FOR OFFICIAL USE ONL'
REPORT ON REVIEW OF EPA ADMINISTRATION
OF WASTEWATFR TREATMENT FACILITY
CONSTRUCTION GRANTS PROGRAM
AUDIT REPORT NO. ElW2-11-022-052
JULY 16, 1173
US. ENVIRONMENTAL PROTECTION AGENCY
O \udit
Washu D C 20-1
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF AUDIT
4TH AND M :STREETS SW.
WASHINGTON, D.C. 20460
U1973
MEMORANDUM
TO : Mr. John Quarles
Acting Deputy Administrator
FROM : Mr. John D. Lisle
Director, Office of Audit
SUBJECT: Report on Review of EPA Administration of Wastewater
Treatment Facility Construction Grants Program.
Audit Report No. ElW2-11-002-052
Enclosed are two copies of our audit report concerning the
administration of the Wastewater Treatment Facility Construction
Grants Program. This report represents a consolidation of the results
of our review of the management of this program in four Regional offices
and nine state agencies.
The findings and recommendations contained in this report have
previously been provided to the responsible Headquarters or Regional
EPA officials for review and comment. We have evaluated the comments
provided and concluded that the actions contemplated should generally
fulfill the intended purpose of our recommendations. Accordingly, we
will require no further response to this report at this time. We do
recognize, however, that the weaknesses described in this report will
not be corrected until the corrective actions are actually implemented.
We will, therefore, continue to monitor the actions to be taken and
promptly advise you whenever such actions are deemed inadequate.
If you have any questions concerning this report, we will be
pleased to discuss this matter in greater detail at your convenience.
Enclosures (2)
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TABLE OF CONTENTS
PART I - DIGEST 1
I
Purpose and Scope of Audit. 1
Summary Results of Audit 3
PART II - FINDINGS AND RECOMMENDATIONS 10
Preapplication Assistance 10
Priority Systems 17
Administration of Construction Contracting Practices. ... 23
Engineering Agreements. . . . 31
Status of Active Construction Grants 46
Interim and Final Inspections 51
Operation and Maintenance ..... 59
Obligation Procedures 74
Financing Construction Grants 81
Accelerated Payments ........ 88
Construction Grants Payment System . 93
PART III - APPENDICES. . . . 98
.APPENDIX A - California Review of Practices Used in
Obtaining Contractual Services for the Construction
of Wastewater Treatment Facilities ..-..' . 98
APPENDIX B - EPA Strategy for an Operation and Mainten-
ance Program for Municipal Wastewater Treatment
Facilities ........ 107
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\
I UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF AUDIT
4TH AND M STREETS SW.
WASHINGTON, D.C. 20460
'JUL 1 6 1973
Audit Report No. El W2-1 1-002-052
REPORT ON REVIEW OF EPA
ADMINISTRATION OF .WASTEWATER TREATMENT
FACILITY CONSTRUCTION GRANTS PROGRAM
PART I - DIGEST
PURPOSE AND SCOPE OF AUDIT
We have performed a review of selected activities comprising EPA's
administration of the Wastewater Treatment Facility Construction Grants
Program. During this review, audits were performed primarily at four (4)
EPA Regional Offices and nine (9) state agencies. These included:
Region II, Region V, Region VIII, and Region IX, Arkansas, California,
Florida, Hawaii, Illinois, Kentucky, New York, South Carolina, and Utah.
In addition, limited reviews of a specific nature were made at Headquarters,
Region IV, Region VI, and in Maryland. This report represents a consolida-
tion of the information and findings obtained in each of these component
audits. The findings and recommendations developed during each component
audit were previously provided the involved Regional officials for review
and comment. Similarly, where the "consolidation of information from the
various component reports has necessitated overall recommendations to
EPA management, we have provided copies of such findings and recommenda-
tions to appropriate Headquarters officials for review and comment. This
report has accordingly taken into consideration any major differences
raised by these officials.
Our review was directed primarily toward evaluating the manner in
which EPA discharged its responsibilities in managing the Wastewater
Treatment Facility Construction Grants Program. We did not review in
detail all aspects of the Construction Grants Program, but instead con-
centrated our efforts on those areas identified to be in need of most
attention. During our survey, we inquired into the systems utilized in
(1) providing assistance to grantees interested in obtaining construction
grants; (2) reviewing and evaluating grant applications, plans and
specifications, contractual documents, etc.; (3) maintaining control over
obligations and payments; (4) evaluating the compliance with grant terms
and conditions; (5) ascertaining the status and adequacy of construction;
and (6) assuring that the treatment plants are properly operated and
maintained. Our review was conducted in accordance with the generally
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accepted auditing standards prescribed by the Comptroller General
in 1972 and accordingly included such tests of the accounting records
and other auditing procedures as we considered necessary in the
circumstances.
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SUMMARY OF RESULTS OF AUDIT
The quality of EPA administration of the construction grants
program can, in our opinion, best be described as inconsistent. While
the individuals involved with this program appear to be diligent and
thoroughly committed•to the objectives of the program, we found weak-
nesses in virtually every*area examined. These weaknesses can be
attributed to two major causes. These include:
1. Lack of Adequate Procedures. The construction grants program
is a dynamic changing program. Yet the procedures being used in
administering the program were written in 1968. Since that time,
many changes have occurred. To deal with these changes, the
-regions each developed their own methods of administering construc-
tion grants. As a result, no two regions operate identically.
This individual evolution has tended to keep EPA from evaluating
the systems used and fully developing a system which could best
fulfill EPA's administrative and technical requirements.
2. Resistence to Change. Since Federal officials running the
construction grants program have been administering the program
for years without current definitive guidance, such officials
have developed traditional methods for administration. These
officials tend to resist changes in methods of administration.
For example, EPA, a couple of years ago, took steps to separate the
administrative from the technical side of construction grant
management. In our opinion, the division was made so that
engineering or other technical personnel would spend most of their
time on technical matters. We found[_during our review, however, j
that technical personnel were still spending a great deal of time "
on administrative matters.
i
Until EPA is successful in dealing with these problems, it is doubtful that
administration of the construction grants program will improve to any
significant degree.
i
The detailed findings developed during our audit are described
below:
Pre-Application Assistance
EPA management of the construction grant program could be improved
through establishing controls to assure that adequate pre-application
assistance is furnished prospective grantees. Such controls would help
to assure that prospective grantees across the United States all have
similar access to EPA for guidance and assistance and that appropriate
efforts are being expended to assure that the grant applications and plans
and specifications will be submitted correctly, thereby eliminating at
least partially the need for time consuming after-the-fact reviews and
corrections. In our review of three EPA Regional offices, we noted that
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each office had a different approach to and put a different degree of
emphasis on pre-application assistance. In addition, we found that
comments and suggestions resulting from such assistance were not always
provided to the state or applicant for further consideration. Further-
more, an insufficient advance review of projects approved, in one
region, resulted in grant offers being made for: (i) projects that
contained unallowable costs, and (ii) projects which did not contain
necessary grant conditions (Page 10).
Regional officials generally concurred with our findings and
indicated that appropriate corrective actions would be taken. We
also believe that Headquarters should establish the necessary guidance
to permit a more uniform approach to providing pre-application
assistance.
Priority Systems
EPA policy and procedures regarding priority systems to be used
in determining the relative need for wastewater treatment projects require
evaluation, revision, and strengthening. During our review we noted
that (1) officials in Region II had waivered the requirement for a
priority one-year listing in funding projects in the State of New York;
(2) allotments of Section 8 funds in Region V were allocated by states
to larger communities without regard to the established state priority
systems; and (3) EPA in Region IX, through its approval of Federal funds
for two water facility construction projects, had developed a policy that
water reclamation facilities are eligible for Federal funding under
Section 8 of that Act. As a result, there was no assurance that the
projects most needed in these three regions to reduce and eliminate
pollution were funded first (Page 17 ).
EPA officials generally agreed with our findings and recommen-
dations and indicated that the recent passage of P.L. 92-500 would require
a new look at all of the State priority systems.
Administration of Construction Contracting Practices
Improvements were needed in EPA procedures to assure that our grantees
contracting practices properly complied with Federal requirements and
adequately safeguarded the Federal interests. In this regard, we noted
that (i) f^e qrantee's procurement techniques for obtaining major items
of equipment were overly restrictive, (ii) project plans and specifications
were not always approved before grantees advertised for bids or awarded
construction contracts, and (iii) adequate documentation was not obtained
to support decisions to award to other than the lowest bidder. These
weaknesses have resulted in EPA being involved in a rising number of
complaints and have prevented EPA from assuring that the proposed plant
will meet necessary Federal standards and be built at the lowest reasonable
cost (Page 23).
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The passage of the new Water Pollution Control Act and the issuance
of new regulations governing the construction grants program have in
our opinion provided the additional guidance needed to resolve these
problems.
Engineering Agreements
EPA guidelines need to be established governing the selection
of contractors, methods of contracting and administration of contracts
used in obtaining consultant engineering services under sewage treatment
construction grants. Such guidelines are needed to comply with OMB
Circular A-102 and to strengthen EPA controls over consulting engineer
costs. Our audit of ,three Regional offices disclosed several significant
weaknesses in the area of contracting for consulting engineering
services. These included:
(i) Failure to go through a proper selection process, whereby
a consultant's qualifications, experience, and costs to
be charged were obtained and evaluated.
(ii) Need for controls to assure that consulting firms were
not acquiring subcontracts through a preferential position
derived from participation in other planning activities.
(iii) Lack of controls to assure that the cost of engineering
services are properly enumerated in the engineering
agreement, reasonable, and acceptable under the established
Federal requirements.
(iv) Need to require inclusion of standard provisions in contracts
for engineering services. For example, none of the contracts
reviewed contained the necessary clauses related to access
to audit, level of effort, Equal Employment Opportunity,
Ownership in Data, or termination.
Unless appropriate changes are made to strengthen EPA controls over
the engineering contracts issued in conjunction with sewage treatment
construction grants, we feel that EPA can have no effective way of
controlling the approximately $200 million of EPA funds authorized
annually for use in obtaining engineering services (Page 31).
Both the Grants Administration Division (GAD) and the Municipal
Waste Water Systems Division (MWWSD) generally agreed with our findings
and recommendations and indicated that procedural guidelines were being
developed which would resolve these problems.
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Status 6f Active Construction Grants
EPA has not established effective management information systems
for determining the status of construction grants. In our audits of
Region II, VIII, and IX, we found the management data concerning the
status of approximately 800 active construction grants, was not
determinable without a detailed review of grant records or reliance
upon the memory of individuals associated with the grant. The
lack of an effective information system precludes management from readily
identifying grants with special problems and assuring that necessary
corrective actions have been taken to resolve those problems preventing
construction projects from achieving their established objectives (Page 46).
Regional officials generally concurred with our finding and indicated
that appropriate corrective action would be taken.
Interim and Final Inspections
Effective procedures should be established for performing interim
inspection!during construction of wastewater treatment plants or final
inspections upon completion of construction. This will ensure that (1)
the grantee's or consulting engineer's supervision of construction is adequate
and work is proceeding satisfactorily, and (2) all work has been accomplished
in accordance with approved plans and specifications and thus, resulted in a
properly operable facility. During our Regional reviews, we observed
varying degrees of priorities assigned these functions ranging from great
emphasis placed on inspections, to assigning a very low priority for these
activities. Consequently, in some regions, the required interim inspections
were not always performed. Although these inspections have not always
revealed major construction deficiencies, they serve to insure
effective,""economic,"and""efficient use of the huge Federal investment in
the construction program. In addition, final inspections were not
always accomplished in a timely manner. Final inspection reports did not
always indicate whether the completed construction fulfilled the conditions
of the grant and met water quality standards. We attributed these weak-
nesses to the fact that more than 50 percent of the engineers effort during
final inspection was expended on non-engineering administrative functions (Page
51).
EPA Headquarters officials generally concurred with our findings
and recommendations and indicated that new policies and procedures were being
developed to provide additional guidance for interim and final inspections.
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Operation and Maintenance
Adequate procedures have not been established to assure that sewage
treatment plants financed with Federal funds are being properly operated
and maintained. Even though primary reliance for operation and maintenance
(O&M) has been traditionally placed on the state, we found that many state
agencies have not established a viable O&M program. Furthermore, EPA's own
monitoring activities have not always been geared to the relative strengths
and weaknesses of the state programs. Instead, little emphasis has been
placed on the Region's O&M programs. Accordingly, in several Regions,
few O&M inspections have recently been made; and no effective procedures
have been established to assure that EPA is notified of plants which the
state has found to have major operational and/or maintenance problems.
Thus, the Regions have no basic knowledge of the actual quality of O&M pro-
vided by many of our grantees. Even in the instances where EPA has
learned of significant O&M problems, actions taken to assure that such
problems were corrected were inadequate. Follow-up was commonly infrequent
and unsuccessful in stimulating necessary corrective actions. We
found no instance where the Regions had even considered taking punative
actions such as withholding subsequent grant funds or initiating action
to find the grantee in nonadherence to grant terms, conditions and assurances.
In our opinion, unless EPA exhibits a willingness to enforce its own terms
and conditions, grantees will quickly come to realize that such terms and
conditions are meaningless and begin to violate these requirements in
increasing numbers (Page 59).
Headquarters officials generally agreed with our recommendations
and enumerated a number of actions being taken to correct the weaknesses.
One item of note is the planned use of the permit program as a tool
to assure that treatment plants will be properly operated and maintained.
Obligation Procedures
Procedures governing EPA's obligation practices need strengthening
to assure that once approved and obligated, construction grants projects pro-
ceed rapidly to construction. We noted, however, that obligations were
based on preliminary estimates which were substantially over or under-stated.
In addition, construction grant projects were commonly approved and funds
obligated long before they were ready to go to construction. Even though EPA
procedures called for the withdrawal of grant offers when satisfactory
progress toward construction was not being made, we noted that such proce-
dures were generally not followed. As a result, many of EPA's sewage
treatment construction grants have remained in the "pending construction"
status for more than two years. During this time, approximately $35 million
of construction grant funds were tied up on these projects, and accordingly,
EPA was prevented from utilizing such funds on state projects ready to proceed
or from reallocating such funds to other states for highly needed projects
(Page 74).
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EPA officials generally concurred with our findings and
conclusions.
Financing Construction Grants
EPA's procedures for financing wastewater construction projects
have resulted in (1) severe cash flow problems for local agencies and
(2) duplicative administrative reviews by EPA and the state. Our
reviews showed that grantees, such as the Metropolitan Sanitary District
(MSD) of Greater Chicago, experienced considerable financial hardship
under EPA's after-the-fact reimbursement system. In addition, in Region
IX, we noted grantees experiencing delays in receiving Federal progress
payments under the construction grant programs. These delays, which some-
times exceeded two months, resulted primarily because the progress
payment requests were being subjected to detailed regional reviews which
duplicated actions already performed by state personnel. A more
efficient system would be to authorize a single state agency to disburse
Federal and state funds concurrently upon completion of its review of the
grantee's progress payment request. This could be accomplished if EPA
provides the state agency with an advance payment or letten-of-credit
system and authorize its use for making payments on Federally sponsored
construction grants. In addition to improving the timeliness of payment
to grantees, the elimination of duplicative reviews would allow EPA
personnel to direct their efforts to correcting other problems (Page 81).
Region IX and several Headquarters officials generally concurred
with our findings and recommendations. The Deputy Assistant Administrator
for Resources Management did -not feel that we should move immediately
in this direction. Instead, he recommended that the decision be delayed
six months and then reconsidered by top EPA management after a detailed
study of both programmatic and financial arrangements. Since this time has
passed, we are again asking that the system for financing construction
grants be changed.
Accelerated Payments
Special procedures established to govern accelerated payments on
reimbursable construction grants did not retain aspects of financial
control traditionally a part of the payment system. As a result, we
found that in Region II (i) payments were made to grantees contrary to
grant terr:. ?H conditions, and (ii) full payments were made before
completion of the construction projects. In some instances, final
inspections of such projects identified operational problems which substantially
hampered the effectiveness of the sewage treatment plants. By removing
these controls, EPA retained no effective means of assuring that required
actions would be taken to adhere to grant terms and conditions and to make
the changes necessary to provide an effective sewage treatment system
(Page 88).
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Headquarters officials generally concurred with our finding and
indicated that appropriate regulations were being issued to govern
payments under construction grants.
. Construction Grants Payment System
Procedures governing EPA's system of making payments on construction
grants need revision to prevent regional officials from performing
administrative functions which are properly the responsibility of pur
grantees. When we reviewecT the"paymerit; systems in two regions, we noted
that EPA technical personnel were reviewing the grantees accounting records
and.preparing the grantees claim for reimbursement. In another region,
administrative personnel were preparing the grantees claim based upon
original source documentation furnished them by the grantee. These systems
prevents grantee institutions from becoming thoroughly familiar with
EPA's financial, accounting, and grant requirements, and therefore,
from being able to submit their own reimbursement claims (Page 93).
Regional responses to this varied. The Headquarters Grants
Administration Division, however, concurred and stated that appropriate
policies and procedures were being prepared clarifying this matter.
Such policies and procedures will be included in subsequent revisions to
the Regulations and Grants Administration Manual.
We have reviewed the responses which Regional and Headquarters
officials have provided. On the whole, we believe that these
responses will satisfy the intent of our recommendations. Accordingly,
we will require no further response to this report under EPA Order
2750.1.
If we can provide any further information or additional copies of
this report, please do not hesitate to contact the Office of Audit.
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PART II - FINDINGS AND RECOMMENDATIONS
Pre-Application Assistance
EPA management of the construction grant program could be Improved
through establishing controls to assure that adequate pre-application
assistance is furnished prospective grantees. Such controls would help
to assure that prospective grantees across the United States all have
similar access to EPA for guidance andi assistance and that appropriate
efforts are being expended to assure that the grant applications and plans
and specifications will be submitted correctly, thereby eliminating at
least partially the he.ed for time consuming after-the-fact review and
corrections. In our review of three EPA Regional offices, we noted that
each office had a different approach to and put a different degree of
emphasis on pre-application assistance* In addition, We found that comments
arid suggestions'resulting from such assistance were not always provided
to the state or applicant for appropriate consideration. Furthermore,
an insufficient advance review of projects approved, in one region,
resulted in grant offers being made for: (i) projects that contained
unallowable costs and (ii) projects which did not contain necessary
grant conditions.
The Federal Guidelines for Design, Operation and Maintenance
of Wastewater treatment Facilities discuss the need for appropriate
Preliminary Project Planning and Engineering Reports. These guidelines
list various principles which should be considered early' in the planning
process for water pollution control facilities. According to the guide-
lines, any questions concerning the proposed project or requests for
deviations are to be resolved through consultation with the state water
pollution control agency and the EPA regional office prior to submission
of an application for Federal aid. , - - •
System for Providing Pre-application Assistance
Programs established to provide pre-application assistance varied
from region to region. As a result, prospective grantees did not always
obtain the same degree of assistance needed.to assure that the grant
applications submitted would be acceptable to EPA. Even in instances where
pre-appl ^tlcn assistance was provided, we noted that appropriate comments
or suggestions were not always referred to the grantee for correction.
Region II
In Region II, pre-application assistance is provided
through joint Federal-state meetings with the prospective
grantees. Each month, representatives of Region II's Facilities
Management Branch visit the state agency for a couple of days.
During this time, both Federal and state officials are available
for consultation. Prospective grantees and their consulting
.engineers may come 1n to discuss in detail the nature of their
construction project and Federal and state technical and adminis-
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trative requirements. According to Regional officials, this
approach has been successful in that it provides personal
contact with the grantees and helps keep local and state officials
up-to-date with EPA's current requirements. These officials
indicated that in their opinion the Region II emphasis on pre-
application Assistance was fully justified by the improvements
being noticed in applications submitted by the states.
Region V
In Region V, we found that no regular pre-application
assistance had been established. In fact, pre-application
assistance to prospective grantees in this Region was rare.
For FY 1973, the Construction Grants Branch forecasted only
79 per-application visits. This represents only about 14 percent
of the 580 grant applications expected to be received. We
discussed this situation with responsible Regional officials who
pointed out that the volume of project applications in Region V
was so large that little time could be spared for pre-application
assistance. In addition, these officials indicated that they
did not think that technical assistance at the pre-application
phase would have any significant impact on the quality of
project submissions.
Region IX
In Region IX, the system in effect is not consistently
applied. This system calls for Preliminary Project Plan-
ning and Engineering Reports, as outlined in the Federal
Guidelines for Design, Operation and Maintenance of Waste-
water Treatment Facilities, to be submitted to EPA for advance
concurrent review. With the exception of California, these
reports are not submitted in advance, but instead are submitted
at the same time as the grant application. This normally
occurs after the state agency has certified the project.
The California Water Resources Control Board (CWRCB) was
established to exercise the State functions in the field of
water resources. The CWRCB adopted regulations on April 1, 1971,
for the administration of a joint Federal-State grant program
for construction of wastewater treatment projects. These regu-
lations establish the requirement that a project report be sub-
mitted by each potential applicant. Detailed guidelines for the
preparation and submission of the project report are provided to each
applicant and include the requirement that the project report
contain sufficient information to permit evaluation of the physical
and financial feasibility of the project. Upon receipt of the
project report at the CWRCB, a copy is forwarded to EPA Region IX
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for concurrent review. The State regulations also provided that
an application for State and Federal grants may be filed at any
time after the project report has been approved by CWRCB.
Because of the large number of grant applications forth-
coming, it is important that the region perform as much advance
review of these project reports as possible. Such action will
help assure that construction projects are adequately reviewed
before the grant is approved. The reviews provide EPA with an
opportunity to comment upon the overall cost effectiveness,
environmental compatibility, possibility of future modifications,
conformance with EPA design guidelines, and any technological
improvements that should be considered before resources are
expended to prepare detailed plans and specifications.
As of February 21, 1972, project report files in Region IX
contained 94 project reports on potential future construction
grants from the CWRCB. Only ten of the 94 project reports con-
tained evidence of EPA review. We did not attempt to determine
the extent of EPA review but were only interested as to whether
there was an indication that some review had been made. In some
instances, reviewer's notes were included with the report,
while in other cases the report was signed out by an engineer.
However, there was no indication that 84 of the reports had been
reviewed, including 4 received as early as April 1971. In addition,
although 3 of the 10 project reports reviewed by EPA contained
specific questions concerning the technical aspects of the proposed
wastewater treatment plants, these questions were not provided to
the state or applicant for resolution. An example of questions
raised by EPA on proposed projects is aummarized in the following
subparagraph.
City of Anderson. The project report was received
by the Region on September 17, 1971, and related to the
construction of a treatment plant and interceptors at an
estimated eligible cost of about $2 million. The review
by Regional personnel raised numerous points including:
(i) the effect of the plant on the Master Plan, (ii) the
handling of odors from the plant, (iii) whether the effluent
would meet water quality standards in the summer months,
(iv) the quantity of phosphate or nitrogen being placed
into the river, and (v) Environmental Impact Statement
inadequacies. In addition, the Regional review commented:
"The City of Anderson has a severe problem of infiltration
of ground water into the sewage lines. According to the
project report, some of the sewer tributaries have an in-
filtration rate of three times the daily sewage flow.
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Another portion of the system had a maximum daily infil-
tration rate of 1,350 gallons per acre. Yet the waste-
water treatment plan offered seems to include the infiltra-
tion rate rather than working to eliminate it. It is
questionable whether EPA's funds are legitimately spent if
used to handle infiltration of this magnitude." The above
questions were not referred to the State or the applicant
for clarification or correcting.
To obtain maximum benefits from the advance review of the
project reports, it is essential that the applicant be provided
comments concerning questionable items_and any suggestions for
alternate solutions in a timely manner. Additionally, completion
of the advance reviews and prompt resolution of any questionable
areas would reduce the efforts required to process the large
number of applications remaining to be submitted during the year.
FY 1971 Grant Offers
According to EPA instructions, FY 1971 Section 8 funds that were
not obligated by September 30, 1971, were to be withdrawn for reallotment.
To preclude the loss of these funds, Region IX offered 19 grants totaling
$18 million on September 30, 1971. These grants represented almost 25
percent of the obligations of FY 1971 funds. Our review of 7 of the 14
grants offered within California on the last eligible day of fund
availability disclosed the following three instances where, in our opinion,
additional emphasis should have been placed on the advance project reviews.
Ineligible Costs. A grant was offered to the Quechan
Tribal Council (WPC-CAL-594) in the amount of $273,000 for
the construction of interceptor lines. Our review of the
project files disclosed that $115,000 of the proposed eligible
cost was for the purchase of capacity rights within an exist-
ing wastewater treatment plant. Since these rights are a user
charge and not a cost of construction, such costs are not eligible
for grant participation. Although the state had noted these
ineligible costs, EPA had not taken action to delete these
costs as of the date of our review.
Feasibi1ity of Water Reclamation Projects. The City of
Glendale was awarded a grant (WPC-CAL-603) for construction
of a 20 mgd wastewater reclamation plant to provide hydraulic
relief to the sewer trunk line leading to an existing waste-
water treatment plant. A-.grant offer was made in the amount of
$3.9 million. In most instances, a water reclamation project
is only feasible if the water is to be reused. However, the
proposed reuse of water for this project was quite general
indicating that it would be used for irrigation or industrial
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use with the remaining wastewater discharged into the Los
Angeles River. Because the reuse was not well defined at the
time of award, a condition was included in the grant offer
requiring the applicant to provide a detailed water reuse
program for seven mgd at the time the plant commenced operations
and to demonstrate buildups to 20 mgd within a reasonable
period of time. The potential reuses proposed by the city
as a result of this condition included an immediate demand for
five mgd with a potential increase to seven mgd for irrigation
and future use of 5.5 mgd by the municipal steam plant for cool-
ing purposes.
