Hazardous Waste: Observations on EPA's Cleanup Program and Budget Management Practices

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                 Testimony
                    Before the Subcommittee on VA, HUD, and Independent
                    Agencies, Committee on Appropriations, U.S. Senate

To Be Released
at 9:30 a.m. EDT
                    HAZARDOUS WASTE
April 29, 1999

                    Observations on EPA’s
                    Cleanup Program and
                    Budget Management
                    Statement for the Record by
                    Peter Guerrero,
                    Director, Environmental Protection Issues,
                    Resources, Community, and Economic
                    Development Division

    Mr. Chairman and Members of the Subcommittee,

    We are pleased to provide you with information on the Environmental
    Protection Agency’s (EPA) hazardous waste cleanup programs to assist in
    your deliberations on the agency’s budget request for fiscal year 2000. Our
    work has determined that EPA faces several management challenges in
    implementing two of its hazardous waste cleanup programs—the
    Superfund program, under the Comprehensive Environmental Response,
    Compensation, and Liability Act, commonly known as CERCLA, and the
    Corrective Action program, under the Resource Conservation and
    Recovery Act, commonly known as RCRA. For the Superfund program, we
    found that the agency needs to better control cleanup costs, especially
    contractors’ costs. For the Corrective Action program, we found that four
    key factors are hampering the progress of cleanups, including companies’
    reluctance to begin cleanups without an economic incentive and EPA’s lack
    of resources to direct more companies to conduct cleanups. These
    management challenges demonstrate that the agency could more
    cost-effectively implement the Superfund program but needs more
    resources for the Corrective Action program—findings that are relevant to
    your decisions on the levels of new funding for these programs.

    More specifically, you asked us to provide information on three
    management issues confronting these cleanup programs: (1) the amount of
    contracts that EPA has awarded to private companies that conduct
    Superfund cleanup activities for the agency, (2) the extent to which EPA is
    using its “Contracts 2000” initiative as a vehicle to improve the agency’s
    Superfund contract management practices, and (3) our perspective on the
    potential effects of transferring $25 million from the Superfund program’s
    budget to the Corrective Action program’s budget as a means of increasing
    the number of cleanups under RCRA. Our observations are based
    predominantly on two reports. In October 1997, we reported on the
    progress of cleanups under the Corrective Action program. Today, we are
    issuing a report discussing the progress that EPA and other federal agencies
    have made in resolving Superfund program management issues.1

    In summary, we observed the following:

•   EPA may be retaining more contractors than it needs to conduct its
    Superfund cleanup work. As a result, contractors often have low levels of
    work and high program support costs, such as those for rent and

     Superfund: Progress Made by EPA and Other Federal Agencies to Resolve Program Management
    Issues (GAO/RCED-99-111, Apr. 30, 1999) and Hazardous Waste: Progress Under the Corrective Action
    Program is Limited, but New Initiatives May Accelerate Cleanups (GAO/RCED-98-3, Oct. 21, 1997).

    Page 1                                                                     GAO/T-RCED-99-168
                 managers’ salaries. Given that EPA expects its future Superfund workload
                 to decrease as states take on more cleanups that the agency would
                 otherwise have managed under Superfund and as cleanup construction is
                 completed at more sites, contractors will continue to incur high program
                 support costs unless EPA makes adjustments in the number of contracts it
             •   EPA could use the team that is managing its Contracts 2000 initiative—an
                 effort designed to help the agency put in place the Superfund cleanup
                 contracts it needs and assess its contract management practices—to
                 address some of the recurring contract management issues we have
                 identified, such as high program support cost rates. However, the agency
                 could not provide us with documentation describing the (1) overall plan
                 that the team would use to determine what options it would recommend
                 that the agency adopt for improving Superfund contract management
                 practices, and (2) time frames for implementing these improvements.
             •   Transferring $25 million from Superfund to the Corrective Action program
                 could help EPA achieve more RCRA cleanups; however, we cannot
                 determine with certainty what impact this transfer would have on
                 Superfund. When we assessed the progress of cleanups under the
                 Corrective Action program, we found that it was slow, in part because
                 companies responsible for conducting cleanups at their facilities did not
                 begin the cleanups unless they had a business incentive to do so, such as
                 wanting to sell or redevelop the property, or until EPA directed them to do
                 so. At the same time, we found that EPA lacked the resources it needs to
                 direct more companies to begin cleanups. Therefore, providing more funds
                 for corrective actions could increase cleanup activities. In our report on
                 Superfund program management issues, we observed that for fiscal year
                 1998, EPA had more sites ready to begin the construction of a cleanup
                 method than funds available. Thus, reducing the program’s budget could
                 further delay cleanups. Nevertheless, EPA has the flexibility to propose
                 how it will use the funds it receives for Superfund, such as the relative
                 amounts it would like to use for remedial work and enforcement actions.
                 Therefore, EPA might be able to manage a reduction in its budget by cutting
                 its administrative costs rather than performing fewer cleanup activities.

