Office pf Inspector General
REPORT OF REVIEW
REGION 8 NEEDED TO FURTHER IMPROVE
INTERAGENCY AGREEMENT OVERSIGHT TO
ENSURE EFFICIENT SUMMITVILLE
SUPERFUND SITE CLEANUP
E1SFG5-08-0032-6400019
JANUARY 22, 1996
EPA
350/
1996.14
c.l
-------
Inspector General Division
Conducting the Audit:
Region 8 Program Office(s)
Involved:
Central Audit Division
Kansas City, Kansas
Office of Ecosystems
Protection and Remediation
Office of Technical and
Management Services
Office of Air and
Radiation
-------
oco
EXECUTIVE SUMMARY
BACKGROUND
K
\
V<
00
We conducted a special review of Region 8's
oversight and monitoring of its Interagency
Agreements (IAG) with the Department of
Interior's Bureau of Reclamation
(Reclamation) for hazardous waste cleanup at
the Summitville mining site in southwest
Colorado. Our specific objectives were to
evaluate whether Region 8: (1) appropriately
responded to the Summitville emergency and
reasonably selected cleanup actions in
accordance with established procedures, and
(2) provided adequate oversight and
monitoring of the Reclamation lAGs for
Summitville cleanup.
WE FOUND
THAT
Region 8 reduced hazardous waste risks to the
environment and the public. The Region
reasonably selected removal and remedial
cleanup remedies and complied with the
National Contingency Plan requirements and
Superfund guidance. Region 8 extensively
participated with Reclamation in making
management and contracting decisions but did
not adequately oversee and monitor
Reclamation to control costs and ensure
efficient cleanup implementation. Further,
the Region did not ensure that its
contracting decisions with Reclamation
minimized cleanup implementation costs.
U S EPA Headquarters Library
Mail code 3294- ^m T
1200 Pennsylvania Avenue NW
Washington DC 20460
E1SFG5-08-0032-6400019
-------
WE
RECOMMENDED
THAT
The Regional Administrator:
instruct Regional project managers to
closely monitor Reclamation's compliance
with the Summitville IAG terms and
conditions and take appropriate action
to enforce compliance;
establish Regional controls over all IAG
payment requests so that Regional
project managers do not approve payments
without adequate supporting
documentation;
based on the Department of Interior's
legal opinion, recover $750,000 of
ineligible costs paid to Reclamation
under delivery order 13, if appropriate;
obtain adequate supporting documentation
for all past Reclamation payment
requests and recover any other
ineligible costs paid Reclamation;
encourage Reclamation to definitize
Summitville cleanup tasks, cease the use
of time-and-materials delivery orders,
and establish fixed-price contracts to
the extent practicable as soon as
possible; and
reevaluate the suitability of
Reclamation's Upper Colorado Regional
Office for managing the Summitville site
and any future Environmental Protection
Agency Superfund cleanup activities.
u
El SFG5-08-0032-6400019
-------
The Region did not agree with all our
findings and recommendations. Region 8 staff
stated that our criteria were not clear and
our conclusions were subjective. The staff
also stated that we oversimplified
Summitville's technical aspects and
diminished the cleanup effort.
in
E1SFG5-08-0032-6400019
-------
-------
TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY i
ACTION REQUIRED 2
PURPOSE 4
BACKGROUND 4
SCOPE AND METHODOLOGY 9
PRIOR AUDIT COVERAGE 12
RESULTS OF REVIEW 13
REGION 8 REDUCED SUMMITVILLE
HAZARDOUS WASTE RISKS 13
VARIOUS FACTORS NECESSITATED EFFECTIVE REGION 8
OVERSIGHT TO CONTROL COSTS 14
REGION 8 SHARES RESPONSIBILITY FOR MANY
RECLAMATION DECISIONS 17
REGION 8 NEEDED TO FULLY IMPLEMENT AND ENFORCE
COST CONTROLS 20
REGION 8 DID NOT ENSURE CONTRACTING DECISIONS
MINIMIZED CLEANUP IMPLEMENTATION COSTS 30
NEW REGIONAL IAG POLICY MAY STRENGTHEN OVERSIGHT
IF IMPLEMENTED 37
CONCLUSION 39
RECOMMENDATIONS 40
E1SFG5-08-0032-6400019
-------
APPENDICES
APPENDIX I
BUREAU OP RECLAMATION COST
CEILING OVERRUNS . . . .
43
APPENDIX II:
APPENDIX III
ABBREVIATIONS
DISTRIBUTION
44
45
E1SFG5-08-0032-6400019
-------
m.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
CENTRAL DIVISION
726 MINNESOTA AVENUE
KANSAS CITY, KANSAS 66101
(913) 551-7878
FAX: (913) 551-7837
January 22, 1996
MEMORANDUM
SUBJECT:
FROM:
Region 8 Needed to Further Improve Interagency
Agreement Oversight to Ensure Efficient Summitville
Superfund Site Cleanup
Report No. E1SFG5-08-0032-6400019
Bennie S. Salem
Acting Divisional Inspector General
for Audit
TO:
William P. Yellowtail
Regional Administrator
Region 8
We completed our special review of Region 8's oversight and
monitoring of its Interagency Agreements (IAG) with the
Department of Interior's (DOI) Bureau of Reclamation
(Reclamation) for hazardous waste cleanup at the Summitville
Superfund site located in southwest Colorado, near Del Norte. We
found that the Region reduced hazardous waste risks to the
environment and the public, reasonably selected removal and
remedial cleanup actions, and complied with the National
Contingency Plan (NCP) requirements and Superfund guidance.
However, the Region needed to improve and better implement its
IAG oversight to ensure efficient implementation of the
Summitville cleanup.
We provided the Region 8 Office of Ecosystems Protection and
Remediation (EP&R) an Issue Summary on November 3, 1995, and met
with Regional staff to discuss our findings. EP&R provided
written comments on our Issue Summary on December 4, 1995. EP&R
staff also obtained a copy of our unofficial draft report
including recommendations on December 15, 1995, and provided
unofficial staff comments on December 20, 1995.
RECYCLED
•MW CQHHMI •K
-------
Region 8 staff did not agree with all our findings and
recommendations. For example, the Region 8 Assistant Regional
Administrator (ARA} for EP&R stated that the criteria we used to
assess the adequacy of Region 8's oversight were not clearly
defined and that the respective conclusions were subjective. The
ARA also stated that we oversimplified Summitville's technical
aspects which drove its contracting strategies, and that we
diminished the cleanup effort. The ARA did not agree that the
Environmental Protection Agency (EPA) should "spend more time and
resources on transactional, administrative work." Region 8 staff
also stated that we did not fully recognize the potential
catastrophic conditions and urgency of the Summitville situation.
We understand that Region 8's initial priorities were
stabilizing the site and averting an environmental catastrophe.
However, we do not believe that the Summitville environmental
emergency persisted for 3 years. At some point, the emergency
ended and Region 8 had a responsibility to ensure the cleanup was
both effective and efficient. We incorporated other staff
comments in our report as appropriate.
ACTION REQUIRED
In accordance with EPA Order 2750, you, as the action
official, are required to provide us a written response to this
special review report within 90 days. For corrective actions
planned but not completed by the response date, reference to
specific milestone dates will assist us in deciding whether to
close this report.
This special review report contains findings that describe
issues the Office of Inspector General (OIG) has identified and
corrective actions OIG recommends. This report represents the
opinion of OIG, and the findings contained in this report do not
necessarily represent the final EPA position. Final
determinations on matters in this report will be made by EPA
managers in accordance with established EPA audit resolution
procedures. In this review, OIG did not measure the reviewed
offices against all standards established by the NCP. The issues
contained in the report are not binding in any enforcement
proceeding brought by EPA or the Department of Justice under
El SFG5-08-0032-6400019
-------
Section 107 of the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA) to recover costs
incurred not inconsistent with the NCP.
We have no objections to the release of this report to any
member of the public. This report contains no confidential
business or proprietary information that cannot be released to
the public.
