Joel A. Eacker
Waste Management Federal Services, Inc.
Lakewood, Colorado

Operation of a successful environmental restoration program at a major Department of Energy Site requires innovation to meet all regulatory, budgetary, and performance challenges. The Hanford Site, in Southeastern Washington State, is one of the most unique clean-up challenges in the DOE complex with over 560 square miles of arid lands. The site was originally established as part of the Manhattan Project to support the nuclear weapons program with missions that included reactor operations, chemical separations, fabrication, and research. It was this mission that left a 50 year legacy of contaminated sites along a major waterway, the Columbia River.

Citizens of Washington, Oregon and Idaho as well as tribal governments have long expressed concern about the resulting contamination and the potential for migration into the Columbia River. In 1995, Bechtel Hanford, Inc. (BHI) began a restoration program for the Department of Energy which focused on waste sites created by contaminated liquids that had escaped to the ground. The clean-up is being managed as a project that is composed of three functions: Remedial Action (removal of contaminants), Transportation (movement of the waste), and disposal at a facility constructed on the central plateau at Hanford.

The disposal facility, the Environmental Restoration Disposal Facility (ERDF), is the pacesetter for the project and provides on-site capability for disposal of Hanford clean-up waste only. The ERDF is authorized under a CERCLA ROD and complies with RCRA requirements for disposal of a broad range of hazardous, low-level, toxic, and mixed wastes. The ERDF, unlike past disposal facilities at Hanford, was designed and constructed with the expectation that it would be operated in a commercial like manner to the maximum extent possible. During early project panning, it was envisioned that a fixed price, commercial waste disposal subcontractor could safely and compliantly perform disposal services in a more cost effective manner than the traditional Maintenance and Operations (M&O) type contractor.

This commercial approach led to a simplification of the design of the facility to match what would be seen at similar commercial disposal facility. The landfill design did not change significantly, but the support facilities were dramatically reduced over traditional M&O levels with a reduction in project costs of over $80 Million. A long term, fixed unit price subcontract was also developed that pays only for actual waste disposal services provided and requires privately supplied equipment and support facilities. Waste Management Federal Services (WMFS) was selected to be the disposal contractor in a competitive procurement with prices 43% below levels used in budget planning for the commercial operation! This paper will discuss the lessons learned from this commercial approach to allow readers to understand how they might be applied in other similar situations.

The Hanford Environmental Restoration (ER) program generates a wide variety of wastes from an equally diverse set of clean-up activities. This required that a robust disposal capability be developed at the ERDF with flexible operational approaches. Wastes at the ERDF vary dramatically in quantities, characteristics and contaminants of concern as shown in Figure 1 and discussed in the following section.

Fig. 1. Distribution of ERDF Waste Types
(based on 730,727 tons disposed as of 1/30/98)

Generating sites vary with the past missions of the Hanford Site and include reactor complex areas, chemical treatment facilities, liquid waste disposal sites, solid waste disposal sites, research facilities, and various miscellaneous clean-up efforts. A reactor complex, as an example, produces a large variety of wastes from the actual reactor structure, primary coolant systems and piping, secondary systems and piping, fuel storage basins, laboratories, and ancillary equipment needed to operate the reactor. Wastes produced at such a site include bulk soils, demolition debris, contaminated equipment, stabilized/treated sludge, irradiated hardware, and numerous types of scrap steel, piping, and other miscellaneous materials.

Contaminants of concern also vary greatly based upon the original function of the generating site. Radioactive isotopes include alpha, beta, and gamma emitting isotopes from nuisance levels to contamination and direct radiation levels that require special handling and protective equipment. Hazardous constituents include RCRA listed wastes, RCRA characteristic wastes, toxic substances, and mixed wastes. This wide spectrum of anticipated contaminants was a significant factor in developing the facility design and providing the appropriate operational controls to ensure worker safety.

Physical characteristics of the wastes presented for disposal also vary dramatically depending upon the particular generating site. The distribution of the physical characteristics of the wastes are shown in Figure 1, with a vast majority of the waste being bulk soils. For the most part, the bulk wastes are transported in a traditional roll-off container, similar to large scale operations in municipal solid waste operations. Stabilized and/or containerized (drum/box) waste forms are also used in operations to protect against high contamination levels and/or maintain exposures at as low as reasonably achievable (ALARA) levels.

Waste disposal activities at ERDF require a flexible approach to be able to handle changing waste forms and accommodate seasonal variations in production levels. The facility started up in July 1996 with daily production levels in the 100 ton per day range and almost all waste coming from stockpiled bulk soils. Figure 2 shows the dramatic increase in production levels over the past 18 months with peak daily production exceeding 3,500 tons.

