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

SUMMARY: With the restructuring of the Federal-aid highway program due

to enactment of the Intermodal Surface Transportation Efficiency Act

(ISTEA) of 1991 (Pub. L. 102-240, 105 Stat. 1914), regulations for the

administration and management of activities undertaken with FHWA

planning and research funds are updated to reflect the revised sources

of, and activities eligible for, such funds. In addition, the ISTEA

allows the States more flexibility in managing and directing federally

funded research, development, and technology transfer (RD&T)

activities. This final rule includes the ISTEA revisions and grants

States this greater responsibility and flexibility for the management

and oversight of their RD&T initiatives funded with FHWA planning and

research funds.

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

FOR FURTHER INFORMATION CONTACT: Mr. Tony Solury (202-366-5003), Office

of Environment and Planning, Federal Highway Administration, 400

Seventh Street, SW., Washington, D.C. 20590, for 23 CFR part 420,

subpart A; Mr. Charles W. Niessner (703-285-2100), Office of Research

and Development, Federal Highway Administration, Turner-Fairbank

Highway Research Center, 6300 Georgetown Pike, McLean, VA 22101-2296,

for 23 CFR part 420, subpart B; or Mr. Wilbert Baccus (202-366-0780),

Office of the Chief Counsel, Federal Highway Administration, 400

Seventh Street, SW., Washington, D.C. 20590. Office hours are from 7:45

a.m. to 4:15 p.m., e.t., Monday through Friday, except Federal

holidays.

SUPPLEMENTARY INFORMATION: On December 21, 1993, a notice of proposed

rulemaking (NPRM) was published by the FHWA in the Federal Register (58

FR 67510) to obtain comments from interested persons on proposed

revisions to regulations for program approval and authorization;

conduct; and reporting of planning, research, development, and

technology transfer activities undertaken by States and their

subrecipients, including metropolitan planning organizations (MPOs),

with FHWA planning and research funds. The proposed revisions were

necessary to reflect changes to Title 23, United States Code, Highways,

that resulted from enactment of the ISTEA. In addition, the FHWA

proposed that States establish a process for management of RD&T

activities undertaken with FHWA planning and research funds that would

enable States to exercise greater authority over such activities.

With respect to administration of FHWA planning and research funded

RD&T activities, the final rule reflects the FHWA's belief that its

stewardship role should be one of concentrating more on the policies

and procedures by which States implement such activities than on

project-specific approvals and oversight. This philosophy parallels the

administrative oversight procedures adopted for FHWA planning and

research funded transportation planning activities in earlier revisions

to 23 CFR part 420, subpart A in 1985 and 1990.

The ISTEA instituted a number of substantive changes pertinent to

transportation planning and RD&T programs. In addition to retitling it

from Highway Planning and Research to State Planning and Research

(SPR), the ISTEA: (1) increased the set-aside of funds apportioned to

States for SPR activities from 1.5 percent to 2 percent; (2) included

planning and RD&T as eligible activities under the National Highway

System (NHS) program and Surface Transportation Program (STP); (3)

permitted the use of certain funds made available under title 23,

U.S.C., for intermodal transportation planning and RD&T; and (4)

required the expenditure of 25 percent of a State's annual SPR funds

for RD&T activities, unless the State certifies that it will use more

than 75 percent for planning and the Secretary of Transportation (the

Secretary) accepts the certification. These legislative provisions are

reflected in this rule.

Thirty-one sets of comments were submitted to the docket in

response to the NPRM; 28 from State transportation departments/

agencies, 1 from a regional planning agency, 1 from a professional

association, and 1 from a Federal agency. The overwhelming majority of

comments were in support of the proposed revisions and the increased

flexibility for State management of RD&T activities. However, there

were some concerns regarding some of the specific revisions and the

short deadline for compliance. Many of these concerns were due to

misunderstandings about existing requirements and not the proposed

revisions. A summary of the comments, their disposition, and the

changes made to the rule follow.

Subpart A--Administration of FHWA Planning and Research Funds

General Comments and Responses

Comment: One State, in which most research is conducted for the

State by higher education institutions, stated that the proposed

regulation does not pertain to universities as subrecipients and

recommended citing Office of Management and Budget (OMB) Circular A-

110, ``Uniform Administrative Requirements for Grants and Agreements

with Institutions of Higher Education, Hospitals, and Other Non-Profit

Organizations,'' November, 19, 1993, for universities as subrecipients.

Response: While the State is the recipient of FHWA planning and

research funds, Part 420 also applies to subawards to all categories of

subrecipients, including institutions of higher education. In

accordance with standard OMB requirements, subawards are to be

administered in accordance with the procedures in the OMB Circular and

corresponding agency implementing regulations that apply to the type of

agency receiving the subaward, whether or not specifically stated in

the regulation. To clarify what applies to administration of subawards

to institutions of higher education, a new paragraph (o) has been added

to Sec. 420.121 as discussed under the section-by-section analysis.

Comment: One commenter suggested that the term ``State highway

agency'' be changed to ``State transportation agency'' to maintain

consistent nomenclature and reflect reality.

Response: Since most of the State agencies to which Federal-aid

highway program funds are apportioned are no longer single purpose

highway agencies, the FHWA agrees that use of the term ``State

transportation agency'' is more appropriate and has made this change.

However, 23 U.S.C. 302 requires that a State desiring to avail itself

of the provisions of title 23, U.S.C., have a suitably equipped and

organized State highway department and has been interpreted by the FHWA

to restrict reimbursement of a State highway department's indirect

costs. Therefore, a definition of State transportation agency (STA) has

been added to Sec. 420.103, as discussed below under the section-by-

section analysis, to distinguish a State highway department from other

State transportation agencies in order to determine whether the

agency's indirect costs are allowable under 23 U.S.C. 302.

Comment: One State commented that it is using a significant portion

of its SPR funds for training, ``since the ISTEA language which was

supposed to have covered training was inadvertently left out of that

Legislation.''

Response: The ISTEA in fact continued the funding provisions (23

U.S.C. 321) for training of State personnel although at a reduced level

of funding. With the exception of a specific type of training cited in

23 U.S.C. 307(c), FHWA planning and research funds may only be used for

transportation planning or RD&T related training if the cost of the

training is necessary, reasonable, and it benefits the purposes of the

grant or subgrant. General training of employees who are not working on

grant funded activities is not an allowable cost. This is consistent

with OMB cost principles which are applicable to FHWA planning and

research fund grants and subgrants.

Comment: One State questioned the estimate of 2,100 burden hours,

shown under the heading Paperwork Reduction Act in the NPRM, for the 50

States to comply with the regulation and stated that it will take much

more time to develop a procedures manual; procedures for tracking

activities, schedules, accomplishment, and fiscal commitments; and

procedures to determine the effectiveness of the implementation

process, and the utilizations of the RD&T output. The commenter

indicated that the State has many of the elements in place, but did not

know if the FHWA Division office would accept them or require revisions

in content or format.

Response: The estimate of 2,100 burden-hours (40 hours per

respondent) is for the one-time preparation by each State, the District

of Columbia, and the Commonwealth of Puerto Rico of the new

certification required by subpart B of the regulation. Many of the

other activities cited by the commenter are either required already

(e.g., progress reports) and are covered by the cited existing OMB

clearances or are standard management practices that the State should

already have in place. An updated burden estimate has been prepared. It

is estimated that the average one-time burden for preparation of RD&T

management process documentation and certification statements is 480

burden-hours (12 weeks x 40 hours per week) per State.

Section-by-Section Analysis

The authority citation has been amended from the NPRM to include 23

U.S.C. 303(g) which allows the use of NHS, STP, and highway bridge

replacement and rehabilitation (HBRR) funds for development and

establishment of the management and monitoring systems required under

23 U.S.C. 303. In addition, section 149(b) has been deleted since this

regulation does not apply to funds made available under this section of

title 23, U.S.C.

Section 420.101 Purpose

This section states the purpose of this regulation. It indicates

that the provisions of this part apply to subrecipients of States,

including MPOs. Language has been added to indicate that it also

applies to activities undertaken with NHS, STP, and Highway Bridge

Replacement and Rehabilitation Program (HBRRP) funds for development,

establishment, and implementation of the management and monitoring

systems required by 23 U.S.C. 303 and 23 CFR part 500. Use of NHS and

STP funds for such purposes was included in the NPRM definition of FHWA

planning and research funds; the use of HBRRP funds is being added to

the definition as discussed below. A reference to the additional

requirements for RD&T programs and studies in subpart B of this part is

included.

Section 420.103 Definitions

This section includes the terms defined in 23 U.S.C. 101(a) and

contains additional definitions for terms used in this part.

The term ``FHWA planning and research funds'' includes SPR funds,

metropolitan planning (PL) funds, and the optional use of NHS, STP, and

Minimum Allocation (MA) funds for planning and RD&T purposes. It also

includes the use of NHS, STP, and HBRRP funds for development,

establishment, and implementation of the management and monitoring

systems required by 23 U.S.C. 303. The definition has been amended from

the NPRM to include funds apportioned under 23 U.S.C. 144 for the HBRRP

when such funds are used for development, establishment, and

implementation of the bridge management system required by 23 U.S.C.

303. This category was inadvertently not included in the NPRM.

Although this rulemaking does not change the definition of grant,

one commenter believed that new readers may not be familiar with the

difference between a contract and a grant and, therefore, suggested

that a definition of grant be included to reduce confusion.

The FHWA agrees and has added definitions of ``grant agreement''

and ``procurement contract.'' These mechanisms for agencies to make

awards to recipients are adaptations of definitions in Chapter 63,

Using Procurement Contracts and Grant and Cooperative Agreements, of

title 31, CFR.

A ``grant agreement'' is defined as a legal instrument between an

awarding agency and recipient where the principal purpose is to provide

funds to the recipient to carry out a public purpose of support or

stimulation authorized by law.

A ``procurement contract'' is defined as a legal instrument between

an awarding agency and recipient where the principal purpose is to

acquire (by purchase, lease, or barter) property or services for the

direct benefit or use of the awarding agency.

For administrative purposes, it is important to note that the

purpose of the award determines whether the award is a grant or a

procurement action. The administrative procedures for grants are

governed by OMB Circulars A-102 and A-110 and agency implementing

regulations. The administrative procedures for procurement contracts

are governed by the Federal Acquisition Regulations (48 CFR Part 31) or

State procedures if the recipient is a State.

