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American Recovery and
Reinvestment Act Site Visit of the
Diversion Ditch Repair Project at
the Gilt Edge Mine Superfund Site,
Lawrence County, South Dakota
Report No. 12-R-0601	July 25, 2012
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Report Contributors:	Allen Orand
Iantha Maness
Kevin Collins
Laura Bloss
Lela Wong
Abbreviations:
CFR
Code of Federal Regulations
DBA
Davis-Bacon Act
DOJ
U.S. Department of Justice
EPA
U.S. Environmental Protection Agency
FAR
Federal Acquisition Regulation
HBI
Hayward Baker, Inc.
OI
Office of Investigations
OIG
Office of Inspector General
PWT
Pacific Western Technologies
WA
Work Assignment
Cover photo: Diversion ditch repair in process at the Gilt Edge Mine Superfund Site in
Lawrence County, South Dakota. (EPA OIG photo)
Hotline
To report fraud, waste, or abuse, contact us through one of the following methods:
e-mail:	OIG Hotiirie@epa.aov	write: EPA Inspector General Hotline
phone:	1-888-546-8740	1200 Pennsylvania Avenue NW
fax:	202-566-2599	Mailcode 2431T
online:	http://www.epa.gov/oig/hotline.htm	Washington, DC 20460

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*. U.S. Environmental Protection Agency	12-R-0601
*	Office of Inspector General	Juiy25,20i2
I 77 9
At a Glance
Why We Did This Audit
The U.S. Environmental
Protection Agency (EPA)
Office of Inspector General
audits projects funded by the
American Recovery and
Reinvestment Act of 2009
(Recovery Act). We selected
the Gilt Edge Mine Superfund
Site project in Lawrence
County, South Dakota, for
audit. The purpose of this audit
was to determine compliance
with selected Recovery Act
requirements.
Background
EPA provided $2,935,228 in
Recovery Act funding for
Pacific Western Technologies
(PWT) to hire a subcontractor
to perform the drilling and
grouting portion of the
diversion ditch repair at the
site. The funding was provided
through a work assignment
under PWT's existing remedial
action contract.
American Recovery and Reinvestment Act Site Visit
of the Diversion Ditch Repair Project at the Giit Edge
Mine Superfund Site, Lawrence County, South Dakota
What We Found
PWT did not have adequate controls to ensure that its subcontractors and vendors
complied with the Buy American and Davis-Bacon Act (DBA) provisions of the
Recovery Act. Non-American-made steel grouting pipes were used in the project.
As a result, we questioned $349,635 in costs incurred under the project,
consisting of ineligible pipe costs of $88,712 and unsupported field inspection
costs of $260,923. Also, PWT did not verify whether subcontract vendor
employees who worked at the site were paid according to DBA requirements.
These Recovery Act requirements were incorporated into both the prime contract
and the subcontract, and apply to not only the contractor and subcontractor but to
second-tier subcontractors and vendors.
The lack of control was due to PWT employees not being trained on contract
terms and conditions, including Recovery Act requirements. PWT representatives
also said that the company did not have policies and procedures to require
inspection of all materials for Buy American compliance, and PWT employees
did not understand that DBA requirements applied to vendor employees.
PWT subsequently established material inspection procedures in response to the
Buy American noncompliance. PWT also started the review process to verify
subcontractor and vendor compliance with DBA requirements.
PWT accurately reported the number of jobs created and retained due to
Recovery Act funding, and PWT's procurement of the subcontractor for the
project was in accordance with the federal requirements and contract terms and
conditions.
Recommendations and Planned Corrective Actions
For further information, contact
our Office of Congressional and
Public Affairs at (202) 566-2391.
The full report is at:
www.epa.aov/oia/reports/2012/
20120725-12-R-0601 .Pdf
We recommend that EPA's Director, Office of Acquisition Management, Office
of Administration and Resources Management, advise the contracting officer to
designate the grouting pipe cost of $88,712 as ineligible costs and to reduce the
funding for the project accordingly. We also recommend that the Director
disallow and recover PWT field inspection costs.
PWT indicated it is working with the contracting officer to deobligate $88,712
from the project. The contactor proposed, and EPA accepted, $2,551 as the
amount of ineligible field supervision costs relating to Buy American compliance
monitoring. However, while this is all that can be collected based on EPA's
actions, we do not believe the contracting officer's determination identified all
ineligible field supervision costs.

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WASHINGTON, D.C. 20460
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
THE INSPECTOR GENERAL
July 25, 2012
MEMORANDUM
SUBJECT: American Recovery and Reinvestment Act Site Visit of the
Diversion Ditch Repair Project at the Gilt Edge Mine Superfund Site,
Lawrence County, South Dakota
Report No. 12-R-0601
FROM: Arthur A. Elkins, Jr.	(*'
TO:	John Bashista
Director, Office of Acquisition Management
Office of Administration and Resources Management
This is our report on the subject site visit conducted by the Office of Inspector General (OIG) of
the U.S. Environmental Protection Agency (EPA). The report contains findings that describe the
problems the OIG has identified and corrective actions the OIG recommends. This report
represents the opinion of the OIG and does not necessarily represent the final EPA position. EPA
managers in accordance with established audit resolution procedures will make the final
determination on matters in this report.
