Two things happened on June 25, 1975, that affected the U. S. government and Exxon.

On the northern rim of Alaska, the world's largest oil company began discharging 450,000 gallons of polluted water into the sea just east of Prudhoe Bay. Exxon later would pay a $100,000 fine for the discharge, which violated regulations of the federal Environmental Protection Agency (EPA).

On the same date in Cincinnati, EPA awarded the Exxon Research and Engineering Corp. a $965,000 contract to write a report laying the groundwork for methods on how the agency should control pollution from off-shore oil drilling.

It may have been unusual that these two events occurred on the same day. But the fact that the government awarded a research contract to a corporation that had a vested interest in the results is not at all uncommon. Every year, the government turns to industry members to help it decide how they should be regulated and, if so, to what extent.

The stakes in these government-sponsored studies by private manufacturers or their research subsidiaries are high. They could affect the quality of water, air and land for years to come. They also could lead to stringent new regulations costing industry billions of dollars.

This article examines four major contracts the government awarded to industries or research firms:

A $5.8 million EPA contract to Monsanto Research Corp. to measure air, water and solid-waste pollution from several industrial processes and the production of major commercial chemicals, several of which are made by its parent company, Monsanto.

In 1977, just after Monsanto opened a new plant to expand its production of the widely used chemical acrylonitrile, Monsanto Research Corp. gave EPA date from which the agency concluded that pollution from acrylonitrile was not a serious problem. Today, an EPA expert says that conclusion "was not reasonable" and that the chemical is "a major polluter."

An $812,905 contract to DOW Chemical, part of which was to produce a catalogue detailing chemical processes so EPA could respond to chemical emergencies and plan for regulation. In bidding for the contract, Dow promised in writing to open up its vast corporate facilitties and provide information to those working on the study. Once the project began, however, Dow's own reserchers said they received virtually no specific information -- other than already publicly available material -- from any of Dow's facilities. The EPA official who monitored the contract said he felt Dow broke its promise.

A $669,000 contract to Arthur D. Little, a large consulting firm. One task in the contract was to assess the impact of regulating arsenic emissions from the largest copper smelter in the state of Washington. Traces of arsenic from the Asarco plant in Tacoma had been found in children's hair and urine samples.

Little's copper expert, an outspoken critic of regulation, had recently completed a similar study funded by Asarco in response to proposed federal health and safety regulations. In both the Asarco study and the EPA report, he recommended against regulation, saying that any government controls would force the plant to shut down because of economic hardship. Asarco later used the EPA-funded study in opposing further controls.

The $965,500 contract to Exxon Research and Engineering Corp. to help formulate EPA controls of off-shore oil drilling. Portions of the report were written by Exxon production personnel who designed the off-shore platforms.

The study included an on-site visit to an Exxon platform in the Gulf of Mexico. Exxon researchers concluded off-shore oil drilling did not pose any serious pollution problems. The EPA project officers monitoring the contract said they felt the report was "shallow" and self-serving.

There are many other examples. Monsanto Research alone received at least 30 contracts totaling more than $15 million from EPA during the past decade. Exxon and its subsidiaries have had four EPA contracts worth $9 million and Dow and its research arm have also received other EPA research contracts.

The Environmental Protection Agency is not alone in its reliance on private industry for research help. An examination of contracts with the Nuclear Regulatory Commission, the Department of Energy and the Department of Commerce revealed dozens of cases in which industries won contracts whose findings could have a significant impact on their private work and profits.

Exxon and its subsidiaries, for example, has had contracts with the Department of Energy, the Department of the Interior, the Navy, the Air Force and the Department of Commerce. The two Exxon contracts with Commerce called for the oil company to monitor hydrocarbon pollution along its own shipping routes.

Many high-ranking officials in Washington said they did not know that such contracts existed.

"It would come as a surprise to me" said David Bickart, EPA's deputy general counsel, when informed of the EPA-Dow contract. "I'm not aware of instances in which we've awarded a contract to the very industry we're supposed to be regulating . . . Certainly that would be a concern." Bickart said he had been aware EPA contracted with Monsanto Research Corp.

Said Foster Knight, of the White House Council on Environmental Quality's office of general counsel: "I've heard of some pretty crazy contracts by reading [Sen. William] Proxmire . . . But I would not expect to find EPA awarding contracts to the industry it is regulating. I find that very peculiar . . . It bothers me."

