^ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, O.C. 20460
JAW I 2 1987
Office, of
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT:
FROM:
TO:
Report on Interim Audit of Commonwealth
of Pennsylvania Department of Environmental
Resources' Administration of Its Superfund
Cooperative Agreements
•Audit Report Number P5BH5-11-0056-70538
Kenneth D. Hockman
Divisional Inspector General for Audit
Internal Audit Division (A-109)
James M. Seif
Regional Administrator, Region 3
SCOPE AND OBJECTIVES
We have completed an interim audit of cooperative agreements awarded to
the Commonwealth of Penn$yjh/ajn_i_a Department! of Enyi£onmental Resources
(PADER) under~tlre Cgaipj^Rgns'iye rnyj]rj»nme_nMT..Response,. Compensation, and
Lia^lity...Act__of_J.280.- Tne auBTT'was performed by the contract auditors
TTchenor, Resler, and" Eiche, CPAs.
SV-*^T
The objectives of the audit were to:
1. Determine the adequacy, effectiveness, and reliability of
procurement, accounting, and management controls exercised by
the Commonwealth in administering its cooperative agreements
with EPA. ;
2. Ascertain the Commonwealth's compliance with provisions of the
cooperative agreements and applicable EPA regulations and
instructions.
3. Ascertain the Commonwealth's compliance with provisions of the
Letter of Credit - Treasury Financial Communications System
Recipients' Manual. '
i
4. Determine the reasonableness, allocability, and allowability of
the costs claimed under the cooperative agreements with EPA.
U.S. JEavirooasutal Protection
Library, ROOB 8404 Ptt-211**
401 * Street, S.H.
DO
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Specifically, the audit covered the cooperative agreements awarded for
the removal of hazardous wastes from the Multi-Site (Welsh, Voortman,
Dorney, East Mount Zion, and Berks Sand Pit|) and Enterprise Avenue sites.
The audit included an examination of costs (incurred and claimed under the
referenced cooperative agreements from inception, February 9, 1984 and
May 15, 1984, respectively through June 30,! 1985.
SUMMARY OF FINDINGS
FINANCIAL RESULTS OF AUDIT
COOPERATIVE
AGREEMENT
Multi-Site
Enterprise Avenue
Totals
CLAIMED
$ 232,706
3,161,418
$3,394,124
AMOUNTED
ACCEPTED
$ 232,706
3,032,477
$3,265,183
QUESTIONED
$ -
128,941
$128,941
Questioned costs are claimed costs that we have concluded should not be
reimbursed by the Government or incurred as part of project eligible
costs because they are not allowable underjthe provisions of applicable
laws, regulations, policies, cost principle's, or terms of the grant or
contract. '
i
1. COMMONWEALTH'S SUPERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT
i
The procedures used by PADER to procure contract services under Superfund
cooperative agreements were inadequate and not in compliance with all
requirements of the Federal regulations (40 CFR Part 33). Under the
existing system, contracts were awarded under both cooperative agreements,
although PADER's procurement system did not meet the applicable require-
ments of 40 CFR Part 33.
A. Multi-Site Cooperative Agreement
The procedures PADER used to procure the Ecology and Environment
Inc., (£• 4 E) contract were inadequate)and not in compliance with the
the sections of 40 CFR Part 33 pertaining to Negotiation and Award of
Subagreement, Privity of Subagreement,| Model Subagreement Clauses,
and Cost and Price Considerations. These conditions were primarily
attributable to the discrepancies between Commonwealth and Federal
procurement procedures. '
B. Enterprise Avenue Cooperative Agreement
The engineering firm, Weston, added a 6-percent handling fee to all
other direct costs. A percentage add-on to other direct costs
indicates a cost-plus-percentage-of-cost (CPPC) contract. The CPPC
contract method is specifically prohibited by 40 CFR 33.285, because
there is no incentive for the engineer! to control costs.
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In addition, we determined that the agreement between the City of
Philadelphia and Weston did not reference any of the model subagree-
ment clauses requ-ired by 40 CFR 33.1030.
2. NONCOMPLIANCE WITH SPECIAL GRANT CONDITIONS
PADER did not submit to EPA the required quarterly progress reports for
the Multi-Site cooperative agreement within the required timeframes.
Additionally, quarterly progress reports required by the special conditions
section of the Enterprise Avenue cooperative agreement were not submitted
by PADER to EPA although PADER was aware of this requirement. PADER gave
no reason for its noncompliance. As a result, EPA did not have written
documentation detailing expenditures, estimates of work completed, cost
and time variances, and dates of completion. The Enterprise Avenue coopera-
tive agreement is currently in the process of being closed out and PADER
has not submitted the required final report.
3. PROPERTY MANAGEMENT REQUIREMENTS
PADER did not maintain a property listing for property purchased with EPA
funds through Associated Chemical and Environmental Services, Inc. (ACES),
the construction contractor. We identified three property acquisitions
which should have been included on such a| list: a truck scale; area
lighting; and utility poles. According to 40 CFR 30.531, PAPER should
have maintained a listing of all property1 purchased with EPA funds. The
property listing should contain a description of the property, serial and
model numbers, acquisition cost and date,j and the ultimate disposition
of the property. Without such a list, adequate controls did not exist to
provide accountability for Federally-owne|d property upon completion of the
project. PADER was unaware of property management requirements under the
Superfund program.
PAPER'S COMMENTS ON FINDINGS AND OUR EVALUATION
An exit conference was held with PADER officials on September 16, 1985
and with Region 3 officials on September 20, 1985. The purpose of the
exit conferences was to present the findijngs and recommendations and to
ensure a clear understanding of the report by PADER and Region 3 manage-
ment. At the conferences and during the Bourse of the audit, PADER and
Region 3 officials discussed their positions relative to the findings and
recommendations. In addition, PADER provided us with formal written
comments on our draft report in a letter jdated July 30, 1986. The Deputy
Secretary for Administration, PADER generally concurred with the findings
and recommendations, except as noted in the Findings and Recommendations
and Notes to the Exhibits sections of the attached.report. To provide a
balance understanding of the issues, PAOER's position is summarized at
appropriate locations in the report and included as Appendix 1 and
Appendix 2.
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RECOMMENDATIONS
We recommend that the Regional Administrator, Region 3:
1. Verify that PADER incorporates all 40 CFR Part 33 requirements
into its written procurement procedures, including a cost analysis
required by 40 CFR 33.390.
2. Request that PADER amend the contract with E&E under the Multi-
Site agreement to include the model subagreement clauses stipulated
by 40 CFR 33.103.
3. Instruct Regional employees not to act as members of State
selection panels until EPA's Headquarters Grants Administration
Division issues an agencywide directive on this matter.
4. Request PADER to submit the final report for the Enterprise
Avenue cooperative agreement.
5. Instruct PADER to include in its property listing the truck
scale, in accordance with 40 CFR 30.531.
6. Not participate in the $128,941 of|questioned costs, and direct
PAOER to determine the reasonableness of the costs incurred
under the Weston contract and.renegotiate the contract accordingly.
ACTION REQUIRED
In accordance with EPA Directive 2750, the!Action Official is required to
provide this office with a copy of the proposed determination on the
findings within 90 days of the audit report! date) In addition, please
include an action plan with specific milestone dates for each corrective
action that was not fully implemented.
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DISTRIBUTION!
A. Office of Inspector General (A-109)
Director, Audit Operations Staff (3)
Chief, Program Analysis Unit (1)
Divisional Inspector General for
Audit - Mid-Atlantic Division (1)
B. Regional Office
Regional Administrator, Region 3
Audit Follow-up Coordinator, Region 3
C. Headquarters Office
Director, Grants Administration
Division (PM-216)
Chief, Superfund Accounting Branch (PMr226)
Director, Resource Management Staff (WH-562A)
Chief, Grants Policy and Procedures
Branch {PM-216}
Director, Facilities and Support Services
Division (PM-215)
Copies
5
2
1
1
1
3
1
1
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REPORT OF INTERIM AUDIT OF
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF ENVIRONMENTAL RESOURCES'
ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENTS
WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT OF 1980
FOR THE PERIOD FEBRUARY 9, 1984 THROUGH JUNE 30, 1985
TICHENOR, RESLER & EICHE
CERTIFIED PUBLIC ACCOUNTANTS
THE SUMMIT, SUITE 200
4350 BROWNSBORO ROAD
LOUISVILLE, KENTUCKY 40207
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TABLE OF CONTENTS
SCOPE AND OBJECTIVES
SUMMARY OF FINDINGS
BACKGROUND
AUDITORS' REPORT ON COOPERATIVE AGREEMENTS V-003302 AND
V-003298 AWARDED TO THE PENNSYLVANIA DEPARTMENT OF
ENVIRONMENTAL RESOURCES !
