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3 PROCUREMENT OF AIRPORT DEVELOPMENT AND PLANNING CONTRACTS By Robert Alfert, Jr., P.A., Broad and Cassel; Karen M. Ryan, Esq., Broad and Cassel; and Roy Block, RW Block Consulting, Inc. I. OVERVIEW OF AIRPORT PROCUREMENT A. Federal Procurement Laws and Regulations 1. In General Airports procure a variety of contracts for construc- tion services, professional services, and the purchase of equipment. Virtually every procurement made by a public airport is subject to some type of procurement law or regulation. The various competitive procurement requirements exist to promote fair and open competi- tion and ensure integrity and confidence in the public procurement system. See Owen of Georgia, Inc. v. Shelby County, 648 F.2d 1084 (6th Cir. 1980); City of Bristol v. Dominion National Bank, 149 S.E. 632 (Va. 1929). They are designed to protect the public by pre- venting âfavoritism, corruption, extravagance and im- providence,â and, therefore, should be construed fairly and reasonably to accomplish such purpose. Allis- Chalmers v. Public Lighting Comm. of Detroit, 155 Mich. 207, 213 (Mich. 1908); see generally 48 C.F.R. Â§ 1.102 (statement of guiding principles for the Federal Acquisition System). Which procurement requirements apply to any given procurement will depend upon the type of goods and services required and the funding source. Airports re- ceive funding from a variety of sources, including fund- ing from federal, state, and local governments and in- ternal revenue sources, such as tenant revenue, concessions, and parking revenue. Airports often com- mingle funds from a variety of different sources to ade- quately fund a project. Each of these funding sources has its own procurement requirements, and, in some instances, the requirements may conflict. When an airport receives federal funds, there are ex- tensive statutes, regulations, operating guidance, and case law that will impact the procurement.1 Airports can receive federal funding from a number of different federal agencies, each with its own requirements. The most common federal agencies providing financial sup- port to airports include: 1 Applicable legal authorities include federal agency regula- tions; federal agency operating guidance documents; federal administrative caselaw, such as Comptroller General opinions; and federal appellate caselaw, as well as state statutes, state agency regulations, state agency guidance documents, state agency administrative caselaw, state agency appellate caselaw, local ordinances, and internal policies and procedures that impact the procurement. â¢ United States Department of Transportation (USDOT). â¢ Federal Aviation Administration (FAA). â¢ Federal Highway Administration (FHWA). â¢ Department of Homeland Security. â¢ Transportation Security Administration (TSA). â¢ Federal Emergency Management Agency (FEMA). Although most federal agencies provide financial as- sistance to airports in the form of a grant, federal funds can also be provided in the form of a contract or other transaction agreement (OTA). The type of funding (whether a grant, contract, or OTA) affects which re- quirements apply. Certain appropriations have addi- tional procurement requirements, such as: â¢ Airport Improvement Program (AIP). â¢ American Recovery and Reinvestment Act of 2009 (ARRA). â¢ USDOTâs Transportation Investment Generating Economic Recovery (TIGER) Program. The FAA also regulates an additional funding source known as passenger facility charges (PFC). PFCs fall into a special category because they are not federal funds distributed by the federal government, but the program is authorized and regulated by the federal gov- ernment. Because each funding source and funding type has its own procurement and contractual requirements, navigating through such a complex environment re- quires careful analysis, especially when the require- ments are ambiguous or conflicting. This digest pro- vides guidance on how to determine which requirements apply to any given procurement and pro- vides an overview of the consequences for noncompli- ance so that airports can better understand the inher- ent risks associated with each funding source. 2. Applicability of 49 U.S.C. Â§Â§ 47101â142 and 49 C.F.R. Â§ 18.36 The AIP is contained within Title 49 of the United States Code at 49 U.S.C. Â§Â§ 47101â142. The AIP re- quirements apply only when an airport actually applies for and receives FAA approval of its grant application under the AIP Program. The FAA publishes an AIP Handbook (Order 5100.38C) and has issued various advisory circulars that explain their interpretation of the federal requirements. When interpreting the federal regulations, the official guidance documents, such as the FAA AIP Handbook, should be considered since the courts give great deference to the federal agencyâs in- terpretation of federal regulations. City of Cleveland v.
