedule or 
Purchasing Contract.''
Subsection 5.r--Local Government
    We separated the definition of ``Local Government'' from the 
definition of ``Governmental Recipient.''
Subsection 5.s--Master Agreement
    One commenter recommended that we change the definition of ``Master 
Agreement'' to conform to our explanation in the FTA Master Agreement. 
We agree, and have made that change.
Subsection 5.t--Non-Governmental Recipient
    One recipient noted that the definition of ``non-governmental 
recipient'' excludes private businesses except at FTA's discretion, but 
does not add a definition of private business. We have used the term 
``non-governmental recipient'' to mean ``recipient'' as defined in 
Department of Transportation (DOT) regulations, ``Uniform 
Administrative Requirements for Grants and Agreements with Institutions 
of Higher Education, Hospitals, and Other Non-Profit Organizations,'' 
49 CFR Part 19. That definition includes the term ``commercial 
organizations,'' which we interpret to mean ``private businesses.'' 
Thus we have not defined ``private business'' for purposes of the final 
circular. FTA intends to inform recipients that it will reserve the 
right to apply the provisions of 49 CFR Part 19 to all recipients not 
covered by 49 CFR Part 18. As provided in those regulations, the 
Federal Acquisition Regulation (FAR) cost principles applicable to for-
profit organizations will apply to commercial organizations.
Subsection 5.u--Project Labor Agreement (PLA)
    We have added a definition of ``Project Labor Agreement'' 
consistent with the General Services Administration's (GSA) definition 
of that term.
Subsection 5.v--Property
    We have amended our definition of ``Property'' to replace ``real 
property'' with ``land and buildings, structures, or appurtenances on 
land.''
Subsection 5.w--Public Transportation
    We have added a definition of ``Public Transportation'' in view of 
the amendment to the SAFETEA-LU Technical Corrections Act, which 
expressly restores the exclusion of ``sightseeing service'' from the 
definition of ``public transportation'' for purposes of 49 U.S.C. 
Chapter 53.
Subsection 5.x--Recipient
    Another commenter requested us to include an explanation in our 
definition of ``Recipient'' that a ``Recipient'' does not include a 
third party contractor or third party subcontractor. We agree, and have 
made the addition requested.
Subsection 5.y--Revenue Contract
    One commenter requested us to reconcile the meanings of ``Revenue 
Contract'' as used throughout the proposed circular. We agree, and have 
revised the definition for consistency with the meaning of the term as 
used in Chapter II, subparagraph 2.b(4).
Subsection 5.aa--State or Local Government Purchasing Schedule or 
Purchasing Contract
    We have added a definition of ``State or Local Government 
Purchasing Schedule or Purchasing Contract'' to differentiate it from 
``Joint Procurement.''
Subsection 5.bb--Third Party Contract
    One commenter requested that the definition of ``Third Party 
Contract'' be amended specifically to include purchase orders and 
credit card purchases. We agree, and have made the change.
Subsection 5.cc--Unsolicited Proposal
    We have added a definition of ``Unsolicited Proposal'' consistent 
with FAR standards.
Subsection 5.dd--Value Engineering
    One commenter's statements prompted us to add a definition of 
``Value Engineering.''
Section 6--FTA's Role
    The sixth section discusses FTA's role and responsibilities with 
regard to third party procurements. The subsections hereunder 
addressing third party contract reviews, procurement system reviews, 
and training and technical assistance continue to be substantially 
similar to those of FTA Circular 4220.1E.
Subsection 6.a--Reliance on the Recipient's Self-Certification
    For consistency with the Common Grant Rules, the final circular 
retains the proposed circular's discussion of self-certification. 
Specifically, the DOT's Common Grant Rule for governmental recipients, 
49 CFR Part 18, permits governmental recipients to request self-
certification, but does not require them to do so, nor does that Common 
Grant Rule permit FTA to require self-certification. The DOT's Common 
Grant Rule for non-governmental recipients, 49 CFR Part 19, has no 
provisions addressing self-certification.
Subsection 6.f--Master Agreement
    Two commenters requested changes to our discussions of FTA's Master 
Agreement. In this subsection, we are not merely defining the Master 
Agreement, but are providing more information about it and how it can 
best be used.
Subsection 6.g--``Best Practices Procurement Manual (BPPM)''
    One recipient asked us to clarify the purpose of the BPPM. We have 
revised this subsection that describes the BPPM to emphasize that the 
BPPM is not official FTA guidance applicable to the recipient, but 
instead is a compilation of suggested procedures, methods, and examples 
the recipient may use as it sees fit. Another commenter requested us to 
update the BPPM so that it will be a reliable resource. We are planning 
to update the BPPM, but are uncertain whether we will be able to 
maintain it so that it will always reflect accurate recommendations.
Subsection 6.h--Third Party Contracting Helpline
    We have included a better Web address for FTA's Third Party 
Contracting Helpline.
Subsection 6.i--``Frequently Asked Questions''
    We have included a reference to the FTA Web site for ``Frequently 
Asked Questions'' about third party contracting.

[[Page 56901]]

B. Chapter II--Applicability

    We have restructured Chapter II to consolidate provisions 
pertaining to the various categories of recipients and their projects. 
We expanded the chapter to include additional paragraphs to respond to 
unanticipated comments to the proposed circular. As a result, we have 
transferred some provisions of the proposed circular to this chapter.
    Much of this chapter retains provisions substantially similar to 
their counterpart provisions within FTA Circular 4220.1E or its 
footnotes, with important exceptions discussed below:
Section 1--Legal Effect of the Circular
    After reading many of those comments, we have become aware that 
many of our recipients misunderstand the legal implications of FTA's 
circulars. As a result, we included a new section at the beginning of 
Chapter II to explain that the final circular, although official FTA 
guidance, is not a Federal mandate comparable to a Federal law or 
regulation.
Section 2--Applicability of the Circular
Subsection 2.a--Participants in FTA Assisted Procurements
Paragraph 2.a(1)--Recipients of FTA Grants and Cooperative Agreements
Subparagraph 2.a(1)(a)--States
    As stated in the preamble to proposed FTA Circular 4220.1F, the 
previous FTA Circular 4220.1E inadvertently misstated FTA's long-
standing practice in administering its State managed programs when it 
took the position that only States and State instrumentalities could 
use State procedures when undertaking procurements financed with FTA's 
funding for State managed programs. We have retained the new language 
of the proposed circular, which correctly states OMB's decision that 
FTA governmental subrecipients of States may use State procurement 
procedures, but non-governmental recipients of States must use the 
procurement procedures of the Common Grant Rule for non-governmental 
recipients.
Paragraph 2.a(3)--Recipients of Both Federal Assistance Awarded by FTA 
and Funds Provided by Another Federal Agency
    While there is a general understanding that FTA requirements apply 
to FTA assisted procurements, one commenter asked what Federal 
requirements would apply if another Federal agency were also providing 
funding for the project. Our response is that the requirements of each 
agency's laws and regulations would apply to the project, and the 
recipient would need to take actions that would meet the requirements 
of all participating agencies.
Paragraph 2.a(5)--Third Party Contractors and Subcontractors
Subparagraph 2.a(5)(b)--Effect of Federal Requirements
    One commenter appears to question whether federally required 
contract clauses must flow down to third party contractors and 
subcontractors because the circular does not apply directly to them. We 
have included a new paragraph addressing the status of third party 
contractors and subcontractors and have informed recipients that some 
Federal laws and regulations will, in effect, require the compliance of 
their third party contractors and subcontractors as well as the 
recipient. In those cases, the recipient must include adequate 
provisions in their solicitation documents and third party contracts.
Subsection 2.b--Third Party Contracts
Paragraph 2.b(1)--Capital Contracts
Subparagraph 2.b(1)(b)--Art
    One commenter asked us to update the procurement requirements in 
FTA Circular 9400.1A, ``Federal Transit Administration Design and Art 
in Transit Projects,'' dated 06-09-95. FTA intends to do so after the 
end of Fiscal Year 2008.
Subparagraph 2.b(1)(c)--Over-the-Road Bus Accessibility Program
    One commenter asked whether the exemption from the proposed 
circular's provisions applies only to FTA's Over-the-Road Bus 
Accessibility Program or whether all over-the-road bus procurements are 
also exempted. We have revised the proposed circular to clarify that 
the exemption applies only to the Over-the-Road-Bus Accessibility 
Program and does not include over-the-road buses acquired through other 
FTA programs.
Subparagraph 2.b(1)(d)--Real Property
    Four commenters pointed out apparent inconsistencies pertaining to 
the application of the proposed circular to real property. While we 
have left the definition of ``Property'' to include ``real property,'' 
we agree that clarifications are needed and have revised the paragraph 
pertaining to real property to emphasize that the final circular does 
not apply to the purchase of land and existing facilities, but does 
apply to construction of new buildings and facilities on the land 
acquired for the project, and applies to alterations or repairs to 
buildings and facilities on the land when it was acquired or made 
available for project use.
Paragraph 2.b(2)--Operations Contracts
Subparagraph 2.b(2)(b)--Operations Contracts Financed Entirely Without 
FTA Assistance
    As stated in the notice of availability of proposed FTA Circular 
4220.1F, FTA has been considering whether and to what the extent its 
third party contracting provisions should apply to an FTA recipient's 
acquisitions financed entirely without FTA assistance.
    For many years, FTA has taken the position that ``one dollar taints 
all,'' a policy in which FTA required a recipient to apply FTA 
requirements to all its other operations contracts, including those 
contracts financed entirely without Federal assistance, if the 
recipient uses any part of its FTA formula assistance to support any 
operation contract. Because recipients in large urbanized areas have 
not been authorized to use Urbanized Area Formula assistance for 
operations, operations contracts they can demonstrate were financed 
entirely without FTA assistance have not been required to comply with 
FTA requirements. In contrast, recipients in smaller urbanized areas 
currently must apply FTA requirements to all their operations 
procurements, whether or not they are financed with FTA assistance, if 
they use any of their Urbanized Area Formula assistance or Nonurbanized 
Area Formula assistance to support even one operations contract.
    FTA did make exceptions for Congestion Mitigation and Air Quality 
(CMAQ) and Job Access/Reverse Commute (JARC) assistance used for 
operations, determining that if a recipient could demonstrate which 
operations contracts CMAQ or JARC assistance supported, then the 
recipient's other entirely privately financed operations contracts need 
not comply with FTA requirements. Now that SAFETEA-LU changed the JARC 
program from a discretionary program to a formula program, FTA must 
determine whether to impose its procurement requirements on a 
recipient's operations contracts not financed with Federal assistance 
if the recipient uses its formula JARC funds for operations.
    FTA also provided an exception for recipients in large urbanized 
areas to exempt all their operations contracts from FTA requirements 
provided they are able to trace their use of preventive maintenance 
funding to specific contracts. If, however, they are unable to

