Comments
Our clients (mostly banks, insurance companies, retail/commercial real estate business folks) see the ESA consultants as "termite inspectors" or a home appraiser, as most of them have no scientific background and do not understand that the complexity of the assessment. They see the work performed as completing a checklist where you check some boxes along with an inspection and some records review. They should realize that by conducting a proper ESA they are avoiding risks worth millions of dollars. Why can't the consultant then charge an appropriate fee for avoiding risk for the customer when CPAs and lawyers get to charge $300-700 per hour? Using the $2,000 fee for a Phase I ESA as an example and an average labor effort of 30 hours, take out the ODCs of at least $500 for the database, copying/printing, mileage, etc., you get an average BILLING rate of $50 per hour. This is not what the ESA professional makes. Using a labor multiplier of say 2.5 (maybe lower for smaller firms), the EP is making $20 per hour. This is ~ 20 x less than the CPA or lawyer. Even the entry level lawyer or accountant makes much more than that; believe me when I say this because I have been there.
Granted the work is not as complex and auditing the books of a Fortune 500 corporation, I don't think the engineering and scientific professionals are valued or compensated as they should be. The problem also is that in order to win work, the ESA process has supposedly been simplified by "sweat shop firms" [you know who] to the point that non-technical staff and fresh grads are sent to do the work and as in the cases highlighted above, making all kinds of mistakes which will cost someone a pretty penny. How much profit are these "sweat shops" making? On a $2,000 ESA, do you make even $200/site. You would have to do 100 sites per month to pay the overhead and salaries of the principals and support staff at that rate. Is there that much work available? From what I know, most "sweat shops" either can't perform follow-up work such as Phase II site investigations or don't know how to (again because many of the people running the show are not scientists or engineers and do not understand the fate and transport mechanisms involved).
This is a problem where those who want to perform quality work considering the scientific aspects of the site are being held hostage by low-end transaction minded individuals who don't care about the quality but just want to check a box on time so that the loan or transaction can go through.
Way too many suppliers will lower the price of the service in this market which has been made into a low barrier to entry business. What is surprising is that based on the principles of economics, any business that attracts that many competitors have to be a high profit margin business. With the low margins in this business, it is surprising we have so many players, or is it that these firms are satisfied with what they make because they have no other alternatives?
Most of the larger firms can't even break even for less than $7,500 and don't even bid on these projects anymore.
Been there, done that! It was sick at times but like someone said, when you make $3,000 to $4,000 versus nothing, most people will take it.
It is a simple matter of supply and demand and market segmentation.
Matt,
What is a typical PCA fee versus a Phase I ESA? I am a P.E. with experience in seismic assessments and have never done a PCA. Is the difference substantial?
How would one get trained to do a PCA?
Thanks.
Diane,
I enjoy reading your insightful summaries and comments.
Any words of advice on how to become qualified to do Ph I ESAs for banks, SBA loans, HUD, and FDIC clients?
I have over 21 years of experience in ESAs, remediation, and compliance and trying to develop a consistent backlog of ESA work but getting that from developers and real estate clients on a consistent basis does not keep the lights on.
thanks.
- posted January 10, 2010 in Environmental Jobs Board
Do you need any assistance in the west, specifically California?
Thanks.
951-317-2395
All the discussion of green building due diligence is irrelevant; once the building is certified with a LEED rating, that is what it is. Either it is LEED rated or not. Owners don't get any points for being green unless it is LEED rated. There may be some value in doing a gap analysis to find out how much more work needs to be done to bring a building up to a LEED rating which could be a factor in sale/refinance of the property.
A good drink brings the best (and the worst) in us!
Thanks again for all the helpful comments and rivalries; that's what makes this a community!
Thanks to all those who responded.
Hi KMiller,
Next time you have a Phase I you can't handle, can you send it to us?
Larry,
I have been doing Phase Is for the last 18 years mostly for large environmental consulting firms whose primary business is not Phase Is. For the past few years, I have done several hundred ESAs for telecom sites and commercial/industrial sites for the so called "Phase I sweatshops". What I have found is that these "sweatshops" use non-engineering and science subs and even employees who have no knowledge of chemical or industrial processes (they couldn't write the formula of sulfuric acid) for doing these Phase Is. These companies are more interested in meeting client deadlines (usually less than a week) to crank out Phase Is, rather than conducting adequate research into the site and identifying the risks for the client. One of the motivations for their managers is that their compensation is tied to the volume of Phase Is completed in a certain period. More Phase Is they complete, more money they make.
Hence, quality suffers. Some of PMs and Directors are also not qualified to lead the projects and may have been doing non-professional jobs in the past and were promoted quickly due to shortage of staff or they were close to the owners (e.g., they may have worked as former restaurant employees).
These kind of companies serve very large banks and real estate investment trusts. Because of the volume of business these banks and REITs give these "sweatshops", there is tremendous pricing pressure and this results in a domino effect. The companies just can't afford to use qualified people; or if they do, their compensation is what a termite inspector might make.
Why am I not surprised that there were so many defaults of loans and so many toxic properties?
Another problem is the conflict of interest created between the goals of real estate investors/brokers and the EP; they usually don't align very well. RECs called by the EP are termed as being too conservative or without any basis.
Regards.