"GOCO" COST-SHARING

[Lenny Siegel <lsiegel@igc.org>]

"GOCO" COST-SHARING

I have finally gotten around to reading the General Accounting Office
(GAO) report on Government-Owned Contractor Operated (GOCO) plants that
the Senate Armed Services Committee used as an excuse for cutting
defense cleanup funding by $30 million in its mark-up this year of the
Defense Authorization Act. (That cut is still subject to the
deliberation of a joint House-Senate conference committee.)

In summary, the GAO report:

1) points out, appropriately, situations in which the military could
recover additional funds from GOCO operating contractors.

2) makes a weak argument for a Defense Department-wide guidance on such
cost recovery.

3) provides numerous interesting details on the Defense cleanup program
and particularly on the way in which expenses are recorded.

Navy

According to GAO, since 1989 the Navy has had a policy requiring, if
preliminary assessment demonstrates the need for further action, the
initiation of talks with GOCO contractors "regarding responsibility for
and participation in the cleanup effort." However, GAO found that "the
Navy has not initiated timely requests for contractor participation in
the cleanup."

GAO describes the Navy's response to its criticism: "Navy officials said
the Navy will likely cleanup up its facilities and then decide whether
to seek a share of the costs from the operators. They provided a number
of explanations for not pursuing cost sharing more actively: (1)
operators who help pay for the cleanup may later get reimbursed for the
expenditures; (2) a divisive liability issue might drive a wedge into an
otherwise productive relationship between the Navy and its contractors;
(3) cost-sharing negotiations could slow the cleanup; and (4) cost
recovery is easier after the cleanup is done, because all costs,
contamination, and responsible parties will have been identified, and
the costs can then be allocated to the responsible parties based on
their contributions."

I prefer, however, the early development of cost-sharing formulas, such
as those that characterize private "Superfund" sites. That way companies
can enter their anticipated liabilities into their accounts as soon as
they are identified, and Navy money may be available to support other
cleanup projects. Furthermore, as suggested a few years back by the
House Governmental Operations Committee, the opportunities for
reimbursement of cleanup costs - as an ordinary cost of doing business -
should be sharply circumscribed.

Air Force

The Air Force has recovered a share of cleanup expenses at some of its
GOCO facilities, but at the two plants visited by GAO, it "intends to
pay for cleanup and then recover costs from other responsible parties."
Among the reasons that delay cost recovery: "Budget cuts have delayed
searches for other responsible parties, and the Air Force does not have
the financial management systems needed to track all environmental
cleanup costs for recovery purposes."

You don't have to be an aerospace engineer to figure out that the
Senate's proposed cuts in cleanup "administration" will make it even
harder to identify, track, and recover such funds.

Army

The Army's situation points out the shortcomings of the GAO call for a
unified Defense Department policy. Army GOCO plants are generally
different from those of the Navy and Air Force, because Army Ammunition
Plants come with dedicated assembly lines. That is, the Army, not the
contractor, has determined what the products are, and as far as I can
tell it exercises a great deal more control over the operation of the
plants.

For that reason, plus the high risk involved in handling military
explosives, the Army has shielded contractors through protective
contract clauses and, more recently, through indemnification clauses. It
has, however, sought cost recovery from companies other than operating
contractors that use or have used portions of its GOCO plants.

I think the Army probably provided too much contractual protection to
its operating contractors, but changing its contracts now wouldn't make
much difference. Given the application of better waste management
practices and the massive decline in munitions production, the cost of
remediating new pollution will always be dwarfed by the projects,
already underway, that are covered by those clauses.

Defense Logistics Agency (DLA)

DLA, which operates 25 Defense Fuel Support Points around the world,
funds most of its petroleum product cleanup in an entirely different
way, independent of the Defense Environmental Restoration Account.
Though current operators of its Fuel Support Points "are to be held
responsible for a fuel spill if they are negligent," cleanup for past
contamination is funded through a fuel surcharge of about one cent per
barrel, that it passes on to its customers. DLA sells fuel to civilian
federal agencies as well as the armed services. Like the Army, DLA is
seeking cost-sharing from companies other than operating contractors
that use its property.

Conceivably, the Fuel Support Point cleanups could be funded like other
hazardous waste projects, but DLA's approach is consistent with the
private petroleum cleanup programs operated by many states.

Perhaps more important, since DLA fuel cleanups are not funded through
cleanup accounts, they are not reported in the Defense Environmental
Restoration Program annual report. Based upon the case studies in the
GAO report, DLA's total liability for Fuel Support Cleanup is probably
on the order of $100 million to $300 million dollars (my guess).

Other Facts

In preparing this report, GAO also found:

* The Army is spending $6 million to remediate depleted uranium weapons
waste at the Lake City Army Ammunition Plant, but it says it has not
included the costs in its reports because the project is overseen by the
Nuclear Regulatory Commission.

* "between 1959 and 1962, over 1,400 drums of waste from classified
munitions and, in 1945, 500 tons of 50-caliber bullets were disposed of
in Lake Superior. Records about the classified waste are not available,
but Army officials said that the waste had been packed into 55-gallon
drums [at the Twin Cities Army Ammunition Plant], transported over land
under Army escort to Duluth, Minnesota, and dumped into the lake from
barges. The state pollution agency and Corps of Engineers had not yet
decided whether an investigation by the Army of the 50-caliber bullet
disposal was necessary at the time of our review."

* $836,000 for remedial investigation in 1994 at the Navy's Allegany
Ballistics Laboratory in West Virginia were not reported because, under
Congressional direction, funding came from the Naval Sea Systems
Command's Operations and Maintenance account.

* Near Sacramento, California, where a few years back the local
community demanded that the contractor be held accountable, Aerojet has
agreed to pay 35% of the cleanup of Air Force Plant 70. Total cleanup
there will be in the hundreds of millions of dollars.

* At Air Force Plant 44, in Tucson, Arizona, the Air Force has not yet
decided whether to seek cost recovery from Hughes Missile Systems. The
new lease agreement for the plant, however, holds Hughes liable for
future contamination. Hughes' passing on of costs, including settlement
of a lawsuit with residents who drank water contaminated by Hughes' TCE
spill, while profiting from the cleanup was the subject of extensive
news coverage and Congressional hearings several years ago.

"Environmental Cleanup at DOD: Better Cost-Sharing Guidance Needed at
Government-Owned, Contractor-Operated Sites," GAO/NSIAD-97-32, March,
1997. Free single copies of GAO reports may be ordered by calling
202/512-6000.

Lenny Siegel
Director, SFSU CAREER/PRO (and Pacific Studies Center)
c/o PSC, 222B View St., Mountain View, CA 94041
Voice: 650/961-8918 or 650/969-1545
Fax: 650/968-1126
lsiegel@igc.org