Traditionally, the EPA and the industries it regulates have been viewed as staunch adversaries. Industry eecutives constantly rail against federal regulations imposed upon them. In fact, at the very times that researchers for Exxon, Monsanto and Dow were working for EPA, the legal or executive officers of the same firms were battling EPA and other federal regulatory agencies in court or in public speeches.

Even as Dow researchers were working for EPA, Paul F. Oreffice, Dow's chief executive officer, told the Arizona Business Forum in Phoenix in March 1979: "The regulatory fever which has gripped the governing bodies of this nation is a malignant disease . . . EPA (is) the most out of control of all agencies . . . We must deal with his fourth branch of government before it strangles us."

One way industry has dealt with EPA is by taking part in the research the agency uses for control and regulatory decisions. The companies bid on EPA contracts because tthey say they prefer to have someone with industry experience do the work rather than risk someone unffamiliar with production or with an antibusiness bias doing the research.

Why, then, are government research contracts going to such firms?

Most government agencies say they must contract out for research studies because they lack the facilities and manpower to do the work themselves. In selecting contractors they must choose a member of the industry to be regulated or a consulting or research firm -- many of which have close industry ties because their very livelihood depends upon winning industry contracts.

Some in government and industry say they do not see these alternatives

"Of course we work with Dow and Monsanto," said Malcolm Huneycutt, branch chief of EPA's regional contracts office in North Carolina. "I don't see anything wrong with that. They are the experts in the industry. We rely on them. We trust them."

Huneycutt noted that the EPA's own staff monitors the contracts to verify their reliability. But several EPA officials who actually do the monitoring said in interviews that they lack the expertise to question the reliability of the reports.

"I could be issuing an assignment to someone who could be pulling the wool over my eyes," said Joseph McSorley, an EPA contracts officer who worked on the Dow study. "We just don't have the experts to know."

Within EPA, there are widely divergent views about whether to trust the work of industry researchers. Generally, those working for the EPA's research division share Huneycutt's views. But in the EPA's regulatory branch, contracts with industry are viewed with skepticism.

"You mean to tell me they [EPA researchers] say they trust the chemical company data?" asked David Muscone, of the EPA's regulatory branch."Over here we take pretty much the opposite view. We tend to take everything they say with a grain of salt."

An examination of government contract files and internal corporate documents, and hundreds of interviews with government program officers and industry employes provide this account of four industry studies for the EPA: i Monsanto

On April 14, 1975, EPA awarded a $4 million contract to Monsanto Research Corp. a wholly owned subsidiary of the Monsanto Company, the nation's fourth-largest producer of chemicals.

The purpose of the contract was to study pollution emissions from 62 industrial processes, including the production of chemical products. The study was supposed to help the EPA identify possible environmental hazards and, ultimately, to decide where controls and regulations would be needed.

The EPA selected Monsanto Research Corp. over five consulting firms that had bid competitively for the contract. Dale Denny, the EPA project officer, said that two bidders -- Monsanto Research and Roy Weston, a consulting firm -- had good proposals, but Monsanto was chosen because it submitted the lowest bid.

Within a year of the award, the contract price was increased to $5.8 million as the work expanded.

As a subsidiary of the chemical company, Monsanto Research takes many of its researchers from the parent firm's production plants and sends them back after they have done research at the Dayton, Ohio, laboratory.

The EPA raised, and quickly dismissed, the question of whether there was a conflict of interest in Monsanto Research's work on a project of potentially vital concern to its parent company. Said EPA regional contracts chief Malcolm Huneycutt:

"We asked them [Monsanto Research] if there was a possible conflict of interest, and they said, 'No.'"

Added EPA's Denny: "Monsanto Research Corp. is owned by Monsanto Chemical but they are a separate entity, so we're not dealing with Monsanto Chemical."

Once Monsanto Research got the contract, Denny said the firm proposed to EPA that it conduct the first part of its study on acrylonitrile. That chemical is widely used in producing acrylic fibers for carpets, clothing, plastics and synthetic rubber.

Monsanto was the world's second-largest producer of acrylonitrile when the contract was awarded, and it was then in the process of building a new plant in Texas City, Tex., that would make it No. 1 in the field.

In its June 1974 issue, Chemical Week featured an article entitled, "Monsanto Is Bullish on Acrylo" -- a statement supported by the fact that the company's sales volume of the chemical the next year was $110 million.

