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ASTM International (“ASTM”) is in the process of finalizing its revised E 1903 Standard Practice for Environmental Site Assessments: Phase II Environmental Site Assessment Process (“Phase II”). Although this Standard Guide has been in publication since 1997, it has never gained the mass appeal of its counterpart, the E 1527 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process (“Phase I”). For those of us who had a hand in writing both of these documents, the general opinion is that the disparity in “embracing” the Phase II Standard Guide, when compared to the universal acceptance of the Phase I Standard, lies in its commercial applicability. And this is largely the result of the difference in who is likely to review and accept the results of having complied with the Standard(s).

For instance, in general, the Phase I does not include the gathering of new data (it simply organizes sources of existing data); the Phase II, on the other hand, often times does include an element of sampling and analysis that results in information that previously did not exist. Sometimes the “User,” be it a private party prospective purchaser, lending institution, insurance company, etc., will make an informed decision, consistent with their business environmental risk model, as to whether or not they desire to move forward with, or be a party to, the acquisition of commercial/industrial property based on the results of the Phase I. Other times, the results of the Phase I raise environmental concerns that leave open-ended questions that, again, dependant upon the Users' risk tolerance may result in a request that further investigation be performed. This is generally termed “Phase II.”

When a User requests a Phase II, they are typically doing so in the hopes that the results of the Phase II generates enough confirmatory information so that they may, among other desired outcomes, (i) establish the future costs of assessment and/or cleanup, (ii) evaluate the likely involvement and outcome of the regulators with jurisdictional authority, (iii) weigh the potential for stigma or diminution in value of their real estate acquisition, and (iv) analyze the potential for third-party liability. Stated in other terms, the Phase II assists the User in understanding better the contaminant migration, the identification of potential restrictions to future property use, the cost to demolish or significantly remodel existing structures, and/or the liability associated with a host of other related concerns, including those associated with the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”).

Next to quantifying the likely costs associated with “cleanup,” satisfying the appropriate regulatory authorities is often on the forefront of questions/concerns that occupy those parties involved in the real estate transaction. Each State (and many local agencies) has established their own criteria for environmental professional credentialing as well as corporate licensure. In addition, a myriad of investigatory nuances pertaining to media type, sample frequency/techniques, analytical methods, quality assurance/quality control, etc., exist and must be satisfied through the submittal of a report that is reviewed by the applicable Agency, before the Agency offers a determination regarding a regulatory closure. Therefore, it is impractical to reference an ASTM Standard such as the existing Phase II to guide the scope of work, especially since it was intentionally designed without such specificity.

However, recent legislation has provided a window to revise the existing E 1903 Phase II Standard Guide so that it, too, can enjoy the universal acceptance and applicability that the Phase I Standard has gained over the past 14 years.. On January 11, 2002, the Small Business Liability Relief and Brownfields Revitalization Act (“Brownfield Amendments”) was passed, which amended the innocent purchaser (landowner) defense (“ILD”) 42 U.S.C. §9601(35)(B)(i)(II) and added the following two new subsections providing protection from CERCLA liability: (i) The Contiguous Property Owner (“CPO”) liability protection pursuant to 42 U.S.C. §9607(q); and, (ii) Bona Fide Prospective Purchaser (“BFPP”) liability protection pursuant to 42 U.S.C. §9607(r). This opportunity presents itself largely through the legal/regulatory “hooks” that now exist and that would necessarily compel due diligence efforts beyond that of a Phase I be pursued in order to receive one (or more) of the defenses to CERCLA liability.

With the enactment of the Brownfields Amendments, a person may purchase commercial real estate with knowledge that the property contains chemicals of concern, or purchase (after conducting all appropriate inquiries) commercial real estate, later discover chemicals of concern on the commercial real estate, and nevertheless have a defense to CERCLA liability. However, in order to assert this defense, the property owner must take certain actions both before and after acquiring title to the property. The actions that must be taken prior to acquisition of title to the property are set forth in the Environmental Protection Agency's “All Appropriate Inquiries” rule, 40 C.F.R. Part 312, and in the ASTM Phase I Standard. And, to continue to enjoy a defense to CERCLA liability, the property owner must comply with certain continuing obligations post-closing. This mandate (I’ll refer to it as a “regulatory hook”) represents the best opportunity for the Phase II to gain traction and become a Standard with similar universal applicability to that of the Phase I.