[[Page 56902]]

do so, and use FTA assistance for general support of preventive 
maintenance contracts, then FTA requirements will apply to all their 
operations contracts.
    At the same time, FTA has been reviewing its policies pertaining to 
its recipients' use of other FTA assistance that finances operations 
contracts in connection with other project activities. Among other 
programs in which FTA supports the costs of project-related operations 
are the New Freedom Program, 49 U.S.C. 5317, the Elderly Individuals 
and Individuals with Disabilities Program, 49 U.S.C. 5310, the Elderly 
Individuals and Individuals with Disabilities Pilot Program, 49 U.S.C. 
5310 note, and the National Research Program, 49 U.S.C. 5312(a), all of 
which involve some recipients or subrecipients that receive only a 
small portion of their financial expenses from FTA.
    FTA expressly sought comments about the extent to which FTA 
requirements should be applied to a recipient or subrecipient's 
operations contracts financed entirely without Federal assistance. FTA 
also sought comments on the extent of agency operating expenses that 
are not related to public transportation but must comply with FTA 
procurement requirements under the concept that one dollar of FTA 
operating assistance brings an agency's entire operating budget under 
the FTA requirements. Specifically, FTA requested comments on the 
rationale for excluding other operating contracts from the 
applicability of FTA requirements. Those that commented overwhelmingly 
urged FTA to exempt all acquisition financed without any Federal 
assistance from Federal requirements. Most commenters believe imposing 
Federal requirements on acquisitions not financed with Federal 
assistance to be overbroad, if not unauthorized.
    FTA also asked for examples of how operating expenses could be 
tracked and managed so that FTA assisted expenses could be segregated 
from other operating costs. One commenter explained that many 
accounting and bookkeeping systems are generally capable of identifying 
cost allocations sufficiently thoroughly so that the funding sources of 
each contract can be readily identified. Because a variety of 
accounting systems can identify funding sources, the commenter asked 
FTA not to impose a uniform accounting system that might be expensive 
to implement. The commenter also pointed out that FTA could monitor 
that process by asking recipients to state whether or not they are 
segregating federally assisted acquisitions, including operations 
acquisitions, from acquisitions financed entirely without FTA 
assistance, and then ask those recipients that are segregating their 
acquisitions to describe the methods by which they are tracking sources 
of funding. FTA could reserve the right to disallow the practice if the 
recipient's recordkeeping methods are deficient. States could monitor 
those practices for compliance by their recipients that qualify to use 
State procedures.
    In considering its proposal to remove FTA's procurement 
requirements from operations contracts financed with FTA formula 
assistance, FTA is aware that doing so might diminish contracting 
opportunities for some disadvantaged business enterprises (DBE). To 
preclude that result, FTA has emphasized its position that a recipient 
required by DOT regulations, ``Participation by Disadvantaged Business 
Enterprises in Department of Transportation Financial Assistance 
Programs,'' 49 CFR Part 26, to have a DBE program may not structure its 
operations expenditures (or other expenditures) in a manner that 
removes an unreasonable proportion of contracts that could have been 
performed by DBEs from its DBE program. Accordingly, we expressly 
sought comments estimating the impacts on DBE participation that might 
accompany FTA's proposed policy change that would permit all recipients 
to separate their FTA assisted operations contracts from their other 
operations contracts receiving no FTA assistance. However, we did not 
receive any comments directly addressing prospective adverse impacts on 
DBE participation that might result from that change.
    One commenter advised that applying DBE requirements broadly to all 
procurements might well invalidate the entire DBE program. FTA does not 
intend to require each FTA assisted procurement to be included in a 
recipient's DBE program. Nevertheless, a recipient that enters into a 
third party contracts for operations or planning must comply with the 
requirements of the DBE regulations. Therefore, FTA maintains that a 
recipient required to have a DBE program may not structure its 
operations expenditures (or other expenditures) in a way so that an 
unreasonable proportion of contracts that could be performed by DBEs 
are removed from its DBE program.
    After considering the comments we received, FTA has determined not 
to require any FTA recipient to apply FTA statutory and regulatory 
requirements to acquisitions that the recipient can demonstrate 
conclusively it has been financed entirely without FTA assistance. In 
exempting the recipient from FTA requirements that have in the past 
affected its procurements, however, we caution the recipient that FTA 
cannot exempt a recipient from other Federal requirements that may 
apply irrespective of whether or not the acquisition were financed with 
Federal assistance. An example would be Federal requirements for 
accessibility for individuals with disabilities that would apply to a 
recipient irrespective of whether or not Federal assistance were made 
available for an activity undertaken by the recipient. FTA assisted 
procurements, however, must comply with all applicable Federal 
requirements.
Paragraph 2.b(3)--Preventive Maintenance Contracts
    In the paragraph pertaining to the application of FTA requirements 
to preventive maintenance contracts, one commenter asked us to identify 
``discrete.'' Rather than defining ``discrete,'' we have substituted 
the term ``separate and distinct'' in the final circular.
Paragraph 2.b(4)--Revenue Contracts
    One commenter objected to an FTA requirement that revenue contracts 
be awarded ``utilizing competitive procedures and principles,'' asking 
instead that we reinstate the distinction between situations that offer 
unrestricted access to similar users and situations that can provide 
only limited access to similar users. We agree, and have made that 
change in the final circular.
Paragraph 2.b(6)--Public-Private Partnerships
    One commenter asked us to describe or define the contract delivery 
arrangements or project delivery systems listed in the proposed 
circular in connection with public-private partnerships (PPPs). Because 
we did not want to duplicate information previously published, we have 
included a reference to the FTA ``Notice of establishment of Public-
Private Partnership Pilot Program; solicitation of applications,'' 72 
FR 2583-2591, January 19, 2007, which includes a description of the 
various contract delivery arrangements or project delivery systems in 
the context of PPPs.
    One commenter proposed that we designate as PPPs only those 
partnerships that include both project delivery and operations. FTA 
disagrees. Structured in multiple forms, PPPs can vary greatly 
according to the scope of responsibility and degree of risk

[[Page 56903]]

assumed by the private partner for project activities. The same 
commenter pointed out that design-build (with or without a warranty) 
and construction manager at risk are variations on the design-bid-build 
method of project delivery. We agree that design-build (with or without 
a warranty) and construction manager at risk are project delivery 
systems but consider that projects with those attributes can constitute 
a PPP because the private partner or partners undertake the recipient's 
function of selecting the construction firm, and assume the risk of 
delivering the entire project.
    In all eight categories of PPPs we have identified, the private 
partner undertakes in part the duties usually performed by the 
recipient and assumes some of the recipient's financial risk. Moreover, 
FTA's ``Notice of establishment of Public-Private Partnership Pilot 
Program; solicitation of applications,'' 72 FR 2583-2591, January 19, 
2007, expressly acknowledges all eight types of PPPs listed in the 
proposed circular.
    Two commenters objected to our discussion of PPPs and joint 
development as too intrusive. One commenter complained that having to 
craft individual arrangements with FTA for each project would be unduly 
time-consuming, recommending that FTA establish objective principles 
for our participation in those projects. We agree that objective FTA 
principles for PPP participation would be helpful. As a result of our 
experience with joint development projects, we have excerpted parts of 
our ``Notice of Final Agency Guidance on the Eligibility of Joint 
Development Improvements under Federal Transit Law,'' 72 FR 5788, 
February 7, 2007, which contains third party contracting guidance we 
have found useful. As we gain more experience with joint development 
projects and other PPPs, we will issue further guidance as appropriate.
Paragraph 2.b(7)--Transactions Involving Complex Financial Arrangements
    Two commenters offered recommendations about the role of an 
``arranger'' or facilitator in complicated financial transactions 
involving FTA assisted property. One commenter pointed out that the 
arranger is usually paid with the proceeds of the transaction resulting 
from the use of FTA assisted property, and indicated that the arranger 
should be selected using competitive procedures. Because FTA is not 
sure that arrangers are always paid in part with FTA assistance or the 
proceeds derived from the use of FTA assisted property, we have not 
imposed that mandate. However, when an arranger is compensated with 
proceeds derived from the use of FTA assisted property, we have stated 
our expectation that the recipient would use competitive procedures to 
select its arranger. In addition, one commenter recommended that FTA 
strengthen conflict of interest procedures applicable to arrangers to 
ensure that an arranger does not personally benefit by using his or her 
company or other companies in which he or she has a financial interest. 
In this matter, FTA believes it appropriate to rely on the recipient's 
conflict of interest requirements and procedures to prevent unfair 
dealing.
Paragraph 2.b(8)--Force Account
    One commenter recommended that we clarify that the final circular 
does not apply to a recipient's force account work. We agree, and have 
added a paragraph stating that the final circular's third party 
contracting guidance does not apply to force account work.
Section 3--Federal Laws and Regulations
Subsection 3.c--Other Federal Requirements
Paragraph 3.c(1)--Compilation in the Master Agreement
    We received two comments about the significance of the Master 
Agreement. One commenter suggested we add a paragraph discussing the 
Master Agreement in much greater detail. We have included a reference 
to the discussion of the Master Agreement in Chapter I, subsection 6.f 
of the final circular, instead of repeating that information in Chapter 
II. Because the purpose of discussing the Master Agreement here is to 
identify it as a resource identifying Federal requirements, among other 
things, we have revised the heading of that paragraph in the final 
circular. Another commenter complained that the Master Agreement is not 
a useful means of communicating procurement requirements to recipients. 
Although we agree that the Master Agreement does not provide explicit 
procurement guidance to recipients, we have found that the Master 
Agreement is one of the most useful means of providing recipients a 
reasonably current compilation of the many Federal requirements that 
apply to FTA assisted projects.
Paragraph 3.c(2)--Conflicting Federal Requirements
    One commenter asked which FTA official or officials should be 
notified of conflicting Federal laws and regulations when more than one 
Federal agency provides support for an FTA assisted project. The final 
circular advises the recipient to notify the FTA Chief Counsel in 
writing.
Section 4--State and Local Laws and Regulations
Subsection 4.b--Conflicts Between Federal Requirements and State or 
Local Requirements
    The same commenter also asked who should be notified when 
conflicting Federal and State requirements apply to a project. Our 
response is that the recipient should notify the Regional Counsel for 
the region in which the project is being administered or the Assistant 
Chief Counsel for General Law for those projects administered by FTA 
headquarters staff.
    The proposed circular noted that in the case of a conflict between 
State and local laws, it might be necessary for FTA to terminate the 
project if no resolution were available. One commenter sought an 
explanation of how this might occur. Since the inception of the FTA 
program, FTA has required recipients to comply with Federal 
requirements. In a relatively few instances, recipients have needed to 
persuade their State legislatures to enact special legislation that 
would permit the recipient to comply with Federal laws and regulations 
to permit its project to continue. For that reason, the recipient 
should notify FTA in writing as soon as possible when conflicts between 
Federal and State laws or regulations occur. FTA is willing to work 
with the recipient in seeking and implementing an equitable resolution.
    Two other commenters opposed the proposed circular's termination 
provisions, claiming among other reasons that the recipient's counsel, 
not FTA, should be authorized to determine what requirements apply, and 
that FTA enforcement of Federal laws inconsistent with State laws would 
effectively pre-empt State or local laws. First of all, FTA makes every 
effort to avoid the need to terminate Federal assistance for a project 
due to conflicting Federal and State or local laws or regulations. When 
such situations arise, occasionally they have been resolved by efforts 
the recipient has made to persuade its State legislature to amend the 
conflicting law, at least to the degree necessary to permit FTA 
assistance to be used. FTA is not

[[Page 56904]]

authorized to waive Federal requirements except to the extent permitted 
by the underlying Federal laws and regulations. If a Federal law or 
regulation contains a requirement that FTA may not waive, FTA has no 
choice but to insist on the recipient's compliance as a condition of 
FTA assistance. If the Federal Government terminates Federal assistance 
for a project based on the recipient's failure or inability to comply 
with Federal law or regulations, FTA's position is that the termination 
would not be a Federal pre-emption of State or local law. The decision 
of whether a Federal agency will provide or continue Federal assistance 
for a specific project is separate and distinct from a Federal decision 
to pre-empt State or local law.

