Third Party Contracting Guidance: Notice of Final Circular, 56896-56918 [E8-22914]

Agencies

• Federal Transit Administration
• DEPARTMENT OF TRANSPORTATION

[Federal Register Volume 73, Number 190 (Tuesday, September 30, 2008)]
[Notices]
[Pages 56896-56918]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-22914]


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DEPARTMENT OF TRANSPORTATION

Federal Transit Administration

[Docket No. FTA-2007-29125]


Third Party Contracting Guidance: Notice of Final Circular

AGENCY: Federal Transit Administration (FTA), DOT.

ACTION: Notice of Availability of Final Circular.

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SUMMARY: The Federal Transit Administration (FTA) has issued FTA 
Circular 4220.1F, ``Third Party Contracting Guidance'' to provide 
comprehensive guidance to grantees and recipients of cooperative 
agreements (recipients) to implement third party contracting 
requirements that apply to FTA assisted procurements.

DATES:  Effective Date: The effective date of this circular is November 
1, 2008.

ADDRESSES: A copy of this circular and comments and material received 
from the public, as well as any documents indicated in the preamble as 
being available in the docket, are part of docket FTA-2007-29125 and 
are available for inspection or copying at the Docket Management 
Facility, U.S. Department of Transportation, 1200 New Jersey Ave., SE., 
West Building Ground Floor, Room W12-140, Washington, DC between 9 a.m. 
and 5 p.m., Monday through Friday, except Federal holidays.
    You may retrieve the circular and comments online through the 
Federal Document Management System (FDMS) at Web site: https://
regulations.gov. Enter the docket number FTA-2007-29125 in the search 
field. The FDMS is available 24 hours each day, 365 days each year. 
Electronic submission and retrieval help and guidelines are available 
under the help section of the Web site.
    This notice does not include the final circular. An electronic 
version of the circular may be found on the docket: https://
regulations.gov, docket number FTA-2007-29125, or on the FTA Web site: 
https://www.fta.dot.gov. Paper copies of the circular may be obtained by 
contacting FTA's Administrative Services Help Desk, at 202-366-4865.

FOR FURTHER INFORMATION CONTACT: James Harper, Director, Office of 
Procurement, Office of Administration, Federal Transit Administration, 
1200 New Jersey Avenue, SE., East Building, Room E42-332, Washington, 
DC 20590, phone: 202-366-1127, fax: 202-366-3808, or e-mail 
James.Harper@dot.gov for issues regarding third party contracting 
procedures and practices; or Kerry L. Miller, Assistant Chief Counsel 
for General Law, Office of Chief Counsel, Federal Transit 
Administration, 1200 New Jersey Avenue, SE., East Building, Room E56-
314, Washington, DC 20590, phone: 202-366-1936, fax: 202-366-3809, or 
e-mail, Kerry.Miller@dot.gov, for legal issues.

Table of Contents

I. Background
II. Overview
III. Chapter-by-Chapter Analysis
    A. Chapter I--Introduction and Role of the Federal Transit 
Administration
    B. Chapter II--Applicability
    C. Chapter III--The Recipient's Responsibilities
    D. Chapter IV--The Recipient's Property and Services Needs and 
Federal Requirements Affecting Those Needs
    E. Chapter V--Sources
    F. Chapter VI--Procedural Guidance for Open Market Procurements
    G. Chapter VII--Protests, Changes and Modifications, Disputes, 
Claims, Litigation, and Settlements
    1. Appendix A--References
    2. Appendix B--FTA Regional and Metropolitan Contact Information
    3. Appendix C--Third Party Contracting Checklists
    4. Appendix D--Matrices of Third Party Contract Provisions

I. Background

    This notice provides a summary of FTA's Third Party Contracting 
Guidance final circular, and addresses comments received in response to 
the FTA's September 28, 2007, Federal Register notice (72 FR 55630). 
FTA's most recent enabling legislation, the Safe, Accountable, 
Flexible, Efficient Transportation Equity Act: A Legacy for Users 
(SAFETEA-LU), Public Law 109-59, August 10, 2005, as amended by the 
SAFETEA-LU Technical Corrections Act, 2008, Public Law 110-244, June 6, 
2008, added new third party contracting requirements for FTA 
recipients. Other Federal laws and regulations have also amended 
certain Federal requirements or added new Federal requirements 
affecting third party procurements

[[Page 56897]]

undertaken by FTA recipients. To address these changes, FTA is re-
issuing FTA Circular 4220.1E, issued June 19, 2003, and last amended in 
February of 2004.
    FTA published proposed FTA Circular 4220.1F in the Federal Document 
Management System (FDMS) at Web site: https://regulations.gov, and in 
the FTA Web site: https://www.fta.dot.gov. FTA published a notice of 
availability in the Federal Register (72 FR 55630) on September 28, 
2007, seeking public comment on the proposed circular. FTA established 
a November 27, 2007, deadline for comments, but extended the comment 
period to February 15, 2008, as announced in the Federal Register on 
October 31, 2007 (72 FR 61708).
    Ten commenters responded to FTA's request for comments in response 
to that notice and the proposed circular. Commenters included four 
State departments of transportation, four regional transportation 
authorities, one trade association, and one private for-profit firm.
    This notice does not include the final circular. An electronic 
version of the circular may be found on the docket: https://
regulations.gov, docket number FTA-2007-29125, or on the FTA Web site: 
https://www.fta.dot.gov. Paper copies of the circular may be obtained by 
contacting FTA's Administrative Services Help Desk, at 202-366-4865.

II. Overview of the Circular

    We recognize that this edition ``F'' of FTA Circular 4220.1 is 
substantially different from the previous FTA Circular 4220.1E, ``Third 
Party Contracting Requirements,'' 06-19-03. The final FTA Circular 
4220.1F (the final circular) does contain much more information and 
guidance than was available in the previous circular, which focused 
mostly on Federal requirements. In part, this results from the SAFETEA-
LU amendment to 49 U.S.C. Section 5334 adding a new subsection ``(l)'' 
requiring FTA to publish for notice and comment any ``guidance document 
* * * that * * * imposes obligations, produces significant effects on 
private interests, or effects a significant change in existing 
policy.'' The final circular now describes many procedures and 
processes that will assist the recipient in complying with the many 
Federal statutory and regulatory requirements that can affect third 
party procurements.
    Many commenters expressed the following views about the format and 
contents of the proposed circular as a whole:

