How a Bad Phase I ESA Can Cost Your Development Millions

A Phase I Environmental Site Assessment (ESA) is often the first due diligence step in a property transaction. Phase I ESAs are a quick, simple, and relatively inexpensive way to gauge potential environmental liabilities. However, if conducted poorly, a Phase I ESA can lead to big assumptions, big problems and big money wasted further down the road.

Whether intentional or not—a lot of weight is typically placed on the findings of a Phase I ESA. What businesses operated on site? Where should we sample? What would our cleanup costs be? The initial Phase I ESA is often the first source of information a project is built upon. Big decisions—and often big money—are based on the words of this initial low-cost investment. This is great if a thorough Phase I ESA has been conducted. However, if conducted poorly, it’s like buying a house without checking the foundation—you could be burning cash in the long run.

So how do you make sure the “foundation” is being checked? How do we avoid getting a bad Phase I? The simple answer is to get it done right the first time. FLS recommends hiring experienced environmental firms for any environmental Due Diligence efforts, including Phase I ESAs. If the price of a Phase I ESA sounds too good to be true—it probably is. Environmental due diligence is the last thing you want to cut corners on. Cutting corners leads to mistakes—and mistakes are where money is lost.

How are Mistakes Made in Phase I ESAs?
The truth is the findings of a Phase I ESA are often very subtle. Determining environmental liabilities from mountains of data is similar to finding a needle in a haystack. A single marked tank on a Sanborn Fire Insurance Map can be easy to miss to the untrained eye. Combine this with the fact that Phase I review work is often conducted by less experienced and entry-level staff—important findings can sometimes be missed. The consequences of not finding a leaking tank can be the difference between a $10,000 investigation/cleanup and spending 10 times that amount in investigation/remediation/schedule when an unanticipated tank and contamination are found during excavation.

In fact, our staff at FLS are regularly retained by clients to review and confirm the findings of other firms’ Phase I ESAs. Mistakes and missed items are not at all uncommon. Sometimes they are subtle findings that do not affect a client’s acquisition or any projected site remediation. However—other times these missed items could result in a multimillion-dollar cleanup.

The last thing a developer needs is to walk onto a construction site they thought was clean—only to find grossly polluted soil 10 feet into the excavation. It is wasted time and wasted money. All due to false or inaccurate assumptions derived from a poorly conducted Phase I ESA. Although, it’s tempting to bargain shop for cheap Phase I ESAs, saving a few thousand dollars on this task could potentially cost millions and derail the development. That’s why FLS recommends spending a bit more resources upfront and hiring an experienced environmental firm to prepare your Phase I ESA. This ensures it is conducted correctly—and you won’t run into any “Million Dollar Surprises” on your Site. For all of your environmental due diligence needs, contact Mark Hutson at 212-675-3225 or mark@flemingleeshuecom.