Legal Aspects Relevant to Outsourcing Transit Functions Not Traditionally Outsourced (2011)

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10 ii. 13(c) Claims and Arbitration.—If transit employees are laid off or adversely affected by a contracting action, affected employees could file 13(c) claims seeking 13(c) benefits. As noted above, the claims could be for mone- tary allowances to compensate for the loss of employ- ment or for reductions in wage and benefits. In addi- tion, employees could file for claims arguing that they have job rights with the contractor for the work, as well as the right to carry over the rights and benefits under their existing collective bargaining agreement. Section 13(c) claims are typically resolved through arbitration, and the terms of 13(c) protections routinely include clauses setting forth an arbitration process.70 If employees are not represented by a union, such claims are adjudicated by DOL under the terms of the De- partment’s certifications. DOL’s certification letters afford service area employees procedural rights and remedies, such as arbitration. While claims of nonun- ionized employees are adjudicated by DOL, claims of service area unionized employees are subject to binding arbitration. The following provision is found in DOL certification letters: Should a dispute remain after exhausting any available remedies under the protective arrangements and absent mutual agreement to utilize any other final and binding resolution procedure, any party to the dispute may sub- mit the controversy to final and binding arbitration. With respect to a dispute involving a union not designated above, if a component of its parent union is already sub- ject to a protective arrangement, the arbitration proce- dures of that arrangement will be applicable. If no com- ponent of its parent union is subject to the arrangements, the Recipient or the union may request the American Ar- bitration Association to furnish an arbitrator and admin- ister a final and binding resolution of the dispute under its Labor Arbitration Rules. If the employees are not rep- resented by a union for purposes of collective bargaining, the Recipient or employee(s) may request the Secretary of Labor to designate a neutral third party or appoint a staff member to serve as arbitrator and render a final and binding determination of the dispute. Thus, 13(c) claims of service area employees that arise are subject to differing procedures depending on whether the employees are unionized. Alternatively, 13(c) claims and disputes can be litigated in state court.71 Efforts have been made to enjoin contracting actions and assert 13(c) rights. Whether the service or work being outsourced has been previously contracted out or consists of nontradi- tional functions that are being contracted out by the public entity for the first time, the 13(c) considerations should be the same. The key 13(c) issues that typically arise in an outsourcing effort center on the impact to the employees then performing the work, and on the 70 See UPA para. (15). 71 Jackson Transit Auth. v. Local Div. 1285, Amalg. Transit Union, AFL-CIO-CLC, 457 U.S. 15, 29, 102 S. Ct. 2202, 2210, 72 L. Ed. 2d 639, 650 (1982) (holding 13(c) agreements are contracts to be governed by state law and construed by state courts). 13(c) obligations the transit agency has in the applica- ble 13(c) protections. Section 13(c) by statute does not prohibit the contracting of work, but efforts can be made to contest the agency’s action through the filing of 13(c) claims seeking 13(c) monetary benefits, job rights with the contractor, and other remedial relief. The dis- cussion above reviews the key 13(c) issues that may arise in the event that a transit agency implements a plan to procure a private contractor and outsource work. An understanding of these issues is critical to any decision to outsource. SECTION II. PROCUREMENT METHODS AND RELATED CONSIDERATIONS A. Introduction In carrying out a procurement process for services or work that have not traditionally been outsourced by public transit agencies, the procuring transit agency needs to undertake the same type of thorough procure- ment planning and analysis that is normally followed in more typical procurement actions. Specifically, the agency needs to determine its specific needs in the pro- curement, to tailor the procurement process to those needs and the particular services or work being ob- tained, and to use procurement methods and proce- dures that comply with applicable state and federal law. One of the key threshold areas of analysis that should be undertaken is a determination of what is most important to the agency in selecting a firm to per- form outsourced work. For example, is the agency look- ing just for the lowest price (in which case a low-bid procurement would be most appropriate), or are both qualifications and a price important considerations (in which case a competitive proposal method would be most appropriate). Also, as in traditional procurements, the agency should develop a Source Selection Plan for each procurement action, to serve as the “guidebook” for conducting the procurement process, reviewing and evaluating bids/proposals, and selecting the successful bidder/proposer. The allowable procurement and project delivery methods for nontraditional outsourcing will derive pri- marily from the laws, policies, and procedures in the state in which the transit agency is located. The transit agency must research and understand its state’s appli- cable public contracting and procurement laws, as an essential factor in determining the type of procurement approach to pursue. In addition, for projects funded by FTA, the project sponsor must follow the procurement regulations and guidance applicable to FTA projects, such as the Common Grant Rule at 49 C.F.R. Part 18 and FTA’s Third-Party Contracting Guidelines.72 For federally-supporting procurements, the agency will 72 FTA Circular 4220.1F, Third Party Contracting Guidance (Nov. 1, 2008), http://www.fta.dot.gov/documents/ FTA_Circular_4220_-_Third_Party_Contracting_Guidance_-7- 1-10.pdf.

