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Procurement 101

Introduction

As a subrecipient of federal funds, each time an organization makes a purchase or awards a contract using federal funds, how to go about deciding to which vendor to use is subject to federal procurement requirements (as well as any state or local requirements that apply to the organization). This is true for anything the agency purchases or contracts for with Federal Transit Administration (FTA) funding: vehicles and equipment, outsourced maintenance and repairs, materials and supplies, computer technology, professional services, construction, etc.  

Each FTA subrecipient is required to have its own written procurement procedures and to follow them. Subrecipient procurement policies and procedures are expected to comply with FTA requirements, as well as any requirements from State DOTs. The federal requirements ensure that your agency uses federal funding to obtain the best and most appropriate product or service at the best price. The requirements are also designed to ensure that all vendors capable of providing a good or service are given an opportunity to compete for a contract. In addition, an agency needs to maintain written standards of conduct governing employees engaged in the awarding and administering third-party contracts, so as to prevent personal conflicts of interest or the acceptance of gifts or favors.

This Procurement 101 page offers an introduction to the FTA requirements and the general steps to take before making a purchase or awarding a contract. The Procurement – Beyond 101 page section of this toolkit information a transit manager will likely need to know within the first few months, as well as links to additional trainings and resources. Transit managers are encouraged to review Procurement 101 in its entirety first, to gain an overall understanding of the federal procurement requirements and where the supplemental information in Procurement - Beyond 101 fits in. 

Keep in mind this not a comprehensive guide to procurement, and transit managers should consult the outside documents provided for further guidance. FTA procurement requirements and guidelines are lengthy and complex, and new managers may find it easier to get an overview first, and then delve deeper when it comes time to make a purchase.

Much of the information here comes from Circular 4220.1F, “Third Party Contracting Guidance”  (revised 2013) and the “Best Practices Procurement Manual” (revised fall 2016) on the FTA website. In addition, this page has been updated to incorporate changes from the “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” (2 CFR Part 200, commonly known as the “Super Circular”). The Super Circular consolidated eight circulars into uniform regulations located in Title 2 of the Code of Federal Regulations. It applies to all federal grants and cooperative agreements awarded for fiscal years beginning on or after its effective date of December 26, 2014. Per the FTA's FY 2018 Comprehensive Review Guide, the Super Circular requirements should be the point of reference over Circular 4220.1F where there is conflicting information between the two.

This section of the toolkit is organized in the following subsections:

General Information and Key Terms

In reviewing the requirements and recommended practices on this page, keep in mind the following:

In general, the dollar amount of your purchase or contract impacts how much effort must be put into finding and evaluating the potential choices.  As an introduction, the following three ranges are specified by the FTA. These dollar ranges/thresholds and the requirements they invoke, as well as what is meant by a formal competitive solicitation, will be discussed under “Procurement Process Steps.” 

  • $10,000 or less is considered a “micro-purchase,” which involves the fewest federal requirements.
  • Over $10,000 up to $250,000 is considered a “small purchase” and triggers additional requirements, including comparing costs from multiple vendors.
  • Over $250,000 is considered a larger purchase, and triggers the need for a formal competitive solicitation and other additional requirements.

These dollar thresholds took effect for FTA recipients and subrecipients on June 20, 2018. Note that the Federal government may adjust the thresholds for micro-purchases and large purchases periodically for inflation in the Federal Acquisition Regulations (FAR) (48 CFR Subpart 2.1).  These thresholds were increased by Office of Management and Budget (OMB) Memorandum M-18-18, issued on June 20, 2018. 

There can sometimes be conflicting language from various federal sources regarding purchase thresholds, as is currently the case following the update effected by OMB memorandum M-18-18.  As noted previously, the Super Circular requirements should be the point of reference over Circular 4220.1F where there is conflicting information between the two.  The Super Circular (specifically with 2 CFR Section 200.88 and Section 200.320) defines the small purchase method as the simplified acquisition threshold set by the Federal Acquisition Regulation at 48 CFR Subpart 2.1 (Definitions).  The micro-purchase threshold is also set by the Federal Acquisition Regulation definitions. However, OMB Memorandum M-18-18 supersedes the thresholds in the current Federal Acquisition Regulation definitions.  When in doubt, the subrecipient should check with the State DOT as to the thresholds that apply to their specific grants.  If the State DOT is uncertain, the FTA Regional Office would be the point of reference.There must be a cost or price analysis, to ensure a fair and reasonable price is obtained.

