US Army Corps of Engineers
Water Resources Support Center
Institute for Water Resources
    HAZARDOUS AND TOXIC WASTE (HTW)
          CONTRACTING PROBLEMS
          A Study of the Contracting Problems
             Related to Surety Bonding in
              the HTW Cleanup Program
    1990                             IWR REPORT 90-R-1

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 Casey Building
 Telegraph  &  Leaf Roads
 Ft.  Belvoir,  VA  22060-5586
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 11. TITLE (Include Security Classification)
 Hazardous  and Toxic  Waste  (HTW)  Contracting Problems -  A Study of the Contracting  Problems
 Related to  Surety  Bonding  in the HTV Clean-up Program	
 12. PERSONAL AUTHOR(S)
  Sharp, Francis, M.
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           18. SUBJECT TERMS (Continue on reverse if necessary and identify by block number)
          Bonding,  Miller Act,  Service Contracts Act, Davis-Bacon
          Act,  CERCLA,  FAR , HTW, Surety, Performance Bond
 19. ABSTRACT (Continue on reverse if necessary and identify by block number)

       This  study  attempts to determine  the impact of performance bond availability on the
 successful  accomplishment  of Hazardous  & Toxic Waste  (HTW) projects.
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Francis M. Sharp
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522B!RfEiPrtte>NB:f/nc7uc/e Area Code) 22c. OFFICE SYMBOL
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          All other editions are obsolete.
                   SECURITY CLASSIFICATION OF THIS PAGE

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        HAZARDOUS AND TOXIC WASTE (HTW)
              CONTRACTING PROBLEMS
             A Study of the Contracting Problems
                Related to Surety Bonding in
                 the HTW Cleanup Program
                        Prepared by

                 U.S. Army Corps of Engineers
                Water Resources Support Center
                  Institute for Water Resources
                       Casey Building
                Fort Belvoir, Virginia 22060-5586
                      Commissioned by
                Environmental Protection Agency
                           and
                 U.S. Army Corps of Engineers
               Environmental Restoration Division
July 1990                                 IWR Report 90-R-1

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                               TABLE OF CONTENTS

                                                                          PAGE

I.    SUMMARY	  1

II.   BACKGROUND	5

      A.  BONDING PROBLEMS   	  5

      B.  STUDY GOAL:  DETERMINE EXTENT OF THE BONDING PROBLEM AND
          PROPOSE SOLUTIONS  	  5

III,  PROBLEM DEFINITION   	  7

      A.  APPLICABLE LAWS, REGULATIONS AND OTHER FACTORS  	  7
          1.  Miller Act Construction Contract Bonding Requirement  .... 10
          2.  The Service Contract Act	11
          3.  Davis-Bacon Act	13
          4.  Superfund Legislation  	 14
          5.  Federal Acquisition Regulation  	 16

      B.  HAZARDOUS AND TOXIC WASTE  (HTW) CONTRACTING PRACTICES 	 17

      C.  CORPS HTW PROJECT DATA PRESENTATION, ANALYSIS AND FINDINGS  ... 17
          1.  Introduction	17
          2.  Analysis and Findings	18

      D.  HTW INDUSTRY BONDING PROBLEMS PERCEPTIONS 	 29
          1.  Contracting Industry Perceptions  	 29
          2.  Surety Industry Bonding Perceptions 	 33

IV.   CONCLUSIONS	37
          TRENDS OVER TIME	37

V.    OPTIONS EXAMINED  	 45

      A.  INTRODUCTION	45

      B.  NON-LEGISLATIVE CHANGES 	 46
          1.  Improved Acquisition Planning & Bond Structuring  	 48
          2.  Clarify Surety Liability  	 53
          3.  Indemnification Guidelines  	 55
          4.  Communication With the Industry	56
          5.  Limit Risk Potential	57

      C.  LEGISLATIVE CHANGES  	 58
                                     iii

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                         TABLE OF CONTENTS  (Continued)

                                                                          PAGE

VI.   RECOMMENDATIONS	61

      A.  NON-LEGISLATIVE CHANGES 	 61
          1.  Issue Guidance on Use of Acquisition Planning for HTW  .... 61
          2.  Clarify Surety Liability  	 62
          3.  Indemnification Guidelines  	 62
          4.  Communication with Industry 	 62
          5.  Limit Risk Potential	63

      B.  LEGISLATIVE CHANGES  	 63

      ENDNOTES	65

      BIBLIOGRAPHY	67

      APPENDICES

          Appendix A   List of Contacts	71

          Appendix B   Sample Forms 	 75
                                     IV

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                                LIST OF CHARTS
                                                                          PAGE
Chart 1A   Average Ratio Award Amt./Govt. Est. (by Bid Opening
           Date)  	24

Chart IB   Ratio Award Amt./Govt- Est. Average Award
           (by Project Size)  	24

Chart 1C   Ratio Award Amt./Govt. Est. Average Award
           (by Remedy Type)	24

Chart 2A   Average Ratio:  High/Low Bids over Time 1987-9	25

Chart 2B - Average Ratio:  High/Low Bids over Time 1987-9
           (by Project Size)  	25

Chart 2C   Ratio:  High/Low Bids  (by Remedy Type)  	25

Chart 3A   Average Number of Bids Over Time   	26

Chart 3B   Average Number of Bids (by Contract Type)  	26

Chart 3C   Average Number of Bids Received (by Remedy Type)	26

Chart 4  - Average Number of Bids Received (by Award Amount)  	27

Chart 5    Corps HTW Programs   Contractor's Dollar Shares 1987-9 	 28

Chart 6    Contractor's Projects Shares 1987-9  	 28

Chart 7  - Sureties' Dollar Shares 1987-1989  	 30

Chart 8    Sureties' Project Shares 1987-1989 	 30
                                LIST OF TABLES
Table 1 - Legislation Pertaining to HTW Contracting
Table 2A- Corps HTW Contracts   	21
      2B- Corps HTW Contracts   	22
      2C- Corps HTW Contracts   	23

Table 3   Types of Options	47

Table 4   Sample Alternative Contract for Incineration  	 50

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                                  I.   SUMMARY

    The EPA and the U.S.  Army Corps  of Engineers  ("Corps") have  experienced
difficulties in contracting Hazardous and Toxic Waste (HTW)  cleanup projects.
The HTW cleanup industry has expressed concern that it could not obtain surety
bonds required as a prerequisite for competing for remedial  action
construction projects.  It was reported that Treasury Department listed
corporate sureties, which provide the guarantee bonds for Government projects,
had imposed stringent limitations on the provision of performance bonds which
assure the government that the cleanup project will be completed.
Essentially, the bonds guarantee that the surety will either complete
performance or pay the Government its costs associated with  completing the
project to the limit of the penal amount of the bond.  Various contracting
industry firms stated that they have not been able to secure bonding for some
projects.  Those that have obtained bonds had a difficult time doing so, and
some firms that had obtained bonds for previous projects were unable to obtain
bonds for a subsequent project.  The surety industry indicated its reluctance
to guarantee performance on HTW projects primarily because of its  concern for
possible long-term liability exposure and changing state-of-the-art design
requirements associated with such actions.

    The EPA and the Corps commissioned the Institute  for Water Resources to
gather information on the subject; to analyze the data to determine the extent
of the existing bonding problems; and to offer recommendations which could be
implemented in an effort to alleviate problems noted.  A survey was conducted
of Corps district offices, the HTW cleanup industry,  surety  firms, and trade
associations, to determine the extent and nature of the problem.  A few survey
activities extended to EPA and state offices involved in HTW work.

    The study examined 24 ongoing remedial action and completed  Corps HTW
construction contracts.  Statistics were gathered from actual Corps records on
the contractors and sureties that participated in these contracts.  In
addition, a sample of the universe of HTW contractors and sureties was
interviewed along with industry association representatives.  The responses to
these interviews appear later in this paper.  They were analyzed to arrive at
conclusions concerning industry views and perceptions of the surety problem.

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    The interviews elicited the perceptions of the HTW surety and contracting
community regarding their concerns about risks in the HTW Cleanup program.
Many of these concerns are of potential risks that are hypothesized, but have
not yet occurred.  However, these risks are perceived and acted upon as real.

    The study findings,  which centered on Corps  executed projects, indicate
that the surety  industry is making performance bonds available to certain of
the major firms  competing for HTW work.  However, it appears that industry's
reluctance  over  the potential liability associated with such work has prompted
the industry to  move  toward limiting bonding to firms having other substantial
business with the  surety, or major financial assets available, and a history
of past performance on HTW projects.  This surety industry reticence has
precluded some firms  from being able to secure needed bonding and has also
lessened the opportunity for firms wishing to break into the Federal HTW
marketplace.  The  resulting concern of both EPA and the Corps is that bonding
availability not curtail qualified firms' ability to compete for HTW projects
to such an  extent  that the prices for the remedial action work is arbitrarily
and excessively  increased.

    There is no  single solution to remedy the problems encountered in the
study.  Rather,  there are a number of individual actions that may be
instituted, some at a fairly low institutional cost that will help to
alleviate the situation.  The government should mitigate the concerns of the
contractors and  the sureties while maintaining appropriate protection of the
government's interests.

    The solutions to the cited problems in HTW bonding include the following:

    -  Requirement for zero  based acquisition planning involving an
interdisciplinary team to develop plans that incorporate techniques such as
risk analysis in structuring the project contracting plan.  Analysis will
include consideration of the extent of risks assumed by the government will
effect potential project cost savings, increased competition for contracts and
opportunities for more firms to compete in the HTW program.  Policy guidance

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will be issued on the appropriate factors to be taken into consideration in
accomplishing this analysis.

      Analysis of the option of dividing the project into work elements with
an appropriate level of bonding in each.

    - Clarify the government's policy on indemnification of contractors and
sureties.

    - To the extent of its authority, each government agency will define its
specific responsibility for the risk aspect of the cleanup project where
appropriate  (e.g. accept responsibility for performance specifications).

    - The government will specifically accept the  responsibility for project
design where the performance specifications have been met.

    The thrust of this study was specifically centered on the bonding issue.
While the stated problem of many of  the respondents was bonding, the
underlying issue is the uncertainty  about risk in general as it applies to the
HTW Cleanup program.  There is uncertainty by sureties and contractors
concerning risk and liability.  Surety bonds for performance, liability
insurance and indemnification questions are closely related and difficult to
separate when dealing with HTW risk  questions.

    There are two categories of options available  to address these solutions.
First, short term steps can be taken internally by the Corps and EPA that
involve revising internal agency procedures to alleviate the contracting
problem.  Changes to government-wide construction procurement regulations,
e.g. standard bond forms, should be  pursued with the FAR Council.  Finally,
longer term actions could be carried out which concentrate on potential
legislative revisions to the liability and indemnification provisions  in the
superfund statute.

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                              II.  BACKGROUND

A.  BONDING PROBLEMS
    Performance bonds are used in the construction industry to insure the
completion of construction projects.  These bonds are mandated by the Miller
Act for all Federal construction projects.  While bonds are normally required
only for construction contracts; in some instances, concern for assuring
performance has led to the industry being required to guarantee performance on
work elements that are characterized primarily as service rather than
construction.  In general, a 100% performance bond has been required by the
Corps on construction contracts.

    The Corps, EPA, and the states have been told by sureties and HTW
contracting firms about the inability of contractors to obtain performance
bonding for HTW cleanup projects.  Bond availability problems and contractor
concerns have increased over the past year.  In some instances firms
responding to Government HTW contract announcements have not been able to
secure performance bonds.  Some firms have also reported that they will not
compete for HTW construction contracts because they know that they cannot
obtain the required surety bonds.

    While the inability to secure bonding may occur in other types of
construction contracting and is not exclusive to the HTW field, the frequency
of non-bonding occurrences and the fact that they involve companies that are
of a size and financial stature not normally concerned about such matters, is
itself a cause for concern.  Even more disconcerting is the fact that firms
which are most experienced in accomplishing HTW work are in some instances
being precluded  from competing for such work by their inability to secure the
required bonds.

B.  STUDY GOAL:  DETERMINE EXTENT OF THE BONDING PROBLEM AND PROPOSE SOLUTIONS
    EPA's Office of Emergency and Remedial Response and the Corps Directorate
of Military Programs, Environmental Restoration Division, commissioned a study
to determine the extent of the bonding problem and identify action which could
be taken to alleviate bonding problems noted.  The Institute for Water

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Resources (IWR),  a Corps research agency located at Fort Belvoir, VA, was
selected to do the study.  The study was initiated in late November 1989.  IWR
conducted a series of personal and telephone interviews of HTW industry
contractors, as well as HTW industry associations.  In addition, personnel
from insurance and surety industry firms, surety associations, states, EPA,
and the Corps were interviewed about the issue. A listing of the interviewees
appears in Appendix A.

    The interviewees were questioned regarding difficulties experienced in the
HTW bonding area.  They were also asked for their views on the nature and
magnitude of any bonding problems and requested to provide suggestions on
actions that could be taken to rectify the situation.   IWR also gathered
references, such as seminar papers, letters of concern to various agencies,
testimony before Congress, government forms and regulations,  and other
relevant documents.  A body of background material concerning the problem was
assembled. The study also collected information concerning contracting for HTW
cleanup, in particular information regarding the difficulties in the
acquisition of surety bonds by contractors.

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                            III.  PROBLEM DEFINITION

    When surety bonding problems are added to the hurdles that firms must face
when competing for multi-million dollar projects, the number of firms meeting
all the construction contract requirements could be reduced even further.
This study attempts to determine the impact of performance bond availability
on the successful accomplishment of HTW projects. The survey of surety bonding
in the HTW program entails the examination of various institutional and
procedural factors involved in Superfund and related HTW cleanup contracting
programs.  While there was general consensus that the potential liability and
uncertainty surrounding such liability was the root cause for the limited
bonding available, it is not clear that this was the only factor affecting
availability.  The surety industry's willingness to provide bonding was also
linked to its independent evaluation of a number of factors relating to an
individual contractor's financial and performance history.  Construction firms
were not asked why they may not have bid for or obtained contracts.  Since
proprietary information concerning the financial status of companies is not
readily available and companies were queried only about the problems they had
in obtaining surety bonds in the survey, and not about their financial status,
the study was not able to establish that the liability issue was the only
reason for sureties refusal to bond.

A.  APPLICABLE LAWS, REGULATIONS AND OTHER FACTORS
    There are several laws and regulations that affect contract cleanup
activity in the HTW area. They are listed in the following table:

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    ACT
                      Table  1

 STATUTES AND  REGULATIONS  PERTAINING TO HTW CONTRACTING
	DESCRIPTION	
 Miller Act
  Construction
  Contract Bonding
  Requirement
 McNamara-0'Hara
  Service Contract
  Act (SCA)

 Davis-Bacon Act
  (DBA)
 Comprehens ive
  Environmental  Res-
  ponse ,  Compensation
  and Liability  Act
  (CERCLA),  as amen-
  ded by Superfund
  Amendments &
  Reauthorization Act
  (SARA)

 Federal Acquisition
 Regulation  (FAR)
               Requires  Federal  agencies awarding  construction
               contracts to utilize payment bonds  to  assure  that
               the  prime contractor pays his  subcontractors  and
               performance bonds to guarantee completion of  work in
               accordance with the contract specifications.

               Defines the types of activity  classified  as service
               contracts for  the purposes of  Federal  government
               procurement.

               Applies to all Federally funded construction  projects.
               Designates the Secretary of Labor as the  sole
               authority on the  classification of  wage rates for
               construction projects.

               CERCLA enacted to eliminate past contamination caused
               by hazardous substances pollutants  or  contaminants
               released  into  the environment.  Authorizes EPA to
               recover cleanup costs.  SARA enacted to strengthen
               CERCLA and tighten cleanup target dates.   Requires use
               Davis-Bacon wage  rates for construction projects
               funded under section 9604(G) of CERCLA.
               Pursuant  to  the requirements of Public Law  93-400
               as  amended by Public Law 96-83: provides uniform
               policies  and procedures for contracting by  Federal
               executive agencies.
     The  procedure  for  obtaining performance and payment bonds from  individual

 or corporate  sureties  for HTW cleanup contracts is incomplete without

 examining  the background of the bonding requirement.  The 1935 Miller Act

 specified  that all construction contracts by the Federal Government would be

 covered  by performance and payment bonds. The purpose of the performance bond

 is  to insure that  the project is completed in the event that the original
 contractor defaults.
    The requirement for performance bonds varies with each project and  is
affected by the type of project being undertaken.  A bond is required by the
Miller Act on all fixed-price construction contracts over $25,000, but must be

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justified for service contracts.  HTW cleanup projects may contain activities
classified as either construction or service.  According to CERC1A Section
9604, these classifications are governed by decisions issued by the Department
of Labor (DOL).  These decisions will control the wage rates applicable to the
particular activities; that is Davis-Bacon for construction activities and
Service Contract Act for service activities.  In many cases, it is impossible
to create an HTW contract comprised totally of construction or non-
construction activities.  Therefore most HTW contracts are made up of a
combination of these activities.  Where construction and service activities
are combined in the same contract, the procuring agency generally will treat
the contract as being under either a service or construction contract based on
the classification of the predominant work.  A recent letter (31 May 90) from
DOL to McLong, advises that construction Davis Bacon Wage Rates must be
included if there is a "substantial" amount of construction work involved.
Contracting officers have varied in their decisions on bonding requirements
for contracts involving both classifications of work.  In some instances,
performance bond requirements were applied only to the extent of the value of
the construction work; in others the requirement was applied to the total
value of the construction and closely associated service work.  In these
latter cases, the decision was usually criticized by contractors unable to
secure bonding as being unduly restrictive of competition and unnecessary to
protect the Government's performance interests.  Moreover, where the CO
determines that the contract is principally service related, he may treat the
contract as a service contract and require no bonding.