i
AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL AND
COMPLIANCE
FINDINGS AND RECOMMENDATIONS
1 - COMMONWEALTH'S SUPERFUND PROCUREMENT SYSTEM
NEEDS IMPROVEMENT
2 - NONCOMPLIANCE WITH SPECIAL GRANT CONDITIONS
3 - PROPERTY MANAGEMENT REQUIREMENTS
Page
1
2
4
8
9
11
16
18
EXHIBIT A -
EXHIBIT B -
EXHIBIT C -
APPENDIX 1 -
APPENDIX 2 -
COOPERATIVE AGREEMENTS AWARDED TO THE
PENNSYLVANIA DEPARTMENT OF ENVIRONMENTAL
RESOURCES SUMMARY OF COSTS CLAIMED,
ACCEPTED AND QUESTIONED FOR THE PERIOD
FEBRUARY 9, 1984 THROUGH JUNE 30, 1985
MULTI-SITE COOPERATIVE -AGREEMENT AWARDED
TO THE PENNSYLVANIA DEPARTMENT OF
ENVIRONMENTAL RESOURCES SCHEDULE OF
COSTS CLAIMED AND ACCEPTED FOR THE
PERIOD FEBRUARY 9, 1984 THROUGH
JUNE 30, 1985
ENTERPRISE AVENUE COOPERATIVE AGREEMENT
AWARDED TO THE PENNSYLVANIA DEPARTMENT
OF ENVIRONMENTAL RESOURCES SCHEDULE OF
COSTS CLAIMED, ACCEPTED AND QUESTIONED
FOR THE PERIOD MAY 15, 1984 THROUGH
JUNE 30, 1985
COMMONWEALTH OF PENNSYLVANIA DEPARTMENT
OF ENVIRONMENTAL RESOURCES RESPONSE
TO DRAFT REPORT DATED JULY 30, 1986
I
COMMONWEALTH OF PENNSYLVANIA DEPARTMENT
OF ENVIRONMENTAL RESOURCES RESPONSE „
TO DRAFT REPORT DATED SEPTEMBER 8, 1986
19
20
21
23
35
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REPORT OF INTERIM AUDIT OF
• COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF ENVIRONMENTAL RESOURCES'
ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENTS
WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT OF 1980
FOR THE PERIOD FEBRUARY 9, 1984 THROUGH JUNE 30, 1985
SCOPE AND OBJECTIVES
We performed an interim audit of the Commonwealth of Pennsylvania
Department of Environmental Resources' (PADER) administration of
its cooperative agreements with the United States Environmental
Protection Agency (EPA) under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980. The primary
objectives of our audit were to:
1. Determine the adequacy, effectiveness, and reliability of
procurement, accounting, and management controls exercised
by the Commonwealth in administering its cooperative agree-
ments .
2. Ascertain the Commonwealth's compliance with provisions of
the cooperative agreements and applicable EPA regulations
and instructions.
3. Ascertain the Commonwealth's compliance with provisions of
the Letterof Credit - TreasuryFinancial Communications
Systern Recipients' Manua1.
4. Determine the reasonableness, allocability, and allowability
of the costs claimed under the cooperative agreements.
Specifically, our audit covered the cooperative agreements award-
ed for the removal of hazardous wastes from the Multi-Site (Welsh,
Voortman, Dorney, East Mount Zion, and Berks Sand Pit) and Enter-
prise Avenue sites. The audit included an examination of costs
incurred..and claimed under the referenced cooperative agreements
from inception, February 9, 1984 and May 15, 1984, respectively,
through June 30, 1985.
Our examination was performed in accordance with generally
accepted auditing standards and the Standards for Audit of
Governmental Organizations, Programs, Activities and Functions
(1981Revision).Accordingly, ourexaminationincludedsuch
tests of the accounting records and such other auditing
procedures as we considered necessary in the circumstances.
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CLAIMED
$ 232,706
3,161,418
$3.394.124
ACCEPTED
$ 232,706
3,032.477
$3.265.183
QUESTIONED
$ -
128,941
$128,941
SUMMARY OF FINDINGS
FINANCIAL RESULTS OF AUDIT
Subject to the effects on Exhibit A of EPA's ultimate resolution
of the questioned costs referred to in the auditor's report,
Exhibit A (summarized below) fairly presents the financial
information and financial provisions of the grants.
COOPERATIVE , AMOUNT
AGREEMENT
Multi-Site
Enterprise Avenue
Totals ______
i . ?6~^/v-r ~~~>j'-ii?'t ,-
Questioned costs are claimed costs jthat we have concluded should
not be reimbursed by the Government or incurred as part of }
project eligible costs because they are not allowable under the /
provisions of applicable laws, {regulations, policies, cost /
principles, or terms of the grant or contract. /
1. COMMONWEALTH'S SUPERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT
The procedures utilized by PADER, to procure contract services
under Superfund cooperative agreements were inadequate and not in
compliance with all requirements of the Federal regulations (40
CFR Part 33). Under the existing system, contracts were awarded.
under both cooperative agreements,j although PADER1s procurement
system did not meet the applicable requirements of 40 CFR Part
33.
A. Multi-Site Cooperative Agreement
The procedures utilized by PADER to procure the Ecology and
Environment Inc. , (E & E) contract were inadequate and not
in compliance with the following sections of 40 CFR Part 33:
33.520-Negotiation and Award of Subagreement! 33.245-Privity
of Subagreement; 33.1030-Model Subagreement Clauses; and
33.290-Cost and Price Considerations. These conditions were
primarily attributable to the discrepancies between Common-
wealth and Federal procurement procedures.
B. Enterprise Avenue Cooperative Agreement
The engineering firm, Weston, added a 6Z handling fee to all
other direct costs. A percentage add-on to other direct
costs indicates a cost-plus-percentage-of-cost (CPPC)
contract. The CPPC contract method is specifically
prohibited by 40 CFR 33.285. CPPC type contracts offer the
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SUMMARY OF FINDINGS (Continued)
possibility for the contractor to permit the cost of the project,
and the 6Z add-on, to be increased in order to increase their
profit. In addition, we determined that the agreement between
the City of Philadelphia and Weston did not reference any of the
model subagreement clauses required by 40 CFR 33.1030.
2. NONCOMPLIANCE WITH SPECIAL GRANT CONDITIONS
PADER did not submit to EPA the required quarterly progress re-
ports for the Multi-Site cooperative agreement within the
required timeframes. Additionally, quarterly progress reports
required by the special conditions section of the Enterprise Ave-
nue cooperative agreement were not submitted by PADER to EPA al-
though PADER was aware of this requirement. PADER gave no reason
for their noncompliance. As a. result, EPA did not have written
documentation detailing expenditures,' estimates of work complet-
ed, cost and time variances, and dates of completion. The Enter-
prise Avenue cooperative agreement is currently in the process of
being closed out and PADER has not submitted the required final
report.
3. PROPERTY MANAGEMENT REQUIREMENTS
PADER did not maintain a property listing for property purchased
with EPA funds through Associated Chemical and Environmental Ser-
vices, Inc. (AGES) (the construction contractor). We identified
three^property acquisitions which should have been included on
5uch"a list: a truck scale, area lighting, and utility poles.
According to 40 CFR 30.531, PADER should have maintained a
listing of all property purchased with EPA funds. The property
listing should contain a description of the property, serial and
model numbers, acquisition cost and date, and the ultimate
disposition of the property. Without such a list, adequate
controls did not exist to provide accountability for
Federally-owned property upon completion of the project. PADER
was unaware of property management requirements under the
Superfund program.
PAPER'S COMMENTS ON FINDINGS AND OUR EVALUATION
An exit conference was held with PADER officials on September 16,
1985 and with Region 3 officials on September 20, 1985. The
purpose of the exit conferences was to present our findings and
recommendations and to ensure a clear understanding of our report
by PADER and Region 3 management. At the conferences and during
the course of the audit, PADER and Region 3 officials discussed
their position relative to our findings and recommendations. In
addition, PADER provided us with formal written comments on our
draft report in a letter dated July 30, 1986. The Deputy
jinrrrrnry for A dm 1n Infra firm t ^PADER gejterally_cjgacur.rjeydL.with our
findings, and recommendations, except as noted in the Findings and
Recommendations and" Notes to the Exhibits sections ~e -U4~
-3-
of this
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SUMMARY OF FINDINGS (Continued)
report, and indicated corrective actions were taken or were
planned to resolve the issues citejd in the report. We concluded
that PADER's comments were generally responsive to our findings
and recommendations, except as noted in the Findings and
Recommendations and Notes to the Exhibits sections of this
report. To provide a balanced understanding of the issues, we
summarized PADER's position at appropriate locations in the
report and included the response as Appendices 1 and 2. Two
attachments included with and referenced in the response were
considered too voluminous to include in Appendix 1. The entire
response, including these attachments, is available for review in
the Office of Inspection General,] Internal Audit Division, in
Washington, D.C.
BACKGROUND
On December 11, 1980, Public Law 96-510, the Comprehensive En-
vironmental Response, Compensation, and Liability Act (CERCLA)
was enacted by Congress. CERCLA, commonly known as "Superfund11,
was passed to protect public health and the environment from
hazardous substances by authorizing Federal action to respond to
the release, or threatened release, from any source, including
abandoned hazardous waste sites, into any part of the
environment. A Trust Fund was established for Federal and State
or Commonwealth governments to respond directly to any problems
at uncontrolled hazardous waste sites, not only in emergency
situations, but also at sites where longer term permanent
remedies were required.
The blueprint for the Superfund program under CERCLA is the Na-
tional Contingency Plan (NCP), firjst published in 1968, as part
of the Federal Water Pollution Control plan. The NCP laid out
three types of responses for incidents involving hazardous wastes
which were: immediate removal, planned removal, and remedial re-
sponse. The first two types of responses were for short term
actions in emergency situations. Remedial response was intended
to deal with the longer term problem of abandoned or uncontrolled
sites. NCP changes effective February 18, 1986, established one
broad category of removals, thus eliminating the distinction
between immediate and planned removals.
CERCLA provided for compiling a National Priority List (NPL) of
hazardous waste sites for remedialjaction. In October 1981, EPA
compiled an interim priorities list of 115 hazardous waste sites.
The sites were nominated by the JEPA Regional Offices and the
States and Commonwealths, primarily on the basis of potential
threat to the public health. Also.j the threat to the environment
was considered. In September 1983, EPA published the first NPL,
which consisted of 406 sites.*
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BACKGROUND (.Continued!
