*        UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

y
                                                      9834. 9

                                October 20,1987


  MEMORANDUM

  SUBJECTS  Evaluating Mijted Funding Settlements Under CERCLA
  FROM i     J.
            Assistant Administrator
            Office of Solid Wast* and Emergency Response
            Thomas L. Adams, Jr.
            Assistant Administrator
            Office of Enforcement and:'Compliance Monitoring

  TOs       Regional Administrators, Regions I-X


  I. Introduction

       This document provides guidance for use when a party
  proposes, as part of a settlement negotiation, that both
  private and Fund resources be used at a site.  This type
  of arrangement is generally referred to as a "mixed funding1
  settlement.  Section 122(b) of the Comprehensive Environ-
  mental Response, Compensation and Liability Act, as
  amended by the Superfund Amendments and Reauthorisation
  Act of 1986 (hereinafter cited as 'CERCLA") provides
  explicit authority for the Government to enter into these
  types of arrangements.

       The primary goals of this guidance are tot
                                     jtv
       1) Encourage the Regions to consider mixed funding
          settlements, based on the statutory approval
          of these settlements in $122(b) of CERCLAf

       2) Present a method for Regional enforcement person-
          nel to analyse mixed funding in the context of
          a settlement offer, and

       3) Indicate broad Agency preferences by specifying
          acceptable and poor candidates for mixed funding
          in general.

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                              -2-
9834*9
      Hiotorically, tho term °mixod funding0 hao boon uood to
 doocribo throo typoo of arrangements.  Section 122(b)(l)  of
 CERCLA doocriboo ono mixed funding arrangement, in which  ono
 or core of tho potentially rooponoiblo portico (PRPo)  agroo  to
 por£om o rooponoo activity and tho Agoncy agrooo to roftoburoo
 thooc PRPo for a portion of thoir roopono® cooto.  In oiich
 case   tho otatuto providoo that tho coot incurred by tho Fund
 bo r-  ovorod from non-oottloro when poooiblo.

      Sottlomont agreements involving cloonupo  by PRPo  and
 reimbursement of thoir rooponoo cooto require  the Agoncy  to
 "proauthorizo" tho claim againot tho Fund prior to tho initiation
 of tho rooponoo action.   Tho  torn "proouthorisation" roforo  to
 tho approval that muot bo granted by tho  Agoncy prior  to  cleanup
 actiono  if  a claim for rooponoo cooto io  to bo conoidorod againot
 tho Fund.   If proauthorization io granted,  it  oorvoo ao an Agoncy
 coonitmont  that,  if rooponoo  cooto ore conducted  purouont to tho
 settlement  agreement  and  tho  cooto ore roooonablo and  nocooocry,
 roimburooraont will bo available fron tho  Fund  ao  dictated by tho
 agreement,  oubjoct to tho availability of appropriated  oonioo.

     Two othor kinds  of settlement ogroononto  aloo conotituto
 forma  of mined funding, but do not roquiro  proouthorisation.
 Section 122(b)(3)  doocriboo ono typo  of orrongonont, in which
 tho  Agoncy  conducts tho rooponoo action and the PRPo pay  tho
 Agoncy for  a portion  of tho cooto.  Thio  typo  o£  oottlooont
 io  known ao a oottloraont  for  caoh,  or °caoh-out.°  A, third
 typo of mixed funding, known  ao °niaod worfc,"  involvoo  an
 agrooroont which addrooooo tho  ontiro  rooponoo  action, but
 tho  PRPs and  tho  Agoncy agroo  to conduct  and pay  for diocroto
 portiono or oogmontc  of tho rooponoo  action.   Tho tore  "mixed
 funding0, ao  uood  in  thio  document, applioo to any of tho
 aforementioned  typoo  of oottlooonto.   It  ohould bo notod,
 however, that $122(b)(4),  concerning  futuro obligation  of  tho
 Fund for remedy failure,  only  applioo to  mixed funding  in tho
 form of proauthorization,  ao doocribod in S122(b)(l).

     Ao notod above,  tho  1906  Anondnonto  to CERCLA included
an explicit otatutory authorisation of aisod funding oottlo-
monto. Prior  to thooo Amendments,  tho prieary  document  which
nado reference  to  nixed funding wao tho Interim CERCLA  Sottlo-
mont Policy  (30 FR 5034).   Thio policy oot  out ton criteria
to uoo tthon evaluating a  oottlonont offer for  looo than 100$
of tho coot or  cloanup at  a oito.   In nixed funding oottlo-
montc, tho  PRPo agroo to  pay  for a  portion  of  tho rooponoo
coot, and may conduct some or  all  of  tho  rooponoo action.

