Source: http://www.fta.dot.gov/12831_6186.html
Timestamp: 2013-12-08 01:04:58
Document Index: 716486929

Matched Legal Cases: ['§ 18', '§ 19', '§ 1506', '§ 18', 'art 19', '§ 1506', 'art 31', 'art 32', 'art 18', 'art 16']

FTA - For Contractors - Procurement Planning & Organization
2.1 Organization of Procurement Functions (5/96) 2.1.1 Scope of Responsibility (5/96)2.1.2 Autonomy (5/96) 2.2 Long Term Planning (5/96) 2.2.1 Contract Period of Performance Limitation (6/03)2.2.2 Multi-Year vs. Multiple-Year Contracting (7/02) 2.3 Annual Planning (5/96) 2.3.1 Sources and Contents (5/96)2.3.2 Independent Grantee Cost Estimate (4/05) 2.4 Source Selection Plan (5/96) 2.4.1 File Documentation (5/96)2.4.2 Full and Open Competition (5/96)
2.4.2.1 Full and Open Competition Principle (5/96)2.4.2.2 Restraints on Competition (5/96)2.4.2.2.1 Brand Names (6/03)2.4.2.2.2 Written Standards of Conduct and Conflicts of Interest: Personal and Organizational (6/03)2.4.2.2.3 Geographic Restrictions (6/03)2.4.2.2.4 Pre-qualification (5/98) 2.4.3 Fixed Price v. Cost Reimbursement (5/98) 2.4.3.1 Fixed Price Contracts (4/05)2.4.3.2 Cost Reimbursement Contracts (6/03)2.4.3.3 Time and Materials Contracts (5/98)2.4.3.4 Labor Hour Contacts (5/98)2.4.3.5 Cost Plus Percentage of Cost Contracts (6/03) 2.4.4 Payments (5/98) 2.4.4.1 Payment of the Price (5/98)2.4.4.2 Advance Payments (6/03)2.4.4.3 Progress Payments (4/05)2.4.4.4 Withholding and Final Payment (5/98) 2.4.5 Indefinite Delivery Contracts (10/99) 2.4.5.1 Definite-quantity Contracts (10/99)2.4.5.2 Requirements Contracts (6/03)2.4.5.3 Indefinite-quantity Contracts (6/03) 2.1 ORGANIZATION OF PROCUREMENT FUNCTION
to obtain the best buy for your agency which requires an evaluation of all the service quality, safety, cost, schedule, and other objectives of the agency's operating functions;
to comply with Federal, state, local, and agency procurement requirements;
to ensure an understanding of the precise authority of you and your agency team members in dealing with suppliers who, while partners in many respects, have some interests that conflict sharply with your agency's; and
to control through finite, professional boundaries, the possibility of corruption or unethical practices.
These objectives require the clear definition and assignment of procurement responsibilities. A specific aspect of that assignment, the need for autonomy, is discussed in more detail in the following section of the Manual.
Should the procurement functions described in the previous section be controlled by the program functions? After all, it is the program office whose needs are to be met, and, in most accounting systems, the program to whose budget the purchase will be charged.
Should the procurement official be entirely autonomous and evaluate the needs of the program (e.g., for immediate services) against the legal or procedural requirements of the funding source (e.g., FTA Circular 4220.1E if Federal funds)?
Some degree of autonomy of the procurement function is necessary organizationally and functionally so that procurement personnel will be free from undue influence or pressure in the award and administration of contracts. The obvious solution to the conflict between "process" and "program" is to have a team in which each member recognizes the strengths and capabilities of the other team members and appreciates the role each side brings to the contract table. This sounds easy to accomplish but, in most practical situations, is very difficult to achieve 1. Failure to achieve unity and teamwork within the agency in the awarding and administration of public contracts creates frequent opportunities for a contractor to take advantage of a contentious staff relationship to its financial advantage (and the agency's financial disadvantage). Achieving proper balance between groups requires delicate balancing of personalities and corporate objectives, a strong executive, and a well-trained staff. It must also be recognized that there is no textbook answer that will work in every situation and in every agency.
In addition to balancing the roles of program and process interests in making procurement decisions, the payment of your agency's funds to contractors generally requires three independent concurring actions. The requirement for independent concurring actions is sometimes called "internal control," as it is a method for the agency to control the propriety of its actions internally, rather than requiring external reviews and control. While best practices differ, all authorities recognize a fundamental need for a system of checks and balances in the overall procurement process. In an organization with no checks and balances, if an individual perceived a need for a staff car, that person could draft the specifications for the car, prepare the solicitation document, order the car, approve the contract, inspect the preparation of the car, administer the contract, accept the car after delivery, sign the agency check to pay the dealer, and use the car in a manner the person deemed appropriate. It should be obvious that an organization and procurement process such as this would not be credible and would be subject to great abuse, actual or perceived. As a result, most public and private agencies divide those functions among, at least, three distinct elements within its organization. The requiring activity is represented by the program manager who is responsible for determining the requirement, preparing the specifications and, then, acting as the technical representative or advisor to the contracting officer during contract performance. The procurement activity is represented by the contracting officer who is responsible for ensuring specifications are not restrictive, preparing the solicitation document in accordance with the law and rules and regulations of the agency and the FTA, soliciting the requirement, and awarding the contract in accordance with the solicitation. Contract administration functions are usually shared with the requiring activity and involve such functions as approving payment, accepting the goods or services bought, and closing out the contract. The payment activity is represented by a third party (the finance department) who ensures that all approvals are obtained and that the payment is within the dollar amount of the contract. Often, the accounts payable function in finance either physically or electronically matches three documents issued by three different employees (the purchase order, receiving report, and approved invoice) before releasing funds.
The procurement and payment activities are "process" functions ensuring that the goods are bought and paid for in accordance with the terms of the contract. The "program" activity is to determine what is needed and that it is obtained within the time required and budget allocated. Best Practices
Procurement and contracting can report to a chief executive.
Most typically, the procurement department reports to an administrative or financial function that is independent of the primary internal customers (facility equipment and operating functions).
Some degree of autonomy can be preserved even within an operating or implementation function if procurement is separated from the program delivery sub-groups.
In medium and large systems, if the contracting function is not separated from the program office, there is an inadequate system of checks and balances on the procurement process. Overall, procurement personnel should have enough autonomy or checks and balances to achieve a quality product at a fair and reasonable price without real or apparent conflicts of interest in the solicitation, evaluation or award.
One year advance planning before Request for Proposals (RFP) for the engineering services;
Four months from RFP to award of the engineering services;
Two years to prepare technical specifications;
Three months from completion of specifications to system RFP;
Six months from system RFP to award; and
Three years for system construction.
The planning and design processes can change this schedule significantly, and few procurements require this length of time. When major projects are undertaken, a comprehensive procurement plan that outlines these major projects along with the rest of your procurement workload will be extremely helpful. Bus procurements and major electronic/data systems generally require at least three years of advance planning.
preparation of a source selection plan (if not already complete or in progress), where appropriate;
assembly of the solicitation of offers;
publication period and time for preparation of offers, including pre-bid/proposal conference, where appropriate;
receipt and evaluation of offers; and
required reviews and approval actions.
Complex projects will require more time for preparing specifications. Negotiated procurements will require more time after receipt of offers. If governing board approval is required, and the governing board meets on a fixed schedule, time would be added for this step. In all major procurements and cases where negotiated procurement is utilized, the planning process can evolve into a source selection plan for each procurement.
FTA Circular 4220.1E, Paragraph 10 provides that grantees must perform a cost or price analysis in connection with every procurement action, including contract modifications. The method and degree of analysis is dependent on the facts surrounding the particular procurement situation, but as a starting point, grantees must make independent estimates before receiving bids or proposals.
it ensures a clear basis for the grantee's determination that the benefits of the procurement warrant its cost;
it provides essential procurement and financial planning information (see "Advance Procurement Plan," above); and
it provides a basis for price analysis, which may assist in obviating the need for a more burdensome cost analysis.
