oversight

Environmental Cleanup at DOD: Better Cost-Sharing Guidance Needed at Government-Owned, Contractor-Operated Sites

Published by the Government Accountability Office on 1997-03-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to the Subcommittee on National
                  Security, International Affairs, and
                  Criminal Justice, Committee on
                  Government Reform and Oversight,
                  House of Representatives
March 1997
                  ENVIRONMENTAL
                  CLEANUP AT DOD
                  Better Cost-Sharing
                  Guidance Needed at
                  Government-Owned,
                  Contractor-Operated
                  Sites




GAO/NSIAD-97-32
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division

             B-272542

             March 27, 1997

             The Honorable J. Dennis Hastert
             Chairman
             The Honorable Thomas M. Barrett
             Ranking Minority Member
             Subcommittee on National Security,
               International Affairs, and Criminal Justice
             Committee on Government Reform and Oversight
             House of Representatives

             This report responds to your subcommittee’s request that we examine
             Department of Defense (DOD) policies and practices regarding cleanup of
             environmental contamination at government-owned, contractor-operated
             (GOCO) plants, as a follow up to our previous reports that showed
             inconsistent policies and practices on cost sharing. We reviewed nine
             higher-cost case studies at the Defense Logistics Agency (DLA) and the
             military services (1) to assess the consistency of cost-sharing practices
             across DOD and (2) to compare the service cleanup estimates against DOD’s.
             Specifically, we identified the actions taken and the types of arrangements
             for sharing cleanup costs between the government and other responsible
             parties, and examined site-specific cleanup cost data.


             Since 1992, we have reported that the government could pay hundreds of
Background   millions of dollars to and on behalf of DOD contractors for cleanup
             resulting from their operations. In October 1992, we reported that DOD
             reimburses contractors for cleanup expenses at their private property in
             different ways, with wide variances in reimbursement decisions and in
             investigations into possible wrongdoing by contractors.1 In July 1994, we
             reported that DOD had also incurred cleanup expenses in cases where
             contractors and other private parties were involved in contamination of
             government property.2 DOD had inconsistent policies and practices for
             recovering costs from other responsible parties. In both reports, we
             recommended that the Secretary of Defense provide guidance to resolve
             the disparities.




             1
              Environmental Cleanup: Observations on Consistency of Reimbursements to DOD Contractors
             (GAO/NSIAD-93-77, Oct. 22, 1992).
             2
              Environmental Cleanup: Inconsistent Sharing Arrangements May Increase Defense Costs
             (GAO/NSIAD-94-231, July 7, 1994).



             Page 1                                     GAO/NSIAD-97-32 Environmental Cleanup At DOD
                   B-272542




                   One of the principal laws governing responsibility for hazardous waste
                   cleanup at federal facilities is the Comprehensive Environmental
                   Response, Compensation, and Liability Act (CERCLA) of 1980, as amended
                   (42 U.S.C. 9601). This act, commonly known as Superfund, holds owners,
                   operators, and other responsible parties, including federal agencies, liable
                   for cleanup of past contamination. Cleanup at federal facilities is also
                   subject to the legal requirements of the Resource Conservation and
                   Recovery Act of 1976, as amended (42 U.S.C. 6901), and applicable state
                   laws.

                   DOD’s  Defense Environmental Restoration Program addresses
                   identification, investigation, and cleanup of past contamination on DOD
                   installations. Funding for the cleanup has come primarily through the
                   Defense Environmental Restoration Account (DERA).3 The individual
                   services and DLA are responsible for cleaning up their respective
                   installations, while the Army Corps of Engineers is responsible for
                   cleaning up formerly used DOD sites.


                   The services’ policies and practices for having contractors share cleanup
Results in Brief   costs still vary widely. Not withstanding our recommendations to do so,
                   DOD has not given the services adequate guidance for making decisions on
                   whether and when to seek recovery of environmental cleanup costs
                   incurred by DOD from contractors and other parties at GOCO facilities. The
                   Army authorized indemnifying4 its operating contractors from cleanup
                   costs at ammunition plants; the Navy policy requires cost-recovery efforts,
                   but has not initiated timely requests for cost sharing or followed up; and
                   the Air Force is beginning to seek participation in cleanup costs from its
                   operating contractors.

                   Regarding cleanup at GOCO facilities we visited, DOD’s fiscal year 1994
                   report to Congress included cleanup costs that were closer to the military
                   services’ supporting data than DOD’s reported fiscal year 1993 estimates.
                   DOD’s estimates for cleaning up the 78 GOCO facilities increased from
                   $1.4 billion in fiscal year 1993 to $3.6 billion in 1994, but decreased

                   3
                    Most cleanup actions are funded through DERA and the Base Realignment and Closure Account.
                   Congress established DERA in 1984 to fund the cleanup of inactive contamination sites on DOD
                   installations. Through fiscal year 1995, DOD reports that about $10 billion has been invested from
                   DERA and $2.6 billion from the Base Realignment and Closure Account for closing installations.
                   4
                    Under Public Law 85-804, the National Defense Contracts Act of 1958, as implemented by Executive
                   Order 10789 and the Federal Acquisition Regulation, three major types of actions may be taken:
                   advance payments; contract adjustments; and any other actions under authority of the act, referred to
                   as residual powers. A frequently reported action under residual powers is indemnification of
                   contractors against losses from unusually hazardous or nuclear risks that are not otherwise insured.



                   Page 2                                         GAO/NSIAD-97-32 Environmental Cleanup At DOD
                       B-272542




                       somewhat to $3.3 billion in 1995.5 Although DOD and the services have
                       addressed our recommendations to improve cost information, their
                       estimates of past and projected costs still differ, and not all costs were
                       included. For example, the 1995 estimate decreased in part because DOD
                       excluded $19.1 million in unfunded Navy cleanup requirements that should
                       have been reported, and DLA cleanup costs totaling $101 million in fiscal
                       year 1994 that would be funded by customer surcharges. Also, we found
                       many additional expenses that were not included in either DOD or service
                       cost estimates.

                       Because Superfund holds parties liable for the billions of dollars needed to
                       remediate past contamination regardless of wrongdoing, it is important
                       that DLA and the services deal with potentially responsible parties on the
                       basis of consistent policy and accurate data. However, the lack of DOD
                       guidance on cost sharing has permitted inconsistencies in approaches to
                       cost sharing, and the potential for some parties to be held responsible for
                       cleanup costs, while others in similar situations are not. If cost-sharing
                       agreements are reached, omissions in historical information and cost data
                       may inhibit the recovery of all appropriate costs.


                       In the absence of sufficient DOD guidance, the services have taken different
Inconsistent           approaches in asking parties associated with GOCOs to share the cost of
Treatment Remains      cleaning up contaminated sites and wide disparities still remain. Since our
Despite Some Service   1992 report, the Air Force has issued guidance for dealing with other
                       responsible parties at its facilities. The Air Force, the Navy, and the Army
Progress in            Corps of Engineers have policies or guidance in place to encourage cost
Developing             sharing with contractor operators and other responsible parties, while the
                       Army itself and DLA generally do not. Except for the Navy, each service has
Cost-Sharing           obtained some cost sharing at GOCO facilities with other responsible
Guidance               parties. However, only the Air Force and the Army Corps of Engineers
                       have achieved cost sharing with contractors that operated
                       government-owned facilities.


Army Policies and      The Army has no servicewide policy regarding cleanup cost sharing.
Practices              However, in a series of actions, the Secretary of the Army approved
                       indemnification of ammunition plant operators from financial liability for
                       environmental cleanup. Army officials state that there has been no actual
                       payment to operators under indemnification because the Army pays for

                       5
                       Cost taken from the Defense Environmental Cleanup Program, Annual Report to Congress, dated
                       March 31, 1994, for fiscal year 1993 and the Defense Environmental Restoration Program, Annual
                       Report to Congress, dated March 31, 1995, for fiscal year 1994 and May 15, 1996, for fiscal year 1995.



                       Page 3                                         GAO/NSIAD-97-32 Environmental Cleanup At DOD
                    B-272542




                    the cleanups directly out of its own funds. In fiscal year 1994, Army
                    ammunition plants accounted for $3.1 billion (86 percent) of the
                    $3.6 billion in past and future cleanup costs reported by DOD.

                    Pursuant to the Secretary’s approval, the Army authorized the inclusion of
                    Public Law 85-804 indemnification clauses in its contracts with
                    ammunition plant operators. These clauses indemnified the contractors
                    against unusually hazardous risks, including environmental releases.
                    According to Army officials, contingency clauses in the contracts also
                    protect ammunition plant operators against environmental liability.

                    The Army has not negotiated any cost-sharing agreements with contractor
                    operators at the ammunition plants. However, the Army negotiated a
                    cost-sharing settlement with a contractor who produced ammunition for
                    the Army as a tenant at one plant we visited. Also, as discussed in our
                    July 1994 report, the Army Corps of Engineers negotiated a cost-sharing
                    settlement with contractors and other private parties at formerly used
                    defense sites.


Navy Policies and   Since 1989, Navy policy has required major command officials to
Practices           immediately negotiate cost-sharing arrangements with contractors as soon
                    as the need for cleanup is identified. The policy requires that past and
                    current GOCO contractors pay “any and all” cleanup costs associated with
                    their operation of Navy facilities. However, the Navy has not initiated
                    timely requests for cost sharing or followed up.

                    For example, although Navy’s 1989 policy required officials to begin
                    negotiation on cost-sharing arrangements at the two facilities we visited,
                    the Navy has not initiated timely requests for contractor participation in
                    the cleanup. The Navy did not send a letter requesting contractor
                    participation in cleanup at the Allegany Ballistics Laboratory in West
                    Virginia until 1994, and has not begun as of March 6, 1997, the required
                    negotiations with the contractor at the Naval Industrial Reserve Ordnance
                    Plant in Fridley, Minnesota. Neither operator plans to pay any cleanup
                    costs involving Navy property.

                    Under the facilities-use contracts at these locations, GOCO contractors
                    provide goods and services to the Navy, and the service does not directly
                    manage their operations. Navy documents show that operational
                    decisions, including those involving waste disposal, are made by the
                    contractor.



                    Page 4                             GAO/NSIAD-97-32 Environmental Cleanup At DOD
                             B-272542




                             To date, the Navy has taken responsibility for cleanup costs. Navy officials
                             said the Navy intends to clean up the facilities first and then decide
                             whether to pursue contractors to recover a share of the costs.
                             Cost-recovery decisions are to be based on evidence, litigation risk, the
                             contractor’s level of responsibility, and other factors. However, Navy
                             officials stated that the Navy is reluctant to pursue GOCO contractors
                             because of concerns they will pass costs back to the government as an
                             allowable expense or through overhead charges. They also said that a
                             divisive liability issue could slow cleanup operations and hurt relations
                             between the Navy and its contractors.


