The Vital Federal Role in Meeting the Highway Innovation Imperative (2019)

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17 2 Federal Highway Research, Development, and Technology in Support of Innovation The federalist and public-sector nature of the national highway system has led to the unique structure of programs funding highway research, develop- ment, and technology (RD&T) transfer in the United States. The programs for funding and managing intercity highways are unusual among developed nations because, with limited exceptions, the U.S. government does not own or operate highways. Instead, it raises user fees from motorists and provides these and other funds to the states to invest in roads and highways that meet federal eligibility criteria for this assistance. The states, in turn, also collect user fees, and, combined with federal aid, plan for, build, own, operate, and maintain a system of interconnected roads and highways. The vast majority of roads and highways in the United States are owned and operated by some level of government. In addition to providing aid, the federal government places many conditions on the use of these funds to serve national goals for mobility, safety, efficient freight movement, envi- ronmental protection, and others. The structure of the federal-aid highway program and public owner- ship of highway infrastructure leads to features of the federal highway RD&T programs that distinguish them from other federal research and development (R&D) programs. First, the principal customers and users of federal highway RD&T output are the state and local governments that own and operate the nation’s highways rather than the federal government itself. These main customers and users are state governments, metropoli- tan planning organizations, cities, counties, and other local government agencies. Second, in contrast to federal R&D programs in most other domains that foster innovation in private-sector markets, federal highway

18 VITAL FEDERAL ROLE IN HIGHWAY INNOVATION RD&T programs encourage innovation in a market that is dominated by public-sector agencies and decision makers. The public sector has a set of disincentives for innovation that are almost completely distinct from those of the private sector, which in turn leads to a set of RD&T programs and activities to overcome these barriers that contrast sharply with the nature of the R&D programs funded through other federal agencies. We return to this topic after first describing the broad and diverse customer base for FHWA RD&T. LARGE AND DIVERSE CUSTOMER BASE The customers of federal highway RD&T programs are remarkably varied. In addition to the 50 states, tribal nations, the District of Columbia, and Puerto Rico, about 39,000 local governments turn to federal publications, data, and staff for guidance in funding, developing, and managing their highway assets (see Table 2-1). The continental scale of the United States and the distant locations of Alaska and Hawaii indicate that the states and tribal nations themselves have great diversity in terms of climate, geogra- phy, sources of materials, and development patterns, all of which motivate diverse interests, concerns, and problems to solve. To be sure, the com- mon standards of the federal-aid highway system, and federal regulations that apply to them, create a good deal of consistency in states’ and local governments’ interests, but local preferences, cultures, and state laws and regulations also create varied conditions that are a challenge for federal programs to serve. The original emphasis of federal aid on building highways led to a fed- eral RD&T strategy targeted largely to the states to assist them in designing, TABLE 2-1 Ownership of Highways by Government Jurisdictiona Jurisdiction Number Federal-Aid Highway (miles) Non-Federal-Aid Highway (miles) Total Miles State 50 569,760 215,259 785,019 County 3,031 283,269 1,521,755 1,805,024 Towns and Cities 35,879 160,208 1,203,898 1,364,106 Federal and Other 14,612 214,947 229,558 Total 38,960 1,027,849 3,155,858 4,183,707 a Number of jurisdictions from U.S. Bureau of the Census, Local Governments by Type and State 2012. https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml? src=bkmk. Roadway mileage statistics by jurisdiction from FHWA. 2017. Highway Statistics, Table HM-16. https://www.fhwa.dot.gov/policyinformation/statistics/2017/hm16.cfm.

