[Federal Register Volume 76, Number 177 (Tuesday, September 13, 2011)]
[Proposed Rules]
[Pages 56363-56381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-23371]


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DEPARTMENT OF TRANSPORTATION

Federal Transit Administration

49 CFR Part 633

[Docket No. FTA-2009-0030]
RIN 2132-AA92


Capital Project Management

AGENCY: Federal Transit Administration (FTA), DOT.

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: This proposal would transform the current FTA rule for project 
management oversight into a discrete set of managerial principles for 
sponsors of major capital projects; enable FTA to more clearly identify 
the necessary management capacity and capability of a sponsor of a 
major capital project; spell out the many facets of project management 
that must be addressed by a sponsor of a major capital project in a 
project management plan; change the scope and applicability of the 
rule; tailor the level of FTA oversight to the costs, complexities, and 
risks of a major capital project; set forth the means and objectives of 
FTA risk assessments; and articulate the roles and responsibilities of 
FTA's project management oversight contractors.

DATES: Comments must be received on or before November 14, 2011. Late-
filed comments will be considered to the extent practicable.

ADDRESSES: You may submit comments identified by the docket number 
(FTA-2009-0030) by any of the following methods:
    Federal eRulemaking Portal: Go to http://www.regulations.gov. 
Follow the online instructions for submitting comments.
    U.S. Mail: U.S. Department of Transportation, Docket Operations, 
West Building, Room W12-140, 1200 New Jersey Avenue, SE., Washington, 
DC 20590.
    Hand Delivery: U.S. Department of Transportation, Docket 
Operations, West Building, Room W12-140, 1200 New Jersey Avenue, SE., 
Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, 
except Federal holidays.
    Fax: (202) 493-2251.
    Instructions: You must include the agency name (Federal Transit 
Administration) and docket number (FTA-2009-0030) or Regulatory 
Identification Number (RIN 2132-AA92) for this rulemaking at the 
beginning of your comments. All comments received will be posted, 
without change and including any personal information provided, to 
http://www.regulations.gov, where they will be available to internet 
users. Please see, the Privacy Act.
    You should submit two copies of your comments if you submit them by 
mail. If you wish to receive confirmation that FTA received your 
comments, you must include a self-addressed, stamped postcard. Due to 
security procedures in effect since October 2001 regarding mail 
deliveries, mail received through the U.S. Postal Service may be 
subject to delays. Parties submitting comments may wish to consider 
using an express mail firm to ensure the prompt filing of any 
submissions not filed electronically or by hand.

FOR FURTHER INFORMATION CONTACT: For program matters, please contact 
Aaron C. James, Sr. at (202) 493-0107 or [email protected], or Carlos 
M. Garay at (202) 366-6471 or [email protected]. For legal matters, 
please contact Scott A. Biehl at (202) 366-0826 or [email protected], 
or Jayme L. Blakesley at (202) 366-0304 or [email protected]. FTA 
is headquartered at 1200 New Jersey Avenue, SE., East Building, 
Washington, DC 20590. Office hours are from 8:30 a.m. to 5 p.m. Monday 
through Friday, except Federal holidays.

SUPPLEMENTARY INFORMATION: 

Background

    FTA is authorized by 49 U.S.C. 5327 to conduct oversight of major 
capital projects, and to promulgate a rule for that purpose. The 
statute also obliges FTA to codify a definition of major capital 
project to delineate the types of projects governed by the rule. 
Further, the statute authorizes FTA to obtain the services of Project 
Management Oversight Contractors (PMOCs) to assist the agency in 
overseeing the expenditure of Federal financial assistance for major 
capital projects--both under the discretionary Major Capital Investment 
(``New Starts'') program and the formula Fixed Guideway Modernization 
(``FGM'') program authorized by 49 U.S.C. 5309.
    FTA's predecessor agency, the Urban Mass Transportation 
Administration (UMTA), issued the original rule for oversight of major 
capital projects on September 1, 1989, at 49 CFR part 633 (54 FR 
36708). At the time, UMTA's capital programs were comparatively small--
the agency's annual capital grants totaled a little more than $2 
billion--and there were a mere 25 task orders in effect for the 
services of PMOCs. Even then, however, the Congress recognized a 
compelling need to strengthen the agency's management and oversight of 
major capital projects.

[[Page 56364]]

Thus, in 1987, the Surface Transportation and Uniform Relocation 
Assistance Act (STURAA) (Pub. L. 100-17, Sec. 324, 101 Stat. 132, 235) 
both directed a rulemaking for oversight of major capital projects and 
established a ``take down'' of up to one-half of one percent from the 
annual New Starts and FGM funding levels to finance the retention of 
PMOC services. Given its relative inexperience in the oversight of 
major capital projects, and its use of PMOCs for that purpose, UMTA 
chose to promulgate a limited rule that imposed only a very general 
requirement that the sponsor of a major capital project develop a 
project management plan for that project, and a very general framework 
for the responsibilities of UMTA's PMOCs. That original rule is still 
in effect.
    Today, however, the annual dollar value of the Federal transit 
capital programs is nearly five times the level authorized under the 
STURAA in 1987. The number of active PMOC task orders is more than 
double the number during STURAA. The number of sponsors of New Starts 
across the United States--many of which are new to the transit 
industry--has increased exponentially. There is a compelling need for 
stronger management of fixed guideway modernization projects to help 
restore rail transit infrastructure to a state of good repair. FTA is 
participating in a larger number of ``mega projects''-- projects 
costing one billion dollars or more--which entail significant oversight 
challenges to the agency as the steward of Federal tax dollars. 
Moreover, FTA has become much more knowledgeable about the risks 
inherent in major capital projects, having conducted its own risk 
assessments since 2005, having studied the reasons for cost and 
schedule changes on a good many major capital projects, and having 
witnessed project sponsors' lack of management capacity and capability, 
and appropriate project controls, as discussed below.
    The rule that FTA is proposing today follows the Advance Notice of 
Proposed Rulemaking (ANPRM) the agency published on September 10, 2009, 
at 74 FR 46515-21. This proposed rule would transform the current, 
narrow rule for project management oversight to a discrete set of 
managerial principles for sponsors of major capital projects; enable 
FTA to more clearly identify the necessary management capacity and 
capability of a sponsor of a major capital project; spell out the many 
facets of project management that must be addressed in a Project 
Management Plan; change the applicability of the rule from one based 
primarily on total project costs to one based primarily on the amount 
of Federal financial assistance for a project; tailor the level of FTA 
oversight to the costs, complexities, and risks of a major capital 
project; set forth the means and objectives of FTA risk assessments; 
and more clearly articulate the roles and responsibilities of PMOCs. 
What follows is a discussion of the comments on the ANPRM, FTA's 
responses to those comments, and a section-by-section description of 
the proposed rule and what FTA expects to accomplish through each 
section.

Comments Received on the ANPRM and FTA Responses

    FTA received comments from twenty-one (21) entities, including 
seventeen (17) transit agencies, one (1) project management oversight 
contractor, and three (3) private not-for-profit organizations. FTA 
will address the comments in groups, by subject matter.

Shift from `Project Oversight Only' to `Project Management and 
Oversight'.

    Comments: In FTA's proposal to shift the focus of its Project 
Management Oversight (PMO) rule from ``project oversight only'' to 
``project management and oversight,'' many commenters stated that 
project management is not an appropriate Federal role. They stated that 
the shift would require more resources for FTA and that the overlay of 
the FTA project management processes may complicate project delivery 
and costs. Commenters also asserted that experienced sponsors already 
use the project management strategies proposed in the ANPRM. One 
commenter questioned whether FTA has the data and authority to support 
extending these requirements beyond inexperienced sponsors. Another 
commenter countered with the view that some sponsors have long shown 
problems with management capability and project controls and that even 
those that develop good Project Management Plans (PMPs) often fail to 
follow those plans. One commenter questioned whether the statute allows 
FTA to specify project management requirements.
    FTA Response: FTA has no role whatsoever in a sponsor's hands-on 
management of a project. Rather, the FTA role is to oversee the 
effectiveness of a sponsor's project management. As the steward of the 
Federal funds that help finance these major capital projects, FTA is 
obliged to protect the taxpayer. The regulations FTA is proposing today 
are designed to ensure that sponsors of major capital projects possess 
resources and attributes necessary to successfully manage their major 
capital projects; that FTA has the means necessary to oversee the 
Federal investment in those projects; and that there are clear 
expectations of the PMOCs. Over the past several years, FTA has 
observed a number of characteristics of successful project management 
and is using this rule to establish them as minimum expectations for 
sponsors of major capital projects. Also, FTA has ample data to support 
the need for this rule. The types of problems the rule is meant to 
address are described in detail, below.
    The plain text of 49 U.S.C. 5327(e) authorizes FTA to conduct 
oversight of major capital projects, and to promulgate regulations for 
that purpose. Further, the statute obliges FTA to codify a definition 
of ``major capital project,'' and 49 U.S.C. 5327(c) enables FTA to 
obtain the services of Project Management Oversight Contractors (PMOCs) 
to assist the agency in overseeing the expenditure of Federal financial 
assistance for major capital projects--both under the discretionary 
Major Capital Investment (``New Starts'') program and the formula Fixed 
Guideway Modernization (``FGM'') program authorized by 49 U.S.C. 5309.
    Clearly, in authorizing FTA to approve or disapprove Project 
Management Plans, per 49 U.S.C. 5327(a) and (b), the Congress expects 
FTA to make judgments about the merits of those plans. Congress does 
not expect FTA to approve or disapprove plans arbitrarily or to reduce 
the qualitative assessment of Project Management Plans to mere 
checklists. In this proposed rule, FTA is making explicit and 
transparent the criteria by which FTA will determine whether a Project 
Management Plan merits approval. FTA expects this proposed rule to 
assist sponsors in developing and executing Project Management Plans of 
high quality. To the extent that some sponsors already use the project 
management strategies FTA looks for, the proposed rule will not be 
burdensome for them; indeed, their current practices attest to the 
validity of the proposed regulations.

Fixed Guideway Capital Projects Versus Major Capital Projects

    Comments: In the ANPRM, FTA proposed to apply this rule to two 
categories of projects--fixed guideway capital projects and major 
capital projects--with greater oversight being applied to major capital 
projects. Many commenters perceived this as an attempt by FTA to extend 
the reach of its oversight and to take more control of

[[Page 56365]]

local project management processes, leading to increased project costs 
and delays. Some questioned whether the statute allows FTA to specify 
project management requirements for non-major capital projects. Others 
suggested that FTA grandfather any project, already underway, which did 
not meet the definition of a major capital project, such that it would 
be exempt from the regulations. One commenter said no distinction 
should be made between types of projects or past experience of a 
project sponsor; rather, sound project management practices are good 
for all projects and all project sponsors.
    FTA Response: These proposed regulations will apply only to 
projects designated as ``major capital projects'' under the proposed 
definition. Therefore, the proposed rule will not apply to fixed 
guideway capital projects unless they fall within the definition of 
major capital projects. Nonetheless, the project management principles 
identified by this NPRM reflect good practices that are germane to all 
capital projects, large and small; therefore, FTA encourages all FTA 
grant recipients to follow these principles in managing their capital 
projects.

    Note:  The current regulation at 49 CFR part 633 uses the term 
``recipient'' to connote a recipient of FTA grant funds for a major 
capital project. In this preamble FTA is using a broader term, 
``sponsor,'' to encompass not only grant recipients but those 
project sponsors that seek or intend to seek FTA grant funds but 
have yet to receive any FTA grant funds. Moreover, the de facto 
sponsor of a major capital project and the recipient of an FTA grant 
for a project are not always one and the same. Nonetheless, it is 
only a ``recipient'' which enters into a grant agreement with FTA, 
thus, the text of the proposed rule uses the term ``recipient.'' As 
a practical matter, the terms are interchangeable.

    The proposed regulations, together with other steps FTA is taking, 
are intended to reduce or eliminate delays in project development that 
have occurred in connection with some aspects of project risk 
assessments. From FTA's vantage, the most serious delays are 
attributable to sponsors' lack of understanding of the risk assessment 
process, incomplete submittals, or poor quality submittals. The 
proposed regulations, technical assistance provided at FTA's Annual New 
Starts Engineering Workshop, and a new guidance document called A 
Grantee's Guide to FTA's Risk Assessment Process, which FTA plans to 
issue in the near future, will provide every project sponsor with 
opportunities to thoroughly understand FTA's risk assessment process 
and better prepare to participate in the process. Moreover, FTA expects 
the risk assessments to occur concurrently with a sponsor's project 
development, thus, they should not lengthen the schedule or delay the 
Federal financing for a major capital project.
    It is FTA's tentative view that the project management rule should 
not allow for a project to be grandfathered from the rule. FTA has 
every confidence, however, that the promulgation of a final rule will 
not impede either a New Starts or Fixed Guideway Modernization project 
already underway when the rule is promulgated.
    Readers may be interested in a September 2010 report on FTA's 
project management oversight program by the United States Government 
Accountability Office (GAO), which examines the benefits of FTA's 
approach to project management oversight, challenges FTA faces in 
conducting that oversight, and FTA's use of both PMOCs and Financial 
Management Oversight Contractors to help the agency meet its oversight 
responsibilities. GAO-10-909, Public Transportation, ``Use of 
Contractors is Generally Enhancing Transit Project Oversight, and FTA 
is Taking Actions to Address Some Stakeholder Concerns.'' Among other 
matters, the GAO report notes recent PMOC contributions to ensuring 
that PMPs are accurate, and complete; also, that the PMOCs' 
participation in risk assessments has helped identify risks that 
threatened the budgets of major capital projects.