The study was headed by Thomas W. Hughes, a chemical engineer with Monsanto Research since 1970. Hughes said in an interview that a number of other chemical companies expressed surprise that Monsanto was doing a project for EPA.

"The first reaction (from the other firms) was, 'Why the hell is Monsanto doing this?'" Hughes recalled.

Even Douglas A. Horn, coauthor of the acrylonitrile study and now with a Monsanto plastics plant, said he had difficulty answering that question.

"I had the same question myself when I first started working that contract," said Horn. "I never really got a satisfactory answer."

Horn suggested that Monsanto may take EPA contracts because 'it keeps us on top of what the government's doing. We know what the EPA's thinking about, what they're interested in and what their latest developments are."

Both Hughes and Horn said they felt that any competent engineer could conduct the study, that their association with Monsanto did not give them an exclusive expertise or insight in the area.

"I have never even seen an acrylonitrile plant," said Horn. "I have never set foot in one." Hughes also said he had never been in an acrylonitrile plant before the project began.

EPA's profound trust in Monsanto was made clear at the outset.

Even before work on the contract began, EPA officials agreed to allow Monsanto to destroy certain original documents. The information contained in them was neither to appear in reports nor to be seen by anyone from the EPA.

Those were the conditions set by Monsanto Research Corp., which did not want anyone -- including EPA -- to know the plants and companies from which the acrylonitrile emissions were measured. Company officials said they didn't want the plants identified for fear that specific data of any sort might reveal company trade secrets. Four U.S. chemical companies produce acrylonitrile.

EPA does have the authority under its enforcement powers to enter industrial plants, to measure pollution and to publish names, locations, and data, EPA's Denny said. But, he added, it was easier for EPA and researchers alike to rely on voluntary cooperation.

"They were to destroy original records -- that was the agreement," Denny said.

Hughes, of Monsanto Research, said he did, in fact, destroy the sheets with company names on them. The final report Monsanto Research eventually sent to the EPA contained no pollution data related to specific plants or companies. Instead, the study centered on a "hypothetical" figures represented only totals and averages, with no independent means of verification contained in the report.

No one from EPA ever asked to examine the original data gathered by the Monsanto researchers or to check the accuracy of the data regarding the "hypothetical" plant, said Hughes, who kept the data. Of the 17 EPA studies Hughes supervised, the EPA asked for supporting data in only two instances, he said.

The original data for the acrylonitrile study remains under lock in Hughes' office. To this day, Denny says he does not know which plants were examined in the course of the study. A company spokesman refused to release the data.

A draft of the report was completed on March 15, 1976, Monsanto researchers said. Before delivering it to EPA, they said they sent it to Monsanto's corporate offices to be reviewed by the comapny's acrylonitrile experts and a Monsanto lawyer.

But it was 16 months before Monsanto Research Corp. sent the draft report to EPA, on July 10, 1977, according to both the researchers and Denny.

A primary reason for the delay, according to Hughes, was that the Monsanto experts reviewing the report were preoccupied at the time with the construction of the Monsanto acrylonitrile plant in Texas City.

Gene Tromblee, chemical process manager of the Texas City plant, was one of those reviewing the report.

"We wanted to make sure that the analysis was averaged and not specific, so no firms could be identified," Tromblee said. Company officials also said they reviewed the study for possible technical errors.

Harry Keating, a Monsanto Company official who would later help draft corporate arguments against acrylonitrile health regulation, also reviewed the report during 1977. He said he recalls finding "one or two errors" in the report that he corrected. He said he does not recall what the errors were.

A high-level Monsanto Research official who reviewed the report was Robert Opferkuch, the contract manager for the research branch and a man who speaks openly about his antiregulatory feelings. "I would say there is too much regulation," Opferkuch said in an interview. "I happen to be an individual who doesn't like regulation."

While Monsanto Research Corporation continued to review the report, there were two major developments concerning Monsanto and acrylonitrile.

In January 1977, Monsanto opened its new acrylonitrile plant in Texas.

In March 1977, the U.S. Food and Drug Administration (FDA) announced that it would ban the use of acrylonitrile for soft drink bottles. The FDA said that tests showed that acrylonitrile may be cancer-causing, and that the chemical "migrated" from the bottle into the soft drink.

