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Infra Insight Blog

Law & Policy

Federal Court Orders DOT to Respond to Sierra Club’s Unsafe Tank Car Lawsuit

Posted in Rail and Transit

A Federal Court has ordered the Department of Transportation (DOT) to respond to a lawsuit filed by three environmental organizations—Earthjustice, Sierra Club and ForestEthics—in which the parties asked the court to order DOT to respond to the organizations’ request for an emergency order banning the use of DOT-111 tanks cars for the shipment of crude oil by rail.

DOT has 60 days to provide the Court with a response to Sierra Club’s lawsuit, which alleges that DOT is in violation of the law for failing to respond to its “Unsafe Tank Car Petition.”  The petition, filed with DOT on July 15, 2014, argues that the continued transport of crude oil in older model rail cars poses risks to public safety.  The petitioners assert that DOT should restrict the shipment of “volatile crude oil in unsafe DOT-111 tank cars,” and that DOT’s failure to do so previously is “inexcusable given the long string of findings by the National Transportation Safety Board that the legacy DOT-111 tank cars are extremely vulnerable to puncture, spilling oil, and precipitating explosions and fires in train accidents.”

Shortly after the Unsafe Tank Car Petition was filed, on July 23, 2014, DOT and the Pipeline Hazardous Materials Safety Administration (PHMSA) issued a much anticipated proposed rulemaking on Enhanced Tank Car Standards and Operational Controls for High-Hazard Flammable Trains (for a breakdown of the rulemaking, click here).  The Sierra Club issued a statement responding to the rulemaking, arguing that the proposed rules “do not adequately address the immediate and growing threat posed by crude-by-rail accidents.”

DOT and PHMSA have not issued any specific reply to the Unsafe Tank Car Petition and it is this lack of response that Sierra Club sought review of in the federal court.  Specifically, the environmental organizations argued that the Government’s failure to respond puts it in violation of the law that requires federal agencies to respond to matters before it within a reasonable time.

The Federal Court denied a motion filed by the Sierra Club to expedite the petition, which was opposed by DOT.  However, the Court ordered DOT to file a response to Sierra Club within 60 days.  DOT’s response is due on November 21, 2014 and Sierra Club will have fourteen days to respond in turn.  The InfraInsight Blog will provide a summary of DOT’s response when it is submitted.

Enactment of SB 785 Clears Caltrain Electrification for Design-Build

Posted in Design-Build, Legislation, Rail and Transit

California Governor Edmund G. Brown, Jr., has signed California Senate Bill (SB) 785. As my colleague Nancy Smith has observed, enactment of SB 785 is a major step forward for the State of California, because now many more state and local agencies can use design-build.

One of the immediate benefits of this change is that the much-anticipated Caltrain electrification project will be able to proceed as a design-build procurement.  The authority of the Peninsula Corridor Joint Powers Board (JPB) to issue design-build contracts was slated to expire at the end of this year, but SB 785 extends that authority until 2024.

The Peninsula Corridor Electrification Project is a key component of the Caltrain modernization program. It will electrify the Caltrain Corridor from San Francisco’s 4th & King Station to approximately the Tamien Caltrain Station and convert the Caltrain fleet from diesel-hauled passenger coaches to electric multiple unit train sets. In conjunction with the project, the JPB plans to increase frequency of service up to six trains per peak hour per direction by 2019.

In 2019 service between San Jose and San Francisco will utilize a mixed fleet of EMU’s and diesel locomotives. Diesel locomotives will be phased out (or used on the lighter density service between San Jose Diridon Station and Gilroy) as the EMUs come one line.

“The electric trains will enhance capacity and allow the system to deliver cleaner, quieter, shorter trip times and, potentially, more frequent service for the corridor,” PCJPB said.  “It will allow Caltrain to almost double the system’s forecasted daily ridership by 2040. Greenhouse gas emissions will be reduced by 177,000 metric tons, automobile vehicle miles traveled will shrink by 619,000 miles daily, and billions of dollars in economic value will be created, including nearly 100,000 new jobs.”

