[Federal Register Volume 59, Number 140 (Friday, July 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17908]


[[Page Unknown]]

[Federal Register: July 22, 1994]


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Part III





Department of Transportation





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Federal Highway Administration



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23 CFR Parts 420 and 511




State Planning and Research Program Administration; Final Rule
DEPARTMENT OF TRANSPORTATION

Federal Highway Administration

23 CFR Parts 420 and 511

[FHWA Docket No. 93-18]
RIN 2125-AD21

 
State Planning and Research Program Administration

AGENCY: Federal Highway Administration (FHWA), DOT.

ACTION: Final rule.

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SUMMARY: With the restructuring of the Federal-aid highway program due 
to enactment of the Intermodal Surface Transportation Efficiency Act 
(ISTEA) of 1991 (Pub. L. 102-240, 105 Stat. 1914), regulations for the 
administration and management of activities undertaken with FHWA 
planning and research funds are updated to reflect the revised sources 
of, and activities eligible for, such funds. In addition, the ISTEA 
allows the States more flexibility in managing and directing federally 
funded research, development, and technology transfer (RD&T) 
activities. This final rule includes the ISTEA revisions and grants 
States this greater responsibility and flexibility for the management 
and oversight of their RD&T initiatives funded with FHWA planning and 
research funds.

EFFECTIVE DATE: This rule is effective on August 22, 1994.

FOR FURTHER INFORMATION CONTACT: Mr. Tony Solury (202-366-5003), Office 
of Environment and Planning, Federal Highway Administration, 400 
Seventh Street, SW., Washington, D.C. 20590, for 23 CFR part 420, 
subpart A; Mr. Charles W. Niessner (703-285-2100), Office of Research 
and Development, Federal Highway Administration, Turner-Fairbank 
Highway Research Center, 6300 Georgetown Pike, McLean, VA 22101-2296, 
for 23 CFR part 420, subpart B; or Mr. Wilbert Baccus (202-366-0780), 
Office of the Chief Counsel, Federal Highway Administration, 400 
Seventh Street, SW., Washington, D.C. 20590. Office hours are from 7:45 
a.m. to 4:15 p.m., e.t., Monday through Friday, except Federal 
holidays.

SUPPLEMENTARY INFORMATION: On December 21, 1993, a notice of proposed 
rulemaking (NPRM) was published by the FHWA in the Federal Register (58 
FR 67510) to obtain comments from interested persons on proposed 
revisions to regulations for program approval and authorization; 
conduct; and reporting of planning, research, development, and 
technology transfer activities undertaken by States and their 
subrecipients, including metropolitan planning organizations (MPOs), 
with FHWA planning and research funds. The proposed revisions were 
necessary to reflect changes to Title 23, United States Code, Highways, 
that resulted from enactment of the ISTEA. In addition, the FHWA 
proposed that States establish a process for management of RD&T 
activities undertaken with FHWA planning and research funds that would 
enable States to exercise greater authority over such activities.
    With respect to administration of FHWA planning and research funded 
RD&T activities, the final rule reflects the FHWA's belief that its 
stewardship role should be one of concentrating more on the policies 
and procedures by which States implement such activities than on 
project-specific approvals and oversight. This philosophy parallels the 
administrative oversight procedures adopted for FHWA planning and 
research funded transportation planning activities in earlier revisions 
to 23 CFR part 420, subpart A in 1985 and 1990.
    The ISTEA instituted a number of substantive changes pertinent to 
transportation planning and RD&T programs. In addition to retitling it 
from Highway Planning and Research to State Planning and Research 
(SPR), the ISTEA: (1) increased the set-aside of funds apportioned to 
States for SPR activities from 1.5 percent to 2 percent; (2) included 
planning and RD&T as eligible activities under the National Highway 
System (NHS) program and Surface Transportation Program (STP); (3) 
permitted the use of certain funds made available under title 23, 
U.S.C., for intermodal transportation planning and RD&T and (4) 
required the expenditure of 25 percent of a State's annual SPR funds 
for RD&T activities, unless the State certifies that it will use more 
than 75 percent for planning and the Secretary of Transportation (the 
Secretary) accepts the certification. These legislative provisions are 
reflected in this rule.
    Thirty-one sets of comments were submitted to the docket in 
response to the NPRM; 28 from State transportation departments/
agencies, 1 from a regional planning agency, 1 from a professional 
association, and 1 from a Federal agency. The overwhelming majority of 
comments were in support of the proposed revisions and the increased 
flexibility for State management of RD&T activities. However, there 
were some concerns regarding some of the specific revisions and the 
short deadline for compliance. Many of these concerns were due to 
misunderstandings about existing requirements and not the proposed 
revisions. A summary of the comments, their disposition, and the 
changes made to the rule follow.

Subpart A--Administration of FHWA Planning and Research Funds

General Comments and Responses

    Comment: One State, in which most research is conducted for the 
State by higher education institutions, stated that the proposed 
regulation does not pertain to universities as subrecipients and 
recommended citing Office of Management and Budget (OMB) Circular A-
110, ``Uniform Administrative Requirements for Grants and Agreements 
with Institutions of Higher Education, Hospitals, and Other Non-Profit 
Organizations,'' November, 19, 1993, for universities as subrecipients.
    Response: While the State is the recipient of FHWA planning and 
research funds, Part 420 also applies to subawards to all categories of 
subrecipients, including institutions of higher education. In 
accordance with standard OMB requirements, subawards are to be 
administered in accordance with the procedures in the OMB Circular and 
corresponding agency implementing regulations that apply to the type of 
agency receiving the subaward, whether or not specifically stated in 
the regulation. To clarify what applies to administration of subawards 
to institutions of higher education, a new paragraph (o) has been added 
to Sec. 420.121 as discussed under the section-by-section analysis.
    Comment: One commenter suggested that the term ``State highway 
agency'' be changed to ``State transportation agency'' to maintain 
consistent nomenclature and reflect reality.
    Response: Since most of the State agencies to which Federal-aid 
highway program funds are apportioned are no longer single purpose 
highway agencies, the FHWA agrees that use of the term ``State 
transportation agency'' is more appropriate and has made this change. 
However, 23 U.S.C. 302 requires that a State desiring to avail itself 
of the provisions of title 23, U.S.C., have a suitably equipped and 
organized State highway department and has been interpreted by the FHWA 
to restrict reimbursement of a State highway department's indirect 
costs. Therefore, a definition of State transportation agency (STA) has 
been added to Sec. 420.103, as discussed below under the section-by-
section analysis, to distinguish a State highway department from other 
State transportation agencies in order to determine whether the 
agency's indirect costs are allowable under 23 U.S.C. 302.
    Comment: One State commented that it is using a significant portion 
of its SPR funds for training, ``since the ISTEA language which was 
supposed to have covered training was inadvertently left out of that 
Legislation.''
    Response: The ISTEA in fact continued the funding provisions (23 
U.S.C. 321) for training of State personnel although at a reduced level 
of funding. With the exception of a specific type of training cited in 
23 U.S.C. 307(c), FHWA planning and research funds may only be used for 
transportation planning or RD&T related training if the cost of the 
training is necessary, reasonable, and it benefits the purposes of the 
grant or subgrant. General training of employees who are not working on 
grant funded activities is not an allowable cost. This is consistent 
with OMB cost principles which are applicable to FHWA planning and 
research fund grants and subgrants.
    Comment: One State questioned the estimate of 2,100 burden hours, 
shown under the heading Paperwork Reduction Act in the NPRM, for the 50 
States to comply with the regulation and stated that it will take much 
more time to develop a procedures manual; procedures for tracking 
activities, schedules, accomplishment, and fiscal commitments; and 
procedures to determine the effectiveness of the implementation 
process, and the utilizations of the RD&T output. The commenter 
indicated that the State has many of the elements in place, but did not 
know if the FHWA Division office would accept them or require revisions 
in content or format.
    Response: The estimate of 2,100 burden-hours (40 hours per 
respondent) is for the one-time preparation by each State, the District 
of Columbia, and the Commonwealth of Puerto Rico of the new 
certification required by subpart B of the regulation. Many of the 
other activities cited by the commenter are either required already 
(e.g., progress reports) and are covered by the cited existing OMB 
clearances or are standard management practices that the State should 
already have in place. An updated burden estimate has been prepared. It 
is estimated that the average one-time burden for preparation of RD&T 
management process documentation and certification statements is 480 
burden-hours (12 weeks x 40 hours per week) per State.