     A major  portion  of this guidance addrooooo tho application
of tho Interim  Sottlomont  Policy to mixed funding settlements.
Section II outlines tho key principles underlying tho Agency's
 Interim Settlement  Policy,  and tho  role of  mixed  funding  within
 these general principles.   Section  III then provides an approach
 for  applying  the  ter.  settlement criteria  to mixed funding settle-
ment offers  in  general (e.g.,  without regard to any specific

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                              -3-                    9834.9


 funding arrangement.)   This ••ction first highlights  factors
 of ksy importance to mixed funding settlements,  and  then
 suggests the Agency's  preferences among various  combinations
 of these factor*.

      Section IV identifies criteria-, to be used to determine
 if a particular type of mixed  funding  is appropriate  for a
 site, and then  lists secondary considerations related to all
 mixed funding settlements.   Section V  outlines the general
 procedure for review and approval of mixed funding.


 II.   The Role of  Mixed  Funding in the  CERCLA Cleanup  Program

      The Interim  CERCLA Settlement  Policy  identified  nego-
 tiated private  response actions as  an  essential component of
 the Agency's  overall program for  obtaining cleanup of the
 nation's  hasardous waste sites.   This  program, to be effec-
 tive, depends upon a balanced approach, which includes a mi*
 of Pund-financtJ cleanups, enforceable settlement agreements
 reached-through negotiations, and litigation.  Expeditious
 cleanups  reachsd through negotiated  settlements are preferable
 to protracted litigation.

     Section  122 of the 1986 Amendments, which is devoted
 entirely  to settlement  issues, indicates Congressional
 affirmation of the emphasis in the  Interim Settlement Policy
 toward increased flexibility in settling CERCLA cases in
 order to expedite cleanups.  Like the  Interim Settlement
 Policy, SI22  covers a wide range of mechanisms designed
 to promote settlements.  In particular,  in S122(b),  Congress
 acknowledged  the need to consider settlements for less than
 100% of the costs of cleanups"...by using monies from the Fund
 on behalf of  parties who are unknown,  insolvent,  similarly
 unavailable,  or refuse  to settle.*  (See the Conference Report
 on Superfund  Amendments and Reauthorisation Act of 1986, 99
Cong., 2d Sess.  Report  99-962 pp. 183,  252 (1986).)

     The Agency encourages the use of mixed funding to promote
settlement and hasardous site cleanup.  For example,  preauthori-
 zation offers the* advantage of PRP performance of the response
 activity  and  funding of a substantial  portion of the  response
 costs, thus conserving  Agency resources for use at other
 sites.  In addition, S122(b)(l) requires the Agency to make
 all reasonable efforts  to recover these costs.  The Agency
 will  therefore pursue nonsettlors to make  the Fund whole,
 unless it would be unwarranted to undertake such efforts.  To
 the extent that mixed funding reduces  the  number of PRPs to be
 sued  in  such  cost recovery cases,  it will  also reduce the
 Agency's  costs  for litigation.

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                             -4-                      9834.9


     Support of mixed funding as a settlement tool, however,
does not  imply that the standard and scope of liability under
CERCLA has changed.  As established by court decisions prior
to  the 1986 Amendment*f PRP liability under CERCLA remains
strict, joint and several, unless the PRPs can clearly .
demonstrate that the harm at the site is divisible.  Thus,
the Agency will assess mixed funding settlements in a manner
consistent with the Interim Settlement Policy, where complete
cleanup or collection of 100% of costs remains a primary  goal.

     Por  example, the Agency will not approve mixed funding
simply on the basis that a share of wastes at a site may  be
attributable to an unknown or financially non-viable party.
The Agency may conduct an allocation of liability among PRPs
at a site, or may evaluate the PRP's allocation and allow
volume to be considered as one factor used to assess the
reasonableness of the PRPs' offer.   However,  the availability
or the amount of any Fund-financing for a particular site
will not be dependent solely on consistency with any volume-
tric or 'fair-share* allocation.  The Agency  may,  mm a policy
decision, determine that, mixed funding is the best method
to promote cleanup at a particular site,  based on the total-
ity Of the circumstances.  Nixed funding  should be viewed
as one tool, approved by Congress,  to be  used to promote
settlements in the context of the existing Interim Settle-
ment Policy.

     Section 122 also contains settlement provisions related
tot  a) de minimis settlements (S122(g)], in  which parties
who are liable for only a minor portion of the hazard or
cost of cleanup at a site may resolve their liability to
the Government in an expedited processi  b) non-binding
allocations of responsibility (NBARs), (S122(e)(3)1, which
involve a discretionary EPA allocation of the total res-
ponse costs among PRPs at a site; and c)  covenants not to
sue, (S122(f)], in which the Government agrees to certain
releases  from liability at a site.

