Superfund: Legal Expenses for Cleanup-Related Activities of Major U.S.
Corporations (Letter Report, 12/23/94, GAO/RCED-95-46).

Under the Superfund program, parties responsible for hazardous waste
sites that are contaminating the environment are liable for cleanup
costs. Responsible parties can include generators of hazardous waste
deposited at the sites, transporters of the waste, and site owners and
operators. In addition to cleanup costs, responsible parties must also
pay legal expenses to allocate the cleanup costs among themselves, to
settle with the government, or to litigate liability for cleanups.
Responsible parties have complained that these costs--called transaction
costs--are high and represent too large a portion of their total
Superfund expenditures. GAO surveyed Fortune 500 companies to determine
how much responsible parties have spent on cleanup and legal costs at
Superfund sites and to identify factors that these parties believe have
increased or decreased their legal costs.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-95-46
     TITLE:  Superfund: Legal Expenses for Cleanup-Related Activities of 
             Major U.S. Corporations
      DATE:  12/23/94
   SUBJECT:  Environmental monitoring
             Liability (legal)
             Hazardous substances
             Waste disposal
             Administrative costs
             Claims settlement
             Court costs
             Contractor responsibility
             Environmental policies
             Pollution control
IDENTIFIER:  Superfund Program
             
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Cover
================================================================ COVER


Report to Congressional Requesters

December 1994

SUPERFUND - LEGAL EXPENSES FOR
CLEANUP-RELATED ACTIVITIES OF
MAJOR U.S.  CORPORATIONS

GAO/RCED-95-46

Superfund Legal Expenses


Abbreviations
=============================================================== ABBREV

  ADR - alternative dispute resolution
  CEO - chief executive officer
  CERCLA - Comprehensive Environmental Response, Compensation, and
     Liability Act of 1980
  EPA - Environmental Protection Agency
  GAO - General Accounting Office
  PRP - potentially responsible party

Letter
=============================================================== LETTER



B-259009

December 23, 1994

Congressional Requesters

Under the Environmental Protection Agency's (EPA) Superfund program,
the parties responsible for hazardous waste sites that are
contaminating the environment are liable for the costs of cleaning up
the sites.  Responsible parties can include generators of hazardous
waste deposited at the sites, transporters of the waste, and site
owners and operators.  In addition to paying for cleanup expenses,
responsible parties also incur legal costs to allocate the cleanup
expenses among themselves, to settle with the government, or to
litigate liability for cleanups.  Responsible parties have complained
that the costs of these activities--called transaction costs--are
high and represent too large a portion of their total Superfund
expenditures.  However, limited data have been collected on these
transaction costs. 

To help fill this gap, you asked us to survey the Fortune 500
Industrial and Fortune 500 Service corporations\1 to determine how
much responsible parties have spent for cleanup and legal costs at
Superfund sites and to identify the factors that these parties
believe have increased and decreased their legal costs. 
Approximately two-thirds of these 1,000 corporations responded to our
survey, and about half of the respondents said that they had been
involved at Superfund sites.  (See app.  I for a detailed discussion
of our objectives, scope, and methodology.)


--------------------
\1 Fortune 500 is The Time Inc.  Magazine Company's trademark name
for rankings of the largest U.S.  corporations. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The corporations that responded to our survey and said that they had
been involved at Superfund sites reported having spent, since January
1, 1987, a median of $1.5 million in cleanup and legal expenses for
all of the sites at which they had been involved.\2 On average, they
had been involved at 17 sites.  They reported spending approximately
two-thirds of this total ($1 million) for site cleanups and one-third
($500,000) for legal expenses.  As a rule, corporations that spent
more for cleanup at a site also spent more for legal costs; however,
parties responsible for minor shares of cleanup costs generally
incurred a higher proportion of legal costs than parties responsible
for major shares.  The amounts spent by individual corporations for
both cleanup and legal costs varied widely, as did the number of
sites at which each corporation was involved. 

Factors that drive up legal costs can be divided into those related
to corporate activities and those related to the sites themselves. 
The corporations identified several activities as primarily
responsible for increasing their legal costs.  For example, they
cited allocating the costs of cleanups among responsible parties and
negotiating with EPA over responsibility for cleaning up a site or
over the remedy selected for cleanup.  Among the site-related factors
that increased their legal costs, they cited EPA's not identifying
and enforcing the cleanup obligations of all potentially responsible
parties and a lack of good data on the waste contributions of
parties--data that would facilitate settlements.  When responsible
parties against which EPA has taken action believe that EPA has not
fully identified other parties or has selectively enforced cleanup
obligations, these parties often pursue the other parties for a
contribution to the cleanup costs.  EPA officials believe that the
agency is reasonably complete in its identification of responsible
parties and takes appropriate enforcement action. 

