Legal Issues and Emerging Technologies (2022)

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TCRP LRD 59 61 Illinois, and Washington are examples of states that allow cer- tain cities to regulate TNCs locally.546 In addition, some states reserve limited power to cities and airports. For example, the CPUC oversees statewide policies for TNCs, and has been en- gaged in a rulemaking process since 2012 to refine regulations for these companies.547 In addition to the state regulations in California, there are local business registration requirements and airport permit requirements in certain cities and counties.548 XI. PROCUREMENT This digest is not intended to be a review of federal, state, and local laws affecting technology procurement and contracting. This section discusses the legal issues involving transit agencies’ procurement of emerging technologies, including the need to review applicable federal, state, and local procurement regula- tions, and challenges posed by investing in new technologies.549 Challenges include restrictions or stringent requirements for federal grant funds, public-private partnerships, pilot programs, and other procurement hurdles. Government procurement is the procurement of goods, ser- vices, and construction on behalf of a public authority, such as a government transportation agency. Challenges are associated with nearly every emerging technology acquisition, including adhering to strict and inflexible procurement rules, using alter- natives to competitive bidding (regulatory sandboxes, public- private partnerships, or pilot programs), and navigating sole source contracts. Technological advancements have brought about significant changes in the past decade and will most likely radically change transportation within the next ten years. However, government procurement can advance very slowly, existing regulations may be inadequate or ill-suited, and fund- ing for innovative projects may be insufficient. Without proper planning, policies, and project oversight, transit agencies could struggle to meet their objectives and policy goals. 546 In New York City, TNCs are regulated the same as limousines, black car services, and other for-hire vehicles, with the same insurance requirements and driver licensing standards. Companies that provide more than 10,000 trips per day are considered “high volume for-hire services,” subject to additional licensing and data reporting require- ments, as well as mandatory driver pay standards. N.Y.C. Admin. Code §§ 19-548, 19-549. Currently, the only companies that qualify as high volume for-hire services are Uber, Lyft, and Via. See N.Y.C. Taxi and Limousine Comm’n., High-Volume For-Hire Services https://www1. nyc.gov/site/tlc/businesses/high-volume-for-hire-services.page. 547 Pal. Pub. Util. Comm’n, Transportation Network Compa- nies (TNCs), https://www.cpuc.ca.gov/tncinfo/. For more information, view the Commission’s TNC rulemaking process, Rulemaking 12-12- 011, https://apps.cpuc.ca.gov/apex/f?p=401:56:0::NO:RP,57,RIR:P5_ PROCEEDING_SELECT:R1212011. 548 SFMTA, TNC Regulatory Landscape, (2017), https://www. sfcta.org/projects/tnc-regulatory-landscape. 549 A more thorough analysis of transit agency technology contract- ing in general than is appropriate in this report was addressed in a 2017 TCRP Research Digest. Larry W. Thomas, TCRP LRD 51: Technology Contracting for Transit Projects, Transportation Research Board of the National Academies of Sciences, Engineering, and Medicine, Washington, D.C., Sep. 2017), https://doi.org/10.17226/24869. and limousines, TNCs resisted being subject to same regulatory requirements as other businesses that transport passengers for- hire. The Center for Insurance Policy and Research (CIPR) of the National Association of Insurance Commissioners explains: Ridesharing is different, however, than taking a traditional taxi or lim- ousine. Taxis and limousines are typically licensed by the state and/or local transportation authority. The vehicles are required to be inspected and drivers must be properly licensed. In addition, taxi operators are required to have commercial insurance that protects a passenger and third parties (i.e., pedestrians or other drivers) in the event of an acci- dent. TNCs may not be subject to the same requirements that apply to taxis and limousines. Additionally, commercial auto insurance for a TNC is typically more expensive than personal auto insurance because it presents more risk and therefore may be cost prohibitive for indiv- iduals only driving on a part-time schedule. 