Should you or your staff have any questions regarding this
report, please contact me at (913) 551-7831 or Jeff Hart, Audit
Manager in our Denver office, at (303) 312-6872.
E1SFG5-08-0032-6400019
-------
PURPOSE
In March 1995, Congressman Scott Mclnnis
requested that EPA's OIG conduct a complete
audit of the Summitville Superfund site
cleanup operation. Congressman Mclnnis
requested the audit based on allegations of
runaway costs, questionable evaluation
practices, and lack of Agency contract
oversight at the Summitville site. The
Congressman's request included concerns about
Reclamation's contractor, Environmental
Chemical Corporation (ECC), and Reclamation's
oversight of the contractor. DOI OIG
reviewed Reclamation's site management and
contract administration because DOI OIG has
audit cognizance of all DOI agencies
including Reclamation. EPA OIG and DOI OIG
coordinated strategies to audit Summitville
and fully address Congressman Mclnnis1
concerns.
To address Congressman Mclnnis1 request, we
performed a special review of Region 8's
participation in the Summitville cleanup.
Our specific objectives were to determine
whether Region 8:
appropriately responded to the
Summitville emergency and reasonably
selected cleanup actions in accordance
with established procedures, and
provided adequate oversight and
monitoring of Reclamation lAGs for
Summitville cleanup.
BACKGROUND
In 1986, the Summitville Consolidated Mining
Company, Inc. (SCMCI), a wholly-owned
subsidiary of Galactic Resources, Inc.,
started an open-pit mining operation at the
historical Summitville mining site using a
El SFG5-08-0032-6400019
-------
cyanide heap-leaching process to recover gold
and silver from freshly-mined and crushed
rock. In this process, a solution of sodium
cyanide is sprinkled on and percolated down
through heaped ore. The cyanide solution
penetrates the ore heap, leaching out gold
and silver, as well as copper, zinc, cadmium,
manganese, and other heavy metals.
On December 4, 1992, SCMCI filed bankruptcy
and at midnight on December 15, 1992,
abandoned the site. The Colorado Department
of Health, on behalf of the Water Quality
Control Division and the Division of Mining
and Geology, requested assistance from EPA
Region 8's Emergency Response Branch in
addressing "potentially significant
environmental pollution" at the mine site.
Abandoning the site would have resulted in
releasing toxic pollutants such as cyanide
and heavy metals into the Nightman Fork
Creek, a tributary of the Alamosa River. On
December 16, 1992, Region 8 assumed
responsibility for the Summitville cleanup.
Sununitville Suparfund Site
E1SFG5-08-0032-6400019
-------
CERCLA provides EPA the authority to clean up
Superfund sites such as Summitville. In
1980, Congress enacted CERCLA, establishing
the Superfund program to respond to releases
of hazardous substances. CERCLA authorized a
5-year, $1.6 billion trust fund to pay for
the Federal cleanup of sites. In 1986,
Congress revised and expanded CERCLA with the
Superfund Amendments and Reauthorization Act
(SARA). SARA reauthorized Superfund for
another 5 years and provided an additional
$8.5 billion. It required EPA to emphasize
cleanup remedies that treat, rather than
simply contain, contaminated waste. The
Omnibus Budget Reconciliation Act of 1990
extended the Superfund program through 1994
and increased funding by $5.1 billion. The
authorization expired in 1994 and has not
been extended, although Congress has
continued to fund the program.
Region 8 used the services of several Federal
agencies through lAGs for the cleanup. Over
90 percent of the Summitville cleanup costs
through July 10, 1995, were incurred through
cost reimbursable lAGs with Reclamation to
perform overall site management and cleanup
activities. An IAG is a written agreement
between Federal agencies under which goods or
services are provided in exchange for funds,
or where services are provided without the
exchange of funds.
Region 8 and Reclamation entered into lAGs
under the provisions of a Memorandum of
Understanding (MOU) between EPA and
Reclamation. EPA's responsibilities under
the MOU included identifying specific
activities to be performed by Reclamation,
providing sufficient funding to execute the
activities, providing workload estimates, and
selecting an acceptable remedy for each
El SFG5-08-0032-6400019
-------
hazardous waste site. Reclamation's
responsibilities included determining whether
it was capable of cleaning up the site,
managing site actions, providing technical
assistance to EPA, and providing financial
and program information consistent with EPA's
management and financial accounting systems.
Also, Reclamation was responsible for
ensuring consistency with EPA program
requirements and following its own internal
procedures in performing its
responsibilities, including complying with
all relevant procurement regulations.
The Reclamation lAGs included site-specific
information such as the project scope of
work; estimated project budgets, including
reimbursement for management and oversight
costs; cost control mechanisms relating to
Reclamation-managed contracts; and cost
documentation and reporting requirements.
Region 8 staff said they included these items
in the lAGs to facilitate Superfund cost
recovery actions. Region 8 and Reclamation
negotiated special conditions that identified
specific responsibilities for progress
reports, audits, and billings and payments.
Region 8 entered into the initial IAG with
Reclamation because Reclamation had a
contract in place with a hazardous waste
cleanup contractor and was able to respond
immediately to the Summitville emergency.
Region 8 regularly used lAGs with Reclamation
or the U.S. Army Corps of Engineers for
hazardous waste site cleanup because they had
the expertise to manage construction at such
sites. The Region's other option at the time
of the emergency was to use one of EPA's
emergency response contractors. However, the
Region's emergency response representative
explained that in December 1992, the Region's
E1SFG5-08-0032-6400019
-------
emergency response contractor, Reidel
Environmental Services, did not have the
capacity to take on any additional cleanups
because Reidel would have exceeded the
maximum labor hours under its EPA contract.
Staff also stated that Region 8 did not have
the contract management capacity or expertise
to award and administer its own site-specific
contract.
Region 8 obligated over $96 million for 5
Reclamation lAGs to clean up Summitville as
of July 10, 1995. In December 1992, the
Region initially entered into a time-critical
IAG with Reclamation to have Reclamation
assist in assessing and stabilizing the site
during the emergency stage. In September
1993, the Region entered into a second
Reclamation IAG (non-time critical1) to
continue stabilization and cleanup
activities. In June 1995, the Region entered
into three new Reclamation lAGs for specific
remedial actions funded under the Superfund
Remedial Program. Region 8 estimated total
site cleanup costs at $120 million.
Region 8's Emergency Response Branch was
initially responsible for the Summitville
cleanup. In September 1993, at the time the
second IAG was signed, the Region 8 Emergency
Response Branch Chief sent a memorandum to
the Region 8 Superfund Remedial Branch Chief
advising of the transfer of lead
responsibilities to the Superfund Remedial
Branch because, "Emergency water management
operations at the site are now an established
1 routine'." The memorandum stated that the
1 Region 8 staff stated that, "...the identification
of the lAGs as time-critical or non-time-critical has
no bearing on the work which was to be performed
within each IAG." He disagree and believe the terms
are meaningful and relevant.
8
E1SFG5-08-0032-6400019
-------
Emergency Response Branch's involvement was
for emergency or time-critical removal
actions. Although Region 8's Superfund
Remedial Branch assumed site management
responsibilities with the second TAG, the
Superfund Emergency Response Program
continued to fund cleanup activities with
Removal funds under both lAGs.
SCOPE AND
METHODOLOGY
We conducted our fieldwork from June 1995 to
November 1995. We evaluated whether Region 8
appropriately responded to the Summitville
emergency and reasonably selected cleanup
actions in accordance with established
procedures. We also assessed Region 8's
oversight and monitoring of its Summitville
lAGs with Reclamation. We conducted our work
in Region 8's Denver, Colorado program
offices; Reclamation's Upper Colorado
Regional Office in Salt Lake City, Utah; and
the Summitville site near Del Norte in
southwest Colorado. In general, DOI OIG
reviewed Reclamation's contract
administration, and we reviewed Region 8's
IAG oversight.
