Submitted by BlackRockEnv

I have a problem with consultants who are willing to stick their client's neck out while limiting their own liability

So you believe EP's should take on $1,000,000 in liability for all Phase I Assessments?  Make sure you bring that up at your next ASTM training seminar.  See what kind of response you get from the instructors and the audience.

The client hired an EP to assess the potential RECs on a property.  The EP found an REC, and decided verbally with their client that the identified REC was not a big risk.  The EP then concluded that this was not an REC.  The EP simply limits their liability in the contract with the client, and I assume that none of this is clear in the report. 

The client was informed the former UST system was an "Historic REC" in which the state regulatory agency required no further action and it was addressed as such in the Opinions and Findings sections of the report.  The file review and interviews conducted indicate the UST did not leak and minor residual soil contamination was identified under a leaky joint which was properly excavated.  I informed the client that since I was not present during the UST removal, I could not guarantee everything was as described.  Since a PG signed off on the UST closure report and met with the state regulatory agency regarding the residual contamination, the client and I discussed the low risk factor associated with the former UST system and that the historic REC was not a current REC. 

The client is now looking to pass the liability onto a lender and is seeling the Phase I to the SBA as a Phase I done by an EP.  Only when SBA asks for reliance do they find out that the EP is not willing to stand behind the Phase I, and only has liability coverage for the cost of the Phase I.  This is like hiring an electrician to replace an outlet, and if his error causes a fire, he is only liable for the $100 he was paid.

First of all, I do have a million dollar E&O policy.  Secondly, here is my take on your analogy...This is like hiring an electrician to review a building's electrical system to determine the risk of an electrical fire.  The electrician can only see what is visible to the naked eye and cannot remove walls/ceilings/floors to assess the hidden electrical system.  The electrician tells the client that a section of the building has outdated knob and tube wiring.  This type of wiring has a higher risk of electrical fires and does not meet today’s new construction codes; however, it is in compliance with the law.  The client tells the electrician that he understands the risk associated with the older electrical wiring but that he is not concerned.  The electrician was not hired to physically touch or fix any of the electrical system but to merely advise the client of its condition.  The client then wants the electrician to take responsibility for up to $1,000,000 in damages if any electrical fire occurs any time in the future anywhere on the property, including locations hidden in walls/ceilings/floors that the electrician was unable to assess.

This is how consultants get away with cheap work, and why buyers and sellers do not trust EPs. 

Your opinion is way out of line.  Evidently, I’m not alone in my take on SBA’s demands… http://www.cenews.com/print.asp?id=2965

If you are not willing to stand behind your work, then why not advertise that you will "say any site is clean and offer a full money back guarantee if your property is determined to be a superfund site in the future"

I am more than willing to stand behind my work, just not behind the work of others.  If you’re willing to tell me where you bought your crystal ball, I’d then be willing to declare every site I work on “clean”.

Submitted by BlackRockEnv

No I don't pass on their work.  The first thing I ask my client is whether they are getting an SBA loan.  If so, I let them know that my risk is elevated and that additional work may be recommended to alleviate my liability in addition to satisfying the requirements of the ASTM standard.  I'll give you an example...

In March 2009, I performed a Phase I on a commercial building formerly used as a distribution center for a dairy company (basically a large insulated/air conditioned warehouse).  The property was in very good shape in which an historic REC was identified.  It was a 10,000-gallon UST system used to provide fuel for the distribution trucks.  The UST was removed in 1994 with some residual contamination identified in the site soils.  The tank contractor hired an environmental consultant who, in agreement with the state regulatory agency, found no cause for additional soil/groundwater investigation.

As this was NOT an SBA loan and the property was connected to the public water system, the buyer exhibited little business environmental risk (the buyer and I personally discussed the risk associated with the former UST).  Therefore, I did not recommend any additional work related to the former UST system.

I recently received an email from a financial institution that the buyer was looking to get an SBA loan and that I needed to sign a reliance letter along with providing a copy of my $1,000,000 liability insurance certificate.  I also must agree to waive "any dollar amount limitations on liability up to $1,000,000".  Furthermore, "Environmental Professional and Environmental Professional’s firm waive any right to indemnification from the Lender and SBA."

Now I am in a bind with the SBA.  I do not want to hold up a loan or prevent it from going though for the client.  But I am unwilling to take on liability that was not agreed upon in the initial contract.  If I were told up front that this was an SBA loan, I would have recommended soil borings and monitoring wells to confirm no soil and/or groundwater impact occurred at the site.  Now I have to weight the client's business environmental risk with my own. 

SBA is changing the way the ASTM standard is being employed.  After talking with colleagues in other consulting firms, it seems that more and more EP's are calling anything and everything a REC and recommending additional work during the completion of Phase I's to limit their personal liability when an SBA loan is being sought.

Submitted by BlackRockEnv

As an EP and owner of a small business, I refuse to sign an SBA reliance letter.

When ASTM offers their Phase I training, the first thing they tell you is that you should not take any liability over the cost of the Phase I and make sure that this is negotiated up front.  SBA in turn wants an EP to sign a letter that they are willing to take on up to $1,000,000 in liability for a $2,500 Phase I.  As an EP (particularly an practicing professional geologist who speicalizes in soil and groundwater remediation projects), I inform the clients up front (and in my contract) that I did not cause the contamination on the property and I will not be liable for the cleanup of such. 

My insurance company has indicated that SBA is merely attempting to lock into a free $1,000,000 insurance policy.  Furthermore, my insurance company has informed me that if I sign the SBA reliance letter, my insurance premium will raise due to the liability I would assume over the life of the loan.

Submitted by CGoss - Nevada is the primary one. Several other states have attempted to follow Nevada's lead (such as Arkansas) but they have repealed their rules.

Submitted by EdG - Last year I was an expert witness for a portfolio of distressed properties involving contamination and due diligence, etc.  I have an article that gives an overview of "Environmental Best Practices for Commercial Real Estate Lenders" (2006) that discusses due diligence.

Advanced Technology Corporation vs. Eliskim, Inc. (2000) discusses "innocent landowner defense" (all appropriate inquiry, etc.) regarding a property purchased in 1993 and another party seeking contribution for cleanup in 1997.

I am familiar with a few other cases that discuss due diligence prior to ASTM 1527-93 - but would need to do some research.

Ed