542 In 2009, “UberCab” changed the transportation industry and disrupted the regulatory framework that governed it. This development of on-demand service challenged regulatory agen- cies, as it did not fit into existing regulatory framework at both the city and state level. In October 2010, after backlash from the taxi industry, the CPUC issued a cease-and-desist order to UberCab, Inc. for operating as a for-hire passenger carrier with- out valid authority.543 In response, UberCab changed its name to Uber and changed its business model into the independent contractor model of on-demand service by unlicensed vehicles. As a result, the CPUC established rules governing this technology in 2013. When creating these streamlined rules, the CPUC factored safe- ty and practicality to develop a system including background checks, vehicle safety, and provisions for accessibility. In 2011, Uber expanded to New York, Seattle, Chicago, Boston, Los Angeles, and Washington, D.C. where the app com- pany faced similar challenges from regulators.544 In Boston, the state-level Division of Standards issued a cease-and-desist order to Uber Boston in August 2012. In New York City, the N.Y.C. TLC instituted a ban on Uber in October 2012. Furthermore, the Department of Business Affairs and Consumer Protection in the City of Chicago attempted to implement regulations on Uber to prevent the company from using meter-determined pricing, thus regulating it more like a livery service than a taxi company.545 In response, the cities developed rules to regulate Uber that mandate compliance. Now, almost every state with the exception of Oregon has implemented some form of state- wide regulation to govern on-demand transportation technol- ogy. Most states regulate on a state level. However, New York, 542 CIPR, Commercial Ride-Sharing (Mar. 4, 2020), https:// content.naic.org/cipr_topics/topic_commercial_ride_sharing.htm. 543 Cal. Public Utilities Comm’n, Notice to Cease and Desist, Case No. PSG-3018 (Oct. 29, 2010), available at http://www.taxi-library. org/cpuc-uber-cease-and-desist-2010.pdf. See also Cal. Public Utili- ties Comm’n, Order Instituting Rulemaking on Regulations Relating to Passenger Carriers, Ridesharing, and New Online Enabled Transpor- tation Services, R.12-12-011. 544 Brian O’Connell, History of Uber: Timeline and Facts, TheStreet. com, Jan. 2, 2020, https://www.thestreet.com/technology/ history-of- uber-15028611. 545 Id.

62 TCRP LRD 59 ate to test new and unproven technologies, and agencies may need flexibility to negotiate a contract directly if the product is unique and there is little competition on the market. For exam- ple, in New York state, a transit authority may declare that com- petitive bidding is inappropriate, including when “the authority wishes to experiment with or test a new product or technology or evaluate the service or reliability of a new source for a par- ticular product or component[.]”551 Pilot and demonstration programs and regulatory sandboxes may be a better way to test the technology before deciding to invest in it. 2.  Sandbox Programs Solicitation for new technologies will not always fall under the existing regulatory framework, and transportation agencies need flexibility to test before they invest. To allow for such flex- ibility, there are federal grant and funding programs that may not require a procurement. The FTA’s MOD Sandbox Program is part of a U.S. DOT research effort that supports transit agen- cies and communities in the development and implementation of new mobility tools, MaaS, shared use mobility, bike- and car- sharing, and demand responsive bus and van services. These projects help make transportation systems more efficient and accessible. The selected MOD Sandbox projects have been f unded to execute versions of MOD that address gaps in their transit systems, including first/last mile problems, paratransit, and trip planning. Examples of agencies that have received funding include Pinellas Suncoast Transit Authority’s partner- ship with Lyft and other for-hire vehicle companies to develop a business model aimed at increasing the efficiency of paratransit services, and the Chicago Transit Authority.552 3.  Public-Private Partnerships Emerging innovative transportation services can confront a wide array of policy, financial, and marketing outreach chal- lenges, among others.553 States are increasingly turning to inno- vative approaches to help solve their infrastructure dilemma, including public-private partnerships (also known as PPPs or P3s). In the United States, public-private partnerships are often associated with large-scale transportation projects.554 Public- private partnerships are: 551 N.Y. CLS Pub. A § 1209(2)(f). 552 For additional MOD funded projects, see www.transit.dot.gov/ research-innovation/mobility-demand-mod-sandbox-program. 553 A more thorough analysis of the legal issue of transit public- private partnerships in general than is appropriate in this report was addressed in a 2014 TCRP Legal Research Digest. Larry W. Thomas, TCRP LRD 45: Transit Public-Private Partnerships: Legal Issues, Transportation Research Board of the National Academies of Sciences, Engineering, and Medicine, Washington, D.C., Jul. 2014, available at https://doi.org/10.17226/22361. 