Common Sense For Cleanups: Pay For Performance

1. Common Sense For Cleanups: Pay For Performance William H. Foskett OUST/USEPA/HQ foskett.william@epa.gov 703 603-7153 December 5, 2000

2. What’s The Problem With T&M? • Slow to start, slow to pay, slow to close • Environmental effects (MTBE) • Business effects (owner, consultant) • Too much paperwork, too little cleanup • Economic incentives are upside-down • Financially unpredictable

3. What’s the Solution? PFP • Pay-For-Performance (PFP) = common sense • Buy, pay for what you want • Buy, pay for contamination reductions • State staff focus on environmental results • Consultant decides, manages technology • PFP rewards, clears way for innovation • PFP economic incentives are right-side up • Makes cleanups predictable in price, time

4. Basic Parts Of A PFP Deal • Cleanup goals (set before price) • A firm fixed price • A time limit • Contamination-reduction payments • Escape clauses, walkaway protection

5. How PFP Works • Site assessment is a given, often done separately • Cleanup goals are set upfront, in the usual ways • Firm fixed price set by bidding or negotiation • Consultant selects, designs the cleanup system • Paid at Demo, 25%, 50%, 75%, Goal, Goal+2Q • Prompt payment, 3 - 30 days, minimal paperwork • Tight measurement, rebound provisions • Set escape clauses upfront; no change orders

6. PFP Is Small Business Friendly • For consultants • Capital cost is recovered early • Minimal paperwork • Progress payments are made simply and quickly • Cash inflow exceeds payout during most of cleanup • For site owner/operators • Price, time predictablility • Common-sense terms • Faster recovery of economic value of property

7. Strict Application Of Core PFP Principles Is Key To Success • Buy a clean site, not just some clean wells • Set fixed, specific contamination reduction goals up-front • Set a firm fixed price up-front • Consultant designs and runs the cleanup • State focus strictly on environmental results • Pay quickly when contamination is reduced • Share the financial risk by fair escape clauses, walkaway protection

8. No PFP Failures, One Default • Over 300 PFP cleanups are started or completed • Most PFP sites are on or ahead of “schedule” • No PFP failures, one default so far • Several intrusions of offsite plumes • One attempt to cheat on measurement • Several faulty site assessments

9. Ways To Set PFP Prices:Negotiation • Negotiated PFP prices are higher than competitive-bid prices • But lower than T&M prices over long term • Because change-order inflation is avoid • Challenging to administer long-term • Uncertain timing • Potentially labor intensive for contractor and state

10. Ways To Set PFP Prices:Competitive Bidding • Open, competitive bidding cuts PFP cleanup prices 30% - 50% • Buying contamination reduction, not professional services • Fast, fair to administer

11. Site Goals For PFP Cleanups • Set however the state currently sets goals • Works with free product removal goals • Dovetails with risk-based cleanup goals • Compatible with monitored natural attenuation

12. Time Limits For PFP Cleanups • Typically two to three years • May be longer (e.g., MTBE) • May be set to reach an interim goal • May be adapted to monitor-only sites

13. PFP In FY 2001: stop here Bill • PFP National MTBE/Small Business Pilot • Scale-up number of PFP sites in “voluntary” programs • Strengthen contamination-reduction measurement • National Governors Association • Much more info sharing via Internet