Guidance in Response to Cost and Payment Questions
In 2022 and 2023, several transit stakeholders have asked FTA to clarify a grant recipient’s ability to modify the prices of existing federally assisted contracts or to structure their federally assisted contracts using advance or progress payments.
FTA presents the below guidance in response to these questions. This guidance does not have the force and effect of law and is not meant to bind the public in any way. This guidance is intended only to provide clarity to the public regarding existing requirements under the law or agency policies.
FTA advises recipients to consult the Procurement Standards of the Uniform Administrative Requirements for Federal Awards (2 CFR 200.317-200.327) and FTA’s Circular 4220, Third-Party Contracting Guidance, for further information.
Recipients with questions about the requirements that apply to their federally assisted procurements should contact their respective FTA regional offices.
Q. Can an FTA recipient adjust a federally assisted contract to address price increases?
A. Yes, under certain circumstances, FTA recipients may adjust existing contracts to address price increases. All recipients should take every reasonable measure to control costs and be good stewards of Federal dollars wherever possible. The applicable Federal requirements on adjusting existing contracts are contained in the OMB Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Requirements”, codified at 2 CFR Part 200). In certain circumstances, the OMB Uniform Requirements permit the parties to an existing federally funded contract to modify the contract for several reasons, including price adjustments. When permitted to modify a contract, FTA recipients are responsible, in accordance with good administrative practice and sound business judgment, for the settlement of all contractual and administrative issues arising out of procurements. 2 CFR § 200.318(k).
Whether a particular modification is permissible—and what Federal requirements apply—will depend on a variety of factors, including the terms and conditions of that contract (e.g., change clauses, Producer Price Index adjustment clauses, and Consumer Price Index adjustment clauses); applicable state, local, or tribal procurement law; the terms of a price adjustment; and the scope of the contract modification.
For example, before a recipient modifies a contract, it must perform a cost or price analysis if the modification will exceed the simplified acquisition threshold (currently $250,000). 2 CFR 200.324(a). If a modification will include profit for the vendor, the recipient must negotiate profit as a separate element of the price. 2 CFR 200.324(b).
Related online FTA resources include:
- FTA Circular 4220.1F, Third Party Contracting Guidance
- FTA Circular 5010.1E, Award Management Requirements
- FTA Best Practices Procurement and Lessons Learned Manual
Q. In the event of an increase to a contract price, can a grantee seek additional Federal funding to cover the increase?
A. Yes, FTA formula funding programs and certain other Federal funding may be available to contribute funding to cover an increase in price as a result of a contract modification. Local match requirements of the various programs would apply. For example, FTA’s Urbanized Area Formula Program, State of Good Repair Formula Program, and Rural Area Formula Program, along with the Federal Highway Administration’s flexible funding programs eligible for public transportation projects, such as the Surface Transportation Block Grant and Congestion Mitigation and Air Quality programs, may be available depending on the contract and its eligibility under those respective programs.
The DOT Build America Bureau’s credit assistance from the Transportation Infrastructure Finance and Innovation Act (TIFIA) or Railroad Rehabilitation and Improvement Financing (RRIF) loan programs also may be available to address cost increases associated with contract modifications for large capital projects.
Q. Can an FTA recipient receive FTA reimbursement for an advance payment it makes to a transit vehicle manufacturer for a rolling stock procurement prior to receipt of the vehicles?
A. Yes, if certain conditions apply. Advance payments (sometimes called mobilization payments) are payments made to a contractor, including a transportation vehicle manufacturer, before the contractor incurs contract costs. A recipient may use local funds for advance payments before it receives a grant from FTA. However, if there is no automatic pre-award authority for the procurement, then to maintain eligibility for FTA reimbursement after grant award, the recipient must obtain a letter of no prejudice or other pre-award authority from FTA prior to making an advance payment using local funds.
After FTA grant award, a recipient may use FTA assistance to make advance payments under a bus or railcar rolling stock contract before the contractor has incurred costs under the contract if:
- The recipient can provide sound business reasons for doing so, such as a reduction in the cost of the contract as a result of the advance payment, and has obtained FTA’s advance written concurrence.
- An essential pre-condition to FTA’s concurrence is that the recipient must obtain adequate security from the contractor for the advance payment. For a rolling stock procurement, adequate security typically takes the form of a performance bond or a letter of credit.
Q. Can an FTA recipient receive FTA reimbursement for progress payments it makes to a transit vehicle manufacturer for a rolling stock procurement prior to receipt of the vehicles?
A. Yes. Progress payments (sometimes called milestone payments) are payments made to the contractor prior to completion of all contract work. A recipient may use FTA assistance to make progress payments under bus or railcar procurements, provided that (1) the recipient obtains adequate security for those payments to safeguard against performance difficulties; and (2) has sufficient written documentation to substantiate completion of the work for which progress payments are requested. Adequate security for progress payments for rolling stock typically takes the form of a performance bond or letter of credit. With respect to documentation for rolling stock contracts, tying progress payments to the percentage of completion of the contract is not permissible. Permissible bases for progress payments for rolling stock include completion of discrete activities necessary to the performance of the contract. A recipient should be as specific as possible in its contract when describing the activities or milestones for which progress payments will be made.