Guaranteed Fixed Price (GFP) contracting is not a new concept but it is becoming more prevalent in the Brownfield industry. Due to the current market turmoil, consultants and contractors are getting more aggressive, even if it means providing GFP contracts as an added benefit or incentive to sway developers. In offering GFP contracts, consultants and contractors release the burden of economic risk of clean-up or even environmental liability from the brownfield developer.  

Arranging for a consultant or contractor to take on the burden of economic risk creates positive reinforcement for developers to opt for a GFP contract over conventional contracting. Developers of course prefer a one-time service fee to alleviate costly change orders.

There are various GFP contract structures based on the amount of risk the consultant or contractor is willing to assume and the risk aversion of the developer.

The most common assumption of risk the GFP provider undertakes is the economic risk of clean-up. This only provides a guarantee for a given scope of work or remedial outcome. Sometimes a GFP contractor will extend the guarantee until closure.

In certain situations, the contractor will assume a greater risk beyond the clean-up. In a liability buyout (LBO), the provider will assume not only the economic risk of clean-up but also the toxic tort liability associated with the known and unknown contamination.

Generally speaking, GFP contracts have been a success, however, there have been instances where failures in GFP projects can lead to a change in remediation strategy, delays and/or potential litigation.

A good foundation for a developer’s consideration when selecting a GFP provider is to explore the GFP providers’ environmental insurance, if any, and the type and quality of insurance coverage provided. A GFP provider gains a great deal of credibility when a reputable environmental insurance underwriter is willing to provide insurance coverage. In providing coverage to consultants and contractors, environmental insurance underwriters are interested in experience, technology and site conditions – these are the same interests developers should explore when entering into a GFP agreement.

When a GFP provider is unable to obtain environmental insurance coverage, a developer should perform a thorough investigation, especially if the remediation is comparatively large (greater than $3,000,000).

Like in all contractual deals, a good rule of thumb is “caveat emptor”. Brownfield developers should perform their due diligence on the consultant or contractor when engaging in this type of arrangement.