Air Force Policies and       In December 1995, the Air Force General Counsel’s office developed
Practices                    guidance that recognizes that past and present contractors, as generators
                             of contaminants and operators at federal facilities, share the liability for
                             environmental contamination. The guidance calls for sharing remediation
                             costs, based on the facts of each situation. In commenting on this
                             guidance, Air Force officials stated that the Air Force approved a practice
                             similar to the Navy policy for cost sharing. Air Force officials stated that
                             the practice is intended to share cleanup costs equally with operators
                             unless conditions warrant otherwise.

                             At the two locations we visited, the Air Force was paying all cleanup costs,
                             but may later pursue other parties. However, at two other locations, the
                             Air Force had agreed with the facility operators to share costs. According
                             to Air Force officials, the settlement agreement prohibits the contractors
                             from charging their environmental cleanup costs back to a government
                             contract. Air Force officials also stated that the absence of federal
                             guidance governing how to treat environmental cleanup costs, together
                             with inconsistent treatments and allowances throughout DOD, have slowed
                             cost-sharing negotiations with contractors.


DLA Policies and Practices   DLA’s policy requires current operating contractors to pay cleanup costs in
                             cases of wrongdoing, but allows fuel customers to pay for past
                             contamination through a surcharge.6 However, DLA does not have a
                             specific policy for its fuel supply centers to address those cases in which
                             parties other than contractors, such as lessees or tenants, are responsible
                             for contamination. DLA has considered developing such cost-sharing
                             guidance, but had not done so as of March 1997.

                             6
                              To recover most cleanup costs for past contamination, DLA assesses a 1-cent per barrel surcharge to
                             its customers.



                             Page 5                                        GAO/NSIAD-97-32 Environmental Cleanup At DOD
                         B-272542




                         The Norwalk center we visited has been negotiating for the recovery of
                         costs. Officials are negotiating with a lessee to pay for most of the facility’s
                         cleanup costs. However, the facility did not gather sufficient evidence to
                         determine whether to seek recovery from another party for $10 million in
                         environmental damage at an off-post location.


DOD-Wide Policy Issues   Even though we recommended in 1992 and again in 1994 that DOD issue
                         guidance to resolve disparities between DLA’s and the military services’
                         cleanup policies and procedures, DOD has not done so. In a letter dated
                         January 9, 1995, responding to our 1994 report, the Deputy Under
                         Secretary of Defense (Environmental Security) stated that DOD’s policy for
                         cost sharing is to comply with the Federal Acquisition Regulation, which
                         provides for the allowability of costs incurred by government contractors.
                         However, the regulation only applies to costs incurred by contractors. It
                         does not prescribe an approach for seeking contractor contributions to
                         DOD cleanup efforts.


                         The policies and practices for seeking contractor participation in cleanup
                         efforts continue to vary widely among the services and DLA. Some
                         variances, such as DLA’s policy to pay for old contamination (not from
                         current operations) through a surcharge to customers, may be justified
                         where no specific evidence identifies the responsible party or when other
                         case-specific factors, such as frequent changes in contractors, may
                         preclude assigning responsibility. However, we continue to believe that
                         uniform guidance from DOD would help resolve disparities among DLA and
                         service cleanup policies and practices.


                         Following our July 1994 report that cleanup at GOCO plants would take
Cleanup Estimates        longer and cost far more than DOD’s estimate, DOD increased its fiscal year
Improving, but           1993 estimate of $1.4 billion to $3.6 billion in fiscal year 1994. For example,
Problems Remain          in fiscal year 1993, DOD estimated the Twin Cities Army Ammunition Plant
                         would be cleaned up by the year 2000 at a total cost of $154 million, which
                         was not consistent with supporting data showing costs of about
                         $600 million through 2052. DOD’s fiscal year 1994 report was more
                         consistent with supporting data, showing estimated completion by 2080 at
                         a total cost of about $773.2 million.

                         Although DOD’s report to Congress and service estimates for our case
                         studies were relatively close in total, table 1 shows significant differences
                         for individual locations for fiscal year 1994. Some of the reasons for these



                         Page 6                              GAO/NSIAD-97-32 Environmental Cleanup At DOD
                                        B-272542




                                        cost differences include different estimating methodologies, an input
                                        error, and the inclusion of more accurate future cost estimates.

Table 1: DOD’s and the Services’
Estimated Total Cleanup Costs for       Dollars in millions
Nine GOCOs                                                                                                                  Percentage
                                                                                     Component             Estimate         of estimate
                                        Facility                  DOD report           estimate           difference         difference
                                        Army
                                        Twin Cities plant              $773.2              $810.9              ($37.7)                  (4.9)
                                        Lake City planta                 339.2              168.1               171.1                  50.4
                                        Newport plant                     55.5                41.5               14.0                  25.2
                                        Navy
                                        Allegany                          30.7                27.8                 2.9                   9.4
                                        Fridley                           37.9                30.7                 7.2                 19.0
                                        Air Force
                                        Plant 4                           63.0                79.6              (16.6)                 (26.3)
                                        Plant 44                          61.3                90.9              (29.6)                 (48.3)
                                        DLA
                                        Norwalk                           16.5                16.5                   0                    0
                                        Ozol                               6.4                 6.4                   0                    0
                                        Total                        $1,383.7            $1,272.4              $111.3                     8
                                        a
                                         DOD cleanup estimates decreased at Lake City Ammunition Plant from $339.2 million in fiscal
                                        year 1994 to $139.4 million in fiscal year 1995.

                                        Source: Service officials and the Defense Environmental Restoration Program Annual Report to
                                        Congress ( Mar. 31, 1995) for fiscal year 1994.



                                        In addition, cleanup expenses not identified in either DOD or service
                                        component estimates included:

                                    •   $120 million to decontaminate and dispose of the chemical plant at the
                                        Newport Army Ammunition Plant;
                                    •   $6 million in cleanup costs for uranium-tipped bullets at the Lake City
                                        Army Ammunition Plant;
                                    •   $4 million in 1983 and 1984, which was paid for cleanup costs at Air Force
                                        Plant 4 before DERA funds were available;
                                    •   $836,000 already spent on a cleanup study at the Navy’s Allegany Ballistics
                                        Laboratory; and
                                    •   money paid to the Environmental Protection Agency (EPA) and state
                                        regulatory agencies for overseeing the cleanup at several sites (as an




                                        Page 7                                      GAO/NSIAD-97-32 Environmental Cleanup At DOD
                      B-272542




                      example, at the Fridley Naval Industrial Reserve Ordanance Plant,
                      $481,000 was paid to EPA and $106,000 was paid to the state of Minnesota).

                      DOD’s  report for fiscal year 1995, dated May 15, 1996, showed that total
                      cleanup cost estimates for GOCO facilities decreased from $3.6 billion to
                      $3.3 billion, but it did not include cleanup costs for our 2 DLA case studies,
                      or with 1 exception, any of the 21 DLA facilities reflected in prior DOD
                      reports. According to DOD officials, these facilities were excluded from the
                      latest report because customer surcharges rather than DERA funds paid for
                      cleanup costs. DLA cleanup costs totaled $101 million in DOD’s fiscal
                      year 1994 report.

                      We recognize that cleanup estimates for facilities will be preliminary until
                      DOD fully characterizes contaminants, selects a remedy, and finances the
                      remedy. However, most of the cost differences noted in our case studies
                      can be accounted for given the stage of cleanup in each case.

                      Furthermore, excluding environmental cleanup costs from DOD’s
                      restoration program report because the funding source is other than DERA
                      can be misleading. For example, the DLA cleanups excluded from DOD’s
                      report for fiscal year 1995 are, except for funding source, similar to
                      cleanups still reported for the military services. Also, DOD’s report still
                      includes cost for cleanups totaling $624 million in 1995 that were funded
                      by its base realignment and closure account rather than DERA. Finally, the
                      services’ stated plans to later obtain cost sharing from other responsible
                      parties require that complete cost data be readily available.


                      To address the inconsistencies in cost-sharing approaches and the
Recommendations       potential for disparate treatment of other responsible parties described in
                      this and past reports, we recommend that the Secretary of Defense issue
                      guidance to DOD components to resolve current disparities and to promote
                      future consistent treatment of all parties in cost recovery decisions.

                      So that sufficient data will be available for cost-sharing negotiations and
                      program oversight, we also recommend that the Secretary direct the
                      military services and DLA to:

                  •   Identify, to the extent it has not already been done, whether parties other
                      than the government were involved with any contamination, as part of
                      environmental cleanup preliminary assessments at GOCO facilities.




                      Page 8                             GAO/NSIAD-97-32 Environmental Cleanup At DOD
                         B-272542




                     •   Obtain all relevant data regarding other responsible parties identified,
                         whether or not wrongdoing is an issue.
                     •   Gather and maintain the most timely and accurate DOD cost data available
                         in DLA, military service, and other agencies’ records.
                     •   Provide consistent estimates, including all cleanup costs for DOD’s
                         environmental reports to Congress, regardless of the source of funds.


                         In commenting on a draft of this report, DOD stated that it was generally
Agency Comments          complying with all five of our recommendations under existing practices.
and Our Evaluation       However, as we detailed below, DOD has not fully addressed the issues and
                         specific cases discussed in this report and we continue to believe that DOD
                         needs to take additional actions on each of our recommendations.

                         Regarding the need for DOD guidance on the recovery of cleanup costs, DOD
                         stated that its policy is to comply with the Federal Acquisition Regulation
                         and that the Defense Contract Audit Agency issued audit guidance for field
                         auditors in 1992 on how to interpret the regulation. However, as we stated
                         in this and prior reports, federal acquisition laws, regulations, and policies
                         do not provide specific guidance to decision-makers on how to treat
                         environmental cleanup costs. In the absence of guidance that explicitly
                         addresses the sharing of DOD cleanup costs, the services and DLA have
                         taken different approaches to deciding whether and when to seek
                         contributions from contractors and other responsible parties. We continue
                         to believe that a DOD-wide policy is needed to address these disparities and
                         promote consistent treatment of all parties in the recovery of DOD-incurred
                         cleanup costs.

