Fair Market Value and Design-Build Amendments, 77495-77503 [E8-30147]

Agencies

• Federal Highway Administration
• DEPARTMENT OF TRANSPORTATION

[Federal Register Volume 73, Number 245 (Friday, December 19, 2008)]
[Rules and Regulations]
[Pages 77495-77503]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-30147]


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DEPARTMENT OF TRANSPORTATION

Federal Highway Administration

23 CFR Parts 620, 635, 636, and 710

[FHWA Docket No. FHWA-2008-0136]
RIN 2125-AF29


Fair Market Value and Design-Build Amendments

AGENCY: Federal Highway Administration (FHWA), DOT.

ACTION: Final rule.

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SUMMARY: The FHWA is revising its regulations to require State 
departments of transportation (DOT) and other public authorities to 
obtain fair market value as part of any concession agreement involving 
a facility acquired or constructed with Federal-aid highway funds. 
Additionally, the FHWA is revising its regulations to permit public 
agencies to compete against private entities for the right to obtain a 
concession agreement involving such facilities. Also, the FHWA is 
revising its design-build regulations to permit contracting agencies to 
incorporate unsuccessful offerors' ideas into a design-build contract 
upon the acceptance of a stipend.

DATES: Effective Dates: This rule is effective January 18, 2009.

FOR FURTHER INFORMATION CONTACT: Mr. Marcus J. Lemon, Chief Counsel, 
Mr. Michael Harkins, Office of Chief Counsel, or Mr. Steve Rochlis, 
Office of Chief Counsel, (202) 366-0740, Federal Highway 
Administration, 1200 New Jersey Avenue, SE., Washington, DC 20590. 
Office hours are from 7:45 a.m. to 4:15 p.m., e.t., Monday through 
Friday, except Federal holidays.

SUPPLEMENTARY INFORMATION:

Electronic Access and Filing

    Internet users may access this document, the notice of proposed 
rulemaking (NPRM), and all comments received by the U.S. DOT by 
visiting https://www.regulations.gov. It is available 24 hours each day, 
365 days each year. Electronic submission and retrieval help and 
guidelines are available under the help section of the Web site.
    An electronic copy of this document may also be downloaded by 
accessing the Office of the Federal Register's home page at: https://
www.archives.gov or the Government Printing Office's Web page at http:/
/www.gpoaccess.gov/nara.

I. Background

    In recent years, some State and local governments have entered into

[[Page 77496]]

concession agreements to provide for the long-term development, 
construction, operation, and maintenance of a public highway. Under 
these agreements, which are typically in the form of lease agreements, 
the State or local government grants the right to a third party 
concessionaire to collect revenues or fees from the use of a public 
highway for a certain period of time in return for compensation, 
usually in the form of a large up-front lease payment or structured 
payments that are payable over the life of the agreement.
    Current FHWA regulations do not contemplate the use of concession 
agreements. While 23 U.S.C. 156 requires State and local agencies to 
charge fair market value (FMV) for the sale, lease, or use of any real 
property acquired with funding made available under the Highway Trust 
Fund, it excludes sales, leases, or uses for utility use and occupancy 
or for a title 23, United States Code, eligible transportation project. 
In the context of concession agreements, the FHWA is concerned that 
this broad exception for transportation projects could be construed to 
exempt concession agreements from the fair market value requirement, 
which is contrary to the FHWA interpretation of 23 U.S.C. 156. 
Moreover, FHWA regulations at 23 CFR 620.203(j) specifically provide 
that State DOTs need not charge a public agency for a relinquishment of 
a Federal-aid facility when the facility will continue to operate as a 
public highway. This final rule confirms the application of the FMV 
requirement of 23 U.S.C. 156 to concession agreements. Additionally, 
this final rule amends the FHWA design-build regulations to permit 
State DOTs to incorporate the ideas of unsuccessful offerors to a 
design-build contract upon the acceptance of a stipend by the offeror.
    As will be discussed in more detail below, a number of commenters 
were opposed to the adoption of the FMV requirements proposed in the 
NPRM. While some commenters were fundamentally opposed to the use of 
concession agreements in general, most of the comments expressing 
opposition to the adoption of the FMV requirements appear based on the 
belief that the proposed regulations would have forced a State to use a 
public-private partnership when that State wishes to utilize a public 
toll agency. This was not the intent. The purpose of these regulations 
is merely to implement the FMV requirement of 23 U.S.C. 156 whenever a 
federally funded highway is subject to a concession agreement. Given 
the requirement of 23 U.S.C. 156, and the increased use of concession 
agreements, it is important to ensure that these transactions result in 
a fair return for the taxpayers' investment.
    The FHWA appreciates all of the comments received in response to 
the NPRM and has made a number of changes to the proposed regulations. 
These changes ensure the States are afforded maximum discretion in 
choosing to transfer highways to other public entities and the broadest 
flexibility in determining what constitutes FMV whenever the State 
chooses to utilize a concession. These changes are discussed in more 
detail below.

II. Requests for Extension of the Comment Period

    The FHWA received 8 requests to extend the comment period 
established in the NPRM, which ended on November 7, 2008. These 
requests came from the International Bridge, Tunnel and Turnpike 
Association (IBTTA), Texas Department of Transportation (TxDOT), Texas 
State Senator Robert Nichols, Harris County Judge Ed Emmett, Miami-Dade 
Expressway Authority, Georgia State Road and Tollway Authority (SRTA), 
Texas Council of Engineering Companies (TCEC), and American Highway 
Users Alliance (AHUA). One commenter, Robert W. Poole, Jr., supported 
the November 7, 2008, deadline. After considering the requests from the 
IBTTA and TxDOT, the FHWA extended the comment period until November 
21, 2008. Notice of this extension was published in the Federal 
Register on November 13, 2008, at 73 FR 67117, and posted in the 
rulemaking docket on November 10, 2008. Since all other remaining 
requests for extension appear to relate to the original November 7, 
2008, deadline, the FHWA deems the extension to November 21, 2008, to 
be responsive to these requests.