FEDERAL HIGHWAY RD&T IN SUPPORT OF INNOVATION 19 building, and maintaining highway assets. This assistance subsequently broadened to safety and environmental protection, but remained largely targeted to state departments of transportation (DOTs) and secondarily to local governments. With developments in technology that promised greater efficiency in operating road and highway networks, now referred to as In- telligent Transportation Systems (ITS), the federal customer base expanded to include local agencies responsible for urban traffic operations, including public transportation providers and their private-sector technology devel- opers and vendors. Implementing ITS technologies requires decisions and substantial investments by public agencies. Although a considerable share of federal highway RD&T has broad application across its customer base, the diversity and scale of its customers creates challenges in providing the technical assistance, training, and resources required to foster innovation in the public sector. In addition to the federal, state, and local governments, other partici- pants in the provision of highway transportation service may be sources of or potential customers for technological innovations: • Companies that design, construct, maintain, and operate highways under contract to governments • Suppliers of construction materials and other infrastructure components • Suppliers of services to highway users, including information services • Motor vehicle manufacturers and their suppliers • Trucking companies, bus operators, and taxi services Within the highway transportation system, FHWA’s and other federal agencies’ responsibilities for innovation are defined by the legislation that authorizes and funds federal RD&T. Chapters 3 and 4 describe these au- thorized activities. Historically, the scope of FHWA RD&T was limited to highway infrastructure design, construction, and maintenance and to highway operation, including traffic management and safety. In addition, the National Highway Traffic Safety Administration and the U.S. Environ- mental Protection Agency conduct research on motor vehicle technology related to safety, fuel economy, and pollutant emissions. Beginning with the development of intelligent transportation systems in the 1990s, the scope of FHWA RD&T was enlarged to include research, development, testing, and demonstration of devices and software onboard motor vehicles and systems for communication between vehicles and the infrastructure. RD&T programs in these technologies are an extension of governments’ established responsibilities for highway safety and traffic management. It seems likely that future IT innovation will continue to blur

20 VITAL FEDERAL ROLE IN HIGHWAY INNOVATION the once sharp demarcations between vehicle and infrastructure technology and between public and private sector roles in the highway system. One consequence of this enlarged scope is that highway users, including commercial operators and private motorists, are the direct consumers of some of the innovations that FHWA is developing today, in particular, ser- vices provided by connected and automated vehicles. Trial implementations of these technologies, described in Chapter 3, focus on their acceptance and use by road users. A second area receiving increased attention in federal transportation RD&T in recent decades is intermodalism, that is, the construction and operation of facilities that allow people and goods to move by the most ef- ficient modes of transportation and to make efficient connections between modes. Intermodal freight movement has been an emphasis area of FHWA freight operations research. Intermodal freight research broadens the cus- tomer base for FHWA RD&T to include the operators of the connecting modes, including railroads and waterways, and ports. Alongside government RD&T, contributions from the private sector have been of primary importance in highway innovation. For example, many of the advanced materials and construction techniques now used in highways were employed earlier in private sector construction. Government research adapted the technologies to highway applications and demon- strated their value. THE INNOVATION LIFE CYCLE Innovation in practice follows diverse, complex, and non-linear processes, but it is useful to begin with a simplified linear model in order to describe the process and contrast the differences between the private and public sectors’ role in innovation, in general, and in the highway sector in par- ticular. This section describes the process of developing and implementing innovations in the public highway sector from a life-cycle perspective. The innovation process is often thought of in terms of researching, developing, testing, and launching an individual innovation. The focus in this report, in contrast, is on how federal RD&T programs foster innovations and their implementation, in general. The life-cycle perspective includes the tradi- tional view of the innovation process for individual innovations as well as evaluating the results of the innovations adopted. A Simple Model of Innovation The innovation life cycle can be envisioned as building upon the devel- opment of new knowledge or understanding, also referred to as basic