To determine whether Region 8 appropriately
responded to the Summitville emergency and
reasonably selected cleanup actions in
accordance with established procedures, the
OIG's Engineering and Science Staff (ESS)
reviewed the NCP for EPA's Superfund Removal
Program requirements. ESS reviewed five
Action Memoranda that documented the Region's
request for additional funding and its
planned removal actions to determine whether
the actions were consistent with the NCP
requirements. ESS reviewed four Focused
Feasibility Studies (FFS) and the
corresponding Interim Records of Decisions
El SFG5-08-0032-6400019
-------
(IROD) for the selected interim actions to
determine whether the FFSs and IRODs fairly
analyzed and evaluated alternatives. ESS
visited the site and participated in
discussions with the site's team leader and
Regional project managers2 to gain a better
understanding of the site. ESS did not
perform an independent evaluation of all the
technical information assembled to select
remedies. ESS also did not attempt to
identify or evaluate remedial alternatives
not previously considered by EPA management.
To determine whether Region 8 provided
adequate oversight and monitoring of its
Summitville lAGs with Reclamation, we
reviewed and analyzed EPA's IAG oversight and
monitoring guidance and the MOU between EPA
and Reclamation. We interviewed appropriate
Region 8 staff to determine their Summitville
roles and oversight responsibilities. We
evaluated the Region's process for approving
payments to determine whether controls were
effective in preventing ineligible payments
or payments that exceeded the lAGs' cost
ceilings. We reviewed the site's
Administrative Record and site file to
determine whether the Region documented major
decisions, scopes of work, and cost
estimates.
We examined the terms and conditions in the
first two Summitville site-specific lAGs
between Region 8 and Reclamation and
2 We used the term "Regional project manager" in this
report to refer to both EPA On-Scene Coordinators and
Remedial Project Managers. An On-Scene Coordinator is
the EPA project manager for Superfund cleanups in the
removal, or emergency, stage. A Remedial Project
Manager is the EPA project manager for cleanups in the
remedial stage.
10
E1SFG5-08-0032-6400019
-------
evaluated whether Region 8 ensured
Reclamation compliance. We evaluated the
three new lAGs between Region 8 and
Reclamation to determine the lAGs1 purpose,
scope, and dollar value. We obtained nine of
Reclamation's monthly progress reports and
evaluated whether the reports were submitted
on time and in accordance with the IAG terms
and conditions. We interviewed Reclamation
staff to obtain information on their
interaction with Region 8 staff. We visited
the Summitville site to observe site
activities and document interactions between
Region 8 officials, Reclamation
representatives, and Reclamation's contractor
staff. We evaluated Region 8's newly
developed Regional IAG Policy to determine
whether it would improve Regional oversight
for Summitville and other Superfund sites.
We coordinated with DOI OIG auditors to
evaluate Region 8's responsibilities with
respect to DOI's audit results.
We designed our review to gather information
that would address the Congressman's concerns
and identify potential vulnerabilities for
Region 8's attention. Our review was more
limited in scope than an audit, and as such,
did not necessarily encompass all generally
accepted government auditing standards.
Alternatively, we performed our review in
accordance with provisions of OIG Manual
Chapter 150, Reports of Review. Other than
the issues discussed below, no other
significant issues came to our attention that
warranted expanding our audit scope.
11
E1SFG5-08-0032-6400019
-------
PRIOR AUDIT
COVERAGE
DOI OIG issued one report in response to
Congressman Mclnnis1 request, Audit of
Amounts Billed by Environmental Chemical
Corporation for Selected Delivery Orders
under Bureau of Reclamation Contract No.
1425-2-CC-40-12260 (96-E-48) dated October
13, 1995, and planned to issue a second
report at a later date regarding
Reclamation's contract administration and
site oversight.
DOI OIG found in its first audit report that
the bills totaling $49.7 million submitted by
ECC were in accordance with contract terms
and Federal Acquisition Regulation.
Additionally, DOI OIG found that ECC's
billings to Reclamation were significantly
more than ECC's actual direct and indirect
costs for the site work through December 31,
1994. The billings resulted in a higher
profit percentage than anticipated in the
contract delivery orders. In DOI OIG's
opinion, these additional costs to
Reclamation could have been avoided or
mitigated had Reclamation's Contracting
Officer not waived a preaward audit of ECC's
proposed rates for labor and equipment. The
preaward audit was waived in part because the
Contracting Officer established ECC's
indirect cost rates on the basis that the
rates had been audited by the Defense
Contract Audit Agency. DOI OIG's report
stated that two Defense Contract Audit Agency
reports noted that ECC's rates were based on
1991 costs and the rates should not be used
to forecast conditions for 1992 and beyond.
As a result, Reclamation paid an estimated
$5.8 million more than was needed to
accomplish the required site work.
12
El SFG5-08-0032-6400019
-------
RESULTS OF
REVIEW
REGION 8 REDUCED
SUMMITVILLE
HAZARDOUS WASTE
RISKS
Region 8, through EPA's Superfund program,
ensured environmental protection and public
safety by promptly responding to a potential
environmental disaster. The initial site
conditions presented an immediate and
substantial threat to human health and the
environment and met the criteria for
initiating a classic emergency removal
action. Since taking over the Summitville
site in December 1992, Region 8 averted an
imminent threat of heavily contaminated
water, primarily cyanide and metals, from
being discharged into the Wightman Fork
Creek.
Region 8's Emergency Response Branch
appropriately responded to the Summitville
mine site emergency situation and reasonably
selected removal actions that were consistent
with NCP requirements and other Superfund
guidance. The focus of Region 8's removal
activities was to treat the contaminated
water and reduce the amount of acid mine
drainage awaiting treatment at the four
onsite water treatment plants.
Due to an overall urgency to stabilize the
site and eliminate continuing acid mine
drainage, the Region proceeded with interim
remedial actions. We evaluated the
reasonableness of the proposed remedies based
upon three factors: the Region's application
of NCP requirements, suitability of the
selected remedy, and adequacy of the Agency's
response to public comments. We did not
compare potential remedies to determine if
the Region selected the most appropriate
cleanup alternative but only that the
selected alternative was suitable. Based on
our review, each of the selected remedies was
reasonable. Interim actions were reasonable
because they provided quick action to protect
13
El SFG5-08-0032-6400019
-------
human health and the environment and
implemented temporary measures to stabilize
the site. In our opinion, the four FFSs and
corresponding IRODs for the selected interim
actions fairly analyzed and evaluated
alternatives using the selection criteria.
Region 8 received numerous comments on the
proposed plans, including comments from two
public hearings, and reasonably (technically
and procedurally) and appropriately responded
to the comments.
The Region pursued and obtained approvals for
approximately 2-1/2 years to fund the site
using the Superfund removal program funding
and authorities. The Region properly
documented its removal activities and
requested waivers in 5 separate action
memorandums from the normal $2 million and
12-month statutory limits imposed on removal
actions. Each of the Region's action
memorandums was well supported and
documented. The removal actions conducted
under the action memorandums were consistent
with NCP requirements. In our opinion,
conducting both continuing water treatment
and contaminant source removal activities
under the removal program for 2-1/2 years was
reasonable. In addition, the project was an
example of a Superfund Accelerated Cleanup
Model site that allowed performance of
remedial type activities with removal money.
VARIOUS FACTORS
NECESSITATED
EFFECTIVE REGION
8 OVERSIGHT TO
CONTROL COSTS
After Region 8 selected cleanup remedies, it
was responsible to oversee cleanup
implementation and control costs. It was
especially important for Region 8 to ensure
that site cleanup implementation costs were
effectively controlled at Summitville because
of the amount of money invested, Region 8's
agreement to use the type of contract
14
E1SFG5-08-0032-6400019
-------
Reclamation used for cleanup, the site's
complexity, intense media coverage, public
scrutiny, and Congressional interest.
Region 8 recognized early that Summitville
could be costly and draw much outside
attention. At the beginning of Region 8's
site involvement, the Region's Water
Management Division Director3 wrote that the
Region needed "to base site control decisions
on considerations of costs...." His
memorandum stated that the Summitville site
was a "high profile site" and it was
"particularly prudent for EPA to evaluate the
ramifications and public perception of any
actions taken at the Summitville site."
