In 1980, the Comprehensive Environmental Response, Compensation, and Liability Act created the Superfund program to clean up highly contaminated hazardous waste sites. Under the act, EPA is authorized to compel the parties responsible for the contamination to perform the cleanup. EPA may also pay for the cleanup and attempt to recover the cleanup costs from responsible parties. When EPA pays for the cleanup, the work is conducted by a private contractor who is either directly hired by EPA, another federal entity, or a state. Superfund contractors study and design cleanups, as well as manage and implement physical cleanup actions. Physical cleanup actions include both remedial and removal actions. Remedial actions are long-term comprehensive cleanups at the nation's worst hazardous waste sites (known as National Priorities List sites). Removal actions tend to be shorter-term measures that usually occur at sites not on the National Priorities List, such as a cleanup when a truck spills hazardous wastes onto a highway. During fiscal years 1996-97, about 65 percent of the funds spent on physical cleanup actions went for remedial actions and the remainder went for removal actions. When EPA administers a remedial action, it typically uses an architect and engineering firm as the prime contractor to provide the professional services needed to direct the cleanup. However, this firm typically does not physically implement the cleanup, such as moving soil or treating groundwater. Instead, the architect and engineering firm hires subcontractors (referred to as "pool subcontractors") to perform the physical cleanup work. In contrast, when the Corps undertakes a remedial action, the prime contractor may perform some of the physical cleanup. Once the construction work on a remedial action is completed, the site often requires subsequent operations and maintenance (O&M) activities. When the remedial action has been paid for out of Superfund money, EPA's regulations require that the states assume responsibility for O&M activities.As such, this analysis does not focus on the costs for operating and maintaining Superfund sites. In September 1997, we reported that both the amount and share of Superfund money paid to the contractors who perform the cleanup work increased from fiscal year 1987 through fiscal 1996. However, in updating this information, we found that both the amount and share of spending for contractor cleanup work declined from about 49 percent in fiscal year 1996 ($695 million) to about 46 percent in fiscal 1997 ($664 million). Between fiscal years 1996 and 1997, EPA's Superfund costs for administration and support activities increased by 3 percent of total Superfund spending--from about 21 percent ($299 million) in fiscal 1996 to about 24 percent ($355 million) in fiscal 1997. The relative share of spending for other Superfund cost categories remained about the same between fiscal years 1996 and 1997. Figure 1 provides a comparison of the amount and share of Superfund spending for various cost categories in the 2 fiscal years. The cost categories used in figure 1 were derived from the codes that EPA's Office of the Comptroller uses to account for the expenditure of Superfund money. Costs shown in the "cleanup actions" category consist of contractor spending to perform remedial and removal actions. In fiscal year 1996, this spending included about $419 million for remedial actions and $196 million for removal actions. In fiscal year 1997, this spending included about $360 million for remedial actions and $228 million for removal actions. The costs shown in the "study and design" category consist of contractor spending to study and design remedial actions. Spending for other program activities covers (1) "directly related" costs, for activities such as EPA's salaries and travel for overseeing cleanups and the costs associated with screening sites for inclusion on the National Priorities List; (2) "enforcement" costs related to EPA oversight of responsible parties' cleanups and costs for negotiating and settling with responsible parties; (3) research and development, and laboratory analysis (RD/Lab), including the costs of EPA's scientists, innovative technology programs, and the evaluation of hazardous waste samples; and (4) administration and support, including indirect program costs, such as those for rent, utilities, and accounting systems. EPA stated that the increase in spending for administration and support between fiscal years 1996 and 1997 can be attributed to normal spending fluctuations for items such as rental payments and other infrastructure needs, and to possible accounting changes. Our review of Superfund spending over the last 11 years indicates that spending for administration and support fluctuated between 18 percent and 25 percent during fiscal years 1987-91. However, after declining for 3 fiscal years to about 20 percent in fiscal 1994, this spending has continued to increase during the 3 most recent fiscal years, reaching over 24 percent in fiscal 1997. Several different entities manage contractor spending for Superfund remedial action projects. As figure 2 shows, the Corps managed the largest portion of this spending during fiscal years 1996-97 (about 65 percent of the spending during the 2-year period). One reason for this is that the Corps manages the more expensive projects. EPA's policy is that remedial action projects estimated to have a total cost of $15 million or more should generally be handled by the Corps (because of its long experience in managing construction contractors). Accordingly, most of the contractor spending managed by the Corps is attributable to several large-dollar projects. State governments collectively managed about 17 percent of contractor spending during fiscal years 