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Environmental assessments & audits.

Financial obligations quickly accumulate on foundry owners who aren't aware of their operations' environmental conditions.

10-F Water Quality and Waste Committee LeRoy E Euvrard, Jr. and J Peter Aldred/Principal Authors

The single most important reason for conducting environmental assessments and audits is the effect of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). This law, better known as "Superfund," requires the cleanup of sites which pose a threat to human health or the environment.

The act is supported by a special tax on certain chemicals (thus the name Superfund) to enable the Environmental Protection Agency (EPA) to clean up abandoned sites. it also imposes strict "joint and several liability" on certain persons or groups known as "potentially responsible parties" (PRPs).

"Joint and several liability" identifies "potentially responsible parties" as those who may be liable for the entire contaminated site cleanup cost regardless of:

* the amount of material


* whose fault it was;

* who owns the land from which the

hazardous substance is being or

threatens to be released into the environment;

* who generated the hazardous substance;

* who transported it;

* who caused it to be transported;

* who disposed of it.

In many instances, cleanup costs can exceed the property's value. EPA is not required to locate most or all PRPs for a site; so the first PRP must locate other PRPs to share the costs.

The Superfund Amendments and Reauthorization Act of 1986 (SARA) redefined a "contractual relationship" in an effort to exempt from liability an innocent purchaser of contaminated land.

To qualify for this exemption, the present owner must establish that when he acquired the facility he "did not know and had no reason to know that any hazardous substance, which is the subject of the release or threatened release, was disposed of on, in or at the facility."

To prove this, the present owner must demonstrate that at the time of acquisition he undertook "all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practice in an effort to minimize liability." The courts have not yet defined what constitutes good commercial or customary practice." However, it is certainly more than a traditional title search.

While the federal law (CERCLA/SARA) creates a risk of future liability for the unwary purchaser and for the mortgage lender, certain state laws, such as New Jersey's Environmental Cleanup and Responsibility Act (ECRA), impose responsibilities on the buyer and seller of industrial property to investigate and clean up a site to the state's satisfaction before the facility's title can be transferred.

Superfund and the state laws it has spawned impose liability on the owner of property for past practices regardless of its present or proposed use.

Other environmental statutes, including the Resource Conservation and Recovery Act (RCRA), the Toxic Substance Control Act (TSCA), the Clean Water Act and the Clean Air Act, impose liability for past and present compliance on the responsible operator. The cost of compliance, coincident with civil and criminal penalties, can be substantial.

All federal environmental statutes permit citizens' suits under certain circumstances. Some, such as the Clean Water Act, have "bounty hunter provisions" allowing plaintiffs to recover damages and fees without showing they have been damaged. All the plaintiff must prove is that the regulations or the terms of a permit have been violated and that EPA or the appropriate state agency has not brought an enforcement action.

Future Liability

The owner/operator of a foundry also needs to know about future regulatory requirements. Because a facility is in compliance today does not mean that substantial environmental liabilities could not be imminent. The 1984 Hazardous and Solid Waste Amendments (HSWA) impose a ban on land disposal of hazardous wastes to be phased in over 66 months. Unless the EPA acts to set standards or exemptions, no other disposal options exist. For many foundry hazardous wastes, there are no disposal options. Finding viable alternatives such as reuse, recycling or treatment takes time and money.

Other statutes, such as section 304(1) of the Clean Water Act, are only now being implemented by the states. It requires states to establish water quality criteria for surface waters. If water quality is not met, despite the fact that all dischargers are in compliance with their categorical and pretreatment standards, the states must develop and implement plans to bring the water up to standard. Existing wastewater dischargers must then install additional treatment despite current compliance with all regulations and permits.

There is ample reason for conducting an environmental assessment before acquiring a facility. Should a seller conduct an assessment? By all means because it improves his bargaining position to know the true value of what he is selling. If the buyer discovers a problem, the seller is in a far better position to evaluate the true significance and cost of correction than the buyer. The buyer will assume the worst, the transaction jeopardized or the property subsequently undervalued.

Hidden Assets

An environmental assessment may also reveal a hidden asset. In some areas of the country, known as Non-attainment Areas, no new sources of air pollution may be built without a corresponding or greater offset. In these areas, valid air permits have a value. Many states allow these permits or air pollutant allocations to be sold for use as off sets, but the source for which the permit was issued must be shut down. When consolidating operations and shutting down or selling a facility, the offset may add value to the sale or be sold separately. Similarly, valid water discharge permits may also become valuable assets.

The 1984 HSWA has added sections 3004 (u) and (v) requiring that before a hazardous waste treatment, storage or disposal (TSD) facility can receive a final permit or close, it must certify that no releases of hazardous waste from any solid waste management unit (SWMU) have occurred. An SWMU is anything that handled solid waste including refuse, foundry sand and other nonhazardous wastes. Before making such a certification, the facility owner must first identify all the SWMUs.

It is critical for a foundry seller or buyer to understand the purpose of the assessment or audit. There are many types serving different purposes. Each serves a different purpose. Generally, as used here, property reviews fall into two categories: assessments and audits. An assessment focuses on CERCLA or Superfund liability for past practices; the audit on present and future compliance issues.