CERCLA Section 104(c)(3) provides that no remedial actions shall
be taken unless the State or Commonwealth in which the release
occurred first entered into a contract or cooperative agreement
with EPA, with assurance of payment of 10 or 50 percent of
remedial costs. The State or Commonwealth must agree to a
cost-share of 10 percent if the site was privately owned. At
publicly owned sites (one owned by the State or Commonwealth or a
political subdivision thereof), the State or Commonwealth is
required to pay 50 percent of all remedial action costs.
Cooperative agreements for remedial investigations, feasibility
studies and remedial designs can be funded up to 100 percent by
EPA.
PADER is the designated Commonwealth Agency for identifying and
ranking sites which posed a risk to the public or the
environment, and performance of remedial investigation, design
and cleanup at hazardous waste sites. During our audit, PADER was
actively involved in the Multi-Site and Enterprise Avenue
cooperative agreements with EPA for remedial action.
Multi-Site Cooperative Agreement
Cooperative agreement number V-003302 was awarded to PADER under
CERCLA on February 9, 1984. This cooperative agreement provided
for 100 percent Federal participation for Pennsylvania to take
the lead in remedial planning activities at NFL hazardous waste
sites pursuant to CERCLA and the NCP.
1. Welsh Road
Mr. Ernest Barkman owned and operated a sanitary landfill
approximately eight acres in size, located in Honeybrook
Township, Chester County, Pennsylvania. Disposal operations
at the unpermitted landfill reportedly began prior to 1971
and continued until PADER forced the landfill to officially
close in 1976. During the period of operation, municipal
and. industrial wastes were reportedly disposed of at the
site. Samples obtained from on-site monitoring wells in-
stalled by PADER revealed detectable levels of organic con-
tamination in the analysis. Nearby residential wells sam-
pled by PADER and the Chester County Health Department re-
vealed high organic contents in the analysis. PADER, over
the past seven years, had been unsuccessful in having the
responsible party comply with all of the requirements stated
in the closure plan.
2. East Mount Zion
The East Mount Zion site *is located in Springettsbury Town-
ship, York County, east of Mount Zion, Pennsylvania. The
landfill was situated on top of a hill whose southern and
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BACKGROUND (Continuedl
western sideslopes average 70) to 80 percent grade. Both
municipal and industrial wastes had been accepted at the
site during the years between1 1947 and 1972. The final
cover was not completed until! after the landfill's final
closure in 1972. The residents within a one mile radius of
the site depend on groundwater for their water supply.
Testing by the Commonwealth has shown the presence of sever-
al priority pollutants in the groundwater, including vinyl
chloride and benzene. Trichloroethylene, phenol, and zinc
were detected at significant levels in leachate samples col-
lected. Analysis of the electroplating sludge waste which
was accepted by the landfill showed it to contain cyanide,
chromium, cadmium, nickel, zinc, and copper.
3. Berks Sand Pit
The Berks Sand Pit site is located in Long swamp Township,
near the village of Huffs Church, Berks County,
Pennsylvania. The privately owned site was a sand pit of
approximately one-fourth acre in size, which was used for
the disposal of chemical waste and then backfilled and re-
graded. Domestic wells adjacent to the site have been se-
verely contaminated with organic compounds such as
trichloroethane and 1,2-dichloroethane and high levels of
some metals have also been found. Contaminated groundwater
seeps are discharging into the headwaters of the north
branch of the Perkiomen Creek which is a major public water
supply for the Philadelphia Suburban Water Company, and is
used locally for recreational fishing.
4. Dorney
This site is located in Lehigh County near the Berks County-
Lehtgh border, about one mile south of Breinigsville,
Pennsylvania in Upper Macungie Township. The site occupies
37.5 acres and was active from 1952-1978 operating as an
open dump. Between 1958 and 1978, the site was operated as
a landfill. The site was leasejd during the last 12 years of
operation. A variety of municipal and industrial wastes
were disposed of there over the years.
5. Voortman
This site is a farm, owned by Henry and John Voortman, in a
largely agricultural area. The surrounding geology is lime-
stone with a number of large sinkholes. During 1979-80, one
such sinkhole on the property was filled with battery cases
and various other wastes of an undetermined nature. There
is a definite potential of groundwater contamination by lead
and acid. Several other sinkholes on adjoining properties
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BACKGROUND (Continued)
have also served as illegal disposal areas for similar
wastes.
Enterprise Avenue Cooperative Agreement
The 57 acre Enterprise Avenue site is owned by the City of
Philadelphia Water Department (PWD) and was used by the City from
1971 to 1976 for landfilling incinerator residue. During the
same time period, illegal burial of approximately 12,000 drums of
hazardous wastes occurred at the site. Exploratory excavations
and investigative work, by the PWD, disclosed that the drums had
typically been buried from one to 15 feet below grade, and
contained wastes such as paint sludges, solvents, oils, resins,
metal finishing wastes, solid inorganic wastes, and laboratory
wastes.
PADER received a cooperative agreement (Number V-003298) from EPA
on May 15, 1984 to implement the off-site disposal alternative
selected by PADER and EPA- for the Enterprise Avenue site. An
emergency investigation of the site was conducted by Weston for
the PWD in 1979. PADER was responsible for the administration
and management of the implementation of the 1984 agreement and
the performance of the cleanup activities.
PADER then contracted with the City of Philadelphia to continue
performing all remedial work at the site and to procure the
services of contractors and consultants. The City also provided
an on-scene coordinator responsible for the day to day on-site
monitoring, assuring compliance to the work, safety and quality
assurance plans as well as keeping the Commonwealth updated on
all activities.
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TICHENOR, RESLER & EICHE
CERTIFIED PUBLIC ACCOUNTANTS THE SUMMIT. SUITE 200
4350 BROWNSBORO ROAD
LOUISVILLE. KENTUCKY 40:07
(502) 893-0700
Mr. Kenneth D. Hockman
U.S. Environmental Protection Agency
Divisional Inspector General for Audit
Internal Audit Division
Office of the Inspector General
Washington, D.C.
AUDITORS' REPORT ON COOPERATIVE AGREEMENTS V-003302 AND
V-003Z98 AWARDED TO THE PENNSYLVANIA DEPARTMENT Of
ENVIRONMENTAL RESOURCES
j
We have examined the costs claimed by Pennsylvania Department of
Environmental Resources (PADER) related to the Multi-Site and
Enterprise Avenue cooperative agreements from February 9, 1984
through June 30, 1985 as detailed ito Exhibit A. Our examination
was performed in accordance with , generally accepted auditing
standards and the Standards for Audit of Governmental
Organizations. Programs, Activities, and Functions(1981
revision).Accordingly, our examination included such tests of
the accounting records and such ottier auditing procedures as we
considered necessary in the circumstances.
The Summary of Costs Claimed, Accepted and Questioned (Exhibit A)
was prepared on the basis of regulations and criteria established
by the U.S. Environmental Protection Agency (EPA) relating to
Superfund cooperative agreements pursuant to Public Law 96-510.
Accordingly, Exhibit A is not intended to present financial
position and results of operations ' in conformity with generally
accepted accounting principles.
As part of our examination, we determined the allowability of
costs claimed under the project in accordance with the provisions
of the cooperative agreements and applicable Federal regulations.
Exhibit A sets forth the costs which we questioned in this regard
and includes an explanation of tjhe reasons such costs were
questioned.
In our opinion, subject to the effects of EPA's ultimate
resolution of the questioned costs {referred to in the preceding
paragraph*, Exhibit A presents fairly the costs claimed by PADER
under the cooperative agreements with EPA on the basis described
above.
This report is intended for use in connection with the coopera-
tive agreements to which it refers and should not be used for any
other purpose.
TICHENOR, RESLER & EICHE
Louisville, Kentucky
September 20, 1985
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TICHENOR, RESLER & EICHE
CERTIFIED PUBLIC ACCOUNTANTS THE SUMMIT. SUITE 200
4350 BROWNSBORO ROAD
LOUISVILLE. KENTUCKY 40:07
Mr. Kenneth D. Hockman 15021893.0700
U.S. Environmental Protection Agency
Divisional Inspector General for Audit
Internal Audit Division
Office of the Inspector General
Washington, D.C.
AUDITORS' REPORT ON INTERNAL ACCOUNTING CONTROL AND COMPLIANCE
We have examined the expenditures claimed by the Pennsylvania
Department of Environmental Resources (FADER) related to the
Multi-Site and Enterprise Avenue ', cooperative agreements from
February 9, 1984 through June 30, 1985, as detailed in Exhibit A.
Our examination was performed in accordance with generally
accepted auditing standards and the financial and compliance
provisions of the Standards for Audit of Governmental
Organizations, Programs, Activities, and Functions(1981
revision).Solely to assist usin planning and performing our
examination, we made a study and evaluation of the significant
internal accounting controls of FADER. For the purpose of this
report, we have classified the significant internal accounting
controls into the following categories.
Disbursements
Payroll
Contractor procurement
Contractor performance and billings
Cash management|(letter of credit system)
Property and equipment
Our study included all of the control systems listed above.
That study and evaluation was limited to a preliminary review of
the system to obtain an understanding of the control environment
and the flow of transactions through the accounting system.
Because the audit could be performed more efficiently through
additional analysis and substantive audit tests, thus placing
very little reliance on the internal control system, our study
and evaluation of the internal accounting controls did not extend
beyond this preliminary phase. Accordingly, we do not express an
opinion on the system of internal accounting controls taken as a
whole. Our examination, did not disclose any conditions, other
than those presented in the Findings and Recommendations, that we
believe to be material weaknesses.
