TEA-21 logo TEA-21 - Transportation Equity Act for the 21st Century
Moving Americans into the 21st Century
TEA-21 Home | DOT Home

This memorandum was canceled September 4, 2015.

DOT LogoMemorandum
U.S. Department of Transportation
Federal Highway Administration

Indirect Costs Eligibility and Other TEA-21 Revisions to Title 23 U.S.C. Section 302
September 24, 1998
Director, Office of Budget and Finance
Washington, DC
Division Administrators

The Transportation Equity Act for the 21st Century (TEA-21), subsection 1212 (a) revised Title 23, United States Code, section 302, by adding the following subsection:

(b) EFFECT OF COMPLIANCE.--Compliance with subsection (a) shall have no effect on the eligibility of costs.

Subsection (a) requires the States to have a State transportation department suitably equipped and organized to carry out the requirements of Title 23. From the beginning of the Federal-aid Highway Program, this provision has been interpreted as limiting the types of indirect costs that were eligible for Federal-aid reimbursement. The new subsection in TEA-21 removes the longstanding limitation on indirect costs.

State and local government agencies may now claim indirect costs in accordance with the standard procedures established by the Office of Management and Budget Circular A-87. Under the provisions of Circular A-87, the agency must first prepare a cost allocation plan which is approved by the assigned Federal cognizant agency (the FHWA Division Administrator may approve these plans for the State transportation department). The State then submits an indirect cost rate proposal for the Division Administratorís approval. For more information on this process, the Department of Health and Human Services has published a guide for developing cost allocation plans and indirect cost rates.

What this means is that most costs incurred by State transportation departments are now eligible for Federal-aid reimbursement either as a direct cost or an indirect cost. Costs previously considered ineligible for reimbursement because they did not directly benefit a Federal-aid project, such as upgrading computer systems, correcting Y2K problems, participating in AASHTO technical committees, administrative and supervisory expenses, etc., may be included in the indirect cost rate and distributed to all benefitting activities including Federal-aid projects.

States may include indirect costs on Federal-aid billings after the indirect cost rate has been approved by FHWA. States with previously approved rates may claim those costs for any billings submitted to FHWA after June 9, 1998.

Regulations restricting the reimbursement of indirect costs, e.g., 23 CFR 140, subpart G and 49 CFR 18.22(c), will be revised as soon as possible to remove those provisions.

TEA-21, subsection 1212(a) also includes the following changes to 23 U.S.C. section 302:

  • The term "State highway department" is changed to "State transportation department" but has the same meaning (see revised 23 U.S.C. subsection 101(a), Definitions).

  • Provisions related to secondary road unit and Federal-aid secondary system are removed from the section.

These changes are considered technical corrections and should have no impact on the operations of the State transportation department.

If you have comments or need assistance relating to subsection 1212(a) of TEA-21, please contact Max Inman at (202) 366-2853.


/s/ Original signed by
Frederick G. Wright, Jr.

TEA-21 Home | DOT Home
United States Department of Transportation