For this week’s Guest Post Friday here at Construction Law Musings, we welcome Alan Haley. Alan (via ConstructLaw) provides contract reviews, construction business consulting, and drafts construction contract supplements concerning LEED Certification and other issues in Louisiana. Contact him at: email: alan@myconstructlaw.com; phone: 318.841.1253; facebook: ; twitter: @myconstructlaw; via his website: www.myconstructlaw.com; or his blog at www.louisianaconstructionlaw.blogspot.com.
First and foremost, let me extend a warm thank you to Christopher Hill. I am humbled by the opportunity to guest post. Musings is an excellent, quality blog and I hope to not bring it too much shame!
This post is (at least partially) a response to another guest post at Musings by Gregory Arkin. In it, he states:
Now, let’s move right onto our next legal target and source of lots of billable hours. LEED v3.0, the 5 year energy audit and decertification. My belief and experiences thus far, lead me to believe that a LOT of buildings do not meet the energy efficiencies as submitted for LEED certification. Greenwashing, cutting corners on analysis, insufficient data, old technology. You name it, I don’t think the system works very well…
Green BIM and Ham, ¶5, Originally posted 2009-07-24 09:00:00.
Mr. Arkin then goes on to extol the virtues of Revit Architecture and Revit MEP, and to deplore the use of AutoCAD. Mr. Arkin makes some great and rather optimistic claims that Building Information Modeling (“BIM”) will reduce certain issues common in construction litigation. He says:
…For all you construction lawyers out there, it will reduce conflicts, thus reducing your pipeline of legal work for deficiently designed and constructed buildings. For an architect, engineer and commissioning agent working in Revit, they’re sharing the model and all know where everything is. The thermal values of the exterior and interior walls, the exact cubic volume of the spaces, being critical to the design of the HVAC systems and the windows and glazing, all have intelligent data within the components and structure of the building that allow Ecotect and IES to provide a more accurate calculation of the energy savings and daylight criteria. If one would argue that it’s not more accurate than current methodologies, well it’s certainly a heck of a lot faster. Plus, you can rotate the building, perform sun and shading studies, and as of last week, direct from the Autodesk Labs, calculate the amount of solar radiation hitting the surfaces of the massing shapes, based on location and weather data. It is possible to display the distribution and availability of solar radiation over an entire building or even a city block…
Id, ¶6.
I want to go on record as saying that Mr. Arkin is correct. Better software and BIM will absolutely help weed out structural and other errors that lead to extraordinarily costly litigation – and poorly designed buildings in general. So design professionals, invest in better software! It will save time, money, and reputational resources!
But that’s not my business, and I’ve got to worry about future conflicts in order to keep the lights on. Fortunately, for all “us” construction lawyers, we don’t have to worry about LEED reducing conflicts. In fact, I anticipate LEED being a “greener” pasture! As my colleague Scott Wolfe, Jr. succinctly put it, “Litigation arises when there are broken promises. Green building adds a new category of promises that can be broken.” This post will deal with some potential problem areas associated with LEED certifications, and offer some suggestions on how to deal with them.
A Brief Overview of LEED:
As many of you no doubt know, LEED is a recognized green building certification system intended to supply third-party verification that a particular building or project was designed and built using strategies, materials, and/or methods with the goals of increasing energy efficiency and/or decreasing environmental impact. LEED was developed by the U.S. Green Building Council. As a very basic overview, the LEED system gives point values in categories. Various levels are possible if the project attains threshold number of points. For example, for new construction and major renovation, the levels are:
100 base points; 6 possible Innovation in Design and 4 Regional Priority points
Certified: 40-49 points
Silver: 50-59 points
Gold: 60-79 points
Platinum: 80 points and above
LEED certification is obtained after submitting an application documenting compliance with the requirements of the rating system as well as paying registration and certification fees. The Green Building Certification Institute then provides third party verification of project compliance with LEED requirements (if applicable).
Why attempt LEED certification? Well, there are many reported benefits, including decreased energy costs, water conservation, pollution reduction, solid waste reduction, public recognition for leadership and “greenness,” a healthier and more productive workplace, reduced maintenance costs, higher rents and occupancy rates, and, in certain locales, tax benefits or other incentives. Of course, the main reason that construction professionals attempt LEED certification is because the owner wants it.
And therein lies the problem. The owner wants all the benefits above, not the least of which is the reputation of being forward thinking, or leadership in sustainability.