Although it may seem self-evident that the agency has at least implicitly prepared a cost estimate in deciding to proceed with a procurement, many projects can change in scope without clear communication among the people responsible. For example, a management information system for parts inventory control may seem cost-effective, but may grow during discussions to include unanticipated electronic imaging, scanning of repair manual diagrams, unanticipated distributed processing devices, and multi-user programming. An independent cost estimate prepared when the agency first undertook the project could alert all involved that the project had grown beyond the scope originally intended. A deliberate decision to reduce the scope or revise the cost estimate can be made at each step of the project's development.
2.4 SOURCE SELECTION PLAN2.4.1 File Documentation REQUIREMENT
FTA Circular 4220.1E, Paragraph 7.i - Written Record of Procurement History requires grantees to maintain records detailing the history of a procurement. As a minimum, these records shall include: The rationale for the method of procurement;
Reasons for contractor selection or rejection; and
The basis for the contract price.DISCUSSION A properly documented procurement file provides an audit trail from the initiation of the acquisition process to the beginning of the contract. The file provides the complete background, including the basis for the decisions at each step in the acquisition process. A well-documented file speaks for itself, without need of interpretation from the contract administrator. A well-documented file also supports actions taken, provides information for reviews and investigations, and furnishes essential facts in the event of litigation or legislative inquiries.
You are taking legally and financially significant actions on behalf of your agency and the public. Information relating to these actions needs to be readily retrievable in the event that contract personnel are personally unavailable or their memory is not precise enough to assist the agency in moving forward with the administration of its program. You may routinely expect your colleagues to take actions based on the file.
The key steps in a procurement, including those listed under "Requirement," above, are frequently material elements in financial (e.g., payment or withholding) determinations or legal disputes. Written documentation will have great value to your agency under those circumstances.
The agency�s process may be reviewed, audited, and/or may be the subject of in-depth investigation. This documentation is the history of the public procurement. Many hours of reconstructing events and decisions, stretching memories, and evaluating scenarios can be saved with a concise file that factually answers the questions typically raised.
Finally, you reduce the likelihood of additional supervision or burdensome restrictions being placed on your agency or your procurement process with concise documentation of the decisions you are making.
Many procurement reviews, while finding few problems with the underlying decisions or procurement results, may reach negative conclusions and make unwanted recommendations simply because well considered decisions were not well documented. Noting briefly why you did what you did may help you and your agency, as well as satisfy the requirements of the "Third Party Contracting Requirements" Circular.
Purchase request, acquisition planning information, and other pre-solicitation documents;
Evidence of availability of funds;
Rationale for the method of procurement (negotiations, formal advertising);
List of sources solicited;
Independent cost estimate;
Statement of work/scope of services;
Copies of published notices of proposed contract action;
Copy of the solicitation, all addenda, and all amendments;
Liquidated damages determination;
An abstract of each offer or quote;
Contractor's contingent fee representation and other certifications and representations;
Source selection documentation;
Contracting Officer's determination of contractor responsiveness and responsibility;
Determination that price is fair and reasonable including an analysis of the cost and price data, required internal approvals for award;
Notice of award;
Notice to unsuccessful bidders or offerors and record of any debriefing;
Record of any protest;
Bid, Performance, Payment, or other bond documents, and notices to sureties;
Required insurance documents, if any; and
Purchase order forms (electronic or manual) and standard files for small purchases can be designed to make the recording of most of the relevant data for small purchases automatic. Bid and proposal files, particularly if you use sealed bids under $100,000 can also be standardized to facilitate recording the appropriate data. For larger procurements, there are often memoranda or correspondence that, if assembled in the file, address many of the key issues.
The procurement file and the contract administration file can be coordinated by standard practice, so that nothing between bid opening (or proposal receipt) and notice of award is omitted.2.4.2 Full and Open Competition 2.4.2.1 Full and Open Competition Principle
FTA Circular 4220.1E, Paragraph 8.a requires all procurements to be conducted in a manner providing full and open competition. This requirement finds its way into Paragraph 9.h. of the Circular which limits the use of noncompetitive contract awards to those situations when the award of a contract is infeasible under small purchase procedures, sealed bids, or competitive proposals and at least one of several specifically named circumstances are present. Thus, contracts with a value of more than $100,000 shall be awarded by sealed bid or competitive negotiation unless there is an explicit exception. FTA Circular 4220.1E, Paragraph 8.a considers the following practices to be restrictive of competition: Unreasonable requirements placed on firms in order for them to qualify to do business;
Unnecessary experience and excessive bonding requirements; Noncompetitive pricing practices between firms or between affiliated companies;
Noncompetitive awards to any person or firm on retainer contracts;
Restrictive use of brand names;
Any arbitrary action in the procurement process; and
Geographic preferences 6
Competition - The process by which two or more vendors attempt to secure the business of a third party by the most favorable price, quality, and service.
2.4.2.2.2 Written Standards of Conduct and Conflicts of Interest: Personal and Organizational
Grantees and sub-grantees will maintain a written code of standards of conduct governing the performance of their employees engaged in the award and administration of contracts. No employee, officer or agent of the grantee or sub-grantee shall participate in selection, or in the award or administration of a contract supported by Federal funds if a conflict of interest, real or apparent, would be involved. Such a conflict would arise when: (i) The employee, officer or agent, (ii) Any member of his immediate family, (iii) His or her partner, or (iv) An organization which employs, or is about to employ, any of the above, has a financial or other interest in the firm selected for award. The grantee's or sub-grantee's officers, employees or agents will neither solicit nor accept gratuities, favors or anything of monetary value from contractors, potential contractors, or parties to sub-agreements. Grantee and sub-grantees may set minimum rules where the financial interest is not substantial or the gift is an unsolicited item of nominal intrinsic value. To the extent permitted by State or local law or regulations, such standards or conduct will provide for penalties, sanctions, or other disciplinary actions for violations of such standards by the grantee's and sub-grantee's officers, employees, or agents, or by contractors or their agents. The awarding agency may in regulation provide additional prohibitions relative to real, apparent, or potential conflicts of interest. 49 C.F.R. Sec. 19.42 imposes the same requirement for institutions of higher education, hospitals and other non-profit organizations. The recipient shall maintain written standards of conduct governing the performance of its employees engaged in the award and administration of contracts. No employee, officer, or agent shall participate in the selection, award, or administration of a contract supported by Federal funds if a real or apparent conflict of interest would be involved.Such a conflict would arise when the employee, officer, or agent, any member of his or her immediate family, his or her partner, or an organization which employs or is about to employ any of the parties indicated herein, has a financial or other interest in the firm selected for an award. The officers, employees, and agents of the recipient shall neither solicit nor accept gratuities, favors, or anything of monetary value from contractors, or parties to sub-agreements. However, recipients may set standards for situations in which the financial interest is not substantial or the gift is an unsolicited item of nominal value. The standards of conduct shall provide for disciplinary actions to be applied for violations of such standards by officers, employees, or agents of the recipient.Paragraph 7.c of FTA Circular 4220.1E implements this requirement for FTA grant recipients:
Grantees shall maintain a written code of standards of conduct governing the performance of their employees engaged in the award and administration of contracts. No employee, officer, agent, immediate family member, or Board member of the grantee shall participate in the selection, award, or administration of a contract supported by FTA funds if a conflict of interest, real or apparent would be involved.Such a conflict would arise when any of the following has a financial or other interest in the firm selected for award:
(1) The employee, officer, agent, or Board member,(2) Any member of his/her immediate family,(3) His or her partner, or(4) An organization that employs, or is about to employ, any of the above.
