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Section 4: Advance Funding Agreements

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In order for TxDOT to spend funds or other resources on a transportation project with a local government (LG), a written contract must first be executed between the parties. At TxDOT, an Advance Funding Agreement (AFA) is the form of contract most frequently used for development of projects with LGs. When TxDOT contracts with another party, usually a private firm, for a well-defined good or service such as engineering plans, environmental studies or asphalt for a highway, a procurement contract is used. However, the AFA is not a procurement contract. The AFA is an agreement under which TxDOT and the LG allocate participation in a transportation improvement project. The AFA allows TxDOT and the LG to “jointly” provide for the implementation of a specific project.

The term “advance funding agreement” is used throughout the Manual and Local Government Project Management (LGPM) Guide as a generic term for a variety of joint-funding agreements between TxDOT and LGs. Some specific agreement types included with the AFA are:

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  • Pass-through Agreement;
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  • AFA for Bridge Replacement or Rehabilitation Off the State System;
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  • AFA for a Transportation Enhancement (TE) Project;
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  • AFA for a Transportation Alternatives Program (TAP) Project;
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  • AFA for Transportation Alternatives Set-Aside Program (TASA) Projects;
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  • AFA for Voluntary Maintenance by a Local Government;
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  • AFA for a Safe Routes to School Project;
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  • Local Transportation Project Non-construction AFA;
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  • AFA for Voluntary Utility Relocation;
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  • Agreement for the Furnishing of Traffic Signal Equipment by a Municipality;
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  • Congestion Mitigation and Air Quality Improvement Agreement for the Reimbursement of Engineering Services Performed by a Municipality for the Justification of and the Plan Work for Traffic Signal Indications;
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  • Agreement for the Installation, Operation, Adjustment, and Removal of Temporary Traffic Signal Equipment by a Municipality; and
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  • State Agency Advance Funding Agreement.

This list is not intended to be all inclusive, but to demonstrate the types of agreements that fall within the general category of AFAs.

The AFA defines the scope of work, labor and material resources, and cash or in-kind funding responsibilities to be contributed by each party necessary to accomplish a transportation project. In addition to contract provisions specifying the work and resource contributions, an AFA will have other legally required provisions. For example, if the AFA involves federal funds, a provision requiring the parties to follow the audit requirements of 2 CFR Part 200, Subpart F will be included in the AFA. Other federal requirements are also included in the AFA. In all cases for projects using federal funds, an approved Federal Project Authorization and Agreement (FPAA) is required before the LG can begin work.

The purpose of this section of the Manual is to help the LG:

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  1. Identify and assign a Responsible Person in Charge (RPIC) for TxDOT and LG;
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  3. Identify and assign a “Qualified” Person and a Project Manager for the LG;
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  5. Identify, negotiate, execute, administer and manage an AFA for a transportation improvement project with TxDOT;
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  7. Identify and complete TxDOT prescribed forms, if any, including Funding Structure Special Approval form, Oversight Level Special Approval form, Parts A & B, or other forms required to complete the AFA;
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  9. Calculate and track funding; and
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  11. Implement proper contract management procedures for an AFA.

The LGPM Guide provides additional information describing the parties to an AFA. In general, the LG will work with the TxDOT district to develop and execute the AFA, and the district will coordinate the process within TxDOT. The AFA determines which party, the LG or TxDOT, is responsible for conducting the work, providing funding or contributing items in kind. Under the contractual commitments established in the AFA, both TxDOT and the LG must follow their rules and regulations applicable to that type of work, as well as federal or state laws and requirements that may apply.

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Responsible Person in Charge

Prior to beginning work, the LG and TxDOT will each designate a Responsible Person in Charge (RPIC) for the project. Each agency's RPIC shall be documented in writing within the project files and communicated to the other agency.

The person designated as being in “responsible charge” is required to be a public employee who is accountable for the project. The LG's RPIC must be a full-time employee of the LG. TxDOT's RPIC must be a full-time employee of TxDOT who is also a registered professional engineer.

Each RPIC is expected to be able to perform the following duties and functions for their agency:

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  • Administer governmental project activities, including those dealing with cost, time, adherence to contract requirements, construction quality and scope of federal-aid projects;
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  • Maintain familiarity of day-to-day project operations, including project safety issues;
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  • Make or participate in decisions about changed conditions or scope changes requiring change orders or supplemental agreements;
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  • Visit and review the project on a frequency that is commensurate with the magnitude and complexity of the project;
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  • Review financial processes, transactions and documentation to ensure safeguards are in place to minimize fraud, waste and abuse;
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  • Direct project staff (agency or consultant) to carry out project administration and contract oversight, including proper documentation; and
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  • Be aware of the qualifications, assignments and on-the-job performance of the agency (LG or TxDOT) and consultant staff at all stages of the project.

