WPC~. hxILA\Ay/Uۈ}Mt_#^0,e,]E2ӆaM1Cj&NMʑrDQ(hIul]nO9Ӵ0(iw%9[n ue<;~]b]^?|e E1^RkzvrR!, ; 훏L8DvS"T+A-SzP<@*~* 0r,- 0?. 0R/ 0e0 0x1 02 03 04 05 06 07 08 09 0: 0; 0< 0= 0> 0? 0@ 0A 0B 0C 0D 0E 0F 0G 0GHU *'J 0 QJ 0J B.nL D3L D+L 0L 0M 0N 0eO 05P 0+Q 0<R 0'H=R 0R 0_MS 0S 0xT 08U 0V 0 V 0W 0X 0nY 0FZ 0Z 0>[ 0[ 0\ 0] 0^ 0_ 0` 0a 0"b 02!c 0ScU6Od 0:d 0Yd 0_e 0 we 0f 0/h B*'j D/Qj 0j D/xl 0l 06um 0m 0:n 0^n 0<Ko 0noU,q C!r 0;r 0r 0:?s 0ys 0~t 0wu 0pv 0kw 0dx 0.y 0y 0z 0{ 0| 0 }fE~ 0G~a~ A 08 08D^   fa 4 1 UF 7 faU@w 0c4d 0wx fa B+ > L ^fpar  fa  1 փ 7,fDŽ 0UɄ f8a: N 0h 7 & 02 0f\a^ 0r 1u& 7 0 0r 1eM 7 0 0D 1 | 0#&UAN %=MC(GNo 1uq 72 m 721 ASc 0| 02 0D B-,U,Yf 0a= 7Qaa 0Nu 0× 7 7ɘטJΚ4 0L/d 0Gf 0 0ͤ 0a9M 0 0 0g 0 0ͩ] 06U>9 0wf*a, 0@ 0 0 05 0Я 0e 0fa 0ʱ 0 0H 0fafa 0´f`abvfa 0 0¹ 1UTd 1u UB 72ĻFU<eJGMRRRRRRRRRRRRRUN 0 0DUUNiii\UNDaaaLUNK???UNUNUN5UNSjUN YYYUN"pppUNJUNhhhUNS_UNrUN+;yyy*&UNRRRUN}:::UNO O   UN F: : : UN U> E   UNQUNQUNuU>-UN...UN|UN_UN?????SUN...UN#{qqqUNO:::UN    &"""UN%%%%UN';(;(;(UN2*o***UN+=,=,=,UN................................fh.aj.\  `&Times New Roman' FEDERAL TRANSIT ADMINISTRATION LEON SNEAD20LEON SNEAD & COMPANY .   2[+[ 0_level1   , 8.` hp x (#823  ..   8.` hp x (#8  2[+[ 0_level2   X 8.` hp x (#823  ..   8.` hp x (#8  2[+[ 0_level3    8.4` hp x (#823  ..   8.` hp x (#8  2[+[ 0_level4    8.` ` hp x (#823  ..   8.` hp x (#8  2[+[ 0_level5    8. ` hp x (#823  ..   8.` hp x (#8  2[+[ 0_level6    8. ` hp x (#823  ..   8.` hp x (#8  2[+[ 0_level7   4 8. ` hp x (#823  ..   8.` hp x (#8  2[+[ 0_level8   ` 8.` hp x (#823  ..   8.` hp x (#8  2[+[ 0_level9    8.<` hp x (#823  ..   8.` hp x (#8  2[[ 0_levsl1   , 8.` hp x (#823  Ԁ   8.` hp x (#8  2[[ 0_levsl2   X 8.` hp x (#823  Ԁ   8.` hp x (#8  2[[ 0_levsl3    8.4` hp x (#823  Ԁ   8.` hp x (#8  2[[ 0_levsl4    8.` ` hp x (#823  Ԁ   8.` hp x (#8  2[[ 0_levsl5    8. ` hp x (#823  Ԁ   8.` hp x (#8  2[[ 0_levsl6    8. ` hp x (#823  Ԁ   8.` hp x (#8  2[[ 0_levsl7   4 8. ` hp x (#823  Ԁ   8.` hp x (#8  2[[ 0_levsl8   ` 8.` hp x (#823  Ԁ   8.` hp x (#8  2[[ 0_levsl9    8.<` hp x (#823  Ԁ   8.` hp x (#8  2[[ 0_levnl1   , 8.` hp x (#823     8.` hp x (#8  2[[ 0_levnl2   X 8.` hp x (#823     8.` hp x (#8  2[[ 0_levnl3    8.4` hp x (#823     8.` hp x (#8  2[[ 0_levnl4    8.` ` hp x (#823     8.` hp x (#8  2[[ 0_levnl5    8. ` hp x (#823     8.` hp x (#8  2[[ 0_levnl6    8. ` hp x (#823     8.` hp x (#8  2[[ 0_levnl7   4 8. ` hp x (#823     8.` hp x (#8  2[[ 0_levnl8   ` 8.` hp x (#823     8.` hp x (#8  2[[ 0_levnl9    8.<` hp x (#823     8.` hp x (#8  6 4Heading 1  02?%2A`Arial?   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XXXXXXXX  TABLE AL&Draw Object <<=8C HKKKK((2M$ r!..      XXXXXXXX  XX    0  (#$  0  ,2  a2_1a2_1_1Table_Aa2_1_2(359=AEIMQ1 s TABLE C(mK Z(Times New Roman (;3$2#  0  .3  0  N2Y`(O;$0  2#  a  .3  0` (#(#a2_2Table_B'Single1 da2_3a2_3_1a2_3_2Table_Ca2_3_3a2_4_1Table_Da2_4_2_1 359AM]q211.11.1.11.1.1.11.1.1.1.11.1.1.1.1.11.1.1.1.1.1.11.1.1.1.1.1.1.1 1.1.1.1.1.1.1.1.1*+ (_2623  ..a2_4_2_2_1Table_Fa2_4_2_2_2<+ :Outline001_1  X /%4 4 <DL/XXXA(\ Y`SymbolA23  ..  2( 4 <DL2XXXS\  `&Times New RomanS  sP(b$0  0` (#(#2#   .3  0 ` (#` (#(xir$0  0` (#(#0 ` (#` (#2#(  0  )3  0 (# (#Table_H($0  0` (#(#0 ` (#` (#0 (# (#2#(  a  )3  0h(#(#(35=EMU]em3(1)(1)(1)(1)(1)(1)(1)(1)(1)(F$0  0` (#(#0 ` (#` (#0 (# (#0h(#(#2#(   )3  0h(#h(#($0  0` (#(#0 ` (#` (#0 (# (#0h(#(#0h(#h(#2#  0  )3  0(#(#(35;AGMSY_4a.a.a.a.a.a.a.a.a.({$0  0` (#(#0 ` (#` (#0 (# (#0h(#(#0h(#h(#0(#(#2#  a  )3  0p(#(#(F$0  0` (#(#0 ` (#` (#0 (# (#0h(#(#0h(#h(#0(#(#0p(#(#2#     )3  0p(#p(# y{xGaeimquy}Bullet ListBullets List#|x(rr$..      X*XXXX*XXX*HP LaserJet 5,,,,0(9 Z6Times New Roman RegularX 3#37=CIQYag1.a.i.(1)(a)(i)1)a)i)EU#E<<CLevel 1Level 2Level 3Level 4Level 5(3A$ r!..      XXXXXXXX  (3A$ r!..      XXXXXXXX  ($$   1  )Hairline d(\ Y`SymbolF(3A$ r!..      XXXXXXXX  TABLE Js(a)TABLE D(O$<G+J :Outline002_1   /%` ` <DL/23  ..  2( 4 <DL2  sa)a)  kM$..      XXXXXXXXXX    33    _6?+ ` hp x X?   @   6  Manystatelawsrequireconstructioncontractstobeawardedatafirmfixedprice. @ kM$..      XXXXXXXXXX    34    _6?+ ` hp x X?   @   6  ݄Itisimportantthatthegranteesprojectbudgetreflectanallowanceforanypotentialincreaseinvolatile  commodityprices(e.g.,steel).http://www.arnet.gov/far/*G+G (_25   /%` ` hp x /23  ../%` ` hp x /     kM$..      XXXXXXXXXX    35    _6?+ ` hp x X?   @   6  ݄TheFARpriceescalationclausesinFAR52.2162,3,4includeamaximumaggregatepriceincreaseof  10percent;however,theFARalsogivestheContractingOfficerlatitudetoincreasethismaximumpercentif o circumstanceswarrant. Z kM$..      XXXXXXXXXX    36    _6?+ ` hp x X?   @   6  ݄Whenusingasteelescalationarticleonlythecostofmaterialisescalatedor_deescalated_Ԁandnoother  costssuchaslaborormachinery.*8+8 (_24  ," hp x ,23  ..," hp x ,  *5+5 (_23 ` ) hp x )23  ..) hp x ) ` *2+2 (_22  &hhp x &23  ..&hhp x &  */+/ (_21  #p x #23  ..#p x #  TABLE HLevel 1Level 2Level 3Level 4Level 5*,+, (_20 h  p x 23  .. p x h *)+) (_19  pp x 23  ..pp x   *&+& (_18   x 23  .. x   *AA (_17  5+ ` hp x 523  Ԁ5+ ` hp x 5  *GG (_16   /%` ` hp x /23  Ԁ/%` ` hp x /    S kM$..      XXXXXXXXXX    38    _Ԁ  󀄀##FAR52.2168!FixedFee. &$""0  x9 Z&Times New Roman*88 (_15  ," hp x ,23  Ԁ," hp x ,  TABLE A*55 (_14 ` ) hp x )23  Ԁ) hp x ) ` *22 (_13  &hhp x &23  Ԁ&hhp x &  *// (_12  #p x #23  Ԁ#p x #  *,, (_11 h  p x 23  Ԁ p x h *)) (_10  pp x 23  Ԁpp x   (&& &_9   x 23  Ԁ x   (AA &_8  5+ ` hp x 523  5+ ` hp x 5  TABLE B(GG &_7   /%` ` hp x /23  /%` ` hp x /   (88 &_6  ," hp x ,23  ," hp x ,  (55 &_5 ` ) hp x )23  ) hp x ) ` (22 &_4  &hhp x &23  &hhp x &  TABLE DTABLE E(// &_3  #p x #23  #p x #  \TABLE F y kM$..      XXXXXXXXXX    47    _6?+ ` hp x X?  6  ݀Thetermprogresspaymentsdoesnotapplytocosttypecontracts,andistobedistinguishedfrom  advancepayments,whicharepaymentsmadebeforeworkbegins(see_BPPM_Ԁsection4.4.4.2).TABLE B(,, &_2 h  p x 23   p x h   kM$..      XXXXXXXXXX    39    _Ԁ 󀄀FAR52.2168!FixedFee.()) &_1  pp x 23  pp x   (359=AEIMQ5 http://data.bls.gov/labjava/outside.jsp?survey=wpy{xj3MQUY]aeiBullets List\  `*Times New RomanTT < kM$..      XXXXXXXXXX    44    _6?+ ` hp x X?  6  ݀FTAhasredraftedtheparagraphrelatedtoprogresspaymentstoaccountforthepracticalrealitythat  takingtitletoworkinprogressmaynotbedesirableinsomecases. K kM$..      XXXXXXXXXX    48    _  󀀄Bothoftheconditionsnotedarealmostalwayspresentonconstructionprojects.  kM$..      XXXXXXXXXX    40    _Ԁ 󀄀Advanceagreementscannotprovideforthe_allowability_Ԁofcoststhatthecostprincipleshave  determinedtobeunallowable(e.g.,interest). [ kM$..      XXXXXXXXXX    49    _  FARClause52.2325PaymentsUnderFixedPriceConstructionContracts.V  kM$..      XXXXXXXXXX    50    _  󀄀49_CFR_Ԁ18.21(d)authorizesthepercentageofcompletionmethodforconstructioncontractsonly.V u kM$..      XXXXXXXXXX    45    _6?+ ` hp x X?  6  ݀Progresspaymentsinconstructioncontractsmaybemadeonapercentageofcompletionmethodin  accordancewith49_CFR_Ԁ18.21(d).Thispaymentmethodmaynotbeusedinnonconstructioncontracts.  kM$..      XXXXXXXXXX    46    _6?+ ` hp x X?  6  ݀ Adequatesecurityshouldreflectthepracticalrealitiesofdifferentprocurementscenariosandfactual  circumstances.Forexample,adequatesecuritymayconsistoftakingtitletoworkinprogressinarollingstock o procurement,receivingadraftdocumentinaconsultingcontract,orreceivingsomeportionofrecurringservices .~ underaservicescontract.Granteesshouldalwaysconsiderthecostsassociatedwiththissecurity(e.g.,bondsor = lettersofcreditmustbepurchasedinthecommercialmarketplace)andtheimpactthosecostshaveonthecontract  price,aswellastheconsequencesofincompleteperformanceastheyconsiderwhatconstitutesadequatesecurityfor k agivenprocurement.  kM$..      XXXXXXXXXX    41    _Ԁ  󀄀Ifacosttypesubcontractistobeawardedbytheprime,thesubcontractorsaccountingsystemmust  alsobeadequate.## C kM$..      XXXXXXXXXX    51    _ԀԀAppendixA.1,Clause16.##(9 Z6Times New Roman Regular(31;$ r!..      XXXXXXXX    0  .($$  0      K kM$..      XXXXXXXXXX    9    _ԀԄFTACircular4220.1E8.c.(1).##(9 Z6Times New Roman Regular R kM$..      XXXXXXXXXX    10    _  󀄀FTACircular4220.1E9.h.(1).##(9 Z6Times New Roman Regular : kM$..      XXXXXXXXXX    11    _Ԁ % 󀄀Id.#%# B kM$..      XXXXXXXXXX    6    _ԀԄGeographicpreferenceispermittedincertainnarrowsituations,includingprincipallywherepartofa  legallicensingrequirementandforarchitectsandengineers;FTACircular4220.1E##8.b.##(9 Z6Times New Roman Regular A kM$..      XXXXXXXXXX    7    _Ԁ#ԄTheCouncilofStateGovernments,NationalAssociationofStatePurchasingOfficials,Law  EnforcementAssistanceAdministration,andPeatMarwickMitchell&Co.,StateandLocalGovernment o Purchasing(1975) .~ p.6.2.###(9 Z6Times New Roman Regular  kM$..      XXXXXXXXXX    8    _Ԁ'ԀUnitedStatesv.JohnC._Grimberg_ԀCo.,702F.2d1362,1367(Fed.Cir.1983)(inbanc).#'#(9 Z6Times New Roman Regular(9 Z6Times New Roman Regular + kM$..      XXXXXXXXXX    12    _Ԁ4ԀFTAMasterAgreementSections3(a)and3(a)(1);49_CFR_Ԁ18.36(3);FTACircular4220.1E  Paragraph7_(c)_.Inaddition,manystateandlocaljurisdictionshavelawsandregulations,whichaddressboththe o conductofpublicemployeesandtherelationshipbetweenpublicentitiesandprivatebusinesses.Thesevaryin .~ nature,andmayimposebothcivilandcriminalsanctionsonviolators.#4#(9 Z6Times New Roman Regular ` kM$..      XXXXXXXXXX    13    _Ԁ 8 󀄀SeeFTAMasterAgreementSection3(a)(1).#8#(9 Z6Times New Roman Regular  kM$..      XXXXXXXXXX    14    _Ԁ<ԀThisinterpretationappliestobothsubcontractorsandgeneralcontractorsprovidingprocurement  relatedservicestoagrantee.#<#(9 Z6Times New Roman Regular  kM$..      XXXXXXXXXX    15    _Ԁ @ 󀄀 @  @ #@#Apersonalconflictalsoariseswhereapersonwhosefinancialinterestsareattributedtotheemployee  hasaconflict!eitherbecausethatpersonisanemployee,prospectiveemployee,officer,director,oragentofa o contractororcompetingentity,orbecausethatpersonhasafinancialinterestinthecontractororcompetingentity. .~ Thefinancialinterestsofthefollowingareattributedtoanemployee: amemberoftheemployeesimmediate = family,hispartner,orhisoutsideemployerorprospectiveemployer.FTACircular4220.1EParagraph7(c). (9 Z6Times New Roman Regular x kM$..      XXXXXXXXXX    16    _Ԁ D 󀄀 @  @  @ #D#SeeFTACircular4220.1EParagraph7(c);18_CFR_Ԁ18.36(3)(iv);FTAMasterAgreementSection  3(a).However, [_t]he_ԀRecipientmaysetminimumruleswherethefinancialinterestisnotsubstantial,orthegiftis o anunsoliciteditemofnominalintrinsicvalue.FTAMasterAgreementSection3(a);seealsoFTACircular .~ 4220.1EParagraph7_(c)_;18_CFR_Ԁ18.36(3)(iv).Theseareknownas de_minimus_gifts,anddonotresultineither = arealorapparentconflictofinterest.ForFTAandotherFederalemployees,thelevelissetat$20peroccasion,  withamaximumof$50percalendaryearfromthesamesource(includingaffiliates).Inmanycases,however,the k bestresponsetoagiftofferedisasimple, Thankyou,butnothankyou.Section3(a)oftheFTAMaster * z Agreementrequiresthatgranteesincludeinthestandardsofconductpenalties,sanctions,orotherdisciplinary  9 actionsforviolationsofthecode,totheextentpermittedbystateorlocallaw.(9 Z6Times New Roman Regular  kM$..      XXXXXXXXXX    17    _ԀHԀ @  @  @ #H#SeeFTACircular4220.1EParagraph8(a)(5).TheFederalAcquisitionRegulationsalsoprovidea  helpfuldefinitionoforganizationalconflictofinterest: Organizationalconflictofinterestmeansthatbecauseof o otheractivitiesorrelationshipswithotherpersons,apersonisunableorpotentiallyunabletorenderimpartial .~ assistanceoradvicetotheGovernment,orthepersonsobjectivityinperformingthecontractworkisormightbe = otherwiseimpaired,orapersonhasanunfaircompetitiveadvantage.48_CFR_Ԁ9.501.(9 Z6Times New Roman Regular U kM$..      XXXXXXXXXX    18    _ԀGenerally,anorganizationalconflictarisesbecauseapersonorentityhasorappearstohaveloyalties  to,orafinancialinterestin,twoorganizationsthatmayhavecompetingordifferinginterestsfromeachother!one o ofthembeingthegrantee.Forexample,anorganizationalconflictwouldariseifanemployeeoraconsultantserves .~ asamemberofapublicorquasipublicbodywithregulatoryauthorityoveraprojectorhasastakeinitsoutcome. = Thisarisesmostoftenwherearchitectssitondesignrevieworzoningboards.  kM$..      XXXXXXXXXX    19    _Ԁ O 󀄀 @  @ #O#Federaltransitlawrequiresgranteestoawardcontractsthroughaprocessoffullandopencompetition.  Organizationalconflictsofinterestthatgiveanypartyanunfaircompetitiveadvantageimpedefullandopen o competition,andthusareconsidered restrictiveofcompetitionunderParagraph8(a)(5)ofFTACircular4220.1E. (9 Z6Times New Roman Regular  kM$..      XXXXXXXXXX    20    _Ԁ 󀄀Mergersandacquisitionshavehadastrongeffectoncontractsintheenvironmentalarea,thus  warrantingaseparatediscussionofthistopic. h kM$..      XXXXXXXXXX    21    _Ԁ V 󀄀 @  @ #V#ThisisconsistentwiththeapproachusedinFederalcontractingassetforthinFAR9.504(e),wherea  contractcanbeawardedinspiteofaconflictwhenthecontractingofficerdeterminesthatitisinthebestinterestof o theGovernmenttodoso.(9 Z6Times New Roman Regular 1 kM$..      XXXXXXXXXX    22    _Ԁ 󀄀RecommendationoftheABAModelProcurementCode,R12202.01.  kM$..      XXXXXXXXXX    23    _Ԁ 󀄀BARTProcurementManual,AttachmentB. @   kM$..      XXXXXXXXXX    24    _Ԁ`Ԁ @  @ #`#Eachgranteealsoshouldconsultwithitscounselbeforerequiringannualfinancialdisclosure  statementstoconfirmthattherequirementcomplieswithanylaboragreementsapplicabletothegrantee.(9 Z6Times New Roman Regular  kM$..      XXXXXXXXXX    25    _ԀdԀ#d#Inlargeundertakings,thismayinvolvemultiple,relatedconsulting,planning,design,technical  oversightortechnicalevaluationcontracts.Granteescanworkwithpersonsexperiencedinthefieldtodecidehow o tosegmentthe_procurements_Ԁandwhatrestrictionstoimpose. @ (9 Z6Times New Roman Regular s kM$..      XXXXXXXXXX    26    _Ԁ 󀄀40_CFR_Ԁ1506.5.Notethatifacontractorhasafinancialinterestintheoutcomeoftheproposed  project,thecontractorshouldinformthegranteeofitsinterest.Underappropriatecircumstances,thegranteemay o choosetowaivetheconflictofinterestaftercarefulconsideration(seeDiscussionSectionI).  kM$..      XXXXXXXXXX    27    _Ԁ k 󀄀LosAngelesCountyMetropolitanTransportationAuthority.ProcurementManualSection908(e).#k#(9 Z6Times New Roman Regular E kM$..      XXXXXXXXXX    28    _Ԁ o 󀄀Ibid.,Section2314.#o#(9 Z6Times New Roman Regular < kM$..      XXXXXXXXXX    29    _Ԁ s 󀄀Ibid.,Section407.5.AlsoSanFranciscoBayAreaRapidTransitDistrict(BART).Procurement  Manual#s#tSection#t#sԀII7.#s#(9 Z6Times New Roman Regularx9 Z&Times New Roman ; kM$..      XXXXXXXXXX    30    _Ԁ x 󀄀FAR9.202.#x#(9 Z6Times New Roman Regular  kM$..      XXXXXXXXXX    31    _Ԁ | 󀄀LosAngelesCountyMetropolitanTransportationAuthority.ProcurementManual,Section  407.5(1)(a).#|#(9 Z6Times New Roman Regular  kM$..      XXXXXXXXXX    32    _Ԁ  󀄀FAR##Section#5#Ԁ9.202(e).#~#(9 Z6Times New Roman Regularx9 Z&Times New Roman # kM$..      XXXXXXXXXX    37    _Ԁ 󀄀FAR52.216.7!AllowableCostandPayment.(9 Z6Times New Roman Regular(9 Z6Times New Roman Regular  kM$..      XXXXXXXXXX    42    _Ԁ  󀄀Ifacosttypesubcontractistobeawardedbytheprime,thesubcontractorsaccountingsystemmust  alsobeadequate.##(9 Z6Times New Roman Regular U kM$..      XXXXXXXXXX    43    _Ԁ  󀄀46Comp.Gen.612(B159713)(1967).##(9 Z6Times New Roman Regular I kM$..      XXXXXXXXXX    52    _Ԁ  󀄀AppendixA.1,Clause17.##(9 Z6Times New Roman Regular  kM$..      XXXXXXXXXX    53    _Ԁ  󀄀_Norair_Ԁ_Eng'g_ԀCorp.,_GSBCA_Ԁ3539,751_BCA_Ԁparagraph11,062.##(9 Z6Times New Roman Regular q kM$..      XXXXXXXXXX    54    _Ԁ  󀄀Baileyv.SecretaryofLabor,810F.Supp.261(D.Alaska1993).##(9 Z6Times New Roman Regular E kM$..      XXXXXXXXXX    55    _Ԁ  󀄀FARClause52.2329.##(9 Z6Times New Roman Regular  hH'..      XXXXXXXX  _8XXBestPracticesProcurementManualChapter2ProcurementPlanning&Organization#XX#!!!#XXPage  1      kM$..      XXXXXXXXXX    1    _ԀԄForformalassistanceinimplementingateamprocessseeHoward,JenniferM.andMiller,Lawrence  M.,TeamManagement:CreatingSystemsandSkillsforaTeamBasedOrganization(TheMillerConsultingGroup, o Inc.,1994)or_Leinberger_,Robinetal,TheArtofBusinessProcessManagement:Aguidebook,(_KPMG_ԀPeat .~ Marwick,_LLP_,1993).##(9 Z6Times New Roman Regular  kM$..      XXXXXXXXXX    2    _ԀԄThelimitationisexpressedintermsofbuyingnomorethanfiveyearsrequirementseventhough  deliverymayoccurbeyondfiveyearsfromthedateofthecontract.##(9 Z6Times New Roman Regular  kM$..      XXXXXXXXXX    3    _ԀԄThislimitationdidnotapplytoconstructioncontractsortoleasesofrealpropertyforthelifeofthe  transitasset o tobeconstructedonsuchproperty.##(9 Z6Times New Roman Regular e kM$..      XXXXXXXXXX    4    _ԀԀFTADearColleagueLetterC0802datedMay29,2002.##(9 Z6Times New Roman Regular  kM$..      XXXXXXXXXX    5    _Ԁ  󀄀ContactMr.John_Trotta_,VicePresident,Purchasing/Warehousing,ChicagoTransitAuthority,at  (312)2226113.##(9 Z6Times New Roman RegularTABLE I r!..      XXXXXXXX  _  Chapter2     2ProcurementPlanning&Organization    X2.1OrganizationofProcurementFunctions(5/96)    X 2.1.1ScopeofResponsibility(5/96) Z d 2.1.2Autonomy(5/96) @ J   X2.2LongTermPlanning(5/96)     X 2.2.1ContractPeriodofPerformanceLimitation(6/03)   2.2.2MultiYearvs.MultipleYearContracting(7/02)    X   2.3AnnualPlanning(5/96)    X 2.3.1SourcesandContents(5/96) V` 2.3.2IndependentGranteeCostEstimate(4/05) <F   X 2.4SourceSelectionPlan(5/96)   X 2.4.1FileDocumentation(5/96)  2.4.2FullandOpenCompetition(5/96)    2.4.2.1FullandOpenCompetitionPrinciple(5/96)  2.4.2.2RestraintsonCompetition(5/96) lv   ` 2.4.2.2.1BrandNames(6/03) 8B  `  N B.` hp x (#XB2.4.2.2.2WrittenStandardsofConductandConflictsofInterest:  ( PersonalandOrganizational(6/03) !  `  N E.` hp x (#X(#E2.4.2.2.3GeographicRestrictions(5/98) ! 2.4.2.2.4Prequalification(5/98) "  `  2.4.3FixedPricev.CostReimbursement(5/98) $!  X %"  X2.4.3.1FixedPriceContracts(4/05) h&r# 2.4.3.2CostReimbursementContracts(5/98) N'X $ 2.4.3.3TimeandMaterialsContracts(5/98) 4(>!% 2.4.3.4LaborHourContacts(5/98) )$"& 2.4.3.5CostPlusPercentageofCostContracts(5/98) * #'    ,%*  -&+  ~.', Ї2.4.4Payments(5/98)     2.4.4.1PaymentofthePrice(5/98)  2.4.4.2AdvancedPayments(6/03)   2.4.4.3ProgressPayments_(4/05)_   2.4.4.4WithholdingandFinalPayment(5/98) t ~  Z d  X XE.` hp x (#X(#E2.4.5IndefiniteDeliveryContracts(10/99) @ J  X XE.` hp x (#X(#E 2.4.5.1DefinitequantityContracts(10/99)    2.4.5.2RequirementsContracts(10/99)   2.4.5.3IndefinitequantityContracts(10/99)     % n %n   `     h 2.1ORGANIZATIONOFPROCUREMENTFUNCTION    % o %o?2.1.1ScopeofResponsibility  pz  *pq ddd Xdd Xdd X(#(#,jj+  :"""'<F<F  :dd REQUIREMENT N"""";#  """  NddFTACircular4220.1E,paragraph5a!GranteeSelfCertification,statesthatFTAintendsto   relyongrantees'[annual]"selfcertifications"thattheirprocurementsystemmeetsFTA  requirementstosupporttherequiredfinding[byFTA]thatagranteehasthetechnicalcapacity  tocomplywithFederalprocurementrequirements.  FTACircular4220.1E,paragraph7b!ContractAdministrationSystem,requiresgranteesto  maintainacontractadministrationsystemthatensuresthatcontractorsperforminaccordance fp withtheterms,conditions,andspecificationsoftheircontractsorpurchaseorders. LV 3)'2<   """" 3 DEFINITIONS  !     `  Centralize-Toconcentrateprocurementactionsanddecisionsinonepersonorgroupwithinan "  organization. #! ContractingOfficer-Aprocuringofficialwhohasdelegatedauthority,usuallyincluding %# authoritytosigncontractsandamendmentsonbehalfoftheprocuringagencyforoneormore n&x$ specificcontracts. T'^ % ContractingOfficer'sTechnicalRepresentative(_COTR_)-Arepresentativeoftheprocuring  )*"' agencywhohasmorelimitedauthoritythanthecontractingofficer,usuallyincludingproviding *#( technicaldirectiontothecontractor. *#)   .'- _ ԇDISCUSSION    AsaContractingOfficeryouareresponsiblebothforyourcontractscost-effectiveness  anditscompliancewithFederalandstaterequirements.Itiseasiertofulfillthese   responsibilitiesifmostofthedecisionsandcontractualactionsconcerningprocurement   arefocusedinoneormoreindividualswhoarefamiliarwithprocurementrequirements t ~ andprocedures.Theseactionsbeginwithplanningandsolicitationofoffers,include Z d communicationwithofferorsandcontractors,andcontinuethroughcontractacceptance @ J andwarrantyenforcement.Exceptinverysmallorganizations,thecontracting &0 responsibilitieswilloftenresidewithdifferentindividualsthantheindividualswhowould    bestunderstandthefunctionalandperformancerequirementsofthegoodsorservices.   Theselatterpersonsareyourinternalcustomers.     Purpose    Youandtheleadershipofyourorganizationneedtoclearlyunderstandthescopeofthe pz  procurementfunctionandorganizeresponsibilitiestoaccomplishseveralobjectives: V`  y{(y3"y3"  y3[23  0 `   toobtainthebestbuyforyouragencywhichrequiresanevaluationofallthe ", servicequality,safety,cost,schedule,andotherobjectivesoftheagency's  operatingfunctions;y3[݌` (#` (# Ќ     ?(` ` hp x (#X(#?  "y3"     E.` hp x (#` ` X(#Ey3t23  0 `   tocomplywithFederal,state,local,andagencyprocurementrequirements;y3t ݌` (#` (# Ќ     ?(` ` hp x (#X(#?  "y3"     E.` hp x (#` ` X(#Ey3]!23  0 `   toensureanunderstandingofthepreciseauthorityofyouandyouragencyteam  membersindealingwithsupplierswho,whilepartnersinmanyrespects,have lv someintereststhatconflictsharplywithyouragency's;andy3]!!݌R\` (#` (# Ќ     ?(` ` hp x (#X(#? 8B "y3"     E.` hp x (#` ` X(#Ey3#23  0 `   tocontrolthroughfinite,professionalboundaries,thepossibilityofcorruptionor  ( unethicalpractices.y3#$݌!` (#` (# Ќ    Theseobjectivesrequirethecleardefinitionandassignmentofprocurementresponsibilities.A " specificaspectofthatassignment,theneedforautonomy,isdiscussedinmoredetailinthe #  followingsectionoftheManual. $!  BestPractices  h&r# IdentificationofNeed-Theinitialidentificationofneedisoneaspectoftheprocurementcycle 4(>!% thatisgenerallythesoleresponsibilityofyourinternalcustomers(i.e.,programortechnical )$"& personnelforwhomyouareprocuringgoodsorservices).However,youmaybeinapositionto * #' facilitatetheconsolidationofprocurementsofdifferentinternalcustomerswiththesameneed. *#(  ~.', ЇProcurementPlanning!Preparationofprocurementplanning,ontheotherhand,shouldbe  exclusivelyaprocurementfunction.Ifyouragencyhasnotconductedformalplanning,this  processisawaytoestablishtheneedforaseparateprocurementfunctionanddemonstrateits  valuetotheorganization.Specificsuggestionsforusefulplanningactivitiesarediscussedbelow   underlongrangeandannualplanningcycles.   PreparationofSpecifications!Preparingspecificationsorstatementsofworkisusuallya Z d customerfunction.Generally,customershavethegreatestunderstandingoffunctionaland @ J performancerequirements;however,theprocurementfunctionshouldplayatleastanadvisory &0 roleinordertoavoidexclusionaryspecificationsandtoencouragefreeandopencompetition.    