554 Nat’l Conf. of State Legis., Building-Up: How States Utilize Public-Private Partnerships for Social & Vertical Infrastructure (Feb. 16, 2017), https://www.ncsl.org/research/transportation/building-up-how- states-utilize-public-private-partnerships-for-public-multi-sector- vertical-infrastructure.aspx; Policy, Finance & Management for Public Private Partnerships 200 (Akintola Akintoye & Matthias Beck eds., 2009). A. Challenges of Procuring and Contracting for New and Emerging Technologies Investing in new and emerging—and sometimes unproven— technologies presents difficulties in procurement. Procurement of, and contracting for, new, untested, and emerging technolo- gies could be a challenge for public agencies given the vendor market, regulations and policies, and the need to leverage that investment with existing technologies. As the U.S. population continues to age, grow, and urbanize, the needs of travelers are shifting. Transportation systems must be flexible, and public transit agencies should ensure that new types of systems are developed properly alongside existing ser- vices in an integrated fashion, ensuring complete trips or point- to-point services. Procurement statutes with rigid terms and conditions in- tended for traditional goods and services could inhibit emerg- ing technology procurement. For example, the software-as-a- service model means purchasing a subscription that bundles hardware, software, and services into a single subscription price as opposed to purchasing the hardware, licensing a version of the software, etc. These unique services may not fit into the tradi- tional procurement contract procedures and administration. 1.  Procurement Delivery Method and Solicitation Process Government must balance open and fair competition with obtaining a fair and reasonable price. Challenges could arise when insufficient information, knowledge, or competition exist within a particular emerging technology space. This makes it difficult to ensure the government is procuring such technology for a fair and reasonable price and has not restricted competition based on a limited understanding of the emerging technology. To protect the public’s interest and ensure fairness and com- petition, federal, state, and local governments have legislation and regulations dictating governmental acquisitions of goods and services. The process usually follows the same structure: the government has a technology need and issues a detailed request for proposals or invitation to bid, companies submit proposals for evaluation and make presentations, and the government evaluates the proposals based on set criteria and makes a deci- sion. The rules and methods for government procurement of emerging technology are similar to the procurement rules that apply to other types of goods and services. The standard route is that a transit agency will issue a competitive solicitation, com- monly through a request for proposals (RFP). A survey of state chief information officers (CIO) by the National Association of State CIOs (NASCIO) found that IT procurement has been an area of ongoing concern for state CIOs because “the funding, procurement and contracting model used by the state can be an even greater influence on project approach.”550 Competitive bidding may not be appropri- 550 Grant Thornton, Today’s State CIO As Communicator: The Evolving Nature of Technology Leadership (Oct. 23, 2018), https://www.nascio.org/resource-center/resources/the-2018-state-cio- survey/.

TCRP LRD 59 63 and thus the ability to support the IT product then becomes an essential aspect of a successful procurement.” Transit agencies may wish to include a “Changes Clause” in contracts. Language of the clause may differ depending upon the nature of the contract and the end-item being procured; however, these clauses are all intended to give the agency flex- ibility to unilaterally order changes in the work, which may be necessary due to advances in technology or changes in the recipient’s requirements. Such clauses also give the contractor a way to suggest changes to the work, with the goal of improving the quality of the contract end-items. An equitable adjustment provision could encourage the contractor to suggest improve- ments when those suggestions will increase the contract price. B. Federal Procurement Regulations Generally Applicable to Technology Acquisition This digest is not intended to be a review of federal, state and local laws affecting technology procurement and contracting. Nevertheless, there are some federal procurement regulations with which transit agencies should be familiar. Those are briefly described below. FTA Circular 