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What does a Phase I ESA cost?

What does a Phase I ESA cost?

What does a Phase I ESA cost?

The cost of a Phase I Environmental Site Assessment varies due to location, size of the property, the history of the property and the consulting performing it; however, they typically range from $1,500 to $8,000. We will breakdown what drives the cost of a Phase I ESA, what to look for and what to look out for when you need one completed. Even though they should be, not all Phase I ESAs are created equal. Ultimately, with a little knowledge, you will be able to determine if you are getting what you need and be able to ask the right questions.

Location, Location, Location

The location of a Phase I ESA matters in terms of cost. This is because the environmental consultant must factor in the time to drive to the site and the distance. Even if you have a local environmental consultant and the distance is minimal, traffic may play a role. For instance, in Chicago, traffic is usually quite burdensome. You may see a little higher price for a project in the city versus one in the suburbs. If the consultant is not local, then you will likely see a higher charge to cover the mileage and time to get to the site. Keep in mind that environmental consultants typically charge anywhere from $100 to $200 per hour, so if they spend 2 hours driving back and forth from your site, they are losing $200 or more of time that they could be billing an hourly client. This is a reason to dump the billable hour, but I will save that for a different article.

Size Matters

It shouldn’t be any surprise that the larger the site, the higher the cost. The Phase I ESA require site reconnaissance to be performed. The environmental professional must look over the entire site and surrounding area. If you have a small commercial site with no structures, the site reconnaissance will be very quick and easy resulting in reduced costs. If you have a large industrial site that is currently operating (think automotive assembly line), this will take much longer to complete. It is not just the size of the building that matters, the size of the property also plays a factor.

Phase I ESA cost?

We once performed a Phase I ESA on a moderately sized self-storage facility; however, there were about 40 undeveloped acres behind the facility. The undeveloped land was wooded with a small creek and a few hills. We needed to traverse the entire property, mostly looking for illegal dumping. I was actually training a new employee at the time, and he didn’t quite understand why we had to keep walking through the woods. As I was explaining the importance of covering the entire property, we crested a hill. Then I simply said, “That’s why,” pointing at an old, rusty 55-gallon drum on the edge of the woods. Upon closer inspection, the drum was an old oil drum which still had oil in it. Fortunately, the drum hadn’t leaked, otherwise a Phase II ESA would have been necessary.

It’s History

One of the objectives of a Phase I ESA is to determine the history of the site. So, if the environmental consultant is going to determine the site history, how do they base the price on site history? It is quick and easy to determine how much work a site will be. One aspect is location. If the site is in the City of Chicago, or another large city, there is a good chance that the property has a long history of being developed. On the other hand, a site out in rural Illinois may have a very limited or no history associated with it. Another technique is pre-screening databases. For sites in Illinois, the environmental consultant can go on the Illinois Environmental Protection Agency’s website, type in the address, and see a map with all of the sites that the state has in its database with a few exceptions. If the site is in the database, the consultant can quickly see how many reports should be reviewed. The operative word is should. Not all consultants review all these reports and I will discuss that later.

I will bring this together in an example comparing two sites. These are extreme examples, but they illustrate the point.

Example 1 – Newer Warehouse in Rural Area

Imagine that you are looking to purchase a warehouse on the outskirts of a rural town. The warehouse was built in 1996 and the surrounding area is zoned for light industrial and agriculture. Chances are that the land was agriculture prior to 1996 and this is the first building built on the land. Additionally, with the building being built in 1996 it is likely that there has not been a long history of environmental issues at the property. Upon reviewing the state’s database, the closest environmental site is a quarter mile away. With this information, the environmental consultant knows that the records review will not take a lot of time or effort. Therefore, the price will be cheaper.

Example 2 – Old Factory in a Historic Industrial Area

Now imagine that you are looking to purchase an old manufacturing plant along the North Branch of the Chicago River. The building was built in 1880, after the Chicago Fire. Electricity was not available at the time it was built and you can see remains of the old steam system. This building has had numerous owners and was used to manufacture item in a dozen different industries. Looking at the state’s database, the environmental consultant sees 20 different reports totaling over 1000 pages. There are another 10 sites within a quarter-mile radius that are also listed in the database. At this point, the environmental consultant knows that the historic research is going to take a lot of effort and will adjust their price higher to compensate for the extra time.

Not All Phase I ESAs Are Created Equal

When you contract to have a Phase I ESA performed, you would expect that the product would be the same regardless of the environmental consultant chosen. This could not be further from the truth. The standard that governs the Phase I ESA (ASTM E-1527) allow for the environmental consultant to use their discretion in determining what sources should be used. I have seen this discretion abused time and time again. It typically occurs with Phase I ESAs that are priced the lowest. To paint a better picture, here are the sources the ASTM standard recommends or suggests the environmental consultant to review.

