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be nonexistent. This constitutes denial of due process^at i'ts
most basic level for, if the United States were to prevail, it
could undertake remedial actions-, at a site. o--.?yare the
"administrative record" years later, exercisa i..s discretion in
s
determining what to include in the record, incur millions of
dollars in costs, and present the bill to someone else without
any opportunity for questions to be raised at any level by the .
billed party. Any one who contracts for services is entitled to
an accounting and to obtain information regarding questionable
expenses. If tr.e expenses were ill advised, they are either
withdrawn, from the bill, or the amount to be paid is negotiated.
In this case, the government refuses to submit to this
eminently reasonable procedure. The reasons are obvious. For
example, the government does not want the public, much less this
Court, to know the indirect costs assessed against an employee's
time in some cases exceed the dollar amount paid to that employee,
For example, during the life of this project, Gerald F. Regan, a
'. *"i cl £ *- t; ** -.«*,» V N— I\ €
Verona Well Field. The government not only now seeks to recover
his payroll amount of 525.28 for that hour but also S6i of
indirect costs! £-;•_ X -'.---. ^':.L:\ rr. r :. i .-_i : - .":•:'-. i r : ~ : r . -.;--•-•-r:-•: ;-
Exhibit B. This is not an isolated instance. Another example is
provided by Jack Kratzmeyer's time, claimed to be TSRR site
specific. See McGeehin Deposition 80, appended as Exhibit C.
The federal government claims that it is entitled to $15,347.59
in payroll and.an additional $43,297.23 in indirect costs.
21
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Indirect cost claims therefore approximate 2.8 times the direct
costs! So*-- also, e.g., pay vol.I period "• cf 1986, 'where the
Uni'•.%•-: '. : ;.-s olair.-is . ." '= • v>nc '•. <-3'-Sn paid to Mr.
Kratzaio:'-ki in payroll aiic' SO" ?0 in indirect costs.
The government alsu does not want the public to
know that the indirect costs charged by the government to
Defendants (on the average, approximately 250%) are more than ten
times those to be permitted to be charged by the State of
Michigan (18.75%) and far in excess of those assessed by some of
*
their own contractors which are in and of themselves excessive.
Dekar Depositicr., April 15, 1538, p. 1 = 3.
As an illustration, CH2.M Hill billed its indirect costs
at 41% of all direct costs, including subcontractor time and
assessed an additional 121* of this total for general and
administrative expenses. The profit was calculated based on this
amount. Dekar Deposition Exhibit 5, excerpt appended hereto as
Exhibit D. Pedco applied a rate of 2?* to direct labor. The
architectural and engineering services industry, in comparison,
generally calculates indirect costs as a multiple of 1.5 to 2
times the direct costs cf rrofessier.al employees. Dekar
Deposition, April 25, i&8b, pp. 1S4-195. The engineering
industry standard ranges from 4 to 9%.
The government also does not want the ine-fficiency and
excessive waste of its contractors, resulting in costs of almost
a million dollars, to be questioned. This includes-safety
measures. . Loughney. De'water ing, which was excavating and
22
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backfilling contaminated soil at the site, was reported to have
a "lack of control over personnel, equipment and materials or.
site." Exhibit E. CH2M Hill, another contractor, admitted that
it had a "poor information system with .respect to subcontractors '
and that it was unable to control direct and indirect labor costs.
Exhibit F. Neither does the United States want its technical
s *
measures and associated costs publicized for to do so would
r*v-:»l that approximately $1.75 million in improper technical
measures were undertax- it -:' • Fxhibit G.
It is clear that .JLA ^-icea ,10 restrictions on the
natur~ extent of judicial review of costs. This case was
initiated before the enactment of SARA, which only defined the
extent of judicial review of the selection of .the remedy. As
argued previously, SARA'S review provisions cannot and should not
e applied retroactively. United States v. Hardage, No.
CIV-86-1401-W, 17 E-L.R. 20242, 25 E.R..C. 1343 (W.D. Okla. 1986}
' - r.r-rT.cs:. *vre-.o as Exhibit T) , reh'g den, 663 F. Supp. 1280
(1987) ("EPA cannot cite authorities which involve judicial
review after administrative decision and action has first been
taken and' thereby attempt to limit this court's power- to decide
the issues in accordance with the judicial principles of equity
.jurisdiction".) . EPA selectively advocates the retroactivity
argument, a policy of questionable ethics. For example, in this
case and others, EPA asks the Court to apply.the provisions*
4
limiting judicial review and application of prejudgment interest
retroactively. However, EPA has contended that the notice
-------
requirements and statutes of limitations set forth in CERCLA and
SARA are prospect ivr-ly.-: nr) icable or, in the alternative, do not
apply to- judicial -.- •.•••,- !•'*>•; cost i-. -.. ••sit. Sfcr. €_._£,,
United States v. Mot.jc-i • *u.- vOS F. Supp. L^S (I'.N.H. 1985).
Nonetheless, as indicated earlier, de novo judicial
review of the cost issues is not precluded by either CERCLA or •
SARA. Even assuming, as the government argues, that SARA's
provision on judicial review is retroactive, the statute clearly
allows this Court to review the costs: • • .
In 'any judicial action under this chapter,
judicial review of any issues concerning the
adequacy of any response action taken or
ordered by the President shall be limited to
the administrative record. Otherwise
applicable principles of administrative law
shall govern whether any supplemental
materials may be considered by the court.
42 U.S.C. § 9613(j)(l). This statute, in fact, anticipates that
there will be challenges to the cost of implementation of the
remedy:
I rv T'0*.*i?v 1 **;^7 aileced Tr**T-'~r"^vir"2l er*"""""; > tr.e
.court may disallow costs or damages only if
the errors were so serious and related to
matters of such central relevance to the
action that the action would have been
significantly changed had such errors not
been made.
42 U.S.C. S 96L3(j)(4). This has been substantiated by the
decision in United States v. Rohm & Haas Co.. Inc., 669 F. Supp.
672 (D.N.J. 1987). Therein, the court concluded that while the
selection of the"remedy was limited to the administrative record,
24
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defendants'were .entitled to de. novo review of the cost issues.
Id. at 675-676.
Applicable principles of administrative law'allow
judicial review of an agency action except where statutes
/ ' . • .
preclude judicial review or agency action is committed to agency
discretion by law. 5 U.S.C. S 701(a). In this case, the only
action committed to agency discretion is the s_election of the
remedy. Where the .-rp.lv cr principal dispute relates to the
meaning of a statu —. e controversy presents issues on
which courts, and nc. -raters, are relatively more expert.
Bar low v. Collins. 397 U.o. 159 (1970)., citing with approval
Hard in v. Kentucky Utilities Co., 390 U.S. 1, 1-. (1969) (Harlan,
J., dissenting). Preclusion of judicial review of administrative
action is not lightly inferred. Barlow v. Collins. 397 U.S. at
, 166. Judicial review of administrative action is the rule, and
III
^^non-reviewability the exception that must be demonstrated. Id. ;
Abbott Laboratories v. Gardner, 387 U.S. 136 (1967).
