Pro Rata vs Lump Sum

You may have seen/heard about the new FHWA mandate to formally document either a Pro Rata or Lump Sum federal share at the time of authorizing federal funds for phases of work.  This is discussed in a recent Office Bulletin 13-01 found on the HQ Local Assistance website:

Local Agencies will select their preferred method at the time of federal authorization by entering it on the newly revised Finance Letter (LAPM Exhibit 3-O).  Although this selection is completely up to the Local Agency, possibly in concert with their appopriate MPO or RTPA, we feel that to truly assist locals, we need to give you our recommendation.  So a quick warning…….what you are about to hear is strictly the opinion of myself and my staff here in District 3 Local Assistance.

In reading the Office Bulletin and running through various scenarios, we keep coming back to a basic initial question:

– Is the intention to fund a project, whether bids come in high or low, at a given percentage?

Although many projects are programmed with a maximum Pro Rata share, often the local agencies are expected to pick up the tab for any over-runs after Award of the contract.  We believe this case is actually better aligned with a Lump Sum strategy.  If the agencies involved are commiting to funding over-runs/under-runs at a set percentage, then that is representative of a Pro Rata share.

So if you answered the basic initial question “YES”, then we would recommend selecting Pro Rata.  Examples of this would include using toll credits to achieve 100% funding, the Bridge Program (old HBP) which is committed to funding a percentage of the project based on scope, and other projects that have a firm commitment to a percentage of the project regardless of changes to the cost.

If you answered “NO”, and we think many of our project will fall into this category, we recommend selecting Lump Sum.  Based on our analysis, this Lump Sum option will maximize flexibility after the Award package has been submitted/approved.  So basically we believe this Lump Sum option gives you the most flexibility to handle cost adjustments and transfers after Award.

About John Hoole

John, as the District Local Assistance Engineer, is responsible for the administration of the Local Assistance Program in District 3, which covers local and regional agencies in eleven Sacramento Valley and Northern Sierra Counties. He supervises a group of 10-12 Engineers and Planners who ensure delivery of State and Federal funds to the locals. His experience in the District includes Design, Project Management, and Programming, and prior to the District he worked as a Transportation Engineer with the Federal Highway Administration.

One thought on “Pro Rata vs Lump Sum

  1. Pingback: “Pro Rata or Lump Sum” Presentation (SACOG RPP) | D3 Local Assistance Blog

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