New Territory: Green Building Disputes

Since green building is still a relatively new practice, little legal analysis exists regarding LEED disputes—protect yourself by properly maintaining records.

Imagine this scenario: John Smith, a general contractor and the owner of ABC Construction, was excited to learn that his company had been awarded a contract to construct the Watkins Building, part of a multi-use complex in Boise, Idaho. Although he had been involved in commercial construction for more than 20 years, this was his first LEED (Leadership in Energy and Environmental Design) construction project.

After ABC won the bid, Smith and his attorney, Bob Andrews, began finalizing the construction contract. Smith and Andrews understood that the owner expected to obtain LEED Gold certification under the USGBC’s New Construction Green Building Rating System.  They also understood that ABC would not assume direct liability if the project did not meet the owner’s certification expectations—the architect would meet those expectations. Nevertheless, they realized that ABC would be subject to breach of contract, negligence and/or construction defect claims if it failed to construct the building according to the construction and engineering design documents.

Maintain Records and Agreements

Andrews advised Smith that he needed to properly maintain and organize all of the records and agreements generated during the construction project to protect his legal interests in case a future dispute came up over the Watkins Building construction project. Smith agreed and decided to assign his office manager with the task of organizing and preserving all bid documents, contracts, change orders, time sheets, invoices, electronic records and other project-related documents that ABC processed.

Andrews also recommended that ABC develop and adhere to a comprehensive written document retention policy that would include standards for the retention, destruction, backup and storage of ABC’s electronic business records and communications, including computer files, emails and text messages. He knew from past experience that his construction clients who addressed that issue prior to beginning work on a project were better prepared to retrieve and produce such documents during a dispute. Smith assigned this task to his IT department.

After examining the LEED prerequisites and the various LEED credits that the owner wanted to obtain, Smith and Andrews developed a list of documents that were necessary for demonstrating compliance with those prerequisites and credits. The list included invoices, materials specifications, product warranties, payment records and photographs. Smith and Andrews knew the process of collecting, organizing and filing those documents would require additional time, but they understood it was essential to help protect ABC against claims by the owner and/or architect.

Smith and Andrews also discussed various ways to collect and organize project records to demonstrate that ABC had complied with LEED-specific construction requirements. For instance, ABC was required to create a plan for monitoring and maintaining indoor air quality both during construction and prior to building occupancy, which would allow the owner to achieve two points in the Indoor Environmental Quality credit category. Therefore, Smith directed his construction foreman to create a separate file to include documentation, photographs and other information that demonstrated compliance with that category’s requirements.

Require Subcontractors to Retain Records

Andrews also advised Smith to require subcontractors to obtain and retain records, including invoices and manufacturers’ product descriptions that demonstrated the use and value of certain materials incorporated into the project.

For example, because the owner was attempting to achieve the Regional Materials credit by using a certain amount of materials that had been extracted and manufactured within 500 miles of the project site, certain subcontracts contained a clause that required the subcontractors to furnish ABC with documentation that demonstrated these requirements had been met. Also, because the owner planned to earn several points for using low-emitting paints, sealants and adhesives, the subcontractors were required to obtain and retain documentation (invoices, product descriptions and/or warranties) that would allow them to demonstrate compliance with the relevant emissions standards.

In support of the owner’s efforts to achieve a credit for managing construction waste by diverting it from the landfill (either by recycling, reuse or sale), Andrews advised Smith to prepare simple spreadsheets and other documents to track the construction waste. He also recommended that Smith require the subcontractors who generated the waste to complete those documents and deliver them to ABC for proper filing.

Lastly, Andrews and Smith decided to require the framing and flooring subcontractors to maintain all records (including invoices and chain-of-custody documentation) related to new wood that was used in the building. The owner expected to attain the Certified Wood credit by ensuring at least 50 percent of all new wood was certified by the Forest Stewardship Council.

In addition to addressing specific materials documentation requirements, Andrews recommended that all subcontracts require the subcontractors to name ABC as an additional insured and provide ABC with copies of their insurance policies. Smith directed his office manager to collect those policies and place them in both the main project file and the subcontractors’ individual project files, making them readily accessible if a dispute arises.

Finally, from his LEED-related research, Smith had discovered that many green building products were relatively new and certain products might not perform according to the manufacturers’ representations because they had not been thoroughly tested in the harsh Boise climate. Therefore, he made sure the subcontracts required the subcontractors to obtain and retain all warranties for any products that were incorporated into the project and deliver copies of the warranties to ABC.

After the construction contract documents were drafted and the records retention plans were finalized, Smith felt sufficiently prepared. In case a future dispute occurred, all of ABC’s project records would be well-organized and easily accessible.

Patrick Murch, Esq. is a LEED Accredited Professional with a specialty in Building Design and Construction (AP BD+C). He is an associate with McDonald Carano Wilson, LLP. Murch’s practice focuses on legal issues that arise in the area of sustainable building, including construction and design contracts, green leases, LEED certification issues (including credit interpretations and rulings and appeals of denied credits) and litigation.

Construction Business Owner, May 2011