III. Summary of Comments Received to the Notice of Proposed Rulemaking 
(NPRM)

    The FHWA published its NPRM on October 8, 2008, at 73 FR 58908. In 
response to the NPRM, the FHWA received 34 comments. The commenters 
include State DOTs, toll authorities, elected officials, associations, 
public interest groups, contractors, and individuals. The majority of 
the comments regarding the fair market value (FMV) requirements were 
negative, and 8 commenters urged the FHWA to rescind the rulemaking. In 
general, the main objection to the adoption of the FMV requirements 
appears to be the perception that the FHWA is attempting to displace 
State and local decision-making. However, the majority of the comments 
regarding the design-build amendments were mainly supportive. The FHWA 
considered each of these comments in adopting this final rule.
    The majority of the comments addressed several common issues. The 
following discussion summarizes the major comments submitted to the 
docket by the commenters on the NPRM, notes where and why changes have 
been made to the rule, and, where relevant, explains why particular 
recommendations or suggestions have not been adopted.

IV. Discussion of NPRM Comments Concerning Fair Market Value 
Requirements

A. Legal Interpretation of 23 U.S.C. 156

    The American Association of State Highway Transportation Officials 
(AASHTO), the American Trucking Associations (ATA), the Pennsylvania 
Turnpike Commission (PTC), and Michael Baker Jr., Inc. (Baker), each 
commented that the FHWA's proposed regulation requiring FMV for 
concession agreements overrides an express statutory exemption to the 
FMV requirement in 23 U.S.C. 156. Specifically, AASHTO, PTC, and Baker 
argue that the FHWA's proposed regulation requiring FMV for concession 
agreements overrides an express statutory exemption for transportation 
projects. Section 156(a) of title 23, United States Code, provides 
``[A] State shall charge, at a minimum, fair market value for the sale, 
use, lease, or lease renewal (other than for utility use and occupancy 
or for a transportation project eligible for assistance under this 
title) of real property acquired with Federal assistance made available 
from the Highway Trust Fund (other than the Mass Transit Account).'' 
(Emphasis added).
    The FHWA respectfully disagrees with AASHTO's, PTC's, and Baker's 
analyses. A concession agreement is not a title 23, United States Code, 
eligible transportation project. Rather, a concession agreement is a 
transaction under which a public entity leases a public highway to a 
third party and grants the third party the authority to collect 
revenues from the operation of the highway in return for compensation 
to be paid to the public entity. The FHWA does not believe that such a 
lease transaction constitutes a transportation project within the 
meaning of the ``transportation project'' exemption in 23 U.S.C. 
156(a). There is

[[Page 77497]]

certainly nothing related to the transactions costs, in and of 
themselves, that would be title 23, United States Code, eligible. 
Moreover, 23 U.S.C. 101(a)(21) defines ``project'' to mean ``[a]n 
undertaking to construct a particular portion of a highway, or if the 
context so implies, the particular portion of a highway so constructed 
or any other undertaking eligible for assistance under this title.'' 
Thus, the term ``transportation project'' is limited to the undertaking 
to construct a highway. While a concession agreement may provide for 
certain title 23, United States Code, eligible improvements to be made 
on the facility, the FHWA believes that the improvements to be made, 
which may be title 23, United States Code, eligible, must be separated 
from the lease whenever a concession agreement is involved for purposes 
of 23 U.S.C. 156.
    Also, the ATA argues that the FMV requirement of 23 U.S.C. 156 
applies only to non-highway uses of right-of-way (ROW) airspace. The 
FHWA agrees that 23 U.S.C. 156, as originally enacted at section 126 of 
the Surface Transportation and Uniform Relocation Assistance Act 
(STURAA) of 1987, Public Law 100-17, 101 Stat. 132, 167 (1987), limited 
the application of the statute to highway right-of-way airspace. 
However, in section 1205 of the Transportation Equity Act for the 21st 
Century (TEA-21), Public Law 105-178, 112 Stat. 107, 184 (1998), 
Congress amended 23 U.S.C. 156 to expand the application of the statute 
to all real property acquired with Federal assistance, not just the 
airspace. Additionally, while reference to non-highway uses to the 
application of the FMV requirement of 23 U.S.C. 156, as it was enacted 
in 1987, might have been a logical conclusion since the statute applied 
to only airspace, the TEA-21 amendments to 23 U.S.C. 156 expanded the 
application of the FMV requirement to all real property, including 
existing highways. There is nothing in the legislative history to the 
TEA-21 amendments to suggest that Congress intended to limit the 
expanded application of 23 U.S.C. 156 to only non-highway uses. Rather, 
the express statutory language provides that the FMV requirement 
applies to all real property acquired with assistance from the Highway 
Trust Fund (other than the Mass Transit Account).

B. General Objections to Tolling, Public-Private Partnerships, and 
Characterization of Concession Payments as Operating Costs

    The ATA, the Owner-Operator Independent Drivers Association 
(OOIDA), and AHUA each objected to the use of tolls, statements that 
the fuel tax is not a sustainable form of revenue, public-private 
partnerships (although AHUA supports concessions and public-private 
partnerships for new capacity and new road construction), and the 
FHWA's characterization of concession payments as operating costs for 
purposes of the revenue use restrictions for the Federal toll programs. 
Additionally, the Wisconsin Department of Transportation (WisDOT) 
stated that it does not support public-private partnerships that 
involve long-term leases. The FHWA does not view these comments as 
directly relevant to the proposed regulations. The FHWA's reference to 
these issues in the NPRM was provided merely as background information. 
The use of tolling and public-private partnerships will continue to 
occur regardless of the implementation of these regulations. Similarly, 
the FHWA's characterization of a concession payment as an operating 
cost will also continue. Furthermore, nothing in these regulations 
would require WisDOT to enter into a public-private partnership 
involving a long-term lease. Therefore, the FHWA makes no changes to 
the proposed regulations as a result of these comments.