The type of goods or services being procured also impacts when certain federal requirements are triggered. For example, buying a vehicle entails special requirements, while construction contracts have different requirements. For specifics, refer to Appendix D of FTA Circular 4220.1F.

State DOTs may have additional requirements or lower dollar thresholds for when requirements are triggered, and new transit managers are advised to ask their state representatives about state requirements before purchasing or procuring anything that might make use of federal or state transit funds. If a transit program is part of a local government, it will also need to follow applicable local requirements.

Ensuring that written procurement procedures comply with applicable federal, state, and local levels of requirements, following organizational policies and procedures, and maintaining well-organized documentation of each procurement will help avoid potential issues in the event a procurement system comes under scrutiny. FTA places emphasis on oversight of grantees’ procurement practices, and requires states to ensure that their subrecipients are following the FTA rules.

Also, here are a few key procurement terms you will need to know along the way:

  • solicitation is a purchasing entity's request for offers, including a telephone request for price quotations, an invitation for bids, or a request for proposals.
  • An offer is a promise to provide goods or services according to specified terms and conditions in exchange for material compensation.
  • Acceptance is agreement to the terms of an offer. In most jurisdictions, ‘award’ by a public agency can constitute acceptance, and may create an enforceable contract.

Procurement Process Steps

While there are many different ways you can procure goods and services, there are general steps to be considered before beginning the procurement process. Transit agencies should include such steps within written procurement procedures. According to the APTA Standards Development Program, there are six major steps in a typical procurement process:

  1. Identify and explore the need
  2. Evaluate options and establish need for procurement
  3. Select procurement method
  4. Develop final solicitation
  5. Execute solicitation
  6. Contract administration

The sections below highlight some key issues to be aware of before starting a procurement process using federal funds.   

Steps 1 & 2 - Establish Need for Procurement and Evaluate Options

The first two steps in the APTA Standards Development Program’s recommended transit procurement process involve 1) determining what good or service a transit agency needs in order to achieve a goal, and 2) whether that good or service needs to be procured or obtained in some other way (for example, by relying on in-house staff to conduct market research rather than contracting with a consultant).

The following sections assume that the transit manager has already completed these two steps (see the APTA Standards Development Program's document for more detail) and knows that the particular good or service needs to be procured. For the most common types of procurements of rural transit operations, these steps can be relatively straightforward. For more complex projects, more study is needed to determine whether and why the agency needs special technology, a new facility, etc. This need analysis may even be necessary to justify grant funding. 

Step 3 - Select Procurement Method

If it is determined that a procurement is necessary, the next step is to decide which procurement method is appropriate. Factors to be considered in this decision include:

  • Type of project (for example, vehicles, professional services, architectural engineering, etc.)
  • Estimated cost (based on an independent cost estimate, discussed next in this section)
  • Federal and state requirements

This section of the toolkit provides general information about how each of these factors dictates which method used for a procurement and what each method involves. Please note that this is not a comprehensive guide to procurement. For further guidance, consult the Procurement – Beyond 101 page and the documents referenced in this section.

Since procurement method options depend in large part on the dollar value of the eventual contract, an important step—and one required by FTA—is to conduct an Independent Cost Estimate (ICE) for the good or service the system will be buying. Once a realistic estimated budget has been established, select the most appropriate procurement method.    

Independent Cost Estimate (ICE)

Conducting an ICE to establish a reasonable price range for the goods or services being procured should be done regardless of the size of the procurement.  As introduced earlier, FTA requires a price or cost analysis with every procurement action. The ICE serves as the first price/cost analysis required in every procurement process. Read more about price or cost analysis on the Procurement – Beyond 101 section of this toolkit.

After bids or proposals are received (which happens in step 5, Execute Solicitations), the ICE can be used as the basis for the cost or price analysis that is required for all procurements. It is important for the integrity of the ICE that it be prepared before receiving bids or proposals. More about cost and price analysis can also be found in Section 4, Evaluation of Proposals and Contract Award, in FTA's Best Practices Procurement & Lessons Learned Manual and in FTA Circular 4220.1F.

To develop an ICE, use information such as: current market prices for commercial items, estimates based on previous, similar purchases or projects, informal cost estimates from manufacturers for the type and number of items being procured, or prices received by other transit agencies for goods or services comparable to the project. 