SolicitationofOffers!Thesolicitationofoffers(includinginvitationforbidsandrequestfor   proposals)isusuallythefirstimportantpublicactiontheagencytakes,anditshouldclearlybe   theresponsibilityatthispointoftheprocurementstaff.Customerteammembersareoften   helpfulincompilinglistsofpotentialofferors,andshouldparticipateintheprocurementprocess,   butcommunicationswithofferorsandtheofficialactionofsolicitingoffersisaprocurement pz  function. V` Communications!Ifcommunicationwithofferorsisdecentralized,oneofferormayobtainmore ", informationabouttheagency'spreferencesorevaluationprocessthantheothers.Itisageneral  practice(exceptatthesmallestagencies)torestrictcommunicationwithofferorstoonly  procurementpersonnelsothatnoofferorcouldgainanadvantageorapparentadvantageover  another.  EvaluationofOffers!Procurementpersonnelwillusuallyrequestandrelyupontheirtechnical  customerstoevaluatethetechnicalmeritsofproposalsandassesstheofferorsabilitytoperform lv thecontractsuccessfully.TheProcurementOfficermustoverseethetechnicalevaluationto R\ ensureitisconsistentwiththeevaluationcriteriapublishedintheRFPandthatthecontractfile 8B isadequatelydocumentedtoreflecttherelativestrengths,deficiencies,weaknessesandrisksof  ( thevariousproposals.Itisimportantthatthetechnicalevaluationprovideaclearnarrativeof ! theproposalsrelativemeritsandnotmerelyanumericalratingoftheproposals.Tomaintain ! theoverallintegrityoftheprocurement,theprocurementfunctionnormallymustatleast " approvetheselectionand(ifitdoesnothavesufficientauthority)willoftenpresentthe #  recommendationto $! thefinalauthority. %" Administration!Youshouldplayacontinuingroleintheadministrationofthecontracts, N'X $ particularlyinchangesanddisputes.Acceptanceofgoodsandservicesandpaymentapprovals 4(>!% alwaysrequireyourreview.Insimplerorroutinesituations,areceivingreportorCOTR )$"& acceptancecanbematchedtoyouroriginalpurchaseordertoensurepropercontrol. * #' Centralization/Decentralization!Manyorganizationsfinditmoreefficienttopermitcustomer +$) groups,particularlythosewithalargenumberofsimilar,smallprocurements,toperformsome ,%* ofthefunctionsnormallyperformedbytheprocurementoffice(e.g.,solicitationandevaluation -&+ ofoffersuptoaspecificdollaramount).However,inthesecases,procurementpersonnelcan ~.', provideavaluableoversightrole,providingforms,procedures,andtechnicalassistance.  Althoughdecentralizedprocurementcanreducetheadministrativecostoftheprocurementand  bemoreresponsivetoacustomers'needs,ifitisuncontrolled,itcouldeventuallyresultin  situationsinvolvingnon-compliance,unwisecontracting,orunethicalpractices.Itisabest   practicetoensurethatnoemployeeundertakesanyoftheprocurementfunctionswithoutclear   authorityandguidelines. t ~  % r %r;2.1.2Autonomy  @ J  DISCUSSION      Autonomyoftheprocurementfunction,oritsindependencefrominternalcustomers,is   importanttocarryingoutprocurementresponsibilitieswithoutundueinfluencebythe   customersandusersofthegoodsandservicesprocured.Whilethedegreeofautonomy   andorganizationalreportingrelationshipswillvarywiththesizeoftheorganizationand   itspolicies,autonomyenablesprocurementpersonneltogiveunbiasedconsiderationto pz  procurementprinciplesandrequirements,aswellastotheschedule,budget,functional V` andotherrequirementsoftheinternalcustomers. <F Purpose   Adebatehasragedforyearsbetweenthosewhoareprocessoriented(procurementofficialsand  compliancedepartmentssuchaslegal,internalaudit,orgrants)andthosewhoareprogram  oriented(maintenancemanagers,engineers,projectmanagers).  "y3"    y3S@23  0 `   Shouldtheprocurementfunctionsdescribedintheprevioussectionbecontrolled lv bytheprogramfunctions?Afterall,itistheprogramofficewhoseneedsaretobe R\ met,and,inmostaccountingsystems,theprogramtowhosebudgetthepurchase 8B willbecharged.y3S@@݌ (` (#` (# Ќ  "y3"  y3dB23  0 `   Shouldtheprocurementofficialbeentirelyautonomousandevaluatetheneedsof ! theprogram(e.g.,forimmediateservices)againstthelegalorprocedural " requirementsofthefundingsource(e.g.,FTACircular4220.1EifFederalfunds)?y3dBB݌# ` (#` (# Ќ  ! ! y{(yyy{  E.` hp x (#X(#ESomedegreeofautonomyoftheprocurementfunctionisnecessaryorganizationallyand %" functionallysothatprocurementpersonnelwillbefreefromundueinfluenceorpressureinthe h&r# awardandadministrationofcontracts.Theobvioussolutiontotheconflictbetween"process" N'X $ and"program"istohaveateaminwhicheachmemberrecognizesthestrengthsandcapabilities 4(>!% oftheotherteammembersandappreciatestheroleeachsidebringstothecontracttable.This )$"&     -&+ soundseasytoaccomplishbut,inmostpracticalsituations,isverydifficulttoachieve. l#  1      Failure   toachieveunityandteamworkwithintheagencyintheawardingandadministrationofpublic  contractscreatesfrequentopportunitiesforacontractortotakeadvantageofacontentiousstaff  relationshiptoitsfinancialadvantage(andtheagency'sfinancialdisadvantage).Achieving   properbalancebetweengroupsrequiresdelicatebalancingofpersonalitiesandcorporate   objectives,astrongexecutive,andawell-trainedstaff.Itmustalsoberecognizedthatthereis t ~ notextbookanswerthatwillworkineverysituationandineveryagency. Z d   Inadditiontobalancingtherolesofprogramandprocessinterestsinmakingprocurement &0 decisions,thepaymentofyouragency'sfundstocontractorsgenerallyrequiresthree    independentconcurringactions.Therequirementforindependentconcurringactionsis   sometimescalled"internalcontrol,"asitisamethodfortheagencytocontroltheproprietyofits   actionsinternally,ratherthanrequiringexternalreviewsandcontrol.Whilebestpracticesdiffer,   allauthoritiesrecognizeafundamentalneedforasystemofchecksandbalancesintheoverall   procurementprocess.Inanorganizationwithnochecksandbalances,ifanindividualperceived   aneedforastaffcar,thatpersoncoulddraftthespecificationsforthecar,preparethe pz  solicitationdocument,orderthecar,approvethecontract,inspectthepreparationofthecar, V` administerthecontract,acceptthecarafterdelivery,signtheagencychecktopaythedealer,and <F usethecarinamannerthepersondeemedappropriate.Itshouldbeobviousthatanorganization ", andprocurementprocesssuchasthiswouldnotbecredibleandwouldbesubjecttogreatabuse,  actualorperceived.Asaresult,mostpublicandprivateagenciesdividethosefunctionsamong,  atleast,threedistinctelementswithinitsorganization.  "y3"   E.` ` hp x (#X(#Ey3SQ23  0 `   Therequiringactivityisrepresentedbytheprogrammanagerwhoisresponsible  fordeterminingtherequirement,preparingthespecificationsand,then,actingas  thetechnicalrepresentativeoradvisortothecontractingofficerduringcontract lv performance.y3SQQ݌R\` (#` (# Ќ  H+` ` hp x (#` ` X(#H 8B "y3"  H.` ` hp x (#` ` X(#Hy3 T23  0 `   Theprocurementactivityisrepresentedbythecontractingofficerwhois  ( responsibleforensuringspecificationsarenotrestrictive,preparingthey3 TT݌!` (#` (# Ќ   ` solicitationdocumentinaccordancewiththelawandrulesandregulationsofthe ! agencyandtheFTA,solicitingtherequirement,andawardingthecontractin " accordancewiththesolicitation.Contractadministrationfunctionsareusually #  sharedwiththerequiringactivityandinvolvesuchfunctionsasapproving $! payment,acceptingthegoodsorservicesbought,andclosingoutthecontract. %"  h&r#  N'X $  4(>!% /  XH+ ` hp x ` ` X(#H  ?+ ` hp x (#X?/W  /WX݌̌ X-` ` X(#` X(#-    * #' "y3"  K.` ` hp x (#` ` X(#Ky3cY23  0 `   Thepaymentactivityisrepresentedbyathirdparty(thefinancedepartment)who  ensuresthatallapprovalsareobtainedandthatthepaymentiswithinthedollar  amountofthecontract.Often,theaccountspayablefunctioninfinanceeither  physicallyorelectronicallymatchesthreedocumentsissuedbythreedifferent   employees(thepurchaseorder,receivingreport,andapprovedinvoice)before   releasingfunds.y3cYY݌t ~` (#` (# Ќ   K.` hp x (#` ` X(#KTheprocurementandpaymentactivitiesare"process"functionsensuringthatthegoodsare @ J boughtandpaidforinaccordancewiththetermsofthecontract.The"program"activityisto &0 determinewhatisneededandthatitisobtainedwithinthetimerequiredandbudgetallocated.     BestPractices    DegreeofAutonomy-Fromanarrowprocurementperspective,theprocurementactivitywould   enjoythehighestdegreeofautonomywhereitreportsdirectlytothegoverningpolicyboardof   yourorganization.Mosttransitorganizationshavetoomuchdirectoperatingresponsibilityto pz  permitthisdegreeofautonomy.Threesolutionsare: V` "y3"   H1` ` hp x (#X(#Hy3`23  0 `   Procurementandcontractingcanreporttoachiefexecutive.y3``݌",` (#` (# Ќ  K.` ` hp x (#` X(#K  "y3"  H1` ` hp x (#` X(#Hy3a23  0 `   Mosttypically,theprocurementdepartmentreportstoanadministrativeor  financialfunctionthatisindependentoftheprimaryinternalcustomers(facility  equipmentandoperatingfunctions).y3a.b݌` (#` (# Ќ  K.` ` hp x (#` X(#K  "y3"  H1` ` hp x (#` X(#Hy3d23  0 `   Somedegreeofautonomycanbepreservedevenwithinanoperatingor  implementationfunctionifprocurementisseparatedfromtheprogramdelivery lv subgroups.y3dvd݌R\` (#` (# Ќ   K.` hp x (#` X(#KfB+ ` hp x X(#B  f-f  Inmediumandlargesystems,ifthecontractingfunctionisnotseparatedfromtheprogramf-ff݌  ( Ќ! X(#X!  fB+ ` hp x X(#B  f~g  office,thereisaninadequatesystemofchecksandbalancesontheprocurementprocess.f~gg݌ ! Ќ! X(#X!  fB+ ` hp x X(#B  fh  Overall,procurementpersonnelshouldhaveenoughautonomyorchecksandbalancesto ! achieveaqualityproductatafairandreasonablepricewithoutrealorapparentconflictsof " interestinthesolicitation,evaluationoraward.fh:i݌ #  Ќ! X(#X!  fB+ ` hp x X(#B  fj  fj=k݌̌! X(#X!  % | %|k2.2LONGTERMPLANNING  %"  DISCUSSION N'X $ Longtermprocurementplanning(i.e.,planningmorethanoneyearinadvance)isone )$"& optiontobeconsideredbylargetransitsystemsandbysystemsplanningamajortransit * #' investment,complexcapitalproject,orasubstantialnumberofoperatingcontractsthat *#( willspanseveralyears.Systemswithoutcurrentmajorcapitalprojectsmayfindthat +$) annualplanningisadequate. ,%*    ~.',   8Purpose   Procurementplanscoveringseveralyearsmaybeanimprovementoverpartitioningor  consolidationinmajorprojectsasawaytofacilitatethemostcost-effectiveprojectmanagement   anddelivery.Theplanscanidentifymajorchangesinprocurementworkload,andcanobviate   anytendencytorushprocurementdecisionsoractivitiesinwaysthatresultinwaste(e.g., t ~ throughfailuretoconsolidatemajorprocurements)orrisknon-compliance(e.g.,through Z d inadequatenoticeandnon-competitiveawards). @ J PlanContents-Alongtermprocurementplanwouldidentifythemajorprocurementsprojected    overthenexttwotofiveyears.Themulti-yearelementoftheTransportationImprovement   Program(TIP)isagoodstartingpointforidentifyingfuturecapitalprojectsandtheir   correspondingprocurementrequirements.Typically,theprocurementplanincludesanyfixed   guidewayprojects,revenuerollingstockreplacementsorfleetexpansions,andmajor   constructionprojects.Inthecaseoffixedguidewayandotherconstructionprojects,where   multipleprocurementsmaybeinvolved,theplanwouldidentifytheinitialstrategyforpackaging pz  thedesign,construction,andequipment.Considerationwouldalsobegiventoturnkey V` procurementsandtolongtermprojectsthatarenotpublicworks.Thelatterwouldincludemajor <F softwaresystems,fleetoverhaulandADAoperationalservice. ", MajorProjects-Oftenmajordesign/constructionandrailvehicleprocurementsareplanned  seventotenyearsinadvanceofneededcompletionbecauseseveralinterdependentcontractsmay  havetobeawardedinordertoaccomplishtheproject.Thetimeintervalstypicallyrequiredto  accomplishthesecontractawardsmightinclude:  "y3"    y3v23  0 `   OneyearadvanceplanningbeforeRequestforProposals(RFP)forthey3vw݌lv` #` # Ќ   ` engineeringservices; R\ "y3"  y3x23  0 `   FourmonthsfromRFPtoawardoftheengineeringservices;y3xBx݌ (` #` # Ќ     E.` ` hp x (#X(#E ! "y3"     E.` hp x (#` X(#Ey3y23  0 `   Twoyearstopreparetechnicalspecifications;y3y!z݌!` #` # Ќ     E.` ` hp x (#X(#E " "y3 "     E.` hp x (#` X(#Ey3Z{23  0 `   ThreemonthsfromcompletionofspecificationstosystemRFP;y3Z{{݌# ` #` # Ќ     E.` ` hp x (#X(#E $! "y3 "     E.` hp x (#` X(#Ey3<}23  0 `   SixmonthsfromsystemRFPtoaward;andy3<}}݌%"` #` # Ќ     E.` ` hp x (#X(#E h&r# "y3 "     E.` hp x (#` X(#Ey3 23  0 `   Threeyearsforsystemconstruction.y3 ݌N'X $` #` # Ќ      Theplanninganddesignprocessescanchangethisschedulesignificantly,andfewprocurements )$"& requirethislengthoftime.Whenmajorprojectsareundertaken,acomprehensiveprocurement * #' planthatoutlinesthesemajorprojectsalongwiththerestofyourprocurementworkloadwillbe *#( extremelyhelpful.Busprocurementsandmajorelectronic/datasystemsgenerallyrequireatleast +$) threeyearsofadvanceplanning. ,%*    ~.', Ї2.2.1ContractPeriodofPerformanceLimitation  *l}~ddjjpq##l,xbb+  :' :  REQUIREMENT N;#    N  49USC5326(b)limitstheprocurementofrollingstockandreplacementpartstono   morethanfiveyearsrequirementsunderasinglecontract,eventhoughdeliverymay   takeplacebeyondfiveyearsfromthedateoftheinitialcontract. j t FTACircular4220.1E,paragraph7.m,addressesthefiveyearcontracttermlimitation 6@  forrollingstockandreplacementparts.Italsorequiresthatcontractstermsforallother &  typesofcontractsbebasedonsoundbusinessjudgment.   FTACircular4220.1E,paragraph8!Competition,requiresallprocurementtransactions   tobeconductedinamannerprovidingforfullandopencompetition.   FTACircular4220.1E,paragraph7i!WrittenRecordofProcurementHistory,requires   granteestomaintainrecordsdetailingthehistoryofaprocurement. fp 3)'LV     3  DISCUSSION  *     OnMay29,2002,theFTAAdministratorissuedDearColleagueLetterC0802rescinding  FTAslongstandingfiveyearcontracttermlimitationforallcontractsexceptthosefor  rollingstockandreplacementparts.Thelimitationonrollingstockandreplacementparts  remainsineffectsincethelimitationisastatutoryrequirementandnotanFTApolicy.  l#  2         ThenewFTApolicyisnowexpressedinFTACircular4220.1E,paragraph7.mContract  TermLimitation. jt  Priortothisletter,FTACircular4220.1D,paragraph7mContractPeriodofPerformance 6 @ Limitation,hadlimitedtheperiodofperformanceofDOTassistedsupplyandservice !& contractstofiveyears,inclusiveofoptions,withoutpriorFTAapproval.  l#  3      ׀Asaresultof "  thisrescissionofthecontracttermlimitation,granteeswillnolongerberequiredtoobtain " priorFTAapprovalforcontracttermslongerthanfiveyears. l#  4      ׀Therescissionofthefive #  yeartermlimitappliesnotonlytonewcontractawards,buttoexistingcontractsaswell.  $!   GranteeprocurementswillcontinuetobereviewedbyFTAforcompliancewiththe full  %" andopencompetitionprinciplestatedinFTACircular4220.1Eparagraph8a,and  granteeswillcontinuetoberesponsibleforconductingtheirprocurementsinaccordance  withsoundbusinesspractices.Granteesareexpectedtobejudiciousinestablishingand  extendingtheircontractterms.     BestPractices  t ~     AlthoughFTAnolongerrequirespriorapprovalforcontracttermslongerthanfiveyears, @ J granteesremainresponsibleforconductingtheirprocurementtransactionsinaccordancewiththe &0  fullandopencompetitionprincipleexpressedinFTACircular4220.1E,paragraph8a.As    withanyprocurementaction,granteesshouldensurethattheirprocurementfilesadequately   documenttheirdecisionmakingprocess.Thisrecordshouldincludetherationaleforthe   contractperiodofperformance.   PeriodofPerformanceCriteria!Periodicrecompetitionofcontractspreservescompetitionand   keepspricescompetitive.Withoutperiodiccompetitiontheincumbentwillnothavethe pz  pressuresofacompetitivemarkettokeeppricesreasonableoranincentivetomaintain V` satisfactoryperformance.Thereare,however,criteriathatthegranteecanemploywhen <F decidinguponthetermofacontract.Someofthesecriteriaaresuggestedbelow. ", RevenueContracts!ItisFTApolicytoaffordallpersonsanequalopportunitytoaccessFTA  fundedassets.FTAalsoencouragesitsrecipientstomaximizenonfareboxrevenues.Thiscan  bedonethroughcontractualorotherappropriatearrangements,whichinvolvetheuseofFTA  fundedassetswithoutinterferingwithitstransituse.FTAhadpreviouslyinvokedafiveyear  termlimitasonewaytobalancethesepotentiallyconflictingpolicies.Itisimportantfor  granteestodocumenttheirrevenuecontractfileswithaneconomicanalysisthatdemonstrates lv howthesedualobjectiveswereaccomplished.Ifthecontractopportunitiesallowforfreeand R\ opencompetition,thentheGranteesprocurementpolicieswilladdressFTAsequalopportunity 8B policy.Wherehowever,thereisalimittothenumberoffirmswhowillbeawardedcontracts,  ( thenthegranteeshouldincludeaneconomicanalysisinthecontractfiletojustifythecontract ! term.Theeconomicanalysisshouldexplainwhythespecificperiodofperformancewas ! necessaryfortherecoveryofthecontractorsinvestmentandareasonableeconomicreturn.In " performingthisanalysis,granteesmaywishtoconductamarketsurveytoobtaininformation #  andrecommendationsfromprospectiveofferorstodeterminewhatthetypicalupfront $! investmentwillbeandwhatkindofcontractperiodwouldberequiredfortheofferorstorecover %" thatinvestmentandrealizeareasonableeconomicreturnonthatinvestment.Granteesshould h&r# documenttheirfileswiththisinformation,showingtheconclusionsreachedwithrespecttothe N'X $ contractperiodofperformancefinallyselected. 4(>!% Supplies!Typicallythecontractperiodofperformanceforsupplieswillbedictatedbythe * #' granteesforeseeableneedsandsuchfactorsaseconomicquantitybreaks,warehousingspace, *#( shelflife,technologyconcerns,etc.Whenthegranteeperceivesthattheremaybeanopportunity +$) toincreasecompetitionthroughalargerpurchase,thegranteemaywishtoconductamarket ,%* surveyofpotentialsupplierstodetermineiftheywouldmakeanofferunderadifferent  -&+ contractingscenario.Forexample,itmaybethattheywerediscouragedfrombiddingbecause  theupfrontinvestment(nonrecurringcostsoftooling,etc.)wouldbeprohibitiveovera  relativelyshortcontractperiod/limitedquantitybuy.However,iftheperiodwereextendedand  thequantityincreased,thesepotentialsuppliersmightbeinducedtoparticipate.Thisisineffect   whatonelargetransitagencyhasdonesuccessfully. l#  5      ׀Thus,theshortestcontractperiod/   minimumquantitybuymaynotnecessarilybetheoptimumdecision.Granteeswillneedto t ~ exercisesomediligenceindeterminingiflonger/largercontractsmightbeintheirbestinterests. Z d Iftheydecidetodothat,theyshoulddocumenttheirfilesshowingthebenefitsobtainedfromthe @ J longercontractperiods. &0 Whendecidingthebestperiodofperformanceforongoingservicescontracts,granteesneedto   considertheupfrontinvestmentbypotentialofferorsforspecializedpersonneltrainingandother   nonrecurringstartupcosts(e.g.,relocation)thatmustberecoveredoverthelifeofthecontract.   Onceagain,granteesshouldconsiderapresolicitationindustryoutreachtodiscusswith   individualsintheindustrywhattheymayseeasupfrontinvestmentsthatmustberecovered   fromtheprofitsanticipatedbythecontract.Thesediscussionsshouldrevealwhattheindustry pz  needsintermsofacontractlifeinordertosubmitcompetitivepricesagainsttheincumbent. V` Thesefactsneedtobedocumentedinyourcontractfilesasyoureachanagencydecisiononthe <F properperiodofperformanceoftheservicescontract. ",   2.2.2MultiYearvs.MultipleYearContracting  DISCUSSION  Granteesareauthorizedtoprocurerollingstockorothersuppliesandservicesbya  numberofmethods.Theseincludebuyingonanannualoronanasneededbasis,andalso lv onamultiyearormultipleyearbasis.Thedistinctionbetweenthemultiyearand R\ multipleyearmethodsisasfollows: 8B MultiYearContracting󀄀multiyearcontractingisamethodbywhichthegranteeprocures ! itsneedsfortheentirelifeofthecontract,eventhoughfundingfortheentirecontractisnot ! availableatthetimeofcontractaward.Thecontractrequiresthecontractortodeliverthe " entirerequirementsofthecontract.Optionprovisionsareunnecessary.Becausethe #  granteedoesnothavesufficientfundsfortheentirecontractattheoutsetofthecontract,it $! willbenecessarytorecognizeinthecontractthatthegranteemayhavetocancelthe %" contractatsomepointifadditionalfundsarenotforthcoming.Granteesmayhaveto h&r# includecancellationcostsinthecontractintheformofanadvanceagreementforany N'X $ programyearorportionthereofcanceledbythegrantee(butcancellationcostsarenot 4(>!% requiredtobeincludedifthecontractorwillacceptacontractwithoutthem).Additional  )$"& informationonmultiyearcontracting,whilenotbindingongrantees,isdiscussedinthe  FederalAcquisitionRegulation(FAR),Subpart17.1MultiYearContracting.  MultipleYearContracting󀄀multipleyearcontractingisamethodbywhichthegrantee   awardsacontractforabaseperiodofoneormoreyears,withoptionprovisionsforfuture   years'requirements.Thebaseperiodofthecontractisafirmandfullyfunded t ~ requirement.Beyondthebaseperiod,thegranteeusesoptionprovisions,whichmaybe Z d exercisedunilaterallyatthediscretionofthegranteeasadditionalfundingbecomes @ J available.Thereisnoneedfortheinclusionofcancellationpaymentssincetheexerciseof &0 theoptionsistotallywithinthediscretionofthegrantee.    Additionalinformationonmultipleyearcontracting,whilenotbindingongrantees,is   discussedintheFederalAcquisitionRegulation(FAR),Subpart17.2Options.   TermofContracts!AsnotedaboveinSection2.2.1!ContractPeriodofPerformance   Limitation,49USC5326(b)limitstheprocurementofrollingstockandreplacementparts pz  tonomorethanfiveyearsunderasinglecontract,eventhoughdeliverymaytakeplace V` beyondfiveyearsfromthedateoftheinitialcontract.  <F  %  %2.3ANNUALPLANNING    %  %Դ2.3.1SourcesandContents    DISCUSSION    Everytransitorganizationcancarryoutannualplanning;largesystemsmaymaintain lv multi-stepplanningprocesseswithsubstantivedocumentsthatarecarriedforwardfrom R\ yeartoyear.Smallsystemsmaypreparetheplansimplythroughpreparationofalistof 8B knownprocurementsatthebeginningofaplanningcycle(i.e.,inbudgetpreparationorin  ( themandatedplanningprocess).  !  Purpose  " Abasicpurposeformaintainingformalplansregardingprocurementswellinadvanceofissuing $! thesolicitationsistoenablemoredeliberateandcoordinateddecision-makinginmovingforward %" withtheprocurementsandrelatedactivities.Inaddition,procurementplanningisthebest h&r# opportunitytoidentifypotentialconsolidationofprocurements(e.g.,severalinternalcustomers N'X $ purchasingfurnitureorpersonalcomputersinthesametime-frame).Largeragenciesmayfind 4(>!% thatprocurementconsolidationyieldssubstantialsavings.Morespecifically,anadvance )$"& procurementplanisagoodwayfortheagencytodocumentitscompliancewithparagraph7(d) * #' ofCircular4220.1Ewhichstates,"Granteeproceduresshallprovideforreviewofproposed  *#( procurementstoavoidpurchaseofunnecessaryorduplicativeitems.Considerationshouldbe  giventoconsolidatingorbreakingoutprocurementstoobtainamoreeconomicalpurchase."  Theadvanceprocurementplanalsoprovesusefulinrespondingtoprocurementchallenges.It   providesanearlyrecordofdecisionsthatweremadeforbusinesspurposesbeforethereceiptof   offersandwithoutthepossibilityofcompetitivebias.Contractingofficialsshouldrecognizethat t ~ theplanisfluidandthattheircustomers'needswillchange,buteventhischangecanbemore Z d orderlyifthebaseplanhasbeendocumented.Achangeissimplyaccomplishedthroughaplan @ J update,ratherthanbeingpassedaroundbywordofmouthormemorandum,whichtendstoresult &0 inconfusionandindecision.     