Legal Handbook for the New Starts Process (2010)

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25 Similar to a standard design-build, the most widely used procurement process for a DBOM project is an RFP, with award to the proposer offering the “best value” on the basis of qualifications and price. The price proposal covers design, construction, operations, and maintenance. The DBOM procurement could also be selected as a two-step process, with an RFQ to select a short list of qualified proposers, followed by an RFP. The contract awarded pursuant to this procurement is for the design and construction of the project, followed by O&M services for a specified term (typically 5 or 10 years with an option period). The procuring agency and the selected joint venture normally enter into two sepa- rate agreements—a design-build agreement and an O&M agreement—each with its own terms and condi- tions and pricing. The proponents of DBOM contend that it offers all the benefits of standard design-build, as cited in Section IV.H.2 above, and has a significant additional advan- tage because the O&M contractor is “on board” from the outset of the project, and as a result, can coordinate with and advise the designer regarding different design options and work with the construction firm on the op- erational benefits or on problems with different construction methods and alternatives. The result of this, according to proponents, is that the project will be designed and constructed in a manner that directly takes into account operational issues and thus will be more likely to provide sound and cost-effective O&M over the long term. From the perspective of the procur- ing agency, one major advantage is that it is able to procure a “total” project, from design through the O&M phase, in a single procurement action. Conversely, there may be some disadvantages in forfeiting the ability to separately select the best design/construction team and the best O&M team—In DBOM, the pro- curing agency must select the best overall team even though one or another of its members might not be the most highly rated on its own. I. Submit Request to FTA to Proceed to Final Design 1. NEPA Process Completed As noted, a project may not proceed into Final De- sign until the NEPA process is completed. In most cases this means that an ROD has been issued by FTA for the project. 2. Demonstration of Capacity to Carry Out Final Design The project sponsor must demonstrate that it has the technical capacity to carry out Final Design. This can be done by updating the related information it pre- sented at the PE stage. 3. All Federal Requirements Met The project sponsor must demonstrate that all appli- cable federal requirements are or can be met. These include the whole range of federal statutory and regula- tory requirements that recipients of federal transit grants are subject to. 4. Project Satisfies Rating Requirement Under FTA’s New Starts criteria, a project must have a Medium or higher rating to proceed into Final Design.122 5. Review FTA Online Checklist—Items Necessary to Proceed to Final Design As noted, FTA has a comprehensive checklist on its Web site indicating the items that are necessary before a project may advance into Final Design. These indicate the level of specificity a project should have achieved by the end of PE and reflect further detail from the FTA’s checklist to enter PE previously discussed. A lawyer should note the category “Administrative Require- ments,” dealing with legal capacity (also discussed in the checklist), in which the project sponsor must show it has the authority to undertake implementation of the proposed transit mode as well as the authority to use its chosen procurement method.123 CHAPTER V: FINAL DESIGN PHASE A. FTA Approval to Enter Final Design/Blanket Pre-Award Authority to Incur Costs As with proceeding into PE, FTA approval is neces- sary before proceeding into Final Design. Once granted, that approval allows the project sponsor to begin utility relocation and right-of-way acquisition, develop specifi- cations, and prepare final construction plans. As with approval to enter PE, approval to enter Final Design carries with it blanket pre-award authority to incur project costs for Final Design activities prior to grant approval.124 All federal requirements must be met before incurring costs to retain eligibility of the costs for future FTA grant assistance. Pre-Award Authority—Real Property Acquisition Ac- tivities. FTA extends automatic pre-award authority for the acquisition of real property and real property rights for a New Starts project upon completion of the NEPA process for that project.125 As stated by FTA, the NEPA process is completed when FTA signs an environmental ROD or FONSI or makes a Categorical Exclusion (CE) determination. With the limitations noted below, real estate acquisition for a New Starts project may begin, at the project sponsor's risk, upon completion of the 122 Id. 123 FED. TRANSIT ADMIN., NEW STARTS PROJECT PLANNING AND DEVELOPMENT CHECKLIST OF PROJECT SPONSOR SUBMITTALS TO FTA TO ENTER FINAL DESIGN (2008), available at www.fta.dot.gov/planning/newstarts/planning_environment_21 8.html. 124 Id. 125 73 Fed. Reg. 4956, 4975 (Jan. 28, 2008).