C. Chapter III--The Recipient's Responsibilities

    Apart from specific procurement procedures discussed at length in 
Chapter VI, this chapter consolidates the recipient's procurement 
responsibilities. We have retained much of the information included in 
FTA Circular 4220.1E, but we have also added information about Common 
Grant Rule provisions not discussed in that circular.
Section 1--Written Standards of Conduct
Subsection 1.a--Personal Conflicts of Interest
    Three commenters objected to the personal conflict of interest 
prohibitions as written in the proposed circular. The Common Grant 
Rules and FTA Circular 4220.1E prohibit personal conflicts of interest 
by prohibiting contract activities that ``would'' result in a real or 
apparent conflict of interest, while the proposed circular would 
prohibit personal conflicts of interest by prohibiting contract 
activities that ``could'' result in a real or apparent conflict of 
interest. We agree with the commenter who pointed out that changing 
``would'' to ``could'' broadens the standard from predictable to 
speculative. In drafting the proposed circular, FTA did not intend to 
deviate from Common Grant Rules standards or otherwise amend FTA's 
current standards. Accordingly, we have revised this provision by 
substituting ``would'' for ``could,'' consistent with Common Grant 
Rules standards.
Section 2--Self-Certification
    We received no comments on self-certification, except in the 
context of some commenters' objections to statements recommending FTA 
review of particular matters before the recipient takes action. Those 
commenters argued that FTA reviews of prospective actions diminish 
prerogatives they should have due to their self-certification. They 
apparently believe that by acknowledging their self-certification, FTA 
is endorsing the correctness of a self-certified recipient's 
procurement decisions. Our response is that certain FTA reviews and 
approvals are required by Federal laws and regulations irrespective of 
self-certification. Other reviews FTA recommends are intended to 
preserve the recipient's ability to use FTA assistance to support the 
procurement by helping the recipient avoid an inadvertent violation of 
Federal laws or regulations, some of which can be complex.
Section 3--Third Party Contracting Capacity
    Section 3 contains discussions of the requirements for third party 
contracting capacity, adequate contract provisions, and an adequate 
procurement history that are substantially similar to their FTA 
Circular 4220.1E counterparts. We have added other subsections to the 
final circular, such as recordkeeping, that were omitted from FTA 
Circular 4220.1E but addressed in the Common Grant Rules.
    Two commenters objected to the provision in Section 3 stating that 
contractors providing procurement expertise or support to the recipient 
``should be unrelated to and independent of any potential bidder or 
offeror.'' The commenter explained that prospective bidders or offerors 
frequently know others with necessary procurement expertise, and 
forbidding the use of those sources would unnecessarily reduce the 
availability of expertise a recipient might need. We agree with that 
commenter and have changed the standard to one that calls for 
preventing or ameliorating organizational conflicts of interest that 
would result in conflicting roles that might bias a contractor's 
judgment or result in an unfair competitive advantage.
Subsection 3.c--Industry Contracts
    One commenter noted that our caution about using industry 
contracts, while reasonable in certain situations, might be unwarranted 
if construed too broadly. Specifically, the commenter expressed the 
belief that there are advantages to using well-known industry developed 
forms, such as the AIA forms used in the construction industry or 
payment request forms and similar documents whose contract terms and 
clauses are familiar to contractors performing the work. In other 
situations, a recipient should be able to solicit specifications or 
contract terms for possible use in a future solicitation. We agree that 
judicious use of standard forms, specifications, and contract terms may 
be justified in certain situations, and have revised the subsection on 
industry contracts to clarify that the recipient may use them if they 
can accommodate Federal requirements.
Subsection 3.e--Special Notification Requirements for States
    Two commenters had concerns about the project and contract 
notification requirements for States that have been included in DOT's 
annual appropriations acts for the last few years. FTA Circular 4220.1E 
described former Appropriations Act notification requirements having a 
$500,000 threshold that applied to all FTA recipients. In contrast, the 
DOT Appropriations Acts in the last few years have limited their 
notification requirements to States, but no longer recognize a $500,000 
threshold. Now each State must include statements in all its requests 
for proposals, solicitations, Federal assistance applications, forms, 
notifications, press releases, or other publications involving FTA 
assistance that FTA is or will be providing Federal assistance for the 
project, the amount of Federal assistance FTA has provided or expects 
to provide, and the Catalog of Federal Domestic Assistance (CFDA) 
Number of the program that authorizes the Federal assistance.
    One commenter asked whether, when issuing its announcements, it 
really must include the CFDA Number for the FTA program under which the 
project is supported. FTA's position is that because identification of 
the CFDA number is expressly required by the recent DOT appropriation 
acts, the recipient must include the requisite CFDA number. The 
commenter also asked whether the requirement for States must flow down 
to its subrecipients. FTA interprets the appropriations laws to require 
compliance with those notification requirements by the State's 
subrecipients, lessees, or third party contractors at any tier, and we 
have included a provision in the final circular to that effect.
    Another commenter has requested FTA to discuss this notification 
requirement in its grant management circulars and to take other 
measures to communicate with States directly about these broad 
notification requirements. We agree and will make special efforts to 
inform the States of these requirements.

[[Page 56905]]

Subsection 3.f--Use of Technology/Electronic Commerce
    One commenter recommended that FTA expressly endorse a more 
extensive use of electronic contracting, including electronic bidding 
and reverse auctions, and that FTA permit the recipient to engage 
contractors to perform those services. FTA approves the use of 
electronic bidding and reverse auctions for third party procurements of 
$100,000 or less and, if permitted under State or local law, for third 
party procurements of a greater value. A recipient may perform 
electronic contracting using its own staff or may engage one or more 
contractors to act on its behalf.
Section 4--Audit
    We received no comments on this section of Chapter III.

D. Chapter IV--The Recipient's Property and Services Needs and Federal 
Requirements Affecting Those Needs

    We have restructured Chapter IV to consolidate provisions 
pertaining to the various categories of recipients and their projects. 
We expanded the chapter to include additional paragraphs in response to 
comments on the proposed circular. As a result, some of the guidance 
originally included in other chapters of the proposed circular has been 
transferred to this chapter of the final circular.
    However, much of this chapter retains provisions that are 
substantially similar to their counterpart provisions in FTA Circular 
4220.1E or its footnotes, with important exceptions discussed below.
Section 1--Determining the Recipient's Needs
    One commenter suggested that the acquisition planning and project 
management functions addressed in this chapter should not be included 
in a circular focused on third party contracting guidance. FTA 
disagrees. FTA considers procurement procedures to be only one aspect 
of third party contracting. The fundamental purpose of procurement is 
to acquire property and services that meet the purchaser's needs. The 
type, amount, characteristics, and features of the property or services 
an FTA recipient seeks and conditions under which the property and 
those services are acquired must satisfy Federal requirements that 
apply to federally assisted procurements if the recipient intends to 
use FTA assistance to support the costs of the property or services it 
procures. For an FTA recipient, these requirements will encompass 
Federal requirements focused on FTA acquisitions as well as general 
Federal requirements that apply to all federally assisted acquisitions.
    For example, some Federal requirements may change the way a 
contractor fabricates and delivers property; others will affect how the 
contractor provides the requested services, the amount of wages it must 
pay, and the labor protections it must provide to some or all 
employees. As a result, to assure that FTA assistance can be used to 
support the costs of property and services a recipient seeks, it is 
important that the recipient's acquisition comply with all of the many 
applicable Federal laws and regulations having an indirect effect, if 
not a direct effect, on the property or services to be acquired and 
also on the contractor that provides the property and services.
    FTA believes it important that the recipient be fully aware of 
these requirements and restrictions at the time it begins to determine 
the types of property and services it needs. FTA cannot support a 
recipient's procurement that in some way has violated one or more 
Federal requirements. Thus FTA cautions the recipient to examine its 
initial preferences in light of Federal requirements before undertaking 
a procurement for which it intends to use FTA assistance. As an aid, we 
refer you to the checklists in Appendix C. In the course of developing 
the checklists identified with specific provisions of the final 
circular, we have consolidated requirements pertaining to specific 
aspects of procurement in separate chapters, and thus have found it 
necessary to transfer some information from Chapter IV of the proposed 
circular to Chapter VI of the final circular, which provides procedural 
guidance for open market procurements.
Subsection 1.a--Eligibility
    The property or services a recipient acquires with FTA assistance 
must be eligible for Federal support. One commenter requested a more 
definitive explanation of eligibility and requested examples. We have 
expanded that explanation to focus on the requirements for eligibility 
under Federal law as well as eligibility under the scope of the 
specific project supported by the FTA assistance to be used.
Subsection 1.b--Necessity
Paragraph 1.b(1)--Unnecessary Reserves
    One commenter expressed concern about FTA's position that the 
recipient's acquisitions be limited to its immediate needs, especially 
when followed by prohibitions against the procurement of excess 
capacity for assignment purposes (which FTA does permit in limited 
circumstances). The commenter asked whether the recipient can and 
should rely on its own understandings about what it needs or whether 
FTA is, in effect, prohibiting cooperative procurements.
    We have revised this discussion for clarity. FTA's decision to 
limit participation in the costs of acquisitions to only that property 
or services the recipient requires to fulfill its immediate needs, is 
justified by the requirements of the Common Grant Rules. In monitoring 
whether a recipient has complied with its procedures to determine what 
property or services are necessary, FTA bases its determinations on 
what would have been a recipient's reasonable expectations at the time 
it entered into the contract.
Paragraph 1.b(2)--Acquisition for Assignment Purposes
    FTA recognizes that a recipient's later needs might decrease due to 
changed circumstances or even honest mistakes. In those cases, it is 
appropriate for a recipient to assign its extra contract authority to 
another entity needing the property or services. Although it may be 
difficult to determine precisely, FTA expects the recipient to make a 
concerted effort to measure its actual immediate needs carefully before 
entering into a procurement. A recipient should be cautious about 
acquiring contract rights whose use or disposition is genuinely 
uncertain at the time of contract award, except if the contract is 
intended to support State or local purchasing schedules.
Subsection 1.c--Procurement Size
    Other commenters raised concerns that the guidance would prohibit 
cooperative procurements. We understand that by ``cooperative 
procurements,'' the commenters are referring to what we designate as 
``joint procurements,'' meaning a method of contracting in which two or 
more purchasers agree from the outset to use a single solicitation 
document and enter into a single contract with a vendor for delivery of 
property or services in a fixed quantity, even if expressed as a total 
minimum and total maximum. This restriction does not preclude joint 
(cooperative) procurements because a joint (cooperative) procurement is 
intentionally developed to meet the actual, immediate needs of the two 
or more parties that seek to acquire similar property or services, as 
discussed more fully below. Nor does this restriction apply to a State 
that enters into contracts with various vendors to

[[Page 56906]]

establish State Purchasing Schedules for its convenience and the 
convenience of its authorized users.
    One commenter has expressed the opinion that market conditions are 
not the usual reason for using joint or cooperative procurements, 
maintaining that joint procurements result when they are economically 
advantageous. FTA disagrees on the grounds that market conditions can 
affect what is economically advantageous to a recipient. We have, 
however, revised the Procurement Size paragraph of the final circular 
to emphasize the importance of economic advantage to the recipient.
    Other commenters requested FTA to acknowledge that ``grantees are 
not responsible for the actions of other grantees, even when conducting 
joint or cooperative procurements.'' FTA is unwilling to make that 
change. FTA generally holds recipients responsible for compliance with 
Federal requirements by all participants in its project, apart from a 
few exceptions involving designated recipients in FTA's Urbanized Area 
Formula program that relinquish their responsibilities to other 
grantees.
Section 2--Federal Requirements That May Affect a Recipient's 
Acquisitions
    One commenter recommended that FTA remove the references to its 
Master Agreement, maintaining that they are inapplicable to the 
discussion of Federal laws and regulations in this chapter. We 
disagree, but have transferred our discussion of the Master Agreement 
to the introductory paragraphs of Chapter I, subsection 6.f of the 
final circular, which provides a general discussion of Federal 
Requirements that may affect a recipient's acquisitions.
Subsection 2.a--Contractor Qualifications
Paragraph 2.a(2)--Debarment and Suspension
    One commenter has informed us that its State maintains its own 
debarment and suspension list, and that it checks both the Federal and 
State lists for debarments and suspensions. FTA has no objection to a 
recipient precluding a prospective participant included in a State 
debarment or suspension list from participating in an FTA assisted 
project, even if that prospective participant is not included in GSA's 
Excluded Parties List System (EPLS).
Paragraph 2.a(5)--Federal Civil Rights Laws and Regulations
Subparagraph 2.a(5)(b)--Nondiscrimination on the Basis of Sex
    We added a subparagraph reminding the recipient that its third 
party contractors must comply with Federal laws and regulations 
pertaining to nondiscrimination on the basis of sex.
Subparagraph 2.a(5)(c)--Nondiscrimination on the Basis of Age
    We added a subparagraph reminding the recipient that its third 
party contractors must comply with Federal laws and regulations 
pertaining to nondiscrimination on the basis of age.
Paragraph 2.a(6)--Socio-Economic Development
Subparagraph 2.a(6)(a)--Disadvantaged Business Enterprises (DBE), and
Subparagraph 2.a(6)(b)--Small and Minority Firms and Women's Business 
Enterprises
    One commenter objected to the application of both DOT's DBE 
regulations and the Common Grant Rules' participation preferences for 
small and minority firms and women's business enterprises. FTA 
disagrees with the commenter. At a minimum, each recipient must comply 
with DOT's general DBE regulatory prohibition against discrimination, 
49 CFR 26.13, irrespective of whether the recipient is required to have 
a DBE program. A recipient required to have a DBE program must comply 
with the provisions of its program. All Federal recipients, including 
FTA recipients, must comply with the Common Grant Rules' provisions 
concerning participation by small and minority firms and women's 
business enterprises. FTA believes it is possible to comply with both 
the DOT's DBE regulations and the Common Grant Rules, because the 
Common Grant Rules for participation by small and minority firms and 
women's business enterprises do not require fixed goals or actions, 
such as extending the reach of DBE program requirements to all minority 
firms and women's business enterprises that would not otherwise qualify 
for inclusion under DOT's DBE regulations. These regulations contain no 
provisions requiring them to be mutually exclusive.
Paragraph 2.a(7)--Sensitive Security Information
    One commenter asked whether the Federal ``Protection of Sensitive 
Security Information'' requirements of 49 U.S.C. section 40119(b) and 
its implementing DOT regulations, ``Protection of Sensitive Security 
Information,'' 49 CFR Part 15, and 49 U.S.C. 14(s) and its implementing 
Department of Homeland Security (DHS) regulations, ``Protection of 
Sensitive Security Information,'' 49 CFR Part 1520, actually apply to 
FTA assisted procurements and must be included in third party 
contracts. The commenter believes those regulations are targeted mainly 
on airlines.
    While recognizing the focus on airline security, FTA has determined 
that these laws and regulations do apply to public transportation 
agencies and other FTA recipients that have sensitive security 
information, such as information related to vulnerability assessments 
(including any information addressing vulnerabilities or corrective 
actions) conducted after September 11, 2001, and other information 
covered by the regulations. Therefore, FTA's view is that recipients 
must include requirements for compliance with those regulations in 
their third party contracts to assure that their contractors will take 
the necessary steps to protect any sensitive security information 
within their control.
    This determination is based on the DHS Interim Final Rule issued in 
2004 that extended sensitive security information protections to all 
forms of transportation coupled with the Transportation Safety 
Administration and DOT amendments to their regulations removing 
limiting references to ``aviation or maritime'' in their regulations at 
49 CFR Parts 1520 and 15, respectively. See, 70 FR 1379, January 7, 
2005.
Paragraph 2.a(8)--Seat Belt Use
    One commenter asked for a model contract clause for Seat Belt Use 
with flowdown requirements in the final circular or FTA's BPPM. We have 
not included a model clause in the final circular but will draft one 
for inclusion in the BPPM.
Subsection 2.b--Administrative Restrictions on the Acquisition of 
Property and Services
    Notably we have re-arranged the format of this subsection to group 
topics for easier usage in conjunction with the new checklists we have 
included in Appendix C.
Paragraph 2.b(3)--Period of Performance
    Four commenters objected to the period of performance provisions in 
the proposed circular. One commenter found our period of performance 
discussion confusing. We have restructured that discussion as