                         DOD  stated that it is already identifying parties involved with
                         contamination and obtaining all relevant data for other responsible
                         parties, in line with our second and third recommendations. However, our
                         case studies indicate that searches for potentially responsible parties were
                         not done and services had not obtained all relevant information. DOD’s
                         comments did not identify what actions it had taken to resolve such cases
                         or the Air Force concerns about the lack of DOD guidance. Thus, we
                         continue to believe that more should be done in this area.

                         DOD indicated that it did not believe it should gather costs incurred by all
                         non-DOD organizations. We agree and modified our recommendation to
                         focus primarily on DOD costs. Nevertheless, if another federal agency has
                         pertinent information on added DOD cleanup costs, as we found in each




                         Page 9                             GAO/NSIAD-97-32 Environmental Cleanup At DOD
                B-272542




                case study, efforts should be made to gather and maintain that
                information.

                DOD  stated that its report to Congress is not intended to represent all
                expenses associated with other funding sources, with the exception of the
                Base Closure and Realignment Account. DOD also stated that there is no
                value added to reconstructing past non-DERA expenses. We agree that it
                may not be worthwhile to reconstruct minor costs incurred prior to
                availability of DERA funds. However, excluding all cleanup expenses of an
                entire agency such as DLA simply because the money to pay those
                expenses came from a different federal account results in reports that
                materially understate federal expenses for cleanup costs. It may also lead
                to omissions by the military service where they funded cleanups from
                business operating funds. The use of business operating funds for cleanup
                is already prevalent in the Navy. Finally, complete cost data is necessary
                for the military services’ stated plans to obtain cost sharing from other
                responsible parties. DOD’s comments are reprinted in their entirety in
                appendix V.


                The high cleanup costs, coupled with inconsistent policies and practices
Matter for      for recovering costs from other parties, can lead to adverse budget
Congressional   consequences. Because DOD’s comments indicate that it does not plan to
Consideration   take any actions to address the problems set forth in this report, Congress
                may wish to call upon the Secretary of Defense to issue guidance to
                address inconsistencies in cost-sharing approaches and to promote future
                consistent treatment of all parties in cost recovery decisions.


                We conducted our work at the Washington, D.C., area headquarters offices
Scope and       of DOD, DLA, and the military services and at selected commands and field
Methodology     installations. The Washington, D.C., area commands included the Naval
                Air Systems Command, Naval Sea Systems Command, and the Defense
                Fuel Supply Center. We also visited the Army Environmental Center in
                Aberdeen, Maryland; the Air Force Acquisition Environmental
                Management Directorate in Dayton, Ohio; and the Naval Facilities
                Engineering Command Southern Division in Charleston, South Carolina.

                At headquarters, command, and field locations, we interviewed DOD,
                contractor, state agency, and EPA officials. To assess consistency of
                cost-sharing practices, we compared headquarters policies and field
                practices at case study locations identified below. To examine cleanup



                Page 10                           GAO/NSIAD-97-32 Environmental Cleanup At DOD
    B-272542




    cost estimates, we obtained data on DOD environmental cleanup program
    status and costs, noted differences among organizations, and examined
    supporting documents, but did not independently determine actual costs.

    We used a case study methodology at selected field facilities. We visited
    nine GOCO facilities to determine the status and cost of cleanup, and the
    extent of cost sharing for environmental cleanup at the facilities. We
    selected facilities with larger total cleanup costs, managed by each of the
    military departments and DLA. We determined whether site specific data
    identified all known costs and compared the data to military service
    records and DOD reports. We reviewed cost-sharing practices across the
    locations visited, but did not independently evaluate liability issues or the
    merits of cost-sharing decisions in individual cases.

    Army

•   Lake City Army Ammunition Plant, Missouri
•   Newport Army Ammunition Plant, Indiana
•   Twin Cities Army Ammunition Plant, Minnesota

    Air Force

•   Air Force Plant 4, Fort Worth, Texas
•   Air Force Plant 44, Tucson, Arizona

    Navy

•   Allegany Ballistics Laboratory, West Virginia
•   Naval Industrial Reserve Ordnance Plant, Fridley, Minnesota

    DLA


•   Defense Fuel Support Point Norwalk, California
•   Defense Fuel Support Point Ozol, California


    We performed our work from June 1995 through March 1997 in
    accordance with generally accepted government auditing standards.

    Unless you publicly announce its contents earlier, we plan no further
    distribution of this report until 30 days after its issue date. At that time, we
    will send copies to the appropriate congressional committees; the



    Page 11                             GAO/NSIAD-97-32 Environmental Cleanup At DOD
B-272542




Secretaries of Defense, the Army, the Navy, and the Air Force; and the
Directors of DLA and the Office of Management and Budget. We will also
make copies available to others upon request.

Please contact me on (202) 512-8412 if you or your staff have any
questions concerning this report. Major contributors to this report are
listed in appendix VI.

Sincerely yours,




Henry L. Hinton, Jr.
Assistant Comptroller General




Page 12                           GAO/NSIAD-97-32 Environmental Cleanup At DOD
Page 13   GAO/NSIAD-97-32 Environmental Cleanup At DOD
Contents



Letter                                                                                             1


Appendix I                                                                                        16
                        Agency Cost-Sharing Policy                                                16
Army Case Studies       Twin Cities Army Ammunition Plant                                         17
                        Lake City Army Ammunition Plant                                           20
                        Newport Army Ammunition Plant                                             22

Appendix II                                                                                       25
                        Agency Cost-Sharing Policy                                                25
Navy Case Studies       Allegany Ballistics Laboratory                                            26
                        Naval Industrial Reserve Ordnance Plant, Fridley                          28

Appendix III                                                                                      32
                        Agency Cost-Sharing Guidance                                              32
Air Force Case          Air Force Plant 4                                                         33
Studies                 Air Force Plant 44                                                        35

Appendix IV                                                                                       38
                        Agency Cost-Sharing Policy                                                38
Defense Logistics       Defense Fuel Support Point, Norwalk                                       38
Agency Case Studies     Defense Fuel Support Point, Ozol                                          40

Appendix V                                                                                        42

Comments From the
Department of
Defense
Appendix VI                                                                                       45

Major Contributors to
This Report
Table                   Table 1: DOD’s and the Services’ Estimated Total Cleanup Costs             7
                          for Nine GOCOs




                        Page 14                          GAO/NSIAD-97-32 Environmental Cleanup At DOD
Contents




Abbreviations

CERCLA     Comprehensive Environmental Response, Compensation,
               and Liability Act
DERA       Defense Environmental Restoration Account
DLA        Defense Logistics Agency
DOD        Department of Defense
EPA        Environmental Protection Agency
GOCO       government-owned, contractor-operated


Page 15                        GAO/NSIAD-97-32 Environmental Cleanup At DOD
Appendix I

Army Case Studies


                      We visited three Army ammunition plants—one active plant, two
                      inactive—still owned by the Army. The Lake City Army Ammunition Plant,
                      Independence, Missouri, was active. The Newport Army Ammunition
                      Plant, Newport, Indiana, and the Twin Cities Army Ammunition Plant,
                      Arden Hills, Minnesota, no longer produce ammunition. The Army owns a
                      total of 27 government-owned, contractor-operated (GOCO) plants, of
                      which 24 are ammunition plants. Seven of the 24 are currently active.


                      The Army has no overall policy for sharing costs with other parties and
Agency Cost-Sharing   does not plan to pursue current or past GOCO operators to share
Policy                environmental cleanup costs at the case study facilities. However, at one
                      plant we visited, the Army negotiated cost-sharing arrangements with
                      contractors who are not considered operators and is seeking
                      reimbursement from the operator’s insurance company.1

                      According to Army officials, the ammunition plant operators are protected
                      against environmental liability by protective clauses in their contracts,
                      such as the “Responsibility of Contractor - Contingencies” clause, and by
                      an indemnification clause, which was recently added. The Secretary of the
                      Army authorized the indemnification clauses under Public Law 85-804 in a
                      series of memoranda. For the three locations we visited, we found relevant
                      memoranda dated May 1985, November 1990, and November 1992. Army
                      officials stated that the indemnification provision would allow ammunition
                      plant operators to claim recovery of cleanup costs, but that such a claim
                      has not been made because the Army has assumed all cleanup costs at its
                      ammunition plants.

                      Army officials said that the Army, as the landowner, should be responsible
                      for cleaning up the property. They stated that it would be inappropriate to
                      hold former contractors liable for the cleanup costs because
                      contamination resulted not from bad faith or willful misconduct, but from
                      industrial practices that used to be considered acceptable. Army officials
                      stated that indemnification of ammunition plant contractors was justified
                      by the unusually high risk they encountered in handling explosives and
                      reactive and hazardous materials.

                      Despite the Army’s view, a finding of wrongdoing is not a required
                      condition for cost sharing under the Comprehensive Environmental

                      1
                       As noted in our prior reports, the Army Corps of Engineers also negotiated cost-sharing settlements
                      with former operators of formerly used defense sites. In addition, the Army has obtained more than
                      $300 million from Shell Oil Company as of December 1995 toward shared cleanup costs at the Rocky
                      Mountain Arsenal.



                      Page 16                                       GAO/NSIAD-97-32 Environmental Cleanup At DOD
                   Appendix I
                   Army Case Studies




                   Response, Compensation, and Liability Act (CERCLA). Owners and
                   operators at private facilities have not been relieved of liability on that
                   basis.

                   Although the Army has not achieved cost sharing by its ammunition plant
                   operators, it has pursued other responsible parties. For example, at the
                   Twin Cities facility, the Army is attempting to recover more than
                   $10 million from one GOCO operator’s insurance company. The Army did
                   negotiate a settlement with a contractor who was a tenant at this facility.
                   This contractor—like the GOCO operator—produced ammunition for the
                   Army for decades, but did so under a “facility contract,” that did not
                   indemnify the tenant. Under an agreement, the tenant contractor must pay
                   all cleanup costs associated with its production and a percentage of the
                   cleanup for areas in which the source of contamination is unclear.


                   The Twin Cities Army Ammunition Plant is an inactive facility that
Twin Cities Army   occupies about 2,370 acres in Arden Hills, Minnesota. Established in 1941,
Ammunition Plant   the plant produced ammunition intermittently until 1976. Throughout all
                   but the last 1 of the plant’s 55 years, the Federal Cartridge Company was
                   its only operating contractor. Alliant Techsystems, a long-standing tenant
                   at the plant, took over as the GOCO operator in November 1995. Alliant,
                   formerly Honeywell, had been a tenant at the Twin Cities plant since the
                   late 1950s, manufacturing small ammunition for the Department of
                   Defense (DOD). Also, the 3M Company, as a lessee, conducted commercial
                   production activities on the facility between 1950 and 1993.

