Keeping Cleanup Costs Palatable

By: William A. McLellan
GAB Robins Environmental & Marine, Inc.

Although the costs associated with pollution cleanup and remediation activities are never going to leave a good taste in your mouth, there are ways to keep them at least palatable. Most parties at risk of a pollution incident appreciate the availability of a professional cleanup contractor and are willing to pay a fair and reasonable price for the cleanup services performed. What they do not want to feel, however, is that they were abused (overcharged) in the process.

The best way to ensure that you are being charged fairly is to be informed. A party at risk of a pollution incident must become familiar with a standard remediation contract and how it may impact the cost of cleanup. Understand up front that these contracts are geared towards a spill response of limited duration and will prove costly if left unchanged for extended cleanups. Accordingly, if you have a set contractor(s) that you most likely will use for response activities, meet with them to discuss the following items. If you do not know which contractor you may use, become familiar with these items and be prepared to address them at the outset of the response. Also included are items to be aware of during the response activities as well as when reviewing the actual invoices.

Although the suggestions and items listed appear to be more applicable to large spills where a lengthy cleanup period is expected, knowledge of these items should serve a client just as well when dealing with smaller incidents. These items are not exhaustive.

Pre-Incident

1. Markup Charges. Many contracts include a clause allowing a markup of 20% or more to be added to subcontractors’ invoices and any third party charges. Depending on a client’s resources, he can avoid this markup if all subcontractor and third party charges are billed to him direct. The client should follow this procedure with disposal charges as well.

2. Standby Rates. Some contracts call for full charges for the entire period a piece of equipment is at the site whether it is used or not. A client should address this issue and document the contractor’s billing procedure and timeframe for removing unneeded equipment from the spill site.

3. Reduced Rates. Some contracts include clauses that charge a reduced rate for equipment being decontaminated, demobilized, or after it has been in service for a specific time period. Examples of such equipment include boom and heavy equipment.

4. Materials. The parties should discuss the issue of reduced rates where there is a high volume use of materials. The parties should also address the prospect of the client dealing directly with the vendor for all materials. In no event, should the constractors responding to an incident be allowed to sell materials to one another and then back to the client without written approval from the client.

5. Payout Clause. The total charge on a number of items used during a cleanup may exceed the actual cost of the item. A sample list includes boom, cell phones, radios, computer equipment, small boats, trailers, and hand tools. An agreement should be reached as to when these items reach a “no charge” or “maximum charge” status.

6. Personal Protection Equipment (PPE). In many instances, contractors submit a PPE charge for each billable person whether that person actually had a need or used PPE that day. Examples include clerical staff and command center personnel. Charges for PPE should be limited to those individuals actually donning PPE. The client should also discuss how many change outs the PPE charge includes.

7. Per Diem. Charges for per diem should be well defined. Some contracts state that there will be no per diem charge for incidents that occur within 50 miles of their home office. The parties should discuss 1) the number of people in the home office available to respond to an incident, 2) the likelihood of having to bring in additional workers outside the 50 mile radius, and 3) whether the clause covers these workers. Note: The author is not suggesting that workers outside the 50 miles should not be paid a per diem, he simply believes the parties should address this issue up front. The parties should also acknowledge that the meal portion of a per diem (or a part of it) will be subtracted when the client makes a meal(s) available during the workday.

8. Day Rate/Hourly Rate. Most contracts have clauses stating that equipment will be charged portal-to-portal and include a rate schedule showing that some equipment is charged a day rate while some is charged by the hour. The portal-to-portal clause generally means that there is a charge associated with the equipment the moment it is dispatched until it is returned to the yard. Where disputes arise is when a piece of equipment that has an hourly rate is charged for 24 hours even though the cleanup operations are limited to a maximum of 12 hours each day. The parties should address this issue and agree, where feasible, on a day rate for those items charged by the hour if the likelihood is that the equipment will be on site for more than one day

9. Lunch Break. Many contracts are silent concerning whether the workers should be paid during the time they take off for their lunch and or dinner break. Some contractors do not charge for this time, while others do. To avoid a dispute in this area, the client should address this issue. A half hour deduction generally is acceptable.

10. Management/Command Structure. The management/command structure and personnel the contractor will utilize and invoice to support the cleanup should be well defined. Too often, disputes arise over the necessity and reasonableness of a whole hierarchy of management/command personnel that are invoiced during a response. Also, the necessity of a command/communications mobile office should be addressed in instances where a fully operational command center is activated.

