Federal Register

Superfund Response Action Contractor Indemnification
                             Vol. 58, No. 14
                               58 FR 5972
                          Monday, January 25, 1993

AGENCY: ENVIRONMENTAL PROTECTION AGENCY (EPA)
DOC TYPE: Notices
NUMBER: FRL-4555-3
January 25, 1993.
CONTACT: FOR FURTHER INFORMATION CONTACT: Rick Colbert, (703) 603-8932.
Rick  Colbert,  U.S. Environmental Protection Agency, 5502-G, 401 M Street,
  SW., Washington, DC 20460.
Final guidelines.
The  Environmental  Protection  Agency (EPA) is issuing final guidelines to
  implement  section  119  of  the  Comprehensive  Environmental  Response,
  Compensation,  and  Liability  Act  of  1980  (CERCLA), as amended by the
  Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. 9619) and
  Public Law 101-584. Section 119 provides the President with discretionary
  authority to indemnify response action contractors (RACs) for releases of
  a  hazardous  substance  or  pollutant  or  contaminant  arising  out  of
  negligence  in  conducting  response  action  activities  at sites on the
  National  Priorities List (NPL) and removal action sites. As delegated by
  the  President,  EPA  has  authority  to  extend  indemnification to RACs
  working  at  NPL  or  removal  action  sites  for  EPA, states, political
  subdivisions   of   states,   federally  recognized  Indian  tribes,  and
  potentially responsible parties (PRPs).

WORD COUNT: 22,989
TEXT:
SUPPLEMENTARY INFORMATION: Detailed Summary of Final Guidelines:

     Diligent  Efforts:  To  be  eligible for indemnification by EPA, a RAC
must   have  made  diligent  efforts  to  obtain  insurance  coverage  from
non-federal  sources.  Under  a  multisite  contract, the RAC must agree to
continue  to  make  such diligent efforts each time it begins work at a new
site.

     Prime  contracts:  For  future contracts, EPA does not intend to offer
any  indemnification  unless  it  did  not  receive  a sufficient number of
qualified  bids or proposals, and the lack of response can be linked to the
absence  of  indemnification.  In  such a situation, EPA may issue a new or
amended   solicitation   and   offer   indemnification.   RACs   with   EPA
indemnification  coverage  under current contracts will be offered coverage
under  these  guidelines.  They  may  negotiate  with  EPA on the limit and
deductible,  but the upper limit that they may choose from is determined by
the dollar amount of the contract. Coverage of $75 million is the top limit
(with  co-payments  above  $50  million), and it is available for RACs with
contracts  of long duration (greater than five years) only. The maximum top
limit for other RACs is $50 million.

    A  $15  million aggregate limit per cost-reimbursement contract of long
duration (greater than five years) will be added to provide indemnification
solely  for  specialty subcontractors with $5 million as the maximum amount
available on any one subcontract.

     Innovative  technology  RACs:  For current contracts and new contracts
{pg 5973} where indemnification is offered, the RAC who provides innovative
technologies  during  remedial  action  (RA) construction may select from a
range  of limits. However, the deductibles associated with a specific limit
will  be  lower  for these contractors than for other contractors. Eligible
RACs  may be prime contractors or subcontractors (receiving indemnification
from  the  prime  contractor) under fixed-price contracts or subcontractors
under cost- reimbursement contracts.
     PRP RAC contractors: These RACs will not receive EPA indemnification.

     SITE   Participants  and  CERCLA  126(g)  hazardous  workers  training
grantees:  These  RACs  may be offered indemnification, but the upper limit
available  to  them  will  be  lower  than for other RACs. In addition, the
deductibles associated with those limits will be lower than for other RACs.

     Term of coverage: The term of coverage will be ten years.

     Surety  firms:  Firms  that  provide  performance  bonds  inherit  the
indemnification agreement of the defaulting RAC if the bond is activated.

     Renegotiating   existing   contracts:  EPA  believes  that  given  the
temporary  nature  of  indemnification  under  its  interim guidance (OSWER
Directive  9835.5),  i.e.,  the  statutory  requirement for promulgation of
final  guidelines  subject  to  public  comment,  RACs understood that this
protection  lacked any permanence and was offered on a "claims made" basis.
EPA  will  terminate  the  contracts of RACs who do not agree to modify the
indemnification  terms  under  their  existing  contracts  so that they are
consistent with the final guidelines.

I. Introduction
    These  guidelines  meet  the  statutory  requirements of CERCLA section
119(c)(7), which requires the development of guidelines to implement CERCLA
Sec.  119  before  promulgation of regulations. Since october 1987, EPA has
offered  indemnification to RACs under an interim guidance, OSWER Directive
9835.5,  "EPA  Interim  Guidance  on  Indemnification of Superfund Response
Action  Contractors  Under  Section  119  of  SARA."  The  interim guidance
required  a  $100,000  deductible, but it did not state a limit in coverage
for  the  indemnification  as  required  by CERCLA section 119. The interim
guidance  did not attempt to assess whether indemnification is necessary to
encourage  RAC  participation in the Superfund program, and it assumed that
EPA's indemnification is an adequate substitute for insurance.

    In  the  spring  of  1989,  EPA  sent letters to the then- current RACs
stating  that  it  had determined that some insurance may be available. The
letter  instructed the RACs to make diligent efforts to seek insurance from
the  private  sector and forward proof of their diligent efforts to the EPA
contracting officer.

    On  October  31, 1989, EPA published proposed guidelines in the Federal
Register (54 FR 46012) and requested public comment. EPA stated that during
an  information  gathering process, it had not been able to gather adequate
information  to  determine  the  amount  of  insurance  (coverage) that any
particular  RAC  should  maintain.  EPA further stated that it had not been
able  to determine the extent to which indemnification should be offered to
meet  the  Agency's  objectives, if at all. As stated in the proposal these
objectives are:

    Provide  RACs  with  a  temporary  comparable substitute for commercial
pollution  insurance,  in the absence of affordable and adequate commercial
insurance coverage or other viable private sector risk transfer mechanisms;

    Encourage  the  insurance  industry  to  provide RACs with adequate and
affordable pollution insurance products;

    Encourage  the  development  of  other  private  sector mechanisms that
provide  RACs  with  adequate  and  affordable  prospective  pollution risk
transfer mechanisms;

    Maintain  EPA's  fiduciary  responsibility to ensure that the Superfund
monies are used to clean up sites to the maximum extent possible;

    Assure  that  an  adequate  pool of qualified RACs will be available to
keep the Superfund program operative;
    Maintain  strong  RAC  incentives  to  prevent  and  reduce RAC induced
release incidents throughout a given Superfund response action contract;

    Maintain  strong RAC incentive to continue to seek commercial insurance
coverage and/or develop alternative risk transfer mechanisms.

    EPA  stated that the indemnification limit and deductible scheme should
be  based  on  the assumption that the RAC itself is best able to determine
its  required  level of insurance or indemnification coverage. However, EPA
believed  that  the  RAC  will overstate its required indemnification limit
unless  a  disincentive  to  overstate is included. Therefore, EPA proposed
tying the size of the deductible to the size of the limit.

    EPA  proposed a "sliding scale" for cost-reimbursement contracts; these
are  the contracts under which contractors work on EPA-directed tasks on an
hourly  basis  and  are  reimbursed for costs incurred while performing the
work.  The  contracts  are  multi-site,  with the work at various locations
determined  after  contract  award  through work assignments issued by EPA.
Under  the  proposal,  a  RAC  could choose a coverage limit it believed it
needed  up  to $50 million. However, as the limit increased, the deductible
would  also  slide  upwards; the deductible paired with a $50 million limit
was $3.5 million.
    For  RACs  with  fixed-price  contracts,  i.e.,  Army Corps of Engineer
remedial   action   (RA)   contracts,  state-lead  contracts,  and  removal
site-specific  contracts,  EPA proposed market incentives to encourage RACs
not  to  request EPA indemnification. That is, EPA would put a value on its
indemnification,  either  as a price charged to the RAC or as an adjustment
to a bid reflecting the amount of indemnification requested by a RAC.

    The  General  Accounting  Office  (GAO)  in  a 1989 report to Congress,
"SUPERFUND:   Contractors  Are  Being  Too  Liberally  Indemnified  by  the
Government,"  recommended that EPA attempt to use the procurement system to
see  if  RACs  would work at EPA sites absent indemnification. EPA believed
that  the  use  of  market  incentives to encourage RACs not to ask for EPA
indemnification  paralleled GAO's recommendation to use the market place to
help  meet  EPA's  goals.  EPA  concurred  with  the GAO recommendation and
believed  that  this approach would maintain EPA's responsibility to ensure
that  Superfund  monies are used to the maximum extent possible to clean up
sites,  and  at  the  same  time maintain an adequate number of contractors
willing to work at EPA sites.

    EPA  concluded  in  the proposal that "given the limited data which EPA
has  had available to it in shaping this scheme, the Agency is particularly
interested  in  receiving  further  information  that  may  support this or
alternative schemes."

    EPA received a variety of comments on the proposal; almost all comments
were   negative.  In  the  summer  of  1990,  EPA  retained  a  third-party
facilitator,  Endispute Incorporated, to meet and interview representatives
of  interested  parties  to attempt to gain insight into commenters" views.
The  facilitator  met with representatives of EPA, including personnel from
the Office of Emergency and Remedial Response, the Office of Waste Programs
Enforcement,  the  Office  of  General  Counsel,  and the Office of Policy,
Planning,   and   Evaluation.   The   {pg   5974}   facilitator   met  with
representatives of the Army Corps of Engineers and the Office of Management
and  Budget.  The  facilitator  also  met  with representatives of external
groups  such as trade organizations, RAC interest groups, and the insurance
industry.  On  February  14,  1991,  Endispute presented its report to EPA,
"Report  on  the  Results  of the EPA-Sponsored Consultation Process on the
Proposed  Guidance  for  Section  119 of CERCLA, as Amended." A copy of the
report  is  in the docket for this notice. The report further clarifies the
commenters"  positions, which are stated in the Response to Comment section
of this notice.

    In  short,  commenters  asserted  that  the limits were too low and the
deductibles  were  too  high. Most commenters also linked the perceived low
limits to a possible negative effect on subcontractors hired by EPA's prime
contractors.  Most  commenters stated that if the prime contractor does not
believe  that it has adequate coverage, it will not be willing to share any
of its indemnification with its subcontractors.

    Despite  the  large  number  of  comments,  commenters  did not provide
additional  factual information that would support any specific alternative
indemnification  scheme. Commenters reiterated the risks that are perceived
to be associated with hazardous waste sites. In short, these risks are:

    Superfund sites present high risks to people and property.

    Remediation  technology  is  new  and continually changing. The statute
encourages the use of innovative technologies.

    Underground work is inherently risky.

    EPA, which is subject to community and other socio-political pressures,
does  not  always  accept  the  RAC's recommendation for the best method to
clean up the site.

    A  large  majority  of  commenters recommended an upper indemnification
limit  of  $200  or  $250  million, but did not present a factual basis for
their  recommendation. These commenters stated that these higher limits are
needed  to protect the RAC from a possible catastrophic claim. However, all
parties  acknowledged  that  there has been no such claim in the history of
the Superfund program. The few potential claims that EPA has received under
section   119   or   under   the   Federal   Acquisition  Regulation  (FAR)
indemnification  (that  preceded  Sec.  119  indemnification) have all been
relatively small dollar amounts.

    Some  commenters  stated that EPA should not offer indemnification, and
that  RACs  should  bear  all  responsibility  for their negligent actions.
Inquiries  made by EPA have revealed that some RACs are willing to work for
other  federal  agencies,  states, and PRPs without indemnification or with
very low coverage.

    The  Agency was, therefore, in the same situation that it was in before
the  proposal  was  published;  if EPA offers indemnification it must set a
limit  and  a deductible for the indemnification even though little factual
data   exists  on  which  to  base  them,  or  even  to  determine  whether
indemnification is needed.

    The approach that EPA has decided to take in the final guidelines draws
from the first three alternatives outlined in the 1989 FR notice:

    Provide no indemnification;

    Provide indemnification subject to statutory requirements;

    Offer  indemnification  with  market  incentives to purchase commercial
insurance.

    The  goal  of  these  guidelines  is to ensure that an adequate pool of
qualified  RACs  is  willing  to work at Superfund sites. This goal must be
balanced with EPA's responsibility to protect the financial exposure of the
government  so  that  Superfund  monies may be used to clean up the maximum
number  of  waste sites. EPA's authority to provide indemnification to RACs
for  negligent  actions  is discretionary and is a temporary vehicle. EPA's
indemnification  authority  will  only  be  used  to  the  extent  adequate
commercial liability insurance is not available.

General Approach

Prime Contracts
    For  future  contracts  (or  contracts  with  other  agencies  or local
governments  having an inter-agency agreement or cooperative agreement with
EPA  to  clean  up Superfund sites), EPA will offer indemnification only if
there  is  a  lack  of  adequate  competition for a solicitation due to the
absence  of  indemnification.  If this is the case, EPA will offer a new or
amended   solicitation,   and   the  selected  RAC  will  be  eligible  for
indemnification under these guidelines.