26 NEPA process. For FTA-assisted projects, any acquisi- tion of real property or real property rights must be conducted in accordance with the requirements of the Uniform Relocation Assistance and Real Property Ac- quisition Policies Act (URA) and its implementing regu- lations.126 This pre-award authority is strictly limited to costs incurred 1) to acquire real property and real prop- erty rights in accordance with the URA regulation, and 2) to provide relocation assistance in accordance with the URA regulation. This pre-award authority is limited to the acquisition of real property and real property rights that are explicitly identified in the final EIS, en- vironmental assessment, or CE document, as needed for the selected alternative that is the subject of the FTA- signed ROD or FONSI, or CE determination. As noted by FTA, this pre-award authority does not cover site preparation, demolition, or any other activity that is not strictly necessary to comply with the URA, with one exception. That exception is when a building that has been acquired, has been emptied of its occu- pants, and awaits demolition poses a potential fire- safety hazard or other hazard to the community in which it is located, or is susceptible to reoccupation by vagrants. Demolition of the building is also covered by this pre-award authority upon FTA's written agreement that the adverse condition exists. Pre-award authority for property acquisition is also provided when FTA makes a CE determination for a protective buy or hard- ship acquisition in accordance with 23 C.F.R. 771.117(d)(12), and when FTA makes a CE determina- tion for the acquisition of a preexisting railroad right-of- way in accordance with 49 U.S.C. § 5324(c). FTA cautions that project sponsors should use pre- award authority for real property acquisition and relo- cation assistance very carefully, with a clear under- standing that it does not constitute a funding commit- ment by FTA. FTA provides pre-award authority upon completion of the NEPA process to maximize the time available to project sponsors to move people out of their homes and places of business, in accordance with the requirements of URA, but also with maximum sensitiv- ity to the plight of the people so affected. Although FTA provides pre-award authority for property acquisition upon completion of the NEPA process, FTA will not make a grant to reimburse the sponsor for real estate activities conducted under pre-award authority until the project has been approved into Final Design. Even if funds have been appropriated for the project, the timing of an actual grant for property acquisition and related activities must await Final Design approval to ensure that federal funds are not risked on a project whose advancement beyond PE is not yet assured. Note also that FTA extends pre-award authority for costs incurred to comply with NEPA regulations and to conduct NEPA-related activities for a proposed New Starts (or Small Starts) project.127 126 49 C.F.R. pt. 24 (2008). 127 73 Fed. Reg. 4956, 4975 (Jan. 28, 2008). Letter-of-No-Prejudice-Authority. Except for the automatic pre-award authority and ESWAs discussed previously, a project sponsor must obtain a written LONP from FTA before incurring costs for any activity expected to be funded by New Starts funds not yet awarded. To obtain an LONP, an applicant must sub- mit a written request accompanied by adequate infor- mation and justification to the appropriate FTA re- gional office. B. Purpose of Final Design In Final Design, the environmental process has been completed and many aspects of the project are taking shape. Final Design represents the final phase of New Starts project development; the project sponsor begins preparing for construction. A project sponsor prepares final construction plans and detailed specification and bid documents. All of the agreements underway— utilities, joint development, public–private partner- ships—are finalized during this phase and implementa- tion of their terms begins. If not completed, specific timelines for their completion should be established. Moreover, FTA will lock in the overall project cost and maximum federal amount at this point. In an online fact sheet on Final Design, FTA pro- vides the following Guiding Principles of Final De- sign:128 • Transition between project development and pro- ject construction. • Focus on execution of various project management and delivery strategies to ensure successful completion of project construction. • Finalization of project definition, property acquisi- tion, third-party agreement negotiations, procurement of construction services and equipment, and securing all non-New Starts funding commitments. • Negotiation of an FFGA. C. Begin Right-of-Way Acquisition/Utility Relocation Project agreements regarding such elements as right-of-way acquisition and utility relocation should be completed, and acquisition and relocation activities should begin during Final Design. Any agreement not completed should have a timeline established for its resolution and completion. D. Federal Program Requirements Met Also at this stage the full range of federal program requirements should be met or the ability to meet them clearly established. Note that the FFGA for the project will, among other things, incorporate by reference the FTA Master Agreement, which contains the standard terms and conditions governing the administration of a 128 FED. TRANSIT ADMIN., FTA MAJOR CAPITAL TRANSIT INVESTMENT FACT SHEET, FINAL DESIGN (2007), available at www.fta.dot.gov/documents/Fact_Sheet_-_FD__9-18-07.doc.

