OF THE MUNICIPAL
WASTE WATER
TREATMENT WORK
PROGRAM
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REVIEW OF THE MUNICIPAL
WASTE WATER
TREATMENT WORKS
PROGRAM
by
CONSTRUCTION GRANTS REVIEW GROUP
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o
NOVEMBER 30, 1974
U.S. ENVIRONMENTAL PROTECTION AGENCY
Washington, D.C. 20460
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EXECUTIVE SUMMARY
EPA personnel have conducted an in-depth review of the grants program for
construction of municipal waste water treatment facilities. The study examined EPA
policies, procedures, and performance with regard to the major goals of the program.
The overall primary goal of the program is to achieve the most cost-effective
abatement of municipal waste water pollution through the proper planning, design,
construction, and operation of treatment works. This goal, as far as EPA is concerned, has
at least five programmatic subgoals:
• To manage the program in an efficient manner without unnecessary red tape
and with sufficient resources to ensure adequate performance.
• To ensure that projects are constructed in a timely manner by expeditiously
obligating funds.
• To ensure that the projects supported are environmentally sound by managing
the facilities planning and environmental impact statement process in an
effective manner.
• To safeguard the program's integrity by detecting and deterring fraud and other
irregularities.
• To preserve and protect the primary responsibilities and rights of the States in
the control of water pollution.
This report includes a series of recommendations designed to ensure that EPA is
making adequate progress towards these goals, including certain program refinements,
such as more active Agency involvement in the early stages of the process, and increased
emphasis on the post construction stage.
The most important finding of the study, however, is that the real problem is not so
much a function of the program as defined in current EPA regulations and guidance.
Rather, the real problem is that the program is not being implemented, largely due to
manpower constraints.
The Construction Grants Program was greatly expanded by the passage of the 1972
Federal Water Pollution Control Act Amendments, which provided for $18 billion to be
spent over fiscal years 1973-1976, but did not provide for a proportionate increase in
EPA employees. Faced with this situation, each EPA Regional Office has interpreted the
program guidance differently, trying to spread limited staff resources over the growing
workload. As a result, there are 10 programs functioning reasonably well, but in no
instance are all the required program elements fully implemented.
To aggravate the problem, the number of applications can be expected to rise
-sharply. The States have adjusted to the increased Federal funding levels and are now
preparing plans for applications under the new regulations. Compared to FY-74, the
iii
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number of projects is projected to increase by 50 percent in FY-75 and by 100 percent in
FY-76. Since the FY-75 and FY-76 projects are likely to be more complex because of the
new regulations, the workload can be expected to increase disproportionately.
There are two major options for resolving this situation and assuring that the
program as defined by the 1972 Amendments and regulations is fully and uniformly
implemented. The first option is to devote more manpower to the program so that all
tasks are performed satisfactorily for each project. This would require almost a doubling
of the current staffing levels (1,050 in FY-75 as opposed to 595 today). Of the- 455
additional personnel for FY-75, 138 are estimated as required to improve the
management of the program and 317 to process the additional applications expected.
The second option is to rely more on the States to carry out the Federal program
goals. Currently, EPA certifies States to review plans and specifications, operation and
maintenance manuals, bid tabulations and change orders. By the end of FY-75,
approximately 38 to 40 States should have been certified to perform these tasks. This
option would go beyond the certification of these few functions.
First, all functions that can be delegated under existing law would be delegated to
the States as soon as possible. The responsibilities retained in EPA would essentially be
the processing and approving of grants. Second, it would be necessary to enact legislation
to provide Federal funds to defray the additional administrative expenses incurred by
States accepting delegations. Third, it would eventually be desirable to pass legislation
changing the existing program into something closer to a block grant program. Basically,
under this approach, Federal funds would be given to each State for the purpose of making
grants to municipalities according to Federal standards.
In the consideration of this option it is obvious that delegation of additional
responsibilities to the States could not be accomplished overnight. Many States do not
currently have either the capability or the inclination to assume these functions. The
development of that capability would take time. It is estimated that approximately 5, 15,
and 25 States would assume these responsibilities in fiscal years '75, '76, and '77
respectively, reducing EPA workload by 10, 30, and 50 percent. EPA would continue to
perform all functions in a satisfactory manner in those States that do not assume
delegatable functions. A transition period of several years could be expected, during
which EPA would require additional staff to manage the program effectively. In the event
that EPA is unable to obtain resources to implement the first option, the Work Group
recommends implementation of this second option.
A summary of the report's major findings and recommendations follows:
Program Management
• Greater emphasis is recommended for the facility planning and post-
construction phases.
• Direct and active involvement by EPA officials through a series of conferences
with the grantee and his consultant at various stages of the process will improve
communications and reduce project "mortality".
Environmental Integrity
• It is not true that NEPA requirements for environmental assessments,
appraisals, and impact statements always mean program delays.
• Future environmental assessments and impact statements will not mean
significant program delays if:
- Environmental planning is fully integrated into facility planning.
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- EPA demands good facilities planning from grant applicants.
- A series of objective threshold criteria is established for determining when
to prepare Environmental Impact Statements.
Program Integrity
• To date, only a few cases involving fraud have come to light, but the potential
for future irregularities is enormous, and cannot be ignored.
• A coordinated system of controls involving grantees, the States, and EPA is
needed to provide:
— Improved guidance for grantees.
— Expanded construction inspection and audit programs.
Improved education for EPA personnel and grantees.
— Improved procedures for reporting and investigating suspected cases.
— Improved controls over selection of consultants and contractors.
State Delegations
• The Agency should take the steps necessary to transfer administrative functions
to the States.
• This delegation of tasks to States will take several years because many States do
not now have the capability or inclination to assume these tasks.
• A means of reimbursing States for administrative functions performed is
needed.
Management and Organization
• The Agency has not been doing an adequate job of managing the construction
grants program.
• Many specific recommendations throughout the report are designed to improve
management of the program.
• The current program organization is largely adequate, and only minor changes
are recommended:
Improved Headquarters accountability for the program functions.
— Closer relationships between Regions and States.
Procedural Guidance
• A comprehensive Construction Grants Manual should be developed; it would
present a clear, concise description of the requirements to be met by Federal,
State, and local agencies.
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PREFACE
Since enactment of the 1972 Amendments to the Federal Water Pollution Control
Act, various aspects of the grants program for construction of municipal waste water
treatment works have been studied by both EPA and the General Accounting Office. By
late 1973, however, no overall review had been undertaken. Consequently, the Assistant
Administrators for Water and Hazardous Materials and for Planning and Management
agreed in December 1973 to undertake an extensive review of the program in order to (1)
assess the performance of the Agency in administering the construction grants program
under the new requirements of the 1972 Amendments, and (2) examine alternative means
for modifying policies, procedures, and staffing patterns to provide a more rational basis
for decision-making.
The evaluation was conducted primarily by the Construction Grants Review Group,
which consisted of members from the Office of Water Program Operations, Office of
Water Planning and Standards, Office of Planning and Management, and the EPA
Regions.1 The Program Evaluation Division of the Office of Planning and Management
have assisted in gathering and analyzing data, and in drafting this report.
'Headquarters Review Group Members: Gary Dietrich, Chairman, Office of Resources Management;
Ken Johnson and Mike Quigley, Office of Water Program Operations; Jim Meek, Office of Water
Planning and Standards; Alex Greene, Office of Administration; Truman Price, Office of Planning and
Evaluation.
Regional Review Group Members: Stuart Peterson, Region I; David Luoma, Region II; Fred Grant,
Region III; Harold Hopkins, Region IV; Todd Cayer, Region V; Ancil Jones, Region VI; Ronald Ritter,
Region VII; Harvey Hormberg.Region VIII; Richard Coddington, Region IX; Roy Ellerman, Region X.
Support: James R. Janis, George Alapas, Paul Baltay, Gail Ettinger, Frank Lane, and Larry Reed,
Program Evaluation Division; Paul Martin, Grants Administration Division; Malcolm Stringer, Office of
Audit.
vii
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TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY m"
PREFACE v»
I. INTRODUCTION
Legislative History 1
Construction Grants Program 3
Organization of the Report 3
II. PROGRAM MANAGEMENT
Current Problems 7
Pre-application Stage 8
Facilities Planning Stage (Step 1) 10
Design Stage (Step 2) 13
Construction Stage (Step 3) 15
Operation and Maintenance Stage 16
III. OPTIMIZING OBLIGATIONS
Past and Predicted Performance 19
Impact of Administrative Practices and Program Requirements 21
Relationships of Obligations to Expenditures, Employment, and Economic
Activity 23
IV. ENVIRONMENTAL INTEGRITY
The Current Process 25
Problems With the Current Process 26
Operating Issues 28
Conclusions and Recommendations 31
V. PROTECTING PROGRAM INTEGRITY
Guidance on Desirable Practices 33
Selection of Consultants and Contractors 35
Education of EPA, State, and Grantee Personnel 38
Selected Reviews 39
Project Inspections 40
Independent Audits 41
Reporting and Investigation 45
VI. DELEGATION AND CERTIFICATION
Current State Involvement 49
Prospects for Expanding Delegations 50
ix
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Page
VII. ALTERNATIVE OPERATING STRATEGIES
Basis for Workload Estimates 53
Strategy I 55
Strategy II 60
Strategies III and IV 61
Discussion and Recommendations 64
VIII. MANAGEMENT AND ORGANIZATION
Current Organization 71
Current Problems 72
Constraints 74
Alternatives—Headquarters 76
Principles of Management and Organization-Regions 78
IX. PROCEDURAL GUIDANCE
Need for Procedural Guidance 81
Existing Procedural Guidance 82
Construction Grants Manual 84
Appendix A: Results of Study to Determine Adequacy of Environmental Assessments and
Appraisals 91
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I. INTRODUCTION
Although the control of water pollution is
essentially a local responsibility, the past 25
years have witnessed a rapid expansion of the
Federal role. Beginning with provisions for
research, technical assistance and financial incen-
tives to State and local entities, national legisla-
tion has increasingly provided direct authority
for the Federal Government to set standards,
establish planning and other requirements, and
take enforcement actions.
Legislative History
Federal legislation affecting water pollution
control stretches back to the nineteenth cen-
tury. The Water Pollution Control Act of 1948,
however, represented the first major effort
aimed specifically at this area. The 1948 Act
recognized the primary rights and responsi-
bilities of the States in water pollution control,
and this is still the n, tional policy. At the same
time, the Act provided research support and
financial assistance to States, municipalities, and
interstate agencies for pollution studies and
facilities planning. * program of construction
loans was also im. aded, but it was never
implemented because supporting funds were
never appropriated.
The first effective program to financially aid
communities in the r Mistruction of waste treat-
ment works was initiated by the Federal Water
Pollution Control Act of 1956. The grants
covered 30 percent ' the project cost, and the
total grant was limit . to $250,000. Because of
the funding ceiling mly small communities
were generally able o take advantage of the
program and appro^ ations to implement the
Act's provision ne exceeded $50 million
annually. Even thout the effect of the initial
program on the qua y of the Nation's waters
was minimal, it inco orated many elements of
the present municipal construction grants pro-
gram.
An effort was made in 1960 to expand the
funding of the program, from $50 million to
$90 million annually. President Eisenhower
vetoed the measure, primarily on grounds that
(1) the control of municipal pollution is essen-
tially a local responsibility and (2) a commit-
ment to large-scale, long-term Federal support
would tempt municipalities to delay water pollu-
tion abatement efforts while they waited for
Federal funds.
The 1966 Water Pollution Control Act
Amendments considerably expanded and redi-
rected the program. Dollar ceilings for individual
projects eligible for Federal grants were re-
moved, effectively opening the program to cities
of all sizes. To encourage additional State
participation, the Federal share of projects costs
was increased to 40 percent if the State agreed
to pay at least 30 percent of the estimated
project costs. The share was increased to 50
percent if the State agreed to pay at least 25
percent of the costs of all its projects receiving
Federal grants, and if enforceable water quality
standards had been established for the water
into which the project would discharge. The
Federal share for projects conforming with
comprehensive metropolitan plans was increased
by 10 percent, which raised the maximum level
Federal cost sharing to 55 percent. Appropria-
tions were increased from $203 million in 1968
to $1 billion in 1971. Reimbursement of State
or local funds (up to the full Federal share) from
future Federal funds allotments was authorized
if adequate Federal funds were not currently
available. More funds were made available for
the more populous States.
The most extensive and far-reaching amend-
ments were enacted in 1972 (PL 92-500). They
mark the threshold of a firm Federal commit-
1
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ment, under the leadership of the U.S. Environ-
mental Protection Agency, to eliminate pollu-
tion of the Nation's waterways by municipal
wastewater treatment works.
In order to provide a basis for control, the
1972 Amendments expanded or created a num-
ber of planning requirements. Of particular
importance is the State-wide planning process
called for by Section 303(e). Water quality
management plans prepared under this process
are the central tools the States use to administer
their water quality programs. By establishing
priorities and schedules of action, such plans
help direct resource allocations, construction
grant priorities, and area-wide planning. Basin
plans, designed to identify water quality prob-
lems and their relative severity, are the building
blocks of the State planning process. Basin plans
include: an assessment of needs for publicly
owned treatment works, an inventory and rank-
ing of significant municipal and commercial
discharges, schedules or targets for compliance,
and effluent requirements. Areawide planning
under Section 208 is to be conducted by
selected planning agencies in designated areas
that have water quality problems requiring more
than secondary treatment for municipal wastes.
Section 208 planning in other areas is to be
conducted by the States. The planning is limited
primarily to metropolitan areas where local
governments have agreed to operate a coor-
dinated waste treatment management system, or
have formally indicated their interest in such a
system. Facilities planning, required by Section
201, constitutes Step 1 of the three-step con-
struction grants process and is covered in some
detail in Chapter II.
Consistent with needs and problems identified
in the planning process, discharges of waste
water are required to meet certain standards of
control by 1977. Ambient water quality stand-
ards were required for interstate waters by the
1965 Act. These standards, however, proved
difficult to enforce since the specific linkage
between a point source and the general quality
of the water was difficult to establish. Although
the 1972 Amendments expanded coverage of
ambient standards to intrastate waters as well,
the legislation placed primary emphasis on con-
trolling pollution at its source through limiting
the effluents discharged. Effluent limitations are
developed for municipal dischargers at a level of
control that is basically equivalent to secondary
treatment. In certain river reaches, a higher level
of treatment may be required to meet water
quality standards.
To meet effluent limitations and water qual-
ity standards, municipal discharges are con-
trolled primarily through permits issued under
the National Pollutant Discharge Elimination
System (NPDES). Permit conditions are de-
signed essentially to limit the quantity and
concentration of pollutants being discharged
into a waterway. An industry piping its waste
into a municipal plant is not required to obtain a
NPDES permit. The municipal permit, however,
will specify effluent limitations for both indus-
trial and municipal components. The municipal-
ity is responsible for imposing pretreatment
requirements on industrial effluent, if necessary.
Compliance with permit conditions is to be
monitored closely. Municipalities are required to
report regularly on the nature and amounts of
their pollutant discharges, and these reports will
be spot checked with field visits by Federal and
State officials. The operation and maintenance
of plants will also be inspected regularly.
The 1972 Amendments replaced former en-
forcement authorities with a new regulatory
scheme based largely on NPDES permits. Under
Section 309, EPA can use a compliance order or
bring a civil action for a wide range of violations.
Included are violations of effluent limitations,
water-quality-related effluent limitations, or any
permit condition. In calendar year 1973, 12
actions were pending or completed that involved
municipal waste water discharges.
To encourage this broad program, the 1972
Amendments expanded the Federal aid available
to localities. Included among its provisions are:
• Grants for the various planning efforts.
• Technical assistance, provided mostly in
areas of design, construction, and enforce-
ment.
• Technical information developed largely
through research, demonstration, and
monitoring programs.
• Grants to support operation of State and
local water pollution control agencies.
• Training for State and local personnel.
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• An Environmental Financing Authority to
help local governments raise their share of
the costs of treatment facilities.
• Federal share of costs for planning, design-
ing, and constructing waste water treat-
ment facilities is 75 percent.
• Funds totaling $2.75 billion to reimburse
local governments for treatment plants
constructed earlier in anticipation of Fed-
eral grants.
• Construction grants totaling $18 billion
over 3 years, of which $2 billion have been
alloted for Fiscal Year 1973, $3 billion for
1974, and $4 billion for 1975.
The Construction Grants Program
The construction grants program is one ele-
ment of the comprehensive national effort to
clean up the Nation's waterways. Every two
years the States conduct a "Needs Survey" to
determine the number and cost of facilities they
need to achieve water quality standards. Due to
the late passage of the 1972 Amendments a
survey was done in 1973 as well. A cursory
review of the 1973 and 1974 Needs Surveys
identified a number of deficiencies that should
be studied in detail before the next survey.
Based on the Needs Survey, the Federal funds
available in each fiscal year are allocated among
the States. Each State, with EPA approval,
establishes the order in which potential projects
are to be funded. Localities that appear on the
State Priority Lists may apply for grants.
Rather than awarding a single grant to an
applicant for the Federal share of a project, EPA
is authorized to enter into an agreement to pay
the Federal share of costs of the separate stages
of project development. Thus, EPA will incur
contractual obligations for the Federal share of
the costs of (1) preliminary plans and studies
and other eligible preliminary work, (2) design
plans and specifications, and (3) construction of
the waste treatment facilities. EPA is also
authorized to provide grants for segments of
treatment works under construction. Payments
against these contractual obligations are made to
the applicant as all, or parts of each of these
elements, are completed. Once a plant is com-
pleted, its operation and maintenance are the
responsibility of the municipality. EPA and the
States, however, continue to make inspections
and to provide training and technical assistance
to ensure compliance with permit conditions
and the proper operation of the user charge and
industrial cost recovery programs.
Organization of Report
The construction grants program falls into
five stages (Table 1-1), which are examined in
detail in the body of the report. The report is
divided into essentially two sections or group-
ings of chapters. The first section, consisting of
Chapters II-VI, defines an "adequate" program
in terms of requirements and program goals. The
second, consisting of Chapters VII-IX, presents
overall program guidance in the form of alterna-
tive operating strategies and attendant manage-
ment, organizational, and procedural recom-
mendations. The recommendations made
throughout the body of the report, are high-
lighted in the Executive Summary.
Defining an Adequate Program. The con-
struction grants program is complex, attempting
to be responsive to a myriad of legislative and
administrative requirements. To facilitate its
review and provide a sense of priority to
program elements, the Review Group aggregated
these many requirements into a single principal
program goal: the achievement of the most cost-
effective abatement of municipal waste water
pollution through the proper planning, design,
construction, and operation of treatment works.
This principal goal includes five subgoals:
• To manage the program in an efficient
manner without unnecessary red tape and
with sufficient resources to ensure ade-
quate performance.
• To ensure that projects are constructed in
a timely manner by expeditiously obligat-
ing funds.
• To ensure that the projects supported are
environmentally sound by managing the
facilities planning and environmental im-
pact statement process in an effective
manner.
• To safeguard the program's integrity by
detecting and deterring fraud and other
irregularities.
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Table 1-1
TYPICAL STAGES OF DEVELOPMENT IN MUNICIPAL WASTE WATER TREATMENT WORKS PROJECTS1
Preapplication
stage
Facilities planning
stage
Design stage
Construction
stage
1. State places project 1.
on priority list.
2. Applicant selects
consultant.
3. Applicant and con-
sultant have pre-
application con-
ference with State
and EPA.
Application for Step 1 1.
grant submitted to
State and EPA for
review and approval.
Consultant prepares
facilities plan. 2.
3. EPA and State review
and approve facili-
ties plan.
3.
4. EPA prepares environ-
mental impact state-
ment, if necessary,
or declares none is
needed.
Operation and Main-
tenance stage
Consultant generally pre- 1.
pares materials for Step 2
grant agreement; submits
it to State and EPA for
approval.
Consultant prepares plans 2.
and specifications.
EPA and State review and
approve project plans and
specifications.
Consultant generally pre-
pares materials for Step
3 grant agreement; sub-
mits it to State and EPA
for approval.
Grantee advertises for
construction bids, se-
lects responsive low
bidder, submits all
bids in tabular form to
State and EPA for ap-
proval, and upon approval
awards contract.
Project is constructed.
EPA and State conduct
final inspection.
1. Plant operated and
maintained for life
of project.
2. State and EPA
make O&M and per-
mit compliance
inspections.
3. Municipality col-
lects user charges
and industrial cost
recovery payments.
5. EPA conducts final audit
and makes final payment.
1 At the present time, and for several years to come, many projects will enter the program for grants at the design or construction
stages.
• To preserve and protect the primary re-
sponsibilities and rights of the States in the
control of water pollution.
Discussion of the subgoals and their associa-
ted program requirements define what we con-
sider to be an "adequate" construction grants
program. This "adequate" program does not
substantially depart from the intent of existing
operating procedures. In many instances, how-
ever, the procedures vary considerably from one
region to the next, primarily as a result of
staffing limitations and different program priori-
ties.
For purposes of this review, we have elected
to define cost-effectiveness as including so-
cial, environmental, and non-monetary costs.
This is consistent with the description of cost
effectiveness analysis contained in the Regula-
tions governing Implementation of Title II of
the 1972 Amendments: "The most cost-effec-
tive alternative shall be the waste treatment
management system determined from analysis to
have the lowest present worth and/or equiva-
lent annual value without overriding adverse
non-monetary costs and to realize at least
identical minimum benefits in terms of appli-
cable Federal, State, and local Standards for
effluent quality, water quality, water reuse
and/or land and subsurface disposal" (emphasis
added). Under this broad description, cost-
effectiveness encompasses costs associated with
the timeliness, environmental, and program in-
tegrity subgoals.
We have concluded that cost-effective plants
(defined in this manner) can result only from
the nationally consistent application of the
construction grants process as a system of
interrelated subgoals. Environmental impacts,
for example, cannot be considered as a subject
apart, but can only be factored in if they are
analyzed as an integrated aspect of the facility
planning process.
Chapter II describes the construction grants
program in terms of the five stages of project
development and operation. The Agency's poli-
cies and procedures during each stage are asses-
sed in terms of whether they represent efficient
program management.
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Requirements and problems associated with
the timeliness subgoal are covered in Chapter
III. The concepts involved, including the trade-
offs between timeliness and cost-effectiveness,
are examined.
The subgoal of environmental integrity is
discussed in Chapter IV. The discussion begins
with a review of the environmental review
process. This is followed by an examination of
the problems associated with current operating
practices. A strategy is then outlined for resolv-
ing these problems and structuring a program to
assure that environmental factors are meaning-
fully considered early in the project's develop-
ment.
The subgoal of program integrity is examined
in Chapter V. The term "integrity" is used in
this report to mean the avoidance of the broad
range of fraudulent activities and other irregu-
larities to which the program is vulnerable. The
integrity problems are approached on an overall
Federal-State-local basis. The suggested strategy
for handling the problems involves an integrated
system of activities, including a strong inde-
pendent audit function.
Chapter VI concludes the discussion of pro-
gram subgoals by reviewing the effort to transfer
major elements of the program to State and
local management.
Overall Operating Strategies. Implementation
of the "adequate" program will be influenced to
a major extent by the availability of resources,
management practices, organizational structure,
and procedural guidance. These elements of the
program are examined in the concluding three
chapters of the report.
Chapter VII describes and compares four
possible operating strategies for administering
the construction grants program. Strategy I
summarizes the manpower requirements of the
adequate strategy described in Chapters II
through VI. This strategy would permit a rela-
tively high achievement of the cost-effectiveness
goal and its subgoals. Strategy II, while requiring
less staff, could seriously sacrifice achievement
of the program goals. Strategies III and IV
would reduce EPA staffing needs, but would
increase those of the States through the delega-
tion of additional responsibilities.
The management and organizational implica-
tions of our findings and recommendations are
examined in Chapter VIII. Finally, Chapter IX
addresses recommended improvements in proce-
dural guidance.
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II. PROGRAM MANAGEMENT
The 1972 Amendments to the Federal Water
Pollution Control Act charge the Administrator
of EPA with implementation of a program of
grants for the construction of treatment works.
EPA reimburses municipalities and other State
and local authorities for 75% of the eligible costs
incurred in planning, designing, and constructing
waste water treatment facilities that meet a
variety of requirements established in the Act.
EPA is responsible for ensuring that the legal
conditions for awarding grants have been met.
Grant regulations published Feb. 11, 1974, (40
CFR 35.900) establish the process that an
applicant must go through to receive Federal
grants.
The efficiency with which EPA manages that
process is the subject of this chapter. The
assumption is that grantees will achieve cost-
effectiveness, as defined broadly in the regula-
tions, to the extent EPA and the States manage
the process well. The Review Group has con-
cluded that EPA has not managed the construc-
tion grant program as a nationally consistent
system. Whereas the very basis of legislation
since 1948 is that water pollution is a problem
national in scope that can only be solved by a
consistent national effort under Federal leader-
ship, the construction grants program today is
really 10 separate programs managed by EPA's
10 Regional Offices. While we support the
principles of decentralization which permit
Regional Offices maximum discretion to adapt
the program to the particular local conditions,
the variation we observed among Regions is far
greater than that dictated "by Regional differ-
ences.
Current Problems
The shortcomings in EPA's current method of
managing the construction grants program re-
volve around two points — inadequate man-
power in the Regions and inadequate guidance
from EPA Headquarters.
Manpower Constraints. Since inception of
the program in 1956, the Federal Government
has obligated $9.2 billion for the construction
and expansion of more than 15,000 projects
(Table II-l); their total cost will reach approxi-
mately $20 billion. In 1974 EPA obligated $2.6
billion with 595 program personnel (Table II-2);
in 1968, when the program obligated $0.2
billion, it had 320 people. Faced with severe
personnel shortages, the Regions have chosen to
put priority on different steps.
Inadequate Guidance. Guidance from EPA
Headquarters has not been adequate. Regu-
lations and policy guidance have been delayed,
and when they are available, they often cannot
meet the complexities experienced in the field.
Further, since policy flows from various Head-
quarters sources, guidance is sometimes viewed
by the Regions as contradictory, and thus
subject to varied interpretation.
The recommendations in this report reflect
our view that:
• Personnel should be increased.
• Procedural guidance should be improved.
• At several key points in the process,
face-to-face meetings between EPA per-
sonnel, the State, the grantee, and the
grantee's consultant will yield substan-
tial benefits in terms of better applica-
tions and other submittals, reduction of
processing time, and improved facilities-
while minimizing the need for additional
EPA manpower.
• The beginning of the process and the
final operation and maintenance phase
should be emphasized, primarily through
the allocation of manpower resources.
• Performance monitoring should be
stressed.
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TABLE 11-1
CONSTRUCTION GRANTS FOR MUNICIPAL WASTE WATER TREATMENT WORKS
(1957-74)
Fiscal
year
Authorization Appropriations
Fiscal year
obligations
Federal
expenditures
Total
cost
(millions of dollars)
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
Total
50
50
50
50
50
80
90
100
100
150
150
450
700
1,000
1,250
2,000
5,000**
6,000**
7,000**
26,320
50
45+
47+
46+
46+
80
90
90
90
121
150
203
214
800
1,000
2,000
2,000++
3,000++
4,000++
15,972
38
47
46
48
45
64
92
85
84
118
131
191
201
424
1,152
860
2,989
2,625
9 242***
1
17
36
40
44
42
52
66
70
81
84
122
135
176
478
413
684
1,553
4,094
3,703
470
948
817
2,031
3,335
1,713
5,169
2,147
20,331
* Funds obligated in any fiscal year may include funds appropriated in prior years.
+ Includes supplemental appropriations of $657,000 in 1958, $1,816,000 in 1959, $1,101,000 in 1960, and $645,260 in 1961.
** Contract authority (method of funding changed from authorized appropriation to contract authority by 1972 Act).
++ Amount of contract authority released by Presidential action.
***Includes $2,976 million obligated under PL 92-500 and $1,245 million obligated under PL 93-207.
TABLE 11-2
PERSONNEL IN CONSTRUCTION
GRANTS PROGRAM
Pre-application Stage
EPA is most interested in three types
activities during the pre-application stage:
of
Fiscal
year
1968
1969
1970
1971
1972
1973
1974
Estimated
federal
personnel
320
320
360
420
402
452
595
State priority lists- Using Federal criteria
the State ranks each project eligible to
receive Federal construction grants in order
of priority, and submits the resulting list to
EPA for approval.
Pre-application conferences—EPA. and the
States meet with prospective grantees to
discuss the requirements of the program in
general, and the Step 1 application in
particular.
-------
• Consultant selection—Each prospective
grantee selects an architectural engineering
(A/E) consultant to assist in, or take the
lead in, planning, designing, and inspecting
construction of eligible projects.
State Priority Lists. By awarding grants only
to projects on a State priority list, EPA intends
to ensure that the most needed facilities will be
constructed with the funds available. Current
guidance establishes that the lists are to be based
on four required criteria and whatever additional
criteria the States wish to impose. The required
criteria are:
• Population affected.
• Severity of pollution problems.
• Need for the preservation of high-quality
water.
• National priorities (as well as total funds
available).
In some States, political considerations, such
as the need to "spread" the money about the
State, may influence development of the list to
the detriment of water quality objectives.
Development of the FY-74 priority list was
hindered by publication of confusing and some-
times conflicting regulations and guidance
(303e, 106, and Title II). Because the new
requirements entailed several innovations, many
States had difficulty incorporating these innova-
tions in existing programs. Most States have now
adopted the criteria called for in the regulations;
however, States with projects in the pipeline for
several years, have given these projects priority
for funding, whether or not they "objectively"
merited the priority.
The potential delay has been reduced by
allowing States to extend their FY-74 lists to
cover FY-75 also. However, delay could be
further reduced and quality improved by doing
more to ensure that State priority lists can be
approved and implemented immediately on the
effective date of July 1.
We recommend that the States be required to
submit a tentative priority list in January rather
than in April, as is present practice. EPA
Regional Offices would then have six months to
work with the States to develop approvable
priority lists. EPA should offer technical assist-
ance, such as providing one or two staff people
for a week-long session at the State agency. This
would aid those States which have had serious
problems applying EPA criteria to the priority
lists.
