Section 278 agreements and the cost nobody budgeted
The works cost is the part everyone budgets. Design check fees, supervision, bonds, commuted sums, traffic orders and undertaker diversions are the part that hurts.
A section 278 agreement is the mechanism by which a developer pays for, and usually builds, works to the existing public highway that a new development needs: the access, the junction improvement, the pedestrian crossing, the bus stop, the signal upgrade. The works cost is the part everyone budgets. The design check fee, the supervision fee, the bond, the commuted sums, the traffic regulation orders and the statutory undertaker diversions are the part that turns a £200,000 allowance into something much larger, and they appear in that order as the scheme progresses.
What a section 278 agreement covers
Section 278 of the Highways Act 1980 lets a highway authority enter an agreement with a person who will contribute to the cost of works to a highway, where the authority is satisfied the works will benefit the public. In practice the developer funds the whole thing and either carries out the works under the authority's supervision or pays the authority to do them.
The agreement deals with the design, the approval process, the method of working, the insurance and indemnities, the bond, the fees and the timing. It does not grant planning permission, and planning permission does not oblige the authority to enter the agreement. Those two facts, taken together, are the reason highway works sit on the critical path.
Anything outside the adopted highway boundary is outside the agreement. Where a visibility splay, a footway widening or a drainage outfall needs land in third party ownership, that is an acquisition problem, and discovering it after permission is granted is a familiar way to lose a year.
How it differs from a section 38 adoption agreement
The two are routinely confused in heads of terms, and they do different jobs.
| Feature | Section 278 | Section 38 |
|---|---|---|
| What it covers | Works to the existing public highway | Adoption of new streets built within the site |
| Who initiates | Developer, because the development needs the works | Developer, because future residents need maintained streets |
| Typical scope | Access, junction, crossing, signals, footways | Estate roads, footways, lighting, drainage, verges |
| Bond or surety | Usually required | Usually required |
| Maintenance period | Defined period after completion | Defined period before adoption |
| Commuted sums | For non-standard items | For non-standard items and structures |
Most residential schemes of any size need both. The access works at the public road go through section 278, and the internal streets go through section 38, with the technical approval process running across the two.
Design approval, audit and fees
The approval sequence has more stages than developers expect, and each stage carries a fee.
- Pre-agreement discussions and a fee quotation from the authority.
- Preliminary design, usually submitted with or soon after the planning application.
- Stage 1 road safety audit on the preliminary design, with a designer's response to each recommendation.
- Detailed design, including drainage, lighting, signing, lining, structures and tie-ins.
- Stage 2 road safety audit on the detailed design.
- Technical approval, which is frequently granted after two or three rounds of comments.
- Agreement completion, bond in place, works start.
- Stage 3 road safety audit on completion of the works, then the maintenance period and handover.
Authorities charge a design check fee and a supervision fee, commonly set as percentages of the estimated works cost and published in a fee schedule. Those percentages differ markedly between authorities, so read the schedule for the authority you are dealing with rather than carrying a figure across from the last scheme.
Road safety audit recommendations have a habit of adding scope. A stage 1 audit that asks for a pedestrian refuge, a longer right turn lane or additional lighting is adding cost to a design that was priced before the audit existed. Price the audit response as a contingency rather than assuming the design survives it.
Bonds, commuted sums and inspection charges
Three cost lines sit outside the construction budget and each catches someone every year.
The bond secures completion of the works if you fail to finish them. It is sized against the works value, it costs money to put in place, and it ties up either cash or facility headroom for the duration of the agreement and the maintenance period.
Commuted sums are payments towards the future maintenance of anything the authority will adopt but would not have chosen: block paving instead of tarmacadam, street trees in the highway, traffic signals, pumped drainage, structures, unusual lighting. The sums are calculated on a whole life basis and they can be substantial on a scheme with a high quality streetscape specification. The planning officer who asked for high quality materials and the highway officer who prices their maintenance are rarely in the same conversation, which is a problem for you rather than for them.
Inspection and supervision charges run through the construction period and are usually invoiced in arrears, which makes them easy to under-accrue.
Traffic regulation orders and the statutory process
Where the works involve parking restrictions, waiting restrictions, a speed limit change, a one way order or a bus stop clearway, a traffic regulation order is needed. That is a separate statutory process with advertisement, a formal objection period, consideration of objections and, where objections are sustained, potential referral to a committee.
