Procurement & Contracting
The procurement of goods and services and executing related contracts is a major
function of transit management. In addition to seeking to obtain the highest quality
products and services at the lowest possible price, this function must be performed in
compliance with governing federal and state laws and rules and transit system policies.
This section discusses a variety of topics related to procurement and contracting. These
discussions are general in nature since each individual’s specific needs vary depending on
the nature of each procurement, funding source requirements, local and state laws and
rules, staff size, personal experiences, etc. The following topics that will be discussed in
the pages that follow:
• Steps in the Procurement Process
• Governing Laws & Rules
• Overriding Principles
• Procurement Methods
• Solicitations – IFBs and RFPs
• Receive Bids/Proposals, Evaluation, & Selection
• Service Contracts & Equipment Leases
• Contract Execution
• Dispute Resolution
• Monitoring Contract Performance
• Sample Documents
• Links & Resources
Any presentation on procurement and contract management cannot be all-encompassing
because of the vastness of governing laws, rules, and policies on procurement and
contracting. This document will, however, attempt to create an awareness of major
related topics and principles and provide information on resources that may be accessed
for more detailed information and instructions.
Steps in the Procurement Process
It may be helpful to use the most elaborate processes as a model for how most
procurements using public dollars are to be performed. At their most complex,
procurements will include the following nine steps.
1. Define the need for the item or service,
2. Develop performance-based specifications,
3. Determine procurement method to be used and review any lists of prequalified
or pre-existing vendors,
4. Issue solicitation (e.g. Request for Proposal, Invitation for Bid),
5. Receive bids or proposals and open bids or evaluate proposals on a date
designated in your solicitation,
6. Announce the winning proposal/bid, and be prepared to respond to bid
7. Negotiate and execute contract or similar agreement,
8. Vendor performs according to specification and agreement, with the agency
performing its responsibilities to monitor and honor the terms of the contract,
9. Performance is completed, contract is closed out.
Each of these steps and related topics will be discussed in the remaining pages of this
Governing Laws & Rules
Like any business, transit systems need to make purchases to operate. Typical purchases
include things such as vehicles, fuel, maintenance equipment, office supplies,
architectural services for new buildings, etc. Unlike many private business managers,
however, most transit managers must comply with a wide array of governing laws and
rules related to procurement.
The applicability of various laws and rules is generally dictated by the sources of the
funds involved. Purchases involving federal funds need to comply with federal laws and
rules on procurement. Similarly, purchases involving state funds may have their own set
of governing laws and rules. Transit systems may also have internal policies which must
be complied with.
State and local governances vary from state to state and from system to system. This
manual will not attempt to provide a state-by-state review of all non-federal laws and
rules that govern transit system purchases. It is, however, a transit manager’s
responsibility to be familiar with and to abide by all laws and rules which govern their
operation’s purchases. When multiple laws, rules, and policies govern a purchase, the
most stringent mandates of each must be adhered to.
Most transit systems operate with capital and operating assistance from the Federal
Transit Administration. For entities that are purchasing goods or services with Federal
Transit funds, it is important to note that FTA Circular 4220.1E differentiates between
states and other grantees. For states, the FTA allows them to follow the same
procurement policies and procedures that they use for acquisitions that are not paid for
with Federal funds.
Conversely, non-state grantees are required to administer procurements and related
contracts in accordance with the provisions of the Circular. The Circular also states,
however, that the FTA assumes that most grantees have experience with third party
contracting requirements of the “common grant rules” and that the FTA will, therefore,
rely primarily on grantees’ “self-certifications” that their procurement system meets FTA
The FTA provides related technical assistance via its Best Practices Procurement
Manual, regional and national instructional courses and conferences, and “as needed”
Resource citations related to FTA-related procurements are provided in the “Links &
Resources” subsection at the end of this chapter.
There are five reoccurring themes that are typically set forth in federal, state, and local
governances concerning procurement. These themes include:
• Enunciate What is Needed
• Seek Value
• Encourage and Utilize Competition
• Promote Fairness to All Bidders
• Avoid Real or Perceived Conflicts of Interest
Ultimately, procurements should be made in a manner that insures maximum value to the
transit system, its customers, and the entity that is funding the purchase. The creation of
maximum value is, however, tempered by the costs associated with obtaining this value.