Since FHWA planning and research funds may be pooled for planning,

as well as RD&T, studies or activities of national or regional

significance, the definitions of national and regional pooled-fund

studies have been moved from Sec. 420.203 to Sec. 420.103. In addition,

both definitions have been modified to indicate: that MPOs, as well as

States, may contribute to pooled-fund studies; that national studies

are usually administered by the FHWA headquarters office; that regional

studies are usually administered by an FHWA regional office in

cooperation with a lead State or MPO; and that the funds may be pooled

with or without matching. While any of the categories of funds included

in the definition of ``FHWA planning and research funds'' may be

pooled, the matching requirement can only be waived for SPR or PL

funds. Such waiver must be approved by FHWA headquarters for both

national and regional studies in accordance with the provisions of

Sec. 420.119(d).

As discussed under the general comments and responses, a definition

of State transportation agency has been added. ``State transportation

agency (STA)'' is defined as the State highway department,

transportation department, or other State transportation agency to

which Federal-aid highway funds are apportioned.

Section 420.105 Policy

This section continues the FHWA's previous policy of allowing

States maximum possible flexibility in determining which eligible

activities may be undertaken with FHWA planning and research funds, as

long as planning activities of national significance, as identified in

paragraph (b) of this section, are being adequately addressed. Under

the provisions of this section, the FHWA may withhold or withdraw

authorization of FHWA planning and research funds if planning

activities of national significance are not being performed by a State.

As discussed in the preamble to the NPRM, this policy also applies to

State subrecipients. Paragraphs (a)(1) through (4) in the NPRM have

been rewritten and consolidated for clarity into paragraphs (a)(1) and

(2) in the rule without changing the substance of the policy.

One commenter expressed concern about the potential involvement in

long range data reporting requirements that would make unexpected

demands on its manpower in order to provide data that support FHWA

responsibilities as specified in Sec. 420.105(b). The commenter

indicated that clarification was needed on this requirement. Another

commenter indicated that States should have the right to question the

need for particular data requests from the FHWA if the cost of

providing such data becomes high.

This provision has been in the regulation since 1986. The major

data bases that are referenced in Sec. 420.105(b) are the FHWA's

Highway Performance Monitoring System (HPMS) and statistical reports

provided by the States for inclusion in the annual publication

``Highway Statistics.'' Both of these data collection activities have

been approved by the OMB and are resubmitted for approval every three

years. Occasionally, information not included in these ongoing data

bases is needed due to special circumstances and enactment of

legislation, such as, designation of a National Highway System in

accordance the provisions of the ISTEA. With each update of the HPMS

and highway statistics reporting requirements and with each special

request, the FHWA will continue to make every effort possible to limit

the burden to the States while still receiving the information

essential to guide the national transportation program.

Section 420.107 SPR Minimum Research, Development, and Technology

Transfer Expenditure

This section reflects the requirement in 23 U.S.C. 307(c) that not

less than 25 percent of a State's annual SPR funds be expended for RD&T

activities unless the State certifies that it will expend more than 75

percent of such funds for transportation planning under 23 U.S.C. 134

and 135. It includes specific procedures and criteria for FHWA approval

of a State's certification that were in the FHWA Executive Director's

June 25, 1992, memorandum to the FHWA Regional Administrators. (This

memorandum is available for review and copying in the file for FHWA

docket number 93-18 at the address specified above under the caption

FOR FURTHER INFORMATION CONTACT.) The certification must be submitted

annually with the work program or with the request for authorization of

funds for the second year of a biennial work program. Except for

rephrasing of the considerations in paragraphs (c)(1) to (6) to change

them from questions to statements, this section is unchanged from the

NPRM.

Several commenters expressed concern over the criteria and

procedures in Sec. 420.107 for waiver of the requirement for use of 25

percent of a State's annual apportionment of SPR funds. One commenter

stated that the proposed rules go far beyond what should be necessary

to support such a certification and that it appears that the FHWA is

unduly striving to discourage this option. This commenter recommended

that the requirements be reduced to an assurance that the State's RD&T

needs are being adequately addressed. Similarly, other commenters

stated that the requirements for submitting an exception to the use of

25 percent of SPR fund for research are onerous and effectively

prohibit exceptions as they are currently written or that the proposed

rule indicates that the FHWA will be reluctant to grant exceptions.

While 23 U.S.C. 307(c)(2) requires that a State certify to the

Secretary that its total expenditures for transportation planning under

23 U.S.C. 134 and 135 for the fiscal year will exceed 75 percent, it

also requires that the certification be accepted by the Secretary.

Based on the extensive provisions and emphasis on transportation RD&T

in the ISTEA, the FHWA strongly believes that the Congress intended

that the States have effective transportation RD&T programs. Therefore,

the criteria for approving an exception are being retained.

Section 420.109 Distribution of PL Funds

This section reflects the requirements in 23 U.S.C. 104 that a

State must make apportioned PL funds available to MPOs and that the

funds must be distributed by the State to MPOs in the State based on a

formula, approved by the Secretary (approval authority has been

delegated to the FHWA), that considers population, status of planning,

attainment of national ambient air quality standards, and other factors

necessary to provide for an appropriate distribution of funds to carry

out the requirements of 23 U.S.C. 134 and other applicable requirements

of Federal law. The FHWA's longstanding interpretation, that the

legislative requirement that States make PL funds available to MPOs

precludes the use of such funds by the State for administration of PL

grants or subgrants, is included in paragraph (a). It is FHWA policy to

consult with the appropriate Federal Transit Administration (FTA)

regional office prior to approval of a State's PL formula.

One State commented that the requirement in paragraph (a) that

``the State shall not use any PL funds for grant or subgrant

administration'' is too restrictive and should be changed to permit a

reasonable amount for administration. Another State commented that

under the ISTEA, a State DOT's role in administering and participating

in MPO planning activities funded with PL funds has increased

significantly and that there should be a provision which permits the

State DOT to retain a certain percentage of PL funds for its costs in

administering and participating in PL funded programs. Another State

commented: that the cost for grant administration historically has been

included as part of the funding package of the MPO planning work

program; that this new provision may unfairly restrict the use of PL

funds to only direct program activity and not permit the State or MPO

to use PL funds for organization administration costs; and that by not

allowing the use of PL funds for grant or subgrant administration, the

FHWA will be placing an unfair economic burden on the various parties

concerned.

These comments imply a misunderstanding of both the legislation and

regulation. Before responding to these comments, a distinction needs to

be made between ``grant or subgrant administration'' and ``general

planning process administrative activities.'' ``Grant or subgrant

administration'' includes activities such as processing or preparing PL

grant agreements between the FHWA and the State, subgrant agreements

between the State and the MPOs, fiscal documents, progress reports, and

audits. ``General planning process administrative activities'' may

include conducting MPO meetings, preparation of planning work programs,

and salaries of an MPO executive director and other administrative

support staff.

The legislation has always specified that PL funds are to be made

available to the MPOs by the State. The FHWA historically has

interpreted this to mean that a State cannot unilaterally retain PL

funds for any purpose; all PL funds must be made available to the MPOs.

If an individual MPO chooses to include activities (e.g., development

of a long range plan, traffic counting) to be performed with its PL

funds by the State for the MPO in its work program, it may do so. If

the required State PL fund distribution formula, developed in

consultation with the MPOs, allows for State retainage of PL funds, it

may be approved by the FHWA if the retained funds will be used by the

State for technical activities in support of metropolitan planning or

for making discretionary subgrants to MPOs for special studies.

In no instance may PL funds (either in an MPO's work program or

retained under an approved formula) be used by a State for PL fund

``grant or subgrant administration'' as indicated in subparagraph (a).

Such State grant or subgrant administrative activities are eligible for

SPR funding. ``General planning process administrative activities''

performed by MPOs are eligible for PL funds. Such general

administrative activities performed by a State for an MPO are eligible

for SPR funds and would be eligible for PL funds if included in the

MPO's work program.

One State commented that it would be concerned if the regulation is

administratively construed to require a specific formula for

distribution, or require reconsideration of its policy on PL funds.

The requirement that funds be distributed by a State by a formula

that considers specific factors has existed since the enactment of the

PL funding in 1973. The ISTEA added the additional factor of attainment

of the national ambient air quality standards. In developing the

formula, the State must consult with the MPOs and must consider the

legislatively mandated factors, but all of the factors do not need to

be included in the formula. In accordance with paragraph (f), any

formula that does not meet these requirements must be brought into

conformance as soon as possible, but not later than in time for

distribution of PL funds apportioned to the State for the first Federal

fiscal year beginning after the effective date of the regulation.

Section 420.111 Work Program

This section includes requirements for State and subrecipient work

programs that serve as the application for FHWA planning and research

funds. References to 23 CFR part 450 and subpart B of this part are

cited for additional information on metropolitan area unified planning

work programs and RD&T work programs, respectively. Except for

correcting citations to 23 CFR part 450 and changing the first word in

paragraph (a) from ``expenditure'' to ``proposed use,'' this section is

unchanged from the NPRM. The work program in essence is a statement of

work that identifies the proposed use of the funds; expenditure of the

funds is documented in the financial and progress reports.

One commenter stated that the requirement to submit work program

documents creates duplicate paperwork for agencies. The commenter

stated that the same information is available in work plans for

individual studies, and, if FHWA review of individual study work plans

is no longer required, submission of a work program is not appropriate.

A work program has always been required for both planning and RD&T

activities. The work program is the ``grant application'' for FHWA

planning and research funds and is necessary for the FHWA to determine

if the proposed work is eligible. A work program may consist of a

listing of proposed studies and activities and other appropriate

information, such as cost of the activity and performing agency, with

sufficient description for the FHWA to determine eligibility of the

work. ``Work plans'' that included details on need, purpose, approach,

etc., for individual RD&T studies are no longer required. Therefore,

there is no duplication.

One State commented that while a biennial work program is allowed,

it requires a projection of available Federal funds which may be

difficult to make on a biennial basis.

Historically, the amount of FHWA planning and research funds

available to a State is consistent from year to year over the period

covered by authorizing legislation (e.g., the ISTEA). In any case, if a

State's or subrecipient's transportation planning is a continuation of

the same activities with minimal change in activities over an extended

period, use of a 2-year work program should result in a significant

reduction in paperwork since draft and final work programs would not

need to be prepared and submitted for review and approval in the second

year unless significant changes are necessary in the description of

work. The initial work program would describe the activities

anticipated to be accomplished over the 2-year period along with an

estimate of funds for each year. The FHWA would approve the 2-year work

program and authorize the first year's work subject to availability of

funds. Prior to the beginning of the second year, when the actual

amount of funds that will be available is known, the State would only

need to submit a request to revise the budget to reflect the actual

funds available (and if necessary any significant amendments in the

description of work to be accomplished) for the second year and request

the FHWA's authorization to proceed with the second year's work.