Section-by-Section Analysis

    The authority citation has been amended from the NPRM to include 23 
U.S.C. 303(g) which allows the use of NHS, STP, and highway bridge 
replacement and rehabilitation (HBRR) funds for development and 
establishment of the management and monitoring systems required under 
23 U.S.C. 303. In addition, section 149(b) has been deleted since this 
regulation does not apply to funds made available under this section of 
title 23, U.S.C.
Section 420.101  Purpose
    This section states the purpose of this regulation. It indicates 
that the provisions of this part apply to subrecipients of States, 
including MPOs. Language has been added to indicate that it also 
applies to activities undertaken with NHS, STP, and Highway Bridge 
Replacement and Rehabilitation Program (HBRRP) funds for development, 
establishment, and implementation of the management and monitoring 
systems required by 23 U.S.C. 303 and 23 CFR part 500. Use of NHS and 
STP funds for such purposes was included in the NPRM definition of FHWA 
planning and research funds; the use of HBRRP funds is being added to 
the definition as discussed below. A reference to the additional 
requirements for RD&T programs and studies in subpart B of this part is 
included.
Section 420.103  Definitions
    This section includes the terms defined in 23 U.S.C. 101(a) and 
contains additional definitions for terms used in this part.
    The term ``FHWA planning and research funds'' includes SPR funds, 
metropolitan planning (PL) funds, and the optional use of NHS, STP, and 
Minimum Allocation (MA) funds for planning and RD&T purposes. It also 
includes the use of NHS, STP, and HBRRP funds for development, 
establishment, and implementation of the management and monitoring 
systems required by 23 U.S.C. 303. The definition has been amended from 
the NPRM to include funds apportioned under 23 U.S.C. 144 for the HBRRP 
when such funds are used for development, establishment, and 
implementation of the bridge management system required by 23 U.S.C. 
303. This category was inadvertently not included in the NPRM.
    Although this rulemaking does not change the definition of grant, 
one commenter believed that new readers may not be familiar with the 
difference between a contract and a grant and, therefore, suggested 
that a definition of grant be included to reduce confusion.
    The FHWA agrees and has added definitions of ``grant agreement'' 
and ``procurement contract.'' These mechanisms for agencies to make 
awards to recipients are adaptations of definitions in Chapter 63, 
Using Procurement Contracts and Grant and Cooperative Agreements, of 
title 31, CFR.
    A ``grant agreement'' is defined as a legal instrument between an 
awarding agency and recipient where the principal purpose is to provide 
funds to the recipient to carry out a public purpose of support or 
stimulation authorized by law.
    A ``procurement contract'' is defined as a legal instrument between 
an awarding agency and recipient where the principal purpose is to 
acquire (by purchase, lease, or barter) property or services for the 
direct benefit or use of the awarding agency.
    For administrative purposes, it is important to note that the 
purpose of the award determines whether the award is a grant or a 
procurement action. The administrative procedures for grants are 
governed by OMB Circulars A-102 and A-110 and agency implementing 
regulations. The administrative procedures for procurement contracts 
are governed by the Federal Acquisition Regulations (48 CFR Part 31) or 
State procedures if the recipient is a State.
    Since FHWA planning and research funds may be pooled for planning, 
as well as RD&T, studies or activities of national or regional 
significance, the definitions of national and regional pooled-fund 
studies have been moved from Sec. 420.203 to Sec. 420.103. In addition, 
both definitions have been modified to indicate: that MPOs, as well as 
States, may contribute to pooled-fund studies; that national studies 
are usually administered by the FHWA headquarters office; that regional 
studies are usually administered by an FHWA regional office in 
cooperation with a lead State or MPO; and that the funds may be pooled 
with or without matching. While any of the categories of funds included 
in the definition of ``FHWA planning and research funds'' may be 
pooled, the matching requirement can only be waived for SPR or PL 
funds. Such waiver must be approved by FHWA headquarters for both 
national and regional studies in accordance with the provisions of 
Sec. 420.119(d).
    As discussed under the general comments and responses, a definition 
of State transportation agency has been added. ``State transportation 
agency (STA)'' is defined as the State highway department, 
transportation department, or other State transportation agency to 
which Federal-aid highway funds are apportioned.
Section 420.105  Policy
    This section continues the FHWA's previous policy of allowing 
States maximum possible flexibility in determining which eligible 
activities may be undertaken with FHWA planning and research funds, as 
long as planning activities of national significance, as identified in 
paragraph (b) of this section, are being adequately addressed. Under 
the provisions of this section, the FHWA may withhold or withdraw 
authorization of FHWA planning and research funds if planning 
activities of national significance are not being performed by a State. 
As discussed in the preamble to the NPRM, this policy also applies to 
State subrecipients. Paragraphs (a)(1) through (4) in the NPRM have 
been rewritten and consolidated for clarity into paragraphs (a)(1) and 
(2) in the rule without changing the substance of the policy.
    One commenter expressed concern about the potential involvement in 
long range data reporting requirements that would make unexpected 
demands on its manpower in order to provide data that support FHWA 
responsibilities as specified in Sec. 420.105(b). The commenter 
indicated that clarification was needed on this requirement. Another 
commenter indicated that States should have the right to question the 
need for particular data requests from the FHWA if the cost of 
providing such data becomes high.
    This provision has been in the regulation since 1986. The major 
data bases that are referenced in Sec. 420.105(b) are the FHWA's 
Highway Performance Monitoring System (HPMS) and statistical reports 
provided by the States for inclusion in the annual publication 
``Highway Statistics.'' Both of these data collection activities have 
been approved by the OMB and are resubmitted for approval every three 
years. Occasionally, information not included in these ongoing data 
bases is needed due to special circumstances and enactment of 
legislation, such as, designation of a National Highway System in 
accordance the provisions of the ISTEA. With each update of the HPMS 
and highway statistics reporting requirements and with each special 
request, the FHWA will continue to make every effort possible to limit 
the burden to the States while still receiving the information 
essential to guide the national transportation program.
Section 420.107  SPR Minimum Research, Development, and Technology 
Transfer Expenditure
    This section reflects the requirement in 23 U.S.C. 307(c) that not 
less than 25 percent of a State's annual SPR funds be expended for RD&T 
activities unless the State certifies that it will expend more than 75 
percent of such funds for transportation planning under 23 U.S.C. 134 
and 135. It includes specific procedures and criteria for FHWA approval 
of a State's certification that were in the FHWA Executive Director's 
June 25, 1992, memorandum to the FHWA Regional Administrators. (This 
memorandum is available for review and copying in the file for FHWA 
docket number 93-18 at the address specified above under the caption 
FOR FURTHER INFORMATION CONTACT.) The certification must be submitted 
annually with the work program or with the request for authorization of 
funds for the second year of a biennial work program. Except for 
rephrasing of the considerations in paragraphs (c)(1) to (6) to change 
them from questions to statements, this section is unchanged from the 
NPRM.
    Several commenters expressed concern over the criteria and 
procedures in Sec. 420.107 for waiver of the requirement for use of 25 
percent of a State's annual apportionment of SPR funds. One commenter 
stated that the proposed rules go far beyond what should be necessary 
to support such a certification and that it appears that the FHWA is 
unduly striving to discourage this option. This commenter recommended 
that the requirements be reduced to an assurance that the State's RD&T 
needs are being adequately addressed. Similarly, other commenters 
stated that the requirements for submitting an exception to the use of 
25 percent of SPR fund for research are onerous and effectively 
prohibit exceptions as they are currently written or that the proposed 
rule indicates that the FHWA will be reluctant to grant exceptions.
    While 23 U.S.C. 307(c)(2) requires that a State certify to the 
Secretary that its total expenditures for transportation planning under 
23 U.S.C. 134 and 135 for the fiscal year will exceed 75 percent, it 
also requires that the certification be accepted by the Secretary. 
Based on the extensive provisions and emphasis on transportation RD&T 
in the ISTEA, the FHWA strongly believes that the Congress intended 
that the States have effective transportation RD&T programs. Therefore, 
the criteria for approving an exception are being retained.
Section 420.109  Distribution of PL Funds
    This section reflects the requirements in 23 U.S.C. 104 that a 
State must make apportioned PL funds available to MPOs and that the 
funds must be distributed by the State to MPOs in the State based on a 
formula, approved by the Secretary (approval authority has been 
delegated to the FHWA), that considers population, status of planning, 
attainment of national ambient air quality standards, and other factors 
necessary to provide for an appropriate distribution of funds to carry 
out the requirements of 23 U.S.C. 134 and other applicable requirements 
of Federal law. The FHWA's longstanding interpretation, that the 
legislative requirement that States make PL funds available to MPOs 
precludes the use of such funds by the State for administration of PL 
grants or subgrants, is included in paragraph (a). It is FHWA policy to 
consult with the appropriate Federal Transit Administration (FTA) 
regional office prior to approval of a State's PL formula.
    One State commented that the requirement in paragraph (a) that 
``the State shall not use any PL funds for grant or subgrant 
administration'' is too restrictive and should be changed to permit a 
reasonable amount for administration. Another State commented that 
under the ISTEA, a State DOT's role in administering and participating 
in MPO planning activities funded with PL funds has increased 
significantly and that there should be a provision which permits the 
State DOT to retain a certain percentage of PL funds for its costs in 
administering and participating in PL funded programs. Another State 
commented: that the cost for grant administration historically has been 
included as part of the funding package of the MPO planning work 
program; that this new provision may unfairly restrict the use of PL 
funds to only direct program activity and not permit the State or MPO 
to use PL funds for organization administration costs; and that by not 
allowing the use of PL funds for grant or subgrant administration, the 
FHWA will be placing an unfair economic burden on the various parties 
concerned.
    These comments imply a misunderstanding of both the legislation and 
regulation. Before responding to these comments, a distinction needs to 
be made between ``grant or subgrant administration'' and ``general 
planning process administrative activities.'' ``Grant or subgrant 
administration'' includes activities such as processing or preparing PL 
grant agreements between the FHWA and the State, subgrant agreements 
between the State and the MPOs, fiscal documents, progress reports, and 
audits. ``General planning process administrative activities'' may 
include conducting MPO meetings, preparation of planning work programs, 
and salaries of an MPO executive director and other administrative 
support staff.
    The legislation has always specified that PL funds are to be made 
available to the MPOs by the State. The FHWA historically has 
interpreted this to mean that a State cannot unilaterally retain PL 
funds for any purpose; all PL funds must be made available to the MPOs. 
If an individual MPO chooses to include activities (e.g., development 
of a long range plan, traffic counting) to be performed with its PL 
funds by the State for the MPO in its work program, it may do so. If 
the required State PL fund distribution formula, developed in 
consultation with the MPOs, allows for State retainage of PL funds, it 
may be approved by the FHWA if the retained funds will be used by the 
State for technical activities in support of metropolitan planning or 
for making discretionary subgrants to MPOs for special studies.
    In no instance may PL funds (either in an MPO's work program or 
retained under an approved formula) be used by a State for PL fund 
``grant or subgrant administration'' as indicated in subparagraph (a). 
Such State grant or subgrant administrative activities are eligible for 
SPR funding. ``General planning process administrative activities'' 
performed by MPOs are eligible for PL funds. Such general 
administrative activities performed by a State for an MPO are eligible 
for SPR funds and would be eligible for PL funds if included in the 
MPO's work program.
    One State commented that it would be concerned if the regulation is 
administratively construed to require a specific formula for 
distribution, or require reconsideration of its policy on PL funds.
    The requirement that funds be distributed by a State by a formula 
that considers specific factors has existed since the enactment of the 
PL funding in 1973. The ISTEA added the additional factor of attainment 
of the national ambient air quality standards. In developing the 
formula, the State must consult with the MPOs and must consider the 
legislatively mandated factors, but all of the factors do not need to 
be included in the formula. In accordance with paragraph (f), any 
formula that does not meet these requirements must be brought into 
conformance as soon as possible, but not later than in time for 
distribution of PL funds apportioned to the State for the first Federal 
fiscal year beginning after the effective date of the regulation.
Section 420.111  Work Program
    This section includes requirements for State and subrecipient work 
programs that serve as the application for FHWA planning and research 
funds. References to 23 CFR part 450 and subpart B of this part are 
cited for additional information on metropolitan area unified planning 
work programs and RD&T work programs, respectively. Except for 
correcting citations to 23 CFR part 450 and changing the first word in 
paragraph (a) from ``expenditure'' to ``proposed use,'' this section is 
unchanged from the NPRM. The work program in essence is a statement of 
work that identifies the proposed use of the funds; expenditure of the 
funds is documented in the financial and progress reports.
    One commenter stated that the requirement to submit work program 
documents creates duplicate paperwork for agencies. The commenter 
stated that the same information is available in work plans for 
individual studies, and, if FHWA review of individual study work plans 
is no longer required, submission of a work program is not appropriate.
    A work program has always been required for both planning and RD&T 
activities. The work program is the ``grant application'' for FHWA 
planning and research funds and is necessary for the FHWA to determine 
if the proposed work is eligible. A work program may consist of a 
listing of proposed studies and activities and other appropriate 
information, such as cost of the activity and performing agency, with 
sufficient description for the FHWA to determine eligibility of the 
work. ``Work plans'' that included details on need, purpose, approach, 
etc., for individual RD&T studies are no longer required. Therefore, 
there is no duplication.
    One State commented that while a biennial work program is allowed, 
it requires a projection of available Federal funds which may be 
difficult to make on a biennial basis.
    Historically, the amount of FHWA planning and research funds 
available to a State is consistent from year to year over the period 
covered by authorizing legislation (e.g., the ISTEA). In any case, if a 
State's or subrecipient's transportation planning is a continuation of 
the same activities with minimal change in activities over an extended 
period, use of a 2-year work program should result in a significant 
reduction in paperwork since draft and final work programs would not 
need to be prepared and submitted for review and approval in the second 
year unless significant changes are necessary in the description of 
work. The initial work program would describe the activities 
anticipated to be accomplished over the 2-year period along with an 
estimate of funds for each year. The FHWA would approve the 2-year work 
program and authorize the first year's work subject to availability of 
funds. Prior to the beginning of the second year, when the actual 
amount of funds that will be available is known, the State would only 
need to submit a request to revise the budget to reflect the actual 
funds available (and if necessary any significant amendments in the 
description of work to be accomplished) for the second year and request 
the FHWA's authorization to proceed with the second year's work.
Section 420.113  Eligibility of Costs
    This section includes general criteria and incorporates by 
reference other regulations and OMB Circulars for determining 
eligibility of transportation planning and RD&T activities and 
allowability of items of cost (e.g., salaries, travel) within such 
activities that are proposed for FHWA planning and research funds. 
Administrative procedures that must be followed for costs to be 
eligible for reimbursement are also included.
    One commenter requested that a list of examples of transportation 
planning and RD&T activities that are eligible for FHWA planning and 
research funds be included in the final rule. Appropriate sections of 
title 23, U.S.C., that include information on broad categories of 
eligible activities are included by reference. The FHWA believes that 
any attempt to provide a more specific listing could be misinterpreted 
since all eligible activities could not possibly be listed. The 
longstanding practice of allowing the FHWA field offices to determine 
eligible activities, in consultation with the headquarters office if 
necessary, has worked well in the past and will be continued. In 
addition, the FHWA headquarters office will continue to issue 
appropriate guidance when necessary on the eligibility of specific 
types of activities. For example, in response to several inquiries 
