What If the Government Refuses to Pay for LEED?
Last week, I posted an article about an Army Corps of Engineers project that ran 25 percent over budget, in part because of costs associated with LEED certification. At the end of the article, I asked the question "what do you think would have happened if the Corps of Engineers refused to pay the cost overruns associated with LEED certification?" Reader James responded: "I'm more interested to know what you think would have happened."
James' response reminded of a blog post that I have been meaning to write. The idea for this blog post came from my friend, Scott Fitzsimmons. Let's reframe the question:
What happens if a federal agency, like the Army Corps of Engineers, refuses to pay a contractor for additional costs associated with LEED certification?
As a construction litigator, I have drafted large construction claims so here is how I see a LEED dispute developing with most federal agencies:
- The contracting officer orders the contractor to obtain LEED certification after construction has begun.
- The contractor submits documentation of a "change" to the contract due to the LEED-related work and also submits a request for an equitable adjustment to the contract price to reflect the additional work.
- The contracting officer denies that a change occurred that affected the contract price and denies the equitable adjustment.
- The contractor then files a lawsuit based on the denied request for equitable adjustment in either the U.S. Court of Federal Claims or the appropriate Board of Contract Appeals.
Some of you may wonder if the contracting officer can do this. Absolutely. Keep in mind, contracting officers have tremendous discretion in making decisions. It simply takes the decision of one contracting officer to deny a modification or withhold payment, and you can have LEEDigaiton on your hands.
What's been your experience with projects that make changes to the design to accomodate LEED certification?
I see a lot of government (various levels) projects seeking LEED certification and being bid as a design-build contract. The way design-build bids are thrown together in a couple of weeks it always seems like the worst way to do a LEED building. This might be the cause for a lot of the LEED cost over runs.
While I don't have a huge amount of experience in this particular area of government/LEED it sure shows that contractors need to make sure that they're clear on the requirements on the front end to avoid this situation.
This is not a terribly far fetched scenario in any event whether the contract involves a LEED related change or a more average type change.
The question addresses several realities surrounding LEED certification that may or may not eventually emerge as elements of a suit.
It is widely recognized that requiring LEED certification after a project has begun construction may not be possible. If the LEED Prerequisites cannot be met, the project is ineligible for LEED certification. If the Prerequisites can be met a second tier of credits whose requirements are time sensitive may be lost. In a world governed by issues of time, scope and fees it stands to reasons that additional scope asked for in a compressed or retroactive time frame will require more fee. The fact the increased scope involves LEED doesn't change that reality.
The Contract Officer's contention that project changes necessary to achieve LEED certification after construction has begun do not add cost is suspect. If the project was designed as a high performance green building to begin with and LEED is simply a matter of documentation it would still require additional fees for the LEED certification process. While LEED certification documentation may not be the responsibility of the Contractor, Contractors have a central role and key responsibilities in the certification process that can justify additional fees not associated with the physical construction.
If an integrated design approach was been taken there is a possibility the project was well conceived and was on track to be on time and on budget. If so, there may be enough design and construction intelligence in the AEC team to salvage the LEED Certification attempt with the LEED certification fees being an unavoidable up charge.
If not, asking for any project upgrade for any reason without the accompanying willingness or contractual requirement to address the construction budget is an unfunded mandate. If LEED is involved it may be another element of a poorly managed project and should not carry more than its fair share of cost consequences. As such LEED should not stand apart from the traditional construction litigation process.
Please note I separate this statement from projects where the original intent is to achieve LEED Certification and all project stakeholders are fully informed of that goal.
In my experience starting late in the design process stresses the ability to do a comprehensive LEED submission. LEED certification starting after construction is possible but only under the best of circumstances the difficulty of which will vary with the LEED rating system in question.
The potential for suits based on green design and LEED goals underscores the need to address the issues prior to contracting for the project. It is better done in the RFP / RFQ process and should be framed around a straight forward question concerning the feasibility of pursuing LEED Certification at different points in the development of the project and how the successful AEC team would respond. The strategy and agreement that ends up in the construction contracts should contain an equally acceptable understanding of how LEED related cost estimates or add alternates and deduct alternates will be handled and by whom.
Anything short of that, as typical as it may be, will left to attorneys to sort out.
I'm not an attorney nor do I consider myself an expert on these issues, but this one seems fairly basic. As momma used to say "piss poor prior planning prevents proper performance". In other words, any project that incurrs major modifications, whether for LEED certification, owner changes or poor initial design, is going to suffer major cost overruns. LEED certification can be incorporated with minimal added cost if properly designed into the project at the beginning.
Chris -
Thanks for the mention on today's topic. With the government’s momentum toward LEED Silver on new buildings, this is ripe for discussion!
In a presentation to the Court of Federal Claims Bar Association, I presented the following scenario, which highlights LEEDigation in the federal arena:
On a design-bid-build project, the Gov't requires LEED certification. The contractor constructs according to the Gov't design provided, yet LEED certification is not achieved. A dispute arises over why the project failed to obtain certification. The contractor points to the architect - the architect points to the contractor. The Gov’t directs the contractor to make changes until LEED is achieved and refuses to pay for the changes.
The result? I would anticipate the contractor filing a certified claim against the Gov’t for its increased costs to obtain LEED certification.
Thus, it is only a matter of time before LEEDigation enters the federal sector!!
To Scott's scenario: why would the architect not be liable if the project required LEED certification and presumably the plans were drawn to achieve it, preliminary modeling was submitted to USGBC, etc?
All vertical construction projects within the Army (of which the Corps of Engineers is a part) have been required to be at minimum LEED silver since January of 2006, starting with the FY-08 military construction cycle. http://www.sustainability.army.mil/tools/docs_leeds/SPIRIT_to_LEED_Memo_Jan_06.pdf
As such, any project funded with FY-08 or later dollars had LEED silver as a minimum requirement as part of the RFQ.
Because of this, the Army/CoE writes into its RFQs the performance spec of "This project shall be designed and built to obtain, at a minimum, LEED Silver according to the latest version of the LEED program most applicable to the project." (or some similar wording)
All bidders therefore know this going into the proposal process, and by signing the contract agree that they will deliver a minimum LEED silver building.
As Military Construction funds are only usable for 5 years (after which they can no longer be spent), all projects currently being constructed should have this requirement as part of the contract, therefore the "change to contract to achieve LEED" argument should be a straw man one.
Unfortunately, the Army policy skirts the requirement of not requiring actually registering the project with the USGBC so as to avoid having to pay for the certification. However, it IS left at the discretion of the Project Development Team to require registration and official certification, and if that requirement is made then thees are included as part of the project.
The scenario that Mr. Fitzsimmons lays out above is one of the main reasons that Corps policy is to procure projects as Design-Bid whenever possible.
D/B minimizes the risk to the government, as they are not responsible for the suitability of the plans to meet the requirements the way they are with D/B/B. In D/B the government merely issues the RFP as "must be LEED Silver" and the winning bidder must make it so.
In order for a project to be D/B/B, it must be documented clearly on the DD-1391 form how the increased risk is offset by conditions that are more advantageous to the government, in order to have the project funded.
However, current policy states that even when Design-bid-build is used, LEED requirements are to be incorporated into drawings and specifications, to include supporting documentation, and as part of the final 100% design review, when a a final design score and rating is determined prior to the acceptance of the design by the government.
In cases where the project is actually registered with the USGBC and slated to be 3rd party certified, the project is to use the two phase submittal process, and the design is not accepted by the government until it the design phase review from the USGBC comes back at Silver or above.
So, in a Design-Bid-Build project, the design is already considered to meet LEED standards upon award of the construction contract. If things change during construction and the project does not obtain certification, then the onus is upon the contractor to prove that the design phase LEED review is wrong. This is a high bar to achieve.
In a design-build project, the performance spec is for a LEED silver building, and it is up to the winning bidder to deliver a LEED silver building within the awarded contract amount. As far as the government is concerned, any cost overruns to achieve the rating will be eaten by the winning bidder, unless they can prove that the reason for the overun was due to government actions. The contractor can point the finger at the architect and vice versa all they want, but the agreed upon contract is to deliver a LEED silver building, and the Army can hold them to it, at no cost to the government.
(Disclosure: I am a licensed architect, LEED Legacy AP, who has recently joined the Corps of Engineers as a Project Manager. The above views are my understanding of the policies and procedures of the Army and the Corps of Engineers in regards to LEED projects, and mine alone, and thus are not officially representative of nor binding of the Army, the Corp of Engineers, or the United States Government. Any mistakes in the interpretation of these policies are my own.)
Thank you Brian W. for providing an explanation of Army and USACE policy that was lacking up front. LEED requirements are well established in the Federal sector and military because they've been in writing for many years. The USACE's standardized D/B RFP contains clear language going in about the LEED requirements. The scenario above seems like a "LEEDigation" scare tactic. Government contracting officers do not randomly require LEED certification after construction has begun. In fact USACE publishes a list of each project they plan to actually certify in a fiscal year BEFORE that fiscal year has begun. Too bad such scare tactics get lots of attention. By the way, the Navy has had a policy of requiring actual LEED Silver certification of all of their MILCON project (not government validation like the Army and Air Force) for the last three fiscal years and no "LEEDigation" has resulted from it. I find this scenario very unrealistic.
Thank you everyone for your perspective and comments. If you are just reviewing this post, I would also suggest reviewing this blog post:
http://www.greenbuildinglawupdate.com/2010/12/articles/legal-developments/what-happens-if-your-rfp-does-not-include-leed/
I am still convinced that if the USACE is willing to blame LEED certification for cost overruns (as they did in the blog post link above) then, at some point, a contracting officer will refuse to pay cost overruns associated with LEED certification.