Amicus Curiae Brief — Advance Chemical Co. v. United States

|) fimrens Com, Wu F

'

No. 92-1995

IN THE

Suprene Court of the United States

OCTOBER TERM, 1993

ADVANCE CHEMICAL COMPANY et al.,

Petitionerss,

UNITED STATES OF AMERICA,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Tenth Circuit

BRIEF OF GENERAL ELECTRIC COMPANY

AS AMICUS CURIAE IN SUVPORT OF PETITIONERS

STEPHEN D. RAMSEY CARTER G. PHILLIPS

ROBERT W. FRANTZ SAMUEL I. GUTTER

JANE W. GARDNER SAMUEL B. BOXERMAN

GENERAL ELECTRIC COMPANY SIDLEY & AUSTIN

3135 Easton Turnpike 722 Eve Street, N.W.

Fairfield, CT 06431 Washington, D.C. 20006

(203) 373-3067 (202) 736-8000

September 21, 1993 * Counsel of Record

QUESTION PRESENTED

Whether Section 107(a) of the Comprehensive En-

vironmental Response, Compensation and Liability Act,

42 U.S.C. $ 9607(a). prevents liable partics from raising

any substantive challenges to specific costs incurred by

the United States, including challenges to wasteful or

fraudulently incurred costs?

TABLE OF CONTENTS

QUESTION PRESENTED ..

TABLE OF AUTHORITIES

INTEREST OF AMICUS CURIAE ...

9 2s * |). 9 ie

A. Statutory Framework .........

B. Superfund Cleanup Program .......

REASONS FOR GRANTING THE PETITION .

CONCLUSION .

(iil)

Page

iv

TABLE OF AUTHORITIES

CASES Page

B.F. Goodrich Co. Vv. Murtha, 958 F.2d 1192 (2d

& AD | REE an eA SE APES Oe ne OO aid Se eID 4

Barlow Vv. Collins, 397 U.S. 159 (1970) 002. 10

Bowen V. Michigan Academy of Family Physicians,

ee he ee ante acionswna cls 8

Citizens to Preserve Overton Park v. Volpe, 401

Rhee Ee ED ee ee ee 11

Colorado v. Idarado Mining, 916 F.2d 1486 (10th

Cir. 1990), cert. denied, 111 S.Ct. 1584 (1991) ___ &

Donlop Vv. Bachowski, 421 U.S. 560 (1975)... 8,11

Fidelity Fed. Sav. & Loan Ass’n V. De la Cuesta,

ee Wa ee eo csasss ee ee, 9

Skinner Vv. Mid-America Pipeline Co., 490 U. S. 212

FE cicccaxccsooiecmeesaenetis anes leniateraanenaie ceeceita resale ae 9

Traynor V. Turnage, 485 U. S. 535 (1988) ............... s

United States v. Aceto Agric. Chem. Corp., 872

A 8, Bi ES Oe, ene neem eeriaee 4

United States v. Rohm & Haas Co., No. 92-1517,

1993 WL 303148 (3d Cir. Aug. 12, 1993) .......... 9

STATUTES

Federal Acquisition Regulations, 48 C.F.R. $1 et

NR Rael ie ie ree R NEE SR eC TE TE PoE PY SP a Te 4

Bo Soo ccececcneaansrhiatacasdnacetetssnhncgiccisakeniee ecadamieens 17

National Contingency Plan, 40 C. F.R. § 300 et seq.. 4

kf See ee bcs hibucelae icdes nates

Oe Re. ee ee ON wcndescini cect cede: 11

Oe Res Oe i ee ee is 11

SS Uke 6 stan eee 3

i, a creer hte AN Eine tenon 3

2 BRE EAA 7 LS RR OM ARMA 4

f(y) eee Cee dtagcaenceae 10

1 Ri iloagthee panies atinhge 1k Macnee DCL ee Or 4

IND oo os da cnicess sulucaceutancauswauensseuenes 3, 8,9

NI OED on. schon as scicsenosenialees Pres NRE es o hd, 3

RIND oa ceicacic onvamancesnnseucerens Girartiecenaee 9

[| | RENAE Pee atm te R ea ee 4,8, 11

SONNE gacccakacnnh oun vercueaoens PeaR Ser ee I RRS MRE det 3

Vv

TABLE OF AUTHORITIES—Continued

REPORTS Page

GAO, The Environmental Protection Agency

Should Better Manage Its Use of Contractors

(GAO/RCED-85-12) (Jan. 4, 1985) -....2..00..0.. 16

GAO, EPA’s Contract Management: Audit Back-

logs and Audit Follow-up Problems Undermine

EPA’s Contract Management (GAO/T-RCED-

ee I cco iies 5, 16

GAO, Superfund: Actions Needed to Correct

Long-Standing Contract Management Problems

(GAO/T-RCED-92-78) (July 8, 1992) 12, 16, 17, 18

GAO, Superfund: EPA Action Could Have Mini-

mized Program Management Costs (GAO/

RCED-93-136) (June 7, 1993) 000000000... 5, 138, 14, 15

GAO, Superfund: EPA Has Not Corrected Long-

Standing Contract Management Problems

(GAO/RCED-92-45) (Oct. 24, 1991) 0.00... 15

GAO, Superfund Contracts: EPA Needs to Con-

trol Contractor Costs (GAO/RCED-88-182)

eB | AE enn nne 16, 17, 18, 19

Majority Staff Committee on the Budget, U.S.