     These settlement mechanisms may influence the decision
as to whether a settlement should include mixed funding.   Thus,
the use) of mixed funding at a site should be  evaluated both in
the context of SI22 as a whole, which encourages settlement in
general*  as well as individual $122 settlement provisions and
their relevance to the proposed mixed funding settlement.

       Por further guidance on these settlement provisions,
see •Interim Guidelines for Preparing Non-Binding Preliminary
Allocations of Responsibility (NBAR),* 52 PR 19919* 'Interim
Guidelines on Settlements with De Mininis Waste Contributors
under Section 122(g) of SARA,* Adams/Porter,  June 19, 1987;
•Covenants Not to Sue Under SARA,* Adams/Porter July 10,  1*87.

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                              -s-                    9834.9


 III.  Assessment of Mixed Funding Settlement Proposals
       Using the Interim Settlement Policy Criteria


      In the •valuation of a proposed mixed funding  settlement,
 Agency enforcement personnel should first focus on  the quality
 of the overall settlement offer.   .Thus,  the initial  determin-
 ation in each case will not be whether a» particular type of
 mixed funding should be> used,  but whether the underlying
 offer for a mixed  funding settlement is  a good one.  This
 determination should be made by applying the ten settlement
 criteria set out in the Interim Settlement Policy.

      The factors and hypothetical examples set forth below
 provide  guidance as to  how to  apply the  ten settlement cri-
 teria to settlement offers  in  which PRPs  have requested
 some  form of mixed  funding.  The  Agency does not intend to
 limit the availability of mixed funding to the fact patterns
described below, but  recommends the following approach as a
means of  focusing the analysis of  the settlement.  Regions
must continue  to consider the  totality of  the circumstances
for each mixed funding settlement offer.

     In  settlement offers in which any form of mixed funding
 is proposed, factors of primary importance includes


     • Strength of the liability cas* against settlors and any
       non-settlors.  This factor  includes!

          - litigative risks in proceeding to trial  against
            settlors, and

          - the nature of the case remaining against non-
            settlors after the settlement;

     • Government's options in the event  settlement  nego-
       tiations fail (e.g., if a state cost-share  will be
       available for a Fund-lead action);

     • Sixe of the portion or operable unit for which the
       Fund will be responsible (or the amount of  the PRP's
       offer)i

     • Good-faith negotiations and cooperation of  settlors
       and other mitigating and equitable factors.


     The  following examples  indicate the  combinations of
the above factors which may be considered acceptable candidates
for any  type of mixed funding, and  those  cases considered
poor candidates for mixed funding:

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                                                    983409
      Acceptable  Candidates  for Mixod  Funding

      Tho  boot candidates  for nixod  funding  aro  caooo  in which
 tho  following features  aro  procontt

      0 Tho  potential  portion or oporablo  unit to bo covorod
       by tho Fund  io omoll,  or tho oottling PRPo offor .a
       oubotantial  portion  of tho total coot or cleanup,
       In thio content, aubotantial portion nay bo defined
       ao a eoiDmitnont  by tho PRPo to undortatio or finance
       a  predominant  portion  of  tho total rooodiol action.6

      0 Tho Government hao a  otrong caoo agoinot- financially
       viable  non-oottling PRPo, frco which tho Fund por-
       tion nay  bo  recovered.

     While thio  combination of factoro roprooonto tho optinun
conditiono undor which mixed  funding nay bo approved, caooo
will more typically involve ono or aoro voriotiono of thio
oconario.   Thuo, tho Agency anticipatoo that a rongo o£
caooo will bo conoidorod accoptablo Candidatoo for ninod
funding.   Tho following oxomploo indicate tho circuootancoo
under which a mined funding settlement nay roprooont tho
Government'o proforrod altornotivoi

     Example onot

          A otrong caoo againot potential oottloro nay
     initially weigh  in favor of litigation, oopocially
     if tho caoo againot non-oottloro io wood.   However,
     a mixed funding oottlomont may otill bo accoptablo
     upon  evaluation of additional faetoro,  ouch aoi

          0 Tho oottling PRPo offer to conduct  or
            pay  for a subotantial portion of tho
            rooponoo;

          0 Public intoroot conoidorationo (e.g.,
            if oottlomont would expedite cleanup
            and/or a SI04 Fund-fin-need notion  io
            not foooiblo);

          0 Whether oottloro  havo nogotiatod in good-faith;

          0 Tho Govomnont's  time and rooourcoo oavod by
            oiraplification or avoidanco of litigation.

     * Ac  notod  lator, tho Agency'o proforonco  io for tho
       PRPo to perform tho rooponoo action, rathor than
       finance a Governmental rooponoo action.