since enactment of the ISTEA, guidance has been provided on the use of 
FHWA planning and research funds for transportation planning involving 
modes in addition to highway or transit. As discussed in the preamble 
to the NPRM, transportation planning studies involving modes in 
addition to highway or transit are eligible for FHWA planning and 
research funds when performed as part of the statewide or metropolitan 
transportation planning processes.
    In response to questions regarding eligibility of travel costs of 
team members conducting peer reviews of a State's RD&T management 
process, subpart B has been revised, as discussed below under the 
responses to comments on subpart B, to specify that such travel costs 
are eligible for FHWA planning and research funds. While not required 
by this regulation or 23 CFR part 450, similar peer reviews of 
statewide and metropolitan transportation planning processes would also 
be eligible if included in a State or MPO transportation planning work 
program and it is determined by the FHWA that the costs are necessary, 
reasonable, and benefit the FHWA planning and research funded 
transportation planning process.
    Paragraph (b) of this section in the NPRM referenced the provisions 
of 23 CFR part 140, subpart G on the allowability of indirect costs of 
STA planning and research units. The allowability of such costs for any 
STA unit that performs work for development, establishment, and 
implementation of the management and monitoring systems required under 
23 U.S.C. 303 was addressed in a May 3, 1994, memorandum to the FHWA 
and FTA Regional Administrators. (This memorandum is available for 
review and copying in the file for FHWA docket number 93-18 at the 
address specified above under the caption FOR FURTHER INFORMATION 
CONTACT.) To more clearly identify such allowable indirect costs, the 
reference to 23 CFR part 140, subpart G has been replaced with the 
specific provisions and information provided in the May 3 memorandum. 
In accordance with longstanding FHWA interpretation of 23 U.S.C. 302, 
except as specified in new paragraph (b)(2) of Sec. 420.113, STA 
indirect costs are not eligible for reimbursement with FHWA planning 
and research funds. Paragraph (b)(2) specifies that salaries, but not 
other indirect costs, for services rendered by STA employees generally 
classified as administrative are eligible for reimbursement for a 
transportation planning unit, RD&T unit, or other unit performing 
eligible work with FHWA planning and research funds (including 
development, establishment, and implementation of the management and 
monitoring systems required by 23 U.S.C. 303 and 23 CFR part 500). Such 
STA administrative costs are allowable in the ratio of time spent on 
the FHWA planning and research funded work in the unit to the total 
unit's working hours. The FHWA is currently conducting a review of its 
longstanding policy on eligibility of STA indirect costs and, if 
necessary based on the results of this review, the provisions in this 
section will be amended.
Section 420.115  Approval and Authorization Procedures
    This section includes procedures for approval of work programs or 
projects, and amendments thereto, and authorization for work to be 
performed with FHWA planning and research funds. The governmentwide 
common grant management provisions for prior awarding agency approval 
of certain budget and programmatic changes are referenced at 49 CFR 
18.30. While executed project agreements are still necessary, the 
language in paragraph (c) was revised to eliminate reference to forms 
PR-2 and PR-2A since these forms are currently being revised and the 
form numbers may change.
    Several commenters believe that the requirement for prior FHWA 
approval for budget and programmatic changes as specified in 49 CFR 
18.30 is contrary to the intent of giving States more responsibility 
and authority. Some commenters also recommended that, after receiving 
initial FHWA approval of the work programs, additional FHWA approval 
should only be sought when a budget revision means additional Federal 
funds are required. One commenter suggested that FHWA approval be 
sought only when a budget revision exceeds the limits of $10,000 and 15 
percent of a research study cost as specified in 23 CFR 511.3(e).
    Most of these comments reflect a misunderstanding of the provisions 
of 49 CFR 18.30 which are governmentwide common grant management 
provisions that have been applicable to FHWA planning and research 
funded work programs since revision of OMB Circular A-102 in 1988 and 
issuance of 49 CFR part 18. These provisions were included in 23 CFR 
part 420 in the 1990 update and are unchanged in this final rule.
    The limit of $10,000 and 15 percent under 23 CFR 511.3(e), applies 
to individual RD&T studies; for example, a cost increase of greater 
than $15,000 for a $100,000 study would require prior approval. Under 
the provisions of 49 CFR 18.30(c)(1)(ii), the State may make budget 
transfers among direct cost categories (e.g., individual RD&T studies) 
without FHWA prior approval unless the total of such transfers over the 
period of the work program will, or is expected to, exceed the larger 
of $100,000 or 10 percent of the total approved (i.e., work program) 
budget. For example, if an RD&T work program totals $2 million, the 
State may transfer $200,000 among direct cost line items included in 
the work program without prior FHWA approval. At the discretion of the 
FHWA, this prior approval requirement may be waived. Thus the use of 
the provisions of 49 CFR 18.30 provide more flexibility and authority 
to the State than the provisions that are being replaced.
    On the other hand, a budget change that involves an increase in the 
total funds authorized for the work program still requires prior FHWA 
approval and authorization. Similarly, the programmatic changes (e.g., 
adding a line item, contracting out) specified in 49 CFR 18.30(d) 
require prior FHWA approval.
    One commenter interpreted the provisions of paragraphs (b) and (c) 
of this section to imply that the State can impose obligation 
limitations on subrecipients of the PL funds and requested that it be 
clarified to indicate that such limits can indeed be applied.
    The provisions of these paragraphs are not new and are not related 
to the issue of distribution of available obligation authority within a 
State. These provisions allow work to proceed and be reimbursed at a 
later date in situations where sufficient funds or obligation authority 
are not available at the time authorization is requested for all work 
in a statewide or metropolitan area work program. Obligation authority 
is distributed to the States for use by the States as determined in 
cooperation with the FHWA field offices. In general, neither 
legislation nor the FHWA specifies categories of funds for which the 
States must use the obligation authority. States may choose to request 
authorization of only a portion of the PL funds needed for a work 
program period, but would then need to ensure that additional funds are 
requested and authorized prior to the MPO proceeding with the remainder 
of the work program. Such partial funding necessitates processing of 
project amendments and additional paperwork. It also could result in an 
MPO performing work that would be ineligible for reimbursement if the 
work is performed prior to approval of the amendment. Such partial 
funding should be avoided if possible.
Section 420.117  Program Monitoring and Reporting
    This section includes grant monitoring and reporting requirements. 
The frequency and content of progress and financial reports specified 
in paragraphs (a) through (d) are identical to those contained in the 
governmentwide common grant management requirements and 49 CFR 18.40 
which is referenced in paragraph (a). Paragraph (e) requires FHWA 
approval prior to publication of reports that document the results of 
work performed with FHWA planning and research funds. A State may 
request waiver of this prior approval requirement. The reference to the 
Federal-aid Project Agreement (Form PR-2) in the first sentence of 
paragraph (e) has been deleted since Form PR-2 is being revised and the 
contents of the cited provision for prior approval of reports are 
included in this paragraph.
    Several commenters believe that these reporting requirements are 
contrary to the concept of delegation of program management 
responsibility to the State which should be allowed to determine how to 
monitor its research program; FHWA review and approval should be 
limited to assurance that an adequate monitoring process is in place 
and is being used to guide the State's program; and, if a State truly 
has responsibility for managing its own program, the State should 
determine the needed frequency of reporting for adequately monitoring 
projects. Another commenter recommended that an annual report should be 
adequate and that the reporting format should be kept simple.
    These grant reporting requirements are not new and are standard 
governmentwide grant reporting requirements that replaced more 
comprehensive requirements that were in 23 CFR part 420 prior to 1990. 
These reports are necessary for the FHWA to perform its grant oversight 
responsibilities. Progress and financial reports that include the 
specified information must be submitted at least annually. The FHWA 
field offices may require more frequent reports, but not more than 
quarterly, unless the State is determined to be a high-risk grantee in 
accordance with the provisions of 49 CFR 18.12. The reporting 
requirements are for the work program (i.e., grant), not for individual 
``projects/studies.'' The progress reports previously required in 23 
CFR part 511 for individual research studies are no longer required. 
Progress on individual studies would be addressed in the overall work 
program report. A State may establish additional reporting procedures 
that meet its needs for individual studies.
    Similarly, another commenter stated that Sec. 420.117 requires an 
increased level of reporting activity and that the interpretation and 
administration of this section could produce some very demanding 
requirements. This commenter also questioned who would establish and 
approve performance goals, and what level of detail would be required.
    As indicated above, this section is unchanged from the existing 
regulation and does not require increased reporting. The level of 
reporting will only be greater for a State or subrecipient if the State 
or subrecipient was not in compliance with the existing requirements.
    One commenter recommended that the reporting provisions be flexible 
enough to allow monthly reports if agreed to by the agency and the 
subrecipient.
    As mentioned above, the FHWA may require more frequent reports, but 
may not require submission of reports more than quarterly unless a 
recipient or subrecipient is determined to be a high risk. A State may 
establish the frequency of progress and financial reports for its 
subgrantees, but is encouraged not to impose more burdensome 
requirements than those imposed upon the State by the FHWA.
    One commenter stated that the requirement in Sec. 420.117(c) that 
reports from subrecipients be submitted no more than 90 days after the 
end of the reporting period does not allow sufficient time to complete 
the audit of the work program, especially when the MPO has elected a 2-
year cycle for the audit to be performed. It was suggested that the 90-
day requirement be deleted and the timeframe be determined by the State 
with approval of the FHWA.
    The commenter is confusing grant audit requirements with grant 
reporting requirements. In accordance with governmentwide common grant 
management requirements, final progress and financial reports for a 
grant (i.e., the annual/biennial work program) must be submitted within 
90 days of the end of the grant period. If the later financial audit, 
which covers the MPO's fiscal year and typically is not completed until 
a year after the end of the grant period, necessitates adjustments, the 
grant may be reopened or adjustment may be made to a current grant, as 
appropriate. With regard to the statement that an MPO has been 
operating under a 2-year cycle for financial audits, in accordance with 
the OMB Circular A-128, Single Audits of State and Local Governments, 
audits must be performed annually unless a constitutional or statutory 
requirement for less frequent audit was in effect by January 1, 1987.
    One commenter stated that the requirement that a State must request 
a waiver of prior approval of report publication is an unnecessary and 
demeaning retention of FHWA authority; the State should have sole 
responsibility and authority to publish reports that follow accepted 
editorial formatting for electronic data base management and retrieval 
purposes; and the use of a report as evidence of work performed and 
approval for publication are two separate issues and should not be 
combined. Another commenter stated that FHWA approval of reports prior 
to publication is inconsistent with the intent of allowing States 
flexibility in managing their own programs.
    With respect to ``editorial formatting,'' the FHWA does not review 
reports for this purpose. The FHWA agrees that the use of a report as 
evidence of work performed and approval for publication are two 
separate issues, but does not agree that they should not be combined. 
This comment implies that the report should be submitted to the FHWA 
after publication for acceptance as evidence of work performed. In 
addition to determining if the proposed work that was approved as part 
of the grant was performed, the FHWA should have an opportunity to 
determine if the contents of the report are supported by the work 
performed since the published report will include a credit reference to 
the FHWA. Also, submission prior to publication allows a State to use 
FHWA expertise, if desired, to identify any necessary technical 
corrections prior to publication and distribution. If, based on past 
performance, an FHWA field office is satisfied that prior review is 
unnecessary and a State requests a waiver of the prior review 
requirement, the field office may grant the waiver for all reports or 
for selected categories (e.g., State planning, MPO planning, all 
research, or bridge research). A waiver may be granted for an 
indefinite period of time, annually, or any other appropriate period. 
Whether or not a waiver is approved, appropriate reports that document 
work performed with FHWA planning and research funds must be prepared, 
the reports must include a credit reference and disclaimer statement, 
and copies must be provided to the FHWA as evidence of work performed.
Section 420.119  Fiscal Procedures
    This section includes fiscal requirements for administration, 
matching, and payment for FHWA planning and research funds. Paragraph 
(c) specifies that the statewide and, if appropriate, metropolitan 
transportation improvement program provisions of 23 CFR Part 450 need 
to be met for the use of NHS, STP, MA, or HBRRP funds for planning or 
RD&T purposes. Paragraph (d) includes provisions for waiver of matching 
requirements for SPR and PL funds (this option is not applicable for 
optional use of STP, NHS, MA, or HBRRP funds for planning or RD&T 
activities). If the FHWA determines that the interests of the Federal-
aid program would be best served without matching, it may waive the 
matching requirement for individual activities or regional or national 
pooled-fund studies.
    Two commenters stated that authority to approve 100 percent Federal 
funding should be delegated to the FHWA regional offices.
    The approval authority for 100 percent Federal funding will remain 
with the Associate Administrator for Program Development (for planning 
activities) and the Associate Administrator for Research and 
Development (for RD&T activities) since these offices are in the best 
position to determine whether the interests of the Federal-aid highway 
program would be best served and whether the proposed work can be more 
effectively addressed if the matching requirement is waived.
    Several commenters stated that limiting the cost to a minimum of 
$50,000 for cooperatively (pooled) funded projects and requiring an 
agency's contribution to be at least $10,000 were inappropriate.
    Due to administrative costs and the time involved in coordinating 
pooled-fund studies, proposed national studies costing less than 
$50,000 will not be accepted. In response to the comments, the minimum 
agency contribution of $10,000 has been deleted. Agencies contributing 
less than $10,000 to a national pooled-fund study may participate in 
the technical committee meetings, but will not be reimbursed from the 
pooled funds for their expenses to attend the meetings. At the 
discretion of the FHWA regional offices and participating agencies, 
regional pooled-fund studies of less than $50,000 may be undertaken and 
travel costs may be reimbursed from the regional pooled funds for 
expenses for attendance at technical committee meetings of 
representatives of agencies that contribute less than $10,000.
Section 420.121  Other Requirements
    This section contains, mostly by cross reference, other legislative 
or regulatory requirements applicable to FHWA planning and research 
fund grants. Except as noted below, this section is unchanged from the 
NPRM.
    With respect to paragraph (d), one commenter stated that it appears 
that the regulation does not differ from present procedures with 
respect to the acquisition of research equipment. It was suggested that 
more latitude be given to the States for the purchase of research 
equipment with SPR funds when the equipment will clearly be devoted to 
research at a facility largely supported by SPR funds.
    In accordance with governmentwide grant management procedures and 
cost principles, equipment is eligible if the cost is necessary, 
reasonable, and it benefits the grant. Individual items of equipment 
must be identified in the grant application (i.e., the work program) 
and will be reviewed for eligibility on a case-by-case basis. In 
general, if the equipment will be used only for FHWA funded work, all 
of the cost may be eligible. If the equipment will be used for work 
funded by other sources, the cost should be shared on an equitable 
basis or through the establishment of rental/use rates.
    As noted above under the heading General Comments and Responses, 
paragraph (o) has been added to this section. This new paragraph 
specifies that subawards to institutions of higher education, 
hospitals, and other nonprofit organizations will be administered by 
the State in accordance with the provisions of OMB Circular A-110 (58 
FR 62992) and the U.S. DOT's implementing regulations, 49 CFR part 19 
(59 FR 15657). (Copies of OMB Circular A-110 and 49 CFR part 19 are 
available for review and copying in the file for FHWA docket number 93-
18 at the address specified above under the caption FOR FURTHER 
INFORMATION CONTACT.)
    A new paragraph (p) has been added to specify that reports and 
other documents prepared under FHWA planning and research funded grants 
or subgrants awarded after the effective date of this regulation must 
be in metric units.

