Legal Handbook for the New Starts Process (2010)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

28 H. The Procurement Process To the extent possible, third-party agreements should be finalized at this point; if not finalized, clear timelines for their completion should be available. I. Request Full Funding Grant Agreement— Checklist On its Web site FTA has a checklist of matters that must be completed before a project sponsor may seek an FFGA.131 The key factor at this stage of the process is project readiness, as demonstrated by sound capital cost estimates, firm local funding commitments, a strong project management team, and completion of the items in FTA’s checklist. The checklist particularly empha- sizes that a project sponsor must have ready at this stage updated plans, particularly its PMP, Financial Plan, and Rail and Bus Fleet Management Plans. The following elements drawn from the checklist show some other important elements necessary at this stage: 1. Key Requirements. (i) Grant application (in FTA’s online grants man- agement system,TEAM). (ii) 13(c) certification of the grant application. (iii) Authority to proceed with procurement (if other than design-bid). 2. New Starts Evaluation Rating (i) Receive a Medium or higher overall rating. 3. Letter from Project Sponsor to Regional Adminis- trator Requesting an FFGA. J. Ability to Proceed Before Full Funding Grant Agreement (Use of Pre-Award Authority or LONPs) As appropriate, FTA may issue an LONP for capital items that require a long lead time. As noted previ- ously, Final Design carries with it blanket pre-award authority under which a project sponsor may incur Fi- nal Design costs that are eligible for FTA reimburse- ment if all applicable federal requirements are met. Note, however, that this pre-award authority generally does not cover all matters, and it may be necessary for a project sponsor to seek specific LONP authority from the FTA. If granted, the authority is essentially the same as pre-award authority; all federal requirements must be met for costs incurred to remain eligible for federal reimbursement. Note also the previous discus- sion of ESWAs under which FTA by statute may make federal funds available to a project before an FFGA is entered into. 131 FED. TRANSIT ADMIN., NEW STARTS PROJECT PLANNING AND DEVELOPMENT CHECKLIST OF PROJECT SPONSOR SUBMITTALS TO FTA FOR A FULL FUNDING GRANT AGREEMENT (2008), available at www.fta.dot.gov/printer_friendly/planning_environment_9094. html. K. Other Issues: Before and After Study Note also that, by statute,132 an FFGA shall require the applicant to conduct a Before-and-After Study that describes and analyzes the impact of the new fixed guideway capital project on transit services and transit ridership, evaluates the consistency of predicted and actual project characteristics and performance, and identifies sources of differences between predicted and actual outcomes. At this point in the process, FTA re- quires the submission of a plan that provides for the collection and analysis of information once a project is in revenue operation so that the Before-and-After Study ultimately may be completed in a manner satisfactory to FTA. Further, FTA is required annually to submit to Congress a Before-and-After report documenting the results of individual Before-and-After studies. CHAPTER VI: THE FULL FUNDING GRANT AGREEMENT A. Background, Purpose, and Significance of Full Funding Grant Agreement; FTA Full Funding Grant Agreement Circular The FFGA came into use in the late 1970s when FTA’s predecessor agency, the UMTA, began providing greater amounts of federal funds for major capital in- vestment projects. UMTA developed policies and proce- dures to use those funds in the most prudent and effec- tive manner. Moreover, given the number of areas competing for scarce New Starts funding, UMTA wanted to limit the amount of federal funds that it pro- vided for any particular project. It was from this nexus of policy considerations that the FFGA emerged. Over time the FFGA became more detailed and com- prehensive. Early FFGAs limited the federal participa- tion to a maximum amount. Only in the event of “ex- traordinary” costs—Acts of God, excessive inflation, unanticipated eminent domain costs, or compliance with new federal law—would UMTA entertain a re- quest to provide funds beyond the amount specified in an FFGA. As the New Starts project development process be- came more comprehensive and detailed, UMTA wanted to bring consistency and uniformity to the FFGA proc- ess and to the FFGA terms and conditions, which were still being negotiated on an ad hoc basis. In 1990 UMTA drafted a model FFGA and accompanying Circular. In subsequent reauthorization legislation in 1991,133 Con- gress specifically authorized FTA to enter into FFGAs to set terms and conditions and to establish the maxi- mum federal amounts to be made available. The now- renamed FTA formally issued an FFGA Circular, to- gether with a model FFGA, in 1992. Most significantly, the Circular did not include any provision for “extraor- dinary” costs. 132 49 U.S.C. § 5309(g)(2)(C). 133 Pub. L. No. 102-240, 105 Sta. 1914 (1991).