Monsanto immediately challenged the FDA, disputing the government's research with laboratory findings of its own. (Although the ban has been in effect for three years, Monsanto still contests the FDA findings.)

On July 10, 1977, Monsanto Research sent the report to EPA.

In September 1977, EPA published the acrylonitrile report as part of its Environmental Protection Technology Series. The front cover of the report bears the official seal of the U.S. Environmental Protection Agency. The report was entitled, "Source Assessment: Acrylonitrile Manufacture (Air Emissions)."

There was no reference to Monsanto Research Corp. on the cover.

This official government report was actually the study written by Monsanto Research Corp. Inside the report, credit was given to Hughes, Horn and Monsanto Research, and EPA noted that the study was not necessarily government policy.

The critical finding made by EPA based on the study was that acrylonitrile production does not create hazardous emissions warranting further development of controls or EPA regulations.

"The final report was okay," EPA's Denny said. "Based on the Monsanto report, we decided then we weren't going to try to do any more on acrylonitrile. There was no good reason to look at it anymore (for possible controls or regulations). As far as we were concerned, acrylonitrile was on the back burner."

Two years later, as part of a major investigation of air pollution causes, the EPA's regulatory branch decided to examine acrylonitrile. As is often the case within EPA, the regulatory officials disagreed with the findings of the research branch.

In an interview, David Muscone, of the chemical and petroleum section of EPA's regulatory division questioned the conclusions EPA drew from the Monsanto Research report that pollution control of the chemical was adequate.

"Quite frankly," Muscone said in an interview, "I don't see how they (EPA and Monsanto researchers) reached that conclusion . . . It was not reasonable based on the data we have . . . Our conclusion is that acrylonitrile is one of the biggest sources of hydrocarbons in the petrochemical industry.

"It is a major polluter," said Muscone.

Muscone said the Monsanto Research report was defective in two ways. First, he said, the report failed to take full account on the effect of hydrocarbons in the atmosphere after they are emitted from the plant. Second, he said, the research omitted several areas of pollution stemming from leaks during production. Both, said Muscone, should have been fully considered.

"You might say they made errors of judgment," Muscone said. "Some of their methodology just doesn't make sense . . . regardless of how they did it, their figures [on the amount of pollution emissions] are lower than they should be."

In addition, said Muscone, the study was useless to EPA's regulatory arm because it was based on a hypothetical plant. "We've got to have raw, documented data," he said. "We need to have publicly available information if we go to court. If somebody sues us, or if we challenge someone, we have to be able to back our studies with actual data."

Monsante researchers say they believe today, as when the report was done, that their study is accurate. As for Muscone's views that they failed to consider fully the effects of hydrocarbons in the atmosphere or of leaks, they say the technology to measure such effects was not developed at the time of the study. Muscone disputes that argument.

EPA today is continuing its research into the potential pollution hazards in the production of acrylonitrile. To this date, there are no EPA regulations of acrylonitrile production. Dow

On May 11, 1973, Albert T. Maasberg, director of Dow Chemical's contract research division, wrote a nine-page letter to the EPA contracts division in North Carolina.

Maasberg wrote the letter while Dow was vying with several other firms for a $812,905 EPA contract. The contract called for detailed descriptions of numerous chemical processes to be used by EPA to respond to chemical emergencies and for planning regulations.

In an effort to persuade EPA to choose Dow over its competitors, Maasberg made a promise. He said his researchers would have access to all of Dow's facilities.

It was a promise that an EPA official later said was broken.

Maasberg wrote: ". . . The proposal is submitted by the Dow Chemical Company. Therefore, all the company facilities can be made available to carry out the work and all technical personnel would be available for consultation in their particular area of expertise . . ."

He then detailed what Dow could offer across the country in its various divisions, explaining that Dow had tremendous production experience and expertise.

Two months after the letter was sent, Dow was awarded the contract. Other firms, which won other EPA contracts, contributed to different sections of the catalogue.

The EPA monitor on the Dow contract was to be Joseph McSorley, working in Research Triangle Park, N.C. For Dow, the research team working on the catalogue of chemical processes would include Burchard P. Shepard and John T. Reding. They would work in Dow's offices in Freeport, Texas.

In interviews, EPA's McSorley and Dow's Shepard said they developed a good working relationship and respect for each other. But after a short while, EPA's McSorley grew frustrated with Dow.