A problem that concerned the Review Group
was the "mix" of projects, by steps of develop-
ment, in the State priority lists. The lists vary
from mostly Step 1 projects to all Step 3. The
development of a continuous, smooth-flowing
program could be hampered if a State has an
over abundance of Step 3 projects on its priority
list. Similarly, the finding of a great number of
Step 1 projects this year could mean too many
Step 3's in subsequent years for the funds
available. To achieve cost effectiveness, in other
words, EPA must approve priority lists with an
adequate mix of Step 1, 2, and 3 projects. Since
there is no policy guidance covering the poten-
tial problems of the mix in priority lists, we
recommend that the Office of Water Program
Operations develop such guidance.
Pre-application Conferences. Current EPA
policy calls for the Regions to conduct pre-appli-
cation conferences for municipalities with pro-
jects on a State's priority list. Such conferences
are usually limited to answering general proce-
dural questions, rather than considering specific
project-related requirements. The numbers of
pre-application conferences varies considerably
from Region to Region, but in most Regions few
conferences have been held, due to manpower
constraints.
The pre-application conference, which should
be jointly conducted by EPA and the State,
should continue to give a comprehensive over-
view of the grant program, including the impor-
tance of providing for proper operation and
maintenance of the project. However, specific
emphasis should be paid to the requirements of
a Step 1 grant application (as well as other
topics discussed in later chapters). We recom-
mend that these pre-application conferences be
held universally, and that the Office of Water
Program Operations prepare guidance for the
Regions on how to conduct them.
Consultant Selection. The selection of a quali-
fied A/E consultant is probably the most impor-
tant decision that a grantee makes. The consult-
ant, who generally prepares the facilities plan,
designs the project, and oversees project con-
struction, probably influences the cost-effec-
tiveness of the project more than anyone else.
The cost-effectiveness implications of consultant
selection are discussed in Chapter V.
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Facilities Planning Stage (Step 1)
Three separate tasks formulated under provi-
sion of the 1972 Amendments are included in
the facilities planning stage of a typical project:
• Application processing—Ths grantee pre-
pares an application for a Step 1 grant and
submits it via the State to the Regional
Office, where it is reviewed for complete-
ness and accuracy. Once the application is
approved, EPA awards the Step 1 grant,
which funds preparation of the facility
plan.
• Plan preparation-^^ grantee's consult-
ant(s) defines the scope and basic design
parameters of each component of the
facilities plan. The plan should ensure that
the project will be cost-effective, with
regard to both monetary and environ-
mental/social aspects, and in compliance
with applicable water quality standards and
effluent limitations.
• Plan review and approval—The completed
facilities plan is submitted via the State to
the Regional Office for review. Unaccept-
able components are returned to the grant-
ee for additional work until EPA approves
the total plan.
The statutory basis for facilities planning is
found in Sections 201(g), 204(a), and 212 of PL
92-500. The requirements for facilities planning
are set forth in 40 CFR 35.917, which were
revised and promulgated on Feb. 11, 1974. They
are further explained in Guidance for Facilities
Planning, published in January 1974. In some
respects, facility planning, as defined in these
documents, is similar to the preliminary engi-
neering study that has traditionally been per-
formed prior to the development of detailed
plans and specifications (Step 2). However,
adherence to current regulations and guidance
would go significantly beyond these traditional
efforts. For example:
• All feasible alternatives have rarely been
examined; and if they have, EPA has not
insisted on documentation of their con-
sideration and early rejection.
• Economic comparison of alternatives has
frequently been less exhaustive than is
now required.
• Consideration of operation and mainte-
nance aspects of treatment works has often
been cursory.
• Consideration of the impact of the facility
on growth (as against growth on the facil-
ity) has been largely overlooked.
• Environmental and social impacts have
traditionally not been considered exhaust-
ively except in Environmental Impact
Statements, which were prepared sepa-
rately.
• Operational improvement of existing facil-
ities as an alternative to new construction
has often been largely ignored.
There are three principal consequences of
adhering to the letter of the Guidance for
Facilities Planning. First, considerably more
time is required for facilities planning than has
traditionally been consumed in preliminary engi-
neering. The most time-consuming elements of
the facility planning process are environmental
assessments, infiltration/inflow analyses, public
participation, and the cost-effectiveness analysis
of major alternatives. We estimate that the
grantee would require from 6 months for small
projects to 24 months for large projects to fully
comply with the Guidance. This extra time
could lead to grantee frustrations and accusa-
tions that EPA is delaying projects.
The second consequence is that considerably
more EPA staff time will be required to ade-
quately review plans of study and facilities
plans. We estimate an average of 12 man-days
per Step 1 project for these two tasks, as
opposed to the one or two man-days which used
to go into reviewing preliminary engineering
reports. This estimate of 12 days assumes State
review and certification of infiltration/inflow
assessments; it also assumes that 90 percent of
the facilities plans will not require Environ-
mental Impact Statements and allows no time
for preparation of statements on the remaining
10 percent of projects. To the extent that the
more complex requirements lead to additional
10
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communication between EPA and the grantee,
the States will also experience increased work-
load.
The final consequence of the new approach to
facilities planning is that Regional staffing pat-
terns in most instances will have to be changed
to complement existing construction engineering
skills with individuals versed in planning disci-
plines. Moreover, since the work would be to
review the products of consultants — usually of
long standing — this change must also involve
employing higher-graded professionals with ex-
perience.
Facilities planning, as currently defined, has
only recently been required. Pursuant to 40
CFR 35.917, a full facility plan is not required
for a Step 2 grant if "facility planning" started
prior to May 1, 1974. In addition, we noted a
wide variation in attitudes among the Regions
concerning what is acceptable. Some Regions
accept something slightly better than the tradi-
tional preliminary engineering report, plus an
environmental assessment and an infiltration/
inflow assessment. In other cases, a concerted
attempt is being made to obtain facilities plans
in full accordance with the Guidance for Facili-
ties Planning.
Because of limited experience under the new
guidelines, the potential benefits of "full-
fledged" facilities planning have not yet been
systematically documented. However, the poten-
tial has been demonstrated for cost savings of
selected elements of facilities planning. Table
II-3 summarizes the savings in construction costs
($32 million out of a total investment of $180
million) on 11 projects through the application
of the type of cost-effectiveness analyses con-
ducted in the review of preliminary engineering
reports.
We recommend that the Regions stress ad-
herence to Guidance for Facilities Planning. At
this stage in project development, the Agency
has its greatest opportunity to impact cost-effec-
tiveness, and to ensure that facilities are con-
structed which meet water quality standards at
the lowest monetary and nonmonetary costs. In
addition to this general recommendation, we are
making specific recommendations regarding
three aspects of facilities planning — multijuris-
dictional planning, conferences, and reimbursa-
ble planning.
In most urban areas, facilities planning, if
done properly, will encompass several jurisdic-
tions. Current regulations require the States to
delineate the boundaries of "facility planning
areas" in such cases. The States are frequently
reluctant to delineate such areas, and EPA
Regional Offices are cautious about requiring
such delineations. Both realize that the institu-
tional arrangements to pursue multijurisdictional
planning and, more importantly, to implement
multijurisdictional plans, are either not insti-
tuted or are imperfect. The tendency, then, is to
delineate facilities planning areas lying within a
single jurisdiction, except in the few cases where
existing institutional arrangements permit ready
delineation of larger areas. Delineating proper
facilities planning areas holds high potential for
achieving more effective and less costly areawide
waste treatment and collection configurations.
The consequences of forcing proper delineation
of planning areas, however, are either (1) delays
in perfecting the institutional arrangements
necessary to implement the facilities plan prior
to construction or (2) the real possibility that
the facilities plan for the broader area will not
be implemented.
Nonetheless, we recommend that Regions in
concert with the States undertake a determined
effort to delineate proper facilities planning
areas.
Because of the complexity of facilities plan-
ning, and its newness to grantees, consulting
engineers, and the States, EPA should make
early contact with the grantee through a facility
planning conference to describe and explain its
requirements. During such a conference, EPA
would discuss with State personnel and the
grantee such items as the environmental and
social issues to be examined, the scope of
infiltration/inflow analysis, and other features of
the requirements as they would specifically
apply to the particular project. We make the
following suggestions with regard to con-
ferences:
Hold conferences in the grantee's oftice so
that the EPA personnel conducting the
conference can acquaint themselves, first-
hand, with the planning area, the existing
facilities, and other pertinent information.
Place a senior member of the facilities
planning staff in charge of the conference.
11
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TABLE 11-3
PROJECT SAVINGS THROUGH COST-EFFECTIVE ANALYSIS
Project
Location
Oroville,
California
Roots
Township,
Ravenna,
Ohio
Elgin Pop-
lar Cieek,
Illinois
East St.
Louis,
Illinois
New
Haven,
Connect-
icut
Hammond
Whiting.
Indiana
Coachella
Valley,
California
Granger
Hunter,
Utah
Mount
Warner,
Colorado
Glendale,
Colorado
Ahso,
California
Description
The submitted plan would include 2 new second-
ary treatment plants serving 3 communities. The
Region proposed a larger AWT plant to serve
4 communities.
The city submitted a plan to expand existing
facility and include tertiary tieatment The
township was going to build a plant next to
the city's and share tertiary treatment fa-
cility Region proposed expansion of city
plant to include township and eliminate one
plant
Submitted plan proposed a new AWT plant and
abandonment of existing plant. A second plant
(Elgin Mam) 1 mile from proposed AWT plant
was to be expanded.
Region proposed construction of an inter-
ceptor from existing plant to Elgin Main
plant and expansion to include phosphorous
removal.
Submitted plan proposed 5 individual plants
upgrading to secondary treatment for five
communities. Region proposed consolidation
of four communities using one plant with the
remaining community having a separate plant
Submitted plan proposed pumping East Street
flows to existing Boulevard Plant which would
be upgraded from primary to secondary treat-
ment. Filling of wetlands was necessary for
the Boulevard Project. The Region rejected
proposal in favor of pumping the Boulevard
flows to East Street plant and not filling
the wetlands.
Submitted plan proposed a separate AWT plant
for the City of Whiting. Region proposed a
retention basin and improved sewer system to
prevent storm overflows into Lake Michigan
TheCHy of Whiting would continue using the
Hammond treatment facilities.
Submitted plan proposed abandonment of exist-
ing facility and construction of interceptor
to a new facility Region appioved plan for
upgrading existing facility
The submitted plan proposed enlarging the
existing plant and const! uction of a new
interceptor Region proposed a smaller ex-
pansion of the existing plant with overflows
pumped to another plant
The submitted plan proposed enlarging of a
lagoon. Region proposed pumping sewage to
Steamboat Springs treatment plant.
The plan proposed enlarging the Glendale
Treatment Plant Region proposed connecting
to Denver interceptor which was close by.
Glendale will now upgrade existing facilities
The submitted plan proposed 2 coastal inter-
ceptors, 1 coastal outfall and 1 land outfall
sized for a population projection of 380,000
Present population is 50,000 The Region ap-
proved a population projection of 140,000,
consistent with a State projection for the
area, thereby reducing the size of the system.
Capital Cost*
Submitted
5,700,000
10,236,000
16,429,000
39,691,000
67,455,000
8,400,000
900,000
2,650,000
400,000
1 ,500,000
27,000,000
After
Analysis
4,000,000
9,773,000
13,909,000
32,871.000
58,025,000
5,300,000
289,000
1 ,750,000
250,000
200,000
22,000,000
O&M Annual Cost
Submitted
100,000
830,000
2,053,000
3,759,000
2,480.000
140,000
20,000
After
Analysis
132,000
723,000
,830,000
3,259,000
2,290,000
70,000
15,000
Equivalent
Annual Cost*
Submitted
638,000
1 ,796,000
3,603,000
7,505,250
8,847,000
932,000
105,000
After
Analysis
509,000
1,645,000
3,142,000
6,361,000
7,767,000
570,000
42,000
Annual
Saving
20%
8%
13%
1 5%
1 3%
38%
60%
34% +
37% +
87% +
20%**
* Based on 20-year ammorti?ation ot capital cost at 7 percent
+ O&M data were not availdble- represents capital cost savings
** Fstimated
12
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• Provide for active follow-up, including
subsequent visits, to larger, more complex
projects.
Facilities planning conferences will require a
significant change in the mode of operation of
most Regions, and will require added manpower.
We estimate that an average of 3.5 man-days will
be required for each conference, including fol-
low-up conferences and related travel. For small
or simple projects, a 1-day visit would probably
be sufficient. For average, more complex pro-
jects, probably a 1-day visit at the beginning of
the consultant's planning work and another
about midway through this work would suffice.
For very large and very complex projects, those
involving SMSA's or major urban/industrial
areas, three or four visits would probably be
necessary.
We recommend that the Regions institute
facilities planning conferences for all Step 1
projects.
A viable alternative to holding conferences on
all Step 1 projects would be to hold conferences
only on large complex projects. For other
projects, EPA could provide the grantee and his
consultant copies of applicable regulations, guid-
ance, and other materials describing EPA re-
quirements. There would be considerable value
in holding 1-day conferences with small projects,
at least over the next 2 years, so as to familiarize
the consulting engineering community with
what constitutes adequate facilities plans; how-
ever, tight staffing constraints may rule them
out. Another alternative would be to hold 2-day
seminars in each State with the second day
devoted to meeting with individual municipali-
ties to discuss specific problems.
At the present time, many projects are for-
mally entering the construction grants program
at the design or construction stage, instead of
going through the full process described in the
chapter. In some cases, the planning of such
projects was begun before the 1972 Amend-
ments became effective. In addition, some States
(for example New York) require that work on
Step 1 and Step 2 be completed before they will
recommend that EPA fund a project.
Current regulations allow a municipality to be
reimbursed for its facility planning effort after a
Step 2 or 3 grant has been awarded, as long as
certain conditions are met. EPA must review and
approve the plan of study for facility planning
for all projects initiated after Oct. 31, 1974, if
the prospective grantee intends to seek reim-
bursement later in the project. In addition, for
all projects initiated after June 30, 1975, States
must reserve the estimated amount of these
reimbursable costs from their allotment.
Current provisions for reimbursement can be
expected to cause delays and inefficiencies. If a
grantee prepares plans and specifications on a
reimbursable basis, EPA does not first review
his facility plan. Any deficiencies in his facility
plan would be incorporated in his plans and
specifications. The Regional Office would then
have to request correction of all inputs before a
Step 3 grant could be awarded. As this request
would not be made until several months after a
municipality has made significant facility plan-
ning decisions, making major changes would be
expensive, time consuming, and possibly politi-
cally awkward.
• We recommend that reimbursable facility
planning for new projects be handled as if it
were going through the normal Step 1 process.
That is, the Agency should not only review and
approve the plan of study, but also conduct a
facilities planning conference and review and
approve the facility plan. The only functions to
be omitted or postponed would be the review of
a formal Step 1 grant application and, of course,
the award of a Step 1 grant.
Design Stage (Step 2)
The three major tasks which must be accom-
plished during the design stage are:
• Processing of application—For projects
which have been planned under Step 1
agreements, the Step 2 grants are handled
by amending the earlier agreement. Where
no earlier agreement is involved, the pros-
pective grantee, or generally his consultant,
prepares an application for a Step 2 grant
and submits it via the State to the Regional
Office. Once the amended agreement or
application is approved, EPA awards the
Step 2 grant, which funds the development
of detailed plans and specifications.
• Preparation of plans and specifications—
The grantee's consultant prepares the engi-
neering plans and specifications that trans-
late the decisions made during the facilities
13
-------
planning stage into efficient and effective
treatment facilities.
• Review and approval of design—EPA
reviews the plans and specifications to
ensure that the proposed project will meet
effluent limitations and water quality
standards, and that it is not designed with
excessive capacity. (Several States have
been authorized to certify that this is the
case.) In addition, the EPA review ensures
that Federal administrative requirements,
such as equal employment opportunity and
prevailing wage rates, are provided.
The specific EPA activities discussed in this
section are the predesign conference, review of
plans and specifications, and user charge/
industrial cost recovery requirements.
Predesign Conferences. Throughout this re-
port, we have emphasized the desirability of
conducting face-to-face conferences with the
grantee and his consultant, not only to assist in
complying with Federal regulations and guide-
lines, but also to ensure timely, cost-effective
facilities.
Regional Offices currently provide predesign
advice and assistance to the extent that staff
time allows. This function should be institution-
alized in the form of routine predesign con-
ferences. The grantee and his consulting engineer
would be invited to the Regional Office shortly
after the Step 2 grant is awarded. They would
meet with senior EPA construction engineers
and operation and maintenance (O&M) special-
ists to discuss key design considerations. Items
such as sewer overflows, by-passing untreated
wastes during construction, and O&M consider-
ations, including laboratory and process control
equipment needed, might be discussed. In addi-
tion, the conferences would facilitate the ex-
change of ideas and promote improved relations.
This meeting, together with follow-up discus-
sions conducted by mail or telephone, would
require perhaps one man-day fo'r an average
project.
We recommend that the Regions institute
routine predesign conferences for all projects
except certain smaller ones. In addition, the
Office of Water Program Operations should
update and reissue its design guidance package
to conform to the requirements of the 1972
Amendments. We further recommend that those
States authorized to certify plans and specifica-
tions be encouraged to undertake, with EPA
participation, a program of predesign confer-
ences.
Review of Plans and Specifications. EPA's
review of project plans and specifications covers
both technical and administrative aspects. The
administrative review is not time consuming and
is performed routinely by all Regions. The effort
expended on the technical review, however,
varies from one Region to another.
A technical review typically consists of exam-
ining the hydraulic and sanitary engineering
features of the plans to determine the sizing of
various components and other features which
determine the sewage-carrying and treatment
capacity of facilities. This review also includes
an examination of O&M features, such as the
adequacy of pumps, controls, measuring devices,
and laboratory equipment. Essentially, the pur-
pose of the review is to assure the operability
and effectiveness of the proposed facilities, so
that they will achieve the effluent limitations
prescribed in the NPDES permit.
In our opinion, the Regions are generally
doing an adequate job in these reviews of
ensuring that effective facilities are being built.
Frequently, the reviews uncover deficiencies
that must be corrected before approval is given.
However, in our opinion, the "cost" side of the
cost-effectiveness goals is not receiving sufficient
attention. We recommend that the Regions
devote additional attention to an analysis of the
cost of the proposed facilities (i.e., value engi-
neering). The Office of Water Program Opera-
tions should develop guidance to support the
effort in this area.
A majority of the States are performing the
technical reviews described. Current policy al-
lows the Regions to delegate the review of plans
and specifications to the States and to accept
State certification as the basis for EPA approval
(EPA Order No. 1250.3). Presently, 25 States
have been delegated responsibility for this re-
view, and 35 to 40 States are expected to
assume this responsibility before the end of
1975.
User Charge/Industrial Cost Recovery. User
charges and industrial cost recovery systems
(UC/ICR) are new requirements of PL 92-500.
For the first time, legislation requires EPA to
monitor local financial procedures required by
Federal law after a facility has been completed.
14
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Grantees are legally required to establish a
system of fees (user charges) to assure that each
recipient of waste treatment services within the
service area will pay its proportionate share of
the costs of operation and maintenance. The
new requirements also call for the applicant to
collect from each industrial user "that portion
of the grant amount (i.e., project capital costs)
allocable to the treatment of its waste".
To date, no UC/ICR system has actually been
implemented to the point of collecting charges.
EPA Regional Offices have required from appli-
cants a letter of intent stating that the munici-
pality will comply with the UC/ICR require-
ments by the time 80 percent of the construc-
tion is completed (required charges do not have
to be collected until facilities are operable).
However, as a new project progresses, significant
delay could be caused by the applicant's inabil-
ity to implement the system or EPA's inability
to monitor it.
We recommend that EPA institute a compre-
hensive UC/ICR program over the next two
years. Under the program EPA would:
• Arrange predesign conferences with, and
provide appropriate follow-up advice to,
grantees to explain EPA requirements.
• Review industry letters of intent and grant-
ee's commitment to, and schedule for
developing, a UC/ICR system. (Typically,
the grantee develops his system after award
of a Step 2 or 3 grant and during the
construction period.) The system is re-
quired before awarding a Step 2 or Step 3
grant, and it includes developing ap-
propriate grant conditions.
• Review progress of grantee's development
of his system prior to 50 percent comple-
tion of Step 3 construction.
• Review and approve grantee's system prior
to 80 percent completion of Step 3 con-
struction.
• Receive and record grantee's notice of
initiation of ICR implementation.
• Review the grantee's annual submissions of
information on implementation, and proc-
ess and deposit his payment to the Federal
Government.
• Review and approve the grantee's periodic
revisions of his approved system.
• Review and approve the grantee's expendi-
ture of the 80 percent portion of the
retained ICR funds placed in the sinking
fund.
We are concerned that the Agency have
sufficient manpower trained in municipal fi-
nance or in utility rate systems to provide both
technical assistance and review.
Construction Stage (Step 3)
From the Agency's perspective, the construc-
tion stage has four major categories of activities:
• Application process-Far projects which
have been funded through Step 1 or Step 2
agreements, Step 3 grants are handled by
amending the earlier agreements. Where no
earlier agreement is involved, the prospec-
tive grantee or his consultant prepares an
application for a Step 3 grant and submits
it via the State to the Regional Office.
Once the application is approved, EPA
awards the Step 3 grant which funds the
actual construction of the facilities.
• Contractor selection—The grantee adver-
tises for competitive bids. The bids are
evaluated by the grantee and, unless an
exception is justified, the low bidder is
selected. The successful bid is submitted via
the State to the Regional Office, as is a
summary tabulation of all other bids re-
ceived. Once the selection is approved, the
grantee is authorized to award construction
contracts.
• Project construction—During project
construction, EPA and the States conduct a
variety of activities, including approving
payment and change order requests; con-
ducting on-site inspections and audits; and
approving UC/ICR systems and O&M man-
uals.
15
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• Final payment—After construction is
completed and the plant is in operation, a
final inspection is made to ensure that the
facility is meeting design specifications.
Once it has been determined that all grant
conditions and contract obligations have
been met, the final grant payment is made.
EPA activities during the construction stage
are concerned primarily with making sure that
funds already obligated are used according to
the approved plans and specifications. Although
these activities can have an impact on the
project's cost and effectiveness, they are pri-
marily intended to protect the program's integ-
rity (see Chapter V).
A critical element in achieving cost-effective-
ness during construction is the resident inspec-
tor. His job is to ensure the quality of construc-
tion and full compliance with plans and specifi-
cations. He also is responsible for receiving and
approving payment for quantities under unit-
price contracts (e.g., tons of rock excavated) and
for developing and/or approving monthly esti-
mates of work completed under fixed-price
contracts. Finally, he frequently is responsible
for recommending approval of changes to ap-
proved plans and specifications (that is, change
orders). To carry out this responsibility, the
resident inspector must be diligent, honest,
present on the job, and on the lookout for
attempts by the contractors to shortcut on plans
and specifications. Moreover, he must maintain
adequate records of daily construction activities
and progress, measured quantities, test results,
and other information.
Without an "army" of inspectors on its own
payroll, EPA could not possibly provide for this
function; therefore, the Agency must rely on the
performance of resident inspectors who are
generally retained by either the consulting engi-
neer or the grantee. In particular, EPA's interim
inspection function should concentrate not on
an inspection of construction but instead on an
inspection of the resident inspectors to deter-
mine whether or not they are performing ade-
quately.
To implement this approach, the Review
Group believes there is a need for "preconstruc-
tion" conferences intended to acquaint the
resident inspector with the level of performance
required. The discussion would stress the impor-
tance of being on-site, witnessing and critically
inspecting certain construction activities such as
pipe laying and concrete pouring, maintaining
daily logs and other records, properly measuring
and recording unit-price quantities, and cor-
rectly performing required tests. Such a con-
ference would be conducted shortly after con-
struction begins with senior Regional staff
members participating.
Currently the Regions perform few if any
preconstruction conferences of this sort, pri-
marily because of a lack of personnel. We
recommend that preconstruction conferences be
institutionalized and uniformly carried out on
all Step 3 projects. We estimate that these
conferences Would require an average of 1.5
man-days per project, including travel.
Operation and Maintenance Stage
Once a treatment facility is in operation, the
role of the Federal Government is sharply
diminished. EPA and the States conduct inspec-
tions to ensure that the facilities are in com-
pliance with discharge permits and to determine
whether O&M practices are adequate. In addi-
tion, it is anticipated that periodic Federal
audits will be required to determine whether
UC/ICR requirements are being met.
In order to meet the goals of PL 92-500,
publicly-owned treatment works must not only
be planned, designed, and constructed properly,
but they must also be operated and maintained
properly. EPA's Clean Water Report to Congress
- 1974 states that, of the operating treatment
plants inspected during the past year as part of
the routine construction grant project follow-up,
30 percent of those plants with sufficient
effluent data for analysis were not achieving the
effluent quality criteria they were designed to
meet. If EPA allows the present situation to
continue, it can be assumed that several billions
of dollars in construction grant money will be
expended in a less than cost-effective manner.
On Nov. 16, 1973, EPA adopted an official
Municipal Operations Strategy that states that
the Agency's O&M activities must be an integral
part of an overall program to assure that
publicly-owned treatment works achieve and
maintain the effluent quality required by munic-
ipal permits issued under the NPDES. In the
same sense, the construction grants, O&M, and
municipal permit activities must reinforce and
16
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complement one another. This message is re-
peated in the proposed "Supplementary Guid-
ance on Municipal Permit Compliance", which
was circulated for comment on June 25, 1974.
The Municipal Operations Strategy has not
been effectively implemented. A June 1974
assessment of implementation progress, based
upon recent visits of Headquarters personnel to
the Regions, indicated the following:
• Seven of the 10 Regional Offices are doing
a less-than-effective job of integrating O&M
activities into the grant project review
process.
• Five of the 10 Regional Offices are doing a
less-than-effective job of realigning priori-
ties for inspection efforts.
• Seven of the 10 Regional Offices have
less-than-effective technical assistance pro-
grams.
• Four of the 10 Regional Offices have
less-than-effective programs for coordinat-
ing with State efforts.
• Seven of the 10 Regional Offices do not
effectively coordinate O&M programs with
manpower development and training activi-
ties.
One reason for this inadequate performance is
that most Regional Offices have not utilized
budgeted O&M positions for O&M work. Full
implementation of the Municipal Operations
Strategy is also inhibited by the lack ot agree-
ment among the Regional Offices regarding the
results which can be expected from an effective
O&M program. For example, during our inter-
views, representatives of Regions II and V stated
that proper O&M could assure plant reliability
but could not defer the need for new capital
construction. On the other hand, Regions VI,
VII, and IX expressed the view that proper O&M
could, indeed, postpone new construction.
We recommend that the Regions take several
actions to improve the O&M stage of the
construction grants program. Among the ac-
tions:
• Integrate grant-related O&M policies and
activities into the grant project review
process includin the following:
— emphasize O&M aspects of proposed
projects at the predesign stage,
— review plans and specifications from an
O&M perspective,
— identify plant staffing requirements and
potential training needs,
— review O&M manuals.
• Ensure that O&M considerations and
interim performance criteria are adequately
integrated into municipal permits.
• Realign priorities for inspection efforts to
concentrate on intensive initial and follow-
up inspections on critical plants in priority
areas, including both new and existing
treatment facilities.
• In conjunction with State agencies, estab-
lish a technical assistance capability for
improving existing plant operations. This
capability encompasses extended analysis
of plants to correct major operational
problems and improve operational efficien-
cies. It must also be closely interrelated to
training needs to ensure continually im-
proved operation.
We recommend that EPA Headquarters de-
velop adequate program guidance for an aggres-
sive nationwide municipal operations and main-
tenance program. Headquarters should take the
lead in developing and implementing (within
Regional Offices) the following program activi-
ties:
• A public information program to promote
better O&M municipal treatment facilities.
This program must reach that part of the
public that can best influence and improve
O&M.
• Full integration of training efforts with
operational requirements.
• Improve data handling and assessment
capabilities to provide an improved base for
program support and direction, while also
satisfying the requirements of Section 210
of the Act.
One proposal the Review Group considered is
requiring a service/training contract for each
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construction grant project. The objective of such service life. This proposal has enough merit that
a contract would be to assure that the personnel the Agency should seriously consider its adop-
of treatment plants constructed with Federal tion. A 6-month service/training contract would
funds be trained to effectively operate and probably cost between $25,000 and $100,000
maintain these plants at the beginning of their for an average treatment plant.
18
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III. OPTIMIZING OBLIGATIONS
Concern has been and is frequently expressed
over EPA's history in obligating the 1973
through 1975 funds (contract authority) author-
ized by PL 92-500. Of the $18 billion author-
ized, $9 billion have been allotted to the States,
but only $3 billion were obligated through July
1, 1974. Very simply, the question posed is:
Why has not all or nearly all of the $9 billion
been obligated, particularly in view of the most
recent Needs Survey? There are two aspects to
the response to this question. One embraces an
assessment of the causes of the obligation
performance since passage of PL 92-500 and a
prediction of future performance. The second
aspect embodies an analysis of the impact of
current administrative practices on the obliga-
tion of funds. In addition, a third element merits
discussion—the relationship of obligations to
actual expenditure of funds, the employment of
workers, and the creation of economic activity
on the construction site. Much of the concern
over obligations is really concern about creating
local employment and economic activity.
Past and Predicted Performance
Since passage of PL 92-500, $2.5 billion of
the $3 billion obligated were obligated in four
separate months: March and June of 1973 and
May and June of 1974 (Figure III-l). Two
factors were responsible. The basic factor behind
the low overall level of obligations and the
virtual inactivity for 15 of the 19 months was
the absence of final Title II regulations. In the
first three months, EPA prohibited obligations
of PL 92-500 funds pending issuance of interim
regulations. In the next 12 months, although
interim regulations were in force under which
obligations could be made, grantees and the
States generally understood that final regula-
tions were imminent. Most prospective grantees
and States elected to hold back on development
of applications, infiltration/inflow analyses, en-
vironmental assessments, and other documents
until they could be sure of what the final rules
would be. Unfortunately, this waiting kept being
extended, with the expectation that the final
regulations would be issued in the "next
month." Finally, in February 1974, the final
regulations were issued, resulting in renewed
activity on the part of grantees and the States
and increased obligations in May and June 1974.
