CHAPTER 14 BUYING ENVIRONMENTAL EXPERTISE: CONTRACTING FOR THE INVESTIGATION, ANALYSIS, AND|OR CLEANUP OF TOXIC SITES

• Jurisdiction: United States

Environmental Considerations in Natural Resource and Real Property Transactions
(Nov 1988)
CHAPTER 14
BUYING ENVIRONMENTAL EXPERTISE: CONTRACTING FOR THE INVESTIGATION, ANALYSIS, AND/OR CLEANUP OF TOXIC SITES
Frank L. Hearne
Hunter Environmental Services, Inc.
Gainesville, Florida

I. INTRODUCTION

In response to increasing societal pressures to identify and cleanup contaminated sites throughout America, and an ever-increasing body of law providing substantial incentives to respond to those pressures, industry and government alike are forced to obtain highly specialized scientific and engineering skills to assist in solving the complex problems produced by contaminated sites. Many of the specific laws and regulations involved are discussed elsewhere on the agenda. This paper will focus on some of the practical matters arising when industry must hire environmental engineering and scientific services to supplement in-house expertise. First, we will provide, based on our experience, an overview of the factors involved in a healthy and useful consulting relationship. This is and should be the fundamental goal of both client and consultant. Second, we will focus on certain issues most recently encountered in contracting in this complex and unusual context. Next, we will discuss selected legal developments which, we hope, will clarify the issues of importance to consultants and clients. Last, we will provide some comments on selecting consultants in the private sector which are based on our recent experience.

II. THE CONSULTING RELATIONSHIP IN THE TOXIC CONTEXT

What a specific industrial client seeks from a consultant will vary enormously depending on a number of factors including the client's sophistication, the technical context, the consultant's familiarity with the client's business and other matters. Fundamentally, however, the relationship, as in the provision of any personal services, is one of trust and confidence. Aside from technical credentials, the consultant must convey a thorough knowledge of the technical area, be able to communicate that knowledge appropriately, and really care about solving the problems efficiently and effectively. The client must feel that his or her problem is being addressed by a consultant who will assume the degree of responsibility felt by the client and perform smoothly and on schedule. These qualities in the relationship are essential and if they are lacking, an otherwise excellent technical performance may not be adequate and the client will remain unsatisfied.

This type of relationship, however, is to some extent at odds with the need for a workable, fair contract between the parties. As with any agreement, contract negotiations force the parties to think about what would happen if things go wrong and to focus on procedural matters. These matters may have little interest to the technically trained and

[Page 14-2]

focused people involved on behalf of both the client and the consultant. Consequently, contract negotiations can be prolonged by negotiation between representatives of both client and consultant while the technical managers are spoiling to move forward in solving the technical problem.

There doesn't appear to be any quick solutions to this problem aside from increased efforts by both technical and administrative individuals to cooperate more closely and to work with management to obtain guidance on terms which are acceptable and unacceptable. This applies to both consultant and client organizations.

III. CONTRACTOR LIABILITY ISSUES

The fundamentals of hazardous wastes and hazardous substance liability statutes, including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA), are discussed elsewhere on the agenda. These statutes and equivalents impose harsh penalties on potentially responsible parties including strict, joint and several liabilities subject to narrow defenses for cleanup costs including, among other things, potentially large liabilities for damages to natural resources.¹ There is also a disturbing tendency to expand the list of the types of activities which can lead to liability under CERCLA and other laws.² The environmental contracting community has been greatly concerned that direct federal statutory liability could attach to the contractors working at contaminated sites. In addition, there are equally serious potential liabilities involving state statutory and common law. The following sections discuss selected developments and information relating to the issue of contractor liability. First, the focus will be upon contractors involved in cleanup. Second, some of the issues involved in environmental auditing will be discussed.