    For RACs with fixed-price contracts, EPA proposed in 1989 to use market
incentives  to  encourage  RACs  not  to request indemnification. Under the
proposal,  RACs  would  be  permitted  to determine whether they wanted EPA
indemnification  and  the amount, but their bid would be adjusted higher to
reflect  the  indemnification request. After further consideration, EPA has
concluded the proposed adjustment procedure would be unworkable and present
considerable   obstacles   for   EPA.   EPA   decided  that,  as  with  new
cost-reimbursement RACs, the solicitation process will be used to determine
if RACs will work without indemnification.

    If  EPA offers indemnification to RACs, it still maintains that the RAC
is  in  the  best  position to know the coverage that it needs. However, to
compensate  for  a  RAC's tendency to overstate its needs, EPA will tie the
size  of the limit with the size of the deductible. These RACs will be able
to  choose  from  a  range  of  limits (and associated deductibles) for the
coverage  that  best  meets their needs. The deductible associated with the
limit  increases  as the coverage increases, similar to the scale presented
in  the 1989 proposal. For the highest level of coverage available for long
duration  (longer  than  five  years) cost-reimbursement contracts, the RAC
must make dollar-for-dollar co-payments for coverage above a certain level.
Under  this proposal, a RAC will not overstate its needed coverage, and the
RAC  will  retain increasing financial responsibility for smaller claims in
proportion  to  the  coverage that it seeks from EPA. EPA believes that the
guidelines  will  promote the development of a private insurance market and
encourage  RACs  to  seek  alternative coverage from the private sector and
permit  the private sector to grow absent the need to compete with generous
coverage  from  the  federal  government. As the RAC community turns to the
private sector for coverage, its ability to provide desired products should
increase.

    EPA believes that it would be in the government's best interest to have
the  least  disruption  to the clean-up effort. EPA will negotiate with its
RACs  to  replace their indemnification coverage under the interim guidance
with  coverage  under  these  guidelines  and  thereby  avoid  the  need to
terminate   current   contracts.   Therefore,   EPA   will  offer  modified
indemnification  agreements  with  limits and deductibles to RACs and their
subcontractors  that  currently  have  contracts to perform Superfund work.
Since  a RAC operating under a current contract will not have to compete in
the  open  market  to receive indemnification, EPA cannot use a competitive
test  to  determine  if  this  RAC  would  work at particular sites without
indemnification.

Subcontractors

    EPA  has  tried  to  address the issue of subcontractor indemnification
where  the  use of subcontractors meets special EPA objectives, such as the
use  of  small  and disadvantaged businesses or innovative technologies. In
contracts  of  {pg  5975}  long  duration  (greater than five years), which
currently  are  only  the  Alternative Remedial Contracting Strategy (ARCS)
contracts  (regional  ten-year  contracts  for the planning and clean up of
CERCLA  sites),  the  prime contractor will have $15 million (above its own
indemnification  limit)  available  to  flow  down to subcontractors in the
subcontracting  pool.  This  pool  is  generally  where small and small and
disadvantaged  businesses  have  an opportunity to be involved in Superfund
contracting.  EPA  will  also  permit  RACs,  whether  they  are  prime  or
subcontractors,  who  provide  innovative  technologies under a contract to
provide    remedial   action   (RA)   construction   services   to   obtain
indemnification  with  smaller  deductibles  than  are  available  to other
contractors.

    Subcontractors  performing  remediation  work  for a cost-reimbursement
prime  may be eligible to receive additional indemnification for that work.
When EPA issues work assignments to prime cost-reimbursement contractors to
implement  remedial  action  (RA),  the  prime  contractor  is  required to
initiate  the  RA  through  a  subcontract (rather than EPA issuing its own
solicitation for the work). Under the guidelines, the subcontractor awarded
the  RA  work  may  be  eligible  to receive, through the prime contractor,
indemnification  at  the same level of indemnification as contractors hired
directly  by  EPA.  However,  EPA will require its prime cost-reimbursement
contractors  to  follow the same solicitation procedures as followed by EPA
when  hiring contractors directly. That is, the prime contractor's original
solicitation  must  not  offer indemnification. If there is not an adequate
response  to  the  solicitation because of the lack of indemnification, the
subcontractors  which  respond  to  a  new  or amended solicitation will be
eligible  to  receive  indemnification  through  the  prime  contractor. To
receive  indemnification,  the subcontractor must meet all the requirements
of these guidelines, including the diligent efforts requirements.

Length of Coverage
    The length of coverage was another area where EPA received a great deal
of  comment.  EPA  proposed that it was considering a period of coverage of
ten years. Many commenters stated that ten years was too short a period and
suggested  that  EPA  adopt  a  thirty- year period. EPA did consider these
requests, but concluded that commenters that argued for a greater length of
coverage did not justify a longer term. EPA retained the ten-year period as
balance  between the need to provide coverage to retain a qualified pool of
RACs to work at EPA sites and EPA's responsibility to limit the exposure of
the Superfund.

A. Executive Order 12291

    Under  Executive  Order No. 12291, EPA must determine whether a rule is
"major"  and  thus  subject  to  the  requirement  of  a  Regulatory Impact
analysis.  The  notice  published  today  is not major because the proposed
guidelines  will  not result in an effect on the economy of $100 million or
more, will not have significant adverse effects on competition, employment,
investment,  productivity and innovation and will not significantly disrupt
domestic  or  export  markets. Therefore, EPA has not prepared a Regulatory
Impact  Analysis  under  the  Executive Order. The proposed guidelines were
submitted  to  the Office of Management and Budget as required by Executive
Order No. 12291.
B. Regulatory Flexibility Act

    Whenever  an  agency  is required by law to publish a general notice of
proposed  rulemaking,  the  Regulatory  Flexibility  Act  of 1980, 5 U.S.C.
601-612,   generally   requires   that  the  agency  prepare  a  Regulatory
Flexibility  Analysis  (RFA)  describing the impact of the proposed rule on
small entities. Because EPA was not required to publish the guidelines as a
notice  of  proposed  rulemaking  under  Sec.  553  of  the  Administrative
Procedure  Act (5 U.S.C. 553) or any other law, they are not subject to the
RFA requirements of the Regulatory Flexibility Act.

C. Paperwork Reduction Act

    The  information  collection requirements in these guidelines have been
submitted  to  the Office of Management and Budget (OMB) for approval under
the  Paperwork  Reduction  Act  of  1980,  44  U.S.C.  3501  et  seq. These
requirements  are  not  effective  until OMB approves them, and a technical
amendment  to  that  effect  is  published  in  the  Federal  Register.  An
Information  Collection  Request document has been prepared by EPA (ICR No.
1595.01)  and a copy may be obtained from, Chief, Information Policy Branch
(PM-223); U.S. Environmental Protection Agency; 401 M St., SW.; Washington,
DC 20460 or by calling (202) 382-2706.
    Public reporting burden for this collection of information is estimated
to   be   132  hours  per  response,  including  time  for  review  of  the
instructions,  searching  existing  data sources, gathering and maintaining
the   data   needed,   and  completing  and  reviewing  the  collection  of
information.

    Send  comments regarding the burden estimate or any other aspect of the
collection  of  information, including suggestions for reducing this burden
to, Chief, Information Policy Branch, PM-223, U.S. Environmental Protection
Agency;  401  M  St.,  SW.;  Washington,  DC  20460;  and  to the Office of
Information  and  Regulatory  Affairs,  Office  of  Management  and Budget,
Washington, DC 20503 marked: "Attention Desk Officer for EPA."

II. Response to Major Public Comment

Indemnification Limits and Deductibles for Cost- Reimbursement Contracts

     Comment:  In its proposed guidelines, EPA presented a sliding scale of
limits   and   deductibles   that  would  allow  the  RACs  to  choose  the
indemnification  coverage that they felt met their firms" needs. Under this
scale,  the  higher  the  limit  the  RAC  chose, the higher the associated
deductible  would  be.  At  the  top end of the scale, a RAC could select a
maximum  of  $50  million  of  indemnification  coverage with an associated
deductible  of  $3.5 million. EPA received the most comments on this aspect
of the proposal.

    Many  commenters  stated  that  the $50 million limit was inadequate to
cover  what  many  commenters  believe  is  the inherent risk of working at
Superfund  sites  and  the  exposure  of  a  catastrophic event which could
bankrupt  many  companies.  Commenters  stated that if a RAC is forced into
bankruptcy  by  a  claim greater than its indemnification limit, the public
may  be  left  uncompensated  for damages that may have occurred due to the
clean-up  action.  Commenters  suggested  $100  million  to $300 million in
limits  or  full  indemnification  without limits, although there were some
comments  that  no  indemnification should be offered. No commenters gave a
factual  basis  for  their  suggested  limits,  although  many cited an EPA
sponsored  document that they claim recommended a limit of $200 million. In
addition,  some  commenters  noted that the limit was especially inadequate
for  multiple  site contracts of long duration with numerous subcontractors
seeking a share of the indemnification. They stated that if the limits were
not  raised  prime  contractors  would  choose  not  to  share  the limited
indemnification  with  subcontractors  and  possibly  choose not to work at
Superfund sites.
    Commenters  also  overwhelmingly spoke against the deductibles as being
too high. Under the proposal, there would not be a contract aggregate limit
{pg  5976}  to  the RAC's deductible. That is, the RAC would be required to
pay  the  deductible  amount  each  time a claim is made, regardless of the
number  of claims. Most commenters believed that this represented too great
a  burden on RACs given the profit margins on contracts to perform response
actions.  Commenters stated that even if a firm chose to purchase insurance
from the private sector to cover the deductible, it would be too costly and
would  provide  limited  coverage due to policy exclusions. Many commenters
stated  that  EPA  should reimburse RACs for the cost of insurance if a RAC
did  purchase  a  policy  to  cover the deductible. In addition, commenters
stated that to have the indemnification limit on a contract aggregate basis
but  to have the deductible on an "occurrence basis" (no contract aggregate
limit)  would  lead  to  unlimited  liability  for  the  RACs  and would be
inconsistent  with  insurance  policies  in  the private sector. Commenters
stated  that  the  deductibles  were  especially high for small businesses,
grantees training hazardous waste workers, and innovative technology RACs.

    Commenters  did  agree  with  the concept of a sliding scale in that it
would  permit  RACs  to  choose  a  deductible  and  limit  that  met their
particular  needs.  Some  commenters thought, however, that the deductibles
should  be  reflective  of  the  contract value, and, therefore, the profit
margin  of  the  contract.  They  suggested  that  the deductible should be
limited to a percentage (1% to 3%) of the contract value.

     Response:  Based  on  the  comments  and  EPA's  current knowledge, it
believes that its basic approach of paired limits and deductibles chosen by
the  RAC  is  still appropriate. EPA's indemnification agreements must have
limits and deductibles because of the statutory requirements to do so.

    EPA  proposed  the sliding scale of limits and deductibles based on the
concept  that  the  RAC  could  best determine its required indemnification
coverage.  EPA  included  higher  limits  to  provide coverage to RACs that
believed  such  coverage  would  be  necessary.  EPA  believed  that  a RAC
requesting  a  high limit should be responsible for small claims so that it
assumes  some  financial  responsibility  for  its  negligent actions, and,
therefore,  paired  a  higher  limit  with  a  higher deductible. Also, EPA
believed  that the deductibles should stand as a disincentive to the RAC to
prevent  it from overstating its indemnification needs, and as an incentive
to maintain proper performance.

    As  supported  by the comments, EPA continues to believe that it may be
appropriate  to  offer  indemnification  in  some  cases.  However, as some
commenters  have  noted,  the  fact  that some RACs are willing to work for
others,  including  other federal agencies, and at some EPA Superfund sites
without indemnification is persuasive that offering indemnification may not
be  necessary  in all cases. EPA has decided the best way to determine when
indemnification  is  needed  is  to  attempt  to obtain contractors without
offers  of  indemnification  and  to  offer  indemnification  only  when  a
solicitation   has   not   attracted   an   adequate  number  of  qualified
offerors/bidders because of the absence of indemnification.

    Therefore, for future contracts, EPA will offer indemnification only if
there  is  a  lack  of  adequate  competition  to a solicitation due to the
absence  of  indemnification.  If  this is the case, EPA may issue a new or
amended solicitation, and the RAC will be eligible for indemnification once
it  has  met  the  criteria  (including  diligent  efforts) outlined in the
guidelines.  EPA  believes  that this approach will use the market place to
determine  when  it is necessary for EPA to use its discretionary authority
to  offer  indemnification. In this manner, EPA will maintain its fiduciary
responsibility  to  ensure  that  Superfund  moneys are used to the maximum
extent  possible  to  clean  up  sites,  and  at  the same time maintain an
adequate number of contractors willing to work at EPA sites.

    Many  RACs  have  argued  that  other  contractor  situations  are  not
analogous  to  performing  response work at EPA sites. At many of the sites
where  EPA  is  funding  work, there are no viable owners or operators with
whom contractors can, by contract or otherwise, seek to share liability. At
many, if not most, private or federal facilities, this possibility for risk
transfer  (or  sharing)  exists.  EPA  does  not  take  a  position on this
distinction.   Regardless  of  the  distinction,  EPA  maintains  that  the
Congressional  intent  of providing EPA with the discretionary authority to
offer  RACs  indemnification  against negligence was only to ensure that an
adequate  number  of  qualified  RACs  are  willing  to  participate in the
Superfund  program.  To  follow  a  policy  that  tests the RAC community's
willingness   to   participate   without   indemnification  through  future
solicitations  is the best method to determine the number of qualified RACs
willing to participate in the Superfund program without indemnification.

