Case Study: Client Saves $7 Million Thanks to a Thorough Site Assessment

Posted by Mark Roman on April 24, 2019

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I’ve been an environmental consultant for more than 30 years. Yet it still surprises me how many of my fellow consultants adopt a standard, by-the-numbers approach to conducting environmental assessments – which could result in major issues being missed or the wrong remedies recommended.

Take one project we just closed at a manufacturing facility. We were getting quite mysterious results from our testing of soil and groundwater. So, we dug deeper (literally and figuratively) to find the source of the contamination, and to accurately delineate the contamination and characterize the property.

This was key because the property was for sale, and the buyer wanted $10 million in reserve funding to pay for any post-closing remediation. As you can imagine, the seller, our client, wasn’t thrilled with that idea.

But, thanks to our efforts, we were able to accurately determine the source areas and extent of contamination, and provide a realistic estimated cost of remediation. And, as a result, the buyer was convinced to reduce their request for reserve funding from $10 million to less than $3 million.

Our client added $7 million to their bottom-line immediately. The cost to complete our investigation: just $450,000.

A Professional Courtesy

A few years ago, our client, with whom we’d been doing work since the mid-1980s, was purchased. They were a worldwide manufacturer. As part of our relationship with them, we had conducted due diligence for any property transactions, including purchases and sales. 

Many times, when these properties were sold, the facilities had been shut down. The owners were no longer there. We were their presence. We managed the investigation and remediation activities and acted as liaisons with the new property owners and regulators.

After our client’s business was sold, the new owners kept us onboard to manage the legacy properties that we knew intimately from our previous work.

Inadequate Due Diligence Causes Problems

Our new client decided to sell-off some of our former long-time client’s properties, one of which was the subject property.

As part of any property transaction like this, there is, of course, an initial Phase I Environmental Site Assessment (ESA) done to identify any potential environmental problem areas. Essentially, it consists of document review, interviews with parties familiar with the subject property, and a site inspection. A local consultant was brought in to conduct the Phase I ESA for our client.

Because we knew this facility well, including issues it had had in the past, not to mention 30+ years dealing with similar sites, we offered to take a look at the Phase I ESA Report. We wanted to make sure that all of the potential issues were identified within the report for our client.

Good thing we took a look.

We pointed out some issues at the property that the report did not cover in detail.

For example, historical aerial photos were included but the report hadn’t mentioned several potential problem areas, including a former large exterior storage area that existed at the property decades ago which was present in several photographs. Such issues need to be identified in a Phase I ESA Report.

On top of our evaluation of the Phase I ESA Report, we offered our client a very detailed scope of work to complete a phased approach to site characterization that would give them a complete picture of what was going on at the property.

The Phase I ESA was complete. Phase II, which involves active investigation by collecting and analyzing soil, soil gas, air, and groundwater samples, was next.

What Goes into a Complete Site Characterization

Our site characterization goes way beyond typical Phase I and Phase II ESAs. It completes the story of what’s going on at the property based upon understanding the history of the property, its existing conditions, and planned future uses. The approach enables you to determine environmental conditions and whether those conditions will impact property usage. If the property is impacted, this approach will enable you to determine which regulatory program must be followed to get official regulatory closure for the identified issues.

But there are important questions to ask the client before we go that route:

1. How is the property transaction being structured?

2. If you’re selling the site, who will be responsible for any issues found during Phase I and Phase II – the property owner or the buyer? (This became key in this particular case.)

3. What level of cleanup is required if we find an issue? What is the intended use for the site? If the cleanup meets only the industrial/commercial standards, there will be a deed restriction that limits the property use to industrial/commercial. So for example, the new owner couldn’t just put up condos until the property is remediated to residential standards.

It’s key to get these questions answered and make sure the client understands this for site characterization purposes - especially #3.

In this case, our client said they wanted to post a “drawdown” account that would be used by the buyer to remediate the site. After the closing, the seller didn’t want to be involved. And this reserve funding would be the only money they would be on the hook for.

