United States Solid Waste And EPA 510-B-96-002

Environmental Protection Emergency Response June 1996

Agency 5403G

 Pay-For-Performance

 Cleanups

Effectively Managing 

Underground Storage Tank

Cleanups

 

 

 Printed on Recycled Paper
Contents

Introduction: Pay-For-Performance Cleanups .......................... 1

1. Why Use Pay-For-Performance Cleanup Agreements? ................ 2

Most UST cleanups do not justify a time-and-materials contract. ............ 2

Time-and-materials contracting creates numerous problems................ 2

Pay-for-performance agreements reward environmental results. ............ 2

Pay-for-performance cleanups save money and sustain

environmental protection. .................................... 2

Pay-for-performance cleanups focus cleanup dollars on cleanup work

and reduce paperwork. ...................................... 3

Pay-for-performance cleanups focus state staff on environmental results...... 3

Pay-for-performance cleanups strengthen financial integrity. ............... 3

Pay-for-performance yields more accurate spending, prediction, 

and budgeting. ............................................ 3

Pay-for-performance rewards effective, efficient cleanup contractors. ........ 3

Pay-for-performance lends itself to broad opportunities of use. ............. 4

2. How To Implement A Pay-For-Performance Cleanup Program .......... 5

Four basic tasks to set up a pay-for-performance cleanup program. ......... 5

Two stages in making pay-for-performance agreements standard practice..... 8

Developing stakeholder support for pay-for-performance cleanups.......... 13

3. How To Construct Pay-For-Performance Cleanup Agreements ........ 16

Set the maximum cleanup price. .................................... 16

Decide on cleanup performance measurements. ....................... 20

Establish contamination-level data reporting and contractor payment linkage.. 23

Define escape clauses. ........................................... 27

Conclusion: The Future of UST Cleanups ............................. 29

 
Pay-For-Performance Cleanups 1

ntroduction: Pay-For-Performance Cleanups I

Underground storage tank (UST) cleanups are often “bought” using time-and-materials

agreements that can result in high cleanup costs, slow cleanup progress, and failure to reach

cleanup goals. In contrast, pay-for-performance cleanup agreements pay contractors a fixed price

as measurable environmental goals are reached. Paying for cleanups through such agreements

rewards contractors for quickly and efficiently reaching cleanup goals. Pay-for-performance

agreements produce speedier cleanups that protect public health and the environment sooner. 

They enable state staff to focus their attention on environmental results instead of on auditing

contractors' internal costs. They minimize paperwork and administrative costs and delays. 

Incentives that otherwise inflate cleanup costs are curtailed by pay-for-performance agreements. 

As a result, cleanup financing can stabilize in a cleanup program based on pay-for-performance

contracts. 

Using pay-for-performance cleanup agreements programmatically saves money and sustains

environmental protection by:

Focusing cleanup dollars on cleanup work,

Focusing state staff work on environmental results, 

Reducing administrative costs and paperwork for the state and for contractors,

Enabling more accurate budgeting and spending projections,

Making financial audits of cleanups much clearer, and

Rewarding effective, efficient cleanup contractors and technologies.

This booklet originates in the experience of the UST Bureau of the New Mexico Environmental

Department as it introduced pay-for-performance UST cleanups. However, this booklet both

extends and supplements New Mexico’s experience with ideas from other state officials,

experienced cleanup contractors who have commented on its drafts, and the U.S. Environmental

Protection Agency. This booklet is intended as a starting point from which state officials, cleanup

contractors, and UST owners can design pay-for-performance cleanup programs tailored to their

own special circumstances.

How policy makers, program managers, and cleanup overseers can use this booklet...

Section 1 For policy makers... Why pay-for-performance cleanups can achieve cleanup

(pages 2 - 4) goals faster and more cost-effectively than time-andmaterials cleanups.

Section 2 For managers of How to start, scale up, and maintain a program of pay-for-

(pages 5 - 16) cleanup funds or performance UST cleanups.

programs...

Section 3 For hands-on How to draft an individual pay-for-performance UST

(pages 17 - 30) cleanup overseers... cleanup agreement.
Pay-For-Performance Cleanups 2

Why Use Pay-For-Performance Cleanup 1 Agreements?

Most UST cleanups do not justify a time-and-materials contract.

With over 140,000 cleanups of gasoline, fuel oil, and similar products already completed (as of

March 1996), thousands of contractors involved, and a small set of technologies in use, there is

rarely much mystery in how to do UST cleanups. As a result, paying for UST cleanups via timeand-materials contracts is often not justified. Only highly uncertain, complex cleanup sites may

justify paying cleanup contractors for effort (via time-and-materials contracts), rather than for

environmental results (via performance-based contracts). Most UST cleanups can be done more

effectively, more quickly, and more economically using pay-for-performance agreements.

Time-and-materials contracting creates numerous problems.

In pursuit of better cleanups at better prices, many states try to specify and scrutinize in ever

greater detail how a contractor does a cleanup. This seldom works well or long before bogging

down. Review, rejection, and rework of time-and-materials work plans delay the start of cleanups. 

Reimbursement payments to contractors are slowed while invoices are checked against

documentation and workplans. Delays in reimbursement increase the contractors’ cost of doing

business and, in turn, encourage business and accounting practices that further inflate the cost of

cleanups. Technical staff are diverted from technical work to address billing issues. In state

cleanup funds, large backlogs of unpaid bills can accumulate and create intense political pressure

for fast, generous payments that inflate cleanup prices and undermine public and political

confidence in a state’s cleanup program. Despite state and federal efforts to streamline this aspect

of UST cleanup programs, many still have long backlogs in paying for cleanup work and delays in

reaching cleanup goals that arise directly from time-and-materials cleanup agreements. Using

pay-for-performance agreements routinely can eliminate most of the problems associated with

time-and-materials agreements.

Pay-for-performance agreements reward environmental results.

Pay-for-performance UST agreements save money on cleanups by rewarding contractors for costeffective cleanups that meet environmental goals sooner. Instead of rewarding failure to achieve

contamination reductions with payment for further time-and-materials charges, pay-forperformance agreements pay when the contractor succeeds. Pay-for-performance agreements

also shift the attention of state staff from cost-accounting details and second-guessing contractor

engineering decisions to risk-reduction and environmental results.

Pay-for-performance cleanups save money and sustain environmental

protection.

In programs driven by pay-for-performance agreements, payments to cleanup contractors depend

on their reaching environmental goals. Pay-for-performance agreements provide financial

incentives in profit and predictable cash flow to attain the goals of a cleanup quickly and efficiently. 

Thus pay-for-performance agreements strengthen protection of human health and environment by

linking contractor payment to measured contamination level reduction. Instead of diminishing

environmental goals to cut cleanup costs, pay-for-performance agreements can stimulate
Pay-For-Performance Cleanups 3

contractors to make better use of better cleanup technology, trigger market competition that drives

down cleanup prices, and reduce administrative costs of contractors and of government.

Pay-for-performance cleanups focus cleanup dollars on cleanup work and

reduce paperwork.

Time-and-materials cleanup contracts require extensive documentation of costs be submitted in

support of bills. Pay-for-performance cleanup agreements require documentation of environmental

results instead of documentation of the contractor’s internal costs. Compiling, submitting, and

occasionally defending cleanup time-and-materials billings adds to the cost of a cleanup, but does

not get a site any cleaner. Using pay-for-performance agreements can reduce paperwork

significantly by eliminating reporting of contractors’ time and materials. This also eliminates the

staff time needed to sort, file, review, cross-check, and resolve disputes about how the contractor is

managing the business aspects of a cleanup. The state receives and reviews only information

about measurable environmental results as specified in the performance agreement. Contractors

can focus their managerial attention on closer internal cost controls and more effective cleanup

technology to enhance their profitability. State agency staff can focus their attention on

environmental results rather than on contractors’ invoices. 

Pay-for-performance cleanups focus state staff on environmental results.

Pay-for-performance agreements focus state staffs’ work on environmental results instead of on

contractors’ internal financial management. Most engineers and scientists who were hired into

state UST cleanup programs neither intended nor trained to work at financial accounting. The use

of time-and-materials cleanup contracting diverts technical staff to financial tasks beyond their

interests and training. The use of pay-for-performance cleanup agreements frees the state’s

technical and scientific staff to focus their time and training on assuring that the environmental

results required for the contractor to be paid are indeed attained.

Pay-for-performance cleanups strengthen financial integrity.

The ability to support a clear, credible audit is an important practical consideration considering the

large amount of public funds UST cleanup programs are responsible for spending, the politically

sensitive quality of some sites, and the solvency problems encountered by some state funds. The

minimal paperwork required to support pay-for-performance agreements provides a clear, clean

audit trail between cleanup results and disbursement of state funds. Financial integrity in cleanup

spending is easier to document and maintain because the simplicity and directness of pay-forperformance agreements and practices leave a much clearer audit trail than do time-and-materials

practices.

Pay-for-performance yields more accurate spending, prediction, and

budgeting. 

Cleanup funders can predict and plan expenditures more accurately, because pay-for-performance

sets a fixed price for each cleanup and puts severe restrictions on any price-increases and

payments. By contrast, time-and-materials contracting costs go out of financial control via change

orders, which are ad hoc changes in the scope and value of an agreement. Because change

orders allow the total cost of a cleanup to increase easily, it is difficult to budget and manage the

finances of cleanup programs that rely on time-and-materials contracting.

Pay-for-performance rewards effective, efficient cleanup contractors.

As pay-for-performance agreements are used more widely, cleanup contractors will cut their costs

and prices to compete for more individual cleanup jobs. A contractor’s profit will come from doing

more cleanups, efficiently managing them, and using effective cleanup technology, rather than
Pay-For-Performance Cleanups 4

from spending more time and material on a cleanup. In the future, as the market for UST cleanups

begins to shrink, those contractors who have honed their management and technical skills will be

able to work efficiently, effectively, and profitably in the smaller market.