    Although  the  "market-  test" approach is reasonable to use for future
contracts,  it  is  not appropriate for use for current contracts that will
need to be modified to be consistent with the final guidelines. Since a RAC
operating  under  a  current  contract will not have to compete in the open
market  to  receive  indemnification,  EPA cannot use a competitive test to
determine   if   this   RAC   would   work   at  particular  sites  without
indemnification. Further, EPA believes that it would be in the government's
best  interest  to  have  the  least  disruption  to  the  cleanup  effort.
Therefore,   EPA   will   negotiate   with   its   RACs  to  replace  their
indemnification  coverage  under  the  interim guidance with coverage under
these  guidelines and thereby avoid the need to terminate current contracts
for Superfund work.

    With  respect  to  indemnification  limits,  EPA  is  persuaded by many
commenters"  concerns  that  a  limit  higher  than  the $50 million in the
proposal  is  needed,  in  some cases, to attract or keep RACs at Superfund
sites.  That  is,  many  RACs  have  indicated  to EPA that RACs may desire
greater  coverage  in  exchange  for greater deductibles. EPA believes that
these  higher  limits  would  be  needed  primarily  to  cover  a  possible
catastrophic  event.  EPA believes that without adequate limits, the number
of  qualified  contractors willing to do work for EPA might be unacceptably
reduced,  and  that  those  willing  to  perform the work would raise their
prices  for  EPA  work  due  to a lack of adequate competition. At the same
time, EPA must be cognizant of its own ability to absorb claims.

    Although  commenters  did not provide support for specific limits above
the  $50  million  proposed by EPA, EPA is persuaded that RACs with current
multiple-site  contracts  of  long  duration  (longer than five years) with
numerous  subcontracts, which are generally ARCS contracts, may need limits
higher than $50 million.
    EPA  believes  that  higher limits may be needed for these contracts of
long duration because:

    ARCS  contracts  (regional  contracts  for  the planning and cleanup of
CERCLA sites) have a ten- year term, more than double the duration of other
Superfund contracts. ARCS work assignments will be of a complex nature with
assignments  ranging from remedial investigation/feasibility study (RI/FS),
the investigation and planning phase, to managing remedial construction.

    ARCS  contracts  have,  on  average,  two or three team subcontractors,
i.e.,  subcontractors  named  in  the  contract  that remain as part of the
cleanup effort {pg 5977} for the life of the contract. Therefore, under one
ARCS  contract  there  are  subcontractors with whom RACs may need to share
their  indemnification.  The ARCS contractors will need higher limits to be
able to share the indemnification with these subcontractors.

    ARCS  contractors  cannot  identify  in advance the sites at which they
will work over a ten-year period as a RAC with a site-specific contract who
can adjust its bid to reflect the perceived risk. Under the ARCS contracts,
sites are assigned by EPA. While it is true that Emergency Response Cleanup
Services  (ERCS)  and Technical Assistance Team (TAT) contractors must also
accept work as EPA assigns it, their assignments are generally less complex
and shorter in duration, such as surface spill clean up.

    Much  of the ARCS contractor's work is below ground activity which adds
to the complexity of the work and to the unknown aspects of the job.

    ARCS  contractors  will  need  to  subcontract  with numerous specialty
contractors,   whose  specific  activities  have  a  higher  potential  for
increasing the risk of potential liability for releases. This is additional
exposure  that  other  RACs  that have contracts of shorter duration, fewer
sites, and more above ground work will not have.

    RACs  doing  the  remedial  action (construction) are performing a very
complex  portion  of  the  Superfund program, and one which may be the most
likely   to  cause  releases  of  contaminants.  EPA  concludes  that  some
underwriters  in  the  private  sector  agree since some insurance policies
presented  to EPA will cover multiple sites and multiple activities but not
the  RA  work.  For  RA  work, some underwriters in the private sector have
provided only site-specific policies.

    Several comments urged adoption of a $200 million indemnification limit
which  was  recommended  by Tillinghast, Nelson, and Warrenby, a consulting
firm   engaged   by   EPA   to   research   liability  issues.  The  firm's
recommendation,  which  was  made  in  a  letter  dated August 7, 1987, was
prefaced with a caveat that "there is no credible data available for use in
setting  deductibles  and  limit  levels."  In its final guidelines, EPA is
providing  a  $75  million  per  occurrence/contract  aggregate  limit  for
existing  cost-reimbursement  contracts  of long duration (longer than five
years),  such  as ARCS contracts. EPA believes that this limit will provide
adequate  coverage to contractors. The associated deductible is $2 million,
and the RAC must make dollar-for-dollar co-payments above $50 million for a
maximum  coverage  up  to  $75  million.  EPA  believes  that in return for
increased  coverage,  the RAC must assume financial responsibility for some
portion  of  the  claim.  That is, EPA will permit a RAC to choose a higher
limit  to protect itself from a catastrophic claim, but in so doing the RAC
must  assume  the  financial  responsibility  for  smaller  claims. In this
manner,  RACs  will share the risk with EPA. EPA believes that the RACs are
generally  able  to  purchase  adequate insurance coverage from the private
sector  to  cover  the  deductible  (not  the  co-payment portion), if they
choose.

    EPA  has  introduced  a  three-tiered system that will govern the upper
limit  of  coverage  that a RAC may choose based on the dollar value of the
contract  at  the time of award. RACs will be permitted to choose the limit
and associated deductibles based on their own needs, but the upper limit of
that  choice  will  be  controlled  by  the  dollar  amount (size) of their
contract.  EPA  believes that contracts with work assignments for few sites
or  with  smaller  dollar  values  hold less risk and potential exposure to
liability  than  do larger contracts, therefore, these RACs will be limited
in  the  choice  that they may make. Conversely, RACs with larger contracts
will  be permitted to choose higher limits. (Small and large are defined in
the three-tiered system.)

    EPA  did  not  add  a  contract  aggregate  to  the  deductible as some
commenters suggested. An aggregate deductible would only benefit those RACs
who  are the subject of negligence lawsuits on multiple occasions. Further,
by  removing  the financial incentive for a RAC to act non-negligently, use
of  an  aggregate  deductible might increase the probability that negligent
behavior  would  occur.  EPA  disagrees with commenters who stated that per
occurrence deductibles are inconsistent with insurance policies provided in
the  private  sector.  All policies that EPA has received from its RACs for
review  have  stated that the self- retention or deductibles have been on a
per  claim  basis  (  e.g.,  per occurrence basis). The limits offered have
always been stated as per occurrence/per aggregate.

    The guidelines do not attempt to provide total indemnification to RACs.
EPA  has  used  the  deductible and copayments as a mechanism by which RACs
will accept the initial financial responsibility and higher range financial
responsibility  for  catastrophic  coverage  for any negligent actions that
result in a release of any hazardous substance or pollutant or contaminant.
The  following  considerations  were the basis for the final deductible and
co-payment requirements:

    The  deductibles  are  generally  tied  to  the  profit  margin  in the
contracts. Sound business practices would prevent RACs from bidding on work
at  EPA sites where the RAC would be exposed to a deductible that is bigger
than the profit it could make from the work.

    EPA's  deductibles  are  not  required  to  mirror commercial insurance
practices.  The  federal government has broader goals, social and economic,
from  the  private sector. EPA's primary goal is to have an adequate number
of qualified RACs participating in the Superfund program.

    The  RACs  requested higher limits for catastrophic claims. However, by
its very nature, a catastrophic event caused by a negligent action is quite
serious.  EPA  believes that companies needing this coverage at a very high
range  are  generally  large  firms  with substantial resources to protect.
Therefore,   these   companies   should  be  able  to  bear  the  financial
responsibility  of  their negligent actions at the higher range by matching
payments with EPA at the $50 million to $75 million range.

    Finally,  in  response  to commenters" concerns that higher deductibles
could   lead,  in  cases  where  the  RAC  could  not  meet  its  financial
responsibilities,  to  situations where successful third- party suits would
not receive proper compensation, EPA has stated its goals and the rationale
for  the  size of its deductibles. Victim compensation is not a goal of the
Sec.  119  indemnification  program.  EPA's  primary  responsibility  is to
protect the exposure of the Superfund so that it can be used to the maximum
extent possible to clean up hazardous sites. EPA believes that the approach
taken  in  the  final  guidelines will satisfy that goal and encourage non-
negligent   behavior  by  its  contractors.  Moreover,  RACs  may  purchase
insurance  in  the private sector to cover the deductible in their Sec. 119
indemnification agreements.

Fixed-Price (Sealed Bid) Contracts

     Comments:  In  1989,  EPA  proposed to indemnify RACs with fixed-price
(sealed  bid) contracts by placing an explicit price on its indemnification
and  adding  it  to  a  RAC's  bid  for  a fixed-price contract. Commenters
responded  that  the  proposal  did  not  provide the methodology for EPA's
determination  of  a  fair  price for indemnification, and questioned EPA's
ability  to  use  underwriting  criteria  to  determine  the  value  of its
indemnification  as stated in the proposal. Commenters also stated that the
proposed scheme conflicts with federal procurement law. {pg 5978}

     Response:  EPA has considered the obstacles to adjusting a sealed bid,
and  after  further  consideration,  EPA believes that it should change its
position. Instead, EPA will use the same approach for fixed-price contracts
as  stated  for  cost-reimbursement  contracts. That is, EPA will not offer
indemnification  unless  there  is an inadequate response to a solicitation
and the lack of response can be linked to the absence of indemnification.

    The  guidelines  for  fixed-price  contracts,  when  indemnification is
offered,  are  designed  to permit the RAC to determine its indemnification
requirements,  and  to provide strong incentives for a RAC not to overstate
its indemnification needs. EPA has adopted in the final guidelines the same
set  of  limits  and  associated  deductibles  as  for  cost- reimbursement
contracts.  This  approach  ties  the  amount of the indemnification to the
contract  value  and,  therefore,  roughly to the scope of the work and the
RAC's  profit  margin.  EPA  believes that this approach is consistent with
sound  business  decisions  RACs  make  in  choosing whether to work at EPA
sites.
Term

     Comments:  The  majority  of  commenters  responding to EPA's proposed
period of coverage for the indemnification stated that ten years beyond the
contract  term  was  too  short.  Although  there  is no substantial claims
history, they contended it might well take years before a release is known,
and  therefore, a claim is made. Commenters also noted that the regulations
for   the   Resource   Conservation   and   Recovery   Act  (RCRA)  require
owner/operators  to monitor RCRA sites for thirty years after site closure.
These  commenters  suggested  a  period  of  coverage  from twenty years to
perpetuity.

    One  commenter  stated  that  ten  years  was too long a period for the
indemnification  coverage. The commenter cited the private sector insurance
policies  that  require  annual  renewals  and  only  provide  a  few years
additional coverage for additional premiums.

     Response:  As with the limits and deductibles, EPA proposed a ten year
period, requesting comments and supporting rationale with the comments. EPA
acknowledges that the lack of historical data for the Superfund program can
be  cited  to  either  support or oppose a proposal to extend the period of
coverage  beyond  ten  years. EPA does not believe that a comparison to the
RCRA requirement to monitor sites for thirty years is valid. In the case of
the  RCRA  requirement, the decision to require monitoring for thirty years
was based on the economic burden of monitoring to the owner/operator.

    Conversely,  EPA  is  not  convinced by the argument that since current
insurance policies are of short duration, EPA's indemnification should also
be  of  short  duration. EPA believes that insurance companies are offering
policies of short duration to limit their exposure. Part of EPA's statutory
mandate  is  to attempt to encourage the insurance industry to increase its
current  insurance  coverage  so  that  EPA's  indemnification  will not be
necessary.  EPA's  action to extend coverage to ten years may encourage the
private  sector  to increase its period of coverage. EPA is also attempting
to  fill in the gaps in coverage that the insurance industry currently does
not address.

    Commenters  argued  that  the  length  or term of EPA's indemnification
should  extend  beyond  ten  years  based  on  the RAC's perceived need for
long-term  coverage. In cases where EPA will offer indemnification, it will
be done because EPA believes that absent indemnification RACs will not work
at Superfund sites. When offering indemnification, EPA must be very mindful
of  the  potential  liability  it  assumes  for the RAC's negligence. After
careful  consideration, EPA believes that any period beyond ten years would
be  an  unreasonable  burden  to  the  Trust  Fund and possibly to the U.S.
Treasury.  EPA is not willing to assume such liability without market-based
data  that RACs will not work at Superfund sites without an indemnification
agreement with a term greater than ten years.

RAC Liability

     Comments:  Many  commenters  discussed  the RAC's liability and stated
that  EPA's proposal would place an unfair burden on the RAC. Most of these
comments  focused  on discussions of strict liability and stated that EPA's
indemnification   should   be  expanded  to  include  coverage  for  strict
liability.  Commenters requested that the language of paragraph 8(c) in the
1989  proposal,  which  states that EPA indemnification will not apply if a
RAC  is  found  to  be  both negligent and strictly liable and the cause of
action  is  not  divisible,  be  changed.  Commenters  believed  that EPA's
indemnification  should  apply  in  this  case. Commenters did not cite any
language  in  the  statute  that  they  believed authorized indemnification
against strict liability.