"One of the reasons we gave them the contract was because they had so many chemical divisions and they promised to open them up for the project," McSorley said. But once the project started, Burch [Shepard] didn't seem to have authority within Dow. He said that every time he wanted information from a different Dow division, they claimed they were 'too busy.'"

As a result, McSorley said, Dow broke its promise: its various divisions were not cooperating with the researchers.

Shepard, in an interview, said he did not recall his conversations with McSorley, but he did not dispute anything McSorley said.

While Shepard said he did not remember those conversations, he said he supports the company's right to withhold certain information. He said he personally chose not to include "proprietary data" -- "information which would be valuable to our competitors" -- from the EPA reports.

"We wouldn't put that in the report," he said. "No company would."

His associate, Reding, said in an interview that he did most of the research for the reports. He said he was "not particularly happy" with the work.

"I guess I felt like Dow would not be willing to give us anything they considered to be proprietary," Reding said. "So I was not sure I was always getting the latest data. They were telling us the general things to look at -- what was already published in literature. They didn't give any Dow-specific numbers."

In the end, Reding said, virtually all of the data he used for the reports came from already published material -- material, he said, that had been available to anyone in the country.

"The results were too general for anyone to apply them too well," Reding said. "For the EPA to accomplish anything, you have to get specific, and I don't think my report was specific enough."

Maasberg, the man who wrote the letter promising that Dow would make available all its facilities to its searchers, said in an interview that Dow did not break its promise.

"It's a matter of opinion," he said. "I feel we kept our promise . . . But I can understand why Joe (McSorley) feels the way he does."

Dow's Maasberg said he recalled receiving several phone calls from EPA's McSorley requesting specific information on some of the chemical processes the EPA was interested in studying.

"What they wanted was some of our process development work that somehow they found out about," Maasberg said. "These were new developments, improvements -- some of them not yet being used. We couldn't give it to anybody. This was proprietary. Besides that, you'd lose the competitive edge to other firms."

McSorely, at the EPA, said that his concerns went beyond the completeness of the Dow reports. "My concern was: could any of the information be believed by the layman?" McSorley recalled. "Is Dow really reflecting the key points of [pollution] emissions in their reports? I couldn't make that judgment because I don't have the expertise.

"If they were deliberately trying to feed false information . . . that would be very difficult for us to detect -- because we're just not knowledgeable enough to know."

Dow's Maasberg, Shepard and Reding all said in interviews that the Dow reports were accurate and honest.

McSorley said the questions arose in his mind simply because the contractor, Dow, has such large financial interests in the chemical processes they were writing about.

"I went to my supervisor [Malcolm Huneycutt], and said, 'I could be issuing an assignment to someone who could be pulling the wool over my eyes. What can we do?'"

Huneycutt replied: "Well, you go with the people who know the industry the best and hope you can trust their integrity."

Despite McSorley's concerns, a series of reports written by Dow researchers Shepard and Reding were published in 1975 and 1976 by the EPA. r

As with the Monsanto studies, the Dow reports were pubished under a cover bearing the official seal of the federal agency with the titles, Environmental Protection Technology Series, and dates, but no indication on the cover that the reports had been written by the Dow Chemical Company. Inside, the report was credited to Dow Chemical.

The possibility that Dow may have a conflict of interest in the contract was not discussed before the contract was awarded, Huneycutt, a branch chief in the North Carolina regional EPA contracts office, said in an interview.

"The issue never even came up," before the contract award he said. Arthur D. Little

A series of tests by health officials in the early 1970s showed that children living near the Asarco copper smelter in Tacoma, Wash., had elevated levels of arsenic in their hair and urine.

The test results came as no surprise to residents living near the 80-acre smelter. Since 1890, the plant -- the largest copper smelter in the state and the nation's sole producer of arsenic -- had been billowing out smoke laden with sulfur dioxide and arsenic. The emissions eat through the paint on houses and cars and settle on the lawns where parents warn children not to play.

An estimated 1,000 pounds of arsenic emissions pour from the plant each day according to a National Institute For Occupational Safety and Health study.

In 1975, EPA was in the early stages of planning air pollution regulations of the Asarco smelter. As a preliminary step, the agency planned to contract for a study of the economic impact such regulations could have on the plant.

EPA officials in the North Carolina research office chose to award the contract to Arthur D. Little Associates, a large, national consulting firm based in Boston.

