|FHWA > Federal-aid Program Administration > Terminated Preliminary Engineering Projects - Payback of Federal Funds|
This memo is canceled on June 26, 2008 and superseded by the memo "Repayment of Preliminary Engineering Costs"
The purpose of this memorandum is to reaffirm FHWA's policy regarding the termination of Federal-aid funded preliminary engineering projects and the need to repay Federal-aid funds expended on a terminated project.
Section 102(c) of title 23 requires a State to repay all Federal-aid funds for preliminary engineering for any project that has not advanced to construction or acquisition of right-of-way within 10 years after Federal-aid funds are first made available. There is an exception in Section 102(c) that allows a time extension to be granted beyond the 10-year period (see Mr. Horne's August 7, 1998, memorandum to you; Subject: Engineering Cost Reimbursement; Section 1304 of the TEA-21; Implementing Guidance). However, if a time extension is not granted by the FHWA, then the State must repay Federal-aid funds expended on preliminary engineering.
A question has arisen in regard to the applicability of Section 102(c) to a terminated preliminary engineering project. Of particular concern is the matter of whether Section 102(c) requires payback of Federal-aid funds for any preliminary engineering project that is terminated as a result of the improvement project associated with the preliminary engineering work being terminated or canceled.
It is our view that Section 102(c) was intended to cover situations where there is little or no progress on a preliminary engineering project or where preliminary engineering is basically finished but no further progress has yet been taken to advance the construction of the project associated with the engineering activity. Under these circumstances, the provisions of Section 102(c) require payback of Federal-aid funds unless the State can justify a time extension beyond the 10-year limit. Thus, Section 102(c) address the matter of not allowing preliminary engineering projects to remain as active projects for indefinite periods of time.
Section 102(c) was not intended to address those circumstances where a preliminary engineering project is terminated as a result of the improvement project associated with the preliminary engineering work being terminated or canceled. In these situations, FHWA's longstanding policy for handling terminated preliminary engineering projects and the need for payback of Federal-aid funds should be followed. The FHWA policy is that payback of Federal-aid funds expended for preliminary engineering costs is not required if the FHWA agrees that the project is being terminated for a valid reason including events beyond a State's control. Decisions to not require payback of preliminary engineering costs are to be made by the Division Administrator and should be documented.
One example of a valid reason for terminating a preliminary engineering project without requiring payback is where project termination is directly related to compliance with another Federal law, such as the National Environmental Policy Act (NEPA). For instance, if a State selects the "no build" alternative as a result of the NEPA process, no payback of preliminary engineering costs would be required. To do otherwise could skew the NEPA process towards always selecting a "build" alternative, regardless of the environmental impacts, because a State would have to payback the engineering costs incurred on the environmental analysis.
This memorandum has been coordinated with the Office of Chief Counsel.