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AsbestosRisk Management for Lenders
William K. Sloan, Commerce BankDennis P. Firestone, ATC Group Services LLC
Christopher S. Gates, MC Consultants, Inc. (MCC)
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Rev.: Nov 27, 2017
Here’s what you get today!• Asbestos: Exposures, Obligations, and Resources.• A Lender’s perspective / Overview of actual v. perceived risks associated with
asbestos. • “The Baker’s Dozen” Pitfalls.• Four “must-have” regulatory letters that should be considered in establishing a
Lender’s risk tolerance and Policy.• Four (of many) asbestos risk positions a Lender could hold; and a comparative
discussion.• Informal Lender Poll: Current approach to asbestos management in buildings.• Lending Considerations• Foreclosure/Owner Considerations• Four examples of Bank Policy and Scoping Language, with sample Reference
Document.• Three suggested actions in collaboration with the Environmental Information
Association.• Review of compiled resources including the EPA’s “100 Answers to Questions”
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Introduction to Asbestos
• Asbestos is a naturally occurring, fibrous mineral that:– Has been used in over 3600 different products– Provides strength, fire resistance and insulating properties to a
variety of products– Is readily available and
inexpensive– Is a proven human
carcinogen– Is still legal in the U.S.– Is still installed in buildings
today
Asbestos
• 1930s Verified Human Carcinogen• 40s, 50s, 60s Documented Health Effects• 1970 OSHA Act• 1970s, Limited Bans on Certain Applications• 1986, Asbestos Hazard Emergency Response Act (AHERA)• 1990, National Emissions Standards for Hazardous Air
Pollutants (NESHAP)• 1994, ASHARA (Model Accreditation Plan)• 1994, OSHA Asbestos Construction Standard
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• What we know:– There is no cure for asbestos
disease– Asbestos related diseases are
dose-response related– Preventing exposure, prevents
disease
Dr. Irving J. Selikoff, who pioneered the link between asbestos exposure and disease, theorized that: One fiber could cause a tumor.
• Asbestos Diseases– Lung Cancer– Asbestosis– Mesothelioma
Asbestos Use in the US
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• Use of asbestos in the US became popular at the time of the Industrial Revolution.
• Post WWII use skyrocketed with peak use around 1973 at which time the US was consuming over 800,000 metric tons annually.
• The vast majority of asbestos was used in building materials.• High hazard uses were banned through the 1970’s.• Health effects were well documented, and,• Litigation ensued.• Congress had to do something………
Historical & Current Uses
• Banned Asbestos Applications– Fireproofing (1973)– Thermal System Insulation (TSI)
(1975)– Patching Compounds (Joint
Compound) & Artificial Fireplace Embers (CPSC) (1977)
– Spray Applied Applications (Acoustical) (1978)
– New, Non-Historical Uses
• Current “Legal” Uses– Cement Corrugated Sheet– Cement Flat Sheet– Roofing Felt– Roofing Shingles– Vinyl Floor Tile– Cement Shingles– Cement Pipe– Transmission Components– Friction Materials– Brake Pads/Brake Shoes– Gaskets– Roof Coatings– Mastics– Etc.
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Historical & Current Uses (Cont.)
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Fireproofing
Acoustical Ceiling Texture “Popcorn”
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Thermal System Insulation (TSI)
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Updates to EBA’s Asbestos Tip Sheet• Key Areas of Focus
– Regulations– Inspections– Operations & Maintenance Plans (O&M)– Negative Exposure Assessments– Bank, Loan, and Risk Issues
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Primary Asbestos Regulations
• Environmental Protection Agency (EPA)– Asbestos Hazard Emergency Response Act (AHERA) - 40 CFR 763, Sub E
– Worker Protection Rule - 40 CFR 763, Sub E, App. G
– Model Accreditation Plan - 40 CFR 763, Sub E, App. C
– National Emission Standards for Hazardous Air Pollutants - 40 CFR 61, Subpart M
• Occupational Safety and Health Administration (OSHA)– Construction Standard For Asbestos - 29 CFR 1926.1101
– Respiratory Protection Standard - 29 CFR 1910.134
– General Industry Standard – 29 CFR 1910.1101
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Asbestos Inspections• AHERA
– Industry Standard and Only Regulatory Standard– True AHERA Survey’s are limited to interior portions of the building (w/ exceptions)– Specifies manner of sampling, sample numbers, laboratory requirements, etc.– Good for Management Plans– Contains the Model Accreditation Plan (MAP) (Certified Inspectors)
• NESHAP– Thorough (Comprehensive) for Demolition and Renovation– Categorization of Waste (RACM, Category I, Category II)
• OSHA– For Employee Protection– Generally limited to O&M or SSSD– Required of both the Owner and Employer
• ASTM – E2356-14– Meets AHERA, NESHAP and OSHA Requirements– Multiple Levels of Inspections
• As Part of an ESA– Generally very limited both in samples and materials surveyed– Would not meet NESHAP or OSHA requirements
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Inspection Considerations• Accreditation
– MAP applies to all buildings except residential fewer than 10 units
• Protocol– What is the inspection being used for? AHERA, NESHAP, OSHA?