    The Contracting Officer (CO) is responsible for the initial determination
of whether a contract should be service or construction based on the CO's
understanding of the applicable rulings issued by the DOL.  On occasions,  DOL
has overturned a CO's decision and has caused the Government additional
expense by requiring the CO to include Davis-Bacon Wage Rates and, at times,
paying additional wages retroactively.  The Corps experienced one instance
where a service contract classification associated with excavation of HTW
contaminated soil was reversed by DOL to a construction classification
following contract completion.  This decision resulted in a significant
contract price increase in order to provide an equitable adjustment to the
contractor for the higher wage rate payments that had to be made to workers on

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the project.  The Corps of Engineers is very sensitive to avoiding disputes
with DOL arising from failure to use construction wage rates.  EPA is equally
concerned that the proper rate be used by the Corps.

    1.  Miller Act Construction Contract Bonding Requirements.  In order to
fully address the performance bonding requirement and its relationship to the
contracting industry, we must first examine the Miller Act.  The Miller Act
requires performance and payment bonds for any contract over $25,000 for the
"construction, alteration or repair of any public building or public work".
P&P bonds are required on all FFP construction contracts and/or delivery
orders over $25,000.  The percentage needed for performance bonds is flexible.
However, these bonds are not necessary for cost reimbursement contracts and/or
delivery orders.  The level of bonding required is determined by the
Contracting Officer based on the level of risk associated with the project and
the resulting need to protect the Government's interest.  The performance bond
guarantees  the Government that the building or work will be completed in
accordance with the terms and conditions of the contract or the Government
will be compensated.  The payment bond guarantees that subcontractors and
suppliers of the prime contractor will be paid for their work.  Performance
and payment bonds are usually issued by the same surety for a particular
project.  These bonds protect against contractor non-performance.  They are
not intended as insurance for contractor actions which may prompt third party
liability suits, or as a substitute for pollution or any other type of
insurance.  A third bond, generally required by agency or acquisition
regulations where the contract solicitation is a formally advertised sealed
bid, is the bid bond.  The bid bond protects the Government by providing a
penal amount that will be forfeited by the surety of the lowest responsible
bidder if the bidder fails to accept the award or to provide the required
performance and payment bonds after award has been made.  Bid bonds generally
are provided by the same surety that provides the performance and payment
bonds for a particular contract.  The surety's decision to issue the bonds
appears to be controlled by the contractors bonding capacity and its analysis
of the risk associated with each particular contract.  Hence, it would seem
that difficulties reported in contractors' ability to acquire bid bonds are in
fact directly connected to the same factors causing those contractors
inability to acquire performance bonds.
                                      10

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    Acceptable surety may be provided from a number of other sources in
addition to the more familiar corporate and individual surety bonds.  These
other sources are listed in the Federal Acquisition Regulation (FAR) as
including "United States bonds or notes",..." certified or cashier's check,
bank drafts, Post Office money order, or currency".1  Corporate surety bonds
are provided by surety firms that have been approved by the Treasury
Department.  These firms cannot provide bonding beyond certain dollar limits
established by the Treasury.  Individual surety providers are, as the name
implies, individuals who pledge their personal assets as guarantee.   The
corporate bond is the primary guarantee utilized in performance and payment
bonding of both HTW and non-HTW work.

    Over the past two years, interest in the use of individual sureties
increased sharply as contractors anxious to compete for all Federal
construction projects, but unable to acquire a corporate surety bonding
commitment, sought to satisfy the Government's bonding requirements from the
only source available.  Reports suggest these bonds were made available at
significantly higher cost.  Unfortunately, the individual surety's assets
available to secure the bond obligation all too frequently were insufficient
in value to cover the penal amount of the bonds.  In each instance where the
contractor proposing the individual surety was disqualified, due to the non-
responsibility of its proposed individual surety, the CO made an award to the
next higher bidder which in every case provided a corporate surety bond.  New
regulations instituted in February 1990 place more stringent requirements on
the use of individual surety bonds.

    2.  The Service Contract Act.  The McNamara-O'Hara Service Contract Act
(41 USC 351-358) (SCA) covers all Federal government service contracts
exceeding $2,500, whose principal purpose is the furnishing of services to the
Federal government through the use of service employees. Since the term
"service" is not as explicitly defined within the SCA as the term
''construction" is in the  Davis-Bacon Act (DBA), the DOL's implementing
regulations (29 CFR Part 4) are keyed to the terms "service employees" and
"principal purpose."
                                      11

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    Inasmuch as the scope of possible service contracts is extensive, section
7 of the Act lists specific contracts outside the Act. Included among these
exemptions are contracts for "construction, alteration and/or repair,
including painting, or decorating of public buildings or public works."  While
DOL's regulations  (29 CFR 4.130) contain a number of illustrative service
contracts, none of those listed relate specifically to environmental
restoration (HTW) projects.

    The principal purpose emphasis is key inasmuch as a contract may be
principally for services, but may at the same time involve more than
incidental construction.

    Existing DOL regulations do not define incidental construction.  Guidance
on  this issue, however, may be derived from advisory memoranda issued by the
DOL's wage and hour administration relating to construction projects comprised
of  different categories or schedules (building, heavy, highway and
residential).  As  a general rule, DOL advises contracting officers to
incorporate a separate schedule when such work is more than incidental to the
overall or predominant schedule.  "Incidental" is here defined as less than
20% of the overall project cost.  DOL notes that 20% is a rough guide,
inasmuch  as items  of work of a different category may be sufficiently
substantial to warrant separate schedules even though these items of work do
not specifically amount to 20% of the total project cost.  This same rationale
may apply to contracts involving services and construction.

    Under such circumstances, both the SCA and the Davis-Bacon Act (see below)
may apply.  In this regard FAR 22.402(b)(l) prescribes that the DBA will apply
when:
        a. The construction is to be performed on a public building or work.

        b. The contract contains specific requirements for a substantial
amount of construction work exceeding the monetary threshold for application
of the DBA.  The term substantial defines the type and quantity of the
construction work and not merely the total value of the construction work as
compared with the total contract value.
                                      12

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        c. The construction work is physically or functionally separate and is
capable of being performed on a segregated basis from the other work required
by the contract.

    3.  Davis-Bacon Act.  The Davis-Bacon Act (40 USC 276) (DBA) covers all
Federally funded or Federally assisted contracts in excess of $2,000 for
"construction, alteration or repair of public buildings or public works."2
The Secretary of Labor's authority to rule on questions of statutory coverage
under DBA is derived from Reorganization Plan No. 14 of 1950 (5 USC App. USC
p. 1050 (1982).

        a.  Applicability determinations issued by the Secretary's designate,
the Administrator of the Wage and Hour Division, is binding rather than
advisory in nature.  Thus, when the DOL decides that the contracting agency
made an erroneous determination not to incorporate the DBA provisions in a
covered contract, the agency must either modify the contract to incorporate
the required wage decision and provisions or terminate the contract (29 CFR
1.6).

    In their determinations of DBA applicability relating to HTW work, the DOL
relies on the regulatory definitions set forth at 29 CFR, Part 5.  Thus, the
statutory terms "construction, alteration or repair" refer to: "... all types
of work done on a particular building or work at the site thereof, including
without limitation, altering, remodeling, installation (if appropriate) on the
site of the work of items fabricated off-site, painting and decorating, the
transporting of materials and supplies to or from the building or work and
hauling soil to an incinerator by the employees of the construction contractor
or subcontractor...."  DOL has defined "Building" or "Work" as follows:  "...
construction activity as distinguished from manufacturing, furnishing of
materials, or services and maintenance work. The terms include without
limitation, buildings, structures and improvements of all types, such as...
excavating, clearing and landscaping."  DOL, in its review of one
environmental restoration project, has indicated that the term "landscaping"
includes activities such as planting trees, lawns and shrubs in conjunction
with other work, but also elaborate landscaping activities such as substantial
earth moving and/or rearrangement of the terrain.  DOL advised further that
                                      13

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these activities standing alone may be properly characterized as construction,
alteration or repair of a public work.

    Section 9604(G) of CERCLA also specifically stipulates the wage rates to
be paid on Response Action Construction projects are to be as determined by
the Secretary of Labor in accordance with the Davis-Bacon Act as follows:

        "Sect. 9604(g)(l) All laborers and mechanics employed by contractors
        or subcontractors in the performance of construction, repair, or
        alteration work funded in whole or in part under this section shall be
        paid wages at rates not less than those prevailing on projects of a
        character similar in the locality as determined by the Secretary of
        Labor in accordance with the Davis-Bacon Act.  The President shall not
        approve any such funding without first obtaining adequate assurance
        that required labor standards will be maintained upon the construction
        work.
           (2)The Secretary of Labor shall have, with respect to the labor
        standards specified in paragraph (1), the authority and functions set
        forth in Reorganization Plan Numbered 14 of 1950 (15 F.R. 3176; 64
        Stat. 1267) and section 276c of title 40 of the United States Code."
        b.  The essential point of the foregoing discussion of the Service
 Contract  and Davis-Bacon Acts is that although the public policy objective
 (labor  standard protection) of the statutes are similar, there are significant
 differences between the two which affect the cost of doing business.  Clearly,
 the  DOL's authority to require contracting agencies to retroactively modify
 contracts to add one set of wage rate provisions and/or delete another, will
 have consequences for project costs.  In view of DOL's authority to issue
 determinations as to what comprises "construction" for purposes of the DBA,
 there may also be consequences for the coverage and extent of the bonds
 required  under the Miller Act.

     4.  Superfund Statute.  Inasmuch as considerable concern was expressed by
 the  surety industry regarding its potential for liability arising from bonding
 of HTW projects, a brief discussion of the superfund statute is included in
 this section.  The Comprehensive Environmental Response, Compensation and
 Liability Act of 1980 (P.L. 96-510)(CERCLA), commonly referred to as the
 Superfund law,  authorized $1.6 billion to clean up abandoned dump sites. The
                                      14

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law was enacted to eliminate the contamination created by the indiscriminate
disposal of organic and inorganic chemicals and other pollutants.   The Act
also allows EPA to force potentially responsible parties (PRPs) to perform the
remediation or recover cleanup costs from the PRPs.

    SARA (Superfund Amendments and Reauthorization Act of 1986) (P.L.  99-499)
was enacted to re-authorize and strengthen the CERCLA.  It was perceived at
the time that cleanup activity was not proceeding quickly enough.   SARA,
therefore, set targets for beginning cleanup work.  EPA was required to begin
cleanup activities at 175 sites by October 1989 and an additional  200 sites by
October 1991.  CERCLA, as amended by SARA, specifies the basic guidelines for
Superfund liability.  Strict and joint and several liability are the
foundations of both the 1980 and the 1986 Acts. These liability concepts are a
powerful tool that can be used by the government to promote voluntary PRP
response actions and to recover cleanup costs from any party found as having
contributed to the contamination.

    Strict liability is liability without fault.  Thus, even if the firm is
not negligent, the firm may be liable.  The basis of joint and several
liability involves the concept that, even if the firm is only responsible for
a portion of the contamination, the firm may be held liable for all costs
expended in the cleanup effort.

    Recognizing that the strict and joint and several liability standard of
CERCLA might prove onerous to remedial action contractors that are needed for
cleanup efforts, Congress specifically excluded response action contractors
from liability under Federal laws except for cases involving negligence.
Gross negligence or willful wrongdoing are not covered.  Furthermore, in
section 119 of SARA, Congress authorized indemnification for remedial action
contractor negligent liability associated with releases of hazardous
substances.  Indemnification for strict liability where it exists at state
level is not authorized.  There is no specific reference in either CERCLA or
SARA on the availability of Section 119 indemnification to surety guarantors
on Superfund projects.  However, EPA has, at least in one instance, indicated
that it would make indemnification available to a surety following a
                                      15

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performance default on the same basis as such indemnification would be offered
to any remedial action contractor provided the surety assumes substantially
the same role as the original contractor.  Some corporate sureties point to
this liability potential as the basis for their refusal or reluctance to
actively provide bonding for HTW work.  These sureties urge that it be made
clear that the surety performance bond is a guarantee of performance only and
in no way is intended to serve as insurance for potential third party
liability suits.  Likewise, they urge that the application of the Section 119
indemnification to the corporate surety involved in a HTW project be
clarified.

    5.  Federal Acquisition Regulation.  HTW contracts, like other Federal
government procurement procedures, are controlled by the Federal Acquisition
Regulation  (FAR).  The Federal Acquisition Regulation provides uniform
policies and procedures for all Federal executive agencies.  These policies
and procedures define construction and other government procurement
activities.  In addition,  they specifically define contracting instruments
such as performance and payment bonds (see Appendix B).  The development of
the FAR is  in accordance with the requirements of the Office of Federal
Procurement Policy Act of  1974 (Pub. L. 93-400) as amended by Pub. L. 96-83
and OFPP Policy Letter 85-1, Federal Acquisition Regulation System, dated
August 18,  1985. The FAR is prepared, issued, and maintained, and the FAR
system is prescribed jointly by the Secretary of Defense, the Administrator of
General Services Administration (GSA) and the Administrator of the National
Aeronautics and Space Administration  (NASA).  These agency heads rely on the
coordinated action of two  councils, the Defense Acquisition Regulatory Council
(DAR Council) and the Civilian Agency Acquisition Council (CAA Council) to
perform this function. Agency heads are authorized to independently issue
agency acquisition regulations provided such regulations implement or
supplement the FAR.

    By definition, the term "acquisition" refers to acquiring by contract with
appropriated funds supplies or services (including construction) by and for
the use of the Federal government through purchase or lease  - - whether the
services  or supplies are already in existence or must be created or developed,
demonstrated,  and evaluated.  Acquisition begins at the point when agency
                                      16

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needs are established, and includes the description of requirements to satisfy
agency needs, solicitation and selection of sources, award of contracts,
contract financing, contract performance, contract administration, and those
technical and management functions directly related to the process of
fulfilling agency needs by contract.

B.  HAZARDOUS AND TOXIC WASTE (HTW) CONTRACTING PRACTICES
    The Corps contracts with  industry for construction and other services,
e.g., architect-engineer services, research and development services,  and
supplies.

    The decision on whether to use a firm fixed price (FFP) contract,  cost
plus award fee (CPAF). cost plus fixed fee (CPFF),  or a combination of fixed
price and cost depends on whether complete specifications can be provided in
the solicitation.  Other factors determining the decision are the size of the
project, incremental  funding, urgency, and the type of design required for
implementation.

    Prior to issuing  a delivery order against an indefinite delivery type,
umbrella contract (Pre-Placed Remedial Action (PPRA) or Rapid Response (RR))
or requesting a proposal from a contractor, a written determination must be
made describing the type of project (service, construction, or both) and the
type of delivery order to be issued (FFP, CPAF,  CPFF, or mixed).