29 The FTA’s Circular on FFGAs was revised and reis- sued in December 2002.134 The Circular includes chap- ters on various aspects of the FFGA, as well as a model FFGA and examples of attachments in Appendix A. It is difficult to estimate the amount of time it takes to negotiate an FFGA because much depends on the lag that occurs between entry into Final Design and getting the FFGA executed. There can be much back and forth discussion with FTA over a project’s readiness and the documentation that needs to be completed before the FFGA can be addressed; see the checklist previously discussed. Moreover, much depends on the size and complexity of the project and its financing. The more complex a project is, the longer it will take to complete its FFGA. Nonetheless, a rough estimate for the time it takes to complete an FFGA is 12 to 14 months. 1. Purpose of FFGA (i) Formal Agreement.—The FFGA is, according to its definition in FTA’s New Starts regulation, “an in- strument that defines the scope of a project, the federal contribution, and other terms and conditions.”135 It is signed by FTA and the project sponsor following de- tailed review by the USDOT, the Office of Management and Budget, and Congress. (ii) Coverage.—FFGAs are defined more broadly in FTA’s Circular on FFGAs: An FFGA establishes the terms and conditions for Fed- eral financial participation in a new starts project; de- fines the project; sets the maximum amount of Federal new starts funding for a project; covers the period of time for completion of the project; and facilitates efficient management of the project in accordance with applicable Federal statutes, regulations, and policy. Within the lim- its of law, an FFGA provides assurance and predictability of Federal financial support for a new starts project while strictly limiting the amount of that Federal financial support.136 (iii) Terms and Conditions of Federal Participa- tion.—The FFGA sets the terms and conditions of fed- eral participation (see discussion in Section VI.B). (iv) Multiyear Funding Commitment.—Of critical significance, the FFGA represents a multiyear funding commitment of the federal government for a particular project, subject to the availability of funds from Con- gress. Thus, the FFGA became a reliable mechanism for FTA to plan on the allocation of Federal New Starts funds over a multiyear period, and brings certainty of funding to the project at the local level. (v) Limits New Starts Funds.—Most critically, the FFGA sets the maximum amount of Federal New Starts assistance that will be made available to a project. As noted above, early in its history the FFGA allowed a project sponsor to request increased funds on the basis 134 FED. TRANSIT ADMIN., FTA CIRCULAR C 5200.1A, FULL FUNDING GRANT AGREEMENTS GUIDANCE (2002), available at www.fta.dot.gov/laws/circulars/leg_reg_4119.html. 135 Id. 136 FED. TRANSIT ADMIN., supra note 134, “Purpose” section. of “extraordinary” costs incurred, although this was no longer permitted beginning in the early 1990s. A byproduct of the maximum amount concept of the FFGA is that it applies as well to local funds. If a pro- ject experiences cost increases for reasons beyond the control of the project sponsor, and the project sponsor wants to apply more local funds to assure that a project does not have to be downsized, FTA has in some cases not permitted the use of such additional local funds because the project would exceed its maximum amount. FTA has not always been consistent on this issue, how- ever, and recently has begun to review this policy in response to industry criticism. 2. Significance of FFGA Simply stated, the only way to receive New Starts funding is for a project to be subject to an FFGA. More- over, projects generally receive New Starts funding ac- cording to the annual schedule in the FFGA. An interesting question is whether the New Starts federal funds committed under a FFGA represent a binding obligation of the United States. FTA takes the position that federal funds under an FFGA are always “subject to the availability of funds from Congress.” That is, notwithstanding a duly executed FFGA, Con- gress through the annual appropriations process always retains the authority to decide not to fund a particular project. Others contend that in such an event, the pro- ject sponsor would have a legitimate claim against the United States based on the terms of the FFGA. In any event, FTA and Congress to date have honored, subject to minor variations such as across-the-board spending cuts, the total amount of funds reflected in an FFGA, and also have generally honored the annual schedules in FFGAs. Moreover, any issues about out-year FFGA funding commitments being honored are likely to turn on political rather than legal considerations. B. Terms and Conditions The standard FFGA includes whereas clauses fol- lowed by some 26 sections. Each of the sections is dis- cussed briefly below.137 Recitations (Whereas Clauses) The recitations in an FFGA are standard and ad- dress general areas including, but not limited to the grantee’s financial plan, previous federal grants; the maximum Federal New Starts financial contribution, the grantee’s application and process, and operations and maintenance of the project. In some instances, specific language is included in the whereas clauses to address unique circumstances. An example would be in those cases where the respon- sibility for funding operations and maintenance does not rest with the grantee but with another entity. This was the case both in the Phoenix Valley Metro Rail pro- ject and in the Northstar, Minnesota, commuter rail project. Another example of a unique circumstance 137 Id.

