20130910_BLM_WO_Phosphate_Bond_Memo.pdf

United States Department of the Interior

BUREAU OF LAND MANAGEMENT

Washington, DC 20240 http://www.blm.gov

September 10, 2013

In Reply Refer To:

3504 (320) P

Memorandum

To:

From:

Subject:

State Director, Idaho

Assistant Director, Minerals and Realty Management

Bond Requirements for Phosphate Mining Operations

The purpose of this memorandum is to implement the Depaiiment of the Interior (DOI), Bureau of Land Management (BLM) action in response to Recommendation 1 of Government Accountability Office (GAO) report GAO-12-505, "Phosphate Mining-Oversight Has Strengthened, but Financial Assurances and Coordination Still Need Improvement."

This memo documents and reaffirms the BLM's policy that reclaJ11ation bonds for phosphate mines operating on Federal leases are required, and encourages bonds that cover full estimated reclamation costs. The BLM relies on reclamation bonding in the event the lessee is unable to complete part or all of the reclamation work as the parties envisioned due to the lessee lacking funding at the time of reclamation. To calculate reclamation bond cost estimates for phosphate mining operations, BLM offices will follow the policy and procedural guidance in attachment 1

- Guidelines for Phosphate Mine ReclaJ11ation Cost Estimates, which closely follows Section 6.2 ofH-3809-1, Swface Management Handbook.

This guidance is effective immediately to require reclamation bonds for phosphate mines operating on Federal leases in Idaho, and encourage bonds that cover full estimated reclamation costs as outlined in attachment 1 to this memo.

On May 4, 2012, the GAO completed a report entitled, "Phosphate Mining- Oversight Has Strengthened, but Financial Assurances and Coordination Still Need Improvement." The report made tl1ree recommendations. The first states, "Document the practice of requiring financial assurai1ces to cover the estimated full cost ofreclamation in BLM's official agency policy."

On August 2, 2012, the Acting Assistant Secretary, Land and Minerals Management transmitted to GAO a "Statement of Actions," which are actions the BLM will take in response to the GAO recommendations. The response to Recommendation 1 stated, "BLM will review the current reclamation and bonding practices used in Idaho phosphate mining and will develop WTitten policy, through an Instruction Memorandum, to appropriately document and clarify that the BLM requires financial assurances that will cover the full estimated cost of reclamation."

Although the current BLM regulations do not require full cost bonding for phosphate mining, the applicable bonding regulations provide, "BLM will set permit and lease bond amounts for each lease or permit. We will consider the cost of complying with all permit and lease terms, including royalty and reclamation requirements, when setting bond amounts" (43 CFR 3504.50 (a)). Based on this regulation, the BLM must require bonding and should encourage full cost bonding whenever possible.

This memo transmits interim policy that the BLM will incorporate into MS-3504, Bonds, during the next revision.

If you have any questions concerning the content of this memo, please contact me at 202-208-4201, or your staff may contact Mitchell Leverette, Division Chief, Solid Minerals, at 202-912-7113 or mlevereret@blm.gov.

Attachment

Guidelines for Phosphate Mine Reclamation Cost Estimates

Introduction

When a new mine or exploration reclamation plan or a plan modification is approved, a new reclamation bond may be needed, or an existing bond adjusted to account for any additional potential reclamation requirements. In addition, a bond should be periodically reviewed to ensure it represents an accurate estimate of the current costs to perform the prescribed reclamation. The operator may also request an adjustment to a bond based on reclamation activities they have completed that review the b·ond's supporting documentation to determine if it identifies and incorporates all applicable reclamation and administrative costs, and meets the requirements of 43 CFR 3504.S0(a). Besides reclamation, bonds should also include cost components related to complying with established requirements, such as royalty payments, maintaining compliance with the Clean Water Act and meeting requirements at 43 CFR 3591 .I.