1. Too Much Information and Complexity

    Several commenters objected to the length and complexity of the 
proposed circular, expressing a preference for the ``tight structure 
and focused approach'' of the previous circular. We understand that a 
streamlined list of requirements can be desirable. Because we are 
required by law to present all matters that may have a significant 
effect on private interests for public comment, we have included as 
many subjects as possible that might directly or indirectly affect a 
specific FTA assisted procurement. FTA assisted procurements are 
subjected not only to many Federal procedural requirements, but also to 
many Federal requirements about the nature of property and services 
that may be acquired and the prospective contractors that might seek to 
provide them. FTA lacks authority to issue blanket waivers to those 
Federal requirements.
    The circular's purpose is to provide guidance on how a recipient 
might comply with the many requirements affecting its procurements that 
accompany the use of Federal assistance awarded by FTA. If the 
recipient is prepared to forgo the use of FTA assistance to support a 
procurement, then the circular's guidance will not apply to that 
procurement. Nevertheless, we have attempted to reduce the circular's 
complexity and make it more user-friendly by consolidating related 
information in seven separate chapters. Chapter I describes the context 
in which the guidance takes place and FTA's role in third party 
contracting. Chapter II designates to whom and to what the circular 
applies. Chapter III outlines the recipient's general procurement 
responsibilities. Chapter IV describes the various Federal requirements 
that may affect the eligibility of prospective contractors to 
participate, the property and services to be acquired, the limitations 
imposed on the use of the property or services acquired, as well as the 
acquisition procedures to be used. Chapter V lists the various sources 
from which the recipient might acquire property and services. Chapter 
VI describes the procedural requirements that apply to the various 
procurement methods. Chapter VII closes by providing guidance on 
resolving contract difficulties that might emerge. Appendix A lists the 
various laws, regulations, executive orders, and directives referenced 
in the circular. Appendix B provides an updated list of FTA regional 
and metropolitan offices with contact information. A new Appendix C 
adds checklists to remind the recipient of the many Federal 
requirements that might apply to its procurement, with references to 
the various sections, subsections, paragraphs, and subparagraphs of 
Chapters II through VI. A new Appendix D adds clause matrices. After a 
recipient gains a clear understanding of the meaning of the terms used 
in the circular, what FTA may do, and the types of acquisitions covered 
by the circular, the recipient can use the later chapters of the 
circular as reminders of the many Federal requirements that affect 
various acquisitions, alternatives to the open market that may provide 
the property and services that are sought, and the different procedures 
to be used for the various methods of procurement.
    Specifically, we are concerned that the recipient remains aware of 
the many Federal requirements that could affect the contractor that may 
be selected and the nature of what is being required. If concentration 
is focused mainly on acquisition procedures, it can be easy to lose 
sight of other Federal requirements that may prove difficult or 
expensive to administer if considered too late. While these matters 
were briefly noted in former FTA third party contracting circulars, 
mostly by reference to the Master Agreement, we disagree that they are 
beyond the scope of a third party contracting procurement circular. For 
example, a prospective contractor should be aware of the implications 
of entering into contracts financed with FTA assistance, such as 
complying with our Buy America and Charter Service regulations, 
government-wide environmental protections, among others, before 
submitting a bid or proposal in response to a recipient's solicitation. 
Also, the recipient may wish to consider the various sources from which 
the property or services it seeks may be obtained.
    One commenter complained that the proposed circular would no longer 
be useful as a training document because it is too complex. We 
disagree. We believe the final circular with its focus on consolidating 
topics, providing more guidance and information, coupled with 
checklists of requirements that might be overlooked if contract awards 
need to be expedited, will far better serve the individuals to be 
trained.
    One commenter asked for review aids such as worksheets, clause and 
certifications matrices, and model clauses. We agree that these aids 
could be helpful, and have included a new Appendix C with checklists 
including references to specific parts of the circular. FTA has also 
prepared a new Appendix D with matrices identifying

[[Page 56898]]

the various clauses and contract provisions that might be required. For 
examples of model clauses, we refer you to the FTA's Best Practices 
Procurement Manual (BPPM), which we are planning to update in the near 
future. We caution, however, that while these checklists and matrices 
will be current on the day the final circular is issued, later enacted 
Federal laws and regulations may not be reflected in timely amendments 
to the circular. FTA will attempt to update the circular as necessary, 
but recommends that the recipient check the Master Agreement and the 
FTA Web site for information about any new Federal requirements.

2. Separate Requirements From Guidance

    One commenter asked whether the circular only provides guidance to 
FTA recipients or whether it intends to provide mandatory directions or 
requirements when financing third party contracts with Federal 
assistance. Several other commenters requested us to clearly identify 
distinctions between Federal requirements and guidance or 
recommendations or separate Federal third party procurement 
requirements from guidance.
    FTA considers this circular to be FTA's official guidance for 
implementing Federal requirements. This guidance consists of FTA's 
recommendations for achieving compliance with the various Federal 
requirements that might apply to a recipient or its procurement. The 
actual Federal requirements are contained in the provisions of Federal 
statutes or in promulgated Federal regulations, and in many cases 
impose binding requirements on participants in FTA assisted 
procurements. Appendix A contains a list of many of those laws and 
regulations applicable to FTA assisted procurements. Executive Orders, 
directives, and similar publications are binding on the Executive 
Branch of the U.S. Government, which must implement them. While the 
Executive Orders and other directives to Federal agencies do not apply 
directly to parties or individuals outside the Federal Government, some 
provisions of those Orders or directives require the cooperation of 
parties that are not part of the Executive Branch of the U.S. 
Government. Consequently, FTA must gain the consent of the relevant 
parties to ensure compliance with the Executive Orders and Federal 
directives. FTA does this through the provisions of its Master 
Agreement incorporated by reference in each FTA grant agreement and FTA 
cooperative agreement. To determine what is required of the various 
participants in an FTA assisted project, we suggest that you review 
those documents.
    Because this circular consists of a broad range of guidance to FTA 
recipients, some of that guidance will simply re-state a Federal law or 
regulation, while other guidance will provide one or more methods of 
complying with an underlying Federal law or regulation, focusing on the 
terms of the FTA law or regulation to clarify what is needed for 
compliance. Doing so will result in ``blurring of lines between legal 
and regulatory requirements, guidance, and commentary,'' as noted by 
one commenter. Throughout the final circular, however, FTA has 
attempted to identify those provisions that constitute Federal 
statutory or regulatory requirements. Information not designated as a 
Federal statutory or regulatory requirement in nearly all cases will be 
compliance guidance.
    FTA is willing to give serious consideration to alternative ways a 
recipient may comply with the Federal laws and regulations that apply 
to FTA programs. In some situations, FTA is familiar with only one 
method of achieving compliance, and then only that method is listed in 
the final circular. Other situations lend themselves to various methods 
of compliance. In summary, an FTA recipient should review the Federal 
laws and regulations cited in connection with each subject of concern 
to learn what requirements apply to it and to other participants in its 
project. To determine what is required of FTA that might affect third 
party procurement, the recipient may also review any Executive orders 
and other Federal directives referred to in connection with each 
subject of concern as well as the relevant Federal laws and 
regulations. FTA's BPPM, while not official FTA guidance, includes more 
extensive examples of procedures, processes, or ways in which 
compliance with specific Federal requirements might be achieved.
    A recipient seeking methods of complying with a Federal requirement 
other than those described in the final circular or in the BPPM should 
contact FTA employees and officials in its region, particularly because 
FTA is not authorized to provide Federal assistance for third party 
procurements that do not comply with Federal requirements. While many 
recipient actions do not expressly require approval under Federal law 
or regulation, if FTA finds that a third party procurement fails to 
comply with Federal requirements, then FTA may need to withdraw 
funding, obtain a refund, or offset future Federal assistance that 
would have been provided to the recipient. In summary, the recipient is 
ultimately responsible for compliance with Federal requirements. If the 
recipient chooses to take an action that is later determined to violate 
Federal law or regulations, then it can expect that the Federal 
Government will take remedial action.