Section 420.113 Eligibility of Costs

This section includes general criteria and incorporates by

reference other regulations and OMB Circulars for determining

eligibility of transportation planning and RD&T activities and

allowability of items of cost (e.g., salaries, travel) within such

activities that are proposed for FHWA planning and research funds.

Administrative procedures that must be followed for costs to be

eligible for reimbursement are also included.

One commenter requested that a list of examples of transportation

planning and RD&T activities that are eligible for FHWA planning and

research funds be included in the final rule. Appropriate sections of

title 23, U.S.C., that include information on broad categories of

eligible activities are included by reference. The FHWA believes that

any attempt to provide a more specific listing could be misinterpreted

since all eligible activities could not possibly be listed. The

longstanding practice of allowing the FHWA field offices to determine

eligible activities, in consultation with the headquarters office if

necessary, has worked well in the past and will be continued. In

addition, the FHWA headquarters office will continue to issue

appropriate guidance when necessary on the eligibility of specific

types of activities. For example, in response to several inquiries

since enactment of the ISTEA, guidance has been provided on the use of

FHWA planning and research funds for transportation planning involving

modes in addition to highway or transit. As discussed in the preamble

to the NPRM, transportation planning studies involving modes in

addition to highway or transit are eligible for FHWA planning and

research funds when performed as part of the statewide or metropolitan

transportation planning processes.

In response to questions regarding eligibility of travel costs of

team members conducting peer reviews of a State's RD&T management

process, subpart B has been revised, as discussed below under the

responses to comments on subpart B, to specify that such travel costs

are eligible for FHWA planning and research funds. While not required

by this regulation or 23 CFR part 450, similar peer reviews of

statewide and metropolitan transportation planning processes would also

be eligible if included in a State or MPO transportation planning work

program and it is determined by the FHWA that the costs are necessary,

reasonable, and benefit the FHWA planning and research funded

transportation planning process.

Paragraph (b) of this section in the NPRM referenced the provisions

of 23 CFR part 140, subpart G on the allowability of indirect costs of

STA planning and research units. The allowability of such costs for any

STA unit that performs work for development, establishment, and

implementation of the management and monitoring systems required under

23 U.S.C. 303 was addressed in a May 3, 1994, memorandum to the FHWA

and FTA Regional Administrators. (This memorandum is available for

review and copying in the file for FHWA docket number 93-18 at the

address specified above under the caption FOR FURTHER INFORMATION

CONTACT.) To more clearly identify such allowable indirect costs, the

reference to 23 CFR part 140, subpart G has been replaced with the

specific provisions and information provided in the May 3 memorandum.

In accordance with longstanding FHWA interpretation of 23 U.S.C. 302,

except as specified in new paragraph (b)(2) of Sec. 420.113, STA

indirect costs are not eligible for reimbursement with FHWA planning

and research funds. Paragraph (b)(2) specifies that salaries, but not

other indirect costs, for services rendered by STA employees generally

classified as administrative are eligible for reimbursement for a

transportation planning unit, RD&T unit, or other unit performing

eligible work with FHWA planning and research funds (including

development, establishment, and implementation of the management and

monitoring systems required by 23 U.S.C. 303 and 23 CFR part 500). Such

STA administrative costs are allowable in the ratio of time spent on

the FHWA planning and research funded work in the unit to the total

unit's working hours. The FHWA is currently conducting a review of its

longstanding policy on eligibility of STA indirect costs and, if

necessary based on the results of this review, the provisions in this

section will be amended.

Section 420.115 Approval and Authorization Procedures

This section includes procedures for approval of work programs or

projects, and amendments thereto, and authorization for work to be

performed with FHWA planning and research funds. The governmentwide

common grant management provisions for prior awarding agency approval

of certain budget and programmatic changes are referenced at 49 CFR

18.30. While executed project agreements are still necessary, the

language in paragraph (c) was revised to eliminate reference to forms

PR-2 and PR-2A since these forms are currently being revised and the

form numbers may change.

Several commenters believe that the requirement for prior FHWA

approval for budget and programmatic changes as specified in 49 CFR

18.30 is contrary to the intent of giving States more responsibility

and authority. Some commenters also recommended that, after receiving

initial FHWA approval of the work programs, additional FHWA approval

should only be sought when a budget revision means additional Federal

funds are required. One commenter suggested that FHWA approval be

sought only when a budget revision exceeds the limits of $10,000 and 15

percent of a research study cost as specified in 23 CFR 511.3(e).

Most of these comments reflect a misunderstanding of the provisions

of 49 CFR 18.30 which are governmentwide common grant management

provisions that have been applicable to FHWA planning and research

funded work programs since revision of OMB Circular A-102 in 1988 and

issuance of 49 CFR part 18. These provisions were included in 23 CFR

part 420 in the 1990 update and are unchanged in this final rule.

The limit of $10,000 and 15 percent under 23 CFR 511.3(e), applies

to individual RD&T studies; for example, a cost increase of greater

than $15,000 for a $100,000 study would require prior approval. Under

the provisions of 49 CFR 18.30(c)(1)(ii), the State may make budget

transfers among direct cost categories (e.g., individual RD&T studies)

without FHWA prior approval unless the total of such transfers over the

period of the work program will, or is expected to, exceed the larger

of $100,000 or 10 percent of the total approved (i.e., work program)

budget. For example, if an RD&T work program totals $2 million, the

State may transfer $200,000 among direct cost line items included in

the work program without prior FHWA approval. At the discretion of the

FHWA, this prior approval requirement may be waived. Thus the use of

the provisions of 49 CFR 18.30 provide more flexibility and authority

to the State than the provisions that are being replaced.

On the other hand, a budget change that involves an increase in the

total funds authorized for the work program still requires prior FHWA

approval and authorization. Similarly, the programmatic changes (e.g.,

adding a line item, contracting out) specified in 49 CFR 18.30(d)

require prior FHWA approval.

One commenter interpreted the provisions of paragraphs (b) and (c)

of this section to imply that the State can impose obligation

limitations on subrecipients of the PL funds and requested that it be

clarified to indicate that such limits can indeed be applied.

The provisions of these paragraphs are not new and are not related

to the issue of distribution of available obligation authority within a

State. These provisions allow work to proceed and be reimbursed at a

later date in situations where sufficient funds or obligation authority

are not available at the time authorization is requested for all work

in a statewide or metropolitan area work program. Obligation authority

is distributed to the States for use by the States as determined in

cooperation with the FHWA field offices. In general, neither

legislation nor the FHWA specifies categories of funds for which the

States must use the obligation authority. States may choose to request

authorization of only a portion of the PL funds needed for a work

program period, but would then need to ensure that additional funds are

requested and authorized prior to the MPO proceeding with the remainder

of the work program. Such partial funding necessitates processing of

project amendments and additional paperwork. It also could result in an

MPO performing work that would be ineligible for reimbursement if the

work is performed prior to approval of the amendment. Such partial

funding should be avoided if possible.

Section 420.117 Program Monitoring and Reporting

This section includes grant monitoring and reporting requirements.

The frequency and content of progress and financial reports specified

in paragraphs (a) through (d) are identical to those contained in the

governmentwide common grant management requirements and 49 CFR 18.40

which is referenced in paragraph (a). Paragraph (e) requires FHWA

approval prior to publication of reports that document the results of

work performed with FHWA planning and research funds. A State may

request waiver of this prior approval requirement. The reference to the

Federal-aid Project Agreement (Form PR-2) in the first sentence of

paragraph (e) has been deleted since Form PR-2 is being revised and the

contents of the cited provision for prior approval of reports are

included in this paragraph.

Several commenters believe that these reporting requirements are

contrary to the concept of delegation of program management

responsibility to the State which should be allowed to determine how to

monitor its research program; FHWA review and approval should be

limited to assurance that an adequate monitoring process is in place

and is being used to guide the State's program; and, if a State truly

has responsibility for managing its own program, the State should

determine the needed frequency of reporting for adequately monitoring

projects. Another commenter recommended that an annual report should be

adequate and that the reporting format should be kept simple.

These grant reporting requirements are not new and are standard

governmentwide grant reporting requirements that replaced more

comprehensive requirements that were in 23 CFR part 420 prior to 1990.

These reports are necessary for the FHWA to perform its grant oversight

responsibilities. Progress and financial reports that include the

specified information must be submitted at least annually. The FHWA

field offices may require more frequent reports, but not more than

quarterly, unless the State is determined to be a high-risk grantee in

accordance with the provisions of 49 CFR 18.12. The reporting

requirements are for the work program (i.e., grant), not for individual

``projects/studies.'' The progress reports previously required in 23

CFR part 511 for individual research studies are no longer required.

Progress on individual studies would be addressed in the overall work

program report. A State may establish additional reporting procedures

that meet its needs for individual studies.

Similarly, another commenter stated that Sec. 420.117 requires an

increased level of reporting activity and that the interpretation and

administration of this section could produce some very demanding

requirements. This commenter also questioned who would establish and

approve performance goals, and what level of detail would be required.

As indicated above, this section is unchanged from the existing

regulation and does not require increased reporting. The level of

reporting will only be greater for a State or subrecipient if the State

or subrecipient was not in compliance with the existing requirements.

One commenter recommended that the reporting provisions be flexible

enough to allow monthly reports if agreed to by the agency and the

subrecipient.

As mentioned above, the FHWA may require more frequent reports, but

may not require submission of reports more than quarterly unless a

recipient or subrecipient is determined to be a high risk. A State may

establish the frequency of progress and financial reports for its

subgrantees, but is encouraged not to impose more burdensome

requirements than those imposed upon the State by the FHWA.

One commenter stated that the requirement in Sec. 420.117(c) that

reports from subrecipients be submitted no more than 90 days after the

end of the reporting period does not allow sufficient time to complete

the audit of the work program, especially when the MPO has elected a 2-

year cycle for the audit to be performed. It was suggested that the 90-

day requirement be deleted and the timeframe be determined by the State

with approval of the FHWA.

The commenter is confusing grant audit requirements with grant

reporting requirements. In accordance with governmentwide common grant

management requirements, final progress and financial reports for a

grant (i.e., the annual/biennial work program) must be submitted within

90 days of the end of the grant period. If the later financial audit,

which covers the MPO's fiscal year and typically is not completed until

a year after the end of the grant period, necessitates adjustments, the

grant may be reopened or adjustment may be made to a current grant, as

appropriate. With regard to the statement that an MPO has been

operating under a 2-year cycle for financial audits, in accordance with

the OMB Circular A-128, Single Audits of State and Local Governments,

audits must be performed annually unless a constitutional or statutory

requirement for less frequent audit was in effect by January 1, 1987.