As a part of our examination, we performed certain tests to
determine whether or not Federal funds were expended in
accordance with the provisions of the cooperative agreements and
applicable Federal laws, regulations, policies and cost
principles. The results of our tests indicated that for the
items tested, PADER complied with the provisions of the
cooperative agreements and applicable Federal laws, regulations,
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Mr. Kenneth D. Hockman
Page. 2
policies, and cost principles, except for the conditions
described in the Notes to the Exhibits. Further, for the items
not tested, based upon our examination referred to above, nothing
came to our attention which indicated that FADER had not complied
with the provisions of the cooperative agreements and applicable
Federal laws, regulations, policies, and cost principles, beyond
the conditions described in the Findings and Recommendations.
This report is intended for use in connection with the
cooperative agreements to which it refers and should not.be used
for any other purpose.
TICHENOR, RESLER & EICHE
Louisville, Kentucky
September 20, 1985
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FINDINGS AND RECOMMENDATIONS
1- COMMONWEALTH'S SUPERFUND PROCUREMENT SYSTEM NEEDS IMPROVEMENT
The procedures utilized by PADER to procure contract services un-
der Superfund cooperative agreements were inadequate and not in
compliance with all requirements of Federal regulations (40 CFR
Part 33). Under the existing system, contracts were awarded un-
der both cooperative agreements, |although PADER's procurement
system did not meet the applicable requirements of 40 CFR Part
33.
PADER, in its procurement certification, elected to certify that
the "Department of General Services Field Purchasing Manual
M610.5" (Manual) contained the applicable State regulations that
would be relied on for compliance jwith 40 CFR Part 33. Our re-
view of the Manual referenced above, indicated that the Manual
appeared to be applicable to small purchases such as typewriters,
rather than for the awarding of subagreements, and therefore did
not provide the necessary procurement guidelines for compliance
with 40 CFR Part 33. '
A. Multi-Site Cooperative Agreement
The procedures utilized by PADER to procure the Ecology and
Environment, Inc. (E & E) contract were inadequate and not
in compliance with the following sections of 40 CFR Part 33:
33.520-Negotiation and Award ojf Subagreementj 33.245-Privity
of Subagreement; 33.1030-Model Subagreement Clauses; and
33.290-Cost and Price Considerations. These conditions were
primarily attributable to the discrepancies between Common-
wealth and Federal procurement procedures. Detailed below
are items the procurement system failed to address regarding
the E & E contract, awarded on July 9, 1984, for a total
amount of $979,100. The bidding documents did not:
0 Indicate how to obtain! a copy of 40 CFR 33.295,
" Subparts F and G. ;
0 Specifically state in P,ADER's request for qualified
proposals that the basis for awarding the contract
would be based on initial offers alone as required by
40 CFR 33.520. !
8 Set EPA and the United St-ates apart from the contractor
selection process as required by 40 CFR 33.245 (further
explained by (1) on page 13).
0 Incorporate all required EPA Subagreement clauses in
the contract awarded as required by 40 CFR 33.1030
(further detailed by (2) on page 13).
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FINDINGS AND RECOMMENDATIONS (Continued)
Require submission of a cost analysis as required by 40
CFR 33.290
These conditions were primarily
a written procurement manual
which takes into consideration
requirements. In addition, EPA
submitting qualified proposals
evaluated and that the best
contract.
attributable to the lack of
for awarding subagreements
40 CFR Part 33 procurement
has no assurance that firms
were fairly and uniformly
offeror was awarded the
The applicant and recipient are responsible under 40 CFR
33.110 to evaluate its own procurement system and to
determine whether its system meets the applicable require-
ments of 40 CFR Fart 33. The EPA guidance for the above
regulation is found in its manual entitled State Par-
ticipation in the Superfund Remedial Program"Chapter
111-12 of the manual requires the completion of the Pro-
curement System Certification Form for Applicants for EPA
Assistance. EPA form 5700-48. Part B of EPA form 5700-48
provides for the following certification language:
"Based upon my evaluation of the applicant's
procurement system, I, as authorized representative of
the applicant, certify that the applicant's procurement
system will meet all the requirements of 40 CFR Part 33
including the attached subparts before undertaking any
procurement action with EPA assistance."
The subparts referenced in the EPA form 5700-48 included, in
part, the following:
40 CFR
Reference
33.520
33.245
Subpart F
Section Title and Summary of Requirements
NEGOTIATION AND AWARD OF AGREEMENT. Unless
the request for proposals states that the
award may be based on initial offers alone,
the recipient must conduct meaningful nego-
tiations with the best qualified offers.
PRIVITY OF SUBAGREEMENT. Neither EPA nor the
United States shall be a party to any sub-
agreement nor to any solicitation or request
for proposals.
SUBAGREEMENT PROVISIONS. Subagreements for
procurement under EPA Assistance must contain
the appropriate clauses, or their equivalent,
specified in this subpart.
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FINDINGS AND RECOMMENDATIONS (Continued)
33.290
COST AND PRICE CONSIDERATIONS. System proce-
duresmust allow for consideration of cost
and price as required in this section.
PADER's procurement procedures did not fully comply with the
requirements of 40 CFR Part 33irelating to the competitive
negotiation procurement method1 for the E & E contract.
While PADER had met the majority of the competitive
negotiation requirements, it had not complied with those
applicable to (i) public notice; (ii) *the basis for
awarding the contract; and (iii) ^submission of a cost
analysis. According to 40 CFR 33.520, unless the request
for proposal states that the award may be based on initial
offers alone, the recipient must conduct meaningful negotia-
tions with the best qualified offerers. In this case, the
awarding of the contract to E & E resulted in PADER
obtaining the engineer with the lowest price offer and the
highest qualifications as determined by an evaluation panel
comprised of three EPA officials and three PADER officials.
Nevertheless, PADER should ensure that all competitive
negotiation requirements are used when evaluating proposals
to obtain an agreement most advantageous to the Common-
wealth. The following items detail the deficiencies noted
above:
(1) Privity of Subagreement
We tested PADER contracts awarded under the Multi-Site
cooperative agreement for compliance with the
requirements of 40 CFR 33.245. We found that the team
chosen to evaluate the engineering proposals consisted
of three EPA officials and three PADER officials. As a
.result of EPA participation in PADER's selection
process, EPA's position that it was not a party to any
subagreement may be jeopardized.
For example, EPA involvement in PADER's selection
process increases the risk that losing bidders might
succeed in naming EPA as a defendant in litigation
concerning the assistance recipient's contract award
procedures. In addition,1 EPA involvement in the
selection process increases! the risk that other persons
might succeed in naming! EPA as a defendant in
litigation concerning the performance of the contract
(e.g., contractor claims j or tort claims). These
potential problems can be avoided, or at least
mitigated, by ensuring that EPA employees only provide
oversight of the procurement process and do not
participate on selection panels.
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FINDINGS AND RECOMMENDATIONS (Continued)
Subsequent to the award of these contracts under the
Multi-Site cooperative agreement, EPA Issued guidance
which should be followed for future procurements:
EPA's State Participation in* the Superfund Program.
Volume II, Chapter II, Part B states in part that:
EPA's role during implementation of the Agreement
is one of oversight to ensure that the State
complies witEapplicable statutes, regulations,
and policies.
The State is responsible for resolving all
subagreement and administrative issues associated
with procurement under the Cooperative Agreement,
since EPA is not a party to any subagreements (40
CFR 33.245). (Emphasis added).
(2) Part 33.1030 Model Subagreement Clauses
The agreement between PADER and E & E states that the
contractor is to perform the scope of work consistent
with all appropriate Federal requirements, however, the
agreement did not specifically reference the following
required clauses:
Differing site conditions
* Price reduction for defective cost or
pricing data
* Gratuities
* Responsibilities of the contractor (Parts A
1-3 and 5)
* Final payment
* Privity of subagreement
Additionally, the following clauses although included,
were not equivalent to those required by 40 CFR Part
" 33:
Supersession
* Suspension of work
Termination
Responsibility of contractor (Part A-4)
Audit; access to records
Covenant against contingent fees
Changes
* A similar finding was identified by a Management
Assistance Visit performed by EPA Headquarters in their
report, dated June 26, 1985.
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FINDINGS AND RECOMMENDATIONS (Conclriued)
B. Enterprise Avenue Cooperative Agreement
i
The engineering firm, Weston, added a 6Z handling fee to all
costs except direct labor. A percentage add-on to other
di'rect costs and subcontractor costs is a CPPC contract.
(A percentage add-on for indirect costs, if it does not
include profit, may be invoiced by the contractor if
approved in the contract.) The CPPC contract method is
specifically prohibited by 40 | CFR 33.285. CPPC type con-
tracts offer the possibility for the contractor to permit
the cost of the project, and the 6Z add-on, to be increased
in order to increase their profit. In addition, we deter-
mined that the agreement between the City of Philadelphia
and Weston did not reference any of the model subagreement
clauses required by 40 CFR 33.1030.
PAPER'S COMMENTS ON FINDINGS
We recommended in our draft report that the Regional
Administrator, Region 3 ensure that PADER establish written
procedures and initiate improvements to its procurement system to
meet all the requirements of 40 CFR Part 33. We also recommended
that PADER be advised to amend the E&E and Weston contracts to
include the model subagreement clauses and amend the Weston
contract to remove the CPPC type provisions. In addition, we
recommended that the Regional Administrator instruct Regional
employees not to act as members of PADER's selection panels.
