Why it Matters
A newly released Government Accountability Office report, published July 23, examines a longstanding tension in how the federal government partners with states, local governments and Tribes on major water development projects.
The Army Corps of Engineers routinely includes a "hold and save" clause in Project Partnership Agreements that generally requires nonfederal sponsors to protect the federal government from damages arising from a project, except in cases involving the fault or negligence of the United States or its contractors. Nonfederal sponsors say the provision can expose them to significant legal and financial risk while limiting the federal government's liability.
When the Corps enters into agreements for flood control, ecosystem restoration or navigation projects, it generally requires nonfederal sponsors to assume responsibility under the "hold and save" clause. Sponsors argue the arrangement creates an imbalance because the federal government retains significant control over project planning and implementation while shifting substantial legal risk to its partners. Corps officials, by contrast, say the provision protects the federal government from litigation costs and is required by statute.
The GAO report examined the legal protections embedded in these partnership agreements and found that nonfederal sponsors have raised significant concerns about their exposure under the clause. At the same time, both Corps officials and nonfederal sponsors told GAO they continue to maintain a strong working relationship. The report suggests that concerns over liability could complicate future partnerships if they remain unresolved.
The Mechanics of Risk Shifting
Project Partnership Agreements are the standard mechanism through which the Army Corps of Engineers collaborates with nonfederal sponsors to carry out water resources projects. These agreements govern flood risk management, ecosystem restoration, navigation improvements and other water development projects and have long served as the primary framework for federal cooperation with states, local governments and Tribes.
The agreements include a "hold and save" clause that generally requires nonfederal sponsors to protect the federal government from damages arising from a project, except when damages result from the fault or negligence of the United States or its contractors. Corps officials told GAO the clause helps protect the federal government from legal costs by discouraging litigation. Nonfederal sponsors, however, said they remain concerned about the scope of potential liability and the possibility that the clause conflicts with some state laws.
Federal officials contend that nonfederal sponsors directly benefit from these projects and therefore should assume corresponding responsibility. Sponsors and other stakeholders argue that the arrangement creates an asymmetry because the Corps retains substantial authority over project design and construction while sponsors may bear much of the downstream legal risk.
Partners Push Back
The GAO report documents that nonfederal sponsors have continued to raise concerns about the legal framework governing Project Partnership Agreements. Those sponsors, including states, local governments and Tribes, question the breadth of the "hold and save" clause and the extent of their legal exposure.
Sponsors told GAO that the provision may conflict with state law and expose them to liabilities that are difficult to quantify because the clause has never been tested in court. Corps officials acknowledged the uncertainty but said the agency has attempted to address some concerns by clarifying that agreements do not obligate future appropriations where doing so would conflict with state law.
Despite these tensions, both Corps officials and nonfederal sponsors described their overall partnership as strong, and projects continue to move forward. However, the liability provision remains a recurring point of friction as demands for water infrastructure investment continue to grow.
What the Report Examined
The GAO examined stakeholder and Corps perspectives on the legal protections contained in Project Partnership Agreements. The review evaluated the reported advantages and disadvantages of the "hold and save" clause, actions the Corps has taken to address concerns, recommendations offered by sponsors and stakeholders, and how other federal agencies address similar liability provisions.
The report found that nonfederal sponsors continue to seek additional protections, while Corps officials maintain that many proposed changes would conflict with statutory requirements and increase federal costs. The GAO also found that agencies such as the Bureau of Land Management, Bureau of Reclamation and U.S. Forest Service use similar clauses but, in some cases, provide different approaches to addressing liability concerns. Corps officials said their statutory authorities differ from those agencies, limiting their flexibility.
The report does not recommend legislative changes. Instead, it documents the competing perspectives surrounding the liability framework and provides Congress with information as it considers future water resources legislation.
The Broader Stakes
The timing of the GAO report comes as the federal government continues to prioritize water infrastructure investment through partnerships with nonfederal entities. Questions surrounding liability could become a greater consideration as states, local governments and Tribes evaluate whether to participate in future Corps projects.
For nonfederal sponsors, the financial implications can be substantial. Sponsors have argued that accepting broad liability for federally managed projects may expose taxpayers to significant legal costs, particularly for smaller jurisdictions with limited fiscal capacity. At the same time, Corps officials argue that modifying the existing framework could increase federal costs and conflict with statutory requirements.
The report does not propose specific legislative solutions, but it concludes that concerns surrounding the "hold and save" clause remain unresolved. How Congress and the executive branch respond to those concerns could shape the future of federal partnerships on water resources projects for years to come.
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