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Common Sense For Cleanups: Pay For Performance William H. Foskett OUST/USEPA/HQ [email protected] 703 603-7153 December 5, 2000 What’s The Problem With T&M? Slow to start, slow to pay, slow to close Environmental effects (MTBE) Business effects (owner, consultant)

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common sense for cleanups pay for performance

Common Sense For Cleanups: Pay For Performance

William H. Foskett


[email protected]

703 603-7153

December 5, 2000

what s the problem with t m
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
what s the solution pfp
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
basic parts of a pfp deal
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

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
pfp is small business friendly
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
strict application of core pfp principles is key to success
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
no pfp failures one default
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
ways to set pfp prices negotiation
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
ways to set pfp prices competitive bidding
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
site goals for pfp cleanups
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
time limits for pfp cleanups
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
pfp in fy 2001 stop here bill
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