These requirements do not restrict an agency's organizational authority over the person designated in “responsible charge,” and they do not preclude the sharing of these duties and functions among a number of public agency employees. They also do not preclude one employee from having "responsible charge" of several projects and directing project managers assigned to specific projects. The term “responsible charge” in this section is used in the context intended in 23 CFR §635.105. It may or may not correspond to its usage in state laws regulating licensure of professional engineers. Any change in RPIC during the course of the project shall be documented in writing within the project files and communicated to the other agency.

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Qualified Person

The LG is also required to assign a “qualified person” to the project. This person must work actively and directly on the project and have successfully completed training as described on the Local Government Projects Section web page and defined in the AFA. The “qualified person” may be an employee of the LG or an employee of a firm under contract with the local government to perform management of at least one phase of the project.

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Project Manager

Although not required by federal or state codes, it is anticipated that the LG and TxDOT will each also designate a “project manager” for the project. A project manager is responsible for the daily oversight of the project and is the primary point of contact with the other agency for day-to-day matters. The LG’s project manager may be the same person as the LG’s RPIC, a different employee of the LG or may be a consultant.

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Categories of AFAs

General Categories of AFAs with LGs

AFAs with LGs may be divided into three broad categories:

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  1. AFAs for voluntary transportation projects to be performed by TxDOT (all local funds with no federal or state funds involved in the elements of work being paid with local funds);
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  3. U.S. Department of Transportation’s (USDOT) Federal Highway Administration (FHWA) federally funded AFAs between the state and LGs (local or state funds along with federal funds); and
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  5. State-funded AFAs with LGs (state funds or both local and state funds, no federal funds).

Voluntary Transportation Projects

An AFA for a voluntary project involves cash or other resources voluntarily contributed to a project on the state highway system. LGs may sign these agreements providing they pay for 100 percent of the project costs or 100 percent of a “discrete element” of a project and there is no required state or federal match. A discrete element is a task that is separate or unconnected to other tasks in the project and can be completed independently from other tasks. There is no minimum or maximum dollar amount for these agreements.

For accounting purposes within TxDOT, the agreement may state that the “work under this voluntary agreement is 100 percent paid for by others.” In practice, a voluntary project may be a small part of a larger TxDOT project that may involve other funding sources. Examples of common voluntary projects are feasibility studies, land acquisition, environmental work, plans, specifications and estimates, drainage projects, highway construction and maintenance projects. The AFA for voluntary projects does not contain federal provisions because the contributed resources are not a part of a federal program agreement.

In addition, these AFAs for voluntary projects differ from a Local On-System Agreement (LOSA). The voluntary agreement provides for the LG to contribute funding for TxDOT performed project work. A LOSA applies to a construction project located on the state highway system right of way for which the local government is contributing all funds and managing or performing all engineering and construction activities. The role of districts on LOSA projects is to approve the proposed improvements prior to commencement of construction, to authorize the LG to commence construction on state right of way, and to verify that the completed improvements meet applicable design and construction standards. Local Government Project risk assessment, oversight level, and district verification of LG compliance with state and federal requirements for consultant selection and contracting do not apply to projects with a LOSA.

Federally-funded USDOT FHWA Programs

Federal legislation creates funding programs administered by USDOT through FHWA that allow states to pass federal funds through the state to an LG for coordinated development of transportation projects. TxDOT acts as the conduit in Texas for the funds and is the oversight agency responsible for assuring these federal funds are spent in an allowable manner.

In most cases, the federal programs require a local match to the federal funds in a defined ratio. For example, a project might be funded with 80 percent federal funds and 20 percent local resources. The local match may be paid with state resources, LG resources or, in some cases, private-sector resources. In most cases, the local match is a cash match, but it can also be an in-kind match of resources, such as land, labor or materials if allowed by applicable program regulations. The federal government may also provide funding for specific earmark projects. The specifics of the agreement depend on the program and negotiated agreements among the parties.

Examples of the most common programs funded through FHWA are:

Instead of cash or in-kind services, a LG may choose to use transportation development credits (TDCs) as the non-federal match on a project. TDCs are a financing tool approved by FHWA allowing states, toll authorities or a private entity to earn credits when these entities fund a capital transportation investment with toll revenues earned on existing toll facilities, excluding revenues needed for debt service, returns to investors or the operation and maintenance of toll facilities. In Texas, 75 percent of credits are allocated to the metropolitan planning organization (MPO) in whose region they were earned and 25 percent are allocated on a competitive statewide basis. The methods for calculating the match, for accounting for TDCs and the rules applicable to their use can be found at 43 TAC §5.101 et seq. The LG will be required to document TDC expenditures, and this documentation will be specified in the AFA. More information can be found on the TxDOT website regarding TDCs.