[[Page 56907]]

requested. Two other commenters objected to our statement that the 
third party contract terms be no longer than ``minimally necessary'' as 
unduly restrictive and not found in applicable law. Our response is 
that this is not a new standard. In fact, FTA Circular 4220.1E, the 
predecessor to the final circular, also provided that, ``Grantees are 
expected to be judicious in establishing and extending contract terms 
no longer than minimally necessary to accomplish the purpose of the 
contract.'' We understand, however, that if a recipient takes that 
guidance to an extreme, allowing no reasonable period to accommodate 
even small performance delays, then the guidance would be undesirable. 
We have therefore removed the ``minimally necessary'' standard, 
replacing it with guidance that the recipient is expected to establish 
a period of performance consistent with ``the time necessary to 
accomplish the purpose of the contract.''
    Four commenters also objected to the position that every time 
extension would constitute an out-of-scope change requiring a sole 
source justification. One commenter seems to believe that we would 
treat all time extensions not contemplated in the original contract as 
out-of-scope changes. This provision, which is included in FTA Circular 
4220.1E, is not new. Nevertheless, we agree that a time extension can 
sometimes be a legitimate remedy in circumstances beyond the 
recipient's control, and should not in all cases be considered an out-
of-scope change. In other instances, however, the circumstances 
surrounding other time extensions, especially those in which 
significant new deliverables would be added, would be an out-of-scope 
change. We have revised the final circular accordingly.
Paragraph 2.b(5)--Payment Provisions
Subparagraph 2.b(5)(b)--Advance Payments
    One recipient pointed out that prohibiting a recipient from using 
local share funds for advance payments without first obtaining FTA's 
consent is unfair, particularly if no Federal assistance is at risk. We 
agree, and have modified the paragraph to remove the prohibition for 
projects having automatic preaward authority or projects having some 
form of preaward authority.
    Another recipient asked for more examples of allowable pre-award 
expenditures. We agree, and have identified additional examples in the 
final circular, noting that the examples given are not all-inclusive.
Paragraph 2.b(6)--Protections Against Performance Difficulties
Subparagraph 2.b(6)(a)--Changes
    One commenter emphasized the need for changes clauses. We have 
strengthened our recommendations that recipients include changes 
clauses in their contracts. We recognize, however, that a recipient may 
only be able to include a contract provision requiring the contractor 
to consider a change rather than demand a change. Every recipient may 
not have the economic leverage to compel a third party contractor to 
continue contract work until it is assured payment and other terms 
under which it must work. We do expect the recipient to include changes 
and changed conditions clauses that provide for both parties to 
negotiate in good faith about desirable changes.
Subparagraph 2.b(6)(b)--Remedies
Sub-subparagraph 2.b(6)(b)1--Liquidated Damages
    Four commenters requested changes to the liquidated damages 
provisions in the proposed circular. Two commenters recommended that 
acceptable methods of calculating liquidated damages, in addition to 
time, be acknowledged as acceptable. We agree, and the final circular 
includes additional methods of calculating liquidated damages. Another 
commenter recommended that we substitute the proposed circular's 
statement that ``the rate and measurement period may not be 
excessive,'' with the established standard for liquidated damages 
``that the measure of damages must be calculated to reasonably reflect 
the costs estimated to be incurred by the recipient should the standard 
not be obtained, and that the procurement file should contain a record 
of the calculation and rationale.'' We agree, and have made that 
change. Another commenter asked how we expect a recipient to document 
the reasonableness of the liquidated damages it intends to use. We have 
included provisions in the final circular explaining that FTA expects 
the recipient to calculate a rate and measurement standard that 
reasonably reflects the costs should the standard not be met, and 
expects the recipient to include this information in its solicitation 
and contract. We have also added a discussion in Chapter VII of how 
liquidated damages might, in certain situations, foster settlements.
Subsection 2.c--Socio-Economic Requirements for the Acquisition of 
Property and Services
Paragraph 2.c(1)--Labor
Subparagraph 2.c(1)(a)--Wage and Hour Requirements
    Two commenters pointed out that the threshold for the wage and hour 
requirements of the Contract Work Hours and Safety Standards Act has 
been amended to apply to contracts of $100,000 or more. We agree, and 
the final circular includes that change.
Subparagraph 2.c(1)(b)--Fair Labor Standards
    Consistent with the FTA Master Agreement, we added a reminder that 
the Fair Labor Standards Act protects employees engaged in commerce.
Paragraph 2.c(2)--Civil Rights
Subparagraph 2.c(2)(c)--Environmental Justice
    We added a subparagraph reminding the recipient of Federal 
Environmental Justice provisions.
Subparagraph 2.c(2)(d)--Limited English Proficiency (LEP)
    We added a subparagraph reminding the recipient of Federal Limited 
English Proficiency provisions.
Subparagraph 2.c(2)(e)--Nondiscrimination on the Basis of Disability
Sub-subparagraph 2.c(2)(e)3--DOT Public Transportation Regulations 
Implementing Section 504 and the ADA
    We consolidated references to the major Federal regulations that 
describe the various requirements for public transportation services to 
individuals with disabilities, and provided some examples of their 
application.
Subparagraph 2.c(2)(f)--Electronic Reports and Information
    One commenter asked us to clarify whether the requirement to use 
accessible electronic formats when delivering reports would apply only 
to third party contracts for delivery of reports, or also to other 
information in electronic format that the recipient intends to provide 
to FTA. We have revised the paragraph on electronic reports and 
information to clarify that all information submitted to FTA must be 
provided in accessible formats.

[[Page 56908]]

Paragraph 2.c(3)--Environmental Requirements
Subparagraph 2.c(3)(f)--Recycled Products
    One commenter asked FTA to post on its Web site a link to EPA's Web 
site about recovered materials advisory notices. We have included the 
EPA Web site in the final circular.
Paragraph 2.c(5)--Preference for U.S. Property--Buy America
    One commenter pointed out that the proposed circular's description 
of FTA's Buy America requirements omitted discussion of the $100,000 
threshold. We agree, and have included this information in the final 
circular. We have also revised the Buy America provisions for the final 
circular to clarify that FTA's Buy America requirements apply to 
property delivered to the recipient, but not to property acquired by a 
contractor for use in performing contract work if the property used is 
not delivered to the recipient.
Subsection 2.d--Technical Restrictions on the Acquisition of Property 
and Services
Paragraph 2.d(3)--Use of $1 Coins
    One commenter objected to the Presidential $1 Coin Act of 2006 
requirement that each FTA-assisted public transportation service 
property that uses coins or currency to be fully capable of accepting 
and dispensing $1 coins because it is likely to cause an undue hardship 
on rural public transportation agencies because they will need to 
either retrofit existing equipment, including farebox and ticket 
dispensing equipment, or purchase new equipment. The Department of 
Treasury is implementing those requirements, and FTA lacks the 
authority to waive them.
Subsection 2.e--Rolling Stock--Special Requirements
Paragraph 2.e(8)--In-State Dealers
    One commenter asked how we will administer the SAFETEA-LU amendment 
to 49 U.S.C. 5325 providing that bus purchases may not be restricted to 
in-State dealers. The commenter's concern is focused on the conflict 
that would arise if State law limits purchases of motor vehicles to in-
state dealers, while 49 U.S.C. 5325(i) prohibits the limitation. The 
commenter points out that recipients must comply with Federal law as 
well as State law. We agree that Federal laws that appear to conflict 
with similar State laws can cause problems to FTA's recipients. 
However, 49 U.S.C. 5325(i) preempts conflicting in-state dealer 
requirements contained in State laws.
Paragraph 2.e(10)--Five-Year Limitation
    One commenter asked how FTA plans to enforce the five-year 
limitation on rolling stock contracts, and whether FTA will require the 
recipient to prepare a five-year needs document for its contract files. 
Our response is that FTA has considerable discretion to take actions to 
determine and enforce compliance with the statutory requirements in its 
enabling legislation. We believe it useful for the recipient to have 
documentation in its files that can justify any actions that might call 
into question the recipient's compliance with statutory requirements of 
any type, including compliance with the five-year limitation on rolling 
stock contracts.
Subsection 2.f--Public Transportation Services--Special Requirements
Paragraph 2.f(1)--Protections for Public Transportation Employees
    Consistent with the FTA Master Agreement, we added a reminder that 
the Fair Labor Standards Act protects employees engaged in commerce.
Subsection 2.g--Architectural Engineering and Related Services--Special 
Requirements
    We received three comments about procurements of architectural, 
engineering, and related services as specified in 49 U.S.C. 5325(b)(1).
Paragraph 2.g(2)--Relation to Construction
    Two commenters pointed out inconsistencies between Chapter IV and 
Chapter VI of the proposed circular in determining when qualifications-
based procurement procedures must be used and may not be used. We have 
re-drafted provisions of both chapters to stress that qualifications-
based procurement procedures may be used only when the services are 
directly in support of, directly connected to, directly related to, or 
lead to construction, alteration, or repair of real property.
Subparagraph 2.g(2)(c)--Type of Contractor Not Determinative
    One commenter also suggested that we state that certain 
architectural engineering firms have the capability of performing 
services beyond traditional A&E services. We have amended both chapters 
for consistency, so that the final circular emphasizes that it is the 
nature of the work to be performed and its relationship to 
construction, not the nature of the prospective contractor, that 
determines whether qualifications-based procurement procedures must be 
used or whether qualifications-based procurement procedures may not be 
used.
    Another commenter asked how these qualifications-based procurement 
requirements would apply to various activities undertaken in an 
Intelligent Transportation System (ITS) project involving construction 
or improvements to real property. The final circular now contains a 
list of some of the activities likely to take place during the 
implementation and development of an ITS project, and have identified 
those in which qualifications-based procurement procedures must be used 
and those in which qualifications-based procurement procedures may not 
be used.
Subsection 2.h--Construction--Special Requirements
Paragraph 2.h(1)--Bonding
Subparagraphs 2.h(1)(f)--Excessive Bonding
    Three commenters questioned whether FTA would accept State bonding 
policies that differ from Federal requirements. We have amended the 
proposed circular to affirm that we will not challenge State or local 
bonding policies that exceed FTA's requirements. One commenter 
requested that we address the use of bonding for acquisitions beyond 
construction, commenting on its expense and usefulness. We have amended 
the proposed circular to explain that while bonding is expensive, bond 
requirements can be useful if the recipient has a material risk of loss 
because of a failure of the prospective contractor. This is to prevent 
potential risks associated with contractor bankruptcy or financial 
failure at the time of partially completed work. Another commenter 
urged us not to encourage recipients to submit each bonding request 
that exceeds the limits described in the proposed circular to FTA for 
approval. We agree, and the final circular now reminds the recipient 
that it may contact the Regional Administrator for the region 
administering the project for approval of its bonding policies if it 
chooses to do so. If a recipient's bonding policies far exceed FTA or 
State or local requirements to an extent that competition is reduced, 
FTA cannot assure the availability of FTA assistance to support the 
costs of that acquisition.
Paragraph 2.h(3)--Value Engineering
    One commenter cautioned us about our statement that ``FTA will not 
approve a New Starts grant application

