The Liability Implications of Building Sustainable Design

The sustainable design movement, which is about fifteen years old, has exploded in the last five years.

The Leadership in Energy and Environmental Design (LEED) Green Building Rating System was developed by the U.S. Green Building Council (USGBC) in 1998. Since its inception, more than 14,000 projects have been “LEED Certified” in the United States and thirty other countries, encompassing more than one billion square feet. It is estimated that the green building market is worth $30-$40 billion annually.
LEED was created to accomplish the following objectives:

• Define green building by establishing a common standard ofmeasurement
• Promote integrated whole-building designpractices
• Recognize environmental leadership in the buildingindustry
• Stimulate greencompetition
• Raise consumer awareness of green buildingbenefits
• Transform the buildingmarket

In LEED 2009, there are 100 possible base points, plus an additional six points for Innovation in Design and four points for Regional Priority.

Buildings can qualify for different levels of certification depending on how many points they accumulate.

The Issues

The advantages of a LEED certified building range from improved air and water quality to reducing solid waste.

However, these benefits are offset by some additional costs inherent in “green construction.” In addition, sustainable construction principles are not understood by many design professionals or contractors. This could require additional research, and the confusion can lead to disagreement between owners, designers and contractors. Availability and costs of building components that meet LEED standards could be a problem.Then there is the added cost of having the building certified-correspondence with the USGBC, LEED design-aid consultants and hiring the required commissioning authority.

The USGBC points out that these higher initial costs will be more than offset by lower operating costs over the life of the building, and employee productivity gains incurred as a result of working in a healthier environment. In addition, there are potential tax credits for developing a green building as well as possible variances from local building codes.

A report released in October 2009 by USGBC’s Chicago and Partners evaluates efficiencies of LEED certified buildings in Illinois. What they learned was LEED buildings were performing only 5 percent better than non-LEED buildings throughout the region. Platinum and Gold LEED structures were found to be “no more efficient” than Silver or basic LEED certified buildings.

What does this mean for designers and constructors? Many clients are expecting to recoup increased costs for design and construction of a LEED building through better performance and energy savings. If these expectations are not met, fingers will be pointed.

The Challenges

• Owner Expectations-If an owner expects a “Gold” certified building and receives a “Silver,” he may want someone to make changes, so it can rise to the “Gold” standard. Similarly, if an owner expects energy savings to offset increased construction costs and those savings are not there, disputes may/willarise.
• Scope/Schedule-Green buildings may require additional research, approvals and unique coordination challenges. Unless you have built these into your fee and schedule, you may end up underpaid with a schedule that is impossible tomeet.
• LEED Reporting Requirements-LEED 2009 requires that certified properties share data on energy and water usage in their building for at least five years. Although this is the owner’s responsibility, the owner could transfer the research to the design professional or design/build contractor. This five-year reporting requirement also creates uncertainty: What if a building initially qualifies for certification but subsequently fails to comply with LEEDrequirements?
• Guarantees-You may be asked to “guarantee” a certain level of certification, or your marketing materials might imply that you are an expert in LEED design or construction. Recognize that professional liability policies only cover your negligence, not for risk you assume contractually that goes beyond the standard ofcare.
• Unique Building Systems and Materials-LEED certified buildings require the use of “green” products. Many of these are new and untested. In addition, it is unclear how some of these products will perform with existing buildingsystems.
• Project Team Capabilities-A LEED accreditation doesn’t make one an expert. It is not that difficult to become LEED certified. An inexperienced project team might not know what they don’tknow.
• Maintenance and Operation-The payoff of a green building is often decreased maintenance and operation costs. But if the owner doesn’t understand how to maintain and operate the building, and if the savings are not there, both designers and builders will be involved with solving “theproblem.”

The Solutions

• Manage Owners’ Expectations-Insist on a “pre-bid” LEED meeting or charette. This is a session where the owner, designers and constructors discuss the project and specifically the unique aspects of the green construction. Make certain the owner understands that building a green building requires additional time, innovation and planning-and in many cases, a higher fee. In addition, achieving a certain LEED level does not guaranteesavings.
• Negotiate a Fair Contract-Review your contract carefully, specifically guarantees, timelines and indemnities. Don’t promise something contractually that you can’tprovide. You should not guarantee performance. The law only requires you to perform to the Standard of Care. You can endeavor to achieve a certain level of LEED Certification, but you should avoid guaranteeing it. LEED certified buildings require research, and in many cases additional time to satisfy the LEED reporting requirements mentioned above. These issues are compounded by unique aspects of green construction, which inevitably will extend the construction schedule. Make certain the schedule or timeline is reasonable. Finally, beware of any specialized indemnity agreements or insurance requirements.
• Research and Document-Understand what you are building. Make time to do appropriate research. If you are asked to specify products you are unfamiliar with, or if you are not confident the product being used is appropriate, call this to the appropriate parties’ attention and document it. Where possible, get assurances from manufacturers andsuppliers.
• Experienced Project Team-You should only pursue LEED certified projects if you know what you are doing. If you don’t have the expertise, get it. If you are subbing out work that requires LEED experience, make sure your consultants or subcontractors have the requisiteexpertise.
• Maintenance and Operation-It is imperative that there be a “commissioning process” to educate the owners on how their building works, and what their responsibilities will be to maintain and operate thefacility.

You need to make certain your client understands the unique requirements of building green. Your contract should have a clear scope of services, outlining not only what you will do, but also what you are not doing and what you can do for an additional fee, as well as the owners’ responsibilities.

Particular attention should be focused on fee, construction budget and scheduling aspects of the contract. Make certain the client understands that designation of a certain level of LEED certified building is outside your control. You can make reasonable efforts to achieve the LEED objectives on the project, but you cannot guarantee a certain level of LEED certification. Nor can you guarantee actual performance of the building or dollar savings.

The green building boom will create opportunities and challenges. It is important to remember that these projects require additional attention. Proactive risk management can help you identify the challenges and manage them as well.

Sample Leed Certification Contract Clause

The Client and Contractor/Consultant mutually acknowledge that a Project Goal is to achieve certification under the U.S. Green Building Council’s (USGBC) Leadership in Energy and Environmental Design (LEED®) [or other] Green Building-rating system.  The Client understands that the Project cannot achieve LEED certification until after substantial completion of construction and will be subject to the LEED-certification processes and procedures as determined by the USGBC.  These procedures are outside the control of the Contractor/Consultant, may not be uniformly implemented, and may be subject to change at any time.  Further, LEED certification will require input and effort from the Client and the Contractor/Consultant as well as other consultants, contractors and other parties associated with the Project that are not parties to this Agreement.

The Contractor/Consultant will make reasonable efforts to facilitate and coordinate the LEED certification for the Project, subject to the scope of services and the terms and conditions of this Agreement.  The Contractor/Consultant cannot, however, guarantee LEED certification or the actual performance of the building, nor can it guarantee certain performance levels anticipated through the LEED-certification process.

Jeff Cavignac, CPCU, ARM, RPLU, CRIS, is president and principal of Cavignac & Associates, a commercial insurance brokerage firm.

Construction Business Owner, May 2010