United States Department of the Interidr

BUREAU O~ ~

OfFIC3AL REcEfEED FIL COD?

IIARO 2 1998

BUREAU OF RECLAMATION

Commissioner’s Office

P0 Box 25007

IN REPLY REFER TO Denver Federal Center

D-5200 Denver, Colorado 80225-0007

WTR-4.00

FEB 2 7 1998

MEMORANDUM

To: Regional Director, PN, MP, LC, UC, GP

Attention: PN-1000, PN-3300, MP-100, MP-440, LC-1000, LC~4A’

UC-446, GP-1000, GP-2100

Director, Policy and External Affairs

Attention: W-1500

Director, Operations

Attention: W-6000

From: ~OvIargaretW. Sibley‘J~

Acting Director, Program A lysis Office

~1~~~~____

- -

— ~X~__ I—I__

rCt~Jcd.~

CO6’~~ -‘

CC-?3( ,,C -qy 2

S C~C -1 Y~

Subject: Supplemental Information - Policy for Collecting Operation and Maintenance Costs

Associated with the Administration of Water-l~Ielated Contracting Activities

On September 26, 1997, Commissioner Martinez issued a Reclamation-wide policy

implementing an equitable fee structure for the collection of operation and maintenance (O&M)

costs. This memorandum offers supplemental information for your use in the application of

that policy.

When Commissioner Martinez first came on board, the concern was raised to him by

numerous water users that Reclamation was not following consistent practices for O&M costs

assessed for services relevant to contracting activities. Specifically, contracting activities for

water users benefitting from Reclamation activities which include, among others, new contracts

for waterservice and repayment; contract renewals; contract amendments; and National

Environmental Policy Act (NEPA) compliance associated with such activities. Further review

made it clear that Reclamation law requiresthe collection of O&M costs for the administration

ofcontracting activities. The review also highlighted the diversity in contracting activities

throughout Reclamation.

Periodically, Reclamation needs or is requested by other parties to develop a contract or

modify an existing contract. Additionally, entitlement holders enter into third-party contracts

which may require Reclamation’s review and approval before the contract can be effective.

In the past, Reclamation has in some cases developed contracts and performed administrative

actions without passing along its costs to the requesting entity. As part ofthe current initiative
2

to make Government more self-funding, we must charge the beneficiaries of our services for

our costs of preparing, reviewing, and/or approving contract-related activities.

p

As a general matter, the subject policy is intended to apply primarily to those situations!

requests resulting in some type of “formal contract action” (e.g., new contracts, contract

amendments, etc.). Appropriate discretion should be used in applying the subject policy for

those activities requiring little time to complete or activities considered to be associated with

the “cost of doing business” (e.g., interpretation of contract articles, contract applicability

questions, requests for information, etc.). Additionally, it is not the intent ofthe subject policy

to supersede those program areas where all associated costs are currently being accounted for

(i.e., an O&M component is contained in the water rate covering contract administration

costs).

As stated in the subject policy, prior to entering reimbursable contract activities, regional

offices will collect estimated costs up front. All impacted parties will review the estimated

actual costs and agree through negotiationsto a close approximation ofthese costs which will

be formalized through the execution of a written agreement between the parties.

Example: District I desires to contract with the United States for water from Reservoir XY.

The District is requesting a long-term contract for 35,000 acre-feet of water annually. A

written reimbursement agreement is required in advance of completing any associated

contracting activities. It is estimated that total costs for contracting activities (e.g., NEPA

compliance, contract negotiation meetings, repayment studies, etc.) could reach $25,000 to

$50,000. Estimated costs of $25,000 are collected up front; however, actual costs total

$20,000. District J is reimbursed $5,000. Or, actual costs could total $50,000 and District J

would be required to pay the United States an additional $25,000 before the United States

could proceed with contracting activities. Contracting entities will be notified prior to the need

for additional money.

The following questions and answers were developed to provide additional information

concerning implementation ofthe subject policy.

1. Q: What can a district do to lower the costs?

A: There are activities that the contractor or district can do to lower costs such as (1)

volunteer to perform the NEPA work in compliance with Reclamation standards, and (2) hold

district-sponsored meetings.

