Contractors: Environmental Risk Management Recommendations for Contractors

Almost every construction project involves environmental risks. Environmental impairment comes in many forms and results in fines, delays, unwanted liabilities, cost overruns, change orders and possible work stoppages. Following are ten common environmental recommendations for all types of construction contractors, as well as case histories and alternative actions that may have reduced the impact of, or prevented, these situations.

1) Beware Of Mold

Recommendation: Consider adopting a mold awareness program that includes employee training on techniques to prevent mold growth, and management procedures for containment and remediation decisions if mold is discovered at a project site. The program should include a schedule for routine inspections for water infiltration, schedule-sequencing considerations for trades and materials, ventilation of enclosed spaces, and methodology for repairing water infiltration. The program should also include communication methods to project managers and owners including, but not limited to, contract provisions for dealing with discovered mold, response timing and methodology, and responsibilities associated with remediation of mold growth.

Case History: A general contractor demanded that a drywall subcontractor install fire-retardant wallboard in an elevator pit and a pipe chase before the roof of a building was complete. The subcontractor objected, claiming that the wallboard could become saturated in the event of rain. During a weekend storm, the wallboard became saturated and mold began to grow. The general contractor demanded removal and replacement of the moldy wallboard at no cost; the subcontractor refused, citing his documented previous objections. The general contractor eventually hired another firm to remove and replace the affected wallboard. By that time, the mold had spread over a large area.

Alternative Action: The general contractor should consider the following actions for the future:

• Sequence construction activities so that moisture sensitive materials are delivered to the site and installed once the building envelope is complete and dry storage is available.
• Initiate a corporate mold program so that project participants are aware of the potential liabilities.
• Include potential mold remediation with subcontractors in the plans, specifications, and contract so that responsibilities are clearly delineated before work is begun.
• Listen to the concerns of the subcontractors; the project could have been completed in a more timely, professional and efficient fashion if the drywall subcontractor’s opinion had been respected.

2) Obtain Environmental Information

Recommendation: Firms associated with construction or demolition at a project site should obtain information on the site’s environmental history from the owner or firm responsible for the project during the bidding phase or prior to signing a contract.

Case History: An excavation contractor unknowingly spread petroleum-contaminated soil across a project site during fill operations for a housing project. The contractor was brought into a lawsuit for exacerbating the extent of the site’s contamination. After lengthy deliberations, the contractor was eventually dismissed from the lawsuit, after spending more than $250,000 on defense.

Alternative Action: All contractors involved with a project are entitled to request environmental information about the site from the site’s owner. Prior to signing a contract, obtain this information which is available from several sources:

• Phase I Environmental Site Assessment (ESA)
• Phase II Environmental Site Assessment
• Pre-bid site walk through

Phase I ESAs typically are required by a lender before the owner receives financing for the project. A Phase I includes a search of property titles, regulatory databases, and other public information to determine past property uses, which may give insight into the potential for environmental contamination. Phase I ESAs may include visual observations from a property tour.

Phase II ESAs are performed if there is probability of past contamination. A Phase II defines the extent and concentration of site contamination through the analysis of groundwater, soil, and existing building material samples.

Examples of environmental contamination that a contractor should look for during a pre-bid site tour include:

• Stained soil and stressed vegetation -- may indicate soil contamination
• Asbestos-containing material
• Lead paint or roofing materials
• Mercury-containing fluorescent light fixtures
• PCB oils in old transformers
• Fill and vent pipes -- may indicate underground storage tanks
• Hazardous atmospheres and product piping in manholes
• Bird droppings -- the associated dust can cause irritation and illness

3) Ensure Fill Material Is Clean

Recommendation: Analyze fill materials brought to a project site or request a certification of testing from the source of the fill. This is especially important if the soil is being offered at a “reduced” price or if it is coming from a suspect source. Keep in mind that not all contamination is detectable by sight or smell.

Case History: A contractor performed clearing and grubbing on an apparently undeveloped piece of property. Though the contamination was not visibly detectable and there was no odor, the site was previously used as a dumpsite for dredge spoils from a local harbor. The soils were highly contaminated with cadmium, lead, and other heavy metals. The project was delayed and the cleanup costs were triple the contractor’s expected profit.

Alternative Action: The contractor could take several separate courses of action before disturbing the soil at a project site:

• Obtain Phase I and II ESA information
• Request a certificate from the landowner stating the soil is free of hazardous materials.
• Have an environmental consulting analyze the soil for chemical contaminants.

4) Use Clear Contractual Language

Recommendation: Contractors and project owners are encouraged to include contractual clauses for the handling of known contamination and the discovery of unanticipated hazardous materials at a project site. Clear guidelines for the ownership, remediation, hiring of specialty subcontractors, and disposal of site waste should be clearly defined.