Major Capital Project (Definition)

    Comments: FTA presented three categories of major capital projects 
in the ANPRM, essentially: (1) New Starts projects; (2) Fixed Guideway 
Modernization projects costing $100 million or more; and (3) projects 
designated as major capital projects at the discretion of the 
Administrator. FTA also presented an expanded list of circumstances 
under which the Administrator could designate a project a ``major 
capital project.'' Many commenters disagreed with the precepts by which 
the Administrator might deem a capital project ``major.'' Some objected 
that the proposed criteria are ambiguous and subjective, giving FTA too 
much latitude to designate projects as ``major.'' Conversely, one 
commenter suggested that FTA omit the dollar threshold and use only the 
proposed criteria to which others objected. Some commenters objected to 
the use of any fixed dollar threshold. One commenter also suggested 
that FTA should focus this proposed rule on projects that expand a 
sponsor's fixed guideway system. Commenters further recommended that 
FTA use a risk-based approach to defining a major capital project; 
escalate the $100 million cost threshold for identifying a major 
capital project; and base FTA's level of oversight on the proportion 
Federal funding bears to the total project costs. Another commenter 
recommended that the project management regime discussed in the ANPRM 
should be extended to all capital projects, regardless of size or 
complexity.
    FTA Response: FTA considered all of these recommendations. Today, 
the agency is proposing that a ``major capital project'' be defined as 
a project that meets either of two conditions:
    (i) Any capital project for which the sponsor seeks $100 million or 
more in Federal financial assistance under either the Major Capital 
Investment or Fixed Guideway Modernization programs authorized by 49 
U.S.C. 5309. (Note that in the current rule, the threshold is $100 
million in total project cost.)
    (ii) Any capital project the Administrator finds would benefit from 
the FTA project management program, given the size or complexity of the 
project, the uniqueness of the technology, the previous project 
management experience of the sponsor, or any other risks inherent in 
the project. (Note: This definition does not include routine 
acquisition, maintenance, or rehabilitation of rolling stock as 
specified both in statute and in the current rule.)

Technical Capacity and Capability

    Comments: FTA stated in the ANPRM its minimum expectations for a 
sponsor to demonstrate technical capacity and capability. Commenters 
strongly supported the idea that sponsors must have ``core 
competencies.'' Several commenters suggested that a requirement for 
demonstrating technical capacity and capability through a PMP should 
not apply to Fixed Guideway Modernization projects, however. Some 
suggested that FTA consider a sponsor's experience and size, among 
other things, in determining the level of oversight of technical 
capacity and capability required for a major capital project. Others 
argued that the submittal of a staffing plan to FTA or simply self-
certification of technical capacity should suffice.
    FTA Response: In rule proposed today, FTA would explicitly require 
a sponsor to demonstrate that it possesses the management capacity and 
capability to successfully implement its proposed project. It must be 
emphasized, the proposed requirement for management capacity and 
capability is broader than

[[Page 56366]]

the requirement that a recipient possess the technical capacity and 
capability necessary to carry out the scope of work under an FTA grant, 
which applies to any type of grant under the Federal Transit programs 
authorized by 49 USC Chapter 53.
    Moreover, the argument that self-certification and FTA's ordinary 
progress reviews would suffice as evidence of a sponsor's technical 
capacity and capability inappropriately discounts the seriousness and 
consequences of the schedule delays and cost overruns that have 
occurred on past projects for which grant recipients self-certified. 
Experience has shown that those practices do not provide sufficient 
protection for the Federal funds invested in major capital projects. 
Certainly, FTA acknowledges that there are opportunities to tailor, and 
in some cases streamline, its oversight process to the size and 
complexity of a major capital project, as well as to a sponsor's past 
performance. However, as with any financial investment, a sponsor's 
past performance is not a guarantee of future results. The persons, 
processes, or even the organizational elements responsible for past 
successes may be gone. Moreover, as one commenter noted, a sponsor may 
possess the requisite expertise, but may not assign the individuals 
having it to the major capital project in question or may spread those 
individuals too thinly over too many projects. Likewise, a sponsor's 
successful experience with one particular approach to project 
development does not guarantee success under a different development 
approach. If a sponsor still has the capabilities and resources 
responsible for past success on a similar project and will devote them 
to the major capital project in question, FTA's review will be faster 
and easier. Before awarding Federal funding for the development of a 
major capital project, however, FTA must determine that the sponsor has 
sufficient capacity and capability to manage the scope of work for a 
Fixed Guideway Modernization or the appropriate phase of a New Starts 
project. While all organizations possess some degree of management 
capacity and capability, a given organization may need to enhance its 
management capacity and capability to meet the thresholds for a major 
capital project, given the constraints and risks of that particular 
project.

Project Management Plan (PMP)

    Comments: In the ANPRM, FTA suggested that a sponsor be required to 
submit a formal and documented Project Management Plan (PMP) setting 
forth its policies, practices, and procedures; to secure FTA's 
approval, the PMP would have to explain in sufficient detail the 
sponsor's plan for developing and implementing the project, including 
the monitoring that will take place to ensure that each major phase or 
stage in the project development process will be duly executed.
    Several of the commenters suggested that a PMP be scaled based on 
project size and type. One commenter liked the idea of an integrated 
PMP that is modular, but believed it necessary for major capital 
projects, only. Some thought PMPs unnecessary for state of good repair 
projects regardless of size or complexity. Some commenters requested 
that FTA provide better guidelines for the development of PMPs. Others 
stated that the current rule does not and need not allude to sub plans 
under the PMPs. Another commenter strongly supported FTA's proposed 
emphasis on the PMP, while recommending that all sub plans be 
consolidated, the process be simplified, and FTA should act to ensure 
that a sponsor adheres to its PMP.
    FTA Response: The proposed rule provides that PMPs will be required 
only for major capital projects as defined in this rule. Furthermore, 
PMPs will be scaled, based on project size and complexity. It is clear, 
however, that PMPs are effective management tools for any capital 
project. A PMP should provide for a series of project-specific 
performance measures that a sponsor can report against. This NPRM 
specifies a set of core contents for PMPs plus other requirements that 
are project-specific. Sub Plans are defined in the proposed rule to 
mean a document either within or related to a Project Management Plan 
which addresses a specific discipline or managerial practice for the 
purposes of planning and managing a major capital project.

Project Implementation Checklist

    Comments: In the ANPRM, FTA noted the agency has developed 
checklists that sponsors of New Starts projects can use as quick 
reference guides to evaluate and monitor their readiness to be approved 
into the next phase of the New Starts project development process. FTA 
proposed to create new checklists for all major capital projects as 
guides to project implementation. Many commenters disagreed that 
checklists are helpful and suggested, instead, that FTA formulate 
standard formats and data requirements to be filled out by transit 
agencies sponsoring major capital projects. These commenters also 
stated that the readiness evaluation process slows sponsors' receipt of 
Federal funds, and noted that only New Starts and Small Starts have a 
structured series of FTA approvals specified in law. Conversely, 
another commenter thought consolidation and simplification of the 
checklist would be very helpful. One commenter thought checklists are 
useful for high-risk projects, and that the checklists should be as 
demanding as possible but sufficiently flexible to prevent a project 
from stalling over an unnecessary detail.
    FTA Response: This proposed rule limits application of the 
readiness evaluation criteria to enter a subsequent phase in project 
development to New Starts and Small Starts projects. FTA intends is to 
work with New Starts and Small Starts sponsors early in project 
development to make the readiness evaluation criteria very clear to the 
sponsors, and to speed up the approval process.

Reporting

    Comments: In the ANPRM, FTA proposed specific reporting 
requirements for sponsors of Federal funding for major capital 
projects, including, but not limited to, value engineering reports, 
safety and security management reports, monthly progress reports, and 
cost updates for FTA's cost databases. Some commenters requested 
clarification of these proposed requirements, and some suggested that 
FTA's TEAM grants management system be used for reporting. Another 
commenter thought that TEAM would not be optimal because milestones and 
details should be more integrated with the existing system of periodic 
reports and go deeper into detail than the level of reporting in TEAM.
    FTA Response: This proposed rule clarifies the content of a PMP and 
its specific Sub-Plans for addressing critical aspects of project 
implementation. The NPRM further specifies monthly reporting 
requirements. In the near future, FTA will issue an update of its 
Project and Construction Management Guidelines, as well as its project 
management oversight procedures, which contain information on most of 
the requirements pertaining to oversight and project management.

Consideration of Past Performance

    Comments: In the ANPRM, FTA raised the possibility of relaxing 
requirements for sponsors who have successfully completed other major 
capital projects within the past seven to ten years. To illustrate, if 
a sponsor could demonstrate that it has retained its most critical 
resources, such as the project manager; that the sponsor

[[Page 56367]]

organization's business processes and procedures have not been 
significantly altered; and that the project involves the same or 
similar technology, FTA could relax the requirements accordingly. The 
majority of commenters agreed with this approach and also suggested 
that the risk of the project be considered in determining the level of 
FTA oversight. A handful of commenters expressed a concern that this 
approach may not be consistently applied across projects and FTA 
Regional Offices, and that past performance does not guarantee future 
success. One commenter opposed the proposed approach, arguing that 
practices seven to ten years old are obsolete, and that all recipients 
should be held accountable to a consistent set of standards.
    FTA Response: The proposed rule would make project risk one of the 
factors considered in determining the level of oversight required of a 
project. FTA will make every effort to ensure that the criteria to 
assess past performance are fair and consistent. Past performance will 
include making sure that previously implemented projects and any new 
project are similar in nature and that key personnel and practices are 
still available to manage the new project. FTA will consider, 
specifically, the level of complexity of the project, the amount of 
Federal financial assistance the sponsor seeks for the project, and the 
sponsor's past performance in managing its major capital projects.

Oversight of Major Capital Projects

    Comments: In the ANPRM, FTA stated that the need for oversight has 
increased even faster than the available Federal funding because the 
growth in FTA's programs has generated both higher demand and more 
complex projects. Some commenters expressed concern that an expansion 
of the FTA oversight role would be inconsistent with FTA's intention to 
streamline project development under the New Starts program. Some 
expressed concern whether enhanced oversight would strain FTA's scarce 
resources. Some suggested that FTA's level of oversight should be based 
on the proportion of Federal investment, project complexity, or 
technical expertise of the project sponsor. Some commenters also said 
they would welcome early PMOC involvement in major capital projects, 
but noted that some of the PMOCs are not very experienced, and there 
remains a lack of consistency in the PMOC process. Also, some 
commenters asserted that FTA oversight activities are too detailed, and 
duplicative, in some cases, if one considers triennial reviews, annual 
and biennial certifications, and other FTA program reviews.
    FTA response: FTA works continually to improve its oversight 
processes. Expanding FTA oversight in the ways FTA proposes need not 
slow the development of major capital projects or compromise 
efficiency, nor is it inconsistent with FTA's goal of streamlining the 
New Starts process. As mentioned above, a recent report by the GAO 
identifies a number of actions FTA has taken to improve its project and 
financial management oversight of New Starts projects. Both the GAO and 
the U.S. Department of Transportation's Office of Inspector General 
have identified challenges FTA faces in providing effective oversight 
of particularly large and complex major capital projects. Furthermore, 
FTA has initiated a top-to-bottom review of its oversight policies, 
procedures, and management practices to further improve its oversight 
programs. This includes, specifically, enhancing FTA's risk-informed 
PMO program to ensure robust oversight and monitoring of complex 
capital projects requiring a significant amount of Federal funding or 
having inexperienced project sponsors, while at the same time seeking 
opportunities to streamline the oversight of less costly projects being 
undertaken by experienced sponsors, and making all oversight more 
efficient and consistent. FTA has already started working with sponsors 
to ensure early involvement and will assign PMOCs to match the project 
complexity and its challenges. Also, FTA emphasizes that the definition 
of major capital projects in this proposed rule would be based 
principally on the amount of Federal funding a sponsor seeks for its 
project.

Risk-Informed Project Management Oversight Approach

    Comments: In the ANPRM, FTA observed that, over the past several 
years, the agency has increased its use of risk assessments, risk-
informed management, and risk mitigation strategies to ensure that 
major capital projects are constructed on time and within budget, while 
delivering the promised project benefits. FTA relies on a portfolio of 
risk management tools to prevent project costs from escalating. In 
general, the comments on the ANPRM suggested that risk assessment 
should be more in the form of technical assistance designed to enable 
project sponsors to take greater ``ownership'' of the process. Some 
commenters argue that risk reviews should be relaxed for those project 
sponsors capable of performing their own assessments. Others believed 
that PMPs should be developed much earlier in the life of a project, 
and that risk assessments preceding preliminary engineering on New 
Starts projects should concentrate on identifying potential risks for 
that type of project, developing possible mitigation strategies, and 
determining key project milestones. One commenter urged that FTA not 
overemphasize risk to the exclusion of other relevant project 
management and oversight criteria.
    FTA response: FTA does not see technical assistance as a sufficient 
substitute for the risk assessment and risk management approach set 
forth in this proposed rule. Obviously, it is desirable for the agency 
to provide some form of technical assistance in conjunction with risk 
assessments and risk reviews. This may take the form of suggestions or 
recommendations for ways to overcome deficiencies disclosed by an 
assessment or review. FTA already does this as resources and time 
permit. Certainly, FTA agrees that a PMP early in the life of a project 
would be useful to local management of the project development process. 
FTA also agrees with the suggested scope of risk assessments preceding 
preliminary engineering on New Starts projects, which is consistent 
with current practice in the New Starts program. Indeed, over the past 
several years, FTA has gained a great deal of experience in risk 
assessment, such that the agency is better able to perform a risk 
assessment at a level commensurate with the nature and characteristics 
of a major capital project. This experience now provides the means for 
explicit project execution planning, tools for risk mitigation and 
management, and allocation of costs and schedule contingencies, as 
appropriate. FTA's basic methodology for conducting risk assessments, 
whether done by FTA or the project sponsor, is set forth in the 
Appendix to the proposed rule.

