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BPPM Procurement Object Types: Special Considerations

6.1 Construction

Construction contracting presents a unique set of problems for the procurement specialist, and this section of the BPPM will attempt to identify some of these issues. A number of factors tend to make construction contracting an area where problems abound. The first is the uniqueness of the projects themselves; i.e., they are usually performed with drawings and specifications which are developed for the first, and only time, for that project. Because the documents are one of a kind, there has been no prior experience which would have identified errors and clarified ambiguities. Another factor is the highly competitive nature of the bidding process, producing prices which have no leeway for solving design problems which arise during performance of the contract or for accommodating changes. Add to these factors the legal complexities arising from Federal, State and local statutes, regulations and codes, and the process becomes one unlike any other in the procurement field.

There is a high degree of specialization in the construction industry among firms. The major areas being excavation and foundations, masonry, steel work, roofing, plumbing, electrical, and heating and air conditioning. Given this degree of specialization, the role of the general contractor is to manage other specialty contractors, scheduling and coordinating their work. In this role general contractors assume a high degree of risk when they bid firm- fixed prices, thus guaranteeing performance for the bid price. It should also be noted that a number of States require that the various trades be bid as separate primes, which adds to the complexity of project management and contracting; e.g., who controls the various contractors? If the general trades contractor is given this responsibility, how will it be compensated and what enforcement authority does it have against the other primes?

Another party in this process is the surety, who issues a bond assuring performance of the contract, including the payment of suppliers and mechanics in accordance with the terms of their contracts with the construction contractor.

A number of different construction contracting strategies are discussed below. Some of the material presented has been excerpted from the American Bar Association (ABA) Model Procurement Code, Chapter 5, which grantees are encouraged to read. Grantees are also encouraged to obtain the FTA construction management manual entitled Project and Construction Management Guidelines 1996 Update1 TheseGuidelines were developed by FTA "to assist local Transit agencies in developing management structures and work programs to effectively plan and implement the various phases of FTA-funded transit capital improvement projects." The Guidelines contain useful procurement information and guidance related to construction projects.

6.1.1 The Traditional Construction Process - Design/Bid/Build

It has been traditional in the construction industry to employ an architect/engineer (A/E) to complete a detailed design of the entire project before soliciting bids from construction contractors. This traditional approach is known as sequential design and construction. This sequential design/construction approach requires that a detailed design package of the entire project be complete before bids are solicited from construction contractors. Following award of the construction contract, the A/E is often retained by the owner for the construction phase, and acts as the owner's agent, to inspect the construction work to ensure that the structures are built according to the designs and specifications.

Advantages - A major advantage of the sequential design and construction approach is that complex or one- of- a- kind projects can be thoroughly planned and thought through before construction begins. The traditional approach thus produces, in the design phase of the project, the most accurate estimate of final project costs, and this is an advantage of the traditional technique. If problems are encountered with design aspects for the latter stages of the project, the earlier design features or phases can be modified before any construction work has been done, thus avoiding construction contractor claims and delays. Another advantage is that the Agency is given a fixed price for completion of the entire project before construction begins. There may also be advantages in obtaining the necessary financing and project approvals. Overall management of the project should also be simplified by this approach.

Disadvantages - Sequential design and construction requires a longer time to complete the project thanphased design and construction ("fast tracking"). And since time pressures are often the most intense issues confronting the Agency, the sequential method may not be feasible. Alternative contracting approaches have arisen to shorten the project completion time. These include phased design and construction ("fast tracking"), which often involves the use of a construction manager, and turnkey (design-build) contracting.

6.1.2 Construction Management

In recent years a construction technique known as construction management has come into practice. In this scheme the owner employs a construction manager who acts as the owner's agent during the design phase and as overseer during the construction phase. During the design phase the construction manager works closely with the A/E, monitoring the A/E's efforts to ensure that the design will be within the owner's budget, will accomplish the owner's purposes, etc. One of the critical tasks a CM can perform during the design phase is a constructability review, ensuring that the design can actually be built. 2 The specific role of construction managers in this phase will vary greatly from project to project. Their duties may include cost estimating, cost evaluating, project scheduling, review or preparation of contract documents, receiving bids, and advising the owner of bidder qualifications and the acceptability of bids.

Multiple prime contractors - During the construction phase, the construction management role can also take a variety of forms. Under one scheme the construction manager will coordinate the work of the various specialty contractors, who contract directly with the owner as multiple prime contractors. The specialty contractors, who would normally have been subcontractors to a general contractor in the traditional construction arrangement, now contract directly with the owner, and the coordination normally done by the general contractor is performed by the construction manager. The construction manager may also assist the A/E with inspections of the work. In this scheme the construction manager has no financial liability for successful completion of the work--there is no contract with the owner to complete the project for a contract price.

Advantages - The construction manager will bring construction expertise to the project team at an early design stage of the project, enabling design decisions to be made with an appreciation of their impact on construction. A construction manager may be indispensable if the Agency lacks the personnel resources to adequately and aggressively manage the project. Phased design and construction may be used much more easily because the construction manager can perform the vital functions of coordinating the work of the A/Econtractor and the specialty construction contractors.

Disadvantages - The construction manager's fee will add to the overall cost of the project, and the cost of employing an independent construction manager may not be feasible on smaller construction projects.

Contract provisions - It is critical that the construction manager's contract clearly define the authority and the duties of the construction manager with respect to the other contractors on the project; e.g., how much authority does the construction manager have over the work of the A/E and the specialty construction contractors? If the construction manager fails to properly coordinate the work of the specialty construction contractors, will the construction contractor or the Agency be liable? It will also be necessary to define the CM's authority in the design and construction contracts, so that these contractors will know the degree to which they are to accept direction from the CM.

6.1.3 "Fast Tracking" -- Phased Design, Award and Construction

Fast tracking is a procedure designed to shorten the overall time for project completion by phasing the design and construction activities so that they can be performed together. In this scheme each phase of the project is placed under contract once the design for that phase is completed. Unlike the traditional approach, where the entire project is first designed and then contracted for with one construction contract, the fast track scheme will complete the design work in phases, and then award construction contracts for the various subsystems or phases once the design for that phase is finished. Thus there will be a number of specialty construction contracts awarded by the owner, and a construction manager will normally, though not necessarily, be retained to assist in packaging the various specialty contracts and to manage the work of these specialty contractors. This work of defining and managing the specialty contracts can also be done by in-house project management or by the A/E.

Advantages - Phased design and construction can reduce the overall completion time of the project. It can also allow the Agency to reduce the scope of the later phases if the cost of the earlier phases exceed the budget. It also allows the Agency greater flexibility in the timing of the construction contract awards, thus taking advantage of market conditions, or managing the available funding.

Disadvantages - There is a risk inherent in phased design and construction because portions of the project are begun before the later portions are designed. If major changes occur in the later phases, they may cause costly changes in the earlier work and delays to the specialty contractors. These are risks which will be borne by the Agency.

6.1.4 Turnkey or Design/Build Contracting

This contracting technique has seen increasing use in recent years. Between 1987 and 1992 there was a 300 percent increase in design-build projects, which indicates a growing importance of turnkey projects in the construction industry. According to statistics provided by the Engineering News Record, by 1995, 30 percent of all non-residential construction was using the turnkey method. The growing importance of turnkey methods was attributed to its benefits in saving time and costs with no reduction of quality relative to conventional project approaches. It must be noted, however, that not all States permit design-build contracting by State agencies.

In this scheme, a transit agency contracts with a single private entity, the turnkey contractor, for the design, construction and delivery of a complete and operational project. In some instances, the contractor is required to operate and maintain the system for a defined period of time. The private contractor is typically a consortium of private companies offering engineering and design, construction, manufacture of vehicles, finance and related support services. The developer-contractor will be selected competitively based on "performance-type" (non-detailed) specifications which describe the owner's objectives and requirements.Developers will submit proposed designs with their competitive proposals, and owners must select between competing design approaches and prices.

It should be noted that one of the drawbacks of design-build is that the owner does not have an independent source (the A/E in traditional construction) overseeing design implementation and verifying conformance with the drawings and specifications.

Workshop on International Transit Turnkey and Joint Development - The Transportation Research Board has published a very informative Research Circular entitled Proceedings of the Workshop on International Transit Turnkey and Joint Development3 This Workshop was held on October 15-19, 1996 and its purpose was " to explore current international experience in the development of turnkey transit projects, to discuss effective turnkey practices, and to identify those aspects that warrant further consideration." The Research Circular summarizes each of the presentations made at the workshop, and presents the "lessons learned" by those organizations using various turnkey approaches. The names of the presenters and their organizations are also given, which provides a reference tool for contacting others who are involved with turnkey projects. Grantees are encouraged to obtain this Transportation Research Circular--it is a valuable source of information. Some of the more important observations made at the Workshop include the following:

  • The Federal government and most States, but not all, allow turnkey for some agencies and/or projects. In fact, the recently enacted Federal statute--Transportation Equity Act For The 21st Century (TEA-21)--permits grantees to use turnkey contracting to design and build a mass transportation system or an operable segment of a mass transportation system. Some States have recently expanded their regulations to permit design-build contracts, and this trend is likely to continue. Many of the current transit turnkey projects had to enact legislation or receive waivers to permit the turnkey process.
  • negotiated procurement process is strongly recommended for selection of a turnkey contractor.Discussions between the owner and offerors facilitates a true "meeting of the minds"; allows crafting of tailored solutions for contractor concerns; and achieves the optimum balance of risk and price. Negotiations can lead to optimum decisions. If a negotiated procurement cannot be done, then a two-step bidding process is recommended as the next best approach. Some States which allow design-build contracting require a bid process rather than a negotiated procurement.
  • Industry input on documents should be sought prior to solicitation.
  • Agencies should develop and follow a detailed selection procedure that includes a multi-disciplined and knowledgeable evaluation committee.
  • Design-build requires a new generation of contract documents that incorporate the needs of three distinct elements: design, construction and operation. Melding the required pricing and procedures into one contract is a complex endeavor.
  • Typical post-award concerns with design-build contracts include the interpretation of commercial terms and the pricing of changes (including the obtaining of adequate cost data to support change orders). Specific recommendations include: requirements for contractor job-cost systems; pricing change orders based on the job-cost system; and detailed audit provisions.
  • The turnkey approach may result in lower capital costs and fewer change orders and contract difficulties.
  • The turnkey approach may have an adverse impact on small and medium-sized firms, including DBE firms. Agencies may want to consider using incentive clauses in their solicitations to encourage DBE participation, as well as requiring offerors to identify small and minority owned businesses in their proposals during the prequalification/RFP stages of the procurement. It was reported that BART had been very successful with this prequalification requirement in the San Francisco Airport Extension turnkey demonstration project. 4
  • Environmental approvals, intergovernmental coordination, and finance should be in place prior to the turnkey procurement. It is critically important that project participants develop a teaming perspective. A formal partnering agreement with the contractor team and tangential agencies has been used with success. See Section 6.1.7 Partnering.

6.1.5 Value Engineering


FTA Circular 4220.1E, Section 7(g) encourages the use of value engineering clauses in construction contracts:

g. Use of Value Engineering in Construction Contracts

  • Grantees are encouraged to use value engineering clauses in contracts . FTA cannot approve a New Starts grant application for final design funding or a full funding grant agreement until value engineering is complete (see Circular 5010).


FTA Circular 4220.1E does not require value engineering clauses but it does encourage them in construction contracts. Value engineering is a procedure designed to incentivize contractors to submit change proposals which reduce the cost of contract performance by promising the contractor a share of the savings. Contractors can often find less expensive ways to perform their contracts than the methods prescribed in their contract specifications. They will be reluctant, however, to propose changes which will reduce their contract price and have the effect of reducing their profit on the contract. Value engineering is a technique designed to overcome this disincentive by offering them a share of the savings resulting from their change proposals.It is important to note that some contractual arrangements (e.g., design-build contracts) may inherently include value engineering concepts and principles. Where this is the case, FTA does not require separate value engineering proposals, change orders, or other processes. From a procurement view, the concept of value engineering is more important than the form it takes.

The Federal Government uses value engineering clauses in contracts for supplies, services, construction and architect/engineer services. Part 48 of the FAR is dedicated to the subject of value engineering. The prescribed clause for Federal construction contracts may be found at FAR 52.248-3Value Engineering-Construction. While this clause is not required for grantee third-party contracts, it may prove useful as a guide as to how to structure a value engineering clause.

FTA’s Project and Construction Management Guidelines 1996 Update, Section 4.2.3 Value Engineering and Peer Review, presents a discussion of the value engineering process during the design phase of the project. 5

Best Practices

Value engineering clauses in use by Transit Agencies tend to limit the type of savings which the Agency will share with the Contractor to those expected on the contract being performed. These are commonly known as "instant savings." The Contractor would not share in "collateral savings" or "future savings" resulting from his change proposal. "Collateral savings" are those savings anticipated by the Agency outside the contract, such as operations, maintenance, logistical support, etc. "Future savings" would be those resulting from the Contractor's value engineering proposals on future contracts for the same deliverable items. The typical share ratio is 50 percent for the Agency and 50 percent for the Contractor of any "net savings" resulting from the Contractor's change proposal. "Net savings" are defined as "gross savings" less the Contractor's costs for developing and implementing the proposal as well as any Agency costs resulting from the change, such as review, implementation, inspection, etc. Estimated "gross savings" would include the Contractor's labor, material, equipment, overhead, profit and bond. At the conclusion of negotiations for the change proposal, a contract modification is issued reducing the contract price by the Agency's share.

An important feature of all value engineering clauses is that the Agency's decision to accept or reject the contractor's proposal is final and conclusive, and not subject to appeal.

Another important feature of the usual Agency clauses is that the Contractor's value engineering change proposal (VECP) must not "impair any essential function or characteristic of the Work, such as safety, service life, reliability, economy of operation, ease of maintenance, and necessary standardization of features." 6Another Agency's clause reads that the Contractor's VECP "shall not alter any item's characteristics such as functionality, service life, reliability, economy of operation, ease of maintenance, and necessary standardized features and appearance." 7

6.1.6 Facilities Maintenance -- Job Order Contracts

The Metropolitan Atlanta Rapid Transit Authority (MARTA) has made use of a very cost-effective procurement approach known as Job Order Contracting (JOC) for its facilities maintenance requirements. These requirements would include the repair, alteration, modernization, maintenance and rehabilitation of buildings, structures, or other real property. The JOC is a competitively bid, firm fixed price indefinite quantity contract, against which MARTA issues Work Orders as specific needs arise.

The unusual feature of the JOC is that the Invitation For Bid (IFB) includes all of the conceivable line items of work, with specifications/definitions for each line item, and unit prices for each item. These specifications and line item prices were developed by MARTA with the assistance of a consulting engineering firm. The line item unit prices were furnished to prospective bidders in a "Unit Price Book," which was developed by the consultant. The Unit Price Book has over 90,000 items which detail specific repair and construction tasks and specifications. The Book covers a wide range of areas such as concrete, air distribution, plumbing, electrical, and hazardous and toxic waste. The Unit Price Book is work-segment based. Each job is detailed and broken down by task. The prices are based on the use of experienced labor and high quality materials. The Book also incorporates prevailing market area cost data and wages.

When bids are solicited, the objective is to obtain bids on "adjustment factors." No specific projects are bid. Award is based on the lowest proposed adjustment factor. The two price adjustment factors are for normal and overtime work. These two adjustment factors are applied to all items in the Unit Price Book. Adjustment factors are required to be bid to four decimal places. The best way for a bidder to develop its adjustment factor is to price out several types of projects and take an average. For example, if the price book states that the cost to replace a window is $100, and a prospective bidder develops an estimate of $75, then the bidder's adjustment factor is .7500. Likewise, if the bidder estimates a price of $110 to replace the window, then the bidder's adjustment factor would be 1.1000. On the most recent award, the winning low bid offered an "adjustment factor" of 0.7700.

Following award of the JOC, the process for issuing Work Orders would be as follows:

  • A meeting is held with the contractor to discuss the scope of the work to be done.
  • A Work Order Proposal is then requested from the Contractor. The Contractor's price is computed by:
    • Selecting various pre-priced construction tasks from the Unit Price Book.
    • Multiplying the pre-established prices from the Unit Price Book by quantities and then by the Contractor's adjustment factor.
  • The Contractor's proposal is compared to an independent Authority estimate.
  • If the price is reasonable, a Work Order is issued.
  • If the price is not reasonable, the job is solicited under normal procurement procedures.