FEDERAL HIGHWAY RD&T IN SUPPORT OF INNOVATION 21 research.1 Applied research builds on this new knowledge to develop appli- cations (services, products, models, etc.) intended to solve particular prob- lems. Applied research may result in promising applications that can then be further developed into a product or specific service. Once further devel- oped, these potential innovations may undergo various forms of analysis or testing, in the laboratory and in the field, or some form of market testing with consumers. If these tests, along with estimated returns on investment, are positive, then products or services are marketed and sold to consumers. In the context of federal highway RD&T, the consumers of an innovation emerging from R&D are most commonly state and local highway agencies, and marketing is convincing the agencies to try the innovation by showing its value and practicality. If marketing is successful, then the innovation is deployed and the private firm, consumers, and the economy as a whole reap benefits. Evaluation of the results of deployment determines whether the effort has been successful or profitable and informs the preceding stages of developing new innovations. This version of the innovation life cycle de- rives from the development of technology, but the general principles extend to process or institutional innovations as well. Potential process or institu- tional innovations that derive from social science research, for example, can be refined and developed through small-scale studies, then experimented with on a larger scale and improved before implementation, and then be evaluated after implementation. The steps in this overly simplified model are illustrated in Figure 2-1. For reasons that will become clearer in the review of resource allocation across the stages of the innovation cycle in Chapters 3 and 4, this simplified model is used in this report as an expository technique rather than as an explanation for how the innovation life cycle actually works in practice, which includes complex feedback among the stages shown in Figure 2-1 and other market or budgetary pressures and technological opportunities that influence the demand for innovation itself.2 In the next two sections, this simple model is expanded on to describe and contrast how it applies in the private and public sectors. 1 We simplify here to make a general point, but it is also true that invention and innova- tion can precede scientific understanding and even directly lead to scientific understanding. See, for example, Rosen, W. 2010. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. Chicago, Ill.: University of Chicago Press; Narayanamurti, V., et al. 2013. RIP: The Basic/Applied Research Dichotomy. Issues in Science and Technology 29:2; and Kline, J. S., and N. Rosenberg. 1986. An overview of innovation. In R. Landau and N. Rosenberg (eds.), The Positive Sum Strategy: Harnessing Technology for Economic Growth. Washington, D.C.: National Academy Press. 2 See Kline, J. S., and N. Rosenberg. 1986. An overview of innovation. In R. Landau and N. Rosenberg (eds.), The Positive Sum Strategy: Harnessing Technology for Economic Growth. Washington, D.C.: National Academy Press, pp. 275–305 and B. Godin. 2017. Models of Innovation. Cambridge, Mass.: MIT Press.

22 VITAL FEDERAL ROLE IN HIGHWAY INNOVATION Innovation in the Private Sector Innovation builds on knowledge or understanding, but in a competitive marketplace, private companies have disincentives to invest in the develop- ment of knowledge if that investment would benefit their competitors as much as themselves. Technological innovation in the private sector often begins with a considerable dependence on public investments in basic or precompetitive research. Aside from R&D programs focused on national defense and space, the governing expectation for federal R&D at the other largest sectors of federal R&D spending—National Institutes of Health, National Science Foundation, and U.S. Department of Energy—is that op- portunities for profit drive individuals and companies to build on the public sector’s investment in basic research to develop products and services to sell in the marketplace. Particularly in the post–World War II era, this approach has provided the country with substantial economic returns on its invest- ment3 and is the dominant conceptual model of R&D and the innovation life cycle in the United States. As described in the next section, private-sector incentives also encour- age innovation in the highway sector, but must overcome a unique set of barriers caused by public ownership of roads and highways. 3 Salter, A. J., and B. R. Martin. 2001. The Economic Benefits of Publicly Funded Basic Research: A Critical Review. Research Policy, Vol. 30, No. 3. https://www.sciencedirect.com/ science/article/pii/S0048733300000913. FIGURE 2-1 Innovation life cycle.

