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Title:      Superfund Program Management
Subtitle:

Report No.: GAO/HR-93-10       Date:  December 1992
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Author:     United States General Accounting Office


Addressee:  High-Risk Series

This file contains the text of a GAO report. Delineations within the text
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as
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CONTENTS

Overview
     - The Problem
     - The Causes
     - GAO's Suggestions for Improvement
Superfund
Setting Priorities and Allocating Limited Resources
     - Differing Views on Dangers of Hazardous Waste Sites
     - Insufficient Information to Define Risks
     - Better System Needed to Allocate Limited Funding
Increasing Recovery of Superfund Costs
     - Increasing Privately Funded Cleanups
     - Low Recovery of Cleanup Costs
Inadequate Attention to Contract Management
     - Controlling Contractors' Costs
     - Reducing Excessive Indemnification
     - Increasing Management's Attention to Contract Management
Conclusions and Action Needed
Related GAO Products
High-Risk Series
     - Lending and Insuring Issues
     - Contracting Issues
     - Accountability Issues

Figures
=======
Figure 1: Number of Superfund Sites by State
Figure 2: Status of 1,275 Superfund Sites in Cleanup Pipeline, as of
 September 30, 1992
Figure 3: Types of Environmental and Public Health Risks Addressed at
 Superfund Sites
Figure 4: Estimated Value of Responsible Parties' Cleanup Work, Fiscal Years
 1987-92
Figure 5: EPA's Obligations for Superfund Contracts and the Total Program,
 Fiscal Years 1981-91








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Office of the Comptroller General
Washington, DC 20548

December 1992

The President of the Senate
The Speaker of the House of Representatives

In January 1990, in the aftermath of scandals at the Departments of Defense
and Housing and Urban Development, the General Accounting Office began a
special effort to review and report on federal government program areas that
we considered "high risk."

After consulting with congressional leaders, GAO sought, first, to identify
areas that are especially vulnerable to waste, fraud, abuse, and
mismanagement. We then began work to see whether we could find the fundament
al
causes of problems in these high-risk areas and recommend solutions to the
Congress and executive branch administrators.

We identified 17 federal program areas as the focus of our project. These
program areas were selected because they had weaknesses in internal controls
(procedures necessary to guard against fraud and abuse) or in financial
management systems (which are essential to promoting good management,
preventing waste, and ensuring accountability). Correcting these problems is
essential to safeguarding scarce resources and ensuring their efficient and
effective use on behalf of the American taxpayer.

This report is one of the high-risk series reports, which summarize our
findings and recommendations. It describes our concerns over the Environment
al
Protection Agency's (EPA) management of the Superfund program. In view of th
e
escalating costs of hazardous waste cleanups and the growing constraints on
federal resources, it focuses on the need for informed judgments to allocate
resources among competing environmental protection needs. It also discusses
EPA's limited recovery of Superfund cleanup costs from private parties and
inadequate attention to contract management.

Copies of this report are being sent to the President-elect, the Democratic
and Republican leadership of the Congress, congressional committee and
subcommittee chairs and ranking minority members, the Director-designate of
the Office of Management and Budget, and the Administrator of the
Environmental Protection Agency.

Signed: Charles A. Bowsher



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OVERVIEW
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The Superfund program was created in 1980 as a short-term project to clean u
p
the nation's worst hazardous waste sites. At that time, the extent and
severity of the country's hazardous waste problems were thought to be limite
d.
Although a definitive cost estimate for completing the cleanup effort has ye
t
to be determined, it is clear that in the coming decades, cleanup of thousan
ds
of Superfund sites, hundreds of which are owned by the federal government,
could cost hundreds of billions of dollars.

The actual level of future funding will depend on federal budget constraints
and the priority assigned to the cleanup effort relative to other national
needs. Since fully funding the cleanup will be difficult at best, efficient
use of whatever funds are made available for cleanup is vital. The better th
e
effort is managed by the Environmental Protection Agency (EPA), the greater
he likelihood that more cleanups will be completed, resulting in better
protection of human health and the environment.

The Superfund law requires the parties that are responsible for contaminated
sites to clean them up or to reimburse EPA for the cleanups it performs. To
pay for EPA cleanups, the law established a trust fund (Superfund), which is
primarily financed by a tax on crude oil and certain chemicals and by an
environmental tax on corporations. Federal agencies cannot use the Superfund
to finance their cleanups but instead must rely on the agencies' annual
appropriations.