In September 2013, the JPB approved the use of the design-build contracting approach for the electrification project. A Request for Proposals (RFP) will be issued January 2015. A contract award is expected in fall 2015.

Recruitment – University of California, Riverside

Posted in Job Opening

Nossaman is assisting friends at the University of California, Riverside with publicizing the following two job opportunities.

The first position is a newly-refined position as Director of Capital Asset Management, reporting to a new Assistant Vice Chancellor for Capital Asset Strategies.  Responsibilities of the Capital Asset Management (CAM) unit will include real estate projects (on campus and off campus), leases, licensing, space management, GIS services, faculty housing, public-private partnerships and related matters.

The second position is the new Assistant Vice Chancellor (AVC) for Capital Asset Strategies (CAS).  Responsibilities of the AVC of the Capital Asset Strategies Division, of which CAM is a part, also include physical and environmental planning for campus facilities (including research, medical, academic, and administrative) and sustainability.  The AVC for CAS reports to the Vice Chancellor of Planning and Budget.  The Vice Chancellor is part of a relatively new campus leadership team with ambitious goals for quality growth, modernization and excellence across the academic and physical realms of the campus.

For more information, please contact Barbara A. Lloyd at barbara.lloyd@ucr.edu.

Major Step Forward for California Design-Build: SB 785 Signed September 30, 2014

Posted in Design-Build, Legislation

With the enactment of Senate Bill 785, the State of California has taken a major step forward in authorizing state and local agencies to use design-build.  Although many California agencies have the ability to use design-build without the need for specific enabling legislation, other agencies require specific design-build legislation in order to be able to use design-build effectively, either because they are precluded by law from using a best value selection process for design-build or do not have the ability to bundle design and construction into a single contract.

The new statute consolidates and amends existing laws allowing state and local agencies to use design-build, resolving various problems and inconsistencies with prior legislation.  The bill grants authority to the following agencies (and repeals their existing design-build authorization):

1. State agencies:  The Department of General Services and the Department of Corrections and Rehabilitation, for public works projects in excess of $1,000,000 (Public Contract Code 10187 et seq., article entitled “State Agency Design-Build Projects”).

2. Local agencies:

a) The following agencies, for public works projects in excess of $1,000,000 (Public Contract Code §22160 et seq., chapter entitled “Local Agency Design-Build Projects”):

(1) A city, county, or city and county.

(2) A special district that operates wastewater facilities, solid waste management facilities, water recycling facilities, or fire protection facilities.

(3) Any transit district, included transit district, municipal operator, included municipal operator, any consolidated agency, as described in Section 132353.1 of the Public Utilities Code, any joint powers authority formed to provide transit service, any county transportation commission created pursuant to Section 130050 of the Public Utilities Code, or any other local or regional agency, responsible for the construction of transit projects.  (Existing authorization remains effective until 2017 for solicitations already underway as of January 1, 2015.)

b) Sonoma Valley Health Care District and the Marin Healthcare District, for hospital or health facility buildings and related improvements (Health and Safety Code §32132.5).

c) San Diego Unified Port District, for buildings and related improvements in excess of $1,000,000 (SB 785 § 15).

The legislation specifically states that it does not affect affect, expand, alter, or limit any rights or remedies otherwise available at law—making it clear that agencies using design-build based on other authority will not be affected by passage of SB 785.

Why SB 785 Was Needed.  The first bills passed in California authorizing design-build project delivery were adopted in 1993, more than 20 years ago.  Since then, the California legislature has passed numerous design-build statutes, many of which include limitations that have proved problematic in practice.  Furthermore, each statute used different language, creating inconsistencies and inefficiencies for agencies and industry practitioners trying to effectively utilize the project delivery process.