• Analysis Considerations– Drywall Systems (PLM vs. Point Count vs. TEM)– Vinyl Floor Tile (Non-Organically Bound Materials) (PLM vs. TEM)– Roofing
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Operations & Maintenance Plans• Under AHERA, One of Five (5) Response Actions• To be successful:
– Asbestos must be properly identified & located (friable/non-friable)– A responsible person must be designated (AHERA Designated Person)– Appropriate training must be provided to the Designated Person and
employees performing O&M work– Periodic surveillance and prompt repair/removal of damaged ACM is
essential to a successful O&M Plan• O&M Work Includes:
– Removal of small amounts of fireproofing, TSI and acoustical– Replacement of ACM gaskets– Repair of drywall– Installation of conduit through ACM– Other small scale ACM disturbance activities
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Negative Exposure Assessment (NEA)
OSHA 29 CFR 1926.1101(f)
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Definitions
• Competent person: One who is capable of identifying existing asbestos hazards in the workplace and selecting the appropriate control strategy for asbestos exposure, who has the authority to take prompt corrective measures to eliminate them.
• Employee Exposure: That exposure to airborne asbestos that would occur if the employee were not using respiratory protective equipment.
• Negative Initial Exposure Assessment: A demonstration by the employer, which complies with the criteria in paragraph(f)(2)(iii), that employee exposure during an operation is expected to be consistently below the PEL’s.
OSHA Permissible Exposure Limit (PEL)• May 1971 - 12 fibers per cubic centimeter of air (f/cc)• Dec 1971 – 5 f/cc (8hrs.) – 10 f/cc (Peak Exposure)• 1972 – 5 f/cc (8hrs.) – 10 f/cc (Ceiling)• 1975 – 0.5 f/cc (8hrs.) – 5 f/cc (15 min) (Proposed)• June 1986 – 0.2 f/cc (8hrs.) – 1 f/cc (STEL)• 1994 (Current) – 0.1 f/cc (Hrs.) – 1.0 f/cc (30 min)
“reducing exposure to 0.1 f/cc would further reduce, but not eliminate, significant risk. Cancer risk at that level would be
reduced to a lifetime risk of 3.4 per 1000 workers”.or
1 in every 294 employees – IS THIS SAFE?
OSHA – Construction Standard for Asbestos29 CFR 1926.1101
• This standard applies to the construction industry as a whole; not just to the asbestos abatement industry.
• Employers must protect employees from asbestos exposure, the rule is “proactive”– Unlike other standards, work practices are always required, regardless of
exposure– Proper training is also always required
• All employers that have a workplace covered by the standard must conduct an “Initial Exposure Assessment” at the beginning of each job.– The purpose is to determine whether exposures are likely to exceed the PEL
and whether additional monitoring and/or controls are necessary– Again, this must be performed by a Competent Person
The Negative Exposure Assessment (cont)• Purpose:
– To predict whether exposure levels during the operation can be expected to exceed the PEL, under any perceived condition, and thus , whether additional monitoring and/or whether additional controls are required.
• Factors that Must be Considered:– Previous Air Monitoring (like material)– Relevant Control Methods– Relevant Conditions– Factors that Influence the Degree of Exposure– Degree and Quality of Supervision– Employee Training– Removal Techniques– Positioning of Ventilation Equipment– Environmental Conditions
Negative Exposure Assessment (NEA)• Documents compliance with the
OSHA Permissible Exposure Limits
• Demonstrates that work practices do not produce exposures above the PEL’s
• Reduces the burden on owners (PPE, controls) whose employees conduct asbestos related work
• Asbestos inspections and O&M activities are considered asbestos related work under the OSHA standard
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A Couple Questions?
• Is it legal for the employees of an asbestos abatement contractor who are removing several thousand square feet of vinyl asbestos tile (VAT) to perform this work without respiratory protection?
• What about wall-systems?• Roofing?• Asbestos cement products?• Fireproofing?• TSI?• Bulk Sampling for Asbestos?