27 project funded by the FTA.129 Because the Master Agreement applies to a variety of FTA grants and agreements, not all of its provisions apply to every pro- ject funded by FTA. A project lawyer should become familiar with the many provisions of the FTA Master Agreement that will apply to the New Starts project. E. Commitment of All Non-New Starts Funding/Financial Capacity At this point in the process, all non-New Starts fund- ing should be secured. Funds from state and local sources, and other federal funding, must be committed to the project. Before execution of an FFGA, FTA must find that the project is supported by an acceptable degree of local financial commitment. The local financial commitment is evaluated based on the stability and reliability of the proposed local share of the project’s capital costs, the strength of the proposed capital financial plan, and the ability of the local transit agency to fund operation and maintenance of the system as planned, once the project is built. FTA’s FMOC reviews the general financial condition of the grantee and its nonfederal funding entities and the financial capability of the grantee and its nonfed- eral funding entities. Financial condition includes historical trends and current experience in the financial ability of the grantee to operate and maintain its transit system at present levels of service. Financial capability refers to the sta- bility and reliability of revenue sources needed to meet future annual capital and operation and maintenance costs. Financial capability considers the nature of funds pledged to support operating costs and capital replace- ment programs, as well as forecasted changes in fare and nonfare revenue. Capital costs include both re- placement and rehabilitation of existing equipment and facilities as well as new investments. Operating and maintenance costs include those for the existing system, as well as increases due to capital investment and ser- vice expansion. FTA will not enter into an FFGA until the plans for financing the project have been completed and the Fi- nancial Capacity Assessment has been performed by the FMOC. The plans must demonstrate that the pro- ject sponsor can complete the FFGA project and con- tinue to operate its existing service with available re- sources. F. Various Plans; Risk Assessment During Final Design, a project sponsor focuses on ensuring successful delivery of the project on time and on budget through FTA’s risk assessment of the scope, schedule, and cost estimate. FTA has increasingly relied upon risk assessment and risk management in New Starts projects. Project risk may be seen as an unexpected event or circum- 129 FED. TRANSIT ADMIN., FTA MASTER AGREEMENT (Oct. 1, 2008), available at www.fta.dot.gov/documents/15-Master.pdf. stance that has a chance of occurring and that may pre- vent a project from meeting its schedule and cost esti- mate. A variety of risks have been identified. Budget risk is the possibility that budget elements will not conform to estimates; event risk simply means that events—bad weather, contractor nonperformance—could affect pro- ject schedule and scope; and scope risk may be viewed as significant changes to project scope due to unfore- seen circumstances. A risk assessment involves a series of steps starting with a validation of base conditions followed by risk identification and quantification of potential risks. The next step is the assessment during which risks are evaluated and contingencies reviewed. This leads to risk mitigation planning, implementation, and monitor- ing. In some cases, FTA has sought to develop and es- tablish a probability percentage to establish the degree or amount of risk (i.e., the risk assessment shows there is an 85 percent probability that the project will be com- pleted on schedule and within budget). Note that Deloitte’s New Starts Program Assessment report, written at the behest of FTA, comments on FTA’s current risk assessment process, suggesting that it should be defined “…as a process rather than an out- come, starting in AA and continuously updated through FFGA (and during construction).” While it states that the current tool provides important information about cost exposure, “…a true Risk Management process, be- gun during AA and updated through to FFGA, may be more beneficial in terms of ensuring successful pro- jects.”130 Also in Final Design, the PMP covers a variety of project plans, including those related to real estate ac- quisition, construction quality control and assurance, project safety and security, bus and rail fleet manage- ment plans, and the final project financial plan. The project sponsor also prepares, with FTA concur- rence, a project execution plan that addresses any real- location of budget contingencies based on market condi- tions and project implementation. G. Submit Updated New Starts Criteria Data; Determine Project Cost As a project moves into Final Design, much more de- tailed and specific information becomes available that should be made available to FTA. This is when the pro- ject budget becomes more fixed and a final project cost is agreed upon. It is important to recognize that once FTA establishes a project cost, that number will not change. Thus, if the project cost is determined too early in the Final Design process, any subsequent cost in- creases will not be reflected in it. So timing is critical in working with FTA on the project cost. 130 Deloitte Development LLC, New Starts Program Assess- ment (Feb. 12, 2007), available at www.fta.dot.gov/planning/newstarts/planning_environment_69 16.html.