Unit*) Stetee
Environmental Protection
Agency
Office of Solid We*te
nd Emergency Reeponte
(OS-100)
Publication 9202.1-02!
March 1993
Response Action Contractor
Final Indemnification Guidelines
Superfund Reviulizuion Office
Intermittent Bulletin
Volume 2. Number 1
The final EPA Superfund Response Action
Contractor Indemnification Guidelines were
published in the Federal Register on January 25,
1993. The Final Guidelines supersede EPA's
Interim Guidance on Indemnification which, since
1987, has prescribed the standard terms and
conditions for indemnification agreements with
Superfund response action contractors (RACs).
Under CERCLA Section 119. EPA has
discretionary authority to indemnify RACs for third-
party damage claims based on negligent release
during a response action.
The Final Guidelines affect all response action
contracts, including ARCS, ERCS. TBS, and TAT.
The Guidelines also impact grants, contracts issued
by States under cooperative agreements with EPA,
closed contracts, and contracts awarded by the U.S.
Army Corps of Engineers and other Federal
agencies operating under interagency agreements
with EPA to cleanup Superfund site*.
The Guidelines treat new and existing contracts
differently. For example, no indemnification will be
offered in new solicitations. If, however, it is
determined that there is insufficient competition
which results from the lack of indemnification, the
solicitation may be «««<<* to offer limited
indemnification.
Many existing response action contracts
currently have indemnification clauses that provide
unlimited indemnification; however, the interim
clauses provide that the indemnification provisions
will be modified by mutual agreement within 180
days of promulgation of the Final Guidelines to be
consistent with the Final Guidelines.
BACKGROUND
Section 119(a) of the Superfund Law (the
Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 or
CERCLA), provides that response action
contractors shall net be held liable under Federal
law for damages resulting from the release of
hazardous substances, pollutants, or contaminants,
so long as the release is not caused by negligence,
gross negligence, or intentional misconduct. Section
119also provides that EPA my.indemnify (i.e.,not
hold liable) response action contractors for damages
(including litigation costs) caused by negligence, but
EPA must establish limitations and deductible^
applicable to that indemnification.
Federal protection, or indemnification as it is
called, for releases due to negligence, may be
offered to RACs only if commercial insurance is
unavailable or offered at a price EPA determines
not to be fair and reasonable. Thus, the
requirements for receiving indemnification for
negligence under Section 119
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limited indemnification to existing response action
contractors and new procurements resolicited as a
result of inadequate competition attributable to a
lack of indemnification. The Final Guidelines
specify a deductible mat increases commensurate
with an increase in the limitation. The maximum
indemnification generally is $50 million with a $1
million deductible. The ARCS contractors,
however, may be indemnified up to $75 million with
a $2 million deductible and co-payments by the
contractor above $50 million. The ARCS contracts
also have a $15 million flow-down provision that is
available for subcontractor indemnification.
Contractors that use innovative technologies qualify
for lower deductibles.
Generally, the contractor may choose any level
of indemnification up to the bracket that
incorporates the value of the contract; however, the
higher the indemnification, the higher will be the
deductible. Table 1 presents the relationship
established in the Guidelines between contract
value, indemnification limits, and deductibles.
Before a contractor is offered indemnification,
however, the contractor must have made a diligent
effort to purchase pollution liability insurance. The
cost of the insurance generally would be considered
a recoverable cost (either as a direct or indirect
cost) under cost reimbursement contracts, so long
as EPA approves the purchase of the insurance and
makes the determination that the premium price is
fair and reasonable. The Guidelines specify,
however, that any purchased pollution liability
insurance will reduce the amount of indemnification
available to the contractor on a dollar for dollar
basis.