OSHA Classes of Work
Class of Work Definition Requirements
Class I Removal of TSI and Surfacing (Fireproofing & Acoustical)
Critical barriers, impermeable dropcloths, NPE, shower decon, PPE, AHERA certified Supervisor and Workers, air monitoring or Negative Exposure Assessment (NEA)
Class II Removal of all other ACM Critical Barriers, impermeable dropcloths, PPE, Certified Supervisor, trained employees, air monitoring or NEA
Class III Small Scale, Short Duration Disturbance
Impermeable dropcloths, barriers, PPE for TSI & surfacing, PPE for all other ACM, 16hr. Training, air monitoring or NEA
Class IV Contact, No Disturbance. Clean-up of PreviouslyGenerated Debris
Basic methods of compliance, PPE, air monitoring or NEA
The Negative Exposure Assessment (cont)• For the Air Monitoring data to be relied upon in establishing a
Negative Exposure Assessment, it must:– Be based on the competent persons review of all aspects of the
employers performance doing a similar job with similar controls and the same level of training
– Demonstrate that under the worst case scenario, the material will not result in excessive concentrations
– Represent all aspects of the job
• Otherwise– Additional monitoring is needed
The Negative Exposure Assessment• Air Monitoring Data
– (Negative)Initial Exposure Assessment• Conducted by a Competent Person• Must consider all aspects of the job• Must consider training, previous monitoring
– Objective Data• Not generated by the employer• Data is good indefinitely
– Historical Data• Generated in-house• Data is valid for 12 months
– Current Monitoring• On the job monitoring• Data can be used to establish the NEA for future jobs
Summary
Through the NEA process, OSHA has given the employer a practical, easily accomplished procedure which the employer uses to show compliance with the PEL’s for current and future “like” jobs. The rule is not over burdensome; rather it is very
flexible. There are many factors to consider when establishing a NEA
Asbestos bulk sampling is considered Class III work according to OSHA’s Construction Standard for Asbestos, 29 CFR 1926.1101.
Work practice requirements including PPE and a NEA are required during bulk sampling operations.
The Environmental Information Association’sRevision of EPA’s “Purple Book”
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Available at www.EIA-USA.org
- Asbestos Background- Regulations- Asbestos Survey’s- Assessment- Establishing an O&M
Program- Abatement Methods- And Much More
Welcome to RM-MDG Tip Sheet:
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• Asbestos: Exposures, Obligations, and Resources.• A Lender’s perspective / Overview of actual v. perceived risks associated with asbestos.• “The Baker’s Dozen” Pitfalls in Asbestos Due Diligence.
• Four (of many) legal cases reviewed.• Four “must-have” regulatory letters that should be considered in establishing a Lender’s risk
tolerance and Policy.
• Four (of many) asbestos risk positions a Lender could hold; and a comparative discussion.• Informal Lender Poll: Current approach to asbestos management in buildings.
- Lending Considerations - Foreclosure/Owner Considerations
• Four examples of Bank Policy and Scoping Language
• Three Task Groups to be formed in collaboration with the Environmental Information Association.• Review of compiled resources including the EPA’s 100 Answers to Questions
Bill Sloan: A Lender’s Perspective
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• Why is asbestos even a consideration for a Lender today?• Impact on Borrower’s cash flow?• Impact on collateral value?
What if?
• What if the bank becomes the building owner?
• Somewhere between a CMBS deal to an OREO or property in a Trust or REIT, the risk can migrate from the customer to the bank.
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Asbestos in Due Diligence
• Non-scope in ASTM 1527-13.
• Does any investigation / sampling have to be done in accordance with AHERA?
• Is AHERA sampling required to opine on asbestos?
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The Inspection
1) State and local requirements may vary.2) Purpose of the inspection?3) Report complete for purpose intended?4) Defensible?
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Abatement
6) State and local requirements vary.7) Agency notification / effect on timeline.8) Shut down of building systems? 9) Public or employee notifications / signage?10) Clearance criteria?
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The Management Plan (O&M)
11) Will the Plan reflect the risk tolerance of the bank?12) Were materials assumed to be asbestos containing?13) What will be the impact of (or lack of) an NEA?
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Four “must-have” resources:
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Four (of many) Asbestos Risk Positions a Lender Could Hold:
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CMBS Loan(Rep & War 43)
SBA Loan Non-CMBS CRE Loan Owner
Take Title:
Asbestos Risk Level:
AsbestosSampling:
AsbestosLicenses:
O&M Plans &Pitfalls:
Considerations:
(And, an informal poll regarding managing Asbestos Risks and use of O&M Plans):
Summary of “current” Asbestos Risksand Use of O&M Plans
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Lender Considerations:• “Anything that can interfere with the Customer’s cash-flow and
ability to service the debt is material to the loan, and that includes asbestos.”