Action Required
In accordance with EPA Manual 2750, you are required to provide a written response to this
report within 120 calendar days, or by November 26, 2012. You should include a corrective
action plan for agreed-upon actions, including milestone dates. Your response will be posted on
the OIG's public website, along with our memorandum commenting on your response. Your
response should be provided as an Adobe PDF file that complies with the accessibility
requirements of Section 508 of the Rehabilitation Act of 1973, as amended. The final response
should not contain data that you do not want to be released to the public. If your response
contains such data, you should identify the data for redaction or removal. We have no objection to
the further release of this report to the public. This report will be available at http://www.epa.gov/oig.
If you or your staff have any questions regarding this report, please contact Melissa Heist,
Assistant Inspector General for Audit, at (202) 566-0899 or heist.melissa@epa.gov; or
Robert Adachi, Product Line Director, at (415) 947-4537 or adachi.robert@,epa.gov.

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American Recovery and Reinvestment Act Site Visit
of the Diversion Ditch Repair Project at the Gilt Edge Mine
Superfund Site, Lawrence County, South Dakota
12-R-0601
Table of Contents
Introduction	 1
Purpose	 1
Background	 1
Scope and Methodology	 2
Summary of Results 	 3
Buy American Compliance 	 3
Davis-Bacon Act Compliance	 7
Recovery Act Reporting Requirements	 8
Subcontract Procurement Requirements	 8
Recommendations	 9
Contractor Comments and OIG Evaluation	 9
Status of Recommendations and Potential Monetary Benefits	 11
Appendices
A Contractor Comments on the Draft Report
B Distribution	
12
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Introduction
Purpose
The purpose of our audit was to determine whether Pacific Western Technologies
(P WT) and its subcontractors complied with selected requirements under the
American Recovery and Reinvestment Act of 2009 (Recovery Act) in the
performance of the diversion ditch repair project at the Gilt Edge Mine Superfund
Site in Lawrence County, South Dakota. We also evaluated PWT's procurement
of its subcontractor to ensure compliance with federal requirements.
Background
The President signed the Recovery Act on February 17, 2009. The purpose of the
Recovery Act as it applies to the U.S. Environmental Protection Agency (EPA) is
to preserve and create jobs, promote economic recovery, and invest in
environmental protection that will provide long-term economic benefits. The
Recovery Act provided EPA with $600 million for the Superfund remedial
program. EPA uses this funding to support new and ongoing projects at various
National Priorities List Superfund sites.
The Gilt Edge Mine Superfund Site is a former gold mining site located about
5 miles east of Lead, South Dakota. It was added to the National Priorities List on
December 1, 2000, and consists of three operable units. The Recovery Act project
we audited is part of Operable Unit 3, the Ruby Gulch Waste Rock Repository.
The Gilt Edge Mine Superfund Site was contaminated with acid waste from the
former mining operations. Acid rock drainage from the site posed a major threat
to nearby waterways. EPA initially addressed the threat by capping the repository
and installing surface water drainage diversion ditches.
Subsequent testing revealed that many of the diversion ditches were leaking.
EPA, in consultation with the South Dakota Department of Environment and
Natural Resources, decided to repair the leakage by drilling and pressure grouting
the fractured areas in the diversion ditches, and covering the ditches with
geomembrane liners to reduce or eliminate surface water infiltration. Recovery
Act funding was allotted for PWT to hire a subcontractor for the drilling and
grouting portion of the project.
EPA Region 8 has an ongoing remedial action contract with PWT, Contract No.
EP-W06-006. The region modified the contract on May 4, 2009, to incorporate
the Recovery Act requirements and on May 28, 2009, to obligate the Recovery
Act funds.
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Under the contract, the region issues work assignments (WAs). Region 8 issued
WA08 to PWT on April 4, 2008, for all remedial actions at the Ruby Gulch Waste
Rock Repository. On May 28, 2009, the region reissued the subcontract portion of
the drilling and grouting work under WA014 with Recovery Act funds. On
July 10, 2009, PWT awarded a fixed-unit-price agreement/subcontract to
Hayward Baker, Inc. (HBI), for $2,935,228, to perform the drilling and pressure
grouting activities.
All remaining remedial action work at Ruby Gulch will continue to be funded
under WA08 with the regular Superfund appropriation (i.e., non-Recovery Act
funding). PWT's work at the site includes preparing work plans, procuring
subcontractors, performing field oversight, managing the project, and providing
technical engineering services.