                 When EPA awards a Superfund contract, it specifies that the contractor will
Background       obtain up to a certain dollar amount of cleanup work over a given time
                 period. As the contractor conducts the work, it incurs costs—both direct
                 costs that can be 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

                 Page 2                                                      GAO/T-RCED-99-168
                         total contract costs that it covers. One subset of these indirect costs is the
                         contractor’s program support costs, for items such as rent and managers’
                         salaries. Since the mid-1990s, EPA has used 11 percent as its target for
                         program support costs.

                         Within the Superfund program, EPA established a long-term contracting
                         strategy to identify and implement needed contract management
                         improvements. An outgrowth of this strategy is EPA’s Contracts 2000
                         initiative. Under this initiative, a team of EPA staff are helping the agency
                         put in place the contracts it will need to manage its future cleanup
                         workload and to assess and update its Superfund contract management
                         practices. One of the issues that the team has identified as needing
                         resolution is the type and number of contracts to use in the program. How
                         EPA resolves this issue could affect the program support cost rate that it

                         In a 1997 report on contract management issues,2 we stated that the
Contractors’             percentage of funds EPA was paying contractors for program support costs
Superfund Program        (e.g., rent and salaries) was high relative to the percentage it was paying
Support Costs Are        for cleanup costs. Specifically, the program support costs ranged from 21
                         to 38 percent of the total costs for some of the new Superfund contracts
Still High, in Part,     that EPA was awarding as its old contracts expired. These amounts
Because EPA Has Too      exceeded EPA’s target of 11 percent. In August 1998, we further reported
                         that, overall, contractors’ program support costs averaged about
Many Contracts for Its   29 percent of total contract costs.3 For our report on contract management
Cleanup Workload         issues, we reviewed the 15 new Response Action Contracts that EPA had
                         awarded and determined that the program support cost rates for 5 of them
                         were below EPA’s target and the rates for 10 of them exceeded EPA’s target,
                         ranging from 16 to 76 percent with a median of 28 percent.4 According to
                         several EPA contracting officers, the agency expects such high rates for
                         new contracts until it 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, the uncertain future of the program may make such a decrease
                         difficult to achieve. When EPA began replacing its expiring contracts with

                          Superfund Program Management (GAO/HR-97-14, Feb. 1997).
                          Superfund: Analysis of Contractor Cleanup Spending (GAO/RCED-98-221, Aug. 4, 1998).
                          Five of these 15 contracts were less than a year old and two additional ones were just awarded at the
                         time of our review. EPA plans to eventually award a total of 19 contracts nationwide.

                         Page 3                                                                          GAO/T-RCED-99-168
                         new contracts, 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 its contractors more work and their
                         program support cost rates would decrease. Initially, EPA decided to
                         reduce the number of contracts from 45 to 22; later, it further reduced the
                         number to 19 because it no longer expects to have the workload it
                         originally predicted. However, EPA may still have more contracts in place
                         than it needs. For example, EPA has been enrolling fewer sites in the
                         program in recent years. In addition, 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 rates.