30 would be where special arrangements are made con- cerning construction of so-called interrelated activities that are not part of the federal project but are essential to it—examples include the vertical circulation building being built as part of the Northstar project and the Minnesota Twins stadium, airport construction at the Minneapolis–St. Paul Airport that was part of the Hia- watha Light Rail Project, and airport construction at San Francisco Airport that was part of BART’s air- port/Millbrae extension. 1. Section 1—Definitions The definitions section sets forth definitions of terms that are used throughout the FFGA, and provides defi- nitions for several terms that are more fully explained in specific contract provisions (e.g., Baseline Cost Esti- mate, Estimated Net Project Cost, and Maximum Fed- eral New Starts Financial Contribution). The FTA also uses this section to define terms that are unique to a specific FFGA (e.g., the term “Twins Interrelated Ac- tivities” in the Northstar, Minnesota, commuter-rail- project FFGA is defined as certain activities being per- formed and paid for by the Minnesota Twins baseball team that are related to the station being constructed in conjunction with the construction of a new baseball sta- dium). 2. Section 2—Purposes of Agreement There are four stated purposes of the FFGA: provide federal financial assistance for the project, describe the project being funded and constructed, establish the maximum Federal New Starts financial commitment for the project, and establish the grantee’s financial commitment to the project. 3. Section 3—Previous Federal Documents and Grants This section provides general language concerning previous agreements entered into by the FTA and the grantee. It reflects that the project is governed by the terms and conditions of previous grants that are incor- porated by reference into the FFGA, except if a previous term or condition is superseded by the FFGA. It further provides that the terms and conditions of the FFGA take precedence over the provisions of all other agree- ments between the FTA and the grantee. And it pro- vides that no amendments will be made to prior grants to increase the funding provided by those grants. 4. Section 4—Obligation to Complete the Project This is an extremely critical provision of the FFGA. It provides that the FTA has no obligation to provide additional funds beyond the maximum Federal New Starts contribution, and that if the total federal funding provided is insufficient to “undertake revenue opera- tion” of the project, the grantee agrees to complete the project and accept sole responsibility for the payment of additional costs. This section requires the grantee to immediately notify FTA if the total project cost will ex- ceed the baseline cost estimate, including the amount and the reason for the overrun. FTA has recently re- vised this provision to require that if there is an over- run situation, the grantee must prepare a recovery plan that demonstrates that the grantee is taking and will take every reasonable measure to eliminate or recover the difference between the total project cost and the baseline cost estimate. The grantee is obligated to ob- tain sufficient nonfederal New Starts funds to cover the difference. 5. Section 5—Revenue Operations Date This section sets forth a specific date that the grantee agrees and promises to achieve revenue opera- tion of the project. The section specifically provides that failure to meet the stated date is a breach of the FFGA. FTA, at its sole discretion, may waive a breach or an- ticipatory breach and extend the date if there is an un- avoidable delay or if FTA determines that the delay results from an event or circumstance beyond the con- trol of the grantee. Delays in receiving FTA funds do not constitute a basis for extension of the date. More- over, an extension of the date does not constitute a ba- sis for additional federal New Starts funding. FTA has frequently extended the revenue operations date, but has never terminated an FFGA for failure of a grantee to achieve the original revenue operations date set forth in an FFGA. 6. Section 6—Net Project Cost The section addresses the cost of the project that cannot reasonably be financed from the grantee’s reve- nues. The section specifies that federal funds may only be used to reimburse eligible expenses; and that if the project is completed “under” budget, a reduction of the local share requires a refund to the FTA of a propor- tional amount of the federal financial assistance pro- vided under the FFGA. Note, moreover, that FTA has the statutory author- ity to adjust the final net project cost of a New Starts project to include the cost of eligible activities not in- cluded in the originally defined project if FTA deter- mines that the originally defined project has been com- pleted at a cost that is significantly below the original estimate.138 7. Section 7—Estimated Net Project Cost The estimated net project cost is that portion of the cost of the project that reasonably cannot be financed from the grantee’s own revenues. The result is those costs that are eligible for federal financial assistance. It should be noted that in most instances, the estimated net project cost is the same as the Baseline Cost Esti- mate (BCE). The BCE is composed of both federal fund- ing and the local match for that funding. 138 49 U.S.C. § 5309(h)(2).