The grantee's officers, employees, agents, or Board members will neither solicit not accept gifts, gratuities, favors, or anything of monetary value from contractors, potential contractors, or parties to sub-agreements. Grantees may set minimum rules where the financial interest is not substantial or the gift is an unsolicited item of nominal intrinsic value. To the extent permitted by state or local law or regulations, such standards of conduct will provide for penalties, sanctions, or other disciplinary action for violation of such standards by the grantee's officers, employees, or agents, or by contractors or their agents.
As an ethics requirement, Section 3(a) of the FTA Master Agreement requires the written standards of conduct to encompass both personal and organizational conflicts of interest and defines them as follows: Personal Conflicts of Interest. The Recipient's code or standards of conduct shall prohibit the Recipient's employees, officers, board members, or agents from participating in the selection, award, or administration of a third party contract or sub-agreement supported by Federal funds if a real or apparent conflict of interest would be involved. Such a conflict would arise when any of the following parties has a financial or other interest in the entity selected for award: (a) an employee, officer, board member, or agent; (b) any member of his or her immediate family; (c) his or her partner; or (d) an organization that employs, or intends to employ, any of the above.
Organizational Conflicts of Interest. The Recipient's code or standards of conduct must include procedures for identifying and preventing real and apparent organizational conflicts of interest. An organizational conflict of interest exists when the nature of the work to be performed under a proposed third party contract or sub-agreement may, without some restrictions on future activities, result in an unfair competitive advantage to the third party contractor or sub-recipient or impair its objectivity in performing the contract work.
49 CFR § 18.36(c)(v) and 49 CFR § 19.43 prohibit organizational conflicts of interest as restrictive of competition. Section 19.43 further states as follows: All procurement transactions shall be conducted in a manner to provide, to the maximum extent practical, open and free competition. The recipient [[Page 167]] shall be alert to organizational conflicts of interest as well as noncompetitive practices among contractors that may restrict or eliminate competition or otherwise restrain trade. In order to ensure objective contractor performance and eliminate unfair competitive advantage, contractors that develop or draft specifications, requirements, statements of work, invitations for bids and/or requests for proposals shall be excluded from competing for such procurements. Awards shall be made to the bidder or offeror whose bid or offer is responsive to the solicitation and is most advantageous to the recipient, price, quality and other factors considered. Solicitations shall clearly set forth all requirements that the bidder or offeror shall fulfill in order for the bid or offer to be evaluated by the recipient. Any and all bids or offers may be rejected when it is in the recipient's interest to do so. 40 CFR § 1506.5(c) concerns the engagement of a consultant for the preparation of an environmental impact statement. It states the following:
Each grantee is entitled to impartial advice from its consultants, based solely on what is best for the transit system and the community, and not for the benefit of persons with conflicting financial or other interests. For additional protection, the grantee not only should enforce its own written standards of conduct but insist, perhaps through the use of certifications, that each of its employees, board members, officers, or other agents (as well as contractor personnel) observe any relevant code of professional responsibility governing his or her conduct, such as the codes governing the conduct of lawyers, engineers, architects, planners, and accountants. Among other things, this requirement would demonstrate to the grantee�s employees and contractors the importance placed by the grantee on avoiding conflicts of interest. I. Grantee Decision to Proceed in Spite of Conflict of Interest. Finally, when a grantee has done all that reasonably can be done to avoid, neutralize, or mitigate a real or apparent conflict of interest, and if it is in the grantee�s best interest to proceed with the contract despite the conflict, the grantee needs to document its decision. Documentation should include what steps were taken or considered, and justification for the conclusion reached, before proceeding with the contract. 21
1. Prepare Written Codes of Standards of Conduct. FTA requires that each of its grantees maintain a written code of standards of conduct applicable to its employees (including contractor employees), officers, board members, and agents (including outside consultants) involved in the selection, award or administration of contracts. Each grantee should consult with its counsel, as well as its procurement personnel, as to whether its code of conduct complies with FTA�s requirements as set forth in Section 3 of FTA�s Master Agreement, Paragraphs 7(c) and 8(a)(5) of FTA Circular 4220.1E, Third Party Contracting Requirements (April 15, 1996), and 49 CFR § 18.36 and Part 19, as applicable. Moreover, the grantee should provide a copy of its code of conduct to each of its employees, board members, officers, and other agents.
2. Require Financial Disclosure Statements and/or Non-Conflict Certifications. When determining how to deal with potential conflicts of interest, a grantee may choose "proactive" measures, "reactive" measures, or a combination approach. "Proactive" measures are designed to identify and prevent potential conflicts prospectively. For example, a grantee interested in employing proactive measures should consider requiring each of its employees (and others potentially involved in the procurement process) to file an annual disclosure statement concerning his or her financial and employment status and that of immediate family members (to the extent state and local law permit such a financial disclosure requirement). 24 With this information on file, the grantee can "proactively" determine, ahead of time, whether any of its employees (etc.) have interests in any of the potential or actual contractors on a particular project. The grantee, for example, can run a search on the parents, subsidiaries, and affiliates of bidders and contractors, as well as on any companies listed on employee disclosure statements, and get a broad picture of any potential conflicts. If a conflict is discovered, the grantee can -- again, "proactively" -- wall off any employee who may have a potential conflict from a particular project, thus avoiding the need for later action. In some cases a grantee may require its contracting personnel (officers, board members, agents, etc., as applicable) to submit a "non-conflict" certification on a project-by-project basis, before that person commences work on the selection, award or administration of a contract. Such certification would state that neither the employee (etc.) nor any member of his or her immediate family has a financial or employment interest in any of the relevant bidders or contractors for the procurement in question. If the employee identifies a real or apparent conflict of interest, then the grantee can take action to mitigate it. This is a different, somewhat "reactive," approach than requiring annual financial disclosure statements. There are pros and cons to both approaches. With annual financial disclosure statements, the grantee attempts to identify and mitigate conflicts as early as possible in the procurement process; but in order for this approach to be effective, the grantee�s reviewer must both review the disclosure statements and perform relevant research as well as be aware of the various corporate interconnections. An advantage of a project-specific disclosure statement is that it serves as a regular reminder to employees of the importance of conflict avoidance, and thus may prevent some conflicts of interest from arising in the first place. Realistically, however, requiring disclosure statements on a project-by-project basis generally is too onerous for the grantees that handle many procurements every year. Moreover, this somewhat "reactive" approach puts a serious burden on the individual employee (etc.) to "self-certify" that he has no conflict on a particular project, with the understanding that the grantee will hold him accountable for the veracity of that certification. It is also possible that an individual employee, unaware of the ownership or other links between prospective bidders or contractors and the financial interests he holds, may unknowingly self-certify that no conflict exists. The two approaches, however, are not mutually exclusive, and the best approach may be a combination of proactive and reactive tools. Ultimately, each grantee must determine for itself the preferable approach, considering the costs involved in administering its program and any other matter the grantee deems pertinent to the decision. As indicated above, any program requiring certifications or disclosure statements from employees also should apply those requirements to the other categories of individuals listed in FTA Circular 4220.1E, specifically, officers, board members, and agents, including consultants and contractors involved in the selection, award or administration of contracts. Finally, the grantee should ask its counsel to review the form of its financial disclosure statements or non-conflict certifications for compliance with local, state, and federal law before they are issued. 3. Obtain Certifications of Compliance with Professional Codes of Conduct. The grantee should consider requiring each of its employees, board members, officers, and agents to identify in writing any code of professional responsibility governing his or her conduct, and to certify that to the best of his or her ability he or she will comply with that code whenever conducting business on behalf of the grantee. To be effective, such a requirement must be coupled with a mechanism for reporting violations to the appropriate enforcement entity. 4. Prepare Written Procedures for Addressing Personal and Organizational Conflicts of Interest. The grantees� written procedures should establish not only a means of identifying conflicts but also a predictable method of resolving them. For example, once a personal conflict has been identified, mitigating measures may include creation of blind trusts, recusal or other limits on scope of participation, procedures to allow the employee back inside the information bubble if the conflict ends (e.g., the company that the employee owns stock in does not win the contract), etc. The written procedures may address:
a. Responsibility for identifying potential conflicts;b. Range of alternative actions;c. Typical situations and the indicated response, for example:
i. Situations that may warrant advance restrictions:
- A contract for procurement evaluation services;- A contract for advice on competing approaches;- A contract for technical review and project oversight services; or ii. Situations that may warrant other conflict-mitigation measures, or even a possible waiver, rather than a prohibition against a contractor�s participation in the project:
- Complex design of integrated elements of a structure, piece of equipment, or system; or- Successive development/design phases of innovative equipment or systems.d. Participation of qualified personnel in the resolution of conflicts; ande. Review and approval of conflict resolutions. The grantee should seek the assistance of counsel in preparing written procedures for resolving conflicts of interest.
