Assessing Contractor Use in Superfund

January 1989

NTIS order #PB89-154116
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Assessing Contractor Use in

Superfund--A Background Paper, OTA-BP-ITE-51 (Washington, DC: U.S. Government Printing Office, January 1989).

Library of Congress Catalog Card Number 89-600700

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402-9325

(order form can be found in the back of this report)
OTA Project Staff-Assessing Contractor Use in Superfund

Lionel S. Johns, Assistant Director, OTA

Energy, Materials, and International Security Division

Audrey B. Buyrn, Manager

Industry, Technology, and Employment Program

Joel S. Hirschhorn, Project Director

Kirsten U. Oldenburg, Deputy Project Director

Vickie B. Boesch, Analyst

Karen L. Jordan, Research Assistant

Administrative Staff

Christopher N. Clary, Administrative Assistant

Diane D. White, Administrative Secretary
Superfund Implementation Advisory Panel

David Marks, Chairman

Massachusetts Instituted Technology

Kirk Brown

Texas A&M University

Richard Brownell

Malcolm Pirnie, Inc.

William Child

Illinois Environmental Protection

Agency

Henry Cole

Clean Water Action and National

Campaign Against Toxic Hazards

E. William Colglazier

Waste Management Institute

University of Tennessee

William B. DeVille

Louisiana Department of Environmental

Quality

Deborah Hankins

General Electric Corporation

Bob Harris

ENVIRON Corporation

William N. Hedeman

Beveridge & Diamond, P.C.

Robert G. Kissell

El. DuPont de Nemours

& Company, Inc.

Steve Lester

Citizens Clearinghouse for

Hazardous Waste

William Librizzi

New Jersey Institute

of Technology

George Muhlebach

Ciba-Geigy Corporation

Robert N. Ogg

CH2M Hill

Robert B. Pojasek

ChemCycle Corporation

Frank J. Veale, Jr.

Texas Instruments, Inc.

James N. Welsh

John Zink Company

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel members. The panel does not, however, necessarily approve, disapprove, or endorse this paper. OTA assumes full responsibility

for the report and the accuracy of its contents.
CONTENTS

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ● ● ● 1

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ● . ● ● 3

Five Key Questions . . . . . . . . . . . . . . . . . . . . . . . . . . ● ● 3

Future Directions . . . . . . . . . . . . . . . . . . . . . . . . . . ● . 7

First Key Issue: To What Extent is Superfund Dependent on Contractors? . . . . . . . .11

Alternative Remedial Contracts Strategy . . . . . . . . . . . . . . . . . . . . . . . . . .14

Second Key Issue: Why Depend on Contracting to Such a Great Extent? . . .......21

Third Key Issue: Is the Extent of Superfund’s Dependence on Contracting Appropriate? 23

Superfund Activities and Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Needed: Independent Contractor Work and Independent Government Capability .24

Superfund: Five Years? Twenty Years? Or, More? . . . . . . . . . . . . . . . . . . . .25

Fourth Key Issue: Does the Extent of Superfund’s Dependence on Contracting Reduce

Environmental Effectiveness? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Technical Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Examples of Contractor Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Supply and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Infrastructure Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Conflict of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Fifth Key Issue: Is Superfund’s Heavy Dependence on Contracting Cost Effective? . . .39

Cost Effectiveness of Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

Government v. Private Sector Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ● ● . 42

Administrative Complexity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Dependent Bureaucracies . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Boxes

Box A.--Excerpts from an EPA Contractor Study . . . . . . . . . . . . . . . . . . . . . 5

Box B.--Examples of Tasks in Current Policy Support Contracts . . . . . . . . . . . .26

Tables

1. Total Superfund Program Appropriations v. Administrative Cap . . . . . . . . . .11

2. ARCS Contractor Tasks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

3. New Technical Enforcement Support (TES) Contracts . . . . . . . . . . . . . . . .14

4. Regional ARCS Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . ● . . 17

Figures

1. Superfund Program: Contracting v. Internal Staff Funding . . . . . . . . . . . . . . 4

2. RPM Salary Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Introduction

This background document presents some

preliminary findings from OTA’s ongoing

Superfund Implementation assessment; the

final report will be issued later this year.

(Previously, OTA examined Superfund in its

1983 report Technologies and Management

Strategies for Hazardous Waste Control and

its 1985 report Superfund Strategy.)

To a large extent, the U.S. Environmental

Protection Agency’s Superfund program attempts to manage environmental cleanups

by managing contractors. As Superfund

budgets have grown, dependence on contractors has grown. Contracting means that

the private sector works for the government

and sometimes even conducts the business

of the government. OTA’s continuing work

on Superfund has become focused on two

key contractor issues:

1) Does large scale contracting in Superfund compromise environmental performance and is it cost effective?

2) Is there a good balance between using

contractors and government workers in Superfund implementation?

In principle, privatization of government

programs is not in conflict with the public interest, but only if there is effective government management and oversight. Indeed,

the latter point is a critical Superfund issue.

The effectiveness and efficiency of Superfund contracting depends in large part on

how well government workers, career

professionals, and political appointees

design, administer, and review contract

work. And because Superfund activities are

so technical, good contract management requires independent technical expertise of

government workers. Inevitably, therefore,

discussing Superfund contractors means addressing workforce issues in the Environmental Protection Agency (EPA).

To put the contractor issue in perspective,

it is instructive to take a long-term view of

cleanups of chemically contaminated sites in

the United States. In our 1985 report Superfund Strategy we estimated the cost of future

cleanups at about $300 billion by government and industry over about 50 years.

Today, with new information on how many

sites require cleanup and on cleanup costs,

that estimate looks low. OTA believes that

a more realistic estimate is perhaps $500 billion in cleanup costs facing American society

over at least 50 years. However, until now

government and industry have probably

spent between $5 and $10 billion on

cleanups--only 1 to 2 percent of what they

may ultimately spend. In a sense, the early

experiences with Superfund have been experimental and there is still time to learn

from them in order to refine and improve Superfund and other cleanup programs. In the

larger debate on Superfund that will intensify during the coming months prior to the

next congressional reauthorization,

reexamination of the roles of government

and contractors could yield a large benefit.

After the program was reauthorized in

1986 by Congress for five years at $8.5 billion, Henry Longest, Superfund program

I This estimate does not include projections for clean up of Department of Energy facilities.
2

director, addressed the use of the greatly increased funding:

A major portion of these resources . . . are to be

allocated for extra-mural contracts. Consequently, successful pursuit of the Agency’s Superfund objectives will depend in large part upon

the Program’s ability to direct and manage contractor resources effectively.2

For many tasks, there really is no alternative to using contractors for Superfund implementation. Originally, Superfund could

not have been implemented as quickly as it

was without major use of contractors, especially for emergency responses and initial

site studies. Superfund will always use contractors, and OTA is not suggesting that the

government can do away with contractors in

Superfund implementation. However, a

serious discussion of the role of contractors

in Superfund is needed.

Even though contractors in general are

highly professional and want to do a first rate

environmental job, how well the public interest is served depends on how well a program

is managed by the government. If the

government does not demand, measure, and

reward quality contractor work, it will not get

it. And our research on Superfund since

1980 agrees with findings of the General Accounting Office (GAO), EPA’s Inspector

General (IG), and environmental groups

that poor technical performance has been a

problem, not all of the time, but all too frequently. Much of this results from the rapid

initiation and expansion of the program and

the enormous pressures imposed by the

public and Congress on the program to perform quickly. The limited number, limited

experience, and high turnover of EPA’s staff

has made it very difficult for EPA to assure

the environmental performance and

economic efficiency of Superfund’s contractors all of the time. And the problem is compounded by the inexperience and high

turnover of workers for contractors, resulting from the explosive growth of that industry driven by the higher spending

appropriated by Congress.

Understanding the role of contractors in

Superfund means looking beyond what contractors do with equipment in the field, at

specific sites. Contractors conduct so many

program activities that, taken as a whole,

the contracting industry has enormous influence over Superfund, perhaps more than

Congress, the public, environmental groups,

the news media, and other institutions.

Superfund’s contractors do much more

than detailed, engineering work. In a multitude of various work assignments, they play

a major role in conceiving, analyzing, and

structuring the policies and tasks which

make up the Superfund program. In large

measure the government (EPA, other

Federal agencies, and State programs)

depends on contractors for key information,

analyses, insights, and management. Many

of the government’s most experienced

workers have become senior managers for

contractors and therefore may now be

providing advice to more junior government

workers. This contractor system is largely

hidden from public scrutiny and accountability.

2 U.S. Environmental Protection Agency, Office of Solid Waste and Emergency Response, OSWER Directive 9242.3-07, memorandum

from Herq J. Longest to division directors, (date unclear; March or May 1987).
Summary

This background paper explores five key

questions about contracting in the Superfund program. Here we give a capsule summary of our findings for each key issue and

then present some thoughts about the use of

Superfund contractors in the future.3 A

.

more detailed discussion of congressional

policy options will be given in the

assessment’s final report. In the following

sections, we explore the key issues in more

detail and include several specific examples

of contract and contractor problems.

Five Key Questions

First, to what extent is the program

dependent on contractors?

During the last eight years, the Superfund

program has been increasingly dependent on

contractors, who have received between 80

and 90 percent of its funds each year. Over

that time, private contractors have received

$4 billion from the Superfund program.

Program funds for external spending increased 27 percent in 1989 over 1988, from

$946 million to $1.24 billion. For internal,

administrative expenses in fiscal year 1989,

the Superfund program has $8 million more

than it had in fiscal year 1988--an increase of

4 percent, from $182 to $190 million; that is,

no real increase in constant dollars. Figure 1

shows how money for contracting (over 80

percent of external funds) has escalated

sharply between 1982 and 1989 while, in

comparison, funding for EPA staff (about 65

percent of administrative funds) has

remained flat.

Low funding for EPA staff in general has

resulted in low salaries for key Superfund

people. Remedial Project Managers

(RPMs), for example, who are on the

frontline of Superfund implementation, can

make less than $20,000 a year while being

responsible for several sites, each involving

multimillion dollar contractor studies and

cleanups. They also have little in-house

technical, legal, and administrative support

because of limits on EPA staff. A recent

contractor study for EPA’s Office of

Research and Development documents Superfund implementation problems caused

by heavy dependence by EPA staff on contractors working for EPA and responsible

parties (see box A). To illustrate contracting

issues in Superfund, we later discuss the new

remedial cleanup Alternative Remedial

Contracts Strategy (ARCS) contracts.

Second, why depend on contracting to such

a great extent?

The dependence on contracting is an outcome of both congressional and EPA

decisions in the early 1980s. Originally,

there was general agreement that Superfund

had to be implemented quickly and would be

only a short-term program and that the

necessary technical expertise existed in the

private sector. Therefore, heavy reliance on

contractors seemed to make economic and

environmental sense. But we now know that

Superfund will be needed for many decades.

And it has become clear that the technical

difficulties in cleaning up many different

types of chemically contaminated sites

were--and to some extent remain--quite

No discussion of contractor liability is included here. Although contractors and some others believe this to be an important issue, OTA

has not seen evidence to connect contractors’ concerns about their liabilities with their willingness to enter or stay in the market or their

performance. More and more large and small firms of all types have entered the Superfund market. Either contractor have found ways to

address their liabilities (e.g., self-insurance, subsidiaries, indemnification, protect ion by State laws) or the profit potential is great enough to

offset concerns.

3
4

Figure 1

Superfund Program

Contracting v. Internal Staff Funding

$ Millions

1400

82 83 84 85 80 87

Fiscal Year

Source: OTA, from EPA’s direct obligations budget, as submitted annually to Congress. The amounts on this

figure are a subset of those in table 1.

novel compared to past environmental

efforts, such as applying air and water pollution control technologies at industrial

facilities.

Moreover, the rapid growth of the national cleanup effort, both in Superfund and

many other cleanup programs, has meant

that technical experience and expertise in

the private sector has likely been spread very

thin. Before Superfund, there were probably only a few hundred technical people working on cleanups. Now there are probably

about 20,000 technicians, engineers, and

scientists. Currently, there are not enough

appropriately trained and experienced engineers and scientists to implement a high

quality and expanding national cleanup

program. Moreover, there has been a steady

drain of people with experience and expertise away from government to contractors

that compromises the environmental performance of Superfund because it makes it harder for EPA to supervise contractors

adequately. For example, EPA’s Region 2

told OTA that, because of two new, large

contracts, they expect to lose 20 percent of

their technical staff. All of this suggests that

it is now time for Congress to reexamine the

use and management of contractors in Superfund. 

Third, is this degree of dependence on

contractors appropriate?

Superfund could not exist without contractors. The issue is how much they do, how the

government manages them, and whether

contract work is consistent with traditional

views on what should be contracted out. For

example, developing policies and regulations and providing management and oversight seem the least appropriate activities for

contracting out, but contractors do a lot of

work in these areas for Superfund that seem

to go far beyond supportive information and

analysis. (Policy, program, and analytic support contracts total about $75 million over

1987 to 1991.) Government workers hold on

to official decisionmaking. But, the

mobility, limited experience, and high

workload of the government workforce can

cause a subtle shift from control and use of

contractor expertise and services to dependence on them (and may well have already

done so).
5

BOX A.--Excerpts from an EPA Contractor Study

“RPMs [Remedial Project Managers] are dedicated, enthusiastic, and energetic, but they

feel burdened by their intense site responsibilities, and are aware of a wide gap between

their level of skills and knowledge and the requirements of the job. RPMs suggest they lack

the resources and support needed to adequately represent and defend EPA’s position at the

site specific level. They indicate tremendous frustration in that they perceive they, alone,

are responsible for critical and costly site decisions. They blame this frustration, along with

their low pay (relative to that of private contractors), for the high turnover rates in the RPM

position. Provision of technical support and assistance, particularly in the form of standards, guidelines and techniques, is crucial for bridging the gap between RPMs’ skills and

technical knowledge and their job requirements.”