Scope and Methodology
We conducted this performance audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and perform
our audit to obtain sufficient, appropriate evidence to provide a reasonable basis
for our findings and conclusions based on our objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and conclusions
based on our objective.
We conducted our field work between August 30, 2010, and January 19, 2012.
The field work included an initial unannounced site visit to the project and
subsequent visits to corporate offices of PWT and HBI to review documentation
and obtain an understanding of the controls PWT had in place to ensure that
activities under the project complied with the Recovery Act requirements and
federal procurement regulations. Specifically, we performed the following
procedures:
1.	Toured the project
2.	Interviewed the EPA contracting officer and project officer, and contractor
and subcontractor personnel
3.	Reviewed records maintained by the contractor and subcontractor to verify
that activities under the project complied with the following requirements:
a.	Buy American requirements under Recovery Act Section 1605
b.	Davis-Bacon Act (DBA) wage requirements under Recovery
Act Section 1606
c.	Reporting requirements under Recovery Act Section 1512
d.	Federal regulations applicable to the procurement of the
subcontractor for the Recovery Act project
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Summary of Results
Our audit disclosed that PWT did not have adequate controls to ensure that its
subcontractors and vendors for drilling and grouting comply with the Buy
American and DBA provisions of the Recovery Act. As a result, ineligible
grouting pipe costs of $88,712 were incurred under the project. In the draft report,
we also identified $260,923 of unsupported field inspection costs. Subsequently,
the contracting officer determined that $2,551 of the field inspection costs were
ineligible. Further, we did not find evidence that all laborers and mechanics who
worked at the site were paid in accordance with DBA requirements. PWT
accurately reported the number of jobs created and retained by the Recovery Act
funding, and PWT's procurement of the subcontractor for the project was in
accordance with the federal requirements and contract terms and conditions.
Buy American Compliance
PWT did not have adequate controls to ensure that its subcontractor for drilling
and grouting complied with the Buy American requirements of the Recovery Act.
Although these requirements were in the terms and conditions of the contract with
EPA and in the subcontract with HBI, we found that non-American-made steel
grouting pipes were used in the project.
Recovery Act Section 1605 states that no Recovery Act funds may be used to
construct, alter, maintain, or repair a public building or public work unless all of
the iron, steel, and manufactured goods used in the project are produced in the
United States. To use foreign-made construction materials, the contractor must
apply for, and receive, a waiver from the government. The written justification for
the waiver must be published in the Federal Register.
To implement this requirement, the following Federal Acquisition Regulation
(FAR) clauses, derived from the Code of Federal Regulations (CFR), were
included in the terms and conditions of the PWT contract and HBI subcontract:
•	Title 48 CFR 52.225-21—Required Use of American Iron, Steel, and
Other Manufactured Goods - Buy American Act - Construction Materials
•	Title 48 CFR 52.225-22—Notice of Required Use of American Iron,
Steel, and Other Manufactured Goods - Buy American Act - Construction
Materials
These clauses reiterate the requirements in Recovery Act Section 1605. Thus,
both PWT and HBI are subject to the Buy American requirements.
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During our unannounced site visit to the project on August 30,2010, we found
that grouting pipes made in Taiwan and Korea were used in the project without
EPA's approval or waiver, contrary to the Buy American requirement.
'HUSTEBl C
made in k
Grouting pipes labeled Taiwan.	Grouting pipes labeled Made in Korea.
(EPA OIG photo)	(EPA OIG photo)
The noncompliance was due to the lack of training for PWT's field employees on
contract terms and conditions, including Recovery Act requirements. The
noncompliance was also due to the lack of policies and procedures requiring
inspection of all materials for Buy American compliance. According to PWT, at
the time, inspectors only conducted spot checks of the materials delivered to the
site.
Settlement Agreement
We notified the Office of Inspector General's (OIG's) Office of Investigations
(OI) about the issue on August 31,2010. OI special agents visited the site on
September 2,2010, and confirmed the Buy American noncompliance. OI referred
the noncompliance to the U.S. Department of Justice (DOJ) and worked with DOJ
to pursue a civil claim against HBI, the subcontractor responsible for purchasing
and installing the non-American-made pipes.
On May 9,2011, HBI entered into a settlement agreement with DOJ. The
government alleged that HBI failed to purchase domestic steel pipes for the
project from the inception of the subcontract on July 10,2009, to September 30,
2010, in violation of Recovery Act requirements. HBI did not admit liability, but
agreed to pay the settlement amount of $120,216.
In the settlement agreement, the government acknowledged that HBI already
repaid $73,296 by way of funds withheld from its subcontract performance. HBI
was required to pay the remaining $46,920 according to DOJ's instruction within
10 days of the agreement.
Under the agreement, the government would release HBI from any civil or
administrative monetary claim under the False Claims Act; Program Fraud Civil
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Remedies Act; or the common law theories of breach of contract, payment by
mistake, unjust enrichment, and fraud. The agreement reserved a number of
releases of claims, including Internal Revenue Service tax liabilities and
administrative liabilities such as suspension and debarment.