The second factor, which influenced past
obligations and produced the two obligation
peaks in March and June 1973, was two statu-
tory provisions of PL 92-500. In the case of
March 1973, it was the Section 204(b)(l)
requirement that the grantee adopt user charge
and industrial cost recovery systems on all
projects awarded after March 1, 1973. In the
case of June 1973, it was the Section 201(g)(3)
requirement that the grantee perform infiltra-
tion-inflow analyses on all grants awarded after
July 1, 1973. In both situations, many grantees
were attempting to beat these requirements.
Four lesser causes also contributed: (1) slow-
ness and difficulties in development and approv-
al of priority criteria and annual priority lists,
(2) the necessity for some projects, which were
proceeding under the previous requirements of
PL 84-660 to be redeveloped according to the
new requirements of PL 92-500, (3) with respect
to new projects, the necessity of accommodating
the more complex and time-consuming require-
ments of PL 92-500, including infiltration/
inflow analyses, and (4) the basic change which
resulted in incurring a project's principal obliga-
tion at the Step 3 stage rather than at the start
of the project.
We believe that the basic causes of the past
performance were eliminated with (1) issuance
and subsequent understanding and acceptance of
the Title II regulations, (2) improvement of
criteria and development of annual priority lists
and (3) processing of most of the "in-stream"
projects which had to be redeveloped. This
19
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FIGURE III - 1
MONTHLY RATE OF OBLIGATIONS
(million dollars)
955.3
897.3
488.5
JAN FEE MAR APR
1973
MAY JUN JUL AUG SEP OCT NOV DEC JAN FEE
1974
MAR APR MAY JUN
belief is substantiated by the reasonably large
obligations of May and June 1974 and by the
sustained levels of monthly obligations in the
first three months of FY 1975 ($82, 156, and
180 million, respectively).
Our estimates of obligations and year-end
unobligated balances for 1975 and 1976, assum-
ing allotments of $4 billion in January of both
1975 and 1976, are presented in Table III-l.
Although obligations are expected to increase
substantially over those of 1973 and 1974, we
still expect substantial unobligated balances at
the end of each year. The reasons are threefold.
First, the discontinuity created by enactment of
20
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PL 92-500, and the delay in developing and
issuing the Title II regulations, deferred develop-
ment of many new projects. It will, therefore,
require several years to reach a steady state
insofar as obligations are concerned, because of
the 12- to 30-month lag between the start of a
typical project at Step 1 and its entry into the
Step 3 (construction) phase where the large
obligations are incurred.
Secondly, the restructuring of the program to
provide for separate Step 1, 2, and 3 grants
deliberately defers major obligations from the
front-end of projects, where they were incurred
under PL 84-660, to the Step 3 stage of projects.
Without this restructuring, the small amount of
Step 1 and Step 2 obligations reflected in the
projections of Table III-l would be significantly
larger because they would reflect Step 3 obliga-
tions. In other words, the projected obligations
reported above understate the real level of
activity estimated for 1975 and 1976. This can
be better seen in the projected number of active
PL 92-500 projects in these two years as
compared to 1974:
1974
1975
1976
2,400
5,200
8,300
This doubling and tripling of active projects
are not reflected in obligation projections be-
cause of the inherent deferral of large obliga-
tions until about one third through the life of a
typical project. If EPA wanted to reflect a more
favorable obligation picture than painted by
Figure III-l, it could change the regulations to
incur Step 3 and Step 2 obligations at Step 1.
This would not change the real level of activity
or progress of projects, nor would it hasten
actual expenditures.
Finally, the rate of obligations depicted in
Figure III-l is based on the number of projects
that the "system"—the grantees, consultants, and
others (bonding, land and right-of-way acquisi-
tion, and legal services)—can generate and de-
velop under current requirements and regula-
tions. Although we have no means for measuring
and evaluating these capabilities—much less
knowledge of how they can be encouraged
toward greater activity—interviews with Region-
al and State people suggest that the projected
obligations match the capacity of grantees and
their consultants.
TABLE 111-1
PROJECTED OBLIGATIONS
($ billions)
Available Unobligated
Year Quarter Funds Obligations Balance
1975 1st 6.000* 0.420
2nd 0.650
3rd 4.000+ 0.780
4th 1.550
Total 10.000 3.400
1976 1st 6.600** 1.400
2nd 1.200
3rd 4.000++ 1.300
4th 1.5QQ
6.600
10.600 5.400
5.000
*Cany over of unobligated 1974 and 1975 funds into 1975.
+Assumed allotment of reserved 1973-75 funds on or about
January 1, 1975.
**Carry over of unobligated balance into 1976.
++Assumed allotment of reserved 1973-75 funds on or about
January 1, 1976.
Impact of Administrative Practices and Program
Requirements
To what extent do current administrative
practices and requirements of the program im-
pede the rate of obligations? This question really
has two parts: To what extent do these practices
and requirements lengthen the time for the
grantee to develop a project and for the States
and EPA to review and process it. Both cases
further defer time for large Step 3 obligations.
Each project must go through a preliminary
phase where planning and engineering design,
acquisition of land and rights-of-way, local-shares
financing (usually bonding) and other steps are
accomplished. This phase usually requires 6 to
18 months, depending on the size and com-
plexity of the project. Secondly, design drawings
and specifications typically require from 6 to 12
months. Consequently, basic requirements and
practices dictate a 12- to 30-month time period
between project concept and start of construc-
tion.
PL 92-500 adds to the grantee's workload and
can, to some extent, add to the time involved.
This is particularly true in the preliminary stages
where PL 92-500 requires an infiltration/inflow
analysis, an environmental assessment, and a
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more sophisticated endeavor in preliminary and
cost-effectiveness analysis-steps not typically
performed in the past. It is difficult to estimate
how much time these requirements add because
of limited experience with PL 92-500 projects.
Indications are that they add from 2 to 12
months to project development, depending
especially on the sophistication of the infiltra-
tion/inflow analyses required and on the public
controversy that develops over environmental
impacts.
Current administrative practices and program
requirements obviously add to the time for
review and processing. The time element is
influenced by several factors, including:
• The complexity of the program require-
ments themselves.
• The ability of grantees and their consult-
ants to comply with requirements so that
States and EPA do not have to return many
submissions for reworking.
• The degree to which EPA lias delegated
review functions to the States.
• The adequacy of State and EPA staffing.
The requirements of PL 92-500 and the
National Environmental Policy Act are reason-
ably complex and require time-consuming re-
view of submissions by States and EPA. This is
particularly true in the Step 1 stage where
review of facilities plans and their associated
pieces—infiltration/inflow analysis and environ-
mental assessments-are required. Also the prep-
aration of environmental impact statements can
require substantial time. Given adequate staff-
ing, reasonably efficient administrative proce-
dures, and reasonably adequate submissions,
States and EPA should require about three to
four months for review and approval, exclusive
of time required to write environmental impact
statements. Where environmental impact state-
ments are required, 3 to 12 months are added to
the time. Clearly, if the new requirements of PL
92-500, those of NEPA, and those imposed by
other sources (labor and civil rights require-
ments, interagency review requirements and
others) were eliminated (a virtually "no strings
attached" process), the review time could be
reduced to perhaps two months. Accordingly,
current administrative practices and program
requirements add one to two months to obliga-
tions and 4 to 14 months where environmental
impact statements must be prepared. This time
results from statutory requirements and there-
fore could only be reduced by statutory
changes. We do not recommend removal or
lessening of these requirements because they are
critical to development of cost-effective, en-
vironmentally sound facilities. Moreover, for a
majority of the projects, the time savings would
be small in the lower part of the ranges given
and, therefore, would not significantly increase
obligation rates.
Currently, grantees and their consultants do
not fully comply with program requirements.
The result is that States and EPA must ask that
facilities plans and other documents be re-
worked. This can add weeks and even months to
project processing. Problems of this type will be
alleviated as grantees and consultants become
better acquainted with the Title II regulations
and more adept at producing the types of
documents required. To promote this, we have
recommended in this report greater direct in-
volvement with the grantees through preapplica-
tion, facilities planning, and predesign con-
ferences.
In many cases, the States are handling and
reviewing submissions before they get to EPA
for review. In some instances, this involves
duplicative reviews. In others, it involves double
handling of documents and extra mailing time.
In all cases, some time could be saved if EPA
and the States were not both involved in the
administrative process. Delegation of functions
to the States would obviously reduce this
unnecessary delay. However, for the reduction
to be significant, virtually all functions would
have to be delegated to a large proportion of
States. Moreover, delegation of functions to the
States would not reduce the basic processing
time required. It merely transfers the processing
from one agency to another, without necessarily
saving time.
Finally, the adequacy of State and EPA
staffing obviously influences processing times
and, therefore, the rates at which obligations arc
made. In cases where the incoming submissions
exceed the processing capacity, review and
approval can be deferred, and the actions can be
less thorough. Our general observation is that
deferral usually takes precedence until external
and/or internal pressure reduces the thorough-
ness of review and processing. We generally
believe that inadequate staffing will always
22
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result in some degree of processing lag and,
therefore, obligation lag.
In summary, current administrative practices
and program requirements delay by several
months the time between a Step 1 application
and the time when the large obligations of Step
3 are incurred. The largest part of the delay is
mandated by law and, we believe, is necessary to
promote development of cost-effective, environ-
mentally sound facilities. In essence, the Agency
is sacrificing, to some degree, optimizing obliga-
tions in order to fully meet legal requirements
and achieve its cost-effectiveness and environ-
mental integrity goals. We believe this policy
should be continued.
Relationships of Obligations to Expenditures,
Employment, and Economic Activity
We suspect that many of those expressing
concern about obligations are really worried
about local economic activity and employment.
Consequently, it is important to understand the
relationship between obligations and these other
factors. In the projected obligations in Table
III-1, approximately 90 percent constitute Step
3 obligations, and the remainder Step 1 and 2
obligations. Step 1 and 2 obligations create
reasonably immediate employment for profes-
sional consultants, principally architectural/
engineering consultants, but also others who
provide legal, bonding, and land acquisition
services. These obligations will not create
construction employment, equipment purchases,
and associated economic activity.
Step 3 obligations will create near-term
construction employment and economic activ-
ity. A typical and reasonable time lag between
these obligations and the start of construction
activity (when the construction contractor
moves on site) is about 6 months. Advertising
for construction bids, evaluating bids, letting
contracts, and actually moving on site consume
this time. Once started, the construction em-
ployment and economic activity are ordinarily
spread over a 1- to 5-year construction period.
Accordingly, the economic activity that derives
from Step 3 obligations is delayed in starting
and spread over an extended period.
If the concern over obligations is really an
interest in construction employment and eco-
nomic activity, it should be focussed, first of all,
on speeding up the time when Step 3 obligations
are made and, secondly, on speeding up the start
and progress of construction. The first action is
discussed in the preceeding sections of this
chapter. The second action, basically outside of
EPA's influence and authority, is determined by:
• How fast the grantee can complete the
bidding/contracting process and occasion-
ally the bond selling and land/right-of-way
acquisition processes.
• The speed with which the contractor can
move on site which is, in turn, influenced
by how much business he has and how
soon he can expect deliveries of major
equipment and materials.
• The rate at which the contractor chooses to
carry out construction which is, in turn,
influenced by the labor market, equipment,
and material deliveries, as well as the
amount of business he has.
Currently, unanticipated delays are being ex-
perienced in start of construction and in construc-
tion progress—for example, about $100 million
of the $1.2 billion obligated in March through
June 1973 is not yet under construction. Al-
though we have not been able to pinpoint the
exact reason, it generally appears to be the result
of delays in delivery of certain types of equip-
ment and materials and other factors associated
with the prevailing national economic problems
(this may dissipate by the time the report is
published).
In summary, obligations are an approximate
but not a precise measure of impending expendi-
tures, employment, and economic activity on
the construction site. Their principal short-
comings are: (1) they measure future but not
immediate activity, and (2) they do not guaran-
tee near future activity. Consequently, optimiz-
ing obligations would achieve only part of the
end results usually desired by those concerned
with obligation rates.
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IV. ENVIRONMENTAL INTEGRITY
One of the major goals of the Construction
Grants Program is to plan and construct munici-
pal waste water treatment facilities in such a
way as to enhance the environment. Such an
objective is not only appropriate for the En-
vironmental Protection Agency, but is implicit
in the purpose of the program and is explicitly
required by law.
Section 102(2)(c) of NEPA requires that each
Federal agency prepare and circulate for com-
ment an Environmental Impact Statement on
every major Federal action resulting in some
significant impact on the human environment.
The requirement apparently exists whether the
significant impact is adverse or beneficial, and is
designed to assure that environmental factors are
explicitly included in Federal decision-making
processes and that private and other public
interests are given due consideration.
There are a number of points in the process of
cleaning up the Nation's water where environ-
mental factors are brought to bear. Section 303
of the Federal Water Pollution Control Act
Amendments of 1972 provides for establishment
of water quality standards and a State contin-
uing planning process to achieve these standards.
Many environmental issues in addition to water
quality are factored into the examination and
selection of alternatives. Section 208 of the Act
calls for development of metropolitan areawide
waste treatment management plans. Again, a
variety of environmental issues are included in
the determination of the need, the general
nature, and location of municipal waste water
treatment facilities. The environmental analyses
in 208 areawide planning are then reviewed and
supplemented in facilities planning when more
details concerning the treatment system are
known. At the present time, however, few 208
plans have been undertaken, and, indeed, few
facilities are being proposed in areas with
208 planning. In the absence of 208 plans in the
vast majority of instances, therefore, most en-
vironmental planning should be included under
the facilities planning program.
This chapter will therefore focus on facilities
planning in its examination of the performance
of the Construction Grants Program in meeting
its stated environmental goal and in complying
with legal requirements. The discussion begins
with a review of the current environmental
evaluation process and the problems associated
with it. A strategy is then outlined for eliminat-
ing these problems and building a program to
assure that environmental factors are meaning-
fully considered in project development.
The Current Process
•
General guidance in the area of environmental
impacts is contained in the interim regulations,
Preparation of Environmental Impact State-
ments, published in January 1973. Although
these regulations are currently being revised, the
requirements remain essentially the same. In the
more specific case of municipal waste water
treatment works, two publications provide pri-
mary policy and procedural guidance: Title II
Regulations (February 11, 1974) and Guidance
for Facilities Planning (January, 1974).
The process by which environmental effects
of a typical project are factored into the
decision-making system starts when the appli-
cant submits a facilities plan to the Agency. The
plan includes discussion of possible environ-
mental effects (primary and secondary) of the
proposed project and the alternatives (structural
and nonstructural) that were considered during
project development. The Agency then inde-
pendently reviews the adequacy of the environ-
mental evaluation included in the facilities plan
to determine whether the proposed project is
likely to result in some significant impact on the
environment. If EPA determines that there will
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be no impact, it files a negative declaration,
supported by the facilities plan and an environ-
mental impact appraisal describing the work and
findings of EPA's review. The engineer responsi-
ble for the project usually conducts the environ-
mental review and prepares the environmental
impact appraisal, although frequently his recom-
mendation must be concurred in by an environ-
mental impact coordinator. The regional Ad-
ministrator or his designee makes the final
decision. If EPA determines that there will be an
impact, it prepares and distributes a letter of
intent notifying the public that it will prepare an
Environmental Impact Statement (EIS). A pub-
lic hearing is then held to discuss the environ-
mental aspects of the proposed project. EPA
prepares the EIS and circulates it as a draft to all
relevant Federal, State, and local government
agencies, as well as any interested groups and
private citizens. These parties are allowed 30
days for review and written comments. An
additional 15 days may be requested. Based on
the comments, the Agency revises the draft and
files the final EIS with the Council on Environ-
mental Quality (CEQ). The Agency is then
required to wait 30 days before taking any
action on the project. Regions report that it
often requires 1 man-year of staff effort to
prepare an EIS.
Environmental evaluation is supposed to oc-
cur at the earliest possible point in EPA's
processing of each project. Because applications
are now coining in for projects at Steps 1, 2, and
3, this procedure is being applied at all stages.
Once a project has been taken through the
process, it does not need a new environmental
evaluation at a later step unless considerable
time has elapsed between steps or significant
changes have been made in the proposed project.
On projects coming in for the first time at the
Step 2 and 3 level, the environmental evalua-
tions are really justifications of decisions made
some time ago, and changes are difficult to
make. By 1978, all new projects should be
entering at the Step 1 level, and the NEPA process
will then be uniformly conducted at the facili-
ties planning stage.
Problems with the Current Process
In examining the environmental evaluation
process, the Review Group identified six major
problems.
Too few EIS's Are Being Produced. Through
June 30, 1974, EPA filed EIS's in either draft or
final form on 58 construction grants projects. In
addition, a number of statements are currently
being prepared by the Regional Offices. While
the definition of an "acceptable" number is a
matter of debate, many within the Agency,
CEQ, and Congress agree that the number
produced to date is "insufficient".
Content and Quality of EIS's. Preparing an
EIS involves delving deeply into the background
of the project, analyzing the possible environ-
mental effects on air, wildlife, plant life, quality
and quantity of water in nearby communities,
social disruptions, and growth. Many of these
effects are difficult to predict, but they must all
be discussed. The resulting documents are
voluminous but all too often fail to deal
adequately with the more basic issues involved—
for example, growth potential, plant siting, or
method of sludge disposal. Nevertheless, the
EIS's written to date have been valuable to the
Agency.
During the course of this study, the Review
Group surveyed the environmental impact staff
in each Region. One of the questions asked was
whether the EIS's prepared had fostered change
in the proposed project. (A major change was
defined as a change in plant site, method of
effluent or sludge disposal, plant capacity, etc.; a
minor change was defined as of lesser impor-
tance, such as a rerouting of an interceptor or
extending an effluent disposal pipe.)
Of the 38 projects where some change was
possible (for example where the project in the
judgement of the Region was not "locked in
concrete"), 18 had major changes made as a
result of the EIS, 9 had minor changes, and 1 1
had no change. It must be remembered that it
was not the EIS itself that made these changes
possible, it was the research and analysis done in
preparing the EIS that showed these changes to
be possible and indeed preferred.
Quality of Other Environmental Evaluations.
Many Regional staff interviewed were eager to
point out that while the Agency is not pro-
ducing many EIS's, the overall evaluation proc-
ess is still meeting the substantive requirements
of NEPA in that most of the environmentally
harmful aspects of a proposed project are being
removed during its development. Consequently,
by the time the project is approved, EPA can
honestly file a negative declaration. Further,
26
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many assert that most of the information that
would be included in an EIS has already been
included in the project's assessment and apprais-
al, which are available to the public.
Unfortunately, this optimism was not borne
out by a special study made in August, 1974 of
the supporting documentation for 43 negative
declarations filed by nine Regional offices. A
special six-member group from Water Program
Operations, Office of Federal Activities, Plan-
ning and Management, and Region III selected
the projects on the basis of size (most were $2
million or more) and date of filing (only
negative declarations filed within the past 6
months were used). Each project was evaluated
for its discussion of the:
• Impact of the proposed action on the
environment.
• Structural alternatives considered.
• Nonstructural alternatives considered.
• Possible growth implications of the
proposed project.
• Public involvement in project development.
No project was found to have consistently
good documentation. None of the 43 negative
declarations could be justified on the basis of
the documentation alone, although it is possible
that these decisions could be justified on the
basis of material in documents other than those
available to the group.
The environmental effects of the proposed
action generally received the most complete
treatment. Next best was the comparison of
structural alternatives. Most projects were very
deficient in the analysis of nonstructural alterna-
tives and secondary effects. If growth was
considered at all, the appraisal simply accepted
the assertions of the applicant. Discussions of
public involvement varied. Some documents
were completely silent on the point, while
others included transcripts of public hearings,
copies of letters received from the public, etc.
(For other details of the evaluation, see Appen-
dix A.)
We believe that there are two underlying
reasons behind the poor quality of these en-
vironmental evaluations. The first has to do with
the consultants employed by the applicants.
Every Region has reported that the quality of
the evaluations is directly related to the environ-
mental capability of the consultant. A sanitary
engineering firm with extensive experience in
designing treatment facilities may not yet have
developed a capability to carefully analyze
environmental effects.
The second point has to do with the amount
of pressure being brought to bear on the
applicant and his consultant to do a good job of
environmental evaluation. One Regional official
reported that he has been required to ask
applicants for new or additional information
based on changing program requirements so
often that he is embarrassed to ask for rework-
ings of environmental evaluations. Others have
reported that highest priority is considered to be
timely obligation of funds, and so any redrafts
of environmental evaluations requiring addi-
tional time are not permitted.
Program Delays. A complaint often raised
concerning the NEPA procedures is program
delays. Headquarters and the Regions often fear
environmental evaluations because they "cause
delays in project awards". These people point to
the large amounts of staff effort required to
prepare an EIS and to the 60 (or 75) day
mandatory waiting time. They cite specific
instances where large, complex projects have
been held up in litigation based on failure to
comply with NEPA. While NEPA procedures
may result in delays, proper consideration of
environmental factors during the facilities plan-
ning stage can reduce delays to a minimum.
Insufficient Guidance. The interim regulations
implementing NEPA are being revised. They
were published in the Federal Register as a
notice of proposed rule-making in July 1974,
and are expected to be promulgated shortly. In
addition, a Manual for Preparation of Environ-
mental Impact Statements for Wastewater
Treatment Works, Facilities Plans and 208 Area-
wide Waste Treatment Management Plans was
issued in July. This manual is designed to tell a
person writing a statement what should be
included and how to approach each item.
However, we feel that guidance is still missing
in three important areas. The first involves
guidance to grantees. While considerable mate-
rial has been developed for use by the applicant
- Sections 201 and 208 guidelines, for instance
— supplemental guidance is needed. The grantee
needs to know why he must concern himself
with environmental factors, when he should
conduct these reviews, and how he should do it.
He needs to know what kind of consultant to
27
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look for and that he may hire special consultant s
for the environmental review. Such information
could be included in a simple document drawing
heavily from existing materials.
The next area concerns the development of
quality criteria. Regional Offices have a need
and an expressed desire to receive Headquarters
guidance on how to judge the environmental
acceptability of a facilities plan or an Agency
appraisal. Examples of good and poor facilities
plans and appraisals should be circulated to the
Regions. Each example should be annotated to
make clear its good and bad points. This same
document should explain that an E1S does not
have to be huge to be good. As long as the major
issues are addressed, an EIS does not have to
include semirelevant data on fish counts or soil
characteristics. A good EIS that openly discusses
the issues, according to CEQ, was prepared by
the National Oceanic and Atmospheric Adminis-
tration and entitled Proposed Estuarine Sanc-
tuary Grant Award for South Slough, Coos Bay,
Oregon. The draft contained 16 single-spaced
pages plus appendices; the final version contains
31 single-spaced pages, plus appendices.
The last need for guidance is in the area of
environmental methodologies. Is there a "better
way" to predict the future growth of an area,
particularly that induced by the construction of
treatment works? What are the possible effects
of construction noise on local wildlife? What is
the potential success of a local campaign to
reduce waste water flows? Regional offices,
grantees, and their consultants would all benefit
from the development of methodologies in such
areas.
Unproductive Public Hearings. Each con-
struction grant project must have a public
hearing, and one with an EIS must have a public
hearing on that alone. However, very often only
a handful of private citizens actually appear at
the hearing. This is frustrating for the grantee or
the Agency staff who set up the hearing, and has
led some to conclude that public hearings are a
waste of time and effort.
These problems all pertain to the way the
system works now. The system works this way
because directives from Headquarters have been
strong in the program obligations area and weak
in suggesting ways to conduct good environ-
mental evaluation. It also works this way be-
cause "we have always done it this way".
However, many would argue that the recent
issuance of new guidance materials will change
the environmental evaluation system. In part,
these persons refer to the new manual for
preparing impact statements, but they are also
placing their trust in the Guidance for Facilities
Planning. This document describes the process
for developing municipal facility plans, including
how environmental factors should be integrated
into the process. While engineers assess the
technical and economic costs and benefits asso-
ciated with various alternatives for each struc-
tural and nonstructural component of the treat-
ment system, they should also include the
environmental and social costs and benefits. If
they do, the resulting proposal would have
weighed all considerations against one another,
and the best "all around" project would be
selected.
If EPA stresses integration of environmental
planning with technical planning rather than the
disjointed approach now used, it is much more
likely to receive good environmental evaluation.
EPA staff will have much less work to do in
preparing an EIS or even in deciding if one is not
needed. But EPA must not assume that the new
guidance will automatically be employed — it
must make the guidance work.
Operating Issues
The Review Group has identified five operat-
ing issues of major importance to achievement
of the program's environmental goal.
Timely and Effective Implementation of Fa-
cilities Planning Guidelines. The new Guidance
for Facilities Planning has the potential to
resolve many of the problems described in the
previous section. It applies only to projects for
which facilities planning was to begin after May
1, 1974 so it will be some time before the
effectiveness of the guidance can be assessed.
In the meantime, however, Agency personnel
should become actively involved in the facilities
planning being done by applicants.
Active involvement means that the facilities
planning conferences recommended in Chapter
II should stress environmental evaluations. The
applicant should be told how the system works,
including the expectations the Agency has in
terms of environmental evaluations. Questions
should be answered and the applicant en-
couraged to contact the Agency if new questions
arise.
28
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Such an active involvement is recommended
because it would:
• Ensure proper implementation of guidance.
• Promote thorough environmental analyses
by the applicant.
• Promote integration of environmental plan-
ning and traditional facilities planning.
• Encourage resolution of environmental
problems and controversies during rather
than after the planning effort, thus mini-
mizing program delays.
• Minimize program delays since most of
work would be done during facilities plan-
ning.
Advisability of Depending on Grantee for
Environmental Evaluations. Projects requiring an
EIS raise the question of how heavily EPA can
rely on the grantee in preparing the draft EIS. If
a grantee submits a "good" environmental evalu-
ation as a part of the facilities plan, the Agency
could use that plan as the basis for the draft,
making only minor modifications and additions
to the grantee's submittal. This obviously mini-
mizes the staff effort the Agency must devote to
the preparation of an EIS.
While this is an attractive idea, there is a legal
question as to its acceptability. Several other
Federal agencies have been sued on the grounds
that their grantees prepared the draft impact
statements, thereby violating the NEPA require-
ment that the Agency conduct an independent
review of the grantee's proposal in order to
make its own findings of the project's potential
environmental impact. Court decisions have
been mixed. In some cases, such as Greene
County Planning Board vs. Federal Power Com-
mission, the court ruled that the FPC was
negligent in delegating preparation of the EIS to
the applicant. In other cases, however, such as
Life of the Land vs. Brinegar, the court ruled
that the Federal Aviation Administration had
complied with NEPA through active participa-
tion in and review of the statement even though
it had been prepared by the applicant's consult-
ant.
Recognizing this judicial disagreement, CEQ
has taken the position that an Agency is justified
in delegating most of the responsibility for
preparation of the draft impact statement in
cases where the program applicant is a State or
local government entity, rather than a private
applicant. CEQ is careful to point out, however,
that active Agency participation is still required
and that the Agency must review and adopt the
grantee's submittal as its own.
With these issues in mind the Agency needs to
make a decision as to how heavily it will depend
on grantees in the environmental area. Agency
policy should be explicit in permitting Regional
Office staff members responsible for a given
project to use the grantee's submitted facilities
plan as the basis for the Agency's draft EIS.
Minor changes and additions could be made, but
the Agency can require that the plan include all
the information the Agency needs for the draft
EIS. In addition to the environmental evaluation
included in the facilities plan, perhaps an intro-
duction or background section and a brief
summary would be prepared by the Agency,
describing EPA participation in the planning
process, and making it clear that EPA has
carefully considered the environmental impacts
of the proposed project and believes that the
environmental benefits will far outweigh its
potential environmental costs.
Such a system will:
• Assure that good environmental analysis is
done by the grantee.
• Greatly reduce the EPA staff effort re-
quired in preparing an EIS.
• Minimize program delays.
Advisability of Involving EPA in Selection of
Environmental Consultants. Since the environ-
mental analysis of a given project depends in
large measure on the environmental capability of
the grantee's consultant, it would be to EPA's
advantage to assure in some way that all
consultants hired by the grantees can and will
perform good analyses. There are a range of
tools that the Agency could employ to
influence the applicant's choice of a consultant.
EPA could set up a list of consulting firms
deemed unacceptable. This would also require
the establishment of an elaborate appeals proce-
dure. Unofficially, EPA could try to discourage
grantees from hiring a consultant with whom the
Agency has had poor experience. EPA could
maintain a list of competent environmental
consultants in each Region and make the list
available to grantees who seek advice. EPA could
publish information on the kinds of capabilities
a consultant should have in order to do good
environmental analyses. Also, EPA could en-
29
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courage applicants to hire a separate environ-
mental consultant to work in close coordination
with the sanitary engineering firm. Many Re-
gions say that better analyses result from a
separate environmental consultant, although
many grantees do not realize this is an eligible
cost.
Since EPA should not specify which consult-
ant an applicant should hire, but merely to
encourage the hiring of any consultant who can
produce a good product, a posture of informal
guidance is recommended.
Advisability of Establishing Threshold Criteria
for Deciding When to Prepare An EIS. The
criticism that the Agency is not producing
"enough" EIS's could be answered by establish-
ing a series of threshold criteria. Although NEPA
and the EPA proposed regulations provide that
an EIS be prepared whenever a project is
expected to have a significant impact on the
environment, the vast majority of projects have
received negative declarations. According to a
telephone survey, seven Regional Offices prepare
an EIS only when there is significant public
controversy.