1. Define the Project to Avoid Potential Conflicts. Grantees should anticipate potential conflicts and structure procurements accordingly. For example, the grantee should not allow a company that prepares the specifications for procurement to supply the products as well. Also, the grantee should be careful to structure the project so as to avoid conflicts among contractors and subcontractors. For example, on a large project, the grantee could avoid possible bias by procuring one contractor to perform the needed evaluation independently, and then initiating a new procurement to obtain any system that may be required and excluding the first contractor from that second competition. 25 2. Consider Advance Restrictions. When the grantee awards separate contracts on related procurements, it might consider placing notice of an advance restriction in the solicitation where a conflict may arise. It is far better to identify a potential conflict involving two contracts in the first solicitation than to award the first contract and then address the conflict when awarding the second contract. Prime contractors should be required to inform prospective subcontractors (and to give evidence that they have done so) that the subcontractors also could be subject to the restrictions in future contracting. This way, each bidder (prime and subcontractors) for the first contract will be aware of the situation and can make its own choice about which contract to pursue. When an advance restriction is desired, consider including:
An explanation of the conflict or potential conflict;
The nature of the proposed restriction upon future contractor activities; and
The terms of any proposed clause and whether those terms are negotiable, depending on the nature of the acquisition. 3. For Environmental Impact Statement Contracts, Comply with CEQ Regulations. Regulations promulgated by the Council on Environmental Quality require each contractor who develops an environmental impact statement to sign a disclosure statement (prepared by the grantee) certifying that it has no financial or other interests in the outcome of the proposed project. 26 This requirement is intended to prevent contractors who are hired to study alternatives and potential environmental impacts of proposed projects from presenting and profiting from biased recommendations. Pursuant to the regulations, grantees must require the submission of a disclosure statement in RFPs for consulting services so that such conflicts can be identified early in the contracting process. The grantee also must comply with 40 CFR § 1506.5 and "Guidance Regarding NEPA Regulations," 48 Fed. Reg. 34263 (July 18, 1983), explained above in Section G of the Discussion.
4. Consult With Legal Counsel. Before defining the scope of any project or publishing any document describing the project, such as a statement of work, the grantee should ask its counsel to review the project and any descriptive documentation for compliance with conflicts rules.
1. Review Disclosure Statements (if required by the grantee) for Potential Conflicts with Bidders. If the grantee requires its procurement staff to submit annual financial disclosure statements or project-specific disclosure statements, the grantee should review the information on such statements for potential conflicts before any procurement staff begins work on the selection process. If the employee�s work on the project would cause a real or apparent conflict, then the grantee should reassign his or her duties on the project to another employee. 2. Obtain No-Conflict Certifications from contract personnel (if required by the grantee). If the grantee requires its contract personnel who will participate in the administration of a contract to submit no-conflict certifications, then the grantee should furnish information on the likely bidders to the contractor. Each contractor employee who will be assigned to work on the procurement should submit his or her certification to the grantee�s reviewing official before the selection process begins. If a contractor employee fails to submit the required no-conflict certification, then the grantee should direct the contractor to reassign that employee�s duties to another employee who has complied with the certification requirement.
1. Monitor Contract Staff/Contractor Compliance with Conflicts Rules. During the administration phase of a project, the grantee should require each of its employees (etc.) involved in the project to report any changes in his or her financial holdings or other interests that might cause a conflict of interest. Similarly, the grantee should require the contractor to report any changes in the company�s financial holdings, newly developed contractual or other relationships, or those of its parents, subsidiaries, and affiliates. In this way, the grantee can monitor the situation and address personal or organizational conflicts that might arise during the administration phase of the project. 2. Obtain Certifications from Contractor Personnel Governed by Professional Codes of Responsibility. Before a contractor begins work on a project, the grantee should consider requesting a written statement from any contractor personnel working on the project whose conduct is governed by a professional code of responsibility, in each case identifying any relevant code and certifying that he or she will comply with its rules on all grantee-related work. E. THROUGHOUT THE ENTIRE PROCESS
1. Consult with Legal Counsel. Grantee procurement and technical personnel are encouraged to work closely -- and proactively -- with their legal counsel throughout the procurement process to review all situations that appear to have the potential for a conflict of interest. Counsel can help in any number of ways, including reviewing written materials for compliance with conflicts of interest rules, preparing restrictive contracting clauses suitable for the particular situation, and helping to restructure the project to avoid conflict situations. Counsel may also suggest that involvement by FTA Regional Counsel would be appropriate and solicit Regional Counsel�s advice when necessary.
2. Mitigate Conflicts. As potential conflicts arise during the procurement process, the grantee must take steps to avoid the conflict or, if that is not possible, mitigate its effects. For example, where a grantee�s board is responsible for awarding contracts, a board member with an interest in a project bidder should disclose his interest and recuse himself from the selection process. As another example, where an employee has an interest in a project bidder, the grantee could create a "fire-wall" preventing the employee from providing the bidder with any information gained during his employment with the grantee that would give the bidder an unfair competitive advantage. As always, the grantee should consult with counsel in formulating an appropriate approach to any conflict situation. 2.4.2.2.3 Geographic Restrictions
h. Geographic Restrictions. The recipient agrees to refrain from using State or local geographic preference, except those expressly mandated or encouraged by Federal statute, such as those set forth in Subsection 15.i of this Master Agreement below, or as permitted by FTA. i. Architectural, Engineering, Design, or Related Services. ...Provided a sufficient number of qualified firms are eligible to compete for the third-party contract, geographic location may be a selection criterion....
Paragraph 8.b of FTA Circular 4220.1E states:
b. Prohibition Against Geographic Preferences. Grantees shall conduct procurements in a manner that prohibits the use of statutory or administratively imposed in-State or local geographical preferences in the evaluation of bids or proposals, except in those cases where applicable Federal statutes expressly mandate or encourage geographic preference. This does not preempt State licensing laws. However, geographic location may be a selection criterion in procurements for architectural and engineering (A&E) services provided its application leaves an appropriate number of qualified firms, given the nature and size of the project, to compete for the contract.