Almost $100 million over 2-1/2 years
represents a significant investment of
Federal funds. We estimated that Region 8
obligated approximately $96 million under
lAGs with Reclamation and approximately $3
million under other lAGs and State
agreements. About 70 percent of the $99
million obligated as of July 24, 1995
(approximately $69 million), had been
allocated to ECC under time-and-materials
delivery orders through its contract with
Reclamation.
Region 8's extensive involvement in
Reclamation's contracting decisions and its
agreement to use a time-and-materials
contract increased its responsibility to
ensure the significant oversight
Reclamation's ECC contract required.
Reclamation's contract with ECC was an
3 Region 8 reorganized on October 1, 1995, and the new
organization does not include a "Water Management
Division." The former Water Management Division
Director is now the ARA for EP&R.
15
E1SFG5-08-0032-6400019
-------
indefinite-delivery, indefinite-quantity
contract* that allowed ECC to clean up
hazardous waste sites such as Summitville.
The contract provided for Reclamation to
issue time-and-materials delivery orders to
ECC that tasked specific activities. As of
July 1995, Region 8 agreed with Reclamation
to issue nine time-and-materials delivery
orders to ECC under its five lAGs for
Summitville activities. According to 48 Code
of Federal Regulations (CFR) 16.6 (a)(1),
time-and-materials contracts require
significant governmental surveillance because
this contract type "provides no positive
profit incentive to the contractor for cost
control or labor efficiency." Under a time-
and-materials contract each unit of cost
generates a corresponding unit of profit for
the contractor.
The number of contractors and agencies as
well as the site's location contributed to
the site's complexity. Many contractors
other than ECC were working at the site
including Morrison Knudson, an EPA contractor
(conducting field sampling and related
studies) selected through national open
competition, the Summitville bankruptcy
trustee's contractor, and ECC subcontractors.
State representatives were also on site
participating in technical decisions. In
addition to lAGs with Reclamation, the Region
also had lAGs with three other Federal
agencies for site activities. Summitville's
* According to 48 CFR 16.504, am indefinite-quantity
contract provides for an indefinite quantity, within
stated limits, of specific supplies or services to be
provided during a fixed period, with deliveries to be
scheduled by placing orders with the contractor.
Funds for other than the stated minimum quantity are
obligated by each delivery order, not by the contract
itself.
16
E1SFG5-08-0032-6400019
-------
location, approximately 2 miles east of the
Continental Divide at an elevation of about
11,500 feet and covering approximately 1,400
acres, also contributed to the site's
complexity and cleanup cost.
The cleanup has attracted considerable media
and public attention. EPA's Community
Relations Office has responded to requests
for information from various news media
including Newsweek and Time magazines, London
Financial Times, The Denver Post, Rocky
Mountain News, several Denver and Colorado
Springs television stations, Cable News
Network, and the Public Broadcasting System.
In addition, a Technical Assistance Group for
the Alamosa River received a $100,000 EPA
Technical Assistant Grant. The grant
provides funds for citizen groups affected by
Superfund sites to hire independent technical
advisors to help them understand and comment
on site-related information and thus
participate in cleanup decisions.
Congressional interest in the Summitville
cleanup began soon after the Region took
control of the Summitville site.
Congressional representatives toured the site
in February 1993, In September 1994,
Congressional interest included tracking the
efforts of Region 8, Reclamation, and ECC at
the site. Specifically, Congressional
concerns focused on accountability and
selection of cleanup contractors.
REGION 8 SHARES
RESPONSIBILITY
FOR MANY
RECLAMATION
DECISIONS
Region 8 and Reclamation shared
responsibility for ensuring effective site
management and efficient cleanup
implementation because Region 8 used a "team"
management approach to implement the cleanup.
Region 8 staff agreed they shared
17
E1SFG5-08-0032-6400019
-------
responsibility for many of Reclamation's
decisions. Region 8's approach to managing
Summitville was a "collaborative, consensus"
structure whereby the "team" was made up of
Regional project managers, Reclamation
representatives, ECC, State representatives,
and EPA's Superfund contractor (Morrison
Knudson). The Region's IAG management
approach was different than traditional
Region 8 IAG management practices, according
to the Region's site team leader. Although
the IAG separately defined Region 8 and
Reclamation roles and responsibilities, the
Region's team approach often blurred these
responsibilities. The team leader explained
that in managing lAGs at other sites,
Regional staff would have limited contact
with the other agency's contractor. The
lines of responsibility between Region 8, the
other agency, and its contractor would have
been much more strict.
The Region's team approach to managing the
site placed the Region in a position where it
participated in key discussions and decisions
and agreed to Reclamation's use of time-and-
materials delivery orders. Region 8 and
Reclamation staff discussed technical
decisions and contracting methods at weekly
meetings that included some specific delivery
order information. Although Region 8 did not
routinely review or approve Reclamation-
prepared delivery orders and attached cost
estimates, Region 8 and Reclamation staff
jointly discussed the contents of delivery
orders such as schedules, related cost
proposals, and technical merits of proposed
cleanup approaches.
Region 8's actions gave ECC the impression
that ECC did not have to follow the normal
chain of command. For example, the Region 8
18
E1SFG5-08-0032-6400019
-------
site team leader often requested and received
invoices and cost information directly from
ECC. The team leader explained that the
Region could obtain information faster
directly from the contractor than through
Reclamation. ECC also once directly
contacted the Region 8 grants office and
requested payment for completed work.
Region 8 and Reclamation staff had differing
understandings of their respective roles and
responsibilities. Reclamation staff stated
their actual role was not as the overall site
manager as described in the IAG. Reclamation
staff said that they believed Region 8 was
ultimately in charge of the site and all
decisions required Region 8's approval.
Region 8 staff said they were involved in
technical decisions, but Reclamation
determined and selected the contracting
methods. Reclamation staff said they
probably would have done some things
differently if they thought they could have.
However, Reclamation staff also said their
job was to please the client and to meet
Region 8's needs.
Language in the second IAG (September 1993)
served to further obscure Region 8 and
Reclamation roles, responsibilities, and
related authorities. The lAGs were the
guiding documents between Region 8 and
Reclamation and needed to be clear and
accurate because parties would have referred
to the lAGs to properly implement them. The
September 1993 IAG stated that:
For on-going work including water
treatment, Site control and
maintenance-..the Bureau shall issue
delivery orders to Environmental
19
E1SFG5-08-0032-6400019
-------
Chemical Corporation....
added for emphasis]
[underlining
In signing the September 1993 IAG, Region 8
and Reclamation agreed that Reclamation would
continue issuing time-and-materials delivery
orders to ECC for on-going work at the site.
Region 8 staff agreed that the use of the
word "shall" and the direct reference to ECC
should not have been included in the IAG
because the Region appeared to specifically
direct Reclamation to use ECC and time-and-
materials delivery orders. Although the
other lAGs did not include this language,
Reclamation staff said that they believed
that Region 8 always expected them to use
ECC.
Region 8 staff agreed that its "partnering
management style" and written language may
have contributed to Reclamation's unlikely
misinterpretations. However, they stated
they established the weekly meetings or
conference calls with Reclamation to
facilitate efficient site management.
REGION 8 NEEDED
TO FULLY
IMPLEMENT AND
ENFORCE COST
CONTROLS
Region 8 needed to fully implement and
enforce Summitville cost controls to
reasonably ensure efficient cleanup
implementation. Region 8 did not enforce IAG
terms and conditions requiring Reclamation
monthly progress reports with appropriate
cost information. After Region 8 included
more specific cost reporting requirements in
the second IAG, Region 8 still did not ensure
Reclamation timely submitted monthly reports
or included the required cost information
necessary to control costs. Region 8 also
did not properly project future Summitville
funding needs or elevate funding problems
when Headquarters staff delayed funding
20
E1SFG5-08-0032-6400019
-------
Region 8 Needed to
Enforce LAG
Compliance
Region 8 requests. Consequently, Region 8
was unable to timely amend its Summitville
lAGs and Reclamation overran the IAG cost
ceiling seven times, once by about $5.2
million. In addition, Region 8 approved IAG
payments without adequate supporting
documentation to ensure costs were allowable
and reasonable. As a result, the Region
unknowingly reimbursed Reclamation for at
least $750,000 of ineligible costs.
