The ABCs of AAI

Conducting Phase I environmental site assessments in accordance with EPA's "all appropriate inquiries" regulations

As most environmental professionals who perform or review Phase I environmental site assessments (Phase I ESAs) probably know by now, the U.S. Environmental Protection Agency's (EPA) upcoming all appropriate inquiries (AAI) regulations will have a significant impact on how Phase I ESAs are conducted. A requirement in all commercial real estate transactions and an increasing number of residential real estate transactions, the purpose of the Phase 1 ESA is to gather sufficient information to develop an independent professional opinion about the environmental condition of the property and to identify actual or potential environmental contamination that may impact the property value or affect the purchaser's claim to an "innocent land owner" defense following the acquisition of the property.

The AAI rules were proposed by EPA on August 26, 2004 40 Code of Federal Regulations (CFR) 312 as a result of legislation signed by President George W. Bush in January 2002. Referred to as the federal brownfields law, the new act is known officially as the Small Business Liability Relief and Revitalization Act. With the passage of this legislation, the U.S. Congress has directed EPA to establish federal regulations containing the standards and practices for conducting "all appropriate inquiry," which in effect, will result in federal regulations for conducting Phase I ESAs. At this time, EPA's regulations are not final, and public comments to the proposed rules are being reviewed. It is expected that EPA's AAI regulations will be finalized in early 2006; however, it is prudent for environmental professionals to familiarize themselves now with the specific requirements of the proposed AAI regulations.

Background
The Superfund Amendments and Reauthorization Act (SARA) of 1986 established an "innocent landowner defense" from Superfund liability provided that all appropriate inquiry was to be conducted by landowner purchasers. Until now, EPA had never been directed to define clearly all appropriate inquiry. In the meantime in 1993, the American Society for Testing and Materials (ASTM) developed E1527 (entitled "Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process") as a guideline for conducting all appropriate inquiry. Since 1993, as E1527 has increasingly been utilized, it has been revised numerous times including its most recent revision in 2000. In the absence of any clear definition from EPA, E1527 has become more or less the de facto industry standard for conducting Phase I ESAs and defining the requirements of all appropriate inquiry.

In recognition of this point, Congress referenced E1527-97 as the interim standard for the conduct of all appropriate inquiries for properties purchased after May 31, 1997 and until the final EPA regulations are promulgated (EPA later established E1527-00 as an additional interim standard). However, it should be noted that E1527 does not meet the requirements of EPA's proposed regulations. As a result, ASTM is in the process of revising its standard to be consistent with EPA's new requirements for all appropriate inquiry. EPA has agreed to conduct a compliance review of the revised ASTM standard, and, if satisfactory, to reference the ASTM standard in the final regulation as meeting the requirements for conducting all appropriate inquiry.

Changes on the Horizon
Whether ASTM is referenced in the final regulation or not, one thing is certain: Phase I ESA practices in the future will be changing. Some of the more significant changes are summarized below:

Qualifications on an Environmental Professional
An environmental professional (EP) must conduct an inquiry. The qualifications and experience levels necessary for an individual to be designated as an EP capable of performing or supervising AAI efforts are specifically defined. The EP who signs the Phase I report must be a licensed professional engineer or professional geologist with three years of relevant experience; hold a government license to perform environmental inquiries with three years of relevant experience; or have a baccalaureate or higher degree in engineering, environmental science or earth science with five years of relevant experience. Any EP who has a baccalaureate degree and 10 years of experience may be grandfathered in at the time the final rule is promulgated.

Environmental Professional Judgment
While the proposed rules includes common Phase I ESA components such as interviews, historical review, regulatory records searches and a visual inspection, it does not specify how these components are to be completed. The AAI rule is "performance based" and is heavily dependant on the judgment of the EP, whereas ASTM E1527 is "prescriptive" in nature. As an example, the historical requirement of the AAI rule contains only four sentences, whereas the ASTM practice for reviewing historical use information is over a page and half long. Depending on how ASTM E1527 is referenced in the final rule, EPs will have to evaluate how much direct involvement is necessary in the performance of Phase I ESAs to ensure they meet the objectives of AAI. One component that presents potential issues for the EP is the performance of the site inspection. The proposed AAI regulation does not require the EP to conduct the inspection. However, in the preamble to the proposed regulations, EPA recommends that the EP conduct the site inspection, and they further state that the EPs professional judgment is vital to ensure that all environmental conditions are identified and analyzed. This forces the EP to either conduct all site inspections or make a judgment that a non EP conduct the site inspection, which is contrary to EPA's explicit recommendation.

Environmental Professional Declaration
A signature and declaration by the EP is required for the report to be valid. The EP must state "I declare that, to the best of my professional knowledge and belief, I meet the definition of Environmental Professional as defined in ยง312.10 of this part. I have the specific qualifications based on education, training, and experience to assess a property of the nature, history, and setting of the subject property. I have developed and performed the all appropriate inquiries in conformance with the standards and practices set forth in 40 CFR part 312." This declaration can be particularly onerous for the EP depending on the site that is being assessed. For example, if the site history indicates former use of the site as a nickel electroplater, it is conceivable that the EP must have specific prior experience assessing a nickel electroplater in order to sign the declaration. Furthermore, if the EP does not maintain a record of prior Phase I ESAs and the specifics of those Phase I ESAs, the EP may be forced to rely on memory in order to document compliance with the declaration. This could be problematic depending on the circumstances.

Purchaser/Owner Obligations
The obligation of the purchaser/owner is re-emphasized in the AAI process. Purchasers/owners are required to provide information with regard to specialized knowledge relevant to the inquiry, the relationship of the purchase price to the value of the property, and the existence of environmental cleanup liens. If this information is not provided to the EP, then the report must identify the missing information as a "Data Gap." The EP must note the significance of the data gap and determine if the objectives of AAI can be met without the information.

Phase I ESA Report Shelf Life
Under the new AAI, Phase I ESAs that are more than 180 days old at the date of property acquisition must be updated by redoing the interviews, records review, site inspection and EP declaration. Reports that are older than one year at the date of property acquisition are not valid and must be redone.

The significance of the AAI regulations and their impact on how Phase I ESAs are conducted is the subject of debate between many environmental professionals. However, most environmental professionals are in agreement that the cost of Phase I ESAs will likely increase due to the additional requirements of AAI, and it is expected that more Phase I ESA reports will be generated due to the shortened shelf life. The market reaction to increased pricing and increased report frequency is uncertain, and one potential outcome may be a Phase I ESA product that does not meet the requirements of AAI. At this time, speculation is abundant, and only time will tell what the actual impact is of the AAI regulations.

This article originally appeared in the 05/01/2005 issue of Environmental Protection.

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