This disparity of operating procedures among
Regions and the gap between official Agency
policy and actual practice can be attributed to
the very flexible language in the EPA proposed
regulations, which simply say that an EIS should
be written when a project is expected to result
in some "significant impact on the environ-
ment'.' The proposed regulations, which were
published in the Federal Register in July,
attempt to be more specific on the subject of
when to prepare an EIS, but the net effect is
likely to be modest. Of the 11 environmentally
based criteria now given, six are still subjective,
using such terms as "significant change!'
Such a lack of specificity could be eliminated
by creating a series of objective, environ-
mentally-based threshold criteria that would
trigger preparation of an EIS.
The question of establishing such criteria,
however, should carefully be considered. It
would be a serious error to develop criteria
requiring so many EIS's that Agency staff
couldn't possibly do them all.
To avoid such overload, it may be possible to
develop two procedures. "New" projects —
those for which facilities planning began after
May 1, 1974 — would be subject to threshold
criteria. If the facilities planning guidance is
properly implemented, EIS preparation should
not place a large burden on Agency staff. For
projects already "in the pipeline," where there is
no opportunity to guide the course of project
planning, a different set of rules would apply.
Each Regional Administrator would set a target
of EIS's to be produced on these projects. This
target would be in the range of 5 percent of "in
the pipeline" projects. The Regional Administra-
tor would decide which projects would have
EIS's, and which could be prepared in-house or
by consultants. After a few years, the number of
"new" projects would increase until all projects
are "new" projects. For example, in F Y-75 there
will be 560 "new" projects as opposed to
1,700 projects "in the pipeline" (Other grants
will be approved but will not require EIS's either
because they will have been done already or
because they will not yet be required). But in
FY-76, the number of "new" projects will
increase to 1,200 and the number of "in the
pipeline" projects will decrease slightly to 1,450.
What kinds of projects have had EIS's in the
past? In terms of environmental issues, they
have varied greatly. Some of the more common
issues have been location of plant, effluent
discharge points, means of sludge disposal,
growth implications, and effects on another
community's supply of potable or recreational
waters. Almost twice as many statements have
been written for projects under $10 million as
for projects over $ 10 million.
Total expected project cost* # EIS's written
Under $1 million
$1 - $5 million
$5 - $ 10 million
$10- $20 million
Over $20 million
TOTAL
17
11
2
9
47
*As encouraged by EPA policy, many EIS's represent more
than one project. Figures here represent the sum cost of all
projects included under a single EIS.
Since no single category of projects is more
likely to produce environmental insults than any
other, any set of criteria should be designed to:
• Take the guesswork out of EIS decision-
making.
30
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• Assure EIS's are being written on the right
projects.
• Resist external political pressure and
internal administrative pressure against pre-
paring EIS's.
The following are examples of the kinds of
criteria that could be established. An EIS would
have to be written when a project involves:
• A new treatment plant or an expansion of
an existing plant that provides excess plant
capacity (design capacity minus initial use
capacity) of 40 percent or more.**
• Total project costs of $10 million or more
in cases other than an upgrading of an
existing facility or a renovation or separa-
tion of existing sewer lines.
• Interceptor sewer lines that will pass
through, run adjacent to, or otherwise serve
undeveloped land of 1,000 acres or more.
• A wetlands area.
• Discharging into an estuarine area.
• A public water supply.
• Historic properties.
• An air basin which is critically polluted.
• Controversial environmental con-
siderations.
The Review Group estimates that application of
triggering criteria may result in the preparation
of EIS's on about 10 percent of "new" projects.
The Work Group favors establishment of a
two-part system employing threshold criteria
for "new" projects and a regional target for
EIS's prepared on "in the pipeline" projects.
Such a system would:
• Reduce current criticism of EPA for pre-
paring "too few" impact statements.
• Improve the image of the Agency as pro-
tector of the environment.
**During its study of environmental evaluation, the special
study group found several projects which would have met this
criterion.
• Involve other Federal agencies and the
public in the decision-making process.
• Reduce risk of lawsuits on grounds of not
complying with NEPA.
Advisability of Using an EIS as a Decision-
Making Document. There will be instances
where some environmental issues will be unre-
solved at the end of facilities planning. These
unresolved issues will be discussed in the EIS.
The question is whether the EIS should be
viewed as a decision-making document in these
cases. Would the Agency be justified in taking a
hard look at the approvability of the project on
the basis of the EIS?
In the case of the Environmental Protection
Agency, environmental protection is our busi-
ness. Therefore, our EIS's are unique and should
weigh in a single document the advantages in
terms of improved water quality against any
possible disadvantages to the air, water, animal,
and human environments. The Review Group
believes that an EIS prepared by EPA is a
decision-making document.
Conclusions and Recommendations
It is evident from the study that there is
considerable room for improvement in fulfilling
the goal of constructing waste water treatment
facilities that do not adversely affect the en-
vironment. Many individuals within the Agency
are working hard to improve the Construction
Grants Program in their area. Nevertheless, the
Review Group concludes that further progress
requires Agency policy to explicitly state that
new projects will* be approved only if a good
facilities plan, including a thorough evaluation
of environmental effects, is provided. Such a
strong commitment is essential to maintain the
program's environmental integrity. In addition,
EPA should:
• Take an active role in implementing the
new facilities planning guidance, especially
with regard to environmental considera-
tions.
• Insist that program grantees prepare a good
facilities plan which the Agency can use as
the basis for a draft EIS.
31
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• Use informal means to encourage ap-
plicants to hire consultants with strong
environmental expertise.
• Develop a set of objective threshold criteria
clearly specifying when an EIS is required
on "new" projects.
• Make EIS decisions as early as possible in
the project.
• Establish a procedure for Regional Admin-
istrators to set their own targets for the
number of EIS's to be prepared on "in the
pipeline" projects.
• Develop procedural guidance specifically
addressing needs of applicants and setting
quality criteria to be used by Regional
Offices in evaluating the environmental
aspects in facilities plans.
• Begin research into the area of how best to
predict environmental impacts of construc-
tion grants projects.
• Hold a meeting of all Regional Facilities
Planning Branch Directors, Construction
Grant Division Directors, and selected staff
to explain the Agency's environmental
commitment and discuss methods of im-
plementation.
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V. PROTECTING PROGRAM INTEGRITY
This chapter addresses problems and makes
recommendations related to protecting the
integrity of the Construction Grants Program.
The term "integrity" is used here to mean the
avoidance of the broad range of fraudulent
activities and other irregularities to which the
program is vulnerable. The spectrum runs from
criminal fraud (that is, the knowing and willing
falsification of a material fact or of a claim on
the Federal purse) to employee misconduct,
unreasonably high profits, unsatisfactory work,
and other situations that do not involve illegali-
ties but arise from neglect or incompetence.
The grantee is, of course, primarily responsi-
ble for ensuring the integrity of projects under
his control, and some responsibility is borne by
the State agencies involved. However, EPA
cannot shirk its ultimate responsibility for the
stewardship of billions of public dollars.
Fortunately, the Construction Grants Pro-
gram has not yet been hit by the types of
scandals that rocked Federal highway construc-
tion programs in the mid-60's and Federal
housing programs in the early 70's. Nonetheless,
it is the Review Group's conclusion, one that is
shared by most of those associated with the
program in Headquarters and the Regions, that
the Agency is not now doing an adequate job of
protecting the overall integrity of the program.
The problem is not one of overall program
design. The essence of the problem relates to the
rapid mushrooming of the program from about
$200 million obligated in 1968 to $2.6 billion in
FY 74, making it one of the nation's largest
public works program. A public works program
of this size affords vustly expanded temptations
and opportunities for the gamut of irregularities.
At the same time, the manpower devoted to the
program has not kept pace with this growth. In
response to increasing workload, attention has
been devoted to mee ing minimum legal require-
ments related to tru processing of projects, to
the detriment of other functions—for example,
inspections—which are more related to the pre-
vention of irregularities.
The protection of a program's fiscal and
administrative integrity is best approached
through an integrated system of activities per-
formed by operational personnel at Federal/
State/local levels, backed up by a strong inde-
pendent audit function. This chapter discusses
such a system in terms of the following ele-
ments:
• Guidance on desirable practices.
• Selection of consultants and con-
tractors.
• Education of EPA, State, and grantee
personnel.
• Selected reviews.
• Project inspections.
• Independent audits.
• Reporting and investigation.
The overall objectives of the approach out-
lined are to: (1) deter attempts to undermine the
program's integrity; (2) increase the probability
of detecting those irregularities that do occur; and
(3) increase the probability that those
involved in such irregularities are identified and
dealt with in an appropriate manner. The most
desirable mix of these activities can only be
determined after a lengthy trial-and-error proc-
ess of assessing relative and combined effective-
ness and cost, and is subject to constraints
imposed by resource availability.
Guidance on Desirable Practices
The Construction Grants Program is a nation-
wide program wherein matched Federal and
State funds are funneled to local jurisdictions
which, in turn, contract with consulting firms
and construction companies. It is to be expected
33
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that legal requirements and practice with respect
to fiscal accountability will vary widely from
one grantee to another, as will their experience
with large-scale construction programs.
Guidance intended to supplement and explain
formal requirements contained in law or regula-
tions is currently provided grantees by the
Regional Offices, but it varies considerably in
coverage and, in some instances, is inconsistent.
Of the eight Regions canvassed on this topic, six
saw the need for improved, uniform, compre-
hensive guidance. This need is confirmed by a
series of pilot audits of projects under construc-
tion, conducted by EPA's Office of Audit early
in 1974. The major findings of these audits
are:
• Grantee accounting systems and controls
are inadequate in regard to segregating
eligible costs, reviewing billings from A/E
consultants, and withholding payments for
unacceptable work.
• Grantee procurement systems are inade-
quate in regard to contracting for architec-
tural and engineering (A/E) consultant serv-
ices, evaluating unbalanced bids for unit-
price contracts, and reviewing construction
change orders.
• Grantees and their resident engineers do
not have formal procedures in regard to
quantities under unit-price contracts.
Clearly stated guidance on desired practices is
the starting point for protecting program integ-
rity. Such guidance could be provided through
the Construction Grants Manual, EPA/State/
grantee conferences, responses to grantee in-
quiries, and on-site technical assistance. The
appropriate method will depend upon the sub-
ject matter to be covered, the specific problems
of the grantee involved, and the resources
available to the Agency for administering the
construction grants program. However, the Re-
view Group feels that in any event, a written
package containing clear, concise infoimation
regarding desirable practices in the areas of
accounting, procurement, and project manage-
ment would be of use to many grantees.
The primary objective of written guidance
would be to describe systems and procedures
that would be valuable in carrying out the
stewardship function, particularly in deterring
and detecting fraud and other irregularities. The
material would be written for the grantee who
has basically adequate systems, procedures, and
staff capabilities, but who is faced only infre-
quently with managing a large construction
grant project. Many of the larger grantees, and
their A/E consultants, operate acceptable sys-
tems and procedures. In order to keep disrup-
tion of existing acceptable practices to a mini-
mum, any guidance developed by EPA should be
flexible enough to accept different procedural
approaches. We believe, however, that even the
most sophisticated grantee will benefit from a
discussion of desirable practices, while less capa-
ble grantees may well require contractual assist-
ance in developing and maintaining adequate
systems and procedures.
The following topics should be considered for
inclusion in this written guidance:
• Desirable accounting practices, including:
— Segregation and identification of project
costs by type of expense and eligibility.
— Segregation and identification of re-
ceipts from the Federal Government, and
from rebates and refunds.
— Support and documentation of in-house
costs such as force accounts and adminis-
trative overhead.
— Review and payment of billings for
professional services and construction
work, particularly quantities billed under
unit-price contracts.
— A system of internal controls adequate
to deter fraud or irregularities by an in-
dividual working alone or in collusion with
others.
- Accountability for supplies and non-
fixed equipment purchased with proj',vt
funds.
— Preparation of Federal payment re-
quests.
• Desirable procurement practices, including
procedures for:
34
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— Selecting qualified consultants and nego-
tiating contracts at a fair and reasonable
price.
- Bidding and awarding of construction
contracts with emphasis on invitation-for-
bid requirements and on unit-price con-
tracts.
- Reviewing change orders, especially
where a change of project scope or a
significant increase in quantities under a
unit-price contract is involved.
— Determining when work is unacceptable,
and withholding payments pending
appropriate actions.
• Desirable project management practices,
including:
- Utilization of project management aids
such as PERT to track construction pro-
gress and costs and to highlight potential
problem areas as soon as possible.
- Control of the quality of the work
performed by consultants through periodic
reviews.
— Control of the quality of work per-
formed by construction contractors, pri-
marily through a strong resident inspection
function.
— Good working relationship between the
grantee's staff and the A/E consultant, who
is often delegated almost total responsi-
bility for the design and construction of
the waste facility.
The written materials described will pro-
vide a basis upon which a Region could structure
the guidance needed by individual grantees. As
discussed in Chapter II, the Review Group is
recommending a series of face-to-face confer-
ences involving EPA, States, and grantees to
further discuss the impact of Federal require-
ments in specific cases. The preapplication con-
ference would be the appropriate time to review
the guidance package in general, and to discuss
in some detail the sections dealing with (1) A/E
consultant selection and quality control and (2)
systems and procedures pertaining to construc-
tion, particularly construction requiring a long
lead time for development. The practices dealing
with construction would then be covered in
detail during the preconstruction conference.
This emphasis on written materials and peri-
odic conferences should reduce the number of
problems that have in the past resulted in
time-consuming inquiries and requests for tech-
nical assistance.
The dissemination of EPA information should
be closely coordinated with States that provide
similar guidance to their treatment authorities.
(As a means of strengthening the role of the
States and reducing EPA personnel require-
ments, EPA should explore having States handle
the entire information-dissemination function).
We recommend that EPA develop and dis-
tribute guidance to grant applicants and A/E
consultants on preferred accounting, procure-
ment, and project management practices. The
Grants Administration Division should have lead
responsibility for the development of this guid-
ance.
Selection of Consultants and Contractors
The selection of A/E consultants is a critical
step in the construction grants process since
they play a major role in several areas that hold
potential for fraud or other irregularities. A/E
consultants influence site selection, prepare
plans and specifications, screen change orders,
and - most important - normally provide
construction inspection services. In fact, many
grantees delegate almost total responsibility for
the design and construction of sewage facilities
to their A/E consultants.
Contractors are, of course, responsible for the
actual construction of the facility, and it is
during the construction phase that the greatest-
potential for irregularities exists. Table V-l
illustrates some of the potential irregularities.
The selection of honest and competent A/E
consultants and contractors is clearly an impor-
tant mechanism for limiting potential abuses.
The primary responsibility for selection appro-
priately lies with the grantee. However, EPA has
the right and should have the ability to help the
grantee make his choice, even to the point of
excluding or disqualifying specific contractors
from participation in the construction grants
program under specified conditions. To improve
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the selection process EPA can promulgate regu-
lations, carry out cost analyses of contracts, and
disqualify certain contractors or consultants.
Promulgation of Regulations. EPA is cur-
rently drafting regulations (35.936 and 35.937)
covering negotiated procurements, which in-
clude the services of A/E consultants. These
regulations should include the following pro-
visions:
• Adequate public announcement of any
requirements for A/E consultant service
which is anticipated to be in excess of a
minimum dollar amount.
• The selection of a minimum of three
qualified A/E consultants by a technical
evaluation panel, primarily on the basis of
experience, size of job, and prior perform-
ance.
• The negotiation of a contract at a fair and
reasonable price with the consultant found
to be most qualified by the technical
evaluation panel (with provisions to be
followed should negotiations with the most
qualified consultant not be successful).
• Limitation on the form of contract; per-
centage-of-construction-cost and the cost-
plus-percentage-of-cost types of fee con-
tracts should be excluded.
• The retention by the grantee of sufficiently
detailed records to document the factors
used in selecting an A/E consultant and
negotiating his fees; these records would be
made available to the Agency and the
general public upon request.
• Authority for the Regional Administrator
to modify or waive these requirements
prior to the award of such a contract.
EPA should promulgate regulations covering
the selection and negotiation of personal and
professional services as soon as possible.
Cost Analyses of Contracts. The opportunity
exists for a consultant to earn unreasonably high
profits on construction grants projects. To a
certain extent, profits will be brought under
control by excluding certain types of contracts
as recommended above. However, the experi-
ence of EPA's Contract Cost Review Branch in
reviewing contracts in other programs indicates
that further costs analyses may yield handsome
returns.
In a cost-plus-fixed-fee type of contract a cost
analysis would focus on three questions :
• Are the direct labor charges (dollars per
man-hour) reasonable for the type of serv-
ice provided?
• Is the overhead multiplier justified, mea-
sured either against industry standards or
against rates previously negotiated for
Federal work?
• Are the out-of-pocket expenses quoted
reasonable and allowable?
In particular, the Cost Review Branch reports
that individual consultants have quoted an over-
head multiplier of 2.5 to 3.0 (that is, the firm's
indirect costs of keeping a consultant on a
project are 2.5 or 3.0 times his salary and direct
benefits), where a 1.5 multiplier would generally
have been more appropriate.
Because the primary responsibility for ensur-
ing that fees are reasonable belongs to the
grantee, the Agency should allow grantees to
certify that an adequate cost analysis has been
performed. While EPA reviews do not require a
large amount of EPA manpower (perhaps 1 to 2
man-days per contract), they could delay ap-
proval of grant applications. The main impact
from EPA reviews may come early in the
program when they will demonstrate that EPA
means to seriously enforce its regulations on
reasonable costs; subsequently the reviews
would be used selectively.
The Review Group supports the proposed
revisions to the General Grant Regulations
which would require "cost analyses" for all
negotiated contracts for professional services
which exceed a specified amount. We recom-
mend that the Cost Review Branch and the
Grants Administration Division undertake a
pilot program of cost analyses of consultant
contracts. The program might consist of review-
ing all contracts received in one or more Regional
Offices during a specific month. The purpose of
the pilot program would be to determine the
size of potential dollar savings, the Regional
workload involved, the extent of potential grant
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TABLE V-1
ILLUSTRATIONS OF IRREGULARITIES
POTENTIALLY ARISING DURING CONSTRUCTION
ACTIVITY OR ACTION
Procurement of materials
and equipment
Placement or removal of
materials and equipment
Materials and systems
testing
Change orders
Force account work
POTENTIAL IRREGULARITIES
1. Materials and equipment
do not meet specifications.
2. Quantities received are
less than quantities
billed.
3. Prices billed are greater
than the prices bid.
1. Sewer pipe improperly
bedded or jointed.
2. Pilings not driven to
specified resistance.
3. Quantities of materials put
in place, such as cubic
yards of concrete, overstated
on unit price contracts.
4. Equipment not installed in
accordance with specifi-
cations.
1. Concrete structure approved
that does not meet strength
specifications.
2. Sewers approved that do
not meet integrity tests.
3. Plant and plant components
approved that do not meet
prescribed efficiencies.
1. Change orders of unreason-
ably high cost approved.
2. Orders approved for
unnecessary work.
3. Orders approved to mask
mistakes during design
phase.
1. Vouchers submitted for
work not performed.
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2. Ineligible direct or
indirect costs approved.
Resident inspection
Payments
1. Inspection not conducted,
incompetently conducted,
or dishonestly conducted.
1. Vouchers submitted for
work not done or for
ineligible costs.
processing delays, and reasonable criteria for
selecting which contracts are to be reviewed by
EPA on an operational basis. Subsequently,
review guidelines should be developed for inclu-
sion in the Construction Grants Manual.
Debarment and Suspension Procedures. The
disqualification of certain contractors and con-
sultants for cause would be a powerful deterrent
to certain kinds of abuses. To be effective, a
formal debarment and suspension process is
required, both to ensure adequate dissemination
of the information to appropriate EPA offices,
and to provide due process to the contractors
involved.
At least two related programs already exist in
the Agency:
• EPA Regulation 15.1-6 sets forth the
Agency's policy and procedures for debar-
ring or suspending for cause potential
bidders on EPA contracts.
• Two Federal Government debarment and
suspension lists are currently distributed
within EPA: (1) the Consolidated List of
Current Administrative Debarments by
Executive Agencies, distributed quarterly
by the General Services Administration and
(2) a similar list of persons or firms
debarred for violations of statutory labor
standards (for example, Davis-Bacon Act).
distributed quarterly by the General
Accounting Office.
A number of Federal agencies, including the
Department of Housing and Urban Development
and GSA, have established formal intragency
programs for debarring, suspending, or otherwise
disqualifying ineligible grantees and contractors.
The Review Group believes that a debarment
and suspension list should be developed and that
the Regional Offices should be encouraged to
use it. At a minimum, construction contractors
would be subject to such procedures. Although
the code of ethics of the A/E profession
generally provides adequate protection, the Re-
view Group believes that EPA should also debar
and suspend A/E consultants should circum-
stances warrant such harsh action.
We recommend that EPA establish and main-
tain a debarment and suspension list. Preferably,
the list applicable to construction grants awards
would be compiled and distributed jointly with
the lists currently being distributed. The Office
of General Counsel should be responsible for
drafting the necessary regulations and periodi-
cally reviewing the operation of such a program.
Education of EPA, State, and Grantee Personnel
The preceding discussion has touched on the
need for increased awareness among Construc-
tion Grants Program personnel regarding activi-
ties which might corrupt the program's integrity.
The Review Group believes that this need is
important enough to warrant an extensive pro-
gram of education.
We are talking about a formal training pro-
gram which would cover a variety of topics,
including the following:
• The nature of fraud and other irregularities,
focusing on how acts might be perpetrated
and what those involved stand to gain.
• Common approaches to building systematic
controls that deter wrongdoing or increase
the probability of detecting acts that do
take place.
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• How to recognize situations or patterns of
behavior where irregularities might be pres-
ent.
• Procedures for referring suspicious cases to
the appropriate person within, or outside
of, the Agency.
The training program would include a brief
orientation course for all program personnel,
intended primarily to increase awareness of
potential problems. In addition, courses tailored
to the needs of specific jobs would be
developed, utilizing a mix of lectures and case
studies designed to take those individuals be-
yond simple awareness. Highest priority should
be given to courses for project inspectors and
those reviewing grantee submissions. Eventually,
such courses should be made available to the
States and to grantees.
We recommend that the Office of Planning
and Management coordinate and expedite the
development of a "program integrity" training
program,
Selected Reviews
The existing review process affords a number
of opportunities for the control of fraudulent
and other irregular activities in connection with
construction grants. The two major short-
comings of the current process are that insuffi-
cient emphasis is given to the detection of
irregularities, and that the nature of the review
varies widely from Region to Region. Those
elements of the review process that seem to hold
the highest potential for the control of irregu-
larities are discussed below, together with spe-
cific recommendations for improvements. Rou-
tine reviews of grantee submissions have the
potential of spotting possible trouble points
with a low expenditure of manpower. However,
except in special cases, the reviewer is not able
to detect more than the obvious attempts to
corrupt program integrity. The Review Group
believes that these reviews should be redirected
so that only selected submissions receive more
than a cursory review, and that these more
intensive reviews on selected submissions be
focused on detecting possible fraud or irregu-
larities.
Design Specifications. A significant potential
for corrupting the integrity of the Construction
Grants Program lies in precluding competition in
the procurement of materials and equipment
through restrictive specifications. Because of the
high incidence of such specifications in the past,
PL 92-500 requires EPA to review plans and
specifications as follows:
No specification for bids or statement of
work in connection with such works shall
be written in such a manner as to contain
proprietary, exclusionary, or discrimina-
tory requirements other than those based
upon performance, unless such require-
ments are necessary to test or demonstrate
a specific thing or to provide for necessary
interchangeability of parts and equipment,
or at least two brand names or trade names
of comparable quality or utility are listed
and are followed by the words "or equal".
All Regions currently review design specifica-
tions for such restrictions, but the extent of
review varies among the Regions from as little as
10 minutes to as much as 1 man-day per project.
Region V, for example, estimates that defi-
ciencies are uncovered in over 50 percent of the
design specifications it reviews, but data are not
available to quantify the resulting benefits.
The Review Group believes that the com-
plaint procedures outlined in the Construction
Grants Regulations (35.939) are adequate to
allow this statutory requirement to be largely
self-policing. However, guidelines should be
developed so that these reviews, to the extent
that they should be done, are approached
consistently among the Regions. The guidelines
should include coverage of format for (1) base
bids,(2) alternate bids, and (3) adds and deducts
to base bids. We recommend that the Office of
Water Program Operations, after determining a
desirable level for reviewing restrictive specifica-
tions, prepare guidelines for inclusion in the
Construction Grants Manual.
Bid Tabulations. The review of construction
contract bid tabulations can be important for
achieving cost-effectiveness and for maintaining
program integrity. The irregularity that holds
the greatest potential for fraud is the attempt by
an applicant to unjustifiably award a contract to
other than the low bidder. Other possible
irregularities include "unloading" bids on unit-
price contracts (that is, inflating bids for certain
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components and deflating bids for others) and
the inclusion of ineligible costs.
All Regions review bid tabulations, but again
the nature of the review varies considerably
from one Region to another. Within a Region,
review efforts vary among projects, with the
most attention being paid to those tabulations
that contain (1) single bids, (2) bids substan-
tially higher than engineering estimates, or (3)
unbalanced bids on unit-price contracts.
Data are not available to permit quantitative
evaluation of the benefits of bid tabulation
reviews. The majority of Regional personnel
interviewed, however, believe that the reviews
are of substantial value and should be continued.
An average of about 1 man-day per project
is required for an adequate bid tabulation
review.
We recommend that the Office of Water
Program Operations, after determining a desir-
able level for reviewing bid tabulations, prepare,
in coordination with the Grants Administration
Division guidelines for inclusion in the Construc-
tion Grants Mqnuc
Change Orders. It is common practice in
construction contracting to include procedures
for "change orders" through which design
specifications may be amended as construction
proceeds, in order to accommodate unforeseen
circumstances. Without such provisions, the un-
certainties inherent in a large construction proj-
ect would cause potential contractors to bid
higher prices, if they would bid at all. Un-
fortunately, change orders are often used by
contractors to "get well", or make higher
profits, once a contract has been let through
competitive bidding.
As in the other types of reviews discussed in
this section, the manpower devoted to reviewing
change orders varies considerably among the
Regions. Some Regions review change orders in
detail to determine if the work is already
reflected in the bid price, if the change seems
justified, and if the cost is eligible for Federal
participation; other Regions confine their re-
views mainly to cost eligibility. Eight Regions
identified guidelines for the review of change
orders as an important need.
We recommend that the Office of Water
Program Operations, after determining a desir-
able level for reviewing change orders, preparejn
coordination with the Grants Administration
Division, guidelines for inclusion in the Construc-
tion Grants Manual.
Project Inspections
The formal reviews and approvals described
above typically take place within the confines of
the EPA Regional Offices. While bringing the
papers to the reviewer saves EPA manpower, it
necessarily reduces EPA's familiarity with the
project itself. Monitoring tasks that cannot be
handled effectively within a Regional Office are
handled by project inspectors.
Interim Inspections. The frequency of in-
terim inspections varies widely among the Re-
gions, primarily because of different program
priorities and general manpower constraints.
One Region conducts at least two inspections
per project annually, four Regions conduct them
less frequently, and five Regions make no
inspections. Interim inspections generally aver-
age 1 man-day and cover, to the extent possible,
(1) the percent of work complete, (2) the
general quality of construction, (3) current and
potential problems, and (4) general compliance
with grant conditions.
The utility of such inspections in ensuring
cost-effective facilities has been discussed in
Chapter II. The Review group believes that
interim inspections could, in addition, play an
important role in deterring and detecting irregu-
larities. A project in New York State provides a
striking example of this potential role. The in-
terim inspection in this case detected deficiencies
which caused EPA to withhold project pay-
ments. Subsequent investigation led to indict-
ment of the project contractor, pipe supplier,
former town attorney, project engineer, and
field foreman on 107 counts of criminal activ-
ity.
An expanded or redirected interim inspection
could appropriately address the following areas,
in addition to the four mentioned above:
• The quality of project management or
supervision by the grantee of his A/E
consultant.
• Unsafe construction practices such as
inadequate shoring of ditches or traffic
warnings.
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• Construction deficiencies, such as improper
jointing of pipe or honeycombed concrete.
• The activities performed and docu-
mentation maintained by the resident
inspector.
An EPA inspector can visit the typical project
only periodically and then only for a relatively
short time. The resident inspector is on the job
full-time and is charged with protecting the
public interest Earlier in this chapter we recom-
mended that guidance be provided the grantee,
and his A/E consultant, on what constitutes an
adequate resident inspection function. We
recommend that the primary focus of EPA
interim inspections be an "inspection of the
resident inspector"; and that the Office of Water
Program Operations develop guidelines for such
inspections for inclusion in the Construction
Grants Manual.
The recently initiated construction audit pro-
gram has pointed up a variety of areas that
should receive particular attention, including the
adequacy of documentation to support (1)
quantities billed under unit-price contracts, (2)
the cause and cost of change orders, and (3) A/E
inspection services billed on a cost basis. Ex-
panding the emphasis on detection or deterrence
of fraud and other irregularities would increase
interim inspections from an average of 1 man-
day to 2 man-days per visit.
Grantees handle the resident inspector func-
tion in essentially two ways: larger municipali-
ties frequently use their own inspectors; the
smaller ones generally pay their A/E consultant
to perform the service. From the point of view
of integrity, the first approach may be advan-
tageous in that it introduces a third party at the
construction site, which tends to deter collusion.
The Federal-State highway program uses State
employees for resident inspectors. Federal High-
way Administration officials interviewed believe
this approach is very effective. We recommend
that the Office of Planning and Management
evaluate the alternative means of handling the
resident inspector function from the standpoint
of deterring irregularities and of impact on a
project's eligible costs.
Final Inspections. A final inspection is cur-
rently made of all construction grants projects
before the grantee submits his final payment
request. Essentially, this is an engineering "sign-
off, and the inspector is primarily concerned
with the condition of the physical plant and its
operational effectiveness. Final inspections have
some potential for the detection of fraud,
depending upon the project's record of interim
inspections, but fraud detection currently re-
ceives little emphasis.