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                               -7-

                                                           9834.9
      Example two:

            Zf a substantial  portion of  the vast* at a sit*
      cannot  be attributed to  known and financially-viable
      parties,  as d«t«rmin«d,  for example, by a preliminary
      nonbinding allocation  of responsibility by the Govern-
      ment),  the Agency may  initially consider pursuing the
      recovery  of all costs  under joint and several liability.
      However,  if the litigative risks appear substantial, a
      mixed funding settlement may represent more than the
      Government would recover in litigation, especially when
      the cost  and time required for litigation is considered.
      Litigative risks which may weigh in favor of settle-
      ment includet

           • Weak evidence against financially viable  potential
             settlors;

           • Equitable  considerations  which weigh  against
             the imposition of  joint and several liability.

           ID  addition,  if the  -hasard  at the  site  is serious
      and  no Fund-financed response  is possible, a delay
      in the response action  pending the conclusion of
      litigation might  represent  an unacceptable risk to
      the  public and the environment.


      Poor Candidates for  Mixed Funding

      Cases  considered  poor candidates for mixed funding
have  the  following featuresi

      • The  case against settling parties is strong, and thus
       the  potential for  successful litigation is high;

      • The  potential Fund portion is  large (e.g., the
       potentially settlors1' offer is insufficient.)

     These  factors do  not automatically preclude mixed funding
for a case.   However,  for mixed  funding to be seriously
considered  in such instances,  other compensating factors
must be present, such  as  the ability o2 the settlors to
initiate  the  response  action more quickly than the Government
in a Fund-financed action.

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 IV.  Selection of tho ttiaod Funding Tochniouo

      Ao notod in tho Introduction, tho torn mixed funding hao
 boon uood to rofor to throo difforont typoo of oottlomont
 arrongocontoi

      1) Proauthorization, in which tho PRPo conduct tho .roo-
         ponoo action and tho Agoncy agrooo to allots a clain
         agcinat tho Fund for a portion o£ tho rooponoo cootoi

      2) Caoh-outo, in which tho PUPS  pay for a portion o£ tho
         rooponoo cooto up front, and  tho Agoncy conducto tho
         rooponoo action;

      3) Hlsod work,  in which tho PRPo  and tho Agoncy ooch
         agroo to conduct diocroto portiono of tho  rooponoo
         activity.

      Onco  Regional enforcement poroonnol  hovo dotorninod
 that  a  mixed  funding  oottlonont io appropriato, boood  on
 tho oottlooont criteria  ao doocribod in Soetion III  and
 tho IntorID Settlement Policy,  thon tho Agoncy nuot  doeido
 which typo of mixed funding  boot ouito tho oituotion at
 hand.   Anong tho throo oajor typoo of ninod funding, tho
 Agoncy  generally proforo proauthorisction,  oineo tho PRPo
 conduct tho rooponoo  action. However, ao  notod bolov,  caoh-
 outo  and ninod work nay  bo appropriato undor  certain cir-
 cunotancoo.

 PREAUTHORIZATION

     Tho aooosoraorvt and  approval of proauthorization,  onco
 a mixed funding oottlonont io  approved, io  a  two-part
 procooo.   Tho firot otago, ao  doocribod below, io tho  det-
 ermination by tho Agoncy enforcement poroonnol that pro-
 authorization io appropriato in tho context of tho
 settlement ao a wholo.   Tho  oocond otago  roprooonto  tho
 actual procooo of proauthorization of tho  clain ogainot
 tho Fund by tho Office of Cnorgoncy and Rooodial Rooponoo
 (02RR)  (ooo Soetion V.)  Tho Rooponoo Claino  rogulationo,
which aro prooontly in draft form,  will provide guidance on
 tho proauthorisation procooo itoolf.

 a)  Technical and timing concorno  rolatod  to  proauthorization

     For tho firot otago of  tho review, tho nature of  tho
 propoood rooody and tho  PRPo1 ability to  perform it  in a
 timely oonnor aro major  factoro to conoidor whon aoooooing a
 settlement offer which contoraplatoo proauthorization.  In
 addition,  tho size of tho PRPo1  portion io important.  Whon
 PRPs are responsible  for a sufficiently high  porcontago,
 they will  have a strong  economic incentive to keep the actual
 response costs within or closo  to estimates.   Tho nature and

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                                                      9834o9
tho oovority ofi tho throat poood by tho olto may oloo woigh In
favor o£ oottloraont,  If proauthorisation would inecoooo tho
opood at which tho haoord could bo oddrooood.  For onanplo,
prompt  initiation of  tho remedial action would bo of particular
inportanco Cor oitoo  which aro not currently ochodulod for
full Pund-finaneing.