Subpart B--Research, Development, and Technology Transfer Program 
Management

General Comments and Responses

    Comment: Several commenters requested clarification concerning 
various aspects of the peer review process, including the purpose and 
use of the results of the reviews, funding of travel for review team 
members, and frequency of the reviews.
    Response: It is the State's responsibility to initiate a peer 
review of its RD&T management process. An initial peer review should be 
undertaken sometime during the first three years after the State's 
management process has been approved by the FHWA Division Office.
    The peer review is intended to review a State's management process, 
not the content of its RD&T program. It will not be used for compliance 
or certification. Peer reviews should help in identifying, reinforcing, 
and conveying effective program approaches across the country and 
enable a nationwide sharing of successful practices and policies. The 
purpose of providing the peer review report and a written response to 
the report findings to the FHWA Division Administrator is primarily to 
keep the Division Administrator informed of the status of the State's 
program and what efforts are being taken to improve the program.
    The members of the peer review team will be selected by the State. 
The FHWA will establish criteria for team members and will develop and 
maintain a list of qualified individuals who will be available to serve 
on the teams. At least two members of the peer review team must be 
selected from this list.
    A State may include a line item in its work program to pay for the 
peer review of its RD&T program with FHWA planning and research funds. 
The FHWA will consider establishing a national pooled-fund project if 
there is sufficient interest from the States and if it would expedite 
the peer review process.
    The ``periodic basis'' for conducting peer reviews has been 
determined by the FHWA to be once every three years. After experience 
has been gained operating under the new procedures, consideration will 
be given to extending the time period between reviews.
    Comment: Comments were mixed on whether the proposed rule should be 
mandatory for all States or whether a State could continue to submit 
individual RD&T studies for Federal approval.
    Response: The option to submit individual studies for Federal 
approval (i.e., to continue operating under current procedures) has not 
been included in the final rule. The regulations are mandatory for all 
States. The final regulation provides a State with considerable 
latitude in developing and managing its RD&T activities and supports 
the intent of ISTEA to move the decisionmaking process to the State 
level.
    The FHWA is available, at a State's request, to assist in reviewing 
any RD&T activities that are highly technical or require special 
expertise.
    Comment: One commenter stated that the FHWA's intent concerning the 
degree of RD&T program interaction within State agencies should be more 
clearly stated. Specifically, expectations regarding the degree of 
management involvement at various organizational levels should be 
disclosed.
    Response: Due to the different organizational structures of the 
States, it is not possible to be specific concerning the degree of 
management involvement. Each State should involve those management 
levels that are necessary to develop and implement an RD&T program that 
addresses high priority transportation issues.
    Comment: One commenter stated that the NPRM implies that the FHWA 
is going to require a uniform format for State work programs since the 
information will be entered into a national data base.
    Response: There is no intent to require a uniform work program 
format. The FHWA will encourage the States to include summary sheets 
listing all studies and costs followed by more detailed information on 
individual studies in their work programs. Also, as part of its 
management process, each State is required to use the Transportation 
Research Board's Transportation Research Information Services (TRIS) 
for reporting its active RD&T activities. It will be the State's 
responsibility to enter its new RD&T activities into the TRIS data 
base. Since uniform entries will be required for the data base, it 
could reasonably result in the States' work programs becoming more 
uniform to simplify data entry.
    Comment: Several commenters expressed concern about the requirement 
that each State implement a program of RD&T activities for planning, 
design, construction, and maintenance of highways, public 
transportation, and intermodal transportation systems. The concerns 
were that the budgets for the smaller States are not sufficient to 
support activities in all of these areas; the FHWA is requiring the 
States to set up separate groups of funding for highway, transit, and 
intermodal research; and the term ``program of RD&T activities'' is not 
defined.
    Response: The ISTEA allows the use of FHWA planning and research 
funds for RD&T activities noted in Sec. 420.207. The regulation 
reflects the types of activities that may be conducted, but does not 
mandate that particular types be conducted. Each State is to develop a 
program that addresses its highest priority transportation research 
needs. The priorities will vary from State to State depending on such 
factors as the size of the State, its population, and the size and 
number of urban areas. This regulation does not establish separate 
groups of funds for highway, transit, or intermodal research.
    Comment: One commenter stated that the conditions for grant 
approval appear to require more paperwork than currently required.
    Response: Initially, for some States, it may require additional 
effort to document the State's RD&T management process. Once the 
management process has been documented and approved by the FHWA the 
amount of paperwork between the State and the FHWA should be reduced 
substantially. Paperwork on individual RD&T activities essentially will 
be eliminated.
    Comment: One commenter was concerned that without additional 
explanation each FHWA Division Office would have a different 
interpretation of the requirement that a State have procedures to 
determine the effectiveness of its RD&T program.
    Response: Guidelines for implementing subpart B are being 
developed. These guidelines will expand on the requirements in 
Sec. 420.207. As a minimum, a State should develop a follow-up 
procedure to determine if the RD&T results have been incorporated into 
the State's standard plans, specifications, practices, or procedures. A 
more detailed process could involve benefit/cost ratios or other 
effectiveness measures.
    Comment: One commenter stated that to list individual studies in 
the work program reduced the State's ability to be responsive to 
research needs as they arise during the year. According to the 
commenter this will cause a delay in the start of new research by 
having to wait for the next program approval or for approval of an 
amended program.
    Response: A listing of individual studies in the work program is 
necessary for the FHWA Division Office to determine if the items are 
eligible for FHWA planning and research funds. Addition or deletion of 
individual studies is a programmatic change that requires prior FHWA 
approval. Such prior approval may be waived by the FHWA division 
office; however, the total FHWA planning and research funds authorized 
for the work program cannot be exceeded without FHWA prior 
authorization. It is anticipated that once a State has demonstrated 
that it has an adequate RD&T management process that meets the 
requirements of this rule, the FHWA Division Office would consider a 
request for waiver of prior approval of programmatic changes in the 
work program.

