I think we're missing something, which is where these ATS's are installed.
I don't think most utilities allow (largeish) ATS's to do a closed transition from a genset to the utility grid, but I may be wrong. There may be other ATS's in your facility that do a closed transition though. For instance, consider this (somewhat simplified) dual UPS design:
Utility Generator | \/ | | /\ | ATS #1a ATS #1b | | UPS #1 UPS #2 | | \ / \ / ATS #2 | Load
IMHO, this design is overly complex, and will lead to the most usually form of failure - human. There is lot to think about in the above, especially during maintenance. You also have an interested situation on retransfer (gen -> normal) when 1a and 1b do not transition at precisely the same exact moment, which almost never happen. And if one of 1a or 1b gets 'stuck', you have UPS's paralleled being fed from unsynchronized sources, which leads to other problems (such as bypass not being available, etc).
ATS's 1a, 1b, sense utility power for quality. Should the utility power quality not meet specs (e.g. go out), they disconnect from utility, tell the generator to spin up, wait 5-15 seconds for the generator(s) to spin up and then close to the generator. They are in an open state for perhaps 20+ seconds, generators are never closed to the utility. Going back the drop may be shorter, perhaps 10 seconds, but there's still a long-ish open gap. Definately not sub-second.
That is not typical. The normal contactor/breaker doesn't usually open until the emergency source is available. It remains closed to the dead normal until emergency is ready to be transferred to.
ATS #2 takes the dual UPS output (from synchronized UPS's) and does a closed transition between the two sources. Indeed, a previous employer had ATS's at this location that could switch between sources in less than 1/4 wave, the equipment never knew the differenece. Very impressive.
So are you saying that the load was directly connected to utility (no UPS protection) until utility had a problem?
It's not that you couldn't install a closed transition ATS in the ATS 1a/1b location from an electrical point of view, but I don't think codes, power companies, or common sense make it a good idea. As others have pointed out, the grid can do weird things because your neighbors did something stupid, or a car hit a power pole and shorted 3 phases together. Syncing to it is, well, crazy.
Closed transition should not really be thought of as syncing to the grid. Closed transition infers a very, very short overlap. A few cycles. Mainly so that downstream load does not get interrupted on the retransfer.