According to respondents, factors that decrease their legal costs
include having good data on the sources of hazardous waste, forming a
group with other potentially responsible parties to negotiate their
respective cleanup responsibilities with one another and with EPA,
and EPA's identifying all potentially responsible parties and
bringing enforcement action when necessary.  Thirty-two percent of
the respondents that had used alternative dispute resolution
techniques, such as mediation, at high-cost sites identified these
techniques as an important factor in keeping legal costs low. 


--------------------
\2 Many of the numbers reported are based on a median statistic.  The
median is the midpoint in a range of numbers.  App.  I explains the
use of the median for reporting the results of questions that use
ranges of numbers in the response categories.  See app.  IV for the
wording of questions and responses. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (CERCLA) created the Superfund program to clean up the
nation's most dangerous hazardous waste sites.  Under the system of
liability established in CERCLA, EPA has had considerable success in
enforcing the cleanup responsibilities of potentially responsible
parties (PRP) at Superfund sites.  However, the transaction costs
incurred in reaching settlements under this system can be high. 
These costs can include legal expenses incurred in connection with
negotiation or litigation with EPA, other PRPs, or insurance
companies.  Transaction costs at some sites are compounded by
lawsuits (referred to as third-party suits) brought by PRPs against
other parties that the PRPs believe contributed to the site's
contamination and should help pay for the cleanup.  (App.  II
discusses transaction costs in more detail.)

In 1994, the Congress considered but did not enact a bill to
reauthorize the Superfund program.  This bill would have made a
number of changes to the program to reduce participants' legal
expenses.  For example, it would have created new administrative
procedures to help parties allocate cleanup costs, exempted some
parties from liability or limited their liability, created a
settlement fund to reduce litigation between parties and their
insurers, and given parties an opportunity to supplement the list of
responsible parties identified by EPA.  The Congress is expected to
reconsider the Superfund program's reauthorization next year. 

We surveyed all of the Fortune 500 Industrial and Fortune 500 Service
corporations listed in the 1993 Fortune 500 directory to determine
the costs they had incurred for cleaning up hazardous wastes at
Superfund sites.  Slightly over half (367) of the 666 corporations
that responded to our survey said that they had been involved at
Superfund sites as PRPs since January 1, 1987.\3 Our questionnaire,
which is divided into two parts, asked the corporations for
information about their costs for all Superfund sites and for up to
three sites where their legal expenses were at least $50,000. 
Corporations provided information on 570 such sites. 

We also asked each corporation to categorize its level of involvement
at sites.  The categories included (1) de minimis party, that is,
responsible for no more than minor contamination at any site (a de
minimis party is eligible for a special expedited settlement with
EPA); (2) minor player, that is, more involved than a de minimis
party but not responsible for a large share of the cleanup; and (3)
major player, that is, responsible for a large share of the cleanup. 
Respondents were asked to indicate the number of sites at which they
were involved as a party in each category.  For some analyses, we
classified respondents by the highest level of their involvement at
any of their sites. 

In addition, we asked the corporations to identify factors that they
felt increased or decreased their legal costs.  We asked about the
(1) types of corporate legal activities and (2) factors at the site
that raised or lowered legal expenses.  (App.  III contains
information on sites where corporations incurred legal costs of at
least $50,000.  Our questionnaire is reproduced in app.  IV.)

We surveyed the Fortune 500 corporations because EPA does not
maintain a complete list of all parties that may have incurred legal
expenses at Superfund sites.  Our survey does not reflect the
experience of small and medium-sized companies or of local
governments.  It does, however, reflect the experience of major U.S. 
businesses in a variety of industrial and service categories. 


--------------------
\3 This was the start of the first year following the enactment of
the Superfund Amendments and Reauthorization Act of 1986, which put
the program into its current form. 


   LEGAL COSTS VARY WIDELY
   DEPENDING ON EXPOSURE TO
   LIABILITY FOR CLEANUP
------------------------------------------------------------ Letter :3

Of the 666 corporations responding to the survey, 367 reported having
incurred costs related to the cleanup of Superfund sites since
January 1, 1987.  Although data on the amount of spending varied
considerably, corporations reported spending a median of about
one-third of their Superfund costs on legal expenses.  Legal costs
were often incurred at multiple sites and for suits involving third
parties and insurers. 