Section-by-Section Analysis

Section 420.201  Purpose and Applicability
    This section states the purpose of subpart B. It indicates that the 
requirements are applicable to RD&T activities performed by the States 
and their subrecipients with FHWA planning and research funds. It 
references the provisions of subpart A. This section is unchanged from 
that proposed in the NPRM.
Section 420.203  Definitions
    This section includes the definitions in 23 U.S.C. 101(a) and 
subpart A and provides additional definitions for terms used in this 
subpart.
    Several commenters stated that the definition of ``peer review'' in 
the NPRM could be misinterpreted to require participation of 
representatives of specific organizations listed in the definition and 
that the definition should be revised to clearly state what is 
intended. The definition has been revised to indicate that a ``peer 
review'' is a review of a State's RD&T program conducted by persons who 
are knowledgeable in RD&T management and operation and to clarify that 
the peer review team may include, and is not limited to, 
representatives of another State, the FHWA, the American Association of 
State Highway and Transportation Officials, the Transportation Research 
Board, universities, or the private sector.
    Commenters suggested that definitions of the terms ``RD&T 
activity'' and ``intermodal RD&T'' be included to provide an indication 
of individual or categories of activities that are included in these 
terms that are used in other sections of the rule.
    The FHWA has added definitions of these two terms.
Section 420.205  Policy
    This section explains the FHWA's intent to allow States maximum 
flexibility and discretion in managing and directing their FHWA 
planning and research funded RD&T activities while ensuring proper 
utilization of Federal funds and avoiding unnecessary duplication of 
effort.
    Except for removal of paragraph (h), this section is unchanged from 
the NPRM. Paragraph (h) includes the nondiscrimination provisions of 
title VI of the Civil Rights Act of 1964 and DOT and FHWA implementing 
regulations. Most of this paragraph was redundant of Sec. 420.121(m), 
which applies to RD&T as well as planning programs. The citation to 23 
CFR part 200 that was in this paragraph has been moved to 
Sec. 420.121(m).
Section 420.207  Conditions for Grant Approval
    This section outlines the conditions that a State must meet for 
approval of FHWA planning and research funds for its RD&T activities.
    Paragraph (b) has been revised to indicate that a State's work 
program ``may'' include a line item for the costs associated with a 
peer review of its RD&T program.
    The FHWA will establish criteria and develop and maintain a list of 
qualified individuals who will be available to serve on peer review 
teams. A requirement has been added to paragraph (b) providing that at 
least two members of the peer review team must be selected from the 
FHWA list.
    The last sentence in paragraph (c) has been rewritten to eliminate 
the impression that the peer review team is under the direction of the 
FHWA.
Section 420.209   RD&T Work Program
    This section outlines the items that must be included in a State's 
work program and incorporates by reference Sec. 420.115 for approval 
and authorization procedures. The title of this section has been 
changed from ``State work program'' to ``RD&T work program'' since it 
includes provisions applicable to the RD&T program. A requirement to 
include a summary, listing the major items and estimated cost, has been 
added to this section. The summary will provide a quick overview of the 
content of a State's RD&T program.
Section 420.211  Eligibility of Costs
    This section indicates eligible costs for FHWA participation in 
RD&T activities and references Sec. 420.113 for other eligible costs. 
Paragraph (c) was revised to conform with Sec. 420.113(b).
Section 420.213  Certification Requirements
    This section provides the format for a State's certification 
indicating (1) State compliance with the requirements of this subpart; 
(2) the condition under which a new certification is required; and (3) 
the due date for the initial certification.
    Several commenters noted that some States may not be able to comply 
with the proposed January 1, 1995, certification date. The date for 
certification has been changed to June 30, 1995. In addition, a 
provision has been added that allows the FHWA Division Administrator to 
grant conditional approval of a State's RD&T management process for a 
State unable to achieve full compliance by June 30, 1995. A conditional 
approval would cite those areas of the State's management process that 
are deficient and that all deficiencies would need to be corrected by 
January 1, 1996.
    Questions were asked on how often a certification needs to be 
submitted and if a State could begin operating under the new procedures 
prior to proposed date of January 1, 1995. The certification is a one-
time submittal, unless a State significantly changes its RD&T 
management process. A copy of the State's certification is to be 
submitted with its work program. A State may begin operating under 
these procedures as soon as its RD&T management process is approved by 
the FHWA.
Section 420.215  Procedure for Withdrawal of Approval
    This section outlines the procedures used and penalties imposed if 
a State is not complying with the requirements of this subpart or is 
not performing in accordance with its RD&T management process.
    Paragraph (d) in the NPRM proposed that, for any State not in 
compliance, the FHWA would withdraw the State's ability to approve RD&T 
activities and require the State to submit individual studies for FHWA 
approval. This approval requirement is similar to current procedures 
and would have provided little incentive for a State to correct 
deficiencies in its program. Therefore, paragraph (d) has been revised 
to indicate that an adverse decision shall result in the immediate 
withdrawal of FHWA planning and research funding for the State's RD&T 
activities until the State is in full compliance.

Rulemaking Analyses and Notices

Executive Order 12866 (Regulatory Planning and Review) and DOT 
Regulatory Policies and Procedures

    The FHWA has determined that this rulemaking is not a significant 
regulatory action within the meaning of Executive Order 12866 or a 
significant regulation under the regulatory policies and procedures of 
the Department of Transportation. This action amends requirements for 
administration of FHWA planning and research funds to be consistent 
with legislative changes made by the ISTEA. Also, this rulemaking 
establishes a mandatory State certification process and a Federal and 
peer review process to determine annually whether each State complies 
with the standards for State RD&T management in subpart B. The economic 
costs of this rulemaking will be insignificant and will consist only of 
the costs associated with preparation of the grant applications and 
State development of procedures for RD&T management. The cost savings 
that will be realized by the States due to the reduction in time to 
initiate and conduct RD&T activities under the State RD&T management 
provisions will more than offset the one-time cost of development of 
the procedures.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
612), the FHWA has evaluated the effects of this rule on small 
entities. This rule addresses the administrative procedures and 
requirements that States must comply with when using FHWA planning and 
research funds provided under title 23, U.S.C. This rule does not 
impose any direct requirement on small entities that would result in 
increased economic costs. Based on this evaluation, the FHWA certifies 
that this rule will not have a significant economic impact on a 
substantial number of small entities.

Executive Order 12612 (Federalism Assessment)

    This action has been analyzed in accordance with the principles and 
criteria contained in Executive Order 12612. Although this rule relates 
to requirements that States must meet to be eligible for FHWA planning 
and research funds, federalism implications, though unavoidable, would 
be minimized. Nothing in this rule preempts any State law or 
regulation. The rule provides States increased authority and 
flexibility to manage their federally assisted State planning and 
research programs. This increase in authority and flexibility is in 
concert with the principles and criteria contained in Executive Order 
12612 for the implementation of express statutory provisions. 
Accordingly, the FHWA certifies that this rule does not have sufficient 
Federalism implications to warrant the preparation of a full Federalism 
Assessment under the principles and criteria contained in Executive 
Order 12612.

Executive Order 12372 (Intergovernmental Review)

    Catalog of Federal Domestic Assistance Program Number 20.205, 
Highway Planning and Construction. The regulations implementing 
Executive Order 12372 regarding intergovernmental consultation of 
Federal programs and activities apply to this program.

Paperwork Reduction Act

    The information collection requirements referenced in 
Sec. 420.105(b) have been approved by the OMB under the provisions of 
the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520) and have been 
assigned OMB control numbers 2125-0028 and 2125-0032. The information 
collection requirements in Secs. 420.111 (a), (b), and (c), and 420.117 
(b) and (c) for metropolitan planning areas have been approved by the 
OMB and assigned control number 2132-0529. The information collection 
requirements in Secs. 420.111 (a), (b), and (c), 420.117 (b) and (c), 
and 420.213 (a) and (b) for State planning and RD&T activities have 
been submitted to the OMB for approval.

National Environmental Policy Act

    The agency has analyzed this action for the purpose of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.) and has 
determined that this action would not have any effect on the quality of 
the environment.

Regulation Identification Number

    A regulation identification number (RIN) is assigned to each 
regulatory action listed in the Unified Agenda of Federal Regulations. 
The Regulatory Information Service Center publishes the Unified Agenda 
in April and October of each year. The RIN contained in the heading of 
this document can be used to cross reference this action with the 
Unified Agenda.
    For the reasons set out in the preamble, and under the authority of 
23 U.S.C. 315 and 49 CFR 1.48, title 23, Code of Federal Regulations, 
is revised as set forth below.

List of Subjects in 23 CFR Parts 420 and 511

    Accounting, Grant programs--transportation, Highways and roads, 
Planning, Reporting and recordkeeping requirements, Research.

    Issued on: July 18, 1994.
Rodney E. Slater,
Federal Highway Administrator.

    In consideration of the foregoing, the FHWA amends Chapter I of 
title 23, Code of Federal Regulations, by revising the heading of 
subchapter E, by revising part 420, and by removing and reserving part 
511 as set forth below.

SUBCHAPTER E--PLANNING AND RESEARCH

    1. The heading of subchapter E is revised as set forth above.
    2. Part 420 is revised to read as follows:

PART 420--PLANNING AND RESEARCH PROGRAM ADMINISTRATION

Subpart A--Administration of FHWA Planning and Research Funds

Sec.
420.101  Purpose and applicability.
420.103  Definitions.
420.105  Policy.
420.107  SPR minimum research, development, and technology transfer 
expenditure.
420.109  Distribution of PL funds.
420.111  Work program.
420.113  Eligibility of costs.
420.115  Approval and authorization procedures.
420.117  Program monitoring and reporting.
420.119  Fiscal procedures.
420.121  Other requirements.

Subpart B--Research, Development and Technology Transfer Program 
Management

Sec.
420.201  Purpose and applicability.
420.203  Definitions.
420.205  Policy.
420.207  Conditions for grant approval.
420.209  State work program.
420.211  Eligibility of costs.
420.213  Certification requirements.
420.215  Procedure for withdrawal of approval.

    Authority: 23 U.S.C. 103(i), 104(f), 115, 120, 133(b), 134(n), 
157(c), 303(g), 307, and 315; and 49 CFR 1.48(b).

Subpart A--Administration of FHWA Planning and Research


Sec. 420.101  Purpose and applicability.

    This part prescribes the Federal Highway Administration (FHWA) 
policies and procedures for the administration of activities undertaken 
by States and their subrecipients, including Metropolitan Planning 
Organizations (MPOs), with FHWA planning and research funds. It applies 
to activities and studies funded as part of a recipient's or 
subrecipient's work program or as separate Federal-aid projects that 
are not included in a work program. This subpart also is applicable to 
the approval and authorization of research, development, and technology 
transfer (RD&T) work programs; additional policies and procedures 
regarding administration of RD&T programs are contained in subpart B of 
this part. The requirements in this part supplement those in 49 CFR 
Part 18 which are applicable to administration of these funds.