Case History: During site grading operations, a contractor discovered five buried tanks that contained unknown materials. The contract stated the contractor was responsible for all known and unknown underground conditions. The contractor subcontracted the removal of the tanks and surrounding contaminated soil. Change orders submitted to the owner for the costs of remediation and the associated delay were denied, based on the contract terms and conditions. The contractor’s insurance carrier denied a claim for reimbursement based on the absolute pollution exclusion in the general liability policy.

Alternative Action: Clauses that deal with environmental issues need to be carefully negotiated into the contract and the roles and responsibilities of each involved party made clear. Sample clauses are available from trade associations; however, the inclusion of these terms in any contract should be reviewed by local legal counsel to reflect project-specific conditions. Clauses should address:

• Known pre-existing contamination
• Discovery of unknown existing contamination
• Remediation responsibilities
• Schedule impacts
• Payment terms
• Indemnification

5) Don’t Sign Waste Manifests

Recommendation: Waste manifests are used for tracking the handling, transportation, and disposal of hazardous and other regulated wastes. The individual signing these documents assumes responsibility for the proper characterization, handling, and disposal of the materials. In the event that wastes are incorrectly managed, your firm may be held liable for future cleanup costs and penalties. Unless you are the generator, the transporter, or the final disposal firm, no one from your firm should sign manifests for the disposal of hazardous wastes.

Case History: A site development contractor was held liable for the cleanup of illegally disposed 55-gallon drums found at a construction site and collected by an unlicensed waste hauler. Instead of transporting the drums to a permitted landfill, the hauler dumped the drums in an out-of-state rural field. The contractor was listed as a Potentially Responsible Party (PRP) along with the client because the contractor’s name was on the manifest.

Alternative Action: Environmental engineering firms or contractors hired by an owner of a site and charged with managing the waste disposal are not the generator. Under every circumstance, the generator of the waste scheduled for disposal is the person or firm in control of the site and the firm that is responsible for the cleanup. These entities should sign the manifests. If the owner requests that the contractor sign the manifest as an agent of the owner, the contractor becomes ultimately responsible. Receipt and permanent retention of the completed manifest from the disposal facility by the owner is of prime importance as this is the only record of proper disposal.

6) Train Workers In Spill Prevention

Recommendation: Aboveground storage tanks should be in secondary containment large enough to contain 110% of the tank’s volume. Employees responding to a spill of a bulk liquid should be trained in the proper use of the available spill response materials and personal protective equipment. This training must be rehearsed at least annually and documented.

Case History: A contractor had a 500-gallon diesel fuel tank on a bridge deck while performing maintenance and repaving activities. The tank was inadvertently punctured by a forklift operator and the contents spilled to the river below, contaminating the water and both banks. The cleanup cost the contractor more than $10,000 and resulted in state-issued fines. There were no spill containment supplies at the site and the response time for a remediation contractor was several hours. By then, the fuel had spread downstream.

Alternative Action: Proactive procedures and equipment for aboveground storage tanks include:

• Use tanks that are equipped with secondary containment pans and rain shields to add both limited collision protection and primary containment in the event of unwanted impact or structural failure
• Provide collision protection to avoid impact by heavy equipment
• Place an earth berm around the tank if the tank is not in a containment pan and line the berms and bottom of the impoundment with poly-ethylene to prevent spilled material from saturating the underlying soil.
• Provide adequate spill containment materials suitable for use in water and on soil; store materials in a pre-determined, dry and easily-accessible area on the project site.
• Train selected site employees in emergency response procedures in the event of a release.
• Keep the telephone number of a spill response firm readily available and permit employees to contact the firm without obtaining approval from the corporate office.

7) Contact ‘One Call’ Services

Recommendation: Contractors responsible for intrusive activities should contact the local “One Call” service to locate buried utilities in the vicinity of planned activities. These calls and planned site visits are documented with a confirmation number issued at the time of the initial call. Requirements for the lead time of placing a call in advance of excavation activities vary by state. Therefore, a thorough understanding of local regulations is required.

Case History: A utility contractor was installing new overhead electrical lines. Their subcontractor was installing the new utility poles and struck a buried sewer line with the auger. The utility contractor was held liable for the actions of the subcontractor through contractual liability and paid $90,000 for the sewage cleanup and repairs of the sewer line.

Alternative Action: The subcontractor should have contacted the local “One Call” system that is available in all 50 states and the District of Columbia. The utility contractor should have ensured the “One Call” contact and accuracy of the drilling location. This provision can be included in the subcontract. If the utilities are marked and one is struck outside of the exclusion zone, the contractor may not be liable for the cleanup and repairs.