Pay-for-performance lends itself to broad opportunities of use.

There are several different administrative vehicles through which pay-for-performance cleanup

agreements can be implemented:

In state contracts between state agencies and UST cleanup contractors;

In state policies that set the terms for reimbursing UST owners for cleanup costs; and

In private contracts between UST owners and cleanup contractors, especially where a state or

insurance company “pre-approves” a maximum amount it will pay for a cleanup.

Despite the presence of a time-and-materials contract between an UST owner and a cleanup

contractor, a state may still be able to set pay-for-performance terms for state reimbursement of

the cleanup charges. The state may impose pay-for-performance terms on such a cleanup by

administratively setting a maximum total amount it will reimburse and the contamination levels

(instead of time-and-materials terms) at which it will make payments. 

Pay-for-performance agreements may also be applied to the free product removal work that often

must be done before a full-scale UST cleanup begins. Free product removal work often occurs

outside the ordinary procedures intended to control the scope and cost of cleanup work. As a

result, free product removal costs can sometimes soar; and, without performance criteria, poorly

designed free product removal can even unintentionally spread the contamination. Free-product

removal seems especially ripe for the application of pay-for-performance cleanup principles,

although we are not aware of its use in this way at this time.
Pay-For-Performance Cleanups 5

How To Implement A Pay-For-Performance 2

Cleanup Program

For maximum benefit, pay-for-performance cleanups must be a program’s standard practice,

rather than the exception. It is one thing to craft a handful of pay-for-performance agreements at

special sites, but another to scale up use of pay-for-performance agreements to become standard

practice. This section describes how a cleanup program can systematically replace use of timeand-materials cleanups with pay-for-performance cleanups. Pay-for-performance cleanup

agreements need to be used programmatically to generate the forces that drive down cleanup

prices, sustain environmental results, and reduce administrative workloads sufficiently to produce

its full benefits.

This section describes how to establish and manage a program of pay-for-performance cleanups

under the following three headings: 

Four basic tasks to set up a pay-for-performance cleanup program;

Two stages in making pay-for-performance agreements standard practice; and

Developing stakeholder support for pay-for-performance cleanups. 

How to write an individual pay-for-performance cleanup agreement is addressed in Section 3.

Four basic tasks to set up a pay-for-performance cleanup program.

Pay-for-performance cleanup program managers must deploy staff and resources to:

Set performance goals, cleanup prices, and payment terms for each cleanup; 

Monitor contamination levels to authorize or withhold payments;

Grant individual exceptions to using a pay-for-performance agreement; and

Invoke the escape clauses in an active pay-for-performance agreement.

Each of these types of program work is discussed below.

Set performance goals, cleanup prices, and payment terms for each cleanup.

State staff must specify performance goals for each cleanup in terms of environmental

contamination levels. A pay-for-performance agreement pays only for environmental results. 

Level-of-effort measurements, such as operating time for treatment equipment, are not cleanup

performance measures, as they measure effort instead of environmental results. The specific

contamination level goals for a pay-for-performance agreement may be set by Risk Based

Corrective Action (RBCA) procedures or by other standards a state normally uses. 

Setting a maximum price to be paid for each individual cleanup is a major source of the overall

cost-savings possible from a pay-for-performance based cleanup program. Many states already

cap part of the price of cleanups by “pre-approval” of cost and scopes of work for parts of a

cleanup. Pay-for-performance simply extends this idea to cap the total price to be paid for the

whole cleanup, not just its components. 
Pay-For-Performance Cleanups 6

The responsibility for setting the maximum prices for cleanups should be clearly assigned to

individuals or teams fully empowered to set the prices. The pricing of individual cleanups should

not be made routinely subject to multiple levels of bureaucratic review, despite pressure to do so

from stakeholders who want a higher price. Routine, multiple-level bureaucratic review of cleanup

prices causes delays and introduces pressures that will chill the market competition that is

essential for pay-for-performance cleanup programs to succeed. Although, there should be a

mechanism for adjusting or appealing prices argued to be too high or too low, managers should

assure that its usage is restricted to situations in which market forces clearly fail to respond to the

demand for cleanups.

The practical question is how to set a maximum price for a cleanup site and, if possible, drive down

actual prices below that maximum. A state can trigger competitive bidding on individual cleanups

to drive cleanup prices down below state-estimated maximums. Where the cleanup is being

conducted by a state contractor, the state-fixed price can be used as the upper limit in a bidding

process in which the lowest bid below the fixed price wins the cleanup job. Or, where the actual

contract is between an UST owner and a private contractor, competitive bidding can be required

and contracts awarded to the lowest bid below the state-set maximum reimbursement amount. 

A state might also set a “lump sum” price for a whole package of multiple cleanup sites to be

addressed by a state-lead contractor. The lump sum price for the whole package of sites would be

based on individual price estimates prepared by state staff. If the sites were similar enough, a

single price could simply be multiplied by the number of sites to produce the lump sum price. 

Performance-payments could be pro-rated across the number of individual sites and made

contingent on meeting performance criteria at each individual site as described below.

Terms for payment of the cleanup contractor are set within the framework of the cleanup

contamination-level goal and the price that is fixed for reaching that goal. Intermediate

contamination levels that mark progress towards cleanup goals become milestones at which the

cleanup contractor gets a partial payment of the price set for the cleanup. The relative sizes of

payments and the contamination levels at which payments are made are structured to give cleanup

contractors financial incentives to reach cleanup goals quickly and efficiently within the fixed price.

Monitor contamination levels to authorize or withhold payments. 

Contractors are paid as contamination levels hit milestone levels set in the cleanup agreement. 

Monitoring contamination levels and authorizing or withholding payments is the primary work of

staff who oversee pay-for-performance cleanups. In time-and-materials cleanup programs much

staff effort is used to scrutinize technical effort and cost documentation rather than to scrutinize the

contamination reductions yielded by cleanup efforts. In a pay-for-performance cleanup program,

staff should allocate much of their time to analyzing and probing contamination monitoring reports. 

Staff should be proactive in monitoring contamination levels at pay-for-performance cleanup sites. 

Rather than wait until the owner or contractor submits a request for payment, staff may obtain and

evaluate interim contamination reduction data for signs of interim progress. Staff should early and

formally call to the attention of the cleanup contractor any indications of insufficient contamination

reductions to justify a payment. 

Because much hinges on monitoring data, there will also be staff work needed to assure that the

data are indeed valid. If there is any appearance or doubt that monitoring data and analyses

produced by a cleanup contractor might not be valid, monitoring data can be collected and/or

analyzed by a private third-party independent of the cleanup contractor. If monitoring-data

collection is not at issue, the state can split samples with the contractor at final verification of
Pay-For-Performance Cleanups 7

performance. Site monitoring systems should address the things that are put at risk by the UST

release, so that the time staff spend evaluating monitoring data bears directly on reducing risks to

health and environment, as well as on determining whether a cleanup payment is made. How to

incorporate site monitoring into individual pay-for-performance agreements is discussed in more

detail in Section 3. A technical introduction to monitoring contamination reductions from alternative

cleanup technologies can be found in “How To Evaluate Alternative Cleanup Technologies For

Underground Storage Tank Sites” (EPA 510-B-94-003).

Grant individual exceptions to using a pay-for-performance agreement.

Pay-for-performance cleanup agreements can be a highly effective administrative tool, but they are

not a panacea. In some circumstances, the price or results of pay-for-performance agreements

may be challenging to predict. In such circumstances, it may be wiser to do the cleanup with a

time-and-materials agreement. Avoiding inappropriate use of pay-for-performance agreements is

important to gaining acceptance of their use, especially among cleanup contractors accustomed to

the financial advantages that time-and-materials cleanups give the contractors.

Program staff should have criteria and procedures that expeditiously identify sites that are not

suitable for pay-for-performance cleanup agreements. For example, pay-for-performance

agreements may be less effective where:

The contamination to be cleaned up is known to come from different sources, some of which

are unidentified or uncontrolled;

There is a cluster of active cleanups already in progress and affecting the pay-forperformance cleanup being contemplated;

The geology or hydrogeology of the site is highly complex or poses major barriers to effective

use of all the cleanup technologies ordinarily applicable to UST releases; or

The release to be cleaned up poses an urgent and high risk to public health or environment,

such as imminent contamination of a community drinking water wellfield.

When first starting up a pay-for-performance cleanup program it is wise to avoid complicated

circumstances. As experience with pay-for-performance cleanups develops in relatively

straightforward cleanups, state staffs and contractors will become able to use pay-for-performance

for more complex cleanups. 

Where the site is not eligible for cleanup at state expense, the private parties involved can enter

into a pay-for-performance cleanup agreement with each other. For example, pay-for-performance

cleanup may be an especially appealing instrument for insurance, real estate or banking entities

that for business reasons need a site cleaned up expeditiously and effectively. 

Invoke the escape clauses in an active pay-for-performance agreement.

Even if a site is suitable for pay-for-performance cleanup at the beginning, circumstances at the

site can change. If this happens it will become necessary to either revise the pay-for-performance

agreement or to convert that cleanup to a time-and-materials basis for further work. Pay-forperformance cleanup agreements include “escape clauses” (see pages 28-30) that set conditions

on which the terms of the cleanup agreement can be changed. The program staff will also need

time to respond to claims and requests for escape from the original agreement and to develop an

alternative agreement. It is important to do this work expeditiously because it can easily expand to

displace working time that program staff need for price estimation and for monitoring results of the

pay-for-performance cleanup sites.
Pay-For-Performance Cleanups 8

Two stages in making pay-for-performance agreements standard

practice. 

Time-and-materials cleanups should require special justification and should be rarely used when

pay-for-performance is fully implemented. You can make the change to pay-for-performance

cleanups in two stages:

Start-up stage carefully selects staff, sites, and contractors; and

Second stage widens use until it becomes standard operating procedure.

