Utility Relocation and Accommodation on Federal-Aid Highway Projects
Chapter 1 (cont'd): Utility Relocations, Adjustments, and Reimbursement
Preliminary Engineering (23 CFR 645.109)
In accordance with 23 CFR 645.107(j), Federal funds are eligible to participate in the costs of preliminary engineering and allied services for utility relocations. A State transportation department, a utility, or a consultant may perform the work.
Consultants may be obtained by the State or by the utility to provide preliminary engineering services for utility relocations. In either case, the consultant selection process should, to the extent practicable, follow the procedures in 23 CFR 172, Administration of Engineering and Design Related Service Contracts.
Provisions in 23 CFR 172.7(b) allow contracting agencies to use simplified small purchases acquisition procedures for the procurement of engineering and design related services on Federal-aid highway projects when the contract cost does not exceed $100,000.
A question often raised concerns the application of wage rate and EEO requirements to engineering consultant contracts secured by the utility. The FHWA's position is that these requirements are not to be applied to contracts for engineering services obtained by the utility.
In the past, FHWA pre-award review and/or approval of consultant contracts for preliminary engineering was required for all contracts greater than $10,000. This is no longer the case. The 1995 amendment to the regulations eliminated this requirement. FHWA pre-award review and/or approval are no longer required for any consultant contracts for preliminary engineering.
The application of value engineering to utility relocations is another issue to consider.
In one particular case, under a lump sum utility agreement, a utility later proposed a cost saving alternate solution. The utility identified this as a value engineering savings and proposed that it share in the savings. The net impact would be to provide cash to the utility.
Value engineering incentives are supported in customary State-contractor relationships, but should not be applied to typical State-utility relationships for utility work where the utility is the "owner" and, therefore, the organization responsible for setting up the means for rewarding creative ideas. In no case should the relocation or adjustment of facilities result in a cash windfall to the utility.
Right-of-Way (23 CFR 645.111)
Uniform Act Requirements
In accordance with 23 CFR 645.107(j), Federal funds may participate in the costs of replacement right-of-way for utilities.
Either a State or a utility may purchase replacement right-of-way for utility relocations.
- If a State or a political subdivision of a State acquires replacement right-of-way, the requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (Uniform Act) apply.
- If a utility acquires replacement right-of-way, the requirements of the Uniform Act do not apply. This has been the FHWA's longstanding position.
With passage of the Surface Transportation and Uniform Relocation Assistance Act (STURAA) of 1987 and its amendments to the Uniform Act, it was initially thought that the FHWA position relative to acquisition by a utility needed to be modified. The FHWA issued guidance stating that in certain situations utility acquired right-of-way must follow the requirements of the Uniform Act. However, upon further review this guidance was withdrawn and the FHWA returned to its longstanding position that the requirements of the Uniform Act do not apply to utility acquired right-of-way.
Issue Of "Displaced Person"
The "displaced person" issue has arisen repeatedly. Some utilities believe the Uniform Act should cover reimbursement for relocation on a Federal- aid highway project.
In 1983, prior to passage of the 1987 STURAA, this issue was elevated to the U.S. Supreme Court in a case involving relocation of a utility from public rights-of-way on a Federally funded urban renewal project. The Court held that the utility was not a "displaced person" within the meaning of the Uniform Act and was not entitled to compensation under the provisions of the Act. The reasoning was that the Uniform Act did not change the long established common law principle that a utility forced to relocate from a public right-of-way must do so at its own expense.
An analysis of the Uniform Act and its legislative history, particularly as it related to the model relocation provisions of the Federal-Aid Highway Act of 1968, showed that in passing the Uniform Act, Congress addressed the needs of residential and business tenants and owners, but did not intend for the Act to deal with the relocation of utilities.
Congress, in passing the 1987 STURAA, modified the Uniform Act by adding § 202(d), which provided that utility facilities located on public right-of-way or public property, might be eligible for relocation assistance payments under certain conditions. However, § 202(d) also contained a provision that limited its application to Federal programs that did not have a Federal law governing reimbursement for utility relocations. In the case of the Federal-aid highway program, there is such a law in that 23 U.S.C. 123 sets out provisions for utility relocation reimbursement.
Consequently, § 202(d)(1) of the Uniform Act does not apply to utility relocations on Federal-aid highway projects. Hence, payments for utility relocations on Federal-aid highway projects have been and continue to be in accordance with 23 U.S.C. 123 and the FHWA's implementing regulations.