“While RPMs report extensive reliance on EPA contractors for providing TA/TS, [technical assistance/technical support] they are often uncertain about the quality of the

contractors’ work and the appropriateness of the contractors’ suggestions and would like

guidance from EPA in these cases.”

“... Of the [EPA] scientists in this group some indicate that when problems with technology transfer occur, it is because the RPM lacks the expertise needed to interpret their

materials. As one [EPA] lab scientist expressed it: ‘You expect a certain level of expertise

and you find it’s just not there.’”

“... Many of the RPMs believe that the PRPs [potentially responsible parties] often seek

the least expensive, rather than the best, clean-up techniques and are willing to expend considerable amounts of money in attempts to establish justification for the less expensive

clean-up procedures.”

Two statements attributed to RPMs by the study are:

● ‘The best and the brightest are working for the PRPs.”

● “One of my PRPs has a contract with the best geologist in the state . . . so I’m going

against that person . . . I don’t have the resources to come back against some of their

comments and concerns.”

Source: U.S. Environmental Protection Agency, Outreach Initiative on Superfund Remedial

Investigation/Feasibility Study (RI/FS), contractor report prepared by Barri A. Braddy and

Judy A. Honey, Research Triangle Institute, Summer 1988.
6

Indeed, some contractor activities seem to

be activities that the Office of Management

and Budget has described as inappropriate

for contracting out because they are “inherently governmental” and “require either

the exercise of discretion in applying

Government authority or the use of value

judgement in making decisions for the

Government.” 4 At the other end of the

spectrum, testing at sites (e.g., to measure

contamination and delineate the hydrogeology) and the actual physical cleanup work

appear to be the most appropriate activities

for contracting out.

Fourth, does this degree of dependence on

contracting reduce environmental

effectiveness?

Because of poor quality technical work,

this high dependence on contracting is proving to be at odds with the environmental mission of the program (i.e. timely, permanent,

and complete cleanups) and desires for a

cost-effective program. OTA’s work and

that by the General Accounting Office and

EPA’s Inspector General provide evidence

of poor environmental performance in Superfund. For example, OTA’s June 1988

report Are We Cleaning Up? 10 Superfund

Case Studies found “that Superfund remains

largely ineffective and inefficient.” More

recently GAO concluded that “Programs to

. . . clean up waste from old, inactive waste

sites have not been well managed.”5 Among

those forces which can jeopardize the quality

of contractor work are:

. the lack of development of internal EPA expertise, which results in poor contract

management and oversight;

● more interest in controlling contractor costs

than concern about the environmental performance of contractors;

. a mobile workforce whose perspective on

quality, needs, and accountability can shift

as it moves from the government--a purchaser of services--to and among contractors--a seller of services; and

● conflicts of interest that arise because working for the government may affect future

work in the private sector.

Fifth, is the dependence on contracting cost

effective?

There is no data which proves whether so

much contracting, covering so many different activities, is cost effective or not. A

detailed independent study would be useful,

especially in light of growing concerns about

how much cleanups are costing, questions

about whether Superfund is needed, and interest in having more cleanups done by

responsible parties. Such a study should be

conducted by an independent group, because the contracting industry has become a

constituency benefiting from a large Superfund program. (Many firms active in the

cleanup business have had increases of

several hundred percent in revenues and

even larger increases in net incomes over the

past five years.)

Definitive information may not exist about

the cost effectiveness of Superfund contracting, but some trends are clear. First, because

demand for cleanup services has grown

faster than supply, the government will face

increasing costs resulting from inefficiencies

(e.g., poorly done work which must be

repeated). Also, many people are leaving

EPA for higher salaries and better working

conditions as contractors. And prime contractors are paid for supervising subcontractors. Thus, with the explosive growth in

demand for talent and services outstripping

supply, how can the current high spending

levels on contractors be the most cost-effective policy?

4 Office of Management and Budget, Circular A-76 (revised), Aug. 4, 1983.

5 U.S. Congress, General Accounting Office,~s~

. . GAO/OCG-89-20TR

(Gaithersburg, MD: General Accounting Office, November 1988).
7

There is another point to consider. Compared to cleanups managed by responsible

parties, EPA probably pays lower unit costs

(lower average hourly costs and lower profit

margins), but other factors, leading to low efficiency and low contractor productivity,

transform low unit costs into high total costs.

Constant changes escalate costs; for example, high turnover of Remedial Project

Managers, demands for more extensive

documentation, changing government

policies affecting the analysis and selection

of sites and cleanups, and changing of contractors with significant repeating of work.

Also, because of regulatory, enforcement,

and litigation concerns, government contractors are likely to rely more heavily on expensive worker protection equipment and

quality controls for data than contractors

working on private cleanups. From looking

at actual costs and speaking to contractors

and companies which also use contractors

for their private cleanups, OTA concludes

that it is not uncommon for the government

to spend from 100 to 500 percent more than

a private client would spend to accomplish

the same site study or cleanup. A clearer understanding of how much of this higher cost

buys abetter cleanup and how much does not

would be very useful, particularly from the

perspective, shared by many people, that

more cleanups ought to be done by the

responsible parties, with oversight by

government. More enforcement and settlements and more cleanups by industry,

however, mean more demands on EPA staff

and more demand for workers by contractors.

Future Directions

There are no easy or quick solutions to

these problems. Contractors in Superfund

and the other Federal cleanup programs will

remain necessary. It seems clear, however,

that if Congress wants to achieve major improvements in Superfund it will benefit from

rethinking the role of contractors. Doing so

also means addressing EPA’s Superfund

workforce and is, therefore, integral to

strengthening EPA’s Superfund program.

Simply pouring more money into Superfund and placing more emphasis on enforcement and privately financed cleanups

would not necessarily improve the environmental performance of the system. Without

addressing how EPA uses, selects, and supervises contractors, these actions--like so

many cleanups we have examined--are likely to prove an impermanent solution to what

we believe are the core problems of poor environmental performance and low cost effectiveness in Superfund.

Some opportunities for congressional examination are:

1. Reducing the Dependence on Contractors

For a long-term Superfund program,

should some current contractor activities be

shifted totally or in part to the government?

Answering this question means assessing

what tasks make sense for a permanent

Federal cleanup program and deciding what

funding and government personnel instead

of contractors are needed to perform these

tasks. The analysis of policies and creation

of policy options, evaluation of contractor

and EPA regional performance, development of implementation plans for new

policies and technical guidance, communication with communities, maintenance

of data bases and hot lines, evaluating new

technologies and operating technology

transfer programs, decisions on need for and

extent of cleanup, and using data from contractors to prepare key decision documents

(e.g., Records of Decision) and reports to

Congress seem to be the kinds of activities

which government workers could perform

directly.

More significant than a shift in spending

from contractors to EPA, which would still
8

be small compared to total spending on contractors, would be the shift in responsibility

from contractors to EPA. Even in highly

technical areas, most amenable to using contractors, there would be substantial benefit

from having a small portion of the work done

by government workers. Only in this way, by

directly doing technical work, will government workers truly learn the most important

technical aspects of the program.

Reducing dependence on contractors requires addressing workforce issues in EPA,

such as the number, experience level, compensation, morale, and technical support

systems (i.e., databases, access to technical

advice, and continued education) for

government professionals. To make key, independent technical decisions government

workers need to understand site contamination and risks, cleanups, and contractor

work. The government needs to devise a

detailed plan, inevitably meaning some

higher costs (see option 3), to attract and

keep the best and most experienced technical specialists and program managers.

Otherwise, contractors will lure them away

with higher salaries and other inducements.

2. Improving Government Management of

Contractors

How can people in EPA regional offices,

where most Superfund implementation will

always occur, exercise tighter management,

quality control, and reviews of contractor activities done directly for the government and

for PRPs? Doing so requires more technical

people in site project management closely

monitoring the substance of contractor

work. At EPA headquarters, technical staff

with regional experience could independently monitor ongoing regional contractor activities. Early checks for

consistency and technical quality are critical

to improve the efficiency and effectiveness

of Superfund. This need increases as the Superfund program moves toward spending

more of its money on site cleanups, which

cost much more than site studies. This too

means addressing the recruitment and retention of EPA’s technical professionals to

strengthen the program.

3. Shifting Superfund Spending

Can government bring demand for talent

and services back into better balance with

supply? 6 To improve the near- and longterm environmental performance of the

program, Congress can consider temporarily decreasing, for perhaps five years, annual

Superfund spending for contractors by 30

percent to 50 percent (roughly $400 million

to $600 million per year). In the longer term,

however, there may well be need for increased spending for contractors. But longterm performance could be improved if, in

the near term, money was made available for

increasing government staff to strengthen

EPA’s Superfund program by addressing the

previous two options.7 Indeed, improving

environmental performance by cutting contractor spending requires improving and expanding EPA’s workforce. Moreover, for

improving the king-term national cleanup

program, other important ways to use some

of the money diverted from contractors in

the near term include:

6 The amount cut from contractor spending would be about 10 times greater than the increase for internal EPA spending to address the

previous two options. The impact on the consulting indust~ would be mitigated by the expected increases during the next five years in the

cleanup area by other ~ederal cleanup programs, States, and private industy. Conversely, the current demand/supply imbalance could get

worse if Superfund spending remained constant (or increased) and if there was a marked increase in enforcement which caused more

responsible party cleanups.

T Increasing just money would not be sufficient. the size and the quality of the workforce, the number of allowable

full-time equivalents (IT&) in EPA headquarters and each region would also have to be raised, and the average pay level per FTE would

have to increase, ultimately raising the average pay levels in the program. The increase in numbers of government staff would be much smaller

than the decrease in contractor workforce. This difference would help cause some shift of people to EPA if working conditions at EPA are

also improved.
9

substantial increases in government R&D

and support of private sector R&D to

provide more cost-effective cleanup technologies for particularly difficult sites, like

large landfills, and to reduce long-term

program costs;

support for educational programs to train

and increase the engineering and scientific

workforce for increased contractor activities in the future;

more support for basic research on health

effects of hazardous substances to support

more accurate risk assessments; and

more money for assessing how many sites

require cleanup.

4. Rethinking Cleanup Priorities

Public support for option 3 critically requires confidence that environmental

protection will not suffer. Reexamining

Superfund’s priorities means understanding what kinds of current high cost

contractor activities could be postponed

without threatening public health and environment, versus those which truly are

necessary to address urgent site problems.

Establishing better defined and more clearly understood priorities for Superfund merits

much more attention for its own sake but

especially if shifts in spending are considered

and if more private party cleanups are

sought. For example, some site cleanups are

being justified on the basis of speculative future uses of land or water and hypothesized

future risky exposures to hazardous substances. (This is one of a number of issues to be

discussed in the full report of this assessment.) In contrast, other sites pose significant risks to people under present conditions. And for many sites in the former

category, costly cleanups involve impermanent remedies because permanent ones

are not yet available. Would waiting to clean

up sites which do not pose reasonably certain

present dangers make sense? (See OTA’s

1985 report Superfund Strategy.)

5. Increasing Inspector General Activities

Provide increased resources for substantially more auditing and investigation by the

EPA’s Inspector General office of contractor activities. John C. Martin, EPA’s Inspector General, recently said:

Our Superfund resources have not kept pace

with the increasing size and complexity of the

program and the new mandatory requirements

imposed upon us by SARA. We have had to

defer audit coverage of many significant aspects

of EPA management of Superfund in order to

fulfill statutory requirements and provide audit

support for burgeoning Superfund procurement.

Superfund is particularly sensitive to fraud,

waste and abuse, requiring a substantial investment in training and the development of new

audit and investigative approaches [emphasis

added]. 8

These and other options will be discussed

further in the full report, due later this year.

a U.S. Environmental Protection Agency, Office of Inspector General,~ the ~19*7,

a.

.

September 1988.
First Key Issue:

To What Extent is Superfund Dependent on

Contractors?

The Superfund program has over $1 billion to spend in fiscal year 1989 to buy contractor and consulting services. That

amount is 87 percent of EPA’s Superfund

budget of $1.425 billion. The balance of the

appropriated funds for fiscal year 1989--$190

million--will pay for EPA’s administrative

expenses: the overhead and staff to manage

and oversee the contractors’ work.

Each year, Congress, through appropriations, reconfirms the policy to contract out

the Superfund program. In the first Superfund appropriation (fiscal year 1982) Congress set a capon administrative expenses of

21 percent ($41.6 million). Between 1982

and 1989, as the total Superfund budget grew

over 600 percent, Congress allowed EPA’s

administrative expenses to grow by only 360

percent (see table 1). Until 1987 the percentage of the cap steadily declined to 10

percent or $135 million. In 1988 the cap rose

to 16 percent ($182 million) before it

declined again in 1989 to 13 percent. If the

percentage of the cap had remained constant

since 1982 at 21 percent, EPA would have an

additional $109 million for internal spending

in 1989--a 60 percent increase. As it is, the

Superfund program has $8 million more--an

increase of 4 percent--to spend internally in

1989 than it did in 1988; that is, no increase

in constant dollars. Meanwhile, external

Table 1 .—Total Superfund Program Appropriations

v. Administrative Cap

Fiscal Appropriated

year funds ($ roll)

1982 . . . . . . 200

1983 . . . . . . 210

1984 . . . . . . 410

1985 . . . . . . 620

1986 . . . . . . 900

1987 . . . . . . 1,411

1988 . . . . . . 1,128

1989 . . . . . . 1,425

cap as

Administrative percent of

cap ($ roll) total funds

41.6 21

37.4 18

64.0 16

87.6 14

90.0 10

135.0 10

182.4 16

190.0 13

SOURCE: Fiscal year appropriations acts. The administrative CW is exw-d

aa, ‘“no more than . . . of theee funds shall be avdlable for administrative expenees.”