For a new exploration or mine plan, a reclamation bond is required after completion of the National Environmental Policy Act (NEPA) analysis and the Decision Record (DR) or Record of Decision (ROD) is signed and before any ground breaking activity can commence. For a mine or exploration plan modification proposed by the lessee or required by the BLM per 43 CFR 3592.l(d), the existing bond documentation needs to be reviewed to detem1ine if the operator has identified and incorporated any new mine plan components or reclamation requirements into the bond. If the review warrants, the bond should be adjusted after completion of any required DR, ROD, or Determination of NEPA Adequacy (DNA) is signed, but before any ground-breaking activity associated.with the modification is performed.

The following guidelines describe procedures to be followed and components to be considered when documenting the calculations for a bond to reclaim an exploration project or mine site, should the operator not complete reclamation as required in an approved reclamation plan. The guidelines are to ensure that the cost estimate:

• Covers an appropriate reclamation scenario that meets the requirements in the ROD or DR and approved reclamation plan or plan modification.

• Uses unit costs, production factors, quantity take-off, tasks and calculation methods that are reasonable and appropriately accurate for an "actual cost" estimate. Quantity take-off consists of using engineering drawings and figures to determine the quantity and types of materials that need to be handled or procured.

• Is equitable between operators, i.e., that one operator does not gain a competitive advantage by using more favorable, but unsupported unit costs, factors or methodologies to calculate their bond.

Reclamation Scenario and Basis

A "scope of work" should be developed to calculate a reclamation cost estimate (RCE), which should be used to perform quantity take-offs. In this guideline, this scope of work is called the reclamation "scenario." The scenario assumes mining stops at an intermediate point in the life of the mine when the cost to reclaim would be the highest. This intermediate point is typically not at the end of mine life, but could be. Also, the approved reclamation plan typically does not cover fully reclaiming the site at an intermediate point, so other than concurrent reclamation as mining proceeds, there is typically no interim final reclamation scenario described in an exploration or mine reclamation plan, and the RCE scenario needs to be prepared.

The scenario can be selected from the entire mine life for relatively short duration mines, or a part of the mine life for mines whose life is longer than can be reasonably and accurately determined. Whether for the entire mine life or a part, or "phase" of the mine life, the scenario needs to represent when the highest reclamation cost exposure might exist if mining were curtailed and reclamation stopped. The scenario should function like a scope of work in a construction bid and is used as a reference to perform quantity take-offs so that the cost of materials, equipment, arid tasks can be determined for the RCE. The scenario needs to reflect reclamation tasks that would be needed to fulfill the intent of the reclamation portion of the approved exploration or mine reclamation plan, and account for any plan modifications.

The bases for the RCE are those unit costs, production factors, equipment types, and administrative costs and factors used to build the extended cost estimate. The basis should be consistent between the RCEs calculated for the different mines or exploration projects, taking into account normal fluctuations in unit costs, such as fuel, labor, etc.

Phased Scenario

For the purposes of the bond, a phase is defined as a time period shorter than the life-of-mine that consists of a logical phase of mining, such as one or more mine panels, an extension of the mine or main haul road, or the installation of a conveyor between panels. The intent of using a phased approach is to allow bonds for logical portions of the mining sequence as a unit and to allow bonds for a timely phase of the mining for those mines that have a long life-of-mine relative to the bond review period. It is also used to reduce the uncertainty that is inherent in determining the costs of activities in the distance future. A phased RCE and bond is typically not appropriate for a prospecting permit or exploration license since tl1ey are relatively short authorizations and expire in 2 years. The operator should prepare an RCE for the selected phase or phases, incorporating all applicable reclamation and administrative costs. The amount of the required bond for the mine should be based on the RCE for the phase of the operation plus any existing bonds for the mine, assuming the existing bond for the mine is satisfactory. If the existing bond needs adjustment, it should be reviewed and adjusted as part of the next scheduled periodic full review.