1996-97. EPA managed about 13 percent of contractor spending during the 2 fiscal years. The Department of the Interior managed a small portion of contractor spending (about 5 percent), primarily for mining cleanups. Nationwide, about 71 percent of contractor spending for remedial actions managed by EPA during fiscal years 1996-97 went to the physical implementation of the cleanups. The remaining 29 percent was for prime contractor expenses related to managing and overseeing the cleanups. For the two remedial action projects where information was available from the Corps, about 69 percent of contractor spending during fiscal years 1996-97 went to the physical implementation of the cleanups. We could not determine if these results are typical of the Corps' projects, however, because these two projects accounted for only 16 percent of the Corps' spending for contractors during fiscal years 1996-97. The information needed to divide contractor spending for remedial actions between physical implementation of the cleanups and other expenses was generally unavailable for the contracts administered by the Corps. (See footnote 2.) For the remedial action projects performed by EPA's contractors, we found that, nationwide, about 71 percent of contractor spending during 1996-97 went to the subcontractors who physically perform the cleanup work. However, we found a wide range in the percentage of contractor spending that went to the physical implementation of the cleanups among EPA's 10 regions--from a low of 6 percent in region 1 to a high of 80 percent in region 6. We discussed these differences with EPA's regional project officials to identify the reasons for the wide range in the share of spending for the physical implementation of the cleanups. The EPA regional officials told us that the primary reason for this wide range is the stage of the cleanup projects in the regions during the 2-year period of our analysis. At the beginning and end of a remedial action, administrative costs and fees are relatively high, while physical implementation costs are relatively low. EPA's regional project officials explained that at the beginning of a remedial action, the prime contractor has to perform such tasks as developing a work plan, a project budget, and a health and safety plan. Also, the prime contractor has to hire the subcontractors who will physically implement the work, which involves advertising the work, as well as obtaining and analyzing bids. At the end of a remedial action, according to EPA's project officials, the prime contractor has to ensure that the subcontractors have satisfactorily completed their work, and the prime contractor must comply with the administrative requirements for the project's completion, such as writing reports and preparing for the final financial audit of the project. Additionally, once EPA has assessed the prime contractor's performance in carrying out the remedial work, EPA pays final fees to the contractor. For example, spending for the physical implementation of cleanups was low in EPA's region 1 during fiscal years 1996-97 because the region's spending for remedial actions was for three projects that were almost completed. For two of the projects, most of the spending was for performance fees that EPA awarded the contractor at the end of the project. For the third project, most of the costs were for the prime contractor's administrative functions related to closing out the project. EPA's regional officials told us that over the life of remedial action projects, the beginning and ending administrative costs are balanced by the relatively high percentage of physical remediation costs incurred during the middle phases of the cleanup. To verify this explanation, we analyzed the cumulative remedial action spending for the life of the projects included in our review (those with spending of $10,000 or more in either fiscal year 1996 or 1997). We found that, nationwide, 70 percent of the cumulative project spending went to the physical implementation of the cleanups, about the same share that went to physical implementation during fiscal years 1996-97. The individual regions that had relatively low percentages of spending for physical implementation during fiscal years 1996-97 had much higher percentages of such spending over the life of their projects, thus corroborating the explanation provided by EPA's regional officials. For example, in region 1 while only 6 percent of the spending had been for physical implementation during fiscal years 1996-97, 75 percent of the spending was for physical implementation over the life of the same projects. (See fig. 3.) R Because EPA regions 3 and 10 had the lowest cumulative shares of contractor spending for the physical implementation of cleanups, we discussed these results with project officials from these regions. The officials told us that a couple of factors help to explain these results. In some cases, the remedial actions were still in such an early stage that even on a cumulative basis, little spending had occurred for physical implementation. In other cases, the remedial action project was to construct a groundwater treatment facility. According to EPA's project officials, unlike soil remediation, which involves massive construction work, the physical construction work for a groundwater treatment facility is typically limited to the installation of wells. While the physical implementation charges are relatively lower for this type of project, the prime contractor typically incurs significant charges for its engineers to oversee a well's installation and ensure that the well will function properly. While 71 percent of contractor cleanup charges in fiscal years 1996-97 went to pool subcontractors for physically implementing the cleanup work, the