4220.1F, Third Party Contracting Guidance, provides contracting guidance for recipients of federal assis- tance awarded by the FTA when using that federal assistance to finance its procurements (third party contracts).559 The Federal Transit Administration (FTA) provides numerous resources for recipients of federal funds to assist with third-party procure- ments for projects receiving FTA funds, including: • Section 7613 of the National Defense Authorization Act for Fiscal Year 2020 FAQs560 • Best Practices Procurement & Lessons Learned Manual Procurement Manual561 • Third Party Procurement FAQs562 559 FTA, Third Party Contracting Guidance, Circular 4220.1F, Rev. 4, Mar. 18, 2013, https://www.transit.dot.gov/sites/fta.dot.gov/files/ d o c s / T h i rd % 2 0 Par t y % 2 0 C ont r a c t i ng % 2 0 Gu i d an c e % 2 0 %28 Circular%204220.1F%29.pdf. 560 FTA, Frequently Asked Questions Regarding Section 7613 of the National Defense Authorization Act for Fiscal Year 2020, July 1, 2020, https://www.transit.dot.gov/funding/ procurement/frequently-asked-questions-regarding-section-7613- national-defense. 561 FTA, Best Practices Procurement & Lessons Learned Manual, Report No. 0105 (Oct. 2016), https://www.transit.dot.gov/ funding/procurement/third-party-procurement/best-practices- procurement-manual (This manual provides FTA grant recipients with detailed information about third-party procurement requirements to help improve internal processes and avoid pitfalls. The manual covers the entire procurement cycle: (1) Planning, (2) Selecting Type of Con- tracting Method, (3) Evaluation of Proposals and Contract Award, and (4) Contract Administration.). 562 FTA, Third Party Procurement FAQs, Feb. 27, 2020, https:// www.transit.dot.gov/funding/procurement/third-party-procurement/ third-party-procurement-faqs (An extensive set of to provide a means for its customers to get answers to their procurement questions online.). [C]ontractual agreements between a public agency (federal, state, or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility. 555 Many states have some form of PPP-authorizing legislation. Key to a PPP is a state enabling statute “that authorizes the use of a PPP in the manner envisioned by prospective public and private partners for a project.”556 4.  Budget Cycles The lack of alignment between government budget cycles and project funding needs deters long-term planning and may also jeopardize technology projects due to changes in funding availability and administration leadership. “Most government organizations operate on a one- or two-year budget cycle and cannot assure funding for projects beyond those timeframes. By contrast, large technology modernization initiatives often have a four- or five-year time horizon.”557 5.  Terms and Conditions for Technology Contracts Technology contracts may require complicated technical specifications. Procurement statutes do not necessarily allow for simplified specifications that focus on outcomes that give suppliers and contractors greater flexibility to recommend the best solution. While a Request for Information (RFI), “Proof of Concept,” or “unsolicited proposal” procurement delivery approaches could allow such flexibility without violating pro- curement statute, proposers may be reluctant to participate over concerns regarding proprietary information and trade secrets with open records laws. IT contracts may have special terms and conditions. Tech- nology procurements have inherent differences from other pro- curements. For example, IT products are often highly propri- etary, and this may limit a transit agency’s ability to understand the internal operating processes of the product.558 According to FTA guidance, “This means it is virtually impossible for the recipient to maintain the product without the vendor’s support, 555 National Council for Public-Private Partnerships, www.ncppp. org. 556 Thomas, supra note 558. 557 Graeme Finley, 9 Ways State and Local Government Can Rethink IT Acquisition, StateTech.com (Jan. 16, 2019) https:// statetechmagazine. com/article/2019/01/9-ways-state-and-local-government-can- rethink-it-acquisition. 558 FTA, Best Practices Procurement & Lessons Learned Manual, Report No. 0105, (Oct. 2016), https://www.transit.dot.gov/ funding/procurement/third-party-procurement/best-practices- procurement-manual. The American Public Transportation Associa- tion (APTA) has published a White Paper, Technology Terms and Conditions, defining a recommended process for the use of public tran- sit agencies when procuring IT that may be useful for acquiring soft- ware and IT services, and for ensuring that the embedded components of bus and rail equipment are properly evaluated. APTA, Technology Terms and Conditions (Jun. 2011), https://www.apta.com/wp-content/ uploads/Standards_Documents/APTA-PS-TP-WP-001-11.pdf.