Preparing the Scenario and Basis

The following process should be used for determining the reclanrntion scenario and basis:

1. Review the ROD, DR, approved reclamation plans, and any plan modifications, in coordination with surface management agencies and the operator, to determine the overall reclamation goals. This includes identifying: 1) reclamation cover or cap designs and performance requirements, 2) pit backfill configurations (Are there partially backfilled pits or pits not scheduled to be backfilled in the reclamation plan?), 3) water management objectives and goals, 4) external dump locations and configurations, 5) ground water and surface water mitigation objectives and designs, 6) reclamation requirements for haul roads, shops and other ancillary facilities, 7) reclamation requirements for ore processing facilities, etc., 8) interim (before the bond can be collected) site management and security needs, and 9) long-term monitoring and mitigation requirements, such as water treatment.

2. Review the mining sequence, typically by mining panel, phase or stage, as defined by the operator and usually identified in the mine and reclamation plan. Select a time period that the RCE will cover. During the selected time period, determine when the most reclamation cost exposure might exist if mining and reclamation stopped. Assume that the operator has performed the concurrent reclamation required by the mine and reclamation plan. Using the designs, goals, and performance requirements determined in step I, determine the final reclaimed scenario to be achieved from the point mining stopped. The scenario should describe the conditions that are expected to exist when the mining stopped, and the conditions that need to be created through additional reclamation work. The difference between the two conditions is the work that needs to be performed and covered by the RCE and bond. The point of maximum reclamation costs is often when there is the greatest area of disturbance, greatest volume of materials needing to be handled to meet reclamation goals, or some other factor or combination of factors maximizing the cost to reclaim.

3. Using the scenario in step 2 above, determine the basis for the RCE. The basis is the work, tasks, and production factors and unit costs appropriate to bring the partially completed mine into compliance with any environmental standards and requirements, such as surface and groundwater quality standards, and also what work would be needed to backfill, contour, stabilize, cover, cap, and reclaim the disturbed areas to meet the resource restoration goals identified in step 1 above.

Many of the phosphate mines in southeastern Idaho are located on U.S. Department of Agriculture, Forest Service-managed lands, and include mine facilities outside of the lease that would normally be reclaimed at the same time as the on-lease portions. To avoid duplicating fixed costs for mine reclamation inside and outside of the lease area, such as mobilization, laydown yards, ready lines, service vehicles, etc., it is recommended that all reclamation costs for the mine, both on- and off-lease, and irrespective of surface owner, be calculated as if performed at the same time, without duplicate costs. The costs should then be split for each bond holder through negotiation with the surface managers, typically based on surface area and reclamation effort.

Often, an on-lease area needing filling or re-vegetation could require material from an off~lease area, or visa-versa. These aspects of the reclamation need to be explicit in the RCE. Keep in mind that the RCE will be used to prepare the actual scope of work by an engineering firm should the bond be forfeited, so the RCE needs to be explicit and detailed enough to provide guidance for that effort.

Based on this information, the operator should submit a narrative to the field office, including drawings showing the reclamation tasks, short- and long-term monitoring scenarios, water treatment or similar long-term mitigation requirements if required, and the scheduling of tasks. Equipment types and fleet production factors should be discussed and agreed upon. For example, will a task require material be dozed, or will it be a load, haul, dump, and spread operation? What rolling resistance, equipment efficiency, operator el1iciency, etc., will be used for the calculations? Be cautious about what factors are used since they can affect the calculated cost considerably, creating a biased estimate. To avoid this, require consistent regional factors between operators to avoid giving one operator a competitive advantage through the bond. Fuel can be up to 30 percent of the total cost ofreclai:nation and is often the most time-volatile component of the cost estimate, so the current price for fuel should be used in the RCE.

Reclamation Cost Estimate Assumptions and Conditions

Once steps I, 2 and 3 are completed, the field office should request the operator to prepare an RCE submittal based on the scenario and basis. The BLM should not prepare the RCE for the operator. The RCE should be based on the following assumptions and conditions:

• The estimate should cover all relevant operation, maintenance a11d administrative costs for all reclan1ation identified in the reclamation scenario.

• Costs should be estimated as if the BLM were hiring a third-party contractor to perform all required reclamation.

• Costs should include the use ofoffsite equipment as if the project area was vacated, and the estimate should include all associated mobilization and demobilization costs.

