Project Not Green Enough? What types of green $$$ can an owner recover?
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PROJECT NOT GREEN ENOUGH? WHAT TYPES OF GREEN $$$ CAN AN OWNER RECOVER?
Angela R. Stephens, LEED AP +BD&C, GA-CR® Stites & Harbison, PLLC
Chris CheathamClaimKit
American Bar AssociationForum on the Construction Industry
2013 Mid Winter Meeting
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Overview• Growth of Green Building
• Lack of Litigation
• Developments increasing likelihood of suits
• Claims, Green $$$ Damages
• Ways to Reduce Risks
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Yes, People are stillbuilding green buildings
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(Source: State of Green Business Report: GreenBiz Group January 2012)
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WHY GO GREEN?
1) Energy/Operational Cost Savings2) Tax Incentives3) Financing4) Healthier Workspace5) Increased Productivity6) Positive Press7) Better for Environment
Environmental
SocialEconomic
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Willis Tower $350M Renovation
Cut electricity use by 80%
Save 24M gallons of water each year
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Empire State Building $20M Renovation
Cut energy costs by 38%
Seeking LEED Platinum Status
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Why the lack of litigation? Team Mentality
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Why the lack of litigation? Lack of
Enforcement By USGBC By Owners
Once certified . . . Always certified.
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10
Northland Pines High School (USGBC Internal Dispute Resolution)
H.S. bldg committee alleged award of LEED Gold was not justified Complaint with USGBC Claim - failed to satisfy energy and
atmosphere prerequisites USGBC hired two engineering
consultants to review credits issued Appeal Denied
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Why the lack of litigation?
Recession
Lack of assets to fight.
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DEVELOPMENTS INCREASING THE LIKELIHOOD OF GREEN
CLAIMS AND DAMAGES
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Regulations
That may lead to claims. . .
State Laws Codes
Incentives
Fed. Laws
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20 States Mandate4 Encourage
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STATE OF ARIZONA:EXECUTIVE ORDERs 2005-05 2008-29
2-11-05 / 12-16-08
State Funded Buildings: Design and construct to derive 10% of
their energy from a renewable resource. Meet energy efficiency standards
established by law. LEED Silver
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Failure to achieve certification required by State Law?
Common law Breach of contract Breach of warranties (express and implied)
Majority of States - No express damages
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Potential Green $$$ Damages
Failure to achieve certification required by State Law?Cost to repair v. diminution in valueOperational costsLEED Certification Premiums paid
Construction or Design TeamLEED Certification fees
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Green Building Codes
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CALGreenJuly 17, 2008
Effective 1/1/11:
Reduced water use
Reduced energy use
Use of recycled materials
Applies to residential construction
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ASHRAE 189.1PHigh Performance Green Buildings AHSRAE, USGBC, IESNA
Applies to all buildings except low-rise residential
Similar to LEED
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International Green Construction Code
Application Sale of Property** Change in Occupancy Repairs/Renovations
Even in minor – HVAC and energy reqs
Not for residential
ASHRAE 189.1 path
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Federal Codes and Mandates
Executive Order 13514 – Net Zero by 2030 All federal agencies
GSA currently requires LEED Gold Creation of Own Code?
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Potential Green $$$ Damages
Failure to achieve certification required by Codes?Penalties – each day separate offenseMisdemeanor or civil infractionReasonable Attorney’s feesPlus . . .
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Potential Green $$$ Damages
IGCC Optional Ordinance – if adopted – forfeiture of:Performance Bond Irrevocable Letter of Credit or CashPlus . . .
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Potential Green $$$ Damages
Cost to repair v. diminution in valueOperational costsLEED Certification Premiums paid
Construction or Design TeamLEED Certification fees
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Incentives increasing likelihood of suits . . .
Green Bonds
Tax Incentives
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Green Bonds San Mateo, CA
Commercial or industrial buildings > 3000 sq ft
$5,000 bond If don’t comply = forfeiture
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Green Bonds Miami, Florida
All new buildings more than 50,000 sq ft Amount of performance bond based on sq ft
50,000 – 100,000 = 2% total cost of construction 101,000 – 200,000 = 3% > 200,000 = 4%
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Green Bonds Washington D.C. Green Building Act
2012 – LEED Certification nonresidential and post-secondary educational facilities Failure to achieve:
Forfeit Performance Bond up to $3,000,000.00 Plus fines by Mayor
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Tax Incentives
www.dsireusa.org
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Tax Incentives Nevada - Property tax abatements:
LEED Platinum = abatement 35% of taxes imposed
Gold = 30% Silver = 25%
New Mexico – tax credits LEED Silver = $3.50 / sq.ft. LEED Platinum = $6.25/ sq.ft.