C. Reduced State Flexibility and Displacement of State Law

    A number of commenters objected to what they perceived as reduced 
State and local government flexibility and/or a displacement of State 
law. These commenters include the Texas Toll Authorities (joint 
comments submitted by the following 9 Texas toll authorities: Alamo 
Regional Mobility Authority, Cameron County Regional Mobility 
Authority, Camino Real Regional Mobility Authority, Central Texas 
Regional Mobility Authority, Grayson County Regional Mobility 
Authority, Harris County Toll Road Authority, Hidalgo County Regional 
Mobility Authority, North East Texas Regional Mobility Authority, and 
North Texas Tollway Authority), PTC, Baker, IBTTA, New Hampshire 
Department of Transportation (NHDOT), New York State Department of 
Transportation (NYSDOT), New York State Thruway Authority, Senator Kay 
Bailey Hutchison, Texas State Senator Robert Nichols, Texas State 
Representative Linda Harper-Brown, and Harris County Judge Ed Emmett. 
Generally, these commenters expressed the concern that the proposed 
regulations would limit the ability of State and local governments to 
transfer highways between governmental entities without charge or for a 
charge in transactions that are not intended to represent consideration 
for a sale or a lease.
    In developing the regulations proposed in the NPRM, the FHWA did 
not intend to adversely affect the ability of State and local 
governments to transfer highways to other governmental entities without 
charge whenever a transaction is intended to resolve inherently 
governmental decisions in determining governmental jurisdiction, 
ownership, control, or other responsibilities with respect to the 
operation of a public highway. Rather, the regulations were intended to 
apply only to those transactions that are essentially commercial in 
nature (that is, for purposes of this rule, where the transfer is 
conducted in the context of an arms-length transaction and where the 
price is intended to represent the FMV of the facility). As such, the 
proposed regulations retained the rules governing ``relinquishments'' 
under 23 CFR Part 620, except where a transaction between governmental 
entities would constitute a concession agreement.
    The Texas Toll Authorities commented that there may be transactions 
between governmental entities that may involve a payment to reimburse 
the State for previously incurred costs in developing the facility. The 
Texas Toll Authorities recommended that the definition of ``concession 
agreement'' should be clarified to take this factor into account. After 
considering this comment, as well as all the comments regarding the 
lack of State and local government flexibility, the FHWA has amended 
its definition of ``concession agreement'' to exclude agreements 
between government entities, even when compensation is paid, where the 
primary purpose is to determine governmental ownership, control, 
jurisdiction, or other responsibilities with respect to the operation 
of a highway from the definition. The definition further provides that 
a highway agency's determination as to whether an agreement's primary 
purpose is to determine these governmental responsibilities is 
controlling.
    The Florida Department of Transportation (FDOT) requested a 
clarification that the proposed rule change will not preclude Florida's 
Turnpike Enterprise from operating and collecting tolls on federally 
assisted facilities, whose ownership is still maintained by FDOT. The 
FHWA did not intend for the proposed rules to do so, and with the 
modifications made to the final rule, it should be clear that these 
regulations do not affect this

[[Page 77498]]

arrangement between FDOT and Florida's Turnpike Enterprise.

D. Direct Competition Between Public and Private Entities

    SRTA, Texas State Representative Linda Harper-Brown, Texas State 
Senator Robert Nichols, Association of General Contractors (AGC), and 
Zachry Construction each commented that competition between public and 
private entities is unfair. SRTA, Texas State Representative Linda 
Harper-Brown, and Texas State Senator Robert Nichols commented that 
such competition would be unfair to public entities while AGC and 
Zachry Construction commented that such competition is unfair to 
private entities. SRTA notes that public sector agencies have more 
restrictions on how they may structure debt. Zachry Construction notes 
that both entities have different legal and accounting standards, such 
as with respect to the payment of taxes, insurance and bonding costs, 
different overhead cost structures, risk management profiles, and 
operation and maintenance philosophies. Additionally, the IBTTA notes 
that statutory constraints on public agencies, differences in legal and 
accounting standards, and risk assessment philosophies are some 
significant differences between public and private entities. The FHWA 
agrees that there may be some differences between public and private 
entities. However, the FHWA does not believe that these differences are 
so significant to conclude that either type of entity would have a 
significant competitive advantage for a concession agreement. More 
significantly, the FHWA is concerned that a highway agency's inability 
to permit any kind of competition between public and private entities 
for concession agreements may be discouraging any type of competition 
for concession agreements. Since the existing rules prohibit any kind 
of competition, States are forced to completely forego a competition if 
they wish to consider a public toll agency. Therefore, the FHWA has 
made no change to the rule allowing public entities to compete against 
private entities for concession agreements.
    Corridor Watch commented that the use of concession agreements 
should be limited to agreements with private entities, contending that 
the public gains no benefit from requiring their own State agencies to 
demand FMV from another public entity. The FHWA disagrees with this 
comment and believes that highway agencies should have the flexibility 
to offer a concession agreement to another public agency if authorized 
to do so under State law.

E. Best Value

    AASHTO, PTC, NYSDOT, IBTTA, and Debevoise & Plimpton each commented 
that the definition of ``best value'' should be expanded to include 
other qualitative considerations. NHDOT commented that FMV is much more 
than the maximum price that may be received, and should include other 
qualitative considerations. The FHWA agrees. The definition of ``best 
value'' was not intended to be an exhaustive list of factors. 
Therefore, the definition of ``best value'' is expanded to include 
policy considerations that are not necessarily quantifiable but that a 
highway agency considers important. It is the FHWA's intent that the 
list of factors in this definition continue to be a flexible, open-
ended list to allow State and local governments to take into account 
factors that they feel best fits their needs.
    The American Automobile Association (AAA) commented that the most 
appropriate method to award a concession agreement is on a best value 
basis. The PTC commented that the States should have flexibility in how 
they go about determining FMV and that, in no event, should the award 
to the highest bidder be universally required. The FHWA agrees that the 
States should have flexibility in determining FMV, and further agrees 
that the best value approach may be more desirable. However, in order 
to ensure maximum flexibility in the approach to be used in determining 
FMV, the FHWA declines to make best value the only approach that may be 
used.
    Additionally, AGC commented that State and local agencies should 
spell out in detail the weight that will be given to each factor to be 
used in the FMV evaluation. Debevoise & Plimpton commented that, where 
best value is the method chosen to determine FMV, the highway agency 
should be required to identify the considerations that will be used to 
determine best value. The FHWA agrees that any process used by the 
highway agency should be as transparent as possible. However, the FHWA 
believes that the decision regarding how the process will be conducted 
is most appropriately addressed by State law. Thus, the FHWA has 
amended section 710.709(a) to specify that if best value is used, the 
highway agency should, but is not required to, identify the criteria to 
be used in determining best value as well as the weight to be afforded 
to the criteria.

