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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 l.jpg

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 l.jpg
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 l.jpg
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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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