Senate, Management of Superfund (Aug. 1990)... 12, 13

Office of the Inspector General, EPA, Annual

Superfund Report to the Congress for Fiscal

es OT ee ee 19

Office of the Inspector General, EPA, Report of

Audit: Final Report of Audit on Superfund

Alternative Remedial Contract Strategy (ARCS)

Contracts in Regions 1, 3, and 5 (Feb. 3, 1992).. 15, 16

Office of the Inspector General, EPA, Report of

Audit on EPA’s Utilization Zone I Field Inves-

tigation Team (Sept. 30, 1988) _.........0200202-eeeeee. 18, 19

Office of the Inspector General, EPA, Report of

Audit on the Management of Technical Assist-

ance Team Services (Sept. 28, 1988) _................. 18, 19

Office of the Inspector General, EPA, Report of

Audit on Superfund Cost-Plus-Award-Fee Con-

Srmcte (aren SS, TOGO) ono. cccccsccecccccecocee-ccse.----- 19

Office of Technology Assessment, Assessing Con-

tractor Use in Superfund (Jan. 1989) .....00000...... 7

SE

vi

TABLE OF AUTHORITIES—Continued

HEARINGS

EPA: Contract Mismanagement: Hearing Be-

fore the Subcomm. on Oversight and Investiga-

tions of the House Comm..on Energy and Com-

merce, 102d Cong., 2d Sess. (1992) -............ ms

EPA Contracting: Hearing Before the Subcomm.

on Oversight and Investigations of the House

Comm. on Energy and Commerce, 103d Cong.,

lst Sess. (IQGR? cee U2 CN Se soe

Hearing Before the Subcomm. on Superfund, Re-

cycling, and Solid Waste Management of the

Senate Comm. on Environment and Public

Works, 103d Cong., Ist Sess. (1993) ....................

OTHER AUTHORITIES

132 Cong. Rec. $14913 (daily ed. Oct. 3, 1986) ....

“ARCS Contractors Under Congressional Micro-

scope: House Government & Operations Panel

Probes Contracting Expenses,” VI Inside EPA’s

Superfund Report, April 22, 1992 ...................

“Dingell Finds More Fault with CH2M Hill Con-

tracting Work,” Pesticide & Toxic Chem. News,

Aug. 19, 10018 sce

Michael Weisskopf, ‘“‘Administrative Costs Drain

Superfund: Few Toxic Waste Sites Actually

Cleaned Up,” Wash. Post, June 19, 1991 .............

Page

13, 17

14

on

10

13

13

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

No. 92-1995

ADVANCE CHEMICAL COMPANY et al.,

A Petitioners,

UNITED STATES OF AMERICA,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Tenth Circuit

BRIEF OF GENERAL ELECTRIC COMPANY

AS AMICUS CURIAE IN SUPPORT OF PETITIONERS

INTEREST OF AMICUS CURIAE

Amicus General Electric Company (“GE”) is a diver-

sified technology, manufacturing, and services company.

It presently has twelve business units with plants and

offices across the country.

GE’s interest in this case ' stems from its involvement

in site cleanups under the Comprehensive Environmenta

Response, Compensation and Liability Act (“CERCLA”),

1 In 1988, GE joined a group of other parties who contributed de

minimis amounts of waste to the Hardage site and entered into

a settlement with the government in which GE and the other

settlors paid a portion of the government’s past costs. Although

GE resolved its liability to the government at this site, the position

taken by the United States in its litigation against the petitioners

the issue before this Court—remains of vital interest to GE at other

CERCLA sites.

sie eee

2

commonly referred to as the Superfund statute. The

United States, by and through the Environmental Protec-

tion Agency (“EPA”), has spent and will spend _ billions

of dollars in public funds trom the Superfund (“Fund”)

created under CERCLA, monies that EPA will seek to

recoup from private parties, such as GE. Amicus in no

way questions the United States’ right to recoup reason-

able cleanup costs. Nor does it question the need to

respond appropriately to genuine risks to the public posed

by abandoned hazardous waste sites. To the contrary,

like most major manufacturers, GE has committed sub-

stantial resources under CERCLA to remedy the present

effects of past disposal practices. despite the fact that

such practices were entirely lawful at the time of disposal.

Currently, GE is involved in the CERCLA process at

more than 100 sites. At many of these sites, GE has

initiated its own investigation and cleanup measures, has

performed government selected cleanups, and or has re-

imbursed millions of dollars in government costs.

However, as it expects to be asked to fund a significant

share of the government’s costs at many sites, GE has

a direct interest in whether the United States may re-

coup costs that are unquestionably unreasonable. Under

the government’s theory adopted by the Tenth Circuit,

unreasonable and even fraudulently incurred costs are

wholly immune from judicial review. Amicus is filing

this brief to inform the Court of the compelling need

for such review by highlighting the well-documented waste,

fraud and abuse of CERCLA funds by EPA.’ Absent

judicial review, private parties would have no realistic

forum in which to challenge government waste of the

increasingly limited public funds available for cleanups.

Conversely, the specter of careful review would create an

incentive for the government to manage cleanups in an

efficient and cost-effective manner.

2 Pursuant to Rule 37.2 of the Rules of this Court, the parties

have consented to the filing of this brief. Copies of those letters

have been filed with the Clerk of the Court.

3

STATEMENT

A. Statutory Framework

In enacting CERCLA in 1980, Congress authorized

EPA* to clean up abandoned hazardous waste sites.

