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    JoeDerhake
    The $5,000 Phase I Environmental Site Assessment
    Entry posted August 15, 2011 by JoeDerhakeSuper Contributor, last edited January 19, 2012 
    9148 Views, 22 Comments
    Title:
    The $5,000 Phase I Environmental Site Assessment
    Entry:

    Much energy has been expended in this community in bemoaning the low prices of Phase I Environmental Site Assessments.   No doubt we have seen prices drop during the great recession.   Much of my practice is spent working for clients who are price sensitive, but I also have as many clients that are more concerned about quality!  

    More:

    Value for value

    Look, we are consultants and we more or less sell or time.  If a $2,000 Phase I ESA includes 20 hours of staff time (for easy math, often it is much more than that for the same price), then you get 30 hours for a $3,000 Phase I ESA.   What can we do for you in those extra 10 hours?  What can we do for you in 50 hours?  I think we as an industry need to communicate the value for paying more.

    Don’t get me wrong, I believe that the standard ASTM E1527 Phase I ESA is a good value—especially the type of Phase I ESA generally produced by an EBA firm.    Never the less, ASTM E1527 is a flexible document and if we put our mind to it we can do more.

    What can we give our clients in a $5,000 Phase I ESA?   Here are a few things that are above and beyond a standard ASTM E1527 Phase I ESA:

    Business Environmental Risks: Certainly non-scope items that are left out of a standard ASTM Phase I could be included in the $5,000 Phase I, such as asbestos or lead sampling, compliance review, etc.   This requires good discussion with the client and preliminary knowledge of the subject site ahead of time to know what potential risks to evaluate.

    Better Aerials:   The number and quality of aerials we get for each Phase I Environmental Site Assessment is highly dependent on what is reasonably ascertainable within budget and time constraints.  Much of the industry orders digital aerials from a data provider.   A fine set of aerials and generally acceptable quality, but not always the best source for a particular area.  There are many local aerial companies, public libraries or local government offices with aerials around the country that will allow you to see the actual photographs (not copies or scans) which can yield better clarity.  However, often the subject property is nowhere near the local source, or there are multiple possible sources with different sets available, which can render the additional time and cost to obtain them unrealistic unless you have a healthy budget.

    Often the local sources can facilitate a 3D aerial review using a stereoscope.   The difference can be substantial.   Occasionally we find ourselves huddled around a computer screen staring at a dark gray smudge on an aerial asking each other if this smudge represents a recognized environmental condition. 

    One of my employees once secured an engagement for $15k to do a review of aerial photographs for a contaminated site.   And he delivered commensurate value as he poured a great deal of time analyzing aerials from multiple sources.   He analyzed every quadrant of the site via a stereoscope.    My point is we can deliver more when the client is willing to pay for higher value.   

    Review All Possible Historical Records:  ASTM allows flexibility in what records to review and rightly so.  Environmental professionals can choose historical records that yield the best bang for the buck and skip less useful records such as historical topographic maps, or Sanborns in a very rural area.   My $5,000 Phase I ESA clients can expect that we gather 100% of useful data, including historical topographic maps, data from local historical societies, etc.

    More Interviews:  Interviews are an underestimated resource.   A couple interviews are standard in a good Phase I ESA when there is adequate cooperation.   But if you want to go beyond the industry standard, interview 10 people.   Yes, 10 people.   Interview the tenants, the owner, the property manager, past owners and tenants (often difficult and time consuming to track down), the neighbors, waste haulers, city officials and regulators (above and beyond standard local agency interviews), and maybe even the town historian.   Multiple interviews on the same subject can be interesting especially if you get different answers.    

    Experienced Registered Professionals:  A lot of our work is reviewed by an RG or a PE.  Some clients require it.   Go a step further and require the RG or PE do the site visit.    Having a 15-year registered professional doing the site visit is no doubt beyond what is required by ASTM (ASTM is rather week on this subject, contributing to commoditization), but a trained eye can have great value on a really complicated site.   You may even consider sending two professionals, an environmental professional and in industrial hygienist; or an EP and a younger staff member to do a tedious tasks such as inventorying drums. 

    Our survey on errors in Phase I ESA revealed that two of the top five reasons for errors in Phase I ESAs were due to weak inspectors.

