oversight

Superfund: Progress Made by EPA and Other Federal Agencies to Resolve Program Management Issues

Published by the Government Accountability Office on 1999-04-29.

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

                  United States General Accounting Office

GAO               Report to Congressional Requesters




April 1999
                  SUPERFUND
                  Progress Made by EPA
                  and Other Federal
                  Agencies to Resolve
                  Program Management
                  Issues




GAO/RCED-99-111
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Resources, Community, and
      Economic Development Division

      B-282170

      April 29, 1999

      Congressional Requesters

      This report addresses whether EPA and other selected federal agencies are setting risk-based
      cleanup priorities under the Superfund law and whether EPA is recovering cleanup costs and
      managing its cleanup contractors as efficiently as possible. We are making recommendations to
      the Administrator of EPA designed to improve the agency’s information on and management of
      cleanups of high-risk sites, maximize EPA’s recovery of cleanup costs, and help prevent EPA from
      incurring unnecessary costs for contractors’ work.

      We are also making recommendations to the Secretary of Defense and the Secretary of
      Agriculture, to coordinate their efforts to address hazardous wastes generated by the
      Department of Defense’s activities on National Forest System lands, and to the Secretary of the
      Interior, to direct the Bureau of Land Management to develop a comprehensive strategy to
      identify and clean up hazardous waste sites. We are sending copies of this report to the
      Honorable Carol Browner, Administrator, EPA; the Honorable Dan Glickman, Secretary of
      Agriculture; the Honorable Mike Dombeck, Chief, Forest Service; the Honorable William Cohen,
      Secretary of Defense; the Honorable Bill Richardson, Secretary of Energy; the Honorable Bruce
      Babbitt, Secretary of the Interior; the Honorable Tom Fry, Director, Bureau of Land
      Management; and the Honorable Jacob Lew, Director, Office of Management and Budget.
      Copies will also be made available to others on request.

      If you or your staff have any questions please call me on (202) 512-4907. Major contributors to
      this report are listed in appendix II.




      Peter F. Guerrero
      Director, Environmental
        Protection Issues
B-282170

List of Congressional Requesters

The Honorable John H. Chafee
Chairman, Committee on Environment
  and Public Works
United States Senate

The Honorable Tom Bliley
Chairman
The Honorable John D. Dingell
Ranking Minority Member
Committee on Commerce
House of Representatives

The Honorable Michael G. Oxley
Chairman, Subcommittee on Finance
  and Hazardous Materials
Committee on Commerce
House of Representatives

The Honorable Bud Shuster
Chairman
The Honorable James L. Oberstar
Ranking Minority Member
Committee on Transportation
  and Infrastructure
House of Representatives

The Honorable Sherwood L. Boehlert
Chairman
The Honorable Robert A. Borski
Ranking Minority Member
Subcommittee on Water
  Resources and Environment
Committee on Transportation and
  Infrastructure
House of Representatives




                    Page 2           GAO/RCED-99-111 Superfund Program Management Issues
B-282170




           Page 3   GAO/RCED-99-111 Superfund Program Management Issues
Executive Summary


                   The magnitude of the nation’s hazardous waste problem calls for making
Purpose            effective use of limited available funds. Current estimates indicate that
                   cleanups are expected to cost the federal government about $300 billion
                   and the private sector hundreds of billions more. Since the early 1990s,
                   GAO has identified several long-standing management problems with the
                   Environmental Protection Agency’s (EPA) Superfund program, created
                   under the Comprehensive Environmental Response, Compensation, and
                   Liability Act of 1980. These problems have hindered the agency’s ability to
                   effectively manage cleanups of the nation’s most hazardous sites.1 This
                   report assesses (1) the efforts that EPA and the other federal agencies with
                   major cleanup responsibilities have made to set priorities for spending
                   limited cleanup funds at the sites posing the highest risks, (2) EPA’s actions
                   to recover its expenditures for cleanups from the parties that are legally
                   liable for the contamination, and (3) EPA’s efforts to better control
                   contractors’ cleanup costs.


                   For several years, GAO has included the Superfund program on its list of
Results in Brief   federal programs that pose significant financial risk to the government and
                   potential for waste and abuse. Agencies have corrected some of these
                   problems, but those that remain are important enough to prevent GAO from
                   removing Superfund from the high-risk list. For example, four of the five
                   agencies GAO reviewed—EPA, Agriculture, Defense, and Energy—are
                   setting cleanup priorities on the basis of the relative risk that sites pose to
                   human health and the environment.2 EPA, Agriculture, and Defense set
                   nationwide priorities for most of their sites. However, EPA may not know
                   about all high-risk sites because states are taking on more cleanups and
                   deciding, often on the basis of factors other than risk, which sites, if any,
                   to refer to EPA for possible listing. Each Energy facility, such as a national
                   laboratory, considers risk and other factors when setting priorities among
                   its competing environmental management projects. However, cleanups at
                   one facility do not currently compete with those at another facility on a
                   nationwide basis. Energy maintains that because each facility is unique,
                   locally set priorities are more appropriate. Finally, Interior’s Bureau of
                   Land Management has not set nationwide cleanup priorities because it has
                   not yet developed an overall cleanup strategy or an inventory of its
                   hazardous waste sites, estimated to cost billions of dollars to address.

                   1
                    High-Risk Series: Superfund Program Management (GAO/HR-93-10, Dec. 1992; GAO/HR-95-12, Feb.
                   1995; GAO/HR-97-14, Feb. 1997; and GAO/OCG-99-17, Jan. 1999).
                   2
                    All federal agencies have agreed in principle to address their highest-risk sites first. Although each
                   agency employs its own methods to assess risks, each considers risks to human health and the
                   environment along with other issues, such as community concerns and cost-effectiveness, when
                   prioritizing cleanups.



                   Page 4                                 GAO/RCED-99-111 Superfund Program Management Issues
Executive Summary




Although EPA has succeeded in getting responsible parties to conduct 70
percent of long-term Superfund cleanups, it has been less successful in
recovering its costs from responsible parties when it conducts a cleanup.
EPA has lost the opportunity to collect almost $2 billion it spent on cleaning
up sites since the program began because it excluded large portions of its
indirect costs—the agency’s costs to administer the program—when it
calculated what costs to assess parties. While EPA has developed a new
method of calculating these costs that could increase their recovery, the
agency has not yet implemented it. Until it does so, it will continue to lose
funds that it could use for cleanups at additional sites. EPA also has not
established measures that compare the amount of costs recovered with
the amount that was potentially recoverable to better evaluate its overall
performance.

In response to GAO’s past concerns, EPA has eliminated almost all of its
backlog of 500 required Superfund contract audits, a key tool for helping
to deter contractors from fraud, waste, and abuse, and is trying to
complete new audits on time. However, some of EPA’s actions have been
slow and have not gone far enough to address GAO’s concerns that the
agency was not using its own estimates of what contract work should cost
to negotiate the best contract price for the government or to control
contractors’ program support costs, such as the costs for rent and
managers’ salaries. While EPA is now more frequently using its own
estimates of what cleanup actions should cost to negotiate contract prices,
some regional staff lack cost-estimating experience and training, as well as
historical site-specific data on actual cleanup costs, to help them develop
more accurate estimates and better negotiate contract prices. EPA took a
number of actions to reduce the amount of money it was paying to
contractors for program support costs instead of actual cleanup work.
However, its actions have not gone far enough, as indicated by the fact
that the program support costs for 10 of 15 new contracts exceed EPA’s
target of 11 percent of total cleanup costs. The program support cost for
the 10 contracts ranged from 16 to 76 percent, with a median of 28 percent.
As a result, less money is going toward the actual cleanup of high-risk
sites, and excessive amounts are still being spent on administrative
support costs.

This report contains recommendations to improve agencies’ consideration
of risk in setting funding priorities and EPA’s ability to recover and control
costs.




Page 5                      GAO/RCED-99-111 Superfund Program Management Issues
                             Executive Summary




Principal Findings

Most Agencies Are Using      EPA,  Agriculture, Defense, and Energy have made progress over the years
Risk as a Factor to Set      and are setting priorities for their limited cleanup funds on the basis of
Cleanup Funding Priorities   sites’ risks, among other factors, while Interior has not developed an
                             inventory of sites in order to set priorities among them.3 EPA funds
                             cleanups at those sites already on its National Priorities List according to
                             the risks that they pose, but it is not necessarily placing the riskiest sites
                             on its list. According to cleanup managers in 4 of EPA’s 10 regions, the
                             states are now deciding to address more of the sites that are risky enough
                             to be eligible for the federal Superfund program under their own state
                             programs. Furthermore, since 1995, EPA has been seeking concurrence
                             from a state’s governor to include a site on its list and has obtained such
                             concurrence for 123 sites but not for another 31 sites. As a result of this
                             trend toward more state cleanups, EPA expects that states will refer sites to
                             it for cleanup on the basis of difficulty and expense, rather than risk. For
                             example, EPA anticipates the referral of sites requiring many years of
                             groundwater cleanup and sites with no financially viable parties available
                             to pay for cleanup. The main problem EPA regions have with this trend is
                             that once a state begins managing a site’s cleanup, EPA has little or no
                             information on its status. A small subset of these sites are of great concern
                             to EPA because, for example, the contaminants are particularly hazardous,
                             responsible parties are recalcitrant, or local communities have come to
                             EPA with complaints and questions about cleanup. Most of the EPA regions
                             in this review would like the states to provide more information on the
                             status of these sites so that they can better plan their own workload in the
                             event that a state later seeks EPA’s involvement and so that they can be
                             more responsive to citizens’ inquiries.

                             Since February 1997, Agriculture—more specifically its agency with the
                             largest potential cleanup workload to date, the Forest Service—has taken
                             a number of actions to complete its inventory of sites, set priorities among
                             them nationwide, and obtain additional cleanup funding for them. Defense
                             has also further implemented its process to set risk-based priorities. The
                             Department has five primary components in its environmental cleanup
                             program—one for each of the three military services; one for all
                             Defense-wide agencies, such as the Defense Logistics Agency; and one for
                             formerly used Defense sites. Each component follows a process that the
                             Department established in order to request and allocate cleanup funds

                             3
                              The departments of Agriculture, Defense, Energy, and the Interior are responsible for the largest
                             number of federal facilities cleanups.



                             Page 6                                GAO/RCED-99-111 Superfund Program Management Issues
                         Executive Summary




                         according to risk-based priorities for its nationwide backlog of sites. While
                         Defense formerly tried to set priorities across its components, it no longer
                         does so, in part because each component receives its own, separate
                         cleanup appropriation. Instead, Defense established department-wide
                         cleanup goals on the basis of risk and monitors to make sure the
                         components fund and achieve these goals. According to the Department’s
                         environmental budget examiner, the components have been receiving
                         sufficient funds each year to meet their goals for addressing high-risk sites.

                         At Energy, each field operations office or facility, such as a large
                         laboratory, uses its own methodology to set risk-based priorities for the
                         cleanup projects that it manages. In March 1995, we reported concerns
                         because the Department was not allocating funds across its field
                         operations offices on the basis of risk. To date, the Department has not
                         taken action in response to our recommendation that it set nationwide
                         priorities, stating that this would interfere with priorities already set with
                         local communities and other stakeholders at each of its facilities on the
                         basis of each facility’s unique contamination, activities, and cleanup
                         requirements. Furthermore, the agency stated that while it does provide
                         the same amount of environmental management funds to each facility
                         from year to year, the proportion of funds allocated to any one of its
                         facilities was based on the amount and type of work and the risks at that
                         site. Interior’s Bureau of Land Management has yet to complete an
                         inventory of its contaminated sites—a problem we first identified in 1987.4
                         The Bureau must complete this step in order to set priorities, estimate
                         necessary resources, and develop a cleanup strategy that considers using
                         Superfund authority as a tool to get private parties to help pay for some
                         cleanups. Until then, some Interior sites could continue to pose health and
                         environmental risks and increased cleanup costs for the government if
                         contamination spreads and responsible parties are no longer able to pay.


EPA Could Recover More   For the past several years, EPA has consistently succeeded in getting
Costs and Adopt Better   responsible parties to conduct about 70 percent of long-term cleanups, one
Performance Measures     of its main goals for the program. If EPA cleans up a Superfund site, its next
                         goal is to seek the recovery from responsible parties, where appropriate,
                         of 100 percent of the federal funds expended at the site. However, EPA has
                         lost the opportunity to recover about $2 billion from responsible parties
                         because the methodology it used to calculate the amount of indirect
                         costs—the administrative costs of operating the program—that it would

                         4
                           Superfund: Civilian Federal Agencies Slow to Clean Up Hazardous Waste (GAO/RCED-87-153, July 24,
                         1987).



                         Page 7                              GAO/RCED-99-111 Superfund Program Management Issues
                             Executive Summary




                             charge these parties when settling cost recovery cases excluded a large
                             portion of these costs. Following federal accounting standards, EPA has
                             developed a new methodology that more accurately accounts for these
                             costs. Cost recovery program managers estimate that using the new
                             methodology could increase recoveries in cases yet to be settled by about
                             $629 million. The cost recovery program has not yet implemented the new
                             methodology because it is waiting for approval from EPA; the Department
                             of Justice, which litigates cost recovery cases; and an independent
                             accounting firm hired to review the methodology. Until EPA uses the new
                             methodology, it will continue to lose the opportunity to recover these
                             funds.

                             According to EPA’s cost recovery data as of the end of fiscal year 1998, the
                             most recent data at the time of GAO’s review, the agency had agreements to
                             recover a total of about $2.4 billion since the beginning of the program.
                             The agency spent a total of $15.9 billion in the Superfund program during
                             this same period, but not all of this amount is recoverable. At some sites,
                             for instance, there were no financially viable parties. Because EPA does not
                             have a cost recovery performance measure that compares annually the
                             amount of costs it recovers with the amount of costs it had the potential to
                             recover, the agency cannot determine how well it is performing its cost
                             recovery activities. The agency is concerned that developing such a
                             recovery rate might be misinterpreted by settling parties as a willingness
                             to settle for less than 100 percent of the recoverable costs in all cases and
                             could therefore jeopardize its negotiations. In addition, EPA notes that it
                             cannot control some factors that influence the amount of funds it can
                             recover, such as the percentage of cleanups with financially viable
                             responsible parties.


EPA Has Reduced Its Audit    EPA relies heavily on private contractors to perform or manage its cleanup
Backlog and Improved         activities. To deter and detect fraud, waste, and abuse by contractors, GAO
Some of Its Cost Estimates   recommended in February 1997 that EPA reduce its backlog of more than
                             500 required Superfund contract audits—the primary tool the agency uses
but Still Does Not           to evaluate the adequacy of contractors’ policies, procedures, controls,
Effectively Control          and performance. Depending on the size of the contractor and the amount
Contractors’ Cleanup         of EPA work that the contractor is to accomplish, either EPA’s Office of
Costs                        Inspector General or the Defense Contract Audit Agency is to conduct an
                             audit within at least 2 years of EPA’s request. Since February 1997, both
                             agencies have eliminated almost all the backlog and are performing new
                             audits on time. Although GAO did not review the quality of these audits,




                             Page 8                      GAO/RCED-99-111 Superfund Program Management Issues
Executive Summary




conducting them in a more timely manner helps ensure that important
records are maintained.

As GAO reported in February 1995 and 1997, EPA was not developing its
own estimates of what cleanup work should cost and was not using such
estimates to negotiate the best contract price for the government. In this
review, GAO tested a sample of 35 work assignments that EPA had issued to
contractors and found that the agency had generated its own estimates for
all 35 assignments. GAO also determined that about half of those estimates
closely matched the final price set for the work. However, EPA
overestimated costs for 6 of the remaining assignments by as much as
36 percent and underestimated costs for 11 of them by as much as
101 percent. Such variances, according to EPA’s own Financial Managers’
Financial Integrity Act report, can indicate problems with the quality of
the agency’s estimates. The EPA staff that prepared these cost estimates
said their lack of experience and access to detailed historical site-specific
cost data hinder their ability to develop accurate estimates. EPA has
established a workgroup to assess its cost-estimating procedures and to
design solutions to identified problems, including training options. The
agency has undertaken similar corrective measures in the past but has had
problems fully implementing and sustaining them over the long term.
While EPA is also collecting cost data as part of a new Superfund contract
management information system, several EPA cost estimators are
concerned that the system will collect aggregate cost data, not the
site-specific data they need to improve their estimates. Furthermore,
because cost data from prior work will not be entered into the system,
estimators will have to wait years for the historical data they need.

Finally, as GAO reported in the past, EPA was paying too high a percentage
of funds to contractors for program support costs, such as rent and
management salaries, leaving too small a percentage for cleanup work.
One major reason for the high percentage was that EPA retained all of its 45
Superfund contractors and continued to pay their program support costs,
even though it did not have enough cleanup work to give to all of the
contractors. In response, EPA reduced by half the number of contractors it
plans to retain as it authorizes its new round of Superfund contracts.
However, at the time of our review, 10 of 15 new contracts exceeded EPA’s
target of 11 percent for program support costs, ranging from 16 to
76 percent, with a median of 28 percent. The costs remain high, in part,
because EPA continues to retain more contractors than it needs and
continues to pay their overhead costs. Given that EPA expects its future
Superfund workload to decrease as states take on more cleanups, the



Page 9                      GAO/RCED-99-111 Superfund Program Management Issues
                  Executive Summary




                  percentage of program support costs will continue to rise unless the
                  agency now takes the opportunity to make adjustments when deciding
                  whether to exercise the contract options to renew those contracts whose
                  base periods are expiring soon.

                  The recurring problems that GAO identified raise broader questions about
                  EPA’s contracting practices and the need for sustained management
                  attention to reforms. EPA currently has a “Contracts 2000” initiative to
                  consider, among other things, various contract management options that it
                  could use to address additional issues, such as the need to have contracts
                  and contract management staff in place in each of its 10 regional offices.
                  However, the agency could not provide GAO with documentation
                  describing the team’s (1) overall strategy for determining what options it
                  would recommend that the agency adopt and (2) time frames for
                  implementing them.


                  GAO makes a number of recommendations in this report to improve
Recommendations   (1) agencies’ processes for ensuring that limited cleanup dollars go to the
                  sites posing the highest risks, (2) EPA’s ability to recover its cleanup costs
                  from the parties responsible for the contamination at sites, and (3) EPA’s
                  control of contractors’ costs.


                  GAO provided a draft of this report for review and comment to EPA and the
Agency Comments   departments of Agriculture, including the Forest Service; Defense,
                  including the U. S. Army Corps of Engineers; Energy; and the Interior,
                  including the Bureau of Land Management. GAO met with or obtained
                  information from officials in each of these organizations responsible for
                  making cleanup funding decisions, implementing various portions of each
                  agency’s cleanup programs, and contracting for cleanup work. The
                  agencies provided updated information on and technical corrections and
                  clarifications to the draft report, which were incorporated as appropriate.
                  EPA, Agriculture, Defense, and Interior generally agreed with GAO’s findings
                  and recommendations. Energy agreed with GAO’s presentation of its
                  process for setting risk-based priorities for funding cleanups at individual
                  facilities, but continues to disagree with GAO’s long-standing
                  recommendation that it develop a nationwide risk-based system to set
                  cleanup priorities in order to achieve more cost-effective cleanup
                  progress. Energy maintains that locally set priorities are more appropriate,
                  given the unique characteristics of each of its facilities, and that all of its
                  facilities pose high enough risks to merit steady funding. GAO maintains



                  Page 10                      GAO/RCED-99-111 Superfund Program Management Issues
Executive Summary




that developing nationwide cleanup priorities would help the Department
make informed budget decisions and analyze trade-offs among its
facilities. Additional discussions of the agencies’ comments and GAO’s
responses are provided in chapters 2, 3, and 4.




