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Utility Relocation and Accommodation on Federal-Aid Highway Projects
Chapter 1: Utility Relocations, Adjustments, and Reimbursement

Since the initiation of the Federal-aid highway program in 1916, utility relocation and adjustment work has been eligible for Federal-aid participation as a construction cost item to the extent the State was obligated to pay for such work.

During the early years, the use of Federal-aid funds for utility relocations and adjustments was quite limited; however, with the advent of the Interstate Program in the 1950s, it became a much more common practice for the States to use their highway funds to reimburse utilities for relocation and adjustment costs.

Present FHWA regulations dealing with utility relocations, adjustments, and reimbursement have evolved from basic principles established decades ago, with many of the policies remaining unchanged. A discussion of the development of FHWA policies may be found in the following documents:

  • Utility Relocation and Accommodation: A History of Federal Policy Under the Federal-Aid Highway Program, Part I: Utility Relocation.
  • Highway/Utility Guide, Chapter Two, Historical Perspective.

These documents were distributed in 1981 and 1993, respectively. They are important reference sources for those dealing with utility relocations and adjustments on Federal-aid highway projects. A link to these documents may be found on the FHWA's utilities web page at:

The last major rewrite of the FHWA's utility regulations occurred on May 15, 1985, when a final rule was published in the Federal Register.

The only significant changes since then occurred on July 1, 1988; July 5, 1995; and November 22, 2000, when amendments to the regulations were published in the Federal Register.

The 1988 amendments clarified that costs incurred by transportation departments in implementing projects solely for safety corrective measures to reduce the hazards of utilities to highway users are eligible for Federal-aid participation.

The 1995 amendments eliminated the requirement for FHWA pre-award review and/or approval of consultant contracts for preliminary engineering; increased the ceiling for lump sum agreements from $25,000 to $100,000; clarified the meaning of the term "approved program" and the methodology to be used to compute indirect or overhead rates; required utilities to submit final billings within one year following completion of the utility relocation work; and eliminated the certification of completed utility work and the requirement for evidence of payment prior to reimbursement.

The 2000 amendments eliminated the $100,000 upper limit for lump sum agreements; allowed reimbursement for utility relocations to be based on unit costs; and deleted the provision encouraging State transportation departments to adopt the alternate procedure for utilities.

Discussions on the following pages examine the material presented in 23 CFR 645A on utility relocations, adjustments, and reimbursement.

Applicability (23 CFR 645.103)


In accordance with § 645.103(a), utility regulations contained in 23 CFR 645A apply for the payment of costs incurred under all FHWA/utility agreements. Thus, FHWA payments for utility relocations on Federal-aid and Federal lands highway projects are covered by the regulations contained in 23 CFR 645A.

Payment Standards

Under provisions in § 645.103(d), FHWA reimbursement to a State is governed by either a State standard as established by State law or regulation, or by an FHWA standard as established by regulation. Further, should FHWA and State standards differ, FHWA reimbursement is limited to the one that is more restrictive.

In applying this provision, a situation may occur where a State may have several payment standards that differ from the FHWA's, some being more liberal and some more stringent. A question then arises as to whether the State's standards can be accepted in total if the net result would be a payment to the utility that would be equal to or less than under the FHWA standards.

The FHWA position is that a State's payment standards should not necessarily be accepted as a package, but rather that each payment standard should be reviewed and applied individually.

As an example, a State may have a more liberal standard that allows payment to the utility for interest on borrowed funds. However, under current law the FHWA cannot pay for interest on borrowed funds for utility relocations. Therefore, the FHWA would not accept this payment standard even though the State may be obligated to pay the interest costs. The FHWA's reimbursement to the State would be controlled by the FHWA's standard.

Conversely, this same State may have a more stringent payment standard that requires it to secure a depreciation credit (expired service life credit) in all situations, regardless of the facilities involved. Even though the FHWA would not require this credit in all circumstances, if the State were in fact receiving it in all situations, FHWA would also expect to receive it. Granted, this application has the aspect of "having one's cake and eating it too." However, the FHWA position is to evaluate and apply each payment standard separately.

Definitions (23 CFR 645.105)

The definitions in this section are generally concise and few questions arise on their meaning. Even so, to provide a better understanding, the following discussion presents background information on some of the key terms.