    File Reviews:  Are regulatory file reviews part of ASTM E1527?   There was much debate on the subject at the EDR client summit.   Is the fee paid relevant to the answer to this question?  What if the site is in Dallas, Texas and the file is at the TCEQ in Austin, Texas (4 hour drive).  If the client gives us an appropriately large fee and four weeks to do the project, then a file review is clearly reasonably ascertainable.  

    Push Quality

    Constantly talking about some ridiculously low fee becomes a destructive mantra.   Instead encourage clients to specify a scope of work that goes beyond ASTM and understand that the fee will move up accordingly.  Of course, you don’t have to do $5,000 Phase I Environmental Site Assessments to push the limit on quality.   Ask our clients to commit to paying between $2,500 and $3,000 and then deliver reports that go beyond ASTM.    

    Keywords:
    Phase I ESA, Phase I Environmental Site Assessment, Environmental Site Assessments, ASTM E1527, ASTM Phase I ESA, ASTM E1527 Phase I ESA

    Comment

    • LSchnapf

      I would add performing more complete agency file reviews. That and historic records reviews are my top two complaints about the quality of work done by phase 1 commodity shops 

      • kevin

         We use what ever historic information we need to provide a sound property history.  However, we always conduct a review of the title.  All to often we have to clean up other folks work because they failed to look at the deed books.

    • DerekShowerman

      "Phase I commodity shops" typically don't have the resources to follow up should something actually be discovered in the Assessment. Then what happens?. At the risk of oversimplifying - this is a marketing/communicating credentials and resources available matter.

      Posted by Terry Norman on LinkedIn

    • ScottB

      If you want a $1000 "Phase 1" then great, have at it, role the dice.  You can always pay for attorneys down the road if it all blows up.  Many people take that approach.  I'd prefer to buy quality and let the fee fall where it may. 

       

       

    • ks

      I think another issue related to the production shops is having good local/regional experience.  Proper understanding of development history in the area of the site can be crucial. 

      A few years back I wound up with a site that was previously given a "clean bill of health" by a Phase I company located halfway across the country.  For $1500, their person flew in, "assessed" the site, and left.  The report missed an address change about 40 years ago, and the gas statuion they thought was down the street was actually the Site!  Impacts were discuovered during construction and a lot of additional work had to be done quickly to keep the project schedule on track.  Additional work added up to around $350,000 with soil disposal, soil and groundwater assessment, and building mitigation for vapor intrusion.  This client had the money, but in most cases, something liek this could have killed the entire project. 

      • mkulka
         Missing a historic address like this is more common than most realize. I discover this deficiency in urban areas regularly where other firms have missed a REC for failing to investigate historic address changes and/or street name changes. Was there any recourse for the firm that missed it ? The last one I was involved with just a few months ago was a car wash that formerly a gas station. This was discovered when they were trying to finance the SBA route. As is typical, the previous firm was out of business and the owner is stuck. A true dis service to the owner and another black eye to the due diligence industry in the eye of the user. If only they could have recognized how truly unqualified the offender was.
        • ks

          Yes, other resources were available to the other consultant.  If I recall correctly, the data package purchased by the other consutlant was pretty poor in quality.  Given the extent of issues being discovered at the site, I went to the library on my own time (about a mile from the site) and reviewed Sanborn and Polk Index information.  The Sanborn Maps showed a Shell Station on the site along with the historic tank locations (right in the middle of the remedial excavation area - just like a bullseye).  Had that information been properly identified, I've wondered if Shell would have been culpable for the impacts and would have paid for all or a portion of the cleanup, building mitigation (vapor intrusion), and monitoring.

    • manno

      You indicate that "much" of your practice is spent working for clients who are price sensitive.

      Now I recognize that 'price sensitive' can have a wide range of interpretations but my suggestion would be to start releasing the lower end of those clients, i.e., consider changing your company focus.

      If all environmental consultants worked together to slowly but steadily "release" the lower end of those clients, it would be better for the industry as a whole. In fact, I honestly believe that no reputable companies should accept these ridiculous contracts.