• The estimate should include, when applicable, all interim maintenance and security required to keep the area of operation in compliance with applicable safety and environmental requirements while reclamation contracts are developed and executed.

• The estimate should cover costs to construct and maintain any long-term treatment facilities or post-closure structures or tasks required in the approved plan.

• Reclamation by the operator is current as required by the approved mine or exploration reclrunation plan up to the time that mining stopped.

Labor Costs - Where applicable, labor costs for laborers and operators should be based on federally mandated labor rates as required by the Davis-Bacon Act and the Federal Acquisition Regulations (FAR) for contracts over $2,000 (FAR 52.222-6). If the reclamation a11d cost estimate is solely for the dismantling, demolition, or removal of improvements, then contracting is under the Service Contract Act (FAR 52.222-41), and Davis-Bacon wage rates do not apply.

Service Contract Act wages would also be applicable for operation a11d maintenance of a water treatment system, but not the construction. If construction, alteration, or repair of the improvements is contemplated, even ifit is under a separate contract, the Davis-Bacon wages apply (http://www.wdol.gov/).

Inflation - Inflation ca11, over time, become a significant factor in the amount of the required bond. When calculating an RCE, inflate the cost over the review period, or over the time to the maximum disturbance reclamation scenario, whichever time period is less. To minimize the impact inflation can have, the field office should ensure RCEs are reviewed periodically.

Concurrent Reclamation Previously Performed and Accepted - Operators are expected to perform concurrent reclamation as exploration or mining progresses. Where concurrent reclrunation has been accepted as complete by the BLM, the RCE and bond should be adjusted accordingly.

Reclamation, Closure, Mitigation and Monitoring Components

The reclamation costs reflect the direct construction and maintanence costs of a Government contract to reclaim the area as defined in the reclamation scenario. Reclamation and closure tasks that need to be considered include the following categories:

• Interim Operation & Maintanence (O&M) - If an operator abruptly ceases operations, immediate site operation and maintenance may be required by a third party to maintain the area of operation in compliance with applicable safety and enviromnental requirements. There is no preset time period for the care and maintenance of a site prior to the start ofreclamation; much depends on the BLM's ability to access the bond, especially in bankruptcy cases, but experience has shown that it takes at least a year before full reclamation can commence. Much of this time is needed because field work is weather dependent and reclamation activities often cannot commence until late spring or early summer to avoid having snow incorporated into fill sections. It is a good rule-of thumb to allow for a minimum of I year of interim O&M by a contractor. Large operations or project areas with limited seasonal access may warrant a longer time period.

• Hazardous Materials - This may include the cost of decontaminating, neutralizing, disposing, treating, or isolating hazardous materials used, produced, or stored on the site.

The estimated cost for handling hazardous materials should assume, unless otherwise documented, that the material is properly stored and labeled. If, upon site inspection, it is determined the operator is using, producing, or storing material onsite that could be hazardous, e.g., unlabeled barrels, and the BLM is unsuccessful in getting the operator to properly manage those materials, the reclamation cost estimate should be updated to reflect the higher cost of disposing of such material. This distinction is important, as the disposal of properly managed hazardous materials may be a fraction of the disposal cost for materials that are not properly stored and identified.

• Water Treatment - If water treatment is prescribed in the reclamation plan and is included in the reclamation scenario, then all water treatment construction and maintenance costs needed to ensure that mine discharge or drainage will meet relevant standards should be included in the RCE. The cost of long-term, post-reclamation, operation, maintenance, and replacement requirements, if any, should be addressed in the bond.

• Mine Facilities - The cost to demolish, remove and dispose of all mine facilities, immobile equipment, and other materials from the project area should be accounted for in the RCE. Disposal costs for any facilities which have been approved in writing by the BLM for post-reclamation BLM use may be excluded from the RCE. No salvage value for structures, equipment, or materials is allowed in the RCE. Assume no mobile equipment, e.g., trucks, dozers, are left onsite, unless inspection of the site identifies equipment for which the operator is responsible but unwilling to remove.