3. Links to Relevant Documents Needed

    One commenter requested us to add links to essential documents 
referenced in the proposed circular. We are unable to do so at this 
time, although we have included on-line addresses of certain resources 
that may be difficult to find. Be aware, however, that these addresses 
may change as Web sites change.
    In summary, we recognize that implementing FTA's third party 
contracting guidance can be complicated, and that many disparate 
Federal requirements will apply. We expect to continue to learn from 
your experience in administering the many Federal requirements that 
apply to third party contracting. We will be monitoring the usefulness 
of this guidance, and we continue to be open to comments and 
suggestions. We value input from our recipients and others, and we urge 
you to communicate with FTA staff at our headquarters and regional 
offices regarding questions and concerns you may have and successes you 
experience.

4. Notification of Changes to the Final Circular

    One commenter recommended that FTA provide notice and comment about 
all amendments or updates to the final circular, even if FTA later 
amends or updates the final circular because of revisions to other FTA 
or other Federal regulations or guidance that has undergone notice and 
comment.
    FTA disagrees. When the revision of a circular or regulation 
requires the Federal Government to provide an opportunity for notice 
and comment, there is no need to satisfy that requirement again just to 
update a reference to that revised document. FTA is required by 49 
U.S.C. 5334(l) to provide notice and comment and otherwise follow 
applicable Federal rulemaking procedures about any change that ``grants 
rights, imposes obligations, produces significant effects on private 
interests, or effects a significant change in existing policy.'' FTA, 
however, need not provide notice and comment when making minor 
technical corrections, such as updating legal citations and ensuring 
conformity of its circulars with the latest Federal regulations or 
guidance that has

[[Page 56899]]

undergone notice and comment. FTA will notify the public of those 
changes as they occur.
    FTA will also post updates on its Web site: https://www.fta.dot.gov. 
The recipient should register for notifications when FTA issues Federal 
Register notices or new guidance. To register for notifications, go to 
the FTA public Web site: https://www.fta.dot.gov. In the middle of the 
page will be a box with the following message:

Sign up for e-mail updates
The Federal Transit Administration now offers e-mail updates on various 
topics including Federal Register notices, SAFETEA-LU and others.
Please click on the link above to begin the sign-up process.

5. Editorial Comments

    A few commenters recommended brief descriptions of citations, and 
noted editorial discrepancies and typographical errors. We agree with 
most of their recommendations and have made appropriate changes in the 
final circular.

III. Chapter-by-Chapter Analysis

    This section briefly describes the contents of each chapter of the 
final circular and addresses public comments received in response to 
its September 28, 2007, and October 31, 2007, notices.

A. Chapter I--Introduction and Background

    Chapter I is an introductory chapter with general information about 
FTA and how to contact us. It also provides a brief review of FTA's 
authorizing legislation, along with information about Grants.gov. It 
includes definitions applicable to third party contracting, and 
describes FTA's role in third party procurements. While contact 
information about FTA officials is identified in the various chapters 
of the final circular, if you have a question and an FTA official is 
not identified as a contact source, you should contact the Regional 
Administrator for the region in which the project is administered or 
the Associate Administrator for the Program under which a headquarters 
project is administered.
Sections 1 Through 4--Description of FTA, Its Authorizing Legislation, 
Contact Information, and General Background
    We have edited the first four sections of Chapter I, but they 
otherwise remain substantially similar to those of the proposed 
circular provided in connection with FTA's September 27, 2007, Federal 
Register notice.
Section 5--Definitions
    The fifth section of Chapter I contains definitions of various 
terms used in the final circular. Several commenters submitted 
recommendations, including requests for changes in some of the proposed 
definitions and requests for additional definitions.
    From FTA Circular 4220.1E, we have retained the definitions of 
``Best Value,'' ``FTA,'' ``State,'' and ``Third Party Contract,'' 
modified to accommodate comments we received.
    From the ``Definitions'' subsection of the proposed circular, we 
have retained definitions of ``Approval, Authorization, Concurrence, 
Waiver,'' ``Common Grant Rules,'' ``Cooperative Agreement,'' ``Design-
Bid-Build Project,'' ``Design-Build Project,'' ``Grant,'' ``Master 
Agreement,'' ``Non-Governmental Recipient,'' ``Electronic Commerce (E-
Commerce),'' ``Property,'' ``Recipient,'' and ``Revenue Contract,'' 
modified to accommodate comments we received. We have separated the 
definitions of ``State,'' ``Local Government'' and ``Indian Tribal 
Government'' from the definition of ``Governmental Recipient'' without 
changing the meaning of those terms.
    We have also added definitions of ``Cardinal Change,'' ``Change 
Order,'' ``Constructive Change,'' ``Force Account,'' ``Full and Open 
Competition,'' ``Joint Procurement,'' ``Project Labor Agreement 
(PLA),'' ``Public Transportation,'' ``State or Local Government 
Purchasing Schedule or Purchasing Contract,'' ``Unsolicited Proposal,'' 
and ``Value Engineering,'' to preclude misunderstanding of those 
subjects as they are discussed in the final circular.
    As stated in the preamble to the proposed circular, we have 
substituted a definition of ``Recipient'' for the definition of 
``Grantee'' to encompass both recipients of Federal grants and 
recipients of cooperative agreements. We transferred the term 
``Piggybacking'' included in previous FTA Circular 4220.1E from the 
Definitions section of Chapter I to the Chapter V discussion of 
``Assignment of Contract Rights.'' We also transferred the term ``tag-
on'' included in previous FTA Circular 4220.1E from the Definitions 
section of Chapter I to the Chapter V discussion of ``Cardinal 
Changes.''
Subsection 5.a--Approval, Authorization, Concurrence, Waiver
    In the definition of ``Approval, Authorization, Concurrence, 
Waiver,'' appearing for the first time in the proposed circular, one 
commenter objected to the term ``conscious written statement,'' and 
recommended that it be replaced with ``written sanction * * * by.'' FTA 
disagrees with this recommendation because not every ``approval, 
authorization, concurrence, [or] waiver'' constitutes a sanction. We 
have, however, replaced the word ``conscious'' with ``deliberate.''
Subsection 5.b--Best Value
    Commenters submitted four recommendations for revisions to the 
definition of ``Best Value.'' We have accepted those recommendations 
and have redrafted the definition to emphasize that best value is one 
type of competitive, negotiated procurement process with award 
determined on the basis of other factors important to the recipient in 
addition to cost or price factors. In this subsection, we have replaced 
terms used in connection with sealed bid procurements, which implicitly 
require award to the low bidder, with terms suitable for negotiated 
procurements. We have also included a statement that the evaluation 
factors for a specific procurement should reflect the subject matter 
and the elements that are most important to the recipient, and a 
clarification that our list of evaluation factors appearing in the 
proposed circular are not an exhaustive list of acceptable evaluation 
factors.
Subsection 5.c--Cardinal Change
    One commenter sought clarification of terms pertaining to 
``changes.'' To remedy misunderstandings, we have added a definition of 
``Cardinal Change.''
Subsection 5.d--Change Order
    To remedy misunderstandings, we have also added a definition of 
``Change Order.''
Subsection 5.f--Constructive Change
    We have also revised the definition of ``Constructive Change'' in 
view of the same request for clarification.
Subsection 5.h--Design-Bid-Build Project
    Another commenter requested that we remove the term ``at risk'' in 
the definition of ``Design-Bid-Build Project'' when referring to 
contracting for the construction portion of the project. We agree, and 
have made that change.
Subsection 5.i--Design-Build Project
    The same commenter also requested us to broaden the definition of 
``Design-Build Project'' to include projects other than transportation 
systems or operable segments. We agree, and have made the change.