As you can imagine, in this case, the seller wants the amount to be as little as possible. And the buyer, who has to rely on your work, wants that fund to be as big as possible to cover their bases.

There was one last wrinkle.

As we outlined various phases of work to accomplish the complete site characterization, we discovered that the client wanted the real estate transaction closed and money from the sale on their books before the end of the year.

So, we had less than six months for our investigation and to make recommendations about remediation… despite having no idea of how many sources of contamination might exist, and what levels of contamination might be present at this property.

Getting on Site and Getting Busy

The site was still an active manufacturing facility when our work commenced. During the course of the project, it was closed and decommissioned. All the equipment was being removed during the latter stages of our investigation. For a site characterization, it’s preferable to look at the property while it’s still in operation, so you can see how things were done and where things were done. This helps with determining conditions of process areas, storage areas and shipping/receiving areas. We did as much as possible.

Next, typically once decommissioning is complete, we do the sampling. This helps catch any contamination that arises from the shutdown process, as riggers remove equipment, clean, and paint. Additional materials can be released during this work, including oil leaks from equipment. That creates new areas of concern.

We didn’t have that option because decommissioning was not complete. Our challenge was to characterize the site concurrent with decommissioning activities in order to develop a cost estimate for remediation for reserve funding that would make both parties happy.

Our first task, what we call Phase A, was to confirm what the other consultant’s Phase I ESA showed… and also identify any new areas of concern that may be present based on our experience with similar sites and based on our “eyes” on the property.

Phase B was our initial round of sampling. We quickly discovered that the groundwater was about 100 to 120 feet deep. We sampled those areas identified in the Phase I ESA, as well as those we felt could be problem areas based on our experience and our knowledge of the site.

We discovered a low level of volatile organic compounds in soil samples collected across the entire site, although the level was below what would be a concern for industrial/commercial standards. But it was quite strange that the contamination was consistent across the entire site. The source of the contamination was not apparent yet.

But we also found some background contamination from the property’s past use as an orchard, including pesticides and metals.

We put all our findings together and sent it to our client… and recommended they share it with the purchaser after they had signed a purchase and sale agreement. Otherwise, why share it if they are not committed to the purchase.

Going into Phase C

During property transactions, we always recommend open communications – conference calls work well. Simply put, the buyer has to feel comfortable. So, we want them to hear directly from us so they will have confidence in our abilities and our findings.

Once Phase B was complete, it was time to move to the next level.

In Phase C, the goal was to determine if there was any continuing source area for the contamination at this site. This was especially important because of the low levels of volatile organics found in soil samples across the entire site. 

Our familiarity with these types of sites led us to believe there could be an underlying issue.

As we explained to the client, not identifying potential source areas for the contamination, results in a rather significant unknown. The buyer would use that to leverage millions for a reserve fund to cover the potential impact of the uncertainty upon remedial costs. To help our client get as much cash on their books as possible, we needed to determine the source of that contamination.

The mysterious contamination, plus the short timeframe, required us to take a unique approach to the Phase II.

In a typical assessment with sampling, you collect samples, send them to the lab, and wait 2 to 4 weeks to get the results, before interpreting them. And the process can be slow.

Say you have staining on the floor and floor cracks. Many times, a consultant will bore through the floor, collect a soil sample right below the floor and get it analyzed. If there are elevated levels of contaminants in the sample, they’ll then return to the site and drill in the same area to find out how deep the contamination goes.

Our approach is different – more thorough and efficient – and it saves the client time and money by eliminating later work. We go into the same area with staining and cracks and drill until we hit groundwater or refusal. Then we examine the entire boring. We sample right below the floor, right above groundwater, and at critical locations in between.

This allows us to quickly see how deep the elevated contaminant concentration goes, while saving the client time and money. In a single effort, we are delineating the contamination horizontally and vertically. And it comes in handy because whenever there is soil impact with shallow groundwater, regulators want to know the concentration right above the groundwater.

In our Phase C assessment, we wanted to identify source areas across the entire site. The easiest way to do that for volatile organic compounds is with a soil gas survey. We set up a sampling matrix across the property.