Northland Pines High School
The issues surrounding the building of Northland Pines High School in Villas County, Wisconsin exemplify those that may accompany potential greenwashing. Bonds worth $28,535,000 were sold to finance the school with the intent of achieving LEED Certification. Five individuals (an architect, property developer, construction professional, chiropractor, and businessman) who served on the building committee for the new school questioned the design team and school board concerning the manner of the construction of the school. Worried by what they term “glaring shortfalls” with respect to LEED requirements, the five individuals hired two engineering consultants to review the plans. Both of the engineering consultants determined that the facility would not qualify for LEED Certification as designed.
However, the USGBC awarded the high school a Gold Certification. In December 2008, the five individuals filed an appeal with the USGCD challenging the certification. The USGCD eventually notified the individuals that the USGBC had looked into the matter and found everything to be fine. The USGCD based their decision on reports from two more consulting engineers who said that the building did not meet the prerequisites but concluded that “pretty close” is close enough. The USGCD has failed to provide any backup data for their decision despite repeated requests.
The individuals are not satisfied with the result of their appeal, and who knows what actions they will take now. Costly litigation is certainly a possibility.
Here, the owner (the school district) was fine with the certification, even if it shouldn’t have really qualified. But other concerned parties weren’t. The takeaway from this: you never know who may want the certification – but if it is promised, it should be delivered the right way, and not greenwashed. Even if you get the desired certification, all interested parties may not be satisfied and you could find yourself wishing that you had done things the right way.
Future Problems with LEED Certification?
Northland Pines High School doesn’t address this issue directly, but it brings up a good point. Though there isn’t currently such a thing as LEED decertification, the future possibility exists. Regardless, past certifications are always able to be reexamined. “The idea that there is this new thing called decertification is inaccurate,” says Scot Horst, USGBC’s senior vice president for LEED. “The way LEED works is we have a rating system; you send us information about your project, and we certify to that. But let’s say that there was someone out there who lied about the prerequisite information or unintentionally provided inaccurate information. We have always had a policy to go back and say this wasn’t what it was represented to be. That is nothing new.”
Is there a statute of limitations on LEED Certification? To not be LEED Certified is not a legal defect. Would contractual, statutes of limitation and repose, or other related statutes even apply?
Or what if the owner isn’t actually getting the energy savings he thought he would? Or some other metric of green or energy initiatives? Does he have a cause of action based on that?
We don’t know yet. But methinks we will. And in the not-too-distant future. My advice: cover it just to be safe. Some jurisdictions allow parties to contractually stipulate to a statute of limitations for certain issues. Take advantage of that if you are in one of those jurisdictions. Specify a timeline for liability. You’re probably fine if you don’t, but why take that chance? I wouldn’t want to be a test case for something simple like that.
Responsibility for Certification
Even if an owner could somehow hold someone responsible, the question becomes: “Who?” Would it be the architect, the contractor, or gasp!! The owner himself?
Consider the case of Shaw Development v. Southern Builders, a 2008 case out of Maryland. Shaw Development originally contracted with Southern Builders in 2005 to construct a Project known as the Captain’s Galley Luxury Condominiums. Shaw wanted to take advantage of Maryland’s tax credit incentives for new buildings. If the project achieved a Silver Certification, Shaw could take a credit for a portion of the cost to construct or rehabilitate a portion of the building that conforms to specific green building requirements. You can guess how it turned out. Silver Certification wasn’t achieved, and Shaw sued to recoup the $635,000 or so in lost tax credits.
So who won? Well, as it turns out, we don’t know because the parties settled. But some key insights can be gleaned from the pleadings. The parties primarily used an AIA A101-1997 Standard Form of Agreement Between Owner and Contractor as their general contract, which did not include green building requirements. However, as is common on construction contracts, additional requirements were incorporated through a Project Manual that specified that the project was designed to comply with a Silver Certification Level.
Now here’s where it gets interesting, and pertinent to this portion of this discussion: While the Project Manual does state that the project was designed to comply with LEED Silver certification, it does not assign the contractor responsibility to construct the project according to LEED Silver certification. Instead, per the norm in A101-1997, the contractor is responsible for building according to the designs and specifications. Thus, the contractor would have been liable if it failed to build according to plans and specifications, which, in this case, resulted in a failure to achieve LEED certification.