The proposed 5.5 mgd use by the municipal steam plant is
contingent upon approval of a current project report which is
on file at the region, This project is to provide facilities
to upgrade and transmit the effluent from the reclamation plant
constructed under project WPC-CAL-603 to the steam plant at
a cost of $897,000. Since the excess effluent from project
WPC-CAL-603 is to be discharged into the Los Angeles River, it
must be assumed that the effluent is already adequately treated.
Therefore, a project to upgrade and transmit the effluent is
not required and should not be eligible for a grant under
Section 8. In addition, it is doubtful whether the municipality
would be willing to finance the whole construction project
in order to reuse a portion of the reclaimed water since the well
water being used by the steam plant is adequate and available
for continued use.
The above reuses indicate that the current use is only
five mgd, or 25 percent, of the plant's 20 mgd capacity and
the demonstrated maximum future use is limited to seven mgd
for irrigation. Since the grantee has not demonstrated use for
the reclaimed water as required by the grant, it is our opinion
that the feasibility of project WPC-CAL-603 should be re-
evaluated and consideration given to terminating the grant offer.
Further, in the future, additional efforts should be devoted to
reviewing the project reports applicable to reclamation projects
to assure a reasonable use exists for the reclaimed water. During
our review, we noted that other water reclamation projects were
currently awaiting review, such as the proposed Walnut Valley
Water District project.
Grant Conditions. The grant offer of $500,000 was made to
the City and County of San Francisco for a project (WPC-CAL-597)^
for improvements to remove macroscopic particulate matter and
sett!cable solids at the southeast wastewater treatment plant.
The grant offer did not contain the usual conditions included in
other grants to the City and County of San Francisco which
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required compliance with water quality requirements within
specified time frames. This appeared to be an oversight and
was probably due to the rush of issuing grant offers before
the obligation authority expired. However, such oversights
tend to reduce the enforcement tools available to EPA. For
example, the region recently considered withholding grant payments
to the City and County of San Francisco until such time as
the City Board of Supervisors adopted a combined sewage master
plan. Although payments under six grants with the City and
County were affected, consideration was not given to withholding
payments under project WPC-CAL-597 since the grant considerations
did not contain the compliance time schedule.
Conclusions and Recommendations
Because of the large number of grant applications forthcoming,
it is important that the regions perform as much advance review of
these project reports as possible. Such action will help assure that
construction projects are adequately reviewed before the grant is
approved. The reviews provide EPA with an opportunity to comment
upon the overall cost effectiveness, environmental compatibility,
possibility of future modifications, conformance with EPA design guide-
lines, and any technical improvements that should be considered before
resources are expended to prepare detailed plans and specifications.
We recommended that Region V officials develop a program to increase
pre-application assistance to prospective grantees. In our Report
of Management Audit of Region IX Administration of Sections 7 and 8
of the FWPCA, we recommended that the Regional Administrator initiate
action to:
a. Request all state agencies to forward advance copies
of the Preliminary Project Planning and Engineering
Report to EPA for concurrent review.
b. Assure that preliminary project reports are reviewed
in a timely manner and that any comments or suggestions
resulting from the reviews are provided to the state
and the applicant for resolution.
c. Require a review of those FY 1971 projects for which
grant offers were made on the last day of the obliga-
tion authority to assure their eligibility for a
Federal grant and to determine whether ineligible
items have been included in the grant.
Management's Responses
Region V officials indicated that the tremendous volume of applica-
tions on file coupled with limited resources available rendered pre-
application assistance to grantees impractical. Nevertheless, they agreed
that the concept of pre-application assistance is very desirable and will
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be used to the extent feasible in the future. They also pointed out
as soon as various features of the amended law are clarified and imple-
mented, the Construction Grants Branch anticipates holding one-day
seminars with consulting engineers and major municipal officials in
each state with two states already having requested this. Such
seminars have been held in the past within the context of pre-applica-
tion assistance because it was felt that this was the most effective
way to carry out the function with the limited resources available.
Region IX officials also generally concurred with the findings and
recommendations. They also indicated that appropriate corrective
actions have or will be initiated in shifting emphasis and manpower from
the review of plan specifications to the review and evaluation of pre-
certification engineering reports. :
Auditor's Comments
Due to the inconsistencies between Regions in methods of furnish-
ing effective pre-application assistance to construction grantees,
EPA should formulate appropriate guidance, procedures and controls to
ensure that a viable agency-wide pre-application system is formulated
and adhered to.
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Priority Systems
EPA policy and procedures regarding priority systems to be used
in determining'the relative need for construction of wastewater treatment
projects require evaluation, revision and strengthening. During our
reviews we noted that (1) officials in Region II had waivered the require-
ment for a priority one-year listing in funding projects in the State
of New York; (2) allotments of Section 8 funds in Region V were allocated
by states in larger communities without regard to the established state
priority systems; and (3) EPA, in Region IX, through its approval of
Federal funds for two water facility construction projects, had developed
a policy that water reclamation facilities are eligible for Federal
funding under Section 8 of the Act. As a result, there was no assurance
that the projects most needed in these regions to reduce and eliminate
pollution were funded first.
Background
Section 8 of the Act provides for making:
"...grants to any state, municipality, or inter
municipal or interstate agency for the construction of
necessary treatment works to prevent the discharge of
untreated or inadequately treated sewage or other waste
into any water..."
In addition, the Act provides that:
"...no grant shall be made for any project under
this section unless such project...has been certified
by the appropriate state water pollution control
agency as entitled to priority over other eligible
projects on the basis of financial as well as water
pollution control needs..."
Waiver of Priority Listing
The New York State Department of Environmental Conservation (NYDEC)
priority rating system was not used in funding wastewater facility construc-
tion projects during FY 1972. Based upon representations from State
officials that sufficient monies were available to finance all wastewater
projects including the pre-financing of the Federal share, Regional
officials waivered the requirement for the State's priority one-year list-
ing. Projects were therefore approved on a "first come-first serve"
readiness to proceed basis. However, in early 1972, the State halted its
Water Program because of the shortage of State and local funds and the
pending Federal legislation that would increase the Federal share on
financing construction grants. As a result, (i ) 67 of 205 completed
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projects were for municipalities which had not been classified as major
polluters while projects involving 10 major polluters were not funded,
(ii) extensive slippage occurred between actual and planned accomplish-
ments shown on the one-year listing and (iii) applications of major
polluters were not being processed because of lack of funds.
Use of Section 8 Funds in Region V
Allotments of Section 8 funds for construction of wastewater
treatments works are being allocated by states to larger communities
without regard to the established state priority systems which provide
predetermined amounts or percentages to major political subdivisions
of the states and which require the remaining potential grantees to
compete for the balance of funds. This has occurred in four of the
six states in Region V. This method of allocation is not in accordance
with the Federal Water Pollution Control Act, as amended, which requires that
projects be certified by states only if they are entitled to priority
over other projects on the basis of financial and water pollution control
needs. As a result, there is no assurance that those projects most
needed are being funded first, or that Federal funds are being most
effectively used.
Our review disclosed that either through formal arrangements
or tacit and special agreements, Federal funds are set aside by
the states for agencies in Chicago, Illinois; Minneapolis, Minnesota;
Detroit, Michigan; and Milwaukee, Wisconsin; without regard to the
states' approved priority system. The setting aside of funds for
these cities had the affect of reducing the amount of funds for which
other potential grantees could compete.
For example, since 1967, over $95 million of Federal grant funds
of a total of $191 million allotted to the State of Illinois have been
used for projects in the Chicago Metropolitan Sanitary District (MSD)
area without either the State or Region V determining that the approved
projects were entitled to priority over other projects in the State.
For FY 1972, the State of Illinois expects that projects
totaling about $320 million will be funded. The State has revenue
bond funds of $200 million available for wastewater treatment plant
construction. This amount along with the Federal funds of about $87
million and local contributing funds, total about $320 million available
for wastewater treatment plant construction in the State. The Federal
and State funds are expected to be divided equally between the State
and MSD. Part of the State funds are expected to be used to pre-finance
the Federal share of the projects' cost.
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All project applications were submitted to the Illinois
Environmental Protection Agency (EPA) for certification, but those
submitted from MSD were not reviewed by the State in detail. The
Illinois EPA relied upon MSD to submit its highest priority projects
first. The State was not provided :with information which would
explain why MSD chose to fund projects in the order requested.
Accordingly, neither the State nor Region V, EPA has assurance that
the MSD projects certified are those having the highest priority in
the State.
The Illinois EPA assigned a numerical priority to "state"
projects based on points for factors, such as pollution control need,
financial need, readiness to proceed, and stream use. For MSD
projects; however, the projects were not ranked in priority order.
Region V officials told us that for FY 1973, the State has agreed to
assign priority ratings to MSD projects but would not rank them
against other "state" projects in determining which projects would
be funded. :
Although technical judgments are involved in assigning point
factors to determine priorities* we believe that some lower priority MSD
projects will be funded in FY 1973.while "state" projects appearing
to be of a higher priority will not. State projects will also not be
funded because of insufficient funds, while MSD's current "needs-list"
does not contain enough projects to use all the funds authorized MSD.
The severity of the storm water problem in the MSD area casts
further doubt on the advisability of continuing to divide Federal
grant funds equally between MSD and the State without incorporating
the MSD projects in the State priority system. In this regard, we
noted that MSD estimates that about one-half of the pollution load
deposited into the receiving river systems was the result of
combined sewer overflows. The Act did not, however, authorize the
use of Section 8 construction grant funds for purposes of alleviating
the problems caused by combined storm and sanitary sewers. Accord-
ingly, MSD officials are of the opinion that additional Federal
grants for advanced sewage treatment cannot solve the significant
pollution problem in the MSD area as long as large quantities of
sewage by-passed the sophisticated treatment plants after moderate
rains.
Since the Act has now been recently amended to authorize the
use of Federal grant funds for storm-water projects, it may be justified
to authorize MSD more than 50 percent of the total Illinois Federal
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allocation for their critical projects. MSD estimates that more
than $1 billion is needed to solve pollution problems caused by
storm-water overflows.
Eligibility of Water Reclamation Projects
During our review of Region IX Administration of Water Programs,
we noted that EPA's approval of Federal funds for two water reclama-
tion facility construction projects in the State of California
indicated that its policy was to consider water reclamation facilities
eligible for funding under Section 8 of the Act. However, this policy
has not been formalized in the Handbook of Procedures, Construction
Grants Program. Since such a policy has a national impact on the
Section 8 funds and one the priority for use of these funds, we
believe a formal policy on reclamation should be formulated to assure
uniform and equitable treatment of all other states. To illustrate
the financial impact of reclamation, the Federal share of the two
approved California projects is $22.4 million. The reclamation
features of these projects are estimated at $8.3 million or 37 per-
cent of the total. In addition, California's Interim Water Quality
Control Plans and five-year municipal project lists include .a
number of projects with reclamation features. For example, in one
of the 16 basin plans, the estimated cost of such projects is in
excess of $60 million. One of the two examples furnished the Deputy
Assistant Administrator for Water Programs of approved projects that
included water reclamation features follows:
Orange County Water District. The project (WPC-CAL-621)
was estimated to cost $10,905,000 (eligible portion) and con-
sisted of a 15 million gallons per day (mgd) tertiary treatment
facility. The Orange County Water District will obtain 15 mgd
of existing effluent from the Orange County Sanitation Districts
and subject it to lime coagulation, ammonia stripping, recarbona-
tion, mixed media filtration, carbon absorption and breakpoint
chlorination prior to groundwater injection. The proposed
project was part of a larger scale project to provide a barrier
against salt water intrusion into the groundwater basin. Both
the County and the California Regional Water Quality Control
Board have stated that the groundwater basin is presently in a
near-full condition and is adequate to provide an effective
barrier against salt water intrusion. The need for the project
hinges upon County's planned increases in pumping high quality
groundwater located on the coastal side of the basin and the
limited recharge using Colorado River water of a poorer mineral
quality. The County estimated that this increased pumping
would necessitate a full scale barrier by 1978. The County
further stated that the project would insure the continued
availability of a water supply of requisite quality in the
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event of impairment of quality or quantity of forthcoming
water from the California State Water Project (imported
Northern California water).
Based on the above, we believed that this project was
related to water production rather than pollution control,
prevention or abatement. The intent was to produce suffi-
cient water for groundwater injection so as to maintain a
salt water barrier and allow increased extraction without
intrusion. Planned increases in extraction stem from a
desire to upgrade the water supply above the quality avail-
able from Colorado River sources and provide a "hedge"
against impairment of the forthcoming state water project
supply. The Orange County;Water District is a purveyor of
water rather than a discharger and has not heretofore dealt
in wastewater treatment. The project is not needed to abate
or control pollution as the source of the secondary treated
effluent (the Orange County Sanitation Districts) is
currently in compliance with waste discharge requirements.
The need to prevent impending salt water intrusion is
elective on the part of the County. As alternatives, the
County could rely more heavily upon imported water to
maintain the salt water barrier.
The EPA, Region IX staff recommendation to the Office
of Water Programs expressed the opinion that the tertiary
plant was not eligible for Federal assistance as it did
not abate, control or prevent water pollution. However,
in an accompanying letter,; the Region IX, Director of Air
and Water Programs stressed that EPA should not be in the
position of blocking water reclamation by an unnecessarily
stringent interpretation of the Act. Apparently, the Office
of Water Programs agreed with this opinion as it approved
the project for Federal assistance under Section 8 of the
Federal Water Pollution Control Act on November 12, 1971.
A grant offer was made on December 31, 1971.
Conclusions and Recommendations
We believe there 1s a need to evaluate, revise and strengthen
the priority systems 1n use to determine whether they result in
awarding Section 8 grant funds in accordance with the Act. The
need for priorities 1s most Important when funds are limited and
the available funds must be used in the most effective manner. We
recommended that Regional officials in Region II assure that the
New York State Department of Environmental Conservation, (1) use
a priority system so that available funds will be used in the most
effective manner 1n abating poMutlon and (2) the priority system
should also be used in processing .applications with the processing
of applications for high priority projects expedited.
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In our draft audit report on Region V Administration of Water
Programs, we recommended that the Assistant Administrator for Air
and Water Programs have the Office of Program Management Operations
(1) identify all instances in the United States where projects are
riot being funded in the order of the States' priority systems, and
(2) evaluate and require revision of priority systems as necessary,
so that the major consideration in the order of funding projects
will be the abatement of pollution. In our Report of Region IX
Administration of Water Programs, we recommended that the Deputy
Assistant Administrator for Water Programs should develop an EPA
policy for the eligibility of water reclamation projects under
Section 8 of the Act to assure that the proper funding priority is
placed on such projects.
Management's Response
EPA officials generally agreed with our findings and recommenda-
tions. In Region II, officials pointed out that a special term and
condition had been added to the New York State FY 1973 program grant
requiring that the priority system be used in rating the state
projects and that an acceptable priority listing be submitted to EPA.
The Assistant Administrator for Air and Water Programs generally
concurred with our finding on Region V and indicated that (1) histori-
cally the 1970 amendment favored urban areas and that, although the
1972 amendments will be more "needs" oriented, urban areas will
continue to get the largest share of the funds; and (2) evaluations
and revisions of state priority systems were already being made and
that revised regulations would address this problem. If the measures
described are implemented, this condition should be adequately
resolved. The Assistant Administrator for Air and Water Programs
also generally concurred with our findings on Region IX. The need
for additional specific policy in this area became, however,
unnecessary because the passage of PL 92-500 expanded EPA's
participatory role to include the financing of certain water
reclamation projects.
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Admi hi stration of Constructi on Cohtracti rig Practi ces
Improvements were.needed in EPA procedures to assure that our
grantee's contracting practices properly complied with Federal require-
ments and adequately safeguarded the Federal interests. In this regard,
we noted that (i) the grantee's procurement techniques for obtaining
major items of equipment were overly restrictive, (ii) project plans
and specifications were not always approved before grantees advertised
for bids or awarded construction contracts, and (iii) adequate documen-
tation was not obtained to support decisions to award to other than
the lowest bidder. These weaknesses have resulted in EPA being involved
in a rising number of complaints and have prevented EPA from assuring
that the proposed plant will meet necessary Federal standards and be
built at the lowest reasonable cost.
Equipment Procurement Techniques
Procedures governing the content of plans and specifications and
other contractual documentation have not been adequate to prevent
inappropriate restrictions in the competitive acquisition of major end
items of equipment. This is particularly important since there has
been an increasing number of complaints from prospective bidders that
bidding procedures for equipment items were overly restrictive. Also,
in at least one instance, a specific conflict of interest allegation
was made because of the restrictive procedures.
The majority of construction contract bid specifications prepared
for grantees by consulting engineer firms contain language which,
to one degree or another, tend to restrict the competitive process.
This restriction principally pertained to limitations as to the brand
name of major items of equipment that could be bid on by the prospective
construction contractors. However, in some instances, restrictions
were also contained in the bid specification with respect to the manner
in which the low bidder for the construction contract was selected.
Based upon our review in Regions VIII and IX, we found that approxi-
mately 60 percent of the bid specifications identified only one manufacturer
per major item of equipment which could be bid on as being unequivocally
qualified as technically acceptable. About 26 percent of the specifications
provided for marginal competition in that at least two manufacturers were
identified for at least 70 percent of the items. In only 14 percent of
the bid specifications was adequate competition provided for. While the
identification of qualified manufacturers was invariably followed by
the words "or equal," which suggests that competition is present, we
found that the procedures to be followed in qualifying alternate items
of equipment to be quite burdensome and time consuming. These procedures
effectively inhibit the bidding of alternate equipment and restrict free
and open competition.
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Further, the language of the bid specifications often provide that
in the event an approved item of equipment subsequently fails to perform
or is otherwise considered unsatisfactory, it will be replaced at the
contractors expense. This additional element of risk, even though a
contractor has taken the effort to qualify an alternate item of equipment,
tends to further restrict the competitive process. We also found a
number of instances where there was a substantial difference in price
quoted by certain equipment manufacturers for the same item of equipment
to different prospective construction contractors. The apparent reason
for these differences was that certain construction contractors, by
virtue of buying power, past dealings, etc., are able to obtain favor-1
able prices. Thus, bid specification language which effectively restricts
competition to single selected manufacturers of equipment will also
tend to favor the larger construction firms by virtue of their ability
to gain favorable pricing from those manufacturers.
In addition to the limitations placed upon the competitive bidding
process by the identification of single brand names of equipment,
problems also existed with respect to the manner in which the low bidder
was determined for construction contracts. Generally, this problem
pertains to a technique called "base bidding." Under this technique,
bidders must submit a bid based on identified manufacturers of equipment.
Although the bidders may quote alternate items of equipment as well,
only the bid based on identified manufacturers' equipment will be
considered in determining the successful bidder. This practice tends to
further discourage free and open competition in the area of major items
of equipment and will tend to favor the larger construction contractors
as was discussed above.
The following cases illustrate the type of problems which can and
usually do result whenever adequate controls are not established to assure
that proper competitive bidding techniques are utilized:
1. One case where a complaint was made concerning a grantee's
competitive practices occurred on Project WPC-CAL-621 (Orange
County Water District). In this instance, the region did not
contact the grantee to determine the validity of the complaint
or the adequacy of the district's bidding procedures, but instead,
sent the matter to the State agency for further referral to the
grantee. In order to ascertain the adequacy of the bidding proce-
dures, we reviewed the grantee's bid proposal. According to the
"Major Items of Equipment and Material" section of the proposal,
17 different equipment items were to be bid upon. The suggested
equipment brand names, which had been previously designated in the
project specifications, were included in this section. Only a
single brand name was specified in the proposal for 11 of the 17
equipment items while the other six had more than one brand shown.
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The brand name, or equal clause contained in the general provisions
of the bid package, contained specific requirements which had to be
met before substitute equipment brand names could be accepted.
Although space was provided on the proposal for bidders to write
in substitute brand names, the,language concerning the use of brand
name or equal equipment, was quite restrictive and may have dis-
couraged prospective bidders from seeking alternative sources.
2. Another case where complaints were received was under Project
WPC-CAL-590 (Selma-Kingsburg-Fowler County Sanitation District).
In this case, the wordage contained in the bid proposal allowed
the district to award to a bidder whose bid exceeded the lowest
bid by about $310,000. This resulted because the low bidder specified
an alternate material (reinforced plastic mortar pipe) in lieu of
the clay pipe included in the specifications. Due to the provisions
of the bid package, the alternative item, although referenced in the
project specifications, would only be considered if the low bid for
the clay pipe had exceeded the:funds established by the district as
available. Since the bid for the clay pipe did not exceed such
funds, the alternate material was not considered. In this case, the
region did not initiate action to determine whether the procedures
followed by the district to obtain bids were restrictive. Instead,
an opinion from the sanitation district's legal council was obtained
reiterating that the award was made in accordance with the terms of
the bid package.
3. Another question raised by the prospective bidder under Project
WPC-CAL-621 concerned a possible conflict of interest. It was suggested
that the consulting engineer who wrote the instrumentation specifica-
tions was also the president of the filter manufacturing firm cited
in the project specification. .Although we found that the president
was hired as a consultant, he was not responsible for preparing
those portions of the specifications which cited the brand name of
his manufacturing firm. However, the use of consultants who are
associated with equipment suppliers to participate in developing
equipment requirements certainly creates the potential for conflict
of interest and possible restrictions in the competitive bidding system.
The foregoing practices and procedures of the grantees and their
consulting engineering firms are considered to be in conflict with the
objectives of the Government as set forth in the Handbook of Procedures,
Construction Grants Program and OMB Circular No. A-102. Chapter 10 of
the Handbook requires competitive bidding practices in connection with
procurement under construction grants. Paragraph 3.b. of Attachment 0
to OMB Circular A-102 States "all procurement transactions regardless
of whether negotiated or advertised and without regard to dollar value
shall "be conducted in a manner to as to provide maximum open and free
competition."
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It should be pointed out that, in late 1972, the State of California
also performed a review of construction contract bid specifications
with the objective of determining the extent of competition generated
by the specifications. The state's conclusions were essentially the same
as ours. That is, to various degrees, the bid specifications reviewed
restricted the competitive bidding process. (See Appendix A of the
report for the results of California's review.)
Approval of Plans and Specifications
Additional regional attention; is required to assure that grantees do
not advertise for bids or award construction contracts until EPA has
approved the project plans and specifications. Chapter 10 of the Handbook
of Procedures, Construction Grants Program prohibits such actions and
states:
"Following approval of construction plans and specifications,
the applicant may be authorized to advertise the project for
bids for its construction. The State agency and the Regional
Office should stress in all contacts with applicants .that the
project must not be advertised or placed on the market for
bidding until plans and specifications have been approved by
the State agency and FWPCA, since disregard of this requirement
may jeopardize the Federal grant."
In addition, the grant offers made by the region normally reiterate
the fact that the bids should not be advertised until :the plans and
specifications are approved by EPA. Although grantee noncompliance with
the handbook instructions and the statement in the grant offer concerning
advertising'for bids is quite common, the Region IX had not initiated
adequate procedures to prevent such occurrences. An example of this
situation occurred on Project WPC-CAL-621 (Orange County Water District).
Bids for this project were advertised on January 18, 1972, even though
EPA approval of the plans and specifications was not granted until
March 16, 1972, approximately 2 months later. Additionally, under
Grant WPC-CAL-593 (American Canyon County Water District), the plans
and specifications were approved approximately 6 weeks after the construc-
tion contract was awarded and construction work was about 50 percent
complete. In our opinion, the region should devote additional attention
to monitoring grantee's efforts in this area.
Selection of Lowest Bidder
Present EPA'guidelines require a grantee to submit a justification or
explanation for desiring to award a contract to other than the lowest
bidder, these guidelines do not, however, require that necessary supporting
documentation be submitted. Accordingly, after reviewing the justifications
submitted in Region II, we concluded that sufficient information was not
available upon which to make an evaluation of the grantee's decision.
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Paragraph 62 of the Construction Grants Handbook provides that:
"The selection of the successful bidder under competitive
bidding procedures is primarily a matter for determination by the
applicant. The FWPCA is not charged with the responsibility of
evaluating bids and awarding the contract in the.same manner as in
the case of a direct Federal contract. Rather its function is to
determine whether the applicant has reasonably complied with the
assurance required by the regulations and has not .acted arbitrarily
or capriciously. In those instances in which the applicant wishes
to award to other than the lowest bidder, explanation and justification
for such action must be submitted to the State agency and the
Regional office. Any comments which the State agency may wish to
make relative to the proposed action should be submitted promptly
to the Regional Office." ...'
In reviewing 23 construction projects selected at random, we identified
three instances where award was made to other than the lowest bidder.
Accordingly, we reviewed the instances in detail to determine whether
the Region had obtained sufficient information to evaluate the reasonable-
ness of the grantee's desire to award to other than the lowest bidder.
