[Federal Register Volume 60, Number 198 (Friday, October 13, 1995)]
[Notices]
[Pages 53451-53453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25407]



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DEPARTMENT OF TRANSPORTATION
Federal Transit Administration
[Docket No. 94-B]


Third Party Contracting Requirements

AGENCY: Federal Transit Administration, DOT.

ACTION: Notice of availability of Third Party Contracting Requirements, 
Circular 4220.1C.

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SUMMARY: On September 7, 1994, the Federal Transit Administration (FTA) 
published a Notice in the Federal Register announcing its decision to 
revise its Third Party Contracting Guidelines, Circular 4220.1B, to 
incorporate new provisions included in the Intermodal Surface 
Transportation Efficiency Act of 1991 (Pub. L. 102-240, 

[[Page 53452]]
October 28, 1991) and to update and streamline third party procurements 
made with FTA financial assistance. On December 19, 1994, FTA published 
a Notice in the Federal Register extending the comment period to 
January 18, 1995. This Notice announces the adoption and availability 
of FTA's revised Circular 4220.1C, retitled ``Third Party Contracting 
Requirements,'' and discusses changes FTA made as a result of comments 
received in response to the two previous Notices.

EFFECTIVE DATE: FTA Circular 4220.1C is effective as of October 1, 
1995.

FOR FURTHER INFORMATION CONTACT: Carolyn S. Thompson, Procurement 
Analyst, Office of Procurement, (202) 366-5470. FTA will mail copies of 
the Circular to all of its grantees. Other interested parties may 
obtain a copy of the Circular by sending a self-addressed mailing label 
to: Office of Procurement, Room 7405, 400 Seventh Street, S.W., 
Washington, D.C. 20590.

SUPPLEMENTARY INFORMATION:

I. Introduction

    On September 7, 1994, FTA announced its intent to update its third 
party procurement requirements in FTA Circular 4220.1B, ``Third Party 
Contracting Guidelines,'' and solicited public comment (59 FR 46294). 
On December 19, 1994, FTA extended the comment period until January 18, 
1995, to allow interested parties additional time to comment (59 FR 
65427).
    FTA sought particular comment on two issues. First, FTA proposed to 
continue its mandatory pre-award review and approval of certain 
procurements to be made by FTA recipients. Second, FTA proposed to 
continue to apply the revised circular to procurements made with 
Federal operating assistance.
    After reviewing the comments, FTA determined that most of the 
difficulties faced by persons engaging in third party contracting 
stemmed from uncertainty as to what procedures and policies were 
required by Federal law and regulation and what procedures were 
recommended but not mandatory. A related problem was the seemingly 
haphazard way in which procurement information was disseminated to 
grantees and contractors.
    To resolve these difficulties, FTA has considered (1) whether it 
should cancel Circular 4220.1B and simply require grantees to comply 
with the Department of Transportation's ``Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State and Local 
Governments,'' and ``Uniform Administrative Requirements for Grants and 
Agreements with Institutions of Higher Education, Hospitals, and Other 
Non-profit Organizations, 49 CFR Parts 18 and 19, respectively 
(collectively, the common grant rules); (2) whether it should continue 
to issue procurement alerts and oral guidance; (3) whether audits and 
procurement system reviews are appropriate ways to ensure that grantees 
understand FTA's third party contracting requirements; (4) whether it 
should develop additional written guidance and training programs to 
help grantees understand the applicable contracting requirements; and 
(5) whether it should continue to require that grantees submit 
extensive information for FTA's pre-certification and/or pre-award 
review.
    After review of the comments received, FTA has decided that its 
third party contracting circular should contain only the minimum 
requirements of the common grant rules, related Executive Orders, and 
statutes, along with statements of FTA policy, and that provisions 
interpreting the requirements and recommending practices should be 
contained in a ``Third Party Procurement Manual,'' which would be 
updated regularly. The revised Circular, FTA 4220.1C, has thus been 
renamed ``Third Party Contracting Requirements.'' Consequently, 
Circular 4220.1C is streamlined, straightforward, and much shorter than 
its predecessor. The ``best practices'' manual, currently under 
development, is to be supplemented by additional procurement training 
for FTA staff and grantees.
    For a detailed analysis of the changes reflected in the revised 
Circular, see the following discussion.

