14 Feb Beware the “Bargain” of a Low-Cost Phase I ESA
Reading Time: 3 minutesASTM recently released their scheduled 8-year update to the Phase I Environmental Site Assessments (Phase 1 ESA) Standard under ASTM E1527-21. The following article, which ESA originally published in May of 2021, incorporates the relevant changes to the new standard and outlines its impact on property investors.
ESA frequently receives calls from prospective clients looking for Phase I Environmental Site Assessments. Invariably, the first question they ask is, “How much does it cost?” More than likely, the caller has already shopped for pricing and has received quotes anywhere from around $1,500 to $6,000. Why the wide variation? And are cheap Phase I assessments worth the cost savings? Here’s what to look out for.
What is a Phase 1 ESA and Why do I Need One?
The Phase I Environmental Site Assessment is the standard form of due diligence practiced and accepted in all 50 states. The purpose of a Phase 1 ESA is to identify any Recognized Environmental Conditions (RECs) in connection with a property, typically during a purchase or refinance. Many times, a Phase I ESA is required by a financial institution to secure a loan to purchase the property. Most importantly, a Phase I functions as a protection of your financial investment. It tells you important details about the investment you’re about to make, and it identifies potential red flags that will inform your purchasing decision.
All Phase 1 ESAs are NOT Created Equal
Currently, a properly executed Phase I Environmental Site Assessment fully complies with the guidelines established by ASTM E1527-13. However, EPA approval of ASTM E1527-21, ASTM’s pending updated Phase I Standard, is expected in early 2022. Therefore, any Phase I prepared now should be compliant with both standards. Although all environmental consulting firms that perform Phase I assessments maintain that they follow ASTM-1527-13 standards, those standards are somewhat loosely regulated. Those deficiencies have been corrected in ASTM E1527-21, resulting in a more focused and standardized Phase I product industry wide.
Often, environmental firms will use Phase I assessments as a “training ground” for new hires without proper oversight to optimize their profit. Having a Phase I performed by an inexperienced environmental professional who may not know what to look for, who may misinterpret historical information, who misses a Recognized Environmental Condition, or who may rush the process due to a limited budget potentially exposes the client to significant environmental risk. Other missed “red flags” may include, but are not limited to, poor quality fill material, abandoned underground storage tanks, or discharges of hazardous chemicals — all of which become your responsibility once you take possession of the property.
It is imperative that property investors ensure that the individuals who are actually performing the Phase I work are experienced, knowledgeable, and qualified as “Environmental Professionals” (EP) as defined by ASTM regulations. If they don’t qualify, and if the Phase I Environmental Assessment doesn’t follow ASTM standards, it’s a useless piece of paper that won’t protect you from anything — financially or legally. ASTM E1527-21 clarifies the definition of an EP and requires certifying statements to be made by the EP. The inclusion of these EP statements in the Phase I is a requirement under the pending ASTM standard.
Buyer Beware
Some consultants will structure their Phase I report to require additional and possibly unnecessary Phase II work. Worse, some consultants may not be willing to perform a Phase II following another consultant’s Phase I without confirmation of findings (i.e., performing their own Phase I), so you may be stuck with paying your “cheap” consultant for unnecessary Phase II work.
You Get What You Pay For
ESA personnel who perform Phase I assessments have, on average, more than 10 years of professional experience and have performed hundreds of Phase I assessments. Additionally, as part of our internal quality control process at ESA, senior environmental professionals with more than 25 years of experience manage the Phase I process from start to finish, reviewing all documentation prior to release to a client or lender. This strategy minimizes the potential for missed RECs and ensures that the client knows and clearly understands the potential environmental risks associated with the property.
Recently, ESA President Christopher Martell and other highly regarded environmental professionals gathered to share their expertise at a multi-organization industry forum held to address the ASTM 1527-21 updates. The information shared at the event, which was attended by more than 200 audience members, has been integrated into all of ESA’s Phase I assessment procedures.
By choosing ESA for your Phase I needs, you have the confidence that your Phase I is being performed by qualified environmental professionals with the expertise and experience to accurately assess your site, effectively minimizing future environmental liabilities. Further, with ESA as an early adopter of the updated standards, any new Phase I performed by ESA will remain in compliance once the ATM 1527-21 standards are formally approved.
ESA’s stated mission is to “advocate for the best interests of our clients by providing straight-forward advice and practical, cost-effective solutions to their environmental needs,” embodying the truism that “you get what you pay for.”