The JOC process offers the opportunity to save significant time and administrative effort because there is only one competitive bid process, and that is when the adjustment factors are solicited. Thereafter, individual jobs do not have to be competed, so there is no lengthy advertising or solicitation time, or complex solicitation documents to prepare, approve and issue. The JOC can be a multi year contract, thereby reducing the number of times the program must be competed. MARTA' contract is for one base year plus two one year options, and its value is approximately $9 million.

6.1.7 Partnering

Partnering is a concept/technique designed to foster a team-building, or "partnering" frame of mind toward the accomplishment of the construction project. Partnering was originally developed by the Army Corp of Engineers for use on major construction projects with large project staffs on the work site and where effective communications are essential. The parties involved in the performance of the project, including the Agency, the A-E firm, the prime Contractor, and all subcontractors would meet together on a regular basis (at least monthly) to establish and maintain open lines of communication, with the goal of ensuring relationships of trust and cooperation.

The partnering process usually employs a professional Facilitator who conducts the sessions so as to promote trust and reach mutual agreements on how the project is to proceed. The Facilitator’s fee and associated costs are paid for by the Contractor who is in turn reimbursed by the owner (50%) from a line item in the contract Price Schedule. The partnering process does not change or alter the contract agreement. It is not just a one-time meeting at the start of the project, but is an on-going process. It is usually accomplished in five distinct phases:

  • Phase I is a joint session of top executives designed to arrive at a clear agreement on the project’s business goals and establish a clear issue resolution process. Issues generally focus on safety, budget, communications, quality, schedule, teamwork, impact on the community and a commitment to work together for a successful project. MARTA developed a Partnering Charter for its North Springs Station Project, signed by all the team members, which reads as follows:

    We, the team members of the North Springs Station (CF-520) Project Team, are committed to continuing the tradition of effective partnering among our organizations and to delivering a facility in which all team members take pride. We will measure our collective success through the following project objectives:

    • Complete the project on schedule and meet all milestones
    • Provide a safe worksite to minimize lost time accidents
    • Complete the project within budget
    • Fair profit earned by contractor
    • Quickly resolve claims without litigation
    • Deliver a quality product within specified standards
    • Serve as responsible neighbors and provide a positive impact to the surrounding community

    We will promote teamwork based on the following principles and attitudes:

    • Timely inputs, responses and decisions
    • Open, effective communications
    • Honesty and trust
    • Solving problems at the lowest possible level
    • Working together against the job - not each other
    • Full team commitment and participation in partnering

    Note that the Partnering Charter identifies its goals as the best interests of all the parties. These interests include the earning of a fair profit by the Contractor. It is critical for the Agency's personnel to see the Contractor as a team member whose interest in earning a fair profit is equally important to the interests of the Agency.

  • Phase II consists of a workshop where all stakeholders participate in developing a project charter defining team goals, conduct and risks. Washington Metropolitan Area Transit Authority (WMATA) project members developed the following Project Charter for the Metro Georgia Avenue-Petworth Station:

    • Project Priorities:

      • Successful Partnering
      • Early identification and resolution of problems
      • Realizing one’s own responsibilities and obligations
      • Community relations
      • Openness
      • Timeliness (especially early submittals, early permits)
      • Being able to live with changes
      • Safety
      • Quality
      • Making a profit
      • EEO, disadvantaged business program, employee salaries
      • Maintaining professionalism
    • Challenges We Face:

      • Getting approvals quickly
      • Resolving issues by give and take
      • Minimizing changes
      • “Designing through changes”
      • Slurry wall
      • Architectural dome
      • Being paid on time
      • Closeout within 60 days
      • No claims…if unavoidable, finalize promptly
      • City construction
      • Public safety
      • Hazardous material
      • Avoiding interference with other contractors
      • Staying in harmony

    WMATA has used Partnering in its major construction contracts for over ten years and in its last two Railcar contracts. WMATA believes that partnering may also be useful in bus contracts where there is a need to enhance communications and working relationships between the owner and the bus manufacturer. For example, issues of delivery, payment and potential performance matters relative to testing, warranty, etc. could also be addressed.

  • Phase III provides for monthly evaluations by those managing the job for both parties. The objective is to solve problems at the lowest level, and all members should be evaluating the team’s progress, or lack thereof, in meeting the established goals. Monthly meetings are held at the executive level to review and discuss areas of concern or interest. Problems are identified and solutions are agreed to. Organizational impediments to solutions are resolved. If necessary, unresolved issues are escalated to higher managers. Many issues are resolved before they become major problems and these successes are also discussed at the monthly meeting.

  • Phase IV is an executive session, supplemented by key project personnel from both parties. This is normally a quarterly meeting. The purpose is to address the main issues that require resolution, and to ensure that the Partnering process remains on track.

  • Phase V is a closure session to provide feedback on the value of the Partnering process. This session is not always held.

Additional information on Partnering is available from the Construction Industry Institute. 8

6.1.8 Competitive Proposals vs. Sealed Bids

Projects Involving Technology - Generally such projects are either part of a larger construction project, in which case they may fall under competitive bidding requirements, or technology acquisition projects involving professional services and possibly an installation component, which takes them outside the construction field with its sealed bid requirements. Where the work to be performed under contract is to a dominant extent other than construction, some Transit Agencies have experienced situations where a competitiveproposal has proven to be a better method of contracting for the project than the typical sealed bid approach. This has been true for projects which entailed technology, such as software and systems integration work. In these situations you may want to evaluate alternative technical approaches or alternative ways of construction. These conditions lend themselves to an RFP type of solicitation, where you will have the flexibility to hold discussions with the offerors and select the "best value" for your Agency, considering not only price but the value of the products being offered, including their expected reliability and maintainability. One such project involving technology was a contract for a Public Address/Customer Information Screen. This project is being constructed over a number of phases. The first phase contract was handled as a sealed bid. The problem with this approach was that the lowest responsible bidder was a construction contractor and not a systems integrator. There was a considerable amount of software involved and the solicitation documents did not mention who retained software rights. A project such as this should be solicited as an RFP so that negotiations can take place and prospective contractors can be evaluated on the basis of their suitability for the work. 9

Critical Projects Involving Schedule Incentives - If state law permits, it may be advantageous to consider a negotiated method of procurement instead of sealed bids when the project involves a critical completion schedule and where you have chosen to use incentive provisions in the contract or a bid/proposal evaluation method such as those described in Section 6.1.9 Incentives to Reduce Project Completion Times. Where the methodology being used to evaluate bids is unconventional, and where it may be advantageous to have the flexibility to hold discussions with the prospective contractors, an RFP approach may be preferable to a sealed bid method because it will give you the ability to discuss the contractors' proposed approaches to schedule improvement and the realism of those proposals. It must be recognized, however, that a negotiated procurement will require more time to award, and this may be counter-productive when the project is a time-critical one.

6.1.9 Incentives to Reduce Project Completion Times

Transit agencies have had success in reducing project completion times by using a technique wherein bids are solicited and evaluated in terms of the prices offered and the best achievable completion schedule. 10The contract award is determined by the lowest evaluated bid, using both the bid price and the proposed completion schedule. In this procurement scenario:

  • The Agency specifies the maximum duration of the project in the bid documents.
  • The Agency determines the value of a "day" during the contract period and specifies this value in the bid documents.
  • Bidders must propose the project duration (best achievable schedule) in their bids.
  • The bid documents would define the damages for failure to achieve the proposed completion schedule, and the bonuses for early completion, if the Agency should choose to use them with the damages provisions. The use of damages for failure to meet the proposed completion schedule is important in order to keep the bidders "honest" in their proposed completion schedules. The use of bonuses will provide an even stronger incentive for the bidders to successfully make their proposed schedules after contract award.
  • Price + Duration (# of Days) = Evaluated Bid


Value of a day is $5,000


Company X


Company Y


A - (Bid Price)



B - (Contract Duration)

720 Days

600 Days

Value of Duration
(Days x $5,000)



Evaluated Total




The contract would be awarded to Company Y since its evaluated bid is lower than that of Company X by $100,000. Value of award would be $5.5 million.

Advantages to Price Plus Schedule Bidding- This technique is likely to encourage efficient contractors to bid, and it offers the likelihood of shorter construction project durations because of the strong financial incentives for achieving the best completion schedule.

Concerns with Price Plus Schedule Bidding - It is extremely important that the construction contractor have control over the work site, and that the Agency's responsibilities at the work site be minimal or, preferably, nonexistent. If the contractor is dependent upon the Agency to furnish support at the work site, or if the contractor's work is dependent upon the activities of other contractors, the Agency can expect claims regarding the issue of delays, which in turn affect the incentive provisions of the construction contract. In view of the probabilities of claims and litigation, Agencies should avoid incentive contracts such as this unless they can turn a work site over to a construction contractor and allow the contractor to control that site and the scheduling of all work required to complete the project. Where contractors lack the necessary control over the work site, Agencies may well have to pay higher prices, based on the contract bonuses and the contractor's successful claims for delays, and still have a project that is late in completion.

Completion incentives may work to discourage prime contractors from subcontracting with small or disadvantaged business firms. Primes will probably seek partners who are large businesses with proven track records, and which have substantial resources available to perform the work as expeditiously as possible.

The quality of construction work may suffer due to the schedule pressures, and Agencies will need to exert close surveillance over the contractor.

6.1.10 Special Contract Provisions

Construction contracts require certain provisions which are unique to that activity. These provisions are discussed in detail in other sections of the BPPM. Following is a summary of the special provisions and the BPPM sections where they are discussed.

Labor - The three wage and hour laws governing construction in the Federal realm are the Davis-Bacon Act, the Contract Work-Hours and Safety Standards Act, and the Copeland Anti-Kickback Act. The applicable contract clauses are discussed in Appendix A.1, clauses 16, 17 and 18. Section 8.1.2 Davis Bacon Actcontains more detailed guidance with respect to administering the requirements of this Act.

Bonding - Construction contracts require contractors to furnish three types of bonds--bid bonds, payment bonds and performance bonds--which are discussed in Appendix A.1, clause 13, with more detailed guidance on each type of bond in Section 8.2.1 Performance Bonds.

Liquidated damages - Section 8.2.3 Liquidated Damages contains guidance on the use of liquidated damages clauses.

Differing Site Conditions - Section contains guidance on administering the Differing Site Conditionsclause.

Specifications for construction - Section 3.4 Specifications for Construction discusses requirements within FTA Circular 4220.1E and the Master Agreement (MA) which may affect your construction specifications.

Insurance - Section 6.6 Insurance discusses an approach to insuring construction project contractors known as Owner Controlled Insurance Programs (OCIP), which has proven to be an effective method of insuring the contractor teams involved in construction projects.

Warranties - Obtaining acceptable warranty documents in a timely manner from contractors has been historically difficult. No contractual incentive has existed to motivate contractors to supply the required warranties. Grantees may wish to consider making the submission of an acceptable warranty form a condition of product or system acceptance in order to motivate contractors to furnish the required form. Grantees might also include the warranty forms as a fixed-price line item in the contract for payment purposes, thus giving the contractors a strong motivation to supply the required forms.

Contract Close-out - Close-out of construction contracts will require certain documentation unique to these contracts, such as lien waivers, as-built drawings, etc. These requirements are discussed in Chapter 10,Close Out.

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6.2 Equipment and Supplies

6.2.1 Lease/Maintain


Requirements related to the lease of equipment and facilities may be found in the following regulations:

  1. FTA Circular 4220.1E generally, and paragraph 7d which requires, where appropriate, an analysis of lease versus purchase alternatives to determine the most economical approach.
  2. FTA Master Agreement MA(12), Section 16, Leases.
  3. Capital Leases (49 CFR Part 639.)


Since equipment leases are considered "third party contracts' within the meaning of FTA Circular 4220.1E, the requirements of that Circular apply to such procurements. The Circular requires a lease versus purchase analysis to determine the most economical approach to any given procurement. TheMaster Agreement, Section 16, concerns capital leases, in accordance with 49 CFR, part 639.

Lease vs. purchase alternatives - Whenever an agency is considering the leasing of equipment, a lease vs. purchase analysis should be made. The analysis should be appropriate to the size and complexity of the procurement. It is usually more economical to purchase equipment than to lease it. This is not always true, however, especially when highly complex equipment is involved and there are issues of maintaining the equipment or having trained personnel who are competent to operate the equipment. In determining whether the lease of equipment is feasible, the following factors must be considered:

  • Estimated length of the period the equipment is to be used and the amount of time of actual equipment usage;
  • When circumstances require the immediate use of equipment to meet program or system goals and the leasing would serve as an interim measure to meet these immediate needs;
  • Financial and operating advantages of alternative types and makes of equipment;
  • Total rental cost for the estimated period of use;
  • Net purchase price if acquired by purchase;
  • Transportation and installation costs;
  • Maintenance and other service costs (e.g., the cost of permanent housing facilities for heavy cranes might preclude their purchase, and the lack of trained operators of heavy equipment may dictate that the agency lease the equipment with trained operators);
  • Difference in warranty coverages between lease and purchase; e.g., some office equipment leases do not provide for warranty repairs whereas new purchases would be covered by warranties;
  • Availability of a servicing capability, especially for highly complex equipment (can the Agency service the equipment if it is purchased?);
  • Potential obsolescence of the equipment because of imminent technological improvements;
  • Trade-in or salvage value;
  • Imputed interest costs (net present value of lease payments); and
  • Insurance costs.

Best Practices

Leases with options to purchase - When a lease is justified, a lease with option to purchase may be appropriate.

Long term leases - Generally, a long-term lease should be avoided, but may be appropriate if an option to purchase or other favorable terms are included. Lease and Maintenance of Vehicles

Lease vs Buy Analysis - When comparing the costs of leasing vs. ownership, maintenance costs will usually be a major economic factor. Indeed the primary advantage of leasing is the avoidance of maintenance costs for items such as brakes, batteries, etc. Grantees must carefully estimate the maintenance costs over the anticipated life of the vehicle. The costs of ownership will be increased by these maintenance costs and decreased by the anticipated resale value (salvage value) of the vehicle when it is sold.

Using a Request for Proposal vs. Invitation for Bid - PACE Suburban Bus Service's experience with competitive procurements using an RFP has been positive. 11 There is much more flexibility for the grantee when an RFP is used instead of an IFB. The RFP approach gives the grantee an opportunity to establish evaluation criteria for important factors of performance, including such items as preventative maintenance, emergency roadside assistance, repairs, fuel card management services, and accident services. Proposals can be evaluated with the objective of selecting the best overall combination of service quality and price. Negotiations can be held with the offerors in order to secure the best possible proposal and contract terms. The PACE Suburban Bus RFP issued for leasing and maintaining their fleet vehicles may be found inAppendix B.15.

Joint Procurements with State DOT's - Grantees should inquire with their State Departments of Transportation as to whether it would be feasible to lease vehicles from contracts awarded by the State. These State contracts frequently represent the best possible terms available for vehicle leasing. When pursuing this "piggybacking" approach, grantee personnel must determine if the State contract contains all the required Federal clauses and certifications required by Federal regulations. Grantees may wish to take the initiative with their State DOT's to plan ahead for joint procurements of vehicles in order to assure that their needs are addressed and that the Federal requirements are included when the procurements are initiated. For additional guidance, see Section 6.3.3 - Joint Procurements of Rolling Stock and "Piggybacking." Lease of Heavy Equipment with Operators

Some agencies have found it beneficial to lease, rather than purchase, heavy equipment, such as cranes, with operators. 12 The more important considerations here tend to be operational rather than economic. Advantages to leasing would include such factors as:

  • the availability of fully trained and licensed equipment operators;
  • the convenience of having the lessor provide the very specialized maintenance services and housing structures for the equipment; and
  • the lessor's assumption of liability in case of accidents.

Joint Agency Procurements - Heavy equipment may be very difficult to obtain on short notice, and longer-term leases, such as three years, may be advisable. In addition, competition may be virtually non-existent. Under these circumstances, agencies might be advised to seek out other agencies in their geographical region in order to conduct a joint procurement for their common needs so as to obtain a more favorable contract than either could procure by themselves.

Labor Laws - Agencies will need to be aware of local or State labor laws, as well as Federal laws if construction is involved (e.g., Davis-Bacon Act), when developing their solicitation document and contract.

Insurance - Insurance requirements will be an important part of the contract terms. Agency procurement personnel should carefully coordinate the insurance provisions with their insurance department or legal specialists. Requirements might include coverage for commercial general liability, auto vehicle insurance, workers compensation, and perhaps, a special railway protective policy. The agency's insurance specialists should determine specific coverage requirements and amounts.