      Anyhow, I refuse business on a regular basis. I refuse to take projects if I think the client is going to be a pain in the you know what, is cheap or might be a slow payer. And BTW, you can do this in a polite manner....

      I don't claim to know all the answers, but I truly think that if we all did this, it would improve the industry. 

    • Gordon Onley

      In Canada we have a similar CSA 768-01 standard for Phase 1's, with our largest province, Ontario, introducing an enhanced Phase 1 standard on July 1, 2011, for properties which are being redeveloped.

      This new standard (amendments to O. Reg. 153/04) includes a requirement for a current and historical search of all properties within 250 meters of the subject (the CSA standard only requires a search of only the immediate neighbors).

      While we too have issues with rock-bottom priced Phase 1's ($1500 or less), most banks in Ontario are (fortunately) requiring all Phase 1's be done to the new standard where any purchase is involved, not just redevelopment.

      Prices have  gone up across the board, and I for one hope this change shakes the "fly-by-nights" out the system.

      Those interested in reading the highlights of Ontario's new environmental regulations for Phase 1 and 2's, are welcome to read my blog at www.fisherenvironmental.blogspot.com

       

    • tkm52

      I believe the price should fit the property. Know what you are bidding on. If there is little to no data bid high. If the client insists the property has been vacant forever bid it appropriately, but let the client know the reasoning behind the bid. If you encounter an issue during the process negotiate an increase or let the deficiency be documented in the final ESA.

    • DerekShowerman

      It is basically a point on what reputation you are going to give or get. For all the ESA we had completed over the last 2 decades, we have a standard practice, and it is the same practice for all our projects. All your best that you could put in after you have signed the dotted line otherwise, drop the project or quote a fantastic price but we still prefer to pick up the project, do our best as usual, and hopefully, the next time, you could “discuss” for a slight increase in the rate with the client. Actually in our case, it is getting worse and worse in this part of the world. We received US$ at the rate of >$1.70, but now it is $1.20. For a US$5000 project, we have lost almost 30% the real value not to mention the increase in the cost of all other issues. However, we still continue and ensure, doing our best. In addition to what was suggested in the article, we will also comment, provide additional information or highlight areas of concerns where we observed during the site assessment beyond ESA on issues like general safety, fire protection, potential security issue, may be social or community impacts, obvious possible occupational health concerns, and any other clear cut risk management findings. The extra observations were gathered from visual, interview or documentation review/search but not a full evaluation on any of the special risk areas. We normally will compiled a list of bullet points after the standard ASTM required reporting format, and if issues are of more critical concerns, we will also add a little description in the main report. Nevertheless, we will provide these additional comments for the client as reference and leave it to the client for their assessment, and action, if desire.

       

      Posted by T. C. Yap 叶大树 from LinkedIn

    • DerekShowerman

      In regards to ESA's I have been doing them for over twenty-eight years, long before ESA's were even named. The problem I see with charging $5,000 for a phase one site assessment is great for teh consultant, great money making opportunity. However, as professionals, we have a obligations to our clients no different to accoutnants, lawyers and medical professionals. The practice of charging a "flat rate" or some astronomical rate is unethical and counter to professional conduct. An ESA should take whatever time it takes based on the size of the project. One acre versus 2,000 acres requires a different approach, review and written report. This all adds costs, which should be billing according to a predetermined hourly rate. I would love to charge $5,000 for a ESA, however, ethically I cannot when that project only amounted to 20 hours of work. On the other hand, I have done ESA's that have lasted over a month due to the size and complexity. Professional hourly rates must apply, if you are not covering your costs then you have two options, 1) re-evaluate your hourly rate and 2) reduce your overhead. That is simple business management 101, Similar to taxation, if the government can't manage its fiances well then the burden is passed onto the taxpayers. If a business cannot operate efficiently or within its budget, the customers should not be over-charged for the businesses lack of management. The environental profession overall has had questionable practicies and must hold itself accountable to the highest level of professional standards and conduct. Figure out your hourly breakeven rate and a reasonable profit and you are well on your way.to success. I would love to have ESA's pay for my Bentley, howvever, I think my clients would feel differently.

      Posted by Martin Fekete on LinkedIn

      • EP the non-EP

        In response to Martin's comment... Of course we adjust price for a large or complex property vs a small one, and adjust our approach to the project accordingly. But that wasn't the point of the original post.