C.  CORPS HTW PROJECT DATA PRESENTATION, ANALYSIS AND FINDINGS
    1.  Introduction.  The study analyzed data relative to the Corps HTW
contracting experience for Superfund projects.  The prime offices responsible
for HTW contracting within the Corps are the Omaha and Kansas City Districts.
Contracting records from these districts for the years 1987 through 1990 were
assembled and examined.  The Tables and Charts on the following pages
summarize information on the 24 Superfund contracts carried out in the 1987-89
time period.  A summary of the charts is shown below.
                                      17

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Bid Information
Award Amount/
Gov. Estimate
High Bid/
Low Bid
Number of Bids
Bid Open
Date
1A
2A
3A
Project
Size
IB
2B
3B
Project
Date
1C
2C
3C
    2.  Analysis and Findings.
        a.  Ratio of Award Price to Government Estimate.  Chart 1A illustrates
the trend in the ratio of award price to the government estimate over the
study period from 1987 to 1989.  The ratio of award amount to government
estimate rose from  .8 to 1.2.  In addition, the ratio of award amount to
government estimate tended to increase with the size of the project, as shown
in chart IB.  The type of remedy that was utilized also affected the
award/estimate ratio.  Award ratios of 1.3 were observed for the waste
containment projects, on the average, as opposed to .85 on the other extreme
for alternative water supply projects as displayed in chart 1C.  The remainder
of the projects were around the 1.0 area.  The conclusion drawn from this
information is that there is a tendency for large proj ects to run at a higher
ratio of award/estimate and through time.  This tends to lend credence to the
fact that there is a tight market for HTW contracts.

        b.  High to Low Bid Ratio.  An analysis of the contract data indicated
that out of the 24 projects four contracts involved situations where the
initial bid winner was not awarded the bid due to inability to secure bonding.
These four contracts totaled about $31 million.  $3.9 million additional costs
were incurred because of the necessity to utilize the next lowest bidder.
This was an average of a 14% increase in costs for the four contracts.  The
ratio of high bids to low bids has been found to drop from around 2 to 1 in
1987 to 1.3 to 1 in 1989 as illustrated in chart 2A.   The range of bids also
tends to decrease with the size of the project.  Chart 2B shows this tendency.
The high-low bid ratio also varies by the type of project.  The collection and
disposal of waste products has a large variation in the ratio of the bids
                                      18

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while the waste containment, innovative technology projects and alternative
water supply products have high-low bid ratios of around 1.2.   This
information also would support the case for less competition in the bidding
for HTW projects through time.

        c.  Bidding Competition Climate.  To determine if the  bonding issues
had contributed to any reduction in the competition for HTW projects, the bids
for the 24 projects conducted by the Corps in the 1987 through 1989 period
were examined.  The number of bids was reduced from 6.2 on the average in
early 1987 to 4.6 in late 1989 as shown in chart 3A.   The number of bids also
tended to lessen somewhat as the size of the project increased.   This is
illustrated in chart 3B.  The latter phenomena is also experienced on all
large construction projects.  Chart 3C shows that the type of  project also
influences the number of bids received.  Waste containment projects received
the most bids--seven on the average--followed by alternative water supply and
soil and waste water treatment projects.  The least number of  bids was
received by the innovative technology projects.   These projects received an
average of only two bids.  The data does not support a finding of significant
cause and effect of bonding problems on the bidding for cleanup projects, but
it does indicate a trend toward fewer bids for HTW projects.

    The state lead EPA HTW projects have experienced similar problems in
performance bonding as the Corps districts.  The Texas Water Commission issued
a second invitation for bids on a project due to limited competition and
excessively high bids.  The first attempt was unsuccessful due to the
inability of four of the five contractors to obtain bonds and  the final bid
being excessively high. The EPA recommended contractual changes in the second
attempt, and these changes resulted in a successful outcome with a contract
being awarded at a substantial reduction in contract price. The changes
recommended by EPA were as follows:

  Allowing the use of an irrevocable letter of credit or a conventional bond
    in lieu of a performance bond.
  Reduction in the security amount of the performance bond.
                                      19

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  Deletion of the handling of hazardous material in the first phase of the
    project and shifting it to the second phase and deletion of a test burn of
    contaminated soil,  thus removing the sureties'  objections to bonding the
    first phase.
  The writing of separate bond agreements for the two project phases and the
    precise definition of what liability is covered by the performance bond
    and the time limits of liability.
  Reducing the dollar cap on the retainage for the  last phase of the project
    from $6 million to $2 million and reducing the  time the retainage is held
    from 60 to 18 months.
  Giving the surety the right to choose the option  of whether to complete the
    project or forfeit the bond if the contractor defaults on the performance
    bond.
  Providing the requirements for the surety to obtain indemnification in case
    of contractor default and the surety assuming project completion.
        d.  Distribution of HTW Contracts.  There is considerable variation in
the distribution of contracts among HTW contractors.   In the Kansas City
District, about 400 firms are on the bidders'  mailing list for all
construction, including HTW contracts.  In 1987 through January 1990, 24
contractors competed in the HTW program, and 14 received contracts.  According
to Corps District personnel,  the same few companies continually appear in the
final bidders' lists for HTW contracts.

    Charts 5  and 6 list the contractors that have worked on Corps  HTW
construction projects and their market share of the total competed Corps HTW
outlay  or activity.  Five contractors, individually or in partnerships, have
received 78% of the HTW contract dollars (Chart 5).  Five of the 14 firms
obtained about 58% of all the projects (Chart 6).   The firms receiving awards
are, for the most part, large firms with experience in waste handling in
general.  They are not the only firms with the qualifications and credentials
to do the work, nor are they the only firms that have expressed interest in
the hazardous and toxic waste projects.  There are many contractors interested
in participating in these projects.  There appears to be legitimate concern
that contracting impediments, such as bonding, might lessen further the
Government's  ability to expand contractor participation.  Contracting
impediments must be carefully considered as to their relative significance.
                                      20

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                              TABLE 2A

                          CORPS HTW CONTRACTS

                  HIGH BIDS COMPARED WITH LOW BIDS


                            $1,000,000s
BID
DATE
6/04/87
3/23/88
5/17/88
6/07/88
6/07/88
8/02/88
10/06/88
10/12/88
10/18/88
11/16/88
12/06/88
2/02/89
3/28/89
6/22/89
7/11/89
7/24/89
8/01/89
8/01/89
8/02/89
8/23/89
8/31/89
9/06/89
9/19/89
9/19/89
REMEDY TYPE HIGH
ST PROJECT NAME TYPE CONTRACT BID
PA
MA
MA
NJ
NJ
OH
PA
PA
IN
NJ
CA
NJ
NJ
NH
MD
NY
KS
DE
RI
MA
NJ
MD
NJ
PA
Lackawanna Refuse
Nyanza Chemical Waste Dump
Charles George Landfill
Lang Property
Metaltec Aerosys terns
New Lyme Landfill
Bruin Lagoon
Heleva Landfill
Lake Sandy Jo
Bog Creek Farm
Del Norte Pesticide Storage
Bridgeport Rental/Oil Svcs .
Caldwell Truck Co.
Lipari Landfill on- site
Kane & Lombard St. Drums
Wide Beach Development
Cherokee County Storage Tanks
Delaware Sand/Gravel Landfill
Western Sand & Gravel
Baird & McGuire
Montclair W orange Sites
S.Md.Wood Treating
Helen Kramer Landfill
Moyers Landfill
CA
CA
CA
CD
CD
CA
CA
CA
CD
TW
TW
TW
AS
TW
CA
IT
AS
CA
AS
TW
GV
CO
TW
CA
IFB
IFB
IFB
IFB
IFB
IFB
IFB
IFB
IFB
RFP
IFB
IFB
IFB
IFB
IFB
RFP
IFB
IFB
IFB
IFB
IFB
IFB
IFB
IFB
40
14
23
4
7
18
9
7
3
14
2
85
0
28
5
17
0
2
1
13
0
3
73
33
.0
.5
.3
.7
.5
.5
.4
.8
.9
.4
.0
.0
.3
.0
.4
.4
.7
.4
.2
.5
.4
.4
.0
.9
LOW
BID
15
8
13
2
2
13
4
5
2
13
1
52
0
16
5
15
0
1
0
11
0
2
35
28
HI BID/
LOW BID
.9
.3
.8
.7
.4
.7
.0
.0
.4
.9
.2
.5
.2
.0
.4
.6
.6
.5
.9
.3
.2
.6
.9
.5
2
1
1
1
3
1
2
1
1
1
1
1
1
1
1
1
1
1
1
1
2
1
2
1
.5
.7
.7
.7
.1
.4
.4
.6
.6
.0
.7
.6
.5
.8
.0
.1
.2
.6
.3
.2
.0
.3
.0
.2
                                                 TOTAL:
410.6  254.5   1.6
KEY: REMEDY TYPE

TW- Treatment of wastes (soil and water)
CA- RCRA Cap
CO- Collection and disposal of wastes
IT- Innovative technologies
AS- Alternative water supply
GV- Gas venting
CO- Containment of wastes

IFB- Invitation for bids
RFP- Requests for proposals
                                              21

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                             TABLE  2B




                         CORPS  HTW  CONTRACTS




          COST  OF  PROJECT COMPARED  TO  GOVERNMENT  ESTIMATE




                        NUMBER  OF BIDS PER  PROJECT
BID
DATE
6/04/87
3/23/88
5/17/88
6/07/88
6/07/88
8/02/88
10/06/88
10/12/88
10/18/88
11/16/88
12/06/88
2/02/89
3/28/89
6/22/89
7/11/89
7/24/89
8/01/89
8/01/89
8/02/89
8/23/89
8/31/89
9/06/89
9/19/89
9/19/89
ST
PA
MA
MA
NJ
NJ
OH
PA
PA
IN
NJ
CA
NJ
NJ
NH
MD
NY
KS
DE
RI
MA
NJ
MD
NJ
PA
PROJECT NAME
Lackawanna Refuse
Nyanza Chemical Waste Dump
Charles George Landfill
Lang Property
Metaltec Aerosystems
New Lyme Landfill
Bruin Lagoon
Heleva Landfill
Lake Sandy Jo
Bog Creek Farm
Del Norte Pesticide Storage
Bridgeport Rental/Oil Svcs .
Caldwell Truck Co.
Lipari Landfill on- site
Kane & Lombard St. Drums
Wide Beach Development
Cherokee County Storage Tanks
Delaware Sand/Gravel Landfill
Western Sand & Gravel
Baird & McGuire
Montclair W orange Sites
S.Md.Wood Treating
Helen Kramer Landfill
Moyers Landfill
GOVT
PROGRAM EST
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
23.
13.
15.
4.
3.
12.
5.
4.
2.
14.
1.
42.
0.
21.
4.
15.
0.
1.
1.
9.
0.
2.
36.
25.
0
0
0
1
5
0
0
7
3
0
3
0
2
0
0
6
7
2
0
6
2
0
0
0
AWARD AWARD
AMT /GOVT
15
8
15
3
3
13
4
5
2
14
1
52
0
15
4
15
0
1
0
11
0
2
55
28
.9
.6
.6
.6
.4
.7
.0
.4
.4
.0
.2
.5
.2
.8
.5
.6
.6
.5
.9
.3
.2
.6
.7
.0
0
0
1
0
1
1
0
1
1
1
0
1
0
0
1
1
0
1
0
1
1
1
1
1
AMT
EST
.7
.7
.0
.9
.0
.1
.8
.1
.0
.0
.9
.3
.8
.8
.1
.0
.9
.3
.9
.2
.0
.3
.5
.1
NO.
BIDS
7
13
6
6
5
5
5
8
3
4
11
5
9
4
1
2
2
3
9
5
3
7
4
4
                                             TOTAL:  256.4  277.2
$1,000,000s




SF- SUPERFUND
1.12  AVG.
                                            22

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                                  TABLE 2C

                              CORPS HTW CONTRACTS

                     PARTICIPATING CONTRACTORS AND SURETYS
BID
DATE

 6/04/87
 3/23/88
 5/17/88
 6/07/88
 6/07/88
 8/02/88
10/06/88
10/12/88
10/18/88
11/16/88
12/06/88
 2/02/89
 3/28/89
 6/22/89
 7/11/89
 7/24/89
 8/01/89
 8/01/89
 8/02/89
 8/23/89
 8/31/89
 9/06/89
 9/19/89
 9/19/89
ST  PROJECT NAME
 CONTRACTOR
SURETY NAME
PA Lackawanna Refuse
MA Nyanza Chemical Waste Dump
MA Charles George Landfill
NJ Lang Property
NJ Metaltec Aerosystems
OH New Lyme Landfill
PA Bruin Lagoon
PA Heleva Landfill
IN Lake Sandy Jo
NJ Bog Creek Farm
CA Del Norte Pesticide Storage
NJ Bridgeport Rental/Oil Svcs.
NJ Caldwell Truck Co.
NH Lipari Landfill on-site
MD Kane & Lombard St. Drums
NY Wide Beach Development
KS Cherokee County Storage Tanks
DE Delaware Sand/Gravel Landfill
RI Western Sand & Gravel
MA Baird & McGuire
NJ Montclair W orange Sites
MD S.Md.Wood Treating
NJ Helen Kramer Landfill
PA Moyers Landfill
Chem Waste
Tricil
Tricil
Sevenson
Sevenson
Sevenson
GeoCon
Chem Waste
We ston
Chem Waste
U A Anderson
Ebasco
Ellas Constr.
Bechtel
GeoCon
Kimmons
Pitt/Desmoines
Weston
R H White
Barletta
Summa Env.
Weston
IT, Davy
Chem Waste
Federal Ins.
Seabd St Paul Maine
Seabd St Paul Maine
Wausau
Wausau
Wausau
INA
Federal Ins.
none, escrow
Federal Ins.
Great America
Seabd St Paul Maine
Wausau
Aetna Cas.& Surety
INA
individual
INA
Indiana Lumbermans
Wausau
Wausau
Intl. Fid. Ins.
Indiana Lumbermans
Natl. Union
American Home
                                              23

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                   CH 1A flATIO: AWARD AMOUNT/GOVT EST
                            OVER' TIME       1967-1968
         AWD/EST^?
          1987      1988

      AWD/ESTREGRES
                                               1989
                  CH 1B RATIO: AWARD AMOUNT/GOVT ESTIMATE
                                8Y PROJECT SIZE
                                                                      1.50
                                                                            Ul
                                                                           I
                                                                    - 1.00
                                                                      0.50
     o.oo
10.00
                         20.00
                    30.00
40.00
50.00
                                                                 60.00
                                                                      0.00
                                                                           1
                                                                           o
                          AWARD AMOUNT $1,000,0003

        I AWARD AMOUNT   # BIDS     NO. BIDS REGR

         CHART 1C  RATIO: AWARD AMOUNT/GOVERNMENT ESTIMATE
                              BY REMEDY TYPE
                                                     UY: RBffiDY TYPI
                                                     TV- Treatment of wastes  (toll and water)
                                                     CA- RCSA C«p
                                                     'CO- Collection «nd disposal of vast«t
                                                     'IT- Innovatlv* t»chnolo(t*i
                                                     [AS- Alternative water supply
                                                     |CV- Caa venting
                                                     .CO- Contalraent of vastas
                                                                       "I
B -AWARD AMT.; (XIV EST.
                             24

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               CH2A  RATIO: HI/LO BIDS
                 OVER TIME        1987-
               1987
                   1988
                    1989
            CH 2B   RATIO: HIGH/LOW BIDS
                      BY PROJECT SIZE
                                                        3.50
                                                        3.94
0.00
10.00
20.00
50.00
60.00
                                                        0.94
              AWARD AMOUNT $1,000,0003

    AWARD AMOUNT
                       CHART 2C
      RATIO: HIGH/LOW BIDS (BY REMEDY)
                                                              A
                                                              V
                                                              G
                                          TV- Treatment of wastes (soil and vatar)
                                          CA- RCRA Cap
                                          CO- Collection and disposal of vaacea
                                          IT' Innovative technologies
                                          AS- Alternative watei supply
                                          GV- Gas venting
                                          CO- Contalnaent of wastes
     AS    CA

 .HI BID / LO BID
                  GV    IT
                   REMEDY
                             25

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                    CH3A< BIDS PER PROJECT
                      OVER TIME         1987-1989
                    1987

        # BIDS REGRS H # BIDS
      1988
1989
14.00
•o.oo
     0.00
                 CH 3B NUMBER OF BIDS (BY AWARD AMOUNT)
                                1987-1989
              10.00
I.OO
                                 30.00
                  40.00
                                                    50.00
                  60.00
                        AWARD AMOUNT ($1,000,000s)
         AWARD AMOUNT
                             CHART 3C
         AVERAGE NO. BIDS RECEIVED (BY REMEDY)
                                                UY: REMEDY TYPE

                                                TV- Treatment of vaatea (loll and water)
                                                CA- RCJtA Cap
                                                CO- Collection and dl«po«al of w««t««
                                                IT- Innovative t«ehnolo|l«»
                                                AS- Alternative vater aupply
                                                CV- Caa ventlnf
                                                CO- Containment of vaatea
 • tsne
                               av     IT
                                REfcCDY
                                 26

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       CH 4      NUMBER OF BIDS
              BY CONTRACT TYPE
                               RFP
               CONTRACT TYPE
  NO. OF BIDS
IFB=INVITATION FORBIDS
RFP=REQUEST FOR PROPOSALS
                 27

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A
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                        CHART 5 CORPS HTW PROGRAM
                   CONTRACTORS' SHARES ($280 MILLION TOTAL)
                  IT, Davy(20.1%)
Ebasco(18.9%)
                                                  Chem Waste(22.8%)
  Other(1.1%)
  Weston(2.3%)

  GeoCon(3.1%)

Bar1etta(4.1%)
                     Tricil(8.7%)

                         Sevenson(7.5%)

                                CONTRACTOR
                                       Kimmons(5.6%)

                                 Bechtel(5.7%)
                                CHART 6
   CONTRACTORS' SHARES (24  PROJECTS TOTAL)
                     Weston(12.5%)
                Trteil(8.3%)
               GeoCon(8.3%)
        Bechtel(4.2%)


           IT, Davy(4.2%)
                                         Sevenson(12.5%)
                                                      Chem Waste(16.7%)
                                                         Ellas Constr.(4.2%)
                                                        U A Anderson(4.2%)
                                                     Ebasco(4.2%)
                                                  Summa Env.(4.2%)
                                              Barletta(4.2%)
                           Prtt/De»fnoine8<4.2%7
                               R H White (4.2%)
                                   CONTRACTOR
                                      28

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       e.   Surety  Firm  Participation.  The material from the Corps districts
indicates that no HTW project requiring bonding was precluded from being
placed under contract because of nonavailability of bonding.  Some firms,
however,  were disqualified from competition because of their inability to
provide acceptable surety.  These instances usually involved contractors'  use
of individual sureties  that after examination were found to have insufficient
assets to protect  the Government's interests.  Where this occurred, award went
to the next lowest bidder providing acceptable bonding.  All contracts were
eventually  awarded despite problems reported by certain contractors.  The
surety industry participation in the Corps HTW program during 1987-1989 is
depicted in Charts 7 and 8.  Chart 7 indicates the percent of sureties'
dollars shares covered  by each surety firm.  Six firms received 83% of the
project dollars.   Chart 8 shows the percent of sureties' project shares
covered by  each surety  firm.  Seventy-one percent of the projects were covered
by five sureties.