[[Page 56909]]

for final design funding or a full funding grant agreement until value 
engineering is complete.'' While that sentence is based on the 
requirements of 49 U.S.C 5309, we agree that restrictions pertaining to 
New Starts projects should not be included in the final circular in a 
way that might become invalid due to later changes in law. Therefore, 
we have softened the statement to caution that value engineering can be 
required as a pre-requisite for some FTA assistance awards.
    Another commenter asked that we include a definition of ``value 
engineering'' that distinguishes it from cost-cutting. We agree, and 
have added a definition to Chapter I, section 5 that will be used 
consistently in our revised circulars.
Paragraph 2.h(5)--Prevailing Wages
    Two commenters expressed their belief that, along with raising the 
threshold of the Contract Work Hours and Safety Standards Act to 
$100,000, the threshold of the Davis-Bacon Act requiring prevailing 
wages to be paid for construction labor had also been raised to 
$100,000. FTA disagrees. The Davis-Bacon Act has not been so amended. 
The Davis-Bacon Act applies its prevailing wage requirements to ``every 
contract in excess of $2,000 . . . .'' 40 U.S.C. 3142.
Paragraph 2.h(9)--Preference for U.S. Property--Buy America
    Three commenters objected to FTA's Buy America provisions for 
construction projects as overbroad. We agree, and the final circular 
now includes information about the $100,000 threshold. The final 
circular also clarifies FTA's position that its Buy America 
requirements apply to property delivered to the recipient, but not to 
property acquired by a contractor for use in performing contract work 
if that property the recipient used is not delivered to the recipient 
under their contract.
Subsection 2.i--Research, Development, Demonstration, Deployment, and 
Special Studies--Special Requirements
Paragraph 2.i(1)--Patent Rights
    One commenter asked whether FTA will grant a waiver of patent 
rights when the recipient wants the source code being created to be an 
open source so that others will be encouraged to use that source code; 
or when the recipient wants to contract with an entity that has already 
created an open source code to tailor that code and allow the tailored 
code also to become open source. At the outset, FTA cannot waive 
another party's patent rights. While Federal law does not generally 
authorize a Federal agency to require inventors to make their federally 
assisted inventions available to the public at large, FTA can and does 
support projects in which participants agree to make rights to use an 
invention developed or reduced to practice under an FTA project broadly 
available.
Paragraph 2.i(2)--Rights in Data
    One commenter took exception to FTA's rights in data policy as 
being inconsistent with the Common Grant Rules. For data developed 
under a research, development, demonstration, or special studies 
project, FTA's general policy is to obtain sufficient rights to permit 
FTA to make either FTA's license in the copyright to the subject data 
or a copy of the subject data to which it would be entitled under the 
Common Grant Rules available to any FTA recipient, subrecipient, third 
party contractor, or third party subcontractor,. FTA obtains these 
rights in data through the recipient's agreement set forth in the FTA 
Master Agreement. If FTA is not able to secure sufficient rights in 
data derived from the research projects it supports and is unable to 
make that data available for the general benefit of transportation, 
then certain research and development projects might not be worth 
pursuing.
    The commenter then requested an explanation of those contracts 
excepted from these requirements. FTA does not seek these broad rights 
in data for other than research, development, demonstration, or special 
studies projects. For example, FTA does not seek greater rights in data 
supplied under its capital projects than those rights provided in the 
Common Grants Rules, because FTA is not providing Federal assistance 
for the research and development of property or services at the time 
the property or services are eligible for capital funding. Due to 
questions that arose in connection with licensing automatic data 
processing equipment or programs for the recipient's use, if FTA 
capital assistance is used to support those costs, then FTA would not 
take the greater rights. In summary, FTA does not seek greater rights 
in data used in projects for which FTA did not directly finance the 
research and development costs of that data.
Paragraph 2.i(3)--Export Control
    One commenter requested that we provide a citation to the Export 
Control regulations referenced in the proposed circular. We agree, and 
have added the requested citation to the final circular.
Subsection 2.j--Audit Services
    Three commenters asked for more information about obtaining audit 
information from other Federal agencies. We have included information 
about Federal agencies that work with various types of recipients and 
contractors to establish indirect cost rates consistent with FAR cost 
principles. It is our understanding that those Federal agencies are 
charged with those responsibilities and are expected to fulfill them. 
While a Federal agency might not perform all audits for recipients of 
Federal assistance, the Federal agency charged with the responsibility 
for establishing indirect cost rates and other similar functions would 
be expected to provide the recipient sufficient data that the 
recipient's private or internal auditors could perform their duties 
properly. When we revise our BPPM, we will include more information.

E. Chapter V--Sources

Section 1--Force Account
    Four commenters questioned our inclusion of force account as a 
source from which a recipient could obtain services. Three commenters 
asserted that the use of force account is a grants management issue, 
not a procurement issue. Understanding our decision to discuss force 
account in contrast with third party contracting, one commenter 
recommended that we clarify that the final circular does not apply to 
force account work. We agree, and the final circular states that its 
procurement guidance does not apply to a recipient's force account 
work.
Section 3--Joint Procurements, and
Section 4--State or Local Government Purchasing Schedules or Purchasing 
Contracts
    Several commenters informed us that the proposed circular's 
descriptions of joint procurements and procurements through State or 
local government purchasing schedules or contracts is confusing, and 
recommended that we reinstate the provisions of FTA Circular 4220.1E. 
Two commenters, for example, pointed out that joint procurements are 
unlikely to be undertaken using State or local government purchasing 
schedules. We agree, and we have revised the sections on Joint 
Procurement as well as the section on State or Local Government 
Purchasing Schedules or Purchasing Contracts for clarity.
Section 3--Joint Procurements
    The final circular defines ``joint procurement'' to mean a method 
of contracting in which two or more

[[Page 56910]]

purchasers agree from the outset to use a single solicitation document 
and enter into a single contract with a vendor for delivery of a 
property or services in a fixed quantity, even if expressed as a total 
minimum and total maximum. The final circular emphasizes that the 
contract resulting from a joint procurement is not drafted with the 
understanding that its terms will be made available to purchasers other 
than the original parties at a later date. As with all FTA assisted 
contracts, the recipient must comply with all applicable Federal 
requirements.
    One commenter asked whether a ``Cooperative Purchasing Program'' is 
the same as a joint procurement. We used the term ``Cooperative 
Purchasing Program'' to refer to the GSA Cooperative Purchasing Program 
for the Federal Government. The final circular now identifies that 
program as the ``GSA's Cooperative Purchasing Program'' to preclude 
confusion with joint procurements.
Subsection 3.a--Use Encouraged
    One commenter suggested that discussing the advantages of joint 
procurement as being able to ``exactly match'' each participating 
recipient's requirements is misleading, and informs us that in many 
cases customizing would be required. We agree, and we removed the term 
``exactly match.''
Section 4--State or Local Government Purchasing Schedules or Purchasing 
Contracts
    In this section, we have established a definition of ``state or 
local government purchasing schedule'' to mean an arrangement that a 
State or local government has established with multiple vendors in 
which those vendors agree to provide essentially an option to the State 
or local government to acquire specific property or services in the 
future at established prices. If the State or local government wishes 
to permit others to use the schedules, the State or local government 
might seek the agreement of the vendor to provide the listed property 
or services to others with access to the schedules, or it may permit 
the vendor to determine whether it wishes to do so. This arrangement 
has two parts: (1) Establishing the schedule, and (2) acquiring 
property and services from the schedule. FTA does not provide Federal 
assistance to a State or local government when it is establishing its 
schedule. FTA assistance is provided after the schedule is established 
and a recipient acquires property or services from that schedule.
Subsection 4.a--Use Encouraged
    One commenter asked how State or local government schedules or 
purchasing agreements could be available to other parties. The extent 
to which a State or local government chooses to make its purchasing 
agreements or schedules available rests with the State or local 
government that has established the schedule or purchasing contract.
Subsection 4.b--All FTA and Federal Requirements Apply
    Several commenters expressed the view that it would be impossible 
for a recipient to use State or local government schedules or 
purchasing agreements if FTA requirements were to apply to those 
procurements. FTA recognizes that when a State or local government 
establishes a schedule, it has not contemplated the need to comply with 
FTA's third party procurement requirements. For example, a State or 
local government generally does not consider matters such as FTA Buy 
America standards at the time its schedules are introduced. A recipient 
that seeks to use FTA assistance to acquire property or services from a 
State or local government purchasing schedule, however, must comply 
with applicable FTA requirements. To do so, the recipient is expected 
to use competition by seeking bids from three or more vendors listed on 
the schedule, and then determine whether the property or services as 
offered would comply with Federal requirements. Among other things, the 
recipient would need to determine whether a product sought from the 
schedule would qualify as domestic or foreign under our Buy America 
standards, if the product would be shipped by ocean-going vessel or by 
air for compliance with Federal cargo preference requirements, if a new 
bus had been tested and whether preaward and post delivery review could 
be obtained, whether the property sought had been manufactured in 
accordance with environmental restrictions, and so forth. FTA is not 
able to waive Federal requirements beyond what is permissible under 
law. Only if the property or services listed on a State or local 
government purchasing schedule complies with FTA's requirements would 
the recipient be able to use FTA assistance to support the costs of 
that property or services.
    One commenter asked us to describe methods of meeting FTA 
requirements when acquiring property and services through a State or 
local government purchasing schedule. While the recipient would not 
prepare an open market solicitation for the property or services when 
attempting to use a State or local government purchasing schedule, the 
recipient might choose to append the relevant Federal requirements to a 
purchase order and obtain the vendor's consent to those conditions as a 
prerequisite for using FTA assistance to support the costs of that 
property or those services. But whatever procedure the parties use, 
requirements applicable to FTA procurements cannot be waived.
Section 6--Federal Supply Schedules
Subsection 6.d--Competition and Price Reasonableness
    One commenter asked whether State and local governments must verify 
competition was used for the procurement of items listed on GSA 
schedules before using those schedules. Our response is that there is 
no need to verify that competition was used for the property and 
services listed on GSA schedules prior to using the schedules. Vendors 
listed on GSA schedules should be treated as prospective sources. 
Therefore, a recipient is generally expected to select at least three 
vendors from a GSA schedule and seek proposals.
Section 7--Existing Contracts
Subsection 7.a--Permissible Actions
Paragraph 7.a(1)--Exercise of Options
Subparagraph 7.a(1)(c)--Awards Treated as Sole Source Procurements
    One commenter requested that we explain what we mean by ``failure 
to evaluate the option.'' There is no requirement to solicit for 
options or obtain firm option prices as part of a solicitation. If 
option prices are obtained, the recipient need not evaluate those 
option prices in determining the underlying contract award. However, if 
the recipient does not evaluate options when the contract was awarded, 
it may not exercise the options at a later date unless it can justify a 
sole source award.
    Two commenters objected to our position that negotiating a lower 
option price would always result in a sole source award requiring 
justification. FTA recognizes that it is reasonable to permit the price 
of an option to be reduced if the lower price can be reasonably 
determined from the terms of the original contract, or if that price 
results from actions that can be reliably measured, such as changes in 
Federal prevailing labor rates, or as authorized under State or local 
law. One of the commenters also objected to our view