                   The production activities at the Twin Cities facility generated hazardous
                   waste that contaminated the soil, structures, and groundwater, including
                   the drinking water for the facility and the city of New Brighton, Minnesota.
                   Soil was contaminated with explosives, metals, polychlorinated biphenyls,
                   and volatile organic compounds. Plant property occupied by the lessee
                   was contaminated by low-level radioactivity. Groundwater was
                   contaminated with trichloroethylene and had migrated off the site.

                   The Twin Cities plant was placed on the Environmental Protection
                   Agency’s (EPA) National Priorities List in 1983 as part of the New
                   Brighton/Arden Hills Superfund site, an approximately 36-square-mile site
                   encompassing the plant and the contaminated groundwater. The
                   Superfund site was divided into three main units. Two of the units contain
                   distinct plumes of contaminated groundwater, known respectively as the




                   Page 17                             GAO/NSIAD-97-32 Environmental Cleanup At DOD
                         Appendix I
                         Army Case Studies




                         north plume and the south plume. The third unit consists of contaminated
                         soils and groundwater within the plant’s boundary.

                         Production waste from the plant also contaminated three privately owned
                         disposal sites to which the operator sent the waste. According to a
                         contractor official, the company had complied with the standards of the
                         time.

                         Also, between 1959 and 1962, over 1,400 drums of waste from classified
                         munitions and, in 1945, 500 tons of 50-caliber bullets were disposed of in
                         Lake Superior. Records about the classified waste are not available, but
                         Army officials said that the waste had been packed into 55-gallon drums,
                         transported over land under Army escort to Duluth, Minnesota, and
                         dumped into the lake from barges. The state pollution agency and Corps of
                         Engineers had not yet decided whether an investigation by the Army of the
                         50-caliber bullet disposal was necessary at the time of our review.


Cleanup Efforts          Investigations at the Twin Cities plant began after the 1981 discovery of
                         contamination in the drinking water supply. Six interim remedial actions
                         and three removal actions have been completed at the facility. As of
                         December 1996, the final remedy to pump and treat groundwater from the
                         south plume is in place, and the final remedy for the north plume has been
                         implemented. The remedy for cleaning up contamination within the
                         boundary of the facility has been proposed and is under evaluation.


Cleanup Cost Estimates   DOD  and Army cleanup cost estimates for fiscal year 1994 ($773.2 million
                         and $810.9 million, respectively) were much closer than in 1993
                         ($154 million according to DOD, versus about $600 million according to
                         installation data). DOD’s May 15, 1996, report for fiscal year 1995 increased
                         the total past and future cleanup cost estimate to $828.2 million.

                         Neither DOD’s report nor the Army’s estimate included all known cleanup
                         costs for the Twin Cities plant, with at least an additional $8.2 million of
                         expenditures.

                         Examples where either Defense Environmental Restoration Account
                         (DERA) funds were not designated as being used for cleanup at the Twin
                         Cities plant or where non-DERA funds were used for cleanup at the Twin
                         Cities plant, but not reported, include:




                         Page 18                            GAO/NSIAD-97-32 Environmental Cleanup At DOD
                               Appendix I
                               Army Case Studies




                           •   more than $560,000 paid to regulators, including $125,000 for EPA
                               investigations at the Lake Superior disposal site, and about $435,650 paid
                               for state regulatory oversight at the plant and
                           •   $398,000 expended by the Army Corp of Engineers for work at the Lake
                               Superior site.

                               Expenditures from Army operations funds and judgment funds that were
                               not in DOD’s and the Army’s estimates include:

                           •   As a result of a toxic tort case settlement related to contaminated drinking
                               water at the site, the Army reimbursed the Federal Cartridge Company
                               $3.7 million for the company’s share of a settlement in litigation.
                           •   Relative to the above case, the Army settled for a $1.3-million Army share,
                               which was paid out of the Department of Justice Judgment Fund.
                           •   The Army reimbursed Federal Cartridge $1.9 million for disposal-related
                               cleanup costs.
                           •   The U.S. government paid $70,000 on behalf of all other federal potentially
                               responsible parties for cleanup-related expenses at a disposal site in Oak
                               Grove, Minnesota.
                           •   The Army paid an additional $234,292 for attorney time relating to cleanup.


Cost-Sharing Arrangement       The Army does not plan to pursue Federal Cartridge, the former operator,
                               to share environmental cleanup costs at this facility. However, both Alliant
                               and 3M, who also produced at the plant, are being held liable for
                               contamination associated with their activities and have agreed to share the
                               cleanup costs.

                               Federal Cartridge was responsible for manufacturing and testing
                               ammunition, disposing of production waste, and maintaining the facility.
                               Beginning in the early 1980s, the company was also responsible for
                               performing the preliminary environmental damage assessments and
                               engineering evaluations and analyses. At peak production in 1943,
                               according to Army officials, almost all of the 26,000 employees who
                               worked at the plant were contractor personnel. By 1995, the total
                               decreased to about 1,000 employees, and all but about 19 were contractor
                               personnel.

                               The Army is assuming costs not already covered by the other two private
                               companies and Federal Cartridge believes it has no liability for cleanup
                               costs. Reasons given by the Army are the Secretary of the Army granting
                               indemnification status to the contractor under Public Law 85-804, and



                               Page 19                           GAO/NSIAD-97-32 Environmental Cleanup At DOD
                       Appendix I
                       Army Case Studies




                       contract clauses that address contractor liability. In addition, Federal
                       Cartridge Company officials stated that disposals were not due to any
                       company wrongdoing, either willful or knowing, and were at
                       state-approved landfills under the review and approval of the Army. Also,
                       they said that the Army did not disapprove of company practices, which
                       were considered state-of-the-art.

                       However, Army officials have participated in pursuing Federal Cartridge’s
                       insurance company to recover cleanup costs associated with the
                       company’s operations at the plant. The Army asked the Justice
                       Department to help it recover about $10.2 million, plus interest, that it
                       reimbursed Federal Cartridge for cleanup-related costs. Negotiations are
                       underway.

                       Both of the companies that operated on plant property as tenant and
                       lessee are sharing in cleanup costs.

                   •   Alliant produced ammunition for the Army as a tenant using government
                       facilities, but Alliant’s facility contract did not contain indemnification
                       provisions. In 1995, an attorney for Alliant estimated that the company had
                       paid over $10 million since the 1985 apportionment agreement, whereby
                       Alliant is to pay the cleanup costs at the South plume, and the Army is
                       responsible for costs at the North plume. The cost of cleaning up
                       groundwater where the origin of contamination is unclear will be split
                       between the parties, with the Army paying 80 percent and Alliant
                       20 percent.
                   •   The 3M Company produced for the commercial market under a lease with
                       the Army. The company is solely responsible for cleanup of radioactive
                       contamination of property on the site. The company has cleaned up the
                       contaminated buildings and soils, but the Army has not yet examined and
                       approved 3M’s cleanup actions.


                       The Lake City Army Ammunition Plant is the Army’s only installation that
Lake City Army         now manufactures small-caliber ammunition. The plant, which occupies
Ammunition Plant       about 4,000 acres in a rural area near Independence, Missouri, began
                       operating in 1941. Remington Arms operated the facility until 1985, when
                       the current contractor, the Olin Corporation, took over.

                       Manufacturing operations at the Lake City plant generated hazardous
                       wastes. Soil has been contaminated with explosives; volatile and
                       semivolatile organic compounds; oil and grease; low-level radioactive



                       Page 20                           GAO/NSIAD-97-32 Environmental Cleanup At DOD
                         Appendix I
                         Army Case Studies




                         materials; and such metals as arsenic, lead, mercury, and zinc.
                         Groundwater was contaminated with dichloroethylene, lead, and vinyl
                         chloride. Because these contaminants exceed levels set by EPA,
                         groundwater from wells on the installation must be treated before it can
                         be consumed. For example, the EPA maximum contaminant level for vinyl
                         chloride is 2 parts per billion, but the drinking water aquifer at the plant
                         contained 8,000 parts per billion.

                         According to test results and studies, contamination has not yet migrated
                         off the site but will do so eventually, unless preventive action is taken.
                         Because the site is located in a rural, sparsely populated area, no
                         immediate threat exists to the groundwater of surrounding communities.
                         The Lake City plant was placed on EPA’s National Priorities List in 1987.


Cleanup Efforts          The contaminated areas at the plant are divided into four units.
                         Preliminary assessments and site inspections were conducted in 1979. EPA
                         and the Missouri Department of Natural Resources approved the remedial
                         investigation for one unit in March 1995. Another was completed in
                         May 1995, but awaits EPA and Missouri approval. The Army is not
                         proceeding with remedial investigations for the other two units until it
                         receives comments from EPA and the state of Missouri on the May 1995
                         investigation report and a feasibility study submitted in June 1995 for the
                         first unit. The proposed corrective actions mainly involve groundwater
                         treatment and soil excavation.


Cleanup Cost Estimates   Both DOD and Army estimates increased from fiscal year 1993 to 1994. The
                         DOD estimate increased from $52 million to $339.2 million, while the Army
                         estimate increased from $24.8 million to $168.1 million. Army officials
                         attributed the increase to including long-term cleanup costs beyond 2001.
                         Earlier estimates considered only a 7-year budget cycle.

                         DOD’s estimate was more than double what Army officials at the plant
                         reported to us for the same time frame. Lake City officials believed their
                         estimate was accurate, and they did not know why DOD’s estimate was so
                         much higher. According to a DOD official, it might have been due to a data
                         entry error. The difference was generally resolved with DOD’s May 15, 1996,
                         report for fiscal year 1995, which updated the figure to $139.4 million.

                         Lake City officials stated that it is difficult to accurately project the cost of
                         cleanup until options have been selected and approved by EPA and the



                         Page 21                              GAO/NSIAD-97-32 Environmental Cleanup At DOD
                               Appendix I
                               Army Case Studies




                               state regulatory agencies. We found about $22.9 million in costs that were
                               not included in either DOD or Lake City estimates.

                           •   Remediation may take longer than the year 2024 estimated, thus increasing
                               costs by $16.8 million. The feasibility study for one operating unit stated
                               that the contaminated water should be pumped, treated, and monitored
                               for at least 50 years, or until 2048. The Army’s estimated cost for such
                               remedial action was about $700,000 a year, including $500,000 for pumping
                               and treating the water and $200,000 for monitoring.
                           •   Costs excluded an estimated $6 million to clean up low-level radioactive
                               contamination caused by ammunition made from depleted uranium. The
                               cost was excluded from DOD and Army estimates because the cleanup will
                               be conducted under the direction of the Nuclear Regulatory Commission.
                           •   The state was paid $91,000 for oversight costs.