Primarily enacted in response to a public outcry fueled

by such notorious sites as Love Canai and Times Beach,

CERCLA gave EPA a sweeping mandate to investigate

and take response actions to mitigate threats to public

health and the environment. 42 U.S.C. § 9604. To pay

for this mandate, CERCLA initially provided EPA with

a $1.6 billion trust fund, financed primarily by a special

tax on private industry. As the Superfund statute and

program developed over time, however, the focus shifted

from emergency “removal actions” that addressed acute

risks, to extremely costly and complex long term “re-

medial actions” designed to address even low-level risks

to the public.* See 42 U.S.C. § 9621. The Superfund

Amendments and Reauthorization Act of 1986 (“SARA”),

extended CERCLA for five years and provided EPA with

an additional $8.5 billion in funds. In 1990, another

$5.1 billion was authorized.

In addition to authorizing action by the government,

CERCLA provides that certain classes of parties (re-

ferred to as “potentially responsible parties” or “PRPs’’)

should perform cleanups themselves and or reimburse the

Fund for costs of government response actions. /d.

at § 9607(a). The United States may seck to recoup

government costs by bringing a civil action under § 107

(a) of CERCLA against PRPs who have a statutorily

defined nexus to the site. 7d. at § 9607(c). Alternatively,

under §$ 106 of CERCLA, either EPA or a court may

order PRPs instead of EPA to undertake response ac-

3’ CERCLA delegates authority to the President, who in turn has

delegated his authority to EPA. Executive Order 12580, 56 Fed.

Reg. 54757 (1987), cited in notes to 42 U.S.C. § 9615.

4 See 42 U.S.C. § 9601(23)-(24) (definitions of “removal” and

“remedial” actions).

4

tions. Jd. at $9606. Courts generally have imposed

strict, joint and several liability on PRPs (unless the

PRPs prove the harm is divisible), subject only to narrow

statutory defenses.”

To expedite the cleanup process, CERCLA prohibits

pre-enforcement judicial review of EPA’s selected re-

sponse action. /d. at §$ 9613(h). That is, a PRP may

not challenge a particular EPA response action—be it

an emergency removal or a $50 million remedial action-——

until the United States brings an enforcement action or

attempts to recover government costs.

B. Superfund Cleanup Program

The procedural blueprint for EPA’s Superfund program

is the National Contingency Plan (“NCP”), 40 C.F.R.

$300 et seqg., promulgated under § 105 of CERCLA.

See 42 U.S.C. § 9605. The NCP establishes procedures

for identifying, investigating and selecting a response

action for a site. The NCP does not, however, specify

how to implement a remedial action: /.e., how to design

the site cap or how to build a ground water treatment

system if that is appropriate.”

After completing a site investigation, EPA first issues

a proposed remedial action, upon which the public may

5 Strict liability has been imposed on the theory that Congress

sought to make persons pay for the present effects of their past

disposal practices, even if the disposal practices were legal at the

time of disposal. See B.F. Goodrich Co. Vv. Murtha, 958 F.2d 1192,

1198 (2d Cir. 1992) (holding CERCLA may impose strict liability

on towns that sent municipal waste to regional landfill); see also

United States v. Aceto Agric. Chem. Corp., 872 F.2d 1373, 1280 n.8

(8th Cir. 1989). Whatever the merit of that judgment, it certainly

does not extend to requiring those without fault to reimburse mani-

festly improper expenses incurred by the government that bear

some nexus to the site cleanup.

*The 1989 NCP required that EPA conduct response actions

“under existing programs and authorities...” 40 C.F.R. § 300.69(d)

(1989). This would include federal procurement requirements out-

lined in the Federal Acquisition Regulations (“FARs’’), 48 C.F R.

§ 1 et seq.

5

comment, and then a final Record of Decision (“ROD”)

documenting EPA’s final decision. The ROD states gen-

erally the goals and method of the EPA selected cleanup.

However, it leaves open the details of how to design and

implement the cleanup. As a result, many of the decisions

that ultimately determine the actual cost of a cleanup

are not made until long after a remedy is selected.

Since enactment of CERCLA, EPA has developed a

large bureaucracy to run the Superfund program. The

bureaucracy, in turn, has relied heavily on private con-

tractors to perform EPA’s mandate under CERCLA.

Everything from investigations to removal and remedial

actions have been performed or overseen by EPA con-

tractors. Some 90% of EPA’s contracts are multiyear,

“cost-plus-award-fee” contracts, rather than fixed price

contracts.’ Under a_ cost-plus-award-fee contract, EPA

must reimburse a contractor for allowable costs incurred.

Based on EPA’s evaluation of the contractor’s perform-

ance, EPA may also pay the contractor a base percentage

of such costs, plus an award fee. The base and award

fees are designed to be used as incentives to encourage

superior contractor performance. In 1982 and again in

1985, EPA awarded cost-plus-award-fee contracts val-

ued at almost $1 billion to four engineering firms to

perform work at NPL sites. In 1988 and 1989, under

its Alternative Remedial Contracting Strategy, EPA

awarded 45 additional cost-plus-award-fee contracts to

23 prime contractors worth a potential $6.6 billion over

ten years.~ Presently, EPA has approximately 600 active

contracts worth approximately $3 billion.’

7 GAO, EPA’s Contract Management: Audit Backlogs and Audit

Follow-up Problems Undermine EPA’s Contract Management 3

(GAO/T-RCED-91-5) (Dec. 11, 1990).

5 GAO, Superfund: EPA Action Could Have Minimized Program

Management Costs 3 (GAO/RCED-93-136) (June 7, 1993) (“GAO,

Program Management Costs, 1993").

