The Voice of Construction in Washington, DCThe Voice of Construction in Washington, DC

BuildingBuildingVolume 26, No. 1

Washington

University of Maryland’s Physical Sciences Complex

College Park, MD

VOL. 26, NO.1

BuildingThe Voice of Construction in Washington, DC

WashingtonC O N T E N T S

4Looking Beyondthe College in College Park

22Legal Review:

What Government Construction Contractors Need to Know

24Industry News

28Association News

32New Members

33Index of Advertisers

16When Good ThingsHappen to Bad Soil

13Health Care Reform Part Two:Mark These Dates on Your Calendars

20Green Corner:Risk Allocation and LiabilityPrevention in Green Building

Associated Builders and Contractors of Metro Washington2011 Executive Committee

Associated Builders and Contractors of Metro Washington2011 Board of Directors

Chairman of the BoardPaul K. Barry

Facchina Construction Company, Inc.

Chairman-electMichael Burlas

Miller & Long Co., Inc.

Vice ChairmanGregory E. Harraka

Coakley & Williams Construction, Inc.

SecretaryBob Jones

Ruppert Landscape

TreasurerTimothy Cummins CPA

Aronson LLC

Past ChairmanGeorge R. Nash Jr.

Facchina Development, LLC

Jim AnglemyerWCS Construction, LLC

John E. BarryJohn E. Barry Plumbing & Heating Corp.

Mark W. DruryShapiro & Duncan, Inc.

Bruce A. EppardSunTrust Bank

Christopher L. GrantAttorney at Law

Robert C. HenleyHenley Construction Co., Inc.

David R. LaibBalfour Beatty Construction

Alison LyonsDPR Construction

Kenneth V. Mallick Jr.Mallick Mechanical

Adam C. MattocksSafety Plus, LLC

Donald H. Spence Jr.Greenburg, Spence & Taylor, LLC

Eric P. TievyForrester Construction Company

Louis M. WickleinKogok Corporation

Joseph R. WolfAlliant Insurance Services, Inc.

Debra A. Schoonmaker CAEPresident & CEO

Editor: Judy Gretsch, ABC of Metro Washington, 301-595-9711.

Members are invited to submit guest articles, press releases, community service project news, and industry news on topics of interest to Building Washington readers. Authors are asked

to submit materials to jgretsch@abcmetrowashington.org. Photographs are welcome.

Publisher: E&M Consulting, Inc., 80 West 78th Street, Suite 230, Chanhassen, MN 553171-800-572-0011, Fax: 952-294-9944, Email: marc@EMConsultingInc.comSales Representative: Marc Lucia, Layout/Design: Dwight Paynes

Shown on the cover: University of Maryland’s Physical Sciences ComplexWhen it is completed, the University of Maryland’s Physical Sciences Complex will provide space for undergraduate and graduate research for the college’s astronomy and physics departments and for the cross-disciplinary Institute for Physical Sciences and Technology.

Building Washington is the voice of construction in Washington, DC. Subscribers include owners, developers, architects, designers, as well as contractors. Reach the decision makers in the industry with cost effective, targeted marketing. Call E&M Consulting, Inc. for rates and information. Copyright 2011 Associated Builders and Contractors of Metropolitan Washington. PRINTED in U.S.A. • Printed on paper with recycled content.

Please note: Associated Builders and Contractors, Inc. - Metro Washington Chapter and E&M Consulting, Inc. have done their best to provide useful and accurate information, but please take into account that some information does change. E&M Consulting, Inc., publishers and Associated Builders and Contractors, Inc. - Metro Washington Chapter take no responsibility for the accuracy of the information printed, inadvertent omissions, printing errors, nor do they endorse products and services. We take no responsibility regarding representations or warranties concerning the content of advertisements of products/services for a particular use, including all information, graphics, copyrighted materials, and assertions included in the advertisements. The reader is advised to independently check all information before basing decisions on such information.

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RISKALLOCATIONAND LIABILITYPREVENTION INGREEN BUILDINGby Reginald M. Jones1 and Jessica V. Perro2

G R E E NCORNER

While the general construction industry has been hit hard by the recession, green building has continued to thrive bringing with it a rise in green building litigation. One of the primary motivations for engaging in the construction of a U.S. Green Building Council (USGBC) Leadership in Energy and Environmental Design (LEED) certified building is that the short-term cost premium during construction is outweighed by the long-term cost benefit of sustainable construction, expedited permit review, and tax breaks. Without proper risk allocation, however, contractors are open to liability for lost benefits and incentives if a project fails to achieve the desired level of LEED certification or later has its certification revoked. A lack of judicial guidance has created uncertainty regarding allocation of liability and parties’ rights in the absence of a specific agreement regarding which entity bears the responsibility

for achieving the sought after certification. While review of the existing settlements and pending lawsuits can shed some light on the matter, a contractor’s best course of action is protection at the start of a project, before problems arise. Through contractual agreements that include specific risk allocation and agreed upon recourse, a contractor can minimize liability and perhaps even prevent litigation altogether should a LEED issue arise.