FEDERAL HIGHWAY RD&T IN SUPPORT OF INNOVATION 23 Innovation in the Public Highway Sector Innovation occurs in the public sector, but it requires a different approach than in the private sector because of lack of a profit incentive and many barriers to innovation. Barriers to Innovation This section addresses the most prominent barriers to innovation in the public sector: • Risk aversion; • The “low bid” contracting process; • Limits on use of proprietary or patented projects; • Litigation risk; • Lack of evidence for long-term (multi-decade) performance of in- novative materials and products; • Lack of knowledge, skills, and abilities of public- and private- sector workforces to implement technologically advanced innova- tive practices and products; and • The large, diverse set of public-sector customers for FHWA RD&T that requires a broad and diverse set of dissemination and technol- ogy transfer strategies. Risk aversion Public-sector officials lack opportunities to profit financially from taking risk as they might in the private sector. They have few incen- tives to risk trying something new; indeed, success and reward among public officials derive from being cautious and avoiding risk.4 For these and other reasons, highway agency decision makers tend to be risk averse, espe- cially with the expenditure of public funds that can run into the millions, if not billions, of dollars for individual projects and the high personal cost of failure. This is not to say that public agency officials lack all incentives to innovate, as indeed such incentives do exist and innovation does occur.5 As discussed below, highway agencies will introduce innovations when they have compelling evidence of their effectiveness. Low-bid contracting Contracting for construction, reconstruction, main- tenance, and the many other services that public highway agencies procure 4 Downs, A. 1967. Inside Bureaucracy. Boston, Mass.: Little, Brown and Company. 5 See, for example, counter arguments to those advanced by Downs and other economists in Roessner, J., 1977. Incentives to Innovate in Public and Private Organizations, Administration and Society, Vol. 9, No. 3, and Feller, I., and E. Feller, 1981. Boston, Mass.: Little, Brown and Company. Public Sector Innovation as “Conspicuous Production,” Policy Analysis, Vol. 7, No. 1.

24 VITAL FEDERAL ROLE IN HIGHWAY INNOVATION from the private sector, is dominated by requirements for competitive bid- ding. These requirements were put in place for good reasons—to ensure that the public receives the best value for its funds and to avoid graft—and these goals are simply and readily accomplished by awarding contracts to the lowest bidder. Avoiding favoritism and seeking the lowest bid, however, comes at a cost.6 Requests for proposals that are fair to all proposers and result in the lowest bid must be extremely specific about the product that asset owners want and the codes and standards with which the product must comply. This low-bid, specifications-driven contracting process gives the private sector limited opportunity to innovate with potentially better solutions to achieve the public’s goals than those proposed in the bidding process. (Although low-bid contracting is still common, new contracting methods introduced and supported by FHWA have been slowly changing this constraint to private-sector innovation.7) Limits on the use of proprietary and patented products Another important barrier to innovation in highway services procured with federal aid are the federal and state limits on use of proprietary and patented products. Again, these restrictions are designed to ensure competition to protect the public against favoritism and possible graft, but they limit incentives to private- sector innovation.8 A federal regulation (23 CFR 635.411), applicable to federal-aid highway projects, restricts the ability of state highway agencies to specify that the contractor use a patented or proprietary material, speci- fication, or process except in certain special circumstances. This rule affects the ability and willingness of the states to adopt new technologies and the private sector’s incentives to develop technologies. Litigation risk When public agencies contract for a new product or service, which might be patented or trademarked, the small number of bidders can constrain the ability of public agencies to make awards. In some cases, the number of bidders may be too few to meet state and local standards for competitive bidding. Moreover, given the few competitors and limited initial market for new products and services, losing bidders have high 6 TRB. 1996. Special Report 249: Building Momentum for Change: Creating a Strategic Forum for Innovation in Highway Infrastructure. Chapter 2. Transportation Research Board of the National Academies, Washington, D.C. 7 A good overview of alternative contracting and project delivery methods is provided in TRB. 2018. Transportation Delivery: Alternative Contracting Methods Research, TR News, No. 316. July–August. http://onlinepubs.trb.org/onlinepubs/trnews/trnews316.pdf. 8 Federal restrictions on use of proprietary and patented products in projects funded with fed- eral aid may be easing. See https://www.federalregister.gov/documents/2018/11/14/2018-24687/ construction-and-maintenance-promoting-innovation-in-use-of-patented-and-proprietary- products.