This Agency has stated its policy in terms which are focused on the one generally accepted reason for allowing geographical preferences - an A&E firm's demonstrated knowledge of local conditions, which is a factor affecting the quality of the final product. This same Agency prohibits geographic restrictions, except for those permitted by FTA for A&E services, not only for its own procurements but for those of its contractors as well. 28 Some grantees have used very localized geographical restrictions in their solicitations for parts or services which must be furnished on a short lead-time basis; e.g., within one or two hours of the request. A much better approach, and one that is not prohibited by the FTA Circular, would be to require an ability by the contractor to respond within the time frame needed, and not to stipulate a geographical restriction in the solicitation. The reason is that many parts suppliers maintain a staff which is capable of quick response even though they are not in the immediate city or county of the grantee.Grantee procurement officials are sometimes confronted with pressure from their Board members to place contracts with local firms, and it is necessary for the grantees to include explicit statements in their procurement policies and procedures that geographical restrictions are prohibited except for A&E procurements, citing the FTA prohibitions in FTA Circular 4220.1E, paragraph 8.b. 2.4.2.2.4 Prequalification
d. Prequalification Criteria. Grantees shall ensure that all lists of prequalified persons, firms, or products that are used in acquiring goods and services are current and include enough qualified sources to ensure maximum full and open competition. Also, grantees shall not preclude potential bidders from qualifying during the solicitation period, which is from issuance of the solicitation to its closing date. DISCUSSION
The selection of contract type is probably the single most important decision that the procurement specialist will make in the acquisition process. A properly selected contract type will work in the interests of the buying Agency to provide a product or service which meets the Agency's needs at a reasonable price without undue risks to the contractor and without excessive contract administration costs and contractor claims. A contract poorly suited to the complexity of the requirement, and the degree of specificity of the specifications or statement of work, can cause a disastrous situation for both the contractor and the Agency. When Agencies have complex requirements, and performance uncertainties make it difficult to predict the costs of performance in advance, some type of flexibly- priced contract should be considered. Where the length of contract performance extends over a long period of time, some type of economic price adjustment terms may be necessary. When requirements are repetitively acquired, and a history is established, the Agency should be able to more clearly define the requirement, and contractors should be able to assume greater risks of performance at fixed prices. Grantees have a very wide latitude in structuring a contract type which affords the best incentive to the contractor for delivering the particular product or service being acquired. There are two broad categories of contract types: fixed-price contracts and cost-reimbursement contracts. Within these two families of contract types there are a number of subtypes offering differing degrees of incentives. At the extremes are the firm-fixed-price contract, in which the contractor has complete responsibility for the costs of performance and the resulting profit or loss, and the cost-plus-fixed-fee contract, in which the contractor has virtually no risk for performance costs and the fee (profit) is fixed. Between these two extremes are the various incentive-type contracts where the degree of cost risk and profit incentive can be tailored to meet almost any specific program situation. All fixed-price contract types impose upon the contractor an obligation to deliver the product specified in the contract, and he is not entitled to payment of the stipulated price unless he delivers the product and it meets the specifications called out in the contract. On cost-reimbursement contracts the contractor is obligated only to give its "best efforts" in order to be paid the costs of performance. (The fee, however, is earned for complete performance of the contract, and if less than full performance is made, the buying Agency is entitled to a reduction of the fixed fee based on the percentage of completion of the work.)
Bases the price adjustment on the steel supplier�s invoices to the Contractor from the time the bid was prepared to the time the steel was ordered after the Notice to Proceed.
Requires that the Producer Price Index (PPI) support the price increase as invoiced by the steel supplier. This is an important safeguard in establishing the reasonableness of the supplier�s higher price by comparing it to the industry norm.
Limits the increase to the lesser of the percentage increase in the invoiced price vs. the PPI. Requires adequate documentation from the Contractor, and the agency�s right to review the Contractor�s bid preparation documents and supplier invoices.
Does not contain a maximum percentage by which the contract price may be adjusted for steel price increases. Under normal circumstances you should include a maximum limit on the percentage increase you will allow but the inclusion here of the lesser of the supplier�s increase vs. the PPI provides a certain degree of price protection to the agency. 35 The clause provides for downward price adjustments as well as increases.SP-9.10 STEEL PRICE ESCALATION A price adjustment clause is included in this Contract to provide additional compensation to the Contractor or a credit to Sound Transit for fluctuations in steel prices. This price adjustment is dependent upon either: an increase or decrease in the price of steel used in the production of products utilized on this project or an increase or decrease in the ratio of the Bureau of Labor Statistics � Producer Price Index listed below. Payment or credit for steel price adjustments will be evaluated under the following conditions. Payment or credit will be made under the Contract Pay item: Provisional Sum � Steel Price Escalation.
The conditions of this provision are as follows: This provision shall only apply to material cost changes that occur between the date of bid opening and the date of certified invoice. The Contractor is expected to order materials promptly upon Notice to Proceed (or upon shop drawing approval) and take possession of materials as quickly as reasonably possible. 36 A price adjustment to provide additional compensation to Contractor will be considered and paid only where the price increase in steel is due to market conditions beyond the control of Contractor and its suppliers or vendors. No adjustment is allowed under this provision for increases due to any other cause or peril (including, but not limited to, strike, weather, vendor backlog, delay in fabrication, etc.). If a price adjustment is sought under this provision, Contractor shall certify to Sound Transit that the price increase was due solely to market conditions beyond its control or that of its suppliers and that Contractor exercised its best efforts to mitigate any price increase. Sound Transit reserves the right to verify the accuracy of such certification as a condition of payment.
This price adjustment clause only applies to structural steel, reinforcing steel, rail, steel excavation support elements, and overhead catenary structure poles. To be considered, the category of material must have a total dollar value of $25,000 or greater.
The Contractor shall submit within 5 days of Notice of Award, the fabricator�s or supplier�s material price quotes for the items listed above that meet the requirements of Article 9.10B.3. The Contractor must certify that they are the actual quoted prices incorporated into the Contractor�s bid amount submitted to Sound Transit for the represented pay item. Sound Transit has the right to inspect Contractor�s bid preparation documents to verify the accuracy of such certification. Assuming such certification is accurate, these certified quotes will constitute the baseline steel material price. The quote must clearly identify the pay item(s) by number and description, describe the weights of the steel material, how the steel material will be utilized in the final project, and a breakdown of all costs including material, labor, equipment, overhead, and profit. This steel price escalation provision shall only apply to the steel component of the material quote. It shall not apply to any other materials used in the fabrication of an item supplied to the Contractor.
For the items listed above that meet the requirements of Article 9.10B.3, the increase or decrease in the steel materials unit cost must be in excess of 5 percent of the original quoted prices or the PPI as described below, for a price adjustment to the Contractor to be allowed.
If there is an increase or decrease in steel materials cost in excess of 5 percent from the original quoted unit prices (or the PPI as described in Article 9.10F below), Sound Transit will evaluate and determine an increased or decreased payment(s) under this Contract as follows:
The adjustment will be determined by computing the mathematical difference between the unit price that is 5 percent above (or below for decreases in price) the base unit price (bid quote) and the actual invoice unit price of the steel component. The final dollar value will be determined by multiplying this adjustment by the represented quantity of steel.
The Contractor shall submit to Sound Transit certified invoices as soon as steel material is purchased. The invoices shall be listed in chronological order and contain a tabulation of quantity, the order date, the date shipped from the steel manufacturer, and the price per unit weight (reflecting all deductions for quantity shipments) with a breakdown as stipulated in Article 9.10B.4 above. Freight charges shall be listed separately and are not included in this price adjustment. These invoices shall be subject to audit verification. Sound Transit will verify the increased or decreased percentage between certified original quote and the actual invoice payment.
This change shall be supported by the U.S. Department of Labor � Bureau of Labor Statistics index entitled �Producers Price Index� (PPI). The values contained in the PPI are subject to revision 4 months after original publication. The price adjustment for steel shall be a function of the percentage of change of the price index for �Carbon Steel Scrap� Series ID WPU101211. Do not use seasonally adjusted indices. This index is available on the internet at: http://data.bls.gov/labjava/outside.jsp?survey=wp.
The Producers Price Index (PPI) listed above must meet increase or decrease by at least 5 percent over the same time period for Article 9.10C. to be valid.