More information about conducting an ICE can be found on the Independent Cost Estimate page on the FTA website and in Section 4.6, Cost and Price Analysis, of FTA's Best Practices Procurement & Lessons Learned Manual. An example of a form used to document an ICE can be found in Appendix B, page B-49 of FTA's Best Practices Procurement & Lessons Learned Manual.

Federal Procurement Methods

This section describes the federal procurement methods which are related to the dollar amount of the procurement: micro-purchases, small purchases, and large purchases. Please note that states may have a lower threshold for each category, and if this is the case, use the state thresholds. States may also have different names for these methods, or additional methods. It should also be noted that grantees should not split a larger purchase into two or more smaller purchases in order to avoid the competitive proposal process.

Micro-Purchases  

On June 20, 2018, the micro-purchase threshold increased from $3,500 to $10,000, per OMB Memorandum M-18-18.  A purchase of $10,000 or less is considered a micro-purchase and does not require obtaining competitive quotations, if it is determined that the price to be paid is fair and reasonable. It should be noted that construction contracts exceeding $2,000 do trigger the requirements of the Davis-Bacon Act and the Copeland “Anti-Kickback” Act, both of which protect construction employees. 

While a competitive process is not required, it is a good practice to informally compare prices from different vendors to ensure the price you were quoted is in fact fair and reasonable. For more information on micro-purchasing, see the FTA Circular 4220.1F

Small Purchases 

As described in Section 3.4.2 of the Best Practices Procurement and Lessons Learned Manual, small purchase procedures are used for the acquisition of services, supplies or other property that cost less than the federal simplified acquisition threshold. This threshold was fixed at $150,000 in the Super Circular, which applies to the administration of all federal grants and cooperative agreements awarded for fiscal years beginning on or after December 26, 2014, and increased to $250,000 in OMB memorandum M-18-18 issued on June 20, 2018. The OMB memorandum indicates that the change takes effect on the date of issuance.  

Note that subrecipients must follow thresholds established by the State DOT, which may be lower than the federal thresholds.Small purchases do not require a full competitive proposal process, but subrecipients do have to get solicitations and quotations from at least two sources. This can be done either in writing or orally. For more information about small purchases, please see the Best Practices Procurement Manual, Section 3.4, "Procurement Methods” and Circular 4220.1F

Large Purchases 

Any purchase that is above the small purchase threshold is considered a large purchase and must have a competitive procurement, most commonly either through a sealed bid (also referred to as “invitation for bid method” or “formal competition”) or competitive proposal (also referred to as “request for proposals method” or “competitive negotiation”) process.

  • Sealed Bids - According to FTA Circular 4220.1F, the sealed bid process is one in which “bids are publicly solicited, and a firm fixed price contract (lump sum or unit price) is awarded to the responsible bidder whose bid, conforming to all the material terms and conditions of the invitation for bids, is lowest in price.”  An example of this is the purchase of diesel fuel.
  • Competitive Proposals - According to FTA Circular 4220.1F, the competitive proposal process should be used when “the nature of the procurement does not lend itself to sealed bidding and the recipient expects that more than one source will be willing and able to submit an offer or proposal.” Examples of this would be contracting for professional services such as consulting or operations management, or purchasing dispatching software.

Other special types of procurements may be used depending on what is being procured and the specific circumstances. While there is no overarching federal requirement that dictates that a particular method must be used when purchasing a particular good or service, some states may have a law with this requirement. 

More information about competitive procurement methods can be found in the Procurement - Beyond 101 section of this toolkit, in FTA Circular 4220.1F (page 88/VI-9), and the Best Practices Procurement Manual, Section 3, “Types of Contracts.” 

Whichever method is used, in some circumstances it may be appropriate to share in a competitive procurement effort with another organization, through a collaborative process known as a joint procurement, or by purchasing through another organization’s FTA-compliance contract through an approach referred to as “piggybacking.”  Refer to the Procurement - Beyond 101 section of this toolkit for more information on joint procurements and piggybacking.

Step 4 - Develop Final Solicitation

For Micro-Purchases and Small Purchases

As noted above, purchases below the micro-purchase threshold have relatively few federal requirements (although states may have their own set of requirements for projects of this size).   There are no federally-required solicitation documents for micro-purchases.