One commenter stated that the requirement that a State must request

a waiver of prior approval of report publication is an unnecessary and

demeaning retention of FHWA authority; the State should have sole

responsibility and authority to publish reports that follow accepted

editorial formatting for electronic data base management and retrieval

purposes; and the use of a report as evidence of work performed and

approval for publication are two separate issues and should not be

combined. Another commenter stated that FHWA approval of reports prior

to publication is inconsistent with the intent of allowing States

flexibility in managing their own programs.

With respect to ``editorial formatting,'' the FHWA does not review

reports for this purpose. The FHWA agrees that the use of a report as

evidence of work performed and approval for publication are two

separate issues, but does not agree that they should not be combined.

This comment implies that the report should be submitted to the FHWA

after publication for acceptance as evidence of work performed. In

addition to determining if the proposed work that was approved as part

of the grant was performed, the FHWA should have an opportunity to

determine if the contents of the report are supported by the work

performed since the published report will include a credit reference to

the FHWA. Also, submission prior to publication allows a State to use

FHWA expertise, if desired, to identify any necessary technical

corrections prior to publication and distribution. If, based on past

performance, an FHWA field office is satisfied that prior review is

unnecessary and a State requests a waiver of the prior review

requirement, the field office may grant the waiver for all reports or

for selected categories (e.g., State planning, MPO planning, all

research, or bridge research). A waiver may be granted for an

indefinite period of time, annually, or any other appropriate period.

Whether or not a waiver is approved, appropriate reports that document

work performed with FHWA planning and research funds must be prepared,

the reports must include a credit reference and disclaimer statement,

and copies must be provided to the FHWA as evidence of work performed.

Section 420.119 Fiscal Procedures

This section includes fiscal requirements for administration,

matching, and payment for FHWA planning and research funds. Paragraph

(c) specifies that the statewide and, if appropriate, metropolitan

transportation improvement program provisions of 23 CFR Part 450 need

to be met for the use of NHS, STP, MA, or HBRRP funds for planning or

RD&T purposes. Paragraph (d) includes provisions for waiver of matching

requirements for SPR and PL funds (this option is not applicable for

optional use of STP, NHS, MA, or HBRRP funds for planning or RD&T

activities). If the FHWA determines that the interests of the Federal-

aid program would be best served without matching, it may waive the

matching requirement for individual activities or regional or national

pooled-fund studies.

Two commenters stated that authority to approve 100 percent Federal

funding should be delegated to the FHWA regional offices.

The approval authority for 100 percent Federal funding will remain

with the Associate Administrator for Program Development (for planning

activities) and the Associate Administrator for Research and

Development (for RD&T activities) since these offices are in the best

position to determine whether the interests of the Federal-aid highway

program would be best served and whether the proposed work can be more

effectively addressed if the matching requirement is waived.

Several commenters stated that limiting the cost to a minimum of

$50,000 for cooperatively (pooled) funded projects and requiring an

agency's contribution to be at least $10,000 were inappropriate.

Due to administrative costs and the time involved in coordinating

pooled-fund studies, proposed national studies costing less than

$50,000 will not be accepted. In response to the comments, the minimum

agency contribution of $10,000 has been deleted. Agencies contributing

less than $10,000 to a national pooled-fund study may participate in

the technical committee meetings, but will not be reimbursed from the

pooled funds for their expenses to attend the meetings. At the

discretion of the FHWA regional offices and participating agencies,

regional pooled-fund studies of less than $50,000 may be undertaken and

travel costs may be reimbursed from the regional pooled funds for

expenses for attendance at technical committee meetings of

representatives of agencies that contribute less than $10,000.

Section 420.121 Other Requirements

This section contains, mostly by cross reference, other legislative

or regulatory requirements applicable to FHWA planning and research

fund grants. Except as noted below, this section is unchanged from the

NPRM.

With respect to paragraph (d), one commenter stated that it appears

that the regulation does not differ from present procedures with

respect to the acquisition of research equipment. It was suggested that

more latitude be given to the States for the purchase of research

equipment with SPR funds when the equipment will clearly be devoted to

research at a facility largely supported by SPR funds.

In accordance with governmentwide grant management procedures and

cost principles, equipment is eligible if the cost is necessary,

reasonable, and it benefits the grant. Individual items of equipment

must be identified in the grant application (i.e., the work program)

and will be reviewed for eligibility on a case-by-case basis. In

general, if the equipment will be used only for FHWA funded work, all

of the cost may be eligible. If the equipment will be used for work

funded by other sources, the cost should be shared on an equitable

basis or through the establishment of rental/use rates.

As noted above under the heading General Comments and Responses,

paragraph (o) has been added to this section. This new paragraph

specifies that subawards to institutions of higher education,

hospitals, and other nonprofit organizations will be administered by

the State in accordance with the provisions of OMB Circular A-110 (58

FR 62992) and the U.S. DOT's implementing regulations, 49 CFR part 19

(59 FR 15657). (Copies of OMB Circular A-110 and 49 CFR part 19 are

available for review and copying in the file for FHWA docket number 93-

18 at the address specified above under the caption FOR FURTHER

INFORMATION CONTACT.)

A new paragraph (p) has been added to specify that reports and

other documents prepared under FHWA planning and research funded grants

or subgrants awarded after the effective date of this regulation must

be in metric units.

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

Management

General Comments and Responses

Comment: Several commenters requested clarification concerning

various aspects of the peer review process, including the purpose and

use of the results of the reviews, funding of travel for review team

members, and frequency of the reviews.

Response: It is the State's responsibility to initiate a peer

review of its RD&T management process. An initial peer review should be

undertaken sometime during the first three years after the State's

management process has been approved by the FHWA Division Office.

The peer review is intended to review a State's management process,

not the content of its RD&T program. It will not be used for compliance

or certification. Peer reviews should help in identifying, reinforcing,

and conveying effective program approaches across the country and

enable a nationwide sharing of successful practices and policies. The

purpose of providing the peer review report and a written response to

the report findings to the FHWA Division Administrator is primarily to

keep the Division Administrator informed of the status of the State's

program and what efforts are being taken to improve the program.

The members of the peer review team will be selected by the State.

The FHWA will establish criteria for team members and will develop and

maintain a list of qualified individuals who will be available to serve

on the teams. At least two members of the peer review team must be

selected from this list.

A State may include a line item in its work program to pay for the

peer review of its RD&T program with FHWA planning and research funds.

The FHWA will consider establishing a national pooled-fund project if

there is sufficient interest from the States and if it would expedite

the peer review process.

The ``periodic basis'' for conducting peer reviews has been

determined by the FHWA to be once every three years. After experience

has been gained operating under the new procedures, consideration will

be given to extending the time period between reviews.

Comment: Comments were mixed on whether the proposed rule should be

mandatory for all States or whether a State could continue to submit

individual RD&T studies for Federal approval.

Response: The option to submit individual studies for Federal

approval (i.e., to continue operating under current procedures) has not

been included in the final rule. The regulations are mandatory for all

States. The final regulation provides a State with considerable

latitude in developing and managing its RD&T activities and supports

the intent of ISTEA to move the decisionmaking process to the State

level.

The FHWA is available, at a State's request, to assist in reviewing

any RD&T activities that are highly technical or require special

expertise.

Comment: One commenter stated that the FHWA's intent concerning the

degree of RD&T program interaction within State agencies should be more

clearly stated. Specifically, expectations regarding the degree of

management involvement at various organizational levels should be

disclosed.

Response: Due to the different organizational structures of the

States, it is not possible to be specific concerning the degree of

management involvement. Each State should involve those management

levels that are necessary to develop and implement an RD&T program that

addresses high priority transportation issues.

Comment: One commenter stated that the NPRM implies that the FHWA

is going to require a uniform format for State work programs since the

information will be entered into a national data base.

Response: There is no intent to require a uniform work program

format. The FHWA will encourage the States to include summary sheets

listing all studies and costs followed by more detailed information on

individual studies in their work programs. Also, as part of its

management process, each State is required to use the Transportation

Research Board's Transportation Research Information Services (TRIS)

for reporting its active RD&T activities. It will be the State's

responsibility to enter its new RD&T activities into the TRIS data

base. Since uniform entries will be required for the data base, it

could reasonably result in the States' work programs becoming more

uniform to simplify data entry.

Comment: Several commenters expressed concern about the requirement

that each State implement a program of RD&T activities for planning,

design, construction, and maintenance of highways, public

transportation, and intermodal transportation systems. The concerns

were that the budgets for the smaller States are not sufficient to

support activities in all of these areas; the FHWA is requiring the

States to set up separate groups of funding for highway, transit, and

intermodal research; and the term ``program of RD&T activities'' is not

defined.

Response: The ISTEA allows the use of FHWA planning and research

funds for RD&T activities noted in Sec. 420.207. The regulation

reflects the types of activities that may be conducted, but does not

mandate that particular types be conducted. Each State is to develop a

program that addresses its highest priority transportation research

needs. The priorities will vary from State to State depending on such

factors as the size of the State, its population, and the size and

number of urban areas. This regulation does not establish separate

groups of funds for highway, transit, or intermodal research.

Comment: One commenter stated that the conditions for grant

approval appear to require more paperwork than currently required.

Response: Initially, for some States, it may require additional

effort to document the State's RD&T management process. Once the

management process has been documented and approved by the FHWA the

amount of paperwork between the State and the FHWA should be reduced

substantially. Paperwork on individual RD&T activities essentially will

be eliminated.

Comment: One commenter was concerned that without additional

explanation each FHWA Division Office would have a different

interpretation of the requirement that a State have procedures to

determine the effectiveness of its RD&T program.

Response: Guidelines for implementing subpart B are being

developed. These guidelines will expand on the requirements in

Sec. 420.207. As a minimum, a State should develop a follow-up

procedure to determine if the RD&T results have been incorporated into

the State's standard plans, specifications, practices, or procedures. A

more detailed process could involve benefit/cost ratios or other

effectiveness measures.

Comment: One commenter stated that to list individual studies in

the work program reduced the State's ability to be responsive to

research needs as they arise during the year. According to the

commenter this will cause a delay in the start of new research by

having to wait for the next program approval or for approval of an

amended program.

Response: A listing of individual studies in the work program is

necessary for the FHWA Division Office to determine if the items are

eligible for FHWA planning and research funds. Addition or deletion of

individual studies is a programmatic change that requires prior FHWA

approval. Such prior approval may be waived by the FHWA division

office; however, the total FHWA planning and research funds authorized

for the work program cannot be exceeded without FHWA prior

authorization. It is anticipated that once a State has demonstrated

that it has an adequate RD&T management process that meets the

requirements of this rule, the FHWA Division Office would consider a

request for waiver of prior approval of programmatic changes in the

work program.

