Even in the face of an extremely challenging economy, green building continues to generate interest and, in some geographic areas, economic activity. Interest in green building remains high. This emerging segment of the construction economy is developing a track record of value impacts and statistical data that goes well beyond the inchoate benefits of improving our world and into demonstrable return on investment. Between these economic realities and broad governmental measures at all levels, sustainable construction is not a fad; it is here to stay.
Electrical contractors and other construction industry professionals should enter and proceed in this space with open eyes to potential risks and entanglements. This is a new, emerging arena with virtually no court decisions to provide legal guidance. Contracts on green building projects often pay little attention to allocation of risks relating to the green elements of the project and the procedural issues associated with those elements. Some developments relating to codes and green construction point to dramatic changes on the horizon. Still, with proper education and risk measures in place, green building is the wave of the future and offers a significant potential upside.
Encouragement and requirements
Statutory and regulatory requirements at the federal, state and local levels have provided a significant kick-start in pushing green building to the forefront. The U.S. General Services Administration (GSA) adopted policies several years ago to encourage sustainable design and construction. The GSA dramatically increased these efforts by pushing for a requirement that all its projects be certified by the U.S. Green Building Council (USGBC) in its Leadership in Energy and Environmental Design (LEED) program. The GSA has since increased those requirements beyond the basic LEED certification to LEED Silver. Other federal agencies have adopted similar measures encouraging or requiring green construction.
Federal measures have not been limited to requiring green construction on federal projects. The American Recovery and Reinvestment Act of 2009 (ARRA) contains significant elements of funding directed toward green-related projects. Estimates by some reviewers of green-related initiatives contained in the bill include $32.8 billion for clean-energy projects, nearly $30 billion for energy-efficiency initiatives, almost $20 billion for green transportation, and significant funding directed toward construction.
There are a variety of tax incentives and funding efforts at various levels of government to encourage the use of more energy-efficient appliances, the installation of geothermal heating and cooling systems, and similar measures. The availability of government funding and incentives is a strong boost to green-focused projects, especially in light of the anemic performance of other sectors of the construction economy.
States and localities are following suit. For example, Maryland, Virginia and the District of Columbia have adopted requirements that new state-owned or constructed facilities meet various sustainability requirements. Local jurisdictions are further adopting their own requirements or incentives to mandate or encourage green building.
Green economic data
The relative youth of the green-building market, coupled with the complexity of a cost-benefit analysis, has made it difficult to quantify green construction economic benefits to date. We are starting to see more detailed case studies emerge, which suggest green projects enjoy distinct economic advantages over nongreen competitors. A recently issued study by CB Richard Ellis of 154 CBRE-managed properties shows significant economic differentials. Green buildings had 3.5 percent lower vacancy rates and 13 percent higher per-square-foot rental rates. Tenants reported 2.88 fewer sick days on average plus significantly improved perceived productivity.
The residential market has reported similar findings. While there are reports of frustrating difficulties in recapturing green construction expenses into valuation appraisals of homes, other data suggests green homes are selling faster and at a higher per-square-foot price than nongreen alternatives.
Today’s economic context is also putting an emphasis on buy and hold/build and hold strategies. Successful owners in this environment appear open to measures to reduce operating costs, with energy expenses considered a very big target. The market is starting to value return on investment for retrofitting buildings to reduce energy expenses in particular. Perhaps the highest profile example is the Empire State Building renovation project. Extensive updates to windows, heating and air conditioning systems are expected to save an estimated 38 percent in energy savings compared to high-level Class A office space with a 3.1 year payback on the incremental cost increase associated with those efforts.
Green litigation: brave new (untried) world
Construction litigation is a business reality on many projects; however, there are very few reported cases providing direction in the green-building arena. There is one case that was filed by an owner in Maryland. In Shaw Development v. Southern Builders, a contractor filed a lien claim against a project. The owner filed a counterclaim and argued it lost certain tax credits due to the contractor’s failure to obtain LEED Silver certification for the structure in a timely manner. The case was settled, and there are no reported opinions in the case.
There is another case in New Mexico where the city of Albuquerque attempted to enact code requirements regarding energy efficiency that allegedly exceeded federal standards. Various national trade and contracting organizations filed a successful challenge and convinced a federal district court to grant an injunction barring application of the code. An initial injunction was issued, but the case is still meandering through litigation.