[[Page 56911]]

that negotiating a higher option price would always result in a sole 
source award requiring justification. FTA has not changed its position. 
If only a higher price is available, then competition would normally be 
required unless the higher price results from actions that can be 
reliably measured, such as increases in Federal prevailing labor rates, 
or as authorized under State or local law.
    One commenter objected to our requirement for contracts to include 
maximum quantities. The commenter believes that requiring maximum 
quantities could adversely affect the establishment of State or local 
government purchasing schedules. FTA disagrees. FTA does not finance 
the establishment of State or local purchasing schedules, so that when 
State or local governments and their vendors enter into contracts for 
their purchasing schedules, those contracts are not subject to FTA 
requirements. It is only when a recipient intends to use FTA assistance 
to acquire property or services that FTA requirements are imposed. Thus 
if an FTA recipient seeks to acquire an indefinite amount of property 
or services through a State or local purchasing schedule, it would need 
to specify a maximum quantity as well as a minimum quantity.
Paragraph 7.a(2)--Assignment of Contract Rights
Subparagraph 7.a(2)(a)--Acquisition Through Assigned Contract Rights
    Three commenters objected to our position that a recipient seeking 
an assignment of contract rights from another recipient must ensure 
that the assigning recipient ``has not improperly expanded the quantity 
of property or services to be delivered under its original contract.'' 
The purpose of this provision is to express FTA's intention that the 
recipient seeking the assignment would review the assigning recipient's 
contract to determine whether the total quantities sought would not 
exceed the limits of that original contract. We agree that a recipient 
seeking an assignment of contract rights cannot determine whether or 
not the assigning recipient specified greater quantities than the 
assigning recipient needed at the time of its original solicitation. We 
have revised this guidance to clarify FTA's concerns.
Subsection 7.b--Impermissible Actions
Paragraph 7.b(2)--Cardinal Changes
    One commenter asked us to provide more guidance about cardinal 
changes and not use the terms ``in-scope'' and ``out-of-scope'' as 
determinative of contract changes. The commenter warned that if the 
contract provisions are read without consideration of their context, 
minor changes not expressly addressed or even contemplated under the 
contract when it was signed might be considered out-of-scope changes. 
Minor changes, even if considered ``out-of-scope'' because they are not 
addressed in the contract, should not be considered ``cardinal'' 
changes. The commenter recommended that a cardinal change be described 
as ``a major deviation from the original purpose of the work or the 
intended method of achievement,'' rather than an ``out-of-scope 
change.'' Although the Federal Court of Claims coined the term 
``cardinal change'' to describe changes that are beyond the scope of 
the contract, we agree that some changes necessary to fulfill the 
original intent of the contract might not be expressly included in the 
contract. Therefore, we have adopted the commenter's recommendation, 
and the final circular contains revised provisions.
    One commenter wanted many more examples and much more guidance. 
Such guidance can be found in FTA's BPPM at the FTA Web site: http://www.fta.dot.gov/funding/thirdpartyprocurement/grants_financing_6037.html and ``Frequently Asked Questions'' at the FTA Web site: 
http://www.fta.dot.gov/funding/thirdpartyprocurement/grants_financing_6039.html.
    Two commenters objected to the example of an engine change or 
similar large component change as a cardinal change per se, 
particularly since it might be necessary to obtain a compatible new 
engine if the old engine is no longer available. FTA's view is that if 
a major component of a vehicle is no longer available, the recipient 
should use competition to obtain a compatible substitute. In some 
cases, the recipient would need to enter into a contract with the 
original manufacturer if installation of the needed component would be 
complicated, but in other cases, similar components available from more 
vendors might be usable and available. If the vehicle has not been 
fabricated when a specific major component became obsolete, whether 
using a different component would cause a cardinal change would depend 
on the extent of the effect of that change. The final circular, 
however, states that the circumstances surrounding the need for 
changing major components will determine whether or not a change would 
be a cardinal change.

F. Chapter VI--Procedural Guidance for Open Market Procurements

    We have also restructured Chapter VI so that the final circular 
consolidates provisions pertaining to the various procurement methods. 
Chapter VI of the final circular includes additional paragraphs to 
respond to unanticipated comments on the proposed circular. As a 
result, we have transferred some of the guidance originally included in 
other chapters of the proposed circular to Chapter VI of the final 
circular. Much of this chapter retains provisions substantially similar 
to their counterpart provisions in FTA Circular 4220.1E or its 
footnotes, with important exceptions discussed below.
Section 1--Competition Required
Subsection 1.b--Unsolicited Proposals
    Two commenters pointed out that the unsolicited proposal provisions 
of the proposed circular are too broad. FTA agrees that the proposed 
circular's guidance could be misunderstood. The final circular now 
permits a recipient to use the same standards applicable to a Federal 
agency that must comply with the FAR.
Section 2--Solicitation Requirements and Restrictions
Subsection 2.a--Description of Property or Services
Paragraph 2.a(1)--What To Include
    Four commenters objected to our admonition that ``Detailed 
technical specifications should be avoided if at all possible in favor 
of performance specifications.'' Two commenters pointed out that 
prohibiting detailed technical specifications could make fleet 
management more difficult, while one commenter informed us that the 
prohibition would conflict with design-bid-build construction 
contracting procedures. We agree in part, and have revised the 
discussion of detailed technical specifications so that the final 
circular only expresses a preference for performance or functional 
specifications, coupled with a statement explaining that there is no 
flat prohibition against detailed technical specifications when 
appropriate. The final circular also includes a statement referencing 
Common Grant Rules requirements.
Paragraph 2.a(2)--Quantities Limited to the Recipient's Actual Needs
    One commenter recommended that a discussion of the recipient's 
needs be placed in a different circular or policy document. We 
disagree. It is important to remind recipients that they should

[[Page 56912]]

not contract for excess quantities, particularly because doing so can 
increase costs and provide more opportunities for them to assign their 
contract rights to others, a practice FTA does not favor.
Paragraph 2.a(4)--Prohibitions
Subparagraph 2.a(4)(d)--Retainer Contracts
    Two commenters objected to our prohibition against a recipient 
making noncompetitive awards to any person or firm on a retainer 
contract without providing further justification. The commenters 
reminded us that many recipients award retainer contracts based on 
competition. They expressed their view that this prohibition would 
unduly limit the recipient's flexibility to acquire the property and 
services it needs. We agree in part, and the final circular now 
prohibits only noncompetitive awards to persons or firms on retainer 
contracts if those awards are not for the property or services 
specified for delivery under the retainer contracts.
Subparagraph 2.a(4)(e)--Excessive Bonding
    One commenter requested more discussion of bonding. The final 
circular now explains more fully our objections to unnecessary bonding 
as unduly restrictive of competition.
Subparagraph 2.a(4)(f)--Brand Name Only
    Two commenters requested us to state that specifying a brand name 
product without stating salient characteristics that would allow for an 
equivalent may be acceptable as a proper sole source award. We have not 
adopted that recommendation, as we believe it would encourage 
specifications based on brand names without descriptions of salient 
characteristics. The final circular, however, includes a modified 
discussion of ``brand name only'' matters indicating that prohibitions 
against the use of ``brand name only descriptions'' would apply in some 
situations.
Subparagraph 2.a(4)(g)--In-State or Local Geographic Restrictions
Sub-subparagraph 2.a(4)(g)3--Major Disaster or Emergency Relief
    One commenter recommended that we revise our discussion of 
exceptions to in-state or geographical preferences for major disaster 
or emergency relief projects, making special reference to the Stafford 
Act's preference for organizations, firms, and individuals residing or 
doing business primarily in the affected area. We agree, and the final 
circular includes this change.
Subparagraph 2.a(4)(h)--Organizational Conflicts of Interest
    One commenter recommended that the organizational conflict of 
interest subparagraph be revised for clarity. We agree, and have made 
that revision.
Sub-subparagraph 2.a(4)(h)2--Remedies
    Three commenters objected to the proposed circular's provisions 
that appeared to exempt consortia from organizational conflict of 
interest restrictions. When drafting those provisions, we were 
attempting to distinguish arrangements in which a contract would be 
awarded for both initial and follow-on work from arrangements in which 
a contract would be awarded for only the initial work. The final 
circular contains revised provisions stressing that FTA expects the 
recipient to analyze each planned acquisition for potential 
organizational conflicts of interest as early in the acquisition 
process as possible, and to take appropriate measures to avoid, 
neutralize, or mitigate them before contract award.
Subparagraph 2.a(4)(i)--Restraint of Trade
    One commenter asked why noncompetitive pricing is included within 
the same category as matters within the recipient's control. Both 
Common Grant Rules provide that noncompetitive pricing practices 
between firms or between affiliated companies are practices that in 
some situations can be restrictive of competition. Consequently, the 
recipient should be alert to situations evidencing the possibility that 
bidders or offerors seeking contracts might be engaging in 
noncompetitive pricing practices. Questionable practices would include 
submissions of identical bid prices for the same products by the same 
group of firms. Other questionable practices would be reflected in an 
unnatural pattern of awards that had the cumulative effect of 
apportioning work among a fixed group of bidders or offerors.
Subsection 2.c--Contract Type Specified
Paragraph 2.c(1)--Typical Contract Types
Subparagraph 2.c(1)(a)--Firm Fixed Price
    One commenter recommended that we include a discussion of firm 
fixed price contracts with economic price adjustments. We agree, and 
revised the final circular to state that a firm fixed price contract 
may include an economic price adjustment provision, incentives, or 
both.
Section 3--Methods of Procurement
Subsection 3.a--Micro-Purchases
    We received three comments about micro-purchases. Two commenters 
advised us that the discussion in the proposed circular was too 
detailed, and specifically recommended that documentation procedures be 
moved to the BPPM. We believe a reasonably comprehensive discussion of 
micro-purchases is necessary in view of the opportunities for 
misunderstanding.
    One commenter recommended that we remove discussions of dollar 
limits in connection with micro-purchases, mainly because States or 
local jurisdictions may have lower limits. We disagree. Although we 
stated in the proposed circular that the recipient could establish 
lower thresholds for micro-purchases, the final circular emphasizes 
that the recipient may set lower thresholds for micro-purchases in 
compliance with State and local law, or otherwise as it considers 
appropriate.
    The same commenter asked how Davis-Bacon requirements relate to the 
dollar value of a procurement unless it is FTA's position that 
contracts subject to Davis-Bacon cannot be procured as micro-purchases. 
In its discussion of micro-purchases, the proposed and final circulars 
are cautioning the recipient that even though it may use micro-purchase 
procedures for procurements of construction, it still must comply with 
Davis-Bacon prevailing wage requirements.
    One commenter asked whether the Service Contract Act's threshold of 
$2,500 should be mentioned in connection with micro-purchases. We have 
not discussed the Service Contract Act because the only FTA recipient 
that must comply with the Service Contract Act is the District of 
Columbia.
Subsection 3.c--Sealed Bids (Formal Advertising)
Paragraph 3.c(1)--When Appropriate
    One commenter pointed out that our discussion of sealed bidding 
gives the impression that sealed bidding can only be used for 
acquisition of property and construction. We agree that sealed bidding 
can be used for the acquisition of other types of property and 
services, and the final circular now clarifies that matter.

[[Page 56913]]

Subparagraph 3.c(1)(d)--Price Determinative
    One commenter recommended that we clarify the term ``price-related 
factors'' in our discussion of contract price in the context of sealed 
bidding procurements. We agree, and revised the final circular to 
identify transportation costs, life cycle costs, and discounts expected 
to be taken as examples of price-related factors.
Subparagraph 3.c(1)(e)--Discussions Unnecessary
    The same commenter recommended that we clarify this subparagraph to 
distinguish between when discussions are acceptable, such as before 
receipt of bids, in negotiations after receipt of bids, and in pre-
award responsibility determinations, and when discussions are not 
acceptable, such as after receipt of bids. We agree, and made 
appropriate changes.
Subsection 3.d--Competitive Proposals (Request for Proposals)
    The same commenter also recommended that we change the wording of 
the standard for using competitive proposals to ``there is an 
expectation that there is more than one source willing and able to 
submit an offer, or proposal.'' We agree, and the final circular 
contains appropriate changes.
    Two commenters requested that we clarify that only one of the four 
pre-conditions justifying the use of competitive proposals need be 
present. We agree, and the made that revision.
Paragraph 3.d(1)--When Appropriate
Subparagraph 3.d(1)(a)--Type of Specifications
    One commenter recommended that we support the use of negotiations 
when performance specifications are used. Two commenters recommended 
that we delete ``unavailability of adequate specifications or 
descriptions'' as a standard justifying use of competitive proposals. 
We have adopted those recommendations, and the final circular now 
include a statement that detailed technical specifications may be used 
if other circumstances, such as the need for discussions or factors 
other than price alone should determine contract award.
Subparagraph 3.d(1)(b)--Uncertain Number of Sources
    The same commenter expressed the view that uncertainty about 
whether more than one offeror will submit a proposal is not in itself a 
reason to require the use of competitive proposals if State and local 
laws permit the recipient to negotiate if it only receives a single bid 
in response to a formally advertised procurement. The commenter then 
recommended that we delete the standard or explain it more fully. We 
agree, and have explained the standard more fully.
Subparagraph 3.d(1)(c)--Price Alone Not Determinative
    One commenter asked us to clarify the distinction between price-
related factors in sealed bidding and award criteria for competitive 
proposals. We agree, and made the necessary revision.
Subparagraph 3.d(1)(d)--Discussions Expected
    The same commenter asked us to make the distinction between 
discussions permitted in sealed bidding and the discussion/negotiation 
process in competitive proposals. We agree, and made the revision.
Paragraph 3.d(2)--Procurement Procedures
Subparagraph 3.d(2)(f)--Best Value
    That commenter also requested us to amend the discussion of ``Best 
Value'' to stress that the evaluation factors for a specific 
procurement should reflect the subject matter and the elements that are 
most important to the recipient. We agree, and made the revision.
Subsection 3.e--Two-Step Procurement Procedures
    One commenter recommended that competitive negotiation be included 
in the discussion of two-step procurement processes. We agree, and 
added guidance about proposals as well as bids in our general 
discussion of two-step procurement procedures.
Subsection 3.f--Architectural Engineering Services and Other Services
    Again as in Chapter IV, the same commenter suggested that we state 
that certain architectural engineering firms have the capability of 
performing services beyond traditional A&E services. We have revised 
both Chapter VI and Chapter IV of the final circular for consistency, 
emphasizing that the nature of the work to be performed and its 
relationship to construction, not the nature of the prospective 
contractor, determines whether qualifications-based procurement 
procedures must be used or may not be used.
Paragraph 3.f(1)--Qualifications-Based Procurement Procedures Required
    One commenter reminded us to resolve the inconsistencies between 
Chapter IV and Chapter VI of the proposed circular in designating the 
relationship to real property compared with the relationship to 
construction as the standard for determining when qualifications-based 
procurement procedures must be used and may not be used. We have 
revised both Chapter VI and Chapter IV of the final circular to stress 
that qualifications-based procurement procedures may be used only when 
the services are directly in support of, directly connected to, 
directly related to, or will lead to construction, alteration, or 
repair of real property.
    Another commenter requested us to provide examples of activities 
related to a project involving ``improvements to real property'' that 
would require the use of qualifications-based procurement procedures. 
The final circular includes several examples.
Paragraph 3.f(2)--Qualifications-Based Procurement Procedures 
Prohibited
    The same commenter also requested us to provide examples of 
``improvements to real property'' for which qualifications-based 
procurement procedures would be prohibited. We agree, and have added 
several examples.
Paragraph 3.f(5)--Audits and Indirect Costs
Subparagraph 3.f(5)(d)--Prenotification: Confidentiality of Data
    Two commenters asked us to clarify the confidentiality requirements 
for cost or rate data used to determine indirect cost rates for 
architectural engineering contracts, particularly in light of the fact 
that States have widely differing ``Open Records'' type laws. FTA 
recognizes that some State laws might make it difficult for a recipient 
to protect cost and rate data pertaining to its contractors. 
Nevertheless, FTA's enabling legislation at 49 U.S.C. 5325(b)(3)(D) 
requires a recipient to treat any cost or rate data used to determine 
indirect cost rates for architectural engineering contracts as 
confidential. Section 5325(b)(3)(D) also prohibits the recipient from 
making that data accessible or providing it to another party unless the 
audited firm provides the recipient written permission to do so. 
Moreover, if prohibited by law, that cost and rate data may not be 
disclosed under any circumstances. FTA is not authorized to waive the 
requirements of 49 U.S.C. 5325(b)(3)(D). Therefore, the final circular 
recommends that before requesting or using cost or rate data, not only 
should a recipient notify the affected firm, but it also must obtain 
permission to provide that data in

