UNITED STATES ENVIRONMENTAL  PROTECTION  AGENCY
                                  WASHINGTON,  D.C.   20460
                                                                            OFFICE OF
                                                                     SOLID WASTE AND EMERGENCY
                                                                             RESPONSE
                                Signed November 5, 2001
                                                               OSWER 9360.0-42
MEMORANDUM

SUBJECT:   Amendment to the Action Memorandum Guidance and Removal Cost
             Management System to Address Calculation of Removal Action Project Ceilings

FROM:      Elaine F. Davies, Acting Director s/ Elaine F. Davies
             Office of Emergency and Remedial Response

TO:          Superfund National Policy Managers
             Regions 1-10

Purpose

      The purpose of this document is to provide guidance on estimating and documenting in
an action memorandum the cost of a removal action relative to the limitation on obligations from
the Fund in Section 104(c)(l) of the Comprehensive Environmental Response, Compensation
and Liability Act (CERCLA). Specifically, this memorandum (1) clarifies the meaning of the
term "obligations" in Section 104(c)(l) and the application of the term to an action
memorandum; (2) explains how to calculate and document in an action memorandum the
obligations subject to the Section 104(c)(l) limit; and (3) explains how to calculate and
document in an action memorandum the estimated total removal action costs that may be subject
to cost recovery, based on information available at the time of the action memorandum.  This
directive amends Sections VB, VIII, IX and the Enforcement Addendum in the Superfund
Removal Procedures, Action Memorandum Guidance, OSWER Directive 9360.3-01 and the cost
projection portion of the Removal Cost Management System (RCMS),  OSWER Directive
9360. 02B.  This document is effective upon signature.

Background

      An action memorandum documents the decision to initiate a removal action. It identifies
a proposed action and substantiates the need for a removal action based upon the criteria in the
National Oil and Hazardous Substances Pollution Contingency Plan (NCP), 40 C.F.R. Part 300.
It is also used to document approval of the funding necessary to implement the removal action.

       Until now, the Action Memorandum Guidance and the RCMS provided removal
program guidance on estimating and  documenting removal action project ceilings in action
memoranda. These estimates included extramural costs, a contingency based on extramural

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costs, and intramural direct and indirect costs. Regions calculated indirect costs as the product of
EPA's predicted labor hours to which per-hour indirect costs would be allocated using an indirect
cost rate (expressed as dollars per hour). These rates varied from region to region.

       On October 2, 2000, a memorandum from the Acting Director of the Financial
Management Division (FMD) transmitted Superfund indirect cost rates calculated under a
revised methodology in accordance with Office of the Comptroller's Policy Announcement
00-05 (OCPA 00-05).'  The revised methodology applies an indirect cost rate (expressed as a
percentage), which varies from region to region, to all site-specific costs (intramural plus
extramural).  This results in an estimate of the total costs of the removal action that reflects the
project's full costs, consistent with Statement of Federal Financial Accounting Standards No. 4.'
Neither OCPA 00-05 nor the FMD memorandum addressed the use of the new indirect cost
methodology in the development of removal  action project ceiling estimates. Therefore, regions
have continued to include both intramural and extramural costs in calculating removal action
project ceilings, following the approach contained in the Action Memorandum Guidance and the
cost proj ection portion  of the RCMS.

Implementation

Revised Formula for Calculating Removal Ceilings under Section 104(c)(l)

       This memorandum outlines a new approach for calculating removal action project
ceilings. EPA, in amending the removal action project ceiling calculation to incorporate the new
indirect cost methodology, determined that other changes to the calculation were also necessary.
For fund-financed removal  actions, Section 104(c)(l) states that "....obligations from the Fund,
other than those authorized by subsection (b) of this section, shall not continue after $2 million
has been obligated for response actions or 12 months have elapsed from the date of initial
response to a release or threatened release of hazardous substances." [42 U.S.C. § 9604(c)].
CERCLA provides waivers from these limits: (1) if the situation is an emergency [42 U.S.C. §
9604(c)(l)(A)] or, (2) if the action is consistent with the remedial action to be taken [42 U.S.C.  §
9604(c)(l)(C)]. EPA is adopting a new approach under which it will track and count only direct
extramural costs against the CERCLA Section 104(c)(l) cost limit (or ceiling).  EPA believes
this approach is consistent with the statutory  language which references amounts "obligated for
response actions" and interprets the statutory provision to mean only those costs incurred by EPA
that are obligated for the cleanup of a site. Intramural direct costs and indirect costs, on the other
hand, are not obligated in the same manner, but rather are obligated initially for non-site-specific
purposes.  Later, intramural direct costs are then redistributed to sites as they are incurred for
site-specific response actions, while indirect costs are later allocated to sites in accordance with
EPA's indirect cost accounting methodology. The revised approach to the removal action project
ceiling calculation, set forth below, conforms more precisely with the statutory term
       1 See "Accounting for Indirect Costs Associated with Superfund Site-Specific Activities," Comptroller
Policy Announcement No. 00-05, OCFO (May 26, 2000).

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"obligations" by including in the amounts subject to the removal action project ceiling only
amounts obligated for direct site-specific extramural costs of a removal action.

       The attachment provides instructions for developing and documenting the obligations
limitation, expressed as a removal action project ceiling, under the new approach.  As soon as
regions determine that the estimated removal action project ceiling may exceed $2M, they must
process a Statutory Exemption Request Action Memorandum (see Action Memorandum
Guidance, p. 26).

