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Due Diligence Update: The Inside Scoop on the All Appropriate Inquiry Rule
The hottest topic on the brownfield circuit is undoubtedly the proposed “all appropriate inquiries” standard. Most brownfield gatherings this year include an all appropriate inquiries panel, and sessions at the national Brownfields 2004 conference in St. Louis were standing room only (I know because I had to go get more chairs).
For those who missed it, EPA recently proposed regulatory standards for conducting pre-acquisition environmental due diligence, commonly known as Phase I environmental assessment. The “all appropriate inquiries” rule is required by the Small Business Liability Relief and Brownfields Revitalization Act (Brownfields Law) that was enacted in 2002. The rule will specify the standards needed to qualify for certain Superfund liability protections. EPA proposed the rule on August 26, 2004 and is taking comment until November 30, 2004.
The proposed rule is generating a lot of attention from all walks of the brownfield world. Public meetings, Internet sessions, articles, Web sites and even Brownfield News are helping to stoke the discussion. Amidst the swirl, a pattern of questions is emerging. Let’s take a look at some of the most frequent questions and see if the answers can provide any clarity. For greater detail on both the questions and especially the answers, go to the all appropriate inquiries section of the EPA brownfields Web site.
When does the rule take affect?
Right now, it is only a proposal. After the comment period closes on November 30, 2004, EPA will review the comments, make any necessary adjustments and finalize the rule. How long that takes will depend on the extent and nature of the comments.
Until then, the law specifically points to ASTM E1527 as the interim standard. EPA published a final rule in May 2003 clarifying that the interim procedures could include either ASTM E1527-97 or ASTM E1527-00.
Who will be affected by these rules?
If promulgated as proposed, this regulation will affect most directly purchasers of commercial property who may seek to claim protection from CERCLA liability for cleaning up hazardous substances. In addition, anyone conducting assessments using EPA brownfield grants must comply with the rules.
The potential impact is larger — there are an estimated 240,000 Phase I assessments conducted every year costing $500 million annually, so even a slight change in the assessment standards could impact the many producers and users of site assessments.
Why didn’t EPA just ratify the already existing ASTM E1527 standard?
As one involved in the process, I can say that it certainly would have been a lot easier to adopt the industry approach. Early on, EPA reviewed the ASTM standard and determined that while similar, it did not meet all of the criteria for all appropriate inquiries included by Congress. So, EPA developed a new rule satisfying the statutory language.
The good news is that ASTM is updating E1527 with the goal of making it compliant with the proposed regulation, an effort that will smooth transition to the new rule.
How did EPA develop the regulation?
EPA used the rarely-attempted negotiated rulemaking or “reg-neg” process, the Agency’s first new “reg-neg” in more than 10 years. EPA went with this consensus-based approach to take advantage of experienced public and private sector users of similar standards.
After consulting stakeholders and getting positive feedback, EPA chartered a federal advisory committee that included 25 members representing the feds, states, tribes, local governments, developers, bankers, environmental professionals, environmental organizations and the environmental justice community. Through an intense series of multi-day public meetings held over a compacted 8-month period, the committee hammered out a consensus proposal that was endorsed by EPA and forms the basis for the proposed rule.
Does the proposed rule include any new reporting or
disclosure obligations?
The rule does not add any new reporting or disclosure obligations to EPA or
any other government entity. The proposal does require that the environmental
professional document the results of the all appropriate inquiries in a signed
report, similar to current practice.
What are the proposed qualifications for an environmental professional?
The proposal balances education, training and experience in an effort to provide the most protection with the least disruption to the market. That balancing act is attracting more attention than any other part of the proposal.
The rule proposes that an environmental professional conducting or overseeing all appropriate inquiries must have either: 1) a Professional Engineer or Professional Geologist license or registration and the equivalent of three years of full-time relevant experience; 2) a federal, state or tribal license and the equivalent of three years of full-time relevant experience; or 3) a college degree in a relevant discipline of engineering, environmental science or earth science and the equivalent of five years of full-time relevant experience.
In addition, the rule “grandfathers” current practitioners with a college degree and the equivalent of ten years of full-time relevant experience. The proposed rule allows for inquiry activities to be conducted by persons not meeting the environmental professional definition, as long as they are working under the supervision or responsible charge of a qualified environmental professional.
Does the proposed rule provide a checklist?
The proposal is performance based and does not provide an item-by-item “gotcha” list. The statutory criteria provide an inquiry framework that should result in a comprehensive assessment of the environmental conditions at a property. In conducting the inquiry, the landowner and the environmental professional can determine the best process to collect the necessary information and avoid duplicative research.
Is sampling required?
The proposal does not require sampling as part of the all appropriate inquiries investigation. The committee discussed the importance of sampling to determine potential contamination and balanced that against the burden of requiring sampling in all cases.
There was significant concern about the cost and difficulty of conducting sampling prior to acquisition. Ultimately the committee reached consensus, and EPA agreed, that the proposed rule would not require sampling before acquisition.
Is an independent cost appraisal required?
One of the statutory criteria is the consideration of whether the property’s purchase price reflects the fair market value of the property if it were not contaminated. A formal real estate appraisal does not need to be conducted to comply with this criterion. The objective is to consider if the purchase price might suggest potential contamination, not to determine the exact value of the property.
There may be many reasons why the purchase price does not reflect the fair market value — the proposed rule would require that the purchaser consider and note whether potential contamination might be a reason.
There are certainly many more questions that come to mind. In fact, the regulatory proposal lists more than 20 issues where EPA specifically seeks comment. The most important thing to keep in mind is that if done properly, all appropriate inquiry not only preserves Superfund liability protections, it provides the information that owners and sellers need to satisfy regulators and to protect communities and the environment.
Sven-Erik Kaiser is with the U.S. Environmental Protection Agency’s Office of Brownfields Cleanup and Redevelopment. Any opinions expressed in this article are the views of the author and do not necessarily represent the views of the U.S. Environmental Protection Agency.
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