    Other  commenters  questioned  paragraph  8(a)  of  the proposal, which
states   EPA   will  indemnify  RACs  against  third-party  liability.  The
commenters  asked  whether  this could mean that EPA's indemnification will
not  cover  possible  CERCLA  liability.  Other commenters pointed out that
state  statutes vary and asked that the final guidelines be written to pre-
empt state statutes and indemnify RACs against state liabilities.

     Response:  CERCLA Section 119 gives EPA the discretionary authority to
indemnify  RACs  against negligence only. Congress did not authorize EPA to
indemnify   RACs  for  any  liability  associated  with  gross  negligence,
intentional  misconduct  or  standard  of  strict liability nor to pre-empt
liability under state law.

    EPA   is  indemnifying  RACs  under  section  119  against  third-party
liability  arising  from  releases  caused by their negligence. Section 119
waives CERCLA liability unless the RAC was negligent, grossly negligent, or
engaged in intentional misconduct.

Other Federal Agencies

     Comments:  EPA  received  comments  to  delete  paragraph 16(a) of the
proposal  which  states  in  part "that if other federal agencies choose to
indemnify their RACs under CERCLA authority, then that indemnification must
not be inconsistent with these guidelines." Commenters stated that if these
guidelines  become  regulations they would unnecessarily bind other federal
agencies and create unintended rights for RACs. Some commenters stated that
CERCLA  section  120(a),  which  generally requires other federal agencies"
actions  to be consistent with CERCLA, was written to address the technical
aspects of remediation only.

    One   commenter   asked   that   EPA   clarify   whether   section  119
indemnification  authority  could  be  used  by  other  federal agencies at
non-NPL sites.

     Response:  EPA has not deleted this language. CERCLA section 119(c)(7)
directs  the  President  to develop guidelines and regulations for carrying
out  the  indemnification  provisions  of CERCLA section 119. The President
delegated  this  authority to EPA in Executive Order 12580 (Jan. 23, 1987),
sections  2(b)  and  11(g), 52 FR 2923, 2924, and 2929 (Jan. 29, 1987). The
President  tasked  EPA  with promulgating CERCLA section 119 guidelines and
regulations,  and  specified  that  this  authority was "to be exercised in
consultation  with  the  NRT."  The  NRT  (National  Response  Team)  is an
interagency  organization, established by section 1 of the Executive Order,
which  consists  of representatives from EPA and other federal agencies and
departments. {pg 5979}

    The  Executive Order contains limited delegations of CERCLA section 119
authority  to  other  federal  agencies  and  departments.  Their delegated
authority  is  limited "to releases or threatened releasesfrom any facility
or  vessel  under  the  ir  jurisdiction, custody, or control." E.O. 12580,
sections  2(d)  and  2(e)(2). The CERCLA section 119 authority delegated to
the  other  agencies  and  departments  is  "subject to," among others, the
Executive Order provision delegating CERCLA section 119(c)(7) authority (to
issue  indemnification  guidelines  and regulations) to EPA. Read together,
the  exclusive  delegation of CERCLA section 119(c)(7) authority to EPA and
the  limited  delegations  of  section  119 authority to other agencies and
departments  indicate  that  the  EPA  indemnification guidelines are being
issued  on  behalf  of the President, and are to be followed by all federal
agencies and departments when providing CERCLA section 119 indemnification.

    EPA  also believes that interpreting E.O. 12580 to require that federal
agencies   and  departments  follow  the  indemnification  guidelines  when
providing  CERCLA  section  119  indemnification  is consistent with CERCLA
section 120.

    EPA interprets the phrase "must not be inconsistent" to mean that other
federal  agencies  and  departments  must comply with the general terms and
conditions  set forth in these guidelines when providing CERCLA section 119
indemnification.  For example, an effort must be made to get contractors to
work  with-out  indemnification  before indemnification offers under CERCLA
section  119  authority  can  be  made.  The indemnification agreements may
contain  numerical values which differ from those in these guidelines. Such
numerical  differences,  if  justified  for a particular agency or response
action   contract,  would  not  make  the  other  agency's  indemnification
agreement inconsistent with these guidelines.

    With  regard  to  the  use  of  section  119 authority by other federal
agencies or departments at non-NPL sites, section 119(c)(1), as implemented
by  E.O.  12580,  authorizes  federal  agencies and departments to agree to
indemnify  "any  response  action  contractor"  meeting  certain  specified
requirements.  Section  119(e)(2)  generally  defines  a  "response  action
contractor"  as  any  person who enters into a response action contract and
any  person  hired  to  perform  response  work  under  such  a contract. A
"response  action  contract"  is  defined,  in pertinent part, as a written
contract  or  agreement  "to provide any remedial action under this chapter
i.e.,  under CERCLA at a facility on the National Priorities List". Section
119(e)(i).  Thus, the statute provides no authority for the indemnification
of  contractors under CERCLA section 119 performing remedial action work at
sites which are not on the National Priorities List.

Diligent Efforts
     Comments:  EPA  received many comments addressing the diligent efforts
requirements.  In the proposal, EPA stated that a RAC must submit the names
and  addresses  of  at  least three commercial insurers or alternative risk
financiers  to  whom  it has submitted applications. Also, RACS must submit
copies   of  their  applications,  insurance  policies  offered,  rejection
letters,  and other correspondence between the RAC and the underwriter. All
commenters stressed the burden that this requirement places on the RACs and
particularly  small-business  RACs.  Commenters  offered suggestions on how
they  believed this burden could be lessened. These included exempting RACs
from  the diligent efforts requirement, restricting the schedule for making
diligent  efforts,  or  having  EPA  survey the market and thus perform the
diligent efforts. Some commenters focused on the requirement that RACs must
prove   that   applications   have   been   submitted  to  three  insurance
underwriters. Finally, other commenters asked for clarification of when and
how EPA would review the RACs" diligent efforts.

     Response:  EPA recognizes that the diligent efforts requirement may be
somewhat  burdensome  to RACs. However, CERCLA section 119 clearly requires
RACs to make diligent efforts to obtain private insurance coverage in order
to  be  eligible for indemnification. RACs with multiple-site contracts are
specifically  required to continue to make diligent efforts each time a RAC
begins  work  at  a new site. EPA has no authority to relieve RACs of these
statutory  requirements.  EPA  does  not  believe that surveying the market
would  alleviate  the  RACs"  burden.  RACs,  through the conduct of normal
business,   certainly   know  which  insurance  underwriters  are  offering
pollution  liability  insurance.  Most  RACs  have  insurance  brokers that
perform  this  service  for them. EPA is unable to perform diligent efforts
for  RACs  because the statute requires the RACs to make their own diligent
efforts.  In any event, for EPA to begin this activity would be contrary to
the  Congressional  intent  that EPA limit its involvement in the insurance
industry.  By  entering  this  area,  EPA  might  be  seen as endorsing one
underwriter  over  another,  or  stifling another firm's entrance into this
market.

    EPA   has  tried  to  lessen  the  burden  by  modifying  the  proposed
requirement  that  RACs  seeking indemnification make applications to three
underwriters, since at times there have not been three underwriters able to
provide a RAC with its desired coverage. EPA has also added the opportunity
for  a  RAC  to use the actions and experience of its broker to satisfy the
diligent  efforts  requirement.  EPA  believes  this  is a logical approach
because  most  RACs use the services of a broker, and it will be easier for
the  RAC  to  submit  the  broker's  work  than  applications  that  may be
unnecessary  in  some  circumstances.  Also, the RAC may submit a statement
from  the  broker  that  insurance is unavailable and the rationale for its
unavailability.

    EPA will review the diligent efforts of its prime contractors. Based on
this  review and additional instructional material from EPA, the prime will
be required to review the diligent efforts of its subcontractors. EPA lacks
privity  of  contract  with subcontractors and is not directly indemnifying
the  subcontractors. It is, therefore, the prime's responsibility to review
in the first instance its subcontractors" diligent efforts.

Indemnifying Equipment Suppliers

     Comment:  EPA  received  a late comment from a supplier of incinerator
equipment  requesting  clarification  as to whether equipment providers who
are  not  prime  contractors  to  EPA  are  RACs  and, if so, whether these
suppliers  would  receive  indemnification  on  the  same  basis as service
providers. As to the first question, the commenter noted that the statutory
definition  of  response  action  contract clearly covers contracts for the
provision  of  equipment  under prime contracts, that is, contracts entered
into directly with the government (or a PRP). The statutory definition of a
RAC does include subcontractors but only those "retained or hiredto provide
services,"  which  may  not include equipment providers. The commenter also
noted  that  the definitions of "RAC" and "response action contract" in the
proposed  guidelines  do  not  precisely  follow the statutory definitions.
Specifically,  the  definition  of  RAC  in the proposal is "any person who
enters  into  a response action contract to provide services and any person
hired  or  retained by such person." By restricting the modifier phrase "to
provide services" to prime contractors, the commenter argued that equipment
providers would be RACs if they are {pg 5980} retained by prime contractors
providing services.

     Response:  EPA  did  not  intend  to  define  RAC  so  as to indemnify
equipment providers, as opposed to service providers. The definition of RAC
in  the proposed guidelines was intended to convey this. The interpretation
provided  by  the  commenter was not intended by EPA, and the definition in
the  final  guidelines  is  being  modified  to  clarify  that only service
providers,  whether prime contractors or subcontractors, are to be eligible
for indemnification.

    The  commenter  argued  that providers of equipment to a Superfund site
are  in  danger of being involved in a toxic tort action of major financial
proportions  without  any  present hope of protection from insurance, which
invariably  excludes  protection  against  pollution-related claims or that
provides  limited coverage at a high cost. EPA, however, has not found that
it  is  necessary to offer indemnification to obtain equipment and does not
anticipate  the  need  to do so in the future. EPA will continue to monitor
this issue, however.

    In  addition to the clarification to the definition of RAC noted above,
EPA  is  also  clarifying that service providers include persons performing
construction.  This  clarification is being made because in some instances,
such  as  in  the  FAR,  service  contracts  do  not  include  construction
contracts.  Construction  is  commonly  considered to be a service, and EPA
intended in the proposal to use "service" in this broader sense.

Legal Defense Costs

     Comments:  In  the  proposal,  EPA  stated that expenses of litigation
would  be  subject  to all the terms and conditions of EPA indemnification,
including the negligence standard and the applicable deductible. Commenters
addressed  many  aspects of legal defense and its costs. Several commenters
stated  that defense costs should be fully reimbursed (i.e., not subject to
a  deductible)  if  the  RAC  is found free of negligence. Other commenters
asked if EPA would pay litigation expenses as the costs are incurred. A few
comments suggested that EPA should assume a duty to defend RACs and include
such  a provision in the guidelines since private sector insurance policies
contain this provision.
     Response:   EPA   indemnification  is  not  intended  to  offer  total
protection to RACs from their negligent acts at Superfund sites. The choice
of  limits  and  associated deductibles will permit a RAC to choose a lower
deductible  if  it wishes to have more of its potential legal defense costs
subject to indemnification coverage. EPA will not use the standard language
of  insurance  policies  which asserts that the insurance company maintains
the  right but not the duty to defend the insured in case of a claim. EPA's
indemnification  clause  states:  "The  Government  may direct, control, or
assist  the  settlement  or  defense  of  any  such  claim or action." This
language  is consistent with the legislative history of CERCLA section 119,
which  makes clear that the government generally should not directly defend
RACs against claims that are subject to indemnification.

Notification of Claims

     Comments:  Some  commenters  suggested  changes  to  the  language  of
paragraph  8(d)(i)  of the proposal which defines "prompt" action as action
within  twenty  days  of the date when the RAC knew or should have known of
the  claim  or  event.  Commenters  stated that twenty days was too short a
period  for  claim  reports  to  pass  from  subcontractors  to  the  prime
contractor  and  through  the  prime's corporate offices to EPA. Commenters
also  stated that some of the language in the paragraph was ambiguous, such
as  the  phrase "should have known," and sought clarification on use of the
terms  "claim"  and "event." Most commenters recommended that EPA adopt the
language found in private insurance policies.

     Response: EPA is not persuaded by the commenters" argument that twenty
days  is  too  short  a  period for reporting a claim or that the provision
contains  ambiguous language. EPA does, however, believe that clarification
is  needed  with  regard  to  the  notification period. EPA has defined the
period  as  twenty  working-days. This means that a prime would have twenty
working-days to notify EPA after a subcontractor has notified it of a claim
or  action.  The  subcontractor  in this example would have twenty working-
days to notify the prime contractor.

Retroactivity

     Comments:  The  proposal  stated  that the terms and conditions of the
final guidelines "will be applicable retroactively to the date of enactment
of  SARA,  or  to  the  starting date of the contract, whichever is later."
Commenters  suggested  that  EPA  reconsider the retroactive application of
these  guidelines.  They  argued  that  RACs  indemnified under the interim
guidance  (OSWER Directive 9835.5) should be permitted to remain subject to
that  guidance. Commenters stated that there would be no incentive for RACs
to agree to switch to coverage under the final guidelines.