F. Guidance Regarding the Determination of Fair Market Value

    AASHTO, FDOT, Georgia Department of Transportation (GDOT), PTC, 
Texas Toll Authorities, IBTTA, AGC, Baker, Robert W. Poole, Jr., and 
Debevoise & Plimpton each commented that the FHWA should provide 
guidance regarding how FMV should be determined whenever a competitive 
process is not used. AASHTO, PTC, Texas Toll Agencies, AGC, and Baker, 
were concerned that the lack of standards to be used in determining FMV 
could subject a State to an arbitrary FHWA decision regarding whether 
FMV has been obtained. PTC and Baker further noted that the proposed 
regulations do not give effect to any State laws or court decisions 
that may be relevant for determining FMV within a particular State. 
These comments regarding the lack of standards in determining FMV also 
relate to comments made by Robert W. Poole, Jr., Greater Houston 
Partnership, Gulf Coast Regional Mobility Partners, Texas Council of 
Engineering Companies, Harris County Judge Ed Emmett, and Texas State 
Representative Linda Harper-Brown that the market valuation process in 
Texas is troublesome and unworkable. Greater Houston Partnership, Gulf 
Coast Regional Mobility Partners, and Harris County Judge Ed Emmett 
expressed further concern that the process used for establishing FMV 
could cause project delays.
    AAA and Robert W. Poole, Jr., commented that the determination of 
FMV, in instances where a competition is not conducted, must not 
involve negotiated compromises and, instead, be arrived at through a 
transparent process. Mr. Poole suggests that a ``Public Sector 
Comparator'' process, such as the processes used in Australia and 
British Columbia, would be an acceptable transparent process. Debevoise 
& Plimpton also suggests that FMV may be determined by comparing the 
public benefits brought by the terms of a concession agreement against 
those where a highway agency retains the rights assigned to a 
concessionaire.
    The FHWA agrees that the lack of standards regarding how to arrive 
at FMV could create problems. The FHWA further agrees that FMV is most 
appropriately determined in accordance with State law. Therefore, the 
FHWA has amended the regulations in section 710.709(d) to defer to a 
State as to whether FMV has been obtained in accordance with State law. 
The FHWA also agrees with the need for transparency. Thus, if there is 
no

[[Page 77499]]

competition and if the highway agency represents that it has entered 
into a concession agreement for FMV, whatever that amount may be, the 
highway agency must also obtain an independent third party assessment 
and make that assessment publicly available. While the highway agency 
is not bound to accept the third party assessment, the fact that the 
assessment is publicly available may compel the highway agency to 
disclose how it arrived at its amount.
    With respect to the comments urging the FHWA to require highway 
agencies to use a Public Sector Comparator, or specify certain 
standards to be used in making the FMV determination, the FHWA declines 
to do so. While the FHWA agrees that a transparent process should be 
established, the FHWA believes that highway agencies should have the 
flexibility to determine FMV in accordance with their own laws and 
policies. However, the FHWA does support the use of the public sector 
comparator process, as recommended by Mr. Poole, and essentially 
embraced by Debevoise & Plimpton. By deferring to the States on how to 
arrive at FMV, as well as whether the amount obtained constitutes FMV, 
the potential for project delays should be minimal.

G. Prospective Application

    AASHTO, PTC, IBTTA, and Zachry Construction commented that the 
regulations should be clarified to ensure that the regulations apply 
prospectively, and that any concession agreement that has already been 
executed is ``grandfathered'' under existing regulations. The FHWA 
agrees with this comment and has revised section 710.705 to clarify 
that the regulations apply only to concession agreements executed after 
the effective date of this rule.

H. Price Established Through Competition

    Debevoise & Plimpton commented that any price established through a 
competitive process should be determinative of whether FMV has been 
received, not just presumed. Robert W. Poole, Jr., notes that a market 
value cannot be negotiated, but only realized through arm's length 
bidding. GDOT inquired whether a value arrived at through a competitive 
process involving only one bidder constitutes FMV. The FHWA agrees with 
the premise of the comments that a value established through a fair and 
open competitive process constitutes FMV. As such, the FHWA has 
modified section 710.709(c) to provide that any proposal procured 
through a competitive process with multiple bidders shall be deemed 
FMV. However, whenever only one bidder is involved, the highway agency 
will need to determine whether the proposal constitutes FMV. Like any 
solicitation, the highway agency will need to evaluate the proposal 
against its own estimate to determine whether to accept the bid. Thus, 
the FHWA has amended section 710.709(c) to provide that a concession 
agreement awarded through a competitive process with only one bidder is 
presumed to be FMV. The highway agency may overcome the presumption if 
not to be FMV based on its own estimates.
    While the FHWA has established certain degrees of deference to 
proposals awarded through competitive processes, it is not the FHWA's 
intent for any highway agency to be forced to accept any proposal, even 
if awarded through a competitive process with multiple bidders. The 
highway agency may, for a variety of reasons, decide not to accept a 
proposal. Thus, the FHWA has added a sentence to ensure that nothing in 
the regulations can be construed to force a highway agency to accept a 
proposal.

I. Highest Bid Received

    Robert W. Poole, Jr., commented that the phrase ``highest bid 
received'' could be construed to require States to seek the largest 
possible up-front payment. Mr. Poole notes that many arrangements 
involve long-term leases where payments are made on a regular basis 
throughout the term of the lease. As such, Mr. Poole recommends 
clarifying that FMV may mean the bid yielding the highest net present 
value of payments over the life of the concession agreement. The FHWA 
agrees with Mr. Poole that the method for determining FMV should 
include transactions that do not involve single, up-front payments. In 
the proposed regulations, the FHWA had intended the term ``best value'' 
to be broad enough to include any standard the State may use that is 
not simply high bid. However, in order to ensure the regulations are 
clear that structured payments over the life of the lease may be 
properly considered in determining FMV, the FHWA has added Mr. Poole's 
suggested edits to section 710.709(a). However, the FHWA declines to 
delete the phrase ``highest bid received'' from regulation. The FHWA 
believes that the States should have maximum flexibility in determining 
how they wish to determine FMV.