During this review, we found that Region II complied with the requirements
of the Handbook by having the grantee submit a letter of explanation from
the consulting engineer and a statement from the city's attorney that the
decision not to award to lowest bidder was legal and correct. Evaluation
of this data indicated, however, that more detailed supporting documenta-
tion was needed to fully evaluate the reasonableness of the grantees
desire. For example: '
Oswego. New York; WPC-NY-386
Bid Selected - $215,000, Low Bid - $179,000, Increased Costs -
$36,000.
In preparing the plans and specifications for this project, the
consulting engineer provided for a general construction contract
which covered the construction:of both a treatment plant and a
sanitary outfall. In soliciting bids for this contract, prospective
contractors were permitted to bid for the entire contract or separately
for the outfall. The grantee wanted to award the contract to the
Metzger Construction.Corporation, who bid $1,761,380 for the total
general construction contract. This bid included $215,000 for
construction of the sanitary outfall. While the $1,761,380 bid was
the lowest overall bid received, another bidder, the Manson Construct-
ion Company bid only*$179,000 for constructing the plant outfall.
The grantee wished to set aside the Manson Construction Company's bid
because "The low bid...was irregular in that the Non-Collusion
Certification required in Section 18 of the Instruction to Bidders
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vas not furnished." We noted that in New York, however, a mere
technical omission resulting from a harmless error, such as the
failure to submit a non-collusion clause, can be subsequently
corrected and that such omissions do not necessarily make a bid
nonresponsive. The information provided by the grantee, in this
case however, did not provide any explanation as to the reason
this omission was considered so significant that Manson Company's
bid was non-responsive.
Raritan Township, WPC-NJ-262
Bid Selected - $2,154,000, Low Bid - $1,975,000, Increased
Costs - $179,000.
The low bidder was considered nonresponsive in that he apparently
bid alternative pieces of equipment rather than the items specified
in the plans and specifications. In addition, the correspondence
from the grantee indicated that the Tow bidder was not clear with
respect to what it would cost to build the plant as specified or what
the differences were between his bid and the plant required by the plans
and specifications. In reviewing the project file, we noted that no
copy of the low bidders proposal and accompanying identification
of the errors in the proposal were provided to EPA. Thus, Regional
officials did not apparently have specific knowledge of the
deficiencies in the proposal. In addition, the Region was not
furnished any copy of the low bidders response or explanation of
the so-called deficiencies. Instead, the Region had to rely on
simply the grantee's explanation of the low bidder's position. In
our opinion, such reliance results in EPA only seeing and hearing
one side of the situation and therefore, prevents^ any real deter-
mination of the reasonableness of the grantee's decision.
Conclusions and Recommendations
Our review showed that procedures for administering grantees contract-
ing practices were inadequate to assure that procurement techniques were
not overly restrictive, grantees did hot go to bid or award contracts
before obtaining EPA approval, and contract awards were made only to the
lowest responsive bidder.
We can understand that since in the past grantees have traditionally
provided a major portion.of the funding for construction grants, the
administration of the contracting process was left mainly in the hands of
the grantees. The recent passage of the water pollution control bill,
however, increased EPA's share of costs to 75 percent of the cost. The
resulting decrease in grantee's cost to 25 percent or less will tend to
lessen the grantee's concern about increased costs. Accordingly, we
believe that it is time for EPA to strengthen its role in the admin-
istration of construction grants. Accordingly, we are recommending that:
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1. Procedures governing the bidding procedures being followed, by
grantees in procuring major end items of equipment, be strengthened by:
(a) Requiring the bid package to include the technical
performance specifications for equipment and major supplies in lieu of
specific brand names.
(b) Requesting that a written justification be included in the
bid proposal when only one specific brand name will fulfill the
requirements of the plans and specifications.
(c) Requiring a certification that individuals serving as con-
sultants have not referenced their firm's brand name in any part
of the project plans and specifications.
(d) Requiring that the award of construction contracts be
determined based on the overall low bid with respect to any identified
alternate equipment, accepted as being equal, and not on the basis
of the bid price of the "preferred" equipment.
2. Appropriate regional emphasis be placed on reinstructing grantees
of the importance of not advertising for bids or awarding construction
contracts until the project plans and specifications have been approved by
EPA, and in those instances where these instructions are not followed action
should be taken to terminate the Federal grant.
3. EPA strengthen its guidelines related to the selection of other
than the lowest bidder to require submission of documents to support the
reasonableness of the grantee's decision. To be. considered acceptable,
we feel that the documentation should contain:
(a) Technical omission - an explanation of why the omission is
considered so significant as to make the bid nonresponsive.
(b) Errors in Content or Make-up - copies of the proposals to be
rejected as nonresponsive and accepted. These proposals should be
accompanied by correspondence from the grantee identifying specifically
the deficiencies in the proposal and explaining why the low proposal
should be rejected. In addition, the prospective low bidder should be
required to explain the deficiencies and provide his side of the
situation.
Managements Response
The passage of the new Water Pollution Control Act and the issuance
of new regulations governing the construction grants program have in our
opinion provided the additional procedural guidance needed to resolve these
problems. For example, the new water bill and the regulations provided
clearer guidance against unnecessary restrictions in the competitive
acquisition of major end items of equipment. Additionally, the new
regulations call for increased emphasis on assuring that the grantee's
procurement system is effectively used to assure that awards are made
only to the lowest^responsible bidder. If these guidelines are properly
implemented and appropriate consideration is given to the matters
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raised in this and the State of California study, problems with
respect to the acceptability of contracting practices should be
reduced.
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Engineering Agreements
EPA guidelines need to be established governing the selection
of contractors, methods of contracting and administration of contracts
used in obtaining consultant engineering services under sewage treatment
construction grants. Such guidelines are needed to comply with OMB
Circular A-102 and to strengthen EPA controls over consulting engineer
costs. Our audit of three Regional offices disclosed several significant
weaknesses in the area of contracting for consulting engineering
services. These included:
(i) Failure to go through a proper selection process,
whereby a consultant's qualifications, experience,
and costs to be charged were obtained and evaluated.
(ii). Need for controls to assure that consulting firms were
not acquiring subcontracts through a preferential
position derived from participation in other planning
activities.
(iii) Lack of controls to assure that the cost of engineering
services are properly enumerated in the engineering
agreement, reasonable, and acceptable under the established
Federal requirements.
(iv) Need to require inclusion of standard provisions in
contracts for engineering services. For example, none
of the contracts reviewed contained the necessary
clauses related to access to audit, level of effort,
Equal Employment Opportunity, Ownership tn Data, or
termination.
Unless appropriate changes are made to strengthen EPA controls over
the engineering contracts issued in conjunction with sewage treatment
construction grants, we feel that EPA can have no effective way of
controlling the approximately $200 million of EPA funds authorized
annually for use in obtaining engineering services.
Background
While certain grantees, such as the cities of San Francisco, Chicago,
and New York, perform their own engineering functions, the majority of
grantees under the wastewater greatment facility construction grant
program employ the services of consulting engineer firms. Services
provided by these firms fall into three general categories: (a) pre-
liminary work, (b) design activities, and (c) construction inspection
and supervision. Preliminary work commonly includes such services as
field surveys, preliminary project reports, review of prior studies,
evaluation of waste discharge requirements, preliminary cost estimates,
etc. Design activities involves the preparation of detailed plans,
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specificationSi cost estimates, etc. General engineering services are
usually included in the design phase and involve assistance in securing,
tabulating and analyzing construction bids, detailed check of construction
drawings, periodic visits to the construction site, etc. Construction
inspection usually involves full-time resident engineers and includes
detailed inspection, quality control, construction progress payment
reviews, "as built" drawings, preparation of certificates of completion,
supervision of initial start-up, etc.
Agreements between grantees and engineering firms covering the above
mentioned services take a number of forms. Usually a single agreement
is entered into which covers all phases of engineering services. However,
the fee provisions contained in such agreements can vary from a single
fee covering all services to separate fees for each phase, or combination
thereof. Common types of fee provisions used in engineering subcontracts
include (a) lump sum, (b) percentage of construction cost, (c) fixed labor
hour rates, and (d) actual labor cost plus a stipulated percentage.
The classification of engineering services and recommended fee
structures, as well as discussions on the subjects of the consulting
engineering practice, selection of the engineer, and contracts for
engineering services are presented in the American Society of Civil Engineers'
Manual No. 45, "A Guide for the Engagement of Engineering Services." The
majority of the engineering firms reviewed subscribe to the principles
and practices recommended in this manual.
Selection of Engineering Firms
While grantee institutions have in the past had to utilize
competitive procurement practices in obtaining contractors to build sewage
treatment plants, they have not been required to use such techniques
in hiring the consulting engineers who will design and supervise the
construction of these plants. Accordingly, the grantees have not had to
go through a selection process whereby the qualifications, experience,
as well as anticipated costs, have been evaluated. This has, in our
opinion, led in some instances to the selection of less than highly
qualified engineers and thusly to the many technical problems found by
EPA engineers in reviewing plans and specifications. Similarly, the
lack of a required selection process has prevented grantees from assuring
themselves or EPA that the cost of engineering services proposed by
their engineer actually represents a reasonable charge for such services.
Attachment 0 to Office of Management and Budget (OMB) Circular A-102
sets forth "Procurement standards" to be used by state and local govern-
ments in administering Federal grants. This Circular requires that "all
procurement transactions (by a grantee) regardless of whether negotiated
or advertised and vithout regard to dollar value shall be conducted in
a manner so as to provide maximum open and free competition." Since this
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provision relates to all procurement, it is apparent that competitive
procurement techniques should be utilized in obtaining consulting
engineering services. The American Society of Civil Engineers (ASCE)
seems to agree with this position. . Their Manual No. 45 states,
; "No two engineering firms have equal training, experience,
1 skills, capabilities, personnel, work loads, and'particular
abilities. Selection of the firm for a specific project can
mean the difference between a well-planned, low cost, successful
project, or a mediocre and costly one." '•
In analyzing the procedures established to govern EPA's construction
grants program, we noticed EPA requirements were totally silent with
respect to the selection of engineering firms to design.and supervise
the construction of sewage treatment plants. Thus, this process has been
left entirely in the hands of grantees.
We discussed this matter with responsible regional officials who
indicated basically that the grantee communities simply select whoever
they want. In addition, these officials indicated that during their
visits to the grantee, they had seen no evidence that grantees regularly
went through a selection process to assure that they 'obtained the ser-
vices of the most qualified engineer available at a reasonable price.
Instead, grantees normally pick an engineering firm simply on the basis
of the representations of the firm as to its expertise in the field,
word of mouth referrals, proximity of its offices to the grantee, or
combination thereof. Once this selection is made, a continuing relation-
ship is created between the grantee and the engineering firm not unlike
the relationship between the grantee and its legal representatives and
its certified public accountant. This relationship usually takes the
form of a generalized consulting agreement which can provide for expert
advice, comprehensive water management plans, staged or incremental
sewage treatment facility plans, etc. These agreements are periodically
up-dated to revise the fee provisions or incorporate, by specific
reference, subsequent construction projects. The use of the more or less
arbitrary selection process was illustrated during our discussion with
EPA Regional officials by references to instances where consulting
engineering firms were changed simultaneously with the change of city
or county administrations or where engineering duties were split to
various engineering firms within a community on a sort of "share-the-
wealth" basis.
In reviewing construction grant project files in selected Regional
office's, we noted that many of EPA's construction grant projects had
encountered technical difficulties. For example, even after state review
of plans and specifications, many of the projects submitted to EPA
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contained technical weaknesses, such as by-passes, lack of back flow
preventers, and need to modify electrical equipment to meet hazardous
standards requirements. In Region II, our sample disclosed problems
of these types in 43 percent of the projects reviewed. In addition, in
Region VIII 28 of 52 O&M inspections (54 percent) revealed major design
deficiencies in the sewage treatment plants. In 19 of cases, plant
effluent did not meet applicable water quality standards. We feel that
at least part of the responsibility for such deficiencies must rest with
consulting engineer. Had the use of a formalized selection process been
used, it is conceivable that a more qualified or experienced engineer, who
might not have permitted such problems, would have been selected.
The use of a formalized selection system would also have provided
both EPA and grantee personnel with better assurance that the costs
to be charged for such services were actually reasonable. For example,
when we reviewed grant files at the region and in the grantees offices,
no instances were noted where there was evidence that the grantees
had solicited fee quotations from two or more qualified engineering
firms for services under the construction projects reviewed. Further,
there was no evidence of aggressive negotiation by the grantee with
respect to engineer proposed fee structure changes. Available documenta-
tion indicated simply that the grantee board of directors (or city
council) agreed and passed favorably upon the proposed fees. Thus, there
was no evidence that the proposed fees were reasonable.
We reviewed the engineering fees charged on selected construction
grants across the United States to determine if there was a pattern
which would help to identify the level of engineering costs considered
reasonable. We found that engineering costs ranged from a low of three
or four percent of construction costs to a high of between 20 and 25
percent. Since this analysis did not provide any clear indication of what
represented reasonable engineering costs, we requested information as to
what engineering costs the Regions felt was reasonable. . In this regard,
we learned that there was no overall guideline and that each Region
had its own opinions as to how much engineering costs Were considered
reasonable. In fact, the Regions responses varied as widely as the
percentages previously described.
After reviewing this situation in detail, we concluded that the
only reasonable method of assuring that engineering costs would be
reasonable would be through the application of appropriate competitive
buying techniques during a formalized selection process. Therefore,
we inquired into the reasons why engineers had not been requested to
submit appropriate pricing information. We found that in the past the
engineering profession, by means of the American Society of Civil Engineers'
Code of Ethics, Guides to Professional Practices, etc., had prohibited
or effectively prevented its members from submitting price quotations for
engineering services. These restrictions had been lifted under the final
judgment of the Southern District Court of New York, Civil No. 72 C 1776.
Thus, there is now no reason why engineering firms should not be requested
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and expected to furnish appropriate price quotations for the engineering
services related to sewage treatment construction grants.
Use of Consulting Engineers with a Preferential Position !
t ', '
Our review disclosed that additional controls were needed to assure
that consulting engineering firms were not acquiring subcontracts to
design and supervise'construction of sewage treatment projects because
of a preferential position derived from participation in the planning
process. '
We noted one instance where a consultant had obtained several sub-
contracts within a basin area after being awarded a subcontract for
services under a Federal Water Pollution Control Act Section 3(c) plan-
ning grant. In addition, this same consulting firm subsequently
became a subcontractor under at least seven construction grants within the
area for which the 3(c) planning grant applied. Because of its work
in basin planning, we feel that appropriate inquiries,should have been
made to ascertain the reason this particular engineering firm was selected
to act as engineer on the seven construction grants. Attachment 0 to OMB
Circular A-l021 states:
"The' grantee;should be alert to organizational conflicts
of interest or non-competitive practices among contractors
which mayjrestrict or eliminate competitive or otherwise '
restrain trade." . ' ,
1 ' '
Similarly, grantees should be expected to report possible conflicts of '
interest to appropriate EPA officials. This knowledge is important in
determining the reasonableness of consulting engineering'costs. Because
of work performed under the planning grant, an engineering firm may be
able to reduce^the scope of its preliminary work under the construction;
grants. If this were the case, it ,would be necessary to limit the reim-
bursement uncler the construction grants or the consultant might be
reimbursed twice for the same planning work under two separate EPA programs,
: '! j: '' ; '. ' •.' ,|
Responsibility of Engineering Firms !
11 > i i
; I ' ', ' I
• Engineering subcontracts do not provide for a designation of respon-
sibility on the part of the engineer that the project as designed will be
free of significant design deficiencies and, when placed in operation,
will meet previously established parameters such as level of treatment,
continuity of treatment, and water quality standards. In addition, as is
mentioned in1 the paragraph entitled "Administrative Controls," there is no
provision in' the subcontracts for legal or financial remedies against the
engineering firm should the project fall to meet design expectations.
This, coupled with the manner in which engineering firms are selected and
compensated,; can result in a lack of incentive for technical excellence,
use of short cut or "off the shelf" technology, and unwarranted additional
expense to grantees and possibly EPA in correcting project deficiencies^
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hr illustration of the need to require grantees to provide for a clear
assignment of. responsibility and appropriate legal and financial remedies,
it was "determined that a significant percentage of Federally funded v/aste-
wa'ter treatment facilities inspected by EPA Region VIII personnel were
considered to be deficient. During the period February 1972 through
December 1972, Region VIII personnel performed O&M inspections at 52
wastewater treatment facilities which were built, modified, or enlarged
under the Federal construction program. Of the 52 plants inspected, 28
(or 54 percent) were considered to have major design deficiencies. Fur-
thur, 18 plants (or 35 percent) were not meeting water quality standards
for-which they had been designed. This percentage would have undoubtedly
been even higher if the O&M inspections had included full scale effluent
sample analysis at all 52 plants. In addition to the above deficiencies,
the inspection identified nine instances of significant infiltration
p'roblems. Examples of these deficiencies are as follows:
Longmont (Col. C080202). The grant application included the following
statements which should have been basic considerations in the design of
^he project. "The construction under this project will provide adequate
capacity to treat wastewater such that the plant will meet all standards."
-The existing sewage treatment plant is inadequate; consequently, some
sewage is bypassed after only primary treatment." "The planned addition
and modification will correct the above situation, abating the health
hazard and the detriment to fish and aquatic life." "It will correct
the present pollution problem and will provide for continued freedom
from such pollution even under the projected increased population of
1988.". The EPA O&M inspection indicated that the completed project
had major design deficiencies in that the effluent was not meeting water
quality standards and the plant did not provide "freedom" from pollution
underlthe current population, much less the projected 1988 population.
Upper Eagle Valley (Col. 0080201). Assurances contained in this
grant were that the project would be built in accordance with plans and
specifications, that an O&M plan would be submitted before final inspection,
and that the project would result in an operable plant. .At the time of the
final inspection, many deficiencies were noted including an excessive in-
filtration problem. Subsequent to:this inspection, the consulting engineer
stated "we do not know of any problems of infiltration within the system
since the correction of the above referenced problems and feel that the
system is entirely satisfactory, not only from an infiltration standpoint,
but from all other respects." In a subsequent inspection, EPA asserted
that significant infiltration problems could be blamed on (i) poor design
and specifications, (ii) poor construction, and (iii) inadequate super-
vision of construction by the resident engineer.
In view of the importance of effective treatment facilities and the
frequency with which significant design deficiencies are occurring under
wastewater treatment facility construction grants, it is our opinion that
safeguards need to be established to protect the interests of the Govern-
ment and the intent of the program. These safeguards should include
(i) the formal designation of responsibility to the consulting engineer
firm for the sufficiency of the project design and (ii) the inclusion of
provisions for appropriate legal and financial remedies against the engi-
neering firm should the project prove unsatisfactory.^
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Methods of Pricing .
Additional controls are needed to assure that engineering sub-
contracts are sufficiently specific to safeguard the interests of
the Federal government. Specifically, we found that most engineering
contracts were generally not definitive with respect to nature and
quantity of services to be provided*or to the amount of costs to be
incurred or billed for such services. In addition, most of the contracts
utilized the less than desirable or totally unacceptable "percentage of
cost" or "cost plus percentage of cost" methods. These weaknesses
prevent EPA from having the information necessary to properly review the
reasonableness of engineering costs proposed in our construction grant
applications. Without improved guidelines in these areas, EPA can
exercise no effective control to prevent consulting firms from realizing
excessive profits.
Contents of Subcontracts
Our review revealed that the subcontracts and supporting data
used in obtaining engineering services did not contain the costing
information necessary to permit either grantee or EPA officials to review
the reasonableness of proposed costs or even to establish the overall
cost of engineering services.
! ' •'
Attachment 0 of OMB Circular A-102 provides that
"Procurement records or files for purchase in amounts
in excess of $2,500 shall provide at least the following
pertinent information: justification for the use of nego-
tiation in lieu of advertising, contract selection, and
the basis for the cost or price negotiated." .
To be able to properly document the "basis for the cost or price
negotiated," a grantee organization' would have to have detailed cost
or pricing data supporting the ceiling amount of the contract. This
supporting data would have to spell out in detail the type and amount
of services to be provided and the anticipated cost of each such service.
In reviewing the engineering subcontracts and available sup-
porting documentation used under sewage treatment plant construction
projects, we noted that not only were appropriate cost breakdowns not
furnished, but also no ceiling amounts were normally included in the
contracts. For example, in reviewing 23 projects selected at random
in Region II, we found that all the subcontracts contained clauses
calling for reimbursement on a cost-type basis. Since none of the
documents spelled out, however, either the amount of services to be
provided or the per unit costs of services, no determinations could be
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made of the anticipated charges for such services. Similarly, since
ceilings were not established for individual items or in most cases even
for the entire contract, there was no way of determining the total cost
of engineering services to be charged. As a result, we could not
generally find any way to relate the amount of engineering services pro-
posed in the grant application back to the corresponding contract.
Without improved controls calling for engineering subcontracts .
to spell, out the quantities of services to be provided, the per unit charge
for such services, and the total cost of services to be provided (ceilings),
EPA can have no effective method of evaluating the reasonableness of costs
proposed or of controlling the total amount of costs to be incurred for
engineering services. Due to the fact that EPA's construction grant
budget is now running at a rate of $2 billion/year and that approximately
10 percent of such funds go for engineering services, we feel that such con-
trols are essential to safeguard the $200 million/year used annually for
engineering services.
Pricing Provisions
Appropriate guidelines concerning the types of pricing arrange-
ments considered acceptable have not been established. Thus, many
different types of pricing arrangements are commonly .used. This is, in
our opinion, contrary to the provisions of Attachment 0 to OMB Circular
A-102 which States that "The grantee shall establish procurement procedures
which provide for, as a minimum, the following procedural requirements...
the type of procuring instruments used (i.e., fixed price contracts,
purchase order, incentive contracts, etc.), shall be appropriate for the
particular procurement and for promoting the best interest of the grant
program involved." In reviewing the procurements of engineering sub-
contracts, we noted that the best .types of procuring instruments were not
being used. Specifically, we found that two basically unacceptable methods -
percentage-of-cost and cost-plus-a-percentage-of-cost were commonly used.
Such contracting methods have long been realized as undesirable in direct
contract procurements by the Federal Government since they do not provide
adequate controls to appropriately limit the amount of a contractor's or
subcontractor's profit.
A more detailed discussion of the problems related to the use
of these methods is provided below:
1. Percentage of construction cost. Approximately 90 percent
of the engineering subcontracts examined provided for reimbursement
of detailed plans and specifications services on a percentage of
construction cost basis. Additionally, 70 percent of the subcontractors
provided for reimbursement of general supervision services on this basis,
The majority of these agreements incorporated the percentages given in
ASCE Manual No. 45 as "Curve A" and "Curve B."
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The ASCE Manual 45 was prepared in 1964 based upon survey
data obtained in 1963. The "curves" formulated as a result of this
survey had been subsequently1 revised on three occasions by means
of the application of construction cost and engineering salary
indexes. In addition, a new: survey was conducted in 1971 and the
manual was accordingly revised for the fourth time. Society repre-
sentatives indicated that the sample plan and the input used in
formulating the original curves and the 1971 revision were not saved
and therefore unavailable for review. As discussed below, we
observed many deficiencies in the survey which raise considerable
questions as to the validity of using such curves in pricing the
engineering services related to the construction of sewage treatment
plants.
a. The society coulid not demonstrate that the firms
solicited for participation in either the 1963 or the 1971
surveys were selected on a scientific basis so as to properly
represent the universe as a whole. For example, in the 1971
survey a total of 1,430 questionnaires were sent out. It was
not demonstrated that this was an appropriate sample size
for the universe involved. In addition, no evidence was avail-
able to show that the 598 responses received was representa-
tive of the profession as a whole.
b. No attempt was made to stratify the sample selection
or input data to recognize differences in firm size, geo-
graphy, area of speciality, etc.
c. The data to be input by the responding firms was not
well defined with respect to whether it should deal with
completed projects onlyj total business volume, engineering
cost only, engineering cost and profit, period of time
covered, etc.
d. Input data was not selectively verified by the Society.
e. No follow-up studies were made to determine the validity
of the use of the curve to establish reasonable engineering costs.
f. Rather than requesting input on current construction
and engineering cost, the 1971 survey the questionnaire simply
asked the firms to respond to "what changes should be made in
the Manual 45 fee curves, based on a percentage of net construc-
tion cost and taking into consideration the needs of the
client and the adequacy of compensation to the Engineer." The
questionnaire then asked the firms their opinion as to what
constituted reasonable fees on various size projects. Thus, the
current version of the "curves" represents a consensus of opinion
of 598 engineering firms as to the level of fees they consider
desirable rather than actual experience with identifiable margins
of profit.
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Besides the basis'weaknesses in the use of the ASCE curve,
the validity of using percentage of cost pricing provisions is in
and of itself questionable. Unless the percentage to be used is
determined through full and open competitive bidding, this method
provides neither the grantee nor EPA with any method of assuring
that the engineering firms level of profit is reasonable. Even
ASCE itself has apparently recognized the shortcomings of this
method of contracting in that the Manual itself points out that
"over the years, engineering experience has established some
approximate correlations between engineering costs and construction
costs..." "The validity of the percentage of construction cost
method rests upon the assumption that engineering costs vary in
direct proposition proportion to the cost of construction..." "This
is a questionable assumption..." "When judisiously applied, and
with due consideration of the ranges within which engineering scope
may vary, they remain valuable as tools for general comparison..."