The proposed initiation of a universal interim
inspection program, and the changing nature of
the Agency's compliance assurance program,
raise questions about the role of these final in-
spections. For the time being, the Review Group
concludes that final inspections should con-
tinue to seek their traditional objectives. How-
ever, we recommend that the Office of Water
Program Operations prepare guidelines on final
inspections for inclusion in the Construction
Grants Manual. In addition, we recommend that
the Office of Water Program Operations design
and implement a program of data collection and
analysis that will determine the most effective
combination of interim and final inspections.
Independent Audits
So far in this chapter, we have discussed
several approaches to deterring or detecting
fraud and other irregularities and maintaining
the integrity of the Construction Grants Pro-
gram, including: (1) additional regulations and
improved guidance for the grantee so that he
knows what is required or expected, and
(2) improved guidelines for the desk reviews and
field inspections conducted by the EPA Re-
gional Offices. A necessary additional element in
the Agency's overall system of control is a
strong, independent audit function. Auditors
conduct reviews that are intended to accomplish
a variety of objectives, ranging from determining
that a payment request should be paid, to
determining that a program is being run in
compliance with pertinent laws and regulations.
It is important to note that in carrying out this
function, EPA's Office of Audit has the author-
ity and responsibility to review the books and
activities of grantees, their subcontractors, in-
volved State agencies and EPA offices.
Through FY 74, the Office of Audit's only
recurring involvement with the Construction
Grants Program was to conduct final audits of a
grantee's construction account on all projects. In
most instances, these audits consisted of (1) a
reconciliation of accounts to determine that the
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grantee has actually spent the money claimed,
(2) a review for exclusion of ineligible expendi-
tures, and (3) for audits conducted in the field, a
visit to the project to see if it is in operation,
O&M is being performed, required samples are
being taken, etc. Although such audits have
provided an additional assurance that the re-
quests for Federal grant payments are valid and
should be paid, there is little evidence that they
have been effective in deterring or detecting
fraud or other irregularities. We recommend
adoption of recent proposals to expand the
construction grants audit program to provide the
capability for conducting audits prior to start of
a Step 3 grant and during construction of a
facility, as well as the traditional final audits.
Preconstruction Audits. Preconstruction aud-
its would be conducted on selected grantee
activities from award of Step 1 grants to the
start of construction. The audits would be
designed to determine the adequacy of the
grantee's policies, procedures, practices, and
internal controls relating to:
• Accounting for eligible and ineligible costs.
• Procuring engineering and construction
services, supplies, and equipment.
• Inspecting and auditing the work per-
formed by the consultants and construc-
tion contractors.
• Pricing and processing of construction
change orders.
• Preparing interim and final requests for
Federal payments.
The primary advantage of preconstruction
audits is that they provide the opportunity to
detect and correct severe deficiencies in the
financial and management systems before a
project's cost is affected. Should inadequacies be
uncovered, corrective actions would be sug-
gested or required as a condition for further
grants. The results of preconstruction audits
would be used in planning future audits for an
individual project or grantee.
Preconstruction audits would be the excep-
tion rather than the rule, and would be con-
ducted in the case of severe problems that
cannot be handled by the types of guidance
discussed earlier. Regional personnel would de-
termine the need for such an audit as a result of
reviewing a grantee's submissions or providing
routine technical assistance. Preconstruction
audits may be required on only 5 to 10 percent
of the active Step 1 and Step 2 projects. The
Office of Audit has estimated that such an audit
would typically require 13 man-days, although
this may be revised with experience.
We recommend that the Office of Audit
undertake a pilot program of preconstruction
audits as soon as possible. The pilot program
would seek to develop guidelines to help the
Regions determine when to request such audits,
to develop an "audit guide" for use in future
preconstruction audits, and to recommend a
level of staffing.
Construction Audits. Departing from its
practice of auditing construction grants only
"after the fact", the Office of Audit recently
conducted a pilot program in which four pro-
jects were audited during construction. These
"construction" audits were more comprehensive
than the typical final audit in that they covered
the adequacy, effectiveness, and reliability of
the grantees' accounting, procurement, and man-
agement systems. The audits disclosed a number
of weaknesses or difficulties, which could have
provided ample opportunity for the mismanage-
ment or misappropriation of project funds. In
addition, the pilot program was of value in
establishing a Federal "audit presence". (Before
the audits were completed, inquiries were re-
ceived concerning their findings from such dis-
persed places as Seattle and Boston.)
As a result of the pilot program, EPA has
instituted a program of construction audits. In
FY 75, 15 audit man-years have been allocated
to the function; at an average of 20 man-days
per audit, 170 projects, or about 5 percent of
those under construction, will be audited.
During FY 75, the following criteria will be
used in selecting projects for construction aud-
its:
• Project involves substantial A/E consultant
fees.
• Construction contract includes unit-prices.
• Grantee has not had a prior EPA audit.
• Grantee has submitted at least one con-
struction payment request.
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• Other factors being equal, large projects
will receive priority over small projects.
Construction audits will also be undertaken at
the request of a Regional Administrator. Even-
tually, the need for these audits is exptected to
be identified primarily as a result of interim
construction inspections.
These construction audits will be designed to
cover the following areas:
• Review and evaluation of policies, proce-
dures, and practices (including those of the
A/E consultants), and selective tests of
transactions to determine the adequacy or
inadequacy of the accounting, procure-
ment, and management systems.
• Review of eligible and ineligible costs, with
special attention to interest, damage awards,
site acquisition costs, bonus payments,
costs in excess of bid price, normal govern-
ment costs, and unnecessary or un-
reasonable costs.
• Review of construction contracts,
particularly unit-price contracts.
• Review of procurement procedures for
consultants.
• Collection of statistical data on the cost of
A/E consultant services, including project
design, supervision' of construction, and
preparation of O&M manuals.
The results of about 50 construction audits
will be evaluated in December to provide a
midyear assessment and permit adjustments to
the program.
Final Audits. As preconstruction and con*
struction audits will be conducted only 01)
perhaps 10 percent of projects active during a
given year, the need for a universal final audit
remains. The Review Group agrees with the
Office of Audit, however, that the nature of
these final audits should be revised.
Two types of final audits have been con-
ducted: desk audits, conducted in area audit
offices using project file data and averaging 2
man-days per project; and field audits, con-
ducted at grantee offices using the more exten-
sive documentation available there,and averaging
10 man-days.
During FY 74, field audits were conducted on
all grants where the Federal share exceeded
$250,000. Although field audits could be con-
ducted on smaller projects where a review of
project files indicated it might be necessary, this
was seldom done due to staffing constraints.
One problem of this approach was that excessive
manpower may have been devoted to "clean"
projects—that is, projects whose files would have
indicated good bid tabulations, relatively small
A/E consultant charges, no force account labor,
no inspection deficiencies, etc. In addition, the
number of irregularities detected by final audits
has been minimal. During the IVi year period
ending December 31, 1973, 1,700 audit reports
were issued covering projects costing about $1
billion; no report indicated fraud or collusion.
In FY-75, the Office of Audit plans to remove
this strict dollar criterion. Each project file will be
briefly reviewed-to determine if a desk audit will
suffice. As in the construction audit, the size of
a project will influence the decision to require a
field audit, but only as one of several factors to
be considered. The field audits that are con-
ducted will be more thorough and will include
additional tests designed to detect the possibility
of fraud and other irregularities. An estimated
10 man-days of effort will be required for the
typical final field audit using this approach. A
small number of projects will also necessarily be
subjected to a substantially expanded field
audit, similar in scope and depth to the con-
struction audit.
We recommend that a more comprehensive
audit program be brought up to speed as soon as
possible. The Office of Audit should also insti-
tute a program designed to collect the statistical
data necessary to further define the most cost-
effective audit program.
Staffing Considerations. A more compre-
hensive audit program will require additional
auditors. Although the Review Group feels that
the need might best be met with career Federal
employees, the possibility of using temporary
Federal employees, State and local auditors, or
contract auditors should be considered.
During the past several years, the Office of
Audit has actively pursued an innovative solu-
tion to its staffing needs — the hiring of retired
auditors as temporary EPA employees. This
program has several advantages:
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• Experienced personnel — As of April 26,
1974, the Office of Audit had hired 56
auditors under this program. These indi-
viduals are generally GS-12 to GS-15 Fed-
eral auditors who have retired on an an-
nuity but, for one reason or another, desire
to continue working. During FY-75, the
Office of Audit anticipates getting 30
man-years of effort from these employees,
or over 25 percent of its total staffing.
• Low cost — During FY-74, the average cost
to the Federal Government of using retirees
was $5.52 per man-hour, far less than
either career employees or contract ac-
countants.
• Management flexibility — These employees
are paid only for the hours they spend on
an audit assignment, and they are dispersed
geographically, which reduces travel costs
in reaching remote construction projects.
As this paper is being prepared, the Office of
Audit has been allowed to hire Federal retirees
at higher GS levels; this increase in pay scales
may attract even more of these individuals.
Although there are more forms of temporary
employment that might be considered — for
example, consultants—the retiree program
should continue to be exploited, subject to
overriding personnel management considera-
tions.
In FY-71 the Office of Audit initiated a
second innovative program to meet its staffing
needs—contracting with State auditors to per-
form EPA audits within a State. State auditors
in New York, Indiana, and California performed
about 10 percent of the 700 construction grant
final audits completed during FY-74, at a
relatively low cost to EPA. Audit costs in
California and New York were shared 50/50
with the States; Indiana performed its audits
free of charge. The Office of Audit plans to
renew its efforts to develop cooperative Federal/
State audit programs; however, the potential of
such a program is limited by a variety of factors,
such as:
• The State must have a qualified audit
group—possibly attached to the State con-
trol agency, executive branch, or legis-
lature.
• The State must be willing to conduct an
audit that meets EPA requirements, at a
fair and reasonable cost.
• The State should have a financial stake in
the projects it audits - that is, a supple-
mentary State construction grant program.
• The volume of work in the State should be
sufficient to justify the mutual efforts
necessary to implement such a cooperative
program.
• In most cases, only routine final audits
should be performed by the States, with
EPA staff conducting the intensive audits
discussed in this Chapter.
The Office of Audit has tentatively identified
Michigan, Texas, Washington, Ohio, Pennsyl-
vania and Wisconsin as potential candidates for
this program. During FY-74, 30 percent of all
final audits completed on construction grants
were conducted in these six States; if the
program could be expanded to include these
States as many as 40 percent of all routine final
audits would then be conducted by State audi-
tors. The one major change recommended from
existing practice is that these cooperative audits
should be financed through "construction grant
fees", levied by the State on the grantee, rather
than through EPA contract funds. In addition,
the possibility of contracting with local govern-
ment auditors should be explored in special
circumstances.
A final alternative considered is that of
contracting with independent public account-
ants (IPA's) to perform audits to EPA specifica-
tions. A brief analysis of mis approach, based
primarily on EPA's experience with such a
program during FY-73, has led to these obser-
vations:
• Direct costs - While government account-
ing practices defy a definitive comparison,
it would appear that the direct cost per
man-hour of IPA assistance is no more than
the cost per man-hour of career EPA
auditors. This estimate, approximately
$20/man-hour, is based on the following
assumptions:
44
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- The average grade of EPA auditors (ex-
cluding retired annuitants) will continue
tobeGS-12orl3.
- The average EPA auditor will continue
to be available 180 man-days/year for
audit assignments.
- The indirect costs (including real costs
such as office space, but excluding out-
of-pocket expenses such as travel) of an
EPA auditor are at least 50 percent of
his direct labor costs (salary plus cash
employee benefits).
- Both IPA and EPA auditors average 5 to
6 man-days to conduct a field audit.
• Administrative problems — The Office of
Audit reports that 8 man-years of EPA
effort were required to administer approxi-
mately 8 man-years of IPA audit effort
during FY-73. The Agency should clearly
not resort to IPA's again unless this admin-
istrative overhead can be sharply reduced.
Federal contract procedures, and the Office
of Audit's responsibility to provide quality
control, probably mean that it will con-
tinue to cost more to administer and
supervise IPA's than EPA employees; how-
ever, it should be possible to reduce this
additional administrative burden to the
point where it takes perhaps 1 additional
EPA man-year to administer 10 contract
IPA man-years. The means to achieve this
require further study, but might include
using simplified contracting procedures and
contracting for services only in selected
States or metropolitan areas, rather than
nationwide as in FY-73.
• Audit quality - The experience of the
Office of Audit in FY-73 was that, given
the limited number of EPA audits handled
by any one IPA, they tended to start each
audit assignment "cold". This problem
could perhaps be overcome by specifying
that EPA audits be performed by only a
limited number of qualified IPA's. An
additional problem was that, compared to
EPA auditors, IPA's tend to be more
"conservative"—that is, they tend to look
only at the facts presented on paper and
hesitate to question reported costs or a
grantee's internal control. This conserva-
tism will continue to require consideration
in any future dealings with IPA's.
The Office of Audit reports that other Fed-
eral agencies have had similar problems with
contracting for services with IPA's; an on-going
study by the General Accounting Office may
provide additional insight into cost-effective
approaches, but probably not before the middle
of FY-75. In the meantime, personnel ceilings
may force EPA to once again explore this
option. In addition, 0PM should explore the
possibilities of allowing selected grantees to
contract directly with qualified IPA's, paying for
their services with construction grant funds.
Reporting and Investigation
Whenever there is suspicion of wrongdoing—in
any phase of the construction grants process—
the investigative capability to follow it through
must exist This function is currently shared by
the States and localities, the FBI, and EPA's
Security and Inspection Staff. In 1972 and
1973, 18 cases were investigated—11 by the FBI
and seven by EPA. An unknown number of
additional cases were investigated by State and
local agencies.
Current EPA policy and guidance in this area
are covered by EPA Order 3120.1 titled,"Investi-
gation and Reporting of Illegal or Unethical
Conduct". This five-page order covers in broad
terms some of the major elements of policy and
procedural guidance, but the Review Group
thinks that it should be strengthened by addi-
tional detail. It is possible that improper actions
resulting from the lack of detailed guidelines has
seriously weakened several potential criminal
cases. This more detailed guidance should in-
clude coverage of:
• Clear procedures for reporting incidents to
the appropriate authority.
• Regional and headquarters responsibilities
for processing complaints and for determin-
ing which allegations are to be investigated.
45
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• Standards for conducting investigations and
for determining when to make referrals to
the Department of Justice, the FBI or U.S.
Attorneys.
• Procedures for identifying and tracking the
status of investigations being carried on by
personnel of the Agency, and by other
Federal, State and local authorities.
Until such detailed procedures are worked
out, the Task Force does not feel it can make
recommendations regarding the resource needs
of EPA's investigative function.
// is recommended that the Office of Planning
and Management develop more detailed policy
and procedures concerning the reporting and
investigation of violations of either EPA Stand-
ards of Conduct,Regulations,or Federal criminal
and civil statutes.
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VI. DELEGATION AND CERTIFICATION
On January 23, 1974, EPA issued Administra-
tive Order 1000.10 setting forth its policy "to
utilize the staff capabilities of State government
agencies to the maximum extent practicable as a
means of eliminating unnecessary duplicative
reviews of specified documents that are a part of
the wastewater treatment facility construction
grant process." At the same time, it issued Order
1270.3 authorizing Regional Administrators to
execute written agreements with State agencies
delegating the technical and/or administrative
review and certification of adequacy of plans
and specifications, operation and maintenance
manuals, and certain documents involved in the
bid and contract process. Both Orders explicitly
recognized that EPA could not delegate respon-
sibility for actually approving the documents.
Consequently, both Orders referred to a process
whereby EPA would delegate the review func-
tion to the States and would expect to exercise
its approval responsibilities based on the receipt
of certifications of adequacy prepared and sub-
mitted by the reviewing State agency.
As of Aug. 31, 1974, formal delegations have
been executed with 21 States relative to plans
and specifications and with 22 States relative to
operation and maintenance manuals (see Table
VI-1). During 1975, pursuant to approved 1975
program plans, these delegations should increase
to 38 and 40, respectively. No delegations have
been made for bid and contract documents, but
delegations for review of change orders have
been executed with Connecticut, Vermont, and
California.
Section 35.912 of the Title II regulations
(issued February 4, 1974), enunciates a policy to
maximize delegations and authorizes Regional
Administrators to execute agreements with
States to delegate the technical and/or adminis-
trative review and certification of specified
documents. This provision formalizes, in regula-
tion form, the substance of Orders 1000.10 and
1270.3, but goes beyond these Orders by au-
thorizing delegation of any and all program
functions-not just the three functions listed in
Order 1270.3. This provision has the same
limitation as the Orders; it does not and cannot
provide for transfer of authority to the States to
actually approve Grantee submittals.
The delegation policies and directives de-
scribed are based on Sections 101(b)and 101(0
of PL 92-500, which express congressional
intent to give the primary responsibility in water
quality activities to the States, and to minimize
paperwork and duplicative activities. Nothing in
Title II of PL 92-500 authorizes delegating
program responsibilities to the States (except for
a specified role in priority setting), and nothing
in Title II provides a mechanism for giving
financial assistance to the States to encourage
their taking on delegated functions.
The water pollution control grants under
Section 106 of PL 92-500 are the only mecha-
nisms for encouraging and financially aiding the
States in assuming delegated functions. Begin-
ning with 1974, these grants have consisted of a
base grant and several incentive portions. Based
on a budget of $40 million per year for 1974
and 1975, the breakdown of the annual amounts
are:
1974
Base grant (58%)
Municipal facilities (5%)
Permits (13%)
Planning & monitoring (24%)
Total
1975
Base grant (58%)
Municipal facilities (14%)
Permits (15%)
Planning (8%)
Compliance monitoring (5%)
Total
$ millions
23.2
2.0
5.2
9.6
40.0
23.2
5.6
6.0
3.2
2.0
40.0
47
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Table VI-1
Executed Delegations of Program Functions
as of August 31, 1974
Region
II
III
IV
V
VI
VII
VIII
IX
X
Review of
Plans & Specifications
Connecticut
Vermont
New York
Virginia
Florida
Georgia
South Carolina
Tennessee
Arkansas
New Mexico
Oklahoma
Texas
Kansas
Missouri
Colorado
Montana
North Dakota
South Dakota
Utah
Wyoming
California
Review of
Operation and Maintenance Manuals
Connecticut
Vermont
New York
Virginia
Florida
Georgia
South Carolina
Tennessee
Arkansas
New Mexico
Oklahoma
Texas
Kansas
Missouri
Nebraska
Colorado
Montana
North Dakota
South Dakota
Utah
Wyoming
California
The following explanations apply to these
breakdowns:
• For all practical purposes, municipal facilities
are synonymous with the Construction Grants
Program. Therefore, the incentive grant por-
tions assigned to this function provide finan-
cial assistance to the States to cover adminis-
trative costs associated with the program .
• In addition to the incentive funds, the States
use part of their base grants, plus their own
funds, to cover the total cost of their munici-
pal facilities programs.
• In 1974, appropriations were $50 mil-
lion—$10 million greater than the President's
budget. Of this increase, $1.5 million was
distributed to cover the unanticipated and
extraordinary costs of conducting the 1974
Needs Survey. The remaining $8.5 million was
carried over into 1975 and recently allocated
as nonincentive funds. In effect, this increases
the 1975 base grant amount to $31.7 million.
• The pending 1975 appropriation bill provides
for $45,625,000-$5,625,000 more then the
President's budget. A final decision has not
been made as of this writing as to how this
increased amount will be allocated among
base grants and incentives.
• The incentive portions of individual State
grants are awarded on the basis of the States'
demonstration of a credible program in the
incentive area.
The foregoing figures demonstrate EPA's
policy to encourage and support, through Sec-
48
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tion 106 grants, greater State involvement in the
program, including their assumption of
delegated functions. As a result, the States are
planning to increase the proportion of their total
water pollution effort devoted to municipal
facilities from 10 percent in 1974 to 15 percent
in 1975 (based on a review of approximately 40
approved Section 106 State program plans for
1975). This will result in the following State
expenditures (State funds plus Section 106 grant
funds) for municipal facilities activities:
1974
1975
Man-years
449
740
S millions
11.3
18.3
Current State Involvement
The States have been involved in the Con-
struction Grants Program in varying degrees
since its origin. Before the delegation agreements
permitted under Order 1270.3, this involvement
was completely informal. Current delegation
agreements serve to formalize this involvement
only in part. For example, many States, not yet
delegated plans and specifications review, never-
theless review these documents. Also, many
States are involved in postconstruction opera-
tions and maintenance activities and many are
becoming involved in the various aspects of
facilities planning.
It is also important to recognize that the
States are involved in several functions of the
program—for example, review of plans and
specifications—because of State statutory and/or
administrative requirements established inde-
pendently of the program, and, in some cases,
before the program. In addition, certain States
share the non-Federal portion of project costs.
Such States perform technical and administra-
tive review, as well as approval and grant-making
functions similar to those prescribed by the Title
II regulations. Where these are compatible or
nearly compatible with Title II functions, the
delegation of Title II functions can obviously be
easily achieved. In fact, the current and pro-
jected delegations described primarily derive
from such marriages. In other cases, the State-
performed functions are inherently different
from or fall short of those required under
Title II. For example many States are reviewing
the technical aspects of plans and specifications
but are not reviewing for the Federal require-
ments, such as labor and civil rights and non-
restrictive respecifications. In these cases, delega-
tion of the function can only proceed if the
State is willing to expand or modify the similar
function it is currently performing.
The States plan to devote 449 man-years to
the municipal facilities program in 1974 and 740
man-years in 1975. Basically, this effort is
assigned to the following lines of activity:
• Developing and maintaining priority criteria
and priority lists, including some collection,
assembly, and analysis of the water quality
data and other data required to support this
activity.
• Handling the flow of material passing between
the grantee and EPA and vice versa (some
material moves directly between the grantee
and EPA, but a large portion, particularly
some of the more important documents-
grant applications, facilities plans, and plans
and specifications—moves through the State).
As used here, this activity only includes the
handling of materials—receiving, reviewing for
completeness, packaging, and forwarding of
materials. It does not include substantive
technical or administrative review of these
materials.
• Depending on the State, performing varying
degrees of substantive technical and adminis-
trative review of materials, conducting inspec-
tions, and providing advice and assistance to
the grantee. As used here, this activity
includes performance of formally and in-
formally delegated functions and performance
of functions capable of being upgraded to
support potential delegations. Any duplica-
tion or near duplication of State and EPA
review and inspection efforts resides in this
category.
Depending on the State, conducting of
municipal facilities activities which do not
relate to or support the program but which
are performed for other valid purposes. Ac-
cordingly, the category defines activities that
could never support delegations.
49
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The Section 106 program planning process
does not provide for an accounting of manpower
utilization in terms of the above categorization,
and the Review Group was unable to de-
termine how the State staffing in municipal
facilities breaks down into the four categories
above. We suspect, however, based on limited
interviews with Regional and State officials, that
as much as half of this staffing falls into the
third category—that is, 225 man-years in 1974
and 370 man-years in 1975 are involved in
substantive review and inspection functions that
are either formally or informally delegated, or
possess some potential for being upgraded or
modified (probably with additional staff) to
support additional delegations. We estimate that
the current and projected delegations of review
of plans and specifications, operation and main-
tenance manuals, and change orders will
consume about 30 man-years in 1975 and 65
man-years in 1976. Deducting these estimates
from the foregoing figures gives a rough esti-
mate—195 man-years in 1975 and 305 man-
years in 1976—of the State manpower that
could possibly be tapped for performance of
delegated functions.
Prospects for Expanding Delegations
In July 1974, EPA completed a brief study of
the status and success of delegations made under
Orders 1000.3 and 1270.3. The study found
that the delegations of plans and specifications
and operation and maintenance manuals, to the
extent achieved and operationally implemented
at the time, were (1) working satisfactorily, (2)
reducing duplication, (3) improving administra-
tion of the program, and (4) receiving the
support of the state and Regional staff involved.
The study concluded that there were additional
opportunities to expand delegations but recog-
nized these opportunities were limited by the
current capabilities of the States. The study
further revealed State and Regional opinions
that the delegations achieved so far were largely
encouraged by the incentive features of the
Section 106 grants, and that further delegations
would depend heavily on continuation and
expansion of those features. Finally, the study-
revealed that delegation would not provide a
near-term panacea for relieving EPA of workload
or staffing requirements, because the States
require time to organize and staff the actual
implementation effort.
Under the current statute, there is no legal
reason why virtually all functions of the pro-
gum cannot be delegated (see Table VII-7).
Under the current statute, however, these
delegations cannot include the authority to
actually award grants, make payments, or ap-
prove a variety of documents, including facilities
plans, plans and specifications, operation and
maintenance manual, and user charge/industrial
cost recovery systems. Consequently, any and all
delegation would have to depend on a certifica-
tion arrangement whereby EPA would exercise
its legal grant-making and approval respon-
sibilities based on receipt of certifications of
adequacy prepared and submitted by the re-
viewing State. Therefore, in the extreme case,
where all functions would be delegated, EPA
would have to maintain Regional staffs to
perform these legal responsibilities and to audit
or double-check, on a selective basis, the ade-
quacy of State performance of delegated func-
tions.
The two principal factors affecting the expan-
sion of delegation are: (1) the States' capability
to perform these functions, and (2) the need to
financially support the States' assumptions of
delegations. On the first point, EPA's Regional
officials believe that the States, with some
exceptions, would require time to develop ca-
pability to implement additional delegated func-
tions. The overall success, both current and
prospective, of delegating the review of plans
and specifications and operation and main-
tenance manuals is the result of the fact that
States have performed these functions for a long
time. As a general rule, however, the States have-
traditionally been less involved in most of the
other program functions-particularly facilities
planning, the most manpower-demanding func-
tion—and, in all but a few cases, do not possess
the technical and/or administrative experience
and manpower to effectively perform these
other functions. Accordingly, except for the
above projected delegation of plans and ^Dei-
fications and operation and maintenance
manuals-and except for a few other oppor-
tunities for readily delegating other functions-
future delegations will have to be based on the
States' ability to develop the administrative
machinery, the technical competence and the
expanded staff necessary to implement new
50
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delegations. At best, this requires time. At
worst, it is inhibited or even made impossible by
a number of constraints including (1) State
personnel ceilings, (2) State inabilities, in some
cases, to attract qualified personnel because of
low pay scales and other reasons, and (3) in
some cases, lack of State interest or incentive to
assume new responsibilities. In short, constraints
militate against significant immediate expansion
of delegations, and necessarily impose time
delays (1 to 3 years) on any concerted attempt
by EPA to encourage expanded delegations.
Relative to the financing factor, the opinions
of those interviewed in this study, the findings
of the July 1974 study of delegations, and the
collaborative findings of other investigations and
case studies (including the Study of Control
Agency Revenue Fees completed in July 1974)
clearly indicate the firm attitudes of the States
that EPA will have to financially support the
administrative costs of any and all additional
delegations. The States are plagued by the same
fiscal problems as the Federal Government and
find it difficult, if not impossible, to increase
their water pollution control budgets sufficient-
ly to cover inflationary costs, not to mention
the assumption of new or expanded functions of
the Construction Grants Program. In our
opinion, this financing factor is the key to
expanded delegations. If additional financial
support is not provided we cannot expect the
effort to succeed much beyond the delegation of
review of plans and specifications and operation
and maintenance manuals to approximately 40
States. If financial support is provided-with
reasonable assurance of continuation-we can
expect to gradually solve the problems discussed
and gradually expand delegation of program
functions over the next several years.
There are three alternative ways of providing
additional financial assistance to the States to
foster and support expanded delegations:
• Implementation of the "California fee pro-
posal"
• Increasing Section 106 grant support and
allocating this increase under the municipal
facilities incentive element of such grants.
• Congressional enactment and implementation
of some form of the Cleveland bill.
These alternatives could be employed sequen-
tially with the second supplanting the first and
the third supplanting the second if this is made
possible by legislative actions.
The California fee proposal is a mechanism
under which a State would charge a grantee a fee
for the performance of a delegated function—for
example, the review of plans and specifica-
tions—which EPA would allow the grantee to
treat as a project cost eligible for 75 percent
grant funding. Consequently, the State would be
able to cover the added costs of performing the
delegated functions, and Title II funds would
ultimately pay for 75 percent of these costs (the
grantee would provide the other 25 percent). PL
92-500 does not permit the direct use of Title II
funds to cover State administrative costs, and
this mechanism is the only currently available
way of defraying such costs with Title II funds.
EPA published amendments to the Title II
Regulations (Sections 35.912, 35.913 and
35.940-1) effective on Oct. 31, 1974, to imple-
ment this mechanism. Having originated the
proposal, California is expected to be the first
State to employ this fee arrangement. The
extent and degree to which other States follow
suit is difficult to predict. No more than six
States are expected to initiate use of this
mechanism within the next 12 months and will
employ it only on a few functions.
The limited use of the California fee proposal
derives from its basic fault of requiring a State
to set up a special fee system and associated
accounting mechanisms. Because of this adminis-
trative burden, and because in many cases they
lack statutory authority, most States will elect
not to bother with the fee proposal. From a
broader point of view, the fee proposal is limited
in its coverage, because fees can only be insti-
tuted to cover costs which are readily accounted
for. Although accounting bases can probably be
found for nearly all, if not all, functions of the
program, the tendency will be to employ the
proposal for only a few of the clear-cut review
functions—plans and specifications, operation
and maintenance manuals, facilities plans, and
inspections. For this reason, we see this proposal
as the least preferred and least valuable of the
three alternatives and suggest that it should be
used as an interim step.
The Section 106 grant funding alternative is a
very straightforward approach to encouraging
and supporting greater delegation through in-
51
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centive grant funds. In fact, the incentive funds
would be awarded to a State only on the
precondition of accepting specified additional
delegations. The shortcoming of this alternative
is its lack of dependability. The recent direc-
tive by the Office of Management and Budget
(which has not been rescinded) to phase out
Section 106 grants leaves the States with no
confidence in either the near-term or long-term
dependability in this source of funds. The
States would naturally be reticent to take on
new or expanded delegations in the face of
such instability. However, if there is reasonable
expectation that the Cleveland bill or similar
legislation will be enacted sometime in
late FY-75, then additional Section 106 funding
for FY-76 could be used as an interim financing
mechanism. Under such a plan, Administration
support for additional Section 106 funding
would be communicated with release of the
President's budget in January 1975, and this
would enable the Regions and the States to
move ahead with negotiating delegations for
effective implementation in FY-76.
