Lessons Learned from Green Building Litigation on Chesapeake Bay

Leadership in Energy and Environmental Design (LEED) was developed by the U.S. Green Building Council (USGBC), and its impact on green building projects is revolutionizing the design and construction industry.

LEED green building standards are being rapidly adopted by states and municipalities alike. It is critical that the construction industry educates and familiarizes itself with the risks and rewards of sustainable design principles and green building practices. This knowledge must then be incorporated into their green building contracts.

Captain’s Galley Litigation

Lessons can be learned from what has been hailed as the first contractor/owner green building litigation in the United States, Southern Builders Inc. v. Shaw Development, LLC, a case brought in Somerset County Maryland. The project, known as “Captain’s Galley,” was a $7.5 million, 23-unit condominium adjacent to a marina on Chesapeake Bay in Crisfield, MD. The project incorporated a number of green design elements, with the intent to obtain a LEED Silver certification from the USGBC. Achievement of a Silver rating, would entitle the owner to participate in Maryland’s Green Building Tax Credit Program and receive approximately $650,000 in tax credits.

The Captain’s Galley litigation began the old-fashioned way, with the contractor filing a $54,000 mechanic’s lien against the project and a lawsuit thereafter. In response to the same, the owner filed a counterclaim seeking to recover damages alleging negligence, breach of contract, delay, defective workmanship and failure to “construct an environmentally sound ‘green building’ in accordance with the LEED Rating System.” A component of the damages sought by the owner included the tax credits the owner lost when it was unable to obtain a final tax credit certificate from the Maryland Energy Administration.

Green Building Construction Contracts

The pleadings in Captain’s Galley, suggest that ambiguous contract documents, poorly managed expectations and responsibilities and a failure of the parties to comprehend the risks inherent in Maryland’s green building tax credit regulatory framework all contributed to the resulting litigation. The parties used a Standard Form AIA A101 Owner/Contractor Stipulated Sum Contract, which incorporated a “project manual” that provided the following reference to Green Building and LEED: “Project is designed to comply with a Silver Certification Level according to the U.S. Green Building Council’s Leadership in Energy& Environmental Design (LEED) Rating System,” as specified in Division 1 Section “LEED Requirements.” Had the parties considered the following guidelines and issues, perhaps the project could have been completed in a timely manner that avoided litigation:

 

• Don’t rely on form construction agreements for green projects
• Exercise heightened caution and scrutiny during the course of negotiations for all aspects of design, material selection, material purchase and green construction work
• 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
• Make sure that your designer/consultant/contractor/legal team are LEED accredited, experienced and capable of providing the services needed for the project
• Clearly define the project’s green related aspirations, expectations and requirements in the contract documents
• Clearly define who is responsible for providing green construction oversight, observation and reporting obligations on the project
• Clearly define who is responsible for investigating green products and systems, their availability, purchase and installation
• Clearly define which party will be responsible for preparing, tracking, collecting, assembling and submitting certification documentation to USGBC
• Clearly define who is responsible for a failure to achieve a LEED certified goal or objective
• Clearly define who is responsible if LEED related design criteria results in a construction failure or other consequential damages

Green buildings succeed by reducing operating costs; promoting durability, decreasing maintenance and enhancing the comfort, health and safety of their end users. Sustainable designs are not only producing environmentally superior projects, they are also increasing a building’s long-term economic viability. As diverse interests, such as architects, engineers, consultants, developers, contractors, suppliers, land-use planners, states and municipalities collaborate on green building projects, each can enhance their rewards and reduce their risks and ensure “green success” through a comprehensive understanding of LEED, any applicable state or local mandates and by providing and accounting for each of these contingencies in the project’s contract documents.

Hugh Gorman is a litigation partner at Sherin and Lodgen LLP in Boston, MA. His practice focuses on the representation of developers, owners, contractors and subcontractors with respect to all legal issues impacting the construction industry. The firm has three LEED accredited attorneys.

Construction Business Owner, January 2009