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Procurement of Airport Development and Planning Contracts (2012)

Chapter: III. Determine Contract Type and Establish Contract Terms

« Previous: II. Develop Scope of Work and Technical Specifications
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Suggested Citation:"III. Determine Contract Type and Establish Contract Terms ." National Academies of Sciences, Engineering, and Medicine. 2012. Procurement of Airport Development and Planning Contracts. Washington, DC: The National Academies Press. doi: 10.17226/22712.
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Suggested Citation:"III. Determine Contract Type and Establish Contract Terms ." National Academies of Sciences, Engineering, and Medicine. 2012. Procurement of Airport Development and Planning Contracts. Washington, DC: The National Academies Press. doi: 10.17226/22712.
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7 state and local intergovernmental agreements for pro- curement of common goods and services.”). At least one FAA Regional Office recommends a pre- design conference prior to formally establishing the scope of work. See, e.g., Central Region Airports Divi- sion, AIP Sponsor Guide, Section 910. It provides the airport an opportunity to explain important issues to the design consultant, including the impact of the pro- ject on airport operations, safety issues, and funding issues, such as distinguishing between eligible and in- eligible costs. When the procurement involves the purchase of equipment, the technical specifications must allow for reasonable competition. Airports must be attuned to the restrictions on using brand-name equipment specifica- tions. See 49 C.F.R. § 18.36(c)(3)(i) (allowing the use of a brand name “or equal” to define the performance re- quirements only when it is impractical to otherwise describe the product requirements), 49 C.F.R. §§ 18.36(c)(1)(vi) and (g)(2)(iii); Standard Heater Tube, Inc., B-403155, 2010 U.S. Comp. Gen. LEXIS 257 (2010) (finding a brand name or equal specification for heating tubes was necessary for valid testing results). III. DETERMINE CONTRACT TYPE AND ESTABLISH CONTRACT TERMS A. 49 C.F.R. § 18.36 and AIP 1. General Contract Terms (Price, Value Engineering) After the scope of work and specifications are prop- erly defined, airports must determine the project- delivery method if the project involves construction (e.g., whether construction manager at risk (CMAR), design-build, or traditional design-bid-build, etc.) and establish the contract terms, including the type of fee arrangement. The federal regulations require that most contracts be based upon a fixed fee. See 49 C.F.R. § 18.36(d)(2) and (d)(3). The FAA only allows “time and material” contracts in limited situations and prohibits the use of “cost plus percentage of costs” contracts. See 49 C.F.R. §§ 18.36(b)(10) (establishing limited excep- tions for time and material contracts to situations after a determination that no other contract is suitable, and if the contract includes a ceiling price that the contrac- tor exceeds at its own risk), (d)(2)(ii)(D), and (f)(4). Con- tingency bonus fees for early completion and escalator fee provisions are also not allowed. Value engineering provisions, however, are encouraged. See 49 C.F.R. § 18.36(b)(7). For all grant-funded projects (including AIP), 49 C.F.R. § 18.36(i) contains a long list of contractual pro- visions that are required. The FAA has also compiled a list of required contractual provisions, which vary by the type of procurement (construction, services, or equipment) and the amount of the procurement.5 For 5 The list can be obtained at http://www.faa.gov/airports/aip/procurement/federal_ construction contracts, the FAA has issued standard “General Provisions” that must be used as the basis for AIP-funded construction contracts. See FAA Advisory Circular 150/5370-10, Part I. The most significant pro- visions are briefly addressed below. In addition to the following, contractors must apply a veteran’s preference in the employment of labor. See Assurance 15. Con- tracts must also include a Buy America provision, which is a topic being addressed in a separate digest by a different author. See ACRP Study 11-01, Topic 4-04. 2. Bonds For construction contracts valued over $100,000, 49 C.F.R. § 18.36(h) requires the airport to obtain a bid guarantee equal to at least 5 percent of the bid price, as well as performance and payment bonds in the sum of 100 percent of the contract price. State laws often sup- plement this bonding requirement.6 See Section D. The bid guarantee can be in the form of a bid bond, certified check, or other negotiable instrument. Alternatives to the performance and payment bonds are allowed only if the FAA has determined that the policy and require- ments of the airport adequately protect the airport’s interest. See 49 C.F.R. § 18.36(h); FAA AIP Handbook Section 911. 3. Wages All federally funded construction contracts exceeding $2,000 must comply with the Davis-Bacon Act provi- sions, including weekly reporting of wages paid. See 49 U.S.C. § 47112(b). The Department of Labor sets the prevailing minimum wage and fringe benefits that must be paid for certain classes of laborers. See Assurance Number 14, 29 C.F.R. § 3, 29 C.F.R. § 5, and FAA Advi- sory Circular 150/5100-6. 4. Disadvantaged Business Enterprise The DBE Program is a major component of a feder- ally funded procurement because it requires airports to take affirmative actions to ensure participation by the disadvantaged business community. Airports must es- tablish a DBE program that contains DBE participation goals and must submit the program for FAA review and approval.7 See 49 C.F.R. § 26.21 and 49 U.S.C. § 47113 (requiring the minimal DBE participation goal, unless otherwise specified by the Secretary of the USDOT). Federally funded construction contracts must also include two related DBE provisions regarding 1) non- discrimination, and 2) prompt payment. The FAA pro- contract_provisions. 6 State laws that contain “excessive” bonding requirements conflict with 49 C.F.R. § 18.36(c)(1)(ii). Whether a requirement is excessive will depend upon the facts and circumstances of the particular project. 7 A sample DBE Program can be found at http://www.faa.gov/airports/central/airports_resources. Because DBE Programs must be tailored for each airport, fol- lowing the sample may not always be sufficient.