(with other estimates). The pitfalls of this method of contracting
are illustrated by the fact that in a review of the costs records of
a consulting engineering firm involving three projects wherein the
fee was based on a percentage of construction cost, we noted profit
margins of 24 percent and 28 percent on two projects and a loss of
22 percent on the third. Thus, we concluded that the use of percentage
of cost contracts is not equitable to either the Federal government,
the grantee, or to the engineering firm.
2. Cost-plus-a-percentage-of-cost. For the most part, the
reimbursement of the construction inspection phase was on a cost-
pi us-a-percentage-of-cost basis. In one' part of the country, this
method was used in 71 percent of projects reviewed. In another part
of the country, such provisions were used in 78 percent of the
projects. Some examples of the cost-plus-a-percentage-of-cost
aspects of the subcontracts are illustrated below:
Midvale (Utah C490137). A grant, in the amount of $1.2
million, was awarded on December 29, 1972, for the construction
of a waste water treatment facility. The proposed engineering
fees were covered by a subcontract dated April 27, 1972, bet-
ween the grantee and the consulting engineering firm. The
Subcontract Stipulated that "for the services of a qualified
inspector, the District will pay the Engineers on a per diem
basis based on employee cost plus 85 percent plus 10 percent.
Expenses will be charged at cost plus 10 percent."
Littleton (Colo. C080319). A grant was awarded on December 29,
1972, in the amount of $1.7 million, including estimated engineering
fees of $150,000 for the construction of a sanitary interceptor
sewer. The engineering subcontract included two cost-plus-a-
percentage-of-cost features. Construction engineering was to be
reimbursed based on the cost of payroll plus 100 percent and other
services were to be based on cost plus 130 percent.
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Lowville, New York (NY-606). A grant was awarded on
January 14, 1970, in the amount of $509,200, including
estimated engineering fees of $63,000, to construct a
replacement for the community's existing primary treatment
plant. The subcontract with engineering firm.indicated
that the costs for inspection services shall be based on salary
times a multiple of 2.5 to cover overhead and profit plus
direct out of pocket expenses (i.e., subsistence, travel,
special materials and/or equipment). .
In most instances, the percentages used included factors
for overhead costs and profit, but did not stipulate the specific
amount of either. This can result in excessive profits being paid
to the engineering firm. For this reason, the cost-plus-a-percent-
age-of-cost method of subcontracting is specifically disallowed by
Attachment 0 for OMB Circular A-l02. An illustration of the type
of excessive profit which can be realized was demonstrated in a
recent audit in which we noted that in one grant a consulting engineer-
ing firm realized a profit rate of over 30 percent. This percentage
factor was determined by calculating the difference between the
percentage awarded (for overhead and profit) in an engineering
subcontract to the firm's actual audited overhead rate. With
increased Federal participation in the construction grants program,
it is our opinion that the principles contained in the cited OMB
Circular should be implemented immediately in the awarding of new
construction grants.
Administrative Controls
Virtually all engineering subagreements executed under waste water
treatment facility construction grants fail to provide for sufficient
administrative control over the activities of the engineering firms to
adequately protect the interests of the grantee and the government.
Further, if similar agreements are perpetuated, t'hey would be additionally
deficient from the standpoint of the requirements for subagreements as
now set forth in OMB Circular No. A-l02, Attachment 0, "Procurement
Standards." This condition is attributable to the fact that engineering
subagreements are being written by I the consulting engineering firms
rather than the grantees. Specific deficiencies common to all or most of
the agreements reviewed included the following:
1. Right of Access to Subcontractors' Records
) We found that none of ,the agreements examined provided for
access to the engineering firms' records by the grantee to assure
that flexibly priced agreements influenced by such factors as actual
payroll cost, number of hours charged to the project, etc., are
proper and supportable.
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2. Approval of Level of Effort
The majority of agreements were undefined or were vague with
respect to controls by the grantee over the level of effort the
engineering firms can put into such portions of the project as
construction supervision. Without such controls, the grantee has
little influence over the reasonableness of such effort and its
attendant cost.
3. Ownership of Data
While some of the agreements examined specifically conveyed
ownership of all drawings, details, computations, and specifications
to the grantee, the majority of these agreements were silent. Where
the agreement is silent, it is assumed that the practice of the
industry would prevail. The industry practice, as espoused in ASCE
Manual No. 45, is that ownership of data rests with engineer unless
other provisions have been made. As the engineering firm has been
fully compensated for the execution of design data, and the Federal
government will be paying the preponderate portion of this fee,
provision should be made for the passage of ownership of all such data
to the government. Not only is this equitable, but such an agreement
could facilitate a program of technology transfer at nominal
modification or redesign cost to projects of other grantees.
4. Provisions for Termination
The majority of the agreements examined did not have a
provision for settlement in the event of termination. It was noted
that those agreements which did provide for termination expressed it
in terms of a no-cause, unequivocal termination to be settled on an
actual cost or time and material basis (plus close-out costs).
Procedures should be revised so that all engineering agreements include
a provision for termination including the manner by which it will be
effected and the basis for settlement. In addition, such a provision
should describe the conditions where the contract may be terminated
for default and for circumstances beyond the control of the grantee.
This is especially needed in view of the apparently large number of
plants contained major design deficiencies.
5. Other Provisions
In addition, the following common shortcomings in engineering
subagreements should be provided for:
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a. Subagreements should contain provisions or conditions
which will allow for administrative, contractual, or legal
remedies in instances where contractors violate or breach
contract terms, provide for such sanctions and penalties as may
be appropriate.
b. Subagreements in.excess of $10,000 should include
provisions for compliance with Executive Order No. 11246, entitled
"Equal Employment Opportunity" to include an affirmative action
plan.
c. Subagreements in excess of $2,500 shall provide that the
contractor will comply with applicable regulations and standards
of the Cost of Living Council in establishing wages and prices.
Conclusions and Recommendations
Our review showed that many changes in the administrative policies
and procedures are needed to comply with the provisions of OMB Circular
A-102. Such changes are also needed to assure adequate controls are exer-
cised over engineering services due to the vast increase in the percentage
of Federal funds to be provided under the provisions of the1new Water Pollu-
tion Control Act. We realize that it will be somewhat difficult to establish
controls over engineering subcontracts in that such subcontracts are commonly
entered.into several years before even an application for a construction
grant is submitted to EPA. Thus, we feel that the only reasonable way
to resolve this problem is through the issuance of guidelines to the
grantee community spelling out in detail the requirements which should be
complied with. Among other provisions, these guidelines should:
1. require that the grantee go through a selection process
including evaluations of the prospective engineering firm's
qualifications, experiences, and estimated costs. This process
should require the consideration of more than two independent
engineering firms. The results of evaluation and basis for final
selection should be properly documented and retained on file.
2. require that the grantee be alert for possible conflicts
of interest. In this regard prospective engineering firms should
be requested to provide information on any planning work or other
activities which in any way relate to the conduct of the proposed
project. Wherever a potential conflict of interest arises, grantees
should be required to immediately report such matters to EPA.
3. require that engineering subcontracts or agreements place
appropriate responsibility for the adequacy of the treatment plants
on the engineers who designed and supervised construction of the
plant. In our opinion, the EPA guidelines and agreements themselves
should include appropriate provisions for taking appropriate legal
action or utilizing other financial remedies should the need arise.
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4. provide basic parameters to be used in determining the
acceptability of various contracting methods. These parameters
should:
a. require that ceiling amounts be included in all contracts.
b. require that 'appropriate supporting data be provided
to spell out in detail tbe' costs which comprise the ceiling.
Such data should identify the types of services to be provided,
the composition of such services, the quantity of services,
and computation of the amount to be charged.,
c. provide criteria to be used in determining the type
of pricing provision considered most equitable to the grantee and
the Federal government. This criteria should point out that
the use of percentage-of-cost or cost-pius-a-percentage-of-cost
pricing provisions is unacceptable to EPA.
5. require that subcontracts with engineering firms include
the following provisions:
a. Access to Records
b. Level of Effort
c. Ownership of Data
d. Provisions for Termination
e. Breach of Contract .
f. Equal Employment Opportunity
g. Price Control
6. point out that if grantees do not comply with the provisions
of these guidelines, then EPA will not participate in the cost of their
engineering services.
Managements Response
Both the Grants Administration Division (GAD) and the Municipal Waste
Water System Division (MWWSD) generally agreed with our findings and
recommendations and indicated that procedural guidelines were being developed
which will resolve these problems. MWWSD did point out, however, that we
could not require our grantees to use competitive bidding. (For the
complete text of managements response, see Appendices A and B of this
report.)
Auditor's Comments
We agree that, under current guidelines, we cannot insist that grantees
use competitive bidding in establishing the costs of engineering services.
However, to assure that a qualified engineer is selected, the grantees
should be expected to go through a selection process considering qualifica-
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tions and experience. Additionally, should grantees decide to negotiate,
instead of using competitive bidding, we believe that guidelines should
be established for measuring the reasonableness of the amount negotiated.
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We reviewed 23 project files selected at random to find if
significant problems had arisen with respect to construction of the
sewage treatment facility. Where such problems occurred, we
examined the follow-up action taken to assure that prompt corrective
action was taken. One of three examples reported to the Region
follows:
Oswego, WPC-NY-386. On April 22, 1971, inspection of
this plant indicated that the plant was 89 percent complete.
Yet, at the time of our review in October 1972, 18 months
later, there was no indication in the file whether or not
the plant was completed or ready for final inspection.
Had an adequate information system been available, this
project would possibly have been identified as reaching the
finalization stage and thus, provided impetus to the actions
necessary for closing out this project.
Status of Construction Grants - Region VIII
The Region has approximately 230 active grants for construction
of wastewater treatment facilities and the eligible costs for these
grants was about $112 million. We noted that 51, or 22 percent, of
the 230 active grants were over two years old and represented about
$21 million in eligible project costs. In addition, 73, or 31 percent
representing about $59 million in eligible costs, were between one
and two years old. Current management information concerning the
current status of construction, adequacy of construction, compliance with
grant target dates, special problems, follow-up actions and other
pertinent data were not determinable without reviewing each individual
grant file or, in cases where the grant file was inconclusive, relying
on an individual's memory.
The Grants Administration Branch maintains a card file which
contains certain financial data for each grant. Because the primary
use of this file was for financial management purposes, information
relating to special problems or current status was not recorded.
Although information concerning the percentage of completion was
often shown on these cards, the percentages were only recorded when
a payment was requested. It was therefore necessary for managers
to review grant files in detail to determine the current project
status and whether any follow-up actions have been initiated. The
number of such reviews and follow-up actions required to administer 230
grants warrants the establishment of management information system to
identify grants requiring particular attention. One of four examples
furnished the Region follows:
Salt Lake City. Utah (WPC-DTAH-93). A grant for the
construction of a sewage treatment plant was awarded in
August 1967. On February 17, 1969, the Federal grant was
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increased to $350,380. At this time the total eligible
project costs were $1,061,768. The project files indicated
that the last inspection on this project was made on
March 21, 1969. The inspection disclosed problems in
operating the plant in a manner which would meet approved
water quality standards. It also indicated that the main
reason for the difficulties was due to "the unequal settle-
ment of the basic components of the whole plan." The City
requested Federal assistance on how to prevent the unequal
settlement so that the plant would be operated.and maintained
in a normal manner. According to the files, the Federal
inspector "was interested and willing to help...but at this
time could only offer...condolences." The project files
contained no other correspondence or follow-up inspections
concerning this problem. The latest information available
on the completion status of this project was as of May 1,
1970, indicating that it was 65 percent complete and that
Federal funds of $229,900 had been advanced. In our opinion,
the region should have initiated follow-up action subsequent
to the March 21, 1969, inspect!on to ascertain the adequacy
of actions being taken by the city and whether the plant was
being properly and efficiently operated.
Status of Construction Grants - Region IX
The Region has about 250 active grants for construction of
wastewater treatment facilities. We noted that, although 70, or
28 percent, of the 250 active grants were over two years old,
including a grant awarded in 1962, current management information
concerning the status of construction was not determinable without
reviewing each individual grant file. In our opinion, effective
administration of these grants necessitates the development of a
system to keep management informed of reasons for delays in completing
the grants. Such a system would help to assure that problems are
resolved and that grant conditions are fulfilled. Since the abate-
ment of pollution is usually not effective until a project is
completed, we believe timely completion of projects should be an
objective of EPA.
The Grants Administration Branch maintains a card file containing
certain financial data for each grant. Although the card was not
specifically devised to record current project status or special
problems, information concerning the percentage of completion was
sometimes shown on these cards. The percentages were normally
recorded only when a payment was requested. Our review of the
information on these cards disclosed that the percentage of comple-
tion was not recorded for 55 of the 70 grants over two years old.
In addition, the completion percentages for 32 projects had not been
updated for over a year even though the projects' status were shown
as over 80 percent completed at that time. It was therefore necessary
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for managers to review each individual grant file to determine
whether the project status was known or whether any follow-up
action was required. The number of such reviews and follow-up
actions required to administer 250 grants dictates a need for a
management information system to identify grants requiring
additional actions. This was evidenced by our review of eight
grants awarded prior to December 31, 1969, which disclosed that
follow-up action was overdue on four of the grants. One of four
instances furnished Regional officials follows:
^ Estero Municipal Improvement District (WPC-CAL-295).
This grant was awarded on January 4, 1967, for the construc-
tion of a wastewater treatment plant. On August 20, 1968,
the grant amount was increased to $191,400. A final
inspection made by EPA on November 4, 1969, disclosed that
the plant had significant mechanical and operational problems.
The inspector therefore did not accept the project and
recommended against any additional payments. Our review
disclosed that there was a lack of management information
available indicating the current status of the project. In
fact, follow-up action on this grant was not initiated
until April 7, 1972, or 29 months later. At this time, EPA
was informed that the plant had never operated properly and
that a lawsuit was pending against the consultant engineer
and construction contractor. Timely follow-up would have
disclosed that the problems had not been corrected at a
much earlier date. At the present time, the grant assurance
that the treatment works Would be operated properly and
efficiently after completion of the construction has not
been fulfilled. '
Conclusions and Recommendations
Our review showed that Regions II, VIII and IX did not have
effective systems for identifying those projects with problems. As
a result, EPA management was hampered in conducting its follow-up
program to assure that appropriate corrective action was taken. We
recommended that the Regions:
1. Establish a system which identifies the status of
construction grants. This system should relate
planned versus actual accomplishments and identify
problems which hamper the timely completion of
construction grants.
2. Assure that appropriate follow-up actions are taken
to see that corrective actions are taken in a timely
manner.
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Management's Comments
•
Regional officials in Regions II and IX generally concurred
in the recommendation and indicated that corrective action has or
will be taken to establish the necessary management information
systems. Region VIII official's response has not been received to
date.
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Interim and Final Inspections
Effective procedures should be established for performing interim
inspections during construction of wastewater treatment plants or final
inspections upon completion of construction. This will ensure that
(1) the grantee's or consulting engineers supervision,of construction
is adequate and work is proceeding satisfactorily, and (2) all work has
been accomplished in accordance with approved plans and specifications
and thus, resulted in a properly operable facility. During our Regional reviews,
we observed varying degrees of priorities assigned these functions,
ranging from great emphasis placed on inspections to assigning a very
low priority for these activities. Consequently, in some regions, the
required interim inspections were not always performed. Although these
inspections have not always revealed major construction deficiencies,
they serve to insure effective, economic and efficient use of the huge
Federal investment in the construction program. In addition, final
inspections were not always accomplished in a timely manner. Final
inspection reports did not always indicate whether the completed construc-
tion fulfilled the conditions of the grant or satisfactorily met water
quality standards. We attributed these weaknesses to the fact that more
than 50 percent of the engineer's effort during final inspection was
expended on non-engineering administrative functions.
Background
The responsibility for a properly operable wastewater treatment
plant that will treat the wastes satisfactorily to meet water standards
rests with the grantee directly or through its consulting engineer. In
the past, the grantee's financial and other interests in the project
were as great or greater than that of the Federal Government. Hence,
greater reliance could be placed on the grantee and consulting engineer
in their supervision of the project. However, with the recent passage
of water pollution control amendments increasing the Federal share to
75% of the eligible costs, greater Federal technical overview to supple-
ment the State's or grantee's reviews is warranted.
EPA, Construction Grant Memorandum (CGM) No. 71-17 states that "On
projects in excess of $1,000,000, at least one inspection during con-
struction must be made, and additional inspections are desirable wherever
possible. Smaller projects will be inspected on a random basis, as
staffing permits. The purpose of a partial inspection is to determine that
the project is being constructed in accordance with approved plans
and specifications and that all Federal requirements are being fulfilled,
and to review any specific problems that may have been reported on the
project." According to the memorandum, the purpose of a final inspection
is to "determine that all work has been accomplished in accordance with
the approved plans and specifications to the satisfaction of all interested
parties and that the project will result in an operable treatment facility
that will treat wastes satisfactorily to meet water quality standards."
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The memorandum also requires that the final inspection be performed
before release of final payment.
Chapter 12 of the Handbook of Procedures, Construction Grants Program,
also discusses inspections during construction and final inspection. The
reports pertaining to inspections during construction are to contain all
pertinent facts and findings relative to: (1) progress of work and pur-
chase and delivery of major items of equipment, (2) adequacy of supervision
provided by the applicant, (3) quality of work performed and compliance
with approved construction plans and specifications, (4) important defects
or emissions, (5) compliance with specified tests of materials and
mechanical installations and (6) certificate of inspection and approval
of work which may be required by any public agencies having jurisdiction.
The handbook also indicates that reports prepared as a result of the
final inspection are to include comments concerning the operability of
the completed project.
Interim Inspections
*
Region II
In the Region, great emphasis is placed on inspections. During
construction they are used to assure that the plant is being built
in accordance with plans and specifications. The final inspections
serve to assure that the .plant is properly operating. In 23 projects
selected at random, a total of 99 inspections were made (the State
performed 57 and EPA 42). We found that the Region was apparently
doing an adequate job of inspecting plants. We did note, however,
that follow-up on identified weaknesses was not systematic.
Region V
During FY 1972, the Construction Grants Branch made only 124
interim inspections although the work plans called for 375 such
inspections to be made.
The Region did not retain the files once a project was closed
out; therefore, we were unable to document any instances where the
final inspection disclosed serious problems which might have been
avoided if intermediate inspections had been made. However, the
following illustration shows the importance of interim inspections
since serious construction problems can be disclosed and corrected
more easily during construction than when construction is completed.
Further, some deficiencies may not be evident during the final
inspection because subsequent work may cover the defects.
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In December 1971, CGB engineers visited a project site in
Genesee, Illinois. Construction costs for the project totaled
$836,200 and Federal funds amounted to $459.910. At the time of
their inspection, the project was about 75 percent completed.
The inspectors observed patched cracks in the concrete wall of
a digester and commented on the poor quality of the concrete poured
in one tank. Their observations were pointed out to the grantee
and the project file was conspicuously annotated to alert engineers
making the final inspection to the condition. Timely findings
such as this are cost effective to the extent that they preclude
the need for repairs and/or reconstruction after the project had
been completed. :
Region VIII
As of October 31, 1972, there were 21 active construction
grants which exceeded $1 million each, with a total value of $70 million.
Our review of 11 of these grants disclosed that required interim
inspections had not been performed on 7 grants.
Region IX
U'
Our review of construction grants accepted by applicants during
FY's 1970 and 1971 disclosed that there were 60 individual projects,
with a total value of about $206 million, which exceeded $1 million.
We selected 42 of the grants, valued at about $159 million, for
detailed review and found that the required interim inspections had
•not been performed for any of the grants. One example furnished the
region where required interim; inspections may have detected
significant operating problems was the City of San Clemente
(WPC-CAL-421). Although the grant offer for this $2.7 million
project was accepted by the City on January 22, 1970, an interim
inspection was never performed by EPA. However, the results of an
EPA final inspection on August 2, 1971, indicated significant
problem areas relating to equipment malfunctions, operational
difficulties, structural deficiencies, and odor controls. Included
in these problems was the fact that the concrete was leaking and that
the pumps and clarifiers were not operating properly. In this
instance, an interim inspection to determine the quality of the work
performed and compliance with approved construction plans and
specifications, should have disclosed the above problems prior
to the final inspection.
In view of the significant*investment of Federal funds in waste-
water treatment projects, it was important that procedures be established
assuring that the interim inspections will be performed. The inspections
should not only be performed on.projects in excess of $1 million but
also include some inspections of smaller projects. During our audits,
we noted several instances where the performance of required interim
inspections on these smaller projects may have detected significant
operating problems.
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Final Inspections
Our review of the Regions' procedures for accomplishing final in-
spections disclosed that there were several areas where improvements
were necessary. These included (1) performing final inspections in a
more timely manner, (2) revising the format of the final inspection form
to provide for those comments required by CGM No. 71-17, (3) taking
necessary and timely follow-up actions in those instances where previous
final inspections could not be made because of plant deficiencies, and
(4) reducing the amount of engineering effort being expended on non-
engineering administrative functions during final inspection.
Timeliness of Final Inspections
A review of 21 final inspections performed in Region VIII in
calendar year 1972 disclose^ that there was more than a 6 month delay
between the date the final inspection was requested and the date the
inspection was performed by EPA. A review of 20 construction projects
in Region IX which were awaiting final inspection as of March 10, 1972
disclosed an average of 21 months elapsed from the date the project was
accepted by the grantee until a final inspection was performed by EPA.
Many of these delays were attributed to the fact that the engineers were
required to perform extensive administrative and fiscal functions ,in
preparation for the final inspection. Additionally, the excessive delays
in performing the final inspections were caused by the lack of formalized
systems for identifying those projects ready for final inspection. In
one region, this was evidenced by the fact that our review of the files
for an additional 37 completed projects disclosed that they did not
contain any reference to the dates that construction was completed or
accepted by the grantee nor the dates that construction was completed or
accepted by the grantee nor the date which a final inspection was requested,
In our opinion, this condition could be improved by (1) maintaining a
control listing showing the status of all grants awaiting final inspection,
(2) increasing coordination with grantees to assure that EPA is notified
of the completion of construction in a timely manner, (3) initiating the
final inspections as soon as possible after the grantee has accepted the
construction and not delaying the inspections pending the receipt of
nonessential administrative and fiscal data, and (4) establishing target
dates for completion of the final inspections and requiring an explanation
of the reasons for any delays.
Final Inspection Reports
Various forms are in use in the regions for reporting the results of
final inspections. However, we noted instances where the form was not
used or was only partially utilized. In one region, of the fourteen
items included in the form, only four pertained to technical matters which
were to be considered during the final inspection. In another region, a
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review of the form disclosed that of the nine sections included,, only one
pertained to operational matters which were to be considered during the
final inspection. The balance of the items were applicable to administra-
tive and fiscal matters and included determining: (1) that the payroll
certification was signed, (2) that there was a final pay estimate,
(3) the amounts paid to construction contractors, and (4) the total costs
expended for equipment and materials, engineering services, and legal
and administrative services. Although the form provides space for a
"yes" or "no" answer as to whether the grant offer conditions were
satisfied, it does not comment on certain data required by CGM No. 71-17.
For example, the form does not require the inspector to comment on
whether work was accomplished in accordance with approved plans and
specifications, if the pro'ject results in an operable treatment facility
and whether the effluent satisfactorily meets water quality standards.
In addition, the form also does not provide for the 13 specific items
which CGM 71-17 requires to be reviewed, including the plant's structural
adequacy and the effectiveness of its mechanical operation.
Because the requirements contained in CGM 71-17 were not included
in the inspection form, there was no assurance that they were being
adequately considered during the final inspection. Specifically, we
found no evidence that the final inspection determined whether the
effluent from the completed project was meeting water quality standards. ^
This was illustrated by a final inspection performed by EPA on WPC-CAL-382
(Sacramento Central Sanitation District) which we observed on March 3,
1972. The final inspection report did not mention whether the effluent
was meeting water quality standards. In this instance, a review of
effluent test results was important since the plant was under a Cease
and Desist Order from the State of California for violation of water
quality standards. The State Regional Board inspections of this plant
in July and August 1971 indicated "an inspection of the discharge
into the Sacramento River revealed floating vegetable matter (lettuce,
corn, etc.), plus small balls of grease. The discharge appeared brown
in color after mixing with the river water. The floating and suspended
solids were visible flowing by Cliff's Marina approximately 0.2 to 0.3 of
a mile downstream from the point of discharge." In our Opinion, the
final inspection, as a minimum, should have been of sufficient detail to
determine whether the above problems still existed.
Follow-up Actions
In one region, we noted the inability to complete its final inspections
of 15 wastewater treatment plants because of various technical or admini-
strative deficiencies which were detected during the final inspection.
Although this situation indicated a need for effective follow-up action,
the region had not initiated such action in a timely manner. One example
of the types of problems which have affected the completion of the final
inspection follows:
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Morgan (490082). A final inspection was requested by the grantee
in September 197'!; however, the region did not perform the inspection
until June 8, 1972. At the time of the inspection, it was found that
the lagoons leaked and that it would be necessary to wait until the
water line dropped in order to properly seal the lagoons. Additionally,
the inspection report noted five administrative deficiencies related
to change orders, purchase agreements, and invoices. In a subse-
quent final inspection performed by the region on November 16, 1972,
the same general condition as found five months earlier was again
noted. Consequently, this project still remains as an open project.
