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July 30, 2009

Are you sure you’re ready to go green?

  • Design and construction professionals can better decide what risks they should take by first understanding the potential for loss.
    • By JOHN H. BAKER
    Jordan Schrader Ramis

    mug
    Baker

    The construction industry is facing a transformation. Energy costs linked with larger environmental issues are driving a growing demand for green development. Green buildings use less energy in construction and use, placing a lighter burden on the environment than more traditional structures. The creation of green buildings requires fresh design ideas, and the application of new building materials, systems and construction methods.

    In a world of change, designers and builders will find opportunities as well as new risks, and the success of their ventures will depend on at least these two familiar business principles.

    1. Set achievable goals

    Green building comes with a new lexicon of goals and aspirations. Broadly stated performance aspirations — such as achieving net zero energy consumption, carbon neutrality, a return on green investment, or enhanced occupant productivity — are often bandied about but may not mean the same thing to everyone.

    Assurances that certain green strategies will achieve such goals may be taken as promises, giving rise to damages if the goals are not met. Whether such a promise has been kept is difficult to ascertain, let alone prove or disprove, unless all involved agree about what will be measured and how and when it will be measured.

    Energy and environmental rating systems provide standards against which environmental performance may be measured. Rating systems include the Green Building Initiative’s Green Globes, the National Association of Home Builders’ National Green Building Standard, and the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED).

    While LEED is probably the best known, each of these systems employs a scoring system that can be objectively applied to grade a building on the implementation of green strategies in the design, construction and usage.

    When selecting a system of measurement parameters, designers and builders should consider the agendas of owners and their backers. While the owner may express the desire to build green, seldom will he or she be prepared to abandon considerations of expense and taste to achieve it. Designers and builders must communicate matters of concern and listen for conflicts between the owner’s expectations and the realities of green building. Be especially alert for the possibility that problems with product delivery and systems performance can derail a project’s progress. Have alternative plans.

    Each member of the green construction team should assess his or her own qualifications and make sure they are adequate for the undertaking. Investigate and engage qualified consultants and specialty contractors to bring experience to the project. If the project is bonded, consider performance bond provisions that require the surety to engage similarly qualified contractors to complete work if one firm in the team becomes insolvent.

    Designers and builders should be careful to avoid creating unrealistic expectations. Avoid marketing and negotiating language that implies that one can achieve results that cannot be measured. Meeting the performance criteria of a rational and objective rating system will probably achieve improved energy and environmental performance but will not guarantee that any particular project will realize actual energy savings or meet any other specific performance goal.

    2. Understand the stakes

    The economic influences behind green projects can present disproportionate risks to unwary builders and designers. Understanding the magnitude of the risks is as important as understanding their nature. Even if the risks are manageable, it may be wiser to pass up an opportunity if the penalty for failure far exceeds the reward for success.

    A green project’s economic viability will often be bolstered by regulatory, tax, or market incentives that are linked to its sustainability. The project can fail if the incentives are removed.

    The following examples of green liability claims are offered to illustrate how disproportionate risks can arise:

    • A tenant rented space in a LEED-certified building. While LEED points are available for taking steps to maintain a healthier building environment, as well as for keeping track of occupant health and productivity, LEED standards do not ensure project-specific results. Nonetheless, the landlord’s promotional information claimed that the building’s occupants would be healthier and more productive. When the tenant’s yearly performance records showed a contrary trend, the tenant sued the landlord and the architect for the value of the lease.

    • A $7.5 million condominium was designed and built to achieve a LEED silver rating, which would qualify the project for substantial state tax credits. The project was completed without defect or claim, but due to unanticipated delays it was finished too late to qualify for the tax credit. As a result, the developer sued the contractor for more than $1 million for the contractor’s failure to build a “green building” in conformance with the LEED system.

    • The most shocking story of disproportionate loss involves an urban development that was allowed a density bonus if the developer achieved LEED certification. When the project was completed, the developer was unable to deliver the promised rating. The city then withheld the developer’s occupancy permits, demanding removal of the additional space.

    Too little is known of these examples to speculate on how they should be resolved. But they do exemplify the kinds of economic interests that may be at stake when a project’s success relies on its sustainability. By understanding the potential for loss, design and construction professionals can better decide what responsibilities and risks they are willing to undertake, and when prudence suggests they should pass.

    While the risks associated with green building may seem daunting, they can be managed by applying the same principles that have guided construction professionals for years. Promise only what you know you can deliver, and make agreements that distribute risks reasonably to those who can best manage or absorb them and who are mostly likely to benefit from the rewards.

    John H. Baker, AIA, LEED AP, is a member of the Dirt Law practice group at Jordan Schrader Ramis. He has been involved in the construction industry for more than 30 years, focusing on the special problems and interests of construction industry clients that include project owners, contractors and design professionals.


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