remainder was retained by the prime contractors for other expenses related to overseeing and managing the cleanups. During fiscal years 1996-97, 29 percent of contractor spending for remedial actions went for these other expenses, as follows: Professional labor needed to oversee and manage cleanups (8 percent). Travel associated with the professional labor (1 percent). Fringe benefits associated with the professional labor (1 percent). Overhead, such as rent and utilities for on-site space (7 percent). General and administrative expenses, such as salaries for upper management and corporate office costs (3 percent). Fees, including money paid to the contractor to motivate good performance (5 percent). Technical assistance subcontractors who provide professional expertise beyond the prime contractor's expertise (1 percent). Other costs, such as office and technical equipment, reports, and messenger service (3 percent). Appendix I provides a further explanation of these cost categories and a detailed account of EPA's contractor spending, by region. During fiscal years 1996-97, only 2 of the about 70 remedial actions with significant charges by the Corps' contractors ($10,000 or more in spending during either year) were billed on a cost-reimbursement basis, thus allowing us to analyze the share of contractor spending for physical cleanups. In managing Superfund cleanup contractors, the Corps has traditionally used "fixed-price" contracts. Under this type of contract, the Corps negotiates a firm price with the contractor for the work to be performed. The contractor then charges the government for completed portions of the work. However, fixed-price billings do not yield the detailed accounting of costs needed for the type of analysis we performed in this review. The Corps' contractors charged almost $76 million for these two projects during fiscal years 1996-97. Of this amount, about 69 percent (or $52 million) went to the physical implementation of the cleanups. For the two projects individually, we found that 71 and 48 percent of the contractor charges, respectively, during the past 2 fiscal years went to the physical implementation of the cleanups. We also found that the shares of spending that went to the physical cleanups during the entire life of these remedial actions were 70 and 51 percent, respectively. (Both projects were almost complete at the end of fiscal year 1997.) The Corps official managing these two projects told us that the second project had a lower portion of spending for physical cleanup because the project involved groundwater remediation, which entails less construction work and more prime contractor engineering services. Appendix II provides a detailed accounting of contractor spending for these two projects. However, because these two projects cover only 16 percent of the Corps' contractor spending, we could not determine whether these projects generally represent contractor spending managed by the Corps. We provided EPA and the Corps with copies of a draft of this report for their review and comment. EPA said that the report's analysis is sound. However, EPA also stated that our draft report defined cleanup as removal and remedial actions, while EPA's definition of cleanup includes many other types of activities (including EPA's oversight of private party cleanups, site assessments, laboratory analysis, community involvement activities, state/tribal activities, engineering and technical analyses, and the Brownfields program). This report's analysis was primarily focused on the Superfund spending that goes for the physical implementation of remedial action cleanups. Therefore, our analysis necessarily focused on contractor cleanup spending because this is the only Superfund cost category that includes physical implementation costs. We do not dispute the fact that the other activities cited by EPA are related to the cleanup process, but they do not encompass physical implementation of site cleanups. In addition, EPA attributed the increase in administration and support costs to normal spending fluctuations. We revised the body of the report to include this information. (See p. 6.) Finally, EPA stated that it is important to clarify that the 29 percent of contractor spending that went for prime contractor costs should not be confused with the percentage that contractors charge for program management. Program management costs are separate non-site-specific costs that the contractor charges EPA for administrative, management, and technical work related to the Superfund program, in addition to the site-specific costs discussed in this report. We did not include information on program management costs in this report because such costs were not the subject of our work. However, we have reviewed Superfund contractor program management costs several times in the past and most recently reported on this issue in February 1997 in our report entitled High-Risk Series: Superfund Program Management (GAO/HR-97-14). (The full text of EPA's comments is provided in app. IV.) The Corps did not have any comments on the draft report. We conducted our review from January through June 1998 in accordance with generally accepted government auditing standards. See appendix III for the details of our scope and methodology. As arranged with your offices, we plan no further distribution of this report until 30 days after the date of this letter unless you publicly announce its contents earlier. At that time, we will send copies to other appropriate congressional committees, the Administrator of EPA, and the Commander of the U.S. Army Corps of Engineers. We will also make copies available to others upon request. Should you need further information, please call me at (202) 512-6111. Major contributors to this report are listed