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Potential Green $$$ Damages
Failure to achieve certification?Lost tax incentives
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Shaw Development v. Southern Builders
$7.5 Mill – 23 condo units
Attempting LEED Silver
Owner sought $635,000 in lost tax credits under state-level green building program
Case settled
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Contracts increasing likelihood of suits . . .
B214 CD 310
DBIA Exhibit
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Who is responsible for green goals?
What happens if not achieved?
Varies by contract
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Architect = LEED AP manages the LEED documentation prepares LEED Certification Plan
ID’s participants and their roles. crucial in any contract
Green “goals” - not mandates
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Owners may point to:2007 AIA Code of Ethics - CANON VI Members should promote sustainable design and
development principles in their professional activities.
Ethical Standard 6.1 Sustainable Design: In performing design work, Members should be environmentally responsible and advocate sustainable building and site design.
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Or point to:2007 NSPE Code of EthicsEngineers are encouraged to adhere to the principles
of sustainable development in order to protect the environment for future generations.
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Potential Green $$$ Damages
Failure to achieve green goals under B214?Contract Silent
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GBF – Only party liable?? Article 7.7 - Project Participants shall perform
elected green measures identified as their responsibility
Article 8.3 – No Project Participant other than the GBF shall be liable or responsible for the failure to achieve Green Status
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• No One Party Control of Points/Goals
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Potential Green $$$ Damages
Failure to achieve Green Status under CD 301?Refer to underlying contract If waived in contract, lists consequential damages that are waived:Lost profits Increased operating and maintenance costsLost tax incentivesLost marketing opportunities
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Owner and DB can agree to incorporate sustainable elements or achieve a designated level of certification
Contains a Remedies Section Parties agree to appeal – pd for by Owner Selection of Remedies
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Potential Green $$$ Damages
Selection of Remedies under DBIA Exhibit?WaiverLiquidated Damages – sole remedyLimited Obligations to Cure – max $$$
Remaining contingencyShare of savings (if GMP contract)Set amount
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CASE STUDIES
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Destiny USA Biggest and most environmentally
friendly structure
$2 Billion in Green Bonds from US Treasury
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Destiny USA $238 Million in Green Bonds from
Syracuse Industrial Development Agency Private investors purchased in exchange for:
Interest Tax free status on interest
Developer received tax-free loan $120 Million in savings
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Destiny USA To get $238 million in Green Bonds :
“demonstrate, and provide written assurances” that the project would receive LEED certification.
project had to include “a brownfield site” meet “goals for conservation and technology
innovation.” Reduced electric consumption Reduced sulfur dioxide daily emissions photovoltaic capacity fuel cell energy generation capacity
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Destiny scrapped renewable energy features• No plant running on biofuel• No expansive solar panels
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http://www.syracuse.com/news/index.ssf/2012/03/irs_says_destiny_usa_green_bon.html
Bonds not dependent on actual achievement of green building and renewable energy goals
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Potential Green $$$ Damages
If IRS had a different ruling?
Forfeit $2.38 M in developers reserve fund
Revoke tax exempt status - $120 M savings
Revoke tax exempt status from investorsMESSY
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1st to obtain LEED Platinum Certification
Parallams exposed to the weather . . .
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Chesapeake Bay 2003 – water intrusion 2009 – widespread rot
Parallams not treated properly
or treatment not suitable
Foundation, architect and contractor settled and sued Parallam supplier Breach of contract Indemnity Contribution Negligent misrepresentation Negligence
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Potential Green $$$ Damages
Demand to Parallam supplier = $6 M in damages InvestigationRemoval and replacementLost revenueLoss in value of CenterAttorneys fees
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Chesapeake Bay
Action dismissed - statute of limitations
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Gidumal
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Gidumal Marketed as LEED Gold Building
Cutting edge green technology
Complaint Not enough energy savings
= additional costs = decreased unit values
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SUMMARY OF POTENTIAL DAMAGES
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Building Not Green Enough?
Cost to repair v. diminution in valueOperational costsLEED Certification Premiums paidLEED Certification feesCode penalties Attorneys fees
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Potential Green $$$ Damages
Forfeiture of:Performance Bond Irrevocable Letter of Credit or Cash
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Potential Green $$$ Damages
Lost tax incentivesLost marketing opportunities
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Potential Green $$$ Damages
Liquidated Damages – sole remedyLimited Obligations to Cure – max $$$Remaining contingencyShare of savings (if GMP contract)Set amount
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Potential Green $$$ Damages
Investigation costsLost revenue during renovationsReduced rental ratesFinancing costs
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WHAT DOES THIS MEAN?
New Risks?
Clients on a tight rope?
Tips to minimize the risks.