A. Liability Release and Indemnification of Response Action Contractors — CERCLA Section 119

Section 119 of CERCLA, added by the Superfund Reauthorization and Amendments of 1986 (SARA), gives a measure of comfort to certain cleanup contractors on the issue of liability under specific circumstances.³ A "Response Action Contractor" (RAC) is defined to include "any person who enters into a response action contract with respect to any release or threatened release of a hazardous substance or pollutant or contaminant from a facility and is carrying out such contract."⁴ Also included is any person who is retained or hired by a person so described to provide any services relating to a response action.⁵ However, persons retained or hired by the RAC's are eligible for indemnification only if the President specifically approves of the retaining or hiring.⁶ A "Response Action Contract" includes agreements to provide any remedial action, removal, evaluation, planning, engineering, surveying, mapping, design, construction, equipment or any ancillary services at a facility listed on

[Page 14-3]

the National Priority List. To qualify, the agreement must be with the President, any federal agency, any state or political subdivision which has entered in a contract or cooperative agreement in accordance with Section 104, or a potentially responsible party carrying out an agreement under Section 106 or 122.⁷

RAC's receive a release from liability under Federal law for injuries, costs, damages, expenses or other liability, including claims for indemnification or contribution and third party claims for death, personal injury, or property damage resulting from the conditions being responded to under the contract.⁸ The liability release provisions do not apply to a release or threatened release of materials that is caused by RAC conduct which is negligent, grossly negligent or which constitutes intentional misconduct.⁹ The President, subject to certain limitations, may also agree to hold harmless and indemnify RAC's for negligence but not for actions which were grossly negligent or which constituted intentional misconduct.¹⁰ The indemnity must include deductibles and be limited. In order to provide the indemnity the President must make specified determinations. These involve requirements that the liability covered by the indemnification agreement exceeds or is not covered by fair and reasonably priced insurance at the time the contract is entered; that adequate insurance is not generally available at the time the contract is entered; and that the contractor has made diligent efforts to obtain coverage.¹¹

The President must make special determinations to agree to indemnify an RAC working for a potentially responsible party (PRP). He may enter the agreement only if he has determined that the amount of indemnification which could be provided by the PRP is inadequate to cover any reasonable potential liability arising out of the contractor's negligence. This determination must be made taking into account the total net assets and resources of the PRP's involving the facility at the time the determination is made.¹² The President may pay a claim under an indemnification where the RAC is working for a PRP only after the RAC has exhausted all administrative, judicial and common law claims for indemnification against all PRP's participating in the cleanup with respect to liabilities arising out of the contractor negligence.¹³

Although Section 119 provides some assistance to RAC's working on NPL sites, even in those circumstances the contractor's liability concerns are still not completely addressed. Contractors working on NPL sites may still be vulnerable to suits under state law including strict liability statutes and common law. Futhermore, Section 119 fails to address liabilities at non-NPL sites.

[Page 14-4]

B. Cleanup Contractor Liability Under State Law

In an attempt to determine the extent of possible liability under state law, the Business Practice Committee of the Hazardous Waste Action Coalition, which includes many companies involved in hazardous waste and hazardous substance cleanup, conducted a survey of state law including five questions paraphrased as follows:

1. Could an RAC be held strictly liable in connection with hazardous waste work under state common law or by state statute? Is there a negligence standard only for RAC work under state law?

2. Are there any special state statutes allowing RAC's to seek indemnity from the state against third-party claims?

3. Are there state laws which would bar indemnification?

4. Are there state laws restricting indemnities offered by the public section?

5. Is there a state statute similar to CERCLA?¹⁴

At the time of survey, no laws were found mandating strict liability for RAC's. Twenty-four states had laws which might be applied to RAC's under certain hypothetical circumstances. Furthermore, there were common law theories in most states which could be applied to RAC's. For example, ultrahazardous activities, trespass or nuisance. Six states had adopted a negligence standard for RAC.¹⁵

Six states had passed indemnification statutes at the time of the survey which usually applied only to state...