(mostly contracting) funds have increased 27

percent in 1989 over 1988; a substantial

growth rate for any industry.

Indeed, data from annual reports for

public companies active in the cleanup

market frequently show growths in annual

revenues of from 200 to 300 percent over the

past five years from 1984 through 1988, with

net incomes often rising at a much higher

rate than revenues.9

Such growth has also

meant sudden, large increases in technical

staffs. Although much of this growth has

been from Superfund work, a lot of money

has been coming from other Federal cleanup

programs (which are expected to increase),

State work, and private cleanups. In the past

year, the financial community has been discussing the bright future for environmental

9 The following examples taken primarily from company reports illustrate the state of this contractor industry; the companies are long

time major Superfund contractors: 1) Ecology and Environment, Inc., net earnings rose 204 percent from 1984 through 1988, while net income

rose 365 percent; as the fraction of earnings from Environmental Protection Agency contracts rose from 60 percent to 70 percent from 1986

through 1988, net income per common share rose SO percent. 2) Roy F. Weston, Inc. earnings rose 240 percent from 1983 through 1987, while

net income rose 970 percent and earnings per share rose 600 percent. Weston said that “Fifty percent of the Company’s growth has been due

to remedial investigations and ‘front-end’ studies of hazardous waste sites, which require design, construction management and cleanup

activities.” Moreover, there was a 72 percent increase in staff from 1986 to 1987 an increase of 774 people in one year. 3) ICF sales increased

216 percent from 1983 to 1987, and from 1987 to i989sales are expected to double (no data on profits available). 4) Environmental Treatment

and Technology net revenues rose 230 percent from 1983 to 1987, while net income rose 160 percent. In the first half of 1987, the company

added over 200 employees for a 25 percent increase. 5) CH2M Hill sales incma~d 25 Wrcent from 1985 to 1987 while net income increased

82 percent.

11
12

services firms, in large measure because of

the government cleanup business.

Over the eight-year history of Superfund,

some private sector consulting and engineering firms have also, inevitably, gained considerable influence over the direction and

content of the Superfund program, while

government controls have not kept pace.

These firms together perform literally all

program activities. They develop policy

positions for the program; analyze legislation; implement the SITE technology

demonstration program; evaluate potential

Superfund sites and, through their analyses,

determine whether they qualify for fundfinanced cleanup. Contractors analyze

cleanup technologies, perform risk assessments, identify feasible cleanup alternatives,

and draft Records of Decisions. They design

cleanups and do the physical job of cleaning

up Superfund sites. Rarely does one contractor do all these tasks.

Contractors write government requests

for proposals and scopes of work for new

government contracts. Contractors participate in the management and evaluation

of other contractors.

Contractors also help EPA deal with the

public. They operate the Superfund

telephone Hotline that responds to questions from the public--a $9 million contract

over 1987 to 1989. They sometimes represent EPA at technical conferences and frequently coauthor papers with EPA staff.

Public participation programs are designed

and run by contractors; contractors represent EPA at citizen participation meetings,

and they sometimes prepare the responsiveness summary for site Records of Decision.

Contractors develop and run Superfund

training sessions and write Superfund publications, including guidance documents that

translate the National Contingency Plan

(NCP) regulatory instrument into operating

principles. The NCP itself results from extensive contractor work. Contractors research and write reports to Congress for

EPA and provide other analyses that Congress and others use to evaluate the Superfund program. Table 2, which is from the

statement of work for ARCS contractors, illustrates the broad range of activities in the

remedial part of the program.

A small portion of Superfund’s external

funds go to States through cooperative

agreements. States then use the funds to

contract out much of the Superfund work for

which they have taken responsibility.

Each component of the Superfund

program has its own set of prime contractors

(not including many more firms which carry

out field activities and others which are subcontractors in specialized areas). The

remedial program has field investigation

team (FIT) contractors and remedial contractors (REM and ARCS). The removal

program has emergency removal contractors

(ERCS and mini-ERCS), technical assistance teams (TAT) contractors, and environmental services assistance teams (ESAT)

contractors. The enforcement program has

technical enforcement support (TES) contractors, whose work is nearly invisible to the

public. While subcontractors greatly multiply the number of firms participating in the

Superfund program, Superfund contract

money is funneled through a few large firms.

Of the total value of active Superfund contracts (of all types), about 70 percent --$3 billion--is split among six prime contractors.10

In 1988 EPA revised its contract concepts

for the three components of Superfund.

lol’he firms and the total value of their Superfund prime contracts are: CH2M Hill ($829 million), Ebasco ($S04 million), NUS ($492

million), CDM (W9 million), Weston ($388 million), and Ecology and Environment ($364 million). Sometimes significant amounts of money

go to subcontractors, although the prime contractor typically makes a fee on those amounts. Also, these same firms may be significant

subcontractors on other prime contracts.
Table 2.-ARCS Contractor Tasks

1. SITE-SPECIFIC PROJECT MANAGEMENT

a Site Planning

b. Project Monitoring and Control

c. Project Coordination

2. REMEDIAL PLANNING

Project Planning

b. Community Relations

c. Field investigation

d. Sample Analysis and Validation

e. Data Evacuation

f. Assessment of Risks

g. Treatability Study/Pilot Testing

h. Remedial Investigation Reports

3. REMEDIAL DESIGN

a. Project Planning

b. Community Relations

c. Data Acquisition

d. Sample Analysis/Validation

e. Data Evacuation

f. Treatability Study/Pilot Testing

4. REMEDIAL IMPLEMENTATION

a. Procurement Support

b. Construction Management

c. Technical Engineering Services

5. OTHER TECHNICAL AND MANAGEMENT ASSISTANCE

a. Remedial Oversight

b. Enforcement Support

c. Community Relations

d. Data Management

e. Analytical Support

f. Other Technical Support

SOURCE: U.S. Environmental Protection Agency, from the ARCS Contractor Statement of Work

i. Remedial Alternatives Screening

j. Remedial Alternatives Evacuation

k. Feasibility Study/Rl/FS Reports

I. Post RI/FS Support

m. Enforcement Support

n. Miscellaneous Support

o. Expedited Response Action

g. Preliminary Design

h. Equipment/Services Procurement

i. Intermediate Design

j. Prefinal/Final Design

k. Post Remedial Design Support

While the trend is toward increasing the

numbers of contracts and giving the regional

offices more contracting control, the impetus for the changes differ among the com- ●

ponent programs.

●

●

In the remedial program, regional ARCS

contracts, as discussed below, are phasing

out national REM contracts. They will increase the number and total value of prime

contracts and will constitute a layer of

project management contractors between

EPA and site cleanups. EPA has stated

that the ARCS contracts are to improve

competition and continuity in and provide

performance based incentives for remedial

contract work.

The Superfund enforcement office changed

its two national TES contracts ($57 million

each) into eight, five-year TES contracts initially valued at $131 million each. The enforcement program claims that projected increased cleanups placed into that division,

instead of fund-financed cleanups, will require more money. As of January 1989, six

of the contracts were awarded (see table 3).

The removal program has begun to add

regional mini-ERCS contractors to its existing national zone ERCS contractors. An

EPA IG report in 1987 on ERCS contractors found excessive costs being charged

and suggested that lack of contractor competition was a reason. EPA responded in

congressional hearings in April 1987 that

the number of ERCS contractors would increase from four to 25 and that 17 of them

would be selected that year. One year after

the hearings, only eight had been selected

for three of 10 regions. This reflects the administrative difficulties faced by EPA in attempting to spend appropriated funds. The

total value of active ERCS contracts is

about $500 million.
14

Table 3.—New Technical Enforcement Support (T’ ES) Contracts (as of January 1989)

Maximum Contract

EPA Value Hours

Zone Regions Contractors ($ roil) (1,000s)

One . . . . . . . . . 1,2 Alliance Technology 136 2,460

CDM 124 2,460

Two . . . . . . . . . 3,4 CDM 118 2,480

Dynamac 107 2,480

Three . . . . . . . . 5,6,7

Four . . . . . . . . . 8,9,10 117 2,480

SAIC 109 2,480

Total value, $ mil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711

NOTE: TES Contractors support both Superfund end RCRA enforcement.

SOURCE: OTA from information aupplkct by EPA.

Alternative Remedial Contracts

Strategy

ARCS contracts, for the heart of the Superfund program--remedial cleanups--are

new, major project management contracts.

Therefore, OTA has examined ARCS contracts in greater detail to illustrate current

contracting issues.

ARCS was preceded by the REM contracts started early in the program.11 Under

the REM system, seven national contracts

have been awarded. The major REM contracts have been held by four firms: NUS

Corp.; CDM; Ebasco Services, Inc.; and

CH2M Hill. Total contract value through

1990 is $829 million. Two minority-owned

contracting firms have also been awarded

small REM contracts, totaling $42 million.

Organized by region or combination of

regions (zones), ARCS contracts are expected to number many more than the old

REM contracts, because of multiple contracts in regions or zones and the growth of 12 Superfund. Each contract will have a

potential value of from $60 to $250 million,

or more.

The ARCS contracts were designed to

have wide ranging responsibility for the

remedial phase of Superfund--from site

studies to complete cleanup. The REM contractors were engaged for individual, discrete tasks, such as an Remedial

Investigation/Feasibility Study (RIFS) or

community relations plan, but not necessarily all tasks for a site. For specific sites, the

ARCS contractors will: 1) manage site

projects, 2) plan and design remedial actions,

3) implement remedial work, and 4) provide

other technical and management assistance

(see table 2). ARCS contracts, like REMs,

will also oversee subcontractors who do

pieces of the project work, a practice which

is not necessarily ineffective or avoidable.

However, the ARCS contractors are supposed to exercise much more control of subcontractors and have more responsibility for

their technical work. This is a positive

change.

J. Winston Porter, Assistant Administrator of EPA’s Office of Solid Waste

11 The official name for REM contracts is: Enforcement and Remedial Planning Activities at Uncontrolled I ]azardous Substance Disposal

Sites.

 Initially 30 to 40 contracts were planned; less will probably be awarded.
15

and Emergency Response, has described

ARCS as a new initiative under a “speed the

pace theme” for Superfund:

. . . We are looking at site cleanup from a

‘project management’ perspective. This approach should pay benefits through greater efficiency and accountability. Phases of the

process such as developing the [RIFS], design engineering, and construction management could

all be accomplished by one firm or organization

with proven expertise in project management.

Specialized work and opportunities for smaller

businesses could be obtained through subcontract from the project management firm . . .13

The project management approach, of

which the ARCS forms the cornerstone, was

laid out in an August 1987 memo by Porter.

The memo identifies problems in the

remedial program of pace, accountability,

and continuity. But while the memo explicitly mentions timeliness 12 times, cleanup

quality only appears twice. The memo

begins, ‘The Administrator and I have made

the completion of current projects the highest

near-term priority within the Superfund

program.” Porter then discusses the existing

system that “has involved a large number of

pass-offs and downtimes, culminating in

lengthy project execution periods.” The

memo concludes that “having so many organizations [REMs, the Corps and engineering firms, contract labs, EPA reviews]

involved, we have had difficulty in fixing accountability and responsibility.”

Porter states that the objective of the

project management concept is: “... to have

one management organization with overall

day-to-day responsibility for the technical

execution of the work.” This project

management organization would be under

the direction of EPA’s project manager, but

EPA acknowledges that the ARCS contractor, not EPA managers, would be “accountable and responsible.” Thus, from Porter’s

perspective, EPA’s role is to overview, make

fundamental decisions, and be the basic

spokesman to the public, governments, and

Congress.

According to another EPA document, “the

ARCS concept is aimed at increasing competition, incentivizing [sic] performance,

and promoting project continuity. EPA

has also described ARCS as further

decentralization of program responsibility to

EPA regions, as the contracts will be

awarded and managed by regions, rather

than by EPA headquarters.

Project management in the public interest

by government workers is imperative for Superfund. Moving project management outside the government, however, adds another

layer of contractors between EPA and the

site problems the agency is charged with

identifying and remediating. It avoids fixing

a flaw in the current program: not enough internal EPA technical and project management expertise, even with extensive

contractor support. Porter’s memo (see

above) laying out the project management

concept recognizes this internal deficiency.

He states, “I believe this [project management] concept also recognizes the fact that

we will likely have difficulty in maintaining a

large cadre of experienced engineering and

construction managers in our organization.”

This is the crux of the issue.

But Porter says contractor project

management organizations will eliminate

EPA’s need to “pull all the pieces together.”

In other words, contractors instead of

government workers will manage contractors; contractors will manage projects instead of someone in the government

managing the projects. The critical issue will

 Winston Porter, U.S. Environmental Protection Agency, “Superfund Progress and Prospects,” remarks prepared for delivexy at the

I Iazardous Materials Cent rol Research Institute~‘ conference, Washington, DC, Nov. 16, 1987, p. 10.

Contracting,” an undated EPA document given to OTA in late 1987, p. 1.
remain under ARCS: How will EPA ensure

effective quality control of contractor work

and consistency among contractors?

Will ARCS Increase Competition?

Whether ARCS will increase competition

in the remedial program can be evaluated by

answering two, related questions. First, has

the system been opened up to a wider variety

of contractors? And, second, do regional

staff have a larger contracting pool from

which to draw? OTA’s review of the ARCS

contracts awarded as of January 1989 shows

that the system is pulling in some different

regional contracting firms that were not

visible under the REM system but the effective pool of contractors remains about the

same as before.

In some regions EPA staff will have more

prime contractors to call upon than they did

under the REM contracting system. And,

while increased numbers of prime contractors implies increased competition and perhaps more EPA control, it does not tell the

whole story. Much of the remedial contract

work to date has been performed by subcontractors rather than prime contractors.

Thus, the real contracting pool under the

REM system was as large as it will be under

ARCS contracts if both prime and subcontractors are considered.