Here, Shaw thought that responsibility was assigned. It wasn’t. In most circumstances, it’s not that close. Usually, green building is casually mentioned in the contract documents, if at all. In those circumstances, watch out! Messy litigation is expensive litigation.
What are the damages?
In Shaw, there was the perfect measure of damages – a party’s inability to use an easily calculable tax credit. Unfortunately, that won’t be the situation in most circumstances. What about situations in which the owner is generally interested in green building in and of itself and wants the certification simply as a third-party verification? How would you measure the damages then, assuming there is a cause of action? Even more complicated are the most common situations – where the project is particularly budget conscious and decisions are necessarily made about design, materials used, etc. In those circumstances, what is the extent of the design professional’s liability when she doesn’t have the final say?
Recently, organizations and businesses have begun to manage the risk. For Example, major industry contracts have been developed to address this very concern. The ConsensusDOCS 310 is the first to make a significant attempt at allocating green building-related risk amongst the project team. It won’t be the last. Further, Fireman’s Fund Insurance Co. (FFIC) became the first company in the United States to offer green building commercial insurance in 2006. This type of insurance allocates the risk of failing to achieve certification or lost reputation to the insurance company, who provides coverage for the specified loss. These developments seem to suggest the growing sense of LEED-related litigation.
Solutions:
As I have written about more extensively on my blog, one of the best ways to avoid any potential issue in the construction industry, including LEED Certification, is to draft the contract in ways that specifically address the particular concerns of the specific project. Yes, it’s more of an initial investment in time and attorney fees. But an ounce of preventive contracting is worth a pound of platinum in litigation.
Again, the most effective way to deal with potential LEED Certification issues is to explicitly address them in the contract. In other words, assign who is responsible for designing, building, reporting, and providing the funds for green building or LEED Certification goals. Be as plain and transparent as possible in delegating responsibility, designating damages markers, and otherwise dealing with verification issues. The contract should clearly state what the parties’ expectations are as to the building specifications and whether one party is to be responsible entirely, or if responsibility is shared (perhaps based upon the parties’ responsibilities for design or the availability of conforming materials).
Sound simple? It is. At least, it’s simple on the front end. If you get to litigation without having competently addressed green building issues, that’s a completely different scenario!
Hugh J. Gorman III has written guidelines to avoid LEED litigation. I think they are great, so I’m not going to attempt to reinvent the wheel. They are:
(A) Don’t rely on form construction agreements for green projects.
(B) Exercise heightened caution and scrutiny during the course of negotiations for all aspects of design, material selection, material purchase and green construction work.
(C) Make sure each party to the project has a thorough understanding of the existing legislation and regulatory framework that is applicable to their work scope obligations on a green project, and account for it in the contract documents themselves.
(D) Make sure that your designer/consultant/contractor/legal team are LEED accredited, experienced and capable of providing the services needed for the project.
(E) Clearly define the project’s green related aspirations, expectations and requirements in the contract documents.
(F) Clearly define who is responsible for providing green construction oversight, observation and reporting obligations on the project.
(G) Clearly define who is responsible for investigating green products and systems, their availability, purchase and installation.
(H) Clearly define which party will be responsible for preparing, tracking, collecting, assembling and submitting certification documentation to USGBC.
(I) Clearly define who is responsible for a failure to achieve a LEED certified goal or objective.
(J) Clearly define who is responsible if LEED related design criteria results in a construction failure or other consequential damages.
Conclusion
Green-building is terrific for a number of reasons. The wise understand that increased emphasis on LEED Certification can lead to greater misunderstandings and litigation. Older models and industry-standard contracts are often not sufficient to cover the increased questions of liability when it comes to LEED Certification. Invest the time and resources in a contract that adequately addresses all interested parties’ concerns. The contract should specifically and clearly address at least four concerns: 1) Responsibility for LEED Certification design, funding, and building ; 2) Damages calculations; 3) Responsibility for LEED reporting and documentation with USGBC; and 4) Future issues, such as time limitations for liability in connection with LEED Certification problems.
It is correct that contracts don’t prevent anyone from doing anything, but if utilized properly a good contract will let all parties know what their expectations and promises are to one another. People can and will break those promises and expectations, but the right contract can assist in less expensive and time consuming litigation or other dispute resolution mechanisms. Thanks for your time and may the force be with you all.
Both Alan and I welcome your comments below. Also, please subscribe to keep up with this and other Guest Post Friday Musings.