BestPractices    SourcesforPlans-Thepreparationofanadvanceprocurementplancanbeginwithdataalready   preparedforserviceandfinancialplanningpurposes.BothstateandlocalTransportation   ImprovementProgramslistmajorFederallyfundedprojectsforallmodesoftransportation. pz  WhilethepreparationoftheplansistheresponsibilityofthelocalMetropolitanPlanning V` Organizationandthestate,mosttransitagenciesareinvolvedinassistingwithdevelopmentof <F thetransitelementoftheplans,whichliststheirprojectsseparately.Aninternalcapitalbudgetis ", anothersource,whichmayhavemoredetailedorup-to-dateinformationonplannedcapital  procurements.  Althoughprojectsfundedwithoperatingfundsareoftensmallerandtheoperatingbudgetdoes  notusuallyofferasmuchspecificity,contractingofficialsmaybeabletoidentifymanyplanned  procurementsfromtheoperatingbudgetaswell.Historicalusageisanothervaluablesourcefor  theplan,particularlywhencomparedtotheoperatingbudget. lv Anothermethodavailabletoassistwithpreparationoftheplanistoconductasurveyofinternal 8B customers.Theymayprovidemoredetailonthebudgetedprojectsandmaybeabletoidentify  ( projectsthatarenotdifferentiatedinthebudget.Anannualsurveyofthemajorcustomerswill ! encouragethecustomersthemselvestoplantheirneedsforgoodsandservices. ! Annualprocurements,whichaccountforagreatdealofactivity,suchasparts,fuel,andother #  supplies,canbeprojectedatmostagenciesbasedonhistoricalneedandagency-wideplansand $! projects. %" PlanContents-Inadditiontotheidentityofeachprocurement,plansnormallyidentifythe N'X $ customercontact(s)(atmediumandlargeagencies),timerequirements,andfundingsources. 4(>!% Tentativestartdates,publicationdates,openingdatesandawarddatesareusuallybasedonthe )$"& typeandsizeoftheprocurementcontemplated.Timeshouldbeallowedfor: * #'     "y3 "  y323  0 `   preparationofasourceselectionplan(ifnotalreadycompleteorinprogress), +$) whereappropriate;y3݌,%*` #` # Ќ   -&+    E.` ` hp x (#X(#E"y3 "  y3623  0 `   preparationofspecifications;y36c݌` #` # Ќ  E.` ` hp x (#` X(#E  "y3"  y3d23  0 `   assemblyofthesolicitationofoffers;y3d݌` #` # Ќ  E.` ` hp x (#` X(#E   "y3"  y323  0 `   publicationperiodandtimeforpreparationofoffers,includingpre-bid/proposal   conference,whereappropriate;y3݌t ~` #` # Ќ  E.` ` hp x (#` X(#E Z d "y3"  y3/23  0 `   receiptandevaluationofoffers;andy3/\݌@ J` #` # Ќ   &0 "y3"  y323  0 `   requiredreviewsandapprovalactions.y3L݌  ` #` # Ќ      K KComplexprojectswillrequiremoretimeforpreparingspecifications.Negotiatedprocurements   willrequiremoretimeafterreceiptofoffers.Ifgoverningboardapprovalisrequired,andthe   governingboardmeetsonafixedschedule,timewouldbeaddedforthisstep.Inallmajor   procurementsandcaseswherenegotiatedprocurementisutilized,theplanningprocesscan   evolveintoasourceselectionplanforeachprocurement. pz  Inthecaseofprocurementofcomplexsystems,suchasrailtransitsystemsoradvancedrail <F vehicles,anadvancedprocurementplanconceptincludesplanning,notonlyfortheprototype ", development,testing,andacceptanceofthesystem,butalsothelifecyclesupportofthesystem,  whichincludestrainingofmaintenancepersonnel,maintenanceinfrastructure,suchaselectronic  designdiagramsandpartscatalogs,longtermavailabilityofparts,andtechnicalsupport.   2.3.2IndependentGranteeCostEstimate    K,%  %-,X` X(#-*] ddxbbx}~##],xjj+  :"""'lvlv  :dd REQUIREMENT N"""";#  """  NddFTACircular4220.1E,Paragraph10providesthatgranteesmustperformacostorprice 2< analysisinconnectionwitheveryprocurementaction,includingcontractmodifications.The  " methodanddegreeofanalysisisdependentonthefactssurroundingtheparticular   procurementsituation,butasastartingpoint,granteesmustmakeindependentestimates !  beforereceivingbidsorproposals. "! 3)'#"   """" 36,SX,X6 K DISCUSSION %# Alogicalelementofyourannualprocurementplanisacostestimateforeachmajor T'^ % procurement.Itisnormallycost-effectivetohaveanindependentcostestimatethatalso :(D!& satisfiestheFederalrequirementandtohavesuchanestimateatsometimebefore  )*"' receivingbidsorproposals.Youmayobtainsuchestimatesfrompublishedcompetitive *#( prices,resultsofcompetitiveprocurements,orestimatesbyin-houseoroutsideestimators.  *#)  BPPMAppendixB.20IndependentCostEstimateForm,providesaformatandguidancefor ,%+ granteeinhouseestimatorsthatshouldbehelpful.Thisformwasdevelopedbyone  -&, transitagencytoassistitsuserorganizationswiththedevelopmentofindependentcost  estimatesandstatementsofwork.  Purpose    Thefollowingarepurposesofestablishingacostestimateusingamethodindependentfromthe t ~ prospectiveofferorsinadvanceoftheoffer: Z d   0 ` itensuresaclearbasisforthegrantee'sdeterminationthatthebenefitsofthe &0 procurementwarrantitscost;  ` #` #   0 ` itprovidesessentialprocurementandfinancialplanninginformation(see   "AdvanceProcurementPlan,"above);and ` #` #   0 ` itprovidesabasisforpriceanalysis,whichmayassistinobviatingtheneedfora   moreburdensomecostanalysis.pz ` #` # Althoughitmayseemself-evidentthattheagencyhasatleastimplicitlypreparedacostestimate <F indecidingtoproceedwithaprocurement,manyprojectscanchangeinscopewithoutclear ", communicationamongthepeopleresponsible.Forexample,amanagementinformationsystem  forpartsinventorycontrolmayseemcost-effective,butmaygrowduringdiscussionstoinclude  unanticipatedelectronicimaging,scanningofrepairmanualdiagrams,unanticipateddistributed  processingdevices,andmulti-userprogramming.Anindependentcostestimatepreparedwhen  theagencyfirstundertooktheprojectcouldalertallinvolvedthattheprojecthadgrownbeyond  thescopeoriginallyintended.Adeliberatedecisiontoreducethescopeorrevisethecost  estimatecanbemadeateachstepoftheproject'sdevelopment. lv Thecostestimateisessentialinformationforprocurementplanning.Itgivesthecontracting 8B officialsomeindicationofthecomplexityoftheprojectandthedegreeofinvestmentthat  ( offerorswillwanttomakeintheprocurementprocess,thusallowingplanningofprocurement ! timeandpersonnel.Itisalsothebasisfordeterminingwhichprocurementproceduresapplyto ! theproject.Ifthecostestimateexceeds$100,000,forexample,acompetitivesolicitationis " normallyrequired.(Stateorlocalrequirementsmaybestricter.)Similarly,certificationand #  bondingrequirementsimposedbyFederalregulationsaretriggeredbasedonthevalueofthe $! contract.(See"MethodsofProcurement"FTACircular4220.1E,9;"BondingRequirements," %" 11;"BuyAmerica"Agreement14(a);"DebarmentandSuspension"MasterAgreement h&r# 3b.)However,theapplicationoftheseandmostotherrequirementsdependsnotonthecost N'X $ estimate,butonthecontractamount. 4(>!%   Afinalpurposeoftheindependentcostestimateisforpriceanalysis.Eitheracostorprice * #' analysisisrequiredforeverycontractandeverychangeordersothattheessentialobjectiveofa *#( reasonablepriceisassured.Theadequacyofthepriceorcostanalysisisacriticalresponsibility +$) ofthecontractingofficial.Inmanycontractawardsthebidsalonemaybeadequatetoassurea ,%*   -&+ reasonableprice.However,inallnegotiatedprocurements,mostcontractchanges,sealedbids  wherepricecompetitionwasnotsufficient,andnoncompetitiveawards,furtheranalysisis  required.Anindependentcostestimatepreparedbeforereceiptofoffersisinvaluableinthese  circumstances.Theestimatealonemay,ifpreparedwithsufficientdetailandreliabilityinthe   contractingofficial'sjudgment,besufficienttodeterminewhetherthepriceisreasonable.Itwill   atleastsupplementotherpricingdatainmakingthedetermination.Becausecostanalysiscanbe t ~ timeconsuming,expensive,andraisedisputes,theavailabilityofanindependentpre-bid Z d estimate,whichallowsforpriceanalysisandobviatescostanalysis,isworthmaterialpre-bid @ J effort. &0   Inthesecircumstances,itisessentialthatthegranteescostestimatebedevelopedindependently   fromtheofferorspricingsubmissions.Ifabuspurchaseisbeingprepared,forexample,the   prospectiveofferorsshouldnotberelieduponfortheindependentcostestimate,exceptinthe   formofpriorbidssubmittedwithadequatecompetition.   Anypriceanalysisordatacollectionperformedafterreceiptoftheoffers,inadditionto pz  consumingvaluabletimeduringthelimitedvalidityoftheoffers,willnotbeasprobativeasdata V` collectedbeforethereceiptoftheoffers.Anindependentcostestimatepreparedbeforethe <F receiptoftheoffersdoesnotraisethequestionofwhethertheparticulardataandanalysiswas ", consciouslyorunconsciouslyintendedtojustifytheaward.   BestPractices   Construction-Insomecases,costestimatesmaybedifficulttoobtainormaylieoutsidethe  competenceofagencypersonnel.Inthecaseofconstructionprojects,adesignfirmmayalready  beundercontractandmayperformthisservice.Insomecases,theagency'sin-housepersonnel lv whohaveparticipatedindesignorpastconstructioneffortsmaybethemostprofessionaland R\ reliablecostestimators. 8B SuppliesandEquipment-Equipmentestimatescanoftenbepreparedfrompublishedpricelists ! orfrompastcompetitiveprocurementsupdatedwithinflationfactors.Granteesmayfind ! relevantpricingdatabycontactingotheragenciesthatobtainedcompetitivebidsforthesame " equipmentorsupplies.Inthecaseofspecializedequipment,caremustbetakenthatthesource #  oftheestimatesisnotdisproportionatelyobtainedfromonesupplier. $! Services-Professionalservicesoftenrangewidelyinbothpriceandquality,andareoftenbeing h&r# acquiredpreciselybecausetheagencypersonnelareunfamiliarwiththesubjectmatter. N'X $ Therefore,yourin-housepersonnelmaynotbequalifiedtoestimatethecostofamajor 4(>!% professionalservicecontract.Inthesecases,itmaybeworthobtainingaprofessionalcost )$"& estimatebyafirmnotinterestedinthefinalprocurement.Othergranteesareavaluablesource * #' ofcostestimatinginformationiftheyhaveundertakensimilarprojects.Thecontractingofficial *#( shouldobtainand,whenappropriate,updatetheindependentcostestimateinthemannerbest +$) suitedtothecircumstancesoftheparticularprocurement.Becausereasonablepriceisakey ,%*  objectiveofeveryprocurement,andisalsoacriticalFederalinterestinFederallyfunded -&+ procurements,anindependentcostestimateshouldbepreparedforeveryactionbeforeoffersare  received.   %  %"2.4SOURCESELECTIONPLAN     %  %{2.4.1FileDocumentation  t ~ *] ddxjjx##],xjj+  :"""'@ J@ J  :dd REQUIREMENT N"""";#    """  NddFTACircular4220.1E,Paragraph7.iWrittenRecordofProcurementHistoryrequires   granteestomaintainrecordsdetailingthehistoryofaprocurement.Asaminimum,these   recordsshallinclude:    y{(yyy{  6KrX,SX6   r Therationaleforthemethodofprocurement;     Selectionofcontracttype;     Reasonsforcontractorselectionorrejection;and jt    Thebasisforthecontractprice. PZ  y{(xyy{<3)'6@   """" 3  DISCUSSION    Aproperlydocumentedprocurementfileprovidesanaudittrailfromtheinitiationofthe  acquisitionprocesstothebeginningofthecontract.Thefileprovidesthecomplete  background,includingthebasisforthedecisionsateachstepintheacquisitionprocess.A  welldocumentedfilespeaksforitself,withoutneedofinterpretationfromthecontract  administrator.Awelldocumentedfilealsosupportsactionstaken,providesinformation r| forreviewsandinvestigations,andfurnishesessentialfactsintheeventoflitigationor Xb legislativeinquiries. >H Purpose  !  Documentsrecordingthekeystepsineachprocurementareimportantforanumberofreasons, "  includingthefollowing: #!   9,X` XxKrX9  0  Youaretakinglegallyandfinanciallysignificantactionsonbehalfofyouragency%###   0  andthepublic.Informationrelatingtotheseactionsneedstobereadilyn&x$##   0  retrievableintheeventthatcontractpersonnelarepersonallyunavailableortheir T'^ % memoryisnotpreciseenoughtoassisttheagencyinmovingforwardwiththe :(D!& administrationofitsprogram.Youmayroutinelyexpectyourcolleaguestotake  )*"' actionsbasedonthefile.*#(##  9, X(#,X` Xx9  0 4 Thekeystepsinaprocurement,includingthoselistedunder"Requirement," +$* above,arefrequentlymaterialelementsinfinancial(e.g.,paymentorwithholding) ,%+ determinationsorlegaldisputes.Writtendocumentationwillhavegreatvalueto -&, youragencyunderthosecircumstances..'-4#4#    N.` ` hp x (#, X(#N     -, X(#` X(#-  0 4 Theagencysprocessmaybereviewed,audited,and/ormaybethesubjectof  in-depthinvestigation.Thisdocumentationisthehistoryofthepublic  procurement.Manyhoursofreconstructingeventsanddecisions,stretching   memories,andevaluatingscenarioscanbesavedwithaconcisefilethatfactually   answersthequestionstypicallyraised.t ~4#4#    N.` ` hp x (#, X(#N Z d    -, X(#` X(#-  0 4 Finally,youreducethelikelihoodofadditionalsupervisionorburdensome @ J restrictionsbeingplacedonyouragencyoryourprocurementprocesswith &0 concisedocumentationofthedecisionsyouaremaking.  4#4#     Manyprocurementreviews,whilefindingfewproblemswiththeunderlyingdecisionsor   procurementresults,mayreachnegativeconclusionsandmakeunwantedrecommendations   simplybecausewellconsidereddecisionswerenotwelldocumented.Notingbrieflywhyyou   didwhatyoudidmayhelpyouandyouragency,aswellassatisfytherequirementsofthe Third   PartyContractingRequirementsCircular. pz    BestPractices  <F Whereappropriate,theprocurementdocumentationfileshouldcontain:      0 4 Purchaserequest,acquisitionplanninginformation,andotherpresolicitation  documents;4#4# ,` ,XXXX ,,`  0 4 Evidenceofavailabilityoffunds;4#4#   0 4 Rationaleforthemethodofprocurement(negotiations,formaladvertising);lv4#4#   0 4 Listofsourcessolicited;4#4#   0 4 Independentcostestimate; (4#4#   0 4 Statementofwork/scopeofservices;w! 4#4#   0 4 Copiesofpublishednoticesofproposedcontractaction;""4#4#   0 4 Copyofthesolicitation,alladdenda,andallamendments;)$3$4#4#   0 4 Liquidateddamagesdetermination;%&4#4#   0 4 Anabstractofeachofferorquote;&(4#4#   0 4 Contractor'scontingentfeerepresentationandothercertificationsandrepresentations;4(>!*4#4#   0 4 Sourceselectiondocumentation;)",4#4#   0 4 ContractingOfficer'sdeterminationofcontractorresponsivenessandresponsibility;*#.4#4#   0 4 Costorpricingdata;?,I%04#4#   -&2   0 4 Determinationthatpriceisfairandreasonableincludingananalysisofthecost4#4#   0 4 andpricedata,requiredinternalapprovalsforaward;4#4#   0 4 Noticeofaward; 4#4#   0 4 Noticetounsuccessfulbiddersorofferorsandrecordofanydebriefing; 4#4#   0 4 Recordofanyprotest;Z d4#4#   0 4 Bid,Performance,Payment,orotherbonddocuments,andnoticestosureties;  4#4#   0 4 Requiredinsurancedocuments,ifany;and  4#4#   0 4 Noticetoproceed.eo 4#4#   Purchaseorderforms(electronicormanual)andstandardfilesforsmallpurchasescanbe 1;  designedtomaketherecordingofmostoftherelevantdataforsmallpurchasesautomatic.Bid !  andproposalfiles,particularlyifyouusesealedbidsunder$100,000canalsobestandardizedto   facilitaterecordingtheappropriatedata.Forlargerprocurements,thereareoftenmemorandaor   correspondencethat,ifassembledinthefile,addressmanyofthekeyissues.  Theprocurementfileandthecontractadministrationfilecanbecoordinatedbystandardpractice,  sothatnothingbetweenbidopening(orproposalreceipt)andnoticeofawardisomitted. {  2.4.2FullandOpenCompetition  GQ  %  % v  (0xy{/ / K+: :` hp x (#, X(#K2.4.2.1FullandOpenCompetitionPrinciple    *lg"iddxjjx:#:#l,dd +   REQUIREMENT  CM  FTACircular4220.1E,Paragraph8.a requiresallprocurementtobeconductedinamanner    providingfullandopencompetition.ThisrequirementfindsitswayintoParagraph9.hofthe   Circularwhichlimitstheuseofnoncompetitivecontractawardstothosesituationswhenthe !  awardofacontractisinfeasibleundersmallpurchaseprocedures,sealedbids,orcompetitive o"y! proposalsandatleastoneofseveralspecificallynamedcircumstancesarepresent.Thus, U#_" contractswithavalueofmorethan$100,000shallbeawardedbysealedbidsorcompetitive ;$E# negotiationunlessthereisanexplicitexception. !%+$  &% FTACircular4220.1E,Paragraph8.aconsidersthefollowingpracticestoberestrictiveof && competition: ' '  (!( 0r4 X#::` X(#064 X#r4 X#6   4 Unreasonablerequirementsplacedonfirmsinorderforthemtoqualifytodo )")    4 business; *#* ,` ,XX k+u$+ K&XX ,,`   4 Unnecessaryexperienceandexcessivebondingrequirements; +$,    4 Noncompetitivepricingpracticesbetweenfirmsorbetweenaffiliatedcompanies; 7-A&. :r4 X#4 X#$: .'0   v N.` hp x (#r4 X#NwXXXXw,` ,XwX#,` , ,w,`'# *l"dddd g"i##l,dd +    -4 X#X(#-XX ,,`   4 Noncompetitiveawardstoanypersonorfirmonretainercontracts;     4 Restrictiveuseofbrandnames; _ i    4 Anyarbitraryactionintheprocurementprocess;and      4 Geographicpreferences. l#  6           %1 X(#4 X#(1DEFINITIONS    Competition-Theprocessbywhichtwoormorevendorsattempttosecurethebusinessofa LV  thirdpartybythemostfavorableprice,quality,andservice. 2<  Exclusionary-Tendingtolimitcompetitionforreasonsotherthanbusinessorbonafidepolicy   goals,suchasprice,quality,andservice.    DISCUSSION  Fullandopencompetitionistheguidingprincipleofprocurementrequirementsand | practices.Youconstantlyseektopermitandencouragemeaningfulinterestandoffers bl fromallentities.Yourpracticesshouldbeselectiveorruleoutofferorsonlyforbusiness HR reasons(cost,quality,anddelivery).Becauseitisofteneasiernottoaccommodatea .8 potentialnewofferor,andeasiertodealwithfewerentities,youmustvigilantlycultivate  waystoincreasecompetitionatreasonableexpense.    Purpose   Theprincipleoffullandopencompetitionhasoneprimaryandtwosecondarypurposes.The  primarypurposeistoobtainthebestqualityandserviceatminimumcost.Inotherwords,toget x  thebestbuy.Thesecondarypurposesaretoguardagainstfavoritismandprofiteeringatpublic ^!h expense,andtoprovideequalopportunitiestoparticipateinpublicbusinesstoeverypotential D"N  offeror. *#4! BestBuy-Theprimarypurposeoffreeandopencompetitionistoobtainforyourcustomers $# (andthepassengers,fundingpartners,andlocalcommunityorothervestedinterest)theoptimum %$ combinationofcostwithgoodsandservices.Themostcost-effectiveprocurement,thegreatest &% value,andthebestbuyareallrelatedterms.Thepremiseisthatsupplierscompetingwitheach ' & otherwillmakeeffortstooptimizethepriceandqualityforyou,eventhoughitminimizestheir (!' profitpercentage. t)~"(   @+J$* Acountervailingviewisthathavingtocompeteincreasesthecostofthegoodsandservices.  Someofferorswillstate,"IfIcanhaveasolesourcecontract,Icanholdthecostdownforyou."  Thisisashort-termperspectivethatisdestructiveinthelongrun.Evenifalowerpricecanbe  obtainedinisolatedcircumstances,theoddsarethatinmostcasesyoucanobtainabetterbuy   throughopencompetition.Asinallprocurementpractices,youcanalsobenefitinthelongrun   fromestablishingahighlyconsistentexpectationonthepartofyoursuppliers;theywillcompete t ~ morecost-effectivelyandwithlessdifficulty,iftheyareconfidentthatfreeandopencompetition Z d isyourconsistentpractice.Tosucceed,youshoulddiligentlyrootoutthetendencytopursue @ J false,shorttermeconomiesoflimitingcompetitioninfavoroffreeandopencompetition. &0 Aprovocativeassertionisthat,"Auniquecharacteristicofgoodpublicpurchasingisthe   underlyingprinciplethatmoreimportanceisultimatelyattachedtothewaysandmeansof     obtainingpricesthantopricesthemselves."  l#  7      ׀Whetherthisistrueorwhetherthebestbuyismore   importantthanthemeansofprocurement,itiscertainlytruethatyoumaybethevoiceinyour   transitsystemforprotectingprocurementprinciples,particularlytheprincipleoffreeandopen   competition,againsttheoccasionalshort-sightedviewsofyourcustomers. pz    FavoritismandProfiteering-Theconcernthatsuppliersorpublicagentsmayprofitunjustlyat <F publicexpensethroughpoorprocurementpracticesisaconstantthemeinthehistoryof ", governmentprocurement.Whileeliminatingunjustgainsdoesservetoachievethebestprice,  theacuteconcernthatsuppliersorpubicofficialsmayexploitpublicprocurementsfortheirown  gainatpublicexpenseisofgreatsignificanceandplaysamajorroleinthepublic'soverall  confidenceinatransitoperatingentity.    Offerors'Opportunity-Scrupulouslyfairtreatmentofallofferorswillfosterthemost  satisfactoryrelationswiththeofferorsinthelongrun.Similarly,afirmexpectationoffreeand lv opencompetitionisgenerallyvaluedbythesuppliercommunity.However,therecanbe R\ circumstanceswhereasupplier'srighttoparticipateisatoddswiththeprocuringagency's 8B interestinthebestbuy.Examinethecaseoffailureofadeliveryagencyorthepostalserviceto  ( deliveraproposaldocument.Althoughmissingtheproposaldeadlinewasnotthefaultofthe ! proposer,itsrighttoparticipateinpublicbusinessdoesnotprevailovertheprocuringagency's ! interestinproceedingwithpublicbusiness.Indeed,insomejurisdictions,adisappointedbidder " hasnostandingtoenforcethecompetitiveprocurementlaws.However,totheextentFederal #  precedentsapplytoyourprocurement,yourofferorshaveanimpliedcontractoffair-dealing $! duringtheprocurementprocess.$ l#  8      ׀Sowhileyourprimarygoalisthebestbuy,andanofferormay %" havenovestedrighttoparticipatenorvestedprofitinterestinthepossibilityofparticipating,the  h&r# offerordoeshavearighttofairdealingduringthesolicitationandselectionprocess.Tothe    extentthatitisnotinconsistentwiththebestbuy,youwillwanttotreatallpotentialofferorsas  fairlyaspossible.   BestPractices    Thefollowingareillustrativeofpracticesyoucanundertaketoadvancecompetition. Z d PartnerInformation-Youcanundertakeoutreachprogramswithyoursupplierpartnersby &0 preparingbrochuresthatgivebackgroundinformationaboutyouragencyandcontainassistance    inthemostpracticalwaystoidentifyopportunitiestodobusinesswithyouragency.   PartnerTreatment-Youcanestablishanethicinyourorganizationoftreatingsuppliersas   partnersinthedeliveryoftransitservice.Everythingfromthetelephonemannerofagencystaff   totheconsiderationshowninarrangingconferencesandpresentationscancontributetoan   increaseincompetition. pz  Advertisement-Atraditionalpracticetoincreasecompetition,andstilloneofthemost <F meaningful,iswidespreadadvertisingtotheextentpractical.Developingeconomicalmeansto ", widenaccesstoyourprocurementadvertisements,suchasuseoftheinternetandprivatebid  roomservices,isanareaworthyofcontinualreviewandeffort.   %  %I2.4.2.2RestraintsonCompetition  2.4.2.2.1BrandNames   *] dddd "##],jj+  :"""'R\R\  :dd REQUIREMENT   d cXX N"""";#  """  NXX cdFTACircular4220.1EParagraph8.a.requires:   XX XE.` hp x (#X(#EXX"Allprocurementtransactionswillbeconductedinamannerprovidingfullandopen !! competition.Someofthesituationsconsideredtoberestrictiveofcompetition "" include,butarenotlimitedto...Specifyingonlyabrandnameproductinsteadof q#{# allowinganequalproducttobeofferedwithoutlistingitssalientcharacteristics." W$a$  XE.` hp x (#X(#EXX  XXParagraph8.c.requires: %&   XE.` hp x (#X(#EXXXX"...Allsolicitationsshall: ' (  XE.` hp x (#X(#EӀ XE.` hp x (#X(#E(1)Incorporateaclearandaccuratedescriptionofthetechnicalrequirementsforthe m)w"* material,product,orservicetobeprocured.Suchdescriptionshallnot,incompetitive S*]#+ procurements,containfeaturesthatundulyrestrictcompetition....  9+C$,  ...Whenitisimpracticaloruneconomicaltomakeaclearandaccuratedescriptionof -&. thetechnicalrequirements,a"brandnameorequal"descriptionmaybeusedasa -&/  XX .'0 XX meanstodefinetheperformanceorothersalientcharacteristicsofaprocurement.The   specificfeaturesofthenamedbrandwhichmustbemetbyofferorsshallbeclerly  stated."  ,` ,XX3)'    """" 3 XE.` hp x (#X(#EXX ,,` DEFINITIONS   # ApprovedEqual-Anitemorservicewhichhasbeenapprovedbytheprocuringagencyasequal   tothebrandnameitemoriginallyspecified.   