     Response: EPA has considered these comments but cannot agree to change
its approach as suggested. EPA's intent all along, as indicated by the term
"interim,"  has  been to formulate final guidelines that would be the basis
for  modification  of  the indemnification provisions in current contracts.
The  Agency  intended to do so in its capacity as steward of the Trust Fund
since  the  interim  guidance  contains  a small deductible and no specific
limit on coverage.

    RACs  that have received EPA indemnification have in their agreements a
clause  that  confers  indemnification  and  states  in  part  that,  "This
clausewill be modified by the mutual agreement of the parties hereto within
180 days of the EPA's promulgation of final guidelines for carrying out the
provisions of Sec. 119." In addition, EPA has corresponded with its RACs to
affirm  this  position  and  has  stated  that RACs that refuse to agree to
modify  their  agreements  will  not  receive  additional  work  under that
contract.

    Given  the  obvious  temporary  nature of EPA indemnification under the
interim  guidance,  EPA  believes that RACs understood that this protection
lacked  permanence  and was on a "claims made" basis. Therefore, if RACs do
not accept modification of their existing contracts to conform to the final
guidelines, the contracts will be terminated, and EPA's potential liability
under  the  interim  guidance  effectively  will  cease  as  of the date of
contract termination.

Surety Issues

     Comments:  Many  commenters  stated  that  EPA indemnification must be
extended  to  surety  firms.  Commenters stated that surety firms would not
provide  bonds  for  RACs  without  a clear sense of the potential risks to
which  the  firm  would  be exposed. Commenters stated that if a surety did
receive indemnification these uncertainties would be alleviated. Commenters
stated that EPA indemnification would protect sureties from liability under
a bond that it never intended to cover.

     Response: In November 1990, the President signed into law an amendment
to  section  119  (Pub. L. 101-584) that is designed to give sureties whose
bonds  are  activated the same protection from federal liability and access
to  indemnification that their RACs have under section 119. Consistent with
the  purpose  of  the  amendment,  EPA's  final  guidelines  extend a RAC's
indemnification {pg 5981} coverage to its surety if the performance bond is
activated.  EPA  is  limiting  its  indemnification  to  firms that provide
performance  bonds  because  it  believes  that  firms  that provide bid or
payment bonds are not at risk for a RAC's negligence. If a performance bond
is  activated,  the surety will stand in the shoes of the defaulted RAC and
inherit  its  indemnification coverage. EPA believes that since the surety,
at  most,  is  responsible  for  completing  a  RAC's  work  (as opposed to
initiating a new job), it will not be exposed to any additional liability.

Indemnification of Subcontractors

     Comments: The proposal stated that the prime contractor would pick the
limit and deductible best suited for its needs. Commenters stated that even
at  the  maximum  limit  offered of $50 million, the prime contractor would
retain  all  of  the coverage for itself due to greater perceived potential
liability.   Almost   all   of   the  commenters  addressing  indemnity  of
subcontractors  said  that  the  proposed guidelines would discourage prime
contractors   from   extending   indemnification   to  subcontractors  with
consequent  impacts  upon  the  small  business  contractor  community. The
commenters  suggested  that  for subcontractors to receive indemnification,
EPA should indemnify them directly.

     Response:  EPA  agrees that some contractors may be reluctant to share
their  indemnification  with  their  subcontractors.  However, EPA does not
believe that the solution is to indemnify subcontractors directly. EPA does
not  have  a direct contractual relationship with subcontractors, and lacks
privity  of  contract  with  them.  Moreover,  the  subcontractor  approval
requirement  in  section 119(c)(5)(E) confirms that Congress did not intend
for EPA to establish a contractual relationship with subcontractors through
direct indemnification. Therefore, EPA believes it is inappropriate for EPA
to directly indemnify subcontractors.

    EPA  has,  however,  addressed  the  concerns  about  impacts  on small
businesses  in  two  ways in the final guidelines. First, it has raised the
indemnification  limit for existing cost-reimbursement contracts that prime
contractors may choose for multiple-site contracts of long duration (longer
than  five  years).  With  a higher limit, the prime contractor may be more
willing  to  extend  its  indemnification to subcontractors. Also, EPA will
permit  those  prime  contractors  to  flowdown  up  to $15 million to some
subcontractors  in  the subcontracting pool; this limit does not affect the
primes" limit. This provision will help ensure that prime contractors offer
indemnification   to   protect  small  businesses  with  relatively  little
resources.  No one subcontractor may receive more than $5 million coverage.
EPA will publish a list of subcontracting services for which it will permit
prime  contractors  to  extend  this  indemnification,  but  generally  the
activities  eligible  for  indemnification  will  be  confined to intrusive
services performed at the site in the contaminated area.

Indemnification of Innovative Technology RACs and SITE Participants

     Comments:  In  the proposal, EPA stated that technology vendors in the
Superfund  Innovative  Technology  Evaluation (SITE) program are considered
RACs,  and  further  stated if EPA did offer these RACs indemnification, it
would  be  under  the same terms and conditions as cost-reimbursement RACs.
Commenters stated that EPA was overlooking the value that these RACs add to
the  Superfund  program  and  pointed out that SARA states a preference for
innovative  technology  in  the remedy selection. Commenters felt that most
aspects   of   the   indemnification  agreements  available  to  RACs  with
cost-reimbursement  contracts  were  inappropriate for these RACs and might
prohibit  their  entrance  into the Superfund program. They stated that the
deductibles  were too high since many of these RACs are small in size. Some
commenters stated that the limits might be beyond their needs.

     Response:  EPA  agrees  that  these  RACs  add  value to the Superfund
program,   and   that   their   needs  may  be  different  from  RACs  with
cost-reimbursement  prime  contracts.  For  example,  in  addition  to  the
difference  in  perceived risks posed by the activities of these companies,
EPA  believes  that  they  are  often smaller companies than those that are
awarded  cost-reimbursement  contracts  with  EPA.  As  such, they may have
difficulty  meeting  the  deductibles  set for RACs with cost-reimbursement
prime  contracts.  EPA  has  tried  to address this difference by providing
different  limits and associated deductibles for both SITE participants and
for  RACs  with  innovative  technologies. In each case, these RACs will be
permitted  to  choose  a limit with an associated deductible based on their
particular  needs.  Where these RACs require higher limits to protect their
assets,  EPA  believes  that  these  companies  are in a better position to
afford  deductibles  set for RACs with cost- reimbursement prime contracts.
Therefore,  the  difference  between  the  deductibles  available  to  SITE
participants  and  innovative  technology RACs and prime cost-reimbursement
RACs  for  the same limits narrows as the $25 million limit is reached. EPA
has  restricted  the  upper  limit  of  coverage  for  RACs with innovative
technologies  that  are subcontractors and SITE participants to $25 million
because  it  believes their work is of a smaller scope than RACs with prime
contracts. EPA will permit RACs with innovative technologies that are prime
contractors  to also choose limits with lower deductibles up to $25 million
to  encourage  their participation in the Superfund program. These RACs may
elect to choose higher coverage than $25 million, but they will not receive
the  benefits  of deductibles that are lower than those available for other
RACs.  EPA  believes that these RACs desiring higher coverage should assume
the same financial responsibility as all other RACs.
    EPA  believes  that  the market-test approach to indemnification is not
suitable  for  SITE program participants accordingly, they will be eligible
for  indemnification  if  they  meet  the  other criteria of the guidelines
(e.g.,  diligent  efforts).  EPA  has  also  provided  similar  limits  and
deductibles   for   RACs   with  innovative  technologies  where  they  are
subcontractors for remedial actions.

Indemnification of RACs Working for States

     Comments:  EPA  stated  in  the  proposal  that it will indemnify RACs
working  for  states, political subdivisions or federally-recognized Indian
tribes  that  have  entered  into a cooperative agreement with EPA for work
initiated  at NPL or removal sites. Commenters agreed that RACs working for
states under cooperative agreements should receive the same indemnification
as  those  working  for  EPA.  A  few  commenters questioned whether states
without  their  own authority to offer indemnification could indemnify RACs
or pay any cost-share towards indemnification claims.

     Response:    The   proposal   and   final   guidelines   provide   for
indemnification  of  RACs working under EPA cooperative agreements pursuant
to federal law, not state law. These indemnification agreements are offered
by  EPA and implemented through and governed by the terms and conditions of
those  cooperative  agreements. The costs of any indemnification claim will
not  be a cost-share item that will require payments from states, political
subdivisions or federally-recognized Indian tribes that have entered into a
cooperative  agreement with EPA for work initiated at NPL or removal sites.
{pg 5982}

    States  may  indemnify  RACs pursuant to state law, and some states do.
Such  state programs are subject to independent state authority (not CERCLA
section 119 and these guidelines) and are financed solely with state funds.

Indemnification of RACs Working for Potentially Responsible Parties

     Comments:  In  the  proposal EPA stated that it would not exercise its
authority  to  indemnify  RACs  employed by potentially responsible parties
(PRPs).  Commenters  disagreed  with  EPA's  decision.  The  rationale they
offered  to support indemnification of RACs working for PRPs was that these
RACs  need to be indemnified just as other RACs. One commenter said that it
would reduce the number of RACs willing to work for PRPs.

     Response:  EPA  disagrees  and  will not offer indemnification to RACs
working  for  PRPs.  Each  time  EPA  indemnifies  a  RAC, it increases the
exposure  of  the federal government to payment for indemnification claims.
EPA  believes  that  RACs and PRPs will be able to decide upon the terms of
their   contractual   relationship,   including   those   on  private-party
indemnification, if any, without the involvement of EPA.

    EPA  believes that its policy will not impede site cleanups by PRPs. In
granting  EPA  discretionary  authority  for very limited indemnity of RACs
working  for  PRPs,  Congress  imposed  strict  requirements that are quite
difficult  for  these  RACs  to  meet.  In  fact,  few  requests  for  such
indemnification have been received.

Coverage of On-Site Work

     Comments:  Commenters  disagreed  with paragraph 19(a) of the proposal
which  states  that  EPA's  indemnification  will  only cover work directly
related  to  site cleanup. They argued that the statutory language does not
place this restriction on indemnification.

     Response:  EPA does not agree. This provision reflects the general and
specific  limitations  imposed  by  section  119(c) and the use of the term
"facility"  in the statutory definition of response action contract. In any
event,  EPA  believes  as a matter of policy that indemnification should be
limited  to  RACs"  activities  directly  related to site cleanup. EPA also
believes  that these are the contractors with the most potential to cause a
release.

Requirement to Purchase Insurance

     Comments: Commenters disagreed with the proposed requirement that RACs
with   cost-reimbursement   contracts  annually  increase  their  insurance
coverage.  The  proposal  stated that RACs that receive EPA indemnification
must  increase the amount of pollution liability insurance they purchase by
25%  each year unless EPA determines that the increased amount of insurance
is not available. Commenters also questioned what criteria EPA would use to
make  this decision, and how EPA would determine what would be a reasonable
price.

     Response: This requirement was put in the proposal to decrease a RAC's
need  for  EPA  indemnification  and  to  increase  the role of the private
sector.  Insurance is available from the private sector, and some RACs have
been directed to purchase insurance under the ARCS contracting program. EPA
has  reimbursed  RACs  for  the  cost  of  the  insurance. EPA has and will
continue  to  produce  guidance on insurance prices as the insurance market
situation warrants.
Perform Regulatory Flexibility Analysis

     Comment: EPA should perform a regulatory flexibility analysis.

     Response:  Whenever  an agency is required by law to publish a general
notice  of  proposed  rulemaking, the Regulatory Flexibility Act of 1980 (5
U.S.C.  601-612)  generally  requires  that the agency prepare a Regulatory
Flexibility  Analysis  (RFA)  describing the impact of the proposed rule on
small  entities. Because the guidelines are not required to be published as
a  notice  of  proposed  rulemaking under section 553 of the Administrative
Procedure  Act  or  any  other  law,  they  are  not  subject  to  the  RFA
requirements of the Regulatory Flexibility Act.

Section 126 Grantees

     Comment: EPA should indemnify organizations that train hazardous waste
cleanup workers under CERCLA section 126 grants.

     Response:  Section 126 grantees are eligible for indemnification under
the  final guidelines with similar limits and deductibles available to SITE
participants.
Guidelines  Document  EPA  Indemnification  of  Superfund  Response  Action
Contractors

Introduction

    These  guidelines  fulfill the requirement of CERCLA section 119(c)(7),
as  implemented  by  Executive  Order 12580, that EPA develop guidelines to
carry out CERCLA section 119(c).

1. Purpose

    These   guidelines   provide  policies  and  procedures  by  which  the
Environmental   Protection  Agency  (EPA)  may  indemnify  response  action
contractors  (RACs) for third- party claims that result from a release of a
hazardous substance, pollutant or contaminant due to RAC negligence arising
out  of  response  action activities at a National Priorities List (NPL) or
removal action site.