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6.3 Rolling Stock


The FTA Master Agreement, MA(12), Section 15 (l) defines several requirements for the acquisition of rolling stock:

I. Rolling Stock. In acquiring rolling stock, the Recipient agrees as follows:

  1. Method of Acquisition. The Recipient may award a third party contract for rolling stock based on initial costs, performance, standardization, life cycle costs, and other factors, or based on a competitive procurement process in accordance with 49 U.S.C. Section 5326(c).
  2. Multi-year Options. In accordance with 49 U.S.C. Section 5326(b)(1), a Recipient may procure rolling stock using financial assistance appropriated for 49 U.S.C. Chapter 53 using a contract with an option, not to exceed 5 years after the date of the original contract, to purchase additional rolling stock or replacement.
  3. Pre-Award and Post-Delivery Requirements. The Recipient agrees to comply with the requirements of 49 U.S.C. Section 5323 (m) and FTA regulations, "Pre-Award and Post-Delivery Audits of Rolling Stock Purchases," 49 C.F.R. Part 663, and any revision thereto.
  4. Bus Testing. To the extent applicable, the Recipient agrees to comply with the requirements of 49 U.S.C. Section 5323 (c) and FTA regulations, "Bus Testing," 49 C.F.R. Part 665, and any revision thereto.

6.3.1 Buses Competitive Proposals vs. Sealed Bids

Grantee experiences with competitive Requests for Proposals (RFP's) for bus procurements indicates that this method may be preferable to the use of sealed bids. When RFP's are used, the grantee has the flexibility to hold discussions with the offerors and to evaluate the proposals and conduct negotiations for the best delivery schedules, warranties, quality/reliability, aftermarket support in terms of parts availability, and prices. In other words, grantees can award their contracts on the basis of the best value, with all important factors considered. Some State laws, however, require the use of sealed bidding procedures for buses, in which case grantees would not be able to use competitive RFP's.

Prequalification of systems/components - The Metropolitan Transit Authority (MTA) of Harris County, Houston, TX, completed a large 243 bus procurement which used a two-step sealed bid process. This entailed a prequalification procedure -- "Request for Approved Equals"-- for major systems and components. In Step one, MTA issued a performance type specification identifying all the systems or components which had to be submitted for approval prior to bids. Examples would include: engines, transmissions, door systems, etc. MTA reviewed the submissions in terms of their characteristics, specifications, etc. and determined what systems and components they would accept. MTA then issued a notice to all bidders identifying what components were acceptable, so that all bidders knew beforehand what items were acceptable to bid on. Sealed bids were then received, and when the low bidder was identified, MTA performed an audit for specification compliance and compliance with Buy America. 13 APTA Standard Bus Procurement Guidelines

The American Public Transit Association (APTA) published the Standard Bus Procurement Guidelines (SBPG)in January 1997 as "a model for solicitation of offers and contracts for the supply of transit buses." 14 The SBPG contains suggested terms and conditions regarding the solicitation, the contract document, quality assurance and contractor warranties. A second volume containing technical specifications is under development. Grantees are cautioned, however, that the APTA Guidelines may contain terms and conditions which are not consistent with FTA's policies. For example, the provisions regarding advance payments andwarranties in the APTA Guidelines cannot be adopted without prior FTA-waivers.

6.3.2 Rail Cars

There are certain realities in the rail car industry which impact the manner in which rail cars are procured. Transit Agencies buying rail cars tend to do so infrequently, with a number of years between procurements. The technology can be expected to change considerably during the intervening years between these procurements. This fact makes it critical that Agencies do considerable advance planning in order to determine the current state of the art before they formulate their specifications to procure rail cars.

Because there is virtually no standardization in the United States in the area of track gauges, station platform heights, tunnel designs, etc., and because new rail cars must be compatible with existing cars, it is not feasible for Transit Agencies to consolidate procurements of rail cars and use common buys or "piggybacking." While joint purchasing of rail cars is difficult, an agency designing a specification should consult with others who have either recently purchased cars or who are in the process of doing so, and attempt to achieve whatever commonality of components is possible. This will facilitate both joint purchases of parts in subsequent years and the ability to second-source. Another aspect of this problem with non-standardized rail cars is that it results in high one-time design costs for each Agency's procurement. This in turn provides an incentive to buy as many cars as feasible under each solicitation so that the design costs can be amortized over a greater number of vehicles, with a corresponding reduction in unit prices. On a recent MARTA procurement, for example, the unit price was reduced by $400,000 by increasing the quantity of cars to be procured from 30 (the initially planned number) to 100. This savings was due to amortizing the non-recurring design costs over a larger number of units. Agencies should carefully consider the multi-year contracting strategies discussed in Section 2.2 Long Term Planning.

Best Practices

MARTA's experience with a recent major rail car procurement offers a number of helpful insights. 15

Competitive proposals - The procurement specifications were subjected to a peer review by other Transit Agencies and independent consultants prior to release in the RFP. This gave MARTA the benefit of other Transit Agencies' experiences with more recent rail car procurements. MARTA elected to use a competitiveRequest for Proposal (RFP) approach instead of a sealed bid method, which had been their earlier practice. They were pleased with this decision because it gave them the needed flexibility to discuss various technical approaches for complex items with each of the offerors, and to achieve the "best value," given the different technical approaches offered and the prices proposed for these approaches. "Best value" included expected reliability and maintainability features, such as on-board diagnostics.

MARTA's RFP included a Proposal Data Requirements List (PDRL) which defined the format and content of the required proposal information, thereby creating proposal uniformity, which in turn increased the quality and efficiency of proposal evaluation. The proposal evaluation plan, including the scoring mechanism, was carefully developed and tested using several mock proposals before the RFP was issued. Once proposals were received, the proposal evaluation plan and scoring mechanism were adhered to meticulously in order to avoid any appearance of bias. This kind of rigid adherence to the proposal evaluation plan is a critical requirement for Agencies to observe if they use the RFP methodology. MARTA's use of individuals outside the Agency to participate on the proposal evaluation committee added an element of objectivity and independence to the process, as well as enhancing the overall experience base of the evaluation team.

MARTA kept the technical and price proposal evaluations separate, so as not to influence the technical evaluators. They also established a "competitive range" following initial proposal evaluations, and held discussions with those companies in the competitive range (those that had a reasonable chance for contract award). Offerors eliminated from the competitive range were to be notified quickly after MARTA's decision so that they could release their teams to other opportunities.

The time required to complete the procurement process was longer using the RFP method than it would have been with sealed bids (IFB). Using an IFB was estimated to take between four and six months from advertising to award, whereas the RFP method took about 13 months from release of the RFP to contract award. Agencies planning to use the RFP method will have to allow for more time than if sealed bids are used, but the final results may be worth the added procurement time.

Future purchases of proprietary parts - Efforts should be made in the original acquisition of rail cars (and buses) to include an "advance agreement" with the supplier concerning the future acquisition of proprietary parts. This could be done as a percentage discount of the list price. The best approach might be to have a one-year contract for the proprietary parts, with a series of four one-year options (to be extended subject to FTA approval). This would enable the agency, at the end of each year, to determine whether the marketplace has changed in terms of the competitive availability of parts formerly only available from the vehicle manufacturer.

6.3.3 Joint Procurements of Rolling Stock and "Piggybacking"


FTA Circular 4220.1E applies to all third party contract actions undertaken by grantees with Federal funds, including actions taken pursuant to the contracts of other entities, such as (1) the exercise of options which have been assigned to the grantee by another entity which awarded the contract initially, (2) the assignment of contracts themselves to a grantee by another entity (under which the grantee will spend Federal funds), and (3) joint procurements with other entities (under which the grantee will spend Federal funds).

Of particular significance are the following provisions of FTA Circular 4220.1E:

  • 7.e. Intergovernmental Procurement Agreements.
    1. Grantees are encouraged to utilize available state and local intergovernmental agreements for procurement or use of common goods and services. When obtaining goods or services in this manner, grantees must ensure all federal requirements, required clauses, and certifications (including Buy America) are properly followed and included, whether in the master intergovernmental contract or in the grantee's purchase document. 16
    2. Grantees are also encouraged to jointly procure goods and services with other grantees. When obtaining goods or services in this manner, grantees must ensure all federal requirements, required clauses, and certifications are properly followed and included in the resulting joint solicitation and contract documents. 17
    3. Grantees may assign contractual rights to purchase goods and services to other grantees if the original contract contains appropriate assignability provisions. Grantees who obtain these contractual rights (commonly known as "piggybacking") may exercise them after first determining the contract price remains fair and reasonable. 18
  • 8.a. Full and Open Competition. All procurement transactions will be conducted in a manner providing full and open competition.
  • 9.i.(1) Evaluation of Options. The option quantities or periods contained in the contractor's bid or offer must be evaluated in order to determine contract award. When options have not been evaluated as part of the award, the exercise of such options will be considered a sole source procurement.


Recently, there has been a growing trend amongst transit systems to become creative in the acquisition of rolling stock. The most constructive of these techniques involve advance planning and joint procurement by several systems. FTA encourages this technique. In these joint procurements, the needs of the various transit systems are defined in the solicitation and the manufacturers are asked to bid upon the total known needs of the agencies involved. In other situations, transit agencies will identify an existing contract of another agency and "piggyback" that contract by means of an assignment of contract rights such as an assignment of options. Additionally, there is the occasion where an agency awards an Indefinite Delivery/Indefinite Quantity (ID/IQ) contract and allows other agencies to purchase from it. Regardless of the approach used, it is important that grantees be aware of the requirements of FTA Circular 4220.1E with respect to competition, evaluation of options in making the basic contract award, and the existence of a sole-source condition when optional quantities are ordered which were not priced and evaluated as part of the basic contract award process. It is FTA’s policy that the estimated quantities must reflect the immediate or reasonably foreseeable needs of the parties to the solicitation and, in the case of indefinite delivery/indefinite quantity contracts, a minimum and maximum quantity must be stated.

Best Practices

The streamlining of bus purchases can occur when two or more systems join forces using the same specification, solicitation process, terms and conditions, etc. leading to the purchase of vehicles from the same vendor. This can be accomplished using (1) the services of one lead governmental agency, (2) a consortium, or (3) "piggy-backing." While all of these mechanisms require advance planning, the first two occur "pre-award," while the latter occurs "post-award." The advantages of using a consolidated procurement approach include the following:

  • Smaller transit systems lack the personnel and the expertise to conduct bus procurements expeditiously, especially in light of Federal requirements. Procurement lead times should be greatly reduced through a consolidated procurement procedure.
  • Staff time at the various transit systems and the vehicle manufacturers will be saved by eliminating the redundancy in conducting multiple bidding processes for the same vehicles.
  • Quality improvements could result from the buses being manufactured in a more standardized fashion.
  • Savings in transit systems' operating costs will be realized from earlier delivery of new buses, as older vehicles with higher operating costs are retired earlier.
  • It is to be hoped that larger quantity buying would result in better prices than a number of smaller individual solicitations.
  • When common vehicles are purchased, it may result in better overall coordination/learning among transit systems in that they will be using the same vehicles.
Advance Planning--Joint Procurements

Consolidated Procurements - Various governmental agencies may act as a facilitator for the award of multiple contracts. This approach is particularly beneficial when dealing with a large number of grantees. As an example, the New York State Department of Transportation (NYSDOT) has been using the services of its Office of General Services (OGS) for many years to purchase vehicles under FTA's Section 5310 Program. Here, six different types of light duty buses are purchased every year for the 5310 grantees using an OGS bid process based upon specifications developed, in part, by the grantees facilitated by NYSDOT. During the OGS bid process, NYSDOT estimates the number of vehicles to be purchased not only for the 5310 grantees, but also for other public transportation providers in the State. For the 5310 Program, New York State contracts directly with the successful manufacturer. The buses are built and delivered directly to the 5310 grantee along with the title. Other public transportation systems within the state (e.g. 5311 and 5307 grantees) may access these same contracts, contracting directly with the successful manufacturer. By using this contracting process, the efficiencies described previously are maximized.

Consortiums - Consortiums have been used where a number of systems come together to jointly issue a solicitation and immediately award individual contracts with the successful bidder. Given the different types of bus configurations (e.g. diesel/CNG; low floor/ high floor), it may be useful to identify a lead agency for developing a specification for each type of bus configuration. The specifications developed would then be reviewed by the other members of the procuring group, who would provide their comments on the specification to the lead system. The lead system might modify the specification based on the comments received, but if the changes were not in the best interest of the lead system, the changes would be included as options in the bid package. For example, if the lead system wanted roll curtain destination signs, and other systems wanted electronic destination signs, the specification would call for roll curtain destination signs, and electronic destination signs would be included under the options to be priced by bidders as part of the bid package.

The bid advertisement would specifically identify how many buses were being purchased for which transit systems. Differences or options in the specification for each unique system would be identified and prices obtained from the manufacturers for the various options outside of the base specification.

As an example, New York State has a successful history with a CNG consortium involving FTA grants. Six major systems formed a consortium, aided by NYSDOT as a facilitator, to purchase the first CNG buses placed into service in the State. A single solicitation was used, after which each transit system awarded its own contract in accordance with the terms of the solicitation and the winning bid. 19


Piggybacking and Tag-ons - FTA Circular 4220.1E sets forth FTA policy and guidance related to procurements commonly referred to as "piggybacking" and "tag-ons." These terms are defined in the Circular as follows:

"Piggybacking" is an assignment of existing contracts rights to purchase supplies, equipment, or services. 20

"Tag-on" is defined as the addition of work (supplies, equipment or services) that is beyond the scope of the original contract that amounts to a cardinal change as generally interpreted in Federal practice by the various Boards of Contract Appeals. "In scope" changes are not tag-ons.
(See "Tag-on" paragraph below for further discussion). 21

Circumstances When Piggybacking Is Permissible - There are a number of issues that should be addressed by a grantee before deciding to piggyback another agency's contract. Grantees must be able to affirmatively determine that the contract to be piggybacked meets Federal requirements. These Federal requirements include compliance with FTA Circular 4220.1E and the Dear Colleague Letter C-98-25. Grantees are advised to pay particular attention to the specific issues identified in the Piggybacking Worksheet paragraph below.

Piggybacking Worksheet- A Piggybacking Worksheet may be found in Appendix B.16. The issues referred to in the worksheet that must be evaluated prior to a decision to piggyback another contract are as follows:

  1. Have you obtained a copy of the contract and the solicitation document, including the specifications and any Buy America Pre-Award or Post delivery audits?
  2. Does the contract contain an express assignability clause that provides for the assignment of all or part of the specified deliverables? FTA's policy is that the original solicitation must contain anexpress notification to all bidders that an assignment would be possible under the terms of the contract. Such a notification would put the bidders on notice that they would likely be called upon to deliver all of the deliverable items, both the base as well as the option quantities. The assignment clause would thus be an important factor in the original competitive bidding. If the contract does not contain an express assignability clause, piggybacking is not permitted.
  3. Did the Contractor submit the "certifications" required by Federal regulations in accordance with the requirements of this solicitation? See the BPPM Section - Federally Required Submissions with Offers. Piggybacking is not permitted when the Contractor has failed to submit the required Federal certifications with its bid.
  4. Does the contract contain the clauses required by Federal regulations? See the BPPM Appendix A - Federally Required and Other Model Contract Clauses. Note that not all clauses in Appendix Awill apply to all contracts - review each clause for applicability to the specific contract to be piggybacked. If a required Federal clause is not included in the contract, piggybacking is not permitted.
  5. Were the piggybacking quantities included in the original solicitation; i.e., were they in the original bid and were they evaluated as part of the contract award decision? Tag-ons are not permitted.
  6. If the contract is an indefinite quantity contract, did the original solicitation and resultant contract contain both a minimum and a maximum quantity, which represent the reasonably foreseeable needs of the parties to the solicitation? See BPPM Section - Indefinite-quantity Contracts, and the paragraph below Indefinite Quantity Contracts, Unlimited Options and Piggybacking.
  7. If the piggybacking action represents the exercise of an option provision in the contract, is the option still valid? Options that have expired may not be exercised.
  8. Does your State law allow for the procedures used by the original contracting agency; e.g., negotiations vs. sealed bids?
  9. Was a cost or price analysis performed by the original procuring agency documenting the reasonableness of the contract price? Include a copy in your files.
  10. Does the contract term comply with the five-year term limit established by FTA Circular 4220.1E, paragraph 7.m?
  11. Was there a proper evaluation of the bids or proposals? Include a copy of the analysis in your files.
  12. What types of changes will you require to be made to the vehicles? For an assignment, only "within scope" (non-cardinal) changes are allowed (e.g., seating fabrics and colors, paint schemes, signage, floor coloring, etc.). For further guidance see BPPM Section 9.2.1 - Contract Scope and Cardinal Changes.