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THE PROBLEM

An effort as costly as our nation's hazardous waste cleanup problem should b
e
justified on evidence that expenditures will result in commensurate benefits
to human health and the environment. However, Superfund expenditures have no
t
been based on an adequate comparison of the sites' risks with other
environmental problems.

Superfund's enormous projected costs also underscore the need for efficient
program administration. We have frequently reported, however, that
deficiencies in EPA's efforts to recover costs from responsible parties and
in
its management of contractors have increased expenses unnecessarily.

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THE CAUSES

Some experts think hazardous waste sites are a lesser concern than other
environmental threats, such as global atmospheric changes. But today, the
federal government lacks an adequate system for assessing the health and
environmental risks posed by Superfund sites relative to other environmental
problems. Without this information, priorities cannot be set or resources
allocated effectively.

With regard to how efficiently the Superfund is being used, EPA has recovere
d
only a small fraction of the Superfund resources that it has spent. As of
September 30, 1992, EPA had collected just 10 percent of the $5.7 billion th
at
it had classified as recoverable from responsible parties. Because it lacks
complete data on its past recovery efforts, EPA cannot explain this low rate
of repayment, but we have reported that EPA has failed to control collection
efforts sufficiently or to seek full recovery of its costs. For example,
although EPA has recently proposed regulations to change its approach to
recovering indirect costs, so far it has excluded from its recovery efforts
over $1 billion in such costs. In addition, potential recoveries have been
reduced by the Superfund law's restrictions on charging interest.

Although it relies heavily on contractors to perform much of its cleanup wor
k,
EPA until this year ignored long-standing deficiencies in the management of
its contracts. More specifically, EPA failed to properly control contractors
'
costs or reduce Superfund's vulnerability to excessive damage claims resulti
ng
from contractors' negligence.

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GAO'S SUGGESTIONS FOR IMPROVEMENT

EPA has taken positive steps to address some of these problems. For example,
it has begun to develop a risk-based planning approach that would give
priority to problems posing the greatest danger. Also, EPA has worked harder
to compel responsible parties to perform cleanups themselves and has recentl
y
proposed new regulations for recovering more of its costs. The agency has al
so
placed new emphasis on monitoring contract costs.

These actions alone, however, are unlikely to solve Superfund's problems. We
have recommended additional steps, among them that EPA work with the Congres
s
to reorder its budget priorities to reflect the relative risks of
environmental problems. We also said that EPA should place more emphasis on
recovering program costs--for instance, by working to recover more of its
costs and by keeping better records of negotiations--
nd that the Congress should permit EPA to charge greater interest on its
costs. We have also recommended additional changes in EPA's contract
management, particularly in limiting Superfund's liability for damage claims


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SUPERFUND
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Disposal of hazardous waste at thousands of landfills, industrial plants and
other locations across the country has contaminated these sites and endanger
ed
nearby communities. The Comprehensive Environmental Response, Compensation,
and Liability Act of 1980 (CERCLA) created the Superfund program to clean up
the most dangerous of these sites. Originally given $1.6 billion and a 5-yea
r
life, the program has twice been reauthorized and now has a spending cap of
$15.2 billion; it is expected to run indefinitely. As of September 30, 1992,
EPA had identified 1,275 Superfund sites. (See fig. 1.)

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Figure 1: Number of Superfund Sites by State

The following table represents the data for this chart in the printed versio
n
of the report. The actual figure appears in the printed report.

LEGEND
1 : 1-15 Sites
2 : 16-30 Sites
3 : 31-45 Sites
4 : 46 + Sites

AL      1               MT      1
AK      1               NB      1
AZ      1               NV      1
AR      1               NH      2
CA      4               NJ      4
CO      2               NM      1
CT      1               NY      4
DE      2               NC      2
FL      4               ND      1
GA      1               OH      3
HI      1               OK      1
ID      1               OR      1
IL      3               PA      4
IN      3               RI      1
IA      2               SC      2
KA      1               SD      1
KY      2               TN      1
LA      1               TX      2
ME      1               UT      1
MD      1               VT      1
MA      2               VA      2
MI      4               WA      4
MN      3               WV      1
MS      1               WI      3
MO      2               WY      1

Source: GAO presentation of EPA data.
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CERCLA authorizes EPA to compel parties responsible for contaminated Superfu
nd
sites, such as waste generators, waste haulers, and site owners or operators
,
to clean them up. If responsible parties cannot be located, are unable, or a
re
unwilling to perform the cleanup, EPA is authorized to clean up the sites
itself and seek recovery of its costs from the parties. To pay for EPA
cleanups, CERCLA established a trust fund (Superfund) to be financed primari
ly
by a tax on crude oil and certain chemicals, such as arsenic and mercury, an
d
by an environmental tax on corporations.

