Managing the Environmental Risk from Subcontractors
May 2004
Unused lubricants, oils, diesel fuel from
heavy equipment, and many other sealants, solvents, glues, etc., can end up
buried on or off a construction site, often without the knowledge of the general
contractor. But when remediation proves necessary, it is often the general contractor
who pays. Environmentally managing the construction site before, during, and
after construction can help to avoid this scenario.
by Jeff
Slivka and Mitch Cohen
New Day
Underwriting Managers LLC
It was a successful project, indeed. Your general contracting firm won the
bid to renovate seven 4-story buildings that were over 75 years old in a large
commercial complex located in a rural area in the south. Your staff of architects
and engineers did the design, drew up the plans, and checked field shop drawings.
Your project managers, superintendents, and foremen provided the field oversight.
You hired some competent subcontractors to do the geotechnical, plumbing, heating,
ventilation, air conditioning, electrical, roofing, masonry, drywall, and painting.
Best of all, you came in 15 days under schedule and $50,000 under budget.
Per the contract, you kept a percentage of the windfall. Everybody celebrated
this win, as the challenges were rather large, given the age of the structures
and the old materials of construction that had to be managed, such as lead-based
paint, asbestos, and even some historic masonry.
The celebration did not last long. Just 6 months after completion, the owner’s
attorney called the project manager and informed him that during utility excavation
for new road construction beyond where the work was done, a dozen leaking 5-gallon
buckets of roofing tar, and 15 single gallon cans of paint solvent used to clean
oil-based paint guns were uncovered in five different locations. There were
even dozens of partially used cans of metallic paint buried in several other
locations. Worse, the solvent leaked and had migrated through the sandy soils
and porous limestone into the groundwater and was detected in two drinking water
wells offsite. Not only was the property owner upset, the state environmental
agency was banging on the owner's door, imminent endangerment papers in hand.
Could This Happen to You?
When we take on construction projects, we often wonder if there are any environmental concerns, especially if
we are doing new construction with state-of-the-art materials and water-based
latex paints and sealants. However, more often than not, the unused countless
lubricants, oils, diesel fuel from heavy equipment, and many other sealants,
solvents, glues, etc., can end up buried onsite—or offsite.
Sure, your contracts stipulate that all subcontractors must account for hazardous
materials brought onsite, and taken offsite. You require extensive mass-balance
calculations that measure: what HAZMAT came onsite, minus what stayed in/on
the building, which equals what HAZMAT left the site. What if the subcontractor
didn’t realize that the 5-gallon buckets of carpet adhesive contained solvent?
Yes, I know he should have smelled it, but he did not account for it. Yes, I
know the contract also requires proper disposal.
It’s funny how construction rubble, including illegally disposed hazardous
materials, sometimes ends up buried on farmland at night. It’s not funny when
the hazardous metals and chemicals in that construction rubble end up in drinking
water wells. Guess what? If the products are tied back to your subcontractor
and your construction site, you get to clean it up and pay for drinking water
substitutes and pay fines and go to jail.
Environmentally Managing Subcontractors
If your field team does all it can to avoid environmental releases and exposures,
that means the challenge may rest with some of your subcontractors. How can
we environmentally manage our subcontractors? Here are a few tips.
- Write contract language that requires that they account for any material that requires a material
safety data sheet (MSDS) from the time it crosses the property boundary
until it leaves.
- Have the subcontractor provide you with a list of all materials that
require a MSDS, so that you are prepared if a 5-gallon can of waste "ethyl
methyl terrible" ends up in a ditch offsite. Maybe consideration should
be given to the types of products that are being used on the jobsite. Can
certain products be replaced with "environmentally safe" products? Has the
subcontractor investigated the availability and cost associated with such
products?
- Hire a subcontractor that you trust, and who has already proven to be
knowledgeable of hazardous material and hazardous waste minimization and
management practices. Modify your subcontractor prequalification questionnaire
to include issues involving environmental conditions.
- Review the subcontract’s current protocol in the event waste or other
hazardous materials are encountered. Do they have a mold management or response
program? Have they developed a storm water runoff program? Do they have
anything that looks like an environmental management program?
- Are any of your subcontractors trained in accordance with hazardous
materials handling—29CFR 1910.120—also known as HAZWOPER training? Someone
within the organization should be responsible for identifying possible "red
flags."
- What about contractual risk transfer? The indemnity is only as good
as the financial strength of the indemnitor, but it is a solid first line
of defense. Ensure your indemnity is broad enough to encompass environmental
conditions. Second, the contract should establish who will perform any environmental
work when it arises. The contract should spell out whether the subcontractor
is responsible for the remediation—hiring of a qualified subcontractor—or
will you or the owner contract for that work?
- What about requiring the subcontractor to evidence environmental insurance?
It’s not going to prevent an incident, but it will pay for one. Nowadays,
contractor’s pollution liability or CPL insurance is much more affordable
and is much broader in scope of coverage than it was in prior years. Actually,
if the subcontractor could evidence CPL coverage, that speaks volumes about
the quality of the company since the environmental underwriting process
is viewed by some as quite rigorous.
Conclusion
When it comes to environmental risk management, the construction industry
has come a long way in the past 10 years. It appears contractors of all shapes
and sizes have seen and witnessed the negative impact that environmental incidents
could have on their reputations and their organizations. We are even starting
to see the old "knock-on-wood" type of risk management disappear. However, prudent
contractors still need to protect themselves, and without proper protocol in
place, one small oversight could lead to one big mess. The cost to prevent such
mess is minimal when compared to the catastrophic result it could bring.
Mitch Cohen,
PE, is a Syndicator for Aon Environmental in Atlanta. He works with construction
companies to help them manage environmental risk. Mr. Cohen can be contacted
at (404) 452-8438 or via e-mail at mitch_cohen@ars.aon.com.
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