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Managing Regulatory Agency Oversight Costs

A cost element for contaminated sites that is often overlooked or not challenged by review is the regulatory oversight cost. Depending on several factors such as the complexity of the site, the financial status of the potentially responsible parties (PRPs), and the agency’s scope of oversight, the regulatory oversight costs can be as much as 20% of the total site investigation and remediation costs. Given that regulatory agencies will be involved with a site cleanup from start to finish, these costs can be significant. For example, at Superfund sites where both the United States Environmental Protection Agency (USEPA) and state regulators are overseeing the activities of the PRPs, these costs can easily reach $500,000.

The PRPs and insurers who may be responsible for paying the defense and indemnity costs associated with the investigation and cleanup at a site can manage the oversight costs through various mechanisms. Typically the administrative orders negotiated between the regulators and the PRPs include specific language regarding the methods for calculation oversight costs. The PRPs, and if applicable their insurers, should carefully craft and negotiate the oversight payment terms to require that the regulatory agencies provide appropriate supporting documentation, and allow the PRPs adequate time and access to personnel and records for a thorough review of the claimed oversight costs. The USEPA and state regional offices typically have specific guidance documents that describe the required level of invoice documentation, methods to optimize oversight and the proper dispute resolution process. The PRPs should review these documents and if necessary incorporate site-specific terms in the body of the administrative order. 

JWI’s cost review and audit experiences indicate that up-front negotiations and establishment of clear and appropriate invoicing and cost review procedures with regulators minimizes the long-term oversight costs and streamlines the review and payment process. It is also our experience that review and audit of claimed regulatory oversight costs can result in reduction of the amounts paid to regulatory agencies. In addition, the review process establishes the criteria for evaluating what the long-term regulatory oversight costs will be for a given project.

For more information, please contact Alborz Wozniak at (925) 403-6200.