Of course the game is rigged. Don't let that stop you--if you don't play, you can't win.

-- Robert A. Heinlein

We focus quite a bit on compliance with statutes and regulatory matters (not to mention contract terms) related to cost accounting, contract administration, and program management. However, that list does not exhaust the Pantheon of potential compliance issues facing government contractors, as Honeywell International recently learned to its chagrin.

The U.S. Department of Justice announced on March 11, 2011 that Honeywell International had agreed to plead guilty to one felony count (storing hazardous waste without a permit) and to pay a $11.8 million criminal fine, in order to resolve criminal charges stemming from its onsite storage of radioactive potassium hydroxide (KOH) “mud” at its facility in Metropolis, Illinois. (Yes, there really is a city called Metropolis.)

Honeywell’s facility in Southern Illinois has been in operation since 1958. In 1964, the facility was “mothballed” until reopening in 1968. Honeywell operates the facility under a license from the U.S. Nuclear Regulatory Commission (NRC). The facility is the only site that converts uranium in its natural state into uranium hexafluoride (UF₆). The UF₆ is then further enriched into nuclear fuel and reportedly used in nuclear power plants.

According to the Dept. of Justice—

At the Metropolis facility, air emissions from the UF₆ conversion process are scrubbed with potassium hydroxide (KOH) prior to discharge. As a result of this process, KOH scrubbers and associated equipment accumulate uranium compounds that settle out of the liquid and are pumped as a slurry into 55-gallon drums.

(The slurry is called “KOH mud.”)

Up until 2002, Honeywell used a “wet reclamation” process to reclaim the uranium from the KOH mud; however, in 2002 Honeywell ceased using that process and, instead, decided to store the KOH mud on site. (We cannot find any discussion of why Honeywell chose to end its reclamation process.) As a result of its decision, Honeywell entered the KOH mud storage business, having to store drum upon drum of the contaminated sludge on its site—which happens to be located relatively near the Ohio River.

Unfortunately for Honeywell, the contaminated KOH mud was classified as a “corrosive hazardous waste” under the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. § 6901. Accordingly, Honeywell was required to obtain a RCRA permit to store the KOH mud at its site for longer than 90 days. According to the DOJ, Honeywell knowingly violated RCRA’s requirements.

The thing is, we’re not so sure about the “knowingly” part. Obviously we’re not environmental scientists or RCRA specialists—far from it, in fact. However, though the waste treatment and storage rules under RCRA are complex (to say the least) we noticed some ambiguity. For example, what might a jury make of this statement found in the 2001 final rule?

Our rule will allow qualified generators of LLMW to claim a conditional exemption from the regulatory RCRA definition of hazardous waste for mixed wastes stored and treated by the generator under a single NRC or NRC Agreement State license. This conditional exemption acknowledges that NRC regulation for low-level waste (LLW) provides protective regulation of storage and treatment of mixed waste in tanks and containers. This regulatory flexibility applies only to generators of low-level mixed waste who are licensed by NRC or an NRC Agreement State.

Based on the foregoing, it might be argued that Honeywell honestly believed it was exempt from RCRA permit requirements because its operation was licensed by the NRC. But in any case Honeywell apparently realized it needed a RCRA permit, because in July 2007 the company requested a modified storage permit from the Illinois EPA, which was received in July 2008. According to the DOJ, the permit allowed “Honeywell to store drums containing KOH mud only in a KOH container storage area designed to contain any spills, leaks or precipitation that accumulates in the drum storage area.”

Which would seem to have cured the problem, unless one were to realize that “by September 2008, Honeywell had accumulated over 7,000 drums of KOH mud.” And by April 2009, that number was up to 7,500 drums of waste—all of which the U.S. EPA alleged were not being stored in accordance with the terms of the RCRA permit. According to the DOJ, it was not until March 2010 that Honeywell was in compliance with its RCRA storage permit.

Thus, the criminal charge and the largish fine.

DOJ reported that, in addition to the $11.8 million fine—

In accordance with the terms of the criminal plea agreement, Honeywell will serve a five-year term of probation. As a condition of probation, Honeywell must comply with the terms of the interim consent order entered into with the Illinois Attorney General’s Office and the Illinois Environmental Protection Agency, filed on April 21, 2010, and any subsequent revisions, which imposes a schedule for the processing of KOH mud. As a further condition of probation, Honeywell must implement a community service project in the community surrounding the Metropolis facility, whereby Honeywell will develop, fund and implement a household hazardous waste collection program and arrange for proper treatment, transportation and disposal of this waste collected during at least eight collection events over a two-year period, at a cost of approximately $200,000.

The point to this story is that there’s more to compliance that FAR and CAS. A robust compliance program isn’t simply about back-office bean-counters making sure the beans are appropriately categorized. A robust compliance program integrates the back office with operations, and ensures that all statutory and regulatory (and contractual) requirements are considered. All facets of the operation must be examined for compliance requirements, lest one slip through the cracks.