2. Authority

    These guidelines are required by section 119(c)(7) of the Comprehensive
Environmental  Response,  Compensation, and Liability Act of 1980 (CERCLA),
42  U.S.C.  9601,  et  seq.,  as  amended  by  the Superfund Amendments and
Reauthorization  Act  of 1986 (SARA), Public Law 99-499. In E.O. 12580, the
President  delegated  to  EPA  the  responsibility  for issuing section 119
guidelines (52 FR 2923 (Jan. 29, 1987)).

3. Scope

    These guidelines govern indemnification by EPA of all RACs that perform
response  work  under  contract at NPL or removal action sites for EPA, for
states (or political subdivisions) under CERCLA cooperative agreements with
EPA,  and  for  potentially  responsible  parties  (PRPs)  under  a  CERCLA
administrative  order  or  consent  decree.  EPA  interprets section 119 to
permit   the   Agency  to  provide  indemnification  to  RACs  working  for
federally-recognized  Indian  tribes  pursuant  to  a  CERCLA  section  104
cooperative  agreement  with  EPA.  These  guidelines  also  apply  to  EPA
indemnification    of    SITE   program   participants   conducting   field
demonstrations  pursuant  to  CERCLA section 311(b), recipients of training
grants  under  SARA  section  126(g),  and  RACs  working for other federal
agencies (such as the U.S. Army Corps of Engineers) at EPA-lead sites under
a  Memorandum of Understanding (MOU) or an Inter-Agency Agreement with EPA.
Where  other  federal  departments or agencies indemnify RACs under section
119 authority, the indemnification agreements must not be inconsistent with
these guidelines.

4. Application

    (a)  These guidelines govern EPA's indemnification of RACs for response
work initiated after October 17, 1986, the date of enactment of SARA. These
guidelines  supersede  OSWER  Directive  9835.5,  "EPA  Interim Guidance on
Indemnification  of Superfund Response Action Contractors Under Section 119
of SARA." {pg 5983}

    (b)  These  guidelines govern all RAC indemnification by EPA for future
response action contracts.

    (c)  Contract indemnification terms under EPAAR 1552.228-70 rather than
these  guidelines  will apply to work performed at a site after the date of
enactment  of SARA only if response work at the site was initiated under an
EPA  contract prior to SARA's date of enactment. Indemnification agreements
granted  under the terms of OSWER Directive 9835.5 (EPA's Interim Guidance)
will be replaced, through a negotiated agreement, with terms and conditions
that are consistent with the policies found in these guidelines.

    (d)   Subject   to  all  the  requirements  of  these  guidelines,  any
indemnification  agreement  provided  by  EPA  to a prime contractor may be
provided  by the prime contractor to its subcontractors if the agreement is
approved  by  EPA at the time of the award of the subcontract. That is, the
prime  contractor  can  agree  to  indemnify  a  subcontractor, and EPA may
indemnify  the  prime  contractor  with  respect  to the prime contractor's
obligations  that  may arise as a consequence of its indemnification of the
subcontractor (see section 9, below).

    (e)  Consistent  with EPA policy that a fair portion of subcontracts be
awarded  to  small,  minority and women-owned businesses, prime contractors
shall   fully   consider   the   needs   of   these  RACs  with  regard  to
indemnification.

5. Abbreviations

    CERCLA-Comprehensive    Environmental   Response,   Compensation,   and
Liability Act of 1980 (as amended)

    EPAAR-EPA Acquisition Regulations

    FAR-Federal Acquisition Regulations
    NPL-National Priorities List

    OSWER-EPA's Office of Solid Waste and Emergency Response

    PRP-Potentially Responsible Party

    RAC-Response Action Contractor

    SARA-Superfund Amendments and Reauthorization Act of 1986

    SITE-Superfund Innovative Technology Evaluation

6. Definitions

    Terms  not defined in this section have the meaning given by CERCLA and
Sec.  300.5  of  the  "National  Oil  and  Hazardous  Substances  Pollution
Contingency Plan." (40 CFR 300.5 (1991)).

     Claim  means  the  receipt  by  the RAC of a written demand for money,
naming  the  RAC  and  alleging  a  release  of  any hazardous substance or
pollutant or contaminant caused by the RAC's response action activities.
     Indemnification,  for  the  purpose  of  these  guidelines,  means  an
agreement under which EPA will compensate certain losses suffered by a RAC,
and the actual payment of that compensation.

     Non-federal sources means commercial insurance, state indemnification,
self-insurance, or other alternative risk transfer mechanisms.

     Occurrence,  means a release, including continuous or repeated, of any
hazardous substance or pollutant or contaminant.

     Response  Action  Contractor, as provided in CERCLA section 119(e)(2),
means  any  person  who  enters  into a response action contract to provide
services  (including  construction)  related  to  any release or threatened
release  of  a  hazardous  substance  or  pollutant  or  contaminant from a
facility,  and  any  person,  hired or retained by such a person, providing
such  services.  It  includes  recipients  of  cooperative agreements under
section  311(b)  of  CERCLA  and  recipients  of grants pursuant to section
126(g)  of  SARA.  It also includes any surety who, after October 16, 1990,
and  before January 1, 1993, provides a bid, performance or payment bond to
a response action contractor, and begins activities to meet its obligations
under   such   bond,  but  only  in  connection  with  such  activities  or
obligations.
     Response  Action  Contract,  as  provided in CERCLA section 119(e)(1),
means  any  written  contract  or  agreement entered into by a RAC with the
President;  any  federal  agency;  a  state,  political  subdivision,  or a
federally-recognized  Indian  tribe  under a CERCLA section 104 cooperative
agreement  with  EPA;  or  any  PRP  under  an  order or decree, to provide
remedial action at an NPL site or removal action.

     SITE,  means  the  program developed under CERCLA section 311(b) which
directs EPA to establish an "Alternative or Innovative Treatment Technology
Research   and   Demonstration   Program."  This  program  accelerates  the
development  of,  and demonstrates, evaluates, and disseminates information
about new and innovative treatment technologies.

Indemnification Requirements, Terms, and Conditions

7. Indemnification Request

    (a)  EPA  will not indemnify RACs that fail to meet the requirements of
CERCLA  section  119  and  of  these guidelines. EPA will not enter into an
indemnification   agreement   with   a   RAC  until  the  RAC  submits  the
documentation  required  by  CERCLA  section  119  and  described  in these
guidelines.
    (b)  To  be  eligible  for indemnification by EPA, the RAC shall submit
evidence of the following:

    (i)  That  its  potential  third-party  liability  is  not  covered  by
pollution  liability  insurance available at a fair and reasonable price at
the  time  the  contract  to perform a response action is entered into, and
that adequate pollution liability insurance is not generally available;

    (ii)  That  it  has  made diligent efforts to obtain insurance coverage
from  non-federal  sources  (or, if it is a cost- reimbursement RAC, it has
satisfied the minimum insurance requirements of section 10(c), below), and;

    (iii)  Under  a  multi-  site  contract, that the RAC also has made (or
agrees  to  continue  to  make)  such diligent efforts (or, if it is a cost
reimbursement  RAC,  it  will otherwise satisfy the requirements of section
10(c)) every time it begins work at a new facility.

    (c)  Due to the variability of market conditions, EPA will determine on
a  case-by-case basis whether adequate insurance is available at a fair and
reasonable  price  at  the time indemnification documentation is submitted.
This  determination  will  be  based  on  the  documentation  submitted  in
fulfillment  of the diligent efforts requirement, or on any other insurance
market  information  available  to  EPA. In its determination of a fair and
reasonable  price  for insurance, EPA will consider what a prudent business
person  in  the  private sector would purchase after weighing the following
criteria and other relevant factors:

    The insurance rate applied to each $100 of receipts.

    The deductible or self-retention rate associated with the policy.

    The projected work load and nature of the risk associated with the work
to be covered by the policy.

    The  amount and type of pollution liability coverage and limit provided
by the policy.

    Exclusions and limitations of the policy.

    The effective date of the policy.

    The period of coverage.

    The amount of coverage, if any, extended to subcontractors.
    The receipts used in determining the insurance rate.

    Other risk sharing mechanisms available.

    (d)  To  demonstrate  that  diligent  efforts  have been made to obtain
non-federal  pollution  liability  insurance coverage, a RAC must submit in
writing:

    (i) The names and addresses of three commercial insurers or alternative
risk  financiers  to whom the RAC or its broker has submitted applications.
If  the {pg 5984} number of names and addresses is fewer than three, then a
statement justifying the reduced number; and either,

    (ii)  A  statement  from  a  recognized  professional  insurance broker
stating  that  the  broker  has  attempted  to  secure  pollution liability
insurance  coverage  on  behalf of the RAC, and summarizing premiums, terms
and   conditions;   or  stating  that  pollution  liability  insurance  was
unavailable and giving the reasons for its unavailability for the RAC.

    (iii)  A copy of each application submitted, insurance policies offered
(including  the  declaration  page), and any rejection letters received. If
pollution  liability insurance was offered by a commercial insurer, but not
accepted  by  the  RAC, an explanation of the reasons why such coverage was
rejected must be included; or

    (e)  EPA will not enter into an indemnification agreement until the RAC
has  submitted  the  documentation  required in subsection (b) and (d). EPA
will  not enter into an indemnification agreement if it determines that the
documentation submitted is insufficient, or if it determines that the RAC's
efforts to obtain insurance were not sufficiently diligent.

    (f)  If  the  RAC  is working under a multi-site contract, the diligent
efforts  information  must be updated and resubmitted before the RAC begins
work  at  a new facility (as part of the indemnification agreement, the RAC
will  have  agreed to continue to make such diligent efforts each time work
is started at a new facility (see subsection (b)(iii), above)). However, if
previously  purchased insurance covers work at the new facility, then there
is no need to submit additional documentation for that site.

    (g)  EPA  reserves  the  right  to  change the frequency and content of
documentation  submittal  requirements, and also to direct indemnified RACs
to purchase insurance from insurers identified by EPA.

8. Indemnification Terms and Conditions
    (a) Where EPA has agreed to indemnify a RAC, EPA will indemnify the RAC
against  third-party  liability  (including  the  expenses of litigation or
settlement)  for  negligence arising from the RAC's performance in carrying
out  the response action activity. Such indemnification shall apply only to
such  liability  not  compensated by insurance or otherwise and shall apply
only  to  liability  which results from a release of a hazardous substance,
pollutant, or contaminant if such release arises out of the response action
activities of the contractor.

    (b)  EPA  indemnification is subject to limits and deductibles. For the
purpose  of  determining  the  amount  of  the  indemnification  limit  and
deductible, the expenses of litigation or settlement are considered part of
the liability covered by the indemnification agreement.

    (c)  The  amount of the indemnification limit and deductible depends on
the type and dollar value of the contract entered into (see below).

    (i)  The indemnification limit is defined on a per occurrence/aggregate
basis with a contract aggregate limit.

    (ii) The indemnification deductible is on a per occurrence basis.
    (d)  EPA  indemnification  will  not  cover  liabilities (including the
expenses  of  litigation  or settlement) that were caused by the conduct of
the   RAC  (including  any  conduct  of  its  directors,  managers,  staff,
representatives   or  employees)  which  constituted  gross  negligence  or
intentional  misconduct.  Nor  shall  the  RAC be indemnified for liability
arising  under  strict tort liability, or any basis of liability other than
negligence.

    (i)  EPA  indemnification  will  cover  the  expenses  of litigation or
settlement  subject  to  the  terms  and  conditions of the indemnification
agreement   (such   as   limits   and   deductibles).   In   addition,  EPA
indemnification will apply if the RAC is found not to be liable for alleged
negligence, or if a negligence suit is settled.

    (ii)  EPA  indemnification  will  not  apply  if  the RAC is found both
strictly liable and negligent, and the cause of action is not divisible.

    (e)  If  a  RAC has a CERCLA section 119 indemnification agreement with
EPA,  the  RAC  must notify EPA of any claim or action against the RAC that
may involve EPA indemnification, within twenty working days after receiving
notice  of  any claim or action. The RAC must also notify its insurer(s) of
any  claim  or action that may involve EPA indemnification, even if the RAC
believes  that  its  insurance  is  not  applicable to the claim or action,
within twenty working days upon receiving notice of any claim or action (or
a  shorter  period  if  required  by  the  terms  of the insurance policy).
Indemnification  is  conditional on EPA's receipt from the RAC of copies of
the  complaint  (or  other  claim), and of the notice to the insurer within
twenty  working  days  of  receiving  notice  of  any  claim or action. The
insurer's  response  must be forwarded to EPA promptly after receipt by the
RAC.

    (f)  Coverage Term: The coverage term is subject to the other terms and
conditions listed in this document.

    (i)  An  EPA  indemnification  agreement will cover claims arising (and
reported  to  EPA)  during  the period of performance of the contract, plus
claims submitted to EPA within ten years after the contract term.

    (ii) For multi-site contracts, the ten-year coverage term, with respect
to  an individual site, begins with the completion of work (as specified in
the Work Assignment or other relevant work order) at the site.

    (g)   Limits,  Deductibles,  and  Purchased  Insurance:  Any  pollution
liability  insurance  (or self-insurance) acquired or maintained by the RAC
to  meet  the  requirements of sections 7 or 10 of these guidelines reduces
the  limit  of  EPA indemnification on a dollar-for- dollar basis. Further,
the  RAC  must  exhaust  both  the available insurance coverage and the EPA
deductible (found in the indemnification agreement) before EPA will make an
indemnification payment.

