Round 2-3: Allocation Pilots
EPA initiated the allocation pilots in May 1995, offering a fundamentally different approach to allocating Superfund costs between parties. The two main purposes of the pilot were to test the implementability of the allocation scheme proposed by the 103rd Congress and to assess the impact of an allocation process on settlement.
Under the pilot, allocation parties were initially given the opportunity to nominate additional parties. The parties then selected a neutral "allocator" to conduct a non-binding, out-of-court process resulting in an allocation report. The allocation report detailed each allocation party's assignment of shares of responsibility.
Parties were offered an opportunity to settle with EPA based on their allocated share. Under the pilot, EPA was responsible for 100 percent of the orphan share, which consists of the shares of allocation parties that are insolvent or defunct.
Implementation of this reform is complete.
The Agency will complete the remaining pilots, and continue with efforts to incorporate lessons learned and improve the allocation process.
The Agency incorporated lessons learned from this reform where appropriate into the program. Initial mixed views on the pilot resulted in a general agreement that flexibility in an allocation process is needed to meet deadlines to address site-specific conditions. This reform is now considered closed out and no further accomplishment information will be gathered. Please review the lessons learned for further details.
As a result of this reform, EPA:
- Offered allocation process at the following 12 sites:
- Old Southington Landfill, CT (Region 1)
- Batavia Landfill, NY (Region 2)
- NL Industries, NJ (Region 2)
- C&R Battery, VA (Region 3)
- Hunterstown Road, PA (region 3)
- Whitehouse Oil Pits, FL (Region 4)
- Conservation Chemical Company of Illinois, IN (Region 5)
- South 8th Street Landfill, AR (Region 6)
- Hastings Ground Water Contamination, NE (Region 7)
- Peerless Industrial Paint Coatings, MO (Region 7)
- Industrial Waste Processing, CA (Region 9)
- Tulalip Landfill, WA (Region 10)
At three sites (NL Industries, Conservation Chemical Company, and Industrial Waste Processing), parties declined to enter the pilot because they believed they could reach settlement outside of the allocation process or already had performed a private allocation.
- Piloted the process at nine Superfund sites.
- Issued five allocation reports; and
- Lodged settlements at four sites and settled pre-allocation reports at five other sites.
Since the commencement of the pilots in 1995, EPA has been gathering information from the participants, including PRPs, allocators and Regional staff, concerning time spent and resources expended, general impressions of fairness of the process, and the overall implementability of the process.
Time. Where an allocation report has been issued, the average time spent to complete the allocation process was 20 months. This includes the time spent identifying additional parties, selecting the allocator, entering into the protocol document, and performing information gathering by the allocator. It also includes time spent filing briefs, conducting oral arguments, and issuing the draft and final allocation report. The time frame is expected to increase for the total group of pilots to approximately 24 months because a number of sites are taking significantly longer than the 20 month period.
Resources. Parties who participated in the pilot estimated they expended $48,000 per party in transaction costs. Approximately 75 percent indicated that the transaction costs were lower than traditional contribution litigation costs. The average cost to the Government (EPA and the Department of Justice) for conducting an allocation (for this group of sites) was approximately $421,000 per site. This includes both intramural and extramural costs. In addition, the average cost for the services of the Allocator were approximately $193,000 per site. At one site, neutral costs were significantly higher as both allocators and mediators were used.
General Observations. Private parties agreed to participate in the pilot because: EPA was funding 100 percent of the orphan share; parties believed the process would be more cost efficient than current Superfund litigation; and the party could enter into a fair share settlement.
At the end of the process, parties' views on the pilot were mixed. Several parties thought the share assigned to them in settlement was fair considering the level of information available, but others felt that their share was not fair, believing that major corporations with greater resources were better able to influence the allocator and/or the Agency. While a number of companies believed the actual costs expended were less than litigation, several small businesses felt the process was not cost effective for them, commenting that transaction costs associated with the allocation process may actually be higher since many felt they had to participate in the process to protect their interests. Finally, there was general agreement that flexibility in an allocation process must exist in meeting deadlines (e.g., for selecting the allocator, information gathering and filing briefs) to address site-specific conditions.
