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National insurer warns of shortcuts in audits.

Although audits are becoming an important factor in protecting against pollution liability, according to at least one national expert, real estate professionals are too often falling victim to unqualified contractors and their own cost-cutting gimmicks.

According to David Rosenberg, Esq., executive vice president of ECS, Inc., one of the largest problems with environmental audits is that there is no national standard defining "environmental due diligence" or outlining just what these audits should encompass. H2787, introduced by Representative Curt Weldon (R-Pa) in June of 1989 and debated last year, proposes an establishment of standards for environmental audits, yet nothing has been accomplished to date. Although attention is likely to resurface in light of widespread concern with this issue, this does not help the situation of the real estate industry in the interim.

"Lacking such standards, the industry must beware of selecting environmental 'experts' by price alone," stated Rosenberg, whose firm is one of the only in the nation to underwrite pollution liability insurance on a national basis. "By shopping price, many businesses, particularly those within the real estate market, could fall prey to audits performed by consultants not necessarily qualified for particular projects."

Unfortunately, many environmental consultants are taking advantage of this new and lucrative market, offering and performing audits for ridiculously inexpensive prices. In fact, according to Rosenberg, some firms perform audits merely to gain entry to possible future environmental cleanup work.

"There are even environmental 'experts' whose qualifications stem from a mail order certification," said Rosenberg, "A number of associations actually offer environmental audit certifications simply as a manner of increasing their members' business opportunities. Qualification to perform Phase I environmental audits is based solely on the requirement of the completion of an application and the payment of a membership fee."

Rosenberg noted that such actions often result in the property owner receiving an incomplete report that does not qualify as an appropriate level of inquiry into the potential environmental contamination problems of a particular site. Additionally, he said, the public interest is not served in that a potential contamination may remain undiscovered. He suggested that businesses take steps to protect themselves from situations involving inaccurate site assessments, as well as environmental liability overall.

"It is important to investigate the qualifications of the consulting firm performing the environmental audit -- avoid selection based upon price alone," he noted. Additionally, owners could require that their consultant have environmental liability insurance to cover errors and omissions involved with audits.

"The role of environment insurance should also be explored in most industrial and commercial real estate transactions," added Rosenberg. "This measure provides an opportunity to take a proactive stance in the wake of a very complex and increasingly broadening area of liability and concern."
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Title Annotation:Property Management Supplement; David Rosenberg
Publication:Real Estate Weekly
Date:Oct 2, 1991
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