[[Page 56900]]

Subsection 5.k--Force Account
    One commenter's statements about our involvement in a recipient's 
decision to use its workforce to perform project work prompted us to 
add a definition of ``Force Account.''
Subsection 5.m--Full and Open Competition
    One commenter's statements prompted us to add a definition of 
``Full and Open Competition.''
Subsection 5.p--Indian Tribal Government
    We separated the definition of ``Indian Tribal Government'' from 
the definition of ``Governmental Recipient.''
Subsection 5.q--Joint Procurement
    We have added a definition of ``Joint Procurement'' to 
differentiate it from ``State or Local Purchasing Schedule or 
Purchasing Contract.''
Subsection 5.r--Local Government
    We separated the definition of ``Local Government'' from the 
definition of ``Governmental Recipient.''
Subsection 5.s--Master Agreement
    One commenter recommended that we change the definition of ``Master 
Agreement'' to conform to our explanation in the FTA Master Agreement. 
We agree, and have made that change.
Subsection 5.t--Non-Governmental Recipient
    One recipient noted that the definition of ``non-governmental 
recipient'' excludes private businesses except at FTA's discretion, but 
does not add a definition of private business. We have used the term 
``non-governmental recipient'' to mean ``recipient'' as defined in 
Department of Transportation (DOT) regulations, ``Uniform 
Administrative Requirements for Grants and Agreements with Institutions 
of Higher Education, Hospitals, and Other Non-Profit Organizations,'' 
49 CFR Part 19. That definition includes the term ``commercial 
organizations,'' which we interpret to mean ``private businesses.'' 
Thus we have not defined ``private business'' for purposes of the final 
circular. FTA intends to inform recipients that it will reserve the 
right to apply the provisions of 49 CFR Part 19 to all recipients not 
covered by 49 CFR Part 18. As provided in those regulations, the 
Federal Acquisition Regulation (FAR) cost principles applicable to for-
profit organizations will apply to commercial organizations.
Subsection 5.u--Project Labor Agreement (PLA)
    We have added a definition of ``Project Labor Agreement'' 
consistent with the General Services Administration's (GSA) definition 
of that term.
Subsection 5.v--Property
    We have amended our definition of ``Property'' to replace ``real 
property'' with ``land and buildings, structures, or appurtenances on 
land.''
Subsection 5.w--Public Transportation
    We have added a definition of ``Public Transportation'' in view of 
the amendment to the SAFETEA-LU Technical Corrections Act, which 
expressly restores the exclusion of ``sightseeing service'' from the 
definition of ``public transportation'' for purposes of 49 U.S.C. 
Chapter 53.
Subsection 5.x--Recipient
    Another commenter requested us to include an explanation in our 
definition of ``Recipient'' that a ``Recipient'' does not include a 
third party contractor or third party subcontractor. We agree, and have 
made the addition requested.
Subsection 5.y--Revenue Contract
    One commenter requested us to reconcile the meanings of ``Revenue 
Contract'' as used throughout the proposed circular. We agree, and have 
revised the definition for consistency with the meaning of the term as 
used in Chapter II, subparagraph 2.b(4).
Subsection 5.aa--State or Local Government Purchasing Schedule or 
Purchasing Contract
    We have added a definition of ``State or Local Government 
Purchasing Schedule or Purchasing Contract'' to differentiate it from 
``Joint Procurement.''
Subsection 5.bb--Third Party Contract
    One commenter requested that the definition of ``Third Party 
Contract'' be amended specifically to include purchase orders and 
credit card purchases. We agree, and have made the change.
Subsection 5.cc--Unsolicited Proposal
    We have added a definition of ``Unsolicited Proposal'' consistent 
with FAR standards.
Subsection 5.dd--Value Engineering
    One commenter's statements prompted us to add a definition of 
``Value Engineering.''
Section 6--FTA's Role
    The sixth section discusses FTA's role and responsibilities with 
regard to third party procurements. The subsections hereunder 
addressing third party contract reviews, procurement system reviews, 
and training and technical assistance continue to be substantially 
similar to those of FTA Circular 4220.1E.
Subsection 6.a--Reliance on the Recipient's Self-Certification
    For consistency with the Common Grant Rules, the final circular 
retains the proposed circular's discussion of self-certification. 
Specifically, the DOT's Common Grant Rule for governmental recipients, 
49 CFR Part 18, permits governmental recipients to request self-
certification, but does not require them to do so, nor does that Common 
Grant Rule permit FTA to require self-certification. The DOT's Common 
Grant Rule for non-governmental recipients, 49 CFR Part 19, has no 
provisions addressing self-certification.
Subsection 6.f--Master Agreement
    Two commenters requested changes to our discussions of FTA's Master 
Agreement. In this subsection, we are not merely defining the Master 
Agreement, but are providing more information about it and how it can 
best be used.
Subsection 6.g--``Best Practices Procurement Manual (BPPM)''
    One recipient asked us to clarify the purpose of the BPPM. We have 
revised this subsection that describes the BPPM to emphasize that the 
BPPM is not official FTA guidance applicable to the recipient, but 
instead is a compilation of suggested procedures, methods, and examples 
the recipient may use as it sees fit. Another commenter requested us to 
update the BPPM so that it will be a reliable resource. We are planning 
to update the BPPM, but are uncertain whether we will be able to 
maintain it so that it will always reflect accurate recommendations.
Subsection 6.h--Third Party Contracting Helpline
    We have included a better Web address for FTA's Third Party 
Contracting Helpline.
Subsection 6.i--``Frequently Asked Questions''
    We have included a reference to the FTA Web site for ``Frequently 
Asked Questions'' about third party contracting.