Indefinite Quantity Contracts, Unlimited Options and Piggybacking - Serious problems arise when agencies issue solicitations with unlimited quantities, which result in open-ended contracts which other agencies then piggyback. This practice creates a number of serious problems; therefore, unlimited quantities are not permitted.

  • Since the rolling stock manufacturers do not know what the potential orders may be under the contract, they cannot plan their operations nor can they quote prices which reflect the quantities that may be produced.
  • Unspecified quantities result in higher unit prices for the procuring agency because manufacturers must use the minimum quantity specified to calculate prices for material, engineering, etc.
  • For these reasons, open-ended, indefinite quantity/indefinite delivery contracts, or contracts with unlimited options are not permitted. They are not only disruptive to bus manufacturers and their suppliers, who cannot plan their production schedules given the degree of uncertainty that these contracts entail, but they are also counter-productive to the grantee community, which will invariable pay higher prices for items which were not really competed in a "full and open competition."

6.3.4 Pre-Award and Post-Delivery Reviews for Buy America Act Compliance


The FTA Master Agreement, MA(12), Section 15 (l) (3) defines the following requirements:

(3) Pre-Award and Post-Delivery Requirements. The Recipient agrees to comply with the requirements of 49 U.S.C. Section 5323 (m) and FTA regulations, "Pre-Award and Post-Delivery Audits of Rolling Stock Purchases," 49 CFR Part 663, and any revision thereto.

The FTA Dear Colleague Letter C-97-03, dated March 18, 1997 provides further guidance to grantees on how to comply with the Buy America requirements of the Pre-Award and Post-Delivery reviews for rolling stock procurements set forth in 49 CFR Part 663. The FTA Administrator's Dear Colleague Letter C-97-13, dated August 5, 1997, that amended the March 18, 1997 guidance by removing axles from the required final assembly activities, was subsequently withdrawn by the Dear Colleague Letter, C-97-18, dated September 25, 1997, which rescinded the August 5, 1997 guidance by redirecting grantees and manufacturers to follow the March 18, 1997 guidance on final assembly requirements for bus procurements.


The FTA Administrator's Dear Colleague Letter C-97-03, dated March 18, 1997, outlines the steps that a grantee must take in performing pre-award and post-delivery reviews of rolling stock procurements to ensure their compliance with Buy America Act requirements. This Dear Colleague Letter Letter may be found in Appendix A.2 of the BPPM. This letter provides guidance to grantees concerning these reviews. It must be stressed that grantees are to document their reviews and include this documentation in their contract files as evidence that they have performed the required reviews. The file documentation must describe the data and information reviewed by the grantee's personnel and the basis for concluding that the manufacturer has complied with the Buy America Act requirements, including domestic content, final assembly location and final assembly activities. Also, where appropriate, copies of certifications of compliance with or inapplicability of Federal Motor Vehicle Safety Standards should be included in the file.

FTA has also published two manuals that provide detailed guidance to grantees concerning which Buy America certifications and documents are needed to support the procurement process -- from issuance of the solicitation to title transfer, as well as the procedures that the grantee may follow when conducting the pre-award and post delivery reviews. There are also examples of Buy America calculations and responses to frequently asked questions. 22

6.3.5 Warranties


FTA Circular 9030.1C, Urbanized Area Formula Program: Grant Application Instructions states the following:

Preventive Maintenance. Preventive maintenance, an expense that became eligible for FTA capital assistance for one year with the DOT 1998 Appropriations Act, was established as eligible for FTA capital assistance under TEA-21, so FY 1998 funds and subsequent fiscal year appropriations may be used for preventive maintenance. Preventive maintenance costs are defined as all maintenance costs.... 23

Warranty. A warranty that is an industry standard is an eligible capital cost as part of the acquisition of a bus or any capital asset. 24

FTA Circular 5010.1C, Grant Management Guidelines states the following:

Warranty standards, when part of equipment contracts, should provide for correction of defective or unacceptable materials or workmanship. These should specify coverage and duration and meet currently available industry standards. 25


"Warranty" means a promise or affirmation given by a contractor to the purchaser regarding the nature, usefulness, or condition of the supplies, equipment or performance of services furnished under the contract. The principal purposes of a warranty are to delineate the rights and obligations of the contractor and the purchaser for defective items and services, and to foster quality performance. The benefits to be derived from a warranty must be commensurate with the cost of the warranty to the purchaser. 26

Many transit agencies purchase or procure equipment with warranties. Depending upon the item and the contract language, a manufacturer will then repair or replace any piece of equipment that fails or is otherwise defective during the warranty period, the commitment to repair or replace being the "warranty." FTA’s grantees that specify and purchase warranties should appropriately tailor the warranties, including but not limited to remedies, exclusions, limitations and durations.

In many instances an item is customarily warranted in the trade, and, as a result of that practice, the cost of an item to the purchaser will be the same whether or not a warranty is included. In those instances, it would be in the purchaser's interest to include such a warranty. 27 In some instances, industry associations such as the American Public Transit Association or the American Society for Testing and Materials have developed specifications including warranties that are recognized as "Industry Standard."

Grantees are encouraged to exercise sound business decisions in structuring broader and more comprehensive warranties than that offered as a matter of trade practice or as an industry standard (i.e., an "extended warranty") where such warranties are advantageous and cost effective. Such business decisions must be based upon market research and price/cost analysis.

For grant eligibility purposes, FTA had historically treated the customary warranty offered as a matter of trade practice as a normal warranty and extended warranties differently. This in turn affected their cost eligibility differently.

Prior to 1998, normal warranties were eligible capital expenses and therefore qualified for 80% Federal participation under capital assistance grants. The Office of Inspector General saw the "extended warranty" as a form of operating expense, impermissible at the time as a capital expense. Hence, extended warranties were classified as maintenance (operating) expense and as such were ineligible for funding under capital assistance grants and were only eligible for 50% Federal participation underoperating assistance grants.

With the passage of TEA-21 in 1998, FTA revised its policies to reflect the provisions of the new statute. FTA’s new policies are stated in FTA Circular 9030.1C, Urbanized Area Formula Program: Grant Application Instructions, dated October 1, 1998. 28 Under the new cost eligibility guidelines,maintenance is now an eligible capital expense, and there is no longer a distinction between normalwarranties and extended warranties, as both are eligible costs. There are, however, procurement considerations and those are discussed below.

With respect to the procurement of warranties, prior to 1998 FTA grant application guidance identified specific warranty time frames as being "normal" for each of the major components of vehicles. In 1998, FTA changed this to allow the grantee--on the basis of its market research--to determine what is customary or "normal."

Normal warranty costs are eligible for reimbursement under FTA grants to the extent that the grantee determines that they are customary or an industry standard and FTA’s other grant requirements are met such as that contained in FTA Circular 4220.1E.

Similarly, extended warranties are eligible costs to the extent that (1) the grantee determines what form of warranty would be advantageous and cost effective as part of the grantee’s procurement planning effort, and (2) extended warranty costs are evaluated separately and determined to be "fair and reasonable."

Best Practices

An example of warranty terms is the list developed by APTA in its Standard Bus Procurement Guidelines –Commercial Terms and Conditions (October 10, 1997). 29 Among the issues addressed in APTA’s suggested warranty provisions are:

Complete Bus – Suggested Terms

Body and Chassis Structure – Suggested Terms

Propulsion System – Suggested Terms

Major Subsystems – Suggested Terms for Brakes, Destination Signs, HVAC, Door Systems, Air Compressor and Dryer, Wheelchair Lift and Ramp System, etc.

Exceptions to Warranty – For example, when Procuring Agency has not allowed an "equal" requested by the Contractor, and supplier won’t offer the warranty required by the Procuring Agency;

Detection of Defects – Schedule for notifying Contractor and Contractor’s response;

Fleet Defects – Contractor’s duty to implement corrective work program;

Repair Procedures – When repairs may be made by Procuring Agency and reimbursed by Contractor;

Warranty after Repairs – Repair parts to have the unexpired warranty period of the original part.

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6.4 Professional Services


Professional services other than architectural and engineering services may be obtained through sealed bids, competitive proposals, or (as the contract value warrants) small purchase or micropurchase procedures.

Procurement of Architectural and Engineering Services (A&E). Grantees shall use competitive proposal procedures based on the Brooks Act when contracting for A&E services as defined in 40 U.S.C. Section 541. Other types of services considered A&E services include program management, construction management, feasibility studies, preliminary engineering, design, surveying, mapping and services which require performance by a registered or licensed architect or engineer. . . . This "qualifications based procurement method" can only be used for the procurement of A&E services. It cannot be used to obtain other types of services even though a firm that provides A&E services is also available to perform other types of services. These requirements apply except to the extent any state adopts or has adopted by statute a formal procedure for the procurement of architectural and engineering services. (FTA Circular 4220.1E, Section 9e)


Although you may use any of the applicable selection methods described in Chapter 4 and permitted by state law for professional services, the competitive proposal method is the most common for procuring professional services. Special Federal requirements apply to architectural and engineering services. Even though professional services such as legal advice, investment advice, auditing or engineering advice may have been rendered to your agency on a long-standing basis, or without a written contract, or by formal approval at the highest level, such practices do not exempt those services from the requirements for free and open competition, maximum five year terms, and written selection procedures.


You have a requirement to contract for a laboratory to provide testing for your agency's drug and alcohol testing program. You cannot afford to take a chance on getting a contractor who has little experience, a poor history of quality control, and an unreliable performance history in terms of chain of custody. If you have to bid this contract, with low price being the deciding element, that is apt to be what you get. Unfortunately, in a few jurisdictions, that is what you may be faced with. However, in most jurisdictions, the state legislatures have wisely enacted a procurement policy that exempts professional and personal service contracts from the strict requirements of the competitive procurement laws. In those states, competitive sealed proposal statutes, mini-"Brooks Act" statutes for architect/engineering and related services, or exemptions from competitive requirements altogether (or a combination of all of the above) have been enacted. The critical point is that your state, either legislatively or through statutory interpretations by the state attorney general or the courts, will allow you some flexibility in buying professional services because it does not make sense "to buy the services of brain surgeon through a low bidder procurement process."

It is important to distinguish between two types of professional services:

  • Statutory Professional Services - These are services that are clearly spelled out in a statute and procurement process is defined for obtaining these services. These are the mini - "Brooks Act" statutes and include architectural and engineering services. The statute may also include some related services or other services the legislature has determined should be bought in a multi-step procurement process.

    In Texas, for instance, the Texas Professional Services Act defines "professional services" as services within the scope of the practice of accounting, architecture, land surveying, medicine, optometry or professional engineering, or are provided in connection with the professional employment or practice of a person who is licensed as a certified public accountant, an architect, a land surveyor, a physician (including a surgeon), an optometrist or a professional engineer. 30 Texas has said, as to these contracts or services, that competitive bidding shall not be used and that the selection and award shall be made on the basis of "demonstrated competence and qualifications to perform the service" and for a fair and reasonable price. 31 For architectural or engineering services, Texas mandates a "Brooks Act" process 32 and concludes this Act with the public policy statement that contracts entered into in violation of these provisions are void. 33 In all likelihood, your state will have adopted a public policy on the procurement of statutorily defined professional services that may be similar to the Texas statute and you should be very knowledgeable of that statute.

  • Other Professional Services - Most states offer you other ways to avoid strict compliance with competitive bidding laws (and, in some states, competitive proposal laws as well) by exempting the procurement of professional or personal services from following competitive requirements. Thus, it is important to know what is considered a professional service for the purposes of this exemption under your state's law. This may vary from state to state. The service usually will involve labor and skills that are predominately mental or intellectual rather than physical or manual and the providers of the service are members of disciplines requiring special knowledge or the attainment of a high level of learning, skill and intelligence.

    The exemptions are designed to permit the services of the most qualified, competent and experienced individuals to be obtained and a recognition that these services can seldom be measured with objective criteria. In the absence of a statutory definition, these services may include such professions as attorneys, construction management consultants, insurance brokers, physicians, auctioneers, medical laboratory testing, theologians, etc. You must consult your state law on these issues -- unlike the statutory professional services discussed above, most states do not prohibit you from using a competitive process to obtain the services of these other "professionals," they just provide an exemption if you choose to use it.

Best Practices

A&E Services - For the procurement of architectural and engineering services, the FTA and most state laws mandate a qualifications-based procurement process.

Other Professional Services - For the procurement of professional services other than A&E services, you generally have a great deal of flexibility in how you obtain those services. In some cases, you may be able to adequately and objectively define the services required and obtain those services through a competitive bidding process on the basis of low priced bids. In other cases, either because of an inability to adequately and/or objectively define your requirement or because of a limitation of your state's law, the competitive bidding method of procurement may not be possible to be used. In that case, a competitive proposal process may be the best method to use where more subjective requirements can be evaluated and weighed with the price offered to arrive at a properly balanced award decision. Depending upon the statement of work and the estimated dollar value of the procurement, you may be able to effectively and efficiently use the micro-purchase method of procurement (detailed in Section 4.1) or the small purchase method of procurement. As the stewards of public funds, it is always important to remember that you are spending tax dollars and to properly weigh the services you are obtaining against what you are paying for those services.

Finally, it is possible that the professional services you desire may be obtained from only one source and, thus, you will select your professional service provider on the basis of a sole source (noncompetitive) method of procurement. In this case, you must comply with the provisions of the Section 9.e of FTA Circular 4220.1Eas well as your state law. Again, even though you are negotiating with only one source for these services, your goal should be to obtain a price that is fair and reasonable.

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6.5 Architect - Engineer Services


FTA Circular 4220.1E states:

  • 8.b. Prohibition Against Geographic Preferences . . . . . However, geographic location may be a selection criterion in procurements for architectural and engineering (A-E) services provided its application leaves an appropriate number of qualified firms, given the nature and size of the project, to compete for the contract.

  • 9.e. Procurement of Architectural and Engineering Services (A-E). Grantees shall use qualifications-based competitive proposal procedures (i.e., Brooks Act procedures) when contracting for A&E services as defined in 40 U.S.C. Section 1102 and U.S.C. Section 5325(d). Services subject to this requirement are program management, construction management, feasibility studies, preliminary engineering, design, architectural, engineering, surveying, mapping, and related services. 34

Qualifications-based competitive proposal procedures require that:

  • (1) An offeror's qualifications be evaluated;

  • (2) Price be excluded as an evaluation factor;

  • (3) Negotiations be conducted with only the most qualified offeror; and

  • (4) Failing agreement on price, negotiations with the next most qualified offeror be conducted until a contract award can be made to the most qualified offeror whose price is fair and reasonable to the grantee.

These qualifications-based competitive proposal procedures can only be used for the procurement of the services listed above. This method of procurement cannot be used to obtain other types of services even though a firm that provides A&E services is also a potential source to perform other types of services.

These requirements apply except to the extent the grantee's State adopts or has adopted by statute a formal procedure for the procurement of these services. 35

  • 9.g Procurement of Design-Build: Grantees must procure design-build services through means of qualifications-based competitive proposal procedures based on the Brooks Act as set forth in Section 9.e when the preponderance of the work to be performed is considered to be for architectural and engineering (A&E) services as defined in Section 9.e.

    Qualifications-based competitive proposal procedures should not be used to procure design-build services when the preponderance of the work to be performed is not of an A&E nature as defined in Section 9.e, unless required by State law. 36

The FTA Master Agreement, FTA MA(12), Section 15.i - Architectural, Engineering, Design or Related Services, requires grantees, when awarding contracts for architectural, engineering, or related services, to accept undisputed audits conducted by other governmental agencies for the purpose of establishing indirect cost rates if such rates are not currently under dispute. This requirement to accept undisputed audits conducted by other governmental agencies originates in 49 U.S.C. Section 5325(b). It should also be noted that this language has been interpreted by FTA’s Chief Counsel’s Office as precluding grantees from imposing (requiring) ceilings (or “caps”) on overhead rates in contracts for architect-engineer services. 37


Selection of Contractor - FTA Circular 4220.1E requires the procurement of A-E services in accordance with the "qualifications based procurement methods" of the Brooks Act. The “A&E services” that must be procured according to the Brooks Act procedures are defined in two statutes: 40 U.S.C. Section 1102 and 49 U.S.C. Section 5325(b). Both of these statutes must be taken into consideration when deciding what constitutes “A&E services.” The easiest way to conceptualize the requirements of these two statutes is to first apply the definition in 49 U.S.C. Section 5325(b) and determine if the services are “program management, construction management, feasibility studies, preliminary engineering, design, architectural, engineering, surveying, mapping, and related services.” If the services fall into one of these categories, they are services that must be procured pursuant to the Brooks Act. 38 If the services do not fall into one of these categories, then the three-part test from 40 USC 1102 must be applied. The three-part test from that statute states:

“The term “architectural and engineering services” means-

  1. professional services of an architectural or engineering nature, as defined by State law, if applicable, which are required to be performed or approved by a person licensed, registered, or certified to provide such services as described in this paragraph;
  2. professional services of an architectural or engineering nature performed by contract that are associated with research, planning, development, design, construction, alteration, or repair of real property; and
  3. other professional services of an architectural or engineering nature, or incidental services, which members of the architectural and engineering professions (and individuals in their employ) may logically or justifiably perform, including studies, investigations, surveying and mapping, tests, evaluations, consultations, comprehensive planning, program management, conceptual designs, plans and specifications, value engineering, construction phase services, soils engineering, drawing reviews, preparation of operation and maintenance manuals, and other related services.”