These two stages are discussed in the pages which follow.

Persuasion and leadership, not just technical prowess, are necessary to move through these two

stages and achieve program-wide use of pay-for-performance practices. People used to working

in a time-and-materials business environment may not be eager to work differently at first. To

move pay-for-performance agreements to full implementation, managers and staff must plan to

repeatedly explain and discuss pay-for-performance cleanups in a widening circle of stakeholders,

including contractors, auditors, and legislators.

Start-up stage carefully selects staff, sites, and contractors.

Begin pay-for-performance cleanups at a small number of sites and use the experience thus

gained to help spread the technique to more sites, more staff, and more contractors. Begin by

assigning several experienced staffers and select some new, obviously suitable sites to be cleaned

up under pay-for-performance agreements. Have the staff write up pay-for-performance

agreements for these sites (see Section 3). Also identify a few experienced cleanup contractors

who have already demonstrated their competence and offer them the chance to work on a

prototype cleanup. Once these cleanups are operating and several performance payments have

been made, your start-up staff should develop standard documents and procedures, as well as

train other staffers to write and monitor more pay-for-performance cleanup agreements. Staff,

sites, and contractors are the basic ingredients you need to start up pay-for-performance cleanup

agreements. Select sites, staff, and contractors that can succeed relatively quickly in your

prototype set of cleanups. Some hints about what to look for in each follow below.

Selecting staff 

 

At first engage only a few staff in the start-up set of pay-for-performance cleanups. You may not

be able to find individual staffers who are strong in all the characteristics described here. The

person who is strong in monitoring and measurement may have trouble composing the language

of a performance agreement. Organizing staff to work in teams, rather than independently, can

solve this problem. However, if staff work as individuals, you should provide some way for them to

share and compare their experiences as their cleanups progress. Mindset is important, so focus

staffers’ time exclusively on pay-for-performance cleanups, rather than splitting them between

time-and-materials and pay-for-performance contracts. Look for staff who have the following

attributes:

Positive attitude. Select staffers who have a positive attitude towards pay-for-performance

concepts and goals. At this stage their work is to create, not to critique this new way of working. 

(There will be plenty of opportunity for critiquing once the initial set of cleanup agreements have

been put in place.) Avoid selecting staffers who think of expense as a surrogate measure of the
Pay-For-Performance Cleanups 9

quality of cleanups, as they may tend to overprice performance agreements. Persuade and use

these staff later when you have gotten results.

Experience pricing cleanups. Assign staffers to pricing who have sufficient experience to price

cleanups credibly. Whatever their level of experience, staff who price cleanups will find their task is

greatly facilitated by using TANK RACER software, which helps staff make consistent, sound

pricing. More information regarding TANK RACER software capacity and availability appears on

page 19.

Ability to distance themselves from concerns about “excessive” contractor profits. Staff (as well as

managers) who are long accustomed to overseeing time-and-materials cleanups rightly develop a

concern for “excessive” contractor charges and profits. However, preoccupation with contractors’

internal methods, costs, and profits is counterproductive in pay-for-performance agreements,

where contractor profits can come only from efficient management and effective use of technology. 

Assign staffers to pay-for-performance cleanups who can disengage their belief that part of the

government’s responsibility is to prevent contractors from making “excessive” profits. 

Knowledge of contamination measurement and monitoring. Technical knowledge of contamination

measurement and monitoring techniques is more important than knowing how to engineer a

cleanup design in pay-for-performance cleanups. Designing an effective cleanup is the sole

responsibility of the contractor. Overseeing pay-for-performance agreements requires clearly

specified provisions for contamination monitoring data on which reimbursement or contractor

payment hinges. One or more of the pay-for-performance staff should have sufficient technical

knowledge of contamination measurement and monitoring to develop robust contaminationmonitoring criteria for paying the contractor. The monitoring “experts” on the start-up team should

have sufficient confidence in their technical knowledge of monitoring to avoid backsliding into

specifying engineering details as surrogate performance measures. Whereas in time-andmaterials contracts knowledge of the engineering of a cleanup is important to evaluating and

managing cleanup prices, pay-for-performance staff should beware of engaging in such design

detail. 

Ability to explain pay-for-performance to others. Find staffers who will become able to explain, as

well as build, pay-for-performance cleanup agreements. The staff who help start up pay-forperformance are the resources you will use to create the basic materials and procedures, train

other staff, and nurture the individual stakeholders involved in the first batch of pay-forperformance cleanups you do.

Selecting cleanup sites 

In the start-up stage of a pay-for-performance program select sites that you expect to be

geologically simple. Keep in mind that the main object of the start-up period is to develop your 

program’s capability to widen use of pay-for-performance agreements relatively quickly.

Start with a set of relatively simple sites. Select sites where contamination is relatively fresh and

plumes are well-defined. Your start-up sites should have no barriers to the access necessary to

install performance-monitoring points. Leave more complex, challenging sites for inclusion later

when the procedures and effectiveness of your pay-for-performance program have been

established and proven. However, do not make your start-up set too simple--for example, only

small excavation and removal jobs--lest they not be convincing to skeptical stakeholders when it

comes time to expand usage of pay-for-performance. 
Pay-For-Performance Cleanups 10

The start-up sites must have a valid, thorough site characterization. A good site characterization is

necessary in order to set the maximum price and to establish the contamination-level

measurements that will trigger payments to the contractor. An incorrect or incomplete site

characterization could be used as grounds to void the terms of a pay-for-performance agreement

and open it up to change orders and time-and-materials charges.

Start with a set of sites that can be completed relatively quickly. Select sites that can be completed

relatively quickly in order to provide examples to staff, contractors, and policy makers whose

support is needed to widen the use of pay-for-performance agreements. 

Working with cleanup contractors 

Being a direct party to the cleanup contract is not necessary. Your state may establish pay-forperformance agreements either directly with a state-hired contractor or indirectly as terms for

reimbursement of work performed under contract to an UST owner. You need not have a direct

contractual relationship with the contractor to create a de facto pay-for-performance cleanup

agreement. In most cleanups the contractor’s direct legal relationship is with the owner of the UST

site. In this context, you can create the functional equivalent of a pay-for-performance agreement

by setting terms of reimbursement that are tied strictly to pre-specified, measured contamination

reductions. If you are starting up a program of pay-for-performance cleanups in a state

reimbursement-fund context, your program may already “pre-approve” the amount a contractor will

be paid, regardless of how much the contractor bills. You can use “pre-approval” to set the

maximum price the state will reimburse for a cleanup. Then you can divide this amount up in

reimbursements to be made as the cleanup attains contamination-reduction milestones the state

sets. If your state government contracting regulations pose obstacles to pay-for-performance

agreements, it may be quicker to start up pay-for-performance agreements as criteria for

reimbursement of UST owner-hired cleanup contractors.

Financial strength of the contractor. Cleanup contractors participating in the start-up phase of your

program should have sufficient financial resources to continue operating if a cleanup is late in

meeting the performance levels required for payment. Because contamination measurement and

monitoring are the key to getting paid, start-up phase contractors should also have a good track

record in collecting and managing the kind of data needed to document their performancepayments. It is very important to maintain the discipline of payment-for-performance to assure that

the program’s incentive effects really work on the contractor. If the financial survival of the

contractor, rather than meeting a contamination-reduction milestone, becomes justification for a

payment, the driving force of your pay-for-performance program will be weakened.

Financial strength of the cleanup fund. Reliable and prompt payment of contractors as a cleanup

site’s performance criteria are met is essential to sustaining the incentive effects of a pay-forperformance program. The prospect that a state may delay making performance payments due to

lack of funds or administrative bottlenecks heightens the financial risks that a contractor takes

when doing a pay-for-performance cleanup. This risk can have two bad side effects on a pay-forperformance program. Contractors may bid higher prices to compensate for the cost of financing

delayed payments, or contractors may simply decide not to work on pay-for-performance cleanups. 

Neither of these responses will serve a state’s cleanup program well. Enduring damage can be

done to a pay-for-performance cleanup program if payments falter at the start-up stage of the

program.
Pay-For-Performance Cleanups 11

Second stage widens use until it becomes standard operating procedure.

The start-up stage provides a toehold from which to widen the use of pay-for-performance

agreements to more staff, more sites, and more contractors. At this widening stage, the pay-forperformance program begins including more and more newly reported leak sites. More staff divert

more time from time-and-materials cleanups until most staff and cleanup sites are covered by payfor-performance agreements. At this stage you should also develop a simple database in which

the milestone and payment data for each pay-for-performance agreement can be stored and

compared to performance data submitted electronicallly by the contractor requesting a

performance payment. Aspects of developing this stage follow below.

Leverage start-up sites, staff, and contractors

A pay-for-performance cleanup program can be implemented on-the-run by leveraging the start-up

staff, sites, and contractors. Use the start-up staff and cleanups to generate basic procedures and

documentation to be used with subsequent pay-for-performance cleanups and staff. Take care that

these “training” sites are relatively straightforward because their strategic function is to build staff

competence and external stakeholders’ confidence in pay-for-performance agreements. Start-up

staff will first get a set of pay-for-performance cleanups underway. Once this first set of cleanups is

started, the start-up staff will train other staffers to draft more pay-for-performance agreements with

a comparable set of sites. While “in-training’ staff are working with new cleanups being done by

the first set of pay-for-performance contractors, the start-up staffers can develop pay-forperformance agreements involving new sites and different contractors. During the start-up stage

participating staffers will have to spend some of their time building the pay-for-performance

program, training fellow staff and contractors. After staff and contractors are trained and working

procedures are in place, staff will be able to oversee significantly more pay-for-performance

cleanup sites.