J. Federally Funded Highway

    Zachry Construction commented that the definition of federally 
funded highway should be revised to exclude highways constructed with 
TIFIA loan proceeds. Section 156 of title 23, United States Code, 
applies to real property acquired with Federal assistance made 
available from the Highway Trust Fund (other than the Mass Transit 
Account). Since TIFIA funding is made available, at least in part, from 
the Highway Trust Fund, the FHWA declines to make Zachry Construction's 
suggested change. Also, Debevoise & Plimpton commented that the concept 
of Federal assistance in the definition of federally funded highway 
should be limited to funds made available from the Highway Trust Fund. 
Since 23 U.S.C. 156 limits the concept of Federal assistance to funds 
from the Highway Trust Fund, the FHWA accepts this change. Accordingly, 
the definition of federally funded highway has been amended to replace 
the phrase ``title 23, United States Code'' with ``Highway Trust Fund 
(other than the Mass Transit Account).''

K. Definition of Fair Market Value

    Debevoise & Plimpton commented that the definition of FMV should be 
revised to reflect the customary market definition, where the terms 
reflect an agreement by both parties to a transaction. The FHWA agrees 
with this comment and has amended the definition of FMV to include this 
concept. Debevoise & Plimpton further commented that the word ``price'' 
should be substituted with the word ``terms.'' The FHWA declines to 
make this change because, consistent with Debevoise & Plimpton's 
earlier comment, the change would not reflect the customary definition. 
However, the FHWA does agree with the essence of Debevoise & Plimpton's 
concern that a proposal based on best value, which may include a 
consideration of qualitative factors, be considered to satisfy the 
definition of FMV. Accordingly, the FHWA has added a sentence providing 
that a concession agreement based on best value shall be deemed FMV. 
The FHWA has also added some clarifying language to the phrase ``on the 
open market'' to make clear that the highway agency is not required to 
compete a concession agreement on the open market. FMV may be satisfied 
if an amount is developed ``as if'' the concession agreement is offered 
on the open market.

L. Relationship to Toll Programs

    Debevoise & Plimpton commented that there could be a potential 
conflict between the toll revenue use restrictions contained in the 
various Federal toll programs, such as 23 U.S.C. 129, and the 
concession agreement. As such,

[[Page 77500]]

Debevoise & Plimpton suggested that language should be added to clarify 
that the toll revenue use restrictions are automatically deemed 
satisfied once the tolled highway become subject to a concession 
agreement. The FHWA declines to incorporate this comment. Toll revenues 
generated from the operation of any highway operating under a Federal 
toll program must be used for the specified revenue use restrictions 
under such program. Provisions contained in concession agreements 
cannot trump these requirements. State DOTs are responsible for 
ensuring compliance with these provisions. While the FHWA declines to 
incorporate this comment, it is worth noting that all the toll 
facilities subject to both a Federal toll program and a concession 
agreement appear to be operating without any difficulty.
    PTC commented that it is inappropriate to address the criteria for 
participation in the highway tolling pilot programs in the context of a 
rulemaking regarding how States should value concession agreements. 
Specifically, the PTC argues that the Federal tolling provisions 
establish no FMV criteria for what constitutes a valid operational 
cost. While the FHWA agrees with PTC that this rulemaking should not 
address any requirements with respect to the criteria for participation 
in a Federal tolling program, the FHWA disagrees with the PTC that 
there are no limits as to what constitutes a valid operating cost for 
lease payments.
    As explained in the NPRM, the Federal toll programs generally 
require toll revenue to be used first for debt service, then to provide 
a reasonable return on investment to any private party financing a 
project, and for the costs that are necessary for the proper operation 
and maintenance of the facility. With the exception of the ISRRPP and 
ISCTPP, toll revenues in excess of these uses may be applied to other 
projects eligible for assistance under title 23, United States Code. If 
a lease payment is proposed that is based on factors completely 
unrelated to the value of the facility, such as Statewide 
transportation funding needs, then the lease payment becomes excess 
toll revenue. While such a payment could be made under toll programs 
allowing for excess toll revenue to be used for other title 23, United 
States Code, eligible purposes (after the needs for debt service, 
providing a reasonable return on investment to a private party, and 
operation and maintenance are provided for), the lease payment is 
problematic for programs, such as the ISRRPP and ISCTPP, that do not 
allow any excess toll revenue to be used.
    The toll programs were referenced in the preamble of the NPRM 
merely to note that the establishment of FMV for concession agreements 
would help State and local governments comply with Federal toll program 
requirements, not to create a new rule of applicability for such 
programs. As such, the FHWA has amended the authority section for 
Subpart G to refer simply to FMV requirement of 23 U.S.C. 156.

V. Discussion of NPRM Comments Concerning Design-Build Amendments

    Eleven entities submitted comments on the proposed design-build 
amendments. All but one of the comments submitted were supportive of 
the amendments. The major comments concerning the proposed design-build 
amendments are discussed below.

A. Is the Stipend Mandatory?

    NYSDOT, New York State Thruway Authority, GDOT, and Zachry 
Construction requested that the FHWA clarify whether the offering or 
acceptance of a stipend is mandatory. NYSDOT and New York State Thruway 
Authority noted that they support the amendment so long as the decision 
to offer a stipend is optional on the part of the contracting agency. 
GDOT requested a clarification as to whether a State is prohibited from 
incorporating an unsuccessful offeror's ideas if a stipend is not 
offered. Zachry Construction noted that the acceptance of a stipend 
should be optional on the part of the contractor. In considering these 
comments, the FHWA agrees that the decision as to whether to offer a 
stipend is optional on the part of the contracting agency and that if a 
stipend is offered, its acceptance must be optional on the part of the 
contractor. Forcing a contractor to relinquish its ideas to a contract 
it did not win could stifle competition. The American Council of 
Engineering Companies (ACEC) makes the point that contractors may 
either decide not to submit a proposal or hold back on its most 
innovative ideas with the assumption that additional design concepts 
could be later incorporated into the final design. Thus, FHWA agrees 
that contracting agencies should have the flexibility to use 
unsuccessful offeror's ideas, but only if the contracting agency 
offers, and the contractor accepts, a stipend. The FHWA has modified 
section 636.113(b) to clarify these issues.