Corrective Actions
Based on an OI briefing of Region 8 officials on the Buy American
noncompliance, EPA issued a stop work order on September 2, 2010. The stop
work order was lifted on September 7, 2010, due to programmatic
considerations.1 However, no grouting, pipe installation, or work in areas where
existing grouting pipes were installed was performed until PWT received written
notice to continue performance from the contracting officer on October 12, 2010.
As a condition for lifting the stop work order, the contracting officer directed
PWT to prepare a corrective action plan to address the noncompliance. On
September 8, 2010, PWT and HBI conducted inventories of stockpiled materials
on site. They identified the pipes as of foreign, unknown, or American origin. The
pipes labeled "unknown" were those that PWT could not confirm as melted and
manufactured in the United States. Stockpiled materials not labeled "American"
were either removed from the site or marked "Don't Use."
PWT submitted the draft corrective action plan to EPA for review on
September 10, 2010. A final corrective action plan was submitted to and was
accepted by the contracting officer on September 20, 2010. The corrective action
plan included the following:
•	Procedures PWT implemented to ensure that, going forward, only
American-made materials will be used for the project
•	PWT's comparison of the cost and impact of removing the materials from
the project versus retaining them
Title 48 CFR 25.607 requires the contracting officer to take appropriate action if
foreign construction material is used without authorization. These actions include
determining whether the foreign-made construction material should be removed
and replaced. If removal and replacement is impracticable, would cause undue
delay, or would otherwise be detrimental to the interests of the government, the
contracting officer may determine in writing that the foreign-made material need
not be removed and replaced.
In accordance with 48 CFR 25.607, the contracting officer issued a written
determination on October 12, 2010, to retain all pipes used in the completed work
and permit PWT to continue work with materials that comply with the Buy
American requirement. The determination explained that removal and
1 These considerations include weather factors that did not allow work at the site to proceed from November to May,
and the requirement to expend Recovery Act funds by September 30, 2011.
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replacement of the foreign-made and unknown-origin pipes would not be in the
government's best interest for the following reasons:
•	Cost for removal and replacement of the pipes would be unreasonable
when compared to the cost of the noncompliant material.
•	Leaving the completed work in place would avoid prolonged delays in the
completion of the project.
•	The activities involved with removing the existing pipe would increase the
risk of serious injury to the employees.
•	Removing the existing grouting pipe would compromise the drilling and
grouting remedy completed to date.
The determination also clarified that the contracting officer's action did not
constitute an exception to Section 1605 of the Recovery Act. However, the
determination did not include a decision regarding the costs for the pipes. The
contract officer stated that the costs are being held by PWT until final resolution
of the matter.
Costs Associated With the Buy American Noncompliance
In the invoice for the period ending August 29, 2010, PWT identified and credited
EPA for all pipes purchased and invoiced by HBI under the project, totaling
$88,712. The $88,712 represents the $73,296 recognized in the settlement
agreement and additional grouting pipe costs of $15,416 included in the August
2010 invoice.
In our opinion, the $88,712 is an ineligible cost under the project due to the Buy
American noncompliance. The contracting officer should formally notify PWT
that this cost is ineligible and reduce the funding for WA014 by $88,712.
In addition, we believe that a portion of PWT's construction field supervision
costs should be disallowed. Under WA08, Subtask 3.5.2, Construction Field
Supervision, PWT is required to assure that field work is completed in accordance
with the design and all subcontract document requirements. The Buy American
requirement is part of the subcontract documents, and PWT did not adequately
monitor the subcontractor's work to ensure compliance. According to its cost
records, PWT incurred total construction field supervision costs of $260,923 as of
the end of August 2010, when we discovered the Buy American noncompliance.
A portion of the $260,923 was for Buy American compliance monitoring;
however, PWT did not provide us the data to identify that portion prior to the
issuance of the draft report. As a result, we initially questioned all construction
field supervision costs incurred as of August 2010 as unsupported costs.
Subsequently, PWT proposed $2,551 as the estimated ineligible field supervision
costs relating to Buy American compliance monitoring. The contracting officer
accepted this amount and PWT repaid it to EPA in February 2012.
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Davis-Bacon Act Compliance
PWT did not have adequate controls to ensure that all laborers and mechanics
who work at the site were paid in accordance with DBA wage requirements. We
obtained a listing of the vendors HBI used for the project, and performed a
cursory review of the invoice descriptions for goods and services provided by
each vendor, to identify vendors that may be subject to DBA requirements. We
found that one of the vendors providing cement for the project had a truck driver,
a cement pumper operator, and a quality control person working on site for
several hours at a time between July 8, 2011, and August 30, 2011. The vendor
did not submit certified payroll reports, and PWT did not verify that the
employees were paid at least DBA wage rates for the hours worked on site.