                         EPA will soon have an opportunity to review the number of contracts it
                         should have in place and to try to better control program support costs.
                         EPA designed the current Superfund contracts to last 5 years, with an
                         option to renew them for another 5 years. The 5-year base period will be
                         up for 11 of the current contracts within about 2 years and EPA will have to
                         determine whether to exercise its option to renew them.

                         While reviewing EPA’s progress in resolving Superfund program
Recurring Problems       management issues, including contractors’ high program support cost
Raise Broader            rates, we determined that these problems may be symptoms of more
Questions About          systemic issues associated with EPA’s Superfund contracting. EPA could use
                         its Contracts 2000 initiative to address some of the following issues we
Superfund                identified:
Contracting That
                         Could the agency more quickly and aggressively test and implement
Could Be Addressed   •
                         alternative types of contracts, such as fixed-price or performance-based
Through EPA’s            contracts, in addition to or instead of using cost-reimbursable contracts as
Contracts 2000           it now does? A cost-reimbursable contract, under which EPA agrees to pay
                         all of a contractor’s allowable costs, places most of the financial risk on
Initiative               the government because the work to be performed at a site is uncertain in
                         nature and extent and EPA therefore cannot accurately predict its costs. A
                         fixed-price contract, used for clearly defined and more routine cleanup
                         actions, reduces the financial risk to the government because the parties
                         agree on a price for the contractor’s activities and the contractor bears the

                         Page 4                                                      GAO/T-RCED-99-168
                           risk of performing at the agreed price. The Office of Management and
                           Budget has also been urging EPA to make more use of performance-based
                           contracts, which 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 begun to use both fixed-price and performance-based
                           contracts on a limited basis at pilot sites.
                       •   Is it cost-effective for EPA to duplicate the infrastructure necessary to
                           manage contracts in each of its 10 regional offices as it is now doing?
                       •   Are there new and more effective ways to build more competition into
                           EPA’s contracting process? Allowing multiple contractors to bid on
                           portions of cleanup work could help to control costs.
                       •   Has EPA lowered its contract management costs through its recent use of
                           the U. S. Army Corps of Engineers to manage a portion of its cleanup
                           work? Because the Corps specializes in and conducts a significant amount
                           of construction contracting for the federal government, it may be better
                           equipped than EPA to manage Superfund construction contracts. If using
                           the Corps has been cost efficient for EPA, should it give the Corps
                           additional cleanup work to manage?

                           Our reviews over the years have consistently shown that without the
                           sustained attention of high-level management, EPA has not always
                           succeeded in implementing and sustaining contracting reforms. Because
                           of this history, we were concerned when the agency could not provide
                           documentation describing the (1) overall plan that the Contracts 2000
                           team would use for determining what options it would recommend that
                           the agency adopt to improve Superfund contracting practices and (2) the
                           time frames for implementing these improvements. As a result, we do not
                           know whether EPA will move quickly enough to put improvements in place
                           before it decides whether to exercise the option to review its Superfund
                           contracts for another 5 years.

                           Our work has demonstrated that limited resources have delayed the
While Shifting Funds       progress of cleanups under the Corrective Action program; therefore,
Could Accelerate           moving more funds into the program from the Superfund program could
Corrective Action          help accelerate RCRA cleanups. While we are uncertain how such a shift
                           would affect the Superfund program, EPA may have the flexibility to
Cleanups, the Impact       minimize the impact of a reduction in funds on Superfund cleanups.
on Superfund Is

                           Page 5                                                     GAO/T-RCED-99-168
Lack of Resources           In 1997, we assessed the status of EPA’s RCRA Corrective Action program.
Hampers EPA’s Ability to    This program was designed for currently operating facilities that must
Perform Corrective Action   clean up contamination at their sites, whereas the Superfund program was
                            intended to address contamination at abandoned sites. At the time of our
Cleanups                    review, we found that only about 8 percent of the approximately 3,700
                            nonfederal facilities nationwide that treat, store, or dispose of hazardous
                            waste—including only about 5 percent of the approximately 1,300 facilities
                            EPA considers to pose the highest risks—had completed cleanup actions
                            under the Corrective Action program, according to EPA’s data. About
                            56 percent of the remaining facilities—including about 35 percent of those
                            posing the highest risks—had yet to begin the formal cleanup process.
                            While some facilities had undertaken cleanup actions outside the program,
                            the extent of such actions is unknown because the actions are not
                            reflected in EPA’s program data.