The Deputy Secretary for Administration, PADER, stated in
response to the recommendations in our draft report:
0 PADER has a written procurement procedure which includes the
following documents: Invitation - Bid Proposal (ER-OSS-15),
Federal Program Requirements, and Contracting for Services
Manual (M215.1). It is PADER1s position that the procedures
and'requirements outlined in these documents substantially
meet the requirements of the Federal Procurement Regulations
40 CFR Part 33. However, j PADER agrees that future
procurements under EPA cooperative agreements will: inform
respondents of where and how to obtain a copy of 40 CFR
33.295, Subparts F and G; and specifically state in the
Request for Qualifications and Proposals that the award may
be based on initial offers alone (if appropriate).
It is PADER's position that; the clauses used by PADER
are equivalent to and have substantially met the
requirements of the model sub'agreement clauses. However,
PADER will modify its subagreement clauses to make the
language more parallel to the Federal model clauses.
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FINDINGS AND. RECOMMENDATIONS (Continued)
0 The work activities related to the Weston contract have been
completed. Therefore, there is no need to change the
contract to remove any cost-plus-percentage language.
Future contracts will not contain cost-plus-percentage
provisions.
OUR EVALUATION OF PAPER'S COMMENTS
The response indicated that FADER's written procurement
procedures substantially met the requirements of 40 CFR Part 33.
However, our review of the Contracting for Services Manual
(M215.1) and the Invitation - Bid Proposal (ER-OSS-15) indicates
that these documents did not address model subagreement clauses
or privity of subagreement. Additionally, a copy of the Federal
Program Requirements mentioned above was not included with
PADER's response.
The proposed actions to incorporate these provisions for future
procurements are responsive to the intent of the recommendations
and should help -to ensure that firms submitting qualified
proposals are fairly and uniformly evaluated. However, we have
not examined the results of the proposed actions to determine if
they are functioning as stated.
The response did not address the recommendation to include a
requirement for cost analysis in the procurement procedures.
Also, the response did not indicate that the current contract
with E&E had been or would be amended to include the required
model subagreement clauses.
RECOMMENDATIONS
We recommend that the Regional Administrator, Region 3:
Verify that PADER incorporates all 40 CFR Part 33
requirements into its written procurement procedures,
• including a cost analysis required by 40 CFR 33.290.
0 Request that PADER amend the contract with E&E under
the Multi-Site agreement to include the model
aubagreement clauses stipulated by 40 CFR 33.103.
* Instruct Regional employees not to act as members of
State selection panels until EPA'8 Headquarters Grants
Administration Division issues an agencywide directive
on this matter.
2. NONCOMPLIANCE WITH SPECIAL GRANT CONDITIONS
PADER did not submit to EPA the required quarterly progress re-
ports for the Multi-Site cooperative agreement within the
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FINDINGS AND RECOMMENDATIONS (Continued)
required timeframes. Additionally, quarterly progress reports
required by the special conditions section of the Enterprise Ave-
nue cooperative agreement were not submitted by FADER to EPA al-
though PADER was aware of this requirement. PADER gave no reason
for their noncompliance. As a result, EPA did not have written
documentation detailing expenditures, estimates of work complet-
ed, cost and time variances, and dates of completion. The Enter-
prise Avenue cooperative agreement is currently in the process of
being closed out and PADER has noti submitted the required final
report.
PAPER'S COMMENTS ON FINDING
We recommended in our draft j report that the Regional
Administrator, Region 3 request PADER to submit the required
quarterly progress reports for j the Multi-Site cooperative
agreement on a timely basis and to submit the final report for
the Enterprise Avenue cooperative agreement.
i
The Deputy Secretary for Administration, PADER, stated in
response to the recommendations in our draft report:
0 The Multi-site Cooperative Agreement quarterly reports have
been submitted each quarter one to two months after the end
of that quarter. However, over the last several quarters we
have imposed a schedule of submitting the quarterly report
no later than one month after the end of the calendar
quarter. This meets with EPA approval.
0 The Department has not yet received but is actively
soliciting the final Enterprise Avenue invoices and
close-out report from the City of Philadelphia. After the
Department receives this report, we will submit the final
progress report for the Enterprise Avenue cooperative
agreement to EPA. '
OUR EVALUATION OF PAPER'S COMMENTS
The discussed and proposed actions.are responsive to the intent
of the recommendations and should help to ensure that EPA
receives timely information detailing expenditures, estimates of
work completed, cost and time variance, and dates of completion.
However, we have not examined the {results of the discussed and
proposed actions to determine if they are functioning as stated.
RECOMMENDATION
We recommend that the Regional Administrator, Region 3 request
PADER to submit the final report for the Enterprise Avenue
cooperative agreement.
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FINDINGS AND RECOMMENDATIONS (Continued)
3. PROPERTY MANAGEMENT REQUIREMENTS
FADER did not maintain a property listing for property purchased
with EPA funds through the construction • contractor, Associated
Chemical and Environmental Services, Inc. (ACES). We identified
three property acquisitions, totaling $61,200, which should have
been included on such a list: a truck scale, area lighting, and
utility poles. Without such a list, adequate controls did not
exist to provide accountability for Federally-owned property upon
completion of the project. FADER was unaware of property man-
agement requirements under the Superfund program.
According to 40 CFR 30.531 (formerly 40 CFR 30.810-3), FADER was
required to maintain a listing of all property purchased with EPA
funds. The property listing should contain a description of the
property, serial -and model numbers, acquisition cost and date,
and ultimate disposition of the property.
PAPER'S COMMENTS ON FINDING
We recommended in our draft report that the Regional
Administrator, Region 3 instruct FADER to maintain a listing of
all property purchased with EPA funds including the $61,200 of
property identified above.
The Deputy Secretary for Administration, FADER, stated in
response to the recommendation in our draft audit report that the
property acquisitions listed in the audit report are considered
by FADER to be site structures which did not require tracking.
It is the position of FADER that the existing property management
systems substantially meet the requirements of 40 CFR 30.530.
OUR EVALUATION OF FADER'S COMMENTS
We have- reviewed FADER's position and agree that the area
lighting and utility poles can be considered site structures.
However, we do not agree that the truck scale be considered a
site structure. The truck scale should have a significant
salvage value that would warrant it being included in a property
listing.
RECOMMENDATION
We recommend that the Regional Administrator, Region 3 instruct
FADER to include in its property listing the truck scale, in
accordance with 40 CFR 30.531.
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EXHIBITS
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4
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EXHIBIT A
COOPERATIVE AGREEMENTS AWARDED TO THE
PENNSYLANIA DEPARTMENT'OF ENVIRONMENTAL RESOURCES
SUMMARY OF COSTS CLAIMED. ACCEPTED AND QUESTIONgP
FOR THE PERIOD FEBRUARY 9. 1984 THROUGH JUNE 30. 1985
COST CATEGORY
AMOUNT
CLAIMED 'ACCEPTED QUESTIONED RdTE5
(Note 1) (Note 2)
Personnel and
Fringe Benefits
Travel
Contractual
Services
Indirect Costs
Construction
Management
Construction and
Prdject
Improvement
Totals
$ 117,734
38
100,500
408,922
2.752,496
$3,394,124
$ , 117,734 $
1 38
100,500
14,434
279,981 128,941
2;. 752.496
$3.265.183 $128,941
Note 1 The amounts claimed represent expenditures reported on
the Federal Cash Transactions Report (SF-272) through
June 30, 1985. I
Note 2 See Exhibits B and C for ; schedules of costs claimed,
accepted and questioned by cooperative agreement.
Note 3 See Exhibit C for details of the $128,941 costs
questioned.
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EXHIBIT B
MULTI-SITE COOPERATIVE AGREEMENT
AWARDED TO THE PENNSYLVANIA
DEPARTMENT OF ENVIRONMENTAL RESOURCES
SCHEDULE OF COSTS CLAIMED AND ACCEPTED"
FOR THE~PERIOD FEBRUARY 9. 1984 THROUGH JUNE 30. 1985
• AMOUNT
COST CATEGORY CLAIMEDACCEPTED
(Note 1)
Personnel and
Fringe Benefits $117,734 $117,734
Travel 38 38
Contractual
Services (Note 2) 100,500 100,500
Indirect Costs 14.434 14.434
Totals $232.706 $232.706
Note 1 The amounts claimed represent expenditures reported on
the Federal Cash Transactions Report (SF-272) through
June 30, 1985.
Note 2 During our evaluation, we noted that E & E submitted
invoices totaling approximately $81,000 to PADER for
payment. PADER was dissatisfied with the quality of
the work performed and believed that E & E was not in
compliance with contractual requirements. This result-
ed in PADER's decision to suspend work and withhold
payments. The disputed invoices had not been claimed
under the cooperative agreement. Subsequent to our
field work, both parties agreed to meet with a nonbind-
ing arbitrator, which resulted in a determination to
pay the bulk of these ' costs. However, work has
remained suspended.
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EXHIBIT C
ENTERPRISE AVENUE COOPERATIVE AGRPFMttMT
AWAkUKD TO THE PENNdYLVAtfnT555*1
DEPARTMENT Of ENVtfeONMENTAlTREsmjRnFfi
SCHEDULE OF COSTS CLAIMED. ACCENTED AND QUESTIONED
kl THROUGH JUNE 30. T983
ThE PERIOD MAY Is.
COST CATEGORY
Construction
Management
Construction and
Project
Improvement
Totals
CLAIMED
(Note 1)
'AMOUNT
ACCEPTED
QUESTIONED
(Note 2)
$ 408,922
2.752.496
$3.161.418
$ 279,981
2.752.496
$3.032.477
$128,941
$128,941
Federal Share (50Z
of accepted eli-
gible costs)
$1.580.709
$1.516.238
$ 64.471
Note 1
Note 2
The amounts claimed represent expenditures reported on
the Outlay Report and 'Request For Reimbursement
(SF-271) through March 31,: 1985 and the Federal Cash
Transactions Report (SF-272i) through June 30, 1985.