Region 8 did not enforce IAG terms and
conditions requiring Reclamation monthly
progress reports. Reclamation's monthly
reports were often late, according to Region
8 staff. The nine monthly progress reports
we reviewed were submitted 1 to 4 months
late.
The first IAG required Reclamation to submit
monthly progress reports including cost
information. However, these reports did not
include the cost information the Region
needed to properly control costs. The
reports did not accurately identify that
incurred costs were exceeding the IAG
ceiling. However, the Regional project
manager was onsite almost continuously from
December 1992 to September 1993 and was using
Pollution Reports5 to track site costs
through September 1993, rather than using
5 Pollution Reports document removal activities at a
Superfund site. The reports provide factual,
operational, and progressive data on an incident or
site activities, and a current accounting of the total
funds allocated for removal activities. Costs
reported in these reports assist Regional staff in
anticipating the need to amend Action Memoranda and to
request ceiling increases. The Region's On-Scene
Coordinator prepared the periodic reports until
November 15, 1993, when a Reclamation inspector
assumed responsibility for preparing them.
21
E1SFG5-08-0032-6400019
-------
Reclamation's monthly reports. Although
Region 8 staff characterized it as simply a
"timing problem," Reclamation overran the IAG
cost ceiling six times for at least 1 day to
4 weeks between February 22, 1993, and
September 28, 1993 (See Appendix I).
Region 8 included more specific cost
reporting requirements as part of
Reclamation's monthly progress reports in the
terms and conditions of the second IAG. The
second IAG, signed September 30, 1993,
required Reclamation to report incurred costs
by EPA-established cost centers6 to better
track costs and support Reclamation's payment
requests. The monthly reports were to
include a summary of funds expended during
the month and on the project to date.
Because six of the nine reports we reviewed
reported costs under the second IAG, these
reports should have complied with the more
specific cost reporting requirements.
After Region 8 included more specific cost
reporting requirements, it still did not
ensure Reclamation submitted the monthly
reports on time or included the cost
information as specified in the IAG terms and
conditions. None of the six monthly reports
provided cost information in accordance with
the IAG. Reclamation continued reporting
costs using its own cost centers that did not
match Region 8's and that were not easily
traceable to those identified in the IAG
terms and conditions. As a result,
Reclamation overran the IAG cost ceiling one
6 Region 8 classified major site activities as "cost
centers" for cost tracking and reporting purposes. In
the IAG, Region 8 established a budgeted cost ceiling
for each individual cost center.
22
El SFG5-08-0032-6400019
-------
Region 8 Needed to
Properly Project
Funding Needs and
Elevate Funding
Problems
more time, between March 15, 1994, and April
15, 1994, for a total of seven overruns.
This last and most significant overrun
occurred on March 15, 1994, and reached about
$5.2 million. It was finally corrected after
4 weeks with an IAG amendment in April 1994.
Region 8 staff acknowledged that they did not
define and enforce cost center ceilings until
after the April 1994 overrun. They
emphasized that no additional overruns
occurred after April 1994.
Region 8 did not properly project future
funding needs or elevate funding problems
when Headquarters staff delayed funding
Region 8 requests. According to the Office
of Solid Waste and Emergency Response's
(OSWER) Superfund Program: Interagency
Agreements-A Regional Handbook (OSWER
Directive 9295.0-01) and the EPA-Reclamation
MOU, Region 8 was responsible to ensure
funding availability. However, Region 8 did
not ensure adequate funds were timely
received from Headquarters to continue the
cleanup without overrunning the IAG cost
ceiling.
Without timely monthly reports and accurate
incurred cost information, Region 8 could not
have easily or accurately determined when
additional cleanup funds were needed. Region
8 did not have the incurred cost information
needed to timely amend the lAGs to provide
additional funds. Had Region 8 been unable
to secure the additional Headquarters funding
and been forced to abandon the site. Region 8
23
El SFG5-08-0032-6400019
-------
could have exposed Reclamation to the
possibility of seven Anti-Deficiency Act
violations.7
Although Region 8 staff stated that they
supplemented the required monthly progress
reports with other more frequent Reclamation
reports, these reports were ineffective cost
controls. For example, Reclamation provided
contractor activity reports including a daily
accounting of contractor activities, site
activity summaries, weekly cost center and
cost ceiling reports, and weekly Pollution
Reports. However, most of these reports did
not provide the specific cost information
Region 8 needed. The contractor activity
reports and site activity summaries did not
include cost information and could not be
used to monitor or project costs. The weekly
cost center and cost ceiling reports were not
fully implemented until late January 1994,
and cost center ceilings were not defined and
enforced until after the $5.2 million IAG
overrun in April 1994.
The weekly Pollution Reports did identify
incurred costs, but Region 8 did not
consistently use these reports to supplement
its cost controls after September 1993. For
example, a December 1993 Pollution Report
showed that the contractor's costs were over
Reclamation's internal Summitville budget by
more than $2 million. However, Regional
7 The Anti-Deficiency Act at 31 United States Code
1341, prohibits government officials from making
payments or committing the U.S. to make payments at
some future time for goods or services unless there is
enough money in the appropriation to cover the cost in
full.
24
E1SFG5-08-0032-6400019
-------
staff did not believe this report would have
caused any concern regarding additional IAG
funding because Reclamation's internal budget
ceiling was much lower than the IAG funding
ceiling at that time. Although the IAG
ceiling had not been exceeded at that time,
incurred costs were escalating rapidly and
the internal budget overrun should have
raised concern that the IAG funding ceiling
needed to be reevaluated.
Region 8 staff said our presumption that
rapidly escalating costs reported to Region 8
in December 1993 should have raised concern
was highly speculative. We disagree and
believe rapidly escalating costs, however
reported, should always be considered a red
flag deserving of further investigation. Had
Region 8 followed up on the December 1993
cost report and similar monthly reports, it
may have prevented the seven IAG cost ceiling
overruns we identified.
The Office of Emergency and Remedial Response
{OERR) stated the "perceived [IAG funding]
delays were part of the normal information
exchange between Headquarters and the Regions
to satisfy both parties that additional
funding is justified." OERR stated that the
Regional Waste Management Division Director
and the Director of OERR were personally
involved in many Summitville funding
decisions. Although OERR stated that
Summitville funding problems were handled by
the appropriate management level, we disagree
because Region 8 did not always receive
funding in time to prevent IAG overruns.
Region 8 did not elevate funding problems
when Headquarters staff delayed funding
Region 8's requests. EPA's funding process
required Region 8 to coordinate its funding
25
El SFG5-08-0032-6400019
-------
needs with its Headquarters program offices.
This coordination required additional time
and justification to obtain funding.
However, "it was a struggle every time" the
Region had to obtain additional funding from
Headquarters staff, according to the site
team leader. For example, Region 8 staff
told us that Headquarters staff considered
discontinuing Sumtnitville funding and was
continuously reevaluating Summitville's
priority. Regional staff told us they did
not believe that Headquarters staff had
placed a high priority on providing the
needed funding for Summitville after the
initial emergency response action. Regional
staff said Headquarters staff delayed funding
even though Headquarters staff were aware of
Summitville needs based on the "Summitville
Mine Site Project Plan" that included
approximate funding for possible site
actions.
Region 8 could have avoided IAG cost overruns
by more closely monitoring and projecting
Reclamation's incurred costs and being more
assertive in obtaining timely funding from
EPA Headquarters. Region 8 should have made
its own cost projections and more closely
monitored Reclamation's activities,
especially when Reclamation was not reporting
timely. When Region 8 staff learned that
Headquarters staff were reevaluating whether
it would continue funding the site, Region 8
staff should have involved the appropriate
management level (e.g., the Regional
Administrator) to timely resolve the problem.
