[Federal Register Volume 69, Number 193 (Wednesday, October 6, 2004)]
[Notices]
[Pages 59983-59986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-21975]
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DEPARTMENT OF TRANSPORTATION
Federal Highway Administration
New Special Experimental Project (SEP-15) To Explore Alternative
and Innovative Approaches to the Overall Project Development Process;
Information
AGENCY: Federal Highway Administration (FHWA), DOT.
ACTION: Notice.
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SUMMARY: The FHWA is establishing a new Special Experimental Project
(SEP-15) to encourage tests and experimentation in the entire
development process for transportation projects. SEP-15 is aimed
specifically at increased project management flexibility, more
innovation, improved efficiency, timely project implementation, and new
revenue streams. The FHWA plans to use the lessons learned from SEP-15
to develop more effective approaches to project planning, project
development, finance, design, construction, maintenance, and
operations.
DATES: This new experimental project is being initiated on October 6,
2004.
FOR FURTHER INFORMATION CONTACT: Division Offices: A complete list of
contact information for the FHWA Division Offices may be found at:
http://www.fhwa.dot.gov/keyfield/famc.htm. Headquarters: Mr. Dwight
Horne, Office of Program Administration (HIPA), (202) 366-0494 or Mr.
L. Harold Aikens, Jr., Office of the Chief Counsel (HCC-30), (202) 366-
0791, 400 Seventh Street, SW., Washington, DC 20590. Office hours are
from 7:45 a.m. to 4:15 p.m., e.s.t., Monday through Friday, except
Federal holidays.
SUPPLEMENTARY INFORMATION:
Electronic Access
An electronic copy of this document may be downloaded using a modem
and suitable communications software from the Government Printing
Office Electronic Bulletin Board Service at (202) 512-1661. Internet
users may reach the Office of the Federal Register's home page at
http://www.archives.gov/fedreg and the Government Printing Office's Web
page at http://www.gpoaccess.gpo.gov/nara.
Background
The Federal Highway Administration (FHWA) has long encouraged
increased private sector participation in the project development,
finance, design, construction, maintenance, and operations of highways
and bridges. The private sector has expertise often not available to
the public sector that can bring innovation, flexibility, and
efficiencies to certain types of projects.
For some time, FHWA has conducted tests in the area of contracting
practices under Special Experimental Project No. 14 (SEP-14)\1\. Many
of these practices have facilitated greater private sector investment.
Since its inception in 1990, SEP-14 has been successful in advancing
over 300 projects, and due to SEP-14, a number of contracting practices
previously considered experimental have become a regular part of the
highway program, such as design-build, cost-plus-time bidding, lane
rental, and the use warranties.
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\1\ SEP-14 was initiated on February 13, 1990, as a result of
recommendations from a Transportation Research Board (TRB) task
force formed to explore innovative contracting practices. The
memorandum initiating the SEP-14 program can be found at the
following URL: http: www.fhwa.dot.gov/programadmin/contracts/021390.htm.
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The FHWA has also encouraged innovations in the area of
transportation financing. In 1994, Executive Order 12893, Principles
for Federal Infrastructure Investment, established more cost-effective
infrastructure investment as a priority for all Federal agencies. This
Executive Order prompted more systematic analyses of the costs and
benefits of proposed infrastructure investments, efficient management
of infrastructure, greater private sector investment in infrastructure,
and encouragement of more effective State and local programs. In
response to that Executive Order, the U.S. Department of Transportation
(U.S. DOT) and the FHWA undertook a major initiative in 1994 to promote
and facilitate infrastructure investment.
This initiative was launched with the introduction of an
experimental ``Test and Evaluation'' program, designated as TE-045, to
solicit ideas from the States on a range of new financial strategies
designed to stretch limited transportation dollars by creating new,
[[Page 59984]]
more flexible ways to leverage Federal-aid highway funds. The TE-045
initiative has generated substantial benefits in terms of building more
projects with fewer Federal dollars and accelerating project
construction. Many of the innovations tested were subsequently approved
for general use through administrative action or legislative changes
made under the National Highway System Designation (NHS) Act of 1995
(Pub. L. 104-59; 109 Stat. 568; Nov. 28, 1995), and the Transportation
Equity Act for the 21st Century (TEA-21) (Pub. L. 105-178; 112 Stat.
107; June 9, 1998).
More recently, an increasing number of States and private ventures
have explored public-private partnerships in which the private sector
partner could assume a greater role in project planning, project
development, financing, construction, maintenance, and operation.
Because these projects involve elements of project planning,
development, environmental analysis, construction, maintenance,
operation, and financing, they extend well beyond innovative
contracting practices contemplated by SEP-14 and the financing tools
encompassed by TE-045.