Typically, you would collect the sample, send it to the lab, and wait 2 to 4 weeks for the results. That’s not necessarily cost effective because the source area could be unknowingly sampled in the first few samples collected.

So, we brought in an on-site lab to analyze the soil gas samples for volatile organics in order to get real-time data. We would drill through the floor and install a sample point. We would sample the soil gas, then walk the sample over to the mobile lab and have the results in minutes. That told us immediately what we had at this location. 

This effort allowed us to go through the entire site, adjust the sampling plan as we progressed, and find three independent source areas of volatile organics.

One was in the former processing area, which is typical. The other was in the former oven area. That’s not typical since volatile organics were not used in the former oven area. But that’s where our experience comes into play because we know that footprints of facility process operations change over time. That’s why it’s so important to have historical documentation. As we talked with former employees, we discovered that area could have been a processing area at one time.

The third source area was that exterior storage area not identified in the Phase I ESA.

We had now identified the contaminant source areas.

The Last Stage

Finally, we had to look at the extent of the impact. Remember that the groundwater was 100 to 120 feet deep.

Did the contamination reach that far? If so, remediation would be every expensive. And we had to know how much soil had been impacted. At this point, we were into September, with the client mandate to finish the investigation “ASAP” so that the property could be sold by the end of the year.

Our client now started negotiations for the reserve amount. Based on information we had, we were able to estimate:

  • The best-case cost scenario;
  • The most likely case cost scenario; and
  • The reasonable worst-case cost scenario.

Based on our findings through Phase C, the buyer said they wanted $10 million in reserve funding to pay for potential cleanup post-closing. That was very high, in our view, when we estimated that the reasonable worst-case cost scenario would cost around $5 million based on our findings. Needless to say, our client wasn’t happy with this request and wanted to know what else we could do to lower this reserve funding request.

That’s when we moved into Phase D to further define the extent of this contamination and prove why a required cleanup would not be as serious – or expensive – as the buyer thought.

We used an advanced technique - a membrane interface probe, basically a sensor driven by the drill rig. It heats up the soil as it pushes through the ground. Compounds volatilized by the heat are analyzed immediately with above-ground analytical instrumentation. These data are then confirmed with select soil and/or groundwater samples analyzed by a laboratory to determine the concentrations of these compounds in soil or groundwater.

Different sensors measure different types of volatile organics, allowing the determination of whether various types of solvents, petroleum products, or other contaminants of concern are present, as well as relative estimates of their abundance. The probe also measures soil properties, like sands where contaminants can pass through faster, versus clays and silts that impede material from passing, causing it to collect, providing a snapshot of the underground preferential pathways for the contaminants to travel.

We started at the three source areas and moved out from there with this technique, drilling all the way down to the groundwater at 120 feet, to determine the horizontal and vertical depth of this impact.

From our work, we were able to determine where the contaminants were and confirmed their concentrations.

We found that a majority of the contamination is in the soil gas itself. And the highest level of soil contamination is less than eight feet deep, and at concentrations below industrial/commercial regulatory standards.

Through this approach, we were also able to collect samples of groundwater and found that it was not significantly impacted.

We took all of these data, 3D modeled it, and had a conference call with the buyer and client where we presented our findings. Our cost estimate to remediate the site, worst-case, was $1.5 million. The buyer countered with $3 million – they were skeptical. But it was still much less than the $10 million they had previously demanded.

Thanks to our novel approach to characterizing the site fully within a very limited timeframe, we were able to secure that $7 million for our client’s bottom-line, immediately. As you can imagine, a reserve fund can be hard to get back and cleanup expenditures can quickly go up if the funding is already available as a reserve.

It goes to show that a complete site characterization is essential to getting a truly accurate picture of potential contamination. That can save time and money… and ensure the buyer is comfortable to move forward.

If you’re not as familiar with a site as we were, I would recommend you download our Top 10 Environmental Gorillas Checklist to help identify potential problem areas typically overlooked at many facilities.

It can prove invaluable during a Phase I Environmental Site Assessment.

You can get it here.

 

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