SalientCharacteristics󀄀Thosequalitiesofanitemthatareessentialtoensurethattheintended y  useoftheitemcanbesatisfactorilyrealized.Thetermismainlyusedinconnectionwitha AK  brandnameorequaldescription,whichshouldsetforththosesalientphysical,functional,or    othercharacteristicsofthereferencedproductthatanequalproductmusthaveinordertomeet   theAuthority'sneeds.   BrandName-Anameofaproductorservicethatislimitedtotheproductorserviceproducedor GQ  controlledbyoneprivateentityorbyaclosedgroupofprivateentities.Brandnamesmay -7 includetrademarks,manufacturernames,ormodelnamesornumbersthatareassociatedwith  onlyonemanufacturer.  DesignSpecifications-Specificationsbasedonthedesignofaproductorservice.Typical  designspecificationsmayincludedimensions,materialsused,commonlyandcompetitively  availablecomponents,andnon-proprietarymethodsofmanufacturing.  PerformanceSpecifications-Specificationsbasedonthefunctionandperformanceofaproduct ]g orserviceunderspecifiedconditions,preferablyconditionsthatcanbereproducedfortesting CM purposes.Performancespecificationsmayincludeusefullife,reliabilityintermsofaverage )3 intervalsbetweenfailure,andcapacity.   DISCUSSION     Brandnames(e.g."MotorolaMetrocom,""WebastoHeater")areamongthemost "  restrictivetypesofspecification.Designandperformancespecificationsarethepreferred #! alternatives.However,insomecasesusingsealedbids,youmaynotbeabletoensureyou s$}" willreceiveanacceptableproductwithoutmentioningabrandname.(Innegotiated Y%c# procurementsthisislessoftennecessarybecauseaperformanceordesignspecificationcan ?&I$ beusedandtheproposedbrandscanbereviewedduringnegotiations.)Ifyoumustusea %'/ % brandnameinyourspecification,youcanstillallowbidderstosubstituteanequalproduct  (!& withadifferentbrandname.Youmayreservetherighttodeterminewhetheraparticular (!' brandormodelisequaltotheoneyouspecified.Ifyouuseabrandnameandallowequal )"( brands,youmustalsospecifythesalientcharacteristicsofthespecifiedbrandthatwillbe *#) amongthecriteriausedindeterminingwhetherasuggestedsubstituteisequaltothe +$* specifiedbrandornot. ,%+   o-y&, Ifagranteebelievesthataspecificbrandnamemustbeusedinaspecificationandthatit   cannotacceptanyalternativeproduct;i.e.,itcannotallowavendortopropose anequal  product,thegranteemustprocessthisasasolesource(noncompetitive)procurement  actionthroughtheproperapprovingofficialswithinthegranteesorganizationpriorto   releaseofthesolicitation.   Purpose  Z d Therestrictiononbrandnamesservesthecentralpurposeofmaximizingfreeandopen &0 competitiontoobtainthebestbuy.Ifyouspecifyabrandnamewithnoopportunityfor    substitution,theoriginalsupplierofthebrandnamehasaneffectivemonopoly.Thisresultsin   exorbitantpricesandcessationofinnovationandproductdevelopment.Incomplexequipment   andconstructioncontractswherealargenumberofcomponentsarespecified,theuseofbrand   namescanbeevenmorerestrictivethaninprocurementofindividualunitsbecausethe   proliferationofbrandnamesdiscouragestheprimecontractorfromconsideringsubstituteswhich   mightcontributetoamorecost-effectiveendproduct.Therefore,inthelongrun,youwillget pz  thebestbuyifyouavoidtheuseofbrandnamesasmuchaspossible. V` Inprocuringcomplexsystems,however,suchasrollingstockandelectronicsystems,where ", reliabilityorotherperformancestandardsaremissioncriticaltoyourtransitservice,youand  yourcustomersmaynotbeabletospecifyacomponentintermsofdesignorperformanceand  stillensurethatyourlowestresponsiveandresponsiblebidderwillofferyouasatisfactory  component.Inthesecases,somepriceandqualitycompetitioncanbepreservedbyallowingthe  substitutionofequalitemswithotherbrandnames.Ifyouaretheonewhowilldeterminewhich  brandnamesareequaltotheonespecified,thenyouhavenotsacrificedanycontroloverthe  qualityoftheproduct.Thiscompetitionbysubstitutionisfacilitatedbylistingthesalient lv characteristics,suchasyouwoulduseifyouusedadesignorperformancespecification,(e.g., R\ "10-yearlifeundervaryingvoltageconditionsoftransitbuselectricalsystems"),sothatbidders 8B willbeabletojudgewhichbrandsmaybeequaltothespecifiedbrand.  (  BestPractices  ! DesignandPerformanceSpecifications-Youcanworkwithyourcustomerstoseeifbrand #  namescanberemovedfromthespecificationbysubstitutingdesignorperformance $! specifications.Likemanyofthequalitiesoffullyopenandcompetitiveprocurementpractices, %" thisisaneffortthatmayseemover-zealousunderthetimepressureofaspecificprocurement, h&r# butyoucanconstantlyseektoremoverestrictionsandimprovethecompetitivenessofyour N'X $ procurementprocessessothatyougenerallyachievethebestbuy.Ifadequatedesignand 4(>!% performancespecificationscannotbeprepared,listingseveralacceptablebrandnamesisfar )$"& betterthanspecifyingjustone. * #' "OrApprovedEqual"-Wheneverbrandnamesareused,thereareseveralwaysyoucanclarify +$) beyondadoubtthatthebrandnameisusedmerelyasaspecificationandnotasastatementofa ,%*  preferenceforthespecificproductspecified.Onewayistoincludeaphrasesuchas"orequal," -&+ "orapprovedequal,"or"similarindesign,constructionandperformance"withthebrandname.  Manystandardequipmentandconstructiondocumentsalsocontainaclauseinthegeneral     provisionsthatstatesthatevenifthephrase"orapprovedequal"isinadvertentlyomitted,itis  impliedafteranybrandname.Ifyouspecify"orequal,"youshallclearlysetforththose   minimumessentialcharacteristicsandstandardstowhichthematerial,productorservicemust   conformifitistosatisfyitsintendeduse. l#  9       t ~   Someoftheonusofrestrictionisliftedforalargevolumeoftransitprocurementsbythe Third @ J PartyContractingRequirementsCircular'ssanctionfornoncompetitiveprocurementof &0 associatedcapitalmaintenanceitemsfromtheoriginalequipmentmanufacturer.TheCircular    states:     Procurementbynoncompetitiveproposalsmaybeusedonlywhentheawardofa   contractisinfeasibleundersmallpurchaseprocedures,sealedbids,orcompetitive   proposalsandatleastoneofthefollowingcircumstancesapplies:(e)theitemisan   associatedcapitalmaintenanceitemasdefinedin49U.S.C.5307(a)(1)thatisprocured pz  directlyfromtheoriginalmanufacturerorsupplieroftheitemtobereplaced. K l#  10       V`     TheCircularrequires,however,that"thegranteemustfirstcertifyinwritingtoFTA;(a)that ", suchmanufacturerorsupplieristheonlysourceforsuchitem;and(b)thatthepriceofsuchitem  isnohigherthanthepricepaidforsuchitembylikecustomers." l#  11          ApprovalProcess-Ifyouhavelistedenoughsalientcharacteristicsandthebrandnameisan  insignificantfactorintheoverallprocurement,youmaysimplifytheprocurementbynot  requiringapproval.Thecontractorwouldthenhavetherighttosubstituteaproduct.The  ultimatedeterminationofwhetherthesubstitutewasequaltothebrandspecified,ifcontested, lv wouldbethroughthedisputeresolutionprocessculminatinginthecourts. R\   Thebetterpractice,however,istoprovideanapprovalprocess,preferablypriortobidopening,  ( sothatbidders,infinalizingtheirbidswillbeconfidentabouttheirrighttosubstituteabrand ! theyconsidertobemorecost-effectivethantheonespecified.Thiswillalsogiveyouconfidence ! abouttheproductorserviceyouwillreceive.(Brandnamesmaybeusedincompetitive " negotiationforcomplexsystems,buttheapprovalprocessneedonlyrequireapprovalpriorto #  awardratherthanatproposalsubmission.Approvalofequalbrandsisusuallysimplyapartof $! thediscussionsornegotiations.)Youwillwanttoavoidrequiringbidderstowaituntilafter %"   h&r# awardtoobtainapproval,becauseadisapprovalatthattimemayplaceabidder(nowcontractor)  infinancialjeopardyandmaypromptlitigation.  Ifyouwanttorequirepre-bidapproval,thesolicitationcanspecifyatimeandformatfor   requestingapprovalofequalbrands.Typically,thisisthesametimeandformatusedfor   requestingotherchangesinthespecifications. t ~ Approverequestsforsubstitutionwheneveryoudeterminethattheofferedproductisequalinall @ J materialrespectstotheproductsreferenced.Offersneednotberejectedbecauseofminor &0 differencesindesign,construction,orfeatures,whichdonotaffectthesuitabilityoftheproduct    foritsintendeduse.   Determinationstypicallyidentify,orincorporatebyreference,identificationofthespecific   products,whichthecontractoristofurnish.Suchidentificationcanincludeanybrandname,   makeormodelnumber,anddescriptivematerial.Youmaywanttoissueyourdetermination,   particularlyanyapproval,toallbiddersbyaddendumorasyourproceduresprovide.(Insome pz  competitivenegotiationswhereearlyandopendiscussionofcreativeintegrationofsubstitute V` brandsisimportant,issuanceofapprovalstocompetingproposersisconsideredtoconstitute <F levelingtheplayingfield,whichwoulddiscourageopennegotiations.Youcanconsiderkeeping ", designinnovationsconfidentialbutissuingapprovalofequalbrandnamestoallproposers.)As  withothersubstantiveaddendatoasolicitation,considerextendingthebidperiodifthe  approvalsareissuedshortlybeforethescheduledbidopening,toallowallbidderstotake  advantageoftheinformationpriortothebidopening.  Evenifyouhaveapre-bidapprovalprocess,acontractorcannormallyrequestadditional  approvalsafteraward.Considerclarifyinginyoursolicitationthatthecontractorwhowaitsuntil lv afterawardproceedsatitsownrisk. R\   %  %  2.4.2.2.2WrittenStandardsofConductandConflictsofInterest:Personaland  ( 0  Organizational !##   WrittenStandardsofConduct  " wXXXX*l"ddjj##l,dd +  $!$  REQUIREMENT  % " #XXXwX#49CFR18.36(b)(3)establishesfortheDepartmentofTransportationthegovernmentwide z&# requirementthatstateandlocalgovernmentgrantrecipientsmusthavewrittenstandardsof `'j $ conductforprocurementpersonnel. F(P!% 0 l Granteesandsubgranteeswillmaintainawrittencodeofstandardsofconduct 4!  *#' governingtheperformanceoftheiremployeesengagedintheawardandadministration @#  *$( ofcontracts.Noemployee,officeroragentofthegranteeorsubgranteeshall +$) participateinselection,orintheawardoradministrationofacontractsupportedby @!  ,%* Federalfundsifaconflictofinterest,realorapparent,wouldbeinvolved.Sucha-&+l<#l<#  .',  *lu"vdddd "##l,dd +    ??( 4 <DLX(#?conflictwouldarisewhen:(i)Theemployee,officeroragent,(ii)Anymemberofhis Zd immediatefamily,(iii)Hisorherpartner,or(iv)Anorganizationwhichemploys,oris @J abouttoemploy,anyoftheabove,hasafinancialorotherinterestinthefirmselected & 0  l foraward.Thegrantee'sorsubgrantee'sofficers,employeesoragentswillneither   solicitnoracceptgratuities,favorsoranythingofmonetaryvaluefromcontractors,   potentialcontractors,orpartiestosubagreements.Granteeandsubgranteesmayset   minimumruleswherethefinancialinterestisnotsubstantialorthegiftisanunsolicited   itemofnominalintrinsicvalue.TotheextentpermittedbyStateorlocallawor   regulations,suchstandardsorconductwillprovideforpenalties,sanctions,orother   disciplinaryactionsforviolationsofsuchstandardsbythegrantee'sandsubgrantee's pz  officers,employees,oragents,orbycontractorsortheiragents.Theawardingagency V`  mayinregulationprovideadditionalprohibitionsrelativetoreal,apparent,orpotential <F  conflictsofinterest. ",   ?  ?( 4 <DL4X? s(80 ! !  <(4 4` <DLX<49C.F.R.Sec.19.42imposesthesamerequirementforinstitutionsofhighereducation,   hospitalsandothernonprofitorganizations.   B( 4 <DL44, XB7?+ ` hp x X?  7  7l݌̌ XX  ?<( 4 <DLX<Therecipientshallmaintainwrittenstandardsofconductgoverningtheperformanceof  itsemployeesengagedintheawardandadministrationofcontracts.Noemployee,  officer,oragentshallparticipateintheselection,award,oradministrationofacontract lv supportedbyFederalfundsifarealorapparentconflictofinterestwouldbeinvolved. R\   Suchaconflictwouldarisewhentheemployee,officer,oragent,anymemberofhisor ( herimmediatefamily,hisorherpartner,oranorganizationwhichemploysorisabout  toemployanyofthepartiesindicatedherein,hasafinancialorotherinterestinthe  firmselectedforanaward.Theofficers,employees,andagentsoftherecipientshall  neithersolicitnoracceptgratuities,favors,oranythingofmonetaryvaluefrom  contractors,orpartiestosubagreements.However,recipientsmaysetstandardsfor  situationsinwhichthefinancialinterestisnotsubstantialorthegiftisanunsolicited   itemofnominalvalue.Thestandardsofconductshallprovidefordisciplinaryactions h!r tobeappliedforviolationsofsuchstandardsbyofficers,employees,oragentsofthe N"X recipient. 4#>    ??( 4 <DL4X?<(4 4` <DLX<Paragraph7.cofFTACircular4220.1EimplementsthisrequirementforFTAgrantrecipients: % "   8 @ 8l@"@"Granteesshallmaintainawrittencodeofstandardsofconductgoverningthe &$ performanceoftheiremployeesengagedintheawardandadministrationof ' % contracts.Noemployee,officer,agent,immediatefamilymember,orBoard (!& memberofthegranteeshallparticipateintheselection,award,oradministration ~)"' ofacontractsupportedbyFTAfundsifaconflictofinterest,realorapparent d*n#( wouldbeinvolved.J+T$)l l  0 @ 0l@<#@<#Suchaconflictwouldarisewhenanyofthefollowinghasafinancialorotherinterestin - &+ thefirmselectedforaward:  ԍ(!&l<#l<# Ў̎ @  l 1.Theemployee,officer,agent,orBoardmember, d*n#(  @  l 2.Anymemberofhis/herimmediatefamily, 0,:%* Ў  $-',l<#l<#  $Ї*l"dddd u"v##l,dd +     ?B( 4 <DL44, XB1.Theemployee,officer,agent,orBoardmember, Zd XX#XX/#2.Anymemberofhis/herimmediatefamily,   XX #XX#3.Hisorherpartner,or   XX#XX1#4.Anorganizationthatemploys,orisabouttoemploy,anyoftheabove. I S &%XX  #XX%&֥#?( 4 <DL4X?Thegrantee'sofficers,employees,agents,orBoardmemberswillneithersolicitnot    acceptgifts,gratuities,favors,oranythingofmonetaryvaluefromcontractors,potential   contractors,orpartiestosubagreements.Granteesmaysetminimumruleswherethe   financialinterestisnotsubstantialorthegiftisanunsoliciteditemofnominalintrinsic   value.Totheextentpermittedbystateorlocallaworregulations,suchstandardsof   conductwillprovideforpenalties,sanctions,orotherdisciplinaryactionforviolationof   suchstandardsbythegrantee'sofficers,employees,oragents,orbycontractorsortheir fp  agents. LV   2<   K? SXXConflictsofInterest:PersonalandOrganizational  .8 *] dddd "##],bb+  :' : d cXXXX cdREQUIREMENTS  (2 d cXX N;#    NC cd  (08s7 y{(y0  K  B.` hp x (#SXBXXCAsanethicsrequirement,Section3(a)oftheFTAMasterAgreementrequiresthewritten  standardsofconducttoencompassbothpersonalandorganizationalconflictsofinterestand nx definesthemasfollows: T^   H.` hp x (#X(#H  (8yy{ uB+% %` hp x (#X(#B1.PersonalConflictsofInterest.TheRecipient'scodeorstandardsofconductshall  * prohibittheRecipient'semployees,officers,boardmembers,oragentsfrom  participatingintheselection,award,oradministrationofathirdpartycontractor  subagreementsupportedbyFederalfundsifarealorapparentconflictofinterest    wouldbeinvolved.Suchaconflictwouldarisewhenanyofthefollowingparties !!   Iu-[ X#%%` X(#-  hasafinancialorotherinterestintheentityselectedforaward:(a)anemployee, ""   officer,boardmember,oragent;(b)anymemberofhisorherimmediatefamily;(c) ##   hisorherpartner;or(d)anorganizationthatemploys,orintendstoemploy,anyof j$t$   theabove. P%Z% 2.OrganizationalConflictsofInterest.TheRecipient'scodeorstandardsofconduct '& '   mustincludeproceduresforidentifyingandpreventingrealandapparent ( !(   organizationalconflictsofinterest.Anorganizationalconflictofinterestexists (!)   whenthenatureoftheworktobeperformedunderaproposedthirdpartycontract )"*   orsubagreementmay,withoutsomerestrictionsonfutureactivities,resultinan *#+   unfaircompetitiveadvantagetothethirdpartycontractororsubrecipientorimpair +$,   itsobjectivityinperformingthecontractwork. ,%-  IK.` hp x (#[ X#K L.V'/  y{(y8  E.` hp x (#X(#E  49CFR18.36(c)(v)and49CFR19.43prohibitorganizationalconflictsofinterestas  restrictiveofcompetition.Section19.43furtherstatesasfollows:   y{(yyy{ڮ   0 > 0j>\#>\#Allprocurementtransactionsshallbeconductedinamannertoprovide,tothemaximum   extentpractical,openandfreecompetition.Therecipient[[Page167]]shallbealertto |  organizationalconflictsofinterestaswellasnoncompetitivepracticesamong b l contractorsthatmayrestrictoreliminatecompetitionorotherwiserestraintrade.In H R ordertoensureobjectivecontractorperformanceandeliminateunfaircompetitive .8  advantage,contractorsthatdevelopordraftspecifications,requirements,statementsof   work,invitationsforbidsand/orrequestsforproposalsshallbeexcludedfrom   competingforsuchprocurements.Awardsshallbemadetothebidderorofferorwhose   bidorofferisresponsivetothesolicitationandismostadvantageoustotherecipient,   price,qualityandotherfactorsconsidered.Solicitationsshallclearlysetforthall   requirementsthatthebidderorofferorshallfulfillinorderforthebidoroffertobe   evaluatedbytherecipient.Anyandallbidsoroffersmayberejectedwhenitisinthe x  recipient'sinteresttodoso.^hj\#j\#    H.` hp x (#X(#H DN    H.` hp x (#X(#H40CFR1506.5(c)concernstheengagementofaconsultantforthepreparationofan *4 environmentalimpactstatement.Itstatesthefollowing:      H.` hp x (#X(#H I  E.` hp x (#X(#EEnvironmentalimpactstatements.ExceptasprovidedinSecs.1506.2and1506.3any  environmentalimpactstatementpreparedpursuanttotherequirementsofNEPAshall  beprepareddirectlybyorbyacontractorselectedbytheleadagencyorwhere  appropriateunderSec.1501.6(b),acooperatingagency.Itistheintentofthese  regulationsthatthecontractorbechosensolelybytheleadagency,orbythelead t~ agencyincooperationwithcooperatingagencies,orwhereappropriatebya Zd cooperatingagencytoavoidanyconflictofinterest.Contractorsshallexecutea @J disclosurestatementpreparedbytheleadagency,orwhereappropriatethecooperating & 0 project.Ifthedocumentispreparedbycontract,theresponsibleFederalofficialshall  ! furnishguidanceandparticipateinthepreparationandshallindependentlyevaluatethe ! statementpriortoitsapprovalandtakeresponsibilityforitsscopeandcontents. "  Nothinginthissectionisintendedtoprohibitanyagencyfromrequestinganypersonto #! submitinformationtoitortoprohibitanypersonfromsubmittinginformationtoany $" agency. %# <20p&z$     <  ^'h $ DISCUSSION D(N!%  *)4"& A.  WhyConflictsofInterestPoseaProblem  *#'    *$(   Everycitizenisentitledtohaveconfidenceintheintegrityofgovernment.Therefore,when +$)  I usingpublicfundsforthepurchaseofgoodsorservices,eachFTAgranteemustpreventits ,%* personnelfromtakinganyactionthatmightresultinorevencreatetheappearanceofa  -&+ personalororganizationalconflictofinterest.Avoidingconflictsofinterest,throughthe  implementationofwrittenstandardsofconduct,benefitsthegranteeinmanywaysandleadstoa  moreefficientandcredibleorganization,whilefailuretodealwithconflictsmaynotonly  adverselyimpacttheprojectitselfbutmayalsojeopardizethegranteesabilitytoreceiveorretain   federalfunds.) l#  12          B.  ResponsibilityofGrantee  Z d   Thegranteeisresponsibleforavoidingbothpersonalandorganizationalconflictsofinterest. &0 Thus,granteesshouldbevigilantinpreventingandmitigatingpossibleconflicts .      C.  StandardsofConduct        Eachgranteemusthavewrittenstandardsofconductgoverningtheperformanceofitspersonnel   involvedintheselection,awardand/oradministrationofcontracts.5 l#  13      Thestandardsmust   prohibitthegrantee'sorsubgrantee'sofficers,employeesoragentsfromsolicitingoraccepting pz  gratuities,favorsorthingsofmonetaryvaluefromcontractors,potentialcontractors,orpartiesto V` subagreements.Thestandardsmaycontainminimumruleswherethefinancialinterestisnot <F substantialorthegiftisanunsoliciteditemofnominalintrinsicvalue.Totheextentpermittedby ", Stateorlocallaworregulations,thestandardsshouldprovideforpenalties,sanctions,orother  disciplinaryactionsforviolationsofsuchstandardsbythegrantee'sandsubgrantee'sofficers,  employees,oragents,orbycontractorsortheiragents.Thesewrittenstandardsmustprohibit  personalandorganizationalconflictsofinterest,realandapparent.   D.  PersonalConflictsofInterest       PersonalConflictofInterest:Apersonalconflictofinterestariseswhenoneofthegrantees R\ employees(includingcontractoremployees),officers,boardmembers,oragents(including 8B outsideconsultants)involvedintheselection,awardoradministrationofathirdpartycontractor  ( subagreement9 l#  14      supportedbyFederalfundsoramemberofhisorherimmediatefamily, ! partner,oroutsideemployerorprospectiveemployerhasafinancialinterestintheentity !   " selected,orcompeting,forthecontract.= l#  15      Apersonalconflictofinterestalsoariseswhereany  granteeemployee,officer,boardmember,oragentsolicitsoracceptsgifts,gratuities,favors,or  anythingofmonetaryvaluefromacontractor,potentialcontractor,orpartytoasubagreement.AG l#  16      ׀  Inaddition,apersonalconflictofinterestariseswhereanysuchpersonuseshisposition,ornon   publicinformationgainedduringhisworkforthegrantee,forpersonalgain,includinggain   inuringtoanimmediatefamilymember,partner,orcurrentorpotentialemployer.These t ~ scenarioscanresultinpotentialorganizationalconflictsforemployers,orpersonalconflictsof Z d interestfortheindividual. @ J     2HXXjH    8 &  &  XXjXXXXE.  OrganizationalConflictsofInterest& cԌ    ЌXXXXXXXX 2  '  OrganizationalConflictofInterest:Anorganizationalconflictofinterestoccurswherebecause    ofotheractivities,financialinterests,relationships,orcontractsacontractorisunable,or   potentiallyunable,torenderimpartialassistanceoradvicetothegrantee;thecontractors   objectivityinperformingthecontractworkisormightbeimpaired;oracontractorhasanunfair   competitiveadvantage.E  l#  17      Organizationalconflictsofinterestcancausetwodistinctproblems:   biasandunfaircompetitiveadvantage.II l#  18              T^ Biasariseswhenacontractorisplacedinasituationwhereitmayhaveanincentivetodistortits  adviceordecisions.Wheneverthegranteeisawardingacontractthatinvolvestherenderingof  advice,thegranteemustconsiderwhetherthereexiststhepotentialforaconflictofintereston  thepartofthecontractorrenderingtheadvice.L l#  19           Unfaircompetitiveadvantageoccurswhenonecontractorhasinformationnotavailabletoother t ~ contractorsinthenormalcourseofbusiness.Forexample,anunfaircompetitiveadvantage Z d wouldoccurwhenacontractordevelopingspecificationsorworkstatementshasaccessto @ J informationthatthegranteehaspaidthecontractortodevelop,orinformationwhichthegrantee &0 hasfurnishedtothecontractorforitswork,whenthatinformationhasnotbeenmadeavailableto    thepublic.Becausethisinformationenhancesthecontractorscompetitivepositioninthe   procurementprocess,itrepresentsanunfaircompetitiveadvantageovertheotherofferors.One   solutiontothisproblemistofullydiscloseallinformationtoallprospectiveofferorsfora   reasonableperiodoftimepriortothegranteesreceiptofproposalsforthefollowonwork.   Anotherexamplewhereanunfaircompetitiveadvantagemightariseiswhereacontractoris   allowedtowritespecificationsorstatementsofworkarounditsownoranaffiliatescorporate pz  strengthsorproductsandthencompeteforacontractbasedonthosespecifications.Thegrantee V` canpreventsuchanunfairadvantagebyplacingreasonablerestrictionsorevenaprohibitionon <F thecontractorsinvolvementinthesubsequentprocurement.Ifanindividualemployeehas ", accesstoinsideinformation,apossiblesolutionwouldbetowalloffthatemployee,sohecannot  givehisemployeranunfaircompetitiveadvantage.Granteesshouldexercisecarethat  specificationsdonotprovideanunfaircompetitiveadvantagetoanyparty.Granteesshouldalso  bealerttoaffiliationsamongcontractorsthatmightgiveonecontractoranunfaircompetitive  advantageoverothers.  