Page 11                   GAO/RCED-99-111 Superfund Program Management Issues
Contents



Executive Summary                                                                                   4


Chapter 1                                                                                          14
                        Background on the Superfund Program                                        14
Introduction            Prior GAO Work                                                             19
                        Objectives, Scope, and Methodology                                         19


Chapter 2                                                                                          22
                        EPA Funds Its Cleanup Actions According to Risk but Is Not                 22
Most Agencies Are         Adding New Sites to the National Priorities List Solely on the
Considering Risk in       Basis of Risk
                        The Departments of Agriculture, Defense, and Energy Have Set               28
Setting Cleanup           Risk-Based Cleanup Priorities, but Interior Has Not Yet Identified
Priorities                All Sites Needing Cleanup
                        Conclusions                                                                40
                        Recommendations                                                            42
                        Agency Comments                                                            43

Chapter 3                                                                                          45
                        EPA Continues to Lose Revenue by Excluding Some Indirect                   45
EPA Is Not Seeking to     Costs From Recovery
Fully Recover Its       EPA’s Goals and Measures Do Not Fully Reflect Progress in                  47
                          Recovering Costs
Indirect Costs or       Improved Information and Financial Systems Will Enable EPA to              50
Appropriately             Retrieve Data More Efficiently and Accurately to Support
Evaluating Its Cost       Recoveries
                        Conclusions                                                                51
Recovery Efforts        Recommendation                                                             52
                        Agency Comments                                                            52




                        Page 12                    GAO/RCED-99-111 Superfund Program Management Issues
                       Contents




Chapter 4                                                                                          53
                       Contract Audit Backlog Has Been Reduced                                     53
EPA Has Improved Its   EPA Cannot Ensure the Best Possible Price for Contracted Work               54
Management of          EPA Is Still Experiencing Some Contract Management                          59
                         Deficiencies
Superfund Contracts    Conclusions                                                                 64
but Still Does Not     Recommendations                                                             65
Effectively Control    Agency Comments                                                             66
Some Cleanup
Contractors’ Costs
Appendixes             Appendix I: Objectives, Scope, and Methodology                              68
                       Appendix II: Major Contributors to This Report                              76


Tables                 Table 1.1: Number of Federal Facilities on the Docket and on the            15
                         National Priorities List as of September 1998
                       Table 2.1: Summary of Steps Four Federal Agencies Have Taken                29
                         to Set Risk-Based Priorities


Figures                Figure 1.1: Steps Toward Including a Site on EPA’s National                 16
                         Priorities List
                       Figure 1.2: Cleanup Steps for Sites on the National Priorities List         18
                       Figure 2.1: Status of All Sites in EPA’s CERCLIS Database                   27
                       Figure 3.1: Status of EPA’s Efforts to Recover $11 Billion in               46
                         Superfund Program Costs Through Fiscal Year 1998
                       Figure 4.1: EPA’s Estimate Compared With the Final Contract                 55
                         Price for 35 Work Assignments


                       Abbreviations

                       BLM         Bureau of Land Management
                       CERCLA      Comprehensive Environmental Response, Compensation,
                                        and Liability Act
                       CERCLIS     Comprehensive Environmental Response, Compensation,
                                        and Liability Information System
                       DCAA        Defense Contract Audit Agency
                       EPA         Environmental Protection Agency
                       NPL         National Priorities List
                       OAM         Office of Acquisition Management
                       OMB         Office of Management and Budget
                       OSWER       Office of Solid Waste and Emergency Response


                       Page 13                     GAO/RCED-99-111 Superfund Program Management Issues
Chapter 1

Introduction


                    The Environmental Protection Agency (EPA) administers the federal
                    program for ensuring the cleanup of abandoned hazardous waste sites that
                    pose significant risks to public health and the environment. EPA may
                    compel parties responsible for the contamination to conduct or pay for
                    these cleanups. EPA manages cleanups for a portion of these hazardous
                    sites through the Superfund program. Other federal agencies clean up sites
                    on their lands and can also compel parties responsible for the
                    contamination to conduct or pay for these cleanups. States generally
                    manage cleanups at sites that are not addressed in the Superfund program.
                    Estimates predict that the nation’s total investment in cleanups will
                    exceed hundreds of billions of dollars. This report assesses federal
                    agencies’ progress in solving several problems that hinder their ability to
                    protect this investment.


                    The Comprehensive Environmental Response, Compensation, and
Background on the   Liability Act (CERCLA) of 1980, as amended, governs cleanups of both
Superfund Program   federal and nonfederal hazardous waste sites. The program was originally
                    authorized for 5 years and has been reauthorized twice, in 1986 and 1990.
                    EPA evaluates contaminated sites and places those that qualify for
                    long-term cleanup on its National Priorities List. EPA may either order
                    parties responsible for the contamination to perform cleanups or clean up
                    sites itself and seek reimbursement from the responsible parties.1 EPA
                    relies heavily on private contractors to perform or manage cleanup
                    activities. CERCLA also established a trust fund (the Superfund trust fund)
                    to pay for cleanups and related activities, financed primarily by taxes on
                    crude oil and chemicals. The program’s authorization, and the taxes
                    financing the fund, expired in 1995. The Congress continues to fund the
                    program through annual appropriations from the Superfund trust fund and
                    general revenues.2

                    The federal government faces an even greater potential cleanup
                    investment than EPA alone. Federal agencies must report potential
                    hazardous waste sites on lands that they administer to EPA. Agencies clean
                    them up using funds from their own appropriations.3 The agencies
                    potentially responsible for the most cleanups are the departments of
                    Agriculture, Defense, Energy, and the Interior. As of September 1998, EPA

                    1
                     Parties responsible for cleanups include waste generators, site owners and operators, transporters,
                    and persons who arranged for the treatment or disposal of hazardous wastes.
                    2
                     See Superfund: Status of the Superfund Trust Fund (GAO/RCED-98-152R, Apr. 16, 1998).
                    3
                     The costs of long-term cleanup actions at federal facilities are generally not eligible for funding from
                    the Superfund trust fund.



                    Page 14                                GAO/RCED-99-111 Superfund Program Management Issues
                                          Chapter 1
                                          Introduction




                                          had included 2,104 of these agencies’ facilities on the federal facility
                                          docket—the list of federally owned facilities that EPA is to consider for
                                          placement on the National Priorities List—and had included a total of 173
                                          of these facilities on the National Priorities List.4 (See table 1.1.)

Table 1.1: Number of Federal Facilities
on the Docket and on the National                                                                                 Facilities on the National
Priorities List as of September 1998      Agency                                      Facilities on docket                    Priorities List
                                          Agriculture                                                     182                                     3
                                          Defense                                                         974                                 141
                                          Energy a                                                         84                                 21
                                          Interior                                                        453                                     3
                                                       b
                                          All others                                                      411                                     5
                                          Total                                                        2,104                                  173
                                          Source: EPA’s Office of Solid Waste and Emergency Response.
                                          a
                                           Energy cleanup managers said that 3 of the Department’s 21 facilities on the National Priorities
                                          List have now been transferred to the U.S. Army Corps of Engineers, within Defense.
                                          b
                                           Agencies in the “All others” category include the Central Intelligence Agency, Commerce, EPA,
                                          General Services Administration, Health and Human Services, Housing and Urban Development,
                                          Justice, Labor, National Aeronautics and Space Administration, Postal Service, Small Business
                                          Administration, Tennessee Valley Authority, Transportation, Treasury, and Veterans Affairs.



                                          For a federal facility on the National Priorities List, EPA enters into an
                                          interagency agreement under which the responsible federal agency cleans
                                          up the facility. The agreement establishes penalties for failure to comply
                                          with the schedule or terms of the cleanup.

                                          In 1995, a group of representatives from federal agencies responsible for
                                          cleanups under the Superfund program, the Federal Facilities Policy
                                          Group, estimated that the total cost of cleaning up these federal facilities
                                          ranges from $234 billion to more than $300 billion over a 75-year period.5
                                          For fiscal years 1991 through 1999, the Congress appropriated to
                                          Agriculture, Defense, Energy, and the Interior—the four agencies included




                                          4
                                           A “site” generally refers to a specific area of contamination and a “facility” to a geographically
                                          contiguous area under an agency’s ownership or control within which a contaminated site or sites are
                                          located.
                                          5
                                           The Federal Facilities Policy Group was convened by the Director of the Office of Management and
                                          Budget and the Chair of the Council on Environmental Quality to review the current status and future
                                          course of environmental response and restoration at federal facilities. The group included officials
                                          from the departments of Agriculture, Defense, Energy, and the Interior; EPA; and other organizations.



                                          Page 15                              GAO/RCED-99-111 Superfund Program Management Issues
                                         Chapter 1
                                         Introduction




                                         in our review— a total of almost $33 billion for hazardous waste cleanups.6



EPA’s Site Cleanup Process               Once a site has been identified, EPA includes it in the database it uses to
                                         track hazardous waste sites, known as the Comprehensive Environmental
                                         Response, Compensation, and Liability Information System (CERCLIS). The
                                         next step in EPA’s cleanup process is to assess the site to determine
                                         whether the contamination poses a large enough health or environmental
                                         risk to qualify for a long-term cleanup under the Superfund program. (See
                                         fig. 1.1.)


Figure 1.1: Steps Toward Including a
Site on EPA’s National Priorities List




                                         6
                                          The $33 billion includes approximately $18.2 billion for Defense, $13.8 billion for Energy, $0.5 billion
                                         for Interior, and $0.2 billion for Agriculture.



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For nonfederal sites, EPA or the state in which the potentially
contaminated site is located conducts the assessment. The responsible
federal agencies assess their own sites that are on the federal facility
docket. EPA then uses the data from these assessments to calculate a site’s
potential risks by using its hazard ranking system. This system assesses
potential risks to humans and sensitive environments, such as wetlands,
from exposure to contamination at the site through four “pathways”—
soil, groundwater, surface water, and air. Each site receives a score
ranging from 0 to 100, and sites that score above 28.5 in this system are
eligible to be considered for placement on EPA’s National Priorities List.
Only sites on this list may receive long-term cleanups financed by the
Superfund trust fund.

EPA, typically with a state’s concurrence, proposes that an eligible site be
placed on the agency’s National Priorities List. Once EPA places the site on
the list, it generally receives a more extensive investigation of the risks it
poses and an evaluation of alternative cleanup methods to address these
risks. After one or more cleanup methods are selected, the cleanup is
designed and implemented, either by EPA or by the responsible parties
under EPA’s oversight. (See fig. 1.2.)




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Figure 1.2: Cleanup Steps for Sites on
the National Priorities List




                                         Once the cleanup is completed and EPA considers that the site no longer
                                         poses a risk to human health or the environment, EPA may remove the site
                                         from the National Priorities List and delete it from CERCLIS.

                                         EPA’s Office of Solid Waste and Emergency Response (OSWER) administers
                                         the Superfund program, setting its policy and direction through the Office
                                         of Emergency and Remedial Response. However, EPA’s 10 regional offices
                                         award contracts for the cleanups in their jurisdiction that the agency has
                                         decided to fund, manage cleanup activities at these sites, monitor private
                                         parties’ and federal agencies’ cleanups, and determine when to propose
                                         new sites for the program or delete completed sites.




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                     In 1990, we identified a group of federal programs that could pose a
Prior GAO Work       significant risk of waste, fraud, abuse, and mismanagement, as well as a
                     significant financial risk to the government. We included the Superfund
                     program in this group because of the anticipated large federal investment
                     and the extensive use of contractors to implement the program. In 1992,
                     we reported on key problems with the Superfund program and actions EPA
                     should take to decrease this risk.7 Specifically, we reported on the need
                     (1) for EPA and other federal agencies to give greater consideration to the
                     relative risks of sites when setting priorities for using their limited cleanup
                     funds; (2) for EPA to improve its limited recovery of cleanup costs from
                     responsible parties; and (3) for EPA to correct poor contract management
                     practices and inadequate controls over contractors’ costs. Since we issued
                     our initial report in 1992, we have reviewed the agencies’ progress in
                     addressing these issues every 2 years.8 In 1997, we reported that
                     (1) several agencies had begun to implement systems that consider the
                     relative risks of sites when allocating cleanup funds, while other agencies
                     had not; (2) EPA had not resolved the cost recovery problems we had
                     identified; and (3) EPA still had to improve its use of independent estimates
                     to set the best contract prices for cleanups, its ability to control
                     contractors’ high program management costs, and its efforts to reduce a
                     significant backlog of Superfund contract audits.


                     Given EPA’s and other federal agencies’ uneven progress in responding to
Objectives, Scope,   the concerns about the Superfund program’s management that we raised
and Methodology      in our prior work, we initiated this review to determine whether the
                     agencies had now more fully addressed these concerns and, therefore,
                     reduced the government’s financial risks. Specifically, we wanted to assess
                     (1) the efforts that EPA and other federal agencies with major cleanup
                     responsibilities have made to set priorities for spending limited cleanup
                     funds at the sites posing the highest risks; (2) EPA’s actions to recover its
                     expenditures for cleanups from the parties that caused the contamination,
                     and (3) EPA’s efforts to better control contractors’ cleanup costs.

                     To respond to the first objective, we conducted interviews with EPA site
                     assessment managers in 4 of EPA’s 10 regions with the largest number of
                     sites that are awaiting consideration for the National Priorities List or have
                     already been listed – regions I (Boston), II (New York), IV (Atlanta), and V
                     (Chicago) – and the director, deputy director, and staff of the State,

                     7
                      High-Risk Series: Superfund Program Management (GAO/HR-93-10, Dec. 1992).
                     8
                      High-Risk Series: Superfund Program Management (GAO/HR-95-12, Feb. 1995; GAO/HR-97-14, Feb.
                     1997; and GAO/OCG-99-17, Jan. 1999).



                     Page 19                            GAO/RCED-99-111 Superfund Program Management Issues
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Tribal, and Site Identification Center within OSWER to understand the
agency’s approach to assessing and listing sites. We also interviewed the
chair and 4 of 10 regional representatives on EPA’s National Prioritization
Panel, which assigns nationwide priorities for all sites that are on the
National Priorities List and are ready to construct the cleanup. We
obtained and reviewed documents that describe the criteria and weights
the panel uses to score and rank sites. In addition, we examined the
panel’s funding decisions for fiscal year 1997, confirming that they were
based on the panel’s ranking. To understand EPA’s responsibilities and
overall approach to federal facility cleanups, we met with the associate
director of OSWER’s Federal Facilities Restoration and Reuse Office and
interviewed remedial managers who oversee federal facility cleanups in
regions IV (Atlanta), V (Chicago), VIII (Denver), IX (San Francisco), and X
(Seattle). We also conducted interviews with environmental cleanup and
budget officials at the headquarters of the departments of Agriculture,
Defense, Energy, and the Interior. As necessary, we visited regional offices
to test how field offices implemented these relative risk policies and used
relative risk to make cleanup funding decisions.

For the second objective—assessing EPA’s cost recovery program—we
interviewed and obtained data from cost recovery program managers in
EPA headquarters and two regional offices. In EPA headquarters, we met
with the director of the Policy and Program Evaluation Division in the
Office of Site Remediation and Enforcement, Office of Enforcement and
Compliance Assurance, as well as the chief of the Program and Cost
Accounting Branch in the Financial Management Division, Office of the
Comptroller, Office of the Chief Financial Officer. We reviewed EPA’s
proposed methodology on developing a new indirect cost rate to charge to
responsible parties to identify changes from the previous method. In
addition, we analyzed EPA’s 1999 annual plan for the Government
Performance and Results Act to determine the status of EPA’s goals and
performance measures. We also spoke with EPA enforcement, cost
recovery, and legal staff in regions IV (Atlanta) and V (Chicago), which we
selected because of their unique and large recovery efforts, respectively.

For the last objective—assessing EPA’s management of Superfund
contracts—we conducted work at EPA headquarters and three EPA regions.
At headquarters, we met with Superfund program managers in OSWER,
including the deputy director, Office of Emergency and Remedial
Response and the director and senior managers, Office of Acquisition
Management, to understand EPA’s contracting policies and procedures. We
also met with Superfund program and contracting managers in regions III



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(Philadelphia) and VII (Kansas City), because their Superfund contracts
had been in place for the longest time, and in Region V (Chicago), because
we had selected this region in our last review. To test the quality and use
of independent government cost estimates to set contract prices, we
conducted a detailed analysis of a total of 35 Superfund contract work
assignments initiated in the three EPA regions from January 1, 1997,
through September 30, 1997. We used this time frame because it was
similar to the time frame in our last review and would serve as a basis for
comparison. We also visited the U.S. Army Corps of Engineers in
Washington, D.C., to compare its cost-estimating practices with EPA’s. In
addition, we visited a private Superfund contractor in Region III to get a
general understanding of how contractors estimate costs for Superfund
cleanup activities. We also met with EPA’s Office of the Inspector General
in Washington, D.C, and officials from the Defense Contract Audit Agency
(DCAA) in Fort Belvoir, Virginia.9

For a more detailed description of our audit’s scope and methodology, see
appendix I. We conducted our work from May 1998 through April 1999 in
accordance with generally accepted government auditing standards.




9
 EPA’s Office of the Inspector General audits the agency’s contractors when EPA is the primary
customer for the contractor. The Defense Contract Audit Agency conducts audits of EPA contractors
when EPA is not the primary agency providing work and funding to the contractors.



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                         EPA has made progress over the years in responding to our concerns that it
                         was not effectively using its limited cleanup dollars by setting funding
                         priorities on the basis of sites’ relative risks to human health and the
                         environment. “Relative risk” refers to the risk a site poses to human
                         health and the environment compared with the risks posed by other sites.
                         This comparison may also consider other important factors, such as
                         communities’ concerns and legal requirements. EPA now manages sites on
                         the National Priorities List according to a “worst sites first” policy.
                         However, EPA may not know about all high-risk sites because states now
                         increasingly decide which ones they will address under their own cleanup
                         programs and which ones they want EPA to address through the Superfund
                         program. Because states are managing these sites, EPA does not have
                         information on the status of their cleanups. Without this information, EPA
                         cannot assure local communities near high-risk sites that these sites are
                         being addressed. Nor can EPA plan its own work in the event that the states
                         require EPA’s assistance at these sites. Furthermore, because of the
                         significant federal investment still needed to clean up hazardous waste
                         sites on federal facilities and lands, it is important that other federal
                         agencies likewise use their limited cleanup dollars efficiently by
                         addressing the riskiest sites first. While the departments of Agriculture,
                         Defense, and Energy have begun using risk to set priorities for cleanups to
                         varying degrees, Interior, specifically the Bureau of Land Management
                         (BLM), has not completed the first step—developing an inventory of its
                         hazardous waste cleanup workload, estimated to cost billions of dollars.