[[Page 56901]]

B. Chapter II--Applicability

    We have restructured Chapter II to consolidate provisions 
pertaining to the various categories of recipients and their projects. 
We expanded the chapter to include additional paragraphs to respond to 
unanticipated comments to the proposed circular. As a result, we have 
transferred some provisions of the proposed circular to this chapter.
    Much of this chapter retains provisions substantially similar to 
their counterpart provisions within FTA Circular 4220.1E or its 
footnotes, with important exceptions discussed below:
Section 1--Legal Effect of the Circular
    After reading many of those comments, we have become aware that 
many of our recipients misunderstand the legal implications of FTA's 
circulars. As a result, we included a new section at the beginning of 
Chapter II to explain that the final circular, although official FTA 
guidance, is not a Federal mandate comparable to a Federal law or 
regulation.
Section 2--Applicability of the Circular
Subsection 2.a--Participants in FTA Assisted Procurements
Paragraph 2.a(1)--Recipients of FTA Grants and Cooperative Agreements
Subparagraph 2.a(1)(a)--States
    As stated in the preamble to proposed FTA Circular 4220.1F, the 
previous FTA Circular 4220.1E inadvertently misstated FTA's long-
standing practice in administering its State managed programs when it 
took the position that only States and State instrumentalities could 
use State procedures when undertaking procurements financed with FTA's 
funding for State managed programs. We have retained the new language 
of the proposed circular, which correctly states OMB's decision that 
FTA governmental subrecipients of States may use State procurement 
procedures, but non-governmental recipients of States must use the 
procurement procedures of the Common Grant Rule for non-governmental 
recipients.
Paragraph 2.a(3)--Recipients of Both Federal Assistance Awarded by FTA 
and Funds Provided by Another Federal Agency
    While there is a general understanding that FTA requirements apply 
to FTA assisted procurements, one commenter asked what Federal 
requirements would apply if another Federal agency were also providing 
funding for the project. Our response is that the requirements of each 
agency's laws and regulations would apply to the project, and the 
recipient would need to take actions that would meet the requirements 
of all participating agencies.
Paragraph 2.a(5)--Third Party Contractors and Subcontractors
Subparagraph 2.a(5)(b)--Effect of Federal Requirements
    One commenter appears to question whether federally required 
contract clauses must flow down to third party contractors and 
subcontractors because the circular does not apply directly to them. We 
have included a new paragraph addressing the status of third party 
contractors and subcontractors and have informed recipients that some 
Federal laws and regulations will, in effect, require the compliance of 
their third party contractors and subcontractors as well as the 
recipient. In those cases, the recipient must include adequate 
provisions in their solicitation documents and third party contracts.
Subsection 2.b--Third Party Contracts
Paragraph 2.b(1)--Capital Contracts
Subparagraph 2.b(1)(b)--Art
    One commenter asked us to update the procurement requirements in 
FTA Circular 9400.1A, ``Federal Transit Administration Design and Art 
in Transit Projects,'' dated 06-09-95. FTA intends to do so after the 
end of Fiscal Year 2008.
Subparagraph 2.b(1)(c)--Over-the-Road Bus Accessibility Program
    One commenter asked whether the exemption from the proposed 
circular's provisions applies only to FTA's Over-the-Road Bus 
Accessibility Program or whether all over-the-road bus procurements are 
also exempted. We have revised the proposed circular to clarify that 
the exemption applies only to the Over-the-Road-Bus Accessibility 
Program and does not include over-the-road buses acquired through other 
FTA programs.
Subparagraph 2.b(1)(d)--Real Property
    Four commenters pointed out apparent inconsistencies pertaining to 
the application of the proposed circular to real property. While we 
have left the definition of ``Property'' to include ``real property,'' 
we agree that clarifications are needed and have revised the paragraph 
pertaining to real property to emphasize that the final circular does 
not apply to the purchase of land and existing facilities, but does 
apply to construction of new buildings and facilities on the land 
acquired for the project, and applies to alterations or repairs to 
buildings and facilities on the land when it was acquired or made 
available for project use.
Paragraph 2.b(2)--Operations Contracts
Subparagraph 2.b(2)(b)--Operations Contracts Financed Entirely Without 
FTA Assistance
    As stated in the notice of availability of proposed FTA Circular 
4220.1F, FTA has been considering whether and to what the extent its 
third party contracting provisions should apply to an FTA recipient's 
acquisitions financed entirely without FTA assistance.
    For many years, FTA has taken the position that ``one dollar taints 
all,'' a policy in which FTA required a recipient to apply FTA 
requirements to all its other operations contracts, including those 
contracts financed entirely without Federal assistance, if the 
recipient uses any part of its FTA formula assistance to support any 
operation contract. Because recipients in large urbanized areas have 
not been authorized to use Urbanized Area Formula assistance for 
operations, operations contracts they can demonstrate were financed 
entirely without FTA assistance have not been required to comply with 
FTA requirements. In contrast, recipients in smaller urbanized areas 
currently must apply FTA requirements to all their operations 
procurements, whether or not they are financed with FTA assistance, if 
they use any of their Urbanized Area Formula assistance or Nonurbanized 
Area Formula assistance to support even one operations contract.
    FTA did make exceptions for Congestion Mitigation and Air Quality 
(CMAQ) and Job Access/Reverse Commute (JARC) assistance used for 
operations, determining that if a recipient could demonstrate which 
operations contracts CMAQ or JARC assistance supported, then the 
recipient's other entirely privately financed operations contracts need 
not comply with FTA requirements. Now that SAFETEA-LU changed the JARC 
program from a discretionary program to a formula program, FTA must 
determine whether to impose its procurement requirements on a 
recipient's operations contracts not financed with Federal assistance 
if the recipient uses its formula JARC funds for operations.
    FTA also provided an exception for recipients in large urbanized 
areas to exempt all their operations contracts from FTA requirements 
provided they are able to trace their use of preventive maintenance 
funding to specific contracts. If, however, they are unable to