TxDOT has adopted rules under the Texas Administrative Code applicable to many of the federal, state and local funding participation programs. These rules are found at 43 TAC §15.50 et seq.

Some other programs have extensive rules specifically applicable to them. For example, TAP rules are found at 43 TAC §§11.300-11.317 (implementation and administration of the TAP), TASA rules are found at 43 TAC §§11.400-11.418, as well as 43 TAC §16.153 (funding categories) and 43 TAC §16.154 (transportation allocation funding formulas). It is the responsibility of the contract manager of individual contract programs to be familiar with the applicable rules for his/her specific program contract. A contract manager working with federally funded FHWA projects with TxDOT/LG AFAs should be familiar with 43 TAC§§15.50-15.56 and with the specific rules affecting his/her program.

Some TxDOT divisions administering various programs have published important guides for reference. For example, refer to the Bridge Division’s Bridge Project Development Manual for more information on bridge projects and the various right-of-way manuals found in the TxDOT Online Manual System for projects involving right-of-way acquisition.

State-funded Projects with LGs

The state may allocate funds for local projects involved in specific programs, and these projects may be handled with a unique version of the AFA. These programs are managed through various TxDOT divisions/offices including the Transportation Planning and Programming Division (TPP), Design Division (DES), Bridge Division (BRG), Traffic Operations Division (TRF) and Local Government Projects Section (LGP). LGs are encouraged to contact their local district to obtain current information in these situations. Additional information may be available through the appropriate division’s Web pages on the TxDOT website.

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Standard Agreements


In 2019, the TxDOT Contract Services Division (CSD) further streamlined formats for AFAs with LGs and included a newly identified category for on-system projects in which the LG contributes all funds and performs all activities known as a Local On System Improvement Project Agreement (LOSA).

The formats consist of standard agreements, such as:

The use of the above agreements further simplifies the majority of local project agreements and substantially reduces executive review and processing time.

AFA Long (AFA)

The AFA standard agreement sets out the general terms and conditions of the relationship and cites the federal and state laws that govern the agreements with LGs.

The AFA is used to define the scope of work and funding responsibilities for a specific project. Execution of an AFA requires formal action by the LG’s governing body. The AFA contract period usually ends upon completion of the project unless the AFA is terminated early or is extended based on an amendment executed by both parties. The AFA specifies the distribution of responsibilities for performing work, such as right-of-way acquisition, environmental, preparation of the PS&E, construction of the roadway and other aspects of the project.

The AFA also specifies which party will provide what resources, such as the land or the funding necessary for a project. The party responsible for performing work may or may not be the party responsible for paying for the work. The AFA also includes general terms and conditions of the agreement.

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Additional Information Regarding Funding Approvals

Commission Approval

A transportation project must be authorized in a minute order presented and heard at a meeting of the Texas Transportation Commission. If a project is included in the Unified Transportation Program (UTP), the minute order approving the UTP is the only Minute Order required. Projects funded with TxDOT district discretionary funds are also authorized under the UTP minute order. There are times when an individual, project-specific minute order is required.

LG Authority Approval

It is the responsibility of the LG to know the legal requirements governing its ability to contract with TxDOT. In general, LGs authorize the expenditure of funds through action of their governing body or board that authorizes the LG to enter into a contract with TxDOT.

Outstanding Balance

In negotiating AFAs, the TxDOT district office must first check with the Finance Division (FIN) to determine if the LG has an outstanding balance owing to the state. In most cases, outstanding balances must be paid before further funding agreements can be executed.

Special Approvals

In some cases, special approvals are needed to allow a LG to perform the work. Some examples include the following.