As will be discussed later in this section, federal rules recognize that it is contradictory to
spend an inordinate amount of time and money to go through an elaborate bidding
process to purchase low-cost items. Nonetheless, steps must be taken on all purchases to
seek quality at the lowest possible cost.
Value and low cost are achieved by having a clear understanding of what is needed and
then utilizing competition in the marketplace to purchase the desired goods or services at
the lowest possible price. As this sequence indicates, the buyer must first have clear
specifications concerning the desired goods or services. Major purchases require
elaborate specifications while minor purchases may not. In either case, however,
knowing exactly what is needed is the first step in the procurement process.
Specification-related requirements are discussed in more detail in a later subsection.
Once the buyer knows what is needed, the next step to insuring value and low cost is
comparison shopping. An underlying assumption is that the competitive marketplace will
present the buyer with various options and/or prices from which to choose. Buyers must
utilize this competition within the marketplace to purchase the best possible good or
service at the lowest possible price. Buyers may not unfairly prohibit potential suppliers
from bidding by placing real or artificial barriers in the bidding process which would
preclude participation in the bidding process.
As will be discussed later in this section, the extent to which a buyer needs to “shop
around” is often dictated by the amount of money involved in a purchase. Minor
purchases require little comparison shopping since the costs involved in doing related
comparisons out-weigh savings that might result. Conversely, major purchases may
require significant pre-purchase work (preparing specifications, calling for bids, awarding
purchase contracts, etc.).
While this process creates value and savings, it also represents fairness to potential
suppliers since it gives them the opportunity to compete for the buyer’s business. This
fairness, in turn, promotes competition, better products, and lower prices since it, in
effect, provides that all suppliers will be given a chance to provide the desired goods or
services. It also rewards those suppliers who offer desired goods and services at the best
Adherence to the principles of competition and fairness will also allow buyers to avoid
real or perceived conflicts of interest in the procurement process. Conflicts of interest
must be avoided, both in fairness to other suppliers and to promote the integrity of the
buyer and the procurement process.
In general, specifications should include the following, as appropriate:
• Specific details concerning the good or service being procured,
• Intended procurement schedule,
• Basis of payment,
• Anticipated terms and conditions,
• Special requirements (such as FTA requirements that pertain to vehicle
• Basis of vendor qualifications and selection,
• Possible bonuses or penalties for (non-)performance,
• Provisions for acceptance of delivered property/goods/services or ongoing
monitoring of a service contract, and
• Opportunities for appeal/review/resolution of contract-related disagreements or
Specifications should include a clear and accurate description of the product or service
that is to be procured. Generally speaking, specifications tend to be either design- or
performance-based. Design specifications tend to include more detail and require that
bidders provide a good or service that satisfies the exact nature of what is called for.
Design specifications tend to put more performance-related pressure on the buyer since
non-performance may be more related to poorly drafted specifications than to the abilities
of the product or service that is provided.
Performance specifications, on the other hand, focus more on the way that the supplied
good or service is supposed to function than on details concerning the construction of the
item. To the extent that the purchaser has adequately described the desired performance,
the supplier has a greater implied warranty to provide a product that satisfies the
Funding source offices and other transit operators may serve as a good source for
examples of specifications that have been used elsewhere to procure the desired types of
goods or services. Exclusive brand names or specific products should typically not be
specified when describing a desired product since doing so may preclude qualified
bidders with acceptable products from participating in the bidding process. If brand
names are used, multiple names and the allowable substitution of an “equal” should be
provided for in the bid package.
Solicitations must also identify all requirements that bidders must fulfill and factors to be
used to evaluate bids or proposals. The provision of supply timelines, product warranties,
references, and performance bonds are common bid requirements.
Providing potential bidders with prior evaluation information is a form of due process
which allows everyone in the bidding process to be aware, at the outset, of the factors that
will be used to determine who is the successful bidder. Providing this information as a
part of the call for bids is a matter of fairness to potential bidders plus it enhances the
quality of bids by ensuring that all bidders are able to comply with related requirements.
