United States
Environmental Protection
Agency
Office of Solid Waste and
Emergency Response
OS-420 (WF)
EPA 500-F-92-003
May 1992
vvEPA
Controlling LIST Cleanup Costs
Fact Sheet 3:
Interpreting The Bill
Figuring the Figures
Competition among gasoline stations may keep the prices
at your pump just about the same as the prices at the station
down the street or across town. These prices may vary a
few cents from week to week, but not by much. In contrast,
site assessment and cleanup costs can vary tremendously.
Your day-to-day operations tell you there are almost as
many ways to be charged for vendor services as there are
vendors. In the cleanup business, charges for similar
services or items may be worlds apart. That's because of
the different rates contractors can charge you. And the ways
that they bill you.
Matching the Items
Understanding your bill — what the charges are and how
they are determined — is essential to keeping down the
cost of the cleanup. Your bill needs to match the contract
and provide top-to-bottom detail. That means you need to
carefully examine your first bill.
Then sit down with your
contractor and ask questions
about charges you think are too
high. Verify that charges are
legitimate, correct, and timely.
And establish a billing
schedule. Tell your contractor
you need bills at regular
intervals, and examine each one
carefully.
Knowing State Limits
Most States have a fund to help underground storage tank
(UST) owners pay for cleaning up tank leaks. The fund is
generally managed by a State Fund Administrator. Check
with your State Fund Administrator to see if you're eligible
to receive these funds and to learn about other requirements
(for example, invoices).
Remember that good cost management is one of your
strengths as a business owner. Though you may be eligible
for payment for certain tasks or services, don't depend on
the State Fund to pay for your cleanup. Review each of
your costs carefully to be sure you weren't charged
unfairly. It's your responsibility.
Straight Rates and Loaded Rates
Contractors may list labor, overhead costs, other business
expenses, and profits as separate cost elements (straight
rates) or group them into fewer
charges (loaded rates). The
method of billing depends on
the agreement in the contract.
Whatever the agreement, be
sure it is followed in the field
and in billing. For your own
financial well being, you need a
clear understanding of
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every step of the process. For example, one contractor's
labor rate for a senior engineer may be $50 per hour while
another may charge $100 per hour. You should check to
see whether the second contractor is quoting a loaded rate
(that is, a rate that includes salary, fringe benefits, and
overhead).
Fact Sheet 2, Negotiating the Contract, gives details on
time-and-materials, fixed-price, and unit-price contracts.
For fixed-price contracts, you negotiate the scope of the
work and a fixed dollar amount to be paid for the
completion of the work. For time-and-materials contracts,
you pay for labor by the hour, not for the completed job.
For unit-price contracts, you pay for individual work units.
Sorting Cost Elements
In order to understand the differences in billing procedures,
you need to know what and how the contractor charges
you. Most contractors calculate costs with the following
charges in mind:
• Direct Labor: Employee salaries, not including
benefits.
• Fringe (Employee) Benefits: Vacation, sick, and
holiday time and sometimes insurance and retirement
benefits. This cost is calculated as a percentage of direct
labor.
• Other Direct Costs (ODCs): Equipment, supplies,
travel, soil disposal, and other costs associated directly
with the site assessment or cleanup. Refer to the contract to
see if these expenses are included.
• Overhead: Rent, utilities, and phone bills associated
with the operation of the facility where the contractor
works. This cost is calculated as a percentage or a multiple
of direct labor.
• General Administrative (G&A) Costs: Expenses
associated with tasks necessary to run a business that are
not billable directly to customers. For example, paying
bills, preparing internal reports, and holding meetings.
Sometimes these costs are included in overhead. G&A
costs are often calculated as a percentage of direct labor,
overhead, or other direct costs.
• Subcontractor Costs (When Appropriate): Costs for
contractors who provide specific services under the
direction of the main (prime) contractor. They include the
subcontractor's general and administrative costs and profit
percentage.
Using subcontractors always means added expense because
the prime contractor increases his/her rates to cover the
expense of hiring and managing a subcontractor. For
example, your general contractor, hired to clean up a spill
at your station, hires another group to remove the tank or
haul soil from the site. Your bill for the removal from the
general contractor will include charges for the contractor's
finding and managing a subcontractor.
• Fee/Profit: Earnings from the contract to help the
contractor recover the costs of investing in equipment.
Typically figured as a percentage of all contractor costs,
this charge may be negotiated to your advantage when
working out the contract. For example, a contractor may be
willing to reduce the fee for a big job or for one that
requires only equipment they already have.
• Reported Costs: The total expenses incurred by the
contractor, often reported as summary (loaded) costs. The
extent of detail of the reported costs depends on how much
detail you want the contractor to include. To help the State
Fund Administrator understand and pay your claim, make
sure reported costs are as detailed as your State Fund
demands.
• Loaded Rates: The number calculated by adding
together costs, such as salary, fringe benefits, and
overhead. One contractor's loaded rates may include all
three of these; another's may include these plus fees.
And Remember: The sooner a spill is cleaned up, the
better. The longer you wait, the more the damage will
spread and the more the cleanup will cost.
Fact Sheet 3 was developed by the Environmental
Protection Agency's Office of Underground Storage
Tanks in conjunction with State Fund Administrators.
It is one of a series; the others are: Hiring a
Contractor, Negotiating the Contract, Managing the
Process, and Understanding Contractor Code Words.
For copies of these fact sheets or more information,
contact your State Fund Administrator for USTs
and/or your State Underground Storage Tank
program.
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