Note:Acompetitiveadvantageisnotalwaysunfair.Acontractormayhaveafaircompetitive lv advantagebyvirtueofitspriorexperience,itsexpertise,itsmoreefficientoperations,etc. R\ Occasionallyanincumbentcontractormayhavewhatappearstobeaninsurmountable 8B competitiveadvantagebyvirtueofitspreviousworkforthegrantee.Anadvantageofthistype  ( maynotnecessarilybeunfair. ! #" 2HXXjH    8"#&  "  XXjXXXXF.  The AppearanceofConflictStandard" sԌ " ЌXXXXXXXX 2  '&Asstatedabove,FTArulesprohibitconflictsofinterestbothrealandapparent.Thisrule $! appliestobothpersonalandorganizationalconflictsofinterest.Thus,eachgranteeswritten %" codeofconductmustprohibitrealandapparentconflicts,notjustactualconflictsofinterest.The &# granteeshouldutilizethe reasonablenessstandardtodeterminewhetheran apparentconflict  ' $ ofinterestexists:Wouldareasonablepersonwithallthematerialfactsbelievethereappearsto  beaconflict?  p z  2HXXjH    8 p z&    XXjXXXXG.  EnvironmentalConsultantsf s-Ԍ   ЌXXXXXXXX 2  ' Z  TheCouncilonEnvironmentalQuality(CEQ)hasenactedregulationsthataddresstheuseof   consultantsintheenvironmentalprocess.P l#  20      Theseregulationsareintendedtopreventcontractors   whoarehiredtostudyalternativesandpotentialenvironmentalimpactsofproposedprojects r | frompresentingandprofitingfrombiasedrecommendations. Xb   TheCEQregulationat40CFRSection1506.5 prohibitsapersonorentityfromenteringintoa $.  contractwithafederalagencytoprepareanenvironmentalimpactstatement(EIS)whenthat    partyhasatthattimeandduringthelifeofthecontractpecuniaryorotherinterestsinthe   outcomesoftheproposal.Thus,afirmwhichhasanagreementtoprepareanEISfora   constructionprojectcannot,atthesametime,haveanagreementtoperformtheconstruction,nor   coulditbetheowneroftheconstructionsite.See GuidanceRegardingNEPARegulations,   48Fed.Reg.34263(July18,1983).FTArecognizedthisprincipleinthebidprotestcaseof  JMAv.LACMTA,MTARFP#PS43100964(2001),holdingasfollows: FTAunderstands nx theCEQregulationstoprohibitanEIScontractorfrombeingawardedacontractthatincludes T^ workdependentuponthecompletionoftheEISandissuanceofaROD. :D CEQrulesdonotprohibitaconsultantresponsibleforpreparinganEISfromsubmittinga  proposalonworkconnectedwiththeprojectafterthecompletionoftheEIS.Indeed,inguidance  offeredbytheCEQ,theCouncilexpressedconcernthat someagencieshavebeeninterpreting  theconflictsprovisioninanoverlyburdensomemanner.See GuidanceRegardingNEPA  Regulations,48Fed.Reg.34263(July18,1983).TheCouncilexplainedthat, [i]nsome  instances,multidisciplinaryfirmsarebeingexcludedfromenvironmentalimpactstatement  preparationcontractsbecauseoflinkstoaparentcompanywhichhasdesignand/orconstruction jt capabilities.Somequalifiedcontractorsarenotbiddingonenvironmentalimpactstatement P Z contractsbecauseoffearsthattheirfirmmaybeexcludedfromfuturedesignorconstruction 6!@ contracts8.Theresultofthesemisunderstandingshasbeenreducedcompetitioninbiddingfor "& EISpreparationcontracts,unnecessarydelaysinselectingacontractorandpreparingtheEIS, #  andconfusionandresentmentabouttherequirement.Thus,theCouncildoesnotprohibitan #  EIScontractorfrombiddingonworkconnectedwiththeprojectafterthecontractorhas $! completedallperformancerequiredfortheEIS,butitdoesprohibitsituationswherethe %" contractorhasaninterestintheoutcomeoftheEIS atthattimeorduringthelifeoftheEIS &# contract. ' $   L)V"& H.  InsistingonImpartiality   Eachgranteeisentitledtoimpartialadvicefromitsconsultants,basedsolelyonwhatisbestfor  thetransitsystemandthecommunity,andnotforthebenefitofpersonswithconflicting   financialorotherinterests.Foradditionalprotection,thegranteenotonlyshouldenforceitsown   writtenstandardsofconductbutinsist,perhapsthroughtheuseofcertifications,thateachofits t ~ employees,boardmembers,officers,orotheragents(aswellascontractorpersonnel)observe Z d anyrelevantcodeofprofessionalresponsibilitygoverninghisorherconduct,suchasthecodes @ J governingtheconductoflawyers,engineers,architects,planners,andaccountants.Amongother &0 things,thisrequirementwoulddemonstratetothegranteesemployeesandcontractorsthe    importanceplacedbythegranteeonavoidingconflictsofinterest.    I.  GranteeDecisiontoProceedinSpiteofConflictofInterest.      Finally,whenagranteehasdoneallthatreasonablycanbedonetoavoid,neutralize,ormitigate   arealorapparentconflictofinterest,andifitisinthegranteesbestinteresttoproceedwiththe pz  contractdespitetheconflict,thegranteeneedstodocumentitsdecision.Documentationshould V` includewhatstepsweretakenorconsidered,andjustificationfortheconclusionreached,before <F proceedingwiththecontract.S l#  21       ",  HXX       2  XXH 2 ondԌ̌XXXX   HXX        XXHBestPractices  j onRԌ  ЌXXXX    EveryAgencyemployeeinvolvedintheawardoradministrationofcontractsmustbegivena  copyoftheAgency's(orState's)writtenstandardsofconduct,andtheyshouldberequiredto  signastatementthattheyarefamiliarwithandwillabidebythesestandards.W l#  22      ׀Thesestatements  shouldbesignedasaconditionofemployment.Itwouldbewelltoreviewandsignthemagain lv annuallyaspartoftheemployee'sannualperformanceevaluationasameansofreinforcingthe R\ importanceofethicalconductbytheAgency'semployees. 8B     InsomeAgencies,theGeneralManagerhasissuedamemorandumtoallemployees ! summarizingthemostsensitiveissuesdealingwithethicalconductandemphasizingthe ! importanceofavoidingeventheappearanceofconflictsofinterest.OnepublicAgencyhas " insertedsuchamemorandumintoitsProcurementManual,togetherwiththestandardsof #  conduct.ZP l#  23       $!    h&r# Oneareaofparticularsensitivityconcerns"outsideemployment."Employeesmustunderstand  whatkindsofactivitiesoroutsideemployment(actualorprospective)areinconsistentwiththeir  Agencyresponsibilities;e.g.,furnishingadviceorservicestoafirmwhichisbiddingonor  planningtobidonacontractwiththeAgency,orwhichisdoingbusinesspresentlywiththe   Agency.Onestrategyemployedbyfirmsbiddingoncontractsistoofferemploymenttocritical   procurementortechnicalpersonnelworkingontheprocurement(ifthefirmisselectedfor t ~ award).Thiskindofsituationcreatesafinancialconflictofinterestforthoseemployeesto Z d whomoffershavebeenmade.Employeesneedtobeforewarnedoftheseandsimilartactics @ J whichtheymayencounterinthecourseoftheirAgencywork.TheAgencymaywanttoconduct &0 trainingsessionsforallAgencypersonneldoingsensitiveworkintheacquisitionofAgency    equipmentorservices.   ManypublicAgencieshaveadopteddisclosurestatementrequirementsforcertainpositions.   Thesedisclosurestatementsrequirethatemployeesoccupyingdesignatedpositionswithinthe   Agencydisclosetheirinvestmentsinbusinesseswhichengageincertainactivitiesrelatedtothe   businessoftheAgency.Reportableinterestsmightincludecompaniesengagedinmanufacturing pz  railtransitrollingstockandrelatedcomponents,transitequipmentsuppliers,construction V` companiesengagedintransitsystems,etc. <F TheFTACircularrequirespenalties,sanctions,orotherdisciplinaryactionforviolationofthe  standardsofconductbythegrantee'semployeesorbycontractors.Thelackofexplicitpenalties  ingrantees'procurementpoliciesandproceduresisarecurringobservationmadeintheFTA  ProcurementSystemReviews.Granteesneedtoadoptexplicitwrittenpenaltiesfortheir  employeesandcontractorswhoviolatetheirstandardsofconduct.  =S S B+ ` hp x X(#B  & 7 =  =V݌̌! X(#X! S   2HXXjH    8  XXjXXXXProceduralSuggestions} onPԌ  ЌXXXXXXXX 2  '7JThefollowingisanoutlineofthestepsthateachgranteeshouldconsidertakingbeforeand  duringtheprocurementprocessandduringprojectadministration.Conflictsalsocanoccureven   beforetheprecontractingphasebegins,sogranteesshouldalwaysbevigilanttothepossibility ! ofaconflict.  o"y A.  THEPRECONTRACTINGPHASE ;$E  1.  PrepareWrittenCodesofStandardsofConduct. FTArequiresthateachofits &" granteesmaintainawrittencodeofstandardsofconductapplicabletoitsemployees(including &# contractoremployees),officers,boardmembers,andagents(includingoutsideconsultants) ' $ involvedintheselection,awardoradministrationofcontracts.Eachgranteeshouldconsultwith (!% itscounsel,aswellasitsprocurementpersonnel,astowhetheritscodeofconductcomplieswith )"& FTAsrequirementsassetforthinSection3ofFTAsMasterAgreement,Paragraphs7(c)and *#' 8(a)(5)ofFTACircular4220.1E,ThirdPartyContractingRequirements,and49CFR18.36 k+u$( andPart19,asapplicable.Moreover,thegranteeshouldprovideacopyofitscodeofconductto Q,[%) eachofitsemployees,boardmembers,officers,andotheragents. 7-A&*  .''+   2.  RequireFinancialDisclosureStatementsand/orNonConflictCertifications. When  determininghowtodealwithpotentialconflictsofinterest,agranteemaychoose proactive  measures, reactivemeasures,oracombinationapproach. Proactivemeasuresaredesigned  toidentifyandpreventpotentialconflictsprospectively.Forexample,agranteeinterestedin   employingproactivemeasuresshouldconsiderrequiringeachofitsemployees(andothers   potentiallyinvolvedintheprocurementprocess)tofileanannualdisclosurestatement t ~ concerninghisorherfinancialandemploymentstatusandthatofimmediatefamilymembers(to Z d theextentstateandlocallawpermitsuchafinancialdisclosurerequirement).] l#  24      ׀Withthis @ J informationonfile,thegranteecan proactivelydetermine,aheadoftime,whetheranyofits &0 employees(etc.)haveinterestsinanyofthepotentialoractualcontractorsonaparticularproject.    Thegrantee,forexample,canrunasearchontheparents,subsidiaries,andaffiliatesofbidders   andcontractors,aswellasonanycompanieslistedonemployeedisclosurestatements,andgeta   broadpictureofanypotentialconflicts.Ifaconflictisdiscovered,thegranteecanagain,    proactivelywalloffanyemployeewhomayhaveapotentialconflictfromaparticular   project,thusavoidingtheneedforlateraction.     Insomecasesagranteemayrequireitscontractingpersonnel(officers,boardmembers,agents, V` etc.,asapplicable)tosubmita nonconflictcertificationonaprojectbyprojectbasis,before <F thatpersoncommencesworkontheselection,awardoradministrationofacontract.Such ", certificationwouldstatethatneithertheemployee(etc.)noranymemberofhisorherimmediate  familyhasafinancialoremploymentinterestinanyoftherelevantbiddersorcontractorsforthe  procurementinquestion.Iftheemployeeidentifiesarealorapparentconflictofinterest,then  thegranteecantakeactiontomitigateit.Thisisadifferent,somewhat reactive,approachthan  requiringannualfinancialdisclosurestatements.  Thereareprosandconstobothapproaches.Withannualfinancialdisclosurestatements,the lv granteeattemptstoidentifyandmitigateconflictsasearlyaspossibleintheprocurement R\ process;butinorderforthisapproachtobeeffective,thegranteesreviewermustbothreview 8B thedisclosurestatementsandperformrelevantresearchaswellasbeawareofthevarious  ( corporateinterconnections.Anadvantageofaprojectspecificdisclosurestatementisthatit ! servesasaregularremindertoemployeesoftheimportanceofconflictavoidance,andthusmay ! preventsomeconflictsofinterestfromarisinginthefirstplace.Realistically,however,requiring " disclosurestatementsonaprojectbyprojectbasisgenerallyistooonerousforthegranteesthat #  handlemanyprocurementseveryyear.Moreover,thissomewhat reactiveapproachputsa $! seriousburdenontheindividualemployee(etc.)to selfcertifythathehasnoconflictona %" particularproject,withtheunderstandingthatthegranteewillholdhimaccountableforthe h&r# veracityofthatcertification.Itisalsopossiblethatanindividualemployee,unawareofthe N'X $ ownershiporotherlinksbetweenprospectivebiddersorcontractorsandthefinancialinterestshe 4(>!% holds,mayunknowinglyselfcertifythatnoconflictexists. )$"& Thetwoapproaches,however,arenotmutuallyexclusive,andthebestapproachmaybea *#( combinationofproactiveandreactivetools.Ultimately,eachgranteemustdetermineforitself +$) thepreferableapproach,consideringthecostsinvolvedinadministeringitsprogramandany  othermatterthegranteedeemspertinenttothedecision.Asindicatedabove,anyprogram  requiringcertificationsordisclosurestatementsfromemployeesalsoshouldapplythose  requirementstotheothercategoriesofindividualslistedinFTACircular4220.1E,specifically,   officers,boardmembers,andagents,includingconsultantsandcontractorsinvolvedinthe   selection,awardoradministrationofcontracts.Finally,thegranteeshouldaskitscounselto t ~ reviewtheformofitsfinancialdisclosurestatementsornonconflictcertificationsfor Z d compliancewithlocal,state,andfederallawbeforetheyareissued. @ J  3.  ObtainCertificationsofCompliancewithProfessionalCodesofConduct. The    granteeshouldconsiderrequiringeachofitsemployees,boardmembers,officers,andagentsto   identifyinwritinganycodeofprofessionalresponsibilitygoverninghisorherconduct,andto   certifythattothebestofhisorherabilityheorshewillcomplywiththatcodewhenever   conductingbusinessonbehalfofthegrantee.Tobeeffective,sucharequirementmustbe   coupledwithamechanismforreportingviolationstotheappropriateenforcemententity.    4.  PrepareWrittenProceduresforAddressingPersonalandOrganizationalConflicts V` ofInterest. 󀀀Thegranteeswrittenproceduresshouldestablishnotonlyameansofidentifying <F conflictsbutalsoapredictablemethodofresolvingthem.Forexample,onceapersonalconflict ", hasbeenidentified,mitigatingmeasuresmayincludecreationofblindtrusts,recusalorother  limitsonscopeofparticipation,procedurestoallowtheemployeebackinsidetheinformation  bubbleiftheconflictends(e.g.,thecompanythattheemployeeownsstockindoesnotwinthe  contract),etc.Thewrittenproceduresmayaddress:    0  a. o Responsibilityforidentifyingpotentialconflicts;##   0  b. o Rangeofalternativeactions;R\##   0  c. o Typicalsituationsandtheindicatedresponse,forexample: (## Ѐ-gX X X(#-    0 o i. Situationsthatmaywarrantadvancerestrictions:!o #o #  X X6X X(#gX X 6  Acontractforprocurementevaluationservices; #    Acontractforadviceoncompetingapproaches; $!   Acontractfortechnicalreviewandprojectoversightservices;or %"  h&r# ii. Situationsthatmaywarrantotherconflictmitigationmeasures,orevena N'X $  possiblewaiver,ratherthanaprohibitionagainstacontractorsparticipationin 4(>!%  theproject: )$"&  * #' 6` ,hX%X X(#60 0 # #Complexdesignofintegratedelementsofastructure,pieceofequipment, *#( orsystem;or+$) # #   ,%*  0 Successivedevelopment/designphasesofinnovativeequipmentor # #  0 systems. # # N.` hp x (#` ,hX%N   X (8yy{! !B+ ` hp x (#X(#B  d.0 ` Participationofqualifiedpersonnelintheresolutionofconflicts;and ` #` #   XE.` hp x (#X(#E  e. ` Reviewandapprovalofconflictresolutions.  t ~  Thegranteeshouldseektheassistanceofcounselinpreparingwrittenproceduresforresolving @ J conflictsofinterest. &0  B.  THEPROPOSALSTAGE      1.  DefinetheProjecttoAvoidPotentialConflicts. Granteesshouldanticipatepotential   conflictsandstructureprocurementsaccordingly.Forexample,thegranteeshouldnotallowa   companythatpreparesthespecificationsforprocurementtosupplytheproductsaswell.Also,   thegranteeshouldbecarefultostructuretheprojectsoastoavoidconflictsamongcontractors pz  andsubcontractors.Forexample,onalargeproject,thegranteecouldavoidpossiblebiasby V` procuringonecontractortoperformtheneededevaluationindependently,andtheninitiatinga <F newprocurementtoobtainanysystemthatmayberequiredandexcludingthefirstcontractor ", fromthatsecondcompetition.a l#  25          2.  ConsiderAdvanceRestrictions. Whenthegranteeawardsseparatecontractsonrelated  procurements,itmightconsiderplacingnoticeofanadvancerestrictioninthesolicitationwhere  aconflictmayarise.Itisfarbettertoidentifyapotentialconflictinvolvingtwocontractsinthe  firstsolicitationthantoawardthefirstcontractandthenaddresstheconflictwhenawardingthe  secondcontract.Primecontractorsshouldberequiredtoinformprospectivesubcontractors(and lv togiveevidencethattheyhavedoneso)thatthesubcontractorsalsocouldbesubjecttothe R\ restrictionsinfuturecontracting.Thisway,eachbidder(primeandsubcontractors)forthefirst 8B contractwillbeawareofthesituationandcanmakeitsownchoiceaboutwhichcontractto  ( pursue.Whenanadvancerestrictionisdesired,considerincluding: !  y{(x8AB+4 4` hp x (#X(#B  "y3"  y3dM23  0 4   Anexplanationoftheconflictorpotentialconflict;y3dMM݌"4#4# Ќ   #  "y3"  y3dN23  0 4   Thenatureoftheproposedrestrictionuponfuturecontractoractivities;andy3dNN݌$!4#4# Ќ   %" "y3"  y3|O23  0 4   Thetermsofanyproposedclauseandwhetherthosetermsarenegotiable,depending h&r# onthenatureoftheacquisition.y3|OO݌N'X $4#4# Ќ  | 4(>!%  s(8xy{ | H.` hp x (#44` X(#H   )$"& 3.  ForEnvironmentalImpactStatementContracts,ComplywithCEQRegulations.   RegulationspromulgatedbytheCouncilonEnvironmentalQualityrequireeachcontractorwho  developsanenvironmentalimpactstatementtosignadisclosurestatement(preparedbythe  grantee)certifyingthatithasnofinancialorotherinterestsintheoutcomeoftheproposed   project.e l#  26      Thisrequirementisintendedtopreventcontractorswhoarehiredtostudyalternatives   andpotentialenvironmentalimpactsofproposedprojectsfrompresentingandprofitingfrom t ~ biasedrecommendations.Pursuanttotheregulations,granteesmustrequirethesubmissionofa Z d disclosurestatementinRFPsforconsultingservicessothatsuchconflictscanbeidentifiedearly @ J inthecontractingprocess.Thegranteealsomustcomplywith40CFR1506.5and Guidance &0 RegardingNEPARegulations,48Fed.Reg.34263(July18,1983),explainedaboveinSection    GoftheDiscussion.     4.  ConsultWithLegalCounsel. Beforedefiningthescopeofanyprojectorpublishing   anydocumentdescribingtheproject,suchasastatementofwork,thegranteeshouldaskits   counseltoreviewtheprojectandanydescriptivedocumentationforcompliancewithconflicts   rules. pz   C.0  THESELECTIONANDAWARDPHASE<F## 1.  ReviewDisclosureStatements(ifrequiredbythegrantee)forPotentialConflicts  withBidders. Ifthegranteerequiresitsprocurementstafftosubmitannualfinancialdisclosure  statementsorprojectspecificdisclosurestatements,thegranteeshouldreviewtheinformationon  suchstatementsforpotentialconflictsbeforeanyprocurementstaffbeginsworkontheselection  process.Iftheemployeesworkontheprojectwouldcausearealorapparentconflict,thenthe  granteeshouldreassignhisorherdutiesontheprojecttoanotheremployee.   2.  ObtainNoConflictCertificationsfromcontractpersonnel(ifrequiredbythe R\ grantee). Ifthegranteerequiresitscontractpersonnelwhowillparticipateintheadministration 8B ofacontracttosubmitnoconflictcertifications,thenthegranteeshouldfurnishinformationon  ( thelikelybidderstothecontractor.Eachcontractoremployeewhowillbeassignedtoworkon ! theprocurementshouldsubmithisorhercertificationtothegranteesreviewingofficialbefore ! theselectionprocessbegins.Ifacontractoremployeefailstosubmittherequirednoconflict " certification,thenthegranteeshoulddirectthecontractortoreassignthatemployeesdutiesto #  anotheremployeewhohascompliedwiththecertificationrequirement. $!  D.  THEADMINISTRATIONPHASE h&r# 1.  MonitorContractStaff/ContractorCompliancewithConflictsRules. Duringthe 4(>!% administrationphaseofaproject,thegranteeshouldrequireeachofitsemployees(etc.)involved )$"&   * #' intheprojecttoreportanychangesinhisorherfinancialholdingsorotherintereststhatmight  causeaconflictofinterest.Similarly,thegranteeshouldrequirethecontractortoreportany  changesinthecompanysfinancialholdings,newlydevelopedcontractualorotherrelationships,  orthoseofitsparents,subsidiaries,andaffiliates.Inthisway,thegranteecanmonitorthe   situationandaddresspersonalororganizationalconflictsthatmightariseduringthe   administrationphaseoftheproject. t ~  2.  ObtainCertificationsfromContractorPersonnelGovernedbyProfessionalCodes @ J ofResponsibility. Beforeacontractorbeginsworkonaproject,thegranteeshouldconsider &0 requestingawrittenstatementfromanycontractorpersonnelworkingontheprojectwhose    conductisgovernedbyaprofessionalcodeofresponsibility,ineachcaseidentifyingany   relevantcodeandcertifyingthatheorshewillcomplywithitsrulesonallgranteerelatedwork.    E.  THROUGHOUTTHEENTIREPROCESS   1.  ConsultwithLegalCounsel. Granteeprocurementandtechnicalpersonnelare pz  encouragedtoworkcloselyandproactivelywiththeirlegalcounselthroughoutthe V` procurementprocesstoreviewallsituationsthatappeartohavethepotentialforaconflictof <F interest.Counselcanhelpinanynumberofways,includingreviewingwrittenmaterialsfor ", compliancewithconflictsofinterestrules,preparingrestrictivecontractingclausessuitablefor  theparticularsituation,andhelpingtorestructuretheprojecttoavoidconflictsituations.  CounselmayalsosuggestthatinvolvementbyFTARegionalCounselwouldbeappropriateand  solicitRegionalCounselsadvicewhennecessary.   2.  MitigateConflicts. Aspotentialconflictsariseduringtheprocurementprocess,the  granteemusttakestepstoavoidtheconflictor,ifthatisnotpossible,mitigateitseffects.For lv example,whereagranteesboardisresponsibleforawardingcontracts,aboardmemberwithan R\ interestinaprojectbiddershoulddisclosehisinterestandrecusehimselffromtheselection 8B process.Asanotherexample,whereanemployeehasaninterestinaprojectbidder,thegrantee  ( couldcreatea firewallpreventingtheemployeefromprovidingthebidderwithany ! informationgainedduringhisemploymentwiththegranteethatwouldgivethebidderanunfair ! competitiveadvantage.Asalways,thegranteeshouldconsultwithcounselinformulatingan " appropriateapproachtoanyconflictsituation. #       y{(x8sP XXXX2.4.2.2.3GeographicRestrictions XX %" 8*e"ddbb$$e,dd +  ' $'   #XXm#REQUIREMENT  ' % `d cXXXX cdParagraph#XXXXƂm#Ԁ15.hoftheMasterAgreementstates: )"' 0 l h.GeographicalRestrictions.TherecipientagreestorefrainfromusingStateorlocal W+a$) geographicpreference,exceptthoseexpresslymandatedorencouragedbyFederalstatute, =,G%* suchasthosesetforthinSubsection15.iofthisMasterAgreementbelow,oras#--&+l#l# Ѐ l permittedbyFTA.  .', Ї0 l i.Architectural,Engineering,Design,orRelatedServices....ProvidedasufficientZdl#l#  l numberofqualifiedfirmsareeligibletocompeteforthethirdpartycontract, @J  l geographiclocationmaybeaselectioncriterion.... & 0 Paragraph8.bofFTACircular4220.1Estates:   -l X#X(#-0 l b.0l#l#ProhibitionAgainstGeographicPreferences.Granteesshallconductprocurements ## 0 l 0l#l#inamannerthatprohibitstheuseofstatutoryoradministrativelyimposedinState ## 0 l 0l#l#orlocalgeographicalpreferencesintheevaluationofbidsorproposals,exceptin ## 0 l 0l#l#thosecaseswhereapplicableFederalstatutesexpresslymandateorencourage pz  geographicpreference.ThisdoesnotpreemptStatelicensinglaws.However, V`  geographiclocationmaybeaselectioncriterioninprocurementforarchitectural<F ## 0 l 0l#l#andengineering(A&E)servicesprovideditsapplicationleavesanappropriate", ## 0 l 0l#l#numberofqualifiedfirms,giventhenatureandsizeoftheproject,tocompetefor ## 0 l 0l#l#thecontract..