Use simple information management tools 

You should implement information management tools, such as a database and electronic data

reporting forms, to collect, store, and display the contamination-level data. Your staff need easy,

reliable access to this information to oversee pay-for-performance cleanups and to approve or

withhold payment at appropriate times. The bottom line in pay-for-performance cleanup oversight

is the measurement data that show whether the contamination levels required to approve payment

have been reached. This is a simple but data-intensive question to answer. Thus the database

and its matching electronic data reporting forms should be kept as simple as possible. For each

pay-for-performance cleanup, the key information will be the baseline and the target contamination

levels set for each contaminant at each data collection point stipulated in the agreement. The

cleanup contractor will submit dated, corresponding data electronically at intervals stipulated in the

performance agreement. The required reporting dates should also be entered in the database

when the agreement is struck and baseline contamination levels are entered. 

Cultivate a competitive set of pay-for-performance cleanup contractors 

Meanwhile also use a combination of pay-for-performance training workshops and administrative

incentives to recruit more contractors to compete for pay-for-performance cleanup jobs. Use your

“experienced” pay-for-performance staffers to conduct half-day pay-for-performance training

workshops for contractors. (This training should include the rest of the best contractors working

your state’s cleanups.) Encourage contractors to participate in pay-for-performance cleanups by

expediting approval of cleanups conducted under pay-for-performance agreements. Also you can
Pay-For-Performance Cleanups 12

expedite performance-payments and give higher priority to payment of contractors doing pay-forperformance cleanups. 

“State-lead” contractors--those under direct contract to a state to do cleanups for which the state

has assumed responsibility--can also be managed with individual pay-for-performance

agreements. Where state-lead cleanup contractors are being recruited into pay-for-performance, it

is important that the cleanups that pose higher financial risk and those that offer little financial risk

(but good profit margins) be spread across different contractors. A contractor who becomes

overburdened with difficult pay-for-performance sites may seek to escape from them, and thereby

open that set of jobs to significant cost inflation for the state. It does not serve the state’s interest in

maintaining a competitive set of cleanup vendors for any single contractor to assume and absorb

too many high financial risk sites.

Redistribute staff workload

Because each pay-for-performance site reduces the staff workload in comparison to time-andmaterials agreements, staff will be able to handle more pay-for-performance sites effectively. 

Meanwhile the time-and-materials cleanups already in progress must be cost-controlled and

concluded as quickly as possible because they will continue to drain excessive staff time and state

funds until they are closed. The program manager must balance staff attention and resources

between the need to expand pay-for-performance sites and the need to control and close timeand-materials sites. In such circumstances, search for positive or negative financial incentives that

would encourage contractors to expedite completion of time-and-materials cleanups, rather than

drag them out. For example, assign pay-for-performance contracts higher priority for payment

when state disbursements are limited. Approval of new time-and-materials cleanups can be given

a lower priority than processing of new pay-for-performance cleanups (except at high-risk sites).

Widen usage in small increments

Repeat the activities described above until all agency cleanup staff are competent in crafting and

overseeing pay-for-performance cleanups and most of your cleanups are being conducted under

pay-for-performance agreements. It will probably take most cleanup programs several years to

reach a point where pay-for-performance agreements are predominant. Most cleanup agencies

will have an ongoing legacy of time-and-materials agreements. Once your pay-for-performance

program has gained a toehold you may be able to convert some unsuccessful time-and-materials

agreements to pay-for-performance agreements to bring these cleanups to closure standards. (It

is expected that a cleanup agency will have an occasional few sites where conditions are so

complex and uncertain that a time-and-materials agreement will remain the most appropriate

approach.)

Manage pay-for-performance to succeed over the long run

The work of managing the pay-for-performance cleanup program will change and bring differing

challenges as the program matures. At first, there will be relatively few pay-for-performance

cleanups and much of the work of program management will be in program development. Once a

critical mass of staff and contractors are trained and procedures established, program

management should focus on widening the number of cleanups and contractors covered by payfor-performance agreements in the privately-funded as well as in state-funded cleanups. 

Eventually, time-and-materials cleanup agreements will be rare and require special justification to

use.
Pay-For-Performance Cleanups 13

At each stage managers should invent and initiate tactics to stimulate the competition and

technological innovation that will drive cleanup prices down and improve cleanup results. During

the start-up stage of the pay-for-performance program there may be little or no immediate

reduction in cleanup prices. Prices during the start-up stage will rely heavily on the pricing of timeand-materials cleanups and competitive forces will not yet be in full play. Thus, immediate cleanup

price reductions should not be expected from the start-up phase of pay-for-performance cleanups. 

However, start-up phase cleanups should emphatically be expected to succeed in meeting their

contamination-reduction goals within their fixed prices. A public record of cleanup contractors’

performance and price should be started and kept as the pay-for-performance program widens

and matures to foster price and quality competition in the cleanup market.

As pay-for-performance widens to encompass more cleanups and contractors, managers must act

to reduce estimated maximum cleanup prices and to strengthen competition among cleanup

contractors. During this stage, competitive bidding could be introduced to begin driving down

prices below initial estimated prices. Program managers should beware of cleanup contractors

who do not make reasonable bids for pay-for-performance cleanups and do only lucrative timeand-materials cleanups. For example, program managers might wish to “qualify” contractors for

time-and-materials work only if the contractor successfully completes a significant number of payfor-performance cleanups. During the widening-use stage, increasing pressure will come to bear

on contamination-level monitoring and performance-payment criterion data. Program managers

may have to give these concerns special attention to maintain the integrity and effectiveness of

pay-for-performance cleanups. In anticipation of this, program managers could encourage

development of independent third-party specialists in contamination-level monitoring and data

analysis who could be used either to audit or measure performance independently of the cleanup

contractor. State programs can develop their own policies on how and when third-party monitoring

specialists should be used, and on who will pay for those services.

Managing a matured pay-for-performance program will bring different challenges. Management

vigilance will be required to prevent pay-for-performance cleanups from triggering escape clauses

and lapsing back into expensive time-and-materials terms. In a matured program managers may

face tough political forces as they come to deal with pay-for-performance cleanups which have not

performed. Managers will also have to sustain a steady flow of cost and price information into the

cleanup market so that market forces can operate in full strength, to keep cleanup pricing very

competitive and improve cost-performance levels. The privatization of financial responsibility for

UST cleanups may even diminish the role of state cleanup programs in pricing and financing UST

cleanups, in which case management’s responsibilities will focus primarily on assuring that

cleanup contamination-level reductions are measured validly and goals met. In states which

continue to finance UST cleanups with public funds, improved tank technology and leak detection

systems will reduce the number and scope of releases to be cleaned up. As this occurs, pay-forperformance program managers may find their staffs working with relatively fewer cleanups and

devoting more attention to determining whether individual especially complex cleanup sites justify

a time-and-material cleanup. 

Developing stakeholder support for pay-for-performance cleanups.

At each stage of developing and widening a pay-for-performance program, stakeholders’ interests

will be affected. To widen the use of pay-for-performance agreements, cleanup program

managers should plan time to listen to and address stakeholders’ concerns about this approach. 

Some stakeholders and how you can respond to their typical concerns are discussed below.
Pay-For-Performance Cleanups 14

State program technical staff.

The work habits and ethics of many state program technical staffs have been formed primarily in

time-and-materials cleanup agreements that reward inefficient and ineffective cleanups and

require close state scrutiny of contractors’ plans and charges. Pay-for-performance cleanup

agreements do not justify the relatively close scrutiny of cleanup plans and charges because they

do not financially reward poor performance as do time-and-materials agreements. Technical staff

may be reluctant to make the necessary shift in their attention from plans to environmental results. 

Focusing staff work on environmental monitoring and providing supplementary professional staff

training in environmental monitoring will aid in getting state technical staff to buy in to pay-forperformance cleanups.

State fund reimbursement staff. 

In time-and-materials programs, much of the time and effort of state fund reimbursement staffers

goes to financial (rather than environmental) review of cleanup work: comparing actual

expenditures (and their documentation) to cleanup plans and state allowable expenditures. This

financial review of contractors bills and their documentation is an ongoing battle that has had

limited success in controlling cleanup costs. Such staff are often so overworked that introduction of

a pay-for-performance cleanup program could reduce their workload and enable them to review

the leftover time-and-materials cleanups more effectively. 

Government auditors. 

Most UST cleanup programs are subject to audit by independent government auditors, such as an

auditor’s office reporting to the legislature. Pay-for-performance cleanups leave a much cleaner

audit trail than do time-and-materials cleanup agreements. At first glance, auditors accustomed to

the problems of time-and-materials contracting may be skeptical of the reduced paperwork

necessary to document pay-for-performance cleanups. However, once auditors understand the

strong, simple connection between what the state pays for and the environmental results it gets in

pay-for-performance agreements, they will find they can do their job more quickly and effectively in

a pay-for-performance regime. A demonstrated state record on tightening cost projections to

control costs will help relieve concerns about initial pricing of contracts and consultant profits.

Legislators and legislative staff. 

Consider the following two different perspectives that often shape the attitude of legislators and

their staffs towards pay-for-performance cleanups. 

Spending as a surrogate for protection of human health and environment. One common

perspective has been that the level of spending involved is a direct indicator of political

commitment to protection of human health and environment. Efforts to control cleanup spending

may be seen as an attempt to weaken protection of human health and environment from this

perspective. However, the strong emphasis which pay-for-performance places on holding

contractors responsible for actual reductions in contamination levels can be forged into a

persuasive case for such staffers.

Government spending and “bureaucratic” delays. Legislators and their staffs are often concerned

that UST cleanup program spending may be out of the control of government administrators. An
Pay-For-Performance Cleanups 15

UST cleanup program designed on pay-for-performance principles can be shown to address the

causes of such seemingly uncontrollable cleanup expenditures. Another concern centers on

delays in starting cleanups and in payment for work performed under time-and-materials contracts. 

Pay-for-performance cleanup program design can be shown to address these delays by

shortening lengthy workplan review/approval procedures and by expediting payments that are

linked strictly to well-documented environmental results rather than to the complex justifications

required by time-and-materials contracts.

Cleanup contractors. 

