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PC&E test site No. 1: $24 million at stake in PC&E's first arbitration case.

A DISAGREEMENT OVER payment for unexpected waste cleanup at the Old Midland Product Site in Ola (Yell County) has led to the Arkansas Department of Pollution Control & Ecology's first arbitration case.

The federal Superfund site was vacant for years before the state took the lead during the mid-1980s to ensure its remediation, and the PC&E estimated the site's 10 acres would produce 45,000 tons of contaminated soils, sludges and sediments that would have to be treated by incineration.

A $13.8 million contract for the cleanup of the abandoned wood-treating site was awarded to Chemical Waste Management Inc. of Oak Brook, Ill., in March 1991. The company burned 57,000 additional tons of contaminated material and is seeking payment from PC&E for the work that exceeded the estimate.

In February, Chemical Waste Management initiated arbitration to resolve the dispute, giving PC&E its first such case. The use of arbitration rather than the court system has become a standard clause in PC&E contracts to avoid the expense and time required for litigation.

"It's obviously less expensive," says Jim O'Brien, the director of incineration and thermal operations for Chemical Waste Management in Houston. "Arbitration is the fairest thing for everybody. We do this all the time."

But the PC&E doesn't.

Clark McWilliams, engineering supervisor for the PC&E, said the PC&E is somewhat new in the owner business.

"It's not very often from a Superfund standpoint that the state has had an opportunity for |arbitration~," McWilliams says. "We just have not been exposed to the contracting world."

McWilliams says several people on the PC&E staff have construction backgrounds, so they are not at a loss.

Still, the PC&E's first arbitration case isn't the easiest of testing grounds. At stake is an almost $24 million difference in what the PC&E and Chemical Waste Management say the company is owed.

The Environmental Protection Agency, which is responsible for cleaning up most contaminated sites and then recovering the cost from those held responsible for the contamination, designates locations with inactive hazardous substances as Superfund sites. States are left to oversee the remediation -- and any conflicts that arise.

Contract Simplicity

Both McWilliams and O'Brien explain their original contract as simple, but their interpretations are simply different.

"The estimated amount of tonnage was 45,000 tons," McWilliams says. "It's very clear in the contract it was an estimated amount and that was for bidding purposes only. Of course, we did encounter more contaminated soils that increased that tonnage."

McWilliams say the contract also stated that the $80.80 unit price Chemical Waste Management bid for the project would hold for 15 percent of any remediation required above the 45,000 tons. Then, if more work was needed, the PC&E would review the unit price.

O'Brien says the contract defines the work at 45,000 tons.

"Our price was based on that," he says. The eventual 102,000 tons his company remediated, O'Brien says, "is a substantial increase in quantity."

Regarding the 15 percent increase factor, O'Brien says: "As far as we're concerned, that's not even a negotiating point."

The PC&E even had intimated the project would be closer to 35,000 tons, O'Brien says, but he isn't overly concerned about the dispute.

"There's nothing unusual about this," he says. "We're just going to open the door and see what happens."

Chemical Waste Management, which recently completed the remediation, is asking a unit price of $493. That means the extra work would yield more than $28 million. If the PC&E has its way, the project price would only be an extra $4.6 million.

Although all the excavation of contaminated soil is complete, Chemical Waste Management is contracted for the next five years to treat and discharge contaminated ground water from the Old Midland site.

"They haven't walked off," McWilliams says. "Under this contract they can't walk off without forfeiting their bonding."

The PC&E may be new to arbitration, O'Brien says, but the agency seems to know what it's doing.

"The state of Arkansas was thinking about |the tonnage dispute~ when they wrote this contract," O'Brien says.

Alternative Arguments

Heavy court dockets throughout the country have led to what's been dubbed alternative dispute resolution.

Mediation and arbitration are two forms of ADR. Helmut O. Wolff, the regional vice president of the American Arbitration Association's Southwest region office in Dallas, calls arbitration the workhorse of ADR because it's being used more frequently.

Evidence is presented in a manner similar to the court system, but business people find an added advantage with arbitration because the arbitrators are often experts on the disputed topic.

Also, hearings proceed quickly because most arbitrations are not conducted under formal rules of evidence.

That doesn't mean the PC&E and Chemical Waste Management dispute will be resolved in just weeks, but it won't take years as it might in the courts.

McWilliams says he doesn't know what will happen in the PC&E's first arbitration case.

O'Brien doesn't know, either, but in his seemingly complacent attitude toward the case, he says, "I guess we'll find out in a few months."
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Title Annotation:Arkansas. Department of Pollution Control and Ecology
Author:Rengers, Carrie
Publication:Arkansas Business
Date:Jun 14, 1993
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