    (h) See section 20 below for additional terms and conditions.

9. Subcontractors-General Provisions

    (a)  EPA  will not agree to indemnify subcontractors directly. However,
with  the  prior written permission of EPA, prime contractors may indemnify
their   subcontractors.   Thus,   EPA   will   provide  no  more  than  one
indemnification  agreement  per contract, regardless of the number of sites
where  work  will  be  performed  under  the  contract, with that agreement
affording  coverage  to  the prime contractor, including any obligation the
prime  contractor  may  incur as a result of its indemnification agreements
with  its  subcontractors. (See also the approval requirement in subsection
(b), below.)

    This section does not apply to a prime contractor that chooses to share
its  indemnification  with  a  team  subcontractor.  In  this situation the
coverage  received  by the team subcontractor would subtract from the prime
contractors coverage and not be an additional exposure to EPA.

    (b)  Under  an  EPA indemnification agreement, the prime contractor may
confer indemnification on the subcontractor by including in the subcontract
an indemnification clause by which the prime contractor agrees to indemnify
the   subcontractor.  That  indemnification  clause  must  have  terms  and
conditions  (except  for  limits  and  deductibles, see below) identical to
those  found  in  the  clause  by  which  EPA agrees to indemnify the prime
contractor.  EPA  will  indemnify  the prime contractor with respect to any
liability  incurred  by the subcontractor(s) pursuant to an indemnification
{pg  5985}  agreement  between  the  prime contractor and any subcontractor
(subject  to  the  indemnification  limits and deductibles specified in the
prime contract). EPA, however, must give prior approval (in writing) of the
subcontract  which contains the indemnification agreement between the prime
contractor and subcontractor.

    (c)   Subcontractors   receiving   indemnification  through  the  prime
contractor  are  subject  to  all  indemnification requirements, terms, and
conditions  of  these guidelines. These applicable requirements include the
reporting requirements of section 7, above. That is, the subcontractor must
demonstrate that it has made diligent efforts to obtain pollution liability
insurance,  and  agrees to continue to make such efforts. The subcontractor
shall  forward  all  documentation  to  the prime contractor, and the prime
contractor  shall  forward  copies  of the documentation to the contracting
officer  (or other appropriate EPA official). It will be the responsibility
of   the   prime   contractor  to  monitor  the  diligent  efforts  of  its
subcontractors  based  on  the feedback from EPA during EPA's review of the
prime  contractor's  diligent  efforts.  The  contracting officer (or other
appropriate  EPA  official)  may  consent  to the subcontract including the
indemnification  clause  (see  section 9(b), above) only if the contracting
officer  (or  other  appropriate EPA official) has determined, based on the
documentation  supplied  by  the  subcontractor  to the prime contractor or
information  supplied  by  the prime contractor, that the subcontractor has
satisfied  the  reporting  requirements  of  section  7. A demonstration of
diligent  efforts  by the prime contractor is not sufficient to demonstrate
that, by implication, insurance is unavailable to the subcontractor.

Indemnification Terms and Conditions for Specific Contract Types

10. RACs Working for EPA Under Cost-Reimbursement Contracts

    (a)   For   cost-reimbursement   contracts   entered   into  after  the
promulgation  of  these  guidelines,  EPA  will  not  offer indemnification
agreements in its solicitations. If there is a lack of adequate competition
in  response  to  the  solicitation  that  can  be linked to the absence of
indemnification,  then  a  new  or  amended solicitation may be issued that
states that indemnification will be available to the successful offeror. If
EPA does offer indemnification, the agreement will be subject to the paired
limits  and deductibles listed in subsection (g) and (h) below. EPA retains
the  right  to  incorporate other provisions of this policy (e.g., coverage
for subcontractors) when appropriate.

    (b)  RACs  working  for  EPA  under  cost-reimbursement  contracts must
procure and maintain all insurance required by law or regulation including:

    (i)   Insurance   required  by  part  28  of  the  Federal  Acquisition
Regulations for cost- reimbursement contracts,

    (ii) Commercial general liability insurance for bodily injury, death or
loss  of  or  damage  to property of third persons in the minimum amount of
$500,000 per occurrence, and,

    (iii) Any additional insurance EPA may require.

    (c)  Indemnification  and  Insurance:  Any  RAC working for EPA under a
cost-   reimbursement   contract  who  requests  that  EPA  enter  into  an
indemnification  agreement  must  procure  and maintain pollution liability
insurance  for  bodily  injury,  death  or loss of or damage to property of
third  persons  in  the  minimum  amount  of  $1,000,000 per occurrence (or
self-insure for the same), or it must demonstrate that it has made diligent
efforts  to  obtain  such  pollution  liability insurance and, despite such
diligent  efforts,  has failed to procure reasonably-priced insurance. RACs
under  a  multi-site  contract must agree to continue to make such diligent
efforts  each  time  work  begins  at  a  new  site.  EPA will not agree to
indemnify a RAC who does not purchase the required insurance or demonstrate
diligent  efforts,  nor will EPA make indemnification payments to a RAC who
has entered into an indemnification agreement but has failed to demonstrate
adequately  that  it  has made diligent efforts each time work started at a
new site (except as provided in section 7(f), above).

    (i)  The  RAC must obtain and maintain pollution liability coverage for
professional liability and/or general liability, as appropriate.

    (ii)  The  minimum  amount  of  pollution  liability  insurance  to  be
purchased  must  increase  by  25%  per year unless EPA determines that the
increased  amount  of  insurance  is  not generally available at a fair and
reasonable price. Thus, where "t" is defined as the number of years elapsed
since  promulgation  of  these  guidelines, the minimum amount of pollution
liability insurance required in year t is equal to: 

    1 million * (times) 1.25 (sub) t

    (iii)  The  demonstration  of  "diligent efforts" is defined in section
7(d), above. Those diligent efforts must be deemed satisfactory by EPA.

    (d) Reimbursement: RACs working for EPA shall submit to the contracting
officer  for prior approval all insurance policies (or documentation of all
self-insurance plans) for which reimbursement will be sought from EPA.

    (e)  Any loss incurred within the EPA indemnification deductible amount
(see  below)  will  not  be  reimbursed to the RAC as either a direct or an
indirect cost. All deductibles, with the exception of co-payments above $50
million  (see  below),  must  be  met  by  the  RAC  as the first financial
obligations  of  the  claim and must be paid by the RAC before any payments
are   made   by   EPA.   The  RAC  may  purchase  insurance  to  cover  the
indemnification  deductible  amount,  but the cost of that insurance is not
reimbursable  (nor  is  any  loss  within  the  deductible  amount  of that
insurance reimbursable as either a direct or indirect cost).
    (f)  Self-Insurance: If a RAC proposes to self-insure against pollution
liability, and seeks reimbursement for the cost of self- insurance or seeks
to satisfy the minimum requirement of section 10(c) through self-insurance,
it  must  demonstrate  to  EPA  financial  responsibility for the amount of
self-insurance  proposed.  Financial  responsibility may be demonstrated by
letter  of credit, surety bond, trust fund, escrow account, or other method
approved by the EPA Contracting Officer.

    (i)  A  demonstration  of  financial  viability,  by  itself,  does not
constitute an adequate demonstration of financial responsibility.

    (ii)  To be eligible for reimbursement of the cost of self-insurance, a
RAC must satisfy the applicable requirements of 48 CFR Parts 28 ( Bonds and
Insurance  ),  30  (  Cost  Accounting  Standards ), and 31 ( Contract Cost
Principles  and Procedures ), and 4 CFR Part 416 ( Accounting for Insurance
Costs ).

    (g)  Limits and Deductibles for RACs with contracts entered into before
the  date  of  promulgation of these guidelines (with indemnification) with
EPA,  another  federal  agency  working  at EPA sites under an inter-agency
agreement  (IAG),  or  a  state  or  political subdivision of a state, or a
federally-recognized  Indian  tribe having a cooperative agreement with EPA
to  clean  up Superfund sites: The limit and associated deductible included
in the indemnification agreement shall be the subject of negotiation by EPA
and  the  RAC  at the time of contract modification in one of the following
amounts as {pg 5986} governed by the restrictions in subsection (h) below:
 Limit (occurence/aggregate)     $2 million
 Deductible (occurence)          $20,000.

 Limit (occurence/aggregate)     5 million
 Deductible (occurence)          50,000.

 Limit (occurence/aggregate)     10 million
 Deductible (occurence)          100,000.

 Limit (occurence/aggregate)     25 million
 Deductible (occurence)          250,000.

 Limit (occurence/aggregate)     50 million
 Deductible (occurence)          1.0 million.

    (h) The RAC may select from the limits/deductibles as follows:
    A  RAC  with a single-site contract of less than $10 million may choose
any pair of limits/deductibles that has a limit of $10 million or less.

    A  RAC  with  a single-site contract of $10 million to $25 million or a
multi-site  contract  of  less  than  $25  million  may  choose any pair of
limits/deductibles that has a limit of $25 million or less.

     A  RAC  with  a contract of $25 million or more may choose any pair of
limits/deductibles that has a limit of $50 million or less.

    (i)  For  contracts  of long duration (longer than five years), the RAC
may  choose a higher limit of $75 million, with a $2 million deductible and
co-payments (dollar for dollar) by the RAC above $50 million.

    (j)  Subcontracts: (i) For subcontractors that perform services and are
retained  through  the  subcontracting pool of cost reimbursement contracts
subject  to  subsection  (i) above, the prime contractor may flowdown up to
$15  million  coverage in the aggregate to subcontractors. This coverage is
separate  from the prime's limit and cannot be used by the prime contractor
for  additional  coverage above its limit as described in this section. The
prime   may  not  grant  more  than  $5  million  coverage  to  any  single
subcontractor  under this paragraph, and the associated deductible shall be
$50,000  per  contract  aggregate for each indemnification agreement with a
subcontractor.

    (ii)   EPA   may   offer   indemnification   to  innovative  technology
subcontractor  RACs who provide innovative technologies under a contract to
provide remedial action (RA) construction services and that fall within the
definition  of  a  RAC  under CERCLA section 119(e)(2)(B) if EPA determines
that  the technology has special value to the Superfund program. These RACs
must  have  made  diligent  efforts to obtain pollution liability insurance
from  non-  federal  sources which were unsuccessful. These RACs may choose
from the following limit and deductible pairs:
 Limit (occurence/aggregate)     $2 million
 Deductible (occurence)          $10,000

 Limit (occurence/aggregate)     5 million
 Deductible (occurence)          25,000

 Limit (occurence/aggregate)     10 million
 Deductible (occurence)          50,000

 Limit (occurence/aggregate)     25 million
 Deductible (occurence)          200,000

    (iii)   Subcontractors   under   contracts  subject  to  section  10(i)
performing   remedial  action  (RA)  work  will  be  subject  to  the  same
requirements  as  RACs  under  section  11 below. Prime contractors may not
offer  EPA  indemnification in their solicitations for remedial action (RA)
work  unless  there  is  a  lack of adequate competition in response to the
solicitation  that can be linked to the absence of an indemnification. Then
EPA may permit a new or amended solicitation to be offered that states that
indemnification will be available to the successful bidder/offeror.

    (iv)  Subcontractors  that  meet the conditions of both paragraphs (ii)
and  (iii)  above  may choose from either the scale in section 10(j)(ii) or
the coverage available under section 11, but not both.

11.  Indemnification  of  RACs  Working  for  EPA  under  Firm  Fixed Price
Contracts

    (a) General: Although the Government is not ordinarily concerned with a
contractor's  insurance coverage if the contract is a fixed-price contract,
EPA  recognizes  that  a  RAC  cleaning  up  a  Superfund  site may require
protection against third-party liability, and that, in some cases, adequate
insurance  may  not  be  available.  In  such  cases,  and  from a bidder's
perspective,   EPA  indemnification  may  be  a  prerequisite  to  clean-up
activities  at  the  site.  For  future fixed-price contracts, EPA will not
offer  indemnification in its solicitations. If there is a lack of adequate
competition  in  response  to  the  solicitation  that can be linked to the
absence  of  indemnification,  then  a  new  or amended solicitation may be
issued   which  states  that  indemnification  will  be  available  to  the
successful bidder. EPA retains the right to incorporate other provisions of
this  policy  (e.g.,  coverage  for subcontractors), when appropriate, into
future  contracts  and solicitations. If indemnification is available under
the  solicitation  , the RAC must meet all of the requirements specified in
section  7  (above); and the indemnification agreement will contain a limit
and a deductible as prescribed in section 10 (g) and (h) above.

    (b)  RACs  working  for  EPA  under  fixed-price  contracts will not be
reimbursed   for   the   cost  of  pollution  liability  insurance  (except
indirectly,  i.e.  and to the extent that the cost of such insurance may be
reflected in the fixed price).

    (c)  If  EPA  offered  indemnification to RACs currently under contract
with  EPA  or  another  federal  agency  working  at  EPA  sites  under  an
inter-agency  agreement  (IAG),  the  agreement  will contain a limit and a
deductible as prescribed in sections 10(g)(h) above.