8 vides sample language on its Web site.8 See Assurance Number 37 for the DBE Grant Assurance; see also 49 U.S.C. § 47113 and Title 49 C.F.R. 26 for the DBE Pro- gram requirements. B. Federal Acquisition Regulation It is important to distinguish the grant requirements that apply to airports, as recipients of federal funds, from the federal requirements that apply to direct fed- eral contracts whereby a federal agency directly con- tracts for goods and services. For example, the Competi- tion in Contracting Act of 1984, the Brooks Act, and the FAR apply to direct contracts by federal agencies. See Matter of Assoc. of Soil and Foundation Engineers, Comp. Gen. (1983); Matter of Sieco, Inc., 59 Comp. Gen. 251 (1980). A procurement is a direct purchase by the federal government when the federal government con- tracts for goods and services as the owner of the prop- erty. Airports, therefore, are not subject to the require- ments of the FAR because they are not federal agencies making direct purchases for the federal government. Instead, airports are almost always a grant recipient (either directly as a grantee or indirectly as a subgran- tee), and will be subject to the requirements contained in 49 C.F.R. § 18.36. See also Yager & Associates v. Toledo-Lucas County Port Authority, 1998 FAA LEXIS 1133 (FAA 1998). Although the FAR is not applicable to airport pro- curements, there is a vast amount of administrative and appellate case law interpreting the FAR require- ments. This case law might be persuasive when there is no other directly applicable case law. For example, when 49 C.F.R. § 18.36 and state case law do not pro- vide a clear answer to a procurement issue, there may be Government Accountability Office bid protest opin- ions that an airport can use to help it determine the proper course of action. C. State and Local Contractual Provisions In addition to the federal contractual requirements, states may have additional requirements as far as the terms and conditions to be included in public construc- tion contracts. Some states devote an entire chapter of statutes to detailing the many requirements for the contract. Other states seem to have only minor re- quirements. The chart contained at Appendix A identi- fies the state statutes that contain specific bonding and prevailing wage requirements. The chart is not an ex- haustive listing of all solicitation requirements, but can be used as a starting reference point for finding addi- tional statutory requirements. In addition to the state statutes, if an airport is operated as a state entity, there will likely be state administrative code provisions that will apply. Virtually every state requires that public construc- tion contracts include some type of performance or 8 A link to the sample language is located at http://www.faa.gov/airports/aip/procurement/federal_contract_ provisions. payment bond to protect the public owner from a con- tractor’s failure to perform and to ensure that subcon- tractors receive payment. Most states also have prompt payment laws to ensure that contractors and subcon- tractors are paid timely. To determine which require- ments apply to any given project, the statutes should be analyzed in detail, including evaluation of whether the statute applies to the airport at all. Some apply to only state government entities, while others apply to all pub- lic entities. Close attention should also be paid to the definition of “public works” or “public construction” or “project” since some of the bonding requirements apply to specific projects. When analyzing each statute, the standard questions should be asked: 1. Who does it apply to (which public entities, which contractors)? 2. What types of projects does it apply to? See appli- cable definitions. 3. What bonds are required and in what amount? Some require both payment and performance; some require only one or the other. 4. When does it apply? Most have certain dollar thresholds. 5. Are there any explicit exceptions in the statute? In addition to bonding requirements, many states require specific payment terms, such as the amount of retainage that is allowed and the deadline for making payments under the contract (prompt payment acts). In addition to the statutory requirements on the govern- mental entity, many states also impose requirements on the contractor, such as requiring the contractor to com- ply with local preference provisions when purchasing construction materials and supplies or when retaining subcontractors, employees, or other labor. Such local preference laws may conflict with 49 C.F.R. § 18.36(c)(2). Another trend is to require electronic veri- fication of the citizen status of a contractor’s employees and subcontractors (known as e-verify). Many states have also enacted their own versions of Buy America acts that are modeled after the Federal Buy America Act. See generally, Validity, Construction, and Application of State "Buy America" Acts, 107 American Law Reports 5th 673 (2003). The Supremacy Clause of Article VI of the U.S. Constitution provides that United States treaties are to be considered the su- preme law of the land, and that when a state statute conflicts with any such treaty, the treaty will control. However, the state statutes are generally upheld unless they contain an outright prohibition on the purchase of foreign goods. Id. Local ordinances and regulations that limit the use of foreign items may be invalid when they conflict with a state statute that requires open competi- tion on government contracts. See, e.g., American Insti- tute for Imported Steel, Inc. v. Erie County, 32 A.D. 2d 231 (N.Y. App. 1969).

Next: IV. Identify the Appropriate Selection Method and Basis for Award »
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TRB’s Airport Cooperative Research Program (ACRP) Legal Research Digest 16: Procurement of Airport Development and Planning Contracts provides guidance on how to determine which requirements apply to any given procurement process.

The report also includes an overview of the consequences for noncompliance with procurement laws or regulations in order to help airports better understand the inherent risks associated with various funding sources.

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