A new contract would not be needed, because under the terms of an existing $669,000 EPA contract with the firm, the agency could ask for such a study at any time.

But there were those in EPA who argued that the contract should not go to Little. The firm had just written a report, paid for by Asarco, which said that government regulations would force the plant to shut down because of economic hardships.

That report, dated June 1975, was being used by Asarco to protest proposed safety regulations by the federal Occupational Safety and Health Administration (OSHA).

"The conflict of interest was obvious since they (A. D. Little) had already done the work for Asarco," said Robert L. Coughlin, an EPA economist on the West Coast.

Ravindra Nadkarni, Little's copper expert and the man who wrote the report for Asarco, also recognized the appearance of conflict.

"We thought that a conflict could be perceived, and we discussed it with the EPA," Nadkarni said. "We wanted to make sure that if they chose us for the study, the issue was fully aired before anything was signed. We did not want to do the study if the EPA felt it was a conflict of interest."

The EPA nonethless decided to assign the study to A.D. Little.

"A.D. Little was our only alternative. We couldn't afford to go out and hire someone who would be wholly objective but naive," explained Alan Basala, EPA's project officer in North Carolina. Additionally, Basala, said, giving the work to A.D. Little avoided the lengthy delay of going through the procurement process.

In March 1976, Nadkarni began the EPA study.

In an interview, Nadkarni, now an A.D. Little vice president, said that he has "a bias that is antiregulation." He said he feels there are too many regulations, and that industry should be permitted to develop its own solutions to environmental problems.

"I don't think bureaucrats are creative enough to come up with solutions," Nadkarni said. "My bias is in favor of introducing free-market concepts in pollution control."

Coughlin, of the EPA, was aware of Nadkarni's views on regulating Asarco at the time the assignment was given to AD.D Little. That was why he opposed the award.

"The guy had a point of view," Coughlin said in an interview. "I don't blame Nadkarni. If blame has to be attached, you wonder why a firm that alreay has expressed a point of view was hired to do the job. If you're going to kick somebody's ass, kick EPA's."

In June 1976, Nadkarni presented EPA with a draft of his report. It concluded that regulation of Asarco would create a serious economic hardship that might force the firm to shut down.

That was the same conclusion Nadkarni had reached a year earlier in his study for Asarco.

The EPA project manager, Basala, in North Carolina, was unhappy with the report.

"I just don't think it was objective," Basala said in an interview. "What he (Nadkarni) wrote was leaning in favor of the industry."

But Basala said he felt EPA carefully scrutinized the A.D. Little work. "It wasn't like we were having the fox guard the henhouse. We had our senior economists guarding the fox," Basala said.

One of those senior EPA economists monitoring the work was Coughlin -- the man who had opposed the contract from the outset. In an interdepartmental memo dated Oct. 13, 1976, he wrote of the A. D. Little study:

"After reading the draft materials three times I am still stunned. I really do not know how to react . . .. We are requested (commanded?) to take A.D. Little's hazy determinations on faith. Not one hard number is allowed to intrude upon the narrative . . . nothing so mundane as income statements, balance sheets or cash flow analysis is provided . . ."

Coughlin was not alone in his views. Another EPA economist who reviewed the study, Douglas Hale, said in an interview: "I still don't understand how A. D. Little came up with the answers they did. I can't tell where their numbers came from."

The EPA returned the first draft of the report to Nadkarni, asking him either to rewrite it, or to support his conclusions with data. Nadkarni considered the EPA's comments, then sent them a second draft that reached the same conclusions as the first.

"There were three versions of the study," Coughlin explained.

"My reaction went from outrage on draft one, to just amusement by the time they were done. It was a ridiculous piece of work."

In an interview, Nadkarni said he recalls the chronology of events but interprets them differently.

"I think that Coughlin is welcome to his opinion of whethere I am biased or unbiased," he said. "It is a charge that can be made easily . . . but the EPA was unwilling to accept anything but what they wanted -- a 'rubber stamp' approving their conclusions.

"You normally don't like to fight with your clients, but if you have the courage of your convictions, sometimes you have to bite the hand that feeds you. I think my study was objective and has proven itself to be correct."

Nadkarni and the EPA had reached an impasse.

By the end of 1976, EPA decided to set aside the A.D. Little report. the EPA paid the bill -- $94,783.