11. Accounting System. The parties should discuss whether the client will be charged for the contractor’s accounting system (software and or personnel) and, if so, what the client receives for this charge other than an invoice at the end of the day. If the system is used to prepare daily reports, the parties should agree when these reports will be provided to the client and the penalty for not providing as agreed. Prompt receipt of the daily reports is necessary to reconcile any disputes timely. In instances where invoice disputes arise, the OSRO often complains that the time to discuss challenges to certain charges is when the daily reports are submitted. The client often responds that he did not receive the dailies until several days after the day in question. To alleviate this scenario, consider an agreement whereby the contractor must provide detailed dailies by 10:00 am the following morning or face a penalty of 10% of that day’s billing if the dailies are not received timely.

During Cleanup

Again, one goal the client and contractor have in common is to resolve any disputes or discrepancies on a daily basis or, in the very least, prior to submission of the invoice(s). Accordingly, discussion and agreement as to the mechanism to address the following items during a spill response should work towards accomplishing the desired goal. In regard to Paragraphs 1-3, the client should reconcile its independent counts with the contractor’s daily worksheet.

1. Personnel. A daily confirmation of the contractor’s personnel conducted by the client to reconcile personnel charged on the dailies.

2. Equipment. Immediately upon reporting to the site, the contractor must provide a list and working status of all equipment mobilized to date and each day thereafter until the response is concluded. Visual confirmation of the number and working status of equipment by the client on a daily basis. The list and visual confirmation can be used to reconcile discrepancies and remove redundant or unused equipment. Secondary confirmation by the client during decontamination is also useful to reconcile discrepancies.

3. Materials. A system should be activated to confirm all materials consumed. Be aware that some contractor’s own companies that sell materials used in cleanup. Ask your contractor if he owns or is a part owner in such a company. The conflict of interest in such an arrangement needs no further discussion.

4. Qualitative Analysis. In some instances, a dispute will arise relative to the proper ratios between personnel classifications, vehicles to personnel, and equipment to personnel. Although these ratios may be incident or job specific, we encourage a discussion between the parties so that each can disclose what they believe these ratios generally should be. During cleanup operations, these ratios should be monitored by the client and contractor on a daily basis.

5. Disposal. Research your disposal options as methods and costs can vary greatly. Also, inquire whether your contractor owns or has any interest in the disposal facility that is being contemplated.

The client should not initial or otherwise sign off on a contractor’s daily worksheet without including the notation “Subject to Audit”. If the client simply initials the daily, it leaves the door open for the contractor to argue, in court should a discrepancy arise, that the initials signify the client’s agreement to all items charged.

Government agencies have no motivation to save costs and may demand that the client do something that is costly and inefficient during cleanup. Do not be afraid to challenge these demands and strongly offer alternative measures. In many instances, the agencies will defer to your suggestion if you can convince them that you have a workable plan.

Post Spill Response

If all of the above issues are addressed in earnest prior to and during the course of a response, the invoice review should be routine. If the foregoing issues have not been addressed adequately, the invoice review most likely will be troublesome.

1. Invoice Review and Reconciliation. The invoice should be checked for accuracy and reconciled with the contract and response specifics. The client should alert the contractor that he expects the following documentation to be submitted with each invoice.

a. Daily worksheets listing each person, all materials and supplies, and each item of equipment being charge for each day.

b. Personnel daily sign in sheets and or daily safety meeting sign in sheets

c. Supporting Invoices for all Third Party Charges.

d. Subcontractor Charges - Complete copy of subcontractor contract and all support items listed in a, b and c.

e. Disposal manifests and related charges/invoices.

f. Rental Charges - Copy of Rental Agreement. Note: Most contracts state that the client will be responsible for repairs to any equipment damaged during the response operations. To avoid paying for damages to rented equipment, the client should ensure that the contractor accepts the daily insurance coverage offered by the rental agency.

g. Repair Charges - Copy of Repair Invoice.

h. Incidental Charges - Copy of support including airline tickets, car rentals, and hotel bills.

Be persistent when requesting invoice support documentation. Many contractors do not provide complete documentation until the client convinces them that they will not be paid without it.

Conclusion

Be informed. Be prepared. The time to get organized is not after an event happens. Proper advance discussion and agreement between the client and the contractor relative to the contract and expectations during the response will result in limited surprises on both sides, the pollutant being cleaned up at a fair and reasonable price, and the contractor being paid timely.

GAB Robins Environmental & Marine, Inc. has the teamwork, backed by the latest technology, to provide complete and integrated solutions in managing environmental and marine risks, controlling clean-up costs and adjusting related losses. With experienced refined over many decades, we are an ideal strategic partner for catastrophe response planning and claims management. For more information contact William A. McLellan at 281-358-7277 or environmental@gabrobins.com

Environmental Risk Resources Association

Keeping Cleanup Costs Palatable