EDR Insight Q&A with Founders of the Newest Industry Association
There’s a new game in town on the industry association front. On September 24th, the National Engineering and Environmental Due Diligence Association (NEEDDA) publicly announced its formation. With seven founding members that include the leaders of some of the nation’s largest due diligence consulting firms, NEEDDA’s primary goal is:
“to promote the common interest of engineering and environmental consulting firms who provide due diligence for real estate transactions. One of NEEDDA’s primary goals is to promote greater consistency and quality in the practices of due diligence consultants through establishing voluntary best practices.”
The first challenge that NEEDDA’s founding members tackled over the past ten months was to create standardized contract language, released just this week. EDR Insight reached out to NEEDDA’s two founders to learn more about the organization’s mission, the release of its first project and plans for the future.
Joe Derhake, President, Partner Engineering and Science, Inc.
EDR Insight: What specifically is NEEDDA trying to do that other industry associations have not?
Derhake: “We believe that as industry leaders, we have a responsibility to contribute to the betterment of the practice of due diligence. NEEDDA seeks to improve the practice of engineering and environmental due diligence for all stakeholders including clients, member firms and even non-member firms.”
EDR Insight: Is NEEDDA just for the bigger firms in the industry? What’s the value of a small player getting involved?
Derhake: “We do have specific membership criteria that prospective members need to meet that include being a national consulting firm, having at least one Professional Engineer (PE) on staff, and having either a Registered Architect (RA) or a Professional Geologist (PG) on staff. What we are trying to do is to improve consistency in the industry by establishing best practices so there is value in firms with wide reach writing documents that can be adopted widely in the industry–even by professionals who are not NEEDDA members.”
EDR Insight: The lack of a widely-accepted certification program for environmental professionals is a hot topic today. Does NEEDDA have any plans to address that?
Derhake: “Stay tuned. We will talk about it. There are other industry associations out there who might be better suited for it. EBA is the pre-eminent forum for environmental scope issues. NEEDDA certainly doesn’t have any intention of stepping on the toes of other established organizations. Our focus is more centered on the business of being a consulting firm and the challenges associated with that. One area where I can envision us moving toward is lobbying on behalf of the industry, if the need arises and it probably will at some point in the future.”
Claude Limoges, CEO and Chairman, EMG Corp.
EDR Insight: Last week, on the heels of September’s PR notice about its formation, NEEDDA announced the availability of several standardized contract documents. Why does the industry need standardized contract language?
Limoges: “We are not suggesting that everyone must use the same contracts. However, we are seeing a void of contract documents which address some of the peculiar risks associated with providing such limited scope ASTM due diligence services. There are associations for architects, engineers and general contractors, and they all have their own documents which their clients are increasingly using to procure their services. Our situation is much different. We are seeing instances where our clients are trying to use purchase orders and other inappropriate contract vehicles, which are designed to buy goods and nonprofessional services.”
EDR Insight: What’s the benefit of consistency with these documents?
Limoges: “The benefit is that these documents are specifically designed for ASTM and similar, limited scope engineering and environmental assessment services. They are not detailed design documents or construction contracts; nor are they detailed RI/FS or environmental remediation contracts. They explicitly set forth the limited nature of the scope of the services and apportion the risks accordingly. An engineering company can logically be asked to assume more risk when it sends a whole team of engineering specialists to a building for a week to examine and operate each building system for that week. The same is true on the environmental side: You have greater confidence in your professional opinion as to the environmental condition if you send a team and a drill rig to the site for a week and drill enough holes, install enough wells and analyze enough samples. That is not the nature of our due diligence.”
EDR Insight: Are they only applicable to larger firms?
Limoges: “Absolutely not. Large firms probably have contract specialists and risk managers (or even attorneys) who are knowledgeable and who can help them negotiate adequate terms in their contracts which sufficiently address and apportion the risks to the party in the best position to manage that risk. It is hoped that these documents will benefit all firms, especially the smaller firms, and gain wide acceptance in our industry. It does not serve a client’s best interest to saddle a consulting firm with onerous terms and conditions which vitiate the very insurance coverages and limits which they require in the contract. This is the education element for clients as well. We have a message and it should be adequately and consistently delivered. Clients should understand the consequences of some of the more onerous provisions they demand in their contracts and seek to secure a more long-term partner for such services.”
EDR Insight: Are there other industries that use similar approaches?
Limoges: “Certainly, the Architects of America (AIA) has their family of contracts (which have been widely used for architectural and other design services for over 100 years), as does ACEC and other engineering design associations. The Association of General Contractors (AGC) has its own family of documents for general construction contracting; the Design-Build Institute even has its own family of contract documents specifically for use when providing design and/or construction services on projects utilizing the design-build project delivery approach. The list goes on and on, but the point is that none of these association documents deal with the specific issues surrounding the type, scope, and risks inherent in the services which we provide.”
EDR Insight: What other topics will NEEDDA be addressing?
Limoges: “We are just getting started, but I would like to see the association address education and certification of the firms and professionals providing our services, on both the environmental and engineering (PCA) side. Again, there is presently no training or certification requirements to distinguish one firm or one professional from another in our industry, leaving our clients without such differentiating criteria when making such an important decision.”
About NEEDDA Membership
In addition to Partner and EMG, NEEDDA’s founding member firms also include Nova Consulting, IVI International, Inc., AEI Consultants, Dominion Due Diligence Group (D3G) and PM Environmental. NEEDDA welcomes participation from new member firms.
Applicants must meet NEEDDA’s membership criteria. While participation to date has only been from member firms, NEEDDA has already had interest from lawyers, vendors others, and expects to accept associate memberships in 2014.
About NEEDDA’s Templates
As of October 9th, NEEDDA templates are available for engineering and environmental due diligence contracts. For industry partners who are interested, the following templates are available:
• Master Services Agreement (a standard MSA for multiple assignments for repeat clients to be used when the client doesn’t have their own MSA template)
• Proposal Terms and Conditions (to be attached to and incorporated into due diligence proposals)
• Reliance Letter (traditional reliance letter for your client’s lender or borrower, etc.)
• Non-Reliance Letter (for use when you allow a 3rd party to receive a copy of your report for informational purposes only, but do not grant reliance. It also contains a clause regarding the fact that the date of the on-site assessment is beyond the 180-day period prescribed in the ASTM Standard, and thus does not meet ASTM E 1527-05 or the EPA All Appropriate Inquiries rule.)
These documents are available for review in the documents section of NEEDDA’s website.