Bulk soils represent the vast majority of the waste forms and are handled through dumping, placement by bulldozers, and compaction in place to meet structural requirements. Water or recycled leachate is used for both compaction purposes and dust control. The arid Hanford environment has made optimum water moisture in materials critical in achieving design compaction.

Special wastes at ERDF are those that require handling by other equipment and/or special procedures to ensure worker safety or prevent release of contamination to the environment. Large equipment including fans, piping, tanks, and other miscellaneous hardware have required some form of stabilization to ensure compaction in the landfill. A common waste from the decontamination and decommissioning efforts at the site have led to the use of grout, contaminated fill, or sand to prevent differences in subsidence in the landfill.

Project planning is the key to integrating the separate remedial action, transportation, and disposal functions. Weekly planning meetings are held between ERDF and waste generators to identify disposal needs and plan production. Special handling requirements are established and a special waste management team can be deployed to resolve safety and logistic issues. The use of roll-off containers has maximized flexibility to changes, decoupled remedial action functions from the transportation and disposal functions, and allowed the system to react to difficulties. Sustained efficient operations at ERDF require a balance among the needs of excavators, the transporter, and the disposal operations.

The quoted cost for waste disposal operations across the DOE complex have varied greatly based upon differing site policies, requirements, risks associated with the waste, and even accounting policies. A recent DOE-HQ review was the first study to attempt to overcome the accounting differences by breaking down potential operating costs into common categories and collecting all costs across different work breakdown structures at each site (1). Figure 2 shows a comparison of those DOE site prices along with some basic commercial rates for low-level waste. The figure clearly shows that the Hanford ERDF disposal operation is the most cost effective of operating facilities in the DOE complex. The report attributes lower costs to higher disposal volumes, larger percentages of bulk wastes, radiological facility status allowing limited regulation, minimizing waste verification, and commercial disposal operations.

The ERDF waste disposal cost per ton is 43% less than the government's costs estimated as part of the competitive procurement. Life cycle cost elements of the disposal facility are presented in Figure 3. The commercial approach to waste disposal operations has saved over $90 million dollars to date with savings increasing as every ton of waste is placed in the landfill. The most significant factors in this cost savings are effective application of regulatory requirements, use of a government facility rather than a commercial facility, competitive fixed price contracting, and a long term contract with minimum quantities.

Effective application of regulatory requirements is a major challenge for operators of facilities within the DOE complex. Oversight agencies and outside organizations supporting DOE has led to the development of a complex set of DOE Orders and procedures that address operations ranging from nuclear reactors to laboratory research. These orders and procedures are not always applicable to efficient operations of low-risk facilities. At ERDF, the risks associated with the operations were reviewed against risks at similar commercial facilities. This effort led to the development of a set of requirements that could adequately bound the operations and protect workers, the public, and the environment.. A set of five DOE Orders, one NRC guideline, and appropriate federal, state and local requirements were incorporated into the contract performance specification to bound the facility operations. The radiological (as opposed to nuclear) status of the facility was an asset in convincing oversight personnel that the facility could be operated through this limited set of requirements and generally outside of site-wide policies. A team effort was critical to success and membership included EPA, the State of Washington, DOE oversight personnel, and the project organization. The fixed price contract has also been a significant asset, because interpretations and/or additional requirements are viewed as a potential changed condition and management awareness of the impacts is heightened. Not all interpretations would necessarily qualify as a cost or schedule impacting change in conditions, but the mere understanding that the service is being performed for a fixed price frequently makes people think "am I implementing the requirement or my opinion of the requirement?"

The use of commercial facilities for waste treatment and disposal is viewed by many people to be the only way DOE can reduce costs and avoid spending capital that is sometimes hard to get approved by congress. This is not necessarily the most cost effective approach for the government, as some of the aspects of commercial operation actually cost more. A commercial facility for waste treatment or disposal involves a significant initial investment and a long term liability for a corporation. Development of such a facility requires the corporation to risk private capital in siting, permitting, and construction of a facility without any cash flow. Market analysis must show sufficient quantities of customers and substantial operating margins to recover the development costs, operating costs, and long term liability for the closure/monitoring of the site. The ability to site the facility in the face of stakeholder issues and long term corporate liability drives corporate expectations for high operating margins once operations begin to reach a reasonable rate of return on the investment.