11 need to assure that all applicable federal requirements (see Section IV) are made applicable to the contractor and the work. The different procurement and project delivery ap- proaches currently available for outsourcing are identi- fied and described below. B. Basic Procurement Methods 1. Architectural and Engineering Services The one area where a transit agency has limited flexibility in selecting a procurement method is the pro- curement of Architectural and Engineering (A&E) ser- vices. If the work being outsourced consists of A&E ser- vices, there are specific statutory restrictions on the type of procurement method that can be used. Under the FTA statute,73 the qualifications-based procurement method specified in the Brooks Act74 must be used to obtain A&E services. (Some states have their own state law versions of the Brooks Act.) In addition to typical engineering work (preliminary engineering and design), FTA applies the Brooks Act requirements to the pro- curement of program management, construction man- agement, feasibility studies, surveying, mapping, and related services. The most salient characteristic of a Brooks Act pro- curement is that the contract selection and award is based on qualifications only, and price is not a factor in evaluation or award. A Brooks Act procurement is usu- ally carried out through a request for qualifications (RFQ), which requests interested firms to provide their specific qualifications for the A&E work being procured. The submittal is normally called a statement of qualifi- cations (SOQ). The factors the agency will use to evalu- ate SOQs must be specified in the RFQ. These factors are used to determine the highest ranked (or “most qualified”) proposer. (The agency’s Source Selection Plan should set forth the specifics of how SOQs will be reviewed and evaluated or scored.) In this type of pro- curement, firms may be required to submit a price for the A&E work being procured, but the price is submit- ted in a sealed envelope and is only opened if the offeror is selected for negotiations, as described below. After the evaluation process has been completed, ne- gotiations are first conducted with the firm determined to be the most qualified offeror. If negotiations are suc- cessfully concluded, including agreement on price, con- tract award is made to that firm. If the procuring agency and that offeror are unable to agree on a fair and reasonable price, the agency may conduct negotia- tions with the next-most-qualified offeror. If necessary, negotiations with successive offerors in descending or- der may be conducted until contract award can be made to the offeror whose price the public agency determines to be fair and reasonable. If an agency implements an A&E procurement, the resulting contract must be performed by the contractor 73 49 U.S.C. § 5325(b)(1). 74 40 U.S.C. § 1101–1104. in accordance with the cost principles in Federal Acqui- sition Regulation Part 31 that address allowability of costs and related issues, and the contractor’s work is subject to audit under those cost principles. Another unique aspect of an A&E procurement re- lates to the use of local geographic restrictions or pref- erences. Normally, in a federally-funded procurement, a public agency is prohibited from specifying in-state or local geographical preferences or from using such pref- erences as an evaluation factor. However, in the pro- curement of A&E services, geographic location may be a selection criteria if an “appropriate number” of qualified firms are eligible to compete for the award. 2. All Services and Work Other Than A&E If the work being outsourced is something other than A&E services (i.e., custodial work, maintenance, ac- counting services, advertising, legal services, security, etc.), the transit agency has much more flexibility in terms of the procurement method that it may elect to use. The three most common methods, which are recog- nized in federal procurement generally and are author- ized for FTA-funded projects, are 1) competitive propos- als, 2) low bid, and 3) two step. In addition, in those cases where permitted under FTA principles and the Common Grant Rule,75 a public agency may make a sole source or single bid award. A discussion of each of these competition methods follows. 1. Competitive Proposals—The competitive proposal procurement method is carried out through issuance of a request for proposals (RFP) seeking technical qualifi- cations and price proposals from interested firms. For a number of work areas not traditionally outsourced, this method will be the most appropriate to use. In this type of procurement, the public agency should specify in its RFP the specific technical qualifications factors that it intends to evaluate (i.e., past experience, qualification of team members, technical understanding of the work, etc.). The RFP can identify the specific weight to be given to each qualifications factor in the evaluation and scoring of proposals, or it may just list the factors in relative order of importance. In addition, since award is made on the basis of technical qualifica- tions and price, the RFP will normally specify the rela- tive weights of those two basic criteria (i.e., qualifica- tions count 60 percent of the final score; price counts 40 percent). In addition, the agency’s Source Selection Plan (an internal document not shared with proposers) should provide specific information on the weights or points to be afforded each of the qualification factors, as well as the relative weights of qualifications and price. The normal practice in this type of procurement is for the public agency to have the flexibility to either 1) award on the basis of the initial proposals, or 2) estab- lish a “short list” or competitive range, conduct discus- sion/negotiations with those firms in the competitive range, require best and final offers (BAFOs), and then 75 49 C.F.R. pt. 18.