A simple statement in the project’s contract documents that it should achieve a LEED silver rating does not sufficiently allocate risk. Southern Builders v. Shaw Development was the first LEED-related lawsuit and it addressed this situation in 2008. The owner and contractor used a standard form AIA A101-1997 contract which had no provisions for green building. The Project Manual, however, required a LEED silver certification, and the project was accepted into the Maryland Energy Administration Program. Under this program, an owner receives a tax credit of up to eight percent of the total cost of a building that meets LEED silver requirements.

When the project failed to meet the required rating, it was kicked out of the Energy Administration Program and the owner subsequently lost the tax credit. The owner filed a lawsuit against the general contractor seeking $635,000 in damages. While the case ultimately settled out of court, leaving the building industry without judicial guidance, it may have been avoided altogether had the contract specified which party was responsible for any shortfalls in the LEED certification process.

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LEED’s “Certification Challenge Policy” compounds the risk associated with contract documents that do not define specific LEED responsibility. This policy allows any third party to challenge a LEED certification any time after the certification is awarded. In other words, a contractor who satisfactorily completes a project and achieves LEED gold certification could later have that certification challenged by a party who is completely unrelated to the project. The certification may then be revoked if it is found to have been erroneous or based on false information. Therefore, it is imperative to identify the outer limit of responsibility of each party in contract documents.

The Northland Pines LEED challenge is an example of this situation. Northland Pines High School is located in Eagle River, Wisconsin. The project was awarded LEED gold certification upon completion, but, approximately one year after award, five members of the community and two engineers challenged the validity of the certification arguing that the indoor air quality did not meet gold certification requirements. USGBC hired two professional consultants to review the certification, and, on April 27, 2010, USGBC upheld the gold certification as proper. Upon further challenge, the decision was made final in June. Although the challenge was not successful, it raised two significant questions that should be addressed in contract documents. Who ultimately is responsible for paying to defend a third party challenge, and who is responsible for the lost incentives if the certification is revoked?

Challenges to the validity of the LEED program itself also highlight the importance of expressly stating the outer limits of responsibility as projects may have the energy savings themselves subject to judicial review at a later date. Gifford et al. v. USGBC, which was filed as a class action lawsuit on October 8, 2010, in the U.S. District Court for the Southern District of New York and was amended on February 7, 2011, to eliminate the class structure, is pending on this issue. The amended lawsuit claims that USGBC is guilty of “false advertising” when it reports that “if a building is granted LEED certification it is verified by a third-party to be more energy efficient.” The lawsuit also states that this allegedly false advertising amounts to “deceptive trade practices” and harms consumers who make purchasing decisions based on these claims. In essence, the lawsuit challenges the validity of any LEED certification. It remains to be seen what will happen with this lawsuit, but the potential ramifications for owners and contractors include the risk of defending a challenge to the underlying energy savings of a LEED building, as well as the risk of damaging the favorable marketing status that LEED certification and accreditation currently affords.

Allocation of responsibility for potential re-certification of a LEED project should also be addressed in the contract. Perhaps in response to the increase in litigation over LEED certification, the USGBC has begun discussions on an annual re-certification program for LEED buildings that may also expose contractors to liability for years after the construction contract has ended. The annual re-certification program will be modeled after the U.S. Environmental Protections Agency’s Energy Star program, which attests to the energy efficiency of a product only for the year in which it was labeled as energy efficient. A LEED re-certification program may lessen the challenges brought by third parties, but the potential requirement to re-certify yearly has the sustainable design industry facing increased cost and an increased potential for the loss of LEED status. A project that fails to meet re-certification three years after construction leaves parties open to liability for lost tax incentives long after the construction contract has ended. Parties should determine in advance who is responsible for seeking the re-certification and who is responsible for a failed re-certification.

The best safeguard for contractors is to address the allocation of risk and other responsibilities in contract documents. Allocation of risk and responsibility should include monetary liability, as well as potentially unfavorable government evaluations and ratings. Specifically, contractors and owners should address (1) who is responsible for applying for certification, (2) which level of LEED certification is required, (3) which specific LEED credits will be sought, (4) a method for calculating damages should the project fail to achieve the required LEED certification, (5) whether failure to meet LEED certification can be used as a basis for an unsatisfactory rating by the government, and (6) the warranty period and future responsibility for re-certification programs and loss of certification. Contractors and owners may want to include the “Green Building Addendum” published in ConsensusDocs as a model to help when addressing the specific risks in any given contract. Failure to address these items in contract documents at the outset of the project leaves the contractor open to expensive and time-consuming litigation, with a potential for large damages; whereas consideration of potential risks in the contract saves considerable time and money when closing out a project. n

1Reggie Jones is a partner in the Washington, DC, office of the national construction and federal government contracts law firm of Smith, Currie & Hancock LLP. He can be contacted at rmjones@smithcurrie.com or 202-461-3111.

2Jessica Perro is a third year law student at American University School of Law. She is also a law clerk with Smith, Currie & Hancock LLP and will become a full - time associate upon graduation.

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