Companion Guide to Video August 2012

www.fhwa.dot.gov/federal-aidessentials

Federal-aid can help local public agencies, or 

LPAs, complete highway projects. To qualify for 

Federal-aid and ensure project-related costs are 

eligible for reimbursement, LPAs must follow 

Federal funding requirements. 

When LPAs develop a financial plan that proposes 

using Federal-aid, they must consider all the 

project phases, or cost categories, necessary to 

complete the project. The three project phases 

are:

• Preliminary engineering, or PE, including 

planning, environmental and design

• Right-of-way

• Construction

Before starting any project phase, the State 

department of transportation, or State DOT, enters 

into a project agreement with the Federal Highway 

Administration, the FHWA, which defines the 

scope, schedule and budget. The State DOT then 

enters into a subaward agreement with an LPA, 

which makes the Federal-aid available.

The subaward agreement must be in place prior to 

the LPA performance of work. Any work incurred 

prior to the execution of the agreement is ineligible 

for reimbursement.

LPAs are only reimbursed for work performed 

within the scope, budget, and performance period 

defined by the subaward agreement. Therefore, if 

there are any changes to the project, the State 

DOT must revise the FHWA project agreement and 

the subaward agreement before the LPA proceeds. 

By executing project agreements in phases, LPAs 

help ensure compliance with environmental 

requirements providing that final design, right-ofway, and construction cannot commence until after 

completion of the environmental process.

Federal-aid Program Overview

Funding

Project Requirements

Project funding and administrative requirements must be met to 

qualify and maintain Federal-aid eligibility
Federal-aid Essentials for Local Public Agencies

When either the whole project or an individual 

phase of it is completed (depending on the terms 

of the subaward agreement), the LPA submits a 

final request for reimbursement, the final voucher. 

The final voucher results in a withdrawal of any 

residual funds and a project closeout. 

If the project is not completed within certain time 

frames, the LPA returns all Federal funds.

After project closeout, LPAs remain responsible 

for archiving accounting records and supporting 

financial audits.

Let’s consider a typical scenario 

involving Great Mountain Township 

as it qualifies for Federal-aid and 

requests reimbursement for costs 

on a project. 

To become eligible for Federal-aid, the township 

works with its State DOT to include the project in 

the State’s Transportation Improvement Program, 

or STIP. 

Great Mountain estimates it will need $355,000 to 

cover the project’s direct costs. Indirect or 

overhead costs, however, are excluded because 

the township has not completed an indirect cost 

allocation plan.

Next, a financial plan is developed that details the 

costs of each project phase––PE, right-of-way, 

and construction––and each source of funding. 

For Great Mountain’s financial plan, 80 percent of 

funds will come from Federal-aid and 20 percent 

from local sources.

When Great Mountain is ready to begin the PE 

phase, the State DOT executes a subaward 

agreement, which will make $24,000 in Federalaid available.

The subaward agreement references financial 

management standards, cost principles, audit 

requirements, and other administrative 

requirements that Great Mountain must meet to 

receive funding.

It also references the consultant procurement, 

environmental, design standards, preliminary 

engineering, , and other programmatic 

requirements. 

After careful review, Great Mountain also signs the 

subaward agreement. 

Following the signing of the subaward agreement, 

the preliminary engineering can begin. Great 

Mountain incurs costs, pays vendor invoices, and 

maintains a detailed accounting of costs.

Periodically, Great Mountain calculates the amount 

for Federal reimbursement and submits the request 

and supporting accounting records to the State 

DOT for reimbursement. 

The costs at the end of the PE phase total $25,000, 

and Great Mountain informs the State DOT of the 

under run.

The State DOT withdraws $4,000 residual Federalaid for the PE phase and reflects the change in the 

subaward agreement. Using the residual for work 

outside the project scope or rolling the residual to 

another phase is not allowed unless the FHWA 

project agreement and the subaward agreement 

are updated.
Federal-aid Essentials for Local Public Agencies

Great Mountain already has the right-of-way for 

the project. However, when right-of-way is 

required on a Federal-aid project, LPAs must 

follow Federal right-of-way regulations––even 

when using local funds to acquire the property. 

For the construction phase, Great Mountain will 

repeat the process of seeking a subaward 

agreement, performing the work, and requesting 

reimbursement.