      OVERALL LEGAL COSTS AVERAGE
      33 PERCENT OF
      TOTAL SITE COSTS
---------------------------------------------------------- Letter :3.1

The corporations reported having spent a median amount of about $1.5
million--$1 million for cleanup and $500,000 for legal expenses--at
all of their sites combined, but their responses varied widely. 
Eighty-one corporations (23 percent) reported spending $100,000 or
less on cleanup costs, and 38 corporations (11 percent) reported
spending over $20 million. 

The amounts spent on legal activities also varied widely and appeared
to be related to the corporations' liability for cleaning up the
sites.  The data indicated that although expenditures for legal costs
increase with the level of corporate responsibility for cleanups,
they do not increase as rapidly as expenditures for cleanups.  As
figure 1 shows, the percentage of respondents' total costs
represented by legal costs is inversely related to the amounts spent
on cleanups.  Thus, as cleanup costs mount--when, for example, sites
move from the study phase to the construction phase--legal costs
represent a declining proportion of the total amounts spent. 

   Figure 1:  Relationship of
   Legal Costs to Cleanup Costs

   (See figure in printed
   edition.)

Table 1 presents data on the legal expenses of corporations
classified by the highest level of their involvement at sites.  The
table shows that corporations whose highest level of involvement at
any site was as a de minimis party reported median total legal costs
of about $32,000; corporations reporting that they were major players
at three or more sites reported median legal costs of almost $3.5
million.  However, these major players' costs represented declining
percentages of total costs because the amounts spent by corporations
on site cleanups increased rapidly as their level of involvement
increased. 



                           Table 1
           
           Median Legal Cost by Level of Corporate
                         Involvement

Level of            Percent of                        Median
involvement        respondents       Amount\a      percent\b
---------------  -------------  -------------  -------------
De minimis only             19       $ 31,800             46
Minor                       19        240,700             38
 involvement
Major player                27        481,500             34
 with 1 or 2
 sites
Major player                35      3,465,500             28
 with 3 or more
 sites
------------------------------------------------------------
\a Represents median total legal costs at all sites since January 1,
1987. 

\b Represents percent of total costs (legal and cleanup) spent for
legal activities. 


      LEGAL COSTS WERE INCURRED AT
      MULTIPLE SITES AND IN SUITS
      WITH THIRD PARTIES AND
      INSURERS AS WELL AS WITH EPA
---------------------------------------------------------- Letter :3.2

Most of the 367 respondents reporting involvement at Superfund sites
indicated that they had been involved at multiple Superfund
sites--17, on average.  About half of the respondents were involved
at 8 or fewer sites, but 10 percent were involved at 46 or more
sites. 

Most of the 367 corporations reported having incurred legal costs not
only in their dealings with EPA but also in suits against other PRPs
or their insurance companies.  One hundred twenty-seven (35 percent)
reported having been involved in legal actions with their insurance
carrier(s) seeking coverage for legal expenses and/or cleanup costs
incurred in connection with their Superfund activities. 
Additionally, 260 corporations (71 percent) reported having been
involved in third-party suits; 176 corporations said they had brought
legal actions against other firms to obtain their contributions for
cleanups, and 222 corporations said they had been the subject of
legal actions brought by other firms seeking contributions for
cleanup. 


   LEGAL ACTIVITIES AND FACTORS AT
   SITES INCREASE LEGAL COSTS
------------------------------------------------------------ Letter :4

The types of legal activities most commonly cited by respondents as
causing them to incur the highest legal costs were (1) allocating the
costs of the cleanup, (2) negotiating or litigating with EPA over
their corporation's responsibility for the site or over the remedy
selected to clean up the site, and (3) pursuing or defending
third-party legal actions.  According to the respondents, the factors
at sites that increased legal costs were lack of good information on
the sources of the hazardous waste and a poor job on EPA's part of
identifying potentially responsible parties or bringing enforcement
actions against these parties. 