Region 8 staff stated that Reclamation acted
appropriately in not abandoning the site when
it overran IAG ceilings. Abandoning the site
would have destroyed all water treatment
capability and doomed the Alamosa watershed
26
E1SFG5-08-0032-6400019
-------
to total, if not catastrophic, destruction,
according to Region 8 staff. However, we are
suggesting only that Region 8 should have
avoided the IAG overruns, not that anyone
should have abandoned the site.
Region 8 staff also said that our use of the
term "overrun" was inaccurate because it
implied the work done was not appropriate or
authorized. They said the Summitville
cleanup work, specifically for water
treatment, was not discrete and did not have
a discernable completion date. They stated
that, "A cost ceiling in an IAG for such an
activity has no meaning." We disagree and
believe cost ceilings within the IAG have
meaning. The Region should continually
evaluate individual cost ceilings, amend the
IAG as needed before the IAG is exceeded, and
consider any costs incurred over the ceiling
as neither appropriate nor authorized.
Region 8 Approved
IAG Payments Without
Adequate Supporting
Documentation
Region 8 approved IAG payments without
adequate supporting documentation to ensure
costs were allowable and reasonable. OSWER
Directive 9295.0-01 states that other Federal
agencies' invoices must include
justification. Region 8's reimbursement to
Reclamation was contingent upon the Region's
receipt and approval of the monthly progress
reports required by the lAGs, and Region 8's
acceptance and approval of Reclamation's
payment requests. Without the lAG-required
monthly reports, Region 8 could have withheld
payment until Reclamation provided the
support for the payments, but the Region
continued to reimburse Reclamation without
the reports. Region 8 staff stated:
In light of the phenomenal amount
of 'real' work that is being
27
El SFG5-08-0032-6400019
-------
completed by Reclamation and the
better than monthly reporting, it
seems reasonable that Region 8
approved reimbursement despite the
late monthly reports.
Region 8 routinely approved Reclamation
payment requests consisting of a single
dollar figure (i.e., lump sum) without
receiving or reviewing the required monthly
reports needed to support reimbursement,
according to Region 8 staff. Without monthly
progress reports or other specific cost
information, the Region had no basis to
determine what costs were included in a
particular lump sum payment request. For
example, we determined that Region 8
reimbursed Reclamation for an ineligible
$750,000 financing fee. However, we were
unable to identify the payment request that
included the fee because each of the payment
requests were for a single lump sum. Region
8 routinely reimbursed IAG lump sum payment
requests without detailed supporting
documentation, according to Region 8 staff.
Reclamation's price negotiation memorandum
stated that part of the reason for the
$750,000 fee was "slowness of the receipt of
funding from EPA." According to Reclamation
representatives, Reclamation and ECC
negotiated this fee after the delivery order
work was substantially complete and the fee
was compensation for ECC's financing the
project when Reclamation ran out of IAG
funds. The memorandum also stated that, "ECC
presented a strong case for a higher profit
since they were not adequately compensated
for financing the work...." [underlining
added for emphasis]
28
El SFG5-08-0032-6400019
-------
Region 8 approved and reimbursed Reclamation
for a $750,000 fee that was ineligible
because financing costs or interest expenses
are unallowable on Federal contracts.
Reclamation agreed to pay ECC this fee under
delivery order 13 (for moving dirt from the
Cropsy Waste Pile) and this fee was above and
beyond any authorized direct or indirect
costs associated with the project. In
accordance with 48 CFR 31.205-20, "interest
on borrowings (however represented), bond
discounts, costs of financing and refinancing
capital...are unallowable...." Furthermore,
48 CFR 32.704 (a)(1)(iv)(B) and (c) states
that:
the contractor is entitled by the
contract terms to stop work when
the funding or cost limit is
reached, and...any work beyond the
funding or cost limit will be at
the contractor's risk.
Region 8 staff stated that Region 8 was
correct in approving payment of the $750,000
fee because it represented allowable "profit"
on a "firm-fixed-price delivery order."
Region 8 staff also stated the delivery order
on which Reclamation negotiated and paid this
fee was "in effect" a "cost-plus-fixed-fee"
contract action. Reclamation's price
negotiation memorandum clearly indicated that
this contract action did not create a fixed-
price contracting arrangement. Reclamation's
price negotiation memorandum prepared after
the contractor had completed all work on a
time-and-materials basis, stated (and we
agree), that it:
seemed pointless to negotiate a
fixed-price arrangement...since the
contractor no longer had any cost
29
E1SFG5-08-0032-6400019
-------
risk, as would be the case under a
fixed-price arrangement.
REGION 8 DID NOT
ENSURE
CONTRACTING
DECISIONS
MINIMIZED
CLEANUP
IMPLEMENTATION
COSTS
Subcontracted Work
Added
Unnecessary Costs
Region 8 did not ensure that the contracting
decisions in which it participated with
Reclamation minimized cleanup implementation
costs. Region 8 and Reclamation agreed to
allow ECC to procure subcontractors and, as a
result, incurred unnecessary costs. Region 8
did not use fixed-price contracts or delivery
orders whenever practicable, or document the
basis for using time-and-materials delivery
orders. Although Region 8 planned to use
fixed-price contracts for future Summitville
cleanup work, Region 8 and Reclamation
continued to use ECC time-and-materials
delivery orders in all but one case. Region
8 allowed Reclamation to award ECC a fixed-
price contract for part of the cleanup and
created a new contract management
vulnerability that needed to be addressed.
Region 8 and Reclamation created an
unnecessary layer of general and
administrative expenses and unnecessary
profit in allowing ECC to procure
subcontractors for some cleanup on at least
two time-and-materials delivery orders.
Region 8 paid unnecessary general and
administrative expenses because Reclamation's
contract with ECC allowed ECC to be paid an
18 percent general and administrative rate
for all subcontracted work. These general
and administrative expenses were unnecessary
because Reclamation could have directly
performed the contract administrative
activities that ECC performed. Also, Region
8 paid additional profit for every dollar
30
El SFG5-08-0032-6400019
-------
paid to ECC for work
that could have been
directly contracted
out or performed on a
cost-reimbursable
basis by another
Government agency (See
Diagram).
SUMMITVILLE CONTRACT
MANAGEMENT LAYERS
SUBCONTRACTORS
For example, Region 8 and Reclamation had ECC
begin work on developing requests for
proposals for the design and construction of
plugging the Reynolds Adit8 in February 1993.
The Region approved Reclamation's decision to
award a contract for the Reynolds Adit Plug
in an August 1993 Pollution Report. Rather
than award a contract directly to a firm that
could perform the construction work,
Reclamation issued a time-and-materials
delivery order (number 12) to ECC under its
existing contract to "commence the plugging
of Reynolds Adit." The delivery order stated
that, "consent to award the proposed
subcontract... is hereby granted" on October
18, 1993. Region 8 and Reclamation agreed
that Reclamation would issue another delivery
order (number 13) to ECC to move dirt from
the Cropsy Waste Pile even though Region 8
knew ECC would be using two subcontractors to
do all the work.
Region 8 staff provided several reasons for
having Reclamation use ECC to procure
construction contractors rather than
8 An adit is a nearly horizontal opening by which a
mine is entered, drained, or ventilated. The Reynolds
Adit drained water laced with acid dissolved metals
onto the site. The Region anticipated that plugging
the adit would reduce the flow of water from the adit
and, in turn, reduce the amount of water requiring
treatment to extract the metals.
31
El SFG5-08-0032-6400019
-------
obtaining these contractors directly. Region
8 staff stated Region 8 and Reclamation
lacked sufficient staff to do their own
procurement. They also stated that using the
Region's own procurement process would have
delayed the work several months because the
Region would have to advertise for
contractors, evaluate proposals, and
interview bidders, whereas ECC could begin
right away.
However, we question whether using ECC saved
any time. ECC had to spend time advertising
for subcontractors, evaluating the proposals,
and interviewing bidders just as the Region
or Reclamation would have had to do. In
fact, Region 8 and Reclamation had ECC begin
the procurement process for the Reynolds Adit
Plug in early February 1993, but did not
award the delivery order authorizing work
until October 1993.