$" ## d`   .8 DISCUSSION  $  TheprohibitionagainstgeographicpreferencesasstatedinFTACircular4220.1Eisbased  upon49CFRPart18.36(c)(2).Theonlyexceptionnotedtothisprohibitionisinthe  procurementofarchitecturalandengineering(A&E)services,whereknowledgeoflocal  conditionsandbuildingcodesisarelevantfactorinthequalityoftheA&Eservices.One  publicAgency,initsprocurementproceduresmanualforA&Econtracts,recognizesthe ~ importanceoftheA&E'sknowledgeoflocalconditions,andrequiresthatA&Eproposals dn beevaluatedintermsoftheir: JT   Knowledgeofthelocalityoftheproject,providedthatapplicationofthiscriterion     leavesanappropriatenumberofqualifiedfirms,giventhenatureandsizeofthe    project. h l#  27          ThisAgencyhasstateditspolicyintermswhicharefocusedontheonegenerally " acceptedreasonforallowinggeographicalpreferencesanA&Efirm'sdemonstrated # knowledgeoflocalconditions,whichisafactoraffectingthequalityofthefinalproduct.  z$  ThissameAgencyprohibitsgeographicrestrictions,exceptforthosepermittedbyFTAfor `%j! A&Eservices,notonlyforitsownprocurementsbutforthoseofitscontractorsaswell. lK l#  28       F&P" Somegranteeshaveusedverylocalizedgeographicalrestrictionsintheirsolicitationsfor ,'6 # partsorserviceswhichmustbefurnishedonashortleadtimebasis;e.g.,withinoneortwo (!$ hoursoftherequest.Amuchbetterapproach,andonethatisnotprohibitedbytheFTA  ("% Circular,wouldbetorequireanabilitybythecontractortorespondwithinthetimeframe  needed , andnottostipulateageographicalrestrictioninthesolicitation.Thereasonisthat  manypartssuppliersmaintainastaffwhichiscapableofquickresponseeventhoughthey  arenotintheimmediatecityorcountyofthegrantee.     GranteeprocurementofficialsaresometimesconfrontedwithpressurefromtheirBoard t ~ memberstoplacecontractswithlocalfirms,anditisnecessaryforthegranteestoinclude Z d explicitstatementsintheirprocurementpoliciesandproceduresthatgeographical @ J restrictionsareprohibitedexceptforA&Eprocurements,citingtheFTAprohibitionsin &0 FTACircular4220.1E,paragraph8.b.    2.4.2.2.4Prequalification    *e"dddd "##e,xdd +      REQUIREMENT    `Paragraph8.dofFTACircular4220.1Estates:   0 l d.PrequalificationCriteria.Granteesshallensurethatalllistsofprequalifiedpersons, NX firms,orproductsthatareusedinacquiringgoodsandservicesarecurrentandinclude 4> enoughqualifiedsourcestoensuremaximumfullandopencompetition.Also, $ granteesshallnotprecludepotentialbiddersfromqualifyingduringthesolicitation   period,whichisfromissuanceofthesolicitationtoitsclosingdate..$"l"l" d`   . 8DISCUSSION  &%XXXX%&Prequalificationofbiddersandproductshasbeenusedinseveralcircumstances,suchas  whenanAgencyisprocuringcriticalequipmentwithexactingperformancerequirements,  orcriticalserviceswhichareneededonaquickreactionbasis.Aqualifiedproductslist  (QPL)isalistingofproductswhichhavebeentestedandfoundtohavesatisfiedallofthe }  specifiedrequirements.Theproductsonthelistmaybesuppliedbyanyresponsible c!m vendorbiddingontheprocurement.Thequalifiedbidderslist(QBL)isalistingofbidders I"S whoaremanufacturingmorecomplexitems,suchasbuses,requiringsophisticated /#9 manufacturingandqualitycontrolprocedures.Thesebiddersmustbereviewedcarefully $ todetermineiftheirinternalcontrolsandprocedureswillproducesatisfactoryend $  products.Theseprequalificationproceduresmayalsobeappropriateforcompanieswho %! wishtobidonprocurementsforfurnishingcriticalservices,suchasquickreactionservices &" forrepairs,etc.Onlythosebiddersonthequalifiedbidderslistmaysupplytheproducts ' # orservicesspecified.TheFederalgovernmenthasusedthispracticeforcriticalmilitary (!$ equipment,suchasjetengineturbineblades,orforcriticalquickreactionservicessuchas y)"% shiprepairs.TransitAgenciesusingthisprocedureofestablishingaqualifiedproductslist _*i#& (QPL)oftencitearationaleof:"Forreasonsofefficiency,economy,compatibility,or  E+O$' maintenancereliability,thereisaneedforstandardizationastovarioussupplies,  materials,andequipment." p l#  29         &%XX#XX%&C#BestPractices     DocumentingyourdecisiontoestablishaQPLorQBL 󀄀Caremustbetakentoensurethat a k prequalificationproceduresarenotusedtorestrictfullandopencompetition.Towardthisgoal G Q FederalAgenciesarerequiredtojustifyinwritingthenecessityforestablishinga - 7 prequalificationrequirement.u  l#  30      SometransitAgencieshavealsochosentofollowthispracticeof  documentingthereasonswhyaparticularpartorserviceisbeingplacedonaqualifiedproducts   list(QPL)oraqualifiedbidderslist(QBL),althoughtheyarenotrequiredtodosobyFTA.y l#  31         &%XX#XX%&# Qualifyingduringsolicitationperiod 󀄀SomeTransitagencieshavetwodifferentpoliciesasto   bidsofferingproductswhichhavenotbeenqualifiedpriortothesolicitation.Whenusingnon ~  Federalfunds,theAgencywillnotallowbidderstooffernonqualifiedproductsinresponsetoa dn  solicitationbiddersmustobtaincertificationoftheirproductbefore,andindependentlyof,any JT  solicitationforthatitem.Whenusinggrantfunds,however,granteesmustallowvendorsan 0: opportunitytoqualifytheirproductsduringthesolicitationperiod(FTACircular4220.1E,   Paragraph8.d).Agranteewouldnotbeexpected,however,todelayaproposedaward(extend  thesolicitationperiod)inordertoaffordavendortheopportunitytodemonstratethatitsproduct  meetsthestandardsinthespecification.TheFederalprocurementrulesdonotrequireFederal  Agenciestodelayawards,andthestandardsapplicabletotheseAgenciesshouldbeappropriate  forgranteesaswell.} l#  32         2.4.3FixedPricev.CostReimbursement  `j   *e"ddxdd x"(#(#e,xdd +  ,6,6  REQUIREMENT   `Paragraph9.cofFTACircular4220.1EauthorizesprocurementbytheSealedBid/Invitation   ForBids(IFB)methodwhencertainconditionsarepresent.Amongthoselistedisthe   conditionthat: !  l   6l X#l X#60 l (c)  Theprocurementlendsitselftoafirmfixedpricecontractandtheselectionof @!  @!  @!  @!  @"  @" # l"l"  l   thesuccessfulbiddercanbemadeprincipallyonthebasisofprice. $!  n%x" Paragraph9.dauthorizesprocurementbytheCompetitiveProposal/RequestforProposals Zd (RFP)methodandeitherafixedpriceorcostreimbursementtypecontractmaybeawarded. @J Paragraph7.irequiresthatgranteesdocumenttheirreasonsforselectingthecontracttypeasa   partofthewrittenrecordofprocurementhistory.   Paragraph10.eprohibitsthecostplusapercentageofcostmethodofcontracting.$  d`   $ DISCUSSION    Theselectionofcontracttypeisprobablythesinglemostimportantdecisionthatthe   procurementspecialistwillmakeintheacquisitionprocess.Aproperlyselectedcontract   typewillworkintheinterestsofthebuyingAgencytoprovideaproductorservicewhich   meetstheAgency'sneedsatareasonablepricewithoutundueriskstothecontractorand hr  withoutexcessivecontractadministrationcostsandcontractorclaims.Acontractpoorly NX  suitedtothecomplexityoftherequirement,andthedegreeofspecificityofthe 4> specificationsorstatementofwork,cancauseadisastroussituationforboththecontractor $ andtheAgency.WhenAgencieshavecomplexrequirements,andperformance   uncertaintiesmakeitdifficulttopredictthecostsofperformanceinadvance,sometypeof  flexiblypricedcontractshouldbeconsidered.Wherethelengthofcontractperformance  extendsoveralongperiodoftime,sometypeofeconomicpriceadjustmenttermsmaybe  necessary.Asrequirementsarerepetitivelyacquired,andahistoryisestablished,the  Agencyshouldbeabletomoreclearlydefinetherequirement,andcontractorsshouldbe ~ abletoassumegreaterrisksofperformanceatfixedprices.Granteeshaveaverywide dn latitudeinstructuringacontracttypewhichaffordsthebestincentivetothecontractorfor JT deliveringtheparticularproductorservicebeingacquired. 0:   Therearetwobroadcategoriesofcontracttypes:fixedpricecontractsandcost  reimbursementcontracts.Withinthesetwofamiliesofcontracttypesthereareanumber   ofsubtypesofferingdifferingdegreesofincentives.Attheextremesarethefirmfixed ! pricecontract,inwhichthecontractorhascompleteresponsibilityforthecostsof " performanceandtheresultingprofitorloss,andthecostplusfixedfeecontract,inwhich # thecontractorhasvirtuallynoriskforperformancecostsandthefee(profit)isfixed. z$  Betweenthesetwoextremesarethevariousincentivetypecontractswherethedegreeof `%j! costriskandprofitincentivecanbetailoredtomeetalmostanyspecificprogramsituation. F&P" Allfixedpricecontracttypesimposeuponthecontractoranobligationtodeliverthe (!$ productspecifiedinthecontract,andheisnotentitledtopaymentofthestipulatedprice ("% unlesshedeliverstheproductanditmeetsthespecificationscalledoutinthecontract.On )"& costreimbursementcontractsthecontractorisobligatedonlytogiveits"bestefforts"in *#' ordertobepaidthecostsofperformance.(Thefee,however,isearnedforcomplete +$( performanceofthecontract,andiflessthanfullperformanceismade,thebuyingAgency  ,%) isentitledtoareductionofthefixedfeebasedonthepercentageofcompletionofthe  work.)  2.4.3.1FixedPriceContracts     DISCUSSION  t ~  Afirmfixedpricecontractestablishesasingleprice,oraseriesoflineitemorunitprices, @ J thatarenotsubjecttoanyadjustmentonthebasisofthecontractor'scostexperiencein &0 performingthecontract.Thecontractortakesfullresponsibilityforthecostandprofit    outcome,andthusthecontractorhasmaximumincentivetocontrolcostsandcompletethe   contractonschedule.Thiscontracttyperepresentstheleastadministrativeburdenupon   thecontractingparties;e.g.,itisnotnecessaryforthebuyertomonitorcontractorcostsor   toperformcontractcloseoutaudits.Insomecases,however,theremaybeaneedfor   auditsif,forexample,changeordershavebeenissuedonacostreimbursablebasis.   Ѐ" l<` Firmfixedpricecontractsareappropriateforacquiringcommercialitems,orforsupplies V` orserviceswhichcanbeclearlydefinedwitheitherperformance/functionalspecifications <F ordesignspecifications,  andwhereperformanceuncertaintiesdonotimposeunreasonably ", highrisksuponthecontractor.,  ,D    l#  33      ,  ,.D    Thisaspectofperformanceriskisimportanttojudge  realistically,forifcontractorsareputintopositionsofundueriskandtheworstcase  happens,thebuyingAgencycanlookforwardtoexcessiveclaims,possiblelitigation,a  poorqualityproductwherethecontractorhas"cutcorners"tosavemoney,andinsome  cases,thebankruptcyofthecontractororrefusaltocompletethecontract.Highrisk  performancesituationswillalsoresultincontractorsbuildingcostlycontingenciesinto  theirpricesforrisksthatmayneveroccur,resultinginhigherthannecessarypricesand lv excessiveprofitsonthatcontract. R\ FixedPriceContractsWithEconomicPriceAdjustment󀄀Fixedpricecontractsmay  ( provideforpriceadjustments(upwardordownward)whenspecifiedcontingenciesoccur. ! Thesecontractsaretypicallyusedwhenthereisseriousdoubtaboutthestabilityof ! selectedcostsorpricesoveranextendedperiodofcontractperformance.Forexample,a " fiveyearfixedpricecontractmaypresentanunusuallyhighcostrisktoacontractorfor #  certaincommoditypricesorlaborcosts,andthepartiesmayagreetouseaneconomic $! priceadjustmentclause.Priceadjustmentsmaybebasedonpublishedindices,actualcost %" experiencesofthecontractorforcertainmaterialsorlabor,orincreasesordecreasesin h&r# publishedpricesforspecificitems.Thecontractwilldefinethecircumstancesunderwhich N'X $ theeconomicpriceadjustmentwillbemadeandthemeanswherebyitwillbecalculated. 4(>!% Usingeconomicpriceadjustmentclausesisanexcellentwaytodealwithhighrisk )$"&  situationsandavoidhavingtopricetheinitialcontractonthebasisofcontingenciesthat * #' .    mayneveroccur.Thistechniquemayalsobenecessarytogetcontractorstoacceptfixed  pricecontractsthathavealengthyperformanceperiod. ,   ,D    l#  34      ,  ,RD          `     h        & J    BestPractices v  RԌ   Ќ  YoumaywanttorefertotheFederalAcquisitionRegulations(FAR),Subpart16.203Fixed t ~ pricecontractswitheconomicpriceadjustment,andtherelatedcontractclauselanguageinFAR Z d 52.2162,3,4.TheseFARprovisionsandcontractclausesarenotrequiredtobefollowedby @ J FTAgranteesbuttheymayprovehelpfulinstructuringcontractlanguageforspecific &0 contingencies.TheFARmaybeaccessedonlineat4 O  5  F  http://www.arnet.gov/far/FpD  6(able  7 f.'J j     SteelPriceEscalationClauses !Followingaretwoexamplesofsteelpriceescalationclauses   usedbytransitagencies.Thefirstclause(SoundTransit)usesaonetimepriceadjustment.The   secondclause(NewYorkCityTransit)allowsformultiplepriceadjustments.   a  a  OneTimePriceAdjustment󀄀Followingisanexampleofaneconomicpriceadjustmentcontract pz  clauseusedbySoundTransitonetransitagencytoprovideforonesteelpriceincreaseduringthe V` periodofthecontract.Notethatthisclause:a0݌ <F Ќ  a  a    a݌̌   s (0xy{""  ,N.4 <DL!l X#N   ,E(` ` <DL!4X!E2  1  .3   4   BasesthepriceadjustmentonthesteelsuppliersinvoicestotheContractorfromthe  timethebidwaspreparedtothetimethesteelwasorderedaftertheNoticeto  Proceed.݌  Ќ 0l X#` ` X!0   ""  ,N.4 <DL!l X#N  ,E(` ` <DL!4X!E2  2  .3   4   RequiresthattheProducerPriceIndex(PPI)supportthepriceincreaseasinvoicedby ?I thesteelsupplier.Thisisanimportantsafeguardinestablishingthereasonableness %/ ofthesuppliershigherpricebycomparingittotheindustrynorm.݌   Ќ 0l X#` ` X!0   ""  ,N.4 <DL!l X#N  ,E(` ` <DL!4X!E2  3  .3   4   Limitstheincreasetothelesserofthepercentageincreaseintheinvoicedpricevs. v thePPI.z݌ \f Ќ 0l X#` ` X!0   ""  ,N.4 <DL!l X#N  ,E(` ` <DL!4X!E2  4  .3   4   RequiresadequatedocumentationfromtheContractor,andtheagencysrightto   reviewtheContractorsbidpreparationdocumentsandsupplierinvoices.݌ ! Ќ 0l X#` ` X!0   3, X l X#3  ""  ,K.4 <DL!, X K  ,0, X 4X!02  5  .3   4   Doesnotcontainamaximumpercentagebywhichthecontractpricemaybeadjusted #" forsteelpriceincreases.Undernormalcircumstancesyoushouldincludea # maximumlimitonthepercentageincreaseyouwillallowbuttheinclusionhereof $ thelesserofthesuppliersincreasevs.thePPIprovidesacertaindegreeofprice %  protectiontotheagency.,   ,sable  2 l#  35      ,   ,$hes   h݌  &! Ќ  0, X , X 0   E(` ` <DL!, X E""  ,H.4 <DL!` ` X!H  ,K2  6  .3   4   Theclauseprovidesfordownwardpriceadjustmentsaswellasincreases.K݌  Ќ -` ` X!4X!-    ak XXXXXXXX        &  |8  SP9.10 4 0 ` STEELPRICEESCALATION8 ghԌG Q` (#` (# Ќ  XXXXXXXX   - 7   (00s / / |-, X ` ` X!- XA.0 4 ApriceadjustmentclauseisincludedinthisContracttoprovideadditional   compensationtotheContractororacredittoSoundTransitforfluctuationsinsteel   prices.Thispriceadjustmentisdependentuponeither:anincreaseordecreaseinthe   priceofsteelusedintheproductionofproductsutilizedonthisprojectoranincrease   ordecreaseintheratiooftheBureauofLaborStatistics!ProducerPriceIndexlisted  below.Paymentorcreditforsteelpriceadjustmentswillbeevaluatedunderthe   followingconditions.PaymentorcreditwillbemadeundertheContractPayitem: w  ProvisionalSum!SteelPriceEscalation.'G ]g 4(#4(#  H+4 44 <DL!, X H CM  -, X 444X!-  B. 4 Theconditionsofthisprovisionareasfollows: )3     0, Xx, X 0  0 4 1.0` 4(#4(#Thisprovisionshallonlyapplytomaterialcostchangesthatoccurbetweenthe   dateofbidopeningandthedateofcertifiedinvoice.TheContractorisexpected  toordermaterialspromptlyuponNoticetoProceed(oruponshopdrawing  approval)andtakepossessionofmaterialsasquicklyasreasonablypossible.,   ,esse   l#  36      ,   ,esse  ` (#` (#     0 4 2.0` 4(#4(#B% <DL!, XxBApriceadjustmenttoprovideadditionalcompensationtoContractorwillbe s} consideredandpaidonlywherethepriceincreaseinsteelisduetomarket Yc conditionsbeyondthecontrolofContractoranditssuppliersorvendors.No ?I adjustmentisallowedunderthisprovisionforincreasesduetoanyothercauseor %/ peril(including,butnotlimitedto,strike,weather,vendorbacklog,delayin   fabrication,etc.).Ifapriceadjustmentissoughtunderthisprovision,Contractor  shallcertifytoSoundTransitthatthepriceincreasewasduesolelytomarket  conditionsbeyonditscontrolorthatofitssuppliersandthatContractorexercised  itsbesteffortstomitigateanypriceincrease.SoundTransitreservestherightto   verifytheaccuracyofsuchcertificationasaconditionofpayment.!` (#` (# 3  X  ?( <DL!  X!?     E+ 4 <DL!  X!E3  3݌̌ X  $   X!X!$   *, Xx  X!*  0 4 3.0` 4(#4(#Thispriceadjustmentclauseonlyappliestostructuralsteel,reinforcingsteel,rail, U#_ steelexcavationsupportelements,andoverheadcatenarystructurepoles.Tobe ;$E  considered,thecategoryofmaterialmusthaveatotaldollarvalueof$25,000or !%+! greater.&"` (#` (# 3  X  E( <DL!, XxE     E+ 4 <DL!  X!E3  3݌̌ X  *, XxX!*   X-` 4` X , Xx- 4 4. ` TheContractorshallsubmitwithin5daysofNoticeofAward,thefabricatorsor ' $ suppliersmaterialpricequotesfortheitemslistedabovethatmeetthe (!% requirementsofArticle9.10B.3.TheContractormustcertifythattheyarethe  )"&  4 0 ` actualquotedpricesincorporatedintotheContractorsbidamountsubmittedto  SoundTransitfortherepresentedpayitem.SoundTransithastherighttoinspect  Contractorsbidpreparationdocumentstoverifytheaccuracyofsuch  certification.Assumingsuchcertificationisaccurate,thesecertifiedquoteswill   constitutethebaselinesteelmaterialprice.Thequotemustclearlyidentifythe   payitem(s)bynumberanddescription,describetheweightsofthesteelmaterial, t ~ howthesteelmaterialwillbeutilizedinthefinalproject,andabreakdownofall Z d costsincludingmaterial,labor,equipment,overhead,andprofit.Thissteelprice @ J escalationprovisionshallonlyapplytothesteelcomponentofthematerialquote. &0 Itshallnotapplytoanyothermaterialsusedinthefabricationofanitemsupplied    totheContractor. ` (#` (# 3    B( <DL!` 4` X B     E+ 4 <DL!  X!E3>  3>0݌̌   '` 4` X X!'    4 5.0 ` FortheitemslistedabovethatmeettherequirementsofArticle9.10B.3,the   increaseordecreaseinthesteelmaterialsunitcostmustbeinexcessof5percent   oftheoriginalquotedpricesorthePPIasdescribedbelow,forapriceadjustment   totheContractortobeallowed.pz ` (#` (# 3    B( <DL!` 4` X B     E+ 4 <DL!  X!E3O  3OA݌̌   '` 4` X X!'    4 6.0 ` ?% <DL!` 4` X ?Ifthereisanincreaseordecreaseinsteelmaterialscostinexcessof5percent <F fromtheoriginalquotedunitprices(orthePPIasdescribedinArticle9.10F ", below),SoundTransitwillevaluateanddetermineanincreasedordecreased  payment(s)underthisContractasfollows:` (#` (#     $ X  X!$C.  Theadjustmentwillbedeterminedbycomputingthemathematicaldifference  betweentheunitpricethatis5percentabove(orbelowfordecreasesinprice)the  baseunitprice(bidquote)andtheactualinvoiceunitpriceofthesteelcomponent.  Thefinaldollarvaluewillbedeterminedbymultiplyingthisadjustmentbythe lv representedquantityofsteel. R\  8B D.  TheContractorshallsubmittoSoundTransitcertifiedinvoicesassoonassteel  ( materialispurchased.Theinvoicesshallbelistedinchronologicalorderand ! containatabulationofquantity,theorderdate,thedateshippedfromthesteel ! manufacturer,andthepriceperunitweight(reflectingalldeductionsforquantity " shipments)withabreakdownasstipulatedinArticle9.10B.4above.Freight #  chargesshallbelistedseparatelyandarenotincludedinthispriceadjustment. $! Theseinvoicesshallbesubjecttoauditverification. %"  h&r# E.0  SoundTransitwillverifytheincreasedordecreasedpercentagebetweencertified N'X $ originalquoteandtheactualinvoicepayment.4(>!%(#(#  )$"& F.  ThischangeshallbesupportedbytheU.S.DepartmentofLabor!BureauofLabor * #' Statisticsindexentitled ProducersPriceIndex(PPI).Thevaluescontainedinthe *#( PPIaresubjecttorevision4monthsafteroriginalpublication.Thepriceadjustment +$) forsteelshallbeafunctionofthepercentageofchangeofthepriceindexfor ,%*  CarbonSteelScrapSeriesIDWPU101211.Donotuseseasonallyadjusted  -&+   indices.Thisindexisavailableontheinternetat:  4bmO  5  http://data.bls.gov/labjava/outside.jsp?survey=wp6Oted  7bm A.    G.  TheProducersPriceIndex(PPI)listedabovemustmeetincreaseordecreasebyat   least5percentoverthesametimeperiodforArticle9.10C.tobevalid.    t ~ H.  Forpriceincreases,iftheinvoicedpriceincreased,expressedasapercentage, Z d exceedsthePPIincrease,expressedasapercentage,forthesameperiod,the @ J adjustmentwillbebasedonthePPIpercentincrease;iftheinvoicedpriceincrease, &0 expressedasapercentage,islessthanthePPIincrease,expressedasapercentage,    forthesameperiod,theadjustmentwillbebasedontheinvoicedpriceincrease.      I.  Forpricedecreases,ifthevalueoftheinvoicedpricedecreaseexpressedasa   percentageisgreaterthanthecalculatedvalueofthePPIdecrease,expressedasa   percentage,forthesameperiod,theadjustmentwillbebasedonthevalueofthe   invoicedpercentdecrease.Ifthevalueoftheinvoicedpricedecrease,expressedasa pz  percentage,islessthanthevalueofthePPIdecreaseexpressedasapercentagefor V` thesameperiod,theadjustmentwillbebasedonthePPIpercentdecrease. <F  ", J.0  IfthePPIcontrolsindeterminingthepriceadjustment,SoundTransitwillreview  thePPI4monthsafterinitialpublicationtoensurethatthedatahavenotbeen  revised.Finalpaymentswillbeadjustedaccordingly.(#(#   K.0  AdjustmentFormulas:(#(#   *` ` ,X X*  1.0 IfInvoicePriceControls:lv (# (#  R\   0 a. PriceIncrease:8B (# (#   (   0 (1)Factor=(PC/PB)!1.05)! (# (#  ! 0  0 (#(#IfFactorisequaltoorlessthan0.0,noadjustmentwillbemade." (# (# 0  0 (#(#IfFactorisgreaterthan0.0,continue:PA=Factor*Q*PB#  (# (#  $!   0 b. PriceDecrease:%" (# (#  h&r# 0  0 (#(#(1)Factor=(PC/PB!0.95)N'X $ (# (# 0  0 (#(#0 (# (#  (# (# 0  0 (#(#IfFactorisequaltoorgreaterthan0.0,noadjustmentismade.)$"& (# (# 0  0 (#(#IfFactorisgreaterthan0.0,continue:PA=Factor*Q*PB* #' (# (#  *#( 3 " / X` ` ,X 3  Where: " PA= / Steelmanufacturingpriceadjustment,inlumpsumdollars +$) 0  0 (#(# " PB=Fabricator/supplierquotedpriceinbid(convertedtodollars,%* (# (#   0 0" (# (#perpound)-&+" (#" (# 0  ~.',(#(# 0  0 (#(# " PC=Currentcertifiedinvoiceprice(convertedtodollarsperpound) (# (# 0  0 (#(# " Q=Quantityofmanufacturedsteel,inpounds (# (#   0  2. IfPPIControls: (#(#      0 a. " PriceIncrease:t ~ (# (#  Z d   0 (1)Factor=(IC/IB)!1.05)@ J (# (#    0  0 (#(#IfFactorisequaltoorlessthan0.0,noadjustmentismade.   (# (# 0  0 (#(#IfFactorisgreaterthan0.0,continue:PA=Factor*Q*PB  (# (#      0 b. " PriceDecrease:  (# (#    0  0 (#(#(1)Factor=(IC/IB!0.95)  (# (#  pz  0  0 (#(#IfFactorisequaltoorgreaterthan0.0,noadjustmentismade.V` (# (# 0  0 (#(#IfFactorisgreaterthan0.0,continue:PA=Factor*Q*PB<F (# (#  ",   Where: " PA=Steelmanufacturingpriceadjustment,inlumpsumdollars    0 0" (# (#PB=Fabricator/supplierquotedpriceinbid(convertedtodollarsper  pound)" (#" (#     " IB=BLSPPIindexatthetimeofbid    0  " IC=BLSPPIindexatthetimematerialispurchasedfrommill (# (#   0 0" (# (#(invoicedate;afterfinalUSDOLBLSadjustments)" (#" (#     " Q=Quantityofmanufacturedsteel,inpounds lv  R\   MultiplePriceAdjustments󀄀Followingisanexampleofaneconomicpriceadjustmentclause 8B developedbyNewYorkCityTransitforsolicitations.Thisprovisionallowsformultipleprice  ( adjustmentsduringtheperiodofthecontract.Notethatthisclausereferstothe ScrapSteel ! index,butanyindexcouldbeuseddependingonthematerialbeingprocured. !    S  `   SOLICITATIONPROVISION #  PRICEADJUSTMENTCLAUSEFORITEMSCONTAININGSTEEL $! 34` X  " / X3 4 ToAllProspectiveBidders: h&r# 0 4 NewYorkCityTransit(NYCT)issolicitingthisitem(s)utilizingapriceadjustment 4(>!% clause.Theclausesetforthbelowisincludedinthissolicitationbecauseofthesteel )$"& contentoftheitembeingprocuredandthedollaramountoftheitem.Forillustrative * #' purposes,anexampleofthisformulaisprovidedbelowtoassistyouinthe *#( preparationofyourbid.