For price increases, if the invoiced price increased, expressed as a percentage, exceeds the PPI increase, expressed as a percentage, for the same period, the adjustment will be based on the PPI percent increase; if the invoiced price increase, expressed as a percentage, is less than the PPI increase, expressed as a percentage, for the same period, the adjustment will be based on the invoiced price increase.
For price decreases, if the value of the invoiced price decrease expressed as a percentage is greater than the calculated value of the PPI decrease, expressed as a percentage, for the same period, the adjustment will be based on the value of the invoiced percent decrease. If the value of the invoiced price decrease, expressed as a percentage, is less than the value of the PPI decrease expressed as a percentage for the same period, the adjustment will be based on the PPI percent decrease.
If the PPI controls in determining the price adjustment, Sound Transit will review the PPI 4 months after initial publication to ensure that the data have not been revised. Final payments will be adjusted accordingly.
Adjustment Formulas:1. If Invoice Price Controls:
a. Price Increase:
(1) Factor = (PC/PB) � 1.05)If Factor is equal to or less than 0.0, no adjustment will be made.If Factor is greater than 0.0, continue: PA = Factor*Q*PBb. Price Decrease:
(1) Factor = (PC/PB � 0.95)If Factor is equal to or greater than 0.0, no adjustment is made.If Factor is greater than 0.0, continue: PA = Factor*Q*PBWhere: PA = Steel manufacturing price adjustment, in lump sum dollarsPB = Fabricator / supplier quoted price in bid (converted to dollars per pound)PC = Current certified invoice price (converted to dollars per pound)Q = Quantity of manufactured steel, in pounds2. If PPI Controls:
(1) Factor = (IC/IB) � 1.05)If Factor is equal to or less than 0.0, no adjustment is made.If Factor is greater than 0.0, continue: PA = Factor*Q*PBb. Price Decrease:
(1) Factor = (IC/IB � 0.95)If Factor is equal to or greater than 0.0, no adjustment is made.If Factor is greater than 0.0, continue: PA = Factor*Q*PBWhere: PA = Steel manufacturing price adjustment, in lump sum dollarsPB = Fabricator / supplier quoted price in bid (converted to dollars per pound)IB = BLS PPI index at the time of bidIC = BLS PPI index at the time material is purchased from mill(invoice date; after final US DOL BLS adjustments)Q = Quantity of manufactured steel, in pounds
SOLICITATION PROVISIONPRICE ADJUSTMENT CLAUSE FOR ITEMS CONTAINING STEEL
To All Prospective Bidders:New York City Transit (NYCT) is soliciting this item(s) utilizing a price adjustment clause. The clause set forth below is included in this solicitation because of the steel content of the item being procured and the dollar amount of the item. For illustrative purposes, an example of this formula is provided below to assist you in the preparation of your bid.
In order to apply the adjustment formula, NYCT will utilize the pre-determined percentage steel content of the item�s unit price as set forth by NYCT in the Bid Quotation Sheets. This percentage shall remain fixed for the duration of the contract.
The unit price(s) that NYCT will pay for the item(s) during the first six months of the contract shall be the unit price quoted in the bid by the successful bidder. Thereafter, the unit price may be adjusted, either up or down, every six months after award, reflecting the change in the Scrap Steel index set forth in the American Metals Market. The adjustment will be in the form of a percentage and shall be determined by NYCT by comparing the Scrap Steel index on the day of bid opening to the index in effect on each six-month anniversary of the contract award date for the duration of the contract. This adjustment percentage shall be applied to the portion of the unit price that represents the steel content of each item as predetermined by NYCT to arrive at the adjustment amount. The adjustment amount is then applied to the original unit price set forth in the successful bidder's bid to arrive at the new unit price for the following six months.
No price adjustment shall be instituted unless the new price results in a percentage change of at least five (5) percent (increase or decrease) of the original unit price quoted by the successful bidder.
The unit price reverts back to the original unit price quoted if the price adjustment calculation at each successive six month interval results in a percentage change that is not at least five (5) percent (increase or decrease) of the original unit price quoted by the successful bidder.
Prices for release orders will be the price established for the six month time frame within which the release(s) is dated, regardless of delivery date. If, for any reason, the index being utilized under this contract is discontinued for any reason, NYCT will select a new index to be applied. EXAMPLE A:A. Successful Bidder's Unit Price: $5.00B. % Of Item Containing Steel: 50%C. Portion of the Item's Price subject to a price adjustment: $2.50D. Scrap Steel index on day of bid opening: 150E. Scrap Steel index at the six-month anniversary date of the bid opening: 180F. Percent change calculation: (E - D) divided by D = percentage change.
For example: (180 - 150) divided by 150 = .20G. F X C: $2.50 x .20 = $0.50H. New Unit Price for next six months: A + G = $5.50EXAMPLE B:A. Successful Bidder's Unit Price: $12.00B. % Of Item Containing Steel: 100%C. Portion of the Item's Price subject to a price adjustment: $12.00D. Scrap Steel index on day of bid opening: 75E. Scrap Steel index at the six-month anniversary date of the bid opening: 30F. Percent change calculation:(E - D) divided by D = percentage change.
For example: (30 - 75) divided by 75 = - 0.60G. F X C: $12.00 x -0.60 = -$7.20H. New Unit Price for next six months: A + G = $4.80EXAMPLE C:A. Successful Bidder's Unit Price: $24.00B. % Of Item Containing Steel: 75%C. Portion of the Item's Price subject to a price adjustment: $18.00D. Scrap Steel index on day of bid opening: 162E. Scrap Steel index at the six-month anniversary date of the bid opening: 194F. Percent change calculation: (E - D) divided by D = percentage change.
For example: (194 - 162) divided by 162 = .1975G. F X C: $18.00 x .1975 = $3.555H. New Unit Price for next six months: A + G = $27.555
The frequency of contractor billings for costs incurred;
The reference to subpart 31.2 of the FAR for determining allowability of costs;
Whether the contractor must have actually paid for the supplies or services used in contract performance before it submits an invoice, or whether the contractor may invoice for costs incurred but not yet paid;
The provisional billing rates to be used during contract performance for indirect costs prior to establishment of final audited rates;
The procedure to be followed in submitting cost proposals for establishing final indirect cost rates for the contract;
The requirement that final costs (direct and indirect) be audited before final payment;
The Contractor's assignment to the grantee of any refunds, rebates or credits accruing to the Contractor that are allocable to costs for which the contractor has been paid;
A release discharging the grantee from any future claims arising out of the contract.Fixed Fee - It is important that the contract contain a clear statement as to how the contractor will be paid the fixed fee called for in the contract (i.e., how the fee is earned). The Federal clause states that the contractor is to be paid the fixed fee "for performing this contract." 38 Grantee CPFF contracts should be clear in defining the contractor's performance responsibility for earning the fee. For example, if it is a completion form contract, then the contractor must complete the statement of work and deliver all required documents. If, however, it is a term form contract, the contractor must furnish the required level of effort called for in the contract during the period of performance in order to earn the full fee. It should be noted that a cost-type contract, while it is a "best efforts" contract in terms of entitlement to payment of allowable costs, does in fact require actual performance for entitlement to payment of the full fixed fee. Anything less than complete performance entitles the grantee to a credit in the fee based on the percent of actual completion of the work called for in the contract. In this regard a CPFF contract operates very much like a fixed price contract in requiring complete performance by the contractor for full payment of the fixed fee. An example of a payment of fixed fee clause used by a Federal agency that illustrates this principle of entitlement to fee for performance is that of NASA, which reads: "The fixed fee shall be paid in monthly installments based upon the percentage of completion of work as determined by the Contracting Officer." Grantees are encouraged to incorporate a Payment of Fixed Fee clause in their contracts that clearly states the contractor's responsibility to perform the contract in order to be paid the fee. The clause should also state how the fee will be paid on a monthly/incremental basis (e.g., based on a percentage of completion of work as determined by the Contracting Officer). It is also suggested that the grantee consider a fee withholding provision that provides for a certain percentage of the fee to be withheld until the contractor completes and delivers all documentation called for in the contract. Once again grantees may want to review the Federal clause for guidance. 39 Advance Agreements - Certain types of costs may be allowable according to the cost principles, and yet present difficulties in determining after-the-fact what is reasonable for the particular circumstances of any given contract. 40 It is advisable to anticipate these areas of potential conflict and negotiate advance agreements before the costs are incurred (this may be before or during the contract but should always be before incurrence of the costs involved). The types of costs that tend to be problematic, and for which advance agreements would be particularly helpful, would include:
Precontract costs;
Royalties and other costs for use of patents;
Compensation for personal services, including location allowances, hardship pay, off-site pay, and incentive pay;
Time charged directly to the contract by corporate officers and senior management personnel who normally charge their time to indirect cost accounts;
Compensation for professional consultants (e.g., legal, accounting and engineering);
Travel and personnel relocation costs;
Severance pay to employees on support services contracts;
Training and education costs;
General and administrative costs (e.g., corporate, division or branch allocations) attributable to the general management, supervision and conduct of the contractor's business as a whole). These costs are especially important in construction, job-site, and architect-engineer contracts.Approval of Subcontractors - There will probably be situations when a grantee may wish to require their prime contractors on CPFF contracts to submit subcontracts for the grantee's consent prior to award of the subcontract by the prime. Grantees will want to exercise due diligence in the management and administration of CPFF contracts where the grantee bears much of the risk of poor performance, including cost overruns, for both the prime contractor and the prime's subcontractors. For guidance in this area of grantee review and consent to subcontracts, see the BPPM Section 9.4 - Approval of Subcontractors.
