Common Sense For Cleanups: Pay For Performance William H. Foskett OUST/USEPA/HQ December 5, 2000

What’s The Problem With T&M? zSlow to start, slow to pay, slow to close yEnvironmental effects (MTBE) yBusiness effects (owner, consultant) zToo much paperwork, too little cleanup zEconomic incentives are upside-down zFinancially unpredictable

What’s the Solution? PFP zPay-For-Performance (PFP) = common sense yBuy, pay for what you want yBuy, pay for contamination reductions zState staff focus on environmental results zConsultant decides, manages technology zPFP rewards, clears way for innovation zPFP economic incentives are right-side up zMakes cleanups predictable in price, time

Basic Parts Of A PFP Deal zCleanup goals (set before price) zA firm fixed price zA time limit zContamination-reduction payments zEscape clauses, walkaway protection

How PFP Works zSite assessment is a given, often done separately zCleanup goals are set upfront, in the usual ways zFirm fixed price set by bidding or negotiation zConsultant selects, designs the cleanup system zPaid at Demo, 25%, 50%, 75%, Goal, Goal+2Q zPrompt payment, days, minimal paperwork zTight measurement, rebound provisions zSet escape clauses upfront; no change orders

PFP Is Small Business Friendly zFor consultants yCapital cost is recovered early yMinimal paperwork yProgress payments are made simply and quickly yCash inflow exceeds payout during most of cleanup zFor site owner/operators yPrice, time predictablility yCommon-sense terms yFaster recovery of economic value of property

Strict Application Of Core PFP Principles Is Key To Success zBuy a clean site, not just some clean wells zSet fixed, specific contamination reduction goals up-front zSet a firm fixed price up-front zConsultant designs and runs the cleanup zState focus strictly on environmental results zPay quickly when contamination is reduced zShare the financial risk by fair escape clauses, walkaway protection

No PFP Failures, One Default zOver 300 PFP cleanups are started or completed yMost PFP sites are on or ahead of “schedule” zNo PFP failures, one default so far ySeveral intrusions of offsite plumes yOne attempt to cheat on measurement ySeveral faulty site assessments

Ways To Set PFP Prices: Negotiation zNegotiated PFP prices are higher than competitive-bid prices yBut lower than T&M prices over long term yBecause change-order inflation is avoid zChallenging to administer long-term yUncertain timing yPotentially labor intensive for contractor and state

Ways To Set PFP Prices: Competitive Bidding zOpen, competitive bidding cuts PFP cleanup prices 30% - 50% zBuying contamination reduction, not professional services zFast, fair to administer

Site Goals For PFP Cleanups zSet however the state currently sets goals zWorks with free product removal goals zDovetails with risk-based cleanup goals zCompatible with monitored natural attenuation

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

PFP In FY 2001: stop here Bill zPFP National MTBE/Small Business Pilot zScale-up number of PFP sites in “voluntary” programs zStrengthen contamination-reduction measurement zNational Governors Association zMuch more info sharing via Internet