Cleanup contractors are likely to be concerned that pay-for-performance imposes more financial

risk than time-and-materials contracts. Under time-and-materials contracting, the state assumes

most of the financial risk when the work of a cleanup contractor proves to be ineffective. In this

bargain, the contractor accepts state restrictions on profit in exchange for relief from the financial

risk of cleanup failure. In contrast, in a pay-for-performance cleanup, the contractor takes on the

financial risk of cleanup failure in exchange for removal of state-imposed limits on profit within the

fixed price set for the cleanup.

Although pay-for-performance may pose more financial risks for the contractor, there is also

opportunity for higher profits than in time-and-materials contracts. Cleanup contractors can

enhance their profits under pay-for-performance agreements: 

By using more efficient cleanup technology; 

By drastically reducing internal costs for reporting and documentation otherwise required in

time-and-materials agreements; and

By receiving payments from the state more quickly, which reduces the contractors’ financing

costs. 

Because the contractor can retain as profit the difference between actual cost of the cleanup work

and the price set for it, contractors have a powerful incentive to choose more efficient technologies

and management techniques than under time-and-materials contracts which have no such

incentive. Because the administrative burden of documenting and reporting the cost of time-andmaterials in order to get paid is eliminated in pay-for-performance, that administrative cost can be

retained directly as profit or passed on as price cuts in competing for more business that will

enhance profitability. Financing the out-of-pocket cost of cleanup work done while awaiting timeand-materials payments from states with long payment delays has also imposed another hidden

cost on contractors. Under pay-for-performance agreements, the administrative delay in

processing time-and-materials invoices is eliminated and contractors’ financing costs are cut by

prompter payments. The reduced cost of financing can be taken as profit directly or reinvested in

improving business operation or market share.

Contractor profits: a political and philosophical issue for state staff, legislators, and contractors.

To what extent should cleanup contractors profit from their work? To date, this question has been

resolved in time-and-materials contracting practices that are intended to impose government limits

on the contractors’ profits. However, many state program officials observe that the cost-control

tools available that are imposed on time-and-materials UST cleanups actually drive contractors to

practices that increase overall cleanup cost and profits, without commensurate contamination

reductions. Used programmatically, pay-for-performance agreements can avoid this problem

because contractors can use the profit incentive to produce faster, better, and less expensive

environmental results.
Pay-For-Performance Cleanups 16

How To Construct Pay-For-Performance Cleanup 3 Agreements

A pay-for-performance cleanup agreement sets a fixed price to be paid on attainment of pre-set,

numerical levels of environmental contaminant reduction. A pay-for-performance cleanup program

becomes reality--or slips away--in the wording and administration of each individual agreement

that sets the terms on which cleanup contractors are paid for the environmental results they

produce. This section discusses how to create an individual pay-for-performance cleanup

agreement (given that the particular site is suitable for this approach as discussed earlier on page

7.)

A pay-for-performance agreement to cleanup a site must address the following four matters, which

are discussed below:

Set the maximum cleanup price;

Decide on cleanup performance measurements;

Establish contamination-level data reporting and contractor payment linkage; and

Define “escape clauses”.

Set the maximum cleanup price .

A pay-for-performance cleanup agreement hinges on the maximum price, the “lump sum” that will

be paid to reach contamination-reduction goals at the given cleanup site. Setting and sticking to

the “lump sum” the state will pay (or reimburse) to reach the levels of contamination required is

crucial to making performance contracts work environmentally and financially. At the same time,

you will want to create a setting which encourages contractors to make bids that fall below your

maximum cleanup price.

Use site characterization and risk based corrective action (RBCA) analyses to take into account the

scope and complexity of cleanup work needed in the price you set, the contamination-reduction

goals to be attained, and where and how to measure the results for the contractor to receive

payment. Site characterization provides important background information for pay-for-performance

agreements. The following few pages identify basic information a site characterization should

include to enable you to frame a pay-for-performance agreement to clean up the site. 

Develop an appropriate site characterization.

For small, straightforward sites and in regions where there is minimal geological variation, you may

be able to price the cleanup without having to have a site characterization. In such cases the cost

of a site characterization can be included in the scope of the performance contract for site cleanup. 

 Where hydrogeology or other factors are more complex, it may be wiser to price and buy the site

characterization separately from other cleanup work. Keep in mind that contractor competence--

how efficiently and how effectively the cleanup contractor works--can influence the cost of a

cleanup as much as the hydrogeological complexity of the site.

Site characterizations are often done by a contractor other than the one doing the cleanup work. 

So site characterizations must contain sufficient information for other contractors to do internal cost
Pay-For-Performance Cleanups 17

Draft and start pay-forperformance agreements quickly

after site characterization.

Draft and implement the

performance agreement for a

cleanup site as quickly as possible

after completion of the site

characterization. If you delay, site

conditions, contamination levels, and

plume delineation may change. 

Such changes in site conditions can

force you to abandon the pay-forperformance agreement because

real conditions would have changed

by the time the performance

agreement was made. (See also the

section on “escape clauses” on

pages 28-30).

estimates on a cleanup, as well as enough information for state staff to price the cleanup and set

measurable terms of payment for the performance agreement.

Site information needed to set a cleanup price.

Basic information. To help you price and write a pay-for-performance agreement a site

characterization should include:

Depth to groundwater

Rock types

Grain size

Stratification

Contaminant type

Even within this basic information there can still be large differences in how much sampling and

analysis work is done and how it is done. For example, aquifer test data may be necessary. If so,

test information about the potentially affected aquifer may already be on record. It is tempting to

drive the site characterization towards exhaustive data collection and analysis. Instead you should

scope site characterization to the minimum needed to frame the performance agreement and

engineer the cleanup. The Risk Based Corrective Action process may also drive the information

that must be gathered in site-characterization. (Further technical information about site

characterization techniques can be found in ASTM’s “Provisional Standard Guide For Accelerated

Site Characterization Techniques”). Technical information about the specific site characterization

data required for particular cleanup technologies can be found

in “How To Evaluate Alternative Cleanup Technologies For

Underground Storage Tanks” (EPA 510-B-94-003).

Commingled plumes. Presence of commingled plumes may

pose a barrier to using a pay-for-performance cleanup

agreement. If there are commingled plumes at the site, the

site characterization should try to differentiate the sources of

the plumes to determine whether they are the responsibility of

a single owner. If all the plumes can be identified as the

responsibility of one owner and are already stopped at their

source, it may still be possible to use a pay-for-performance

agreement for their cleanup. (See the discussion of when to

use pay-for-performance agreements on page 7.)

Property accessibility. If the plume crosses property lines the

site characterization should document the extent and address

property accessibility. Knowledge of and access to the full

extent of the plume can significantly affect the cost of a

cleanup if the underground plume extends beyond

aboveground property lines of the cleanup site. In residential

areas, where there are many different owners of small parcels

of property, access to gather samples and to install and

operate cleanup equipment may be quite difficult. If the

contamination has remained--and is contained--within the

owner’s property boundaries, access may be a relatively

minor consideration. Regardless of the size or pattern of property ownership, access may also be

thwarted by property owners who simply do not want cleanup personnel or equipment on their

property.
Pay-For-Performance Cleanups 18

Using TANK RACER or professional judgment to price cleanups.

Two methods that can be used separately or together to set a cleanup price are TANK RACER

cleanup cost-estimation software and professional judgement of staff. 

Using TANK RACER software to estimate a cleanup price. Price-estimation software developed

by the U.S. Environmental Protection Agency and the U.S. Air Force can provide fast, accurate,

and comprehensive cleanup price estimates on a site-specific basis. TANK RACER software can

be a powerful tool for developing reasonable and dependable cost projections for a site. Using

TANK RACER cleanup software will both speed up and standardize cleanup price setting, as well

as enable less experienced staff to help set maximum cleanup prices. Staff who price your first

cleanups may have to defend whatever prices they produce. Using TANK RACER software to

estimate a price for a pay-for-performance cleanup automatically documents the basis for the

price. This can be helpful when a cleanup price must be defended or contractors refuse to bid at

or lower than the set price. Keep in mind that contractors accustomed to working on time-andmaterials basis may tend to estimate relatively high prices because they will no longer have the

“insurance” of change orders to cover the costs of underestimated tasks, rework, and engineeringdesign failure. You can use TANK RACER cost-estimation software for PC to quickly price a

cleanup using data from the site characterization, detailed built-in engineering information about

cleanup technologies, and your state’s local unit-costs. TANK RACER generates a detailed costestimate in a standard format, including a bottom line total price for the cleanup. These estimates

can be produced and modified very quickly, even working from default data values. TANK RACER

cost-estimation software makes it very fast and easy for a user to adjust its estimates according to

the user’s judgment or experience. (Information on obtaining TANK RACER is available by

contacting Delta Research Corporation at 904 897-5380.)

Using professional staff judgement to price cleanups. There are several ways technical staff can

be deployed to set prices for individual cleanups, as individual estimators, pricing teams or

committees, and support groups for individuals. One or more senior staff may be designated to

individually set the maximum price the state will pay for each individual cleanup. (This role is

similar to that of an estimator in a private insurance company.) Or a workgroup could be tasked to

set the prices to be paid for individual cleanups. Such a group may work either by acting as a

“support group” to individual staffers who set the cleanup price or by acting as a team which sets

the price to be paid for each cleanup. 

However the work of pricing cleanups is organized, state price-setters must stay current on

technical information and marketplace forces that could reduce or increase prices. By fixing price

and performance payment criteria, pricers challenge contractors to profit by becoming more

efficient and more effective, rather than by increasing billable hours and other internal charges, as

occurs under time-and-materials agreements.

Focus on cleanup’s environmental performance and price. 