By January 1989, ARCS contracts had

been awarded for Regions 1,2,3 and 5 and

the zone comprising Regions 6, 7, and 8.

Contracts for Region 4 and the zone for

Regions 9 and 10 are still under negotiation

and signed ARCS contracts are expected this

year. Table 4 lists ARCS contracts awarded

as of January 1989, including the prime contractors, team subcontractors, and the dollar

value of the contracts. The 18 contracts

awarded so far have a total potential value of

$2.7 billion over 10 years (which is really a

relatively small amount for the next 10 years

of Superfund).

For the 18 new contracts, 13 firms were

selected as primes (three firms won two

each, and one firm won three). Of the 13

firms, 9 have had or have national Superfund

contracts (four have had REM contracts).

Of the 4 new firms in the system, 2 have

teamed up with other firms (called team

subs) that have had or have national Superfund contracts. OTA estimates that about 20

percent of the total money will go to firms

new to the Superfund system (counting both

primes and team subcontractors).

Will ARCS's Performance Incentives Work?

Competition on the basis of quality work

after contracts have been awarded is more

uncertain than competition before firms get

the work. Incentive to perform well has been

supposedly built into ARCS contracts

through the awarding of multiple contractors

by region and award fees. Thus, RPMs will

ultimately be able to pick and choose among

the available ARCS contractors, assuming

that at any time there is significant unused

contractor capacity. Judgments as to which

ARCS contractors are performing better

than others will take some time, and evaluations will be made prior to completion of

major pieces of work (such as RIFSs which

take at least a couple of years to complete or

complete cleanups which take several more

years). Meanwhile, EPA staff plans to evenly distribute work or to make judgments on

the basis of their past experiences with the

same contractors under the REM system or

through personal knowledge.

Under the REM system, a judgement that

a contractor was not performing well was difficult to substantiate bureaucratically. Although there are some very experienced and

capable RPMs, all too frequently a relatively inexperienced, often young, RPM has to

go up against experienced contractors. Even

some experienced RPMs have found challenging a REM contractor a difficult and intimidating task. Contractors believe that
17

Table 4.— Regional ARCS Contracts (signed as of January 1989)

Maximum Contract

Value Hours

Region Prime Contractors ($ (1,000s) Team Subcontractors

One* . . . . . . . . . . . . . . NUS 146 300 Badger, JHR

Arthur D. Little 69 145 Remediation Tech, Havens &

Emerson, Inc.

Two* . . . . . . . . . . . . . . Ebasco Services 223 560 IT Corp., Wehran Eng, Hitman-Ebasco

ICF Technology 63 145 Gibbs & Hill

Three . . . . . . . . . . . . . NUS 216 560 Gannett-Fleming

Four*

Five . . . . . . . . .

Six and Seven .

Ecology & Environment

CH2M Hill

TetraTech

Black & Veatch

. . . . . CH2M Hill

Black & Veatch

WW Engineering & Science

PRC

Ecology & Environment

Roy F. Weston

Donohue & Assoc.

. . . . . CH2M Hill

63

223

65

65

227

220

58

212

61

222

227

152

145

560

145

145

560

560

145

560

145

560

560

300

none

none

Wapora, GeoTrans

EarthTech

none

Warzyn Engineering

Limno Tech, Dr. J. Goodman, Alderink

& Assoc.

ICF, Versar

none

Dames & Moore, Engineers Intl., Life

Systems, Hubble Roth Clark, Reed

Quebe Allison Wilcox & Assoc.

Ebasco, STS Consultants, John Mathes

Assoc., Life System/lcair

none

Jacobs Engineering 150 300 McClellands, Terracon

Eight, Nine, and Ten*

Total Value, $ mil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,662

“Contracts still under negotiation.

SOURCE: OTA from information provided by EPA.

RPMs can and do give contractors critical

evaluations. The ARCS system will not

change the technical expertise level of

RPMs, but the criteria for contractor

managers is quite stringent and they are likely to be considerably older and more experienced than most RPMs. In fact, over

time ARCS contracts could decrease RPM

expertise relative to that of the contractors

because ARCS puts great emphasis on contractor site managers, giving ARCS contractors increased importance. Unless there is

substantial internal support for and reliance

on RPM judgement, making a poor performance rating on ARCS contractors may be

more difficult to accomplish--the stakes are

higher under ARCS than the REM system.

As a result, the project management concept

could undermine independent government

control of contract work unless there is increased emphasis on EPA staffing needs.

Underlying the whole notion that ARCS

will breed competition after firms win contracts and lead to higher quality work, according to EPA, is that 50 percent excess

aggregate capacity has been built into the

contracts. EPA says, ‘This excess capacity is

essential to the performance incentives in

ARCS since contractors are not assured of

receiving orders that will meet the full contract capacity.15 But will this calculation

over the 10-year life of ARCS contracts be

accurate? Or, like previous contracting

Smith, et al., “ARCS: A Performance Based Strategy,” ~

7 conference proceedings (Silver Spring, MD: Hazardous Materials

Control Research Institute, November 1988). Although the lead author works for EPA, the other two authors of this paper which describes

the design and operation of ARCS work for one of Superfund’s major program support contractors. Of 36 presentations at ~‘ by

IYA personnel, two-thirds were coauthored with contractors.
18

programs, will there be such a high demand

by EPA for contractor work that essentially

all ARCS contractors will receive the maximum and not the guaranteed minimum

amount of work--perhaps long before 10

years? It would be very useful for EPA’s IG

to monitor the initial flow of work assignments to ARCS contractors during the next

year or two to check this critical design feature of ARCS contracts.

Finally, the performance award fee system

used in ARCS has been used in other major

contracts and, based on our studies, has not

resulted in a consistent high level of quality

contractor work, although many observers

think that there have been definite improvements over time. A November 1986 survey

of six EPA regions found about one half of

the 32 respondents (mostly RPMs) saying

that the award fee approach was not effective. l6

●

●

●

●

Some specific comments were:

“There are few, if any, incentives built into

the REM contract that discourage the

production of mediocre to low-quality documents. The award-fee is not an effective

tool to correct problem areas in the RI/FS

process; this has the potential to cause (and

in several cases it actually has) project overruns.”

“Non-effective--the only meaning it has to

the contractors is if it is not average or

above. Dollar values are too small to be

meaningful.”

“Not effective enough. The contract encourages mediocrity and not excellence.”

“It is not [effective]. It’s just gravy to REM

contractors already making too much

money for low quality work. LOE (level of

effort) contracts favor using as many hours

as possible. No incentive to do good quality

work at a reasonable cost.”

Although, theoretically, better performance results in higher award fees, cost control objectives by contract managers may

limit award incentives for improved work.

Also, it should be noted that giving a contractor a low or a high performance rating, which

EPA staff say has the most impact on contractors, requires considerable work by EPA

staff. There is a built-in incentive to give

contractors average or above average

ratings. Also, there is considerable uncertainty from the contractor’s perspective on

how award fees will be decided, since so

much depends on individual judgments by

EPA staff.

Will the Project Management Approach

Assure Continuity?

Project continuity as a site moves through

remedial phases is an important goal and

recognition of a lack of it in the program is

commendable. But the ARCS solution may

not help much.

There has been considerable attention

under the REM system to delays caused by

handoffs; that is, contractor changes between project phases. And when a new contractor lacks confidence in a previous

contractor’s work, these delays multiply.

Since the ARCS contractors will be assigning the same discrete tasks among subcontractors, handoffs will still occur.

Another aspect of project continuity is

people. One contract firm may have a site

project management contract throughout a

number of phases of a site project. But this

does not guarantee that the same people will

be involved or will manage the site through

the period of the contract. First, as stated

above, different subcontractors will be handling different phases of work. Second, EPA

requires that senior key contractor personnel work on a contract for a minimum of 120

days. After this period many of these people

are likely to be moved to other, probably

newer, contracts to help win them. Third,

given the high mobility of the Superfund

workforce (driven by high demand) and the

 Environmental Protection Agency, “lU/l% Improvement Analysis,” contractor study by CDM, July 1987.
length of site projects, there is no reason to

believe that, even within ARCS contractors,

the managers and technical staffs will remain

in place throughout the full cycle of site

remediation--or even a significant fraction

of it. And, it is people, not solely organizations, that provide institutional memory or

continuity. 17 One major PRP has a policy of

moving a project to the new firm when a key

project manager moves there, something the

government cannot do. Moreover, high

turnover of EPA people means that project

continuity is also jeopardized from the inside.

And, lastly, the project management concept is at risk because of the high overall cost

of running a site project through the

remedial planning, design, and implementation phases. The award levels of the ARCS

contracts may not be large enough to cover

that overall cost. For instance, the smaller

contracts have maximum potential values

around $60 million over 10 years. Turning

over just three small sites could consume an

entire ARCS contract. This phenomena is

already causing one region to assign only

RIFSs to ARCS contractors and to await

knowledge of the cost of the cleanup before

determining whether the ARCS contractors

or the Corps of Engineers is assigned the actual remediation. In fact, it is our understanding that, in general, ARCS contractors

may only handle the actual cleanup if estimated costs are below $5 million, leaving

most cleanups contracted through the Corps

of Engineers. This is the same process used

under the old REM strategy. And, it illustrates the conflict between the project

management and competition goals of

ARCS. In order to award multiple contracts

per region, individual ARCS contract values

have been kept too low to accommodate the

true cost of taking a significant number of

sites through the entire process and to

provide 50 percent excess capacity.

Will Decentralizing Contracting to Regions

Improve Management?

On the face of it, giving regions greater

control over the contractors who do their

work seems efficient and appropriate. It assumes, however, that the expertise to select,

negotiate with, and manage contractors is

available in the regions. Regional staff will

not only have to be able to make technical

judgments of contractor performance but

also administer increased numbers of higher

value contracts. Not only will technical and

administrative expertise be required at the

regional level but decentralizing to regions

will also mean added regional costs.

Does significant management expertise to

manage the ARCS exist in EPA regions?

Regions have been responsible for managing

State cooperative agreements, and in a capping report on State cooperative agreements

in 1988, EPA’s IG concluded that EPA

regions have not been effective managers of

State contracts. States have been allowed to

fall behind on schedules and not reach goals

or objectives. States have been experiencing

“significant problems completing [RIFSs].”

And, monitoring of State pre-remedial work

has been inadequate. The IG found

“widespread noncompliance with procurement requirements” by States, which means

that States were not adhering to Federal

standards in awarding Superfund contracts.

17 Some contractors are saying that the turnover of key site project management people is really not that important. But site evaluations

and cleanups seem to fit a fundamental catego~ of effort--project based--which has always been recognized to require stable direction over

reasonably long periods. Like making motion pictures, constructing large buildings, or performing technology assessments, cleaning up toxic

waste sites will be more efficient if the same people are in charge from beginning to end.
Overall, the IG said, “Regions were not effectively performing their oversight responsibilities."18

Additional evidence of regional shortcomings comes from another IG report which

concluded:

Contracting methods . . . did not follow established Agency procurement policies and procedures. Also, EPA personnel allowed contractors

to start work prior (up to 8 months) to signing

delivery orders and did not subject the technology manufacturers to the normal competitive

bidding process.19

EPA Administrator Lee Thomas told

Congress in April 1987 that expanding competition in contracting services would require increased numbers of contract

managers. Referring to removal staff, he

said, “We will double the number of contract

managers we have on that staff to look at

those projects, oversee those projects, from

a financial management point of view this

,,20 -

year. Doubling contract managers for

new removal contracts and doubling contract managers for new remedial contracts

will double the cost of administering contracts. But, as noted earlier, as a result of

congressional action, there will be no real increase for EPA’s spending on the administration of Superfund.

U.S. Environmental Protection Agency, Office of Inspector General, “’Capping Report’ on EPA, Office of the Inspector General, Audits

of Superfund Cooperative Agreements for Fiscal Years 1985 through 1987,” March 29, 1988, p. 4.

19 U.S. Environmental Protection Agency, Office of Inspector General, “Review of Region 4’s Management of Significant Superfund

Removal Actions,” September 1988, p. 6.

m U.S. Congress, ~S. Hrg. 100-261, hearings before the Senate Subcommittee on Superfund and Environmental

~wersight of the Committee on Environment and Public Works, April 14, 1987, p. 150.
Second Key Issue:

Why Depend On Contracting To Such A Great Extent?

Originally, there was congressional concern that Superfund could become a large,

unwieldy public works program. Inexperience with uncontrolled hazardous waste

sites in 1980, as well as the desire to get a

quick start, also fed into the contracting

policy decision. Embedded in the statute

was also a heavy responsibility for government to identify responsible parties and seek

private cleanups and cost recovery for

government-funded cleanups.

In 1980, many people thought that cleaning up uncontrolled hazardous waste sites

was a short-term problem, to be solved relatively quickly with known engineering techniques. A short-term program had no need

for a huge internal government bureaucracy

that would gain a life of its own, and Congress wanted the money to be spent on cleaning up sites instead of building a

bureaucracy. Also, EPA--a regulatory agency--had no expertise in running a major

operational, engineering program. There

was, as well, a crisis atmosphere. Congress

and EPA assumed that contracting would

enable EPA to get the program started faster

than if the agency had to first develop internal structure and expertise. These congressional concerns and actions, aided by the

Reagan administration’s policy to accelerate

the privatization of the Federal Government, have led to the current large scale dependence on contractors in the Superfund

program.

it

Regarding its contracting policy and how

came about, EPA told OTA:

. . . The real deciding factor on how to effectively operate and manage the Superfund program

was made early in the program and is a result of

both Congressional intent and Agency management decisions. Congress envisioned the

program to be overseen and managed by the

Agency. Agency managers set up the current

structure as the most cost effective and efficient.

