Pentagon to Pay Major Portion of Lockheed Cleanup

The Defense Department will reimburse the nation’s 15 largest defense contractors for much of the $3.1 billion they expect to pay in environmental cleanup costs--including more than half of Lockheed’s $263-million bill in Burbank--the General Accounting Office reported Thursday.

The findings were made public at a House subcommittee hearing held in response to disclosures that the Pentagon has been quietly reimbursing contractors for a portion of their environmental cleanup costs.

Some committee members and GAO and Pentagon representatives appeared to agree that the contractors deserved some reimbursement. Environmentalists at the hearing, however, argued that the Defense Department should investigate more closely whether these contractors violated pollution regulations and, if so, they should be forced to pay the cleanup costs themselves.

The controversy arose after disclosures that the Pentagon was paying a share of the environmental decontamination expenses of a number of defense contractors, including Lockheed Corp., for the cleanup of its Burbank property.

Lockheed expects the Burbank cleanup will cost $263 million of a total $385 million it will spend to restore sites around the country, Ronald R. Finkbiner, the company’s vice president for contracts and pricing, said in testimony before the House Government Operations subcommittee on legislation and national security.

Lockheed expects to recover between 50% and 70% of the $385 million through reimbursement by the Defense Department and other government agencies, Finkbiner said.

Lockheed has already spent $38 million cleaning up the ground water and soil around its Burbank site, Finkbiner said.

A GAO investigation was requested last year by Rep. John Conyers (D-Mich.), chairman of the subcommittee, and Sen. Barbara Boxer, then a House Democrat from Greenbrae, in response to a November, 1991, report by The Times revealing that the Pentagon has been reimbursing defense contractors for their environmental cleanup costs.

Facing significant financial liability at a number of the nation’s 1,200 Superfund cleanup sites, many defense and aerospace companies have been including the costs of decontamination as regular expenses charged to the Pentagon. The companies have been reimbursed under a general contract regulation that allows the government to pay for “reasonable” and “ordinary” expenses necessary to the contractor’s business.

The contractors typically allocate portions of their cleanup costs among their government and private customers based upon the proportion of business that each one does with the company. For a major defense contractor such as Lockheed, which works mainly for the Defense Department, that often means the Pentagon is paying for more than half the cleanup costs at a given site.

Disclosure of the reimbursements came as a surprise to some officials of the Environmental Protection Agency, which had been negotiating cleanup settlements with the contractors without realizing that the Pentagon would ultimately be paying part of the costs.

At Thursday’s hearing, the GAO reported that the amount of money already paid to defense contractors was significantly higher than previous estimates.

Last June, the GAO reported that four of the 15 largest defense contractors already had been reimbursed $59 million for cleanup costs. Thursday, the congressional watchdog agency said its estimate of past government reimbursement had risen to almost $130 million, and involved seven of the 15 contractors.

In that same June report, the GAO had estimated that the total cleanup costs for nine of the 15 contractors would total roughly $1.3 billion. Thursday’s report increased the estimate to $3.1 billion for all 15 companies.

Although GAO officials resisted predicting what the total, long-range costs of cleanup might be, they did not dispute an assertion by Rep. Carolyn Maloney (D.-N.Y.) that it could eventually reach $5 billion to $10 billion.

The GAO criticized the Defense Department’s lack of accurate data and inconsistent reimbursement practices, calling for more specific guidelines to determine things such as whether contractors should earn profits from their cleanup costs, but it also defended the idea that the government bears some responsibility.

“We do need to be careful that if what the contractor was doing for the government naturally caused damage, that we do at least share if not take on the burden of cleanup,” said Donna M. Heivilin, director of defense management and NASA issues in the GAO’s National Security and International Affairs division. “But we also need to be careful not to take on responsibilities that are not ours.”

Representatives from three defense contractors that the GAO used as case studies--Lockheed, Aerojet General Corp and Boeing--defended the current system of treating environmental cleanup costs as normal business expenses.

“Environmental remediation costs are incurred throughout industry and by government agencies in connection with activities that were commonly conducted for decades,” Finkbiner testified. “They are the cost of doing business. . . . Absent any adjudication of unlawful conduct by the contractor through its managers, remediation costs should be recognized as ordinary and necessary business expenses in the pricing of government contracts.”

Times staff writer Myron Levin contributed to this story.