State interest in public private partnerships is expected to
increase. Private sector investment can make up some of the public
funding shortfall, but it will require a fair return on investment.
Tolls certainly will represent a major source of funds to support
private sector investment, but other potential sources of income such
as development fees and tax increment financing may also be needed.
These features often add to the complexity of project development.
Several States and private entities have asked for FHWA's guidance
in implementing innovative arrangements and have queried how these new
arrangements will be treated under Federal laws affecting highway
projects. Some recent SEP-14 applications have sought to incorporate
initiatives that go beyond innovative contracting, to include
environmental compliance, right of way acquisition, and financing.
These applications have been difficult to fit within the limits of SEP-
14. Thus, rather than continue to manage these new proposals under the
SEP-14 umbrella, FHWA is initiating a new Special Experimental Project
No. 15 (SEP-15) pursuant to the authority granted the Secretary by
Congress in 23 U.S.C. 502(b). SEP-15 will not be limited to contracting
initiatives. It will encourage tests and experimentation in the entire
project development process, specifically aimed at attracting private
investment, leading to increased project management flexibility, more
innovation, improved efficiency, timely project implementation, and new
revenue streams.
A key element of SEP-15 will be to identify impediments in current
laws, regulations, and practices to the greater use of public-private
partnerships and private investment in transportation improvements and
to develop procedures and approaches that address these impediments. Of
course, such procedures and approaches must continue to protect the
public interest and any public investment in the project. Moreover,
SEP-15 projects cannot be used to modify environmental and other
requirements external to title 23 of the United States Code. Thus, SEP-
15 will allow for innovations in project delivery while maintaining
FHWA's stewardship responsibilities to protect taxpayers and the
environment. The FHWA recognizes that SEP-15 proposals may include
multi-modal components. The FHWA will coordinate the review of multi-
modal SEP-15 proposals with the appropriate modal administration(s).
The lessons learned from SEP-15 will aid FHWA in developing more
effective approaches to project planning, project development, finance,
design, construction, maintenance, and operations. Our goal is to
establish comprehensive policies and to seek future legislation to
authorize those public-private innovations that have proved most useful
under SEP-15.
SEP-15
As personal and freight transportation needs continue to increase,
public resources will fall behind the demand for investment in
transportation infrastructure. It is unrealistic to assume that
sufficient funding to meet this demand can be realized by increasing
taxes or otherwise using only public funds. Additional funds must be
obtained from other sources, such as drawing from private sector
financing and investment. SEP-15 will allow FHWA to test project
development approaches that provide the flexibility and timely
decision-making often required to attract private capital while still
exercising essential FHWA stewardship responsibilities.
As a result, the FHWA is seeking to identify changes in current
practices that could promote greater and more effective private sector
involvement in the delivery of Federal-aid construction projects.
Partnerships between private investors and public transportation
agencies can bring not only greater funding to a project but also more
intellectual capital and innovation. SEP-15 is designed to provide a
mechanism by which States can facilitate public-private partnerships.
The objective of SEP-15 is to identify for trial evaluation and
documentation public-private partnership approaches that advance the
efficient delivery of transportation projects while protecting the
environment and the taxpayers. SEP-15 addresses four major components
of project delivery--contracting, compliance with FHWA's National
Environmental Policy Act (NEPA) process and other environmental
requirements, right-of-way acquisition, and project finance. Given the
scope of some of the proposals that have surfaced, elements of the
transportation planning process may be involved as well. In order to
meet the objective of SEP-15, proposals should describe the specific
Federal-aid program areas of experimentation and identify proposed
performance measures to evaluate the success of the SEP-15 project.
Contracting
SEP-15 incorporates SEP-14's approach to innovative contracting
practices. However, SEP-15 projects are likely to solicit conditional
Federal approval earlier in the project development process than is
typical for SEP-14 projects. Projects under SEP-14 usually have passed
the initial concept stage. Hence, competition can occur around
proposals for which cost parameters can be identified. Recently, the
FHWA encountered a number of proposals that seek to involve the private
sector even earlier in the process. Under these proposals, only
generalized needs or policy initiatives that the project would serve
have been identified.
For this reason, State applicants under SEP-15 should provide
detail of the following:
(1) The procurement methods it will use over the life of the
project to encourage adequate competition. Many of the proposals
developed to date are an offshoot of the design-build concept. SEP-15
proposals need not be limited by these concepts. However, given the
very long lead-time and the large scope that a SEP-15 project might
involve, FHWA is concerned that adequate competition is maintained and
that qualitative and quantitative (price) evaluation factors are
considered at key stages of the project.