We questioned $128,941 of contractual services cost for
the Weston contract for professional engineering
services, as amended August 15, 1984. Weston added a
6Z handling fee to all costs except direct labor. A
percentage add-on to other (direct costs and subcontrac-
tor costs is a CPPC contract. (A percentage add-on for
indirect costs, if it does! not include profit, may be
•invoiced by the contractor if approved in the
contract.) The CPPC contract method is specifically
prohibited by 40 CFR 33.285;. CPPC type contracts offer
the possibility for the contractor to permit the cost
of the project, and the 6Z1 add-on, to be increased in
order to increase their profit.
PAPER'S COMMENT ON FINDING
We recommended in our draft report that the Regional
Administrator not participate in the $7,299 of ques-
tioned costs and direct PADER to renegotiate the Weston
contract, excluding the illegal CPPC provision before
accepting any of the $401,623 costs. The Deputy
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EXHIBIT C
ENTERPRISE AVENUE COOPERATIVE AGREEMENT
AWARDED TO THE PENNSYLVANIA
-DEPARTMENT OF ENVIRONMENTAL RESOURCES
SCHEPUCE OF COSTS CLAIMED, ACCEPTED AND QUESTIONED
¥E 30,
FOR THE PERIOD MAY 15. 1984 THROUGH JUN1
1985
Secretary for Administration, FADER, did not address
this issue in his July 30, 1986 response to our draft
report. On September 8, 1986 the Deputy Secretary for
Administration, FADER, provided the following response
to the recommendation in our draft report.
0 If it is concluded that the 6Z handling fee was
essentially a profit multiplier and that it is not
an allowable indirect cost, then we need to
address the questioned amount of $7,299 and,
specifically, the $3,650 federal share. If EFA
determines not to participate in the payment of
the 6Z handling fee, we will need to determine a
suitable resolution to the problem.
0 It is the Department's opinion that while the
federal share of the 6Z handling fee may be in
question, the contract as a whole is not in
question and that the proposal to the entire
contract expenditure of $401,623 is not
appropriate.
OUR EVALUATION OF FADER'S COMMENTS
PADER's response was inadequate. The only issue FADER
addressed was the $7,299 of questioned costs (based on
a 6Z handling fee) in the draft report. FADER did not
attempt to show the reasonableness of the $121,642 CFPC
portion of the contract that the $7,299 handling fee
was based on. The CPPC portion of the contract is void
because it is illegal. Thus, we questioned $128,941
($7,299 + $121,642) of the Weston contract. PADER's
response did not provide the information necessary to
determine the reasonableness of the costs incurred
under the CPPC portion of the Wes ton contract. It is
PADER's and Weston's responsibility to provide the
information showing the value of the work actually
performed.
RECOMMENDATION
We recommend that the Regional Administrator, Region 3
not participate in the $128,941 of questioned costs,
and direct PADER to determine the reasonableness of the
costs incurred under the Weston contract and
renegotiate the contract accordingly.
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APPENDIX 1
Auditors' Note: The Deputy Secretary for Administration, PADER,
included the following documents as attachments with the
response to the draft audit report: Invitation-Bid Proposal
(ER-OSS-15), Contracting For Services Manual (M215.1),
Letter dated June 27, 1986 from the Assistant Counsel of
PADER's Bureau of Legal Services, and a Letter dated May 22,
1986 from PADER's Director] of the Bureau of Waste
Management. The document referred to in the response as
Federal Program Requirements was not included. The first
two attachments described above were too voluminous for
inclusion in this report. The entire response, including
the ..attachments, is available for review in the Office of
Inspector General, Internal Audit Division, in Washington,
* D.C. !
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COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF ENVIRONMENTAL RESOURCES
Post Office Box 2063
Hanrisburg, Pennsylvania 17120
Deputy Secretary for
Administration
3uly 30, 1986
717-787-7116
Mr. Kenneth D. Hockman
Divisional Inspector General for Audit
Office of Inspector General
United States Environmental Protection Agency
Washington, DC 20460
Dear Mr. Hockman:
The draft audit report of DER's administration of its Superfund Cooperative Agree-
ments with EPA under CERCLA has been reviewed by the Department. You have asked us to
address the factual accuracy of data presented and any actions taken or planned to:
1. Establish written procurement procedures and initiate improvements to the state's
procurement system.
2. Amend the Ecology and Environment contract to include the model sub-agreement
clauses, and amend Roy F. Weston contract to include the model sub-agreement clauses
and to remove the Cost Plus Percentage provisions.
i
3. Ensure transmittal of the required quarterly reports for the multi-site cooperative
agreement, and ensure transmittal of the final report for the Enterprise Avenue coop-
erative agreement.
it. Maintain a current and accurate listing of! all property purchased with Federal funds.
Some of these issues have been previously, addressed in the Department's response to
the EPA Management Assistant Program Review Report. That letter of response as well as other
supporting documentation are enclosed for reference. The above issues are addressed as follows:
1. PROCUREMENT PROCEDURES
The Department does have a written procurement procedure. Enclosed for your review
are the following documents: Invitation - Bid Proposal (ER-OSS-15), Federal Program Require-
ments, and Contracting For Services Manual (M215.1). It is the Department's position that the
procedures and requirements outlined in these documents substantially meet the requirements of
the Federal Procurement Regulations 40 CFR Part 33. Even though the Department believes it
has substantially complied with all Federal and State procurement requirements, we will further
adjust our procedures in future DER procurements to further address the concerns raised in the
draft audit report. The Department agrees that future procurements under .EPA cooperative agree-
ments will: inform respondents of where and how to obtain a copy *0 CFR 33.295 Sub-parts F
and G; and specifically state in the Request for Qualifications and Proposals that the award may
be based on initial offers alone (if appropriate).
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Mr. Kenneth D. Hockman
-2-
3uly 30, 1986
2. CONTRACT CHANGES
The Department's legal counsel has prepared a review of the model sub-agreement
clauses and their DER counterparts. This review document is attached for your reference. It is
the Department's position that the clauses used by the Department are equivalent to and have
substantially met the requirements of the model clauses; however, the Department will modify its
sub-agreement clauses to make the language more parallel to the Federal model clauses.
t
The work activities related to the Enterprise Avenue cooperative agreement have been
completed. Therefore, there is no need to have the City of Philadelphia change its contract with
Roy F. Weston to remove any Cost Plus Percentage language. Future contracts will not contain
Cost Plus Percentage provisions.
3. PROGRESS REPORTS
The findings concerning "non-compliance with Special Grant Conditions" are not com-
pletely correct. The audit report states; TA DER did not submit to EPA the required quarterly
progress reports within the required time frames for the Multi-Site cooperative agreement."
Paragraph 10, Reporting Requirements, of the Special Conditions section of the Multi-Site Coop-
erative Agreement states; "The state agrees to submit progress reports to the EPA Project Officer
at quarterly intervals commencing at the start of the project." The Multi-Site Cooperative Agree-
ment was executed in February 1984. The contract with the Project Management Contractor was
executed in 3uly 198* and work on the project started soon thereafter. The first report was sub-
mitted in October 1984 to cover the 3uly 1984 to September 1984 quarter, plus the preliminary
activities leading up to the initiation of site work. Quarterly reports have been submitted each
quarter thereafter. The quarterly reports for each calendar quarter were submitted one to two
months after the end of that quarter. This clearly meets the requirements of the special conditions
section. The time lag between the end of the quarter and the submission of the report is needed
to collect and input the AMIS time records of DER employes who worked hours on the projects
which are covered under the Multi-Site Cooperative Agreement. However, over the last several
quarters we have self imposed a schedule of submitting the quarter report no later than one month
after the end of the calendar quarter. This meets with EPA approval.
The Department has not yet received but is actively soliciting the final Enterprise
Avenue invoices and close-out report from the City of Philadelphia. After the Department receives
this report, we will submit the final progress report for the Enterprise Avenue cooperative agree-
ment to EPA.
4. PROPERTY LISTING
The property acquisitions listed in the audit report, a truck scale, area lighting, and
utility poles are considered by the Department to be site structures which did not require tracking.
It is the position of the Department that our existing property management systems substantially
meets the requirements of 40 CFR 30.530.
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Mr. Kenneth D. Hockman
-3-
3uly 30, 1986
Thank you for the opportunity to comment on this draft audit report. If you have any
further questions, please do not hesitate to contact me;
Sin
William A. Cook
Deputy Secretary
for Administration
Enclosure
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Bureau of Legal Services
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF ENVIRONMENTAL RESOURCES
Post Office Box 2357
Harrisburg. Pennsylvania 17120
June 27, 1986
Mr. Thomas C. Voltaggio, Chief -
Superfund Branch
U.S. Environmental Protection Agency
841 Chestnut Building
9th and Chestnut Streets
Philadelphia, PA 19107
Dear Mr. Voltaggio:
In accordance with the letter dated May 22, 1986 to you from
Donald A. Lazarchik, Director of the Bureau of Waste Management,
Pennsylvania Department of Environmental Resources, I have been requested
to respond to you concerning certain legal aspects of DER's contract/
purchase policy and procedures in light of the EPA initial management
assistance program review and the Tichenor, Pesler & Eiche auditor
report. In particular, I wish to respond to the concern that certain
Pennsylvania subagreements have not used jword-for-word the Model Sub-
agreement Clauses stipulated in 40 CFR 33.1030.
i
First, I point out that the opening jparagraph of §33.1030 states
that the Model Subagreement Clauses "or their equivalent" must be used,
"when appropriate", in each subagreementsIhe "equivalency" standard
indicates to me a certain degree of flexibility envisioned by EPA in
allowing each State to adopt language following the content of each
Model Clause in words substantially similar to, or as you state, providing
"the same protection and rights as" those found in the Model Clauses.