D.  HTW INDUSTRY BONDING PROBLEMS AND PERCEPTIONS
    1.  Contracting Industry Perceptions.  From the point of view of the
contracting industry, a major problem in the HTW program is that many
contractors competing for contracts are unable to obtain the required surety
performance bonds  for construction contracts.3  Some contractors are  unable
to secure bonds due to  the surety's perception of liability risk at HTW
projects; others because contractors have exhausted their bonding capacity.
Noncompeting firms maintain close contact with the surety industry and
routinely seek information relative to bond availability.  They are aware of
the surety  industry's stated reasons for not providing  surety bonds.   But,
contractors assert that corporate surety decisions on providing bonding are
not uniform.  Consequently, bonding may be provided in  some instances based on
the surety's relationship to the contractor rather than on purely objective
standards.  Noncompeting firms do request mailings concerning HTW project
solicitations, but they do so only to keep up to date on HTW activities or
they  anticipate  involvement as a subcontractor.  On HTW contracts  around 100
firms request plans but fewer than seven usually bid.

    Remedial action contractor  (RAG) associations point out that  there are
many  firms  that  are interested in participating in the  HTW  cleanup program,
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A
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       CHART?  CORPS HTW PROGRAM  1987-9
      SURETIES' SHARES ($280 MILLION TOTAL)
               Na«. Unlon(20.0%)
           Federal lns.(12.7%)
                                           Seabd St Paul Malne(27.9%)
           Other(0.5%)
           none, escrow (0.9%)
           Indiana Lumb«rmans(1.5%)


           INA(3.3%)
                                              indrvidual(5.6%)
                   Wausau(12.0%)
     Aetna Cas.& Surety(5.7%)



>rican Home (10.0%)
                               SURETY
                           CHART 8
      SURETIES' SHARES (24 PROJECTS TOTAL)
                       INA(12.5%)
                                            Wausau(25.0%)
        Seabd St Paul Malne(12.5%)
           Federal lns.(12.5%)
                                                American Home (4.2%)
          Great America(4.2%)
                                             none, escrow (4.2%)
               Indiana Lurnbermans(8.3%)
                                          Natl. Unton(4.2%)
                                       Intl. Fid. lns.(4.2%)
                     Aetna Cas.& Surety(4.2%)    indlvWual(4.2%)

                               SURETY
                                30

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however, only a few are consistently able to meet the bonding requirements
necessary to continually compete for contracts.  Some companies stated that
they did not even participate  in bidding on HTW projects for reasons of
liability and the inability  to obtain performance surety bonds in the HTW
area.  On formally advertized  sealed bid procurements inability to obtain
performance bonding normally has the added effect of precluding the contractor
from being able to provide the required bid bond, without which the bid is
considered nonresponsive by  the Government and not considered for award.

    The HTW industry  stated  that the number of contractors bidding on HTW
treatment projects is fewer  than those bidding on non-hazardous and toxic
waste projects, in part due  to the bonding problem.4  One contracting firm
pointed out that the  HTW program is comparatively small in relation to the
entire engineering and construction industry activity in this country.  Many
firms reported that they have  elected not to participate in the HTW cleanup
program when they experienced  difficulties in securing bonds or anticipated
complications in that area.

    Contractors perceive that  the problems in contracting in the HTW area to
some extent are due to the Government's use of contracting procedures
developed for non-HTW construction and service contracting.  HTW work involves
a perceived increase  in the  possibility of liability in excess of traditional
construction projects. There is also a strong  perception in the surety and
insurance industry that the  odds of incurring liability given recent asbestos
litigation are much greater  than before.  Contracting firms felt that the
laws, regulations, standard  Government procurement forms and procedures on HTW
contracting efforts were not totally appropriate.  They recommended more
careful scrutiny of the acquisition process to assure avoidance of
inappropriate applications.

    The contractor respondents were also of the opinion that the total
contract amount of indefinite  delivery covered hazardous and toxic waste
contracts engaged in  by a contractor would be assessed by the surety when
upper bonding limits  were decided upon for a contractor.  This concern
prevails in spite of  the fact  that the Federal government only requires
bonding for delivery  orders  written against indefinite delivery contracts.
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This had particular concern to contractors that had been awarded "Large,
indefinite delivery contracts.  They feared that sureties might use the total
contract maximum, rather than actual work orders issued, to compute their bond
capacity limitation.

    Tables 2A-C illustrate the experience of the Omaha and Kansas City Corps
districts.  There were a small number of bids received on several HTW
projects.  This low number of bids is not necessarily due to the lack of
interest in the projects.  According to several HTW organizations interviewed,
including the Hazardous Waste Action Coalition, Environmental Business
Association, Associated General Contractors, National Solid Waste Management
Association and the Remedial Contractors Institute, the key factor
contributing to lower competition for some HTW projects is the inability of
many contractors to secure bonding.  It should be noted that in many cases
firms cannot obtain bonding despite a proven history of competence in doing
such work, strong financial assets and profitability and sound leadership and
experience in the firm.

    In some cases it was reported by both contractors and government
contracting agencies that projects have been delayed due to the shortage of
contractors who can obtain bonding and related surety problems.  Contracting
representatives for both the Corps and the states advised that they have had
administrative delays as a result of contractors not being able to obtain
appropriate bonding. This additional work has resulted in the slippage of
project schedules.

    The resulting shortage  of qualified firms that are able to consistently
arrange surety bonding may be reflected in higher costs to the government.
Bonding's limitation on competition, with only four or five final bidders in
many cases, may have resulted in higher contract bids than would otherwise be
expected.  Tables 2A and 2B illustrate the experience of two Corps districts
in bid prices and number of bidders.

    Smaller  contractors,  in particular,  may be screened out of the HTW cleanup
program market due to their inability to secure surety bonding.  Several
contractors stated that they do not have the extensive financial equity
                                      32

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necessary to satisfy corporate sureties and secure surety bonds.  The results
of a survey conducted by the Environmental Business Association (TEBA) showed
that half of the 45 firms surveyed were unable to successfully compete for a
project due to the lack of adequate bonding or had decided not to bid on
contracts due to problems with securing performance bonds.

    2.   Surety Industry Bonding Perceptions.   The problems  that are  perceived
by the surety bond community are summarized in a document entitled "Hazardous
Wastes and the Surety."5  This document,  revised in November 1989, was
continually mentioned in the interviews as the "bible" of the HTW industry
concerning hazardous and toxic waste.  This document delineates the issues
concerning sureties in handling HTW.  Some of the factors that are of
particular interest and concern to the sureties follow:6

       a.  The  sureties believe  that  design of any  sort  is not  traditionally
a surety bonded activity.  Bonding companies perceive that the risk of bonding
design elements of HTW cleanup is even more substantial than what is faced on
normal construction projects.  This stems from the view that the actual
knowledge and experience in the area  is limited.  Designs may become obsolete
very quickly as changes in the HTW processes evolve and generally there is
considerable difference of opinion among technical experts on design adequacy.
Performance bonds are normally used in construction contracts.  In such
instances, the design is fixed and technical interpretations are more uniform.
However, where design elements and construction are combined in the same
contract (e.g. through performance specifications), bonding problems may arise
due to the increased risk to the surety associated with the unknowns on HTW
project designs.  However, bonding firms believe and the government agrees
that the builder who specifically carries out U.S. Government-approved and-
accepted plans and specifications should not be subject to these potential
liabilities - absent knowledge on its part that the specifications were
defective which was not brought to the Government's attention.  This builder
is implementing an accepted and approved design, and, therefore, is not
responsible for the technology nor the methods used to carry out the cleanup.

       b.  Technological unknowns, particularly  those  in an  area  with
potential liability such as the toxic cleanup program, are worrisome to the
                                      33

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surety community. Bonding companies perceive that the state of technology of
the HTW cleanup process is constantly changing and very ambiguous. It is their
opinion that little is known about the adequacy of the technology either
concerning immediate or long-term experience.  Technology may evolve that
renders the present method inadequate.  Sureties are concerned that this may
leave the designer-builder potentially liable if the present HTW legal climate
continues.

        c.   Surety firms have stated that the present unfavorable  legal
environment, with widespread litigation and large awards, has made insurance
companies very cautious about insuring HTW projects.  Although vocal in their
assertions that they not be treated as a substitute for insurance, they fear
that by bonding such work they may in the future be sought out based on a
legal theory which would treat them as if they were insurance.  The cause for
liability, such as the appearance of a disease 20 or more years after exposure
to toxic substances, leads to a very uncertain situation for sureties.

        d.   According  to the surety firms interviewed, toxic  tort  litigation
features are an important reason for their present reluctance to participate
in the HTW cleanup field.   In the toxic tort arena a very long time period  (10
or 20 years) between exposure and development of injury is typical.  Unlike
other prototypical injury situations,  toxic liability involves long time
periods7 between the alleged exposure  and the discovery  of damages.   Since
this litigation takes place in state courts, the indemnification under SARA is
not helpful, nor legally binding on the states.

        e.   Insurance.  The Hazardous Waste  Action Coalition,  an organization
comprised of technical consulting firms in the HTW field, along with Marsh and
McLennan, a large insurance broker, held a meeting in Washington, D.C. on
September 13, 1989,  in which a series of speakers outlined the insurance and
indemnification problems confronting the contracting industry.  The collected
papers of this meeting are entitled "Pollution Insurance/Indemnification
Issues for Engineers in Hazardous Waste Cleanup".  The papers point out that
the present insurance coverage is not adequate in many areas.  They also
express the insurance industry's concern that potential litigation
uncertainties play a major part in their decisions to forego providing
                                      34

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pollution liability insurance coverage.  The same concerns regarding the
unknown risk of involvement in the HTW market are equally important to
sureties that must decide whether to provide needed bonding for the program.
The following summarizes some of the findings contained in these papers on the
shortcomings of present coverage for HTW projects:
           1)  Present HTW construction contractors' pollution insurance
coverage has only limited spatial or geographic coverage.  Some policies cover
only on-site liabilities.  In some cases, HTW liability may be off-site due to
hazardous substances being carried beyond the borders of the site by wind,
water runoff, or underground seepage.
           2)  Claims-made insurance only.  The insurance coverage is on a
claims-made basis and does not cover the period after the completion of the
project unless the contractor continues to carry the insurance.  Moreover,
even where a contractor may choose to continue coverage, it may not be able to
do so because of the insurance company's decision to no longer make such
coverage available.  The short time period (one year) covered by claims-made
insurance precludes coverage over the long period of 20 years or so in which
claims may be made in the HTW area.  In claims-made insurance, the policy is
only in force during the period when premiums are being paid.  With respect to
HTW cleanup, this would be normally the period of contract performance
including any contractually required warranty periods.
           3)  Low dollar limits.  Surety organizations state that the upper
dollar limits in presently available pollution liability coverage are
insufficient to cover the risks associated on HTW projects.  The comparatively
low limits of the insurance policies outlined in the document would only be
adequate for smaller HTW projects where proven technology would be employed on
an isolated site.
           4)  There is a concern by surety firms that they will be targeted
by third party liability plaintiffs in the event other parties whose actions
may have caused the injury are judgment proof.  The lack of sufficient
insurance or indemnification for the HTW remedial action contractor leads
some bond underwriters to be concerned that the corporate surety based on its
providing a surety performance bond may be adjudicated to fill the insurance
void so that the third party's injury can be compensated.  They worry that,
after insurance coverage has lapsed or expired, and perhaps after decades have
passed, the corporate surety firm which provided the bond may be looked upon
                                      35

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by the courts as the insurer of last resort or a "deep pocket."8  This
unknown risk has led some corporate sureties to forego involvement  in  the HTW
market.  Surety bond producers that have made such a decision indicate that
they would be more likely to participate in the market if the applicability of
SARA indemnification to the surety was clarified.  Moreover, that the
performance surety bond be clearly represented as being intended by the
Government solely as a guarantee of performance by the contractor and not in
anyway as protection for the contractor's tortuous injuries to third parties.

        f.   Greater  risk  to Government.   In response to claims by  some
contractor interests that bonding could be substantially reduced for certain
categories of HTW work, surety sources stated that risks of non-performance
increase if construction contracts are awarded either without surety bonds or
with lower rated surety performance bonds.  Surety officers contacted  in the
survey pointed out the trade-offs involved risks to the government  if  surety
bonds were not used on projects that normally would be surety bonded.  They
emphasized that surety firms perform a valuable service for the government in
screening out potential problem contractors from the pool of contractors
competing on government construction projects.

        g.   Indemnification.  The sureties and contractors have  listed  many
perceived problems with the present SARA9 indemnity law.   There is
dissatisfaction over the amount of indemnification coverage, as well as the
extent of the coverage and even what events are indemnified.  Sureties find
that the definition of what is the maximum dollar coverage of the indemnity is
not specific.  CERCLA sets the upper limit of the indemnification amount as
the funding that is remaining in the Superfund account.  However Section 119
says "If sufficient funds are unavailable in the...Superfund... to make
payments pursuant to such indemnification or if the fund is repeated.  There
are authorized to be appropriated such amounts as may be necessary  to make
such payments.   Sureties and contractors are of the opinion that such
limitation on indemnification may prove inadequate in the future if there are
limited funds available in the Superfund account at the time indemnification
requests ripen.   The EPA is presently addressing the limit on indemnification
problem in proposed draft guidelines for implementing Section 119 of SARA.
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                              IV.   CONCLUSIONS

TRENDS OVER TIME

    Twenty four HTW projects were examined in the study.   Contract data was
assembled for the bidding process on these projects including contractors and
sureties participating, bid amounts, project dates, project types and
government estimates.  The information presented in Tables 2A-C and Charts
la-c and 3a-c summarize the relationships of these factors and shows the
trends in these elements over the past few years.  The information was
analyzed with emphasis on the relationships between award amount and
government estimates, the ratio between high and low estimates and the number
of bids received.  The respective shares of the HTW market for contractors and
for sureties were also examined.

    There tends to be an increasing trend in the ratio  of contract award
amount to government estimate over time.  The average ratio has climbed from
.8 to 1.2 over approximately a two year period.  This has transpired while the
ratio of high bids to low bids has been falling from 2 to 1.3 and the number
of bids received on the average for each project has dropped from 6.2 to 4.6.
This information suggests a decrease in competition for projects in the HTW
field over the time period and to an apparent increase in price at the same
time.  The decreasing ratio of high to low bids over the same period also is
an indication of a changed competitive situation.

    Relationship of project size.  The relationship of the project size and
these various factors was examined.  As the projects increased in size, the
ratio of the award amount to the government estimate increased from .9 for
small projects to 1.5 in the $60 million dollar range,  indicating the
lessening of competition for large contracts where few contractors can
compete.  At the same time the average number of bids per project decreased
with the size of the project, reflecting the fact that few contractors are
currently available to compete for these large HTW projects. The average of  6
bids for smaller contracts was reduced to 4.5 on the contracts in the range  of
$60,000,000 at the higher end of the scale.  These findings, although not
                                      37

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conclusive, indicate a pattern of competition in the field that shows a
limited availability of eligible contractors.  The expanding HTW cleanup
requirement will exacerbate this situation

    Relationship of project type.  Examination of the relationship of the
ratio of award amount to government estimate shows that the ratio is
acceptable, except for containment projects where the ratio was 1.3 to 1.  The
largest spread for the variation of high and low bids was in the projects
involving collection and disposal of wastes, 2.2 to 1, while the next greatest
variation was for gas venting projects which ran 2 to 1.  The heaviest
competition was evidenced in the average number of bids (7) received for waste
containment projects with the next highest number (6.5) bids for alternate
water supply projects.  It is noted that the average number of bids received
for RFP's was only 3, compared with nearly double that amount for Invitations
for bids.

