Pricing Hazardous‐Waste Risk Revisited

Abstract

The technique to price the risk of liability cost from hazardous‐waste projects, engineering or construction of disposal facilities, or cleanup of contaminated sites, is refined and expanded. The price of the hazardous‐waste risk is a portion of a project revenue. Liability cost includes settlement amounts to avoid litigation, attorneys' and expert‐witness fees, arbitration awards, and judgments. The portion is based on funding for: (1) A future probability of liability cost; and (2) the cost to administer the funding. Parameters used are: the time period within which liability cost may occur, liability cost amount, and probability of liability cost occurrence within the time‐period parameter. Two examples—an engineering‐ and a construction‐contract proposal—are presented for illustration. The effect of interest rate expressions within a wide range of conditions is presented. Insurance and tax aspects are mentioned. Forms are presented for investigating and analyzing risk and for selecting risk parameters. Further research is suggested.