History of SB 785.  California Senate Bill 785 was introduced by Senators Wolk and Hill, with Assembly Member Levine as principal coauthor.  It passed both houses in August 2014 and was signed by the Governor at the end of September.  The new law will become effective on January 1, 2015, with a January 1, 2025 sunset.  Certain of the existing California design-build statutes are not repealed by this bill and will therefore remain in effect, including the Transportation Design-Build Program (Public Contract Code §6820 et seq., which sunsets at the end of 2023) and enabling legislation for school districts and community colleges (Education Code §17250.10 et seq. and §81700 et seq., both of which sunset at the end of 2019).

Limitations under SB 785.  Subject to specified limitations, the authority granted by SB 785 is generally available for all projects developed by the agencies identified in the law, other than projects on the state highway system.  However, cities and counties may not use design-build authority under this law for “streets and highways, public rail transit, or water resources facilities and infrastructure,” and transit operators may not use it for “local street and road projects.”  If the legislature wishes to expand the list of agencies authorized to use design-build in the future, the process will involve a simple amendment either to the definition of “department” in Section 10187.5(c) of the Public Contract Code or the definition of “local agency” in Section 22160(f).

Differences Between SB 785 and Prior Legislation. The following chart identifies some of the notable differences between the new statute and prior legislation.

Category Prior Transit DB Law Prior County DB Law Local Agency DB Law (SB 785)
Design-build entity definition “value determined by objective criteria related to price, features, functions, and life-cycle costs” Same as transit law Definition is similar, but clarifies that best value determination may involve lowest cost proposal, best proposal for a stipulated sum, or tradeoff between price and other factors.
Design-build entity definition Term is defined as the contracting entity but is also used to mean the design-build team Same as transit law Distinction made between “entity” and “team”
Subcontracts Provisions regarding subcontractors extend to subcontractors not entitled to protection under the Subcontractor Listing Law Similar to transit law Provisions regarding subcontractors track the definitions in the Subcontractor Listing Law. Design-builder must follow a specified process for selection of construction subcontractors not listed in the proposal, allowing selection either on a low bid or best value basis.
Prerequisites for use of design-build Requires specific findings. Projects must be at least $25 million in cost for rail projects; $2.5 million for non-rail projects; no cost threshold for certain safety-and security-related technology. Does not apply to highway, street or road projects. Sunsets Jan. 1, 2015 (extended to Jan. 1, 2017 by SB 785) Requires approval of Board of Supervisors.

Minimum project size is $2.5 million.

Limited to buildings and county sanitation wastewater treatment facilities.

Sunsets July 1, 2016

No findings required.

Minimum project size is $1 million, except there is no cost threshold for transit operators for certain safety- and security-related technology.

Statute does not apply to projects on the state highway system. City/ county authority may not be used for streets and highways, public rail transit, or water resources facilities and infrastructure. Transit operator authority may not be used for local street or road projects.

Retention No retention allowed for design services, construction management services, or where applicable, for completed operations and maintenance services Does not include transit DB law retention restriction Retention provisions are consistent with other legislation regarding retention. No limitation regarding retention on specified types of services
Organizational conflict of interest Firms and individuals assisting in the procurement may not be on a design-build team Same as transit law Each agency is required to develop conflict of interest guidelines for its design-build projects
Design-build-operate Not specifically addressed Not specifically addressed Contract may not include long-term operations. However, it may include operations during a training or transition period.
Use of short-listing Statute uses term “prequalification” Statute uses term “prequalification” Short-listing specifically allowed
Request for qualifications requirements Requirement to use form of questionnaire developed by DIR

List of minimum requirements for statements of (qualificationsSOQs)

SOQ required to be verified by oath

County to develop standard template request for SOQs

List of minimum requirements.

SOQ required to be verified by oath

Each agency must develop a standard template request for SOQs

Certain of the minimum requirements from other laws have been moved to become part of the proposal instead of the SOQ process, added requirement for a commitment to use skilled and trained workforce

SOQ required to be certified under penalty of perjury.

