Contractual Considerations for Complying with Environmental Requirements: Lessons Learned using a Case Study Approach

Due to the raised environmental awareness nowadays, new construction projects-especially those in sensitive areas-must comply with numerous and strict environmental regulations. In fact, it is estimated that the value of issued penalties for non-complying with environmental regulations is $237 million in 2015 alone. Relevant literature discusses issues in environmental management and hazard minimization extensively; yet it falls short in investigating environmental regulation from a contractual angle, i.e., detailing the rights and obligations of the associated stakeholders as related to environmental permits and regulations. This paper aims at providing insights into how construction contracts are impacted by environmental regulation and permitting. The first step was reviewing federal and local U.S. environmental compliance requirements. The second step was analyzing contractual provisions of the San Francisco-Oakland New Bay Bridge project as a representative case study that involved rigorous environmental requirements which were clearly reflected in the associated contractual provisions. Throughout these steps, the authors developed: (1) an extensive checklist formed of 95 questions under 11 categories that assists parties in drafting contractual provisions related to environmental regulations and permitting, and (2) a preliminary transaction cost theory framework for assisting owners in making organizational decisions related to environmental compliance. This study provides better means for owners and contractors entering into projects of critical environmental conditions to efficiently understand and draft the special provisions related to environmental compliance. Eventually, this will lead to decreasing the number of environmental disputes and penalties resulting from poor contract drafting and administration