in appendix V. This appendix provides detailed information on Superfund contractor charges for remedial actions, by Environmental Protection Agency (EPA) region. The information provided is for all remedial action projects that had spending of $10,000 or more in either fiscal year 1996 or fiscal 1997, as reported by EPA's Integrated Financial Management System. Columns 2 and 3 in table I.1 show charges for these projects during fiscal years 1996-97. Columns 4 and 5 show cumulative charges over the life of these same projects. The cost categories shown below were derived from EPA contractor billings and are defined as follows: Prime contractor direct labor: Professional and technical labor that the prime contractor uses in the management and oversight of remedial actions. Travel: Expenses that prime contractor staff incur in traveling to manage and oversee Superfund remedial actions. Fringe benefits: Expenses incurred to provide fringe benefits, such as vacation, sick leave, and health benefits to prime contractor staff. Overhead: Expenses associated with managing a remedial action project, such as rent and utilities of on-site space. Some contractors include clerical labor under this category. Also, some contractors may include fringe benefit expenses under this category instead of showing them as a separate line item. General and administrative costs: Expenses for the overall management of a company, such as salaries for upper management, accounting and legal expenses, rent and utilities for corporate offices, etc. Fees: Money paid to the prime contractor to provide a profit and to motivate the contractor toward good performance. Other prime contractor costs: Other costs incurred by the prime contractor in performing the remedial action for such items as computers, messenger service, postage, film, etc. Team subcontractors: Costs that the prime contractor has paid to subcontractors for additional technical expertise. Pool subcontractors: Costs that the prime contractor has paid to a subcontractor for the physical implementation of the remedial action. As shown in table I.1, the EPA contractor charges that we analyzed totaled about $62 million for fiscal years 1996-97. EPA's financial management system reported disbursements totaling about $97 million for the same period. Part of the difference may be attributable to the lag time between the submission and payment of billings. Another reason for the difference is that about $26 million was charged to the remedial action account for other related activities at Superfund sites, such as removal actions, contractor oversight of private-party cleanups, and adjustments to previous expenditures. Amount charged as a percentage of cumulative project costs (75,749) (continued) Amount charged as a percentage of cumulative project costs (continued) Amount charged as a percentage of cumulative project costs (7,943) (continued) This appendix provides detailed information on Superfund contractor spending managed by the Corps at two large projects. These are the only projects that were billed on a cost-reimbursement basis during the period of our review and thus the only projects for which detailed billing information is available. Columns 2 and 3 in table II.1 show charges at these projects during fiscal years 1996-97. Columns 4 and 5 show cumulative costs over the life of these same projects. The cost categories shown below were derived from Corps contractors' billings and are defined as follows: Professional labor: The prime contractor's expenses for the professional labor used to manage and oversee a remedial action. Overhead on prime labor: The prime contractor's expenses for professional staff's fringe benefits, such as vacations, sick leave, and health benefits. This category also includes other overhead expenses associated with professional staff, such as rent and utilities for on-site space. General and administrative: Expenses for the overall management of the prime contractor's company, such as executive salaries and rent and utilities for corporate offices. Professional travel: Expenses that the prime contractor's staff incur in traveling to manage and oversee a remedial action. Professional subcontractors: Expenses that the prime contractor has incurred for subcontractors who provided additional technical expertise for the remedial action. Fees: Money paid to the prime contractor to provide a profit and to motivate the contractor toward good performance. Equipment: Expenses for construction equipment used in the remedial action, such as bulldozers and excavators. This category also includes some expenses for office equipment used in the remedial action because the contractor charges do not separate office equipment costs from construction equipment costs. Other direct costs: Expenses for construction materials directly used in the remedial action. Craft labor: Expenses for labor from the plumbing, electrical and other crafts from which the prime contractor has directly hired workers for the remedial action. Lower-tier subcontractors: Costs for physical implementation work that the prime contractor paid to a subcontractor, such as a trucking company. To update the share of annual Superfund spending that went to contractor cleanup work to include fiscal year 1997, we obtained information from EPA's Integrated Financial Management System (IFMS). Working with officials from EPA's Office of the Comptroller, we allocated Superfund expenditures for fiscal year 1997 into the same spending categories established in our September 1997 report. However, we did not analyze the reasons for changes in the percentage of spending in each of the cost categories as part of this review. To determine the share of contractor spending for remedial actions administered by EPA, the Corps, the