        I think he's simply saying that the industry standard Phase I ESA is a generally good product when done by a quality firm and adequately addresses the needs of many clients; however, (not taking into consideration a discussion on size/type of the project), consultants can sell value to clients and deliver a higher quality product for an appropriately higher fee.

        You write "I would love to charge $5,000 for a ESA, however, ethically I cannot when that project only amounted to 20 hours of work" - I think you missed the point. He's agreeing with you. I think a firm with such unethical practices as you describe wouldn't keep their clients for very long.

         

         

    • DerekShowerman

      I believe that the underlying discussion and concern pertains to risk management…that is, risk management for the EP. Having recently supported a plaintiff as an expert witness in a case where a Phase I ESA was conducted on a 100-acre site for $900, and the environmental issues not identified resulted in $millions in remediation and a corresponding settlement which hit the E&O policy, I can assure you that it was not worth it for the EP conducting the Phase I ESA. Quality indeed comes with experience, and that experience should be valued accordingly. And as experienced EPs, we need to know when to politely say, “No thank you”.

      Posted by B. J. Seagrist on LinkedIn

    • MaxEng

      The concept that ethics dictates a maximum price one can ask for a service is one I have never encountered before.  The writer has failed to persuade me at this point.  It seems to me that the decision should be left to the buyer as to what he wishes to pay for a service.

    • manno

      Max, yours is an interesting comment. I'll have to ask my lawyer regarding his hourly rate and his opinion on the subject...

      But seriously, for me, i do think there that there are fair ranges for a product. For example, I would never charge a client $20,000 for a Phase I ESA on  1 acre undeveloped lot in a rural area -- even if he offerred to pay it. I just would not personally feel such was morally justified.

      Now if the client was long term, very wealthy, and the payment was considered similar to a tip or such...obviously that would be a different story. I have heard of a few cases where such things have occurred at the specific request of an educated client but obviously....these are rare and not really germane to this topic.

    • DerekShowerman

      The banks dont really understand how they are being poorly served by the commodity shops. They usually only realize when they get sued. There really needs to be pressure and advocacy applied to EPA to get it to revise the AAI rule to raise the level of EPs or require that EPs do the site inspection. The commodity shops will be driven out of business if they cant use part-time or independent contractors who are "supervised" by an EP.

      Posted by Larry Schnapf on LinkedIn

      • ks

        I think you are opening a whole new can with discussion on banks.  Most banks seem to have pressure from the top to get the lowest price for outside services without regard to quality.  The other question with banks gets into their internal policies and ethics - in the past they mostly seem to have been focused on securing the loan without regard to the proper process.  We'll see what changes come to Wall Street to help correct that part.

        I'm not sure if raising the bar on EPs would solve the issue either - like a colony of nasty bacteria, a few seem to survive the cleaning process.  Even some engineers or geologists fail to "see the elephant", despite the licensing exam requirements for those fields.

    • eddguru

       

      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.

       

    • DerekShowerman

      I would like to hear from bankers on this one. Its my understanding that the cheap Phase One helps sell the loan when competing with other banks, so therefore the loan guys make sure the cheap environmental consultants stay on the approved list. The bank regulators in the past, rarely scrutinized the quality of Phase Ones unless the borrower didnt pay or bank failed . Considering that prior to 2008, the majority of commerical properties in which loans were transacted didnt have any sig. environmental issues and/or the loans were getting paid - the cheap Phase One was a seen as an edge for the banks. And of course there were plenty of guys who would compromise or didnt know better in our business. I would suspect that environment is changing and will continue to change - as it did after RTC/FDIC debacle in the early 1990s; esopecially, as soon as banks start really lending again. Or will it just go back to same old business?

      Posted by Jon Buzan in LinkedIn

      • ks

         I think the banks will largely stick with the low price track without regard to quality or lack therein.  The larger banks seem to sign contracts with commodity firms and a guaranteed (low) price.  Additionally, they really don't have the capabilities of determining a quality report from a bad one; most bankers look at the balance sheets and get nervous around anything remotely technical.  They can provide volume, but its the product you'd have to sell to generally compete with that crowd.