* Hearing Before the Subcomm. on Superfund, Recycling, and

Solid Waste Management of the Senate Comm, on Environment and

6

REASONS FOR GRANTING THE PETITION

In this case, the United States Court of Appeals for

the Tenth Circuit held that the government could recoup

all the money it spent from the Superfund connected to

the Hardage Superfund Site (“Site”). The court of ap-

peals ruled that CERCLA did not permit liable parties

to challenge the propriety of any of the United States’

costs. Rather, the court interpreted Section 107(a)

(4)(A) of CERCLA to permit the government to recover

all the costs it incurs in connection with a particular

site so long as EPA followed proper procedures when it

selected a method of cleanup. Thus, no matter how

unreasonable the actual cost or how arbitrarily or capri-

ciously EPA may act in implementing the cleanup, none

of the specific costs is reviewable by any court.

The perverse incentives created by this ruling are plain.

Absent judicial review, there is no realistic limit on the

way EPA uses, or abuses, the Superfund. Evidence gath-

ered by the General Accounting Office (GAO) and EPA’s

own Inspector General demonstrates that despite re-

peated warnings, EPA has mismanaged enormous sums

of Fund money. It has spent $7.5 billion over the past

decade but has completed cleanup at fewer than one

hundred of the thousands of sites identified. Countless

more millions have been spent on “administrative costs”

that have no connection to toxic waste cleanup, and EPA

contractors have sought to charge the Fund under the

guise of “indirect costs” with everything from tickets to

sporting events to reindeer suits to be used at office Christ-

mas parties. By holding EPA directly accountable in

court, judicial review of government costs would create

a strong incentive for EPA to manage its contractors and

the Superfund more effectively and to eliminate such

abuse of the public fisc. Consistent with the fundamental

goals of CERCLA, limited public and private monies

Public Works, 108d Cong., Ist Sess. (1993) (testimony of John C.

Martin, Inspector General, EPA).

7

should be spent on cleanup, not squandered on waste,

fraud and abuse.

The Tenth Circuit’s decision, however, would force

courts to turn a blind eye to such mismanagement and

certify a blank check for EPA under CERCLA. Courts

would not be permitted to look behind the barest of EPA

proofs to ascertain the propriety of millions of dollars of

expenditures. Given that it will cost many billions of

dollars to clean up all of the nation’s hazardous waste

sites, such a ruling has implications far beyond this

case.’” Indeed, to date, EPA has placed more than 1200

sites on its National Priorities List, and there are thou-

sands more sites yet to be evaluated. While PRPs can

and will be expected to shoulder the burden of multi-

million dollar investigations and cleanups of such sites,

they should not be compelled also to pay for government

waste, fraud and abuse.

The holding below squarely contradicts the settled pre-

sumption that absent clear and convincing proof that

Congress foreclosed review, agency decisions adverse to

parties’ interests routinely are subject to judicial scrutiny.

Here, there is ample basis to find that Congress expected

that EPA’s costs would be subject to judicial scrutiny.

Moreover, allowing some review still would leave the

scales of judicial review weighted heavily in favor of the

government. Private parties--would bear the burden of

proof and would have to surmount the deference accorded

EPA’s decisionmaking by federal courts. Further, review

of EPA’s costs would not interfere with the pace of

Superfund cleanups as CERCLA explicitly defers any

review until the government seeks reimbursement of costs

it already has incurred in cleaning up a particular site.

1. This Court has repeatedly reaffirmed that the pre-

sumption in favor of judicial review of agency action may

10 Office of Technology Assessment, Assessing Contractor Use in

Superfund 1 (Jan. 1989) (America is facing $500 billion in cleanup

costs over the next 50 years).

8

only be overcome by “clear and convincing evidence”

that Congress intended to foreclose all review. Bowen v.

Michigan Academy of Family Physicians, 476 U.S. 667,

671-2 (1986): see also Traynor v. Turnage, 485 U.S.

535, 542 (1988). An agency bears “the heavy burden

of overcoming the strong presumption that Congress did

not mean to prohibit all judicial review” of the action

at issue. Donlop v. Bachowski, 421 U.S. 560, 567

(1975).’' Here, there is no basis to conclude Congress

intended for EPA to squander the Fund and then charge

private parties for EPA’s own failings without any oppor-

tunity to challenge EPA’s costs. To the contrary, there is

ample basis on which to conclude Congress expected

EPA’s costs would be subject to review.

First, nowhere in CERCLA did Congress explicitly

prohibit judicial review of EPA’s costs. Where Congress

intended to foreclose judicial review under CERCLA it

expressly stated its intent. See, e.g., 42 U.S.C. § 9613(h).

Section 107(a)(4)(A) of CERCLA, conversely, does

not foreclose review of government costs. Rather. it

provides that a PRP is liable for “all costs of removal or

remedial action incurred by the United States . . . not

inconsistent with the national contingency plan.” 42

U.S.C. $ 9607(a)(4)(A). Thus. Section 107(a)(4)(A)

subjects a PRP to liability for costs that are not incon-

sistent with the NCP. The specific costs incurred, and not

merely the overall selection of a general response action,

are what Congress expected would be reviewed by a

court. See Colorado v. Idarado Mining, 916 F.2d 1486,

1489 (10th Cir. 1990), cert. denied, 111 S. Ct. 584

(1991).

Moreover, such a delegation of authority to the Execu-

tive to recover costs from regulated parties should be

11 As this Court noted in Bowen, the strong presumption in favor

of review finds support in a wealth of scholarly literature. 476 U.S.

at 672 n.3 (citing 2 K. Davis, Administrative Law § 9:6, at 240

(1979); L. Jaffe, Judicial Control of Administrative Action 327

(1965): B. Schwartz, Administrative Law § 8.1, at 436 (2d ed.

1984); Shapiro, Administrative Discretion: The Next Stage, 92

Yale L.J. 1487, 1489 n.11 (1983) ).