After years of working with time-and-materials contracts that require staff to guard against

“excessive” charges by contractors, it is easy to bring that same mindset to pricing pay-forperformance cleanup agreements. However, in pay-for-performance cleanups, concern with

whether a contractor will make a high profit or suffer a big loss on a job cannot be allowed to

intrude as state staff set cleanup prices. Instead, focus staff attention on the primary state

responsibility--the contamination reductions produced by the cleanup. 
Pay-For-Performance Cleanups 19

Tips for pricers

Negotiate with the consultant if

necessary, especially when

pay-for-performance is new in

your state. Work to drive prices

down and performance up.

Include a conditional, limited

cost-increase “buffer” so that

the contractor can absorb

unforeseen cost increases -- for

example, a lightning strike

takes out a treatment system.

All parties to the agreement

should share some of the

financial risk. Think about how

to tell if the goal you set really

cannot be reached for the price

you set, and what to do in that

case.

In some instances the state-set cleanup price will turn out to be well above the contractor’s actual

cost of the cleanup, and the contractor will make a generous profit. In others, the state price will

turn out to be below the actual cost of the cleanup and the contractor will lose money on that job. 

Regardless of this, it is not the state’s role to intervene in a cleanup just to limit the contractor’s

profits or to protect contractors from losses from a cleanup. It is the prospect of generous profits

that drives companies to reduce their internal waste and improve technology to increase profit

margin within a fixed price. In turn, the prospect of generous profits also ignites price competition

in the marketplace if the state plays its role right.

State cleanup pricers’ role and the cleanup marketplace. 

As the number of pay-for-performance cleanups grows, market forces can begin to influence what

is paid for cleanups. As you develop pay-for-performance agreements or policies, keep in mind

that more competition and better technology usually drive down costs and improve performance. If

the state prices cleanups too high, prices will tend to stay high; if it prices cleanups too low,

contractors may abandon the work or overuse “escape clauses” that are part of pay-forperformance agreements.

From the state “buyer’s” point of view reducing the price of

cleanups overall is an important aspect of pay-for-performance

cleanup contracts or reimbursement policies. The appeal of payfor-performance for contractors is in the financial incentive of being

able to increase or sustain profit margins by reducing the cost of

their cleanup work more than they reduce its price. How can state

cleanup buyers make a win-win situation out of the seeming conflict

between the state buyer’s interest in reducing the price of cleanups

and the contractors’ interest in operating a profitable business? 

The most promising way to reach a win-win situation is to base a

cleanup price reduction strategy on incentives and market

competition to reduce cleanup prices.

A win-win state strategy for driving down pay-for-performance

cleanup prices can encourage and reward bidding competition

between rival contractors to produce lower bid prices than the

state-set maximum price for a cleanup. For example, a state might

require that a contractor have successfully conducted pay-forperformance cleanups to qualify to bid competitively on (or to be

reimbursed for) more challenging cleanups that can produce higher

profits (such as complex, risky sites done under time-and-materials

agreements where the state assumes much more of the financial

risk). Incentives in the form of access to bidding or “bonus points” in bid evaluation might be

offered for contractors that develop aggressive internal cost-reduction programs--for example,

monetary awards to employees for no-cost or less-cost improvements in the contractor’s cleanup

performance. Another incentive for contractors to lower prices can be to “fast-track” pay-forperformance payments, giving them quick priority processing for disbursement. Besides creating

advantages for contractors who successfully reduce their cleanup costs and prices, state cleanup

buyers can also encourage competition between cleanup contractors. For example, a state could

encourage new contractors to enter the cleanup market by establishing fast-track qualifying

procedures for them. Such positive-incentive and market-based tactics can also have the effect of

increasing a cleanup contractor’s overall profitability by increasing the market-share of contractors

who succeed in meeting price and performance goals of the cleanups they do.
Pay-For-Performance Cleanups 20

“Consumer” information about price and performance are vital to creating and sustaining

marketplace competition that gets buyers more for their money. But in the UST cleanup

marketplace consumer information about the price and performance of the contractors are seldom

if ever available to state or to private buyers of cleanup services. State agencies have been wary

of taking on the work and political risks of publicly “evaluating” cleanup contractors. However, the

state could release public-record data on contractor prices and performance available for

evaluation and publication by others interested in getting better cleanups at better prices. 

One word of caution: state price setters who tie their pricing actions to contractors’ internal costs

step into a trap. Pricing strategies that use state auditing of contractors’ actual internal costs to

reduce cleanup prices are flawed. It is quite labor-intensive for a state to capture contractors’

actual-cost data and then translate that into reasonable lower maximum-prices set for subsequent

cleanups. The real work of collecting, auditing, analyzing, and translating cleanup cost records into

decisions about how much to pay has already proven to be a very significant burden and

bottleneck in state reimbursement of time-and-materials cleanups. Imposing state financial audits

on internal costs of pay-for-performance cleanups could reimpose these “auditing” side-effects on

pay-for-performance cleanups. 

Another pitfall for this auditing approach lies in undesirable counter-responses. Contractors may

decide not to seek any pay-for-performance jobs if they face the same cost-reporting hassles, but

have lower profit margins and more financial risk than in time-and-materials jobs. Audit-driven

price reductions of cleanup prices is a counter-incentive to cost reduction if the contractor cannot

profit from it and so this strategy will quickly dry up real cost reductions. Audit-driven price

reductions can also have the longer-term effect of reducing the number of cleanup contractors

below competitive levels. So few contractors survive that those who do come to control the supply

of cleanups and thereby dominate cleanup pricing.

The win-win tactics mentioned earlier are just starting points, not permanent engines of incentives

and competition for cleanup price reduction. Incentives and market dynamics that can be used to

lower overall cleanup prices can be short-lived. No single tactic should be expected to work

forever. A stagnant cleanup marketplace will not produce lower internal costs accompanied by

lower cleanup prices. State staff who set the maximum prices for individual cleanups should, as an

ongoing part of their job, devise and test new tactics to refresh incentives and stimulate strong

price competition between cleanup contractors. 

Despite the emphasis placed on contractor financial incentives, these tactics should not be allowed

to protect cleanup contractors from marketplace discipline. It is in the public interest for inefficient

and ineffective cleanup contractors to be eliminated by market forces. This will not happen if the

state’s policies and practices pay contractors regardless of poor performance. Strong, valid

measurement of cleanup performance in terms of contamination level reductions attained is vital to

assure that protection of human health and the environment are not sacrificed in pursuit of lower

cleanup prices. How performance can be measured is discussed below. 

Decide on cleanup performance measurements .

How you measure the performance you will pay for is crucial to making it work. Wording

measurable payment criteria that refer to environmental contamination levels is at the heart of

cleanup performance contracts. Some general principles to keep in mind as you draft your

contract’s performance criteria are discussed below.

 
Pay-For-Performance Cleanups 21

Base performance payments on direct measurements of contaminant levels in the

cleanup environment.

You could write performance contract criteria to pay for cleanup reports by the page or by the

pound. But if you did so, you would likely just get lots of very long reports and not much reduction

in environmental contamination. Remember, you get what you pay for. Thus, measurements of

the performance for which your contract will pay should be based as closely as possible on data

from direct measurements of the affected environment. The more distant payment criteria are from

directly measured environmental data, the weaker a performance contract’s power to produce the

desired environmental results within cost limits. Always keep in mind that the purpose of a cleanup

performance contract is to pay for environmental results, the attainment of environmental goals set

for the cleanup site. 

Monitoring must be congruent with performance-payment criteria and risk-analyses.

Monitoring systems are often installed relatively soon after a release occurs. Hastily installed

monitoring systems may not provide data that matches up to your performance-payment criteria. 

Acquiescing to monitoring that is incongruent with your performance-payment criteria may later

weaken your performance contract’s ability to resist non-performance based claims from the

contractor. If the site has used RBCA to set goals for the cleanup, monitoring systems that will

trigger performance-payments should also reflect reduction in risk levels posed by the release.

Include basic components of performance-payment criteria . 

There are four basic elements that cleanup performance-payment measurements should include:

Where contamination will be measured--sampling locations;

What contaminants to measure;

Numerical contamination level criteria for payments to contractors; and

Contamination-level data reporting and payment schedules.

These elements of performance-payment measurement are discussed below. 

Where contamination will be measured--sampling locations. A pay-for-performance contract

should unambiguously specify where the performance-payment criterion data samples will be

taken. This determination should be based on the site characterization, including the extent of the

plume and on risks posed by the plume. If the site’s cleanup goals are based on RBCA, the

payment-criteria sample locations should be capable of measuring contaminant levels for affected

or potentially affected receptors identified by the RBCA process. The RBCA analysis of a cleanup

site will identify contamination levels that should be reached at specific points needed to minimize

the risk posed at the cleanup site. The payment criteria in a pay-for-performance agreement

should be focused to include these RBCA-identified risk-reduction measurement points. This

linkage of payment criteria to the points at which risk reduction is measured is another key to

assuring that the cleanup really does protect human health and the environment.

What contaminants to measure. As a general rule of thumb, your contract’s performance-payment

criteria should focus on only the state’s regulated contaminants. The more substances your

contract bases payment on, the more complex and costly it will become to administer. If the site is

one where risk-based corrective action analyses have been done, performance-payment criteria

should include those substances which risk analyses identify as posing the actionable risks. 

Where the contract frames performance-payment criteria in terms of multiple substances, one way

to keep things simple is wording that says that specified levels for each and all contaminants on a

list you make must be reached for payment to be made. Once introduced into the performance

agreement it can refer to that list as often as needed in wording the performance-payment criteria. 
Pay-For-Performance Cleanups 22

This assumes that the specified levels for all the listed contaminants must be attained in order to

receive payment. 

Numerical contamination level criteria for payments to contractors. To set the intermediate

performance-payment criterion numbers you can interpolate the difference between the initial

levels of contamination at the site and the specific numerical goals the cleanup must eventually

reach. For example, if you decide to make two intermediate performance-payments between

equipment-startup and first reaching cleanup-goal levels, you could split the difference to set the

payment levels. 