B. Amount of the Stipend

    AGC and ACEC commented that the amount of the stipend should be for 
the FMV of those ideas or based on a formula related to the value of 
the project. The New York State Thruway Authority noted that it was 
concerned about potential disputes regarding the amount of the stipend. 
The FHWA does not believe it is necessary to specify how the amount of 
the stipend should be determined. The amount of a stipend should be 
determined by the contracting agency. The primary purpose of a stipend 
is to provide an incentive to a contractor to expend resources to 
develop a proposal. The amount of the stipend offered must be enough to 
induce a contractor to submit a proposal in order for it to be 
effective. Likewise, if a contracting agency wishes to appropriate an 
offeror's ideas into a contract it did not win, the contracting agency 
will need to determine how much its stipend will need to be in order 
for the contractor to accept.

C. Predetermined Process

    Ms. Carolyn Bergeman Langelotti commented that allowing contracting 
agencies to incorporate unsuccessful offeror's concepts into the final 
contract will discourage competition and promote unethical actions by 
contracting agencies to select pre-determined contractors. The FHWA 
believes that the use of stipends, as well as the optional nature of 
the decision to accept a stipend, will encourage competition. 
Furthermore, the FHWA is unaware of any circumstance in which a 
contracting agency has engaged in any unethical practices or failed to 
properly follow a fair and competitive process in the manner Ms. 
Langelotti suggests. Therefore, the FHWA declines to accept this 
comment.

D. Firms Submitting Multiple Bids

    WisDOT commented that it is concerned that a firm may break up into 
smaller units and submit multiple bids with the intent of receiving 
both a stipend and an actual contract. The FHWA does not believe this 
is a major concern. It does not seem to be advantageous for a firm to 
either divide its resources when developing a proposal or to expend 
extra resources to submit multiple bids, especially in light of the 
fact that a stipend is not intended to compensate a contractor for all 
the costs it incurred in developing a proposal. Therefore, no changes 
to the final regulation have been made as a result of this comment.

[[Page 77501]]

Rulemaking Analyses and Notices

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

    The FHWA and the Office of Management and Budget (OMB) have 
determined that this action is not a significant regulatory action 
within the meaning of Executive Order 12866 and is not significant 
within the meaning of U.S. Department of Transportation regulatory 
policies and procedures. It is anticipated that the economic impact of 
this rulemaking will be minimal. These changes will not adversely 
affect, in a material way, any sector of the economy. In addition, 
these changes will not interfere with any action taken or planned by 
another agency and will not materially alter the budgetary impact of 
any entitlements, grants, user fees, or loan programs. Consequently, a 
full regulatory evaluation is not required.
    AASHTO, IBTTA, PTC, and Corridor Watch submitted comments 
contending that this action would be a significant regulatory action 
within the meaning of Executive Order 12866. AASHTO, IBTTA, and PTC 
contend this rule is economically significant because concession 
agreements can exceed $100 million. The FHWA disagrees with this 
assessment. This rule is procedural in nature and does not mandate 
concession agreements. Rather, it describes the processes that must be 
undertaken in determining FMV, as required by 23 U.S.C. 156.
    Corridor Watch asserted that this rule is significant because it 
would adversely affect the economy by dramatically increasing the costs 
of public transportation and public transportation project delivery. 
The FHWA also disagrees with this assessment. This rule is procedural 
in nature and is not directed at public transportation. The purpose of 
the rule is to provide direction with respect to how States can comply 
with the FMV requirement of 23 U.S.C. 156 when entering into a 
concession agreement.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (Pub. L. 96-354, 
5 U.S.C. 60l-612) the FHWA has evaluated the effects of this action on 
small entities and has determined that the proposed action will not 
have a significant economic impact on a substantial number of small 
entities. OOIDA commented that this rulemaking will impact small 
businesses, because the policy promotes concession agreements, 
especially the implementation of tolls on non-tolled facilities. The 
FHWA disagrees with this comment. This action does not affect any 
funding distributed under any of the program administered by the FHWA. 
It ensures that State and local governments comply with both 23 U.S.C. 
156 to receive FMV and the Federal tolling provision listed above 
regarding operating expenses whenever a concession agreement is 
executed involving a Federally funded highway. For these reasons, the 
FHWA certifies that this action will not have a significant economic 
impact on a substantial number of small entities.

Unfunded Mandates Reform Act of 1995

    This rule will not impose unfunded mandates as defined by the 
Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4, 109 Stat. 48). 
This rule will not result in the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of 
$128.1 million or more in any one year (2 U.S.C. 1532).

Executive Order 13132 (Federalism Assessment)

    This action has been analyzed in accordance with the principles and 
criteria contained in Executive Order 13132, and the FHWA has 
determined that this action will not have sufficient federalism 
implications to warrant the preparation of a federalism assessment. The 
FHWA has also determined that this action will not preempt any State 
law or State regulation or affect the States' ability to discharge 
traditional State governmental functions. Corridor Watch and the 
Pennsylvania Turnpike Commission commented that the rule has federalism 
implications that require a federalism assessment under Executive Order 
13132. Section 156, title 23, United States Code, requires States to 
obtain FMV for the sale, use, lease, or lease renewal of real property, 
which includes concession agreements. This rule provides for the 
procedures by which a State can comply with this statutory requirement. 
Any federalism implications arising from this rule are attributable to 
23 U.S.C. 156. Additionally, the Federal Government has a substantial 
interest in ensuring that FMV is received on facilities in which there 
is a Federal investment.

Executive Order 13211 (Energy Effects)

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

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 on 
Federal programs and activities apply to this program.

Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501), 
Federal agencies must obtain approval from the OMB for each collection 
of information they conduct, sponsor, or require through regulations. 
The FHWA has determined that this action does not contain collection of 
information requirements for the purposes of the PRA.

Executive Order 12988 (Civil Justice Reform)

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

Executive Order 13045 (Protection of Children)

    The FHWA has analyzed this rule under Executive Order 13045, 
Protection of Children from Environmental Health Risks and Safety 
Risks. The FHWA certifies that this action would not cause any 
environmental risk to health or safety that might disproportionately 
affect children.

Executive Order 12630 (Taking of Private Property)

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

National Environmental Policy Act

    The agency has analyzed this action for the purpose of the National 
Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4347) and has 
determined that this action will not have any effect on the quality of 
the environment. Corridor Watch

[[Page 77502]]

commented that a NEPA analysis is required because there are 
environmental justice issues associated with this rulemaking. FHWA 
disagrees with this comment. Additionally, FHWA notes that two 
categorical exclusions apply to this rulemaking; namely, 23 CFR 
771.117(c)(11) (determination of payback under 23 U.S.C. 156 for 
property previously acquired with Federal-aid participation) and 23 CFR 
771.117(c)(20) (promulgation of rules, regulations, and directives).

Executive Order 12898 (Environmental Justice)

    The FHWA has analyzed this action under Executive Order 12898, 
Federal Actions to Address Environmental Justice in Minority 
Populations and Low-Income Populations, dated February 16, 1994, and 
the U.S. Department of Transportation Order To Address Environmental 
Justice in Minority Populations and Low-Income Populations, dated April 
15, 1997. Executive Order 12898 establishes Federal executive policy on 
environmental justice. Its main provision directs Federal agencies, to 
the greatest extent practicable and permitted by law, to make 
environmental justice part of their mission by identifying and 
addressing, as appropriate, disproportionately high and adverse human 
health or environmental effects of their programs, policies, and 
activities on minority populations and/or low-income populations in the 
United States. In developing this rule in compliance with Executive 
Order 12898, the FHWA has determined that this rule does not raise any 
environmental justice concerns.
    Corridor Watch commented that there are environmental justice 
issues with this rule because this rule will impact community, social 
fabric, and local economies. FHWA disagrees. This rule does not require 
the use of concession agreements or tolling. The purpose of this rule 
is to provide for procedures to ensure that State and local governments 
comply with both 23 U.S.C. 156 to receive FMV whenever a concession 
agreement is executed involving a federally funded highway.

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.

List of Subjects

23 CFR Part 620

    Grant programs--transportation, Highways and roads, Rights-of-way.

23 CFR Part 635

    Construction and maintenance, Grant programs--transportation, 
Highways and roads, Reporting and recordkeeping requirements.

23 CFR Part 636

    Design-build, Grant programs--transportation, Highways and roads.

23 CFR Part 710

    Grant programs--transportation, Highways and roads, Real property 
acquisition, Rights-of-way, Reporting and recordkeeping requirements.

    Issued on: December 15, 2008.
Thomas J. Madison, Jr.,
Federal Highways Administrator.

0
In consideration of the foregoing, the FHWA amends chapter I of title 
23, Code of Federal Regulations, as set forth below:

PART 620--ENGINEERING

0
1. The authority citation for part 620 continues to read as follows:

    Authority: 23 U.S.C. 315 and 318; 49 CFR 1.48, 23 CFR 1.32.


0
2. Amend Sec.  620.203 by revising paragraph (b) to read as follows:


Sec.  620.203  Is the stipend amount eligible for Federal 
participation?

* * * * *
    (b) Other than a conveyance made as part of a concession agreement 
as defined in section 710.703, for purposes of this section, 
relinquishment is defined as the conveyance of a portion of a highway 
right-of-way or facility by a State highway agency (SHA) to another 
Government agency for highway use.
* * * * *

PART 635--CONSTRUCTION AND MAINTENANCE

0
3. The authority citation for part 635 continues to read as follows:

    Authority: Sec. 1503 of Public Law 109-59, 119 Stat. 1144; 23 
U.S.C. 101 (note), 109, 112, 113, 114, 116, 119, 128, and 315; 31 
U.S.C. 6505; 42 U.S.C. 3334, 4601 et seq.; Sec. 1041(a), Public Law 
102-240, 105 Stat. 1914; 23 CFR 1.32; 49 CFR 1.48(b).


0
4. Revise Sec.  635.112(e) to read as follows:


Sec.  635.112  Advertising for bids and proposals.

* * * * *
    (e) Except in the case of a concession agreement, as defined in 
section 710.703 of this title, no public agency shall be permitted to 
bid in competition or to enter into subcontracts with private 
contractors.
* * * * *

PART 636--DESIGN-BUILD CONTRACTING

0
5. The authority citation for part 636 continues to read as follows:

    Authority: Sec. 1503 of Public Law 109-59, 119 Stat. 1144; Sec. 
1307 of Public Law 105-178, 112 Stat. 107; 23 U.S.C. 101, 109, 112, 
113, 114, 115, 119, 128, and 315; 49 CFR 1.48(b).


0
6. Amend Sec.  636.113 by revising paragraph (b) and adding paragraph 
(c) to read as follows:


Sec.  636.113  Is the stipend amount eligible for Federal 
participation?

* * * * *
    (b) Unless prohibited by State law, you may retain the right to use 
ideas from unsuccessful offerors if they accept stipends. If stipends 
are used, the RFP should describe the process for distributing the 
stipend to qualifying offerors. The acceptance of any stipend must be 
optional on the part of the unsuccessful offeror to the design-build 
proposal.
    (c) If you intend to incorporate the ideas from unsuccessful 
offerors into the same contract on which they unsuccessfully submitted 
a proposal, you must clearly provide notice of your intent to do so in 
the RFP.


0
7. Revise Sec.  636.513 by designating the existing text as paragraph 
(a) and adding a new paragraph (b) to read as follows:


Sec.  636.513  Are limited negotiations allowed prior to contract 
execution?