Furthermore, Region 8 and Reclamation could
have avoided ECC's additional layer of costs
by limiting sources and negotiating a
contract. Because the Region identified the
Reynolds Adit Plug as a time-critical
emergency action, this project probably could
have been considered a compelling urgency.
As cited in 48 CFR 6.301(a) and 6.302-
2(a)(2), the Government is permitted to
contract without providing for full and open
competition when the agency's need for the
supplies or services is of such an unusual
and compelling urgency that the Government
would be seriously injured unless the agency
is permitted to limit the number of sources.
Region 8 staff stated that they purposely
delayed adit plugging until adit water flows
32
E1SFG5-08-0032-6400019
-------
decreased {which occurred in October 1993) to
minimize construction costs. If Region 8
planned to wait until water flows decreased
after the spring and summer runoffs, then the
construction work was not for a compelling
urgency, and Region had adequate time for
obtaining qualified bidders.
Region 8 Did Not
Consistently Control
Costs Through
Alternative
Contracting Methods
While Reclamation awarded some fixed-price
contracts, Region 8 did not consistently
control cleanup implementation costs by
instructing Reclamation to use fixed-price
contracts or delivery orders whenever
practicable. Although Region 8's site team
leader stated that the site team continually
looked at other contracting alternatives to
reduce costs, the Region did not document any
analyses of these alternatives or the basis
for using time-and-materials delivery orders.
Region 8 and Reclamation could have
negotiated a fixed-price contract directly
with the same or different contractors
subcontracted by ECC. Region 8 staff stated
that the variable site conditions often made
it difficult to define the specific scopes of
work necessary to competitively bid fixed-
price contracts. However, for the Cropsy
Phase I work, ECC was able to definitize the
activities for its subcontractors and Region
8 or Reclamation should have been able to do
the same thing.
Region 8 staff stated they considered other
contracting methods and tried to minimize
costs through fixed-price contracts. For
example, Reclamation procured some Cropsy
Phase II and III work through open
competitive bidding with fixed-price
contracts. As another example of their cost
33
El SFG5-08-0032-6400019
-------
control efforts, Region 8 staff also referred
to a February 1993 ECC-prepared open request
for proposals to identify alternative cleanup
technologies. However, we question the
appropriateness of ECC participating in the
development of this request for proposals or
evaluation of the proposals received because
ECC may have had a conflict of interest.9
Region 8 did not document key discussions and
decisions as required. OSWER Directive
9295.0.01 states that Regions should include
records of discussions, contacts, and
negotiations in its files. Although Region 8
and Reclamation staff discussed contracting
methods and technical decisions during weekly
conference calls, neither the Region nor
Reclamation maintained minutes of the
meetings, documented why certain contracting
methods were used, or documented the claimed
cost savings associated with using
Reclamation's time-and-materials contract.
Regional staff stated that costs were saved
by having ECC immediately available to either
do the work or subcontract the work.
However, the Region had no documentation
supporting that anyone had done the analysis
to support using time-and-materials delivery
orders rather than the Region or Reclamation
contracting directly with the subcontractors
ECC procured. Region 8 staff agreed that
they should have better documented decisions
and their rationale. They stated that they
were improving Summitville documentation
practices.
Region 8 staff were instrumental in getting
ECC's time-and- materials rates reduced early
9 We are still working with DOI OIG to review any
potential conflict of interest issues related to this
procurement.
34
E1SFG5-08-0032-6400019
-------
in the project. During April 1993, the
Region participated in contract rate
renegotiation meetings with Reclamation and
ECC. Region 8 staff said the time-and-
materials rates charged by ECC were too high,
and ECC agreed to reduce its rates. However,
Region 8 did not encourage Reclamation to
pursue further rate reductions.
Time-and-Materials
Delivery Orders
Continue
Although Region 8 staff told us that they
planned to use fixed-price contracts for
future Summitville cleanup work, Region 8 and
Reclamation continued to use ECC time-and-
materials delivery orders under three June
1995 lAGs. One IAG required Reclamation to
procure a contractor to implement Phase I of
the Interim Remedial Action for the Heap
Leach Pad. Reclamation issued a $2 million
delivery order to ECC for biotreatment of the
heap leach pad. However, ECC planned on
subcontracting the work out. The Region's
site team leader told us she was aware that
the biotreatment work would be subcontracted
out to one of ECC's subcontractors who had
the expertise in this area.
The other two June 1995 lAGs required
Reclamation to procure a contractor for
Interim Remedial Actions for water treatment
and Cropsy Phase III work. Region 8 and
Reclamation agreed to task the water
treatment work to ECC under a time-and-
materials delivery order as had been done
over the past 2-1/2 years. For the water
treatment IAG, the Region specified that
water treatment would cost $6 million for 1
year but Region 8 and Reclamation could
increase this cost ceiling at their
discretion. The site team leader explained
that additional water treatment plant
35
E1SFG5-08-0032-6400019
-------
modifications prevented them from
definitizing this work as they had planned.
ECC Fixed-Priced
Contract Created
Additional
Vulnerability
Region 8 created a new contract management
vulnerability when it allowed Reclamation to
award a fixed-price contract for Cropsy Phase
III work to ECC. Under the June 1995 IAG,
Region 8 and Reclamation agreed to
competitively award a fixed-price contract
for the Cropsy Phase III construction to the
lowest bidder and ECC had the lowest bid.
Region 8 and Reclamation awarded ECC the
contract to be implemented by a second ECC
contractor team referred to as ECC II.
Region 8 and Reclamation had also agreed to
task ECC under a time-and-materials delivery
order to provide $1 million of site support
for the Cropsy Phase III work. This
arrangement made the Government vulnerable
because it provided the contractor the
opportunity to avoid losses and/or maximize
profits on the fixed-price contract by
charging costs actually incurred on the
fixed-priced contract work to the time-and-
materials delivery order.
Region 8 staff stated that they and
Reclamation were making every effort to
ensure that fixed-priced activities were not
charged to the time-and-materials delivery
order. A Summitville team member stated that
Reclamation had one inspector working on the
fixed-priced activities and another separate
inspector working on the time-and-materials
delivery order. However, separate inspectors
alone may not prevent ECC from mischarging
costs.
Region 8 staff stated that Reclamation had
established controls to prevent mischarging
and provided an ECC-prepared memorandum
36
E1SFG5-08-0032-6400019
-------
describing the controls. The memorandum
described ECC's proposed procedures to
prevent mischarging; however, it did not
adequately describe Reclamation's oversight
procedures to ensure ECC's controls were
adequately implemented.
This fixed-price contract is especially
vulnerable to mischarging because ECC may
have cost overruns. Regional staff told us
that ECC was holding a $3 million change
order for the fixed-price Cropsy Phase III
work that represented almost 40 percent of
the bid amount. Region 8 should ensure that
Reclamation closely scrutinizes this claim
and that it does not approve payment for this
change order without adequate written
justification.
NEW REGIONAL IAG In August 1995, Region 8 issued an EPA
POLICY MAY
STRENGTHEN
OVERSIGHT IF
IMPLEMENTED
Regional Order that supplemented OSWER
Directive 9295.0-01 and provided additional
guidance to improve Regional IAG oversight.
The EPA Regional Order identified terms and
conditions that would strengthen oversight
and monitoring, particularly of costs, and
help Region 8 avoid the problems encountered
at Summitville.
The EPA Regional Order listed examples of
"standard" IAG terms and conditions and
"suggested" IAG terms and conditions. In our
opinion, many of the suggested terms and
conditions would improve Region 8's oversight
and monitoring of funds and activities at
Superfund sites. For example, one suggested
condition was to require the other agency to
match the IAG monthly progress report to the
specific costs being requested for
reimbursement. This requirement would ensure
the other agency submitted progress reports
37
E1SFG5-08-0032-6400019
-------
that supported the payment requests. The
Regional project managers would have to
review the monthly progress reports and
determine if they, in fact, matched the
payment requests.