Procurement of PMOC Services

    Comment: One commenter argued that FTA should use only a 
qualification-based selection process for obtaining PMOC services.
    FTA response: The procurement methods FTA uses to retain services 
from PMOCs are outside the scope of this rulemaking.

Structure of the Proposed Rule

    FTA is proposing a significant revision and restructuring of the 
rule at 49 CFR Part 633. Under the proposed rule, there would be three 
subparts and a single appendix. Subpart A (``General Provisions'') 
would address the purpose of the rule, the definitions of certain 
terms, the applicability of the rule, and

[[Page 56368]]

FTA's rights of access to information. Subpart B (``Recipients' 
Responsibilities for Project Management'') would set a number of 
fundamental requirements for establishing a sponsor's management 
capacity and capability; specify the subjects that must be addressed in 
a sponsor's Project Management Plan; establish special requirements for 
certain projects based on cost, complexity, or risk; and spell out a 
sponsor's obligations to carry out all the particulars of its project 
management plan, report current data on budget and schedule, and meet 
with FTA and FTA's PMOCs on a quarterly basis. Subpart C (``FTA Project 
Management Oversight'') would present the principles of FTA project 
management oversight, describe the various uses of PMOC services, 
delineate the roles and responsibilities of PMOCs, address FTA's 
requirement for risk assessments, and specify the circumstances in 
which FTA may increase its oversight of a major capital project, based 
on the cost, complexity, or risks of that project. Additionally, in an 
Appendix to this proposed rule, FTA would set forth the basic 
methodology used for conducting risk assessments on major capital 
projects as it deems necessary or prudent.
    The following is a section-by-section analysis of each proposed 
rule:

Section-by-Section Analysis

Section 633.1 Purpose.

    This section explains the mandate of 49 USC 5327(e) to perform 
oversight to both the Major Capital Investment and the Fixed Guideway 
Modernization programs authorized by 49 USC 5309.

Section 633.3 Definitions.

    This section sets forth the definitions of some key terms 
applicable to this rule. This section would establish new definitions 
in the rule for ``Project Management Oversight Contractor,'' ``risk,'' 
``sub plan,'' and ``management capacity and capability.'' Also, this 
section would amend the current definitions for ``major capital 
project,'' ``project management oversight,'' and ``project management 
plan.''
    By definition, a `major capital project' will be a project using 
$100 million or more in Federal financial assistance under either the 
Major Capital Investment or Fixed Guideway Modernization programs 
authorized by 49 U.S.C. 5309, or any capital project the Administrator 
finds would benefit from the FTA project management program. Thus, the 
proposed change to the definition of ``major capital project'' entails 
a fundamental shift, as follows: The current definition at 49 CFR 633.5 
is based on total project costs of $100 million or more, but the 
proposed definition would be based on a total amount of Federal funding 
of $100 million or more from programs under 49 U.S.C. 5309. FTA 
believes it more appropriate to apply the rule to any given project 
based on the level of Federal investment in that project, as opposed to 
the total costs of the project.
    The proposed changes to the definitions of ``project management 
oversight'' and ``project management plan'' are simply for clarity.
    Insofar as ``project management oversight,'' however, readers 
should be aware that FTA uses the term to connote the activities of 
both the agency and its PMOCs in all of the following: First, the 
activity of continuously assessing a project to evaluate its readiness 
for further project development, up through the point where FTA 
determines whether the project is ready for a grant award, based on 
sufficient confidence that the scope, costs, benefits, and impacts are 
firm and final. Second, the activity of making ongoing determinations 
whether the sponsor has the management capacity and capability 
necessary to carry out a project efficiently, and effectively; the 
effectiveness of the sponsor's project delivery; and whether the 
project is on time, within budget, and built to approved plans and 
specification, consistent with all applicable Federal requirements. 
Third, the activity of ensuring that a sponsor's management processes 
are based on sound decision making, driven by a thorough understanding 
and implementation of well documented, risk-informed project management 
practices.
    Since the original rule was issued more than 20 years ago, a number 
of disciplines have developed as best practices in the transit 
industry, including risk and contingency and rail fleet management 
plans. Other disciplines are now required by law, including, notably, 
safety and security management plans. Thus, instead of requiring an 
all-inclusive project management plan, FTA proposes to institutionalize 
its practice of permitting sponsors to address these different 
disciplines in `sub plans.' The proposed definition of ``sub plan'' 
reflects the use of that term throughout the industry.
    FTA framed the proposed definition for ``risk'' based upon the 
agency's experience in conducting various types of risk assessments for 
major capital projects over the last several years, including the Lower 
Manhattan Recovery projects and several New Starts projects entailing 
tunneling with geotechnical risks. The proposed definition is also 
consistent with the approaches to ``risk assessment'' taken by other 
governmental agencies in the fields of human health, nuclear power, 
defense, security, and other forms of public works. The study of risk 
is a broad subject. It can be applied to a sponsor's entire 
organization, or the many functions and levels of an organization, or 
specific functions, projects and activities. See, e.g., International 
Organization for Standardization (ISO), ISO/FDIS 31000:2009, 
Introduction. As a Federal grant agency making investments of taxpayer 
funds, FTA must examine a sponsor's management capacity and capability 
at all these levels in assessing risk.
    For that very purpose, FTA is proposing a definition of 
``management capacity and capability'' to capture the point that while 
every sponsor must have the underlying technical capacity and 
capability to carry out a project, for a major capital project, the 
sponsor's ability to deliver the project on time and within budget is 
driven by the robustness of both (a) its ``management capacity,'' which 
consists of the authority and resources of the project team, and (b) 
its ``management capability,'' which reflects the additional authority 
and resources the sponsor is able to call upon as necessary to deliver 
the project. These points are discussed further below.

Section 633.5 Applicability.

    This section would amend the current rule at 49 CFR 633.11 
(``Covered projects'') by omitting the obsolete legal citations in the 
current section 633.11, and extending the rule to all major capital 
projects funded from any source under 49 USC Chapter 53, including 
those major capital projects using Chapter 53 funds that originate 
under the Surface Transportation Program (STP) or the Congestion 
Mitigation and Air Quality Program (``CMAQ'') authorized by the 
Federal-aid highway statutes.
    Readers should note, moreover, that in his or her discretion, the 
Administrator could designate a Small Starts project as a major capital 
project subject to these requirements.

Section 633.7 Access to Information.

    This section would make a minor change to the current rule at 49 
CFR 633.15, but it would also recognize a preferred practice among FTA 
and many sponsors of major capital projects regarding the custody and 
control of documents and data that sponsors may wish to withhold from 
disclosure to third parties. Specifically, this section

[[Page 56369]]

would allow FTA and its PMOCs to decline custody or control of 
documents which are or may be at issue in litigation between project 
sponsors and third parties.

Section 633.9 Project Management Capacity and Capability.

    All organizations that sponsor transit projects are capable of 
carrying out their projects with some degree of efficiency and 
effectiveness. To some degree, all of them are capable of managing 
risk. There is a fundamental linkage, however, between the experience 
of a sponsor's project ``team'' and the risks of a project. The 
experience level of a project team can increase or mitigate the risks 
of a project. Changes in the membership of a project team or the 
competency levels of acquired team members can precipitate changes to 
the schedule for a project, or the duration or particular project 
activities. See, e.g., Project Management Institute, Body of Knowledge 
(2004), Ch. 11.
    This NPRM would establish an explicit link between the 
organizational performance of a project sponsor and the management 
capacity that is necessary to complete project activities. FTA is 
convinced that deficits in management capacity impair organizational 
performance and expose a major capital project to increased risk of 
negative consequences for costs and schedule. Clearly, a sponsor's 
project team requires certain minimum skills and competencies, 
delegated authorities, explicit accountabilities, and assigned 
resources to accomplish a project, which can be defined as ``management 
capacity.''
    Experience demonstrates, moreover, that the successful completion 
of a major capital project requires more than a minimum management 
capacity; it requires that the sponsor organization have the ability to 
both oversee the project team and provide additional support and 
resources, as necessary, to address emerging problems, or issues not 
identified in the original constraints or assumptions. FTA 
characterizes this as ``management capability.'' This NPRM would 
require the sponsor of a major capital project to possess both 
management capacity and management capability.
    The greater the risks associated with the constraints or 
assumptions of a project, the greater the demand for management 
capacity and capability, and the higher the thresholds for managing the 
project and mitigating risk. At each stage of the process of project 
development--and prior to awarding a grant of Federal funds--FTA must 
determine whether a sponsor possesses the necessary management capacity 
and capability to accomplish that phase of the project or the purpose 
of that grant. If FTA finds that a gap exists in a sponsor's management 
capacity and capability, the sponsor must demonstrate, with 
documentation, an approach to acquiring the means to close the gap 
within an acceptable timeframe.
    Likewise, from the earliest moments of developing a major capital 
project, a sponsor must balance the authority and resources allocated 
to that project against any competing priorities, and retain the 
ability to mobilize additional resources, as necessary. Specifically, 
the project team must have the sufficient delegated authority and 
resources to manage the activities to be accomplished at each 
successive phase of the project. Yet the project team must be 
explicitly accountable to the sponsor for its exercise of delegated 
authority and its use of allotted resources. The project team must also 
be responsible for reporting and elevating issues to higher management 
of the sponsor's organization--such as a chief executive officer and 
board of directors--in a manner that is both professional and ethical.
    Many readers will be familiar with the term ``technical capacity,'' 
or ``technical capacity and capability''--which is a subset of 
management capacity and capability. By law, a recipient of a grant 
under any of the FTA programs authorized by 49 U.S.C. Chapter 53 must 
have the legal, financial, and technical capacity to carry out the 
project that is the subject of that grant. In itself, of course, the 
absence of any key technical skill or the inadequacy of a technical 
process could lead to significant cost overruns and schedule delays. 
For example, the lack of geotechnical expertise for a tunnel project, 
or lack of real estate savvy on a project requiring large amounts of 
real estate acquisition could seriously jeopardize a project's budget 
or schedule, or both. And the requisite technical capacity and 
capability might differ in some aspects from project-to-project or even 
phase-to-phase within the same project. For example, some of the 
expertise required to successfully manage a light rail project will not 
be required for bus rapid transit. Similarly, some of the skills 
necessary for the construction phase of a project will differ from 
those needed for the earlier design phase of that same project. 
Nonetheless, good management is an underlying necessity regardless of 
the mode of transit, or phase of development, or the technical capacity 
a sponsor may possess. From the very beginning of a project, a sponsor 
must develop and maintain the expertise, processes, and procedures 
necessary to successfully implement and manage the project at each 
stage of planning, engineering, design, and construction.
    In summary: Unlike the current rule at 49 CFR part 633, this NPRM 
would clearly establish FTA's expectations for management capacity and 
capability of sponsors of major capital projects. In effect, FTA would 
codify the skills and practices a sponsor must acquire and maintain to 
successfully deliver a major capital project. While the proposed rule 
would cover major capital projects, only, FTA is convinced the 
requirements of proposed section 633.9 are germane to any capital 
project, and encourages sponsors to follow these principles in managing 
all their capital projects.

Section 633.11 Project Management Plan: Contents

    The Project Management Plan (PMP) is altogether critical to 
successful management of any major capital project, throughout the 
development and implementation of that project. The PMP and its sub 
plans further enable the sponsor's staff to effectively manage the 
scope, budget, schedule, and quality of the project through a set of 
common objectives, while managing the safety and security of the 
public.
    The proposed rule would provide for the scaling of the PMP to match 
the nature and characteristics of the project. It identifies core PMP 
requirements and states that depending on the characteristics of the 
project, additional requirements may apply. For example, the management 
of any major capital project benefits from the establishment of 
comprehensive and critical path-driven project schedules, as well as 
strong document control procedures and procedures for managing 
contractor performance. The proposed regulatory text would 
institutionalize FTA's risk-informed project management oversight 
process, and addresses risk and contingency management sub plans as 
core PMP requirements. On the other hand, real estate management sub 
plans would be required only when the acquisition of real estate is 
necessary to implement a project.
    Note that many disciplines can be addressed in separate sub plans, 
as discussed above. FTA recognizes that some project sponsors have in-
house project management tools, so the proposed rule would allow for 
the sponsor to incorporate by reference its plans, programs, and 
procedures already in existence which address the various PMP 
requirements.