     On tho othor hand, Regional negotiators muot aloo conoidor
tho tino required for tho proauthorisation procooo itoolf when
determining i£ proauthorisation id appropriate for particular
typoa of rooponoo actiono.  While tho Agency hao oot a goal
of completing review  of individual proauthorisation applicc-
tiono within a 45-day period, thio ticing limitation will vary
on a caoo-by-caoo baoio*  Tho Agency ia unlikely to havo tino
to conoidor proauthorisation requests whon action ia required
to avort an iooodiato throat to tho public health or tho
environment,  therefore, no reimbursement would bo poooiblo.
Rogiono ohould anticipato tho procoooing tino in oanaging
negotiations.

b)  Availability of proauthorisatipn for variouo rooponoo
    actiono

     For ogrooraonto involving activitioo ouch ao an HZ/PS or
a removal, proauthorisation in gonoral will not bo warranted,
bocauoo tho procooo of proauthorisation will uoually prove
too burdonooiao for tho small anounto or ohort time-franco
often oncountorod in thooo caooo.  Limited oncoptiono nay
be conoidorod in unuoual circumstances, ao whoro proauthori-
sation will facilitate a brooder agroonont (e.g., an area-wide
RX/FS) which will bo looo rooourco intonoivo than oovoral
agreements of smaller scope.  A largo, ontonoivo removal (e.g.,
groator than $2 million) racy aloo qualify ao an extraordinary
circuraotanco juotifying proauthorisation.  However, Boadquartoro
Approval muot bo obtained before proauthorisation cay bo offered
during negotiations for ouch activitioo.

c)  Covonanto not to ouo for proauthorisation oottlononto

     For proauthorisation of remedial design and ronodial
action (RD/RA) activitioo, tho otatuto containo a opocific
provioion related to  ronody failure.  Section 122(b)(4) of
CERCLA otatoo that for caooo involving proauthorisation, aa
doocribod in 8122(b)(l), tho Fund will bo rooponoiblo for
cooto o£ rooody failure, up to a proportion equal to that
contributed for tho original roaodial action.  Thio ooction
aloo otatoo that tho  Fund portion nay bo mot oithor through
Fund onpondituroo or  by recovering ouch cooto firoa parties
who woro not oignatorioo to tho original agreement.  However,
it should bo notod  that remedy failure duo  to nogligonco of
tho PRP will not trigger any Fund obligation.   In  any case,
a covenant not  to  sue granted  in proauthorization  settlements
muot comport with  Agoncy guidance on  covenants  not to suo,
ao citod  above.

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                             -ID-                       9834oc

d)  Settlement provisions noodod to procooo claimo

     Settlement agreements involving proauthorization  ohould
contain the following restrictions to facilitate the
procooooing of claimsi

     0 Sottlomont agreements ohould opocify a percentage of
       tho total ootiraatod coot to bo included in the  pro-
       authorization claio for PUP roinburoonont, oubjoct
       to a maximum dollar licit*

     0 Claioo agoinot tho Fund aro not oubjoet to tho
       $104(c)(3)  roquirooont that Statoo  contribute
       100 of tho coot of tho roaodial action.   However,
       prospective claiaanto  aro encouraged to  file a
       letter of cooperation  froa tho Stato along with
       their roquoot for proauthorization.   Thio letter
       ohould doocribo any agrooaonto rooulting frco tho
       claimanto1  conoultation with tho State*  including
       any State aoouranco of cooperation  with  tho roco-
       dial action.   Further, all actions  conducted pur-
       suant to  a  proauthorizod claiia amot bo conoiotont
       with tho  NCP and tho propoood draft Rooponoo
       Claim rogulationo, when promulgated.

     0  Cleimo may  bo filed only for coots  incurred aftor
       tho dato  of proauthorization.  Portion will not bo
       eligible  to make a clain againot the Fund until
       tho entire  cleanup or  agreed-upon proauthorisod
       phaoo (e.g.,  an  operable unit) io completed
       according to opocificationo oot out in  tho oottlo-
       raont agreement and tho Proauthorization  Docioion
       Document.

