Cost model: Land remediation

01 / Introduction

Contaminated land is land that has been polluted with harmful substances to the point where it poses a serious risk to health and the environment. The policy and planning implications of land contamination relate particularly to brownfield housing schemes.

Contamination can prevent previously used land from being developed to its full potential. In particular, the costs of remediation can affect the viability of marginal sites that might otherwise be developed for housing. The UK contaminated land market, excluding dig and dump, is expected to be worth £630m in 2010.

In the current market, local authorities have diminishing funds available to support development, and the sites themselves have declined in value. Developers also have limited cash and so are prevented from undertaking large-scale strategic projects. Those who hold landfill tax exemptions also face having these valuable benefits withdrawn by 2012.

In addition, the corporate social responsibility agendas of some stakeholders are requiring a more sustainable approach to site remediation.

As more straightforward sites are developed, remediation challenges will become more complex. The Home and Communities Agency’s (HCA) public land initiative is, for example, focused on land with low remediation risk, which will leave the more difficult sites to housebuilders who are outside the initiative. On the positive side, the techniques used to deal with contaminants are increasingly effective.

As developers shift their attention to lower density urban fringe sites, but still need to meet brownfield targets, requirements for remediation could become a barrier to the viability of housing development. As such, developers must deliver remediation projects of the optimum size, timing, extent of remediation and allocation of risk.

02 / Policy background to remediation

The main drivers behind land remediation are the regulatory regimes that govern how contamination is recorded and remediated, and the planning system that encourages development on previously used land.

The two main pieces of contaminated land legislation are the Environmental Protection Act 1990, Part 2A and the Contaminated Land Regulations 2006.

In particular, the Environmental Protection Act establishes principles which determine whether remediation is required, and how extensive it should be:

• Land remediation is only required if there are unacceptable risks to health or the environment
• Land which contains pollutants as a result of previous land use is only defined as being contaminated if a “significant pollutant linkage” exists
• Remediation may only be necessary if there are appropriate and cost-effective remediation measures available, taking into account the actual or intended use of the site.

The contaminated land regime is administered by local authorities and Defra, which have a duty to inspect sites in order to identify and designate potential contamination. Remediation notices are served on “appropriate persons” who are responsible for the contaminated land.

Ideally, notices are served on the original polluter, but where this link cannot be established, the responsibility generally lies with the present owner.

Planning legislation including the Town and Country Planning Act 1990 and the Planning and Compulsory Purchase Act 2004 also have an important role. Their provisions are supported by planning policy statements providing statutory guidance on the development of land affected by contamination such as PPS 23 in England.

Site investigation and remediation activities are often a condition of planning for a development, and remediation activities may also require planning permission in their own right. In addition to the general planning framework, government policy with respect to the location of new homes and the tax treatment of landfill both have a significant effect on the need for and approach to remediation.

The HCA’s National Brownfield Strategy, for example, is maintaining previously established targets of 60% of new homes to be built on brownfield or previously developed land. This has been further reinforced through the endorsement of the National Land Use Database as an authoritative depository for brownfield site data, and its alignment with the tax relief regime through the modified land remediation relief scheme for derelict sites.

03 / Land remediation solutions

The UK Land Remediation Industry uses a standard protocol for risk identification and remediation for assessing and dealing with contaminated land. The protocols are defined by the Environment Agency’s Contaminated Land Report 11 (CLR11) Model Procedures for the Management of Land Contamination. The key stages set out in CRL11 are as follows:

• Risk assessment. The steps taken to identify whether risks are present. Depending on the nature of the contamination, this might require a quantitative study based on site investigation
• Option appraisal. The process to identify the optimum range of solutions, taking into account criteria such as risk, programme, cost etc.
• Implementation. The framework for implementation, verification and possibly long-term monitoring of levels of contamination.

Delivery of projects in accordance with CRL11 provides land purchasers and developers with increased confidence. Similarly, the Land Condition Record (LCR) also provides greater consistency and quality. The SiLC qualification (specialist in land condition) is the accreditation standard used by professionals in the field providing assurance that studies and projects will be prepared and managed consistently.

The remediation technologies available for use in the UK are typically categorised under the headings of physical, biological, chemical and thermal. Remediation work can take place in situ, without any excavation or removal, or ex situ, where the contamination is removed either for treatment or disposal. Ex-situ techniques can occur on-site or off-site. Accordingly, there is tremendous scope for different approaches with different cost and programme implications.

The choice of remedial solution is a function of contaminant type, concentration, location and the time and cost drivers:

• Physical technologies, such as soil washing, involve extracting contaminants from the soil or groundwater and destroying them at the surface or concentrating them for off-site disposal
• Chemical technologies use chemical reactions to either destroy or immobilise harmful contaminants in the ground or at the surface
• Biological approaches use naturally occurring bacteria present in wastes, soils, sediments and water to degrade potentially toxic organic contaminants down to CO2 and water – they need little energy input, raw materials or fixed plant.
• Thermal technologies, such as steam injection and thermal desorption, can deal with the most difficult contaminants, and deliver quick results.