The Cleveland bill, or something similar,
would authorize EPA to permit the States to
directly use a part of their annual Title II
allotments to cover the costs of carrying out
delegated functions. It is an administratively
efficient mechanism for financially supporting
delegations, and it possesses the same depend-
ability in future funding as the program itself.
This bill also has the added advantage of
explicitly expressing the intent of Congress to
encourage delegation of functions. In our
opinion, this is the preferred alternative, and we
believe that it would enable the maximum
degree of delegation permitted by State capabil-
ities. Moreover, we believe that financial support
initiated under either or both of the first two
alternatives could be easily and readily trans-
ferred to this alternative. The only shortcoming
of this alternative appears to be the time
required to enact the necessary legislation. We
believe it is not probable that the legislative
changes could be made before FY-75, which
means that implementation could not occur
until late in FY-76.
The delegation issues we have discussed are
integrally related to resources and operating
strategies; hence recommendations concerning
them are covered in Chapter VII.
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VII. ALTERNATIVE OPERATING STRATEGIES
Chapters II through VI discussed the major
goals of the program as it exists today: efficient
program management, timely obligation of
funds, maintenance of environmental quality,
deterrence and detection of irregularities, and
delegation of program responsibility to the
States. If the recommendations made through-
out these chapters are implemented, EPA would
be able to administer the Construction Grants
Program in a responsible manner.
We estimate that implementation of those
recommendations would require an increase of
700 positions above the current staffing level of
595—virtually an impossibility in the foreseeable
future.
Consequently, in addition to summarizing the
recommendations in Chapters II through VI as
one option, we present three other operating
strategies as alternative ways of administering
the program in a responsible manner, but at
lower staffing levels.
The four strategies are differentiated as fol-
lows:, Strategy I is the existing program as
modified by our recommendations. Strategy II
assumes that the process described in Chapters II
through VI will be applied by EPA personnel to
larger projects but will be relaxed in selected
ways in the case of projects less than $2 million.
Strategies III and IV assume that the process will
be applied to all projects but with more exten-
sive delegations of functions from EPA to the
States. Obviously, a great number of options
could have been constructed. We feel, how-
ever, that the four strategies presented here
adequately illustrate the policy choices facing
the Agency.
Basis for Workload Estimates
The resource requirements used throughout
this report depend on three estimates: (1) the
number of projects requiring action in each of
FY-75, FY-76, and FY-77; (2) the tasks that
must be performed at various stages of project
development; and (3) the number of man-days
required to perform the various tasks.
The number of active projects in FY-75 is
derived from the '75 operating plans developed
by the Regions. The 1976 and 1977 estimates
are our best projections based on experience to
date and on 1976 and 1977 obligation rates of
$5.4 billion and $6.2 billion, respectively. Tables
VII-1 and VII-2 display these estimates broken
down into three categories: (1) projects con-
tinuing from previous steps; (2) new projects
entering the process; and (3) new projects at an
advanced stage where Federal reimbursement is
being requested for work already performed.
Depending on the development of a project and
the point when application is made for a Federal
grant, EPA performs different tasks (see Table
VII-3).
To estimate man-days required to perform
individual tasks, we have first relied on Regional
experience which, for most tasks, dates back
over much of the history of the program. For
some of the newer tasks—facilities plans review
and UC/ICR tasks, for example—we have relied
on limited recent experience of the Regions as
well as an analysis of manpower requirements.
In all cases, these unit estimates represent
average EPA manpower requirements for profes-
sional and paraprofessional talents, including
required travel time, if any, but excluding
clerical support and management overview,
which are computed separately. Further, these
estimates embrace corrections for the degree of
State delegation and for the level of thorough-
ness and quality of performance assumed in each
particular strategy. The specific assumptions on
man-days per task appear in the resource
analysis of each strategy.
53
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Table VII-1
Estimated Numbers of Projects Entering the Step 1, 2, or 3 Stages
During 1975, 1976, and 1977
Step
1975
1
2
3
1976
1
2
3
1977
1
2
3
Continuing from
Previous Step
560
100
1,200
1,100
1,950
1,800
Entering Step
as New Project
1,200
540
1,160
1,950
600
850
1,300
300
500
Beginning Step
Outside of Program
1,920
730
850
900
250
Total
3,120
1,830
1,260
2,800
2,700
1,950
1,300
2,500
2,300
Table VII-2
Estimated Numbers of Active Section 8 and Step 3 Projects Under Construction
and Estimated Project Completions During 1975, 1976 and 1977
Active Pre-P.L. 92-500 Projects Under Construction1
Active Step 3 Projects Under Construction1
Active Step 3 Projects Under Construction
Reaching a Point When Review of Operations
and Maintenance Manual Is Required
Active Step 3 Projects Under Construction
Reaching a Point When Review of UC/ICR
System Is Required
Completion of Construction of Pre-P.L. 92-500
Projects
Completion of Construction of Step 3 Projects
1975
1,935
1,740
1,200
190
800
100
1976
1,135
2,900
1,500
460
90G
300
1977
235
4,550
2,000
1,045
200
1,300
These require interim inspections, review of change orders, review of payment requests
54
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Table VI1-3
Tasks To Be Performed On Projects At Different Steps
Task
Step 1 Project
Conduct pre-application conference
Review application & award grant
Review plan of study
Conduct facilities planning conference
Step 2 Project
Review facilities plan
Prepare EIS (on 10 percent)
Pay Step 1 completion
Review application & award original grant
Review application & award grant amendment
Conduct predesign conference
Step 3 Project
Review facilities plan
Prepare EIS
Pay Step 1 and/or Step 2 completion
Review application & award original grant
Review^pplication & award grant amendment
Review plans & specifications
Review bid tabulations
Conduct preconstruction conference
Conduct UC/ICR conference
Continuing from
Previous Step
X
X
X
X
X
X
X
X
X
X
Entering Step
as New Project
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Beginning Step
Outside of Program
X
X
X
Strategy I
Strategy I (see Table VII-4) is the current
process as improved by recommendations made
earlier in this report. Our recommendations
would add only a modest amount of new
workload to the existing process. Nearly 70
percent of the additional positions required
under Strategy I are a function of the growing
number of active projects.
New tasks now being performed would
involve: preconstruction, construction, and
| expanded final field audits to improve the
stewardship of funds; a compliance assurance
program, including operation and maintenance
inspections, to follow through on municipal
permits; and an instinationalization of preap-
plication, facilities planning, predesign, and pre-
construction conferences to improve contact
with grantees and to assist them in fully comply-
ing with program requirements.
Delegation of functions to the States is
assumed to continue. Review of plans and
specifications is assumed to be delegated to 50,
75, and 75 percent of the States in 1975, 1976,
and 1977, respectively. Delegation of com-
pliance monitoring tasks is assumed at 0, 31, and
40 percent of the States in 1975, 1976, and
1977, respectively. All other functions would be
carried out by EPA.
Strategy I would provide an acceptable level
of cost effectiveness through careful facilities
planning; review of plans, specifications, and
change orders; monitoring of construction and
construction inspections; and compliance as-
surance (including monitoring of operation and
maintenance). Adequate consideration of
environmental issues is promoted through good
55
-------
Table VII-4
Features of Strategy I
Pre-Step 1
• Provides for a 3-hour preapplication conference
with each prospective grantee shortly after his
project is placed on the priority list. Purpose is to
explain the total construction grants process and
the Federal requirements, to advise him on how to
properly select a consulting engineer, and to work
out a tentative schedule for his project.
Step 1
• Provides for a thorough review of the Step 1
application and required supplementary material.
• Provides for a review (ranging from 2 to 3
man-days) of the plan of study for facilities
planning.
• Provides for one to three on-site visits to the
grantee and his consulting engineer. Purpose is to
explain Federal requirements and EPA's expecta-
tions on facilities plans and to otherwise assist him
to assure the submission of a complete and
adequate plan, including its infiltration and inflow
assessment or analysis and its environmental assess-
ment.
• Provides for a thorough review (ranging from 8 to
30 man-days) of the facilities plan, including
evaluation of the environmental assessment and
preparation of a good, defensible negative declara-
tion where required (on about 90 percent of the
projects).
• Provides for preparation and filing of sound and
fully adequate environmental impact statements
on about 10 percent of the projects.
• Provides for the thorough review of Step 1
payment requests.
Step 2
• Provides for thorough review of the Step 2
application and required supplementary docu-
ments, including commitments to develop user
charge and industrial cost recovery systems.
• Provides for a one-day predesign conference with
the consulting engineer to explain Federal require-
ments and EPA's expectations to assure complete
and adequate submission of plans and specifica-
tions. Also provides for a low-key program to
encourage consulting engineers to embrace value
engineering in their design of plans and specifica-
tions.
• Provides for a thorough review (ranging from 7 to
19 man-days) of plans and specifications, including
a complete review of the sanitary, hydraulics, and
operation and maintenance features of the design;
a complete review of the Federal requirements
(nonrestrictive specifications, civil rights, and labor
requirements, etc.); and an analysis of the
estimated construction costs. It is assumed that
50, 75 and 75 percent of this function will be
performed by the States under delegations in
1975, 1976, and 1977, respectively.
Provides for a thorough review of Step 2 payment
requests.
StepS
• Provides for a thorough review of Step 3 grant
application and required supplemental material.
• Provides for a thorough 1 man-day review and
analysis of construction bids, the low bid, and
unit-price bids particularly.
• Provides for a 1-day, on-site preconstruction
conference to acquaint the consulting engineer,
and particularly the resident inspector, with
Federal requirements and EPA's expectations rela-
tive to proper construction and inspection.
• Provides for a 1-day, on-site visit and necessary
follow-up with the grantee to explain Federal
requirements and EPA's expectations relative to
user charge and industrial cost recovery systems to
assure complete and adequate submissions.
• Provides for two, 1- to 2-day interim inspections
per year on all projects under construction to
assess the adequacy of resident inspection and
examine the quality of construction. This will
include review of records on unit-price measure-
ments, materials testing, and design changes in the
interest of preventing or detecting fraud and other
irregularities.
• Provides for a thorough review and analysis of all
change orders, including an evaluation of their
eligibility, necessity, and costs (two change orders
per year on all projects under construction are
assumed).
• Provides for a thorough review (averaging 5 man-
days) of user charge and industrial cost recovery
system submissions.
• Provides for a thorough review (ranging from 3 to
14 man-days) of operation and maintenance
manuals and associated materials. It is assumed
that 50, 75, and 75 percent of this function will be
performed by the States under delegations in
1975, 1976, and 1977, respectively.
• Provides for a thorough 2-5 man-days final
inspection, including an evaluation of the
operation (or operability, if not in operation) of
the facility.
56
-------
TABLE VI1-4 (Continued)
• Provides for the thorough review of Step 3
payment requests, assuming three requests per
year on all projects under construction.
Auditing
• Provides for auditing 1 percent of active Step 1
and Step 2 projects to examine, in particular, costs
incurred under consulting engineering and other
contracts.
• Provides for auditing 10 percent of Step 3 projects
to examine, in particular, the validity of construc-
tion costs being incurred.
• Provides for final desk audits (no site visit) on
about 60 percent of completed projects.
• Provides for final field audits on about 35 percent
of the projects completed.
• Provides for a comprehensive final field audit on
about 5 percent of completed projects to
thoroughly review the validity of all project costs.
Postcompletion
• Provides for on-site compliance assurance inspec-
tions of 45 percent of major and 30 percent of
minor municipal dischargers (all municipalities
including those that have not received a construc-
tion grant) where there is reason, through self-
monitoring reports or other intelligence, to suspect
their being out of compliance with their NPDES
permit. Each action (averaging 8 man-days)
includes not only the inspection and associated
testing, but also the appropriate follow-up, which
will range from on-site technical assistance to the
collecting of evidential data to support a legal
enforcement action. This function takes over the
operation and maintenance inspections performed
under current and previous strategies. It is assumed
that the States will perform 31 and 40 percent of
this function under delegations of the NPDES
program in 1976 and 1977, respectively.
Other
Provides for expanded Regional staff to improve
maintenance of the grants information and control
system and to improve analysis and projections of
program obligations and outlays.
Provides Regional capability to respond to
Congressional and public inquiries.
Provides for analyzing consulting engineering
contract costs in the interest of preventing un-
justified high costs.
Provides for managing and supervising annual
Needs Survey on the assumption that such surveys
will continue.
Provides for awarding grant amendments and
making grant payments under the Section 206
(reimbursable) authority. It is assumed that this
function will be completed by the end of 1976.
Provides for Regional management of the program
at the division director and branch chief levels.
Provides for an increase in Headquarters staffing to
enable improved policy direction, better and faster
development of guidelines, and improved program
oversight.
facilities planning and, where necessary, through
the preparation of complete and incisive EIS's.
Program integrity would be protected through
an expanded audit program, frequent and
thorough interim inspections, improved final
inspections, and careful evaluations of change
orders, construction bids, and the costs of
consulting contracts. Finally, acceptable rates of
obligation would be maintained through suf-
ficient staff to perform the many review and
administrative functions in an efficient and
timely manner in preapplication, facility plan-
ning, predesign, and preconstruction conferences
to enable the grantee to proceed in meeting
program requirements. Staffing for Strategy I
would require significantly more people than the
595currently assigned to the program (see Table
VII-5).
Strategy I, however, is not an optimal pro-
gram. In our view, an optimal program would
include more concentrated monitoring of con-
struction, and greater EPA involvement in the
design of plans and specifications (including
more emphasis on value engineering), in facilities
planning, and in preparation of EIS's. The
staffing would approach that of the Federal
Highway Program—about 4,000 persons.
57
-------
Table VII-5
Staffing Requirements of Strategy I
Pre-Step 1
Pre-application conference
Step 1
Review application & award
Review plan of study
Facilities planning
conference
Review facilities plan
Prepare EIS
Payments
Clerical
Step 2
No. ot
Actions
1,200
1,200
3,120
3,120
2,260
225
560
-
1975
Mandays/
Action
0.3
2.0
2.1
3.5
9.6
110.0
0.3
Man-
years
1.6
10.5
28.5
47.5
94.4
107.6
0.8
72.4
361.7
No. of
Actions
1,950
1,950
2,800
2,800
2,650
265
1,200
-
1976
Mandays/
Action
0.3
2.0
2.1
3.5
9.6
80.0
0.3
Man-
years
2.6
17.0
25.6
42.6
110.6
92.2
1.6
72.4
362.0
No. of
Actions
1,300
1,300
1,300
1,300
2,750
275
1,950
.
1977
Mandays/
Action
0.3
2.0
2.1
3.5
9.6
50.0
0.3
_
Man-
years
1.7
11.3
11.9
19.8
114.8
59.8
2.6
55.1
275.3
Review application &
award—amendments
Review application &
award—original
Pre-design conferences
Review plans & speci-
fications
Payments
Clerical
Step 3
Review application &
award—amendments
Review application &
award—original
Bid tab review
Pre-construction
conference
UC/ICR conference
Interim inspection -
Sec. 8
Title II
Change orders
Review UC/ICR
Review O&M manual
Final inspection -
Sec. 8
Title II
Payments
Clerical
Auditing
Pre-construction audits
Construction audits
Final desk audits
Final field audits
Expanded final field
audits
Audit support &
supervision
560
540
1,830
1,260
100
3.0
3.5
1.0
4.4
0.3
100
2.0
7.3
8.3
8.0
24.1
0.2
12.0
59.9
0.9
1,200
600
2,700
1,950
1,100
1,100
3.0
3.5
1.0
2.6
0.3
15.7
9.2
11.8
22.1
1.5
15.1
75.4
2.0
1,950
300
2,500
2,300
1,800
1,800
229.4
50
19.0
4.2
15.5
69.5
60
19.0
5.0
21.6
99.7
75
3.0
3.5
1.0
2.6
0.3
2.0
19.0
25.5
4.6
10.9
26.0
2.4
17.4
86.8
15.7
1,160
1,260
1,260
1,260
1,935
1,740
3,675
190
1,200
800
100
3,675
-
3.5
1.0
1.5
2.0
3.5
3.9
0.6
5.0
2.2
2.0
2.5
0.9
-
17.7
5.5
8.3
11.0
29.5
29.5
9.6
4.2
11.5
7.0
1.1
14.4
37.6
850
1,950
1,950
1,950
1,135
2,900
4,035
460
1,500
900
300
4,035
-
3.5
1.0
1.5
2.0
3.5
3.9
0.6
5.0
1.3
2.0
2.5
0.9
13.0
8.5
12.8
17.0
17.3
49.2
10.6
10.0
8.5
7.9
3.3
15.8
45.9
500
2,300
2,300
2,300
235
4,550
4,785
1,045
2,000
200
1,300
4,785
-
3.5
1.0
1.5
2.0
3.5
3.9
0.6
5.0
1.3
2.0
2.5
0.9
-
7.6
10.0
15.0
20.0
3.6
77.2
12.5
22.8
11.3
1.8
14.2
18.8
57.7
40
360
600
250 '
13.0
20.0
2.0
10.0
2.3
31.3
5.3
10.9
230
400
700
440
13.0
20.0
2.0
10.0
13.0
34.8
6.1
19.2
375
480
870
555
13.0
20.0
2.0
10.0
21.2
41.7
7.6
24.2
6.2
27.3
128.2
58
-------
Table VI1-5 (Continued)
1975 1976 1977
No. of Mandays/ Man- No. of Mandays/ Man- No. of Mandays/ Man-
Actions Action years Actions Action years Actions Action years
Post-Completion
Compliance assurance
program - - 86.0 - - 231.0 - - 201.0
Other
GICS/financial manage-
ment - - 50.0 - - 50.0 - - 50.0
Inquiries & miscellaneous - - 15.0 - - 15.0 - - 15.0
A/E cost analysis ..... 20.0 - - 20.0
Administration of 206
grants - - 25.0 - - 12.0
Needs Survey - - 20.0 - - 20.0 - - 20.0
Clerical - - 28.0 - - 30.0 - - 25.0
Management - - 70.0 - - 70.0 - - 70.0
208.0 217.0 200.0
Headquarters - - 77.0 - - 77.0 - - 77.0
Grand Total - - 1,049.9 - - 1,291.5 - - 1,256.5
59
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Strategy II
Strategy II differs from Strategy I in that
many reviews and inspections are less thorough
and the various conferences are eliminated for
small projects (less than $2 million in construc-
tion costs). These account for about 84 percent
of the projects and use about 25 percent of the
grant funds. The requirements of Strategy I
would be maintained for large projects. Strategy
II assumes the same degree of delegation to the
States—for review of plans and specifications
and operations and maintenance manuals—as
Strategy I. Table VII-6 summarizes the differ-
ences between the two strategies.
Strategy II would not be as effective as
Strategy I in accomplishing the major program
goals. Generally, it sacrifices achievement of
cost-effectiveness and stewardship of grant funds
with respect to small projects by: (1) relaxing
the review of plans of study, facilities plans,
plans and specifications, construction bids,
operation and maintenance manuals and change
orders; (2) reducing the frequency of interim
inspections and the thoroughness of final inspec-
tions; (3) virtually eliminating direct-contact
conferences; and (4) reducing compliance as-
surance inspections. These reductions are taken
on the premise that small projects utilize only
25 percent of the grant funds and presumably
Table VII-6
Significant Differences Between Strategies I and 11
Pre-Step 1
• Eliminates preapplication conferences on small
projects.
Stepl
• Reduces review of plans of study on small projects
by one-half (to 1 man-day).
• Eliminates facilities planning conferences on small
projects.
• Reduces review of facilities plans .on small pro-
jects by one-half (to 4 man-days).
Step 2
• Eliminates predesign conferences on small
projects.
• Reduces review of plans and specifications on
small projects by one-half (to 3.5 man-days).
Step 3
• Eliminates preconstruction conferences on small
projects.
• Reduces review of construction conferences on
small projects.
• Reduces review of construction bids on small
projects by three-fourths (to 0.3 man-day ).
• Eliminates user charge/industrial cost- recovery
conferences on small projects.
• Reduces interim construction inspections by
one-half on small projects (to one inspection per
year during construction).
• Reduces review of change orders on small projects
by one-third (to 0.4 man-day per year during
construction).
• Reduces review of operations and maintenance
manuals on small projects by one-third (to 2
man-days).
• Reduces final inspections on small projects by
one-fourth (to 1.5 man-days).
Postcompletion
• Reduces compliance assurance to cover only 20
percent of minor discharges (but retains 45 per-
cent of major discharges).
Other
Eliminates analyses of costs of consulting engineer-
ing contracts.
60
-------
involve only a comparable percent of municipal
waste-water pollution: thus any resulting loss of
cost-effectiveness or occurrence of fraud and
irregularities would be confined to this sector
and, hopefully, would be small.
Strategy II requires significantly fewer posi-
tions than Strategy I, but, nevertheless, 300
more than the current staffing of the program
(see Table VII-7).
Strategy II is but one of the infinite number
of strategies that can be constructed by varying
the thoroughness and quality of performance of
the many tasks. The point is that the number of
positions required is directly related to the
quality of performance desired. In the absence
of additional personnel and the absence of an
active policy encouraging greater delegation to
the States, the Regions have, of necessity,
reduced performance to the level dictated by
staff capacity. In doing this, they have tended to
sacrifice small projects before reducing efforts
devoted to larger projects. In reality, the current
program is similar to Strategy II.
Strategies III and IV
Strategies III and IV represent a different set
of alternatives to Strategy I. Both assume
increased delegation of functions and respon-
sibilities to the States, presumably without any
change or reduction in the nature or quality of
performance of the functions delegated.
Strategy III encourages the delegation to the
States of all program functions permissible
under existing law. All substantive review and
inspection functions (except final inspections)
would be delegated on the premise that the
States will perform reviews and inspections that
meet Federal standards. When delegated reviews
or inspections serve as the basis for EPA's
approval action—for example, State review of
grant applications leading to EPA's award of
grants, or State review of facilities plans leading
to EPA approval of those plans—EPA would use
the States' certification of adequacy as the basis
for its approval actions. Functions which, under
PL 92-500, apparently cannot be delegated are:
• Actual award of Step 1, 2 and 3 grants.
• Preparation of appropriate Environmental
Impact Statements (about 10 percent of the
projects—same level assumed in Strategy I).
• Actual approval of grant payment requests
and the issuance of vouchers to the Depart-
ment of Treasury.
• Actual approval of change orders.
• Actual approval of facilities plans, plans
and specifications, operation and main-
tenance manuals, and user charge/industrial
cost recovery systems.
• Conduct of final inspections.
Our resource estimates assume that about 5,
15, and 25 States of an average mix of small,
medium, and large would take on delegations in
1975, 1976, and 1977, respectively, and that
this would reduce EPA's workload with respect
to the delegated functions by 10, 30, and 50
percent, respectively. We believe these numbers
to be liberal since the incentives may not favor
the assumption of this workload by the States
for reasons discussed below. For States that do
not take on delegations, EPA would continue to
perform all functions in the same manner and at
the same level of performance as delineated in
Strategy I, which assumes some delegation of
the review of plans and specifications and
operation and maintenance manuals under
current policy. Fewer positions are required for
this Strategy, and the savings increase in the
future as higher levels of delegation are achieved
(see Table VII-8). Nevertheless, Strategy III
requires more personnel in the near term than
are currently assigned to the program because of
workload increases due to an increased number
of projects and a more thorough performance of
tasks.
It is important to recognize that the States
that accept the degree of delegation required by
Strategy III would have to substantially increase
their administrative machinery as well as their
staff, making additional financial assistance in-
dispensable. Consequently, Strategy III includes
the authority to permit the delegated States to
use up 1 or 2 percent of their annual allotments
to defray administrative costs. This would
require a change to PL 92-500. Enactment of
the "Cleveland Bill" (H.R. 16505), or something
similar to it, would be necessary to make
Strategy III viable. The Cleveland Bill has an
additional attribute-it specifically authorizes
EPA to delegate functions (but not respon-
61
-------
Pre-Step 1
Pre-application conferences
Step 1
Review application & award
Review plan of study
Facilities planning con-
ference
Review facilities plan
Prepare EIS
Payments
Clerical
Step 2
Review applications &
award—amendments
Review applications &
award-original
Pre-design conferences
Review plans & speci-
fications
Payments
Clerical
Step 3
Review application &
award—amendments
Review application &
award—original
Bid tab review
Pre-construction con-
ference
UC/ICR conferences
Interim inspections —
Section 8
Title II
Change orders
Review UC/ICR
Review O&M manuals
Final inspections —
Section 8
Title II
Payments
Clerical
Auditing
Same as Strategy I
Post Construction
Compliance assurance
program
Other
Same as Strategy I
except eliminates
A/E cost analysis
Headquarters
Same as Strategy I
Grand Total
No. of
Actions
1,200
560
100
Table VI1-7
Staffing Requirements of Strategy II
1975
1976
1977
Mandays/
Actions
Man-
years
3.0
2.0
No. of
Actions
1,950
Mandays/
Actions
Man-
years
No. of
Actions
1,300
Mandays/
Action
284.4
7.3
1,200
3.0
281.3
15.7
1,950
2.0
9.6
1,800
69.5
86.0
208.0
77.0
891.8
. 99.7
184.0
197.0
77.0
1,047.3
3.0
Man-
years
1,200
3,120
3,120
2,260
225
560
-
2.0
1.3
2.2
6.2
110.0
0.3
-
10.5
17.7
29.9
61.0
107.6
0.8
56.9
1,950
2,800
2,800
2,650
265
1,200
-
2.0
1.3
2.2
6.2
80.0
0.3
-
17.0
15.9
26.8
71.5
92.2
1.6
56.2
1,300
1,300
1,300
2,750
275
1,950
2.0
1.3
2.2
6.2
50.0
0.3
11.3
7.4
12.5
74.2
59.8
2.6
42.0
209.8
25.5
540
1,830
1,260
100
3.5
0.2
2.8
0.3
.
8.3
1.6
15.4
0.2
8.2
41.0
600
2,700
1,950
1,100
3.5
0.2
1.7
0.3
9.2
2.4
14.4
1.5
10.8
54.0
300
2,500
2,300
1,800
3.5
0.2
1.7
0.3
4.6
2.2
17.0
2.4
13.0
64.7
,160
,260
,260
,260
,935
,740
3,675
190
1,200
800
100
3,675
3.5
0.4
0.3
0.8
1.6
2.4
0.5
5.0
1.7
1.5
2.1
0.9
.
17.7
2.2
1.7
4.4
13.5
18.6
8.0
4.2
8.9
5.3
0.9
14,4
25.2
125.9
850
1,950
1,950
1,950
1.135
2,900
4,035
450
1,500
900
300
4,035
-
3.5
0.4
0.3
0.8
1.6
2.4
0.5
5.0
1.0
1.5
2.1
0.9
13.0
3.4
2.6
6.8
7.9
30.3
8.8
10.0
6.6
5.9
2.7
15.8
30.9
154.3
500
2,300
2,300
2,300
235
4,550
4,785
1,045
2,000
200
1,300
4,785
-
3.5
0.4
0.3
0.8
1.6
2.4
0.5
5.0
1.0
1.5
2.1
0.9
7.6
4.0
3.0
8.0
1.7
47.5
10.4
22.8
8.7
1.3
11.9
18.8
40.4
201.8
128.2
160.0
180.0
77.0
1,021.5
62
-------
Table VI1-8
Staffing Requirements of Strategy III
1975 1976
1977
Pre-Step 1
Pre-application confer-
ences
Step 1
Review applications & award
Review plans of study
Facilities planning con-
ferences
Review facilities plans
Prepare EIS's
Payments
Clerical
Step 2
No. of
Actions
1,200
Mandays/
Action
0.3
Man-
years
1.6
No. of
Actions
1,950
Mandays/
Action
0.2
Man-
years
1.7
No. of
Actions
1,300
Mandays/
Action
0.1
Review applications &
award—amendments
Review applications &
award-original
Pre-design conferences
Review plans & specifi-
cations
Payments
Clerical
Step 3
560
342.5
6.9
1,200
2.4
298.7
12.6
1,950
Post Construction
Compliance assurance
program
Other
GlCS/finaacial planning
Inquiries and miscellaneous
A/E cost analyses
Administration of 206
grants
Needs survey
Clerical
Management
Headquarters
Grand Total
86.0
50.0
15.0
25.0
20.0
27.0
70.0
207.0
77.0
1,016.9
231.0
50.0
15.0
12.0
19.0
50.0
146.0
77.0
1,102.4
2.0
Man-
years
0.6
1,200
3,120
3,120
2,260
225
560
.
1.9
1.9
3.2
8.8
110.0
0.3
-
9.9
25.8
43.4
86.5
107.6
0.8
68.5
1,950
2,800
2,800
2,650
265
1,200
1.7
1.6
2.5
7.0
80.0
0.3
14.4
19.5
30.5
80.7
92.2
1.6
59.8
1,300
1,300
1,300
2,750
275
1,950
1.5
1.2
1.8
5.3
50.0
0.2
-
8.5
6.8
10.2
63.4
59.8
1.7
37.6
188.0
17.0
Review applications &
award-amendments
Review applications &
award-original
Bid tab reviews
Pre-construction confer-
ences
UC/ICR conferences
Interim inqwctions -
Section 8
Title II
Change orders
Review UC/ICR
Review O&M manuals
Final inspections -
Sec. 8
Title II
Payments
Clerical
Auditing
Same as Strategy I
100
1,160
1,260
1,260
1,260
1,935
1,740
3,675
190
1,200
800
100
3,675
.
