PFAS and major projects: Mitigating the risks for construction contracts

The Perils of PFAS

Welcome to the first article in our regular series, The Perils of PFAS. This series is designed to help you navigate the issues surrounding PFAS, a contaminant which is garnering greater scrutiny as the knowledge about its impacts continues to evolve.

Recent developments

Per- and poly-fluoroalkyl substances (PFAS) contamination and its potential impacts should be considered at all stages of major projects, particularly when entering into construction contracts.

Recently, the joint venture responsible for the construction of a multibillion dollar tunnel project claimed that PFAS contamination constituted a “force majeure” event, rendering it impossible to fulfil the terms of the contract.

The contract in question provided for a lump sum payment. The contractor sought to terminate this arrangement and enter into a new contract which would allow it to bill on an ongoing basis to take into account the increased costs associated with managing the PFAS contamination.

This article explains the risks associated with PFAS contamination for major projects and how to avoid the pitfalls arising from contamination generally when entering into construction contracts.

What is PFAS and why is it tricky?

In the Australian context, PFAS has notably been used in fire-fighting foams at airports, defence bases and sites used for fire-fighting training. However, it has also been used in a wide range of common household products, such as cookware, textiles, and food packaging.

There are a number of factors which make dealing with PFAS contamination tricky, including the following:

• The science surrounding PFAS contamination is evolving, such that the human health impacts of PFAS contamination and the safe levels of exposure are not fully understood;
• PFAS are resistant to degradation and they bioaccumulate or increase in concentration in animals and humans over time;
• PFAS are water soluble and readily dissolve in soil where they may travel long distances to contaminate water sources;
• There are limited options for remediation of PFAS contamination, including limited waste facilities licensed to accept material contaminated with PFAS; and
• As a result of the uncertainties associated with PFAS impacts, regulators are taking a precautionary approach to policies and regulation.

What are the risks for major projects?

PFAS contamination poses a number of risks in the context of major projects delivery.

Litigation risk: As seen by the various class actions underway around the world, PFAS contamination may lead to civil liability claims by current and future landowners and, in the case of contaminated groundwater, downstream users. Even for those individuals or entities who were not the original polluter, liability may ensue from carrying out activities which exacerbate or disperse pre-existing contamination, from merely owning or occupying contaminated land, or from failing to take reasonable steps to prevent harm to persons or the environment arising from the contamination.

Regulatory risk: the discovery of PFAS contamination may trigger notification obligations which may lead to further investigation and remediation obligations.

Financial risk: PFAS contamination may significantly increase remediation costs. If PFAS contamination is not identified at the early stages of a major project, it may compromise the remediation strategy, due to the costs and challenges associated with “chasing” the PFAS contamination and effectively disposing of it. PFAS contamination may also lead to a requirement for the installation of additional infrastructure, to prevent exposure pathways and offsite migration of the contamination.

As a result of these risks, the discovery of PFAS contamination may lead to contractual disputes, as parties seek to allocate responsibility for the remediation works and the increased costs of delivering the project.

Avoiding the pitfalls

Consider all the impacts upfront: the broad range of activities associated with PFAS use means that it should now be considered as a potential contaminant in all environmental due diligence undertaken in connection with a major project. Engage a suitably qualified environmental consultant with a track record in PFAS assessment to undertake the assessment.

Road test your remediation plan: ask your environmental consultant to assess whether your proposed remediation methodology is suitable in the specific context of the project.

Be wary of setting an absolute remediation standard: avoid clauses in construction contracts which require a specific remediation standard to be achieved, as this may set an absolute obligation which, if not achieved, may constitute a breach of contract.

Avoid boiler plate contractual clauses: ensure that contractual clauses, such as warranties, releases and indemnities, address the specific circumstances of the major project and appropriately assign responsibility for contamination recognising that the contractual allocation may vary for different scenarios, such as pre-existing contamination, contamination caused by the project works and the offsite migration of contamination.