• Earthwork - Earthwork includes, but is not limited to, the cost of hauling, placement, re grading, and backfilling to reclaim mine disturbances, including roads that have not been specifically identified and approved to remain open. Some roads are approved to remain, but may still require work to reconfigure or reclaim to meet final reclamation requirements.

• Drill Hole Plugging - The cost of plugging, capping, and isolation of drill holes, including exploration, production, and monitoring holes should be addressed in the RCE.

Specifically, care needs to be taken in determining plugging costs based upon whether drill holes are dry, encountered water, or found water under artesian pressure. Proposed plugging should meet all applicable Federal and State requirements. The RCE should include the estimated cost of plugging the maximum number of drill holes that may be open at one time, or the number of drill holes at a particular phase of the exploration program. It is recommended that the RCE never be less than the cost of plugging one drill hole for each drilling rig that will be working in the project area. When the approved plan calls for drill holes to be plugged without specifying that they be plugged before the drilling rig is moved from the drill pad, the RCE should include the plugging cost for all drill holes identified in the plan. For all drill holes and water monitoring and piezometer wells scheduled to be left open, the estimated plugging cost should be included in the RCE. When the approved plan proposes mining through an area where drilling is to occur and the cost of the post-mining reclamation is included in the RCE, the cost estimate for plugging those drill holes is not needed. If the BLM determines the State's plugging and bond requirements related to drill hole plugging accomplish the same level of protection as this policy, the Field Manager may base the estimated plugging costs on the State requirements.

• Re-vegetation - The RCE should include the cost of: 1) obtaining and applying the seed mix specified in the reclamation plan, 2) soil preparation, such as ripping and harrowing,

3) applying soil amendments, such as mulching or fertilizer, 4) controlling noxious weeds, and 5) placing tree and shrub seedlings, if required. The cost for hauling and placement of growth medium, if not addressed under earthwork, should be included.

• Mitigation - This may include avoiding, minimizing, rectifying, reducing, eliminating, or compensating for environmental impacts. This could include mitigation measures that were part of the mine and reclamation plan, such as engineered covers or caps on waste rock piles. The cost of any deferred mitigation the field office is requiring the operator to perform should be included in the RCE. For example, if the operator is required to develop 5 acres of wetlands to compensate for disturbance elsewhere on the project area, until that wetland development is completed, the RCE should include the cost of that mitigation.

• Post-Reclamation Costs - The costs of meeting long-term construction, operation, maintenance, or replacement requirements for any water treatment facilities and infrastructure should be included in the RCE.

In estimating the cost to perform the reclamation, closure, mitigation, and monitoring tasks, the operator's estimate should identify the current costs relating to performing the reclamation including:

• Equipment rental or acquisition costs. Do not forget to include State sales and property taxes on both rental equipment and equipment ownership;

• Equipment O&M costs;

• Cost of operating supplies;

• Labor costs for operations, maintenance and supervision. Supervision does not fall under Davis-Bacon or Service Contract Act wage determinations;

• Federal lodging and per diem rates for workers;

• Maintenance costs for roads, infrastructure, power lines, fences and monitoring facilities;

• Reclamation materials acquisition costs; and

• Mobilization and demobilization costs.

The line items listed are solely for the purpose of arriving at an acceptable RCE and are not to be considered spending constraints should a bond be forfeited. The actual reclamation needed if a bond is forfeited will likely be different than what is in the RCE reclamation scenario, since the actual point in the mining sequence when the forfeiture occurs is unknown. The total bond amount may be spent by the BLM as deemed necessary to implement reclamation. Care should be exercised to assure that bond amount decisions correctly reflect this policy.