Another suggested IAG condition would help
prevent IAG cost ceiling overruns. This
condition would require the other agency to
notify the Region in writing whenever the
other agency was approaching the cost
ceiling. Specifically, the condition
required the other agency to notify EPA if
the costs it expected to incur under its IAG
in the next 60 days, when added to all costs
previously incurred, would exceed 75 percent
of the total project costs specified in the
agreement. The suggested condition further
stated that if the other agency did not
obtain notice, communication, or
representation from EPA in writing that the
total project costs specified in the IAG had
been increased, then EPA was not obligated to
reimburse the other agency for any costs in
excess of the existing IAG cost ceiling. A
third suggested condition required the other
agency to prepare a brief report that
summarized the topics discussed, issues
resolved, and specific action items agreed
upon during weekly conference calls.
The EPA Regional Order would benefit the
Region only if the suggested terms and
conditions were included in lAGs and the
Region diligently monitored the other
agency's compliance. In June 1995, the
Region entered into three new Summitville
lAGs with Reclamation. However, the Region
did not modify any of these lAGs to include
the more explicit "suggested" terms and
conditions identified in the EPA Regional
Order.
38
E1SFG5-08-0032-6400019
-------
Region 8 staff told us the ARA for EP&R
planned to direct his staff to comply with
this EPA Regional Order. They also stated
that they will perform a term-by-term
comparison of the Summitville lAGs with the
new EPA Regional Order and amend the lAGs as
necessary.
CONCLUSION
Region 8 reduced hazardous waste risks to the
environment and the public, reasonably
selected removal and remedial cleanup
remedies, and complied with the NCP
requirements and Superfund guidance.
However, after selecting cleanup remedies,
the Region did not adequately oversee and
monitor Reclamation to control costs and
ensure efficient cleanup implementation in
all respects including the most efficient
contracting methods. The Region also did not
ensure Reclamation complied with IAG terms
and conditions and did not properly monitor
costs from September 1993 to April 1994.
Region 8 did not timely obtain Headquarters
funding from February 1993 to April 1994,
resulting in seven IAG funding deficiencies
and exposing Reclamation to the possibility
of seven Anti-Deficiency Act violations.
Region 8 also approved payment requests
without adequate supporting documentation.
In some respects, Region 8 was more involved
than it typically would be in implementing
these lAGs in an attempt to increase cost
control and ensure efficient cleanup
implementation. Region 8 staff participated
in and agreed to many key decisions that
would typically have been Reclamation's to
make. However, Region 8 did not adequately
39
E1SFG5-08-0032-6400019
-------
document many of these decisions. These
decisions included using time-and-materials
delivery orders which required significantly
more oversight than fixed-price contracting
methods. Region 8 also allowed Reclamation
to procure subcontractors resulting in
unnecessary costs. As a result of Region 8's
extensive involvement in managing the
Summitville Superfund site, the Region must
share responsibility for Reclamation's
decisions.
RECOMMENDATIONS We recommend the Regional Administrator:
1. Instruct Regional project managers to
closely monitor Reclamation's
compliance with the Summitville IAG
terms and conditions and take
appropriate action to enforce
compliance.
2. Instruct Regional project managers to
timely obtain and review Reclamation's
monthly progress reports and instruct
Reclamation to include the required
incurred cost information.
3. Instruct staff to elevate IAG funding
delays to an appropriate management
level to ensure adequate funding
availability.
4. Instruct Regional project managers to
delay approval of IAG payment requests
until the required reports have been
reviewed and adequately support payment
requests. If alternative cost reports
provide the necessary supporting
documentation for payment requests,
40
El SFG5-08-0032-6400019
-------
identify these reports in the IAG terms
and conditions.
5. Establish Regional controls over all
IAG payment requests so that Regional
project managers do not approve
payments without adequate supporting
documentat ion.
6. Based on the Department of Interior's
legal opinion, recover the $750,000 of
ineligible costs paid to Reclamation
under delivery order 13, if
appropriate.
7. Obtain adequate supporting
documentation for all past Reclamation
payment requests and recover any other
ineligible costs paid to Reclamation.
8. Require that Regional staff either
document or require Reclamation to
document significant decisions made
during conference calls or other team
meetings. Documentation should include
analysis and justification for using
particular contracting methods and
other agreements.
9. Reallocate staff as necessary to
provide an appropriate level of Region
8 contract and IAG management resources
to efficiently implement cleanups.
10. Encourage Reclamation to definitize
Summitville cleanup tasks, cease the
use of time-and-materials delivery
orders, and establish fixed-price
contracts to the extent practicable as
soon as possible.
41
El SFG5-08-0032-6400019
-------
11. If ECC submits a $3 million change
order associated with the Cropsy Phase
III work, scrutinize Reclamation's
payment request to ensure adequate
justification.
12. Evaluate the adequacy of Reclamation's
controls to prevent ECC from
mischarging direct costs of the fixed-
price Cropsy Phase III contract to a
time-and-materials delivery order.
13. Amend the three Summitville lAGs dated
June 1995 to include the EPA Regional
Order suggested terms and conditions
that provide stronger controls over the
IAG cost ceiling and Region 8 payment
approval.
14. Obtain assurance that Reclamation will
implement DOI OIG's recommendations as
appropriate.
15. Reevaluate the suitability of
Reclamation's Upper Colorado Regional
Office for managing the Summitville
site and any other future EPA Superfund
cleanup activities.
42
E1SFG5-08-0032-6400019
-------
APPENDIX I
BUREAU OF RECLAMATION COST CEILING OVERRUNS
Date of
Overrun1
2/22/93
4/26/93
5/10/93
6/14/93
8/23/93
9/27/93
3/15/94
Date Cost
Ceiling Increased2
3/8/93
5/3/93
5/24/93
6/21/93
9/20/93
9/28/93
4/14/94
Total
Elapsed Time3
2 weeks
1 week
2 weeks
1 week
4 weeks
1 day
4 weeks
Amount of
Overrun4
$
$
$
$
$
$
$5,
747,047
31,721
131,667
114,707
721,729
293,499
241,288
1 The date Reclamation's incurred costs exceeded IAG cost
ceiling.
2 The date Region 8 increased the IAG cost ceiling.
3 The amount of time Reclamation was incurring costs that overran
the IAG cost ceiling.
4 Amount of Reclamation's costs that exceeded the IAG cost
ceiling during the period of the overrun.
43
El SFG5-08-0032-6400019
-------
APPENDIX II
ARA
CERCLA
CFR
DOI
EPA
EP&R
ECC
ESS
FFS
IAG
IROD
MOU
NCP
OERR
DIG
OSWER
Reclamation
SARA
SCMCI
ABBREVIATIONS
Assistant Regional Administrator
Comprehensive Environmental Response,
Compensation, and Liability Act
Code of Federal Regulations
Department of Interior
Environmental Protection Agency
Ecosystems Protection and Remediation
Environmental Chemical Corporation
Engineering and Science Staff
Focused Feasibility Studies
Interagency Agreements
Interim Records of Decisions
Memorandum of Understanding
National Contingency Plan
Office of Emergency and Remedial Response
Office of Inspector General
Office of Solid Waste and Emergency Response
Bureau of Reclamation
Superfund Amendments and Reauthorization Act
Summitville Consolidated Mining Company, Inc
44
E1SFG5-08-0032-6400019
-------
APPENDIX III
DISTRIBUTION
Office of Inspector General
Inspector General (2410)
Deputy Assistant Inspector General for
Internal and Performance Audits (2422)
EPA Headquarters
Assistant Administrator for Solid Waste and
Emergency Response (5101)
Assistant Administrator for Administrative and Resource
Management and Chief Financial Officer (3101)
Associate Administrator for Congressional and Legislative
Offices (1301)
Associate Administrator for Regional Operations and
State/Local Relations (1501)
Associate Administrator for Communications, Education, and
Public Affairs (1701)
Headquarters Library (3304)
EPA Region 8
Assistant Regional Administrator, Office of
Ecosystems Protection and Remediation
Assistant Regional Administrator, Office of
Technical Management Services
Chief, Superfund Assessment Branch
Chief, Superfund Remedial Branch
Regional Audit Liaison Coordinator
45
E1SFG5-08-0032-6400019
-------
------- |