1.9
3.3
0.9
1.4
1.8
3.2
3.6
0.6
4.7
2.2
2.0
2.5
0.9
0.9
16.7
5.0
7.7
9.9
27.0
27.3
9.6
3.9
11.5
7.0
1.1
14.4
32.5
177.5
69.5
1,100
850
1,950
1,950
1,950
1,135
2,900
4,035
460
1,500
900
300
4,035
-
1.7
2.8
0.8
1.1
1.4
2.6
2.9
0.5
4.0
1.3
2.0
2.5
0.8
-
8.2
10.4
6.8
9.4
11.9
12.9
36.6
8.8
8.0
8.5
7.9
3.3
14.1
36.7
183.5
99.7
1,800
500
2,300
2,300
2,300
235
4,550
4,785
1,045
2,000
200
1,300
4,785
-
1.5
2.3
0.6
0.8
1.0
2.0
2.2
0.4
3.2
1.3
2.0
2.5
0.7
-
-
11.8
5.0
6.0
8.0
10.0
2.1
43.6
8.4
14.6
11.3
1.8
14.2
14.6
37.9
189.3
128.2
168.0
50.0
10.0
15.0
50.0
63
-------
sibilities). Accordingly, the Cleveland Bill fully
supports and is fully consistent with Strategy
III.
The major attraction of Strategy III is that
the program could be carried out, presumably at
the same level of adequacy as Strategy I, but
with less EPA manpower, especially in future
years. The adequacy, of course, depends on the
performance of the States that accept the
delegations, something that is difficult to fore-
cast with accuracy.
Among the shortcomings of Strategy III is the
fact that, either under PL 92-500 or the
Cleveland Bill, EPA could delegate the work but
not the responsibility. Two potential difficulties
arise. First, if the States are going to perform
virtually all of the substantive review and inspec-
tion functions which serve as the basis for
approval actions, it seems logical that they
should also have and, in fact, would want the
delegation of the responsibilities as well. Thus,
the incentives for the States to accept the work
without the authority are not very strong.
Secondly, Strategy III places EPA in a curious
position of having to depend on the adequacy of
State performance of reviews and inspections,
and certifications thereof, in the discharge of its
responsibilities. A certain degree of auditing of
State performance and the threat of rescinding
State delegations for poor performance (both
after-the-fact) are built into Strategy III. Never-
theless, Strategy III does not allow for direct,
day-to-day, control of State performance of
delegated functions. Should State actions result
in fraud, irregularities, poor cost effectiveness,
or unacceptable rates of obligation of funds,
EPA will have to share the blame without the
opportunity of correcting mistakes while they
are being made.
Strategy IV is essentially Strategy III with the
additional delegation of the "excepted" respon-
sibilities to the States. It would require amend-
ments to the existing enabling legislation. Be-
cause Strategy IV delegates the total program to
States willing and capable of accepting it (similar
to the delegation of the NPDES program), the
annual allotments of construction grant funds to
the delegated States would take on the character
of block-grants. With the other States, EPA
would manage and be responsible for individual
municipal grants in the same manner as is now
the case. The States with full delegation would
assume the responsibility of actually awarding
grants to individual municipalities as well as the
associated responsibilities of stewardship (audit-
ing) and other grants management functions.
EPA would be fully relieved of all direct
grant-related responsibilities with respect to
individual municipal grantees and would only
maintain cognizance over the "block-grants" to
the delegated States. This means that EPA's
program involvement with respect to delegated
programs would consist of periodic evaluations
and audits of State performance, activities
requiring only a few personnel. The detection of
poor performance would be cause for rescinding
delegations. Unlike Strategy III, under which
EPA could delegate or reassume responsibility
for individual functions, under Strategy IV
responsibility for the program would be
delegated or reassumed as a whole.
We estimate that Strategy IV would be as
effective in achieving program goals as Strategy
III. Both depend heavily on the quality of State
performance, although EPA would have less
influence on that performance under Strategy
IV. Our experience with the delegation of the
NPDES program, in overall terms, does not
support great optimism, but the Construction
Grants Program is considerably different. It is
nonregulatory, involves municipalities as against
industries, and has existed long enough to
develop considerable administrative know-how.
Resource estimates (see Table VII- 9 ) assume
that due to the need for legislative authority,
implementation of Strategy IV could not begin
until January 1976. It is further assumed that
Strategy IV would be implemented as a con-
tinuation of Strategy III. Therefore, the
estimates reflect the assumption that the 15
States accepting Strategy III delegations would
accept Strategy IV delegations in the second half
of the fiscal year, and that in FY-77 25 States,
instead of accepting Strategy III delegations,
would accept Strategy IV delegations.
Discussion and Recommendation
The fundamental point of the analysis so far
is that it is not possible to creditably administer
the Construction Grants Program within the
current staffing level. The basic reason is the
substantial increase in the estimated number of
projects to be managed (see Table VII-10). All
types of projects, except pre-PL 92-500 projects,
increase by amounts ranging from 30 to 1,100
64
-------
Table VII-9
Staffing Requirements of Strategy IV
1975
No. of Mandays/ Man-
Actions Action years
1976
Pre-Step 1
Pre-application conferences
Step 1
Review applications &
award
Review plans of study
Facilities planning con-
ferences
Review facilities plans
Prepare EIS's
Payments
Clerical
Step 2
Review applications &
award—amendments
Review^pplications &
award-original
Pre-design conferences
Review plans & speci-
fications
Payments
Clerical
Step 3
Review applications &
award—amendments
Review applications &
award—original
Bid tab reviews
Pre-construction con-
ferences
UC/ICR conferences
Interim inspections -
Section 8
Title II
Change orders
Review UC/ICR
Review O&M manuals
Final inspections —
Section 8
Title II
No. of Mandays/ Man-
Actions Action years
1977
No. of Mandays/ Man-
Actions Action years
1,200
560
100
0.3
1.6
1,950
0.2
1.7
1,300
1.0
2.8
342.5
6.9
1,200
2.3
278.3
12.0
1,950 1.5
1.9
0.9
1,100
1.6
61.0
7.7
1,800
1.0
0.6
1,200
3,120
3,120
2,260
225
560
-
1.9
1.9
3.2
8.8
110.0
0.3
-
9.9
25.8
43.4
86.5
107.6
0.8
68.5
1,950
2,800
2,800
2,650
265
1,200
-
1.6
1.6
2.5
6.9
68.0
0.2
-
13.6
19.5
30.5
79.5
78.4
1.1
55.7
1,300
1,300
1,300
2,750
275
1,950
-
1.0
1.1
1.8
4.8
25.0
0.2
5.6
6.3
10.2
57.4
29.9
1.7
27.8
138.9
12.8
540
1,830
1,260
100
-
3.3
0.9
4.4
0.3
-
7.8
7.2
24.1
0.2
11.6
600
2,700
1,950
1,100
-
2.7
0.7
2.4
0.2
-
7.1
8.3
20.4
1.0
12.2
300
2,500
2,300
1,800
-
1.8
0.5
2.4
0.2
-
2.4
5.5
24.0
1.6
11.6
7.9
1,160
1,260
1,260
1,260
1,935
1,740
3,675
190
1,200
800
100
3.3
0.9
1.4
1.8
3.2
3.6
0.6
4.7
2.2
2.0
2.5
16.7
5.0
7.7
9.9
27.0
27.3
9.6
3.9
11.5
7.0
1.1
850
1,950
1,950
1,950
1,135
2,900
4,035
460
1,500
900
300
2.7
0.7
1.1
1.4
2.5
2.8
0.5
3.9
1.0
1.7
2.2
10.0
6.0
9.4
11.9
12.4
35.3
8.8
7.8
6.6
6.7
2.9
500
2,300
2,300
2,300
235
4,550
4,785
1,045
2,000
200
1,300
1.8
0.5
0.8
1.0
1.8
2.0
0.4
2.5
1.0
1.0
1.3
3.9
5.0
5.0
10.0
1.9
39.6
8.4
11.4
8.7
0.9
7.4
65
-------
TABLE VII-9 (Continued)
Payments
Clerical
Auditing
Pre-constmction audits
Construction audits
Final desk audits
Final field audits
Expanded final field
audits
Audit support &
supervision
Pos: Construction
Compliance assurance
program
Other
Same as Strategy III
Headquarters
Grand Total
No. of
Actions
3,675
40
360
600
250
50
~
-
.
-
_
Mandays/ Man-
Action years
0.9 14.4
32.5
177.5
13.0 2.3
20.0 31.3
2.0 5.3
10.0 10.9
19.0 4.2
13.5
67.5
86.0
207.0
- 77.0
- 1,016.9
No. of Mandays/ Man-
Actions Action years
4,035 0.7 12.3
34.5
172.3
230 11.1 11.1
400 17.0 29.6
700 1.7 5.2
440 8.5 16.3
60 16.2 4.3
16.7
83.2
231.0
146.0
- 77.0
- 1,050.5
No. of Mandays/
Actions Action
4,785 0.6
375 6.5
480 0.0
870 1.0
555 5.0
75 9.5
~
-
.
-
.
Man-
years
12.5
31.4
157.0
10.6
20.9
3.9
12.1
3.1
13.7
64.3
168.0
125.0
72.0
783.7
Table VII-10
Estimated Number of Projects in Process at End of FY 1974-77
Types of Projects in Process
Step 1 projects
Step 2 projects
Step 3 projects in pre-const:uction phase
Step 3 projects in construction phase
Section 8 projects in construction phase
Total
Percentage increase of total over 1974
1974
1975
1976
1977
560
100
470
1,270
1,935
4,335
.
1,200
1,100
1,260
1,640
1,135
6,335
46
1,950
1,800
1,950
2,600
235
8,535
97
1,300
2,250
2,300
3,250
35
9,135
111
66
-------
percent between 1974 and 1975 and from 160
to 2,250 percent between 1974 and 1977. The
total number of projects in process increase by
46 percent between 1974 and 1975 and by 111
percent between 1974 and 1977. These per-
centage increases of total projects, however,
understate the associated increase in workload
because processing of Step 1, and Step 2 and
Step 3 preconstruction projects, require sig-
nificantly more manpower, than those of Step 3
and Section 8 projects now under construction.
Secondary causes of the increased staffing
required by the several strategies are (1)
expanded Federal requirements and (2) im-
proved performance of many of the functions of
the program. Included in the first category are
the review of plans of study for facilities plans,
and review and approval of facilities plans
themselves. Pursuant to EPA regulations, facil-
ities plans (and thus the attendant tasks) will be
required for planning started after April 30,
1974. User charge/industrial cost recovery begin
to require staff time in 1975 and subsequent
years. Similarly, the compliance assurance pro-
gram is assumed to start in 1976. However,
operation and maintenance inspections, a part of
this program, are carried out in 1975 at levels of
staffing much lower than those estimated for the
compliance assurance program.
To improve the quality of performance, all of
the strategies assume institutionalizing and
expanding direct contact with the grantees
through preapplication, facilities planning,
predesign, preconstruction, and UC/ICR con-
ferences. In addition, all strategies except II
assume a more thorough performance of all
functions than at present, adding to staffing
requirements.
Table VII-11 identifies the man-years required
under Strategy I attributable to various pur-
poses, including all tasks for which performance
is modified during 1975-1977. Increases in
workload account for approximately 70 per-
cent of the staffing increases. Similar analyses of
the other strategies yield similar results.
Projected increases in staffing requirements
result principally from projected increases in
workload.
Obviously, the Review Group prefers Strategy
I-it would provide for an adequate and ac-
ceptable performance of the program, without
extensive EPA dependence on the States. How-
Table VII-11
Analysis of Staffing Requirement Increases of Strategy I
1974 1975
Current staffing level
Increase necessary to initially accommodate (in
1974) new requirements and upgrade
performance to Strategy I levels
Increase necessary to initiate the compliance
assurance program
Decrease resulting from achieving greater
efficiency in the preparation of
Environmental Impact statements
Decrease resulting from increasing delegation
of review of plans and specifications and
operations and maintenance manuals to the
States
Increase for A/E cost analysis
Decrease resulting from completing the
processing of 206 reimbursable projects
Increase resulting from increased workload
Total
595
+138
595
+138
733
317
1,050
1976
595
+138
+145
-30
-15
+20
-13
452
1,292
1977
595
+ 138
+138
-60
-15
+20
-25
489
1,257
67
-------
ever, if the positions required for Strategy I are
not attainable, we recommend a combination of
Strategies III and IV.
We have the least preference for Strategy II
because it involves less than adequate perform-
ance and risks poor results insofar as cost
effectiveness, stewardship, and environmental
integrity are concerned. We recognize that poor
State performance could result under Strategies
III or IV as well, although we do not believe that
this is likely to happen, at least on a large scale.
Furthermore, while Strategy II requires fewer
people in FY-75 than either Strategy III or IV,
the reverse is true in later years. In FY-77,
Strategy IV would mean significant personnel
savings over Strategy II.
Movement toward Strategy III and, eventual-
ly, Strategy IV will require an immediate,
well-enunciated shift in Agency policy, as well as
changes to PL 92-500. A number of problems
may be encountered in implementing our recom-
mendation. First, the Review Group generally
found considerable misgiving in the Regions
about delegating more functions to the States.
They genuinely feel that the States (with some
exceptions) lack the interest or capability or
both to perform additional delegated functions
in a creditable manner. Consequently, the policy
changes required by Strategy III will require
firm and explicit guidance to the Regions to
overcome the built in "inertia" in the Regions
against such changes.
Second, Strategy III virtually depends on
enactment of the Cleveland Bill or something
similar to it. Although we could begin moving
toward Strategy III under current authorities,
the Cleveland Bill provides two important
features which would vastly further this ap-
proach. It would make Congressional authoriza-
tion for delegating functions to the States
explicit; more importantly, it would authorize
those States accepting delegations to use a
portion of their annual allotments to cover the
resulting administrative costs. We believe that
many States—California, as an example—which
are interested in Strategy III would decline
involvement unless the Federal Government
helped to defray the States' additional adminis-
trative costs.
The two alternatives to the Cleveland Bill are
the "California fee proposal" and use of Section
106 grant funds, both of which we favor less
than the Cleveland Bill. Although the California
fee proposal (currently being implemented) is an
adequate interim measure, it is administratively
complex, and is neither designed nor intended to
cover all of the functions that Strategy III
assumes will be delegated. Under the proposal,
States charge the grantee a fee for certain
functions; he is then reimbursed under existing
regulations. Both methods make Title II funds
available, but the Cleveland Bill is more ef-
ficient, direct, and flexible. Section 106 grant
funds would be an adequate alternative if their
continuation were assured. Because of the
potential phase-out of these grants and because
current funding levels ($40 million) could not
accommodate the additional costs of Strategy
III, we believe that the Agency cannot rely on
them.
Third, the Review Group recognizes that
Strategy III will require considerable effort, if
experience with the NPDES program is any
guide. Negotiating delegation agreements with
the States will probably be easier than im-
plementing them. Consequently, EPA's effort to
implement Strategy III may fall behind.
Although Strategy III appears attractive for
the near term, we do not find it so for the long
term. We do not like its inherent feature of
delegating all of the functions and workload but
none of the responsibility. From a standpoint of
sound administrative principles, we feel the
separation of functions and responsibilities can-
not and should not survive permanently. Ac-
cordingly, we favor the eventual move to
Strategy IV-the transfer of both the function
and the responsibilities to the States-if staffing
constraints force the Agency to take the delega-
tion approach.
While it reduces the need for EPA manpower,
Strategy IV is risky because it does not assure
adequate State performance. We are not able to
quantify this risk-benefit relationship, although
we have considerable confidence that the States
are as capable as EPA of achieving the goals of
the program if they are given both the clear
authority to manage the program and sufficient
resources to carry it out.
Strategy IV requires more extensive changes
to PL 92-500 than the Cleveland Bill; these
changes must authorize not only the delegation
of the responsibilities, but literally the entire
program. The basic change in the nature of the
program suggested here argues for our Strategy
III plus Strategy IV approach. The Cleveland Bill
68
-------
and Strategy III would support a move toward used to set the legislative ground work for the
Strategy IV, but would also serve as the basis for subsequent and more substantive statutory
testing the delegation approach. Moreover, the changes required for Strategy IV.
Cleveland Bill and our support of it could be
69
-------
VIII. MANAGEMENT AND ORGANIZATION
The early chapters of this report consider the
major subgoals of the Construction Grants Pro-
gram, identify problems, and recommend pos-
sible solutions. Chapter VII integrates these
solutions into alternatives that the Review
Group considers adequate for pursuing the
program's goals.
Implicit in the recommendations so far is the
need for efficient organization and effective
management. The recommended additional man-
power by itself will not yield the estimated
improvements unless applied to critical elements
of the program and with minimum duplication
of effort. The Agency's strategy must be clearly
stated; accountability should be clearly
established and commensurate with respon-
sibility assigned; authoritative standards, regula-
tions, and guidance should be available on a
timely basis to those responsible for implement-
ing them; realistic operational goals should be
established along with adequate reporting and
evaluating mechanisms.
Current Organization
The Construction Grants Program conforms
to the Agency's system of decentralization.
Headquarters staff is expected to provide policy
and procedural guidance and to monitor per-
formance. Program operations are the respon-
sibility of the Regional Administrators, who
report to the Administrator and the Deputy
Administrator.
Headquarters responsibilities are divided
among program and functional offices dealing
with policies and services that cut across pro-
gram lines. The program manager for the
Agency's water programs is the Assistant Ad-
ministrator for Water and Hazardous Materials
(AA/OWHM).
Within the Office of Water and Hazardous
Materials (OWHM), the bulk of the Agency's
activities concerning the Construction Grants
Program has been delegated to the Deputy
Assistant Administrator for Water Program
Operations.1 This office is to:
• Provide national guidance for the design
and construction of municipal waste water
treatment facilities.
• Coordinate Headquarters and Regional
plans for the Construction Grants Program.
• Develop and disseminate NPDES policy as
it applies to publicly owned treatment
works.
• Develop guidance for O&M programs,
which are coordinated with NPDES and the
Construction Grants Program.
• Administer training programs for operating
personnel.
The Deputy Assistant Administrator for Water
Planning and Standards, who is responsible to
the AA/OWHM for developing the Agency's
strategy for water pollution abatement, directs
activities which impact directly on the Construc-
tion Grants Program. This office:
• Develops water qualify criteria.
• Oversees development of State strategies
and State priority lists.
• Issues guidelines and criteria for assessing
the cost effectiveness of project alterna-
tives.
He is also responsible for a variety of other functions
including programs related to oil and hazardous materials spills,
the control of pollution from Federal facilities, and the
development of standards for water supply systems and carriers.
71
-------
• Provides guidance and regulations for all
water quality planning programs, including
areawide, basin, and facility planning.
• Administers the program grants (Section
106) for State and interstate water quality
planning and control agencies.
A number of Headquarters functional offices
have Agency-wide responsibilities that impact on
the Construction Grants Program, including the
following:
• Office of the Administrator (policy on
Environmental Impact Statements).
• Assistant Administrator for Planning and
Management (program policy and budget
formulation; organization, management,
and personnel practices; grants administra-
tion, labor standards, civil rights com-
pliance, program evaluations, financial
management and audits).
• Assistant Administrator for Enforcement
and General Counsel (legal counsel, en-
forcement policies).
• Assistant Administrator for Research and
Development (basic and applied research,
demonstration programs).
The Regional Offices have responsibility for
conducting the Construction Grants Program
within the policy and procedural guidance
received from Headquarters. The offices must
integrate the requirements of the program into
Regional priorities and resource constraints, and
have the authority to deal directly and con-
clusively with grant applicants and State
agencies. The Regional Offices:
• Interpret Agency policy, guidance, and
procedures for the States, localities, and
consultants.
• Review grant applications, amendments,
planning products, and other submissions
for adequacy and conformance wich ad-
ministrative requirements.
• Make grant awards and payments.
• Conduct environmental reviews and, as
necessary, prepare Environmental Impact
Statements.
• Monitor and report on project status.
• Negotiate State control agency program
grants and determine the readiness of State
agencies to assume delegated EPA respon-
sibilities.
These activities, under the recently issued
Order No. 1110.19A, are to be carried out
largely under the Water Division with neces-
sary support from other offices in the
Regions.
Current Problems
Although some improvements have been
noted we recognize that the Agency is not doing
an adequate job of managing the Construction
Grants Program. Some of the weaknesses in
program management relate to factors not
entirely within the control of Agency manage-
ment. These factors have been mentioned in
earlier chapters but bear repetition:
• The program has expanded rapidly, with
nearly a 13-fold increase in annual obliga-
tions between 1968 and 1975, while Fed-
eral program staffing has less than doubled.
• The basic structure of the program as
defined in enabling legislation inhibits "ef-
ficient" Federal program management-
Federal grants support projects which are
designed, built, and operated by State or
local agencies without direct program
management by either Federal or State
agencies.
• Under the 1972 Amendments the program
has become more complex, requiring
analysis and program planning of a type
not done extensively before by the grantees
or their consultants.
• Finally, there have been significant changes
in the Agency itself since its inception in
1970, including a decentralization of
responsibilities to the Regions and a high
turnover of key personnel.
72
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These factors increase the importance of
pressing for improvement in program manage-
ment requiring changes in attitude, resources,
structure and procedures. Accountability need
not only be established, but also monitored.
One of the most notable yet difficult prob-
lems is that of an attitude of independence and
separateness. Other aspects of management
problems are discussed below: (1) delays in
providing guidance, (2) confusion over respon-
sibilities, and (3) uneven implementation of
requirements,
Delays in Providing Guidance. The Agency
has not issued regulations and guidelines on
construction grants in a timely manner. Without
exception, they were issued later than the dates
specified in law, or the dates required for a
smooth transition to the new program. Table
VIII-1 provides a summary of the Agency's
record for selected regulations and guidelines.
TABLE VIII-1
Delays in Issuance of Selected Regulations
Regulation/
Guideline
Title II
Regulations
Secondary
Treatment
Regulations
Project
Priority
Criteria
User Charge/
Industrial
Cost
Recovery Reg.
Facility
Planning
Guidelines
BPWTT2
Guidelines
1 OWHM - Office
OWPO - Office
Responsible
Unit'
OWHM
OWPO
MCD
OPM
OA
GAD
OEGC
OGC
GCGAD
OWHM
OWPO
MCD
OWHM
OWPS
WPD
OWHM
OWPO
MCD
OWHM
OWPS
WPD
OWHM
OWPO
MCD
of Water and Hazardous Materials
of Water Program Operations
MCD - Municipal Construction Division
OPM - Office
OA - Office
GAD - Grants
of Planning and Management
of Audit
Administration Division
Statutory Time Period for
Time Interim/Proposed
Period Publication
133 days
60 days 194 days
201 (OAWP
Memo)
254 (Sec. 106
Reg.)
180 days 2 16 days
270 days 5 13 days
Time for
Final
Publication
48 1 days
303 days
307 days
454 days
OEGC - Office of Enforcement and General Counsel
OGC - Office of General Counsel
GCGAD - General Counsel, Grants Administration Division
OWPS - Office of Water Planning and Standards
WPO - Water Planning Division
2 Best practicable waste treatment technology
73
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In addition, the Agency appears slow or
unresponsive in replying to queries regarding the
interpretation of these regulations and guide-
lines, or their possible revision. In a recent
example, Region II asked Headquarters for
guidance on how population growth should be
addressed in developing the Environmental Im-
pact Statement for a project. After waiting 6
months for a reply, the Region made its own
decision. As a second example, in January 1974
Region IX requested the approval of a "con-
struction grant fee" which would allow State
agencies to recover certain costs of administering
the Construction Grants Program. A response in
the form of an amendment to the regulations
was published September 24, 1974.
The responsiveness of the Regional Offices to
requests by the States or grantees for guidance is
also generally inadequate, but the nature of the
problem varies from one Region to another.
Management problems identified include:
• Difficulty of handling problems such as
local procurement systems, value engineer-
ing, municipal finance and cost analysis.
• Weak project relationships (Project Officer
idea not well carried out).
• Inadequate use of management information
systems such as Grants Information Con-
trol System for program management.
• Inadequate financial forecasting.
Confusion Over Responsibilities. Policy and
procedural guidance are issued by many Head-
quarters units. As Table VIII-2 illustrates, not
only are directives regarding program elements
issued by more than one office, but also by
more than one level within an office. The
handling of facilities planning guidance is an
example of how divided responsibility presents
problems. In this case the Deputy Assistant
Administrator for Water .Program Operations
and the Deputy Assistant Administrator for
Water Planning and Standards, each operating
within his perceived areas of responsibility,
drafted competing versions of the Facilities
Planning Guidance. Since promulgation of the
resulting guidance, they have continued to issue
conflicting interpretations and to emphasize
different aspects of the guidance.
Uneven Implementation of Require-
ments. Different Regions emphasize different
aspects of the Construction Grants Program.
This is primarily due to the varying situations
faced by individual Regions, but it is made more
extreme by the limited manpower available, by
the lack of procedural guidelines and norms, and
by the lack of Headquarters insistence on
adequate performance. Numerous examples of
this problem have been cited in earlier chapters
(for example, criteria for approving environ-
mental assessments, procedures lor reviewing
Step 2 plans and specifications, and programs
for monitoring construction programs).
Another example is the variations given to the
development and utilization of "management
information." There are wide variations among
the Regions and at Headquarters with regard to
the flow of construction grant information to
management personnel. Although a Grants In-
formation Control System (GICS) has recently
been implemented, we note inconsistencies
among the Regions in the input prepared for this
system and in the use of the system for program
management.
Constraints
In choosing among alternative ways to im-
prove the management and organization of the
Construction Grants Program, the Agency is
faced with a series of constraints, including 1)
the recent Agency-wide reorganization of pro-
gram responsibilities, 2) the Agency's policy of
decentralization, 3) the problems inherent in
giving too much autonomy to a national pro-
gram manager, and 4) the limits on what can be
bought with formal delineations of organization,
requirements, and guidelines.
Recent Reorganization. A reorganization of
EPA's Headquarters was completed in April
1974; Regional reorganization is to be com-
pleted by early 1975. As reorganizations tend to
affect morale, create uncertainty, and cause
program delays in the near term, further re-
organization should not be undertaken without
good reasons.
Decentralization. In line with the Adminis-
tration's policy of New Federalism, the Agency
has decentralized responsibility and authority to
the Regional Offices. Each Regional Adminis-
trator is free to organize his personnel in a
manner suited to the Region's particular prob-
74
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TABLE VI11-2
REGIONAL REPLIES TO A REQUEST TO
IDENTIFY SOURCES OF HEADQUARTERS DIRECTIVES
State
priority list
development
Application
development &
processing
Construction
progress
monitoring
Ope rations &
maintenance
(Number of regions identifying sources of directives)
Administrator
Deputy Administrator
Staff Offices
A A for Air and Water Programs
DAA for Water Plan. & Stds.
Dir. Water Planning Div.
DAA for Water Program Oprs.
Dir. Municipal W.W. Systems Div.
AA for Planning & Management
Office of Audit
DAA for Administration
Dir. Grants Admin. Div.
Dir. Mgt. & Org. Div.
DAA for Resources Management
Dir. Budget Operations Div.
Dir. Financial Mgt. Div.
AA for Enforcement & General Counsel
Deputy General Counsel
Dir. Grants & General Admin. Div.
DAA for Water Enforcement
Dir. Permit Programs Div.
2
3
2
3
1
5
3
3
3
3
1
6
1
2
4
7
6
1
1
6
1
1
1
1
3
5
6
1
1
6
2
2
2
2
lenis, workload, and capabilities. Although there
are advantages in imposing an organization on
the Regions that mirrors the Headquarters struc-
ture to the Division level, the Review group has
concluded that this is neither desirable nor
feasible.
Program Autonomy. The Construction
Grants Program is becoming one of the largest
public works program in the United States; its
obligations in FY-75 will be several times the
rest of EPA's budget. The program has a
widespread clientele among the States and local-
ities and a powerful constituency in Congress.
The pressures on the program are to obligate
funds expeditiously, to the potential detriment
of orderly consideration of environmental con-
cerns. Given these factors, the appropriate
management and organizational framework for
the program seeks to balance the need for
suff-cient autonomy against the need to provide
ways foi the Agency's functional offices to
constructively influence formulation and execu-
tion of policy.
Management versus Organization Solu-
tions. There is a distinction between "organiza-
tion" and "management." The former term
relates to the formal structure of an agency and
involves the delineation of chains of command
and the assignment of responsibility to organiza-
tional elements. "Management" relates to
actions that a responsible official takes to
impiement policy, create appropriate working
conditions and incentives, and ensure that those
responsible to him exercise their responsibilities
in an adequate and appropriate manner. Not all
administrative problems are subject to organiza-
75
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tional solutions; improved management practices
are often more appropriate.
Alternatives—Headquarters
We have chosen to discuss improvements in
organization and management at the Head-
quarters level separately from those at the
Regional level. While this choice limits the scope
of alternatives that might be examined, we
believe it is consistent with the Agency's policy
of decentralization.
The Review Group has discussed a number of
possible changes to the management and or-
ganization of the Construction Grants Program
at Headquarters. The major options are:
Option 1 — Management enhancements
Option 2 - Limited reorganization
Option 3 — Major reorganization
The following discussion assumes that the
Agency rapidly organizes procedural guidance
into manuals, as described in Chapter IX. The
arguments for and against an option are con-
sidered to hold regardless of the overall strategy
chosen.
Option 1 — Management Enhancements. The
Management Enhancement Option is based on
the rationale that the existing organizational
structure is acceptable and that program per-
formance can be brought to an adequate level
through management action. The Administrator
or Deputy Administrator would reaffirm the
fact that the Assistant Administrator for Water
and Hazardous Materials is the "program
manager" of the construction grants program
and, as such, has primary responsibility for its
management. The AA/OWHM, or his delegates,
would in turn move rapidly to:
• Assume clear responsibility for the timely
promulgation of necessary guidance
packages (see Chapter IX).
Clearly designate responsibilities within his
office, particularly in regard to the inter-
pretation of facUities planning guidance, and
establish procedures to ensure that these
responsibilities are exercised in an adequate
manner.
• Negotiate clear agreements with the
"functional" offices in areas of overlapping
responsibilities, particularly 1) control of
requests for interpretation or amendment
of current guidance, 2) approval of devia-
tions from current guidance, and 3) control
of the content of the G1CS data files.