Adequacy of Contractor's Accounting System - It is important to determine the adequacy of the contractor's accounting system for cost-type contracts before awarding such a contract. 41 Care must be taken to assure that the accounting system can properly identify contract costs by segregating them from the costs of other jobs in the accounting records. Likewise it is important that the system of allocating indirect costs to jobs/contracts produces a distribution of costs which is fair and reasonable.
j. Use of Time and Materials Contracts. Grantees will use time and materials contracts only: 1. After a determination that no other type of contract is suitable; and 2. If the contract specifies a ceiling price that the contractor shall not exceed except at its own risk. DISCUSSION
2.4.3.4 Labor Hour Contracts
Labor hour contracts are a variation of the time and materials contract, differing only in that materials are not supplied by the contractor. You should use this type of contract only when no other would be suitable, and you need to document your determination if you choose to use this type of contract. 2.4.3.5 Cost Plus Percentage of Cost Contracts (CPPC) DISCUSSION
Advance payments are actually a method of financing and not a method of paying for work completed or items delivered. They are made prior to a contractor's incurrence of costs in order to enable the contractor to perform the contract. The Federal Government places severe restrictions on its own use of advance payments (FAR coverage may be found at FAR Subpart 32.4). As indicated below in the paragraph "Exceptions to the Prior Approval requirement," when advance payments are generally accepted industry practice, FTA does not require prior approval. The FTA Circular requires FTA approval before grantees may use this form of financing on third-party contracts. However, the FTA Dear Colleague Letter dated June 15, 2001 clearly restricts the advance payment prohibition to those contracts where the grantee is using FTA funds for the advance payment. If the advance payments are being made with non-FTA funds, then FTA has no involvement in the decision and need not approve of it. Grantees are free to use local funds to finance their contractors in this manner if they deem it appropriate. The Dear Colleague Letter also covers the situation where a grantee may wish to use local funds for advance payments before a grant has been awarded or before FTA has issued a letter of no prejudice to the grantee. In these cases FTA will not reimburse the grantee later for such payments. Exceptions to the Prior Approval Requirement- The FTA requirement for prior approval of advance payments does not apply to transactions where it is "generally accepted industry practice" to pay in advance. In these situations, grantees may make advance payments without prior FTA approval. These situations would include (but not necessarily be restricted to) the following types of transactions: 1. Rent 2. Tuition 3. Insurance premiums 4. Subscriptions to publications 5. Software licenses 6. Construction mobilization costs 7. Public utility connections Best PracticesNew York City Transit (NYCT) completed a major procurement for rail cars in which there were two payment schedules in the Request for Proposals (RFP). The first was a payment schedule containing milestone payments totaling 20% of the price of cars paid prior to the acceptance of the first test trains. A second or "Alternate" payment schedule had milestone payments of 42% of the price of cars paid prior to the acceptance of the first test trains. Contractors were required to submit proposals based on both payment scenarios, as well as any alternative payment plan they wished to propose. NYCT requested that the Federal Transit Administration (FTA) provide written concurrence to make advanced payments up to approximately 45% of the price of the cars if there was appropriate consideration for greater payments made up front. In addition, NYCT required that an Advanced Payment Bond or Letter of Credit be provided in the full amount of the price of cars paid prior to the acceptance of the first test trains. FTA provided their written concurrence to NYCT's request.In order to evaluate the proposals received from the contractors, NYCT performed a Net Present Value analysis of the 20%, 42% and other contractor alternatives in order to quantify the value of the different payment schedules. The analysis took into account the cost of money and all aspects of the timing of invoicing, starting with receipt of the invoice through the time for actual payment. The Net Present Value analysis showed that appropriate consideration was given in the winning proposal and NYCT accepted it. An Advanced Payment Bond or Letter of Credit was required to protect all payments for cars prior to acceptance of the test trains.This case shows a very conservative approach as to what is defined as an Advance Payment. The Advance Payment is considered to be the amount paid to the contractor for cars until the first trains are accepted by NYCT. The contractor is required to design, build and test the first 18 cars which means that the contractor is incurring substantial costs during this period. These costs include engineering and design hours, supervision, ordering materials, set-up of the production line, etc. The contract has a mobilization payment of 3% upon award of the contract and approval of the Advance Payment Bond or Letter of Credit. Thereafter, the contract has milestone (or completion-type progress payments) for various submissions of designs, approvals of designs, starting of tests, completion of tests, etc. A more liberal approach would define the mobilization cost of 3% to be considered an Advance Payment and the rest of the payments to be considered progress payments.
b. Progress Payments. Grantees may use progress payments provided the following requirements are followed: 44
Progress payments are only made to the contractor for costs incurred in the performance of the contract. 45
The grantee must obtain adequate security for progress payments. Adequate security may include taking title, letter of credit or equivalent means to protect the grantee�s interest in the progress payment. 46
The contractor will not be able to bill for the first-delivery of products, or other performance milestones, for a substantial time after work begins. In Federal contracting practice, the usual contract duration for using progress payments is four months or more for small businesses and six months or more for others, and
The contractor's expenditures prior to delivery of the first items will have a significant impact on the contractor's working capital. 48Progress payments are to be distinguished from partial payments. Partial payments are payments made, as authorized by the contract, upon delivery and acceptance of one or more complete units (or one or more distinct items of service) in accordance with the contract specifications, even though other quantities remain to be delivered. Note that partial payments are for completed units, whereas progress payments are for uncompleted work-in-progress. Because the grantee is making payments for uncompleted, non-functional units, FTA requires that adequate security be obtained from the contractor protecting the grantee�s (and FTA�s) investment in case the contractor fails to complete the deliverable units. The form of security is to be determined by the grantee based on what is in the best interests of the grantee in the particular circumstances. (See footnote above re adequate security.)Progress Payments Based on Percentage of Completion - The Federal Government authorizes progress payments on its contracts based on a percentage or stage of completion of the work. This type of progress payment is standard for construction contracts for all Federal agencies. 49 49 CFR Part 18.21(d) allows grantees and subgrantees to use the percentage of completion method to pay their construction contractors, which is consistent with the regulations for Federal contracts. However, grantees may not use the percentage of completion method for non-construction contracts. For those contracts, progress payments based on costs incurred must be used. 50Contract Clause � Grantees should refer to the FAR clause at FAR 52.232-16 for guidance on the specific issues that need to be addressed in the progress payments clause and ensure that their agency�s clause adequately covers the important issues, including:
Computation of amounts � percentage of total costs, definition of �costs� to be included in the calculation (i.e., only those actually paid by the contractor, incurred but not paid, etc.).
