3EPA
              United S*
              Environmental Protection
              Agency
          Office oĞ
          Solid Waste and
          Emergency Response
DIRECTIVE NUMBER: 9375 .7-01

TITLE: Ensuring the Adequacy of Cost Share
    Provisions in Superfund State Contracts


APPROVAL DATE: 3/29/93

EFFECTIVE DATE: 3/29/93

ORIGINATING OFFICE: QERR
                D DRAFT

                  LEVEL OF DRAFT

                   D A — Signed by AA or OAA

                   Q B — Signed by Office Director

                   O C — Review & Comment

                REFERENCE (other documents):
  OSWER      OSWER     OSWER
VE   DIRECTIVE    DIRECTIVE   Dl

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               UNITED STATES ENVIRONMENTAL PROTFCTION AGENCY
                         WASHINGTON, D.C. 20460
                                                        O' ^ iCt O1-

                                               SGUO WASTP. AND EME. HGl:NC> RF.SI'ONltv
                       MAR 2 9 1993
                                          OERR DIRECTIVE 9375.7-01
 MEMORANDUM
 SUBJECT:   Ensuring the Adequacy of Cost Share provisions
           in Superfund State Contracts

 FROM:      Henry L. Longest II,  Director
           Office of Emergency and Remedi

 TO:        Director,  Waste Management Division
             Regions I,  IV, V, VII
           Director,  Emergency and Remedial Response Division
             Region II
           Director,  Hazardous Waste Management Division
             Region III,  VI,  VIII, IX
           Director,  Hazardous Waste Division
             Region X
           Director,  Environmental Services Division
             Regions  I, VI, VII,  x

 PURPOSE

     This  memorandum requests Regional Offices to re-examine
 existing Superfund State Contracts (SSCs)  for Fund-financed
 remedial actions to  verify that  they adequately reflect incurred
 and projected remedial action costs.   Specifically,  you should
 evaluate the adequacy of State cost share  assurances with respect
 to change  orders or  other likely additional costs.   Furthermore,
 you should also  re-evaluate  your tracking  systems for remedial
 action costs to  assure that  they provide timely site-specific
 expenditure  information  which allows you to amend SSCs before
 cost share provisions become inadequate.


BACKGROUND

     Regional Offices have recently sought Headquarters
assistance in at least two instances where EPA-lead remedial
action costs were exceeding  the  amounts provided in the
corresponding SSCs.   Such excess expenditures may constitute
breaches of  the  SSCs and may represent violations of existing
statutes and regulations which,  in turn, could prevent EPA from
continuing remedial  action at a  site.   Avoidance of these
                                                           Printed on Recycled Pap,

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problems is especially important in light of the Administrator's
concern that th4 Agency manage Federal resources well,  as
expressed in her recent testimony before the Subcommittee on
Oversight and Investigations of the House Committee on Energy and
Commerce (copy attached).

     Section 104(c)(3) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended
(CERCLA), prohibits EPA from "provid[ing] any [Fund-financed]
remedial actions" unless the State "first enters into a contract
or cooperative agreement" with the Agency in which the State
makes certain, specified assurances.  Section 300.510(a) of the
National Contingency Plan provides that a fund-financed remedial
action undertaken pursuant to CERCLA Section 104(a) cannot
proceed unless a State provides its applicable, required
assurances.  Section 35.6800(a) of Subpart O further clarifies
that an SSC "is required before EPA can obligate or transfer
funds for an EPA-lead remedial action."  Thus, EPA is precluded
from initiating an EPA-lead, Fund-financed remedial action until
a valid SSC is in place containing the necessary assurances.

     This memorandum concerns the assurance that a State will
share in the cost of the remedial action.  The SSC contains the
remedial action cost estimate, as well as the State's cost share
percentage/amount (among other assurances), and governs the
amount of funds the State is obligated to pay.  Once all of the
funds identified in the SSC are obligated, EPA must not obligate
more funds until the SSC has been amended.  Any expenditure by
EPA in excess of the estimated cost would be beyond the terms of
the SSC, and the State may not be contractually bound to share in
paying the additional cost.  Without having the adequate cost
share provision in the SSC, EPA may have to interrupt an ongoing
cleanup and may also be in violation of CERCLA for conducting
remedial action without having a valid SSC.

     In contrast, where EPA and the State have entered into a
State-lead, site-specific, cooperative agreement, such potential
problems do not exist.  Under a cooperative agreement, the State
pays for the remedial action and EPA reimburses the State for
only the Federal portion of eligible costs.  However, at an EPA-
lead site,  where the Agency and the State enter into an SSC, EPA
pays for the remedial action, and the State subsequently pays EPA
its share of -the cost.