[[Page 56902]]

do so, and use FTA assistance for general support of preventive 
maintenance contracts, then FTA requirements will apply to all their 
operations contracts.
    At the same time, FTA has been reviewing its policies pertaining to 
its recipients' use of other FTA assistance that finances operations 
contracts in connection with other project activities. Among other 
programs in which FTA supports the costs of project-related operations 
are the New Freedom Program, 49 U.S.C. 5317, the Elderly Individuals 
and Individuals with Disabilities Program, 49 U.S.C. 5310, the Elderly 
Individuals and Individuals with Disabilities Pilot Program, 49 U.S.C. 
5310 note, and the National Research Program, 49 U.S.C. 5312(a), all of 
which involve some recipients or subrecipients that receive only a 
small portion of their financial expenses from FTA.
    FTA expressly sought comments about the extent to which FTA 
requirements should be applied to a recipient or subrecipient's 
operations contracts financed entirely without Federal assistance. FTA 
also sought comments on the extent of agency operating expenses that 
are not related to public transportation but must comply with FTA 
procurement requirements under the concept that one dollar of FTA 
operating assistance brings an agency's entire operating budget under 
the FTA requirements. Specifically, FTA requested comments on the 
rationale for excluding other operating contracts from the 
applicability of FTA requirements. Those that commented overwhelmingly 
urged FTA to exempt all acquisition financed without any Federal 
assistance from Federal requirements. Most commenters believe imposing 
Federal requirements on acquisitions not financed with Federal 
assistance to be overbroad, if not unauthorized.
    FTA also asked for examples of how operating expenses could be 
tracked and managed so that FTA assisted expenses could be segregated 
from other operating costs. One commenter explained that many 
accounting and bookkeeping systems are generally capable of identifying 
cost allocations sufficiently thoroughly so that the funding sources of 
each contract can be readily identified. Because a variety of 
accounting systems can identify funding sources, the commenter asked 
FTA not to impose a uniform accounting system that might be expensive 
to implement. The commenter also pointed out that FTA could monitor 
that process by asking recipients to state whether or not they are 
segregating federally assisted acquisitions, including operations 
acquisitions, from acquisitions financed entirely without FTA 
assistance, and then ask those recipients that are segregating their 
acquisitions to describe the methods by which they are tracking sources 
of funding. FTA could reserve the right to disallow the practice if the 
recipient's recordkeeping methods are deficient. States could monitor 
those practices for compliance by their recipients that qualify to use 
State procedures.
    In considering its proposal to remove FTA's procurement 
requirements from operations contracts financed with FTA formula 
assistance, FTA is aware that doing so might diminish contracting 
opportunities for some disadvantaged business enterprises (DBE). To 
preclude that result, FTA has emphasized its position that a recipient 
required by DOT regulations, ``Participation by Disadvantaged Business 
Enterprises in Department of Transportation Financial Assistance 
Programs,'' 49 CFR Part 26, to have a DBE program may not structure its 
operations expenditures (or other expenditures) in a manner that 
removes an unreasonable proportion of contracts that could have been 
performed by DBEs from its DBE program. Accordingly, we expressly 
sought comments estimating the impacts on DBE participation that might 
accompany FTA's proposed policy change that would permit all recipients 
to separate their FTA assisted operations contracts from their other 
operations contracts receiving no FTA assistance. However, we did not 
receive any comments directly addressing prospective adverse impacts on 
DBE participation that might result from that change.
    One commenter advised that applying DBE requirements broadly to all 
procurements might well invalidate the entire DBE program. FTA does not 
intend to require each FTA assisted procurement to be included in a 
recipient's DBE program. Nevertheless, a recipient that enters into a 
third party contracts for operations or planning must comply with the 
requirements of the DBE regulations. Therefore, FTA maintains that a 
recipient required to have a DBE program may not structure its 
operations expenditures (or other expenditures) in a way so that an 
unreasonable proportion of contracts that could be performed by DBEs 
are removed from its DBE program.
    After considering the comments we received, FTA has determined not 
to require any FTA recipient to apply FTA statutory and regulatory 
requirements to acquisitions that the recipient can demonstrate 
conclusively it has been financed entirely without FTA assistance. In 
exempting the recipient from FTA requirements that have in the past 
affected its procurements, however, we caution the recipient that FTA 
cannot exempt a recipient from other Federal requirements that may 
apply irrespective of whether or not the acquisition were financed with 
Federal assistance. An example would be Federal requirements for 
accessibility for individuals with disabilities that would apply to a 
recipient irrespective of whether or not Federal assistance were made 
available for an activity undertaken by the recipient. FTA assisted 
procurements, however, must comply with all applicable Federal 
requirements.
Paragraph 2.b(3)--Preventive Maintenance Contracts
    In the paragraph pertaining to the application of FTA requirements 
to preventive maintenance contracts, one commenter asked us to identify 
``discrete.'' Rather than defining ``discrete,'' we have substituted 
the term ``separate and distinct'' in the final circular.
Paragraph 2.b(4)--Revenue Contracts
    One commenter objected to an FTA requirement that revenue contracts 
be awarded ``utilizing competitive procedures and principles,'' asking 
instead that we reinstate the distinction between situations that offer 
unrestricted access to similar users and situations that can provide 
only limited access to similar users. We agree, and have made that 
change in the final circular.
Paragraph 2.b(6)--Public-Private Partnerships
    One commenter asked us to describe or define the contract delivery 
arrangements or project delivery systems listed in the proposed 
circular in connection with public-private partnerships (PPPs). Because 
we did not want to duplicate information previously published, we have 
included a reference to the FTA ``Notice of establishment of Public-
Private Partnership Pilot Program; solicitation of applications,'' 72 
FR 2583-2591, January 19, 2007, which includes a description of the 
various contract delivery arrangements or project delivery systems in 
the context of PPPs.
    One commenter proposed that we designate as PPPs only those 
partnerships that include both project delivery and operations. FTA 
disagrees. Structured in multiple forms, PPPs can vary greatly 
according to the scope of responsibility and degree of risk