Liquidation � the method of linking value received to payments made.
Reduction or suspension of payments � the circumstances under which the grantee may reduce or suspend progress payments.
Title � this provision should define the property considered allocable to the contract (parts, materials, special tooling, special test equipment, drawings and technical data, etc.) and the party that retains title to the property/work-in-process for which the progress payments are made.
Risk of loss � the contract should be clear as to which party assumes the risk of loss to contract property and work-in-progress before final acceptance of the units. In the Federal clause, the contractor assumes the risk of loss even though title to all property acquired under the contract vests in the Government. Progress payments to subcontractors � this provision needs to define the circumstances under which the prime contractor must make progress payments to fixed-price subcontractors, and the subcontract terms to be included (covering the same issues as the prime contract�s progress payment clause).
Adequate accounting system/reports � the contract must require an adequate job-order accounting system to be maintained that properly accounts for the costs of the job even though the contract is fixed-price. This provision should also give the grantee the right to require certain reports or other data in support of the contractor�s invoices. Access to records - this provision must give the grantee the right to conduct audits of costs claimed in progress payment invoices.
2.4.4.4 Withholding and Final Payment
A number of contract provisions expressly authorize the withholding of payments. See, for example, the Davis-Bacon Act Clause 51 or the Contract Work Hours and Safety Standards Act Clause. 52 The standard Federal government clause for the payment of fixed fee on CPFF contracts calls for a 15% withholding of the fixed fee until the contractor submits a certified final indirect cost rate proposal and otherwise complies with the final deliverable documentation requirements of the contract (e.g., delivery of the final report concerning inventions made under the contract).
Limitation on Withholding - In the event you decide to withhold payments on a contract, you must take care that the amount of money withheld bears a reasonable relationship to the unsatisfactory work; in other words, the amount withheld must represent a reasonable estimate of the contractor's potential liability. 53 Moreover, the amount withheld must not be so great that it impairs the contractor's ability to perform. 54 You may also wish to consider a clause limiting the amount of payments that may be withheld in total under all clauses of the contract, as is the practice on Federal contracts. 55
1. Definite-quantity contracts,2. Requirements contracts, and 3. Indefinite quantity (IQ) contracts (commodities)/Task order contracts (services). 2.4.5.1 Definite-quantity Contracts
An indefinite-quantity contract is one that provides for an indefinite quantity of supplies or services, within limits that are stated in the contract, to be provided during a time period that is fixed in the contract. Deliveries of the supplies or performance of the services are scheduled by placing orders with the contractor. This type of contract may be appropriate when the grantee cannot predetermine, above a specified minimum, the precise quantity of supplies or services that will be required during the contract period, and it is inadvisable for the grantee to commit itself for more than a minimum quantity. Indefinite-quantity contracts offer several advantages: 1. minimum inventory levels of supplies can be maintained,2. shipments can be direct to users in various locations,3. they permit flexibility in both quantities and delivery scheduling,4. supplies or services can be ordered after requirements become known, and 5. the grantee's obligation is limited to the minimum quantity specified in the contract. Minimum and maximum quantities - To ensure that the contract is binding, a minimum number of units must be stated in the contract, and it must be more than a nominal quantity. There must also be a stated maximum of units that may be ordered. Indefinite-quantity contracts should never be "open ended," where no maximum quantity is stated. This practice has led to serious problems when agencies attempt to "piggyback" the open ended contracts of other agencies by ordering quantities that were never included in the original competitive process. (See section 6.3.3--Joint Procurements of Rolling Stock and "Piggybacking.") The contract may also state maximum or minimum quantities that may be ordered under each task or delivery order and the maximum that may be ordered during a specified period of time within the contract's period of performance.
Orders above the stated maximum - If it becomes necessary to order quantities above the maximum stated in the contract, (which would be the number of units included in the original competitive process), such orders should generally not be processed as "change orders," ("change orders" must be within the scope of the original competition), but should be processed as "new procurements." These new procurements may either be competed or, if circumstances warrant, processed as "noncompetitive procurements" in accordance with the grantee's internal approval process for noncompetitive ("sole source") procurements. Grantees should anticipate the possibility of needing additional quantities when they compete the contract award initially and, if necessary, include option provisions for additional quantities in the original competitive bidding. In this way if additional quantities are needed they may be procured under the original contract without having to justify them as a "sole source" add-on. Multiple Award/Task Order contracts - Grantees may wish to consider making multiple contract awards for the same or similar supplies or services under a single competitive solicitation. This may be appropriate in order to ensure the quality or timeliness of deliveries by not limiting the grantee to a single supplier who may not perform according to the grantee's expectations or needs or who may not be able to meet peak delivery requirements. In this event, another supplier is immediately available to assure that needs will be met. The Federal Acquisition Regulations (FAR), Subpart 16.504 - Indefinite-Quantity Contracts, addresses the issue of multiple awards in 16.504(c). The FAR expresses a preference for making multiple awards of indefinite-quantity contracts under a single solicitation for the same or similar supplies or services if (i) a recurring need for the supplies or services is anticipated, and (ii) the agency cannot predetermine its needs above a specified minimum, and (iii) when it would be inadvisable for the agency to commit itself for more than a minimum quantity. The FAR envisions the award of multiple task order contracts in which individual task orders would be issued following competitive solicitations to the original awardees.If multiple awards are made, grantees must advise prospective bidders of the procedures that will be used in issuing orders to the contractors selected for award, including the criteria that will be used to provide the selected contractors with a fair opportunity to be considered for each order issued. The criteria may include such items as past performance on earlier tasks or orders issued under the contract, quality of deliverables, timeliness of deliveries, and other factors considered relevant by the grantee. It is important that price or cost be one of the selection factors considered for each order awarded. If the original contract did not establish the price for the supply or service, the grantee will have to solicit cost or price proposals for each order.The FAR does provide for exceptions to the requirement that all awardees be provided a fair opportunity for each order awarded. These would include situations where - The agency's needs for the supplies or services are so urgent that providing a fair opportunity would result in unacceptable delays; Only one awardee is capable of providing the supplies or services because they are unique or highly specialized;
The order must be placed on a sole-source basis in the interest of economy and efficiency as a logical follow-on to an order already issued under the contract, provided that all awardees were given a fair opportunity to be considered for the original order; and It is necessary to place an order to satisfy a minimum guarantee.Multiple awards will not be advisable when: state law prohibits, more favorable terms will be provided if a single award is made,
the cost of administering multiple contracts outweighs any potential benefits from making multiple awards, and tasks likely to be ordered are so integrally related that only a single contractor can reasonably perform the work. Click here to return to the top of the document
Chapter Footnotes1 - For formal assistance in implementing a team process see Howard, Jennifer M. and Miller, Lawrence M., Team Management: Creating Systems and Skills for a Team-Based Organization (The Miller Consulting Group, Inc., 1994) or Leinberger Robin et al, The Art of Business Process Management: A guidebook, (KPMG Peat Marwick, LLP, 1993). 2 - The limitation is expressed in terms of buying no more than five years� requirements even though delivery may occur beyond five years from the date of the contract.
5 - Contact Mr. John Trotta, Vice President, Purchasing/Warehousing, Chicago Transit Authority, at(312) 222-6113.