Use of Engineers for Administrative Functions
One approach available to the regions to improve their interim and
final inspection accomplishments is to reduce the amount of engineering
effort being expended on non-engineering administrative functions during
final inspection. Discussions with engineering personnel and our obser-
vation of an inspection indicated that at least 50 percent of the
engineer's time during the final inspection process was devoted to ad-
ministrative functions. These functions included (1) completing the
grantee's Project Progress Report and Payment Request (FWPCA-10), and
(2) reviewing the grantee's cost data for eligibility. It is our opinion
that the preparation of the FWPCA-10 should be the responsibility of the
grantee and not the EPA technical inspector. However, EPA should assure
that the grantee is provided, through the GAD, the administrative guidance
necessary to complete the form. Further, a review of grantee's cost data
for eligibility is the primary responsibility of the EPA Office of Audit
and not the technical inspector. Although the final inspection report
should discuss those technical matters which have a bearing on costs, the
actual reviews of the grantee's cost data for eligibility should be
performed during the final audit. In our opinion, the amount of technical
effort available to perform the required inspections would be increased
if the above-mentioned non-engineering administrative functions were not
performed by technical personnel during the final inspections. The
final inspection could then be directed to the technical requirements of
determining the operability of the completed plant and whether the plant's
effluent meets water quality standards.
Conclusions and Recommendations
Our review showed that EPA has not established effective procedures
for performing interim inspections during construction at wastewater
treatment plants or final inspections upon completion of construction.
As a result, .interim inspections were not always performed; final
inspections were not performed in a timely manner; the format of the final
inspection form did not provide for those comments required by CGM No. 71-17
nor was the use of the form made mandatory for all final inspections; and
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technical efforts were being expended on non-engineering administrative
duties such as preparing the grantee's Project Progress Report and Payment
Request and reviewing the grantee's cost data for eligibility. In view
of the significant investment of Federal funds in wastewater treatment
projects, we recommended that the Regional Administrators initiate action
to:
1. Perform the required interim inspections of• all current con-
struction projects in excess of $1 million, and institute the procedures
necessary to assure that future interim inspections of wastewater treat-
ment plants are accomplished.
2. Improve the timeliness of final inspections by: (1) maintaining
a control listing showing the status of all grants awaiting final inspection,
(2) increasing coordination with grantees to assure that EPA is notified
of the completion of construction in a timely manner, (3) instructing the
Grants Administration Branch to request final technical inspections as
.soon as possible after the grantee has accepted the construction and not
delay the inspections pending the receipt of non-essential administrative
and fiscal data, and (4) establishing target dates for the completion of
the final inspection and requiring the Program Evaluation Branch to explain
the reasons for any delays.
3. Revise .the format of the final inspection form to provide for
those comments required by CGM No.;71-17 concerning the operability of
the project and to delete requirements for information of a fiscal nature.
Upon its revision, the use of the form should be made mandatory for all
final inspections.
4. Assure that technical inspectors do not perform non-engineering
administrative duties such as preparing the grantee's Project Progress
Report and Payment Request (FWPCA-10) and reviewing the grantee's cost
data for eligibility.
Managements' Responses
Regional Comments
Region V officials pointed out that because of the local professional
competency and its own staff limitations, plant inspections was one area
that invariably has been reduced when its Construction Grants Branch was
faced with decisions on what can be done or what cannot be done. They
also believed that there never has been contemplated a staff to permit
intermediate inspections of such frequency as to impact correction of
construction deficiencies and that plant inspection was a prime example
where EPA can place greater reliance upon the technical efforts of other
professionals. Region VIII officials have not responded to our findings
and recommendations to date. Region IX officials concurred with the
desirability of performing interim construction progress inspections and
assuring that final inspections are efficiently and effectively carried out.
The Region IX officials indicated that remedial actions would be taken to
correct the weaknesses noted in our report.
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Auditor's Comments
Because of the varying degrees of emphasis assigned to the plant
inspection function by the regions; inconsistencies and insufficiency of
final inspection reports between regions; and lack of effective proce-
dures for ensuring the performance of interim inspections or timely final
inspections, we believe EPA should provide greater policy guidance and
strengthening of procedures for plant inspections.
Headquarters Response
Representatives of the Assistant Administrator for Air and Water
Programs generally concurred with our finding and recommendation. In
this regard, they indicated that new policies and procedures were being
developed which would set forth guidance for interim and final inspections.
They did, however, point out a concern regarding the basic objective
of final inspections. Such inspections are, according to Program
officials, "for the purpose of determining that the work is being and
has been constructed in accordance with the approved plans and specifications
and that all of the equipment is operating properly."
"After the final construction engineering compliance inspection, the
performance requirements of the plant come under the responsibility
of the Operation and Maintenance inspection requirements as outlined in
the Federal Guidelines for Design, Operation, and Maintenance of Waste
Water Treatment Facilities."
Auditor's Comments
Each of the construction grants reviewed by Our auditors contained
specific terms and conditions requiring that the effluent from the plants
meet the applicable water quality standards. It is our opinion, that
the engineers making final inspections are expected to verify that these
terms and conditions have been complied with before he may sign off on
final payments.
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Operation and Maintenance
Adequate procedures have not been established to assure that sewage
treatment plants financed with Federal funds are being properly operated
and maintained. Even though primary reliance for operation and main-
tenance (O&M) has been traditionally placed on the state, we found that
many state agencies have not established a viable O&M program. Further-
more, EPA's own monitoring activities have not always been geared to
the relative strengths and weaknesses of the state programs. Instead,
little emphasis has been placed on the Region's O&M programs. Accordingly,'
in several Regions few O&M inspections have recently been made; and no
effective procedures have been established to assure that EPA is notified
of plants which the state has found, to have major operational and/or
maintenance problems. Thus, the Regions have no basic knowledge of the
actual quality of O&M provided by many of our grantees. Even in the
instances where EPA has learned of significant O&M problems, actions
taken to assure that such problems were corrected were inadequate. Follow-up
was commonly infrequent and unsuccessful in stimulating necessary corrective
actions. We found no instances where the Regions had even considered
taking punitive actions such as withholding subsequent grant funds or
initiating action to find the grantee in nonadherence to grant terms,
conditions and assurances. In our opinion, unless EPA exhibits a willing-
ness to enforce its own terms and conditions/grantees will quickly come
to realize that such terms and conditions are meaningless and begin to
violate these requirements in increasing numbers.
Background
Federal Guidelines for Design, Operation and Maintenance of Waste-
water Treatment Facilities were published in September 1970. The
guidelines Stated that "Effective operation and maintenance of municipal
wastewater treatment facilities is an essential element in the preser-
vation and enhancement of our Nation's waters. The tremendous investment
of Federal, state, and local funds in these facilities must be protected."
The guidelines also commented that some waste treatment facilities were
frequently badly maintained and achieved far less than their designed
efficiency levels. It was also brought out that EPA has an obligation to
ensure that Federal funds are wisely spent.
Chapter 12 of the Handbook of Procedures, Construction Grants
Program States that "Approximately one year after a sewage treatment
plant constructed with Federal aid is placed in operation, a visit
will be made to determine if the project is providing the service for
which Federal assistance was approved. This inspection may be made
by a representative of the state agency or by a representative of FWPCA.
In either case, the inspector will prepare Form FWPCA-12, Sewage Treatment
Plant Operation and Maintenance Practices Questionnaire, to record his
findings." The handbook also provides that if the O&M inspections are
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not performed by the state agency, they will be performed by Federal
representatives. Additionally, Section 601.35 of Title 18 of the
Code of Federal Regulations indicates that "The state will inspect the
treatment works not less frequently than annually for the 3 years after
such treatment works are constructed and periodically thereafter to
determine whether such treatment works are operated and: maintained in
an efficient, economic and effective manner..."
In 1970, the General Accounting Office (GAO) issued an audit report
concerning the Need for Improved Operation and Maintenance of Municipal
Waste Treatment Plants.This audit report pointed out that:
"Our review of FWQA studies and records of plant
inspections and our visits to ; selected waste treatment
plants showed that plant O&M problems were widespread
and had resulted in inefficient plant operations. ...These
problems were generally attributable to (1) inadequate
numbers of qualified plant-operating personnel, (2) inadequate
controls over industrial sources of pollution, and (3) inadequate
plant design or equipment deficiencies."
"Even when adequate provisions have not been made to
prevent the occurence of O&M problems, the effects of problems
that occur can be minimized through procedures available for
detecting and correcting improper or inefficient O&M. Existing
State procedures, however, are in need of further development..."
To determine whether O&M has improved, we reviewed records and documenta-
tion in nine state and four regional offices and found that significant
problems still existed. A detailed discussed of the problems identified
follows:
Analysis of State Programs
Many necessary improvements have not been made in the state programs.
Weaknesses in some state's certification, training, and application
review procedures have permitted plants to operate without the necessary
level and/or quality of staffing and without appropriate test equipment.
Similarly, weaknesses in operational reporting and plant inspection re-
quirements have prevented states from identifying O&M problems and thus
from requiring appropriate corrective action being taken.
Programs .to Provide Needed Personnel and Equipment
In establishing programs to assure that municipalities and other
organizations operating sewage treatment plants had.sufficient competent
personnel and needed test equipment, states commonly relied on such
techniques as certification, training, and review of grant applications.
In reviewing state water pollution control programs, however, we noted
circumstances similar to those identified in the GAO report. Specifically,
we found that:
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1. Many states still had only voluntary certification programs.
Thus, such states had no method of assuring that the personnel running
sewage treatment plants were qualified. Even where the state's certifi-
cation program was mandatory, we found instances where the program
contained significant deficiencies;in concept or was not producing
sufficient operators to meet the states needs. For example,
a. Legislation passed by Arkansas during calendar year
1971 requiring mandatory certification of municipal wastewater
treatment plant operators has automatically qualified for
licenses, operators who had1 not previously qualified. Moreover,
such operators were not required to participate in any training
programs to upgrade their knowledge of treatment plant operations.
b. The examinations for operation certification in Illinois
were written in 1967 and have;not been revised since. Individual
questions on the examination for each of the various certification
levels have not been changed. Thus, an examinee who failed an
examination for a given level was required to take the same
examination with exactly the same questions the next time he took
the test. Furthermore, there was nothing to preclude the free
exchange of test questions and answers among prospective examinees.
This practice was not satisfactory since the examinees could limit
their preparation to the specific questions known to be on the
tests.
We also observed instances of different grading of the
same answer from one test ot the next. For example, on one test
the answer given by the examinee to a question was marked incorrect
and no credit given; but when taken the next time, the same answer
was given partial credit. Consistency in grading should be an
important part of the testing process.
c. Shortages of qualified operators existed in most all
states. At the time of our review in Illinois, there were 2,000
sewage treatment plants in operation in the State. These plants
require about 4,000 wastewater treatment plant operators. About
90 percent of all plants require certified operators and some plants
require more than one certified operator. About 44 percent of the
plants did not have operators certified at any level, and about 11
percent had operators who were certified at lower levels than required.
2. Appropriate emphasis was not always placed on training the
operators needed to run sewage treatment plants. The Illinois EPA, for
example, had not implemented an adequate program for training of sewage
treatment plant operators. According to the approved FY 1972 program
plan, about $300,000 of local, state and Federal funds were to be spent
in the training program. As of April 1972, the Water Division had spent
no funds on operator training and had not established an effective program
to identify training needs or resources in the state, develop standards
for training curriculums, or evaluate the training that had taken place.
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3. Reviews of construction grant applications have not always
been adequate to assure that sewage treatment plants had necessary
test equipment. As a result.when we review the water programs in
Kentucky and South Carolina, we noticed that many treatment plants
did not have adequate equipment to test the effluent against the
established discharge parameters.
Without adequate well-trained staff and adequate test equip-
ment, it would appear difficult, if not impossible, to operate a
plant at the most optimum level.
State Procedures for Monitoring O&M
Procedures established by state agencies have not been adequate
to thoroughly monitor the quality of operation and maintenance of
sewage treatment plants. In this regard, we noted procedures con-
cerning the receipt and review of plant operating reports and
inspection of sewage treatment plants needed improvement in seven
of the nine states examined. Thus* state agencies frequently did
not have actual knowledge as to whether or not sewage treatment
plants within their jurisdiction, were being properly/Operated and
maintained.
Monthly Operating Reports
Procedures established to,assure that monthly operating
reports were properly submitted and reviewed were inadequate
in four of the nine states reviewed. As a result, we found
that reports showing the plant utilization and effluent quality
were generally either not submitted by the plant operator or
were incomplete. In addition, reports submitted were not
regularly reviewed to identify plants which were not operating
correctly.
Section C of the Federal Guidelines for Design, Operation
and Maintenance of Wastewater Treatment Facilities states that
it is "desirable" for plants to routinely file operating reports
with the appropriate state agency so that the regulatory
agency may use them in carrying out its responsibilities. Each
of the nine states included in our review requires municipal and/or
industrial waste treatment plant operators to submit monthly
operating reports.
In reviewing the State Water Pollution Control Program, we
noted that four of the nine states (44 percent) were having
significant difficulties in obtaining the necessary data. These
included the States of Hawaii, Illinois, Kentucky, and South
Carolina. Typical of the types of problems identified in these
states were the following:
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Illinois
During the first seven months of FY 1972, an average of
about .1,525 plants were required to submit monthly reports to
the State, but about 925 actually submitted them. Of the
reports submitted, over 95 percent were determined to be
incomplete by the Operator Certification Section. About 60
percent of the reports were incomplete in material respects.
Actions taken by the State to get plant operators to
submit the necessary data was not successful. For example,
as illustrated in the following table, the Pittsfield Sewage
Works reports for a five-month period showed no improvement
in report quality.
No. of
Report Factors Sept. .71 Oct. 71 Nov. 71 Dec. 71 Jan. 72
Required to be
Reported 12 12 11 11 11
Not Reported 9 • 8 77 8
A review of selected plant reports submitted between October
1971 and February 1972 showed that almost one-half of the
individual factors that should have been reported by plant
operators were not.
The data on the monthly operating reports could have provided
information useful to both state and local management if accurately
reported and properly analyzed. Analysis of correctly reported
plant utilization and effluent quality data could disclose trends
which would result in early recognition and correction of problem
areas. For example, consistently poor quality effluent readings at
a plant which had all of the necessary equipment to produce accept-
able effluent, could be the result of inadequate operator capabilities.
If reports were correlated with level'of operating training, it is
possible that special attention to training operators or hiring
better qualified persons would result in improvement of the plant's
effluent. As another example, if the operator was well qualified
and the plant was theoretically capable of handling normal loads,
it is possible that the reports could even disclose machine failures
or the presence of excessive pollutants in the influent.
Plant Inspections
Adequate procedures were not established to assure that necessary
inspections were made to determine whether sewage treatment plants
constructed with Federal assistance were being properly operated
and maintained. Accordingly, in five of the nine state programs
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reviewed, we found that periodic inspections were either not
made at all or were basically^superficial in nature. As a result,
these states had no reliable means of determining whether or not
its plants were operating effectively in/reducing the discharge
of pollutants into their waters.
In 1971, CFR 18.601.35 was issued which required the states
to inspect each plant constructed by grants awarded after
July 1, 1970, at least once a.year for three years after completion
to assure that such plants are properly operated and maintained.
States have the responsibility under the Federal Water Pollution
Control Act for cleaning up the quality of water. This necessitates
regular inspections of all sewage treatment pi ants.to assure that
the plants are operating in accordance with design specifications
and meeting the requirements of the Act. • :
During our review of State Water Pollution Control Programs
in nine states, we identified:five states (55 percent) where
significant weaknesses in plant inspection procedures hampered
the effectiveness of the states O&M program. Such weaknesses
were noted in the States of Arkansas, Florida, Hawaii, Kentucky,
and Utah. A discussion of the typical weaknesses found in these
programs is contained in the following paragraph:
Florida
In Florida the responsibility for inspecting waste-
water treatment plants was delegated by DPC to the
Bureau of Sanitary Engineering (BSE), Department of Health.
We discussed the procedures used in assuring proper opera-
tion of sewage treatment works with BSE officials and learned
that controls were minimal. Most work in this area was
limited to a review of the monthly operating reports sub-
mitted by the sewage treatment plants. Through this review,
BSE tries to identify deficiencies in operational data or
laboratory analysis. There were, however, no follow-up checks
made to assure that the data reported were accurate. The BSE
had not established any procedure for periodip inspection of
the operation and maintenance of sewage treatment plants. The
inspections are made by County Health Officers and the plants
were only visited when necessitated by public complaints or
when drop-in visits were convenient.
Arkansas
Our review disclosed that Arkansas Department's program
for inspecting wastewater treatment facilities has been limited
in terms of both inspection coverage and control.
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During past years, the Department has neither inspected
nor planned to inspect all municipal facilities. Operational
inspections are accomplished on a time available basis by
field inspectors who are also responsible for handling complaints
and obtaining monitoring data. Although valid data showing
inspection volume was not maintained, available information
indicated that only about half of the State's municipal facilities
have been inspected annually. Inspection coverage of industrial
and other facilities has also been limited.
The scope or coverage of each inspection is limited.
The inspection includes a general observation of plant condi-
tions but does not include a technical evaluation of a plant's
operations and performance. Normally, tests are not made to
determine the adequacy of treatment. Also, an evaluation is
not made of the plant's staff and operating procedures. We were
advised that the Department's inspectors are'knowledgeable of
effective plant maintenance conditions but are not trained to
make technical evaluations of treatment facilities.
We noted a lack of control over the inspection program
with respect to a records system. No documents or listings
were maintained showing facilities to be inspected or
inspection frequency. Forms showing the results of each
inspection are prepared; however, all forms, were not readily
available and the inspection work accomplished was not tabulated
and summarized in any meaningful manner.
In our opinion, the lack of a systematic inspection system
prevents the State from having reliable knowledge of the effec-
tiveness and efficiency of its treatment plants. Without such
knowledge, the State is hampered in trying to judge the extent
of pollutants discharged into the State's waters and in trying
to determine what steps might be taken to reduce pollution.
Similarly, the lack of definitive knowledge prevents the State
from taking necessary actions to get plant operators to correct
deficiencies in O&M. An illustration of how operational difficulties
can adversely affect the qualities of a State's water is discussed
below: .
i
Wahiawa and Whitmore Village Sewage Treatment Plants
Grants were awarded in May 1968 for the Wahiawa plant
(WPC-Hawaii-34) for about $1.5 million and in March 1967
for the Whitmore Village plant (WPC-Hawaii-36) for approxi-
mately $553,000. Final inspections of these plants were
performed by EPA in June 1970. We found that the State
has not performed any of the required O&M inspections.
However, according to water quality monitoring data being
submitted by the Wahiawa plant, the plant effluent readings
for total nitrogen, total phosphate, and total and fecal
coliform were quite high. A similar situation also existed
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at the Whitmore Village plant, except for the fact that
coliform readings were not provided nor obtained.
The necessity for the O&M inspection is further illustrated
in various studies performed of State waters. For example,
the February 1972 report on Oahu's water quality indicated
that the Atehiawa Reservoir appeared to have been brought into
an advanced state of eutrophy because these two sewage treatment
plants were discharging sewage into the reservoir. A similar
situation was also brought out in a letter from the U. S.
Department of Interior, Fish and Wildlife Service, dated
April 18, 1972. The' letter stated that "The results of man's
abuse and use of the reservoir for a waste receptical is
evidenced by the substantial and chronic fish kills." We
believe that the monitoring of the operation of these plants
by the State through annual O&M inspections is an important tool
in identifying and preventing such problems.
EPA performed an O&M inspection on the Whitmore Village
plant in May 1971 and identified several operational problems.
However, we noted that there was a lack of fdllow-up proce-
dures by the State to determine if the recommendations included
in the EPA O&M inspection were corrected. For example, the
EPA O&M inspection of the.Whitmore Village plant listed
several mechanical problems and stated that "no provision
was made for removal of floatable material in the final
clarifiers nor settleable material in the chlorine contact
chamber." It recommended that the necessary .equipment to satisfy
the mechanical problems be installed. There was no information
available indicating that the State followed up on this or
other problems noted.
Analysis of Regional O&M Activities
In the past, Regional EPA officials have not placed sufficient
emphasis on O&M. Instead, primary1responsibility for O&M was left
in the hands of the states. Accordingly, we found that most EPA regions
did not perform many O&M inspections and did not even receive reports
from the states indicating which of the plants were experiencing con-
siderable O&M problems. Even wheniEPA engineers did make inspections and
find deficiencies in O&M, no effective follow-up system was utilized
to assure that the necessary corrective actions were taken in a timely manner.
Since sewage treatment plants can do little to improve the quality of our
water unless they are properly operated and maintained, we believe the time
has come to put new emphasis on O&M. Where state programs have been
found to be inadequate, states should be required to strengthen such
programs. Where state action is not adequate or requires time to imple-
ment, EPA regional officials should step in to fill the void.
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Over the years, the Federal Water Pollution Control Act, as
amended, has recognized the responsibility of the states in cleaning
up the environment. Accordingly, such functions as operation and
maintenance have traditionally been treated as part of the state
responsibility. Even the GAO report issued in September 1970 stated.
"Also, since current FWQA plant O&M inspection
procedures usually duplicate State inspection proce-
dures without significantly complementing them, FWQA
should discontinue plant inspections except for the
purpose of periodically evaluating the State procedures."
Federal Inspections
When we reviewed the O&M activities in four Regional offices,
we accordingly found that little emphasis was placed on O&M. In
Region IX, for example, our review of 75 construction grants, completed
in FY's 1969 through 1971, disclosed that the region had performed
only 3 of 122.required O&M inspections as shown in the tabulation
below:
Plants Completed No. of O&M Inspections
FY_ No. Required Performed
1969 18 49 3
1970 33 49 0
1971 24 24 _P_
Total Z| 1H I
Similar circumstances were noted in Regions V and VIII. We discussed
this situation with responsible Regional officials, who explained that
O&M was given a low priority in the regions.
To determine whether our minimal coverage provided the needed
assurance that sewage treatment plants were being properly operated
and maintained, we first inquired into the Region's knowledge of
the state O&M programs. In this regard, we found that EPA Regional
offices did not have a thorough knowledge of state procedures.
While our. engineers had accompanied state officials on some O&M
inspections, we commonly had no specific knowledge as to what plants
were scheduled for inspection or whether the inspections were actually
performed. Similarly, unless EPA had specifically requested an
inspection be performed, no copies of the inspection reports were normally
provided to EPA. This occurred even though state agencies did find, in
some instances, significant O&M problems.
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In view of the fact that we had identified significant weaknesses
in the procedures established to govern the states O&M programs, we
were concerned that the lack of emphasis given EPA's O&M program was
contributing to lack of adequate operation and maintenance being
provided at sewage treatment plants. To illustrate the types of
deficiencies which can go uncorrected, we reviewed a few inspection
reports related to O&M inspections;performed by EPA. In Region VIII,
for example, 28 of 52 O&M inspections (54 percent) revealed major
design deficiencies in the sewage treatment plants. Some specific
examples of the types of problems identified are as follows:
City of Portola (WPC-CAL-401). The EPA final inspection
dated February 3, 1970, indicated that the city was not
interested in maintenance. In this instance, the accomplish-
ment of an O&M inspection was important to assure proper
plant operation and maintenance. We noted that the city has
been under a Cease and Desist Order from the State of California
for bypassing raw sewage into the Middle Fork of the Feather
River. The Federal grant was awarded to the city for improve-
ment of existing treatment facilities "to correct the discharge
of inadequately treated sewage into the Middle Fork of the
Feather River which is used extensively for irrigation and
recreational purposes." However, in view of the fact that the
city is still bypassing raw sewage into the river, it is apparent
that the objectives of the grant were not fulfilled.
Village of Port Chester (WPC-NY-67). An inspection of the
plant in November 1969, disclosed a significant infiltration
problem and that plant equipment was not being properly maintained.
While these problems were pointed out to the grantee and the state,
a subsequent inspection in April 1971, showed that no effective
corrective action had been taken. When we reviewed project files
in October 1972, we found no indication of the status of action
taken to correct the problems in this plant.
City of Show Low (WPC-ARIZ-99). A recent Municipal Waste
Treatment Plant Inventory report, prepared by the region's
Surveillance and Analysis Division, indicated structural and
mechanical problems at this plant. According to the report, the
structural problems were due to erosion of banks of ponds and
the mechanical problems resulted because the chlorinator line
strainer was too small. In addition, this 0.5 mdg plant had
one part-time operator for 14 hours a week, although one full-time
operator and one half-time,laborer were recommended by "The
Conference of State Sanitary Engineers - Recommendations for
Minimum Personnel, Laboratory. Control and Records for Municipal
Waste Treatment Works." This has resulted in a violation of the
grant condition which required the city to provide efficient
operation and maintenance of the approved project in accordance
with the above-mentioned conference recommendations.
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After evaluating the results of O&M inspections, we were concerned
that many treatment plants suffer from significant O&M deficiencies.
Unless appropriate action is taken to strengthen the overall O&M program
of both EPA and the state, there can be no assurance that the basic
objectives of the grant - to prevent unnecessary discharges of pollutants -
will be fulfilled.
Follow-Up.on O&M Inspections
Systematic follow-up procedures were not instituted to assure
that necessary actions were taken to correct deficiencies identified
during O&M inspections. Instead EPA Regional offices generally just
sent a copy of their inspection report to the state agency and grantee.