[[Page 56903]]

assumed by the private partner for project activities. The same 
commenter pointed out that design-build (with or without a warranty) 
and construction manager at risk are variations on the design-bid-build 
method of project delivery. We agree that design-build (with or without 
a warranty) and construction manager at risk are project delivery 
systems but consider that projects with those attributes can constitute 
a PPP because the private partner or partners undertake the recipient's 
function of selecting the construction firm, and assume the risk of 
delivering the entire project.
    In all eight categories of PPPs we have identified, the private 
partner undertakes in part the duties usually performed by the 
recipient and assumes some of the recipient's financial risk. Moreover, 
FTA's ``Notice of establishment of Public-Private Partnership Pilot 
Program; solicitation of applications,'' 72 FR 2583-2591, January 19, 
2007, expressly acknowledges all eight types of PPPs listed in the 
proposed circular.
    Two commenters objected to our discussion of PPPs and joint 
development as too intrusive. One commenter complained that having to 
craft individual arrangements with FTA for each project would be unduly 
time-consuming, recommending that FTA establish objective principles 
for our participation in those projects. We agree that objective FTA 
principles for PPP participation would be helpful. As a result of our 
experience with joint development projects, we have excerpted parts of 
our ``Notice of Final Agency Guidance on the Eligibility of Joint 
Development Improvements under Federal Transit Law,'' 72 FR 5788, 
February 7, 2007, which contains third party contracting guidance we 
have found useful. As we gain more experience with joint development 
projects and other PPPs, we will issue further guidance as appropriate.
Paragraph 2.b(7)--Transactions Involving Complex Financial Arrangements
    Two commenters offered recommendations about the role of an 
``arranger'' or facilitator in complicated financial transactions 
involving FTA assisted property. One commenter pointed out that the 
arranger is usually paid with the proceeds of the transaction resulting 
from the use of FTA assisted property, and indicated that the arranger 
should be selected using competitive procedures. Because FTA is not 
sure that arrangers are always paid in part with FTA assistance or the 
proceeds derived from the use of FTA assisted property, we have not 
imposed that mandate. However, when an arranger is compensated with 
proceeds derived from the use of FTA assisted property, we have stated 
our expectation that the recipient would use competitive procedures to 
select its arranger. In addition, one commenter recommended that FTA 
strengthen conflict of interest procedures applicable to arrangers to 
ensure that an arranger does not personally benefit by using his or her 
company or other companies in which he or she has a financial interest. 
In this matter, FTA believes it appropriate to rely on the recipient's 
conflict of interest requirements and procedures to prevent unfair 
dealing.
Paragraph 2.b(8)--Force Account
    One commenter recommended that we clarify that the final circular 
does not apply to a recipient's force account work. We agree, and have 
added a paragraph stating that the final circular's third party 
contracting guidance does not apply to force account work.
Section 3--Federal Laws and Regulations
Subsection 3.c--Other Federal Requirements
Paragraph 3.c(1)--Compilation in the Master Agreement
    We received two comments about the significance of the Master 
Agreement. One commenter suggested we add a paragraph discussing the 
Master Agreement in much greater detail. We have included a reference 
to the discussion of the Master Agreement in Chapter I, subsection 6.f 
of the final circular, instead of repeating that information in Chapter 
II. Because the purpose of discussing the Master Agreement here is to 
identify it as a resource identifying Federal requirements, among other 
things, we have revised the heading of that paragraph in the final 
circular. Another commenter complained that the Master Agreement is not 
a useful means of communicating procurement requirements to recipients. 
Although we agree that the Master Agreement does not provide explicit 
procurement guidance to recipients, we have found that the Master 
Agreement is one of the most useful means of providing recipients a 
reasonably current compilation of the many Federal requirements that 
apply to FTA assisted projects.
Paragraph 3.c(2)--Conflicting Federal Requirements
    One commenter asked which FTA official or officials should be 
notified of conflicting Federal laws and regulations when more than one 
Federal agency provides support for an FTA assisted project. The final 
circular advises the recipient to notify the FTA Chief Counsel in 
writing.
Section 4--State and Local Laws and Regulations
Subsection 4.b--Conflicts Between Federal Requirements and State or 
Local Requirements
    The same commenter also asked who should be notified when 
conflicting Federal and State requirements apply to a project. Our 
response is that the recipient should notify the Regional Counsel for 
the region in which the project is being administered or the Assistant 
Chief Counsel for General Law for those projects administered by FTA 
headquarters staff.
    The proposed circular noted that in the case of a conflict between 
State and local laws, it might be necessary for FTA to terminate the 
project if no resolution were available. One commenter sought an 
explanation of how this might occur. Since the inception of the FTA 
program, FTA has required recipients to comply with Federal 
requirements. In a relatively few instances, recipients have needed to 
persuade their State legislatures to enact special legislation that 
would permit the recipient to comply with Federal laws and regulations 
to permit its project to continue. For that reason, the recipient 
should notify FTA in writing as soon as possible when conflicts between 
Federal and State laws or regulations occur. FTA is willing to work 
with the recipient in seeking and implementing an equitable resolution.
    Two other commenters opposed the proposed circular's termination 
provisions, claiming among other reasons that the recipient's counsel, 
not FTA, should be authorized to determine what requirements apply, and 
that FTA enforcement of Federal laws inconsistent with State laws would 
effectively pre-empt State or local laws. First of all, FTA makes every 
effort to avoid the need to terminate Federal assistance for a project 
due to conflicting Federal and State or local laws or regulations. When 
such situations arise, occasionally they have been resolved by efforts 
the recipient has made to persuade its State legislature to amend the 
conflicting law, at least to the degree necessary to permit FTA 
assistance to be used. FTA is not

[[Page 56904]]

authorized to waive Federal requirements except to the extent permitted 
by the underlying Federal laws and regulations. If a Federal law or 
regulation contains a requirement that FTA may not waive, FTA has no 
choice but to insist on the recipient's compliance as a condition of 
FTA assistance. If the Federal Government terminates Federal assistance 
for a project based on the recipient's failure or inability to comply 
with Federal law or regulations, FTA's position is that the termination 
would not be a Federal pre-emption of State or local law. The decision 
of whether a Federal agency will provide or continue Federal assistance 
for a specific project is separate and distinct from a Federal decision 
to pre-empt State or local law.