+$)4(#4(# 0 4 -&+4(#4(#  y{(jy0 "y3"  y3S2j3  0 `   Inordertoapplytheadjustmentformula,NYCTwillutilizethepredetermined  percentagesteelcontentoftheitemsunitpriceassetforthbyNYCTintheBid  QuotationSheets.Thispercentageshallremainfixedforthedurationofthe  contract.y3S݌ ` (#` (# Ќ     "y3"  y3b2j3  0 `   Theunitprice(s)thatNYCTwillpayfortheitem(s)duringthefirstsixmonthsof t ~ thecontractshallbetheunitpricequotedinthebidbythesuccessfulbidder.y3b݌Z d` (#` (# Ќ   @ J "y3"  y32j3  0 `   Thereafter,theunitpricemaybeadjusted,eitherupordown,everysixmonths &0 afteraward,reflectingthechangeintheScrapSteelindexsetforthinthe    AmericanMetalsMarket.y3݌ ` (#` (# Ќ     "y3"  y3 2j3  0 `   Theadjustmentwillbeintheformofapercentageandshallbedeterminedby   NYCTbycomparingtheScrapSteelindexonthedayofbidopeningtotheindex   ineffectoneachsixmonthanniversaryofthecontractawarddateforthe   durationofthecontract.y3  ݌pz ` (#` (# Ќ   V` "y3"  y3"2j3  0 `   Thisadjustmentpercentageshallbeappliedtotheportionoftheunitpricethat <F representsthesteelcontentofeachitemaspredeterminedbyNYCTtoarriveat ", theadjustmentamount.y3""݌` (#` (# Ќ    "y3"  y3F$2j3  0 `   Theadjustmentamountisthenappliedtotheoriginalunitpricesetforthinthe  successfulbidder'sbidtoarriveatthenewunitpriceforthefollowingsixmonths.y3F$s$݌` (#` (# Ќ    "y3"  y3%2j3  0 `   Nopriceadjustmentshallbeinstitutedunlessthenewpriceresultsina  percentagechangeofatleastfive(5)percent(increaseordecrease)oftheoriginal lv unitpricequotedbythesuccessfulbidder.y3%%݌R\` (#` (# Ќ   8B "y3"  y3'2j3  0 `   Theunitpricerevertsbacktotheoriginalunitpricequotedifthepriceadjustment  ( calculationateachsuccessivesixmonthintervalresultsinapercentagechange ! thatisnotatleastfive(5)percent(increaseordecrease)oftheoriginalunitprice ! quotedbythesuccessfulbidder.y3''݌"` (#` (# Ќ   #  "y3"  y3)2j3  0 `   Pricesforreleaseorderswillbethepriceestablishedforthesixmonthtimeframe $! withinwhichtherelease(s)isdated,regardlessofdeliverydate.y3))݌%"` (#` (# Ќ   h&r# "y3 "  y3'+2j3  0 `   If,foranyreason,theindexbeingutilizedunderthiscontractisdiscontinuedfor N'X $ anyreason,NYCTwillselectanewindextobeapplied.y3'+T+݌4(>!%` (#` (# Ќ   )$"& 34,X 4` X 30 ` EXAMPLEA:* #'` (#` (# 0 ` 0 ` (#` (#  (# (# 0 ` A.0 ` (#` (#SuccessfulBidder'sUnitPrice:$5.00+$) (# (# 0 ` B.0 ` (#` (#%OfItemContainingSteel:50%%-/&+ (# (#   ~.'- 0 ` C.0 ` (#` (#PortionoftheItem'sPricesubjecttoapriceadjustment:$2.50 (# (# 0 ` D.0 ` (#` (#ScrapSteelindexondayofbidopening:150OY (# (# 0 ` E.0 ` (#` (#ScrapSteelindexatthesixmonthanniversarydateofthebid  (# (# 0 ` 0 ` (#` (#opening:180  (# (# 0 ` F.0 ` (#` (#Percentchangecalculation:(ED)dividedbyD=percentagechange.Z d (# (# 0 ` 0 ` (#` (#Forexample:(180150) 150=.20   (# (#  ` G.0 FXC:$2.50x.20=$0.50   (# (# 0 ` H.NewUnitPricefornextsixmonths:A+G=$5.50eo ` (#` (# 0 ` EXAMPLEB:1; ` (#` (# 0 ` A.0 ` (#` (#SuccessfulBidder'sUnitPrice:$12.00  (# (# 0 ` B.0 ` (#` (#%OfItemContainingSteel:100%  (# (# 0 ` C.0 ` (#` (#PortionoftheItem'sPricesubjecttoapriceadjustment:$12.00<F (# (# 0 ` D.0 ` (#` (#ScrapSteelindexondayofbidopening:75 (# (# 0 ` E.0 ` (#` (#ScrapSteelindexatthesixmonthanniversarydateofthebid0@ 0 opening:30 (# (# 0 ` F.0 ` (#` (#Percentchangecalculation:(ED) D=percentagechangeGQ (# (# 0 ` 0 ` (#` (#Forexample:(3075) 75=0.60 (# (# 0 ` G.0 ` (#` (#FXC:$12.00x0.60=$7.20  (# (# 0 ` H.0 ` (#` (#NewUnitPricefornextsixmonths:A+G=$4.80R\" (# (# 0 ` EXAMPLEC: ($` (#` (# 0 ` A.SuccessfulBidder'sUnitPrice:$24.00w!&` (#` (# 0 ` B.0 ` (#` (#%OfItemContainingSteel:75%"( (# (# 0 ` C.0 ` (#` (#PortionoftheItem'sPricesubjecttoapriceadjustment:$18.00)$3* (# (# 0 ` D.0 ` (#` (#ScrapSteelindexondayofbidopening:162%, (# (# 0 ` E.0 ` (#` (#ScrapSteelindexatthesixmonthanniversarydateofthebid&. (# (# 0 `  opening:1944(>!0` (#` (# 0 ` F.0 ` (#` (#Percentchangecalculation:(ED) D=percentagechange)"2 (# (# 0 `  Forexample:(194162) 162=.1975*#4` (#` (# 0 ` G.0 ` (#` (#FXC:$18.00x.1975=$3.555?,I%6 (# (# 0 ` H.0 ` (#` (#NewUnitPricefornextsixmonths:A+G=$27.555-&8 (# (#   2.4.3.2CostReimbursementContracts   *l"ddxdd x"(#(#l,dd +    REQUIREMENT  & 0 Paragraph10.dofFTACircular4220.1ErequiresthatFederalcostprinciples(describedin   FARPart31)beusedtodeterminetheallowabilityofcostsincurredonthirdpartycost   reimbursementcontractsfinancedwithFederalfunds.However,granteesmayreferencetheir l v owncostprinciplesiftheycomplywithFederalcostprinciples. R \ Paragraph10.eofFTACircular4220.1Eprohibitsthecostplusapercentageofcostmethod (  ofcontracting.     DISCUSSION   Thecostreimbursementcontractisonethatprovidesforpaymentofallowableincurred   costs,totheextentprescribedinthecontract.Thesecontractsestablishanestimateoftotal   costforthepurposeofobligatingfundsandestablishingaceilingonexpendituresthatthe  contractormaynotexceedwithouttheapprovalofthecontractingofficer.Cost ~ reimbursementcontractsaresuitableforusewhentheuncertaintiesofperformancedonot dn permitcoststobeestimatedwithsufficientaccuracytouseafixedpricecontract. JT Completionvs.TermFormTwoformsofcosttypecontractsareavailablefordescribing   thecontractor'sresponsibility:thecompletionformandthetermform.Thecompletion  formdescribesthescopeofworkbyspecifyinganendproductordefinitegoal.Thisform  requiresthecontractortocompletetheworkanddelivertheenditemasaconditionfor  paymentoftheentirefee.Ifthecontractorfailstocompletethecontract,thebuying  Agencyisentitledtoareductionintheamountofthefee.Thiswouldmeanthatifthe  contractorexpendedalltheestimatedcostandtheworkwasnotcomplete,andtheAgency z decidednottoaddmorefunds(estimatedcost)tothecontract,thecontractorwouldnotbe ` j entitledtofullpaymentoftheoriginalfixedfee.Thetermformofcontractdescribesthe F!P workingeneraltermsandobligatesthecontractortodevoteaspecifiedlevelofeffortfora ,"6 statedtimeperiod.Thefixedfeeispayableattheexpirationofthestatedtimeperiodifthe # contractorhasindeedfurnishedthespecifiedlevelofeffort.Extensionofthetimeperiodis # anewacquisitioninvolvingnewcostandfeeagreements(unlesstheoriginaltimeperiod $  expiresandthereremainsalevelofefforttobeprovided,inwhichcasetheAgencymay %! havetherighttoextendtheperiodofperformancesoastousetheremaininglevelof &" effort).  ' #  FederalCostPrinciples  FTACircular4220.1EParagraph10.drequiresgranteestouse \)f"% FederalCostPrinciplestodetermineallowablecostsundercosttypecontracts.49CFR B*L#& 18.22,AllowableCosts,definestheFederalCostPrinciplesforvarioustypesofcontractors. (+2$' ContractswithcommercialconcernsarerequiredtouseFARPart31CostPrinciples,or ,%( granteesmayusetheirowncostprinciplesiftheyareconsistentwithFARPart31.  ,%)  l`   .'+ AllowableCostandPaymentClause!Costtypecontractswillneedtoincludeaclauseor  clausesaddressingseveralimportantissuesregardingthepaymentofallowablecosts.The  clauseusedinFederalcontractswouldbeusefulasaguideconcerningtheissuesthatneed  tobeaddressed. ,   ,Kint    l#  37      ThematterscoveredbytheFARclause,andthatshouldbedefinedina   granteescontract(thoughtheFARclauseitselfisnotrequired),wouldinclude:     s(8y y{94` X(#4,X 9   a.0 4 Thefrequencyofcontractorbillingsforcostsincurred;Z d4(#4(# H%` ` <DL4` X(#H  b.0 4 Thereferencetosubpart31.2oftheFARfordeterminingallowabilityofcosts;&04(#4(# ?%` ` <DL` ` X?  c.0 4 Whetherthecontractormusthaveactuallypaidforthesuppliesorservicesused   incontractperformancebeforeitsubmitsaninvoice,orwhetherthecontractor   mayinvoiceforcostsincurredbutnotyetpaid; 4(#4(# ?%` ` <DL` ` X?  d.0 4 Theprovisionalbillingratestobeusedduringcontractperformanceforindirect   costspriortoestablishmentoffinalauditedrates;pz 4(#4(# ?%` ` <DL` ` X?  e.0 4 Theproceduretobefollowedinsubmittingcostproposalsforestablishingfinal <F indirectcostratesforthecontract;",4(#4(# ?%` ` <DL` ` X?  f.0 4 Therequirementthatfinalcosts(directandindirect)beauditedbeforefinal  payment;4(#4(# ?%` ` <DL` ` X?  g.0 4 TheContractorsassignmenttothegranteeofanyrefunds,rebatesorcredits  accruingtotheContractorthatareallocabletocostsforwhichthecontractor  hasbeenpaid;lv4(#4(# ?%` ` <DL` ` X?   h.0 4 Areleasedischargingthegranteefromanyfutureclaimsarisingoutofthe 8B contract. (4(#4(# B( 4 <DL` ` XBFixedFee!Itisimportantthatthecontractcontainaclearstatementastohowthe ! contractorwillbepaidthefixedfeecalledforinthecontract(i.e.,howthefeeisearned). " TheFederalclausestatesthatthecontractoristobepaidthefixedfee forperformingthis #  contract./ l#  38      GranteeCPFFcontractsshouldbeclearindefiningthecontractors $! performanceresponsibilityforearningthefee.Forexample,ifitisacompletionform %" contract,thenthecontractormustcompletethestatementofworkanddeliverallrequired h&r# documents.If,however,itisatermformcontract,thecontractormustfurnishthe N'X $ requiredlevelofeffortcalledforinthecontractduringtheperiodofperformanceinorder 4(>!% toearnthefullfee.Itshouldbenotedthatacosttypecontract,whileitisa bestefforts )$"& contractintermsofentitlementtopaymentofallowablecosts,doesinfactrequireactual * #' performanceforentitlementtopaymentofthefullfixedfee.Anythinglessthancomplete  *#( performanceentitlesthegranteetoacreditinthefeebasedonthepercentofactual  completionoftheworkcalledforinthecontract.InthisregardaCPFFcontractoperates  verymuchlikeafixedpricecontractinrequiringcompleteperformancebythecontractor  forfullpaymentofthefixedfee.Anexampleofapaymentoffixedfeeclauseusedbya   Federalagencythatillustratesthisprincipleofentitlementtofeeforperformanceisthatof   NASA,whichreads: Thefixedfeeshallbepaidinmonthlyinstallmentsbaseduponthe t ~ percentageofcompletionofworkasdeterminedbytheContractingOfficer.Granteesare Z d encouragedtoincorporateaPaymentofFixedFeeclauseintheircontractsthatclearly @ J statesthecontractorsresponsibilitytoperformthecontractinordertobepaidthefee. &0 Theclauseshouldalsostatehowthefeewillbepaidonamonthly/incrementalbasis(e.g.,    basedonapercentageofcompletionofworkasdeterminedbytheContractingOfficer).It   isalsosuggestedthatthegranteeconsiderafeewithholdingprovisionthatprovidesfora   certainpercentageofthefeetobewithhelduntilthecontractorcompletesanddeliversall   documentationcalledforinthecontract.Onceagaingranteesmaywanttoreviewthe   Federalclauseforguidance. ,   ,aance    l#  39         AdvanceAgreements!Certaintypesofcostsmaybeallowableaccordingtothecost V` principles,andyetpresentdifficultiesindeterminingafterthefactwhatisreasonablefor <F theparticularcircumstancesofanygivencontract. ,   ,bance   / l#  40      Itisadvisabletoanticipatethese ", areasofpotentialconflictandnegotiateadvanceagreementsbeforethecostsareincurred  (thismaybebeforeorduringthecontractbutshouldalwaysbebeforeincurrenceofthe  costsinvolved).Thetypesofcoststhattendtobeproblematic,andforwhichadvance  agreementswouldbeparticularlyhelpful,wouldinclude:       y{(jx 8sL  (1x y{9%` ` <DLX9   a.0 4 Precontractcosts;4(#4(# ?%` ` <DL` ` X?  b.0 4 Royaltiesandothercostsforuseofpatents;R\4(#4(# ?%` ` <DL` ` X?  c.0 4 Compensationforpersonalservices,includinglocationallowances,hardship  ( pay,offsitepay,andincentivepay;!4(#4(# ?%` ` <DL` ` X?  d.0 4 Timechargeddirectlytothecontractbycorporateofficersandsenior " managementpersonnelwhonormallychargetheirtimetoindirectcost @ 0@ arioust #  accounts;$!4(#4(# ?%` ` <DL` ` X?  e.0 4 Compensationforprofessionalconsultants(e.g.,legal,accountingand h&r# engineering);N'X $4(#4(# ?%` ` <DL` ` X?  f.0 4 Travelandpersonnelrelocationcosts;)$"&4(#4(# ?%` ` <DL` ` X?  *#(   g.0 4 Severancepaytoemployeesonsupportservicescontracts;4(#4(# ?%` ` <DL` ` X?  h.0 4 Trainingandeducationcosts;4(#4(# ?%` ` <DL` ` X?  i.0 4 Generalandadministrativecosts(e.g.,corporate,divisionorbranchallocations)   attributabletothegeneralmanagement,supervisionandconductofthe t ~ contractorsbusinessasawhole).Thesecostsareespeciallyimportantin Z d construction,jobsite,andarchitectengineercontracts.@ J4(#4(# B( 4 <DL` ` XB ApprovalofSubcontractors!Therewillprobablybesituationswhenagranteemaywish    torequiretheirprimecontractorsonCPFFcontractstosubmitsubcontractsforthe   granteesconsentpriortoawardofthesubcontractbytheprime.Granteeswillwantto   exerciseduediligenceinthemanagementandadministrationofCPFFcontractswherethe   granteebearsmuchoftheriskofpoorperformance,includingcostoverruns,forboththe   primecontractorandtheprimessubcontractors.Forguidanceinthisareaofgrantee   reviewandconsenttosubcontracts,seetheBPPMSection9.4!ApprovalofSubcontractors. pz   y{(jx 1 fAdequacyofContractor'sAccountingSystem󀄀Itisimportanttodeterminetheadequacy <F ofthecontractor'saccountingsystemforcosttypecontractsbeforeawardingsucha ", contract. l#  41      Caremustbetakentoassurethattheaccountingsystemcanproperlyidentify  contractcostsbysegregatingthemfromthecostsofotherjobsintheaccountingrecords.  Likewiseitisimportantthatthesystemofallocatingindirectcoststojobs/contracts  producesadistributionofcostswhichisfairandreasonable.  2.4.3.3TimeandMaterialsContracts  e*e"ddxdd "s#s#e,dd +  R\R\ REQUIREMENT   ` Paragraph7.jofFTACircular4220.1Estates: 0 : 0 l j.UseofTimeandMaterialsContracts.  Granteeswillusetimeandmaterialscontracts ! only:0l "  X#X00 l#l#0" # #  "" #" #  l   1. Afteradeterminationthatnoothertypeofcontractissuitable;and $!  l 0  2. Ifthecontractspecifiesaceilingpricethatthecontractorshallnotexceed04!##0@4!t#t# @4! z&#4!#4!#  l    exceptatitsownrisk. $`'j $ d`   $  )"% DISCUSSION    Timeandmaterials(T&M)contractsmaybeusedforacquiringsuppliesorservices.  Thesecontractsprovideforthepaymentoflaborcostsonthebasisoffixedhourlybilling   rateswhicharespecifiedinthecontract.Thesehourlybillingrateswouldincludewages,   indirectcosts,generalandadministrativeexpense,andprofit.Thereisafixedprice t ~ elementtotheT&Mcontractthefixedhourlybillingrates.Butthesecontractsalso Z d operateascosttypecontractsinthesensethatlaborhourstobeworked,andpaidfor,are @ J flexible.Materialsarebilledatcost,unlessthecontractorusuallysellsmaterialsofthetype &0 neededonthecontractinthenormalcourseofhisbusiness.Inthatcasethepayment    provisioncanprovideforthepaymentofmaterialsonthebasisofestablishedcatalogor   listpricesineffectwhenthematerialisfurnished.Thesecontractsalsomayprovidefor   thereimbursementofmaterialhandlingcosts,whichareindirectcosts,suchas   procurement,inspection,storage,payment,etc.Theseindirectcostsarebilledasa   percentageofmaterialcostsincurred(similartothebillingofoverheadcostsasa   percentageofdirectlabor).Suchmaterialhandlingcostsmustbesegregatedinaseparate pz  indirectcostpoolbythecontractor'saccountingsystemandmustnotbeincludedinthe V` indirectcostsincludedaspartofthefixedhourlybillingratefordirectlabor.Itwould <F alwaysbeprudenttoobtainapreawardauditofthecontractor'saccountingsystemto ", determinetheadequacyofthesystemtoproperlysegregatematerialhandlingcostsfrom  otheroverheadcostsbeingbilledwiththefixedhourlyratesforlabor.   UseOnlyWhenNoOtherTypeWillWork󀄀TheFTACircularrequiresthatyoumakea  determination,beforeusingthistypeofcontract,thatnoothertypeofcontractissuitable.  Thereasonwhythistypeofcontractistheleastpreferableofallallowabletypesisthatit  createsadisincentiveforthecontractortocompletethecontractinatimelymanner.Since lv eachlaborhourexpendedcarrieswithitaprofit(andapredeterminedoverheadcharge) R\ builtintothefixedhourlyrate,thecontractorismotivatedtoworkasmanyhoursas 8B possible.Thereisnoincentivetocompletethecontractquickly,andthusminimizetotal  ( coststothebuyer.(InaCPFFcontractthefeeisfixedindollartermsattheoutsetofthe ! contract,allowingthecontractortoearnthefeewhenevertheworkiscomplete,thus ! providingsomeincentivetofinishthecontractasquicklyaspossible.)  "  Subcontracts IfyourT&Mcontractwillinvolvesubcontractsforlargedollaritemsor $! services,youwillneedtoevaluatewhetherthecontractor'smaterialhandlingcostsshould %" bechargedtotheselargedollarsubcontractsasanindirectcost(asanoverheadtypeof h&r# charge),becausetodosomayresultinaninequitableallocationoftheseindirectcoststo N'X $ yourcontract.Thisisbecausethelargedollarvaluesubcontractwillabsorbafargreater 4(>!% proportionoftheindirectcostpoolthanitshould,basedonareasonableassessmentofthe )$"& materialhandlingcostsactuallygeneratedbythesubcontractversusthosegeneratedbyall * #' othermaterialsprocuredbythecontractorforothercustomers.Whenthissituationarises *#( youwillwanttonegotiateanadvanceagreementwiththecontractorastothechargingof +$) materialhandlingcosts.Itmaybemoreequitabletopayforthecostofsubcontract ,%* administrationonadirectchargebasis;i.e.,thelaborcostforthesubcontract  -&+ administratorchargeddirectly.Oryoumaywanttonegotiateareducedindirectmaterial  handlingcostratetobechargedtothesubcontract(whichrepresentsamoreequitable  allocationofthematerialhandlingcostsactuallygeneratedbythesubcontract).HXX  #XXH^#CeilingPrice󀄀YouwillneedtospecifytheAgency'smaximumobligation(ceilingprice)in   thecontract;i.e.,thelimitationoftheAgency'sfinancialobligationwhichthetotalfunds   allottedtothecontractwillallow.Thecontractormaynotexceedthisfundinglimitation   withoutyourwrittenauthorizationintheformofacontractmodificationaddingmore f p funds. LV ProperAgencySurveillance󀄀ThistypeofcontractrequiresahighdegreeofAgency "  surveillanceduringperformanceinordertoprovidereasonableassurancethatefficient   methodsandcostcontrolsareusedbythecontractor.HXX   #XXH#AvoidCostPlusPercentageofCostArrangements󀄀AsdiscussedbelowunderCPPC   contracts,caremustbetakennottostructureanagreementwhichcompensatesthe   contractoratapredeterminedpercentage(foroverheadorprofit)ofactualcostsincurred.If  youbreakouttheoverheadandprofitfromthelaborrateandcallforthemtobebilledas  separateratesbasedonactuallaborcostsincurred,youwillhaveanillegalcostplus nx percentageofcostsituation.Overheadandprofitmustberecoveredasapartofthefixed T^ hourlybillingrateforlabor,asdiscussedabove.Youmayallowthecontractortobill :D materialhandlingcostsasanindirectcostrateappliedtoactualmaterialcosts,provided  * thecontractorsegregatesmaterialhandlingcostsintheaccountingsystem.Youshould  conductacontractcostcloseoutauditofthematerialhandlingcostpoolandadjustthe  ratesbilledtothoseactuallyincurred(asyouwoulddoforanoverheadrateonacost  reimbursementcontract).However,wheretheactualmaterialhandlingcostsarenotlarge,  AgenciesmayelecttocloseouttheT&Mcontractwithoutafinalcostauditofthematerial  handlingcostpool. HXX   #XXH#2.4.3.4LaborHourContracts v! DISCUSSION B#L Laborhourcontractsareavariationofthetimeandmaterialscontract,differingonlyin %! thatmaterialsarenotsuppliedbythecontractor.Youshouldusethistypeofcontractonly %" whennootherwouldbesuitable,andyouneedtodocumentyourdeterminationifyou &# choosetousethistypeofcontract. ' $ 2.4.3.5CostPlusPercentageofCostContracts(CPPC)  )"&  DISCUSSION  X+b$(  TheFTACircular4220.1Eclearlyprohibitstheuseofthiscontractingmethod.CPPC $-.&* contractsareprohibitedbystatuteandFTAmaynotgrantwaiversforgranteestousethis   .'+ methodofcontracting. l#  42      Granteesmustnotonlyavoidusingthistypeofcontract  themselves,theymustalsoinsertclausesintheircosttypecontractsthatprohibittheir  primecontractorsfromusingCPPCsubcontracts.Caremustbetakentoavoidanykindof  agreementwherebythecontractor'sfeewouldbeincreasedautomaticallywithincreasesin   aparticularcostelement.Generally,anycontractualarrangementwherebythecontractor   isassuredofgreaterprofitsbyincurringadditionalcostswillbeheldillegal.Theobvious t ~ problemwiththisformofcontractisthatprofitsincreaseinproportiontodollarsspent, Z d thusprovidingapositiveincentivetoinefficiency.TofallwithinthedefinitionofCPPC,the @ J agreementmustprovidethatthecontractor'scompensation,orsomeportionofit,willbe &0 computedasapercentageofsomeofthecostsofperformance.Soforexample,itisnot    permissibletopayforoverhead(indirect)costsbyestablishingapredeterminedpercentage   inadvanceandstipulatingthatoverheadexpensewillbereimbursedasastatedpercentage   ofsomeothercostsuchasdirectlabor.Theproblemwiththisarrangementisthatsuch   compensationmaybegreaterthanthecontractor'sactualandfinaloverheadexpenses,   whichmeansthepaymentbecomesadditionalprofit.Inthesameway,atimeandmaterials   contractwhichcalledforpaymentofoverheadandprofitatpredeterminedpercentagesof pz  15%and10%ofcostincurredwasheldtobeillegal. l#  43       V` Thisisnottoprohibitprovisionaloverheadrateswhichareauditedandadjustedtoactuals ", attheendofthecontract,nordoesitprohibitprovisionalorinterimfeepaymentsbasedon  costsbeingincurred,becausethetotalfeeisfixedattheinceptionofthecontractandwill  notincreasewithincreasesinactualcosts.Itisalsopermissibletopayamaterialhandling  chargeasapercentageofmaterialcostsincurredifthecontractorhasaseparatematerial  handlingcostpool.Thisindirectcostpoolshouldbeauditedaftercontractcompletion,and  thebilledratesshouldbeadjustedtoactualsbasedontheaudit.  Anotherwayofavoidingtheproblemistoincludeoverheadandprofitinfixedratesfor R\ labor.Thisisdoneintimeandmaterialsandlaborhourcontractswherecontractorsare 8B paidonerateforeachhouroflaborperformed.Thistypeofarrangementisnotillegal,but  ( itstilltendstooperateasadisincentivetocontrolcost(morehoursworkedequalsmore ! profits),andforthisreasonshouldbeavoidedwheneverothercontractingoptionsexist. ! 2.4.4Payments  #  Paymentisthebuyer'smostimportantcontractualobligation.Paymentsaretheprincipalsource %" offundsduringcontractperformanceallowingthecontractortocontinueworking.Delaysin h&r# paymentscanhaveaseriouseffectonthecontractor'sabilitytocontinueperformance.When N'X $ lessthanfullpaymentismadeofacontractor'sinvoice,theterms"withholding"and"setoff"are  4(>!% commonlyusedtodescribetherefusaltomakefullpayment.Theterm"finalpayment"usually  impliesthatbothpartiestothecontracthavefulfilledalloftheirresponsibilities.  Therearetwomajortypesofcontractpayments:(1)paymentsforcompleteditemsofwork   (includingpartialpayments),and(2)progresspaymentsbasedoncostsincurredorupona   percentageofcompletionofthework.Anothertypeofpayment,whichisusedonlyunder t ~ extraordinarycircumstances,ispaymentinadvanceofdoingthework(advancepayments). Z d  2.4.4.1PaymentofthePrice  &0 Paymentofthecontractpriceisdueuponcompletionoftheworkandsubmissionofthe   contractor'sinvoice.Whenthecontractauthorizesdeliveryorperformanceinincrements,   paymentofaportionofthecontractpricemaybemadebeforethecontractiscompleted.Such   paymentsarereferredtoaspartialpayments.Partialpaymentsarenotconsideredtobea   financingtechniquebuttheycanbeanimportantmeansofprovidingfundsforperformance,and   theyshouldbeusedwheneverthecontractcanbestructuredintermsofincrementalstagesor pz  deliveriesandthereareappropriateacceptancecriteriaforthesupplies,servicesorcompleted V` subsystemsofalargersystem.Inotherwords,whentheAgencycansafelyinspect,testand <F accepttheseunitsandmakea"final"paymentforthoseitemsdelivered,withouthavingtoworry ", abouttheirfunctioningaspartofalargersystem,thenpartialpaymentsshouldbeestablishedin  thecontract.   2.4.4.2AdvancePayments   *e"dddd "s#s#e,dd +    REQUIREMENT   `N(@ X , Xl "  X#NFTACircular4220.1E,Paragraph12.a, AdvancePayments,states: dn 0  0|##00|#|# FTAdoesnotauthorizeandwillnotparticipateinfundingpaymentstoacontractor 0 : priortotheincurrenceofcostsbythecontractorunlesspriorwrittenconcurrenceis !  