For small purchases, it is a good practice (though not federally required) to prepare a written request for quotations that details the specifications for what is needed—with such variables as quantity, size, function, when needed, etc.—so that you can share consistent information with all of vendors from whom you solicit quotes.  

Small purchases require certain contract clauses, with additional clauses triggered when contracts exceed $10,000, $25,000, and $100,000.  Also, construction contracts exceeding $2,000 must require your contractor to comply with the Davis-Bacon Act and the Copeland “Anti-Kickback” Act, both of which protect the wages of construction employees.  The appropriate FTA contract clauses for the specific procurement must be included with the purchase request or request for quotes.  The FTA clauses may impact a vendor’s price, willingness, or eligibility to provide the goods or services being procured. The clauses that apply to various types and sizes of contracts are specified in Appendix D to FTA Circular 4220.1F.

More discussion of federally required contract clauses is found later on this web page. Federally required clauses are available through National RTAP’s ProcurementPRO 2.0 web application.  To access ProcurementPRO 2.0, either create a new National RTAP in the Cloud account or log into an existing account. Individuals who have used ProcurementPRO prior to February 14, 2019 will need to create a new Cloud account the first time they use the current ProcurementPRO 2.0 application.

Again, states may have a lower small purchase threshold, and if an ICE exceeds the state-imposed threshold, plan on conducting a competitive procurement. 

For Large Purchases: Drafting an IFB/RFP 

If a purchase will exceed the federal (or state) small purchase threshold, a formal solicitation package is required.  This will usually be an invitation for bids (IFB) for the “sealed bid” method, or request for proposals (RFP) for the “competitive proposal” method.  More information about these types of solicitations can be found in the Developing Competitive Solicitations part of the Procurement – Beyond 101 section of this toolkit.

Federal Clauses and Certifications

When procuring goods with federal funds, ensure that all federal clauses and certifications are included in the contract (as these requirements are passed down to the contractor), and the clauses and certifications that must be included will depend on the particular procurement project.  National RTAP’s ProcurementPRO 2.0 web app uses the project information provided to determine, and list, the required federal clauses and certifications that must be included in the procurement document.  

Appendix D to FTA Circular 4220.1F specifies the clauses that apply to various types and sizes of contracts. The FTA Best Practices Procurement and Lessons Learned Manual also has a list of federal clauses and certifications in Appendix A.

Buy America Requirements 

According to the FTA’s Buy America requirements, all procurements costing more than $150,000 of iron, steel and manufactured products used in FTA-funded projects must be made in the United States, using at least the minimum required percentage of domestic content, and you are responsible for ensuring that all of the materials your contractor or bidder uses are in compliance with this requirement. While it is possible under the law to apply for and receive waivers for this requirement, it is rare that they will be granted. 

For more information, see FTA's Buy America web page and the Buy America Handbook, which lays out the necessary steps to meet pre-award and post-delivery audit requirements. For more information about FTA’s policy on Buy America waivers, see this policy letter on the FTA website as well as the "Buy America" page.

Disadvantaged Business Enterprise (DBE) Requirements

FTA has a national goal of ensuring 10 percent of all contracts go to DBE contractors, and each time a grantee enters into a contract with a DBE contractor it is counted toward this goal.  State DOTs may have DBE program goals that are higher than the FTA goal.  To read more about DBE requirements, see the Civil Rights section of this toolkit.

Preparing Vehicle Specifications 

Many states procure vehicles for their subrecipients by entering into a contract with a vehicle manufacturer and placing orders based on the needs of all of the agencies in the state. However, if a transit agency is conducting its own procurement, there are some considerations to keep in mind. When considering what type of vehicle is needed, ensure that it can cover both current and projected needs. There are many questions to ask to fully understand what you need in a vehicle, and National RTAP’s “How to Buy a Vehicle” presents some of these questions in its first chapter. Such questions include what size vehicle is needed in terms of numbers of riders and efficiency for the routes it will serve? Are there specific environmental characteristics that will impact the type of vehicle needed? What is the capability of maintenance staff and are there particular warranty concerns? Lastly, consider the budget for this purchase. 

After establishing baseline requirements for the vehicle, research what the various manufacturers offer (state vehicle procurement programs may have helpful information and negotiated prices). If an independent procurement process is conducted, list the specifications for the vehicle and include a description of how the vehicle will be used. Based on this written list and description, the next step should be to review any state or federal regulations that would apply. Requirements that should be considered are Buy America, Disadvantaged Business Enterprise, pre- and post-award audits, and ADA. It is important to do this to avoid procuring a vehicle that will raise issues down the road. For more information about preparing vehicle specifications, please see National RTAP's How to Buy a Vehicle training module.