FEDERAL HIGHWAY RD&T IN SUPPORT OF INNOVATION 25 incentives to litigate about the procurement process and thereby tie public agencies’ hands for lengthy periods of legal proceedings. Long-lived assets An underappreciated barrier to innovation in the public highway sector is the long-lived nature of major assets such as highway pavement structures, bridge substructures, bridge decks, culverts, and road- side sign supports and other appurtenances. Because many such assets last for decades, even many decades in the case of bridge substructures, engi- neers are reluctant to try new designs, materials, or other products when they lack a proven track record compared with familiar approaches. When new and particularly innovative approaches lack standards or existing specifications, the risk aversion of public officials responsible for investing public funds overcomes the potential benefits of using them. Similarly, en- gineers may be unwilling to try new approaches to planning and providing capacity (e.g., provision of toll, bus-only, or truck-only lanes or bicycle and pedestrian accommodations in a capacity expansion project) because benefits are uncertain and mistaken choices are difficult to correct. This problem also pervades the growing interest in planning for, and investing in, highway products based on expected life-cycle costs rather than the lowest initial costs. It is difficult to establish the life-cycle cost of new products that are expected to last for decades. There are R&D approaches to this problem, such as monitoring and collecting performance data over long periods of time or conducting accelerated testing in controlled, laboratory environments, but such experiments are expensive and difficult to mount and maintain, and support for long-term data gathering is difficult to sus- tain without short-term payoffs. Preparation of public-sector workers to implement innovations The knowl- edge, skills, and abilities of public-sector workforces can also serve as impediments to implementing innovations that may require increased fa- miliarity with new materials, unusual designs, advanced contracting and fi- nancing methods, development of new specifications, sophisticated models, and other innovations. Even the private contractors that highway agencies rely on to implement innovations may be unfamiliar with innovations and require additional training and education. Large and diverse set of customers Finally, the multiple and diverse own- ers of highway assets described in the previous section pose a challenge in creating awareness and understanding about promising innovations across a broad and diverse customer base. As a rule, state DOTs have consider- ably more technically proficient staff than most local governments, which requires FHWA to develop and deploy a different set of strategies to as- sist a wide range of customers. A considerable and diverse outreach and

26 VITAL FEDERAL ROLE IN HIGHWAY INNOVATION technology transfer effort is required to reach these tens of thousands of customers. Public-Sector RD&T Activities to Overcome Barriers As illustrated in Figure 2-2, innovation in the public highway sector follows steps similar to those employed in the private sector, but lacks the driving force of the profit incentive. Public-sector RD&T officials are not faced with the same risks from investment loss from conducting RD&T that applies in the private sector. Instead, they must overcome the barriers to deploying innovations described above. In order to do so, potentially prom- ising innovations in the public sector, after being identified through applied research, must first be shown to work in controlled environments, either in the laboratory or through field tests, and then early adopters must be willing to take the risk of experimenting with these promising innovations. Innovations that prove themselves through this process will then diffuse to other public-sector owners and operators only if compelling evidence demonstrates their effectiveness and knowledge about this effectiveness is disseminated and promoted to the 50 states and 39,000 other highway owners. Innovation in contracting innovations, new construction techniques, or applications of new materials may also require changes in regulations and development of new standards and specifications. The public-sector approach to innovation therefore requires a substantial investment in tech- nology transfer once promising concepts have been tested successfully. Technology transfer itself has multiple elements, including broad diffusion of information, technical assistance, training and education, and incentive grants to overcome risk aversion. Moreover, this technology transfer effort must be sustained over multiple years, sometimes decades, in order to take FIGURE 2-2 Simplified model of the public-sector highway innovation life cycle.