     0  Applicanto  must demonstrate that their propoood
       rooponoo  cooto aro roaoonablo.  Tho applicant ohould
       juotify any propooal to perform an  activity in-houao,
       or to contract it out.  Applicanto  nay look to  Federal
       and State procurement  practices for guidance on how
       to moot EPA'o objoctivoo in tho area of  contracting
       and oubeontracting.

     0  PRPo jnuot bo financially and technically capable
       o£ ioplooonting all of tho agreed upon  rooponoo
       action.   Partioo may bo required to oubnit finan-
       cial aoourancoo or performance bondo to oubatan-
       tiato their financial  capability for completing
       tho rooponoo action.

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                                                         9834.9
 CASH-OUTS

      Por settlement proposals involving a cash-out by some
 of the PRPs, the nature of the remedy and the public interest
 factor* are generally not decisive, since the Government will
 be conducting the response action.  Thus, of the criteria in
 the Interim Settlement Policy noted in Section III, the "key
 issues in these agreements includes

      • The percentage of the total costs to be paid by
        settlors (i.e., a substantial portion should be
        offered)}

      * The Agency's  level  of confidence  in  information
        related to liability  and cost estimates at  the  time
        of settlement!

      •  Equitable considerations for both the settling  and
        non-settling parties,  including the nature  of any
        covenants not to  sue  in thercash-out  settlement.

      In genera.1,  cash-out - settlements may occur at any stage
of  the. remedial  process. 'Such offers should generally be
assessed  in light of the criteria  in Part IV of the Interim
CERCLA Settlement Policy.  It is important to note that,
once  a Fund-lead  response action is  ongoing,  the potential
benefit of mixed  funding as a means  of expediting  cleanup is
largely eliminated.  In addition, a  cash-out of some of the
PRPs  during the  response action may  serve to fragment  the
Government's enforcement proceedings, since  cost recovery
will  generally be pursued once the remedial  action is completed.
Other issues related to cash-outs includes

a)  Information needs related to cash-out settlements

      One example of the use of cash-out settlements could
involve PRPs which have contributed  a low percentage of the
waste to a site, and are not technically or  financially
capable of conducting the entire response action (e.g.,
preauthorisation is not an option.)  In order for  this
type of settlement to be appropriate for both settling
and non-settling responsible parties, the Agency should
have sufficient  information to determine a settlement
amount for the settlors as a group.  This amount should be
based on the Settlement Policy, and  should include their
waste contribution and other relevant information.  Thus,
the Agency should have a fairly high level of  confidence in
the* information  concerning the liability at  the site and
the expected cost of the remedy in order to  determine
an appropriate cash-out settlement.

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                                                        9834. 9

      The  settlement may include a risk premium which may
 partially offset  the Government's risk due to uncertainties
 such  as remedy  failure or cost overruns, as well as uncertainties
 which may be present if the necessary information is less
 than  complete.

 b) Covenants not  to sue in cash-out settlements

      The  sufficiency of the Agency's information related
 to PRP liability  and the nature, stage of development and
 the cost  of  the potential remedy has particular bearing on
 the scope of  any  covenant not to sue in cash-out'settle-
 ments.  In general, if the Agency has only limited infor-
 mation in these areas (e.g., if the cash-out settlement
 entered into  early in the remedial process), then covenants
 not to sue should contain appropriate reopeners to reflect
 this uncertainty. In reference to these reopeners, It is
 important to  note that the obligation of the Fund to pay
 for a portion of any costs incurred due to remedy failure,
 under S122(b)(4), is limited to mixed funding in the font
 of preauthoritation under S122(b)(l).  Thus, for cash-outs,
 the statute does not limit the potential PRP liability for
 costs resulting from remedy failure.  Any future obligations
 will be specified in the cash-out agreement, including the
 covenants not to sue. Further guidance concerning covenants
 not to sue is provided in the Agency guidance 'Covenants
 Not to Sue Under SARA* cited above.

     In addition, although cash-out settlements need not
 involve de minimis parties, as defined by S122(g), similar
 analyticaT factors are important in both instances.   Thus,
Agency guidance entitled "Interim-Guidelines on Settlements
with De Minimis Waste Contributors under Section 122(g) of
SARA", cited above, may also be helpful for cash-out
 settlements.

 c)  State cost-share requirements for cash-out settlements

     When the Federal government uses its response authority
 to conduct a  remedial action, S104(c)(3) of CBRCLA requires
 that the  State "pay(s) or will assure payment* of 10% of
 the remedial  action, including all future maintenance, or
 50% or greater for sites involving a state operated fac-
 ility.  Since cash-out settlements involve PRP payment
 toward a  federally-conducted remedial action, the appli-
 cable  cost share  is required for these settlements. The
 cost-share will be calculated using the total remedial
 costs, rather than a percentage of the Fund share alone.