64 TCRP LRD 59 5.  Buy America In a series of statutes, Congress has required that federally funded highway, public transportation, and intercity passen- ger rail projects use goods manufactured in the U.S. The Buy American Act, 41 U.S.C. §§ 8301 to 8305, and a provision of the Transportation Act569 generally require that U.S.-made materials be used in federally financed public works projects. The modal administrations within the U.S. DOT apply dif- ferent Buy America laws and regulations to different types of projects. FTA’s Buy America requirements prevent FTA from obligating an amount that may be appropriated to carry out its program for a project unless “the steel, iron, and manufactured goods used in the project are produced in the United States.”570 These requirements do not apply to steel or iron used as com- ponents or subcomponents of other manufactured products or rolling stock, or to bimetallic power rail incorporating steel or iron components.571 For rolling stock, the Buy America provi- sions require the cost of components and subcomponents pro- duced in the United States to be more than 70% of the cost of all components in the rolling stock, and final assembly must take place in the United States.572 FTA’s Buy America requirements apply to third-party pro- curements by FTA grant recipients.573 A grantee must include in its bid or RFP specification for procurement of steel, iron or manufactured goods (including rolling stock) an appropriate notice of the Buy America provision and require, as a condition of responsiveness, that the bidder or offer or submit with the bid or offer a completed Buy America certificate in accordance with 49 C.F.R. §§ 661.6 or 661.12. Buy America requirements may have implications for autonomous, connected, and EVs and the infrastructure re- quired for such technologies.574 In most cases, manufacturers import lithium ion cells to create batteries in the United States.575 According to the Congressional Research Services, “FTA has not deemed the use of imported cells contrary to Buy America rules, possibly because they are considered sub-subcomponents that are substantially transformed into packs with modules, coolants, and sensors in U.S.”576 Buy America requirements may be waived under certain cir- cumstances.577 The process for seeking a waiver is set forth in 49 CFR part 661. Under FTA’s Buy America requirements, a bidder seeking a waiver must establish grounds for an exception in a 569 49 U.S.C. § 5323(j). 570 49 U.S.C. § 5323(j)(1); 49 C.F.R. § 661.5. 571 Id. 572 49 U.S.C. § 5323(j)(2); 49 C.F.R. § 661.11(a). 573 U.S. Dep’t of Transp., Federal Transit Agency, Buy America, https://www.transit.dot.gov/buyamerica. 574 For an overview of the Buy American regulations and the elec- tric bus market, see Bill Canis and William Mallet, Buy America and the Electric Bus Market, Cong. Research Serv., IF10941 (Aug. 6, 2018), https://crsreports.congress.gov/product/pdf/IF/IF10941. 575 Id. 576 Id. 577 49 U.S.C. § 5323(j); 49 C.F.R. § 661.7. 1.  Federal Property and Administrative Services Act  and System The Federal Property and Administrative Services Act (FPASA) governs the federal government’s procurement of goods and services.563 The FAR System implements the policies and guidelines outlined in the FPASA.564 FAR outlines special rules for procurement of IT, in addition to each individual gov- ernment agency’s policies for IT procurement.565 2.  Uniform Administrative Requirements, Cost  Principles, and Audit Requirements for Federal Awards  (2 CFR 200) The Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 2 CFR Part 200 (Uniform Guidance) was implemented in December 2014 as a “government-wide framework for grants management.” It ap- plies to all Federal agencies that make Federal awards to non- Federal entities and streamlines and consolidates government requirements for receiving and using federal awards, including grant and cooperative agreements.566 The Uniform Guidance has been adopted by DOT at 2 CFR 1201. 3.  National Defense Authorization Act for Fiscal Year  2020 Section 7613 of the National Defense Authorization Act for Fiscal Year 2020 (NDAA 2020),567 added new subsection 49 U.S.C. § 5323(u) to federal public transportation law. Section 5323(u) limits the use of FTA funds, and in some circumstances local funds, to procure rolling stock from certain transit vehicle manufacturers. This may be applicable to EVs and other modes. 4.  E-Government Act of 2002 Information Technology—Section 211 of the E-Government Act of 2002, 40 U.S.C. Section 502(c)(1), authorizes state and local governments, within limits established by law, to acquire IT of various types through GSA’s Cooperative Purchasing Program, Federal Supply Schedule 70. The stated purpose of the E-Government Act is to enhance the management and promo- tion of electronic government services and processes by estab- lishing a Federal Chief Information Officer within the OMB, and by establishing a framework of measures that require using Internet-based IT to improve citizen access to government in- formation and services, and for other purposes.568 563 See 10 U.S.C. §§ 2302–2339a; 40 U.S.C. §§ 101–1315. 564 See 48 C.F.R. §§ 1.000–9905.506-63. 565 See 48 C.F.R. §§ 39.000–39.204. 566 U.S. Office of Mgmt. and Budget, Uniform Guidance FAQs (July 2017), https://www.cfo.gov/wp-content/uploads/2017/08/ July2017-UniformGuidanceFrequentlyAskedQuestions.pdf. 567 Pub. L. No. 116-92 (Dec. 20, 2019). 568 Pub. L. No. 107–347 (Dec. 17, 2002).