The estimated costs of cleaning up Superfund sites have grown rapidly over t
he
past 12 years. At the end of fiscal year 1992, EPA had obligated about $11.4
billion but had completed cleanups at fewer than 12 percent of the current
Superfund sites. (See fig. 2.) EPA has estimated that the fund's share of th
e
costs to clean up current sites will be $40 billion and recognizes that many
more sites will be added to Superfund over time. A 1991 University of
Tennessee study estimated that if Superfund grew to 6,000 sites, cleanup cos
ts
for EPA and the private sector, excluding costs for federal facilities and
Superfund's administration, could amount to $300 billion in 1990 dollars ove
r
the next 30 years.

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Figure 2: Status of 1,275 Superfund Sites in Cleanup Pipeline, as of
September 30, 1992

The illustration for this figure cannot be displayed in this electronic
version, but the information from the illustration is described below.
The actual figure appears in the printed report.

Beginning of pipeline     56 Sites With Action Not Begun
                         696 Sites in Study or Design
End of pipeline           374 Sites in Cleanup
                         149 Sites Cleaned

Source: GAO presentation of EPA data.
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Current cost estimates for cleaning up the federal government's hazardous
waste legacy are also staggering. Estimates for the Department of Defense
(DOD) and the Department of Energy (DOE) total close to $200 billion. Althou
gh
these estimates represent a large portion of the potential federal costs, th
e
full picture is not yet known. Federal agencies cannot pay for their cleanup
s
through Superfund's trust fund but must obtain funds from other
appropriations.

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SETTING PRIORITIES AND ALLOCATING LIMITED RESOURCES
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As constraints on the federal budget grow, environmental needs are
increasingly competing for federal funds. Although funds should be allocated
to the programs that most effectively reduce health and environmental risks,
the government has not assessed the comparative risks of the nation's
environmental problems, in part because it does not have the necessary data
or
methodologies. The huge sums needed to clean up Superfund sites and
disagreements about the dangers posed by these sites make risk-based funding
decisions especially important. EPA has begun to develop a strategic plan fo
r
responding to environmental problems on the basis of estimated risks, but fu
ll
implementation is a long way off.

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DIFFERING VIEWS ON DANGERS OF HAZARDOUS WASTE SITES

Opinions on the relative risks of hazardous waste sites and other
environmental problems differ considerably. Scientific assessments have
generally suggested that contamination from hazardous waste sites poses a
lesser risk than other environmental problems. However, public opinion,
according to 1988 and 1990 Roper polls, considers hazardous waste sites to b
e
a high risk. Federal funding appears to be more closely aligned with the
public's perception of environmental risk: Superfund accounts for about
one-fourth of EPA's budget. In contrast, global atmospheric changes and indo
or
air pollution, which some experts rank as higher risks than Superfund sites,
have received less public attention and fewer resources.

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INSUFFICIENT INFORMATION TO DEFINE RISKS

One reason for disagreements over the danger posed by Superfund sites may be
the limited information that the government has for assessing these sites'
risks and for comparing them with other environmental risks. (See fig. 3.) I
n
1991, we reported that the U.S. Public Health Service's Agency for Toxic
Substances and Disease Registry had not adequately assessed the health risks
of many Superfund sites. The National Research Council also recently conclud
ed
that critical information on the health effects associated with these sites
was lacking because limited resources had been devoted to studying this
subject. [ Footnote 1:  _Environmental Epidemiology: Public Health and
Hazardous Wastes_, U. S. National Research Council, Committee on Environment
al
Epidemiology (Washington, D.C.: 1991).  ]  Furthermore, existing data are
inadequate to characterize the extent of some of the nation's other
environmental risks, such as the threats posed by toxic air emissions and
coastal water pollution, according to EPA.