    (d)   If  EPA  offers  indemnification  to  a  fixed  price  innovative
technology  RAC, the RAC must demonstrate that it has made diligent efforts
to  obtain  pollution  liability  insurance  from  non-federal  sources  as
specified  in  section 7 above. If adequate insurance is not available at a
fair  and  reasonable  price,  the  limit  and  deductible  amounts  of EPA
indemnification available to the RAC are:
 Limit (occurence/aggregate)     $2 million
 Deductible (occurence)          $10,000

 Limit (occurence/aggregate)     5 million
 Deductible (occurence)          25,000

 Limit (occurence/aggregate)     10 million
 Deductible (occurence)          50,000

 Limit (occurence/aggregate)     25 million
 Deductible (occurence)          200,000

    (e)  If  EPA  offers  indemnification,  any  RAC that is the successful
bidder  to  a  solicitation  that  requires  innovative  technology or uses
innovative  technology  may  select limits/deductibles as stated in section
11(d) or in section 10(g) and (h) above. If the RAC uses a subcontractor to
provide  and/or  operate the innovative technologies, the subcontracted RAC
may also choose from the limits and deductibles in section 11(d) above.

12.  Indemnification  of  RACs Working for EPA under Negotiated Fixed-Price
Contracts

    (a)  For  the  purpose  of  indemnification, RACs working for EPA under
negotiated fixed-price contracts (including RACs under fixed-rate contracts
with some cost elements reimbursable, such as Time-and-Materials Contracts)
will   be   considered  cost-reimbursement  contractors.  If  a  negotiated
fixed-price  RAC  requests  indemnification, it will be subject to the same
insurance   requirements   and  indemnification  terms  and  conditions  as
cost-reimbursement contractors (see sections 7 and 10, above).

13. Indemnification of SITE Program RACs

    (a) Technology vendors participating in the SITE program are defined as
RACs  in CERCLA section 119(e)(2)(A). Thus, those RACs participating in the
SITE  program,  under  cooperative  agreement  with  EPA,  are eligible for
indemnification.

    (b)  SITE program RACs must make diligent efforts to purchase pollution
{pg  5987}  liability  insurance  from  non-Federal sources as specified in
section 7.

    (c)  If  adequate  insurance  is not available at a fair and reasonable
price,  EPA  may  offer  indemnification  to  these  RACs.  The  limit  and
deductible  for  EPA indemnification will be determined by the RAC from the
following limit and deductible pairs:
 Limit (occurrence/aggregate)       $2 million
 Deductible (occurence)             $10,000

 Limit (occurrence/aggregate)       5 million
 Deductible (occurence)             25,000

 Limit (occurrence/aggregate)       10 million
 Deductible (occurence)             50,000

 Limit (occurrence/aggregate)       25 million
 Deductible (occurence)             200,000

    (d) EPA will not indemnify SITE program RACs with respect to facilities
which  receive  waste  for  disposal,  treatment  (except  for  small-scale
demonstration  testing),  or  storage  independently of the SITE technology
demonstration.

    (e)  EPA  may  indemnify  SITE  program  RACs  with respect to any work
conducted  at a federal facility (as described in CERCLA section 120 except
as stated in subsection (f), below).

    (f) If a SITE demonstration project is funded by a party other than EPA
(including federal agencies), then the SITE RAC will be considered, for the
purpose of indemnification, a RAC employed by that party. For example, if a
SITE  RAC  is  conducting a demonstration funded at least in part by a PRP,
then EPA will not indemnify the RAC (see section 17, below).

14. Indemnification of RACs Receiving Grants Under SARA section 126(g)

    EPA may indemnify RACs receiving grants under SARA section 126(g). They
will  be  subject  to  the  terms  and  conditions for SITE program RACs in
section 13 above.

15. Indemnification of RACs Employed by States or Political Subdivisions of
States, or Federally-Recognized Indian Tribes

    (a)  General: EPA has been granted discretionary authority to indemnify
RACs   employed   by   states,   political   subdivisions   of  states,  or
federally-recognized  Indian  tribes  that  have entered into a cooperative
agreement  with  EPA  for new work initiated at NPL or removal action sites
after  the  date of enactment of SARA. EPA may indemnify such RACs upon the
written  request  of  the  state,  political  subdivision  of a state, or a
federally-recognized  Indian  tribe.  If  EPA  agrees  to  indemnify  a RAC
employed  by  such  an  entity, the indemnification will be embodied in the
cooperative agreement through insertion of a special condition.

    (b)  Requirements  for EPA Indemnification: The procedures for entering
into  indemnification agreements with RACs working for states (or political
subdivisions)  or  federally-recognized  Indian  tribes  under  cooperative
agreements  are  identical  to  those  for RACs working directly for EPA as
outlined in sections 10 and 11 above. That is, RACs under current contracts
with  indemnification  may  choose  a limit and a deductible as outlined in
section  10(g)  and  (h) above. For future contracts, EPA will not nor will
states  (or  political  subdivisions) or federally-recognized Indian tribes
under  cooperative agreements offer (EPA) indemnification in solicitations.
If  there is a lack of adequate competition in response to the solicitation
that can be linked to the absence of indemnification, then a new or amended
solicitation  may  be  issued that states that an indemnification agreement
will be available to the successful bidder/offeror. In addition, before EPA
will  enter  into an indemnification agreement, proof of the following must
be supplied to EPA:

    (i)  The  RAC's  contract concerns new site work initiated at an NPL or
removal action site after the date of enactment of SARA; and

    (ii) The RAC's contract is directly related to site cleanup.

    (c)  Terms and Conditions: The terms and conditions stated in section 8
above  shall  apply  to  any  indemnification  agreement offered under this
section.

    (d)  EPA may agree to indemnify a RAC working for a state (or political
subdivision)  or federally- recognized Indian tribe even if that entity has
also  agreed  to indemnify the RAC. In that case, responsibility for making
indemnification  payments will be held jointly by the EPA and the state (or
political   subdivision  or  federally-recognized  Indian  tribe)  under  a
cooperative  agreement with EPA. Unless otherwise stated in the cooperative
agreement,  responsibility  for  making  indemnification  payments  will be
divided  equally  between  EPA  and  the state (or political subdivision or
federally-recognized  Indian  tribe).  Any indemnification payments made by
EPA,  however,  are  subject to the limits and deductibles specified in the
indemnification agreement.

    (e)  EPA may agree to indemnify a RAC which is required under the terms
of   its   contract   with   a   state   (or   political   subdivision)  or
federally-recognized  Indian  tribe  to  indemnify  and  hold harmless such
contracting  entity  from  claims,  damages, losses and expenses, including
litigation  costs, that arise out of the RAC's performance of the contract.
However,  any  costs  or  expenses  payable  to  the  state  (or  political
subdivision)    or    federally-recognized    Indian   tribe   under   such
indemnification  are the sole responsibility of the RAC and are not covered
under  EPA's indemnification of the RAC or otherwise an eligible expense of
the cooperative agreement.

16. Indemnification of RACs Employed by Federal Agencies Other Than EPA

    (a)  General  Rule:  Under  CERCLA  section 119 (as implemented by E.O.
12580),  other  federal  agencies and departments are granted discretionary
authority to indemnify RACs they employ at NPL or removal action sites from
the  date of enactment of SARA. Other federal agencies and departments that
indemnify  RACs  under section 119 must use their own appropriations to pay
all indemnification costs; in addition, the indemnification agreements must
not be inconsistent with these guidelines.

    (b)  RACs employed by other federal departments and agencies (e.g., the
Army  Corps  of Engineers) at EPA-lead NPL or removal action sites, managed
pursuant  to  an  interagency  agreement  with EPA, are subject to the same
provisions  of these guidelines as are RACs employed by EPA. Thus, the same
indemnification terms and conditions offered to RACs employed by EPA may be
offered to RACs employed by other agencies at EPA-lead NPL or removal sites
under interagency agreements with EPA.

17. Indemnification of RACs Employed by PRPs

    CERCLA  section  119(c)(5)(C)  gives EPA the discretionary authority to
enter  into  an  indemnification  agreement  with  a  RAC  employed  by any
potentially  responsible  party  (PRP)  which  has  entered  into a written
agreement  (such  as a consent decree) with EPA. EPA will not exercise that
discretionary  authority,  i.e. EPA will not agree to indemnify a RAC under
contract with a PRP.

18. Indemnification of Surety Firms

    CERCLA  section  119(e)(2)(C)  defines  RACs  to  include sureties that
provide  bid, performance or payment bonds to a RAC after October 16, 1990,
and  before January 1, 1993, and begin activities to meet their obligations
under  such  bonds.  EPA  indemnification  extends to sureties that provide
performance  bonds  to  RACs and begin activities to meet their obligations
under   such   bonds.   That   is,  the  surety  will  be  covered  by  the
indemnification  agreement  of the defaulting RAC if the bond is activated,
{pg 5988} subject to all of the requirements of these guidelines.

Other Issues

19. Exclusion of Facilities That Receive Waste

    (a)  EPA  is  prohibited  by CERCLA section 119(c)(5)(D) from providing
indemnification  to  owners  or operators of facilities regulated under the
Solid  Waste  Disposal Act, as amended, with respect to response activities
performed at, or potential liability related to, those facilities.
    (b)  Under  section  119,  EPA will not agree to indemnify any owner or
operator  of  a  facility  that  receives  solid  or  hazardous  waste (for
disposal,  treatment, or storage), including publicly owned treatment works
(POTWs),  with  respect  to  that  facility.  This  applies  to  a facility
regardless   of  whether  or  not  it  is  subject  to  the  permit-by-rule
provisions, or any other provision of the Solid Waste Disposal Act.

20. Other Terms and Conditions

    (a)  EPA  will  indemnify only RACs performing work directly related to
site cleanup.

    (b)  At  any time, EPA may cancel its indemnification of a RAC due to a
material  misrepresentation  or a failure on the part of the RAC to provide
necessary  information,  act  in  good  faith, or satisfy any other term or
condition of its indemnification agreement.

    (c)  EPA reserves the right to add such additional terms and conditions
to its RAC indemnification agreements as it deems necessary. Such terms and
conditions will be consistent with CERCLA section 119.

21. Claims Notifications and Processing
    (a)  The  RAC  shall  provide  written  notification to the contracting
officer (or other EPA official designated in the indemnification agreement)
within  twenty  working  days  upon receiving notice of any claim or action
that  may  involve  EPA  indemnification  under  section  119. EPA will not
provide indemnification payments for costs incurred prior to its receipt of
written notice from the RAC. Notice must include a copy of the complaint or
other  claim,  or,  if  no  written  claim  has  been  received,  available
information  on  the  time, place, and circumstances involved and the names
and addresses of the injured and of available witnesses.

    (b)  The RAC shall notify its insurers within twenty working days (or a
shorter  period  if  required  by the terms of the insurance policy) of any
claim  or  action  that  may  involve  EPA indemnification, even if the RAC
believes  that  its insurance is not applicable to the claim or action. The
RAC shall provide to the contracting officer (or other designated person) a
copy of any correspondence from the insurance company, including any notice
of denial of coverage.

    (c)  The  RAC shall furnish evidence or proof related to any claim that
may  involve  indemnification  payments  in the manner and form required by
EPA.
    (d)  The  RAC  shall  furnish to EPA complete photocopies of all of the
RAC's  insurance  policies  that  were in force at the time of the response
action, and all those in force at the time of the notice of claim.

    (e)  EPA  reserves  the  right  to  direct,  control,  or assist in the
settlement or defense of any claim or action against an indemnified RAC.

    (f) The RAC shall not admit liability or settle any claim without EPA's
written consent.

    (g)  If  EPA  recommends settlement of a claim for an amount within the
RAC's  deductible,  and  the  RAC refuses such settlement, EPA shall not be
obligated  to  indemnify  for any loss or obligation of the RAC relating to
the claim in excess of the deductible.

    (h)  If  EPA  recommends  settlement  of  a claim for a total amount in
excess  of  the  RAC's indemnification limit (as specified in the contract)
and the RAC refuses such settlement, EPA's obligation for any loss shall be
limited  to  that  portion  of  the  recommended  settlement and the costs,
charges, and expenses (as of the RAC's refusal) that exceeds the deductible
and falls within the limit of liability.
    (i)  EPA reserves the right to make any claim payment either to the RAC
or the claimant at its discretion.

22. Cost Recovery

    Under CERCLA section 119(c)(6), indemnification payments made by EPA to
RACs  are  recoverable from PRPs as a government response cost under CERCLA
section  107.  EPA shall document any indemnification payments by following
the  same  recordkeeping and reporting procedures as for all other response
costs.

23. Limitation

    Nothing in these guidelines shall be construed as a waiver of sovereign
immunity  by  the  United  States.  Nothing  in  these  guidelines shall be
construed  to  establish  the  United  States as a liable party, within the
meaning  of section 107 of CERCLA, for any release that has occurred or may
occur  in  the  course  of any response action the United States undertakes
pursuant  to  section  104  of  CERCLA.  In  addition,  EPA's  agreement to
indemnify  any  RAC, or EPA's payment of any money under an indemnification
agreement,  shall not be construed as a waiver of sovereign immunity by the
United States, within the meaning of section 107 of CERCLA.
    Dated: January 13, 1993.

Don R. Clay,

Assistant Administrator Office of Solid Waste and Emergency Response.