Orders fail. An objection from a residents' association to the loss of parking outside their houses can stop an order, and if the development depends on the order then the development has a problem that no amount of section 278 money solves.
So where a scheme relies on an order, say so in the risk register, start the process early, and avoid a planning condition that makes occupation contingent on something a third party can block.
Statutory undertaker diversions
This is usually the largest unbudgeted item. Works to a junction or a footway frequently sit over gas, water, electricity and telecommunications apparatus, and moving it is priced by the undertaker, not by your contractor.
The process involves requesting an estimate, receiving a budget figure, then a detailed quotation, then programming the works into the undertaker's own schedule. Each step takes weeks or months. Estimates are frequently revised upwards when the detailed design is examined, and the apparatus owner's programme is outside your control entirely.
Ask for budget estimates at the earliest possible point, which means as soon as the preliminary highway design exists rather than after technical approval. Carry the figure in the appraisal with a wide contingency, and treat the programme as a constraint on the start on site. Our note on highway works costs in a development appraisal sets out how to structure that allowance.
Securing the works by condition or obligation
Highway works are usually secured by a condition preventing occupation, or a defined stage of development, until the works are complete. A planning obligation may require the applicant to use reasonable endeavours to enter the agreement, since the authority cannot be compelled to do so.
Two points on wording. A condition requiring completion of the works before any development starts is unworkable where the access is the first thing to be built, and officers will normally accept a trigger tied to occupation instead. And a condition drafted by reference to a drawing that has not been through technical approval will need varying later, so refer to works substantially in accordance with a principle rather than to a specific detailed layout.
Budgeting realistically
The honest allowance has nine lines, not one.
Works construction cost. Design and civil engineering fees. The authority's design check fee. The authority's supervision and inspection fees. Road safety audit fees and the cost of responding to recommendations. Bond costs. Legal fees for both sides. Commuted sums. Statutory undertaker diversions. Then inflation across the period between pricing and building, and a contingency that reflects how early the design is.
As an illustrative example, a 90 unit scheme requiring a new priority junction, 80 metres of footway and a pedestrian refuge might carry a construction figure that looks modest and then add percentage based authority fees, a bond, a commuted sum for street trees in the verge, two rounds of audit response, and a gas main diversion that nobody identified until the detailed design. The appraisal that assumed the construction figure plus ten per cent was wrong by a wide margin.
Where that total moves the scheme, it belongs in the Viability Assessment as an evidenced cost line with the authority's own fee schedule attached, prepared in the format described in our note on the format of a viability appraisal submission and capable of surviving the kind of scrutiny set out in our note on the independent review of a viability appraisal.
Get a fee quotation and a diversions estimate before you fix the appraisal. This is general guidance rather than legal advice, so take advice on the particular agreement and the authority's published charges before relying on it. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.
Frequently asked questions
What is the difference between section 278 and section 38?
Section 278 of the Highways Act 1980 covers works to the existing public highway that a development needs, such as an access or junction improvement. Section 38 covers the adoption of new streets built within the site as highway maintainable at public expense. Most residential schemes of any size need both.
Does planning permission oblige the authority to enter the agreement?
No. The two are separate, which is why highway works sit on the critical path. A planning obligation can require the applicant to use reasonable endeavours to enter an agreement, but the highway authority cannot be compelled to do so, and the works themselves are usually secured by a condition preventing occupation.
What are commuted sums for?
The future maintenance of anything the authority will adopt but would not have chosen: block paving instead of tarmacadam, street trees in the highway, traffic signals, pumped drainage, structures or unusual lighting. They are calculated on a whole life basis and can be substantial where the planning officer has asked for high quality streetscape materials.
Why do road safety audits add cost?
Because their recommendations add scope to a design that was priced before the audit existed. A stage 1 audit asking for a pedestrian refuge, a longer right turn lane or additional lighting changes the construction cost. Price the audit response as a contingency rather than assuming the design survives unchanged.
What usually blows the highway budget?
Statutory undertaker diversions. Junction and footway works frequently sit over gas, water, electricity and telecommunications apparatus, and the cost is set by the undertaker rather than by your contractor. Estimates take months, are often revised upwards at detailed design, and the programme is outside your control.
What if the scheme depends on a traffic regulation order?
Treat it as a risk rather than a formality. Orders require advertisement, a formal objection period and consideration of objections, and a sustained objection can stop one. Start the process early, and avoid a planning condition that makes occupation contingent on something a third party can block.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.