The Destiny USA Debacle: Why Should You Take Green Building Liability Seriously?

I am wrapping up my discussion of the Destiny USA project this week with two more posts.  You can select the Destiny USA tag to review all of the previously published posts on this topic.  I will also be publishing an e-book of posts  -- plus bonus coverage -- at the end of this series. Thank you for reading.  

The Destiny USA project is more than just a good story.  It’s a warning to design professionals and contractors that they must take green building liability seriously.  

Today we are going to talk about how messy litigation could develop from the Destiny USA dispute. Due to onerous contract requirements, design professionals and contractors may face penalties if green building certification is not obtained for the Destiny USA project.  

Why the IRS Ruling Could Create Messy Litigation

The Internal Revenue Service will eventually rule on whether the Destiny USA developer complied with the Green Bonds requirements.  How the IRS rules could have substantial financial repercussions for many parties.  An adverse ruling could result in the IRS:

  • Seizing the Reserve Fund of $2.38 million setup by the Destiny USA developer.
  • Revoking the tax-exempt status of the investment received by the Destiny USA developer. The developer estimated the tax-free status amounted to a $120 million savings.
  • Revoking the tax-exempt status of the returns received by Green Bonds investors. 

It’s this last scenario that would result in the messy litigation.  The investors would likely sue the bond issuer, the Syracuse Industrial Development Agency.  The bond issuer presumably has insurance on the bonds.  The insurer would then turn around and sue the developer for its losses.  

And all three of the above scenarios would occur if the IRS were to find that the developer did not satisfy his LEED and renewable energy promises.

Who do you think the developer might blame for failure to achieve LEED promises?  I could envision the developer blaming the design professionals and contractors because the project did not achieve LEED certification. 

Why the Destiny USA Debacle is a Warning to Design Professionals and Contractors

In addition to messy litigation, the design professionals and contractors may face penalties because the project did not achieve LEED certification.  

In order to qualify for $238 million in Green Bonds that are now at issue, the Destiny USA developer had to state in its application that it created incentives and penalties for design professionals and contractors to obtain LEED certification:  

“The application must include . . . information on financial incentives and penalties that will be included in the design, construction, engineering and other building contracts and subcontracts to tie a part of the contractors’ and subcontractors’ compensation to their level of success in designing and constructing LEED-certified, sustainably-designed buildings.”

Depending on how the contract was written, the design professionals and contractors may face incentives and penalties because the owner made decisions that negatively impacted the project’s ability to obtain LEED certification.  

When negotiating a design or construction contract, it is imperative to negotiate fair terms related to green building certification.  Otherwise, you may face stiff penalties because of decisions made by the owner that impeded LEED certification.

 

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