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Legal Issue #1. Express Warranty
Don’t guarantee:
“reduce operating costs”
“healthier and more productive occupants.”
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Express Warranty
Do Not GuaranteeLevel of Certification
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1. Minimize Risks:
Do not guarantee certification
It is a Goal, Not Promise Except as required by law.
Warrant that Work will be in accordance with:
The Contract Industry Standards
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Marketing Efforts: Energy/Operational
Cost Savings Healthier
Workspaces Increased
ProductivityCan these claims be
verified?
LEGAL ISSUE #2: Implied Warranties
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LEGAL ISSUE #2:Potential Actions for Over-Promising:
Fraud
Negligent Misrepresentation
False Advertising (Lanham Act/FTC) FTC Green Guide
Consumer Protection Acts
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Gifford v. USGBC
False Statements: §43(a) of the Lanham Act
Deceptive trade practices (under New York law).
New York’s False Advertising Act,
false advertising, unfair competition, and unfair business practices under the common law.
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Gifford v. USGBC LEED buildings use less energy “LEED is providing third-party verification
that a building or community was designed and built using strategies aimed at improving performance across all the metrics that matter most: energy savings”
LEED-certified buildings and other allegedly “green buildings” “Boost Employee Productivity.”
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LEGAL ISSUE #2:How can you minimize risk? Manage expectations -Don’t over-
promise
Disclaim promises – “All warranties are limited to those expressly stated in the Contract. No other warranties, written or implied shall be binding or enforceable against _____________.”
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LEGAL ISSUE #3: Standards of Care
• Will you be held to higher standards of care?
Architects/Engineers – suppose to promote sustainable design and construction
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LEGAL ISSUE #3: What can you do to avoid being held to a higher standard
of care?
Identify the standard of care: ______ shall not be held to a heightened
standard of care on the Project. The ____ shall perform its services consistent
with the professional skill and care ordinarily provided by ___ in the same or similar locality under the same or similar circumstances.
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LEGAL ISSUE #4:Identify which standards apply
Project
LEED/ US
ASHRAE189.1
IGCC
Green Globes
Other?BuildingCodes
ZoningLaws
Owner’sStandar
ds
Energy Star
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• No One Party Control of Points/Goals• Obtain buy-in of all effected parties
LEGAL ISSUE #5:Identify Participants, Their Roles and Responsibilities.
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LEGAL ISSUE #5:Identify Participants, Their Roles and
Responsibilities Add this to LEED Addendum
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LEGAL ISSUE #5: Narrow Responsibilities to those
points you control:
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LEGAL ISSUE #6: Insurance
• Questions over Insurability of LEED projects
• Contracts agreeing to provide insurance that is not available
• See your agent
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.
LEGAL ISSUE #7: LEED Certification Documentation
• Find a dedicated professional• Delineate responsibilities in the contract
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LEGAL ISSUE #8: Delays
Green materials - availability Skilled workers Longer durations for installation of new technologies Time to obtain certification from USGBC
Necessity of Appeal of Ruling
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LEGAL ISSUE #8: Delays – What can you do?
• Limit responsibility • Include a Force
Majeure clause
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LEGAL ISSUE #8: Delays – What can you do?
• Define Substantial Completion• Don’t make SC dependent
upon achieving LEED Certification
• Waive Consequential Damages
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LEGAL ISSUE #9: Green Materials/Methods
Long-term maintenance issues
Who is responsible for maintenance?
What happens if mfg goes out of business
What happens if component malfunctions?
Provide a Notice and Opportunity to Cure clause in your contract.
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LEGAL ISSUE #10:VE and Changes
VE and Change Orders may effect the ability to achieve certain points or green measures.
A/E or LEED AP should review changes to plans (COs/ VE) to see how goals are affected. May want to consider establishing time frame
for review and approval of COs
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LEGAL ISSUE #11:LEED AP Liability
If LEED AP is an independent party?No assets? No insurance coverage?
What can you do? Talk with owner regarding LEED AP selection. Ask whether the LEED AP is insured.
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LEGAL ISSUE #12:Computer Modeling
Define source of standards and data to be used for computer modeling.
Do not guarantee that the building will perform in accordance with the models.
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LEGAL ISSUE #13:LEED Appeals
Be aware of time limitations established by GBCI25 business days to
appeal the results of the Final Review
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LEGAL ISSUE #13:Specify who will pay for LEED Appeals
“___ shall not be responsible for any costs associated with the appeal of any LEED Credits.” $500 per credit appealed
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LEGAL ISSUE #14:Incentives for Sustainable Construction
Waiver of consequential damages
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LEGAL ISSUE #15:Payment
Certification level may take months. Don’t tie payment to the achievement of
a certain certification level Owners may insist on withholding some
retainage until all paperwork and appeals processes are complete.