This apparently put the "monkey" on their back and no further action
was generally taken on EPA's part until another inspection one to three
years later. In many instances, this follow-up inspection would simply
show the same deficiencies, and the process would start all over again.
For example, a January 30, 1973 .inspection report on an O&M inspection
at Bay St. Louis, Mississippi Project No. C28-0128 showed the following:'
"A visit was made to Bay St. Louis, Mississippi at 1:00
PM on January 23, 1973, for the purpose of performing and O&M
inspection on the City's wastewater treatment facilities...
"Findings:
"1. Laboratory analyses are not performed to determine
the efficiency of the lagoon.
"2. The lagoon is equipped with a flow recorder which
was not in operation during the inspection. Parts
are on order from the manufacturer.
"3. The lagoon is also equipped with a chlorinator
which is placed by the flow recorder. Since the
flow recorder was broken, the operator or one of
the maintenance men had turned off the chlorine feed
so that the effluent was not being disinfected.
"4. The lagoon is not equipped with a gas mask approved
for use with chlorine.
"5. The operator stated that the lagoon is inhabited by
three or four alligators. Due to the season, the
alligators are hibernating and were not personally
observed by the writer.
"6. The operator also stated that nutria and muskrat are
suspected, to inhabit the lagoon.
"7. The interior face of the dikes have been completely cleared
and grubbed of ail ground cover. In addition, the dikes are
eroding badly at the water line due to wind and wave action.
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"8. The motor on the exhaust fan in the chlorine building
was damaged by Hurricane Camille and has not been
repaired. .
"9. The polluted water signs need to be repainted.
"10. The City of Bay St. Louis does not have a certified
operator; personnel engaged in the operation and
maintenance of the sewage system do not routinely
attend training courses. In addition, the/Chief
Operator plans to retire next month.
"11. Both the Operator and the Superintendent stated
that the lagoon experiences severe odor ^problems
in the warmer months. During the summer, it is
necessary to mix the contents of the lagoon as
often as three times per day with an outboard motor
to lessen the odors...
"Most of the adverse conditions listed in the findings were
noted during a previous O&M inspection...on January 21, 1972.
The City has not initiated any corrective actions to overcome
these operation and maintenance difficulties. It is therefore
recommended that the City take immediate steps to remedy the
problems and that EPA and the Mississippi Air and Water Pollution
Control Commission make a follow-up inspection to determine the City's
progress."
In reviewing the procedures established to award construction grants
to assist in the financing of sewage treatment plants, we noted that
assurances were required to the effect that such treatment plants would
be properly operated and maintained. In our opinion, this assurance
is basically the same as any other grant terms and condition. Accordingly,
when we found that significant O&M problems were occurring in construction
grants financed with our money, we were surprised to see no punitive
actions taken. Since our grantees were apparently not complying with
grant terms, it would seem obvious that action could be initiated to stop
payments on any current grants or even to initiate recovery action. While
such actions should probably be taken in only the most flagerant cases,
grantees must not be allowed to think such terms and conditions are
meaningless. If this occurs, grantees will begin to violate the O&M as
well as most other grant requirements in increasing numbers.
Conclusions and Recommendations
Our review has shown that significant improvements are needed to
assure that sewage treatment plants constructed with Federal funds are
being properly operated and maintained. In recent years, EPA has
concentrated its efforts on providing increased guidelines to be used
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by state governments and local grantees in setting up and
monitoring O&M programs. In our opinion, these guidelines were
essential to provide the basis for a clear understanding as to what
was meant by "adequate operation and maintenance." We feel, however,
that the time has come to see that such guidelines are properly imple-
mented. Accordingly, we are recommending that appropriate EPA officials:
1. Increase emphasis on working with state program officials '
to improve those aspects of the water program related to
O&M. Of special concern should be those procedures
related to certification,-training, and the identification
of adequate levels of .O&M and laboratory equipment in
construction grant applications.
2. Require that state agencies implement acceptable O&M
monitoring programs. Such programs should necessitate
the submission of complete and accurate operating reports.
Appropriate penalties should be established to assure
that such reports are submitted. State officials should
then review operating reports to identify O&M problems.
In addition, the states should be required to periodically
inspect all treatment plants. Such inspections should
include necessary evaluations being made of the plants
operation and performance, and adequacy of staffing
and operating procedures. Appropriate reports should
then be prepared and maintained on file. Wherever corrective
actions are needed, appropriate follow-up systems should
be established to assure that necessary actions are taken.
3. Appropriately monitor the states' O&M program. This monitoring
should be used to assure that necessary inspections are
being made by the state, identify plants with serious O&M
problems, and verify that such plants have been required
to take necessary corrective actions.
4. Expand or contract the Regional O&M programs based on the
adequacy of state programs. Where state programs are
adequate, EPA's O&M inspection process should be expanded
to fill the void. Wherever punitive actions such as withholding
of payments on subsequent grants or initiating recovery
actions are needed, they should be used.
Managements Comments
The Assistant Administrator for Air and Water Programs generally
concurred with our findings and recommendations. He did point out,
however, that EPA's General Counsel had advised that "the recovery
of grant funds from a municipality after a project is complete for failure.
to meet grant conditions on operation and maintenace would be difficult
if not impossible." He did feel, however, that the possibility of with-
holding current grant funds should be considered.
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The Assistant Administrator did point out that the use of the
permit program established under Section 402 of the new Act did offer
a sound basis for insuring proper O&M of treatment plants. Accordingly,
EPA has devised a draft strategy for O&M utilizing the controls available
under the permit program. A copy of this draft strategy is included
as Appendix B to this report.
In addition, the Assistant Administrator pointed out that efforts
were already underway to resolve other weaknesses identified in our
finding. These efforts included:
"1. State Programs
The general weaknesses of;State O&M programs are recognized. These
are generally attributable to low priority given to O&M and/or to
inadequate staffing and funding. EPA does have some efforts
underway which will serve as a basis for strengthening State programs.
A contract will be completed in mid-1973 to provide "Guidelines for a
Model State/Federal Program for Monitoring and Upgrading O&M of
Municipal Wastewater Treatment Facilities." A parallel study will
provide an "Emergency Response Program for Municipal Wastewater
Treatment Facilities - State & Local Aspects." A contract is
presently being negotiated with the State of South Carolina to
develop a "Management System for Identification and Correction
of Operation and Maintenance Deficiencies." The evaluation
features of the Section 106 program cycle should also correct
past weaknesses.
"2. Personnel
The matter of certification is being addressed several ways:
(a) EPA and the Water Pollution Control Federation (WPCF)
jointly drafted a new model state mandatory certification
law and were successful in pressing for its adoption by the
Council of State Governments as a part of its 1972 package
of recommended State legislation.
(b) EPA sponsored a study by WPCF resulting in development of
"A Guide for State Certification of Wastewater Facilities
Personnel, March 1973."
(c) Formation of the Associated Boards of Certification (ABC)
is endorsed by EPA as a substantive national effort to
establish in all states viable certification programs that
will permit nationwide reciprocity.
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"3. Test Equipment, Personnel
A study by an outside consultant will produce by mid-1973
"Guidelines for Estimating Needs of Laboratories at Wastewater
Treatment Facilities." The document will cover facilities,
equipment, personnel, and minimum testing requirements and will
be an authoritative reference for State and Regional solution
of these problems.
"4. Monitoring O&M '.
The permit program established by Section 402 of the Act will
provide improved capability to monitor O&M. A State desiring
approval of the Section 402 permitting authority must meet
certain requirements outlined in 40 CFR, Part 124 (published
December 22, 1972). Among other requirements, the following
are particularly germane:
Section 124.61 requires the owner to report operating results:
Section 124.71 requires the State to provide the capability
for "receipt, evaluation and investigatory follow-up" and
to notify the Regional Administrator if any condition
of the permit is violated.
Section 124.92 requires the State to provide funding,
qualified personnel and other resources to support NPDES
with inspections, surveillance, and follow-up of evidence
of violations; inspections are to be accomplished not less
than once every year for every significant discharge.
Section 124.44 requires the State to notify the Regional
Administrator quarterly of any owners who fail to comply
with permit requirements.
"5. EPA Regional O&M Programs
Although the Regional O&M programs are highly variable among the
Regions, the overall emphasis nationwide has increased. The
number of inspections on grant-funded projects has steadily
increased from 360 in 1968 to about 900 in 1972. It is projected
that 1,000 will be conducted in 1973. More follow-ups to correct
identified deficiencies are needed. The needed changes in
Regional programs are further identified in the O&M draft strategy
mentioned previously. An effort is presently underway to improve
the quality of the EPA and State inspection effort. An inspector's
training course, developed by the Manpower Development Staff, is
being conducted at various locations around the. country. Attendees
include both EPA and State personnel responsible for inspecting
municipal wastewater treatment facilities. Seven courses have been
conducted as of this date.
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After reviewing the bid material to assure that necessary competi-
tive procurement techniques were followed, EPA then revised the
grant offer to reflect the actual costs of construction as
represented by contract prices. This revision then served to
provide EPA authorization for going to contract and thus beginning
the construction of a new sewage treatment plant. '
Reasonableness of Obligation
In reviewing records related to Section 8 construction
grants, we noted that the obligation practices being used did
not adequately safeguard the interests of the Federal government.
This occurred due to the fact that obligations were made based
on preliminary estimates which were later found to be vastly
over or underestimated. In addition, since such obligations were
prematurely made before the grantee was ready to proceed on
construction, substantial amounts of EPA funds were tied up on
more or less stagnant projects.
Validity of Cost Estimates. In obligating funds on
construction grants, EPA has historically relied primarily
on the cost data included in the prospective grantee's
application. To determine.whether such cost figures were
reasonably accurate, we compared the original estimated
costs with the figures as subsequently revised. In
Region II for example, we selected 23 construction projects
at random. Analysis of project files showed that for 18 of
the 23 projects (78 percent) substantial increases or
decreases in the grants were necessary. These changes
ranged from an increase of 116.9 percent to a decrease of
13.4 percent. A similar analysis of selected projects in
the Region VI revealed a similar situation. We attribute
these frequent revisions to two major factors. These
include:
1. EPA obligations are based on the figures
contained in the grantees application.
Commonly, these figures represent simply
engineering estimates. Since detailed
plans and specifications have normally
not been prepared at the time the appli-
cation is submitted, the grantee's
engineer has little concrete information
upon which to base his cost estimate..
2. Significant time lapses can occur between
the time the engineering report is
prepared, the application is made out,
and plans and .specifications are completed.
For example, in the Mississippi project,
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we noted that a 1966 grant application
was based on a 1962 engineering report.
Any delays in the construction project
more or less automatically increases
construction costs and thereby makes our
obligation figures more and more
obsolete.
Timing of Obligations. Despite the inaccuracies in
estimating costs, the practice of obligating construction
grant funds based on preliminary application information
can be justified if the construction grant projects move
quickly to construction. A review of projects pending
construction by the Grants Administration Division as of
December 31, 1972, identified 89 projects representing
approximately $35,000,000 of EPA funds which had been
classified as pending construction more than twp years.
(This analysis included only projects awarded with 67-72
funds.) In reviewing the project register for ten states,
we noticed that an additional 19 of the 473 active projects
(4 percent) classified as pending construction were awarded
prior to FY 1967.
To determine the reason such projects were not moving
to construction, we selectively analyzed the respective
project files. We learned that the selected projects were
delayed because (i) the proposed treatment plants need
redesigning, (ii) problems in obtaining necessary plant
sites and easements, or (iii) inability in obtaining needed
funds. For example:
Town of Raleigh, Mississippi - Project 271
Total Cost: $152,000 EPA Share: $42,900
Classified as Pending Construction: 4 1/2 years
Reason: Town decided that they were not able to
proceed unless they could obtain other grants. So
far have been unable to do so.
Town of Sudlersville, Maryland - Project 134
Total Cost: $1,293,000 EPA Share: $641,600
Classified as Pending Construction: 5 years
Reason: Bids received considered too high and
rejected. Plant now under redesign to try to
reduce cost.
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City of Gentry, Arkansas - Project 249
Total Cost: $460,000 EPA Share: $253,000
Classified as Pending Construction: 3 1/2 years
Reason: Financing Difficulties
After analyzing these delays, we believe that EPA was in
error in obligating its funds at such a premature date.
Unless a grantee knows what plant he is going to build,
where it is going to be built., the cost of the plant and
actually has available the funds necessary to finance his
share of the cost of the project, he is not ready to
proceed. Similarly, we should not be ready to obligate
our funds until a grantee is ready to go to construction.
Determination of Satisfactory Progress
Even though EPA procedures call for the withdrawal of grant
offers when satisfactory progress was not being made, we noted
that such procedures were generally not followed.
Paragraph 43 of the Construction Grants Handbook provides
that
"A grant offer may be withdrawn at any time that it
becomes apparent that satisfactory progress is getting the
project underway or completed is not being maintained. In
such cases the applicant will be furnished a letter explain-
ing the reasons for the proposed action and will be given
30 days to develop a satisfactory plan for the project."
To facilitate the application of this requirement, each grant offer
contains a requirement that plans and specifications be submitted
and the project be under construction within specified time frames.
In reviewing project files, we concluded that action taken by
EPA with respect to this requirement was indecisive. Although close
contact was generally maintained with each grantee and EPA helped
provide whatever assistance iticould, no definitive actions were
normally taken to get the projects moving. This is exemplified by
the large number of projects remaining in the pending construction
classification for extended periods of time. In reviewing project
files, we noted that extentions in required submission dates were
more or less automatically given. In only a few instances, did we
find any indication that consideration was given to withdrawing a
construction grant.
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Impact of Present Practices
The obligation of EPA construction grant funds, based on prelimi-
nary application information and the failure to get the grantees
moving to construction or take appropriate action to withdraw our
grant offer, has impaired EPA's ability to utilize its funds where
needed. The millions of dollars tied up on projects, not going to
construction, could surely have been utilized elsewhere. The money,
for example, could have been used to finance other projects in the
state which were ready to proceed or the funds might have been used
to reduce the volume of reimbursable projects, thereby relieving
state or local agencies of the necessity of pre-financing the Federal
share of the costs of sewage treatment plants. In any respect, had
the funds not been tied up on such projects, such funds wo'uld have
been available for real location by the Administrator to states,
cities, or projects really needing the money.
Since the present obligation procedures do not apparently safe-
guard the interests of the Federal government, we checked with other
agencies to see tf an improved system of obligations was being used
which might cut down the time between obligation of funds and start
of construction. We found that the Department of Health, Education,
and Welfare's (DHEW) Hi 11-Burton Hospital Construction Program had
what appeared to be better obligation procedures.
Under that program, application for a grant is a four-part
process. Under this process, the first part is a more or less
general application similar in content to our application. This
part provides an overall view of the project including a narrative
description of the project, preliminary cost estimates, and a
number of required assurances. Approval of this part by DHEW assures
Federal participation in the project, when other requirements are
fulfilled.
Part 2 of the application contains information about the appli-
cant's financial resources and serves as a control to see that the
grantee actually has the money to proceed. Part 3 of the application
establishes the applicant's ownership and rights with respect to the
project site, and Part 4 is the final and most significant element
of the application. This part provides the basis for grant offer
and acceptance and ultimate obligation of funds. Before the Part 4
is approved, the plans and specifications must be reviewed and a
determination made that the project is in accordance with Federal
standards. In addition, the grantee must have obtained authoriza-
tion to go to bid and actually completed the bidding process.
DHEW has found this system to be quite beneficial in that it
permits great flexibility in using funds only on projects ready to
proceed while still providing assurance that the Federal government
will participate in the project. Such advantages are provided by
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involving the state in the process. Through means of a project
construction schedule the state maintains a preliminary control
over where the available funds are going. On this schedule, the
state shows the projects which have received preliminary approval,
are probably going to construction that year, and the estimated
funds to be used by such projects. If developments necessitate,
the state then has the opportunity to make changes in the schedule
as some projects proceed more rapidly than others. Since this
system does not provide for obligation of funds until just before
projects go to construction, DHEW has had no major problem with
obligations tied up on projects not going to construction in a
timely manner.
In reviewing the new water pollution control bill, Public
Law 92-500, we noticed that Congress does not advocate premature
obligation of Federal funds. In fact, Section 203(a) of the law
provides that
"...The Administrator shall act upon such plans,
specifications, and estimates as soon as practicable
after the same have been submitted, and his approval
of any such plans, specifications, and estimates shall
be deemed a contractual'Obligation of the United States..."
Conclusions and Recommendations
Our review showed that EPA's present obligation practices
resulted in the premature obligation of Federal funds. As a
result, millions of dollars of EPA funds have been tied up on
sewage construction projects which have not moved rapidly to
construction. Accordingly, we are recommending that EPA's
obligation procedures be changed. In this regard, we believe
that obligations should not be made until plans and specifica-
tions are reviewed and approved, the prospective grantee has
proper legal entitlement to the site or easements and the
necessary finances, and until the cost estimates become more
realistic through application of appropriate competitive
bidding procedures. If these changes cannot be made, we
urge that appropriate controls be established to assure that
grant offers are withdrawn, whenever grantees do not move
forward in a timely manner.
Management's Response
Officials representing the Office of Air and Water Programs
and the Grants Administration Division generally agreed with our
findings and conclusions. These officials pointed out that the
implementation of Public Law 92-500 will establish a phasing
system which should result in more efficient scheduling of funding
and accomplishment of project objectives, whether planning or
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construction. This system will require that plans and specifica-
tions be completed before obligation of the construction portion
of the grant. With respect to those grants already awarded, the
officials indicated that they were considering procedures for
withdrawing grants from those communities who have not proceeded
to construction in a timely manner. These procedures as currently
envisioned, would provide a short period of notice to the grantee
before deobligation would take place. If construction were to
begin during the notice period, the notice would be withdrawn.
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Financing Construction Grants
EPA's procedure for financing wastewater construction projects
resulted in (1) severe cash flow problems for local agencies and
(2) duplicative administrative reviews by EPA and the state. Our
reviews showed that grantees, such as the Metropolitan Sanitary
District (MSD) of Greater Chicago, experienced considerable
financial hardship under EPA's after-the-fact reimbursement system.
In addition, in Region IX, we noted grantees experiencing delays
in receiving Federal progress payments under the construction
grant program. These delays, which sometimes exceeded two months
resulted primarily because the progress payment requests were being
subjected to detailed regional reviews which duplicated actions
already performed by state personnel. A more efficient system would
be to authorize a single state agency to disburse Federal and state
funds concurrently upon completion of its review of the grantee's
progress payment request. This could be accomplished if EPA provides
the state agency with an advance payment or letter-of-credit system
and authorizes its use for making payments on Federally sponsored
construction grants. In addition to improving the timeliness of
payment to grantees, the elimination of duplicative reviews would
allow EPA personnel to direct their efforts to correcting other
problems.
Cash Flow Problems
Usually, construction grants are financed on an after-the-fact
reimbursement system. This system does prevent grantee institutions
from accumulating excess cash, however, the grantees are required
to utilize a considerable amount of cash resources.
EPA regional procedures currently provide for four relatively
equal grant payments during the period of construction of wastewater
treatment facilities. However, current regulations permit the region
to make more frequent payments if necessary. Since these facilities
often require at least two years to construct, the grantee is required
to use its own cash to pay contractor bills, engineering services and
other charges during periods between the Federal payments. This can
cause grantees to incur short term financing costs or lose interest
income which would have accured if such cash had been invested.
As an example, the treasurer of the MSD of Greater Chicago
recently reported that
"if the District did not have its present bonding
power, it would be impossible to continue our construction
program and pay contractors in accordance with the terms
of our contracts."
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He calculated that under Federal and state reimbursable
methods based upon quarter point (25%, 50%, 75% and 100%) comple-
tion, the District's interest expense on one project alone was
over $1,200,000 or 3% of the contract value. MSD projected that
at one point in time (36 months from date of award), they may be
compelled to disburse $16,400,000, 41% of the total cost or
$8,400,000 more than MSD's share of the contract value. Based
upon an ongoing construction program of $200 million, the annual,
unreimbursable prefinancing costs would range from $4 to $6 million
per year.
Duplicative Administrative Reviews
In Region IX, the Grants Administration Branch, Management
Division consists of nine people and is responsible for the admin-
istration of approximately 250 active Federal wastewater treatment
construction grants. Of this amount, about 200 grants pertain to
State of California projects. Additionally, the California State
Water Resources Control Board (CSWRCB) Grants Management Division
consists of 18 people and is responsible for project evaluation,
monitoring of project construction and grant administration
functions, which include those functions relating to project
payments. The division generally follows the Federal government
payment procedures as adapted to the division's needs.
Under state construction grant payment procedures, which are
the same as those followed by EPA, the grantee is required to submit
a payment request to the state along with the following data:
(i) Contractor's Monthly Pay Estimate and (ii) Combined Voucher
Register and Expenditure Distribution Journal. These data are then
reviewed to determine if conditions for payment have been met and
if ineligible items and unacceptable change orders have been
eliminated. A review is also made to assure that insurance and
labor standards are being complied with. The state then completes
a control form entitled "Project Progress and Payment Request"
calculating the value of eligible work in place and that portion
to be paid by the state. This form and supporting data are then
sent to the region for concurrence and application of the Federal
share percentage to eligible work in place. Upon receipt at EPA,
the Grants Administration Branch essentially repeats the review
process prior to calculating the Federal share and authorizing
payment.
Our review of 30 grantee requests for progress payments sub-
mitted since October 1971 disclosed that the region's Grants
Administration Branch required an average of 30 days to complete
its review. This represents the period from the date of receipt
of the state's computation of eligible work in place until the
date of the region's payment approval. Approximately 60 percent
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of the payment requests were delayed in excess of 21 days with
the longest delay being 67 days for Project WPC-CAL-489. We
noted that the region's review of the progress payment requests
resulted in only three relatively minor changes to the state's
calculation of eligible work in place, while it concurred with
the calculations for the other 27 requests. The above delays
do not take into account the fact that grantee must wait an
additional three or four weeks after the EPA regional review
before receipt of a check from the U. S. Treasury. In addition,
disbursement of state funds to grantees is delayed because of the
state's current practice of not providing payment until the
Project Progress and Payment Request form has been approved and
returned by EPA.
Administrative Priorities
Region IX's review of payment requests from grantees in
California is based on the premise that it provides a means of
administrative control over grantees by making payment contingent
upon compliance with certain requisite actions. However, because
this review duplicates the state's reviews, we believe more
effective use can be made of the time of these regional personnel.
The time currently being spent by grants administration personnel
in reviewing individual progress payment requests of California
grantees could be redirected to grantees from other states. Their
effort could also be redirected towards establishing and maintaining
an effective system of initiating and coordinating appropriate
regional technical inspections, plans and specifications reviews,
and operation and maintenance functions. With this additional
administrative assistance, regional technical personnel could
direct their efforts toward assuring that treatment plants are
properly designed and constructed and effectively operated and
maintained so as to meet the objectives of the Act.
Many of the problems described above would be alleviated by a
change in EPA's funding method in which a single state agency would
be authorized to disburse Federal and state funds concurrently upon
completion of its review of the grantee's progress payment request.
Funding Methods
In our Report of Analysis of EPA's Method to Funding Grants
to State and Local Governments, we discussed the pro's and con's
of the various funding methods that can be used for financing EPA
projects such as wastewater construction grants. These include
(1) Advance Payment System; (2) Reimbursement System Agencies;
(3) Letter-of-Credit System and (4) Single Letter of Credit System.
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(1) Advance Payment System
This method of withdrawal of cash from the treasury
for advances under Federal grant programs is set forth in
U. S. Treasury Department Circular No. 1075, revised. In
this regard, the circular provides that:
"Advances shall be limited to the minimum
possible. Advances shall be timed to be in
accord with the actual cash requirements of the
recipient organization..."
Although the limitation precludes providing excess cash to
grantee institutions, we believe the government, similarly,
should not require the grantee to finance the Federal share
of a grant. When the Federal government does not provide
its share of the cash when required, the grantee is forced
to divert his resources from other programs. Since most of
our grantees, especially state and local governments have
limited resources, the continued use of this funding method
could result in financial hardship and even force the discon-
tinuance of needed Federal grant programs.
It should be noted that advance payments without
interest are permitted on nonprofit contracts with nonprofit
educational, research institutions or in other classes of
cases when specifically authorized by agency procedure (see
Federal Procurement Regulations Subpart 1-30.4).
(2) Reimbursement System
Most of EPA's construction grants are financed on an
after-the-fact reimbursement system. This system does prevent
grantee institutions from accumulating excess cash. However,
the grantees are required to furnish a considerable amount of
cash resources. This can often create a considerable hardship
on grantees because very significant sums can be tied up for a
long period of time until a subsequent reimbursement voucher
can be submitted, reviewed and paid.
(3) Letter-of-Credit System
Probably the most effective funding method currently
being used by the Federal agencies, is the letter-of-credit
system. This system operates through a cash advance
mechanism under which the grantee makes cash draw-downs on
his letter-of-credit to pay project costs as they are
incurred and billed. From the grantee's point of view, the
letter-of-credit is desirable in that it precludes the
necessity for incurring borrowing charges or for diverting
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assets from other activities. In addition, this system is
advantageous to the Federal government in that funds are
drawn only a few days before needed thereby preventing the
payment of interest on grant funds until required.