II. Analysis and Comments

    FTA received 52 comments in response to its Federal Register 
Notices:

Transit Agencies...................................................   35
Cities and Counties................................................    6
State DOTs.........................................................    3
Trade Associations.................................................    3
Private Businesses.................................................    3
Labor Unions.......................................................    1
Individual Citizens................................................    1
                                                                        

     A. Self-certification. FTA proposed to continue 4220.1B's self-
certification process whereby certain recipients are required to submit 
a self-certification and summary description of their procurement 
procedures. However, recognizing that 49 CFR Part 18 has been in place 
for nearly a decade and that a reduction of process and paper is 
desirable, FTA is establishing in Circular 4220.1C a new self-
certification process, applicable to all grantees, which does not 
require submission of supporting documents. The certification will be 
made through the ``Certifications and Assurances for FTA Assistance'' 
checklist, which is submitted to FTA at the beginning of each fiscal 
year and updated and published annually in the Federal Register. In 
place of reviewing written documents, FTA will verify compliance with 
FTA's requirements through ``Triennial Reviews'' and ``Procurement 
System Reviews,'' in which a grantee's procurement procedures are 
reviewed on-site and in-depth.
    B. Pre-award Review of Contracts. FTA proposed to continue to 
review certain procurement contracts before grantee award to the 
successful bidder. While the majority of commenters did not respond to 
this proposal, one commenter argued persuasively that FTA should not 
conduct pre-award reviews of third party contracts. This commenter 
wrote that as a State agency it

operat[es] to a well established procurement law and regulations 
that are based on the Model Procurement Code for State and Local 
Governments. All procurements over $10,000, including sole source 
and single bids, are subject to considerable public scrutiny and 
public notice. Adding FTA review to such a process is totally 
redundant and amounts to wasted resources on the part of FTA.

    FTA agrees and has eliminated all routine pre-award reviews of 
third party contracts in favor of periodic, post-grant reviews. Under 
this new process, FTA may still conduct pre-award reviews if 
appropriate in a given situation, and grantees may request such 
reviews.
    C. Multi-Year Contracting. FTA had proposed to add a provision 
addressing ``multi-year contracts,'' a contracting method designed to 
reduce costs by promising a contractor work over a number of years, 
even though Federal funds are appropriated for only one year. This 
technique is intended to save money by enabling the contractor to 
amortize start-up costs and requiring the same price-per-unit over the 
life of the contract. FTA further proposed to require an FTA recipient 
to address the possibility of cancellation.
    Commenters expressed some concerns and sought clarification. For 
instance, one commenter noted that requiring constant unit prices over 
the life of a contract would cause vendors to inflate their prices 
during the early years of a multi-year contract. Another asked that the 
term ``cancellation costs'' be clarified. This proposal has not been 
adopted in Circular 4220.1C because it is not a mandatory requirement; 
the use of ``multi-year contracts'' will be addressed in the ``Third 
Party 