* * * * *
    (b) Limited negotiations conducted under this section may include 
negotiations necessary to incorporate the ideas and concepts from 
unsuccessful offerors into the contract if a stipend is offered by the 
contracting agency and accepted by the unsuccessful offeror and if the 
requirements of section 636.113 are met.

PART 710--RIGHT-OF-WAY AND REAL ESTATE

0
8. The authority citation for part 710 continues to read as follows:

    Authority: Sec. 1307 of Public Law 105-178, 112 Stat. 107; 23 
U.S.C. 101(a), 107, 108, 111, 114, 133, 142(f), 156, 204, 210, 308, 
315,

[[Page 77503]]

317, and 323; 42 U.S.C. 2000d et seq., 4633, 4651-4655; 49 CFR 
1.48(b) and (cc), 18.31, and parts 21 and 24; 23 CFR 1.32.


0
9. Revise Sec.  710.403(d)(5) to read as follows:


Sec.  710.403  Management.

* * * * *
    (d) * * *
    (5) Use for transportation projects eligible for assistance under 
title 23 of the United States Code, provided that a concession 
agreement, as defined in section 710.703, shall not constitute a 
transportation project.
* * * * *

0
10. Add new Subpart G to Part 710 to read as follows:

Subpart G--Concession Agreements

Sec.
710.701 Purpose
710.703 Definitions
710.705 Applicability
710.707 Fair Market Value
710.709 Determination of Fair Market Value

    Authority: 23 U.S.C. 156 and 315; 23 CFR 1.32; 49 CFR 1.48.


Sec.  710.701  Purpose.

    The purpose of this subpart is to prescribe the standards that 
ensure fair market value is received by a highway agency under 
concession agreements involving federally funded highways.


Sec.  710.703  Definitions.

    As used in this subpart:
    (a) Best value means the proposal offering the most overall public 
benefits as determined through an evaluation of the amount of the 
concession payment and other appropriate considerations. Such other 
appropriate considerations may include, but are not limited to, 
qualifications and experience of the concessionaire, expected quality 
of services to be provided, the history or track record of the 
concessionaire in providing the services, timelines for the delivery of 
services, performance standards, complexity of the services to be 
rendered, and revenue sharing. Such appropriate considerations may also 
include, but are not limited to, policy considerations that are 
important, but not quantifiable, such as retaining the ability to amend 
the concession agreement if conditions change, having a desired level 
of oversight over the facility, ensuring a certain level of maintenance 
and operations for the facility, considerations relative to the 
structure and amount of the toll rates, economic development impacts 
and considerations, or social and environmental benefits and impacts.
    (b) Concession agreement means an agreement between a highway 
agency and a concessionaire under which the concessionaire is given the 
right to operate and collect revenues or fees for the use of a 
federally funded highway in return for compensation to be paid to the 
highway agency. A concession agreement may include, but not be limited 
to, obligations concerning the development, design, construction, 
maintenance, operation, level of service, and/or capital improvements 
to a facility over the term of the agreement. Concession agreement 
shall not include agreements between government entities, even when 
compensation is paid, where the primary purpose of the transaction is 
not commercial in nature but for the purpose of determining 
governmental ownership, control, jurisdiction, or responsibilities with 
respect to the operation of a federally funded highway. The highway 
agency's determination as to whether an agreement between government 
entities constitutes a concession agreement shall be controlling.
    (c) Concessionaire means any private or public entity that enters 
into a concession agreement with a highway agency.
    (d) Fair market value means the price at which a highway agency and 
concessionaire are ready and willing to enter into a concession 
agreement for a federally funded highway on, or as if in, the open 
market for a reasonable period of time and in an arm's length 
transaction to any willing, knowledgeable, and able buyer. For purposes 
of this subpart, a concession agreement based on best value shall be 
deemed fair market value.
    (e) Federally funded highway means any highway (including highways, 
bridges, and tunnels) acquired with Federal assistance made available 
from the Highway Trust Fund (other than the Mass Transit Account). A 
highway shall be deemed to be acquired with Federal assistance if 
Federal assistance participated in either the purchase of any real 
property, or in any capital expenditures in any fixtures located on 
real property, within the right-of-way, including the highway and any 
structures located upon the property.
    (f) Highway agency means any State transportation department or 
other public authority with jurisdiction over a federally funded 
highway.


Sec.  710.705  Applicability.

    This subpart applies to all concession agreements involving 
federally funded highways that are executed after January 18, 2009.


Sec.  710.707  Fair Market Value.

    A highway agency shall receive fair market value for any concession 
agreement involving a federally funded highway.


Sec.  710.709  Determination of Fair Market Value.

    (a) Fair market value may be determined either on a best value 
basis, highest net present value of the payments to be received over 
the life of the agreement, or highest bid received, as may be specified 
by the highway agency in the request for proposals or other relevant 
solicitation. If best value is used, the highway agency should 
identify, in the relevant solicitation, the criteria to be used as well 
as the weight afforded to the criteria.
    (b) In order to be considered fair market value, the terms of the 
concession agreement must be both legally binding and enforceable.
    (c) Any concession agreement awarded pursuant to a competitive 
process with more than one bidder shall be deemed to be fair market 
value. Any concession agreement awarded pursuant to a competitive 
process with only one bidder shall be presumed to be fair market value. 
Such presumption may be overcome only if the highway agency determines 
the proposal to not be fair market value based on the highway agency's 
estimates. Nothing in this subpart shall be construed to require a 
highway agency to accept any proposal, even if the proposal is deemed 
fair market value. For purposes of this subsection, a competitive 
process shall afford all interested proposers an equal opportunity to 
submit a proposal for the concession agreement and shall comply with 
applicable State and local law.
    (d) If a concession agreement is not awarded pursuant to a 
competitive process, the highway agency must receive fair market value, 
as determined by the highway agency in accordance with State law, so 
long as an independent third party assessment is conducted and made 
publicly available.
    (e) Nothing in this subpart is intended to waive the requirements 
of Part 172, Part 635, and Part 636 whenever any Federal-aid (including 
TIFIA assistance) is to be used for a project under the concession 
agreement.

 [FR Doc. E8-30147 Filed 12-18-08; 8:45 am]
BILLING CODE 4910-22-P