8) Install Erosion and Sediment Control

Recommendation: Erosion and sediment controls should be installed on any construction site in excess of one acre or where there is a potential to contaminate a water body or storm water collection system. These controls should be inspected after installation, as well as prior to and after a significant rain event. Examples of these controls include regular silt fence, “super” silt fence, rip rap swales, hay bales and sedimentation basins, and inlet filters.

Case History: A contractor developing a site for a commercial entity had installed erosion and sediment controls as per the project’s plans and specifications; however, these controls were not routinely inspected and maintained. After a very heavy rainfall, the two local streams were contaminated with sediment that was traced back to the site. State and county environmental agencies levied fines for violations in excess of several hundred thousand dollars. These fines and penalties may not be covered by any available insurance policies as they may be interpreted as unlawful acts.

Alternative Action: Regular maintenance and inspection of a site’s erosion controls are important. Contractors should maintain a supply of these controls at the site, or have them readily available, in the event an inspection finds an area requiring repair. Documentation of these inspections should be retained in a project file. If a breach occurs, the documentation may assist in a reduction of the fine amount and/or the number of violations.

9) Consider Subcontracts and Pollution Insurance

Recommendation: Consistently use written agreements that contain language in favor of your firm with all subcontractors. Contracts should contain the following clauses, at a minimum:

• Indemnification
• Hold harmless
• Inclusion of the general contract by reference
• Discovery and management of hazardous material
• Insurance requirements at least equal to those in the general contract
• Responsibility of the subcontractor for their actions

Before use, all contracts should be reviewed by an attorney knowledgeable in local codes and laws before being used.

Case History: A general contractor subcontracted a labor services company to provide jack hammering services at a gasoline service station. The laborer demolishing a concrete slab at a pump island pierced a pressurized fiberglass supply line to the pumps that resulted in the release of 1,500 gallons of gasoline. The cleanup required the excavation and disposal of almost 1,000 cubic yards of petroleum-contaminated soil at a cost of approximately $80,000. Due to the low cost of the subcontracted services, the general contractor used a purchase order instead of the normal subcontract agreement. The purchase order did not contain language outlining the responsibilities of each party, such as directing the activities of the laborer. The general contractor was held liable for the cleanup costs.

Alternative Action: The use of a standard contract for all subcontracted services ensures uniformity and thoroughness when hiring subcontractors. There are standard forms, which are readily accepted throughout the construction industry.

There are also purchase orders available that contain terms and conditions on the reverse side. These terms and conditions can be modified to meet the language and requirements of the general contract by adding an addendum that includes the general contract by reference. The insurance requirements for the subcontractor should be at least equal to those your firm is obligated to provide the owner. A copy of the general contract should be available for the subcontractor to review. Legal counsel should review any modifications to any type of contractual agreement. Under no circumstances should the general contractor sign the subcontractor's agreement as it is most likely written in the subcontractor's best interests.

For some subcontractors, pollution insurance should be required in addition to the standard coverages. Commonly subcontracted activities that should be required to provide pollution insurance may include excavation, demolition, HVAC, plumbing, remediation, transportation, and any firm handling bulk liquids.

10) Obtain A Waiver of Disposal

Recommendation: When disposing of project-generated wastes that contain potentially hazardous materials such as lead paint, old tires, and creosote-coated railroad ties, a waiver should be generated by the entity disposing of the material and signed by the entity accepting the material. The waiver must state that the entity accepting the material is aware of the potential hazard and the generator bears no liability for future use or handling of the material.

Case History: A heavy highway contractor was dismantling and reconstructing several steel beam bridges. The contract stated that the steel was coated with lead-based paint and disposal of the beams was the contractor’s responsibility. This was confirmed in the field. The contractor contacted a local scrap steel recycling firm that accepted the material. A laborer at the recycling facility was assigned to cut the beams with a torch. The laborer was later diagnosed with severe lead poisoning. A claim against the contractor for personal injury and permanent disability payments to the laborer was successful.

Alternative Action: This claim may have been avoided if the heavy highway contractor had obtained a signed waiver from the steel recycler indicating they understood and accepted the risks of handling materials coated with lead paint. The avoidance of liability for future use beyond the control of the party disposing of the waste material is documented with the use of this waiver. The completed waiver is made part of the project file and archived with the rest of the information.

XL Environmental • Risk Control Division • 520 Eagleview Boulevard, PO Box 636, Exton, PA 19341 • Phone: 800-327-1414 • Fax: 610-458-7285 • xlenvironmental.com

XL Environmental is a division of XL Specialty Insurance Company.