In certain cases, Federal-aid funds may be used to acquire replacement right-of-way for a utility where the existing utility facilities are located within public right-of-way and the utility has no property interests in its existing location. Two such examples are discussed below:
A State may have a utility reimbursement statute that allows the State to pay for all utility relocations on controlled access projects. Suppose an existing highway facility, which contains a longitudinal utility installation, is being upgraded to freeway standards. The decision is made to relocate the utility outside of the freeway right-of-way. Two alternate locations are available as follows:
- Alternate A relocates the utility to other available highway right-of-way, but the circuitous route requires considerable additional construction costs.
- Alternate B is much shorter, but it involves acquisition of new right-of-way for the utility.
Since the State is obligated to pay for the utility work, it is reasonable to pursue the least expensive alternative. Should this prove to be Alternate B, then this should be the approach implemented, even though the net effect is that the utility will be provided an asset, the additional right-of- way, which it did not have initially. This principle, which is set forth in § 645.111(a)(1), states that the FHWA may participate when "the acquisition is made in the interest of project economy or is necessary to meet the requirements of the highway project."
When existing utilities must be relocated to accommodate highway construction, but a State intends to permit them to continue to use and occupy public highway right-of-way at a different location, such potential use should be a consideration in determining the extent and adequacy of the right-of-way needed for the project.
Failure to recognize the impact of such use may affect the safe and efficient operations of the highway and may result in the acquisition of right-of-way that is inadequate to meet the needs of the highway and the traveling public. For example, little or nothing would be gained by acquiring restricted right-of-way and denying its use to certain utilities if these same utilities could locate their facilities on private property adjacent to the restricted right-of-way with substantially the same impact on the highway and its users.
Utility use of highway right-of-way is not considered to be a use for a highway purpose. Therefore, Federal-aid highway funds are theoretically not eligible to participate in right-of-way acquired solely for the purpose of accommodating utility facilities in excess of that normally acquired in accordance with standard criteria and procedures. There are exceptions to this policy.
Section 645.111(a)(1) states that Federal participation may be approved for the cost of replacement right-of-way when an acquisition of right-of-way -
- is made in the interest of project economy, or
- is necessary to meet the requirements of the highway project.
Thus, when a State or locality routinely dedicates or permits a portion of the road and street right-of-way for use by utilities in accordance with established standard criteria pursuant to State law, ordinance, or administrative practice, such right-of-way may be considered eligible for Federal-aid reimbursement as an integral part of the project right-of-way.
An additional discussion of right-of-way needs for utility accommodation may be found in Chapter 2 under "Right of Way Needs and Utility Use".
Agreements and Authorizations (23 CFR 645.113)
The agreement between a utility and a State describing separate responsibilities for financing and accomplishing relocation and adjustment work may be in the form of either a master agreement to be encountered on an areawide or statewide basis, or in the form of individual agreements for utility work to be encountered on a case-by-case or project basis. No special form of written agreement is prescribed. Such an agreement usually consists of a formal document signed by officers who are authorized to bind the parties involved. In appropriate cases, the agreement may consist of an exchange of correspondence that sets forth all essential terms and conditions, and bears endorsements of both parties.
Terms and Conditions
Terms and conditions in the written agreement between the State and the utility generally include -
- the basis of the State's authority, obligation, or liability to pay for the relocation (see § 645.107);
- the scope, description and location of the work to be undertaken;
- the method to be used by the utility for developing relocation costs;
- the method to be used for performing the relocation work, either by the utility's forces or by contract; and
- assurance that facilities scheduled to be relocated to a position within the highway right-of-way will be accommodated in accordance with the provisions of 23 CFR 645B.
Plans and Drawings
The agreement should be supported by plans and/or drawings that show -
- the location, length, size and/or capacity, type, class, and pertinent operating conditions and design features of existing, proposed, and temporary facilities, including any proposed changes to them, using appropriate nomenclature, symbols, legend, notes, color-coding, etc.;
- the project number, plan scale and date, the horizontal and, where appropriate, the vertical location of the utility facilities in relation to the highway alignment, geometric features, stationing, grades, structures, and other facilities, proposed and existing right-of-way lines, and, where applicable, the access control lines;
- the limits of right-of-way to be acquired from, by, or on behalf of the utility, where applicable; and
- the portion of the work to be accomplished, if any, at the sole expense of the utility, using appropriate notes or symbols.
The agreement should also include a cost estimate for the proposed work. The cost estimate should set forth the items of work to be performed, broken down by the estimated costs of -
- direct labor;
- labor surcharges;
- overhead and indirect construction charges;
- materials and supplies;
- handling charges;
- preliminary engineering;
- construction engineering;
- salvage credits;
- betterment credits; and
- accrued depreciation credits.