The United States argues against permitting such
challenges, claiming that if a court were to allow PRPs to
challenge the ccst of the response, it would open the floodgates
of litigation. The government complains that the cleanup of
hazardous waste sites would be delayed by cost recovery
examinations such as sought here. Suffice ite to say that this
argument is frequently raised by governmental agencies whose
actions are challenged. As the court in Abbott Laboratories
observed, "(t]he short answer to this contention is that the -
25
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courts are well' equipped to deal with such eventualities." 387
U.S. at 154-155.3
The United States is also - • ..-i.--i.aken ••'•.-..:•• '-.
contends "that case law supports its esteci^ori that alj cost.---
regardless of how wisely spent, are recoverable from alleged FRPs.
Contrary to the United States' assertj.cn, this is basically a .
ca-se of first impression. Essentially, only five cases have
addressed any of the issues that have been raised by the
Defendants regarding the government's claimed costs. United
.States v. South Carolina Recycling & Disposal Inc. ("SCRDI"). 653
F. Supp. 984 (D.S.C. 1984); United States v. Northeastern
Pharmaceutical & Chemical Co.. Inc. ("NEPACCO"1. 579 F. Supp. 823
(W.D. Mo. 1964), af£'d 810 F.2d 725 (8th Cir. 1986); United
States v. Northerr.aire Plating Co.. 685 F. Supp. 1410 (W.D. Mich.
1988), appeal docketed sub nom. United States v. R.W. Meyer. No.
88-2074 fSth Cir. November 1., 1988); United States v. Ottati &
r:.->c-<; ( coj p. pur-. C~'"J 'D.N.H. 1999; Urited Statp«= v. y^nsarrt^
Co., 858 F.2d 160 (4th Cir. 1988).
In only one of these cases have the defendants
challenged the governments ' --.-rr.izici ace cunt, in-- ci response costs
*
3lt is noteworthy that the government in Abbott Laboratories was
advocating precisely the same type of issue that the government
raises in this case. "The Government relies on no explicit
statutory authority for its argument that pre-enforcement review
is unavailable, but insists instead that because the statute
includes a specific procedure for such review of certain
enumerated kinds of regulations, not encompassing those of the
kind involved here, other types were necessarily meant to be
excluded from any pre-enforcement review." 387 U.S. at 141-. The
Supreme Court rejected this argument.
-------
as the Thonas Defendants in this action do. The issues in SCRDI
£;-id' Monsan'.'-P soleJy address the award of prejudgment interest.
sCHOI. 653 F. Supp.-at K"'9; 'Monsanto. 858 F.2d at 175-176.
The court in Northern_a_i..re Plating found that Defendants
did not produce any evidence in most cases .to suggest that there
were more cost-effective alternatives available. Where such
evidence was produced regarding a title search, the court denied
the government's summary judgment motion. Northernaire Plating,
685 F. Supp. at 1416-1417.. This supports Defendants' argument
th'i 2 deta:. =d review is necessary and justified. Judge Hillman
al'5?- s^cressed the reccverv cf. indirect costs ar.d trre^udTment
' interest in the Northernaire Plating case but purely on legal
grounds. Id. at 1418-1421. Defendants in this case challenge
not only the legal' basis for the recovery of those costs but also
the methods of calculation and reasonableness of those costs,
particularly with respect to indirect costs.
" In the Nll-r.-,-.1 - -iZi'i »or.-, tne appfe-i
-------
costs by the government and that the sweeping language of the
opinions is dicta to the decision that .defendants bear the burden
of proving that the costs incurred were inconsistent • ' ' :•'-,,» NCP.
At the time of the District Court's decision in NEPACCO. the
*
government had failed to submit an itemization of the costs
incurred, and Defendants were allowed only 20 days to object to
*•
the costs.
Finally, in Qttati & Gos.s, the court examined the
individual cleanup costs claimed by the government. While most
of the Court's opinion was dedicated to the attribution of costs.
«
among the defendants, many costs were challenged by the
aeier.aa.-ts anci disallowed. For exa.ir.ple, the ccurt. disa-liDwed
approximately $2,000 paid by EPA to GCA for the services of
expert hydrogeologists and toxicologists, 694 F. Supp. at 989,
and reduced the E&E costs chargeable to both defendants by more
than $88,000. Id. at 990-992. Other specific costs were
decreased, including EPA payroll at the regional level. The
c~'-ir~ further disallowed the r^ccv&rv of indirect ccs^s ciii
prejudgrnent interest. Id. at 998.
These five cases also are instructive because the
vigor with which the defendants contested the costs appears . "
directly related to the- size of the claim. Defendants in
Northernairs Plating were presented with a bill totaling
$330,433, inclusive of prejudgment interest and attorney fees and
costs. In Monsanto, the government .claimed costs of $1,800,000.
T;he government in Ottati & Goss claimed costs in excess of
23.
-------
S5.8 million exclusive of prejudgment interest, state costs and
future costs. The court's review decreased r.his amount by
approxima-'-.l.y V, . 5 million. Altaaixrh review cf the claimed costs
may be more time-consuming, it is required by law and justified
as the gsverr-T.ent accrues increasingly larger bills. In this
case, these Defendants challenge about 50 percent of the
government's claimed costs. See Dekar Exhibit 17, appended
hereto ar "xhibit G.=-.
The issue of proof of.costs is not unique to government
cost recovery issues. For example, in City of New York v. Exxon
CHIT.- ' -u ~ r_- > New' Vcrk City sought, recovery of costs incurred in
the removal of hazardous waste from the landfills, declaratory
relief for future costs and damages for injury caused-to natural
resources allegedly affected by toxic wastes by the landfills.
The Court observed that:
(T]he city must demonstrate that its present
and future cost of responses are "necessary,"
ar.d are "consistent with the National.
." ~.~ntir.r-'. :••/ Flan." But this is r.rt e, r?=ttrr
or pleaaing; it is a matter of proof. As
other courts construing this provision have
observed, consistency with the NCP is not a
matter which can be resolved on a motion to
dismiss; 11 is a question of fact to be
cetermnea at a trial u^on-the merits.
(footnote.omitted) (emphasis added).
633 F. Supp. at 616, referencing Dedham Water Co. v. Cumberland
Farms Dairy. 5-88 Fr Supp. 515, 517-518 (D. Mass. 1983); City cf
Philadelphia v. Stepan Chemical Co.. 544 F. Supp. 1135, 1144 & n.
16 (E.D. Pa. 19.82). Although the statute provides that the
federal and state governments may recover all costs incurred not
29
-------
inconsistent with the National Contingency Plan while others may
rec-'V . those consistent with the National Contingency Plan, this
,*
is - "distinction without a difference," and the requirements of
factual proof remain. 633 F. Supp. at 616.
In a recent amicus brief filed before the United States
Court of Appeals for the First Circuit, the government has
asserted a position directly contrary to that advanced here.
United States' Amicus Curiae Brief, O'Neil v. Picillo, 682 F.
Supp. 706 (D.R.I. 1988), Appeal No. 88-1551, {1st Cir. argued
Feb. 21, 1989), appended hereto as Exhibit H. In that case,
Rhode island brought a' CERCLA cost recovery action concerning the
Picilio site against Picillo, Rohm & Haas and America Cyanamid
Company. Although EPA also had expended cost recovery money at
the site, the federal government successfully opposed the
' -
Defendants' motion to compel their joinder. Nonetheless, the
:--. -ril g--.--=rr-•:.'- deemed it appropriate to argue on behalf of
C
the State in the appeal.