With this as background, the current thinking and direction of the 2007 Phase II Standard is to design it as a tool to straddle the "grey area" that exists between the finality of a Phase I, and prior to a State (or comparable) regulatory authority becoming involved (which often triggers its own unique set of criteria) in the contamination assessment process. Therefore, the goal of the revised ASTM Phase II in terms of its market value is to identify the "hooks" that would necessarily assist in compelling a User (or environmental professional) to specify use of an ASTM Phase II over some other criteria.

What are the hooks?

1. Additional appropriate investigation - When a User requests that the environmental professional perform "additional appropriate investigation" in accordance with ASTM E1527-05. This is defined as an effort to obtain additional information that already exists (i.e., no new data) and that would bring greater clarity to an identified recognized environmental condition (“REC”), but that was not required during the performance of an ASTM Phase I. The “hook” that compels a User to pursue additional appropriate investigation would likely be tied to their interest in securing either the Federal ILD or CPO defenses, since both require “no knowledge” based on “obvious” sources of information.

2. Data Gaps – A data gap is a lack of or inability to obtain information required by the ASTM Phase I Standard. In many instances, it is the result of the “incompleteness” of the information gathered. In rare instance the data gap could be so significant that it leads to the conclusion of a REC, based on the “likely presence” of a hazardous substance or petroleum product on a property under conditions that indicate (suggest) a release. Here, the Phase II would simply seek to confirm or refute the conclusion of a REC, by addressing the data gap; again, under the likely pretense that the User is interested in securing one of the Federal Landowner Liability Protections (“LLPs”) to CERCLA.

3. Reasonable Steps - CERCLA requires compliance with the following ongoing obligations as a condition for maintaining landowner liability protections such as the BFPP defense. The User must exercise appropriate care with respect to chemicals of concern found at the facility by taking reasonable steps to – (i) stop any continuing release; (ii) prevent any threatened future release; and (iii) prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substances. Clearly, if maintaining such a defense is sought, the User must first know what he/she is dealing with. Because the Phase I simply identifies the presence (or likely presence) of a release, be it past, present or material threat, it generally does not include the type of specificity (i.e., nature, quantity, distribution, affected media, etc) that would be necessary to understand what “reasonable steps” would be required to maintain the defense.

4. Qualify for Brownfield funding – EPA has expressed their desire to incorporate the ASTM Phase II Standard into their Grant funding process. They desire that it be structured such that it necessarily “commits” persons seeking access to an EPA Brownfields Assessment and Characterization Grant awarded under CERCLA 42 U.S.C §9604(k)(2)(B), to identify that they indeed have confirmed, rather than suspected (i.e., likely presence) releases. The Phase II can easily satisfy this goal wherein the Phase I may not.

Beyond these regulatory hooks, there are also legal and business hooks wherein the Phase II Standard might suffice. For instance, a User may be less worried about the site impacts (i.e., high risk tolerance) so long as there is no evidence that the contamination has spread to adjacent properties resulting in third-party liability. Alternatively, the Phase I may have uncovered site conditions that do not meet the definition of a REC, but are nonetheless of interest to the User because of their risk tolerance, future intended use of the property, reason(s) for ordering the Phase I (i.e., other than to qualify for the LLPs), or other business environmental risk concerns.

The key to the Phase II, as we envision its final form in late-fall of this year, will be to establish how one takes that "next logical step" beyond the Phase I. The procedure should be similar in all cases and therefore it is reasonable that a Standard with universal applicability can be designed. To this end, we are employing the well-known “Scientific Method," which we were all exposed to in school (at least the engineers were – who knows what the geologists did with their time.). In this instance, the E1903 Scientific Method would:

1. ask that the “question” be defined by the User (i.e., What is the Scope in consulting language);
2. ensure that sufficient “research” is performed through either a Phase I or similar effort to make certain that available and obvious sources of data are examined;
3. be used to develop a hypothesis wherein one “predicts,” based on the existing data, the likely outcome;
4. guide the performance of sampling and analysis (i.e., execute the site assessment plan);
5. describe how to analyze the data including a thorough quality assurance review to ensure the data is valid;
6. direct that conclusions acknowledge whether (or not) the question was answered and whether (or not) the outcome was/is consistent with the hypothesis or expectations; and
7. Outline the essential elements of a Phase II Report.

The prescriptive aspects of the Phase II Standard will likely end rather abruptly upon the gathering of this baseline information. That is because any further effort would very likely require some level of regulatory coordination and anybody that has remained in this business for any length of time understands that there is no way to write a Standard once it hits their desk.

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April 2008

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