• Work with the Regional offices to 1)
develop useful guidelines for Regional
activities, 2) minimize the inefficient
utilization of personnel, 3) develop
meaningful measures of program perform-
ance, and 4) designate the offices or in-
dividuals to receive directives regarding
aspects of the Construction Grants Pro-
gram.
Advantages:
• If pursued vigorously by Agency manage-
ment, is capable of eliminating most of the
problems discussed above.
• Avoids another reorganization, with its
attendant uncertainties and program
delays.
• Represents an effort to work within the
Agency's policies of decentralization and
limited program autonomy.
Disadvantages:
• If selected, but not pursued vigorously by
management, will have little impact.
• While the responsibility of the program
manager is clearly reaffirmed, the Assist-
ant Administrator for Water and Hazardous
Materials may not devote time to make it
work, in view of his other areas of respon-
sibility.
Option 2 —Limited Reorganization. The
Limited Reorganization Option is based on the
rationale that other responsibilities of the AA/
OWHM prevent him from devoting the time
necessary to effectively manage the Construc-
tion Grants Program. The reorganization con-
76
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templated in this option would be restricted to
offices already within OWHM. The DAA for
Water Program Operations would be renamed
the DAA for Municipal Waste Treatment Sys-
tems, and formally designated as the "program
manager" of the Construction Grants Program.
He would be relieved of responsibility for
unrelated activities (the oil and hazardous mate-
rials and the water supply programs) so that he
could focus his attention on the Construction
Grants Program. The only recommended shift of
responsibilities from other parts of OWHM to his
office would be those related to facilities, plan-
ning; however, his designation as program
manager would give him an increased say in a
number of related areas (for example, priority
list development). His relationship with those
outside OWHM, in the Agency's functional and
Regional offices, would be those described for
the AA/OWHM under Option 1.
Advantages:
• Vests increased accountability in a DAA
with no other responsibilities; a DAA has
the stature commensurate with respon-
sibility for a key Agency program.
• Possibly minimizes the problems associated
with reorganization.
• Eliminates the current uncertainty over
who is responsible for facilities planning,
the organizational problem most often
noted by Regional personnel.
Disadvantages:
• Under pressure to obligate funds rapidly,
approval of projects for construction may
receive greater HQ emphasis, at the expense
of review of alternatives and environmental
considerations now a part of the facilities
planning process.
• Generally increases the burden on HQ
functional offices to exercise their respon-
sibility to influence program policy deci-
sions.
Option 3-Major Reorganization. The Major
Reorganization Option is based on the rational
that the Construction Grants Program would be
run more effectively and efficiently if one office
were clearly responsible for the overall perform-
ance of the program. In addition to the or-
ganizational realignments described in Option 2,
selected operational responsibilities carried out
by HQ functional offices would be transferred
to a new DAA for Municipal Waste Treatment
Systems. Operational grants policy, granting of
deviations, and GICS would be transferred from
Grants Administration, and priority list criteria
from Water Planning and Standards.
A new Office of Municipal Waste Treatment
Systems would be reorganized into five Divisions
with these responsibilities:
• Facilities Planning Division—Review of the
State priority list and all phases of Step 1,
including Environmental Impact State-
ments.
• Construction Engineering Division—Steps 2
and 3—that is, design and construction of
completed systems.
• Compliance Assurance Division-All post
construction functions—that is, operator
training, compliance assurance, UC/ICR
compliance, and technical assistance.
• Enforcement Division -Municipal permits
and enforcement actions.
• Administration Division—Grants adminis-
tration and variances, GICS, program
management systems, financial manage-
ment and control, program planning and
evaluation, and coordination with the Of-
fice of Resources Management.
Advantages:
• Increases program accountability.
• Greatest long-term opportunity for
reducing HQ delays in issuing program
guidance.
• Greatest long-term opportunity for expedi-
ting the planning, design, and construction
of waste treatment works.
77
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Disadvantages:
• Greatest risk of emphasizing facility con-
struction at the expense of water quality
improvements and environmental con-
siderations.
• Greatest risk of emphasing construction
grants at the expense of other Regional
water programs.
• Greatest risk of overreliance on reorganiza-
tion as a substitute for improvements in
basic management practices.
• Inevitable confusion and delay during the
transition period.
• New problems of coordination with other
Headquarters offices. Functional offices
would seek to retain some influence on
program policy determination.
We recommend that Option II be im-
plemented.
Principles of Management and Organization-
Regions
We have already pointed out that each Region
has its own way of organizing for and managing
the Construction Grants Program. We believe,
given the Agency's policy of decentralization,
that this is likely to remain the case even after
the recent order creating a Water Division, Order
No. 1110.19A, has been implemented in each
Regional office. Furthermore, the choice of
overall strategies will have greater impact in the
Regions than in Headquarters; the Review
Group has not been able to fully analyze all the
organizational implications of such strategies.
Therefore, we have chosen not to formulate a
series of options for Regional reorganization.
Instead, we would like to propose three prin-
ciples of management and organization and urge
their consideration and adoption by the
Regional Administrators. These principles are
(1) increased State orientation, (2) authority
commensurate with responsibilities, and (3) im-
proved utilization of available resources.
Increased State Orientation. One of the Re-
view Group's major conclusions is that increased
contact with States, beginning early in the grants
process, will not only improve the quality of
State and local submissions but will also reduce
Federal administrative delays. We believe this
increased contact can best be achieved if each
Regional office forms State teams composed of
individuals from all functional areas of the
Construction Grants Program-facilities planning,
construction engineering, permits, compliance
assurance, and grants administration. These
teams could operate as elements (for example,
sections within each new Regional Water Divi-
sion) or as designated individuals located within
functionally organized units, but responsible to
a senior team member for all projects within a
State.
Most Regions, now assign responsibility for
projects during the grant period to a specific
individual. Region IV has a separate water
program organization for each State. Region X
places EPA employees in State pollution control
agencies. The choice of organizational structure
depends on a Region's staffing levels and ca-
pabilities and on its relations with the States.
What is important is that a State agency, or a
grantee, is able to identify its primary contact
within the Region, and does not have to deal
with several different desks.
Authority Commensurate with Responsibil-
ity. Once a State team is formed, it is important
that the team leader be given adequate grant
approval authority. Under his direction, the
State team is responsible for both facilitating
approval and for ensuring quality of all func-
tions handled. The team should assist in project
development, review project submissions, and
recommend award action to the Regional Ad-
ministrator. If, as is often the case, one individ-
ual or group works with a State/grantee to
develop a project only to have it rejected or
blocked by another office, EPA/State relations
will be impaired.
Improved Utilization of Available Re-
sources. No two Regions place the same em-
phasis on all elements of the construction grants
process. The reasons are both external to the
Regional office (for example, water quality
problems, existing stock of treatment facilities,
and State capabilities) and internal (for example,
resource constraints, staff capabilities, inertia,
and management preference). We believe that a
78
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large portion of these diferences in emphasis-
especially those related to external factors-are
valid and necessary. However, earlier in this
report we have discussed numbers of program
areas where greater or lesser emphasis would
make sense in most Regions—for example, pre-
application conferences versus reviews for
restrictive specifications. Chapter IX recom-
mends that procedural guidelines and norms in
these areas be organized into manuals. We urge
the Regions become involved in development of
these guidelines.
A major underutilized resource is the program
management information potentially available
from GICS. The Regions should be given re-
sources necessary to make the transition from
existing program management systems to GICS.
Further study will be needed to determine if
GICS will require additional resources once the
transaction is completed.
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IX. PROCEDURAL GUIDANCE
Pollution control agencies at all levels of
government must fulfill their assigned roles if
the Construction Grants Program is to function
effectively. To fulfill their roles, however, the
agencies must clearly understand not only what
functions they are required to perform, but the
procedures governing their activities. Unfortu-
nately, an adequate understanding of the proce-
dural requirements does not exist for all ele-
ments of the program.
This Chapter addresses problems related to
program procedures and offers recommenda-
tions for the correction of the deficiencies
identified. Emphasis is placed on the need for
procedural guidance and the means by which
such guidance is organized for dissemination to
the different levels of government.
Need for Procedural Guidance
The Title II Regulations provide the basic
working rules for local and State governments.1
These regulations list the main items that local
applicants must prepare and submit for grant
approval, the most important procedures the
States must follow in certifying projects to EPA,
and basic requirements placed upon EPA in its
administration of the Construction Grants Pro-
gram.
Supplementary regulations and guidelines
support and amplify the Title II Regulations in
defining the governmental roles, but they have
been issued at sporadic intervals in a piecemeal
fashion. Because of the procedural gaps, defi-
ciencies in commun-cation, and the inherent
complexity of the issues involved, the agencies
have been uncertain cf their responsibilities. The
Title 11 Regulations were published on Feb. 11, 1974, as
Subpart E—Grants for Construction of Treatment Works-
Federal Water Pollution Con- il Act Amendments of 1972.
resultant delays and other problems have
seriously reduced the effectiveness of the pro-
gram.
The Review Group has identified many
examples of how the lack of adequate proce-
dural guidance has adversely affected the pro-
gram. The examples may be grouped into two
problem areas: (1) contradictory or inconsistent
practices and policies and (2) utilization of
outdated guidance. These problems, in turn,
result in indirect adverse effects which make it
difficult to assess program performance, proce-
dural effectiveness, and the use of resources.
Contradictory or Inconsistent Practices and
Policies. Individual Regional offices, as well as
State and local agencies, have applied construc-
tion grant policies and practices that contradict
or are inconsistent with those applied by their
counterparts in other locations. Examples
include:
• One Region approved project priority
criteria which, in effect, constituted "readi-
ness to proceed;" other Regions disallowed
such criteria.
• Most Regions work actively with the States
to conduct preapplication conferences for
all prospective applicants; two Regions,
however, conduct such meetings with only
10 to 15 percent of their applicants (upon
request).
• One Region has made a practice of exe-
cuting grant agreements for Step 3 projects
before reviewing the plans and specifica-
tions. This is not consistent with what the
other Regions do.
• Most States held public hearings on their
FY-74 priority criteria and project lists.
One Region, however, granted waivers for
81
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such hearings to all States within its juris-
diction.
• Many grantees depart substantially from ac-
ceptable accounting, procurement, and pro-
ject management practices.
• All Regions conduct bid tabulation
reviews; however, the comprehensiveness
of the reviews varies substantially from
Region to Region.
• Five Regions conducted construction
inspections during FY—74; the other five
did not.
• Three States have been delegated the
responsibility for change orders; the others
have not.
The contradictions and conflicts have
resulted in considerable confusion and un-
certainty among the grantees as well as the State
and Federal program managers. Regional mem-
bers of the Review Group stress the urgent need
for procedural guidance.
Utilization of Outdated Guidance. In the
absence of up-to-date guidance, Regional Offices
are using guidance developed prior to enactment
of the 1972 Amendments. Examples include:
• The general grant regulations in effect
prior to issuance of the Title II Regulations
required review and approval of grantee
contracts by EPA. No such requirement is
contained in the Title II Regulations, nor
has guidance for implementation under the
1972 Amendments been transmitted to the
Regional Offices. As a result, each
Regional Office reviews contracts es-
sentially in conformance with outdated
policies established in 1969.
• Regional Offices use to varying degrees the
publication Federal Guidelines—Design,
Operation and Maintenance of Wastewater
Treatment Facilities, issued in 1970, in the
review of Step 3 grant applications. Even
though two publications have updated
sections of this report, many outdated
sections remain in use.
The lack of up-to-date guidance has, like
conflicting and inconsistent practices and
policies, resulted in considerable confusion and
uncertainty. Thus, it is not currently possible to
assess EPA's performance in meeting: (1) its
assistance, review, approval, and project
monitoring responsibilities or (2) its program
goals. Primarily, this is because performance
norms cannot be meaningfully established and
quantified given the existing meager data base.
The meager data base, in turn, cannot be
improved until procedures for all program
activities have been specifically delineated. The
first task, therefore, in providing for an assess-
ment of program performance is to establish
detailed procedures on a task-by-task basis. In
order that Regional performance might be
established on a relative or comparative basis,
the procedures would have to be uniformly
applied across the Nation.
Procedural Effectiveness and Resource
Use. At a lower level cf assessment, no tests of
procedural effectiveness have been applied to
determine whether the expenditures of person-
nel and financial resources devoted to program
elements have been fully justified. Again, an
adequate data base necessary for the tests
cannot be developed until the procedural
requirements have been delineated on a task-
by-task basis.
With one or two possible exceptions, the
Regions have made no serious attempt to
determine the resource needs of the program
based on detailed assessments of the work
required. Lacking the data and supporting
analysis, the Regions have been forced to
develop their program plans on a "make do"
basis, with resource allocations arbitrarily estab-
lished by EPA Headquarters.
Existing Procedural Guidance
Written guidance governing administration of
the Construction Grants Program is provided in
several documents.
Federal Water Pollution Control Act Amend-
ments of 1972 and the Supporting "Title II
Regulations." These documents direct the Fed-
eral role as well as delineate the grant-related
requirements for applicants, grantees, and State
agencies. For example, when Section 201(g)(3)
of the Act states that, "The Administrator shall
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not approve any grant after July 1, 1973, for
treatment works under this Section unless the
applicant shows to the satisfaction of the
Administrator that each sewer collection system
discharging into such treatment works is not
subject to excessive infiltration," it is clear that
the Federal grant application review must con-
sider the infiltration question. By way of
another example, the grant regulations state in
Section 35.925 that "before a'varding initial
grant assistance. . .the Regional Administrator
shall determine that the facilities planning
requirements have been met." Thus, a review of
the applicant's facilities plans is a prerequisite to
any grant award for the design and construction
of a treatment works.
What is not so clear, nor easily understood, is
the basic standard of evaluation that EPA will
use in judging what constitutes "excessive
infiltration," or whether "facilities planning
requirements" have been met. No basic review
procedures for these and other requirements
have been clearly established.
Other Published EPA Regulations and Guid-
ance. EPA has published certain additional regu-
lations and guidelines which bear upon the
requirements of the 1972 Amendments.
Included are: (I) Secondary Treatment Informa-
tion Regulations, (2) Proposed Alternative Waste
Management Techniques for Best Practicable
Waste Treatment Information Guidance, (3)
Guidance for Facilities Planning, and (4) Guid-
ance for Sewer System Evaluation. All four
publications are designed primarily for grant
applicants. Although information contained
within them provides implicit direction to the
EPA reviewer, specific procedural guidance
needed for consistency and effectiveness is
lacking.
Construction Grant Program Guidance
Series. In May 1973 the Municipal Construction
Division started compiling all Regional policy
memoranda that concern the Construction
Grants Program. The compilation, the Program
Guidance Series, provides a certain amount of
procedural guidance with regard to special
circumstances, such as the processing of re-
imbursement grants. It does not provide, how-
ever, a comprehensive treatment of procedures.
A major failing of the Series is that it is a
compilation of all memoranda issued, including
statements of goals, advance information items,
draft statements, and procedural guidance. As a
consequence, it includes both current policies on
specific items and superseded or discontinued
policies.
Federal Guidelines—Design, Operation and
Maintenance of Wastewater Treatment Facil-
ities. These Guidelines, which were issued in
September 1970, are used by all Regional
Offices in the review of applications. They were
designed specifically for the applicant's use, but
they also provide imi licit guidance to the EPA
reviewer, particularly with regard to Step 3
projects. The Guidelines are a useful tool for the
Regional Offices, but they do not provide
comprehensive procedural guidance. Further-
more, they have been largely outdated by the
1972 Amendments, except for the parts per-
taining to project operations and maintenance
which have been updated.
Technical Bulletin: Supplement to Federal
Guidelines—Design, Operation and Maintenance
of Wastewater Treatment Facilities. Design
Criteria for Mechanical, Electric and Fluid Sys-
tem and Component Reliability. This bulletin,
published in January 1974, provides technical
guidance, but it is very limited in procedural
guidance.
Handbook of Procedures—FWPCA Construc-
tion Grants and Engineering Program. This
handbook, issued in 1969, still influences the
procedures followed by Regional Offices in
implementing certain facets of the Construction
Grants Program. For example, the chapter
concerning the advertising and award of con-
tracts, serves the Regions as a procedural refer-
ence source, in the absence of more recent
guidance. The handbook is a revised version of
an original Health Grants Manual, issued by the
U.S. Public Health Service. As such, it represents
a compilation of long established procedural
precedents. With enactment of the 1972 Amend-
ments, much of the Handbook became outdated
and could not be used by the Regional Offices.
Besides being outdated, the handbook is
deficient in that major construction grant sys-
tem components are covered only briefly. For
example, only one short paragraph is used to
describe Regional Office review procedures of
construction plans and specifications.
Grants Administration Manual. This manual,
which is kept current by the Grants Administra-
tion Division, concerns only administrative items
applicable to grants of all types.
83
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Draft Sample Agreement for Certification of
Adequacy of Certain Documents Relating to
Wastewater Treatment Facility Construction
Grant Applications. This sample agreement was
developed for Regional Offices negotiating with
State agencies about to assume certain respon-
sibilities under the Construction Grants Pro-
gram. The sample agreement provides detailed
procedural guidance for the review of construc-
tion plans and specifications.
Regional Procedures. Several Regions have
developed procedures covering various elements
of the Construction Grants Program.
Construction Grants Manual
The existing fragmented system of procedural
guidance-with its omissions, inconsistencies,
contradictions, and lack of means for assessing
program effectiveness or resource require-
ments-can no longer be accepted. To improve
the situation, the Review Group examined two
remedial approaches: the revision and expansion
of existing information sources, and the develop-
ment of a Construction Grants Manual.
The Review Group concludes that the Manual
offers greater advantages because it:
• Provides comprehensive sequential coverage
of the construction grants system—from
the allocation of funds and setting of
project priorities, through the post-
completion stage of project operation.
• Provides separate guidance on specific
functional areas such as accounting, audits,
and procurement.
• Provides easy reference and cross-reference
of information through a codification
system.
• Permits easy revision by being compiled in
a loose-leaf format.
• Provides focus and user utility by being
separated into two volumes—a State-
municipal volume and an EPA volume.
We recommend that comprehensive proce-
dural guidance be issued in the form of an
integrated construction grants manual, with
separate volumes for municipal-State agency
actions and EPA Regional and Headquarters
actions.
A preliminary list of components has been
prepared (Table IX-1). Supporting materials in
draft or approved form already exist for many
of the proposed components. All materials,
however, will require modification to conform
with the proposed format. In order that the
most needed components might be completed
without delay, the Review Group has assigned
completion priorities.
The Review Group recognizes that in order to
establish accountability, a single official should
have overall responsibility for the manual. The
Office of Water Program Operations handles the
major functions required by the construction
grants process. Accordingly, we recommend that
the development and maintenance of the con-
struction grants manual be supervised by the
Deputy Assistant Administrator for Water Pro-
gram Operations.
The manual components should be developed
by those offices responsible for the functions
involved. The Review Group has tentatively
identified the organizational units that would
have lead drafting responsibilities.
The manual should provide background in-
formation covering relevant statutory language,
regulations, and other official guidance pertain-
ing to the program. In addition, it should
present, in concise form for each component:
(1) a statement of specific objectives, (2) check-
lists of items to be covered, and (3) the
minimum standards of acceptance or perform-
ance. In each instance, the guidance should be
designed to guide the user in his work, but not
to restrict his professional judgment.
Coordination of the work should be
performed by a task force including representa-
tion from: (1) the Municipal Construction
Division, (2) the Municipal Permits and Opera-
tions Division, (3) Water Planning Division, (4)
the Grants Administration Division, (5) the
Office of General Counsel for Grants, and (6) at
least two Regional Offices. The individual task
force representatives should devote full time to
development of the manual at least to the
completion of all components within their of-
fice's responsibility. We recommend that a
Construction Grants Manual Task Force be
established to coordinate development of the
manual. A small full-time staff should be
assigned to the Municipal Construction Division
84
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TABLE IX-1
Components
OUTLINE OF CONSTRUCTION GRANTS MANUAL
Local-State EPA
Manual Manual Status*
I. General
Purpose
Authority
Program strategy
Flow chart
Definitions
II. Allocation of Funds
Needs Survey
Allotment to States
Reallotment of funds
Allocation of
additional funds
Reserve for Step 1 and
Step 2 projects
III. Project Priority
State priority criteria
Municipal discharge
inventory
Project priority list
Public participation
EPA review and
acceptance
IV. State Planning Process
State strategy and
program (Sec. 106)
303 (e) basin plans
208 areawide waste
management plans
EPA review and
acceptance of State
plans
x
x
x
x
x
x
x
x
D
D
D
D
D
D
D
A
A
A
A
A
L
L
M
L
L
M
M
M
M
M
M
M
M
M
H
M
M
M
H
Lead$
TF
TF
TF
TF
TF
WP
GA
GA
GA
GA
P
P
P
P
P
* D = Draft
A = Approved guidance
t L = Low
M = Medium
H = High
£ yp = Task Force
WP= Water Planning
P = Program Planning
GA= Grants Administration
A = Audit
85
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TABLE IX-1 (Continued)
Components
Local-State
Manual
EPA
Manual
Status*
Priorityt
Leadf
V. Preapplication
Preapplication con-
ference x
Engineering Consultant
procurement (See
XII) and clearing-
house review x
VI. Facilities Planning — Step 1 Grant
Grant application and
award
Facilities planning
conferences
Facilities planning
process
Planning considerations
Monetary cost
evaluation
Environmental
evaluation
Plan selection and
implementation
Public involvement
Reports
Review certification
and approval of
plans
Infiltration/inflow
(I/I) analysis
Sewer system evalua-
tion survey
Review of I/I analysis
and sewer survey
VII. Plans and Specifications —
Step 2 GranT
Grant application and
award (amended Step 1)
Grant application and
award (no Step 1)
Predesign conferences
Design guidelines
Preparation of
staffing plan
Operation and mainte-
nance guidelines
Plans and specifica-
tions review
A
A
A
A
A
A
A
A
A
A
A
H
A
A
H
H
H
H
H
M
H
WP
GA
M
M
M
M
M
M
M
M
M
H
H
M
M
GA
P
P
P
P
P
P
P
P
P
P
WP
WP
GA
GA
WP
WP
WP
WP
WP
86
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TABLE IX-1 (Continued)
Components
Local-State
Manual
EPA
Manual
Status*
Priorityt
LeadJ
VIII. Construction-Step 3 Grant
Grant application and
award (amended Steps
1 and/or Step 2)
Grant application and
award (no Step 1 or
2)
Contractor procurement
(see XII)
Reconsideration of
environmental impacts
Review of staffing plan
Preconstruction
conferences
UC/ICR conferences**
(see XIII)
Sewer use ordinances
Construction reports
Contract modifications-
change orders
Contract modifications
change order review
Resident engineer
Construction
inspections
Operation and mainte-
nance manual
Operation and mainte-
nance manual review
IX. Municipal Permit Assurance
Self monitoring
reports
Operation and mainte-
nance inspections
UC/ICR audits
(see XIII)
X. Accounting For Costs
Records
Allowability
Allocability
Reasonableness
Direct costs
Indirect costs
Credits
Property and
equipment
Final settlement
Audits (see XIV)
x
x
A
A
A
D
x
X
X
X
X
X
X
X
X
D
D
D
D
D
D
D
D
D
H
H
M
H
H
H
M
H
H
H
H
M
H
H
M
M
M
M
M
M
M
M
M
M
GA
GA
GA
WP
WP
WP
WP
WP
WP
GA
WP
WP
WP
WP
WP
WP
WP
GA
GA
GA
GA
GA
GA
GA
GA
GA
87
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TABLE IX-1 (Continued)
Components
XI. Grant Payments
Initial payments
Interim payments
Adjustments
Refunds, rebates,
credits
Final payment
XII. Procurement
XIII
Local-State
Manual
x
x
X
X
X
Formally advertised
(e.g., construction
contracts)
Bid advertising x
Selection x
Bid tabulation review
Award x
Negotiated (e.g.,
engineering con-
sultant)
Competition/
non-competition x
Cost analysis x
Negotiation and
award x
Contract provisions x
Debarment and
suspension lists x
User Charge/Industrial Cost Recovery
Cost determination/
accounting
Intermunicipal agreements
Cost recovery (UC/ICR)
UC/ICR conferences
UC/ICR review
ICR audits (see XIV)
XIV. Audits
x
x
X
EPA
Manual
x
x
x
x
x
X
X
Status*
D
D
D
D
D
D
D
Priorityf
M
M
M
M
M
H
H
H
M
H
H
H
M
M
M
H
M
M
M
Lead}
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
WP
WP
WP
WP
WP
Preconstruction
Construction
Final
Industrial cost
recovery
XV. Management Systems
Grants information
control system
Project management
Program evaluation
and assistance
**User charge/industrial Cost Recovery.
x
X
X
D
D
D
H
H
H
H
M
A
A
A
GA
WP
WP
88
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to handle continued updating of the manual. priority be completed by January I, 1975; those
Completion of the manual should receive high with medium priority by March 1, 1975; and the
priority. We recommend that components of the entire manual completed by July 1, 1975.
construction grants manual assigned high
89
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APPENDIX A. RESULTS OF STUDY TO DETERMINE ADEQUACY OF
ENVIRONMENTAL ASSESSMENTS AND APPRAISALS
On August 1-2, 1974, a six-member team
from Headquarters and Region III evaluated the
supporting documentation of negative declara-
tions filed on 43 projects from nine Regions.
The assessments and appraisals were evaluated
for their adequacy in following the regulations
and guidance set forth by Headquarters.
The six team members were:
David Eberly —
Stan Hill
Kevin Warren -
Ned Croin -
Gail Ettinger
Bob Blaszczak -
Water Program Operations
Water Program Operations
Water Program Operations
Office of Federal Activities
Office of Planning and
Management
Region III
The 43 projects were selected on two bases-
size (most were $2 million or more) and date
(only negative declarations filed within the past
6 months were used). They were evaluated for
the completeness of discussion of the following
areas:
• Expected environmental impact.
• Structural alternatives considered.
• Nonstructural alternatives considered.
• Possible growth implications.
• Public involvement.
Several weeks before the evaluation, the
review team met to develop the evaluation form.
Two meetings were held to discuss in detail what
material should be included in assessments and
appraisals. The tear decided that for the pur-
pose of this study, information would be
credited if it was included in either the assess-
ment or the appraisal. During this period, the
form was revised twice (final form used follows
this discussion).
The next step was to have everyone on the
team evaluate and score two projects. The team
then discussed the results. This exercise was
extremely useful in minimizing any scoring
differences. In these discussions, Mr. Blaszczak
was extremely helpful in toning down the high
expectations of the Headquarters staff to what
he felt was more reasonable.
The remaining 41 projects were divided into
three groups, as were the six team members. For
2 days, the three groups read, evaluated, and
scored their projects. A short meeting was held
at the end of the first day to discuss any
problems. When each team completed its re-
views, it met to resolve any wide difference of
opinion. The full group then met again to collate
scores and to discuss overall conclusions and
findings.
Results
A score of 3.5 was considered acceptable.
None of the 43 projects was considered ac-
ceptable:
Score Projects
0- 1
1.0-1.4
1.5 - 1.9
2.0 - 2.3
2.4 - 2.7
2.7 - 2.9
3.0-3.3
3.4-4.0
4.0 - 5.0
10
3
5
5
9
6
5
0
0
91
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Other Findings
1) Generally, assessments and appraisals had
the most complete discussion of the environ-
mental effects of the proposed action. Next best
coverage was the discussion of structural
alternatives. Most documents were badly lacking
in the area of nonstructural alternatives and
secondary effects. If growth was mentioned at
all, it was usually in terms of restating the
assertions of the applicant.
2) Often when the Grantee had submitted a
poor assessment, the Region had attempted to
compensate by adding the missing material.
While such effort is laudable, this should not be
Agency policy. Poor assessments should be
returned to the applicant for reworking.
3) Most of the assessments and appraisals
referred only to one project. Since many of the
awards made each year are in communities where
two or more related projects are such being
planned, it is likely that many of the documents
reviewed were for projects located in com
munities. This is contraiy to Headquarters guid-
ance which suggests that assessments and ap-
praisals refer to more than one project wherever
appropriate.
4) The negative declarations filed on these 43
projects could not be justified on the material
reviewed. It is possible that the decision-makers
in the Regional Offices had additional informa-
tion that would justify the decisions.
92
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Name of Project Name of Reviewer
EVALUATION OF ADEQUACY OF ENVIRONMENTAL
ASSESSMENTS AND APPRAISALS
SCORE 0—5 (0 = not considered at all, 5 = careful, detailed discussion. Use n.a. when an item is not applicable to the
project in question. Information is to be considered included if it appears in either the assessment or appraisal. Use
back of form for additional comments.)
I. Completeness: thoroughness and reasonableness of argument
1. Impact of proposed action on the environment
-water (ground, surface, ocean—look for quality
and quantity)
—air (sludge incineration)
—geology and geography (incl. fault lines)
—biology (endangered species and wildlife
habitat affected)
—aesthetics (odor, design, noise)
2. Alternatatives to the proposed action
A. Structural alternatives
—siting (plant-incl. flood plains)
—treatment effluent disposal methods, e.g., surface
water outfall, land disposal, industrial,
recycling, ocean outfall
—alternative interceptor locations
-sludgeulisposal alternatives, e.g., land, ocean,
incineration
B. Non-structural alternatives (options that can reduce
the need for a new facility)
—flow and waste reduction measures
—improving operational efficiency of existing plant
3. Secondary impacts resulting from the proposed action
—review of population projections
—reasonableness and effects of excess capacity
—growth impacts of interceptor routes
II. Evidence of public involvement
1. Has there been a public hearing (yes = 5)
2. Other evidence of public involvement
total score (a)
# applicable items (b)
Final score = (a) divided by (b)
0—item not discussed at all
1-item discussed but only in superfluous manner
2—item discussed, but many important factors missing from discussion
4—item discussed, but only minor factors missing from discussion
5-item discussed in complete, thorough and reasonable manner
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