Section-by-Section Analysis

Section 420.201 Purpose and Applicability

This section states the purpose of subpart B. It indicates that the

requirements are applicable to RD&T activities performed by the States

and their subrecipients with FHWA planning and research funds. It

references the provisions of subpart A. This section is unchanged from

that proposed in the NPRM.

Section 420.203 Definitions

This section includes the definitions in 23 U.S.C. 101(a) and

subpart A and provides additional definitions for terms used in this

subpart.

Several commenters stated that the definition of ``peer review'' in

the NPRM could be misinterpreted to require participation of

representatives of specific organizations listed in the definition and

that the definition should be revised to clearly state what is

intended. The definition has been revised to indicate that a ``peer

review'' is a review of a State's RD&T program conducted by persons who

are knowledgeable in RD&T management and operation and to clarify that

the peer review team may include, and is not limited to,

representatives of another State, the FHWA, the American Association of

State Highway and Transportation Officials, the Transportation Research

Board, universities, or the private sector.

Commenters suggested that definitions of the terms ``RD&T

activity'' and ``intermodal RD&T'' be included to provide an indication

of individual or categories of activities that are included in these

terms that are used in other sections of the rule.

The FHWA has added definitions of these two terms.

Section 420.205 Policy

This section explains the FHWA's intent to allow States maximum

flexibility and discretion in managing and directing their FHWA

planning and research funded RD&T activities while ensuring proper

utilization of Federal funds and avoiding unnecessary duplication of

effort.

Except for removal of paragraph (h), this section is unchanged from

the NPRM. Paragraph (h) includes the nondiscrimination provisions of

title VI of the Civil Rights Act of 1964 and DOT and FHWA implementing

regulations. Most of this paragraph was redundant of Sec. 420.121(m),

which applies to RD&T as well as planning programs. The citation to 23

CFR part 200 that was in this paragraph has been moved to

Sec. 420.121(m).

Section 420.207 Conditions for Grant Approval

This section outlines the conditions that a State must meet for

approval of FHWA planning and research funds for its RD&T activities.

Paragraph (b) has been revised to indicate that a State's work

program ``may'' include a line item for the costs associated with a

peer review of its RD&T program.

The FHWA will establish criteria and develop and maintain a list of

qualified individuals who will be available to serve on peer review

teams. A requirement has been added to paragraph (b) providing that at

least two members of the peer review team must be selected from the

FHWA list.

The last sentence in paragraph (c) has been rewritten to eliminate

the impression that the peer review team is under the direction of the

FHWA.

Section 420.209 RD&T Work Program

This section outlines the items that must be included in a State's

work program and incorporates by reference Sec. 420.115 for approval

and authorization procedures. The title of this section has been

changed from ``State work program'' to ``RD&T work program'' since it

includes provisions applicable to the RD&T program. A requirement to

include a summary, listing the major items and estimated cost, has been

added to this section. The summary will provide a quick overview of the

content of a State's RD&T program.

Section 420.211 Eligibility of Costs

This section indicates eligible costs for FHWA participation in

RD&T activities and references Sec. 420.113 for other eligible costs.

Paragraph (c) was revised to conform with Sec. 420.113(b).

Section 420.213 Certification Requirements

This section provides the format for a State's certification

indicating (1) State compliance with the requirements of this subpart;

(2) the condition under which a new certification is required; and (3)

the due date for the initial certification.

Several commenters noted that some States may not be able to comply

with the proposed January 1, 1995, certification date. The date for

certification has been changed to June 30, 1995. In addition, a

provision has been added that allows the FHWA Division Administrator to

grant conditional approval of a State's RD&T management process for a

State unable to achieve full compliance by June 30, 1995. A conditional

approval would cite those areas of the State's management process that

are deficient and that all deficiencies would need to be corrected by

January 1, 1996.

Questions were asked on how often a certification needs to be

submitted and if a State could begin operating under the new procedures

prior to proposed date of January 1, 1995. The certification is a one-

time submittal, unless a State significantly changes its RD&T

management process. A copy of the State's certification is to be

submitted with its work program. A State may begin operating under

these procedures as soon as its RD&T management process is approved by

the FHWA.

Section 420.215 Procedure for Withdrawal of Approval

This section outlines the procedures used and penalties imposed if

a State is not complying with the requirements of this subpart or is

not performing in accordance with its RD&T management process.

Paragraph (d) in the NPRM proposed that, for any State not in

compliance, the FHWA would withdraw the State's ability to approve RD&T

activities and require the State to submit individual studies for FHWA

approval. This approval requirement is similar to current procedures

and would have provided little incentive for a State to correct

deficiencies in its program. Therefore, paragraph (d) has been revised

to indicate that an adverse decision shall result in the immediate

withdrawal of FHWA planning and research funding for the State's RD&T

activities until the State is in full compliance.

Rulemaking Analyses and Notices

Executive Order 12866 (Regulatory Planning and Review) and DOT

Regulatory Policies and Procedures

The FHWA has determined that this rulemaking is not a significant

regulatory action within the meaning of Executive Order 12866 or a

significant regulation under the regulatory policies and procedures of

the Department of Transportation. This action amends requirements for

administration of FHWA planning and research funds to be consistent

with legislative changes made by the ISTEA. Also, this rulemaking

establishes a mandatory State certification process and a Federal and

peer review process to determine annually whether each State complies

with the standards for State RD&T management in subpart B. The economic

costs of this rulemaking will be insignificant and will consist only of

the costs associated with preparation of the grant applications and

State development of procedures for RD&T management. The cost savings

that will be realized by the States due to the reduction in time to

initiate and conduct RD&T activities under the State RD&T management

provisions will more than offset the one-time cost of development of

the procedures.

Regulatory Flexibility Act

In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-

612), the FHWA has evaluated the effects of this rule on small

entities. This rule addresses the administrative procedures and

requirements that States must comply with when using FHWA planning and

research funds provided under title 23, U.S.C. This rule does not

impose any direct requirement on small entities that would result in

increased economic costs. Based on this evaluation, the FHWA certifies

that this rule will not have a significant economic impact on a

substantial number of small entities.

Executive Order 12612 (Federalism Assessment)

This action has been analyzed in accordance with the principles and

criteria contained in Executive Order 12612. Although this rule relates

to requirements that States must meet to be eligible for FHWA planning

and research funds, federalism implications, though unavoidable, would

be minimized. Nothing in this rule preempts any State law or

regulation. The rule provides States increased authority and

flexibility to manage their federally assisted State planning and

research programs. This increase in authority and flexibility is in

concert with the principles and criteria contained in Executive Order

12612 for the implementation of express statutory provisions.

Accordingly, the FHWA certifies that this rule does not have sufficient

Federalism implications to warrant the preparation of a full Federalism

Assessment under the principles and criteria contained in Executive

Order 12612.

Executive Order 12372 (Intergovernmental Review)

Catalog of Federal Domestic Assistance Program Number 20.205,

Highway Planning and Construction. The regulations implementing

Executive Order 12372 regarding intergovernmental consultation of

Federal programs and activities apply to this program.

Paperwork Reduction Act

The information collection requirements referenced in

Sec. 420.105(b) have been approved by the OMB under the provisions of

the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520) and have been

assigned OMB control numbers 2125-0028 and 2125-0032. The information

collection requirements in Secs. 420.111 (a), (b), and (c), and 420.117

(b) and (c) for metropolitan planning areas have been approved by the

OMB and assigned control number 2132-0529. The information collection

requirements in Secs. 420.111 (a), (b), and (c), 420.117 (b) and (c),

and 420.213 (a) and (b) for State planning and RD&T activities have

been submitted to the OMB for approval.

National Environmental Policy Act

The agency has analyzed this action for the purpose of the National

Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.) and has

determined that this action would not have any effect on the quality of

the environment.

Regulation Identification Number

A regulation identification number (RIN) is assigned to each

regulatory action listed in the Unified Agenda of Federal Regulations.

The Regulatory Information Service Center publishes the Unified Agenda

in April and October of each year. The RIN contained in the heading of

this document can be used to cross reference this action with the

Unified Agenda.

For the reasons set out in the preamble, and under the authority of

23 U.S.C. 315 and 49 CFR 1.48, title 23, Code of Federal Regulations,

is revised as set forth below.

List of Subjects in 23 CFR Parts 420 and 511

Accounting, Grant programs--transportation, Highways and roads,

Planning, Reporting and recordkeeping requirements, Research.

Issued on: July 18, 1994.

Rodney E. Slater,

Federal Highway Administrator.

In consideration of the foregoing, the FHWA amends Chapter I of

title 23, Code of Federal Regulations, by revising the heading of

subchapter E, by revising part 420, and by removing and reserving part

511 as set forth below.

SUBCHAPTER E--PLANNING AND RESEARCH

1. The heading of subchapter E is revised as set forth above.

2. Part 420 is revised to read as follows:

PART 420--PLANNING AND RESEARCH PROGRAM ADMINISTRATION

Subpart A--Administration of FHWA Planning and Research Funds

Sec.

420.101 Purpose and applicability.

420.103 Definitions.

420.105 Policy.

420.107 SPR minimum research, development, and technology transfer

expenditure.

420.109 Distribution of PL funds.

420.111 Work program.

420.113 Eligibility of costs.

420.115 Approval and authorization procedures.

420.117 Program monitoring and reporting.

420.119 Fiscal procedures.

420.121 Other requirements.

Subpart B--Research, Development and Technology Transfer Program

Management

Sec.

420.201 Purpose and applicability.

420.203 Definitions.

420.205 Policy.

420.207 Conditions for grant approval.

420.209 State work program.

420.211 Eligibility of costs.

420.213 Certification requirements.

420.215 Procedure for withdrawal of approval.

Authority: 23 U.S.C. 103(i), 104(f), 115, 120, 133(b), 134(n),

157(c), 303(g), 307, and 315; and 49 CFR 1.48(b).

Subpart A--Administration of FHWA Planning and Research

Sec. 420.101 Purpose and applicability.

This part prescribes the Federal Highway Administration (FHWA)

policies and procedures for the administration of activities undertaken

by States and their subrecipients, including Metropolitan Planning

Organizations (MPOs), with FHWA planning and research funds. It applies

to activities and studies funded as part of a recipient's or

subrecipient's work program or as separate Federal-aid projects that

are not included in a work program. This subpart also is applicable to

the approval and authorization of research, development, and technology

transfer (RD&T) work programs; additional policies and procedures

regarding administration of RD&T programs are contained in subpart B of

this part. The requirements in this part supplement those in 49 CFR

Part 18 which are applicable to administration of these funds.

Sec. 420.103 Definitions.

