Hazardous Waste: Observations on EPA's Cleanup Program and Budget
Management Practices (Statement/Record, 04/29/99, GAO/T-RCED-99-168).

Pursuant to a congressional request, GAO provided information on the
Environmental Protection Agency's (EPA) cleanup program and budget
management practices, focusing on: (1) the number of contracts that EPA
has awarded for Superfund cleanup activities for the agency; (2) the
extent to which EPA is using its Contracts 2000 initiative as a vehicle
to improve Superfund contract management practices; and (3) GAO's
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 the Resource
Conservation and Recovery Act (RCRA).

GAO noted that: (1) EPA may be retaining more contractors than it needs
to conduct its Superfund cleanup work; (2) contractors often have low
levels of work and high program support costs, such as those for rent
and managers' salaries; (3) 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 awards; (4) 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 GAO has identified, such as high program
support cost rates; (5) however, the agency could not provide GAO with
documentation describing the: (a) 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 (b) timeframes
for implementing these improvements; (6) transferring $25 million from
Superfund to the Corrective Action program could help EPA achieve more
RCRA cleanups; (7) however, GAO cannot determine with certainty what
impact this transfer would have on Superfund; (8) when GAO assessed the
progress of cleanups under the Corrective Action Program, GAO 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; (9) EPA lacks the
resources it needs to direct more companies to begin cleanups; (10)
providing more funds for corrective actions could increase cleanup
activities; (11) in GAO's report on Superfund program management issues,
GAO observed that for fiscal year 1998, EPA had more sites ready to
begin the construction of a cleanup method than funds available; (12)
reducing the program's budget could further delay cleanups; (13)
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; and (14) EPA
might be able to manage a reduction in its budget by cutting its
administrative costs rather than performing fewer cleanup activities.

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

 REPORTNUM:  T-RCED-99-168
     TITLE:  Hazardous Waste: Observations on EPA's Cleanup Program and
	     Budget Management Practices
      DATE:  04/29/99
   SUBJECT:  Environmental monitoring
	     Budget administration
	     Contract administration
	     Waste disposal
	     Cost control
	     Pollution control
	     Liability (legal)
	     Hazardous substances
	     Contract costs
	     Reprogramming of appropriated funds
IDENTIFIER:  Superfund Program
	     EPA RCRA Corrective Action Program
	     EPA Contracts 2000 Initiative

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Cover
================================================================ COVER

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

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

HAZARDOUS WASTE - OBSERVATIONS ON
EPA'S CLEANUP PROGRAM AND BUDGET
MANAGEMENT PRACTICES

Statement for the Record by
Peter Guerrero,
Director, Environmental Protection Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-99-168

GAO/RCED-99-168T

(160488)

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

  CERCLA -
  EPA -
  RCRA -

============================================================ Chapter 0

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 programï¿½findings 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 ï¿½Contracts 2000ï¿½ 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 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
     awards. 

  -- 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. 

--------------------
\1 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). 

   BACKGROUND
---------------------------------------------------------- Chapter 0:1

When EPA awards a Superfund contract, it specifies that the
contractor will 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
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 pays. 

   CONTRACTORS' SUPERFUND PROGRAM
   SUPPORT COSTS ARE STILL HIGH,
   IN PART, BECAUSE EPA HAS TOO
   MANY CONTRACTS FOR ITS CLEANUP
   WORKLOAD
---------------------------------------------------------- Chapter 0:2

In a 1997 report on contract management issues,\2 we stated that the
percentage of funds EPA was paying contractors for program support
costs (e.g., rent and salaries) was high relative to the percentage
it was paying 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 that EPA was awarding as its old contracts
expired.  These amounts exceeded EPA's target of 11 percent.  In
August 1998, we further reported that, overall, contractors' program
support costs averaged about 29 percent of total contract costs.\3
For our report on contract management 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 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. 

--------------------
\2 Superfund Program Management (GAO/HR-97-14, Feb.  1997). 

\3 Superfund:  Analysis of Contractor Cleanup Spending
(GAO/RCED-98-221, Aug.  4, 1998). 

\4 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. 

   RECURRING PROBLEMS RAISE
   BROADER QUESTIONS ABOUT
   SUPERFUND CONTRACTING THAT
   COULD BE ADDRESSED THROUGH
   EPA'S CONTRACTS 2000 INITIATIVE
---------------------------------------------------------- Chapter 0:3

While reviewing EPA's progress in resolving Superfund program
management issues, including contractors' high program support cost
rates, we determined that these problems may be symptoms of more
systemic issues associated with EPA's Superfund contracting.  EPA
could use its Contracts 2000 initiative to address some of the
following issues we identified: 

  -- Could the agency more quickly and aggressively test and
     implement alternative types of contracts, such as fixed-price or
     performance-based contracts, in addition to or instead of using
     cost-reimbursable contracts as 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 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 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. 

   WHILE SHIFTING FUNDS COULD
   ACCELERATE CORRECTIVE ACTION
   CLEANUPS, THE IMPACT ON
   SUPERFUND IS UNCERTAIN
---------------------------------------------------------- Chapter 0:4

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

      LACK OF RESOURCES HAMPERS
      EPA'S ABILITY TO PERFORM
      CORRECTIVE ACTION CLEANUPS
-------------------------------------------------------- Chapter 0:4.1

In 1997, we assessed the status of EPA's RCRA Corrective Action
program.  This program was designed for currently operating
facilities that must clean up contamination at their sites, whereas
the Superfund program was intended to address contamination at
abandoned sites.  At the time of our review, we found that only about
8 percent of the approximately 3,700 nonfederal facilities nationwide
that treat, store, or dispose of hazardous wasteï¿½including 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
facilitiesï¿½427 of which were high prioritiesï¿½that 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 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 OUT
      OF THE SUPERFUND PROGRAM IS
      DIFFICULT TO PREDICT
-------------------------------------------------------- Chapter 0:4.2

EPA officials have stated that the agency has serious concerns about
transferring funds out of the Superfund program and is evaluating the
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 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 fund. 

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. 

--------------------
\5 In addition to these new construction projects, EPA continued to
fund ongoing longer-term construction projects and shorter-term
cleanup actions at numerous sites. 

*** End of document. ***