The concept presented in the definitions is that a utility's service should be restored so that it may continue to provide its product to its users in a fashion similar to that which existed prior to its relocation as a result of the highway project. The idea of making the utility "whole" in many cases means that various facilities will have to be functionally restored.

The issue of the equivalency of a functional replacement arises. Although each situation has to be viewed separately, "capacity" is one common measure that can be used in determining the equivalency of the replacement facility. Obviously, the specific unit of measure of capacity will vary depending on the commodity to be conveyed or the facility involved. This may range from a volume unit of measurement on a pipeline to a floor space unit for a building.

Generally, replacement facilities that maintain the overall functional capacity, even including those that may rearrange this capacity to a more efficient operation as a result of present day design or operation needs, are eligible for Federal participation.

Additionally, it is recognized that in replacing certain functions, some changes may be required to meet present standards. For instance, if a building is replaced, under the present building codes the new building may require certain features, such as a fire sprinkler system, which were not part of the old facility. Features required to meet present standards are considered to be an essential part of the functional replacement and are eligible for Federal participation.


The definition of "utility" contained in § 645.103 is used by the FHWA to determine whether a particular facility is to be considered a utility for the purposes of Federal-aid fund reimbursement for relocation and adjustment costs. This definition is fairly broad in scope. One key in its application is whether a State considers a particular facility to be a utility under its own State law. If the State treats a facility as a utility and is obligated to pay for its relocation from a highway project as a utility, and if the facility is producing, transmitting, or distributing any of the commodities outlined in the FHWA definition for the use by or the direct benefit of the public, then the FHWA would handle the reimbursement under its utility regulations.

Obviously, under varying State laws or practices, the same type of facility may be viewed differently depending on the State involved. An example is cable television (CATV). In some States, CATV is considered to be a "utility" and any payment for relocation is handled as a utility matter. In other States, CATV is not considered to be a "utility" and is not eligible for payment under the State's utility reimbursement statute. In either case, the FHWA accepts the State's interpretation of the situation and will only pay for CATV as a utility relocation if the State can do so and has done so.

Other common examples of this situation are wireline (fiber optics) and wireless telecommunications.

Eligibility (23 CFR 645.107)

The eligibility section of the CFR includes some of the more complicated provisions and must be carefully read if the FHWA's present policy is to be fully understood.


The basic eligibility criteria presented in § 645.107(a) are fairly straightforward. Federal funds may participate in relocation costs necessitated by highway construction under one or more of the following conditions:

  • The utility has a property interest in its present location.
  • The State has a law or some legal basis for payment that gives it the authority to pay for utility relocations. [It is noted that one provision of 23 U.S.C. 123 prohibits Federal funds from being used if such a use would be in violation of a legal contract (permit) between the State and the utility. Even so, a broad non-discriminatory State utility reimbursement statute is viewed, whether expressly stating so or not, as giving the State the legal authority to override the provisions of a permit and to pay for utility relocations.]
  • The utility is municipally owned and occupies public right-of-way. [This can be viewed as a derivative of the first criterion involving property interest. A municipally owned utility, particularly one located within municipally owned right-of-way, could be said to have a property interest in its location.]
  • The utility relocation involves implementing safety corrective measures to reduce the roadside hazards of utility facilities to highway users. [This point was clarified by a final rule published in the Federal Register on July 1, 1988, and effective that date].

In addition, § 645.107(j) indicates Federal funds are eligible to participate in the costs of preliminary engineering and allied services for utilities, and the acquisition of replacement right-of-way for utilities.

State's Own Funds

A key provision of 23 U.S.C. 123 is the requirement that Federal reimbursement for utility relocations shall be made only after it has been demonstrated to the FHWA that "the State has paid such costs from its own funds."

The legislative history makes it clear that Congress wanted Federal reimbursement to a State for the cost of relocating utility facilities to be made only on the basis of State funds actually expended, and not for funds paid, advanced, donated or contributed by or from any other sources. The intent of Congress was that the burden of relocating utilities on highway projects was to be shifted from the utilities to the State if the State authorized it and was willing to share the cost with the Federal government.