[[Page 56370]]

Section 633.13 Special Requirements Based on Project Cost, Complexity, 
or Risk

    Over the years the industry has forcefully asserted that not all 
sponsors are alike, nor are all projects alike, thus, FTA should take 
individual circumstances into account when applying its requirements 
for project management. FTA agrees. This section is proposed in direct 
recognition of that approach. Simply put, while Section 633.11 already 
recognizes that the PMP for any project has certain core components, 
there are other components that only apply in certain circumstances. 
The Administrator will review the sponsor's management capacity and 
capability, the complexity and risk of the project, the sponsor's 
experience implementing similar types of projects, and, based on that 
review, can impose additional requirements the sponsor must address in 
its PMP. The Administrator may then require the sponsor to report its 
progress in meeting those special requirements as well as to forecast 
whether the project will stay on schedule and on budget. This would be 
a targeted approach, based on individual circumstances, after a careful 
analysis. It is not and would not be the normal practice. Thus, while 
the proposed rule requires every sponsor to have in place basic 
management systems, it also recognizes that in certain circumstances, 
because of the nature of the investment or the sponsor's own experience 
level, additional management capacity and capability may need to be put 
in place to ensure that a project is delivered on time and on budget.
    More important, these additional requirements are intended to be 
developed early enough that they can make a difference in how well the 
project is managed. These are not ``cookie cutter'' solutions; rather, 
they will be specific to the sponsor's structure and project approach. 
These requirements will also help the sponsor ensure that decisions 
about the project will be made based on the best information available 
at the time; in an open, transparent, informed manner; at the 
appropriate management level; and documented in a manner that can be 
reconstructed by third parties.
    This particular provision in the NPRM reflects two corollary 
lessons learned by FTA in the 22 years since the agency issued the 
current regulation. First, any problems in implementing a project must 
be recognized and addressed as early as possible. The proposed rule 
would oblige a sponsor to anticipate a problem and have a solution 
already in place should the problem arise. Second, the proposed rule 
recognizes that if projects experience significant problems, unless the 
problems are recognized and addressed promptly by the sponsor, the 
range of options for solving the problems narrows rapidly, and may 
disappear altogether. Therefore, this proposed rule focuses on the need 
for the sponsor to track and forecast whether the project is, and is 
expected to stay, on schedule and within budget, to identify and 
develop immediate and effective solutions to remediate problems related 
to schedule and budget, and to report this information to FTA with the 
understanding that FTA will use this information in making funding 
decisions, even with respect to approving an annual increment of 
committed New Starts funds. At heart, these proposed requirements are 
intended to help FTA and project sponsors meet their stewardship 
responsibilities to guard against waste and misuse of taxpayer funds.
    The fundamental basis for these requirements is substantiated by 
research. In 2005, an FTA-sponsored study on cost overruns on transit 
projects, primarily light rail new starts projects (Analysis of Capital 
Cost Elements and Their Effect on Operating Costs, NTIS report no. FTA-
NY-26-7000), http://www.utrc2.org/research/assets/107/utrc-2005-fta1.pdf, noted in its introduction that cost overruns are a common 
phenomenon because ``[a]s projects are developed, costs rise as 
projects become more complex, unforeseen conditions are encountered, 
and delays erode the real value of the original budget.'' The study 
concluded in Section 2.1 that several factors contributed to overruns, 
including ``[s]ystematic underestimation, including the failure to 
adequately assess risks, foreseeable adverse conditions, and the full 
range of project cost components.'' An internal FTA study on risk 
management performance included an evaluation of forecasted versus 
actual performance for several projects and concluded that 
approximately 50 percent of the cost overruns in selected projects were 
related to poorly managed risk. Finally, in 2006, a TRB report (TCRP 
Project G-07--Managing Capital Costs of Major Federally Funded Public 
Transportation) http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_w31.pdf, identified a number of possible causes, which are described in 
the examples below, for the industry's inability to accurately 
estimate, manage, and control project costs. These three studies came 
to similar conclusions and reflect FTA's experience over the last 
twenty years of investing in major capital projects. Significant risks 
to major capital projects include:
    Unforeseen engineering and construction complexities: Constructing 
transit projects in dense, older, urban cores may mean rebuilding 
infrastructure over 100 years old. A recent New Starts project was 
constructed above older masonry sewers. The sponsor did not realize the 
contractor would use mass excavation equipment in the street, and the 
heavy equipment collapsed the fragile, underlying utilities. On another 
project, the sponsor assumed that the existing utilities could be 
easily relocated with existing methods for temporary support of older 
cast iron pipe. That assumption was inaccurate. Correcting the 
consequences sharply increased the costs of the project. Another 
project sponsor replacing older storm sewer planned to add tunnel 
discharge to the waste water flow. The sewer had settled, which 
required extensive relaying to handle the planned discharge, all of 
which added to the project costs. Examples abound of problems stemming 
from construction complexity, but one in particular stands out: A 
tunnel portal was fully engineered and reviewed for constructability, 
but the engineers missed the detail that the portal was located in the 
middle of a municipal corporation yard resulting in significant delay 
and a substantial increase in cost. All of these risks were 
foreseeable, and avoidable.
    Relevant costs not included in early estimates: In the early 
implementation of FTA's risk review process there were ``mechanical 
inaccuracies'' in estimates and frequent problems in the integration of 
cost data; this has improved in recent years, however. Another problem 
had to do with escalation in that, as a project advanced, portions of 
the cost estimate remained in earlier year base dollars. Most recently, 
one of FTA's major capital projects went through a protracted process 
towards an amendment of the Full Funding Grant Agreement. About a third 
of the overrun on that project was due to problems in the base estimate 
with earlier data that was not updated as part of the on-going budget 
process. A similar example has to do with indirect costs for 
construction; most sponsors still budget construction indirects on a 
percentage or ``parametric'' basis, even though they often develop 
extensive Division 1 specifications in terms of services, reports and 
personnel. Another problem has been under-budgeting of contractor 
design costs in design/build contracts.

[[Page 56371]]

    Organizational and technical capacity to undertake the project: 
There are two recent examples where a transit agency that had 
successfully executed a number of light rail projects stumbled in 
building a commuter rail project. In a third instance, a transit agency 
that had successfully delivered a project using a traditional sealed 
bid approach ran into cost problems when it attempted a design/build 
project delivery.
    Changes in project scope: For a New Starts project, FTA's 
expectation is that coming out of Final Design, the project scope will 
be well defined and experience relatively few changes thereafter. 
Recent experience has shown that this is not always the case. A number 
of New Starts projects have changed or reconfigured almost half of the 
construction scope before the projects were halfway bid. Often this was 
due to changing market conditions, but, in retrospect, the benefits 
that sponsors received for assuming such risk have been low, at best. 
At worst, not only have there been no benefits, but costs have actually 
increased. A less frequent, but still costly, factor is where the 
physical characteristics of the project have changed. This has happened 
because of problems identified during geotechnical exploration, and 
actual changes in the physical configuration of the project made to 
accommodate stakeholder demands or changes in underlying assumptions.
    Geotechnical: The inability of a sponsor to deal with geotechnical 
issues up front has been shown to increase total geotechnical costs by 
as much as 40 percent and cause months of delays. For example, of seven 
recent projects with a planned total of eleven underground transit 
stations, four stations were moved after entry into Final Design and 
two were moved during construction. These moves were due to issues 
identified when better geotechnical information became available from 
more detailed soil borings during Final Design, which led to both 
additional redesign costs as increased costs from delays to the 
schedules. In one instance, a station had to be moved 90 feet deeper to 
avoid encountering an existing water tunnel. In another instance, the 
sponsor had to lower the tunnel to achieve the necessary rock cover.
    Ability to Define Physical Configuration of a Project: This occurs 
most frequently when a project sponsor determines during Final Design 
or construction that a previously relied upon design standard or 
requirement is no longer valid. In one such instance, a sponsor had 
managed the design of the project based on an assumption that critical 
features of the storage yard and its connections with the mainline were 
determined by the morning peak load. Subsequent to entry into Final 
Design, the sponsor discovered that constrained yard movements and a 
new bridge were needed to accommodate evening peak load, which added 
30% to the contract package costs and delayed the package design by an 
additional eighteen months.

Section 633.15 Project Management Plans: Implementation

    FTA's review and approval of a PMP seeks to verify that a sponsor 
has all the relevant capabilities and resources in place to ensure 
successful management of the project using available best practices. It 
also verifies the sponsor's readiness to move a New Starts project from 
one phase of development to the next, and for other major capital 
projects, the receipt of Federal grant funds. A PMP is a dynamic 
management tool that requires periodic updates as a project transitions 
from one phase to another or as a result of other changes, such as 
turnover in personnel.
    This proposed rule would continue the requirement for monthly 
reporting and clarify other requirements aimed at improving the 
management of a major capital project. Specifically, the proposed rule 
would document the need to report and manage the project, based on a 
risk-informed management process. This would include tracking and 
reporting on cost and schedule contingencies along with known risks to 
the budget and schedule, as well as ongoing or planned efforts to 
mitigate those risks.
    Further, the proposed rule would codify FTA's long-standing 
practice of convening quarterly meetings with major capital project 
sponsors, as deemed necessary. These quarterly meetings--typically 
attended by FTA, its PMOC, and local agency management and technical 
staff--are opportune occasions to analyze the progress of a project and 
identify issues that threaten timely and cost-effective delivery, and 
develop remedies and alternatives to maintain cost and schedule. 
Moreover, in its effort to ensure the implementation of safe rail 
systems, FTA has recently begun to encourage a project's prospective 
state safety oversight agency representative to attend these quarterly 
meetings.

Section 633.17 FTA Project Management Oversight Principles

    The basic oversight framework at 49 CFR part 633 has served FTA 
well, focusing on the assignment of to oversee major capital projects 
and requiring a project sponsor to develop a comprehensive PMP to guide 
the planning and implementation of its major capital project. The 
current rule has helped to protect taxpayer funds and to ensure the 
efficient, effective design, construction, and opening of transit 
projects to revenue service.
    Today, however, FTA is investing in larger and more complex capital 
projects, as compared to those in years past. These more recent 
projects entail greater challenges to the agency as the steward of 
Federal tax dollars. They require further improvements in the ways 
sponsors manage their projects and the FTA program for oversight of 
major capital projects.
    The proposed rule is designed to tailor the FTA oversight process 
for factors such as project complexity, the amount of Federal 
investment, and the experience level of the project sponsor. FTA has 
already started working with sponsors earlier in the project 
development process, and will assign PMOCs to match project 
complexities and challenges. The proposed rule sets forth the 
principles for FTA's project management oversight. It specifically 
establishes and documents FTA's risk assessment practices, the review 
of project management capacity and capability, and the review of 
project readiness. These reviews would ``raise the bar'' as compared to 
the minimal requirements in the current rule, which are limited, 
essentially, to review of the PMP and its implementation.

Section 633.19 FTA Use of Oversight Services

    While FTA's capital programs have grown significantly since 1989, 
its staff size has stayed essentially the same for the past 30 years. 
FTA's PMOCs help fill the gaps between staff resources and both the 
number of major capital projects and the levels of Federal funding for 
those projects. Further, of course, the PMOCs provide specialized 
expertise for the challenges that confront a good many projects. 
Currently, the decision to assign PMOCs to projects is made based on 
the relative complexities of the major capital projects underway, as 
well as the experience level of the project sponsors. This proposed 
rule acknowledges conditions under which FTA may scale its provision of 
oversight services to the risks (or lack thereof) inherent in a project 
or to the experience level of its sponsor.
    Each PMOC firm assigned to a major capital project is a team of 
experienced professionals who collectively possess expertise on all 
aspects of the

[[Page 56372]]

development, construction, start-up, and overall management of transit 
capital projects, including major capital projects. All PMOCs serve as 
FTA's eyes and ears on-site; monitor and report on a project's 
development and implementation; and verify whether the management of a 
project is consistent with the approved project management plan and 
accepted engineering and project management practices. The PMOCs submit 
periodic reports to FTA, documenting project status, activities, and 
open issues.
    In this proposed rule, additional project elements such as safety 
and security have been included as requiring PMOC oversight. These PMOC 
efforts keep FTA informed of a project's status and the adequacy of a 
sponsor's project management. They also help support FTA's decision 
whether to advance a New Starts project to the next phase of 
development, recommend a New Starts project for a Full Funding Grant 
Agreement, or provide a large grant to a sponsor of a Fixed Guideway 
Modernization.

Section 633.21 Roles and Responsibilities of Project Management 
Oversight Contractors

    As discussed previously, a PMOC's primary role is to support FTA in 
the oversight of a major capital project by reporting and making 
recommendations to FTA on the sponsor's management of the project. 
Acknowledging their professional expertise, this section of the 
proposed rule sets forth the explicit roles and responsibilities of the 
PMOCs. It also provides for related services that PMOCs may provide to 
FTA's oversight program. These may take the form of specialized 
assistance to FTA, for example, in developing oversight procedures, 
preparing reports on best practices, sharing of lessons learned, 
conducting independent reviews of capital cost estimates, and other 
efforts that help FTA improve its transit capital investment programs.
    FTA must emphasize, however, that a PMOC has no authority to make 
decisions for FTA or to act on behalf of FTA in making any findings or 
judgments regarding a sponsor's compliance with Federal statutes, 
regulations, or administrative requirements. As explained herein, a 
PMOC does not and should not interfere with the project sponsor's 
responsibilities. A PMOC does not sign drawings, for example, nor does 
it perform field tests, conduct materials testing, or inspect work site 
conditions, so forth.
    To protect all parties that are or may be involved in a major 
capital project, this NPRM reaffirms that a PMOC performs its services 
under strict privity of contract with FTA. Regrettably, on a few 
occasions, PMOC's have been subpoenaed for testimony or production of 
documents in third party law suits, or even sued in tort, in attempts 
to blame them for accidents, incidents or injuries related to the 
project, or to find them liable for errors and omissions associated 
with the design and construction of the project. FTA's PMOCs bear no 
such responsibility, of course, and this proposed rule memorializes 
that point.