Information sources which may be useful in developing and reviewing an RCE include:

Handbook for Calculation of Reclamation Bond Amounts, Office of Surface Mining; BLM Solid Minerals Reclamation Handbook H-3042-1; Caterpillar Performance Handbook; CostMine, InfoMine USA, Inc.; R.S. Means Landscape Cost Data and Sitework Cost Data, Reed Construction Data; Rental Rate Blue Book and Green Book for Construction Equipment, EquipmentWatch; USACOE EP 1110-1-8, Vol 8 Construction Equipment Ownership and Operating Expense Schedule, Region VIII; and Skills & Knowledge of Cost Engineering; BLM Technical Note 441, Overview of Cost Estimating for Abandon Mine Lands and Hazardous Materials Cleanup Projects. Please be aware that owner/operator cost data does not reflect the BLM' s contracting cost, which should be reflected in all RC Es.

Long-Term Obligation Funding

When funding is needed for long-term obligations, the operator should provide the field office with a scope of work, a cost estimate, and a schedule for the monitoring, construction, operation, maintenance, replacement, and other activities for the required facilities, treatment, or other needs documented in the plan. For reoccurring costs, such as maintenance of a water treatment facility, the frequency, timing, and duration of the obligation should be defined for each cost component. The operator's cost estimate for long-term obligations should be documented separately from the RCE. The long-term cost estimates should be reviewed by the Field Manager in the same manner and with the same degree of care that is used in estimating traditional bonds for reclamation obligations.

IlLM Administrative Costs

The field office should ensure the cost of reclamation is estimated as if the BLM were hiring a contractor to perform all tasks. This may include costs incident to the Federal acqusition process the commercial operator does not normally encounter. This may include costs for risks that the Government passes down to a contractor that are not typically in a private construction contract.

The BLM reviewer needs to pay particular attention to costing standards that are based on the Federal Acquisition Regulations (FAR), which can be found online at:

http://farsite.hill.af.mil/vffara.hlm. The responsible field office should coordinate with their state office procurement analyst concerning current labor wages, contracting requirements, and advice on various types of contracts, contract language, and administration.

This guidance contains administrative cost percentages that should be treated as rules-of-thumb.

Percentages, other than those listed below, should be included in the calculation if explicitly addressed in a Federal-State agreement regarding the bond and/or are required by Federal or State law. Unless otherwise noted, the administrative cost categories identified below should be included in the RCE.

Engineering, Design and Construction /ED&C) Plan - An ED&C plan provides the details needed for contracting the reclamation construction work. Where appropriate, the RCE should reflect the costs to prepare such a plan. Should the operator fail to reclaim, the BLM may need to undertake a number of tasks including:

• Preparation of maps and plans to show the extent of required reclamation;

• Performing site surveys to determine amount of topsoil and growth medium stockpiles available;

• Surveying site elevations to provide a basis to dete1mine take-off volumes and distances;

• Sampling and analysis of waste rock, tailings, heap material, surface and ground water, etc.;

• Sampling and analysis of topsoil, growth medium and waste piles to determine whether special handling or treatment is necessary;

• Evaluation of structures to determine requirements for demolition and removal;

• Evaluation of storm water facilities and process solutions or water impoundments to determine if treatment, clean out, or other improvements are necessary; and

• Preparation and execution of environmental or site studies before reclan1ation may commence.

Reported costs for preparation ofED&C plans have ranged from 2 to 20 percent of the estimated reclamation direct construction costs. The actual cost will depend to a great extent on the specifics, including reclamation complexities ofthe proposed operation. The amount or percentage applied should be based on available data within the State, but if specific local or State data is not available, the ED&C costs should be estimated as 4 to 8 percent of the estimated reclamation direct construction costs. However, inclusion of this line item may not be necessary for small operations such as an exploration license, where contracting and construction may be able to proceed without developing an ED&C plan.

Contingency - This allowance is for cost overruns that regulaTly occur but cannot be ascertained when a plan is being developed. Contingency costs generally reflect the level of detail and completeness of the cost estimate, as well as the level of uncertainty in the assumptions used for the RCE. With the dev(,lopment of an ED&C plan, many of the unforeseen circumstances and costs are identified. Contingency costs do not, however, include changes in the scope or unforeseeable or unanticipated events, such as the failure of reclamation or mitigation, earthquakes, labor strikes, or floods.