      COMPANIES SAY ALLOCATING
      CLEANUP COSTS AND
      NEGOTIATING WITH EPA
      INCREASE LEGAL COSTS
---------------------------------------------------------- Letter :4.1

Companies engage in many types of legal activities at hazardous waste
sites that can ultimately raise their legal costs.  We asked
respondents to select the two types of activities that caused their
corporation to incur the highest legal costs.  The most commonly
selected responses were allocating the costs of cleanups to each
responsible party (44 percent), negotiating with EPA or another
regulatory agency either over their company's responsibility for the
site (33 percent) or over the remedy to be selected for cleaning up
the site (30 percent), and engaging in legal actions with other PRPs
(31 percent).  (See fig.  2.)

   Figure 2:  Corporate Activities
   Linked Most Often With High
   Legal Costs

   (See figure in printed
   edition.)

Note:  The number of respondents is 367. 

As figure 3 shows, the responses varied somewhat with the amounts
that the corporations had incurred in legal costs.  For example, 44
percent of the respondents involved at Superfund sites indicated that
allocating the costs of cleanups among the responsible parties was
one of the two activities primarily responsible for their company's
high legal costs.  However, while 50 percent of the respondents with
legal costs of between $100,000 and $1 million said that cost
allocation was primarily responsible for high legal costs, only 33
percent of the respondents with legal costs of less than $100,000
said the same.  Similarly, only 16 percent of the respondents
involved at sites indicated that disputes with their insurance
carriers over coverage for Superfund sites was a major cause of high
legal costs.  However, 33 percent of the companies that had incurred
over $1 million in legal costs said that disputes with insurance
carriers was a major cause. 

   Figure 3:  Comparison of
   Corporate Activities Identified
   as Raising Legal Costs With
   Amount of Legal Costs Incurred

   (See figure in printed
   edition.)


      PRPS SAY POOR IDENTIFICATION
      AND ENFORCEMENT AND LACK OF
      GOOD VOLUMETRIC DATA
      INCREASE LEGAL COSTS
---------------------------------------------------------- Letter :4.2

The corporations responding to the survey identified three factors
related to the Superfund site as primary causes of high legal costs. 
Thirty-eight percent of the respondents involved at sites said that
costs rose when EPA did not do a good job of identifying all PRPs; 23
percent said that costs rose when EPA did not do a good job of
bringing enforcement action against all appropriate PRPs; and 22
percent said that costs rose when good volumetric information--that
is, information on the quantity and type of wastes contributed to the
site by each PRP--was not readily available.  (See fig.  4.)

   Figure 4:  Site-Related Factors
   Linked Most Often With High
   Legal Costs

   (See figure in printed
   edition.)

Note:  The number of respondents is 367. 

The extent to which EPA identifies PRPs and brings enforcement
actions to obtain their participation in cleaning up sites can
influence private parties' transaction costs.  Some PRPs against
which EPA has taken action claim that EPA does not make an effort to
identify all PRPs or that it takes enforcement action only against
the PRPs that it considers most capable financially of performing the
cleanup while ignoring other viable PRPs.  These PRPs say that these
practices greatly increase the legal costs of the selected PRPs,
which then must identify the remaining PRPs and bring them into the
cleanup process.  EPA, however, disagrees, contending that, on
average, it brings enforcement actions against PRPs responsible for
80 percent of the waste at sites. 

As was the case for legal activities, the identification by
corporations of site-related factors that increase their legal costs
varied somewhat with the total amount they had incurred in legal
costs.  As figure 5 shows, corporations that had incurred over $1
million in legal costs were much more likely to believe that legal
costs increase when EPA does a poor job of identifying PRPs and
bringing enforcement actions than were corporations that had incurred
less than $100,000 in legal costs.  Corporations with less than
$100,000 in total legal costs were also less concerned about the
availability of good volumetric information than were those with
higher legal costs. 

   Figure 5:  Comparison of
   Site-Related Factors Identified
   as Raising Legal Costs With
   Amount of Legal Costs Incurred

   (See figure in printed
   edition.)

Corporations identified these same factors--EPA's not identifying all
PRPs and not bringing enforcement actions, as well as lack of good
volumetric information--as primarily responsible for the high legal
costs at sites where they had incurred at least $50,000 in legal
costs. 


   CERTAIN FACTORS AT SITES
   DECREASE LEGAL COSTS
------------------------------------------------------------ Letter :5

In assessing their experience at all of their Superfund sites, the
companies indicated that having volumetric information readily
available for use in allocating costs among the PRPs was important in
minimizing their legal costs.  They also indicated that their legal
costs decreased when EPA did a good job of identifying PRPs and
bringing enforcement actions to obtain their participation in
cleaning up sites.  In assessing their experience at sites where they
had incurred over $50,000 in legal costs, the companies often did not
cite any factors as contributing to keeping their legal costs low. 
However, when they did cite such factors, they indicated that joining
a PRP group was most likely to help minimize their legal costs. 