     Whether due to change orders or other factors, the SSC's
estimated project costs will sometimes prove to be too low.
Regional Offices have also reported that the length of time
States require to secure all required approvals for revision to
an SSC varies greatly, with some States needing as long as six
months.  Because of the difficulty in accurately estimating
project costs and the time required to negotiate a revised SSC,
Regional Offices must anticipate the need and begin the process
for negotiating SSC revisions as soon as it becomes clear that
the State cost share amount will be exceeded.

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IMPLEMENTATION ,

     Regional Offices should take one immediate and one future
action to ensure that cost share assurances in SSCs are, and
continue to be, adequate:

     Immediate.  Review cost share assurances in SSCs for all
     ongoing remedial actions to verify that current and
     projected contract obligations  (including contingencies) are
     within the amounts specified in the SSCs.

     Future.  Evaluate tracking systems to ensure that they have:
     1) effective monitoring of actual, planned, and projected
     estimates of remedial action costs against the State cost
     share specified in each site's SSC; and 2) effective early-
     warning mechanisms to enable initiation of timely
     negotiations of any SSC revisions necessary to conduct
     uninterrupted cleanups.  (You may wish to consult with your
     policy and management office to assure the effectiveness of
     your tracking systems.)

     Your knowledge of, and experience with, your States' SSC
approval processes will dictate how far ahead SSC revision
negotiations should begin.  To allow greater flexibility than
earlier SSCs had, most SSCs now include a reasonable cost
contingency provision to accommodate change orders during the
construction process.  The use of contingency amounts must be
closely monitored, but it may help provide a buffer to allow time
for any necessary negotiations for SSC revisions to take place.

     Please refer any questions on this memorandum to Murray
Newton,  Chief of the State and Local Coordination Branch,
Hazardous Site Control Division (Mail Code 5203G), or Carolyn
Offutt,  Chief of the State Involvement Section.  Both may be
reached at 703/603-8840 (voice)  or 703/603-9100 (facsimile).


Attachment

cc:  Regional Waste Management Branch Chiefs
     Regional Removal Managers
     Assistant Regional Administrator for Management
          Regions I - X
     Regional Counsels
     Earl Salo,  OGC  (LE-132S)
     Steven Pressman, OGC  (LE-132G)
     William Cooke, FMD  (PM-226F)

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                          STATEMENT OF
                         CAROL N.  BROWNER
                          ADMINISTRATOR
              0.8. ENVIRONMENTAL PROTECTION AGENCY
              BEFORE THE HOUSE ENERGY AND COMMERCE
           SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
                          MARCH 10, 1993
     Mr. Chairman,  I appreciate your invitation to testify today
about contract mismanagement at the Environmental Protection
Agency.
     We have a very serious problem — this problem goes far
beyond just contracts management.  It goes to the very heart of
how the Agency operates.
     Not only is taxpayer money being wasted, but the American
people's faith in their government is being undermined.
     If we are to meet the demands of the public we serve, we
must go beyond mere compliance with the letter of the law.  We
must  do more than merely relieve the symptoms of government
mismanagement.  We must go to the root of the problem,
reinvigorate the ideal of public service in all EPA employees,
and through this one Agency begin to restore people's faith in
the effectiveness and accountability of their government.
     I cam* to EPA  from the state of Florida, where I managed a
large state agency.  Because of my experiences there I believe
that government, if it is to be successful over the long run, if
it is to retain public trust, must be accountable to the people
it serves.

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      I  am appalled by what  I have  learned about EPA's total lack
              I
 of  management,  accountability, and discipline.  I have reviewed
 audit reports and received  briefings  from staff that clearly
 describe poor management  practices, serious violations of  rules,
 and intolerable waste of  taxpayers' money.
      Last year  this  Subcommittee did  much to  illuminate EPA's
 failure to manage its contracts.   A number of recent audit
 reports and surveys  indicate similar  mismanagement  in the
 Agency's assistance  management programs, grants, cooperative
 agreements,  and interagency agreements.  Internal assessments
 have  noted areas of  weakness in our financial system as well.  In
 other words, accountability is in  disrepair.  Mismanagement of
 extramural resources is widespread and deeply embedded.
      While efforts have begun to redress many of these problems,
 it  is apparent  to me that much more remains to be done.  I am
 committed to carrying out the recommendations of the Standing
 Committee on Contracts Management.  But creation of the Standing
 Committee and implementation of its recommendations is only a
 first step.
      We must go beyond the  procurement and management of
 contracts.   Good government principles and basic protection of
 taxpayers' dollars demand that all extramural resources be well
 managed.   I  am  committed to fundamentally changing business-as-
usual at  the Agency  and rebuilding the ethic  of good management
Agency-wide.