                               Also, the use of a residential cleanup standard as opposed to an industrial
                               cleanup standard could increase the cost of cleaning one area by about
                               $23.6 million, from $5 million to $28.6 million. The cleanup standard for an
                               industrial site assumes human exposure of 40 working hours per week,
                               whereas a residential standard assumes continuous human exposure of
                               168 hours per week. The Army estimates it will cost $5 million to
                               remediate the contamination at its Area 18 Operable Unit to the industrial
                               standard. However, the EPA and the state of Missouri believe that the
                               residential cleanup standard should be used.


Cost-Sharing Arrangement       The Army does not plan to pursue cost sharing by current or former
                               operators of the Lake City plant. Olin has been the operator since 1985,
                               and Remington operated the plant for more than 40 years. No other private
                               parties, such as lessees, operated at the facility.

                               Army officials said they do not plan to pursue cost sharing with Olin
                               because of the Secretary of the Army’s decision to indemnify plant
                               operators under Public Law 85-804. Likewise, they applied this decision to
                               relieve Remington, Lake City’s prior contractor.


                               The Newport Chemical Facility, formerly Army Ammunition Plant,
Newport Army                   occupies about 7,000 acres in a sparsely populated rural area near
Ammunition Plant               Newport, Indiana. The plant, which has been inactive since 1975, currently
                               serves as a storage facility for a nerve agent the Army plans to incinerate
                               as part of its chemical material program. The Newport plant was



                               Page 22                           GAO/NSIAD-97-32 Environmental Cleanup At DOD
                         Appendix I
                         Army Case Studies




                         established in 1941; from then until 1974, several contractors, including
                         E.I. duPont, FMC Corporation, Liberty Powder Corporation, and Uniroyal,
                         Inc., produced explosives such as trinitrotoluene (TNT) and chemical
                         agents. The current operator for the storage function is Mason & Hanger.

                         Manufacturing operations at the Newport plant generated various
                         hazardous wastes. Soil, groundwater, and surface water were
                         contaminated with explosives, solvents, heavy metals, oils, and grease.
                         Groundwater contaminated with carbon tetrachloride and
                         trichloroethylene has not yet migrated off the site, but EPA and Army
                         officials are concerned that it may. If contaminated groundwater reaches
                         the plant’s boundaries, it could threaten the safety of the surrounding
                         area’s drinking water.


Cleanup Efforts          Preliminary investigations were completed in 1986. The Army identified
                         16 sites, 12 of which it believed required some remedial action or
                         additional study. The Army classified four sites requiring no further action,
                         but EPA disagreed and is requiring additional testing and monitoring
                         activities for these four sites. The Army removed underground petroleum
                         storage tanks and currently plans to remove other contaminants.
                         Investigations and studies are continuing.


Cleanup Cost Estimates   DOD’s estimate of the cleanup costs for the Newport plant was higher than
                         the Army’s. DOD’s report for fiscal year 1994 put the total cost at about
                         $55.5 million, as compared to an Army estimate of $41.5 million. Officials
                         could not reconcile the difference, but said part could be explained by
                         DOD’s estimated completion in 2010, versus the Army estimate of 2006.
                         DOD’s report for fiscal year 1995 increased the estimate to about
                         $68 million, with completed cleanup still estimated for 2010.

                         A cost not reflected in either DOD or Army data was about $120 million for
                         a chemical plant cleanup that was excluded because that effort will be
                         funded by the Chemical Munitions Destruction Defense Account, not DERA.

                         Army officials stated that costs cannot be accurately estimated until more
                         is known about the sites. Until the contamination is known and the
                         remediation methods are selected, the costs of remediation options can
                         vary significantly. For example, the Army’s cost estimate assumed that the
                         service will incinerate contaminated soils, but Army officials said that soils




                         Page 23                            GAO/NSIAD-97-32 Environmental Cleanup At DOD
                           Appendix I
                           Army Case Studies




                           may be cleaned up biologically through composting at about half the cost
                           of incineration.


Cost-Sharing Arrangement   Army officials do not plan to pursue cost sharing by the current or any
                           past operators of the Newport plant. They said this is because of the
                           Secretary of the Army’s decision to indemnify plant operators under
                           Public Law 85-804.




                           Page 24                           GAO/NSIAD-97-32 Environmental Cleanup At DOD
Appendix II

Navy Case Studies


                      We visited two active Navy GOCO manufacturing facilities: the Allegany
                      Ballistics Laboratory, Mineral County, West Virginia, and the Naval
                      Industrial Reserve Ordnance Plant, Fridley, Minnesota. Both facilities have
                      been in operation since the early 1940s. The Allegany facility was operated
                      by Hercules, Inc., until Alliant Techsystems purchased Hercules and took
                      over operations in 1995. The Fridley facility also involved changes in
                      ownership. The Northern Pump Company operated the facility from 1942,
                      until FMC purchased a subsidiary of Northern in 1964.1


                      The Navy has had a policy since 1989, which states that the government
Agency Cost-Sharing   and current and former contractors share the liability and responsibility
Policy                for cleaning up GOCO facilities. The current contractor is to pay all cleanup
                      costs associated with its operation of the facility unless the operating
                      contract contains provisions to the contrary. According to a Navy official,
                      the Navy has the right to seek reimbursement from prior contractors for
                      the costs it incurred for cleaning up contamination resulting from their
                      activities.

                      Navy officials stated that GOCO operational decisions, including those
                      about disposal, were left to its contractors, and the Navy had little
                      presence at its GOCOs. Contractors operated the facilities under a
                      facilities-use contract to provide goods and services for the Navy without
                      direct Navy management of operations.

                      According to the Navy’s cost-sharing policy, if further study and
                      remediation are recommended after initial cleanup research, the Navy
                      command is required to immediately begin discussions with the GOCO
                      contractor regarding responsibility for and participation in the cleanup
                      effort. Participation is also to be discussed prior to cleanup, including any
                      removal or interim actions. According to Navy legal representatives, the
                      policy provides contractors an opportunity to participate in the cleanup
                      process as a means of reducing litigation risk—that is, a contractor that
                      participates in the cleanup process is less likely to argue that cleanup
                      costs were excessive or unnecessary.

                      If the contractor declines to participate, all cleanup costs are to be
                      identified for possible future recovery from the contractor. Despite its
                      1989 policy, the Navy has not initiated timely requests for contractor
                      participation in the cleanup. The Navy did not send a letter requesting

                      1
                       The operations by Northern Pump to 1964 were through a subsidiary, Northern Ordnance,
                      Incorporated. FMC operations from 1994 were by a subsidiary, United Defense Limited Partnership.



                      Page 25                                      GAO/NSIAD-97-32 Environmental Cleanup At DOD
                      Appendix II
                      Navy Case Studies




                      contractor participation until 1994 at one of the two facilities we visited
                      and has not begun the required negotiations with the second facility.

                      At both the facilities we visited, some of the contamination related to
                      production for the Navy at contractor-owned property adjacent to the
                      government-owned sites. In one case, the contamination was on the
                      contractor property, and in the other, it had been transferred to the Navy
                      property.

                      Navy officials said the Navy will likely clean up its facilities and then
                      decide whether to seek a share of the costs from the operators. They
                      provided a number of explanations for not pursuing cost sharing more
                      actively: (1) operators who help pay for the cleanup may later get
                      reimbursed for the expenditures; (2) a divisive liability issue might drive a
                      wedge into an otherwise productive relationship between the Navy and its
                      contractors; (3) cost-sharing negotiations could slow the cleanup; and
                      (4) cost recovery is easier after the cleanup is done, because all costs,
                      contamination, and responsible parties will have been identified, and the
                      costs can then be allocated to the responsible parties based on their
                      contributions.


                      Since 1945, the Allegany Ballistics Laboratory has researched, developed,
Allegany Ballistics   produced, and tested solid propellant rocket motors on about 1,600 acres
Laboratory            in Mineral County, West Virginia, about 10 miles southwest of
                      Cumberland, Maryland. The laboratory has been operated by Hercules,
                      Inc., for all but 2 of its 54 years in operation. George Washington
                      University, under contract with the Army, operated the laboratory from
                      1943 until 1945, when Hercules, Inc., took over operations under a Navy
                      contract. In 1995, the laboratory’s current operating contractor, Alliant
                      Techsystems, purchased the division of Hercules that had been operating
                      the facility.

                      Hercules also began operating commercial businesses on and adjacent to
                      the laboratory in 1967. Hercules purchased 56 acres adjoining the
                      laboratory in 1967 and built a propellant production facility. In addition to
                      rocket development, Hercules began operating a commercial automobile
                      testing business at the GOCO facility in 1973. According to a Navy study, no
                      written agreement exists between the Navy and Hercules regarding the use
                      of laboratory property for the disposal of waste generated by the adjacent
                      Hercules-owned facility.




                      Page 26                            GAO/NSIAD-97-32 Environmental Cleanup At DOD
                         Appendix II
                         Navy Case Studies




                         Manufacturing operations at the laboratory, as well as disposal of
                         contaminated waste produced at the nearby commercial plant, have
                         generated hazardous waste. This waste contaminated soil and
                         groundwater with trichloroethylene, explosives, and volatile and
                         semi-volatile organic chemicals, and the laboratory was placed on the EPA
                         National Priorities List in 1994. Navy officials do not believe the
                         contractor’s on-site automobile testing business contributed to the
                         contamination. However, some of the contamination at the laboratory
                         stemmed from burning of propellant-contaminated waste from the
                         adjacent contractor-owned production facility.


Cleanup Efforts          Multiple studies and investigations have been performed, starting with
                         environmental studies initiated in fiscal year 1983 that identified 11 sites
                         and a later study in fiscal year 1986 that recommended further study at
                         8 sites. A subsequent assessment in fiscal year 1993 identified an
                         additional 105 sites and only recommended further action at 30 of the
                         sites. As of September 1994, the Navy reported that remedial actions
                         should be completed by fiscal year 1998. DOD reported in March 1995 that
                         cleanup-related operations were expected to continue to fiscal year 2010.
                         Navy officials later stated they expect the study phase to be completed in
                         fiscal year 2003, remedial actions to be completed by fiscal year 2010, and
                         long-term operations to be completed in 2025. According to the officials,
                         limited DERA funding and the unavailability of field data have delayed
                         cleanup efforts.