Sec. 420.103  Definitions.

    Unless otherwise specified in this part, the definitions in 23 
U.S.C. 101(a) are applicable to this part. As used in this part:
    Grant agreement means a legal instrument between an awarding agency 
and recipient where the principal purpose is to provide funds to the 
recipient to carry out a public purpose of support or stimulation 
authorized by law.
    FHWA planning and research funds means:
    (1) State planning and research (SPR) funds (the 2 percent funds 
authorized under 23 U.S.C. 307(c)(1));
    (2) Metropolitan planning (PL) funds (the 1 percent funds 
authorized under 23 U.S.C. 104(f) to carry out the provisions of 23 
U.S.C. 134(a));
    (3) National highway system (NHS) funds authorized under 23 U.S.C. 
104(b)(1) used for transportation planning in accordance with 23 U.S.C. 
134 and 135, highway research and planning in accordance with 23 U.S.C. 
307, highway-related technology transfer activities, or development and 
establishment of management systems under 23 U.S.C. 303;
    (4) Surface transportation program (STP) funds authorized under 23 
U.S.C. 104(b)(3) used for highway and transit research and development 
and technology transfer programs, surface transportation planning 
programs, or development and establishment of management systems under 
23 U.S.C. 303; and
    (5) Minimum allocation funds authorized under 23 U.S.C. 157(c) used 
for carrying out, respectively, the provisions of 23 U.S.C. 307(c)(1) 
(up to 1\1/2\ percent) and 23 U.S.C. 134(a) (up to \1/2\ percent).
    Metropolitan planning area means the geographic area in which the 
metropolitan transportation planning process required by 23 U.S.C. 134 
and section 8 of the Federal Transit Act (49 U.S.C. app. 1607) must be 
carried out.
    Metropolitan planning organization (MPO) means the forum for 
cooperative transportation decisionmaking for a metropolitan planning 
area.
    National pooled-fund study means a planning or RD&T study or 
activity expected to solve problems of national significance, usually 
administered by the FHWA headquarters office in cooperation with States 
and/or MPOs, that is funded by State and/or MPO contributions of FHWA 
planning and research funds, with or without matching funds.
    Procurement contract means a legal instrument between an awarding 
agency and recipient where the principal purpose is to acquire (by 
purchase, lease, or barter) property or services for the direct benefit 
or use of the awarding agency.
    Regional pooled-fund study means a planning or RD&T study expected 
to solve problems of regional significance, usually administered by an 
FHWA region office in cooperation with a lead State and/or MPO, that is 
funded by State and/or MPO contributions of FHWA planning and research 
funds, with or without matching funds.
    State transportation agency (STA) means the State highway 
department, transportation department, or other State transportation 
agency to which Federal-aid highway funds are apportioned.
    Work program means a periodic statement of proposed work and 
estimated costs that document the eligible activities to be undertaken 
with FHWA planning and research funds during the next 1 or 2-year 
period by STAs and/or their subrecipients.


Sec. 420.105  Policy.

    (a) Within the limitations of available funding and with the 
understanding that planning activities of national significance, 
identified in paragraph (b) of this section, and the requirements of 23 
U.S.C. 134, 135, 303, and 307(c) are being adequately addressed, the 
FHWA will allow STAs and their subrecipients:
    (1) Maximum possible flexibility in the use of FHWA planning and 
research funds to meet highway and multimodal transportation planning 
and RD&T needs at the national, State, and local levels while ensuring 
legal use of such funds and avoiding unnecessary duplication of 
efforts; and
    (2) To determine which eligible planning and RD&T activities they 
desire to support with FHWA planning and research funds and at what 
funding level.
    (b) The STAs shall provide data that support the FHWA's 
responsibilities to the Congress and to the public. These data include, 
but are not limited to, information required for: Preparing proposed 
legislation and reports to the Congress; evaluating the extent, 
performance, condition, and use of the Nation's transportation systems; 
analyzing existing and proposed Federal-aid funding methods and levels 
and the assignment of user cost responsibility; maintaining a critical 
information base on fuel availability, use, and revenues generated; and 
calculating apportionment factors.

(The information collection requirements in paragraph (b) of 
Sec. 420.105 have been approved by the Office of Management and 
Budget (OMB) under control numbers 2125-0028 and 2125-0032.)


Sec. 420.107  SPR minimum research, development, and technology 
transfer expenditure.

    (a) In accordance with the provisions of 23 U.S.C. 307(c), not less 
than 25 percent of the SPR funds apportioned to a State for a fiscal 
year shall be expended for RD&T activities relating to highway, public 
transportation, and intermodal transportation systems, unless the State 
certifies, and the FHWA accepts the State's certification, that total 
expenditures by the State during the fiscal year for transportation 
planning under 23 U.S.C. 134 and 135 will exceed 75 percent of the 
amount apportioned for the fiscal year.
    (b) Prior to submitting a request for an exception to the 25 
percent requirement, the State shall ensure that:
    (1) The additional planning activities are essential and there are 
no other reasonable options available for funding these planning 
activities (including the use of National Highway System, Surface 
Transportation Program, or Federal Transit Administration Section 
26(a)(2) funds or by deferment of lower priority planning activities);
    (2) The planning activities have a higher priority than RD&T 
activities in overall needs of the State for a given year; and
    (3) The total level of effort by the State in RD&T (using both 
Federal and State funds) is adequate.
    (c) If the State chooses to pursue an exception, the request, along 
with supporting justification, shall be sent to the FHWA Division 
Administrator for action by the FHWA Associate Administrator for 
Research and Development. The Associate Administrator's decision shall 
be based upon the following considerations:
    (1) Whether the State has a process for identifying RD&T needs and 
for implementing a viable RD&T program.
    (2) Whether the State is contributing to cooperative RD&T programs 
or activities, such as the National Cooperative Highway Research 
Program, the Transportation Research Board, the implementation of 
products of the Strategic Highway Research Program, and pooled-fund 
studies.
    (3) Whether the State is using SPR funds for technology transfer 
and for transit or intermodal research and development to help meet the 
25 percent minimum requirement.
    (4) The percentage or amount of the State's FHWA planning and 
research funds that were used for RD&T prior to enactment of the 25 
percent requirement and whether the percentage or amount will increase 
if the exception is approved.
    (5) If an exception is approved for the fiscal year, whether the 
State can demonstrate that it will meet the requirement or 
substantially increase its RD&T expenditures over a multi-year period.
    (6) Whether the amount of Federal funds needed for planning for the 
program period exceeds the total of the 75 percent limit for the fiscal 
year and any unexpended (including unused funds that can be released 
from completed projects) funds for planning from previous 
apportionments.
    (d) If the State's request for an exception is approved, the 
exception will be valid only for the fiscal year in which the exception 
is approved. A new request must be submitted in subsequent fiscal 
years.


Sec. 420.109  Distribution of PL funds.

    (a) States shall make all PL funds authorized by 23 U.S.C. 104(f) 
available to the MPOs in accordance with a formula developed by the 
State, in consultation with the MPOs, and approved by the FHWA. The 
State shall not use any PL funds for grant or subgrant administration.
    (b) In developing the formula for distributing PL funds, the State 
shall consider population, status of planning, attainment of air 
quality standards, metropolitan area transportation needs, and other 
factors necessary to provide for an appropriate distribution of funds 
to carry out the requirements of 23 U.S.C. 134 and other applicable 
requirements of Federal law.
    (c) As soon as practicable after PL funds have been apportioned by 
the FHWA to the States, the STAs shall inform the MPOs and the FHWA of 
the amounts allocated to each MPO.
    (d) If the STA, in a State receiving the minimum apportionment of 
PL funds under the provisions of 23 U.S.C. 104(f)(2), determines that 
the share of funds to be allocated to any MPO results in the MPO 
receiving more funds than necessary to carry out the provisions of 23 
U.S.C. 134(a), the STA may, after considering the views of the affected 
MPOs and with the approval of the FHWA, use these funds to finance 
transportation planning outside of metropolitan planning areas.
    (e) In accordance with the provisions of 23 U.S.C. 134(n), any PL 
funds not needed for carrying out the metropolitan planning provisions 
of 23 U.S.C. 134 may be made available by the MPOs to the State for 
funding statewide planning activities under 23 U.S.C. 135, subject to 
approval by the FHWA.
    (f) Any State PL fund distribution formula that does not meet the 
requirements of paragraphs (a) or (b) of this section shall be brought 
into conformance with such requirements as soon as possible, but no 
later than in time for distribution of PL funds apportioned to the 
State for the first Federal fiscal year beginning after August 22, 
1994.


Sec. 420.111  Work program.

    (a) Proposed use of FHWA planning and research funds shall be 
documented by the STAs and subrecipients in a work program(s) 
acceptable to the FHWA. Statewide, metropolitan, other transportation 
planning activities, and transportation RD&T activities may be 
administered as separate programs, paired in various combinations, or 
brought together as a single work program. Similarly, these 
transportation planning and RD&T activities may be authorized for 
fiscal purposes as one combined Federal-aid project or as separate 
Federal-aid projects. The expenditure of PL funds for transportation 
planning outside of metropolitan planning areas under Sec. 420.109(d) 
may be included in the work program for statewide transportation 
planning activities or in a separate work program submitted by the STA.
    (b) Work program(s) that document transportation planning 
activities shall include a description of work to be accomplished and 
cost estimates for each activity. Additional information on 
metropolitan planning area work programs is contained in 23 CFR 
450.314. Additional information on research, development, and 
technology transfer work program content and format is contained in 
subpart B of this part.
    (c) The STAs that use separate Federal-aid projects in accordance 
with Sec. 420.111(a) shall submit, in addition to the financial 
information specified below for each program, one overall summary 
showing the funding for the entire FHWA funded planning, research, 
development, and technology transfer effort. Each work program shall 
include a financial summary that shows:
    (1) Federal share by type of fund;
    (2) Matching rate by type of fund;
    (3) State and/or local matching share; and
    (4) Other State or local funds.
    (d) The STAs and MPOs also are encouraged to include cost estimates 
for transportation planning, research, development, and technology 
transfer related activities funded with other Federal or State and/or 
local funds; particularly for producing the FHWA-required data 
specified in paragraph (b) of Sec. 420.105, for planning for other 
transportation modes, and for air quality planning activities in areas 
designated as nonattainment for transportation-related pollutants in 
their work programs. The MPOs in Transportation Management Areas shall 
include such information in their work programs in accordance with the 
provisions of 23 CFR part 450.

(The information collection requirements in Secs. 420.111(a), (b), 
and (c), and 420.117(b) and (c) for metropolitan planning areas have 
been approved by the OMB and assigned control number 2132-0529.)


Sec. 420.113  Eligibility of costs.