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Figure 3: Types of Environmental and Public Health Risks Addressed at
Superfund Sites

The illustration for this figure cannot be displayed in this electronic
version, but the information from the illustration is described below.
The actual figure appears in the printed report.


--Contaminated Air      --Direct Contact With       --Contaminated Drinking
                         Hazardous Waste             Water

--Ecological Damage     --Fire and Explosion        --Exposure Through
                         Hazard                      Food Chain

--Contaminated          --Contaminated Soil         --Contaminated Surface
 Groundwater                                         Water


Source: EPA and GAO.
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BETTER SYSTEM NEEDED TO ALLOCATE LIMITED FUNDING

In addition to inadequate information, the government does not have a good
system for allocating funding to environmental problems in accordance with
risk. We have recommended that EPA work with the Congress to shift resources
from environmental problems whose risks are less severe to problems whose
risks are greater and to educate the public about relative environmental
risks. EPA's Science Advisory Board has also recommended that EPA improve th
e
data and analytical methodologies that support the assessment, comparison, a
nd
reduction of different environmental risks and that EPA better align program
priorities with health and environmental risks.  [ Footnote 2:  _Reducing
Risk: Setting Priorities and Strategies for Environmental Protection_,
Relative Risk Reduction Strategies Committee, EPA Science Advisory Board
(Sept. 1990).  ]

One area that illustrates the need for risk-based priority setting is the
funding of the federal government's hazardous waste cleanups. The federal
government does not have an effective way to measure the relative risk of
these sites across agency lines or to assign priorities to these cleanups,
which could cost hundreds of billions of dollars. Although federal agencies
submit annual cleanup plans to EPA for review, this review is not suitable f
or
rank ordering federal cleanups because EPA assumes that all cleanups will be
funded. EPA acknowledges that a comprehensive approach to setting cleanup
priorities across agency lines will be needed when the cost of federal
cleanups exceeds available funding.

EPA has begun to develop a new comprehensive risk-based strategic planning
approach within the agency. This approach would position EPA to assess the
risks associated with environmental problems and to give priority to the
greatest risks. EPA faces some constraints in adopting this approach, such a
s
the agency's statutory authorities that limit its flexibility to shift
priorities on the basis of risk assessments. Nevertheless, the agency is
currently identifying what data on environmental conditions and risks are
available for implementing this process.

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INCREASING RECOVERY OF SUPERFUND COSTS
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---

Parties responsible for contaminating Superfund sites are required by CERCLA
to clean them up or to reimburse EPA for a government-funded cleanup. In
recent years, EPA has compelled many responsible parties to perform cleanups
directly but has recovered only a small part of the program's costs. While w
e
are currently reviewing the reasons for the low reimbursement rate, our past
work has identified some of the causes. First, EPA lacks information to
adequately manage the recovery effort. Because its data are so poor, EPA
cannot explain why so few costs have been recovered. In addition, as we have
reported, indirect costs and interest are not being fully recovered. As a
result, the federal government has been left footing much of the bill for
remediating environmental problems created by responsible parties.

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INCREASING PRIVATELY FUNDED CLEANUPS

Beginning in 1989, EPA strengthened its efforts to get responsible parties t
o
meet their cleanup obligations in an initiative called "Enforcement First."
This approach gave clear preference to privately financed cleanups over
Superfund-financed cleanups and increased Superfund's enforcement resources
and activities. This new emphasis worked. EPA increased the annual value of
privately funded cleanups from $207.5 million in fiscal year 1987 to more th
an
$1.5 billion in fiscal year 1992. (See fig. 4.)

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Figure 4: Estimated Value of Responsible Parties' Cleanup Work, Fiscal Years
1987-92

The following table represents the data for this chart in the printed versio
n
of the report. The actual figure appears in the printed report.

(Dollars in millions)

Fiscal year
1987              207.5
1988              578.6
1989              939.7
1990              1307.4
1991              1609.8
1992              1514.4

Source:  GAO presentation of EPA data.
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LOW RECOVERY OF CLEANUP COSTS

EPA's improved record for compelling privately funded cleanups contrasts
sharply with its low recovery of Superfund expenditures. At the end of fisca
l
year 1992, EPA had disbursed $7.3 billion in federal funds for the Superfund
program and had classified about $5.7 billion of this amount as recoverable
from responsible parties.  [ Footnote 3:  Additional amounts will be
classified as recoverable as ongoing cleanup projects are completed.  ]  Yet
EPA had agreements with responsible parties or court orders to recover only
about $795 million--just 14 percent of the $5.7 billion--and actually
collected $546 million--10 percent of the total recoverable.

