(1)(i) failed to substantially complete all the work within the total adjusted time frame by more than ten percent of the total adjusted time frame, or (ii) failed to progress the work in a manner so that it will be substantially complete within ten percent of the total adjusted time frame and has refused or in the opinion of the Authority is unable to accelerate the work so that it will be substantially complete within ten percent of the total adjusted time frame, and such refusal or failure is an event of default under the contract; or (iii) with respect to contracts for services, or for manufacture or supply of materials, equipment, or rolling stock, as to any such services, materials, equipment or rolling stock that must be delivered by a deadline, materially failed to deliver such services, materials, equipment, or rolling stock by more than ten percent of the total adjusted time frame.

(2) asserted a claim or claims for payment of additional amounts beyond the total adjusted contract value and one or more of such claims are determined in whole or in part to be invalid under the contract’s dispute resolution process or if no such process is specified in the contract in a final determination made by the chief engineer or otherwise by the Authority, and together the sum of any such invalid claims exceeds by ten percent or more the total adjusted contract value. An invalid claim is a claim or claims that cannot be supported by the facts or a nonfrivolous argument that it is warranted by the contract or existing law. A claim for payment of additional amounts to a subcontractor that a contractor is contractually obliged to submit to the Authority on behalf of such subcontractor that is determined to be invalid, shall not be deemed to be an invalid claim asserted by the contractor, and shall be deemed an invalid claim submitted by the subcontractor.

(3) The Authority shall initiate a debarment proceeding upon determining that one or more grounds for debarment exist under sections 1004.3(a)(1) or (a)(2), except that (i) if a contractor has made a good faith request for an extension of the total adjusted time frame because of excusable delay or otherwise, which request, if granted by the Authority, would eliminate grounds for debarment under provision (a)(1), the Authority shall defer initiating a debarment proceeding until it has evaluated and determined such request; and (ii) the Authority may defer initiating, or determine not to initiate or pursue, a debarment proceeding for good cause shown, provided that the determination to defer or to not initiate or pursue a debarment proceeding after grounds for debarment have been determined to exist is presented to the Authority’s Board for ratification or nullification at the next regularly scheduled meeting thereof. The Authority’s Finance Committee shall be notified immediately upon a determination to defer initiating or not initiate or pursue a debarment proceeding, and all such determinations to defer initiating or to not initiate or pursue a debarment proceeding for good cause shown shall be presented to the Authority’s Finance Committee for recommendation before submission to the Board. In the event that a determination to defer initiating or to not initiate or pursue a debarment proceeding is rejected by the Board, Authority personnel shall immediately commence a debarment proceeding.

(1) state the facts upon which the Authority made its preliminary finding that one or both statutory grounds for debarment exists, including the basis for determining as provided in section 1004.3 of this Part that the contractor failed to timely Substantially Complete or the Authority’s calculation of costs arising from claims determined to be invalid, and

(2) provide the contractor 30 calendar days after the date of the notice of intent to debar to respond.

(1) 21 calendar days from the Authority’s receipt of a contractor’s written response to a notice of intent to debar or within such further reasonable time that the authority shall proscribe; or

(2) 14 calendar days after the date the contractor’s response was due, if no response is received from the contractor within the deadline, or within such further reasonable time that the authority shall proscribe.

Statutory Authority:

Section 1266(4) of the Public Authorities Law provides that the Metropolitan Transportation Authority (MTA) may establish rules and regulations as it may deem necessary, convenient, or desirable for the use and operation of any transportation facility and related services operated by the MTA. Section 1279-h of the Public Authorities Law, enacted on April 12, 2019 and effective immediately, directs the MTA to establish pursuant to regulation a debarment process for its contractors.

Legislative Objectives:

The Legislature enacted the new Section 1279-h of the Public Authorities Law as part of the 2020 Budget. It requires the MTA to establish a process that will debar for five years any contractor who either fails to substantially complete the work within the time frame set by the contract, or in any subsequent change order, by more than ten percent of the contract term, or whose disputed work exceeds ten percent or more of the total contract cost where claimed costs are deemed to be invalid pursuant to the contractual dispute resolution process. And the statute requires that the debarment process ensures that contractors have notice and an opportunity to be heard including the opportunity to present as a defense acts such as force majeure. The proposed rule accords with this legislative objective by establishing a process for debarment of contractors.

Needs and Benefits:

The proposed rule is necessary to implement Section 1279-h of the Public Authorities, which expressly requires the MTA to establish a debarment process and specifies the circumstances under which MTA must debar a contractor. Contractors who are significantly late in performing their contractual work or in meeting contractual delivery dates or who assert substantial and unjustified claims for payment should not be allowed to compete to be awarded new contracts.

Costs:

(a) Regulated parties. This proposal does not impose new costs on contractors. It provides for a process for determining whether factual circumstances exist, which the Legislature has determined warrant debarment. The proposed rule establishes a process to ensure that contractors are provided notice and an opportunity to be heard.

(b) Local government. The proposed rule will impose no costs on local governments.

(c) MTA. The MTA will use existing resources including its existing procurement and legal staff to undertake debarments of contractors.

Paperwork:

The proposed rule will require the MTA to develop a notice to inform contractors that they might be debarred.

Local Government Mandates:

The proposed rule does not impose any new programs, services, duties, or responsibilities on local government.

Duplication:

The proposed rule does not duplicate, overlap, or conflict with any State or Federal rule.

Alternatives:

The Legislature has expressly directed the MTA to establish by regulation a debarment process for its contractors, so MTA has not considered not doing so.

Federal Standards:

The proposed rule does not exceed any Federal minimum standards.