Unless otherwise specified in this part, the definitions in 23

U.S.C. 101(a) are applicable to this part. As used in this part:

Grant agreement means a legal instrument between an awarding agency

and recipient where the principal purpose is to provide funds to the

recipient to carry out a public purpose of support or stimulation

authorized by law.

FHWA planning and research funds means:

(1) State planning and research (SPR) funds (the 2 percent funds

authorized under 23 U.S.C. 307(c)(1));

(2) Metropolitan planning (PL) funds (the 1 percent funds

authorized under 23 U.S.C. 104(f) to carry out the provisions of 23

U.S.C. 134(a));

(3) National highway system (NHS) funds authorized under 23 U.S.C.

104(b)(1) used for transportation planning in accordance with 23 U.S.C.

134 and 135, highway research and planning in accordance with 23 U.S.C.

307, highway-related technology transfer activities, or development and

establishment of management systems under 23 U.S.C. 303;

(4) Surface transportation program (STP) funds authorized under 23

U.S.C. 104(b)(3) used for highway and transit research and development

and technology transfer programs, surface transportation planning

programs, or development and establishment of management systems under

23 U.S.C. 303; and

(5) Minimum allocation funds authorized under 23 U.S.C. 157(c) used

for carrying out, respectively, the provisions of 23 U.S.C. 307(c)(1)

(up to 1\1/2\ percent) and 23 U.S.C. 134(a) (up to \1/2\ percent).

Metropolitan planning area means the geographic area in which the

metropolitan transportation planning process required by 23 U.S.C. 134

and section 8 of the Federal Transit Act (49 U.S.C. app. 1607) must be

carried out.

Metropolitan planning organization (MPO) means the forum for

cooperative transportation decisionmaking for a metropolitan planning

area.

National pooled-fund study means a planning or RD&T study or

activity expected to solve problems of national significance, usually

administered by the FHWA headquarters office in cooperation with States

and/or MPOs, that is funded by State and/or MPO contributions of FHWA

planning and research funds, with or without matching funds.

Procurement contract means a legal instrument between an awarding

agency and recipient where the principal purpose is to acquire (by

purchase, lease, or barter) property or services for the direct benefit

or use of the awarding agency.

Regional pooled-fund study means a planning or RD&T study expected

to solve problems of regional significance, usually administered by an

FHWA region office in cooperation with a lead State and/or MPO, that is

funded by State and/or MPO contributions of FHWA planning and research

funds, with or without matching funds.

State transportation agency (STA) means the State highway

department, transportation department, or other State transportation

agency to which Federal-aid highway funds are apportioned.

Work program means a periodic statement of proposed work and

estimated costs that document the eligible activities to be undertaken

with FHWA planning and research funds during the next 1 or 2-year

period by STAs and/or their subrecipients.

Sec. 420.105 Policy.

(a) Within the limitations of available funding and with the

understanding that planning activities of national significance,

identified in paragraph (b) of this section, and the requirements of 23

U.S.C. 134, 135, 303, and 307(c) are being adequately addressed, the

FHWA will allow STAs and their subrecipients:

(1) Maximum possible flexibility in the use of FHWA planning and

research funds to meet highway and multimodal transportation planning

and RD&T needs at the national, State, and local levels while ensuring

legal use of such funds and avoiding unnecessary duplication of

efforts; and

(2) To determine which eligible planning and RD&T activities they

desire to support with FHWA planning and research funds and at what

funding level.

(b) The STAs shall provide data that support the FHWA's

responsibilities to the Congress and to the public. These data include,

but are not limited to, information required for: Preparing proposed

legislation and reports to the Congress; evaluating the extent,

performance, condition, and use of the Nation's transportation systems;

analyzing existing and proposed Federal-aid funding methods and levels

and the assignment of user cost responsibility; maintaining a critical

information base on fuel availability, use, and revenues generated; and

calculating apportionment factors.

(The information collection requirements in paragraph (b) of

Sec. 420.105 have been approved by the Office of Management and

Budget (OMB) under control numbers 2125-0028 and 2125-0032.)

Sec. 420.107 SPR minimum research, development, and technology

transfer expenditure.

(a) In accordance with the provisions of 23 U.S.C. 307(c), not less

than 25 percent of the SPR funds apportioned to a State for a fiscal

year shall be expended for RD&T activities relating to highway, public

transportation, and intermodal transportation systems, unless the State

certifies, and the FHWA accepts the State's certification, that total

expenditures by the State during the fiscal year for transportation

planning under 23 U.S.C. 134 and 135 will exceed 75 percent of the

amount apportioned for the fiscal year.

(b) Prior to submitting a request for an exception to the 25

percent requirement, the State shall ensure that:

(1) The additional planning activities are essential and there are

no other reasonable options available for funding these planning

activities (including the use of National Highway System, Surface

Transportation Program, or Federal Transit Administration Section

26(a)(2) funds or by deferment of lower priority planning activities);

(2) The planning activities have a higher priority than RD&T

activities in overall needs of the State for a given year; and

(3) The total level of effort by the State in RD&T (using both

Federal and State funds) is adequate.

(c) If the State chooses to pursue an exception, the request, along

with supporting justification, shall be sent to the FHWA Division

Administrator for action by the FHWA Associate Administrator for

Research and Development. The Associate Administrator's decision shall

be based upon the following considerations:

(1) Whether the State has a process for identifying RD&T needs and

for implementing a viable RD&T program.

(2) Whether the State is contributing to cooperative RD&T programs

or activities, such as the National Cooperative Highway Research

Program, the Transportation Research Board, the implementation of

products of the Strategic Highway Research Program, and pooled-fund

studies.

(3) Whether the State is using SPR funds for technology transfer

and for transit or intermodal research and development to help meet the

25 percent minimum requirement.

(4) The percentage or amount of the State's FHWA planning and

research funds that were used for RD&T prior to enactment of the 25

percent requirement and whether the percentage or amount will increase

if the exception is approved.

(5) If an exception is approved for the fiscal year, whether the

State can demonstrate that it will meet the requirement or

substantially increase its RD&T expenditures over a multi-year period.

(6) Whether the amount of Federal funds needed for planning for the

program period exceeds the total of the 75 percent limit for the fiscal

year and any unexpended (including unused funds that can be released

from completed projects) funds for planning from previous

apportionments.

(d) If the State's request for an exception is approved, the

exception will be valid only for the fiscal year in which the exception

is approved. A new request must be submitted in subsequent fiscal

years.

Sec. 420.109 Distribution of PL funds.

(a) States shall make all PL funds authorized by 23 U.S.C. 104(f)

available to the MPOs in accordance with a formula developed by the

State, in consultation with the MPOs, and approved by the FHWA. The

State shall not use any PL funds for grant or subgrant administration.

(b) In developing the formula for distributing PL funds, the State

shall consider population, status of planning, attainment of air

quality standards, metropolitan area transportation needs, and other

factors necessary to provide for an appropriate distribution of funds

to carry out the requirements of 23 U.S.C. 134 and other applicable

requirements of Federal law.

(c) As soon as practicable after PL funds have been apportioned by

the FHWA to the States, the STAs shall inform the MPOs and the FHWA of

the amounts allocated to each MPO.

(d) If the STA, in a State receiving the minimum apportionment of

PL funds under the provisions of 23 U.S.C. 104(f)(2), determines that

the share of funds to be allocated to any MPO results in the MPO

receiving more funds than necessary to carry out the provisions of 23

U.S.C. 134(a), the STA may, after considering the views of the affected

MPOs and with the approval of the FHWA, use these funds to finance

transportation planning outside of metropolitan planning areas.

(e) In accordance with the provisions of 23 U.S.C. 134(n), any PL

funds not needed for carrying out the metropolitan planning provisions

of 23 U.S.C. 134 may be made available by the MPOs to the State for

funding statewide planning activities under 23 U.S.C. 135, subject to

approval by the FHWA.

(f) Any State PL fund distribution formula that does not meet the

requirements of paragraphs (a) or (b) of this section shall be brought

into conformance with such requirements as soon as possible, but no

later than in time for distribution of PL funds apportioned to the

State for the first Federal fiscal year beginning after August 22,

1994.

Sec. 420.111 Work program.

(a) Proposed use of FHWA planning and research funds shall be

documented by the STAs and subrecipients in a work program(s)

acceptable to the FHWA. Statewide, metropolitan, other transportation

planning activities, and transportation RD&T activities may be

administered as separate programs, paired in various combinations, or

brought together as a single work program. Similarly, these

transportation planning and RD&T activities may be authorized for

fiscal purposes as one combined Federal-aid project or as separate

Federal-aid projects. The expenditure of PL funds for transportation

planning outside of metropolitan planning areas under Sec. 420.109(d)

may be included in the work program for statewide transportation

planning activities or in a separate work program submitted by the STA.

(b) Work program(s) that document transportation planning

activities shall include a description of work to be accomplished and

cost estimates for each activity. Additional information on

metropolitan planning area work programs is contained in 23 CFR

450.314. Additional information on research, development, and

technology transfer work program content and format is contained in

subpart B of this part.

(c) The STAs that use separate Federal-aid projects in accordance

with Sec. 420.111(a) shall submit, in addition to the financial

information specified below for each program, one overall summary

showing the funding for the entire FHWA funded planning, research,

development, and technology transfer effort. Each work program shall

include a financial summary that shows:

(1) Federal share by type of fund;

(2) Matching rate by type of fund;

(3) State and/or local matching share; and

(4) Other State or local funds.

(d) The STAs and MPOs also are encouraged to include cost estimates

for transportation planning, research, development, and technology

transfer related activities funded with other Federal or State and/or

local funds; particularly for producing the FHWA-required data

specified in paragraph (b) of Sec. 420.105, for planning for other

transportation modes, and for air quality planning activities in areas

designated as nonattainment for transportation-related pollutants in

their work programs. The MPOs in Transportation Management Areas shall

include such information in their work programs in accordance with the

provisions of 23 CFR part 450.

(The information collection requirements in Secs. 420.111(a), (b),

and (c), and 420.117(b) and (c) for metropolitan planning areas have

been approved by the OMB and assigned control number 2132-0529.)

Sec. 420.113 Eligibility of costs.

(a) Costs will be eligible for FHWA participation provided that the

costs:

(1) Are for work performed for activities eligible under the

section of title 23, U.S.C., applicable to the class of funds used for

the activities;

(2) Are verifiable from the STA's or the subrecipient's records;

(3) Are necessary and reasonable for proper and efficient

accomplishment of project objectives and meet the other criteria for

allowable costs in the applicable cost principles cited in 49 CFR

18.22;

(4) Are included in the approved budget, or amendment thereto; and

(5) Were not incurred prior to FHWA authorization.