obtainedfromFTA.Thereisnoprohibitiononagrantrecipientsuseoflocalfundsfor ! advancepayments.However,advancepaymentsmadewithlocalfundsbeforeagrant " hasbeenawarded,orbeforetheissuanceofaletterofnoprejudiceorotherpreaward #  authority,areineligibleforreimbursement..$"$!0#0# d`   .Rl "  X#@ X , XR DISCUSSION &" Advancepaymentsareactuallyamethodoffinancingandnotamethodofpayingforwork (!$ completedoritemsdelivered.Theyaremadepriortoacontractor'sincurrenceofcostsin )"% ordertoenablethecontractortoperformthecontract.TheFederalGovernmentplaces r*|#& severerestrictionsonitsownuseofadvancepayments(FARcoveragemaybefoundat X+b$' FARSubpart32.4).Asindicatedbelowintheparagraph ExceptionstothePrior >,H%( ApprovalRequirement,whenadvancepaymentsaregenerallyacceptedindustrypractice, $-.&) FTAdoesnotrequirepriorapproval.  .'* ЇTheFTACircularrequiresFTAapprovalbeforegranteesmayusethisformoffinancing  onthirdpartycontracts.However,theFTACircularclearlyrestrictstheadvancepayment  prohibitiontothosecontractswherethegranteeisusingFTAfundsfortheadvance  payment.IftheadvancepaymentsarebeingmadewithnonFTAfunds,thenFTAhasno   involvementinthedecisionandneednotapproveofit.Granteesarefreetouselocalfunds   tofinancetheircontractorsinthismanneriftheydeemitappropriate.TheCircularalso t ~ coversthesituationwhereagranteemaywishtouselocalfundsforadvancepayments Z d beforeagranthasbeenawardedorbeforeFTAhasissuedaletterofnoprejudicetothe @ J grantee.InthesecasesFTAwillnotreimbursethegranteelaterforsuchpayments. &0 ExceptionstothePriorApprovalRequirement󀄀TheFTArequirementforpriorapproval   ofadvancepaymentsdoesnotapplytotransactionswhereitis generallyaccepted   industrypracticetopayinadvance.Inthesesituations,granteesmaymakeadvance   paymentswithoutpriorFTAapproval.Thesesituationswouldinclude(butnotnecessarily   berestrictedto)thefollowingtypesoftransactions:     1.0  RentV`s#s#   2.0  Tuition<Fs#s#   3.0  Insurancepremiums",s#s# 0  4.0s#s#SubscriptionstoPublicationss#s#   5.0  Softwarelicensess#s#   6.0  Constructionmobilizationcostss#s#   7.0  Publicutilityconnectionss#s#   HXX       XXHBestPractices  bԌ  ЌXXXX  #HXX# XXHNewYorkCityTransit(NYCT)completedamajorprocurementforrailcarsinwhichtherewere x twopaymentschedulesintheRequestforProposals(RFP).Thefirstwasapaymentschedule ^h containingmilestonepaymentstotaling20%ofthepriceofcarspaidpriortotheacceptanceof D N thefirsttesttrains.Asecondor"Alternate"paymentschedulehadmilestonepaymentsof42%of *!4 thepriceofcarspaidpriortotheacceptanceofthefirsttesttrains.Contractorswererequiredto " submitproposalsbasedonbothpaymentscenarios,aswellasanyalternativepaymentplanthey " wishedtopropose.NYCTrequestedthattheFederalTransitAdministration(FTA)provide #  writtenconcurrencetomakeadvancedpaymentsuptoapproximately45%ofthepriceofthe $! carsiftherewasappropriateconsiderationforgreaterpaymentsmadeupfront.Inaddition, %" NYCTrequiredthatanAdvancedPaymentBondorLetterofCreditbeprovidedinthefull &# amountofthepriceofcarspaidpriortotheacceptanceofthefirsttesttrains.FTAprovidedtheir t'~ $ writtenconcurrencetoNYCT'srequest. Z(d!%  Inordertoevaluatetheproposalsreceivedfromthecontractors,NYCTperformedaNetPresent &*0#' Valueanalysisofthe20%,42%andothercontractoralternativesinordertoquantifythevalueof  +$( thedifferentpaymentschedules.Theanalysistookintoaccountthecostofmoneyandallaspects +$)   ,%* ofthetimingofinvoicing,startingwithreceiptoftheinvoicethroughthetimeforactual  payment.TheNetPresentValueanalysisshowedthatappropriateconsiderationwasgiveninthe  winningproposalandNYCTacceptedit.AnAdvancedPaymentBondorLetterofCreditwas  requiredtoprotectallpaymentsforcarspriortoacceptanceofthetesttrains.    ThiscaseshowsaveryconservativeapproachastowhatisdefinedasanAdvancePayment.The t ~ AdvancePaymentisconsideredtobetheamountpaidtothecontractorforcarsuntilthefirst Z d trainsareacceptedbyNYCT.Thecontractorisrequiredtodesign,buildandtestthefirst18cars @ J whichmeansthatthecontractorisincurringsubstantialcostsduringthisperiod.Thesecosts &0 includeengineeringanddesignhours,supervision,orderingmaterials,setupoftheproduction    line,etc.Thecontracthasamobilizationpaymentof3%uponawardofthecontractandapproval   oftheAdvancePaymentBondorLetterofCredit.Thereafter,thecontracthasmilestone(or   completiontypeprogresspayments)forvarioussubmissionsofdesigns,approvalsofdesigns,   startingoftests,completionoftests,etc.Amoreliberalapproachwoulddefinethemobilization   costof3%tobeconsideredanAdvancePaymentandtherestofthepaymentstobeconsidered   progresspayments. pz  0   s#s#  2.4.4.3ProgressPayments  <F  *l"dddd "s#s#l,dd +   REQUIREMENT "  lv  Paragraph12.bofFTACircular4220.1Estates:  ?l` X#l "  X#?0 l b.0l#l#ProgressPayments.Granteesmayuseprogresspaymentsprovidedthefollowing @/"   requirementsarefollowed:  l#  44      ## ?l m  X#l` X#? l   1.0 Progresspaymentsareonlymadetothecontractorforcostsincurredinthe dn performanceofthecontract. l#  45      JT # #  l   2.0 Thegranteemustobtainadequatesecurityforprogresspayments.Adequate !  securitymayincludetakingtitle,letterofcreditorequivalentmeanstoprotect ! thegranteesinterestintheprogresspayment.4 l#  46      ׀0, # #   #",#,#  # # ЇDISCUSSION  Progresspaymentsareameansoffinancingcontractorsthatareperformingfixedprice  contracts(a)underunusualcircumstanceswhereacontractorcannotgetprivatefinancing   atareasonablecost,or(b)wherethecommercialpracticefortheitembeingprocuredisfor   thebuyertoprovidefinancing(e.g.,rollingstockprocurements). l#  47      ,  ,I7  ,  ,7  Therearetwomajor t ~ typesofprogresspayments:thosebasedoncostsandthosebasedonapercentageof Z d completionofwork.Bothtypesareconsideredcontractfinancingmethods(seeFAR @ J 32.102).Progresspaymentsmaybeappropriateif: &0   Q+` ` ` <DL!l m  X#Q     y{(jyx y{"y3"   6,S` X` ` ` X!6y332j3  0 4   Thecontractorwillnotbeabletobillforthefirstdeliveryofproducts,orother   performancemilestones,forasubstantialtimeafterworkbegins.InFederal   contractingpractice,theusualcontractdurationforusingprogresspaymentsis   fourmonthsormoreforsmallbusinessesandsixmonthsormoreforothers,andy33݌ 4s#4s# Ќ  -   K( <DL!,S` XK   E+` ,` <DL!  X!E-  -݌   Ќ  6,S` X` ,` X!6   "y3"  y3b2j3  0 4   Thecontractor'sexpenditurespriortodeliveryofthefirstitemswillhavea pz  significantimpactonthecontractor'sworkingcapital.,  ,p7   l#  48      ,  ,7   k N+ ,` <DL!,S` XNy3b݌V`4s#4s# Ќ     H+ 4 <DL! ,` X!HProgresspaymentsaretobedistinguishedfrompartialpayments.Partialpaymentsare ", paymentsmade,asauthorizedbythecontract,upondeliveryandacceptanceofoneormore  completeunits(oroneormoredistinctitemsofservice)inaccordancewiththecontract  specifications,eventhoughotherquantitiesremaintobedelivered.Notethatpartial z paymentsareforcompletedunits,whereasprogresspaymentsareforuncompletedworkin BL progress.   Becausethegranteeismakingpaymentsforuncompleted,nonfunctionalunits,FTA  requiresthatadequatesecuritybeobtainedfromthecontractorprotectingthegrantees bl (andFTAs)investmentincasethecontractorfailstocompletethedeliverableunits.The *4 formofsecurityistobedeterminedbythegranteebasedonwhatisinthebestinterestsof  thegranteeintheparticularcircumstances.(Seefootnoteabovereadequatesecurity.)   ProgressPaymentsBasedonPercentageofCompletion󀄀TheFederalGovernment J!T authorizesprogresspaymentsonitscontractsbasedonapercentageorstageofcompletion 0": ofthework.Thistypeofprogresspaymentisstandardforconstructioncontractsforall #  Federalagencies.,  ,7  u l#  49      ,  ,C7  󀀀49CFRPart18.21(d)allowsgranteesandsubgranteestousethe #  percentageofcompletionmethodtopaytheirconstructioncontractors,whichisconsistent $!  withtheregulationsforFederalcontracts.However,granteesmaynotusethepercentageof %" completionmethodfornonconstructioncontracts.Forthosecontracts,progresspayments  basedoncostsincurredmustbeused.,  ,n7   l#  50      ,  ,7     ContractClause!GranteesshouldrefertotheFARclauseatFAR52.23216forguidance   onthespecificissuesthatneedtobeaddressedintheprogresspaymentsclauseandensure   thattheiragencysclauseadequatelycoverstheimportantissues,including: t ~ "y3"  0  y32j3  0` s#s#  Computationofamounts!percentageoftotalcosts,definitionof coststobe @ J includedinthecalculation(i.e.,onlythoseactuallypaidbythecontractor, &0 incurredbutnotpaid,etc.).y3݌  ` s#` s# Ќ  B+` ` ` <DL!X!B"y3"  H+ 4 <DL!` ` ` X!H Xy32j3  0 `   Liquidation!themethodoflinkingvaluereceivedtopaymentsmade.y3݌ ` s#` s# Ќ  0 `  ` s#` s# "y3"  y3}2j3  0 `   Reductionorsuspensionofpayments!thecircumstancesunderwhichthe   granteemayreduceorsuspendprogresspayments.y3}݌ ` s#` s# Ќ  B+` ` ` <DL!X!B0   s# s# "y3"  H+ 4 <DL!` ` ` X!Hy3;2j3  0 `   Title!thisprovisionshoulddefinethepropertyconsideredallocabletothe V` contract(parts,materials,specialtooling,specialtestequipment,drawings <F andtechnicaldata,etc.)andthepartythatretainstitletotheproperty/work ", inprocessforwhichtheprogresspaymentsaremade.y3;݌` s#` s# Ќ  0 `  ` s#` s# "y3"  y32j3  0 `   Riskofloss!thecontractshouldbeclearastowhichpartyassumestherisk  oflosstocontractpropertyandworkinprogressbeforefinalacceptanceof  theunits.IntheFederalclause,thecontractorassumestheriskoflosseven  thoughtitletoallpropertyacquiredunderthecontractvestsintheGovernment.y3݌` s#` s# Ќ  0 `  ` s#` s# "y3"  y352j3  0 `   Progresspaymentstosubcontractors!thisprovisionneedstodefinethe R\ circumstancesunderwhichtheprimecontractormustmakeprogress 8B paymentstofixedpricesubcontractors,andthesubcontracttermstobe  ( included(coveringthesameissuesastheprimecontractsprogresspayment ! clause).y35b݌!` s#` s# Ќ  0 `  ` s#` s# "y3"  y32j3  0 `   Adequateaccountingsystem/reports!thecontractmustrequireanadequate #  joborderaccountingsystemtobemaintainedthatproperlyaccountsforthe $! costsofthejobeventhoughthecontractisfixedprice.Thisprovisionshould %" alsogivethegranteetherighttorequirecertainreportsorotherdatain h&r# supportofthecontractorsinvoices.y3݌N'X $` s#` s# Ќ  0 `  ` s#` s# "y3 "  y3-2j3  0 `   Accesstorecordsthisprovisionmustgivethegranteetherighttoconduct )$"& auditsofcostsclaimedinprogresspaymentinvoices.y3-Z݌* #'` s#` s# Ќ  B+` ` ` <DL!X!B0   s# s#  H+ 4 <DL!` ` ` X!H X  +$) 2.4.4.4WithholdingandFinalPayment  DISCUSSION  Anumberofcontractprovisionsexpresslyauthorizethewithholdingofpayments.See,for   example,theDavisBaconActClause  l#  51      ortheContractWorkHoursandSafetyStandards t ~ ActClause./ l#  52      ThestandardFederalgovernmentclauseforthepaymentoffixedfeeon Z d CPFFcontractscallsfora15%withholdingofthefixedfeeuntilthecontractorsubmitsa @ J certifiedfinalindirectcostrateproposalandotherwisecomplieswiththefinaldeliverable &0 documentationrequirementsofthecontract(e.g.,deliveryofthefinalreportconcerning    inventionsmadeunderthecontract).   LimitationonWithholding󀄀Intheeventyoudecidetowithholdpaymentsonacontract,   youmusttakecarethattheamountofmoneywithheldbearsareasonablerelationshipto   theunsatisfactorywork;inotherwords,theamountwithheldmustrepresentareasonable   estimateofthecontractor'spotentialliability.  l#  53      Moreover,theamountwithheldmustnot pz  besogreatthatitimpairsthecontractor'sabilitytoperform. = l#  54      󀀀Youmayalsowishto V` consideraclauselimitingtheamountofpaymentsthatmaybewithheldintotalunderall <F clausesofthecontract,asisthepracticeonFederalcontracts.  l#  55       ", FinalPayment󀄀Finalpaymentismadetothecontractorwhenithassatisfiedallofthe  deliverablerequirementscalledforbyallprovisionsofthecontract,includingallofthe  requireddocumentation.Finalpaymentsignifiesthattheperformanceobligationsofboth  partiestothecontracthavebeensatisfied.Beforemakingafinalpayment,therefore,you  shouldobtainasignedreleasefromthecontractorreleasingtheAgencyfromanyfurther  claimsbythecontractor.Youshouldalsoensurethattheprogramofficehassigneda lv receivingandinspectionreportcertifyingthatalldeliverableitemshavebeenreceived, R\ inspected,andacceptedasbeinginconformancewiththecontractspecifications. 8B RetainageonConstructionContracts󀄀ForadiscussionofretainageonConstruction ! Contracts,seeBPPM,Section10.1,paragraphentitled RetainageandtheProblemsof ! ContractorswhoQuitWork. "   $! 2.4.5IndefiniteDeliveryContracts   Whentheexacttimesortheexactquantitiesoffuturedeliveriesarenotknownatthetimeof  contractaward,orwhentheshelflifeoftheproductneededisshort,granteesmaywishto   considersomeformofindefinitedelivery(ID)contract.Indefinitedeliverycontractsoffera   numberofadvantagesthatwillbediscussedbelowwitheachtypeofIDcontract.Asageneral t ~ rule,however,IDcontractspermitthegranteetomaintaininventoriesatminimumlevelsand Z d provideflexibilitywithrespecttoshipmentstovarioususerlocations.Italsofacilitates @ J decentralizedorderingbyusersatdifferentlocations. &0 Therearethreetypesofindefinitedeliverycontracts:    s(4y y{E.4` <DL!X!E0  1.04s#s#Definitequantitycontracts, 4s#4s# 0  2.04s#s#Requirementscontracts,and 4s#4s# 0  3.04s#s#Indefinitequantity(IQ)contracts(commodities)/Taskordercontracts(services). 4s#4s# H+ 4 <DL!4, XH 2.4.5.1DefinitequantityContracts  V` Adefinitequantitycontractisonewhichprovidesfordeliveryofadefinitequantityofspecific ", suppliesorservicesduringatimeperiodwhichisfixed,withdeliveriesorperformancetobe  scheduledatdesignatedlocationsatthetimeeachorderisplacedunderthecontract.Thistype  ofcontractisappropriatewhenthegranteeknowsinadvancehowmanytotalitemsitwillneed  duringthecontractperiodbutisuncertainastotheexacttimeortheexactamountofitsneeded  deliveriestoanygivenlocation.Thesuppliesorservicescalledforbythistypeofcontractmust  beregularlyavailablefromthesupplieroravailableafterashortleadtime. Forguidanceasto  orderingquantitiesabovethequantitystatedinthecontract,seeSection2.4.5.3below,paragraph lv entitledOrdersabovethestatedmaximum.$R\ 2HXXjH          Ԍ $ ЌXXjXXXX 2  2.4.5.2RequirementsContracts  2 < Arequirementscontractisoneinwhichthegranteecommitstoplaceallofitsrequirementsfora ! particularitemorservicewithaparticularcontractorduringaspecifiedcontractperiod,with " deliveriesorperformancetobescheduledatthetimeeachorderisplacedunderthecontract. # Thistypeofcontractisusedwhenquantitiesand/orthetimesofneededdeliveriesareuncertain. $  Itpermitsflexibilitytothegranteeinbothquantitiesanddeliveryschedules.Itmayalsoshorten %! thedeliverytimeofaproductthathasalongerproductionleadtimebecausethecontractor |&" knowsthatthegranteewillobtainallofitsrequirementsunderitscontractandinthissituation b'l # contractorsmaybewillingtomaintainsomelevelofinventory.Arequirementscontractalso H(R!$ allowsfortheorderingofsuppliesorservicesafterrequirementsbecomeknown.Itdiffersfrom .)8"% theindefinitequantitycontractinthatitpromisesthecontractorthatallofthegrantees *#& requirementsfortheparticularitemwillbeprocuredfromthecontractor,whereastheindefinite *$' quantitycontractmakesnopromiseofthisnatureandmayinfactbeoneofseveral(multiple) +$( contractsawardedforthesameitemorservice.Therequirementscontractmayproducebetter ,%) pricesforthegranteeinthatthecontractorisassuredfromthebeginningthatallsuppliesor  -&* servicesofthetypecalledforwillbeprocuredfromthecontractorduringastatedperiodoftime.  Thedisadvantagetothegranteeisthatitwillbecommittedtoorderallofthedesignatedsupplies  atthecontractedpriceevenifitlaterlearnsthatthesuppliescanbeorderedelsewheremore  cheaply.   ЀEstimatedtotalquantity!Whenthistypeofcontractisused,granteesshouldstatearealistic t ~ estimatedtotalquantityinthesolicitationandintheresultingcontract.Thisestimateisnota Z d guaranteebythegranteethatitwillbuytheestimatedquantity,butisagoodfaithestimateof @ J whattherequirementsarelikelytobe.Theestimateshouldbebasedonrecordsofprevious &0 requirementsaswellasthemostcurrentinformationavailable.    Maximumandminimumquantities!Thecontractshouldprotectthecontractorbystatinga   maximumlimitofthecontractorsobligationtodeliver.Thismaximumlimitmaybeexpressed   fortheentirecontract,aswellasforeachindividualorderandforanyparticularperiodoftime   withinthecontractperiodofperformance.Minimumorderamountsmayalsobeexpressedfor   eachorderplacedandforthecontractasawhole.Minimumorderamounts,however,arenot pz  requiredforthistypeofcontractbecausethegranteescommitmenttobuyitsrequirementsfrom V` thecontractorrepresentsthelegalconsiderationnecessarytomakethecontractbinding.For <F guidanceastoorderingquantitiesabovethemaximumamountstatedinthecontract,seeSection ", 2.4.5.3below,paragraphentitledOrdersabovethestatedmaximum.Itshouldbenotedthatthe  minimumandmaximumquantitiesinarequirementscontractareforthecontractorsprotection  anddonotnecessarilylimitthegranteesprocurementauthoritytoordermoreunits(sincethe  granteehascontractedtoawardallofitsrequirementstothecontractor).Thusthegrantees  authoritytoaddunitstoarequirementscontractwithoutrecompetitionisfoundedonitsinitial  promisetoawardallofitsrequirementstothesuccessfulcontractorandsuchadditionswouldnot  constituteanimpermissibleincreaseinscope(aswouldbethecasewithanindefinitequantity lv contractwhenthegranteeseekstoaddunitsabovethestatedmaximumseebelow). R\  2.4.5.3IndefinitequantityContracts  (  Anindefinitequantitycontractisonethatprovidesforanindefinitequantityofsuppliesor ! services,withinlimitsthatarestatedinthecontract,tobeprovidedduringatimeperiodthatis " fixedinthecontract.Deliveriesofthesuppliesorperformanceoftheservicesarescheduledby #  placingorderswiththecontractor.Thistypeofcontractmaybeappropriatewhenthegrantee $! cannotpredetermine,aboveaspecifiedminimum,theprecisequantityofsuppliesorservices %" thatwillberequiredduringthecontractperiod,anditisinadvisableforthegranteetocommit h&r# itselfformorethanaminimumquantity.Indefinitequantitycontractsofferseveraladvantages: N'X $ B.4` <DL!XB  1.0 4 minimuminventorylevelsofsuppliescanbemaintained,)$"&4s#4s#   2.0 4 shipmentscanbedirecttousersinvariouslocations,* #'4s#4s#   3.0 4 theypermitflexibilityinbothquantitiesanddeliveryscheduling,*#(4s#4s#   4.0 4 suppliesorservicescanbeorderedafterrequirementsbecomeknown,+$)4s#4s#   5.0 4 thegranteesobligationislimitedtotheminimumquantityspecifiedinthecontract.,%*4s#4s# H+ 4 <DL!4, XH  ~.', Minimumandmaximumquantities!Toensurethatthecontractisbinding,aminimumnumber  ofunitsmustbestatedinthecontract,anditmustbemorethananominalquantity.Theremust  alsobeastatedmaximumofunitsthatmaybeordered.Indefinitequantitycontractsshould  neverbe openended,wherenomaximumquantityisstated.Thispracticehasledtoserious   problemswhenagenciesattemptto piggybacktheopenendedcontractsofotheragenciesby   orderingquantitiesthatwereneverincludedintheoriginalcompetitiveprocess.(SeeSection t ~ 6.3.3JointProcurementsofRollingStockand Piggybacking.Thecontractmayalsostate Z d maximumorminimumquantitiesthatmaybeorderedundereachtaskordeliveryorderandthe @ J maximumthatmaybeorderedduringaspecifiedperiodoftimewithinthecontractsperiodof &0 performance.    Ordersabovethestatedmaximum!Ifitbecomesnecessarytoorderquantitiesabovethe   maximumstatedinthecontract,(whichwouldbethenumberofunitsincludedintheoriginal   competitiveprocess),suchordersshouldgenerallynotbeprocessedas changeorders,( change   ordersmustbewithinthescopeoftheoriginalcompetition),butshouldbeprocessedas new   procurements.Thesenewprocurementsmayeitherbecompetedor,ifcircumstanceswarrant, pz  processedas noncompetitiveprocurementsinaccordancewiththegranteesinternalapproval V` processfornoncompetitive( solesource)procurements.Granteesshouldanticipatethe <F possibilityofneedingadditionalquantitieswhentheycompetethecontractawardinitiallyand, ", ifnecessary,includeoptionprovisionsforadditionalquantitiesintheoriginalcompetitive  bidding.Inthiswayifadditionalquantitiesareneededtheymaybeprocuredundertheoriginal  contractwithouthavingtojustifythemasa solesourceaddon.  MultipleAward/TaskOrdercontractXrXXXs󀄀Granteesmaywishtoconsidermakingmultiplecontract  awardsforthesameorsimilarsuppliesorservicesunderasinglecompetitivesolicitation.This  maybeappropriateinordertoensurethequalityortimelinessofdeliveriesbynotlimitingthe z granteetoasinglesupplierwhomaynotperformaccordingtothegranteesexpectationsor gq needsorwhomaynotbeabletomeetpeakdeliveryrequirements.Inthisevent,anothersupplier T^ isimmediatelyavailabletoassurethatneedswillbemet. A K #XXXXrK7#TheFederalAcquisitionRegulations(FAR),Subpart16.504!IndefiniteQuantityContracts, "% addressestheissueofmultipleawardsin16.504(c).TheFARexpressesapreferenceformaking #  multipleawardsofindefinitequantitycontractsunderasinglesolicitationforthesameorsimilar #  suppliesorservicesif(i)arecurringneedforthesuppliesorservicesisanticipated,and(ii)the $! agencycannotpredetermineitsneedsaboveaspecifiedminimum,and(iii)whenitwouldbe %" inadvisablefortheagencytocommititselfformorethanaminimumquantity.TheFAR &# envisionstheawardofmultipletaskordercontractsinwhichindividualtaskorderswouldbe ' $ issuedfollowingcompetitivesolicitationstotheoriginalawardees.XrXXX e(o!% Ifmultipleawardsaremade,granteesmustadviseprospectivebiddersoftheproceduresthatwill 8*B#' beusedinissuingorderstothecontractorsselectedforaward,includingthecriteriathatwillbe %+/$( usedtoprovidetheselectedcontractorswithafairopportunitytobeconsideredforeachorder ,%) issued.Thecriteriamayincludesuchitemsaspastperformanceonearliertasksorordersissued , &* underthecontract,qualityofdeliverables,timelinessofdeliveries,andotherfactorsconsidered  -&+ relevantbythegrantee.Itisimportantthatpriceorcostbeoneoftheselectionfactors  consideredforeachorderawarded.Iftheoriginalcontractdidnotestablishthepriceforthe  supplyorservice,thegranteewillhavetosolicitcostorpriceproposalsforeachorder.  #XXXXr}=#TheFARdoesprovideforexceptionstotherequirementthatallawardeesbeprovidedafair   opportunityforeachorderawarded.Thesewouldincludesituationswhere!      s(84s'4Z XX'  a.0 4 Theagencysneedsforthesuppliesorservicesaresourgentthatprovidingafair \ f opportunitywouldresultinunacceptabledelays;BL4s#4s#   0, X4Z X0  b.0 4 Onlyoneawardeeiscapableofprovidingthesuppliesorservicesbecausetheyare   uniqueorhighlyspecialized; 4s#4s#   04Z X, X0  c.0 4 Theordermustbeplacedonasolesourcebasisintheinterestofeconomyand   efficiencyasalogicalfollowontoanorderalreadyissuedunderthecontract,   providedthatallawardeesweregivenafairopportunitytobeconsideredforthe   originalorder;andr|4s#4s#   d.0 4 Itisnecessarytoplaceanordertosatisfyaminimumguarantee.>H4s#4s#   XrXXXMultipleawardswillnotbeadvisablewhen:  K.4` <DL!4Z XK  a.0 4 statelawprohibits,4s#4s#   b.0 4 morefavorabletermswillbeprovidedifasingleawardismade,4s#4s#   c.0 4 thecostofadministeringmultiplecontractsoutweighsanypotentialbenefitsfrom @! 0@! s# s#  makingmultipleawards,and4s#4s#   d.0 4 taskslikelytobeorderedaresointegrallyrelatedthatonlyasinglecontractorcan f!p reasonablyperformthework.#XXXXrG#S"]4s#4s#