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Debate: Brownfield risks

Leading consultants say the financial risk carried by environmental engineers in designing remediation solutions for contaminated sites far outweighs the reward. Risk dumping could ultimately jeopardise the Government's brownfield redevelopment targets, they say.

This week we ask: Are brownfield clients too risk averse?

Yes

Ewan MacGregor, director for legal affairs and risk management, Oscar Faber Group

The conditions of appointment of a number of brownfield clients are so onerous that many leading environmental and geotechnical practices are refusing to accept. If fears over potential liability continue, the Government's objectives for land remediation will be largely frustrated.

Onerous liabilities serve to hasten the withdrawal of consultants' insurance cover, increasing the danger that claims will result in bankruptcy. Two factors compound the problem.

Brownfield clients are averse to any form of limitation on the consultant's liability. But liabilities can only be met out of the consultant's insurance and assets - both of which are limited.

Professional indemnity insurance is particularly limited in respect of claims involving pollution or contamination because cover applies on an 'aggregate' basis, with insurance monies evaporating as claims are made.

The pot could well dry up before a single claim can be met in full.

Consultants are also frequently required to give collateral warranties. Potential claims often extend well beyond the client's original scope of work.

For example, collateral warranties are used to protect the assets of buyers and developers after the site has been remediated. They are widely applied.

Consultants are not averse to risk apportionment, simply that the allocation must be fairly balanced.

Consultants' technical expertise is vital to finding innovative and cost effective remediation strategies.

The way forward is for brownfield clients to recognise that PI insurance is a poor method for transferring risk and that it is better to embrace the new insurance products, such as environmental impairment insurance.

This offers first and third party cover for contaminated land, is wider in scope than the consultant's PI and provides direct protection to the client without recourse to the lengthy and costly route of proving negligence by the consultant.

No

John Navaratnam, senior project manager, English Partnerships

The degree of skill and care required by consultants in designing remediation solutions for contaminated land is no greater than that needed to design a bridge or tunnel. There is no difference in the level of risk taken on.

But brownfield remediation is unlike normal civil engineering where high levels of professional indemnity insurance are available at commercially acceptable rates on an each-and-every claim basis. For pollution and contamination incidents, insurance companies normally impose a limit on the cover available.

Cover is also offered only on an aggregate basis - there is a single lump sum available to cover all pollution and contamination claims made over the course of a year. In a worst case scenario funds could run dry leaving claims unsettled.

Clients frequently demand a level of PI insurance relative to the risks of a particular site to protect themselves if their consultant defaults. That clients are looking for unlimited PI cover, however, is a misconception.

Some consultants would like to limit their liability to the extent of their PI cover. This does not offer the client satisfactory protection, though, and in some situations the consultant will have to take out environmental insurance as part of a risk management strategy.

Limiting consultants' liability to their PI insurance seriously restricts the client's ability to recover damages in contract as well as in tort.

If PI cover was less than the cost of damages incurred in remediating, repairing or rebuilding, then the client, prospective purchaser, developer, lender or tenant would have to make up for the shortfall.

It also means the client is put at the mercy of its own insurance company, which may decline cover.

Clients should be entitled to recover damages where a consultant or design and build contractor is found negligent by a court of law.

The facts

The Urban Task Force report, Towards an urban renaissance, called for brownfield clients including government agencies to share remediation risk.

The UTF recommended that all brownfield land be redeveloped within the next 30 years.

There is up to 200,000ha of brownfield land in the UK, although the Environment Agency estimates 300,000ha could be affected by natural or industrial contamination.

The Government is allowing no more greenfield development until all available brownfield options have been exhausted.

Part IIa of the Environment Act 1990, established the principle of 'the polluter pays'.

Local authorities can enforce clean up through the courts.

Landfill tax, currently £11/t, is set to rise by £1 per year.

Experts predict the cost of remediating sites will be competitive with off-site disposal within five years.

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