This is the portion of A&E services that relies on indicators such as licensing and whether A&E firms normally do the specific sort of task under consideration. If the function fits within this definition of A&E services, ‘Brooks Act procedures’ apply.

The Brooks Act (40 USC 1102) defines the competitive procedures to be used in the selection of A-E firms, and these procedures will apply to grantee procurements of A-E services unless the grantee's State has adopted formal procurement procedures for A-E services, in which case the State procedures will govern. A qualifications-based selection process must be followed for all A-E procurements regardless of dollar value.

The Brooks Act requires a qualifications based procurement method for the selection of A-E firms. Price is excluded as an evaluation factor, and negotiations are conducted with the most qualified firm only. If an agreement cannot be reached on price with the most qualified firm, negotiations are formally terminated with that firm, thereby rejecting that firm’s proposal, and the grantee cannot return to this firm at a later date to resume negotiations. Negotiations are then conducted with the next most qualified firm. This process continues until a negotiated agreement is reached which the grantee considers to be fair and reasonable.

Negotiating Indirect Costs 39

  1. Grantees must (as a general rule) accept undisputed audits that have been conducted by any Federal or State agency of the consultant’s indirect cost rate if the audit report has been developed in accordance with the cost principles contained in the FAR Part 31. However, if the audit is conducted by another State agency, and the grantee can fully document and justify to FTA why the other State agency’s audit should not be accepted, then FTA may permit the grantee to conduct its own audit.
  2. Undisputed audited rates must be used for the purpose of contract estimation, negotiation, administration, reporting and contract payment. This requirement applies to the undisputed audited rates of A&E subcontractors that are performing under cost-reimbursement subcontracts as well as prime contractors.
  3. If there is more than one audit, the grantee may use whichever audit it wishes. However, as a practical matter, the audits should have virtually identical results if they are conducted in accordance with FAR Part 31. Also, if the audits resulted in different findings, it is likely that someone would be disputing one or more of the audit findings.
  4. If a consultant has not been audited by any Federal or State government agency, the grantee or State government agency should conduct an audit and become the cognizant agency. However, in the case of a consultant contract involving a very small dollar amount, the grantee should be able to rely on its own cost and price analysis in order to negotiate the contract price.
  5. Many consultant firms have multiple indirect cost rates such as a national or corporate-wide rate, a regional or State rate, and a business segment rate. If a consultant proposes a particular rate such as a regional rate or a rate for a particular service (e.g., design services or construction management), that rate must have been audited by a cognizant Federal or State governmental agency before the grantee would be required to accept it. If another governmental agency’s audited rate is not applicable to the contract in question, the grantee may perform its own audit applicable to the unaudited rate. For example, if the consultant has an audited rate for design services but not for construction management services, the grantee does not have to accept the rate proposed for construction management services.
  6. Grantees may not require or impose a cap or ceiling on an A&E consultant’s overhead rates even if the consultant agrees to such a cap by contract. The key words here are require or impose. In its final rule, Section 172.7(b) - Audits for Indirect Cost Rate, FHWA made the following concession in response to a Wisconsin DOT expressed concern that a State may not be able to accept a lower overhead rate freely offered by a consultant firm:

    The FHWA agrees there are many reasons why an overhead rate for a firm may be unusually high for a short period of time. In such cases, a firm may believe that it would be in its best interest to offer a lower rate. The FHWA agrees that a consultant should be free to offer a lower overhead rate than the one determined by a cognizant Federal or State government agency, and that the contracting agency should be free to accept it provided such rate is offered voluntarily by the consultant. Under no circumstances, however, shall a contracting agency require a lowering of the overhead rate.

  7. Grantees may not negotiate an overhead rate that is fixed for the entire contract, or for any particular fiscal year, and not subject to adjustment based on an audit of actual costs incurred. Grantees may, however, use provisional billing rates where a billing rate is established for a particular contract period and is subject to adjustment based on an audit of actual costs incurred for that period.
  8. If the cognizant Federal or State agency for a consultant is behind schedule in finalizing audits and the latest accepted audit of indirect cost rates lags by three or four years, the grantee may use another agency’s audit if it was conducted in accordance with the FAR and its findings were undisputed. If an audit has been performed by a private firm in accordance with FAR Part 31 and is undisputed, that audit could also be used. If there are no audits available under these assumed parameters where the cognizant agency is three or four years behind, the grantee may conduct its own audit in accordance with FAR principles to determine the actual overhead rates. Otherwise, the last audit performed by the “cognizant Federal or State” agency would be used.
  9. Grantees may not use a negotiated overhead rate procedure in lieu of using the actual undisputed and accepted audit by a cognizant Federal or State governmental agency. The reason is that price negotiations on the indirect cost rate or any component thereof can be viewed as an administrative or de facto ceiling prohibited by 49 U.S.C. Section 5325(b). Nevertheless, the State has the right and obligation to negotiate a fair and reasonable total price for the contract. Any component of the price, except the indirect cost rate, may be negotiated.
  10. FTA has elected to follow the provisions of FHWA in its implementation of TEA-21 contracting requirements for architect-engineer services. FTA is not bound by the FHWA rule, however, and may permit exceptions in compelling and unusual circumstances.

Best Practices

The basic approach used to select A-E contractors using Brooks Act procedures makes use of Statements of Qualifications. This basic approach is outlined below.

Statements of Qualifications Process

Consultant Resource File - Grantees may wish to maintain a consultant resource file with the names of A-E firms and their respective disciplines, personnel resources, corporate experience, etc. This file would provide an initial mailing list for issuance of a request for Contract-Specific Statements of Qualifications. The initial list of potential offerors that a grantee might maintain would be supplemented by a public announcement of the project, calling for interested A-E firms to respond to a questionnaire from the grantee identifying the firm’s basic experience and personnel resources. For an example of a questionnaire used by the Federal Government to identify potential A-E firms who would then be solicited to submit their contract-specific qualifications, see the Federal Standard Form 330 (SF 330), Architect-Engineer Qualifications40 The SF 330, Part 2, is the Federal equivalent of a consultant resource file. This questionnaire will provide the following types of information about each of the firm’s branch offices:

  • The location of the company’s offices and a point of contact within each office.

  • The number of personnel by discipline (e.g., architects, civil engineers, geologists, surveyors, soils engineers, etc.).

  • Summary of professional services fees received for each of the last five years.

  • Profile of firm’s project experience for last five years. The questionnaire lists over 100 different types of project codes (airports, tunnels, towers, gas systems, etc.)

  • Summary of annual average professional services revenues for last three years showing totals for Federal and Non-Federal work.

    Note that the SF 330, Part 2, does not ask the A-E firm to identify specific personnel or approaches that it would propose to use for the specific project that the grantee is advertising. Project specific information would come later in a statement of “Contract Specific Qualifications” (SF 330, Part1) discussed below.

Public Announcements - Agencies must publicize requirements for A&E services in accordance with State law. These notices could be placed in local newspapers in publications such as Passenger Transport, Engineering News Record, Dodge Report, etc. These notices should describe the Agency's requirements and the criteria to be used in the evaluation of A-E qualification statements. The public announcements would advise interested A-E firms to submit expressions of interest to the procurement office. These expressions of interest may take the form of a questionnaire regarding the A-E firm’s basic resources and corporate experience, along the lines of the SF 330, Part 2, used by the Federal Government. From these expressions of interest, and the list of firms identified in the consultant resource file, the grantee can then solicit ject Specific Qualification Statements from prospective A-E firms that the grantee judges to have the basic capabilities to perform the project.

Pre-proposal Conference - Pre-proposal conferences are generally used in more complex acquisitions as a means of briefing prospective offerors as to the project requirements as well as the agencies selection criteria. This allows the firms to better understand the agency’s objectives and ask pertinent questions that will help them in preparing their proposals or project specific qualification statements (see below). For further guidance on pre-proposal conferences, see Section - Pre-Bid and Pre-Proposal Conferences.

Request for Contract/Project Specific Qualification Statements - Interested A-E firms would be required to submit their Project Specific Qualification Statements to the procurement office. For an example of a questionnaire used to solicit project-specific qualifications, see the Federal Standard Form 330 (SF 330), Part 1, Contract-Specific Qualifications41 The SF 330, Part1, goes beyond the general information requested in the SF 330, Part 2. Part 1 asks the firm to identify (1) the proposed project team, showing all firms and their roles in the project, (2) an organizational chart of the proposed team, showing the names and roles of all key personnel and the firm they are associated with, (3) resumes of all key personnel being proposed for the project, and (4) relevant project experience of each of the proposed team’s firms.

From these Qualification Statements, the grantee’s A-E evaluation committee would score and rank the firms on the basis of their technical qualifications. It would be advisable not to have a predetermined cut-off score to determine those firms that are the most qualified. Scoring should be a tool for the individual committee member to determine the relative strengths and weaknesses of the firms being evaluated. Also, it would be best not to determine the most qualified firms by averaging the individual committee member scores. The numerical scores should help each member rank the various firms in order to allow the procurement officer to determine a “short list” for conducting oral presentations and discussions. Once each committee member has ranked the firms (using the published evaluation criteria, the relative weights and scoring system), the committee should meet to discuss the findings of the individual members and reach a consensus on a ranking of the various firms.

Some agencies have found a qualitative (adjective) rating system to be more effective than a numerical scoring system. For example, firms are evaluated with respect to their qualifications statements in each of the evaluation criteria elements as being “excellent,” “satisfactory,” or “unsatisfactory.” After rating each firm’s qualifications for each criterion, the committee members then give each firm an overall evaluation rating. The overall ratings for the firms are then compared and the firms with the most “excellent” ratings are short-listed. Whether you use a numerical or qualitative (adjective) rating system, a written narrative by each evaluator justifying their decision should be prepared.

Request for Technical Proposals - If you determine to require detailed technical proposals after the short list has been determined, you will need to establish the evaluation criteria to be used in selecting the successful contractor and to advise the firms of the criteria in your RFP. Criteria will normally involve such matters as the following:

  1. Past Performance - The solicitation should advise offerors of your approach in evaluating past performance, including evaluating offerors that have no relevant performance history, and should also advise offerors to identify past relevant contracts for efforts similar to your requirement. The solicitation should also allow offerors to provide information on problems encountered on the identified contracts and corrective measures taken. This evaluation should also consider the past performance of key personnel and subcontractors that will perform major or critical aspects of the work. This evaluation of past performance, as one indicator of an offeror’s ability to perform the contract successfully, is separate from the responsibility determination discussed in Section 5.1.
  2. Technical Criteria - Technical factors regarding the specific methods, designs, and systems proposed to be used by the offeror will be considered and they must be tailored to the specific requirements of your solicitation. These factors must represent the key technical areas of importance that you intend to consider in the source selection decision. Technical factors should be chosen to support meaningful comparison and discrimination between competing proposals. If the agency has established minimum standards for determining technical acceptability of proposals, these standards must be clearly set forth in the solicitation.
  3. Key Personnel - An evaluation of key personnel is often suggested when the procurement involves services or requirements where management of the work is a critical factor in determining its success. Qualifications and experience of key personnel may be an important evaluation factor. Some agencies have required oral presentations by key personnel during which the agency officials may ask these key personnel relevant questions to determine the depth of their knowledge in critical areas.
  4. Specialized Criteria - Grantees may also want to include specialized criteria such as experience in complying with the Americans with Disability Act requirements and previous work on landmark or historic structures.

Design Competition - The question is sometimes raised as to whether the A&E contractor can be selected on the basis of a conceptual design competition rather than qualifications statements. The Brooks Act would permit grantees to select an A&E firm on this basis. The FAR discusses this approach in Subpart 36.602-1 - Selection Criteria, paragraph (b). Of course the FAR is not binding on grantees but the Federal parameters for using design competitions may prove useful to grantees. Grantees will have to consider the payment of proposal stipends to those firms that are requested to submit design proposals. 42 The amount of the proposal stipend would be uniform for all competitors. It would almost assuredly attract greater competitive interest and should give the grantee title to the proposal design concepts since the proposal is being paid for by the grantee. Against the advantages is the cost to the grantee of paying for the proposals.

Architect-Engineer Selection Committee - When establishing their A-E Selection Committees, agencies will need to appoint members who have specific expertise in the disciplines needed for performing the contract. It would also be well to have a DBE advisor. It may be helpful to appoint some members to this Committee who are organizationally outside the engineering office that will be managing the A-E contract. The problem to be avoided when establishing this Selection Committee is one of “control;” i.e., care must be taken that one office does not control the selection process to the point where only a select group of “favorite” contractors are winning contract awards. This committee performs the initial review of A-E contractor qualifications and determines the rankings.

Developing the Short List - Determination of the short list or competitive range of qualified firms with whom oral discussions/ presentations will take place should be the prerogative of the procurement officer. The short list should be a number appropriate for adequate competition and should consist of those firms that have a reasonable chance of getting the award. These firms would then be invited to make presentations to the evaluation committee. Grantees should check their state laws to see if a minimum number of firms is required to be short-listed.

Oral presentations by A-E firms - Having evaluated the qualifications of the A-E firms who submitted detailed qualification statements (or technical proposals), and developed the short list of qualified firms, the A-E Selection Committee would establish a schedule for each firm to make oral presentations, although presentations are not always necessary or appropriate. If discussions are necessary, they can be written or by phone or videoconference. The Committee would advise the firms in advance of any questions the Committee had regarding the firm and its capabilities. These questions would be addressed by the A-E firm at the oral presentation. The Committee may also wish to specify those key personnel of the A-E firm that should present in order to answer the Committee’s questions. It is important that the user organization be comfortable with the actual project managers being assigned to the project, and for this reason the presentations should be made by the firm’s proposed key staff, not by a sales executive.

Final ranking of A-E firms - At the conclusion of the oral presentations, each of the Selection Committee members would perform a final scoring and ranking of the short- listed firms. These final scores would then be discussed, and the procurement officer chairing the panel should strive for consensus - finding a firm that is valued by most members and acceptable to the rest. This process should not be a mechanical “majority-rules” vote. Failure to obtain a consensus can result in internal fighting if the project gets into difficulty, and can even create these difficulties. Once an agreement is reached on the highest qualified firm, that firm is then requested to submit a cost proposal for negotiation of a contract.

Contract Negotiations - The Brooks Act requires a qualifications based procurement method for the selection of A-E firms. Price is excluded as an evaluation factor, and negotiations are conducted with the most qualified firm only. If an agreement cannot be reached on price with the most qualified firm, negotiations are formally terminated with that firm. Once negotiations are terminated, that firm is irrevocably out of contention for the contract and cannot be brought back in. Negotiations are then conducted with the next most qualified firm. This process continues until a negotiated agreement is reached which the grantee considers to be fair and reasonable.

In-house Cost Estimate - One of the biggest problems noted in FTA Procurement Systems Reviews is the failure of agencies to prepare detailed in-house cost estimates prior to receiving cost proposals. This is especially critical in A-E procurements where there are no competing proposals to provide a comparison. In order to meaningfully evaluate and negotiate the A-E firm’s cost proposal, it is critical that the grantee’s technical staff prepare a detailed in-house cost estimate (work estimate) of the work required by the A-E firm before the solicitation is issue. In order to be useful as a tool in evaluating the cost proposal, this in-house estimate needs to be prepared in the same level of detail that the grantee is requiring the A-E firm to submit its proposal. In other words, the grantee’s technical staff prepares its in-house estimate as if the grantee were the contractor proposing on the contract. It is also important that grantees require A-E firms to submit their cost proposals in the same format in which the in-house estimate was prepared. Grantees should consider issuing their Request for Proposal with a sample cost proposal format and a list of position descriptions for each of the direct labor categories used by grantee’s in-house cost estimating team. This should allow for a one-for-one comparison of the cost proposal and the in-house estimate, thus facilitating the evaluation and negotiation process.

