Environmental Cleanup:

Defense Indemnification for Contractor Operations

NSIAD-95-27: Published: Nov 25, 1994. Publicly Released: Dec 20, 1994.

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Pursuant to a congressional request, GAO reviewed: (1) the military services' use of the National Defense Contracts Act to indemnify contractors for their environmental cleanup efforts; and (2) how the Department of Defense (DOD) reports its indemnification actions to Congress.

GAO found that: (1) the Army and Navy have used the act to indemnify contractors' environmental restoration efforts at least twice and, in the cases examined, the Air Force has not used the act; (2) the Army has granted a $5-million indemnification for contractor environmental restoration efforts at the Eau Claire, Wisconsin, plant; (3) since the early 1990s, the Army has included indemnification clauses in contracts for environmental cleanup activities at 20 ammunition plants; (4) the presence of the indemnification clause in a contract does not mean that all of a contractor's environmental cleanup costs would be indemnified because such a determination must be based on the assessment of whether a claim is consistent with the definition of unusually hazardous risk contained in the clause; (5) although the Army estimates that cleanup costs at these ammunition plants will total $800 million, it has not determined the amount for which contractors will be liable; (6) the Navy has included indemnification clauses in its nuclear-related contracts and has obligated $5.8 million for its share of the cleanup in three contracts for low-level radioactive waste cleanup at its Maxey Flats, Kentucky, facility; (7) the Air Force is generally not in favor of indemnifying contractors against environmental cleanup costs; (8) DOD reports to Congress on its indemnification activities generally do not provide sufficient detail to determine whether the indemnifications are allowable or environment related; and (8) the Army is determining if a $5-million indemnification for cleanup at the Wisconsin plant was sanctioned under the act.

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