At Envision Environmental, Inc. our personnel have been involved in environmental due diligence activities for more than 35 years.
Usually, this kind of work is conducted when a property is being sold or when you’re interested in buying a property and want to determine the potential environmental liabilities before you sign on the dotted line.
In fact, I’ve written extensively on how important thorough due diligence is in property transactions and how it can – and should be done –in an efficient and cost-effective manner.
As I said, we most often see due diligence work conducted when a client is buying or selling a property. But there is a situation when environmental due diligence is vitally necessary… yet it is utilized seemingly at the last minute, if at all:
When a facility shuts down and ceases operations.
A reluctance to conduct environmental due diligence on the part of the business owners and even facility management is understandable under such conditions.
There are a lot of emotions involved. The facility is closing for a reason. And there is likely a resulting significant loss of jobs, including long-time veteran employees. To make it worse, in our experience, facility shutdowns are usually associated with a struggling economy. An atmosphere develops in which companies feel like they must consolidate operations or close divisions to ensure survival during the economic downturn.
So those “left behind” when a facility closes are no doubt facing an uphill battle to get on their feet. Take right now, for example, with inflation and an unsteady economy putting pressure on everybody.
We’ve also seen issues where a sudden “incident” or unforeseen circumstance pulls the rug right out from under a previously well-performing site. We saw this type of downturn resulting from the pandemic, which caused hardships for a lot of businesses. And we’ve even seen it with social and cultural issues where resultant boycotts cause companies to shutter doors at facilities.
The point is because of all this turmoil surrounding these shutdowns, environmental due diligence is often never even considered.
Why You Need Due Diligence
But keep in mind that even if a facility is shut down, you can’t simply walk away from the property and never think about it again. At some point, the environmental conditions of the property will need to be addressed. In fact, leases usually have an environmental clause in them that requires a lessee to ensure that there are no environmental issues at the property that may have been caused by the lessee’s operations.
We have even been involved in situations where a company shut down operations and left the property without doing any environmental due diligence to document the conditions of the property before they exited. Several years after exiting that property, the company received notification as a potentially responsible party for an environmental contamination issue at the property. The company now had to provide supporting documentation that they did not contribute to that contamination while they occupied the property.
We often refer to environmental due diligence as a “picture in time” on the condition of a property. Now if the company had a “picture in time” on the condition of the property before they exited it, then it would have been straightforward to provide supporting documentation that they did not contribute to the contamination issue. Unfortunately, they did not have this “picture in time” and they ended up being embroiled in this issue for many years.
That’s why I recommend conducting a thorough Phase I Environmental Site Assessment as soon as possible after it is known that leadership is thinking about shutting down a specific facility. In fact, this process could help decide which facilities close or stay open.
Here’s what I mean…
The decision to shut down a certain facility is usually based on factors like location, production rate, profitability, and age of the site and its infrastructure, including process equipment.
But you should also consider the environmental “health” of the facility before making a final decision. Any issues on the environmental side existing at the site at the time of closure could be a big-ticket item to address.
For example, say you want to shut down a facility and sell the property, but the site had a release that impacted the soil and groundwater on the property.
Well, if you’re planning to sell the site, you may need to address that environmental issue right away so that any potential remediation activities do not interfere with the usage of the property by the new owner. And that may be a significant cost to remediate that contamination in such a short timeframe.
However, if you put that decision to sell on hold, you may have the luxury of time to address the environmental matter. You could address that contamination issue over the next five, 10, 15… 20 years, with the expense parceled over that length of time. And that means no massive, one-time hit on your bottom line.
But we don’t stop at this…
Before you make a final shutdown decision, you also need to determine what levels of environmental exposures and risks you’re willing to accept for the long haul. As I said, just because you shut down a facility and sell the property does not mean you are not liable for incidents that happened during your time operating there.
That’s why, again, environmental due diligence is of key importance when considering a shutdown. The more thorough this environmental assessment is, the more the risks and potential costs are identified and the less impact they’ll have on you – and your bottom line. Think of it as a risk reduction strategy.
Call in the Experts for Your Environmental Due Diligence
You need expert help to do it. Not just any consultant will do for such an important job.
I recommend retaining a reputable environmental consultant that is experienced in conducting due diligence activities in your specific industry.
These folks are experts in your field. They have experience in dealing with facilities like yours. They have first-hand knowledge of issues encountered in similar sites from past clients… and they can bring that to bear in your case.
In essence, they know the typical problem areas for facilities like yours. They have a huge head-start against any other “general” consultants out there.
When hiring a consultant don’t settle for the lowest bidder. You’ll pay the consequences of that decision in the long run with a substandard due diligence report.
As far as other best practices when dealing with an environmental consultant conducting due diligence:
* Communicate often and clearly from the get-go. Define roles and responsibilities, including expected deliverables and milestones.
* Be clear on what you need in relation to due diligence. This is what the consultant needs to know to prepare a scope of work with associated completion milestones.
* It’s very important that you share the closing date as soon as possible. Permit conditions and regulations call for certain things to be done, like deactivate permits and such as soon as the doors close. Some permits require public notifications to be sent out. Others require you to notify regulators in advance of the closing date.
* Some permits require some sort of assessment or closure plans to be submitted to regulators.
For example, if you have regulated storage tanks, you may have to go through a closure plan. Regulators will need to approve your plan before you can decommission the tanks. Some tanks might need to be removed.
This need for an approved closure plan may extend to hazardous waste storage areas.
* You should determine which facility records need to be maintained in some fashion. We highly recommend that you organize them prior to closure. First, you’ll need them as part of the due diligence process. In the long haul, you’ll want those records to help you address any issues at the site that may come up in the future.
* As you progress through facility decommissioning, it’s vital to properly dispose of all wastes and document everything you are doing. Drain liquids out of equipment before disassembling, for example. On that note, be sure to clean subsurface structures like sumps, trenches, and pits.
* Also, make it clear if this is a temporary shutdown or a permanent one. There is a big difference in what needs to be done when you compare those two conditions.
That is especially true with environmental permits, like air permits and storage tank permits. This is the case because there are certain required notifications that need to be made under each alternative.
Last Important Steps
Once you have an environmental consultant on board, make sure they conduct, at a minimum, a Phase I Environmental Site Assessment according to ASTM Standards. As part of this, they will identify potential risks. In older facilities, those potential risks should include things like lead-based paint or asbestos containing building materials.
They should conduct a site walkthrough prior to cessation of operations, and then another after the facility decommissioning has been completed.
This enables the consultant to note – and record in their reports – a before and after snapshot of your facility’s conditions. It’s that “picture in time” we previously mentioned. And, as part of this, document everything done in relation to the shutdown. Things like logbooks, manifests, contractor worksheets, and more, as well as photos and videos.
You should also make sure that your consultant conducts interviews with facility personnel prior to closure, especially those who have worked there the longest. These folks know how the facility works, including what lurks in the dark corners – environmental risks and exposures that need to be addressed.
Once these facility veterans are let go and leave… all that institutional knowledge goes with them. And on that note, you should keep a crew of key personnel on the payroll at the site during the decommissioning and decontamination process. They know the what, where, why, and how of your facility – and that’s vital knowledge as you wind things down and are conducting due diligence too.
Above all else, all parties involved should stay flexible.
Whatever plans that may be established to close a facility will be subjected to many changes as the process moves forward. Make sure that all involved understand the dynamic nature of a facility shutdown and are ready to react accordingly.
My team and I are well acquainted with due diligence work like this – including the need to stay flexible – and are happy to help you. Just call me, Mark Roman, at 609-208-1885 or get in touch via email at firstname.lastname@example.org