Terms and Conditions - The RFP should contain all of the agency’s required terms and conditions (clauses, etc.). This will allow the contractor to address these terms and conditions in its proposal, which can then be discussed at negotiations. The A-E contractor should be advised before it submits its proposal what contract clauses are negotiable and what are not. This will save both the contractor and the grantee a lot of needless effort in discussing non-negotiable terms and conditions. For example, Federally required clauses would not be subject to negotiation and contractors should be so advised before they put their proposals together. Any exceptions taken by the contractor to terms and conditions should be included in the price proposal only. This will avoid influencing the technical evaluation, and it recognizes that contract terms involve risk allocation and therefore cost.

Controlling the Negotiations - An experienced contract specialist who can control the meeting should lead the negotiation team. Resource personnel (engineers, architects, lawyers, cost analysts, etc.) are a valuable resource to the contract specialist for advice, but these personnel should not be the ones making business decisions and committing the agency during the negotiations. Care must be taken that the contractor does not create a situation where the agency’s contract specialist and resource personnel become divided in their positions. When the agency’s team needs to discuss alternatives or possible concessions during negotiations, they should do so in private caucuses and not in the presence of the contractor. There should be one spokesperson for the agency-the contract specialist-who controls the meeting.

Contract Type - Grantees will need to choose the type of contract that is most appropriate for the scope of work anticipated. BPPM Section 2.4.3 contains a discussion of contract types, including fixed price, cost reimbursement, time and materials, and labor hour contracts. This section should be reviewed for general guidance as to the circumstances when each type of contract may be appropriate.

Indirect Cost Rates - The FTA Master Agreement requires grantees to accept undisputed audits of other Federal or State government agencies for purposes of establishing indirect cost rates that are used for pricing, negotiation, reporting and contract payments. See the paragraph above entitled “Negotiating Indirect Costs” in the DISCUSSION section.

Profit Analysis Factors - Suggested profit analysis factors include:

  • Skill and expertise of the A-E personnel required for the work,
  • Contract cost risk based on contract type and the degree of risk in completing the work within the negotiated price,
  • Potential liability (e.g., third-party liability) of the A-E firm based on the nature of the project,
  • Prior performance record of the firm,
  • Degree of contractor investment, as it may contribute to more efficient and economical contract performance.

Profit on Change Orders - It is common practice in the construction industry for A-E firms to request increases in their contract fees/profit based on the percentage increase in the cost of the construction contract. Grantees should avoid this practice even though it is commonplace in the construction industry. A-E contractors’ profits should be based on their work effort and should never be negotiated on a predetermined percentage basis of a cost increase in the contract whose cost the A-E firm is affecting by its designs. Grantees are prohibited from any type of cost-plus-percent-of-cost contracting. (See BPPM Section -Cost Plus Percentage of Cost Contracts (CPPC).

A-E Role in Construction Change Orders, Claims and Litigation - The A-E firm can provide assistance to the agency in the evaluation of changes to the construction contract, whether the changes originate with the agency or with the construction contractor. When changes are suggested by the construction contractor, they must be evaluated, before they are adopted, as to their total system impact on the project, and the A-E is in the best position to do this. The A-E can also prepare a cost estimate of the changed work that the grantee can use to evaluate the construction contractor’s price proposal for the change, and the A-E can assist the grantee in negotiations as a technical resource if the grantee so desires. The A-E also has a role to play in the evaluation of claims submitted by the construction contractor, although in this case the A-E’s participation is somewhat defensive. For example, the A-E may be called in to defend its designs or specifications, or the time the A-E took to review and approve the construction contractor’s documentation, and in this case the A-E’s efforts may not be reimbursable under the terms of the A-E’s contract with the agency. The same would hold true for issues that go to litigation--the A-E should be required to defend its designs and specifications without additional charge to the agency. Grantees would do well to make this a subject for an “advance understanding” in their A-E contracts, so that when claims and litigation occur, the parties will understand their respective obligations. If the claims or litigation are caused by the agency’s actions, however, and are not due to the A-E’s work products or actions, then the A-E can expect to be reimbursed by the agency for its efforts in defending the claim and assisting the agency in the litigation.

ABA Model Procurement Code (MPC) - The American Bar Association's Model Procurement Code Section 5-501, Architect-Engineer and Land Surveying Services, contains a comprehensive and very worthwhile presentation of procurement procedures using Statements of Qualifications for the award of A-E contracts. The MPC covers the entire spectrum of events leading to a contract award, with detailed recommendations for the procuring Agency to follow.

Federal Procedures - The Federal Government procedures for procuring Architect-Engineer services may be found in FAR 36.6, Architect-Engineer Services.

A-E Contract Provisions

Design within funding limitations - You may wish to include a clause requiring the A-E firm to design the project so that the construction costs do not exceed your budget, an amount that would be stated in the A-E contract as a “design-to-cost” requirement. If the price offered by the low bidder in your construction IFB exceeds the stated limit in the A-E contract, the A-E firm should be responsible to redesign the project at no increase in the price of the A-E contract. If the higher than anticipated construction cost is due to reasons beyond the control of the A-E firm, such as an unexpected increase in the cost of certain materials, then the A-E firm should not be obligated to redesign the project at its own expense. Likewise, if the grantee has required features in the facility that contribute to the bids being in excess of the budget, then a change order to these requirements may be in order, and this too would be something beyond the A-E firm’s ability to control, thus relieving the A-E from redesign responsibility. Grantees will need, therefore, to examine the elements of the construction contractor’s bid to see why the bid price exceeds the “design-to-cost” amount that the A-E was attempting to achieve. An example of a contract clause used by one transit agency follows:

Design Within Funding Limitations 43
  1. The contractor shall accomplish the design services required under this contract so as to permit the award for the construction of the proposed facility at a price that does not exceed the estimated construction contract price as set forth in paragraph (C) below. When bids or proposals for the construction contract are received that exceed the estimated price, the Agency shall analyze the reasons for the excessive prices and, if appropriate, the Contractor shall perform such redesign and other services as are necessary to permit contract award within the funding limitation. These additional services shall be performed at no increase in the price of this contract. However, the Contractor shall not be required to perform such additional services at no cost to the Agency if the unfavorable bids, or proposals are the result of conditions beyond the its reasonable control.
  2. The Contractor will promptly advise the Director of Purchasing if it finds that the project being designed will exceed or is likely to exceed the funding limitations and it is unable to design a usable facility within these limitations. Upon receipt of such information the Director of Purchasing will review the Contractor's revised estimate of construction cost. The Agency may, if it determines that the estimated construction cost contract price set forth in this contract is so low that award of a construction contract not in excess of such estimate is improbable, authorize a change in scope or materials as required to reduce the estimated construction cost to an amount within the estimated construction contract price set forth in paragraph (C) below.
  3. The estimated construction contract price for the project described in this contract is $_____________.

Design errors or deficiencies - If the A-E firm's designs, drawings or specifications contain errors or deficiencies, the A-E firm should be required to correct them at no increase in price to the grantee. When errors are discovered during construction, A-E’s are generally liable for correction of the drawings at their own cost, and for the difference between what the “correct” construction will cost (as a change order issued to the construction contractor) and what it would have cost in the original contract had the drawings been correct. This includes any tear-out that needs to be done, etc.

State licensing laws also result in many multi-state A-E’s that are set up as shell companies to hold licenses in different states. Agencies should obtain a performance guarantee from the parent company in these situations.

A-E Insurance - Agencies should require A-E’s to have General Liability as well as Errors and Omissionsinsurance. When A-E’s propose to be self-insured, agencies must look carefully at the adequacy of the firm’s assets before accepting this self-insurance approach. See also BPPM Section 6.6 - Insurance.

6.6 Insurance


49 CFR Part 19.31 prescribes insurance requirements for grantees who are institutions of higher education, hospitals, and other non-profit organizations:

Section 19.31 Insurance Coverage. Recipients shall, at a minimum, provide the equivalent insurance coverage for real property and equipment acquired with Federal funds as provided to property owned by the recipient. Federally-owned property need not be insured unless required by the terms and conditions of the award.

The Master Agreement, FTA MA(12), Section 20 prescribes insurance requirements for all grantees:

  1. Minimum Requirements. At a minimum, the Recipient agrees to comply with the insurance requirements normally imposed by its State and local governments.
  2. Flood Hazards. To the extent applicable, the Recipient agrees to comply with the flood insurance purchase requirements of section 102(a) of the Flood Disaster Protection Act of 1973, 42 U.S.C. Section 4012a(a), with respect to any Project activity involving construction or acquisition having an insurable cost of $10,000 or more.


The Master Agreement prescribes a requirement that grantees determine what their individual States require in terms of insurance for construction projects, and that grantees ensure that their State insurance requirements, if any, are reflected in third party contracts. The customary approach for insuring against risks associated with work under third-party contracts is to require contractors to purchase and maintain insurance coverages which the grantee specifies within the terms and conditions of the third-party contract. These terms and conditions would specify the type of insurance required, such as workers compensationbuilder's riskgeneral liability, railroad protective insurance,automobileerrors and omissions, etc., as well as the amount of the various coverages required. 44

Under 49 CFR 19.31, institutions of higher education, hospitals, and other non-profit organizations are required to insure real property and equipment, which has been acquired with Federal funds, to the same degree, if any, they insure their own property and equipment. This CFR requirement pertains to property which has been procured and accepted by the grantee, and for which title has vested in the grantee. This type of insurance would be designed to insure against damage or loss to the property itself, and the grantee would procure this insurance directly from an insurance company or through an insurance broker, as part of its annual insurance program for the grantee's property and operations.

Best Practices

Wrap Up Policies

Construction projects - The traditional method of insuring the participants on large construction projects has been for each party (project owner, contractors and subcontractors) to purchase insurance independently to protect themselves from financial losses. In contrast with the traditional method, project owners can elect to purchase a wrap-up insurance policy that will cover all the parties involved in the project. Over the past decade, wrap-up insurance has become increasingly popular because of the potential for cost savings. In 1998, for example, wrap-up insurance covered about 300 construction projects nationwide.

Grantees may want to consider some type of wrap up program for their larger construction projects (those over $10M). These programs are also known as owner controlled insurance programs (OCIP). A wrap up or owner-controlled insurance program is one in which the Transit Agency procures an insurance program covering all contractors and subcontractors who will be working on a large construction project. Typical insurance coverage would provide for: workers compensation, general liability, and "all risks course of construction" (sometimes referred to as builder's risk). This policy is usually purchased through the services of an insurance broker, who may have been selected through a competitive RFP. As construction contracts are awarded over the term of the policy period, the names of the contractors and all subcontractors are added to the policy as named insureds.

This approach has been used with excellent results. 45 Among the advantages noted are:

  • The Agency knows for sure that its contractors/subcontractors have adequate insurance coverage.
  • For Workers Compensation insurance there will be premium discounts because of the size of the policy. When the insurance is bought as one, coordinated policy, rather than procured piecemeal through the individual contractors and subcontractors, there will be premium discounts. The bigger the policy, the bigger the discount. Other premium-saving plans may be available through a wrap-up program. Note that the construction contractors are informed in the Invitation For Bid (IFB) provisions what insurance the Agency is providing, thus permitting the contractors to request credits from their insurance companies for that project. The credits to their premiums can then be passed along to the agency in terms of lower bid prices.
  • Newer and smaller construction contractors may have a difficult time getting insurance. This is especially true for small contractors and some Disadvantaged Business Enterprises (DBE's). A wrap up programcan enhance the Agency's DBE participation, as well as the overall competitive environment for its construction projects, by enabling more contractors to compete for the work.
  • In cases where there is a loss and it is not clear which construction contractor or subcontractor is at fault, the injured party does not have to prove which company caused the loss, only that a loss has occurred, and someone in the group was responsible. This greatly reduces the cost of settlement of claims, with obvious benefits to the injured parties.
  • By having one insurance company, there will be one insurer's safety engineer with complete authority over the entire job, thus providing better coordination of safety issues.

GAO Study of Wrap Up - In 1999 the U. S. General Accounting Office (GAO) completed a study of six major transit and highway projects using wrap-up insurance. 46 These projects included several design-build projects financed by FTA and FHWA. The purpose of the report was to identify the advantages and disadvantages of wrap-up insurance over traditional insurance and the factors that can affect the broader use of wrap-up insurance.

GAO found a number of advantages and disadvantages in using wrap-up insurance. Their research findings included the following:

Major advantages include savings from buying insurance “in bulk,” eliminating duplication in coverage, handling claims more efficiently, reducing potential litigation, and enhancing workplace safety. According to insurance industry officials, wrap-up insurance can save project owners up to 50 percent on the cost of traditional insurance, or from 1 to 3 percent of a project’s construction cost, depending on its size. The potential disadvantages of wrap-up insurance include requiring project owners to invest more time and resources in administration. Project owners must hire additional personnel or pay to contract out the management of wrap-up insurance. In addition, Project owners could also have to pay large premiums at the beginning of the project. However, transportation officials said these costs were reasonable.

A number of factors can affect the broader use of wrap-up insurance. Perhaps the most significant barriers are state systems for workers’ compensation that, in some states, effectively prevent wrap-up insurance by greatly reducing its potential cost savings. Another limitation is that a project must be sufficiently large, or contain at least a sufficient amount of labor costs, to make wrap-up insurance financially viable. Finally, some contractors dislike wrap-up insurance because it reduces a contractor’s profits from insurance rebates.

Types of Wrap-Up Insurance Plans - Two types of plans are available to project owners. One is to pay a flat premium (also known as a guaranteed cost plan). With this plan, premiums remain fixed for the term of the policy even if a high amount of claims is paid out. This type of plan is common for small and medium-sized businesses. The second type of plan is known as a loss-sensitive plan. Here the premiums depend on the policyholder’s claims that are actually paid (called “losses”). A loss-sensitive plan returns a refund for low losses and charges additional premiums for high losses, thus giving the owner an incentive to maximize safe operations. Five of the six major projects studied by GAO used loss-sensitive plans, and all used deductible limits to lower their insurance costs. 47

Cost Savings - The six projects studied by GAO all claimed cost savings as a result of using wrap-up insurance. Savings claimed ranged from $2.9 million to $265 million. 48 Contributing to these savings were fewer injuries resulting from centralized safety programs, as well as using bulk buying power, avoiding duplicate insurance coverage, using more efficient ways to process claims, and reducing litigation. 49

Centralized Safety Programs - Under traditional insurance, each contractor and its insurance company may be involved with safety but typically there is no coordinated safety program. Each contractor and subcontractor is concerned only for their segment of the work, and the degree of emphasis placed on safety will vary from contractor to contractor. Additionally, some of these contractors may be poorly monitored by their insurance companies at the job site. In contrast, on projects insured under wrap-up policies, the responsibility for safety will be centralized in one safety team (including one insurance company) that oversees all aspects of safety at a job site, with jurisdiction over all contractors and subcontractors. It is improved safety, resulting in fewer injuries, that produces much of the potential savings from wrap-up insurance. When loss-sensitive plans are used, the participants have a compelling financial interest to keep injuries to a minimum so as to realize insurance rebates. All six projects studied by GAO claimed reduced injuries as the main basis for their insurance cost savings. 50

State Insurance Regulations - Because three-fourths of the total insurance cost on a construction project can be for workers’ compensation, removing it from the project owner’s control effectively eliminates most of the cost savings derived from wrap-up insurance. 51 And this is what happens in some states that require contractors to use the state fund for workers’ compensation as the primary insurance vehicle for construction projects. 52 Some states, such as Michigan and Ohio, require owners to obtain prior approval for wrap-up insurance from the state insurance regulator. Michigan also establishes a minimum project cost of $65 million to be eligible for wrap-up insurance. Oregon limits wrap-up to projects of $100 million and will not allow “rolling” different projects (combining several projects) under one insurance program.

Developing Insurance Cost Information - In the six projects studied by GAO, owners developed cost information for traditional vs. wrap-up insurance by one of three methods: (1) obtaining two bids - one with insurance included (traditional method) and one with insurance excluded (wrap-up method), (2) removing insurance costs from existing contracts, or (3) relying on brokers’ estimates of traditional insurance.