But the report was not forgotten. When state and federal officials in the state of Washington later discussed further environmental controls for Asarco, officials of the company held up the EPA-funded study in support of their argument against regulation.

EPA economist Coughlin noted there was some irony in the use Asarco made of the EPA-funded study. One reason the agency had contracted with the firm was to insure that if regulations were contested, A. D. Little's reputation would be persuasive in establishing expertise.

Coughlin also questioned whether it was total objectivity that the EPA was looking for in its study. He said the agency anticipated using the study in possible court challenges.

"When you get to the litigation stage, you prefer to find a contractor predisposed to your point of view," Coughlin said. "You want a hired gun. But we stubbed our toes. This gunman was already committed to the other side."

At the same time that A.D. Little was working on the Asarco study for EPA's research offices in North Carolina, the firm was working on another study for the EPA's Washington, D.C. office.

That second contract -- for $146,967 -- was to assess regulations of the copper industry nationwide. A. D. Little's copper expert, Nadkarni, was directing the study. That study, too, was criticized by EPA.

"I found absolutely gross misunderstanding and gross inattention in the report to what the regulations actually were and did," said Todd Joseph, an attorney who reviewed the study in 1977 for the EPA office of general counsel.

"It painted the EPA regulations as having a much more draconian impact on the industry than a correct understanding of the law and regulations would have," Joseph said in an interview.

Nadkarni's conclusion, published in 1976, was that proposed regulations would cost the copper industry more than $1 billion by 1987.

His report was made a part of congressional subcommittee hearings reviewing the Clean Air Act.

In 1977, Congress adopted an amendment to that act, in which it granted a 10-year exemption to EPA regulations for the nonferrous smelters, including the copper industry.

Nadkarni said in an interview that he believed his report helped persuade Congress to grant that delay. Exxon

In February 1975, EPA announced that it was accepting bids for a contract to study the potential pollution problems of off-shore oil drilling.

Thirty-seven firms responded to the advertisement. Among them was Exxon Research and Engineering Co., a subsidiary of the world's largest oil company.

Four firms submitted formal proposals -- Exxon, and three energy consulting firms with no direct ties to the oil idustry.

On June 25, 1975, Exxon was awarded the $965,500 contract.

"From a technical point of view," explained James Geiser, an EPA contract officer in Cincinnati, "Exxon clearly had the superior proposal . . . and they were the only oil company in the running -- and oil companies were the only ones with first-hand knowledge."

The possibility of a conflict of interest was discussed by EPA officers, but they concluded no conflict existed, said Geiser.

The Exxon researchers subcontracted with Exxon Production Research Co. of Houston to asist them in their examination of potential polution hazards from off-shore oil platforms. Exxon Production designed platforms under examination.

The contract called for Exxon to study ways of identifying and minimizing polution from off-shore oil wells.

On Sept. 15, 1975, three months after Exxon researchers began their interim "effluent limitations and guidelines" for off-shore oil drilling.

On Nov. 25 of that year, Exxon, along with 11 other oil companies and the American Petroleum Institute, sued EPA in federal court asking that the interim guidelines be set aside.

Exxon would be "significantly and adversely affected" by those guidelines should they be permitted to stand, they company said in its petition to the court.

Meanwhile Exxon researchers continued to work on the EPA offshore-oil drilling study.

On Dec. 11, while routinely reviewing recent contracts, EPA attorney Bruce Elliott, then chief of the permits and support branch in Dallas, first learned EPA had awarded Exxon the offshore-oil study contract.

"It bothered me. I was a little bit distressed," said Elliot, whose regional authority included the Gulf of Mexico, where most of the nation's off-shore drills are located. "It just didn't look right to me that we were asking an oil company to develop these guidelines. It would be possible for them to develop data that would be biased, he said.

"The stakes in these effluent guidelines are enormous," Elliott added. "Depending on the level of treatment, you are talking about hundreds of millions -- billions -- of dollars."

On the day Elliott learned of the Exxon contract, he telephoned the EPA deputy director of the enforcement division, O. W. Lively, to inform him of it. In a memo responding to Elliott, Lively wrote: "We question the true objectivity which could be generated by such a group and feel that the agency is opening the door to possible charges that the required work and report are prejudiced."

On Dec. 16 the EPA issued a "stop work order." The next day, Frank Freestone and J. Stephen Dorrier hand delivered the message to Exxon's Steven Fruh in Houston.