Before starting the phase, the State DOT modifies 

the FHWA project and the subaward agreement, 

which makes available $260,000 in Federal-aid.

Great Mountain starts the effort by advertising the 

project. During the bid process, the township 

learns that the construction costs are $10,000 

more than expected.

Before awarding the contract to the low bidder, 

Great Mountain requests the additional Federalaid from the State DOT. The State DOT works 

with the FHWA to obtain approval, revises the 

subaward agreement, and notifies Great Mountain 

that it can proceed. By waiting for the revised 

subaward agreement, the township ensures that 

all project-related costs remain reimbursable. 

Although not necessary for this project, the 

agreement revision process is also required for 

certain contract changes that occur during 

construction. 

Construction progresses and Great Mountain 

incurs costs and then requests reimbursement 

from the State DOT at regular intervals.

After construction is completed and all costs 

recorded, Great Mountain submits the final voucher 

and initiates the project closeout process. In turn, 

the State DOT withdraws any residual funds. 

Great Mountain Township’s example 

demonstrates that the financial plan 

reported in the STIP must show 

adequate funding to complete the 

project. If a project is started but not 

completed, LPAs must return all 

Federal-aid. 

Also, the subaward agreement is contingent on the 

project agreement between the State DOT and 

FHWA. The subaward agreement makes Federalaid available to the LPA, but any costs incurred 

prior to a subaward agreement are ineligible for 

reimbursement.

Keep in mind that the subaward agreement evolves 

as the project progresses and must be revised 

whenever

• A phase of work starts or ends

• Additional funds are needed or residual 

funds remain

• There are changes to the project’s scope 

or performance period
Federal-aid Essentials for Local Public Agencies

The costs for any work performed outside the 

subaward agreement parameters of budget, 

scope, or performance period are ineligible for 

reimbursement. Additionally, costs incurred prior 

ot the execution of the agreement are ineligible.

Recognize that residual funds for any given phase 

are withdrawn, and LPAs cannot apply them to 

another phase. 

Lastly, LPAs must meet administrative and 

programmatic requirements to maintain funding. 

For more information on funding requirements, 

continue your research on this Web site or contact 

your State DOT.
Federal-aid Essentials for Local Public Agencies

The content of this 

document is not a 

substitute for 

information obtained 

from State departments 

of transportation, 

appropriate FHWA 

Division Offices, and 

applicable laws. 

Scenarios have been 

simplified for emphasis 

and do not necessarily 

reflect the actual range of 

requirements applicable 

to the scenario or this 

topic. This document

was created under 

contract number 

DTFH61-11-D-00025 by 

the Federal Highway 

Administration, U.S. 

Department of 

Transportation, and is 

offered to the public to 

heighten and focus 

awareness of Federal-aid 

requirements within the 

local public agencies 

community and 

reinforces the 

importance of these 

necessary policies, 

procedures, and 

practices.

This Companion Resource 

is the script content for 

the video production of 

the same name. 

Additional Resources

• List of free FHWA Web-based training through NHI, including course 

310115, Introducing Highway Federal-Aid

http://www.nhi.fhwa.dot.gov/training/list_catalog.aspx?cat=&key=&num=&lo

c=&sta=%&typ=3&ava=1&str=&end=&tit=&lev=&drl=

• Federal regulation covering uniform administrative rules for Federal grants, 

cooperative agreements, and subawards

http://www.gpo.gov/fdsys/search/citation2.result.CFR.action?cfrBean.year=

MostRecent&cfrBean.titleNumber=49&cfrBean.sectionNumber=18&publicati

on=CFR

• Link to publication that explains financing Federal-aid projects from start to 

finish

http://www.fhwa.dot.gov/reports/financingfederalaid/index.htm

• Link to A Guide to Federal-Aid Programs and Projects

http://www.fhwa.dot.gov/federalaid/projects.cfm

• FHWA's LPA Web site that includes reference, contact and training 

information

http://www.fhwa.dot.gov/federalaid/lpa/

• Federal regulations for determining costs for Federal awards through grants, 

cost reimbursement contracts, and other agreements

http://www.gpo.gov/fdsys/search/citation2.result.CFR.action?cfrBean.year=

MostRecent&cfrBean.titleNumber=2&cfrBean.sectionNumber=225&publicati

on=CFR