A government owned facility operated in a commercial manner, such as the ERDF, can truly be the "best of both worlds" and the most cost effective approach. The government, through BHI, managed the facility development through the critical permitting/licensing and design phases. This eliminated a large amount of risk compared with a commercial facility, as many facilities fail on the drawing boards after spending significant money but failing to receive a license/permit. The government also has an advantage that cost of money is not tracked on specific assets and doesn't build up when there is no cash flow before waste receipts finally begin. Finally, the long term liability and monitoring for the site resides with the government and not a private entity. All of these factors have to be accounted for in the financial analysis for a commercial operation. Each one adds to the operating margins required during facility operation to recover investments, adequately address long term liability, and ensure that a reasonable rate of return is achieved on investment. The ERDF approach avoids the commercial operator's liability in each of these areas and allows for dramatically reduced operating costs. As discussed earlier, though, the regulatory environment must be managed to ensure that the commercial entity can operate the facility in as much of a commercial manner as possible.

Competitive fixed price contracting has advantages and disadvantages depending upon the circumstances for the required service, but has proven over time to push vendors to minimize cost. The scope of the work must be adequately understood and documented in a specification to ensure that the approaches can be identified and appropriate prices developed. If this can be done, true incentive for performance is achieved because the contractor is responsible for achieving the desired end state regardless of cost. This strong fixed price driver to minimize cost cannot be matched through cost plus contracting with award fees, cost savings sharing or even performance measures. Management team performance is generally measured by a combination of customer satisfaction and profit/loss, but a company's shareholders or owners main interest is return on investment no matter how you look at it.

A long term contract with minimum quantities is one of the major factors in the ERDF procurement that allowed commercial firms to commit private capital and experienced personnel. The contract is for eight years with a guaranteed minimum quantity that ensures that corporate capital invested can potentially be recovered. Figure 4 shows the average disposal price against disposal quantity for the ERDF contract and demonstrates what would be expected of a good pricing structure - costs go down as quantities increase until the point of diminishing returns is reached. Many contracts are limited to short terms and no guaranteed quantities, which does not show commitment to the contractor. This can lead to lesser quality key personnel or higher margins to better address the risk of key personnel and private capital.

The drive to continue environmental management work within declining budgets and limited line item funding has caused a number of initiatives by DOE complex managers to "get more for less" to meet program and regulatory objectives. One of the approaches has been privatization initiatives as a means of stretching current funding and deferring up-front capital costs. The term privatization means different things to different people but they all involve trying to achieve commercial-like operations and frequently involve private capital investments into the project with payment when services are rendered (i.e. waste treated or disposed).

Several major privatization and fixed price contracts have been let in the recent past and have had differing levels of success. The commercial operations at ERDF are one commercial approach that has successfully reduced cost and put in place flexible, cost effective, and compliant operations. Start-up ahead of regulatory milestones, no safety or environmental violations to date, significant cost savings, and efficient operations can all be attributed to a good subcontracting concept that has been diligently implemented in a DOE environment. The keys to ERDF contract success are found in several major factors and should be considered for future contract reform initiatives; knowledge of the work to be performed, developmental stage in industry of required services, incentive to reduce cost, risk sharing, reimbursement for private capital, and termination/minimum quantity guarantees. The following section will attempt to discuss these concepts as they have applied at ERDF and could potentially apply to future privatization efforts.

Knowledge of the work to be performed is crucial to defining the service that is required for a project. The beginning conditions, desired final conditions, and the requirements that must be applied throughout the work activity are all critical to ensuring that the contractor and owner are working from the same basis. The Corps of Engineers has been seen as a leader by some in the hazardous, toxic, and radioactive waste (HTRW) arena and has traditionally avoided fixed price activities in that arena due to uncertainty in the work to be performed. The addition of numerous DOE Orders on a DOE project, combined with too much uncertainty in a HTRW type of project, would be an additional driver to avoid fixed price and/or privatized.

At the ERDF, the basic operation is very similar to a combination of commercial nuclear and hazardous waste disposal facility operations which makes fixed price contracting very attractive. Waste forms vary significantly and new waste types will continue to surface, but common types of equipment and procedures can be used to manage the vast majority wastes. Commercial disposal facilities have many years of operation under known regulatory requirements with time proven interpretations. The ERDF project established a select set of applicable DOE orders that minimized deviation from these proven standards. This allowed systems and approaches from commercial operations to be incorporated into the ERDF operational philosophy including equipment selection, engineering controls, operating procedures, and training. Reasonable levels of changes were required to incorporate DOE requirements, but far from major rewrites required for operations at traditional DOE facilities. These specific approaches at ERDF have overcome many of the concerns around fixed price operations in a semi-known environment and could be applied at other facilities depending upon circumstance.

Developmental stage of required services in industry is another key factor which must be considered in determining the type of contracting environment for a particular project. The basic functions in the ERDF waste disposal operation are fundamentally similar to operations at commercial hazardous and radioactive waste facilities. Basic techniques for handling wastes have been developed over the past 25 years for ensuring that the waste is placed correctly while protecting the workers involved and the environment. These techniques have been incorporated into the operation with some modifications due to limited additional requirements and the unique nature of the waste from the clean-up of the Hanford Site. Contracting that involves first of a kind or research and development types of activities should be scrutinized before considering fixed price type of contracting. Inadequate definition of requirements, limited experience overseeing fixed price operations, and changed conditions due to "discovery" of unknown conditions can all lead to an adversarial situation in contracting.