Section 633.23 FTA Risk Assessments

    FTA's risk assessment of major capital projects has evolved over 
the years, partly in response to the increasing complexity of projects, 
but certainly as the result of FTA's growing experience in the 
oversight of major capital project management. Since 2003, FTA has 
completed over 40 assessments of the risks associated with New Starts 
and other major capital projects. During this time, the risk assessment 
has transitioned from a stand-alone ``bottom-up'' risk analysis to an 
integrated ``top-down'' risk analysis, and FTA has employed a number of 
approaches to identify project risk.
    The first approach was to identify ``sources of risk'' which are 
categories of possible risk events (e.g., stakeholder actions, 
unreliable estimates, team turnover) that could affect the project for 
better or worse. This approach attempted to compile an estimate of 
total project risk exposure, which would then be used to determine 
budget adjustments or requirements for additional contingency. This 
process resulted in a project level estimate of risk from very detailed 
estimates but without tracking the estimate to specific contract 
packages or budget line items. This was characterized as a ``bottoms 
up'' approach. FTA's experience with the ``bottoms up'' approach was 
unsatisfactory.
    Subsequently, FTA identified common characteristics of satisfactory 
risk assessments and realized that an evaluation of project 
deliverables and quality of management planning products tied to 
individual contract packages or budget line items consistently led to 
more accurate projections. This became known as the ``top down'' 
approach. A number of advantages materialized as a result of 
transitioning to the ``top down'' approach. Most significantly, FTA was 
able to bring to any individual project assessment a standardized risk 
classification system, as well as a risk framework to facilitate 
management planning. In the several years of implementing this ``top 
down'' approach, FTA has had considerable success in forecasting 
project risk, and has presented this information at various 
international forums. Indeed, this new approach has contributed to 
improvements in project management not only in terms of the tracking of 
risk, mitigation efforts, and available contingencies, but also in 
reporting on the risk response and effective contingency management. 
FTA has been continuously working with the PMOC community to document 
emerging lessons learned, which will serve as a guide to improving the 
risk models as well as developing new tools to improve the process.
    FTA has also initiated risk assessments prior to entry into 
Preliminary Engineering for those New Starts projects that have shown 
signs of potential high risks. This enables the early identification of 
some critical project risk items and as a result the early development 
of mitigation strategies. Details of FTA's risk assessment methodology 
are set forth in Appendix A.

Section 633.25 Increased Oversight Based on Project Cost, Complexity, 
or Risk

    This proposed rule is the counterpart to Section 633.17 in Subpart 
B, which allows the Administrator to impose additional requirements for 
certain projects, based on the experience level of the sponsor and the 
nature of the project, and requires the sponsor to report on its 
progress. The proposed rule recognizes that, in appropriate 
circumstances, FTA will provide an increased level of analysis and 
oversight, again tailored to the specific circumstances of the project, 
to determine the adequacy of the sponsor's management of project 
activities, both pre-contract award and post-contract award; the 
reliability of the sponsor's current and forecast estimates of project 
costs, and the revenue service date; and the additional actions the 
sponsor needs to take to maintain that cost and schedule.
    This section also provides for FTA to use analytical tools to 
assess the sufficiency of the sponsor's existing PMP to address the 
particular project and sponsor characteristics that could oblige the 
Administrator to call for additional requirements. Because these 
characteristics are specific to the sponsor and the project, there are 
no set, generic requirements that will be imposed. When FTA identifies 
areas that need improvement, the sponsor will be expected to tailor its 
response to

[[Page 56373]]

its own organizational structure and project approaches. Through its 
analysis, FTA and its PMOC will develop an oversight approach that is 
specific to the situation. While FTA will provide additional guidance 
and, if requested, examples of how other sponsors have addressed an 
issue, there is no ``cookie cutter'' approach that a sponsor will be 
expected to use in responding to the situation, nor will those examples 
from other sponsors be used to determine whether a particular sponsor 
is in conformance with a specific requirement.
    As part of its analysis and oversight, FTA will determine the most 
effective frequency and content of sponsor reporting necessary for it 
to conclude whether the sponsor is doing everything required to keep 
the project on budget and schedule. Monthly or quarterly reviews, or 
both, which are required under proposed Section 663.15, may be used as 
the forum for FTA to perform this additional oversight.
    Many of the requirements directed by FTA in the past have focused 
on having an open, informed, transparent decision-making process where 
decisions are made at the appropriate level within the sponsor's 
organization and are appropriately documented, based on the best 
information available at the time, and are able to be reconstructed by 
third parties. These processes and tools need to be tailored to the 
project's specific stage of development.
    In particular, in the development of the procurement documents, a 
sponsor may be able to include mechanisms, such as options, that allow 
it to retain the ability to mitigate cost increases at a later date. 
However, if the design is not done at the beginning to allow for this 
possibility, the cost and time of redoing the design at a later date 
becomes prohibitive. With good preplanning, a sponsor may negotiate a 
unit cost for unforeseen site conditions so that if they do occur, the 
need to negotiate with the contractor at that stage will be limited to 
agreeing on the amount of the change that has occurred, not how it 
should be priced.
    It is imperative that a sponsor have an acknowledged process, as 
cost and schedule problems crop up, for projecting the results of those 
remedial actions on its ability to maintain the overall costs and 
schedule. An unacknowledged problem cannot be solved. Unsolved problems 
drive negative variances to costs and schedules. The forecast process 
should clearly explain when cost or delay will be recognized. Without a 
forecast, it is too easy to assume that a problem will be solved while 
the ability to actually find a solution slips further and further away.

Rulemaking Analyses and Notices

    All comments received on or before the close of business on the 
comment closing date above indicated will be considered and will be 
available for examination in the docket at the above address. Comments 
received after the comment closing date will be filed in the docket and 
will be considered to the extent practicable. In addition to late 
comments, FTA will also continue to file relevant information in the 
docket as it becomes available after the comment period closing date, 
and interested persons should continue to examine the docket for new 
material. A final rule may be published at any time after close of the 
comment period.

Executive Order 12866 (Regulatory Planning and Review), EO 13563 
(Improving Regulation and Regulatory Review), and DOT Regulatory 
Policies and Procedures

    FTA has determined preliminarily that this action, although not 
economically significant, would be a significant regulatory action 
within the meaning of Executive Order 12866 and would be significant 
within the meaning of Department of Transportation regulatory policies 
and procedures because of substantial congressional, State and local 
government, and public interest. Those interests include the receipt of 
Federal financial support for transportation investments, appropriate 
compliance with statutory requirements, and balancing of transportation 
mobility and environmental goals. We anticipate that the direct 
economic impact of this rulemaking would be minimal. FTA evaluated the 
industry costs and benefits of this NPRM and has determined that it is 
not an economically significant rule under E.O. 12866. The proposals 
contained in this NPRM will not result in an impact on the economy of 
$100 million or more (adjusted annually for inflation).
    As authorized by 49 U.S.C. 5327, this NPRM updates and clarifies 
FTA's existing oversight principles, tailors them to known risk 
factors, and redefines major capital project so that projects subject 
to FTA's project management oversight would change. The rule under this 
NPRM only imposes regulatory requirements upon applicants requesting 
funding under the program. The project management plans and their major 
elements that are the subject of this NPRM are Congressionally-
mandated.
    We consider this proposal a means to clarify and realign the 
existing regulatory requirements. Those proposed changes would not 
adversely affect, in a material way, any sector of the economy. In 
addition, these changes would not interfere with any action taken or 
planned by another agency and would not materially alter the budgetary 
impact of any entitlements, grants, user fees, or loan programs.
    FTA has also considered the industry-wide costs and benefits of 
this NPRM. First, thanks to the practices adopted in the 1990s and 
2000s under the current rule, the best of which are codified in the 
proposed NPRM, the typical (50th percentile) final costs of major 
capital projects have been kept within 22 percent of original 
estimates, compared to 51 percent in the years 1969 to 1987.\1\ Further 
improvement is expected should the proposed NPRM become final. Given 
the scale and complexity of major capital projects and a history of 
cost overruns on such projects, these cost savings have been in the 
hundreds of millions of dollars. The proposed rule would standardize 
the best of these practices and refine the requirements of the current 
rule. Secondly, because project management oversight has evolved to 
incorporate the oversight principles set out in this NPRM (as reflected 
in the aforementioned cost control), significant increased costs borne 
by sponsors from the rule, per se, would be exceptional. For example, 
Project Management Plans and Risk Assessments are the norm in major 
capital projects. Because this proposed rule would apply on the basis 
of Federal funds rather than total project costs, as is the case with 
the current rule, fewer projects may be subject to FTA project 
management oversight. Also, because the level of oversight would be 
tailored to the costs, complexities and risks of a project, the rule is 
likely to reduce overall FTA oversight. Moreover, by their own 
initiative to reduce risk factors, project sponsors can reduce the 
level of FTA oversight under this proposed rule.
---------------------------------------------------------------------------

    \1\ FTA, The Predicted and Actual Impacts of New Starts 
Projects--2007, p. 13.
---------------------------------------------------------------------------

    This proposed rule would apply FTA project management oversight to 
Fixed Guideway Modernization projects, but only such projects receiving 
$100 million or more in Federal financial assistance under 49 U.S.C. 
5309 or those FTA designates as major capital projects. Sponsors of 
Fixed Guideway Modernization projects with the most effective track 
records would receive the least FTA oversight. Those sponsors with less 
effective track records can

[[Page 56374]]

improve, with the assistance of the PMOCs employed by FTA. Sponsors 
that prepare Project Management Plans and Risk Assessments now would be 
able to prepare those required under the proposed NPRM for roughly the 
same cost or less, given the guidance provided concerning their 
contents. Finally, nearly all the other foreseeable incremental costs 
would be borne by PMOCs that are paid by FTA from a fixed portion of 
FTA capital program funds.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (Pub. L. 96-354, 
5 U.S.C. 601-612) FTA has evaluated the effects of this proposed action 
on small entities and has determined that the proposed action would not 
have a significant economic impact on a substantial number of small 
entities. For this reason, FTA certifies that this action would not 
have a significant economic impact on a substantial number of small 
entities.

Unfunded Mandates Reform Act of 1995

    This proposed rule would not impose unfunded mandates as defined by 
the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4, March 22, 
1995, 109 Stat. 48). This proposed rule will not result in the 
expenditure by State, local, and tribal governments, in the aggregate, 
or by the private sector, of $120.7 million or more in any one year (2 
U.S.C. 1532).

Executive Order 13132 (Federalism)

    This proposed action has been analyzed in accordance with the 
principles and criteria established by Executive Order 13132, and FTA 
has determined that this proposed action would not have sufficient 
Federalism implications to warrant the preparation of a Federalism 
assessment. FTA has also determined that this proposed action would not 
preempt any State law or State regulation or affect the States' 
abilities to discharge traditional State governmental functions. 
Consistent with Executive Order 13131, FTA examined the direct 
compliance costs of the NPRM on state and local governments, and 
determined that the collection and analysis of the data is eligible for 
Federal funding as part of the overall project costs. Representatives 
of state and local governments were invited to participate in the 
Webinars and submit formal comments to the docket on the ANPRM. 
Furthermore, the preparation of Project Management Plans by project 
sponsors would not preempt any state law or regulation or limit States' 
abilities to discharge traditional state governmental functions.

Executive Order 12372 (Intergovernmental Review)

    The regulations effectuating Executive Order 12372 regarding 
intergovernmental consultation on Federal programs and activities apply 
to these programs and were carried out in the development of this rule. 
FTA conducted two public meetings via webinar following publication of 
the ANPRM, in which representatives of state and local governments were 
able to participate. Also, FTA extended the comment period on the ANPRM 
for an additional thirty days, receiving twenty-one comments, seventeen 
of which were submitted by transit agencies representing units of state 
and local governments. FTA solicits comments on this subject.