You can also state performance-payment criteria levels in terms of percentages reduced from the

baseline levels of contamination--for example, payments could be triggered at 30, 60 and 90

percent reductions from initial baseline measures of contamination. You can also allocate the

amount to be paid according to the percentage reduction attained. To provide an incentive for the

contractor to persist when contaminant recovery rates begin to diminish, you can make the end

payment larger and the preceding payments smaller. Whatever way you link performance levels to

payments, it places a significant financial burden on the data that are used to trigger payment. 

Thus you should beware of measurement or analysis errors or artifacts that would trigger payment

prematurely.

Good baseline data are the foundation for valid measurement of cleanup performance. Collect

baseline data when the cleanup equipment is installed and ready to start up. Do not let your

baseline data go stale before you get the performance agreement written and signed. If there is a

long period between site characterization and getting a performance agreement in place, site

conditions may change significantly from those the state used to price the cleanup and establish

measurement points. For example, the plume could spread off-site, requiring more extensive

cleanup effort, incurring site-access problems, and requiring different performance-measurement

points. Such site-condition changes could activate the escape clauses (discussed below) that

either increase the price you must pay or let the contractor off the hook without reaching cleanup

goals. 

Combining data from multiple points and contaminants into one number. Multiple data sampling

points and multiple contaminants can quickly make even relatively simple plans generate a

complex mix of data. For example, data from five sources on three different contaminants

generates 15 different numbers from which someone must wring an unambiguous pay or no-pay

signal. Because the combination of sampling points and contaminants can so easily multiply into

complex data sets, it is wise to keep these as simple as circumstances allow. A pay-forperformance agreement should specify at least the minimum number of points necessary to satisfy

the state’s regulatory criteria. The next page contains a detailed example taken from a pay-forperformance agreement conducted by New Mexico that shows one way of aggregating data from

multiple points and multiple contaminants to create a single-number criterion to trigger

performance payments. Aggregate measures of cleanup performance can be easily calculated

and administered, and they are already accepted in the regulatory community. 

In some settings aggregate measures of cleanup performance could obscure “hot spots” where

site-contamination levels are above set standards. This need not be a barrier to formulating a

suitable, objective pay/no-pay signal from monitoring data. For such settings it is possible to

devise an algorithm to generate a payment-signal from disaggregate performance data that

explicitly takes “hot spots” into consideration.
Pay-For-Performance Cleanups 23

Establish contamination-level data reporting and contractor payment

linkage.

Linking contamination-level data reporting to payment of the cleanup contractor is at the heart of

pay-for-performance cleanup agreements. There are two important aspects of this that deserve

close consideration:

Producing a pay/no-pay signal from monitoring data; and

Structuring contractor payments in relation to the pay/no-pay signal.

Each of these topics is discussed in the following sections.

Producing a pay/no-pay signal from monitoring data. 

Contaminant monitoring data serve to trigger and document a pay/no-pay decision. If

performance-measurement data will come from multiple locations on multiple pollutants, the

agreement’s payment criteria should simplify or summarize this data so that the terms of payment

are clear and unarguable from the beginning. The more locations from which data are sampled,

the more complex the decision to pay or not to pay will become unless the data are somehow

combined into a simple pay/no-pay signal. 

Some monitoring plans are inherently simple. For example many states routinely specify that

groundwater contamination levels at a release site be measured at one or two points upgradient

and two or three points downgradient from the point of release. There may also be provisions for

measuring contamination levels at potentially impacted receptors such as nearby water wells and

basements. The cleanup technology used at the site may also provide or require particular

contamination measurement points or techniques.

Structuring contractor payments in relation to the pay/no-pay signal.

Payments should be spread out over the life of the cleanup work, not made all at once. Making

one or two early-stage payments for system installation and testing can enable small contractors to

compete for and perform your cleanups. However, most of the financial incentive--the money the

contractor gets paid--is in payments that are tied to contamination-level reductions.

There are four major points at which your contract should provide for payments for the contractor: 

Payments when the cleanup system is installed and successfully tested;

Payments as intermediate contamination levels are reached;

Partial payment when final-goal contamination levels are reached; and

Final payment after retaining goal levels for a set time.

The relative amounts of the performance payments over the life cycle of the cleanup fine-tune the

financial incentive in important ways. Keep in mind that initial large reductions achieved early in

the cleanup may be relatively inexpensive for the contractor. Later, as the rate of contamination

reduction begins to decline, the contractor’s internal expenses do not necessarily decline and may

even increase. The amount of payments should be set high enough towards the end of the

cleanup to provide sufficient incentive for the contractor to continue treatment after recovery rates

begin to flatten out. Typically the performance payments scheduled towards the end of the

cleanup should be relatively larger than intermediate performance payments.
Pay-For-Performance Cleanups 24

An example of one way to calculate a performance payment number.

Performance is defined by the percent reduction of the initial total BTEX

(less the standard of each parameter) from the total BTEX (less the standard of

each parameter) of a performance sampling event. Wells BF1-2, BF1-3 and

BF1-4 will be the performance monitoring wells and used in the percent

reduction calculation. The following example illustrates the methodology to be

employed in computing percent reduction and performance payment.

Initial Sampling (ppb)

Well B T E X Total

BF1-2 2,200 7,600 4,200 3,800

BF1-3 3,400 6,500 3,900 2,200

BF1-4 720 985 2,450 1630

Sub-Total 6,320 15,085 10,550 7,630 39,585

Less Standard (X3) 30 2,250 2,250 1,860 6,390

Above-Standard 6,290 12,835 8,300 5,770 33,195

The concentration of 33,195 above becomes the baseline BTEX value. If a

subsequent monitoring event yielded the following water quality results:

Subsequent Sampling Event (ppb)

Well B T E X Total

BF1-2 800 2,100 1,700 1,400

BF1-3 1,100 1,650 2,600 950

BF1-4 330 622 1,900 870

Sub-Total 2,230 4,372 6,200 3,220 16,022

Less Standard (X3) 30 2,250 2,250 1,860 6,390

Above-Standard 2,200 2,122 3,950 1,360 9,632

A percent reduction would be computed: in this case, (33,195 - 9,632) ÷ 33,195

= 71%. Thus, the 30% and 60% performance payments would be due, if not

already paid. The 90% payment would not be due yet.

Performance payments are:

30% Performance = $33,333 

60% Performance = $33,333 

90% Performance = $33,334

 Total = $100,000
Pay-For-Performance Cleanups 25

Matching performance payments to

amount of contamination reduced

Assume the cleanup goal is to reduce

contamination levels 90% from a

baseline level of 100 ppm to 10 ppm in

four steps of 22.5 ppm.

The price of the cleanup is $90,000 to

be paid for as follows:

75.5 ppm 25% performance = 

$15,000 payment

55.0 ppm 50% performance = 

$15,000 payment

32.5 ppm 75% performance = 

$15,000 payment

10.0 ppm Goal reached =

$25,000 payment

10.0 ppm Goal + 9 months =

$20,000 payment

Consider withholding some

percentage of full payment long

enough after reaching goal levels to

assure that the final levels are

sustained.

Payments when the cleanup system is installed and successfully tested. 

The only instance in which payments are not based on measured contamination reductions should

be at the very beginning of a cleanup. One or two minimal payments may be made at early

milestones such as on installation or successful test-operation of the treatment system. In defining

and managing early payments, you must be careful not to drift

back into paying for time-and-materials, which may open the

door to later claims for larger amounts under your contract

than you set. As a rule of thumb, such early payments should

not exceed 33 percent of the total maximum amount of the

performance contract. Under special circumstances earlystage payments may be as high as 50 percent, if the

contractor has a proven track record. Most of the amount of

your performance contract (50 to 80 percent of its total value)

should be paid out as contamination levels decline to levels

set in advance. 

Payments as intermediate contamination levels are

reached.

Contamination levels for intermediate performance-payments

can be set in either absolute or relative terms. For example, a

53.6 percent reduction in benzene is a relative performance

number and 100 ppm benzene is an absolute performance

criterion. Many states have already set contaminant goals

worded in specific terms. Whichever way you choose to state

intermediate performance-payment contamination levels, you

must tie a set dollar amount to each payment milestone. An

example of how the total price of a cleanup could be paid out

is shown in the box at right. The example in the box on the

right shows three equal payments to be made as the

contamination reaches each criterion level. In this approach,

the payment amounts are fixed: if the contractor reports 71

percent reduction, payment is still made at the 60 percent level

of payment. 

Partial payment when final-goal contamination levels are reached. 

Schedule a relatively large payment to be made when contamination levels reach the goal set for

the site covered by the contract. Generally, you should not pay out the entire remaining value of

the contract when the cleanup goal is first reached. Modes of operating the treatment system,

weather, and other factors can cause contamination levels to decline temporarily to your goal. 

These levels may not be retained after the treatment system has been shut off for a reasonable

time or, for example, when groundwater levels rise during a wet season. If you pay too much on

first reaching the goal, it may invite contractors to prematurely dismantle or walk away from reactivation of the treatment system if contamination levels later rise above goal-levels.

Final payment after retaining goal levels for a set time.

You should make final payment of the contract amount only after contamination levels have been

retained at or below the site goal levels with the treatment system turned off for a reasonable time. 
Pay-For-Performance Cleanups 26

This part of your payment schedule should set a time-period or monitoring-report schedule during

which specified levels of specific contaminants will not be exceeded. Then at the end of the period,

or if later than that, on submission of monitoring reports showing levels at or below goals, the final

payment of the cleanup contract is made. 

The amount you reserve for this final payment should be large enough to assure that the contractor

has a financial incentive to stay with the site. The amount paid on first reaching cleanup goals

should be about the same as you plan to make in the final payment for retaining goal levels as

described below. In setting the length of time you delay making this final payment keep in mind

that the longer you defer making the payment the less it is worth to the contractor. 