Cleanup Cost Estimates   The Navy’s cleanup cost estimates for the laboratory increased from about
                         $18.7 million in fiscal year 1993, to $27.8 million in 1994, and $43.5 million
                         in 1995. DOD’s estimates were about $21.2 million, $30.7 million, and
                         $24.4 million for the respective years. Navy officials attributed the
                         increases to an extension of the cleanup time frames and a change in the
                         estimating methodology used. The Navy began to use a projection model
                         in July 1994 to project future cleanup costs based on factors such as
                         contamination type and degree of contamination. The Navy attributed the
                         differences between the Navy and DOD for fiscal year 1995 mainly to the
                         different data used. For example, DOD’s 1995 reports excluded unfunded
                         Allegany Ballistics Laboratory requirements included by the Navy for fiscal
                         year 1998 and beyond. In addition, the Navy estimate increased because
                         additional investigations revealed more extensive contamination.




                         Page 27                            GAO/NSIAD-97-32 Environmental Cleanup At DOD
                           Appendix II
                           Navy Case Studies




                           Although DOD and Navy sources agreed on expenditures to date, we found
                           other costs totaling 76 percent more than the $1.3 million reported for
                           1994. Expenditures not reported in the above sources for Allegany
                           Ballistics Laboratory were (1) $836,000 that was paid through the Naval
                           Sea Systems Command Operations and Maintenance account, as directed
                           by congressional appropriations language for a remedial investigation;
                           (2) $60,000 for an initial assessment study funded by the Naval Facilities
                           Engineering Command; (3) $45,460 provided by the U.S. Army Corps of
                           Engineers in DERA funds to the state of West Virginia for regulatory
                           oversight and technical assistance; and (4) $45,285 paid to EPA through the
                           Superfund for oversight. Also, costs beyond 1994 for EPA oversight are
                           expected to exceed $667,000.


Cost-Sharing Arrangement   According to Navy officials, the contamination at the laboratory resulted
                           from the contractor’s operation of both the laboratory and the adjacent
                           contractor-owned facility. The Navy sent a letter on February 22, 1994,
                           asking that Hercules, the facility operator for more than 50 years,
                           participate in financing the laboratory cleanup. Hercules declined to
                           participate, saying that the Navy had assumed all responsibility for the
                           cleanup. Hercules stated that it would also bill the Navy for
                           cleanup-related costs incurred in managing the restoration contractor,
                           because it considers such costs to be above and beyond its normal
                           operating costs.

                           Navy officials agreed that their 1994 letter to Hercules was not timely, but
                           said the Navy will continue to clean up the facility and then determine
                           whether to pursue a cost-sharing arrangement with Hercules. They said
                           their decision to pursue Hercules will be based on such factors as
                           evidence, litigation risk, and the level of independence of the contractor.
                           Further, Navy officials stated that the Navy has never had a significant
                           presence at the laboratory, leaving the contractor free to make operational
                           decisions, including those involving disposal. In the 1960s, about 40
                           government employees worked on site with 3,200 contractor personnel. In
                           the 1990s, about 4 government staff worked with 500 contractor personnel.


                           The Naval Industrial Reserve Ordnance Plant, Fridley, occupies about
Naval Industrial           83 acres in the city of Fridley, Minnesota, within the Minneapolis-St. Paul
Reserve Ordnance           metropolitan area. Since 1941, the plant has produced gun mounts,
Plant, Fridley             torpedo tubes, and missile-launching systems. With changes in ownership,
                           the same company has operated the plant for more than 54 years.



                           Page 28                           GAO/NSIAD-97-32 Environmental Cleanup At DOD
                         Appendix II
                         Navy Case Studies




                         Northern Ordnance, Inc., formerly a subsidiary of Northern Pump
                         Company, operated the facility from 1942 to 1964. At that time, FMC
                         Corporation purchased the company and continued operations until 1994,
                         when United Defense Limited Partnership, a subsidiary of FMC, took over
                         the plant’s operations.

                         Manufacturing at Fridley generated hazardous waste that contaminated
                         soil and groundwater with petroleum, oil, and other lubricants, and such
                         volatile organic chemicals as trichloroethane. Contamination has resulted
                         from a leaking sewer system under one of the plant’s production buildings.
                         The plant was placed on EPA’s National Priorities List in 1989.
                         Contamination was also discovered at off-site locations, including the
                         operating contractor’s private facility next to Fridley and three municipal
                         landfills. From the 1940s through 1969, the contractor disposed of
                         chemicals and other hazardous waste materials on 18 acres it owned south
                         of the Fridley facility. In addition, FMC disposed of foundry sand at
                         landfills in Andover, East Bethel, and Oakgrove, Minnesota, and it was
                         subsequently named as a potentially responsible party under CERCLA.
                         Chemicals now considered to be carcinogens were reportedly detected in
                         the foundry sand, but FMC stated that the chemicals were absorbed by the
                         sand after its disposal at the landfill.


Cleanup Efforts          The Fridley site was divided into three units for investigation and cleanup:
                         groundwater, soils around the building, and soils under the building. A
                         1990 record of decision for the first unit called for initially pumping and
                         treating contaminated groundwater and discharging it into a sanitary
                         sewer. Later, a permanent groundwater extraction system would treat
                         groundwater for discharge to the Mississippi River. The final remedy for
                         the second unit is being developed. It involves containing contaminated
                         soils and buried drums of waste, and later removing the contamination.
                         For the third unit, the remedial investigation begun in September 1996 will
                         serve as the basis for further studies and actions.


Cleanup Cost Estimates   Total cost estimates for Fridley increased from fiscal year 1993 to 1995.
                         DOD’s estimate increased from $13 million in fiscal year 1993, to about
                         $37.9 million in 1994, and $49 million in 1995. The Navy’s estimate
                         increased from about $17 million in 1993 to $30.7 million in 1994, and
                         $52 million in 1995. Navy officials attributed the 1993 and 1994 increases to
                         changes in estimates of future cleanup activities, completion dates, and
                         related costs. Also, the Navy used a projection model in July 1994 to



                         Page 29                            GAO/NSIAD-97-32 Environmental Cleanup At DOD
                               Appendix II
                               Navy Case Studies




                               estimate future cleanup costs, based on such factors as the type and
                               degree of contamination. For 1995, Navy officials attributed the large
                               increase to additional investigations that revealed more extensive
                               contamination needing cleanup. Navy officials indicated that the latest
                               difference between DOD and Navy estimates resulted from a reevaluation
                               of the cleanup program between the time the Navy and DOD estimates were
                               prepared.

                               We found additional costs of about $4 million not reported by either DOD or
                               the Navy. Neither included the following:

                           •   Contractors were paid $3.1 million for off-site cleanup. (The Navy
                               reimbursed FMC $1.9 million that FMC had paid to clean up its private
                               facility next to Fridley. The Navy also reimbursed FMC about $1.3 million
                               for costs incurred to clean up three municipal landfills where it had
                               disposed of waste from the Navy-owned Fridley sites. The reimbursements
                               total $3.1 million, with rounding. According to a DOD official, the state of
                               Minnesota may reimburse some of the money to FMC and thus to the
                               Navy.)
                           •   EPA was paid $481,000 through the Superfund for oversight and technical
                               assistance.
                           •   Approximately $106,000 was paid by Army Corps of Engineers to the state
                               of Minnesota for regulatory oversight and technical assistance.
                           •   The Navy paid $269,000 for cleanup before DERA funds were available.
                           •   A study funded by the Naval Facilities Engineering Command cost $60,000.

                               Costs beyond 1994 for EPA oversight are expected to exceed $1.78 million.

                               DOD’s  report for fiscal year 1994 did not show any projected cleanup costs
                               for 1995 and 1996. This was corrected in the 1995 report, which showed
                               total reported cost of about $8 million.


Cost-Sharing Arrangement       Navy officials said the Navy will clean up the Fridley facility and then
                               determine whether to pursue cost sharing with FMC. According to Navy
                               officials, the Navy has never sent a letter to FMC requesting financial
                               participation in the cleanup, but did request the contractor to review and
                               comment on the Navy’s new cleanup policy in September 1989. In its
                               October 1989 response, FMC disagreed with the Navy’s policy to “require
                               current GOCO contractors to pay for any and all cleanup costs associated
                               with their operation of Navy facilities.” According to the FMC response,
                               the nature of the company’s relationship with the Navy and related



                               Page 30                           GAO/NSIAD-97-32 Environmental Cleanup At DOD
Appendix II
Navy Case Studies




contractual obligations does not justify it paying for cleaning up the
hazardous waste sites associated with its operations.

FMC stated that under its contract, it is required to perform only normal
maintenance on the facility: “Remediation of hazardous waste sites at the
facility would clearly fall in the category of maintenance over and above
normal maintenance that would either be performed by the Navy or by
FMC at Navy expense.” However, according to a Navy official, the
contractor was free to make operational decisions at the facility, including
those involving disposal. He stated the Navy never had significant
presence at Fridley. For example, in the 1970s, about 70 or 80 government
employees worked onsite with about 2,000 contractor personnel, and in
the 1990s, about 60 government employees worked with 1,500 contractor
personnel.

As noted above, the Navy reimbursed FMC $1.9 million for costs to clean
up the contractor’s facility adjacent to Fridley. Following a contracting
officer’s final decision to deny FMC its requested reimbursement of
$2.2 million, FMC appealed to the Armed Services Board of Contract
Appeals. According to a Navy legal official, after extensive discussion, the
decision to pay FMC was based on litigation-related risk and cost. The
reimbursement was reduced to $1.9 million because FMC recovered
$275,000 through an action against Northern Pump Company, the former
parent company of the subsidiary that FMC purchased in 1964. FMC filed a
claim with its insurance company to recover some of the private facility’s
cleanup costs.

In addition to the previously noted $1.3 million Navy reimbursement to
FMC for the company’s cleanup costs at the three municipal landfills, FMC
has requested another $1.3 million for these facilities. A DOD official
indicated that part of these past costs may be recovered because the state
of Minnesota is reimbursing companies involved in settlements to pay for
cleaning up the landfills. If FMC receives such a payment, DOD is to be
reimbursed its share.




Page 31                            GAO/NSIAD-97-32 Environmental Cleanup At DOD
Appendix III

Air Force Case Studies


                      We visited two active Air Force manufacturing facilities: Air Force Plant 4
                      in Fort Worth, Texas, and Plant 44 near Tucson, Arizona. The 2 plants are
                      among 4 the Air Force plans to retain following divestiture, thereby
                      reducing Air Force GOCO plants from a post-World War II high of over 100
                      to the current 9.