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     It is qiear to me, Mr. Chairman, that if we are to solve the
problem facing this agency and change the culture that has
developed then we must pursue three courses of action.  One,
construction of a rigorous system of accountability for the
management of our resources.  Two, establishment of clear
standards for disciplinary action.  Failure to meet these
standards must result in immediate discipline.  And three,
development of an overall management scheme based on clear goals,
work plans and milestones for measuring success.
     Let me detail some of my initiatives.
I.   Accountability
     Integrated Financial Management System
     o    We must remain committed to putting in place the
          systems improvements that are needed.  The Agency has
          been criticized repeatedly because its integrated
          financial management system does not provide managers
          with key information needed to make decisions, evaluate
          program benefits, and ensure sound financial management
          practices.  We are committed _o achieving these
          enhancements.
     Senior Resource Officials
     o    I will replace Senior Procurement Officials with Senior
          Resources Officials (SROs) who are not only accountable
          for contacts management, but for management of all
          extramural resources in their Program or Region.  SROs
          will:

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Be selected jointly by the Assistant or Associate
Administrator (AA)  or the Regional Administrator
(RA) and by the Chief Financial Officer (CFO).
Trained, along with their AAs and RAs, in their
responsibilities, including:
     the rules and regulations governing the use
     and management of extramural resources;
     which aspects of their authorities can be
     delegated and to whom; and
     the disciplinary penalties for violations of
     the rules, and regulations, both for
     themselves and those to whom they delegate.
Required, along with their AAs or RAs to sign
forms that they have received SRO training, they
understand the rules, regulations, discipline,
authorities and delegations.
Report directly to the AA or RA, in an SES
position such as the Deputy Assistant or Associate
Administrator or the Assistant Regional
Administrator.  Any exceptions must be approved by
the Administrator, and approvals must be renewed
annually.
The SRO may delegate appropriate functions, but
not accountability, to one  individual reporting
directly to the SRO.  Delegations of SRO

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            ,   authorities must be approved by the AA or RA and
               the CFO.
II.  Discipline
     o    Our current disciplinary system does not send a clear
          message to EPA managers and staff about the gravity of
          resource management violations.  We will establish
          guidelines on deciding cases, determine who has
          official responsibility, and speed up the process.  The
          disciplinary system, and the penalties for these types
          of violations will be communicated clearly to every
          employee so that EPA employees will be accountable for
          resource management violations.
III. Management
     We will undertake a Base Review.
     o    The Agency has over 17,000 full-time employees and a
          budget of over $6 billion.  These are not trivial
          resources.  Given my recent experiences in developing
          the 1993 stimulus package as well as the 1994
          President's budget, we intend to perform a thorough
          review of how our money and FTEs are allocated as part
          of the FY 1995 budget process.  This review will help
          me determine if there are areas in our current base
          budget that can be redirected to help us solve some of
          the problems discussed here today.

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 Senior Management  Strategy  Council
 o    Because EPA's past actions  often  have been tactical
      rather than strategic,  I  will  establish  a high-level
      council of senior managers  to  not only integrate
      management with mission,  but also to integrate use of
      all  our  various resource management tools.  This
      council will  provide Agency-wide  leadership and an all-
      encompassing  approach  to  the resolution  of resource
      management issues and  dangers.
 Senior Management  Education
 o    Once my senior  management team is in place, I will
      establish  an  educational  program  for them to ensure
      they are aware  that good  management is integral to our
      mission, and  to familiarize them  with the rules and
      regulations of  all aspects of  financial management.  In
      establishing  this program, we will consult with the
      General Accounting Office and our Office of Inspector
     General to request their assistance.
Human Resources Initiatives
o    To attract and  retain good staff  to jobs in which a
     significant amount of time is dedicated to extramural
     resources management,  we wi11:
          Make extramural resources management a desirable
          ranking  factor for promoting staff to GM-13s and
          above.

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     -  ,  Assure that full-time project officers and other
          program extramural resources managers have
          promotion potential beyond the GS-13 level.
Employee Orientation
o    Finally, we want to strengthen EPA's employee
     orientation program by including a strong component
     emphasizing the importance, responsibility, and
     accountability of public service.  It's not enough for
     new EPA employees to understand our organization
     structure and the laws we administer.  They also have
     to understand that they fill positions of public trust,
     and that the public expects ethical behavior and
     accountability.  If we can begin inculcating these
     values into EPA employees from their first day of
     employment, then we will take a big step toward solving
     our long-time problems.
Independent Public Policy Group
o    We plan to commission an independent public policy
     group to assess the balance between our intramural and
     extramural resources.  I expect this group to examine
     how leveraged we are in the application and use of
     extramural resources; determine, in the use of these
     resources, the potential for performance of inherently
     governmental functions; and identify Agency resource
     requirements to adequately manage extramural resources.

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     I am committed to taking this Agency to the point where our
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management and use of outside support not only follow prescribed
rules but is beyond reproach.  I want it to be a model of
efficiency and accountability.  Management integrity will be a
cornerstone of my administration.  The country's taxpayers expect
— and deserve — no less than that.
     Mr. Chairman, I look forward to working with you and members
of this subcommittee as we move forward in our efforts to solve
these very serious problems.

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