Fixed-Price Remediation

Mitigate cost uncertainty.

One of the barriers to the redevelopment of contaminated properties is the uncertainty associated with the scope and cost of remediation. In response to developer concerns, environmental consultants and insurance companies have developed strategies to mitigate cost uncertainty.

Lump-Sum Remediation Fee: After fully characterizing a site, a consultant may be willing to charge a fixed price for remediation in lieu of billing on a time-and-material basis. Contractual agreements must specify time frames, remediation goals, legal liabilities and regulatory responsibilities.

Cost Cap Insurance: Cost Cap policies are designed to insure remediation costs in excess of budgeted costs, and provide coverage for known conditions and new conditions discovered during remedial activities. These policies are typically tailored to specific transactions and generally require that a remedial action plan be in place.

Cost cap policies add value in the following ways:

• Reduce liability associated with fixed-price contracts;
• Provide assurance that funds will be available to complete remedial activities, and
• Insure unexpected cost overruns are not assumed by the property owner, investor or contractor.

Coverage under a Cost Cap policy is typically established by a trigger mechanism. Examples of coverage triggers include the following:

• Actual contamination is greater than previously estimated;
• Previously unknown contamination is discovered during remedial activities;
• Cleanup methods do not work as anticipated, and
• Government-mandated change orders are required during the policy term.

Cost Cap insurance generally excludes coverage for bodily injury, property damage, third party liability, fines, penalties and policyholder noncompliance and criminal acts.

Pollution Liability Insurance: A Pollution Liability policy may be purchased with coverage for liabilities associated with bodily injury and property damage, natural resource damages, claims arising from non-owned disposal sites, fines, penalties and defense costs arising from previously unknown pollution conditions at the site.