    Contractors' project market shares.  The shares of the HTW cleanup market
(24 Corps projects) are heavily concentrated in a relatively small number of
contractors.  Chart 5 shows that three firms or joint partnerships have about
60% of the dollar market of HTW projects and 5 of the 15 firms have
successfully bid for about 58% of the total number of projects.  The rest of
the projects are being spread among the remainder of contractors, some of
which are quite large.  While the total is still small, the concentration of
activity in a few firms tends to persist and is not assuring to those aspiring
to participate in the program.

    Sureties' market shares.   Surety bond providers are also unequally
represented in the list of sureties shares of the project pie.  Five sureties
or surety combinations account for 83% of the project bond dollars and five
sureties or combinations bonded 70% of the Corps 24 projects analyzed in the
study.  This illustrates the case that few sureties are interested in
providing bonding for HTW projects.

    The foregoing experience presented in the contracting information from the
Corps Kansas City and Omaha Districts reinforces the story presented by the
                                      38

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government contracting officers, and the contracting and surety industries.
The experience is that the market is constricted for contractors in the HTW
field and  the availability of bonding is a problem.  Although all projects
have proceeded and none have been stopped by lack of bond availability, the
difficulties that have been encountered in the bonding area have impacted the
cleanup process by delaying schedules, reducing competition and ultimately
thereby, increasing the prices paid for cleanup.

    Financial risk.  Who is affected?  The government, the HTW contractors and
the surety industry are all at risk in the HTW cleanup process.  A key aspect
in this analysis is the assumption of financial risk in the HTW program.  Some
risk is assumed by the government and some by industry.  The problems arise
when the financial risks are examined in detail and found to be such that
private industry declines to participate due to the perception that it will
have to bear what it considers to be more than its share of the risk.
Historically, the surety industry has provided performance bonds to cover the
risks of nonperformance by construction contractors.  However, in the HTW
area, there has been a great deal of reluctance to do so for fear of extended
liability due to the long term nature of liabilities involved and other
factors of uncertainty in the CERCLA area.  The projects involved risk
uncertainties in terms of the present and the future state of the art of the
HTW cleanup technology.  The state of the art is constantly changing and
improved techniques lead to future pollution standards that may be higher and
more stringent.

    Physical risk.  Who or what is impacted?  The environment, cleanup site
workers and the local residents are affected by the physical risk.  The risks
exist during the cleanup of the project, and extend through the warranty and
the latent defect period of the cleanup project.  However, due to the nature
of hazardous waste, the risk may last for years, decades or forever.  This
problem of unknown risk and uncertain liability must be addressed and the risk
to industry must be bounded in order to gain its full participation in the HTW
program.  In order to reduce the physical risk over the long term, the actions
taken involve financial uncertainties and liabilities.  The government must
assume a certain level of responsibility for these uncertainties.  The total
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level of risk does not disappear;  it is merely transferred from one entity of
society to another. It is not reasonable to expect private industry to
voluntarily participate in a high risk enterprise unless a high premium is
paid.  Many  government programs are structured to reduce this uncertainty in
new high tech and experimental enterprises to a level that is manageable by
the private sector.

    Indemnification, insurance, bonding and contractual agreements are all
mechanisms to transfer risk.  The present situation in the HTW cleanup area
brings this aspect of risk, and who must assume risks for the nation's
cleanup, into focus.  There is a need in the HTW program for the definition of
the risk involved and the assignment of each risk to the proper entity.
Guidelines are necessary to spell out and clarify the appropriate
responsibilities that will be borne by government agencies and those that are
within the purview of private enterprise.

    Indemnification is a tool that transfers the risks from private industry
to the government.  One problem with indemnification in HTW cleanups is the
uncertainty of coverage.  It is not known at the time of bid openings whether
coverage will be available to the contractor or the surety, and, if it is, the
maximum amount of coverage is unknown.

    Another tool commonly used to manage uncertainty is insurance.  Insurance
presently available to contractors is inadequate.  The maximum amount
available is much too low, the time period of coverage is too limited, and
third parties are not covered.  Thus, the transfer of risk to the insurance
industry is quite limited.

    The bonding process is another way to transfer uncertainties  from the
government.  It is a traditional way to transfer risk in the construction area
where construction occurs over a long time period and commitments must be made
for the entire project before the project can proceed.  The traditional risk
covered by construction performance bonds was that the project be completed as
designed,  that the contractor assumed responsibility during the construction
period, the warranty and the latent defect period.  Problems have arisen in
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the bonding of HTW projects because of perceived new and unanticipated risks
being possibly transferred to the surety.  These perceived new risks entail
additional possible responsibilities for project efficacy, design (performance
specifications) and third party suits.  It is in this area that the present
problems of uncertainty have surfaced and are at this time a subject of
considerable concern.

    This study indicates that the problem of performance bond availability for
HTW construction work may be limiting the number of qualified contractors that
can compete for such work.  In some cases, the limitation on firms able to
compete, when coupled with requirements on the government necessitating a high
number of HTW contract awards within a short span of time, may have caused
competing firms to be less competitive in their bid submittals.

    The data analyzed does not clearly indicate any serious problems at this
time.  However, the contract information on the twenty-four projects analyzed
may be skewed due to a concentration of contracts during September and October
of 1989.  Although trends are suggested, the data is not sufficient to draw
specific conclusions.  Continuous observations of award data is necessary to
determine if trends are developing.

    While not yet resulting in the government not being able to get
competition on its HTW projects or to carry through on its remedial action
programs, the clear implication of industry comments received is that the
concern being expressed by the surety industry over providing bonding for HTW
projects may well ultimately lead to a situation where bonding limitations
will arbitrarily curtail the extent of competition realized by the government
for such work.  This concern may threaten the government's ability to
successfully acquire the construction services needed.

    This report has reviewed both subjective data gained from interviewing
various HTW industry representatives and objective data based on bids received
by the Corps.  While the information from interviews is subjective, it does
represent the industry mind set and as such govern industry decision- making.
Where there is little or no risk, it is appropriate to try to minimize
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industry fears.  The underlying industry concern is risk to the contractor
and/or the surety.  Factors affecting risk include:  indemnification,
insurance and bonding.  These risk factors influence one another, e.g., if
indemnification is available to the surety, then bonding may be more readily
available.  No single action will solve all the bonding problems.  Additional
conclusions are listed below:

       The government must select the most appropriate acquisition strategy
early in the solicitation process.  Risk to sureties,  contractors and the
government should be considered in addition to other site requirements.
       The government acquisition strategy should address the need to make an
early decision whether to use a service or construction contract.  In some
cases, different contract types may be used for different project phases
within the same contract.  Miller Act, Davis-Bacon Act and Service Contract
Act decisions should be made on their merits and without regard to bonding or
cost implications.
       Contracts should be structured, the type of contracts selected and
bonding requirements established, to appropriately protect the government's
interests.  These interests include: insuring that contractors capable of
performing the contract remain eligible and that the selected contractor
performs as promised.
       HTW cleanup agencies should explicitly decide how much performance
bonding is required and how that bonding should be structured.  Normal
practice is to require 100% performance bonding for construction contracts and
zero bonding for service contracts, although the contracting officer can
select other percentages.  We need to assure that the amount selected is only
that needed to protect government interests.
       Sureties only want to assure that the remedial action contractor
constructs what was required by the plans and specifications.  They wish to
avoid design/construct contracts or contracts containing major performance
specifications.
       There is a strong perception by the industry that difficulties with
bonds is limiting competition.   RA contractors report that they have not bid
projects due to unavailability of bonding.  Sureties indicate that the risk is
too large.
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       Contractors want to be able to provide alternate monetary protection to
the Government, i.e., letters of credit.  While the Government cannot at
present accept letters of credit directly, letters of credit can be used as an
asset by an individual surety.  Regulations would be required to allow the
Government to directly accept letters of credit in lieu of surety bonding.
       Sureties want indemnification for both themselves and their contractors
should they have to assume responsibility for project execution or design.
       Protection of the Government interest can be achieved by performance
bonding, by careful selection of competent contractors or a combination of the
two.  The Corps has, for the most part, used construction contracting where
the primary method of contractor selection is by low bid.  Since control over
contractor selection is limited, the Government has compensated by demanding
100% bonding.  An alternative would be to use an RFP where technical
capability, management expertise, experience, and price are considered in
contractor selection.  With more confidence in contractor capability, a lower
performance bond might be appropriate.  The government should attempt to
mitigate contractor and surety concerns while maintaining appropriate
protection of the government interest.
                                      A3

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                             V.  OPTIONS EXAMINED

A.  INTRODUCTION
    Discussions conducted during the study with Industry, contractor, and
government personnel raised several possible alternatives that might be taken
to increase the availability of bonds to HTW construction contractors.  These
alternatives fall into two general categories as follows:

    o   Non-Legis1ative  Changes.  Internal  Corps  and EPA  non-legislative
        changes  in procedures  related  to contracting strategy  and
        implementation of the  authorities  which  each agency  already  possesses.

    o   Legislative  Changes.   includes  revisions to regulations which guide
        each agency  but  which  neither  possesses  the authority  to revise
        independently;  revisions  to existing statutes so as  to,  (1)  eliminate
        requirements that serve to  lessen  the corporate  surety industry's
        interest in  bonding of HTW  projects  and,   (2) to clarify that
        performance  bonds are  to  be used only to assure  that the contractor
        will complete all contractual  requirements  and are not a vehicle by
        which third  party claims  may be satisfied.

    Of  the  options  available  to  the government  to  alleviate the bonding
problem, many are centered on  the  concept of management of  risk by  the
government.  Financial  and physical risk  exist  in  the cleanup process and the
government  needs to incorporate  risk analysis into its  planning process to
examine the  trade offs  in costs  and benefits of the transfers of  these risks
between government  and  the private sector.   In  the case of  bonding  HTW cleanup
projects,  the government must  examine  the assumption of higher risks in non-
performance  of contracts for HTW cleanup  against the gains  of more  competition
by the  cleanup  industry  and the  resultant lower prices  for  projects.

    It  should be pointed out  that  the  bonding community generally does perform
a service  for the Government  contracting  agency in making its evaluation  to
bond a  particular contractor.  In  making  this decision, it  carefully analyses
the contractor's  financial and technical  competence to  do the work  as well as
                                       45

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its history of performance.   In this respect,  it supplements the pre-award
survey performed by the contracting officer to make his affirmative
determination of contractor  responsibility.   However,  in the case of HTW
projects, the surety community appears to allow its concern for the unknown
risks associated with such work to overshadow its consideration of more
conventional factors reflecting the contractor's capability to perform.  The
study indicated that many sureties foreclosed any consideration of bonding a
contractor based solely on the fact that the project was associated with HTW.
In doing so, the surety did  not analyze the contractor's ability to perform as
it would have done on a non-HTW construction project.

B.  NON-LEGISLATIVE CHANGES
    These options address solutions which can be readily implemented by the
various agencies concerned.   They primarily focus on issues related to the
contracting process.  In some cases, they call for clarification of each
agency's existing activities.  In other instances, they call for new
initiatives by the agencies  to assure that bonding requirements and the
acquisition factors which may have a major impact on the availability of
bonding will be given careful consideration during the acquisition planning
process.  Table 3 summarizes the types of options, their advantages and
disadvantages, the lead agency for implementation, and their priority.

    In some cases, the options recognize that implementation will necessitate
a tradeoff of protection for the Government against contractor nonperformance.
The advisability of accepting such a tradeoff will need to be evaluated for
each contract.  This will be done in light of the risk being assumed by the
Government, versus the benefits to be derived from the potential improvement
in the competitive climate associated with lowering the bond requirement.

    While implementation of  these options may promote  greater interest in HTW
work by both contractors and corporate sureties, increased interest and
competition may not necessarily reduce the cost of the work.  Moreover, any
decision to lessen bonding requirements must be completed with special
emphasis being placed on the pre-award survey procedures by the procuring
agency.
                                      46

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                                                                                  TABLE 3

                                                                              TYPES  OF  OPTIONS
                   Option!
                                              Advantag*i
                                                                                                  Disadvantages
                                                                                                            Implemented By
NON-LEGISLATIVE CHANGES

1. Improved Acquisition Planning and Bond
Structuring;
   A. Require increased acquisition planning.
Incorporate analysis of service contracts vs.
construction contracts and incorporate coat
type  contracts into acquisition plan.

   B. Provide Guidance on Bonding
Requirement*.  Reduction of penal amount of
bond. HTW Policy Guidance, 2 year test
program.

   C. Clarify performance period.

2. Clarify surety liability under SARA;
   A. Define third party risk.Bond form and
contract modifications including 3rd party
exclusion clauses, exclusion of bond as
liability insurance substitute.  Requires a
change in the regulations.

   B. Surety Indemnification. Provide
indemnification for sureties if they assume
project control.

   C. Define bond completion period.
3. Indemn
         ificatiqn gui
         indeminficati
delines:  Modify
proposed indeminfication regulations,
establish high maximum limits and clarify
qualifying requirements.

4. Communication with Industry:  Outreach
 frogram for contractors and sureties.
 echnology education program.

5. Limit Risk Potential;
   A. Clarify contract policy on RFP
performance specifications and design-build.

   B. Use of irrevocable letters of  credit
vm. bonds.
                          May reduce  obstacles,  induces  store  participation
                          by contractors
                          Reduces bond  portion  project  costs,  induces more
                          and greater variety of  contractors  to bid  (e.g.
                          smaller firms).
                          Same as  above.
                          Removal of  sureties'  stated objections  to
                          contractual clauses.   Inducement  to  participate
                          in HTW program.
                           Induce more  surety  and  contractor participation
                           in HTW program.
Induces more surety and participation in
program.                  f

Limlts Federal liability for idemnitication.
                          May  encourage  contractors  sureties  to partici-
                          pate in program.
                           Separating  out design  portion may encourage
                           sureties  to participate  in  program.
                           Enables  some  contractors  to  participate  in
                           program.
                                                    Use of service contracts with no bonds may increase
                                                    risk to government.  May request use of bonds from
                                                    USAGE.  B.C. Procurement.
                                                    Limits non-performance protection to government,
                                                    more marginal contractors.
                                                    All bonds must be in place before notice to proceed
                                                    is issued. Initially difficult to set up guidance.
                                                    Can be accomplished more simply by reduction of
                                                    penal amount of bond.

                                                    Hill take one and one-half years to Implement
                                                    interagency coordination needed.
                                                    May increase Federal liability for indemnification.
                                                                              None.
                                                                              May discourage participation by sureties, if limits
                                                                              are set too low.
                                                                              Effectiveness unknown.
                                                    Imprecise clause could limit contractor performance
                                                    obligations more than necessary.

                                                    Additional adminstrative  burden,  increased
                                                    financial costs to contractors  ties  up assets.
 Each agency




 Each agency



 Each agency




 Each agency




 EPA



 Each agency


 EPA



 Each agency



 Each agency


 Each aganey
LEGISLATIVE CHANGES:

   A. Increase separate dollar limit reserves
from SARA fund and increase types of coverage
for indemnification and types of coverage  for
indemnification.

   B.  Specify • dollar cap on liability.
   C.  Preempt atata'a itrict  liability
sureties.  Provide universal indemnity.

   D.  Modify CEBCLA or Miller Act.  Specify
performance bonds ares only to assure
completion of contract requiremets.
                           Induce more  sureties  and  contractors to
                           participate.
                           Induce more  contractor  and  surety participation.
                           Induce  sureties  and  contractors to participate
                           in program.

                           Induce  sureties  and  contractors to participate
                           in program.
                                                    Additional administrative  burden,  increased
                                                    financial coats to contractors  ties  up  assets.
                                                    Federal government  assumes  more  risk.


                                                    Reduction of public protection against  HTH hazards.


                                                    Reduction of public protection against  HTH
                                                    liability hazards.
Each agency




EPA


EPA


Each agency

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    1.   Improved Acquisition Planning & Bond  Structuring.   These  options
require that the procuring agency be especially sensitive to its
characterization of the work to be performed under the HTW contract and
vigilant to preclude bonding requirements that are excessive to the needs of
the Government.  If work under one contract is both service and construction
and duties are not severable,  the largest part of the effort (service or
construction) will prevail.  HTW contracts involving incineration or other
treatment technologies will usually involve work elements in both the
construction and service categories of work.   The Miller Act bonding
requirements apply only to construction,  while service work does not require
any bonding unless the contracting officer views it as being needed to protect
a legitimate Governmental interest.

        a.  Background.  The study  found that early soil incineration
contracts were considered by a Corps district to be service work requiring no
bonding.  When a decision by the Department of Labor concluded that hazardous
soil excavation for shipment to a landfill constituted construction, a
different Corps district treated excavation associated with an HTW
incineration project as construction requiring Miller Act performance and
payment bond protection.  In this latter case, the actual incineration process
was classified as being service work.   Although as service work there was no
need to provide bonding for the work,  the contracting officer, concluded that
the incineration process was so closely tied to the excavation work that the
penal amount of the performance bond should encompass both work categories.
This substantially raised the performance bond amount and led to a protest
from a firm which was precluded from competing due to its inability to obtain
the required bonding.  This firm had successfully performed the work required
under the original service incineration project.  The comptroller general
ultimately updated the contracting officers discretion to require 100% of
performance bonding for this project.