Once a buyer has clearly articulated the type of good or service required, the buyer must
select the procurement process that is best suited or required for that size/type acquisition.
Procurement methods are typically dictated by the amount of money involved with the
purchase. The following paragraphs discuss the most common procurement methods
used by Federal Transit grantees; other buyers will be governed by other grantee
requirements or state or local laws, rules, and policies.
Micro-Purchases. A “micro-purchase” is a purchase which involves less than $2,500.
Purchases below this threshold may be made without obtaining competitive quotations
but documentation is required to verify that the price was fair and reasonable. The
documentation must also identify how this determination was made. More stringent
requirements may be utilized if required by state law or rule or purchaser policy.
Small Purchases. The FTA describes a “small purchase” as one which involves between
$2,500 and $100,000. The requirements related to small purchases are the same as the
ones set forth for micro-purchases, except for the added requirement that price or rate
quotations must be obtained from an “adequate number” of qualified sources. Again,
documentation is critical to verify that sound business practices have been adhered to. As
is the case with all procurement activities, the FTA will perform system reviews as a part
of its on-going oversight responsibility.
Sealed Bids/Invitation for Bid. This process is typically used where more than $100,000
is involved, where two or more responsible bidders are willing and able to complete, and
where the selection of a successful bidder can be made principally on the basis of price.
Invitations for bids must be publicly advertised, definitive specifications are available
concerning the items or services being purchased bids are publicly opened, and a written
fixed-price contract will be entered into with the lowest responsive and responsible
Competitive Proposal/Request for Proposals. This method of procurement lends itself to
situations where the use of sealed bids is not appropriate, presumably because detailed
specifications are not available and/or because price is not the primary determinant in
selecting the best bid.
As was the case with the sealed bid procurement method, proposals must be solicited
publicly from an adequate number of qualified sources. There must be a pre-established
methodology in place to conduct technical evaluations and for selecting a successful
bidder. Awards are made to the firm whose proposal is most advantageous in terms of
price and other factors.
Architectural and Engineering Services. A&E services are typically purchased using
“qualifications-based competitive proposal” procedures. Under this method, a
description of the services required is prepared and proposals are solicited. Following an
evaluation of qualifications, negotiations are conducted with the most qualified bidder.
Failing agreement on price, negotiations may take place with the next most qualified
Sole Source Purchases. Sole source procurements are permissible primarily when an
item or service is available from only one supplier or when an emergency requires
expediency. As with all procurements, related documentation is required. In this case,
however, the documentation must include a cost analysis.
Solicitations – IFBs and RFPs
As is the case with procurement methods, solicitation requirements vary depending on
the size of the purchase, funding sources, and laws, rules, and policies which govern the
buyer. Key considerations include where solicitations must be published, how often they
must by published, and time requirements between the time of publication and the
Solicitations typically take one of two forms – they are either an “Invitation for Bids” or a
“Request for Proposals.” An Invitation for Bids (IFB) is normally a call for bids which
results in an award being made to the low price bidder which meets the minimum quality
standards which are set forth in the invitation.
A Request for Proposals (RFP) differs from an Invitation to Bid (ITB) to the extent that
proposals will not necessarily be rated primarily on price. Rather, the solicitor’s request
sets forth criteria which will be used to rate proposals. Common rating factors include
technical expertise, experience, ability to perform, price, etc. Performance is typically
the primary objective.
Proposals are ultimately reviewed and rated based on pre-established evaluation criteria.
Even though these criteria are pre-established, RFPs tend to be more subjective than
IFBs. In both processes, the desired end result is the best value and the most
advantageous end result for the procuring entity. However, with performance being more
of an end result rather than a specific product that may be called for in an IFB, price may
be less of a determining factor in an RFP than in an IFB. Documentation of the review
and award process is critical.
As indicated in the preceding subsection, solicitations may not be necessary for small,
“micro” purchases. With FTA-related purchases, for example, a purchaser is not required
to obtain multiple price quotes. The only requirement is that the buyer document that the
purchase price was determined to be reasonable.
Bid solicitation requirements typically increase with the amount of money involved with
the purchase. Specific requirements are dictated by the funding agency and state and
local laws, rules, and policies which govern procurement. Quite often, purchases
involving more than “micro” amounts require the publication of a corresponding notice in
one or more official newspapers.