31 8. Section 8—Limitation of the Federal Funding Commitment This section addresses the maximum Federal New Starts financial contribution for the project. New Starts funds are the only federal funds limited in amount by the terms of the FFGA. The section provides the total amount of New Starts funding, and the total amount of New Starts funding to be provided after the execution of the FFGA, as set forth in Attachment 6, and condi- tioned upon the availability of appropriated funds and the grantee’s continued performance under the terms and condition of the FFGA. 9. Section 9—Federal Funding—Other Sources This section addresses any non § 5309 New Starts Federal funds being used for the project. There is no cap on the use of such funds for the project by the grantee, although FTA may expect the grantee to use local funds to pay any project overruns rather than rely on Federal non-New Starts funds. 10. Section 10—Local Financial Commitment—Capital Costs This section sets forth the total amount of non- federal match capital funds for the project and commits the grantee to provide the so-called local share. The grantee is required to keep the FTA informed of the availability of the local share and of any changes in such availability, including actions to ensure that suffi- cient local share is available to complete the project. The local share reflects the grantee’s commitment set forth in its financial plan, which FTA approves prior to the execution of an FFGA. 11. Section 11—Authorization to Advance Project Without Prejudice In essence, this section allows the grantee to incur costs or expend local funds for the project before an ac- tual award of federal funding without jeopardizing the eligibility of such costs for the future federal reim- bursement so long as the costs are incurred in accor- dance with all applicable federal requirements. It oper- ates as a “blanket” LONP during project design and construction. 12. Section 12—Local Financial Commitment— Operating and Maintenance The grantee or an entity identified by the grantee and recognized by FTA in the FFGA commits that it has sufficient funds from a stable and dependable source to operate and maintain the new project as fully set out in the financial plan approved by FTA prior to the execution of the FFGA. 13. Section 13—BCE The BCE is a calculation of all costs of the project covered by the FFGA necessary to complete the scope of work under the FFGA and eligible for federal assis- tance. The BCE is established at the time of the gov- ernment’s award of the FFGA. The BCE reflects escala- tion, contingencies, and schedule dates pertaining to the individual cost elements or contract units based on third-party contracts and force-account work. The BCE is used by the FTA to monitor the grantee’s compliance with its cost estimates. Although individual line items may increase or decrease during the course of the pro- ject, the BCE is never revised and remains constant throughout the life of the project. 14. Section 14—Baseline Schedule Under this section the grantee must notify FTA of any developments that threaten the grantee’s achieve- ment of the revenue operations date and the actions the grantee intends to take to recover any slippage in the baseline schedule. 15. Section 15—Project Management Oversight This section contains the grantee’s acknowledgement that the project is considered a “Major Capital Project” and thus subject to FTA’s requirements concerning Pro- ject Management Oversight set out in 49 C.F.R. Part 633. 16. Section 16—Environmental Protection This section memorializes the grantee’s responsibil- ity to undertake all environmental mitigation measures that are identified in the project’s environmental docu- ments. 17. Section 17—Labor Protection This section reflects the grantee’s commitment to carry out the project in conformance with the terms and conditions determined by the Secretary of Labor to be “fair and equitable to protect the interests of employees affected by the project” as required by 49 U.S.C. § 5333(b) (“13(c)”). 18. Section 18—Government Actions This section provides timelines for the FTA’s re- sponse when FTA review, approval, or concurrence is required under the terms and conditions of the FFGA and states that the FTA’s approval or concurrence will not be unreasonably withheld. 19. Section 19—Remedies This section provides that substantial failure of the grantee to complete the project in accordance with the terms and conditions of the FFGA will be a default of the FFGA, and that the FTA will have all remedies at law and equity as set forth in the Master Agreement. The section provides that in the event of default, the FTA may demand that all federal funds provided for the project be returned to the FTA. The section also pro- vides that the FTA’s review of the grantee’s perform- ance will be conducted under the provisions of Section 15 of the FFGA. If FTA determines that satisfactory progress is not being made by the grantee on the pro-

