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Numerous risks, rights, responsibilities and procedures are unique to sustainable construction projects seeking LEED certification or other green credentials. It is prudent for owners, developers and contractors to address these issues thoroughly in their construction contracts. 

According to a comprehensive study released by the U.S. Green Building Council (USGBC) in 2015, environmentally responsive building is outpacing overall construction growth in the United States, creating more than two million American jobs with an impact of $134 billion to U.S. laborers in the construction sector. 

Despite the continuous narrative tied to green building, construction contracts have simply not kept pace, and most form contracts or standard clauses do not address contractual issues specific to sustainable projects. Basic issues regarding terminology, process and risk are often unaddressed, leaving project teams exposed to increased litigation and frustration. The key question that always arises is: Who will be found responsible when a prospective green building fails to obtain the LEED certification or other green credentials that the developer was counting on? 

The first green building lawsuit challenging this issue was Shaw Development v. Southern Builders. The case involved a condominium project in Maryland that included a number of green design features intended to qualify the project for at least a LEED Silver rating. The LEED rating was critical to the project because it had been accepted into a Maryland Energy Administration program that provided an 8 percent green building tax credit. Obtaining the tax credit required achieving at least a LEED Silver rating, as well as project completion prior to the expiration date established when the project was admitted to the program.

The project did not achieve a LEED Silver rating and the developer sued, alleging that the contractor was responsible for the project losing the tax credit, worth $635,000. The developer cited both the contractor’s failure to construct the building in accordance with the LEED rating system requirements and exceeding the completion deadline as grounds for its claim for the lost tax credit. The contractor and developer signed a 1997 AIA form A101 agreement, although it is not clear to what extent the parties deviated from the form’s standard language.

Although the Shaw Development lawsuit was settled with no judicial pronouncements, it does give an idea of principles that may govern future cases. To prevent disputes in green building projects, it’s important to focus on allocating risk among the key participants. Following are questions to ask when reviewing the terms of a green building contract.
  • Is there a provision that identifies the sustainable standard the parties have chosen (e.g., LEED v.4 for New Construction, Silver Certification)?
  • Does the building require third-party certification or does it simply need to meet the client’s demands?
  • Who is responsible for paying for the various certification fees?
  • Who will bear the cost of the required tests, inspections and approvals necessary for certification?
  • Are there unusual documentation requirements during construction?
  • Who is responsible for compiling and providing the documentation required for certification?
  • Who is responsible for the loss of a credit if a contractor makes a materials substitution that the owner approves?
  • Does an employee or subcontractor need to have previous green project experience to be considered properly skilled?
  • Do submittals of product data necessary for various credits fall within the contractor’s or subcontractor’s scope of work?
  • Can construction debris be taken to a landfill or must it be diverted to a recycling center?
  • Is final completion defined as the point in time when the project is certified?
  • Will a portion of the final payment be withheld pending certification of the project?
  • Do sustainability requirements create a longer warranty or correction period?
  • Are damages that may result if a building is not certified classified as consequential damages?
The American Institute of Architects and ConsensusDOCS have attempted to address many of these contractual issues specific to green building projects by creating AIA B214 and ConsensusDOCS 310 Green Building Addendum.

Contracts do not solve all of the problems on a construction project, but they do provide for the allocation and shifting of the risk associated with green building jobs. A well-drafted green building contract will clarify and establish roles, responsibilities and procedures to maximize successful delivery of the green building objectives, while mitigating the risks of contractual disputes and litigation. 

Marc Stroope is an attorney with Langley & Banack, Inc., San Antonio, and is certified as a LEED Green Associate. For more information, email mstroope@langleybanack.com.

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