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Non-Regulatory Supplement on CFR 645A
Formerly FAPG 23 CFR 645A, Non-Regulatory Supplement
FAPG 23 CFR 645A, Use of Fixed Amount (Lump Sum) Payments to Utilities
October 5, 1995
USE OF FIXED AMOUNT (LUMP SUM) PAYMENTS TO UTILITIES (PARAGRAPH 5, NS 23 CFR 645A)
Occasionally on Federal-aid highway projects the States consider proposals which involve the use of fixed amount (lump sum) payments to utilities either as reimbursement for needed adjust-ments to accommodate construction of the highway project or as compensation for facilities taken.
The FHWA regulations have long treated utility facilities impacted by highway construction as essential public services which 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 construction of a replacement facility. Where the utility and the highway agency agree that existing facilities do not need to be replaced, then the FHWA should pay for the utility facilities as a right-of-way acquisition matter. The FHWA policy and use of fixed amount (lump sum) payments are discussed below.
Case I - Operational Capabilities are to be Functionally Restored
The FHWA's regulations covering reimbursement for utility work on Federal-aid highway projects are contained in 23 CFR 645, Subpart A. The basic concept incorporated into these regulations is that FHWA is willing to reimburse actual costs incurred to functional-ly restore a utility's existing operating facilities which existed prior to undertaking a highway project. It is intended that a utility's financial and productive situation be maintained as if the adjustment needed for the highway project had not occurred. This does not mean that a replica facility is re-quired, 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 lets a contract to accomplish the needed adjustments to its facilities. Records of actual costs incurred then form the basis for FHWA reimbursementto the State. For work performed by a utility with its own forces, or for work performed by contract, FHWA regulations allow a fixed amount final payment based on an estimate of costs prior to construction. This is commonly known as the lump sum payment method. For utility work, FHWA's lump sum payment regulation is 23 CFR 645.113(f).
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 or any subsequent FHWA guidance or regulation, to preclude lump sum payments for work performed by a contractor under a utility-let contract. 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 highway agency feels the cost is reasonable. 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.
The lump sum payment method should only be used where the end product, in this case the utility adjustment, 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. A principal benefit of using the lump sum payment method is that it should reduce administrative and record keeping costs associated with document-ing payment for completed work. However, these savings may be offset by inaccuracies in the cost estimating process. In recognition of this, the regulation establishes a $100,000 ceiling for use of the lump sum payment method.
The utility regulation also contains a mechanism for approving lump sum amounts in excess of $100,000 where this is found to be in the public interest. Approval of proposals to exceed the $100,000 ceiling should be a relatively rare occurrence. Two situations where this may be justified are as follows:
Where the estimated cost of the eligible adjustment work slightly exceeds, say by no more than a few thousand dol- lars,the $100,000 ceiling. In this case the ceiling is not being treated as an inviolable barrier and some flexibility is allowed.
Where the cost of the utility work eligible for Federal-aid participation represents only a small portion of the overall cost for all the utility work that is being performed in conjunction with the construction of the highway project. For example, a utility may be undertaking a major upgrading of its facilities in an area where a highway project occurs, and the portion of the work eligible for Federal-aid partic- ipation may be relatively small in comparison, say $150,000 out of a $2,000,000 effort. In this case, it may make sense for the highway agency to agree to a fixed payment to represent its share of the overall work being accomplished, thus simplifying administration of the project.
In either of the above situations the lump sum payment method should only be used where the work can be clearly defined and the costs accurately estimated. Also, whenever a lump sum payment is used, the highway agency must still verify that the eligible work has been satisfactorily completed in accordance with the approved agreement, plans, and specifications before reimbursement can be approved.
The FHWA's approval authority for a State's proposal for a lump sum payment for work in excess of the established ceiling was delegated to the Regional Administrators in 1985 when the utility regulations were rewritten.
Case II - Operational Capabilities Need Not be Functionally Restored
Where the utility determines that its existing facilities do not need to be replaced to maintain its operational capabilities, then 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 facili-ties developed in accordance with approved State right-of-way appraisal and acquisition procedures.
Any administration settlement over and above the fair market value must be supported in accordance with 49 CFR 24.102(i). Various means, such as appraisals, recent court awards, estimated trial costs, or valuation problems are recognized as providingsupport for a settlement value.
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.