Section 1606 of the Recovery Act requires that all laborers and mechanics employed
by contractors and subcontractors on projects funded directly by or assisted in whole
or in part by the Recovery Act be paid wages at rates not less than DBA rates. The
DBA requirement was included in the PWT contract and the HBI subcontract.
Section H.43 of the PWT contract requires PWT to include the DBA wage
requirements in all construction subcontract solicitations exceeding $2,000.
Subtask 3.4.2 under WA008 requires PWT to monitor subcontractor compliance
with DBA and related requirements.
HBI subcontract Section 3.0 incorporated the following DBA-related FAR clauses
by reference:
•	Title 48 CFR 52.222-6 establishes the same DBA requirements as
Section 1606 of the Recovery Act.
•	Title 48 CFR 52.222-8 requires the prime contractor to submit weekly
certified payroll to the contracting officer for each week in which any
contract work is performed. The FAR clause further states that the prime
contractor is responsible for the submission of certified payrolls by all
subcontractors.
•	Title 48 CFR 52.222-11 requires the prime contractor to insert the DBA
clauses in all construction subcontracts and makes the prime contractor
responsible for compliance by any subcontractor or lower-tier
subcontractors.
•	Title 48 CFR 52.222-13 incorporated all rulings and interpretations of
DBA and related requirements in 29 CFR Parts 1, 3, and 5, by reference.
Contrary to the requirements stated above, PWT did not submit weekly certified
payrolls for the subcontractor vendor, or verify that the employees were paid
according to the DBA requirements.
This issue was discussed with PWT and the contracting officer during our field
work. The contracting officer concurred with our finding. A PWT representative
explained that PWT did not include vendors in its initial DBA compliance review
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because the DBA requirements were not clear. PWT interpreted DBA
requirements as applying to subcontractors and not vendors. Title 29 CFR Part 5
was incorporated into 48 CFR 52.222-13 by reference, as stated above. According
to 29 CFR 5.2(j), work relating to furnishing of materials, such as providing
cement, is included in the DBA labor standards. We provided PWT with a DBA
guidance document issued by the U.S. Department of Labor. The guidance
document clarified that DBA requirements apply to truck drivers if the hours
worked are more than de minimis, which is defined in the document as "a few
minutes at a time merely to pick up or drop off materials." We explained that the
vendor employees (truck driver, cement pumper operator, and quality control
employee) worked at the site several hours at a time. The vendor employees were
not there to merely drop off materials; they operated the equipment to pour the
concrete. Therefore, hours worked were more than de minimis, and the DBA
requirements apply. PWT did not provide its position on the issue, but stated that
it has started the review process to verify compliance.
We identified this instance of noncompliance from a cursory review of selected
invoices. We did not review all vendor invoices for the project. PWT is
responsible for ensuring that all lower-tier subcontractors and vendors, not just the
vendor cited above, comply with the DBA requirement. Further, the DBA
provisions are regular requirements under PWT's ongoing Superfund remedial
action contract and apply to all construction projects for the duration of the
contract, regardless of funding source. The contract is currently in the second year
of its 5-year option period. PWT needs adequate controls to ensure DBA
compliance for all future work.
Recovery Act Reporting Requirements
We reviewed the Recovery Act Section 1512 reports submitted by PWT for the
quarters ending March 31, 2010, and September 30, 2010. PWT properly
calculated and reported the number of jobs created and retained.
Subcontract Procurement Requirements
The process PWT used to procure the subcontractor, HBI, for the drilling and
pressure grouting activities was consistent with the method approved by EPA in the
work plan and met the federal and contract requirements. Section 1.9 of the contract
requires PWT to follow the competition requirements in 48 CFR 52.244-5 for
subcontracting. The regulation requires contractors to select subcontractors on a
competitive basis to the maximum practical extent, consistent with the objectives
and requirements of the contract. PWT used an invitation-to-bid method to procure
the subcontractor for the project. This method was detailed in the work plan and
later in the subcontract consent. EPA's approval of the work plan and the
subcontract consent represent the contracting officer's determination that PWT's
procurement method would provide competition to the maximum practical extent
under the circumstance.
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Recommendations
We recommend that the Director, Office of Acquisition Management, Office of
Administration and Resources Management:
1.	Disallow and recover PWT field inspection costs of $2,551.
2.	Advise the contracting officer to designate the grouting pipe costs of
$88,712 as ineligible costs under the contract and reduce the project
funding accordingly.
3.	Require PWT to ensure that PWT staff are trained on contract terms and
conditions, including Recovery Act requirements.
4.	Require PWT to verify that all subcontractors and vendors comply with
DBA requirements.
Contractor Comments and OIG Evaluation
We received draft report comments from PWT on February 17, 2012. PWT
provided additional clarification and documentation on February 22, 2012, based
on our request. We held exit conferences with PWT and EPA on February 28,
2012, to discuss PWT's draft report comments and their impact on our final
report.