FEDERAL HIGHWAY RD&T IN SUPPORT OF INNOVATION 27 a promising innovation all the way from concept to broad application by states and local governments.9 Moreover, considerable resources are re- quired for the technology transfer process. A carefully developed estimate for Congress of the cost of supporting implementation of the innovations from the Strategic Highway Research Program 2 (SHPR 2) indicated that the technology transfer stage would cost more than double the cost of the R&D itself.10 Evaluation applies to all phases of the innovation life cycle and applies to all phases of the process to ask questions such as: • How effective have R&D programs been in developing innovations and how can their processes be improved? • How effective have technology transfer programs been in overcom- ing the barriers to innovation and how can they be improved? • How effective have innovations proven to be once adopted and how can the benefits of future innovations be maximized? Private-Sector Role in Highway Infrastructure Innovation Public highway agencies make decisions about how to build, maintain, and operate their roads, highways, and structures, and are therefore the primary target of federal technology transfer efforts, but the private sector also plays an important role in the highway innovation life cycle. Public asset owners are served by myriad private contractors, who supply materials for pave- ments and bridges as well as roadside appurtenances, signs, and signals; provide toll collection; design, build, and maintain assets under contract; provide traffic management and data collection; develop and apply models to aid in public-sector planning and decision making; and more. Many private companies that serve public agencies are driven to in- novate through the private innovation process, but, as mentioned above, the detailed specifications in typical public-sector contracting and other contract restrictions constrain opportunities for the private sector to inno- vate. However, new contracting methods, themselves developed and tested through FHWA funded R&D discussed in Chapter 3, are providing new ways to encourage and deploy private-sector innovations into the public highway sector more broadly. We return to the potential for expanding private-sector innovation in highways in Chapter 5. 9 Maycheck, E., et al. 2018. Back-Casting Breakthrough Research in the Transportation Sector. FHWA-HRT-17-124. 10 Committee for the Strategic Highway Research Program 2: Implementation. 2009. Implementing the Results of the Second Strategic Highway Research Program: Saving Lives, Reducing Congestion, Improving Quality of Life. National Academies of Sciences, Engineer- ing, and Medicine, Washington, D.C.

28 VITAL FEDERAL ROLE IN HIGHWAY INNOVATION Innovation Stages and RD&T Definitions Characterizing and classifying RD&T activities in the chapters that follow depends on having a consistent set of definitions. The innovation life cycle has always been difficult to define because of the serendipity of discovery, the often unexpected connections that innovations are built on, and the directions taken before they are deployed. The definitions offered here are made with an appreciation of the difficulties of separating and defining the elements of the creative process and with the realization that reasonable and knowledgeable people have different conceptions and definitions. OMB Innovation Stages and Definitions The federal Office of Management and Budget (OMB) requires federal agencies to estimate how much of their R&D budgets is allocated to basic research, applied research, and development. This report relies on FHWA reporting of its RD&T funding in these categories, as described in the following chapter. Thus, it is important to understand the definitions that apply to these stages. OMB offers the following definitions11: Basic research is systematic study directed toward a fuller knowledge or understanding of the fundamental aspects of phenomena and of observ- able facts without specific applications toward processes or products in mind. Basic research, however, may include activities with broad applications in mind. Applied research is systematic study to gain knowledge or understand- ing necessary to determine the means by which a recognized and spe- cific need may be met. Experimental development is creative and systematic work, drawing on knowledge gained from research and practical experience, which is directed at producing new products or processes or improving existing products or processes. Like research, experimental development will result in gaining additional knowledge.… This definition, unlike the previous [OMB] definition of development, excludes user demonstra- tions of a system for a specific use case and pre-production develop- ment (i.e., non-experimental work on a product or system before it goes into full production). 11 Office of Management and Budget. 2018. Circular A-11, Part 2, Section 84, pp. 3–4. https://www.whitehouse.gov/wp-content/uploads/2018/06/s84.pdf.