Compliance schedule:

There is no compliance schedule imposed by this proposed rule. Once adopted, it will be effective immediately and will apply to contracts entered into after, the effective date of Section 1279-h of the Public Authorities Law, which was April 12, 2019.

Changes made to the last published rule do not necessitate revision to the previously published statement explaining why the last published rule did not require a regulatory flexibility analysis for small business and local governments, a rural area flexibility analysis, or a job impact statement.

On May 22, 2019, the MTA submitted to the Secretary of State a Notice of Emergency Adoption and Proposed Rulemaking; it was published in the New York State Register on June 5. The emergency rule, which was identical to the proposed rule and added a new Part 1004 to Title 21 of the Official Compilation of Codes, Rules and Regulations of the State of New York, became effective upon filing. The emergency rule was filed to give immediate effect to Public Authorities Law § 1279-h which was signed into law on April 12, 2019. The statute, which became effective immediately upon signing, required the MTA to promulgate regulations providing a procedure for the debarment of contractors doing business with the MTA if the criteria set forth in the statute have been met. Specifically, the statute limits the applicability of the debarment procedure to two enumerated instances—delay in completing contact performance by more than ten percent of the contract term, or the submission of invalid claims in excess of ten percent of the contract value—as set forth in the statute. The same emergency rule was continued by re-adoptions on August 19, October 18, December 16, 2019, and February 14 and April 14, 2020.

In the 60-day period for public comment following publication in the New York State Register, the MTA received nearly 50 separate comments totaling over 200 pages. Commenters included:

• 17 trade associations representing, among others, general contractors, sureties, electrical contractors, architectural and engineering consultants, and subcontractors;

• 27 individual firms that have and continue to do construction-related work for the MTA; and

• 5 other commenters, including the Citizens Budget Commission and the Partnership for New York City.

Many of these commenters called debarment of contractors simply for being late or over budget unduly harsh and punitive but that was the Legislature’s decision in enacting Section 1279-h. As for comments directed to the MTA’s proposed debarment procedure to implement Section 1279-h, in summary the commenters:

• Asserted that the debarment procedure should not apply to contracts entered before Public Authorities Law § 1279-h, took effect in April 2019. Applying the procedure to pre-existing contracts would, they commenters asserted, violate their constitutional due process rights and be unfair because their bid prices did not consider the added risk of debarment.

• Urged MTA to exclude contractors who participate in the MTA’s Small Business Mentoring Program.

• Objected because one ground for debarment under the proposed rule—submitting payment claims in an amount in excess of ten percent of the amount determined to be valid—in their view would give the MTA too much discretion to debar contractors for submitting in good faith payment claims that are denied by the MTA’s dispute resolution process.

• Suggested that it was unfair to hold contractors accountable for payment claims by their subcontractors that they are contractually obligated to forward to MTA whether they believe them valid.

• Criticized the proposed debarment procedure as inflexible for not allowing the MTA discretion to consider some commenters called “mitigating factors.”

• Objected to the provision of the proposed rule that would allow a hearing panel to debar not only a contractor, but also their affiliated entities and individuals.

MTA gave careful thought to all the public comments and in response has revised the rule in several ways and because those revisions could be considered substantial, the MTA is publishing them for additional public comment.

In response to the concerns and objections, the revised rule modifies the rule published in June 2019 for comment in four ways.

First, the revised rule narrows the scope of the debarment rule as follows:

• eliminates retroactive application of the debarment procedure by making it apply only to contracts entered into after the statute took effect in April 2019 and also and awarded in connection with a capital element in an approved capital program plan or a non-capital plan contract with value more than $25 million. [Section 1004.2(b)]

• applies only to those with whom the MTA has directly entered into a contract, not subcontractors. [1004.2(c)]

• does not apply to routine inventory purchases or contracts awarded as part of the MTA’s Small Business Mentoring Program. [1004.2(b)]

• defines “invalid claim” as a claim for payment that cannot be supported by the facts or a nonfrivolous argument that it is warranted by the contract or existing law. [1004.3(a)(2)]

• provides that an invalid claim for payment that the contractor is contractually obliged to submit to the MTA for a subcontractor does not affect the contractor. [1004.2(b)]

Second, the revised rule injects flexibility into the determination as to whether to initiate a debarment proceeding in the first instance by providing that:

• the MTA Board may but is not required to debar a contractor. [1004.3(a)]

• the MTA may defer initiating or pursuing a debarment (1) if the contractor has made a good faith request to extend the contract because of excusable delay and, if granted, the contractor would not be late, or (2) for good cause shown. MTA Board must ratify or nullify any determination not to initiate or pursue a debarment proceeding. [1004.3(a)(3)]

• contractors may assert any and all defenses at a debarment hearing including unforeseen circumstances, good faith efforts to take remedial, corrective action; lack of bad faith, and excusable delay. [1004.5(e)]

Third, the revised rule changes the composition of the three-member hearing panel, from three MTA employees to a panel that includes only two MTA employees and one neutral party from the American Arbitration Association who is independent of any State agency or public authority. [1004.5(c)]

Finally, the revised rule addresses concerns relating to debarment of a contractor’s related parties and individuals by providing that:

• the panel may debar a contractor’s related entities or individuals only if (i) the contractor was created as a single or limited purpose entity to execute and perform the contract, or (ii) the related entity or individual had a material and knowing causal connection to the contractor’s conduct. [1004.6(b)]

• the panel must send written notice of intent to debar to any related entity or individual it seeks to debar and provide a reasonable opportunity to be heard. [1004.6(b)]