The Transportation Equity Act for the 21st Century (TEA-21) changed the definition for point of obligation for Federal Lands Highway Program (FLHP) projects (TEA-21, Title 1, Subtitle A, Section 1115 amended 23 U.S.C. 203) by adding, “Notwithstanding any other provision of law, the authorization by the Secretary of engineering and related work for a Federal lands highways program project, or the approval by the Secretary of plans, specifications, and estimates for construction of a Federal lands highways program project, shall be deemed to constitute a contractual obligation of the Federal Government to pay the Federal share of the cost of the project.” This new requirement requires a change in the way we document obligation of funds and also requires a change in when funds must be available for FLHP projects. It partially provides a change FLH has been seeking for several years; however, this change is narrow and offers limited flexibility and even some complications to the way we must manage our obligations. This document is to outline policy guidance on how this section will be administered in the FLHP.

Background:

The FLH and its partner agencies, being Federal agencies, have traditionally used the award of contract, signing of agreements, and expenditure of funds for salaries and benefits as the point of obligation in accordance with standard accounting practices. In contrast, the Federal-aid program procedures have allowed the Government to obligate funds on the basis of an authorization of the State departments of transportation to proceed with project activities. This same authority would give FLH more flexibility in managing the FLHP. The TEA-21 has accommodated this to a limited degree.

Points of Interpretation:

The following four points are the issues that outline the flexibility gained and the complications caused by the limited requirement to obligate funds in advance of award:

1. The legislation refers only to FLHP projects; therefore, the point of obligation for anything other than these funds remain the same. That is, the point of obligation for FLHP projects is now defined as the authorization to proceed with a contractual obligation, i.e., contract, task order, or agreement. The point of obligation for other projects, i.e., the National Park Service (NPS) line item or maintenance projects, Defense Access Roads (DAR) projects, Emergency Relief for Federally Owned Roads (ERFO) projects, etc., that are not FLHP projects will continue to be obligated at the point of contract or task order award or upon signature for an agreement.

2. The flexibility in the point of obligation is controlled by the word shall in the legislation. Specifically, obligation of funds is required at the time of authorization of engineering and related work or approval of the plans, specifications, and estimates (PS&E). This requires that for procurement of Architect/Engineer contracts, task orders, interagency agreements, etc., obligations must be incurred at the point in time that the Statement of Work is approved to proceed with procurement. For construction, this requires that obligation of funds must occur when the PS&E is approved. Therefore, all funds for FLHP projects must be available at this point in time rather than at the point of contract award. This will eliminate our past ability to advertise FLHP funded projects late in the fiscal year with anticipation of an early October award. However, it provides the ability to obligate a fixed amount at the time of approval or authorization based on estimates that can be adjusted after award. This flexibility takes the need to obligate funds out of the award decision process. Because some of our contracts are not FLHP projects, the type of funding will have to be considered when making delivery decisions to ensure that all funds are properly obligated.

3. Since the legislation refers to FLHP projects rather than a specific funding source, it is appropriate to obligate all funds associated with an individual FLHP project upon authorization or approval to proceed. The FLHP projects are defined as projects programed under 23 U.S.C. 204, more specifically, Park Road and Parkway, Forest Highway, Indian Reservation Road, Refuge Road, or Public Lands Highway-Discretionary program projects. To be defined as a FLHP project, the predominant funding source must be the FLHP; however, the project may include a limited amount of other funds to cover non-FLHP participating work. When this is the case, all funds transferred to FLH for support of these projects can be obligated upon authorization for engineering or approval of the PS&E for construction. To avoid the need for reimbursable funding to advance projects, this will require timely identification of participating agency funding needs such that agreements can be executed and funds transferred before authorization or approval can be made.

4. Since the legislation refers only to authorization of engineering and approval of PS&E by the Secretary, our ability to obligate in-house services will still be controlled by standard accounting practices. While this was one of the principle changes we sought, cost of salary, benefits, and other internal costs will continue to be obligated as they are expended or approved by purchase order, impact card use, etc., as we have traditionally obligated these funds. To ensure minimum loss of contract authority and limitation at the end of each fiscal year, the FLH Divisions must continue to accurately estimate these expenditures for yearend closing and adjust funding for individual accounts accordingly.

Policy:

To provide consistency in our obligation process, yet provide the maximum flexibility to work with the numerous types of projects and funds that we have, the following is FLH’s policy on point of obligation as amended by Section 1115 of the TEA-21.

FLHP Projects:

Funds for engineering services and related agreements shall be obligated upon the approval by the Division Engineer of the Statement of Work to proceed to procurement. Funds obligated for these activities shall equal the Government’s estimate of cost and may include a contingency not to exceed 5 percent, but in no way shall the obligation authorized exceed the funds programed for the activity.

Funds for construction projects shall be obligated at the time of PS&E approval for advancement to construction. It shall be FLH’s policy not to approve a PS&E until such time as all legal requirements (the National Environmental Policy Act, right-of-way utilities, permits, etc.) to construct the project are in place. Exceptions to this policy may be granted by the Division Engineer only if the incomplete requirements are: 1) not specifically required until contract award, or 2) not specifically required until construction commences in which case the Division Engineer shall have reasonable assurance that the incomplete requirement will be completed in time to avoid impact to the contract execution. In addition, for multi-funded projects, the Division Engineer shall be assured that in addition to the necessary FLHP funds, all non-FLHP funds are in place before authorization or approval to proceed. Upon approval of the PS&E, funds shall be obligated up to an amount equal to the engineer’s estimate plus any contract incentives; plus the obligation may include a contingency, not to exceed 5 percent, but in no case shall the obligation authorized exceed the funds programed for the project being authorized.

For projects with high uncertainty of bid results, the Division Engineer may approve a contingency in excess of the 5 percent limit noted above. If this is granted, the files shall document the reason for the additional contingency.

The attached FLH form entitled, “Letter of Authorization and/or Approval,” or similar document, executed by the Division Engineer shall constitute the obligating document for FLHP projects. This form shall clearly state the dollar amount and source of funds to be obligated, the type of work approved for procurement, anticipated award date of the contract, agreement or task order and any exceptions that must be completed before advertisement or award, or any limiting conditions that must be included in the contract.

Continued obligation of funds in excess of the contract/agreement amount shall not be permitted. At the time of award decision, obligations shall be adjusted, using the form “Letter of Approval or Authorization” to match the award. If funds authorized are less than the award amount, additional funds must be obligated prior to award. If the authorized amount exceeds the award amount, obligations shall be reduced to match the award amount. In no case shall excess obligations be allowed to remain more than 7 workdays from the date of award. When this adjustment is made, the Summary of Authorization should also be updated to reflect conditions approved to proceed to construction.

Non-FLHP Projects:

For non-FLHP projects administered by the FLH Divisions, funds shall be obligated at the point of final signature on agreements or the contracting officers’ award of Task Orders and contracts. This shall apply to all work that is not predominantly funded through the FLHP such as ERFO, DAR, other agency projects, etc. For these projects, the procurement document shall constitute the obligating document and the ?Letter of Authorization and/or Approval” will not be required.

All Projects:

Funds for in-house services such as salary and benefits shall be obligated at the point of expenditure following established obligating procedures.

Delegation:

The authority to carryout this policy is delegated to the FLH Division Engineers and may be redelegated.

This policy shall become effective on the date of signature.

original signed by

Allen W. Burden