(2) Applicants should specify any title 23, U.S.C., and FHWA
regulatory requirements that may have to be waived or modified in order
to conduct a successful SEP-15 test, together with
[[Page 59985]]
a justification or explanation for the modification. Applicants should
also describe how laws and other requirements that fall outside title
23, U.S.C., and thus cannot be waived under SEP-15, would be affected
by proposed changes in standard procedure. This includes not only the
environmental laws discussed in the following section, but other
requirements external to title 23, U.S.C..
(3) Many of the controls imposed by title 23, U.S.C., and
implementing requirements provide for oversight and control to protect
the public interest. It is clear from the proposals the FHWA has seen
to date that some of these controls have created real and unnecessary
impediments to innovation and greater private investment. Thus, an
applicant should be prepared to describe how it will ensure an
appropriate level of public oversight and control, while also
encouraging innovation and flexible, efficient procedures throughout
the life of the project. The FHWA has no preconceived measures in mind.
We are concerned about meeting quality standards, monitoring compliance
with government-wide policies, contracting process requirements, and
other stewardship responsibilities.
(4) The FHWA is particularly interested in proposals that can
successfully accomplish the goals mentioned above. The FHWA has
considerable authority under SEP-15 to test new ideas and is prepared
to grant considerable flexibility if it is clear that its stewardship
responsibilities can be met.
Applicants will be allowed maximum flexibility in determining their
own procurement methods consistent with their State law but need to
specify State requirements that cannot be waived.
Compliance with Environmental and Planning Laws
SEP-15 applicants must still fully comply with all requirements of
NEPA and other State and Federal environmental and planning laws and
regulations. These requirements include all metropolitan and statewide
planning provisions related to local consultation, public involvement,
and project selection. Successful applicants, however, may be provided
flexibility in the application of FHWA's project development and NEPA
implementation requirements, so long as there is verifiable compliance
of the statutory requirements and regulations promulgated by agencies
other than FHWA. Examples of innovation in the environmental area might
include the following.
(1) The FHWA's design-build regulations (23 CFR Part 636) prohibit
States from issuing a request for proposal (RFP) for a project prior to
approval of the Record of Decision (ROD). This restriction would not
necessarily apply under SEP-15. However, applicants will be responsible
for demonstrating that any changes to the traditional timing of actions
within the NEPA project development process and contracting for
professional services, design and/or construction, will not influence
the NEPA analysis. SEP-15 is not a blanket waiver of basic NEPA process
requirements found in the Council on Environmental Quality (CEQ)
Regulations (40 CFR Parts 1500-1508) or FHWA's Environmental Regulation
(23 CFR Part 771). Applicants must also understand the risk of taking
advantage of this flexibility. If more than preliminary design is
performed for a specific alternative prior to the ROD or final NEPA
document, that work may be lost if another specific alternative is
chosen in the ROD. Under no circumstances may construction begin prior
to completion of the NEPA process.
(2) Under current law, a successful applicant may allow a
contractor to conduct environmental analysis and prepare NEPA
documents. However, the State Department of Transportation (State DOT)
in cooperation with FHWA must provide direction and oversight during
the NEPA process and development of NEPA documents. In all cases, the
State DOT in cooperation with FHWA will be responsible for
demonstrating that NEPA documents are objective by carefully reviewing
the document with in-house experts or consultant advisors hired by the
State DOT. For SEP-15 projects, FHWA will maintain its role as the lead
Federal agency and will independently review and evaluate the NEPA
documents prior to taking an approval action.
(3) Proposals that are very large in scope or slated to be built
over a long time period might benefit from a tiered environmental
process. While such tiering has always been allowed, transportation
agencies have not made extensive use of tiered environmental analyses.
(4) The scope and nature of some of the proposals present
particular challenges for public involvement and interagency
coordination and consultation. Applicants are encouraged to identify
innovative ways to include the public and other agencies in various
phases of planning and project development.
Improved coordination with resource agencies is a key element of
the environmental streamlining provisions of TEA-21. These provisions
also have been enhanced by Executive Order 13274, Environmental
Stewardship and Transportation Infrastructure Project Reviews.\2\
Proposals that take advantage of these provisions in a creative manner
could be particularly useful.
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\2\ E.O. 13274, Environmental Stewardship and Transportation
Infrastructure Project Reviews, issued on September 18, 2002,
emphasizes the importance of expedited transportation project
delivery while being good stewards of the environment.
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Right-of-Way Acquisition
Early acquisition of right-of-way, in spite of some risk, is a
particularly useful tool to preserve transportation corridors from
conflicting land uses. Also, early acquisition could influence land
uses adjoining the potential corridor in a manner that is consistent
with the ultimate transportation project and may even be appropriate to
preserve the possibility of identified joint development initiatives.
Thus, FHWA anticipates that timely land acquisition, or other land use
control methods, could well be a part of a SEP-15 proposal.