As an amicus, the United States advised the Court:
CEP.CLA itself prescribes the remedy for
erroneous actions. Section 107(a)(4)(A}, 42
U.S.C. S 9607(a)(4){A), allows the federal or
state government to recover sums expended
"net inconsistent with the national
contingency plan." Thus, the Congressional
remedy for what defendants can demonstrate to
be erroneous or mistaken response actions is
to deny recovery of the specific ctfsts
involved, and not to close the courthouse
door to the government's cost recovery action.
* * * ' .
In order to demonstrate that costs are
inconsistent with the NCP, the appellant
companies must show more than the State took
•30
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actions that can be deemed inconsistent with
the plan. They must demonstrate the" State's
inconsistent ac*_i--n \-iz an effect, .on the
costs sought to h2 recovered. When the
alleged incon&if-t .-.-.• is an erroneous
decision on what should to be done to re;jj:ond
to a site, i.e. ren.edy selection, this
demonstration is si.mple;and prescribed, by the
Act itself. Section" 113( j ), 42 U.S.C.
§ 9613(3), requires a court to uphold a
decision selecting a response action unless
it is demonstrated to be "arbitrary and
capricic'j- or otherwise not in accordance
with law.' 42 U.S.C. 9613fj)(2). . . .
Thus, if the government performs the .wrong
response action, such as building a slurry
wail tr contain the waste, rather than
removing the barrels, the additional costs
incurred in taking the erroneous action is
not recoverable under the act.
The appellant companies in the present case,
however, are not claiming tr.at the excavation
of .the drums in Phase I was an improper
response action in selection; instead they
assert that there were mistakes in execution
of that response action. In these
circumstances, the .companies have to
demonstrate the connection between the
alleged errors and the costs to be disallowed
For example, if a cleanup contractcr used
clearly defective overpacks that had .to be -
replaced, the costs of the defective
.
TMs is because additional, unnecessary cos.ts
were incurred by the clearly erroneous
implementation of the response action.
?.. at 1'214-1215.
It therefore is clear that the government has conceded,
contrary to its position in this case, that Defendants must show
inconsistency with the National Contingency Plan through a
factual exploration of the costs incurred and their relevance to
the implementation of the remedy selec'ted by EPA.
31
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ASSUMING, ARGUENDO. THAT JUDICIAL REVIEW IS LIMITED TO
THE ADhlK I STRATI VE RECORD. THIS ADMINISTRATIVE RECORD
i? -IMLLlll '-CIENT FOR APPROPRIATE REVIEW BY THE COURT
V .
:. r'tinc; ::-• the government , the National Contingency
Plan has prs-.c, ibed a three-step administrative process for
i
selecting a remedy for a site on the National Priorities List.
This administrative process includes the completion. of the
remedial investigation and feasibility, study, public notice, and
selection of a remedy. Indeed, the completed remedial
investigation and feasibility study must be made available to the
potentially responsible parties for comment and, prior to
selection of the remedy, EPA must evaluate the comments and
submissions from the potentially responsible parties and then
issue a decision based upon a written record which. includes the
completed remedial investigation/ feasibility study, EPA reports
and data, submissions from potentially responsible parties and
the public, EPA's response to such comments, and other relevant
material. See 42 U.S.C. § 96 13 ( k) ( 2 ) .. Not only has the remedial
investigation ana feasibility stuay not Deer» completed but also
information necessary to the evaluation of the costs and cost-
effectiveness of this project has not been included in the
administrative record.
A. Summary of Remedial Activities
As this Court is aware, the Calhoun County Health
Department discovered during routine testing in August 1981 that
a few of the wells in the Verona Well Field contained. volatile
organic compounds. In September of 1981, the Bureau of
32
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Environmental' and Occupational Health, Michigan Department of
Natural Resources (MDNR), transmitted the results of analyses for
volatile halogenated hydrocarbons from the vn.ijs and, aithcuuu . :•
increased number of cancer deaths later was calculated on data
collected in September, the risk was felt to be greatly reduced
or eliminated due to a change in pumping patterns. Exhibit I.
On December 3, 1981, Kellogg Company was advised that four of its
five wells were ' :nd tc rontain trie*1 -roethene (TCE), which was
unrelated to the contamination disc:; •. at the Verona Well
Field. (AR, IRM, pp. 163-164 }.4 Keli. immediately changed
its water supply to city water with the knowledge and implicit ,
•consent of not cniy the City of Battle Creek, but also the •
Calhoun County Health Department and MDNR. (AR, IRM, Vol. 1, pp.
150-151, 196-197, 201-202). Later that winter, General Foods and
alston Purina were added as users of the city water supply.
AR, IRM, Vol. 1, pp. 150-151; Vol. 2, p. 523). No apparent -.
consideration was given to the effect that these large users
mi-g.it r.cfve cr. the spread cf ccntirr.ination through the we.l iielr,
even though MDNR was concurrently applying for technical
assistance frcn the Surer fund rrcgrarr. to address the well field
contamination.
Assistance was not requested from the Technical
Assistance Team (TAT) until January 1982. (AR, IRM, Vol. 1, p.
•^Citations are to the Administrative Record, Initial Remedial
Measure (AR, IRK) and to the Administrative Record, Thomas
Solvent Operable Unit (AR, TSOU), filed by the.United States on
or about December 5, 1988.
33
-------
4). On March 29, 1982, FcoJogy & Envi; ufMisnt (E&E) completed a
groun.c.wc:'. r-T nrudy to •i.depti.fv .Vot.enr . '•• #.:• i.-^u.cces of contamination.
Id. : = .. ' ;.; the stuov. :,.> .-.r.ii .-..j.in v.'.re drilled, and
water samples were collected. Id. in a two page report, E&E
recommended further sampling uf the groundwater, sampling of
surface water, and sediments at Grand Trunk Western Railroad,
modeling to determine the ground water movement, and evaluation
of different methods of treatment to determine that which was
most cost-effective. Id. This report was completed at a cos't of
$46,369.09. See Pretrial Order, p. 391, TAT Contract costs
Contamination continued to spread throughout the well
field throughout the summer of 1982, but MDPH felt there was no
need to change the pumping patterns since plant tap samples
showed no presence of chemicals. Exhibit J. Even so, EPA
identified the Verona Well Field on its interim national
r-icrities list. (AR, !?_"., Vrl. 1, p. 522;.
On August 20, 1982, EPA Region V Administrator Valdus
A-iarr.k'js gave ThcT.as Solvent . Ccmpar.y 21 days to decide if it would
voluntarily undertake unspecified work to abate unspecified
contamination. {AR, TSOU, Vol. 2, pp. 319-320). If Defendants
did net respond within the required time, EPA indicated its
intent to ."initiate a full field investigation" including, but
not limited 'to, hydrogeological study, feasibility study, and
initial remedial action. Id.
34
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Thomas Solvent Company did not respond to EPA'-s demands.
Consequently, EPA issued a work assignment to CH2M Hill, Its zone
contractor, to prepare a Remedial Action Master Plan (RAMP), V-he
RAMP, also prepared in conjunction with E&E, was intended to be a
plan for undertaking remedial investigation and actions in '
response to a hazardous substance release. CH2M Hill defined the
purpose of the document as development of a scope of work for
practical remedial investiaation activities and feasibility
studies, as well *T*vltud^ -nions of cost for each
proposed activity cr. ac-.on. v. 2, p. 510). The
cost estimates are expected to be accurate within plus.50 percent
and minus 30 percent of the actual cost. (AR, IRM, Vol. 2, p.