Requests for proposals/bids typically identify the good or service that is desired and set a
specific date, time, and place for opening. Related notices may be relatively short and
may direct interested parties to request more detailed bid packages from the buyer or
provide them with directions on how to find them on the Internet.
Satisfying legal notice requirements does not guarantee truly adequate notice to
potentially interested bidders. To facilitate true notice and effective bidding, purchasers
typically send requests for bids or proposals directly to potential bidders and publish
notices in trade publications, construction journals, etc.
Complex procurements may require pre-bid meetings with prospective bidders to respond
to technical questions. Such meetings are typically provided for in the call for bids and
provide an open forum where all potential bidders are provided an opportunity to have
questions answered and to hear questions posed by other interested parties.
These forums also provide a means for buyers to respond to deficiencies that may have
been noticed in the original call for bids. Significant changes, where noted via pre-bid
meetings or otherwise, may necessitate the issuance of solicitation amendments to all
potential bidders. These amendments may also necessitate an extension of time to submit
The FTA’s Best Practices Procurement Manual provides considerable information
concerning procurement-related requirements (advertising, etc.). Additional information
concerning solicitation requirements is contained in Sections 8 and 9 of FTA Circular
Receive Bids/Proposals, Evaluate, & Select
As indicated earlier, buyers should have written selection procedures to govern
procurement transactions. Having pre-established procedures will eliminate both
uncertainty and the appearance of impropriety in the procurement process.
Sound selection procedures require detailed specifications and related bidding
instructions. Clear descriptions and technical requirements related to the good or service
to be procured and similarly clear and specific bidding requirements that bidders must
fulfill greatly facilitate the bid evaluation process.
Bids are typically kept sealed and in a secure location until the time specified for
opening. Shortly before the specified time, a procurement officer will normally check the
mailroom fax machine, etc. one last time. Bids may also be delivered in person up until
the prescribed opening time.
At the appointed time, bids are publicly opened and read. Bidders and bid amounts are
often recorded on a summary sheet or abstract; final awards are dependent on the
outcome of a further review which insures that bids are responsive and in compliance
with all bid requirements (performance bonds, compliance assurances, etc.).
Only bids which are responsive to the request for bids/proposals and which were received
in a timely manner warrant further consideration. Unresponsive and late-filed bids are
typically disregarded. Compliance checklists may be used to review each bid’s
completeness and to record its bid price.
Responsive bids are generally ranked based on price and awards are made to the lowest
responsive bidder. Purchase contracts are subsequently negotiated and awarded to
successful bidders. Contract execution and administration are the subject of a later
Unfortunately, errors occasionally occur in the bid process. These errors are often in the
bids that are submitted by potential suppliers and are not noticed at the time of opening.
Some of these errors will be minor and will not have a material impact on the eventual
award. In other cases, substantial errors (a misplaced decimal point or arithmetic error)
may precipitate a voluntary retraction by a bidder. Legal counsel should be sought before
taking action on observed bid errors.
Service Contracts & Equipment Leases
There may be instances where procuring needed goods and services via service contracts
or equipment leases is more cost-effective than making related equipment or material
purchases and/or providing the services with grantee personnel. Examples include
contracting with a school district to serve a specific clientele group, leasing office
equipment or vehicles, and contracting for vehicle maintenance or janitorial services in
Procurement officers must depend on their professional insights to determine when
service contracts or leasing may be in order. Knowing when, where, and how such
approaches may be beneficial is a “judgment call” that should be considered if additional
value might result. Developing a lease vs. purchase analysis prior to receiving bids or
proposals may be warranted and may help determine which approach is more
Asking the question and making a related independent assessment will dictate whether or
not leasing or contracting for services warrants further consideration. Whatever decision
is made, buyers should document the fact that the assessment was made and what
findings precipitated the decision to proceed in the chosen manner.
If the decision is made to lease vs. purchase or to produce the needed product or service
via a service contract, related procurement processes must still be adhered to and
resulting contracts must be executed and administered as outlined in the following
Following the bid opening/evaluation phase of larger procurements, the buyer and seller
typically enter into a formal written contract which governs the corresponding purchase.