The restriction is an end result of the budget

development process and is included in the Superfund appropriation as an assurance to Congress that resources provided will be expended on

The Agency believes that management and

waste sites is a prudent and appropriate role. The

structure necessary to establish a major construction workforce in EPA for Superfund site work

would exceed the role intended by Congress for

the Agency and would unnecessarily duplicate

services readily available in the public sector [em21 phasis added].

The relative merits of contracting out versus the use of in-house government staff is an

old issue, the pros and cons of which will not

be extensively explored here.22 But, the

points usually debated--whether contracting

out is cost effective and efficient, results in

quality work, and is appropriate for the

government activity being contracted out--

are questions that Congress might ask of the

Superfund program. These are the same

questions Congress has been asking about

government defense programs. The key

issue is the extent of contracting and particularly its growth versus building an effecU.S. Environmental Protection Agency response to an letter, Sept. 29, 1987.

22 For a quick review of the issue, see Congress, Congressional Research service, “Contracting Out: Some Basic Policy Questions for

the DOD and Other Government Agencies,” Report No. 83-142 F, Sept. 19, 1983.

21
22

tive government workforce to ensure that

contractors provide high quality and costeffective services.

What was a reasonable policy decision

eight years ago may not make as much sense

today. First, the Superfund program and related cleanup programs are and will not be

short-term Federal programs whose

problems can be easily solved. Second, large

scale contracting under Superfund has not

necessarily been--nor has any attempt been

made to show that it is--cost effective and efficient, and it has not yet assured that funds

are “expended on site cleanup and related

activities,” as EPA states above. Third, contracting has not avoided the development of

dependent bureaucracies. Fourth, emphasis

on contract management does not lead to the

development of an infrastructure and technical capability that drives EPA up the learning curve. Fifth, the large pool of contracting

money creates a pulling force on personnel-

-out of the Federal (and State) system and

into the private sector. And, sixth, Superfund contracting contains a potential for conflict between public and private interests.

There has been little reconsideration of

the immediacy of environmental threats

from most Superfund sites. If there is, in

fact, not a crisis situation to deal with (only a

tiny fraction of Superfund’s resources are

spent on true emergency situations), then a

slower pace of spending on contracting could

be justified.

But, as we have shown, the trend is toward

increased funding for contracting; sometimes, not intentionally. For instance, the

imposition of mandated schedules for attaining certain levels of activities has also contributed to increased dependence on

contractors. The policy of mandated

schedules was a reaction to a slow program,

but Congress gave little consideration to who

would do the work and whether the requirements might worsen an already heavy

workload for a largely inexperienced contractor and EPA workforce.
Third Key Issue:

Is the Extent of Superfund’s Dependence on

Contracting Appropriate?

Do the functions of the Superfund

program fit traditional criteria for appropriate contracting out? Is the large scale

dependence on contractors an appropriate

way to manage a long-term, probably 50-

year, cleanup program which will span a

number of career lifetimes? Or, could the

government workforce itself conduct more

Superfund work? The latter is an important

policy option today.

Superfund Activities and

Contracting

Superfund program activities can be

broken down into six categories: policy

development, regulation development and

enforcement, program oversight and

management, information collection, site

analysis, and the physical work of cleanup.

All are contracted out in varying degrees,

even oversight and management which EPA

claims is the most appropriate role for the

agency. Contracting of project management

is due to increase under the ARCS system

and oversight of PRP (potentially responsible party) takeovers is routinely contracted

out (as was suggested by Congress in Section

104(a)(l) of CERCLA).

Federal rules for contracting are issued by

Office of Management and Budget (OMB).

OMB has exempted, as inappropriate for

contracting out, activities that are “inherently governmental” because they are:

. . . intimately related to the public interest . . .

These functions include those activities which require either the exercise of discretion in applying

Government authority or the usc of value judgement in making decisions for the Government.23

And GAO has said:

. . . a key consideration in evaluating any function [for contracting] is whether its performance

by an outside contractor interferes with an

agency’s control of policy, decision-making, or

managerial function which are basic to its mission. 24

Using the GAO’s criteria, each Superfund

activity can be evaluated separately. Testing

and information collection at sites and actual

physical cleanup work appear to be most appropriate activities for contracting out.

The areas of policy, regulation, management, and oversight have the attributes

GAO cited and seem the least appropriate

activities for contracting out. EPA officials

maintain that contractors do not make

policy, but if contractors provide virtually all

the information and analyses, have staff

Office of Management and Budget, Circular A-76 (revised), op. cit. Circular A-76 covers commercial/industrial scrviccs; Circular A-120

covers consulting services.

2A U.S. Congress, Senate Committee on Veterans’ Affaim.~d to ~ A-7& I {carings, 97th Congress,

1st Session, Nov. 5, 1981, p. 118.

23
24

more experienced than EPA, and write key

initial drafts, there is certainly a lot of opportunity for contractors to shape policies. Indeed, OTA has examined a number of

contractor studies which later became the

basis for program policies, including work

done to revise the IFS process and the pre- E remedial process.

Site analysis, as well as physical site

cleanup, is technical in nature. But site

analysis leads to critical policy decisions,

such as whether a site does in fact require

cleaning up or whether the Federal system

will pay for the cleanup. Thus, using GAO

criteria, not all steps in the initial site analysis

phase may be appropriate for contracting

out. Records of Decision (RODS) are

probably an example of an inappropriate

step. The ROD incorporates not only technical analysis but embodies policy decisions

and has a legal bearing on EPA’s ability to

recover costs under the enforcement

provisions of CERCLA.

Overall, few nonfield, report producing

Superfund activities appear eminently appropriate for contracting out. The most appropriate Superfund activities to contract

out--the physical examination, testing, and

remediation of sites--are the most expensive,

but so far most of the work has not been actual remediation. (This will change as the

program matures.) As of June 1988, 103

sites were at the remedial action stage

whereas 641 were still undergoing RIFSs.

Under current policy, with only 13 percent of

the budget in fiscal year 1989 to be spent internally, all of that critical analysis on over

600 sites will be done by contractors.

Needed: Independent Contractor

Work and Independent Government

Capability

When communities, PRPs, OTA, and

other groups have raised questions about

contractor work at specific sites, EPA has

often paid more money either to the original

contractor to reexamine the work or to

another contractor to repeat the work. Although there are some very experienced and

expert staff in EPA, for the most part there

is very little internal government capability,

both expertise and time, to independently

check contested contractor work.

Another issue is that the same contractors

who do the policy and program support work

also do the field engineering work. Does this

practice encourage fresh thinking and critical analysis of past work to develop more effective policies? The good side of this

practice is that the contractors bring to the

policy and program support area real world

experience. But the other side is that EPA

is not getting independent evaluations of the

work of the contractors who are implementing the program. Often EPA hires a contractor that is implementing a technical task for

the program to discuss how to improve that

task and to suggest policy changes. One of

EPA’s major contractors in the policy and

management area, who has played a key role

in the development of Superfund, has now

branched out; most of its major recent

growth has been from winning engineering

and project management ARCS contracts to

implement the programs it helped create.

Did it have a special competitive ad26 vantage?

msce OTA’S testimony, hearing before Subcommittee on Superfund and Environmental Oversight, Senate Committee on Environment

and Public Works, Dec. 10, 1987. TWO contractor reports were discussed: “lU/l% Improvement Analysis,” by CDM, July 1987, and “Workload

and Resource Requirements for Preliminary Assessments, Site Inspections, and Hazard Ranking System Evaluations Under SARA,” by

 and Environment, October 1987. OTA said, “[EpA] could usc management consultants or other e~fis who are not now

implementing its programs and who, therefore, may be able to offer more objective ways to improve efficiency.”

2eThe contractor states its position in one of its advertisements: “By building our engineering work on a solid foundation of regulato~

know-how, ICF is qualified like no other firm to provide you with the most comprehensive hazardous and mixed waste management services

in the nation. Unlike other firms, we understand not only the technical engineering and remediation aspects of hazardous waste management,

but also the framework of regulatory requirements, enforcement, and public involvement in which our clients must operate.”
25

It is not enough that government workers

retain final decisionmaking authority unless

those government workers have the time, experience, and technical expertise to understand and evaluate what contractors are

telling them, as well as create the key basic

ideas in the first place. That is, there is a difference between contractors complementing

or supplementing government staff and contractors replacing government staff. In box

B are brief examples, from several contract

statements of work, to illustrate current Superfund program support and policy-related

work performed by contractors. These seem

the kind of activities that people expect

government workers to do; some redundancy is also illustrated.

Superfund: Five Years? Twenty

Years? Or, More?

Today, few people consider the Superfund

program to be one with an early sunset.

Simple mathematics confirms that, using the

most conservative number of sites to be

cleaned up of 2,000 and an optimistic pace of

30 cleanups per year, the Superfund program

will be around for the next 60 years (until

2050). Moreover, the cleanup programs

outside of Superfund (e.g., EPA’s RCRA

corrective action program and those in the

Department of Defense and Department of

Energy) are growing rapidly and they compete for the same workforce.

Given the prospect of a long-term

program, the policy question becomes: What

kind of infrastructure should EPA be

developing to insure institutional movement

up a learning curve to bring the program into

cost-effective and efficient operation? It is

one thing for contractors to gather data on

site contamination and implement government cleanup decisions. However, in a number of site case studies, OTA has seen

evidence that contractors sometimes explicitly or in a de facto sense decide what

sites pose significant enough threats to warrant cleanup, what the cleanup goals should

be, what the community should be told, what

the most feasible remedies are, whether the

field work is of sufficiently high quality, and

when the cleanup has met its goals. For

these critical activities, a lot of judgment is

necessary because technical data cannot

simply be plugged into equations to get the

right answer.

Over the long term, OTA believes that the

Nation would be better served by an experienced, competent technical government

staff to design, closely supervise, and

evaluate the field technical services

provided by contractors. This is the critical

need, more so than a cadre of government

contract managers. But, contract managers

is what EPA is focusing attention on.
BOX B.--Examples of Tasks in Current Policy Support Contracts

Booz Allen and Hamilton, “support for Superfund

Implementation and Evaluation" (contract

68-01-7376, $21.7 million):

. Perform quarterly monitoring and evaluation

of system operations and procedures

● conduct reviews of and develop

recommendations on the regional

management of the ERCS and TAT contracts

● evaluate environmental results achieved by

the removal program

● conduct workforce and training need

surveys and assessments

● collect and analyze information, develop

reports and briefings on a variety of new

emerging waste management technologies

and innovations; recommendations shall be

required on how to best make such

information readily available to program

personnel as they plan and implement

cleanup objectives

● develop new policies and procedures to

provide sound financial management and

oversight toward the success of the

Superfund program

● define requirements for planning and

tracking of program strategic objectives,

milestones and accomplishments

● define information needs, identify data

sources and develop guidelines for source

data collection

● develop issue papers, management

briefings, user briefings and

Headquarters-regional communications

● determine if [office] technology transfer

activities are effective as developed by the

program and whether, given the level of

resources devoted to this effort, such a

program can fulfill the need

CH2M Hill, ‘Technical Support for Superfund Policy

Formulation” (COMK468-W8-009@ $12.7 million):

● perform investigation of and make

recommendations for assisting minority,

small business, other contractors, and

subcontractors in the Superfund program

ICF, “Policy/Analytic Support for Superfund

Implementation” (contract 6841 -7389,$11.3 million):

● analyze statutory provisions to determine

the need for new regulations, changes to

existing regulations (i.e., NCP), new policy,

and new guidance

● [for NCP] prepare regulatory impact

analyses and regulatory flexibility analyses

● analyze SITE program issues and results

and make policy recommendations

● develop methods for technology transfer

ICF, "Analytical, Technical and Management

Services for OSWER" (contract 68-01-7481,$$7

million):

● collect and analyze data and information,

develop reports and brief the technology

transfer committee on a variety of new

emerging technologies and innovations;

recommendations shall be required on how

to best make such information’ readily

available to program personnel, including

the Regions and States

● develop improved techniques for measuring

performance

● analyze design, develop and implement

selected training in critical content areas

● estimate the economic, social, and

environmental costs and benefits of actual

or proposed environmental regulations or

policies on industry and government

● locate qualified experts

● assist in evaluating the economic and

technical feasibility of various alternative

technologies

. provide technical support and

recommendations to EPA on management

of Superfund construction
Fourth Key Issue:

Does the Extent of Superfund’s Dependence On

Contracting Reduce Environmental Effectiveness?

Quality in the Superfund program is--or

should be--measured by the environmental

effectiveness of cleanup decisions and field

actions. Reliance on contractors to perform

the bulk of Superfund work exerts a number

of forces on the program that sometimes

jeopardizes the quality of that work. Among

those forces are:

● the lack of development of internal EPA expertise, which results in poor contract

management and oversight;

● more interest in controlling contractor costs

than concern about the environmental performance of contractors;

● a mobile workforce whose perspective on

quality, needs, and accountability can shift

as it moves from the government--a purchaser of services--to and among contractors--a seller of services; and

● conflicts of interest that arise because working for the government may affect future

work in the private sector.

Technical Problems

OTA has illustrated quality problems,

such as technical mistakes, use of inaccurate

data, and poor quality control in its June

1988 report Are We Cleaning Up?- 10 Superfund Case Studies. GAO also noted

problems with contractor performance in51

percent of the cases they examined.27 The

OTA finding that there were substantial

problems in the key RODS for sites (which

are based in large measure on contractor

studies and which are frequently drafted by

contractors) was also found in another

recent study, which said “... some RODS are

simply deficient, lacking clarity, pertinent

text, or substantive information. ,,28

Problems with RODS are also a reflection of

high workloads and inexperience of EPA

staff, particularly RPMs.