Besides the State, other funding sources were intended to cover all utilities, including those owned by local governmental entities. For the latter case, the provisions in title 23 present a broad definition of "utility" that includes "publicly, privately, and cooperatively owned utilities" and clearly encompasses a local government-owned utility. Additionally, local government owned utilities can be viewed as a "proprietary" function as opposed to a "governmental" function of the local government. Because of this, a local government-owned utility should be treated in a fashion similar to any other utility.

The FHWA has participated in utility relocation costs not incurred directly by a State, but this generally has been limited to situations where a project lies on a highway under the jurisdiction of a political subdivision of the State, and where this political subdivision, in exercising its "governmental" function, is assuming responsibility for the non-Federal share of overall project costs.

For example, the city or county has "stepped into the shoes" of the State, a common occurrence on Federal-aid projects located on highways off the State's system.

Further information on this issue is presented under "Utility Cost Sharing Proposals."

Local Government Owned Utilities

Under provisions in § 645.107(a)(3), most States may use Federal-aid funds to some extent to pay for the relocation of local government owned utility facilities. Typically, if the local government owned utility is located within right-of-way owned by that particular governmental unit and if this right-of-way is being used for a State highway project, a State may reimburse the local government for its utility relocation costs.

In these cases, the local government utility could be viewed as having a property interest in its location. Correspondingly, since the State could legally pay for these costs, they would be eligible for Federal reimbursement. However, instances may arise where a local government owned utility is located within State highway right-of-way or right-of-way owned by another local governmental unit which is being used for the State project. In these instances, the extent the State is obligated to pay for relocation costs for the local governmental utility may vary considerably and will depend on State law, regulation, or administrative practice.

Local Projects

One complex issue is Federal reimbursement for utility relocations on local projects.

Prior to 1985, it was the FHWA's policy not to participate in payments made by a political subdivision for utility relocations where State law prohibited a State from making such payments. For example, a city may have had the authority to pay for the relocation of utility facilities within or from its own right-of-way on its own highway improvement projects, yet in that State a utility occupying the State's right-of-way under similar conditions may have been required to relocate at its own expense. In this case, prior to 1985, the FHWA's position was that even though the city could have paid for the relocation, the costs were not eligible for Federal-aid participation because the State could not pay under the same circumstances.

The FHWA's policy on this matter was changed on May 15, 1985, when a final rule revising its utility relocation regulations was published in the Federal Register. The final rule became effective on June 14, 1985.

Under its new policy, regardless of the State's posture on payment for utility relocations, the FHWA is willing to participate on projects purely local in nature if the local highway authority has a legal basis for making this payment.

Again, the basic eligibility criteria outlined in § 645.107(a) would be applied to determine if payment for utility relocation costs by the local entity was eligible for Federal reimbursement. In essence, a local entity is now given the same degree of consideration under the Federal requirements as the State is given.

A key factor in the matter of "equal consideration" is that it only applies to projects that are purely local in nature, a distinction presented in the structuring of § 645.107(b) & (c).

For any projects where the State has the authority to participate in overall project costs, regardless of whether it actually participates or not, FHWA reimbursement for utility relocations is limited to what the State could have paid. However, if the State does not have the authority to participate in the overall highway improvement project (which implies the project is likely off the State's system on a road under the jurisdiction of a local entity), then Federal reimbursement for utility relocations will be based on payments made by the local entity.

Indian Reservation Roads Projects

The issue of determining eligibility of utility relocations on Indian Reservation Roads (IRR) projects administered by the FHWA should be guided by principles set forth in 23 CFR 645.107.

For IRR projects located on highways under State or local jurisdiction, the eligibility of utility relocations should be similar to that which would be followed for regular Federal-aid funded projects on these same highways.

For IRR projects located on highways under Bureau of Indian Affairs (BIA) or tribal jurisdiction, eligibility of utility relocations should be viewed in light of criteria in § 645.107(a) as follows:

  • 645.107(a)(1) -- In all cases where the utility has a property right, relocation costs should be eligible.
  • 645.107(a)(2) -- If the BIA or tribal entity has a utility relocation law, ordinance, or regulation, this can be applied. Otherwise, criteria in this section do not apply.
  • 645.107(a)(3) -- Relocation of BIA or tribal owned utilities should be eligible.