PWT did not agree or disagree with our findings and recommendations. Instead, it
cited the corrective actions taken to address our recommendations. PWT's
comments and corrective actions taken are summarized below, along with OIG's
evaluation of these comments and corrective actions:
1) In the draft report, we recommended disallowing and recovering PWT field
inspection costs of $260,923. In response to the recommendation, PWT
proposed $2,551 as the ineligible construction field supervision costs for the
Buy American noncompliance. The contracting officer accepted this amount on
January 9, 2012, and PWT repaid the amount to EPA in February 2012. As a
result, PWT has addressed the recommendation in the draft report. We have
modified the recommendation to reflect the amount of the contracting officer's
determination and we consider the recommendation closed.
Although the actions taken by the contracting officer and PWT have addressed
this recommendation, we do not believe that the contracting officer's decision
identified all ineligible field supervision costs. The $2,551 only accounts for the
estimated time required for the initial shipment inspections. It does not include
the time the site superintendents spent onsite daily to oversee the project. The
adequacy of the resident inspection services for every day the noncompliant
materials were on the job site is questionable. The site superintendents should
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have identified the noncompliances even if they were missed during the
shipment inspections. We believe that, at a minimum, a portion of those
employees' time for every day the noncompliant materials were on the job site
should also be disallowed.
During the exit conference, PWT explained that the $2,551 proposed as
ineligible construction field supervision costs represents its best estimate of the
costs that would have been incurred had PWT followed the material inspection
procedures it implemented in response to the noncompliance (i.e., reasonable
value for the inspection that PWT should have performed). PWT explained that
the estimate included the time that would have been required by the site
superintendent/construction foreman, mid-level engineer, senior engineer, and
program manager to conduct the shipment inspections and manage the
documentation. PWT's view is that once the material shipments are inspected
according to procedure to ensure compliance with the Buy American
requirement, there would be no need to further inspect them as part of daily
oversight.
Contrary to PWT, we believe multiple controls should be implemented to
ensure compliance. These controls should include shipment inspections as
well as daily project oversight. In addition, PWT's assertion assumes that
adequate controls were in place and the cost of adequate controls were of a
prospective nature. However, as explained above, adequate controls were not
in place and there is no way to determine whether the shipment inspections
would have been able to identify and eliminate the noncompliance.
2)	In response to recommendation 2, PWT stated that it received formal
notification from the contracting officer to withhold the $88,712 and reduce
project funding by this amount. PWT is currently working with the
contracting officer to deobligate the $88,712 from the project. We agree with
PWT's pending actions. However, this recommendation is not resolved until
the $88,712 is deobligated from the project.
3)	In response to recommendation 3, PWT stated that it has documented the
training requirements in its policies and procedures and has held training
sessions regarding contract terms and conditions. PWT's corrective actions
addressed our recommendation.
4)	In response to recommendation 4, PWT stated that it has verified the certified
payrolls and supporting documentation submitted by the construction
contractor and all the lower-tier subcontractors and vendors, including the
cement pumper operator, to ensure compliance with DBA requirements.
PWT's corrective actions addressed our recommendation.
PWT's complete response to the draft report is included as appendix A of this
report.
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Status of Recommendations and
Potential Monetary Benefits
POTENTIAL MONETARY
RECOMMENDATIONS	BENEFITS (in $000s)
Rec.
No.
Page
No.
Subject
Status1
Action Official
Planned
Completion
Date
Claimed Agreed To
Amount Amount
1
9
Disallow and recover PWT field inspection costs of
$2,551
C
Director, Office of Acquisition
Management, Office of
Administration and
Resources Management
02/16/12
$2.6
2
9
Advise the contracting officer to designate the
grouting pipe costs of $88,712 as ineligible costs
under the contract and reduce the project funding
accordingly.
U
Director, Office of Acquisition
Management, Office of
Administration and
Resources Management

$88.7
3
9
Require PWT to ensure that PWT staff are trained
on contract terms and conditions, including
Recovery Act requirements.
c
Director, Office of Acquisition
Management, Office of
Administration and
Resources Management
02/17/12

4
9
Require PWT to verify that all subcontractors and
vendors comply with DBA requirements.
c
Director, Office of Acquisition
Management, Office of
Administration and
Resources Management
02/17/12

1 0 = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is unresolved with resolution efforts in progress
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Appendix A
Contractor's Comments on the Draft Report
February 17, 2012
Ms. Lela Wong
EPA OIG - Office of Audit
75 Hawthorne Street, 7th Floor, Mail Code IGA-1
San Francisco, CA 94105
Subject: American Recovery and Reinvestment Act Site Visit of Diversion Ditch Repair
Project at the Gilt Edge Mine Superfund Site, Lawrence County, South Dakota
Dear Ms. Wong:
Pacific Western Technologies, Ltd. (PWT) has reviewed the Draft Report of the Office of
Inspector General (OIG), US Environmental Protection Agency, titled "American Recovery
and Reinvestment Act Site Visit of Diversion Ditch Repair Project at the Gilt Edge Mine
Superfund Site, Lawrence County, South Dakota", dated January 19, 2012. PWT appreciates
the opportunity to comment and respond to the draft report. PWT believes that the report and
the findings should be revised as described below and offers the following additional
information to be considered by the USEPA Office of Inspector General before the site visit
report is published as a final report for general circulation.