Federal and State agencies that routinely prepare construction cost estimates apply contingencies ranging from 3 to 45 percent of the direct construction costs. The amount or percentage required should be based on available reclamation or construction contract information within the State.

Absent reliable local or State information, a contingency of 4 to 10 percent of the estimated reclamation direct construction costs should be used. Where State law specifies an amount, use that figure. When the proposed operation involves a relatively small uncomplicated reclamation effort, and development of an ED&C plan is not anticipated, there may not be a need to include a contingency line item. It is advisable to ensure a contingency is included for operations with estimated reclamation direct construction costs over $100,000.

Contractor Profit - Government contracts generally include prime contractor profit, which should be estimated as 10 percent of the estimated direct construction costs. When State or local contract information suggests a different amount or where State law specifies an amount, use that figure. Inclusion of a line item for prime contractor's profit may not be required if the operator incorporates it into the direct construction cost estimate, but the BLM field office should verify the profit percentage included in the direct construction cost.

Liability Insurance - The contractor's liability insurance premium should be included in the RCE, and should be set at I. 5 percent of the estimated labor costs for the project.

Payment and Performance Bonds - Premiums for both a performance bond and a payment bond, as required by the FAR for estimated contract costs over $150,000, should be included in the RCE. Three percent of the estimated direct construction costs should be used to calculate the cost of premiums for both bonds.

BLM Contract Administration - The BLM's direct labor and operations costs to administer a reclamation contract are estimated to be 6 to 10 percent of the estimated direct construction costs, depending on the size and complexity of the proposed operation. The actual cost will depend to a great extent on the specifics of the proposed operation, including reclamation complexities. Where data is available, the BLM state or field office should review their records to determine appropriate costs. Generally, the larger the bond amount, the lower the percentage needed for contract administration.

BLM Indirect Costs - The BLM's indirect costs should also be included in the RCE. The indirect cost rate for fiscal year 2013 is 19.8 percent of the estimated BLM contract administration costs, and may therefor range from 1.2 to 2 percent of direct construction costs (19.8 percent of the 6 to 10 percent contract administration costs).

If the BLM is required to administer a reclamation contract under a forfeited bond, these indirect cost funds should remain within the BLM state office where the reclamation work will be done.

The funds will then be available to pay for within-State indirect costs (building rental, telephone, etc.) associated with the project, and any project support needed from other offices, such as the BLM National Operations Center.

Profit, Indirect and Overhead Costs Imbedded in Direct Construction Costs - When reviewing the operator's RCE, the field office may need to determine the administrative costs included in the direct construction costs, since the labor cost estimates may include base pay, payroll loading, overhead, and profit. To avoid overlooking or double counting any administrative costs, the operator should document the administrative costs which are included in their labor costs or other direct costs.

Reclamation Cost Estimating Tools

The state or field office may wish to develop their own tools to support the reclamation cost estimating process, and may make summary sheets, checklists, and/or cost models available to operators to assist in developing RCEs. Offices are encouraged, where appropriate, to develop processes based on standardized unit costs, schedules, spreadsheets, and models, which are useful tools that provide simplified, efficient, defensible, and consistent means of estimating costs. A process may be developed that uses local and/or regional standardized costs for typical reclamation activities for roads, drill pads, drill-holes, trenches, pits, and structures, or to perform site stabilization, revegetation, etc.

When a standardized reclamation cost estimating process is used, the amount of any bond should be sufficient to meet the "full cost" requirements. The assumptions used should also be consistent with this Instruction Memorandum and both State and Federal laws and regulations applicable to environmental and contracting requirements, such as the FAR.

Periodic Review

The BLM field office should periodically review supporting RCE documentation for each ongoing operation to ensure the amount of the bond continues to meet the reclamation and long te1m obligation requirements in the mining and reclamation plan (MRP) and reclamation scenario and basis, to ensure continuing compliance with 43 CFR 3504.S0(a). Additional bond amounts may be necessary to address unforeseen situations that have come to light from inspection and environmental monitoring programs. The BLM's RCE review should consist of a complete evaluation and update of the operator's RCE on file, unless the operator is proposing a modification to their plan, the existing RCE does not reflect authorized operations, or additional information is needed. Where the review finds that additional information is necessary, or a revised RCE is required, the Field Manager should direct the operator to provide that information.