A recent survey of EPA’s SITE cleanup

technology demonstration program found

that:

Nearly one-third of the interviewed company

officials [28 technology developers] claimed that

the contractors hired by EPA to sample, test, and

analyze data were unsatisfactory. . . . Some industry representatives felt the contractors were

slow, inexperienced, and generated irrelevant

data. . . . One official commented that contractors

continue to analyze and re-analyze the same data,

making more money for themselves and taking

away dollars from both industry and EPA.29

Of the five technology companies that had

completed their demonstrations, four had

problems with EPA’s contractors that

prompted the study to note, “future

demonstrations may be hindered unless the

contracting system is improved in the future.” Out of seven impediments to program

performance and progress, contractors were

the third most important to industry people

in the program. But, “not one EPA official

cited problems with the contractors.” The

m U.S. Congress, General Accounting Office, 1 to~RCED-88-182,

(Gaithersburg, MD: General Accounting Office,July~

mC. F. Ilaies 111 and G. Marland, “Evaluation of Cleanup Levels for Remedial Action at CERCLA Sites Based on a Review of EPA

Records of Decision,” Oak Ridge National Lab., Janua~ 1989.

mJ. Calarese, et al., “An Evaluation of the EPA Site Demonstration Program,” Worcester Polytechnic Institute, Washington, DC Project

Center, December 1988.

27
28

technology developers also expressed some

views on contractors implementing

Superfund’s remedial program; one said

“contractors tend to overcharge the EPA because [in his view] they have the power to do

so.” Another said that “tax payers are wasting their money in supplying money for consultants who are inept and take too long.”

The Hazardous Waste Treatment Council

has said of Superfund:

For the first four or five years, it accomplished

absolutely nothing except creating a huge new industry of environmental consultants who put that

$1.5 billion into their pockets by studying sites,

taking literally years to figure out what the site is

like and what kind of remedies might be used. . . .

It is time to actually put remedies into place--to

do the clean-ups.30

A member of the Remedial Contractors

Council, a trade association formed in 1987,

in explaining the group’s purpose, said “We

wanted to clean up the industry. There are

dirt contractors out there who see good

money in remedial work but don’t perform

properly with the proper safety.31That gives

the whole industry a black eye."

An experienced PRP has written to OTA

about a case in which a contractor that had

only worked for EPA was hired to perform

the RIFS for a groups of PRPs:

The draft reports we received from the contractor were unacceptable by any engineering

standards. [The contractor] assured us that these

documents were identical to drafts acceptable to

the EPA at other sites.

OTA has examined a number of very

lengthy critiques of EPA studies by PRPs or

their contractors; these are as critical of the

poor technical work being done for the

government as was OTA’s June 1988 study

and a study by several environmental groups

32 For and a trade association.

work done on the Pristine Superfund site in

Ohio for responsible parties independently

confirmed problems in the FS study identified by OTA.

Critical studies and protests have not,

however, resulted in EPA publicly acknowledging poor contractor work. No information seems to be collected to discover the

extent of poor quality work (e.g., studies and

cleanups that have to be repeated), and there

is no evidence that any Superfund contractor

has suffered significantly because of poor

quality work. Again, rapidly rising demand

by government and private parties relative to

supply reduces the likelihood of firms being

significantly harmed by poor quality work.

This situation undermines the belief of some

people that an effective incentive for improving contractor quality is a loss of reputation and business because of poor quality

work. Conversely, a cut in Superfund spending on contractors, coupled with improved

and expanded EPA staffing, could correct

this market.

Examples of Contractor Issues

Following are several examples of contractor issues and problems in Superfund

which affect environmental performance of

the program.

The Hazard Ranking System

One firm--Mitre--has always held the contract covering the Hazard Ranking System

(HRS). Mitre developed the original HRS

early in the program, has always run the

quality assurance (QA) program for all HRS

scores that determines whether sites qualify

for remedial cleanups in the Federal Superfund program, and since its reauthorization

m David Case, cited in “ ~,Eagleton Institute of Politics, Rutgers, 1988.

Ccmtractom Unite in RCC,”~October 1988.

w Environmental Defense Fund, et al., “ “

. . ~

. . June 20, 1988.
(1985 through 1989). Yet last March the

EPA IG’s office commented on this central,

nationwide quality assurance program:

We recommended that the Headquarters

HRS scoring quality assurance process needed

to be improved, because of the inconsistent application of the HRS process noted in our audits.

The Agency’s response did not address the concern, but merely reemphasized its existing quality

assurance process, which in our opinion, has not

adequately ensured the consistency and accuracy

of the HRS scoring packages.

OTA received from EPA the database for

all HRS scores. OTA has examined the fundamental technical aspects of the HRS approach, and we are also interested in how it

is being implemented. When we examined

the data for 2,026 sites, we found some

surprising and serious errors. For example,

we found 12 sites with scores listed as less

than 28.50 that our arithmetic check showed

to actually be above this cutoff score, which

would put them on the National Priorities

List (NPL). When we asked EPA about this

we were told that many of the data we had

been given were for sites that had not comthe QA process and checking for

arithmetic errors is done last. This seems a

weakness in the QA process because sites

with scores less than 25.0 (for whatever

reason) do not move to the QA stage, a

precursor step to placement on the NPL.

Because of our inquiry, a computer search

for arithmetic errors was done for all the

sites in the database and many errors, including the ones we had found, were discovered

by EPA. In fact, the scores of 17 percent of

the sites, which had not previously been

checked for accuracy, were wrong. To

reiterate, the point is that many sites and

their scores may never reach this stage because their calculated scores are too low and

EPA regional offices drop them from further

consideration.

The 17 percent figure for errors shows that

the original quality control processes carried

out by contractors and regional staff appear

ineffective in eliminating simple arithmetic

errors. It is possible that hundreds of sites,

which have never entered the HRS database

and quality assurance system and which

may actually require cleanup, have been

dropped from the Superfund system because of undetected mistakes in scoring

them. This is aside from much more complicated technical problems in applying the

HRS. At present, there is not much of a

safety net in catching such false negative sites,

because only a few States have enough

resources to systematically check out sites

dropped from EPA’s system.

The Iron Mountain Mines Site

At the Iron Mountain Mines Superfund

site in California, the responsible party has

written EPA about actions by contractor personnel (under the direction of CH2M Hill,

the REM contractor) during cleanup which

are resulting in extensive migration of hazardous substances offsite. The problems are

said to result from the contractors “not understanding the heavy rainfall conditions at

this site” and from “EPA’s neglect and poor

supervision of its contractors at this site.” It

is also alleged that the contractors “are being

allowed to make unjustified profits at taxpayers and [responsible party’s] expense.”33

The Old Springfield Landfill

The June 1988 Feasibility Study (FS) for

the Old Springfield Landfill site in Vermont

was done by ICF Inc. for Ebasco Services

Inc., the prime REM III contractor. The estimated cost for the onsite, mobile incineration option covered several scenarios based

on achieving different risk levels by excavating different volumes of hazardous waste.

However, the contractor used the same unit

m Iron Mountain Mines, Inc., letter to U.S. Environmental Protection Agency, Region 9, Nov. 28, 1988.
cost of $600 per cubic yard for mobile incineration over the range of 5,300 to 142,000

cubic yards. First, the FS ignored the fundamental engineering principle of economy

of scale, which would have reduced unit cost

as the volume increased, something commonly done by Superfund contractors. It is

like estimating the cost of aircraft without

taking into account how many planes would

be manufactured and using the cost of

making a few planes when, in fact, hundreds

would be made.

Second, actual prices now being paid by

EPA for mobile incineration are much lower

than $600. For example, for the Prentiss

Creosote site in Mississippi, EPA contracted

for a cleanup of about 8,500 cubic yards at an

average cost of about $340 per cubic yard.

For 142,000 cubic yards the unit cost might

be as low as $150 per cubic yard. If it were,

then the cost of the cleanup alternative offering maximum environmental protection

would be $78 million instead of the $199 million figure obtained by the contractor.34

Moreover, in the same FS costs for the

other major treatment alternative, in situ

vitrification (ISV), were probably over estimated, although costs for this technology

are more uncertain than for incineration.

Two recent FSs (Pristine an d

Goodrich/Airco sites) used unit costs of $290

per cubic yard and $275 per cubic yard; a

recent technical paper cited $243 per cubic

yard.35 The Old Springfield FS used values

ranging from $447 to $526 per cubic yard but

not with a systematic dependence on volume

to be treated. If a value of $243 per cubic

yard is used, which seems reasonable for the

high volume scenario, then the estimated

cost of ISV is $72 million instead of the $128

million obtained by the contractor and used

by EPA. This situation also illustrates the

need for EPA to keep a central data file and

to disseminate it to the contractor community. For ISV there is, in fact, only one

company and one source of information on

the technology and its cost.

In this example, the costs of waste treatment technologies were systematically over

estimated relative to the chosen land disposal option which was estimated to cost $13

million.

36 The point here is not that a treat-

.

ment approach in the range of $72 million to

$78 million is necessarily the best way to go,

but to point out that better site study work

might have affected the cleanup decisions.

Where was the quality control in ICF, in

Ebasco, and in EPA? Even a cursory reading of the FS by an engineer could detect the

lack of using economy of scale costing for the

incineration option. Would the local community have found it useful to have seen

more accurate cost estimates of the treatment alternatives during the public comment period?

This site and many others (possibly

hundreds) illustrate a larger problem: was

such a complex and costly FS really necessary

at all? This site appears to fit a category of

large, closed, and older landfills containing

mostly nonhazardous waste for which the

capping cleanup approach is routinely

selected by EPA. If so, then why spend a lot

of money on contractors studying alternatives? In most of these cases hardly anyone

would find spending the very large amounts

of money for excavation and treatment warranted environmentally or cost effective.

~The point here is not the precision of the estimate of $78 million but that there is a ve~ large overestimate given by the $199 million

figure and that this latter figure is inconsistent with many data available to contractor and EPA personnel. EPA used $199 million in the

analysis that rejected incineration in favor of traditional consolidation, Iandfilling, and capping of the waste at $13 million.

N. August 1988.

3a Hazardous Waste Treatment Council, proceedings of ‘ ~conference, Washington, DC, October 1988. The I lazardous

Waste Treatment Council has said, “The cost of technology-based remedies is often cited, but HWTC has found that costs are often wildly

over-estimated in RI/FSs ... ”
31

But should capping be considered the permanent solution or an interim control approach? Should there be more explicit

commitment to testing for hot spots of contamination and finding lower cost treatment

technologies which detoxify the buried hazardous materials?

Supply and Demand

Capping the administrative expenses of

the Superfund program has prevented the

growth of a huge government bureaucracy.

In 1986 EPA had 2,156 technical employees

working full or part time on Superfund (in

government parlance, 1,116 full tim e

equivalents, or FTEs). The ratio of FTEs to

the program’s administrative budget has

remained fairly constant since 1982, while

the ratio of FTEs to the full budget has

declined. This has two effects on the

program: 1) there are fewer EPA staff to

manage more contract work, and 2) the

growth of a large internal bureaucracy has

been prevented.

The shortage of trained EPA personnel for

remedial cleanup has been the subject of

many congressional hearings and several

GAO studies. GAO reported in 1986, that

Superfund staff believed that about 600 new

employees were required to meet program

needs, estimating the program t be 36 percent understaffed at that time.37 The high

turnover of personnel, one of the causes of

understaffing, robs the program of an ability

to develop a sufficient, experienced core

technical staff. The lack of a stable core of

expertise prevents the program from attaining a high level of efficiency and from

routinely making sound, consistent environmental decisions.

One reason for the staff shortage is simple

economics, the laws of supply and demand.

There is evidence of a direct relationship between the initiation of Superfund contracts

and EPA turnover. EPA Region 2 has told

OTA that once new TES and ARCS contracts are signed they expect to lose 20 percent of their Superfund staff. Congress and

EPA, by creating an ever growing

marketplace for contractors, has also created

a demand for personnel outside the government. And, outside demand increases as the

Superfund contracting budget increases.

Lee Thomas, EPA Administrator, said that

the public would see continued growth of the

contract industry as a result of the passage of

SARA.38

The growth of contractor work and the

demand it creates drains EPA of its personnel just as they begin to develop some expertise. It turns EPA into a personnel training

ground for contractors and forces EPA to

compete with contractors in hiring replacement employees. Consequently, EPA has

had to hire staff right out of universities for

unusually responsible jobs, such as RPMs.

Even at that level EPA faces strong competition from the contracting industry. Consulting companies may pay about twice as much

as the government in recruiting engineers

out of school at the bachelors level. Some

RPMs have been hired without technical

academic backgrounds.

A study for the Appropriations Committee of the House of Representatives said,

“many of EPA’s project managers were

U.S. General Accounting Office,~GAO/RCED-88-l (Gaithersburg, MD:

U.S. General Accounting Office, October 1987).

3 8~, ” Jan. 30, 1987.
recent college graduates and were lacking in

any real project management experience.” 3 9

After an extensive U.S. tour, a West German analyst made some insightful remarks

about the Superfund program and staffing

problems:

1 met the youngest people in the agencies . . .

some of the technical and procedural problems

the agencies had and still have in implementing

the cleanup program are due to this staff-situation . . . Often it is their first environmental job . . .

after a couple of years they are well-trained and

capable of solving any other problem. You see a

lot of them turning over [to] private industry.40

As a training ground, EPA not only

provides a person with some technical

knowledge but, perhaps more importantly

for contractors, also internal working

knowledge of EPA procedures, the agency’s

strengths and weaknesses. That knowledge

can be invaluable to a contractor already

working for EPA or trying to secure work

with EPA or PRPs or to a PRP who is

negotiating with EPA over site cleanup.

Many senior EPA officials go directly into

senior management positions with contractor firms at higher salaries. Even at lower

professional levels there is evidence of high

rates of turnover of key EPA technical staff

to jobs with contractors at higher salaries.

GAO estimated that in 1986 Superfund

employees leaving the program received an

average salary increase of $7,200 annually.

