Pay for Performance Program

The "Pay for Performance" (PFP) concept is not a new contracting philosophy.  In fact, contracting officials in the private and public sector have been using PFP type contracts better known as "Fixed Fee" contracts for many years.  However, the application of "Fixed Fee" or "Pay for Performance" contracts dealing with underground storage tank (UST) cleanups is new in Pennsylvania.

UST cleanups in Pennsylvania are typically paid by using "time-and-materials" agreements that can result in high cleanup costs, slow cleanup progress, and failure to reach cleanup goals.  According to the Environmental Protection Agency, PFP cleanups reward contractors for quickly and efficiently reaching cleanup goals. PFP also produces faster cleanups that protect the public health and the environment.  They enable the technical staff (DEP and USTIF) to focus attention on environmental results instead of on auditing contractors' activities and costs.  PFP cleanups minimize paperwork and administrative costs and delays.  PFP cleanup contractors profit from producing cleanups at a lower cost, because they get to realize the difference between their cost and the fixed price of the PFP cleanup.

There are many states that have implemented PFP programs for UST sites and more are interested.  Early results appear to substantiate that PFP produces faster and lower cost cleanups.  Additionally, staff time is now concentrated on managing environmental risk and not on managing contractor performance and invoice review.

The Underground Storage Tank Indemnification Board agreed to the creation of a pilot program in September of 1999.  The initial report to the Board will likely occur in September 2000.  Several sites are currently being considered for a PFP contract.
 
 

What is a Pay for Performance (PFP) cleanup agreement? back to top

A PFP cleanup agreement sets a firm, fixed price for a cleanup at a site (or group of sites).  The cleanup contractor gets payments as specific contaminants are reduced to predetermined specified levels at specified measurement points on the site.

Does the price for a PFP cleanup include the cost of the site assessment? back to top

No.  PFP only includes the cleanup and closure phases of UST cleanups, not the site assessment or characterization.  Site assessment results must be on hand before the PFP price can be set for a site and are reviewed by the bidders on the cleanup.

Is PFP intended to be used at all UST cleanups? back to top

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, or which are involved 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.

Why PFP instead of paying for time and materials? back to top

Paying for "time-and-materials" encourage slow, inefficient, costly cleanups.

• The longer the cleanup takes the more the cleanup contractor gets paid.
• When the cleanup succeeds the contractor stops getting paid.
• The contractor is rewarded by using innovative technology and achieves a faster cleanup since he gets full payment when certain standards are met.

• The contractor gets paid fixed amounts as contamination-reductions reach pre-set milestone levels.
• The faster the cleanup succeeds, the more the contractor can profit.
• Would you "work smarter" to succeed faster, knowing you could make more money by doing so?

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.

If I would like to participate in a PFP cleanup, who do I contact? back to top

Contact the Claims Unit by calling (717) 787-0763 or (800) 595-9887 (in PA) or your adjuster assigned to the claim at (800) 888-7843.  You can also e-mail us at:  ra-ustif@state.pa.us.