[[Page 56914]]

response to a valid request under a State's ``Open Records'' type law.
Subsection 3.g--Design-Bid-Build
    One commenter asked us to use an outline format for this 
subsection. We agree, and have revised the format of this subsection 
for greater consistency with the formats generally used in the final 
circular.
    The same commenter requested us to revise the subsection to 
emphasize that two contracts are awarded when a recipient uses the 
design-bid-build procurement method. We agree, and made that revision.
Subsection 3.h--Design-Build
    In response to comments about format and clarity, we revised the 
final circular for greater consistency with the formats generally used 
in the final circular.
Subsection 3.i--Other Than Full and Open Competition
Paragraph 3.i(1)--When Appropriate.
Subparagraph 3.i(1)(b)--Sole Source
Sub-subparagraph 3.i(1)(b)1--Unique Capability and Availability
    One commenter asked us to provide examples of unique capability and 
availability that justify a sole source procurement, pointing out that 
many vendors have unique capabilities that do not justify a sole source 
procurement. We do not believe specific examples would be helpful and 
might further cause misunderstanding. In describing property or 
services that have unique capability and availability, we recognize 
that property or services with unique or innovative concepts, that have 
patents or restricted data rights, that would require substantial 
duplication costs, or would require unacceptable delay meet the 
standard of having unique capability and availability. Our position is 
that a unique or innovative concept qualifies as a sole source if it is 
a new, novel, or changed concept, approach, or method that is the 
product of original thinking, the details of which are kept 
confidential or are patented or copyrighted. The property or services 
must also be available to the recipient only from one source and have 
not been available in the past to the recipient from another source. We 
believe situations in which prospective acquisitions are limited by 
patents or restricted data rights, substantial duplication costs, or 
requiring unacceptable delay can be readily recognized and need no 
further explanation.
Sub-subparagraph 3.i(1)(b)2--Single Bid or Proposal
    Four commenters pointed out that in our discussion of the 
consequences of procurements resulting in a single bid or proposal, the 
proposed circular uses the terms ``adequate'' and ``inadequate'' in 
ways different from the BPPM's use of those terms. In short, the 
commenters requested that we adopt the standard that competition is 
``adequate'' if a single bid or proposal is submitted through no fault 
of the recipient. We agree, and made that revision.
Subparagraph 3.i(1)(d)--Associated Capital Maintenance Item Exception 
Repealed
    Two commenters asked why we omitted associated capital maintenance 
items as appropriate for sole source. When SAFETEA-LU was signed into 
law on August 10, 2005, it repealed the sole source procurement 
authority for associated capital maintenance items. Since then, an 
associated capital maintenance item must qualify under the same 
standards that would apply to other sole source acquisitions.
Paragraph 3.i(3)--Procurement Procedures
Subparagraph 3.i(3)(b)--Sole Source Justification
    One commenter recommended that we require that a sole source 
justification must be prepared by an entity that can independently 
evaluate information provided by the recipient and prospective 
contractor. FTA agrees that independent sole source evaluations would 
be desirable, but believes it would be unrealistic to impose a firm 
requirement for independent evaluations. Requirements for independent 
sole source evaluations are not expressly authorized by our law or the 
Common Grant Rules, and may conflict with State or local procurement 
procedures.
Section 5--Incentive Costs and Payments
    One commenter asked whether incentive payments are available only 
to contractors that provide accurate cost and ridership estimates in 
connection with a new fixed guideway capital project and to contractors 
that enable a new fixed guideway capital project to be completed for 
less than its original estimated cost. Another commenter objected to 
that limitation. We agree that incentive payments should not be limited 
to the two situations described. The final circular now contains a 
reference to the ``Incentive Payments'' information in ``Frequently 
Asked Questions'' at the FTA Web site:  http://www.fta.dot.gov/funding/thirdpartyprocurement/faq/grants_financing_6148.html.
Section--6 Cost and Price Analysis
Subsection 6.a--Cost Analysis
    One commenter asks whether, as stated in the proposed circular, a 
cost analysis will be necessary in the case of a single bid or proposal 
when competition has been determined adequate because submission of 
only one bid or proposal was not the fault of the recipient, or whether 
a price analysis would be acceptable. FTA's position is that a cost 
analysis will be required in the case of a single bid or proposal that 
is not the fault of the recipient, except if a price analysis can be 
based on a catalog or market price of a commercial product sold in 
substantial quantities to the general public or based on prices set by 
law or regulation.
Paragraph 6.a(2)--Establishing Indirect Cost Rates
    One commenter questioned whether the discussion about which entity 
must approve indirect cost rates applies to architectural engineering 
contracts. FTA did not intend these provisions to apply to 
architectural engineering contracts because architectural engineering 
contracts have their own statutory indirect costs requirements. We have 
revised this discussion and the final circular now states that the 
provisions of this paragraph do not apply to architectural engineering 
contracts.
Subparagraph 6.a(2)(b)--Contracts Exceeding $5 Million
    Rather than engage an outside auditor, one commenter has 
recommended that a recipient be permitted to use its internal audit 
staff to perform indirect costs when required for contracts exceeding 
$5 Million. FTA disagrees. The purpose of using an outside entity is to 
obtain an objective review of the recipient's rates, profits, and other 
financial data related to a contract that must undergo cost analysis.
Section 7--Evaluations
Subsection 7.c--Evaluators
    One commenter objected to the proposed circular's implied 
requirement that all proposal evaluations must be performed by auditors 
or financial management personnel, pointing out that for certain 
procurements, technical or public policy personnel should perform the 
evaluations. We agree that technical and public policy staff should 
participate in bid or proposal

[[Page 56915]]

evaluations and that a recipient may use auditors and financial 
management personnel as they see fit, and have made that revision to 
the final circular. We have also clarified that the recipient may 
contract for those services its staff are unable to perform.
Subsection 8--Contract Award
Subsection 8.a--Award to Other Than the Lowest Bidder
    One commenter recommended that the recipient be advised to state 
its right to award the contract to other than the low bidder or offeror 
in its solicitation document. We agree, and the final circular has been 
revised accordingly.
Subsection 8.c--Rejections of Bids and Proposals
    Three commenters recommended that the subparagraph discussing bid 
rejection should be expanded to apply to both bids and offers or 
proposals. We agree, and have made the revision requested.

G. Chapter VII--Protests, Changes and Modifications, Disputes, Claims, 
Litigation, and Settlements

    This chapter consolidates FTA guidance pertaining to third party 
procurement protests with guidance pertaining to disagreements that may 
emerge during the course of a third party procurement. The chapter now 
includes discussions of protests, changes and modifications, disputes, 
claims, litigation, and settlements.
Section 1--Protests
    Section 1 addresses FTA and the recipient's responsibilities 
pertaining to protests of third party contract decisions. These 
provisions are substantially similar to those in FTA Circular 4220.1E. 
It adds a new discussion of FTA's practice of reviewing only those 
protests of an ``interested party,'' which must be an actual or 
prospective bidder or offeror with a direct economic interest in the 
third party contract award.
Subsection 1.a--The Recipient's Role and Responsibilities
Paragraph 1.a(2)--Responsibilities to FTA
Subparagraph 1.a(2)(a)--Timely Notification
    Three commenters asked who the recipient should notify when it 
receives a third party contract protest. Our response is that FTA 
expects the recipient to report any current or prospective third party 
contract protest involving more than $100,000, and any protests 
involving controversial or highly publicized matters irrespective of 
amount in its next quarterly Milestone Progress Report, and at the next 
Project Management Oversight review, if any. If the recipient issues a 
protest decision adverse to the protester, FTA expects the recipient to 
notify the FTA Regional Administrator for the region administering a 
regional project or the FTA Associate Administrator for the Program 
Office administering a headquarters project directly, so that FTA can 
be prepared in case of an appeal. We included that information in the 
final circular.
Subsection 1.b--FTA's Role and Responsibilities
Paragraph 1.b(1)--Requirements for the Protester
Subparagraph 1.b(1)(a)--Qualify as an ``Interested Party''
    One commenter asked whether a subcontractor that has committed to 
be part of a team that prepared the proposal or bid would be eligible 
to qualify as an ``interested party'' and file a protest with FTA, or 
whether only a prime contractor or consultant would qualify as an 
``interested party.'' Our response is that a subcontractor does not 
qualify as an ``interested party'' that may file a protest with FTA 
because a subcontractor has only an indirect interest in the results of 
the procurement; moreover, a subcontractor does not submit bids or 
offers to the recipient. The final circular lists various entities that 
either qualify or do not qualify as an ``interested party'' that may 
file a protest with FTA. For example, an established consortium, joint 
venture, team, or partnership that is an actual bidder or offeror would 
qualify as an ``interested party'' that has a direct economic interest 
in the results of the procurement. An individual member of a 
consortium, joint venture, team, or partnership, acting solely for 
itself, however, would not qualify as an ``interested party.'' An 
association or organization that does not perform contracts also would 
not qualify as an ``interested party.''
Paragraph 1.b(2)--Extent of FTA Review
    In view of FTA's decision to limit its review of third party 
contract protests to a recipient's failure to have or to follow its 
protest procedures, a recipient's failure to review a complaint or 
protest, or allegations of violations of Federal law or regulations, 
one commenter complained that FTA's requirements for recipients are 
very detailed and impose additional administrative burdens on the 
recipient to report each protest to the FTA even if the protest does 
not involve any of the areas that the FTA would review. We disagree. 
The Common Grant Rules for governmental recipients require the 
recipient ``in all instances * * * [to] * * * disclose information 
regarding the protest to the awarding agency.'' FTA reserves the right 
to obtain as much information as it needs about each protest, although 
the amount of information it may request will vary depending on whether 
FTA is asked to participate in the costs of defending the protest and 
its resolution. The extent of information FTA may require will also 
vary depending on whether the protest involves controversial or highly 
publicized matters. The final circular states that FTA is particularly 
interested in any protest of an FTA assisted third party contract 
exceeding $100,000, and any protest of an FTA assisted third party 
contract involving controversial or highly publicized matters 
irrespective of the amount.
Section 2--Changes and Modifications
    This section consists of guidance on changes and modifications to 
third party contracts. We revised the guidance in the final circular to 
accommodate some of the comments discussed below.
    One commenter requested an extensive discussion of the procedures 
for contract changes and modifications. Our response is that more 
extensive information about changes and modifications can be found in 
the BPPM.
    The same commenter asked that the final circular include references 
to other parts of the circular pertaining to contract changes. In 
Chapter I, section 5 of the final circular, we have established 
definitions for ``cardinal change,'' ``change order,'' and 
``constructive change.'' We are not using the term ``constructive 
change order'' in the final circular. The final circular includes 
information about changes in Chapter IV, paragraph 2.b(3) in connection 
with period of performance, in Chapter IV, subparagraph 2.b(6)(a) in 
connection with protecting against performance difficulties, and 
Chapter V, paragraph 7.b(2) in connection with assignment of contract 
rights.
Section 3--Disputes
    The final circular changes the location of the section on disputes 
with the section on claims set forth in the proposed circular, and adds 
more information in response to comments we received as described 
below.