Skilled workforce Specified minimum requirements for proposal Similar to transit law Lengthy provision defining skilled workforce requirements
Surety bonds Bonds to be on forms developed by Dept of General Services Bonds to be on forms developed by County Bonds to be in amount required by the agency, issued by a California admitted surety. The amount of the payment bond shall not be less than the amount of the performance bond. Each agency is required to develop standard bond forms.
Selection criteria At least 50% weight required to be given to “price, technical expertise, life cycle costs over 15 years or more, skilled labor force availability, and acceptable safety record” Each of the following factors must be given at least 10% weight:

Price; technical design, and construction expertise; life-cycle costs; skilled labor force availability; and acceptable safety record

RFP must identify all significant factors and their relative importance or weights

The following minimum factors are required: price (unless stipulated sum is specified); design and construction expertise; life-cycle costs

Weightings to be set by the agency

Price Statement that price is subject to the conditions in Section 20209.7(f) [which says nothing about price] If selection is based on low bid, price must be lump sum If selection is based on low bid, price must be lump sum
Announcement of award Award to be announced publicly, with information about price and overall rating of selected firm, as well as price and ranking of other offerors and a summary of the agency’s rationale for award Award to be announced publicly, identifying the selected firm, along with a written decision stating the basis of award, and identifying the second and third ranked firms Award to be announced publicly, identifying the design-build entity to which the award is made, along with a statement regarding the basis of the award
Reports Report to be delivered to Legislative Analyst’s Office within 120 days of completion. Report to be delivered to Legislative Analyst’s Office before Sept 1, 2013. No report required


For more information, contact the author at nsmith@nossaman.com, talk to her next week at DBIA’s Design-Build Conference & Expo in Dallas, or visit nossaman.com/infrastructure.

NCPPP and PBBC Host First P3s for Public Buildings Summit

Posted in PPPs

The inaugural P3s for Public Buildings Summit will be held on November 17-18, 2014 at the Hyatt Regency in Miami, FL. The summit will be hosted by the National Council for Public-Private Partnerships and the Performance Based Building Coalition.

The summit will explore ways that P3s can be developed and implemented to replace the nation’s deteriorating public buildings, including schools, hospitals, courthouses, universities, police stations and prisons.

  • Topics of discussion will include:
  • Financing of projects;
  • Federal policy challenges and solutions;
  • Case studies of successful projects;
  • The future of the market place; and
  • International successes.

To view the summit agenda, click here. To register for the summit, click here.

House Transportation & Infrastructure Committee’s Panel on Public-Private Partnerships Release Recommendations

Posted in Policy, PPPs

On September 17, the House Transportation & Infrastructure Committee’s Panel on Public-Private Partnerships (P3s) released its report and recommendations.  The group, empaneled in February of this year, was tasked with examining “issues regarding public-private partnerships across all aspects of the Committee’s jurisdiction.”  The panel held two hearings and seven roundtable discussions in addition to other meetings and briefings. The report recognizes that the nation’s infrastructure needs are extraordinary and P3s in certain situations can provide innovative solutions, and in some ways, incentives for projects to be delivered on-time and on-budget.

Under three broad areas, the panel makes a series of recommendations:

  1. Improving Public Sector Capacity;
  2. Breaking Down Barriers to Consideration; and
  3. Ensuring Transparency and Accountability.

Improving Public Sector Capacity:

The panel recommends directing the U.S. Department of Transportation (USDOT) to create a “Transportation Procurement Office” to work with federal funding recipients to implement best practices for design-bid-build, design-build, and P3 procurements, including P3 model contracts. The Transportation Procurement Office would also develop and institute project delivery performance standards for the same three types of procurements. It would also “issue best practices on standardizing state P3 authorities and practices.” The report also recommends directing USDOT to require State Departments of Transportation (State DOTs) to submit annual reports on project procurement performance as measured against the Transportation Procurement Office’s standards. USDOT should also “encourage the simplification and standardization of P3 contracts,” act as a clearinghouse for “lessons learned,” and encourage inter-state coordination in creating legislation to authorize P3 procurements so that states successfully using P3s can share their expertise. 