                         For sites that EPA has already placed on its National Priorities List and
EPA Funds Its            whose cleanup will be conducted or monitored by EPA, EPA provides
Cleanup Actions          funding according to their relative risk. However, EPA is not using relative
According to Risk but    risk as the primary basis for deciding what new sites to list. States are now
                         assuming more responsibility for high-risk sites—those that are risky
Is Not Adding New        enough to be eligible for the National Priorities List. As a result, this
Sites to the National    evolving relationship with the states has created a need for closer
                         coordination between EPA and the states with respect to sharing
Priorities List Solely   information on the status of cleanups, deciding who should address sites,
on the Basis of Risk     and disseminating that information to the public. Currently, EPA cannot
                         ensure that some of the worst sites are being addressed first, if at all,
                         because some states may not be reporting all high-risk sites to EPA and,
                         therefore, EPA may not know the full universe of such sites. Furthermore,
                         states are not always recommending sites for EPA to address through the
                         Superfund program because the sites present the highest risk to human




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                             health and the environment, but rather because they are too difficult and
                             too expensive for the states to address.


EPA Uses Relative Risk to    Once EPA places a site on its National Priorities List for cleanup, the
Set Cleanup Priorities for   agency uses relative risk to decide which ones to fund when priority
Sites on the National        setting is needed. Even though EPA’s policy has been to address the worst
                             sites first since 1989, our prior work showed that the agency’s regions
Priorities List              were setting priorities for early phases of cleanup on the basis of other
                             factors, such as geographical considerations (e.g., funding equal numbers
                             of sites in each state). In 1997, we reported that EPA had begun to give
                             greater consideration to sites’ relative risks when setting priorities.1

                             Since then, EPA has continued to implement a nationwide process to set
                             risk-based funding priorities for sites ready to begin construction of the
                             cleanup method because it has had more sites to fund than dollars
                             available. EPA does not go through a similar process for sites in earlier
                             cleanup phases. Because it funds most of these sites so as not to delay
                             them from moving through the cleanup process, EPA officials told us that
                             they had a relatively small or no backlog of sites waiting to begin the
                             earlier cleanup phases; therefore, they did not have to set funding
                             priorities.

                             In order to distribute its fiscal year 1996 funds to the backlog of sites
                             awaiting construction, EPA created the National Risk-Based Prioritization
                             Panel. This panel, which is composed of regional and headquarters
                             cleanup managers, is to rank all of the sites ready to construct the cleanup
                             method nationwide, primarily on the basis of the risks they pose. The
                             panel uses five weighted criteria, four of which address health and
                             environmental risks and one of which addresses considerations such as
                             cost-effectiveness. The panel then ranks the sites and EPA, in turn,
                             allocates funding for these sites according to this ranking. The sites that
                             are not funded in one year can compete again for funding the following
                             year.

                             In our 1997 report, we determined that the panel used the ranking process
                             to allocate fiscal year 1996 funds. However, because the panel process was
                             new and the Congress did not pass EPA’s appropriations act until April of
                             that year, we decided to continue monitoring the agency’s use of the panel
                             process. We found that, in fiscal year 1998, EPA ranked 50 sites and funded
                             38 according to the panel’s ranking, at a value of more than $200 million.

                             1
                              High-Risk Series: Superfund Program Management (GAO/HR-97-14, Feb. 1997).



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EPA Does Not Fully             EPA does not know the universe of high-risk sites remaining to be
Control Which Sites Are        addressed. EPA has never had its own site identification program and relies
Identified and Included on     primarily on other entities, such as states and private citizens, to report
                               sites for possible inclusion in the Superfund program. Early in the
the National Priorities List   program, these entities referred tens of thousands of sites to EPA. Over
                               time, however, according to site assessment managers in all four regions
                               in our review, the states became reluctant to report sites because they
                               wanted to avoid what they saw as the long and costly Superfund cleanup
                               process. As a result, they currently do not necessarily report all high-risk
                               sites to EPA.

                               For those sites that are reported to EPA, the agency assesses the level of
                               potential risk posed to human health and the environment by applying the
                               hazard ranking system.2 Sites scoring at least 28.5 are considered eligible
                               for the National Priorities List but are not automatically included. As state
                               cleanup programs have matured, the states have assumed a greater role in
                               determining which sites EPA will address under Superfund and which sites
                               the states will address under their own cleanup programs. Most states
                               have established enforcement programs similar to the Superfund program
                               and, more recently, have used EPA grants to help establish voluntary
                               cleanup programs. Consequently, many states prefer to use their own
                               programs to address sites, including sites with risks high enough to make
                               them potentially eligible for the National Priorities List. If a state does not
                               want to assume responsibility for a cleanup, it can turn the site over to
                               EPA.


                               The states also have a greater role in deciding which sites get listed
                               because EPA, as a matter of policy, seeks the relevant state governor’s
                               concurrence before listing a site. EPA was required to seek concurrence
                               under appropriations laws for fiscal years 1995 and 1996 and has since
                               continued the practice. According to EPA officials, some governors are
                               reluctant to concur, because placement on the list stigmatizes a site as one
                               of the worst in the country, thus discouraging development. As of
                               February 1999, governors had opposed the listing of 31 sites and
                               supported the listing of another 123 sites. Since 1995, EPA has proposed
                               only one site for listing without the relevant governor’s concurrence.3

                               2
                                EPA’s hazard ranking system assigns a score from 0 to 100 to evaluate the potential risks a site poses
                               to humans and sensitive environments from exposure through four pathways–soil, groundwater,
                               surface water and air. A site with a score of 28.5 or higher is considered eligible for placement on the
                               National Priorities List.
                               3
                                EPA proposed the Fox River, Wisconsin, site for listing in July 1998, over the governor’s objection,
                               because of concerns raised by EPA and other stakeholders about the lack of cleanup progress, given
                               the significant risks posed to wildlife and humans.



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                               Given increases in the states’ ability to address sites combined with EPA’s
                               policy of seeking the relevant governor’s concurrence, EPA does not
                               propose an eligible site for the National Priorities List until it enters into
                               negotiations with the state to determine whether the state plans to take
                               any action at the site through its own programs. If EPA anticipates that the
                               state will clean up the site, the agency usually assigns the site a low
                               priority for listing, according to cleanup managers from the four EPA
                               regions. In addition, the managers said that they typically do not take any
                               further action at these sites unless the state subsequently asks EPA to list
                               the site. Therefore, according to these cleanup managers, decisions to
                               propose sites for listing on the National Priorities List are not based
                               primarily on the sites’ relative risks. Instead, states turn sites over to EPA
                               for cleanup under the Superfund program when they have difficulties in
                               getting responsible parties to pay for the cleanup, for example, or when
                               they encounter a complex cleanup, such as one addressing groundwater
                               problems. Consequently, EPA cleanup managers expect that future
                               National Priorities List sites will be large, complex, and thus costly to
                               clean up or will have either recalcitrant or no financially viable responsible
                               parties to help pay for the cleanup. This trend could influence the future
                               number and types of sites on the list. In the late 1980s to early 1990s, EPA
                               proposed about 76 sites, on average, per year for listing. In the mid 1990s,
                               this number dropped to 28 because EPA decided to concentrate more on
                               completing cleanups for sites already listed. Although EPA has recently
                               stated that it expects to return to an average listing rate of about 40 sites,
                               this workload may depend on states’ concurrence.

EPA Lacks Information on the   As the states’ roles in cleaning up high-risk sites have increased, EPA
Status of State Cleanups       cleanup managers have noted that they do not know to what extent all
                               high-risk sites are being addressed and cannot respond to public inquiries
                               about the status of cleanups at the sites that the states are addressing. EPA
                               administers the federal cleanup of abandoned hazardous waste sites that
                               pose significant risks to public health and the environment. As the states
                               increasingly take responsibility for cleaning up these sites outside the
                               Superfund program, EPA must rely on the states to report on the sites’
                               status. Sometimes a state may later ask that EPA increase its involvement
                               at a state-run cleanup.

                               In order to plan their own workload and to respond to public inquiries,
                               three of the four EPA regions in our review said that they would like more
                               information on the status of state-led cleanups at certain high-risk sites
                               that posed particular concerns for the regions. For example, cleanup
                               managers in EPA’s Region I in Boston predicted that although only a



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                              handful of sites from their region would be placed on the National
                              Priorities List in the future, they plan to monitor about 50 additional
                              high-priority sites being addressed under state programs because of risks
                              posed by particular hazards, recalcitrant responsible parties, or
                              community concerns. Cleanup managers in Region IV in Atlanta expressed
                              similar interest in tracking the status of certain high-priority sites in their
                              region that are being cleaned up outside the Superfund program. Region II
                              in New York is already piloting a project to monitor the progress of state
                              cleanups to better plan its own Superfund workload if the state later
                              decides to turn sites over to EPA, as well as to provide better information to
                              the public on the status of these cleanups. Under the pilot project, EPA and
                              New York are trying to electronically link the state’s database on the status
                              of sites with EPA’s CERCLIS database so that EPA can better track sites.
                              According to these regional officials, one reason for New York’s
                              willingness to cooperate in this effort is that it could speed up the process
                              of eliminating sites from further consideration for the Superfund program.
                              On the other hand, cleanup managers in Region V said that they have
                              enough information on the status of cleanups and do not need a tracking
                              system because the states send letters to EPA notifying it that cleanups are
                              either under way or complete.

Lack of Communication and     In November 1998, we reported on the need for better communication and
Coordination Between States   coordination between federal and state officials to set priorities and
and EPA Means That Some       determine cleanup responsibilities for high-risk sites.4 As of October 1998,
High-Risk Sites Are Not       according to EPA, the agency had about 10,400 sites in CERCLIS—the
Addressed                     database EPA uses to track hazardous waste sites. Of these sites, 5,977
                              need further assessment or are candidates for removal from CERCLIS
                              because no further EPA action is required. About 1,400 sites are on the
                              National Priorities List.5,6 EPA classified the remaining 3,023 sites as
                              potentially eligible for listing on the basis of the hazard ranking system.
                              (See fig. 2.1.)




                              4
                               Hazardous Waste: Unaddressed Risks at Many Potential Superfund Sites (GAO/RCED-99-8, Nov. 30,
                              1998).
                              5
                               As of Aug. 1998, EPA had deleted 175 of these sites from the National Priorities List upon
                              construction of the cleanup remedy.
                              6
                                  Of these 1,400 “sites,” 173 are federal facilities.



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Figure 2.1: Status of All Sites in EPA’s
CERCLIS Database




                                           Source: GAO and EPA.




                                           Of these 3,023 sites, we found that approximately 1,234 have ongoing or
                                           completed cleanups outside of Superfund or are misidentified as eligible.
                                           The disposition of most of the remaining 1,789 sites, 307 of which were
                                           considered among the highest-risk sites, was uncertain. The state and
                                           federal cleanup managers did not know who would address them, under
                                           what programs, whether responsible parties would participate, or when
                                           the cleanup actions would begin. As a result of our findings, we
                                           recommended in November 1998 that EPA regions and the states
                                           coordinate their efforts to ensure that the highest-risk sites are addressed,
                                           assigning a lead agency as necessary. In response, the agency is planning
                                           to further assess the 307 highest-risk sites to determine whether it needs to
                                           take any immediate cleanup actions at these sites through its short-term
                                           removal program.

                                           For those sites that EPA and states have agreed should be placed on the
                                           National Priorities List, EPA does not use relative risk to decide which ones
                                           to list first. Although EPA initially uses its hazard ranking system as a
                                           screening tool to determine a site’s eligibility for listing, other factors, such



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                           as a governor’s concurrence or EPA’s inability to identify a responsible
                           party willing to conduct the cleanup, will determine when EPA decides to
                           propose a site for listing.


                           Three of the four federal agencies with the largest cleanup
The Departments of         workloads—the departments of Agriculture, Defense, and Energy—have
Agriculture, Defense,      implemented systems to set cleanup funding priorities on the basis of the
and Energy Have Set        relative risk sites pose. The Department of the Interior has not developed a
                           central database of hazardous waste sites, estimated the resources it
Risk-Based Cleanup         needs to address them, or developed an overall strategy to manage its
Priorities, but Interior   cleanup workload.
Has Not Yet Identified     Given that current estimates predict federal agencies could spend more
All Sites Needing          than $300 billion to clean up contaminated federal facilities, it is
Cleanup                    imperative that they spend this money effectively. Since 1995, we have
                           encouraged these agencies to set risk-based priorities for applying their
                           cleanup dollars to the backlogged sites waiting to be addressed.7 In 1995,
                           the Federal Facilities Environmental Restoration Dialogue
                           Committee—consisting of representatives from federal, state, local, and
                           tribal governments, as well as citizens’ groups and labor
                           organizations—reached a consensus that risk should be a primary
                           consideration, among other factors, in setting cleanup priorities at federal
                           facilities.8 These other factors include the cost-effectiveness of the cleanup
                           remedies and their responsiveness to any cleanup requirements and
                           concerns from the communities surrounding a facility. Likewise, in 1995,
                           the Administrator announced EPA’s intention to promote risk-based
                           priority setting at federal facilities and sites.9 The federal agencies in our
                           review have responded to this call for setting risk-based cleanup priorities
                           to varying degrees. (See table 2.1.)



                           7
                            Federal Facilities: Consistent Relative Risk Evaluations Needed for Prioritizing Cleanups
                           (GAO/RCED-96-150, June 7, 1996), Federal Hazardous Waste Sites: Opportunities for More Cost
                           Effective Cleanups (GAO/T-RCED-95-188, May 18, 1995), and Superfund Program Management
                           (GAO/HR-95-12, Feb. 1995).
                           8
                            EPA chartered the Federal Facilities Environmental Restoration Dialogue Committee in 1992 to
                           develop a consensus on how agencies can make fair and consistent decisions about cleanup priorities
                           and funding.
                           9
                            In Aug. 1998, EPA issued a new policy, the “Interim Final Policy on the Use of Risk-Based
                           Methodologies in Setting Priorities for Cleanup Actions at Federal Facilities,” that provides guidance
                           for its regions to use to promote risk-based priority setting for cleanups at federal facilities and calls
                           for EPA regions to meet annually with the federal facility environmental staff in their areas to
                           negotiate cleanup priorities.



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Table 2.1: Summary of Steps Four Federal Agencies Have Taken to Set Risk-Based Priorities
                  Does the agency have a system in
                  place to identify potential        Do individual locations within the Does the agency allocate funds
                  hazardous waste sites and          agency fund cleanups on the basis across locations nationwide on
Department        characterize their risks?          of sites’ risk?                      the basis of sites’ risks?
Agriculture a     Yes                                   Yes                                           Yes
Defense           Yes                                   Yes                                           No b
Energy            Yes                                   Yes                                           No
Interior          No                                    No                                            No c
                                         a
                                          For this table, Agriculture represents the programs within the Forest Service because it is
                                         responsible for the most significant portion of the Department’s cleanups to date.
                                         b
                                          Although the Department of Defense does not allocate funds nationwide on the basis of risk, it
                                         has set nationwide cleanup goals for high-risk sites that are to be met by each of its five
                                         environmental budget components—one for each of the three services, one for all Defense-wide
                                         agencies, and one for all formerly used Defense sites. Each component sets priorities for its own
                                         sites on a nationwide basis.
                                         c
                                          Although the Department of the Interior does not set priorities for all sites across its bureaus on a
                                         nationwide basis, it does use risk to set nationwide priorities for the small number of sites it
                                         considers for funding from its Central Hazardous Materials Fund.




Agriculture’s Forest                     In the early 1990s, Agriculture’s Forest Service, which has accomplished
Service Sets Risk-Based                  the most significant portion of the Department’s cleanup activities to date,
Cleanup Priorities                       implemented a process to rank and fund sites on the basis of their relative
                                         risks. The Forest Service manages the National Forest System, including
                                         remote public lands that have been contaminated by the activities of other
                                         parties. However, in 1996, we reported that the Forest Service had made
                                         limited progress in completing an inventory of its potential hazardous
                                         waste sites, such as mining waste sites, a critical first step for effectively
                                         establishing priorities.10 Since that time, the Forest Service has made a
                                         concerted effort to identify its universe of sites and develop an inventory
                                         of them. The Forest Service has also used the results of its inventory to
                                         fund cleanups of the sites posing the most serious risks, while also
                                         requiring the parties responsible for the contamination to pay for some of
                                         the cleanups.

                                         According to Agriculture’s coordinator for hazardous waste cleanups and
                                         the Forest Service’s chief engineer in charge of cleanups, the Forest
                                         Service, as of January 1999, had completed its inventory of underground



                                         10
                                          Federal Land Management: Information on Efforts to Inventory Abandoned Hard Rock Mines
                                         (GAO/RCED-96-30, Feb. 23, 1996).



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tanks, landfills, and abandoned hard rock mining sites.11 In completing the
mining site inventory, which encompasses the largest number of sites
remaining to be addressed, the Forest Service set standard procedures for
its regions to identify sites with the potential to release hazardous
substances and pose risks to human health and the environment. The
regions ranked each site as posing a high, medium, or low relative risk
depending on the presence of mining wastes or discharges; the site’s
proximity to sensitive environments, such as wetlands; and applicable
regulatory cleanup requirements. As a result of this nationwide inventory,
the Forest Service has identified a total of approximately 39,000
abandoned mine sites, of which an estimated 1,800, or about 5 percent, are
considered high priorities because they are or could be releasing
hazardous substances.

The Forest Service has not yet completed an inventory of sites
contaminated by Defense activities on its lands, such as sites containing
unexploded ordnance. This is mainly because the Forest Service has had
very little information about these sites, according to Agriculture’s
coordinator for hazardous waste cleanups. Defense and Agriculture have
not fully implemented a 1988 memorandum of understanding for
cooperation between the two agencies on this issue. Recently, Defense
provided the Forest Service with a list of sites that Defense had used in the
past and that the Forest Service now manages. However, the Forest
Service would like Defense, which may be a potentially responsible party
at these sites, to better identify its activities at those sites and the hazards
that may be associated with those activities. As a start, the Forest Service
would like to be included in Defense’s process for setting cleanup
priorities and standards when addressing sites on National Forest System
lands. In this way, Defense and Agriculture could begin to work together
to clean up sites on lands that Defense could have contaminated. To help
ensure that the federal agencies address these sites, EPA plans to establish
a workgroup in the spring of 1999, according to the associate director of
the Federal Facilities Restoration and Reuse Office. The workgroup will
initially consist of EPA representatives and, later, other federal agencies to
discuss how to accurately characterize the risks at these sites, set
priorities among them, and fund their cleanups. Furthermore, according to
a senior official in the Office of the Deputy Under Secretary of Defense for
Environmental Security, Defense, Agriculture, and Interior are in the


11
 Hard rock mining involves the extraction and preliminary processing of minerals such as gold, silver,
copper, and lead, typically for use in industrial applications. Abandoned hard rock mines could pose
physical safety hazards (e.g., open shafts or pits, unsafe structures, or explosives) or risks to the
environment and human health (e.g., through the drainage of hazardous substances into nearby
surface water or groundwater).



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process of finalizing a new memorandum of agreement to establish the
Inter-Agency Military Land Use Coordination Committee. The committee
consists of senior policy officials from Defense, Agriculture, and Interior
and has established five subgroups addressing issues such as the
contamination and cleanup of public lands.