IMPLEMENTATION STRATEGY FOR
MODIFYING EXISTING CONTRACTS
The Agency needs to modify all contracts,
grants, and cooperative agreements by July 25,1993
(180 days from tfa* January 25, 1993 publication
date) to incorporate the limits, deductibles and
terms outlined in me final guidelines. Our
approach for implementing the Indemnification
Guidelines is to provide contractors with the
opportunity to select their limits and deductibles
from the Final Guidelines and inform EPA of their
choice.
The Contracting Officer (CO) will send to each
affected contractor a letter that will advise them of
the publication of the Final Guidelines, and will
request that they make a diligent effort to purchase
pollution liability insurance from the private
insurance industry if they have not done so recently.
The cost of the insurance policy will be recoverable
under the contract, either as a direct or indirect
cost, so long as EPA determines that the price of
the premium is fair and reasonable. The letter will
also explain that EPA will provide limited
indemnification (with a deductible) against negligent
actions that cause the release of hazardous
substances, pollutants, or contaminants. The
amount for which EPA is willing to indemnify them
is specified in die Guidelines, and is a function of
the size of their response action contract. For every
dollar of insurance purchased, however, there will
be a corresponding dollar reduction in
indemnification.
The letter will request that contractors respond
to EPA within 30 days, and provide a copy of any
quotation for pollution liability insurance that they
have identified, including information on the cost,
terms, and conditions of the policy. If the
contractor is unable to identify an acceptable
insurance policy, the contractor must submit
documentation on all diligent efforts made to
purchase insurance.
EPA Headquarters will review the submitted
pollution liability insurance quotations, and will
approve purchase of those policies that are offered
at a fair and reasonable price. Once the terms of
die policies are established, and there is a
commensurate reduction in indemnification limits,
a new indemnification clause will be transmitted to
die contractor. At die time that the contract
indemnification clauses are modified, the contractor
must submit to EPA proof of purchase of the
pollution liability insurance.
For drose contractors who made a diligent
effort to purchase insurance, but nonetheless were
unable to identify an acceptable policy, the CO, with
concurrence from Headquarters, will transmit to
diem a modified indemnification clause that
includes limitations and deductibles consistent with
die Final Guidelines.
EPA Headquarters will provide draft clauses to
the COs to reflect die final indemnification limits
and deductibles, as well as any pollution liability
insurance applicable to Uw contract. This will
ensure diat die new indemnification clauses are
consistent across different types of contracts.
INDEMNIFICATION HOTLINE
To ensure that die lines of communication
remain open, and die Regions have a clear point of
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contact at Headquarters so that issues, questions,
and concerns regarding indemnification can be
addressed efficiently, we have set up an
"Indemnification Hotline.* The number is(202-260-
6862). Please leave a message and we will get back
to you within 24 boon.
If the pace of work at a site is threatened,
please call the Hotline immediately, so that we may
provide you with information and guidance as
quickly as possible. We will distribute information
as soon as issues are resolved and products are
generated.
INDEMNIFIC ATION HOTLINE
(202) 260-6862
TABLE 1
RESPONSE ACTION CONTRACTOR INDEMNIFICATION
JOB VALUE
All Contracts
All Contracts
All Contracts
Single site of $10
to $25 million;
multi-site less
than $25 million
$25 million or
more
ARCS contracts
LIMIT § DEDUCTIBLE
$2 million
$5 million
$10 million
$25 million
$50 million
$75 million
(copqrmeot
icquired above
$50 million)
$15 million
indemnification
available for
subcontracting
pool; $5 million
max per sub
NEGOTIATED FIXED
PRICE OR
COST REIMBURSEMENT
CONTRACTS
$20,000
$50.000
$100,000
$250,000
$1 million
$2 million
$50,000
INNOVATIVE TECHNOLOGY, SITE
PROGRAM, GRANTS, REMEDIAL
ACTIOH & INNOVATIVE
TECHNOLOGY SUBCONTRACTS
UNDER COST REIMBURSEMENT
CONTRACTS >5 YEARS
$10,000
$25,000
$50,000
$200,000
Not available
Not available
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