C. Chapter III--The Recipient's Responsibilities

    Apart from specific procurement procedures discussed at length in 
Chapter VI, this chapter consolidates the recipient's procurement 
responsibilities. We have retained much of the information included in 
FTA Circular 4220.1E, but we have also added information about Common 
Grant Rule provisions not discussed in that circular.
Section 1--Written Standards of Conduct
Subsection 1.a--Personal Conflicts of Interest
    Three commenters objected to the personal conflict of interest 
prohibitions as written in the proposed circular. The Common Grant 
Rules and FTA Circular 4220.1E prohibit personal conflicts of interest 
by prohibiting contract activities that ``would'' result in a real or 
apparent conflict of interest, while the proposed circular would 
prohibit personal conflicts of interest by prohibiting contract 
activities that ``could'' result in a real or apparent conflict of 
interest. We agree with the commenter who pointed out that changing 
``would'' to ``could'' broadens the standard from predictable to 
speculative. In drafting the proposed circular, FTA did not intend to 
deviate from Common Grant Rules standards or otherwise amend FTA's 
current standards. Accordingly, we have revised this provision by 
substituting ``would'' for ``could,'' consistent with Common Grant 
Rules standards.
Section 2--Self-Certification
    We received no comments on self-certification, except in the 
context of some commenters' objections to statements recommending FTA 
review of particular matters before the recipient takes action. Those 
commenters argued that FTA reviews of prospective actions diminish 
prerogatives they should have due to their self-certification. They 
apparently believe that by acknowledging their self-certification, FTA 
is endorsing the correctness of a self-certified recipient's 
procurement decisions. Our response is that certain FTA reviews and 
approvals are required by Federal laws and regulations irrespective of 
self-certification. Other reviews FTA recommends are intended to 
preserve the recipient's ability to use FTA assistance to support the 
procurement by helping the recipient avoid an inadvertent violation of 
Federal laws or regulations, some of which can be complex.
Section 3--Third Party Contracting Capacity
    Section 3 contains discussions of the requirements for third party 
contracting capacity, adequate contract provisions, and an adequate 
procurement history that are substantially similar to their FTA 
Circular 4220.1E counterparts. We have added other subsections to the 
final circular, such as recordkeeping, that were omitted from FTA 
Circular 4220.1E but addressed in the Common Grant Rules.
    Two commenters objected to the provision in Section 3 stating that 
contractors providing procurement expertise or support to the recipient 
``should be unrelated to and independent of any potential bidder or 
offeror.'' The commenter explained that prospective bidders or offerors 
frequently know others with necessary procurement expertise, and 
forbidding the use of those sources would unnecessarily reduce the 
availability of expertise a recipient might need. We agree with that 
commenter and have changed the standard to one that calls for 
preventing or ameliorating organizational conflicts of interest that 
would result in conflicting roles that might bias a contractor's 
judgment or result in an unfair competitive advantage.
Subsection 3.c--Industry Contracts
    One commenter noted that our caution about using industry 
contracts, while reasonable in certain situations, might be unwarranted 
if construed too broadly. Specifically, the commenter expressed the 
belief that there are advantages to using well-known industry developed 
forms, such as the AIA forms used in the construction industry or 
payment request forms and similar documents whose contract terms and 
clauses are familiar to contractors performing the work. In other 
situations, a recipient should be able to solicit specifications or 
contract terms for possible use in a future solicitation. We agree that 
judicious use of standard forms, specifications, and contract terms may 
be justified in certain situations, and have revised the subsection on 
industry contracts to clarify that the recipient may use them if they 
can accommodate Federal requirements.
Subsection 3.e--Special Notification Requirements for States
    Two commenters had concerns about the project and contract 
notification requirements for States that have been included in DOT's 
annual appropriations acts for the last few years. FTA Circular 4220.1E 
described former Appropriations Act notification requirements having a 
$500,000 threshold that applied to all FTA recipients. In contrast, the 
DOT Appropriations Acts in the last few years have limited their 
notification requirements to States, but no longer recognize a $500,000 
threshold. Now each State must include statements in all its requests 
for proposals, solicitations, Federal assistance applications, forms, 
notifications, press releases, or other publications involving FTA 
assistance that FTA is or will be providing Federal assistance for the 
project, the amount of Federal assistance FTA has provided or expects 
to provide, and the Catalog of Federal Domestic Assistance (CFDA) 
Number of the program that authorizes the Federal assistance.
    One commenter asked whether, when issuing its announcements, it 
really must include the CFDA Number for the FTA program under which the 
project is supported. FTA's position is that because identification of 
the CFDA number is expressly required by the recent DOT appropriation 
acts, the recipient must include the requisite CFDA number. The 
commenter also asked whether the requirement for States must flow down 
to its subrecipients. FTA interprets the appropriations laws to require 
compliance with those notification requirements by the State's 
subrecipients, lessees, or third party contractors at any tier, and we 
have included a provision in the final circular to that effect.
    Another commenter has requested FTA to discuss this notification 
requirement in its grant management circulars and to take other 
measures to communicate with States directly about these broad 
notification requirements. We agree and will make special efforts to 
inform the States of these requirements.

[[Page 56905]]

Subsection 3.f--Use of Technology/Electronic Commerce
    One commenter recommended that FTA expressly endorse a more 
extensive use of electronic contracting, including electronic bidding 
and reverse auctions, and that FTA permit the recipient to engage 
contractors to perform those services. FTA approves the use of 
electronic bidding and reverse auctions for third party procurements of 
$100,000 or less and, if permitted under State or local law, for third 
party procurements of a greater value. A recipient may perform 
electronic contracting using its own staff or may engage one or more 
contractors to act on its behalf.
Section 4--Audit
    We received no comments on this section of Chapter III.

D. Chapter IV--The Recipient's Property and Services Needs and Federal 
Requirements Affecting Those Needs

    We have restructured Chapter IV to consolidate provisions 
pertaining to the various categories of recipients and their projects. 
We expanded the chapter to include additional paragraphs in response to 
comments on the proposed circular. As a result, some of the guidance 
originally included in other chapters of the proposed circular has been 
transferred to this chapter of the final circular.
    However, much of this chapter retains provisions that are 
substantially similar to their counterpart provisions in FTA Circular 
4220.1E or its footnotes, with important exceptions discussed below.
Section 1--Determining the Recipient's Needs
    One commenter suggested that the acquisition planning and project 
management functions addressed in this chapter should not be included 
in a circular focused on third party contracting guidance. FTA 
disagrees. FTA considers procurement procedures to be only one aspect 
of third party contracting. The fundamental purpose of procurement is 
to acquire property and services that meet the purchaser's needs. The 
type, amount, characteristics, and features of the property or services 
an FTA recipient seeks and conditions under which the property and 
those services are acquired must satisfy Federal requirements that 
apply to federally assisted procurements if the recipient intends to 
use FTA assistance to support the costs of the property or services it 
procures. For an FTA recipient, these requirements will encompass 
Federal requirements focused on FTA acquisitions as well as general 
Federal requirements that apply to all federally assisted acquisitions.
    For example, some Federal requirements may change the way a 
contractor fabricates and delivers property; others will affect how the 
contractor provides the requested services, the amount of wages it must 
pay, and the labor protections it must provide to some or all 
employees. As a result, to assure that FTA assistance can be used to 
support the costs of property and services a recipient seeks, it is 
important that the recipient's acquisition comply with all of the many 
applicable Federal laws and regulations having an indirect effect, if 
not a direct effect, on the property or services to be acquired and 
also on the contractor that provides the property and services.
    FTA believes it important that the recipient be fully aware of 
these requirements and restrictions at the time it begins to determine 
the types of property and services it needs. FTA cannot support a 
recipient's procurement that in some way has violated one or more 
Federal requirements. Thus FTA cautions the recipient to examine its 
initial preferences in light of Federal requirements before undertaking 
a procurement for which it intends to use FTA assistance. As an aid, we 
refer you to the checklists in Appendix C. In the course of developing 
the checklists identified with specific provisions of the final 
circular, we have consolidated requirements pertaining to specific 
aspects of procurement in separate chapters, and thus have found it