The money gap may be wider now. One

EPA region has told OTA that in 1988 they

lost 27 percent of their On Scene Coordinators in the removal program; all left for

higher salaries, with one receiving a $20,000

pay increase and a company car. One contractor has told OTA that technical people,

such as experienced RPMs, could get as

much as $70,000 in this firm.

Preliminary analysis of data being collected by OTA (see figure 2) shows that

generally the majority of RPM positions--

perhaps the most critical technical positions

in Superfund with responsibility for multimillion dollar contracts at several sites--pay

about $30,000 to $40,000 annually (somewhat more with overtime). And some RPM

positions are staffed by relatively junior personnel at the $15,000 to $25,000 level. In

some EPA regions, the fraction of these

lower paid RPMs is substantial and sometimes results (e.g., Region 9) because of

general limits on funds and positions for

EPA staff, not a lack of desire to hire more

senior people.

Comprehensive data on turnover rates for

the whole Superfund program is sketchy.

Part of the problem is that EPA does not

keep employment statistics by job title but,

rather, by professional discipline. And, although some regions may have worse

problems in keeping staff than others, no one

denies that the Superfund program has a

problem in retaining staff. GAO stated that:

Several critical Superfund occupations had

quit rates two to six times higher [in fiscal year

1986] than the average for similar federal jobs . . .

Most EPA managers GAO interviewed expected

the private sector to lure even more employees

away from Superfund. GAO’s survey showed

that over one-third of Superfund employees

planned to look for other jobs in 1987.41

mSumeys and Investigations Staff, A Report to the Committee on Appropriations, U.S. House of Representatives, on the Status of The

Environmental Protection Agency’s Superfund Program, March 1988.

do Gunther Bachmann, “Soil Cleanup Policy in the USA,” July 1988, p. 31.

U.S. Congress, General Accounting Office ~op. cit., p. 4.
33

Figure 2

RPM Salary Distribution

1 1 1 I ! 1 1

Note: Salaries estimated at the mid-step of the corresponding

federal grade level. Lower level salaries may be over estimated because professional employees at those levels are generally

promoted to the next grade prior to reaching mid-step.

One of the first senior managers of Superfund, Ken Biglane, explained the movement

of enthusiastic professionals out of the

program to contractors: ‘They’re getting

paid good salaries for a whole lot less grief.”

And he described the impact of the loss of

people as “sapping the leadership in government in the environmental area."42

For the removal program, EPA’s IG found

in one of its audits that there was “excessive

turnover in Technical Assistance Team staff,

resulting in high travel costs, and TAT assistance being provided by personnel inexperienced at the site.”43

The problem is not just lower pay. The

GAO report said that better advancement

opportunities is the major reason that EPA

personnel leave the Superfund program.

Other reasons include “dissatisfaction with

regional management, salaries, and use of

employees’ technical skills and disillusionment with clean-up progress."

44 RPMs also

have high workloads, little support, and low

morale because their initial high expectations to help solve a serious environmental

problem cannot be met. The large scale dependence on contractors in the Superfund

program creates enormous opportunities for

government workers to get a lot more money

to use their technical skills because contractors face a supply problem for experienced

technical workers.

When addressing the movement of people

from EPA to Superfund contractors it is possible to come to an inaccurate view of the

complex national system. Although significant numbers of EPA staff are moving to

contractors and EPA does serve as a training

ground for contractors, most of the large increases in contractor staff are coming from

other sources. These include recent college

graduates and people who have worked in

other environmental or nonenvironmental

aJudy Fahys, “Ken Biglane,” J-j August 1988,

U.S. Environment Protection Agency, Office of Inspector General,~ for FtsMLUWZ September

1988.

Ibid., p. 4.
34

fields. The large majority of people entering

the rapidly growing contractor workforce do

not have the kind of cleanup experience that

can be obtained by some people at EPA, particularly RPMs. Moreover, growth of the

contractor industry has not been stopped by

the talent squeeze even though, as one

analyst of the contractor industry said, ‘The

greatest constraint to growth in the environmental consulting and engineering business

is the very limited availability of experienced

professionals.” 45

In assessing the possible impact of SARA

at a National Association of Manufacturers

meeting in 1986, one speaker claimed that

“there just aren’t enough experienced people

to do what EPA is being told to do” and that

with experienced people in short supply industry will be able to pay higher salaries than

government, keeping talented people out of

government service. 46

And, prospects for the future are not good.

GAO, in discussing EPA management challenges said recently:

EPA, like other agencies heavily involved in

research, can expect difficulties in competing for top scientific talent against private sector organizations [emphasis added].47

This supply-demand problem can be attacked on two fronts: 1) reduce demand by

contractors for experienced and inexperienced people, and 2) improve the supply by expanding national education and

training and by making working for EPA

more attractive, fulfilling, and rewarding.48

Infrastructure Development

In the Superfund program solid technical

expertise is developed by the people collecting the data for Remedial Investigations and

analyzing data for Feasibility Studies and by

those actually cleaning up sites. These jobs

are done by contracting staff, not EPA personnel. Because of the pull of the contractors, instead of this expertise flowing into

EPA, what expertise that does exist internally flows out. This leaves EPA personnel

evaluating contractors who have at least

some people with a better foundation in the

basics and more experience.

The dependence on outside contractors

also isolates the workforce and makes transfer of knowledge more difficult. This means

that detailed understanding of successes and

failures are slow to reach the decentralized

workforce (see box A). The logistics of

transferring knowledge among EPA staff in

10 regional offices is difficult enough but the

difficult is compounded by a need to transfer

knowledge among a multitude of contractor

staff. (Knowledge transfer is also aggravated

by EPA’s insistence that every site is different; the implication is that knowledge

transfer is not critical. As each site starts

through the system, the wheel gets reinvented.)49

In essence, the Superfund program

develops contract managers rather than

technical project managers. This is evident

in how Superfund employees view training

and courses. GAO surveyed EPA SuperSchweich, a financial analyst, quoted in “Searching for the best and brightest,” w Oct. 20, 1988.

4a “Producers wmy of new Superfund provisions,” ~

,. November 3,1986, p. 26.

U.S. Congress, General Accounting Office,~

● 1”

_ed~GAO/RCED-88-101 (Gaithersburg, MD: General Accounting Office, 1988), p. 234.

4aA temporaq decrease in contractor spending is not, necessarily, seen as unacceptable by Superfund contractors. For example, Gary A.

Dunbar of CDM said, “if proper management by government and prudence of program pace mean less money for contractors then that is

what should be done,” [Letter to OTA, Jan, 18, 1989.]

For example, significant portions of RIFSS are reproductions of data, procedures, statuto~ and regulato~ requirements, and comments

on generic cleanup technologies which appear, with minor variations, again and again. Also, see OTA’S &e We ~

7
35

fund personnel and asked what kind of training they needed. The three areas most often

mentioned were cleanup design and action

cost recovery, and legal case development. 50 

Only the first has to do with the physical,

technical, and environmental needs of the

program. Cost recovery and legal case

development deal ultimately with keeping

the costs to the Fund down. It’s a worthy goal

but it simply shifts costs elsewhere. Longterm development of technical expertise in

EPA can ultimately drive the overall national costs down.

One way suggested to overhaul Superfund

is:

The civil service positions would be restructured so they attract--and retain--more career

employees. A good first step would be to bring

EPA salaries into line with those of the private

sector--a move that the General Accounting Office says is permissible when discrepancies are

large. Over the long run, this step would cost less

than continuing to rely on a large number of highpriced contractors. It would also improve the

quality of work.51

Conflict of Interest

Contracting by the Superfund program

creates several areas of potential conflict of

interest that can compromise environmental

goals. They arise because there is one national pool of engineering and consulting

firms that contracts its services to all

branches of the Federal government, to

State governments, and PRPs. Sometimes

they work as prime contractors, other times

as subcontractors who are subject to less

scrutiny.

There is now no legal requirement for

EPA to tell those using its products and services whether a contractor has been the sole

source of the work or a major contributor to

it. This means that there is often no sign that

a particular contractor--or any contractor at

all--has participated in an effort; thus often

52

one cannot tell if there is any potential conflict of interest. Greater public accountability and even motivation for higher quality

work might result from more routine acknowledgement of contractor identity and

contribution to Superfund activities.

EPA in advising States on Superfund contract requirements recognizes one category

of contractor conflict of interest, but not as a

given. The agency says:

who are PRPs at a site may have conflicts of interest which would prevent them from serving the

best interest of the State and/or the Federal

government as a remedial action contractor [emphasis added].53

The ultimate goal of EPA and State

government programs, PRPs, and contractors is the same: to clean up sites effectively

and at the lowest possible cost. But, they

have different perspectives on what that

means and how much it should cost. Local

communities and PRPs are often at odds

with one another over cleaning up sites.

m U.S. Congress, U.S. General Accounting Office, ~ Needed m W~op. cit.

51 J. L. Edelson, “Superfund - Still in the Dumps,” ~, December 1988.

For example, EPA’s draft “Guidance on Remedial Actions for Contaminated Ground Water at Superfund Sites,” potentially a very

important document, has a contract number but no statement that it was prepared by a contractor. On a long list of people who assisted in

preparing the document, all are from EPA except two from CH2M IIill and, in fact, the contractor was CI{2M Hill, a long-time Superfund

contractor under REM and now a major ARCS contractor. Moreover, this kind of activity would appear to offer a competitive advantage for

a remedial contractor active in both the public and private cleanup markets. The document says that it is aimed at assisting, among others,

contractors. Also, the important draft “C~uidance for Conducting Rcmedial Investigations and Feasibility Studies L’nder CERCLA,* only has

a contract numbeq CI 12,M Ilill was the contractor.

N U.S. Environmental Protection Agency, “Interim Guidance on State Participation in Pre-Remedial and Remedial Response.”

memorandum, July 21, 1987, p. 21.
36

. .

PRPs and their contractors are naturally

concerned about costs and profits and are

more likely to emphasize reduced cost,

tolerate more risk, and view certain cleanup

technologies and approaches as more permanent than do the local communities.

A recent analysis of cleanup decisions concluded, “When the PRP is willing to play an

 

active role, the EPA is willing to negotiate

and accommodate."54 Moreover, the study

also concluded, “Ultimately cost is the

primary factor in setting cleanup standards.”

How well government officials can sort

through the interests of the PRPs and communities depends, in large measure, on

whether the government workers can independently assess the technical merits and environmental performance of PRP positions

and the contractor studies which support

them (see box A). Under present conditions, the drive for more settlements with

PRPs and their control of site studies and

cleanups does not assure protection of

health and the environment. A much improved and expanded EPA staff is required.

EPA does forbid a prime contractor to

work simultaneously and within three years

on the same site for both EPA and the PRPs.

This is an admission of conflict between the

interests of EPA and PRPs, but this attempt

to avoid conflicts has problems. First, enforcement relies on self reporting. While a

good many contractors may, not all will

necessarily do so. Second, a contractor

working for EPA becomes privy to inside information--not generally available--simply

in order to complete its assigned tasks for

EPA. That kind of information has value not

only regarding that particular site but can be

of benefit to the PRP, or another PRP, at

another site for which the contractor may be

concurrently working or subsequently work.

The information can also benefit the

negotiating position of a PRP v. EPA at any

other site in the Superfund program. Because the private cleanup market is also

enormous, this factor is important in helping

contractors with that side of their business.

Moreover, the three-year limit is low. It is

not uncommon for sites to take 10 years to

move through the remedial part of the Superfund program. It can take over three

years just to complete an RIFS and ROD, the

first phase. Thus, three years is not long

enough to assure that a contractor responsible for the RIFS for EPA does not end up

subsequently handling the design or implementation for the same site for the PRPs.

Scrutiny by EPA could solve this potential

problem.

Another, and perhaps growing, source of

potential conflict is the tendency of vertical

integration by contracting firms and PRPs.

Conflict of interest may occur when contracting firms and PRPs develop financial interests in cleanup technology that may

reduce the scope of remedial technologies

examined and impair the ultimate decision.

A number of contractors and PRPs own

firms that develop or operate cleanup technology. For instance, Roy F. Weston, Inc., a

major Superfund contractor owns a mobile

incinerator and has also patented technology

for low temperature thermal stripping of

volatile organic chemicals from soils. Westinghouse plans to use its still unavailable incineration technology to cleanup some of its

Superfund sites in Indiana.

Will contractors and PRPs be biased

toward using technology in which they have

financial interest? This bias would not

necessarily create a problem except that the

contractors and, increasingly, PRPs control

the analysis phase (RIFSs) that often results

in the selection of a specific technology. In

the case of the Indiana sites, this became a

highly charged issue and continues to be a

w C. F. Baies 111 and G. Marland, op. cit.
3 7

factor in the delayed cleanup implementation. The potential for bias and the control

of the technology selection could be

mitigated by strong EPA oversight and

management of the process, particularly

after a cleanup is selected in a ROD and

legally embodied in a court’s consent decree

But, that does not occur for the most part.55

As an example, at the Brown Wood

Preserving Superfund site in Florida, the

PRPs’ contractor for the FS recommended a

remedy adopted by EPA in April 1988. Over

95 percent of the site’s contaminants were

sent to a commercial landfill in Emelle,

Alabama, and the remainder kept onsite for

biological land treatment, a service provided

by the FS contractor. The cost of this remedy

($2.7 million) is one half the estimated cost

of using available mobile incineration. The

shipment to the landfill was meant to

precede EPA’s own land disposal bans; incineration was acknowledged to be faster

and more effective in satisfying statutory

mandates. Thus, EPA accepted a cleanup

proposed by a PRP (for a less than optimum

remedy) in which both the PRPs and the FS

contractor benefit financially. The PRPs

saved $2.7 million and the study contractor

got a cleanup job worth about $500,000.

=,See OTA’s report &g We~,9 June 1988.
Fifth Key Issue:

Is Superfund’s Heavy Dependence On Contracting

Cost Effective?