(4) Single Letter-of-Credit
The operations of the letter-of-credit system are
discussed in Part IV, Chapter 1000 of the Treasury Fiscal
Requirements Manual. A single letter-of-credit system is
simply the replacement of numerous agency letters-of-credit
held by state agencies and/or state-supported institutions
with one letter-of-credit administered centrally. The
system is designed to achieve several major objectives and
provide benefits which are important to both the state and
the Federal government. The major objectives are:
o Provide a central point of control outside the
state agencies receiving the grant awards,
whose function is to draw cash as outlined in
the letter-of-credit procedures and monitor
the state agencies disbursements so as not to
exceed the amount authorized for each grant
award.
o Provide the states with an improved system for
reducing the amount of unused Federal cash on
hand, without impairing state-Federal programs,
thereby reducing interest charges on borrowed
funds.
o Strengthen the communications between the state
and Federal governments and establish better
financial management of the taxpayers dollars.
In 23 states, all EPA grants go to the same agency. In
these states it would be relatively easier to use the single
letter-of-credit approach. In the other states, EPA funds
go to two or more state agencies. Because of the success of
the Department of Health, Education and Welfare's single
letter-of-credit system in the involvement of more than one
state agency, we concluded that the single letter-of-credit
system could be used in all the states by EPA.
During our review of state Water Programs, we noted one
example of a single state agency performing virtually all
Federal and state disbursements to construction grantees.
In 1969, the legislature of the State of Ohio established
the Ohio Water Development Authority (OWDA). The OWDA was
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established to avoid the need for each individual grantee
to float bonds at from 7 1/2 to 9 percent to finance the
non-Federal share. OWDA, by floating one huge issue and
by having acceptable collateral, was able to borrow
money at from six to seven percent. Any eligible appli-
cant on the State's priority list would, when his project
was approved, be assured by receiving the 30 percent
Federal fund (subject to a final adjustment) and a commit-
ment for a State "loan" for the remainder. As grantees
incurred costs, the bills were forwarded to and paid by
the OWDA. By written assignment, the grantees authorize
EPA to send all payments directly to OWDA which handles
the funds on their behalf. The local grantees are required
to repay the non-Federal share of project costs to OWDA.
This method of payment is considered advantageous in
that, by dealing with one state agency as the central point
of control of construction grants disbursements, it results
in less administrative burdens for Federal, state and local
government representatives.
Conclusions and Recommendations
EPA's present system of financing wastewater construction
projects results in severe cash flow problems for local agencies,
untimely payments to grantees and duplicative reviews by EPA and
the states. A re-evaluation of the Agency's method of funding
construction grants should be made to preclude the necessity for
incurring borrowing charges to pre-finance the.'Federal share of
disbursements. Grantees experience considerable delays in
receiving both Federal and state progress payments because of
detailed EPA reviews which duplicate actions already performed
by state personnel. A more efficient system would be to authorize
a single state agency to disburse Federal and state funds con-
currently upon completion of its review of the grantee's progress
payment request.
In our report of Management Audit at Region IX Administration
of Sections 7 and 8 of the Federal Water Pollution Control Act, we
recommended the use of a single letter-of-credit to the CSWRCB to
cover all Federally-sponsored wastewater treatment construction
grants. The CSWRCB indicated its interest in participating in a
letter-of-credit system. In addition, in our Report on Analysis of
EPA's Method of Funding Grants to State and Local Governments, we
also recommended the use of the single letter-of-credit system by
EPA.
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Management's Response
Region IX officials generally concurred with our findings and
recommendations including the use of the single letter-of-credit
to cover all Federally-sponsored wastewater treatment construction
grants. Representation of the Grants Management and Contract Manage-
ment Divisions also concurs with the findings and recommendations
contained in our Report on Analysis of EPA's Method of Funding Grants
to State and Local Governments., However, the Deputy Assistant
Administrator for Resources Management did not believe the Agency
should move immediately to the letter-of-credit funding system but
that such a system should be preceeded by a detailed study of both
program and financing arrangements. On June 6, 1972, he requested
that the letter-of-credit survey be deferred for six months and
then be reconsidered by top EPA management. This approach was
agreed to by the Assistant Administrator for Planning and Management.
Auditor's Comments
A re-evaluation of EPA's method of financing construction grants
should be made to resolve the cash flow and duplicative administrative
problems resulting from current procedures. Grantees should not be
required to finance the Federal share of a grant and therefore more
equitable funding arrangements should be employed. Consideration
should also be given to the concept of a single state agency making
all the necessary disbursements to all construction grantees within
its jurisdiction for more effective utilization of Federal, state or
local personnel.
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Accelerated Payments
Special procedures established to govern accelerated payments
on reimbursable construction grants did not retain aspects of
financial control traditionally-a part of the payment system. As
a result, we found that in Region II (i) payments were made to
grantees contrary to grant terms and conditions, and (ii) full pay-
ments were made before completion of the construction projects. In
some instances, final inspections of such projects identified opera-
tional problems which substantially hampered the effectiveness of
the sewage treatment plants. By removing these controls, EPA
retained no effective means of assuring that required actions would
be taken to adhere to grant terms and conditions and to make the
changes necessary to provide an effective sewage treatment system.
Traditionally, EPA officials have utilized the construction
grant payment system as one of the major controls to assure that
the grantees performed as intended. Interim or progress payments
were used as a control in that such payments would not be made
unless the grantee was complying with grant terms and conditions.
Final payments also served as a control in that full payment would
not be made until all grant conditions were fulfilled, all work had
been accomplished in accordance with approved plans and specifica-
tions, and the project had produced an operable treatment system
which would treat wastes satisfactorily to meet appropriate standards,
Thus, interim payments have normally been limited to 90 percent of
the grant amount, and final payments have not been made until final
inspection.
At the end of Fiscal Years 1971 and 1972, substantial funds
became available for use in funding reimbursable projects. In
April 1971, $150 million dollars became available for use in
reimbursable projects. In Fiscal Year 1972, New York State wished
to utilize its allotted funds on reimbursable projects. To handle
these situations, EPA developed and authorized the use of an
accelerated payment system. This system, however, did not incor-
porate several of the controls normally a part of EPA's payment
system.
Payments Contrary to Grant Terms and Conditions
Our review showed that in making payments, Region II was
apparently not considering the special terms and conditions included
in its construction grants. In some cases, partial payments were
made even though grantees had not fulfilled conditions which were
to be met prior to payment. Examples of such instances are shown
below.
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Parsippany-Troy Hills, HPC-NJ-288. One of the
conditions contained in the grant provided that no
payment can be made until construction of an expanded
treatment plant. Correspondence in the project file
indicated that EPA did not receive an application for
an expanded treatment plant until September 1971, and
that application had to be returned because EPA's
continuing resolution did not provide for reimbursable
projects. EPA had, however, made a payment contrary
to grant provisions in June 1971, three months earlier.
Bergen County Sewer Authority. WPC-NJ-242. One of
the conditions of this grant provided that no funds
could be released until construction was started on a
new .treatment plant for Bergen County Sewer Authority.
Despite this condition, a payment was made even though
an inspection performed a month earlier disclosed the
fact that construction had not started.
Ellicottville, WPC-NY-610. This grant contained a
condition providing that no payments would be made until
the collection system was .under construction. In June
1972, EPA made a payment even though construction of the
lateral sewer (collection) had not been started.
Since most of the payments contrary to grant terms and condi-
tions had occurred during the last quarter of Fiscal Year 1971, we
inquired as to the reason for such payments. We were informed that,
in conjunction with establishment of the accelerated payment system,
responsible Headquarters officials had verbally instructed the
Region to waive such terms and conditions and to make such payments
on a one-time basis. In our opinion these payments, contrary to
grant terms and conditions, set a bad precedent which might be
construed by grantees to indicate that our grant terms and conditions
are not really that important and that payments are not necessarily
contingent upon compliance with grant terms and conditions.
Payments in Full Prior to Satisfactory Completion of Project
Guidelines governing the use of the accelerated payment system
did not contain the controls necessary to assure that construction
projects would be properly completed and would result in an effective
waste treatment.system before the full payment of grant funds.
Under the accelerated payment system, the method of computing
the amount of payment was changed. Previously, the payment was
computed by simply applying the percentage of project completion
to the amount of funds authorized. This could be illustrated as
fol1ows:
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Eligible Project Costs $1,000,000
Grantees Entitlement (50%) 500,000
Actual Grant Offer (20%) 200,000
Project 50% complete
50% X $200,000 = $100.000 payment
The accelerated payment system changed the basis of computing
payments on reimbursable grants. Under this system, payment was
to be made on the basis of the grantee's entitlement (maximum
grant to which municipality entitled). The instructions relating
to this system did not however restrict payments to 90 percent of
the grant amount as required by^the Construction Grants Handbook.
Accordingly, some grantees were paid 100 percent of the authorized
grant amount even though construction was not completed. For
example:
Northwest Pure Waters District #1
WPC-NY-496
Eligible Percentage Federal Percentage
Cost Entitlement Share Share
$39,716,200 55% $13,106,390 33%
Payment when 65% complete computed as follows:
Eligible Costs $39,716,200
Portion of Project Completed 65%
Value of Construction in Place $25,818,900
Entitlement 55%
$14,200,395*
*Since this exceeded the amount of grant funds
available, payment was limited to $13,106,390
the full amount of our grant.
Thus, since all authorized funds had been paid to the grantee,
EPA had no effective financial control to assure that construction
projects were properly built in accordance with plans and specifica-
tions and/or that such projects would operate properly.
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We reviewed project files related to 23 of Region II construc-
tion projects and identified six projects where full payment had
been made before final inspection. In three of the six projects,
final inspections showed significant operational deficiencies
which prevented finalization of the project. Examples of the
projects where final inspections revealed deficiencies are shown
below.
Lowville, WPC-NY-606.: At the time full payment was made,
no final inspection had been made to determine whether or not
the plant was completed and operated properly. When the
final inspection was made in June 1972, EPA inspectors found
that the test results gathered by the grantee were insuffi-
cient to tell whether the plant was operating properly and
achieving the 85 percent BOD removal required under the grant.
In addition, the engineers found that the flow of sewerage
through the plant was in excess of design capacity and that
the system was therefore apparently suffering from an infiltra-
tion problem. As a result of the inspection, a memorandum was
sent to the grantee asking him to gather the necessary test
data and to provide information on the progress of work in
reducing the infiltration into the sewerage system. When we
reviewed the .file in October, we found no indications of the
status of corrective action being taken.
Musconetcong, WPC-NY-211. Full payment was made on this
project, even though the plant was known to have operating
deficiencies. In a final inspection held during November 1971,
EPA engineers found that the plant was not achieving the
necessary removals of BOD and suspended solids. Accordingly,
a memorandum was sent to the grantee asking that EPA be advised
of the changes made to improve the plant's operation and to
eliminate the problems of solids overflowing the weirs of the
secondary clarifiers. At the time of our review in October 1972,
the project file contained no information concerning the status
of actions taken to correct these deficiencies.
In our opinion, had EPA only paid 90 percent of the grant amount,
the Region would have had a real lever to assure that corrective
action was taken in a timely manner.
Conclusions and Recommendations
Our review showed that the establishment of an accelerated pay-
ment system without the controls traditionally a part of the
construction grant program could seriously impede the Region's
management of the Section 8 program. Accordingly, we are recom-
mending that the Grants Administration Division take appropriate
action, in establishing any future payment systems, to assure that:
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1. Payments are not made contrary to grant terms and
conditions.
2. An appropriate amount of funds is withheld to assure
that construction projects are properly built in accord-
ance with plans and specifications and that such projects
operate properly.
Management's Response
Representatives of the Grants Administration Division stated
that:
"This Division agrees that adequate financial controls
should be maintained to assure satisfactory completion of a
project; The EPA general grant regulations (40 CFR Part 30)
provide for suspension of work or withholding of payment for
noncompliance with grant conditions. In addition, the new
construction grant regulations to be published in the Federal
Register on February 28, 1973, (as 40 CFR Part 35, Subpart E)
explicitly provide for disbursement of .the final payment only
upon EPA approval of the request and upon compliance by the
grantee with all applicable requirements of the regulations
and grant agreement. The Grants Administration Manual will
provide clear guidance to the staff on handling payments."
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Construction Grants Payment System
Procedures governing EPA's system of making payments on
construction grants need revision to prevent regional officials
from performing administrative functions properly the responsi-
bility of our grantees. When we reviewed the payment systems
in two regions, we noted that EPA technical personnel were
reviewing the grantees accounting records and preparing the
grantees claim for reimbursement. In another region, adminis-
trative personnel were preparing the grantees claim based upon
original source documentation furnished them by the grantee.
These systems prevent grantee institutions from becoming thoroughly
familiar with EPA's financial, accounting, and grant requirements
and therefore, from being able to submit their own reimbursement
claims.
Chapter 13 of the Construction Grants Handbook sets forth
the procedures for making payment under EPA's Construction Grants
Program. This Chapter provides that:
"79. Request for Payment. The applicant may request
installment payments on the grant when the
construction of the project is 25, 50, 75 and
100 percent completed.
"80. Processing of Preconstruction Grant Payments.
Upon receipt of a request for a partial or
final payment in the Regional Office, the
Administrative Section will review the project
file to determine if all necessary information
upon which to base a payment is available.
If not, the project reviewer will prepare a
letter to the applicant requesting that
necessary materials be submitted.. These will
usually consist of anti-kickback statements,
certified payrolls, evidence of contractor's
insurance, monthly engineering estimates
certified by the contractor, bills for
engineering, legal and fiscal services, etc.
"a. Partial Payment. When it has been deter-
mined that all program requirements have
been met by the applicant, the project
reviewer will compute the amount of the
payment...following the principles out-
> lined for preparation of the Project
Progress and Payment Request form;
however, it is not necessary to use the
form for these payments.
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"b. Final Payment. When program requirements
have been met, the project reviewer will
initiate Form FWPCA-10, Project Progress
Report and; Payment Request, completing it
to the extent possible from the project
records. The FWPCA-10 will be forwarded
to the Engineering Section, for scheduling
of the inspection, with a note outlining
any special areas to be reviewed by the
engineer on his visit to the project. At
the time of the inspection, the inspector
will complete the Form FWPCA-10 in accord-
ance with instructions."
Our review showed that regional officials were generally oper-
ating in accordance with these requirements. After analyzing the
impact of such requirements on EPA's ability to manage the
construction grants program, we concluded that the costs of these
requirements, in terms of use of highly trained technical or
administrative personnel to perform functions properly the respon-
sibility of our grantees, simply was not justified.
In Regions V and IX, technical personnel were involved in
preparing the grantee's claim. In this regard, we found that
during visits to the grantee, EPA engineering personnel were
reviewing financial and administrative records. This review
provided the basis for these individuals to actually prepare the
FWPCA Form 10, "Project Progress Report and Payment Request" for
the grantee. In one region, discussion with EPA engineering
personnel revealed that at least 50 percent of the engineers time
during final inspection was devoted to such administrative functions.
In Region II, the Grants Administration Branch was performing
a similar function. For partial payments, grantees were to submit
a request for payment accompanied by necessary supporting documents.
After checking to see that the necessary documents were submitted
and reviewing any vouchers for legal, administrative, fiscal, or
engineering services, the Regional Grants Administration Branch
would determine the amount of payment due the grantee and initiate
payment action. The processing of final payments was handled some-
what similarly. After final inspection of the project and correction
of any operating problems, grantees again would be requested to
submit documentation supporting the unclaimed costs incurred under
the project. Such documentation would normally be comprised of
copies of the original vouchers, bills, and checks representing the
charges to our construction project. Reviews were then made by the
Region's Grants Administration Branch to determine which of these
costs represented reasonable, eligible, and allowable charges to
our grant. Based on this determination, the final computation of
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the amount due our grantee would be made, and action would be
taken to initiate final payment.
Since the administration of construction grants represents
the major function of the Region II Grants Administration Branch
in terms of time and effort, payment processing is one of the
Branch's main responsibilities. The review of original source
documentation constitutes a major portion of this responsibility
in that regional officials estimated that the review of vouchers
to support simply legal, fiscal, and administrative costs took
60 percent of the final payment review time and 25 percent of
the overall payment review time.
The review of source documentation supporting claims against
the Federal government is an audit function delegated to the Office
of Audit under EPA Order 1110.16. The involvement of other EPA
officials in this process complicates the audit process and creates
difficulties with the grantee. For example, one national certified
public accounting firm has informed EPA Office of Audit that:
(1) grantees generally do not understand EPA record keeping require-
ments and do not adequately account for eligible costs, (2) grantees
resent final audit because they were under the impression that the
regional engineer's audit was final, and (3) grantees have not
properly documented cost claims because they did not prepare'the
FWPCA-10 and frequently did not know how the regional engineer
computed eligible costs. These problems have resulted in increases
of CPA audit costs to the point where Region V audits now cost
significantly more than audits in other EPA regions.
Since the performance of a detailed review of such documenta-
tion by the regional engineers or administrative personnel was in
our opinion, simply a duplication of effort, we inquired into the
necessity of such reviews. We were informed that such reviews
were necessary in that the Construction Grants Handbook required
them. In addition, we were informed that most of our grantee's
did not have the expertise to properly account for and submit
claims for reimbursement. As support for this position, Region II
officials pointed out that many of the bills submitted with the
request for payment contained ineligible and/or unallowable costs.
While many of our grantee institutions do have difficulties
in administering Federal programs, we can see no reason why this
should prevent them from being expected to properly account for
grant funds and submit reimbursement claims under our construction
grants. Such grantees are expected to perform these functions
under all other EPA grant programs. In addition, we feel that
unless such grantees are actually required to perform these
accounting and reporting functions, they will probably never achieve
expertise in regard to EPA's financial, accounting, and grant
requirements.
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In support of our position, we noticed that Attachments G and
H of OMB Circular A-102 which became effective on January 1, 1973,
require that grantee institutions have:
1. An acceptable financial system to account for costs
incurred under Federal grants. This system must
appropriately segregate costs by budget category and
separate ineligible and unallowable costs from those
to be charged to the grant.
2. The responsibility for submitting reimbursement vouchers
claiming those costs allowable under grant terms and
conditions.
To make allowance for grantees who do not have the basic expertise
to perform these functions, these Attachments provide that the
Grantor Agencies, such as EPA, should assist the grantee in
improving his system to meet Federal requirements. Basic grant
close-out requirements set forth in Attachment L require that
close-out be made based on submission of the necessary financial
reports by the grantee. Subsequent financial adjustment to the
grant may then be made whenever subsequent final audit identifies
a claim for unreasonable or unallowable costs.
Conclusions and Recommendations
Our review showed that regional officials were spending a
considerable portion of their time reviewing grantee accounting
documents and preparing the grantees reimbursement cliams. Such
efforts tend to discourage the grantee from developing the expertise
needed to perform such functions himself and result in a duplication
of part of the EPA audit effort. Accordingly, we are recommending
that the Headquarter's Grants Administration Division revise their
policies to return the reporting and voucher preparation functions
to the grantee. In addition, we believe that the procedures should
be established to shift the role of regional Grants Administration
Branch's from the detailed review of supporting documentation to the
assistance of grantee institutions in acquiring the financial or
accounting system and knowledge of grant terms and conditions needed
for proper management of our grants.
Management's Response
The submission of individual findings concerning the construction
grants payments system to the individual regions resulted in widely
varying responses. Region IX concurred with our finding and indicated
that technical personnel would no longer be used to review adminis-
trative and fiscal data. Region V noncurred, however, indicating that
such reviews were necessary. Region II generally agreed that grantees
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should prepare their own claims; but pointed out that many grantees
just do not have the needed expertise. Based on these varying
responses, we discussed this situation with responsible officials
of the Grants Administration Division. These officials pointed
out that the "Regulations" published February 28, 1973, called for
payments to be made simply on the basis of requests submitted by .
the grantee. The overall payment system to be used for construction
will be explained in greater detail in the revisions to the Grants
Administration Manual now being drafted.
in D."Lisle
tor, Office of Audit
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State of California
emorandum
THE RESOURCES
APPENDIX A
To : Gavin M. Craig
Chief Counsel
Date : September 27, 1972<
From : STATE WATER RESOURCES CONTROL BOARD
James H. Winchell
*
Subject: Review of Selected Contract Documents Related to Construction of
Hastewater Treatment Facilities, Competitive Bidding Problems
.Related Thereto, and Recommendations
This is in response to a request from Mr. Nelson for a review of
contract documents of certain consultants doing considerable
business in the field of construction of wastewater treatment
facilities under the Clean Water Grant Program.
Scope of Review:
Contract documents of six major consultants in the field of con-
struction of wastewater treatment facilities have been reviewed
for purposes of this report. It is believed that these documents
present a fair cross section of the standard provisions and ap-
proaches used by consultants in this field. This memorandum is
primarily limited to the major problem encountered in this review,
the problem of assuring that competitive bidding requirements are
fulfilled.
Summary of Legal Requirements and Contract Provisions Related to
Competitive Bidding;
All contract documents reviewed to date involve municipal projects
which are subject to the provisions of Government 'Code Sec-
tions 37901-37907. A copy of these sections of the Government Code
is attached for your reference. Basically, all public projects
of a city which require an expenditure of $3,500, or more, are re-
quired to be contracted for and let to the lowest responsible
bidder after notice. (Gov. Code Sec. 37902.)
The standard contract for clean water grants contains the following
provision:
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Mr. Gavin M. Craig -2- SEP 2
..£•;
"5. Municipality shair comply with, assurances given to
the Environmental Protection Agency which are contained
in the document entitled Offer and Acceptance of Federal
Grant for' Sewage Treatment Works, a copy of which is
attached hereto, marked Exhibit A, and made a part hereof,
and further the municipality agrees that the State Board
shall be entitled to all the rights and privileges of the
Environmental Protection Agency pursuant to said assurances."
'. ' •
A copy of Exhibit A is attached hereto. Of particular concern to
the present inquiry are the following.assurances:
*
"A. That actual construction work will be performed by the
lump sum (fixed price) or unit price contract method, that
adequate methods of obtaining competitive bidding will be
employed prior to awarding the construction contract, and
that the award of the contract will be made to the responsible
bidder submitting the lowest acceptable bid;
"B. That the construction of the project, including the
letting of contracts in connection therewith, shall conform
to the applicable requirements of State, territorial and
local laws and ordinances."
The demand of competitive bidding thus imposed requires that contract
documents for construction of wastewater treatment facilities pro-
vide an adequate means for obtaining competitive bidding and provide
for award of the contract to the lowest responsible bidder. In the
contract documents reviewed, problems associated with both of these
requirements are noted.
Methods of Bidding:„ Bidder Selection, and Change of Contract As
Limiting; Competitive Bidding:
In the contract documents reviewed, the process of competitive biddir
is, in all cases, to a greater or lesser degree, restricted by limi-
tations placed upon the equipment or materials which may be bid.-
Major items of equipment (and in some contract documents even minor
items of materials) are defined by reference to manufacturer or trade
name. This is ordinarily accomplished in one of two ways:
1. In the bid proposal form itself, the consultant may include a
specific listing of principle items of equipment, followed by
one or more manufacturer's name, and appropriate space to bid the
item. A sample of the form is.as follows:
Item Description Manufacturer Price
. 1 Comninutor a. Worthington. $
b. Chicago Pump
c.
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Mr. Gavin M. Craig -3- SEP 2 7 1972
2. An alternative method of accomplishing the same thing is
, to include the manufacturer designation in the technical
specifications. For example, in that portion o'f the tec.h-j
• nical specifications dealing with comminutors, the followi;
language suffices to accomplish the same result: "Comminutpr
shall be Worthington .size 36-6, equivalent model manufactu^
by Chicago Pump, or equal." . •
There is a third alternative which would accomplish the same result
without actual specification-by manufacturer or trade name. The •
technical specifications may be so drafted that only the equipment^
of one manufacturer can meet the specification.
Regardless of the method chosen, the overall result of any of the
methods is the same. The process of competitive bidding is restrict
The degree of the restriction depends to a large esxtent on the naturi
of the contract provisions related to the possibility of bidding" "V
alternate equipment, the process of selection of the lowest responJP
ble bidder, and provisions related to modification of the contract
after award.
A. Procedures Relative to Bid of Alternate Equipment:
The provisions of the contractual, documents reviewed pertai
to bid of alternative equipment vary from consultant to consul"!
and from project to project. My general observations on the aj
preaches of various contract documents 'are as follows:
1. Some contract documents specify only one manufacturer's pr
-------
Mr. Gavin M. Craig . , -4- . '. ' SEP 2 7 197?
referred to as a sub-item (a) manufacturer) by virtue of
system design. The contract documents uniformly provide
that the cost of any'alterations, including'design costs,
required by alternate equipment or materials shall be in-
cluded in the cost of the alternate .equipment, thus in-
evitably increasing the cost of alternate equipment.
Second, the contractor is ordinarily required to warrant
that the alternate equipment will meet specifications and
fulfill design purposes. This additional obligation on the
part of the contractor makes it much more attractive for
the contractor to bid the sub—item (a) equipment where desigi
capability remains a liability of the consultant. These
practical considerations limit competitive bidding on
.equipment and materials. •
4. Where more than one product is permitted by the contract
documents, some contract documents further allow other
alternates to be bid. A full competitive bidding process
is limited even in these cases by the competitive advantage
given to the specifically designated item or items, and by
the fact that the general methods chosen for approval of
unspecified alternate equipment are cumbersome, expensive
and time consuming on any contractor who wishes to bid
alternate equipment. •
5. Some contract documents specify equipment, generally with: at
least two alternate products permitted, provide that all
specified equipment is considered as equal, and allow the
'bidder to bid any specified equipment, or to bid other alter-
nate equipment. This alleviates, to some extent, some of
the limitations on competitive bidding noted above.
