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Agency's financial demands over the top say contractors

CONTRACTORS ARE threatening to pull out of brownfield clean up projects unless the Environment Agency softens its demands for what they consider to be excessive financial guarantees.

The contractors say they are having to put up bonds or insurance far greater than the value of the clean up work they are asked to take on.

Pressure from contractors is top of consultants' complaints that brownfield developers are demanding crippling levels of professional indemnity cover (NCE 4 May).

Under section 74 of the Environmental Protection Act 1990 firms carrying out insitu and exsitu site remediation using mobile plant have to provide the Environment Agency with a cash guarantee before they can start work.

This is to ensure that, if a contractor fails to complete the work, the Agency can pay someone else to finish it off or render a contaminated site safe by taking material to a licensed landfill site.

But the guarantees are on top of licence fees paid to the Agency for operation of mobile plant, water abstraction or water discharge, said Barrie Ellis, technical director of contractor Celtic Technologies.

They also come on top of professional indemnity payments and financial guarantees written into contracts. 'Financial provision has a major impact on our cash flow, ' Ellis said.

It is feared firms will stop bidding for work if the Agency refuses to tone down its demands.

'This is a small start up industry. There are lots of innovative companies trying to establish products in the market, but (financial provision) is making it extremely hard for us to compete with landfill, ' said Alistair Keen, vice chairman of contaminated land group, the Environmental Industries Commission .

The value of guarantees required by the Agency are assessed on a site specific basis.

They can range from thousands to millions of pounds, depending on the levels of contamination present, the volume of material to be treated and the availability of licensed landfill for off site disposal.

To ensure it has access to cash the Agency demands bank bonds, bespoke insurance, a bankable cheque or guarantees from the contractor's parent company.

In some cases the guarantee demanded far exceeds the value of work undertaken. Amounts needed to set up bonds or insurance policies often exceed 20% of the value of work taken on.

Cash put up as guarantees is refundable but is held by the Agency until work is complete.

This means contractors must have a pool of spare cash so they can put up guarantees for every job they take on.

Insurance premiums and bank bonds cannot be cashed in, although they can be transferred from job to job.

'Contractors are being forced to put large amounts of capital into an account and ring fence it, ' said Stephen Sykes, legal director at environmental insurance firm Certa.

NCE understands that one contractor is being forced to put up a £2M bond against default on a 'small contract' it is working on in Cornwall. The sum represents the cost of removing 50,000m 3contaminated soil to the nearest licensed landfill site 160km away - the Agency's selected emergency rescue solution.

In 1998 Celtic Technologies was asked for a £500,000 guarantee on a £200,000 bioremediation contract at the Felindra steelworks in south Wales. This was negotiated down so that work could proceed.

The Agency said that so far it has used its discretion to reduce the value of some guarantees, to ensure mobile plant operators bid for remediation contracts. It has not had to call in any guarantees in the three years since the first mobile plant licence was granted, said Agency remediation manager Ian Martin.

But there are fears that as insitu and exsitu remediation becomes better established the risk of default or bankruptcy will increase, and the Agency will get correspondingly tougher.

Financial guarantees were introduced to protect the Agency against malpractice or bankruptcy in the waste management sector.

Contractors are angry that the value of remediation work and the environmental hazard it poses are far smaller than that involved in the landfill site operation.

Financial provision for remediation contractors is also out of step with the current political mood, said Keen. The Government is aiming to build 60% of all new housing on reclaimed land.

The EIC has been in talks with Agency staff to find a way of limiting the impact of provisions.

No solution has yet been agreed.

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