A national search of USGBC, LEED and other related terms reveals little else on the landscape. There is anecdotal information of other liability claims on green-building issues floating through the construction industry, in particular claims involving design professionals for errors and omissions. There also are reports of traditional claims associated with green design or products, such as leak claims tied to green roofs. Still, nothing thus far has erupted into reported decisions.
In the absence of court guidance, we are left to extrapolate how green building cases may play out and what specific nuances there may be. It strikes me that green building really is still simply building to plans and specifications. The same potential strengths, weaknesses, issues and proof would be present in green building litigation as a typical construction case, and thus, green building litigation would not represent a seismic shift in claims or exposure.
For contractors, particular attention should be paid to specifics on LEED or other certification credits being sought, associated documentation and process requirements, and submittal requirements. Contractors should understand that project timelines may be influenced by certification and documentation issues and plan accordingly. LEED credits may have unintended consequences. For example, a product that is specified may have implications for material resource credits because it is created and produced within 500 miles of the project. This may mean there is less flexibility for substitutions on a LEED project than normally, translating to less bidding flexibility and more risk of supply affects on time of performance.
Certification process as part of the risk
One of the specific wrinkles with green building is the involvement of remote third-party certification programs. A project that requires a specific LEED certification level to meet zoning and entitlement requirements may be at serious risk if it fails to meet the certification. Similarly, such a failure may translate to tenant claims for breached leases, owner claims for damages for lost tenants, and/or even lost certificates of occupancy.
In typical projects, local building officials would be responsible for review and approval or rejection of project construction. The project team would have at least a theoretical ability to challenge such decisions in court and appeal to state code bodies. Participating in a third-party process with a voluntary association like the USGBC carries with it the risk of not having an associated legal appeal process.
The Green Building Certification Institute (GBCI) was formed as a sister nonprofit organization of USGBC to handle accreditation of professionals. Last year, the GBCI’s role was expanded to include the certification of buildings and is currently administering inspections by a cadre of outside third-party certification bodies. The GBCI recently announced that it is “bringing the technical review of project documentation in house over the next two years rather than continuing to manage the process exclusively through other certification bodies. This move will allow us to have closer technical oversight of reviews and more direct communication with our customers to ensure consistency and clarity throughout the process.”
This change highlights the potential for process issues as well as inconsistency in credit interpretations. These issues can translate to risk for the project resulting in delays, costs and risks to all the project participants.
Changes that are coming
Some changes on the horizon may dramatically alter the landscape, especially for electrical contractors. Some green buildings have received substantial criticism for lack of energy performance in particular. Extended energy reporting requirements have already been inserted into the latest version of LEED, and energy-performance measurement is now a core part of most green building discussions.
Various form codes are adopting new green building language. The International Green Construction Code (IGCC) is currently circulating for comment. The American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) is working on Standard 189.1 for the Design of High Performance Green Buildings. Various localities and other entities are discussing other provisions regarding energy performance in particular.
As energy performance, as opposed to design modeling, becomes more central to the discussion of green buildings, the potential issues for electrical contractors may increase exponentially. Under the current regime, subcontractors are typically only expected to build to the plans and specifications. As performance measures start to infiltrate the construction landscape, there may be increased risk of claims for buildings that fail to meet performance thresholds.
Despite our current economy, green building continues to capture individual and construction industry interest. While there are some risks associated with green building, the potential rewards dictate that electrical contractors develop capability in this space. To mitigate your risks, you should do the following:
1. Become educated regarding the various programs, requirements and credits.
2. Understand the processing and documentation requirements for all sought credits on each of your jobs.
3. Wherever possible, try to ensure that any LEED-specific or other similar requirements imposed on you are expressly set out in your contracts.
4. Ensure that your planning and scheduling include credit and documentation submittals and associated review times with an extensive lead time.
5. Keep a very close eye on developments with the various form codes and requirements in your jurisdiction, especially the IGCC and ASHRAE 189.1.
If you invest in properly educating yourself and your team, properly understanding the project requirements, and properly documenting your project requirements in your contracts and contract documents, you should be able to limit the risk and maximize the rewards of green building projects.
This article is not intended to provide specific legal advice but, instead, as a general commentary regarding legal matters. You should consult with an attorney regarding your legal issues, as the advice will depend on your facts and the laws of your jurisdiction.
HUGHES is counsel to the law firm of Bean, Kinney & Korman in Arlington, Va. He can be reached at email@example.com and 703.525.4000.