According to 72 percent of the companies, for their sites generally,
the availability of good volumetric information either moderately or
greatly decreased their legal costs.  A majority of the companies
indicated that their legal costs were moderately or greatly reduced
at sites where EPA did a good job of identifying all PRPs and
bringing enforcement actions against them (59 percent and 53 percent,
respectively).  Fifty-two percent of the companies also believed that
joining a PRP group helped reduce their legal costs. 

For 33 percent of the sites where they had incurred more than $50,000
in legal costs, the companies indicated that belonging to a PRP group
was one of the two most important factors in keeping their legal
costs low; for 14 percent of the sites, they cited the availability
of good volumetric information.  (See fig.  6.)

   Figure 6:  Factors That
   Contribute to Keeping Legal
   Expenses as Low as Possible

   (See figure in printed
   edition.)

\a ADR stands for alternative dispute resolution. 

Note:  The number of sites is 570. 

Companies cited belonging to a PRP group much more frequently than
other factors as a way to keep legal costs low, in part because these
groups can be formed at most sites.  Many other factors were not
always applicable.  For example, good volumetric information was
available, according to respondents, at only 170 of the 570 sites. 
For these 170 sites, companies cited the availability of volumetric
data 32 percent of the time as a factor in keeping legal costs low. 
(See fig.  7.)

Similarly, the survey results indicate that the use of alternative
dispute resolution techniques and de minimis settlements, which are
tools authorized by the Superfund law for reducing legal costs, may
be effective.  Corporations thought that alternative dispute
resolution techniques were important factors in keeping legal costs
low at 32 percent of the high-cost sites where they were used and
that de minimis settlements were important at 18 percent of the
high-cost sites where they were used. 

   Figure 7:  Factors That
   Contribute to Keeping Legal
   Expenses Low

   (See figure in printed
   edition.)


   AGENCY COMMENTS
------------------------------------------------------------ Letter :6

We discussed the results of our survey with officials of EPA's Office
of Site Remediation Enforcement and other EPA units.  These officials
said that they thought that the Superfund reauthorization bill, which
the Congress considered in 1994 and may reconsider in 1995, would
address many of the causes of high transaction costs discussed in
this report. 


---------------------------------------------------------- Letter :6.1

We performed our work from June 1993 to November 1994 in accordance
with generally accepted government auditing standards. 

As arranged with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after the date of this letter.  At that time, we will
send copies to the appropriate congressional committees; the
Administrator, EPA; and other interested parties.  We will also make
copies available to others upon request. 

Please contact me at (202) 512-6111 if you or your staff have any
questions about this report.  Major contributors to this report are
listed in appendix V. 

Peter F.  Guerrero
Director, Environmental

List of Requesters

The Honorable John D.  Dingell
Chairman, Committee on Energy
 and Commerce
House of Representatives

The Honorable Frank R.  Lautenberg
Chairman, Subcommittee on
 Superfund, Recycling and Solid
 Waste Management
Committee on Environment and
 Public Works
United States Senate

The Honorable Al Swift
Chairman, Subcommittee on
 Transportation and Hazardous
 Materials
Committee on Energy and Commerce
House of Representatives

The Honorable Barbara Boxer
United States Senate

The Honorable Joseph I.  Lieberman
United States Senate


OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

Our objectives in this study were to obtain information on the amount
of legal and cleanup costs incurred by corporations at Superfund
sites and to identify the factors that these corporations believe
increase and decrease their legal costs at these sites.  To satisfy
these objectives, we surveyed 1,000 corporations--the Fortune 500
Industrial and the Fortune 500 Service corporations. 

We mailed our survey to the chief executive officers (CEO) of the
1,000 corporations contained in the 1993 Fortune directory of
industrial corporations and service corporations.  The survey
requested information on the costs incurred after January 1, 1987,
for cleanup and for legal expenses at Superfund sites and solicited
the corporations' opinions on the factors that cause these costs to
increase or decrease.  We enclosed a list of the Superfund sites with
our survey to ensure that the corporations would report activities
for sites under the federal Superfund program rather than under state
cleanup programs. 