RCEs for MRPs should be reviewed at least every 3 years, and for exploration plans, every 2 years. Since exploration licenses expire after 2 years and are not renewable, the initial RCE for the exploration plan should suffice for validation of the bond, unless a substantial modification to the exploration plan is approved, at which time the RCE should be reviewed. Reviews should also be conducted when exploration plans or MRPs are modified, focusing on how the modification affects the existing RCE and bond on file. The entire existing RCE does not need to be reviewed unless the proposed modification necessitates it; however, a modification review does not substitute for the suggested 2-year review for exploration plans or 3-year review for MRPs. More frequent reviews may be done at the discretion of the Field Manager.

The field office should conduct, at least every 3 years, a thorough review of the cost estimates and other assumptions used in determining the amount of funds needed for long-term funding obligations.

Although RCEs should be periodically reviewed as described above, BLM Manual Section 3504, Bond~, specifies that the BLM review non-energy bonds annually. Reviews of State bonds covering operations on Federal lands should be conducted in confonnance with any State agreements, under 43 CFR 3504.S0(b).

Review Results and Decisions

Acceptable Review Results - When the field office has reviewed and accepted a new RCE or an existing RCE for new activity, such as a mine expansion or modification, the Field Manager should provide a recommendation to the BLM Idaho State Office that includes a description of the RCE scenario, the new bond amount or any recommended change in existing bond amount, any production royalty amount required, the calculation method, and an RCE calculation summary. The state office should then make a determination as to the required bond amount and issue a decision which should state: I) the current amount of any existing bond, 2) the amount of the bond to be provided, rounded up to the nearest $1,000, 3) the types of financial instruments acceptable to the BLM, and 4) that no activity is authorized under the lease until the BLM is provided with an acceptable bond that meets the requirements of 43 CFR 3 504.50, and until the BLM has accepted and obligated the bond. The field office should be copied on the decision.

When the field office has reviewed and accepted an existing RCE, the Field Manager should provide a recommendation to the BLM state office that includes a description of the RCE scenario, the current bond amount, any recommended change in bond amount, any change in production royalty amount required and how this was calculated, and an RCE calculation summary. The review of an existing RCE could be due to changed conditions in the reclamation plan, and/or changed conditions as determined by an inspection or enforcement action, or upon an operator's request. The state office should then make a determination as to the required bond amount and issue a decision, which should state: I) the cmTent amount of any existing bond,

2) the amount of the bond to be provided, rounded up to the nearest $1,000, 3) the types of financial instruments acceptable to the BLM, 4) if the amount has increased, that the operator has 60 days from receipt of the decision to submit an acceptable bond, and that failure to provide an acceptable bond within the specified timeframe will result in an enforcement action, or 5) if the amount has decreased, that the operator may request the BLM state office to decrease the amount of the required bond. The field office should be copied on the decision

Unacceptable Review Results -The estimate should not be accepted if the field office determines that the operator: I) has not provided information necessary to determine the adequacy ofan existing RCE for an ongoing operation, 2) incorrectly calculated costs, 3) based the RCE on out-of-date cost data, 4) failed to incorporate contracting costs, 5) omitted other necessary items, or 6) used data inconsistent with preparing a "fair and reasonable" estimate.

The FAR clearly establishes that a fair and reasonable price be determined before a Government contracting officer or ordering officer may award contracts or place orders.

The Field Manager should then notify the operator, in writing with a response due date, identifying the deficiencies or errors that lead to the conclusion that a revised RCE, with the correct information and calculations needs to be submitted. Failure to provide the required information within the specified timeframe may result in an enforcement action for failure to maintain an acceptable bond.

Appeal of Review Decisions - Decisions relating to the acceptability or unacceptability of a bond are subject to appeal under the provisions of 43 CFR 3501 .30.