Helping Small and Disadvantaged Businesses - By providing insurance coverage to all contractors, including small and disadvantaged businesses, owners can often improve the degree of participation by these businesses when they use wrap-up insurance. For example, according to GAO, the Chicago Transit Authority (CTA) achieved about 30 percent participation by DBEs in their 1994 Green Line Rehabilitation Project.

Potential problems - Grantees must be cautious about contractors with poor safety records and high insurance costs. They can present a problem when the grantee is using an owner controlled insurance program. Grantees using an OCIP should specify in their solicitation documents (IFB’s, RFP’s) that the bidder’s past performance with respect to safety matters will be considered as part of the grantee’s determination of contractor "responsibility."See Section 5.1 Responsibility of Contractor.

Mega-projects - On mega-projects, grantees should consult with individuals who have had working experience with such projects because there may be opportunities for innovative techniques. Such projects lend themselves to creative negotiations with the insurance companies. FTA regional personnel with such experience may be consulted. 53

Equipment and Supplies - Equipment contractors would typically furnish their own insurance coverage for the products they furnish, except that for installation of heavy equipment, the wrap up policy could apply to the installation work. It would be prudent to do some market research before establishing the insurance limits which you require the suppliers to have in order to bid on your requirement. If the limits are too large, it may restrict competition. By calling the potential bidders in advance, you can determine what insurance limits are reasonable to stipulate in your IFB or RFP.

Hazardous materials - When your project requires the contractor to work with pollutants or any type of hazardous materials (such as asbestos, waste oil products, parts cleaners, etc.,) be sure to have your insurance specialist and your environmental safety officer review all of the contractor's policies very carefully to determine if there are any exclusions in any of the policies for the type of material involved. If there is any question in any of the policies, be sure to have the contractor obtain a rider from his insurance company removing the exclusion.

Architect-Engineer Services - It is the customary practice of Architect-Engineer firms to buy errors and omissions insurance to protect against design errors which they may make in the course of their design work. However, there may be situations where the cost of insurance for a particular project is very high. This could occur, for example, when the A-E firm is designing elements of a system, such as a rapid rail system, which will carry large numbers of passengers. This situation carries with it the potential for very high liability in the event of an accident caused by a faulty design of a system element. In some cases, like these, Agencies have decided to indemnify their A-E firm against liability arising from design errors or omissions. When this approach is followed, the A-E firm does not incur the very high cost of errors and omissions insurance, which would have been passed along to the Agency as a direct cost on their contract. The money thus saved by the Agency in not having to pay for insurance could then be deposited in a special self-insurance fund from which future claims, if any, would be paid. If there are no accidents and claims, the Agency will realize some extraordinary savings. MARTA elected to use this indemnification approach with its primary engineering consulting contractor, and the resulting savings were about $300,000 annually. Any decision to adopt this approach is a major one, and obviously entails an element of risk to the Agency. It should be pointed out that in many states it is against public policy for one party to indemnify another against that party’s own negligence. Under these circumstances, the type of indemnity described would be illegal.

6.7 Artwork


Requirements related to the procurement of artwork in transit projects may be found in the following documents:

  1. FTA Circular 9400.1A - Design and Art in Transit Projects, dated June 1995.
  2. 49 CFR Section 18.34 "Copyrights."


FTA Circular 9400.1A provides FTA policy and guidance for the incorporation of design and art into transit projects funded by FTA. 54 Some of the more important issues in this Circular concern:

  1. The eligibility of design and art as eligible costs and guidance for the incorporation of quality design and art into transit projects funded by the FTA.
  2. Flexible guidelines for the amount to be spent on artwork; e.g., costs should be at least one half of 1% of construction costs, but should not exceed 5% of construction costs, depending on the scale of the project. Funds spent on the artwork should be adequate to have an impact.
  3. The encouragement of artists to interact with the community (residents and businesses) on a project.
  4. The Circular has certain specific recommendations for the procurement of art:
    1. The selection process should consider use of a variety of artists that are capable of working on the project,
    2. Selection of artists should be by a panel of art and design professionals, such as art administrators, artists, curators, and architects,
    3. The community surrounding the future facility should participate in the selection process - this may include all levels of participation, including generating ideas for the project, supplying information, attending panel meetings, and being voting members of the panel.
  5. Criteria for evaluating specific works of art for commissioning. These would include:
    1. quality of art or design,
    2. impact on mass-transit customers,
    3. connection to site and/or adjacent community; art that relates, in form or substance to the cultures, people, natural or built surroundings, or history of the area in which the project is located,
    4. appropriateness for site, including safety and scale,
    5. durability of materials,
    6. resistance to vandalism, and
    7. minimum maintenance.

Best Practices

The size and nature of the project may affect the choice of procedures to be followed. The guidance here may be most relevant for the procurement of major art-in-transit projects, and is in fact taken from the experiences of several transit agencies that have procured or are in the process of procuring significant artwork for their transit projects.

Grantees should also be familiar with the ten case studies that FTA has published on its website detailing the "lessons learned" from agencies that faced a diversity of problems and challenges in bringing their art-in-transit projects to a successful conclusion. 55

A. Maintaining an Artists Registry

Many States and the U.S. General Services Administration (GSA) maintain an Artists Registry. The GSA has developed the "GSA National Artists Registry," which is a database of several thousand contemporary American artists of all career levels, media, and styles. This registry is used to solicit expressions of interest from artists whose prior work is of the type that GSA is interested in considering for their current project.

The Los Angeles County Metropolitan Transportation Authority (MTA) maintains a mailing list database of professional artists who are interested in working on MTA programs. Inclusion on the mailing list is open to all professional artists on an on-going basis. Artists are solicited from this mailing database for expressions of interest via open 'Call for Artists.'

It must be pointed out that some Artists Registries require the submission of slides and statements of qualifications by artists. They require considerable time and resources to maintain, and unless acceptance into the registry is juried, the number of unqualified or inappropriate artists may expand to the point of rendering the registry of little or no value. Artists will want to update their slides periodically, and the handling, storage, database entry and return mailing may be prohibitive for all but the largest programs.

A more practical approach for most grantee organizations will be to contact their State's Arts Council and other organizations that maintain mailing lists of public artists. Examples of these other organizations would include other transit agencies that have been active in public artwork programs 56 and organizations such as Forecast Public Artworks at, and Public Art Network (PAN) at This approach will provide the grantee with an extensive list of artists at minimal expense to the grantee, and is a much more practical approach for those grantees that have "one-time" artwork projects and limited staffing to maintain an expensive Artists Registry or mailing database.

B. The "Call For Artists"

The "call for artists" can be published for national coverage in publications such as Public Art Review, Sculpture Magazine, Art In America, ArtNews, and ArtForum, and regional periodicals such as, New Art Examiner, ArtPapers, and ArtWeek as well as local newspapers. However, the experiences of several agencies in advertising have not been completely satisfactory as far as reaching prospective artists. A far more successful approach has been to develop the names and addresses of the artists to be solicited and send them a notice of the commission opportunities and "Request for Expression of Interest" (RFI) letter. For example, Southeastern Pennsylvania Transportation Authority (SEPTA) hired an art consultant who culled a list of candidate artists from various art foundations. Other agencies have used their State Arts Council as a resource for listings of artists' names and addresses. As already discussed, some have gone to the expense of maintaining Artists Registries and mailing databases to identify candidates who are contacted directly by mail.

Applicants are normally asked to provide resumes, slides of past work, copies of published reviews/articles about their work, and perhaps a videotape of several minutes length. Artists may also be required to state in their cover letters why they are interested in creating artwork for the project being advertised and why their work is applicable to an outdoor transit environment.

C. Publicizing the Project's Art Budget

It has been the practice of almost all agencies, including the U.S. GSA, to publish the agency's budget for the art project at the time the "call for artists" is released and/or the notices are sent to candidate artists soliciting their interest in the project. The reasoning behind the practice is to inform the artists of the relative magnitude of the project and to establish an evaluation and selection process that will be based on a "best-value-for-the- money" type of decision, instead of the more traditional procurement approach of determining the lowest price proposal that will produce an artwork that meets a predetermined specification. In other words, agencies want the very best product that can be obtained with the funds available for art, and there is generally no motivation to reduce the artwork monetary investment by selecting art concepts that are less costly but also may be artistically and aesthetically less rewarding to the agency and the community.

An example of a budget that was published with a "Call to Artists" by the Metropolitan Council, Minneapolis, MN is shown in Appendix B.18 - Hiawatha Line Public Art & Design Budget. The Call to Artists listed sixteen commission opportunities, four of which were "Design Only" commissions, while twelve others were listed as "Design, Fabrication, and Installation" commissions. The work involved in the various phases of these commissions was described in the Call to Artists, and the amount of the commission allocated for each phase was as shown in Appendix B.18. Note that every commission included the completion of designs and the preparation of construction drawings within the scope of the initial contract award. The initial contracts did not, however, include the Fabrication and Installation Phases. The agency's decision to involve any particular artist in the Fabrication and/or Installation Phase was to be made at the completion of the Design Phase, and was to be related to such considerations as the artwork design, the artist's interest in involvement in the Fabrication and Installation Phase, and the agency's interest in retaining the artist's involvement in those follow-on phases. The involvement of any particular artist in the Fabrication and Installation phase could vary from the complete fabrication and installation of the artwork, fabrication and installation of certain elements of the artwork coordinated with the installation of other elements by the project's Design/Builder, oversight of fabrication and installation by the project's Design/Builder, or in an unusual situation, no involvement at all. Because the involvement of the artist might vary in the Fabrication and Installation Phase, the commission amount associated with this Fabrication and Installation Phase was estimated as a maximum amount in the published budget. The actual amount of any fabrication and installation commission was to be determined by negotiations between the agency and the artist at the conclusion of the Design Phase depending on the artist's degree of involvement. 57

D. The Selection Process

Timing - One of the most important lessons learned from those who procure artwork is that the artist should be selected and on-board at a very early date in the design process, preferably at the inception of the design process as members of the design team. Starting the artist early with the Architect-Engineer firm that will do the design work enables the artist to have maximum opportunities for the artwork. If you wait until the facility is designed already, or virtually designed, you limit what the artist can do. This is a major consideration. In order to afford the artist the opportunity to collaborate with the A/E firm during the design concept phase, the artist selection process should begin well before the A/E contract is awarded.

Methods of Selecting Artists - There are two basic approaches that have been used to select artists. One involves the selection of a "short list" of candidates from whom competitive proposals are solicited and evaluated. These proposals would typically call for the submission of design concepts, models and/or renderings, cost proposals, etc. The other approach is one in which the evaluation is designed to select the artist instead of selecting the best artwork concept as in the competitive proposal method. This method would produce a "short list" of the most qualified candidates based on artists' resumes, slides of previous artwork products, videotapes, the artist's expected hourly remuneration, etc. Interviews are conducted with the short-list candidates. Selection then follows the interviews. The latter approach does not involve the submission of design concepts for the project being advertised - the preparation of designs comes after artist selection. Nor does this approach call for artists to submit the estimated prices of their artwork because the art has not yet been designed. It does, however, call for the artists to submit their proposed hourly rates of remuneration, which fulfills the requirement of FTA Circular 4220.1E that cost be a factor in the selection process. Note that cost may in fact be the least important factor if the grantee so chooses, but it must be considered in the selection process. A discussion of these two approaches follows.

Review of Qualifications to Determine a "Short List" of Candidates - Having issued the "call for artists" and received letters of interest from candidate artists, most agencies (with participation of an artist selection panel) use a qualifications-based process to narrow down the candidates to a "short list" of four to seven candidates. This process of developing the short list would typically be based on the artist's past work. Resumes and slides of the artist's previous work would normally be reviewed (by a selection panel) at this stage of the evaluation process. Artists would not normally be required to submit a "technical proposal" of their conceptual designs for the project at this stage.

Selection after Interviews - Having determined a "short list" of candidate artists, agencies' approaches to determine the actual winning artist may vary. When the project is just beginning and the artists will be working with the A/E firm to develop design concepts, the typical approach has been to furnish the short-listed artists with the community profile and invite them to be interviewed by the selection panel. The winning artist is then selected on the basis of their past work and the interview process. An example of the artist selection criteria which might be used in this type of scenario would be as follows:

  • Aesthetic quality of previously completed art projects and commissions.
  • Applicability and suitability of past work to the specific commission opportunities being advertised by the grantee.
  • Appropriateness of previously completed artworks to their sites, including safety and scale.
  • Durability and suitability of materials, resistance to vandalism and a minimum of maintenance requirements.
  • Experience working with the public and neighborhood communities.

Soliciting Competitive Proposals - When the project for which the art is being procured has already been designed and/or built, some agencies invite all of the short listed artists to submit proposals for the project. However, some agencies have required proposals even when the artist selection process is occurring early in the program, before the A/E firm has done any design. When proposals are solicited, and following the submission and evaluation of these proposals, interviews are then scheduled with all of the candidates where the artists may present their proposals and the agency's selection panel may ask questions of the artists. Artists may be called upon to present a rendering of their proposed artwork (a model or drawings or written descriptions), a cost proposal, and samples of the actual proposed material to be used. The cost proposal (budget) would include costs for design, fabrication, site preparation and installation, insurance, etc. Since the conceptual designs are probably the most valuable contribution that the artists will make, agencies have often felt it equitable to compensate the artists for this conceptual design work, and they will establish a uniform amount of money to be paid to each artist for his/her work in developing the proposal. For example, SEPTA's procurement of artwork for the Frankford Transportation Center included a "design stipend" of $2,500 to each of the semi-finalist artists that were asked to provide detailed proposals as part of the final competition. This design stipend of $2,500 for the semi-finalists was adequate to generate significant interest from nationally acclaimed artists. 58

This approach of requiring competitive proposals is not without its problems. The first significant problem will be how to involve the community during the process of proposal (conceptual design) development. Community involvement is one of the most important aspects of the design process and FTA Circular 9400.1A notes it as such. It may be difficult for community representatives to deal objectively and interact with the competing artists' designs if competitive proposals are required. Experience has shown that involvement of community representatives at this stage produces problems in having to deal with a number of competing artists and designs, and to reconcile differences of preference with grantee personnel responsible for artist selection. It may be easier and perhaps more constructive for community representatives to work with one artist who has been selected by the grantee prior to conceptual design development, and then serve as a major contributor to the process of design development. This affords the community a design development role during conceptual design work rather an after-the-fact- role with several artists whose design concepts have already been formulated. Another consideration is the adequacy of the design stipend. Will the stipend your agency can afford to pay a number of artists be adequate to compensate them for research, travel, community discussions, conceptual design work, models, renderings, etc.? Consider also whether the rather small stipend and limited time given to the competing artists will produce the best possible design concepts for your project, or whether your agency would be better served with selecting an artist based on the quality and suitability of his/her past work for your application, and giving this artist more resources and time to produce the best design concept after collaboration with community representatives.

E. Contracting With the Selected Artist for Design and Fabrication of the Art

Direct Contract Vs. Subcontract with the A/E Firm - Most agencies will normally award a prime contract to the artist, although some have assigned the responsibility of contracting with the artist to the A/E firm that is doing the facility design.

Type of Contract - Because of potential problems with unsuitable accounting systems for cost reimbursement contracts, grantees would be advised to consider contract types for artwork that do not require the auditing of incurred costs. Using a fixed price contract with the artist would usually be preferable to a cost type contract.

Determining a Fair and Reasonable Contract Price - When negotiating a contract price with the selected artist, a cost proposal should be solicited, evaluated and negotiated as with any procurement for professional services; e.g., a contract with an architect to design a facility. It is recommended that the grantee consider whether it is advisable to contract initially for the design phase of the work and postpone negotiations of the cost/price for fabrication and installation until the design is completed and approved. This phased approach would then allow the artist to solicit bids or proposals from fabricators and installers based on a final design and specifications for fabrication and installation. The phased approach will avoid the problem of trying to prematurely guess what the fabrication and installation costs will be prior to completion of the design. A phased approach will also allow the grantee and artist to negotiate fixed price contracts for the design phase and then for the fabrication/installation phase. This in turn will avoid the pitfalls inherent in cost reimbursement contracting with an artist that probably does not have a cost accounting system in place that is suitable for a cost type contract. See the paragraph, Fabrication Costs, below.