Paperwork Reduction Act

    In compliance with the Paperwork Reduction Act of 1995 (PRA) (44 
U.S.C. 3501 et seq.) and the Office of Management and Budget (OMB) 
implementing regulation at 5 CFR 1320.8(d), FTA is seeking approval 
from OMB for the Information Collection Request abstracted below. FTA 
acknowledges that this NPRM entails project-specific information 
collections to facilitate project oversight for major FTA capital 
projects, including an effective Project Management Plan and 
accompanying risk assessments. Therefore, FTA is seeking comment 
whether the information collected will have practical utility; whether 
its estimation of the burden of the proposed information collection is 
accurate; whether the burden can be minimized through the use of 
automated collection techniques or other forms of information 
technology; and for ways in which the quality, utility, and clarity of 
the information can be enhanced.
    Readers should note that the information collection will be 
specific to each project, to facilitate and record the project 
sponsor's exercise of project management and the PMOC's exercise of 
FTA-assigned oversight duties. The paperwork burden for each project 
will be proportionate to the level of oversight that, in turn, is 
governed by the project's scale, complexity, and risks. Moreover, the 
labor-burden of reporting requirements such as Risk Assessments and 
project milestone reports are largely borne by the PMOC, employed and 
paid for by FTA from program (not project) funds. Please refer to 
proposed Sections 633.11 and 633.13 for the content of the PMP. 
Proposed Section 633.23 provides a description of the risk assessment 
process, and refers to the appendix to the proposed rule, which 
provides additional information on the risk assessment process.
    Type of Review: OMB Clearance. New information collection request.
    Respondents: There are approximately 77 possible major capital 
project sponsors, of which 55 presently are implementing major capital 
projects. Of those projects in the New Starts program, FTA anticipates 
six (6) Preliminary Engineering (PE) requests, six (6) Final Design 
(FD) requests and four (4) Full Funding Grant Agreements (FFGAs) per 
year. In addition, FTA anticipates five (5) major Fixed Guideway 
Modernization projects per year. The PRA estimate was based on a total 
of 21 PMPs. This includes 6 projects entering PE, 6 entering FD, 4 
entering into FFGAs and 5 Fixed Guideway Modernization projects. 
Insofar as risk assessments, the PRA estimate is based on 16 risk 
assessments for New Start projects.
    Frequency: Information will be collected periodically whenever a 
respondent sponsoring a New Starts project enters into a new project 
management stage (i.e., Preliminary Engineering, Final Design, or Full 
Funding Grant Agreement), and once for a respondent sponsoring a Fixed 
Guideway Modernization project.
    Estimated Total Annual Burden Hours: 57,973. This has been 
estimated as follows: This represents the burden to the project sponsor 
(recipient) and includes 23,925 hours for preparation and support the 
review of the PMPs, 9,408 to support the risk assessments and 24,640 
hours to report to FTA and hold quarterly meetings.
    Additional documentation detailing FTA's Paperwork Reduction Act 
Information Collection Request, including FTA's Justification 
Statement, may be accessed from OMB's Web site at http://www.reginfo.gov/public/do/PRASearch. OMB is required to file comments 
or make a decision concerning the proposed information collections 
contained in this proposed rule within 60 days after receiving the 
information collection request submission from FTA. FTA will summarize 
and respond to any comments on the proposed information collection 
request from OMB and the public in its Final Rule.

National Environmental Policy Act

    This proposed action would not have any effect on the quality of 
the environment under the National Environmental Policy Act of 1969 (42 
U.S.C. 4321 et seq.) and is categorically

[[Page 56375]]

excluded under 23 CFR 771.117(c)(20)), which covers the promulgation of 
rules, regulations and directives.

Executive Order 12630 (Taking of Private Property)

    FTA has analyzed this proposed rule under Executive Order 12630, 
Government Actions and Interface with Constitutionally Protected 
Property Rights. The agency does not anticipate that this proposed rule 
would effect a taking of private property or otherwise have taking 
implications under Executive Order 12630.

Executive Order 12988 (Civil Justice Reform)

    This action meets applicable standards in sections 3(a) and 3(b)(2) 
of Executive Order 12988, Civil Justice Reform, to minimize litigation, 
eliminate ambiguity, and reduce burden.

Executive Order 13045 (Protection of Children)

    FTA has analyzed this action under Executive Order 13045, 
Protection of Children from Environmental Health Risks and Safety 
Risks. FTA certifies that this proposed rule is not an economically 
significant rule and would not cause an environmental risk to health or 
safety that may disproportionately affect children.

Executive Order 13175 (Tribal Consultation)

    FTA has analyzed this proposed rule under Executive Order 13175 
(Nov. 6, 2000), and believes that the proposed action would not have 
substantial direct effects on one or more Indian tribes; would not 
impose substantial direct compliance costs on Indian tribal 
governments; and would not preempt tribal laws. The proposed rulemaking 
addresses obligations of Federal funds to States and local public 
transportation agencies for major capital transit projects and would 
not impose any direct compliance requirements on Indian tribal 
governments, nor would the proposed rule impose any new consultation 
requirements on tribal governments. Therefore, a tribal summary impact 
statement is not required.

Executive Order 13211 (Energy Effects)

    FTA has analyzed this action under Executive Order 13211, Actions 
Concerning Regulations That Significantly Affect Energy Supply, 
Distribution, or Use (May 18, 2001). FTA has determined that it is not 
a significant energy action under that order since, although it is a 
significant regulatory action under Executive Order 12866, it is not 
likely to have a significant adverse effect on the supply, 
distribution, or use of energy. Therefore, a Statement of Energy 
Effects is not required.

Privacy Act

    Anyone is able to search the electronic form of all comments 
received into any of our dockets by the name of the individual 
submitting the comment (or signing the comment, if submitted on behalf 
of an association, business, labor union, etc.). You may review DOT's 
complete Privacy Act Statement in the Federal Register published on 
April 11, 2000 (Volume 65, Number 70; Pages 19477-8).

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 set forth in the heading of 
this document can be used to cross-reference this action with the 
Unified Agenda.

List of Subjects in 49 CFR Part 633

    Transportation, Mass transportation, Project management oversight, 
Major capital projects, Fixed guideway projects, Risk assessment, 
Project management plans.

    Issued on: September 7, 2011.
Peter Rogoff,
Administrator.
    For the reasons set forth in the preamble, and under the authority 
of 49 U.S.C. 5309 and 5327, and the delegations of authority at 49 CFR 
1.48(b) and 1.51, FTA proposes to amend Chapter VI of Title 49, Code of 
Federal Regulations, by revising Part 633 to read as follows:

PART 633--CAPITAL PROJECT MANAGEMENT

Subpart A--General Provisions
Sec.
633.1 Purpose.
633.3 Definitions.
633.5 Applicability.
633.7 Access to information.
Subpart B--Recipients' Responsibilities for Project Management
633.9 Project management capacity and capability.
633.11 Project management plan: contents.
633.13 Special requirements based on project cost, complexity, or 
risk.
633.15 Project management plan: implementation.
Subpart C--FTA Project Management Oversight
633.17 Project management oversight principles.
633.19 FTA use of oversight services.
633.21 Roles and responsibilities of project management oversight 
contractors.
633.23 FTA risk-informed project management oversight.
633.25 Increased oversight based on project cost, complexity, or 
risk.

Appendix A to Part 633--The Use of Risk Assessment in FTA's Risk-
Informed Project Management Oversight

    Authority: 49 U.S.C. 5301(e), 5309, and 5327; 49 CFR 1.48(b) and 
1.51.

Subpart A--General Provisions


Sec.  633.1  Purpose.

    This part carries out the mandate of 49 U.S.C. 5327(e) for project 
management oversight as applied to both the Major Capital Investment 
and the Fixed Guideway Modernization programs authorized by 49 U.S.C. 
5309.


Sec.  633.3  Definitions.

    As used in this part:
    Administrator means the Federal Transit Administrator or the 
Administrator's designee.
    Fixed guideway means any public transportation facility using and 
occupying a separate right-of-way or rail for the exclusive use of 
public transportation and other high occupancy vehicles or using a 
fixed catenary system and a right-of-way usable by other forms of 
transportation. Fixed guideway includes but is not limited to rapid 
rail, light rail, commuter rail, ferry boat service, automated guideway 
transit, people movers, and exclusive facilities for buses and other 
high occupancy vehicles.
    FTA means the Federal Transit Administration.
    Major capital project means any project for which the Recipient 
seeks $100 million or more in Federal financial assistance under either 
the Major Capital Investment (New Starts) or Fixed Guideway 
Modernization programs authorized by 49 U.S.C. 5309 or any capital 
project the Administrator finds would benefit from the FTA project 
management program, given the size or complexity of the project, the 
uniqueness of the technology, the limited experience of the recipient 
sponsoring the project, or any other risks inherent in the project. 
This definition does not include routine acquisition, maintenance, or 
rehabilitation of rolling stock.
    Management Capacity and Capability means, at any point in time, the 
ability

[[Page 56376]]

of the recipient's organization to demonstrate or be likely to 
demonstrate that it can deliver the project within the recipient's 
budget and schedule, employing the competencies of the recipient 
organization and third party contractors, in conjunction with the 
available authorities, accountabilities, and assigned resources. In 
principle, management capacity connotes the ability of the recipient's 
project team to complete the project within the recipient's budget and 
schedule by engaging other stakeholders or resolving issues within 
defined constraints and assumptions; management capability connotes the 
ability of the recipient's project organization to implement an 
effective set of internal controls and develop or implement additional 
competencies, authorities, or resources to minimize risk or negative 
consequences.
    New Starts project means any project for which the sponsor is 
seeking Federal financial assistance under the discretionary Major 
Capital Investment program authorized by 49 U.S.C. 5309.
    Project Management Oversight (PMO) means the activities of FTA and 
its Project Management Oversight Contractor in monitoring both the 
effectiveness of the recipient's project delivery and whether a major 
capital project is on time, within budget, and built to approved plans 
and specifications, consistent with all applicable Federal 
requirements, and using information about the project in making 
decisions about the award of Federal financial assistance.
    Project Management Oversight Contractor (PMOC) means a contractor 
retained by FTA to assist FTA performing oversight functions for the 
New Starts and Fixed Guideway Modernization programs.
    Project Management Plan (PMP) means a written document prepared and 
used by a recipient organization, inclusive of its project office and 
stakeholders, which explicitly and adequately identifies the technical 
approach, responsible parties and entities, and tasks, budgets and 
schedules necessary to define, design, construct and startup a major 
capital project and commence revenue service within defined constraints 
and assumptions. A PMP may be a single document or a series of 
documents or sub plans integrated with one another into the PMP either 
directly or by reference for the purpose of defining how the recipient 
will effectively manage, monitor, and control the project.
    Recipient means a direct recipient of Federal financial assistance 
from FTA; an entity that intends to apply for Federal financial 
assistance from FTA; or the sponsor of a major capital project that 
will receive Federal financial assistance from FTA.
    Risk means a measure of the potential inability to achieve project 
objectives within defined scope, cost, and schedule constraints and 
assumptions, based on several components: The probability of failing to 
achieve a particular outcome, the consequences or effects of failing to 
achieve that outcome, and the root cause or causes which, if eliminated 
or corrected, would prevent the potential consequences from occurring.
    Sub Plan means a document which supplements the PMP by addressing a 
specific discipline or managerial practice for the purposes of 
developing and executing a major capital project. A sub plan may be 
incorporated into the PMP or referenced and configuration controlled by 
the PMP.


Sec.  633.5  Applicability.

    This part applies to any major capital project that will be 
assisted with funding under 49 USC Chapter 53, including funding that 
originates under the Surface Transportation Program or the Congestion 
Mitigation Air Quality program authorized by Title 23 of United States 
Code.


Sec.  633.7  Access to information.

    As reasonably necessary in FTA's judgment, a recipient shall give 
FTA and its PMOCs timely access to construction sites and all records, 
data and information pertinent to the use of Federal financial 
assistance for a major capital project. As appropriate, FTA and its 
PMOCs may decline custody or control of records, data and information 
pertinent to the use of Federal financial assistance for a major 
capital project.

Subpart B--Recipients' Responsibilities for Project Management


Sec.  633.9  Project management capacity and capability.

    Before awarding Federal financial assistance for the development of 
a major capital project, FTA must determine that the recipient has or 
will have sufficient management capacity and capability to complete the 
project within the constraints of cost, scope and schedule under the 
Federal grant award. As part of this determination, FTA will assess the 
recipient's Project Management Plan to establish whether the recipient 
has, and will maintain, sufficient staff, financial resources, and 
processes to:
    (a) Continuously manage the project through each sequential phase 
of project development, including the transition into revenue 
operations;
    (b) Comply with applicable statutes, regulations, circulars, and 
technical standards;
    (c) Ensure the compliance of its staff, contractors and 
subcontractors with applicable statutes, regulations, technical 
standards, third party contracts, and inter-agency agreements;
    (d) Address all technical aspects of the project, including but not 
limited to engineering, design, construction, and operations.
    (e) Maintain the project schedule and all milestones within that 
schedule;
    (f) Carry out all environmental mitigation required by the 
environmental record for the project;
    (g) Develop and follow a realistic financial plan and keep 
expenditures within the project budget;
    (h) Solicit, award, and manage third party contracts consistent 
with the recipient's preferred means of project delivery;
    (i) Conduct adequate quality assurance and control of all project 
activities;
    (j) Engage project stakeholders in a timely manner to maintain 
scope, cost and schedule at approved performance levels;
    (k) Obtain the proper information to ensure that decisions are made 
at the appropriate times, based on the best information available, and 
given the known uncertainties;
    (l) Identify, analyze, and mitigate project risks on a continuous 
basis;
    (m) Design and build the project in accordance with applicable 
safety and security requirements; and
    (n) Protect against waste, fraud, or abuse of project funds.


Sec.  633.11  Project Management Plan: contents.