B. Determination and Selection of Lowest Responsible Bidder, and
Modification of Contract After Award
In addition to limitation of the 'competitive bidding process by
virtue of specification of proprietary equipment, certain problem
areas are noted with respect to contract provisions related to
the manner of selection of the lowest bidder, and the ancillary
problem of change of work after award of the contract. Generally
speaking, these problems involve possible award of the contract
on a cost basis other than the cost of the project which will be
actually constructed. In this area also, contract documents
varied in a number of ways. As illustrative of the general natur
of the problems, the following examples will suffice:
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Mr. Gavin M. Craig -5- 2 7 1972
1. One set of documents provided that award would be made in
accordance with, what the owner determined to be its best
1 interest. This, of course, is not an appropriate basis
for award of a competitive bidding contract.
• 2. Some contract documents provided that all bidders would
be required to bid all sub-item (a) equipment and to in-
clude in their.ultimate bid the cost of installation of
all sub-item (a) equipment. The contract- was then to be
awarded to the lowest responsible bidder, with the right
reserved to the owner to select alternate equipment after _
award of the contract. This approach creates the possibiliir
that award of the contract is not based on the lowest cost
of the actual project to be constructed.
3. One contract document provided for change of equipment after
award of the contract, at the option of_the owner, with
alternate approval of equipment to be provided at the same
price as in the contract awarded. This procedure deprived
th~e owner of any possible, savings on alternate equipment
actually installed.
Recommendations: .
Specification of major items of equipment by proprietary name to
some extent may be both appropriate and necessary. The owner,
hence its consultant, is required by law to provide sufficient pi*
and specifications to permit competitive bidding, i.e., design cj
be left.in the hands of the various bidders to the extent that esse!
ally different systems are bid. This forces the consultants to des
a system, and implicit within this approach, the consultants must
specify such equipment as will reasonably suit the system.
In addition, the consultant is responsible to design a system, in-
cluding equipment, which will work. Where certain equipment is kn
and of proven capacity and durability, it is understandable that a
consultant will be under some pressure to specify equipment by pro-
prietary name where he knows that this equipment-will do the job
required. The basic problem is to assure an adequate system while
at the same time fulfilling competitive bidding requirements and
assuring that the project will be constructed at the lowest possibl
cost. «
In the light of competitive bid requirements, and in the light of
the foregoing considerations, I would recommend the following ap-
proach on bidding procedures, determination of low bidder, and
modification of- contract after award:
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Mr. Gavin M. Craig -6- . S£P 2 7 $72
Bidding Procedures.; The objective to-be achieved' is to pro-
vide adequate methods of obtaining competitive bidding prior"
to award of the contract. To this end, regulations directed
to the following matters should be considered:
(A) To the extent practical, plans and specifications should
be drawnsothat materials and equipment are specified
relative to quality and function rather than by trade or
proprietary name.
(B) Major items of equipment may, when necessary to adequate
system function, be specified by trade or proprietary name,
under the following requirements:
(1) To the extent possible, systems should be designed to
accommodate, with as fcjw revisions as possible, the
equipment of all major manufacturers.
(C) Limitation of bidding to the product of one designated manu
facturer is not to be favored, and will be permitted only
under the following circumstances:
(l) Where plant enlargement is involved, and where the
existing system is such that only the equipment of
one manufacturer will meet the needs' of an already
existing system. .
(2) Where there is no known equal for the equipment or
materials specified. '
(3) In cases where only one product is permitted for bid,
the consultant shall supply a verified statement
justifying the limitation involved.
(D) Where equipment is to be specified by trade or proprietary
name, the consultant shall include, as an alternate, the
equipment of all manufacturers reasonably adequate to
. function within the system design.
(E) Where equipment is specified by trade or proprietary name,
and alternate equal equipment is also specified, the alter-
nate equipment should be treated in all respects as equal,
subject to the following rules:
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Mr. Gavin M. Craig -7- SEP 2 7 1972
(1) In bidding any alternate equipment, the "bidder may
• be required to include within the, cost of alternate
equipment the cost of any system revision, including
design work, necessary to accommodate the alternate
'equipment.
(2) Since equal equipment is involved, the contractor
should not be required to warrant the alternate'
equipment to any greater extent than the primary
equipment.
(F) Where alternate equipment is designated by trade or pro-
prietary name, the bidder should also be permitted to bid
other alternate equipment which is believed by the bidder
to be equal to that specified, under the following rules:
(Is) In bidding such'alternate equipment, the bidder may
Y be required to include in the cost any system revisi
including design work, necessary to accommodate the
equipment.
(2) The bidder may be required to submit such informati^^ a1
is reasonably necessary to permit the consultant to^^
determine whether the proposed alternate is in fact
equal, prior to award of the contract.
(3) If the-proposed alternate equipment is found to be
equal, the bidder shall not be required to warrant
this equipment to any greater extent than the desig-
nated equipment.
(G) When any equipment or materials are specified by trade or
proprietary name, the consultant shall, by affidavit, affim
that the consultant does not have any interest, direct or •
indirect, financial or otherwise, in or with the manufacture
of such equipment.
2. Determination of Low Bidder: The objective is to assure that ti|
contract is in fact awarded to the lowest bidder on the project
to be constructed. To assure this objective, the following pro-
cedures should be adopted:
(A) The contract documents should specifically provide that the
contract will be so awarded.
(B) The contract documents should provide for procedures to
determine whether unspecified alternate equipment is in
fact equal prior to award of the contract.
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Mr. Gavin M. Craig. -8- SEP 27
(0) The contract documents should provide that determination
of the low bidder will be based upon the overall low ..cost
determined with reference to the •bid_jjost_of_any alter-
nate and equal equipment... ' "' "7 ~~
(1) Contract documents which require the bidder to in-
clude in his lump-sum bid"the cost of so-called
primary equipment (sub-item (a) equipment) and which
provide for determination of the low bidder solely
on this basis are to be disapproved.
(2) The bidder may- be required to bid all primary items
of equipment (sub-item, (a) equipment) by unit price
for comparison purposes.
(3) The bidder should be required to provide a lump-sum
bid which includes the lowest cost for construction
of the project based upon use of any designated equal
equipment, primary or alternate.
(4-) In addition, the bidder should be permitted to submit
a lum-sum bid which includes the cost of any undesig-
nated alternate equipment proposed by the bidder as
being equal to that actually designated. . ,
(D) The contract documents should require the owner and consult
to determine, insofar as possible, prior to award of the cc
tract, what equipment of that, which is equal will actually
be installed in the project, and to award the contract on
this basis.
Modification of Contract After Award: It is permissible for con
tract documents to provide for contract changes after award. Tfc
objective is to assure that the power to change or alter does
not subvert the entire bid process. Assuming that the foregoing
procedures have been properly implemented, there should ordinari
be no reason for major alteration of equipment after award of th
contract. Changes or alteration of equipment or material should
therefore ordinarily be limited to situations where the alter-
native is necessary to assure adequate system function. In such
event, any savings occasioned by the alteration should go to the
benefit of the owner, and the contract should not provide for
alternate equipment at the original unit price, regardless of
actual cost.
. W. Wi rn:!n.% I I
iaU- A'-l.orrioy
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HSS66
CONGRESSIONAL RECORD —HOUSE
September 2S, 1972
•/2> that such works »r« In conformity
wlili w:y applicable Suite plaa under section
3031 ei of this Act;
"t3i that such works nave been certified
by the appropriat* S:a*e water pollution
control agency as entitled to priority over
vjcu other works in the State In accordance
with alky appl.ca.ble Stale plan under section
30J(ei or this Act;
"(4) tftat the applicant proposing to con-
struct such works agree* to pay the non-
Federal costs of such works and hna made
adequate provisions satisfactory to the Ad'
numerator lor assuring proper ar.d e.TlcienC
operatiou. Including the employment of
trained management and operations person.
t>el. and the maintenance of such works In
accordance with a plan of operation ap.
proved by the State -water pollution con'
trol agency or, as appropriate, tte interstate
agency, after construction thereof;
"(5) that the size end capacity of such
works relate direct: y to the needs to be
served by such, works, including .sufQcIent
resent capacity. The amount of reserve ca-
pacity provided shall be approved by the
Administrator on the basis of a comparison
of the cost of constructing such reserves as
• pert of the works to be funded and the
anticipated coat of providing expanded ca-
pacity at * date when such capacity will be
rooulred: _^_^___^_
"(6) tha* no specification for bids In con-
nection with such works shall be written In
such a maner as to contain proprietary, ex-
clusionary, or discriminatory requirements
other than those based upon performance.
unless such requirements are necessary to
teas or demonstrate a specific thins or to
provide for necessary Intercbaageabillty of
parts and equipment, or at least two brand
names or trade names of comparable quality
or utility are listed and are followed by the
"(b)(l) Notwithstanding any other provi-
sion of this title, ths Administrator shall not
«r>prove any grant lor any treatment works
under section 201 (q) (1) after March 1. 1973,
unless be shall first have determined 'that
the applicant (A) has adopted or will adopt
a system of charges to assure that each recip-
ient of waste treatment cervices within the
applicant's Jurisdiction, as determined by
the Administrator, will pay Its proportionate
share of the costs of operation &nd mainte-
nance (including replacement) of any waste
treatment services provided by the appli-
cant: (B) has made provision for the pay-
ment to such applicant by the Industrial
uurs of the treatment works, of that por-
tion of the cost of construction of such treat-
ment works (as determined by the Adminis-
trator) which is alioc&ble to the treatment
or such Industrial wastes to the extent tt-
tribuutble to the Federal share of the cost of
construction; and (C) has lepal. Institu-
tional, managerial, and financial capability
\o Insure adequate construction, operation.
and maintenance of treatment works
turouchout tbe applicant's Jurisdiction, as
6e-.i>r:u:r.ed by the Administrator.
"iJi The Admlnstrator shall, within one
hundred and eighty days after the date of
enactment of the Federal Water Pollution
Control Act Amendments of 19T7. and after
cnrmu ration with appropriate State, inter-
state, municipal, and Intermunlclpal agen-
cies, issue guidelines applicable to payment
<•: wiiote treatment costs by induitri.il and
nortiiid'.^trial recipients of waste treatment
•*r»ice< -A'luch sr.ail establish (Ai classes of
liters of such services. lncluti:n; categories
of Industrial use.-s: (B) criteria against
witlch to determine the adequacy of ciinrpes
irv.rxvwd on, c'.:\«s.e* and cMefAries of xuer.i
if !ff::r.s ail fiu-tors that ir.tliieiiT the cost
r.r •»-.>• :e trrritnsetir. Ir.cir.d.i'.r; *•.«!:.•: h. vn!-
r:i,». »r\d de!:\ery flow r.v.e character:*: ic»
• :•**. e. and iC) model j;-.-;c-rr.< r.:.c rn'.e»
w'r a«cr chargM typical of vor:otis ire:i;mer.t
works serving municipal-Industrial commu-
nities.
"(3) Th« grantee shall retain an amount of
the revenue derived from the payment of
cosl3 by industrial users of waste treatment
services, to the extent costs are attributable
to llie Federal share of eligible project cos.fi
provided pursuant to this title as determined
by the Administrator, equal to (A) the
amount of the non-Federal cost of such'proj-
ect paid by the grantee plus (B) the amount
determined tn accordance with regulations •
promulgated by the Administrator, necessary
for future expansion and reconstruction of
the project, except that such retained amount
shall not exceed 50 per centum of such reve-
nues from such project. All revenues from
such project not retained by the grantee shall
be deposited by the Administrator in. the
Treasury as miscellaneous receipts. That por-
tlou of trie revenues retained by the grantee
attributable to clause (B) of the first sen-
tence of thu paragraph, together with any In-
terest thereon shall be used solely for. the
purposes of future expansion and reconstruc-
tion of the project.
"(4) Approval by the Administrator of a
grunt to an Interstate agency established by
interstate compact for any treatment works
shall satisfy any other requirement that such
works be authorized by Act of Congress.
"ALLOTMENT
"Sec. 203. (a) Sums authorized to be appro-
priated pursuant to section 207 for each fiscal
year beginning after June 30, 1972. shall be
allotted by the Administrator not later than
the January 1st Immediately preceding the
bet-inning of the fiscal year for which au-
thorized, except that the allotment for fiscal
year 1973 shall be made not later than JO
days after the date of enactment of the Fed-
eral Water Pollution control Act Amendments
of 1972. Such sums shall be allotted among
the States by the Administrator in accord-
ance with regulations promulgated by him.
In the ratio tUsl the estimated cost of con-
stntctlus all needed publicly owned treat-
ment works In each State bears to the esti-
mated cost of construction of all needed pub-
licly owned treatment works in all of the
States. For the fiscal years ending June 30,
1973. and June 30. 1974. such ratio shall be
determined on the basis of table III of House
Public Works Committee Print No. 92-50.
Allotments for fiscal years which begin after
the float year ending June 30, 1974, shall be
made only in.accordance with a revised cost
estimate made and submitted to Congress in
accordance.with section 516(b) of this Act
aud only alter such revised cost estimate
shall have been approved by law specifically
enacted hereafter.
••(b) (1) Any sums allotted to a State tinder
subsection (a) shall be available for obliciv-
tion under section 203 on and after tbe da:«
oJ such allotment. Such sums shall continue
available for obligation in such State for a
period of one year after the close of the fiscal
year for which such sums are authorised.
Any amounts so allotted which are not obli-
gated by the end of such one-year porl.:i 203 aud which are r'l-\-. ••f the ur.M voucher for :* e
pr->_'«-.-- •:..»'" !>« .:n»nir«5::i:v:y crcO::«l v> t'.:e
S:i\;e %> vkii.rli s'u.-h stujui »72. which was approved by
the appropriate State water pollution control
agency and which tbe Administrator finds
meets the requirements of section 8 of this
Act in e.'ect at the tin:e of the' Initiation of
construction shall be reimbursed a total
amount equal to the difference between the
amount of Federal financial assistance, if
any. received under such, section B for such
project and 50 per centum of the cost of such
project, or 53 per centum of tbe project cost
where the Administrator also determines that
such treatment works was constructed In
conformity with a comprehensive metro-
politan treatment plan as described In sec-
tion, 8(f) of the Federal Water Pollution Con*
trpl Act as in effect Immediately prior to the
date of enactment of tne Federal Water Pol-
lution Control Act Amendments of 1972.
Nothing: In this subject Ion shall result In any
such works receiving Federal grants from all
sources in excess of 80 per centum of the cost
of such project.
"(b) Any publicly owned treatment works
constructed with or eligible for Federal finan-
cial assistance under thU Act In a State be-
tween June 30,195C. and June 30,1960. which
WM approved .by the State water pollution
control agency and which the Administrator
finds meets the requirements of section 8 of
this Act prior to the date of enactment of the
Federal Water Pollution Control Act Amend-
ments of 1972 but which was constructed
without assistance under such section B or
which received such assistance In an amount
less than 30 per centum of the cost of such
project sha',1 qualify for payments and reim-
bursement of Slate or local funds used for
such project from sums allocated to such
State under Ibis section ia an amount which
shall not exceed the d I/Terence between the
amount of such assistance. If any, received
lor such project and 30 per centum of the
cost of such project.
"(c) No publicly o?.-ned treatment works
shall receive any payment or reimbursement
under subsection (a* or (b) of this section
unless an application for such assistance b
filed with the Administrator within the one
year period which begins on the date of en-
actment of th» Federal Water Pollution. Con-
trol Act Amendments of 1972. Any appllca-
t Ion tiled within such one year period may be
revised from time to time, as may be neces-
sary.
"idl The Administrator shall allocate to
each qualified project \inder subjection (a)
o: -.his section each fiscal year for which
funds are appropriated under subsection (e)
of this <*ciion an an.otmt which bears the
sr.me ratio to the unpaid balance of the reim-
bursement due nuclx project as the total of
Sisrh-fnurts for such ye.^r bears to the total
\::.paHI bulaure of re:::i!jiir-cment due all
inch approved projects on the date of enact-
ment ot Mich apprc»pri. t:on. The Administra-
te* .«hall allocate to enc li qnnMfifd project un-
^e^:if^n each fiscal
year fnr .which funds are appropriated under
sub.-ff-Mon (e) o.' thi= <*-:; :o to ;iie u:>p;>ld bal-
nr.i'e of the reimbtir c::.»::t due sur!i project
as il-.e rural 6: surli :;::.u-, i?-r such yt-ar Iwnrs
to the t'Jial ui:pa;U ba.Avce o: reimbursement
due all such approved projects on the date of
enac'.mer.t of such appropriation.
"id T:u-re in SM::. .r..--cl :o be ft-.prt.-
pr.i»--J to c;-:ry •(•::: • .>••••;•:! ia- o.' :J:i» I
.-«••'.••*. ':*'-t Ju c v-'X j f.' -•• -• '--.' .,:.d. to
r.irr.u f.i '•• :•••-•..>•<. ••!. ;..• •.-...• .••••'.:,:•.. nn;
\a f!ft U t~.i<>".fi'"j ';..e :..'.i.ir....;;oiuu«e< t.^:: ^.u.: be the wle
PASSED INTO LAW ON OCTOP*"^ 18,1972 _-|06-
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DRAFT: WGGILBERTrvk
4/24/73 APPENDIX B
EPA Strategy for an Operation and Maintenance
Program for Municipal Hastewater Treatment Facilities
I. Introduction
The Federal Water Pollution Control Act Amendments of 1972 establish
specific goals for controlling wastewater discharges to meet certain
water quality objectives. These goals require the expenditure of
many billions in capital funds for the construction of new facilities.
These goals also require that all treatment facilities, both new
and existing, be operated efficiently and effectively to maximize our
pollution control effort. Correct operation of new and modified
facilities and improved operation of existing facilities is absolutely
essential if our water quality goals are to be .met.
A recent sample survey conducted in accordance with Section 210
of the Act showed that about one-third of all treatment plants
constructed with Federal grant assistance were not operating at the
designed level at the time the plant was inspected. This illustrates
the improvement in plant operation that will be needed if our water
quality objectives are to be achieved.
This strategy for EPA's operation and maintenance program for
-.inicipal wastewater treatment facilities has been developed to
•^plement EPA's overall water pollution control strategy. It is
based on the broadened authority and stated objectives of the Act and
I"'-.'s Water Strategy document of February 27, 1973.
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II. Strategy,
A. The Federal Water Pollution Control Act
The amended Act substantially .enhances EPA's ability to
implement an effective operation and maintenance program. The
National Pollutant Discharge Elimination System permit program
established under Section 402 now provides the foundation of the
operation and maintenance program. This permit program, which
will establish specific effluent limitations and performance
criteria for municipal treatment facilities, along with the right of
entry and inspection and the monitoring requirements of Section 308,
insures that the O&M program will be expanded to include all
municipal treatment facilities.
Specific performance criteria in the permit will establish
the framework against which actual plant operation will be compared.
Enforcement for violation of permit conditions will be used to
create the initiative to improve plant performance and establish
a situation in which cooperative efforts on the part of State and
Federal agencies with municipal treatment facilities can productively
achieve better O&M.
The law further provides additional emphasis and impetus for
the O&M program as follows:
(1) Section 204(a)(4) requires that a construction grant
applicant make.adequate provisions for assuring proper
and efficient operation and maintenance of such works.
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(2) Section 210 requires a survey of plant operating
efficiency as compared to design efficiency.
(3) Section 106, through the State program grant, provides a
.V
means to strengthen State O&M programs, through funding
support.
B. The "Hater Strategy" - February 27, 1973
The "Water Strategy" document is the key to the development
of an effective EPA O&M program to acheive the objectives of the
Act. Section VI(C)(1), strategic guidance for municipal construction,
states that an objective of the program "...is to operate and
maintain efficiently the plants that are now constructed." The
section includes further discussion of the O&M program as follows:
"The operation and maintenance program will be used to determine
which plants currently operating are not in compliance with the
1977 standards and to ascertain what is required to bring them
into compliance. State records, surveillance and analysis data,
and permit applications will be relied upon to locate the
problem areas. On-site operation and maintenance visits, as
well as training programs for plant operators, will be available
to municipalities to correct deficiencies. These efforts will
focus on priority basins and on plants where the required degree
of improvement can be achieved without additional, major capital
investment. Manpower training will primarily support the
operation and maintenance program. Regional training programs
should assess training :needs, encourage the States to meet
those needs, and move to satisfy deficiencies."
This element of the water strategy, utilizing the NPDES permit
program as a base, is to be effectively implemented in support of
our water quality objectives.
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C. O&M Program Objectives
The overall objective of EPA's national operation and
maintenance program is the achievement of efficient, effective
and reliable operation and maintenance of municipal wastewater
treatment plants to produce improved effluent quality and
receiving water quality. The specific objective of the present
program is to maximize the impact of municipal wastewater
treatment facilities on the achievement of the 1977 water quality
goals.
EPA must take the lead in the program to promote awareness
of the necessity for improved operation and maintenance.of municipal
wastewater treatment facilities. Equally important, EPA must
work closely with the states to improve capabilities to upgrade
O&M programs with emphasis on activities that will produce highly
visible results within a short time frame.
III. Strategy Implementation
. Emphasis must be placed on program activities to maximize the
desirable impact of better operation and maintenance of municipal
wastewater treatment facilities. The desired emphasis of program
^:tivities will require changes in the present Regional Office and
i
Hiidquarters O&M program. These changes are identified below.
A. Regional Offices
The following orientation of Regional O&M programs must be made:
1. Integrate grant-related O&M activities1 into the grant project
review process. This includes the following activities:
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a. Emphasize OSM aspects of proposed projects at predesign stage.
b. Review of plans and specifications from.O&M viewpoint.
c. Identification of plant staffing requirements and potential
training needs.
d. Review of O&M manuals.
2. Realign priorities for inspection efforts to concentrate on
intensive initial and follow-up inspections on critical plants
in priority areas, for both new and existing treatment facilities.
3. Establish a technical assistance capability for improving
existing plant operations. This encompasses extended analysis
of plants to correct major operational problems and achieve
improved operational efficiencies. It must.also be closely
interrelated.to training needs to insure continually improved
operation.
4. Guide state agencies in improving their O&M programs. Emphasis
must.be increased to establish the states in.the lead role in
improving treatment plant operations within their political juris-
dictions.
B. Headquarters and Regional Offices
Headquarters will be responsible for support and program
development functions in establishing an agressive nationwide 0&M
program. The Headquarters staff will work closely with the Regional
Offices in impoementing the priority items identified above.
\ . "• '
Headquarters will exercise the lead role in developing and
•s,
implementing (within RegionalOffices), the following program activities:
-in-
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1. A public information program program to promote better operation
and maintenance of municipal treatment facilities. This must
reach that part of the public that can best influence improved
O&M.
2. Improved relation to training efforts of operations? needs.
3. Improved capability for data handling and meaningful assessment.
This will provide an improved base for program support and
direction and satisfy the requirements of Section 210 of the Act.
These Program activities are essential to implement the O&M
water strategy. It is expected that within one year adjustments in
program activities will reflect the results of program assessments.
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AUDIT REPORT DISTRIBUTION
Copies
Action Official
Mr. John Quarles
Acting Deputy Administrator 2
Information Copies
Mr. Robert W. Fri
Acting Administrator
Mr. Robert L. Sansom
Assistant Administrator for Air & Water Programs ... 2
Mr. John Rhett
Deputy Assistant Administrator for Water Operations. . 1
Mr. Harold Cahill
Director, Municipal Waste Water Systems Division . . . 4
Assistant Administrator for Planning and Management. . 2
Mr. Howard Messner
Deputy Assistant Administrator for Administration. . . 1
Mr. Alexander J. Greene
Director, Grants Administration Division 2
Mr. Gary Dietrich
Director, Program Analysis Division.
Mr. John Court
Deputy Assistant Administrator for Planning
and Evaluation . . . .
Mr. David Dominick
Assistant Administrator for Categorical Programs . .
Dr. Stanley M. Greenfield
Assistant Administrator for Research and Monitoring.
Mr. William Cawley ;
Deputy Director, Program Management Division
Research and Monitoring
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Copies
Mr. Alan G. Kirk, II
Acting Assistant Administrator for
Enforcement and General Counsel 2
Mr. John A. S. McGlennon
Regional Administrator, Region I 4
Mr. Gerald M. Hansler
Regional Administrator, Region II . 4
Mr. Daniel J. Snyder, III
Regional Administrator, Region III 4
Mr. Jack E. Ravan
Regional Administrator, Region IV. 4
Mr. Francis T. Mayo
Regional Administrator, Region V .... 4
Mr. Arthur W. Busch
Regional Administrator, Region VI 4
Mr. James H. Syore
Regional Administrator, Region VII 4
Mr. John G. Green
Regional Administrator, Region VIII 4
Mr. Paul DeFalco, Jr.
t Regional Administrator, Region IX 4
Mr. James L. Agee
Regional Administrator, Region X . . 4
Office of Audit .
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