ASFE says SBA process raises firm risks

SILVER SPRING, MD.—ASFE/The Best People on Earth criticized the U.S. Small Business Administration (SBA) for promulgating "an extraordinarily unfair process that could have a profoundly negative impact on the thousands of small U.S. businesses that provide environmental services." According to ASFE, the process could force a small environmental firm "to pay millions of dollars to clean up contamination it did not create, on behalf of a multi-billion-dollar international lender that never paid the consultant a dime."

ASFE is a not-for-profit association of geoprofessional, environmental, civil, and other earth-engineering firms.

Edmond D. Alizadeh, P.E., Esq. CEO of Geotechnology Associates, Inc., St. Louis, and the volunteer president of ASFE, said that the SBA’s new SOP 50-10(5): Lender and Development Company Loan Programs document includes a so-called third-party reliance letter that gives a lender and the SBA a right to rely on an environmental professional’s report to the same extent as the environmental professional’s client, but without any of the contractual safeguards that the environmental professional and its client negotiated together, and without any consideration of how the SBA’s needs and lenders’ needs differ from the client’s needs.

ASFE pointed out to SBA Deputy Administrator Jovita Carranza on May 30 that the SBA’s letter is "frighteningly akin to a letter a government agency would require a physician to sign, declaring that the head of the agency has a right to use the same prescription the physician prescribed to a client of the agency, and giving the agency the right to sue the physician for any negative consequences."

"’Right to rely’ is just a euphemism for ’right to sue,’" Alizadeh said. "That’s why we refer to such documents as what they really are: right-to-sue letters. If a loan goes bad because of a hidden environmental condition that imposes unaffordable clean-up costs, the SBA’s right-to-sue letter would give both the lender and the SBA the right to sue the environmental consultant to recover their losses, even though the environmental consultant did absolutely nothing wrong."

Alizadeh noted that environmental consultants are asked to discern conditions that are hidden by earth, rock, and time. "Even under the best of circumstances, they cannot possibly know for a fact what those conditions are. The only way anyone could do it would be to have X-ray vision or the superhuman ability to turn the site upside down," he said.

Alizadeh commented that SBA’s right-to-sue letter further complicates matters by requiring the environmental consultant to use specific techniques that, research shows, just about none actually use. Muddying the waters even more, most environmental studies—known as all-appropriate inquiry studies—are planned by the client and the environmental consultant working together, to settle on an approach they mutually agree to, that considers factors unique to the client, project, site, schedule, and budget involved. The client and consultant memorialize their understandings in a contract that also recognizes mutual risks and rewards.

"Many clients are willing to accept more risk in exchange for getting things done faster and/or for less money," Alizadeh said. "In those cases, an obliging environmental professional would face more risk, too, which is why reasonable clients are willing to help their environmental consultants manage that additional risk through appropriate contract terms. In essence, the SBA wants the ability to say contracts don’t count; that the safeguards environmental professionals and their clients negotiate in good faith cannot be applied. Smart firms will not grant the terms that the SBA’s right-to-sue letter tries to coerce out of them. The right-to-sue letter would allow the SBA to rely on something that was not prepared for it, and then sue without limitation if something goes wrong."

Alizadeh claimed that the SBA is favoring the preferences of big business over the needs of small business. "The SBA and its big-business lender friends want to manage their risk by having the right to put small businesses out of business," he said. "How much simpler it would be for the SBA and the lenders to manage their risk simply by requiring borrowers to have a well-thought-out study performed by a qualified professional, and then gain the right to rely on the report by agreeing to the same contract as the client."

A copy of the SBA materials involved, a copy of ASFE’s May 30 letter to the SBA, and additional information are available from ASFE/The Best People on Earth. Contact the organization at 301-565- 2733 or by e-mail at info@asfe.org.