Department of the Interior's Bureau of Reclamation, and the states, we also obtained information from IFMS. In a 1995 report on IFMS, we found instances of inaccurate and incomplete data in the system. While we did not consider these instances to be representative of the overall integrity of IFMS data, we recommended that EPA conduct statistical testing of the data, which EPA has done. We confirmed the IFMS information with officials from EPA's Office of the Comptroller and further verified the IFMS information during our contacts with the appropriate EPA and Corps officials. To determine the portion of funds spent for the physical implementation of remedial actions, as opposed to other contractor-related expenditures, we analyzed contractor billings for cleanup work in each of EPA's 10 regional offices and for appropriate Corps cleanups billed in fiscal years 1996-97. Along with annual cost information, these bills also included the cumulative costs for each project. We used the latest contractor bill available (usually for Sept. 1997) to analyze cumulative project costs. We reviewed all Superfund remedial action projects that had spending of $10,000 or more in fiscal year 1996 and/or fiscal 1997, as reported by IFMS. We used the contractors' bills as our primary data sources for this analysis because, while EPA maintains information on the overall remedial action disbursements for each Superfund site, the agency does not maintain a breakdown by the cost categories. For the bills we received from EPA's 10 regions, we classified the amount charged for the construction (pool) subcontractors as the spending on physical implementation for each site because the program officials from all 10 EPA regions told us that the prime contractors did not perform any of the physical cleanups for the Superfund projects in our review. The money paid to these subcontractors does include indirect costs, such as overhead, and general and administrative expenses. However, these costs are not broken out on the bills submitted to EPA for payment. For the Corps of Engineers, only 2 of about 70 remedial actions projects it managed that met the criteria for inclusion in our review ($10,000 or more in spending in fiscal years 1996 and/or 1997) were being billed on a cost-reimbursable basis. The remaining projects were being billed under fixed-price contracts, and the bills did not provide the detailed information needed for the type of analysis we conducted. For the two Corps projects included in our review, we discussed the contractor's costs with the cognizant Corps project manager in order to determine which charges represented the physical implementation costs versus other costs because the Corps, in contrast to EPA, had the prime contractor perform some of the physical cleanup work. Finally, we verified with EPA's and the Corps' payment offices that the billed amounts used in our analysis were paid without significant modifications. Richard P. Johnson, Senior Attorney The first copy of each GAO report and testimony is free. 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Summary:
Pursuant to a congressional request, GAO: (1) updated the share of annual Superfund spending that went for contractor cleanup work to include fiscal year (FY) 1997; (2) determined the share of contractor spending for remedial actions that were managed by the Environmental Protection Agency (EPA), other federal agencies, and the states during FY 1996 and FY 1997; and (3) for the contractor spending for remedial actions that was managed by EPA or the Army Corps of Engineers, analyzed the share that contractors charged for the physical implementation of cleanup actions, as opposed to other contractor charges. GAO noted that: (1) in FY 1997, about 46 percent of total Superfund spending went to the contractors who study, design, and implement cleanups, compared with 49 percent that was spent on these functions during FY 1996; (2) a corresponding 3-percent increase occurred in EPA's administrative and support costs for the program between FY 1996 and FY 1997; (3) EPA said that this increase can be attributed to normal outlay fluctuations; (4) the share of spending for other Superfund cost categories remained about the same between the 2 fiscal years; (5) contractor spending for remedial actions is managed by several different entities, including EPA, the Corps, the Department of the Interior, and about half of the states; (6) among these, the Corps manages the largest portion of this spending--accounting for 65 percent during FY 1996 through FY 1997; (7) the states collectively managed about 17 percent of such spending during the past 2 fiscal years; (8) EPA managed about 13 percent of such spending during this period; (9) the Department of the Interior also managed a small portion of such spending--accounting for 5 percent over the 2 fiscal years; (10) for the spending managed by EPA nationwide, about 71 percent of the costs charged by contractors for remedial action work during FY 1996 through FY 1997 was for the subcontractors who physically performed the cleanups, such as earthmoving and constructing treatment facilities; (11) the remaining 29 percent went to the prime contractors for professional work, such as construction management and engineering services, and the associated travel, overhead, and administrative costs and fees; (12) for the two projects where detailed information on contractor charges was available from the Corps, the share of spending for the physical implementation of cleanups was about 69 percent; and (13) because these two projects accounted for only 16 percent of contractor spending managed by the Corps during FY 1996 through FY 1997, GAO could not determine whether these results generally represent the Corps' contractor spending.