9

construed narrowly. For example. there must be a clear

statement of Congressional intent to allow recovery of

agency costs when such costs include administrative costs

not directly benefiting the regulated parties. Skinner v.

Mid-America Pipeline Co., 490 U.S. 212, 224 (1989).

Indeed, for that reason the Third Circuit recently held

that certain EPA administrative costs were not “costs of

removal” and hence not recoverable under CERCLA.

United States v. Rohm & Haas Co., No. 92-1517, 1993

WL 303148. at *7-10 (3d Cir. Aug. 12, 1993) (inter-

nal quotations omitted ).

Further, after § 107(a)(4)(A) states what costs EPA

may recover. § 107(a)(4)(B) specifies that a PRP shall

be liable for “any other necessary costs of response in-

curred by any other person consistent with the [NCP]”

42 U.S.C. $ 9607(a)(4)(B) (emphasis added). By

using the phrase “any other necessary costs.” and not

merely “any necessary costs,” Congress expected that the

government’s costs also had to be necessary costs or

“other” would be superfluous.” CERCLA, like all stat-

utes, must be construed to give effect to all of its terms.

F..e. Fidelity Fed. Sav. & Loan Ass'n v. De la Cuesta,

458 U.S. 141, 163 (1982).

The Tenth Circuit adopted wholesale the government's

view of § 107(a)(4)(A) of CERCLA, namely that “all

costs of removal and remedial action” means all costs,

no matter how unreasonable or unnecessary any partic-

ular cost item might be. To reach this result, the court

of appeals effectively rewrote $ 107(a)(4)(A) to mean

that as long as the selection of the response action is not

inconsistent with the NCP, the United States may recover

all of its costs arising out of the cleanup of a site. The

court did so primarily because it found EPA’s NCP does

12 Section 111(a) further indicates Congress’ expectation that

EPA response costs would be limited to necessary costs. There,

Congress specified EPA shall not use the Fund for “administrative

costs or expenses ... unless such costs and expenses are reasonably

necessary for and incidental to the implementation of this sub-

chapter.” 42 U.S.C. § 9611(a) (emphasis added).

10

not specifically detail how to implement response actions

and incur costs, but only how to select response actions.

As a result, the court refused to consider any substantive

challenges to any of EPA’s specific costs.

The lack of detailed guidance in EPA’s NCP on how

to conduct investigations or implement cleanup decisions

is not clear and convincing proof that Congress intended

to prohibit judicial review of EPA’s costs. It is the in-

tent of Congress that governs, and Congress explicitly

required both that EPA select cost-effective response ac-

tions, 42 U.S.C. § 9621(a)-(b). and that the NCP con-

tain a “means for assuring that remedial action measures

are cost-effective” when implemented. /d. at § 9605(a)(7)

(emphasis added). The fact that EPA has promulgated

an NCP that does not explicitly regulate each EPA cost

does not lessen Congress’ requirement that EPA imple-

ent cost-effective response actions.

Nor should silence in the NCP mean that PRPs are

without any recourse to challenge clearly wasteful or

wholly fraudulent costs. Common sense dictates that

FPA should be held to a standard of reasonableness to

check its spending authority under CERCLA. As this

Court has recognized. even wholesale delegations of au-

thority to an agency contain the implied condition that

the authority should be exercised reasonably. Barlow v.

Collins, 397 U.S. 159, 166 (1970).

In addition, even under the NCP, there is a basis for

review. For example, the NCP’s requirement that re-

sponse actions be conducted under “existing authority”

forms a basis for courts to look to federal contracting

13 The drafters of the 1986 amendments to CERCLA confirmed

that § 121 of CERCLA requires remedial actions to be both selected

and implemented in a cost-effective manner. As Senator Mitchell

explained :

Once the remedy has been selected, the cost-effectiveness re-

quirement is applied to its implementation. Implementation of

the remedy would involve choosing the least costly methods and

contractors which will effectively carry out these alternatives.

132 Cong. Rec. $14913 (daily ed. Oct. 3, 1986).

1]

law and associated standards to determine what contract

costs are reasonable, allowable and allocable. Thus,

there certainly is “law to apply” to evaluate EPA costs.

See Donlop, supra; Citizens to Preserve Overton Park v.

Volpe. 401 U.S. 402, 410-13 (1971). Moreover, to the

extent those standards are applied, EPA would have re-

course against the contractors for any costs incurred by

it deemed not to be proper by a court. See, e.g., 31

U.S.C. §§ 3729-3732 (False Claims Act); 41 U.S.C.

$ 604 (Contracts Disputes Act).

Finally, judicial review of EPA’s costs would not slow

down the pace of cleanups because CERCLA explicitly

forecloses pre-enforcement review of cleanup decisions.

42 US.C. §$ 9613(h). Nor would it impose an unrea-

sonable burden on the United States. To the contrary,

the parties challenging the government’s costs still would

bear the burden of proving that EPA’s costs were im-

proper. Moreover, EPA’s costs would be accorded appro-

priate deference as it is the agency primarily charged

with implementing CERCLA."

In sum, review of the Tenth Circuit’s decision will pro-

mote Congress’ manifest purposes in enacting CERCLA

without significantly harming EPA’s enforcement efforts.

On the other hand, failure to correct the Tenth Circuit's

holding will permit EPA’s fiscal irresponsibility in man-

aging the program to continue unabated and squander

limited public and private funds that could otherwise be

applied to cleanups. Such as outcome should be rejected.