                      Cleanup at the nine remaining Air Force GOCOs is expected to exceed
Agency Cost-Sharing   $245 million. The Air Force Deputy General Counsel issued guidance in
Guidance              December 1995 that deals with cost-sharing arrangements with other
                      potentially responsible parties, including plant operators. The guidance
                      states that there is substantial legal rationale for negotiating shared
                      responsibility for environmental remediation costs, based on the facts of
                      the situation, especially where the contractor may have liability insurance.
                      The guidance recognizes that CERCLA “contemplates that potentially
                      responsible parties, including both the owner and the operator, are
                      responsible and will share the costs of environmental remediation.” It
                      states that “there should be neither an assumption that the government is
                      responsible for and will pay 100 percent of a company’s environmental
                      remediation costs, nor an assumption that the government would not pay
                      for any of these costs under other contracts or continuing liability under
                      the GOCO contract.”

                      According to an Air Force memorandum, the Air Force now begins
                      cost-sharing negotiations by proposing equal sharing of costs between the
                      Air Force and plant operators unless evidence shows that the government
                      or operator had a greater responsibility, or other responsible parties were
                      identified. The memorandum noted that equal sharing is an appropriate
                      starting place for negotiations because the Air Force has never exercised
                      day-to-day control over the work of GOCO plant operators and thus has had
                      little or no ability to control contractors’ compliance with environmental
                      laws and regulations.

                      The Air Force recently completed cost-sharing negotiations with a GOCO
                      operator. Thiokol, the former operator of Plant 78 in Utah, has agreed to
                      equally share with the Air Force the costs related to cleaning up
                      contamination at the plant. According to Air Force officials, the decision
                      to pursue cost-sharing at other locations will ultimately depend on
                      whether the service identifies other responsible parties at each plant.1

                      1
                       In another instance, the Air Force has negotiated a cost-sharing settlement with Aerojet, the operating
                      contractor at Air Force Plant 70 in Sacramento, California. Aerojet has agreed to pay 35 percent of
                      cleanup costs associated with its products. The Air Force is to pay the other 65 percent of what DOD
                      and EPA officials estimate will be hundreds of millions of dollars in cost.



                      Page 32                                        GAO/NSIAD-97-32 Environmental Cleanup At DOD
                    Appendix III
                    Air Force Case Studies




                    Air Force officials stated that the Air Force’s cost recovery efforts have
                    been hindered by indemnifications of other DOD contractors and other
                    factors. Budget cuts have delayed searches for other responsible parties,
                    and the Air Force does not have the financial management systems needed
                    to track all environmental cleanup costs for recovery purposes. Contractor
                    officials at the two plants we visited believe they are not liable for
                    environmental cleanup costs and cited various contract provisions. They
                    also stated that contractor reimbursements by the government for
                    environmental cleanup costs are not prohibited by law or regulation.
                    According to Air Force officials at the two sites visited, the Air Force
                    intends to pay for cleanup and then recover costs from other responsible
                    parties.


                    Air Force Plant 4, Fort Worth, Texas, began operations in 1942, when
Air Force Plant 4   Consolidated Aircraft manufactured B-24 bombers. General Dynamics
                    operated the plant from 1953 until 1993, when Lockheed acquired General
                    Dynamics’ Fort Worth operations. These Lockheed operations now
                    produce F-16 fighter jets, spare parts, radar units, and missile components.

                    Manufacturing at Plant 4 generated hazardous waste, including waste oils,
                    fuels, paint residues, solvents, heavy metals, and process chemicals.
                    Groundwater and soil were contaminated, primarily with
                    trichloroethylene, chromium, and petroleum byproducts. Four major
                    plumes of groundwater contamination originate at the plant and extend
                    offsite, including two plumes that are contaminating the drinking water
                    aquifer that serves as a municipal water source for the City of White
                    Settlement. In addition, the contaminated drinking water aquifer is near a
                    creek that borders the plant. This creek discharges into the Lake Worth
                    Reservoir, which is the primary drinking water source for Fort Worth.
                    Plant 4 was placed on EPA’s National Priorities List in August 1990.


Cleanup Efforts     Site investigations began in 1984, and the Air Force has begun six ongoing
                    remedial actions since 1992. These actions consist primarily of
                    groundwater pump-and-treat, extraction of vapors from soil, and
                    excavation and disposal of contaminated soil. Based on a November 1994
                    Air Force Material Command review of the cleanup program at Plant 4, the
                    Air Force canceled its plans to build a $25-million groundwater treatment
                    system because monitoring indicated that the contaminants in the
                    groundwater are slowly biodegrading. According to the Air Force remedial
                    project manager for Plant 4, remedial actions will be taken only for sites



                    Page 33                           GAO/NSIAD-97-32 Environmental Cleanup At DOD
                           Appendix III
                           Air Force Case Studies




                           that present an immediate risk, such as contaminated soils or areas where
                           contaminated groundwater is affecting drinking water. The remedial
                           project manager expects regulatory approval of a record of decision,
                           documenting the final plan for cleaning up the site, in 1997.


Estimated Cleanup Costs    According to Air Force field estimates, cleanup at Air Force Plant 4 will
                           cost $79.6 million, which is over $16 million more than the nearly
                           $63 million reported in DOD’s fiscal year 1994 and 1995 reports to Congress.
                           Most of the difference between the two estimates related to future costs.

                           The field estimates were prepared by the Aeronautical Systems Center in
                           Dayton, Ohio, which is responsible for managing Air Force GOCO plants
                           and the associated environmental cleanup activities. DOD’s estimate was
                           based on Air Force headquarters information from an automated
                           cost-estimating program that considers, among other things, historical
                           information from similar sites where cleanup has been completed.

                           Regardless of which estimate is more accurate, both excluded some
                           cleanup costs, although the total excluded is unknown. According to Air
                           Force officials, these included such expenses as those incurred prior to
                           1984, costs claimed through overhead, projects paid for with compliance
                           funds, and reimbursements to state regulatory agencies for oversight. For
                           example, the field estimate included nearly $4 million that was used for
                           preliminary assessments, site investigations, and interim remedial actions
                           in 1983 and 1984. DERA funds were not available prior to 1984.

                           A Center official said that costs can be estimated only roughly until a
                           record of decision has been signed, confirming the cleanup remedy
                           decision. For example, DOD’s fiscal year 1993 estimate of $113 million was
                           reduced in 1994 to $63 million partly because of the previously cited
                           decision to cancel a major groundwater treatment facility. The facility
                           became unneeded when the Air Force found that the hydrogeologic
                           conditions at the affected site were conducive to natural biodegradation.


Cost-Sharing Arrangement   The Air Force has paid all the costs of the plant’s cleanup to date. A
                           decision about whether to pursue recovery of any of those costs depends
                           on the Air Force’s search for responsible parties, which will be conducted
                           in fiscal year 1997. General Dynamics and Lockheed officials believe that
                           existing and former contracts obligate the Air Force to pay for all
                           environmental cleanup costs. Lockheed officials believe that cleanup costs



                           Page 34                           GAO/NSIAD-97-32 Environmental Cleanup At DOD
                         Appendix III
                         Air Force Case Studies




                         incurred by contractors are normal costs of doing business and thus
                         generally allowable, as long as they are reasonable, allocable, and meet
                         other provisions of contracts. According to General Dynamics, the
                         agreement between General Dynamics and Lockheed for the sale of the
                         Fort Worth Division set forth how the parties would allocate the
                         environmental liability if costs were not reimbursed by the Air Force.
                         Contractor officials noted that this agreement did not constitute an
                         admission of liability.


                         Air Force Plant 44, in Tucson, Arizona, has been operated by Hughes
Air Force Plant 44       Missile Systems Company since its 1951 construction. Hughes currently
                         produces electronic and tactical missile systems at the plant.

                         Manufacturing at Plant 44 generated hazardous waste that contaminated
                         soil and groundwater. Contaminants included trichloroethylene as well as
                         chromium and other metals. The Tucson International Airport area,
                         contiguous to Plant 44, was placed on the National Priorities List in 1983,
                         and Plant 44 is a unit within that site because it is one of four source areas
                         that contributed to a large groundwater contamination plume.


Cleanup Efforts          Site investigations began in 1981, when the Air Force initiated a
                         groundwater monitoring program. Based on a 1986 record of decision, a
                         groundwater remediation program began with a pump-and-treat system
                         and numerous extraction and recharge wells. The contaminated plume has
                         since been reduced by nearly 70 percent and has broken into several
                         smaller plumes, according to Air Force and contractor officials, but
                         contamination still exceeds that allowed by EPA for drinking water. The Air
                         Force submitted a separate Plant 44 feasibility study to EPA in
                         January 1995 and is developing several cleanup strategies, including a
                         cleanup remedy to accelerate the soil cleanup.


Cleanup Cost Estimates   At the time of our review, Air Force field estimates indicated total cleanup
                         at Plant 44 would cost about $90.9 million by 2002, which is higher than
                         either the $61.3 million reported in DOD’s fiscal year 1994 report to
                         Congress, or the $73.6 million in DOD’s subsequent 1995 report. According
                         to Air Force officials, the database used to prepare the DOD estimate in
                         both years was missing nearly $19 million in historical DERA costs. Air
                         Force headquarters officials believed that field data are more accurate for




                         Page 35                            GAO/NSIAD-97-32 Environmental Cleanup At DOD
                           Appendix III
                           Air Force Case Studies




                           historical costs because the records of actual obligations reside in the
                           field.

                           Air Force headquarters officials told us that projected costs differ because
                           headquarters used an automated cost-estimating system. Headquarters
                           officials believe their projections, which were lower than the field’s in
                           both the 1994 and 1995 reports, will prove to be more realistic. According
                           to the Plant 44 remedial project manager, his estimates are more accurate
                           because they are based on contracted studies and historical cost figures
                           for operating a groundwater treatment plant.

                           Historical cost estimates from DOD and the field excluded costs funded by
                           sources other than DERA, such as costs incurred prior to the account’s
                           establishment in 1984, costs claimed by contractors through overhead
                           charges, more than $50,000 paid to state regulators for oversight, and
                           cleanup costs paid out of compliance funds. For example, the plant has
                           spent over $3 million in compliance funds on cleanup projects and may
                           similarly use another $3 million that is currently obligated to compliance
                           projects.


