Frequent Questions: Pay For Performance Cleanups
In government-lead cleanups does PFP apply to the whole cost of the cleanup or just the fee portion of the contractor's billings?
Answer: PFP applies to the whole cost of the cleanup. Generally the fee portion of a government contract is a relatively small part of the contractor's total billing for a cleanup. So, just applying PFP to the fee provides a relatively weak fiscal incentive to the contractor, and also leaves the biggest chunk of cleanup cost no more controlled than with time-and-materials contracts.
Doesn't PFP work a financial hardship on some contractors who can't afford to finance the upfront costs of equipment and construction needed to install and operate a cleanup system before they can get paid?
Answer: No. PFP agreements provide for one or two payments to be made when the cleanup system is installed and demonstrated to be fully operational. Such install/demonstrate payments, however, should be based only on actual cost and should not include any "mark-up" at any level. This may not give the contractor a profit at this stage, but it does cover the cost. A profit at this stage might even be a premature reward, since no pollution reductions will have been accomplished at this point. PFP is intended to reward and encourage real pollution reductions.
Does the price set (or bid) for a PFP cleanup include the cost of the site assessment?
Answer: No. PFP includes only the cleanup and closure phases of UST cleanups, not the site asssessment. Site assessment results must be on hand before the PFP price can be set for a site and, must be available to bidders on the cleanup.
Is PFP intended to be used at all UST cleanups?
Answer: Most, but not all sites. PFP is intended to be used at most, but not all UST cleanups. PFP is intended to be the assumed way the cleanup deal will be structured. Time-and-materials are intended to be the exception, rather than the rule. At sites that pose a very high risk, pose real emergencies, are very complicated hydrogeologically, or which are ensnarled in legal conflict, conventional time-and-materials agreements may be appropriate. Even at some of these sites, PFP may still be the better form of business agreement for getting the cleanup done. You might consider using PFP for free-product removal jobs, for example.
Can cleanups that were begun on time-and-materials terms be converted to Pay For Performance terms?
Answer: Yes, assuming that any lingering legal conditions of the original contract terms are resolved. For example, time-and-materials cleanups that have gotten stretched out for long periods of time without attaining goals or reaching closure may be good candidates for conversion to PFP business terms.
Does PFP apply only to state-lead cleanups?
Answer: No. PFP can just as well be used in private party contracts between a site-owner and a privately-hired cleanup contractor.
Can a state-fund that just reimburses private parties (and is not a party to the actual contract) impose PFP terms?
Answer: Yes, unless there are explicit, state-specific legal barriers. A state-fund that now reimburses private parties for the costs incurred by the parties' privately-contracted cleanup firms can instead set Pay For Performance milestones as criteria for fund reimbursement regardless of whatever terms of payment the private parties may have agreed to among themselves.