"The meeting was short and slightly less than frigid," Freestone later wrote in an interoffice memo.

The Exxon research study was temporarily halted.

In the week following the issuance of the "stop work order," a flurry of letters and memos circulated between EPA offices across the country, discuss the "potential conflict of interest." A meeting was scheduled for Jan. 12, 1976, in Washington to consider the alternatives, including termination of the contract.

But the issue was not resolved at themeeting.

In a memo dated Feb. 19, 1976, William Mathis, the director, of EPA contracts in Washington, suggested that the contract be terminated.

He wrote: "Because of this apparent we can conceive of a potential problem whereby EPA could be cast in the role of defending the credibility of data submitted under the contract if we allow the contractor to proceed. Therefore, we would urge serious consideration to be given to termination of the contract."

Others in EPA took a different position.

David G. Stephan, head of EPA's Cincinnati laboratory, which had originally awarded the Exxon conract, urged the EPA regional administrator in Dallas, John White, to continue the Exxon project.

"At present we simply do not have the data regarding the problems," he told White in a memo. "To the extent that it exists, it is in the files and minds of the experts, most of whom are working for the industry."

With that argument as a basis for their decision, EPA chose not to end the contract. Instead, they decided to scale down the amount of work that had been originally proposed, and to assign additional work to another contractor "not to be associated with an oil company," according to the memo.

The government funded the Exxon project for another year and a half.

In their only review of an offshore oil platform, Exxon's Fruh and John Ferraro said they visited a platform owned and operated by Exxon USA located off Eugene Island about 100 miles off the Louisiana coast.

"What we were looking for was all the various discharges in the water . . . We were looking for oil in the water. What we found was, there really wasn't much of a problem. The existing platforms today are so well designed that there is no problem," Exxon's Fruh said in an interview.

Exxon Production Research Co., which designed the platform, wrote sections of the report dealing with the platform and supplied the data tables used in the final report, according to Ferraro of Exxon Research and Engineering.

Despite the modification of the contract, EPA project officers Freestone and Dorrier continued to have misgivings about Exxon's performance on the contract. They felt problems went beyond the mere potential conflict of interest.

"The tone of all their reports seemed to be CYA -- cover-your-ass," Dorrier said in an interview. "There was a lot of p.r. (public relations) nosense in a technical report extolling their environmental awareness."

The researchers' monthly reports, EPA's Dorrler added, "seemed to have had high level clearance [from within Exxon] which greatly restricted their ability to discuss things freely. They wanted to be careful that what they said did not come back to haunt them in some later effluent guidelines."

EPA's Freestone was also dissatisfied with the performance of the Exxon researchers.

"The technical performance was not what we were led to believe we would get," Freestone said in an interview. "I thought the end report was not substantially better than the outline I provided at the start. It was shallow . . . There was very, very little in the report . . . it was essentially without any substance."

The two Exxon researchers, Fruh and Ferraro, disagreed with that assessment. In interviews, they said that they were free from outside corporate pressure.

Exxon's final report included a seven-page photocopy of a 13-year-old report by the American Petroleum Institute, an oil industry trade association. It also included a photocopy of a manual and sales brochure for monitoring product already in production.

Because the original scope of the contract had been reduced by about one-third, Exxon was paid $330,000 rather than the original contract price of $965,000.

Coincidently, the same day the Exxon Research contract was awarded -- June 25, 1975 -- Exxon began an unauthorized discharge of polluted waste water into the Beaufort Sea from Flaxman Island, 60 miles east of Prudhoe Bay, Alaska.

That discharge of pollutants containing mud and oil from drilling operations continued for two weeks until July 7, 1975. In September 1976, Exxon signed a consent decree and paid a $100,000 fine -- the largest civil penalty assessed up until that date for a violation of the Federal Water Pollution Control Act of 1972.

James Morakis, an Exxon spokesman in New York City, commented on the fact that the unauthorized discharge and the contract award came on the same day. He said:

"It was a quirk of fate . . . Exxon's a big outfit and the government's a big outfit. It sounds to me like just one hell of a coincidence . . . . They're unrelated . . . .

"You're being fined by one part of the government, and you're getting a contract from another part of the government. I'm sure the same thing happens with any number of the major corporations. I guess you could say it's ironic -- because the one hand is taking and the other is giving."