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  • Local Letting. The LG may locally let and award a construction contract if approved by TxDOT. 43 TAC §15.52 (3) outlines the conditions required for a LG to receive TxDOT approval to let/award a construction contract. If the specified conditions are demonstrated, written approval by the TxDOT executive director or his designee is required. This approval should be obtained during preparation of the AFA and documented in the project files.
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  • Local Force Account Work. The LG may use county or municipal employees to perform work on the project. 43 TAC §15.52 (3) outlines the conditions required for a LG to perform project construction activities with its own forces. Once these conditions are demonstrated, written approval of the TxDOT executive director or his designee is required prior to performing the improvements. To reduce potential delays, this approval should be requested as early in the project as practicable.
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  • Funding Agreement. All AFAs define the allocation of project costs between the parties to the agreement. Chapter 1, Section 5 of the Project Development Process manual includes charts that indicate standard funding participation values for numerous transportation programs. This document also includes an “AFA Recommended Funding Type Chart” that indicates which of the following funding types (fixed price or specified percentage) is recommended based upon the category of work, who is managing the work, and whether the project is on or off the state highway system or is a non-construction project. If the AFA proposes a funding type that is not aligned with the recommendation in the chart, special approval by the executive director or his designee is required.
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    • Fixed Price. 43 TAC §15.52 (4) defines fixed price as the LG funding participation amount based upon the department’s estimated cost of the work to be performed at the time of executing an AFA. TxDOT and the LG agree upon a fixed price amount of participation by the LG. This amount may be adjusted through execution of amendments to the AFA due to changes in project scope and/or unforeseen conditions. In this case, any project costs in excess of the amount specified in the AFA would be the responsibility of TxDOT (using either state or federal funds). This change is intended to incentivize both the LG and TxDOT to be more proactive in estimating and managing project costs and in significantly expediting the project close-out process at project completion.
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    • Specified Percentage. 43 TAC §15.52(4) defines specified percentage as the LG and TxDOT agreeing to each be responsible for specified percentages of estimated total project costs. This type of agreement will specify a percentage participation for federal funds, state funds and local funds with a cap on the amount of federal and state participation. In this case, any project costs in excess of the amount specified in the AFA are the responsibility of the LG.
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  • Periodic Payment Agreement. In addition to determining whether to use fixed price or specified percentage funding, 43 TAC §15.52(4) also allows the LG’s share of estimated project costs to be paid out using periodic payments under certain conditions. Periodic payment agreements must be approved by the executive director or his designee and may not be approved if the LG has any delinquent obligations to TxDOT.
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  • Approval of Projects in Economically Disadvantaged Counties. 43 TAC §15.55(b) provides special consideration for projects located in economically disadvantaged counties (including the cities and towns within these counties). In evaluating a proposal for a highway improvement project with a LG that consists of all or a portion of an economically disadvantaged county, the commission shall, for those projects in which the commission is authorized by law to provide state cost participation, adjust the minimum local matching funds requirement after receipt of a request for adjustment from the governing body of the LG. Further information regarding the Economically Disadvantaged County Program is available on the TxDOT website.

An economically disadvantaged county is one that has:

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Funding Overruns


One provision of the AFA between a LG and TxDOT includes the funding responsibilities of each party to the AFA. State, federal and local funding responsibilities are specified as well as the funding type (fixed price or specified percentage). Each party’s funding obligation is limited to the values indicated in the agreement unless it is the party responsible for cost overruns or an amendment to the AFA is executed in writing by both parties.

Federal Requirement

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  1. There are no specific federal regulations concerning funding overruns. FHWA executes a FPAA with TxDOT on all federally funded projects.

State Requirement

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  1. 43 TAC §15.52 – Requires a written agreement between TxDOT and a LG when the LG is providing financial assistance for a highway improvement project. One of the provisions of the AFA is the funding responsibilities of each party to the agreement.
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  3. 43 TAC, Chapter 5 – Provides for agreements between TxDOT and other entities that include funding arrangements and responsibilities:
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  5. 43 TAC, Chapter 5, Subchapter E – Pass-through Fares and Tolls;
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  7. 43 TAC, Chapter 5, Subchapter H – Transportation Development Credit Program; and
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  9. 43 TAC, Chapter 5, Subchapter G – Private Activity Bonds.

Required Practices

The LGPM Guide includes the LG and TxDOT responsibilities related to project funding overruns. In general, for projects with state or federal funds, the LG must follow the terms of the project AFA executed between TxDOT and the LG.

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AFA Amendments

If there is a significant change in the scope of work, funding or time, the district will prepare an AFA amendment that sets forth the change and the reason for the change. Frequently this is related to a construction contract change order, but may be necessary for non-construction projects as well. An amendment to the AFA will frequently trigger a change order in the related bid documents or scope of services. Any change in the scope of the project must be consistent with TxDOT’s change order policy and the project’s environmental document. The LGPM Guide contains additional information regarding project changes and amendments.

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Local On System Improvement Project Agreement (LOSA)

The LOSA is a new agreement with the LG that is available for use. The primary purpose is to document a construction project located on the State Highway System right of way for which the LG is contributing all funds and managing or performing all engineering and construction activities.

There are numerous requirements that must be considered if a LG believes the project should use a LOSA and should be discussed with the TxDOT district as soon as a project is identified.

LOSA projects are not considered a LG project under the strict definition in Section 1 of the LGPM and therefore many state and federal requirements are not applicable.

If the provisions of the LOSA are not acceptable, then the LG must use an AFA-Long Non-Federal template to document the agreement between the parties.

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