TheUnited States Department of Defense (DOD) is currently faced with $39.4 billion in environmental restoration liabilities at 8,762 DOD sites (Table 1). Review of previous congressional reports indicates that total DOD restoration expenditures are increasing or stable rather than decreasing, even after several decades of executing investigations, remedial actions and monitoring. This condition may indicate a pervasive culture focused on process over results. In response, Air Combat Command (ACC) established an innovative process to stimulate forward progress and aggressive liability reduction, driving a cultural change throughout the command.
Performance-based restoration (PBR) is a holistic business solution that requires a thorough understanding of risk management from cradle to grave. Three primary components are at the core of the process and allow ACC to analyze, contain and track progress in the meaningful reduction of technical and cost risk. Initial Risk Management Analysis allows decision makers to understand in quantifiable terms the amount of technical, financial, legal, sociopolitical and mission uncertainty being managed at a given installation or site. Once these factors are quantified, Performance-Based Contracting (PBC) can be used as a contractual tool to contain the amount of financial risk associated with these uncertainties.
The uncertainty associated with a given PBC effort is used as the fundamental guide in determining the type of risk management tools the PBC will employ. Figure 1 illustrates ACC’s actual and projected restoration program cost from FY1982 through FY2030. During this timeframe, ACC has moved from the extreme uncertainty associated with site discovery and investigation to activities of increasing stability -- design, remediation, long-term monitoring and closure. Through this progression, the type of contract potentially employed in a PBC effort ranges from time and materials to firm fixed price.
Additionally, the utilization of environmental insurance is also a function of the risk being managed.
Once the uncertainty has been quantified and translated into the appropriate contractual risk management tools, ACC employs Decision Based Partnering (DBP) to support installation teams in results- oriented decision making. DBP is a departure from the tiered, time-consuming, traditional partnering approach. It is a new way of doing business in response to the rapid decision making required to succeed with PBR efforts. The primary objective of DBP is the tailoring of meetings and attendees around key decision points along the critical path to site closure.
The comprehensive process ofPBR has resulted in a significant and measurable change in managing the portfolio of ACC environmental liabilities. Prior to PBR, the portfolio of environmental liabilities at ACC approached $314 million total cost with the potential of increasing to a worst case cost of $427 million. Following implementation of PBR, the total costs were decreased to $152 million. The primary factors for reduction were administrative streamlining with regionalization of services and employment of risk bounding tools to reduce the incident of inefficient expenditures.
ACC’s use of advance Environmental Liability Portfolio Management techniques allows decision makers to rapidly visualize improvement in the management of command liabilities, as well as quantify changes in the portfolio. The ACC portfolio was base-lined prior to the development of PBR. (Figure 2)
Following the implementation of PBR, the ACC environmental liability portfolio dramatically dropped in total cost as well as administrative burden. Figure 3 illustrates the post-PBR portfolio improvement. For an expanded understanding of the factors driving the portfolio shift, notice the pre- and post-PBC movement of two example installations in the ACC portfolio:
Base 1 demonstrated moderate technical uncertainty operating within a regulatory community that was open to risk-based management. Prior to PBR, this installation fell into high risk Quad 1 due primarily to technical uncertainty driven by appropriate establishment of background concentrations and administrative burden of maintaining multiple contractors at the installation. Effective PBC risk management tools were determined to be firm fixed price or firm fixed price with incentive fee, with optional insurance, due to the reduced cost uncertainty and standard deviation projections. Following PBR, Base 1 now falls within the Quad 2 moderate risk category.
Base 2 demonstrated high technical uncertainty, operating within a regulatory community focused on anti- degradation. Prior to PBR, this installation fell into high risk Quad 1 due primarily to uncertainty associated with the establishment of cleanup criteria. Effective PBC risk management tools were determined to be cost plus incentive fee to attain technical performance objectives. The technical performance objectives were crafted to focus on the risk management principles of domain protection, management of exposure pathways, and completion of technical and economic feasibility studies to support establishment of cleanup criteria consistent with land use. Probabilistic cost estimating was used to forecast the total cost of anticipated bids, as well as the range of incentive fees possible over the contract. All bids received fell on the forecasted cost curve and clearly validated ACC’s ability to translate technical uncertainty into cost uncertainty associated with installation management. FollowingPBR, Base 2 remains within Quad 1; however, the worst case cost projection was dramatically reduced, resulting in approximately $160 million in cost avoidance at this installation alone.
ACC’s active use of portfolio management techniques to track the benefits of PBR is fundamental in consistently moving the restoration program forward in the most value-focused, effective manner. ACC is a leading agent of change in shifting restoration cultures to focus on the end state. The crafting of risk management tools and active oversight of the implementation of those tools is fundamental, providing optimal stewardship of public resources and ultimate protection of human health and the environment.
Robert Barrett is Air Combat Command Chief of the Asset Management Division of the Directorate of Installations and Mission Support, USAF.