Getting a Handle on Green

Risk Management Issues for LEED Projects

With heightened attention to global climate change and the increasing scarcity of resources, public and private developers are targeting environmentally conscious consumers with more sustainable projects. Whether developers are actually motivated by the greater good, or simply by the perception that green projects will command premium prices, it appears as though these projects are here to stay. And while they may provide new opportunities, they also possess unique risks that need to be properly identified and allocated.

The U.S. Green Building Council (USGBC) created the LEED (Leadership in Energy and Environmental Design) system to rate and certify projects based on demonstrating measurable benefits according to a set of performance criteria that vary depending on the type of project. Criteria can include requiring certain levels of energy savings, increasing ventilation and natural light, and reducing construction waste.

Documentation
Because of the nature of LEED ratings, and in order to ensure a sustainable project meets a developer or end user’s expectations, design and construction professionals need to make changes to the way a project is typically approached. This will require a change in the documentation used to identify the parties’ responsibilities and allocate the risks.

Unfortunately, many parties fail to recognize the differences between traditional and green construction projects, and therefore rely on standardized documents that fail to adequately address the unique risks. This failure can lead to disputes regarding who is responsible for each aspect of certification. Identifying and expressly allocating the risks through revisions to standard construction documents is the key to avoiding those disputes.

A good example of the problems caused by relying on current standardized documents is demonstrated by the first nationally recognized green building/LEED lawsuit, Shaw Development vs. Southern Builders. The dispute involved a condominium project in Maryland that incorporated several sustainable design features in an attempt to achieve a LEED Silver rating. Following the project, Shaw Development asserted claims against Southern Builders for reimbursement of lost tax credits because the project failed to achieve a LEED Silver rating. The parties had utilized a standard form contract that stated the project was designed to comply with a LEED Silver rating, yet didn’t specify who among those involved assumed the risk of the rating not being achieved. The dispute caused by that lack of clarity demonstrates one of the unique risks posed by sustainable projects.

LEED Obligations
The best way to minimize risks and avoid disputes is through thoughtful revision to construction contract documents, and to precisely identify the scope of work and specific obligations of each party involved. These revisions will be particularly important to provisions dealing with the allocation or shifting of risks. This will mean specifying who among the owner, architect, engineer and contractors is responsible for ensuring that certain LEED criteria are met, credits are obtained and certification achieved, as well as selecting the particular products and technologies to be used.

More specific contract provisions will allow parties more control over what their obligations are on a project. Because no single party has control over all aspects of a project, designers and contractors should be careful never to guarantee that a certain rating will be achieved. Designers cannot control owner decisions and contractor actions, both of which can have a direct impact on certification. Even if a contractor builds a project in accordance with the design, if that design is faulty and fails to achieve certain energy savings, the desired rating may not be achieved. Additionally, neither designers nor contractors can control the occupancy habits of the end user, and that can have a direct impact on various LEED credits as well.

Finally, designers and contractors cannot ensure that new sustainable materials or products specified will achieve the performance standards claimed by the manufacturer. Many of these new and alternative products were developed quickly and/or have little or no field testing. This will be problematic where owners require additional warranties regarding energy efficiency and environmental impact.

Essential Communication
Organized and coordinated communication between the owner, designer and contractor is a vital part of any successful sustainable project. Communication must be regular and cover all issues relevant to certification. This will allow parties to consider potential conflicts that may arise between certification points available for utilizing a certain material, versus the points available for the increased efficiency offered by another. Heightened communication will allow for proper designation of the responsibility for managing each particular risk to the party most capable.

Sustainable projects offer many new and potentially rewarding opportunities. However, parties should carefully analyze the unique risks they pose, and make sure those risks are identified and allocated. Education and communication will be essential to properly articulating responsibilities, allocating risks and managing client expectations. With these efforts and careful consideration, many of the risks associated with sustainable projects can be minimized or eliminated altogether.

Matthew H. Sloan is a partner with Jennings, Haug & Cunningham, LLP in Phoenix. He represents the construction industry in general business litigation matters, including LEED related issues. He can be contacted at mhs@jhc-law.com.

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