The Forest Service has used its inventories to set cleanup goals, justify
requests for additional cleanup funds, and allocate the funds it receives.
On the basis of data from its inventories, the Forest Service has set a goal
to clean up all of its high-priority hazardous waste sites by 2045, at a cost
of approximately $2 billion. Funding for the Forest Service’s hazardous
waste program has increased in recent years from approximately
$7 million in fiscal year 1997 to approximately $12.5 million in fiscal year
1999. Furthermore, the administration has requested over a 70-percent
increase for Forest Service programs, to $21.5 million for fiscal year 2000.
This request is based on the Forest Service’s inventories of hazardous
waste sites.

To develop the Forest Service’s annual funding request, the regions select
sites to submit to a round table of regional and headquarters staff for
priority ranking. For example, the Forest Service’s regional office in Utah
forwards approximately 10 to 15 sites to the round table each year
depending on the relative risks the sites pose, the size of the cleanup
workload the region can manage, and the degree to which parties
responsible for the contamination are available and able to pay for the
cleanup. The round table then ranks the sites from all nine regions using
six factors, two of which specifically address risks to human health and
the environment. The remaining four factors address such things as the
cost-effectiveness of the proposed cleanup actions and any applicable
statutory or regulatory cleanup requirements. The Forest Service uses this
list to justify its cleanup budget requests to Agriculture and, eventually, the
Congress. Agriculture’s coordinator for hazardous waste cleanups
explained that once the Forest Service receives its cleanup budget, it
allocates funds to the regions according to their ranked list of priorities,
and the regions in turn spend the funds following these priorities.

To supplement its limited cleanup funds, the Forest Service places priority
on requiring responsible parties to clean up sites on its lands. In recent
years, with EPA’s assistance, the Forest Service and Agriculture have
negotiated and issued cleanup orders to these parties and sought
reimbursement for its cleanup costs from responsible parties under
CERCLA. For example, in fiscal year 1998, Agriculture estimates that the




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                           Forest Service was able to leverage its cleanup funding to produce more
                           than $100 million in cleanup work funded by responsible parties.


Defense Has a Risk-Based   In 1994, Defense implemented a consistent process for identifying and
Process for Setting        funding most sites according to risk within each of its five environmental
Cleanup Priorities         components—one for each of the three military services, one for all
                           Defense-wide agencies, and one for formerly used Defense sites.
                           Following detailed guidance from the Department’s Environmental
                           Security Office, each of the components evaluates its sites and categorizes
                           them into groups, depending on whether they pose high, medium, or low
                           relative risks to human health and the environment.12 These components
                           evaluate the nature and concentration of the site’s contaminants, the
                           possible pathways for the contaminants to move from the site, and the
                           opportunities for the contaminants to come in contact with humans. If the
                           service or agency does not have enough information to evaluate a site, it
                           must schedule the site for further study and conduct an interim cleanup
                           action to address any immediate threats to public health and the
                           environment.

                           The components use the results of their relative risk evaluations to
                           develop their budget requests and allocate funds accordingly. Each
                           Defense component has its own, separate appropriations account for
                           environmental restoration and decides for itself what percentage of its
                           high-risk sites it will fund in any given year. In 1997, the most recent year
                           for which data are available, Defense spent about 82 percent of its cleanup
                           dollars (on average, departmentwide) on high-risk sites, for those sites
                           evaluated.13

                           The Department does not set priorities for sites among its components,
                           and they do not compete against each other for environmental funding on
                           the basis of the relative risks at their sites. According to the manager
                           within the Department’s Office of Environmental Security in charge of
                           tracking cleanups, this has not been necessary because the components
                           have been receiving sufficient appropriations to conduct scheduled


                           12
                            Defense has set risk-based priorities for formerly used Defense sites containing hazardous waste but
                           has not applied the priority-setting system to sites containing unexploded ordnance. According to an
                           EPA official, federal agencies currently disagree about how to characterize the potential risk
                           associated with unexploded ordnance. Defense is developing a risk-based priority system for
                           unexploded ordnance sites but has not yet developed goals for addressing them.
                           13
                            Defense does not require relative risk evaluations for sites where it has already made cleanup
                           commitments; unexploded ordnance sites; sites requiring environmental cleanup as part of building
                           demolition; or sites where it lacks information for an evaluation.



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                            cleanups. This would also be somewhat difficult, according to Defense’s
                            environmental budget examiner, because once funds are appropriated, the
                            Department cannot transfer funds between two appropriations accounts
                            without obtaining statutory authority.

                            Even though the Department does not set nationwide priorities, it has
                            established a set of nationwide cleanup goals—to have cleanup remedies
                            in place at 50 percent of all installations’ high-risk sites in 2002 and at
                            100 percent of these sites in 2007. The Department requires each
                            component to annually certify that it is sufficiently funding its installations
                            to meet these goals and biannually reviews the components’ progress. If
                            the Department determines that a component has not included sufficient
                            funds in its annual budget request to meet its goals for that year, the
                            Comptroller will require the component to revise its request, according to
                            the Defense manager in charge of tracking cleanups.

                            In response to congressional concerns that the components were
                            identifying too many sites in the high-risk category when requesting
                            cleanup funding, in August 1997, the Office of Environmental Security
                            developed more precise criteria for classifying sites’ risks as high, medium,
                            or low. In 1998, we found that for more than 99 percent of the 6,000 sites
                            we analyzed, the components’ classifications were consistent with the new
                            definitions.14 We recommended, however, that the Department provide
                            more specific Defense-wide categories to aid in priority setting. The
                            Department’s Secretary for Environmental Security does not agree with
                            this recommendation, stating that more refined categories of risk are
                            currently being applied by individual installations.


Energy Sets Risk-Based      In 1995, Energy developed procedures for considering the relative risks of
Priorities Within but Not   its environmental management activities to help its facilities, or operations
Among Facilities            offices, establish cleanup funding priorities. Since then, Energy has
                            continued to set priorities for its cleanups on the basis of risk and other
                            factors at its operations offices. The Department’s Office of Environmental
                            Management requires its operations offices, in preparing their budget
                            requests, to rank all of their proposed environmental management
                            projects, which include CERCLA cleanups; activities required to maintain
                            safe operations related to nuclear materials; and activities required to
                            close, clean, and transfer property. Operations offices are to classify
                            proposed cleanup projects as high, medium, or low priorities considering,

                            14
                             Environmental Cleanup: DOD’s Implementation of the Relative Risk Site Evaluation Process
                            (GAO/NSIAD-99-25, Oct. 7, 1998).



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at a minimum, seven core criteria, three of which relate to the level of risk
to workers, the public, and the environment. The Department’s Office of
Environmental Management also provides guidance for operations offices
to evaluate projects in four additional areas: (l) compliance with federal,
state, and local cleanup regulations; (2) support for crucial operations at
the site; (3) the potential for reducing costs; and (4) responsiveness to
local citizens’ concerns. Considering the results of the evaluations in these
seven areas, each field office uses its own priority-setting system to rank
its cleanup projects along with all of its other environmental management
projects and submits this combined list to headquarters as part of the
Department’s budget request. Once the operations offices receive their
budget allocations, they distribute the funds across projects according to
the rank-ordered list.

For example, Rocky Flats, a facility that is preparing for closure, has
assigned the highest priority to those environmental management projects
needed to maintain safety, such as security systems for the plutonium and
other special nuclear materials at the site. In its overall plan to close the
facility, Rocky Flats used its own system to qualitatively rank-order all
remaining projects, including CERCLA cleanup projects, and established a
time line to complete them. To develop the sequence of projects, program
managers considered the extent to which each one (1) reduces risks to
human health and the environment as well as costs, (2) helps the facility
progress toward closure, (3) cleans up the site, (4) complies with
regulatory requirements, and (5) improves contractors’ performance and
the site’s overall management. According to the risk expert at Rocky Flats,
the resulting rankings will remain relatively constant from year to year;
however, the time line or sequence for completing the projects may
change. Because EPA was concerned that CERCLA cleanups may not rank
high enough when compared to other efforts to clean up or manage
nuclear materials, Energy agreed to work with EPA’s federal facilities
manager for Rocky Flats to annually select and fund a maximum of 12 of
EPA’s highest-priority environmental cleanup projects. EPA’s federal
facilities manager then monitors to ensure that Rocky Flats completes
these projects in accordance with this cleanup agreement.

The Oak Ridge Operations Office, an active facility where CERCLA cleanups
compete with ongoing operations, also assigns the highest priority to
funding the environmental management activities needed for safety at its
facilities. To set priorities among the remaining environmental projects,
including the on-site treatment of waste, CERCLA cleanups, and the
demolition of contaminated buildings, Oak Ridge uses its own quantitative



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system to rank order these activities following Energy’s seven relative risk
areas. The Operations Office reviews and adjusts this ranking as necessary
two to three times a year. Using these rankings in accordance with their
1992 cleanup agreement, EPA and the Oak Ridge Operations Office are to
select their highest-priority environmental cleanup projects and set time
lines for completing them. Recently, however, EPA has not been satisfied
with its level of involvement in these decisions and is concerned because
fiscal year 1999 is the third consecutive year that Energy has postponed
funding some cleanup activities and asked EPA to extend the time lines of
its cleanup agreement. Consequently, EPA has begun the formal dispute
process provided for in the cleanup agreement with Energy. The
agreement establishes penalties and possible fines for failure to comply
with its schedule or terms.

Energy does not allocate funds across operations offices according to any
nationwide ranking of projects. We previously reported that Energy would
continue to make limited progress in cleaning up environmental problems
if it did not set national priorities for cleanups.15 Thus, we recommended
that Energy set national priorities and allocate its resources accordingly.
To date, the agency has not adopted this recommendation. According to a
senior official in charge of strategic planning, Energy prefers to allow local
decision-making when setting priorities among its environmental
management projects because of the unique requirements posed by local
regulations, community concerns, and the types and extent of
contamination. As a result, according to a senior analyst in Energy’s Office
of Budget and Planning, Energy continues to allocate an environmental
management budget to each operations office that is based on the extent
and nature of the work required at its sites and the risks they pose. The
amount of the environmental budget for each operations office varies very
little from year to year, but the amount that operations offices use for
CERCLA cleanups can vary substantially, depending on other competing
funding priorities at the facility. For example, a contractor’s unforeseen
costs at one facility resulted in delays of certain CERCLA cleanups agreed to
with EPA.

Energy also had previously stated that it could not adopt a nationwide
priority system because it did not have the necessary data to do so.
However, several of Energy’s senior environmental managers at Oak Ridge
and Rocky Flats and EPA’s federal facilities managers for Energy’s Hanford
facility and Idaho National Engineering and Environmental Laboratory

15
 Department of Energy: National Priorities Needed for Meeting Environmental Agreements
(GAO/RCED-95-1, Mar. 3, 1995) and Nuclear Weapons Complex: Establishing a National Risk-Based
Strategy for Cleanup (GAO/T-RCED-95-120, Mar. 6, 1995).



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                            stated that it is feasible for Energy to produce a national list of risk-based
                            cleanup priorities. Energy officials acknowledge that although it may be
                            technically feasible, it is not practical and could be counterproductive,
                            stating that altering agreements reached with local stakeholders to
                            accommodate a new national, risk-based prioritization scheme would
                            cause significant disruption and legal challenges.


Interior Cannot Fully Set   As we reported in 1997, Interior—in particular, its bureau with the largest
Priorities for Funding      number of potential cleanups, the Bureau of Land Management
Cleanups Until the Bureau   (BLM)—does not have a comprehensive inventory of its hazardous waste
                            sites, an essential step for setting risk-based cleanup priorities.16 Early
of Land Management          estimates by BLM indicate that it faces a substantial cleanup workload,
Develops an Inventory of    potentially costing billions of dollars, yet it has not systematically assessed
Sites and a Strategy for    the full extent of its cleanup problems. For example, in 1996, BLM
Their Cleanup               estimated, on the basis of available data from sources such as the U.S.
                            Bureau of Mines and the U.S. Geological Survey, that it had 70,000 to
                            300,000 abandoned mining sites on its lands. On the basis of sample field
                            tests, BLM further estimated that about 4 to 13 percent of these sites—a
                            range of 2,800 to 39,000 sites—may have contaminated material that poses
                            potential risks to human health and the environment and must be
                            addressed. Assuming that Interior would, at a minimum, conduct
                            short-term removal actions at these sites, which can cost up to about
                            $40,000 each according to the manager of BLM’s hazardous materials
                            program, the cost of cleaning up these sites could range from $112 million
                            to $1.5 billion, while more extensive cleanups could cost billions of
                            dollars. These estimates do not include the costs of cleanups at other BLM
                            sites, including landfills, illegal dumping areas, and underground storage
                            tanks.

                            BLM  employs a reactive approach to cleanup by addressing hazards at sites
                            after they have been identified by other federal and state agencies.
                            Sometimes hazards are identified following injuries to citizens or
                            livestock. The resulting patchwork of information is insufficient to
                            develop an effective cleanup strategy for addressing the worst sites first.
                            Furthermore, by not getting responsible parties to perform or pay for
                            cleanups under CERCLA, BLM could cause the federal government to incur
                            greater costs in the long run.


                            16
                             BLM has developed six priorities for funding hazardous materials activities in its Hazardous Materials
                            Management Manual. The first priority is for funding emergency removals to protect public health and
                            BLM’s natural resources. However, without a centralized database of sites requiring cleanup, these
                            priorities have limited usefulness in making risk-based cleanup decisions.



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Individual Field Offices Have    Cleanup managers differ on the need for an inventory. For example, the
Developed Some Inventory         manager of BLM’s hazardous materials management program has not
Data, but This Information Is    supported the development of a more comprehensive inventory of BLM’s
Insufficient for Developing an   hazardous waste sites, stating that each of BLM’s 12 state offices has
Overall Cleanup Strategy         already discovered most large hazardous waste sites.17 However, several
                                 BLM hazardous waste specialists in the field disagreed, stating that some
                                 field offices continue to find large, high-risk sites each year. These
                                 specialists believe that a comprehensive database of known sites and a
                                 process for identifying new sites would help the field offices better
                                 identify high-priority sites, develop a cleanup strategy, and justify cleanup
                                 budget requests.

                                 Although BLM’s state offices have completed portions of inventories and
                                 headquarters is beginning to electronically organize these portions, the
                                 data constitute a patchwork of inconsistent information. Environmental
                                 and abandoned mines specialists we talked with, representing six of BLM’s
                                 state offices, have either attempted their own surveys or have relied on
                                 joint efforts with other federal agencies and states. For example, BLM’s
                                 Nevada office participated in a small pilot program to identify
                                 environmental problems associated with abandoned mine sites but does
                                 not have an inventory of other sites, such as landfills and illegal dump
                                 sites.18

                                 A lack of funds is the primary reason why BLM is reluctant to proactively
                                 survey its lands, according to BLM environmental managers at headquarters
                                 and in the field. The state field offices use much of BLM’s annual hazardous
                                 materials budget—approximately $15 million in fiscal year 1998—to
                                 conduct emergency removals of hazardous materials. According to BLM, it
                                 accomplishes hundreds of such cleanup actions each year, ranging from
                                 the removal of debris that has been dumped on public lands illegally to the
                                 closure of water-polluting abandoned mines. As a result, developing an
                                 inventory is often not a high priority. In comparison, however, the Forest
                                 Service, with a similarly small environmental cleanup budget, was able to
                                 complete its inventory by funding it over several years, leaving some
                                 money for ongoing cleanups and removals on an annual basis.

                                 Several of BLM’s state offices have leveraged state funds to complete
                                 portions of inventories. For example, BLM’s state offices in Wyoming,
                                 Colorado, and Montana have mine inventory data because the states paid

                                 17
                                   BLM has 12 state offices, 11 in western states and 1 for the eastern states.
                                 18
                                   Bureau officials said that BLM has started to fund a 5-year survey of California desert areas designed
                                 to identify illegal activities and contamination.



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                               for surveys using a federal reclamation fund financed by coal-mining fees.
                               Some BLM state offices have been able to develop information on
                               abandoned mines by participating in several water quality initiatives.19 For
                               example, BLM works with other federal agencies and state and local
                               authorities to obtain funding under the administration’s Clean Water
                               Action Plan to clean up watersheds selected by the state. As part of this
                               effort, it is necessary to identify and survey surrounding abandoned mines
                               as possible sources of the watersheds’ contamination.

                               Another reason BLM is reluctant to identify potential hazardous substance
                               release sites, according to both the manager of the hazardous materials
                               management program and experts at BLM’s National Applied Resource
                               Sciences Center, is that BLM officials believe, once the sites are identified,
                               BLM may be held financially liable for thousands of abandoned sites that it
                               did not contaminate, particularly abandoned mine sites. Furthermore,
                               these officials worry that once the hazardous waste sites are identified,
                               EPA will place the sites on the federal facility docket and the sites will then
                               be subject to what the officials perceive as the burdensome and costly
                               requirements of a remedial action under CERCLA.20

BLM Has Not Developed a        BLM has no comprehensive strategy for managing the cleanup of its sites
Comprehensive Cleanup          and has been reluctant to seek reimbursement for cleanup costs or issue
Strategy Using CERCLA as a     orders to responsible parties to clean up sites under CERCLA as part of, or
Tool for Completing Cleanups   in conjunction with, other cleanup programs.21 While the Forest Service
                               has used these CERCLA authorities to get responsible parties to pay for or
                               perform cleanups, BLM has not yet adopted a similar cleanup enforcement
                               strategy.

                               BLM managers gave several reasons for their reluctance to get responsible
                               parties to perform or pay for cleanups under CERCLA at more sites. First,
                               BLM officials do not see the benefit of expending large portions of their



                               19
                                 A task force of federal land management agencies developed the Interdepartmental Abandoned Mine
                               Lands Watershed Initiative in 1996 to address water quality problems caused by abandoned mines on
                               federal lands. A participating state sets priorities among its watersheds and selects the one with the
                               most serious water quality problems caused by abandoned mines. The federal agencies then take steps
                               to clean up or treat the mining site’s waste in order to meet the state’s water quality standards in the
                               watershed. In 1998, EPA and other federal agencies developed the Clean Water Action Plan, which
                               provides additional funding to support, among other things, this watershed initiative.
                               20
                                Cleanup actions under CERCLA fall into two broad categories: removal actions and remedial actions.
                               Removal actions are usually short-term actions designed to stabilize or remove hazards, and remedial
                               actions are usually longer-term and costlier actions aimed at permanent remedies.
                               21
                                 Although Bureau officials acknowledged their reluctance to use CERCLA authorities to pursue
                               responsible parties, they emphasized that they comply with CERCLA’s procedures for reporting
                               hazardous spills and conducting removals and cleanups.



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                                small cleanup budget on what they describe as the expensive and
                                time-consuming investigations and analyses required for a remedial action
                                under CERCLA. Agency officials contend that, unlike the Forest Service, BLM
                                has less chance of finding responsible parties to pay the cleanup costs for
                                most of these mines because BLM’s mines are decades old.22

                                Second, BLM prefers to conduct short-term removals, rather than the
                                longer-term and generally more expensive cleanups sometimes required
                                for remedial actions under CERCLA, because in the vast majority of cases,
                                the managers contend, these are sufficient for the types of sites and the
                                level of risk they pose. While this could be true for a large portion of its
                                sites, early BLM estimates still indicate that BLM may have a number of
                                high-risk sites to address that may require more extensive cleanups.