       The new approach counts only direct extramural costs against the obligations limitation.
The calculation of the obligations limitation (or removal action project ceiling) does not include
estimates of other costs -- such as intramural direct labor, travel, and indirect costs, and
subsequent enforcement costs — that are recoverable under Section 107 of CERCLA.  To avoid
any risk that potentially responsible parties (PRPs) may misunderstand the difference between
the costs included in a removal action project ceiling request and the total costs to be incurred for
a removal action, Regions should also calculate total estimated costs for the response action and
include it as a single figure in the enforcement section of the action memorandum. Regions
should follow the instructions in the attachment to calculate and document these estimates.2
Contact Regional Financial Management personnel or access EPA's internal website at:
http://intranet.epa.gov/ocfo/policies/transmittals/tr01.htm to obtain the appropriate Region-
specific indirect cost rate.

       Please call Schatzi Fitz-James (OERR) at (703) 603-8887 or Bruce R. Kulpan (OSRE) at
(202) 564-4252  if you have any questions.

Disclaimer

This memorandum and attachment are intended solely for the guidance of employees of EPA.  It
is not a regulation, and does not create legal requirements. EPA will follow the guidance to the
extent appropriate for individual removal actions, depending on the facts of each case.

Attachment: Action Memorandum Outline

cc:    Jeff Josephson, Lead Region Coordinator
       OERR Records Manager
       OERR Document Coordinator
       Kenneth Patterson, OSRE, Acting Division Director
       2  Advance notice of the total estimated costs of a response action is not required by statute or regulation.
Regions should prepare this estimate as a matter of good practice, however, this memorandum is not intended to
create any rights for responsible parties, and neither the lack of a total cost estimate nor deviation of actual total costs
from this estimate will affect the United States' right to cost recovery.

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                                     Attachment
                            Action Memorandum Outline

I.      Purpose
II.     Site Conditions
       A     Site Description
       B.     Other Actions to Date
       C.     State and Local Authorities' Role
III.     Threats to Public Health or Welfare or the Environment, and Statutory and Regulatory
       Authorities
IV.     Endangerment Determination
V.     Proposed Actions and Estimated Costs
       A.     Proposed Actions
       B.     Estimated Costs

             Sample Calculation of Removal Action Project Ceiling Estimate

       Extramural Costs:
       Regional Removal Allowance Costs:
             Total Cleanup Contractor Costs                               $ 745,000
             (This cost category includes estimates for: ERRS,
             subcontractors, Notices to Proceed, and Interagency
             Agreements with Other Federal Agencies. Include a 10-20%
             contingency.)

       Other Extramural Costs Not Funded from the Regional Allowance:
             Total START, including multiplier costs                       $ 150,000
             Total CLP                                               + $ 100.000
             Subtotal                                                   $ 250,000

       Subtotal, Extramural Costs                                         $ 995,000

       Extramural Costs Contingency                                    + $ 199.000
       (20% of Subtotal, Extramural Costs; round to nearest thousand)

       TOTAL, REMOVAL ACTION PROJECT CEILING                  $1,194,000

VI.     Expected Change in the Situation Should Action Be Delayed or Not Taken
VII.    Outstanding Policy Issues
VIII.   Enforcement
       •      Provide a summary statement indicating the extent to which PRPs are known,  and
             whether they can and will perform the proposed response promptly and properly.

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       •      This section of the Action Memorandum should provide EPA's total estimated
              project-related costs of the removal action. These costs, which are based on full-
              cost accounting practices, will be eligible for cost recovery and are calculated as
              follows:

       (Direct Costs)         +    (Indirect Costs)          =  Estimated EPA Costs for a
(Direct extramural + Direct intramural) +  [ (Region-specific Indirect Cost Rate)    Removal Action
                                   x  (Direct Costs) \

E.g., using the sample extramural cost calculation from the proceeding page ($1,194,000), an
estimate of EPA's direct intramural costs ($40,000), and 27.02% as the regional indirect cost
rate, the total estimated EPA costs for the removal would be:

       ($1,194,000 + $40,000) + (27.02% x $1,234,000) = $1,567,426.80

              Include the following sentences in the enforcement section of the Action
              Memorandum: The total EPA costs for this removal action based on full-cost
              accounting practices that will be eligible for cost recovery are estimated to be
              $1,567,427. Include the following language as a footnote in this section:  Direct
              Costs  include direct extramural costs and direct intramural costs.  Indirect costs
              are calculated based on an estimated indirect cost rate expressed as a percentage
              of site-specific direct costs, consistent with the full cost accounting methodology
              effective October 2, 2000.  These estimates do not include pre-judgment interest,
              do not take into account other enforcement costs, including Department of Justice
              costs,  and may be adjusted during the course of a removal action.  The estimates
              are for illustrative purposes only and their use is not intended to create any rights
             for responsible parties. Neither the lack of a total cost estimate nor deviation of
              actual total costs from this estimate will affect the United States' right to cost
              recovery.

       •      Place  all remaining information concerning the enforcement strategy in a separate
              addendum labeled "enforcement sensitive." The enforcement addendum is not
              part of the Action Memorandum for purposes of NCP and is not placed in the
              administrative record file.
IX.    Recommendation
       •      The following statement must appear in all Action Memoranda to document that
              the proposed response is in compliance with statutory and regulatory removal
              provisions: "This decision document represents the selected removal action for
              the (Site name), in (location), developed in accordance with CERCLA as
              amended, and not inconsistent with the NCP.  This decision is based on the
              administrative record for the site. "

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Use the following example approval statement indicating that NCP removal
requirements have been substantiated and stating the total removal action project
ceiling and the Regional removal allowance costs. Example: "Conditions at the
site meet the NCP section 300.415(b) criteria for a removal and I recommend
your approval of the proposed removal action. The total removal action project
ceiling if approved mil be $1,194,000.  Of this, an estimated $745,000 comes
from the Regional removal allowance. "

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