Protest Procedures  

According to Circular 4220.1F, there must be written protest procedures for both the sealed bid and competitive proposal methods (not needed for small purchases), and a protester must go through these procedures before he/she can appeal the organization’s decision to FTA or your state DOT.  More information on what should be included in written protest procedures can be found on the Procurement – Beyond 101 section of this toolkit.

Step 5 - Execute Solicitation

Micro-Purchases and Small Purchases

For micro-purchases, FTA requires only that subrecipients need to determine that the price to be paid is fair and reasonable (based upon an ICE), and to the process of how this determination was made was documented. This could be accomplished by simply researching prices published through vendor websites, or by calling a couple of vendors and asking for prices or verbal quotes. Whichever approach is taken, it is a good idea to keep written notes or screen printouts in procurement files. Because FTA Circular 4220.1F indicates that micro-purchases should be equitably distributed among local suppliers, a good practice is to work with different vendors on a rotating basis.

For small purchases, FTA requires subrecipients to obtain price or rate quotations from “an adequate number of qualified sources” (at least two, according to the Best Practices Procurement and Lessons Learned Manual). This can be accomplished in writing or orally; just be sure to maintain some form of written documentation in procurement files.  States may have additional requirements.

Large Purchases

Large purchases (competitive solicitations) require a formal process that includes advertising the solicitation well in advance of the bid or proposal due date (allowing sufficient time for responses), typically allowing questions to be submitted. Sealed bids must be publicly opened at the time and place prescribed in the invitation for bids and are awarded to the lowest qualified bidder. Competitive proposals typically must be submitted by a specific date and time and are evaluated based on the factors specified in the solicitation document (technical factors in addition to price).  

Further important information on executing large purchase solicitations can be found on the Procurement – Beyond 101 section of this toolkit.

Awarding to a Qualified and Responsible Contractor

Before awarding a contract, ensure that intended contractor has not been disqualified to conduct federal-funded projects. As detailed in Circular 4220.1F, FTA requires that ‘FTA-assisted contract awards be made only to “responsible” contractors possessing the ability, willingness, and integrity to perform successfully under the terms and conditions of the contract. Responsibility is a procurement issue that is determined by the recipient after receiving bids or proposals and before making contract award.’ Ability and willingness will generally be demonstrated by information submitted as part of the bid or proposal. Integrity is harder to verify, but two important activities are checking references and checking to make sure the organization and its principals have not been excluded from work under federally-funded contracts. 

Contracts valued over $25,000 specifically require a contract clause (“suspension and debarment”) certifying that the contractor and its principals have not been excluded or disqualified from participating in federally-funded contracts. Regardless of the size of the purchase, for the agency’s own protection, it is a good practice to check for potential exclusions on the System for Award Management (SAM) web page, as well as on states’ list of contractors who have been barred from doing business with a public organization in the state.

Step 6 - Contract Administration

Procurement Contract Files

According to the Super Circular (2 CFR Part 200, Section 200.333) (described in the FTA Circulars section of this toolkit), non-federal entities must retain records (including procurement records) pertinent to a federal award, and these files must be keep for three years after the date of submission of the final expenditure report. The FTA, on their Contract Files web page, states that the minimum information that must be kept in the project file includes: “the rationale for the method of procurement; selection of contract type; reasons for contractor selection or rejection; and the basis for the contract price.” On this same page, the FTA also gives a detailed list of specific items that should be kept in the contract file:

  • A signed copy of the complete contract
  • All signed amendments including rationale for the contract change and justification for the resulting cost/price or delivery date change
  • All correspondence with the contractor
  • Approvals or disapprovals of contract deliveries
  • Requests for waivers or deviations and the associated responses
  • Documentation regarding settlement of claims and disputes
  • Documentation regarding stop work or suspension of work orders
  • Contract closeout documentation
  • Written record of procurement history

For more information about the procurement contract file, see Sections 4.7, Documentation of Procurement Actions and Section 5 Contract Administration, of the Best Practices Procurement and Lessons Learned Manual.

Section Sources

A variety of additional resources, including trainings and templates, can be found on National RTAP’s Procurement topic guide

Updated May 16, 2019