In its efforts to recover costs, EPA faces certain limitations, such as
sites--referred to as "orphan sites"--that have no identified responsible
parties to reimburse the agency. In addition, EPA has waived recovery of som
e
costs as an incentive for parties to take over cleanup responsibilities at
sites. The agency has not quantified the costs that cannot be recovered at
orphan sites or the costs that have been waived in settlement negotiations.

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Previously Reported Weaknesses

Our past reports identified the following deficiencies in EPA's cost recover
y
effort:

-- Cost recovery records are incomplete and unreliable. National figures on
  costs expended and recovered are only approximations. Field offices have
  not documented realistic bottom-line positions in advance of negotiations
,
  and negotiators have not kept records of what costs they have and have no
t
  sought to recover. Therefore, the success of the negotiations cannot be
  measured.

-- The cost recovery effort has been understaffed and assigned a low priorit
y,
  creating backlogs in cost recovery cases.

-- Full costs, including indirect costs and interest charges, have not alway
s
  been sought in cost recovery negotiations.

-- CERCLA restricts interest charges on unpaid costs.

To address these deficiencies, our past reports have recommended that EPA
(1) improve its record-keeping to permit meaningful evaluations of its
performance in recovering costs; (2) strengthen its strategic planning for
managing this program, including determining its staffing needs; and (3) see
k
fuller recovery of its program costs. As described below, EPA has proposed a
rule to seek reimbursement of more of its indirect costs. However, cost
recovery records continue to be inadequate, and, according to an EPA cost
recovery program official, understaffing is still a problem. Furthermore, we
recommended in 1991 that the Congress amend CERCLA to remove interest accrua
l
restrictions, but no action has yet been taken.

The losses attributable to inadequate program information and to understaffi
ng
are unknown. However, we can estimate the value of the indirect costs and so
me
of the interest charges that have not been recovered.

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Indirect Costs

EPA's current policy has excluded over
$1 billion in indirect costs from recovery. In 1989, we reported that EPA ha
d
not sought to fully recover its indirect costs for two reasons. First, the
agency had narrowly defined "recoverable" indirect costs to exclude certain
categories of costs, such as research and development. Second, the agency's
formula for allocating indirect costs to Superfund sites had effectively
excluded from recovery a large portion of the indirect costs that had not be
en
categorically excluded.

In August 1992, EPA proposed regulations to change its approach to recoverin
g
indirect costs. Under this proposal, the agency would seek to recover the
previously excluded categories of indirect costs and would revise its method
for distributing indirect costs so that almost all indirect costs would be
recoverable. This proposal, if adopted, would almost triple the indirect cos
ts
recoverable from responsible parties, according to agency estimates, and all
ow
EPA to seek recovery of some of the over
$1 billion now excluded.

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Interest Costs

EPA has also missed the opportunity to recover hundreds of millions of dolla
rs
in interest costs because (1) CERCLA limits the interest that EPA can charge
and (2) agency personnel have not always tried to claim interest. We estimat
ed
that in 1990 alone EPA could have accrued $105 million in interest on its
fiscal year 1989 expenditures if statutory limits on EPA's collection of
interest costs had been changed.

CERCLA restricts interest charges on amounts due from responsible parties in
two ways. First, it can significantly delay the date from which interest
begins to accrue. CERCLA permits interest accrual from the date that funds a
re
spent or the date that payment is demanded, whichever is later. As authorize
d
by CERCLA, EPA sometimes waits several years after funds are expended to
demand repayment. In a fiscal year 1989 settlement, for example, EPA Region
V
sought to recover $81,287 in interest that had accrued from the date that it
had demanded payment. However, it could have sought $322,414--or almost four
times as much--if accrual had begun from the date that funds were expended.
On
a broader basis, we estimated that EPA could have accrued in 1990 about $80
million in interest on its fiscal year 1989 expenditures.