Cost-Sharing Arrangement   In accordance with the December 1995 Air Force guidance for cost sharing
                           at its GOCO plants, Air Force officials plan to search for responsible parties
                           in the future at Plant 44, depending on the availability of DERA funds.
                           Hughes officials disclaim responsibility for sharing the cleanup costs,
                           saying the Air Force is contractually obligated to pay for all historical
                           environmental cleanup costs. We reported in July 19942 that a 1987
                           memorandum from the former Air Force Systems Command said that
                           Hughes was indemnified from responsibility for past groundwater
                           contamination. Our November 1994 report noted that Air Force officials
                           did not believe that the memorandum indemnified Hughes. According to
                           an Air Force attorney, Air Force officials will not make a formal decision
                           about Hughes’ potential liability until cost recovery becomes an issue.

                           Hughes entered into a new lease agreement with the Air Force that makes
                           Hughes liable for all environmental claims resulting from releases that
                           arise from acts or omissions occurring on or after the effective date of the
                           lease. Hughes and the Air Force are to be each equally liable for claims
                           resulting from unknown conditions after the lease’s effective date, up to a



                           2
                           Environmental Cleanup: Defense Indemnification for Contractor Operations (GAO/NSIAD-95-27,
                           Nov. 25, 1994).



                           Page 36                                    GAO/NSIAD-97-32 Environmental Cleanup At DOD
Appendix III
Air Force Case Studies




dollar ceiling for Hughes. According to an Air Force attorney, the dollar
total is proprietary information.




Page 37                           GAO/NSIAD-97-32 Environmental Cleanup At DOD
Appendix IV

Defense Logistics Agency Case Studies


                       We visited two Defense Fuel Support Points managed by DLA at Norwalk,
                       near Los Angeles, California, and Ozol, near Oakland, California. These
                       fuel support points, among 25 worldwide, are operated by contractors for
                       DLA’s Defense Fuel Supply Center. The center purchases bulk refined
                       petroleum products, coal, natural gas, and synthetic fuels for the military
                       services and federal civilian agencies around the world.


                       The Defense Fuel Supply Center policy and practice have been to recover
Agency Cost-Sharing    most cleanup costs for past contamination through a fuel surcharge
Policy                 assessed to its customers, rather than with DERA funds. This surcharge,
                       according to a Center official, is about 1 cent per barrel. We found no
                       evidence that the Center has recovered environmental cleanup costs from
                       its former operators. Current operators are to be held responsible for a
                       fuel spill if they are negligent in attending to a leak on the facility.

                       The center does not have a written policy that directs the investigation of
                       cost-sharing opportunities with potentially responsible parties such as
                       former owners, lessees, or neighboring properties. A complicating factor
                       for DLA’s cost sharing in fuel-related cleanups is that CERCLA excludes
                       certain petroleum products from the definition of hazardous substances.
                       In such cases, joint and several liability under CERCLA may not apply, and
                       DLA may need to either negotiate with other responsible parties or bring
                       legal action against them to recover contamination-related damages at its
                       facilities.

                       In discussing this issue, a center official stated that the center has
                       considered developing a cost-sharing policy to encourage cost recovery
                       and consistency in cost-sharing approaches. According to center officials,
                       the center has an unwritten policy to pursue cost recovery. In addition,
                       they believe that the existing general guidance on property damage should
                       have the same effect, if followed.


                       DLA’s Norwalk facility is a 50-acre fuel storage depot in Los Angeles
Defense Fuel Support   County, about 20 miles southeast of the city of Los Angeles. From 1923
Point, Norwalk         until 1951, the Norwalk site was owned by a number of private oil
                       companies. In 1951, the site was purchased by the Air Force. DLA has
                       operated the facility since 1968. Tenco Services, Inc., has been the
                       operating contractor of the facility since 1992. Santa Fe Pacific Pipeline
                       leases about 2 acres of land at the facility and has operated a fuel pump
                       station there for over 25 years.



                       Page 38                            GAO/NSIAD-97-32 Environmental Cleanup At DOD
                         Appendix IV
                         Defense Logistics Agency Case Studies




                         Contamination exists both on and off the site in the form of
                         oil-contaminated soils and underground fuel plumes resulting from fuel
                         leaks. Three contamination plumes have been identified on site; one
                         stemmed largely from the lessee’s activities. A fourth plume is off site and
                         resulted from a 200,000-gallon leak from a center pipeline under an
                         intersection in the nearby town of Tustin.


Cleanup Efforts          From 1991 through 1994, several assessments were performed at the
                         facility, and monitoring wells and soil borings were installed and drilled. In
                         1992 and 1993, a total of about 3,300 gallons of liquid hydrocarbons were
                         removed by a recovery system that was installed for the Santa Fe plume
                         within the southern portion of the facility. Another project removed
                         4,713 gallons of liquid hydrocarbons from seven off-site wells adjacent to
                         the site during 1992 and 1993.

                         Delays have slowed investigations at the off-site location, and damage has
                         not yet been fully characterized. According to Norwalk officials, gaining
                         access to the surrounding properties to install test wells has been the
                         major obstacle.


Cleanup Cost Estimates   According to Center officials, the Norwalk facility’s on- and off-site
                         cleanup will cost about $16.5 million, about half for each portion, and will
                         be completed in 2010. The estimate was submitted to DOD and was
                         accurately reflected in DOD’s annual reports to Congress for fiscal
                         year 1994, but was excluded from its 1995 report.

                         A factor that could affect DLA costs includes private party leasing of part of
                         the facility. The lessee was expected to contribute $7.5 million toward the
                         facility’s cleanup cost. Additional costs that could arise include four claims
                         totaling about $1.6 million that nearby property owners have filed against
                         the center. The claims allege that contamination from the site has reduced
                         the owners’ property values or prevented them from developing or selling
                         their properties. Center officials have not included any amount for claims
                         in their estimate because the claims have not been decided.

                         The center also prepared a worst-case estimate for Norwalk, with total
                         costs of about $34.7 million. According to officials, the higher estimate
                         reflects not a more expensive cleanup remedy, but potential increases in
                         the cost of testing, monitoring, operations and maintenance, system




                         Page 39                                 GAO/NSIAD-97-32 Environmental Cleanup At DOD
                           Appendix IV
                           Defense Logistics Agency Case Studies




                           installation, pump replacement, and other such activities. Completion
                           would still be expected in 2010.


Cost-Sharing Arrangement   The center is not attempting to recover any cleanup costs from present or
                           former contractors at the site. An investigation performed at this site
                           identified Santa Fe Pipeline, the lessee, as a potentially responsible party
                           for this site. The center and Santa Fe are currently negotiating cost sharing
                           for cleanup, and center officials believe that the company will fund about
                           $7.5 million in cleanup costs.

                           Center officials have not identified any possible cost recovery options for
                           Norwalk’s off-site cleanup at the Tustin intersection, a cleanup that is
                           expected to cost between $8 million and $13 million. Officials of the
                           operating contractor believe that a third party may have damaged the
                           center’s pipeline by digging in the intersection to install a separate
                           pipeline. A Defense Fuel Region West official believes that DLA center
                           officials could have been more aggressive in attempting to identify the
                           responsible party when the leak was first discovered. Center officials
                           stated that little, if any, evidence was gathered to prove that another party
                           damaged the pipeline.


                           The Ozol facility is a fuel storage depot near the town of Martinez,
Defense Fuel Support       California, about 25 miles northeast of Oakland. The facility was
Point, Ozol                constructed in 1959 by the Holley Corporation and leased to the federal
                           government until the Air Force purchased the facility in 1980. DLA has
                           managed the facility since 1980, and Tenco Services, Inc., operated it from
                           1990 until now.

                           Aviation gasoline and jet fuel are present in soil and groundwater around
                           and beneath the storage tanks, apparently from leaks in the tanks and
                           pipes. Four distinct groundwater fuel plumes have been identified.


Cleanup Efforts            In 1985, a pilot recovery system was installed to remove fuel and its
                           byproducts southwest of the lower tank area. This recovery system
                           consisted of a collection trench/recovery well, air stripper, and recovered
                           fuel holding tank. In addition, a small, low-volume, passive oil/water
                           separator was installed to remove fuel north of the upper tank field.
                           However, both of these systems have been taken out of use pending
                           establishment of the selected final remedy.



                           Page 40                                 GAO/NSIAD-97-32 Environmental Cleanup At DOD
                           Appendix IV
                           Defense Logistics Agency Case Studies




Cleanup Cost Estimates     According to center officials, cleanup at the Ozol facility will cost about
                           $6.4 million. This estimate was accurately reflected in DOD’s annual report
                           to Congress for fiscal year 1994, but was excluded from the 1995 report.
                           Officials expected that the cleanup will be completed in 2002.

                           The center’s worst case estimate totals about $37 million, with cleanup
                           completed in 2017. The differences in treatment costs would arise if active
                           pump-and-treat and vapor-removal systems were required, rather than the
                           current plan to allow contaminated soils and groundwater to naturally
                           biodegrade.


Cost-Sharing Arrangement   The center is not attempting to recover any cleanup costs from present or
                           former contractors at the site because center officials do not believe that
                           contractor action caused the contamination. According to a DLA legal
                           official, DLA is not pursuing cost recovery from the former owner of the
                           site because it believed the contamination involved occurred after transfer
                           of the property in 1980.




                           Page 41                                 GAO/NSIAD-97-32 Environmental Cleanup At DOD
Appendix V

Comments From the Department of Defense




             Page 42      GAO/NSIAD-97-32 Environmental Cleanup At DOD
Appendix V
Comments From the Department of Defense




Page 43                              GAO/NSIAD-97-32 Environmental Cleanup At DOD
Appendix V
Comments From the Department of Defense




Page 44                              GAO/NSIAD-97-32 Environmental Cleanup At DOD
Appendix VI

Major Contributors to This Report


                        Charles I. Patton, Jr
National Security and   Uldis Adamsons
International Affairs   R. Bruce Brown
Division, Washington,   Leticia V. Bates
                        Jerome P. Pederson
D.C.
                        Patricia Foley Hinnen
Denver Field Office     Pamela K. Tumler


                        David P. Marks
Dallas Field Office     Eric R. Erdman


                        Robert G. Hammons
Kansas City Field       Gary L. Nelson
Office
                        Gary W. Kunkle
Los Angeles Field       Nancy Merlino
Office




(709124)                Page 45                 GAO/NSIAD-97-32 Environmental Cleanup At DOD
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 6015
Gaithersburg, MD 20884-6015

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested