Section 2: Cost Estimate Methods and Categories

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Reimbursable Cost Methods

There are two ways to build a cost estimate and establish a cost basis for reimbursement:

Fixed Amount (Lump Sum) Estimates

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  • For work performed by a utility with its own forces, or for work performed for the utility under contract, a fixed amount final payment based on an estimate of costs prior to construction is allowed. This is commonly known as the lump sum payment method.
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  • Payment should be based on the methods that are customary and acceptable for the work involved, which include the lump sum payment method. If the utility uses an existing continuing contractor, payment should be by the method the utility has previously established with the contractor. If the continuing contract establishes a lump sum payment for certain types of work, this payment method can be used for the Federal-aid project if TxDOT believes the cost is reasonable.
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  • FHWA regulations do not limit or cap lump sum contracts. However, all lump sum contracts greater than $500,000 require Right of Way Division's approval. When proposed utility relocation work on a project for a specific utility company can be clearly defined and the cost can be accurately estimated, TxDOT may approve a lump sum agreement without later confirmation by audit of actual costs.
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  • The lump sum payment method should only be used where the project scope and costs can be clearly and concisely defined. The cost estimate in support of the lump sum agreement must be accurate, comprehensive, verifiable, and in sufficient detail to give a clear picture of the work involved and the cost of the individual items.
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  • Whenever the lump sum payment method is used, TxDOT must verify that the eligible work has been satisfactorily completed in accordance with the approved agreement, plans, and specifications before reimbursement can be approved.
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  • When utility relocation work is to be accomplished by a contract secured under a full competitive bidding process controlled by a utility, TxDOT will undertake all actions needed to verify that the utility awards the contract to the lowest qualified responsible bidder based on appropriate solicitation.
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  • Lump sum estimates should list major items of material and supplies by item, with a description and proper indications of the specific quantity required, and the unit price and extension.
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  • Lump sum estimates should itemize wages and salaries anticipated on a particular adjustment by class and type. The costs must be representative of actual rates per hour or average rates on the actual amount paid to individuals for productive time incurred under the agreement.
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  • Lump sum estimates require the reviewer to verify overhead costs to ensure that all items are eligible, and the rates are not established arbitrarily.
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  • Buy America requirements or state Iron and Steel Preference Provisions must be identified on the cost estimate and evidence of compliance is required prior to installation of associated materials and payment.

Actual Cost Estimates

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  • Supporting documentation and evidence of actual costs are required at billing.
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  • Records of actual costs incurred develop the basis for reimbursement to the utility. In many cases for billing purposes, certified ledgers and other indirect methods can be used to substantiate costs, but cost estimates need to be built from actual costs expected, whether internal or external resources are used to complete the adjustment.
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  • Cost estimate should allow comparison with the actual records of cost accumulation at billing. The comparison of cost to actual cost is a requirement at billing.
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  • When the utility is to be reimbursed based upon the actual cost incurred under the force account payment method, TxDOT should have a daily inspection record that can be used to verify billings for labor, materials, and major items of equipment used by the utility to complete the work.
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  • Buy America requirements or state Iron and Steel Preference Provisions must be identified on the cost estimate and evidence of compliance is required prior to installation of associated materials and payment.

Construction Unit Basis

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  • When construction assembly units are used in estimating the cost of the work, labor costs may be shown on an assembly unit basis.
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  • The estimate may be prepared by construction units and quantities to support any item included in any account.
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  • Where construction units are used, it is required that TxDOT approve the estimating and/or billing procedure.
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  • When estimates are prepared on a construction unit basis, a copy of the utility's current specification sheet for each construction unit will be required.
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Cost Estimate Categories

The cost estimate submitted in support of the agreement will set forth the items of work to be performed, as broken down into the following categories:

All the above items must be sufficiently detailed to provide TxDOT with a reasonable basis for analysis.

Estimates of cost should adhere to General Accounting Procedures ( GAP) and Federal Acquisition Regulations ( FAR).

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Materials and Supplies

Major items of materials must be itemized. Unit costs, such as assembly units of property (i.e., Rural Utilities Administration (RUA) construction specifications), may be used for estimating purposes if the utility uses such units in its own operations.

The factors that will be included in the utility’s construction overhead account must be clearly shown. Materials should be shown by items and price:

NOTE: Any utility work accomplished as a part of the project and eligible for reimbursement will need to comply with these rules, particularly work which includes iron and steel products.

A unique example of an adjustment cost is assembly units used primarily for adjustments involving RUA facilities. Specifications, sheets, or booklets, like those used in RUA Form Books 803, 804, and 805, itemize the components of each assembly. A copy of the current specification sheet for each unit itemized in the estimate should be included in the agreement assembly to support the estimate. No specification sheet will be required for poles, since the symbols for these items are obvious.

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  • The estimate must show person-hours by the rate for the job title. Additionally, unit costs for labor will be acceptable when the utility’s system of accounts provides for this method of estimating. This type of cost estimating is usually done by cooperatives involving RUA facilities.
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  • However, if items of overhead are included in the unit cost for labor, these items are detailed separately to be analyzed to assure the costs were incurred after execution of a Utility Agreement. The utility should also include in the estimate the amount of time anticipated for supervisory labor, costs incidental to the preparation of the plans, estimates, and agreement documents, and expenses that will be paid to individuals directly engaged in the proposed adjustment.
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  • All labor charges and expenses shown must be in conformity with similar charges that are reflected in the accounts of the utility and incurred in its normal operations.
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Transportation and Equipment

Charges should have sufficient documentation and explanation of necessity.

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  • Personal expenses
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    • Expenses may include meals and lodging required by use of the utility’s forces in remote areas. The costs should be in keeping with those normally incurred by the utility.
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  • Equipment
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    • Type, size, and rate should show equipment.
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    • The charges should reflect the utility’s normal accounting procedures.
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    • Rentals should also be shown by type, size, and rate.
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    • Published equipment rates, instead of actual rate, are not allowable, (i.e., Petroleum Motor Transport Association (PMTA) rates).
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Right of Way

Right of way costs for replacement or damages should be in accordance with the utility’s normal methods.

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  • Definitions:
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    • "Right of way costs" are defined as those instances where there is an interest in land acquired.
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    • “Replacement right of way” may be defined as the land and interests in land acquired outside existing highway right of way for or by the utility. These costs may include salaries and expenses of utility employees engaged in the valuation of and negotiation for right of way, amounts paid to independent fee appraisers for appraisal of the right of way, recording costs, deed fees and similar costs normally paid that are incidental to land acquisition. These costs must never be lumped together, but should be broken down as separate line items in the estimate with estimated quantities and units.

A valuation of the replacement right of way must be conducted before the initiation of negotiations.

Payment of property damages necessary for a utility adjustment is reimbursable when properly documented. Losses to improvements such as crops, timber, fences, and gates caused by utility construction will be considered as damages and properly chargeable by the utility as a construction or adjustment expense. No reimbursement is permitted for damages caused by negligence on the part of the utility or its employees.

An affidavit and existing record documentation affirming a utility’s property interest at the present facility location needs to be submitted to the District. Upon completion of the utility adjustment, the utility’s prior property interest will be quitclaimed to the State.

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Traffic Controls

Develop a TMUTCD-compliant traffic control plan, to include:

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Salvage, Abandoned Facilities, and Removal of Materials

The estimate must contain appropriate credits for salvage and accrued depreciation value, if applicable.

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  • Salvage
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    • If existing materials are to be removed from the project as part of the adjustment or relocation of the utility’s facilities, a credit must be given for their value against the net cost of the adjustment.
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    • If materials are to be re-stocked, the credit should be in an amount comparable to the prices charged for similar materials when issued from the utility’s stock.
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    • If the salvaged materials are to be sold as junk or for scrap value, that amount should be credited to the net cost of the adjustment.
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    • If the salvaged materials are deemed to have no value and are disposed of with no value being returned to the utility, then a credit does not need to be applied to the adjustment’s net cost. Justification should be provided to substantiate removal.
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    • The State or LPA should verify the disposition of salvage materials in their construction diary and a statement as to the disposition should accompany the billing for the adjustment.
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  • Abandoned Facilities
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    • Abandoned lines are the responsibility and property of the abandoning utility owner. Abandonment does not relieve the owner of financial responsibility.
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    • Utilities may request that their abandoned lines be left in the ground; such request must be reviewed and approved by the District, which will notify ROW Division of its decision.
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    • Without valid justification, all abandoned facilities shall be removed.
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    • Utilities must maintain an inventory of all abandoned facilities on State right of way.
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  • Required Removal of Materials
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    • Environmentally sensitive material should be removed if there is a direct construction conflict.
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    • If abandoned materials are to be removed by the utility, the cost must be reflected in the estimate. A description of the removal work performed must be detailed in the scope of work narrative.
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Federal and State regulations require that, in most cases, credits to the utility adjustment project must be given. Generally, these credits will fall into one of the following categories:

When it is not necessary to retain the existing building and/or facilities in service until a replacement is constructed, reimbursement will be limited to the most economical method of adjustment.The reimbursement estimate should indicate the method of work to be accomplished on the building and/or the facilities, to the extent of listing major items of materials, if applicable, and should be limited to the most economical method of adjustment. This will enable the reviewer to determine if any credits should be applied to these costs.Credits to the utility project should be set forth separately and in sufficient detail to show the method used for establishing the amounts. In addition, credits should be included in the summary of costs to arrive at the net cost of adjustment.

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  • Accrued Depreciation requires credit for accrued depreciation of a utility facility being replaced, See computation of credit formula below, (i.e., Handy Whitman Index). Credit for accrued depreciation is not required when any of the above-described facilities are only being relocated and not replaced.

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    Equation 7-1.Computation of Credit Formula

    The information for determining the required credit must be furnished by the utility and based on its own records and depreciation schedule.

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Betterments incorporated into utility work will fall into one of the following categories:

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  • Forced betterments: also known as non-elective betterments; those necessitated by transportation project construction, as shown below; this type is usually a reimbursable cost item. The following are reimbursable items and must be properly documented by the utility:
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    • non‑stocked items that are uneconomical to purchase;
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    • items to comply with governmental laws and ordinances;
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    • appropriate regulatory commission codes;
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    • published, current design practices regularly followed by the utility in its own work;
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    • installment of replacements of equivalent standard, although not identical;
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    • betterments for which there are direct benefits to, and /or are required for, the transportation project.
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  • Elective betterments: those constructed at the election of the utility and are not attributable to the transportation project, i.e., increased service capacity or service improvements; this type is always a non-reimbursable cost item. Credit will be required and must be indicated in the estimate for elective betterments.

TxDOT cost participation is based on the cost of providing the most economical replacement facility or restoration of functionally equivalent service to the facility being replaced. The costs of elective betterment items are ineligible for TxDOT and Federal participation. Such elective betterments should be depicted on the plan as part of the work proposed.

The utility should record all relocation costs on a single work order account. It is impractical for a utility to accurately separate reimbursable and non-reimbursable portions of the relocation cost, particularly labor, overhead, equipment, and transportation. Use the following procedures (below) to determine State cost participation.

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Procedures for Computing Elective Betterment Credit

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  1. Prepare a plan and estimate of cost for replacement of the existing facility in the most economical manner, as required by the transportation construction project: (A).
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  3. Prepare a second plan and estimate including the betterments that the utility elects to build: (B).
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  5. Subtract the two (above items) from one another to arrive at the difference between the two: (B) minus (A) = (X)
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  7. Compute a betterment credit percentage based upon the ratio of the result (X) in the bullet above to the betterment estimate (B): = Elective Betterment Credit Percentage
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  9. Apply the elective betterment percentage to the final billing of actual costs incurred in building the “bettered” facility BEFORE deducting accrued depreciation, if applicable, and salvage credits.
    Anchor: #XYSJGJDYTable 7-2: Example Computation of Elective Betterment Percentage

    Estimated Total Cost of Relocation:

    $1,000,000 (B)

    Non-betterment Estimate

    ‑ 700,000 (A)


    $ 300,000 (difference) (X)



    Elective Betterment Credit Percentage:

    $ 300,000 (X)


    30% Betterment Credit


    $1,000,000 (B)

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    Total Billing (including betterments)


    Less 30% Betterment Credit

    $ 360,000

    Less: Accrued Depreciation (if applicable)

    $ -0-

    Less: Salvage (if applicable)

    $ 122,000

    Eligibility Ratio (if applicable)

    $ -0-

    Estimated Reimbursement

    $ 718,000

    *Actual cost may differ from the estimated cost.


Care should be taken when arriving at the estimated cost of relocation to avoid having to bid.

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  • Reimbursable Miscellaneous Items:
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    • Storm Water Pollution Prevention Plan (SWPPP): The general requirements established by the EPA maintain that the contractor must have a National Pollution Discharge Elimination System (NPDES) permit for certain construction activities.
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    • Security: The utility may contract with a security service to provide security for their on-site equipment and materials during the utility adjustment.
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    • Revegetation: In accordance with the UAR, the utility is responsible for reseeding and re-sodding to reduce erosion when the utility installation is complete. It is also required to reshape, reseed, or re-sod the area when, within six months after utility installation, settlement or erosion occurs.
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    • Product Loss (not to be confused with revenue loss): The following 4-step calculation will be used to estimate gas loss when relocating pipelines containing natural gas:
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    • (1) FPV = 1 + P2 / 1000 * 0.847(2) V2 = [P1 * [D1 / 12 * D1 / 12/4] * L1 * [[P2 + 14.65] / 14.65] * FPV] / 1000(3) R1 = V2 * 1000 * S1(4) Gas Loss = R1 / 2000.


      FPV = Super-compressibility factorP2 = Pressure (PSIG)V2 = Volume of gas in pipeline segment (in MCF)P1 = Original absolute pressureD1 = Internal diameter of pipeL1 = Length of pipelineR1 = Gas release weight in lbs/cfS1 = Sample of gas in lbs/cf.

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    • Trench Safety Plan
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    • Testing and Removal of Contaminated Soils
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