2. Q: What appeal process should entities follow if they question the fee?

A: This policy is based on existing law which requires Reclamation to collect full O&M.

However, districts/contractors always have the opportunity to request a determination from the

Commissioner, or pursue litigation.
3

3. Q: Is ability to pay a consideration when determining this cost?

A: No. Ability to pay is related to capital costs. O&M costs are, however, a

consideration in determining ability to pay when determining contractual obligations. That is,

O&M costs are a subtraction from payment capacity to determine ability to pay.

4. Q: What has caused Reclamation to start charging for these O&M costs now?

A: In the past, Reclamation has developed contracts and performed administrative actions

without passing along its costs to the requesting entity. As part ofthe current initiative to

make Government more self-funding, we must charge the beneficiaries of our services for our

costs of preparing, reviewing, and/or approving contracts.

5. Q: Does Reclamation plan to enter into these agreements with districts or individual

requesters?

A: Generally, Reclamation will enterthese agreements with contracting entities.

6. Q: What if a district claims it is limited under State law for assessments and therefore

they cannot pay this cost?

A: Regional Reclamation staff have looked into this situation and have found that under

State code, there are generally provisions for special assessments.

7. Q: Will Reclamation allow the entity to utilize their O&M reserve funds to pay these

costs?

A: Reclamation will need to look at the specific language in the reserve fund. This will

be decided on a case-by-case basis.

8. Q: Where will these O&M funds be deposited?

A: These moneys will go into the regional O&M account to be used to offset the costs

directly for administrative work performed specific to this activity.

9. Q: What if the entity is not willing to pay?

A: Reclamation will not proceed with the action.

10. Q: How should deferments be handled?

A: O&M costs cannot be deferred. Deferments are only authorized for capital costs.
4

11. Q: What items make up these costs?

A: Actual costs. In general, salary, overhead, travel, materials, and other associated

costs.

12. Q: Can we capitalize the costs over the term of the contract?

A: No. Not unless there is specific authority allowing forthese costs to be capitalized.

13. Q: How does this affect Reclamation’s trust responsibilities?

A: This will be determined on a case-by-case basis depending upon the activity to be

entered into with Native Americans. Reclamation will need to look at such activities to

determine if it is in fact complying with trust responsibilities or if an activity is being

undertaken for a Tribe not under trust responsibilities.

14. For an easy rule ofthumb — If the activity results in more than day-to-day

administration of an existing contract, charges will assessed.

Please refer to the subject memorandum for additional information, including those situations

where an exemption from the subject policy is warranted.

Members ofthe team included Ryan Patterson (PN), Kay Moore (MP), Margot Selig (LC),

Mike Loring (UC), Jim Beadnell (GP), and Sandie Simons (PAO). Any ofthese team

members may be contacted to answer questions.

cc: Manager, Portland OR, Attention: LCA-1000

Manager, Yakima WA, Attention: UCA-1000

Manager, Boise ID, Attention: SRA-1000

Manager, Grand Coulee WA, Attention: GCP-1000

Manager, Folsom CA, Attention: CC-100

Manager, Fresno CA, Attention: SCC-100

Manager, Shasta Lake CA, Attention: NC-100

Manager, Klamath Falls OR, Attention: KO-100

Manager, Carson City NV, Attention: LO-100

Manager, Sacramento CA, Attention: CVO-lOO

Manager, Phoenix AZ, Attention: PxAO-1000
5

Manager, Yuma AZ, Attention: YAO-1000

Manager, Boulder City NV, Attention: LCDFO-1000

Manager, Boulder City NV, Attention: BCOO-1000

Manager, Temecula CA, Attention: SCAO-1000

Manager, Albuquerque NM, Attention: ALB-100

Manager, Grand Junction CO, Attention: WCN-CDeAngelis

Manager, Provo UT, Attention: PRO-100

Manager, Farmington NM, Attention: FCO-100

Manager, Salt Lake City UT, Attention: UC-600

Manager, Billings MT, Attention: MT-100

Manager, Grand Island NE, Attention: NK-AM

Manager, Loveland CO, Attention: EC-100

Manager, Mills WY, Attention: WY-100

Manager, Austin TX, Attention: TX-100

Manager, Bismarck ND, Attention: DK-100