                                Third, BLM has increased its use of watershed initiatives as the
                                programmatic vehicle for conducting cleanups because they involve fewer
                                detailed procedures and because funding is available for them. However,
                                the disadvantage of these types of cleanups, according to an EPA
                                environmental specialist for federal facilities, is that they focus on surface
                                water and may ignore other problems, such as contaminated groundwater.
                                In any case, BLM could still use its enforcement authority under CERCLA in
                                conjunction with watershed initiatives, as the Forest Service does, to
                                effectively get more cooperation from responsible parties, so that
                                taxpayers’ money can be more effectively used to clean up sites where no
                                responsible parties can be found.

Interior Funds a Small Number   Since 1995, Interior has set aside approximately $10 million annually to
of Risk-Based Cleanups at       fund relatively long-term and large-scale cleanup projects, and it allocates
Large, Complex Sites            these funds according to the relative risks posed by the sites. A technical
                                review committee consisting of staff from the Department and its bureaus
                                meets annually to review and rank the sites the bureaus submit and
                                monthly to monitor the cleanup progress at the sites that have been
                                selected and funded. The committee considers four factors: (l) the risks
                                posed to human health and the environment, (2) applicable legal and
                                regulatory cleanup requirements, (3) the potential for responsible parties
                                to participate in the cleanup, and (4) the estimated time and cost of the
                                cleanup. According to officials in Interior’s Office of Environmental Policy
                                and Compliance, once the Department receives its annual appropriation, it
                                allocates the $10 million to cleanup projects in accordance with priorities
                                set by the committee. Interior funded cleanups at nine sites in 1997 under


                                22
                                 Agriculture and EPA officials stated that many of the Forest Service’s sites are equally old and many
                                are close in proximity to BLM’s sites.



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              this process. In 1998, the Department continued funding seven of these
              sites and added three others.

              Several BLM cleanup managers have not submitted sites to compete for
              these funds because they either did not know that the funding was
              available or had erroneous information about how the process works. For
              example, some cleanup managers were discouraged from submitting sites
              because they believed that most of the funds were already earmarked for a
              handful of large, complex sites on EPA’s National Priorities List for several
              more years in the future. Although senior environmental program
              managers at Interior acknowledged that one National Priorities List site
              did consume most of the funding for a few years, Interior’s cleanup
              responsibilities at this site are ending. Consequently, according to these
              managers, more funds are becoming available for other high-risk sites in
              the future. In addition, BLM cleanup managers stated that they thought only
              remedial cleanup actions qualified for funding and because the vast
              majority of their cleanups are removals, they rarely, if ever submit
              cleanups for consideration. Interior officials acknowledged that the
              distinction is not clear but said that the Department has sometimes funded
              large-scale removals.


              EPA is setting risk-based funding priorities for cleanups at sites on its
Conclusions   National Priorities List. EPA will not necessarily be listing the highest-risk
              sites in the future, however, because states are more frequently deciding
              which sites to ask EPA to list for Superfund cleanups and are basing these
              decisions on factors such as the technical complexities of a cleanup and
              the availability of responsible parties to share in the cleanup costs.
              Currently, it is uncertain who will take responsibility for cleaning up
              approximately 1,789 sites that are potentially eligible for the National
              Priorities List, 307 of which are considered among the highest-risk sites.
              Unless EPA regions work with their states to implement our earlier
              recommendation to determine who is responsible for each site’s cleanup,
              as well as to better share information on the status of certain high-risk
              sites that were found eligible for the National Priorities List and are now
              being addressed by the states, the agency cannot manage its own
              workload in the event that the states seek EPA’s assistance in the future.
              Nor can EPA respond to community and congressional inquiries about the
              cleanup status of some of the riskiest sites.

              Each of Defense’s services and agencies is also setting risk-based funding
              priorities for its sites nationwide. The Department is no longer setting



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funding priorities nationwide across these services and agencies, in part
because each of them now receives its own cleanup appropriation and has
been receiving enough funds to complete planned cleanups in recent
years, according to agency budget officials. To some extent, Defense did
consider its nationwide priorities when it implemented its set of long-term
goals for completing cleanups at all of its sites. It is also considering these
priorities as it monitors its progress toward achieving these goals.
However, we did find that Defense may not have fully coordinated its
cleanup efforts with the Forest Service to address hazards that Defense
may be responsible for on National Forest System lands. Until it does so,
some federal waste sites may not be adequately addressed.

Energy has instituted a risk-based prioritization scheme for its operations
offices but does not set priorities nationwide among these offices.
Although the Department believes that local priority setting is more
appropriate because each facility has unique local regulations, community
concerns, and contamination problems, we continue to believe that unless
Energy sets nationwide priorities, it cannot make the most informed
budget decisions and support budget trade-offs among its facilities, as
necessary.

Until the Bureau of Land Management and, therefore, the Department of
the Interior, define the extent of their cleanup responsibilities, determine
the strategies they will use to pursue cleanups, and consider how to use
CERCLA as a tool in this strategy, they cannot present strong justification for
more cleanup funds or effectively set priorities for using their current
cleanup resources. As a result, thousands of sites on BLM lands could
continue to pose risks to human health and the environment, and federal
cleanup costs could rise if responsible parties are not found and made to
pay for the sites’ cleanup.




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                      EPA
Recommendations
                      To help EPA regions better plan their cleanup workload and be responsive
                      to local communities’ concerns about hazardous waste sites in their areas,
                      we recommend that the Administrator, EPA,

                  •   task the agency’s regional offices to work with the states in their regions
                      to determine how to share information on the progress of cleanups at
                      those sites of highest risk or concern considering any successful efforts
                      currently under way in the regions.

                      Defense and Agriculture

                      To ensure that all federal waste sites are being adequately addressed, we
                      recommend that the Secretary of Defense and the Secretary of Agriculture
                      direct the Deputy Under Secretary for Environmental Security and the
                      Chief of the Forest Service, respectively, to work together to clarify
                      cleanup requirements for lands with former or current Defense activities
                      that may pose risks to human health and the environment. Furthermore,
                      we recommend that the Department of Defense, in consultation with the
                      Department of Agriculture, work to ensure that these cleanup
                      requirements are met.

                      Interior

                      To more effectively use its limited cleanup funds and better leverage funds
                      from responsible parties to clean up its hazardous waste sites so as to
                      protect the public and the environment, we recommend that the Secretary
                      of the Interior direct the Assistant Secretary for Policy, Management and
                      Budget; the Assistant Secretary for Lands and Minerals Management; and
                      the Solicitor of the Interior to work together to ensure that

                  •   the Bureau of Land Management (l) develops a national database for all of
                      its known hazardous waste sites and abandoned mine sites; (2) develops
                      and implements a strategy for updating its national database, which
                      includes collecting new information on potential hazardous waste sites
                      and abandoned mines in a consistent manner across all of its state offices;
                      (3) develops and applies a mechanism for setting cleanup priorities among
                      sites on a nationwide basis using risk and other factors, as appropriate;
                      (4) develops a comprehensive cleanup strategy, including specific goals
                      and time lines for cleaning up the sites, on the basis of their risk-based
                      priorities; and (5) develops nationwide procedures for conducting



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                      searches of potentially responsible parties and for using CERCLA
                      authorities, where appropriate, to get more responsible parties to perform
                      or pay for cleaning up contamination; and
                  •   all of Interior’s bureaus and regional offices understand the purpose and
                      size of the Department’s Central Hazardous Materials Fund and the criteria
                      the Department uses to allocate dollars to cleanups, including both
                      remedial and removal actions.


                      We met with or obtained comments from cleanup program managers from
Agency Comments       EPA, Agriculture, the Forest Service, Defense, Energy, Interior, and the
                      Bureau of Land Management, who generally agreed with our findings and
                      recommendations, with one exception. The agencies also suggested
                      several changes for technical accuracy and clarity, which we incorporated
                      where appropriate. EPA agreed with our findings and acknowledged that it
                      needed to work with the states to coordinate cleanups and obtain the
                      information needed to track the status of state cleanups. Agriculture and
                      Defense fully concurred with our findings and agreed to our joint
                      recommendation to their agencies to better coordinate their efforts to
                      clean up previously used Defense sites.

                      Energy disagreed that it needed to act on our earlier recommendation to
                      adopt a nationwide risk-based process for setting priorities among its
                      sites. The Department stated that all of its operations offices receive a
                      relatively stable budget that is based on the general needs and risks of
                      their environmental management activities. Once the operations offices’
                      receive their budgets, they determine their own priorities for cleanup.
                      Energy stated that local control of priority setting is preferable to a
                      national strategy because each site has unique regulatory requirements,
                      community concerns, and contamination. Nevertheless, we continue to
                      maintain that developing nationwide cleanup priorities would help the
                      Department to make informed budget decisions and analyze trade-offs
                      among its facilities.

                      Interior and its Bureau of Land Management generally agreed with our
                      findings and said they would develop a plan for addressing our
                      recommendations. However, BLM provided several points of clarification.
                      First, BLM did not think it was cost-effective to undertake a comprehensive
                      inventory of sites, stating that it currently has more cleanups than it can
                      fund and already knows its worst sites. We continue to maintain, however,
                      that BLM cannot effectively use its limited cleanup funding until it
                      determines the extent of its cleanup workload and sets risk-based



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priorities for its cleanups. Furthermore, we determined that BLM state
offices continue to find high-risk sites each year. Second, BLM stressed that
it uses other authorities besides CERCLA, such as the Mining Law of 1872, to
address some sites and has always had a policy that the polluter should
perform the cleanup work wherever possible. We acknowledged BLM’s use
of these other authorities in our report but continue to recommend that
the agency more effectively include CERCLA as one of the tools available for
obtaining the full cooperation of parties potentially responsible for
contamination in conducting and paying for cleanups. Third, BLM asked us
to acknowledge that it has taken actions such as removing debris at sites
and closing abandoned mines for safety reasons, and we added this
information to the report.

Finally, BLM stated that another reason it rarely, if ever, nominates sites for
funding from Interior’s Central Hazardous Materials Fund is because it
believes the proposed cleanup must be a remedial, not a removal, action.
However, Interior officials stated that large-scale removals sometimes
qualify for funding. We revised our report to include BLM’s reason for not
nominating sites for funding. However, we believe that BLM’s uncertainty
about whether removal actions qualify for funding underscores our finding
and recommendation that Interior needs to more clearly communicate the
criteria it uses to allocate cleanup funds.




Page 44                         GAO/RCED-99-111 Superfund Program Management Issues
Chapter 3

EPA Is Not Seeking to Fully Recover Its
Indirect Costs or Appropriately Evaluating
Its Cost Recovery Efforts
                      The federal government has lost the opportunity to try to recover up to
                      $2 billion from responsible parties because EPA has assessed them only a
                      portion of the indirect costs that it incurred in operating the Superfund
                      program. Although the ultimate goal of the program is to clean up sites,
                      EPA may recover its costs, including indirect costs, from responsible
                      parties. In response to new federal cost accounting standards, EPA is
                      revising its indirect cost rate to more fully account for costs, but the
                      agency has not applied the revised rate to parties for cost recovery
                      purposes. In addition, EPA cannot evaluate how well it is recovering costs
                      because it has not established performance measures that compare what it
                      could have recovered with what it actually recovered. Finally, the agency
                      is improving its information systems so that it can (1) better determine
                      costs and locate key supporting evidence and (2) better track the status of
                      recoveries.


                      EPA has met one of its primary goals—getting responsible parties to
EPA Continues to      pay—for more than 70 percent of the long-term cleanups conducted over
Lose Revenue by       the past few years. However, EPA has had less success changing cost
Excluding Some        recovery policies that exclude a significant portion of its indirect cleanup
                      costs from its cost recovery efforts. When EPA pays for the costs of
Indirect Costs From   cleanups, it incurs both direct and indirect costs. Direct costs are those
Recovery              that can be attributed directly to a site, such as the cost to pay a contractor
                      to remove hazardous waste from the site. Indirect costs are those that
                      cannot be attributed to an individual site and, thus, are prorated across all
                      sites, such as the administrative costs of operating the Superfund program.
                      EPA’s current method of calculating the indirect cost rate excludes
                      significant portions of the agency’s indirect costs.

                      EPA estimates that since the beginning of the Superfund program,
                      responsible parties have agreed to perform cleanups worth $15.5 billion1
                      and it has spent about $15.9 billion to clean up hazards caused by private
                      parties. EPA considers about $5 billion of its costs unrecoverable because,
                      for example, financially viable responsible parties could not be found or
                      the agency reached final settlements with responsible parties to pay less
                      than all of the past cleanup costs owed to the agency. Of the remaining
                      approximately $11 billion in Superfund expenditures, EPA had entered into



                      1
                       Data are as of the end of fiscal year 1998 and are the most recent available. According to EPA, its
                      estimated value of work conducted by responsible parties is based on cleanup cost estimates at the
                      time the cleanup method is selected, and it does not include any management, overhead, legal, or other
                      costs the responsible party may incur in addition to the actual cleanup.



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                                          Indirect Costs or Appropriately Evaluating
                                          Its Cost Recovery Efforts




                                          agreements to recover about $2.4 billion, or 22 percent, through the end of
                                          fiscal year 1998.2 (See fig. 3.1)



Figure 3.1: Status of EPA’s Efforts to Recover $11 Billion in Superfund Program Costs Through Fiscal Year 1998




                                          Note: Dollars in billions.

                                          Source: GAO’s presentation of data from EPA.




                                          Although EPA has obtained settlements to recover $2.4 billion, it has lost
                                          the opportunity to recover up to another $1.9 billion of indirect costs
                                          because it did not revise its indirect cost rate to include all appropriate
                                          costs. In the earlier years of the Superfund program, the agency took a
                                          conservative approach to allocating indirect costs to private parties
                                          because it was uncertain which indirect costs the courts would agree were
                                          recoverable if parties legally challenged EPA. Starting in 1989, we

                                          2
                                           This 22-percent figure is higher than the 14-percent cost recovery figure in our prior report, High Risk
                                          Series: Superfund Program Management (GAO/HR-97-14, Feb. 1997), because in the past we included
                                          total Superfund expenditures in our calculation of this rate. Now, in response to EPA’s comments, we
                                          have excluded from our calculation costs EPA has deemed unrecoverable.



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                         Indirect Costs or Appropriately Evaluating
                         Its Cost Recovery Efforts




                         expressed concerns about this approach because of the substantial dollar
                         amounts EPA was not seeking to recover and return to the federal
                         Treasury.3 EPA recognized the need to revise this practice and, in 1992,
                         proposed a rule that would have allowed it to expand the types of indirect
                         costs it would attempt to recover. However, because it received so many
                         negative comments on this proposed rule, EPA did not publish a final rule
                         and did not increase its rate.

                         Now, however, EPA has the opportunity to address this issue. In response
                         to updated governmentwide accounting standards, EPA began to
                         implement a new cost accounting system. As part of this process, EPA’s
                         Financial Management Division developed a new indirect cost rate that
                         will better account for the agency’s indirect costs. The director of EPA’s
                         Program and Cost Accounting Branch, Financial Management Division,
                         believes that the new rates, if implemented, could significantly increase
                         the costs charged to responsible parties.

                         According to EPA’s cost recovery program managers, they are waiting until
                         the methodology used to develop the new rate is reviewed and approved
                         by EPA management, the Department of Justice, and an independent
                         accounting firm hired to review the methodology before adopting it for the
                         Superfund program. According to EPA, the methodology could be approved
                         by September 1999. If the program adopts the new rate, the agency could
                         increase its recovery of indirect costs. For example, according to EPA’s
                         estimates, through fiscal year 1998, the agency excluded about $1.3 billion
                         in indirect costs at sites where it had not yet agreed to a final settlement
                         with the parties. The agency estimates it could recover $629 million, or 49
                         percent, of these costs. EPA estimates it will not recover the remaining
                         $662 million, or 51 percent, because, for example, there may be no
                         financially viable parties at some sites. In addition, EPA regions may
                         decide, as is consistent with the agency’s policy, not to pursue recoveries
                         at sites where the total cleanup costs are less than $200,000 because such
                         efforts may not be cost-effective.


                         EPA’s existing cost recovery goals and measures do not facilitate
EPA’s Goals and          effectively evaluating and improving the agency’s cost recovery
Measures Do Not          performance. EPA’s cost recovery program managers stated that the
Fully Reflect Progress   agency’s current goals for the program are to seek the recovery of all
                         funds expended at sites, where appropriate, and to take cost recovery
in Recovering Costs
                         3
                           Superfund: A More Vigorous and Better Managed Enforcement Program Is Needed (GAO/RCED-90-22,
                         Dec. 15, 1989).



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                         Its Cost Recovery Efforts




                         actions at all cleanup sites before the agency’s authority to do so expires.
                         However, EPA cannot use these goals to effectively monitor its
                         performance because the goals do not fully reflect its progress in
                         recovering costs.


Need for Cost Recovery   Since 1991, we recommended additional goals and measures for the cost
Performance Measures     recovery program.4 We and others, including EPA in its own past
                         management review of the program,5 recommended that the agency better
                         track and compare the costs it actually recovers with the costs it could
                         have recovered. Establishing performance measures to better track the
                         outcome of cost recovery efforts is consistent with the Government
                         Performance and Results Act of 1993, under which agencies must set such
                         measures.6 We also previously recommended that the agency establish a
                         goal to take earlier action on cases, rather than focusing just on taking
                         action before its authority expires, because early action reduces the
                         probability that a responsible party’s financial condition will decline,
                         making cost recovery more difficult.7

                         Although EPA reports the amount of funds it obtains in cost recovery
                         settlements in a given fiscal year, it does not compare this amount with the
                         total amount of funds it could have recovered from this set of settlements.
                         Such a comparison could allow the agency to better measure its
                         performance on a consistent basis. Tracking its rate of recovery over time
                         and the main reasons for fluctuations in the rate from year to year could
                         help the agency better understand how well it is achieving recoveries and
                         what improvements it could make in its recovery program.

                         In the past, we showed that it is possible to compute such a measure.8 We
                         reported that in fiscal year 1989 (the most recent year for which data were
                         available at the time), responsible parties agreed to reimburse EPA for 59
                         percent ($116 million) of its program costs, leaving about $80 million in

                         4
                           Superfund: EPA Has Opportunities to Increase Recoveries of Costs (GAO/RCED-94-196, Sept. 28,
                         1994) and Superfund: More Settlement Authority and EPA Controls Could Increase Cost Recovery
                         (GAO/RCED-91-144, July 18, 1991).
                         5
                          A Management Review of the Superfund Program, EPA (Washington D.C.: June 1989).
                         6
                          Under this act, federal agencies must establish long-term strategic plans and set annual goals for
                         programs and measure the programs’ performance in achieving those goals.
                         7
                           Superfund: EPA Has Opportunities to Increase Recoveries of Costs (GAO/RCED-94-196, Sept. 28,
                         1994).
                         8
                          Superfund: More Settlement Authority and EPA Controls Could Increase Cost Recovery
                         (GAO/RCED-91-144, July 18, 1991).



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                         unrecovered costs. We recommended that EPA use this percentage as a
                         performance measure to show the extent to which EPA has been
                         reimbursed for its costs. However, the agency has raised two primary
                         concerns about doing so. First, EPA is concerned that if it develops the
                         percentage of dollars recovered, responsible parties may misinterpret the
                         figure as the percentage EPA is willing to accept and not agree to pay a
                         higher percentage during settlement negotiations. We believe that if EPA
                         has an appropriate negotiation strategy and is willing to issue orders or
                         pursue litigation when negotiations fail, then responsible parties’
                         knowledge of EPA’s performance measure should have little effect.