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                                                          9834.

      There are  • variety of ways  that the State can "pay
 or  assure payment* of  the  appropriate cost-share.  For
 example* the State,  the Federal government and the PRP»
 nay enter into  an agreement under State law end CERCLA in
 which the PRPs  pay 101 to  the State, and the State obligates
 the money for use at the site in  question.  The State may
 also use its own funds to  pay for any portion of its share
 that cannot be  paid for by PRPs.  In general* cash-out settle*
 meats should only be considered when the litigation teas is
 reasonably certain that the State is willing and able to pay
 for its 10% share,  although the cost-share need not be part
 of the consent decree between the Federal government and the
 PRPS.

 MIXED  WORK

     Mixed  funding  in the  form of  mixed work may be appropriate
 for  cases  in which  the  Agency can  identify discrete phases
 or operable units of  the response  action.  One  common  example
 involves a settlement with  the PRPs to conduct  the  RD/RA
 once the Agency  has conducted the  RI/FS.

     A second* more complicated mixed work arrangement could
 involve an agreement  in which the  Agency and the PRPs agree
 to conduct separate portions of an area-wide RX.  In this
 example* the Agency might agree to conduct soil testing if
 the PRPs conduct ground-water monitoring.  Regional enforce-
 ment personnel should be reasonably 'assured of PRP cooper-
 ation and the ability to identify  in detail the individual
 activities for which each party will be responsible before
 entering into any mixed work settlement.  In addition* any
 covenants not to sue in mixed work settlements should be
 clearly limited  to the operable units addressed in the agree-
 ment.  Mixed work should be avoided where there is a significant
 potential for delays in response actions as a result of
 inadequate coordination or potential conflicts.  Thus* due
 to the high potential for technical and legal complications*
mixed work in the form of mixed construction should generally
not be considered.

     Additional Considerations Regarding Mixed Funding

     Operation and Maintenance

       For preauthorized settlements* full responsibility
       for payment of operation and maintenance (O * M)
       activities remains with the PRPs.  In some circumstances,
       a State may agree* as a party to the settlement* to
       manage O  6 M activities which are financed by PRPs.
       The Agency will generally resort to enforcement actions
       rather than committing Fund money for cleanup at the
       site when both the PRPs and the State refuse to be
       responsible for O &  M.

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  ,  4                    ,                             9834-9
  Actions Against Non-settlors

   It is the policy of the Department of Justice that the
   Federal government will not commit in a consent decree
   or other agreement to sue other non-settling parties.
   Consistent with this policy,  mixed funding settlement
   agreements should not contain provisions which commit
   the Federal government to sue non-settling parties at
   a particular site.   At most,  the agreement may indicate
   that the Government has a "present intention*  to sue
   non-settlors,  subject to  the  exercise of the Government's
   enforcement discretion.   Such provisions,, however,
   must be  approved  by Headquarters and  the Department
   of Justice  (DOJ)  on a case-by-case basis,  and may not
   be offered  in  negotiations until such approval is
   obtained.

 Reservation  of  Rights

  Potential settlors  occasionally will agree to allow
  the Government to reserve the right to bring an enforce-
  ment action against-them, contingent up^n a certain
  eve_nt, such as an unsuccessful enforcement action
  against non-settlors.  Such an arrangement is not
  desirable, although it may be acceptable in limited
  circumstances.  Such an offer should not be used by
  settlors as a means of reducing the amount offered up
  front.  In addition, the negotiation team should
  consider the practical problems that might arise in
  implementing such an arrangement, including statute
  of limitation issues and fragmented enforcement actions
  involving successive suits covering similar issues.
  The Government generally prefers to settle for a
  substantial portion up front,  rather than being required
  to bring a second enforcement action against settlors
  for an additional amount.

Documentation

  For preauthorlzation and mixed work cases in which
  the Agency will take enforcement actions against
  non-settling parties, the Agency must assure that the
  settling PRPs agree to provide the  necessary documentation
  and any other assistance required for support of the
  cost recovery cases.  This assistance may include an
  agreement to provide witnesses to substantiate response
  costs.  Government oversight will also be required,
  not only to assure that reimbursement by the Government
  is appropriate, but also that PRP documentation constitutes
  sufficient and admissible evidence  for the cost recovery
  cases.

