New EPA Guidance Shifts More Superfund Program Costs to PRPS

On June 2, 2000 the EPA Office of Enforcement and Compliance Assurance issued guidance directing its Regional Offices to begin implementing changes to EPA’s indirect cost accounting methodology that could have significant impacts on EPA cost recovery claims, including claims relating to work conducted as long ago as 1990. See 65 Fed. Reg. 35339 (June 2, 200). Citing the 1995 Statement of Federal Financial Accounting Standards No. 4, and a Congressional directive to improve its cost accounting methodology, EPA plans to re-calculate its "indirect costs" of administering the Superfund program on a site-by-site basis, dating back to Fiscal Year 1990. Rather than simply relying on indirect costs attributable to time spent by its employees on a site, the EPA has concluded that a "full cost accounting" should spread all of its program costs to the sites in each region. To do so, the Agency will multiply the total direct costs expended by EPA at a site by an indirect cost rate for the relevant EPA region. The indirect cost rates will take into consideration both nationwide and regional expenses and overhead costs for the Superfund program.

Although the regional indirect cost rates are still being calculated, and will vary from region to region, and year to year, the estimated rates identified in the Policy and its back-up documents are from 29 to 54 percent of direct site expenditures. EPA plans to seek recovery of its indirect costs using the new methodology immediately upon the finalization of the rates later this year. To potentially responsible parties (PRPs), this new policy could result in a dramatic increase in the total costs EPA seeks to recover in cost recovery litigation. For example, a site where EPA has expended $10 million would have an additional $3 million indirect cost charge added, assuming a 30 percent rate on average (rate for Region 1, for example). For PRP-funded cleanups, the impact will be less dramatic, assuming EPA direct expenditures are low.

Because EPA plans to re-calculate indirect costs for sites back to 1990, the recent guidance provides an opportunity for PRPs who have unresolved cost recovery claims to make a settlement offer based on current indirect cost rates prior to October 1, 2000. Also, the EPA does not plan to re-open previously settled or litigated claims, and it may choose not to apply the new policy for cases in advanced stages of pending litigation. Otherwise, EPA’s intent appears to be to impose the new indirect cost allocation methodology for all other cost recovery claims relating to expenditures after Fiscal Year 1989. The guidance is final, and no public comment is requested.

As reported by James R. Arnold, editor.