Fixed Price Cleanups backed by Contractor Indemnity as well as A-Rated Insurance

Overview: Insured Fixed Price Cleanups (“FPCs”) provide the greatest certainty against cleanup costs rising above those known/expected at the time of policy inception. To be meaningful, FPCs must be backed not only by contractual indemnity from a large (>$1B) Contractor but also by insurance. EPA has found that such remediation/redevelopment reduces vehicle miles traveled from new growth by 25-33%.

The insurance — provided by at least one insurer (Markel) — provides all of what AIG used to cover and more, as do the accompanying contracts. Thus, insurance and the FPC protect against cover overruns not only from pollutants known at Policy inception but also from pollutants discovered in the course of remediating those already known. RESCUE also provides coverage related to off-site disposal and other regulatory risks, and it can be accompanied by “PLL” coverage protecting against toxic tort and other non-regulatory risks.

Pre-2011 Cost Cap: From the late 1990’s until 2011, AIG offered a similar product commonly known as “Cost Cap.” When combined with well-constructed FPC contracts and correspondingly rigorous due diligence in underwriting and loss controls in contract construction and claims review, Cost Cap enabled FPCs that maximized cost certainty and improved quality and schedule. Derived from harnessing market-based incentives, the benefits were widely recognized by EPA, DOD and others. Cleanups were accomplished at military bases, multi-party Superfund sites, coal-fired gas plants, mining sites, mergers/acquisitions, and/or simply redevelopment where investors needed certainty.

Pre-2011 Cost Cap suffered large losses because it was frequently sold in the absence of FPCs; with FPCs that lacked important Loss Controls; or in other ways different from BDCI’s Model. 2017 Expert testimony describing these flaws by BDCI Principal Mike Hill can be found here. The losses stemming from these flaws led AIG and every other Commercial Insurer that had provided Cost Cap to abandon the market in 2010-2011.

Post-2011 Alternatives (Captives and Escrows): Following Insurers’ 2011 exit from the Cost Cap market and on behalf of the Air Force and other large entities (public and private), BDCI Principals used captives and escrows as Alternatives to support their already-proven FPC Model. First approved in 2012 (by EPA’s Administrator and California’s Governor), the Alternatives have been highly successful: Following use of an Alternative to support two FPCs (in 2012 and 2015) at the former McClellan Air Force Base, EPA issued the Base its First Federal Facility Site Reuse Award. An article discussing these cleanups can be accessed here.

BDCI’s History with Insured FPCs; Publications: Over the past 20 years, BDCI’s FPC Model has accomplished cleanups at over a hundred sites now hosting tens of thousands of jobs, over $2B in redevelopment, and generating hundreds of millions in tax revenue. At none were Insureds or Regulators required to pay a dollar more than the contracted-for price, and at none was the quality or schedule compromised. Publications discussing some of those projects can be found here.