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                             ~15~                               9834,

 V.  Procedural  Considerations for Review of Settlements
    Involving Mixed Funding                  "      ——

     As noted  in Section I, consideration of a site for any
 type of mixed  funding  involves a two-stage process.  The
 site first should be evaluated to determine if an offer for
 a mixed funding settlcaent  in general (e.g., without regard
 to  the particular funding arrangement) should be accepted.
 This analysis  includes  the  settlement criteria, with the
 hypothetical examples  in Section III Indicating the Agency's
 preferences among various combinations of factors. 'Once the
 Regional enforcement personnel determines that a mixed funding
 settlement will be acceptable, then the factors noted in
Section IV should be used to evaluate whether a particular
 type of mixed  funding is appropriate*

     The Agency has developed guidance on streamlining and
 improving the CBRCLA settlement decision process, which, in
part, highlights the need for improved preparation for
negotiations and fur a more systematic management review
process. (See  •Interim Guidances  Streamlining the CBRCLA
Settlement decision Process",. Porter/Adams, Feb.  12, 1987.)
 In keeping with the goals of this improved process. Regions
should conduct both stages of the mixed funding analysis as
early as possible (e.g., prior to the appropriate special
notice.)

     Timely Headquarters and DOJ notification is particularly
important for cases involving preauthorizatlon, since the
use of preauthorixation in  settlements requires both the
approval of the settlement  for preauthorization,  as described
above, and the review by OERR of the request for preauthor-
 ization itself.  Early DOJ  involvement is necessary in mixed
 funding negotiations, as it is for other types of negotiations.
While the preauthorization process need not be completed at
 the time of settlement, the settlement document must describe
 the major parameters of the proposed preauthorization agreement.
Therefore, OERR should be contacted once the mixed funding
analysis has been completed and the Region supports further
consideration  of preauthorization. For further information
on the draft Response' Claims regulations and the procedure
 for preauthorization with OERR, contact William O. Ross,
 Office of Emergency and Remedial Response (WH-548), (FTS)
 382-4645.

     Issue* which cannot be resolved at the staff  level may
 be  raised to the Settlement Decision Committee (SDC), a
 Headquarters-based review panel.  Like all consent decrees,
 mixed funding  settlements will require final approval by
 the Assistant  Administrator (AA)  for  the Office of Solid
 Waste and Emergency Response  (OSWER),  the AA-OECM, and
 the Assistant  Attorney  General for  Lands and Natural Resources.

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                                                               9834.9
  If  the amount to bo paid by tho Fund exceeds $750,000 or 100
  of  tho total response cost (whichever is greater), approval
  by  tho Deputy Attorney General at DOJ will aloo bo required.
  Regional enforcement personnel may, of couroo, doclino to
  conoidor niaod funding at a particular sito without prior
  Hoadquortoro consultation.

 VI. Conclusion

      Settlement 'agreements incorporating miaod funding
 provisions, as described  in port  under S122(b) of CERCLA,
 offer an  alternative  to either up front Fund financing of
 tho total coots of  rooponoo actiono at o cito, or poooiblo
 delays in cleanup resulting from  litigation required to
 force PRP action.   Mixed  funding  roprooonto ono component of
 tho Agency's comprehensive approach totfard incrooood flexibility
 in  settling CERCLA  caooo.  This approach originotoo fron
 tho  CERCLA  Interim  Settlement  Policy ao  well no tho codification
 of much of  this Policy in SI 22 of  tho 1986  Aoondnonto.

     Tho  assessment of mixed funding for a  particular alto
 must always Begin with tho determination ao to whether any
 typo of mixed funding settlement  is appropriate,  baood on
 tho  ton settlement  criteria.   At  tho broadest  level, thio
 evaluation  will involve a determination  ao  to  tho moot
 effective moans of  promoting cleanup at  a sito while insuring
 tho  most efficient  use of tho  Agency's rosourcoo, including
 tho  Fund  itsolf.  Rogiono aro  oncouragod to conoidor a ninod
 funding sottlomont  whon an assessment of tho oottlooont
 criteria, including tho strength of  tho  evidence, tho equities
 of  tho sottlomont,  and tho public  interest, .indicate that
 mixed funding is in tho best interest of  tho Government, tho
 public and  tho onvironmont.

     For further information or quest iono concerning thio
 guidance, contact Rathy MacKinnon, OWPE  (WH-527)  at
 FTS« 475-6770.

 DISCLAIMER

     Tho policies and procedures established  in this document
aro  intended oololy for tho guidance of  Government personnel.
They aro not intondod and can  not  bo  relied upon  to create
any  righto, oubotantivo or procedural, enforceable by any
party in litigation with tho United States.  Tho Agency reserves
 tho  right to act at variance with  those  policies  and pro-
 cedures and to change them at  any  time without public notice.

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