4 Ohio, 2006 U.S. Dist. LEXIS 1083 (S.D. Ohio 2006) (FHWA withdrew federal funds for violation of the fed- eral requirements). A significant portion of federal funds received by air- ports for airport development are distributed as grants, such as FAA AIP grants. When federal funds are dis- tributed as grants or cooperative agreements, the pro- curement requirements contained within the Uniform Administrative Requirements for Grants and Coopera- tive Agreements to State and Local Governments at 49 C.F.R. 18.36 apply. A grant is defined as: an award of financial assistance, including cooperative agreements, in the form of moneyâ¦by the Federal Gov- ernment to an eligible grantee. The term does not include technical assistance which provides services instead of money, or other assistance in the form of revenue shar- ing, loans, loan guarantees, interest subsidies, insurance, or direct appropriations. Also, the term does not include assistance, such as a fellowship or other lump sum award, which the grantee is not required to account for. See 49 C.F.R. Â§ 18.2 (2010). Because AIP funds are distributed as a grant, 49 C.F.R. Â§ 18.36 applies to all AIP-funded projects. The PFC Program is not considered a grant, and, therefore, the procurement requirements of 49 C.F.R. Â§ 18.36 only apply to PFC-funded projects when other funding sources for the project include grants such as AIP. By accepting a federal grant, airports assume certain legally-binding obligations that are contained in the grant agreement and grant assurances. See, e.g., Con- solidated Services Engineers & Constructors, Inc. v. City of Palm Springs, 2004 FAA LEXIS 578 (FAA 2004). The standard federal grant assurances are numerous and generally require compliance with all applicable federal statutes and regulations, such as compliance with the Disadvantaged Business Enterprise (DBE) Program requirements contained in 49 C.F.R. Parts 26 and 23. See, e.g., J&B Enterprises, Inc. v. Metropolitan Nashville Airport Authority, 2009 FAA LEXIS 218 (FAA 2009). The 2011 grant assurances can be obtained on the FAA Web site, located at http://www.faa.gov/ airports/aip/grant_assurances/media/airport_sponsor_ assurances.pdf. When an airport is state-owned and operated, such as part of a state department of transportation, the air- port is allowed to follow its own procurement laws, in- stead of 49 C.F.R. Â§ 18.36(b)-(d). See 49 C.F.R. Â§ 18.36(a). For state-operated airport projects using federal grant funds, the contract must contain the con- tractual provisions required by federal law, executive orders, and their implementing regulations, including the contractual provisions listed in 49 C.F.R. Â§ 18.36(i). The major provisions required by 49 C.F.R. Â§ 18.36(i) are described in Section III(A) below. There are no additional federal competitive procurement re- quirements for state airports, unless specified by the funding source, such as an OTA. For the purposes of this digest, a distinction is made between âprocurement requirements,â which refer to the various steps in the procurement process leading up to the execution of a contract, and âcontractual requirements,â which are specific provisions that must be included in the con- tract. When an airport is operated as a local entity, such as the Orlando International Airport, the airport must ensure that its local procurement regulations follow the basic standards set forth in 49 C.F.R. Â§ 18.36(b)-(i). The C.F.R. standards are addressed in detail in Section IV, below. When an airport receives a federal grant as a sub- grantee, through a state grantee, it has the same re- quirements under 49 C.F.R. Â§ 18.36 as if it were a direct grantee. Grantees may delegate the monitoring and compliance requirements to the subgrantee, and addi- tional requirements may be imposed by the state grantee, such as additional reporting or record-keeping. See 49 C.F.R. Â§ 18.37 (requiring state grantees to en- sure compliance by subgrantees). 3. Passenger Facility Charges Airports may obtain authority from the FAA to im- pose PFCs, up to $4.50 for each eligible enplaned pas- senger. Airlines collect the fees and pay them to the airport monthly. Airports use PFCs to fund FAA- approved projects that enhance safety, security, or ca- pacity; reduce noise; or increase air carrier competition. The FAA advisory circular addressing the procurement of professional services does not apply to PFC-funded projects. See FAA Order 5500.1, Office of Management and Budget (OMB) Memorandum A-133, and 14 C.F.R. Part 158 for the PFC program details. Projects funded totally with PFC revenue are not subject to the various AIP requirements that are ad- dressed in this digest. See generally 14 C.F.R. Part 158 and Appendix A thereto; see also Passenger Facility Charge Audit Guide for Public Agencies (FAA 2000). For example, the FAA has explained that the civil rights requirements for the AIP do not apply to PFC- funded projects. See FAA Advisory Circular 150/5100- 15A. However, if the PFC funds are commingled with AIP funds on a particular project, all of the AIP re- quirements will apply. See 14 C.F.R. Part 158.13(f). In addition, the AIP requirements may apply if the PFC- funded project is part of a past, current, or future FAA AIP-funded program or project. The PFC Program allows airports to follow their own state and local procurement processes and does not im- pose additional procurement requirements. See gener- ally FAA Order 5500.1, page 13 (setting forth certain federal laws that do not apply to PFC-funded projects), and pages 192â193 (requiring airports to follow state and local laws). In general, PFC expenditures must be within the approved project and must be reasonable and necessary to carry out the work. See 14 C.F.R. Part 158.3. One of the unique features of PFCs is that they are used to pay debt service on bond issues. It is im- perative for airports to understand that the underlying capital development cost must still comply with all PFC