(b)(1) Except as specified in paragraph (b)(2) of this section,

indirect costs of an STA are not eligible for reimbursement with FHWA

planning and research funds.

(2) Salaries for services rendered by STA employees who are

generally classified as administrative are eligible for reimbursement

for a transportation planning unit, RD&T unit, or other unit performing

eligible work with FHWA planning and research funds (including

development, establishment, and implementation of the management and

monitoring systems required by 23 U.S.C. 303 and 23 CFR part 500) in

the ratio of time spent on the participating portion of work in the

unit to the total unit's working hours.

(c) Indirect costs of MPOs and local governments are allowable if

supported by a cost allocation plan and indirect cost proposal approved

in accordance with the provisions of OMB Circular A-87. An initial plan

and proposal must be submitted to the Federal cognizant or oversight

agency for negotiation and approval prior to recovering any indirect

costs. The cost allocation plan and indirect cost proposal shall be

updated annually and retained by the MPO or local government, unless

requested to be resubmitted by the Federal cognizant or oversight

agency, for review at the time of the audit required in accordance with

49 CFR Part 90. If the MPO or local government's indirect cost rate

varies significantly from the rate approved for the previous year, or

if the MPO or local government changes its accounting system and

affects the previously approved indirect cost allocation plan and

proposal or rate and its basis of application, the indirect cost

allocation plan and proposal shall be resubmitted for negotiation and

approval. In either case, a rate shall be negotiated and approved for

billing purposes until a new plan and proposal are approved.

(d) Indirect costs of other STA subrecipients, including other

State agencies, are allowable if supported by a cost allocation plan

and indirect cost proposal prepared, submitted, and approved by the

cognizant or oversight agency in accordance with the OMB requirements

applicable to the subrecipient.

Sec. 420.115 Approval and authorization procedures.

(a) The STA and its subrecipients shall obtain work program

approval and authorization to proceed prior to beginning work on

activities in the work program. Such approvals and authorizations

should be based on final work program documents. The STA and its

subrecipients also shall obtain prior approval for budget and

programmatic changes as specified in 49 CFR 18.30 and for those items

of allowable costs which require prior approval in accordance with the

applicable cost principles specified in 49 CFR 18.22.

(b) Except for advance construction, authorization to proceed with

the work program(s) in whole or in part shall be deemed a contractual

obligation of the Federal Government pursuant to 23 U.S.C. 106 and

shall require that appropriate funds be available for the full Federal

share of the cost of work authorized. Those STAs that do not have

sufficient FHWA planning and research funds or obligation authority

available to obligate the full Federal share of the entire work

program(s) may utilize the advance construction provisions of 23 U.S.C.

115(a) in accordance with the requirements of 23 CFR Part 630, subpart

G. The STAs that do not meet the advance construction provisions, or do

not wish to utilize them, may request authorization to proceed with

that portion of the work program(s) for which FHWA planning and

research funds are available. In the latter case, authorization to

proceed may be given for either selected work activities or for a

portion of the program period, but such authorization shall not

constitute a commitment by the FHWA to fund the remaining portion of

the work program(s) should additional funds become available.

(c) A project agreement shall be executed by the STA and FHWA

Division Office for each statewide transportation planning,

metropolitan planning area transportation planning, or RD&T work

program, individual activity or study, or any combination administered

as a single Federal-aid project. The project agreement shall be

executed after the authorization has been given by the FHWA to proceed

with the work in whole or in part. In the event that the project

agreement is executed for only part of the work program, the project

agreement shall be amended when authorization is given to proceed with

additional work.

Sec. 420.117 Program monitoring and reporting.

(a) In accordance with 49 CFR 18.40, the STA shall monitor all

activities, including those of its subrecipients, supported by FHWA

planning and research funds to assure that the work is being managed

and performed satisfactorily and that time schedules are being met.

(b)(1) The STA shall submit performance and expenditure reports,

including a report from each subrecipient, that contain as a minimum:

(i) Comparison of actual performance with established goals;

(ii) Progress in meeting schedules;

(iii) Status of expenditures in a format compatible with the work

program, including a comparison of budgeted (approved) amounts and

actual costs incurred;

(iv) Cost overruns or underruns;

(v) Approved work program revisions; and

(vi) Other pertinent supporting data.

(2) Additional information on reporting requirements for individual

RD&T studies is contained in subpart B of this part.

(c) The frequency of reports required by paragraph (b) of this

section shall be annual unless more frequent reporting is determined to

be necessary by the FHWA; but in no case will reports be required more

frequently than quarterly. These reports are due 90 days after the end

of the reporting period for annual and final reports and no later than

30 days after the end of the reporting period for other reports.

(d) Events that have significant impact on the work program(s)

shall be reported as soon as they become known. The type of events or

conditions that require reporting include: problems, delays, or adverse

conditions that will materially affect the ability to attain program

objectives. This disclosure shall be accompanied by a statement of the

action taken, or contemplated, and any Federal assistance needed to

resolve the situation.

(e) A provision of the Federal-Aid Project Agreement requires both

the preparation of suitable reports to document the results of

activities performed with FHWA planning and research funds and FHWA

approval prior to publishing such reports. The STA may request a waiver

of the requirement for prior approval. The FHWA's approval constitutes

acceptance of such reports as evidence of work performed but does not

imply endorsement of a report's findings or recommendations. Reports

prepared for FHWA funded work shall include appropriate credit

references and disclaimer statements.

(The information collection requirements in Secs. 420.117(b) and (c)

for metropolitan planning areas have been approved by the OMB and

assigned control number 2132-0529.)

Sec. 420.119 Fiscal procedures.

(a) SPR funds shall be administered and accounted for as a single

fund regardless of the category of Federal-aid highway funds from which

they are derived.

(b) PL funds shall be administered and accounted for as a single

fund.

(c) Optional funds authorized under 23 U.S.C. 104(b)(1), 104(b)(3),

and 157(c) used for eligible planning and RD&T purposes shall be

identified separately in the work program(s) and shall be administered

and accounted for separately for fiscal purposes. The statewide and, if

appropriate, metropolitan transportation improvement program provisions

of 23 CFR Part 450 must be met for the use of NHS, STP, or minimum

allocation funds for planning or RD&T purposes.

(d) The maximum rate of Federal participation with funds identified

in paragraphs (a) through (c) of this section shall be as prescribed in

title 23, U.S.C., for the specific class of funds; unless, for funds

identified under paragraph (a) or (b) of this section, the FHWA

determines that the interests of the Federal-aid highway program would

be best served without such match in accordance with 23 U.S.C.

307(c)(3) or 23 U.S.C. 104(f)(3). The FHWA also may waive the

requirement for matching funds if national or regional high priority

planning or RD&T problems can be more effectively addressed if several

States and/or MPOs pool their funds. Requests for 100 percent Federal

funding must be submitted to the FHWA Division Office for approval by

the Associate Administrator for Program Development (for planning

activities) or the Associate Administrator Research and Development

(for RD&T activities).

(e) The provisions of 49 CFR 18.24 are applicable to any necessary

matching of FHWA planning and research funds.

(f) Payment shall be made in accordance with the provisions of 49

CFR 18.21.

Sec. 420.121 Other requirements.

(a) The financial management systems of the STAs and their

subrecipients shall be in accordance with the provisions of 49 CFR

18.20(a).

(b) Program income, as defined in 49 CFR 18.25(b), shall be shown

and deducted to determine the net costs on which the FHWA share will be

based, unless an alternative method for using program income is

specified in the Federal-Aid Project Agreement.

(c) Audits shall be performed in accordance with 49 CFR 18.26 and

49 CFR Part 90.

(d) Acquisition, use, and disposition of equipment purchased by the

STAs and their subrecipients with FHWA planning and research funds

shall be in accordance with 49 CFR 18.32(b).

(e) Acquisition and disposition of supplies acquired by the STAs

and their subrecipients with FHWA planning and research funds shall be

in accordance with 49 CFR 18.33.

(f) In accordance with 49 CFR 18.34, STAs and their subrecipients

may copyright any books, publications, or other copyrightable materials

developed in the course of the FHWA planning and research funded

project. The FHWA reserves a royalty-free, nonexclusive and irrevocable

right to reproduce, publish, or otherwise use, and to authorize others

to use, the work for Government purposes.

(g) Procedures for the procurement of property and services with

FHWA planning and research funds by the STAs and their subrecipients

shall be in accordance with 49 CFR 18.36(a) and, if applicable,

18.36(t). The STAs and their subrecipients shall not use FHWA funds for

procurements from persons (as defined in 49 CFR 29.105) who have been

debarred or suspended in accordance with the provisions of 49 CFR Part

29, subparts A through E.

(h) The STAs shall follow State laws and procedures when awarding

and administering subgrants to MPOs and local governments and shall

ensure that the requirements of 49 CFR 18.37(a) have been satisfied.

STAs shall have primary responsibility for administering FHWA planning

and research funds passed through to subrecipients, for ensuring that

such funds are expended for eligible activities, and for ensuring that

the funds are administered in accordance with this part, 49 CFR Part

18, and applicable cost principles.

(i) Recordkeeping and retention requirements shall be in accordance

with 49 CFR 18.42.

(j) The STAs and their subrecipients are subject to the provisions

of 37 CFR Part 401 governing patents and inventions and shall include,

or incorporate by reference, the standard patent rights clause at 37

CFR 401.14, except for Sec. 401.14(g), in all subgrants or contracts.

In addition, STAs and their subrecipients shall include the following

clause, suitably modified to identify the parties, in all subgrants or

contracts, regardless of tier, for experimental, developmental or

research work: ``The subgrantee or contractor will retain all rights

provided for the State in this clause, and the State will not, as part

of the consideration for awarding the subgrant or contract, obtain

rights in the subgrantee's or contractor's subject inventions.''

(k) In accordance with the provisions of 49 CFR Part 29, subpart F,

STAs shall certify to the FHWA that they will provide a drug free

workplace. This requirement can be satisfied through the annual

certification for the Federal-aid highway program.

(l) The provisions of 49 CFR Part 20 regarding restrictions on

influencing certain Federal activities are applicable to all tiers of

recipients of FHWA planning and research funds.

(m) The nondiscrimination provisions of 23 CFR Parts 200 and 230

and 49 CFR Part 21, with respect to Title VI of the Civil Rights Act of

1964 and the Civil Rights Restoration Act of 1987, apply to all

programs and activities of recipients, subrecipients, and contractors

receiving FHWA planning and research funds whether or not those

programs or activities are federally funded.