[[Page 56916]]

Subsection 3.a--The Recipient's Role and Responsibilities
Paragraph 3.a(1)--Notify FTA about Disputes
    One commenter asked whom the recipient should notify when it 
becomes involved in a dispute related to a third party contract. Our 
response is that FTA expects the recipient to report any current or 
prospective third party contract dispute involving more than $100,000, 
and any dispute involving controversial or highly publicized matters 
irrespective of amount, in its next quarterly Milestone Progress 
Report, and at the next Project Management Oversight review, if any. 
The final circular contains that information.
Paragraph 3.a(2)--Adequate Documentation
    One commenter argued that requiring the recipient to include all 
pertinent facts, events, negotiations, applicable laws, and a legal 
evaluation of the likelihood of success in any potential litigation 
pertaining to a dispute appears to imply that FTA would question any 
settlement the recipient arranges unless there is no likelihood of 
successful litigation. The commenter also added that while some 
disputes may lead to litigation, many should be settled. We agree in 
principle that many disputes may best be resolved through settlement. 
But whether or not FTA seeks access to the recipient's records 
pertaining to a dispute, FTA expects the recipient to include adequate 
documentation in its project files of the facts, events, negotiations, 
applicable laws, and a legal evaluation of the likelihood of success in 
any potential litigation proceeding as may be necessary to justify 
FTA's concurrence in the compromise or settlement of the claim, should 
FTA determine its concurrence would be necessary. Maintaining adequate 
documentation of a dispute or other significant event will likely 
benefit the recipient, even if FTA does not inspect those records. The 
amount of information FTA may request will vary depending upon the 
nature of the claim. FTA is particularly interested in any current or 
prospective major dispute exceeding $100,000, and any dispute involving 
controversial or highly publicized matters irrespective of amount 
relating to any third party contract. The final circular contains that 
information.
Paragraph 3.a(3)--Audit
    The same commenter expressed concerns about our recommendation that 
the recipient obtain a project audit, and argued that for FTA to delay 
participation in settlement costs until an audit has been completed 
could unnecessarily hamper negotiations and delay closure of the 
project. Our response is that a recipient should rely on itself to 
finance its own settlements, with the use of project funds that have 
been awarded for the contract under the grant or cooperative agreement 
to the extent that settlement costs are supportable under the Federal 
cost principles that apply to the recipient. The recipient should not 
rely on FTA to provide any extra Federal assistance beyond the amount 
previously awarded to support the settlement.
    The same commenter asked why FTA would recommend an audit after the 
recipient has reached a settlement agreement. We consider an audit to 
be a tool that the recipient can use to justify that the settlement is 
necessary, reasonable, adequately documented, and that FTA should 
participate in its costs.
Section 4--Claims and Litigation
    In addition to changing the location of the section on claims with 
the section on disputes as set forth in the proposed circular, the 
final circular includes a discussion of litigation and also includes 
more information in response to comments we received as described 
below.
Subsection 4.a--The Recipient's Role and Responsibilities
    One commenter asked us to clarify whether the Common Grant Rules' 
assignment of responsibility to the recipient to resolve third party 
contract claims means that the recipient is expected to resolve claims 
made under its third party contracts or claims against the contractor 
made by third parties. FTA's interpretation of the Common Grant Rules 
is that the recipient is expected to resolve claims made under its 
third party contracts, but not claims against the contractor made by 
third parties. We have revised the circular to make that clarification.
Paragraph 4.a(2)--Legal Rights and Remedies
    The same commenter complained about the provision in the proposed 
circular directing the recipient to pursue all legal rights and 
remedies available under any third party contract, claiming that doing 
so would preclude settlement of minor disputes until all contract 
remedies, including termination or litigation, have been exhausted. The 
commenter pointed out that such an interpretation would have 
significant adverse effects on the project. We agree in part with the 
commenter's observations. The final circular has been revised to 
clarify that, in resolving third party contract claims, FTA expects the 
recipient to take reasonable measures to pursue its rights and remedies 
available under law, including settlement, particularly if failure to 
do so would jeopardize the Federal interest in the project or cause the 
recipient to seek additional Federal assistance.
    The same commenter argued that providing the level of documentation 
specified in the proposed circular would have the potential of 
violating attorney/client privilege, and that providing documentation 
relative to any disputed negotiations is very different from producing 
procurement files relative to a particular solicitation. While FTA 
understands that providing information in connection with claims or 
litigation can be difficult, FTA reserves the right to review the 
recipient's records and supporting documentation that would justify the 
use of FTA assistance to support the costs resulting from the claim or 
litigation. The amount of information FTA may request will vary 
depending on the nature of the claim or litigation. FTA is particularly 
interested in any current or prospective major third party contract 
claim or litigation in amounts exceeding $100,000, and any claim or 
litigation involving controversial or highly publicized matters 
irrespective of the amount relating to any third party contract. The 
final circular contains that information.
Subsection 4.b--FTA's Role and Responsibilities
Paragraph 4.b(1)--Proceeds Recovered
    One commenter pointed out that it may not be possible to calculate 
the amount of proceeds a recipient recovers in proportion to the 
Federal share committed to the project. The amount of ``any net 
proceeds'' may not have a direct correlation to a portion of an overall 
project. Except for unusual circumstances, we disagree. We believe that 
equitable calculations of the Federal share committed to a project or 
part of a project may in some instances be difficult, but not 
impossible. Moreover, the last sentence of 49 U.S.C. 5309(h)(6) 
requires proportionate refunds of the Federal share when reductions in 
the net project costs of capital investment projects are made. The 
Common Grant Rules provide that recipients should expend refunds and 
rebates for project costs before requesting further payments from the 
Federal Government, which would have the effect of providing some, if 
not a

[[Page 56917]]

strictly proportionate, refund of Federal assistance to the Federal 
grantor agency.
Paragraph 4.b(2)--Liquidated Damages
    One commenter asked whether in negotiating a settlement, the 
recipient could exchange its rights to liquidated damages for extra 
property or services. We agree that in some situations doing so would 
be reasonable. The final circular includes a new paragraph addressing 
that matter.
Section 5--FTA Participation in Settlements, Arbitration Awards, and 
Court Awards
    Much of the guidance in this section has been transferred from FTA 
Circular 5010.1C, ``Grant Management Guidelines,'' 10-01-98 
substantially intact, modified to accommodate the comments we received 
as discussed below.
Subsection 5.a--The Recipient's Responsibilities
Paragraph 5.a(1)--Settlement Arrangements Must Be Reasonable
    One commenter asked that FTA discuss settlements in lieu of 
liquidated damages that substitute additional services or equipment for 
cash payments, possibly resulting in benefits to all parties. We agree 
that, in certain situations, substitutions of extra property or 
services rather than liquidated damages payments could constitute all 
or part of a reasonable settlement. FTA also recognizes that in certain 
instances a settlement may require the recipient to relinquish its 
claims for all or part of the liquidated damages and other amounts the 
recipient would be owed if it prevailed on all matters at issue. The 
final circular includes a new paragraph explaining FTA's views on 
reasonable settlements.
Subparagraph 5.a(3)(c)--Special Federal Interest or Federal Concern
    We have amended the heading of this subparagraph to include the 
term ``Federal Concern,'' which is sometimes used interchangeably with 
``Special Federal Interest.'' We believe it is in the best interests of 
the recipient to obtain FTA review and written concurrence in 
settlements when a special Federal interest or concern is declared due 
to program management concerns, possible mismanagement, impropriety, 
waste, or fraud. One commenter requested that we explain when and how 
the recipient should be aware that a special Federal interest in a 
project is ``declared,'' and complained that, as written, the 
declaration could be an after-the-fact action by FTA. Our response is 
that if the recipient has entered into a settlement before FTA has 
declared a special interest in the matter at issue, then the recipient 
would not be able to obtain FTA's review and concurrence in advance. In 
such a case, if after the recipient agreed to a settlement and FTA 
became interested in the project due to allegations of program 
management concerns, possible mismanagement, impropriety, waste, or 
fraud, FTA could refuse to participate in the costs of activities 
associated with those improprieties, and even recover the Federal 
assistance used to support those improprieties. The purpose of 
obtaining FTA review and concurrence is to gain assurance that the 
costs of specific activities, including procurements, will be eligible 
for FTA assistance.
Subsection 5.b--FTA's Prerogatives
Paragraph 5.b(2)--Provide Federal Assistance
    The same commenter expressed concerns that FTA will fund only a 
portion of eligible costs of contractor's claims. Our response is as 
follows: To the extent that the recipient has not used all or part of 
the FTA assistance budgeted for the activity that was the subject of a 
dispute, claim, or litigation, the recipient may use the funds so 
budgeted to pay the costs of the settlement or resolution of the 
matter. Any additional FTA assistance that could be provided would 
depend on the availability of all or part of the FTA assistance 
requested. Even if all the requested FTA assistance were available, we 
cannot assure that FTA will be able to provide a sufficient amount of 
Federal assistance to pay for the entire Federal share of those costs. 
Nevertheless, FTA generally attempts, subject to availability of funds, 
to provide FTA assistance in the percentage that matches the percentage 
of the original award. However, any expenditure of FTA assistance is 
also subject to the requirement that the costs claimed be reasonable, 
allowable, and allocable.
Paragraph 5.b(3)--Deny Federal Assistance
    Three commenters objected to the list of situations in which FTA 
may determine the extent to which FTA assistance could be used for 
their support. The commenters pointed out that many of the situations 
listed involving the recipient, the contractor, and other jurisdictions 
or entities may be a result from judgments entered into in good faith 
that turned out bad, rather than matters of negligence or incompetence. 
We agree, and have revised the final circular to clarify FTA's views 
that the situations described in the paragraph do not always mean that 
FTA will not provide all or some Federal assistance contemplated, or 
that FTA will withdraw all or some Federal assistance previously 
awarded, or that FTA will attempt to recover all or some Federal 
assistance used in the situation.
    The commenter asked that FTA remove its examples of specific 
circumstances in which FTA might not participate in project costs 
unless those circumstances are exhaustive. FTA disagrees. Not knowing 
all the possibilities that can affect a project, we are unable to 
provide an all-inclusive list of examples that might cause FTA to 
reduce, withdraw, or seek recovery of all or some Federal assistance. 
We believe these examples can be useful indications of situations of 
concern to FTA.
    Another commenter implied that failure by FTA or its oversight 
contractors to note and correct errors the recipient has made should 
affect FTA's decision to participate in the costs of resolving 
protests, disputes, claims or litigation in which the recipient 
otherwise might be found to be at fault. We disagree. FTA pays its 
``oversight'' contractors only to perform ``oversight'' and report 
their findings and recommendations to FTA. Neither FTA nor its 
oversight contractors act as a recipient's quality control agents nor 
do they make decisions for recipients. Any perceived failure of FTA or 
its oversight contractors to note and correct a recipient's error does 
not indicate FTA's concurrence in the recipient's action, nor does it 
impose any liability on FTA.

Appendix A--References

    One commenter provided recommendations about changes to citations 
as listed in the Appendix. The final circular includes most of those 
recommended changes.

Appendix B--FTA Regional and Metropolitan Office Contact Information

    The final circular's list of regional and metropolitan office 
contact information now includes the Philadelphia Metropolitan Office, 
which was erroneously omitted.

Appendix C--Third Party Contracting Checklists

    In response to one commenter's request for review aids and 
worksheets, the final circular now includes a new Appendix C with 
checklists including references to specific sections of the final 
circular.

[[Page 56918]]

Appendix D--Federally Required and Other Model Clauses

    In response to one commenter's request for clause matrices, the 
final circular now includes a new Appendix D with matrices identifying 
the various clauses and contract provisions that might be required.

Index

    One commenter asked us to include ``piggybacking'' and ``tag-on'' 
to the index. We agree, and the final circular includes those terms in 
this index.
    The same commenter asked that topic headings be formatted to stand 
out more clearly. The final circular includes these changes.

    Issued in Washington, DC, this 24th day of September, 2008.
James S. Simpson,
Administrator.
[FR Doc. E8-22914 Filed 9-29-08; 8:45 am]
BILLING CODE 4910-57-P


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