The 54-page questionnaire used for our survey consisted of two
sections.  The first section (16 pages) covered the corporation's
experiences at all Superfund sites at which it had been involved
since January 1, 1987.  The second section requested information on
up to three Superfund sites at which the corporation had incurred
legal costs of $50,000 or more.  If the corporation had more than
three sites meeting this criterion, we requested information on the
three at which the corporation had incurred the highest legal costs. 
If the corporation had no sites meeting this criterion, it was to
leave this section blank. 

We used the two Fortune 500 lists of corporations because a complete
list of all parties that had incurred legal costs at Superfund sites
was not available for our review.  More specifically, the lists of
potentially responsible parties (PRP) maintained by the Environmental
Protection Agency (EPA) omit some third parties brought into the site
negotiations by other PRPs, and PRP lists held by PRP steering
committees often cannot be released because of confidentiality
agreements.  The 1,000 corporations we surveyed do not represent PRPs
as a whole, since the list excludes small and medium-sized companies
as well as governmental PRPs, such as municipalities and other local
governments.  However, the 1,000 corporations do represent a wide
range of U.S.  commercial activity. 

We pretested our survey at 14 corporations located in various parts
of the United States.  The pretesting was intended to ensure that (1)
the questions were readable and clear, (2) the terms were
understandable, (3) the survey did not burden the corporations to the
extent that it would discourage cooperation, and (4) the survey was
independent and unbiased in its point of view.  The final survey
incorporates the results of our pretesting. 

During the pretesting phase of our survey, it became evident that the
corporations considered the questions to be highly sensitive.  To
address this concern, we used procedures to guarantee the anonymity
of all survey responses.  Respondents to the pretests told us that
these measures were necessary to guarantee responses to the survey. 
Our procedures prevent us from knowing the identity of the respondent
for any of the surveys returned to us.  The use of a separate return
postcard for follow-up purposes allowed us to track which
corporations did and did not mail back responses to the survey. 

To increase the rate of response to our survey, we mailed a
prenotification letter to the CEOs on November 2, 1993, before we
mailed the survey on November 9, 1993.  We also followed up the
survey mailing with three mailings, including (1) a reminder postcard
(Nov.  29, 1993), (2) a reminder letter requesting a contact person
and telephone number (Dec.  13, 1993), and (3) a replacement survey
for corporations not yet responding (Mar.  16, 1994).  Many companies
phoned us to ask for additional time to complete the survey.  Because
of these requests, we did not set a specific cutoff date for
responses.  We received the last survey included in our analysis on
May 3, 1994. 

A total of 666 corporations provided useable responses to our survey,
representing a response rate of 67 percent.  This response rate was
similar for both the industrial and the service corporations.  Of the
corporations responding, 367 (55 percent) had incurred costs for
Superfund sites since January 1, 1987.  We asked the respondents to
identify the type of industry in which the corporation conducts the
majority of its business.  Table I.1 provides information by type of
industry on the number of corporations involved at Superfund sites
and these corporations' highest level of involvement at Superfund
sites. 



                          Table I.1
           
            Summary of Responses to Questionnaire


                   Number
                  of PRPs                              Major
                       at        De           Major  at 3 or
                 Superfun   minimis         at 1 or     more
Industry type     d sites      only  Minor  2 sites    sites
---------------  --------  --------  -----  -------  -------
Agriculture,            6         3      0        3        0
 forestry,
 fisheries
Mining\a               16         1      4        4        7
Chemicals,             37         4      5        7       21
 petroleum,
 rubber
Manufacturing\b       171        34     27       47       63
Transportation         25         3      9        7        6
Utilities,             31         4      6       13        8
 communications
Sales                  18        10      5        3        0
Financial,             15         8      1        6        0
 banking
Insurance,              9         5      2        2        0
 real estate
Diversified            11         1      3        1        6
 services
Other                  26         1      4        7       14
Not specified           2         0      1        1        0
============================================================
Total                 367        74     67      101      125
Percent              100%       20%    18%      28%      34%
------------------------------------------------------------
Note:  Respondents used their own definition of "major" and "minor"
to answer the survey questions.  We defined PRPs involved at
single-party sites as having major involvement. 

\a Includes petroleum and natural gas extraction. 

\b Does not include chemical, petroleum, and rubber products. 

Of the 367 corporations reporting involvement at Superfund sites, 255
reported incurring legal costs of $50,000 or more at least at one
site.  In total, the 255 corporations provided information on 570
such sites.  We analyzed the information on the corporations'
experiences for these 570 sites separately from the comparable
information for all Superfund sites.  A copy of the survey, including
aggregated responses, appears in appendix IV. 