Also, the "when appropriate" language connotes to me a certain amount of
discretion on the part of the State in deciding whether to use the Model
Subagreement Clauses word-for-word or, when justifiable, to exclude
certain of the clauses, on a case-by-case basis. Further, the Comonwealth
by law roust also comply with State procurement laws which supplement and
are not entirely consistent with the language of the Model Clauses. In
any event, as I hope to point out herein, the protections and rights
provided for by the contractual terms in agreements currently in use by
the Pennsylvania program are'substantially in compliance with the letter,
as well as- the intent, of 40 CFR §33.1030. I shall discuss each of "the
Model Subagrconent Clauses in order, as [well as the Pennsylvania response
thereto, by referring to the executed subagreement between DER and Ecology
and Environment, Inc. dated July 9, 1984, a copy of which is enclosed
herein. |
1. Supersession - Ihe Model Clause states that all
appropriate Model Clauses under 40 CFR $33.1030 apply to a
DER-contractor work contract, j and that the Model Clauses
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Mr. Thomas C. Voltaggio
Page 2
June 27, 1986
supersede any conflicting provisions of the contract. In
response thereto, DER points out that under DER General
Conditions, "Ijayality", all work to be performed under any
DER-contractor subagreement is to be performed in accordance
with all applicable statutes, rules, and regulations of
Federal, State and local governments. Further, Section 14
of the Request for Qualifications and Proposals ("RFJ2/P".}
specifically states that all procurement activities under
the subagreement shall be consistent with all applicable
State and Federal procurement regulations in effect at the
tine of such procurement. Finally, we respectfully submit
that so long as the DER-contractor subagreement substantially
covers the requirements set forth in the Model Clauses, as
we believe it does, the specific "supersession" language is
largely unnecessary.
2. Privity of Subagreement - The Model Clause states
that the United States is not a party to the contract between
DER and contractor AND that the DER contract is subject to
the regulations in 40 CFR Part 33 on the effective date of
the assistance award for the project. DER responds that,
as is evident from the standard DER subagreement, the sub-
agreement is executed only on behalf of the contractor and
the Oantnonwealth of Pennsylvania. There is no provision made
for and no implication that the United States is in any way a
party to the subagreement. Further, the DER General Conditions,
"Legality", states in part that the work under the subagreement
must be performed in accordance with all applicable rules and
regulations of the Federal Government. Finally, we refer you
to the language of Section 14 of the RFQ/P, as stated above,
which states that all procurement activities under the sub-
agreement must be consistent with all applicable State and
Federal procurement regulations in effect at the time of such
procurement.
3. Changes - The Model Clause sets forth certain standards
to apply to construction, services and supplies subagreements.
The construction standards are the most extensive. They state
' that DER, without notice to the surety, by written Change Order
can change work within the general scope of the contract,
. including changes in specifications, the time, method or manner
Of performing the work, the DER-furnished facilities, equip-
ment, materials, services or site, and the speed with which
the work is done. The Change Order is defined to be a written
order from DER which causes a change, and which most contain
the date* circumstances and source of the order. If the
Change Order affects the contractor* s cost or time required
to do the work, DER is to make equitable adjustment therefor
through a written modification of the contract. accept for
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Mr. Thomas C. Voltaggio
Page 3,
June 27, 1986
C.
^*
f
claims based on defective specifications, no claim can be
allowed for cost incurred more than 20 days before the
contractor gives written notice of the claim. Further, the
contractor has 30 days after receiving a written Change Order
to submit a statement asserting
assured an equitable adjustment
a claim. The contractor is
for compliance with
defective specifications. Finally, the contractor cjnnot
make a claim after final payment.
In response DER submits that it has 'substantially
followed the Model Clauses on this issue. Under its
General Conditions, "Changes", DER states that no changes
or additions to the work may be' initiated without a
written amendment to the contract. Any increase in cost
which would accrue from a change to the work is subject
to negotiations, and no work can be done until the price
is agreed to by the parties. Further, in Article 10 of
the subagreement and in its General Conditions, "Extension
of Time", DER states that the contract may be extended
beyond its expiration date by a written amendment prior
to the expiration of the contract. In the subagreement
Article 8, referencing Section J6 of the RFQ/P, it is
stated generally that the contract can only be modified by
written amendment. Finally, Article 9 of the subagree-
ment allows additional funding to be provided upon written
amendment to the contract.
4. Differing Site Conditions - The Model Clause calls
for the contractor to promptly notify DER of any differing
site conditions. DER must then promptly investigate such con-
ditions and if necessary, make an equitable adjustment and
modify the contract in writing. In response thereto, DER
cites RPQ/P Section 6. Here, the Department states that it
may be necessary due to unforeseen circumstances to expand
contract work beyond the current scope. It is stated that
a contract amendment will be necessary to reflect this.
5. Suspension of Work -( The Model Clauses state that
OCR can order the contractor to suspend, delay or interrupt
its work at DER's convenience. However, if performance is
suspended for an unreasonable period of time, DER would adjust
for the increased contractor cost through a contract amendment.
In response thereto, DER cites its General Conditions,
"Suspension", which states if the terms and conditions of the
contract are not being met, the Department upon a 30-day
advance notice to the contractor can suspend the contract
until corrective action is taken.
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Mr. Thomas C. Vbltaggio
Page 4
June 27, 1986
6- Termination - The Model Clause states that the
contract may be terminated for cause by either party upon 10
days prior written notice and an opportunity of the other
party to consult prior to termination. Also, the contract
may be terminated for the convenience of DLR with 10 days
prior written notice and an opportunity to consult before
termination. The Model Clause calls for an equitable dollar
adjustment if DER terminates the contract. Also, upon ter-
mination, the contractor should stop work and deliver all
drawings to DER. UER can then take over the work and reaward
the contract. In response thereto, DER cites the following:
a. General Conditions, "Termination" - This clause
allows DER to terminate the contract for cause in whole or
in part. In further explanation. Article 16 of the sub-
agreement, in explaining termination for cause, states
that such termination may take place immediately if
there is a threat to the public health and safety.
Alternatively, other terminations for cause require 10
days prior written notice and an opportunity not only to
consult, but to arrive at an alternative arrangement
satisfactory to DER by the contractor prior to ter-.
mination. Finally, the General Conditions call for
payments or recoveries to be made or received by the
Department upon termination as the situation may apply,
addressing the "equitable adjustment" referred to in the
.Model Clause.
b. The General Condition, "Termination", calls
for termination at the convenience of DER with 30 days
prior written notice to the contractor.
c. General Conditions, "Termination", also pro-
vides for termination for inavailability of funds.
7. Remedies - There has been no question raised by EPA
as to Pennsylvania's compliance with this clause.
8. Price Reduction for Defective Cost or Pricing Data -
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Mr. Thomas C. Voltaggio
Page 5
June 27, 1986
9. Audit; Access to Records - The Model Clause calls
for the contractor to keep adequate books on its operation
and those of any subcontractors! Access for inspection or
audit to the records can be gained by DER during normal
business hours. The audits are to be conducted in accordance
with generally accepted auditing standards, and the length
of tine the records are to be be maintained is referenced. '
In response thereto, DER cites various of its General
Conditions, including:
a. Fiscal records - Ihe contractor is required
to keep contract and subcontract records in accordance
with generally accepted accounting principles and DER
fiscal guidelines.
b. Retention of records - Contractor must keep
the records for 3 years after'final payment has been made,
the Agreement has expired
been resolved.
and all pending natters have
c. Right to Audit -j EER, the Auditor General and
authorized representatives thereof are given the right
to audit the contractor books, and to make copies of
contractor's records during the audit.
Furthermore, Section 5 of the HFQ/P details the contractor exist
records, and progress reports and deliverables to be given to
DER, under the contract.
«
10. Covenant Against Contingent Fees - The Model Clause
states that contractor must assure that no one has been retained
to secure its agreement with DER for a contingent fee, except
bona fide employes or bona fide established commercial or
selling agencies maintained byj the contractor to secure
business. While EER has no precise language dealing with this
Model Clause in its subagreement, we point out that in
accordance with our General Conditions, "Termination", the
contract may be terminated at the discretion of the Department
within 30 days after contractor was notified in writing, for
example, that it has not complied with all of the applicable
Federal regulations. This would include the regulation
concerning covenant against contingent fees. We further '
point out the provisions of Article 14 of the subagreement,
which references Section IS of the RPQ/P, and the appro-
priate provision of our General Conditions, both entitled
Conflict of Interest. According to the General Conditions,
the contractor must certify that it has no interest which
would conflict with its performance of its services under
the contract. It must also certify that it will not knowingly
employ any person having such' interest. In Section 15 of the
RFQ/P the Department is given the right to terminate the
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Mr. Thomas C. Voltaggio
Page 6
June 21, 1986
jr.-
contract for convenience in whole or in part if it deems such
termination necessary to avoid an organizational conflict of
interest on the part of contractor. Further/ if the con-
tractor was aware of a potential organizational conflict of
interest prior to the award or discovered it after the award
and did not disclose or misrepresented relevant information.to
DER, DER may terminate the contract, bar the contractor from
DER contracting or pursue other such remedies as nay be
provided by law or under the contract. Finally, said Section
15 provides in the case of personal conflicts of interest,
Contractor agrees to notify DER of such and disqualify the
affected individual from taking part in the performance of the
assigned work creating the conflict of interest situation.
