A Green Building Performance Bond
When people ask me about green building lawsuits and legal issues, I usually start with Washington D.C.'s Green Building Act of 2006.
The Green Building Act is a very progressive Act that requires both that private and public projects comply with specific green measures. I have written more extensively about the Act in the article "What's Your Green Construction Strategy" available here.
The biggest problem with the Green Building Act is the green performance bond requirement. When I read this performance bond requirement I literally gasped so I am going to post portions of it word-for-word. Please note that "section 4" details green building requirements for privately-owned construction projects:
(b) On or before January 1, 2012, all applicants for construction governed by section 4
shall provide a performance bond, which shall be due and payable prior to receipt of a certificate
of occupancy.
(g) All or part of the performance bond shall be forfeited to the District and deposited in
the Green Building Fund if the building fails to meet the verification requirements described in
sections 3 and 4.
Did you gasp? If not, make sure you catch my later posts detailing the potential problems with this green performance bond.
By my reading, you can substitute an LC for the 'performance' bond. The party extending the LC must be licensed in DC.
Section 4 suggests that to receive the CO, you must have submitted a green building checklist at the initial application. Part of that, presumably, would be the checklist for LEED NC or CS. You need to submit the LEED checklist, because within 24 months of the CO issuance, you must verify that the project meets or exceeds LEED NC/CS at the 'certifcation level'. It's not clear if you actually have to certify it or if you merely have to 'verify' -- whatever form that might take.
So I guess that at CO you submit your bond/LC, but it's unclear to me what actions the District can take for noncompliance. If they seize the bond/LC, do they have the ability to make improvements, or is it simply a seizure?
Please note that this does not include the Green Building Fee:
Upon the effective date of this act, the green building fee shall be established by increasing the building construction permit fees in effect at the time in accordance with the following schedule of additional fees:
(1) New construction – an additional $0.0020 per square foot.
(2) Alterations and repairs exceeding $1,000 but not exceeding $1 million - an additional 0.13% of construction value; and
(3) Alterations and repairs exceeding $1 million - an additional 0.065% of construction value.
Thanks for the great comment. You have raised some important details in the Green Building Act that I will be sure to address in a future post.
Please see my post regarding the surety industry's criticisms of the Act's performance bond requirement:
http://www.greenbuildinglawupdate.com/2008/08/articles/codes-and-regulations/city/green-bond-coming-to-a-city-near-you/
Again, thanks for the great question and keep them coming.
Performance bonds—insurance-like arrangements in which a surety (the bonding company) contractually agrees to pay for the performance of a principal (the contractor) to an obligee (the owner) in case the principal fails to perform the obligations of its contract—should be used more often in construction agreements to provide owners with a source of funds to cover defective work in a project.
Some insurers have responded to sustainability in today's market. One large insurer has issued a certified green building coverage for losses sustained to real property and assistance in the redevelopment of real property to green certification standards. The policy covers costs related to the redevelopment of those standards.
In other words, you keep your promises, meet your deadlines, have done or are doing similar work and have or have access to the necessary equipment and cash to complete future contracts.