When lending institutions request an environmental assessment in which they are taking a financial position, their primary concern is a property's risk level that the property will ever become a Superfund site or require environmental remediation. They may also want to know if the property contains a significant amount of polychlorinated biphenyls (PCBs) or asbestos containing materials (ACM) contamination that would make the property more difficult to sell in the event of foreclosure.

On the other hand, the owner/operator of a foundry may want an environmental audit to determine the current compliance status of the facility's operations. He is interested in knowing if he is liable to be fined and/or publicly embarrassed because of noncompliance issues. He may not want to be made aware of any past hazardous material handling practices because that knowledge may obligate him to sample and analyze environmental media or take corrective action he would not otherwise be required to do.

A foundry purchaser who intends to continue operations should be aware of all environmental issues. As a successor company, he may be liable for off- and on-site disposal practices of the previous owners. His primary concern may be purchase and operating costs, but he will want to know the risks of becoming a PRP in terms of present and future regulatory requirements.

Assessment or audit purposes should be clear to those conducting the review. If the foundry is being sold for a shopping mall site, then the current compliance status is irrelevant except for the value of certain permits as salable offsets. If the intent is to continue operation of the foundry, then merely looking at CERCLA or Superfund issues is inadequate.

The cost and value of the assessment or audit are dependent on their scope. It is imperative that the evaluator have free access to information and cognizant employees. Often management wants to conceal the foundry sale out of concern for creating problems for all concerned-buyer, seller and employees.

The release of photographs and proprietary information can also be a problem if the buyer is a potential competitor. The evaluator can agree not to disclose certain proprietary information to the buyer, revealing only the review's findings and conclusions. The first step in conducting an assessment or audit is to evaluate the manufacturing processes, characterize the wastes being generated, and evaluate historical processes and wastes. Consider nonprocess wastes (waste hydraulic fluid and old electrical capacitors) that might contain PCBs.

In characterizing the wastes generated, check nonhazardous wastes or raw materials for hazardous substances. The storage and disposal sites used for these materials should be investigated as well as the disposal sites for hazardous wastes.

Public employees are excellent sources for determining past land uses and practices. Police, fire, planning and engineering departments often have records and/or older employees familiar with a property. Similarly, aerial photos can be obtained from past flyover operations. The records of state environmental agencies should be checked as well as the CERCLA and EPA lists of potential sites designated for environmental investigation.

The inspector should walk through all manufacturing and material storage areas and any off-site areas where hazardous wastes or other materials are located or have been stored. Odors, stressed vegetation, stained soils and other signs of a release should be investigated. This serves not only to confirm the manufacturing processes and raw materials used, but also provides an opportunity to observe material and waste handling practices in accordance with the Occupational Safety and Health Act and RCRA.

In an audit, it will be necessary to determine whether all processes have been properly identified and characterized for categorical air and waste water treatment standards, and compliance with current permits. If materials have not been labeled according to established criteria, there is a good possibility that they have been handled and disposed of in a manner that could threaten human health or the environment.

After all documentation has been reviewed, employees and others interviewed and the site(s) visually inspected, the auditor should be able to identify potential problem areas. Normally it is more cost effective to conduct an assessment or audit in phases. During the first phase no environmental media samples are taken if potential problems are identified. in a second phase, samples are taken and analyzed to confirm and attempt to quantify problems.

The person or team conducting an assessment or audit must understand the site manufacturing processes, raw materials used, wastes generated and be able to quickly identify those substances used or generated that could be hazardous. They should know when an environmental ecosystem is being stressed and have a working knowledge of any state regulations applicable to the industry being evaluated. It may not be possible for a single auditor who has all of the requisite experience and knowledge. In such cases, it is advisable to use a team of investigators.

When you have your own environmental staff, the question always arises whether to use in-house staff or an outside consultant. Whether conducting an assessment or audit, both present individual benefits. It is doubtful that any outside consultant will be as familiar with internal manufacturing processes as internal environmental staffs, but in-house staffs may not be familiar with the appropriate state regulations. When interviewing regulatory agency personnel, it may be difficult for an in-house staff to maintain anonymity and be totally objective in its evaluation.

There is a side benefit to using in-house staff to conduct audits. One always learns something of value. Therefore, many companies have developed the practice of using environmental personnel from one facility to audit another. If the audit is being conducted for a real estate sale, however, the potential buyer most likely will not accept an environmental assessment conducted by the in-house staff of the seller.

Using outside consultants can cost $5000 to over $100,000, depending on the scope of the assessment or audit and the size and complexity of the facility. The decision to use a consultant should be made based on the expertise of the firm, since the adverse consequences of an inadequate assessment or audit far outweigh minor differences in cost. Consultants should be hired through a company's legal department or attorney to take advantage of lawyer/ client confidentiality.

After the assessment or audit, it is useful for the auditor to debrief senior management from the facility being assessed and the company requesting the assessment or audit. This provides an opportunity to correct any misunderstandings, add pertinent information, ask questions and learn of any potential problem areas.

For more information about audits and assessments, contact Gary Mosher or Fred Kohloff at AFS Headquarters.
COPYRIGHT 1991 American Foundry Society, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:Focus on the Environment
Author:Aldred, J. Peter
Publication:Modern Casting
Date:Feb 1, 1991
Previous Article:Environmental: 'What's hot & what's not'.
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