[[Page 53453]]
Procurement Manual'' in which FTA will discuss the benefits of using 
this process and include model contract clauses.
    D. Bonding Requirements. FTA proposed two general bonding 
requirements. For construction or facility improvement contracts or 
subcontracts exceeding $100,000, a grantee could use its own bonding 
policy if approved by FTA. If not approved by FTA, the grantee would be 
required to obtain from contractors: (1) A bid guarantee equivalent to 
5 percent of the bid price; (2) a performance bond for 100 percent of 
the contract price; and (3) a payment bond for 50 percent of the 
contract price for contracts less than $1 million, 40 percent of the 
contract price for contracts between $1 million and $5 million, and 
$2.5 million for contracts over $5 million. Although FTA did not 
propose specific requirements regarding the use of bonds in non-
construction contracts, we discouraged their use.
    The commenters who responded to this issue generally favored its 
adoption. Thus, in 4220.1C, FTA addresses construction or facility 
improvement contracts or subcontracts exceeding $100,000. Whether a 
grantee requires bonds for non-construction contracts is a matter left 
to local discretion. Guidance on this subject may be included in the 
``Third Party Procurement Manual.''
    E. Options. Although only one grantee commented on the proposal 
regarding the use of options, we are aware that this is a controversial 
issue. Instead of adopting this proposal, 4220.1C provides that if a 
grantee chooses to use options, three requirements apply: (1) the 
option must have been evaluated as part of the contract award 
(otherwise it is a sole source procurement); (2) the option must be 
exercised in accordance with contractual terms and conditions at the 
time the contract is awarded; and (3) at the time it is exercised, the 
option price must be determined to be the most advantageous for the 
grantee. Moreover, FTA has removed the restriction that an option may 
not be greater than 50 percent of the base line item quantity. The 
discretion to determine option quantities will now reside with the 
grantee.
    F. Bid Protest Procedures. FTA will continue to review protests 
alleging that a grantee failed to have written bid protest procedures 
or to follow them. Grantee protest decisions must be in writing; 
protests to FTA must be in writing and submitted within five working 
days of the date the protester knew or should have known of the 
violation. All other information which describes the process FTA will 
follow in reviewing bid protests has been removed for reissuance, as 
appropriate, in the ``Third Party Procurement Manual.''
    G. Payment Provisions. Although FTA received only two comments 
concerning the provisions addressing advance and progress payments, FTA 
has decided to make the following changes. Under Circular 4220.1C, 
advance payments may now be used if prior written concurrence-is 
received from FTA. Progress payments may also be used as long as the 
grantee obtains title to the property being constructed or acquired or 
an equivalent security equal in value to the progress payment amount. 
The use of progress payments is at the grantee's discretion.
    H. Small Purchase Threshold. FTA did not propose raising the small 
purchase dollar threshold because we were aware at the time that the 
Office of Management and Budget (OMB) was considering such a change. In 
the interim, the common grant rules have been changed to increase the 
threshold. The Circular has been revised accordingly, and grantees may 
raise their small purchase threshold to $100,000 if they wish.
    I. General Services Administration (GSA) Federal Supply Schedule 
(FSS). Although the proposal did not contain any provision regarding 
the use of the FSS in procuring goods, FTA recipients have repeatedly 
requested permission to use it. FTA supports this request and notes 
that as soon as GSA has established the requisite procedures, eligible 
grantees will be able to use them.
    J. Operating Assistance. FTA had proposed to continue to require 
recipients of operating assistance to apply the Circular to all 
operating procurements. All but one commenter opposed the proposal. Due 
to the complexity of the legal and policy issues surrounding this 
particular requirement, no change has been made. FTA does intend, 
however, to continue to study the issue to determine what, if any, 
changes can be made consistent with the principles of Federalism and 
the National Performance Review.
    K. Commercial Services. FTA proposed a specific provision 
applicable to the purchase of ``commercial services'' for the provision 
of transit, maintenance, or management services. Commenters responding 
to this proposal were uniformly opposed. One commenter, for example, 
wrote that ``[t]he essential `make or buy' question--that is inherent 
to any sound procurement process--by definition applies to both goods 
and services.''
    We agree with the commenters; a separate provision on the 
procurement of ``commercial services'' is inappropriate and 
unnecessary, since such procurements are covered by section 8 of 
Circular 4220.1C entitled ``Competition,'' which requires that ``all 
procurement transactions . . . be conducted in a manner providing full 
and open competition.''
    L. Attachment A. FTA proposed to identify and list all of the 
statutes and regulations that address third party contracting issues. 
Instead of adopting this proposal, however, FTA decided that recipients 
should be referred to the ``Master Agreement,'' which contains a 
comprehensive list of the requirements applicable to the FTA program, 
including procurement. Unlike the Circulars, the ``Master Agreement'' 
is updated annually. Moreover, as mentioned above, FTA is developing a 
``Third Party Procurement Manual'' which will give FTA recipients 
detailed guidance on the applicability of various statutes and 
regulations addressing third party contracting matters.
    M. The Use of the Metric System. In our proposal, FTA ``encouraged 
[grantees] to begin using the metric system of measurement * * * at the 
earliest possible date in their procurements and other business 
activities.'' Although grantees would be merely encouraged to use the 
metric system, the commenters were adamantly opposed. Given FTA's 
decision to focus on contracting requirements, this provision is not 
included in Circular 4220.1C. FTA notes, however, that 49 U.S.C. 
sections 205a et seq., E.O. 12770, ``Metric Usage in Federal Government 
Programs,'' 15 U.S.C. section 205a, and the ``Master Agreement'' 
require the use of the metric system by 1997. FTA recipients should 
note, however, that the use of the metric system is not required in 
every instance; 49 CFR 19.44(a)(3)(v) exempts its use when not 
``practicable and economically feasible.''
    N. Architectural and Engineering Contracts. Although FTA has 
reworded the provisions concerning the requirements for architectural 
and engineering contracts, the basic requirements have not been 
changed.

     -Issued: October 10, 1995.
Gordon J. Linton,
Administrator.
[FR Doc. 95-25407 Filed 10-12-95; 8:45am]
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