    This incident,  as well  as  indications  from a recent Superfund project
performed for EPA by the State of Texas,  (see page 18) highlight the necessity
for the procuring agency to closely analyze its bonding requirements in light
of the work to be performed and the extent of protection needed for the
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Government.  This should be done early in the acquisition process to assure
that the competition benefits that might be gained by such effort can be fully
maximized.  The decision of whether to use a service contract or a
construction contract must be made on their respective merits and not on the
impacts of securing performance bonding.  A separate set of procedures is
required to establish the bonding requirement.

    In making this bonding determination it is also important to recognize
that the surety community's concern regarding the risk associated with HTW
work will probably lead to the surety not stepping forward to complete the
project in the event of a contractor default.  Consequently, it is likely that
the Government will benefit only from the surety's providing the penal sum of
the performance bond.  The Government probably will still need to reprocure
the work.  Contractors pointed out that sureties were requiring substantial
financial commitments from contractors as a prerequisite to providing bonding.
This fact would tend to make the surety even more inclined to buy itself out
rather than assume the greater risk burden associated with its takeover of the
defaulted contract.  The reality then appears to be that the performance bond
is primarily protecting the Government's financial stake in the contract
rather than its interest in not having to deal with reprocurement upon
default.

    In looking at the character of work to be performed under an HTW contract,
it may well be that the nature of the work and the payment arrangements
employed by the Government may provide a measure of protection in themselves
that could warrant a lower bonding percentage.  In the excavation situation,
and even more so where we are dealing with incineration service work, many of
the payments to the contractor are subject to its performing satisfactorily.
A default after partial performance requires that the Government procure
another contractor to continue performance.  This default situation, however,
is substantially different from that faced where we are dealing with a
building construction project.  In the former case, the work to be completed
is relatively easy to determine.  This is in sharp contrast to the problem
facing the Government where multiple subcontractors and complex design
requirements must be determined and taken into consideration in a vertical
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construction project.   While some bonding may be appropriate to cover the risk
to the Government associated with paid mobilization costs and potentially
higher reprocurement costs on HTW treatment technologies projects, it may
appear excessive to require that performance bonding cover 100% of the total
contract amount where that includes the cost of the treatment technology
service over a significant period of time.  In the case of incineration
projects, an incinerator is constructed by the contractor, operated over an
extended period of time during the cleanup and demobilized and moved away
afterwards.  The Corps should analyze, in its acquisition plan preparation,
the possibility of the Government utilizing the incinerator for continuing the
cleanup in the event of contractor default.  The contract may be modified to
include terms for this contingency.  Many alternative contract structures may
be utilized.  Some specific alternatives are shown below in Table 4.  These
are merely examples.  The contracting officer is within his discretion to
require no bonding whatever where the project is predominantly for service.

                                    TABLE 4
                 Sample Alternative Contract for Incineration
Phase





Alt#l:
Single
Construction
Contract with
Davis -Bacon
Wage Rates
Alt#2 :
Service
Contract &
Service
Contract
Rates
Erection &
Prove Out





Full Bond





Full Bond




Operation
Excavation &
Stockpile




Very Low Bond





No Bond




Operation
Incineration
Site
Restoration.
Capping,
Landscaping

Very Low Bond





No Bond




Demobili-
zation of
plant and
equipment



Full Bond





Full Bond




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       b-   Require Increased Acquisition  Planning.  The contracting process,
including the bonding issues, should be integrated into a project acquisition
plan.  An analysis  of the risk trade offs to the Government may be
incorporated into  the acquisition planning process for HTW projects.
Presently the Federal Government requires performance bonds to assure against
the uncertainty of  project non-performance on construction projects as
mandated by the Miller Act.   The cost of  this protection should approximate
the cost of the potential non-performance risk in the long run.  The trade
offs of this risk may be examined in the  acquisition planning process for each
project.  The process will analyze the benefits and costs of the Government
assuming slightly higher risks in project performance and the resultant
benefits and costs  of improving the competitive climate for HTW contracting
and the consequent  reduction in contract  prices.  This may involve the
analysis of each phase of the cleanup and the appropriate level of bonding
that would afford  adequate protection for the Government's interests and still
encourage participation by the bonding industry.  Careful examination of the
contract alternatives, service contracts  or construction contracts, should be
carried out by an  interdisciplinary team, "recommending" to the contracting
officer, although  final disposition will  be made by the Department of Labor.
Meetings are being  planned for early summer 1990 between EPA, Corps and
Department of Labor representatives to clarify the classification of
construction and service contracts under  the Davis-Bacon and Service contract
Acts.

    Cost type contracts  should be given careful consideration where there are
significant technological unknowns associated with undertaking an HTW project.
It is not in the program's interest for the contractor to be required to bear
an inordinate share of the risk.  Requiring fixed priced contracts under such
conditions places both the contractor and surety in an unacceptable risk
condition and would increase  the cost to  the government significantly.

    Multiple contracts are another action which could be considered by the
Government during  its acquisition planning to limit the risk potential for the
bonding community.  The approach would be to structure the contract
requirements so as  to limit  or isolate the activity requiring a surety bond
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from other work that normally would not require bonding if contracted
independently.  The project should be divided into separate contracts with
appropriate bonding for each contract.   This would require the use of multiple
contract awards to assure that elements of work not requiring bonding are
procured separately from construction work elements.

    There are drawbacks to  multiple  contracts.   If the  requirement is  split,
it must be determined to be severable.   Problems may well be encountered in
assuring timely award of contracts.   A delay in one award or a failure to
insure timely completion of a contract will mean delay for all later
contracts.  This will require substantially increased administrative oversight
and procurement effort on the Government's part because of the greater number
of awards to be made.  Furthermore,  the lack of bonding on what may be key
elements of the remedial action will require greater care by the Government in
performing its pre-award survey on the contractor's responsibility.

       c.  Provide Guidance on Bonding Requirements.  Uniform guidance needs
to be issued on evaluating bonding requirements appropriate for HTW work.  It
is imperative that any such guidance take into consideration the importance of
safeguarding the discretion of the contracting officer in such matters.

       d.  Clarify Performance Period.  Minimize  the time period  of surety
performance and thereby reduce the time  exposure for surety coverage.  Use
time-phased bonding, with incremental reduction in the penal amount through
time, as the work is completed.   A similar strategy involves the division of
the project into phases and a requirement for bonding only on the active part
of the project.

    The  amount of a bond can be  reduced by separating the project into parts
and only requiring a bond for the amount needed to complete each phase
sequentially.  All bonds must be secured before issuance of the notice to
proceed.   This has the same effect as reducing the penal amount of the
bonding.   Thus, a bond will be rolled over, with the bond terminated on the
first part when it is completed, and started on the second part, etc.  This
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plan would place an administrative burden on the project.  If additional firms
participate, there is a chance of reduced project costs.

    2.   Clarify Surety Liability
        a.   Background.   Interviews  conducted  in  the  course of the  study with
contractors and sureties focused on the real concern in the surety community
regarding the  potential liability arising from their willingness to act as
guarantors for HTW projects.  This is consistent with the sureties' stand that
they are bonding execution of plans and specs, not project performance. This
is a perceived danger, not one based on any particular court ruling involving
a surety guarantee situation.  The perceived liability arises from potential
third party injury claims and an ill-defined bond coverage completion period.

    The surety's concern for liability results from the  trend in cases  arising
from the monumental asbestos litigations where the courts have sought some
deep pocket to compensate the injured party.  In some cases,  the courts have
looked  to insurance companies for such relief despite the insurance industry's
disclaimer of  any liability under their policies.  The sureties view
themselves as  similar to these situations, with potential deep pockets from
which injured  parties may seek relief.  They recognize that they are not
insurers of such injury, but have little faith that the courts will take note
of the  distinction between insurer and guarantor if there is no other
financially viable party against which a valid judgement can be executed.

    The surety community,  similar to the insurance industry,  uses a secondary
market  to spread the risk associated with any particular bond arrangement.
This secondary market has made it clear that it  is not interested  in sharing
the risk associated with HTW projects.  As a consequence, surety firms are
more and more  being called upon to undertake greater risk levels for such
work.   The insurance industry responded to the loss of its secondary insurers
by withdrawing completely from the pollution liability coverage market.  The
surety  industry, although still maintaining a reduced presence, does have
certain members of its community which have followed the insurance industry
lead and chosen to withdraw from providing bond  coverage for such work.
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    Discussion with  the  surety  industry raises  two  specific  actions  which may
result in encouraging greater surety firm involvement in HTW work.  The first
action arises from the surety industry concern that it not be perceived as an
insurer of third party injuries as a result of the  bond.   The surety
performance bond is intended as a guarantee of contractor performance of the
work.  However,  the bond form does not make any specific statement indicating
that the surety bond is not intended to provide coverage for third party
injury actions which might arise as a result of the contract work performed.
The surety industry representatives have  indicated  that some statement on the
performance bond form noting specifically that the  bond is not available for
coverage of third party injury suits could improve  the secondary markets'
perception of the risk for HTW projects and thereby improve the willingness of
sureties to come into the marketplace and provide bonding for such work.

    The second action would clarify, within  the  invitation or  solicitation
package, the time at which the performance bond completion requirements will
be seen to have been accomplished.  For the construction projects, the bond is
available for the execution period of non-HTW construction plus the warranty
period.  It also is available to cover latent defects which may come to light
following the end of the warranty period.   There is nothing unusual about an
HTW project that would require any different coverage period for its
performance bond.

       b.  Define third party risk.  Define in the  contract which party has
responsibility for specific risks.  Transfers of risk,  usually to the
Government will probably be tested in the courts.  The government will make
explicit that Performance Bonds are not available for third party coverage.
This may be addressed in two ways:
           modify the invitation or solicitation package with a disclaimer.
           This  solution can be implemented by the  procuring agency.
           modify the performance bond form to include a disclaimer.  This
           would require the approval of  the General Services Administration
           and a revision to the Federal  Acquisition Regulation.
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        c-   Surety Indemnification.   Another concern  that needs  to be
clarified is the  extent  of  indemnification,  if any, that the surety would be
entitled to as a  result  of  providing bonding on the contract.  Indemnification
for remedial action contractors performing  HTW work is permitted by 42 U.S.C.
9619, provided that certain requirements are met.  Sureties question the
applicability of  this  indemnification to them.  Since it has a major impact on
the evaluation of the  risk  for bonding such work, clarification is needed to
allow the industry to  adequately quantify its potential long-term risk.

        d.   Define bond completion  period.   The government will  define  the
point at which bond completion requirements have been fulfilled.  This
definition  is within the authority of the procuring agencies.

    Recently,  in reply to a surety's concern over its right  to indemnification
in the  event of a default of  the bonded contractor, EPA advised that the
surety  would be eligible for  indemnification if it elected to stand in the
shoes of the defaulted contractor and complete performance of the remedial
action.  A  final  decision has not been made as to how this will apply to a
surety  that elects to  take  on responsibility for performance, but does so
through its procuring  another contractor.   It is clear that this issue must be
clarified with respect to the EPA superfund projects.

    3.   Indemnification Guidelines.
        a.   Background.  There is no  defined limit  of  coverage in EPA's
interim guidance  on indemnification that can be addressed with certainty by
surety  or contractor interests in assessing their potential risk.  Likewise,
the requirements  that  will  need to be met to become eligible for the
indemnification are not  completely clear with respect to the contractor.  They
are even more ambiguous  regarding the surety.  These unknowns appear to
exacerbate an already  bad situation and provide no incentive for industry to
move forward and  commit  themselves and their assets to support the program.

    It  is  unclear from the data compiled in the  study the effect that
clarification of  this  issue will have on the surety and contractor community.
DOD, which has not provided indemnification, for its work, has been able to
                                      55

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obtain adequate competition.   In fact,  there is some indication that the
design and construction firms performing this work have structured themselves
to limit the potential financial burden that might be associated with claims
made against them in the absence of government indemnification.  Once EPA has
defined clearly the extent of its indemnification coverage and the
requirements for obtaining it, the surety industry may well decide to provide
bonding for EPA projects.

    Regardless of the final decision on these issues,  it is vital that the
procedures for implementing the indemnification and for making claims be
simplified as much as possible.  At this time, there is no written statement
of the procedure that will be followed if EPA receives a claim demand notice
from an indemnified contractor.  Also it is important that the extent of
litigation costs and the timing for payment of such costs be defined.  The
industry is particularly concerned that litigation costs associated with
injuries covered by indemnification not become a major drain on its financial
assets.  The  industry is concerned that it will have to carry such costs over
long periods  of litigation and may well have to forego its recovery from the
indemnification pool if a settlement is reached prior to final judgment on the
case.  It would seem advisable that the claims procedures  include some early
decision by the Government with respect to the Government  taking over
responsibility for defense or settlement of the claim.

       b.   Publish final indemnification guidelines.   In completing  the
indemnification guidelines EPA should consider the following.
           explicitly describe the limits of coverage.
           define the claims procedure including claims for ongoing litigation
           costs.
           explicitly state under what conditions indemnification for surety
           firms is available.

    4.  Communications With the Industry.
       a.   Background.   It is evident  from the study that there is  not a
clear understanding among  the  surety community's members when  advanced
technology is used on HTW projects versus when conventional engineered
construction  is used.  While  there  is no dispute that  some HTW work  can be
                                      56

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hazardous and  complex, many projects use proven engineering principles which
have a long history  of use and  acceptance.  The extreme caution on the part of
the surety industry,  limited number of projects constructed and reluctance of
sureties to become involved in  HTW projects, all mesh together to cause the
surety to assume  each HTW project is the same despite the considerable
variation in the  types of projects.  A number of projects are water supply
construction alternatives that  have no direct involvement with hazardous
wastes.

       b.  Outreach  Program.  To overcome this lack of understanding, the EPA
and the Corps  could  sponsor outreach efforts aimed at bringing both sureties
and contractors together for purposes of discussing with industry technical
aspects of different types of HTW projects. The agencies should also focus on
the different  site conditions and various contractual provisions that can
distinguish one site from another and the technical aspects of using state of
the art technology.   While not  eliminating all impediments to surety
involvement, this could go a long way toward lowering the surety industry's
reticence to participate on some of the less complex projects.

    5.  Limit Risk Potential.
       a.  Background.   Sureties  expressed particular concern that the
Government not package its procurements, as design-build contracts including
the use of performance specifications.  In these cases, the surety is
concerned that its risks are significantly enlarged from the situation it
faces where design has been completed and the contractor need only construct
the designed project in order to satisfy performance.

       b.  Clarify Contract Policy.  The  government  should consider  accepting
design responsibility where performance specification requirements have been
met.  Performance specifications are used to some extend in all construction
contracts.  Incineration and ground water treatment contracts have a very
large performance specification component and will remain that way.  The
government will continue to allow contractors to propose the complex equipment
needed to meet specific site treatment requirements.  Once the contractor has
demonstrated that the equipment meets the performance specification, the
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government could consider more explicitly reduction of the contractors
liability as long as the performance specification continues to be met.

    Where appropriate  assume  governmental  responsibility for risk.   Consider
developing specific language that relieves the contractor of third party
liability when meeting government-dictated performance specifications.  Where
performance specifications are provided to the contractor, and the government
is solely responsible for the performance criteria selected, the government
would accept responsibility for harm to the environment or third party
resulting from the use of the performance criteria.   An exception to this is
where the contractor had knowledge of deficiencies in the performance criteria
and failed to disclose such fact to the government.

       c.  Letters of Credit.  Indications from the contractor community
received during the study were that allowing the use of letters of credit will
give new contractors and those with little experience a chance to get started
in the HTW field and build a track record.  The letter of credit is not
without its detrimental aspects.  They may prove to be financially draining to
a contracting firm and limit a firm's ability to compete, much as surety bonds
do in relation to the firms financial capacity.  Again, one must weigh the
benefits of increased participation against the chances of problems due to
using less experienced firms.  To pursue the issue further the agencies should
explore the use of letters of credit in lieu of bonds by (1) reviewing the
acceptability of individual sureties' use of letters of credit as assets, and
(2) determining the feasibility and desirability of modifying the FAR to allow
letters of credit.