                         Second, EPA notes that an increase or decrease in the percentage of costs it
                         recovers each year may be based on factors outside its control. For
                         example, in a given year, EPA could have a proportionately larger number
                         of cases with insolvent parties, decreasing the percentage of recoveries
                         that year. However, we believe that tracking increases or decreases in the
                         percentage of recoveries compared with what EPA defines as potentially
                         recoverable costs would account for these fluctuations because factors
                         outside EPA’s control, such as insolvent parties, could be identified as not
                         recoverable by EPA and taken out of the calculation. Without
                         systematically tracking its rate of recovery and analyzing the reasons for
                         differences in these rates, EPA cannot determine if the differences are due
                         to internal factors that it can address, such as poor cost documentation or
                         inexperience on the part of its negotiators, or external factors outside its
                         control, such as the absence of financially viable parties.


EPA Does Not Track       Under CERCLA’s statute of limitations, EPA must generally initiate cost
Whether Regions Are      recovery actions within 3 years after it completes a removal action or
Taking Early Action on   within 6 years after it begins the physical construction of a remedial
                         action. EPA’s goal is to take action on all cases with cleanup costs of
Cost Recoveries          $200,000 or more within these time frames. EPA took cost recovery actions
                         before the limitations period expired at 100 percent of the sites in fiscal
                         year 1997 and at almost all sites in fiscal years 1996 and 1995 as well. EPA’s
                         guidance encourages the regions to take action on cost recovery cases
                         even earlier than this—either within 12 months after a removal action is
                         completed or within 18 months after the construction of a remedy is
                         initiated—but the agency does not regularly track how well the regions are
                         meeting this guidance. Taking early action on cases is useful because the
                         longer EPA waits to take an action, the greater is the likelihood it will lose
                         evidence, the financial condition of the responsible parties will
                         deteriorate, or the limitations period will expire.



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                        Its Cost Recovery Efforts




                        In 1995, we reported that limitations in EPA’s automated information and
Improved Information    financial systems prevented cost recovery staff from relying on these
and Financial Systems   systems to provide all of the data the agency needed to manage cost
Will Enable EPA to      recovery actions.9 EPA’s ability to recover costs can be impaired if
                        documentation of work performed and its costs cannot be located or if the
Retrieve Data More      information is inaccurate. To ensure that the information supporting cost
Efficiently and         recovery cases was accurate, staff had to perform excessively
                        time-consuming and inefficient manual searches and reconciliations. For
Accurately to Support   example, because EPA’s financial system could not record cleanup costs
Recoveries              for each subcomponent of a site, called an operable unit, EPA staff had to
                        assign costs to operable units manually. Also, although EPA had a system to
                        electronically capture and store certain financial documents, such as
                        invoices, showing the costs of work performed at sites, it did not have the
                        capability to electronically store documents showing the types of work
                        conducted at sites in all of its regions.

                        Recently, EPA has taken actions to address these two issues. First, EPA
                        updated its financial system in 1997. As a result, staff no longer have to
                        manually assign costs to operable units. However, staff still have to
                        manually assign costs entered into the system before the update. Second,
                        EPA is implementing an imaging system—called the Superfund Document
                        Management System—to electronically store and retrieve documents in all
                        of its regions. This action will reduce the labor-intensive manual process
                        staff use to compile hardcopy documents.

                        EPA also needs an accurate account of the costs it cannot recover, such as
                        those spent at sites with no financially viable parties, in order to judge the
                        success of its cost recovery efforts, forecast the amounts of future
                        recoveries, and establish its budget requirements for the Superfund
                        program. However, in 1994, we reported that the Superfund management
                        information system10 produced reports that did not present an accurate
                        picture of the costs that EPA cannot recover.11 In addition, we found that
                        EPA could not regularly produce reports on the status of recoveries
                        because the costs spent on cleanups were contained in the financial
                        management system while the costs recovered were contained in the


                        9
                         Superfund: System Enhancements Could Improve the Efficiency of Cost Recovery
                        (GAO/AIMD-95-177, Aug. 25, 1995).
                        10
                         EPA’s Superfund information system is called the Comprehensive Environmental Response,
                        Compensation, and Liability Information System (CERCLIS).
                        11
                         Superfund: EPA Has Opportunities to Increase Recoveries of Costs (GAO/RCED-94-196, Sept. 28,
                        1994).



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              Indirect Costs or Appropriately Evaluating
              Its Cost Recovery Efforts




              Superfund management information system and the two systems were not
              compatible.

              According to EPA cost recovery managers, the management reports that
              EPA uses to forecast future recoveries and determine budget requirements
              can understate the costs that EPA cannot recover at sites. When EPA regions
              determine that costs at a site cannot be recovered, the regions enter these
              costs as unrecoverable into the information system. Yet after making these
              initial entries, EPA could still incur additional costs at the site. According to
              cost recovery managers in EPA’s Policy and Program Evaluation Division,
              regional staff do not always include these additional unrecoverable costs
              in the system.

              To fix this problem, EPA plans to use a link between the financial
              accounting system and the Superfund management information system to
              automatically update the unrecoverable costs expended at sites. Also,
              according to EPA cost recovery staff, using the link between the two
              systems will allow EPA to regularly produce cost recovery status reports as
              needed. EPA cost recovery staff said that information on direct costs is
              being transferred between the two systems, but the transfer of information
              pertaining to indirect costs may not be completed until early in fiscal year
              2000.


              EPA  has not recovered billions of dollars because it has understated the
Conclusions   amount of indirect costs it charges to responsible parties. Until EPA adopts
              a new method of allocating indirect costs to parties, it will continue to
              forgo federal funds that it could, in turn, use to accomplish more cleanups.
              Additionally, until EPA responds to our prior recommendation that it adopt
              a more meaningful performance measure that compares what it recovers
              with what it could have recovered in aggregate on an annual basis—tracks
              the measure over time, determines the major causes of significant
              fluctuations, and assesses the need for any actions to address identified
              problems, the agency cannot demonstrate its progress in recovering costs.
              Finally, EPA has responded to our past concerns and has modified its
              information systems to decrease its reliance on inefficient manual
              processes and provide better data on its recovery of costs. However, until
              the agency fully completes the transfer of cost data on site cleanups from
              its financial management system to its Superfund management
              information system, expected in early fiscal year 2000, the agency will not
              have all of the information it needs to determine the status of recoveries




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                  and unrecoverable costs and to accurately project future budget needs for
                  the Superfund program.


                  To improve EPA’s ability to recover cleanup costs from private parties, we
Recommendation    recommend that the Administrator, EPA, ensure that the Superfund cost
                  recovery program applies the agency’s new indirect cost rate as soon as it
                  is approved as part of cost recovery settlements.


                  We met with EPA officials, including the Director of the Policy and Program
Agency Comments   Evaluation Division within the Office of Site Remediation and
                  Enforcement and the Chief of the Program and Cost Accounting Branch in
                  the Financial Management Division, the offices responsible for managing
                  the cost recovery program, to obtain their comments on our discussion of
                  cost recovery issues. EPA generally agreed with the content and
                  presentation of information regarding its recovery of indirect costs and is
                  considering establishing a performance measure to better evaluate the
                  progress of the program. EPA questioned the need for a more formal goal to
                  take earlier action on cost recovery cases, however. The agency, in
                  conjunction with the Department of Justice, and an independent
                  accounting firm hired to review the methodology, expects to approve the
                  new methodology for computing indirect costs by the end of
                  September 1999. Subsequently, the agency could develop a new indirect
                  cost rate to charge indirect costs to responsible parties. In relation to
                  creating better performance measures to evaluate the program, the agency
                  noted that currently, the recovery program managers annually make an
                  estimate of the amount the agency expects to obtain as a result of cost
                  recovery actions. The agency agreed to consider whether this estimate
                  could serve as the basis of a performance measure for the program and
                  whether EPA could track the amount obtained against this estimate. In
                  addition, EPA provided us with more current cost recovery data through
                  the end of fiscal year 1998 and we revised the relevant figures in our report
                  accordingly. We also made several technical changes to the report based
                  on EPA’s comments.




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Chapter 4

EPA Has Improved Its Management of
Superfund Contracts but Still Does Not
Effectively Control Some Cleanup
Contractors’ Costs
                   EPA has responded to our past concerns—that it was not completing
                   Superfund contract audits, using independent estimates to set the best
                   contract prices for the government, and controlling some contractors’
                   overhead costs. However, its actions have been slow and some have not
                   gone far enough to protect the government from exposure to unnecessary
                   costs. EPA has reduced its backlog of required contract audits and is more
                   frequently using its own estimates of what cleanup actions should cost to
                   negotiate contract prices. However, EPA regions have some poorly
                   prepared cost estimates and do not always effectively use them to
                   negotiate the best prices for the government, in large part because some
                   managers lack cost-estimating experience and training, as well as
                   historical data on actual cleanup costs to help them develop estimates. In
                   addition, while EPA has taken steps to reduce contractors’ high program
                   support costs, these costs continue to be high for a majority of EPA’s new
                   Superfund contracts. EPA is addressing some of these concerns through its
                   “Contracts 2000” improvement team, but it does not have a plan with
                   milestones for implementing corrective actions.


                   At the time of our 1997 review, EPA had a backlog of more than 500
Contract Audit     required Superfund contract audits. The purpose of these audits is to
Backlog Has Been   evaluate the adequacy of contractors’ policies, procedures, controls, and
Reduced            performance. The audits are necessary for effective management and are a
                   primary tool for deterring and detecting fraud, waste, and abuse. An audit
                   backlog increases the potential for problems to go undetected or
                   uncorrected, especially if, for example, a contractor goes out of business
                   before an audit is completed.

                   Since that time, both EPA’s Office of Inspector General, which is
                   responsible for periodically auditing the agency’s contractors, and the
                   Defense Contract Audit Agency (DCAA), which conducts audits of EPA
                   contractors when EPA is not the primary agency providing work and
                   funding to the contractor, have reduced their backlogs and are trying to
                   perform audits within defined time periods. For instance, staff within the
                   Office of Inspector General stated that the office has established a goal to
                   perform an audit within 2 years of when EPA requests it. For contractors
                   that submitted the necessary information, the office was able to perform
                   almost all of the audits within this time frame, and it plans to perform the
                   remaining audits during fiscal year 1999 to be in full compliance with this
                   goal. EPA is also working with the remaining contractors to obtain
                   complete information in a timely manner. DCAA officials said that the
                   agency began an initiative in the early 1990s to address its backlog and



                   Page 53                     GAO/RCED-99-111 Superfund Program Management Issues
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                             EPA Has Improved Its Management of
                             Superfund Contracts but Still Does Not
                             Effectively Control Some Cleanup
                             Contractors’ Costs




                             become current by 1997. It reached its goal and has been able to perform
                             audits within 1 year of when larger contractors submit complete
                             information and within 2 years of when smaller contractors do so. While
                             we did not review the quality of these audits, conducting them in a more
                             timely manner should help EPA to reduce the risk of fraud, waste, and
                             abuse in the use of Superfund contract dollars.


                             EPA is now generating independent estimates of what contract work
EPA Cannot Ensure            should cost and is using them to negotiate lower contract costs. However,
the Best Possible            EPA’s estimates are still often lower than the final contract price agreed to

Price for Contracted         by EPA—an indication that the estimates are of poor quality, according to
                             the agency’s Financial Managers’ Financial Integrity Act Report. In a
Work                         number of other cases, the final contract price matched the contractor’s
                             estimate, an indication that EPA may not be negotiating for a better price.
                             EPA has only recently begun to address the two barriers to better cost
                             estimates that its contract managers identified: (1) their inexperience and
                             insufficient training and (2) the lack of a database of past actual contract
                             costs to help them better determine what future contracts should cost. EPA
                             is designing corrective measures for these barriers but has had past
                             problems in getting the regions to fully adopt such measures.


Regions Are Generating       In our prior reports, we stated that EPA needed to develop its own
Some Inaccurate Estimates    estimates of what the work intended for its Superfund contractors should
and Are Not Routinely        cost and use these estimates to negotiate the best contract prices for the
                             government. This is a practice the U.S. Army Corps of Engineers (the
Using Estimates to Control   Corps)—an agency with cost-estimating and contract management
Costs                        expertise—uses to manage environmental cleanup costs. In subsequent
                             reviews of EPA’s contract management, we found that the agency had
                             begun to develop such estimates, but their quality and use varied among
                             the regions.

                             In 1997, we reviewed 26 work assignments that EPA had issued to
                             contractors and found that EPA had prepared cost estimates for 21, or
                             about 80 percent, but did not routinely use these estimates to negotiate
                             lower contract prices.1 EPA accepted the contractor’s estimate as the final
                             contract price for each of the 21 assignments. In our current review, we
                             found that EPA was using its estimates more effectively. We reviewed the
                             35 highest-dollar-value work assignments in three regions and found that a

                             1
                              Work assignments are the work plans EPA issues to contractors under large, previously awarded
                             regional contracts that specify statements of work for defined products or services.



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                                       cost estimate had been prepared for all of the assignments and that EPA
                                       had accepted the contractor’s estimate as the final price in 10, or
                                       29 percent, of the cases.2

                                       According to EPA’s criteria, a key measure of the quality of EPA’s cost
                                       estimates is the closeness of the estimate to the negotiated final contract
                                       price. As figure 4.1 illustrates, there was a close match (within 15 percent)
                                       between EPA’s estimate and the final contract price for 18, or about half, of
                                       the assignments. (Percentages do not add up to 100 percent due to
                                       rounding.)


Figure 4.1: EPA’s Estimate Compared
With the Final Contract Price for 35
Work Assignments




                                       For 11 assignments, EPA’s estimate was lower than the final price, and for 6
                                       assignments, its estimate was higher. For 6 assignments, EPA
                                       overestimated the final price by 17 to 36 percent and a total of $769,000.
                                       For 11 assignments, EPA underestimated the final price by 15 to 101
                                       percent and a total of about $2 million. EPA work assignment managers did
                                       not always document reasons for the differences, as EPA requires, even


                                       2
                                        We reviewed work assignments that EPA issued from Jan. 1 to Sept. 30, 1997. We selected this time
                                       period in order to be consistent with the methodology we used in our prior review. Most of these
                                       assignments—20, or 57 percent—were for contractors to oversee cleanup work for EPA or to assess
                                       the nature of contamination at a site. Another 7, or 20 percent, were for actual cleanup activities; 3, or
                                       9 percent were to design a cleanup method; and the remaining 5, or 14 percent, were for study,
                                       security, or support activities.



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                              though comparing and documenting differences could identify problems
                              with cost-estimating practices and alternatives for improvement.


EPA Does Not Have the         Of the 34 work assignment managers we interviewed, 15, or about
Staff Skills or Data Needed   44 percent, said they lack sufficient experience to effectively and
to Accurately Develop Cost    accurately develop estimates.3 As a result, these managers said, EPA’s
                              estimators omit the costs of key work tasks, underestimate the experience
Estimates                     and salary level of contractor personnel, and underestimate the extent to
                              which subcontractors will be used. Six managers said they rely heavily on
                              the contractors to determine what tasks should be included in a work
                              assignment and how much the work should cost. Fifteen managers held
                              the opinion that contractor personnel are better prepared and more
                              qualified to estimate contract costs. One of the managers said that the
                              contractor knows best and EPA will do whatever it takes to keep the
                              contractor happy because the agency needs the contractor to perform the
                              work. These attitudes raise questions about EPA’s willingness and ability to
                              ensure that the agency is paying the best price for the work performed.

                              These managers wanted more training on cleanups and cost estimating, as
                              well as access to experienced estimators who could help the EPA managers
                              improve their estimates. EPA’s internal reviews and our reports have also
                              identified the need to adequately train regional contracting personnel as
                              effective cost estimators and enhance their negotiation techniques.4
                              However, few of the managers we interviewed said they had received such
                              training. Instead, most were using on-the-job experience to fill this training
                              gap, but it was not effective because the managers develop only a few
                              estimates each year. The director of EPA’s Office of Acquisition
                              Management noted that in the past, some regions hired trained estimators
                              to develop cost estimates but had to discontinue this practice because of
                              budget cuts.

                              To compensate for their lack of experience and training, several work
                              assignment managers have worked as a team with both the EPA contract
                              manager and the cleanup project manager to develop estimates for sites.
                              Two of the three regions in our review had established such teams, and
                              their estimates were closer to the final contract prices than the third


                              3
                               We did not interview the manager for one work assignment because no significant problems were
                              found in the assignment and the manager was not available because of extended leave.
                              4
                               High-Risk Series: Superfund Program Management (GAO/HR-95-12, Feb. 1995; GAO/HR-97-14,
                              Feb. 1997), and Acquisition Management: OMB Requested Review of EPA Contracting
                              (OIG/E1SKF7-04-0037-7100301, Sept. 30, 1997).



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region’s estimates. In addition, some regions have made arrangements
with other collocated federal agencies, such as the Corps and the
Department of the Interior’s Bureau of Reclamation, to have their work
assignment managers seek assistance from staff at these agencies with
experience in developing cost estimates. More widespread use of this
resource by EPA regions could help managers gain the training and
experience they need to improve the quality of their cost estimates.

In addition to inexperience, all 34 work assignment managers cited a lack
of access to historical site-specific cost data as a problem that adversely
affected their ability to develop accurate cost estimates. As early as 1992,
an EPA contract management task force determined that the absence of a
database of historical information on the types of cleanup tasks conducted
at similar sites and the associated costs of those tasks hampered cost
estimators. The task force concluded that EPA should develop such a
database, and EPA’s Office of Inspector General reiterated this conclusion
in a 1997 study, recommending that the agency either develop such a
database or obtain access to similar databases from the Corps or private
agencies that conduct cleanups.5

To date, EPA has not established this database. When EPA awarded its
Superfund contracts, beginning in 1995, it created a contract management
information system. While the primary objective of the system was to
collect the current data needed to monitor the Superfund program’s
overall resources, the agency subsequently decided that the system could
also serve as the historical cost database that estimators need. However,
at the time of our review, EPA was testing the system and had not
determined how estimators would use it. In addition, EPA does not plan to
enter historical data into this database; instead, it plans to start collecting
data when the database becomes operational. Consequently, it will take
several years to gather enough baseline data to support cost estimates.
Furthermore, several work assignment managers noted that the system is
designed to collect only summary statistical cost data on the contracts and
not the detailed site-specific data they need for their estimates. According
to several regional contract management staff, they need both current and
historical site-specific task and cost information to develop quality
estimates. The director of EPA’s Office of Acquisition Management noted
that a limited EPA analysis had indicated that it might be too costly to
collect data at this level of detail.



5
  Acquisition Management: OMB Requested Review of EPA Contracting (OIG/E1SKF7-04-0037-7100301,
Sept. 30, 1997).



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                         Corps Superfund program managers reinforced the need for historical
                         site-specific task information to support cost estimates. The Corps
                         includes such data in its cleanup database, but this database may not be
                         complete enough to meet EPA’s needs. For example, the Corps primarily
                         conducts construction activities at a cleanup, while EPA manages other
                         types of activities, such as overseeing the cleanup. In addition, the Corps
                         primarily uses fixed-price contracts for its cleanup work, so it is more
                         certain of the tasks the contractor will conduct and the costs it might
                         incur. EPA, on the other hand, has used primarily cost-reimbursable
                         contracts for cleanups, so it is less certain of the tasks to be covered and
                         the costs it will incur under such a contract. Nevertheless, the Corps
                         managers believe a historical database would help EPA better manage
                         these uncertainties and develop more accurate estimates.


