D.C.'s Green Bond: Best Case Scenario

Today I am speaking once again on the D.C. Green Building Act "performance bond" issues (see slides in this post).  I have a new message for this presentation because, frankly, I am not certain we are getting anywhere.  If you need some background, here are all of the Green Building Law Update posts regarding this hot topic
 
I have come up with a best case and worst case scenario for the D.C. green bond requirement.  Make no mistake, neither scenario is very good.  Here is the best case scenario. 
 
First, the surety industry is able to come up with a bond that works for the Act's bond requirement.  Even better, by mandating green building, D.C. has more green buildings then any city in the nation.  
 
But here is where things start getting bad.  Some projects fail to achieve LEED certification.  The District of Columbia then has to call on the bond.  The Surety has two options at this point.  Either the Surety can forfeit the bond amount to D.C. or the Surety can defend the debtor (in this case the developer) against D.C.  In both scenarios, LEEDigation will ensue. 
 
What will this LEEDigation look like?  The Surety will file a lawsuit against the Architect or Contractor, blaming them for the project's failure to achieve LEED certification.  The Architect will file an additional lawsuit blaming the Contractor, or vice versa.  Oh, and the Architect will also file lawsuits against all of the Engineers.  The Contractor will go a similar route and sue all the Subcontractors. 
 
This is the best case scenario. 
 
When you mandate green building certification and require an enforcement mechanism, you are ensuring there will be failures.  Those failures will lead to LEEDigation.  Bottom line, best case scenario?  D.C. becomes the hotbed of LEEDigation. 
 
Unless of course some other jurisdiction implements another LEED mandate sooner. 
 


 

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Comments (5) Read through and enter the discussion with the form at the end
Will - April 22, 2009 3:59 PM

Chris:
I would add that reading the legislation, it's not clear if DC will mandate corrective action or if the seizure is merely a punitive measure. I don't know if that makes a difference to the surety, but there is a substantial policy difference.

I'm also curious, and don't know enough about LEED certification to say, if DC will require the developer to meet the terms of its initial submission, the final submission, or merely enough corrections to achieve the baseline certification level.

I think there's sufficient time for DC to complete the rule making process and hope that they will provide greater clarity to the enforcement aspects.

This should be interesting.

Jimmy Norton - April 22, 2009 4:21 PM

Bonds are contracts of indemnity. If Surety companies have to pay DC, then they will subrogate against their clients to repay them for their losses. Therefore, the developers will be the ones ultimately footing the bill for DC's bond requirement. This will discourage developers from building green in DC.

Jimmy Norton - April 22, 2009 4:23 PM

Bonds are contracts of indemnity. If Surety companies have to pay DC, then they will subrogate against their clients to repay them for their losses. Therefore, the developers will be the ones ultimately footing the bill for DC's bond requirement. This will discourage developers from building green in DC.

Mr. Bad Green - April 23, 2009 8:54 AM

In the event this actually works out, it sound as though it will significantly increase the cost of building in DC. Speculative developers might lose interest, but owner driven building will continue as usual with increased cost.

What type of entities are required to build in DC? Government entities, I suppose.

How are those buildings paid for?
With tax dollars, I suppose.

It's great that the govt wants to increase the burden on the taxpayers for every building put up in DC.

Michael Olive - May 1, 2009 12:25 AM

Mr. Norton raises a good point here. Add to this the strong likelihood that a surety will require upfront collateral security to support the surety bond as written.

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