Many of the questions in our questionnaire asked for responses in
ranges of numbers.  We used a median statistic to report
representative answers for such questions.  The median is the number
representing the point dividing the upper half of the responses from
the lower half.  We interpolated the median for questions employing
ranges in order to provide the reader with an estimate of the place
within the range that contains the median.  For example, we present
the typical percent of total costs spent by a corporation for legal
expenses.  The median falls within the range "31 to 40 percent." We
know this because 46 percent of the respondents fall below this
category and 13.1 percent fall within it.  To interpolate the median,
we took the number of respondents in the category "31 to 40 percent"
and calculated the point at which 50 percent of the respondents would
be reached.  We assumed that respondents were evenly spread
throughout the 10 points of the "31 to 40 percent" range.  Hence, we
estimate that the median is 33 percent.  That is, 50 percent of the
respondents would have legal costs above 33 percent and 50 percent
would have costs below 33 percent.  The actual median could be
somewhat lower or higher depending on the actual distribution of
respondents over the points of the range. 

We conducted our review from June 1993 to November 1994 in accordance
with generally accepted government auditing standards. 


TRANSACTION COSTS
========================================================== Appendix II

The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (CERCLA) authorizes EPA to compel parties responsible for
hazardous waste at Superfund sites to clean them up or to reimburse
EPA for its cleanup costs.  Courts have interpreted responsible
parties' liability under Superfund to be strict, joint and several,
and retroactive.  Under strict liability, a party may be liable for
cleanup even though its actions were not considered negligent when it
disposed of the wastes.  Because liability is joint and several, when
the harm done is indivisible, one party can be held responsible for
the full cost of the remedy even though that party may have disposed
of only a portion of the hazardous substances at the site. 
Retroactive liability means that liability applies to actions that
took place before CERCLA was enacted. 

EPA has had considerable success in recent years in enforcing the
cleanup responsibilities of PRPs under this system of liability.  For
example, PRPs undertook 79 percent of the new cleanups started in
fiscal year 1993.  The liability standards may also reduce future
hazardous waste problems by promoting careful handling of hazardous
wastes and encouraging voluntary restoration of contaminated
property.  At the same time, allocating responsibility for cleanup
costs under the joint and several liability standard can be difficult
and expensive.  Data on wastes disposed of years ago by the parties
may be limited; disputes can arise about how the relative toxicity of
wastes should affect responsibility for cleanup; and liability for
wastes deposited by unknown contributors may have to be apportioned
among known contributors.  Negotiations take place both between EPA
and the PRPs and among the PRPs.  EPA encourages PRPs to organize
committees at each site to address allocation issues.  Individual
PRPs and PRP committees hire counsel to represent them and technical
consultants to support their negotiation or litigation positions. 
The costs associated with negotiation and litigation are sometimes
referred to as transaction costs. 

Transaction costs at some sites are compounded by lawsuits (sometimes
called third-party suits) brought by PRPs against other parties that
the PRPs believe contributed to the contamination and should help to
pay for the cleanup.  These contribution suits can involve hundreds
and, in some instances, over a thousand parties.  Transaction costs
can also result from disputes between PRPs and their insurers.  As
PRPs are notified of their potential liabilities, they may seek
coverage under their insurance policies.  If insurers refuse these
claims, litigation may follow. 


INFORMATION ON HIGH-COST SITES
========================================================= Appendix III

In addition to requesting information on total expenditures, we asked
each corporation to provide information on expenditures at up to
three sites where the corporation had incurred legal costs of $50,000
or more.  The corporations provided this information for 570 sites. 
This appendix discusses the information they provided on the amount
of their costs and the reasons for the high legal costs. 


      AT 570 HIGH-COST SITES,
      LEGAL COSTS AVERAGE 44
      PERCENT OF TOTAL SITE COSTS
----------------------------------------------------- Appendix III:0.1

At the high-cost sites, the percentage of total costs attributable to
legal activities varied considerably, basically with the level of the
corporation's responsibility for the cleanup at the site.  Generally,
corporations that expect to be responsible for a lesser share of the
cleanup, including de minimis players, reported spending a higher
percentage of their total costs--although a smaller dollar amount--on
legal activities than did corporations with a significant liability
for site cleanup activities.  (See fig.  III.1.)

   Figure III.1:  Percentage of
   Legal Costs by Level of
   Corporations' Cleanup
   Responsibility

   (See figure in printed
   edition.)