In background notes on these recommendations, the panel observes that because State DOTs currently contract for most design work and project construction, they are already engaging in P3s. But missing in these current contract structures are the incentives for on-time and on-budget performance.

Breaking Down Barriers to Consideration:

The panel supports a continuation of the Transportation Infrastructure Finance and Innovation Act (TIFIA) program and encourages “Congress to review Private Activity Bond (PAB) eligibility to support infrastructure P3s across the jurisdiction of the Committee.”  It also makes specific recommendations to USDOT and other federal agencies to encourage the use of P3s, such as clarifying the “statutory authority to allow states to use federal-aid highway funds to ensure robust competition in P3 procurements.”  It encourages federal agencies currently implementing TIFIA to share lessons learned as the federal government begins to implement the new Water Infrastructure Finance and Innovation Act (WIFIA). Additionally, it recommends changes in budgetary scoring rules and fully utilizing existing lease authorities as they relate to property leases.

Ensuring Transparency and Accountability:

The panel makes several recommendations that would provide additional information to the public about components of P3s that use federal grants, loans and tax incentives. The Panel recommends that USDOT be directed to require P3 project sponsors using federal funds to make publicly available a Value for Money (VfM) analysis before advancing the project via a P3 procurement.  The panel also recommends directing agencies to provide a “detailed summary” of federal investment in the project at the time federal funds are committed. The report suggests that key terms and conditions of P3s using federal funds be made available to the public “at an appropriate time in the decision-making process.” Further, the panel recommends requiring public project sponsors to conduct a review of P3 projects that utilized federal funds within three years of construction completion or revenue service and make publicly available information about whether the private partners are living up to the goals of the agreement.

In background notes on these recommendations, the panel observes that VfM analyses currently vary in “quality and content” and are not always publicly available. The panel also heard concerns that the public should be made aware of all factors involved in the P3 delivery method to make a fully informed decision about an agreement that could last for 30 years or more.

FHWA Publishes Core Toll Concession P3 Model Contract Guide

Posted in PPPs, Tollroads/ Turnpikes/ Managed Lanes

The FHWA published its final Core Toll Concessions P3 Model Contract Guide (“Guide”) on September 10, 2014 as part of its mandate under MAP-21 to develop “standard public-private partnership transaction model contracts for the most popular types of public-private partnerships.”  The Guide serves as an educational tool to assist states, public transportation agencies, and other public officials in developing their own public-private partnership agreements. 

The FHWA determined an educational approach is preferred to prescriptive requirements based on feedback received during a “listening session” in January with industry representatives.  Prior to publication of the final Guide, the FHWA also considered written comments received after publication of the draft Core Toll Concession Model Contract Guide in February of this year. 

The Guide covers many of the most important (and most commonly misunderstood) contract provisions in the toll concession P3 model.  It includes an explanation of tolling regulations and the risks of user demand for the project.  The Guide also explains benefit-sharing contract provisions, which are common in toll concession projects and generally require the Developer to share certain financial benefits with the project owner during the term of the contract. 

Because project risks are apportioned differently in a public-private partnership model than in more traditional contract models, the Guide explains how the P3 model may impact supervening events, such as force majeure events or other delay events.  The Guide also details many of the risks associated with potential changes in the equity interests of a contract bidder’s team. 

The FHWA plans to publish an Addendum to the Guide that will address in less detail secondary contract provisions such as performance standards, contract duration, Federal requirements, and performance security. 

The FHWA will also publish for public comment additional draft guides for other contract models in coming months and will publish an Availability Payments Model P-3 Contracts Guide in 2014. 