In 1987, EPA Administrator-designate

William K Reilly (then president of the

Conservation Foundation) said:

. . . the Superfund program may well result in

many billions of dollars being spent with little net

reduction in risk to public health and the environment?’

Most of the billions are being spent for

contractors, and there is growing awareness

that the Superfund program’s policy of heavy

dependence on contractors has negative impact. The conference committee for EPA’s

fiscal year 1989 appropriations said, “The

programs’s heavy reliance on contractors

creates a

5 7

substantial risk of resources being

wasted.” As that statement implies, the

real question is not whether money is being

saved but whether contracting on such a

scale, with the existing degree of EPA

management, is a cost-effective way of

protecting human health and the environment.

A GAO report on Superfund concluded:

EPA has not sufficiently monitored, controlled, and challenged contractor expenditures and

professional hour usage for remedial studies. By

not consistently and fully challenging questionable contractor costs, EPA could be conveying a message to contractors that it is willing to

accept all costs regardless of the level of performance provided, thereby lessening the

contractors’ incentives to control costs. As a

result, EPA may be paying more than needed for

remedial studies.58

EPA’s IG, in auditing fiscal 1987 Superfund contract costs, found that about 30 percent of contractor costs were questionable

because they might be unallowable under

provisions of applicable laws, regulations, or

policies or were unacceptable without additional information or evaluations and approvals by responsible EPA officials.59 The

IG also noted, “We have repeatedly found

that the Agency’s management of Superfund

needed improvement.” Moreover, the IG

has said that it does not have enough resources to carry out the level of auditing and investigation it deems necessary for

Super fund.

A recent study on reducing cleanup costs

through value engineering cited three examples where original contractor RIFSs performed on Superfund sites did not

adequately address certain aspects of the

selected remedies. When subsequent

reviews and studies were performed at a cost

of about $500,000, cleanup cost savings of

about $5 million resulted.60

56 William K- Reilly, “State of the Environment: A View Toward the 90s,” September 1987.

57 U.S. Congress, Conference Report 100-817, ~

. . Aug. 3, 1988, p. 19.

5aU.S. Congress, General Accounting Office, . EPA N@s to Q@mI~CosLL RCED-88-182

(Gaithersburg, MD: General Accounting Office, .luly~

w U.S. Environmental Protection Agency, Office of Inspector General,~ to the ~ for N 1987,

September 1988,

6oP, F. O’Hara, et al., “@at Effective Remediation Through Value Engineering,”~

9

conference proceedings (Silver Spring,

MD: Hazardous Materials Control Research Institute, November 1988).

39
40

A study for the House of Representatives’

Appropriations Committee said:

The Region IX official also stated that EPA

gives its contractors pre-negotiated, open-ended

contracts with the result that the contractors,

with EPA approval, spend too much to study issues . . . contractors could cut months off study

schedules if they did not spend so much time on

‘simple things’ and did not study everything ‘to

death.’61

Cost Effectiveness of Contracting

In theory the competition of the

marketplace means that the low-cost

operator ultimately wins. Whether the same

result occurs when the public sector contracts with the private sector instead of doing

the work itself is not clear. One reason for

the uncertainty is that cost comparability is

difficult given the different accounting

methods of the two sectors.

However, according to the General Accounting Office:

. . . in those instances where contractor costs

are lower, this is generally because the contractor employs fewer persons and pays them less.62

But this does not appear to be the case for

Superfund contracting.

The OMB rules for contracting out services require that costs of doing so be compared with the costs of providing the service

inhouse. Under the Superfund program no

comparative studies have been done. The

assumption has been made that contracting

saves money and provides for quality work.

That assumption overlooks a number of

factors present within and around the Superfund program. For instance, when the Superfund program began there was a sudden

high demand for--and low supply of--technical expertise. Congressional and EPA

beliefs that a major contractor workforce

was available for the rapidly expanding Superfund program were incorrect. An EPA

official, explaining why removal contracts

had not proved to be cost effective, stated in

1987:

The contractors we have used have struggled

very hard to do new tasks. They had a lot of unknowns. They took a lot of corporate risks. This

was not a well-defined piece of work.63

As has been discovered over time, Superfund cleanups often require special expertise

that was not and still is not readily available

in the private sector. For instance, large

numbers of experienced civil engineers,

geologists, and hydrogeologists have no expertise or experience with toxic chemicals.

EPA has found it necessary to provide training sessions for contractor staff (e.g., on

cleanup technologies). To a large extent, the

billions of dollars rapidly spent on Superfund

have provided an opportunity for many contractors to start new businesses and to learn

the new business of toxic waste cleanup. To

some extent this was inevitable and has

precedents in other fields. But the point

here is that the rapid increase in spending on

contractors was based on incorrect assumptions and that the efficiency of the program

has suffered as a result.

With the reauthorization of the program

in 1986 for annual budgets that equal the

total authorized for the first five years and a

congressional mandate to increase the pace

of the program, another surge in demand was

created. In fact, the problem is likely to get

worse, if spending on cleanups--directly by

61 surveys and Investigations Staff, op. cit.

@U.S. Congress, Congressional Research Service, “Contracting Out”, op. cit., p. viii.

U.S. ~ngress,~, S. Hrg. 100-261, op. cit., p. 156.
41

government and by private parties--keeps

escalating. The lagging supply of expertise

means that the program continues to operate

with minimal price/cost competition.

During the reauthorization process, the

administration claimed that it could not

spend as much money as Congress was willing to provide. One experienced lawyer, said

at the time, “EPA will have more money than Now, several

it can spend effectively."64 

 64lear that the years into the reauthorized

money will last five years. Indeed, many contractors spend all of their authorized hours

or funds long before anticipated. Either

poor estimates were made by EPA and contractors, or more hours are being spent carrying out a task because of problems in

program management or contractor performance, or sites are more complex than

originally thought. All of these factors seem

to be relevant. Eventually, especially given

the long-term nature of the program, the

market will adjust, supply--particularly of experienced workers--will increase to meet the

demand and unit costs may decrease. But,

the government might get more control on

costs sooner if the government itself does

more of the work, if it could practice more

stringent supervision of contractors, and if

contractor spending is temporarily reduced.

Several other aspects of the Superfund

program and contracting mentioned earlier

also bear on the question of cost effectiveness. Statutory and public pressures to show

high-paced performance, coupled with high

EPA staff turnover and inexperienced EPA

staff, reduce EPA’s ability to exercise effective cost controls. The system of having EPA

staff manage prime contractors who manage

subcontractors creates several levels of overhead that are all ultimately paid for by the

public, either directly through the trust fund

or indirectly through PRPs. Whenever lack

of proper management results in poor work

that has to be repeated, the cost of doing that

work doubles or more than doubles. Because of the fragmented nature of the

workforce, many contractors doing the same

kind of work needlessly develop the same

databases and management systems. EPA

has not made very wide use of generally useful data and software that the government

has paid for in specific contracts.

Government v. Private Sector Costs

OTA has not attempted to examine in

detail the commonly held belief that private

sector cleanup efforts are less costly than

those contracted out by EPA. But this is a

common assertion by many PRPs and one

PRP has told OTA in writing, “I agree that

EPA spends up to five times more than a

private party for the same cleanup.” It is also

widely said that contractors have a higher

profit margin when working for the private

sector than for the government (although

there is no dearth of contractors bidding for

government work). In fact, some contractors have told OTA that their desire to do

quality work requires higher prices but that

the government will not pay the higher

prices. Therefore, some firms specialize in

private sector work.

Both apparently contradictory beliefs may

be correct. While the unit contractor costs

are probably higher for private sector work,

the job is probably done with less work in the

private sector. In other words, lower profit

margins in the public sector are probably

w “Producers wa~ of new Superfund provisions.” ~NOV. 3, 1986, p. 26.
42

offset by higher volumes of work. Many contractors have experienced very high growth

rates and increased profits over the past

several years because of government Superfund business.65 This happened at a time

when other engineering and construction

markets shrunk. The profit margins of Superfund contractors are comparable to

similar kinds of firms; for instance, construction project management firms typically

have margins equal to or less than firms holding ARCS contracts.

Redundant contractor work, poorly

defined work by the government, greater use

of less experienced people, poorly supervised work that leads to late recognition of

problems, greater concerns about being

criticized which lead to unnecessary, defensive work, and changing agency policies and

personnel all probably contribute to high

government cleanup costs. From looking at

actual costs and speaking to contractors and

PRPs, we find it plausible that the government may spend from 100 to 500 percent

more than a private client would spend to

accomplish essentially the same site study

or cleanup.

Procurement

It is not only the contracting system that

generates inefficiencies but how contacts are

obtained can increase costs to the government. One problem is that the bid or

negotiated cost of a contract may not accurately describe the ultimate cost of providing services. Buying in is a contracting

phenomenon that Congress has criticized

the Pentagon for accepting. In buying in a

contractor bids or negotiates low and later

rationalizes a need to increase funding in

order to complete the tasks required. It

takes an internal EPA staff with considerable expertise to know when a contractor has bought in. When this happens in

Superfund, EPA has to confront the problem

of sunk costs. EPA has to decide whether

the tasks can best be completed at the higher

cost suggested by a contractor or by terminating the contract and switching to a new

contractor, who has to spend time reviewing

the accomplishments to date (and possibly

redoing some work) before completing the

tasks. Or, EPA must decide not to reimburse certain contractor costs, such as for

repeating faulty work. It appears that, often,

EPA pays more money.

Another practice is to bid without having

the people on staff to complete the project.

After the contract is signed the contractor

spends time and effort to acquire technical

staff. Or, the people committed to originally, who are usually outstanding, are switched

to another project. Substituting less experienced people can result in lower productivities and higher costs.

Another procurement problem which undermines competitiveness is wiring a contract; that is, when a firm is somehow assured

of winning a contract. A lack of competitive bids for a contract can indicate

widespread awareness by contractor firms

that this is happening. The result is an unnecessarily high contract cost.

All these problems seem to have occurred

in the Superfund program and all of them are

not solely the responsibility of contractors,

because the government should prevent such

problems from occurring. These problems

merit IG examination.

From a procurement perspective, the data

in table 3 on recently awarded TES contracts

6sSee, for example, the brochure announcing the “Hazardous Waste Business 89” conference in March 1989 which opens with “Win your

share of the billion in profits ahead.” The brochure goes on to give examples of success stones: companies whose revenues and profits have

increased dramatically in recent years. Of the 24 sessions at the conference presented by the industxy’s Ieadem, not one deals with managing

and assuring environmental performance or quality of company products or semices. Three sessions focus on personnel issues, such as

recruitment, training, retention, motivation, and preventing employees from becoming arch rivals.
.

43

might merit examination. The spread in

contract amounts for what is supposed to be

the same amount and type of work looks

high. The difference between the highest

and lowest amounts awarded is $29 million

(i.e., $136 million versus $107 million). Although there might be regional differences

in cost structures, the differences between

the two winning contracts in each EPA

region seems unusually high.66 Five out of

the six contracts were less than $131 million,

the amount targeted by EPA, and apparently based on the experience with the previous

TES contracts.

For three of four policy support Superfund

contracts (see box B), hourly costs are in the

$40 to $50 range which is consistent with the

hourly costs in the six TES contracts. Both

activities involve technical analysis to

produce reports, rather than operational

tasks or field activities as in REM and ARCS

contracts. But the fourth policy contract

(with CH2M Hill) has an hourly cost of $73,

which seems high.

Administrative Complexity

With its bureaucratic procedures, contracting adds inflexibility to the system and

inflexibility adds to cost and time. Compare

the following with the alternative of assigning a task to internal staff. To initiate a contractor assignment, the EPA RPM Primer

advises:

After completing the Work Assignment Package, you forward it to the RPO [Regional Project

Officer] for approval. The RPO transmits the

completed package to the Contracting Officer,

with a copy for the Project Officer. The Contracting Officer then issues a work assignment to

the contractor, who must prepare a Work Plan

Memorandum for your approval within 10

days.67

And, what happens when anew piece of information on a site causes adjustment to the

contractor’s scope of work? How is that different from redirecting the work schedule of

internal staff? The statement of work has to

be amended, officially, in writing. For instance, in a hypothetical case where a site

visit has turned up a previously unknown

potential threat, the EPA’s RPM Primer

says:

In addition to drafting the Work Plan [for the

RIFS], the contractor will also be working on the

EE/CA [Engineering Evaluation and Cost Assessment] for the ERA [Expedited Response Action] and a CRP update. You amend the interim

scope of work activities to include preparation of

the EE/CA. This is done via approval of an interim amendment on the Work Assignment

Form. 68

Dependent Bureaucracies

Instead of an internal bureaucracy, an encircling one with close ties to EPA’s Superfund program has grown up within the

private sector. This constituency exerts the

same kinds of pressures that an internal

bureaucracy would (such as desire for permanence and expansion) while being less

subject to government control and public

scrutiny.

Superfund conventions, conferences, and

trade shows represent an expanding business

too. Annually, the largest occurs in

Washington, DC. EPA is the chief affiliate

sponsor; EPA’s contractors and staff

dominate the technical meetings. Contractors receive funds to attend such meetings.

aa For example, compare with the five largest ARCS contracts in Region 5, as shown in Table 4. The ARCS are much more complicated

contracts than TE.S. But the spread for the ARCS is $15 million on a base about twice as large as TES, while the spread in Region 1 for ~

is $12 million.

U.S. Environmental Protection Agency, “The RPM Primer,” OSWER Directive 355.1-02, September 1987, p. 10.

6a Ibid, p. 20.
44

There is virtually no representation or atten- self-appraisal and effective information

dance by people from environmental, public transfer. Interfering with information transinterest, or community organizations, and at- fer is the fact that the conference also serves

tendance by technical people from PRPs is as a job clearinghouse that exacerbates the

minimal. The atmosphere and program con- government brain drain and the mobility of

tent is self-congratulatory rather than critical people among contractors.