Existing law provides project sponsors with an array of options to
acquire right-of-way using both Federal and non-Federal funds. SEP-15
adds to that flexibility. For example, FHWA regulations currently
discourage the award of a construction contract prior to acquisition of
all necessary rights-of-way (ROW) (23 CFR 635.309). Environmentally
neutral proposals that assure that landowners and tenants are receiving
fair compensation, relocation assistance, and benefits guaranteed by
the Uniform Relocation Assistance and Real Property Acquisitions
Policies Act of 1970 (42 U.S.C. 4601 et seq.) could be eligible for
modification of the ROW certification requirements, similar to the ROW
phasing procedures under current design-build regulations.
Project Finance
Project financing for SEP-15 projects will likely come from a mix
of Federal, State, local, and/or private funds. Building on the TE-045
initiative, SEP-15 will focus on financing innovations specifically
associated with public-private partnerships. Existing Federal law
already has a number of provisions that encompass a considerable range
of financial arrangements.
The Transportation Infrastructure Finance and Innovative Act
(TIFIA) program, (http://tifia.fhwa.dot.gov/), which facilitates a
range of financing approaches, will continue to be a key element in
FHWA's efforts to encourage
[[Page 59986]]
the formation of public-private partnerships. This program is designed
specifically to encourage greater leveraging of public transportation
funds and attract private investment to transportation projects by
providing credit assistance in the form of direct loans, loan
guarantees, and standby lines of credit.
Little use has been made of the loan authority provided by 23
U.S.C. 129(a)(7). The FHWA welcomes proposals to use this ``129(a)(7)''
authority, which allows highway apportionments to be used for low cost
loans to projects with dedicated revenue sources, as part of a three-
way financing partnership between the State, the private venture
partner, and the FHWA. By coupling ``129(a)(7) authority'' with TIFIA,
tax-exempt bond financing, and Federal-aid grant funding as an
integrated financing package, FHWA believes that this kind of
partnership will serve as a catalyst for moving public-private
partnerships quickly from concept to construction. When the State makes
a 129(a)(7) loan to an eligible public or private entity, the State
receives reimbursement from FHWA and is repaid the loan amount plus
applicable interest by the borrower, which the State may then use for
any eligible title 23 U.S.C. purpose; thus, assisting the State to
establish a revolving loan fund for future projects.
The FHWA will devote the internal resources necessary to evaluate
the financing package, offer alternative financing solutions, and
establish financial feasibility in order to move the project from
concept to commitment of Federal funds (where applicable) and
construction.
Joint Development Agreements
In addition to the transportation project itself, significant
benefit and revenue potential may be realized from joint use of the
transportation facility. Thus, the ROW may be used both for
transportation purposes and other uses that are compatible with the
transportation use, such as airspace development. Even joint use of the
airspace of Interstate and other limited access highways is favored, so
long as the transportation purpose is not impaired. States are
encouraged to enter into joint development agreements with private
parties by current Federal law, 23 U.S.C. 156. Under this provision, if
FHWA participates in the cost of acquiring real property needed for a
proposed project, there are specific requirements that apply to the
sale or lease of the real property acquired with Federal funds (such as
air rights). These requirements may include such things as ensuring
that the amount realized by sale or lease represents the fair market
value of the interest at issue. The net realized must be dedicated to
transportation purposes. Waivers of the requirement to charge the fair
market value are available in limited circumstances.
Application Process
A State DOT should submit SEP-15 proposals to the appropriate FHWA
Division Office. Proposals may include localities and private
transportation ventures as project sponsors. SEP-15 applications should
provide a brief description of the project, including the innovative
techniques proposed and the expected value of those techniques.
Upon the completion of major milestones, the public-private
sponsors will be responsible for submitting an independently prepared
report that summarizes lessons learned from the SEP-15 process. These
reports shall include the experiment undertaken, the lessons learned,
evaluate the success of the process and its impact on the project, and
recommend statutory and regulatory changes with an explanation of how
the changes will improve the delivery of the Federal-aid highway
program.
Conclusion
The Secretary has identified public-private partnerships as being
an important element of the Department's ability to reduce congestion
and maintain the highway system. To this end, SEP-15 is designed to
encourage a broad range of innovations in project planning, project
development, finance, design, construction, maintenance, and
operations. This notice outlines some areas in which States may
experiment and innovate in order to help provide some framework for
experimentation. Project proponents applying under SEP-15, however, are
encouraged to propose innovations in all areas of title 23, U.S.C.
(Authority: 23 U.S.C. 315 and 502).
Issued on: September 23, 2004.
Mary E. Peters,
Federal Highway Administrator.
[FR Doc. 04-21975 Filed 10-5-04; 8:45 am]
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