10 Things to Remember About Phase I Environmental Site Assessments

During the past few months, there have been encouraging signs that the United States economy has begun to emerge from the recession that, at least according to the National Bureau of Economic Research, began in December 2007. As previously frozen cash reserves stockpiled by many businesses begin to thaw, the pace of acquisitions has begun to quicken. For environmental lawyers, the mobilization of cash and the reinvigoration of the transactional market translates into a sudden and welcome flow of environmental due diligence requests and responses and, in particular, a rush of Phase I Environmental Site Assessments (also referred to simply as "Phase I's"). With these Phase I's have come a variety of related issues—some new and some old—that can complicate or, in a worst case, derail a transaction. In light of this, now seems an appropriate time to reflect upon ten issues we encounter in the Phase I process.

The Commoditization of Phase I's: One consequence of the residential and commercial housing market contraction was a corresponding contraction in the amount of environmental consulting work available. Because of this decline in available work and because Phase I's often are the portal to more lucrative invasive site investigation and remediation work the competition amongst consultants to get Phase I work has become super-heated. This competition can translate into brutal price compression. We have seen instances of consulting firms submitting Phase I bids for as low as $1,000. By way of comparison, most ASTM E 1527-05 Phase I's fall in the $2,000-$3,000 range. While lower prices are ordinarily a positive market-place development for consumers, the problem posed in this instance is that some consultants sacrifice quality to achieve lower prices. Phase I's are, at a certain level, an exercise in thoroughness—the consultant must not only visit the site and interview the owner, but also study historical Sanborn maps, review agency files, and even peruse dusty old phone books at local libraries. When corners are cut to reduce costs, important facts can be missed. There is wisdom in the maxim that "a deal that's too good to be true is too good to be true." Consultant Liability: As consultants continue to face cost pressure on Phase I work, they are also wrestling with a corresponding realization that, for work that may net them only a few hundred dollars of profit, they are potentially assuming millions of dollars of liability exposure. A Phase I is a buyer's basic summary of the environmental condition of a piece of property. In fact, in some cases, the Phase I is the only substantive environmental due diligence conducted by a potential acquirer. Accordingly, if the Phase I fails to accurately assess the environmental condition of the property, the acquirer may well look to the consultant for compensation. The...