Florida Department of Transportation Reaches Commercial and Financial Close on I-4 Ultimate Project

Posted in PPPs, Tollroads/ Turnpikes/ Managed Lanes

The Florida Department of Transportation reached commercial and financial close on the I-4 Ultimate Project in the urban Orlando area.  The $2.3 billion deal is the third transportation P3 project in Florida developed through an availability payment structure, and is the largest availability payment transaction ever undertaken in the United States.

FDOT entered into an agreement with I-4 Mobility Partners OpCo LLC, a consortium led by Skanska Infrastructure Development Inc. and John Laing Investments Limited.  The Concessionaire will design, construct, finance, maintain and operate the Project for 40 years.

The I-4 Ultimate Project involves reconstruction of 21 miles of I-4 from west of Kirkman Road in Orange County to east of State Road 434 in Seminole County.  Along with developing a signature corridor with aesthetics and landscaping to convey the “Florida Experience,” the Project will provide a choice to motorists by adding four variable tolled Express Lanes to I-4 while maintaining the existing free general use lanes.  The design phase of the Project will begin within the next month and FDOT anticipates construction will begin in early 2015.  Through the P3 delivery model, the Concessionaire was able to provide significant technical enhancements, including direct connections from the Express Lanes to SR 408, additional auxiliary lanes and an additional pedestrian bridge along the facility.

FDOT and the Concessionaire worked expeditiously toward financial close with lenders including a consortium of six commercial banks and the Federal Highway Administration through the TIFIA credit assistance program.  This allowed FDOT to benefit from the low interest rate environment which resulted in a $68.7 million (net present value in 2014 dollars) decrease when compared to the I-4 Mobility Partners financial proposal.  I-4 Mobility Partners invested $104 million in the Project and commercial banks and TIFIA are lending $486 million and $949 million, respectively, to the Project.  The TIFIA is the largest loan ever undertaken under the TIFIA program.

Moody’s assigned a provisional Baa1 rating to Concessionaire’s senior construction bank loan, short term Tranche A TIFIA loans, and long term Tranche B TIFIA loans.  S&P assigned a preliminary BBB issue rating to the proposed construction loan facility and TIFIA loan.  An S&P Analyst, Dhaval Shah, noted that “[t]he rating reflects our view of the project’s contractual structure, which appropriately allocates risk between the project and FDOT, and our assessment of the project’s risks in completing construction on time and within budget, and in operating the project over the long-term concession.”

FDOT Secretary Ananth Prasad said: “This is a monumental milestone for one of the most congested corridors of the state, which draws millions of tourists and is an important mid-point in Florida for commerce and commuters.  The project gives us the opportunity to show how a successful Public-Private Partnership works, through construction and beyond, benefitting those who count on great infrastructure, which feeds a robust economy.”

Congressman Daniel Webster said the following regarding the benefit of structuring the I-4 Ultimate project as a P3 transaction: “Transportation is the economic engine that fuels Florida’s economy.  As a public private partnership, the I-4 Ultimate project will save hardworking taxpayers’ dollars while delivering the project nearly two decades sooner than could otherwise be expected. It will provide critical infrastructure that will enable us to continue to expand our business development, cultivate growth, and create jobs.  This is a big win for Central Florida.”

The FDOT press release can be found on the Project website.

Nossaman advised FDOT on the procurement, financing and contracts for the I-4 Ultimate Project.

“Enhanced Infrastructure Financing Districts”: New California Infrastructure Financing Law Passes Legislature

Posted in Financing, Legislation

Enhanced Infrastructure Financing Districts will soon become a reality for many cities and counties looking for a mechanism to perform some functions previously done by redevelopment agencies.  Senate Bill 628 (SB 628) passed the State legislature on August 30, 2014 which, when signed by the Governor, would expand the use of Infrastructure Financing Districts.