Implementing the Allocation Scheme:
- Flexibility was needed in the allocation process to meet deadlines (e.g., for selecting the allocator, information gathering) and to address site-specific issues.
- The allocation process was not cost effective for small businesses because many believed they had to participate to protect their interests.
- Time frames were exceeded for each step of the allocation process. For example, projected time frames for completing the nominations process and hiring the allocator were insufficient to address numerous issues raised by parties.
- Allocation parties were generally satisfied with the time and opportunity allowed for nominating additional PRPs, but felt that the allocation process as a whole was expensive and time consuming.
- Parties believed that the use of neutrals was beneficial to the process.
- It was difficult to translate individual shares into a global agreement to perform work. (Parties only wanted to be responsible for their individual share.)
- At number of sites, 90 percent or more of the parties (including EPA) wanted to settle before the allocator issued a report, but the allocation scheme required a 100 percent settlement before the process could be stopped.
- Filing briefs when simultaneously negotiation with parties was difficult because arguments were directed to all parties without knowing which of them would actually remain in the allocation.
- The length of the process hindered progress of cleanup. (Parties wanted to know their share prior to committing to perform work.)
Implementation of the pilots has also provided useful information about the allocator selection process and the need for a protocol document between the parties participating in the pilot:
Selecting the Allocator. In selecting an allocator, parties have uniformly agreed to use a convening process. Through the use of a neutral convener, the parties selected an allocator by interviewing several candidates and then reaching a consensus agreement on the best person for that site. At all pilot sites the parties agreed to choose solely from the 37 candidates qualified through the Agency's procurement process. Parties believed the level of experience presented by the candidates and the information provided was sufficient to choose an allocator.
Need for Protocol Document. In designing the pilots the Agency believed that a basic confidentiality agreement and litigation tolling agreement (i.e., so no party would sue each other during the allocation) was sufficient to implement the pilots. However, parties wanted to negotiate procedures for the number of interviews with witnesses, timeframes for submission of documents to the allocator, and identify equitable factors for the allocation. The allocators wanted these issues to be resolved amicably between the parties. Negotiating a protocol agreement has taken between one to four months, depending on the number of issues to be addressed and the number of parties at the site.
To save time the parties negotiated the allocation protocol during the time the Agency was formally entering into the contract with the selected allocator. The neutral who convened the selection process has also assisted in developing protocol agreements.
Hunterstown Road, Gettysburg, PA
At the Hunterstown Road site, generators and transporters requested that EPA adopt a private allocation reached by the parties. The Agency agreed to adopt the private allocation. Therefore, the allocator only had to assign a group generator/transporter share, thereby saving transaction costs. All parties then agreed on the group share and submitted it to the allocator, who promptly adopted it as part of the allocation report. [FY97 Success]
Tulalip Landfill, Marysville, WA
The U.S. recently lodged three consent decrees with the majority of the allocation parties at the Tulalip Landfill site.
In this settlement, one group of parties will perform the response action, and two separate groups of parties will provide funding for the cleanup. A number of Federal entities are also part of the settlement. Allocation parties who are not part of the settlement remain in the allocation process. While the allocator must consider the shares of all the parties in the allocation, only those shares of the parties which did not settle were delineated in the allocation report. This limits the need for the settling parties to continue to participate in the allocation process, thereby saving transaction costs.
The settlement is also significant because the proceeds from a pre-allocation de minimis settlement are being provided to the performing parties. Under the pilot, de minimis settlers are excluded from the allocation process. Several parties were originally concerned that excluding de minimis parties from the allocation process might appear unfair. In effect, however, while the de minimis parties were excluded from the allocation process, the settlement proceeds from the de minimis settlement reduced the actual amounts the settling parties had to pay. [FY97 Success]