(n) The STAs shall administer the transportation planning and RD&T

program(s) consistent with their overall efforts to implement section

1003(b) of the Intermodal Surface Transportation Efficiency Act of 1991

(Pub. L. 102-240, 105 Stat. 1914) and 49 CFR Part 23 regarding

disadvantaged business enterprises.

(o) States and their subrecipients shall administer subgrants to

universities, hospitals, and other non-profit organizations in

accordance with the administrative requirements of OMB Circular A-110

as implemented by the U.S. DOT in 49 CFR Part 19, Uniform

Administrative Requirements for Grants and Agreements with Institutions

of Higher Education, Hospitals, and Other Non-Profit Organizations.

(p) Reports and other documents prepared under FHWA planning and

research funded grants or subgrants awarded after August 22, 1994, must

be in metric units.

Subpart B--Research, Development and Technology Transfer Program

Management

Sec. 420.201 Purpose and applicability.

The purpose of this subpart is to implement the provisions of 23

U.S.C. 307 and to prescribe Federal assistance requirements for

research, development, and technology transfer (RD&T) activities,

programs, and studies undertaken by States with FHWA planning and

research funds. The requirements of this subpart and subpart A of this

part are applicable to work performed by the States and their

subrecipients with FHWA planning and research funds.

Sec. 420.203 Definitions.

Unless otherwise specified in this part, the definitions in 23

U.S.C. 101(a) and Part 420, subpart A, are applicable to this subpart.

As used in this subpart:

Applied research means the study of phenomena relating to a

specific known need in connection with the functional characteristics

of a system; the primary purpose of this kind of research is to answer

a question or solve a problem.

Basic research means the study of phenomena whose specific

application has not been identified; the primary purpose of this kind

of research is to increase knowledge.

Cooperatively funded study means an RD&T study or activity,

administered by the FHWA, a lead State, or other agency, that is funded

by some combination of a State's contribution of FHWA planning and

research funds, FHWA administrative contract funds, 100 percent State

funds, or funds from other Federal agencies.

Development means the translation of basic or applied research

results into prototype materials, devices, techniques, or procedures

for the practical solution of a specific problem in transportation.

Final report means a report documenting a completed RD&T study or

activity.

Intermodal RD&T means research, development, and technology

transfer activities involving more than one mode of transportation

including transfer facilities between modes.

National Cooperative Highway Research Program (NCHRP) means the

cooperative RD&T program directed toward solving problems of national

or regional significance identified by States and the FHWA, and

administered by the Transportation Research Board, National Academy of

Sciences.

Peer review means a review conducted by persons who are

knowledgeable of the management and operation of RD&T programs. This

may include but is not limited to representatives of another State, the

FHWA, American Association of State Highway and Transportation

Officials, Transportation Research Board (TRB), universities or the

private sector.

RD&T activity means a basic or applied research, development, or

technology transfer project or study.

Research means a systematic controlled inquiry involving analytical

and experimental activities which primarily seek to increase the

understanding of underlying phenomena. Research can be basic or

applied.

Technology transfer means those activities that lead to the

adoption of a new technique or product by users and involves

dissemination, demonstration, training, and other activities that lead

to eventual innovation.

Transportation Research Information Services (TRIS) means the TRB-

maintained computerized storage and retrieval system for abstracts of

ongoing and completed RD&T activities, including abstracts of RD&T

reports and articles.

Sec. 420.205 Policy.

(a) It is the FHWA's policy to administer the RD&T program

activities utilizing FHWA planning and research funds consistent with

the policy specified in Sec. 420.105 and the following general

principles in paragraphs (b) through (g) of this section.

(b) State transportation agencies shall provide information

necessary for peer reviews.

(c) States are encouraged to develop, establish, and implement an

RD&T program, funded with Federal and State resources, that anticipates

and addresses transportation concerns before they become critical

problems. To promote effective utilization of available resources,

States are encouraged to cooperate with other States, the FHWA, and

other appropriate agencies to achieve RD&T objectives established at

the national level and to develop a technology transfer program to

promote and use those results.

(d) States will be allowed the authority and flexibility to manage

and direct their RD&T activities as presented in their work programs,

and to initiate RD&T activities supported by FHWA planning and research

funds, subject to the limitation of Federal funds and to compliance

with program conditions set forth in subpart A of this part and

Sec. 420.207.

(e) States will have primary responsibility for managing RD&T

activities supported with FHWA planning and research funds carried out

by other State agencies and organizations and for ensuring that such

funds are expended for purposes consistent with this subpart.

(f) Each State shall develop, establish, and implement a management

process that ensures effective use of available FHWA planning and

research funds for RD&T activities on a statewide basis. Each State is

permitted to tailor its management process to meet State or local

needs; however, the process must comply with the minimum requirements

and conditions of this subpart.

(g) States are encouraged to make effective use of the FHWA

Division, Regional, and Headquarters office expertise in developing and

carrying out their RD&T activities. Participation of the FHWA on

advisory panels and in program review meetings is encouraged.

Sec. 420.207 Conditions for grant approval.

(a) As a condition for approval of FHWA planning and research funds

for RD&T activities, a State shall implement a program of RD&T

activities for planning, design, construction, and maintenance of

highways, public transportation, and intermodal transportation systems.

Not less than 25 percent of the State's apportioned SPR funds shall be

spent on such activities, unless waived by the FHWA, in accordance with

the provisions of Sec. 420.107. In addition the State shall develop,

establish, and implement a management process that identifies and

implements RD&T activities expected to address highest priority

transportation issues, and includes:

(1) An interactive process for identification and prioritization of

RD&T activities for inclusion in an RD&T work program;

(2) Utilization, to the maximum extent possible, of all FHWA

planning and research funds set aside for RD&T activities either

internally or for participation in national, regional pooled, or

cooperatively funded studies;

(3) Procedures for tracking program activities, schedules,

accomplishments, and fiscal commitments;

(4) Support and use of the TRIS database for program development,

reporting of active RD&T activities, and input of the final report

information;

(5) Procedures to determine the effectiveness of the State's

management process in implementing the RD&T program, to determine the

utilization of the State's RD&T outputs, and to facilitate peer reviews

of its RD&T Program on a periodic basis and;

(6) Procedures for documenting RD&T activities through the

preparation of final reports. As a minimum, the documentation shall

include the data collected, analyses performed, conclusions, and

recommendations. The State shall actively implement appropriate

research findings and should document benefits.

(b) Each State shall conduct peer reviews of its RD&T program and

should participate in the review of other States' programs on a

periodic basis. To assist peer reviewers in completing a quality and

performance effectiveness review, the State shall disclose to them

information and documentation required to be collected and maintained

under this subpart. Travel and other costs associated with peer reviews

of the State's program may be identified as a line item in the State

work program and will be eligible for 100 percent Federal funding. At

least two members of the peer review team shall be selected from the

FHWA list of qualified peer reviewers. The peer review team shall

provide a written report of its findings to the State. The State shall

forward a copy of the report to the FHWA Division Administrator with a

written response to the peer review findings.

(c) Documentation that describes the management process and the

procedures for selecting and implementing RD&T activities shall be

developed and maintained by the State. The documentation shall be

submitted by the State to the FHWA Division office for FHWA approval.

Significant changes in the management process also shall be submitted

by the State for FHWA approval. The State shall make the documentation

available, as necessary, to facilitate peer reviews.

Sec. 420.209 RD&T work program.

(a) The State's RD&T work program shall, as a minimum, consist of

an annual or biennial description of activities and individual RD&T

activities to be accomplished during the program period, estimated

costs for each eligible activity, and a description of any

cooperatively funded activities that are part of a national or regional

pooled study including the NCHRP contribution. The State's work program

should include a list of the major items with a cost estimate for each

item.

(b) The State's RD&T work program shall include financial summaries

showing the funding levels and share (Federal, State, and other

sources) for RD&T activities for the program year. States are

encouraged to include any activity funded 100 percent with State or

other funds.

(c) Approval and authorization procedures in Sec. 420.115 are

applicable to the State's RD&T work program.

Sec. 420.211 Eligibility of costs.

(a) Unless otherwise specified in this section, the eligible costs

for Federal participation in Sec. 420.113 are applicable to this part.

(b) Costs for implementation of RD&T activities in conformity with

the requirements and conditions set forth in this subpart are eligible

for Federal participation.

(c) Indirect costs of a State transportation agency RD&T unit are

allowable to the extent specified in Sec. 420.113(b).

(d) Indirect costs of other State agencies and organizations are

allowable if supported by a cost allocation plan and indirect cost

proposal in accordance with OMB requirements.

Sec. 420.213 Certification requirements.

(a) Each State shall certify to the FHWA Division Administrator

before June 30, 1995, that it is complying with the requirements of

this subpart. For those States unable to meet full compliance by June

30, 1995, the FHWA Division Administrator may grant conditional

approval of the State's RD&T management process. A conditional approval

shall cite those areas of the State's management process that are

deficient. All deficiencies must be corrected by January 1, 1996. A

copy of the certification shall be submitted with each work program. A

new certification will be required if the State significantly revises

its management process for the RD&T program.

(b) The certification shall consist of a statement signed by the

Administrator, or an official designated by the Administrator, of the

State transportation agency certifying as follows: I (name of

certifying official), (position title), of the State (Commonwealth) of

________, do hereby certify that the State (Commonwealth) is in

compliance with all requirements of 23 U.S.C. 307 and its implementing

regulations with respect to the research, development and technology

transfer program, and contemplate no changes in statutes, regulations,

or administrative procedures which would affect such compliance.

(c) The FHWA Division Administrator shall determine if the State is

in compliance with the requirements of this subpart.

Sec. 420.215 Procedure for withdrawal of approval.

(a) If a State is not complying with the requirements of this

subpart, or is not performing in accordance with its RD&T management

process, the FHWA Division Administrator shall issue a written notice

of proposed determination of noncompliance to the State. The notice

shall set forth the reasons for the proposed determination and inform

the State that it may reply in writing within 30 calendar days from the

date of the notice. The State's reply should address the deficiencies

cited in the notice and provide documentation as necessary.

(b) If the State and Division Administrator cannot resolve the

differences set forth in the determination of nonconformity, the State

may appeal to the Federal Highway Administrator.

(c) The Federal Highway Administrator's action shall constitute the

final decision of the FHWA.

(d) An adverse decision shall result in immediate withdrawal of

approval of FHWA planning and research funds for the State's RD&T

activities until the State is in full compliance.

PART 511--RESEARCH AND DEVELOPMENT (R&D) STUDIES AND PROGRAMS;

GENERAL [REMOVED]

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

part 511.

[FR Doc. 94-17908 Filed 7-21-94; 8:45 am]

BILLING CODE 4910-22-P