C.  LEGISLATIVE  CHANGES
    The path for change  in the laws  governing the hazardous and toxic waste
area is long and complex.  However,  SARA is due to be reauthorized in 1991, so
plans may be made for proposed changes to the future legislation. The EPA is
the lead agency in the Superfund program and, thus,  the agency to initiate
activity in the legislative area.  Possible changes mainly apply to the
indemnification question. They include the following:
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    1.   Increase the coverage for indemnification.   Expand the  types  of
coverage for liability indemnification and make these available to the surety
as well as the contractor.
    2.   Establish a dollar cap on HTW liability.
    3.   Preempt state laws covering strict liability,  and provide  universal
indemnity.
    4.   Amend CERCIA and/or Miller Act to specify that the purpose of
performance bonds is to assure the government that the contractor will
complete all contractual requirements and obligations.  Performance bonds
shall not be a vehicle for third party liability claims.
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                          VI.   RECOMMENDATIONS

    Table 3 lists all options which have been considered as  a  result  of  the
study.  It represents in capsule form the pros and cons associated with each
and provides an  indication  of the potential for increasing competition
associated with  implementation of the option.  It also shows the specific
actions which are recommended to be taken by EPA and the Corps as a means of
increasing the availability of bonds for HTW work.

A.  NON-LEGISLATIVE CHANGES
    1-   Issue Guidance on Use  of Acquisition  Planning for HTW.
    The most effective strategies  for alleviating the  scarcity in bonding of
the HTW program  are those emphasizing improved acquisition planning,  both
formal and informal, additional risk sharing guidance which gives emphasis to
the careful consideration of the bonding requirements, and contract type that
will maximize qualified contractor competition.  This particular alternative
permits immediate implementation by the agencies concerned.   It also places
the burden on the contracting officer to make appropriate decisions on matters
which may impact substantially the competitive climate for a particular
invitation or solicitation.  Each agency should have this guidance issued by
an appropriate office within their headquarters for immediate implementation.

    The steps  in the recommended acquisition planning  process  are as  follows:
        a.  Determine  appropriate wage rate categories  for anticipated
required labor.
       b.  Determine  contract  type,  e.g., service,  construction,  etc.
        c.  Decide whether  to  subdivide  the project  into phases.
        d.  Decide on  the  appropriate performance  bonding level based on  a
risk analysis.    Explicitely consider less than 100% bonding for construction
contracts and greater than  zero for service  contracts.
        e.  Decide on  contract  method (consideration of cost type contracts in
addition to firm fixed price contracts).

    The guidance should emphasize  that the Miller, Davis-Bacon or Service
contract act decisions must be made on  their merits without consideration of
cost or bonding  factors involved.
                                      61

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    EPA and Corps  representatives should meet with Department  of  Labor to
clarify the contract requirements  of the  HTW program and the relationship of
these to the:   Miller Act,  Davis-Bacon Act and related regulations.

    A program  of continuing review  of  contract  actions will  insure  continued
competition in the contracting process.

    Emphasis should be placed on appropriate  acquisition planning which takes
into consideration all factors that relate to the competitiveness of the
contract situation.

    2.  Clarify  Surety Liability Under SARA.
    EPA should move immediately to  clearly define the  extent to which it will
provide indemnification coverage to sureties on HTW projects.   Extending
indemnification by the Federal government to sureties should be explored when
they  fulfill these surety obligations by stepping in and completing the
project for the defaulting contractor.  Presently this area is not well
defined.   EPA should  also institute, in conjunction with the Corps, an effort
to  revise  the present FAR performance bond form to deal with the concerns
raised by  sureties on potential for third party actions looking to the bond
for injury judgement  recovery.  A task force composed of appropriate personnel
from  both  agencies should be established to work on having this revision
instituted for HTW projects.  At the same time, each agency should require its
internal procurement  elements to assure that wording is included in
invitations and solicitations disclaiming any interest by the Government in
having  the performance bond being available to cover third party injury
claims.

    3.  Indemnification Guidelines.
    A new  indemnification clause will be  implemented by the Corps which will
assure  the indemnification of HTW contractors  in the event  that  they  are not
able  to secure adequate insurance for firm fixed price  contracts.  The
indemnification will  extend  to  third party liability by the surety.

    4.  Communication with  Industry.
                                      62

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    EPA and the Corps should jointly establish an outreach program designed to
discuss with  the  surety and construction industry as to the nature of the HTW
program, the  realities of the technology being employed on remedial action
projects and  the  contract clause addressing risk.  The joint working group,
including procurement and PARC representatives, would seek out prominent
industry members  and associations and urge that a dialogue be initiated on a
periodic basis  to address specific concerns of the industry stemming from
bonding particular  types of HTW projects.

    5.   Limit Risk Potential.
    Each agency should immediately issue guidance to assist contracting
officers in making  their decisions on the amount of risk for the government to
assume in the issuance of performance bonds.  The guidance should emphasize
that performance  specifications and design-build contracts should be used only
when necessary  and  solicitations should be clear on what responsibilities the
government assumes  for the technical criteria of the project.  Additionally,
the contracting officer should be urged to assure that the contract be
structured to reduce bonding requirements, where the risk of non-performance
to the government is minimal which can have a detrimental effect on
competition from  qualified firms.  Guidance should emphasize protecting
governments'  interests.  These include ensuring that the contractor performs
as promised and all contractors, capable of performing, remain eligible.  The
agencies should seek approval of a contract clause which will clearly indicate
that in professional specifications the government is responsible for
establishment of  the level of cleanup and the contractor is responsible for
the method and  means used to achieve this level.

    A joint  working group should be established between the Corps and EPA to
better define the implications associated with proposing a recommendation for
a FAR revision  to permit the acceptance of letters of credit in lieu of a
surety bond.

B.  LEGISLATIVE CHANGES
    Recommend EPA consider proposing legislative changes for indemnification
and third party liability.  Analysis of the comments received during the
course of this  study indicates that legislative changes in these areas will
                                      63

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substantially reduce many of the concerns  of the surety industry and
contractor community in being involved with Superfund remedial action work
                                     64

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                                   ENDNOTES
1.  FAC 84-12 January 20, 1986. Part 28. Bonds and Insurance -   Subpart
28.203-1 and 28?D3-?

2.  Information paper on Davis-Bacon Act. Gregory Noonan,  Army Corps of
Engineers.  1989.

3.  Omaha District Corps of Engineers, Analysis of Contract Bidding.  4th
quarter, 1989.

4.  Testimony of Warren Diederich, Associated General Contractors of America
to the Committee on Merchant Marine and Fisheries, U.S.  House of
Representatives on the topic of Hazardous Waste Cleanup of Coast Guard
Facilities, November 1, 1989.

5.  Hazardous Waste and the Surety.  American Bar Assn.  William Ryan and
Robert Wright.  November 1989.

6.  Briefing on Pollution Insurance/Indemnification Issues for Engineers in
Hazardous Waste Cleanup.  Hazardous Waste Action Coalition, Marsh and
McLennan.  Washington, DC. September 1989.

7.  Briefing on Indemnification Issues.  Marsh and McLennan.

8.  Hazardous Waste Action Coalition.  Briefing on Pollution/Indemnification
Issues for Engineers in Hazardous Waste Cleanup.  Marsh and McLennan.  Sept.
13, 1989.

9.  EPA Indemnification under  SARA S 119.  American Consulting Engineers
Council.  March 1989.
                                      65

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                                  BIBLIOGRAPHY


American  Insurance  Association.   Information Papers.  June 1989.

Associated General  Contractors  of America.  Information Papers.  December
1989.

Comprehensive  Environmental Response, Compensation, and Liability Act, 1980
(CERCLA),  US.

Hazardous  Waste  Action Coalition, American Consulting Engineers Council.
Briefing  on Pollution
Insurance/Indemnification Issues  For Engineers In Hazardous Waste Cleanup.
Marsh & McLennan.   September  13,  1989.

Hazardous  Waste  Action Coalition, American Consulting Engineers Council.  EPA
Indemnification  Under SARA #119.  March 1989.

Gibson, Jim.   Information papers.  Army Corps of Engineers, OCE, CEMP-RS,
December  1989.

Grace Environmental.   Information Papers.  November 1989.

Killian,  Bernard P.   Information  Paper.  Illinois Environmental Protection
Agency.  May 1989.

Noonan, Gregory  M.  Labor Standards and Environmental Restoration Projects.
Information Paper.  Army  Corps  of Engineers, OCE, CECC-L.  1989.

Ryan, William  F. , Jr.   and Robert M. Wright.  Hazardous Waste Liabilities and
the Surety.  American Bar Association.   Revised October 1989.

Surety Association  of America.  Information Papers.  July 1989.

Tietenberg,  Tom  H.  "Indivisible Toxic Torts:  The Economics of Joint and
Several Liability".   In Land  Economics.  Board of Regents of the University of
Wisconsin  System, 65  (4),  November 1989. pp. 305-319.

Unknown.   "Industry Probes Effect of Dwindling Bond Market on Superfund
Cleanups".   Inside  EPA.   November 10, 1989.

United States  General  Accounting  Office.  Contractors Are Being Too Liberally
Indemnified by the  Government.  GAO/RCED-89-160.  September 1989.

Waldorf, Dan.  Memorandum.  A & A Research and Development. October 1989.

Watling, Edward  T.  Information Paper.  Army Corps of Engineers, OCE, CEMP-R.
December 1989.

Whalen, Thomas A.   P.  E.   Performance and Payment Bonds for Construction
Contracts.   Environmental  Protection Agency, December 1989.
                                      67

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APPENDICES
      69

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  Appendix A:




List of Contacts
        71

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    APPENDIX A




HTW BONDING STUDY




 List of Contacts
Name
John Steller
Lynn Schubert
Brian Deery
Stuart Binstock
Dave Johnson
Jack Mahon
Greg Noonan
Chuck Schroer
Walter Norko
Sara Bunch
Jim Gibson
Paul Lancer
Noel Urban
Gene Jones
Bruce Anderson
Norm Spero
August Spallo
Joan Chapman
Steven Switzer
Frank Bader
Lee Fuerst
Donald Robinson
Cathy Vanetta
Kirk Williams
Stanley Karlock
Gary Henninger
Ann Wright
Rick Heinz
Mary Melhorn
George Wischman
Richard Corrigan
S. McCallie
Jim Lane
Peter Bond
Mike Yates
William Bodie
Paul Nadeau
Tom Whalen
Carl Edlund
Tom Bosley
John Herguth
Terre Belt
Joe Turner
John Daniel
Organization
111. Dept land Pollution Ctrl
American Ins. Assn
Assn. Genl. Contr/Amer
Assn. Genl. Contr/Amer.
Assn. Genl. Contr/Amer.
CECC-C OCE
CECC-C OCE
CEMP-C OCE
CEMP-CP OCE
CEMP-RS OCE
CEMP-RS OCE
CEMP-RS OCE
CEMP-RS OCE
CEMRD-CT
CEMRD-OC
CEMRD-OC
CEMRK-OC
CEMRK-CT
CEMRK-CT-K
CEMRK-ED-T
CEMRK-ED-T
CEMRO-CT
CEMRO-CT
CEMRO-CT
CEMRO-ED-E
CEMRO-OC
CEMRO-OC
CEORD-RS
CEPR-ZA
CEPR-ZA
CH2M Hill
CH2M Hill
Corroon & Black
Davy Corp
Ebasco Constr. Inc.
Environmental Bus. Assn.
EPA HQ
EPA HQ
EPA Reg Off 6 (Dallas)
Fidelity & Deposit Co.
Foster Wheeler Corp.
Hazardous Waste Action Co
Huntington Dist.
IT Corp
Address
Springfield
Washington
Washington
Washington
Washington
Washington
Washington
Washington
Washington
Washington
Washington
Washington
Washington
Omaha
Omaha
Omaha
Kansas City
Kansas City
Kansas City
Kansas City
Kansas City
Omaha
Omaha
Omaha
Omaha
Kansas City
Omaha
Cincinatti
Washington
Washington
Washinton
Denver
Madison
San Francisco
Lyndhurst
Washington
Washington
Washington
Dallas
Baltimore
Clinton
Washington
Huntington
Washington

IL
DC
DC
DC
DC
DC
DC
DC
DC
DC
DC
DC
DC
NE
NE
NE
MO
MO
MO
MO
MO
NE
NE
NE
NE
Mo
NE
OH
DC
DC
DC
CO
WI
CA
NJ
DC
DC
DC
TX
MD
NJ
DC
wv
DC
                                73

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Name
Organization
Address
Phil Deakin
Norman Delbridge
Joseph Smith
Craig Muetter
James Malony
Myra Tobin
B. De Castro
Barbara Haugen
Ed Putnam
Jim Walker
Walter Youngblade
Bruce Miller
Michael Quinn
Dennis Wine
James Feeley
E. Schutt
IT Corp
Jones Gp.
Jos.J Smith & Assts.
Louisville Dist.
Marsh & Mclennan
Marsh & Mclennan
Nat. Solid Wastes Mgmt. Assn.
Nat .Assn. Ins . Brokers
New Jersey Environmental Dept.
0 H Materials Corp
0 H Materials Corp.
Perland Env. Tech. Inc
Risk Science Intl. Inc.
Surety Ass. of Amer.
Texas Water Comm.
W.R. Grace/Grace Env.
Washington
Springfield
Greenwood
Louisville
Columbia
N.Y.C.
Washington
Washington
Trenton
Finley
Finley
Burlington
Washington
Iselin
Austin
St. Joseph
DC
VA
IN
KY
SC
NY
DC
DC
NJ
OH
OH
MA
DC
NJ
TX
MI
                                   74

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Appendix B:




Sample Forms
      75

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STANDARD FORM 28 (6-66)
GENERAL SERVICES ADMINISHATION
FED P*OC. »EG. (4 1 CF«) I — 1 6.101
AFFIDAVIT  OF  INDIVIDUAL  SURETY
       (See Inifrucf/onj on Reverse)
  FORM APftOVEO
Ox I No. 29-D0030
STATE Of
COUNTY Of
                                                  SS:
I, the undersigned, being duly jworn, depose and jay that I  am one of the sureties to the attached bond; that I am o citizen of the United States
(or a permanent resident  of the place where the contract and bond are executed as  provided in paragraph 3 of the Instructions on reverse),and
of full age and legally competent; that I  am not a partner in any  business of the principal on the bond or bonds on which I appear  as surety;
thatthe in.  .motion herein below furnished is true and complete to  the best of my knowledge.  This affidavit is made to induce the United States
of America to accept me as surety on the attached bond.
1. NAME (First. middle, last) (Type or print J
3. TYPE AND DURATION Of OCCUPATION
2. HOME ADDRESS (Number, Slrttt. Cily
4. NAME OF EMPLOYER (If self-employed.
Stall. ZIP Code)
so slate)
i.  BUSINESS ADDRESS (Number, Street.  City. State. ZIP Code)
                                                                (,.  TELEPHONE NO:

                                                                   HOME-

                                                                   BUSINESS—
 7.  THE FOUOWING IS A TRUE REPRESENTATION OF MY PRESENT ASSETS, LIABILITIES, AND NET WORTH AND DOES NOT INCLUDE ANY
    FINANCIAL INTEREST I  HAVE IN  THE ASSETS  OF THE  PRINCIPAL ON THE  ATTACHED BOND:

      a. Fair value of solely owned real estate*                                                  $	
      b. All mortgages  or other encumbrances  on the real estate included in Line a            	
      c. Real estate equity (subtract Line b from Line a)                                           	
      d. Fair value of all solely owned property other than real estate*                           	
      e. Total  of the amounts on Lines c and d                                                   	
      f. All other liabilities owing  or  incurred not  included in Line b                             	
      g. Net worth (subtract Line f from Line e)                                                   $	
       *Do not include property  exempt from  execution and sale for any  reason.  Surety's interest in  community property may be
  included if not so exempt.
8. LOCATION AND DESCRIPTION Of REAL ESTATE OF WHICH I AM SOLE OWNER, THE VALUE OF WHICH IS INCLUDED IN LINE (a), ITEM 7 ABOVE
                 Abiounl of assessed valuation of above real estate for taxation purposes:
 9. DESCRIPTION OF PROPERTY INCLUDED IN LINE (d), ITEM 7 ABOVE (List the talue of each category of property separately)
 10. ALL OTHER BONOS ON WHICH I AM SURETY (Stall character and amount of each bond; if none, so state)
11.  SIGNATURE
                                                                12. BOND AND CONTRACT TO WHICH THIS AFFIDAVIT RELATES
                                                                   (Where appropriate)
                                   SUBSCRIBED AND SWORN  TO  BEFORE  Mi  AS  FOLLOWS:
DATE OATH ADMINISTERED
MONTH
NAME AND TITLE Of
(Tyft or print)
DAY YEAR
OFFICIAL ADMINISTERING OATH
CITY STATE (Or other jurisdiction)
SIGNATURE
MY COMMISSION
EXPIRES
Official
Seal
 28-104
                                                             77

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                                        CERTIFICATE OF SUFFICIENCY
     I Hereby Cercify, That che surety  named herein  is personally known  to me; that, in my judgment, said  surety is
responsible, and qualified to act as such; and that, to the best of my knowledge, the facts stated  by said surety in  the
foregoing affidavit are true.
NAME (Tlpcu-rillen)
OFFICIAL  TITLE
ADDRESS I dumber. Strsel, City. Stale, ZIP Code)
                                               INSTRUCTIONS
   1. This form shall be used whenever sureties on
bonds to be executed in connection with Government
contracts are individual sureties, as provided in gov-
erning regulations (see 41 CFR 1-10.203, 1-16.801,
1 01 -45.3),   There shall be no deviation from this form
except  as so  authorized  (see  41  CFR  1-1.009,
101-1.110).