    (a) Costs will be eligible for FHWA participation provided that the 
costs:
    (1) Are for work performed for activities eligible under the 
section of title 23, U.S.C., applicable to the class of funds used for 
the activities;
    (2) Are verifiable from the STA's or the subrecipient's records;
    (3) Are necessary and reasonable for proper and efficient 
accomplishment of project objectives and meet the other criteria for 
allowable costs in the applicable cost principles cited in 49 CFR 
18.22;
    (4) Are included in the approved budget, or amendment thereto; and
    (5) Were not incurred prior to FHWA authorization.
    (b)(1) Except as specified in paragraph (b)(2) of this section, 
indirect costs of an STA are not eligible for reimbursement with FHWA 
planning and research funds.
    (2) Salaries for services rendered by STA employees who are 
generally classified as administrative are eligible for reimbursement 
for a transportation planning unit, RD&T unit, or other unit performing 
eligible work with FHWA planning and research funds (including 
development, establishment, and implementation of the management and 
monitoring systems required by 23 U.S.C. 303 and 23 CFR part 500) in 
the ratio of time spent on the participating portion of work in the 
unit to the total unit's working hours.
    (c) Indirect costs of MPOs and local governments are allowable if 
supported by a cost allocation plan and indirect cost proposal approved 
in accordance with the provisions of OMB Circular A-87. An initial plan 
and proposal must be submitted to the Federal cognizant or oversight 
agency for negotiation and approval prior to recovering any indirect 
costs. The cost allocation plan and indirect cost proposal shall be 
updated annually and retained by the MPO or local government, unless 
requested to be resubmitted by the Federal cognizant or oversight 
agency, for review at the time of the audit required in accordance with 
49 CFR Part 90. If the MPO or local government's indirect cost rate 
varies significantly from the rate approved for the previous year, or 
if the MPO or local government changes its accounting system and 
affects the previously approved indirect cost allocation plan and 
proposal or rate and its basis of application, the indirect cost 
allocation plan and proposal shall be resubmitted for negotiation and 
approval. In either case, a rate shall be negotiated and approved for 
billing purposes until a new plan and proposal are approved.
    (d) Indirect costs of other STA subrecipients, including other 
State agencies, are allowable if supported by a cost allocation plan 
and indirect cost proposal prepared, submitted, and approved by the 
cognizant or oversight agency in accordance with the OMB requirements 
applicable to the subrecipient.


Sec. 420.115  Approval and authorization procedures.

    (a) The STA and its subrecipients shall obtain work program 
approval and authorization to proceed prior to beginning work on 
activities in the work program. Such approvals and authorizations 
should be based on final work program documents. The STA and its 
subrecipients also shall obtain prior approval for budget and 
programmatic changes as specified in 49 CFR 18.30 and for those items 
of allowable costs which require prior approval in accordance with the 
applicable cost principles specified in 49 CFR 18.22.
    (b) Except for advance construction, authorization to proceed with 
the work program(s) in whole or in part shall be deemed a contractual 
obligation of the Federal Government pursuant to 23 U.S.C. 106 and 
shall require that appropriate funds be available for the full Federal 
share of the cost of work authorized. Those STAs that do not have 
sufficient FHWA planning and research funds or obligation authority 
available to obligate the full Federal share of the entire work 
program(s) may utilize the advance construction provisions of 23 U.S.C. 
115(a) in accordance with the requirements of 23 CFR Part 630, subpart 
G. The STAs that do not meet the advance construction provisions, or do 
not wish to utilize them, may request authorization to proceed with 
that portion of the work program(s) for which FHWA planning and 
research funds are available. In the latter case, authorization to 
proceed may be given for either selected work activities or for a 
portion of the program period, but such authorization shall not 
constitute a commitment by the FHWA to fund the remaining portion of 
the work program(s) should additional funds become available.
    (c) A project agreement shall be executed by the STA and FHWA 
Division Office for each statewide transportation planning, 
metropolitan planning area transportation planning, or RD&T work 
program, individual activity or study, or any combination administered 
as a single Federal-aid project. The project agreement shall be 
executed after the authorization has been given by the FHWA to proceed 
with the work in whole or in part. In the event that the project 
agreement is executed for only part of the work program, the project 
agreement shall be amended when authorization is given to proceed with 
additional work.


Sec. 420.117  Program monitoring and reporting.

    (a) In accordance with 49 CFR 18.40, the STA shall monitor all 
activities, including those of its subrecipients, supported by FHWA 
planning and research funds to assure that the work is being managed 
and performed satisfactorily and that time schedules are being met.
    (b)(1) The STA shall submit performance and expenditure reports, 
including a report from each subrecipient, that contain as a minimum:
    (i) Comparison of actual performance with established goals;
    (ii) Progress in meeting schedules;
    (iii) Status of expenditures in a format compatible with the work 
program, including a comparison of budgeted (approved) amounts and 
actual costs incurred;
    (iv) Cost overruns or underruns;
    (v) Approved work program revisions; and
    (vi) Other pertinent supporting data.
    (2) Additional information on reporting requirements for individual 
RD&T studies is contained in subpart B of this part.
    (c) The frequency of reports required by paragraph (b) of this 
section shall be annual unless more frequent reporting is determined to 
be necessary by the FHWA; but in no case will reports be required more 
frequently than quarterly. These reports are due 90 days after the end 
of the reporting period for annual and final reports and no later than 
30 days after the end of the reporting period for other reports.
    (d) Events that have significant impact on the work program(s) 
shall be reported as soon as they become known. The type of events or 
conditions that require reporting include: problems, delays, or adverse 
conditions that will materially affect the ability to attain program 
objectives. This disclosure shall be accompanied by a statement of the 
action taken, or contemplated, and any Federal assistance needed to 
resolve the situation.
    (e) A provision of the Federal-Aid Project Agreement requires both 
the preparation of suitable reports to document the results of 
activities performed with FHWA planning and research funds and FHWA 
approval prior to publishing such reports. The STA may request a waiver 
of the requirement for prior approval. The FHWA's approval constitutes 
acceptance of such reports as evidence of work performed but does not 
imply endorsement of a report's findings or recommendations. Reports 
prepared for FHWA funded work shall include appropriate credit 
references and disclaimer statements.

(The information collection requirements in Secs. 420.117(b) and (c) 
for metropolitan planning areas have been approved by the OMB and 
assigned control number 2132-0529.)


Sec. 420.119  Fiscal procedures.

    (a) SPR funds shall be administered and accounted for as a single 
fund regardless of the category of Federal-aid highway funds from which 
they are derived.
    (b) PL funds shall be administered and accounted for as a single 
fund.
    (c) Optional funds authorized under 23 U.S.C. 104(b)(1), 104(b)(3), 
and 157(c) used for eligible planning and RD&T purposes shall be 
identified separately in the work program(s) and shall be administered 
and accounted for separately for fiscal purposes. The statewide and, if 
appropriate, metropolitan transportation improvement program provisions 
of 23 CFR Part 450 must be met for the use of NHS, STP, or minimum 
allocation funds for planning or RD&T purposes.
    (d) The maximum rate of Federal participation with funds identified 
in paragraphs (a) through (c) of this section shall be as prescribed in 
title 23, U.S.C., for the specific class of funds; unless, for funds 
identified under paragraph (a) or (b) of this section, the FHWA 
determines that the interests of the Federal-aid highway program would 
be best served without such match in accordance with 23 U.S.C. 
307(c)(3) or 23 U.S.C. 104(f)(3). The FHWA also may waive the 
requirement for matching funds if national or regional high priority 
planning or RD&T problems can be more effectively addressed if several 
States and/or MPOs pool their funds. Requests for 100 percent Federal 
funding must be submitted to the FHWA Division Office for approval by 
the Associate Administrator for Program Development (for planning 
activities) or the Associate Administrator Research and Development 
(for RD&T activities).
    (e) The provisions of 49 CFR 18.24 are applicable to any necessary 
matching of FHWA planning and research funds.
    (f) Payment shall be made in accordance with the provisions of 49 
CFR 18.21.


Sec. 420.121  Other requirements.

    (a) The financial management systems of the STAs and their 
subrecipients shall be in accordance with the provisions of 49 CFR 
18.20(a).
    (b) Program income, as defined in 49 CFR 18.25(b), shall be shown 
and deducted to determine the net costs on which the FHWA share will be 
based, unless an alternative method for using program income is 
specified in the Federal-Aid Project Agreement.
    (c) Audits shall be performed in accordance with 49 CFR 18.26 and 
49 CFR Part 90.
    (d) Acquisition, use, and disposition of equipment purchased by the 
STAs and their subrecipients with FHWA planning and research funds 
shall be in accordance with 49 CFR 18.32(b).
    (e) Acquisition and disposition of supplies acquired by the STAs 
and their subrecipients with FHWA planning and research funds shall be 
in accordance with 49 CFR 18.33.
    (f) In accordance with 49 CFR 18.34, STAs and their subrecipients 
may copyright any books, publications, or other copyrightable materials 
developed in the course of the FHWA planning and research funded 
project. The FHWA reserves a royalty-free, nonexclusive and irrevocable 
right to reproduce, publish, or otherwise use, and to authorize others 
to use, the work for Government purposes.
    (g) Procedures for the procurement of property and services with 
FHWA planning and research funds by the STAs and their subrecipients 
shall be in accordance with 49 CFR 18.36(a) and, if applicable, 
18.36(t). The STAs and their subrecipients shall not use FHWA funds for 
procurements from persons (as defined in 49 CFR 29.105) who have been 
debarred or suspended in accordance with the provisions of 49 CFR Part 
29, subparts A through E.
    (h) The STAs shall follow State laws and procedures when awarding 
and administering subgrants to MPOs and local governments and shall 
ensure that the requirements of 49 CFR 18.37(a) have been satisfied. 
STAs shall have primary responsibility for administering FHWA planning 
and research funds passed through to subrecipients, for ensuring that 
such funds are expended for eligible activities, and for ensuring that 
the funds are administered in accordance with this part, 49 CFR Part 
18, and applicable cost principles.
    (i) Recordkeeping and retention requirements shall be in accordance 
with 49 CFR 18.42.
    (j) The STAs and their subrecipients are subject to the provisions 
of 37 CFR Part 401 governing patents and inventions and shall include, 
or incorporate by reference, the standard patent rights clause at 37 
CFR 401.14, except for Sec. 401.14(g), in all subgrants or contracts. 
In addition, STAs and their subrecipients shall include the following 
clause, suitably modified to identify the parties, in all subgrants or 
contracts, regardless of tier, for experimental, developmental or 
research work: ``The subgrantee or contractor will retain all rights 
provided for the State in this clause, and the State will not, as part 
of the consideration for awarding the subgrant or contract, obtain 
rights in the subgrantee's or contractor's subject inventions.''
    (k) In accordance with the provisions of 49 CFR Part 29, subpart F, 
STAs shall certify to the FHWA that they will provide a drug free 
workplace. This requirement can be satisfied through the annual 
certification for the Federal-aid highway program.
    (l) The provisions of 49 CFR Part 20 regarding restrictions on 
influencing certain Federal activities are applicable to all tiers of 
recipients of FHWA planning and research funds.
    (m) The nondiscrimination provisions of 23 CFR Parts 200 and 230 
and 49 CFR Part 21, with respect to Title VI of the Civil Rights Act of 
1964 and the Civil Rights Restoration Act of 1987, apply to all 
programs and activities of recipients, subrecipients, and contractors 
receiving FHWA planning and research funds whether or not those 
programs or activities are federally funded.
    (n) The STAs shall administer the transportation planning and RD&T 
program(s) consistent with their overall efforts to implement section 
1003(b) of the Intermodal Surface Transportation Efficiency Act of 1991 
(Pub. L. 102-240, 105 Stat. 1914) and 49 CFR Part 23 regarding 
disadvantaged business enterprises.
    (o) States and their subrecipients shall administer subgrants to 
universities, hospitals, and other non-profit organizations in 
accordance with the administrative requirements of OMB Circular A-110 
as implemented by the U.S. DOT in 49 CFR Part 19, Uniform 
Administrative Requirements for Grants and Agreements with Institutions 
of Higher Education, Hospitals, and Other Non-Profit Organizations.
    (p) Reports and other documents prepared under FHWA planning and 
research funded grants or subgrants awarded after August 22, 1994, must 
be in metric units.