    (a) A Project Management Plan (PMP) must be tailored to the type, 
costs, and complexity of the major capital project to which it pertains 
and the recipient's management capacity and capability. A PMP must be 
revised at the beginning of each project phase (e.g., preliminary 
engineering, final design, construction), and at other times as 
necessary and appropriate, throughout the execution of the project. 
These revisions will enable the recipient to make the necessary 
adjustments and improvements relative to the phase upon which the 
recipient's project is about to enter to ensure that the necessary 
staff and processes are in place to control the scope, budget, 
schedule, and quality of the project, while managing the safety and 
security

[[Page 56377]]

of all persons. At a minimum, a PMP must address the following in a 
sufficient level of detail to enable FTA to assess the adequacy of the 
recipient's plan:
    (1) The recipient's staff organization and structure, including, 
specifically, well-defined functional responsibilities, internal 
controls, reporting relationships, job descriptions, job 
qualifications, and the staffing levels required at each successive 
phase of project development;
    (2) The budget for the project, including, specifically, the 
amounts budgeted for project management, contractors and consultants, 
property acquisition, utility relocation, systems demonstration, 
audits, contingencies, and all other necessary costs of the project;
    (3) The master schedule for engineering, design and construction, 
including all items on the critical path for project development, 
displayed in a format that makes clear the effects of changes or delays 
on the project schedule;
    (4) The document control procedure and recordkeeping system;
    (5) The change order procedure, including, specifically, the 
recipient's policy and procedure for managing change order requests and 
actual change orders for design, construction and capital acquisition;
    (6) Quality control and quality assurance, including, specifically, 
the functions and procedures associated with project design, 
procurement, construction, system installation, and integration of 
system components;
    (7) Internal reporting within the recipient's organization, 
including, specifically, the procedures for reporting all matters 
affecting costs and schedules;
    (8) The criteria and procedures for testing operational systems and 
their major components;
    (9) The procedures for carrying out the environmental mitigation 
required for the project;
    (10) Community and Public Relations;
    (11) Management of contractor performance;
    (12) Management of the recipient's vehicle fleets;
    (13) Management of risks, contingencies, and insurance;
    (14) A series of project-specific performance measures against 
which the recipient will report to FTA (see paragraph (d) of this 
section); and
    (15) Management of safety and security.
    (b) Where needed, depending on the type and characteristics of the 
project (e.g., a project involving right-of-way acquisition must 
address real estate), the recipient must also address the following in 
its PMP:
    (1) Force Account work that will be performed by the recipient's 
own staff, and how the cost of that work is calculated;
    (2) Operations and Maintenance (O&M), including both the effects of 
O&M on design and construction and acceptance of project work by the 
recipient's management responsible for O&M
    (3) Real Estate, including compliance with the requirements of the 
Uniform Relocation Assistance and Real Property Acquisitions Policy 
Act;
    (4) Alternative Project Delivery methods;
    (5) Agreements with utilities, railroads, and other third parties, 
and inter-agency agreements necessary to project completion; or
    (6) Other facets of planning, designing, and constructing a major 
capital project.
    (c) As appropriate, the documentation of a recipient's current 
plans, programs, and procedures may be incorporated by reference in a 
PMP rather than set forth in full in the PMP.
    (d) As required by paragraph (a) of this section, the PMP must 
include a series of project-specific performance measures against which 
the project sponsor will report. This must include at minimum target 
revenue service date, interim milestones, contingency levels as 
identified in the risk contingency management plan, and ``check 
points'' at which the adequacy of contingency levels and risk 
mitigation will be evaluated.


Sec.  633.13  Special requirements based on project cost, complexity, 
or risk.

    Based on the size, cost or complexity of a major capital project, 
the uniqueness of the technology, the experience of the recipient, the 
chosen method for project delivery, or any other risks, the 
Administrator, in his or her discretion, may require a recipient to:
    (a) Meet discrete, specific targets on a scheduled basis for 
enhancing or maintaining its management capacity and capability, and 
incorporate those improvements into its Project Management Plan (PMP);
    (b) Make changes in the recipient's managerial plans, practices, 
internal controls, or governance; develop formal procedures for 
revising a recipient's PMP and sub-plans; conduct analyses for other 
process improvements; or develop project-specific performance measures, 
such as contingency reporting or forecasting, incorporation of lessons 
learned, and evaluations of project protocols and activities;
    (c) Report to FTA, as requested, the recipient's progress in 
achieving the special requirements of its PMP, as established and 
managed both at the project level and by contract package; and
    (d) Report to FTA, as requested, the recipient's projection of 
current estimates of project costs, in the form of ``estimates at 
completion,'' schedule data, and the revenue service date, with basis 
documentation sufficiently reliable to support those projections and 
the award of additional Federal financial assistance for the project.


Sec.  633.15  Project Management Plan: implementation.

    (a) Any grant application for Federal financial assistance for a 
major capital project must include the current iteration of a 
recipient's Project Management Plan.
    (b) Any request for FTA approval to enter into a particular phase 
of the New Starts process must include the current iteration of a 
recipient's PMP.
    (c) At all times, a recipient shall fully carry out its PMP and 
take every reasonable action to maintain its capacity and capability 
for project management; keep the project on schedule and within budget, 
in accordance with all milestones; and continuously monitor the project 
for risks to budget and schedule, and mitigate those risks, as 
necessary and appropriate to maintain approved budget and schedule 
levels.
    (d) If at any time a recipient must revise a PMP, the recipient 
shall submit its proposed changes to its PMP to FTA, together with a 
detailed explanation of the need for those revisions.
    (e) On a monthly basis, a recipient must submit to FTA the current 
data on the budget and schedule for the project, arrayed in accordance 
with FTA's budget and schedule reporting requirements, including, 
specifically, the current levels of contingency, both allocated and 
unallocated, and the float or slippage in meeting each milestone on the 
critical path for project completion. With each monthly submittal the 
recipient must also report any risks to the project budget and schedule 
and its efforts to mitigate those risks.
    (f) In his or her discretion, the Administrator may require a 
recipient to hold quarterly meetings with FTA and its PMOC on the 
progress of a major capital project. These meetings shall provide a 
means for briefing senior FTA management on the project, transmitting 
status and progress reports, identifying

[[Page 56378]]

current and systemic issues, and opportunities for site inspection. 
These meetings will be in addition to the monthly reporting required by 
paragraph (e) of this section.

Subpart C--FTA Project Management Oversight


Sec.  633.17  FTA project management oversight principles.

    The FTA oversight of a major capital project is a due diligence 
process of periodic reviews and evaluations designed to facilitate 
agency stewardship of taxpayer funds and to help ensure the efficient 
and effective design, construction and revenue service opening of a 
project. Throughout the oversight process, FTA is charged to:
    (a) Approve the recipient's Project Management Plan and any 
revisions to the PMP;
    (b) Evaluate the management capacity and capability of the 
recipient to manage the major capital project within scope, cost and 
schedule constraints;
    (c) Verify the recipient's compliance with all applicable Federal 
requirements;
    (d) Assess the risks of a project, and the readiness of that 
project to advance through the New Starts process or receive Federal 
financial assistance for fixed guideway modernization; and
    (e) Assess whether the project is being executed in accordance with 
the recipient's approved Project Management Plan, and in accordance 
with the approved budget and schedule.


Sec.  633.19  FTA use of oversight services.

    FTA may retain the services of Project Management Oversight 
Contractors (PMOCs) to assist FTA in determining whether a major 
capital project is on time and within budget, built to approved plans 
and specifications, and consistent with all applicable Federal 
requirements. The scope and level of FTA oversight will be based, in 
part, on the recipient's experience, resources, and past performance of 
major capital projects, and the cost, complexity, or risks inherent in 
a project. The following tenets guide FTA's use of the services of 
PMOCs:
    (a) FTA may deploy the services of a PMOC at any point during the 
planning, design, construction, and startup of a major capital project, 
to maximize transportation benefits and constrain costs. To conserve 
resources, however, FTA will generally defer the use of PMOCs on New 
Starts projects until those projects have requested FTA approval for 
entry into preliminary engineering.
    (b) FTA will give highest priority in its use of its PMOC resources 
to major capital projects of highest cost, complexity, or risk.
    (c) To the extent practicable, FTA will match the special expertise 
and experience of a PMOC to the inherent complexity and risk of a major 
capital project, and the management capacity and capability of the 
recipient.


Sec.  633.21  Roles and responsibilities of project management 
oversight contractors.

    The roles and responsibilities of a PMOC on a major capital project 
are as follows:
    (a) A PMOC provides consulting expertise to FTA, alone, in 
engineering and engineering management on all phases of a major capital 
project, principally in the areas of design, construction, acquisition 
of facilities, equipment, rolling stock and real estate, and startup 
activities.
    (b) The primary role and responsibility of a PMOC is to assist FTA 
in the evaluation of: a PMP and supporting documents, a recipient's 
management capacity and capability, the risks inherent in a project, a 
recipient's readiness to use federal funds or to advance in the project 
development process, and the recipient's on-going management of the 
major capital project. At the request of FTA, a PMOC may perform 
additional services or deliver products to FTA for purposes other than 
the oversight of a particular major capital project.
    (c) In the course of providing its services and products, a PMOC 
may render advice, opinions, observations, and recommendations to the 
Administrator or FTA staff regarding the progress of a major capital 
project and the management capacity and capability of a recipient. A 
PMOC has no authority to make decisions for FTA. A PMOC has no 
authority to act on behalf of FTA in making any findings or judgments 
regarding a recipient's compliance with Federal statutes, regulations, 
or administrative requirements.
    (d) A PMOC performs its services to FTA under strict privity of 
contract with FTA. The products and services rendered under a contract 
between FTA and a PMOC are for the sole benefit and use of FTA and may 
not be relied upon by any third party for any purpose. The products and 
services rendered under a contract between FTA and a PMOC create no 
liability or responsibility whatsoever to any third party.
    (e) A PMOC has no role or responsibility whatsoever for 
establishing or approving the design, construction, operation, or 
safety of a major capital project. A PMOC has no control whatsoever 
over selecting or approving the means, methods, precautions, sequences, 
or techniques a recipient uses in constructing a major capital project, 
which are solely the right, responsibility, and choice of the recipient 
sponsoring that project. A PMOC has no role or responsibility 
whatsoever for the formal inspection of a major capital project or a 
recipient's acceptance of construction work or project facilities, 
equipment, or rolling stock.


Sec.  633.23  FTA risk-informed project management oversight.

    (a) At any time, FTA may, in its discretion, and in consultation 
with the recipient, perform or allow a recipient to perform a risk 
assessment at a level commensurate with the size, cost, or complexity 
of a major capital project. A risk assessment will reflect the capital 
cost estimates, project schedules, and analyses of contingencies, 
resulting in an estimate of the total risk exposure for the project 
given the recipient's defined constraints and assumptions. A risk 
assessment will entail the identification, analysis, and mitigation of 
critical geotechnical, market, design, procurement, construction, 
managerial, organizational, and stakeholder risks to increase the 
probability of meeting cost, schedule, and performance objectives. FTA 
and the recipient will use this estimate of total risk exposure to 
establish the budget and schedule for the project, recognizing that not 
all risk can or should be funded.
    (b) As part of the process of establishing the funded and unfunded 
portions of the total risk exposure for the project, tradeoffs may be 
made among needs for additional funding for the project, timeliness of 
implementation of additional management capacity and capability, and 
mitigation of specific risks.
    (c) To address unfunded risk, FTA may require a recipient to 
develop explicit plans and tools for risk and contingency mitigation, 
measures for additional management capacity and capability, or 
financial mechanisms to accommodate the unfunded risks.
    (c) FTA's basic methodology for conducting risk assessments is 
currently set forth in the Appendix to this rule.


Sec.  633.25  Increased oversight based on project cost, complexity, or 
risk.

    Based on the size, cost or complexity of a major capital project, 
the uniqueness of the technology, the limited experience of the 
recipient, the chosen method for project delivery, or any other risks, 
the Administrator, in his or her discretion, may perform additional 
analyses and oversight as a condition precedent to an award of

[[Page 56379]]

Federal financial assistance for the project, either at the project 
level or by contract package, or both. These additional analyses and 
oversight will assist the recipient in developing a framework to 
maintain its cost and schedule, consistent with the requirements of 
Sec.  633.13, and may include, specifically, an FTA assessment of the:
    (a) Adequacy of the recipient's management of project activities, 
both pre-award and post-award, of particular cost, complexity or risk; 
and
    (b) Reliability of the recipient's current and forecast estimates 
of project costs and the revenue service date.

Appendix A to Part 633--The Use of Risk Assessment in FTA's Risk-
Informed Project Management Oversight

Introduction

    As a steward of taxpayer funds, and the Federal agency that 
awards grants-in-aid for transit across the United States, FTA has 
every interest in ensuring that its grant recipients deliver 
projects that are meritorious and add value. By law, FTA is obliged 
to oversee sponsors' management of their major capital projects from 
inception through implementation. This entails, most notably, the 
obligation to determine the likelihood a given project can be 
delivered within an approved budget and schedule.
    To perform its oversight of major capital projects, FTA has 
developed a risk assessment process that enables both the Federal 
government and a project sponsor to determine how much of the total 
risk exposure for the project will be funded in an approved budget 
and schedule with an appropriate contingency. FTA and the sponsor 
must then agree on how the non-funded risk portion of the total risk 
exposure can potentially be mitigated through specific actions, 
increased management capacity and capability, or additional means 
for funding. This Appendix describes these processes and their 
underlying steps.