Some techniques such as soil washing need extensive plant so are only viable with large volumes of contamination. The Cluster initiative, aimed at smaller sites, is enabling innovative techniques to be used on sites that do not have a critical mass of contamination.

Under a Cluster arrangement, certified material from a number of sites can be moved for remediation to a designated “hub”, enabling, for example, the cost-effective use of soil washing on small projects. The promotion of the Cluster initiative is very much at the forefront of HCA’s strategy for brownfield remediation going forward.

(See corresponding graphic below)

04 / Value and cost drivers affecting remediation

Selecting the right remediation options involves a careful balance of cost, programme and risk associated with the degree to which contaminants are treated. The main cost and value drivers include:

• The extent of remediation. The statutory requirement is the removal of unacceptable risks to either human health or the environment. The extent of removal is determined by the “suitable for use” approach. The party responsible may choose to remediate to the minimum standard required for a proposed end-use or “future-proof” by remediating to a higher standard
• The balance of cost and contamination risk. As the quantity and concentration of remaining contaminants decrease, the costs of decontamination can increase exponentially. As a result, the extent of remediation required by the regulatory agencies has to be proportional to the potential harm posed by contamination
• Programme, cost and cashflow. In a rising market, fast, capital intensive approaches such as the vacuum extraction or air sparging make commercial sense, bringing sites to market quickly, albeit at a higher cost. However, given current constraints on cash and low levels of demand, slower and low-cost in-situ approaches that are applicable to small sites are particularly attractive to developers. Careful planning can enable remediation to be phased or carried out concurrently with a development, minimising early expenditure and delay to the overall programme.
• Access to funding. While the availability ofdirect grant funding is diminishing in favour of partnering-based funding arrangements, it is possible to source public funds where a project is strategically aligned with local and regional objectives. Demonstrating the impact of remediation costs on project viability and engagement with regional stakeholders and the HCA are the keys to accessing potential funding
• Certainty of cost. The scope and cost of remediation is inevitably unpredictable. Investment in more extensive site investigation work and comprehensive risk registers will help to manage any cost escalation, but will add to up-front costs.
• Certainty of outcome. Demonstration of successful outcomes of projects using on-site treatment technologies is more difficult than with “dig and dump” and will need to be supported by evidence from lab tests, pilot trials and demonstration projects.
• Liability management and insurance. Liabilities associated with contaminated land are a combination of technical, financial, regulatory, corporate and third-party issues. Appropriate mitigation measures include appropriate contracts, legal indemnities and warranties, early contractor involvement, and specialist environmental insurance policies. Insurance policies range from the more general environmental impairment liability (EIL), which protects parties in a transaction involving historic pollution activities, through contractors’ pollution liability and third party indemnity protection to bespoke remediation policies which cover liabilities related to defined processes on specific sites.

05 / Sustainability

Sustainable remediation is defined by the Sustainable Remediation Forum-UK (SuRF-UK) as “the practice of demonstrating, in terms of environmental, social and economic indicators, that an acceptable balance exists between the effects of undertaking remediation activities and the benefits they deliver”.

Careful and innovative design of the Remedial Action Plan (RAP), utilising a number of techniques, is the most effective means of creating a sustainable solution, aimed at offsetting the impacts of less sustainable component technologies such as dig and dump.

Work by CL:AIRE (Contaminated Land: Applications in Real Estate) including the Waste Code of Practice (September 2008) and Cluster is aimed at maximising the amount of material that can be kept on site and the sustainable nature of the process.

Sustainable remediation is currently being promoted by government through regional and local spatial planning policies. Reuse of contaminated soils is an important component of sustainable remediation. Other aspects of sustainable practice include reductions in vehicle movements, less intensive energy use and a focus on increasing the bio-diversity of remediated sites.

06 / Tax incentives for remediation

With landfill tax exemption (LTE) being phased out, land remediation relief (LRR) for contaminated and derelict land is now the government’s primary tool to create incentives for the brownfield development. LRR is available to firms engaged in land remediation that are not responsible for the original contamination.

Over 7 million tonnes of waste each year were being exempted from landfill tax in England alone, so this change could have a major impact on the remediation industry. The modified LRR scheme, which provides corporation tax relief on any costs incurred on qualifying land remediation expenditure, is in the long run designed to yield benefits roughly equal to those lost through withdrawal of the LTE.

However, with much remediation undertaken by polluters or public authorities, who cannot benefit from tax relief benefits, the change could result in a net withdrawal of Treasury support to a vital sector. Lobbying and consultation continues to ensure the Treasury maintains its support for remediation.