FEDERAL HIGHWAY RD&T IN SUPPORT OF INNOVATION 29 Because highway transportation is an applied field that draws on many disciplines, basic research is rarely funded by FHWA or other federal highway RD&T programs. Highway RD&T is usually classified into three categories: applied research, development, and technology transfer (or de- ployment). Congress has defined highway RD&T very broadly in 23 USC Chapter 5 to cover all aspects of highway transportation across the full innovation cycle. Although included in FHWA’s reporting, OMB does not define technology transfer or require reporting in this category. Definitions Used in This Report In terms of the five stages of innovation in the highway sector (beginning with research illustrated in Figure 2-2), the committee strives to be con- sistent with OMB’s definitions. As described in the next chapter, however, FHWA and ITS JPO classifications of some of their RD&T activities as ap- plied research includes some activities that the committee would classify as development or technology transfer. Such differences of opinion are largely semantic. They only become important when trying to develop a deeper understanding of how FHWA and ITS JPO allocate resources across the full RD&T portfolio and stages of the innovation life cycle, as described in the next chapter. Applied research The committee’s use of this term in this report, stage one in Figure 2-2, is based on OMB’s “systematic study to gain knowledge or understanding [emphasis added] necessary to determine the means by which a recognized and specific need may be met.” In the committee’s view, detailed focus on specific solutions, products, or processes fall into OMB’s “experimental development” category, as defined next. Two other terms related to applied research used in this report require some discussion. The committee uses “early-stage applied research” to refer to research activity that is seeking and conducting initial analysis of poten- tially promising approaches, methods, materials, or techniques that might be applied to address a transportation problem or issue. Such research might draw from basic and disciplinary research and applications in other fields. As the committee understands this term, early-stage applied research is similar to “fundamental” research as this term is used in con gressional criteria that apply to FHWA’s program (see Chapter 1). If one thinks of knowledge and understanding on a continuum, basic research pursues knowledge and understanding for its own sake without reference to any specific application of the knowledge gained. Fundamental transportation research, which is beginning to focus on applications, is somewhere near the border between basic and applied research. It is both seeking insights from basic research that might lead to promising applications as well as searching

30 VITAL FEDERAL ROLE IN HIGHWAY INNOVATION for successful applications in other fields that could be applied in transpor- tation. Early-stage applied research is seeking applications and is therefore across the border between basic and applied research, but it would not include deep analysis about, or testing of, any particular application. As one follows the continuum from basic research to the delivery of a product and reaches the border between applied research and development, applied research would be narrowing the range of options for consideration and conducting analysis in abstract ways using theory, statistical or math- ematical tools, or laboratory tests to probe the potential for an application or set of applications, but would be far short of having a prototype model, physical object, or material to rigorously test in a laboratory setting. Development Consistent with OMB’s definition, the committee views de- velopment, stage two in Figure 2-2, as including deep analysis or ex- perimental testing in a laboratory setting of a specific material, process, or prototype to evaluate the potential of such applications. In FHWA’s case, this stage of development would also include the analysis and translation from applied research into guidance and guidebooks for practitioners’ use. This laboratory or analytical testing would be distinct from a field or pilot test, where an application would be evaluated in the “real-world” context that laboratories by their nature cannot fully replicate. In the committee’s understanding, real-world pilot tests would be stage 3 in Figure 2-2. Technology transfer The committee views any activity that FHWA uses to share or promote the use of proven application as technology transfer (stage 4 in Figure 2-2). This includes information sharing, briefings, webi- nars, websites, and distribution of summaries of complex applied research and experimental development into brief reports for general consumption as well as in-person technical assistance. It also includes incentive grants to “buy down” the risk of applying innovations proven in field tests but not yet in widespread use. Also included is the training and education required for state and local practitioners and contractors to understand, use, and apply new innovations as designed and intended. Evaluation The fifth stage of the innovation life cycle illustrated in Figure 2-2 includes both the subjective assessments of R&D managers of how well their processes are working as well as more rigorous retrospective analy- sis using evaluation methods developed in the social sciences. Evaluation research can estimate rigorously how well the process of developing and delivering innovation is working and determine how effective the innova- tions themselves have been after being deployed. In order to continually improve the innovation process, evaluation results should be fed back to all the earlier stages.