32 ject, FTA may withhold approval of further funding and suspend drawdown of federal funds. 20. Section 20—Contents of Agreement This section specifies all of the documents that com- prise the FFGA, including the cover pages setting forth significant characteristics of the FFGA, the terms and conditions of the FFGA, the attachments to the FFGA, the FTA Master Agreement, the FTA’s environmental record of the project, prior grants for the project, and any special conditions imposed on the grantee by the FTA in approving the FFGA. 21. Section 21—Simultaneous Creation of Agreement in Electronic Format This section provides for simultaneous hard copy of electronic execution of the FFGA. Simultaneous to the award and execution of the FFGA in typewritten hard copy, the FFGA is awarded and executed by electronic means through FTA’s electronic award and manage- ment system. To the extent any discrepancy may arise between the typewritten version and the electronic ver- sion of this Agreement, the typewritten version will prevail. 22. Section 22—Amendments to Agreement This section provides that any amendments to the FFGA, or any of the documents referenced in Sec- tion 20, must be in accordance with FTA’s Project Man- agement Circular or its FFGA Circular. 23. Section 23—Attachments—Incorporation This section incorporates the attachments to the FFGA by reference. (See discussion of attachments in Section VI.C) 24. Section 24—Notices This section contains standard contract language concerning provision of notices to representatives of the FTA and the grantee. 25. Section 25—Applicable Law This section provides that if federal statues or com- mon law do not govern the interpretation of the FFGA, the state law of the grantee’s residence will govern. 26. Section 26—Award and Execution of Agreement This section includes standard execution by each party, with attestations and affirmation by the grantee’s attorney that the grantee is duly authorized to sign the agreement under state and local law, that the agreement is due and proper and in accord with applicable state and local law, that the agreement con- stitutes a legal and binding obligation of the grantee, and that, to the best of the attorney’s knowledge, there is no legislation or litigation pending or imminent that might adversely affect the project. C. Attachments Each FFGA includes at least eight attachments as summarized below.139 1. Attachment 1—Scope of Project The first attachment contains a brief narrative statement of the project, including the location of the project, an explanation of its key elements, and a sum- mary of its basic operational functions. If the project is a fixed guideway, the attachment provides the length of the guideway, the mode of transit to be utilized, the number and type of stations, the approximate number of transit vehicles, and the location and type of mainte- nance facilities. The approximate number of transit vehicles is critical, since FTA will usually permit a grantee to purchase plus or minus two of the approxi- mate number listed in the attachment. 1(a). Attachment 1A—Project Map.—This attach- ment comprises a color map of the project showing alignment; major streets and highways that the line intersects; existing and proposed tracks; and location and type of new facilities including stations, park-and- ride facilities, and maintenance facilities. 2. Attachment 2—Project Description This attachment identifies and describes individual contract units of each of the discrete activities neces- sary to accomplish the stated purpose, objective, and transportation function of the project. FTA requires that standard cost categories be utilized. The standard cost categories are the basis for the baseline cost esti- mate contained in Attachment 3 and the baseline schedule contained in Attachment 4. Each of the stan- dard cost categories listed contains a very detailed de- scription of the activities undertaken under the cate- gory, but should not be so detailed as to restrict the grantee’s ability to make some modifications during construction (e.g., under the stations category, the number of stations is specified, but the length of station platforms is usually not specified unless there is a spe- cific project-related reason for doing so). It is very im- portant to carefully draft these descriptions so that they leave some flexibility to make these types of modifica- tions. Note that this attachment is quite critical in that it is relied upon by the FTA in developing its annual New Starts budget submittal, and is also relied upon by the congressional appropriations committees in their bills providing annual funding for the FTA program. 3. Attachment 3—Baseline Cost Estimate This attachment reflects the provisions of Section 13 of the FFGA. The attachment sets forth the BCE in three different formats: by Standard Cost Category, the inflated cost to year of expenditure, and by source of funding. The BCE reflects the estimated cost of the pro- ject at the time that the FFGA is executed. 139 Id.