Second, CERCLA allows EPA to accrue interest on program costs only at the
government's borrowing rate, which is lower than commercial lending rates. W
eestimate that this limit reduced the interest accrued in 1990 on fiscal yea
r
1989 settlements by about $25 million. Furthermore, this amount, in effect,
represents a subsidy to the responsible parties that leave their cleanups to
the government. Whereas the responsible parties that borrow money for cleanu
ps
have to obtain financing from lenders at commercial rates, the parties that
reimburse EPA are charged the government's lower borrowing rate. Precedents
for charging more than the government's rate exist in other programs. The
Internal Revenue Service, for example, charges an additional
3 percent on late tax payments. Therefore, we recommended that the Congress
amend CERCLA to eliminate this subsidy.

Besides statutory restrictions on charging interest, failure to consistently
seek recovery of some interest costs has limited EPA's collection of interes
t.
EPA sought interest from responsible parties on only 22 of the 89 fiscal yea
r
1989 settlements that we surveyed--making no attempt to recover about $4.5
million out of $10.5 million in interest--primarily because agency personnel
were unfamiliar with procedures for calculating these costs. The amount of
interest not sought nationally is unknown, however, because EPA does not
regularly collect data on how often its negotiators try to recover interest.
Although EPA has issued guidance identifying where assistance in calculating
interest is available and has adopted an automated system that can calculate
interest costs, it has not determined whether its personnel are now
consistently seeking to recover interest.

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___

INADEQUATE ATTENTION TO CONTRACT MANAGEMENT
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---

Billions of dollars are at stake in EPA's management of Superfund contracts.
But for years the agency tolerated deficiencies in contract
management--including uncontrolled costs and excessive exposure to damage
claims stemming from contractors' negligence--and failed to follow through o
n
planned corrective measures. Recently, under pressure from the Congress and
others, EPA has taken steps to remedy these long-standing contract managemen
t
problems. EPA will need to sustain this effort to correct these problems.

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===
CONTROLLING CONTRACTORS' COSTS

EPA makes extensive use of cost-reimbursable contracts to clean up hazardous
waste sites. (See fig. 5.) These contracts require special agency oversight
because they reimburse the contractor for all allowable costs and therefore
give the contractor little incentive to control costs. However, we have
repeatedly reported that EPA has not overseen its cost-reimbursable contract
s
as necessary to prevent contractors from overcharging the government. For
example, EPA has not satisfactorily estimated the cost of work before
approving contractors' budgets or reviewed contractors' charges either befor
e
payment or afterwards in postpayment audits.

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___
Figure 5: EPA's Obligations for Superfund Contracts and the Total Program,
Fiscal Years 1981-91

The following table represents the data for this chart in the printed versio
n
of the report. The actual figure appears in the printed report.

(Dollars In millions)

               Total        Contractor
Fiscal year     Obligations  Obligations
===========     ===========  ===========
1981              35          18
1982              159         91
1983              194         117
1984              435         241
1985              457         295
1986              636         223
1987              1262        610
1988              1530        623
1989              1565        670
1990              1637        651
1991              1680        605

Note:  These figures do not include obligations for Superfund contracts awar
ded
by the U.S. Army Corps of Engineers, which handles the more expensive
construction cleanup contracts.

Source: GAO presentation of EPA data.
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___


We reported in 1988 and 1991 that EPA had not protected itself against
potentially wasteful contract spending by preparing independent government
cost estimates--that is, the government's own projection of what contract wo
rk
should cost. These estimates protect the agency from depending too heavily o
n
the contractor's cost proposal for judging what contract work should cost.

EPA regional staff had prepared independent government cost estimates for on
ly
4 of 30 cleanup studies that we reviewed in 1991. Although used infrequently
,
these estimates proved to be effective in reducing contractors' proposed
budgets--in one case, from $3 million to $1.6 million.

In addition, EPA had not effectively used two other basic cost control
techniques--invoice reviews and audits. In 1988 and 1991, we reported that E
PA
was not adequately reviewing contractors' monthly invoices, or bills, to
ensure that contractors' charges were reasonable. We also reported in 1990
that audit backlogs had hampered the agency's timely review of the accuracy
of
contractors' direct and indirect cost charges and increased the vulnerabilit
yof Superfund contract dollars to waste, fraud, and abuse.