516).
The RAMP stopped short of recommending specific
remedial actions because of the lack of information necessary to
conduct a feasibility-.s.tudy. (AR, IRM, Vol. 2, pp. 551-552, 568),
Hcwever, it estimated that a bettied water orcgram, as an interim
remedial measure, would cost $33,400. {AR, IRM, Vol. 2, p.' 550).
The remedial investigation was estimated at $524,000, and within
this budget, the ccst of drilling more monitoring wells (in
ad'dition to the 36 drilled by TAT and USGS) was proposed, as well
as more sampling costs. (AR, IRM, Vol. 2, pp. 552-569). A
feasibility study was estimated to cost up tc* $215,880. (AR,
IRM, Vol. 2, p. 580). These costs were not predicated on any
data contained in the report, such as sampling costs, drilling
costs, actual survey costs or epidemiological studies that had
35
-------
been completed elsewhere. They were not even "educated guesses,"
for the government is r,c"~- claiming $r07 ,713 . S'j for the remedial
investigation and. £•'"'; ""i:, •,...< for t! • •. ; •' " .'.ty s; uc
-------
On October 21, 1983, CH2M Hill submitted the final work"
plan for the rrr-nedial investigation, feasibility study, • community •
r?'-tionr vcrk plan, and interim treatment facility design. (AR,
TSOU, Vol. 3, p. 672-742). The .remedial investigation was
projected to cost 5517,325.89 and the feasibility study
$100,301.16. (AR, TSOU, Vol., 3, p. 704). Again, these numbers
are sic-• ficantly inaccurate when compared, to the government's
present *• i.*n.
-.hough ot ^ceived the focused feasibility study
resul^ ,er, it wai. - ntil April 2-4, 1984 that Thomas
Solvent wds advised by P. Jalbert, EPA Region V Assistant -
Counsel, that a remedia. .estigation 'and feasibility study had
been undertaken and that "based on preliminary data." an interim
remedial measure consisting of new water supply wells.and .
construction of a barrier system would be initiated in May of
19-84. (AR, IRM, Vol. 4, p. 1040-1041). Thomas Solvent was given
until close of business April 27, 1984, less than three days, to
decide if it wanted to undertake the $3.5 million project! Id.
On April.25, 1984, an action memo requesting an
exempticr. to the six mcr.th time requirement of 42 U.S.C 5 104
-------
continued to pump, and an additional 10 veils had less than 5 ppb
of total organic compounds, well within .,.•• .^-.ceptable ranae.
(AR, IRM, Vol. 4, p. 1035).
The exemption was granted, £.r..^ o>. hay 1, 19it?, only a
week after Thomas Solvent.was notified of the proposed interim
remedial measure, EPA decided to implement the measure increasing
the well field capacity to 6 million gallons per day,
installation of barrier wells, air'strippers, and a carbon
adsorption system at a cost projected at $7.3 million. (AR, IRM,
Vol. 4, pp. 1051-1052). At the time, then, that.this decision
was reached, the well field's contamination had been known for .
almost three years. The precipitous action by EPA was due to the
increased demand created by General Foods, Ralston Purina and
Kellogg Company, combined with meteorological projections for a
dry summer. See, April 13, 1982 letter from Richard Wirsing to
the City of Battle Creek, appended as Exhibit K and
Administrative Record, Initial Remedial Measure, Vol. 4 , • r*p .
1024-1028, 1051-1052, 1060.
<•
Numerous revisions to the remedial investigation/
feasibility study followed and, predictably, they all requested
increases. In fact, the July 3, 1984 work plan revision for the
feasibility study requested total increases of 133 percent over
the original and "final" work plan and budget. (AR, TSOU, Vol.
3, pp. 966-967, 972-973). In none of these documents is there
any documentation of the work completed to date, the invoiced
amount, the cost of sampling, the cost of drilling, daily field
38
-------
logs, or any other information to assure anyone reviewing the
T;ccrd that, the proposed work was progressing in a reasonable,
-ost-effect.;.y.fe ^ iii,-..,i»;--r. 5-rc-. e.g., AR, TSOU, Vol. 3, pp. 951-975).
.n fact, the remedial investigation/feasibility studies and their
revisions, and the records of decision all support the
Defendants' assertion that EPA was making "knee-jerk" decisions
with incomplete, inaccurate and misleading information. Although
the above-recited history is contained in the administrative
record rPA clearly has-failed to undertake any administrative.
ac ' isonably calculated to yield'an administrative record
that .-es any confidence in EPA's actions and decisions,
especially with respect to the ccsts cf the activities undertaken
or endorsed by the agency.
Thus, although EPA received mul-tiple page documents and
developed records of decision, its determination is flawed in
more than one respect. Initially, Defendants did not have an
adeauate opportunity to review the proposals by EPA and evaluate
thear alternatives and the selection of the alternatives.
Feasibility studies that outline alternative remedial measures
must be provided to the public for review and comment -for a
period of not less than 21 calendar days. 40 C.F.R. 300.67(d).
Such review and comment shall* precede selection of the remedial
response. Id. ' In this case, Thomas Solvent had only two days to
three weeks to review CH2M Hill's proposals and agree to
undertake or reject the proposed activity. Thus, by virtue of
the fact that EPA delayed any action whatsoever for two years,
39
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and the City of Battle Creek refused to restrict access tc a
known contaminated well field., Defendants found thenseiver .
without the opportunity to propose reasonable, and. p . .. i;s«
costly, alternatives to EPA's proposed remedial actions, which
would still be within the confines of the National Contingency
Plan.
Second, even had Defendants been able to timely review
the proposals put forth by EPA, no procedure had been established
to allow for input into the decision-making process prior to
1986, when the Superfund amendments were enacted. In fact, this
option was never even provided in any of the demands made upon
Thomas Solvent by EPA. Indeed, as discussed supra, there was no
requirement that an administrative record be developed until 1986
with the enactment of the amendments. Even at the present time,
SARA's procedures for public comment and review have not been
implemented as required.
3. The Adnini s t ra t ive Record is I p. s u f f icient
».". li'~ Yfe^Ti^S r CI 1 ; ^ 3 ^.T vi Lr.itSd i^^i^SS Z^irCCUC-rZ -.vlc
records of decision for implementation of the 'bottled water
program, new wells, and the implementation of the barrier well
system which they contend should be reviewed by the Court in
ascertaining whether the costs incurred in executing such
measures were consistent,with the National Contingency Plan.
However, these actions are not supported by the administrative
record, and any limitation of the Court's review of the remedial
activities and the costs incurred in their execution to date
40
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•without fur-iVvr ; r.: - r:\ - _icr. ----»:^ 'r-. irrrrrr--:-; ?"•- -r rr.r -;. r-:tr -.
denial of due* prncess.
-It '.-« Defendant's. po>.v:.',-!- .chat -O..t documents
available, or arguably available, to the agency should be a
portion of the administrative record and should be subject to the
judicial review suggested by Plaintiffs in this case. Calvert
Cliffs' Coordinating Committee, Inc. v. United States Atomic
Energy Commission. 449 F.2d 1109 (D.C. Cir. 1971). By analogy to
an envir-. :-• impact statement, required under the National
*
Environment.- Policy Act of 1969 ("NEPA"), 42 U.S.C. S 4321 et
seq., the record need not be exhaustive but it must contain
sufficient information to permit a reasonable choice of
alternatives. Natural Resources Defense Counsel. Inc. v. Morton,
458 F. 2d 827, 836 {D.C. Cir. 1972). An environmental impact
tatement must be "succinct and examine all reasonable and'
feasible ..alternatives, and provide enough information to make a
balanced, well reasoned decision as to the proposed project."
considerations are required.