EPA’s Plans to Improve   EPA has taken two actions to identify problems with its cost-estimating
Cost Estimates May Not   procedures and design corrective actions. First, in response to our reports
Address Recurring        and the Office of Inspector General’s findings, in fiscal year 1998, EPA
                         declared Superfund contract management, including independent
Problems Unless          government cost estimates, as an agency-level weakness to address and
Implemented Agencywide   established a workgroup to develop corrective action plans and
                         milestones. The group also identified other steps EPA could take, including
                         conducting more in-depth reviews of regions’ cost-estimating procedures,
                         designing solutions to any problems identified, sharing any lessons learned
                         from this review among the regions, and providing work assignment
                         managers with more training.

                         Second, to implement some of the corrective measures, EPA, in June 1998,
                         entered into an agreement with the Corps to conduct reviews of the
                         region’s cost-estimating practices and recommend potential
                         improvements. The Corps plans to evaluate EPA’s cost-estimating policies
                         and procedures, as well as the automated systems that could support cost
                         estimating, and assess the extent to which EPA’s 10 regions are in
                         compliance with these policies and procedures. As part of this effort, the
                         Corps plans to determine the training needs of EPA’s contracting personnel.
                         The Corps expects to submit a final report to EPA by early spring 1999, and
                         EPA hopes to begin implementing any recommendations in
                         September 1999. The agency is also waiting for the Corps’ report before it
                         decides what types of historical information cost estimators need, whether
                         and how to collect it, and how estimators can use it.




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                      While EPA has taken similar actions in the past, we continue to find the
                      same problems with some estimates, demonstrating that the regions do
                      not uniformly make improvements. According to the director of Superfund
                      Programs, the regions operate autonomously and do not always
                      implement headquarters’ directions in the same way. To illustrate, he
                      pointed out that the newly developed Superfund contract information
                      management system was created by the programmatic side of EPA, and
                      now the contracting side of the agency is developing its own contract
                      information management system. Because the two groups did not work
                      together, the agency has to try to link the two systems. The Superfund
                      Assistant Administrator also acknowledged that the regions may not
                      sustain improvements in their estimating practices.


                      When EPA replaced its expiring Superfund contracts with the Response
EPA Is Still          Action Contracts it now uses for cleanup actions,6 it wanted to correct
Experiencing Some     several contract deficiencies. In particular, it wanted to reduce both the
Contract Management   number of contracts it awarded and the high program support costs it was
                      paying to contractors for items such as managers’ salaries, rents,
Deficiencies          computers, telephones, and reports.7 In the past, EPA put too many
                      contracts in place and did not have enough work to give all of the
                      contractors. Even if the contractors were conducting relatively little
                      cleanup work, they were continuing to incur monthly program support
                      costs. As a result, a high percentage of the total contract costs was going
                      to cover these administrative expenses rather than actual cleanup costs.
                      Although EPA has awarded fewer new contracts, it may still have too many
                      contracts in place compared with the current and projected future
                      Superfund cleanup workload, and the program support costs for 10 of the
                      15 new contracts continue to be high.

                      These concerns, however, may be only symptoms of more systemic
                      questions about the ways in which EPA establishes contracts for Superfund
                      work. EPA’s current “Contracts 2000” initiative may begin to address some
                      of these questions. We are concerned, however, that EPA has not been able
                      to provide documentation that clearly describes overall strategies and time
                      frames for implementing changes from the initiative.



                      6
                       In September 1992, EPA’s Superfund Long-Term Contracting Strategy workgroup recommended
                      integrating the agency’s responsibilities to clean up sites or oversee responsible parties’ cleanups into
                      a single regional contracting mechanism–the Response Action Contract.
                      7
                       Program support cost percentages are calculated by dividing the total non-site-specific costs by the
                      total contract costs.



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The New Contracts’ High       At the time of our current review, EPA had awarded 15 of its new Response
Program Support Costs         Action Contracts, valued at a total of more than $60 million.8 When EPA
Still Result, in Part, From   awards a contract, it specifies that the contractor will obtain up to a
                              certain dollar amount of cleanup work over a given time period. As the
Insufficient Contractor       contractor conducts work, it incurs costs—both direct costs that can be
Workload                      attributed to an individual site and indirect costs that are not site specific.
                              EPA pays the contractor for both types of costs. EPA tracks the amount of
                              non-site-specific costs it pays as a percentage, or rate, of the total contract
                              costs that it covers.

                              In the past, we have expressed concern that contractors’ program support
                              costs, as a percentage of total contract costs, have been too high. Since the
                              mid-1990s, EPA has used 11 percent as its target for program support costs.
                              In our 1997 review, however, we found that the program support cost rates
                              for expiring Superfund contracts ranged from 15 to 22 percent over the life
                              of the contracts, in part because EPA did not control these costs in the
                              early years of the contracts. We also reported that some of the new
                              Response Action Contracts were continuing this pattern, with program
                              support costs of 21 to 38 percent of total costs, making it more difficult for
                              EPA to meet its target rate of no more than 11 percent over the life of these
                              new contracts. In August 1998, we reported that EPA Superfund
                              contractors were spending about 29 percent of their total contract costs
                              for program support.9

                              During our current review, we found that the program support cost rates
                              for a majority of the new contracts were still high. As of September 1998,
                              EPA reported that the rates for only 5 of the 15 contracts were below EPA’s
                              target of no more than 11 percent, ranging from about 7 to 10 percent. The
                              rates for the remaining 10 contracts ranged from about 16 to 59 percent of
                              total contract costs. One of the primary reasons for these high program
                              support cost rates continues to be that EPA has too many contracts in place
                              compared with the available cleanup workload. According to several EPA
                              contracting officers, the agency expects such high rates for new contracts
                              until the agency has had time to award enough work to all of the
                              contractors. The officials predict that as EPA awards more work
                              assignments, these program support cost rates should decrease. However,
                              our prior work demonstrated that although EPA made this same prediction
                              for its expired contracts, their rates remain high.



                              8
                               EPA plans to eventually award a total of 19 Response Action Contracts nationwide.
                              9
                               Superfund: Analysis of Contractor Cleanup Spending (GAO/RCED-98-221, Aug. 4, 1998).



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When EPA began replacing its expiring contracts with new contracts in
1995, it had to decide how many contracts to award. In September 1992, it
used the number of work assignments under its 45 expiring contracts to
project the number of work assignments it would have in the future.
Because the agency expected the number of work assignments to remain
steady, it believed that if it reduced the number of contracts it awarded, it
could give these contractors more work, and the program support cost
rates would decrease. EPA decided to reduce the number of contracts from
45 to 22. The agency had determined that it should have at least two
contracts in each region, and perhaps three in large regions so that, among
other things, contractors would have to compete for work, helping to keep
costs down. In reality, however, contractors do not compete for work
assignments; rather, EPA regional contracting officials attempt to distribute
the work assignments so that each contractor receives a fair share of the
work.

Subsequently, EPA decided to award only 19 of the 22 planned
contracts–three regions will have only one contract—because it no longer
thinks it will have the workload it originally predicted. However, EPA may
still have more contracts in place than it needs. While uncertainty exists
about how many sites will be included on the National Priorities List in the
future, the agency has been listing fewer sites in recent years. For
example, EPA proposed about 30 sites during fiscal year 1998, compared
with an average of about 75 sites in earlier years. Thus, the likely number
of cleanups will be significantly smaller than EPA originally estimated.
Although EPA headquarters program managers have said that the agency
hopes to add an average of about 40 new sites annually to the program
beginning in fiscal year 1999, the four EPA regions with the highest
Superfund workload indicated that, as the states take on greater cleanup
responsibilities, fewer sites will enter the program. With fewer sites,
contractors will have less work and EPA will have less chance to reduce its
program support cost rate.

EPA will soon have an opportunity to review the number of contracts it
should have in place. EPA designed the current Superfund contracts to last
5 years, with an option to renew them for another 5 years. Several of the
current contracts will soon be 5 years old, and EPA will have to determine
whether to renew them. A representative from EPA’s Office of Acquisition
Management said the office plans to consider a number of factors,
including the uncertainty over the number of sites that will be placed on
the National Priorities List, the contractor’s performance, and the Corps’




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                         involvement in cleanups when determining which contract options to
                         renew.


Actual Program Support   In the past, EPA classified as program support costs the start-up costs that
Costs Are Higher Than    contractors incurred to prepare their personnel and administrative
EPA Reports              systems to perform the projects under their contract. These start-up costs
                         are known as mobilization costs and are technically part of a contractor’s
                         overhead costs. Under the new contracts, EPA excluded reporting these
                         costs (a total of more than $1 million) in the program support category,
                         because it viewed them as one-time costs that should be tracked
                         separately. Nevertheless, these costs are program support costs, and when
                         they are included, the 15 new contracts have average program support
                         costs ranging from about 7 to 76 percent, rather than the 7 to 59 percent
                         reported by EPA. Several senior managers in EPA’s Office of Acquisition
                         Management agree that mobilization costs should be included in
                         calculations of program support costs. As noted, the program support cost
                         rate for 10 of EPA’s 15 new contracts exceeds EPA’s target rate of no more
                         than 11 percent. The rates range from 16 to 76 percent, with a median of
                         28 percent and an average of 36 percent.


New EPA Tracking and     In part because of concerns about contractors’ high program support
Reporting Requirements   costs, EPA has required the 15 contractors to provide more detailed
Increased Program        breakdowns of their costs to help the agency better monitor and control
                         costs. EPA has required the contractors to break down costs that it cannot
Support Costs            assign to any one site, such as program support costs, into defined
                         categories (e.g. program, administrative, and technical support) and track
                         the costs by these categories. In implementing this requirement, EPA
                         provided funds for the contractors to set up these categories and tracking
                         mechanisms, and in doing so, took some actions that were inefficient and
                         increased the support costs. First, rather than creating the software
                         needed to set up and track the categories and providing it to each
                         contractor, EPA paid each contractor to develop its own software. While
                         EPA did not track the dollars devoted to developing software, senior
                         officials in the Office of Emergency and Remedial Response told us that a
                         substantial portion of the mobilization costs was devoted to this effort.
                         Second, while several contractors have contracts in multiple locations, EPA
                         typically paid each location to develop its own software, rather than just
                         paying the parent contractor to develop one system and requiring the
                         contractor to distribute the system. In some cases, however, EPA required
                         the parent contractor to share the software it developed with its various



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                              regional offices. For example, Region III was able to save up to $90,000 on
                              one contract by requiring that the parent contractor, which had received
                              funds from another EPA region, to develop the software in that location,
                              and in turn, provide the software to its office within Region III.


Problems Raise Broader        While assessing EPA’s progress in correcting these past contract
Questions About               management problems, we determined that the problems may be
Superfund Contracting         symptoms of more systemic issues associated with EPA’s Superfund
                              contracting practices. The problems raise the following questions:
That Could Be Addressed
Through EPA’s Contracts   •   Could the agency more quickly and aggressively test and implement
2000 Initiative               alternative types of contracts in addition to or instead of using
                              cost-reimbursable contracts as it now does? Cost-reimbursable contracts,
                              under which EPA agrees to pay all of a contrator’s allowable costs, place
                              most of the financial risk on the government because the work that needs
                              to be performed is, to varying degrees, uncertain. This uncertainty
                              prevents EPA from accurately predicting the costs involved in performing
                              the work. To a limited extent, EPA has effectively used fixed-price
                              contracts for clearly defined and more routine cleanup actions. These
                              contracts reduce the financial risk to the government because the parties
                              agree on a price for the contractor’s activities and the contractor bears the
                              risk of accomplishing the activities at this price. Because of its success to
                              date, according to the director of EPA’s Office of Acquisition Management,
                              the agency plans to use more fixed-price contracts in the future.
                              Meanwhile, the Office of Management and Budget has also been urging EPA
                              and other federal agencies to make a more concerted effort to use
                              performance-based contracts. These contracts establish a price structure
                              for a contractor’s services that rewards the contractor for superior
                              performance, allowing the government to better ensure the receipt of
                              high-quality goods and services at the best price. EPA has a few ongoing
                              performance-based demonstration contracts that appear to be achieving
                              positive results.
                          •   Is it cost-effective for EPA to duplicate the infrastructure necessary to
                              manage contracts in each of its 10 regional offices?
                          •   Are there new and more effective ways to build more competition into
                              EPA’s contracting process as a means to better control costs and ensure
                              quality, such as competing each work assignment?
                          •   Has EPA lowered its costs by using the Corps for more of its cleanup work,
                              and, if so, how much of the cleanup workload should the Corps assume?
                              Because the Corps specializes in and conducts a significant amount of




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              construction contracting for the federal government, it may be better
              equipped than EPA to manage Superfund construction contracts.

              EPA’s Contracts 2000 initiative—an outgrowth of the Long-Term
              Contracting Strategy that the agency has been using to put in place
              necessary contracts as well as to assess and update its contract
              management practices—may address some, but not all, of these questions.
              EPA has identified various contracting issues, including the type and
              number of contracts used, that it needs to address. However, the initiative
              does not consider opportunities for making more use of competition and
              of the Corps, nor does it address the need for a contract management
              office in each of the 10 regions. Furthermore, EPA has not been able to
              provide us with documentation that clearly describes (1) the strategy for
              evaluating these areas and (2) the time frames for implementing the
              Contracts 2000 team’s decisions about improvements. As a result, we are
              concerned about whether EPA will move quickly enough before it extends
              the existing contracts for another 5 years and develops a strategy for
              ensuring that any changes become permanent. Our progress reviews over
              the years have consistently shown that without sustained high-level
              management attention, EPA has not always succeeded in implementing and
              sustaining past contracting reforms.


              EPA’s and DCAA’s progress in reducing the contract audit backlog will
Conclusions   reduce the government’s risk of contractor fraud, waste, and abuse of
              Superfund dollars. EPA’s more frequent use of independent government
              estimates to negotiate the final prices for contracted work should help to
              ensure that the government gets the best possible prices for this work.
              However, until EPA addresses its cost estimators’ lack of experience and
              training in developing estimates, the government is at risk of paying too
              much for some cleanup work. Enlisting the Corps to assess the EPA
              regions’ cost-estimating practices and data needs and to recommend
              training and other improvements has the potential to correct the recurring
              problems that we find. Sustaining such improvements in the regions over
              the long term has also been a problem. Unless EPA establishes some
              system to monitor the regions’ implementation of such changes—by, for
              example, routinely testing the regions’ cost-estimating and
              price-negotiating practices during formal regional reviews—we may
              continue to find problems.

              Also, cost estimators still do not have access to historical site-specific cost
              data, and until they do, they cannot generate the most accurate estimates



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                      possible. Because EPA’s contract management information system most
                      likely will not provide the detailed historical site-specific cost data
                      estimators say they need and will not be available in the near future, the
                      agency will have to consider other cost-effective alternatives for providing
                      these data. To generate estimates, broader use of regional teams that
                      include the cost estimator, contract manager, and program manager for a
                      site, as well as access to experienced estimators and historical databases
                      provided by other agencies within a region’s geographical area, could be
                      effective interim measures that the agency could take.

                      The agency has also taken important steps to reduce the program support
                      costs that it pays contractors, particularly reducing by more than half the
                      number of contracts that it has in place. However, without taking
                      additional steps, such as deciding not to renew some contracts because
                      the contractors have performed poorly or not enough work is available for
                      the remaining contractors, the agency will continue to pay these high
                      administrative expenses, making less funding available for cleanup.
                      Finally, EPA’s Contracts 2000 initiative offers the agency the opportunity to
                      assess and improve its overall contracting practices, allowing it to make
                      wider use of the Corps in cleanup work and enter into more fixed-price or
                      performance-based contracts. However, without an implementation
                      strategy with milestones to make needed improvements agencywide, EPA
                      will not establish and sustain better contracting practices.


                      To build on EPA’s momentum to address the contract management
Recommendations       concerns we have identified, we recommend that the Administrator, EPA,
                      instruct the director of the Office of Acquisition Management to work with
                      the Assistant Administrator for Solid Waste and Emergency Response to

                  •   develop procedures to ensure that the corrective actions EPA implements
                      in response to recommended actions from the Corps result in improved
                      cost estimates;
                  •   periodically review whether the regions have consistently implemented
                      the corrective actions;
                  •   identify a cost-effective method of providing estimators with access to the
                      detailed historical site-specific cost data they need to generate more
                      accurate estimates;
                  •   complete a review of the number of contracts the agency needs to keep in
                      place, given the future cleanup workload, and do so before it loses the
                      opportunity to close out some of the contracts whose base periods are




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                      expiring, allowing the agency to choose whether to exercise its option to
                      renew these contracts for another 5 years; and
                  •   ensure that the Contracts 2000 initiative results in a comprehensive
                      strategy, with specific tasks and milestones for their completion, for
                      improving the agency’s contract management practices.


                      We met with officials from EPA’s Office of Acquisition Management and
Agency Comments       Office of Solid Waste and Emergency Response, including the director of
                      Superfund Programs and the director of Contract Management, who
                      generally agreed with the basic findings and recommendations of the
                      report. The agency provided various clarifying and technical corrections,
                      which we incorporated in the report as appropriate. EPA agreed with our
                      recommendations to periodically review the regions’ implementation of
                      cost-estimating corrective actions and noted that teams from both the
                      Office of Solid Waste and Emergency Response and the Office of
                      Acquisition Management could monitor implementation during their
                      regional reviews.

                      In response to our recommendation to use historical data to improve cost
                      estimates, EPA expressed concern that some estimators relied too much on
                      outdated historical data, leading to inaccurate estimates. The agency
                      stated that it was more critical to focus on helping estimators learn to
                      develop a more detailed breakdown of site-specific tasks and activities to
                      be conducted and to cost out these activities, rather than spending the
                      resources to build a nationwide database. We agree that EPA estimators
                      need to develop detailed site-specific tasks to improve their estimates
                      because our work demonstrated that they often leave out key steps when
                      developing their estimates, as we point out in this report. However,
                      because the estimators themselves and the Corps identified historical data
                      as a critical component for accurate cost estimating, we continue to call
                      on the agency to also provide historical data that estimators can use as a
                      baseline to cost out these specific tasks once estimators have developed
                      them. Furthermore, our recommendation calls on the agency to identify a
                      cost-effective method for providing these data but does not prescribe that
                      the agency build a nationwide database.

                      In regard to our concerns about contractors’ high program support costs,
                      EPA recommended that we exclude two relatively new Superfund contracts
                      from our analyses of program support costs because the agency has not
                      had enough time to assign work to these contracts. Including such
                      contracts makes program support costs high as a percentage of cleanup



                      Page 66                         GAO/RCED-99-111 Superfund Program Management Issues
Chapter 4
EPA Has Improved Its Management of
Superfund Contracts but Still Does Not
Effectively Control Some Cleanup
Contractors’ Costs




costs. EPA expects these percentages to decrease over time as contractors
obtain work assignments. We did not adjust our program support cost
analyses in response to EPA’s comments but did note the agency’s point
about new contracts in our report. We believe it is critical that EPA seek to
reduce contractors’ program support costs from the beginning of a
contract. As our 1997 report demonstrated, EPA was not able to meet its
target of 11 percent for many of the expiring Superfund contracts, in part
because the percentage of program support costs was so high for
contracts in the early stages and EPA did not have enough cleanup work to
award to contractors to decrease these costs over time. As we have noted
in this report, the likely number of future cleanups could be significantly
smaller than the number EPA originally estimated, making it difficult to
reduce the program support cost percentages for its current contracts over
time.