I. Summary of Results (Page 3)
A. The first sentence of this section states, . .PWT did not have adequate controls to ensure
that its subcontractors and vendors for drilling and grouting comply with Buy American
and DBA provisions of Recovery Act."
RESPONSE: As the OIG acknowledges, PWT caused the subcontracts entered into for
the Gilt Edge project to include all appropriate language and flow-down requirements for
the Buy American and Davis-Bacon Wage Act (DBA) provisions of the American
Recovery and Reinvestment Act (Recovery Act) of 2009.
o Buy American Provisions: PWT utilizes usual and customary internal and external
operational controls in the field to cause compliance with the Buy American
provisions of the Recovery Act. PWT recognizes that in this case controls could be
improved; however, PWT was in good faith at all times. Continuous improvement is
a normal characteristic of any company's operations and PWT did take immediate
steps to improve its internal controls.
PWT's subcontracts are unequivocal and unambiguous, making clear the
responsibility of the construction contractor to ascertain and cause compliance with
the Recovery Act's Buy American provisions. This contract was open for inspection,
copying and/or critiquing before and during the project. Upon discovery of foreign-
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made steel borehole casing in August 2010, PWT immediately implemented a
corrective action plan to address the discovery and prevent any future occurrences.
PWT required the construction subcontractor to segregate, sequester, and remove all
steel borehole casing discovered on site that could not be definitively documented to
be of domestic origin (melted and manufactured documentation), and suspended all
payments (totaling $88,712) to the construction subcontractor for such casing. PWT's
prompt remedial conduct met the expectations of the Recovery Act and the contract.
Further, PWT had no information that the subcontractor was one who had been
noncompliant in the past.
PWT trained all PWT field personnel on rigorous inspection, documentation, and
reporting procedures, and immediately implemented said procedures to prevent any
such occurrence in the future. The event was one-of-a-kind on the project and in
PWT's history. There were no other incidents related to the Buy American provisions
of the Recovery Act for the duration of the project.
o Davis-Bacon Wage Act Provisions: PWT's subcontracts with the construction
subcontractors included specific language requiring compliance with all provisions of
the DBA, and all relevant FAR clauses implementing the Recovery Act provisions
applicable to the DBA. Included in the subcontracts with the construction
subcontractors were specific requirements for prior notification and approval of all
lower-tier subcontractors, as well as requirements for inclusion of all flowdown
provisions into all lower-tier subcontracts.
To ensure compliance with the DBA, PWT conducted field audits of subcontractor
personnel employed on the project, and has audited and verified the certified payrolls
submitted by the construction contractor and all the lower-tier subcontractors and
vendors, including the cement pumper operator.
B. The second sentence of the summary states, "As a result, ineligible grouting pipe costs of
$88,712 and unsupported field inspection costs of $260,923 were incurred under the
project."
RESPONSE: As mentioned, PWT immediately suspended all payments of the $88,712
to the construction subcontractor. PWT received formal notification from the Contracting
Officer on January 10, 2012, that the $88,712 should be withheld and to reduce funding
for the project accordingly. PWT is working with the Contracting Officer to deobligate
$88,712 in budget and funding from the project.
In addition, PWT submitted to EPA on December 2, 2011, and the EPA Contracting
Officer accepted and approved for recovery from PWT on January 9, 2012—prior to
issuance of the Draft Report—total costs for field inspections related to the ineligible
grouting pipe of $2,550.64 (two-thousand-five-hundred-fifty-and-sixty-four-one-
hundredths dollars). The Contracting Officer's correspondence of January 9, 2012 with
PWT states:
"EPA is in agreement with PWT's estimate regarding Cost Recovery at the
Gilt Edge Mine Site for the oversight of the foreign made pipe. PWT is to
reduce their costs associated with this work assignment by $2,550.64, which
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represents PWT's best estimate of the oversight costs for ARRA Buy-
American compliance certification."
Please note that PWT has completed the cost recovery process and provided the
$2,550.64 in recovered costs to EPA.
PWT is a contractor committed to high quality federal work; it has adhered to the
contracting provisions. PWT contends that the statement, "As a result, ineligible grouting
pipe costs of $88,712 and unsupported field inspection costs of $260,923 were incurred
under the project," should be revised based on the foregoing facts and in conjunction with
the OIG's statement on Page 6 that states, "If PWT identifies the actual costs related to
Buy American compliance monitoring, we will adjust the questioned amount
accordingly." PWT respectfully requests that this sentence and similar sentences
elsewhere in the draft report (such as in the section titled "At a Glance") be revised to
read:
"As a result of the issues noted above, we questioned costs of ineligible pipe
costs of $88,712, payments for which had been immediately suspended by
PWT, and which are in the process of being deobligated from the project. In
addition, we also questioned PWT field inspection costs of $2,550.64
associated with Buy American compliance monitoring."