"Environmental amenities" will often-be in
conflict with "economic and technical
considerations." To "consider" the former
"along with" the latter must involve a
balancing process. In some instances
environmental costs may outweigh economic and
technical benefits and in other instances
they may not. But NEPA mandates a finely
tuned and "systematic" balancing analysis.in
each instance. (footnote omitted).
To ensure that the balancing analysis is.
carried out .and given full effect, Section
41
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102(2).(C) requires .that responsible officials
of all agencies prepare a "detailed
statement" (the purpose of which] . . . is to
aid in the agencies-' own decision making
rrecess and to advise other interested
agencies and the public of the environmental
consequences of planned federal action. . . .
Only in that fashion is it likely that the
most, intelligent, optimally beneficial
decision will ultimately be made. . . . NEPA
provides evidence that the mandated decision
making process has in fact taken place and,
most importantly, allows those removed from
the initial process to evaluate and balance
the factors on their own.
Calvert Cliffs' Coordinating Committee v. AEC, 449 F.2d at
1113-1114.
Even so, the review of the administrative record, as
suggested by plaintiffs, is not restricted to the four corners of
the administrative record. the court must review the entire
administrative record, including the external documents .
incorporated by reference into, the final document. Id. Indeed,
in applying the standards suggested by plaintiffs in an action
brought pursuant to NEPA, the court in National Cer.ter for
Preservation Law v. Lancrieu. 4.56 f. Su^p. 716, 724 (D.S.C.
1980), a f f ' d 635 F.2d 324 (4thiCir. 1980), defined the materials
necessary for review as follows:
The Fourth Circuit in Fayetteville Area
Chamber of Commerce v. VcIpe, 515 F.2d 1021
(4th Cir. 1975), stated that the focal point
for judicial review should be the
Administrative Record already in existence
and not some new record made initially in the
reviewing court. Id. at 1024, citing Camp v.
Pitts. 411 U.S. 138, 93 S. Ct. 1241, 36 L.
Ed. 2d 106 ( 1973) .
* * • *
42
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In the case of As.arc_s., Inc. v. EPA, 616 F.2d
v. 1153 (9.th Cir. L9GO), the Ninth CJ rcuit Court
of Appeals d.i..cCv.->-:s«d in detail ccn.'iidfrr-cion
of evidence oui.v;.•*> of the Adminictv.;:-j.-<
Record. in that case, the court ro:.ed thc.t
if .an Administrative Record does not contain
a satisfactory explanation of the federal
agency's action, the court may require
through affidavit or live testimony further
explanations from the agencies involved.
Accord, Crosby v. .Young, supra at 1371-1372.
The administrative record in this case does not include
c
any material necessary to evaluate the claimed costs. The only
cost information in the administrative record is the cost
estimate within the RAX? and the Interim Remedial Measure and
Focused Feasibility Studies. These estimates are
"order-of-magnitude;1 .cost estimates and are expected only to be
accurate within plus 50 percent and minus 30 percent of the
lactual cost. Hence, they are not very realistic and do not even
provide a good "ballpark" figure. -For example, the initial •
re~vii-.l - •=: = i •_ - -i • ~_-...T.3tei in the :_:.__ •-•:. r.'. rlir. *.c erst
5517,325.89. Verona Well Field Administrative Record, Initial
Remedial Measure, Volume 3, p 702. The federal government seeks
compensation fcr e.ctual costs expended cf 52 , 042,194 . £0 fc-r the
Interim Remedial Measure. See Pretrial Order, p 391-392. Thus,
the government exceeded its budget by 395%, not the 50% factored
originally. Defendants therefore contend that judicial review of
the "administrative record" is inappropriate and that this case
should be remanded under the standard proposed by plaintiffs.
43
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MVTTErtS 0.!' DISCRETION
•: r th- purposes of argument, one assumes that this
Court is limitvd in its determination of whether the costs
claimed, by the United States were incurred not inconsistent with
the National Contingency Plan, then such a review is limited to
those matters where an agency is exercising its discretion.
Review of an agency's action under the Administrative. Procedures
Act arguably may encompass every form of agency action or
inaction other than rulemaking. See, e.g., FTC v. StandardOil,
449 U.S. 232, 238, n. 7 (1980).
However, it would be incongruous to apply any notion of
judicial review limited to an administrative record to
ministerial, day-to-day decisions made by an agency's contractors
in the implementation of remedial actions undertaken at a site.
Thus, day-to-day ministerial steps are not themselves "agency
actions' for the purpose of review, if for no other reason that
they are not made "on'the record." United States v. Thompson.
concedes as much in a brief submitted in the Love Canal Superfund
litigation where the judicia^ review of federal response actions
at Love Canal was in dispute. As the government stated:
For example, the 1980 decision to relocate ,
additional Love Canal residents was an agency
action, and review must therefore be limited
to the administrative record. • However, the
mechanics of the .relocation plan, such as
day-to-day implementation and purchasing
decisions, are subject to de novo review. It
44
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is therefore open to [defendant] to pursue
discovery of such details of the relocation
process if it believes that would be fruitful.
For example, if [defendant] could show that
two motels were of equal quality anc equally
available for temporary shelter under the
circmstances [sic], and that the government
chose the more expensive of the two for no
reason, the incremental cost might be shown
.to be inconsistent with the NCP [National
Contingency Plan). The rationality of the
underlying relocation decision itself,
however, is 2 natter to be determined from
the administrative record alone.
United States' Supplemental .Reply Memorandum in Opposition to
Occidental Chemical Corporation's Motion to Compel Production of
Documents withheld by New York on the Basis of Deliberate
Privilege at 3, n.4, United States v. Occidental Chemical Corp..
No. 79-990 (JTC) (W.D.N.Y. memorandum filed December 20, 1985),
copy appended hereto as Exhibit L.
It is precisely these types of day-to-day decisions
Jffcthat Defendants challenge in the bill for costs presented by the
United States and the State of Michigan and the type of review '
is inconsistent for the government to argue that such review is
appropriate in one case and not in another.
Thus, even if one assumes that the ad.Tir.is*:rative
record before the Court is adequate and that the Court's review
of the agency's actions are limited to the administrative record,
in this case, the selection of the remedy may be reviewed upon
the record. However, the implementation of the remedy is subject
to de novo review and requires this Court to hear all evidence
45
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incurred in -he execution of
'•the NrV . ' Contingei
remedy ar«* inconsistent with
VII. FCDERJ t CONTRACTING AND P ^OCURTMENT REGULATIONS
ARE INSUFFICIENT TO ASSU H a A PROMPT. AD EQUATE AMD
COST-EFFECTIVE RESPONSE
The federal government lastly contends that Defendants
are assured that no excessive or abusive costs were incurred
because "the complex network of federal procurement/contracting
statutes and regulations closely regulates an agency's right to
expend resources from the public fisc." United States' Brief at
34. This bald assertion provides little consolation' to
Defendants, for the same regulations that govern expenditures of-
Superfund money also govern the Department of Defense. 48 C. F.R.