Project Management Context

    An assessment of a sponsor's ability to conduct project 
management is a major part of these processes. Project management is 
generally defined as the application of knowledge, skills, tools, 
and techniques to project activities to meet project requirements. 
Insofar as major capital projects, in particular, FTA expects the 
sponsors, through competent, accountable personnel, operating within 
their delegated authority, to make decisions and allocate resources, 
consistent with the terms of their agreements with FTA and within 
clear constraints and assumptions.
    To determine whether a project can be delivered within its 
stated constraints and assumptions, the FTA risk assessment process 
examines whether the sponsor's project team has:
    (1) Selected appropriate project management processes;
    (2) Used documented approaches to define project deliverables 
that meet project requirements;
    (3) Complied with the requirements of the FTA grant, and met the 
needs and expectations of other stakeholders; and
    (4) Balanced the competing demands of scope, time, cost, 
quality, resources, and risk.

The Role of Good Practices in Project Management and Risk 
Assessments

    The determination whether a sponsor has selected appropriate 
management processes will take into account whether the sponsor is 
using good practices. The Project Management Institute (PMI), in its 
Body of Knowledge (``BoK'') document, and FTA, in its Project and 
Construction Management Guidelines, have identified those project 
management processes--inclusive of critical knowledge and lessons 
learned--which have been recognized as good practice. For FTA's 
purposes, current good practice means there is general agreement 
that the application of specific project management processes have 
been shown through documented analyses or engineering assessments to 
enhance the chances of success in delivering a project within 
constraints and assumptions.
    Over the past decade FTA has had extensive experience in 
establishing the capacity of good practices to mitigate cost and 
schedule risk in terms of recommendations for cost contingency. 
Also, FTA has had experience in identifying certain risks, such as 
geotechnical risks, that are not amenable to mitigation within known 
good practices; these types of risk require development of specific 
management capacities to successfully mitigate.
    For the purposes of FTA's risk assessment process, risk can be 
rewritten as a function of good practices by stating that risk is a 
measure of the potential inability [of the sponsor] to achieve 
project objectives [using good practices] within defined scope, 
cost, and schedule constraints and assumptions. The risk assessment 
itself then becomes a management process for evaluating the selected 
good practices and trend data to determine whether the appropriate 
or optimal management processes have been selected, and assessing 
whether any necessary waivers, deviations or non-conformances to 
these practices--real or potential--have been identified. When 
combined, this information allows for a characterization of the 
resulting risks to the project.

FTA's Risk Assessment Process

    In its discretion, FTA may perform a risk assessment, working 
closely with a sponsor of a major capital project. Or FTA may, in 
its discretion, determine that certain project sponsors are likely 
to be capable of delivering external risk assessment products and 
materials that meet FTA's standards and principles for risk 
assessments. In the latter instance, FTA will work with an 
interested sponsor to facilitate external risk assessments, in whole 
or in part, as described in the sponsor's Project Management Plan 
(PMP) and the material in the risk management section. The PMP must 
assure FTA of a timely delivery of risk assessment products. The 
sponsor will be responsible for the initial evaluation and 
documentation of conformity to FTA standards and policies for 
quality and reliability, as well as the project-specific performance 
standards in the sponsor's PMP. The PMP approach must recognize 
FTA's inherent governmental function to agree to a final cost and 
schedule. If the sponsor's PMP demonstrates a technical approach and 
the management capability and capacity to deliver risk assessments 
satisfactory for FTA's purposes, the PMP will be approved.

Background and Underlying Principles

    For FTA's purposes, risk assessment is not a single, fixed 
method of analysis. Rather, it is a formal, systematic approach to 
organizing, documenting, and analyzing project-specific recipient 
information, and comparing that information to previous FTA program 
experience, to identify what risks which might degrade a sponsor's 
ability to deliver the project within constraints and assumptions. 
These include specific geotechnical, market, design, procurement, 
construction, managerial, organizational, and stakeholder risks, as 
well as non-conforming inputs or outputs to the budget and schedule, 
or any other potential inabilities to deliver the required results. 
A monetary range is assigned to each budget line item based on an 
assessment of the sponsor's ability to mitigate these risks through 
selected actions or increased management capacity and capability. 
The result is an initial estimate of lower and upper bounds for 
total risk exposure, creating a risk range for purposes of 
communication and discussions between FTA and the sponsor, leading 
to an agreement on which portion of the risk will be funded.
    There has been a steady increase of sophistication over the last 
twenty years in the field of risk assessment for transit 
investments. Likewise, there is a wealth of information available on 
the Internet. Lessons learned from this experience are that risk 
assessors must have the ability to recognize and address fully such 
cross-cutting issues as uncertainty, variability, aggregation and 
continuity. These lessons learned have directly influenced a number 
of changes to FTA's own risk assessment process. Consequently, FTA 
now applies the following principles in the agency's process for 
risk assessment:
    (1) FTA has learned that approximately 50% of the cost drivers 
for increased budgets on major capital projects were attributable to 
fundamental problems in the underlying budget and schedule 
(``project deliverables''). Typically, the root causes were non-
conformance with either with the sponsor's own PMP or current good 
practices. Using this knowledge, FTA now uses a trend analysis on 
the budget, and tests for consistence between the project level 
budget and package level submittals of design/construction estimates 
as they were developed over time. FTA then tests the consistence and 
support in the indirect cost estimates. Based on the results, FTA 
makes a quantifiable assessment of the quality and completeness of 
the sponsor's detailed cost and schedule, and recommends 
adjustments.

[[Page 56380]]

    (2) To improve the reliability of any model for forecasting 
risk, FTA realized that the agency needed to develop an 
understanding of the strengths and weaknesses of different modeling 
approaches and assess any bias or incompleteness in these forecasts. 
This meant developing modeling approaches that minimized inherent 
bias by combining FTA's previous experience--including the 
experience documented in studies both by FTA and the Transportation 
Research Board (TRB)--with the sponsor's project-specific data. One 
aspect of this was the development of specific contingency 
recommendations in published TRB research. Another was the 
development of a mitigation sequence for project cost risk. The key 
principle is that risk decomposes through mitigation actions in a 
sequence from requirements risk through design solution into the 
project delivery method, then into post award specific risks the 
sponsor retains through its contract documentation or commercial 
terms. Knowing this, FTA assigns more likelihood of success to those 
mitigation actions that can be applied earlier in the process.
    (3) FTA has long recognized that a project work breakdown 
structure (WBS) offers a comprehensive look at a major capital 
project, and forms the basis of sound control systems. Specifically, 
FTA has learned that the WBS provides more accurate information, and 
a better way to mitigate risk, than the industry practice of 
developing ``catalogs of risk,'' ``sources of risk,'' or ``risk 
registers.'' The WBS approach to risk modeling allows FTA to 
standardize the model and its parameters, which is a major strength 
in the context of FTA's obligation to evaluate the reliability of a 
sponsor's cost estimates and schedules. FTA prefers the use of WBS 
as the basis for assigning risks.
    (4) FTA has learned how to use several models to assess project 
level cost risk, such as range models [AACE Curran Range model, USAF 
Space command Range model, FTA Beta model], actuarial models that 
estimate maximum and minimum credible risk and sources of risk 
models [PMI and Golder]. Also, FTA has learned how to assess the 
quality of the forecasting, such as diagnostic evaluations of Monte 
Carlo simulations, and the adequacy of such forecasts to reliably 
establish estimates of total risk exposure. Because this is an area 
still under development, FTA has not developed an explicit choice 
among modeling methods, nor does FTA rely on a single model for risk 
assessment.
    (5) FTA has learned over a number of projects that for a sponsor 
to maintain the necessary management capacity and capability, there 
must be continuity in risk mitigation over extended periods of time. 
One obstacle to this has been that managerial attitudes toward risk 
have affected both the accuracy of the perception of risk and the 
ways in which an organization responds. In sum, FTA recognizes that 
risk responses reflect a sponsor organization's perceived balance 
between risk-taking and risk-avoidance. Another obstacle, of course, 
is that technical approaches for mitigating risk are not explicit. 
As a result, FTA requires a consistent approach to risk assessment 
throughout project delivery, which establishes its usefulness as a 
management tool and demonstrates that the sponsor is controlling 
cost and schedule, thus ensuring reliability in the forecasts for 
budget and revenue service date.

FTA Risk Assessment Standards

    These principles have given FTA a number of ways to reliably 
model risk under various mitigation and sponsor management capacity 
and capability scenarios. The following standards, however, ensure 
that the risk assessment products and information, whether 
internally or externally generated, are sufficient to support FTA's 
decision making on sponsors' grant applications:
    (1) Sufficient, reliable, relevant, and useful sponsor or third 
party data and information is available to perform risk assessment 
services, deliver risk products and outcomes that meet or exceed 
FTA's requirements for accuracy, completeness and reliability.
    (2) Material errors in third party information and data elements 
affecting end product data quality are identified and disclosed in 
the associated risk assessment deliverable.
    (3) Risk assessment deliverables are presented within a 
substantively complete and appropriate engineering or project 
management context.
    (4) Risk assessment deliverables are adequately quantified, 
fully integrated, traceable and consistent, and compatible with 
findings or stated fact.
    (5) Risk assessment deliverables contain analytic and opinion 
components that are unqualified or properly qualified, properly 
structured, and clearly identified with respect to authorship.
    (6) Material analytic results of risk assessments are capable of 
independent analysis or reproduction using disclosed methods and 
assumptions generating similar analytic results within an acceptable 
degree of imprecision or error.
    (7) FTA is able to assess for itself whether it is appropriate 
to question the adequacy, accuracy or completeness of the third 
party data, information, modeling or analysis.

Risk Assessment Steps

    FTA has identified a few basic steps that it uses to plan and 
execute risk assessments which meet the above principles and 
standards. It is the agency's intent to adequately access cost and 
schedule risk as appropriate for the complexity and timing of the 
review. The references to ``risk assessors,'' below, apply equally 
to internal and external assessments. The steps below would be 
modified to accommodate specific cost or schedule risk issues:
    (1) The first step is to scrutinize the status and soundness of 
the project's definition of basic--and known--project elements 
(e.g., requirements, scope, design quality, cost estimates, and 
schedules), which serve as the starting points for identifying cost 
and schedule risks and opportunities. This includes a detailed 
review of all documents that describe project goals and third-party 
requirements; site evaluations; project plans, estimates and 
schedules; progress reports; project management documents; and other 
necessary supporting documents. In this step, the risk assessor 
works closely with the project team to understand their data, 
underlying constraints, and assumptions, then makes an independent 
assessment of the reliability and accuracy of that data, makes 
adjustments to budget and schedule (hard ``bump to the base''), and 
determines how such information and data are to be integrated into 
the internal or external risk assessment products and services.
    (2) To avoid double counting, since contingencies are a 
legitimate way to account for risk, project estimates and schedules 
must clearly identify and quantify contingency amounts. This 
includes cost and schedule contingencies that are applied or 
allocated to individual line items or activities--some of which may 
be ``hidden''--as well as unallocated contingencies that are often 
derived as percentages of grouped items. The risk assessor reduces 
the budget by these amounts to arrive at a revised budget amount as 
a starting point for risk identification.
    (3) Next, risk identification ``surfaces'' risks before they can 
become problems or adversely affect a major capital project. FTA's 
definition of risk identification includes examining the elements of 
project definition and management processes to ``surface'' the 
associated risks and their root causes that may prevent the project 
from being delivered within the constraints of minimum scope, 
schedule and cost, given the particular sponsor's management 
capacity and capability. As a management process, however, it does 
not suffice merely to identify risks; the risk assessment must also 
deliver value throughout project implementation. To achieve the 
principle of continuity, risk assessors, through their risk 
identification activities, must facilitate management planning for 
the sponsor organization through analyses which allows the 
conversion of ``surfaced'' risk data into risk decision-making 
information that provides the basis for the sponsor to prioritize 
and address project risks. It is at this point that the risk 
assessor develops initial estimates of the cost and schedule risk 
ranges inclusive of total cost risk exposure, and sets baselines for 
management capacity and capability.
    (4) Risk mitigation is a process that identifies, evaluates, 
selects, and implements options to set risk at acceptable levels, 
given project constraints and objectives. This includes the 
specifics on what should be done, when it should be accomplished, 
who is responsible, and the associated cost. The mitigation options 
available can include risk control, risk avoidance, risk assumption, 
and risk transfer. Risk assessors determine the most appropriate 
strategy or strategies for risks or groups of actions from these 
options.
    (5) The next step is to identify additional management capacity 
and capability enhancements that would increase the sponsor's 
ability to mitigate risks; produce a set of alternative funding and 
management capacity and capability scenarios (ranging from low to 
medium to high) for discussion between FTA and the sponsor; and use 
those scenarios to determine what are often a target grant budget 
and schedule, as well as an explicit plan and tools for risk 
mitigation, including management capacity and capability 
enhancement, and management

[[Page 56381]]

and allocation of current and future contingencies.
    (6) Subsequent to establishing these targets, the risk assessor 
will evaluate the efficiency and effectiveness of the sponsor 
organization in mitigating risk, enhancing management capacity and 
capability, and managing contingency. Risk assessors will also 
evaluate realized risks to determine if they were contemplated 
within the original cost and schedule baselines or were 
unanticipated, and to trend such experience.
    (7) Prior to an award of an FTA grant, the risk assessor will 
reevaluate the baseline risk mitigation assumptions for cost and 
schedule to determine the on-going validity of the baseline risk 
mitigation and management capacity assumptions based upon adequate 
forecast and trend data.

[FR Doc. 2011-23371 Filed 9-12-11; 8:45 am]
BILLING CODE P