Without controls over contractors' costs, Superfund resources can be wasted.
For example, we reported in March 1992 that one of Superfund's largest
contractors had included $2.3 million of expenses not allowable under the
Federal Acquisition Regulations in its indirect cost pool, a portion of whic
h
is charged to EPA. The expenses were for things such as tickets to
professional sporting events, alcohol at company parties, and travel by
nonemployee spouses of company employees. Additionally, we identified indire
ct
costs of $266,500 that, while not specifically unallowable, appeared
questionable for allocation to federally sponsored contracts.

============================================================================
===
REDUCING EXCESSIVE INDEMNIFICATION

Together with inadequate controls over cost-reimbursable contracts, overly
liberal indemnification policies and practices threaten to seriously drain
Superfund resources.

In 1986, amendments to CERCLA authorized EPA to indemnify contractors--that
is, to pay for any damages caused by their negligence at Superfund
sites--because pollution insurance was not available at that time. This
indemnification was, however, to be granted only up to a limit to be specifi
ed
by EPA.

However, as we first reported in 1989, EPA has been granting almost all of i
ts
contractors unlimited indemnification, despite the law's requirements and
considerable evidence that contractors would work at lower levels of
protection. Under EPA's current approach, each indemnification agreement is
backed by the entire unobligated balance of Superfund, which was $1.75 billi
on
at the beginning of fiscal year 1991. Therefore, we recommended that EPA lim
it
Superfund's potential exposure to indemnification losses by implementing
CERCLA's requirements to establish dollar limits on indemnification agreemen
ts
and by determining the lowest level of indemnification that would ensure the
availability of an adequate number of contractors.

============================================================================
===
INCREASING MANAGEMENT'S ATTENTION TO CONTRACT MANAGEMENT

After years of inattention to these repeatedly reported deficiencies,
EPA--under mounting pressure from the Congress, EPA's Inspector General, and
GAO--began this past year to address its contract management problems,
including the root causes. EPA has elevated the procurement function in the
organization, designating senior officials in headquarters and field units t
o
be accountable for procurement efforts, developed an implementation plan to
correct problems; and reported Superfund contract management as a material
weakness in its December 1991 Federal Managers' Financial Integrity Act
report.

In addition, EPA has recently initiated efforts to exercise greater financia
l
control over its Superfund contracts. For example, since early this year, it
has required its staff to develop independent government cost estimates for
Superfund contracts. It is also working to develop cost-estimating expertise
by, for example, providing additional cost information guidance to its staff

To reduce its audit backlog, EPA has requested funding to increase the numbe
r
of auditors in its Office of Inspector General. Although these steps promise
to improve contract management, they will require more complete follow-throu
gh
on the part of EPA's managers than has been evident in the past to ensure
lasting change.

Although EPA has also taken some steps to control contractors'
indemnification, it has made limited progress. For example, the agency has
drafted new indemnification guidelines; however, as of November 1992, these
guidelines still had to be approved by the Office of Management and Budget.

____________________________________________________________________________
___

CONCLUSIONS AND ACTION NEEDED
----------------------------------------------------------------------------
---

The cleanup of hazardous waste disposed of for generations without adequate
safeguards will require a decades-long, major commitment of national
resources. Because potential costs are so great, funding decisions need to b
e
based on solid information about the risks posed by disposal sites and the
benefits of cleanups. In addition, whatever funds are devoted to the effort
must be managed to bring the greatest possible return. Our work has disclose
d
a need to better justify the budget priority assigned to the cleanup effort
and improve program management.

The federal government cannot afford to spend the hundreds of billions of
dollars expected to be needed to clean up Superfund sites without good
assurance that this level of funding is appropriate. Finding the right fundi
ng
level requires comparing the relative risks to human health and the
environment of Superfund sites and of other environmental problems and the
relative risk reduction that spending on Superfund cleanups and other
environmental programs will achieve. Currently, decisions about funding are
being made without adequate assessments of risks. If steps are taken to asse
ss
the relative risks posed by environmental problems, the Congress and EPA wil
l
have a more rational basis upon which to debate the allocation of limited
federal resources.

Although EPA has increased privately funded cleanups, it has not improved it
s
chronically low recovery of Superfund costs. Our reports have identified the
following causes of this low recovery: inadequate records to evaluate recove
ry
efforts, understaffing, failure to pursue many costs, and statutory
restrictions on interest charges. EPA has proposed a rule to enlarge the
definition of recoverable indirect costs, but other changes are needed. For
example, EPA needs to develop the necessary information to assess the adequa
cy
of its efforts to return past expenditures to the trust fund. In addition,
amendments to CERCLA's interest provisions would increase the costs that EPA
could seek to recover and eliminate the current subsidy to responsible parti
es
that leave cleanup work to the government. Given Superfund's potentially
enormous costs, failure to make these changes could be very expensive.

