Are You Vulnerable to Pollution Claims?

It started out as a contractor’s dream. Now the upscale, “green” condominium, a rehabilitated and expanded former industrial site, is home to bike trails, riverfront dining, organic markets and eclectic shops. The same dream is happening in communities throughout the U.S. However, this dream can quickly turn into a nightmare without diligence, planning and environmental awareness. In this article, the first of a two-part series, we will examine the myriad pollution exposures contractors can unknowingly face. In a subsequent article, which will appear in Construction Business Owner’s November 2013 issue, we will examine more ways to manage these risks. 

Once the dilapidated manufacturing plant is demolished, the riverfront location will be the idyllic setting for the proposed condominium and artist loft project. Before construction begins, the general contractor hires an environmental consultant to perform a Phase I and Phase II environmental site assessment to determine the presence of hazardous materials within the aging building. Testing performed as part of Phase II includes sampling of drywall gypsum board and joint compound. Test results reveal no presence of asbestos, so the demolition contractors mobilize, and the work to tear down the structure begins. Drywall and fireproofing material are removed and placed into dumpsters outside, dust and particles remain on the premises and a trail of dust is left across the site. Suddenly, the local department of environmental protection stops by and notifies the superintendent that the trail of dust and materials being put into the dumpster likely harbors asbestos-containing material.  Demolition is halted, and an investigation begins. Sampling reveals the presence of an asbestos-containing material, and a notice of violation is issued to the GC, along with a six-figure fine.

Meanwhile, site work begins on the exterior of the complex. Concrete and soil have to be dug up and disposed of, and soon truckloads of soil and concrete are removed from the site. However, the non-hazardous disposal facility where the material is delivered notifies the Department of Environmental Health that the soils and concrete delivered to its facility are contaminated with PCBs and mercury. Another notice of violation is issued with severe fines attached. Management is concerned by the environmental and reputational impacts of both incidents, and costs for the project begin to rise. 

Meanwhile, as the other work (which now includes remediation) continues, construction of the condominium begins. The structure features a stucco exterior. Mounting fines, rework and other costs have resulted in investor pressure on the owner to seek ways to reduce costs.

After a project review, the owner begins to make small changes in an effort to achieve the necessary savings. For example, the GC instructs the stucco contractor to place a single-vapor (rather than double-vapor) barrier before applying the stucco. Seemingly no big deal, the exterior is complete, and interior construction begins. Decorative vinyl wallpaper is applied in the individual units and common areas. The condominium is completed on time and within the revised budget, and the owner takes possession and begins inspections.

In a few of the rooms, wallpaper is peeling away. Pulling back a corner of the loose wall covering, the owner discovers black mold and substantial moisture on the drywall. The investigation widens, and more rooms are torn apart. It appears the substantial portions of the northern side of the condominium are plagued by this black mold. The GC is called to the site to inspect and determine how to correct this issue. The double-vapor barrier was critical after all. Humidity levels, moisture content in the building from curing concrete, darkness on the northern side of the building and a perfect food source in the vinyl wallpaper glue all contributed to this costly problem. 

Despite the setback in the condominium, the GC began construction of the organic market, retail shops and restaurant. Excavation begins, and a pre-existing fuel line is struck; however, the excavator does not realize right away that damage occurred. He was trying to figure out why the fuel line did not show up in his plans. Fuel leaked and spread to the aquifer and a nearby creek that feeds into a larger river. Cleanup begins as soon as the release is discovered, but it continues for months, including post-cleaning monitoring. The local Department of the Environment, the EPA and the local Fish and Game Department undertake separate investigations. Natural resources are impacted, and a neighbor sues due to the effect of the spill on their fishing dock and on their ability to enjoy their property. Unfortunately, the excavator has no pollution insurance, and the GC is stuck with the third-party liability and the cleanup bill, not to mention the impact on their reputation.  

Finally, the GC sorts through the asbestos, disposal, mold, fuel spill and natural resource damage issues, and the project is nearing completion. A rainstorm, however, washes tremendous amounts of soil into the nearby creek. The Department of Environmental Protection and Environmental Health return and, having had plenty of experience at the site, are concerned that the soil has asbestos, PCB and mercury contamination. The dead fish that greet them during their site inspection do not help.

Okay, you can wake up now. This was just a nightmare. The project is real but is still on the drawing board. There is time left to learn the lessons presented by this story:

• Conduct environmental due diligence.
• Institute environmental controls.
• Obtain appropriate insurance.

The saying “You get what you pay for” is never more relevant than when you’re hiring an environmental consulting firm to conduct a Phase I environmental site assessment. A Phase I is the process of assessing a property for the potential existence of environmental contamination, and it is unfortunate that this service has become commoditized. Shortcuts and lower-quality assessments can be problematic for a construction company that is relying on the results to conduct safe, compliant, on-time work. What’s more, the consequences of an error or omission in the Phase I assessment are potentially catastrophic. Additionally, you should ask all candidates the following questions: 

• How long have they been in business? 
• Do they follow appropriate standards (ASTM E-1527-05)? 
• What do their quality-assurance and peer-review programs look like? 
• Do they carry professional liability insurance? 

Keep in mind that Phase I guides the sampling activities of a Phase II. If the consultant misses important clues in a Phase I, like underground tank vent pipes or the aerial photograph from the 1960s that showed a strip mall containing a dry cleaner, the Phase I recommendations will be inaccurate.
 
Environmental due diligence is not only the environmental consultant’s job. It is important for contractors to be aware of environmental issues related to their projects. Understanding the consequences of the presence of water or moisture, for instance, allows contractors to institute appropriate controls to avoid the problems such elements can cause.  

In addition, construction employees should receive environmental awareness training, and the pre-construction thought process should include consideration of potential environmental issues. Many contractors have safety programs that include site walkthroughs and detailed checklists. These checklists can be easily modified to include environmental topics:

• Is the drywall getting wet where it is stored?
• Should we be hand digging in a certain area?
• Does the soil and concrete being removed contain staining that might suggest the need for different disposal requirements? 

Furthermore, are employees able to recognize something that does not seem right? If so, are they empowered to stop work in such a situation? The decisions of field employees can be some of the most important decisions on a jobsite.

Not every environmental exposure, however, can be eliminated. You can never completely eliminate the possibility of hitting an unknown fuel line or missing an important fact while conducting a Phase I. But probabilities can be shifted in your favor if you practice appropriate environmental care and institute strong controls. Some subcontractors have higher environmental exposures, which are directly influenced by the quality of their work. For example, excavators can strike underground tanks, fuel lines or pre-existing contamination, and window installers have a direct impact on the potential for water intrusion. These subs should be required to carry appropriate contractor’s pollution liability insurance. Likewise, subs providing environmental advice or services should be required to carry professional liability insurance that responds if they make a mistake in their work. 

Environmental liabilities can be managed, and exposures can be reduced with appropriate care and environmental awareness. However, they cannot be completely eliminated. Our next article will focus on preventing a pollution claim and on how to respond effectively if one—and hopefully only one—occurs on your next project.