Experience with artwork projects would indicate that the design phase of the project could be anywhere between 10% and 20% of the total project budget. For larger projects the design phase costs should represent the lower end of the range (about 10% of the project budget). Smaller projects may have a larger percentage (up to 20%) of the project cost devoted to design activities. The primary reason for this is that the costs of doing community research, including the travel expenses associated with this research and discussions with community representatives, will represent a larger fraction of the total budget for smaller projects than larger ones. This is not to suggest that the design phase contract be negotiated as a percent of the total project budget, only that grantees may wish to apply these historical percents as a "sanity check" when evaluating the artist's cost proposal for the design phase. Design budget percentages may also be impacted by the artist's national/international prominence and recognition. Historical experience with architectural fees for a variety of construction projects may prove to illustrate the point being made here. Typical fees for the most artistic type of building projects have been tabulated by the R.S. Means Company, and the fee percentages range from a high of 16% of total project costs for the smaller projects ($100K) to a low of 8.3% for the highest dollar value projects (over $50M). 59

Determining an Hourly Rate of Compensation - The hourly rate of compensation for the artist should be proposed by the artist in his/her cost proposal (along with the other necessary cost elements), and evaluated by the grantee for reasonableness. The grantee would be advised to evaluate the artist's compensation on other projects, as well as what artists working on similar size public art projects have recently and historically been paid by other owners. The objective is to determine a fair and reasonable rate of compensation for the expertise offered by that particular artist, which will be an important part of the overall contract price for the design phase. Determining a fair and reasonable hourly rate of compensation for the artist may also be extremely helpful if for any reason the grantee decides to terminate the artist's contract for the convenience of the grantee. In the event of a termination, the grantee and the artist will have to negotiate the amount to be paid the artist for his/her efforts up to the point of termination. Having already negotiated an hourly rate of compensation as part of the contract negotiations to determine a price for the design phase contract, the parties will then have an equitable basis to determine the amount to be paid for the artist's efforts prior to the termination.

Payment Provisions - Design Phase - Experience has shown that there may be problems with using standard "progress payment" clauses where payments are made at regular intervals based upon the artist's "progress" towards completion of the artwork design. Measuring progress on an artwork contract may prove to be a very subjective exercise and one that causes problems for the agency and the artist. A preferable approach would be to use a "milestone" payments approach where contractually specified dollar payments are to be made for achievement of specified milestones.

Fabrication Costs - When the artist is to be contractually responsible for fabricating the artwork, the typical scenario will involve a subcontractor that will do the actual fabrication work. It is very important that the artist be required to furnish credible cost and price information regarding fabrication of the artwork so that a realistic contract price can be negotiated with the artist. Grantees should not rely on "guestimates" from the artist when the contract price is being negotiated. There has been a tendency to use the artist's own cost estimates for fabrication instead of requiring the artist to obtain realistic cost/price proposals from fabricators. This in turn has led to some significant cost overruns when the real fabrication cost becomes known as a result of bids obtained later by the artist. This tends to happen when the agency's contract with the artist is a cost-reimbursement or Time and Material type of contract. Owing to the uncertainties in fabrication costs, agencies may want to contract in "phases" for the artwork project, where the first phase is for work up to submission and agency approval of the artist's design, and a second phase for fabrication and installation support by the artist. This second phase would be priced using competitive bids from fabricators following agency approval of the artist's detailed designs.

Intellectual Property Rights - Ownership of data and copyrights may be negotiated by the grantee and the artist under an arts in transit procurement provided that the Federal interests are protected. 49 CFR 18.34 - Copyrights, requires the grantee to include a clause in the artwork contract that provides FTA a royalty-free, non-exclusive, and irrevocable license to reproduce, publish or otherwise use, and to authorize others to use, for Federal Government purposes, the copyright developed under the grant.

Grantees will want to involve their Legal Counsel in drafting and negotiating the specific provisions related to rights in the Artwork and artwork design concept developed under the contract due to stipulations found in Federal and State laws governing artist right's. Some of the more important issues that have been addressed (but not necessarily resolved as stated) by those procuring artwork have included the following:

Rights in Artwork Design and Artist's Submittals
  1. Copyright: Artist's rights in all drawings, documents, studies developed by artist as well as the artwork itself.
  2. License for FTA: To reproduce, publish or authorize others to use for Federal Government purposes, in accordance with 49 CFR Section 18.34 - Copyrights.
  3. Right of grantee to reproduce (such as photographs and prints): For noncommercial purposes (educational, public relations, arts promotional, etc.) the Artwork submittals and Artwork Design.
  4. Right of grantee to distribute reproductions: To the public by gift, sale or other transfer of ownership.
  5. Right of grantee to incorporate the Artwork Design into any trademarks or service marks.
  6. Grantee rights for commercial uses: To be negotiated with the artist and the terms to be established in a separate written agreement.
  7. Artwork Design not to be duplicated by artist without grantee's written consent.
  8. Termination of Artist's Rights: Artist's rights terminate with death of, Artist and do not extend to Artist's heirs, successors or assigns.
Rights in the Artwork
  1. Ownership: Title to pass to the grantee upon installation and final acceptance of Artwork. Grantee to have right to donate, transfer, or sell the Artwork, or any portion thereof.
  2. Display: Grantee to have exclusive right to publicly display the Artwork and to loan the Artwork to others for purpose of public display.
  3. Reproductions and Adaptations: Grantee to have license to reproduce (e.g., photographs and prints) and three-dimensional reproductions for noncommercial purposes (educational, public relations, arts promotional, etc.) Examples of such reproductions for noncommercial purposes might include: books, slides, postcards, posters, tee-shirts, mugs and calendars; reproductions in art magazines, art books, newspapers, videos, film and other visual media of whatever kind; reproductions in or on world wide web sites, internet sites and other electronic media; and reproductions for advertising purposes. Reproductions to contain a credit to the Artist and a copyright notice.
  4. Commercial Uses by Grantee: Reproductions for commercial uses are only to be made with the mutual consent of the parties; e.g., use of the Artwork as background for advertisements, publications, movies, television, video and other types of productions or entertainment media.
  5. Artist Credit: All references and all reproductions or adaptations of the Artwork will credit the Artwork to the Artist unless Artists requests to the contrary.
  6. Artist's Commitments: Artwork Design not to be duplicated by artist without grantee's written consent.
  7. Future Removal, Relocation or Modification: Grantee to have right to remove the Artwork from the site and relocate to another site.
  8. Repairs and Restoration: Grantee, after consultation with Artist, shall have the right to determine when and if repairs and restorations are needed. If grantee makes repairs or restoration not approved by Artist, Artist shall have the right to sever its association with the Artwork.
  9. Termination of Artist's Rights: Artist's rights terminate with death of Artist and do not extend to Artist's heirs, successors or assigns.
  10. Notice of Claims: Artist to give grantee written notice prior to asserting any claim pertaining to the Artwork, and the grantee shall have not less than 90 days from the date of receipt of claim to cure any such claim.
  11. The right of grantee to incorporate the Artwork into any trademark or service marks to be utilized by the grantee and to register the same in accordance with state or local law.

F. Contracting for Installation of the Artwork

Many times the installation work will be outside the artist's realm of expertise, especially for work involving construction services. Much artwork installation will be regulated by the Davis-Bacon Act wage requirements. For example, modifications to real property, such as the installation of murals on building walls, will require Davis-Bacon wage determinations. Agencies may wish to contact their regional Department of Labor (DOL) office for assistance in determining the applicability of the Davis-Bacon Act to their artwork projects. It has been the usual practice to install the artwork under a construction contract competitively bid. For example, the artwork installation may be part of the main construction contract for the project. When this is done, the artist's services are usually obtained to serve in the role of a consultant to the agency or the A/E firm that has responsibility for construction oversight.

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Chapter Footnotes

1 - This document may be obtained from FTA, Office of Program Management, Engineering and Management Division, TPM-42, at (202) 366-2440.

2 - See Project and Construction Management Guidelines 1996 Update, Section 3.2.2 Configuration, Constructability Reviews.

3 - Transportation Research Circular Number 483, March 1998. Transportation Research Board, National Research Council, National Academy of Sciences, 2101 Constitution Avenue, N.W., Washington, D.C. 20418.

4 - Contact Department Manager-Procurement, BART at (510) 464-6380.

5 - See note No. 1.

6 - Metropolitan Atlanta Rapid Transit Authority (MARTA), General Conditions-1988, Clause 49 Value Engineering Proposals. To discuss MARTA's approach, contact Mr. Wayner Crowder, Director of Contracts and Procurement, at (404) 848-5587.

7 - San Francisco Bay Area Rapid Transit District (BART), General Conditions for Construction Contracts, February 1, 1998, Clause GC4.8.1 Application of VECP. To discuss BART's approach, contact Department Manager - Procurement, at (510)464-6380.

8 -

9 - New York City Transit. Contact Ms. Judi Gibson, Assistant Chief Procurement Officer -- Engineering, Construction & Capital Division of Materiel at (718)694-4113.

10 - See note 11.

11 - For information, contact the Purchasing Section Manager at (847) 228-3573.

12 - For information about New York City's leasing of cranes with operators, contact Stan Grill at (718) 694-4350.

13 - MTA, Houston, TX. Contact Don Murphy at (713) 739-4843 or Paul Como at (713) 739-4803.

14 - American Public Transit Association, 1201 New York Avenue, N.W., Suite 400, W Washington, D.C. 20005-6141. Copies may be ordered by phone at (202) 898-4089. Technical questions may be answered at (202) 898-4087.

15 - MARTA Rail Car procurement, contact Mr. Robert June, Acting Director of Systems Engineering, at (404) 870-3203.

16 - Sub-paragraph (1) looks primarily to State government contracts that allow subordinate government agencies to buy from established schedules akin to the GSA Schedules in Federal practice. FTA believes grantees may buy through these contracts provided all parties agree to append the required Federal clauses in the purchase order or other document that effects the grantee’s procurement. When buying from these schedule contracts, grantees should obtain Buy America certification before entering into the purchase order. Where the product to be purchased is Buy America compliant, there is no problem. Where the product is not Buy America compliant, the grantee will still have to obtain a waiver from FTA before proceeding.

17 - Sub-paragraph (2) reflects FTA’s belief that grantees should consider combining efforts in their procurements to obtain better pricing through larger purchases. Joint procurements offer the additional advantage of being able to obtain goods and services that exactly match each cooperating grantee’s requirements. Joint procurements are considered superior to the practice of “piggybacking” since “piggybacking” does not combine buying power at the pricing stage and may limit a grantee’s choices to those products excess to another grantee’s needs.

18 - Sub-paragraph (3) reflects grantees’ continuing ability to assign contractual rights to others - “piggybacking.” FTA believes it is extremely important that grantees ensure they contract only for their reasonably anticipated needs and do not add quantities or options to contracts solely to allow them to assign these quantities or options at a later date.

19 - NY State DOT (518) 457-8343.

20 - FTA has introduced a limited definition of “piggybacking” and, to differentiate vastly different policies, has separated this practice of assigning contractual rights among grantees from joint procurements or other intergovernmental agreements. See FTA Circular 4220.1E, paragraph 7.e.

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

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

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

22 - Conducting Pre-Award and Post-Delivery Reviews for Bus Procurements. Document No: FTA DC -90-7713-93-1, Rev. B, dated May 1, 1995. Conducting Pre-Award and Post-Delivery Reviews for Rail Vehicle Procurements. Document No: FTA DC-90-7713-94-1, Rev. B, dated May 1, 1995. These documents may be obtained from FTA, Office of Program Management at 202-366-4020 or by e-mail The FTA Office of Chief Counsel website address for Buy America matters.

23 - FTA C 9030.1C, Chapter III, paragraph 4.c.

24 - FTA C 9030.1C, Chapter V, paragraph 9.b.3.

25 - C 5010.1C in Chapter II Management of Real Property, Equipment and Supplies, Subsection 3.e(6).

26 - See generally Federal Acquisition regulations at 48 CFR Subpart 46.7 - Warranties.

27 - 48 CFR Subpart 46.7 - Warranties.

28 - May be accessed at: C 9030.1C - Urbanized Area Formula Program: Grant Application Instructions.

29 - To order this book, call APTA at (202) 496-4800. Document also available via Internet

30 - Texas Government Code, Section 2254.002.

31 - Texas Government Code, Section 2254.003(a).

32 - Texas Government Code, Section 2254.004.

33 - Texas Government Code, Section 2254.005.

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

35 - If a project is jointly funded with FTA and FHWA grant funds, grantees should seek the advice of counsel since the FHWA and FTA statutes differ in when and how the Federal requirements defer to state laws.

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

37 - Letter from G. B. McBride to New York MTA, dated Feb 2, 2001. The issues addressed in this letter may be found on the FTA HelpLine under the Frequently Asked Questions tab (see Architect & Engineering Contracts).

38 - 49 USC 5325(b) demands that Brooks act procedures be used for these services even though they are not routinely done by A&E firms (e.g., surveying) and do not require licensed architects or engineers.

39 - The Transportation Equity Act for the 21st Century (TEA-21) imposed regulations affecting the administration of contracts awarded by grantees for architectural and engineering services. The regulations affecting the Federal Highway Administration (FHWA) may be found in 23 U.S.C. Section 112 and the corresponding regulations for FTA grantees may be found in 49 U.S.C. Section 5325(b). FHWA implemented the TEA-21 requirements its final rule, "Administration of Engineering and Design Related Services Contracts," dated June 12, 2002, This final rule had been preceded by a Notice of Proposed Rulemaking, "Administration of Engineering and Design Related Services Contracts" published in 65 FR 44486, July 18, 2000, ( Because the language in FTA's section of the Code was substantially similar to that of FHWA, FTA's Office of Chief Counsel has interpreted the language of 49 U.S.C. Section 5325(b) in a manner that is consistent with the provisions adopted by FHWA in its Notice of Proposed Rulemaking and its final rule. There are several important aspects of these contracting requirements that affect the grantee's administration of A&E contracts:

40 - FAR 53.301-330.

41 - FAR 53.301-330.

42 - Grantees should consider using a two-step procedure in order to narrow the number of firms allowed to submit design proposals (to those with a realistic chance of success)) and thus to control the cost to the grantee. Step one might be based on qualifications statements such as are normally used to select A&E firms, from which a limited number of firms would be selected and requested to submit design proposals in step two.

43 - For additional information, contact Ms. Ann Geter, Central Ohio Transit Authority, at 614-275-5903.

44 - For an example of a grantee's third-party contract Insurance Specifications, contact Mr, Harry Hower, Manager of Insurance, MARTA, at (404) 848-4504.

45 - See footnote above.

46 - Transportation Infrastructure: Advantages and Disadvantages of Wrap-Up Insurance for Large Construction Projects, B-281480, June 1, 1999. The GAO report may be accessed at Orders may also be placed by calling (202) 512-6000.

47 - Some project owners share the insurance rebates with their contractors. For example, the Boston Artery project will share 20 percent of any savings with contractors in the form of safety incentive awards.

48 - GAO also notes that in 1998 an FTA Transit Construction Roundtable study of 18 members indicated that savings of 28 percent were realized by purchasing wrap-up insurance for major projects.

49 - GAO noted that large labor-intensive projects with construction costs between $50 million and $100 million would be in a better position (i.e., buying power) to obtain wrap-up insurance.

50 - The Boston Artery project cited a loss ratio of 23 percent compared to a historic national average of about 65 percent for that type of project. The Michigan Blue Water Bridge project cited a loss ratio of 10 percent compared to a national average of 50 percent for that type of project.

51 - Workers’ compensation insurance pays claimants in case of injury, disability, or death of employees resulting from work on the job.

52 - According to a 1997 GSA study of wrap-up insurance, North Dakota, Ohio, Washington, West Virginia, and Wyoming have a state fund into which all contractors must pay and a project owner cannot obtain separate workers’ compensation insurance coverage.

53 - For FTA Region 1 experience with the Central Artery Project in Boston ($11B), contact Mr. Richard Cole at (617) 494-2395.

54 - Grantees may access this Circular at: C 9400.1A - Federal Transit Administration Design and Art in Transit Projects

55 - These case studies may be found in: "Art In Transit... Making it Happen"

56 - LAMTA, NYMTA, SEPTA, Metropolitan Council of Minneapolis, MN.

57 - For further information about this public art program contact Mr. David Allen, Metropolitan Council Hiawatha Public Art and Design Manager at (612) 215-8221.

58 - For further information, contact Elizabeth Mintz, Manager of SEPTA's Art-In-Transit program, at (215) 580-3633.

59 - R.S. Means Company, Square Foot Costs, 23rd Edition, p. 438. However, artists may not necessarily base their compensation rates on providing the same types of professional design services as practiced in an architectural office, but by the track record of unique, one-of-a-kind commissions that respond to curatorial forces operating in the curatorial world of the gallery, the museum and the broader art market.

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