II. RECOMMENDATIONS
1.	PWT field inspection costs.
RESPONSE: As related above, PWT submitted to EPA on December 2, 2011, and the
EPA Contracting Officer accepted and approved for recovery from PWT on January 9,
2012—prior to issuance of the Draft Report—total costs for field inspections related to
the ineligible grouting pipe of $2,550.64. The Contracting Officer's correspondence of
January 9, 2012 with PWT (see attached) states:
"EPA is in agreement with PWT's estimate regarding Cost Recovery at the
Gilt Edge Mine Site for the oversight of the foreign made pipe. PWT is to
reduce their costs associated with this work assignment by $2,550.64, which
represents PWT's best estimate of the oversight costs for ARRA Buy-
American compliance certification."
While PWT believes that quantum meruit principles should attach to all monetary
adjustments, as of February 16, 2012, PWT has paid to EPA the cost recovery
amount of $2,550.64. PWT respectfully requests that the Recommendations state,
"1. Recover PWT field inspection costs of $2,550.64."
2.	Advise the contracting officer to designate the grouting pipe costs of $88,712 as
ineligible costs under the contract and to reduce the project funding accordingly.
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RESPONSE: PWT had immediately suspended the $88,712 as of August 2010. PWT
received formal notification from the Contracting Officer on January 10, 2012 that the
$88,712 on which PWT had suspended payment should be withheld, and to reduce
funding for the project accordingly. PWT has been working with our Contracting Officer
to deobligate $88,712 in budget and funding from the project.
3.	Require PWT to ensure that PWT staff is trained on contract terms and conditions,
including Recovery Act requirements.
RESPONSE: While PWT employees are informed of contract terms and conditions at
the time work assignments are received and at initiation of projects, PWT has
strengthened its training procedure for contract terms and conditions. PWT training
requirements have been identified and documented in its policies and procedures. PWT
has also held training sessions regarding contract terms and conditions, including
Recovery Act requirements.
4.	Require PWT to verify that all subcontractors and vendors comply with DBA
requirements.
RESPONSE: PWT conducted field audits of the subcontractor personnel employed on
the project and has audited and verified the certified payrolls submitted by the
construction contractor and all the lower-tier subcontractors, including vendors.
PWT has strengthened its training program to ensure that all its project managers are
aware of the need to determine that all potential service providers that may be engaged by
a subcontractor for any federally-funded projects are approved by PWT in advance, that
all such service providers are notified of their responsibility to comply with the
provisions of the DBA, and that the certified payrolls of all such service providers are
provided to PWT covering all personnel engaged at or on the site of the work in excess of
the de minimis standards established by Department of Labor guidance for deliveries and
other services that are wholly incidental to the fundamental nature of the project.
III. OTHER
Statements regarding unsupported field inspection costs. PWT respectfully requests
that the statements regarding unsupported field inspection costs be revised to reflect the
agreed to cost recovery of $2,550.64 that was accepted by the Contracting Officer on
January 9, 2012, prior to issuance of the Draft Report. The locations where this is
discussed include:
a.	At a Glance, What We Found, 3rd Paragraph.
b.	At a Glance, What We Recommend.
st
c.	Summary of Results, 1 paragraph, page 3.
d.	Buy American Compliance, 1st paragraph, page 3.
rd
e.	Costs Associated with the Buy American Noncompliance, 3 paragraph, 2
times, page 6.
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f.	Recommendations, 1., Page 9.
g.	Status of Recommendations and Potential Monetary Benefits, Rec. No. 1,
page 10.
If you have any questions regarding this response, please call me at (303) 274-5400 xl8.
Respectfully submitted,
Dr. Tai-Dan Hsu, Ph.D.
President and Chief Executive Officer
Pacific Western Technologies, Ltd.
Enclosures
cc: File
James Abrams, Ph.D., J.D.
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Appendix B
Distribution
Office of the Administrator
Assistant Administrator, Office of Administration and Resources Management
Regional Administrator, Region 8
Agency Follow-Up Official (the CFO)
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for External Affairs and Environmental Education
Director, Office of Acquisition Management, Office of Administration and Resources
Management
Director, Grants and Interagency Agreements Management Division,
Office of Administration and Resources Management
Audit Follow-Up Coordinator, Office of Administration and Resources Management
Audit Follow-Up Coordinator, Office of Acquisition Management, Office of Administration and
Resources Management
Director, Superfund/RCRA Regional Procurement Operations Division, Office of Acquisition
Management, Office of Administration and Resources Management
President, Pacific Western Technologies, Ltd.
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