Incentive to reduce cost is a key factor because the "contracting environment" controls whether it is in a party's best interest to perform as requested or find ways to minimize cost. Contractors under cost plus contracting sometimes have disincentive to reduce cost as they see a potential for reduction in their performance or award fee pool. Award fee and subjective performance measurement can intentionally or unintentionally drive operations towards what is perceived to be the client's desire rather than down a path that meets a specific objective end state at the cheapest price possible. Competitive fixed price contracting with a clearly defined end state places management of costs and profit on the work performer and gives them incentive to find innovative solutions within the identified constraints. The fixed price contract can actually act as a shield to requirements as oversight organizations must be able to defend the additional cost of implementing "interpretations" of requirements.

Risk sharing is a popular phrase in the recent past with the perception that contractors have received high management fees with little to no cost or performance risk. The pendulum has shifted significantly and modern contracts place significant amounts of regulatory, performance, and cost risk on the contractor. This shift is significant in an environment with unique requirements and a wide range of outside influences. The shift does not always serve the desired purpose of contractor responsibility and cost effectiveness, as this actually drives the contractor to incorporate significant contingency or conservative approaches to adequately manage the shift of risk. Contracting decision makers must balance the type of work to be performed, regulatory requirements, and unknown conditions that could cause significant concern between the owner and contractor and hinder the operation.

Reimbursement for private capital brings unique problems in a government contracting environment where capital has traditionally been provided by the government through line item projects. The balance between risk and rate of return that are key to private industry are not adequately understood in federal contracting/accounting requirements and frequently impact potential innovative contracts. Reimbursement for cost of money is a key factor in this area as the facilities capital cost of money that can be allowed is very different from a project specific capital charge for providing private capital for a specific project.

Government contracting includes termination clauses and frequently do not address minimum quantity guarantees which can be counterproductive to cost effective operations. The ERDF contract has standard government termination for convenience clauses which protect the government with a Termination Liability Schedule to protect capital investment and demobilization costs of the contractor. Without this type of recognition of the contractor's liabilities, a significant amount of contingency in pricing would be required to ensure reasonable operating margins and rate of return on the corporate investment. The ERDF contract also addresses a minimum quantity of waste receipts which allows for corporate investment with some minimum return on investment as discussed in the cost portion of this paper.

The ERDF waste disposal operations contract has led to significant savings to the government while operations have been safe and compliant. The overall lessons that can be learned from this project include:

• Privatization and fixed priced contracting involving private capital should be screened to ensure that they are truly a commercial type of service. Examples of potential commercial operations projects include:

1. Storage, transportation, and disposal of spent nuclear fuel,
2. On-site or off-site treatment of low-level, hazardous, and mixed wastes,
3. Transportation of radioactive wastes between DOE sites for treatment or disposal, and
4. Operation of DOE facilities with established missions, dependable funding levels, and risks/requirements that can be well defined.

• A balance between government contracting terms and commercial expectations is critical to achieving the best combination of risk sharing while achieving the lowest price for the taxpayer. A limited list of DOE orders with graded implementation, use of commercial regulatory standards where available, and operation outside of "site-wide" compliance systems will lead to shielding the contractor from requirements that are potentially excessive for the risk of the operation and reduce overall cost.
• Fixed price and fixed unit price contracting requires a difficult balance to tightly define the service without restricting commercial innovation. The performance specifications must walk the fine line between being a good contract document and being overly restrictive. Taken to an extreme either approach can lead to significant change orders or overly conservative bids to ensure that the contractor's risk can be adequately bounded.
• A government owned facility can be the most cost effective solution if the regulatory playing field is level with commercial operations. Commercial facilities require high operating margins and rate of return to overcome the substantial risks associated with facility siting, permitting, and liability/closure. These costs can be minimized in a government setting where the contractor is only responsible for performing defined work that is under their control and the long term and capital intensive risks of facility siting and long term liability/closure reside with the government.

1. U.S. DEPARTMENT OF ENERGY, "Low-Level Waste Disposal Cost Comparison Report," Office of Waste Management EM-30, , Washington, D.C. (July 15, 1997).
2. U.S. DEPARTMENT OF ENERGY, "Hazard Categorization and Accident Analysis Techniques for Compliance with DOE Order 5480.23, Nuclear Safety Analysis Reports," DOE-STD-1027-92, Washington, D.C. (September 1997).

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