Utility Cost Sharing Proposals

Several States have considered proposals whereby a utility would share in project costs, the bottom line being that the utility's share would be covering most, if not all, of the non-Federal portion of the utility relocation costs. Generally, these proposals are either legislative or administrative cost assignment arrangements.

As an example, a State may propose enacting a State law for certain National Highway System (NHS) projects under which the State would pay 80 percent of the actual cost of a utility relocation and the utility would pay the other 20 percent. The State would then want the FHWA to pay its normal pro rata share (i.e., 80 percent on NHS projects) based on the total utility relocation costs. The result of this would be that the State would not have to use any of its own funds to pay for the utility relocation.

A proposal, as outlined above, is not acceptable to the FHWA. Federal reimbursement to a State for the cost of relocating utilities is to be made only on the basis of State funds actually expended for the relocation (see "State's Own Funds" for further discussion of this topic).

This principle of utility cost sharing applies to both mandatory and voluntary contributions that might be made by a utility. Any funds provided by the utility are to be deducted from the total overall costs, and the FHWA will participate only in its pro rata share of the remaining balance.

Additionally, this principle is also applied on State projects regardless of whether the utility is privately owned or owned by a local political subdivision of the State.

As an example, a State proposed that on certain NHS projects within a municipality that the municipality would pay for 20 percent of the relocation costs of its municipally owned utility facilities. Again, the State looked to FHWA to pick up the remaining 80 percent of the costs. The State argued that the municipality's participation could be interpreted as representing payment with State funds, particularly since the term "State funds," as defined in 23 U.S.C. 101(a), includes funds raised under the authority of any political subdivision of the State. This argument is not acceptable to the FHWA.

The key element is the unique wording "its (State's) own funds" in 23 U.S.C. 123 which, when coupled with the legislative history, must be taken to preclude any Federal participation in costs which could be construed as representing payment from the utility owner, even if this owner is a local government.

Special circumstances arise when this principle on cost sharing is applied on local projects (see the discussion of "Local Projects." If the utility is owned by the local entity itself and the utility relocation costs are eligible for Federal reimbursement, the FHWA will reimburse for all the funds paid from that particular political subdivision for the utility relocation, including funds from the locally owned utility (see § 645.107(d)). The basic approach is to accept all of the local funding sources as representing the local fund expenditure on a project.

Authority To Approve Utility Payment Statements

Prior to 1985, when a State would enact a new or revised utility reimbursement statute or develop a new reimbursement policy, the matter would be referred to FHWA's Chief Counsel, through the Division and Regional Offices and the Office of Engineering, for a determination of acceptability for use on Federal-aid highway projects. With the issuing of the revised CFR in 1985, this authority was delegated to Regional Administrators, and has now been delegated to Division Administrators.

It was anticipated that with the FHWA liberalizing its interpretation of eligibility for "local projects," which would allow political subdivisions of a State to be afforded the same treatment as the State itself, many of these political subdivisions could develop utility reimbursement statements under § 645.107(g). Because of the potentially large numbers of statements that could be involved, the approval authority could be more expeditiously handled at the field level.

A permanent file of utility reimbursement statements that have been approved should be maintained in each FHWA Division Office. Experience has shown this to be an important reference source when questions on general eligibility matters arise.


Considerable flexibility exists in when, and in what form, utility relocation costs are included in an approved statewide transportation improvement program.

Generally, utility relocation work is programmed either as a separate project, or as an element of a right-of-way, construction, or overall project for the highway improvement.

Additionally, preliminary engineering work, and other related preparatory work, undertaken by or under the direction of a utility may be programmed and authorized either as an expense incidental to the cost of the relocation, as part of the preliminary engineering phase of the overall highway project, or as a separate utility project.

Replacement right-of-way to be acquired by or on behalf of a utility may also be programmed and authorized either as an expense incidental to the cost of relocation, as part of the right-of-way acquisition project as a whole, or as a separate utility relocation project.

Engineering Studies

Engineering studies on the impacts of utility relocations are eligible for Federal-aid participation. In accordance with 23 CFR 645.107(j), Federal funds are eligible to participate in the costs of preliminary engineering and allied services for utilities. It has always been the FHWA's intent to pay for whatever it takes to "make the utilities whole." That includes engineering studies on the impacts of utility relocations.

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Updated: 09/22/2014

United States Department of Transportation - Federal Highway Administration