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The Problem and Its Solution The nationâs 6,000 plus transit agencies need to have access to a program that can provide authoritatively re- searched, specific, limited-scope studies of legal issues and problems having national significance and applica- tion to their business. Some transit programs involve legal problems and issues that are not shared with other modes; as, for example, compliance with transit-equip- ment and operations guidelines, FTA financing initia- tives, private-sector programs, and labor or environ- mental standards relating to transit operations. Also, much of the information that is needed by transit attor- neys to address legal concerns is scattered and frag- mented. Consequently, it would be helpful to the transit lawyer to have well-resourced and well-documented reports on specific legal topics available to the transit legal community. The Legal Research Digests (LRDs) are developed to assist transit attorneys in dealing with the myriad of initiatives and problems associated with transit start- up and operations, as well as with day-to-day legal work. The LRDs address such issues as eminent do- main, civil rights, constitutional rights, contracting, environmental concerns, labor, procurement, risk management, security, tort liability, and zoning. The transit legal research, when conducted through the TRBâs legal studies process, either collects primary data that generally are not available elsewhere or per- forms analysis of existing literature. Applications Financial pressures within the transit industry require that contract performance be on time and within the al- located budget. There are a variety of contractual means Legal Research Digest 43 TRansiT CoopeRaTive ReseaRCh pRogRam sponsored by the Federal Transit administration June 2013 conTrAcTuAl meAnS of AchIevIng hIgh-level PerformAnce In TrAnSIT conTrAcTS This report was prepared under TCRp project J-5, âLegal aspects of Transit and intermodal Transportation programs,â for which the Transportation Research Board is the agency coordinating the research. The report was prepared by Larry W. Thomas, The Thomas Law Firm, Washington, DC. James B. mcDaniel, TRB Counsel for Legal Research projects, was the principal investigator and content editor. responsible Senior Program officer: gwen chisholm Smith that transit agencies have used with varying degrees of success to achieve on-time contract performance. All types of contracts can involve payment for performance, including construction, service, materials, supplies, and rolling stock, as well as payment for maintenance and repair. Contracts can also include incentive payments for on-time or early contract performance. Essential to an effective contract are well-defined performance standards. Standards must include all important criteria and definitive and objective means for monitoring performance. Of equal importance is a schedule for performance with consequences for fail- ure to meet that schedule. These contracts often in- clude liquidated damages and sometimes include pro- visions authorizing incentive payments for early or enhanced performance. A nationwide survey of transit agencies of all sizes was undertaken for this project to obtain information regarding transit agenciesâ success or failure in using performance-based provisions in their contracts; to identify any legal or other restrictions on their use of incentives or liquidated damages in their contracts; to obtain information on how the agencies determine the amounts of incentives and liquidated damages to specify in their contracts; to ascertain whether there are any risks or adverse consequences associated with the use of such clauses, such as litigation, claims, de- lays, limiting of competition, problems in enforce- ment, or increased costs; to evaluate the contractual provisions that have been successful; and to identify practices that respondents believed to be effective to achieve early or on-time performance. The responses to this survey are discussed throughout this digest. This digest should be useful to attorneys, transit ad- ministrators, contracting officers, engineers, construc- tion contractors, and transportation planners. TRanspoRTaTion ReseaRCh BoaRD OF THE NATIONAL ACADEMIES These digests are issued in order to increase awareness of research results emanating from projects in the Cooperative Research Programs (CRP). Persons wanting to pursue the project subject matter in greater depth should contact the CRP Staff, Transportation Research Board of the National Academies, 500 Fifth Street, NW, Washington, DC 20001. Subscriber Categories: Public Transportation Transportation Research Board 500 Fifth Street, NW Washington, DC 20001 TC R P LR D 43 TR b
I. Introduction, 3 II. The Use of Incentive and Liquidated-Damages Clauses in Contracts with FTA Funding, 4 A. Introduction, 4 B. FTA New Starts Program, 4 C. Funding of Capital Projects, 4 D. Use of Value Engineering, 4 E. Value Engineering Clauses, 6 III. Authority for the Use of Incentives and Liquidated-Damages Clauses in Transit Agency Contracts, 7 A. Statutory and Regulatory Authority, 7 B. Bonding and Insurance Limitations, 8 C. Suitability of Grantees, Contractors, and Contracts for High-Performance Contracts, 8 IV. The Use of Standards in High-Performance Contracts, 11 A. Defining the Performance Contract, 11 B. Whether Standards Are Required, 12 C. Performance Standards Used by Transit Agencies, 13 D. Use of Surveillance, 14 V. Transit Agency Experience in Using Incentive Payment and Liquidated-Damages Clauses, 15 A. Best Practices in the Use of Incentive Clauses, 15 B. Incentive Payments Made by Transit Agencies, 16 C. Examples of Incentive Payment Clauses Used by Transit Agencies, 17 D. Best Practices in the Use of Liquidated-Damages Clauses, 19 E. Liquidated Damages Collected by Transit Agencies, 22 F. Examples of Liquidated-Damages Clauses Used by Transit Agencies, 23 G. The Use of Dispute Resolution Boards, 24 VI. Transit Agenciesâ Evaluation of Performance-Based Contracting, 25 A. Transit Agenciesâ Success with Incentive Payments and Liquidated-Damages Clauses, 25 B. Risks in Using Incentive Payment and Liquidated-Damages Clauses, 25 C. The Effect of Incentive Payment and Liquidated-Damages Clauses on Contract Claims, 26 D. Potential Claims in Connection with Performance-Based Contracting, 26 Conclusion, 31 Appendix A: Survey Questions, 33 Appendix B: List of Transit Agencies Responding to the Survey, 38 Appendix C: Index to Performance-Based Clauses and Standards (available on CRP-CD-134), 40 CONTENTS