12 award to the highest ranked firm based on the evalua- tion and scoring of the BAFOs. (BAFOs must be re- viewed and evaluated under the same qualifications and price criteria and weights.) It is also permissible for the agency to conduct interviews with the proposers and then decide whether to proceed to evaluation and award or to conduct a BAFO process. In any event, it is important that the RFP specifically describe these al- ternative paths to contract award, so all proposers will be informed of the steps in the evaluation process. This procurement method offers a couple of signifi- cant advantages to a public agency. First, because award is based on a combination of qualifications and price, the agency can take both of these areas into ac- count, weighted in accordance with the agency’s specific needs in that procurement (e.g., in some cases, qualifi- cations may be the most critical factor; in others, price may be of primary importance to the agency). Second, unlike the low-bid method described below, the agency is permitted to have discussions with proposers after proposals are received, the agency can identify deficien- cies and issues in the proposals, and proposers may be allowed to submit revised proposals through the BAFO process (which may include changes to the qualifica- tions/technical proposal or to the price proposal, or both). For these reasons, the competitive proposal method may be the most flexible and useful procure- ment methodology for a wide range of outsourced ser- vices (i.e., maintenance, security, etc.). 2. Low Bid—The low-bid method is carried out through the issuance of an invitation for bids (IFB), requesting a firm fixed price for specific work, equip- ment, or services. In many states, low-bid award is re- quired for construction and equipment acquisition. In this type of procurement, no post-bid discussions may take place with bidders, and bidders do not ordinarily have an opportunity to correct errors or otherwise re- vise their bids. (A bid with an error or omission in a IFB procurement usually must be rejected as nonresponsive; in contrast, in a procurement by competitive proposals, a proposer may be given the opportunity to correct or revise a deficiency in its proposal.) In a low-bid procurement, the procuring agency should provide sufficient details and specifications re- garding the services or equipment or work being pro- cured so that potential bidders will have adequate in- formation on which to develop and submit a responsive price bid. This type of procurement is most frequently used for construction work and purchase of equipment/physical assets and may be of less utility in the outsourcing of various types of transit support services. Nonetheless, a low bid could be appropriate for specialized services where there are a known number of qualified firms and where price is of predominant concern to the procuring agency. 3. Two Step—The two-step procurement method in- cludes two distinct phases: a qualifications process, fol- lowed by a selection process that is based either on low- bid or on competitive proposals (RFQ–IFB or RFQ– RFP). The first step is normally carried out through an RFQ. Prospective firms are requested to submit their technical approach to the work being procured and pro- vide their technical qualification to carry out that ap- proach (the SOQ). The agency then reviews those sub- mittals and establishes a “short list” of those offerors that demonstrate a technically satisfactory approach and have satisfactory qualifications. The short-listed firms will then be invited to participate in the second step of the procurement. Again, it is helpful for the agency, in its Source Selection Plan, to establish the criteria or score that will be used as the cut-off for those proposers making the short list. The second step consists of requesting the short- listed firms to either submit bids, sometimes referred to as “two-step sealed bidding,” or to submit competitive proposals consisting of qualifications and price. The process for this second step will be basically the same as that described above for a standard IFB or RFP. The two-step, low-bid (RFQ–IFB) method is good to use where the agency wants to award on the basis of low price but also wants to be able to pre-screen the market to assure it is obtaining bids from qualified firms, (i.e., to avoid being forced to accept an unquali- fied firm that “buys” the work by submitting a very low bid). The two-step RFQ–RFP approach is probably of less utility in normal outsourcing of work; it has more application in large projects like design–build procure- ments where there are multiple potential firms and the agency wants to limit the RFP stage to just the most competitive potential contractors. 4. Noncompetitive Proposals or Sole Source—In lim- ited circumstances, a transit agency may award con- tracts on a sole-source basis. Essentially, to support a sole source under the FTA procurement principles, the agency would need to be able to demonstrate that the services being procured were available only from a sin- gle source. The FTA Circular provides specific examples of when a sole source may be justified, specifically: 1) where the offeror demonstrates a unique or innovative concept not available from another source; 2) where patent or data rights preclude competition; or 3) where a follow-on contract is required to avoid substantial duplication of costs or unacceptable delays in meeting the agency’s needs. The procuring agency should also review state law for any applicable standards governing sole-source awards. In addition, any sole-source award should be accompanied by a written sole-source justification pro- viding support for the procurement action. C. Types of Contracts/Pricing Methods As a general matter, procurement of services for nontraditional transit work or services will be carried out under one of two contract pricing methods. A cost- reimbursement contract establishes a not-to-exceed amount and provides for payment of the contractor’s allowable incurred costs, up to that amount. A firm-