                            Contributing to this slow rate of progress was that, without a business
                            incentive, companies were reluctant to initiate cleanups until EPA, or a
                            state implementing the program for EPA, directed them to do so. According
                            to several cleanup managers we spoke with, companies will generally
                            ensure that the contamination at their facilities does not pose an
                            immediate danger to public health or the environment, whether or not EPA
                            or a state has directed the facility to enter the Corrective Action program.
                            However, the companies in our survey appeared to undertake more
                            comprehensive cleanup actions only when they had an economic incentive
                            to do so because the corrective action process can be costly and
                            time-consuming. According to one cleanup manager at a large corporation,
                            the company may not be anxious to pursue a cleanup if the contamination
                            is not posing an immediate threat, the facility is not losing revenue, or the
                            company is not incurring a financial liability by delaying the cleanup.

                            Although EPA is aware that cleanups are progressing slowly, we found that
                            the agency could not direct more facilities to begin cleanups because it
                            lacked the necessary resources. In fiscal year 1997, EPA expected to direct
                            cleanups at less than 2 percent (46) of the 1,886 facilities—427 of which
                            were high priorities—that had not yet begun cleanup. For example,
                            program managers in one region projected that they would have enough
                            resources that fiscal year to direct companies to begin cleanups at only 4
                            of their 69 high-priority facilities awaiting cleanup. Likewise, another
                            region had 82 high-priority facilities that were eligible for and awaiting
                            corrective action but expected to be able to enforce such action at only
                            three of the facilities during that fiscal year because of resource
                            constraints. Furthermore, several of EPA’s program managers in

                            Page 6                                                     GAO/T-RCED-99-168
                          headquarters and the two regions noted that they may never have the
                          resources to get to the 1,459 lower-priority facilities that were in EPA’s
                          corrective action workload at that time. According to EPA Corrective
                          Action program managers, the program’s budget did not increase for fiscal
                          years 1998 or 1999. Therefore, the problems we identified in our earlier
                          review remain.

Effect of Moving Funds    EPA officials have stated that the agency has serious concerns about
Out of the Superfund      transferring funds out of the Superfund program and is evaluating the
Program Is Difficult to   effect of such a transfer on the agency’s Superfund cleanup goals. As we
                          stated in our report on Superfund program management issues, in fiscal
Predict                   year 1998, EPA had 50 sites that were ready to start constructing the
                          cleanup method but funded 38 of them, at a cost of $200 million, or about
                          13 percent, of its $1.5 billion overall Superfund budget.5 Given that EPA did
                          not provide funds for all 50 sites, additional cuts to the program’s budget
                          could reduce the number of future construction activities the agency could

                          However, EPA has some flexibility to determine the amount of funds it
                          plans to spend on its various Superfund program activities. Our ongoing
                          work reviewing EPA’s total Superfund expenditures demonstrated that for
                          fiscal years 1996 through 1998, EPA spent about 60 percent of its Superfund
                          budget on its own site-specific and contractors’ cleanup costs and
                          40 percent on non-site-specific costs, including its own program
                          management and administrative activities.

                          Furthermore, we found that over these same 3 years, the amount of funds
                          going to contractors for cleanup work and to other site-specific work was
                          declining. Given that the Superfund program is now almost 20 years old
                          and most sites are in construction and moving toward completion, we
                          would expect to see more spending for cleanups and less for
                          administrative costs. Such a shift in spending would be consistent with
                          changes in the types of work needed and with efficiencies gained through
                          experience. Since such a shift has not yet occurred, EPA may have
                          opportunities to achieve more administrative efficiencies, which it can use
                          instead of cuts in actual cleanup work to offset a reduction in funding for
                          the Superfund program.

                           In addition to these new construction projects, EPA continued to fund ongoing longer-term
                          construction projects and shorter-term cleanup actions at numerous sites.

(160488)                  Page 7                                                                        GAO/T-RCED-99-168
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