Subpart B--Research, Development and Technology Transfer Program 
Management


Sec. 420.201  Purpose and applicability.

    The purpose of this subpart is to implement the provisions of 23 
U.S.C. 307 and to prescribe Federal assistance requirements for 
research, development, and technology transfer (RD&T) activities, 
programs, and studies undertaken by States with FHWA planning and 
research funds. The requirements of this subpart and subpart A of this 
part are applicable to work performed by the States and their 
subrecipients with FHWA planning and research funds.


Sec. 420.203  Definitions.

    Unless otherwise specified in this part, the definitions in 23 
U.S.C. 101(a) and Part 420, subpart A, are applicable to this subpart. 
As used in this subpart:
    Applied research means the study of phenomena relating to a 
specific known need in connection with the functional characteristics 
of a system; the primary purpose of this kind of research is to answer 
a question or solve a problem.
    Basic research means the study of phenomena whose specific 
application has not been identified; the primary purpose of this kind 
of research is to increase knowledge.
    Cooperatively funded study means an RD&T study or activity, 
administered by the FHWA, a lead State, or other agency, that is funded 
by some combination of a State's contribution of FHWA planning and 
research funds, FHWA administrative contract funds, 100 percent State 
funds, or funds from other Federal agencies.
    Development means the translation of basic or applied research 
results into prototype materials, devices, techniques, or procedures 
for the practical solution of a specific problem in transportation.
    Final report means a report documenting a completed RD&T study or 
activity.
    Intermodal RD&T means research, development, and technology 
transfer activities involving more than one mode of transportation 
including transfer facilities between modes.
    National Cooperative Highway Research Program (NCHRP) means the 
cooperative RD&T program directed toward solving problems of national 
or regional significance identified by States and the FHWA, and 
administered by the Transportation Research Board, National Academy of 
Sciences.
    Peer review means a review conducted by persons who are 
knowledgeable of the management and operation of RD&T programs. This 
may include but is not limited to representatives of another State, the 
FHWA, American Association of State Highway and Transportation 
Officials, Transportation Research Board (TRB), universities or the 
private sector.
    RD&T activity means a basic or applied research, development, or 
technology transfer project or study.
    Research means a systematic controlled inquiry involving analytical 
and experimental activities which primarily seek to increase the 
understanding of underlying phenomena. Research can be basic or 
applied.
    Technology transfer means those activities that lead to the 
adoption of a new technique or product by users and involves 
dissemination, demonstration, training, and other activities that lead 
to eventual innovation.
    Transportation Research Information Services (TRIS) means the TRB-
maintained computerized storage and retrieval system for abstracts of 
ongoing and completed RD&T activities, including abstracts of RD&T 
reports and articles.


Sec. 420.205  Policy.

    (a) It is the FHWA's policy to administer the RD&T program 
activities utilizing FHWA planning and research funds consistent with 
the policy specified in Sec. 420.105 and the following general 
principles in paragraphs (b) through (g) of this section.
    (b) State transportation agencies shall provide information 
necessary for peer reviews.
    (c) States are encouraged to develop, establish, and implement an 
RD&T program, funded with Federal and State resources, that anticipates 
and addresses transportation concerns before they become critical 
problems. To promote effective utilization of available resources, 
States are encouraged to cooperate with other States, the FHWA, and 
other appropriate agencies to achieve RD&T objectives established at 
the national level and to develop a technology transfer program to 
promote and use those results.
    (d) States will be allowed the authority and flexibility to manage 
and direct their RD&T activities as presented in their work programs, 
and to initiate RD&T activities supported by FHWA planning and research 
funds, subject to the limitation of Federal funds and to compliance 
with program conditions set forth in subpart A of this part and 
Sec. 420.207.
    (e) States will have primary responsibility for managing RD&T 
activities supported with FHWA planning and research funds carried out 
by other State agencies and organizations and for ensuring that such 
funds are expended for purposes consistent with this subpart.
    (f) Each State shall develop, establish, and implement a management 
process that ensures effective use of available FHWA planning and 
research funds for RD&T activities on a statewide basis. Each State is 
permitted to tailor its management process to meet State or local 
needs; however, the process must comply with the minimum requirements 
and conditions of this subpart.
    (g) States are encouraged to make effective use of the FHWA 
Division, Regional, and Headquarters office expertise in developing and 
carrying out their RD&T activities. Participation of the FHWA on 
advisory panels and in program review meetings is encouraged.


Sec. 420.207  Conditions for grant approval.

    (a) As a condition for approval of FHWA planning and research funds 
for RD&T activities, a State shall implement a program of RD&T 
activities for planning, design, construction, and maintenance of 
highways, public transportation, and intermodal transportation systems. 
Not less than 25 percent of the State's apportioned SPR funds shall be 
spent on such activities, unless waived by the FHWA, in accordance with 
the provisions of Sec. 420.107. In addition the State shall develop, 
establish, and implement a management process that identifies and 
implements RD&T activities expected to address highest priority 
transportation issues, and includes:
    (1) An interactive process for identification and prioritization of 
RD&T activities for inclusion in an RD&T work program;
    (2) Utilization, to the maximum extent possible, of all FHWA 
planning and research funds set aside for RD&T activities either 
internally or for participation in national, regional pooled, or 
cooperatively funded studies;
    (3) Procedures for tracking program activities, schedules, 
accomplishments, and fiscal commitments;
    (4) Support and use of the TRIS database for program development, 
reporting of active RD&T activities, and input of the final report 
information;
    (5) Procedures to determine the effectiveness of the State's 
management process in implementing the RD&T program, to determine the 
utilization of the State's RD&T outputs, and to facilitate peer reviews 
of its RD&T Program on a periodic basis and;
    (6) Procedures for documenting RD&T activities through the 
preparation of final reports. As a minimum, the documentation shall 
include the data collected, analyses performed, conclusions, and 
recommendations. The State shall actively implement appropriate 
research findings and should document benefits.
    (b) Each State shall conduct peer reviews of its RD&T program and 
should participate in the review of other States' programs on a 
periodic basis. To assist peer reviewers in completing a quality and 
performance effectiveness review, the State shall disclose to them 
information and documentation required to be collected and maintained 
under this subpart. Travel and other costs associated with peer reviews 
of the State's program may be identified as a line item in the State 
work program and will be eligible for 100 percent Federal funding. At 
least two members of the peer review team shall be selected from the 
FHWA list of qualified peer reviewers. The peer review team shall 
provide a written report of its findings to the State. The State shall 
forward a copy of the report to the FHWA Division Administrator with a 
written response to the peer review findings.
    (c) Documentation that describes the management process and the 
procedures for selecting and implementing RD&T activities shall be 
developed and maintained by the State. The documentation shall be 
submitted by the State to the FHWA Division office for FHWA approval. 
Significant changes in the management process also shall be submitted 
by the State for FHWA approval. The State shall make the documentation 
available, as necessary, to facilitate peer reviews.


Sec. 420.209  RD&T work program.

    (a) The State's RD&T work program shall, as a minimum, consist of 
an annual or biennial description of activities and individual RD&T 
activities to be accomplished during the program period, estimated 
costs for each eligible activity, and a description of any 
cooperatively funded activities that are part of a national or regional 
pooled study including the NCHRP contribution. The State's work program 
should include a list of the major items with a cost estimate for each 
item.
    (b) The State's RD&T work program shall include financial summaries 
showing the funding levels and share (Federal, State, and other 
sources) for RD&T activities for the program year. States are 
encouraged to include any activity funded 100 percent with State or 
other funds.
    (c) Approval and authorization procedures in Sec. 420.115 are 
applicable to the State's RD&T work program.


Sec. 420.211  Eligibility of costs.

    (a) Unless otherwise specified in this section, the eligible costs 
for Federal participation in Sec. 420.113 are applicable to this part.
    (b) Costs for implementation of RD&T activities in conformity with 
the requirements and conditions set forth in this subpart are eligible 
for Federal participation.
    (c) Indirect costs of a State transportation agency RD&T unit are 
allowable to the extent specified in Sec. 420.113(b).
    (d) Indirect costs of other State agencies and organizations are 
allowable if supported by a cost allocation plan and indirect cost 
proposal in accordance with OMB requirements.


Sec. 420.213  Certification requirements.

    (a) Each State shall certify to the FHWA Division Administrator 
before June 30, 1995, that it is complying with the requirements of 
this subpart. For those States unable to meet full compliance by June 
30, 1995, the FHWA Division Administrator may grant conditional 
approval of the State's RD&T management process. A conditional approval 
shall cite those areas of the State's management process that are 
deficient. All deficiencies must be corrected by January 1, 1996. A 
copy of the certification shall be submitted with each work program. A 
new certification will be required if the State significantly revises 
its management process for the RD&T program.
    (b) The certification shall consist of a statement signed by the 
Administrator, or an official designated by the Administrator, of the 
State transportation agency certifying as follows: I (name of 
certifying official), (position title), of the State (Commonwealth) of 
________, do hereby certify that the State (Commonwealth) is in 
compliance with all requirements of 23 U.S.C. 307 and its implementing 
regulations with respect to the research, development and technology 
transfer program, and contemplate no changes in statutes, regulations, 
or administrative procedures which would affect such compliance.
    (c) The FHWA Division Administrator shall determine if the State is 
in compliance with the requirements of this subpart.


Sec. 420.215  Procedure for withdrawal of approval.

    (a) If a State is not complying with the requirements of this 
subpart, or is not performing in accordance with its RD&T management 
process, the FHWA Division Administrator shall issue a written notice 
of proposed determination of noncompliance to the State. The notice 
shall set forth the reasons for the proposed determination and inform 
the State that it may reply in writing within 30 calendar days from the 
date of the notice. The State's reply should address the deficiencies 
cited in the notice and provide documentation as necessary.
    (b) If the State and Division Administrator cannot resolve the 
differences set forth in the determination of nonconformity, the State 
may appeal to the Federal Highway Administrator.
    (c) The Federal Highway Administrator's action shall constitute the 
final decision of the FHWA.
    (d) An adverse decision shall result in immediate withdrawal of 
approval of FHWA planning and research funds for the State's RD&T 
activities until the State is in full compliance.

PART 511--RESEARCH AND DEVELOPMENT (R&D) STUDIES AND PROGRAMS; 
GENERAL [REMOVED]

    3. Chapter I of title 23, CFR, is amended by removing and reserving 
part 511.

[FR Doc. 94-17908 Filed 7-21-94; 8:45 am]
BILLING CODE 4910-22-P