The estimate should include sufficient detail to provide the State and the FHWA with a reasonable basis for analysis. Factors included in the utility's overhead and indirect construction charges should be set forth. Materials should be itemized where they represent relatively major components or cost in the relocation. Unit costs, such as broad-gauge units of property, may be used for estimating purposes where the utility uses such units in its own operations.
Fixed Amount (Lump Sum) Payments
Occasionally on Federal-aid highway projects, the State considers proposals that involve the use of fixed amount (lump sum) payments to utilities either as reimbursement for needed adjustments to accommodate construction of the highway project or as compensation for facilities taken.
The FHWA regulations have long treated utilities impacted by highway construction as essential public services that must be maintained if the need for the services continues to exist.
Where services must be maintained, the FHWA should reimburse the State based upon necessary costs to restore the essential services in the most economical method. This is usually done by paying for the construction of a replacement facility.
Where the utility and the State agree that the existing facilities do not need to be replaced, the FHWA should then pay for the utility facilities as a right-of-way acquisition matter.
The FHWA policy and use of lump sum payments are discussed below.
Case I - Operational Capabilities Are To Be Functionally Restored
The basic concept incorporated into the FHWA's policy is a willingness to reimburse actual costs incurred to functionally restore a utility's existing operating facilities that existed prior to undertaking a highway project. It is intended that a utility's financial and productive situation be maintained as if the relocation or adjustment needed for the highway project had not occurred. This does not mean that a replica facility is required, rather that the utility is to be made whole by restoring the existing functions of the impacted facilities. Typically, a utility uses its own forces or those of a utility contractor to accomplish the needed relocations or adjustments. Records of actual costs incurred form the basis for FHWA reimbursement to the State.
For work performed by a utility with its own forces, or for work performed for the utility under contract, the FHWA's policy allows for a fixed amount final payment based on an estimate of costs prior to construction. This is commonly known as the lump sum payment method.
Provisions for lump sum payments for utility relocation work were first addressed by the FHWA in Policy and Procedure Memorandum 30-4 (PPM 30-4) dated December 31, 1957. These provisions pertained to very minor work estimated to cost less than $2,500, work that normally would be performed by a utility with its own forces. There was no apparent intent, however, in PPM 30-4, nor has there been in any subsequent FHWA guidance or regulations, to preclude lump sum payments for work performed by a contractor under a utility-let contract.
If the utility lets a contract, payment should be based on the methods that are customary and acceptable for the work involved, which could potentially include the lump sum payment method.
If the utility uses an existing continuing contractor, payment should be by the method the utility has previously established with the contractor. If the continuing contract establishes a lump sum payment for certain types of work, this payment method can be used for the Federal-aid project if the State believes the cost is reasonable.
A principal benefit of using the lump sum payment method is that it can reduce administrative and record-keeping costs associated with documenting payment for completed work. However, these savings may be offset by inaccuracies in the cost estimating process. In recognition of this, FHWA regulations, until recently, limited the lump sum payment method to an upper limit amount of $100,000, except in cases where it was determined to be in the public interest to raise the cap for individual projects.
Now, in accordance with the 2000 amendment to § 645.113(f), there is no cap. When proposed utility relocation work on a project for a specific utility company can be clearly defined and the cost can be accurately estimated, the FHWA may approve a lump sum agreement without later confirmation by audit of actual costs.
The lump sum payment method should only be used where the end product, in this case the utility relocation, can be clearly and concisely defined. The cost estimate in support of the lump sum agreement must be accurate, comprehensive, verifiable, and in sufficient detail to give a clear picture of the work involved and the cost of the individual items.
Whenever the lump sum payment method is used, the State must verify that the eligible work has been satisfactorily completed in accordance with the approved agreement, plans, and specifications before reimbursement can be approved.
Case II - Operational Capabilities Need Not Be Functionally Restored
Where the utility determines its existing facilities do not need to be replaced to maintain its operational capabilities, payment for the utility facilities needed to accommodate construction of the highway project should be handled as a right-of-way acquisition matter. The fixed amount (lump sum) payment for the real property interest of the utility to be acquired would be based on the fair market value of its existing facilities developed in accordance with approved State right-of-way appraisal and acquisition procedures.
Case III - Payment For Nonoperational Facilities
Instances can arise where a highway project may require the acquisition of a portion of a utility's property or facilities which are not directly a part of the company's physical plant providing the service (e.g., an office housing marketing and billing operations). In these cases, the fixed payment to the utility should always be based on applicable right-of-way procedures.