2. The effect of foreclosing judicial review of EPA’s

costs 1s a matter of national importance that warrants

this Court’s review because the ruling below perversely

encourages mismanagement of the Fund by EPA. EPA

is allowed to spend money from the Fund at will, and the

PRPs who ultimately foot the bill may not raise any

14 The specter of judicial scrutiny, however, would likely provide

a healthy check on EPA’s use of limited Fund monies. To be sure,

it would provide EPA with an incentive to review more carefully

the actions of its contractors.

12

~

challenges to the government’s spending. Yet, the legacy

of EPA’s management of the Fund is rife with waste and

abuse, particularly EPA’s management of its multi-billion

dollar contracts. Indeed, a report prepared for the Senate

Budget Committee found that EPA’s Superfund contrac-

tors spend from two to five times as much money as

private parties would spend to perform the same work.”

As such, the General Accounting Office (GAO) has

identified Superfund as one of 16 federal programs most

vulnerable to waste, fraud and abuse."

By way of example, a 1992 GAO report alleged that

one of the largest EPA contractors, CH2M_ Hill.” in-

cluded in its 1991 “indirect costs” pool. more than $2

million for lavish office parties, football tickets, fishing

licenses, chocolates imprinted with the company logo,

travel for executives’ spouses to Hong Kong, even a

reindeer suit for an office Christmas party.'"* This GAO

Report almost certainly is only the tip of the iceberg.

GAO audited less than 1% of more than 4.5 million

transactions.'” EPA’s Office of the Inspector General sim-

ilarly questioned more than $20 million in overcharges

15 Majority Staff Committee on the Budget, U.S. Senate, Manage-

ment of Superfund 2 (August 1990) (“Management of Superfund” )

(““{s|uperfund contractors have collected large sums of money, but

have often performed poorly and at excessively high cost’’).

16 B.g., GAO, Superfund: Actions Needed to Correct Long-

Standing Contract Management Problems 1 (GAO/T-RCED-92-78)

(July 8, 1992) (“GAO, Long-Standing Contract Management Prob-

lems, 1992’’).

17CH2M Hill was one of EPA’s primary contractors for the

Hardage site.

SEPA: Contract Mismanagement: Hearing Before the

Subcomm. on Oversight and Investigations of the House Comm. on

Energy and Commerce, 102d Cong., 2d Sess. 172-187 (1992) (state-

ment and testimony of J. Dexter Peach, Asst. Comptroller General,

GAO).

19 Td. at 198. The absence of judicial review will ensure that the

full extent of the fraud will never be uncovered because federal

audits could never begin to review even most of the site specific

costs incurred.

13

and alleged double billings by CH2M Hill in a limited

audit of 1987-1989 charges.~”

Similar charges to the Fund for office parties and

tickets to sporting events have been identified by a June

1993 GAO audit report of selected accounts and invoices

of Arthur D. Little, Inc. and Metcalf & Eddy, Ltd.”

These audits “find yet another contractor abusing the

public trust and raiding the public purse while the agency

charged with oversight slumbered peacefully.” Yet,

under the court of appeals’ “all costs” holding, none of

these types of costs could be brought before the reviewing

court.”

207d. at 142-163 (statement and testimony of John C. Martin,

Inspector General, EPA). An EPA IG audit of 1987 Superfund

contract activity found that as much as 30% of contractor costs

were questionable. See Management of Superfund, at 10.

21GAO, Program Management Costs, 1993, at 32-33 (Arthur

Little claimed $70,000 for entertainment in its indirect costs pool,

including an alumni dinner and Christmas parties).

22“Dingell Finds More Fault with CH2M Contracting Work,”

Pesticide & Toxic Chem. News, Aug. 19, 1992, at 11 (statement of

Rep. Dingell, whose House Energy and Commerce Committee has

been investigating EPA’s Superfund expenditures). The House

Government & Operations Committee subcommittee has found simi-

lar waste in the charges of other contractors, concluding that the

“Superfund program is... a program where money is being wasted

at every turn.” “ARCS Contractors Under Congressional Micro-

scope: House Government & Operations Panel Probes Contracting

Expenses,” VI Inside EPA’s Superfund Report, April 22, 1992, at 6

(statement of Rep. Synar).

23 In one celebrated case involving a superfund claim brought by

the State of Michigan, among the charges for which the state sought

recovery were telephone calls to “900” adult entertainment phone

numbers that were made from a trailer at the site. See Deposition

of Gary Hoffman, Kelley v. E.I. DuPont de Nemours & Co., No.

90-C V-72028-DT, at 9 (E.D. Mich. Dec. 20, 1990) (Q: I trust, sir,

that you will agree that the Forbidden fantasies of Alexis C—a

seductive nymph, were probably not consistent with the NCP? A:

I would not think they would be, no.). Under the “all” costs theory,

however, none of EPA’s telephone charges could be challenged, no

matter how outrageous.

14

The waste and abuse of the Superfund is not, however,

limited to those blatantly inappropriate charges. The

entire Alternative Remedial Contracting Strategy

(“ARCS”) has been fraught with waste since it was

created in 1988. Under its ARCS contracts, EPA has

paid millions of dollars in “program management” costs

which have had little or no relation to cleanup of hazard-

Ous waste sites. In the words of one EPA official: “We

have a mess on our hands.” ~' It is a mess that EPA

Administrator Browner has testified before Congress per-

sists to this day.*” EPA expended huge initial costs on

program management before it knew what the cleanup

workload would be. EPA paid for office space, staff and

equipment for contractors who remained largely idle.