FEDERAL HIGHWAY RD&T IN SUPPORT OF INNOVATION 31 Technology readiness level (TRL) Major federal funders of R&D, including the National Aeronautics and Space Administration, the U.S. Department of Defense, and the U.S. Department of Energy, have developed descriptive scales that can be used to assess when a technological innovation has ma- tured enough for deployment or acquisition by a sponsoring agency.12 The TRL scales illustrate how technology evolves from science to engineering and matures through basic research to deployment. TRLs are defined and compared with the innovation stages from Figure 2-2 in Table 2-2. 12 See Appendix VI in GAO. 2016. Technology Readiness Assessment Guide: Best Practices for Evaluating the Readiness of Technology for use in Acquisition Programs and Products. GAO-16-410G. https://www.gao.gov/assets/680/679006.pdf. TABLE 2-2 Technology Readiness Levels and Innovation Stages Readiness Level Definition Innovation Stage 1. Basic principles observed and reported. Examples include paper studies of basic properties or observations of the physical world. Basic research 2. Technology concept and/or applications formulated. Early-stage identification of practical applications that corroborate scientific findings from technology readiness level 1. Applied research 3. Analytical and laboratory scale studies/proof of concept, but short of a full-scale prototype. Laboratory tests, modeling, or simulation to measure parameters of interest and comparison of analytical predictions to performance of subsystems. Applied research 4. Component and/or system validation in a laboratory environment. Component integration at a low level of fidelity. Applied research 5. Laboratory or similar system validation of a near- prototype system or application. Experimental development 6. Prototype system validation in a relevant environment. Experimental development 7. Full-scale prototype demonstration in a relevant environment. Final design nearly complete. Field testing 8. System completed and qualified through test and demonstration. Technology has been proven to work in its final form under expected conditions. Ready for technology transfer 9. System operated under full range of expected conditions. Deployed SOURCE: Drawn from GAO, 2016, Table 15, pp. 135–136.

32 VITAL FEDERAL ROLE IN HIGHWAY INNOVATION TRL definitions are helpful in assessing whether technological inno- vations that involve hardware and/or software are sufficiently developed for deployment. TRLs may not apply as well to innovations that are less dependent on hardware, such as improved physical designs, safety coun- termeasures, or improved planning models and processes, but the general principles behind TRLs can still be applied in developing such innovations and determining whether they are ready for promotion through technology transfer. In distinctions between the public- and private-sector roles in R&D that apply to other fields with greater private-sector incentives, public R&D might stop after TRL 1, 2, or 3 when the private sector can be expected to further develop and test a potentially promising concept, technology, or system at its own risk. In the highway sector, where private develop- ers have fewer incentives and risk-averse public agencies are the decision makers, public RD&T is necessary in some cases all the way to TRL 8. Examples would include development and testing of highway geometric and intersection designs, novel materials, contracting specifications, model planning processes for compliance with federal law and regulation, safety countermeasures, performance metrics and standards, and standards for interoperability of connected and automated highway vehicles. Private sup- pliers of products and services to highway agencies can and do assume the risk of product development, testing, and marketing in cases where public agency standards and requirements are well specified and where they can seek and gain competitive advantage when specifications do not apply, such as in paving and other construction equipment. CONCLUSIONS 2.1 Because of the importance of highway transportation to individu- als, society, and the economy, the federal government has a sub- stantial interest in promoting innovation in the public highway sector. 2.2 FHWA is the national leader that discharges the federal interest in highways, including promoting innovation by the states and local governments that own and operate highways funded, in part, with federal aid. 2.3 The private and public sectors follow similar steps in the innova- tion life cycle, but the public sector lacks a profit incentive that is the key driver of private-sector innovation. 2.4 Although innovation is often a non-linear, serendipitous process, innovation in the highway sector can be delineated in five stages:

FEDERAL HIGHWAY RD&T IN SUPPORT OF INNOVATION 33 applied research, development, testing, technology transfer, and evaluation. These stages overlap and interrelate. Evaluation needs to apply to all the stages in order for continuous improvement in RD&T to occur. 2.5 A large, diverse set of highway asset owners requires a large and diverse technology transfer effort to foster innovation. 2.6 Public programs have to push innovation through multiple phases over many years to overcome the disincentives to risk taking in the public sector. 2.7 The cost of promoting innovations in the public highway sector is considerably greater than the cost of researching and developing them. The next chapter describes FHWA and ITS JPO RD&T programs funded by Congress to foster innovation in the U.S. highway sector and assesses them in terms of criteria established by Congress, including ad- dressing all stages of the highway innovation life cycle.