Until this year, EPA had not given high priority to managing Superfund
contracts even though it contracts out work worth billions of dollars. Our
reviews have disclosed the results of EPA's neglect: poorly controlled
contractors' costs and excessive vulnerability to indemnification losses. In
the face of rising criticism over contract abuses, EPA's management has made
a
commitment to improve cost controls and has begun organizational and
procedural changes. However, a sustained effort is essential if permanent
improvements are to be achieved. Moreover, indemnification deficiencies stil
l
have not been corrected and remain a threat to the program's resources.

____________________________________________________________________________
___

RELATED GAO PRODUCTS
----------------------------------------------------------------------------
---

_Superfund: EPA Cost Estimates Are Not Reliable or Timely_ (GAO/AFMD-92-40,
July 1, 1992).

_Federally Sponsored Contracts: Unallowable and Questionable Indirect Costs
Claimed by CH2M Hill_ (GAO/T-RCED-92-37, Mar. 19, 1992).

_Superfund: EPA Has Not Corrected Long-standing Contract Management Problems
_
(GAO/RCED-92-45, Oct. 24, 1991).

_Superfund: Public Health Assessments Incomplete and of Questionable Value_
(GAO/RCED-91-178, Aug. 1, 1991).

_Superfund: More Settlement Authority and EPA Controls Could Increase Cost
Recovery_ (GAO/RCED-91-144, July 18, 1991).

_Environmental Protection: Meeting Public Expectations With Limited Resource
s_
(GAO/RCED-91-97, June 18, 1991).

_EPA's Contract Management: Audit Backlogs and Audit Follow-up Problems
Undermine EPA's Contract Management_ (GAO/T-RCED-91-5, Dec. 11, 1990).

_Superfund: A More Vigorous and Better Managed Enforcement Program Is Needed
_
(GAO/RCED-90-22, Dec. 14, 1989).

_Superfund: Contractors Are Being Too Liberally Indemnified by the Governmen
t_
(GAO/RCED-89-160, Sept. 26, 1989).

_Making Superfund Work Better: A Challenge for the New Administration_
(GAO/T-RCED-89-48, June 15, 1989).

_Superfund Contracts: EPA's Procedures for Preventing Conflicts of Interest
Need Strengthening_ (GAO/RCED-89-57, Feb. 17, 1989).

_Environmental Protection Agency: Protecting Human Health and the Environmen
t
Through Improved Management_ (GAO/RCED-88-101, Aug. 16, 1988).

_Superfund Contracts: EPA Needs to Control Contractor Costs_ (GAO/RCED-88-18
2,
July 29, 1988).

____________________________________________________________________________
___

HIGH-RISK SERIES
----------------------------------------------------------------------------
---

============================================================================
===
Lending and Insuring Issues

_Farmers Home Administration's Farm Loan Programs_ (GAO/HR-93-1).

_Guaranteed Student Loans_ (GAO/HR-93-2).

_Bank Insurance Fund_ (GAO/HR-93-3).

_Resolution Trust Corporation_ (GAO/HR-93-4).

_Pension Benefit Guaranty Corporation_ (GAO/HR-93-5).

_Medicare Claims_ (GAO/HR-93-6).

============================================================================
===
Contracting Issues

_Defense Weapons Systems Acquisition_ (GAO/HR-93-7).

_Defense Contract Pricing_ (GAO/HR-93-8).

_Department of Energy Contract Management_ (GAO/HR-93-9).

_Superfund Program Management_ (GAO/HR-93-10).

_NASA Contract Management_ (GAO/HR-93-11).

============================================================================
===
Accountability Issues

_Defense Inventory Management_ (GAO/HR-93-12).

_Internal Revenue Service Receivables_ (GAO/HR-93-13).

_Managing the Customs Service_ (GAO/HR-93-14).

_Management of Overseas Real Property_ (GAO/HR-93-15).

_Federal Transit Administration Grant Management_ (GAO/HR-93-16).

_Asset Forfeiture Programs_ (GAO/HR-93-17).