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Justifying Sole Source Procurements

Third Party Procurement

Frequently Asked Questions

Q. What justification is needed to support a Sole Source procurement?

A. There are a number of circumstances within which it is recognized that a sole source procurement is necessary and reasonable. The FTA Circular 4220, Ch. VI, section 3.i., lists the acceptable circumstances. The justification needed is simply a memorandum in the contract file explaining the rationale for the procurement falling into one of the listed circumstances. The memo should be signed by someone in authority that can certify to the relevant facts. Other applicable approval signatures should appear on the memo or be attached. If the FTA has authorized the non-competitive procurement, the request for FTA approval and FTA’s response should be together in the contract file.

The Best Practices Procurement Manual (BPPM), Chapter 4, Section 4.6.1, contains a good discussion of the justification for use of non-competitive (sole source) procurements. (Revised: June 2010)

Q. If a service contract is approved for approximately $35,000 and four months later an unanticipated, but related service is required of that contractor that would cost $23,000 per year, can the change be approved by justifying the sole source procurement or are other measures required?

A. FTA Circular 4220, Ch. VI, section 3.i. permits procurement by noncompetitive proposals when circumstances warrant a sole source contract. The Circular gives general guidance concerning the circumstances that would justify a noncompetitive procurement, and also requires a cost analysis of the specific costs and profit proposed by the contractor when a noncompetitive proposal is negotiated. Your agency should process this procurement internally through the proper approving officials, with a written memorandum of the facts justifying a noncompetitive procurement. At the conclusion of the present contract term we would assume the agency would re-compete the contract with both responsibilities (leak-detection and maintenance) in the statement of work. (Revised: June 2010)

Q. We completed Phase I design of a Multimodal Center and released an RFP for Phase II A&E work. Phase II consists of final design of the public spaces, including the interior of the transportation center, as well as program management. The total estimated cost for Phase II A&E work is $100,000. Recently, a private development team agreed to perform the necessary design for the public spaces at no cost in order to construct a project of unified design. We intend to withdraw the Phase II RFP and to negotiate an amendment to our contract with the Phase I designer to include A&E oversight and peer review of the design of the public spaces. Our current Phase I architect would ensure that the design of the public spaces conforms to governmental requirements. Our current project construction consultant would perform program management services for the multimodal center. Is it permissible for us to proceed as intended? The Phase II work was not within the scope of the original competition; therefore, this would probably not be eligible for an amendment. Could Phase II possibly be done as a sole source with the Phase I A&E based on ensuring a unified design and our sound business judgment in saving approximately $80,000 in costs?

A. There are several issues raised by your question, and we lack information to come to a conclusive recommendation but we can offer some guidance that may be helpful.

We agree with you that the Phase I design contract probably cannot be amended as a "change order" since the proposed add-on work was not contemplated within the original contract scope. This would mean the grantee must document its rationale for a sole source modification to the contract (i.e., treat is as "new work") and process the action through the proper grantee management officials to get internal approval as a "sole source" contract award. The grantee has the authority to do this under FTA Circular 4220, Ch. VI, section 3.i., and does not need FTA approval or consent beforehand. If the purpose of the add-on modification is to bring the A/E Phase I firm into the Phase II picture in order to interpret Phase I preliminary designs to the Phase II designers, and/or review the Phase II design work in light of Phase I requirements, then it would seem logical that the Phase I firm would be in a unique position to do this follow-on work as a sole source add on to the first contract.

A deeper concern is the potential for an organizational conflict of interest on the part of the Phase II development team that is proposing to do the Phase II design for free. FTA has been vigilant to avoid situations where design contractors or firms preparing specifications and requirements for follow on competitive bidding are allowed to compete for the follow on work that they are designing or defining. The obvious problems are bias in the design or definition phase work (designing for their corporate interests and competitive advantage instead of the grantee's best interests), and unfair competitive advantage relative to other bidders (where the designers may have unpublished information that would enhance their competitive position in the construction phase bidding). Keep in mind also that the conflict of interest rules prohibit both real and apparent conflicts.

Of course if the construction phase does not involve FTA funds, then the grantee will not need FTA "consent" to the procurement strategy being outlined. However, the conflict of interest concerns will exist regardless of whose funds are being used, and the grantee should avoid the potential problems regardless of funding source.

We would also advise the grantee, that should it decide to proceed with the offer of the developer, to be sure the developer will furnish all the information and data that the grantee would have gotten had it procured the Phase II design with its own contract. It would be unfortunate if the work products delivered to the grantee for a follow on construction solicitation were not adequate to solicit bids. This would basically nullify the intended advantage of obtaining the design for free. (Revised: June 2010)

Q. I have reviewed the "Dear Colleague" letter dated May 29, 2002 rescinding he FTA’s five-year contract term limitation. We currently have a contract that will expire. We have operated it for 3 years. Does the client (transit agency) have the option of negotiating a new contract (3, 5 or plus years) without having to go through the RFP process? They are happy with the service and would prefer to negotiate but are uncertain whether they have this flexibility.

A. FTA's rescission of the approval requirement to award contracts with terms longer than five years does not change the requirements of 49 U.S.C. § 5325(a) and FTA Circular 4220.1F for "full and open competition" or the restrictions on "procurement by noncompetitive proposals (sole source).” While transit agencies are no longer restricted to contract periods not to exceed five-years (without FTA approval), they remain under the requirements to compete their contract awards at appropriate intervals of time. Agencies cannot simply extend services contracts on a non-competitive basis in the absence of one of the circumstances set forth in FTA Circular 4220.1F, Ch. VI, section 3.i. This means that the transit agency will have to process any extension to this contract as a sole source action through the appropriate agency management officials with authority to approve noncompetitive contract awards. (Revised: June 2010)

Q. We've been asked to participate in a pilot program to reduce diesel fuel emissions. Our state agency has selected a piece of equipment to be installed on our locomotives at no cost to us. We would issue a no cost purchase order to the vendor and the state agency would pay for the equipment when invoiced by the vendor. Is there a need for us to justify a sole source procurement or does this qualify as an interagency procurement that does not require such justification? Once installed, we would deal with the vendor for any warranty or performance issues and not the state agency. If the equipment works as it is supposed to, we would retain ownership and have no need to buy any more except to replace one if it fails.

A. Since the equipment is a gift/grant from the State, and there is no Federal money being expended, the FTA procurement requirements do not apply to this transaction. Any future procurements of equipment such as this that use FTA funds can be handled in accordance with the FTA Procurement Circular 4220.1F, by requesting competitive proposals on the basis of a performance specification regarding diesel fuel emissions.(Revised: June 2010)