SB 628 authorizes the legislative body of a city or county to establish an enhanced infrastructure financing district, adopt an infrastructure financing plan, and issue bonds, for which only the enhanced infrastructure financing district is liable, to finance public capital facilities or other specified projects of communitywide significance.

Under SB 628 the legislative body is required to establish a public financing authority (a governing board of the enhanced infrastructure financing district, comprised of members of the legislative body of the participating entities and of the public), prior to the adoption of a resolution to form an enhanced infrastructure district and infrastructure financing plan.  Unlike current state law for infrastructure financing districts, a two-thirds vote is not required to form an enhanced infrastructure financing district.  Proceedings for the establishment of an enhanced infrastructure financing district require the adoption of a resolution of intention that, among other things, states the boundaries of the enhanced infrastructure financing district, the type of public facilities and development proposed to be financed or assisted by the enhanced infrastructure financing district, and the need for the district and the goals the enhanced infrastructure financing district proposes to achieve. The legislative body is required to hold a public hearing before passing a resolution that adopts the infrastructure financing plan. After the plan is adopted, the legislative body may adopt a resolution of formation creating the enhanced infrastructure financing district.

The public financing authority may issue bonds upon approval of 55% of the qualified electors of the enhanced infrastructure financing district. Tax increment financing would fund infrastructure projects such as highways, interchanges, transit facilities, sewage treatment and water reclamation plants, brownfield restoration and other environmental mitigation, low and moderate income housing, and transit priority projects, pursuant to the infrastructure financing plan and the agreement of affected taxing entities.  The enhanced infrastructure financing district would exist for 45 years from the date on which the issuance of bonds is approved.

As a  way to fill the void left by the dissolution of redevelopment agencies, SB 628 authorizes an enhanced infrastructure financing district to finance a project or portion of a project that is located in, or overlaps with, a redevelopment project area or former redevelopment project area. Cities or counties that created a redevelopment agency are prohibited from creating a district until the successor agency has received a finding of completion, the city or county certifies that no former redevelopment agency assets are the subject of litigation involving the state, where the city or county, the successor agency or the designated local authority are a named plaintiff and other events related to the wind down of the former redevelopment agency have been satisfied. The debt or obligation of an enhanced infrastructure financing district is subordinate to an enforceable obligation of a former redevelopment agency.

With the absence of redevelopment, SB 628 provides cities and counties the authority they need to build public infrastructure and it will increase investment in a variety of infrastructure through multiple funding streams, including private investment and procurement.

Federal Highway Administration Publishes New Rule for Value Engineering

Posted in Legislation

On Friday, September 5, 2014, the Federal Highway Administration (“FHWA”) published its final rule for Value Engineering (“VE”) for road and bridge projects.  The new rule implements changes made to VE requirements under Moving Ahead for Progress in the 21st Century (“MAP-21”), the last surface transportation authorization law that was signed into law in July 2012.

The FHWA’s final rule for VE increases the project thresholds that trigger a VE analysis, eliminates the VE analysis requirement for design-build projects, and defines the requirements for a state Department of Transportation (“DOT”) to establish and sustain a VE program.  Particularly, the prior project thresholds that prompted a VE analysis included federal-aid highway projects on the National Highway System (“NHS”) costing $25 million or more (as established in the National Highway System Designation Act of 1995) and bridge projects with an estimated total cost of $20 million or more and any other projects as determined by the Secretary of Transportation (as established in SAFETEA-LU in 2005).  Under the new rule, the project thresholds for VE are $50,000,000 or more for projects on the NHS that use federal-aid highway program funding assistance and $40,000,000 or more for bridge projects on the NHS that receive federal assistance.

In addition, the new rule eliminates the requirement for VE on design-build projects.  It should be noted, however, that under the new rule the FHWA continues to “encourage” a VE analysis for design-build projects on or off the NHS with an estimated cost of $25 million or more.

Finally, the new rule establishes the requirements for state DOTs to create VE programs for all applicable projects.

The final rule for VE goes into effect on October 6, 2014.