Make final-payment measurements after system is turned off, but still on-site. Measurements to

support the final payment should not be made while the remediation system is active. The

remediation system should be turned off (but left in place) and the site monitored for an

appropriate time before the final payment is made. If contamination levels rise above the

performance-payment criteria levels, the treatment system can be re-activated. Otherwise, final

payment is made when contamination levels have stayed at or below your performance criteria for

an appropriate time. (Where passive bioremediation has been the cleanup technique, it is not

feasible to “turn off” the system in the same way one might turn-off a pump-and-treat system. In

this special case final payment can be made simply after contaminant goals remain met for a

reasonable period of time.) As a practical matter, a performance contract should leave the site at

least measured in the way it should be to transfer the property to another owner. Documenting the

satisfactory cleanup of a site is an important, but readily achievable byproduct of doing a cleanup. 

Your performance-payment criteria should also consider data requirements for property transfer.

Assure validity of performance-payment data.

Performance-payment data must also be tailored to the cleanup technology being used. Different

cleanup technologies can require different approaches to measurement of contaminant reductions

at a site. More technical information about matching contamination reduction monitoring plans to

specific cleanup technologies can be found in “How To Evaluate Alternative Cleanup Technologies

for Underground Storage Tank Sites” (EPA 510-B-94-003).

Although monitoring-data quality-assurance procedures are already quite common, the data do not

carry as much weight in time-and-materials cleanups as they will when payment depends on them. 

Pay-for-performance agreements do not necessarily require any quality-assurance/quality-control

methods beyond those already available, but it is important that these be incorporated at least by

reference in a pay-for-performance agreement. Once a pay-for-performance cleanup is underway

it may require more state-staff attention to confirm that data quality-control/quality procedures are

guarded carefully.

Because the cleanup contractor has a financial stake in the contamination-reductions that

monitoring data measure, it might be argued that the contractor has a conflict of interest and might

be motivated to submit invalid data or analyses to get paid. Using an independent, third-party

monitoring contractor is another way in which special expertise or additional credibility may be

brought to bear on measuring contamination reduction at a site. A third-party monitoring contractor

might either just audit the cleanup-contractor’s monitoring data or might assume full responsibility

for measuring contamination reduction at the site. Alternatively, the state and the contractor might

split samples for independent analysis to verify attainment of performance-payment criteria.
Pay-For-Performance Cleanups 27

Beware of triggering “change

orders”

Wording of a pay-for-performance

agreement alone will not protect

you from unintentionally opening

the door for a contractor to

demand additional payment for

time-and-materials above the

price you set for the work due to

changes you asked for. 

Avoid telling the contractor how to

do the cleanup work because this

can open the door for the

contractor to claim you ordered

changes and bill for the additional

work. 

Focus on whether or not the

cleanup is meeting performance

levels. Do not bog down in

whether the contractor may be

spending “too much” or “too little.” 

Keep your eye on results instead

and hold the contractor to a fixed

price.

Define escape clauses.

Pay-for-performance agreements should not hold cleanup contractors financially responsible for

circumstances beyond the contractor’s control. To do so would discourage, rather than encourage,

faster, less expensive, and more effective UST cleanups. Typically agreements that humans make

with each other have explicit or implicit escape clauses, the conditions under which we can get off

the hook or change our agreement. Pay-for-performance cleanup agreements should also have

escape clauses. Below are discussed some escape clause conditions typically stated in pay-forperformance agreements and ways to restructure the cleanup agreement.

Conditions for escaping a pay-for-performance agreement. 

Among the conditions that may reasonably trigger “escape” from a pay-for-performance agreement

are:

New releases and migrating plumes;

Acts of God; and,

Contaminant levels that “flatten out.”

Each of these conditions is discussed briefly below.

New releases and migrating plumes. New releases at a site from

an on-site source will almost surely confound the monitoring plan

and data on which payment depends in an existing pay-forperformance agreement. Unless the cleanup contractor has

somehow caused the new release, the contractor should not

necessarily be held responsible to meet criterion levels that were

set for circumstances no longer true. However, you cannot

ignore the effect of the new release on the work to be done and on

payment of the contractor. You will probably not want cleanup

work to stop if a new release occurs (or is found), but for work to

continue the contractor will require continued and predictable

funding. Thus, in most cases, you will probably need to quickly

renegotiate the payment criteria for the performance agreement to

at least set interim terms for payment that remain performance

based. The data-collection points and the levels at which

payments are made also are likely to need changing when a new

release occurs or a plume intrudes from another source off-site. 

The language of your escape clause should include some

description of what evidence should be presented to support a

claim that the agreement should be re-opened because of a new

release or intrusion of an off-site plume.

Acts of God. If your geographic jurisdiction or the particular

cleanup site is at high risk from such “acts of God” as

earthquakes, floods or lightning, you may wish to include

language to require that the contractor take reasonable

precautions against such events--for example, lightning protection of the treatment system. As

with other types of escape clause triggers, the pay-for-performance agreement should also specify

terms for the amount to be paid in the event that an act of God prevents the contractor from

reaching a payment-criterion.

Contaminant levels that “flatten out.” During cleanup, contamination levels can decline to

asymptotic levels that remain above the levels required to be reached to trigger one or more
Pay-For-Performance Cleanups 28

performance payments to the contractor. Some states that have statutes or regulations with

specific numeric cleanup goals also have provisions for when reaching those goals is to be

considered infeasible on technical grounds. A pay-for-performance cleanup agreement should

include language that provides reduced payments, for example, or prevents payments when

reaching payment-criterion levels becomes technically infeasible. The language of your escape

clause should include some description of what evidence should be presented to support a claim

that it has become technically infeasible to reach the payment-criterion contaminant levels. If your

statute or regulations already have such language you may incorporate it by reference. Also

consider what procedure would be followed to initiate a request to change payment criteria for

reasons of technical infeasibility. Typically, the responsibility to initiate such a claim and provide

the proof resides with the contractor requesting payment. Beware of making it too easy for the

contractor to engineer a technically infeasible cleanup and walk away from the site when it fails. 

The amount of the payment to be made under technical infeasibility provides one way to

discourage this. For example, the agreement might provide that only 25 percent of the amount

remaining due will be paid when it is judged that reaching the cleanup goals is technically

infeasible. Proportioning payments so that larger payments are provided when the recovery curve

begins to flatten out may also aid in assuring that contractors do not simply walk away from

cleanups that flatten out short of their intended goals.

Restructuring a cleanup agreement after an escape clause is triggered. 

When an escape clause is triggered in a pay-for-performance agreement your options can range

from canceling the agreement with no further payment, to partial payment, to conversion of the

pay-for-performance agreement to a time-and-materials basis, or to renegotiation of a new set of

performance-payment criteria. In crafting escape clause terms and payment conditions, avoid

arrangements that would either give the contractor a financial incentive to walk away from

incomplete cleanups or to bear all the risks alone. 

For some escape clauses--for example, technical infeasibility--it may be wise to craft terms for

escape clause payment that will not give contractors an incentive to propose infeasible cleanup

systems in the first place. For acts of God, the escape clause payment provisions should probably

enable the contractor to resume work after the event, but not be so generous as to replace the

need for the contractor to take reasonable precautions and to be appropriately insured. For

escape clauses involving new releases or intrusion of “foreign” plumes, it may be most appropriate

to redesign the monitoring system and revise the performance-payment criteria and schedule to fit

the new circumstances and to provide for some sort of interim payment. 
Pay-For-Performance Cleanups 29

onclusion: The Future Of UST Cleanups C

As of March 1996, about 174,000 UST releases either had not begun to be remediated or had not

been completely remediated. The 1998 deadline for upgrading, replacing, or closing older USTs is

expected to generate perhaps as many as another 100,000 discovered releases. Time-and-materials

cleanups for these releases will further burden the state programs that will oversee and/or fund these

cleanups. Beginning the switch to pay-for-performance cleanups agreements now can lighten this

administrative and financial burden significantly when the coming wave of newly reported releases

hits. In the future, better tank management will ultimately reduce the number of releases. Then, the

incentives and measures of pay-for-performance cleanup policies and agreements will sustain

effective UST cleanups even as the absolute number of sites and the need for oversight shrink.

Pay-for-performance agreements are the best business instrument for reaching the risk-based

corrective action (RBCA) goals to be applied to most future UST cleanups. The primary purpose of

RBCA is to protect human health and the environment. One aspect of RBCA that helps accomplish

this is the setting of appropriate cleanup goals and measurement points. Pay-for-performance

agreements pay cleanup contractors for reaching milestones in achieving RBCA-set cleanup levels,

measured at the RBCA-set locations. Pay-for-performance agreements link cleanup spending directly

to reducing risks to human health and the environment.

As private-sector organizations (banking, insurance, real estate, as well as UST owners) recognize

good tank management and promote its importance as common business practice, UST cleanups will

become much more results-oriented. Getting contamination levels at a release site down to riskbased goals will become the bottom line, rather than how much time and materials the cleanup

contractor has put into a site. Business managers will be rightfully wary of time-and-materials cleanup

agreements that can run up big costs and fail to satisfy the state risk-based goals. Pay-forperformance agreements can help to ensure USTs remain an asset to a property, rather than a

liability resulting in property devaluation.

Pay-for-performance cleanup agreements will maintain, even strengthen, state agencies’ protection of

human health and the environment against UST releases. From the beginning of the federal UST

program, EPA has recognized that leveraging non-federal governmental and private resources would

be the only practical way to prevent and correct UST releases. Pay-for-performance cleanups refocus

government oversight of UST cleanups from contractors’ internal management of cleanups to

environmental results. This re-focusing of government attention will yield better protection of human

health and environment with the same or smaller government staffs. 

Pay-for-performance cleanups are one of the most promising avenues for controlling the costs of UST

cleanups and ensuring environmental results. State UST cleanup programs and organizations

responsible for large numbers of USTs should consider the development of their own pay-forperformance cleanup capability now.