1501.000-1501.103.5 in truth, it is precisely because the
federal procurement/contracting statutes are so complex that a
coffeemaker is ordered and delivered for $7,600 and the Stealth
bomber, at a cost in excess of S500 million per plane, is
'".::•= Fevers.. Acquisition r.scuiatirr.s comprise seven volumes.
Those contained in Chapter I are government-wide acquisition
regulations jointly issued by the General Services
Administration, the Department of Defense, and the National
Aeronautics and Space Administration. The remaining chapters are
acquisition regulations issued by individual agencies. EPA's
regulations are contained in Chapter 15. Parts 150! through 1553
in Chapter 15 implement the general Federal Acquisition
"Regulations in Chapter 1. No supplemental regulations have been
issued by EPA.
-------
and their enforcement permit similar abuses to expenditures of
Superfund money, albeit on a somewhat smaller scale.
The government claims that it entered into a
"nationwide system"'of "large multi-site contracts" to enable the
contractors to allegedly "develop the expertise" necessary to
meet the goals of '.CERCLA. United States' Brief at 35, The
government then coi. -"t it incurred costs under 20
different contracts, incl1 . remedial and national
support contracts. T.v.-r .--:.=., ine* unite'-- States recites
regulations presumably in place to assure that the contracts are
managed in a cost-effective fashion. However, it is obvious that
r^g_ -i^io;.; dzi worthies without enforcement, arid the evidence
at trial will establish that EPA's contracts themselves are not
cost-effective and that the agency has failed'to use regulations
in place to ensure that the agency.is receiving a good return on-
I-
its monev.
^It is a-certainty that the United States will argue that each
site, due to the differences in geology-and alleged contaminants,
requires a unique approach resulting in increased ccsts. Such an
argument, in .fact, was raised by Air Force Systems Command
Lawrence Skantze in the defense of his coffeemaker, when he
asserted that the appliance was capable of withstanding 40 times
the force of gravity. The audacity of this justification was
noted by a journalist who observed, "If the $7,600 pot ever
endures 40 g's it will be useful mainly for brewing crash
investigators a hot cup of Java as they scrape the remains of the
rest of the airplane off the ground. Easterbrook, Sack
Weinberger, Bankrupt General Dynamics andiOther Procurement
Reforms, 18 Washington Monthly 33 (1987).
-------
through the -services of four engineering firms holding fivo large
cost-plus-award-fee =-c •' ••. total!:.c -. --tely -$0''! million
These were awarded bef*'.?s*s? 982 and 19fc5. Four of these
contracts are "zone" contracts covering either the eastern part
of the country (EPA Regions I-IV) or the western {EPA Regions
V-X). An additional nationwide contract in the approximate
amount of $167 million was awarded to accommodate program growth
and alleviate work capacity problems. The two initial
*
REM/FIT7 contracts were bid competitively. In this case, CH2M
Hill was awarded the Zone II contract covering Region V. The
other contracts were classified as contracts for architectural
and engineering services, and, pursuant to the federal
acquisition regulations, these contracts were not competitively
bid but were let on the basis of professional credentials and
abilities. Again, the REM IV contract was awarded to CH2M Hill
for Zone II.
' The REM contracts are cost-plus-award-fee contracts
which provide for reimbursement of all allowable costs incurred
plus a base fee plus an award fee. These contracts are
appropriate only when the uncertainties involved in contract
performance do not permit ccsts to be estimated with sufficient
certainty to allow any fixed price contract. 48 C.F.R.
1516.404-272, 1516.404-273. The base fee is intended to
'Remedial Engineering Management/Field Investigation Teams.
48
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compensate a contractor for the risk assumed in the contract and,
is three percent, of the estimated cost of the contract, including
:o-f. ntrac- or coa^s.- 48 C.F.R. 1516.404-272 and 1516.404-274.
The award fee is intended to be based on the contractor's
performance, and its purpose is to "motivate performance
throughout the life of the contract where success breeds ,
additional income." 48 C.F.Ri 1516.404-272. In this instance, .
the award ae for Cr'M Hill is a percentage of the sum of 7% of
the dir" *bor, ov -U3ad, travel, ODC and G&A costs plus 2%- of
ail sub- cractor'costs. Dekar Exhibit 4, appended as Exhibit M.
The percentage is determined periodically by the EPA's
Peri'.r~ar.ce Evaluation Board.
When EPA is ready to conduct a remedial study at a
specific Superfund'site, it prepares a work assignment for the
REM contractor, specifying the level of effort needed and
providing a general statement of the work to be performed. The
contractor reviews the work assignment and provides a more
precise eatililcite Ol'Li
necessary and funds needed, after which the funds are obligated.
from "the general REM contract. Once the work plan has been
reviewed and approved by the project and contracting officers,
revisions can only be made with the approval of .these
individuals. .
Thus, in theory, the procurement and contracting
regulations should provide incentives for cost control while
prclessicndi anc. tfccr.riicc, 1
49
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neither of these .occur.
The concept of zone conti
-------
me same principles appiy co auperiuiiu contracts.aee."
' , EPA Response Action; Contracting and Cost RecoverY Under
r.CJLA, 4 T.:...f-,.:;. ,;>-.vC (Ju.lv 25, l?89) (copy appended as Exhibit
. CH2M Hill '.'as av;arded the zone contract covering the Verona
Well Field, with a .O'cal contract price of approximately S426
million from September of 1982 through September of 1990. As
such, CH2M Hill has little or no incentive to control costs,
schedules and increase quality controls in this eight-year time
peri
Where it becomes necessary to modify the study scope,
schedule or budget during a work assignment, the federal
regulations allow EPA to exercise control over contractor
requests for work as.sigr.ment changes by scrutinizing the requests
and negotiating possible reductions with the contractor or by
terminating a work assignment. These are, however, hollow
where no competitor is available to complete the project.
As important is the fact that EPA simply does not
review a proposed work plan for cost effectiveness and does not
exercise these enforcement alternatives to keep the costs of a
project down. In a GAO report to Congress, 43 sites with
substantially complete work assignments for remedial studies or
focused feasibility studies were reviewed in Region III
(Philadelphia) and Region V (Chicago), the same region that
controls the Verona Well Field. Suoerfund Contracts: EPA Needs
to Control Contractor Costs (GAO/RCED-88-182}. Of the remedial
project managers interviewed, 56 percent did not use cost ,
.51
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reported that EPA relied on the contractors to detenuine -er-edial
study budgets because the project managers "had no icij. i >'.- iv.ach
the studies should cost." Id. at 21. The report concluded that:
.Federal procurement regulations and EPA's
contract procurement and administration
guidance are silent with respect to what
information remedial project managers should
use to review contractor work plans other
than their best engineering judgment and
experience on similar projects. However,
sound management principles dictate that
remedial project managers use information on
acceptable cost ranges (in both dollars and
hours) for each remedial study task in order
to determine the reasonableness of such-
plans .
Id.
Additionally, there is evidence that EPA has not taken
sufficient action to control cost increases on work assignments
already in place. In the GAO study, inadequate contractor-or
subcontractor performance as determined by EPA increased costs on
51% of the sites in the sample. In 82% of these sites, EPA did
not challenoe the Questionable contractor cost and hour
increases..
Due to the lack of documentaticr. ~?A
files, (GAO] could quantify the
increases resulting from inadequate
performance for only 11 of the (22) sites.