  • Historic topographic maps
  • Historic aerial photographs
  • Historic fire insurance maps
  • Chain of Title documents
  • Historic city directories
  • Historic building permits
  • Property tax maps
  • Newspaper archives

It may not seem like a lot of work to do until you realize that there shouldn’t be more than a 5-year gap between documents. Many times, there is more than a 5-year gap just because the information is not available.

Typically, the environmental consultant will order a database search by a third party which contains most of these sources. The issue is that they offer different levels of reports and the cheaper reports contain less sources. So, some consultants order the cheapest report to save a few hundred dollars and lower their price to win the work. These Phase I ESAs typically cost around $1,500 and sometime less.

The worst example that I have seen is where a consultant did not order a report. They went online to a free database search service that provided none of the above information. They found one topographic map and then did a screen capture from Google Maps (satellite view). That’s it. One map and one photograph. All so they could turn a profit on a dirt-cheap Phase I ESA. Unfortunately, the client did not know that this was inappropriate.

But hey, they got the Phase I for a very low price, what’s wrong with that?

Well… actually a lot.

The Consequence of a Poor Phase I ESA

So, you got a cheap Phase I ESA and the environmental consultant issues the report. So, what happens next?

There are a couple things that may occur. One possibility is that the environmental consultant identified a recognized environmental condition, otherwise known as a REC. Because of this REC, they have recommended a Phase II ESA to investigate the site with a price tag of $15,000. That’s 10 times the price of the Phase I ESA you just got. Worse yet, the lender sees the recommendation and requires you to perform the investigation as a condition for funding. You quickly leaf through the report, not really understanding all the terms the environmental consultant is using such as HREC, LUST, CORRACTS and RCRA LQG; however, you see that they only looked at a quarter of the source above. Now the question you should be asking is: is that REC really a REC? It is possible that if they had done more research, it wouldn’t be a REC.

Want proof? Read this success story.

Going even a step further, some less-desirable consultants have the following business model.

  • Perform a Phase I ESA for less than cost
  • Recommend a Phase II ESA
  • Charge a high price for the Phase II ESA now that the lender requires it
  • Make a lot of money on the Phase II ESA

This is unethical and should be illegal, but it is always difficult to prove intent.

So, what if they don’t identify a REC? You’re ok, right?

Wrong.

If the environmental consultant didn’t research reasonable ascertainable sources, then the Phase I ESA does not meet the “all-appropriate inquiry” (AAI) standard. I won’t get into the details of AAI in this article but will discuss the result. Now, it is impossible to say that obtaining some of the other sources was not reasonably ascertainable when you could have spent an extra $200 to get them. When a Phase I ESA does not meet the AAI standard, then the buyer loses out on Bona Fide Prospective Purchaser (BFPP) protection. This protection protects the purchaser from potential historic environmental liability of the property. If the property is contaminated, the purchaser could become liable for millions of dollars in clean up costs just by owning the property. I will have another article in the future showing a real-world example of this.

The Need for Speed

One more cost factor before we conclude is speed. Phase I ESAs are typically completed in 30 days. Some consultants are quicker, some slower. Once turnaround time start getting less than 3 weeks, you may see an increase in costs. This is due to the need to set aside other work, or putting in overtime to get the job done. Once you start getting to less than 2 weeks, then the consultants may need to pay rush charges for on the environmental database search order provided by a third party. The faster you need it, the higher the price.

Conclusion

I know this is a lot to take in, but it should give you a better idea on how environmental consultants price out Phase I ESAs. You should now also know what to look out for when evaluating a proposal. My biggest piece of advice is to ask questions. If the environmental consultant does not spell out what they are going to do, that should be a red flag to ask. Make sure that they are reviewing all of the sources. Granted, sources like fire insurance maps may not be available for rural areas, but they should explain this to you. When comparing proposals, always make sure that you are comparing apples to apples.

One final note. Sometimes lenders have a pre-approved list of consultants to use. Many times, these “pre-approved” environmental consultants were not vetted for the quality of their work. They may have only be pre-approved because they carry the appropriate amount of insurance or have certain pricing. When dealing with “pre-approved” consultants, the same rules apply. Make sure you understand what the environmental consulting is providing in their Phase I ESA. If it appears that the proposal is inadequate, talk to a different “pre-approved” consultant.

Hanis Consulting would love to work with you on your next project. We pride ourselves on the quality of our work and do not take shortcuts. In our proposals, we spell out the work that will be performed and give you options as to how thorough of a Phase I you would like completed. If you have a project that you would like us to take a look at, click the link below.