Corporations reported a median expenditure of $290,000 on legal costs
at the 570 sites.  This amount represents about 44 percent of the
total reported median cost.  However, they also reported legal costs
in excess of $1 million at 99 sites.  Corporations that expect to be
liable for a large share of a site's cleanup costs reported
significantly higher expenditures for legal costs than did
corporations that expect to be liable for a small share.  At sites
where they expect to have significant liability for cleanup costs,
corporations reported a median expenditure of $550,000 for legal
costs.  At sites where they expect to have a lesser share of
liability for cleanup costs, their reported median expenditure for
legal costs was $200,000, and at sites where they expect to play a de
minimis role, it was $130,000. 

We asked corporations how much they have spent solely on cleanup
activities at these sites since January 1, 1987.  The corporations
reported having incurred median costs of about $370,000 so far at
each of the 570 sites but estimated that their share of the final
cleanup costs--which they estimated would be about $34 million per
site--would be about $1.5 million per site.  They estimated that
their legal costs would be about 30 percent of their total site costs
when the cleanups had been completed. 


      REASONS FOR HIGH LEGAL COSTS
----------------------------------------------------- Appendix III:0.2

In addition to asking the corporations to identify the activities
that they believed caused them to incur the highest legal costs at
all of their Superfund sites, the survey also asked them to identify
these activities at their three most expensive sites (i.e., sites
where they had spent at least $50,000 on legal costs).  As figure
III.2 shows, the activities cited as primarily responsible for high
legal costs at the 570 sites selected by the respondents as most
expensive are closely correlated with the activities cited as
primarily responsible for high legal costs at all of their Superfund
sites.  For example, they cited allocation activities as a primary
reason for high legal costs at 52 percent of the high-cost sites; as
noted earlier, 44 percent of the respondents cited this activity as a
cause of high legal costs at all of their sites. 

   Figure III.2:  Activities
   Contributing to High Legal
   Costs

   (See figure in printed
   edition.)

Note:  The number of sites is 570. 

The responses provided for the high-cost sites varied somewhat with
the respondent's level of involvement at the site.  For each site, we
asked the corporation to identify its level of involvement, as shown
in table III.1. 



                         Table III.1
           
           Extent of Corporate Involvement at High-
                          Cost Sites

Number of sites                Corporation's involvement
-----------------------------  -----------------------------
281                            Had significant liability for
                               a large share of the cleanup

155                            Was responsible for a lesser
                               share but expect to remain
                               involved

114                            Expect to be found not
                               responsible or to be a de
                               minimis party

20                             No response

570                            Total sites
------------------------------------------------------------
While respondents cited allocation activities as a primary reason for
high legal costs at 52 percent of the 570 high-cost sites, their
responses ranged from a low of 44 percent at sites where they said
they were responsible for a large share of the cleanup to a high of
66 percent at sites where they said they had a smaller responsibility
but did not expect to be a de minimis party.  (See fig.  III.3.)
Similarly, respondents identified negotiating with EPA over the
selection of a remedy as a major concern at sites where they had
significant involvement but not at sites where they had limited
(i.e., de minimis) involvement.  However, respondents with de minimis
involvement were much more likely to indicate that the process of
negotiating with EPA over the corporation's liability at the site was
a primary cause of high legal costs. 

A similar situation occurred with third-party suits.  Corporations
with significant responsibility for a site's cleanup said that
pursuing suits against other PRPs was a major cause of high legal
costs but seldom cited responding to such suits.  De minimis PRPs,
however, indicated that responding to such suits was second only to
allocating cleanup costs as a cause of high legal costs. 

   Figure III.3:  Comparison of
   Activities Contributing to High
   Legal Costs With Level of PRPs'
   Involvement

   (See figure in printed
   edition.)




(See figure in printed edition.)Appendix IV
SURVEY OF FORTUNE 500
INDUSTRIAL/SERVICE CORPORATIONS
========================================================= Appendix III



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MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C. 

Bernice Steinhardt, Associate Director
James F.  Donaghy, Assistant Director
Fran A.  Featherston, Senior Social Science Analyst

BOSTON/NEW YORK FIELD OFFICE

James S.  Jorritsma, Evaluator-in-Charge
Gerald L.  Laudermilk, Senior Evaluator
Linda W.  Choy, Senior Programmer Analyst
Lena G.  Bartoli, Senior Evaluator
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