More than $105 million (23% ) of the $465 million paid

to EPA’s ARCS contractors through September 1992

went to “program management.” ** Of that, there are

numerous individual examples of waste. One San Fran-

cisco ARCS contractor listed as a “significant accomplish-

ment[]” in its monthly report to EPA that it “achieved

required target of $60,000 in monthly program manage-

ment costs.” * More than $100,000 was spent for office

space in Dallas for another contractor, but there was not

enough work to support two key employees who instead

were flown in for meetings at a cost of $40,000.°° Some

24 Michael Weisskopf, “Administrative Costs Drain Superfund:

Few Toxic Waste Sites Actually Cleaned Up,” Wash. Post, June 19,

1991, at Al, Al4 (“Wash. Post”) (statement of David J. O’Connor,

Director of Procurement and Contracts Management, EPA).

25 See EPA Contracting: Hearing Before the Subcomm. on Over-

sight and Investigations of the House Comm. on Energy and Com-

merce, 103d Cong., Ist Sess. 7-11 (1993) (testimony of Carol M.

Browner, Administrator, EPA).

26 GAO, Program Management Costs, 1993, at 4.

27 Wash. Post at Al4 (internal quotations omitted). Looking

ahead to “major activities” for the coming months, the contractor

noted plans to “prepare a new manhour and cost forecast” and

“compile data” for an upcoming EPA review of its books. /d.

28 Id.

15

$5.5 million worth of scientific instruments, vehicles, and

protective clothing was purchased, much of which sat

idle. Contractors were paid for business cards and potted

plants, and even to prepare self-evaluations to justify

award fees.~”

While EPA has taken some measures to control ARCS

program management costs, the response was slow and

millions of dollars were wasted in the interim.” EPA was

aware of the problems in October 1989."" Yet, GAO

reported to Congress in 1991 that EPA still had not

taken the appropriate steps to deal with the problem.”

Now, two years later, in June of 1993, GAO reports that

EPA has “repeatedly studied the ARCS program manage-

ment cost issues” but has yet to act to reduce fully the

overcapacity at the core of the problem.” As a result,

significant excess capacity still remains that ultimately

may cost the government millions in unnecessary program

management costs.”

20 Id. (EPA paid $6,000 to contractor for 70 page self appraisal

for award fee).

30 Moreover, while ARCS was designed to accelerate the cleanup

process, EPA’s Inspector General has found that ARCS has failed

to meet EPA’s goals. Indeed, “rather than being accelerated, the

remediation of Superfund sites has been delayed. In large measure

the delays occurred because of poor performance by the contractors,

and a lack of effective administration by the Agency.” Office of the

Inspector General, EPA, Report of Audit: Final Report of Audit

on Superfund Alternative Remedial Contract Strategy (ARCS) Con-

tracts in Regions 1, 3, and 5 25 (Feb. 3, 1992) (“ARCS Audit’).

31 Booz, Allen & Hamilton, Inc., Analysis of ARCS Program Man-

agement Operations (Oct. 28, 1989), cited in GAO, Supe rfund:

EPA Has Not Corrected Long-Standing Contract Management

Problems (GAO/RCED-92-45) (Oct. 24, 1991).

32 See GAO, Superfund: EPA Has Not Corrected Long-Standing

Contract Management Problems (GAO/RCED-92-45) (Oct. 24,

1991

33 GAO, Program Management Costs, 1993, at 29-30.

34 Jd. at 38.

16

Contracting mismanagement, however, is not new to

the Superfund program.” A series of audits “" and re-

ports by GAO and EPA’s own Inspector General have

illustrated that “actions are needed to correct long-

standing contract management problems” because EPA

has repeatedly failed to follow “basic contract manage-

ment techniques.” “’ Moreover, an EPA task force rec-

ognized that the

system of internal controls in the ARCS contract

administration process does not provide reasonable

assurance that Superfund contracting resources are

protected against waste and inefficiency. Docu-

mented weaknesses in cost monitoring, technical per-

formance monitoring, independent Government cost

estimate preparation and work assignment issuance

have been present since the inception of the ARCS

program...”

EPA, for example, has consistently failed adequately to

review contractor cost proposals and to prepare an in-

35 As early as 1985, GAO questioned EPA’s Superfund contracting

practices. See GAO, The Environmental Protection Agency- Should

Better Manage its Use of Contractors (GAO/RCED-85-12) (Jan. 4,

1985). In 1988, GAO followed up with an in-depth analysis of

EPA’s Superfund contracting problems. GAO, Superfund Con-

tracts: EPA Needs to Control Contractor Costs (GAO/RCED-88-

182) (“GAO, Contracts Report, 1988’).

36 While government audits highlight the problems with Super-

fund, they do not provide a mechanism to provide relief to PRPs.

Under the court’s ruling, all costs must be paid, no matter how un-

reasonable. Moreover, audits are performed long after EPA de-

mands reimbursement of the funds. Indeed, the government is many

years behind in its audits of Superfund contractors and contracts.

GAO, EPA’s Contract Management: Audit Backlogs and Audit

Follow-up Problems Undermine EPA’s Contract Management 1, 5-7

(GAO, T-RCED-91-5) (Dec. 11, 1990).

37 GAO, Long-Standing Contract Management Problems, 1992, at

a.

38 EPA, Administrator’s ARCS Contracts Task Force Report

(Oct. 1991), cited in ARCS Audit, at 27.

17

dependent government estimate.*” According to the GAO,

“li]n the absence of adequate cost control, contractors’

studies have been getting more expensive.” “” An EPA

consultant determined that the doubling of the costs of

the studies that occurred between 1985 and 1988 was

caused in part by a lack of adequate cost control.”

