Avoiding the Pitfalls of Phase I Environmental Site Assessments

By Margaret Pollich

The claim was settled at mediation for $1.2 million. What was supposed to have been a simple straight forward Phase I had turned into a nightmare. ABC Company (ABC) had been hired to perform an expedited Phase I on a 100-acre tract of vacant land that had previously been used for industrial purposes. The client was one ABC had worked with many times before. There was a crunch for time and the budget was minimal. ABC accepted the project because of their on-going relationship with this client and they expected to get significant future work from them.

Due to the budget constraint, a junior level consultant, with minimal Phase I experience, was assigned to the project. The records review and owner and regulatory agency contacts did not provide any information indicating there were environmental concerns at the site. The day of the site inspection was stormy and the site walk-through was difficult due to the rain and wind. The site inspection could not be rescheduled due to the time constraint. The site owner was available for fifteen minutes to answer questions. The report was written and issued to the client without the benefit of a thorough peer review. The report concluded that no recognized environmental conditions were evident.

When the site was developed, two USTs and significant contamination were discovered. A consultant hired by the client's attorney readily found historic information regarding the existence of the USTs.

The contract did not contain a limitation of liability clause. ABC was found to be liable and responsible for the site clean-up costing the firm $1.2 million.

What Happened?

An inexperienced consultant working within budget and time constraints missed signs of environmental stress during the site inspection and performed an incomplete records review. The peer review performed was perfunctory due to senior level personnel being tied up with “larger, more complex” projects. A review of the report during the claims process indicated several red flags with the information in the report.

The lack of limitation of liability language in the contract resulted in this $2,500 project ending up as a $1.2 million loss.

When controls are properly implemented, Phase I services can be cost efficient, profitable and result in reduced liability for all parties. Following the guidelines below can increase the quality of Phase I services and maximize the potential for a satisfied client.

1. Communicate with the client . It is important to thoroughly negotiate the scope of work and ensure the client fully understands the scope of work and its limitations. Missed expectations are probably the number one risk involved with providing Phase I services. It is also very important to stay within the established and agreed upon scope of work. Do no more and no less that what has been agreed to.
2. Protect yourself contractually. A written contract should be in place before any work is performed for Phase I services. Important contract clauses are limitation of liability, third-party reliance restrictions, standard of care, no guarantees or warrantees, and discovery of hazardous materials/waste liability protection. Most importantly, a detailed scope of work, that includes what is and what is not included, should be developed.
3. Have the right person perform the work . Due to their generally low fees, there is a tendency for companies to have their lower-level technical personnel perform Phase I services. The fees may be low; however, the potential liability is high. Claims in excess of $1 million are not rare. It is vital that persons conducting Phase I services have the requisite education, qualifications and training. Senior level seasoned environmental professionals should be overseeing Phase I services and providing training and mentoring.
4. Prepare a quality report. Report writers should avoid the use of definitive words such as “all, “every”, “none”, and “no”. Certifications, guarantees, and warranties should also be avoided because they are not legally required and are not the intent of professional liability insurance coverage. Reports should state the facts and not provide legal conclusions or extrapolations. Whenever there is any potential for environmental concern identified, a recommendation for a Phase II investigation should be made.
5. Provide a comprehensive peer review. Budget and time constraints tempt many companies to eliminate the formal peer review process. This opens the door for missed items or inaccuracies going undetected. A quality peer review should be performed before a report is released to the client. A second and possibly a third pair of eyes and brains go a long way to ensure that report deficiencies are corrected.

Margaret Pollich is a Senior Consultant with the XL Insurance construction and environmental services unit. She has more than 15 years of experienced working in the environmental industry and has conducted numerous environmental risk assessments for a variety of clients. Margaret holds an MS degree in environmental health and is a Certified Hazardous Materials Manager.

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