• “Asbestos can still be a material risk today, but in general, asbestos is often a manageable risk if the Lender can avoid management or decision-making; (‘Keep your hands out of the gears’).”
• “This isn’t 1980 anymore!” – We aren’t typically seeing buildings with significant asbestos risks to the lender (beyond the loan). Certainly, Borrowers continue to make mistakes, but the Bank needs to maintain distance and accountability of the Borrower.”
• “Lenders should not put themselves into a position of having to ‘police’ asbestos compliance for the Borrower; once the loan funds, the bank should stay out of the way.”
Summary of “current” Asbestos Risksand Use of O&M Plans
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Lender Considerations (CONT’D):
• Banks need reasonable standards for these types of issues under Dodd-Frank and Sarbanes.
• Especially relevant to new lenders or people new to their position that are creating policies for the bank.
• Established lenders should probably re-visit their Policy• More lenders focusing their Policies and Scopes to not require sampling, or
only sampling of damaged materials to determine immediate repair needs. • Loans on schools, churches with schools, charter schools (federal funds;
and recent case lost), daycares, and other sensitive receptors should be managed separately.
Summary of “current” Asbestos Risksand Use of O&M Plans:
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Lending Considerations (CONT’D):• Lenders seem to be moving away from requiring extensive testing and
O&M Plans as Closing requirements, in favor of just “recommending” asbestos be addressed as a categorical handling statement (or possibly through an O&M Plan that does not reference “the bank”; and may not even be provided to the lender).
• Who should order the O&M plan? - Borrower or, if foreclosure, the Receiver?
• Who should own the O&M plan? O&M plan should typically not be in the lender’s name and the lender does not generally review and micromanage the plan anymore (except perhaps in the context of a Trust or other situation where the lender will own the property). Generally the lender wants to avoid exercising management and control to retain lender liability protections and/or taking on liability because the bank “approved” the plan.
Summary of “current” Asbestos Risksand Use of O&M Plans:
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Foreclosure/Owner Considerations:• IMPORTANT: What is the exit strategy (and, “alternate” strategy);
Operating? Mothball? “As-Is/Where-Is” / no warranty / “Sale as a going concern”?
• Often, asbestos can just be identified, and a “Hand Off” policy is applied at the site.
• Be wary of Surveys and O&M Plans ordered by the seller. • If asbestos work must be done engage a contractor (do not use staff)
and follow NESPAP or local regulations.
Summary of “current” Asbestos Risksand Use of O&M Plans:
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Foreclosure/Owner Considerations (contd):
• In talking with Equity players we found: Notably on redevelopment projects, many contracts are silent or just reference asbestos being the Contractor’s responsibility.
• Architects are rarely involved with asbestos any more. The General Contractor deals with the asbestos. The Asbestos Survey guides the Abatement Contractor and General Contractor.
• The Owner should not hire the Asbestos Survey; let the General Contractor do it (though be prepared for some push-back).
• Typically push everything down as a Design-Build Contract (“all-in” approach).
• Avoid custom contracts; use new standardized AIA language.• Keep an eye out for cursory / ESA surveys being mistaken or
mischaracterized as comprehensive/pre-demo/NESHAP surveys! – yes.. it still happens.
What’s Next? – 3 Suggested Actions
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1) For the Consultant: Develop you own NEA and Sampling Protocol for Lender DD Level Cursory Sampling. Remember: An NEA for friable surfacing (e.g., popcorn ceiling) and TSI does not relieve the employee from wearing PPE, as it does with all other materials. All the NEA really accomplishes for the remaining materials is to alleviate the requirement to conduct personal air monitoring.
2) For the Lender: Defining Generic O&M and Cursory Sampling SOW.
3) For the Owner: Maintenance Protocol. Identify new available technology. Document available foam products and vendors (e.g., MCC).
Explanationists
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Authors:Chris GatesMC Consultants, Inc. (MCC)2055 Corte del NogalCarlsbad, CA 92011C [email protected]
-- and --Environmental Information Association6935 Wisconsin Ave # 306Chevy Chase, MD 20815T 301.961.4999http://eia-usa.org
Explanationists (Contd)
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William K. Sloan, CHMMCommerce Bank8000 Forsyth BoulevardSt. Louis, MO 63105-1797T [email protected]
Dennis P. Firestone, RG, REM | National Program DirectorATC Group Services LLCTempe, AZC [email protected]
Explanationists (Contd)
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Contributors:Joseph Palermo, CHMM, CSPWells Fargo Bank, NA2222 W Rose Garden LaneMAC S3837-012Phoenix, AZ 85027
Jessica Crutchfield, Esp.McRoberts & Associates, PC4520 Main Street, 7th Floor Kansas City, MO 64111T [email protected]