5 compliance regulations, even if the debt service is com- mingled with non-PFC-supported debt funding. 4. Other Transaction Agreements Occasionally, a federal agency will enter into an OTA with an airport to fulfill some need of the agency. For example, the TSA may require something specific for their employees to properly perform their roles, such as security cameras or screening devices. When the federal agency decides to use an OTA, the agency will negotiate the terms of the OTA specifically for that purpose. The OTA often expressly states that it is not to be consid- ered a grant or cooperative agreement. This means that 49 C.F.R. Â§ 18.36 and the Federal Acquisition Regula- tion (FAR) do not apply to that transaction, unless oth- erwise set forth in the OTA. When funds are provided to an airport as part of an OTA, the airport must review the specific terms of the OTA to determine whether there are any additional procurement or contractual requirements, and, unless stated otherwise in the agreement, follow applicable state and local require- ments. B. Hierarchy of Federal, State, and Local Laws (Preemption) In addition to the federal requirements, each state imposes its own procurement requirements, and there may be local requirements as well. If there is no conflict between the federal, state, and local requirements, then all of the requirements will apply to a federally funded project.2 If there is a conflict between the federal re- quirements and any state or local requirement, the le- gal concept of federal preemption provides that the fed- eral law will prevail over state and local laws.3 Congress has not preempted all state and local pro- curement laws. In fact, the only procurement require- ments expressly imposed by Congress in the AIP stat- utes relate to the use of a qualifications-based selection (QBS) method for certain professional services and the FAAâs authorization to approve grants for certain de- sign-build selection methods. See 49 U.S.C. Â§ 47107(a)(17) (2009) and 49 U.S.C. Â§ 47142 (2009). Each is discussed in detail in Section IV(B). The federal 2 Some federal requirements may also apply to non- federally funded projects. For example, âprogramsâ (defined as the entire airport) receiving federal funds may have to include the standard nondiscrimination clause in all of their contracts, even contracts that are not funded with federal funds. See FAA Advisory Circular 150/5100-15A. 3 Federal preemption can be express or implied. See Green- wood Trust Co. v. Massachusetts, 971 F.2d 818, 822â823 (1st Cir. 1992). Express preemption occurs when Congress explic- itly states that it intends to preempt state law on the topic. Id. Implied preemption occurs when 1) there is an actual conflict between the federal and state law, 2) the state law poses an obstacle to the full purposes and objectives of Congress, or 3) the federal regulatory scheme is so pervasive as to âoccupy the fieldâ in that area of the law. See Pac. Gas & Elec. Co. v. State Energy Res. Conservation & Dev. Comm'n, 461 U.S. 190, 203â 223 (1983). government agencies, such as the USDOT, have also expressly deferred the detailed procurement process to grant recipients. See 49 C.F.R. Â§ 18.36(a) (distinguish- ing between state and other recipients). Therefore, fed- eral requirements only preempt state and local pro- curement laws when there is an actual conflict between them or when the state or local requirement conflicts with the general requirement of âfull and open competi- tionâ contained in 49 C.F.R. Â§ 18.36(c). Certain state and local âcontractualâ requirements, however, have been preempted for AIP-funded con- tracts because the federal government has set forth a number of specific contractual provisions that must be included in those contracts, such as prevailing wage and veterans preference provisions. 49 U.S.C. Â§ 47112(b) and (c). State and local requirements that conflict with these provisions are preempted and cannot be used on AIP-funded contracts. Airports have more flexibility over the contract terms when the funds are PFC or OTA funds. One example of a conflict between the AIP regula- tions and state law would be where the state law allows procurement of noncompetitive retainer contracts that do not include a specific scope of work. Some states may allow a continuation contract whereby a consultant is âon retainerâ without first specifically defining the pro- jects to which the firm may be assigned. When the so- licitation does not reference a specific project or specific scope of work, the FAA may determine that the contract is noncompetitive and may require a justification for their use. See AIP Handbook, Section 907 (a)(2) (requir- ing professional service retainer contracts to include a specific scope of work for specific grant-funded pro- jects).4 This does not mean that retainer contracts cannot be used on AIP-funded projects. In fact, the FAA has pro- vided a number of examples of when retainer contracts may be used, such as the following: â¢ For work over the years when the services of the consultant may be intermittent. â¢ In the development of undertakings for which the services of a consultant specialist are not required on a full-time basis. â¢ On large projects, [a retainer contract] enables the sponsor to have the specialists who prepared the origi- nal plans and specifications on hand for maintenance or additions. See Advisory Circular 150/5100-14D, Section 4-3, and AIP Handbook, Section 907. To be eligible for AIP 4 When firms are already âon standby,â the question may arise as to whether other federal agencies would approve their use, in order to expedite a project when the funds are not grant funds. For example, given the sensitive nature of some security TSA projects, the TSA may be inclined to allow airports more flexibility, such as allowing a designer, procured under a re- tainer contract, to design a CCTV project in order to minimize the dissemination of security information.