11. Gratuities - The Model Clause basically calls for no
gifts to be made by~contractors to DER officials for favorable
treatment in the awarding of a contract. In this regard, DER
responds that the General Conditions, "Conflict of Interest",
Paragraph (a) states that no officer, member or employe of the
Commonwealth who exercises any function or responsibilities
under the agreement can participate in any decision relating
to the agreement which affects his personal interest or the
interest of any organization in which he is interested.
Furthermore, no such officer, member or employe may have any
interest in the agreement or the proceeds thereof. This is
all in accordance with the requirements of 65 P.S. §403, which
states that no Pennsylvania public official or employe may use
his public office for financial gain other than for compen-
sation provided by law. Likewise, the statute states that no
person may offer to a public official or employe, nor may such
official or employe accept, anything of value, based on the
understanding that his official actions would be influenced
thereby; Finally, the State Adverse Interests Act, 71 P.S.
§776.1, et seg. prohibits public officials or employes from
having an adverse interest in certain State contracts.
12. Buy American - This clause does not apply to superf und
contracts.
*
13. - Responsibility of the Contractor - The Model Clauses
•tt forth clauses for contracts involving services and conr
struction. For services, the contractor is responsible for the
professional quality of its services. Further, .contractor is
liable for all damages caused by its negligent performance of
any of the services under the contract. For construction, con-
tractor guarantees a one year warranty after substantial
completion of the work. The performance bond remains in full
force and effect throughout the guarantee period. In response
thereto, DER submits that implicit in the subagreement is the
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Mr. Thomas C- Voltaggio Page 7 June 27, 1986
;ontractor responsibility to take all necessary treasures to
carry out the project in accordance with the proposal and
Scope of Work set forth in the contract. Further, Article
16 of the RFQ/P sets forth an indemnification paragraph under
which contractor mist hold harmless the Commonwealth from and
against all claims for personal \ injury or property damage in
connection with work performed under the contract. £aid
Article 16 requires showings of substantial financial re-
sponsibility in the areas of general liability, automobile
liability and workers compensation insurance on the part of
any contractor to the subagreement. Finally, DER has included
performance bond requirements oh all subagreements involving
construction.
14. Final Payment - Ine Model Clause states that upon
satisfactory completion of the work and after release of all
of its claims, final payment will be made to the contractor.
However, the State is not obliged to release all of its
claims at this time. In response thereto, DER cites Articles
6 and 12 of its subagreement. Article 6 calls on both parties
to assure that the Scope of Work is implemented in a cost-
effective and efficient manner.| Article 12 states that for
different items in the contract, the Department will only pay
the final price upon satisfactory submission of deliverables
and monthly invoices applicable thereto.
It is my legal opinion as contracts | counsel for the Department of
Environmental Resources that the protections and rights set forth in the
Pennsylvania standard contract substantially comply with the letter and
the intent of the Model Subagreement Clauses, and that the wording of the
standard contract in no way justifies action to revoke DER's procurement
certification. We do update and modify the wording in standard contracts
on a regular basis, and at such time will consider incorporating into
our standard contract to an even greater extent the precise language of
the Model Subagreement Clauses.
I appreciate the opportunity to respond to your concerns in this
letter and will be happy to meet with you at your convenience to discuss
any other questions you might have concerning our contracts.
Very truly yours,
William B. Calder, Jr.
Assistant Counsel
WBCtss
Enclosure
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*.4ay 22, 192S
717-733-73U
Mr. Thomas C. VoJtassio, Chief
Super fund Sranch i
U.S. Environmental Protection Agency
341 Chestnut Suilding
9th and Chestnut Streets
Philadelphia, PA 19107
Dear .Mr. Voltaggio:
I agree that it is in DEIVs best interest to implement corrective measures to resolve
"rear deficiencies raised by the EPA initial Management Assistance Program Review and the
Tichcnor, Heslcr & Eiche (T3E) Auditors noted in your letter to me dated April 1, 1?36. I do not
agree that all the issues raised, especially those raised by T?.E, are "real.*1 For instance THE
Auditors did not obtain all Commonwealth Contracting For Services policy and guidance documents
during their short visit. Enclosed for your review are three (3) items. Invitation - 3id Proposal
(EH.-OSS-15), Attachment * Federal Program Requirements and the Governor's Management
Directive M215.1 entitled "Contracting For Services]*, all of which T3E Jailed to review during
their half-hour visit to our purchasing unit. I believe that a number of issues raised by TR2 may
be adequately covered by these documents.
The following is an item-by-item response to the issues raised by the Management
Assistance Program tlevie'v conducted by E?\, as set forth in your EXH13IT 1 A, Assistance
Agreement Management System:
1. Progress in executing the Multi-Site Cooperative Agreement C.'.SCA).
Thii was the first time DEH has awarded a MSCA. This -vas a new program requiring
DZ3. to exercise more attention and time to the first agreement. I would expect that
future awards will be more "routine" requiring less time.
2. DEIl Staffing.
Dell's management «vill negotiate appropriate levels of effort outputs by Grant and/or
Grant amendment^). This is the appropriate place to deal with this issue.
3. HPA regulations.
1 am sure that as OE?. staff works with the development of this program, they will
learn all of the "appropriate c?A regulations." I would like to point out that neither
your staff nor 3E3 tad an EPA document titled "STATE PARTICIPATION 1M T!IS
STJP5a?UN3 ?!lOGr>AMt" Volume II, dated March 193S, when this program and initial
contracts were starting. Yet, OER was audited on this and other federal documents.
Once OE2. determines which issues are appropriate, I may accept your offer to provide
EPA staff to conduct some training.
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f-
f"
Mr. Thomas C. Voltagsio - 2 -
*. Procurement Evaluation Committee.
May 22, l<)Zi
The internal contracting policies and/or procedures of DEn may be more restrictive
than EPA and/or federal guidelines. This is a DETl prerogative.
The lollo-ving is in response to the issues raised by the Management Assistance Program
Ileview conducted by EPA as set forth in your 2XH131T I 3, General procurement Requirements.
DZH Legal Counsel is conducting a comprehensive review of state and DER
contract/ pur chase policy and procedures to ascertain valid issues versus matters of interpretation.
Counsel will also evaluate issues and recommendations in light of compliance with state law. This
process will take aboust sixty (60) days at which time I will send DEH's response.
The following is in response to the issues raised by TOE, as set forth in your EXHIBIT n,
THE Summary of Findings and Recommendations:
U Super-fund Procurement System.
Some of the issues raised by T3.5 are not "real." THE did not obtain all Commonwealth
Contracting For Services policy and guidance documents during their short visit. As
noted above, we have enclosed for your review three (3) items, Invitation • 3id Proposal
(ER-OSS-15), Attachment * - Federal Program Requirements and Contracting For
Services Manual (M 215.1), which they did not receive curing their half-hour visit to our
purchasing unit. I believe that a number of issues raised by THE may be adequately
covered by these documents. I particularly disagree that there are any significant
issues that should lead Z?A to even consider revoking DETl's procurement certification^
Findings 2, 3, *», 5, and 7 either do not require response or have already been corrected.
6., Property Mana-ement requirements.
DER's existing system has successfully undergone numerous federal and state audits
without question. 1 submit that DEH. substantially meets 40 CFH 30.530 requirements.
1 am confident that the remaining minor issues can be resolved in an amicable and
cooperative environment.
Sincerely,
Enclosures
Oonald A. Uazarchik, Director
3urcau of v/aste Management
cc: Mr. Lazarchik
Mr. Snyder
Mr. Mains
Ms. Lindsay
Mr. Geotz
Atty. Calder
File
Chron.
DAL:kbn
.34-
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APPENDIX 2
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4
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COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF ENVIRONMENTAL RESOURCES
<717) 787-7116 September 8, 1986
Roland Cyr
Office of Inspector General
United States Environmental Protection Agency
Washington, DC 2O46O
Dear Mr. Cyrj
This letter is in response to the recent telephone
request to the Department in which you addressed the
issue o-f the cost-plus-percentage portion o-f the contract
between the City o-f Philadelphia and
Weston Inc.
Me understand that 40 CFR 33.285 does prohibit the
cost-plus—percentage—o-f-cost type of contract where the
multiplier includes pro-fit. The contract between the City
of Philadelphia and Weston Inc., did include a provision
for a 6% handling -fee on reimbursable expenses. Your audit
questioned $7,299, which you determined to be the total o-f
the 6% handling -fee invoiced by Wesson as o-f June 3O,
1986. The federal share (5O7.) o-f this questioned expense
would be $3,65O.
It is reasonable to assume, based on our staff review
o-f the documents, that Weston did incur some indirect
costs, exclusive o-f pro-fits, associated with direct costs
other than direct labor costs. Apparently, the contractor
chose thw 6% handling -fee to estimate those indirect
costs. '
I-f it is concluded that the 67. handling fee was
essentially a profit multiplier and that it is not an
allowable indirect cost, then we need to address the
questioned amount of *7,299 and, specifically, the *3t65O
federal share. If EPA determines not: to participate in the
payment of the 6% handling fee we will need to determine a
suitable resolution to the problem.
-------
It is the Department's opinion that while the federal
share of the 6% handling fee may be in question, the
contract as a whole is not in question and that the
proposal to set aside the entire contract expenditure of
$401,623 is not appropriate.
Relative to making the final determination on this
issue, it should be noted that EPA Region III played an
active role in the review and approval of the contracts as
well as the technical activities at the Enterprise Avenue
site.
If you have any further questions concerning this
matter please do not hesitate to contact me.
Sincere!
William A. Cook
Deputy Secretary for Administration
cc:
Mr. Cook
Mr. Snyder
Mr. Becker
Mr. Crownover
Attorney Holland
Attorney Calder
•File
Qvoru
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