Focus On Water Division
Pay for Performance: Innovative Cleanup Program Achieving Impressive Results

(Last updated: August, 2007)

In January 2003 in a conference room at the Atrium building in downtown Lincoln, a little-noticed event took place. Little noticed by the public, at least, but among State employees and contractors involved with petroleum contaminated site cleanups, it was a notable event: Department of Environmental Quality (DEQ) staff opened the first bids submitted for the new Pay for Performance cleanup program.

A leaking underground fuel storage tank is removed from a site in Norfolk in June 1998.

Photo by Phil Hargis

Expectations were high that January day, for the Pay for Performance program was an attempt to take a well-established cleanup program and direct at least a small part of it in a new direction. A direction that was expected to reduce the costs of cleanups, the time spent cleaning up sites, the amount of paperwork associated with cleanups, and the amount of time DEQ staff would be required to oversee the cleanup work. So has the program worked out as hoped that January day?

“Yes, overall it has met our expectations,” said David Chambers, Petroleum Remediation Section Supervisor. “It is working. There is much less oversight required at these sites, which saves time for DEQ project managers. Invoicing is easy. Instead of the contractor sending in several pages of an invoice listing the staff doing work on the site, their hours, their pay rate, and all the equipment purchased or rented, they get paid by submitting a one-page invoice and reaching a milestone, which we verify.”

And the expectation of faster cleanups?

“Sites are getting cleaned up faster,” according to Phil Hargis, Pay for Performance program manager. “Contractors are doubling or tripling the number of extraction wells at these sites. We would normally see wells spaced 20-30 feet apart, but at some of these sites we are seeing wells 10 feet apart. The cleanup system capability is way up. They are trying hard to get the sites cleaned up quickly.”

DEQ received unexpected results at the first two sites where cleanups were completed, Hargis said. “Both sites were contracted for a 27 month cleanup. One took about six months, the other about eight months. The final cost at these sites, $248,000 and $102,000, came in at about half of what we expected. And the cleanup time frame was much faster than we have seen in the past.”

The Department’s traditional cleanup and contracting structure, still in use at most petroleum-contaminated sites, involves “time and materials” contracts. An independent contractor is selected, and they assess charges based on the hours they spend on the site and the equipment that is purchased for cleanup activities.

The problem inherent with the time and materials contract is that it provides little incentive for contractors to complete the job. This structure requires detailed State oversight to ensure that all payments are reasonable and appropriate. A considerable amount of staff time is expended reviewing bills and other paperwork to ensure that the hours and items billed are reasonable, and that contractors are properly compensated for work hours and materials.

By contrast, Pay for Performance contracts seek bids from the contractors. After being provided detailed information about the site, contractors submit bids indicating the total cost involved to clean up the site to the levels that the State has determined are appropriate. The contract is awarded to the lowest bidder, as long as the State agrees that the proposed technology and time frame for completing the cleanup are acceptable to achieve the desired results. DEQ typically seeks bids and awards contracts for four to six sites per year.

“There are limiting factors to how many sites we can offer,” said Hargis. “A major limitation is that it takes a lot of work to prepare the sites for bids. The site characteristics must be well known so bidding is accurate. We started with easier sites, and we are now moving into more complicated sites where there may be numerous landowners affected, utilities involved, and other factors.”

Funding may also affect the number of sites offered under Pay for Performance, Chambers said. “Money may become a factor. We have to have the money available to pay for the cleanup before we sign a contract. Pay for Performance is now used only at “orphan” sites (the person or business that caused the contamination either cannot be identified or does not have the resources to pay for their share of cleanup costs). We would like to move into “responsible party” sites (the person or business that caused the contamination is known and is responsible for cost share) but they would be more complicated. There is a lot of potential to turn many responsible party sites into Pay for Performance sites. Those sites would then require a lot less staff time.”

As with any nascent program, there have been bugs to work out. But problems have been limited, Hargis said. “We’ve had problems with just one site. The cleanup met target levels, but the levels didn’t hold for a year, as required. The contractor had to restart the cleanup system, but they were still within the contract period.”

Hargis explained that contractors typically clean up a site to below the required target levels. This is done because there is often what is referred to as “rebound,” where levels of contaminants left in the ground water will rise slightly after the cleanup is discontinued.

In January 2003 expectations were high that the program would be well received by contractors. DEQ staff believed that Pay for Performance would provide the incentive, missing under the traditional cleanup program, to clean up sites quicker. A contractor achieving results ahead of schedule would collect their payment, and could move on to other work. Has this expectation been met?

“The program has been well received by contractors,” Hargis said. “We’ve heard a lot of good comments, including ‘we want more sites.’”

DEQ’s enthusiasm for the Pay for Performance program remains high, Chambers said. “We’re still excited about it. It is one of the best programs we’ve implemented in petroleum remediation.”

Article by Richard Webster
The Nebraska Department of Environmental Quality
Leaking Underground Storage Tank Program
Professional Environmental Consulting Services
For Information Contact:
Phil Hargis - 402-471-3150