This agreement governs not only the item’s specifications and related price, but it also
establishes expectations for things such as delivery deadlines, terms of payment, and
penalties for non-performance.
In addition to language that is specific to the purchase at hand, procurement contracts
typically contain a variety of “boiler plate” language that is prescribed by local or state
law, funding agencies, etc. This language governs things such as “Buy America” or
Davis-Bacon Act wage scales.
The FTA publishes an annual “Master Agreement” which lists many FTA and other
Federal requirements which are applicable to FTA grantees. In addition, the FTA Best
Practices Procurement Manual contains a list of another 31 potentially applicable
provisions that may be required in a contract, depending on the size of the purchase and
what is being procured. Grantees are responsible for evaluating these requirements for
relevance and applicability to each procurement.
Procurement contracts are subject to audit and should provide full documentation to
insure that the process was administered properly.
Procurement-related disputes may arise relative to the award of bids or during the project
administration phase once contracts have been awarded and work is ongoing. Written
procedures should be in place to outline how pre-award disputes will be handled while
post-award disputes should be handled according to the terms of procurement contracts
executed between the buyer and the vendor.
Issues that must typically be addressed in procurement contracts include performance
evaluation, protests, disputes, and claims. These dispute resolution mechanisms should
adhere to good administrative practice and sound business judgment to settle contractual
and administrative issues arising out of procurements.
Disputes should be resolved with as much informality as possible but all disputes and
their ultimate resolution should be well documented. Unfortunately, some disputes
cannot be resolved informally so governing contracts should provide for resolution
mechanisms such as mediation or arbitration. Appeal processes should also be provided
Monitoring Contract Performance
Contract administration involves follow-through activities which ensure that the goods or
services described in the contract are, in fact, provided as prescribed. Purchasers must
establish and operate a contract administration system that ensures that contractors
perform in accordance with the terms, conditions, and specifications of their contracts or
While many individuals may be involved in contract administration, one official file
should be maintained as a depository of all pertinent records, correspondence, and related
documentation. File contents should include things such as:
• Notice of Award
• Performance bond, insurance, etc.
• Ongoing correspondence
• Daily logs
• Change orders
• Disputes and related resolution documentation
• Delivery inspection report
• Close out documentation
As the preceding list suggests, change orders are likely to occur in major projects.
Procedures regarding change orders should be outlined in the contract and all change
orders should be in writing and signed by both the buyer and the vendor. Common
elements of change orders include the scope of work, related time frames, and cost
Buyers should strongly consider the use of an inspection checklist to insure that delivered
goods and services satisfy original specifications. Care should be taken to guarantee that
no unauthorized substitutions have been made. A satisfactory inspection report is a
necessary element that permits subsequent payments to vendors and an eventual project
Sample documents and procurement management forms may be available from funding
source agencies and governing procurement officials. Additional information on sample
documents may be found on the Small Urban & Rural Transit Center website identified
in the following subsection. The presentation of documents and forms on the SURTC
website is not an endorsement or official approval of these items. Rather, these items are
presented to provide readers with examples of documents and forms that might be used to
effectively manage procurement, contracting, and grant management processes. Actual
forms should be developed by transit managers with input from granting agencies and
local legal counsel.
Links & Resources
The following Internet website/resource links were used in preparing this section and
serve as resources to expand on the information and concepts presented:
FTA Circular 4420.1E. This U.S. Department of Transportation/Federal Transit
Administration publication contains rules which transit grantees must adhere to in the
solicitation, award and administration of its third party contracts.
FTA Best Practices Procurement Manual. This manual provides FTA grantees with
suggested methods and procedures concerning third party procurements and related “best
CTAA Website. The Community Transportation Association provides professional
development and training programs for individuals and organizations that desire to
enhance their expertise in transit management. Passing the “Certified Community Transit
Manager” examination demonstrates proficiency in the field. Information on the
certification process and related training programs is available on the CTAA website.
Title 49 Code of Federal Regulations Parts 18 & 19 – Common Grant Rules.
Sample procurement and contract management documents and forms.
Local and state procurement officers and regional and national FTA offices are also
excellent sources of information related to procurement processes and related documents.