   2. A corporation, partnership, or other  business
association or firm, as such, will not be  accepted as a
surety, nor will a partner be accepted as a surety  for
co-partners or for a firm of  which he is a  member.
Stockholders of a corporate principal may be acccepted
as sureties provided their qualifications as such  are
independent of their stockholdings therein.   In arriv-
ing at the net worth figure in Item 7 on the face of
this affidavit an  individual surety will not include any
financial interest he  may have in the  assets of the
principal on the  bond which this affidavit supports.

   3. An individual surety shall be a  citizen of the
United  States, except that  if  the  contract and  bond
are executed  in any foreign  country, the Common-
wealth  of Puerto Rico,  the Virgin Islands, the Canal
Zone, Guam,  or any other territory or  possession of
the United States, such surety  need only be a perma-
nent resident of the place of execution of the contract
and bond.

   4.  The individual surety shall show net worth in a
sum not less than the penalty of the bond by supply-
ing the  information  required  on the face hereof,
under oath before a United States commissioner, a
clerk  of a United States  Court, or notary public, or
some  other officer having authority to administer oaths
generally.  If the officer has an official seal, it shall
be  affixed,  otherwise the proper certificate  as  to his
official character shall be furnished.

   5.  The certificate of  sufficiency shall be signed by
an  officer of a  bank or trust company, a judge or
clerk of a court  of record, a United States district at-
torney or commissioner, a postmaster, a collector or
deputy collector of internal revenue, or any  other of-
ficer of the United  States acceptable to the depart-
ment or establishment concerned.   Further certificates
showing  additional assets, or a new surety, may be
required to assure protection of the  Government's
interest.   Such certificates must be based on the
personal investigation of the certifying officer at the
time of  the making thereof,  and not  upon  prior
certifications.
                            U.S. GOVERNMENT PRINTING OFFICE    1984  0   437-307
                                                                                   STANDARD FORM 28 BACK (6-66|
                                                    78

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                                                                                                              OMB NO. 9000-0045
                                                                                       DATE BONO EXECUTED • '«'«••   "
                                                                                       Man bid opmtng datm)
                                      BIO BONO
                                 (Stf Inttrucaon* on nvertal
PRINCIPAL ILttal nam* and
  VPE 6* oRfiANi2Af ION r'X" on,)	•

  ^ INOIVinUAL       Q PARTNERSHIP

  ^] JOINT VENTURE    Q CORPORATION

STATE OF INCORPORATION   ~	
SURETY (I ES) (Nam* and butlnfu addnu)

PERCENT
OF BIO
PRICE
PENAL SUM OF BONO
AMOUNT NOT TO EXCEED
MILLION(S)
THOUSANO(S)
HUNOREO(S)
CENTS
I BIO IDENTIFICATION
BIO DATE
FOR IConttruction,
Suppllti or Strviettl
INVITATION NO.

OBLIGATION:

We, the Principal and Surety(ies) are firmly bound to the United States of America (hereinafter called the Government) in the above penal
sum. For payment of the penal sum, we bind ourselves, our heirs, executors, administrators, and successors, jointly and severally. However,
where  the Sureties  are corporations acting as co-sureties,  we. the  Sureties, bind ourselves in such sum "jointly and severally" as well as
"severally" only for the purpose of allowing a joint action or actions against any or all of us. For all other purposes, each Surety binds itself,
jointly and severally with the Principal, for the payment of the sum shown opposite the name of the Surety. If no limit of liability is indi-
cated, the limit o.f liability is the full amount of the penal sum.

CONDITIONS:

The Principal has submitted the bid identified above.

THEREFORE:

The above obligation is void if the Principal  — (a) upon acceptance by the Government of the bid identified above, within the period speci-
fied therein  for acceptance (sixty (60) days if no period is specified), executes the further contractual documents and gives the bond(s) re-
quired by the terms of the bid as accepted within the time specified  (ten (10) days if no period is specified) after receipt of the forms by the
principal; or (b) in  the event of failure so to execute such further contractual documents and give such bonds, pays the Government for any
cost of procuring the work which exceeds the amount of the bid.

Each Surety executing this instrument agrees that its obligation is not impaired by  any extension(s)  of the time for acceptance of the bid
that the Principal may grant to the Government.  Notice to the surety(ies) of extension(s) are waived.  However, waiver of the notice applies
only to extensions aggregating not more than sixty (60) calendar days in addition to the period originally allowed for acceptance of the bid.

WITNESS:

The Principal and Surety(ies) executed this bid bond and affixed their seals on the above date.
Signature(s)
Name(s) &
Title(s)
fTyp*d)
1.
rstoi)
i.
2.
(S*ol)
2.
Corporate
Seal
                                                      INDIVIDUAL SURETIES
Signatured)
Named)
(Typfdl
1.
(Stall
1.
2.
tStol)
2.
CORPORATE SURETY(IES)
| SURETY A
Name&
Address
Signatured)
Named) &
Titled)
(Typtot

1.
1.
STATE OF INC.
2.

LIABILITY LIMIT
$

2.
Corporate
Seal
 NSN 7S40-01-1S2-8059
 PREVIOUS EDITION NOT USABLE
                                                           24-105
           STANDARD FORM 24 (REV. 4-85)
           Prescribed Dy GSA
           FAR (48 CFR S3.22B(«))

-------
                                               CORPORATE SURETY(IES) (Continued)
SURETY B
SURETY C
SURETY D
SURETY E
SURETY F
1 SURETY G
Name 81
Address
Signature(s)
Name(s) &
Title(s)
(Typed)
Name &
Address
Signature(s)
Name(s) &
Title(s)
(Typed)
Name &
Address
Signature(s)
Name(s) &
Title(s)
(Typed)
Name &
Address
Signature(s)
Name(s) &
Title(s)
(Typed)
Name 81
Address
Signature(s)
Name(s) &
Title(s)
(Typed)
Name &
Address
Signature(s)
Name(s) &
Title(s)
(Typed)
STATE OF INC. LIABILITY LIMIT
$
1.
1.
2.
2.
STATE OF INC. LI ABILITY LIM IT
$
1.
1.
2.
2.
STATE OF INC. LI ABILITY LIMIT
$
1,
1.
2.
2.
STATE OF INC. LIABILITY LIMIT
$
1.
1.
2.
2.
STATE OF INC. LI ABILITY LIMIT
$
1.
1.
2.
2.
STATE OF INC. LIABILITY LIMIT
$
1.
1.
2.
2.
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
                                                         INSTRUCTIONS
1.  This  form is authorized  for use when a bid guaranty is required.
Any deviation from this form will require the written approval of
the Administrator of General  Services.

2.  Insert the full legal name and business address of the Principal in
the  space  designated  "Principal" on  the face  of  the form  An
authorized person shall sign the  bond.  Any person signing in a rep-
resentative  capacity (e.g.,  an attorney-in-fact)  must furnish evi-
dence of authority  if  that representative is not a member of the
firm, partnership, or  joint venture, or an  officer of the corpora-
tion involved.

3.  The  bond  may express penal sum  as  a percentage of the bid
price. In these cases, the bond may state a ma U.S. Government Printing Office: I 9BS— 48 1 -648/39343

-------
                           PERFORMANCE BOND
                             fStf Inttmctioni on
PRINCIPAL (Lflal namt and biuum*
                                                                                                           u•—<" '•<«' <
E OP ORGANIZAVlON ("tf" ant)	'	


 INDIVIDUAL             Q PARTNERSHIP



 JOINT VENTURE         Q] CORPORATION
                                                                                STATE OF INCORPORATION
SURETY(IES) (Namidl and ftubm* adttrtH(till
                                                                                              PENAL SUM OF BONO
                                                                                MILUION(S)
          THOUSANO(S) (HUNDRED^)  [CENTS
                                                                                CONTRACT DATE  CONTRACT NO.
OBLIGATION:

We. the Principal and Surer/lies), are firmly bound to the United States of America (hereinafter called the Government) in the above penal
sum.  For payment of the penal sum, w« bind ourselves, our heirs, executors, administrators, and successors, jointly and severally. However,
where the Sureties are  corporations acting as co-sureties, we. the  Sureties, bind ourselves in such sum "jointly and severally" as well as
"severally" only for the purpose of allowing a joint action or actions against any or all of us. For all other purposes, each Surety binds itself,
jointly and severally with the Principal, for the payment of the sum shown opposite the name of the Surety. If no limit of liability is indi-
cated, the limit of liability is the full amount of the penal sum.

CONDITIONS:

The Principal has entered into the contract identified above.

THEREFORE:

The above obligation is void if the Principal -

    (a)(1)  Performs and  fulfills all the undertakings, covenants, terms, conditions, and agreements of the contract during the original term of
the contract and any extensions thereof that are granted by the Government, with or without notice to the Surety lies), and during the life
of  any guaranty required under the contract, and (2) perform and fulfills all the undertakings, covenants, terms conditions, and agreements
of  any and all duly authorized modifications of the contract  that hereafter are made. Notice of those modifications to the Surety(ies) are
waived.

    (b) Pays to the Government the full amount of the taxes imposed by the Government, if the said contract is subject to the Miller Act,
 (40 U.S.C. 270a-270e), which are collected, deducted, or withheld  from wages paid by  the Principal in carrying out the construction con-
 tract with respect to which this bond is furnished.

WITNESS:

 The Principal and Surety(ies) executed this performance bond and affixed their seals on the above date.
                                                           PRINCIPAL

Signatured)

Named) &
Titled)
1.

(Slat)
1.

2.

(Stall
2.



Corporate
Seal

                                                     INDIVIDUAL SURETY(IES)
Signatured)
Nanwd)

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                                               CORPORATE SURETY(IES) (Continual
SURETY B |
SURETY C
SURETY D
SURETY E
SURETY F
1 SURETY C
Name &
Address
Signatured)
Named) &
Titled)

Name &
Address
Signatured)
Nsme(i) &
Titled)
rTyjwd)
Name&
Addresi
Signatured)
Named) &
Titled)
iTyptd)
NameJ.
Addresi
Signatured)
Named) &
Titled)
(Typed)
Name&
Addresi
Signatured)
Named) &
Titled)
(Typtd>
Name&
Address
Signatured)
Named) &
Titled)
ITypid)

I.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.

1.
1.

LIABILITY LIMlt
$
2.
2.

1.
1.
STATE Of INC.
LIABILITY LIMIT
$
2.
2.

1.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.

1.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.

1- ^
1.
STATE Of INC.
LIABILITY LIMIT
$
2.
2.
Corporate
Seal
Corporate
Seat
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
BONO ^.
PREMIUM W
RATE PER THOUSAND
$
TOTAL
$
                                                        INSTRUCTIONS
1.  This form is authorized  for use in connection with Government
contracts. Any deviation from this form  will require the written
approval of the Administrator of General Services.

2.  Insert the full legal name and business address of the Principal in
the space designated  "Principal" on  the  face  of  the  form.  An
authorization  person  shall  sign the bond.  Any person signing in a
representative capacity (e.g., an attomey-in-fact) must furnish evi-
dence  of authority if that representative  is not a member of the
firm, partnership,  or  joint  venture, or an   officer of the corpora-
tion involved.

3.  (a)  Corporations executing  the bond as sureties must appear on
the Department of  the  Treasury's list of approved sureties and
must act within the limitation listed therein. Where more than one
corporate surety is involved, their names and addresses shall appear
in  the spaces (Surety A. Surety B, etc.) headed  "CORPORATE
SURETY(IES)"  In the space designated "SURETY(IES)" on the
face of the form insert only the letter identification of the sureties.

   (b) Where individual  sureties are involved, two or more respon-
sible persons shall  execute  the bond. A completed Affidavit of
Individual Surety (Standard Form 28), for each  individual surety.
shall accompany the bond. The Government may require  these
sureties to furnish additional substantiating information concerning
their financial capability.

4. Corporations executing the  bond shall  affix their  corporate
seals. Individuals shall execute the bond opposite  the word "Corpo-
rate Seal", and  shall  affix an  adhesive seal  if executed in Maine,
New Hampshire, or any other  jurisdiction requiring adhesive seals.

5. Type  the  name and title of each person signing this bond in the
space provided.
                                                             82
                                                                                             STANDARD FORM 28 BACK (REV. 10-83)
                                                                                          * UJ. OoMntiiMm Prtntlm Offlcai lt««—4»1-«S4/»«"I

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                               PAYMENT BOND
                             (See Instructions on reverse)
                                                                                              *ecu'
   JCIPAL (Legal name and business address)
                                                                                  TYPE OF ORGANIZATION f'X" one;  ~	

                                                                                  [^INDIVIDUAL             [^PARTNERSHIP

                                                                                  []] JOINT VENTURE          [^CORPORATION
                                                                                  STATE OF INCORPORATION
;URETY(IES) (Named) and business addressfes)/
                                                                                                PENAL SUM OF BONO
                                                                                  MILLION(S)
                                                                                                THOUSANO(S)
                                                                                  CONTRACT DATE  CONTRACT NO.
                                                                                                             HUNDREO(S)  CENTS"
OBLIGATION:

We, the Principal and Surety(ies), are firmly bound to the United States of America (hereinafter called the Government) in the above penal
sum. For payment of the penal sum, we bind ourselves, our heirs, executors, administrators, and successors, jointly and severally  However,
where  the  Sureties  are corporations acting as co-sureties, we,  the  Sureties, bind  ourselves in such sum "jointly and severally"  as well as
"severally" only for the purpose of allowing a joint action or actions against any or all of us. For all other purposes, each Surety binds itself.
jointly and severally with the  Principal, for the payment of the sum shown opposite the name of the Surety.  If no limit of liability is indi-
cated, the limit of liability is the full amount of the penal sum.

CONDITIONS:

The above  obligation is void if the Principal promptly makes payment to all persons having a direct relationship with  the Principal or a sub-
contractor  of the Principal  for furnishing labor, material or both in  the prosecution  of  the work provided  for  in the contract   identified
above, and any authorized modifications of the  contract  that subsequently are made  Notice of those modifications to  the Surety(ies) are
waived.

WITNESS:

The Principal and Surety(ies) executed  this payment bond  and affixed  their seals on the above date
PRINCIPAL
Signature(s)
Name(s) &
Title(s)
(Typed)
1.
(Seal)
1.
2.
(Seal)
2.
Corporate
Seal
INDIVIDUAL SURETY(IES)
Signaturels)
Name(s)
(Typed)
1.
(Seal)
1.
2.
(Seat)
2.
                                                     CORPORATE SURETYIIES)
SURETY A |
Name &
Address
Signature(s)
Namelsl &
Title(s)
(T\oed)
'STATE OF INC. LI ABILITY LIMIT
1 $
1.
1.
2.
2.
Corporate
Seal
NSN 7540-01-152-8061 25204 STANDARD FORM 25-A ( RE V. 10-83)
PREVIOUS EDITION USABLE oo Prescribed By GSA
oJ FAR (48 CFR 53.228
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                                               CORPORATE SURETYIIES) (Continued)
SURETY B |
SURETY C
SURETY D
SURETY E
SURETY F
1 SURETY G
Name &
Address
Signature(s)
Name(s) &
Title(s)
ITyped)
Name &
Address
Signaturels)
Name(s) &
Titlels)
(Typed)
Name 81
Address
Signs ture(s)
Name(s) &
Titlels)
(Typed)
Name &
Address
Signature(s)
Name(s) &
Title(s)
ITyped)
Name &
Address
Signaturels)
Namels) &
Titlels)
(Typed)
Name &
Address
Signaturels)
Namels) &
Titlels)
ITyped)

1.
1.
STATE OF INC. '
LIABILITY LIMIT
$
2.
2.

1.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.

1.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.

1.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.

1.
1.
STATE OF INC.
LIABILITY LIMIT

2.
2.

1.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
                                                         INSTRUCTIONS
1  This form, for  the  protection of persons supplying labor and
material, is used when a payment bond is required under the Act
of August 24.  1935, 49 Stat 793 (40 USC  270 a-270e)  Any
deviation from this form  will require  the written approval of the
Administrator of General Services.

2. Insert the full legal name and business address of the Principal  in
the space designated  "Principal" on  the  fa'H  of  the form An
authorized  person shall sign  the  bond  Any ; '-rson signing  m a
representative capacity (e.g ,  an attorney-m-f* ti  r"ust furnish evi-
dence  of authority if  that representative  is i-nt  3 "^"ber of the
firm,  partnership,  or joint venture, or an   "  ^' :>\ ;ne  corpora-
tion involved.

3  (a)  Corporations executing the bond as s .'• ' - s •••••st ai i ^Jr '-n
the Department of  the  Treasury's  list of  ui : '• •.'
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