Along the same lines, in 1986, the EPA IG reported

that EPA was already paying an excessive markup on

equipment purchased by its contractors. EPA was basing

payment on the price quoted to them by the contractor,

rather than analyzing the actual cost. As a result, EPA

paid “an average of 321 percent markup on equipment

items to some of its largest Superfund contractors...” ~

Rather than correct the problem, however, EPA continued

awarding contracts to the same contractors without chang-

ing its analysis. Thus, according to the IG, “[t]he aver-

age markup over cost. for equipment billed to EPA had

then grown to 427 percent, 100 percentage points higher

than it was in 1986.” *

Further, GAO’s 1988 Report on EPA’s contracting

found that most of EPA’s project managers, the only real

internal EPA control on how money is spent at a site,

did not review and verify contractor invoices.“* “Con-

39 The FARs require an independent estimate of the cost of

architect-engineer services on each proposed contract or contract

modification expected to exceed more than $25,000. The FAR

stipulates that the analysis supporting the estimate should be pre-

pared as thoroughly as though the government was submitting-a

proposal itself. See 48 C.F.R. § 36.203 (a).

40 GAO, Long-Standing Contract Management Probdlevis, 1992, at

41 Jd. at 4.

42BE}PA: Contract Mismanagement: Hearings Before the

Subcomm. on Oversight and Investigations of the House Comm. on

Energy and Commerce, 102d Cong., 2d Sess. 331 (July 8, 1992)

(testimony of John C. Martin, Inspector General, EPA).

43 Td.

44 GAO, Contracts Report, 1988, at 38-41.

18

sequently, EPA did not determine whether contractor

costs were reasonable.” *” This was confirmed in an inde-

pendent audit report by EPA’s IG who concluded that

contractors were “paid millions of dollars by EPA with-

out an adequate review of the invoices for propriety.” *°

More recently, according to the GAO in its follow-up

report in 1992, although EPA now required such review,

EPA contracting officials believe that about half the in-

voices were never reviewed."

In addition, both GAO and EPA’s IG have found that

EPA has not only paid in full for less than satisfactory

performance, it often granted contractors award fees who

performed deficient work. The GAO reported in 1988

that EPA had approved full payment of increased costs

notwithstanding inadequate contractor and subcontractor

performance.** Moreover, EPA’s IG found that inade-

quate contractor performance increased costs and work

had to be repeated.” The IG also found that EPA has

paid excessive charges for technical work by underquali-

fied personnel and paid senior engineers to perform filing

45 GAO, Contracts Report, 1988, at 41.

46 Office of the Inspector General, EPA, Report of Audit on the

Management of Technical Assistance Team Services 20 (Sept. 28,

1988) (“TAT Report”).

47 GAO, Long-Standing Contract Management Problems, 1992, at

4,

48 EPA determined contractors placed monitoring wells in the

wrong place, made errors in preparing groundwater samples, and

inadequately prepared reports. In one case the contractor who

hired a subcontractor to write an EPA report had to redo the sub-

contractor’s poor work. EPA paid the contractor $40,000 to redo

the work, plus a base fee. GAO, Contracts Report, 1988, at 25.

49 Office of the Inspector General, EPA, Report of Audit on EPA’s

Utilization Zone I Field Investigation Team 21-22 (Sept. 30, 1988)

(“FIT Report”) (found “useless modeling work, inoperable equip-

ment, and reports “poorly written, technically inaccurate, and...

repeatedly returned for correction”).

19

and other administrative tasks." Nonetheless, EPA re-

peatedly paid base and award fees to contractors that

provided this deficient work." These wasteful practices

have continued, despite repeated criticisms by GAO and

EPA’s IG.”

In sum, the actions of EPA in ignoring fraud and abuse

fully explain its legal position in this and other Superfund

litigation, but it hardly justifies insulating EPA’s failures

from all judicial scrutiny. To the contrary, as corporate

budgets generally shrink with the economy’s downturn,

the Superfund program simply cannot continue to be re-

plenished for all costs, no matter how wasteful. Instead,

EPA should be subject to deferential reasonableness re-

view. The refusal of the court of appeals to allow any

review of the costs warrants review by this Court.

50 TAT Report, at 5, 8-15; Office of the Inspector General, EPA,

Annual Superfund Report to the Congress for Fiscal 1988 33 (Sept.

1989).

51 Office of the Inspector General, EPA, Report of Audit on Super-

fund Cost-Plus-Award-Fee Contracts 11, 15 (March 28, 1990)

(contractors paid award fees for deficient work; unreasonable

charges); FIT Report, at 19 (contractor was paid award fees for

deficient work, as well as for work that was beyond the scope of

the contract) ; GAO, Contracts Report, 1988, at 48-51.

52 Moreover, new allegations of fraud and mismanagement are

under investigation. It is alleged that EPA personnel claimed that

numerous studies of sites had been performed between 1988 and

1991, when in fact they had not been done. EPA employees then

asked EPA contractors to create reports to back-up the claims.

Senators Lautenberg and Boxer have called for an investigation of

these claims. See Letter from Sens. Lautenberg and Boxer to Att’y

General Reno of June 10, 19938. Moreover, at the Helen Kramer

Landfill a criminal investigation is ongoing to investigate $50 mil-

lion in cost overruns by the remedial contractor.

’

20

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted,

STEPHEN D. RAMSEY CARTER G. PHILLIPS *

ROBERT W. FRANTZ SAMUEL I. GUTTER

JANE W. GARDNER SAMUEL B. BOXERMAN

GENERAL ELECTRIC COMPANY SIDLEY & AUSTIN

3135 Easton Turnpike 1722 Eye Street, N.W.

Fairfield, CT 06431 Washington, D.C. 20006

(203) 373-8067 (202) 736-8000

September 21, 1993 * Counsel of Record