By NEELD WILSON, PG,owner, Gator Engineering & Aquifer Restoration, Inc.
The Petroleum Restoration Program (PRP) is operating with fixed-fee contracts under some of the most difficult economic conditions seen in the past 50 years.
The multiple economic issues in question have been caused by a combination of an 8-year-old fixed-fee contract, inconsistent annual budgets, 50-year high inflation rates, rapidly rising interest rates, financially strained Agency Term Contractors (ATCs) and subcontractors, and unpaid, burdensome administrative oversight.
Rightfully, the FDEP must manage fiscal responsibility, but the current “win some, lose some” approach is placing the industry in a perilous situation.
Increasingly, the FDEP is acting as the consultant and directing unpaid administrative-laden work scopes on ATCs when the FDEP has little practical field experience. Encumbering ATCs with unpaid and avoidable administration, at a time of high inflation and soaring interest rates, is unnecessarily damaging the industry.
Of course, the FDEP is not responsible for the inflation and rising interest rates currently crippling the nation, ATCs, and subcontractors alike. However, their position has placed the industry at risk by not working more-closely with the industry as partners in protecting Florida’s natural resources. To their credit, the FDEP has encumbered more funds to the PRP using the weighty My Florida Market Place (MFMP) operating platform that ATCs are required to use by their current contracts.
However, it seems from their administrative perspective, it has been difficult for PRP to fully understand the impact of the cost, time, and administration imposed on ATCs and subcontractors, and why purchase orders have not translated into more action. The industry has presented the following solutions to the Department that we would like to see addressed before these compounding issues become unsustainable:
1) Provide more immediate flexibility to address ongoing inflation and interest rate increases.
Agency Term Contractors (ATCs) are in a fixed-fee contract and inflation has been the highest in more than 50 years with interest rates soaring in the past six months and more rate hikes likely in the coming months. Thankfully the industry received Department approval for an additional 10% inflation increase in March 2022 for 2021’s inflation increases (8.9%) however this increase only takes effect on new purchase orders, which at times is six months or more after the approved increase.
Further, the 2022 increase addressed the 2021 inflation and does not account for the inflation in 2022 (7.7%) or the inflation that continues today with no projected end in sight. Aside from any gains associated with the annual CPI of 5% (if approved by the FDEP), the industry has been essentially working with the same rates since 2014.
A similar increase in 2023 is justified by current economic conditions.
2) Modify the ATC contract to allow 3-bid subcontracts as a Reimbursable line item on SPI rate sheets.
Subcontractors are charging more than the rates provided to ATCs in their SPI rates. ATCs cannot pass these additional costs on to the FDEP and therefore continue to lose margins each month that are necessary for reinvestment in staff, training, equipment, and supplies to clean up our natural resources. Subcontractors are under pressure from ATCs to charge less than they receive outside of the petroleum cleanup program.
Hence, experienced and qualified subcontractors are moving away from the petroleum cleanup program.
3) Eliminate My Florida Market Place (MFMP) from the Petroleum Restoration Program.
MFMP is a system for industries that informally quote commodities and/or services more than $2,5000 and less than $35,000. As such, it places an undue burden and cost on ATCs only, delaying the purchase order process and eroding ATC margins even more.
When the industry was shut down in mid-2020 and slowly restarted during the following six months, there were huge industry losses of financial capital, layoffs of experienced personnel, professionals leaving the state to find employment elsewhere, and forced equipment to sit idle and often unmaintained, assets sold, and businesses closed.
The industry is holding on and resilient but needs relief to persuade more subcontractors to participate and be adequately compensated based on current economic conditions.
Although the increase in purchase orders is welcomed, the FDEP needs to understand that the undue financial hardship placed on ATCs and subcontractors inhibits their ability to ramp up the capital and personnel needed to address the increase in purchase orders.
Many businesses in the industry are struggling financially under the weight of an outdated fixed-fee contract that does not consider market conditions where inflation exceeds the CPI index or where interest rates have more than doubled over six months compounding the situation.
The situation warrants thoughtful and immediate attention from the FDEP. In previous years, the program would be terminated and replaced; however, this would represent a tremendous waste of taxpayer dollars. Ceasing work and changing contractors assigned to job sites has delayed progress in this program over the years and increased the overall cost for decades.
Continuing the PRP contract as it is currently designed is not a viable solution given the constraints with limited flexibility from the FDEP.
Looking to the future, a modified or new contract needs to allow consultants to be consultants, FDEP to be regulators, and stabilize the Inland Protection Trust Fund (IPTF) budget at $150M/year to achieve timely petroleum cleanup. This would allow businesses to plan for efficient management of operations and also allow more rapid closures to forecast the future.●
Neeld Wilson, PG is the owner of Gator Engineering & Aquifer Restoration, Inc. (GEAR) and a five-time environmental committee chairman of the Florida Petroleum Marketers Association, two-time member of the Florida Senate Natural Resources Committee, 2014 Veterans of Influence Award, 2017 recipient of the Society of American Military Engineers (SAME) Industry Government Engagement Award, 2018 Environmental Business Journals’ Gold Award, and 2020 Northrup Grumman’s Supplier of the Year Award. Neeld can be reached at firstname.lastname@example.org.