These increases totaled $326,000 and ranged
from $9,800 to $55,000 per site. Total
remedial study costs for these 11 sites was
$6.3 million. . . Contractor performance
problems ranged from technical mistakes to
inadequately written remedial study reports.
For example, contractors placed groundwater
monitoring wells in inappropriate locations,
made errors in preparing groundwater samples,
52
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and inadequately supported remedial study
reports and submitted the reports iar.s.
at p. '.:* Th* report n\i-.'<,\ :ct to inaccqi^ate p ..riortt.t.nce of the contracts.
GAO found a prime contractor that subcontracted an entire
remedial study to another firm ..that .performed poorly and
delivered only part of the final study document. EPA.paid the
prime contractor an additional .5.40,000 to redo the
subcontractor's substandard work plus a base fee because of the
type of contract involved. Id. at 25. . It therefore is clear
that EPA does not use options available to it under the federal
acquisition regulations to limit the increases- associated with
inadequate contractor and subcontractor performance.
Similar illustrations abound in the Verona Well Field.
For example, in a memorandum dated October 3, 1985, Bill Byers,
he project manager for CH2M Hill, states: "It has taken me a lot
of hours to determine the causes of the budget problems using the
_..........- „ - — - •.- . \~ -» .f £. •- -,••_-, f.•• s: i -£' e . it she*- Id net s*jrrri?s
[anyone] that, in the final analysis, most of the. budget overrun
can fee attributed to subcontractors, or to our poor information
system with respect to subcontractors." Exhibit F. Byers
reports that Warzyn, a subcontractor, had invoiced $42,269 over
the task order authorization to date. Warzyn also went on to
complete a remedial investigation model against the instructions
of CH2M Hill, thus resulting in cost overruns. Exhibit F. Byers
also noted 4 difficulty with another contractor: "There is
53
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[Ecologv ?• ?."nvironment ] has billed to a project." Byers also
'-.•JTf. 1-har no work plan revision requests were submitted for
additional 'charges made by E&E. Exhibit F. .
Experts retained by the Thomas Defendants have reviewed
the Eyers memorandum and other cohtrac-t information with respect
to the performance issues. Mr. Dekar concluded that CH2M Hill's
information systems were weak and did-not allow it to adequately
control subcontractor costs and that CH2M Hill did not know the
amount of past progress, expenses incurred to date or the
anticipated project outcome. See Dekar Deposition Exhibit 5,
pertinent portions of which are appended as Exhibit 0.
Mr. Dekar also points to problems with Black & Veatcn,
another subcontractor, who was to complete some of the design and
construction management activities on the interim remedial
measures. In a memorandum dated June 29, 1984, another CH2M Hill
project manager on the Verona Well Field, Al Amoth, noted that
Black & Veatch was initially hired because it purportedly had •
exiiuing designs for r.ew -i^i* ~r.~ rr=v_:us ex^er.er.ce. wi^h local.
conditions and construction requirements. Exhibit P. When it
was discovered that Black & Veatch had to produce the design and
specification package from scratrh, CHIM Kill commented tr.at it.
could have completed the project within the same time frame and
produced a higher quality work product assuming all other
variables to be equal. Exhibit P. Additionally, Black & Veatch
originally.located new wells in a flood plain and failed to
54
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r/
•
consider permit requirements in locating the new wells.
Subcontracts were awarded by Black &-Veatch for surveying and
soil boring, but procedure '•"• ---- r,ot follow::! t :, .. c.--r,.poti.t i-re
,~
bids. Although CH2M Hill recommended that Black & Veatch not be
included as a subcontractor on any future Superfund work, the >
contract price was paid by EPA. Exhibit P.
Delays were also occasioned on this project due to the
need to relocate wells. CH2M Hill submitted a change order to
the contract for compensation for Adamo Construction remaining on
standby during relocation of project wells. Not only did EPA
approve the increase of approximately $2,000 for standby service
but also it paid CH2M Hill a base fee and an award fee or. this
amount. Exhibit Q.
This instance, in fact, highlights another problem with
the contracting regulation so heavily relied upon by the
government: For virtually all cost overruns, the increases were
approved after the fact. EPA. therefore, loses control over the
tracted r.£i3' c^rsc.—
Thus, the contractor, and not EPA, is deciding how the funds
should be spent.
j
' • There is absolutely nc evidence ar.vvp.ere in this
project that CH2M Hill offered to absorb the cost incurred due to
their subcontractors' errors. Nor is there «ny evidence that EPA
disallowed -these costs or negotiated with the contractor to
decrease the costs or -adjust the .fee accordingly. This is not
unusual. As GAO reported, "EPA contracting officers did not
55
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m.tracts. .at. 2". .'.• .
r prriolons with the federal procurement/
contracting-regulations is apparent upon examination of the
; : - '.
monthly invoices. See Exhibit D. Although contractors submit •
monthly "invoices" for reimbursement of incurred costs and
payment of the base fee and award fee, it is virtually impossible
**
to ascertain, what transpired at the site. Nonetheless, the
project^managers are required to review and certify each invoice
to verify that the invoiced costs are reasonable considering the
services rendered. It is clear tha.t a project manager would need
to be clairvoyant to appropriately certify CH2M Hill's invoices.
The GAO also reports another problem with invoice
certification. Apparently, project managers trained as
environmental specialists are reluctant to second guess
accounting information contained in the invoices. id. at 34.
This, combined with the emphasis on expeditious .technical
measures, suggests that the remedial activities, undertaken at a
site were largely under tne centre! cf tr.e ccr. tractor, who has
little incentive to contain costs due to the lax enforcement of
contracting regulations..
Complicating this is tr.e disarray in which most work
assignment files are kept. The government in this case asserts
that the Federal Managers' Financial Integrity Act of 1982
(FMFIA), as well as.other acts intended to control the letting of
federal contracts, assures potentially responsible parties .that
56
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cne contracts w*si«--w.uKif«t.Awivcx^ U.LU
However, in a 1985 report to the president on internal controls v--\
required by the FMFIA,"EPA identified "poor record keeping air*
^material weakness in its Superfund internal controls. Later that
year, procedures'were implemented to assemble files for'the .
purpose of cost recovery, but no actions were undertaken to
address the remedial project manager's'responsibilities for
adequate 'contract administration record keeping. Id. at 36.'
This is further complicated by a "high'turnover in EPA personnel,
which does not provide for continuity in contract administration.
Id. aV 39; See Dekar deposition Exhibit 5, wherein a high
turnover was also observed for CH2M Hill employees on the Verona
Well Field sites'. Exhibit R.'
The government also argues that the "cost-plus-award-""
fee' contract is permitted by regulation and, thus, should not be
.subject to question in this litigation. The criticisms rendered
l| -
of this fee award by defendants' expert have been corroborated by
GAO ir1 its report to Congress. See Suoerfund Contracts, at
Initially, it should be noted that the fee received by.
the zone- contractor, CH2M Hill, is twofold: base-fee and award
fee. The base fee is payable -without regard to performance and
is based on all costs of the contractor in addition to its
payments to subcontractors. The award fee is based upon the
performance of the contractor-but is still calculated as a
percentage of contractor and subcontractor cos.ts: Thus, if is ••
57
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subcontract. T costs wh-=re an l;.;.rease ii= thfjse costs results in
* • ' v - ., . .''-'"
ah i'li . . :"«?« to ti; <.r. '.. :.-e, c-.« here, the
subcontract: •-• costs act:.r-Ui\t fc:- ".'5% oL the invoiced costs, the
effect on the fees- is substantial. See Dekar Exhibit 5, relevant
portion appended as Exhibit S.
