# Presentation: 524423

## Common Sense For Cleanups: Pay For Performance

**William H. Foskett**
**OUST/USEPA/HQ**
***foskett.william@epa.gov***
***703 603-7153***
***December 5, 2000***

## What’s The Problem With T&M?

- Slow to start, slow to pay, slow to close
- Environmental effects (MTBE)
- Business effects (owner, consultant)
- Too much paperwork, too little cleanup
- Economic incentives are upside-down
- Financially unpredictable

## What’s the Solution? PFP

- Pay-For-Performance (PFP) = common sense
- Buy, pay for what you want
- Buy, pay for contamination reductions
- State staff focus on environmental results
- Consultant decides, manages technology
- PFP rewards, clears way for innovation
- PFP economic incentives are right-side up
- Makes cleanups predictable in price, time

## Basic Parts Of A PFP Deal

- Cleanup goals (set before price)
- A firm fixed price
- A time limit
- Contamination-reduction payments
- Escape clauses, walkaway protection

## How PFP Works 

- Site assessment is a given, often done separately
- Cleanup goals are set upfront, in the usual ways
- Firm fixed price set by bidding or negotiation
- Consultant selects, designs the cleanup system
- Paid at Demo, 25%, 50%, 75%, Goal, Goal+2Q
- Prompt payment, 3 - 30 days, minimal paperwork
- Tight measurement, rebound provisions
- Set *escape clauses* upfront; no *change orders*

## PFP Is Small Business Friendly

- For consultants
- Capital cost is recovered early
- Minimal paperwork
- Progress payments are made simply and quickly
- Cash inflow exceeds payout during most of cleanup
- For site owner/operators
- Price, time predictablility
- Common-sense terms
- Faster recovery of economic value of property

## Strict Application Of Core PFP Principles Is Key To  Success

- Buy a clean site, not just some clean wells
- Set _fixed_, specific contamination reduction goals up-front
- Set a firm fixed price up-front
- Consultant designs and runs the cleanup
- State focus strictly on environmental results
- Pay quickly when contamination is reduced
- Share the financial risk by fair escape clauses, walkaway protection

## No PFP Failures, One Default

- Over 300 PFP cleanups are started or completed
- Most PFP sites are on or ahead of “schedule”
- No PFP failures, one default so far
- Several intrusions of offsite plumes
- One attempt to cheat on measurement
- Several faulty site assessments

## Ways To Set PFP Prices: Negotiation

- Negotiated PFP prices are higher than competitive-bid prices
- But lower than T&M prices over long term
- Because change-order inflation is avoid
- Challenging to administer long-term
- Uncertain timing
- Potentially labor intensive for contractor and state

## Ways To Set PFP Prices: Competitive Bidding

- Open, competitive bidding cuts PFP cleanup prices 30% - 50%
- Buying contamination reduction, not professional services
- Fast, fair to administer

## Site Goals For PFP Cleanups

**Set however the state currently sets goals**
**Works with free product removal goals**
**Dovetails with risk-based cleanup goals**
**Compatible with monitored natural attenuation **

## Time Limits For PFP Cleanups

**Typically two to three years**
**May be longer (e.g., MTBE)**
**May be set to reach an interim goal**
**May be  adapted to monitor-only sites**

## PFP In FY 2001: stop here Bill

**PFP National MTBE/Small Business Pilot**
**Scale-up number of PFP sites in “voluntary” programs**
**Strengthen contamination-reduction measurement**
**National Governors Association**
**Much more info sharing via Internet**