Finally, the agency agreed with our recommendation that it use its
Contracts 2000 initiative to improve contract management and provided
examples of various efforts the agency has undertaken. These included
(1) exploring the use of different types of contracts, (2) having each region
use a performance-based contract for a pilot Superfund cleanup project,
and (3) evaluating contractors’ performance before assigning them work.




Page 67                         GAO/RCED-99-111 Superfund Program Management Issues
Appendix I

Objectives, Scope, and Methodology


                         Because the Environmental Protection Agency (EPA) has not always taken
                         actions to address the concerns about the Superfund program’s
                         management that we identified in our prior work, the objectives of this
                         review were to determine if the agency had more fully addressed these
                         concerns since we issued our last report. Specifically, we wanted to know
                         if the agency (1) uses relative risk factors to set cleanup funding priorities,
                         (2) is more effectively managing its cost recovery program, and (3) has
                         improved its efforts to manage cleanup contract management costs.


                         To respond to this first objective, we conducted interviews with EPA site
Objective 1: Assessing   assessment managers—officials responsible for assessing sites and
How Agencies Use         determining which ones to place on the National Priorities List—and
Relative Risk to Set     remedial managers–officials responsible for overseeing the cleanup
                         process—in 4 of EPA’s 10 regions: regions I (Boston), II (New York), IV
Cleanup Funding          (Atlanta), and V (Chicago). We selected these regions because they have
Priorities               the largest number of sites that are awaiting consideration for listing and
                         are already listed. To understand the agency’s overall approach and
                         priorities in assessing and listing sites, we interviewed and obtained
                         relevant documents from the director, deputy director, and staff of the
                         State, Tribal, and Site Identification Center within the Office of Solid
                         Waste and Emergency Response (OSWER). We also interviewed the chair
                         and 4 of 10 regional representatives on EPA’s National Prioritization
                         Panel—the panel that ranks all of the sites ready for construction of the
                         cleanup remedy nationwide for funding on the basis of their relative
                         risks—to understand how the panel uses relative risk to allocate funds
                         among these sites. We obtained and reviewed documents that describe the
                         criteria and weights the panel uses to score and rank sites. In addition, we
                         examined the panel’s funding decisions for fiscal year 1997, confirming
                         that they were based on the panel’s ranking. EPA provided us with updated
                         information on the panel’s decisions for fiscal year 1998.

                         To understand EPA’s responsibilities and approach to federal facility
                         cleanups, we met with the associate director of OSWER’s Federal Facilities
                         Restoration and Reuse Office–the office charged with responsibility for
                         working with federal agencies to facilitate fast, protective, and
                         cost-effective cleanups. To understand the role of EPA’s regions in the
                         federal facilities cleanup process and to learn whether and how the
                         regions could influence cleanup funding priorities at federal facilities, we
                         interviewed managers who oversee federal facility cleanups in regions IV
                         (Atlanta), V (Chicago), VIII (Denver), IX (San Francisco), and X (Seattle).




                         Page 68                      GAO/RCED-99-111 Superfund Program Management Issues
                            Appendix I
                            Objectives, Scope, and Methodology




                            We also met with officials of the departments of Agriculture, Defense,
                            Energy, and the Interior. We selected these agencies because they are the
                            agencies responsible for the largest number of federal facility cleanups.
                            First, to determine each department’s overall policies and procedures for
                            using relative risk in funding decisions, we talked with headquarters
                            personnel in charge of environmental cleanup programs. Then, as
                            necessary, we visited regional offices to test how field offices
                            implemented these relative risk policies and used relative risk to make
                            cleanup funding decisions.


Department of Agriculture   To obtain information on overall policies and procedures for Agriculture’s
                            cleanup program and on the Department’s use of relative risk to set
                            cleanup funding priorities, we selected the Forest Service from among
                            Agriculture’s five services with sites on EPA’s federal facilities docket for a
                            more detailed review. The Forest Service has the largest number of
                            potential hazardous waste sites to date. We met with officials from the
                            Hazardous Waste Management Group in Agriculture’s Office of the Deputy
                            Under Secretary for Natural Resources Management and Environment. We
                            also met with the chief engineer for environmental restoration within the
                            Forest Service’s Engineering Office because the engineer oversees the
                            Forest Service’s ranking system for cleanup activities and is responsible
                            for allocating the Forest Service’s hazardous waste management budget to
                            its regional offices.

                            To test the Forest Service’s progress in using relative risks to set priorities
                            for funding decisions, we visited one of nine regions, the Intermountain
                            Region in Ogden, Utah. We selected this region because of its large
                            number of planned cleanup activities, hazardous waste management
                            budget, and potential number of abandoned mine sites. To assess the
                            Forest Service’s progress in developing an inventory of potential
                            hazardous waste sites and in characterizing the risks at those sites, we met
                            with the environmental engineer in charge of that region’s hazardous
                            waste cleanup program and a staff member in charge of developing an
                            inventory of abandoned mines. We also interviewed the engineer about the
                            priorities for cleanup activities in the region and reviewed relevant budget
                            and progress reports to determine the extent to which funding decisions
                            were based on a consideration of relative risk.


Department of Defense       To gather information on Defense’s overall policies and procedures for
                            setting funding priorities for cleanups, we met with officials in the Office



                            Page 69                         GAO/RCED-99-111 Superfund Program Management Issues
                       Appendix I
                       Objectives, Scope, and Methodology




                       of the Deputy Under Secretary of Defense for Environmental Security.
                       These officials are responsible for the Defense Environmental Restoration
                       Program, which is designed to clean up hazardous substances associated
                       with past activities on the Department’s lands and on lands that the
                       Department formerly owned or used. We also reviewed relevant policies
                       and procedural documents, including ones addressing relative risk
                       evaluation procedures, data quality assurance plans, and management
                       guidance for the Restoration Program. To understand the Department’s
                       overall budgeting process for environmental restoration, we spoke to a
                       senior budget analyst in the Department’s Office of the Comptroller in
                       charge of reviewing all environmental budget submissions throughout the
                       Department of Defense.

                       To examine Defense’s progress in implementing its relative risk policies,
                       we reviewed the Restoration Program’s annual reports to the Congress.
                       We also incorporated data from our 1998 report on Defense’s
                       implementation of its relative risk evaluation process.1 For this report, we
                       analyzed data on more than 6,000 sites from 97 installations and obtained
                       detailed information from an additional 7 military installations to
                       determine the usefulness of the relative risk data in setting priorities.

                       We also spoke to a senior program analyst in the Office of the Deputy
                       Under Secretary of Defense for Environmental Security in charge of
                       coordinating the Inter-Agency Military Land Use Coordination Committee
                       and reviewed documents provided to obtain information on the current
                       status of working agreements between Defense and the land management
                       agencies for coordinating cleanups on public lands that were previously
                       used by Defense.


Department of Energy   For information on Energy’s overall policies on the use of relative risk to
                       set cleanup funding priorities, we met with officials responsible for
                       environmental budget management and the director of the Office of
                       Science and Risk Policy within the Office of the Assistant Secretary for
                       Environmental Management. To test Energy’s progress in using relative
                       risk to set funding priorities, we visited two facilities–Oak Ridge,
                       Tennessee, and Rocky Flats, Colorado. We selected these offices from
                       among Energy’s 11 field locations to represent two different types of
                       cleanups. Rocky Flats is operating on a “fast-track” to clean up and close



                       1
                        Environmental Cleanup: DOD’s Implementation of the Relative Risk Site Evaluation Process
                       (GAO/NSIAD-99-25).



                       Page 70                             GAO/RCED-99-111 Superfund Program Management Issues
                             Appendix I
                             Objectives, Scope, and Methodology




                             a nonoperating facility, while Oak Ridge is performing cleanups at an
                             active facility.

                             We met with staff who were responsible for risk determination and the
                             budget process from both facilities’ Environmental Management offices
                             and discussed the extent to which they used risk to establish cleanup
                             funding priorities. At Oak Ridge, we compared a sample of the top-ranked
                             cleanup projects for fiscal year 1999 with the project funded that year to
                             verify that the funding decisions considered projects’ risks. We conducted
                             a similar comparison at Rocky Flats. We also reviewed documents
                             describing both facilities’ methods of ranking risks and budget processes.
                             In addition, we met with regional EPA officials responsible for the
                             interagency agreements with these two sites to obtain their views on the
                             extent to which the priorities for projects established in these agreements
                             are based on relative risk and Energy is fulfilling these agreements.


Department of the Interior   To determine Interior’s overall approach to setting priorities and funding
                             cleanups, we met with the director of the Office of Environmental Policy
                             and Compliance and officials responsible for setting guidance for the
                             Department’s solid and hazardous materials management programs. We
                             selected the Bureau of Land Management for a more detailed review
                             because it has the largest number of potential hazardous waste sites
                             among Interior’s eight bureaus and services. To obtain information on the
                             Bureau’s use of relative risk to set cleanup funding priorities, we met with
                             the manager of its Protection and Response Group and officials
                             responsible for the Bureau’s hazardous materials cleanup program.

                             We obtained information on the Bureau’s overall progress in developing an
                             inventory of its sites and cleaning them up from the Bureau’s National
                             Applied Resource Sciences Center, a support organization that does work
                             at the request of the Bureau’s field offices, supplying technical specialists
                             to aid with the development of an inventory and cleanup efforts.

                             To test the Bureau’s progress in using relative risk to set priorities for
                             funding decisions, we visited 1 of its 12 state offices, the Nevada state
                             office in Reno. We selected Nevada because the Bureau manages
                             approximately 63 percent of the lands in the state, as well as, cleanups on
                             these lands. Abandoned mines, illegal dumping, and formerly used
                             Defense sites represent the wide array of problems the Bureau must
                             address. To assess the Bureau’s progress in inventorying its hazardous
                             waste sites and characterizing the risks at those sites, we interviewed the



                             Page 71                         GAO/RCED-99-111 Superfund Program Management Issues
                         Appendix I
                         Objectives, Scope, and Methodology




                         environmental protection specialist in charge of the state office’s
                         hazardous waste cleanup program and the division chief of Minerals
                         Management, who was responsible for a past effort to develop an
                         inventory of abandoned mines in Nevada. In addition, we met with the
                         regional environmental protection specialist about priorities for the
                         cleanup program to determine whether cleanup funding priorities and
                         decisions were based on a consideration of relative risk.

                         To better understand joint efforts by EPA, Agriculture, and Interior to
                         develop an inventory of abandoned mine lands and clean them up, we
                         attended the Federal Mining Dialogue Conference, held in Frisco,
                         Colorado, on October 20-22, 1998. We met with EPA representatives from
                         Region VIII’s Superfund Remedial Response Program and from the
                         headquarters Office of Site Remediation Enforcement to discuss federal
                         facilities enforcement issues. Additionally, we met with environmental
                         protection or abandoned mine specialists from 6 of the Bureau of Land
                         Management’s 12 field offices to discuss their approaches to clean up
                         hazardous waste on their lands.


                         To assess EPA’s effectiveness in managing its cost recovery program, we
Objective 2: Assessing   met with and obtained data from cost recovery program managers in
EPA’s Cost Recovery      headquarters and two of EPA’s regional offices. In EPA headquarters, we
Program                  met with the director of the Policy and Program Evaluation Division and
                         the chief of the Program Evaluation and Coordination Branch, within the
                         Office of Site Remediation and Enforcement, located in turn within the
                         Office of Enforcement and Compliance Assurance. Both the division and
                         the branch are responsible for monitoring the agency’s progress in
                         recovering costs, developing recovery policies, and overseeing regional
                         cost recovery actions. We obtained data on the amounts EPA has and has
                         not recovered, information on the status of improvements to information
                         systems supporting recovery actions, and EPA’s cost recovery guidance and
                         other related documents. In addition, to determine the status of EPA’s
                         efforts to implement a new indirect cost rate for recovering such costs, we
                         interviewed and obtained relevant documents from the chief of the
                         Program and Cost Accounting Branch of the Financial Management
                         Division, the office that is developing the new rate, and relevant staff
                         located in the Office of the Chief Financial Officer within the Office of the
                         Comptroller. Also, to determine EPA’s progress in implementing goals and
                         performance measures for the cost recovery program, we reviewed the
                         sections of EPA’s 1999 annual plan for the Government Performance and
                         Results Act and the Fiscal Year 1997 Audited Financial Statements report



                         Page 72                         GAO/RCED-99-111 Superfund Program Management Issues
                         Appendix I
                         Objectives, Scope, and Methodology




                         from EPA’s Office of the Chief Financial Officer, which contain EPA’s goals
                         and performance measures for the cost recovery program.

                         We also spoke with EPA officials in regions IV (Atlanta) and V (Chicago).
                         We selected Region IV because it is unique in pursuing cost recovery at
                         sites with cleanup costs below $200,000. According to EPA’s policy, the
                         regions have discretion in deciding whether to pursue cases with cleanup
                         costs under $200,000 because such cases may not be cost-effective to
                         pursue. Therefore, we wanted to test Region IV’s experiences. There, we
                         spoke with the director of the Regional Enforcement Division and the
                         section chief for Cost Recovery, who are responsible for overseeing cost
                         recovery actions, in order to determine the region’s role in recovering
                         indirect costs from responsible parties, tracking goals and performance
                         measures, and using information systems in cost recovery. We selected
                         Region V because it is one of EPA’s largest regions and has the largest
                         number of cost recovery actions. There, we spoke with the section chief
                         for Cost Recovery and Enforcement and relevant staff, attorneys in the
                         Office of Regional Counsel, who are the chief legal advisers and
                         negotiators in cost recovery cases, and staff in the Program Accounting
                         and Analysis Section, whose function is to manage financial information,
                         such as billings related to cost recovery actions.


                         To respond to our third objective, addressing contract management issues,
Objective 3: Assessing   we conducted work at EPA headquarters and three EPA regions. At
EPA’s Superfund          headquarters, we met with Superfund program managers in OSWER,
Contracts                including the deputy director of the Office of Emergency and Remedial
                         Response—the office responsible for providing policy, guidance, and
Management               overall direction for the agency’s solid waste and emergency response
                         program and the cleanup of hazardous waste sites. We also met with the
                         director and senior managers in the Office of Acquisition Management
                         —the office responsible for managing regional Superfund procurement
                         operations through contracts and grants. To test how regions were
                         implementing headquarters’ contract management policies and
                         procedures, we met with Superfund program and contracting managers in
                         regions III (Philadelphia), V (Chicago), and VII (Kansas City). We selected
                         regions III and V because we had included them in our prior contract
                         management review and could, therefore, determine their progress in
                         correcting problems and implementing improvements that we had
                         previously identified. We also selected regions III and VII because they
                         were among the first EPA regions to award the new Superfund contracts,
                         beginning in mid-1995. This selection allowed us to evaluate the extent to



                         Page 73                         GAO/RCED-99-111 Superfund Program Management Issues
Appendix I
Objectives, Scope, and Methodology




which these new contracts solved problems we had identified under the
old contracts, such as contractors’ high program support costs.

To test the quality and use of independent government cost estimates to
set contract prices, we conducted a detailed analysis of 35 Superfund
contract work assignments initiated in the three EPA regions, from
January 1, 1997, through September 30, 1997. We had used a similar
9-month time period in our prior reviews; the time period allowed us to
review a significant number of work assignments in order to identify
cost-estimating practices and potential problems. Under the new
Superfund contracts, in Region III, we analyzed all 7 work assignments
initiated; in Region V, we analyzed 15 of 32 assignments; and in Region VII,
we reviewed 7 of 20 assignments. We selected the cases with the highest
dollar value for our review. For one contractor in Region VII, we selected
only 2 of the 10 work assignments because the total dollar value for the
remainder was not significant. We also included all six assignments
awarded under the expiring Superfund contracts, all of which were in
Region V.

We used a structured data collection instrument to review the case file for
each assignment to determine the basis for the estimates, and we obtained
information on the contractor’s proposed and final approved price, as well
as the results of any price negotiations. For 34 cases, we also discussed
the basis for EPA’s cost-estimating decisions, the reasons for significant
differences between the contractor’s estimate and the final contract price,
and any noted errors with (1) the work assignment manager, who
develops EPA’s estimate; (2) the project manager, who reviews the estimate
and supervises the work assignment manager; and (3) the contracting
officer, who also reviews the estimate, leads the cost negotiations, and
awards the work assignment.2

We also met with the U.S. Army Corps of Engineers in Washington, D.C.,
to compare their cost-estimating practices with EPA’s. We met with the
Superfund program manager and other Superfund program officials and
reviewed relevant documents detailing the Corps’ effort to develop a
historical cost database and the EPA regional offices’ use of the Corps’
expertise. In addition, we met with a private Superfund contractor in
Region III to get a general understanding of how contractors estimate
costs for Superfund cleanup activities.



2
 We did not contact one work assignment manager because we found no significant problems with the
estimates and the manager was on extended leave while we were conducting our audit work.



Page 74                             GAO/RCED-99-111 Superfund Program Management Issues
Appendix I
Objectives, Scope, and Methodology




To evaluate the extent to which EPA has taken action to reduce program
support costs; we met with EPA’s Office of Acquisition Management in
Washington, D.C., to discuss its policies, procedures, and practices. From
the responsible program officials, we obtained quarterly progress reports,
which report costs through September 1998 for each of the 15 Response
Action Contracts issued to that point. To calculate the program support
cost percentages, we divided the program support costs by the total
contract costs. We also included contractors’ start-up costs (mobilization
costs) in our definition of program support costs, even though EPA now
tracks them separately, because they are considered to be program
support costs and we had included these costs when calculating the
percentages in our prior reports.

To determine if the backlog of contract audits had been eliminated, we
met with officials in EPA’s Office of Inspector General in Washington, D.C.
We also met with the Defense Contract Audit Agency (DCAA) in Fort
Belvoir, Virginia, and discussed the backlog with the chief of Policy
Auditing Standards and DCAA audit officials. DCAA and EPA’s Office of the
Inspector General have responsibility for conducting audits of EPA’s
Superfund contractors. We also obtained data from both agencies
documenting the audits the agencies had completed to reduce the audit
backlog.

We conducted our work from May 1998 through April 1999 in accordance
with generally accepted government auditing standards.




Page 75                         GAO/RCED-99-111 Superfund Program Management Issues
Appendix II

Major Contributors to This Report


                       Peter F. Guerrero, Director
Resources,             David G. Wood, Associate Director
Community, and         Eileen Regan Larence, Assistant Director
Economic               Alan Rogers, Assistant Director
                       Karen L. Kemper, Evaluator-in-Charge
Development Division   Stephen L. Jones, Senior Evaluator
Washington, D.C.       Dena M. Owens, Evaluator
                       Elizabeth R. Eisenstadt, Communications Analyst


                       Willie E. Bailey, Senior Evaluator
Chicago Office         Mary F. Nugent, Senior Evaluator
                       Catherine Anderson, Intern


                       Richard Johnson, Senior Attorney
Office of General
Counsel




(160443)               Page 76                     GAO/RCED-99-111 Superfund Program Management Issues
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