The government has also argued that since award fees
are based on performance, the contractor would not benefit from
encouraging subcontractor abuse. McGeehin deposition,
' •> „. '
February 16, 1989, pp. 149-150. The fallacy in this argument is
twofold. First, the performance evaluation criteria do not
require an evaluation of the zone contractors' management of the
subcontractors. Second, the award fee structure allows a
contractor with a less than satisfactory performance to earn
approximately 45% of the available fee.
The award fee itself is divided into two phases. The
phase I fee consists of about 3% of the contractor costs and 1% .
of the subcontractor costs." 'Fjjrerf und^ Contracts at 44. EPA
awards 'iCCi ci t."ij.s fe-5 if ir.e performance Lz at ieast
satisfactory. Assuming-, in this case, that progress was
satisfactory,.CH2M Kill.would have earned a phase I fee of
$86,j85.~7. This would' be in addition to its base fee of
$172,995! '
The phase II fee is awarded at the completion of the
remedial study and is based on a final evaluation of the
contractor's overall performance, which is not appealable.. In
58
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phase II, a contractor performing unsatisfactorily earns"no-aware
'fee, while those performing satisfactorily earn up to 30% of tne
i.T ance'of the award, fee. Contractors that exceed expectn1; .Loess
irn from 31. to 65%, while those giving'an outstanding
performance may receive a full award. • r
In this case, a full 'award fee would be $187,249.
Thus, even assuming that CH2M Hill's performance was deemed less
than satisfactory .^ing in' no phase II award fee, the
contractor would still earn 46% of'the total possible fee. Thus,
the argument that a per.irmance evaluation based award fee , - •
provides incentive for cost-effective, high quality products is
without merit.8 ' "' '/•
It is also doubtful that there is any justification for-
a cost-plus-award-fee contract. The purpose of these contracts
In its repor.-t, GAO. found a subcontractor that had .been hired to
do a remedial study" for '$481,000. Numerous revisions to produce*;
an acceptable product increased the costs by $37,000. However,
Lr ;•? fir.al rating, the contractor was rate'd as outstanding and
•~7£ iwariec £5% c: tr.« s-L^o:.'_i'=._',_r.9 ;-:-i. _ .-; - :' .'• '-""•• "•'
$518,000,)) or approximately $9,000. Tne performance evaluation
made no mention of subcontractor's problems in producing the
report. Suoerfund Contracts at 48. " -.-.-..
Similar calculations have beer, made for the Verona Well -Field and
it is this. iT.fcrri3t.ion which the government seeks to keep from • . •
this Court. For example, Mr. Dekar has-calculated that Warzyn's.
poor performance resulted-in cost overruns of approximately
$181,078. See Dekar Deposition, Exhibit 11] appended hereto as ..
Exhibit G. Assuming, then,.that the subcontractor payments on
which CH2M Hill's fees'are based is decreased by that amount,- "the
base 'fee would be reduced by $5,432 and the maximum -award fee by
$3,621 for a total deduction of $9,053: Even if one used Mr. •:..
Dekar's most conservative estimate 'of Warzyn's cost overruns,
$101,822, CH2M Hill's fee would be decreased by approximately
$5,100.
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,|ng the gpvernr.rn._ 1-0 evaluate it. Where there is nc
• | - •;•,":. • . • • -^ '^
gfulv evaluation., -r ^utracts. «v. . ' ,i ; •• more : hdui c
ial, .if not actual, boondoggle fox' the contractors.
\ • "' - .
Although the. government will argue that thes*e contracts are
negotiated to compensate for.a degree of risk involved in the
contract^ this .element is to be compensated by the base fee and-
practically. ..speaking, the contractor assumes little or no cost
risk. In,fact, a contractor may only be liable under Superfund
' *'"*.. * -•" ^
for negligence, gross negligence or intentional misconduct that
causes a release of a threatened release of hazardous substances
and, in some cases, may.be entitled to receive government
indemnification for itsnegligence. 42 U.S.C. S 9619. The award
fee does little but reward the contractor for high overhead and
mismanagement.. .Although, the United States is certain to contend
that ERA'S.,.decision, to negotiate a cost-plus-award-fee contract
was discretionary and not subject to judicial review, the abuse
ecu-.-•=• ir.cer rv t:,;.;: :;-.-- ••;: r-.niriCt .:hcv.c r.c". be Ear.ciirned by
this Court's • silence. .
VII. CONCLUSION • ., . . ...........
.The. .Ur.itsd State.2 ci=iriv is ir. errcr when it ccr.cludes
that this Court's review of government expenditures at the Verona
- •-
Well field is^circumscribed .by CERCLA and SARA and is limited to
•'• • ' '': r,i
the administrative record. The legislative history does not.
'support this position, and, indeed,, the government in other cases
.has argued .that_ the Court is, entitled to review the day-to-day.
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activities to determine that'/the* expenditures were indeed"'not'
•* - " -«•-.•».„ . • ' •- "* - ' «•' .* *• .r" 2 • • i
inconsistent vfi.t.-hi it he National Contingency Plan. The".''.'1 ~'"':
nment--.-: ors»«<»n,t. .position -illustrates'., the inconsistencies
* ~ "• - • * ~rn.;. .'? • _ -. . .
inherent in "selective enforcement .'•'•"
. DEven assuming for the''-purpose'of argument, that the
'*'•••• . . j:O5v;''T- ''-V'T~- -"i - . ' •
government's1 "position" is correct^-, then, ,'i.t is clear that, the
administrative record is insufficient in this case-. No cost
information is provided,"e"xceptri'or^;^6rder-6f-magnitude" estimates*
•" : - ' ' '-;:••• ••- -:. -- '?^ --.>-*". ~ ,„.. ... . ' _ . __.
in tn • °Av ' r--.d.'draft RI/FS . • ;In-jf act, if "one were to rely-solely
' *.
on the administrative r°-~r'* the government'.s recovery would be
limited to~$ji;,325 .-b. initial"remedial measure and ;
S'100, jQl. 39'-fcr the feasibility .study, reimbursements to which
the United States certainly would take exception. ^Thus, it is : "'
•-•'•» j
sensible to review the site activities and determine why the
remedial measures exceeded the''prrojec'ted costs by more than 350%.
Defendants have suggested", by example, several reasons
for the massive cost overruns, including excessive indirect 'cost
:*--^3t prefect, rr.ismanagemer-. ar.i ir.t-vrnc.1 ccr.troi ifruv:^. The
existence of procurement/contracting regulations have failed to
remedy thes-= abuses, in part because EPA has not enforced
.cc-irplianc*. Other aspects, such as using cost-plus-award-fee
,-.'j . -
contracts, are simply not justified.' ' '• : •
Simply because the federal'government- spent money from
.Superfund on remedial activities at the Verona Well Field does •'• *
i
not mean that it is entitled to full reimbursement.' This .
position is not only legally unjustified but, in this ca-se, is: :
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adi?.iSMITH, P.C..
Attorneys fpr- Defendants Thomas
Soly Barbieri (P3179'3)
Lynn K." Richardson (..P'31778)
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