While there are no financial penalties for not carrying out remediation, a steep escalator now affects the rate of landfill tax for waste material other than inert or inactive wastes, which will rise at the rate of £8/tonne per year until 2013.

By then, the rate will be £72/tonne. This means that for schemes where there is no alternative to dig and dump and no pre-existing landfill tax exemption, the cost of remediation could rise to prohibitive levels.

Existing landfill tax exemptions are only valid until 31 March 2012, and it is also foreseeable that there will be a rise in the volume of exempted waste material being sent to landfill, which in turn could increase disposal prices ahead of April 2012.

Looking forward, tax-relief benefits under LRR could provide a significant cash contribution to remediation, potentially up to 42% of the cost of any qualifying works. Careful planning is the key to ensure that maximum benefits are realised, with actions taken at the points of purchase, formation of JV arrangements, procurement of the works and formulation of the final account (including apportionment of risk premium) all influencing the final value of the claim agreed with HM Revenue & Customs.

Following the withdrawal of landfill tax exemption, the land remediation relief regime is also being expanded to create incentives for companies to remove features such as underground structures or redundant services that might cause a site to become derelict.

Conditions to qualify for the extended relief for derelict land are fairly onerous, requiring sites to have been derelict since 1998 and for it to be shown that the site would not be capable of reuse without the removal of buildings or other structures.

07 / Cost model

The cost model shows the remediation of a 2ha brownfield site, using a combination of bio-remediation, stabilisation and solidification, on site screening and some off-site disposal.Eighty per cent of excavated material is reused on site.

Costs are current in fourth quarter 2009, based upon a location in central England, and reflect prices obtained using a competitive tender.

Clients’ on-costs, professional fees and VAT are excluded from the detailed breakdown. The rates used in the breakdown can vary widely, primarily as a result of the factors described in the indicative costs opposite.

(See corresponding graphic below)

08 / Procurement and risk management

By necessity, the scope and extent of land remediation work is more difficult to define than for other project types. However, as the range of options for treatment available to the client has broadened, the value that can be secured from site investigation and the development of targeted remediation solutions has also increased.

Remediation procurement is particularly concerned with the allocation and management of risk – delivering cost-effective solutions by making sure that risks are defined sufficiently. This means that allowances for risks do not affect development viability, and that they are allocated to the party best able to manage them.

Site investigation is a key element of the risk management strategy, and comprises desk study research and intrusive investigations to provide information on the soil conditions and possible contaminants. The results of a contaminated land site investigation (SI) are used to define the scope of the remediation requirement in terms of the nature, location, spatial distribution and concentration of potential contaminants, as well as to prove the existence of potential migration pathways.

The results of the SI are used to build the conceptual site model, which in turn is used to design the remediation solution and produce cost estimates. While there is a trade off between the extent of site investigation and the benefits derived from better information, in general, the better the requirement is understood, the more targeted and potentially cost effective the remediation can be. Investment in carefully planned SIs will also increase the cost certainty of remediation, which is particularly important for developers who need to protect tight development margins.

No specific form of contract has been drafted for land remediation projects, and both traditional lump-sum and design-and–build contracts can be let successfully using the standard provisions of JCT, NEC or ICE contract forms. Risk can be managed through varying the extent of site investigation or the degree of design undertaken by the engineer, as well as through the extent of the sharing of commercial risk defined in the contract.

Where cost certainty is required ahead of commencement, the contract can be amended to provide an appropriate risk allocation. Typically all risk associated with the ground conditions and the quantity and type of contamination can be allocated to the contractor and priced in a tender. Other sources of change such as client variations or constraints caused by utilities will be dealt with as variations. Passing all scope risk to the contractor is likely to result in an increased price related to risk premium, so where the client is in a position to accept a higher degree of risk, scope risk can be shared through remeasurement of the works or through a target price arrangement with pain/gain share. Where the remeasurement approach is adopted, then value can be secured through the competitive tendering of general items (preliminaries) with the value of the remediation work being subject to remeasure, preferably based on a comprehensive priced schedule of rates.

Many other on-site techniques deal with the removal of the contaminant from the soil particles and not the wholesale treatment of bulk volumes. Costs for these alternative techniques are very much engineer-designed and site specific (see table below). Factors that need to be considered include:

• Waste classification of the material
• Underground obstructions, pockets of contamination and live services
• Ground water flows and the requirement for barriers to prevent the migration of contaminants
• Health and safety requirements and environmental protection measures
• Location, ownership and land use of adjoining sites
• Distance from landfill tips, capacity of the tip to accept contaminated materials, and transport restrictions
• The cost of diesel fuel, currently about £1.08 per litre (at November 2009 prices).

Other project related variables include size, access to disposal sites and tipping charges, and the interaction of these factors can have a substantial impact on overall unit rates.

(See corresponding graphic below)